NYSE Loses Trades Fastest in a Year and Nasdaq Isn’t the Winner

By Edgar Ortega

June 24 (Bloomberg) -- NYSE Euronext’s control of U.S. stock trading is slipping away.

Two-hundred seventeen years after the New York Stock Exchange was founded under a Wall Street buttonwood tree, its modern-day parent executed a record low 30.2 percent of May’s trades, data compiled by Bloomberg show. That’s down 2.8 points from February for the worst three months since June 2008. The beneficiary wasn’t Nasdaq OMX Group Inc., the Big Board’s main rival for 38 years. It was Direct Edge Holdings LLC and Bats Exchange Inc., which more than doubled their combined share since August to 22.8 percent.

“When you are in a purely electronic marketplace, the fact that you’re the original or the oldest guy standing doesn’t mean anything anymore,” said Michael Rosen, a senior vice president at UNX Inc., a Los Angeles brokerage. “The people doing the trading aren’t buying the story of the Nasdaq or the NYSE. They just want the fastest and best execution they can get at the lowest price.”

NYSE Euronext’s share in the world’s biggest stock market declined even after the $3 billion purchase of the Chicago-based Archipelago electronic exchange in 2006. That highlights the growing influence of alternative trading systems like Bats and Direct Edge, both majority-owned by Wall Street firms.

‘Transformative’ Deal

The notion “that the legacy exchanges can acquire their way to market share dominance is suspect because order flow is portable,” said Jamie Selway, who founded the New York brokerage White Cap Trading LLC in 2003 after stints at Archipelago and Nasdaq. The NYSE’s 2006 acquisition still “stands the test of time” because it “was transformative,” added Selway, now a Bats Exchange board member. “I bet order flow was an afterthought.”

An average of 8.86 billion shares worth $69.5 billion changed hands daily last year in the U.S. stock market, according to Bloomberg data. When the NYSE-Archipelago deal was unveiled in April 2005, there were half as many transactions and the two companies handled 50.7 percent of the total volume.

John Thain, then the NYSE’s chief executive officer, called the acquisition “an essential step to maintain our global competitiveness and leadership” as overseas rivals “expand their reach and capture market share.”

Jesse Derris, Thain’s spokesman at the public relations firm Sunshine Sachs & Associates, said Thain was unavailable to comment.

First Place

The deal transformed the Big Board from a member-owned nonprofit organization into a publicly traded company and the world’s largest stock-exchange operator. Its revenue almost tripled to $4.7 billion last year, from $1.63 billion in 2005, according to the 2008 report.

NYSE Euronext handled $38.05 trillion in stock trades across seven equity markets last year under CEO Duncan Niederauer, a 49-year-old former Goldman Sachs Group Inc. executive hired in 2007, according to the World Federation of Exchanges in Paris. Nasdaq OMX was behind at $37.78 trillion. Their closest rival, London Stock Exchange Group Plc, oversaw $7.77 trillion. The federation’s 51 member markets handled a total $113 trillion in 2008.

In the U.S., NYSE Euronext’s share of trading has shrunk by 35 percent since the merger, falling each of the past seven months, its longest losing streak since at least 2005, Bloomberg data show. Nasdaq’s market share gains from its $1.12 billion acquisition of rivals in 2004 and 2005 have evaporated.

Lagging Stocks

The NYSE and Nasdaq are home to all public U.S. companies, which have a total market value of $10.6 trillion. Their combined grip on trading has waned to 50.8 percent from 74.1 percent in March 2006.

NYSE Euronext and Nasdaq OMX are the worst stocks this year among 18 bourses in the FTSE/Mondo Visione Exchanges Index, even as average daily U.S. trading climbed to a record in March. The index has gained 32 percent this year through yesterday as Nasdaq slumped 18 percent and NYSE Euronext declined 3.3 percent. Australia’s ASX Ltd., up 5.5 percent, was third-worst.

Joseph Mecane, NYSE Euronext’s chief administrative officer for U.S. markets, said the company remains the nation’s dominant marketplace and is fighting to regain some lost business by replacing its 25-year-old SuperDOT trading system. The new one will cut processing time by 90 percent to less than 10 milliseconds, making the NYSE “as fast as all the other channels” offered by rivals, Niederauer said this month.

‘Competitive Space’

“We’re hopeful that it will have a little bit of a boost for our market share,” Mecane said in an interview. “But it continues to be a very competitive space. The brokers will keep any one venue from growing too large.”

The Big Board dominated U.S. stock trading for two centuries until 1999, when Nasdaq started to catch up as prices for technology stocks listed on its exchange soared, data from the World Federation of Exchanges show.

Back then, the Nasdaq-NYSE rivalry was focused on persuading companies to list shares on their own boards and dominating the buying and selling of those stocks. Richard Grasso, the Big Board’s chairman and CEO from 1995 to 2003, used to say he had reserved the ticker symbols M and I for Microsoft Corp. and Intel Corp. to lure them from Nasdaq, where they still reside.

Nasdaq, founded in 1971, lost ground against new electronic markets during the first half of this decade. The share of trading of its listed stocks fell to 51.3 percent in 2004 from 61.6 percent in 2000, when the exchange became a for-profit company, according to regulatory filings.

Down Again

By acquiring the Inet and Brut electronic trading networks, Nasdaq clawed back to 57 percent in 2005, U.S. Securities and Exchange Commission filings show. By April, it was back down to 34.4 percent.

In 2006, the Big Board’s share of its listed stocks dipped under 75 percent for the first time since at least 1976, when the exchange started keeping records.

The New York company commanded 38.9 percent of the trading volume in its listed stocks last month, more than Nasdaq, Direct Edge and Bats combined. Most of the remainder is handled by brokerages that arrange private sales between their own customers. Bloomberg LP, the parent of Bloomberg News, owns a rival electronic stock-trading system, Bloomberg Tradebook LLC.

SEC rules made it easier for marketplaces to compete for trades in 2006. Joe Ratterman, CEO of Bats Exchange, said traders want to foster that rivalry by distributing their business to multiple venues. The Kansas City, Missouri-based company was founded in 2005 and sold a majority stake to a group of 11 securities firms, including Morgan Stanley and JPMorgan Chase & Co.

‘Keeping Diversity’

“The industry won’t let any market center grow to more than 20 percent or 25 percent of market share,” said Ratterman, 43. “The reason has a lot to do with keeping diversity of liquidity pools and resiliency.”

To fend off competition, NYSE Euronext and Nasdaq have cut transaction costs for brokerages by 50 percent and overhauled their trading systems.

They also have expanded into Europe and derivatives, decreasing their reliance on U.S. stock trading to generate revenue. Last year, NYSE Euronext and Nasdaq got 63.2 percent and 84.7 percent of their total revenues from the U.S., down from 100 percent and 95.4 percent in 2006. NYSE Euronext and Depository Trust & Clearing Corp. on June 18 announced plans for a joint venture to clear U.S. fixed-income derivatives.

Niederauer, the 49-year-old NYSE Euronext CEO, told investors this month that the company has fended off competition by retaining the largest slice of trading in its listed stocks.

‘Pretty Satisfied’

“We have stemmed the tide on that,” he said at a June 5 conference organized by Sandler O’Neill & Partners LP, a New York brokerage. “I’m pretty satisfied for the moment that we are bigger than the next three competitors combined.”

Nasdaq CEO Robert Greifeld is trying to offset its market- share losses by letting more brokerages install trading equipment in Nasdaq’s facilities to shave milliseconds off the time it takes to execute buy and sell orders. That strategy generated $99.2 million of its $1.46 billion in net revenue last year.

“They want to put their cabinets in our data centers because they want to give us order flow, so it’s a double win for us,” Greifeld, 51, said in an interview last month. “We will be in the position to attract new market participants and increase liquidity.”

Direct Edge plans to introduce a lower-cost trading system once it gains official exchange status from the SEC. The Jersey City, New Jersey, company started operating in October 2005 and is controlled by Goldman Sachs, Knight Capital Group Inc., the Chicago hedge fund Citadel Investment Group LLC and International Securities Exchange Holdings Inc. in New York.

‘Challenge’ for Upstarts

“These are great organizations with a lot of resources, and none of them like losing business,” Direct Edge CEO Bill O’Brien, 38, said of his more-established rivals in an interview. “That puts the challenge back on us.”

The upstarts’ market-share growth may be limited because their emergence makes buying and selling of stocks more complex for investors used to one-stop shopping.

“More fragmentation is not better,” said Thomas Garcia, who runs the Santa Fe, New Mexico, trading desk at Thornburg Investment Management Inc., which oversees $40 billion in assets. “Give me the liquidity in one spot, and I’ll trade with you.”

To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net.

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Darden, Oracle, MGM Mirage, PetroQuest: U.S. Equity Preview

By Lu Wang

June 24 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Amerigroup Corp. (AGP US): The manager of government health plans said outpatient medical costs were higher than expected in first quarter.

Darden Restaurants Inc. (DRI US): The owner of the Olive Garden and Red Lobster chains said it expects to earn $2.85 a share at most in fiscal 2010. That trailed the average analyst estimate of $2.89 in a Bloomberg survey.

MGM Mirage (MGM US): The casino company “concluded that there is no longer substantial doubt about its ability to continue as a going concern.” The information was disclosed in a regulatory filing.

Oracle Corp. (ORCL US): The world’s second-largest software maker reported fourth-quarter profit that topped analysts’ estimates after customers renewed contracts for product updates and support.

PetroQuest Energy Inc. (PQ US): The oil and gas producer said it’s offering 10 million shares, raising money to fund drilling projects.

PetSmart Inc. (PETM US): The largest U.S. pet-store chain boosted its quarterly dividend to 10 cents a share from 3 cents a share.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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U.S. Stock-Index Futures Advance; Oracle, Alcoa Rise in Europe

By Daniela Silberstein

June 24 (Bloomberg) -- U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will climb for a second day, as Oracle Corp. reported better-than-estimated earnings and commodities increased.

Oracle, the world’s second-largest software maker, gained 1.9 percent in Germany as it signaled demand is improving. Alcoa Inc., the biggest U.S. aluminum producer, advanced with higher metal prices. Investors will also watch reports on durable goods, new home sales and commentary from the Federal Reserve for clues on the health of the economy.

“Everything depends on the economic data and what the Fed has to say about the economy,” said Gerold Kuehne, who manages about $115 million in U.S. equities at LLB Asset Management AG in Vaduz, Liechtenstein. “We may extend yesterday’s advance if we have a positive surprise, but the market has risen too much since March to be able to absorb any negative surprises.”

Futures on the S&P 500 expiring in September rose 0.5 percent to 894.80 as of 10:56 a.m. in London. Dow Jones Industrial Average futures climbed 0.5 percent to 8,296, and Nasdaq-100 Index futures increased 0.4 percent to 1,430. Shares in Europe and Asia also advanced.

U.S. stocks gained yesterday as higher oil and metal prices lifted commodity producers and a better-than-estimated auction of Treasury notes eased concern that record government borrowing will boost interest rates.

Signs of Easing

The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years as the U.S. slump shows signs of easing. The combined economy of the world’s most-industrialized countries will shrink 4.1 percent this year and grow 0.7 percent in 2010, the OECD said today. The new projections compare with March forecasts for contractions of 4.3 percent and 0.1 percent.

A 40 percent rebound from its 12-year low on March 9 through June 12 left the S&P 500 valued at 14.16 times its companies’ earnings, near the highest level since October. The index has since retreated 5.4 percent.

The measure is poised to resume its rally, according to a technical indicator called the “golden cross” that’s considered a bullish signal by analysts who make predictions based on patterns in price charts.

The 50-day moving average for the S&P 500 exceeded its average price for the prior 200 days yesterday for the first time since December 2007. A 50-day average moving higher than a 200-day average is termed a golden cross by technical analysts.

Oracle, Microsoft

Oracle advanced 1.9 percent to $20.25. Excluding some costs, profit was 46 cents a share in the period ended May 31, the company said. Analysts in a Bloomberg survey had estimated 44 cents on average. Oracle President Safra Catz said customers are showing renewed interest in buying software, a sign they expect the recession to ease up.

Microsoft Corp., the world’s biggest software maker, increased 0.7 percent to $23.50.

Alcoa added 1.2 percent to $10.12 as copper, aluminum, zinc and lead all climbed on the London Metal Exchange. Newmont Mining Corp., the largest U.S. gold producer, advanced 0.9 percent to $41.70.

A Commerce report due at 8:30 a.m. in Washington may show bookings for goods meant to last several years slid 0.9 percent in May, falling for the second time in three months, a sign companies still lack confidence the recession will soon end, a Bloomberg survey of economists showed. Durable-goods orders excluding transportation equipment may have also declined.

Economy Watch

Purchases of new homes rose 2.3 percent in May to an annual pace of 360,000 as prices dropped, according to the median estimate in a Bloomberg survey of economists. The data is scheduled for 10 a.m.

Fed officials will probably seek to reassure investors they can keep short-term interest rates at a record low without igniting inflation. The Fed’s Open Market Committee, concluding a two-day meeting, is scheduled to issue its statement around 2:15 p.m. Policy makers may affirm plans to keep the benchmark federal funds rate in the range of zero to 0.25 percent, economists said.

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.

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The JPY Rises Against The Euro As Asian Stocks Slide

Daily Forex Fundamentals | Written by Finotec Group | Jun 23 09 08:55 GMT |

The JPY rose against the euro as Asian stocks plummeted on concern the global recession will be prolonged, spurring demand for the relative safety of Japan's currency. The JPY gained against all 16 most-traded currencies before a U.S. report tomorrow that economists say will show durable-goods orders declined in May. The Japanese currency also gained for a third day against the dollar after the World Bank yesterday forecast the global recession will be deeper than it earlier projected. 'Worries that the 'green shoots' of the global recovery are unlikely to be sustainable may make investors risk averse,' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. 'This will probably lead to yen strength.' The EUR/JPY is currently trading at 132.35 as of 9:00am, London Time Canada's dollar the loonie fell against its U.S. counterpart on speculation recovery from the first global recession since World War II will take longer than some forecast. 'There's a little bit more focus on the fact that the green shoots are just that, we haven't seen the growth,' said Jonathan Gencher, Toronto-based director of currency sales at BMO Capital Markets, a unit of Canada's fourth-largest bank. 'Today risk is off.' Canada's currency still was headed for its first three- month gain in four quarters. It appreciated the most last month in almost six decades as investors ventured out of havens such as the greenback and yen into riskier assets, including stocks and commodity-linked currencies. Investors should close bets that the greenback will fall against the loonie, according to Citigroup Inc., which took such a so-called short U.S. dollar position on June 12 at C$1.1191, resulting in a 3 percent loss, a team of strategists wrote today in a note to clients. The USD/CAD is currently trading at 1.1550 as of 9:05am, London Time. The BOE is still thinking about how much more money to pump into the economy rather than when to withdraw existing stimulus, even if there are signs the worst of the downturn is over. A few surveys in the last few weeks have suggested the economy has started growing again or that at the very least its decline is moderating after it shrank by 1.9 percent in the first three months of the year. The Bank of England has cut the interest rate to a record low of 0.5 percent and embarked on a 125 billion pound asset-buying programme which is due to be completed by the end of July. The GBP/USD is currently trading at 1.6235 as of 9:16am, London Time. Finotec Group Inc. http://www.finotec.com/ Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

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Morning Forex Overview

Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | Jun 23 09 08:05 GMT |

Previous session overview The dollar is broadly higher Monday morning as it advances against all major currencies except the yen in response to a more risk averse mood in markets. Uncertainty surrounding the outcome of the U.S. Federal Reserve's Open Market committee announcement on Wednesday is contributing to an uncertain mood among investors, which is turn weighing on stocks and other riskier asset classes. News that the World Bank cut its forecast for the global economy in 2009 and escalating political tensions in Iran and North Korea contributed to the gains, BBH said. There are no significant U.S. data releases Monday, and the data calendar is relatively light for the balance of the week, with the focus falling squarely on the FOMC meeting. The major currency most under pressure has been the euro, but the pound has also suffered, hit by news that U.K. house prices have started falling again. The dollar is at JPY95.86 from JPY96.23 late Friday. The euro is down at USD1.3840 from USD1.3948 and at JPY132.69 from JPY134.22. The dollar is up at CHF1.0884 from CHF1.0803, and pound dipped to USD1.6403 from USD1.6496. Market expectation The market's focus on the next Federal Open Market Committee meeting has intensified as expectations of what the next move will be on U.S. interest rates have swung from one extreme to the next. Analysts blamed this uncertainty on the Fed's unconventional policy which has left the markets unclear about how the Fed is managing key rates in the market during this recession. EURGBP breaks above reported offers placed between stg0.8435/40 (not USD1.6435/40 as reported in an earlier bullet) and seen edging toward next reported resistance between stg0.8450/55. Above here can open a move on toward stg0.8485/90. Support remains in place toward stg0.8400, a break below to open a deeper move towards stg0.8380 ahead of stg0.8355/45. Pound trading heavy, traders said, with rate pressing in toward earlier lows around USD1.6405. Rate currently trades around USD1.6412, while euro-sterling gets pulled higher by euro-dollar. Bids remain in place toward USD1.6400, with stops noted on a break below. Next support noted at USD1.6380 ahead of USD1.6360/50. USDJPY eases back under JPY96.00 area for a look at the overnight low zone at JPY95.80 with a test of demand interest in that area, though flows are described as very light on the day but with the yen finding favor as risk trades are pared back. Trader noting trend support at JPY95.70 area warns of stops below. Dukascopy Swiss FX Group Legal disclaimer and risk disclosure This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

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Currency Pair Daily Forecasts

Daily Forex Technicals | Written by Finotec Group | Jun 23 09 09:00 GMT |

EUR/USD Daily Technical Reports EUR/USD-market strategy can be a sell from the level 1.3920$ Technical oscillators supporting the bearish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bearish crossover below the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bearish direction. Also, MA oscillators indicate a bearish cross on the short MA line. USD/JPY Daily Technical Reports USD/JPY-market strategy can be a buy from the level 95.30 Technical oscillators supporting the bullish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bullish crossover below the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bullish direction. Also, MA oscillators indicate a bullish cross on the short MA line. GBP/USD Daily Technical Reports GBP/USD-market strategy can be a sell from the level 1.6350$ Technical oscillators supporting the bearish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bearish crossover above the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bearish direction. Also, MA oscillators indicate a bearish cross on the short MA line USD/CHF Daily Technical Reports USD/CHF-market strategy can be a buy from the level 1.0815 Technical oscillators supporting the bullish trend for the currency pair To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the MACD lines after a bullish crossover above the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bullish direction. Also, MA oscillators indicate a bullish cross on the short MA line. Finotec Group Inc. http://www.finotec.com/ Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | Jun 23 09 07:04 GMT |

Rupee : Rupee had met our target of 48.66 as expected. It has broken the trend line resistance at 48.65 levels. Incase the rupee stays. Stay bearish (USD/INR : 48.85). Medium term bearish incase it holds above 48.65 trendline. Euro Euro plunged again after taking resistance at 1.40 plus levels to 1.3827 levels. Bias is clearly bearish . It is still maintaining a range bound move with the downward bias and breaking of 1.38 on a closing basis would push the pair to 1.3450. Daily trendlines have been consistently broken. ONLY and ONLY if it manages to maintain 1.4050 then we might have to reconsider the downtrend. (Eur/Usd:1.3830). Bearish Sterling :Cable made a kind of double top formation at 1.66 levels and still moving in quite a volatile fashion in last 8-9 days showing both sides movement. of 250 pips . Important support holds at 1.6200 levels breaking which we could see extreme bearishness. LOOKS QUITE PROBABLE. View needs to be reconsidered only if 1.6650 breaks. (Gbp/Usd: 1.6260). Medium term Bearish Yen :Dollar-Yen pair is trading sideways confined between the cluster support of 94 levels and resistance of 99.55. We should not initiate positions until this wide range breaks on either side. The bias is towards yen strength and dollar weakness due to increased risk aversion again. (USD/JPY : 95.20) Rangebound Australian Dollar :Aussie has also broken the up trendline due to fall in commodity prices across. We could target .7600 in days to come. Remain bearish overall due to slump in commodity prices overall. (Aud/Usd: 0.7826). Short term Bearish Gold :Gold is clearly bearish since its holding below its daily trend at $960. Our short positions initiated in 935 dollars are still on targeting below 900 dollars. (Gold- $914.63). Bearish Dollar Index : DX bounced back from 79 levels (as expected) and is currently trading above 80-mark. The chart is turning bullish since the downtrend line has been broken and market is holding above 80 levels. Till we see the levels above 80 the index holds bullish. (DI- 81.25) Bullish India Forex http://www.indiaforex.in DISCLAIMER 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 responsible 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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Nepal Asks Lenders to Expand Branches as Maoist Hostility Ends

By Cherian Thomas

June 23 (Bloomberg) -- Nepal’s central bank urged commercial lenders to take advantage of the end of a decade of Maoist violence to expand in rural areas and support economic growth, Governor Deependra Bahadur Kshetry said.

“The central bank’s top priority is to ensure commercial banking services reach everyone,” Kshetry said in an interview in his Nepal Rastra Bank office in Kathmandu yesterday. “Access to finance is the fundamental need for growth.”

Seventy percent of Nepal’s 26 million people don’t have access to commercial banks and the World Bank says there’s chance to correct that after Maoist rebels laid down arms in November 2006. A dearth of funding has choked economic growth in the Himalayan nation’s $9 billion economy, forcing more than a third of its people to eke a living on less than $1 a day.

“Spreading the wings of banks is key to Nepal’s development,” said Birat Thapa, an executive committee member of the Federation of Nepal Chambers of Commerce and Industry. “It’s starting to happen.”

Bank branches declined to 1.76 per 100,000 people in Nepal in 2006 from 2.09 in 2001 as the Maoist insurgency spread, making access to finance the worst in South Asia, according to a March 2009 World Bank report. In 2006, India had 6.4 bank branches per 100,000 people.

Rural Banking

Nepal has 26 commercial banks, and about 170 smaller financial institutions, according to the Nepal Rastra Bank.

“Earlier there was also this perception that rural banking is unviable -- it’s not the case any longer,” Kshetry said. “Remittances into rural areas from Nepalese living abroad have surged and banks are tempted to tap that.”

More than 2 million Nepalese work in the Gulf, South East Asian countries and other parts of the world. In the first nine months of the year ended March 31, they sent 150 billion rupees ($1.9 billion) to Nepal, an increase of 60 percent from the same period a year earlier. Remittances are the biggest foreign currency earnings of Nepal, and account for 40 percent of the total reserves.

Still, Nepal, Asia’s youngest democracy after its 240-year- old monarchy was ousted last year, is in the midst of political chaos again.

The Maoist-led government, which took power nine months ago after winning a general election, fell in May following a failed attempt to sack the head of the army.

A group of rival political parties led by Madhav Kumar Nepal of the Communist party of Nepal (Unified Marxist-Leninist) have formed a new ruling coalition.

Maoist Threat

The Maoists have pledged to boycott parliament and disrupt daily life in Nepal until the president reverses his move to reinstate the head of the army and apologizes.

The Maoists are scheduled to meet today to discuss the future of the party. It will be the first meeting of the 45- member politburo since party leader Pushpa Kamal Dahal -- known as Prachanda -- resigned as prime minister.

The unrest has promoted strikes in various parts of the country and crippled industrial production, which fell 1.5 percent in the 11 months to May, Kshetry said. Economic growth may slow to 3.5 percent in the year ending June 30 from 5.6 percent in the previous year, he said.

“I am hopeful that peace will prevail,” Kshetry said.

Kshetry said he can’t lower interest rates to support economic expansion because of high inflation. Nepal’s inflation rate climbed to 11.9 percent in March from 9 percent a year earlier because of a shortage of food and fuel, Kshetry said.

Interest Rate

The central bank raised the cash reserve ratio to 5.5 percent from 5 percent and the key bank rate to 6.5 percent from 6.25 percent in October 2008. It has kept policy rates unchanged since, Kshetry said.

“Next year, we will be able to scale inflation down,” the governor said, without giving a forecast.

Nepal, which shares an open border with India and pegs its currency to the Indian rupee, is relying on faster economic growth in India to pull its economy forward. Sixty percent of Nepal’s foreign trade is with India.

To contact the reporter on this story: Cherian Thomas in Kathmandu at Cthomas1@bloomberg.net

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U.S. Home Resales Probably Rose as Foreclosures Reduced Prices

By Courtney Schlisserman

June 23 (Bloomberg) -- Home resales in the U.S. probably advanced for a second month in May as record foreclosures caused prices to drop, economists said before a report today.

Purchases of existing homes rose 3 percent to a 4.82 million annual pace, the highest level since October, from 4.68 million in April, according to the median of 74 forecasts in a Bloomberg News survey. It would mark the first back-to-back increase since 2005.

Tax breaks for first-time buyers in the Obama administration’s stimulus plan, falling property values and lower mortgage rates have helped support the market. At the same time, any recovery is likely to be limited with unemployment rising and borrowing costs shooting back up.

“We’re seeing some early signs of stabilization in home demand but it’s important to emphasize the level of sales remains extraordinarily low,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “Housing investment is likely to stop being a drag on growth some time this year but, given the weakness in sales, it’s unlikely to give positive contributions any time soon.”

The National Association of Realtors is scheduled to release the report at 10 a.m. in Washington. Estimates in the Bloomberg News survey ranged from 4.6 million to 5 million.

May traditionally is one of the top three sales months of the year as the weather turns warmer and families prepare to move before the start of the next school year, according to the NAR. The group adjusts the figures for these seasonal variations in order to facilitate month-to-month comparisons.

Record Foreclosures

Foreclosure filings in the U.S. surpassed 300,000 for a third straight month in May and may reach a record 1.8 million by the first half of the year, RealtyTrac Inc. said June 11.

The median price of an existing home has fallen 26 percent from the peak reached in July 2006 as sales slumped and financial institutions auctioned off foreclosed properties. While the loss has devastated some families, others were able to buy a house for the first time because of the drop in values.

The federal government is trying to stabilize the market by offering lenders incentives to modify the terms of delinquent mortgages and the Federal Reserve has pledged to buy mortgage- backed securities to free up funding for home loans.

The Realtors’ group affordability index was at 174.8 in April compared with a record high of 176.9 reached in January. A reading of 100 means a household earning the median income could afford the median-priced home at current mortgage rates.

Tax Credit

In addition, the Obama administration’s stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1. About 40 percent of purchases in April were by people buying a home for the first time, the NAR said last month.

Still, soaring unemployment and high levels of debt will put home ownership beyond the reach of would-be buyers even as home prices fall, according to a report yesterday by Harvard University’s Joint Center for Housing Studies.

Mortgage borrowing costs are also starting to climb. The rate on a 30-year fixed loan has averaged 5.42 percent so far this month, up from 4.86 percent in May, according to figures from Freddie Mac. The rate reached 4.78 percent in April, the lowest level since records began in 1972.

The Standard & Poor’s homebuilder supercomposite index has retreated 24 percent since reaching a seven-month high on May 4 as concern mounted that the backup in interest rates will choke off any recovery before it develops.

Construction Steadies

Recent increases in home construction are a sign the market is starting to stabilize, helped by government programs such as the tax credits for first-time homebuyers, Shaun Donovan, secretary of Housing and Urban Development, said June 18.

Housing starts increased 17 percent in May, the Commerce Department said last week.

The Fed is buying as much as $1.75 trillion of housing debt and Treasuries this year in a bid to lower borrowing costs. Total assets on the balance sheet have expanded by $1.18 trillion over the past year to $2 trillion.

The central bank is scheduled to hold its policy meeting today and tomorrow. It has held the benchmark interest rate near zero since December.

Builders are seeing some signs of improvement. While Toll Brothers Inc. and Hovnanian Enterprises Inc. reported second- quarter losses that exceeded analysts’ forecasts, they both noted there were signs of stability in the housing market.

“Although we lowered our sales prices further, which resulted in the land impairments we took during the second quarter, we have seen more stability in home prices over the most recent six weeks,” Chief Executive Officer Ara Hovnanian, said in a statement June 2.

                        Bloomberg Survey

======================================
                            Exist
                            Homes
                             Mlns
======================================

Date of Release              06/23
Observation Period             May
--------------------------------------
Median                        4.82
Average                       4.82
High Forecast                 5.00
Low Forecast                  4.60
Number of Participants          74
Previous                      4.68
--------------------------------------
4CAST Ltd.                    4.85
Action Economics              4.80
AIG Investments               4.80
Aletti Gestielle SGR          4.80
Ameriprise Financial Inc      4.82
Argus Research Corp.          4.80
Banesto                       4.82
Bank of Tokyo- Mitsubishi     4.84
Bantleon Bank AG              4.90
Barclays Capital              4.80
BBVA                          4.83
BMO Capital Markets           4.82
BNP Paribas                   4.95
Briefing.com                  4.85
Calyon                        4.78
Capital Economics             4.90
CIBC World Markets            4.90
Citi                          4.80
ClearView Economics           4.75
Commerzbank AG                4.82
Credit Suisse                 4.90
Daiwa Securities America      4.60
Danske Bank                   4.71
DekaBank                      5.00
Desjardins Group              4.75
Deutsche Bank Securities      4.75
DZ Bank                       4.80
Exane                         4.86
First Trust Advisors          4.85
Fortis                        4.80
Goldman, Sachs & Co.          4.80
Helaba                        4.85
Herrmann Forecasting          4.83
High Frequency Economics      5.00
HSBC Markets                  4.90
IDEAglobal                    4.80
IHS Global Insight            4.68
Informa Global Markets        4.75
ING Financial Markets         4.90
Insight Economics             4.75
Intesa-SanPaulo               4.85
J.P. Morgan Chase             4.85
Janney Montgomery Scott L     4.79
Johnson Illington Advisor     4.65
Landesbank Berlin             4.95
Landesbank BW                 4.75
Merrill Lynch                 4.75
MFC Global Investment Man     4.75
Mizuho Securities             4.78
Moody’s Economy.com           4.80
Morgan Stanley & Co.          4.78
National Bank Financial       4.90
Natixis                       4.80
Nomura Securities Intl.       4.79
PNC Bank                      4.90
Raymond James                 4.75
RBS Securities Inc.           4.85
Ried, Thunberg & Co.          4.85
Schneider Foreign Exchang     4.70
Scotia Capital                4.85
Standard Chartered            4.85
Stone & McCarthy Research     4.80
TD Securities                 4.87
Thomson Reuters/IFR           4.87
Tullett Prebon                4.85
UBS Securities LLC            4.90
Unicredit MIB                 4.75
University of Maryland        4.85
Wachovia Corp.                4.70
Wells Fargo & Co.             4.80
WestLB AG                     4.80
Westpac Banking Co.           4.96
Woodley Park Research         4.86
Wrightson Associates          4.85
======================================

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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China’s Economy Shows Positive Signs, Su Ning Says

By Bloomberg News

June 23 (Bloomberg) -- People’s Bank of China Vice Governor Su Ning said the world’s third-biggest economy is showing positive signs and the government is staying confident.

“We will have firm confidence and fight through the difficulties,” Su said at a financial conference in Beijing today. While the overall situation is stabilizing, the economy’s fundamentals are still not solid, Su said.

Chinese officials are striking a tone of cautious optimism as lending and investment surge and manufacturing expands, helping to drive a recovery against the backdrop of a global recession. The economy is in a “critical” phase as the government’s 4 trillion yuan ($585 billion) stimulus plan counters a collapse in trade, according to a June 21 statement by Premier Wen Jiabao.

“The economy is in better shape than the officials are indicating,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “They’ve already bedded down the recovery,” he said, citing a flood of money into the financial system, investment gains and increases in the official manufacturing index.

The Shanghai Composite Index fell 1.4 percent as of 11:30 a.m. local time after oil and copper declined, stoking concern that a global recovery will falter..

Exports, Unemployment

“Pushed by a series of policies, our economic conditions have shown some positive changes,” Su said.

The economy may grow almost 8 percent in the three months ending June 30 from a year earlier, up from 6.1 percent in the first quarter, statistics bureau economist Guo Tongxin estimated on the agency’s Web site today. Gross domestic product may climb more than 2 percent quarter-on-quarter, Guo said. The economist’s report was a personal view, the bureau said.

After bottoming out in the fourth quarter, the economy still faces falling exports, increasing company losses and industrial overcapacity, Guo said.

TCL Corp., the nation’s biggest maker of consumer electronics, posted a 97 percent plunge in first-quarter profit as exports of televisions and mobile phones fell.

Officials won’t play up the economy’s strength for fear of encouraging trading partners to push for more appreciation of the yuan, Maguire said. The central bank halted the currency’s gains against the dollar in July last year, helping exporters after the 21 percent increase since the end of a fixed exchange rate in 2005.

World Bank Forecast

China’s government may also be waiting for signs of a “firmer recovery” in western nations’ consumption, the economist said.

The World Bank raised last week its 2009 growth forecast for China and advised policy makers to delay until 2010 any additional stimulus plan. The economy will expand 7.2 percent from a year earlier, up from a 6.5 percent forecast in March, the Washington-based lender said.

In contrast with China’s prospects, the World Bank cut yesterday its forecast for the world economy, predicting a 2.9 percent contraction this year.

The surge in new loans, triggered by the central bank scrapping lending quotas and cutting interest rates in the final four months of last year, has continued this month, according to a report in the Shanghai Securities News yesterday.

Banks are set to lend more in June than in May, the newspaper said, citing unidentified sources. Last month, new loans more than doubled from a year earlier.

--Zhao Yidi, Paul Panckhurst, Irene Shen, John Liu. Editors: Paul Panckhurst, Victoria Batchelor.

To contact the Bloomberg News staff for this story: Yidi Zhao in Beijing at yzhao7@bloomberg.net

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Japan Tankan Sentiment Likely to Rise From Record Low

By Jason Clenfield

June 23 (Bloomberg) -- The Bank of Japan’s Tankan survey next week will probably show that large manufacturers consider the worst of the recession to be over.

An index of sentiment among large makers of electronics, cars and other goods will rise to minus 43 from a record low of minus 58 in March, economists predict the report will show on July 1. A negative number means pessimists outnumber optimists.

“We’re seeing a rebound from rock bottom,” said Jan Lambregts, head of financial markets research at Rabobank International in Hong Kong. “For businesses it’s not Armageddon anymore, but it’s still a tough environment.”

Some $2.2 trillion in stimulus worldwide helped stabilize overseas sales for companies from Nissan Motor Co. to Teijin Ltd., and leaner inventories allowed manufacturers such as Nippon Steel Corp. to raise production. Still, companies saddled with idle factories and falling profits are likely to cut investments and jobs, limiting the scope of a recovery.

The Nikkei 225 Stock Average fell 2.8 percent today and has lost 5.8 percent since reaching a nine-month high on June 12 on renewed concern the economy may remain weak. The yen rose 0.8 percent to 95.06 per dollar from 95.87 late yesterday, eroding the value of exporters’ profits earned abroad.

Analysts surveyed by Bloomberg estimate the economy will resume growth in the three months ending June 30 after last quarter’s record 14.2 percent annualized contraction.

Chinese Demand

Easing pessimism among Japan’s manufacturers has much do with the outlook for China, where 4 trillion yuan ($586 billion) in government spending is feeding demand for Japan’s heavy equipment, autos and materials.

Nissan’s sales in China rose 37 percent in April, boosted by a subsidy that halves the consumption tax on small cars. Teijin, a plastics maker, last month resumed full production at its plant near Shanghai and may have to raise domestic output to fill orders, spokesman Tatsuya Inaba said last week.

U.S. President Barack Obama’s stimulus measures are also benefiting Japanese businesses. Mazda Motor Corp. said its U.S. sales will pick up because of the Obama administration’s “cash for clunkers” program that gives as much as $4,500 to consumers who trade in old vehicles for new ones.

Consumers Less Gloomy

Japan’s 25 trillion yen ($260 billion) in extra spending pledged since October has pushed consumer sentiment to a 14- month high. Sales of electronics rose 18 percent since the government last month introduced a program encouraging consumers to buy eco-friendly products, according to Tokyo- based researcher Gfk Marketing Service Japan Ltd.

Nippon Steel plans to use 60 percent of capacity at its biggest mill this month, up from 50 percent previously, as its customers boost output to replace inventories. Japanese companies increased production at the fastest rate in 56 years in April from a month earlier.

Companies are also finding it easier to borrow money as debt markets thaw and the government guarantees more loans. Bankruptcies fell in May for the first time in 11 months. Yields on three-month commercial paper, a source of short-term funds, dropped about four-fifths this year. Sony Corp. raised 220 billion yen this month through its biggest-ever bond sale.

Still, business sentiment at minus 43 would remain worse than at any time during the previous recession in 2002. Exports and output have slumped by more than a third from last year’s levels and, as of April, manufacturers were using only about half of their productive capacity.

‘Nasty Work’

That’s putting pressure on managers to cut jobs and slash investment. Large companies plan to reduce spending by 7 percent in the current business year, the biggest pullback since 2002, economists predict the Tankan survey will show.

“Companies are adjusting to new realities,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “They’re cutting back and reviewing business plans; it’s nasty work and it’s not good for the economy.”

Toyota Motor Corp., expecting its second year of losses, will reduce capital investment by 36 percent this year and cut pay for factory workers by 15 percent. The company estimates it will sell only 6.5 million vehicles this year, less than the 10 million it’s equipped to build.

Sentiment at Japan’s service companies will improve to minus 26 from minus 31, economists said.

A lack of demand has started to weigh on prices, sparking concern the economy may slip back into the deflation that caused wages to fall by about 10 percent in the decade through 2005. Consumer prices fell for a second month in April, wages have slumped for 11 months and companies including supermarket operator Daiei Inc. have lowered prices to entice customers.

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

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Moody’s Says U.S.’s Aaa Debt Rating ‘Remains Solid’

By Keiko Ujikane and Jason Clenfield

June 23 (Bloomberg) -- The U.S. government’s Aaa credit rating “remains solid,” said Pierre Cailleteau, managing director of sovereign risk at Moody’s Investors Service.

“Although the U.S. is losing altitude in the Aaa range, it is starting from a very strong base,” Cailleteau, who is chief international economist at Moody’s, said in Tokyo today. The economy is resilient enough to recover and the government is committed to raising taxes and cutting spending, he said.

The Congressional Budget Office projects the federal budget shortfall will reach a record $1.85 trillion this year as President Barack Obama tries to spend his way out of the worst recession in at least five decades. Obama has committed to reining in the budget deficit once a recovery is under way.

New York-based Moody’s last month affirmed the top credit rating for the U.S., saying it’s supported by “a diverse and resilient economy, strong government institutions, high per- capita income, and a central position in the global economy.”

Cailleteau said the dollar’s status as the world’s reserve currency won’t change soon. The U.S. economy has shrunk less than others including Germany and France even though it was at the center of the global financial crisis, the economist said.

The U.K. is also well placed to manage its debt, Cailleteau said. Standard & Poor’s lowered the U.K.’s rating outlook to “negative” from “stable” in May.

Cailleteau said it may take a decade for governments around the world to repair their finances after increasing spending to prop up their economies amid the global recession. Japan’s economic rebound is likely to be sluggish, he said.

Thomas J. Byrne, senior vice president of Moody’s, said at the same gathering that Japan’s Aa2 credit rating is consistent with the midterm outlook for the government’s finances.

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

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Dale Says BOE Purchases Show ‘Encouraging’ Signs

By Svenja O’Donnell

June 23 (Bloomberg) -- Bank of England Chief Economist Spencer Dale said the central bank’s program to buy assets with newly printed money is showing “encouraging” signs of helping the economy escape the recession.

The bank’s plan is “on track” for 125 billion pounds ($204 billion) in purchases by the end of July, Dale said at the Society of Business Economists annual conference in London.

“The growth rate of underlying broad money has picked up in recent months,” and “it is likely that yields are lower than they would have been” for gilts, Dale said today. “And in the corporate bond market, spreads have narrowed sharply.”

The Bank of England cut the benchmark interest rate to a record low and started printing money to buy bonds to fight “a deep recession,” Dale said. Responding to criticism that some purchases of gilts have been from foreign investors who are more likely to buy assets in currencies other than the pound, he said that wouldn’t curb the program’s effectiveness.

“It does not mean the asset purchases will not have any economic benefit,” he said. “Rather, more of the effect will come through a lower exchange rate than through a change in the relative price of domestic assets. As with interest-rate changes, the exchange rate is a key channel through which the monetary easing may be transmitted.”

Dale also noted criticism that the bank has prioritized buying gilts over corporate debt. He said “appropriately targeted” purchases could still improve the flow of credit.

Economic Significance

“It is important not to judge the economic significance of these purchases by their scale,” he said. “Even relatively small purchases of debt, if appropriately targeted, can improve liquidity and lower the cost of finance to businesses.”

The quantity of private sector assets the bank buys may also decline, Dale said.

“Over a period of time, as market functioning improves, the quantity of private-sector assets held by the asset purchase facility may well decline as assets mature and are rolled over into the private market,” he said. “This should be seen as a sign of success, not of dwindling support.”

Dale said it was still “early days” to judge whether the program had stimulated nominal spending.

He said that he has “little idea” how long the Bank of England will need to keep its benchmark interest rate at a record low of 0.5 percent, and that to make a time commitment on the rate “runs the risk of being overtaken by events.”

Dale reiterated comments made last week at a conference in Oslo that he supports the central bank’s use of an inflation target, which needs to be strengthened with additional tools to help preserve financial stability.

“The single most important lesson from the financial crisis is the need to expand the range of instruments available to policy makers,” Dale said.

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

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Bernanke Set to Defend Record as Reappointment Debate Begins

By Scott Lanman

June 23 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke will defend his unprecedented actions to prevent a financial collapse as debate on whether he should be reappointed begins.

Bernanke, whose term expires Jan. 31, faces lawmakers at a hearing this week on steps to aid Bank of America Corp.’s takeover of Merrill Lynch & Co. as Congress increasingly questions the Fed’s interventions. The session comes after a two-day meeting on monetary policy that starts today.

President Barack Obama has said the Fed chief has done an “extraordinary job” without committing to reappoint him. Treasury Secretary Timothy Geithner, in reference to a possible candidacy for Obama economic official Lawrence Summers, told a lawmaker last week it wasn’t “appropriate” to pledge that top advisers weren’t in the running for the job.

“The vultures are circling,” said David M. Jones, a former Fed economist who is president of DMJ Advisors LLC in Denver. Bernanke is “going to be on the defensive,” even after “turning confidence around” since the depths of the crisis, he predicted.

At stake is whether Bernanke, 55, pilots the Fed into an expanded financial-supervision role after overseeing the most aggressive use of the Fed’s powers since the Great Depression.

Odds for Bernanke

Through doubling the central bank’s balance sheet to $2.1 trillion, Bernanke has helped thaw credit markets and put the economy on a path toward recovery. Odds favor the former Princeton University economist, a Republican: Reappointment may be less disruptive to investors, and no first-term president has replaced a sitting chairman in 30 years. Many on Wall Street and in Washington view it as likely Bernanke will be reappointed.

“There’s a very strong case for reappointment,” said Douglas Lee, who runs Economics from Washington in Potomac, Maryland, and worked on Capitol Hill in the 1970s. “Removing a Fed chairman who is generally perceived to have done an outstanding job would be an enormous problem.”

Traders on online exchange Intrade place 65 percent odds on Bernanke’s renomination.

Still, any Obama decision may be half a year away, and the economy and financial markets could shift again. The jobless rate is still rising, and economists anticipate it will reach a quarter-century high of 10 percent at year-end. The Fed is mandated by Congress to achieve maximum employment as well as stable prices.

Summers, Yellen

Besides keeping Bernanke, Obama’s options include appointing Summers or Janet Yellen, both among the most prominent Democratic economists and veterans of the Clinton administration, Jones said. Bill Burton, a White House spokesman, declined to comment.

Summers, 54, a former Treasury secretary who heads Obama’s National Economic Council, is considered the front-runner should the president want a change. San Francisco Fed President Yellen, 62, was previously a Fed governor and chairman of the Council of Economic Advisers and would be the first female Fed chief.

Summers wants the job, Senator Robert Bennett of Utah, the No. 2 Republican on the Banking Committee, said in an interview. Asked if he would support Summers for Fed chairman, Bennett said: “I am told that Larry would very much like me to. I would have no objection to Larry.”

Bernanke has “done a good job under very difficult conditions,” Bennett also said. “Whether the president feels that way or not is another question.”

Frank Won’t Commit

House Financial Services Committee Chairman Barney Frank said he’s “very pleased” with Bernanke. “Beyond that I wouldn’t say” anything about a renomination, the Massachusetts Democrat said in an interview.

Bernanke took office in February 2006 with an agenda to make the Fed more transparent in setting monetary policy and to depersonalize the institution from its chairman, conferring weight to the views of other top officials. In 2007, his term became engulfed by the biggest financial crisis since the 1930s.

His record includes preventing the collapse of Bear Stearns Cos., extending emergency loans to investment banks, financing purchases of corporate debt, bailing out American International Group Inc. and shoring up consumer-credit markets.

Some signs have emerged that the crisis is waning. U.S. companies have sold at least $698 billion of debt this year, 24 percent more than the same period of 2008, Bloomberg data show. The Libor-OIS spread, which measures banks’ willingness to lend, has narrowed to 0.37 percentage point, from a record 3.64 points in October.

FOMC Meeting

The policy-setting Federal Open Market Committee gathers today in Washington to consider any change to its pledges to purchase as much as $300 billion of Treasuries and $1.45 trillion of housing debt and keep its benchmark interest rate near zero. The FOMC statement is expected about 2:15 p.m. tomorrow.

Among Bernanke’s most controversial steps have been allowing Lehman Brothers Holdings Inc. to fail and his discussions regarding Bank of America’s acquisition of Merrill Lynch.

His role in that takeover will be examined in a House Oversight Committee hearing June 25, when lawmakers plan to question whether he applied inappropriate pressure to Bank of America to complete the purchase of Merrill Lynch after the company discovered mounting losses.

At a June 11 hearing with Bank of America Chief Executive Officer Kenneth Lewis, the committee released internal Fed e- mails, some from Bernanke, obtained by subpoena. One missive from the Fed chairman indicated he saw Lewis’s threat to scuttle the deal as a “bargaining chip.”

House Subpoena

Republicans on the committee used the e-mails to argue the government overstepped its authority. Last week, the panel issued another subpoena for more Fed documents.

Bernanke has recent history on his side: Presidents Ronald Reagan, George H.W. Bush, Clinton and George W. Bush all reappointed Fed chairmen in their first terms. “He’s still got at least a decent chance,” said Jones, putting the odds at about 60-40 in Bernanke’s favor.

“His record has not been perfect, but it’s been pretty good,” said Senator Sherrod Brown, an Ohio Democrat on the Banking Committee, which will vet the nomination. On whether to keep Bernanke, “I leave that to the president,” he said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

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French Business Confidence Rises for a Third Straight Month

By Helene Fouquet

June 23 (Bloomberg) -- French business confidence rose for a third month in June, suggesting demand for manufactured goods in the euro-region’s second-largest economy may be rebounding and the economic slump easing.

An index of sentiment among 4,000 manufacturers rose to 75, from a revised 73 in May, Paris-based statistics office Insee said today. That was more than the median forecast of 74 by 16 economists in a Bloomberg News survey. The gauge fell in February to 68, the lowest since the data began in June 1962.

“We are still in the phase of recovery, rather than real positive growth,” said Joost Beaumont, an economist at Fortis Bank NV in Amsterdam. “But we are seeing these green shoots, including in Asia, in the U.S.” He expected French confidence to rise to 74.

President Nicolas Sarkozy has introduced about 30 billion euros ($41.6 billion) in tax cuts and spending that aim to pull the economy out of the deepest slump since World War II, inflating the deficit and debt to records. Finance Minister Christine Lagarde said she was cautious about signs that the recession was easing. Europe’s third-largest economy has contracted for four straight quarters, pushing the jobless rate to more than a two-year high.

The gain in business confidence contrasted with signs of slumping optimism among consumers. French household spending unexpectedly fell 0.2 percent in May and plunged 1.6 percent from a year earlier, a separate Insee report showed today.

Record Deficit

The government expects the economy to contract 3 percent this year before growing 0.5 percent in 2010 and the budget deficit may widen to between 7 percent and 7.5 percent of gross domestic product this year, a record and more than twice the European Union limit.

French manufacturers showed renewed optimism on overall production as the indicator surged to minus 40 from a revised minus 50, Insee said. They are less pessimistic about their own production outlook with that reading improving to minus 18 from a revised minus 28. Outlook on order books showed manufacturers expect them to remain low with that measure falling to minus 70 from minus 69 a month before.

The May business confidence reading was revised to 73 from the 72 initially reported, while the manufacturers’ own- production outlook was revised in May from minus 29.

To contact the reporter on this story: Helene Fouquet in Paris at Hfouquet1@bloomberg.net.

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