Crude Drops on Forecast U.S. Oil, Fuel Supplies Rose Last Week

By Grant Smith and Alexander Kwiatkowski

Sept. 29 (Bloomberg) -- Oil fell before a report forecast to show that U.S. supplies of crude and refined oils accumulated because of a sluggish economic recovery.

An Energy Department report due tomorrow will probably show crude stockpiles rose by 1 million barrels last week, according to the median estimate of nine analysts surveyed by Bloomberg News. Gasoline and distillate fuel inventories also increased, the survey said. Oil prices have gained 50 percent this year as a weaker dollar boosts the appeal of crude as a currency hedge.

“With energy fundamentals still uninspiring, prices should remain confined to the $65-$75 trading range for some time to come,” said Edward Meir, an analyst with MF Global Ltd. in Darien, Connecticut. “The dollar’s decline seems to have stalled” and “that could remove some of the upside momentum.”

Crude oil for November delivery dropped as much as 39 cents, or 0.6 percent, to $66.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $66.54 at 10:45 a.m. in London. Yesterday, the contract rose 82 cents, or 1.2 percent, to settle at $66.84 a barrel.

The December contract is about 35 cents a barrel more expensive than November’s. The difference between the two front- month contracts has shrunk from more than $2 a barrel in August in tandem with rising U.S. crude stockpiles at the Cushing, Oklahoma, delivery point.

Cold Winter

The U.S. northeast, the country’s largest market for heating oil, may have the coldest winter in a decade because of a weak El Nino, a warming current in the Pacific Ocean, according to Matt Rogers, a forecaster at Commodity Weather Group, in a Bloomberg Television interview from Washington.

Refineries in the U.S. operated at 85.3 percent of capacity last week, down 0.3 percentage point from the previous week, according to the median of survey responses.

“Refineries are trying to support the market -- run rates are being decreased,” said Ken Hasegawa, a commodity derivatives sales manager at broker Newedge in Tokyo. “Demand is very bad but with refineries limiting supply, the market will be well balanced.”

The industry-funded American Petroleum Institute will release its own inventories data in Washington today.

Brent crude oil for November settlement traded at $65.16 a barrel, down 38 cents, on the London-based ICE Futures Europe exchange at 10:45 a.m. in London. Yesterday, the contract gained 43 cents, or 0.7 percent, to settle at $65.54 a barrel.

Missile Tests

Iran, the world’s fourth-largest oil producer, yesterday carried out missile tests before a scheduled meeting with U.S. and European officials over a previously secret nuclear site.

President Barack Obama and the leaders of the U.K. and France said Sept. 25 Iran is secretly building a second plant for enriching uranium, in violation of the nuclear non- proliferation treaty.

“With the spare capacity we’ve got in the oil market at the moment, it’s obviously not going to be the same reaction we would have got 18 months ago,” said Toby Hassall, a research analyst at CWA Global Markets Pty in Sydney.

The permanent members of the United Nations Security Council -- the U.S., China, France, Germany, Russia and the U.K. -- will meet Iranian officials on Oct. 1 in Geneva. Iran’s Foreign Ministry denied any link between the missile tests and the Geneva talks.

-- With assistance from Yee Kai Pin in Singapore Editors: Mike Anderson, John Buckley.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.netAlexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net

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Gold May Decline in London as Stronger Dollar Reduces Demand

By Nicholas Larkin and Glenys Sim

Sept. 29 (Bloomberg) -- Gold, little changed in London today, may decline as a strengthening dollar cuts demand for the metal as an alternative investment.

The dollar climbed to a two-week high against the euro as evidence economies have yet to shake off the worst effects of the global recession spurred demand for the safety of the greenback. Gold tends to fall when the dollar strengthens.

“The correlation between gold and the dollar has been very high in the last couple of weeks,” Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Hanau, Germany-based Heraeus Metallhandels GmbH, said today by phone. “Gold will probably follow the euro-dollar move and go lower.”

Immediate-delivery bullion added $2.16, or 0.2 percent, to $993.21 an ounce by 10:04 a.m. local time. December gold futures were 30 cents higher at $994.40 an ounce on the New York Mercantile Exchange’s Comex division.

The dollar climbed as much as 0.4 percent against the euro as Russia’s central bank cut its main interest rate. The U.S. currency has lost 4.2 percent against the euro this year as bullion has advanced 13 percent.

Gold may be supported as investors seek a haven from geopolitical tension in the Middle East, according to HSBC Securities analyst James Steel. Iran yesterday test-fired its Shahab-3 missile amid a threat that international talks this week on its nuclear program will lead to further sanctions. The missile can reach Israel.

Silver, Platinum

Holdings of bullion in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, were unchanged for a second day at 1,094.11 metric tons yesterday, data on the company’s Web site showed.

Among other precious metals for immediate delivery, silver was little changed at $16.17 an ounce. Palladium was 0.7 percent higher at $290.50 an ounce, while platinum lost 0.2 percent to $1,277 an ounce.

Impala Platinum Holdings Ltd., the producer of more than a quarter of the world’s supply of the metal, said an accident and a strike at its Impala Lease Area mine will cut planned output by 100,000 ounces. The mine previously had a production target of 950,000 ounces in the financial year through June 2010. The lost output equals about 1.7 percent of BNP Paribas SA’s 5.8 million-ounce estimate of this year’s global production.

Platinum held in ETF Securities Ltd.’s exchange-traded products added 0.7 percent to 363,505 ounces yesterday, its Web site showed. The company’s gold, silver and palladium holdings were unchanged.

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

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Japan Stocks Rise, Outweighing Deflation Concern; Nomura Climbs

By Masaki Kondo

Sept. 29 (Bloomberg) -- Japanese stocks rebounded from their biggest two-day drop in six months, outweighing concern falling prices will cut corporate revenue and hamper the nation’s recovery from recession.

Nomura Holdings Inc., which announced a record share sale last week, added 4.4 percent after losing 21 percent in the past two days. Toshiba Corp. gained 2.9 percent after posting its steepest two-day decline since March 31. Nitori Co., a retailer that cut prices by as much as 40 percent for more than 400 products in August, sank 4.2 percent after a government report showed Japan’s consumer prices dived at a record pace last month.

The Nikkei 225 Stock Average rose 0.9 percent to close at 10,100.20 in Tokyo. The broader Topix index drifted between gains and losses and finished up 0.1 percent at 904.00, with eight stocks falling for every seven that climbed. The indexes are this month’s worst performers among 89 global gauges tracked by Bloomberg.

“Japanese stocks have lagged behind their overseas counterparts and a further slump is unlikely,” said Mitsushige Akino, who manages the equivalent of $666 million at Ichiyoshi Investment Management Co. “Deflation is engulfing the country and the slump in Japan’s economy will likely worsen, pushing investors to sell companies depending on domestic demand.”

The Nikkei and Topix lost 5 percent in the previous two days, the most since March 31, on concern the dollar’s depreciation will eat into companies’ profits. Yesterday, Nikkei-listed shares traded at 39.3 times estimated net income for this year, the lowest level since July 16, according to data from Nikkei Inc., which compiles the gauge.

Losers Reign

The number of shares traded in Tokyo fell to the lowest since Sept. 15.

Nomura, Japan’s largest securities company, advanced 4.4 percent to 564 yen, breaking a nine-day losing streak and driving a measure of brokerages to the biggest gain among the Topix’s 33 industry groups. Toshiba, Japan’s biggest memory chipmaker, advanced 2.9 percent to 468 yen.

Six of the 10 groups with today’s steepest increases in the Topix were among the biggest decliners in the past two days.

“Short-sellers are unwinding their positions and causing today’s gains in equities,” said Akino. Short-sellers borrow shares and sell them in a bet that prices will fall, then seek to buy them back more cheaply and keep the difference as profit.

The dollar appreciated versus the yen to as much as 90.23 today from 88.24 yesterday, a level not seen since Jan. 23. A stronger dollar increases the value of overseas sales at Japanese companies when converted into yen.

Facing Reality

The U.S. currency was still weaker than the 94.85 yen estimated by Japanese businesses for this year, according to the Bank of Japan’s quarterly Tankan report released in July.

Nitori, the furniture retailer, dropped 4.2 percent to 7,540 yen. West Japan Railway Co., the nation’s third-largest rail operator, slid 4.7 percent to 323,000 yen. Tokyo Electric Power Co., Asia’s largest utility, lost 1.3 percent to 2,355 yen.

Japan’s consumer prices excluding fresh food fell at a record 2.4 percent in August from a year earlier, the statistics bureau said before markets opened. That matched the median estimate of economists surveyed by Bloomberg News.

“Bad numbers on consumer prices forced investors to face reality,” said Yoshihiro Ito, senior strategist at Okasan Asset Management Co., which oversees the equivalent of $8.2 billion. “Considering current exchange rates, people’s expectations for higher earnings are evaporating.”

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

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Asian Stocks Rise From Two-Week Low; Taiwan Semiconductor Gains

By Jonathan Burgos

Sept. 29 (Bloomberg) -- Asian stocks rose, lifting the MSCI Asia Pacific Index from a two-week low, as the dollar advanced against the yen and Taiwan said it may allow Chinese investors to buy stakes in its flat-panel and computer-chip industries.

Nissan Motor Co., which gets 36 percent of its sales from North America, gained 3.3 percent as a stronger dollar bolstered the outlook for U.S. profit. Taiwan Semiconductor Manufacturing Co. jumped 4.9 percent in Taipei on speculation Chinese investors will purchase shares in the company. Commonwealth Bank of Australia added 2.1 percent after the government reported lower- than-forecast budget deficit figures.

The MSCI Asia Pacific Index rose 1.1 percent to 117.20 as of 6 p.m. in Tokyo after closing yesterday at its lowest since Sept. 15. The measure had fallen 2.4 percent in the past three days, the longest series of declines since the six days ended July 8. The gauge has risen 66 percent from a five-year low on March 9.

“There hasn’t been much pullback in the market as investors are probably expecting third-quarter earnings to be better than estimated,” said Pearlyn Wong, Singapore-based investment analyst at Bank Julius Baer Co., which manages about $350 billion. “We still prefer Asian equities. The U.S. has a long way to go before the economy normalizes.”

Japan’s Nikkei 225 Stock Average climbed 0.9 percent to 10,100.20 even as the statistics bureau reported that the country’s consumer prices fell at a record pace in August. Nomura Holdings Inc., which announced a record share sale last week, climbed 4.4 percent for its first gain in 10 trading days.

Hang Seng, Kospi

Hong Kong’s Hang Seng Index added 2.1 percent. Bank of Communications Ltd. gained 2 percent on speculation new loans climbed in China this month. Australia’s S&P/ASX 200 Index advanced 1.6 percent after the government reported a smaller- than-forecast budget deficit. BHP Billiton Ltd., the country’s biggest oil producer, rose 2.4 percent after crude-oil increased.

Futures on the U.S. Standard & Poor’s 500 Index lost 0.1 percent. The gauge climbed 1.8 percent yesterday, on takeovers in the drug and technology industries. Treasuries fell, ending a five-day advance, with the yield on the 10-year note rising two basis points, according to BGCantor Market Data.

The yen today declined to 90.23 per dollar from 89.63 yesterday, when it touched 88.24, the strongest level since Jan. 23. Japan’s currency dropped to 131.45 per euro from 131.06 in New York yesterday.

Nissan climbed 3.3 percent to 599 yen, while Honda Motor Co., which gets 45 percent of its revenue from North America, gained 1.1 percent to 2,705 yen. Both stocks lost at least 5 percent yesterday on concern the yen’s strength will hurt profit.

Irregular Movements

The government may act to stabilize the foreign-exchange market should currency movements become irregular, Japanese Finance Minister Hirohisa Fujii said at a news conference in Tokyo today. He denied saying he tolerates a stronger yen.

In Taipei, Taiwan Semiconductor, the world’s largest custom-chip maker, climbed 4.9 percent to NT$63.70. AU Optronics Corp., the world’s third-largest liquid-crystal-display maker, added 2.8 percent to NT$31.70.

Taiwan is considering allowing Chinese investors to buy stakes in its flat-panel and computer-chip industries, Hsien-lin Huang, an official at the Ministry of Economic Affairs, said.

The island may also allow flat-panel and semiconductor companies to set up plants in China and buy stakes in Chinese companies, Huang said in a phone interview, confirming a Commercial Times report.

High Cash Levels

Australian stocks rose following what the country’s Treasurer Wayne Swan termed as “stronger-than-expected” budget deficit figures. The deficit for the year ended June 30 was A$27.1 billion ($23.7 billion), Swan said, lower than the A$32.1 billion he forecast in May.

Commonwealth Bank, Australia’s largest by value, rose 2.1 percent to A$52.10. Westpac Banking Corp., the country’s No. 2 bank, added 1.3 percent to A$26.43.

“Australia’s less-than-expected budget deficit certainly is giving the market a positive impact,” said Ben Potter, an analyst at IG Markets Ltd. in Melbourne. “Levels of cash within the economy are high.”

Better-than-estimated economic and earnings figures have driven the stock rally since March, lifting the average price of the MSCI Asia Pacific Index’s companies to 1.6 times book value. That’s up from 1 at the gauge’s March low.

“For the long term we are still pretty optimistic on Asia from a five- or 10-year view,” said Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management Group. “However, there could be some detachment between the real economy and the market at the moment.”

Japan Consumer Prices

Signs of a recovery have been mixed even as economies from France and Germany to Japan emerged from recession. Japan’s statistics bureau reported today that consumer prices slid 2.4 percent from a year earlier, the sharpest decline since the survey began in 1971. The drop matched economist estimates.

In Hong Kong, Bank of Communications, China’s fourth- largest lender by market value, rose 2 percent to HK$9.57, while Industrial & Commercial Bank of China Ltd., the world’s largest by market value, climbed 3.3 percent to HK$5.94.

China’s National Business Daily reported new loans in September may exceed 600 billion yuan ($88 billion). That’s higher than August’s 410 billion yuan and July’s 356 billion, and compares with an average of 1.23 trillion in the first six months of the year.

Concerns slower credit growth could derail a rally in China’s equity markets contributed to the Hang Seng Index’s 2.8 percent drop last week.

Nomura, Filinvest Rally

Nomura climbed 4.4 percent to 564 yen. The stock fell 21 percent in the previous two days after the company said on Sept. 25 that it is selling 800 million shares, equivalent to almost 30 percent of the stock outstanding, raising 511.3 billion yen ($5.7 billion) in its largest offering on record.

Filinvest Land Inc., the fourth-largest Philippine builder, climbed 3.3 percent to 94 centavos, rallying from its lowest close since Aug. 20 on speculation declines in the past week were excessive.

In Sydney, BHP gained 2.4 percent to A$37.99 after crude oil futures rose 0.3 percent in after-hours trading, adding to yesterday’s 1.2 percent advance in New York.

PetroChina Co., China’s largest oil producer, climbed 1.6 percent to HK$8.90 in Hong Kong. Cnooc Ltd., China’s largest offshore oil producer, gained 2.7 percent to HK$10.58.

To contact the reporter for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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SMI to Drop, Then Rise to 11-Month High: Technical Analysis

By Adam Ewing

Sept. 29 (Bloomberg) -- The Swiss Market Index’s drop below a support level at 6,250 may signal further declines over the next two weeks before the measure will mark a new 11-month high, according to Zuercher Kantonalbank.

“We expect the SMI to go down further over the next one to two weeks before it finds support at 6,020,” said analyst Philipp Jaeggle in Zurich in a telephone interview yesterday. “In the midterm the trend is still positive.”

After the market settles around 6,020 it is likely to gain momentum and push its way higher, up to the resistance level of 6,400, which it last reached on Nov. 4, he added. The SMI fell below a “weak support” level of 6,250 last week and short-term momentum indicators give a negative signal, but the medium-term trend is intact.

The SMI, a gauge of the country’s biggest and most actively traded companies, has surged 45 percent since reaching this year’s low on March 9, lifted by better-than-expected earnings and signs the worst recession in decades is nearing an end.

“The market has corrected from its March lows, but moves now won’t be as strong,” Jaeggle said. “Still, as long as the positive trend continues, we could go above 6,400 within six to eight weeks.”

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

The SMI gained 11.33, or 0.2 percent, to 6,300.6 as of 10:57 a.m. in Zurich today.

To contact the reporter on this story: Adam Ewing in Stockholm aewing5@bloomberg.net.

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U.K. Stocks Decline; Hammerson, Land Securities Lead Retreat

By Alexis Xydias

Sept. 29 (Bloomberg) -- U.K. stocks fell after the benchmark FTSE 100 Index gained the most in three weeks yesterday, as Credit Suisse Group AG advised paring holdings in property companies because of Britons’ debt levels.

Hammerson Plc and Land Securities Group Plc fell more than 2 percent. Compass Group Plc and Daily Mail and General Trust Plc gained at least 3 percent after releasing updates on their businesses.

The benchmark FTSE 100 Index fell 22.32, or 0.4 percent, to 5,143.38 as of 10:18 a.m. in London. The index gained the most since Sept. 7 yesterday. The FTSE All-Share Index dropped 0.4 percent and Ireland’s ISEQ Index added 0.5 percent.

The FTSE 100 has rallied 47 percent since March 3 as earnings beat estimates and economic releases showed the worst of a global recession may be past. Gross domestic product in the U.K. shrank an annual 5.5 percent in the second quarter, the government said today.

“People generally are starting to get a bit more cautious on concern the rally may have run its course,” said Ian Murrell, director at Wills and Co. Stockbrokers Ltd. in London. “If you take the short-term view, the market could correct a bit of these gains we’ve had.”

Hammerson shares lost 2 percent to 401.1 pence. Land Securities decreased 2.6 percent to 639.5 pence. Credit Suisse cut its recommendation on U.K. real-estate shares to “market weight” from “overweight,” citing elevated household debt and home prices.

‘Economic Momentum’

“U.K. economic momentum is no longer the best,” wrote a team of strategists led by Andrew Garthwaite in a report today. “Household leverage and house price valuations are more extended in the U.K. than the U.S. and the structural government deficit is the worst” among Organization for Economic Cooperation and Development countries. “We therefore reduce exposure to domestic U.K. sectors.”

Compass Group added 3.4 percent to 371.8 pence. The world’s largest catering company said it’s performing well and that it’s “optimistic” about the business recovery. Compass said the pace of new contracts is “strong.”

DMGT rose 3.7 percent to 456.7 pence. The publisher of Britain’s Daily Mail newspaper said it’s “confident” it will at least meet market expectations for full-year adjusted profit after reporting sales in the 11 months to Aug. 31 fell 9 percent.

The following stocks also rose or fell in U.K. and Irish markets. Stock symbols are in parentheses:

Dairy Crest Group Plc (DCG LN) gained 7.2 pence, or 1.9 percent, to 384 pence. The U.K.’s biggest milk and cheese producer said sales of milk to its major retail customers advanced 10 percent in the first half.

Enterprise Inns Plc (ETI LN) rose 4.8 pence, or 3.6 percent, to 139.7. The pub manager said it’s had “stabilization in beer volumes, reports of improving food sales and an abatement of cost pressures on licensees.”

Legal & General Group Plc (LGEN LN) rose 3.55 pence, or 4.5 percent, to 82.55 pence. The second-biggest U.K. insurer by assets gained for a third day after the Sunday Telegraph reported Sept. 27, citing no-one, that the company has prepared documents to ward off a potential takeover by Clive Cowdery’s Resolution Ltd.

Royal Bank of Scotland Group Plc (RBS LN), the lender majority-owned by the state, added 1.25 pence, or 2.4 percent, to 52.85. Speaking at a conference in London, Chief Executive Officer Stephen Hester said the bank’s net interest margins are going in the “direction expected.”

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net.

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European Stocks Fluctuate; Siemens Declines, BNP Paribas Gains

By Sarah Jones

Sept. 29 (Bloomberg) -- European stocks fluctuated between gains and losses as Siemens AG said that fiscal 2009 was a “tough” year, offsetting an advance by BNP Paribas SA after the bank said it will raise capital to repay government funds.

Siemens, Europe’s largest engineer, slipped 2.7 percent in Frankfurt after Chief Financial Officer Joe Kaeser made the comments to investors at a meeting in London. Salzgitter AG slid 2.5 percent as Germany’s second-biggest steelmaker announced a convertible-bond sale. BNP Paribas SA added 2.3 percent after France’s largest bank said it will seek to raise 4.3 billion euros ($6.3 billion) in a rights offer.

Europe’s Dow Jones Stoxx 600 Index decreased less than 0.1 percent at 11:03 a.m. in London after climbing as much as 0.3 percent and falling as much as 0.4 percent. The regional gauge added the most in five weeks yesterday. The MSCI Asia Pacific Index rose 1 percent today as the dollar advanced against the yen, boosting Japanese automakers and electronics companies.

“Whether you are overweight equities or not overweight, in either case you are a little nervous and perhaps don’t sleep quite so well,” Monika Rosen, Vienna-based head of research at UniCredit Private Bank, said in a Bloomberg Television interview. “The markets have however shown themselves remarkably resilient, certainly more so than I would have expected.”

Standard & Poor’s 500 Index futures fell 0.1 percent after the benchmark gauge for U.S. equities rose the most in five weeks yesterday. Reports today on home prices and consumer confidence may add to evidence the recession is abating.

Valuations, Siemens

Equity indexes in the U.S. and Europe have rebounded more than 50 percent since March, sending price-earnings valuations on the S&P 500 and the Stoxx 600 this month to the highest levels since 2004 and 2003, respectively.

Siemens dropped 2.7 percent to 64.17 euros after Kaeser said that order bookings in the year that ends this month will fall.

Salzgitter slipped 2.5 percent to 66.75 euros after the steelmaker said it will sell about 300 million euros of convertible bonds and use the proceeds for “general” purposes and to diversify its funding.

BNP Paribas rose 2.3 percent to 57.85 euros after the Paris-based lender said it will seek to raise capital to help repay the government.

The bank is offering existing investors 107.6 million shares at 40 euros each, or 29 percent below yesterday’s closing price. BNP will repay 5.1 billion euros it received from the French state as well as 226 million euros of interest.

Independent Newspaper

Independent News & Media Plc sank 7.4 percent to 25 euro cents after the publisher of the U.K.’s Independent newspaper said it will give bondholders a 46 percent stake in the company as part of a restructuring of its debts. The company will swap 123 million euros of the money owed to bondholders for the stake. The deal follows months of negotiations on a restructuring of its debts.

MTU Aero Engines Holding AG dropped 3.4 percent to 32.60 euros after HSBC Holdings Plc downgraded the German engine maker to “neutral” from “overweight,” saying in a report to clients that a weaker dollar “bears earnings risk.”

Compass Group Plc rallied 3.1 percent to 370.6 pence after the world’s largest catering company said it is performing well in the fiscal fourth quarter. The company expects margin growth of around 70 basis points in the period ending Sept. 30 and 60 basis points in the full year.

Umicore SA jumped 2.6 percent to 29.78 euros after Citigroup Inc. upgraded the world’s largest precious-metals recycler to “buy” from “hold,” citing increasing mergers and acquisitions in the chemical industry.

U.S. Economic Reports

U.S. economic reports today may show home values in 20 U.S. metropolitan areas declined at a slower pace and consumer confidence improved, according to economists.

The S&P/Case-Shiller home-price index fell 14.2 percent in July from a year earlier, the least in 17 months, according to the median forecast of 35 economists surveyed by Bloomberg News. The Conference Board may say its gauge of consumer sentiment rose this month to the highest level in a year.

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

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Xerox $6 Billion Deal May Inspire More Copycats To Be Like IBM

By Katie Hoffmann and Serena Saitto

Sept. 29 (Bloomberg) -- Xerox Corp.’s plan to buy Affiliated Computer Services Inc. for about $6 billion may point to more acquisitions of consulting companies as hardware companies try to revive slumping sales.

The next targets might include Computer Sciences Corp.,Accenture Ltd. and Hewitt Associates Inc., said Moshe Katri, an analyst at Cowen & Co. in New York. The Xerox deal follows a move by Dell Inc. to buy computer-services provider Perot Systems Corp. for almost $4 billion. And last year, Hewlett- Packard Co. purchased Electronic Data Systems Corp. for more than $13 billion, making it the No. 2 computer-services company.

Services provide wider profit margins and steadier revenue than computer hardware, helping technology companies weather the worst recession since World War II. International Business Machines Corp. snapped up acquisitions during the past 10 years, turning itself into the world’s largest computer-services provider. That’s helped the company boost profit margins despite falling sales.

“What you are seeing is some of the product companies trying to replicate IBM’s model,” Katri said. “They have a successful services business that makes them a one-stop shop.”

Global information-technology spending may drop 8 percent this year, Goldman Sachs Group Inc. said this month. Businesses are coping with the recession by slashing their budgets -- especially on personal computers, servers and other hardware -- eating into revenue at IBM, Dell, Hewlett-Packard and Xerox.

E-ZPass System

Xerox’s acquisition will help triple the amount of revenue it gets from services, reaching about $10 billion, the Norwalk, Connecticut-based company said yesterday. Affiliated Computer, based in Dallas, helps customers outsource tasks such as human- resources management. It’s also the U.S.’s biggest student-loan processor and operates the E-ZPass toll-collection system.

The total business-process outsourcing market is valued at about $150 billion, Xerox said yesterday. Almost 90 percent of Affiliated Computer’s new business contracts came from outsourcing last year. The big challenge for Xerox will be fitting the pieces together, said Keith Bachman, an analyst at BMO Capital Markets in New York. That’s left investors uncertain about the deal.

Xerox fell $1.30, or 14 percent, to $7.68 yesterday in New York Stock Exchange composite trading. Affiliated Computer jumped 14 percent to $53.86.

What’s Next?

Shares of Computer Sciences and Accenture both rose almost 5 percent yesterday as investors tried to anticipate the next big services acquisition.

Computer Sciences, the manager of networks for NASA and the U.S. Navy, would give an acquirer access to government contracts, Katri said. The Falls Church, Virginia-based company gets more than 35 percent of sales from the North American public sector. Computer Sciences wasn’t immediately able to comment.

A purchase of Accenture, meanwhile, would give a buyer the world’s second-largest technology-consulting business. Accenture’s cost may be an impediment, though, said Jason Kupferberg, an analyst at UBS AG in New York. The company has a market value of $27.8 billion.

“There’s a small number of companies in tech that could afford to buy Accenture,” Kupferberg said. “The other potential challenge is post-merger integration. Accenture has more than 180,000 employees.”

Alex Pachetti, a spokesman for Dublin-based Accenture, declined to comment.

Eyeing Hewitt

Hewitt Associates presents a smaller target, Katri said. The Lincolnshire, Illinois-based company, which offers consulting and human-resources help, has a market value of $3.38 billion. Hewitt declined to comment on takeover speculation.

Cognizant Technology Solutions Corp., CGI Group Inc. and Sapient Corp. also provide computer services.

Cisco stands out as a hardware company without a services business, said Shaw Wu, an analyst at Kaufman Bros. in San Francisco. The company, which leads the market for networking equipment, is already expanding into other kinds of information technology. Services may be the next step, he said.

“Cisco is probably the last hardware company that doesn’t have a big services arm,” Wu said. “Look at where they’re trying to go, which is to become more of a complete provider of IT, not just networking infrastructure.”

Cisco declined to comment, said Terry Alberstein, a spokesman for the San Jose, California-based company.

Oracle Corp., the second-biggest software maker, also may use acquisitions to bolster services, Wu said. The company is already buying Sun Microsystems Inc., a provider of computer servers and software.

‘Like an IBM’

“They’re also trying to become more like an IBM or H-P,” Wu said. “Oracle does have some consultants already, but to beef up that operation makes a lot of sense.”

Deborah Hellinger, a spokeswoman at Redwood City, California-based Oracle, didn’t return a message seeking comment.

EDS helped Hewlett-Packard increase its services revenue 93 percent last quarter. That contrasts with an 18 percent drop in revenue from its personal-computer division.

Hewlett-Packard declined to comment on other possible acquisitions, said Christina Schneider, a spokeswoman for the Palo Alto, California, company.

IBM is now focused on acquiring new technologies, rather than adding companies with big service staffs, said Dave Liederbach, head of the Armonk, New York-based company’s strategic outsourcing business. IBM had its biggest consulting acquisition in 2002, when it bought PwC Consulting. Since that integration is done, IBM has an edge over competitors going through acquisitions now, Liederbach said.

The remaining service companies could probably stay independent if they wanted to, said Dylan Cathers, an analyst at Standard & Poor’s in New York. Even so, a merger lets them cross-sell to hardware customers. And it’s hard to dispute IBM’s success in the market, he said.

“Can service companies survive on their own? Absolutely,” Cathers said. “Do I think they might be better off partnering? There is a strong argument for that.”

To contact the reporters on this story: Katie Hoffmann in New York at khoffmann4@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

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Astrotech, MBIA, Sequenom, Silicon Image: U.S. Equity Preview

By Lu Wang

Sept. 29 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Astrotech Corp. (ASTC US): The provider of satellite launch preparation services said it’s exploring options to boost shareholder value, including a sale of the company.

MBIA Inc. (MBI US): The largest bond insurer by total guarantees had its counterparty credit rating lowered to BB- from BB by Standard & Poor’s, which cited continued losses related to the company’s structured finance products.

Post Properties Inc. (PPS US): The developer of apartment buildings won dismissal of a lawsuit accusing it of failing to accommodate people with disabilities.

Sequenom Inc. (SQNM US): Sequenom dismissed its chief executive officer and a senior research executive after finding the company mishandled development of a test for Down syndrome.

Silicon Image Inc. (SIMG US): The designer of chips that transmit television signals said revenue in the third quarter was $39 million at most, missing its July forecast.

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

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U.S. Index Futures Little Changed; MBIA Falls, Coca-Cola Gains

By Adria Cimino

Sept. 29 (Bloomberg) -- U.S. stock-index futures were little changed as the highest valuations in five years helped offset speculation that economic reports today will show improvements in home prices and consumer confidence.

MBIA Inc. retreated 4.4 percent in Germany after Standard & Poor’s cut its credit ratings for the world’s biggest bond insurer by total guarantees. Coca-Cola Co., the largest soft- drinks maker, rose as Citigroup Inc. advised buying the shares.

Futures on the Standard & Poor’s 500 Index expiring in December lost 0.1 percent to 1,057.70 at 11:08 a.m. in London. Dow Jones Industrial Average futures slipped less than 0.1 percent to 9,724 and Nasdaq-100 Index futures decreased 0.4 percent to 1,716.25.

“All will depend on economic data,” said Clemence Bounaix, who helps oversee about $4.5 billion at KBL Richelieu Gestion in Paris. “There are industries that have strongly rebounded so we have to be cautious. We’re in a phase of recovery, but we’re not immune to a rough patch if there is any bad news.”

The S&P 500 has rallied 57 percent from a 12-year low in March, pushing valuations in the index to about 20 times the reported profits from continuing operations, data compiled by Bloomberg show. That’s the most expensive level since 2004.

Home values in 20 U.S. metropolitan areas probably declined at a slower pace and consumer confidence improved, signs the recession is abating as the real-estate crisis eases, economists said before reports today.

Economy Watch

The S&P/Case-Shiller home-price index fell 14.2 percent in July from a year earlier, the least in 17 months, according to the median forecast of 35 economists surveyed by Bloomberg News. The Conference Board may say its gauge of consumer sentiment rose this month to the highest level in a year. The home-price figures are due at 9 a.m. Washington time, while consumer confidence data is set for 10 a.m.

U.S. stocks rose yesterday, sending benchmark indexes up the most in five weeks, as takeovers in the drug and technology industries added to evidence that mergers and takeovers are rebounding from the slowest pace in six years.

Mergers and acquisitions involving U.S. companies have totaled $49.1 billion in September, compared with $26.6 billion in August and $36.8 billion in July, based on Bloomberg data.

Alcoa Inc. will be the first Dow company to release third- quarter earnings next week, scheduled for Oct. 7. Walgreen Co., Micron Technology Inc. and Constellation Brands Inc. are among the S&P 500 companies set to release results this week.

Credit Rating

MBIA lost 4.4 percent to $7.86 in Germany. The bond insurer had its credit ratings lowered to BB-, or three steps below investment grade, from BB by S&P, which cited continued losses related to the company’s structured finance products.

Coca-Cola was rated “buy” in new coverage at Citigroup, citing “markedly better” per-share earnings growth in 2010. The stock added 0.6 percent to $53.44 in Germany.

Dr Pepper Snapple Group Inc., the third-largest U.S. soda maker, was also rated “buy” at Citigroup, saying “carbonated soft drinks are a good place to be right now.” The stock didn’t trade in Europe.

Sequenom Inc. plunged 43 percent to $3.24 in early New York trading. The company dismissed its chief executive officer and a senior research executive after finding it mishandled development of a prenatal test for Down syndrome.

The steepest rally in the S&P 500 Index since the 1930s is restoring Byron Wien’s reputation as a stock picker. Wien, hired by Blackstone Group LP last month, said he’s keeping his January forecast for a 33 percent annual gain in the benchmark index, implying a 13 percent advance from yesterday’s close. More than six months ago, the S&P 500 needed to rise 77 percent to reach Wien’s year-end prediction of 1,200.

Wien’s year-end forecast for the S&P 500 is higher than the average estimate of strategists surveyed by Bloomberg of 1,037.

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

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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | Sep 28 09 09:56 GMT |

EUR/USD Resistance:1,4620-30/ 1,4660-65/ 1,4690/ 1,4720-30/ 1,4750/ 1,4780/ 1,4800 Support: 1,4570/ 1,4545/ 1,4525/ 1,4500. 1,4475-80/ 1,4450/ 1,4420/ 1,4380 Comment : The week starts negative for euro, as it moved below the base of 1,4600, confirming the short term trend reversal and the short term tops formation. The downward break of the first important support levels in stock indices and crude oil, indicate that the decline is likely to be resumed. Next important support levels emerge at 1,4500-20, where 50% retracement levels from the base of 1.4200, will be completed. On the upside, the area of 1,4690-4720 should be breached in order to confirm the bullish strength, while first resistance emerges at του 1,4620-30 and 1,4660-65 area. As long as reactions remain below these levels, the area of 1,4500-20 is our basic target.. STRATEGY We will stay neutral at current levels, and will try sell orders at the reactions towards 1,4660-70 area, adding positions at 1,4690 and placing our stops above 1,4730. The target will be at 1.4560-80 lows… Buy orders will be tried at the base of 1,4510-30, with stops below 1,4475 and target at 1,4620… The above mentioned strategy refers to orders that we may follow for personal accounts, depending on the market analysis and the potential reach of resistance and support levels. We do not encourage buy or sell orders, as its effective use is based on correct risk management and the ability of position readjustment depending on current conditions... FX Greece DISCLAIMER The details and information included in the above analysis, are part of research based exclusively on currency charts and are of purely instructional and educational nature. None of the information featuring in the analysis can be considered as an invitation for opening positions in FOREX market or in the market of forward contracts or any securities listed on an organized or unorganized market. We assume no responsibility for any kind of losses ,profits or property loss resulting, in whole or in part, from acts that are based either directly or indirectly on the processing or the use of information, details and strategies, the reader may find in the analysis. The readers hold full responsibility for the use and the results of their actions. The recipients of the analysis must acknowledge and accept that investment choices of any kind, especially concerning the FOREX market, contain risks (high, low and occasionally zero) of reduction or even loss of their investment. Therefore, they should always be cautious prior to any kind of action. We reserve the right to change the terms and the characteristics of the analysis. The contents of the analysis are solely intended for personal use. They may not be retransmitted, reproduced, distributed, published, adapted, modified or assigned to third parties in any way whatsoever. Anyone having access to them is required to comply with the law provisions on the protection of third party intellectual property rights.

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Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | Sep 28 09 09:27 GMT |

EUR/USD Current level-1.4622 EUR/USD is in a broad consolidation, after bottoming at 1.2331 (Oct.28,2008). Technical indicators are neutral, and trading is situated above the 50- and 200-Day SMA, currently projected at 1.4134 and 1.3523. The recent break below 1.4611 confirmed, that a larger corrective phase is on the run from 1.4842, targeting 1.4444 support. Intraday bias is slightly positive towards 1.4653, where a reversal should be expected, for next leg downwards, to 1.4493. Resistance Support intraday intraweek intraday intraweek 1.4801 1.50+ 1.4660 1.4611 1.4911 1.6040 1.4611 1.3746 USD/JPY Current level - 89.53 A short-term bottom has been set at 87.12 and a large consolidation is unfolding since. Trading is situated below the 50- and 200-day SMA, currently projected at 94.86 and 94.84. Recent break below 90.12 provoked a sharp sell-off towards 88.41, thus filling our target at 88.64 and currently the pair is in a corrective phase below 90.34, that should be followed by one more downward test of the 87.12 weekly low. Intraday bias is positive for 89.92 and 90.34 with a risk limit below 89.15. Current consolidation above 88.42 is expected to last minimum 4 trading sessions. Resistance Support intraday intraweek intraday intraweek 89.92 93.40 89.12 87.12 90.34 101.45 88.42 83.53 GBP/USD Current level- 1.5872 The pair is in a downtrend after peaking at 1.7042. Trading is situated between the 50- and 200-day SMA, currently projected at 1.6454 and 1.5258. Friday's minor consolidation was limited to 1.6050 in its attempt to test the important break below 1.6110 and the downtrend was renewed, reaching local bottom at 1.5766. Current bias is corrective in nature and we expect 1.5915 to limit the upside for the next leg downwards, to 1.5352 weekly support. Resistance Support intraday intraweek intraday intraweek 1.5912 1.6130 1.5766 1.5352 1.6030 1.7042 --- 1.50+ DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

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Unemployment Confronts Obama Rhetoric With Chronic Joblessness

By Rich Miller

Sept. 28 (Bloomberg) -- Full employment ain’t what it used to be.

Economists since the mid-1990s have reckoned that full employment was equivalent to about a 5 percent unemployment rate, taking into account the time required to switch jobs. Now Nobel Prize winner Edmund Phelps and Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian say the fallout from the deepest recession in more than five decades is driving the so-called natural rate higher, perhaps to 7 percent.

“We are in the midst of a large and protracted increase in both actual unemployment and its natural rate,” said El-Erian, 51, whose Newport, California-based company manages the world’s largest bond fund. Even with the economy growing, “it will take at least a couple of years” for joblessness to fall to 7 percent from 9.7 percent now.

That may keep the federal budget deficit near a record $1.6 trillion into next year and might prevent the Federal Reserve from raising interest rates in 2010, said Bruce Kasman, chief economist at New York-based JPMorgan Chase & Co., the second- largest U.S. bank. Elevated unemployment will also “dampen the recovery in consumption and economic growth,” El-Erian said.

President Barack Obama has highlighted job creation as the ultimate measure of the economy’s health, telling CNN television on Sept. 20 that it is “the single most important thing we can do.” By this measure, the U.S. is still coming up short, he added. That may hurt Obama’s Democratic Party in the November 2010 Congressional elections.

Rising Unemployment

Government data to be released Oct. 2 will probably show that unemployment rose to a 26-year high of 9.8 percent in September as companies pared payrolls by 180,000, according to the median forecast of economists surveyed by Bloomberg News.

Obama, 48, has also pledged a sharp reduction in the budget deficit -- a task that would be made more difficult if unemployment stays high, boosting government spending on people who are out of work and reducing tax revenue. The administration’s mid-term review forecasts a decline in the deficit to $917 billion in 2019 as unemployment drops to 5.2 percent.

A rise in the natural rate -- the level below which joblessness can’t fall without sparking inflation -- would also create a dilemma for Federal Reserve Chairman Ben S. Bernanke and his central-bank colleagues.

High unemployment argues for a loose monetary policy now; former Fed governor Lyle Gramley sees the central bank holding the federal-funds rate -- the rate banks charge each other for overnight loans -- near zero until early 2011. Later, there’s a risk Bernanke will ignite inflation if he tries to push the jobless rate down to the 5 percent equilibrium level that’s prevailed in the past.

‘Profound’ Implications

“The implications over the next five to 10 years for fiscal and monetary policy are very, very profound” if the rate has risen, said Neal Soss, chief economist in New York for Credit Suisse Holdings USA Inc., a subsidiary of Zurich-based Credit Suisse Group AG, Switzerland’s second-biggest wealth manager. In that case, the best investment in the medium term might be to buy Treasury Inflation Protected Securities, said Soss, a former Fed official.

TIPS of all maturities are headed for their fifth straight monthly gain as investors hedge against the potential for inflation, even as it has yet to materialize. The securities have gained 7.49 percent this year compared with a 2.65 percent decline for conventional U.S. government debt, according to the Merrill Lynch U.S. Treasury Inflation-Linked Master Index.

Permanent Destruction

Kasman ties an increase in the full-employment rate to the permanent destruction of hundreds of thousands of jobs in industries from housing to finance.

Since the nadir of the last recession in November 2001, the U.S. has lost 839,000 jobs in the private sector, based on data from the Bureau of Labor Statistics -- the first time that’s happened over the course of a business cycle since 1980-82. Manufacturing and construction were particularly hard hit.

Permanent layoffs -- for workers who don’t expect to ever regain the same job -- hit a record 53.9 percent of the unemployed in August, according to the bureau. Some 33.3 percent of the jobless had been out of work for 27 weeks or longer last month, down from a record 33.8 percent in July. And at 59.2 percent, the share of Americans who are employed is at its lowest level in 25 years.

“The labor market is showing signs of very considerable stress,” said Gramley, 82, a senior economic adviser for New York-based Soleil Securities.

Job-Growth Engines

Every state, the District of Columbia and Puerto Rico have seen unemployment rise during the recession. What’s more, the states that have been job-growth engines in the past -- including California, Florida and Nevada -- have been among the hardest hit as real-estate values plunged, said Lawrence Katz, a professor at Harvard University in Cambridge, Massachusetts.

The 30 percent decline in house prices during the last three years also makes it hard for some Americans to seek work in another city or state, he said. About 26 percent of U.S. homes with a mortgage were worth less than the amount owed, according to a recent report by analysts Karen Weaver and Ying Shen in New York at Frankfurt-based Deutsche Bank AG, Germany’s biggest lender. Ultimately, as many as 48 percent of mortgages may be “underwater” as house prices fall further, they forecast.

Katz identifies labor mobility as a key factor in reducing the natural rate of unemployment. Mobility fell last year to its lowest level since records began in 1948, according to the Census Bureau. The so-called national mover rate declined to 11.9 percent of the population in 2008 from 13.2 percent in 2007 as 35.2 million Americans one year or older changed residence.

Deep Recession

Mobility is likely to fall further this year in response to the deep recession, said Peter Francese, demographic-trends analyst for New York-based Ogilvy & Mather, which is owned by WPP Plc of London, the world’s largest advertising company.

“It will plummet so close to zero you’ll be surprised,” said Francese, who founded American Demographics magazine. That will likely depress consumer spending, which historically accounts for about 70 percent of gross domestic product.

“People who move spend a bundle, on draperies, furniture, rugs,” he said.

A shift in the Beveridge curve is also signaling an increase in the natural, or non-accelerating inflation, rate of unemployment to between 6 percent and 7 percent, said JPMorgan Chase’s Kasman.

Worker Skills

Unlike the more popular Phillips curve, which compares unemployment to inflation, the Beveridge curve looks at job openings in relation to employment. A high level of both vacancies and unemployment suggests that workers lack the skills to fill the jobs available and that the natural rate, or NAIRU, is higher.

The curve, developed by the late British economist William Beveridge, is more accurate at presaging changes in full employment than its Phillips counterpart, according to research by Brookings Institution Senior Fellow William Dickens that was presented at a Federal Reserve Bank of Boston conference last year.

Many economists, including Gramley, don’t believe the natural rate has risen. Fed policy makers seem to be in that camp. They put the longer-run unemployment rate -- a proxy for the NAIRU -- at 4.8 percent to 5 percent, according to the minutes of their June 23-24 meeting.

That may be too optimistic, said Phelps, 76, a professor at Columbia University in New York who won the Nobel Prize for Economics in 2006 for his theories on the interplay between inflation expectations and employment.

“There’s a bit of whistling past the graveyard here,” he said.

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

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Italy Consumer Confidence Rises to Highest in 7 Years

By Lorenzo Totaro

Sept. 28 (Bloomberg) -- Consumer confidence in Italy rose in September to the highest in more than seven years as concerns about unemployment were offset by signs that the country’s worst recession in six decades is easing.

The Isae Institute’s consumer confidence index climbed to 113.6 from 111.8 in August, the Rome-based research center said today in an e-mailed statement. That was the highest since July 2002 and exceeded the median estimate of 112 by 15 economists surveyed by Bloomberg News.

“Expectations for the economic situation have turned into positive territory for the first time since the start of the recession,” said Annalisa Piazza, an economist at Newedge Group in London. “The main question is whether rising confidence will translate into higher spending near term.”

Consumer prices rose last month as Europe’s fourth-biggest economy started picking up after five quarters of contraction. Incentives to trade in old cars for less polluting ones helped boost auto registrations. Industrial production rose in July as Italy benefited from demand from France and Germany, its two biggest trading partners.

Today’s report mirrors the situation in those countries, the biggest economies of the euro region. German consumer confidence and French households’ optimism both rose in September, two separate reports showed on Sept. 25.

Short-Lived Recovery

While Italy’s economy may return to growth in the third and fourth quarter of 2009, the recovery may not last, said Marco Valli, an economist at UniCredit MIB in Milan.

“Italy’s growth acceleration will be short-lived and in early 2010 we should witness a renewed gross domestic product slowdown,” Valli wrote in a Sept. 24 report. This will be “driven by weakening exports and a setback in car sales following the expiration of government incentives.”

Sergio Marchionne, chief executive of carmaker Fiat SpA, said on Sept. 16 that it’s unclear whether incentives will continue in Italy next year. Finance Minister Giulio Tremonti, who has declined to say if they will be extended, said this week that European governments will decide jointly on the matter.

Government “subsidies to buy cars and a widespread perception of an economic pickup brought optimism among consumers,” Paolo Mameli, an economist at Intesa Sanpaolo in Milan said before the report. “Still, risks to unemployment and consumer spending are far from over.”

Labor Market

“Consumers are increasingly concerned about the labor market’s outlook and their expectations on the increase of unemployment are at the highest level since June,” Isae said in today’s report.

The country’s unemployment rate, which reached 7.4 percent in the second quarter, may exceed 10 percent in 2010 should the recovery remain weak, the Organization for Economic Cooperation and Development said in a Sept. 16 report.

Clothing maker Stefanel SpA will present a revised business plan next month after the economic crisis interrupted its efforts to turn the company around. “The second half started quite well,” Chairman Giuseppe Stefanel said last week in an interview. “It is still slow, and we need to work to do all that needs to be done for when there is a recovery.”

Isae conducted its confidence survey between Sept. 1 and Sept. 16.

To contact the reporter responsible for this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net

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