Sugar Climbs to Two-Decade High as India May Increase Purchases

By M. Shankar

Jan. 20 (Bloomberg) -- White sugar surged to the highest price in at least two decades in London on speculation that India and other importers will purchase more of the sweetener as a supply deficit looms.

India, the world’s largest consumer, may import 2 million metric tons in the year ending Sept. 30, up from 225,000 tons in the previous 12 months, said R.L. Tamak, business head for sugar at the Indian unit of Olam International Ltd. White, or refined, sugar prices have more than doubled in the past year.

“Right now, few factories” have refining facilities during the off-season, Tamak said in a telephone interview. “White sugar has to be imported to meet the demand.”

White sugar for March delivery climbed as much as $11.10, or 1.5 percent, to $755 a ton on the Liffe exchange, the highest price since at least January 1989. The contract was at $752.10 a ton at 9:43 a.m. local time.

On ICE Futures U.S. in New York, raw sugar for March delivery gained 0.1 percent to 29.02 cents a pound and earlier rose to 29.15 cents, the highest for a most-active contract since January 1981.

Egypt, Indonesia, Pakistan and Philippines have also said they intend to import sugar to cool domestic prices, crimping supplies.

Excess rains in Brazil and a weak monsoon in India hurt sugar-cane output from the world’s two biggest growers. Global demand for sugar will outpace supply by 13.5 million tons in the 2009-10 season, according to broker Czarnikow Group Ltd.

Among other agricultural commodities traded on Liffe, cocoa for March delivery advanced 0.1 percent to 2,320 pounds ($3,784) a ton. Robusta coffee for March delivery declined 0.8 percent to $1,362 a ton.

To contact the reporter on this story: M. Shankar in London at mshankar@bloomberg.net.

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Sugar Climbs to Two-Decade High as India May Increase Purchases

By M. Shankar

Jan. 20 (Bloomberg) -- White sugar surged to the highest price in at least two decades in London on speculation that India and other importers will purchase more of the sweetener as a supply deficit looms.

India, the world’s largest consumer, may import 2 million metric tons in the year ending Sept. 30, up from 225,000 tons in the previous 12 months, said R.L. Tamak, business head for sugar at the Indian unit of Olam International Ltd. White, or refined, sugar prices have more than doubled in the past year.

“Right now, few factories” have refining facilities during the off-season, Tamak said in a telephone interview. “White sugar has to be imported to meet the demand.”

White sugar for March delivery climbed as much as $11.10, or 1.5 percent, to $755 a ton on the Liffe exchange, the highest price since at least January 1989. The contract was at $752.10 a ton at 9:43 a.m. local time.

On ICE Futures U.S. in New York, raw sugar for March delivery gained 0.1 percent to 29.02 cents a pound and earlier rose to 29.15 cents, the highest for a most-active contract since January 1981.

Egypt, Indonesia, Pakistan and Philippines have also said they intend to import sugar to cool domestic prices, crimping supplies.

Excess rains in Brazil and a weak monsoon in India hurt sugar-cane output from the world’s two biggest growers. Global demand for sugar will outpace supply by 13.5 million tons in the 2009-10 season, according to broker Czarnikow Group Ltd.

Among other agricultural commodities traded on Liffe, cocoa for March delivery advanced 0.1 percent to 2,320 pounds ($3,784) a ton. Robusta coffee for March delivery declined 0.8 percent to $1,362 a ton.

To contact the reporter on this story: M. Shankar in London at mshankar@bloomberg.net.

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Wheat Drops to Two-Month Low in Chicago as U.S. Exports Slide

Wheat Drops to Two-Month Low in Chicago as U.S. Exports Slide

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By Rudy Ruitenberg

Jan. 20 (Bloomberg) -- Wheat futures fell for a fourth day and to a two-month low after the weekly quantity of U.S. grain inspected for export fell to the lowest since June.

Wheat for March delivery fell as much as 1.4 percent to $4.9325 a bushel in electronic trading on the Chicago Board of Trade, and was at $4.9375 as of 11:22 a.m. Paris time. That’s the lowest price since Nov. 2.

U.S. Department of Agriculture officials inspected 9.4 million bushels of wheat for export in the week ended Jan. 14, down 24 percent from a week earlier and the lowest level since the year that started June 1.

“The weekly inspection number turned out to be at a low level, 260,000 tons, below expectations,” French farm adviser Offre et Demande Agricole said in a report today.

Milling wheat for March delivery traded on Liffe in Paris slipped 0.2 percent to 125.50 euros ($177.97) a metric ton.

Corn for March delivery traded in Chicago slipped less than 0.1 percent to $3.69 a bushel while soybean futures gained 0.3 percent to $9.6625 a bushel.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

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Rice Output Growth in Indonesia to Slow on El Nino, Bulog Says

By Luzi Ann Javier

Jan. 20 (Bloomberg) -- Rice-production growth in Indonesia, the world’s third-largest grower, may slow this year as an El Nino weather phenomenon parches crops, according to Bulog, the state-owned food company that manages the nation’s supplies.

Output of milled rice may expand 3 percent in 2010 after rising 5 percent to 40 million tons in 2009, according to Mohammad Ismet, an expert who helps set Bulog’s policies. That forecast assumes the government has some success in neutralizing El Nino’s impact, he said in an interview today.

El Ninos curb or delay rains across Asia and can parch crops, potentially crimping harvests of rice, sugar and palm oil while boosting prices. Thailand and the Philippines, the world’s top rice shipper and importer respectively, warned earlier this month that the weather pattern may cut their harvests.

Without government intervention, including use of drought- resistant seeds, production growth “may not be as much as 3 percent,” Ismet said in Singapore, where he’s attending a conference. Still, the Southeast Asian nation will have enough supply of the staple to meet domestic needs, he said.

Thai rice-export prices, used as an Asian benchmark, were set at $609 a metric ton on Jan. 13 compared with $607 the week before and last year’s low of $525, according to data from the Thai Rice Exporters Association. Futures in Chicago traded at $13.98 per 100 pounds today, down by 6.1 percent this year.

‘Significant Influence’

An El Nino -- caused by a warming of the equatorial Pacific Ocean -- was forecast to cause drier-than-average conditions in Indonesia in the January-to-March period, the U.S. Climate Prediction Center said on Jan. 7. The pattern, forecast to last till June, “is expected to exert significant influence on the global weather and climate in the coming months,” it said.

The last time that Indonesia had a moderate El Nino similar to conditions the country is now experiencing was in 2006, when rice output grew 0.5 percent, Ismet said. That compares with growth of about 5 percent a year from 2007 to 2009, he said.

The price of rice in the domestic market has risen 6 percent this month compared with October as supply tightened after the El Nino delayed planting from November to December, he said. “Price is the best indicator for the market, whether the supply is enough or not for the consumption,” he said.

Bulog is forecast to buy 3.5 million tons of rice from farmers to sell to the poor at subsidized rates, helping to cool prices, Ismet said. The nation of about 232 million people has per capita consumption of 139.42 kilograms, he said.

Thailand may see a drop in rice output of as much as 15 percent to 27 million tons, Apichart Jongskul, secretary general of the nation’s Office of Agricultural Economics, said on Jan. 13. The Philippines may lose 400,000 tons from this year’s first rice harvest on El Nino, Joel Rudinas, acting agriculture undersecretary for operations, said on Jan. 18.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Asian Stocks Fall on China Growth Concern; Astellas Advances

By Anna Kitanaka and Shani Raja

Jan. 20 (Bloomberg) -- Asian stocks fell, dragging the MSCI Asia Pacific Index down for the third straight day, after regulators told some of China’s banks to limit lending. Finance and energy companies led the decline.

China Construction Bank Corp. sank 3.1 percent and PetroChina Co. dropped 1.7 percent in Hong Kong. The chief Chinese banking regulator, Liu Mingkang, said some banks were asked to curb lending after failing to meet capital requirements. Nomura Holdings Inc. fell 3.8 percent after Credit Suisse Group AG downgraded Japan’s brokerages. Astellas Pharma Inc. climbed 2.7 percent, leading drugmakers higher on speculation President Barack Obama’s healthcare reform plan will be derailed.

The MSCI Asia Pacific Index lost 0.7 percent to 124.45 at 7:35 p.m. in Tokyo, extending a two-day, 1.2 percent drop. The measure has jumped 50 percent in the past 12 months as growth in China helped the global economy emerge from the worst slowdown since World War II. Stocks on the gauge are priced at 1.63 times book value, near the highest level since September 2008.

“China is a critical factor in the recovery process,” said Stephen Halmarick, Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which holds about $135 billion. “China’s tightening policy is telling us that growth is quite strong. If they can get more balance in their growth, that’s a positive thing.”

China’s Shanghai Composite Index slumped 2.9 percent, while Hong Kong’s Hang Seng Index lost 1.8 percent as Chinese Premier Wen Jiabao yesterday said the country will manage the pace of credit growth. Japan’s Nikkei 225 Stock Average lost 0.3 percent.

Toyota Tsusho, KT

Among stocks that rose today, Toyota Tsusho Corp., an affiliate of Toyota Motor Corp., surged 6 percent in Tokyo after agreeing on a venture with Australian mineral explorer Orocobre Ltd. KT Corp., South Korea’s largest phone and Internet company, jumped 6.8 percent after Shinhan Investment Corp. raised its share-price forecast.

Futures on the U.S. Standard & Poor’s 500 Index lost 0.3 percent. The gauge added 1.3 percent yesterday, led by health and technology companies.

China Construction Bank, the nation’s second-largest lender, sank 3.1 percent to HK$6.22 in Hong Kong and was the biggest drag on the MSCI Asia Pacific Index. Bank of China Ltd. lost 3.4 percent to HK$3.95.

Wen’s speech yesterday excluded references to a proactive fiscal policy and relatively loose monetary policy, marking the “official” end of the nation’s emergency measures to boost the economy, Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch wrote in a note.

‘Desired Effect’

“With the prospect of inflation starting to rear its ugly head, central bankers are now trying to tighten policy,” Arjuna Mahendran, chief investment strategist for Asia at HSBC Private Bank, said in a Bloomberg Television interview from Tokyo. “Monetary tightening is having the desired effect, which is to see that the stock market doesn’t get too exuberant.”

Hong Kong stocks also fell after Shanghai’s government said a Caijing magazine report that the city may allow individuals to invest abroad is “pure fabrication.” The report drove the Hang Seng Index up by 1 percent yesterday.

Insurers declined after the China Insurance Regulatory Commission said the companies should improve their assessment of profitability of sales made through banks and avoid price wars. The regulator may limit or revoke licenses of insurers found to have engaged in such practices to boost sales.

Ping An Insurance Group Co., China’s second-biggest insurer, slipped 2.3 percent to HK$66.05 in Hong Kong. China Life Insurance Co. lost 1.5 percent to HK$36.50.

Japanese Brokerages

Nomura Holdings, Japan’s biggest investment bank, fell 3.8 percent to 711 yen. Daiwa Securities Group Inc. dipped 2.4 percent to 482 yen and Matsui Securities Co. sank 3.7 percent to 654 yen. Credit Suisse lowered its rating on the Japanese brokerage sector to “market weight” from “overweight.”

“We favor shifting from the brokerage sector to the bank sector, for which the risk of further capital increases is gradually receding,” Azuma Ohno, a Tokyo-based Credit Suisse analyst, wrote in a report yesterday.

A gauge of energy stocks on the MSCI Asia Pacific Index lost 1.5 percent, the most of 10 industry groups, as oil futures in New York dropped 1.3 percent to $78.00 in after-hours trading.

PetroChina, China’s No. 1 oil producer, retreated 1.7 percent to HK$9.40 in Hong Kong, while Cnooc Ltd., the country’s largest offshore oil company, declined 1.2 percent to HK$12.08.

A measure of health-care companies on the MSCI Asia Pacific climbed 1.4 percent, after Scott Brown won a U.S. Senate seat in Massachusetts. The victory gives Republicans enough members to block votes on an overhaul of the U.S. health-care system, President Barack Obama’s top legislative goal.

Sweeping Revamp

If passed, the health-care legislation would be the most sweeping revamp of the medical system in 45 years and is aimed at extending health coverage to millions of uninsured Americans by expanding the Medicaid program for the poor and setting up online insurance-purchasing exchanges.

The proposed bill “basically limits the price of drugs,” said Takeru Ogihara, who helps oversee $27 billion as chief strategist at Mizuho Trust & Banking Co. in Tokyo. “If the health-care bill is put aside, it’ll help the U.S. health stocks and the big Japanese health companies that are doing business there too.”

Astellas, which derives 27 percent of its revenue from North America, climbed 2.7 percent to 3,565 yen. Takeda Pharmaceutical Co., Asia’s biggest drugmaker, added 1.7 percent to 4,000 yen. The company gets 41 percent of sales in North America.

Toyota Tsusho surged 6 percent to 1,489 yen in Tokyo. The trading company will establish a joint venture with Orocobre to develop a lithium and potash mine in Argentina. Orocobre, based in Australia, surged 32 percent to A$1.85 in Sydney.

In Seoul, KT Corp. jumped 6.8 percent to 48,700 won, the highest close since April 17, 2008. Shinhan Investment raised its share-price estimate by 18 percent to 57,000 won and maintained its “buy” rating, according to a report today.

To contact the reporters for this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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Euro Stoxx 50 to Fall After Sell Signals: Technical Analysis

By Francesca Cinelli

Jan. 20 (Bloomberg) -- Europe’s Dow Jones Euro Stoxx 50 may undergo “a stronger setback into February” because of sell signals in weekly and daily indicators, according to technical analysts at UBS AG.

While “a bounce early this week is likely” as intraday Europe is oversold, “the technical background is deteriorating strongly,” analysts Michael Riesner and Marc Mueller wrote in a report dated yesterday.

The benchmark index for euro-zone equities, which set a 15- month high at 3,017.85 on Jan. 8, added 0.9 percent to 2,984.82 yesterday.

“Selling pressure increased over the course of last week” and “the Jan. 11 reaction high at 3,044 now represents a crucial trading resistance,” the analysts wrote.

Both weekly charts and daily indicators point to further weakness in the Dow Jones Euro Stoxx 50.

“A classic bearish engulfing pattern on a weekly chart basis is in place, which usually occurs at or near important tops,” Riesner and Mueller wrote. A classic bearish engulfing pattern is a three-bar formation and is seen at the top end of an extended advance in prices. A tall white candle is followed by a second bar displaying tight disparity between the opening price and the closing price and located above the first bar. A third bar is a tall black candle, and the whole chart pattern is considered as bearish by technical analysts.

MACD

A daily momentum indicator called the moving average convergence/divergence, or MACD, is also showing sell signals for the gauge, UBS said. MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods. The MACD is calculated by subtracting the 26-day exponential moving average, or EMA, from the 12-day EMA. A nine- day EMA of the MACD, called the “signal line,” is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

“The late December/early January index-high has not been confirmed by the MACD, which suggests that the March 2009 recovery is maturing,” the analysts wrote.

To contact the reporter on this story: Francesca Cinelli in Milan at fcinelli@bloomberg.net.

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German Stocks Drop as Daimler, Volkswagen Fall; Merck Gains

By Cornelius Rahn

Jan. 20 (Bloomberg) -- German stocks fell, with the DAX Index retreating for the first time in three days, as China, the driver of the global recovery, signaled that it may rein in stimulus measures.

Daimler AG and Volkswagen AG lost at least 1 percent as European automakers declined. Solar companies retreated as a German parliamentarian said subsidies for the industry may be reduced more drastically than previously forecast. Merck KGaA surged 3.3 percent as the Republicans in the U.S. won the Senate seat for Massachusetts, imperiling health-care legislation in Congress.

The benchmark DAX Index slipped 0.2 percent to 5,964.81 as of 12:04 p.m. in Frankfurt. The measure has climbed 63 percent from last year’s low on March 6 as companies reported better- than-estimated earnings and the Europe’s largest economy exited recession. The broader HDAX Index also lost 0.2 percent today.

China’s Premier Wen Jiabao yesterday said China will manage the pace of credit growth and the nation’s chief banking regulator, Liu Mingkang, said in an interview that some banks were asked to reduce lending after a record 9.59 trillion yuan ($1.4 trillion) in new loans were made last year. U.S. housing starts were probably little changed in December as rising foreclosures and inclement weather kept builders at bay, economists said before a report today.

Daimler, VW

Daimler, the world’s second-biggest maker of luxury cars, slumped for a second day, losing 1.8 percent to 36.06 euros. Turkey’s car market won’t improve in 2010, according to Wolf Dieter Kurz, chairman of the Mercedes-Benz Turk AS, the unit of Daimler AG in Turkey. Volkswagen and Bayerische Motoren Werke AG retreated 1.2 percent to 60 euros and 0.9 percent to 32.13 euros, respectively.

Phoenix Solar AG, a company which builds and operates solar plants, declined 4.9 percent to 34.62 euros, heading for its lowest close in two months. Phoenix was removed from Goldman Sachs Group Inc.’s “conviction buy” list, with analysts citing a “less compelling” relationship between risk and reward compared with competitor SMA Solar Technology AG. SMA Solar shares slipped 4.4 percent to 86.64 euros.

Solar Shares

Q-Cells SE fell 2 percent to 10.72 euros and and Solarworld AG slipped 1.9 percent to 14.55 euros. Chancellor Angela Merkel’s Christian Democratic Union may press for deeper cuts in solar subsidies than previously estimated by the government, the party’s energy spokesman in parliament, Joachim Pfeiffer, said.

Merck KGaA, the European maker of the Erbitux cancer drug, rose 3.3 percent to 68.47 euros for its biggest advance in two months. Republican Scott Brown beat once-favored Democratic state Attorney General Martha Coakley for a Senate seat held by the late Edward M. Kennedy for nearly half a century. His victory increases Republican Senate numbers to 41, enough to block votes on an overhaul of the U.S. health-care system, President Barack Obama’s top legislative goal.

Fresenius Medical Care AG, the world’s biggest provider of kidney dialysis, and parent Fresenius SE added 1.3 percent to 38.27 and 1 percent to 51.51 euros, respectively. Health care companies were among the best performers in Europe’s Dow Jones Stoxx 600 index today.

The following shares rose or fell in German markets. Stock symbols are in parentheses.

Manz Automation AG (M5Z GY), a solar-cell machine maker, surged 5.8 percent to 63.40 euros, its first gain in six days. Manz had its share-price estimate raised to 95 euros from 79 euros at Goldman Sachs.

MorphoSys AG (MOR GY), a drugmaker, climbed 4.2 percent to 17.74 euros, its biggest rise since November. The company and chemical producer Wacker Chemie AG will expand their existing cooperation in the use of Wacker’s Esetec technology for the production of antigen material. Wacker (WCH GY) shares gained 2.4 percent to 116.45 euros.

Pfleiderer AG (PFD4 GY), a German laminate-flooring maker, jumped 5 percent to 7.35 euros. The company said it concluded a sale of 2.6 million of its own shares at a value of 18.5 million euros ($26.3 million).

Praktiger AG (PRA GY), Germany’s second-biggest home- improvement retailer, dropped 1.8 percent to 6.58 euros. The shares were removed from CA Cheuvreux’s “selected list” and reduced to “outperform.”

To contact the reporter on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net

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U.K. Stocks Fall; Mining Companies Retreat on China Concerns

By Sarah Jones

Jan. 20 (Bloomberg) -- U.K. stocks declined for the first time in three days, as mining companies tumbled by the most in almost two months amid speculation China may rein in stimulus measures.

Xstrata Plc, the world’s fourth-largest copper producer, Antofagasta Plc and Rio Tinto Group all dropped more than 2 percent as copper fell in London. Johnson Matthey Plc lost 2.3 percent as Credit Suisse Group AG downgraded the shares, citing valuations.

The benchmark FTSE 100 Index retreated 17.38, or 0.3 percent, to 5,495.76 at 11:08 a.m. in London, trimming this year’s advance to 1.6 percent. The FTSE All-Share Index slid 0.3 percent today, as did Ireland’s ISEQ Index.

Stocks fell with commodity prices after the Chinese Chief banking regulator, Liu Mingkang, said in an interview today that some banks have been asked to limit lending after they failed to meet certain requirements.

“The move could lead to more widespread tightening by the Chinese central bank as they try and cool off an overheating economy,” said London-based Nick Serff, a market analyst at City Index.

Premier Wen Jiabao yesterday said China will manage the pace of credit growth. Last year, the third-largest economy expanded an estimated 8.5 percent, helping to drag the world from the worst recession since World War II.

A measure of mining shares dropped 3 percent, the steepest decline since Nov. 26 as copper retreated on concern about demand in China, the largest user of the metal. Lead, nickel, tin and zinc also retreated on the London Metal Exchange.

Miners Fall

Shares of Xstrata dropped 3.5 percent to 1,175 pence, while Antofagasta, owner of copper mines in Chile, declined 3.8 percent to 1,000 pence. Rio Tinto, the world’s third-biggest mining company, lost 2.8 percent to 3,521 pence.

Johnson Matthey slid 2.3 percent to 1,599 pence after Credit Suisse downgraded the producer of autocatalysts to “underperform” from “neutral.

London-based analyst Rhian Tucker said the shares “remained expensive” and the company would “benefit the least from an economic bounce back.”

The following stocks also rose or fell in the U.K. market. Symbols are in parentheses.

Kesa Electricals Plc (KESA LN) retreated 5.5 pence, or 3.8 percent, to 140.2. Europe’s third-largest electronics retailer said revenue at stores open at least a year fell as its Comet stores failed to repeat last year’s Christmas performance. Overall sales in the 10 weeks to Jan. 8 at stores open at least a year before currency gains slipped 0.3 percent.

Soco International Plc (SIA LN) dropped 46 pence, or 3.1 percent, to 1,421 after the company announced plans to sell up to 7.2 million new shares to fund a development program in Vietnam in the next year.

William Hill Plc (WMH LN) rallied 12.1 pence, or 6.5 percent, to 197.7 after the U.K.’s second-largest bookmaker reported a 6 percent rise in fourth-quarter revenue. The company also said Chairman, Charles Scott, will stand down by the end of 2010.

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

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U.S. Stock-Index Futures Fall; Morgan Stanley, BofA Shares Drop

By Alexis Xydias

Jan. 20 (Bloomberg) -- U.S. stock-index futures retreated before earnings reports from Morgan Stanley and Bank of America Corp. and amid concern China, the engine of the global recovery, may move to cool its economy.

Morgan Stanley slid 2.3 percent in European trading while Bank of America, the largest U.S. lender, retreated 1 percent. International Business Machines Corp. dropped 1.8 percent after reporting fourth-quarter results after the close of trading yesterday. Humana Inc. climbed 0.8 percent after the Republican party won a Senate seat in Massachusetts, imperiling health-care legislation in Congress.

Futures on the Standard & Poor’s 500 Index expiring in March slipped 0.5 percent to 1,140.5 as of 6:32 a.m. in New York. Dow Jones Industrial Average futures dropped 0.4 percent to 10,625 and Nasdaq-100 Index futures slid 0.5 percent to 1,880.5.

The earnings season in the U.S. gathers pace this week, with more than 60 companies in the S&P 500 scheduled to report quarterly results. The benchmark index is valued at 25 times its companies’ profits, the highest level since 2002, following a 70 percent jump since March. Stocks fell in Asia and Europe today after Chinese regulators told some of the nation’s banks to limit lending.

“Expect earnings to grab the headlines today, but the focus is also on what China is doing,” said Angus Campbell, head of sales at Capital Spreads in London. “It looks like the Chinese are starting to place some constraints on liquidity, which may put a cap on their expanding economy but also have a larger effect on global growth.”

China Lending

China will restrict overall credit growth in the nation to 7.5 trillion yuan ($1.1 trillion) this year, banking regulator Liu Mingkang said. Some lenders were asked to rein in credit because they failed to meet regulatory requirements including those for capital, Liu, chairman of the China Banking Regulatory Commission, said in an interview today in Hong Kong. New loans in the first 10 days of this year were “relatively high,” he told the Asian Financial Forum.

Reports on construction and producer prices today will provide the latest indications of the state of the U.S. economy. Housing starts were probably little changed in December as rising foreclosures and inclement weather kept builders at bay, economists said before a report today, economists said before a Commerce Department release due at 8:30 a.m. in Washington.

Ground may have been broken on 572,000 houses at an annual rate compared with 574,000 in November, according to the median estimate of 70 economists surveyed by Bloomberg News. Permits, a sign of future construction, may also have dropped.

Inflation Report

A separate report from the Labor Department, also scheduled for 8:30 a.m., may confirm inflation slowed in December. Wholesale costs were unchanged last month after jumping 1.8 percent in November, according to the survey median. Excluding food and energy, the producer-price index may have climbed 0.1 percent following a 0.5 percent November increase.

Morgan Stanley fell 2.3 percent to $30.46 in Frankfurt. The bank headed by John Mack is expected to say before U.S. markets open today that it earned $621 million, or 42 cents a share, from a loss a year earlier, according to the average of 10 analysts’ estimates.

Bank of America dropped 1 percent to $16.16. The bank may report its third loss in the past five quarters as its new chief executive officer tallies costs from consumer loan defaults and repaying bailout funds. Analysts’ estimates of a potential loss for the quarter range as high as $4.9 billion by Sanford C. Bernstein’s John MacDonald.

‘Disappointing’

The bank’s largest rival, JPMorgan Chase & Co., last week called its own fourth quarter “a little disappointing.” Wells Fargo & Co., one of the two biggest U.S. home lenders in 2009, may report its fourth straight quarter of improved results as the economy expanded and pressure to build reserves abated, according to another survey of analysts. The shares were little changed at $28.23 in Europe.

The bank probably swung to a fourth-quarter profit of $1.62 billion, from a loss of $2.55 billion a year earlier, according to the average estimate of analysts surveyed by Bloomberg.

IBM declined 1.8 percent to $131.76, also in Germany. The world’s largest computer-services company reported after U.S. trading ended yesterday that fourth-quarter business-consulting revenue declined while saying 2010 profit will top its earlier target.

Sales of business services, which include consulting, fell 2.8 percent to $4.58 billion, the company said. Profit in 2010 will be at least $11 a share. IBM set a goal in May 2007 for earnings of $10 to $11 this year.

Kraft Foods Inc. fell 0.8 percent to $29.18. The company had its credit rating cut at Fitch Ratings Ltd. after it yesterday agreed to buy Cadbury Plc for 11.9 billion pounds ($19.5 billion).

Republican Victory

U.S. stocks rose yesterday as health companies rallied on speculation Republicans may block an industry overhaul and technology companies gained on earnings optimism. Republican Scott Brown’s victory in the race for the U.S. Senate seat in Massachusetts was confirmed after U.S. markets closed yesterday.

The result increases the Republican party’s Senate numbers to 41, enough members to block votes on an overhaul of the U.S. health-care system, President Barack Obama’s top legislative goal.

Humana, the managed health-care company whose 7.1 percent gain yesterday was the biggest advance in the S&P 500 Health Care Index, climbed 0.8 percent to $52.35 in Frankfurt.

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

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Pound Rises, Gilts Fall as Inflation Accelerates at Record Pace

By Anchalee Worrachate

Jan. 19 (Bloomberg) -- The pound rose to a four-month high against the euro and two-year gilt yields jumped the most since November as a report showed the biggest increase on record in the U.K. inflation rate, stoking speculation borrowing costs may increase soon.

The pound climbed against all 16 major currencies tracked by Bloomberg, while the 10-year breakeven rate, a market gauge of inflation expectations, rose to the most since October 2008. December consumer prices advanced 2.9 percent from a year earlier, one full percentage point more than in November, according to the Office for National Statistics.

“The CPI number is a shocker,” said Peter Schaffrik, a co-head of interest rate strategy in London at Commerzbank AG. “It means the Bank of England will have to rein in its monetary stimulus, perhaps sooner rather than later. We are avoiding gilts, especially at the front end. It’s difficult for the market to outperform others against this backdrop.”

The pound traded at 87.37 pence per euro as of 11:34 a.m. in London from 88.03 pence yesterday. It strengthened below 88 pence for the first time since Sept. 15 yesterday. The pound traded at $1.6377 after rising to $1.6458 earlier, the highest since Dec. 8.

Britain’s economy is showing signs of recovery from its longest recession on record after the Bank of England cut its key interest rate to an all-time low of 0.5 percent and embarked on a 200 billion-pound ($328 billion) program of asset purchases. A survey yesterday showed asking prices for homes in England and Wales increased in January.

The pound was also boosted as Kraft Foods Inc. said it’s near an agreement to buy Cadbury Plc after four months of wrangling with the U.K. confectioner over price.

Gilt Spread

“Economic data are starting to look more encouraging,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. “The Kraft-Cadbury news is also supportive for the pound. Foreign money is coming in to buy U.K. assets, which have become cheap.”

The yield on U.K. short-sterling interest-rate futures contract expiring in December 2010 climbed 12 basis points to 1.78 percent as traders added to bets that the Bank of England will increase borrowing costs this year.

The consumer-price report was the first since May showing inflation above the central bank’s 2 percent target, presenting a challenge as policy makers assess when to start raising borrowing costs. Prime Minister Gordon Brown, who faces an election by June, is confident the economy has returned to growth, a spokesman said last week.

Falling Gilts

Gilts declined, pushing the yield on the 2-year note up 15 basis points, the biggest one-day increase since Nov. 12, before standing 9 basis points higher on the day at 1.30 percent. The 3.25 percent security due December, 2011 fell 0.18, or 1.8 pounds per 1,000-pound face amount, to 103.61. The 10-year yield rose 8 basis points to 4.02 percent.

The yield difference between 10-year gilts and index-linked debt, known as the breakeven rate, rose to 3.05 percentage points, the most since October 2008.

The yield gap between two- and 10-year notes was little changed at 2.71 percentage points. It earlier narrowed by 4 basis points to 2.68 percentage points, the least since Jan. 4.

To contact the reporter on this story: Anchalee Worrachate in London at Aworrachate@bloomberg.net

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Euro Drops Fourth Day Versus Dollar as German Confidence Falls

By Lukanyo Mnyanda

Jan. 19 (Bloomberg) -- The euro fell against the dollar for a fourth day after a report showed German investor confidence declined more than economists forecast, fueling speculation the region’s economic recovery is stalling.

The 16-nation currency weakened most versus the pound and the dollar after the ZEW Center for European Economic Research said its index of investor and analyst expectations dropped to 47.2 this month, from 50.4 in December. The pound climbed to a six-week high against the dollar after a report showed the nation’s inflation rate jumped in December by the most on record and Kraft Foods Inc. said it’s completing the terms of a recommended offer for U.K. chocolate maker Cadbury Plc.

“The euro zone is probably going to trail behind the recovery in other major economies,” said Toshi Honda, a strategist in London at Mizuho Corporate Bank Ltd. “We are not short of excuses to sell the euro.”

The euro slipped to $1.4305 as of 6:31 a.m. in New York, from $1.4384 yesterday, and traded as low as $1.4303, its weakest level since Jan. 8. It dropped to 129.88 yen, from 130.58 yen. The yen was little changed at 90.75 per dollar.

The euro snapped five months of gains in December amid mounting concern that countries such as Greece may struggle to curb ballooning budget deficits accumulated during the worst financial crisis since World War II. Germany’s economy, Europe’s largest, probably stagnated in the three months through December after growing in the previous two quarters, the Federal Statistics office said last week.

‘Aware of Problems’

Greece may have to step up its efforts to tackle a fiscal crisis that threatens to spread to other countries in the region, European finance chiefs said after a meeting yesterday.

The Greek government “is aware of the magnitude of the problems facing the country,” Luxembourg’s Jean-Claude Juncker told reporters in Brussels after leading the meeting of euro- area finance ministers that discussed Greece’s budget-cutting proposals.

Sovereign risks in the region may bring the euro’s relevance as a reserve currency into question, according to Royal Bank of Scotland Group Plc.

“The problems in Greece will be much harder for the market to gloss over this year and there is not a solution which appears good for the euro,” Greg Gibbs, a foreign-exchange strategist in Sydney at RBS, wrote in a report dated yesterday.

China Tightens

The yen advanced against higher yielding currencies including the South African rand and Australian dollar after the People’s Bank of China guided its benchmark one-year bill yield to the highest level in 14 month as it seeks to curb record loan growth and prevent bubbles in the nation’s property and stock markets.

Japan’s currency jumped 0.6 percent to 83.63 per Australian dollar and was 0.5 percent higher at 12.22 per rand.

“The yen is being driven mainly by changes in global risk sentiment,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “The market is more concerned about China overdoing any tightening of policy, but I don’t think this is justified.”

The pound rose against all 16 of its most-active counterparts tracked by Bloomberg. U.K. consumer prices climbed 2.9 percent from a year earlier, 1 percentage point more than in November, the biggest month-on-month increase since records began in 1997, data from Office for National Statistics in London showed today. The median forecast in a Bloomberg News survey of 30 economists was 2.6 percent.

‘Euro Without Greece’

The currency was also buoyed after Kraft said it’s close to agreeing the terms of a recommended offer for Cadbury. The U.S. company will raise its bid to about 12 billion pounds ($19.7 billion), people familiar with the matter said earlier.

The pound is “benefiting from a lack of alternatives” for traders, Leuchtmann’s team at Commerzbank wrote in an e-mailed note today. “It is being bought as the euro without Greece. In a constellation such as this, M&A deals are only the trigger for a continuation or acceleration of sterling’s rally.”

The pound gained to $1.6378 from $1.6343, after reaching $1.6458, the strongest level since Dec. 8. The U.K. currency also appreciated to 87.36 pence euro from 88.03 pence, after trading at 87.31, a four-month high.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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Platinum, Palladium Forecasts Raised by BOA-Merrill

By Kim Kyoungwha

Jan. 19 (Bloomberg) -- Bank of America-Merrill Lynch raised its 2010 forecasts for platinum and palladium on stronger demand and the introduction of exchange-traded funds for the metals.

The forecast for platinum was raised 35 percent to $1,750 an ounce, while palladium was increased 30 percent to $500, Michael Widmer, London-based metals strategist, wrote in a report yesterday. Platinum and palladium may average $2,000 an ounce and $650 an ounce over 2011 respectively, the report said.

“The recent launch of platinum and palladium ETFs in the U.S. is a key reason behind our upgrades,” Widmer said. “We believe that assets under management at these two investment vehicles could rise significantly.”

The ETFS Platinum Trust and ETFS Palladium Trust started trading on the NYSE Arca stock exchange on Jan. 8, data compiled by Bloomberg show. The funds are backed by physical metal, according to notices on the Web site of ETF Securities Ltd.

The metal held in ETF Securities Ltd.’s exchange-traded commodities products rose 2.6 percent to a record 679,938 ounces on Jan. 15, according to the Web site. Platinum and palladium are used mainly in pollution-control devices in automobiles.

Platinum for immediate delivery rose as much as 1.3 percent to $1,643.75 an ounce, the highest price since Aug. 4, 2008, and traded at $1,635.22 at 12:53 p.m. in Singapore. Palladium climbed 0.8 percent to $462.25 an ounce.

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

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El Nino May Hurt Sugar Production in the Philippines

By Luzi Ann Javier

Jan. 19 (Bloomberg) -- El Nino, which reduces rainfall in Asia, may curb sugar production in the Philippines, squeezing supply in Southeast Asia’s second-largest exporter if it lasts for five months, a government official said. Raw sugar rose.

“Our output may be lower and we might see tightness in supply” after April, said Aida Ignacio, deputy administrator at the Sugar Regulatory Administration, in a phone interview today. “How low it will go, we still don’t know.”

Lower output may make the Philippines an importer for a second year. Indonesia, Iraq, Egypt, Pakistan and Tanzania are seeking sugar to cool prices, straining global supplies forecast by Czarnikow Group Ltd. to fall short of demand by 13.5 million metric tons in the 2009-2010 season. El Nino can affect agricultural production across parts of Asia and curb rice production in Thailand, the world’s biggest exporter.

“An extended El Nino is bad news,” Coscolluela said in a cell phone text message today, referring to the period from February through June or July. Still, “so far, our new crop is actually looking good,” he said.

The Philippines may buy as much as 150,000 tons of sugar this year, Rafael Coscolluela, the regulatory administrator, said last week. That would be the first purchase for domestic use since 2002, according to Amarra.

Batangas and 20 other provinces experienced a dry spell in the past three months, according to the weather bureau. Batangas has the capacity to produce 160,000 tons a year, about 7 percent of the nation’s forecast output this year, Philippine Sugar Millers Association Executive Director Archie Amarra said today.

‘Significant Influence’

The El Nino weather phenomenon strengthened in December and is forecast to last through June, according to a Jan. 7 U.S. Climate Prediction Center report. “Regardless of its precise peak strength, El Nino is expected to exert significant influence on global weather and climate in the coming months,” it said.

Below-normal rainfall may stunt cane growth in its first four months of development, Amarra said in a phone interview from Negros Island in central Philippines.

Cane needs at least a year to grow in the Philippines and planting takes place all year round, Amarra said today. El Nino may increase the sugar content of mature cane, helping raise yields for crops planted four months before the phenomenon hit the country, he said.

Price Jumps

Raw sugar had its biggest annual gain since 1974 last year. The March-delivery contract jumped as much as 2.1 percent to 28.20 cents a pound on ICE Futures U.S. in New York at 4:56 p.m. Singapore time.

The Philippines may buy sugar as early as April, said Agriculture Secretary Arthur Yap on Jan. 13. Supplies of smuggled sugar have dried up as global prices surge, lifting the use of domestically made sweetener to 2.1 million tons this year from 1.87 million tons last year, Amarra said last week. Output is forecast at 2.16 million tons, he said.

Exports may drop to 143,000 tons in the year that began Sept. 1, the lowest since 2002, after the government ordered a halt in shipments to markets outside the U.S., according to Amarra. The country ships sugar to the U.S. under its import quota system.

The country shipped 219,132 tons of raw sugar to the U.S. and other markets in the year ended Aug. 31, according to the government Web site. Domestic raw sugar prices jumped 10 percent to 1,658.33 pesos ($36) per 50-kilogram bag on Jan. 7 from a month earlier, according to the regulatory body’s Web site.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Cadbury Accepts Kraft’s Raised 11.9 Billion-Pound Bid

By Andrew Cleary, Zachary R. Mider, and Duane D. Stanford

Jan. 19 (Bloomberg) -- Cadbury Plc agreed to an improved 11.9 billion-pound ($19.7 billion) offer from Kraft Foods Inc., ending more than four months of resistance and creating the world’s largest confectioner.

Cadbury investors will get 840 pence a share, including 500 pence in cash and the rest in stock, Kraft said in a statement today. Cadbury will also pay its holders an additional 10-pence dividend once the offer is unconditional. The revised bid is about 9 percent higher than Kraft’s previous bid of 769 pence, and consists of 40 percent stock and 60 percent cash.

“It looks like a modest win if not a home run for Cadbury shareholders,” said John Haynes, who helps manage 12 billion pounds including 5 million Cadbury shares at Rensburg Sheppards Plc in London. Five pounds “in cash is enough to keep us happy, and Kraft is a better investment with Cadbury than they were without.”

Kraft Chief Executive Officer Irene Rosenfeld increased the original bid after Cadbury rejected it as “derisory” and Hershey Co. prepared to mount a rival offer. A purchase by Kraft displaces Mars Inc. as the world’s biggest candy maker, according to Euromoniter data. The takeover creates a company with about $50 billion in annual sales, adding Cadbury’s Creme Eggs and Trident gum to Kraft’s Oreo cookies.

“We have increasing momentum in our business,” Rosenfeld said in an interview today. “We are quite confident that the combination of these two companies will help us to build on that momentum and further accelerate our ability to deliver attractive returns.”

‘Thrive’

Cadbury’s brands will “thrive” in the combined company, while for Kraft the deal gives leading positions in emerging markets from India to Brazil and Mexico, according to the statement.

The U.K. company’s shares rose as much as 3.8 percent in London trading to 838 pence, and climbed 26.5 pence to 834 pence as of 12:25 p.m. local time.

Hershey is unlikely to top Kraft’s offer, two people familiar with the matter said before Kraft’s final offer was released. Kirk Saville, a spokesman for the Pennsylvania-based candy maker, declined to comment. Cadbury agreed to pay a break fee of 117.7 million pounds if it withdraws the recommendation.

“This looks like a deal,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich. “It’s hard to believe anybody can come in and break up the party.”

Ferrero

Hershey and Ferrero SpA, who have said they are considering their options, must clarify whether they intend to make a firm offer for Cadbury by Jan. 25, the U.K. Takeover Panel said today. A Ferrero spokesman declined to comment.

As recently as Jan. 14, Cadbury called Northfield, Illinois-based Kraft an “unfocused conglomerate” with businesses in “unappealing categories.” Kraft had to raise its bid to at least 850 pence to win over Cadbury investors, according to a Bloomberg survey of nine holders.

Rosenfeld faced pressure from her own shareholders to get the price right. Billionaire investor William Ackman last week joined Warren Buffett, Kraft’s biggest shareholder, in saying Kraft risked diminishing the merits of a Cadbury takeover by issuing too much stock to pay for it. Rosenfeld declined to discuss any conversations with Buffett in today’s interview.

The increased offer values Cadbury at 13 times 2009 earnings before interest, tax, depreciation and amortization, according to Kraft’s statement. Comparable deals in the industry valued the businesses at 14.3 times to 18.5 times, Cadbury said in its Jan. 12 defense document to shareholders. in its Jan. 12 defense document to shareholders.

“A year from now, Kraft will be singing the praises of what a great deal they got,” said Andrew Wood, a senior analyst at Sanford C. Bernstein in New York.

Earnings Per Share

The acquisition will generate pretax cost savings of at least $625 million annually by the end of its third year, at a cost of $1.3 billion, Kraft said. The deal will add to Kraft’s 2011 earnings per share by 5 cents, and the company will lift its long-term sales growth target to at least 5 percent from at least 4 percent previously, the company said in the statement.

Kraft expects to revise its long-term earnings per share target will increase by 9 percent to 11 percent, more than the previous 7 percent to 9 percent range.

Kraft has informed Buffett of the revised deal with Cadbury, according to a person with knowledge of the matter. Buffett didn’t immediately return a request for comment sent to his assistant, Debbie Bosanek. Buffett’s Berkshire Hathaway Inc. said in a Jan. 5 statement it may support a Cadbury takeover if it concludes that the final offer “does not destroy value for Kraft shareholders.”

‘Tremendous Sense’

Ackman’s Pershing Square Capital Management LP bought a $950 million stake in Kraft, or 2 percent of the company, Ackman said in a Jan. 15 interview. A purchase of Cadbury makes “tremendous sense,” he said.

Kraft advanced 46 cents to $29.58 in New York Stock Exchange composite trading on Jan. 15. The stock didn’t trade yesterday because of a holiday in the U.S.

Kraft said it no longer needs to have the deal approved by its own shareholders because it reduced the number of shares it plans to issue to less than 20 percent of its existing stock.

Kraft said this month it would sell pizza brands including DiGiorno and Tombstone to Nestle SA and use proceeds from the $3.7 billion deal to boost the cash component of its Cadbury bid. The Toblerone maker has until Feb. 2 to gain acceptance from a majority of Cadbury investors.

Blitz

Cadbury CEO Todd Stitzer embarked on a week-long blitz in London and New York in December to persuade Cadbury shareholders not to accept Kraft’s offer, then worth about 733 pence a share. Rosenfeld also met with investors and said on a November earnings call that Kraft was well positioned for “top-tier performance” with or without Cadbury.

Stitzer wasn’t mentioned in today’s Kraft release and company spokesman Trevor Datson declined to comment on his role.

The 186-year-old U.K. company was founded by the Cadbury family, social reformist Quakers, who provided workers with accommodation and education in addition to employment.

Lazard Ltd., Centerview Partners, Citigroup Inc., and Deutsche Bank AG are advising Kraft on the deal. Cadbury is using Goldman Sachs Group Inc., Morgan Stanley, and UBS AG.

Some analysts had projected Cadbury would fetch 900 pence a share after Kraft disclosed its offer in September. Those estimates began to drop when Kraft made its offer formal Nov. 9 without raising the bid and no competing ones emerged.

“We are supportive of the management’s decision although the achieved price is slightly light of our stated target,” David Cumming, head of U.K. equities at Standard Life Investments, said in an e-mailed statement today. Cumming yesterday said an offer would have to be more than 900 pence to win Standard Life’s support.

To contact the reporters on this story: Andrew Cleary in London at acleary7@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net; Duane D. Stanford in Atlanta dstanford2@bloomberg.net.

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U.S. Stock-Index Futures Decline Before Citigroup, IBM Earnings

By Julie Cruz

Jan. 19 (Bloomberg) -- U.S. stock-index futures retreated before quarterly earnings reports from Citigroup Inc. and International Business Machines Corp., the world’s largest computer-services provider.

Kraft Foods Inc. declined 0.3 percent in early New York trading after agreeing to acquire U.K. candy maker Cadbury Plc. Brink’s Home Security Holdings Inc. surged 32 percent after agreeing to be bought by Tyco International Ltd. Citigroup gained 1.2 percent.

Futures on the Standard & Poor’s 500 Index expiring in March slipped 0.2 percent to 1,130.5 as of 11:58 a.m. in London. Dow Jones Industrial Average futures dropped 0.1 percent to 10,550, and Nasdaq-100 Index futures were little changed at 1,862.75. U.S. markets were closed yesterday for the Martin Luther King Jr. holiday.

European stocks declined today as a report showed investor confidence in Germany, the region’s biggest economy, fell for a fourth month in January. The S&P 500 fell the most in a month on Jan. 15 as JPMorgan Chase & Co. reported a loss in its retail banking unit, consumer confidence trailed forecasts and a stronger dollar weighed on commodity prices.

“The Citigroup earnings release is going to be the interesting publication today because JPMorgan results on Friday were mixed and investors are still questioning the health of the financial and banking sector in the U.S.,” said Jacques Porta, a fund manager at Ofi Patrimoine in Paris, which oversees about $425 million in equities. “Citi earnings should give a direction to the market.”

Citigroup Earnings

Citigroup, the bank whose biggest shareholder is the U.S. government, is scheduled to release fourth-quarter earnings at 8:00 a.m. New York time. The shares jumped 1.2 percent to $3.46 in pre-market New York trading. IBM, which is due to post results after the market close, slipped 0.5 percent to $131.06 in German trading.

Kraft shares slipped 0.3 percent to $29.50 in pre-market trading. Cadbury’s board agreed to an 11.9 billion-pound ($19.7 billion) takeover offer from Kraft after the U.S. company raised its bid, ending more than four months of resistance.

Brink’s Home Security surged 32 percent to $41.59 in early New York trading after agreeing to be bought by Tyco in a $2 billion transaction. Tyco gained 1.2 percent to $38.

The S&P 500 has risen 1.9 percent so far this year. The index has surged 68 percent since March 9 amid record-low interest rates and about $12 trillion committed by governments worldwide to stimulate the economy.

Upside Surprise

U.S. shares may surprise on the upside this year after lagging behind 2009’s worldwide stock rally, said Garry Evans, head of global equity strategy at HSBC Holdings Plc.

“People have got very high expectations for Asia already,” Evans said on Bloomberg Television. “Contrast that to the U.S. where everyone is so bearish, it can only surprise on the upside.” HSBC has an “overweight” rating for U.S. equities and “underweight” on Asia excluding Japan.

U.S. companies are producing more cash than ever, making the S&P 500 cheaper than any time since credit markets froze just as investors say profits don’t justify higher prices. While the 68 percent rally since March drove price-earnings ratios to the highest level since 2002, when measured by cash flow the index is 37 percent below the 12-year average and half its valuation of 2007, data compiled by Bloomberg show.

A report due at 6:00 p.m. New York time may show builders became less pessimistic this month. The National Association of Home Builders/Wells Fargo confidence index probably climbed to 17 from a six-month low of 16 in December, according to the median estimate of 39 economists surveyed by Bloomberg. It would be the first gain in four months. Readings less than 50 signal that most respondents view conditions as poor.

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

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Asian Stocks Fall for Second Day as Chipmakers, Banks Decline

By Anna Kitanaka and Shani Raja

Jan. 19 (Bloomberg) -- Asian stocks fell for a second day as declining computer-memory prices hurt chipmakers, banks dropped on concern earnings growth will slow, and a stronger yen threatened profits at Japanese exporters.

Powerchip Semiconductor Corp. sank 6.8 percent in Taipei and Elpida Memory Inc. lost 4.5 percent in Tokyo. Mitsubishi UFJ Financial Group Inc., Japan’s largest listed bank, slipped 2.4 percent after Barclays Plc said banks’ income from lending may slump. Toyota Motor Corp., which gets 31 percent of revenue from North America, declined 1.2 percent in Tokyo after the yen rose to the highest level in a month against the dollar.

The MSCI Asia Pacific Index fell 0.6 percent to 125.52 at 7:08 p.m. in Tokyo, with nearly twice as many stocks declining as advancing. It was the index’s first back-to-back drop since a decline on Dec. 17-21. The measure climbed 48 percent in the past 12 months amid signs of a global recovery.

“Markets are pausing for a breath,” said Prasad Patkar, who helps manage about $1.6 billion at Platypus Asset Management in Sydney. “Expected corporate earnings are now factoring in the economic recovery. For markets to press on from here upwards, we’ll need to see the earnings growth come through.”

Stocks on the MSCI index trade at 20 times estimated earnings, compared with 15 times for the Standard & Poor’s 500 Index in the U.S. and 13 times for the Dow Jones Stoxx 600 Index in Europe. Futures on the U.S. gauge, which was closed yesterday for the Martin Luther King Jr. holiday, advanced 0.2 percent.

Japan’s Nikkei 225 Stock Average lost 0.8 percent to 10,764.90 in Tokyo and Taiwan’s Taiex Index sank 1.1 percent. Australia’s S&P/ASX 200 Index dropped 1 percent.

Chinese Investment

Hong Kong’s Hang Seng Index climbed 1 percent, reversing a decline of 0.6 percent, after the Caijing magazine said Shanghai may allow individuals to invest abroad. China’s Shanghai Composite Index gained 0.3 percent.

A gauge of technology-related companies on the MSCI Asia Pacific Index, the best performing of 10 industry groups in the past three months, was the biggest drag on the broader gauge.

Powerchip Semiconductor plunged 6.8 percent to NT$4.52, the steepest decline in the MSCI Asia Pacific Index. Inotera Memories Inc. sank 6.3 percent to NT$25.85 in Taipei. Samsung Electronics Co., Asia’s biggest maker of semiconductors, slid 2.4 percent to 823,000 won in Seoul. Elpida, Japan’s largest maker of memory chips, dropped 4.5 percent to 1,725 yen in Tokyo.

A benchmark index of prices for dynamic-random-access- memory chips retreated 1.7 percent, the sixth-straight day of declines, according to Dramexchange Technology Inc.

Bank Stocks Fall

Mitsubishi UFJ lost 2.4 percent to 486 yen after Barclays said in a report that declining interest rates are having “negative implications” for interest income at Japanese banks. Sumitomo Mitsui Financial Group Inc., which sets the price from tomorrow on shares it’s selling, fell 3.1 percent to 2,931 yen.

Commonwealth Bank of Australia, the country’s biggest bank, retreated 2.4 percent to A$56.64, the biggest drag on the MSCI index. Westpac Banking Corp., the No. 2 lender by market value in Australia, lost 1.2 percent to A$25.70.

Citigroup Inc. is due to report earnings today in New York. JPMorgan Chase & Co., the largest U.S. bank by market value, fell on Jan. 15 after saying it’s “cautious” about the outlook for consumer loan defaults, and its retail unit had the first quarterly loss since the first three months of 2008.

“Investors who chased the banks the last few days are taking risk off the table ahead of the U.S. open tonight,” said Angus Gluskie, who oversees $300 million at White Funds Management Pty in Sydney. “With banks having been weak after JPMorgan’s earnings, investors will be uncertain as to the trend of profitability in the U.S.”

Yen Hurts Exporters

Toyota, the world’s largest carmaker, dropped 1.2 percent to 4,140 yen. Honda Motor Co., which receives 81 percent of its sales from abroad, declined 2.1 to 3,300 yen. Canon Inc., a maker of electronics that gets 79 percent of revenue outside Japan, lost 1.4 percent to 3,810 yen.

The yen appreciated to 90.33 against the dollar today, the strongest since Dec. 21, from 91.04 at yesterday’s close of stock trading in Tokyo. That erodes the value of overseas income at Japanese companies when converted into their home currency.

Every 1 yen increase in the yen against the dollar this fiscal year will cut Honda’s operating profit by about 12 billion yen ($132 million) and reduce Toyota’s profit by about 30 billion yen, the automakers said in November.

Trial Program

Orient Overseas (International) Ltd. surged 6.2 percent to HK$54.70 in Hong Kong, the highest since May 2008. CapitaLand Ltd., Southeast Asia’s biggest developer, agreed yesterday to buy the company’s Chinese property assets for $2.2 billion. CapitaLand gained 1.9 percent to S$4.36 in Singapore.

China Construction Bank Corp., the nation’s second-biggest bank by market value, advanced 4.1 percent to HK$6.42. Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, rose 3.1 percent to HK$6.05.

Caijing said Shanghai may start a trial allowing individuals to invest in markets such as Hong Kong and other overseas areas. Caijing, a Beijing-based magazine, cited Fang Xinghai, head of Shanghai’s financial services office. Fang could not be reached at his office number and did not answer his mobile phone.

“If the program materializes, the domestic stock market will falter as it adds to the liquidity concern that’s caused by increasing new share sales and changing monetary policies,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “Hong Kong will still be the biggest beneficiary of the program, because of the familiarity and its close links with the mainland.”

To contact the reporters for this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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