Australia’s Rate Pause May Be Short-lived Amid Employment Boom

By Jacob Greber

Feb. 12 (Bloomberg) -- The biggest Australian jobs boom in five years may make it harder for central bank Governor Glenn Stevens to extend a pause in recent interest-rate gains.

Investors doubled bets the Reserve Bank of Australia will raise the overnight cash rate target by a quarter percentage point to 4 percent next month after a report yesterday showed employers added 52,700 workers in December, more than three times the 15,000 median estimate of 21 economists surveyed by Bloomberg News.

The fifth straight month of employment increases drove the jobless rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels, and stoked gains in Australia’s currency. Rising demand from mining companies such as Chevron Corp. for skilled workers threatens to push up wages and adds to signs the $1 trillion economy is robust enough to weather higher borrowing costs.

“The sting in the tail is that the job market is tightening, potentially causing employers to bid up for staff,” said Craig James, a senior economist at Commonwealth Bank of Australia who says the odds of a rate increase next month are about even.

Traders say there is a 46 percent chance of a quarter-point increase on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 4:03 p.m. yesterday. Prior to the jobs report, the chance of a move stood at 24 percent.

Stevens will raise the central bank’s key rate to 4 percent next month, according to eight of 17 economists surveyed by Bloomberg News yesterday. All expect an increase in borrowing costs by the end of next quarter.

Stronger Currency

The Australian dollar, which has jumped 36 percent in the last 12 months, rose to 88.85 U.S. cents in Sydney yesterday from 87.72 cents just before the report was released. The S&P/ASX 200 index of stocks rose 0.9 percent to 4,554.30.

Australian employers have added 194,600 jobs since August, the biggest five-month surge since employers created 214,000 jobs between September 2004 and January 2005.

Stevens unexpectedly kept the overnight cash rate target unchanged at 3.75 percent last week, saying information about the impact on the economy of quarter-point gains every month last quarter is still limited.

Yesterday’s report means “it’s now likely that the Reserve Bank will make a further cautious adjustment” next month, said Matthew Johnson, an interest-rate strategist at UBS AG in Sydney. “While the bank need not push too hard in response to this labor-market report, if employment growth sustains this pace, we’ll obviously be wrong about their gradualism,” Johnson said.

Resources Boom

Yesterday’s report reinforces the central bank’s prediction last week that Australia’s economic growth will accelerate this year as resources companies boost investment in mines and gas fields to meet rising global demand for iron ore, coal and energy.

The nation’s unemployment rate has tumbled from 5.8 percent in October, after Prime Minister Kevin Rudd’s government stoked the economy by distributing more than A$20 billion ($18 billion) in cash to consumers. Another A$22 billion is being spent on roads, railways and schools.

In contrast, the unemployment rate in the U.S. was 9.7 percent in January, and 10 percent in November among European Union countries, the highest rate in more than 11 years. New Zealand’s jobless rate climbed to 7.3 percent in the fourth quarter, the highest in more than 10 years, and Japan’s rate was 5.1 percent in December.

Faster Growth

The rebound in Australia’s economy, one of the few to skirt last year’s global recession, is being driven by a combination of the government’s stimulus package, Governor Stevens’ decision to slash interest rates to a half-century low of 3 percent in April last year, a stronger currency and the resilience of China, Treasury Secretary Ken Henry said yesterday in Canberra.

Gross domestic product will climb 3.25 percent in the three months through December 2010 from a year earlier, after gaining an annual 2 percent in the fourth quarter of 2009, the bank said in its quarterly monetary policy statement published last week.

“It now looks likely that the unemployment rate has peaked around 5.75 percent, a much better outcome than thought likely early last year,” when the government forecast the jobless rate would reach 8.5 percent in 2010, the central bank said on Feb. 5.

The number of full-time jobs gained 15,900 in January and part-time employment increased 36,900, yesterday’s report showed.

A shortage of workers may increase costs and cause delays at the nation’s liquefied natural gas projects, Fitch Ratings said on Feb. 8.

Pay Rise

The Maritime Workers Union of Australia has secured a A$50,000 pay increase over three years for workers at Total Marine Services Ltd., the Australian Broadcasting Corp. reported last week.

Marius Kloppers, chief executive officer of BHP Billiton Ltd., the world’s biggest mining company, said this week that the skills shortage in Australia’s resources industry is emerging faster than expected.

Chevron in December announced it signed an $82 billion deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.

It is in addition to the Chevron-led Gorgon gas venture, which is forecast to create another 10,000 jobs when construction starts this year.

Still, not all analysts are convinced that yesterday’s jobs report will prompt Stevens to raise borrowing costs next month.

“Despite the strength of the employment numbers over recent months, there is a soft underbelly” to the labor market, said Stephen Roberts, an economist at Nomura Ltd. in Sydney.

The number of hours worked declined 1 percent in January from December and 1.2 percent from a year earlier, which “will ultimately affect growth in household disposable income,” Roberts said. “The next cash rate hike is likely to be in May.”

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

Read more...

U.S. Economy to Strengthen, Reducing Unemployment, Survey Says

By Bob Willis and Alex Tanzi

Feb. 11 (Bloomberg) -- U.S. unemployment peaked in October and will retreat through 2011 as the economy strengthens, according to economists surveyed by Bloomberg News.

The world’s largest economy will grow 3 percent this year and next, more than anticipated a month ago, according to the median estimate of 62 economists polled this month. The jobless rate, which reached a 26-year high of 10.1 percent in October, will end the year at 9.5 percent.

Efforts to rebuild inventories, investments in new equipment and software and improving sales overseas will spur employment and household spending. Scant inflation will give Federal Reserve policy makers room to keep the target interest rate near zero through the third quarter, buying the economy enough time to reach a self-sustaining expansion.

“It’s a matter of time before strength in the economy effectively feeds on itself, with more employment leading to stronger spending, which in turn leads to more employment,” said James O’Sullivan, global chief economist at MF Global Ltd. in New York. “The key is going to be the business sector leading the way and consumer spending following.”

Consumer purchases, which account for 70 percent of the economy, will grow 2 percent this year and expand 2.5 percent in 2011. By comparison, spending rose 3.3 percent on average over the two decades through 2007.

“Consumption has been on an uptrend,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “The main reason for the pickup in recent months has been an improvement in the labor market.”

Less Unemployment

Unemployment fell to 9.7 percent last month from 10 percent in December, according to the Labor Department. Joblessness will average 9.1 percent in 2011.

A growing economy this year may generate 1.4 million jobs, according to the median estimate of economists surveyed this month by Blue Chip Economic Indicators. The U.S. has lost 8.4 million jobs since the recession began in December 2007, the most in the post-World War II period.

President Barack Obama last week announced he will back a temporary increase in Small Business Administration loans to $1 million from $350,000 to encourage hiring after government figures showed an unexpected loss of 20,000 jobs in January,

The administration says the $787 billion stimulus plan passed one year ago this month has funded up to 2 million jobs, yet more needs to be done.

Obama Proposals

“Far too many of our neighbors and friends and family are still out of work,” Obama said after touring a small business in the Washington suburb of Lanham, Maryland, last week.

The lack of jobs means companies will have to carry the economy in coming months by updating equipment, said David Resler, chief economist at Nomura Securities International Inc. in New York.

“Businesses simply haven’t invested enough in new Equipment, and I think there is pent-up demand,” said Resler.

Purchases of equipment and software increased at a 13 percent pace in the fourth quarter, the most since 2006, the government reported Jan. 29.

W.R. Grace & Co., the maker of catalysts and construction materials that is preparing to exit bankruptcy protection, is among companies planning to boost investments as global demand improves.

Sales volumes will rise 3 percent to 7 percent this year as spending on construction projects in Asia, the Middle East and Latin America rises, the Columbia, Maryland-based company said Feb. 2. It plans a 44 percent increase in capital spending to better support the projected sales gains.

Growth Accelerates

The U.S. economy grew at a 5.7 percent annual pace in last year’s fourth quarter, the best performance in six years, the government reported Jan. 29. Efforts to stabilize inventories contributed 3.4 percentage points to growth.

While the amount of the contribution will slow, the need to replenish stockpiles will keep factories growing. Manufacturing expanded in January at the fastest pace since 2004 as orders and production increased, the Institute for Supply Management said this month.

Households are still trying to overcome a record loss of wealth during the recession as home values and stock prices slumped, one reason why spending will be slow to recover.

Rising stocks are helping mend tattered balance sheets. The Standard & Poor’s 500 Index rose 65 percent last year from its 12-year low reached on March 9. The rebound has stalled with the gauge falling 4.2 percent so far this year as China stepped up efforts to curb lending, the Obama administration proposed rules to rein in risk-taking at banks and concern grew over government debt levels in Greece, Spain and Portugal.

Less Inflation

Little inflation on the horizon means the Fed will hold the target rate for overnight loans between banks at its current range of zero to 0.25 percent through the first nine months of the year, according the median estimate of economists surveyed this month, the same as in the prior survey. The rate will rise to 0.75 percentage point by the end of the year.

The central bank’s preferred price gauge, which tracks consumer spending and excludes food and fuel costs, will rise 1.3 percent this year, the smallest gain since 1964, according to the survey median.

To contact the reporters on this story: Bob Willis in Washington bwillis@bloomberg.net; Alex Tanzi in Washington at atanzi@bloomberg.net

Read more...

Jobless Claims in U.S. Decrease More Than Anticipated

By Courtney Schlisserman

Feb. 11 (Bloomberg) -- Fewer Americans than anticipated filed claims for unemployment insurance last week as an administrative backlog subsided and indicating companies are nearing the end of major staff cuts as the economy recovers.

Initial jobless applications declined by 43,000 to 440,000 in the week ended Feb. 6, the lowest level in five weeks, from 483,000 the prior week, Labor Department figures showed today in Washington. The total number of people receiving unemployment insurance and those receiving extended benefits decreased.

The fastest pace of growth in six years last quarter means the economy may be poised to add jobs as companies restock shelves to keep pace with increased sales. At the same time, with an unemployment rate projected to average almost 10 percent this year, consumer spending may be slow to recover.

“Things have not really deteriorated,” said Stephen Gallagher, chief U.S. economist at Societe Generale SA in New York. “Unfortunately it doesn’t show much improvement either.”

Stock-index futures extended earlier gains after the report. The contract on the Standard & Poor’s 500 Index climbed 0.4 percent to 1,067.3 at 8:42 a.m. in New York. Treasury securities fell.

Less Than Anticipated

Economists forecast claims would fall to 465,000, from a previously estimated 480,000 for the week ended Jan. 30, according to the median of 47 projections in a Bloomberg News survey. Estimates ranged from 440,000 to 485,000.

The drop in applications represents the end of an ‘administrative backlog’ that built up when government offices were closed during the year-end holidays, a Labor Department spokesman said in a press conference. The current figures signal a return to a more “normal” level of claims, he said.

Continuing claims decreased to 4.54 million in the week ended Jan. 30, the fewest since January 2009. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

The number of people who’ve used up their traditional benefits and are now collecting extended payments dropped by about 171,000 to 5.68 million in the week ended Jan. 23.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Jan. 30, today’s report showed. Thirty-six states and territories had an increase in claims for that same week, while 17 had a decrease.

Unemployment Declines

The unemployment rate in the U.S. unexpectedly dropped to 9.7 percent in January, while payrolls declined by 20,000, Labor Department figures showed Feb. 6. Manufacturers added to payrolls for the first time in three years and that may provide some spark to revive the rest of the labor market.

Even so, companies continue to cut staff.

United Parcel Service Inc., the world’s largest package- delivery company, said Feb. 8 it plans to furlough at least 300 pilots unless it can find more savings in a joint effort with the employees’ union. The company already is cutting 1,800 small-package jobs.

“Even though the economy has begun to turn around, UPS anticipates a very gradual recovery and a continued need for belt-tightening,” Bob Lekites, president of UPS Airlines, said in a statement.

News on the U.S. labor market: {TNI US LABOR } Stories on the U.S. economy: {TNI US ECO } Stories on consumers: {TNI US CONS } For a news search on the recession: {STNI USRECESSION }

Read more...

Indian Wheat Crop May Suffer From Drought, Meteorologist Says

By Rudy Ruitenberg

Feb. 11 (Bloomberg) -- The wheat harvest in India, the world’s second-biggest grower, may suffer from drought in the country’s western cultivation regions, agricultural meteorologist Gail Martell said.

Northwest India’s vegetation index, an indication of plant growth, is lower than a year ago because of stress to crops in December and January, Martell, who heads Whitefish Bay, Wisconsin-based Martell Crop Projections, said in a report. The country had a “very poor” summer monsoon, with the lowest rainfall in 37 years, according to the report.

“The Indian government is hoping for a bountiful wheat harvest to offset a serious shortage in summer rice,” Martell said. “Dry conditions in western India are tainting the outlook, spoiling chances for a bumper wheat harvest.”

Estimates for an Indian wheat crop of 82.4 million metric tons are “overly optimistic” because of the weather stress in the western states, according to Martell. The wheat harvest will start in central India in March and move north in April, according to the report.

Sub-par wheat yields are likely in the normally productive irrigated states of Punjab and Haryana, while Madhya Pradesh has the best potential for the grain, the meteorologist said.

“Pakistan wheat potential looks terrible in the northern growing regions bordering India,” Martell said. “January was particularly dry.”

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

Read more...

Gold May Gain in New York on Concern Dollar Has Rallied Too Far

By Nicholas Larkin and Kyoungwha Kim

Feb. 11 (Bloomberg) -- Gold, little changed in New York today, may climb on speculation the dollar’s strength is overdone, increasing bullion’s appeal as an alternative asset.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, added 0.2 percent after the agreement brokered by the European Union to help Greece weather its debt crisis offered few details. Industrial commodities including copper rose as reports in Australia and China signaled a stronger economic recovery.

“A lot of people believe that the dollar’s risen too far too fast and are flocking to gold,” said Tom Schweer, a senior market strategist at LaSalle Futures Group Inc. in Chicago. Gold may also be benefiting from higher prices of other commodities, he said.

Gold futures for April delivery added $3.10, or 0.3 percent, to $1,079.40 an ounce on the New York Mercantile Exchange’s Comex unit at 9:26 a.m. local time. Gold for immediate delivery in London was 0.7 percent higher at $1,079.10.

The metal increased to $1,079.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,069.50 at yesterday’s afternoon fixing. The dollar has gained as concern about Greece’s finances weighed on the euro.

“We expect dips to continue to draw investment interest” on sovereign debt concerns, while “the positive economic outlook in the Asian region has given gold a lift,” James Moore, an analyst at TheBullionDesk.com in London, said in a report.

Greece, Spain, Portugal

The dollar has climbed 4.8 percent against the euro this year on concern that fiscal gaps in Greece, Spain and Portugal may widen. Euro-region leaders including German Chancellor Angela Merkel ordered Greece to get the bloc’s highest budget deficit under control and said they are prepared to take “determined” action to staunch the worst crisis in the currency’s 11-year history.

Fewer Americans than anticipated filed claims for unemployment insurance last week, the Labor Department said today. Australia’s jobless rate unexpectedly fell last month amid the country’s biggest hiring boom in five years, while China’s statistics bureau said lending surged to 1.39 trillion yuan ($204 billion) in January and property prices climbed the most in 21 months.

“I won’t rule out that gold will go down to $950 or $1,000, but I don’t expect more downside,” investor Marc Faber, who publishes the “Gloom, Boom and Doom Report,” said in an interview with Bloomberg Television in Hong Kong. “I don’t see any scenario where gold will collapse.”

Central Banks

Gold advanced 24 percent in 2009, a ninth consecutive gain, as governments cut interest rates and spent trillions of dollars to prop up economies and central banks in nations including India and China boosted bullion reserves. Gold futures are down 1.5 percent this year.

The Federal Reserve may raise its discount rate “before long” as part of the “normalization” of lending, Chairman Ben S. Bernanke said yesterday in testimony for Congress. A change in the rate, currently at 0.5 percent, won’t signal an altered outlook for monetary policy, he said, repeating that low rates are warranted “for an extended period.”

Silver for March delivery in New York lost 0.2 percent to $15.27 an ounce. Platinum for April delivery fell 0.4 percent to $1,506.80 an ounce. Palladium for March delivery gained 0.9 percent to $417.05 an ounce.

To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net; Nicholas Larkin at nlarkin1@bloomberg.net.

Read more...

Asian Stocks Rise on China Consumer Prices, Australian Jobs

By Jonathan Burgos

Feb. 11 (Bloomberg) -- Asian stocks rose for a third day, led by materials producers and banks, as lower-than-estimated inflation in China and an increase in Australian jobs eased concern tighter monetary policy in the region will hurt growth.

Baoshan Iron & Steel Co. climbed 5.7 percent in Shanghai as pressure eased for the central bank to raise interest rates. Commonwealth Bank of Australia gained 2.3 percent after the country’s employers added more jobs last month than economists expected. Wumart Stores Inc. surged 11 percent in Hong Kong after MSCI Inc. said it will add the company to its indexes. Korea Electric Power Corp. jumped 4.8 percent after winning approval to adjust tariffs.

The MSCI Asia Pacific excluding Japan Index added 1.8 percent to 388.44 as of 6:19 p.m. in Hong Kong. Japan and Taiwan are closed today. The MSCI gauge has lost 10 percent from an 18- month high on Jan. 11 as China and India took steps to curb inflation and concern grew Greece, Spain and Portugal will struggle to trim budget deficits.

“Over the next few months we’ll start to see a fading of concerns about a hard landing in China, the issue of Greece will be dealt with and issues concerning growth in the U.S. will also start to fade,” Shane Oliver, head of investment strategy at AMP Capital Investors, which oversees about $90 billion globally, told Bloomberg Television in Sydney. “Investors should be using this market weakness as a buying opportunity.”

Hong Kong’s Hang Seng Index rose 1.9 percent. Australia’s S&P/ASX 200 Index gained 0.9 percent. New Zealand’s NZX 50 Index fell 0.7 percent as the country’s manufacturing industry expanded at a slower pace in January.

Missing Estimates

The Kospi Index increased 1.8 percent in South Korea, where the central bank left its key interest rate unchanged today. STX Offshore & Shipbuilding Co. jumped 6.3 percent, leading the country’s shipyards higher, after winning a $700 million order.

Futures on the U.S. Standard & Poor’s 500 Index advanced 0.5 percent. The gauge fell 0.2 percent yesterday as results at Sprint Nextel Corp. and Dean Foods Co. trailed estimates and concern grew that the economic recovery may slow as the Federal Reserve withdraws stimulus measures.

The MSCI Asia Pacific Index, which includes Japan, completed its third weekly decline last week as concerns over debt in Europe dented investor confidence. That cut the average price of stocks in the gauge to 18 times estimated earnings, the lowest level since February 2009, according to data compiled by Bloomberg.

Baoshan Iron & Steel, China’s biggest steelmaker, gained 5.7 percent to 7.83 yuan and Hebei Iron & Steel Co., the listed unit of the No. 2, advanced 2.7 percent to 5.74 yuan.

Tightening Measures

China’s government said consumer prices rose 1.5 percent in January, lower than the 2.1 percent median forecast in a Bloomberg News survey of economists. China has been taking steps to cool an economy that expanded 10.7 percent in the fourth quarter, the fastest pace in two years. The central bank ordered lenders on Jan. 12 to set aside larger reserves.

“The urgency for immediate interest rate increases has receded as consumer prices look stable,” said Ally Wang, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. “But the tightening concern is still there and data for the following months still needs to be closely watched.”

The People’s Bank of China said today that China’s lending surged to 1.39 trillion yuan ($203 billion) in January, more than in the previous three months combined.

Inner Mongolia Yitai Coal Co.’s dollar-denominated B shares jumped 5.6 percent to $9.125 in Shanghai after the company, a coal producer, reported an increase in 2009 net income.

Lower Jobless Rate

Optimism for growth in Australia’s economy boosted Commonwealth Bank by 2.3 percent to A$53. Australia & New Zealand Banking Group Ltd. added 2.7 percent to A$20.75.

Australian employers added 52,700 jobs from December, the fifth-straight monthly gain, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for 15,000 new positions. The jobless rate fell to 5.3 percent from 5.5 percent.

James Hardie Industries NV, the biggest seller of home siding in the U.S., advanced 2.4 percent to A$7.85. The company said operating profit rose 66 percent in the third quarter and expects full-year operating profit to be close to the top range of analyst estimates.

“People are more optimistic for the time being and a bit happier the way the world is panning out,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne.

Material, Energy Shares

Material and energy shares posted the biggest advances of the MSCI Asia Pacific excluding Japan Index’s 10 industry groups. Oil producers gained as crude futures rose 1 percent to $74.52 a barrel in New York yesterday. Prices added 0.5 percent today, the fourth-consecutive advance.

Woodside Petroleum Ltd., Australia’s No. 2 oil producer, rose 3.2 percent to A$43. Santos Ltd., Australia’s No. 3 oil producer, climbed 1.6 percent to A$13.25. PetroChina Co., China’s largest oil producer, gained 2 percent to HK$8.68.

Korea Electric, supplier of almost all of South Korea’s electricity, gained 4.8 percent to 39,200 won after the government allowed it to adjust tariffs to reflect changes in fuel costs starting July 2011.

Wumart jumped 11 percent to HK$14.62 after MSCI said it will include the company in its indexes. Skyworth Digital Holdings Ltd. and Semiconductor Manufacturing International Corp., which will also be added, both surged more than 5 percent. The changes will be made at the close of Feb. 26.

MSCI Additions

“People are going to be pretty cautious today with Japan and Taiwan shut and a lot of volume will be off on that,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. “Chinese New Year is starting this weekend, so you won’t get a lot of bets being put on before that. On the positive side, you’ve got the MSCI additions.”

In Seoul, STX Offshore climbed 6.3 percent to 11,900 won after a unit won an order to build a liquefied natural gas terminal in Mexico. Hyundai Heavy Industries Co., the world’s No. 1 shipbuilder, jumped 7.1 percent to 220,000 won. Its subsidiary Hyundai Mipo Dockyard Co. climbed 10 percent to 123,500 won.

“The order has increased expectations that there could be more in the coming months,” said Lee Jae Won, an analyst at Tong Yang Securities Inc. in Seoul.

Telstra Corp. and Malaysian Airline System Bhd. posted the biggest declines on the MSCI Asia Pacific excluding Japan Index. Telstra sank 5 percent to A$3.22 in Sydney after cutting its annual revenue forecast for a second time in two months. The company also said first-half profit fell 3.3 percent.

Malaysian Airline, the country’s national carrier, slumped 5.9 percent to 1.92 ringgit after investors sold the stock to seek out cheaper rights shares. The company had raised funds through a rights offer at 1.60 ringgit each. Its rights entitlement began trading today at 16.5 sen each.

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

Read more...

German Stocks End Three-Day Winning Streak; Deutsche Bank Falls

By Alexis Xydias and Julie Cruz

Feb. 11 (Bloomberg) -- German stocks dropped, driving the benchmark DAX Index to its first decline this week, as investors weighed an agreement by European leaders to tackle Greece’s budget deficit.

Deutsche Bank AG and Commerzbank AG, the country’s biggest banks, lost at least 2 percent. Deutsche Lufthansa AG fell as rival Air France-KLM Group forecast a worse-than-expected loss for the fourth quarter.

The DAX Index lost 1.2 percent to 5,469.49 as of 3:44 p.m. in Frankfurt, the first decline since Feb. 2. The gauge has fallen 9.6 percent since this year’s high in January on concern governments and central banks will withdraw stimulus measures and speculation Greece will struggle to tame its deficit. The broader HDAX Index lost also lost 1.2 percent.

European leaders ordered Greece to get the bloc’s highest budget deficit under control and said they were prepared to take “determined” action to staunch the worst crisis in the euro currency’s 11-year history.

The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou, and European Central Bank President Jean-Claude Trichet, stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output.

“The escalation of the tensions in EMU and the uncertain prospect of a near-term and sustainable positive resolution of the underlying causes make a more cautious strategy appear advisable,” wrote Munich-based Tammo Greetfeld of UniCredit SpA in a strategy report. “Capital preservation now has priority.”

German Banks

Deutsche Bank and Commerzbank lost 2.8 percent to 44.39 euros and 2 percent to 5.57 euros, respectively.

German banks had foreign claims of $330.8 billion related to the three countries on Sept. 30, according to the most recent data from the Bank for International Settlements in Basel, Switzerland. French banks had $306.8 billion of claims and U.K. lenders $156.3 billion, the data show.

Lufthansa, Germany’s largest airline, dropped 3.7 percent to 10.91 euros. Air France tumbled 7 percent after the company reported a third-quarter loss that was wider than the average analyst and projected a worse-than-expected result for the current period.

Daimler AG, the world’s biggest maker of luxury cars, fell 3.3 percent to 32.54 euros, while Bayerische Motoren Werke AG declined 1.9 percent to 29.11 euros. The Dow Jones Stoxx 600 Automobiles & Parts Index fell as much as 3.2 percent today, the worst performance among 19 industry groups in Europe’s Dow Jones Stoxx 600 Index.

Aurubis AG surged 4.4 percent to 31.40 euros. The company posted first-quarter net income of 90 million euros ($124 million) compared with a net loss of 98 million euros in the year-ago period. Aurubis said it expects demand for copper products to rise “in the mid-term” and sees full-year operating profit rising.

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

Celesio AG (CLS1 GY) dropped 1.2 percent to 20.49 euros. The German drug wholesaler was rated “underweight” in new coverage at Morgan Stanley, with a share price estimate of 19 euros.

Dialog Semiconductor Plc (DLG GY) climbed 11 percent to 10.70 euros, the biggest one-day gain in more than a month. Chief Executive Officer Jalal Bagherli said he’s relaxed about analyst predictions for the German chipmaker’s revenue to rise as much as 38 percent this year.

Fresenius SE (FRE3 GY) rose 2 percent to 49.23 euros. The health-care company was rated “overweight” in new coverage at Morgan Stanley, which set a share-price estimate of 60 euros.

Gerresheimer AG (GXI GY) slumped 4.4 percent to 22.35 euros, on course for the lowest close since November. The German medical-packaging company was cut to “neutral” from “overweight” at Piper Jaffray.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net; Julie Cruz in Frankfurt at jcruz6@bloomberg.net

Read more...

U.K. Stocks Fluctuate; Lloyds, Barclays Fall, Rio Tinto Gains

By Adria Cimino

Feb. 11 (Bloomberg) -- U.K. stocks fluctuated between gains and losses as investors weighed a European Union agreement to deal with Greece’s debt crisis.

Lloyds Banking Group Plc led financial shares lower. BT Group Plc sank 8.2 percent after saying the regulator has concerns about the valuation and recovery plan of its pension program. Rio Tinto Group, the world’s third-largest mining company, advanced after swinging to a profit in the second half.

The benchmark FTSE 100 Index added 7.59, or 0.2 percent, to 5,139.58 as of 3:07 p.m. in London after swinging between gains and losses at least 12 times. The index has lost 7.3 percent since this year’s high on Jan. 11 amid concern Greece, Spain and Portugal will struggle to curb their budget shortfalls. The FTSE All-Share Index rose 0.2 percent and Ireland’s ISEQ Index slid 0.4 percent.

The EU deal is “a first step, a first bit of good news,” said Arnaud Scarpaci, a fund manager at Agilis Gestion in Paris, which oversees about $150 million. “Now we have to see how it will be done and over what time frame. The stock market remains nervous.”

EU leaders meeting in Brussels today ordered Greece to get the bloc’s highest budget deficit under control and said they were prepared to take “determined” action to staunch the worst crisis in the euro currency’s 11-year history. The agreement stopped short of offering concrete measures to help Greece handle a debt load that exceeds its annual economic output.

Lloyds, Barclays

Lloyds, the U.K.’s biggest mortgage lender, lost 4.8 percent to 47.61 pence. Barclays Plc, Britain’s third-largest bank, slid 4 percent to 266.8 pence.

BT Group sank 8.2 percent to 120.6 pence. The U.K.’s largest fixed-line phone company said the pensions regulator has “substantial concerns with certain features of the agreement” between the company and the trustee of the BT pension plan on the triennial actuarial funding valuation and recovery program.

Rio Tinto advanced 1.4 percent to 3,182 pence. The company reinstated the payment of a dividend after swinging to a second- half profit as prices increased because of the global economic recovery.

The following shares also rose or fell in London. Stock symbols are in parentheses.

Catlin Group Ltd. (CGL LN) jumped 3.4 percent to 336 pence for the biggest gain since December. The owner of the largest insurance unit at Lloyd’s of London reported a 2009 profit on lower claims resulting from a benign U.S. hurricane season.

Diageo Plc (DGE LN) slipped 1.9 percent to 1,006 pence after three days of gains. The maker of Smirnoff vodka and Captain Morgan rum said first-half operating profit fell 6 percent to 1.54 billion pounds, missing analyst estimates.

Halma Plc (HLMA LN) soared 5.7 percent to 240.7 pence, for the biggest gain since December. The world’s second-biggest maker of smoke detectors expects its full-year net income to exceed market expectations as average weekly revenue rose 3 percent in the last four months compared with the first half of its financial year.

Rolls-Royce Plc (RR/ LN) rallied 6 percent to 518 pence, for the biggest gain since July. The world’s second-largest maker of aircraft engines reported annual profit ahead of analyst estimates and said it will raise the planned payout to investors after winning more defense contracts.

Smith & Nephew Plc (SN/ LN) increased 4.6 percent to 662 pence for its biggest gain since September. Europe’s largest maker of shoulder and knee implants said fourth-quarter operating profit rose 5.6 percent to $189 million.

Sports Direct International Plc (SPD LN) jumped 7.3 percent to 104.1 pence, the biggest gain since November. The largest U.K. sporting-goods retailer said group total sales in the 13 weeks to Jan. 24 were 370 million pounds ($577 million).

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

Read more...

Greece Bailout Rumors Continue To Swirl

Daily Forex Fundamentals | Written by AC-Markets | Feb 10 10 11:14 GMT |

Market Brief Stocks rallied, with emerging-market equities recovering from the worst three-day slide in a year, and the EUR and commodities gained as European officials said they were considering financial assistance for Greece (but since has been heavily refuted). The S&P 500 Index rose 1.3% while the MSCI Emerging Markets Index increased 1.9% after falling 6.1% in the past three sessions. The EUR strengthened the most in more than five months against the USD, snapping four days of declines, and ended a three-day drop against the JPY. Oil, copper and aluminum surged at least 2.2% to help lead gains in commodities. The S&P 500 erased yesterday's 0.9% drop and the DJIA rallied above 10,000, increased 150.25 points, or 1.5%, to 10,058.64 for its biggest gain since Nov. 9. The EUR climbed as much as 1.4% against the USD, its biggest gain since Sept. 8. The EUR appreciated 1.4% versus the JPY and 0.2% compared with the GBP. US wholesalers unexpectedly fell in December after the biggest increase in more than five years, indicating distributors had trouble keeping up with demand. The 0.8% decrease in stockpiles followed a revised 1.6% gain in November that was the largest since July 2004. 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.

Read more...

Forex Technical Analysis

Daily Forex Technicals | Written by DeltaStock Inc. | Feb 10 10 09:56 GMT |

EUR/USD Current level-1.3766 EUR/USD is in a downtrend, after peaking at 1.5146 (Nov.25,2009). Technical indicators are neutral, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.4793 and 1.4169. Yesterday's break above 1.3740 intraday resistance cleared the road for a precise test of 1.3850. Current bias is neutral, but we expect a break below 1.3690 to initiate a downtrend for 1.3585, en route to 1.3413. Resistance Support intraday intraweek intraday intraweek 1.3850 1.4260 1.3692 1.3413 1.3850 1.5146 1.3585 1.30+ USD/JPY Current level - 89.63 The overall downtrend has been renewed with the recent break below 87.12. Trading is situated below the 50- and 200-day SMA, currently projected at 89.50 and 93.54. Still in the consolidation pattern above 88.54 and while 90.06 limits the upside, the overall bias will continue to be negative for 87.36. Important on the downside is 89.14. Resistance Support intraday intraweek intraday intraweek 90.08 93.40 89.14 87.36 91.30 95.60 88.54 79.60 GBP/USD Current level- 1.5667 The pair is in a downtrend after peaking at 1.7042. Trading is situated between the 50- and 200-day SMA, currently projected at 1.6454 and 1.5258. Current bias is positive with an initial support around 1.5647. We favor a break below that zone, that will target 1.5532, en route to 1.5352. On the upside major resistance is 1.5835 Resistance Support intraday intraweek intraday intraweek 1.5747 1.6459 1.5647 1.5352 1.5835 1.7042 1.5535 1.50+ DeltaStock Inc. - Online Forex & Securities Broker www.deltastock.com RISK DISCLAIMER: These analyses are for information purposes only. They DO NOT post a BUY or SELL recommendation for any of the financial instruments herein analyzed. The information is obtained from generally accessible data sources. The forecasts made are based on technical analysis. However, Delta Stock’s Analyst Dept. also takes into consideration a number of fundamental and macroeconomic factors, which we believe impact the price moves of the observed instruments. Delta Stock Inc. assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon the information on this page. Delta Stock Inc. shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation, losses or unrealized gains that may result. Any information is subject to change without notice.

Read more...

Sterling Volatility To Spike Again

Daily Forex Fundamentals | Written by Investica | Feb 10 10 10:56 GMT |

Sterling will continue to be vulnerable to the debt concerns, especially with political uncertainties adding to fears that the government deficit situation will not be addressed. Indeed, it is certainly possible that confidence will deteriorate further in the short term. Volatility levels are liable to remain sharply higher in the short term, especially after the Bank of England inflation report. The report could lift Sterling briefly, but rallies to above 1.5750 against the dollar will soon attract selling pressure. From a medium-term perspective, losses to the 1.52 region remain realistic. Sterling came under renewed selling pressure during Tuesday with a further test of support near 1.5550 against the US dollar. The UK trade deficit was wider than expected with an 11-month high shortfall of GBP7.3bn for December which will tend to increase fears over the economic outlook. There was also a warning from ratings agency Fitch that the UK was the most vulnerable of the AAA-rated economies to a credit-rating downgrade. Sterling recovered to around 1.57 against the dollar later in the US session, primarily due to the impact of general dollar weakness. The Bank of England inflation report will be extremely important for Sterling later in the day and is liable to trigger further Sterling volatility. The currency could gain some support on higher than expected inflation forecasts or a more upbeat survey of the economy from Bank Governor King, although he may be more cautious over the economic outlook which would tend to erode currency support. Investica http://www.investica.co.uk Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.

Read more...

Paulson, Once a Top Earner, Tells Buffett Bankers Make Too Much

By Andrew Frye

Feb. 10 (Bloomberg) -- Henry Paulson, who was paid an $18.7 million cash bonus for his final six months of work on Wall Street in 2006, said bank bailouts he later orchestrated as Treasury secretary should encourage firms to rein in pay.

“Today restraint is very much in order by the top people,” Paulson, 63, said yesterday in an interview conducted by billionaire Warren Buffett in Omaha, Nebraska. “If you have losses you are supposed to bear responsibility.”

Bank executives, who tapped taxpayers amid losses in 2008, are under pressure from lawmakers to keep compensation in check as profits return. Lloyd Blankfein, the chief executive officer of Paulson’s old firm, Goldman Sachs Group Inc., turned in record profit in 2009 and walked away with a $9 million all- stock bonus, about one-seventh the size of his 2007 award.

“During benign periods, I think compensation levels on Wall Street are out of whack,” Paulson said to an audience of more than 2,400 people at a lunch meeting organized by the Omaha chamber of commerce. “I would have these conversations with Wendy all the time,” Paulson said, referring to his wife.

Paulson led Goldman Sachs for seven years before joining George W. Bush’s cabinet. In the first half of 2006, he turned in what was then the biggest profit in Wall Street history. Paulson stepped down, after a career at the firm, with stock and restricted shares worth more than $500 million.

Buffett, 79, a Goldman Sachs investor through his Berkshire Hathaway Inc. and a friend of Paulson’s, has criticized compensation at firms that perform poorly. Last month he told Fox Business Network that the CEO of a failing company should be “destroyed himself financially.” With Paulson, Buffett asked questions and offered few opinions.

‘Obscene’ and ‘Reckless’

President Barack Obama called bank bonuses “obscene” at least twice this year, and Democratic Representative Andre Carson said the industry’s practices are “reckless” during a House Financial Services Committee hearing on compensation.

Paulson is promoting a memoir about the financial crisis, “On the Brink,” which was published this month. In the book, he said he would sometimes chide Goldman Sachs colleagues about “the dangers of the ostentatious lifestyles” he saw with some bankers.

“No one likes investment bankers,” Paulson recalls saying. “You make your life more difficult when you build a 15,000- square-foot house.”

Goldman Sachs this year cut the percentage of revenue earmarked for pay to the lowest in a decade as a public company. The New York-based firm aimed to allay anger about bank profits as the U.S. jobless rate remains about 10 percent.

In the fourth quarter, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co.’s investment bank slashed their compensation. The three Wall Street firms set aside $39.9 billion for pay in 2009, below the 2007 record of $44.7 billion.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

Read more...

Soros Is ‘Confident’ Greece Will Stay in Euro Region

By Achmad Sukarsono

Feb. 10 (Bloomberg) -- Billionaire investor George Soros, who made $1 billion in 1992 correctly betting against the British pound, said he expects Greece will be able to remain in the euro region.

“I’m actually confident Greece will do whatever is necessary to meet conditions to remain a member of the euro to qualify for financing by the ECB for Greek government bonds,” Soros told reporters in Jakarta today. The European Central Bank has limits for the ratings of bonds it accepts as collateral.

World stock markets rallied since yesterday as prospects for a bailout of Greece eased concern that deteriorating government finances will derail the global economic recovery. The European Union is scheduled to hold a summit in Brussels tomorrow as the Greek government braces for a wave of strikes protesting plans to reduce the region’s largest budget deficit.

German Finance Minister Wolfgang Schaeuble will brief lawmakers today on steps he may take to support the Greek government as European leaders dropped their resistance to rescuing the nation in an effort to protect the rest of the euro region from market turmoil.

“Providing Greece meets its target, I hope the European Union, the European Central Bank, the euro zone will find a way to finance the government in a way that’s not too expensive for Greece to provide some relief,” said Soros, 79, who was in Indonesia meeting Vice President Boediono.

‘Strict Conditions’

Any support would come “under strict conditions and if the Greek government undertakes far-reaching state reforms,” Michael Meister, financial-affairs spokesman for German Chancellor Angela Merkel’s Christian Democratic Union, said in an interview yesterday. Options include bilateral aid or a package put together by a group of countries using the euro, Meister said.

Greek Prime Minister George Papandreou’s government yesterday floated new steps to reduce the deficit, including cuts of as much as 5.5 percent in government workers’ wages and a waiver on taxes for Greeks who repatriate funds held abroad.

Fitch Ratings analyst Brian Coulton said yesterday that any country leaving the euro area would likely face a “banking crisis.”

Credit Default Swaps

The cost to protect investors from default on Greek government bonds fell a record 50 basis points today, CMA DataVision prices show. Credit default swaps for Portugal and Spain also declined.

The MSCI World Index of developed-market stocks climbed 0.1 percent at 2:53 p.m. in Tokyo, a second straight gain, paring the year’s losses to 5.7 percent. The index has slumped for four straight weeks on concern that deficits and sovereign debt in Europe will slow the global recovery.

“I think the markets are generally concerned on sovereign debt and Greece is at the forefront of that issue,” Soros said.

Soros gained fame in 1992 when he reportedly made $1 billion betting that Britain would fail to keep its currency in a European exchange-rate system that pre-dated the euro. He also wagered that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year.

To contact the reporter on this story: Achmad Sukarsono in Jakarta at asukarsono@bloomberg.net

Read more...

Indonesia’s Economy Expands at Fastest Pace in a Year

By Aloysius Unditu and Novrida Manurung

Feb. 10 (Bloomberg) -- Indonesia’s economy grew at the fastest pace in a year last quarter as lower interest rates and government stimulus measures spurred consumer spending.

Southeast Asia’s largest economy expanded 5.4 percent in the three months to Dec. 31 from a year earlier after gaining 4.2 percent in the third quarter, the statistics office said in Jakarta today. The median forecast in a Bloomberg News survey of 18 economists was for a 5 percent increase.

Asian economies from China to Vietnam are picking up speed after policy makers boosted spending and slashed borrowing costs to counter the global recession. Credit Suisse Group AG said Indonesia and other countries in the region are less vulnerable to sovereign risks than some European nations as Asian debt levels are lower and more sustainable.

“Indonesia’s financing situation compares favorably to many of its regional and rating peers, not to mention the weak links in the European Union,” Cem Karacadag, an economist at Credit Suisse in Singapore, said before the report. “The government’s financing situation is manageable and Indonesia’s creditworthiness is gradually but steadily improving.”

The Indonesian government’s financing requirements will be about 4 percent of gross domestic product this year, less than half of those of India and the Philippines, and less than a quarter of those of Greece, Portugal, Spain, and Turkey, according to Credit Suisse estimates.

Greek Tragedy

European officials, who are meeting at a summit in Brussels tomorrow, are considering assistance for Greece after the country’s deficit threatened financial-market stability. The euro’s slide to a nine-month low and surging bond yields prompted leaders to drop their resistance to rescuing Greece and protect the rest of the euro region from market turmoil.

Asia is “relatively risk free” from contagion from Europe as the region’s governments mainly use domestic markets to fund their deficits and debt levels are within sustainable limits, CIMB Investment Bank Bhd. said in a Feb. 8 report.

Indonesia’s economy expanded 4.5 percent in 2009, according to today’s report. GDP shrank 2.4 percent in the fourth quarter from the previous three months.

Indonesia has fared better than its neighbors during the global slump as it relies less on exports and consumer confidence has been buoyed by the most stable political climate since the ouster of former dictator Suharto in 1998.

“For Indonesia, the risks have nothing to do with politics,” Nikhil Srinivasan, who helps manage about $30 billion as Singapore-based chief investment officer for Asia and the Middle East at Allianz Investment Management, said in an interview in Jakarta before the report. “The only worry is making sure they push infrastructure so that growth can be more than 5 percent.”

Consumer Confidence

The Jakarta benchmark stock index increased 87 percent last year and the rupiah gained 16 percent, the best performance from an Asian currency outside Japan, as foreign funds sought to take advantage of Indonesia’s strengthening economy.

Growth in Indonesia’s $514 billion economy has been supported by rising consumer confidence, which according to a central bank index rose in January to near the five-year high recorded in July 2009 when President Susilo Bambang Yudhoyono was elected to a second term.

Yudhoyono, 60, has pledged to double spending on roads, seaports and airports to $140 billion over the next five years, part of his push to deliver economic growth of at least 6.6 percent by the end of 2014.

Car Sales

Consumer spending is also benefitting from low inflation, said economists including Alexander Eric Sugandi from Standard Chartered Plc. in Jakarta. Inflation slowed to a decade low of 2.78 percent last year.

Indonesian car sales rose to 148,598 units in the fourth quarter from 140,585 a year earlier, according to data from Indonesia’s Car Association. Sales may increase to between 550,000 and 600,000 this year from 486,061 in 2009, according to Joko Trisanyoto, PT Toyota Astra Motor’s marketing director.

PT Krakatau Steel, Indonesia’s largest producer of the metal, expects sales to increase by 20 percent to 19 trillion rupiah ($2 billion) this year due to possible demand from government infrastructure projects, Irvan K. Hakim, marketing director of the company, said on Feb. 8.

Indonesia’s central bank cut its benchmark interest rate by 3 percentage points between December 2008 and August last year to shield the nation from the global recession. The policy rate has since been maintained at 6.5 percent.

The Philippine economy expanded 1.8 percent in the fourth quarter of 2009 from a year earlier and China’s GDP increased 10.7 percent.

Indonesia’s “economic upswing remains on track, with domestic demand leading the way,” said Ashira Perera, an economist at Capital Economics Ltd. in London.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@blomberg.net

Read more...

U.K. Lawmakers Urge Government to Reject EU Hedge Fund Rules

By Ben Moshinsky

Feb. 10 (Bloomberg) -- U.K. lawmakers advised the government to challenge a proposed European Union law regulating hedge funds and private equity because it could make it harder for EU funds to compete.

The government “should not agree” to the rules unless they are “compatible with equivalent legislation with regulatory regimes in third countries and in particular in the United States,” the House of Lords European Union Committee said in a report today. Fund managers risk losing “competitiveness at a global level” according to the report.

“It will mean Cayman Island funds run by European managers will be more expensive than Cayman funds managed from the U.S., and that is dangerous,” Andrew Shrimpton, a former U.K. regulator who now advises hedge funds at Kinetic Partners LLP, said in a telephone interview. “The asset management industry is an Anglo-American industry.”

Hedge-fund managers have come under fire from politicians and regulators since the collapse of the U.S. subprime mortgage market triggered a global crisis. The European Commission proposed the Alternative Investment Fund Managers directive to tighten supervision of hedge funds last year. Finance ministers from the 27-member EU bloc are scheduled to vote on the rules later this year.

Equivalence Requirements

Investors from Europe won’t be able to access 40 percent of hedge funds and 35 percent of private equity firms under the proposals because of so-called equivalence requirements, Dan Waters, the Financial Services Authority’s asset-management sector leader, said in a speech in London last month.

The U.K. government “should continue to negotiate a solution that does not penalize the marketing of non-EU funds” because of the “negative repercussions on the U.K. and European financial markets,” the committee said in its report.

European lawmakers made hundreds of changes to the commission draft rules last week. Two members of the European Parliament proposed an amendment that would force hedge-fund and private-equity managers to return more than 20 percent of their bonuses to their funds if they don’t properly account for risk levels.

“The U.K. government should do everything it can to ensure that the final proposals that emerge in the AIFM Directive do not damage the EU and U.K. economies to which the City of London makes an important contribution,” Kenneth Woolmer, a member of the House of Lords Sub-Committee on Economic and Financial Affairs, said in an e-mailed statement.

To contact the reporters on this story: Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net

Read more...

Germany Weighs Greek Support in Pre-Summit Switch

By Brian Parkin and Jonathan Stearns

Feb. 10 (Bloomberg) -- German officials are considering assistance for Greece after the country’s fiscal woes threatened the stability of the euro and financial markets, two lawmakers from Chancellor Angela Merkel’s governing coalition said.

German 10-year government bonds dropped by the most in three months today and their Greek counterparts soared as prospects of a rescue firmed. Finance Minister Wolfgang Schaeuble, who met lawmakers in Berlin today, told reporters he “no intention to participate in speculation.”

The German initiative came on the eve of a European Union summit and followed a slump in bond prices amid speculation that Greece would fail to tackle the EU’s largest budget deficit. The euro’s slide to a nine-month low and a slump in bond prices prompted leaders to drop their resistance to rescuing Greece and protect the rest of the euro region from market turmoil.

Schaeuble will give a speech on tax policy and financial markets in Berlin at 5:40 p.m. local time. Merkel is not scheduled to make any public comments today.

“We are considering support,” Michael Meister, financial- affairs spokesman for Chancellor Angela Merkel’s Christian Democratic Union, said yesterday.

“We are talking about support in the broad sense,” Olli Rehn, the EU’s economic affairs commissioner, said yesterday. Meister said aid would come “under strict conditions and if the Greek government undertakes far-reaching state reforms.”

EU leaders arrive in Brussels tomorrow morning for the summit, which will be hosted by EU President Herman Van Rompuy. While Greece isn’t officially on the agenda, he will discuss the current “economic situation” over lunch, a session traditionally devoted to the most-sensitive subjects.

Paris Meeting

Greek Prime Minister George Papandreou, who is scheduled to meet French President Nicolas Sarkozy in Paris today, has failed to convince investors that his plan to cut the EU’s biggest deficit will work. His challenge will be highlighted today when unions shut schools, hospitals and flights to fight his proposals.

For weeks, European officials have insisted that no bailout was planned and that Greece’s effort to reduce its deficit, estimated at 12.7 percent of gross domestic product, should be given a chance to work. EU policy makers have no “plan B” to help Greece, former Monetary Affairs Commissioner Joaquin Almunia said in a Jan. 29 interview.

Signs of a rescue helped ease investors concerns that Greece’s worsening finances would derail the global recovery. The risk premium investors demand to buy Greek debt over comparable German bonds tumbled for a second day to 2.69 percentage points, the lowest since Jan. 19. It reached as high as 3.96 percentage points on Jan. 28.

Timing

The euro slid 0.2 percent to $1.3766 at 10:02 a.m. in Frankfurt after rallying more than 1 percent yesterday. The yield on the German bund earlier jumped 9 basis points to 3.24 percent.

“I’m not surprised it happened, just by the timing of it,” said Julian Callow, chief European economist at Barclays Capital in London. “They would have to structure it in a way that it’s sufficiently penal so as not to create a moral hazard issue and encourage other countries like Portugal, Spain and Ireland to keep on track in terms of getting their own houses in order.”

German government spokesman Ulrich Wilhelm said in a statement yesterday that reports that a decision to offer Greek assistance had “virtually been taken” were “unfounded.”

Germany and other EU nations were considering offering Greece and other debt-ridden euro-area members loan guarantees, the Wall Street Journal reported yesterday, citing people familiar with the matter.

Legal Issues

In the interview in Strasbourg, Rehn, pointed to tomorrow’s summit and a meeting of European finance ministers next week and indicated that Greece will be held to strict conditions in exchange for any backing.

“Solidarity goes both ways,” Rehn said. “I am sure that in the next couple of days we will see discussion and decisions to this effect.”

EU law bars the European Central Bank or national central banks from bailing out EU countries through buying their debt or offering loans, according to a report by the German parliament’s research unit published today.

Options for Greece include bilateral aid or a package put together by a group of countries using the euro, Meister said.

Nobel laureate Joseph Stiglitz said Greece’s budget-deficit reduction plan will prevent a default, and he reiterated his call for the European Union to aid the nation against “speculative attacks” in financial markets.

“I’ve been very impressed with the comprehensive approach they’ve had,” Stiglitz said in an interview on Bloomberg Television in London yesterday. “There’s clearly no risk of default. I’m very confident about it.”

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Jonathan Stearns in Strasbourg, France at jstearns2@bloomberg.net

Read more...