Sugar to Extend Gains on ‘Rationing Demand,’ Coleman Predicts

By Claire Leow and Netty Ismail

Oct. 16 (Bloomberg) -- Raw sugar, which has more than doubled in the past year, may extend gains on a lack of new supply until 2010 after bad weather hurt crops in India and Brazil, hedge fund manager Michael Coleman said.

There is “significant upside,” said Singapore-based Coleman, managing director of Aisling Analytics, which runs a $1.5 billion fund invested in agriculture and energy. “Until next summer, there’s no production response possible.”

Raw sugar has surged as drought in India and excessive rains in Brazil hurt output from the world’s top two producers. Global consumption will outpace supply by 6.9 million metric tons in the year to September, resulting in a second annual deficit, Macquarie Bank Ltd. said yesterday.

“You’ve consecutive global deficits,” Coleman, 49, told reporters today in Singapore. “The world will have to reply on rationing demand: and the way you ration demand is through high prices,” he said.

Raw sugar futures on ICE Futures U.S. in New York reached 25.43 cents a pound on Sept. 30, the highest price for a most- active contract since February 1981, and traded at 23.85 cents yesterday after gaining 5 percent. Coleman, who said in August that raw sugar may reach 40 cents, didn’t give a forecast today.

Sugar “has more highs left to test,” Kona Haque, a commodities strategist at Macquarie, said yesterday. India will have to import at least 6 million tons in the year that began Oct. 1, Macquarie forecast.

Output in Brazil’s Center South, the world’s largest sugar- producing region, fell 17 percent in the first half of September from a year earlier because of rain, industry association Unica said on Sept. 24. Brazil is the world’s biggest producer.

To contact the reporters on this story: Claire Leow in Singapore at cleow@bloomberg.net; Netty Ismail in Singapore at Nismail13@bloomberg.net

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Gold May Fall as Rally to Record Encourages Sales, Survey Shows

By Nicholas Larkin

Oct. 16 (Bloomberg) -- Gold may decline as a rally to a record encourages some investors to sell the precious metal and erodes jewelry demand, a survey showed.

Nine of 16 traders, investors and analysts surveyed by Bloomberg, or 56 percent, said bullion would fall next week. Five forecast higher prices and two were neutral. Gold for delivery in December was up 1 percent this week at $1,059.20 an ounce by noon yesterday in New York. The metal reached a record $1,072 on Oct. 14.

Gold futures have climbed 19 percent this year and are headed for a ninth consecutive annual gain, while the dollar is trading near the lowest level in 14 months against a basket of six major currencies. The 14-day relative strength index for gold futures yesterday climbed above 70, a level viewed by some investors as a signal of an impending retreat.

“A weak dollar, rising equities and risk appetite are supportive, but I think gold is looking fatigued and vulnerable to a correction,” James Moore, an analyst at TheBullionDesk.com in London, said in an e-mail.

Bullion futures have gained in seven of the past eight weeks. The October-December period is typically the busiest season for jewelry sales in India, spurred by the wedding season and this weekend’s Diwali holiday.

“We are fearful that far, far too many people are involved with this market and that a correction of some consequence is now upon us,” wrote Dennis Gartman, an economist and editor of the daily U.S.-based Gartman Letter. “Those who had been hoping to see material Indian buying of gold ahead of and during the Diwali festival may find their hopes dashed.”

The weekly gold survey has forecast prices accurately in 164 of 283 weeks, or 58 percent of the time.

This week’s survey results: Bullish: 5, Bearish: 9, Neutral: 2

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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Japan’s Topix Falls, Led by Banks, JAL; Inpex Advances on Oil

By Patrick Rial and Satoshi Kawano

Oct. 16 (Bloomberg) -- Japan’s Topix index fell, led by banks, following earnings from U.S. rivals and as Japan Airlines Corp. dropped on concern its turnaround plan may falter. Oil producers gained after crude rallied to a one-year high.

Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, slumped 3.1 percent and Sumitomo Mitsui Financial Group Inc. dropped 1.9 percent after earnings reports from Goldman Sachs Group Inc. and Citigroup Inc. disappointed some investors. Japan Airlines plunged 11 percent after Kyodo News said Asia’s biggest carrier may drop a plan to sell assets. Inpex Corp., Japan’s biggest oil explorer, climbed 1.4 percent.

“Capital continues to exit the market as uncertainties pile up,” said Masatsugu Okeya, a fund manager at Chiba-Gin Asset Management Co. in Tokyo. “Rising credit costs are causing damage to banks’ earnings and balance sheets, fanning concerns they will need to raise additional capital.”

The Nikkei 225 Stock Average added 0.2 percent to 10,257.56 at the close of trading in Tokyo, after swinging between gains and losses in the afternoon. The broader Topix fell 0.4 percent to 900.95, with about three stocks retreating for every two that climbed. For the week, the Nikkei rose 2.4 percent and the Topix climbed 0.3 percent.

In New York, oil companies helped lift the Standard & Poor’s 500 Index by 0.4 percent yesterday to a level last seen in October 2008. Gains were limited as investors sold financial shares after the profit reports at Citigroup and Goldman Sachs.

Banks Retreat

Mitsubishi UFJ dropped 3.1 percent to 470 yen. Sumitomo Mitsui Financial, Japan’s second-largest bank by market value, fell 1.9 percent to 3,190 yen. Tokio Marine Holdings Inc., the country’s largest property insurer, slumped 4.3 percent to 2,330 yen. Measures of financial companies included in the Topix logged four of the five largest declines among the benchmark’s 33 industry groups.

Goldman Sachs reported earnings yesterday that fell short of a record posted the previous quarter. Citigroup recorded a profit as it added the smallest amount to loan-loss reserves in two years.

Meanwhile, JPMorgan Chase & Co., Bank of America Corp. and Citigroup, the biggest U.S. credit-card lenders, said more customers fell behind on payments in September as Credit Suisse Group AG forecast industry losses will mount for at least another year.

“Although we are seeing some nominally good results from the U.S. financials, they also have very bad debts on their books,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc., which manages about 800 billion yen ($8.6 billion). “In Japan, we are going to see some very big equity issuances from the mega-banks.”

Japan Airlines Plunges

Japan Airlines plunged 11 percent to 101 yen, the sharpest decline in the Nikkei 225. Kyodo News said the carrier may drop a plan to sell a stake in JALways Co. that the company had forecast would generate a 90 billion yen ($992 million) profit. Last month the government rejected the carrier’s turnaround plan, while the Nikkei reported the company is now seeking debt relief from creditors including banks.

“The future of JAL is uncertain and so investors are selling,” said Satoshi Yuzaki, a section manager at Takagi Securities in Tokyo. “It seems like it will be difficult to get the support of banks.”

Inpex gained 1.4 percent to 798,000 yen. Mitsui & Co., whose profit is the most sensitive among Japan’s five largest trading houses to changes in the price of oil, added 0.4 percent to 1,263 yen. Cosmo Oil Co., a refiner partly owned by the government of Abu Dhabi, advanced 3.5 percent to 268 yen.

Fast Retailing, Murata

Crude oil rallied 3.2 percent to $77.58 a barrel yesterday in New York, the highest since Oct. 14, 2008. A U.S. Energy Department report yesterday showed an unexpected decline in stockpiles of gasoline after refineries idled capacity.

Fast Retailing Co., the operator of Japan’s Uniqlo casual- clothing-store chain, gained 5.5 percent to 15,320 yen, the steepest gain in the Nikkei. Brokerages including CLSA Ltd. and Macquarie Group Ltd. boosted share-price targets on the discount retailer. CLSA’s Jeanie Chen cited an improved outlook for same- store-sales.

Murata Manufacturing Co., the world’s largest maker of ceramic capacitors used in mobile-phone handsets, climbed 4 percent to 4,380 yen in Osaka after Deutsche Bank AG boosted the stock to “buy” from “sell.”

Electronics and machinery makers also got a boost as the yen depreciated to as low as 90.99 versus the dollar, a level not seen since Sept. 25. Against the euro, Japan’s currency weakened to the lowest since Aug. 24. A falling yen helps boost the value of sales generated by Japanese companies overseas when translated into their home currency.

The Topix index has advanced 4.9 percent in 2009, lagging behind increases of 21 percent for the S&P 500 and 25 percent for the Dow Jones Stoxx 600 Index in Europe. Shares in the Japanese benchmark are valued at 38 times estimated earnings, compared with an average of 28 times during the last four years.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at Skawano1@bloomberg.net.

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Swiss Stocks Gain; Swiss Life, Syngenta Shares Advance

By Daniela Silberstein

Oct. 16 (Bloomberg) -- Swiss stocks rose, with the benchmark Swiss Market Index heading for a second straight weekly gain, as analysts recommended shares of insurers and chemical companies.

Swiss Life Holding AG climbed 6.1 percent after Citigroup Inc. recommended buying shares of Switzerland’s biggest life insurer. Syngenta AG, the world’s largest maker of agricultural chemicals, advanced 1.6 percent after UBS AG upgraded Norwegian rival Yara International ASA. Givaudan SA gained 2.5 percent as Morgan Stanley recommended the shares.

The SMI, a gauge of the country’s biggest and most actively traded companies, rose 44.65, or 0.7 percent, to 6,427.84 at 9:35 a.m. in Zurich. The broader Swiss Performance Index added 0.7 percent to 5,548.8.

The SMI has gained 2.2 percent this week, reaching its highest level since October 2008, as companies from JPMorgan Chase & Co. to Intel Corp. reported earnings that exceeded analysts’ estimates.

Swiss Life surged 6.1 percent to 142.4 Swiss francs. Switzerland’s largest life insurer was upgraded to “buy” from “hold” at Citigroup, which also increased its share-price estimate to 160 francs from 120.

“By improving its capital position, this increases the chance of the group being able to re-risk and lift asset yields, to which its earnings are highly leveraged,” London-based insurance analyst William Elderkin wrote in a report.

Syngenta

Syngenta increased 1.6 percent to 255.25 francs. Yara was raised to “buy” from “neutral” at UBS, which wrote in a report that “agriculture should increasingly be viewed as a late cyclical opportunity by the market.”

Givaudan SA advanced 2.5 percent to 795 francs. The world’s biggest maker of fragrances and flavors was raised to “overweight” from “equal-weight” at Morgan Stanley.

Barry Callebaut AG declined 1.6 percent to 603.5 francs. The world’s biggest maker of bulk chocolate was downgraded to “underweight” from “neutral” at JPMorgan.

Cytos Biotechnology Ltd. tumbled 40 percent to 13.75 francs. The developer of vaccines said the NIC002 nicotine vaccine didn’t achieve the primary endpoint in an interim analysis of a Phase II study. Helvea SA slashed its share-price projection to 1 franc from 9.

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

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German Stocks Extend Weekly Advance as Henkel, Infineon Climb

By Julie Cruz

Oct. 16 (Bloomberg) -- German stocks advanced, extending the second straight week of gains, as Nomura Holdings Inc. recommended Henkel AG and higher-than-estimated earnings from Google Inc. added to signs the global economy is recovering.

Henkel climbed 2.6 percent after Nomura upgraded the shares to “buy” from “neutral.” Infineon Technologies AG, Europe’s second-largest semiconductor maker, and E.ON AG, the country’s biggest utility, rose at least 1.4 percent.

The benchmark DAX Index added 0.9 percent to 5,881.49 as of 9:49 a.m. in Frankfurt, for a weekly gain of 3 percent. The measure has rallied 60 percent since March 6 as companies reported better-than-estimated earnings and economic data signaled the global recession is nearing an end. The broader HDAX Index increased 0.9 percent today.

Google said net income rose 27 percent to $1.64 billion. Excluding revenue passed on to partner sites, sales were $4.38 billion, compared with an estimate of $4.25 billion in a Bloomberg survey of analysts.

Industrial production in the U.S. probably climbed in September for a third consecutive month, putting manufacturing at the forefront of the emerging economic recovery, economists said before a report today.

Henkel, the German maker of Loctite glues and Persil detergent, rallied 2.6 percent to 32.54 euros, on course for the highest close since January 2008. Nomura said in a report “the market in our view continues to underestimate the magnitude of cost-saving potential at Henkel.”

Recommendations

Infineon climbed 1.9 percent to 3.95 euros, recouping some of yesterday’s 3.7 percent drop.

E.ON advanced 1.4 percent to 26.95 euros. The company was rated “hold” in new coverage at Commerzbank AG, which set its share-price estimate at 30 euros.

GEA Group AG rallied 3.1 percent to 14.90 euros after Equinet AG lifted its recommendation on the stock to “buy” from “accumulate.”

“GEA has demonstrated above average resilience (lower decline in orders coupled with profitability) and is heavily exposed to attractive end-markets such as food & beverage as well as energy,” Frankfurt-based analyst Holger Schmidt wrote in a report to clients.

IVG Immobilien AG surged 4.5 percent to 7.96 euros as the company said it sold a number of properties in recent weeks worth a total of 470 million euros ($700 million).

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

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Asian Stocks Decline on Earnings Concern; LG Display Slumps

By Adam Haigh and Jonathan Burgos

Oct. 16 (Bloomberg) -- Asian stocks fell, dragging the MSCI Asia Pacific Index down by the most in two weeks, as LG Display Co.’s profit missed analysts’ estimates and earnings from Goldman Sachs Group Inc. and Citigroup Inc. disappointed some investors.

LG Display, the world’s second-largest maker of liquid- crystal displays, declined 4.2 percent in Seoul as it forecast product prices to decline. Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank by market value, sank 3.1 percent, leading declines by financial shares. Australian retailer Harvey Norman Holdings Ltd. slumped 6.7 percent after sales growth lagged behind smaller rival JB Hi-Fi Ltd.

The MSCI Asia Pacific Index dropped 0.8 percent to 119.52 as of 6:03 p.m. in Tokyo. The decline, the most since Oct. 2, pared the measure’s gain this week to 0.7 percent. The gauge has climbed 70 percent from a five-year low on March 9 as stimulus measures revived the global economy and company profits topped analyst estimates.

“When things go up so much you need some sort of correction. That’s healthy for the market,” said Yoji Takeda, who manages $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. “Valuations are high but not outrageously high given the growth prospects.”

The Topix Index sank 0.4 percent in Tokyo, where Japan Airlines Corp. slumped 11 percent after Kyodo News said the carrier may drop a plan to sell a stake in JALways Co. China Eastern Airlines Corp. fell 5.3 percent in Hong Kong as the International Air Transport Association said a recovery in premium air travel is “fragile.”

Outpacing Gains

Thailand’s SET Index rallied 2.8 percent from its biggest two-day loss in a year after the finance minister said shares may rebound on reduced foreign selling and an economic recovery. Stocks had retreated as the nation’s king remained in hospital yesterday for a 26th day.

Futures on the Standard & Poor’s 500 Index rose 0.2 percent. Oil producers helped lift the gauge by 0.4 percent yesterday to the highest level since October 2008. Gains were limited as Goldman Sachs’ profit fell short of the previous quarter’s record and Citigroup added the smallest amount to loan-loss reserves in two years.

LG Display led LCD makers lower, sinking 4.2 percent to 31,850 won. The company reported lower-than-estimated third- quarter profit yesterday and said panel prices are expected to “decline gradually.”

Industry leader Samsung Electronics Co. lost 3.7 percent to 746,000 won, while AU Optronics Corp., Taiwan’s largest LCD producer, fell 2.4 percent to NT$32.40.

“The industry will slow down because of weaker demand in the first quarter and as competitors boost production,” John Soh, an analyst at Shinhan Investment Corp., wrote in a report today. He cut LG Display’s share-price target by 7.3 percent to 38,000 won.

Financial Companies

An index of financial shares on the MSCI Asia Pacific Index retreated 0.9 percent today after closing at a 13-month high yesterday following better-than-estimated profit from JPMorgan Chase & Co.

Mitsubishi UFJ dropped 3.1 percent to 470 yen. Sumitomo Mitsui Financial Group Inc., Japan’s second-largest bank by market value, fell 1.9 percent to 3,190 yen. Nomura Holdings Inc., Japan’s largest brokerage, sank 1.1 percent to 633 yen.

“Although we are seeing some nominally good results from the U.S. financials, they also have very bad debts on their books,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc., which manages about 800 billion yen ($8.6 billion). “In Japan, we are going to see some very big equity issuances from the mega-banks.”

JPMorgan’s earnings, a slowing in China’s export decline and a rise in Australian consumer confidence pushed the MSCI Asia Pacific Index this week to levels not seen since before Lehman Brothers Holdings Inc. collapsed in September 2008.

Valuation Concerns

The seven-month rally has driven valuations of stocks in the gauge to 23 times estimated earnings, compared with an average of 18 times during the last three years. The Asian index advanced 35 percent in 2009 through yesterday, outpacing the S&P 500’s 21 percent gain and a 25 percent climb by Europe’s Dow Jones Stoxx 600 Index.

“Investors are at a threshold due to valuation concerns though they are becoming convinced that profit growth is sustainable,” said Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking, which oversees about $14 billion.

Harvey Norman, Australia’s biggest furniture and electronics retailer, sank 6.7 percent to A$4.44 in Sydney. First-quarter sales at the company’s stores open at least a year grew 2.1 percent, less than the 8.4 percent pace JB Hi-Fi reported this week. JB Hi-Fi added 0.9 percent to A$20.69.

In Tokyo, Japan Airlines, seeking its fourth state bailout since 2001, slumped 11 percent to 101 yen. JAL may hold on to JALways if it is able to win support from financial institutions, Kyodo said. Taro Namba, a JAL spokesman, declined to comment.

Air Travel

JAL has plunged 40 percent in the past month after Prime Minister Yukio Hatoyama’s new government took office and rejected a turnaround plan drawn up by the carrier. The airline is now working with a state-appointed panel on a new restructuring program and seeking help from lenders.

Airlines also fell after the International Air Transport Association said in a statement yesterday that a recovery in premium air travel slowed in August and may have reversed last month as demand for business flights remains fragile.

China Eastern sank 5.3 percent to HK$2.32. Air China Ltd., the nation’s largest international carrier, fell 5.4 percent to HK$4.42.

Sony Corp., which got 24 percent of its sales in the U.S. last year, gained 1.9 percent to 2,650 yen. The company was raised to “buy” from “hold” at Citigroup, which said the stock is “undervalued” and that profitability of the company’s PlayStation game-console business is set to recover.

The shares also gained on speculation the falling yen will boost the value of sales generated by Japanese companies overseas when translated into their home currency. The yen depreciated to as low as 90.99 versus the dollar, a level not seen since Sept. 25. Against the euro, Japan’s currency weakened to the lowest since Aug. 24.

“Export and commodities stocks are going to be the focus of buying as the yen passed a major milestone against the dollar and the performance of U.S. stocks and commodities points to an improving external environment,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc.

To contact the reporters for this story: Adam Haigh in Hong Kong at ahaigh1@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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U.K. Stocks Head for Second Weekly Gain; Lloyds, Shell Advance

By Alexis Xydias

Oct. 16 (Bloomberg) -- U.K. stocks rose, headed for a second weekly gain. Lloyds Banking Group Plc led the advance after the lender agreed to sell its unprofitable chain of real- estate agencies and Deutsche Bank AG advised buying the shares.

Royal Dutch Shell Plc paced energy shares higher as oil prices spiked and following a rally in U.S. refiners’ stocks.

The benchmark FTSE 100 Index added 25.76, or 0.5 percent, to 5,248.71 as of 9:58 a.m. in London, poised for a weekly gain of 1.7 percent. The FTSE All-Share Index also rose 0.5 percent today and Ireland’s ISEQ Index increased 0.7 percent.

Stocks extended a seven-month rally this week as U.S. companies from JPMorgan Chase & Co. to Google Inc. reported earnings that beat estimates, adding to speculation the global economic recession has abated.

“The earnings story that is emerging here supports our theory that earnings numbers are too low,” said Ian Richards, London-based equity strategist at Royal Bank of Scotland Group Plc. “Forecasts have generally not kept pace with improving macro conditions. We see European earnings growth exceeding 30 percent next year.”

Lloyds rose 4.6 percent to 95.65 pence. The U.K.’s biggest mortgage lender agreed to sell the Halifax real-estate agencies to LSL Property Services Plc for 1 pound ($1.60). Halifax Estate Agencies Ltd. has 218 offices and 1,050 employees throughout the country, London-based Lloyds said today. The effect on Lloyds’ earnings isn’t expected to be material, the bank added.

Shell

Separately, the shares were raised to “buy” from “hold” at Deutsche Bank, which cited the stock’s valuation. London- based analyst Jason Napier raised his price estimate on Lloyds shares to 115 pence from 100 pence in a note to investors.

Shell, owner of Europe’s biggest oil refinery, climbed 2 percent to 1,876.5 pence. Tullow Oil Plc, the U.K. explorer with the most licenses in Africa, rose 2.1 percent to 1,240 pence. Petrofac Ltd., the oil-services provider whose shares have almost tripled this year, climbed 2.6 percent to 1,020 pence.

Oil futures in New York jumped 3.2 percent to $77.58 a barrel yesterday, with most of the gain coming after European stock markets had closed.

Sunoco Inc., the largest refiner in the U.S. Northeast, and Valero Energy Corp., the biggest in the country, both gained more than 7 percent yesterday after the Department of Energy reported U.S. inventories of oil tumbled 5.23 million barrels last week, almost five times the decline forecast by analysts and the biggest drop in a year.

BlueBay

BlueBay Asset Management Plc advanced 2.7 percent to 352.3 pence. The London-based manager of fixed-income funds said the money it oversees climbed 28 percent in the third quarter as investors moved out of cash looking for a higher yield.

Capital & Regional Plc added 4.1 percent to 38 pence. Shares in the U.K. shopping mall and leisure center operator were upgraded to “overweight” by analysts at JPMorgan, who cited a better outlook for the industry than investors are expecting.

National Express Group Plc tumbled 26 percent to 348.7 pence, poised for the steepest decline since 2001, after CVC Capital Partners Ltd. said its group decided not to make an offer for the transport company.

Under the terms of the original offer, CVC had planned to sell National Express’s U.K. bus and rail units to Perth, Scotland-based Stagecoach Group Plc, the operator of South West trains, Britain’s biggest single rail franchise. Shares in Stagecoach, which said today it is no longer in talks with CVC about those assets, dropped 4.8 percent to 156.5 pence.

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

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European Stocks, U.S. Futures Advance; Shares in Asia Decline

By Sarah Jones

Oct. 16 (Bloomberg) -- European stocks gained and U.S. index futures advanced as higher oil lifted the earnings outlook for energy producers and Google Inc. reported profit that beat analysts’ estimates. Asian shares retreated.

Repsol YPF SA rallied 1.7 percent as Spain’s biggest oil company discovered the presence of crude in a natural-gas well offshore Venezuela and oil traded above $77 a barrel. Ericsson AB rose 2.4 percent after its mobile-phone venture with Sony Corp. reported a smaller-than-estimated loss. Lloyds Banking Group Plc and Swiss Life Holding AG climbed more than 3 percent as analysts recommended the shares.

Europe’s Dow Jones Stoxx 600 Index gained 0.7 percent to 248.92 at 9:49 a.m. in London, extending a one-year high and bringing its weekly advance to 2.5 percent. Of the 31 companies in the U.S. Standard & Poor’s 500 Index to have reported earnings since Oct. 7, 28 have beaten analysts’ estimates on a per-share basis, according to data compiled by Bloomberg.

“There could be another leg up if the earnings season continues to be as promising as it has started,” Lothar Mentel, chief investment officer at Octopus Investments Ltd. in London, said in a Bloomberg Television interview. “I am hoping to see more top line growth coming through. Cost cutting really won’t do it anymore.”

The Stoxx 600 has gained 57 percent since March 9 as companies from Royal Philips Electronics NV to JPMorgan Chase & Co. reported earnings that exceeded estimates. The rally has pushed valuations on the index to 49.5 times earnings, near the most expensive level since 2003, Bloomberg data show.

U.S. Futures

Futures on the S&P 500 climbed 0.1 percent as Google reported profit and sales that beat estimates after the recovering economy boosted demand for online ads and e-commerce.

Gains in U.S. futures were limited as International Business Machines Corp. reported a decline in contract signings and Advanced Micro Devices Inc. posted its 12th straight loss. Bank of America Corp. and General Electric Co. are scheduled to announce results today.

The MSCI Asia Pacific Index slid 0.8 percent as LG Display Co., the world’s second-largest maker of liquid-crystal displays, reported earnings that missed analysts’ projections and forecast that product prices will fall.

Repsol added 1.7 percent to 19.05 euros after the company said tests on the natural gas revealed the presence of crude oil, which the Venezuelan government said may help speed the development of the field. The Cardon IV field ranks as Venezuela’s largest gas discovery and one of the world’s five biggest finds in 2009, Repsol said.

BP, Petroplus

BP Plc, Europe’s second-largest oil company, gained 2.3 percent to 568.4 pence while Total SA, the region’s third- biggest, advanced 2.6 percent to 42.96 euros. Petroplus Holdings AG, the largest refiner in Europe, surged 5.5 percent to 28.2 Swiss francs.

Crude oil traded above $77 a barrel in New York, capping its biggest weekly gain in two months, on an unexpected decline in U.S. gasoline stockpiles and refinery utilization.

Ericsson climbed 2.4 percent to 72.90 kronor after Sony Ericsson Mobile Communications Ltd. reported third-quarter net loss of 164 million euros ($245 million), less than analysts anticipated. The company also announced new financing, totaling 455 million euros, partly guaranteed by its parent companies.

Lloyds advanced 3.3 percent to 94.38 pence. Deutsche Bank AG upgraded the mortgage lender to “buy” from “hold,” citing the shares’ valuation. Analyst Jason Napier boosted his price estimate to 115 pence from 100 pence in a note to investors.

Swiss Life Surges

Swiss Life rallied 5.4 percent to 141.5 francs after Citigroup Inc. raised its recommendation for Switzerland’s biggest life insurer to “buy” from “hold.” The analysts increased their price estimate on the shares by 33 percent to 160 francs.

National Express Group Plc tumbled 27 percent to 342 pence after CVC Capital Partners Ltd. decided not to make an offer for the U.K. bus and rail company. National Express said a stock sale is now “the most appropriate course of action.”

Industrial production in the U.S. probably rose in September for a third consecutive month, putting manufacturing at the forefront of the emerging economic recovery, economists said before a report today.

Output at factories, mines and utilities climbed 0.2 percent following increases of 0.8 percent and 1 percent respectively in August and July, according to the median forecast of 77 economists surveyed by Bloomberg News. Another report may show consumer sentiment this month slipped from the highest level in more than a year.

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

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S&P 500 Index Due for ‘Stiff Correction’: Technical Analysis

By Shani Raja

Oct. 16 (Bloomberg) -- The U.S. Standard & Poor’s 500 Index may be due for a “stiff” slump as it approaches a resistance level in coming weeks, according to Nader Naeimi, a strategist at AMP Capital Markets, which holds assets worth $75 billion.

The U.S. index’s 62 percent rally from its March low has brought it close to 1,121.4, which Naeimi says represents the 50 percent level Fibonacci analysts identify as a key resistance point. The performance of the index, which closed at 1,096.56 yesterday, is also diverging from measures of price and breadth momentum, pointing to a deeper “correction” than those that have occurred since the rally began, the strategist said.

“The divergences have started to build up over the past few weeks,” said Sydney-based Naeimi, whose firm went to “overweight” from “underweight” stocks in March. “The new highs the index is making aren’t being confirmed by the measures of momentum. The next push higher is likely to extend those divergences, which suggests we’ll see a deeper correction that lasts several weeks or longer, rather than just days.”

The S&P 500 slumped 38.5 percent last year as the financial crisis deepened, tipping nations into a global recession. The index has rebounded from a more than 12-year low on March 9, as government stimulus measures helped calm credit markets and shore up economic growth.

The S&P 500 may climb to the critical 50 percent Fibonacci level in the next few weeks, at which point a slide of between 10 percent and 15 percent is likely, said Naeimi.

Previous Declines

That’s deeper than three previous “corrections” that have occurred since the rally began in March, the strategist said. The first was a 5 percent drop between May 8 and May 15, followed by a 7.1 percent slump between June 12 and July 10, and a decline of 4.3 percent between Sept. 22 and Oct. 2.

“We will see multiple negative divergences as the S&P 500 hits a new cyclical high,” said Naeimi “All the conditions for a stiff correction are in place. The cyclical bull market will continue once the correction has run its course.”

Naeimi applies Fibonacci analysis to the period between the index’s Oct. 9, 2007 high of 1,565.15 and this year’s March low to arrive at the 1,121.4 resistance level.

In technical analysis, a Fibonacci retracement is created by taking two extreme points on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent, according to Investopedia.com. Once these levels are identified, horizontal lines are drawn and used to identify possible resistance and support levels.

The AMP strategist also uses the relative-strength index, a momentum indicator, to gauge the level of “conviction” at various stages of the rally. For breadth momentum, Naeimi adopts the McClellan Oscillator, which measures how broad-based a rally is in terms of the number of companies involved.

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

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Singapore Retail Sales Post Smallest Decline in Eight Months

By Shamim Adam

Oct. 15 (Bloomberg) -- Singapore’s retail sales dropped the least in eight months in August as the city state’s economic recovery spurred an improvement in spending at supermarkets and department stores.

The retail sales index dropped 5.2 percent from a year earlier after sliding 9.8 percent in July, the Statistics Department said today. The median estimate of six economists surveyed by Bloomberg News was for an 8.9 percent decline.

Singapore is emerging from its worst recession since independence in 1965 as global demand improves and the pace of job losses eases. The government has raised its 2009 economic forecast twice this year from an April prediction for a contraction of as much as 9 percent.

“Given the stabilized job market, retail sales should improve at a slow rate,” said Sebastien Barbe, a Hong-Kong based strategist at Calyon, the investment banking unit of France’s Credit Agricole SA. Sales “are likely to remain weak for a while before growth in exports and manufacturing spreads optimism to other sectors of the economy.”

Singapore’s economy is forecast to shrink 2 percent to 2.5 percent this year, the government said this week. That is better than a previous estimate for a contraction of as much as 6 percent.

Prime Minister Lee Hsien Loong this week announced the government will extend a wage subsidy program for employers that would have expired this year, to avoid an increase in job losses that may derail the economic recovery.

Job Vacancies

Employers cut 5,980 jobs in the three months ended June, compared with 12,760 in the first quarter, and the unemployment rate held at 3.3 percent as job vacancies rose for the first time after four quarters of declines, according to the Manpower Ministry.

Excluding motor vehicles, retail sales fell 3 percent in August from a year earlier, today’s report showed. Adjusted for seasonal factors, sales rose 5.2 percent from July.

Department-store sales grew 1 percent from a year earlier, and supermarket sales increased 4 percent. Purchases of telecommunications and computer equipment declined 14.7 percent. Vehicle sales fell 11.6 percent, while purchases at gas stations dropped 13.8 percent.

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

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London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Oct 15 09 10:07 GMT |

Big moves in cable and the AUD today can be linked with comments from respective central bankers. The dovish minutes of the Fed Sep FOMC have continued to undermine the USD. However, the disappointingly flat start to stock markets in Europe this morning reigned in risk appetite and allowed the USD some reprieve. Whether or not EUR/USD takes a step closer to the 1.500 level this afternoon could depend on the tone of today's earnings report from Goldman and Citigroup. Today's FT report citing comments from the BoE's Fischer has been linked with the better tone of the pound today. Fischer's confidence with respect to the impact of QE has led to speculation that the program may be paused in Nov causing a squeeze in short sterling positions. While yesterday's better than expected labour market data support a more confident outlook on the UK economy, it remains the case that the recovery in the production sector appears to be stalling and Q3 growth may be flat at best. Against this backdrop, the possibility of more QE in November likely remains on the table and this threat could yet thwart the ability of the sterling recovery to extend significantly in the coming weeks. Cable reached a high of USD1.6217 this morning, EUR/GBP dipped to just above 0.9200. Comments from RBA Governor Stevens that the RBA cannot be timid in raising rates cemented the view that the RBA will hike interest rates again in November. Expectations for a Nov hike was already widely held given recent improvements in consumer confidence and employment data. Nevertheless the AUD found further support overnight with risk appetite also whetted by yesterday's rise in stocks. As stock markets failed to push significantly higher into European hours, the rally in the AUD stalled under the 0.9230 level, with the AUD retreating into the approach of the US open. The NZD has outperformed the AUD on the back of better than expected Q3 CPI. This registered a far stronger than expected 1.3% q/q which has underpinned the perception that the RBNZ may have to bring forward the first rate hike of the cycle. Tomorrow brings the release of Canadian Sep CPI. The market is expecting CPI to rise by 1.4% y/y. Strong data will enhance speculation that the BoC could be hiking interest rate by year end. This morning USD/CAD has retreated from the 1.0210 level in tune with the pull back in the AUD and the flat tone in stocks. The release of Chinese Q3 reserve data showed stunning growth of USD141 bln, the largest quarterly gain on record. US data suggests that China remains a strong buyer of US treasuries. Earnings season remains a prime focus for this afternoon in particular the Goldman and Citigroup earnings. These results could determine whether a move to EUR/USD1.500 is a realistic target for this week. US CPI data is also key. However, this data is likely to confirm that deflation is still as much of a problem for the Fed as inflation. Headline CPI is expected at -1.4% y/y. Empire manufacturing, Philly Fed and initial claims data are also due for release. Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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Dalian Considers Energy, Hog Futures to Drive Volume

By Bloomberg News

Oct. 15 (Bloomberg) -- Dalian Commodity Exchange, China’s largest derivatives market, may introduce energy, coking coal and live-hog futures contracts to spur trading volume.

The bourse also aims to “be more than just agricultural or energy-oriented,” President Liu Xingqiang said in an Oct. 12 interview in Dalian. “We’re working on products that can be traded more easily as investments; that are more financial in nature. It will be a global exchange.” The biggest contracts now include soybeans, soybean oil, palm oil and soybean meal.

Futures trading in China, the third-largest economy, jumped 47 percent in the first half from a year ago, according to data compiled by the Futures Industry Association, as soybean and copper imports climbed to records. CME Group Inc., the world’s largest futures exchange, predicts “great growth” in Asian derivatives. Stricter government controls mean approval of new contracts in China takes longer than in the West, Liu said.

China’s “growth in demand for raw materials still outstrips that of any other major country,” said Nick Ronalds, executive director for FIA Asia. The “exchanges are likely to continue to grow faster than those of the rest of the world. In a few years, if it liberalizes its markets in time, they could be taking on the Western giants head-to-head.”

The country is the world’s biggest consumer of iron ore, copper, rice and soybeans. Chinese buying helped push prices of raw materials up by 41 percent this year, as measured by the Standard & Poor’s GSCI index of 24 futures.

Trading Surge

Dalian boosted trade by 69 percent in 2008, the most among the world’s top 10 derivatives exchanges, and had the biggest volume of the three Chinese markets in the first half, the FIA said. Its other contracts are corn, linear low density polyethylene and polyvinyl chloride, its Web site said.

The Dalian bourse, the Shanghai Futures Exchange and the Zhengzhou Commodity Exchange increased trading to 415.6 million contracts from January to June from 282.7 million a year earlier, the FIA said. That compared with a contraction of 27 percent for the CME Group, it said.

Terry Duffy, Executive Chairman of the CME Group, said on Oct. 8 he is working on “new relationships” in China and India. “Managing risks in all products is going to continue to become more global and I don’t see how China is going to stay out of that equation,” he said.

The Dalian exchange is studying coking coal, crude oil, electricity, petrochemical products and live-hog futures, according to a statement. It will “allow a fair amount of speculation to ensure fluidity of the market,” Liu said.

Price Impact

Bringing on new products takes longer than in Western countries because the government needs to study their impact on supply, prices and the developing economy, Liu said. These projects can be promoted only when policymakers and regulators see them as “manageable and foreseeable,” he said.

The exchange, industries and legislators have lobbied the government to allow a live-hog contract, according to the exchange’s Web site. The government needs to study what impact the contract will have on prices in a country that has half the world’s live hogs, Liu said. China, a nation of 1.3 billion people, is the biggest consumer and producer of pork.

“Keeping people fed is the number one priority for each successive government” in China, Liu said. The bourse is increasing the number of co-operation agreements with foreign exchanges on products, trading methods and staff exchanges.

“Here you are looking at all Chinese faces,” Liu said, referring to two of his colleagues. “In not too long, you will see Westerners on the Dalian Commodity Exchange team.”

For Related News and Information: Top agriculture stories: TOP AGR Stories on China’s grain markets: NI CHINA AGMARKET BN

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Britons’ Summer Foreign Travel Slumps 17% on Pound Weakness

By Svenja O’Donnell

Oct. 15 (Bloomberg) -- The number of Britons who took summer vacations abroad slumped this year as the weakness of the pound and the worst recession in a generation encouraged people to stay at home.

The number of people who traveled overseas in the three months through August dropped 17 percent from a year earlier to 14.6 million, the Office for National Statistics said in an e- mailed statement today. In August, the number of people who went abroad fell an annual 16 percent to 4.9 million.

Prime Minister Gordon Brown shunned foreign travel this summer, choosing to spend his vacation in Scotland. The pound has lost about 15 percent against the euro and 6 percent against the dollar in the past year, prompting people to seek out vacation alternatives in Britain.

“With the pound having weakened that much, holiday makers may well have baulked at the extra cost of going abroad,” said James Knightley, an economist at ING Financial Markets in London. “In that sort of environment, U.K. holidays are looking a much more attractive bet. With sterling remaining weak, people may well choose to continue to spend more time in Britain.”

Britons staying at home braved a wetter-than-normal summer this year as July recorded the most rainfall in England and Wales since records began in 1914, according to the Met Office, the government’s weather agency.

The pound’s weakness wasn’t enough to lure more foreign visitors to Britain. The number of overseas visitors dropped 5 percent in the three months through August from a year earlier to 7.7 million.

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

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UK Without Fundamentals While Treasury Does Not Aid Lloyds Bank Further

Daily Forex Fundamentals | Written by ecPulse.com | Oct 15 09 11:49 GMT |

The worldwide banking system has been suffering from the worst financial crisis since the early 1930's and this is all a result of the subprime mortgage crisis that spilled over from the United States and into major economies therefore while causing serious recessions around the globe. Today in the United Kingdom we see that the Treasury did not provide more capital to Lloyds Banking Group Plc. as the bank was seeking 5 billion pounds yet the Treasury is focusing on the Asset Protection Scheme in which Lloyds would pay a fee to the government as they secure it. The government has been working on ways to free banks balance sheets from toxic assets which will help them stabilize therefore when banks find strong ground, more funds will be provided to businesses and consumers which means more investments and spending to be noticed. The more spending and investments there is, the quicker the UK will take to step out of their worst recession since World War II. The credit crisis is a major obstacle that continues to choke on the recovery in the nation while already there are high unemployment rates leading a fragile labour market. In other news today, the Centre for Economics & Business Research Ltd. stated that insurers, financial institutions and assets managers in London might lay off nearly 18,000 jobs this year while it was projected in April that 29,000 jobs will be terminated. The job sector so far is not recovering as Britons continue to become jobless while companies are not seeking employees due to the cut back in production output as a result of the crippled consumer demand. In the economic cycle, one thing affects the other as it has not been functioning accurately in Briton as lower demand leads to lower spending which means falling sales causing production to also cripple while more firings will be witnessed in the economy as companies try to reduce expenses as much as possible. With a broken economic cycle means growth will remain sluggish as the nation contracted by 0.6 percent in the second quarter from the severe first quarter contraction of 2.4 percent, the worst since 1958. The annualized contraction of 5.5 percent was the worst since 1955. Officials are already working around the clock to jolt the nation out of recession which is why the government is doing everything they can to stabilize banks while the central bank is buying gilts to provide tranquility in the financial markets therefore would help ease the economic downturn. The stimulus plan has been successful so far into restoring growth in the nation yet as a result of the mentioned obstacles; the nation is struggling to prosper fully. The UK stock market is currently steady in trading as Xstrata Plc fell after they took back the bid offered for Anglo American Plc while insurance company stocks are rising. As of 11:23 GMT the FTSE-100 index gained a slight 0.23 points to 5,256.33 points. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Oct 15 09 11:57 GMT |

USD-CHF @ 1.0170/73...Holding Short R: 1.0150-75 / 1.0210-20 / 1.0240-55 S: 1.0120-00 / 1.0061 / 1.0008 Swiss has risen during the day and is now trading in the Resistance region 1.0150-75 mentioned earlier. A break above 1.0175 might take it up towards 1.0200-20 in the US session. On the downside significant Support is seen in the region 1.0120-00, a break below which might target 1.0100 over the next few days. The overall picture continues to remain bearish. Holding: USD 10K Short at 1.0350, TSL 1.0190, TP Open As soon as the market trades 1.0080 bring the TSL down to 1.0155 Cable GBP-USD @ 1.6244/47...Significant Resistance in the region 1.6350-75 R: 1.6300 / 1.6350-75 / 1.6475 S: 1.6180 / 1.6150-20 / 1.6050-30 The Cable has risen sharply during the day breaking above the significant Resistance at the 8-week MA (1.6170) mentioned earlier thereby increasing the chances of a trend reversal now. If the current strength on its upmove continues, we might see further rise towards 1.6350-75 which is the next significant Resistance region seen. On the downside Support is seen in the region 1.6150-20. Aussie AUD-USD @ 0.9159/63...Holding Long R: 0.9230 / 0.9259 / 0.9328 S: 0.9150-35 / 0.9100-0.9080 / 0.9050 Aussie has fallen from the day's high of 0.9227. Immediate Support is seen at 0.9150 which we might expect to hold as the overall picture continues to remain bullish. However a break below 0.9150 might pull it down towards 0.9100-0.9080. On the other hand if 0.9150 holds, we might see a rise once again towards 0.9200-30 in the US session. Holding: AUD 10K Long at 0.9223, SL 0.9120, TP Open AUD 10K Long at 0.9110, SL 0.8980, TP Open Kshitij Consultancy Service http://www.fxthoughts.com Legal disclaimer and risk disclosure These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsibly for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | Oct 15 09 09:27 GMT |

EUR/USD Resistance:1,4960-70 / 1,5000-10/ 1,5040-45/ 1,5080/ 1,5110 Support :1,4925/ 1,4870/ 1,4840/ 1,4810-15/ 1,4790/ 1,4770/ 1,4750-60/ 1,4700 Comment: Euro formed new tops, as it moved towards our targets at 1,4950-60 area. Dollar's sentiment remains negative. Commodities and equities moved to new highs and dollar is widely used for carry trade strategies. The wider area of 1,5000 will be our target today, while our basic target is set at 1,5100-30 (Target from the sideways formation in the daily chart). A retracement is possible from 1,5000 area, with first target at 1,4920-25, and then at 1,4860-70 which is an important technical support. The reversal ranges are set at 1,4800-10 area. STRATEGY Buy orders from lower levels should be closed for profit taking at 1,4950-00. Sell orders will be tried at current levels (1,4960-70), adding positions at 1,5000-10, with stops above 1,5050. Our targets are set at 1,4920-30 and 1,4870-80. Positions against the trend should be kept small… Retracements towards 1,4870-80 will be used for buy orders, adding more at 1,4840 with stops below 1,4800… 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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Pakistan Says Aid Delays May Limit Pace of Rate Cuts

By Naween A. Mangi

Oct. 15 (Bloomberg) -- Pakistan’s central bank Governor Salim Raza said delays in foreign aid inflows may restrict the pace of interest-rate cuts if the government borrows more from banks to meet its fiscal deficit target.

“We’re going to see a progressive decline in inflation,” Raza said in an interview in Karachi today. “The trend should be decreasing inflation, progressive easing. But in order to have more expansive policy, you really need the fiscal side under control. It probably isn’t the time to take the foot off the monetary brake.”

Pakistan is relying on aid pledged by foreign donors to help boost growth in an economy pummeled by the global recession, a war against Taliban insurgents and a chronic shortage of power. The central bank kept its benchmark interest rate unchanged on Sept. 29, waiting to see if two cuts earlier this year are enough to revive economic growth.

“In November, the central bank may want to give a little bit of an indicator, maybe with a 50 basis point cut, that they’re willing to start reducing,” said Nasim Beg, who overseas 16 billion rupees ($192 million) in stocks and bonds at Arif Habib Investments Ltd. in Karachi. “But government borrowing remains high and I don’t think they would want to do anything substantial.”

Pakistan’s rupee and 10-year government bonds were little changed. The local currency was at 83.25 per dollar as of 3 p.m. in Karachi, according to data compiled by Bloomberg. The yield on the 12 percent note due August 2018 was 12.72 percent.

Next Policy

Pakistan’s next monetary policy announcement is scheduled for the end of November. Raza has reduced the benchmark rate to 13 percent since April.

Policy makers last raised borrowing costs by 2 percentage points to 15 percent on Nov. 12, the fourth increase in 2008, to curb inflation that reached a 30-year high.

Gains in consumer prices slowed to a 21-month low of 10.12 percent in September. Pakistan’s fiscal deficit target for the year ending June 30 is 4.9 percent of gross domestic product.

The government plans to raise about $500 million early next year through a Eurobond sale, said Raza, 63, who took over as governor in January.

“It’s important to be in the market, even if you don’t need it for your reserves,” he said. “It improves the size of the market you can tap and gives you the capacity to raise money at short notice.”

Pakistan’s foreign exchange reserves held by the central bank were $11.2 billion as on Oct. 3, according to official data.

‘Tough Job’

“It will be a tough job to attract investors given Pakistan’s ratings and the international situation,” said Sarah Mazher, a research analyst at Global Securities Ltd. in Karachi. “They will need to do it, because we don’t even have a timeframe for the external inflows, but I don’t think its feasible when external debt is already at $52 billion.”

Pakistan’s long-term sovereign debt rating was raised to B- from CCC+ in August by Standard & Poor’s, six levels below investment grade.

Moody’s Investor Services, which raised Pakistan’s credit rating outlook to stable from negative in August, rates the Asian country’s foreign debt at B3, the same ranking as Argentina and Bolivia.

“Raising $500 million is not too much of an uphill task,” Arif Habib’s Beg said of Pakistan’s plan to raise money through a Eurobond sale. “The government is very dependent on foreign aid. Creating an alternative source of funding will give confidence to everyone.”

Aid Pledges

Pakistan is yet to receive aid pledges made in April by the U.S.-led 25-member Friends of Democratic Pakistan group. Of the $5.3 billion in pledges, Pakistan is expected to receive about $1.7 billion before June, Raza said.

Terrorism has cost Pakistan $35 billion in economic losses and damage to infrastructure, according to the government. More than 3,500 terrorist incidents have taken place in Pakistan since 2007.

The International Monetary Fund on Aug. 8 agreed to increase a loan to Pakistan by $3.2 billion, after the country was forced to turn to the Washington-based lender for a $7.6 billion bailout in November. President Barack Obama is scheduled to sign a bill this week which would triple annual economic and social-development assistance to Pakistan to $1.5 billion for the next five years.

The Asian Development Bank last month cut its forecast for Pakistan’s economic expansion in the year to June 2010 by a percentage point to 3 percent. It said any faster growth would require an improvement in the security environment.

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

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Stevens Says Australia Can’t Be ‘Timid’ on Rate Rises

By Jacob Greber

Oct. 15 (Bloomberg) -- Australia’s central bank can’t be too timid in raising its benchmark interest rate now that the threat of an economic crisis in the nation has passed, Reserve Bank Governor Glenn Stevens said, pushing up the local currency.

“If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework,” Stevens told a function in Perth today. “Experience here and elsewhere counsels against that approach.”

Stevens became the first Group of 20 central banker to increase borrowing costs when he unexpectedly boosted the overnight cash rate target last week by a quarter percentage point to 3.25 percent from a half-century low. Investors are betting he will raise rates at least another quarter point next month as consumer confidence rises and unemployment falls.

“They weren’t timid on the downside and they’re preparing the market to say they’re not being timid on the upside,” said Annette Beacher, senior strategist at TD Securities in Singapore. “The market has priced 50 points spread over two meetings. Stevens could be paving the way for moving more rapidly.”

The Australian dollar rose to a 14-month high, trading at 92.01 U.S. cents at 1:32 p.m. in Sydney, from 91.50 cents yesterday in New York. The two-year government bond yield gained to 4.77 percent from 4.63 percent.

Economy Stronger

“The very low interest-rate settings were designed for a weaker economy than we are in fact facing,” Stevens said at the function organized by the John Curtin Institute of Public Policy and the Financial Services Institute of Australasia.

“This is not a problem,” he added. “In fact, it is a very desirable situation. It is simply something we need to recognize in setting monetary policy -- which means not holding interest rates at very low levels when that is no longer needed.”

Stevens slashed borrowing costs by a record 4.25 percentage points between September 2008 and April to cushion the nation’s economy against the global financial crisis, including a 1 percentage point reduction in October last year, the biggest since 1992.

Investors are certain Stevens will raise the overnight cash rate target on Nov. 3 by another quarter point, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 1:33 p.m. Chances of a half-point increase next month more than doubled to 22 percent from 10 percent prior to today’s speech, the index showed.

‘Gradual’ Increases

“They’ll certainly be hiking again in November and probably in December, and beyond that it’s an open question,” said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. The move toward a so-called neutral rate of between 5.5 percent and 6 percent “is going to be gradual, and that’s the right policy.”

Australia is only the second country after Israel to raise borrowing costs since the height of the global financial crisis. Israel isn’t a member of the G-20. U.S. Federal Reserve Chairman Ben S. Bernanke said last week his central bank will be prepared to tighten monetary policy when the outlook for the world’s largest economy “has improved sufficiently.”

Still, Bernanke said Oct. 9 that he and his colleagues at the Fed “believe that accommodative policies will likely be warranted for an extended period.”

By contrast evidence is mounting that Australia’s economy, which skirted the global recession, is strengthening. Recent reports show consumer confidence rose this month to the highest level in more than two years, the jobless rate unexpectedly fell for the first time in five months and retail sales gained.

Government Stimulus

Gross domestic product rose 1 percent in the first half of this year as consumers increased spending after the government distributed more than A$20 billion ($18 billion) in cash to households. The government is also stoking domestic demand by spending another A$22 billion on roads, railways and schools.

“The period of greatest weakness in the Australian economy is probably past,” Stevens said today. “Barring another serious international setback, the economy is likely to continue on a path of gradual expansion during 2010.

“That being so, those of us involved in monetary policy must turn our thoughts to encouraging the sustainability of that expansion.”

The Reserve Bank scrapped its forecast in August for the economy to contract this year, instead predicting GDP will rise 0.5 percent. The bank expects growth will accelerate to 2.25 percent in 2010 and 3.75 percent in 2011.

‘Good Outcome’

As the economy expands, policy makers will aim to “keep inflation low” and react “in a measured but prompt fashion to changes in the risks facing the economy,” Stevens said.

While interest rates will need to be adjusted toward “a more normal” setting as the economy recovers, “there are still important matters of judgment in the timing and pace of how that is done,” he added.

“The global outlook remains uncertain and the board is very conscious of that.”

Stevens also reiterated his view that Australia’s economy has enjoyed a “good outcome” given the dangers posed by the global financial crisis.

“Australia has had an experience that, even if labeled a recession, was a pretty mild one,” he said.

-- With assistance from Tracy Withers in Wellington. Editors: John McCluskey, Michael Heath

To contact the reporter for this story: Jacob Greber in Perth at jgreber@bloomberg.net

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