Most Asian Stock Markets Fall on Commodities; Japan Advances

By Shani Raja

Sept. 24 (Bloomberg) -- Most Asian stock markets fell, led by commodity and finance companies, as raw-material prices declined and Aiful Corp. forecast a full-year loss. Japan stocks rose as brokerages upgraded Toshiba Corp. and Fast Retailing Co.

Jiangxi Copper Co., China’s biggest producer of the metal, lost 3.6 percent in Hong Kong. Aiful, Japan’s second-largest consumer lender by assets, tumbled 24 percent. Toshiba, Japan’s biggest chipmaker, added 3.8 percent after Credit Suisse Group AG more than doubled its price estimate. Fast Retailing, the operator of the nation’s biggest casual clothing chain, jumped 5.3 percent after Goldman Sachs Group Inc. recommended the stock.

Stocks that fell about matched those that that rose on the MSCI Asia Pacific Index, which added 0.3 percent to 119.08 as of 6:39 p.m. in Tokyo. Japan resumed trading after a three-day holiday, during which the MSCI gauge rose 0.3 percent. The measure surged 42 percent in the past six months as stimulus measures around the world dragged economies out of recession.

“The consensus view now is that the worst is over,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “We need further evidence that the underlying economy is more self-sustaining and less reliant on stimulus in order to justify higher prices from here.”

Hong Kong’s Hang Seng Index slumped 2.5 percent as Metallurgical Corporation of China Ltd. sank 11 percent on its first day of trading. China’s Shanghai Composite Index gained 0.4 percent. Japan, India, Pakistan, and Indonesia also fell, while all other markets rose.

Earnings Forecast

Japan’s Nikkei 225 Stock Average climbed 1.7 percent, even as a government report showed exports declined for an 11th month in August. Japan Airlines Corp. fell 16 percent ahead of a transport ministry meeting to discuss restructuring. David Jones Ltd., Australia’s second-biggest department store, sank 3.9 percent after a profit forecast disappointed some investors.

Futures on the Standard & Poor’s 500 Index lost 0.1 percent. The gauge dropped 1 percent yesterday as the Federal Reserve signaled it will use fewer tools to bolster growth.

The Fed, following a two-day policy meeting, changed the wording in the final paragraph of its statement to say it will continue to employ a “wide range of tools” to bolster the economy. In its August statement, it said it would use “all available” tools.

The MSCI Asia Pacific Index has gained 69 percent from a five-year low on March 9 on speculation improved global growth will boost corporate earnings. The advance has driven the average price of the gauge’s members to 1.6 times book value, up from 1 at the low in March.

‘Clouding The Picture’

“The markets have priced in a fair degree of good news, but discerning how strong the recovery’s going to be is still problematic,” said Pengana’s Schroeders. “Uncertainty about when the government stimulus starts to be withdrawn is clouding the picture somewhat.” Jiangxi Copper sank 3.6 percent to HK$17.60. Copper futures lost 0.3 percent in after-hours trading, following yesterday’s 2 percent drop in New York. A gauge of six metals fell 1.6 percent in London yesterday, the most this week.

BHP Billiton Ltd., the world’s biggest mining company, dropped 1.6 percent to A$37.72. The stock also fell after Andres Ramirez, president of a union representing miners at one of BHP’s copper mines in Chile, said workers will vote on a strike next week after rejecting the company’s latest pay offer.

Woodside Petroleum Ltd., Australia’s No. 2 oil and gas producer, sank 2.6 percent to A$51.71 as crude oil lost 0.5 percent in after-hours trading, adding to yesterday’s 3.9 percent slump in New York. Inpex Corp., Japan’s largest oil explorer, dropped 0.7 percent to 809,000 yen.

Aiful Job Cuts

“Resource-related shares will be inevitably affected by the drop in commodity prices,” said Mitsushige Akino, who oversees the equivalent of $656 million at Ichiyoshi Investment Management Co. in Tokyo.

Aiful sank 24 percent to 102 yen on its loss forecast and plans to cut as much as 44 percent of its workforce.

The company said last week it plans to seek a reprieve on 280 billion yen of debt repayments after failure to tap credit markets left it struggling to finance an expected increase in claims for interest refunds from its customers.

The global credit crunch, worsened by the collapse of Lehman Brothers Holdings Inc. a year ago, has caused more than $1.6 trillion of writedowns and losses at the world’s biggest financial institutions. The MSCI Asia Pacific Index slumped by a record 43 percent in 2008.

Government Supervision

The resulting economic slowdown prompted a series of stimulus packages, government bailouts and interest-rate cuts around the world to revive global growth. Leaders from the Group of 20 countries will meet in Pittsburgh on Sept. 24-25 to work on an accord to prevent a repeat of the crisis.

Japan Air, which is under government supervision following state bailouts, fell 16 percent to 144 yen. President Haruka Nishimatsu will meet today with Transport Minister Seiji Maehara to discuss the airline, Asia’s most indebted carrier. The carrier’s lenders may ask the government to split the company up, Nikkei reported earlier this week.

Toshiba climbed 3.8 percent to 496 yen. Credit Suisse raised the stock to “outperform” from “neutral” and increased its price estimate more than twofold to 640 yen. Fast Retailing rallied 5.3 percent to 11,140 yen after it was boosted to “buy” from “neutral” by Sho Kawano, a Tokyo-based analyst at Goldman Sachs.

David Jones lost 3.9 percent to A$5.44. The company reported net income of A$65.4 million ($57 million) in the six months ended July 25 and maintained its earnings growth forecast for the current year.

‘High Expectations’

“The market had very high expectations and expected that they would upgrade guidance, which they didn’t,” said Angus Gluskie, who manages about $300 million at White Funds Management Pty. in Sydney.

In Hong Kong, Metallurgical Corporation, which helped build the “Bird’s Nest” Olympic stadium in Beijing, sank 11 percent to HK$5.63 on its first day of trading. The company’s shares surged 28 percent when it debuted in Shanghai on Sept. 21.

Samsung SDI Co., the world’s second-largest maker of plasma displays, fell 4 percent to 168,500 in Seoul. Samsung Securities Co. cut the stock to “hold” from “buy,” saying the company’s shares reflected the value of its electric-car battery business.

In Wellington, Hallenstein Glasson Holdings Ltd. rose 3.7 percent to NZ$3.05 after the clothing retailer reported greater- than-forecast full-year profit.

To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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Buyout Firms Return to Market as Select Medical Readies IPO

By Jason Kelly, Cristina Alesci and Michael Tsang

Sept. 24 (Bloomberg) -- The owners of Select Medical Holdings Inc. may almost double their money when the hospital operator goes public tomorrow as leveraged buyout firms take advantage of the steepest stock market rally in 70 years.

Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC will hold a stake valued at more than $1 billion if Select Medical fetches $12 a share, the midpoint for its initial public offering price. The private-equity firms invested $617 million in cash when acquiring the Mechanicsburg, Pennsylvania-based company in February 2005, according to a regulatory filing.

Buyout firms are lining up IPOs to repay debt used to purchase companies and return profits to their investors. KKR & Co., Silver Lake and Fortress Investment Group LLC are among those planning share sales amid a 57 percent gain by the Standard & Poor’s 500 Index since March 9.

“In an environment in which private-equity performance has suffered, the ability to demonstrate cash-on-cash returns by exiting investments at an attractive valuation is compelling and may help firms raise future funds,” said Andrew Wright, a partner at law firm Kirkland & Ellis LLP in New York.

Select Medical plans to sell 33.3 million shares today at $11 to $13 apiece, raising as much as $433.3 million, according to a U.S. Securities and Exchange Commission filing. The stock is set to begin trading tomorrow on the New York Stock Exchange.

Bankers arranged about $1.5 billion in financing for the Select Medical purchase by New York-based Welsh Carson and Thoma Cressey of Chicago, which subsequently split into two firms. The transaction was valued at $2.1 billion including assumed debt, according to data compiled by Bloomberg.

The firms will use IPO proceeds mostly to reduce Select Medical’s debt, they said in the filing. Officials didn’t return phone calls seeking comment.

KKR’s Pair

KKR, based in New York, and Menlo Park, California-based Silver Lake, took Avago Technologies Ltd. public last month in a $745 million deal. The Singapore-based semiconductor maker has gained 16 percent since it began trading in early August. KKR subsequently filed an initial public offering for discount retailer Dollar General Corp. of Goodlettsville, Tennessee.

RailAmerica Inc., a Jacksonville, Florida-based railroad operator owned by Fortress, said Sept. 22 it increased the size of its IPO to $450 million from $300 million. New York-based Fortress bought the company in February 2007.

Private-equity firms bought a record $1.4 trillion of companies in 2006 and 2007, the height of the leveraged-buyout boom. The global credit crisis brought dealmaking to a halt and prevented firms from selling companies they already owned.

‘Pent-Up Demand’

“There is a pent-up supply of portfolio companies, many of which will go public,” said Jay Ritter, a professor of finance at the University of Florida. “During the last year, exits had ground to a halt.”

Companies are selling shares after the S&P 500 climbed in six straight months, restoring about $4.9 trillion to U.S. equity markets. The advance since the gauge fell to a 12-month low in March represents the steepest rally since the Great Depression, according to data compiled by Bloomberg.

Health-care stocks are the third best-performing industry behind household-product makers and technology companies in the S&P 500 since it climbed to a record 1,565.15 on Oct. 9, 2007.

Ten companies may sell shares to the public this month, the most since January 2008, according to data compiled by Bloomberg. Together, the deals may raise $3.86 billion, the most since March 2008, when Visa Inc.’s $17.9 billion IPO accounted for almost all the money raised.

Five companies, including KAR Holdings Inc., a vehicle- auction company based in Carmel, Indiana, and Houston-based Cobalt International Energy Inc., an energy-exploration firm, filed this month to raise as much as $1.82 billion.

Talecris

Among the biggest scheduled IPOs this month is Talecris Biotherapeutics Holdings Corp., the drugmaker controlled by private-equity firm Cerberus Capital Management LP and Ampersand Ventures, which plans to raise $850 million on Sept. 30, according to data compiled by Bloomberg.

The Research Triangle Park, North Carolina-based maker of protein therapies derived from blood plasma said in its Sept. 10 filing that it seeks to sell 44.7 million common shares at $18 to $20 apiece.

At $19 a share, Cerberus and Ampersand would reap a profit of $300 million for their investors by selling 15.8 million shares. After the IPO, the private-equity firms will own 60.5 percent of Talecris, valued at $1.38 billion based on a $19 IPO price.

Peter Duda, a spokesman for New York-based Cerberus, declined to comment, as did Becky Levin, a spokeswoman for Talecris, citing the quiet period before the IPO.

Past Dividends

Cerberus and Ampersand of Wellesley, Massachusetts, created Talecris after buying Bayer AG’s plasma business in 2005. At the time, the purchase was valued at $590 million, with the private- equity firms investing a combined $125 million in cash.

Talecris has paid its owners at least $833.2 million in dividends since then, mainly funded by a $1.35 billion loan. Including the payouts, Cerberus and Ampersand are set to earn 20 times their initial cash investment in the company.

The company will use its share of IPO proceeds to pay down debt. It doesn’t plan to pay shareholder dividends after the IPO, using all earnings to finance operations, according to its prospectus.

To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Cristina Alesci in New York at Calesci2@bloomberg.net; Michael Tsang in New York at mtsang1@bloomberg.net.

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U.S. Stock-Index Futures Fluctuate; Electronic Arts Declines

By Sarah Jones

Sept. 24 (Bloomberg) -- U.S. stock-index futures drifted between gains and losses before a report on existing home sales and the Group of 20 meeting in Pittsburgh.

Electronic Arts Inc. slid 3.2 percent in Germany after Microsoft Corp. said it’s not seeking to buy the video-game publisher. Red Hat Inc. rose 3.4 percent as the biggest seller of the Linux operating system reported earnings that beat estimates and Bank of America Corp. recommended the shares.

Futures on the Standard & Poor’s 500 Index expiring in December added less than 0.1 percent to 1,059.20 at 10:18 a.m. in London, after dropping as much as 0.6 percent earlier. Dow Jones Industrial Average futures were little changed at 9,715. Nasdaq-100 Index futures gained 0.1 percent to 1,726.50.

U.S. President Barack Obama and his counterparts from G-20 nations meet today warning that the recovery is still too weak to start reversing lifelines to banks and the broader economy.

“I think there is a growing feeling that the markets have got ahead of economic reality,” said David Morrison, a London- based market strategist at GFT. “There is also a bit of nervousness ahead of G-20 as there is likely to be something about financial regulation.”

The S&P 500 yesterday dropped from its highest level since October. A 57 percent rally since March 9 has left the measure valued at about 20 times the reported earnings of its companies, the most expensive level since 2004, according to weekly data compiled by Bloomberg.

Year-End Forecast

The Federal Reserve signaled that the U.S. economy’s return to growth is insufficient to withdraw stimulus as officials seek to reduce the highest unemployment rate in a quarter century. While the economy has “picked up,” the central bank’s planned asset purchases will help ensure a “gradual return to higher levels of resource utilization,” the Fed’s Open Market Committee said yesterday.

Sales of existing U.S. homes probably climbed in August to the highest level in two years, economists said before a report today. Purchases rose 2.1 percent to a 5.35 million annual rate, according to the median forecast of 74 economists in a Bloomberg News survey. It would be the fifth consecutive gain, capping the longest stretch of increases since 2004. The report is due at 10 a.m. Washington time.

Morgan Stanley strategist Jason Todd today raised his year- end forecast for the S&P 500 to 1,050 from a previous estimate of 900. That’s still 1 percent below yesterday’s closing price.

‘Bull Market’

“The current rally is typical of what follows major bear markets and is not, in our view, the start of a new multi-year bull market,” New York-based Todd wrote in a report to clients.

Electronic Arts fell 3.2 percent to $19.19 in German trading, following a 7.1 percent rally yesterday, as Microsoft said it isn’t seeking to buy the video-game publisher.

“There’s no truth” to the speculation, David Dennis, a Microsoft spokesman, said late yesterday. “We have no plans to purchase EA.”

Red Hat climbed 3.4 percent to $25.72 as sales rose 12 percent to $183.6 million. Analysts predicted $179.4 million. Excluding stock compensation and other costs, profit was 20 cents a share, compared with the 15-cent average estimate of analysts in a Bloomberg survey.

Bank of America raised its recommendation on the stock to “buy” from “neutral.”

The owners of Select Medical Holdings Inc. may almost double their money when the hospital operator goes public tomorrow as leveraged buyout firms take advantage of the steepest stock market rally in 70 years. Welsh Carson Anderson & Stowe and Thoma Cressey Bravo LLC will hold a stake valued at more than $1 billion if Select Medical fetches $12 a share, the midpoint for its initial public offering price. The private- equity firms invested $617 million in cash when acquiring the company in February 2005.

To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net.

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German Stocks Fall for Second Day; Steelmakers, Infineon Drop

By Adria Cimino

Sept. 24 (Bloomberg) -- German stocks fell for a second day amid speculation a six-month rally in equities has outpaced the outlook for economic growth and corporate earnings.

Salzgitter AG and ThyssenKrupp AG, Germany’s biggest steelmakers, dropped at least 1.5 percent as metals declined. Infineon Technologies AG, Europe’s second-largest semiconductor maker, also retreated.

The benchmark DAX Index lost 1.2 percent to 5,633.16 as of 10:06 a.m. in Frankfurt. The rally since March left the DAX valued at about 48.7 times its companies’ reported earnings as of Sept. 18, the highest level since December 2003, according to weekly data compiled by Bloomberg. The broader HDAX Index fell 1.2 percent today.

German business confidence rose less than economists estimated, while reaching a 12-month high in September. The Ifo institute in Munich said today its business climate index, based on a survey of 7,000 executives, climbed to 91.3 from 90.5 in August. Economists expected a gain to 92, the median of 40 forecasts in a Bloomberg News survey showed.

The Federal Reserve yesterday left its target rate for overnight loans between banks in a record-low range between zero and 0.25 percent, and said it will stay “exceptionally low” for an “extended period.” The central bank changed the wording in the final paragraph of its statement to say it will continue to employ a “wide range of tools” to bolster the economy. In August, it said it would use “all available” tools.

“No move on interest rates from the Fed yesterday left investors worried that the recent recovery is looking a little distorted,” James Hughes, a market analyst at CMC Markets in London, wrote in a note to clients.

Salzgitter retreated 2.1 percent to 69.47 euros, while ThyssenKrupp declined 1.5 percent to 23.87 euros. Copper, lead, nickel and tin all slid on the London Metal Exchange.

Infineon sank 2.3 percent to 3.65 euros, snapping a three- day gain. Siemens AG, Europe’s biggest engineering company, dropped 1.4 percent to 65.12 euros.

The following stocks also rose or fell in German markets. Symbols are in parentheses after company names.

Fresenius SE (FRE3 GY) climbed 56 cents, or 1.4 percent, to 39.40 euros, set for the highest close in a week. The owner of the world’s largest provider of kidney dialysis had its recommendation raised to “buy” from “neutral” at Goldman Sachs Group Inc.

Interseroh SE (ITS GY) added 48 cents, or 1.1 percent, to 44.96 euros, gaining for a second day this week. Alba AG & Co. KG is considering a domination agreement with Interseroh or the purchase of more shares, Handelsblatt reported, citing an interview with Interseroh Chief Executive Officer and Alba Co- Owner Axel Schweitzer.

Porsche SE (PAH3 GY) added 73 cents, or 1.4 percent, to 51.63 euros, breaking a four-day losing streak. The carmaker’s preferred shares were raised to “buy” from “neutral” at Nomura Holdings Inc.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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LSE Trading Declines 43% on Equity Slump, Loss of Market Share

By Nandini Sukumar

Sept. 24 (Bloomberg) -- London Stock Exchange Group Plc said trading dropped 43 percent as stocks slumped amid the worst financial crisis since the Great Depression and Europe’s oldest independent bourse lost market share.

The average daily value of trades on LSE’s markets for the five months ended Aug. 31 fell to 4.6 billion pounds ($7.5 billion) from the year-earlier period, the London-based exchange said in a Regulatory News Service statement today.

LSE, along with other traditional exchanges such as Deutsche Boerse AG and NYSE Euronext, has been losing market share to so-called multilateral trading facilities including Chi-X Europe Ltd., Bats Europe and Turquoise. Chief Executive Officer Xavier Rolet, who started in May, is attempting to stanch the decline by changing the way LSE charges and looking to diversify into markets such as corporate bonds for retail investors.

“Although market conditions remain challenging, the group continues to see good levels of activity in many parts of the business,” Rolet said in the statement. “We continue to take actions to ensure the group is well placed to compete and develop.”

Rolet has been cutting jobs as he attempts to reduce costs. The exchange said today that 133 people, or 12 percent of the workforce, have left the company, saving close to 11 million pounds a year from the second half.

Market Share

LSE’s share of trading in FTSE 100 Index stocks fell below 60 percent on Aug. 4 for the first time as Europe’s oldest independent bourse lost more ground to alternative trading systems. LSE accounted for as little as 59.92 percent of FTSE 100 trading on an intraday basis, according to data from Bats Global Markets.

This month, LSE agreed to buy Sri Lankan technology services company MillenniumIT for $30 million to gain access to its trading systems.

“The acquisition of MillenniumIT is an exciting and important step, that will provide a more flexible, efficient and high performance trading platform,” Rolet said today.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net

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U.K. Stocks Drop, Led by British Airways; 3i Group Declines

By Adam Haigh

Sept. 24 (Bloomberg) -- U.K. stocks fell amid concern a six-month rally in equities has outpaced the prospects for growth in earnings and the economy.

British Airways Plc sank 2.8 percent as Citigroup Inc. downgraded the shares. 3i Group Plc, Europe’s biggest publicly traded private equity firm, declined 3.8 percent after the pace of new investments dropped 75 percent as a lack of debt financing brought the buyout market close to a near-halt.

The benchmark FTSE 100 Index slipped 41.61, or 0.8 percent, to 5,097.76 as of 8:31 a.m. in London, bringing this week’s retreat to 1.5 percent so far. The FTSE All-Share Index fell 0.8 percent and Ireland’s ISEQ Index dropped 1.4 percent.

The FTSE 100 index has rebounded 45 percent since March 3 as companies from HSBC Holdings Plc to GlaxoSmithKline Plc reported results that beat estimates and economic releases added to evidence that the worst of the global recession may be over.

British Airways sank 2.8 percent to 223.5 pence. Citigroup Inc. downgraded the shares to “hold” from “buy,” saying mid- cycle share-price valuations were reached “far earlier than expected,” according to a note to clients.

3i Group dropped 3.8 percent to 277 pence. 3i spent 155 million pounds ($254 million) on new investments in the five months through August, compared with 622 million in the same period a year earlier.

London Stock Exchange Group Plc lost 2.7 percent to 855.5 pence as Europe’s oldest independent bourse said the daily value of its trades declined 43 percent for the five months ending Aug. 31.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net;

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Morgan Stanley Sees S&P 500 End-2009 Fair Value at 1,050

By Sarah Jones

Sept. 24 (Bloomberg) -- Morgan Stanley strategist Jason Todd said he now estimates that fair value for the Standard & Poor’s 500 Index by year end is 1,050, 1 percent below yesterday’s close.

Todd previously forecast the U.S. benchmark index would end the year at 900. He also raised his earnings forecast for the gauge by 7.8 percent to $55 for 2009 and by 13 percent to $70 for 2010, in a note dated today.

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Trade Idea: EUR/USD - Stand aside

Candlesticks Trades | Written by ActionForex.com | Sep 23 09 14:10 GMT |

EUR/USD - 1.4766 Most recent candlesticks pattern : N/A Trend : Up Tenkan-Sen level : 1.4774 Kijun-Sen level : 1.4727 Ichimoku cloud top : 1.4673 Ichimoku cloud bottom : 1.4542 Original strategy : Sell at 1.4920, Target: 1.4760, Stop: 1.4980 New strategy : Stand aside As the single currency retreated after intra-day rise to 1.4843 this morning, suggesting consolidation below there would take place, however, only break of the Kijun-Sen (now at 1.4727) would signal a temporary top is in place and bring correction to the Ichimoku cloud top (now at 1.4673), however, reckon support at 1.4611 would hold from here and bring another upmove later. On the upside, above said resistance would extend medium term upmove towards 1.4906 (50% projection of 1.4177 to 1.4768 measuring from 1.4611), however, weakening of upward momentum would prevent sharp move beyond there and reckon 1.4976 (61.8% projection) would hold, bring another strong pullback later. In view of the above analysis and the upcoming FOMC result, we are standing aside in the meantime.

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Trade Idea: USD/JPY - Stand aside

Candlesticks Trades | Written by ActionForex.com | Sep 23 09 14:08 GMT |

USD/JPY – 91.40 Most recent candlesticks pattern : N/A Trend : Down Tenkan-Sen level : 91.13 Kijun-Sen level : 91.51 Ichimoku cloud top : 91.71 Ichimoku cloud bottom : 90.84 New Strategy :. Stand aside As dollar has rebounded after trading above intra-day support at 90.47, suggesting further consolidation above recent low at 90.12 would take place and another corrective rise to the Ichimoku cloud top (now at 91.71) is likely, only break of resistance at 92.55/60 would revive bullishness for correction of recent decline towards 93.05 (38.2% Fibonacci retracement of 97.79 to 90.12), then towards resistance at 93.31. On the downside, below said support would signal decline has resumed for retest of 90.12, then test of psychological support at 90.00 and later towards 89.49 (61.8% projection of 95.07 to 90.12 measuring from 92.55) before correction. In view of upcoming FOMC meeting result, we are standing aside in the meantime.

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Mid-Day Report: Sterling Rises after BoE Minutes, Dollar Consolidates ahead of FOMC

Market Overview

Written by ActionForex.com | Sep 23 09 13:04 GMT |

Sterling strengthens today after the release of BoE meeting minutes. The minutes revealed that the decision to keep rates unchanged, and more importantly keep the 175b pounds asset purchase program unchanged, was made by unanimous vote. Mervyn King and David Miles joined the unanimous vote after seeking 200b pounds in August and the switch argues that consensus is seen among the committee. The minutes said that "in absence of significant news about the medium term, the case for adjusting the program now was outweighed by the benefits of following through with the program." The pound is also lifted by news that Confederation of British Industry raised the forecast for Q3 +0.3% in 3Q09 and +0.4% in 4Q09, and anticipated that BOE will stop buying assets after the current scheme is finished.

Next focus will be on FOMC and decision. Fed is widely expected to keep rates unchanged at 0-0.25% range and will likely reiterate the stance to keep rates at record low for an "extended period" of time. Nevertheless, FOMC might further change to a more upbeat tone on the economy based on recent improvements in data. Also, the Fed will probably taper off its purchase of agency MBS and agency debt by slowing down the pace rather than reducing the size of the program.

So far the greenback is holding above key support levels against major currencies as well as in dollar index on speculations that Fed might give some hints on the timing of stimulus removal. However, dollar could be sharply sold off in case of disappointment from the FOMC statement today. So far, the dollar index is still holding on to mentioned 75.89 key support level. Strong rebound from the current level and a break of 77.09 resistance will affirm our view that fall from March high of 89.62 is completing. However, decisive break of 75.89 will dampen our bullish view and in turn open up the case for sharper fall towards 70.70 low made in 2008.

On the data front Eurozone PMIs were mixed with PMI manufacturing missing expectation and rose to 49. in Sep. Services PMI rose slightly more than expected to 50.6. Eurozone industrial orders rose 2.6% mom in July, above consensus of 2.1%. Overnight, NZD was boosted by stronger than expected GDP report. Q2 GDP unexpectedly rose 0.1% qoq and showed shallower than expected drop of -2.1% yoy. The report raised the possibility that RBNZ might start to hike rates earlier than expected.

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 148.50; (P) 148.95; (R1) 149.44; More

GBP/JPY rebounds further today and is now pressing 4 hours 55 EMA. Intraday bias remains neutral for the moment and some more consolidation could be seen above 148.03. Nevertheless, another fall is still in favor as long as 151.16 resistance holds. Below 148.03 will bring fall resumption to 146.75 cluster support next (38.2% retracement of 118.81 to 163.05 at 146.15) first. On the upside, however, break of 151.16 will argue stronger rebound is underway to 153.22 resistance and above. Nevertheless, upside is still expected to be limited below 157.47 resistance and bring fall resumption.

In the bigger picture, rise from 118.81, which is treated as correction the larger down trend from 07 high of 251.90, might have completed at 163.05 already, after failing to sustain above 55 weeks EMA. This view is supported by sustained trading below medium term rising trend line and with 55 weeks MACD staying below signal line. Decisive break of 146.75 support will confirm this bearish case by completing a double top reversal pattern (162.56, 163.05). In such case, deep decline should be seen that eventually send GBP/JPY through 118.81 low. On the upside, while another rise cannot be ruled out, upside is expected to be limited by 50% retracement of 215.87 to 118.81 at 167.34 to conclude such correction and bring reversal finally.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
22:45	NZD	GDP Q/Q Q2	0.10%	-0.20%	-1.00%	-0.80%
22:45	NZD	GDP Y/Y Q2	-2.10%	-2.60%	-2.70%
7:30	EUR	German PMI Manufacturing Sep A	49.6	50.9	49	49.2
7:30	EUR	German PMI Services Sep A	52.2	54	54.1	53.8
8:00	EUR	Eurozone PMI Manufacturing Sep A	49	49.8	47.9	48.2
8:00	EUR	Eurozone PMI Services Sep A	50.6	50.5	49.9
8:30	GBP	BoE Meeting Minutes	0--0--9	0--0--9	0--0--9
9:00	EUR	Eurozone Industrial New Orders M/M Jul	2.60%	2.10%	3.10%	4.00%
9:00	EUR	Eurozone Industrial New Orders Y/Y Jul	-24.30%	-25.90%	-25.10%	-25.70%
14:30	USD	Crude Oil Inventories		-1.4M	-4.7M
18:15	USD	FOMC Interest Rate Decision		0.25%	0.25%

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BOE May Cap Bond Plan as U.K. Exits Slump, CBI Says

By Brian Swint

Sept. 23 (Bloomberg) -- The Bank of England may stop buying bonds when it completes its current 175 billion-pound ($286 billion) plan as the U.K. shakes off the recession, the Confederation of British Industry said.

Gross domestic product will rise 0.3 percent in the third quarter, the biggest U.K. business lobby said in a report today, reversing a June prediction for a drop of the same size. The CBI forecast 0.4 percent growth in the last three months of the year and said the central bank will start raising the benchmark interest rate in the first half of 2010.

“Armageddon has receded somewhat over the horizon,” Richard Lambert, CBI director general and a former Bank of England policy maker, told reporters at a briefing in London yesterday. “But the recovery will be slow and protracted. Unemployment will continue to rise.”

The central bank plans to complete its current program to buy bonds by November. While Governor Mervyn King joined a minority bid to raise the plan to 200 billion pounds in August, he supported the current amount this month in a unanimous vote by the policy-setting panel for no change.

“At this stage, we don’t see the need for additional quantitative easing,” CBI Chief Economic Adviser Ian McCafferty told reporters. “It’s clear that quantitative easing has not yet had much of an impact on the wider economy.”

2010 Forecast

The economy will expand 0.9 percent in 2010 after a 4.3 percent contraction this year, the CBI said. The total drop in output in the recession will be 5.5 percent, close to the 5.9 percent of the recession in the early 1980s, the report showed.

King and David Miles this month switched sides and voted for no change in the bank’s bond purchase plan, arguing that consensus was better for now even though a higher amount may be warranted, minutes of the Sept. 10 decision released by the central bank today in London showed.

The CBI predicts the central bank will raise the benchmark interest rate to 1 percent in the second quarter from the current record low of 0.5 percent. The rate will stand at 2 percent by the end of next year, according to the CBI’s forecasts.

House prices will fall 9.8 percent this year before rising 0.8 percent in 2010, and unemployment will peak at about 3 million from the current level of 2.5 million, the CBI said in its forecasts.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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Strauss-Kahn Urges Sustained Stimulus, Says Crisis Not Over

By Sandrine Rastello

Sept. 23 (Bloomberg) -- International Monetary Fund Managing Director Dominique Strauss-Kahn called on leaders from the Group of 20 nations to maintain efforts to pull the world economy out of a recession, warning that the crisis isn’t over.

“This recovery will be rather sluggish, at an average lower than growth we had before the crisis,” Strauss-Kahn said in an interview in Washington before the G-20 summit begins tomorrow in Pittsburgh. “It’s too early to say the crisis is behind us.”

The IMF chief also urged policy makers to seize the opportunity to address imbalances in trade and investment flows blamed for contributing to the credit collapse. Giving China a bigger role in the fund will help bolster cooperation, he said, as policy makers seek agreement to pare U.S. borrowing and buttress domestic demand in nations with trade surpluses.

“A failure to rebalance the global economy would cause any recovery to be ultimately doomed,” said Gerard Lyons, chief economist at Standard Chartered Plc in London. “Aiming for a balanced world economy is a win-win situation.”

Leaders from the G-20, which groups the largest developed and developing nations, gather tomorrow for their two-day summit in Pittsburgh. Formed out of the Asian financial crisis, G-20 meetings were elevated to the heads-of-government level in November.

“Suddenly, we’re in a better position to have this kind of cooperation and economic coordination than we were before,” Strauss-Kahn said in the Sept. 21 interview. The G-20 talks are a chance to “fix the way we work together governing globalization, and it may work.”

Geithner’s Goals

U.S. Treasury Secretary Timothy Geithner said at a press conference yesterday that G-20 leaders will “take stock of where we are in putting the world on a path to stronger, more sustainable, more balanced growth.” The goals include a stronger financial system that’s better able to absorb shocks, he said.

“We’re now seeing the first signs of growth” and “the financial markets have improved considerably,” Geithner said. “We want to make sure we build on the progress that we’ve achieved.”

U.K. Prime Minister Gordon Brown echoed Geithner’s sentiment, telling reporters in London on Sept. 21 that “what we want to do is safeguard a recovery from a recession” and that “the stimulus that we have still got to give the world economy is greater than the stimulus we have already had.”

U.S. Task

Strauss-Kahn said the U.S. can do its part by boosting the country’s savings rate and reducing its budget deficit, and China can contribute by fostering domestic demand, which would have the effect of revaluing its currency, the yuan.

China may be more willing to cooperate when it gets a bigger role at the IMF, which leaders are expected to announce by calling for a shift in voting rights that would favor emerging markets, he said.

“The Chinese know they’re becoming a big player, they want to be considered a big player, and if they’re considered a big player they will behave as a big player,” Strauss-Kahn said.

The Washington-based IMF, which has rescued economies from Pakistan to Hungary in the past year, is advising officials around the world not to withdraw economic stimulus programs too soon as they chart a path to lasting growth.

While the global economy is susceptible to a “double-dip” recession, Strauss-Kahn said that isn’t the “most probable” scenario.

‘Lot to Do’

Banks still have “a lot to do” to clean balance sheets, said Strauss-Kahn, 60, who became head of the IMF in November 2007 after a career in French politics, including a stint as finance minister from 1997 to 1999.

Banks may need to cut their size or increase their capital reserves in response to regulatory changes being considered by G-20, French Finance Minister Christine Lagarde said.

“The absolute minimum demand is that we don’t go back to the old rules, that we change the organization of banks,” she said yesterday on France Inter radio. “Maybe after that, banks will reduce their size, increase their capital or inevitably change their compensation structures. On these questions we will be intransigent.”

The IMF has a role to play in the global effort to narrow imbalances, Strauss-Kahn said, acknowledging that attempts in 2006 and 2007 at agreements between major economies yielded few results.

Follow-Up

Strauss-Kahn said it makes sense for leaders to have “a kind of machinery which provides policy notes and forecasts, and which follows up on decisions that have been taken at the big meetings.”

Strauss-Kahn said leaders would also give a “political guideline” on how much more power to give “underrepresented countries” at the lender, most of which are emerging economies. The main beneficiary of a shift in the IMF’s governance would be China, he said.

Talks before the summit in Pittsburgh are focusing on a 5 percent shift of so-called IMF quotas from countries with disproportionate influence, two officials from G-20 nations said last week. Quotas determine members’ voting rights, financial commitments and access to IMF loans.

China has overtaken Germany to become the world’s third- largest economy with annual gross domestic product of about $3.9 trillion, according to Bloomberg data. China currently has a 3.7 percent voting share on IMF executive board decisions, compared with 3.2 percent for Saudi Arabia, whose economy is about one- eighth the size of China’s.

Quota Shift

Brazil, Russia, India and China, the so-called BRIC countries, this month proposed a 7 percent shift in IMF quotas to emerging markets and developing countries, “to correspond roughly to their share in world” gross domestic product. That came after they agreed to contribute to a tripling of IMF coffers that G-20 leaders announced in April, a move richer nations linked to emerging countries’ demand for more clout.

China earlier this month signed an agreement to buy as much as $50 billion in IMF notes, and the other three BRIC countries have pledged to contribute about $10 billion each, a move Strauss-Kahn said is “done” even if it hasn’t yet been formally approved.

“Imbalances and governance are very much interlinked,” he said. To resolve the issue, “you also need the countries accepting that they don’t need such a big amount of reserves, which means they can find the reserves somewhere else, which in turn means they are confident in the global institutions like the IMF.”

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net.

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French Manufacturing Confidence Climbs in September

By Mark Deen

Sept. 23 (Bloomberg) -- French manufacturing confidence jumped to the highest in almost a year as recovery from the worst recession in half a century buoyed exports and depleted inventories.

The index of sentiment among factory executives rose to 85 in September from 82 in August, Paris-based statistics office Insee said today. Economists had expected that the index would climb to 81 this month, according to the median of 16 forecasts in a Bloomberg News survey.

The improvement reflects demand from retailers who slashed inventories as the recession hit its trough early this year. Even so, with unemployment rising, consumer demand will act as a brake on growth in the months ahead. Household spending fell 1 percent in August and 1.2 percent in July, Insee said today.

“We had a violent recession and this is the correction,” said Dominique Barbet, an economist at BNP Paribas in Paris. “The short-term outlook is good, though the medium-term is more worrying because consumers are cutting back. Growth potential in 2010 will be limited.”

Exports increased 9 percent in July from the previous month, according to the Finance Ministry. The same month, the number of unemployed actively looking for a job increased to 2.54 million, matching the 28-month high set in May.

Order Pickup

A measure of inventories held by manufacturers fell to zero this month from 5 in July and 12 in June, Insee said today. The reading for orders from abroad is minus 56, compared with minus 66 two months ago.

“More and more industrial executives are saying there is a pickup in activity,” Insee said. “Order books, from at home and abroad, are filling up, though they’re far from full.”

The improved French outlook fits with gains across Europe. A composite index of sentiment in the manufacturing and service industries across the euro region rose to 50.8 this month from 50.4 in August, Markit Economics said today.

Barbet said he expects French consumer spending to recover this month, though it will remain volatile. “Summer vacation is the easiest time to cut back so we’ll see a rebound,” he said. “Beyond that the perspective isn’t very encouraging.”

To boost spending, the main motor for economic growth, the government has pledged almost 4 billion euros ($5.9 billion) in measures including vocational training, tax breaks for low- income families and benefits for jobseekers and the disabled. The minimum wage was raised by 1.3 percent on July 1.

Finance Minister Christine Lagarde said yesterday that the government will maintain measures to bolster the economy until unemployment begins to recede. Lagarde travels to Pittsburgh today where she will join French President Nicolas Sarkozy and other world leaders for a Group of 20 summit on the economy and financial regulation.

“I would use the image of someone who is on crutches and is getting his mobility back,” she said, referring to the state of the economy. “You have to make sure the patient is able to walk again before taking the crutches away.”

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net;

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Obama Must Win Over Europeans on Bank Pay Limits at G-20 Summit

By Catherine Dodge and Hans Nichols

Sept. 23 (Bloomberg) -- President Barack Obama will seek to prove his leadership abilities as host of his first world summit by persuading European leaders who want caps on bankers’ bonuses to accept something short of specific limits on what an executive can earn.

At the Group of 20 meeting in Pittsburgh that begins tomorrow, Obama also will seek a consensus on setting higher capital requirements for lenders and forging a common approach to combating global warming.

Meeting these challenges will be a test of whether Obama can leverage his global appeal to influence other world leaders, who will arrive at the summit with their own ideas on how to avert another global financial meltdown and lay the groundwork for a sustained recovery.

“Abroad, Obama remains a rock star, but doubts are beginning to emerge about his ability to turn popularity into policy,” said Charles Kupchan, a senior fellow at the Council on Foreign Relations in Washington.

The appeal of the leader of the world’s biggest economy doesn’t mean other governments “necessarily agree with the U.S. on how to fix the international financial architecture,” Kupchan said.

Resurgent Image

A survey by the Pew Research Center’s Global Attitudes Project released in July found that confidence in Obama on world affairs was behind a resurgent U.S. image abroad.

For example, 91 percent of the French expressed confidence in Obama on world affairs, up from 13 percent in 2008 under President George W. Bush. In Germany, 93 percent said they were confident with Obama, compared with 14 percent for Bush. In China, Obama is approved by 62 percent, up from 30 percent under Bush.

European countries are becoming increasingly impatient at the pace of action on climate change and financial regulation in the U.S. Congress and by the Obama administration, said Heather Conley, who specializes in European affairs at the Washington- based Center for Strategic and International Studies.

In the five months since the last G-20 summit in London, “there is a growing disquiet in Europe that the Obama administration is unable to take action on many of these fronts, and certainly, on two issues that the Europeans are most significantly seized with: climate change and really seriously restructuring the global financial regulatory system,” she said in a briefing with reporters ahead of the summit.

Reining in Risk-Taking

In addition to discussing bank bonus limits and capital requirements, Obama and other leaders will seek accord on reining in what they call excessive risk-taking by financial firms and narrowing global imbalances in trade and savings to ensure against a repeat of the worst crisis since the Great Depression. Another priority is making sure the economic recovery is followed by growth in jobs.

Michael Froman, the White House liaison to the G-20, said in a Sept. 16 briefing with reporters the U.S. expects “progress, including commitments to particular deadlines for dealing with some of the unfinished business of the regulatory agenda.”

One area of potential disagreement among the G-20 nations, which account for 85 percent of the world economy, centers on compensation for bankers, though leaders are moving toward a compromise.

Avoiding Limits?

Pay caps, once pushed by French President Nicolas Sarkozy, were excluded from recommendations made by finance officials this month. European leaders now may be willing to endorse linking bonuses to a bank’s capital level, such as not limiting bonuses if certain capital requirements are met, moving closer to a U.S. position that avoids specific limits.

Froman also said the U.S. would emphasize “the need to remain vigilant to avoid premature withdrawal of stimulus.”

Igor Shuvalov, Russia’s first deputy prime minister, said leaders should be coordinating on how to wind down stimulus spending.

“The worst time is behind,” he said in a Sept. 21 interview. “We are thinking about a time when we can develop a new model of global economy.”

Since the leaders’ last gathering in April in London, markets are recovering and nations’ economies are showing signs of emerging from recession. The Standard and Poor’s 500 Index is up 32 percent from early April.

The International Monetary Fund expects G-20 countries to grow 3.2 percent next year after contracting 1.1 percent in 2009, according to estimates circulating among the G-20 ahead of the IMF’s annual meeting next month.

Climate Change

On climate change, Obama will press his counterparts to eliminate subsidies for fossil fuels and electricity, Froman said.

At the United Nations yesterday, Obama said efforts to reach an international agreement on climate change will face “doubts and difficulties” in a world economy struggling to come out of recession.

“There should be no illusions that the hardest part of our journey is in front of us,” Obama said.

That may be true for Obama as well. He faces increased pressure because he is hosting the summit, said Steven Schrage, an international business expert at the Center for Strategic and International Studies in Washington.

“He’s got an enormous reservoir of goodwill, but he’s got to show ability to manage and lead,” Schrage said. “We’ve seen a growing impatience or perception that for all the pomp and circumstance of these summits, they are issuing the same statements about the urgent need to act.”

In the U.S., issues such as financial regulation and climate change have faded to the background as Congress and Obama work to pass legislation overhauling the health-care system.

Obama’s success on health care, nonetheless, is also something world leaders will be watching, Kupchan said.

“His ability to lead at home is an indicator of his leadership abroad,” he said.

To contact the reporters on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net; Hans Nichols in Washington at Hnichols2@bloomberg.net

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King, Miles Opt for Consensus in Unanimous BOE Vote

By Jennifer Ryan

Sept. 23 (Bloomberg) -- Bank of England Governor Mervyn King agreed this month to support policy makers’ August decision for 175 billion pounds ($286 billion) of asset purchases, suspending his drive to buy even more.

King and David Miles switched sides and joined a unanimous vote for no change in the plan, arguing that consensus was better for now even though a higher amount may be warranted. All nine members of the Monetary Policy Committee also opted to keep the interest rate at 0.5 percent, minutes of the Sept. 10 decision released by the central bank today in London showed.

King and Miles had sought as much as 200 billion pounds at the August decision. The Confederation of British Industry today raised its forecast for economic growth in the third quarter and predicted the central bank may cap its program after buying the current allocation with newly printed money.

“We probably have seen the worst of the recession,” said Colin Ellis, an economist at Daiwa Securities SMBC in London and a former Bank of England official. “A further extension of asset purchases could be on the cards, but it’s a difficult balancing act for the bank.”

The pound rose as much as 0.6 percent against the dollar after the report to $1.6438. Against the euro, the U.K. currency climbed by the same amount to trade at 90.03 pence as of 10:01 a.m. in London.

“For those members who had preferred a larger stimulus at the August meeting, a larger asset-purchase program could still be justified,” the minutes said. “But in the absence of significant news about the medium term, the case for adjusting the program now was outweighed by the benefits of following through with the program” announced in August.

Risks to Growth

Policy makers noted that prices of assets including housing and equities had risen, and the short-term risks to economic growth had lessened.

“There was a possibility that the recovery in asset prices and confidence could mark the start of a virtuous upward spiral for the economy,” the minutes said. “But the lesson from previous financial crises was that they were not resolved quickly, and that there could be false dawns.”

The slump in house prices is abating, and the British Bankers’ Association said today that mortgage approvals held close to the highest in a year in August. Property surveyors reported more gains in home values than declines for the first time in two years, a report by the Royal Institution of Chartered Surveyors showed on Sept. 15.

‘Less Pessimism’

Timothy Besley, who left the committee at the end of August, voted with the minority in August for an expansion of the purchase plan. Adam Posen replaced him at this month’s decision.

“The tone appears to be one of slightly less pessimism than in previous months,” said Peter Dixon, an economist at Commerzbank AG in London. “When we get to November there may be no need to do any more.”

The central bank has bought almost 150 billion pounds in assets so far and plans to complete the current program by November.

The Bank of England may stop buying bonds then as the U.K. shakes off the recession, the Confederation of British Industry said today. Gross domestic product will rise 0.3 percent in the third quarter, the biggest U.K. business lobby said, reversing a June prediction for a drop of the same size.

“Even if GDP growth had turned positive in Q3, it was unlikely to have reached the point where the level of spare capacity was shrinking,” the minutes said. At the same time, “inflation would probably be higher in the short-term than the committee had thought a month ago, though it was still likely to be extremely volatile,” the minutes said.

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

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European Manufacturing, Services Industries Expand

By Simone Meier

Sept. 23 (Bloomberg) -- Europe’s manufacturing and service industries expanded for a second month in September, suggesting the euro-region economy is gathering strength.

A composite index of both industries in the 16-nation economy rose to 50.8 from 50.4 in August, Markit Economics said today. A reading above 50 indicates expansion and the gauge had remained below that level for 14 months before topping it in August. Economists had projected the index, which is based on a survey of purchasing managers, would rise to 51.3 in September, according to the median of 14 forecasts in a Bloomberg survey.

The euro-area economy is showing signs of emerging from its worst recession in more than six decades after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets. While European economic confidence rose to a 10-month high in August, ECB council member Guy Quaden said on Sept. 15 that rising unemployment is a reason to remain “prudent” about the economic outlook.

“We’re above 50 and that’s fantastic,” said Karsten Junius, a senior economist at Dekabank in Frankfurt. “The situation is stabilizing and the economy is recovering at a faster and stronger pace than previously expected. We’ll see a strong rebound in the third quarter.”

The world economy is emerging from its deepest slump since the 1930s following more than $2 trillion of infrastructure projects, tax breaks and government spending. The ECB earlier this month kept its benchmark interest rate at a record low of 1 percent and Governing Council members have since signaled they are in no rush to withdraw stimulus measures anytime soon.

Covered Bonds

The Frankfurt-based central bank has provided banks with unlimited cash over 12 months and purchased covered bonds to encourage lending. ECB Executive Board member Juergen Stark said on Sept. 15 that the bank is “well prepared to phase out” measures when appropriate.

The euro-area economy may expand 0.2 percent in the current quarter and 0.1 percent in the three months through December, the European Commission said on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France, the region’s two largest economies, returned to growth.

The euro-area services index rose to 50.6 in September from 49.9 in the previous month, today’s report showed. That was the first time in 16 months that the index has shown expansion in services. While a gauge of manufacturing remained below 50, indicating contraction, it increased to 49 from 48.2, the highest since June 2008.

Industrial Orders

Adding to signs of recovery, European industrial orders increased for a second straight month in July, the European Union’s statistics office in Luxembourg said today. Orders rose 2.6 percent from June, when they increased 4 percent.

Munich-based Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, projects fourth-quarter deliveries will rise, sales chief Ian Robertson said on Sept. 16. Fiat SpA Chairman Luca Cordero de Montezemolo said earlier this month that the “worst is over” for the premium-car market.

European stocks advanced for a second day amid speculation the Group of 20 nations will maintain measures to support the economy even as signs grow that the recovery is accelerating. The Dow Jones Stoxx 600 Index was 0.5 percent higher at 245.50 at 10:35 a.m. in London.

“I’m reasonably optimistic” about the economic outlook, the ECB’s Quaden said earlier this month. “Three reasons to stay prudent” are “the financial sector hasn’t fully stabilized yet in many countries, a very low capacity- utilization rate weighing down on investment and increasing unemployment weighing down on consumption.”

Retail Sales

Europe’s jobless rate rose to 9.5 percent in July, the highest since 1999, as some of the region’s largest companies including Germany’s Siemens AG were forced to eliminate jobs. European retail sales dropped for a 15th month in August, the Bloomberg purchasing managers index showed last month.

Paris-based Club Mediterranee SA, Europe’s largest resort company, said on Sept. 11 that third-quarter sales declined 13 percent. Unilever NV, the world’s second-biggest consumer-goods company, said earlier this month that it will close a production facility in the Czech Republic, resulting in 634 job losses.

To contact the reporters on this story: Simone Meier in Dublin at smeier@bloombert.net

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Gilts Drop, Pound Gains as BOE Unanimous on Holding Debt Plan

By Anna Rascouet

Sept. 23 (Bloomberg) -- U.K. government bonds fell and the pound rose after the Bank of England’s minutes of its Sept. 10 meeting showed policy makers were unanimous in their decision to keep the asset-buying plan at 175 billion pounds ($287 billion).

The difference in yield, or spread, between two- and 10- year gilts was near the widest since at least 1992 after no mention was made of cutting the rate paid to financial institutions for deposits held at the central bank. Investors sought the safety of shorter-dated securities on speculation policy makers will keep the benchmark interest rate low.

“There was nothing in the minutes to alter the prevailing mindset,” said Charles Diebel, head of European rate strategy at Nomura International Plc in London. “The spread is on a consistent steepening trend and I expect it to continue until we get some clarification on the reserve-rate story.”

The yield on the 2-year note rose 3 basis points to 0.88 percent as of 1:23 p.m. in London. The 4.25 percent security due March 2011 fell 0.05, or 50 pence per 1,000-pound ($1,644) face amount, to 104.85. The 10-year gilt yield gained 2 basis points to 3.78 percent. The spread between the securities was at 290 basis points, within 2 basis points of the most since at least January 1992, when Bloomberg began compiling the data.

The pound strengthened to less than 90 pence per euro for the first time since Sept. 18, appreciating as much as 0.6 percent to 89.85 pence. It advanced 0.4 percent against the dollar to $1.6423.

Switching Sides

Bank of England Governor Mervyn King and David Miles switched sides and joined the unanimous vote for no change in the debt-buying plan, arguing that consensus was better for now even though a higher amount may be warranted. All nine members of the Monetary Policy Committee opted to keep the interest rate at 0.5 percent, the minutes released today in London showed.

The Bank of England agreed on Aug. 6 to expand by 50 billion pounds its program of asset purchases designed to lower borrowing costs and pull the economy out of its deepest recession since World War II.

The government, which is planning to raise 220 billion pounds this fiscal year, may boost sales to 237 billion pounds in the year ending March 2011, according to Citigroup Inc.

The country hired HSBC Holdings Plc, Deutsche Bank AG, Goldman Sachs Group Inc. and UBS AG to manage a sale this week of inflation-protected bonds maturing in 2050, according to the Debt Management Office. The banks will start selling the new 0.5 percent linker tomorrow, the debt agency said yesterday.

The FTSE 100 Index of U.K. shares climbed 0.6 percent as Aviva Plc and Prudential Plc gained after Cazenove recommended shares of life insurers.

Gilts lost investors 1.1 percent this month, compared with a 0.5 percent decline for German bonds, according to Merrill Lynch & Co. indexes. Treasuries were little changed, Merrill indexes show.

To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.net.

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