China Stocks Advance to Four-Week High, Led by China Petroleum

By Zhang Shidong

March 18 (Bloomberg) -- China’s stocks rose to the highest in almost four weeks, led by energy and copper stocks, on expectation that higher commodity prices will help boost profits.

PetroChina, the nation’s biggest oil and gas explorer, and China Petroleum & Chemical Corp., Asia’s biggest oil refiner, both added more than 1 percent. Jiangxi Copper Co., the country’s No. 1 producer of the metal, rose 5.7 percent after prices gained.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, gained 31.66, or 1.4 percent, to 2,249.98 as of 2:07 p.m. local time, set for the highest since Feb. 23. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, advanced 1.9 percent.

“Oil prices have been doing pretty well these day and as long as the uptrend continues, that will help to raise the profitability of energy stocks,” said Zhang Ling, a fund manager at ICBC Credit Suisse Asset Management Co. in Beijing, which oversees the equivalent of $7.21 billion.

The Shanghai Composite has advanced 23 percent this year, the biggest among the 89 indexes tracked globally by Bloomberg, on optimism record new lending and the government’s 4 trillion ($585 billion) stimulus plan to build roads and housing will prevent the world’s third-largest economy from slumping.

China’s economy is showing “early signs” of stabilizing, the World Bank says. The lender cut its forecast for the nation’s economic growth this year to 6.5 percent in a quarterly report released in Beijing today. Its estimate was 7.5 percent in November.

Falling Oil Reserves

PetroChina added 1.3 percent to 11.04 yuan. China Petroleum & Chemical, which is also known as Sinopec, rose 1.3 percent to 8.53 yuan. Oil, which fell from a three-month high today, has risen 8.9 percent so far this year. Prices may advance to record levels in the future because of depleting reserves and a lack of major field discoveries, investor Jim Rogers said yesterday.

“Reserves of oil are going down all over the world,” Rogers said in a Bloomberg Television interview. “The price of oil has to go much, much higher. I don’t know if the oil price will go up to record level in three years or five years. I don’t know when, but I know it is.”

Jiangxi Copper climbed 5.7 percent to 19.75 yuan. Tongling Nonferrous Metals Group Co., China’s second-biggest copper producer, advanced 4.8 percent to 11.42 yuan.

Copper for June delivery on the Shanghai Futures Exchange gained as much as 1.5 percent on speculation that China may increase purchases and after better-than-expected U.S. housing data.

North China Pharmaceutical Co. climbed 5.1 percent to 10.08 yuan after China Business News said the government may publish its 850 billion yuan health-care spending plan as early as this week. Shanghai Pharmaceutical Co. gained 3.2 percent to 9.13 yuan, while Tianjin Tianyao Pharmaceutical Co. added 2.9 percent to 8.06 yuan.

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

China International Marine Containers Co. (000039 CH), the world’s largest maker of shipping containers, added 2.2 percent to 7.86 yuan. The company received a 6.5 billion yuan bank facility from China Development Bank Corp.

China Shipping Development Co. (600026 CH), the nation’s biggest oil carrier, rose 3.2 percent to 10.84 yuan. China Shipping said profit last year rose 18 percent to 5.37 billion yuan. The company also expects sales to tumble 44 percent this year as a slowing economy saps demand for raw materials.

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

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Japan Bank Stocks Advance on BOJ Measures; Nintendo Slumps

By Patrick Rial

March 18 (Bloomberg) -- Japan’s bank stocks rose on optimism central bank measures will avert a deepening of the recession, while game makers slumped on Deutsche Bank AG’s “sell” rating on Nintendo Co.

Resona Holdings Inc., the nation’s No. 4 listed bank, jumped 4.6 percent after the Bank of Japan said it will increase its government debt purchases from banks to spur lending. Nintendo, maker of the Wii game machine, sank 4.8 percent in Osaka as Deutsche Bank said the company’s profit will decline from next fiscal year. Chugai Pharmaceutical Co. plunged 7.2 percent after its arthritis drug was linked to deaths.

The Topix index was little changed at 760.67 as of 1:49 p.m. in Tokyo, with about the same number of shares rising and falling. The Nikkei 225 Stock Average lost 27.34, or 0.3 percent, to 7,921.79, erasing an early 1.3 percent climb.

“The problem is we’re not seeing much new money flowing into the market, so investors are simply funding some stock purchases by selling others,” said Hideo Arimura, who oversees the equivalent of $1.9 billion at Mizuho Asset Management Co. “A safety net has been put in place for the banks, with expectations they will get capital support from the BOJ.”

The Nikkei has rallied 13 percent since falling to a 26- year low on March 10. Financial and electronics companies have led gains despite dire profit outlooks as authorities moved to shore up the banking system and boost economic growth.

The Bank of Japan today said it will buy 1.8 trillion yen ($18.3 billion) of government bonds each month, up from 1.4 trillion yen now. The central bank yesterday outlined plans to provide as much as 1 trillion yen of subordinated loans to banks to revive lending and replenish capital sapped by falling stocks.

“At the moment, the capital adequacy ratio is a constraint, so by providing the subordinated loans to the banks, banks can extend more loans,” Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo and a former central bank official, said in an interview with Bloomberg Television. “In the future, the BOJ could increase the total amount of the offer.”

Resona gained 4.6 percent to 1,499 yen. Sumitomo Mitsui Financial Group Inc., Japan’s second-largest bank by market value, added 2.8 percent to 3,340 yen. Orix Corp., the nation’s largest non-bank financial company, soared 9.5 percent to 2,930 yen, after rising by its daily limit yesterday.

U.S. stocks advanced yesterday after the Commerce Department said work began on an annualized rate of 583,000 homes in February, while economists had predicted a drop. That was a 22 percent surge from January, the most since 1990.

Nintendo slumped 4.8 percent to 28,490 yen in Osaka trading, making it the biggest drag on the Topix. The shares were rated “sell” in new coverage by Satoru Kikuchi, a Tokyo-based analyst for Deutsche Bank, who predicted slowing sales of the Wii and DS players and game titles.

Capcom Co., publisher of “Resident Evil” game series, fell 2.7 percent to 1,579 yen, while Konami Corp., maker of “Metal Gear Solid” games, sank 2.4 percent to 1,437 yen.

Chugai Pharmaceutical Co., the Japanese unit of Roche Holding AG, tumbled 7.2 percent to 1,477 yen, making it the Nikkei’s third-biggest loser. The company’s Actemra arthritis treatment was linked to 15 deaths and 221 cases of severe side effects in a trial of 4,915 patients, Chugai said on its web site.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

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Japan Service Demand Rises for 1st Time in 3 Months

By Jason Clenfield

March 17 (Bloomberg) -- Demand for services in Japan unexpectedly rose for the first time in three months in January as consumers showed resilience to an export-led recession.

The tertiary index, a gauge of money spent on phone calls, power and transportation, gained 0.4 percent from December, when it fell 1.6 percent, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg predicted a 0.5 percent decline.

Japan’s recession has fallen hardest on the country’s export-oriented manufacturers and has been slow to take its toll on households. There is a risk that consumer spending will weaken further in coming quarters to reflect cuts to jobs, wages and working hours at companies including Nissan Motor Corp. and Pioneer Corp.

“Consumer spending has been relatively resilient, but given the likely deterioration in the labor market from here, we don’t expect that to be sustained,” said Hiroshi Shiraishi, an economist BNP Paribas in Tokyo. “Manufacturers are going to have to cut payrolls in order to stay in business.”

Spending by Japanese households has held relatively steady considering that the economy shrank an annualized 12.1 percent last quarter. Consumer spending fell 0.4 percent last quarter from the previous three months, compared with a record 13.8 percent decline in exports.

The Nikkei 225 Stock Average climbed 0.5 percent at 9:29 a.m. in Tokyo.

Jobs Cuts

Although some of the country’s biggest manufacturers have cut jobs -- 10,000 by Pioneer and 20,000 by Nissan -- the unemployment rate has risen only 0.3 percentage points to 4.1 percent since the recession deepened in October.

Japanese companies listed on the Tokyo Stock Exchange have cut at least 160,000 jobs in the period. By contrast, firms have cut at least 823,000 jobs since November in the U.S., where the unemployment rate jumped 1.5 percentage points to 8.1 percent in the five months following the bankruptcy of Lehman Brother’s Holdings Inc.

Recent data underscore a divide between Japan’s manufacturers, which depend on overseas markets, and the country’s service companies, which cater to domestic consumers.

Orders for machinery by Japanese makers of cars and electronics fell 27.4 percent in January from the previous month, while bookings by service companies rose 13.5 percent. Profit at manufacturers plunged 94.3 percent last quarter, compared with a 35 percent drop at service firms.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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S. Korea’s February Department-Store, Discount-Store Sales Fall

By Seyoon Kim

March 17 (Bloomberg) -- Sales at South Korea’s major department stores and discount stores fell in February, adding to signs domestic demand is faltering and the economy is headed for a recession.

Sales at the three biggest department-store chains fell 0.3 percent last month from a year earlier, while sales at discount stores slid 20.3 percent, the most since the government started compiling the figures in 2005, the Ministry of Knowledge Economy said in Gwacheon today.

Consumers are reducing spending as the deepening global recession prompts Asian companies to lower production, close factories and cut jobs. The number of employed people in South Korea dropped by 103,000 last month, the most in five years, as retailers and manufacturers fired workers.

To help prop up an economy that the government says may contract for the first time since 1998 this year, South Korea plans to provide cash, loans, school fees and other financial incentives valued at 6 trillion won ($3.9 billion) to help people cope with rising unemployment and falling wages.

The country’s financial regulator said it will create a 40 trillion-won fund to buy distressed corporate bonds and assets from financial companies as the government tries to prevent a recession. Finance Minister Yoon Jeung Hyun plans to unveil an extra stimulus package this month to add to 51 trillion won in tax cuts and infrastructure spending.

Shares in Lotte Shopping Co., South Korea’s largest department-store operator, have lost 37 percent over the past year. Those of Shinsegae Co., which owns department stores and E-Mart, have fallen 21 percent in the same period.

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

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Pakistan’s Raza to Raise Funds Overseas Amid Political Turmoil

By Naween A. Mangi

March 17 (Bloomberg) -- Pakistan plans to raise $500 million in the next 12 months through bonds aimed at Middle East investors as a debt sale in other overseas markets would be too expensive, central bank Governor Syed Salim Raza said.

“The credit-default swap rate for Pakistan is still high so to go to cold-nosed commercial markets wouldn’t suit us,” Raza, 63, who worked for Citigroup Inc. for 36 years in the Middle East, Africa and Europe, said in an interview. “But there are a number of countries in the region who understand Pakistan’s politics very well.”

Raza, who took over as governor on Jan. 2, is seeking to revive Pakistan’s faltering economy as political tensions distract the government from tackling slowing growth and worsening security. President Asif Ali Zardari’s hold on power was weakened yesterday when he relented to pressure from opposition leader Nawaz Sharif and reinstated judges fired under military rule in 2007.

“The state of global financial markets will decide whether Pakistan can tap them for a bond issue, but currently it looks very difficult,” said Farid Khan, director at Credit Suisse Pakistan in Karachi. “Indonesia just raised $3 billion at a prohibitive cost of 840 basis points over U.S. Treasuries and Pakistan’s pricing will be worse.”

Pakistan is aiming to raise funds as the global economy’s worst crisis since the Great Depression prompts investors to avoid riskier emerging markets. Indonesia, rated four levels above Pakistan, last month paid double the premium over U.S. treasuries it paid in June.

Reluctant to Buy

Middle East investors may also be reluctant to buy Pakistan debt as their economies slow amid lower crude oil prices, which have fallen more than $100 from a July high of $147.27 a barrel.

The economy of the Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain, is forecast to contract by 2.4 percent in 2009, after expanding 5.2 percent in 2008, according to a Jan. 22 report by the Kuwait-based Global Investment House.

Pakistan’s government debt is the riskiest in the world after Argentina and the Ukraine, according to credit-default swap prices from CMA Datavision. It costs $2.3 million annually to protect $10 million of the country’s debt from default for five years.

Still, the cost to investors of protecting Pakistan debt has more than halved since October after the South Asian nation was forced to seek a $7.6 billion bailout from the International Monetary Fund. The price of Pakistan credit-default swaps has dropped to 2,324 basis points on March 13 from as high as 5,101.7 on Oct. 27.

Political Confrontation

Protests this weekend sharpened a nearly three-week old confrontation that began Feb. 25, when the Supreme Court barred Sharif, Zardari’s chief rival and a former prime minister, from holding public office. U.S. Secretary of State Hillary Clinton has urged Zardari and Sharif to calm the conflict.

“The political turmoil is going to hit the economy from all sides, especially hurting foreign investment and consumer confidence,” Credit Suisse’s Khan said. “The timing of this political storm couldn’t have been worse.”

Tumult in domestic politics since Zardari’s government was elected in February 2008 has hurt the administration’s efforts to raise investment and boost growth. The economy is forecast by the government to expand 2.5 percent this year, compared with 5.8 percent last year.

Additional IMF Loan

Pakistan may not necessarily need to ask the IMF for an additional $4.5 billion, Raza said in the March 13 interview in Karachi. Finance Adviser Shaukat Tarin said last month the nation would seek the additional funding.

“No matter how bitter politics get, as long as they’re not disrupting the flow of commerce, it doesn’t really affect the economy that much,” said Raza, who has a master’s degree in philosophy, politics and economics from Oxford University. “The initial purpose of the IMF program and our success in living within its stipulations would be to reattract investors.”

Foreign investors are deterred by low ratings on Pakistan. Standard & Poor’s rates the nation’s debt CCC+, seven levels below investment grade.

“If foreign investors see more risk in Pakistan, their flows won’t fall off more than now,” said Raza, who lived in London for 25 years. “Domestic investors have seen periods of instability for so long that they look over the valley towards the hills.”

Overseas direct investment in Pakistan rose 1.3 percent to $2.59 billion in the seven months ended Jan. 31, according to central bank data.

‘Quick to Upgrade’

“I don’t think rating agencies will be very quick to upgrade anyone,” said Raza. “But for Pakistan it looks better and better.”

The country’s trade deficit narrowed by 60 percent in February and the budget gap is forecast to decline to 4.3 percent of gross domestic product in the 12 months ending June 30, from 8 percent a year ago, after the government ended subsidies on fuel and electricity.

“A break in fiscal discipline and a revival of inflation worry me the most,” said Raza. The central bank plans to cut interest rates from the highest in more than a decade in the next few months as inflation slows and the nation’s foreign reserves grow, he said.

“Raza’s single biggest challenge is to ensure he doesn’t take an eye off bringing inflation down because there are immense pressures to ease monetary policy,” said Zakir Mahmood, chief executive officer of Habib Bank Ltd., the second biggest in Pakistan by assets. “His challenge is to ensure that doesn’t happen prematurely.”

Borrowing Costs

The bank raised borrowing costs four times last year as inflation accelerated to a three-decade high.

“The risk of too sharp a cut is to convey the feeling that the battle against inflation has been won and unfortunately, that’s not true,” Raza said. “But with things going in the right direction, the stage is set within the next couple of months for an opportunity to lower the rate.”

The central bank predicts inflation mayp«8Öe to 11 percent by June from 21.07 percent last month.

“The biggest challenge for Pakistan is that we cannot afford fiscal stimulation. Foreign investment has slowed down and so stimulation has to come from banking,” said Raza. “Banks are pulling their horns in a bit and we can relax regulation but we can’t take the fear out.”

Bank loans to private companies fell to 133.1 billion rupees ($1.65 billion) in the eight months ended Feb. 28, compared with 289.3 billion rupees a year earlier, according to central bank data.

“The governor’s biggest challenge is to introduce realism in banking, which is missing,” said Hasan Bilgrami, chief executive officer at Bank Islami Ltd., an Islamic bank. “The amending of rules according to the environment happens everywhere in the world but here.”

To contact the reporter on this story: Naween A. Mangi in Karachi, Pakistan on Nmangi1@bloomberg.net.

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Australian, N.Z. Dollars Near 1-Month High Before RBA Minutes

By Candice Zachariahs

March 17 (Bloomberg) -- The Australian and New Zealand dollars traded near the strongest in a month before the Reserve Bank of Australia releases minutes of the meeting where it halted the nation’s most aggressive cycle of interest rate cuts.

The currencies traded close to two-month highs versus the yen as traders yesterday pared bets the RBA will lower its benchmark by 50 basis points, or 0.5 percentage point, when it meets April 7. They also rose as prices of commodities, which account for more than half of the two nations’ exports, advanced for a third session.

“Markets may get a sense that RBA strategy is relatively comfortable going into the pause,” said Tony Morriss, a senior markets strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “In recent days, with better stock market performance, the market seems to be moving away from pricing a full 50 basis point cut at the next meeting.”

Australia’s currency rose 0.1 percent to 65.95 U.S. cents as of 8:29 a.m. in Sydney, near a one-month high of 66.38 cents touched yesterday. The currency advanced 0.1 percent to 64.77 yen from 64.71 yen late in New York yesterday.

New Zealand’s dollar gained 0.1 percent to 53.04 U.S. cents from 52.99 cents late in New York yesterday, when it touched 53.40 cents, the highest since Feb. 10. It bought 52.09 yen from 52.02 yen.

The Australian dollar is likely to find buyers at 65.50 U.S. cents and struggle to get above 66.40 cents, Morriss said.

RBA Governor Glenn Stevens held benchmark rates at 3.25 percent on March 3 after 4 percentage points of reductions since September. Traders were betting yesterday on a 71 percent chance of a cut to 2.75 percent next month, from 91 percent late last week, according to a Credit Suisse Group index based on swaps trading.

Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the South Pacific nations’ higher- yielding assets. The benchmark in New Zealand is 3 percent.

The currencies also rose as crude oil gained to a two- month high in New York, pushing the UBS Bloomberg Constant Maturity Commodity index of 26 raw materials up 1.7 percent.

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

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Euro Trades Near 5-Week High as Stark Says Limit for Rate Cuts

By Theresa Barraclough and Ron Harui

March 17 (Bloomberg) -- The euro traded near a five-week high against the dollar after a newspaper reported European Central Bank Executive Board member Juergen Stark said there was limited room for further interest-rate cuts.

The 16-nation currency may gain for a fourth day versus the yen on speculation the worst of the banking crisis is over as the European Union considered raising a 25 billion euro ($32.4 billion) limit on aid to member nations. The dollar may weaken for fifth day against the pound on speculation the Federal Reserve will announce additional measures to keep down U.S. funding costs at its two-day policy meeting starting today.

“The euro is getting a lot of support from comments by Stark who said there was limited room for further easing,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest lender by market value. “There’s some nervousness about the FOMC meeting,” which is weighing on the dollar, he said.

Europe’s currency traded at $1.2960 as of 9:20 a.m. in Tokyo, from $1.2968 late yesterday in New York when it rose 0.3 percent. It strengthened 2.2 percent last week, the first weekly advance since early February. The yen traded at 127.51 per euro from 127.32 yesterday when it dropped 0.5 percent. It was at 98.24 per dollar from 98.18.

The yen rose 0.3 percent to 9.9002 against the South African rand. Against the pound, the dollar traded at $1.4063 from $1.4064. The euro was little changed at 92.20 British pence.

The euro climbed past $1.30 yesterday for the first time since Feb. 10 after the Group of 20 finance ministers at a meeting on the weekend told the International Monetary Fund it will have its resources at least doubled to $500 billion.

‘Little More Room’

“We have a little more room” to lower rates, Stark said in a preview of an article to be published in Handelsblatt today. “For me personally, the threshold isn’t far away from the current level,” he said.

Investors maintained bets the ECB will reduce borrowing costs at its next policy meeting on April 2. The yield on the three-month Euribor interest-rate futures due June traded at 1.47 percent, from 1.535 percent a week ago, according to data compiled by Bloomberg.

The dollar was near a one-week low versus the pound after U.S. Treasury Secretary Timothy Geithner and President Barack Obama announced a series of programs yesterday to spur lending to small businesses. As part of the initiative, the Treasury will require the 21 largest banks that get funds from the $700 billion financial rescue to report every month details about their lending to small businesses.

Greater Resources

“The recent G-20 summit endorsed a call for greater IMF resources to help at-risk countries and the U.S. is beginning to move forward with its financial rescue packages,” analysts led by Mansoor Mohi-Uddin, chief currency strategist in Zurich at UBS AG, wrote in a research note yesterday. “The developments are not favorable for the dollar.”

The Fed will keep rates in a range of zero to 0.25 percent when the meeting ends tomorrow, according to a Bloomberg survey. After the Federal Open Market Committee’s previous meeting ended on Jan. 28, policy makers said they were “prepared to purchase longer-term Treasury securities” if it became clear the policy would be “particularly effective” in getting credit flowing.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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China Life, Ayala Land, Tianjin: Asia Ex-Japan Equity Preview

By Anuchit Nguyen

March 17 (Bloomberg) -- The following companies may have unusual price changes in Asian trading, excluding Japan. Stock symbols are in parentheses, and share prices are from the previous close, unless noted otherwise.

China Life Insurance Co. (2628 HK): The nation’s biggest insurer said it had 67.2 billion yuan ($9.8 billion) in premium income for the first two months of this year. That was a 12.6 percent increase from the 59.7 billion yuan reported a year earlier, according to Bloomberg News calculations. The stock jumped 6.5 percent to HK$25.25.

Philippine builders: Funds sent home by Filipinos working overseas increased 0.1 percent to $1.27 billion in January, the central bank said yesterday. That’s the slowest pace since January 2004, according to Bloomberg data. Filipinos based overseas account for half of Philippine home purchase demand, Colliers International Inc. estimated in October. Ayala Land Inc. (ALI PM), the nation’s biggest developer, was unchanged at 5.20 pesos. Vista Land & Lifescapes Inc. (VLL PM), which relies on overseas Filipinos for 60 percent of its home sales, fell 2.7 percent to 73 centavos.

Pure Energy Resources Ltd. (PES AU): The Australian coal- seam gas explorer recommended shareholders accept a takeover offer from BG Group Plc after Arrow Energy Ltd. let its bid expire. Pure Energy slipped 0.2 percent to A$18.15.

Philippine Long Distance Telephone Co. (TEL PM): Moody’s Investors Service, which last week put the carrier’s local currency debt rating on review for possible upgrade, yesterday (MONDAY) said it changed the status of the review to “direction uncertain,” citing the company’s plan to buy 20 percent of Manila Electric Co., a “non-core business.” Shares dropped 12 percent to 1,895 pesos.

Samsung Heavy Industries Co. (010140 KS): The world’s second-largest shipyard plans to sell 700 billion won ($486 million) of bonds next week in its first local currency sale in seven years to expand docks. The three-year bonds will pay a 6.22 percent coupon in the domestic market, the Seoul-based company said in a regulatory filing. The stock dropped 2.9 percent to 23,600 won.

San Miguel Brewery Inc. (SMB PM): The nation’s biggest brewer borrowed 38.8 billion pesos ($800 million) in a record bond sale by a non-government Philippine borrower, two people with knowledge of the matter said. The company will pay about 250 basis points above comparable 3-, 5- and 10-year Treasuries. Shares fell 1.2 percent to 8.60 pesos.

Tianjin Port Development Holdings Ltd. (3382 HK): The Chinese container port operator agreed to buy a controlling stake in Shanghai-listed affiliate Tianjin Port Holdings Co. for HK$11 billion ($1.4 billion). Tianjin Port Development, whose shares will resume trade in Hong Kong after being suspended yesterday, jumped 11 percent to HK$2.25 on March 13.

Towngas China Co. (1083 HK): The mainland unit of Hong Kong’s largest gas supplier, posted a 40 percent increase in 2008 profit to HK$202 million ($26 million), or HK$10.32 a share, because of increased sales in mainland China. The stock rose 1.4 percent to HK$1.49.

Westpac Banking Corp. (WBC AU): Australia’s biggest lender by market value increased a government-guaranteed bond sale to A$3.27 billion ($2.1 billion). The Sydney-based lender sold A$210 million more of the floating-rate notes maturing in March 2012 at 60 basis points above the Australian bank-bill swap rate, arrangers Westpac and HSBC Holdings Plc said in an e-mailed statement. The stock rose 1.1 percent to A$17.13.

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net.

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Japanese Stocks Climb on Bank Optimism, Hitachi Restructuring

By Patrick Rial

March 17 (Bloomberg) -- Japanese stocks climbed for a third day on optimism bank earnings may rebound and as Hitachi Ltd. announced new restructuring plans.

Mizuho Financial Group Inc., Japan’s No. 2 list bank, added 3.2 percent on speculation the Bank of Japan may act to shore up bank capital at its policy meeting starting today and after London-based Barclays Plc said it had a “strong start” to 2009. Hitachi rose 0.4 percent. Sumco Corp., the world’s second- largest maker of silicon wafers, was bid higher by 1.5 percent after two brokerages lifted ratings on the shares.

The Nikkei 225 Stock Average added 62.53, or 0.8 percent, to 7,766.68 as of 9:03 a.m. in Tokyo, a third-consecutive gain for the gauge, which is still down 12 percent in 2009. The broader Topix index climbed 5.34, or 0.7 percent, to 747.03.

“While this bear market rally looks like it’s got further to go, stocks are starting to get a bit top heavy,” Mamoru Shimode, chief equity strategist at Resona Trust & Banking Co. said in an interview with Bloomberg Television. “Investors are looking to do some rotational buying today.”

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

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Australia Stocks, Japan Futures Rise on Bank Optimism, Hitachi

By Patrick Rial

March 17 (Bloomberg) -- Australian shares and Japanese stock futures climbed on optimism bank earnings may rebound and as Hitachi Ltd. announced new restructuring plans.

Commonwealth Bank of Australia, the nation’s largest lender, rose 1.2 percent in Sydney after London-based Barclays Plc said it had a “strong start” to 2009. U.S.-traded receipts of Sumitomo Mitsui Financial Group Inc., the Japan’s No. 2 lender by value, added 0.5 from the close in Tokyo on speculation the Bank of Japan may act to shore up bank capital at its policy meeting starting today. Hitachi rose 1.1 percent.

Australia’s S&P/ASX 200 Index gained 0.6 percent to 3,36.10 as of 10:07 a.m. in Sydney. New Zealand’s NZX 50 Index lost 0.5 percent in Wellington.

“While this bear market rally looks like it’s got further to go, stocks are starting to get a bit top heavy,” Mamoru Shimode, chief equity strategist at Resona Trust & Banking Co. said in an interview with Bloomberg Television. “Investors are looking to do some rotational buying today.”

Futures on Japan’s Nikkei 225 Stock Average expiring in June finished at 7,810 in Chicago, up from 7,680 in Osaka and 7,690 in Singapore. In New York, the Standard & Poor’s 500 Index reversed a 2.4 percent advance in the final hours of trading to slump 0.4 percent to 753.89.

The MSCI Asia Pacific Index has declined 15 percent this year, adding to a record 43 percent slide in 2008. Earnings forecast cuts have left the benchmark trading at 23 times estimated profits, up from 17 times at the beginning of 2008.

New President

Barclays, the U.K.’s third-biggest bank, said yesterday it had a “strong start” to 2009, echoing comments from banks such as Citigroup Inc. and JPMorgan Chase & Co. The company is in talks to sell its iShares exchange-traded funds unit.

The Bank of Japan starts a two-day policy meeting today. The Nikkei newspaper said yesterday the central bank is considering buying subordinated loans and subordinated bonds from lenders as a step to help bolster their capital and offset losses caused by writedowns on stock investments.

Hitachi said yesterday Takashi Kawamura, 69, will take over as president and chief executive officer starting April 1. The company also plans to spin off its automotive systems and consumer units, a move that may make sales or tie-ups easier, and reduce costs by 500 billion yen ($5.1 billion) in the 12 months ending March 31, 2010.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

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London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Mar 16 09 12:36 GMT |

The EUR and other major currencies continued to gain ground against the USD in London trading as global stock markets built on last week's rebound and news that the G20 would increase its funding to the IMF, which in turn would support beleaguered Eastern European economies. The USD continued to lose ground as its safe haven appeal softened against the better market backdrop. European stock markets were up around 2.5% and futures pointed to a 1% gain at the open for US shares. JPY-crosses surged higher as risk appetites improve, which also saw gold retreat about $5 to $925/oz. Oil prices also dropped sharply after OPEC declined to cut output in light of the global downturn. EUR/USD popped over 1.2950 highs from last week and traded as high as 1.3060/65 by the NY opening. GBP/USD broke above 1.4050 and was trading just below intra-day highs near 1.4225/30, leading the way as a key UK banking group indicated it would seek to raise private capital to avoid falling under greater government control. Upcoming data releases 3/16/2009 12:30 CA Capacity Utilization Rate 4Q 77.40% - - 3/16/2009 12:30 US Empire Manufacturing MAR -34.65 -33 3/16/2009 13:00 US Net Long-term TIC Flows JAN $34.8B - - 3/16/2009 13:00 US Total Net TIC Flows JAN $74.0B - - 3/16/2009 13:15 US Industrial Production FEB -1.80% -1.30% 3/16/2009 13:15 US Capacity Utilization FEB 72.00% 71.00% 3/16/2009 EC ECB's Trichet Speaks on European Integration, in Frankfurt 16-Mar 3/16/2009 17:00 US NAHB Housing Market Index MAR 9 9 Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Mar 16 09 12:37 GMT |

USD-CHF @ 1.1811/14...May dip towards 1.1763 R: 1.1870-75 / 1.1935 / 1.2005 S: 1.1771-63 / 1.1728 / 1.1687 Dollar-Swiss slipped during the day as Dollar lost strength across the majors. The Resistance of 200-day MA at 1.1935 continued to hold and it could now be expected to slide towards 1.1763 and rest Support there before it bounces back. A rise past 1.1935 would be very crucial beyond which the the pair might make some sizeable gains of 400 to 500 pips. With SNB's announcement to intervene in FX Market, we might see the Dollar rising further against Swiss Franc. To see the chart of Swiss, click on: http://www.kshitij.com/graphgallery/chfcandle.shtml#candle Cable GBP-USD @ 1.4208/12...Sell on rise R: 1.4250-72 / 1.4334-68 / 1.4421 S: 1.4154 / 1.4120 / 1.4020 Cable is facing Resistance from the trendline on the daily candle charts. Traders would be eyeing the Industrial Production numbers from the US. A break past this Resistance which though presently looks unlikely could next find Resistance near 1.4368 whereas the Support at 1.35 on the downside looks strong enough. Sell on rallies for Cable should be the mantra given the bleak outlook following the sharp dip in Cable over the last few days. Over the longer term, the bearishness is likely to continue and the Support at 1.37 and next at 1.35 would be crucial ones for the pair. Aussie AUD-USD @ 0.6629/32...Facing Resistance at 0.6600-40 R: 0.6641 / 0.6690 / 0.7005 S: 0.6569 / 0.6513 / 0.6475 Aussie has strengthened and is facing Resistance in the 0.6600-40 region as mentioned in the morning. We believe that this Resistance might hold. But if it were to break, as mentioned earlier in the morning that there are good chances of a rise towards 0.70 in the longer term over the next several days. On the 4-hour chart, the pair is on an uptrend and is likely to face some Resistance near 0.6660-90 which might give a good opportunity to go Short with intentions of squaring off at 0.6550 during the US session today. It is currently facing Resistance from the 55-day and 100-day MAs. To see the chart of Aussie, click on: http://www.kshitij.com/graphgallery/audcandle.shtml#candle Kshitij Consultancy Service http://www.fxthoughts.com Legal disclaimer and risk disclosure These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsibly for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | Mar 16 09 12:06 GMT |

EUR/USD Resistance: /1,2940-50/ 1,2975-80/ 1,3000-10/ 1,3070-80/ 1,3150/ 1,3190-00 Support : 1,2860-70/ 1,2800-10/ 1,2735-40/ 1,2590-00/ 1,2620-30. Comment: Important resistance at 1,2950-00 limited euro's rise, but it still remains in high levels, folming a sideways move. Euro's outlook seems positive and the consolidation below 1,2950-3000 could be used as a base for a break. In that case, retracements should remain above 1,2830-50 and the consolidation in the hourly chart should be resumed. An upward break of 1,2950-60 would be the first important sign and a break of 1,3000 would confirm it. Our first targets would be at 1,3080-00, followed by 1,3350-80 area. If 1,2950 cannot be breached and we see a downward break of 1,2830, it could lead us 100 pips lower, and 1,2730-50 area would be tested. This important support should not be easily breached and bulls are likely to gain momentum, leading euro back to 1,2850 area. *STRATEGY : A sideways consolidation is being formed in the short term and we will follow it trying buy orders at the retracements at 1,2860-70, with stops below 1,2810. A clear break of 1,2810 may be followed with sell orders and target at 1,2730-50. Sell positions could be tried at the first reach of 1,2950-70, with close stops and targets... FX Greece DISCLAIMER The details and information included in the above analysis, are part of research based exclusively on currency charts and are of purely instructional and educational nature. None of the information featuring in the analysis can be considered as an invitation for opening positions in FOREX market or in the market of forward contracts or any securities listed on an organized or unorganized market. We assume no responsibility for any kind of losses ,profits or property loss resulting, in whole or in part, from acts that are based either directly or indirectly on the processing or the use of information, details and strategies, the reader may find in the analysis. The readers hold full responsibility for the use and the results of their actions. The recipients of the analysis must acknowledge and accept that investment choices of any kind, especially concerning the FOREX market, contain risks (high, low and occasionally zero) of reduction or even loss of their investment. Therefore, they should always be cautious prior to any kind of action. We reserve the right to change the terms and the characteristics of the analysis. The contents of the analysis are solely intended for personal use. They may not be retransmitted, reproduced, distributed, published, adapted, modified or assigned to third parties in any way whatsoever. Anyone having access to them is required to comply with the law provisions on the protection of third party intellectual property rights.

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China Eases Overseas Investment Rules for Companies

By Li Yanping

March 16 (Bloomberg) -- China said it will make it easier for its companies to invest overseas as cheaper commodity and share prices encourage bargain-hunting in industries from autos to energy.

The approval process will be simplified and mainly handled by local rather than central government, Ministry of Commerce spokesman Yao Jian said at a briefing in Beijing today. The procedures take effect May 1, a separate statement said.

China announced $22 billion of planned overseas spending last month, including a $19.5 billion investment in Rio Tinto Group, the world’s third-largest mining company. China’s outbound foreign direct investment may top inflows this year for the first time, Standard Chartered Plc says.

“The ‘Going Out’ policy to encourage more of China’s firms to invest overseas has been in place for a number of years,” said Stephen Green, head of China research at Standard Chartered in Shanghai. “We believe that 2009 will be the year when it really gains some scale.”

In 2008, China’s overseas investment doubled to $52.2 billion, including financial-sector investment, according to the commerce ministry. This year, in February alone, the total was $65 billion, according to a tally by Standard Chartered.

Eighty-five percent of applications for outbound investment that previously needed central government approval will be handled by local authorities in future, Yao said.

Energy, Minerals

The commerce ministry will scrutinize investment plans of more than $100 million and those which involve multiple countries, the ministry said in a separate statement. Provincial commerce authorities will vet smaller deals and those involving energy and minerals, it said.

China’s Minmetals Group is awaiting shareholder and government approvals for a A$2.6 billion ($1.7 billion) takeover of Melbourne-based OZ Minerals Ltd., the world’s second-largest zinc mining company.

Hunan Valin Iron & Steel Group agreed in February to buy a A$1.2 billion ($776 million) stake in Australia’s third-largest iron ore exporter Fortescue Metals Group Ltd. to secure supplies of the raw material.

China Shipping (Group) Co., the nation’s second-biggest sea-cargo company, said last week that it was looking for opportunities to buy assets overseas as shipping lines and port operators struggle with slumping world trade.

A strong currency, cheaper commodity prices and the need for many foreign companies to pay off debt are creating “the perfect opportunity” for China’s firms to ramp up investment abroad, Standard Chartered’s Green said.

‘Flurry of Deals’

“The beginning of 2009 has seen a flurry of deals in which Chinese investors have secured ownership or long-term supply contracts to such things,” he added.

Cnooc Ltd., China’s biggest offshore oil explorer, is seeking opportunities to acquire overseas assets made cheaper by the global financial crisis, Chairman Fu Chengyu said March 5. China, the world’s second-largest energy consumer, entered into oil-for-loans accords with Venezuela, Brazil and Russia last month.

Automakers are being to encouraged to make overseas acquisitions, according to Miao Wei, vice minister of the Ministry of Industry and Information Technology.

Today’s announcement came after China’s government said last week that it will simplify approvals for overseas capital entering the nation by giving local governments more authority to approve such spending.

More outbound investment “will help to improve China’s balance of payments while China is still running a relatively large trade surplus,” Yao said.

Foreign direct investment in China fell 15.8 percent in February, the fifth straight monthly decline, as companies cut spending to weather the global financial crisis, the commerce ministry said today.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net

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U.K. Mortgage Bond Market May Stay Shut, BOE Told

By Jennifer Ryan

March 16 (Bloomberg) -- U.K. residential mortgage-backed bond markets may stay shut throughout the rest of this year as banks nurse losses from the financial crisis, according to the Bank of England’s contacts.

“Overall liquidity conditions have yet to normalize to any significant degree,” the central bank said in its quarterly bulletin today. “Residential mortgage-backed securities (RMBS) markets remained effectively closed, at least for publicly issued securities. In general, contacts did not expect a sustained improvement in market conditions during 2009.”

Average asking prices for a home dropped 9 percent this month from a year earlier as buyers struggled to obtain home loans, Rightmove Plc said today. The British economy is in the throes of its worst contraction for three decades, threatening to exacerbate losses at banks stung by the financial crisis.

The central bank said in its report that credit costs rose last month as institutions became more reluctant to lend to each other. While the three-month London Interbank Offered Rate has fallen more than 4.4 percentage points since last year’s peak, the Libor-OIS spread, a gauge of banks’ reluctance to lend, widened to a two-month high on March 11.

“Contacts cite ongoing balance sheet constraints on financial institutions as an important factor in continued pricing anomalies in various asset markets,” the bank said.

The outstanding balance of British residential mortgage- backed securities was the world’s second-biggest as of the third quarter of 2008, totaling 407 billion euros ($528 billion). That’s still a 10th of equivalent outstanding U.S. securities.

Toxic Assets

Prime Minister Gordon Brown has taken controlling stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc and agreed to insure 585 billion pounds ($828 billion) of toxic assets, in return for pledges that they will lend more.

Barclays Plc, the U.K.’s third-biggest lender, said today it’s in talks with the Treasury about participating in its asset protection program, based on the “economic merits” to shareholders. It will only enter the program if it can do so without giving up a stake to the government, according to five analysts surveyed by Bloomberg News.

Rightmove, Britain’s biggest property Web site, said asking prices for homes fell 9 percent from a year earlier, close to the pace of February. On the month, prices rose 0.9 percent to an average of 218,081 pounds, the report showed.

Rate Cut

The Bank of England cut the benchmark interest rate to 0.5 percent on March 5, and started printing money to buy gilts and other assets to revive the economy and prevent deflation. The bank will spend 2 billion pounds on government bonds today and a total of 5 billion pounds this week.

The central bank’s forecasts show economic growth won’t resume until the second quarter of next year, while inflation will slow to 0.3 percent in early 2011, below the bank’s 2 percent goal.

Policy makers “will take the necessary steps to bring inflation back to target by making changes to monetary policy so that any deviation from target is short-lived and less costly,” according to a separate article in the bulletin by Charlotta Groth and Peter Westaway, both officials at the bank.

The central bank’s economic forecasts are consistent with the “configuration of falling asset prices and depressed economic conditions in the face of an adverse demand shock” in an environment of debt deflation, the article said. Uncertainty about how the strength of these effects form part of the bank’s uncertainty about how bad things will get, the bulletin said.

A situation of deflation where interest rates are at zero also poses a risk to the economy by eliminating one of the central bank’s tools for stoking growth, the economists said.

“If policy responds sufficiently promptly and decisively, employing the full range of conventional and unconventional monetary policy instruments, deflationary episodes should be short-lived,” Groth and Westaway wrote.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

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Bernanke May Buy Treasuries After Gilt Yields Fall

By Rich Miller

March 16 (Bloomberg) -- Ben S. Bernanke may have something to learn from his former Massachusetts Institute of Technology colleague Mervyn King.

By buying government securities to increase the supply of money, Bank of England Governor King is taking a step that Federal Reserve Chairman Bernanke has only talked about. Early results have been encouraging: Yields on 10-year U.K. government bonds fell to 2.94 percent March 13, at least a 20-year low, from 3.64 percent before King announced the policy March 5.

“The BOE is providing an actual experiment in answering some of the concerns that the Fed has about the effectiveness” of using the strategy to effectively print more money, says former Fed Governor Laurence Meyer, now vice chairman of St. Louis-based Macroeconomic Advisers LLC.

Bernanke and his colleagues on the Federal Open Market Committee start a two-day meeting tomorrow to discuss the deteriorating economic outlook and what they can do to turn it around. After their last meeting ended on Jan. 28, policy makers said they were “prepared to purchase longer-term Treasury securities” if it became clear the policy would be “particularly effective” in getting credit flowing again.

Since then, the stock market has fallen, with the Standard & Poor’s 500 index down 13 percent in a month and a half, even after last week’s 11 percent gain. Unemployment hit a 25-year high of 8.1 percent in February, and the number of Americans drawing jobless benefits reached a record 5.3 million.

Flooding the System

“The economy is in a free-fall,” says Tim Duy, an assistant professor at the University of Oregon in Eugene who writes on Fed policy. “They need to flood the financial system with money.”

Bernanke first raised the possibility of Treasury purchases in a speech on Dec. 1. The central bank subsequently put the idea on the back burner to focus on this month’s start of the Term Asset-Backed Securities Loan Facility, a $1 trillion credit program for consumers and small-business owners.

“At this point in time, the Fed has judged that buying long-term Treasuries is not the most efficient means of easing financial conditions,” Federal Reserve Bank of New York President William Dudley said after a March 6 speech in New York.

Treasuries have lost 2.85 percent this year, according to an index compiled by Merrill Lynch & Co., sending yields higher.

Dudley and other Fed policy makers argue that they get more punch for their purchases by concentrating on specific credit markets rather than buying Treasuries. The average interest charge on a 30-year fixed-rate mortgage has fallen to about 5 percent from more than 6 percent since the Fed announced plans to purchase $500 billion of mortgage-backed securities last November.

‘Credit Easing’

Bernanke, 55, has described the Fed’s approach as “credit easing” to distinguish it from the “quantitative easing” policy the Bank of Japan adopted from 2001 to 2006. The strategies differ in how they pump money into the economy. The BOJ’s focus was on increasing reserves in the banking system to encourage more lending. The Fed is trying to lower the cost of credit for specific types of borrowers, such as home buyers.

King -- whose office adjoined Bernanke’s when the two were visiting professors at MIT in Cambridge, Massachusetts, during the 1980s -- is pursuing both approaches.

Gilt Purchases

He is aiming to expand reserves in the financial system through purchases of U.K. government bonds, known as gilts -- a strategy he describes as “conventional unconventional” monetary policy. He will also buy private-sector assets as Bernanke is doing -- an approach the Bank of England chief calls “unconventional unconventional.”

The U.K. Treasury authorized the BOE to spend 150 billion pounds ($210 billion) for asset purchases, mostly of gilts. In the first stage, it will spend 75 billion pounds during the next three months.

King, 60, who has faced criticism for moving too slowly as the economic crisis gathered steam, was able to put his plan into action quickly because it involves the government-debt market, where the BOE already operates regularly. The central bank held its first auction to buy gilts on March 11, just six days after it unveiled the program.

In contrast, it has taken the Fed four months to launch the TALF, as it tweaked the terms of the program to make it more attractive for private lenders to participate.

Favorable Response

The U.K. bond market responded favorably to the moves by King. Corporate bonds in pounds rose, driving down borrowing costs. The Markit iBoxx sterling nonfinancial corporate bond index has gained 4.7 percent since March 4. The benchmark index includes 260 bonds issued by companies including confectionary maker Cadbury Plc, Vodafone Plc and supermarket chain Tesco Plc.

“Given that it was a groundbreaking operation, it went pretty well,” says John Wraith, head of sterling interest-rate strategy at RBC Capital Markets in London.

The Fed and the BOE, like other central banks, are struggling to find fresh ways to rescue their economies as they run out of room to cut interest rates further. King cut the BOE’s benchmark rate to 0.5 percent March 5, and the Fed’s overnight lending-rate target has been between zero and 0.25 percent since Dec. 16. Both are record lows.

The Bank of Japan is focusing on measures to improve corporate finance, rather than on boosting the money supply. Governor Masaaki Shirakawa, 59, argues that quantitative easing had only a limited effect on improving the economy when the BOJ tried it earlier this decade, although it did help stabilize the financial system.

Shirakawa’s Intentions

“Shirakawa doesn’t seem to have any intention of reviving quantitative easing by using a reserve target,” says Izuru Kato, chief market economist at Totan Research Co. in Tokyo.

The BOJ, which reduced its benchmark interest rate to 0.1 percent in December, is buying commercial paper and corporate bonds and has resumed purchases of shares from financial institutions. Shirakawa, though, is resisting pressure from politicians to increase the BOJ’s purchases of government bonds to help finance a stimulus package.

The Swiss National Bank is taking a different tack. After cutting its main lending rate to 0.25 percent March 12, the central bank started selling Swiss francs in the foreign- exchange market. The flood of new francs drove the Swiss currency down 3.4 percent against the euro March 12 and 13.

Exchange Rates

When central banks fail to align their nontraditional policies, “that can be hugely destructive” for exchange rates, says Richard Portes, professor of economics at the London Business School. After King unveiled his plans March 5, the pound fell 3.4 percent against the euro through March 13.

European Central Bank President Jean-Claude Trichet has been reluctant to emulate the policies of some of his fellow central bankers. The ECB’s key rate, at 1.5 percent, is the highest among major central banks in the industrial world. Trichet, 66, said March 5 that while the ECB is examining “nonstandard measures,” it hasn’t made any decisions on their use.

Bernanke and the Fed led the way last year in taking unconventional steps to aid the economy by supporting the commercial-paper market and moving to buy mortgage-related debt, says David Jones, president of Denver-based DMJ Advisors.

“Now he’s got to decide whether it goes all the way and buys Treasuries,” says Jones, author of four books on the Fed. “At some point,” he predicts, the central bank will.

To contact the reporter on this story: Rich Miller in Washington rmiller28@bloomberg.net

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European Payrolls Shrink by Record as Economic Slump Deepens

By Emma Ross-Thomas

March 16 (Bloomberg) -- European payrolls contracted by the most on record in the fourth quarter as the global financial crisis forced companies to scale back production and cut jobs.

Employment in the euro region shrank 0.3 percent from the previous three months, the second straight contraction and the biggest decline since the data series started in 1995, the European Union statistics office in Luxembourg said today. Compared with the year-earlier period, payrolls stagnated in the fourth quarter, and full-year growth slowed to 0.8 percent from 1.8 percent in 2007. A separate report showed inflation held near the lowest in 10 years in February.

Companies from auto-parts maker Continental AG to oil company Total SA are laying off workers to weather the deepening global recession. With euro-area unemployment at a two-year high and inflation at a decade low, growing concerns about deflation are putting pressure on the European Central Bank to announce new measures to stimulate lending.

“We’re definitely going to see employment fall a lot further,” said Howard Archer, chief U.K. and European economist at IHS Global Insight in London. “It’s likely to bring inflation down further, or at least keep inflation limited,” he said, adding that employment may continue to decline “well into next year.”

With oil prices down by two-thirds since a July peak, consumer prices in the euro area rose 1.2 percent from a year earlier in February, holding near the lowest rate since 1999. Retail sales have declined for eight months and Carrefour SA, Europe’s largest retailer, said on March 12 that it would step up price cuts.

Global Economy

Goldman Sachs Group Inc. expects the euro-area economy to shrink by 3.6 percent this year and lowered its forecast for the global economy on March 13 to a 1 percent contraction. The World Bank has also said the world economy may contract this year for the first time since World War II.

Finance chiefs from the Group of 20 meeting in Britain over the weekend pledged a “sustained effort” to end the worldwide slump. As the credit freeze threatens to push the global economy deeper into its worst recession in six decades, the G-20 vowed to clean up the toxic assets that helped trigger the financial crisis and led banks to rack up more than $1 trillion in losses.

Hanover, Germany-based Continental, Europe’s second-biggest auto-parts manufacturer, said on March 11 that it plans to eliminate 1,900 jobs in the next 12 months. Paris-based Total, Europe’s third-largest oil company, plans to cut 555 positions at its refining and petrochemicals operations in France.

Rate Cut

The ECB has reduced its key interest rate by more than half since early October to a record low of 1.5 percent in its efforts to combat the worst global recession since World War II. The central bank expects inflation to average just 0.4 percent this year, and ECB President Jean-Claude Trichet said last week that deflationary risks were “negligible” even as he left the door open to another rate cut.

“Most analysts, including us, are thinking the ECB is underestimating the risk of deflation,” said Martin van Vliet, senior economist at ING Bank in Amsterdam. “There’s a risk that lower headline inflation, lower core inflation will start to impact on expectations of households and markets and that’s what the ECB is sort of in denial about.”

Data last week added to deflation concerns. European producer prices unexpectedly fell on an annual basis in January for the first time since 2004 as German wholesale prices declined the most in almost 22 years.

The statistics office estimates that the total number of people employed in the euro area was 145.4 million in the fourth quarter. The total in the 27-nation EU was 225.3 million.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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