China May Stumble in Race With Rivals for African Oil

By Carli Lourens and John Duce

Oct. 19 (Bloomberg) -- China’s plans to buy into oil fields in Africa may suffer a third setback in as many months if Exxon Mobil Corp. succeeds in snapping up drilling rights in Ghana, one of the continent’s newest oil nations.

Closely held Kosmos Energy LLC said last week it agreed to sell its stake in Ghana’s Jubilee oil field to Exxon Mobil, which may thwart ambitions in the same area by Cnooc Ltd., the listed arm of China National Offshore Oil Corp. While Ghanaian government officials say the Exxon deal, worth about $4 billion according to a person familiar with the transaction, has not been officially approved, Chinese explorers have hit hurdles since July on other oil deals in Angola and Libya.

At stake is China’s ability to secure fuel for its economy, which expanded 7.9 percent in the second quarter from a year earlier. China’s oil companies in Africa are diversifying from construction projects as a means to gain access to mineral resources, and turning to strategies that include Western deal structures and local banks. In the process, they are competing with some of the world’s biggest oil companies in the U.S. and Europe also seeking resources in the region.

“The Chinese are frustrated that they’re not doing more deals,” said Kobus van der Wath, group managing director of The Beijing Axis, which advises Chinese companies expanding overseas. “The interest, intent and general capacity to do deals is far greater.” He estimates non-financial investments in Africa may climb as high as $3 billion this year, double the 2008 level.

Secure Supplies

Since Chinese Premier Wen Jiabao visited seven African nations in 2006 and promised to double aid, establish a $5 billion investment fund and provide $3 billion in loans, China’s energy companies have announced plans to spend at least $16 billion on oil and gas fields on the continent.

“Chinese oil companies are very keen to gain stakes in large oilfields that are nearing production or are in the development stages,” said Thomas Grieder, a London-based analyst at market intelligence firm IHS Global Insight. “The government is keen to secure long-term supplies.”

China’s economy will need more than 11 million barrels of oil a day in five years, 38 percent more than last year, according to Paul Ting, president of New Jersey-based Paul Ting Energy Vision LLC, a Chinese oil and gas consultant.

On Aug. 27, Cnooc said it will step up exploration and acquisitions to meet fuel demand in China. Chairman Fu Chengyu said the company changed its overseas strategy to focus on taking stakes in ventures rather than buying out companies after failing to acquire Unocal Corp. of the U.S. in 2005.

Cnooc shares in Hong Kong more than doubled over the past year and were at HK$12.24 as of 10:23 a.m. local time today.

Cnooc-Ghana Talks

On Oct. 14, Ghana’s Energy Ministry spokesman Michael Sarpong said Cnooc was in talks with Ghanaian officials, without giving details.

His comment followed a Wall Street Journal report on Oct. 12 that said Cnooc was negotiating with Ghana National Petroleum Corp. to bid for Kosmos’s stake in Jubilee. Xiao Zongwei, a spokesman for Cnooc, declined to comment on the article, which cited unidentified people.

Ghana National Petroleum, known as GNPC, is “still in discussions” with Kosmos to acquire the stake, Thomas Manu, its director of exploration and production, said Oct. 13. “GNPC will acquire the stake and then consider proposals from other companies” to take on as partners, he said.

Further south off Angola, Cnooc’s $1.3 billion bid to buy 20 percent of an oil block from Marathon Oil Corp. may be held up after Marathon said the Angolan government and other partners have rights of first refusal. That bid was announced in July with China Petroleum & Chemical Corp., known as Sinopec.

Sinopec shares in Hong Kong rose 22 percent in the past year and were at HK$7.02 as of 10:25 a.m. local time today.

‘Intense’ Competition

The competition for overseas energy assets is “intense,” Su Shulin, President of Sinopec Group, said in an interview in Beijing Oct. 15. “There are opportunities in overseas acquisitions, but there are also many people looking at them.”

Cnooc’s Xiao declined to comment on reports the deal to sell Marathon Oil’s stake to Cnooc and Sinopec has been delayed by Angola’s government. Huang Wensheng, spokesman for Sinopec, said the company has no information on whether Angola has blocked the deal and declined to comment further.

Separately, Libya vetoed a C$499 million ($482 million) bid last month by China National Petroleum Corp., the Asian nation’s biggest oil and gas company, for Calgary-based Verenex Energy Inc., which has stakes in the North African country.

China National Offshore Oil expressed interest in Tullow Oil Plc’s oil finds in Uganda as the U.K. explorer with the most licenses in Africa started compiling a short list of potential bidders for a stake in a project in the country.

Lake Albert

Tullow said Sept. 17 the Ngassa oil field in Uganda may be the largest discovery in the Lake Albert Rift Basin. The Chinese explorer is interested in investing in the project, according to Brian Glover, Tullow Uganda’s country manager.

Tullow said about 10 companies had pre-qualified to work on the field. He was commenting after Dow Jones on Oct. 2 cited an unnamed official at Ugandan President Yoweri Museveni’s office saying Cnooc had held talks with Uganda on joining a project. Tamale Mirundi, a spokesman for Museveni, would neither confirm nor deny talks, while Cnooc’s Xiao declined to comment.

In West Africa, China Petrochemical Corp., or Sinopec Group, the nation’s second-largest oil company, acquired Swiss-based Addax Petroleum Corp. this year for C$8.3 billion ($8 billion), adding oil reserves in Nigeria, Cameroon and Gabon.

China National Offshore Oil is also among companies in talks to buy 16 production licenses in the West African nation, Olusegun Adeniyi, a spokesman for Nigeria’s President Umaru Yar’Adua, said in an e-mail on Sept. 29.

Surging Investment

Chinese direct investment in Africa surged 81 percent in the first half to $552 million from a year earlier, according to an Aug. 18 report by China’s Ministry of Commerce.

In Nigeria, Africa’s biggest oil producer, China’s strategy has evolved and oil-for-infrastructure deals are “dead,” Gregory Mthembu-Salter wrote in a September research paper for the South African Institute of International Affairs.

“The model has been replaced by one in which Chinese energy companies gain access to the country’s oil resources by buying stakes in established companies.”

To contact the reporters on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net; John Duce in Hong Kong at Jduce1@bloomberg.net

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Copper Rises in London on Weaker Dollar, Improvement in Japan

By Anna Stablum

Oct. 19 (Bloomberg) -- Copper rose in London as the dollar weakened and the Bank of Japan said the country’s economy, the world’s second-biggest, is rebounding.

The Dollar Index, a six-currency measure of the greenback’s value, fell as much as 0.3 percent after dropping 1.1 percent last week. Speculation about further declines supported prices, Jim Lennon, an analyst at Macquarie Bank Group Ltd. in London, said in a report today. Japan’s economy is improving in all of the nation’s nine areas, the central bank said.

“The commoditization of the dollar is likely to be a theme that continues to be played out over the coming year,” Lennon said. Declines by the currency make dollar-priced metals cheaper for holders of other monies.

Copper for three-month delivery rose $50, or 0.8 percent, to $6,280 a metric ton on the London Metal Exchange at 9:42 a.m. local time. December-delivery copper gained 0.5 percent to $2.86 a pound on the New York Mercantile Exchange’s Comex unit.

The weaker dollar has helped copper to double this year, along with record first-half imports into China, the world’s biggest copper user. Japan ranks fourth. Chinese imports fell in monthly terms in July and August before rising 23 percent in September to 399,052 tons, according to figures on Oct. 14.

“We continue to expect that the market will move back into balance over the next three to six months as ex-China demand recovers and Chinese growth remains very strong,” Lennon said. “We believe any pullback in the copper price will be short- lived and will represent an opportunity to accumulate.”

Inventories of copper in LME-monitored warehouses fell 1,125 tons to 356,725 tons, the first decline in six days.

Among other LME metals for three-month delivery, aluminum was little changed at $1,904.25 a ton and zinc was unchanged at $2,053 a ton. Tin slipped 0.3 percent to $14,500 a ton, nickel rose 0.3 percent to $18,750 a ton, and lead advanced 0.8 percent to $2,220 a ton.

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

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Gold May Gain in London as a Weakening Dollar Increases Demand

By Nicholas Larkin and Kim Kyoungwha

Oct. 19 (Bloomberg) -- Gold, little changed in London today, may gain on speculation a weaker dollar will boost the metal’s appeal as an alternative investment.

The Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.2 percent today. Bullion has climbed 20 percent this year as investors sought to protect their wealth from the declining dollar and as a hedge against inflation. Gold prices, heading for a ninth annual gain, reached a record $1,070.80 an ounce on Oct. 14.

“It is still too premature to short gold,” Andrey Kryuchenkov, a VTB Capital analyst in London, said today in a report. “The dollar remains vulnerable and investor appetite for gold could re-emerge very quickly.”

Immediate-delivery bullion added $2.68, or 0.3 percent, to $1,056.28 an ounce at 9:31 a.m. local time. The metal added 0.4 percent last week, the eighth gain in nine weeks. December gold futures were 0.5 percent higher at $1,057.10 an ounce on the New York Mercantile Exchange’s Comex division.

Still, nine of 16 traders, investors and analysts surveyed by Bloomberg, or 56 percent, said bullion would fall this week. Five forecast higher prices and two were neutral.

“The whole market is expecting to see some consolidation first before another round of buying,” said Kate Harada, a senior trader with Mitsubishi Corp. Futures & Securities Ltd. in Tokyo.

ETF Gold Sale

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a seventh day at 1,109.31 metric tons on Oct. 16, according to the company’s Web site. Assets in ETF Securities Ltd.’s exchange-traded products fell 5.1 percent to 8.068 million ounces on Oct. 16, its Web site showed.

An investor who recently bought shares in one of the company’s gold products made a “one-off” transaction, Nicholas Brooks, head of research and investment at ETF Securities, said today by phone. He declined to name the investor.

Among other precious metals for immediate delivery in London, silver added 0.1 percent to $17.49 an ounce. Platinum rose 0.4 percent to $1,349 an ounce, while palladium lost 0.4 percent to $327.75 an ounce.

To contact the reporter on this story: Nicholas Larkin at nlarkin1@bloomberg.net; Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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Japan’s Topix Rises on Speculation of JAL Bailout; Casio Drops

By Patrick Rial and Kotaro Tsunetomi

Oct. 19 (Bloomberg) -- Japan’s Topix index advanced, led by Japan Airlines Corp. on speculation the company will receive public funds. Banks rallied on confidence they won’t have to shoulder the bill for a turnaround plan.

Japan Airlines climbed 12 percent after the Yomiuri newspaper said Asia’s largest carrier may receive public funds. Mizuho Financial Group Inc., Japan’s second-biggest listed bank, added 2.3 percent. Casio Computer Co. and Yaskawa Electric Corp. slumped on loss reports. Fast Retailing Co., the operator of Japan’s Uniqlo casual-clothing chain, dropped 3.7 percent after a brokerage cut its investment rating on the shares.

The Topix gained 0.5 percent to 905.80 at the close of trading in Tokyo, reversing a decline of 0.8 percent. About twice as many stocks rose as fell. The Nikkei 225 Stock Average dropped 0.2 percent to 10,236.51.

“It’s becoming clear that the banks will not be victimized by the new government, wiping away some of the pessimism among investors,” said Fujio Ando, a fund manager at Tokyo-based Chibagin Asset Management Co.

Today marks the 22nd anniversary of “Black Monday,” when a drop in Hong Kong’s benchmark stock index and a 23 percent plunge in the Dow Jones Industrial Average in the U.S. sent markets reeling around the world. The Nikkei 225 and Topix slumped 15 percent the next day.

Mitsui Fudosan Co. led gains among property developers after Sumitomo Trust & Banking Co. and French insurer Axa SA said they plan to start a Japanese real-estate fund. Developers also rose after Nippon Accommodations Fund Inc. said it will sell shares to purchase additional properties.

Japan Airlines Rallies

Japan Airlines surged 12 percent to 113 yen, the sharpest gain in a year and the steepest advance in the Nikkei 225. The carrier may receive public funds to bolster capital, the Yomiuri newspaper reported.

The report came after the Nikkei newspaper said Japan’s three largest publicly traded banks, Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., and Mizuho, decided to reject a government plan to help rehabilitate the airline. The three banks rose at least two percent today.

Casio sank 9 percent to 692 yen, its biggest decline since March 19 and the sharpest drop in the Nikkei 225. The company reversed its forecast for a 5 billion-yen ($55 million) annual profit to a 7 billion-yen loss as sales of mobile phones and digital cameras slump.

Yaskawa dropped 1.7 percent to 741 yen. The company reported a first-half operating loss of 8.4 billion yen and a net loss of 6.3 billion yen on Oct. 16, wider shortfalls than were expected by analysts.

Fast Retailing Rating

Fast Retailing, the operator of Japan’s Uniqlo casual- clothing chain, slumped 3.7 percent to 14,750 yen. The shares were lowered to “underweight” from “neutral” at JPMorgan Chase & Co., which said a recent rally took into account all positive news on the company. The stock climbed 44 percent in the month through Oct. 16.

“The markets are expecting the current growth trend to continue into next year,” said Yuichi Chiguchi, who helps manage about $8.6 billion at Diam Co. in Tokyo. “Investors may feel content until the end of this year, but may then realize the best period is already behind us.”

The Topix index has slumped 7.2 percent from its 2009 high reached on Aug. 26, as other Asian economies rebounded faster from the global recession. Stocks in the gauge are valued at 39 times estimated earnings, compared with an average of 28 times during the last four years.

Mitsui Fudosan climbed 4.6 percent to 1,643 yen. Nomura Real Estate Holdings Inc. added 4.3 percent to 1,582 yen.

Sumitomo Trust, Japan’s fifth-largest listed bank, and France’s Axa plan to raise 100 billion yen using debt and equity to invest in office property in “prime areas” of Tokyo amid signs the real-estate market is recovering. Sumitomo Trust shares climbed 1.2 percent to 498 yen.

Nippon Accomodations Fund jumped 7 percent 490,000 yen. The real-estate investment trust said Oct. 16 it will raise as much as 21.4 billion yen in a sale of new shares to buy more properties.

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

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European, Asian Stocks Climb; Shell, National Express Advance

By Adam Haigh

Oct. 19 (Bloomberg) -- Stocks in Europe and Asia climbed and U.S. futures rose as Nomura Holdings Inc. forecast earnings will support further gains in equities and National Express Group Plc got a 1.7 billion-pound ($2.8 billion) merger bid.

Royal Dutch Shell Plc and Cnooc Ltd. surged more than 1.9 percent as crude traded above $78 a barrel in New York. National Express jumped 9.1 percent after saying it received a “highly preliminary” merger proposal from Stagecoach Group Plc. Nestle SA increased 4 percent after UBS AG recommended the world’s largest food company.

Europe’s Dow Jones Stoxx 600 Index added 0.9 percent to 247.74 at 10:55 a.m. in London. The gauge has rallied 57 percent since March 9 as Royal Philips Electronics NV reported an unexpected third-quarter profit and results from Intel Corp., JPMorgan Chase & Co. and Google Inc. beat analysts’ estimates. The surge has pushed valuations on the index to 49.3 times reported earnings, near the most expensive level since July 2003, Bloomberg data show.

“I’m very much a bull,” said Chris McGale, head of European equities at Pali International Ltd. in London. “Equity markets will continue to push higher,” he said in a Bloomberg Television interview.

The MSCI Asia Pacific Index and futures on the Standard & Poor’s 500 Index added 0.6 percent.

U.S. Earnings

U.S. earnings in the third quarter will probably beat analysts’ projections, resulting in upgrades that should support a further rally through the end of the year, Nomura strategists including Shanthi Nair wrote in a report. The brokerage increased its forecast for 2010 operating-profit growth, saying earnings will advance 30 percent from the year before.

Of the 37 companies in the S&P 500 to have reported pre- share profits since Oct. 7, 84 percent have topped estimates, according to data compiled by Bloomberg.

The U.K. economy will grow twice as fast as previously expected next year as the country pulls out of the worst recession in a generation, according to Ernst & Young LLP’s Item Club, which uses the same model as the U.K. Treasury. Gross domestic product will increase 1 percent in 2010, compared with a 0.5 percent forecast in July, the researchers said.

Shell, Europe’s largest oil producer, gained 1.9 percent to 1,894 pence. Cnooc, China’s state-owned producer, climbed 4.2 percent to HK$12.42. Crude was little changed near a one-year high in New York.

National Express, Stagecoach

National Express soared 9.1 percent at 395 pence after saying it received a “highly preliminary” proposal from Stagecoach for an all-share transaction in which National Express shareholders would hold no more than 40 percent of the enlarged group.

National Express will “carefully consider” the proposal while continuing to progress with its plans for an equity fund raising, it said yesterday. Stagecoach said in a separate statement that at the invitation of National Express it submitted a letter to the board indicating the terms under which it would hold talks on a “possible combination.” Stagecoach slipped 2.1 percent to 153.6 pence.

Nestle gained 4 percent to 45.12 Swiss francs, the biggest jump in five months, as UBS raised its recommendation on the shares to “buy” from “neutral.”

Today is the 22nd anniversary of “Black Monday,” when an increase in U.S. interest rates and slowing economic growth sparked a slump that sent the Dow Jones Industrial Average down 23 percent and the S&P 500 20 percent lower in one day.

William Hill, Technip

William Hill Plc soared 8.6 percent to 174.9 pence, posting the steepest gain among all shares on the Stoxx 600. Third- quarter net revenue at the U.K.’s second-biggest bookmaker declined less than that of competitor Ladbrokes Plc.

Technip SA added 3.3 percent to 49.34 euros, gaining for a second day. Europe’s second-largest oilfield-services provider forecasts an increase in the level of new projects awarded in 2010, Chief Executive Officer Thierry Pilenko told Les Echos in an interview. The recovery could be “quite strong” at the end of 2010 and the start of 2011, the newspaper cited Pilenko as saying.

Separately, Technip is joining with Saudi partners to win contracts from oil company Saudi Aramco, according to senior vice president for the Middle East, Arturo Grimaldi. Technip is also seeking contracts in Iraq and plans to open an office in the country, Grimaldi said today at a conference in Abu Dhabi.

Acergy SA gained 4.8 percent to 76.35 kroner, the third- steepest increase on the Stoxx 600, after it was awarded a contract valued at approximately $500 million from Chevron Nigeria Ltd. for their gas development program in Escravos, offshore Nigeria.

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

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Asian Stocks Rise on Crude-Oil Prices, China Growth Speculation

By Masaki Kondo

Oct. 19 (Bloomberg) -- Asian stocks advanced, led by energy and technology companies, as oil prices rose to a one-year high amid speculation data this week will show China’s economic growth gathered pace in the third quarter.

Cnooc Ltd., China’s largest offshore oil producer, added 4.2 percent in Hong Kong. Gemdale Corp., China’s fourth-largest developer by value, jumped 8.3 percent after a media report said apartment sales in the city of Shenzhen climbed. Taiwan’s Asustek Computer Inc. rose 4.9 percent after the Commercial Times said the company will report a third-quarter profit, compared with a loss the previous three months.

The MSCI Asia Pacific Index added 0.6 percent to 120.31 as of 6:01 p.m. in Tokyo. The gauge has surged 70 percent from a five-year low on March 9 amid signs the global economy is rebounding from the worst slowdown since World War II.

“The pace of the economic recovery will continue,” said Gabriel Gondard, Shanghai-based deputy chief investment officer at Fortune SGAM Fund Management Co., which oversees about $7.2 billion. “Investors will look to the upcoming data for clues.”

China’s Shanghai Composite Index rose 2.1 percent, while Hong Kong’s Hang Seng Index added 1.2 percent. The Topix Index gained 0.5 percent in Tokyo, led by Japan Airlines Corp. on speculation the company will receive public funds.

Among stocks that fell, Casio Computer Co., which makes cameras and mobile phones, slumped 9 percent after forecasting a loss. Fast Retailing Co., Japan’s largest casual-clothing chain, sank 3.7 percent on a downgrade at JPMorgan Chase & Co. Korea Exchange Bank declined 5 percent amid valuation concerns.

U.S. Economy

Australia’s S&P/ASX 200 Index dropped 0.9 percent as a research firm said the nation’s economic recovery will be slower than expected. Australia & New Zealand Banking Group Ltd. lost 3.4 percent.

Futures on the Standard & Poor’s 500 Index rose 0.6 percent. The gauge sank 0.8 percent on Oct. 16 as General Electric Co.’s third-quarter revenue trailed analyst estimates. Bank of America Corp. led financial shares lower after posting a $1 billion loss.

“The General Electric result disappointed the market,” said Tim Schroeders, who helps manage $1.2 billion at Pengana Capital Ltd. in Melbourne. “Investors watch it closely as a bellwether for the U.S. economy.”

Today is the 22nd anniversary of “Black Monday,” when an increase in U.S. interest rates and concerns about slowing economic growth helped spark a sell-off that dragged the S&P 500 20 percent lower and the Dow Jones Industrial Average down by 23 percent in a single day.

China Growth

Cnooc advanced 4.2 percent to HK$12.42 after crude-oil futures in New York increased 0.3 percent to $78.75 a barrel in after-hours trading, the highest since Oct. 13, 2008. PetroChina Co., China’s largest producer, gained 3 percent to HK$10.28.

China is the world’s second-largest consumer of oil. Data due Oct. 22 will probably show the country’s economy expanded 9 percent in the third quarter, the fastest pace since September 2008, according to economists’ estimates.

Gemdale surged 8.3 percent to 16.19 yuan, while market leader China Vanke Co. jumped 6.8 percent to 12.34 yuan. The China Securities Journal reported property sales in Shenzhen reached 475 units on Oct. 11, a record for this year.

Asustek, the maker of the Eee PC low-cost notebook computer, climbed 4.9 percent to NT$58 after the Commercial Times reported it will post third-quarter net income of more than NT$4 billion ($124 million), citing analysts’ estimates. The company reported a loss in the previous quarter.

Japan Airlines soared 12 percent to 113 yen and posted the biggest advance on the MSCI World Index. The carrier may receive public funds to bolster capital, the Yomiuri newspaper reported.

Reform Concern

Gains in Japan were limited after Japan’s Financial Services Minister Shizuka Kamei said he told Japan Post President Yoshifumi Nishikawa that the government had decided to scrap plans for the company’s initial public offering. The privatization of Japan Post was a cornerstone of former Prime Minister Junichiro Koizumi’s reform program.

“International investors aren’t going to like indications that the reform movement in Japan if faltering,” said Naoteru Teraoka, who helps oversee about $16 billion at Chuo Mitsui Asset Management Co.

Casio tumbled 9 percent to 692 yen, the steepest drop since March 19. The maker of G-Shock watches cited declining sales of mobile phones and digital cameras for its full-year loss forecast.

The MSCI Asia Pacific Index rose to the highest level in more than a year last week as reports showed China’s export decline slowed and Australian consumer confidence rose. The seven-month rally has driven the average price of stocks in the gauge to 1.59 times book value, compared with a one-year average of 1.31 times.

Pace of Recovery

“Investors have been extremely fast to price an earnings recovery into stocks,” said Angus Gluskie, who manages about $300 million at White Funds Management Pty in Sydney. “It’s possible some may now find themselves disappointed at the pace of the fundamental recovery.”

Fast Retailing lost 3.7 percent to 14,750 yen and traded at 5.79 times corporate net worth after JPMorgan cut its rating to “underweight” from “neutral.”

“Most of the good news is probably now discounted” in the stock price after gains in the past month, Chiaki Hirota, a JPMorgan analyst, wrote in a report on Oct. 16.

Korea Exchange Bank, controlled by U.S. buyout firm Lone Star Funds, slumped 5 percent to 14,350 won after ending last week at the highest level since June 2008. The stock’s 14-day relative strength index closed at 78 on Oct. 16, above the threshold of 70 that some investors use as a signal to sell.

Biggest Drags

Australia & New Zealand Banking, Australia’s No. 4 bank, slid 3.4 percent to AS$23.73, while Westpac Banking Corp. dropped 2.5 percent to A$26.30. The two companies were the biggest drags on the MSCI Asia Pacific Index.

While the nation’s economy “sailed through the worst of the global crisis on a sea of stimulus,” the recovery will be “softer and slower” than some expect, Chris Richardson, head of Canberra-based Access Economics, wrote in a report.

Reserve Bank of Australia Governor Glenn Stevens, who this month became the first Group of 20 policy maker to raise borrowing costs, signaled on Oct. 15 he will increase rates again as soon as next month.

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

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U.K. Stocks Gain as Mining Shares Rise; National Express Jumps

By Sarah Jones

Oct. 19 (Bloomberg) -- U.K. stocks advanced, as higher commodity prices boosted the earnings prospects for mining companies and National Express Plc received a 1.7 billion-pound ($2.8 billion) takeover offer.

Anglo American Plc and Vedanta Resources Plc rose at least 2.5 percent as copper rebounded in Asia. National Express jumped 9.6 percent after the British rail operator said it received a “highly preliminary” proposal from Stagecoach Group Plc. William Hill Plc surged 8.4 percent after reporting higher online sports betting sales.

The benchmark FTSE 100 rallied 56.93, or 1.1 percent, to 5,247.17 at 10.28 a.m. in London, advancing for the first time in three days. The FTSE All-Share Index gained 1 percent, while Ireland’s ISEQ Index slid 0.1 percent.

“Rising commodity prices are helping to lift the heavyweight miners and energy stocks,” said London-based Joshua Raymond, a market strategist at City Index. “Investors are using Friday’s losses as another buying opportunity.”

The FTSE 100 has rebound 49 percent since March 3 as companies report better-than-expected earnings and investors speculate the worst of the global recession has passed. Today marks the 22nd anniversary of “Black Monday,” when an increase in U.S. interest rates and slowing economic growth sparked a slump that sent the Dow Jones Industrial Average tumbling more than 20 percent in one day.

Ernst & Young LLP’s Item Club today said the U.K. economy will grow twice as fast as previously expected next year as the country pulls out of the worst recession in a generation.

Anglo American Climbs

Gross domestic product will increase 1 percent in 2010, compared with a 0.5 percent forecast in July, the researchers, who use the same model as the U.K. Treasury, said in a statement in London.

Anglo American climbed 2.8 percent to 2,262 pence as copper rebounded amid speculation a report in China will show economic growth in the world’s largest metals consumer accelerated in the third quarter. Vedanta Resources Plc added 2.5 percent to 2,370 pence, and Lonmin Plc increased 2.8 percent to 1,735 pence. Lead, nickel and zinc also climbed on the London Metal Exchange.

Hochschild Mining Plc rallied 2.3 percent to 320.3 pence. BofA Merrill Lynch Global Research raised its recommendation for Peru’s second-largest silver miner raised to “buy,” as the bank raised its long term gold and silver price estimates.

Royal Dutch Shell Plc, Europe’s largest oil company, increased 2 percent to 1,896 pence and BP Plc, the second- biggest, added 1.3 percent to 566.3 pence. Crude added as much as 0.7 percent to $79.05 in New York.

‘Highly Preliminary’

National Express climbed 9.6 percent to 396.6 pence. The company said it received a “highly preliminary” proposal from Stagecoach for an all-share transaction in which National Express shareholders would hold no more than 40 percent of the enlarged group.

The company will “carefully consider” the proposal while continuing to progress with its plans for an equity fund raising, it said yesterday.

National Express tumbled 23 percent on Oct. 16 after CVC Capital Partners Ltd. scrapped a 765 million-pound bid for National Express.

Stagecoach lost 1.9 percent to 154 pence, extending last week’s 6.5 percent decline.

William Hill climbed 8.4 percent to 174.6 pence. The U.K.’s second- biggest bookmaker rose the most since January as its third-quarter performance bettered that of competitor Ladbrokes Plc.

Fiscal third-quarter net revenue dropped 3 percent, which compares with a 15 percent decline at Ladbrokes. Both companies were hurt as fewer soccer games were tied than in previous seasons, a development that favored betters. Online sports betting sales rose 40 percent in its fiscal third quarter.

-- Editors: Roger Neill.

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

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CEOs Showing Remorse Underestimating Shares Stifle Convertibles

By Lynn Thomasson and Mary Childs

Oct. 19 (Bloomberg) -- The steepest equity market rally since the Great Depression is turning 2009 into the worst year in a decade for convertible bond sales as executives conclude the cost of the securities is too high.

Companies from Johnson Controls Inc. to Teradyne Inc. sold $23.5 billion in securities that can be swapped for common stock, the least since 1999, according to data compiled by Bloomberg. Sales evaporated after 51 percent of the corporations that issued the debt saw shares rise above exchange prices, the most in 11 years of data, diluting earnings for existing investors.

Outstanding convertible securities have returned a record 43 percent so far in 2009, Merrill Lynch & Co. data show, almost twice that of the Standard & Poor’s 500 Index including dividends. Chief executive officers are reluctant to tap the market until they’re convinced the rally that drove the S&P 500 up 61 percent since March is over, bankers and analysts at Jefferies Group Inc. and Bank of America Corp. say.

“If we were looking to raise capital today, we would consider convertible bonds, but more than likely we would go with traditional debt markets,” Frank Voltolina, the treasurer at Milwaukee-based Johnson Controls, wrote in an e-mail. “That was not the case nine months ago, when convertible bonds were the best economic alternative.”

Johnson Controls

The largest maker of car seats raised $402.5 million in March selling 6.5 percent notes that can be swapped for 36 million shares at $11.19 each. At the time the deal was announced, the conversion premium was 25 percent above its price. Since then, the shares more than tripled to $26.45 on Oct. 16 in New York.

Johnson had 594 million shares at the end of 2008, so changing the notes into equity would have diluted earnings by 6.1 percent. The company offered to exchange each of the securities for 89 common shares and $120 on Aug. 20, leaving $2.1 million of the issue outstanding.

Convertible bonds are debt securities with an option to exchange the notes for common shares at a premium to the market price. They pay lower interest than bonds that can’t be exchanged. They’re attractive when companies don’t expect a gain in their equities to trigger a swap, adding to outstanding stock and cutting the stake of existing shareowners.

Offerings of the securities more than tripled to $12.7 billion in the second quarter after the U.S. government and Federal Reserve lent, guaranteed or spent $11.6 trillion to end the worst credit crisis since the 1930s.

Markets Rally

As the S&P 500’s gains accelerated and sales of high-yield bonds began a 76 percent increase from 2008, convertible offerings declined, falling 48 percent in the third quarter. High-yield bonds are rated below BBB- by S&P and less than Baa3 by Moody’s Investors Service.

“It’s difficult to pull the trigger on a convertible when the high-yield market is open and you don’t like your stock price,” said Robert Aberman, co-head of convertible origination at Jefferies in New York. “If you believe the market is going to turn in general or your earnings will rebound and propel your stock price in the short term, then a convertible is going to be reasonably expensive.”

Wyndham Worldwide Corp., the franchiser of Days Inn hotels, offered 3.5 percent securities due in 2012 in May that can be swapped at $12.73, a 20 percent premium to the price of the stock that day. The shares surged 68 percent to $17.86, giving the bond a 49 percent return, data compiled by Bloomberg show.

Call Options

Wyndham’s securities are convertible into cash equivalent to 18.1 million shares. The company purchased call options boosting the conversion price of the notes to $20.16, Wyndham Chief Financial Officer Thomas Conforti said in an interview. That’s 13 percent above the stock’s closing price on Oct. 16.

“You make the best decision you can with the facts and circumstances as you have them at the time,” said Christopher Feeney, the treasurer for Parsippany, New Jersey-based Wyndham. “If we were to access the unsecured bond market today, it would cost less.”

Teradyne, a designer of test equipment for electronics based in North Reading, Massachusetts, offered $190 million in 4.5 percent notes in March that can be exchanged at $5.48 a share, a 25 percent premium on the day of the deal. The company’s convertible bonds have returned 84 percent as the stock surged 120 percent to $9.86.

Teradyne’s notes can be converted into about 34.7 million shares, about 20 percent of the 169.7 million the company had outstanding on Dec. 31, or cash. Teradyne paid $64.6 million for an option that helps offset the cost of issuing shares following an exchange.

Boston Red Sox

“You want to be in a position to be in control of your destiny instead of someone else, so that was the right thing to do at the time,” said Andy Blanchard, Teradyne’s vice president of corporate communications. “If you went out for money today, you’d certainly be able to do it with better terms and conditions. I wish the Red Sox bullpen was stronger, but there’s a lot of things you could hope for, right?”

Stock and credit markets may never have rallied without convertible sales, said Wyndham’s Feeney. Offerings took off in March, when $2.4 billion was sold. That’s the month the S&P 500 began its rally from a 12-year low and the gap between corporate bond yields and Treasury rates began to narrow from the widest gap ever, according to data compiled by Bloomberg.

Extra yield demanded by investors to own corporate bonds instead of Treasuries narrowed 4.59 percentage points this year to 3.45 percentage points on Oct. 9, according to Merrill Lynch’s Corporate & High Yield Master Index.

First Trade

“I don’t think you get the rally in the spread without us having the first trade,” Feeney said. “We made a good decision at the time. You take the facts as you have them at the time, you make the decision and you live with the results.”

Sales of non-convertible debt rose to more than $1 trillion this year as investment-grade yields fell to 4.86 percent on Oct. 10, the lowest in four years, according to Merrill Lynch data. Junk bonds yield 10.1 percent, below the historical average of 11.1 percent from the past 23 years.

As much as $65 billion in convertible offerings were forecast for 2009 at the start of the year, Tatyana Hube, an analyst at Charlotte, North Carolina-based Bank of America, wrote in a September research report. So far, the total is less than half that, according to data compiled by Bloomberg.

Smaller Supply

The shrinking market is adding to the rally, according to Hube. As bonds matured or were traded for equity, the pool of notes decreased this year by $27.8 billion as of Oct. 12, she wrote in a note to clients. That followed a $19.9 billion contraction in 2009.

Before the credit crisis, the worst quarter for convertible securities was the period ending in September 2002, when $2.88 billion were sold. The S&P 500 rallied 36 percent by the end of the following year, beginning a bull market in which the index doubled by October 2007.

“There’s such a big restoration due for equity prices that people are thinking, ‘Why give away any of that?’” said Tom Deas, treasurer of Philadelphia-based soda ash producer FMC Corp. and the executive vice president of the National Association of Corporate Treasurers. “People tend to do converts when the balance is such that you’re not giving away any upside.”

To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Mary Childs in New York at mchilds4@bloomberg.net.

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U.S. Earnings Upgrades to Fuel Year-End Stock Rally, Nomura Says

By Stephen Kirkland

Oct. 19 (Bloomberg) -- U.S. earnings in the third quarter will probably beat consensus expectations, resulting in upgrades that should support a further rally to year-end, according to Nomura Holdings Inc.

“We are raising our expectations for U.S. earnings to 30 percent for 2010, year-on-year growth in operating earnings” for the Standard & Poor’s 500 Index, Nomura wrote in a report dated Oct. 16. “This would equate to $75 for operating earnings for the S&P.”

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U.S. Stock-Index Futures Rise; Texas Instruments, Alcoa Climb

By Daniela Silberstein

Oct. 19 (Bloomberg) -- U.S. stock-index futures advanced, indicating the Standard & Poor’s 500 Index will extend its second straight weekly gain, on speculation corporate earnings will continue to beat expectations and as commodity prices rose.

Texas Instruments Inc. and Apple Inc. climbed in Germany before reporting results. Alcoa Inc., the largest U.S. aluminum producer, and Barrick Gold Corp. gained with higher metals prices. Exxon Mobil Corp. advanced as crude oil increased.

Futures on the S&P 500 expiring in December added 0.5 percent to 1,087.5 as of 9:43 a.m. in London. Dow Jones Industrial Average futures rose 0.4 percent to 9,962. Nasdaq-100 Index futures increased 0.6 percent to 1,741.25. European and Asian shares also advanced.

U.S. stocks climbed last week after profits from JPMorgan Chase & Co. to Intel Corp. and Google Inc. surpassed analysts’ estimates, lifting the Dow above 10,000 for the first time in more than a year.

“Earnings so far have shown a positive trend,” said Manfred Hofer, head of equity analysis at LGT Capital Management in Pfaeffikon, Switzerland, which oversees about $73 billion. “Companies still have good cost management as we already saw last quarter but now sales are also showing a positive development. The combination of both should be positive for the market.”

Nine Quarters

Companies in the S&P 500, which has rebounded 61 percent from a 12-year low in March, will report a ninth straight quarter of declining profits, the longest streak since the Great Depression, before returning to growth in the final three months of the year, analysts’ estimates compiled by Bloomberg show.

U.S. earnings in the third quarter will probably beat analysts’ estimates, resulting in upgrades that should support a further rally to year-end, according to Nomura Holdings Inc.

“We expect third quarter results to beat consensus expectations and result in upgrades for the fourth quarter and over the next year of about 8 percent and 3 percent, respectively,” Nomura wrote in a report dated Oct. 16.

Thirty-one of the 37 companies in the S&P 500 that have reported earnings since Oct. 7 surpassed analysts’ projections, according to Bloomberg data.

Texas Instruments rose 1 percent to $22.97. The second- largest U.S. chipmaker is scheduled to report third-quarter earnings. Apple, the maker of Macintosh computers, the iPhone and the iPod media player, gained 0.6 percent to $189.17.

BB&T, Alcoa

BB&T Corp., the seventh-largest U.S. bank by deposits, is also among companies scheduled to publish results today.

Alcoa jumped 1.1 percent to $14.19. Copper climbed on speculation a report in China will show economic growth in the world’s largest metals consumer accelerated in the third quarter driven by the government’s $586 billion stimulus package. Aluminum, nickel, zinc and lead also rose.

Barrick Gold added 0.7 percent to $38.94 as the precious metal rose in London.

Exxon, the biggest U.S. oil company, added 0.5 percent to $73.52 as crude rose above $78 a barrel in New York. Chevron Corp., the second-largest U.S. oil company, increased 1.2 percent to $77.72.

A report at 1 p.m. may show builder confidence continued to climb this month. The National Association of Home Builders/Wells Fargo index probably rose to 20 from 19, economists surveyed said. It would be the seventh straight increase. While higher, readings less than 50 still signal that most respondents view conditions as poor.

Today is the 22nd anniversary of “Black Monday,” when an increase in U.S. interest rates and slowing economic growth sparked a panic that sent the Dow down 23 percent and the S&P 500 20 percent lower in one day.

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

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Morning Forex Overview

Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | Oct 16 09 07:31 GMT |

Previous session overview The yen weakened against the euro and dollar in Asia Friday as firm Asian equity markets and commodity prices prompted speculators to dump the safe-haven Japanese currency in favor of higher-risk units. The euro rose to JPY136.03 during the morning session, its highest level since August 24, after closing at JPY135.51 in New York late Thursday. As of 0600 GMT, the single currency stood at JPY135.71. Meanwhile, the dollar rose to JPY90.99, its peak since September 25, helped by recent rises in yields on U.S. Treasuries. At 0600 GMT, the greenback traded at JPY90.96. The euro dollar pair fell recording a low of USD1.4914 and a high of USD1.4967, having the union currency trading around USD1.4925. Yesterday the pair extended its gains against the green back breaching the USD1.4960 levels then getting back to the USD1.4925 levels. Regarding the GBPUSD, it is consolidating between USD1.6400 and USD1.6310 recording a low of USD1.6319 and a high of USD1.6398, having the royal pound trading around USD1.6335. The pair extended its gains yesterday as it rallied from the USD1.6000 levels to the USD1.6330 levels. The Australian dollar was mostly unchanged late Friday, after retreating from an earlier fresh 14-month high. Traders said buying of the Australian dollar against the yen provided the early catalyst for gains, while others cited a front page article in The Australian newspaper on the growing potential for parity with the U.S. dollar. Market expectation The euro shows some vulnerability Friday, with some profit-taking seeming likely going into the European session, followed by fresh buying perhaps next week. Traders said the euro may rise further against the yen and the dollar if U.S. economic data and corporate earnings come in stronger than expected, increasing risk appetite for high-yielding currencies. The single currency's next upside targets are at USD1.5000 and JPY136.50, they said. Players' attention will now turn to U.S. industrial production data due at 1315 GMT to gauge whether the U.S. economy is on its way to recovery. August's University of Michigan consumer confidence index due at 1355 GMT and Bank of America's earnings will also be studied by the market, traders said. European stock markets are expected to open higher Friday, with investors generally bullish ahead of more corporate earnings figures which, so far, have mostly surprised to the upside and painted a brighter picture of the global economy. In Australia, the minutes from the RBA's last policy meeting due Tuesday are likely to further reinforce expectations for more rate hikes. Dukascopy Swiss FX Group Legal disclaimer and risk disclosure This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

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Have Earnings Expectations Finally Set The Bar Too High For Further USD Selling?

Daily Forex Fundamentals | Written by AC-Markets | Oct 16 09 09:39 GMT |

News and Events: Yesterday's Goldman's earnings should have hit the ball out of the park, with an impressive EPS of $5.25 vs. expectations of $4.18. Yet the USD failed to sell off in the manner we saw after JPMorgan's numbers on Wednesday, and most major currencies actually lost ground against the USD immediately after the numbers. This may be the first indication that investor expectations have finally grown unrealistically high; an upside surprise is no longer enough to sate expectations, and remaining corporates will need to produce exceptional upside surprises to satisfy the market. Earnings are likely to represent the biggest focus for markets today as the timetable continues with General Electric, Merrill Lynch, Bank of America, and CIT Group Inc. Considering the precarious position CIT Group has found itself in for the last few months - balancing debt restructuring with the possibility of filing for bankruptcy protection - we feel that today's report will be unlikely to carry the baton of impressive figures forward and could trigger a sharp correction in the USD. So far today, the DXY has managed to gradually recover somewhat to 75.60 (from its 75.22 lows post FOMC), and gold is moderating around the $1047-1053 levels for the time being. It seems that the aggressive USD sell-offs that have characterized the week my be finally experiencing some exhaustion, and with US data not presenting obvious directional bias to the USD anymore, expect positioning and technicals to dominate trading. That being said, the US calendar today will present TIC Flow data, Industrial Production (Sep) and U.Mich Consumer Confidence (Oct). The other major data to come in the session will be Canadian CPI (0.1% expected, 0.0% prior), but we feel that even though expectations are modest, positioning and central bank rhetoric is likely to prevent further dramatic pushes towards parity. This morning's first main data release has been Swiss Retail Sales (Aug) which printed a extremely disappointing -1.0% YoY vs. +0.8% expected (1.0% prior); counter intuitively USDCHF sold off on the release but looking at the price action earlier in the morning, it seems there was a large spike about an hour before the release and the moves on the official release may have simply represented profit-taking Today Key Issues: 09:00 EUR Trade balance, € bn (sa) Aug exp: 4.9 prev: 6.8 11:00 CAD CPI, % m/m (y/y) Sep exp: 0.1 (-0.9) prev: 0.0 (-0.8) 11:00 CAD Bank of Canada core CPI, % m/m (y/y) Sep exp: 0.2 (1.4) prev: 0.1 (1.6) 13:00 USD Net long-term TIC flows, $ bn Aug exp: 30.0 prev: 15.3 13:15 USD Industrial production, % m/m Sep exp: 0.2 prev: 0.8 13:15 USD Capacity utilization, % Sep exp: 69.8 prev: 69.6 13:55 USD University of Michigan consumer sentiment, index Oct exp: 73.3 prev: 73.5 The Risk Today: EurUsd After EUR bulls took the pair through the major resistance at 1.4950, resistance at 1.4967 (level we highlighted yesterday) has capped the pair this morning, with the pair rangebound off intraday support at 1.4891. The trend remains bullish, and beyond 1.4967 and next major target is at the heady heights of 1.5346. GbpUsd We mentioned yesterday some upcoming resistance for GBPUSD at 1.6272 and although there was a 50 pip downmove after the pair's first visit, the level remained under attack all day and finally broke through overnight, moving swiftly to the upper end of the resistance zone at 1.6381. Just as with EURUSD and USDCHF, expect some consolidation between these levels as the market eagerly anticipates the mother of all global corporate earnings, General Electric, due out today before the US market open. UsdJpy We spoke yesterday about a new short term uptrend developing in USDJPY and no sooner had we mentioned the possibilty of a small trading range between the trend lines had the pair kicked into second gear and the uptrend players were out in force, breaking the steep 10 week downtrend in the process. So, looking at the bigger picture today to find the next level for short interest, it is clear to see the medium term trend is still down. There is a likelihood of some fresh USDJPY selling at the upper channel which now lies in the vicinity of resistance at 92.50 / 93.10. Intraday players may want to look at 91.80 for a brief pullback and short term longs playing the uptrend can look at 89.50/70 UsdChf Pretty much an inverse picture of EURUSD in the last 24 hours with new ground being covered to the downside before consolidation back to the breakdown level at 1.0186. The 2 week downtrend channel comes in just above at 1.0210 and more notable short term resistance at 1.0250. EURUSD GBPUSD USDJPY USDCHF 1.5346 1.6468 93.10 1.0360 1.5000 1.6400 92.50 1.0240 1.4967 1.6381 91.60 1.0210 1.4905 1.6340 91.25 1.0180 1.4876 1.6272 88.59 1.0037 1.4820 1.6127 88.00 1.0010 1.4720 1.5724 87.15 0.9930 S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot ACM FOREX Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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The South Korean Central Bank May Start Considering Raising Rates

Daily Forex Fundamentals | Written by ecPulse.com | Oct 16 09 08:48 GMT |

The South Korean central bank may consider raising rates in the up coming months after the bank maintained it at record low for a long period at 2.00% in order to give the needed support to the economy. But for while now the economic conditions in South Korea began stabilizing as government spending throughout the 76 trillion won continues to sustain domestic consumption and companies access to liquidity, managing to avoid the deterioration in several important sectors in the economy. With the big recovery seen by the Chinese economy, demand on the South Korean exports starting improving, which helped the economy avoid falling into recession during the first quarter of this year when it recorded a growth rate by 0.1%. while in the second quarter it recorded a growth rate by2.6%, the fastest growth rate in six years. South Korea's central bank governor said that the bank might start raising rates faster than usual, as the bank used to increase rates only by 25 basis points. He also noted that the bank will adjust its outlook on the economy before making any new decisions on the amount of increase in interest rates. There were also some remarks made by the Minister of Finance, through which he pointed out that the South Korean economy will strengthen even more by next year, supported by the rising global demand. For now, the economy is still facing many economic challenges, which might increase the uncertainties regarding the future of the economy. Yet with the positive pattern seen in global demand, exports are expected to moderate, being able to able to support the South Korean economy again. As a result confidence in the country increased, especially with the continued support fr5om the government stimulus plans and the reductions in interest rates, that led to the recovery in the stock markets. The Kospi index rose more than 47% during this year, after increased expectations that the South Korean economy was able to overcome the global economic crisis. The government now expects in 2009 a contraction less than 1.0%, compared with the previous expectations of -1.5%. Yet the central bank expects the economy to shrink this year by 1.6%, and grow by 3 to 4% in 2010. 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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Stevens Heralds Largest Interest-Rate Rise Since 2000

By Jacob Greber

Oct. 16 (Bloomberg) -- Australian central bank Governor Glenn Stevens’s view that he can’t be “too timid” in raising borrowing costs is stoking speculation the benchmark interest rate will be increased next month by the most in a decade.

Experience “counsels against” an approach where policy makers who cut rates rapidly in response to a threat become “too timid to lessen that stimulus in a timely way when the threat has passed,” Stevens said in Perth yesterday.

The comments pushed Australia’s currency to a 14-month high and prompted investors to raise bets policy makers will increase the overnight cash rate target on Nov. 3 by half a percentage point to 3.75 percent. Stevens became the first Group of 20 central banker to increase borrowing costs when he unexpectedly boosted the rate last week by a quarter point.

“Stevens has put 50 basis-point moves on the table,” said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “The safest time to raise rates quickly is when you know they are at the wrong level, and this is the first time a recession has ended with so little spare capacity.

“It’s not going to be long before the economy is running at full pelt again.”

Investors are certain Stevens will raise rates at least another quarter point next month as consumer confidence rises and unemployment falls, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. Chances of a half-point increase next month rose to 40 percent from 10 percent prior to Stevens’s speech and 2 percent on Oct. 14, the futures showed at 3:34 p.m. today.

Currency Rises

The Australian dollar traded at 92.25 U.S. cents, close to the highest since August 2008, at 3:47 p.m. in Sydney. The two- year government bond yield jumped to 4.83 percent at 3:49 p.m. today from 4.63 percent before yesterday’s speech.

“I’ve said it consistently, interest rates will go up because they’ve been brought to emergency lows,” Prime Minister Kevin Rudd told Melbourne radio station 3AW today. “I don’t see any point whatsoever in trying to be cute with people about that.”

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. His cuts included 1 percentage point reductions in October, December and February, the biggest moves since 1992.

‘Too Timid’

“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 said. “Experience here and elsewhere counsels against that approach.”

“The governor has made it clear he’s keen to get rates back to normal quickly,” said RBS Group Australia Ltd. Chief Economist Kieran Davies, who is tipping a half-point increase next month. The last time Australian policy makers raised borrowing costs by that much was in February 2000.

Four of 22 economists surveyed by Bloomberg today tipped a half-point increase, 17 expect a quarter-point move and one predicts no change.

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 he and his colleagues at the Fed “believe that accommodative policies will likely be warranted for an extended period.”

Other Asian central banks may follow Stevens in raising rates.

‘Tightening Wave’

“The region could be at the leading edge of the monetary tightening wave, though we believe the pace will be measured and modest,” Lee Heng Guie, chief economist at CIMB Investment Bank Bhd. in Kuala Lumpur, part of Malaysia’s second-largest banking group, said yesterday in a note to clients. “India and Korea will probably be the first among the Asian central banks to raise rates in the first half of 2010.”

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 to 5.7 percent in September from 5.8 percent in August, the first drop in five months, and retail sales gained.

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 spending another A$22 billion on roads, railways and schools.

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

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

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