Stocks Fall, Credit Risk Rises to Record After Merkel Rules Out Euro Bonds

By Stephen Kirkland - Nov 25, 2011 5:35 AM GMT+0700

Stocks fell, Italian bonds declined and the cost of insuring European government debt against default rose to a record after German Chancellor Angela Merkel ruled out joint euro-area borrowing.

The MSCI All-Country World Index retreated 0.2 percent at 5 p.m. in New York. The yield on Italy’s 10-year bonds climbed above 7.1 percent. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose two basis points to 381. The Stoxx Europe 600 Index fell 0.2 percent and Standard & Poor’s 500 Index futures rose 0.3 percent. U.S. markets were closed today for Thanksgiving. The euro was little changed against the dollar at $1.3347.

Euro bonds are “not needed and not appropriate,” Merkel said at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France. More than $4 trillion has been erased from the value of equities worldwide this month as rising borrowing costs in the euro-area stoked concern the debt crisis will derail growth.

“The market sees a ‘no’ and reacts to it,” said Martin Huefner, chief economist at Assenagon GmbH in Munich, which manages more than $4.7 billion of client assets. “We’re going to see a deterioration of equity markets in the coming months to the point where something will have to be done. The market would be euphoric to get euro bonds. Apparently the pressure is not big enough yet.”

The euro weakened 0.2 percent against the yen and was little changed versus the Swiss franc. The yen advanced against all but two of its 16 major counterparts.

Portugal Downgrade

The yield on Italy’s 10-year bond climbed 14 basis points, or 0.14 percentage point, to 7.11 percent, while similar- maturity French debt yields rose three basis points to 3.72 percent.

Portugal’s bonds fell, with 10-year note yields climbing 90 basis points to 12.21 percent after Fitch Ratings cut the nation’s credit grade one step to BB+, the highest junk status.

Germany’s 10-year bond yield rose as much as 12 basis points to 2.26 percent before trading five basis points higher at 2.20 percent. Two-year note yields increased three basis points to 0.47 percent.

The Munich-based Ifo institute’s German business climate index, based on a survey of 7,000 executives, increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts compiled by Bloomberg.

The Stoxx 600 benchmark gauge closed at the lowest level since Oct. 4. Oil and health-care stocks led declines while basic-resources and automakers advanced.

Beating Estimates

Raiffeisen Bank International AG gained 5.9 percent after eastern Europe’s third-biggest lender reported profit that topped analyst estimates. Dixons Retail Plc jumped the most since May, advancing 7.1 percent after the U.K.’s largest electronics retailer reported a smaller first-half loss (DXNS) than analysts had predicted.

The Nikkei 225 Stock Average sank 1.8 percent after S&P signaled it may be getting closer to lowering Japan’s sovereign credit rating. Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, S&P said.

Canadian stocks fell, with the benchmark index retreating 0.8 percent. Volume was 75 percent below its average in the past 180 days due to the U.S. market holiday.

The MSCI Emerging Markets Index (MXEF) added 0.3 percent and Brazil’s Bovespa gauge advanced 0.6 percent while Russia’s Micex Index lost 0.8 percent. Banks led Turkey’s ISE National 100 Index down 2.9 percent after Merkel’s comments. The Hang Seng China Enterprises Index climbed 1 percent in Hong Kong after the Chinese central bank lowered reserve-ratio requirements for some rural lenders. India’s Sensex rose 1 percent.

To contact the reporter on this story: Stephen Kirkland in London at skirkland@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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Euro-Dollar Hits 7-Week Low on Merkel Comment

By Chris Fournier - Nov 25, 2011 5:41 AM GMT+0700

The euro touched a seven-week low against the dollar after German Chancellor Angela Merkel said joint euro bonds would send a “wrong signal,” damping optimism about a potential remedy for the region’s debt crisis.

The 17-nation currency fell for a second day against the yen, reversing earlier gains. Australia’s dollar strengthened on speculation investors are buying the currency to diversify their assets away from Europe.

“Merkel’s comments don’t hint at greater integration,” said David Watt, a senior foreign-exchange strategist at Royal Bank of Canada’s RBC Capital Markets unit in Toronto. “Merkel seems to suggest that between taking the less difficult path and the treacherous path, the latter is to be taken.”

The euro closed little changed at $1.3347 at 5 p.m. in New York, after falling to $1.3316, the lowest level since Oct. 6. The shared currency declined 0.2 percent to 102.92 yen. The yen climbed 0.3 percent to 77.12 per dollar.

Joint euro bonds would immediately lead to a convergence of interest rates in the region, Merkel said in comments today at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France.

“This would take us back to where we were before the crisis,” Merkel said.

The euro earlier strengthened against the dollar as German reports showed business confidence improved and economic growth accelerated even with Europe’s debt crisis worsening.

Business Climate

The Munich-based Ifo institute said its business climate index increased to 106.6 this month from 106.4 in October. Gross domestic product advanced 0.5 percent last quarter, the Federal Statistics Office said, confirming an initial estimate published on Nov. 15. That was an acceleration from 0.3 percent growth in the previous three months.

“Risk appetite is looking a bit better,” said Jeremy Stretch, executive director of currency strategy at Canadian Imperial Bank of Commerce in London. “If we see a small improvement in risk or modest rebound in the euro, I wouldn’t necessarily want to run too hard with that.”

Swings in currency markets may be exaggerated today by lower than usual volumes due to the U.S. Thanksgiving holiday, Stretch said.

The yen rose against the euro and advanced against a majority of its 16 most-traded peers after Merkel’s comments, even as Standard & Poor’s said Japan’s lack of progress in tackling its public debt burden put it at risk of a downgrade.

Debt Burden

S&P said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P, said in an interview. It “may be right in saying that we’re closer to a downgrade.”

Fitch Ratings cut Portugal’s credit ranking to below investment grade, citing the country’s weakening economy.

Australia’s dollar snapped a three-day decline on speculation investors are buying the currency in a bid to diversify their holdings amid Europe’s fiscal crisis.

“You are seeing a very, very modest bounce in some of the higher-yielding currencies,” said Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc. “The Australian dollar, like other commodity currencies, continues to benefit to some degree from reserve diversification.”

The so-called Aussie gained 0.5 percent to 97.35 U.S. cents after dropping to 96.64 cents yesterday, the weakest since Oct. 6. The currency climbed 0.2 percent to 75.07 yen.

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Canadian Stocks Fall on Merkel Bond Comment

By Matt Walcoff - Nov 25, 2011 4:36 AM GMT+0700

Canadian stocks fell from the lowest close in seven weeks after German Chancellor Angela Merkel reiterated her opposition to joint euro bonds as a solution to Europe’s debt crisis.

Bank of Nova Scotia (BNS), the country’s third-largest lender by assets, decreased 0.9 percent as financial stocks retreated after closing yesterday at the lowest since July 2009. Enbridge Inc. (ENB), Canada’s biggest pipeline company, lost 2.8 percent. Barrick Gold Corp. (ABX), the world’s largest producer of the metal, declined 1.4 percent as the euro currency pared gains against the U.S. dollar.

The Standard & Poor’s/TSX Composite Index slipped 86.39 points, or 0.8 percent, to 11,485.32. Volume was 75 percent below its average in the past 180 days because of the U.S. Thanksgiving holiday.

“We haven’t seen any action whatsoever in terms of stemming the crisis” in Europe, Barry Schwartz, a money manager at Baskin Financial Services Inc. in Toronto, said in a telephone interview. The firm oversees about C$400 million ($382 million). “The trend is decisively negative.”

The S&P/TSX has slumped 8 percent since Nov. 8 as bond yields advanced in Europe, indicating greater concern of a potential sovereign-debt default, and U.S. lawmakers failed to agree on budget cuts.

Rising Dollar

The U.S. Dollar Index, a measure against six major currencies, traded close to a seven-week high after Merkel said at a press conference in Strasbourg, France, that she hasn’t abandoned her opposition to euro-area bonds. Merkel said that joint euro bonds would send a “completely wrong signal” partly because they would immediately lead to a convergence of interest rates in the euro region.

Portugal’s credit rating was cut to below investment grade by Fitch Ratings Ltd. because of the country’s rising debt level and weakening economy. Yields increased on the debt of Greece and Italy.

The country’s six biggest banks all fell or were unchanged. Scotiabank slipped 0.9 percent to C$48.34. Canadian Imperial Bank of Commerce, the country’s fifth-largest lender by assets, dropped 1.4 percent to C$68.62, a sixth-straight decline. Toronto-Dominion Bank (TD), the country’s second-largest lender by assets, lost 0.8 percent to C$68.70, the lowest since July 2010.

The S&P/TSX Energy Index dropped as natural-gas futures fell for the first time this week. Enbridge lost 2.8 percent to C$35.11. Imperial Oil Ltd. (IMO), the country’s second-largest energy company by revenue, decreased 2.4 percent to C$39.03 to extend its weekly decline to 9 percent.

Agreement to Expire

Nexen Inc. (NXY), an oil and gas producer with operations on five continents, retreated 3.2 percent to C$15.04, the lowest since February 2009, a day after saying its oil production-sharing agreement in Yemen will end on Dec. 17.

Gold futures erased gains in New York after Merkel’s comments. Barrick retreated 1.4 percent to C$49.55. Kinross Gold Corp. (K), Canada’s third-largest company in the industry, slipped 1.1 percent to C$13.45. Eldorado Gold Corp. (ELD), the country’s fifth-largest gold producer by market value, fell 2.7 percent to C$17.06.

Dundee Precious Metals Inc. (DPM), which operates in Bulgaria and Armenia, rallied 4.8 percent to C$8.89 after saying Bulgaria approved the environmental-impact assessment for the Krumovgrad gold project.

Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, fell for a fourth day, losing 1.7 percent to C$43.01, the lowest since August 2010. Wheat dropped in Paris today after futures in Chicago fell to the lowest in almost 16 months yesterday.

To contact the reporter on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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Business Confidence in Germany Advances for First Time Since June: Economy

By Gabi Thesing - Nov 24, 2011 5:43 PM GMT+0700

German business confidence unexpectedly rose for the first time in five months in November, defying Europe’s worsening debt crisis.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts in a Bloomberg News survey.

“Although downside risks certainly remain, doomsday is not around the corner,” said Andreas Rees, chief German economist at UniCredit Markets and Investment Banking in Munich. “A recession, and especially a deep and nasty one, is not in the pipeline.”

German unemployment remains near a two-decade low, supporting consumer spending and helping to offset the impact of waning demand for the country’s exports across the 17-nation euro region. Still, concerns that Europe’s largest economy is not immune to the escalating debt crisis were stoked yesterday when Germany failed to get bids for 35 percent of the 10-year bonds it offered for sale.

The euro rose about a quarter of a cent after Ifo’s report before retreating to trade little changed at $1.3375 at 11:40 a.m. in Frankfurt. The benchmark DAX Share Index (DAX) gained 1.3 percent. Ifo said its gauge of the current situation held steady at 116.7 while an index of executives’ expectations climbed to 97.3 from 97.

‘Robust Condition’

Hans-Peter Keitel, the president of Germany’s BDI industry federation, said on Nov. 21 that a recession is unlikely as industrial companies are in “robust condition” with “well filled” order books.

Adidas AG Chief Executive Officer Herbert Hainer said on Nov. 3 that Europe’s debt crisis won’t halt growth in the sporting-goods market and forecast higher earnings next year as the company expands in Russia and China.

The German economy expanded 0.5 percent in the third quarter, more than the 0.3 percent achieved in the second, with growth driven almost solely by domestic demand, a final reading from the Federal Statistics Office showed today.

U.K. economic growth also accelerated in the third quarter as stock-building and government spending offset weak consumer spending and business investment, the Office for National Statistics confirmed today in London.

Global Slowdown

The Bank of England has nevertheless reduced its 2012 growth forecast, predicting an annual rate of about 1.4 percent in the fourth quarter next year, as Europe’s debt crisis contributes to a global slowdown.

Taiwan today cut its forecasts for this year and next after the island’s economy expanded at the slowest pace since 2009 last quarter.

The European Commission on Nov. 10 slashed its euro-region growth estimate for next year to 0.5 percent from 1.8 percent, citing the debt crisis. In Germany, growth may slow to 0.8 percent in 2012 from 2.9 percent in 2011, the Brussels-based commission projected.

Some 18 months after Greece was first bailed out by euro- area nations, governments are still struggling to find a lasting solution to a crisis that has toppled five elected governments and is now engulfing Italy and Spain.

‘Uncertain Situation’

Germany’s 10-year bond yield climbed to 2.23 percent today from 1.91 percent on Nov. 21 as investors start to doubt the country’s haven status.

The turmoil has prompted companies such as Deutsche Lufthansa AG (LHA) to scale back capacity to counter an anticipated slowdown. Infineon Technologies AG (IFX), Europe’s second-largest maker of semiconductors, on Nov. 16 forecast a steeper decline in full-year sales than analysts estimated.

German manufacturing output contracted for a second month in November and investor confidence dropped to a three-year low.

“The longer this uncertain situation persists, the larger the worries that the debt crisis will spread to the real economy,” Norbert Steiner, CEO of K+S AG, Europe’s largest maker of potash, said earlier this month. “Psychology plays an important role.”

Some companies are counting on U.S. and emerging-market sales to offset the drop in European demand.

Bayer AG (BAYN), Germany’s largest drugmaker, said Nov. 16 it expects sales in Asia to grow more than 60 percent by 2015 as it builds local factories and sales networks. Bayerische Motoren Werke AG Chief Financial Officer Friedrich Eichiner earlier this month predicted “double-digit” percentage sales growth next year in the U.S.

ECB Stimulus

While the European Central Bank has extended the use of its unconventional tools, such as offering banks unlimited cash for more than a year and purchasing the bonds of debt-strapped governments, policy makers have rejected calls to counter the crisis by printing money. The central bank, which will publish its latest economic projections in December, earlier this month forecast a “mild recession” in the euro area.

“It’s obviously bitter for Germany that the main trading partner is heading for a massive slump,” said Jens Kramer, an economist at NordLB in Hanover. “However, the recovery has put the economy on a broader foundation, so stronger domestic demand should help insulate Germany somewhat.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Tata Names Mistry as Ratan Successor

By Rajhkumar K Shaaw and Siddharth Philip - Nov 24, 2011 6:01 PM GMT+0700

Tata Sons Ltd. said board member Cyrus P. Mistry will succeed Ratan Tata as chairman next year, a surprise choice that ends more than a year of speculation over who would run India’s biggest business group.

Mistry, 43, whose family is the single biggest shareholder of the group will assume the role of deputy chairman and take over as head of the group in December 2012, according to an e- mailed statement from the company yesterday. Tata in August 2010 set up a five-member panel to find a successor to Ratan, who will retire after two decades running the Mumbai-based company.

In Mistry, Tata has picked an insider who belongs to the same Parsi community as the founders and whose family owns 18 percent of the group holding company. Mistry, largely unknown outside his father’s construction business, will have a year to raise his profile under the guidance of Ratan Tata, the architect of the group’s emergence as a global company through his acquisitions of Corus Group and Jaguar Land Rover. (TTMT)

“He’s sort of an enigma,” said U.R. Bhat, managing director of Dalton Capital Advisors India Pvt. in Mumbai. “He has phenomenally big shoes to fill. We don’t know whether he has the right credentials.”

Mistry, who was part of the search panel, withdrew himself when he became a candidate, said group spokesman Debasis Ray.

Billionaire Father

Mistry, an engineer from the Imperial College of Science, Technology and Medicine in London, began working for the company Shapoorji Pallonji & Co., controlled by his father, billionaire Shapoorji Pallonji Mistry, in 1991. Cyrus, an Irish national, did his masters in management from the London Business School.

“I am aware that an enormous responsibility, with a great legacy, has been entrusted to me,” Mistry said in an e-mailed statement yesterday. “I will undertake to legally dissociate myself from the management of my family businesses to avoid any issue of conflict of interest.”

Mistry declined to comment for this report, according to spokesman Ray.

Tata makes cars from the $73,700 Jaguar XJ to the $2,800 Nano, produces steel, salt and grows tea served at the Tata- owned Boston Ritz Carlton. The group accounts for almost 5 percent of India’s gross domestic product.

Tata Steel Ltd. (TATA), which acquired Corus Steel for $12.8 billion in India’s biggest overseas acquisition in 2007, added 0.8 percent to 385.60 rupees at the close of trading in Mumbai. Tata Consultancy Services Ltd. (TCS), the group’s biggest unit by market value, advanced 2.8 percent, the most since Oct. 24, to 1,091.80 rupees. Tata Motors Ltd., which owns the Jaguar and Land Rover brands, rose 2.8 percent.

Shapoorji Pallonji Shares

Forbes & Co. (FG), part of the Shapoorji Pallonji group, gained 6.7 percent, the most since August 2010, to 426.40 rupees at the close of trading in Mumbai. Gokak Textiles Ltd. (GTEX), a yarn maker also controlled by the group, surged 16 percent, its biggest gain since November 2010, to 56.3 rupees. India’s benchmark Sensitive Index advanced 1 percent.

“One of the main decisions they will have to communicate to the market is if they want to keep growing by buying other businesses,” said Walter Rossini, who helps manage 200 million euros ($267 million) in Indian equities at Aletti Gestielle SGR SpA. “I think they will focus more on efficiency and productivity.”

The Tata group has more than 100 operating companies with 31 listed on the Indian stock exchanges and total revenue of $83.3 billion in the year ended March 31, 2011, according to its website. Overseas revenue accounted for 58 percent of the total, or $48.3 billion. The group companies together employ more than 425,000 people.

‘Astute Observations’

“I have been impressed with the quality and caliber of his participation, his astute observations and his humility,” Ratan Tata said about Mistry in the statement. “I will be committed to working with him over the next year to give him the exposure, the involvement and the operating experience to equip him to undertake the full responsibility of the group on my retirement.”

Ratan Tata’s step-brother Noel was among the likely candidates to take over as chairman, the Economic Times reported on Nov. 11.

‘Jury Still Out’

“Obviously the jury is still very much out,” on Mistry’s abilities, said Andrea Goldstein, who studied the Tata Group as a senior economist at the Organization of Economic Cooperation and Development in Paris. “He’s very young, which could be very good - so he’s being groomed to take this position. Let’s see if he’s ready to do that.”

Mistry and the Tatas follow the Zoroastrian religion and belong to the small Parsi community, which originated in Persia and found sanctuary centuries ago in India. The Tata group was founded by Ratan’s great grandfather Jamsetji Nusserwanji Tata, who started a textile-trading business in 1868 and then built the country’s first steel mill and hydroelectric plant. He also built The Taj Mahal Palace & Tower hotel in Mumbai, which was damaged in the November 2008 terrorist attacks.

Ratan made his first purchase overseas in February 2000 when he paid $407 million for U.K.-based Tetley Group -- the biggest by an Indian company at that time. He followed with 65 more mergers or purchases in India and abroad, totaling more than $20 billion, the most by any Indian group, according to the group’s website.

Mistry will be the second person outside the Tatas to lead the group, according to the company’s website.

“I have known him since he was a baby,” Parmeshwar Godrej, a board member of Godrej Properties Ltd. and wife of billionaire Adi Godrej, said in a phone interview yesterday. “The whole family is very shy and reserved. I’m sure he will do a great job.”

To contact the reporters on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net; Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Arijit Ghosh at aghosh@bloomberg.net

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Germany Rejects Euro Bonds After Auction

By Brian Parkin - Nov 24, 2011 6:02 PM GMT+0700

German Economy Minister Philipp Roesler rejected calls for Chancellor Angela Merkel to back joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis.

Newspaper editorials, analysts and opposition politicians stepped up bids for Merkel to shift from an incremental approach after the government sold a fraction of the bonds it auctioned yesterday.

“As the crisis deepens with yesterday’s bond auction, the veil has been torn off Merkel’s policy of muddling through,” Sebastian Dullien, a senior fellow at the European Council on Foreign Relations in Berlin, said in a telephone interview. “It’s only got us closer to the end-game, either the breakup of the euro or euro bonds. The strategy has failed.”

Merkel has so far backed a focus on debt reduction and closer economic coordination, calling for a revision in European Union treaties that threaten to bog down in a multiyear negotiation, as core euro economies risk succumbing to the contagion that began in Greece in 2009.

“The flop shows that bunds are losing their sex-appeal as an extremely secure investment,” Germany’s Handelsblatt business newspaper said in a commentary today. “This shows the crisis has reached the entire euro-zone core. France, Finland, the Netherlands and Austria have to pay more interest for their bonds than just a few months ago.”

Bunds Decline

German bunds fell a second day. The 10-year bund yield rose as much as 10 basis points, or 0.1 percentage point, to 2.25 percent, the highest since Oct. 28 and was at 2.19 percent at 11 a.m. London time. Bids at yesterday’s auction of 10-year securities amounted to 3.889 billion euros ($5.2 billion), out of a maximum target for the sale of 6 billion euros.

Handelsblatt said the shortfall was a “wake-up call” for Merkel’s government which opposes both issuing bonds for the entire 17-member euro region and allowing the ECB to buy unlimited amounts of euro nation bonds.

The German government today stood by its rejection of any common bonds for the euro bloc following a report in Bild newspaper that Merkel’s coalition is concerned it may have to agree to euro bonds under certain conditions. The newspaper didn’t say where it got the information.

“We say ‘no’ to euro bonds,” Roesler, who is also vice chancellor, said today in parliament. “A transfer union would be wrong because it would mean German taxpayers pick up the costs. Euro bonds are wrong because they would mean a rise in interest rates for Germany.”

Fiscal Union Needed

That contrasted with Handelsblatt’s view. “The ECB remains the only investor that can keep down the interest rates of bonds from euro states in the short-term,” Handelsblatt said. “In the long-term, there’s no getting around the necessity of creating fiscal union with at least partial euro bonds.”

The Frankfurter Allgemeine Zeitung newspaper said that while the low demand for German bunds was “no reason to panic” it shows that “around 2 percent interest for investors in these uncertain times is simply not enough.”

“Pressure is growing on Merkel,” said Die Welt newspaper. “Up until now she managed to steer the nation through the crisis so that the people didn’t really notice the turbulence.”

Merkel now faces a “moment of truth” in the crisis as her opposition to ECB bond purchases and euro bonds “is being challenged,” Die Welt said.

German opposition parties ratcheted up calls for euro bonds. Frank-Walter Steinmeier, parliamentary leader of the Social Democratic Party in parliament, said on Nov. 21 that his party wants euro bonds as part of a solution to the crisis.

Greens Want Euro Bonds

“A model using euro bonds that links European bonds to a reform program is the better alternative,” Juergen Trittin, a co-leader of the opposition Greens party, said in an N24 television interview today.

In Paris, the French government underlined calls for giving the ECB a bigger role in fighting the crisis.

“What’s not working is confidence and that’s what we must restore,” French Foreign Minister Alain Juppe said today in an interview on France Inter radio. “I hope that reflection will move forward that the ECB should have an essential role to restore confidence.”

Merkel meets today with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France, followed by a news conference scheduled for 2 p.m. Paris time.

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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European Stocks Gain After German Business Confidence Increases

By Adam Haigh - Nov 24, 2011 7:22 PM GMT+0700

European stocks rose, snapping their longest stretch of losses since August, after a report showed German business confidence unexpectedly increased in November. U.S. index futures advanced.

BHP Billiton Ltd. (BHP), the world’s biggest mining company, led gains in the shares of commodity companies, as copper and nickel prices climbed. Arkema SA (AKE) rallied 10 percent after analysts upgraded their recommendations on the shares following its plan to sell its vinyl business.

The benchmark Stoxx Europe 600 Index climbed 1.1 percent to 222.67 at 12:08 p.m. in London. The gauge had tumbled 7.1 percent over the past five days as soaring bond yields in Italy, Spain and France compounded concern that the region’s leaders are struggling to control the debt crisis.

“We still see some ‘bright-ish’ spots in all the doom and gloom that surrounds us,” said Annalisa Piazza, a strategist at Newedge Group in London. “Today’s report clearly shows that activity is not going to collapse any time soon in the main European (UKX) economy.”

The Ifo Institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 this month from 106.4 in October. That beat the median forecast of 105.2 in a Bloomberg News survey.

Futures on the Standard & Poor’s 500 Index expiring in December gained 0.9 percent to 1,170.4, signaling U.S. stocks may halt a six-day slump (SPX) when trading reopens tomorrow. The market is closed today for Thanksgiving and will end at 1 p.m. in New York tomorrow. Futures on the Dow Jones Industrial Average added 87 points, or 0.8 percent, to 11,321.

Euro Bonds

Germany’s coalition government is concerned it may have to agree to the issuing of euro bonds under certain conditions, Bild reported without saying where it obtained the information.

One such condition is the European Union’s consent to tighten its stability pact, Bild said in an e-mailed preview of an article published today.

“There are signs that the German government’s position on common bond issuance is becoming more favorable,” Steven Major, the global head of fixed income research at HSBC Holdings Plc in London, wrote in a report today.

The Stoxx 600 has slumped 19 percent this year as the debt crisis that began in Ireland and Greece spread to the euro area’s major economies and led to calls for bond purchases by the European Central Bank as one way of containing contagion. The ECB was said to buy government debt over the past several days.

Non-Conventional Tools

“Only a massive intervention from the ECB could potentially eradicate liquidity fears,” said Claudia Panseri, the head of equity strategy at Societe Generale SA in Paris. “Intervention from the ECB is not imminent. We believe the market needs to get worse before all the non-conventional tools are used.”

Equity strategists at the biggest investment banks forecast an average 16 percent rally in European stocks through the end of next year, according to the average of 10 estimates in a Bloomberg News survey.

U.K. gross domestic product rose 0.5 percent from the previous quarter, when it increased 0.1 percent, the Office for National Statistics said today in London. The figure matched a previous estimate and the median forecast in a Bloomberg News survey of 32 economists.

German GDP

Germany’s economy rebounded in the third quarter, driven by consumer and company spending, the Federal Statistics Office in Wiesbaden said today.

Private consumption expanded 0.8 percent from the second quarter and company investment in plant and machinery jumped 2.9 percent. Gross domestic product advanced 0.5 percent from the previous three months, the office said, confirming an initial estimate published on Nov. 15. That was an acceleration from the 0.3 percent growth in the second quarter.

Portugal’s credit rating was cut to below investment grade by Fitch Ratings due to the country’s rising debt level and weakening economy. The long-term rating was lowered one level to BB+ from BBB- with a negative outlook, Fitch said.

BHP Billiton rose 2.4 percent to 1,782.5 pence. Rio Tinto Group advanced 2.9 percent to 3,071 pence. Copper, nickel and tin climbed on the London Metal Exchange.

Dexia SA (DEXB) rallied 29 percent to 34.8 euro cents, for an increase of 46 percent in the last two days. The Belgian lender has still lost 86 percent of its value this year after its breakup became inevitable last month as concern over its European sovereign-debt holdings caused its short-term funding to evaporate. Dexia was once the world’s largest lenders to municipalities.

Arkema, Dixons

Arkema jumped 9.7 percent to 49.63 euros. JPMorgan Chase & Co. upgraded the shares to “overweight” from “neutral.”

Dixons Retail Plc (DXNS), the U.K.’s largest electronics retailer, climbed 8.8 percent to 10.18 pence, the biggest increase in 11 weeks, after reporting a first-half loss that was smaller than analysts’ estimates.

Raiffeisen Bank International AG (RBI), eastern Europe’s third- biggest lender, rose 6 percent to 15 euros after reporting a third-quarter profit that beat analysts’ forecasts. Net income fell to 130 million euros from 311 million euros a year earlier, according to a statement today. The average estimate of nine analysts surveyed by Bloomberg called for a profit of 99 million euros.

Cable & Wireless Worldwide Plc (CW/) gained 4 percent to 14.77 pence as Liberum Capital advised buying the stock, citing the recent slump in its share price.

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

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Stocks, Euro Rise on Gain in German Confidence

By Stephen Kirkland and Shiyin Chen - Nov 24, 2011 7:48 PM GMT+0700

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Nov. 24 (Bloomberg) -- Pranay Gupta, chief investment officer for Asia Pacific at ING Investment Management in Hong Kong, talks about the European debt crisis and its implications for global stock markets. Gupta also discusses the U.S. economy and budget deficit. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Nov. 24 (Bloomberg) -- George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm, talks about the impact of the eurozone crisis on U.S. financial markets and his investment strategy. Feiger speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

European stocks rose for the first time in six days and the euro rebounded against the dollar after German business confidence unexpectedly increased. German bonds declined, while commodities gained.

The Stoxx Europe 600 Index added 1 percent at 12:45 p.m. in London, climbing from a seven-week low. Standard & Poor’s 500 futures jumped 0.9 percent. U.S. markets are closed today for Thanksgiving. The Nikkei 225 Stock Average sank 1.8 percent after S&P signaled it may be getting closer to lowering Japan’s sovereign grade. The euro strengthened 0.4 percent to $1.339, while the yield on Germany 10-year bond rose five basis points. Copper added 0.8 percent and oil advanced 0.7 percent.

German business confidence increased for the first time in five months in November, defying Europe’s worsening debt crisis. S&P said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden. More than $4 trillion has been erased from the value of equities worldwide this month as rising borrowing costs in the euro-area stoked concern the debt crisis will derail economic growth.

“We still see some ‘bright-ish’ spots in all the doom and gloom that surrounds us,” Annalisa Piazza, an strategist at Newedge Group in London, wrote in a report. “Today’s report clearly shows that activity is not going to collapse any time soon in the main EMU economy.”

Five shares advanced for every one that fell on the Stoxx 600. The measure yesterday slumped to the lowest close since Oct. 4. Germany’s DAX Index rallied 1.6 percent, halting an eight-day retreat.

Earnings Top Estimate

Raiffeisen Bank International AG gained 6 percent after eastern Europe’s third-biggest lender reported profit that topped analyst estimates. Dixons Retail Plc jumped the most since May, jumping 9.3 percent after the U.K.’s largest electronics retailer reported a smaller first-half loss (DXNS) than analysts had predicted.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts in a Bloomberg News survey.

Germany’s business confidence is “surprisingly stable for the time being,” Markus Steinbeis, head of equity portfolio management at the Unterfoehring, Germany-based unit of Pioneer Investments KGmbH, which oversees about $221 billion globally, said in a phone interview. Macro-economic data in Germany. “Sideways movement from the current levels is the most likely scenario for the year-end.”

Euro Strengthens

The S&P 500 fell for a sixth day yesterday to the lowest level since Oct. 7. The market will reopen for shortened trading tomorrow, closing at 1 p.m.

The euro strengthened 0.2 percent against the pound. The yen climbed 0.4 percent to 77.04 per dollar.

Ten-year German yields advanced as much as 12 basis points to 2.26 percent. Two-year note yields increased three basis points to 0.48 percent.

Germany’s coalition government is concerned it may have to agree to issuing euro bonds under certain conditions, such as tightening the stability pact, Bild reported without saying where it got the information.

The yield on 10-year Spanish bonds fell eight basis points to 6.56 percent, while similar-maturity Italian debt yields rose four basis points to 7.01 percent. The cost of insuring European government debt fell from a record, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declining three basis points to 374.5.

Portugal Downgrade

Portugal’s bonds fell, with 10-year note yield climbing 74 basis points to 12.05 percent after Fitch Ratings cut the nation’s credit rating one step to BB+, the highest junk status, with a negative outlook.

Oil climbed to $96.86 a barrel in New York, after having dropped 1.9 percent yesterday. Nickel futures increased 1 percent and tin climbed 0.9 percent.

The MSCI Emerging Markets Index rallied 0.7 percent, snapping a seven-day decline, the longest slump since 2009. The Hang Seng China Enterprises Index climbed 1 percent in Hong Kong after the Chinese central bank lowered reserve-ratio requirements for some rural lenders. India’s Sensex rose 1 percent and South Africa’s All-Share Index jumped 1.1percent.

-- With assistance from Julie Cruz in Frankfurt, Emma Charlton, John Deane, Will Hadfield, Adam Haigh and Michael Shanahan in London. Editors: Stephen Kirkland, Stuart Wallace

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: at swallace6@bloomberg.net

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German Business Confidence May Fall to Low

By Gabi Thesing - Nov 24, 2011 2:44 PM GMT+0700

German business confidence probably fell to a 20-month low in November as the euro area’s worsening debt crisis threatens to tip the economy into recession.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, will drop to 105.2 from 106.4 in October, the median forecast of 40 economists in a Bloomberg News survey shows. That would be the lowest since March 2010. The institute releases the report at 10 a.m. in Munich today.

Growth in Europe’s largest economy may slow to a near standstill next year as the worsening turmoil curbs demand in the 17-nation currency bloc, Germany’s biggest export market, the Bundesbank said Nov. 21. The crisis, which is heading for its third year, has prompted companies such as Deutsche Lufthansa AG (LHA) to scale back capacity to counter an anticipated slowdown.

“The trend is down, which is not surprising,” said Tobias Blattner, an economist at Daiwa Capital Markets in London. “However, even though we may have a quarter of negative growth, I definitely don’t see a recession in Germany. The order books are still full and the economy is solid. Domestic demand will have to cushion some of the export falloff.”

German Slowdown

Ifo’s gauge of the current situation may decrease to 115 from 116.7, while an index measuring executives’ expectations probably fell to 96 from 97, the survey of economists shows.

Some 18 months after Greece was first bailed out by euro- area nations, governments are still struggling to find a lasting solution to a crisis that has toppled five elected governments and is now engulfing Italy and Spain.

The European Commission on Nov. 10 cut its euro-region growth forecast for next year to 0.5 percent from 1.8 percent, citing the debt crisis. In Germany, growth may slow to 0.8 percent next year from 2.9 percent in 2011, the Brussels-based commission projected.

While the German economy expanded 0.5 percent in the third quarter, growth was driven almost solely by domestic demand, a final reading from the Federal Statistics Office showed today.

Manufacturing output contracted for a second month in November and investor confidence dropped to a three-year low.

Schaeffler AG, the roller-bearing maker that controls Continental AG (CON), said on Nov. 22 that revenue growth in the fourth quarter may be restrained because of slowing demand for machine parts in Europe. Infineon Technologies AG (IFX), Europe’s second-largest maker of semiconductors, on Nov. 16 forecast a steeper decline in full-year sales than analysts estimated.

‘Uncertain Situation’

“The longer this uncertain situation persists, the larger the worries that the debt crisis will spread to the real economy,” Norbert Steiner, CEO of K+S AG, Europe’s largest maker of potash, said earlier this month. “Psychology plays an important role.”

Still, some companies are counting on U.S. and emerging- market sales to offset the drop in European demand.

Bayer AG (BAYN), Germany’s largest drugmaker, said Nov. 16 it expects sales in Asia to grow more than 60 percent by 2015 as it builds local factories and sales networks. Bayerische Motoren Werke AG Chief Financial Officer Friedrich Eichiner earlier this month predicted “double-digit” percentage sales growth next year in the U.S.

While the European Central Bank has extended the use of its unconventional tools, such as offering banks unlimited cash for more than a year and purchasing the bonds of debt-strapped governments, policy makers have rejected calls to counter the crisis by printing money. The central bank, which will publish its latest economic projections in December, earlier this month forecast a “mild recession.”

“It’s obviously bitter for Germany that the main trading partner is heading for a massive slump,” said Jens Kramer, an economist at NordLB in Hanover. “However, the recovery has put the economy on a broader foundation, so stronger domestic demand should help insulate Germany somewhat.”

To contact the reporter on this story: Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Euro Rebounds Before German Data

By Shiyin Chen - Nov 24, 2011 3:08 PM GMT+0700

Play Video

Nov. 24 (Bloomberg) -- George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm, talks about the impact of the eurozone crisis on U.S. financial markets and his investment strategy. Feiger speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

European stocks rose for the first time in six days and the euro rebounded from a six-week low against the dollar before data on German business confidence. Asian shares dropped, led by Japanese equities.

The Stoxx Europe 600 Index gained 0.7 percent at 8:01 a.m. in London, climbing from a seven-week low. Standard & Poor’s 500 futures gained 0.7 percent, after a six-day slump in the U.S. stocks gauge. The Nikkei 225 Stock Average sank 1.8 percent after S&P signaled it may be getting closer to lower Japan’s sovereign grade. The euro strengthened 0.3 percent to $1.3375, while South Korea’s won slid to a six-week low. Copper added 0.7 percent in London and oil advanced 0.5 percent in New York.

Data today may show a gauge of business confidence in Germany slipped for a fifth month after earlier figures showed consumer and company spending drove a third-quarter rebound in the economy. The nation’s 10-year yields jumped yesterday after bids at a sale of securities repayable in January 2022 fell 35 percent short of the 6 billion euros ($8 billion) on offer. S&P said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden.

“Investors have already discounted a significant part of risk as we know it,” Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., said in a Bloomberg Television interview. Today’s business confidence data “will be a key litmus test, in terms of what happened yesterday on the auction,” he said.

Stocks Rebound

About five shares climbed for every one that fell on the Stoxx 600, which snapped a five-day, 7.1 percent drop. The measure yesterday slumped to the lowest close since Oct. 4. Germany’s DAX Index rallied 1.3 percent, halting an eight-day retreat.

S&P 500 futures expiring in December signal U.S. stocks may halt a six-day slump that dragged the benchmark index down to the lowest level since Oct. 7. The market will be closed today for the Thanksgiving holiday and trading will end at 1 p.m. tomorrow.

The Ifo institute’s business climate index for Germany fell to 105.2 in November, a 20-month low, according to the median forecast of economists in a Bloomberg News survey. Private consumption expanded 0.8 percent from the second quarter and company investment in plant and machinery jumped 2.9 percent, the Federal Statistics Office in Wiesbaden said today.

Gross domestic product advanced 0.5 percent from the previous three months, the office said, confirming an initial estimate published on Nov. 15. That was an acceleration from the 0.3 percent growth notched in the second quarter.

The euro recouped some of the 1.2 percent slump yesterday, when German 10-year yields climbed 23 basis points and the cost to insure European government debt rose to a record. Bunds extended declines today, driving yields higher by as much as 10 basis points to 2.25 percent.

Yen, Won

The yen traded at 74.16 per dollar, paring gains of as much as 0.4 percent, after Takahira Ogawa, director of sovereign ratings at S&P said Japan’s finances are getting “worse and worse” every day. The won retreated 0.6 percent to 1,158.80 per dollar, after touching 1,160.50 earlier, the lowest level since Oct. 14. Taiwan’s dollar declined 0.1 percent to NT$30.438 against its U.S. counterpart, also a fifth day of losses.

The MSCI Asia Pacific Index slipped 0.3 percent, after earlier dropping as much as 0.7 percent to the lowest intraday level since Oct. 6. The gauge tumbled 1.8 percent yesterday, when Japan’s markets were closed for a holiday.

JFE Holdings Inc. retreated 1.7 percent after the Nikkei newspaper reported the steelmaker is reducing its production target. HTC Corp. (2498) sank 6.9 percent to a 16-month low in Taipei after the company cut its revenue forecast as much as 23 percent. The smartphone maker had earlier forecast growth of 20 percent to 30 percent. Hanwha Chemical Corp. dropped 4.7 percent after it said quarterly profit fell 24 percent.

Three-month copper gained 0.7 percent to $7,290.25 a metric ton on the London Metal Exchange, pacing an advance among raw materials. Nickel futures increased 1.2 percent and tin climbed 2 percent. Oil for January delivery added 0.5 percent to $96.63 a barrel in New York, after having dropped 1.9 percent yesterday.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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Japan ‘May Be’ Close to a Downgrade: S&P

By Aki Ito - Nov 24, 2011 1:43 PM GMT+0700

Standard & Poor’s said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in an interview. Asked if that means he’s closer to cutting Japan, he said it “may be right in saying that we’re closer to a downgrade. But the deterioration has been gradual so far, and it’s not like we’re going to move today.”

A reduction in S&P’s AA- rating would be a setback for Noda, who took office in September and has pledged to both steady Japan’s finances and implement reconstruction from the nation’s record earthquake in March. It’s unrealistic for Japan to think it can escape the debt woes that have engulfed nations overseas unless it can control its finances, according to Ogawa.

While Japan has enjoyed borrowing costs at global lows for its debt, the International Monetary Fund said in a report released on its website yesterday there’s a risk of a “sudden spike” in yields that could make the debt level unsustainable. Developed nations are struggling to retain investor confidence in their bonds after borrowing deepened with the global recession and financial crisis. Germany yesterday failed to get sufficient bids to sell all of the 10-year securities it offered to sell.

‘Comprehensive’ Plan

S&P has had Japan on a negative outlook since April. Ogawa said the nation needs a “comprehensive approach” to containing its debt burden, which the government projects will exceed 1 quadrillion yen ($13 trillion) in the year through March as the nation pays for reconstruction.

The yen pared gains after Ogawa’s remarks and traded at 77.15 against the dollar as of 3:23 p.m. in Tokyo. Yields on Japan’s benchmark 10-year government bond rose to as high as 0.98 percent today from the previous close of 0.965 percent before the nation’s markets shut yesterday for a holiday. The Nikkei 225 Stock Average dropped 1.8 percent to 8,165.18, its lowest close since March 2009.

“The events in Europe show us that when you lose market confidence at some point, the situation deteriorates fast,” Ogawa said. “Politicians need to act with the understanding that they’re running out of time” to fix the nation’s finances. “If you don’t act early, it’ll become even more difficult” to maintain market trust, he said.

Tax Increase

Japan’s lower house of parliament today approved legislation that would add an additional 2.1 percent levy to an individual’s annual payment. Lawmakers revised the government’s proposal to extend the period of the measure to 25 years, from 10 years, to help pay for earthquake rebuilding. The measure takes effect in 2013.

“Just because this passes doesn’t mean that it’s positive for public finances,” Ogawa said. “Politicians are squabbling over the minute details, while avoiding what’s most important.”

While Japan’s policy makers have signaled they will double the nation’s sales tax from 5 percent by around 2015, a bill has yet to be enacted.

Moody’s Investors Service cut the nation’s debt rating by one step to Aa3 on Aug. 24. S&P lowered Japan to AA- in January. Fitch Ratings also has Japan at AA- with a negative outlook.

“Absent an offsetting effect from more rapid growth, debt dynamics could deteriorate precariously,” the IMF said in a report published on its website. “Once confidence in sustainability erodes, authorities could face an adverse feedback loop between rising yields, falling market confidence" and "a more vulnerable financial system," it said.

Politically, Noda is struggling to find solutions that the opposition political parties will accept, said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute Inc.

‘‘This shows how political compromises can hinder what needs to be done for the economy,’’ Kumano said.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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China Signals Growth Concern in Credit Boost

By Bloomberg News - Nov 24, 2011 1:59 PM GMT+0700

China widened efforts to support cash-strapped companies in Zhejiang and rural areas hit by a credit squeeze that’s slowing the second-largest economy just as Europe’s debt crisis saps export demand.

The People’s Bank of China cut the reserve ratio for more than 20 rural credit cooperatives nationwide by half a percentage point, according to an announcement from its Hangzhou branch in Zhejiang, where small businesses have complained about lack of access to credit. Bank of America Merrill Lynch predicts officials will lower the ratio for large commercial banks early in 2012.

Evidence is mounting that growth has moderated in the economy that’s led the global expansion, with home sales falling 25 percent last month and a report yesterday signaling manufacturing may shrink the most in almost three years. Premier Wen Jiabao has pledged to “fine tune” policy as needed.

“The unexpectedly sharp drop in China’s flash PMI for November, if corroborated by other indicators, is likely to push policy makers to go beyond policy ‘fine-tuning’ to outright easing,” said Mark Williams, a London-based Asia economist at Capital Economics Ltd. “Confirmation that the People’s Bank has lowered reserve requirements for some banks is likely to be only the start.”

The “flash” reading for the manufacturing PMI reported by HSBC Holdings Plc and Markit Economics yesterday was 48, under the 50 level that’s the border between expansion and contraction.

Stocks Retreat

The MSCI Asia Pacific Index was down 0.4 percent at 3:58 p.m. Tokyo time after Standard and Poor’s said that Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden. That may indicate that the ratings company is preparing to lower the nation’s sovereign grade, at AA- with a negative outlook since April.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said in an interview.

A German government debt auction overnight stoked concern that an untrammeled European crisis will impair the global recovery. Investors failed to bid for 35 percent of the securities on offer from Germany, the largest economy in Europe.

Elsewhere in Asia, Hong Kong is scheduled to report October trade figures today, and Taiwan releases its second estimate for gross domestic product in the third quarter, previously calculated at a 3.37 percent year-on-year gain.

Belgium, Brazil

Belgium, considered a bellwether for the western European economy, may report business confidence slid in November to its lowest level since 2009, when the global economy was pulling out of the recession caused by the American mortgage-market collapse. Brazil may report its unemployment rate fell to 5.9 percent in October, according to the median estimate in a Bloomberg News survey, signaling sustained growth in emerging markets.

The Chinese central bank’s move yesterday reduces the percentage of deposits the cooperatives are required to park with the central bank to 16 percent, a “normalization” after an increase a year ago, the Hangzhou branch said in its statement yesterday. The extra 0.5 percentage point requirement had penalized lenders that failed to meet lending targets in rural areas, and was imposed after a check carried out each November, it said.

In another sign of China’s shift, the central bank on Nov. 11 said local-currency lending was 586.8 billion yuan ($92 billion) in October, exceeding September’s 470 billion yuan and higher than the 500 billion yuan median estimate in a Bloomberg News survey.

Injecting Liquidity

The PBOC has also injected greater liquidity into the market for loans between banks, through open market operations that have depressed interbank rates, Goldman Sachs Group Inc. economists wrote in a note to clients last week. Further tools will include a slower pace of currency appreciation and looser fiscal policy, Goldman analysts said.

Policy makers may have to cut the reserve ratio for commercial banks if financial institutions’ yuan positions decline further the rest of the year, said Wang Tao, a Beijing- based economist at UBS AG.

Financial institutions’ yuan positions, accumulated from central bank purchases of their foreign exchange, fell 24.9 billion yuan in October, a PBOC report showed this week. The measure is an indication of capital flows.

Credit Squeeze

The central bank said in yesterday’s statement that it will continue to implement prudent monetary policy, promote “reasonable growth” in credit and money supply, and guide financial institutions to increase support to rural areas and small companies.

The city of Wenzhou in Zhejiang has been the focus of complaints by small businesses that they face a credit squeeze after the government tightened monetary policy to cool inflation and the property market. More than 80 businessmen in Wenzhou have disappeared, committed suicide or declared bankruptcy to avoid repaying debts to informal lenders since April, the state- run Xinhua News Agency reported in September.

Wenzhou’s 400,000 businesses are facing financial hardship because of rising costs, soaring black market interest rates and a sudden credit squeeze, according to Zhou Dewen, head of a small business association in Wenzhou. Similar problems are happening across China because private enterprises rely on underground borrowing rather than banks to operate, he said.

National and local leaders have since announced moves to help small firms, including offering easier access to bank loans, a cap on private-lending interest rates in Wenzhou and a crackdown on loan sharks that use violence.

Meanwhile, Europe’s sovereign-debt woes threaten to undermine exports, which rose the least in almost two years in October, and evidence of a weakening property market may slow domestic demand.

To contact Bloomberg News staff for this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Microsoft Is Said to Sign Non-Disclosure Agreement With Yahoo

By Brian Womack, Serena Saitto and Dina Bass - Nov 24, 2011 12:01 PM GMT+0700

Microsoft Corp. (MSFT), the largest software company, has signed an agreement that lets it take a closer look at Yahoo! Inc.’s financial information to help it consider financing a bid, a person briefed on the matter said.

Yahoo’s advisers asked that bids be submitted next week, said two other people, who asked not to be identified because the talks are private. Bidders are likely to offer to buy only a minority stake in Yahoo, as they haven’t arranged financing for a full takeover, the people said. Microsoft may help finance a bid and not try to buy Yahoo outright, two people said.

Private-equity firms TPG Capital and Silver Lake also signed non-disclosure agreements to help size up a possible bid for Sunnyvale, California-based Yahoo, people close to the companies have said. Microsoft would join other investors to safeguard its Web-search partnership with Yahoo and bridge any financing gap a buyout would require, people have said.

Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, and Dana Lengkeek, a spokeswoman for Yahoo, declined to comment.

Yahoo has asked interested parties to sign the NDA to receive management presentations and more access to confidential financial information.

Yahoo, the largest U.S. Web portal, embarked on a strategic review of its options in September after firing Chief Executive Officer Carol Bartz. Under Bartz, the company struggled to stem sales declines or compete with Google Inc. (GOOG) and Facebook Inc.

Microsoft’s Yahoo Deal

Microsoft forged a 10-year agreement to provide search- technology to Yahoo sites under Bartz. The deal was aimed at helping both companies vie with Google, the leader in U.S. search-related advertising.

Yahoo shares were little changed yesterday at $14.94. Microsoft fell 1.3 percent to $24.47.

KKR & Co. and Blackstone Group LP (BX) are among the private- equity firms considering possible bids for Yahoo, people with knowledge of the matter said last month.

Alibaba Group Holding Ltd., China’s biggest e-commerce company, has said it’s interested in acquiring Yahoo, in part to buy back a stake owned by Yahoo. With a holding of about 40 percent, Yahoo is Alibaba’s biggest investor.

DealReporter previously reported that Microsoft signed the NDA.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Yen Gains as Japanese Stocks, Won Decline on German Bund Auction, Earnings

By Shiyin Chen - Nov 24, 2011 1:10 PM GMT+0700

Play Video

Nov. 24 (Bloomberg) -- Pranay Gupta, chief investment officer for Asia Pacific at ING Investment Management in Hong Kong, talks about the European debt crisis and its implications for global stock markets. Gupta also discusses the U.S. economy and budget deficit. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Nov. 24 (Bloomberg) -- George Feiger, chief executive offer of Contango Capital Advisors Inc., a San Francisco-based wealth management firm, talks about the impact of the eurozone crisis on U.S. financial markets and his investment strategy. Feiger speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The yen rose against most of its major peers, while Asian stocks and South Korea’s won declined after a German bund auction fell short of its target and companies including HTC Corp. cut their outlook on earnings.

Japan’s currency added 0.2 percent to 77.14 per dollar at 3 p.m. in Tokyo on speculation the nation’s investors will sell higher-yielding assets. The won slid to a six-week low. The MSCI Asia Pacific Index dipped 0.5 percent and the Nikkei 225 Stock Average fell 1.9 percent. Standard & Poor’s 500 futures rose 0.2 percent, following a six-day slump in the benchmark U.S. stocks gauge. The Markit iTraxx Asia index of debt-default risk headed for the highest close since Oct. 7.

German 10-year yields jumped yesterday after bids at a sale of securities repayable in January 2022 fell 35 percent short of the 6 billion euros ($8 billion) on offer. Data today may show a gauge of business confidence in Europe’s largest economy dropped for a fifth month. HTC, the largest seller of smartphones in the U.S., cut its revenue forecast as much as 23 percent and Hanwha Chemical (009830) Corp. said quarterly profit fell 24 percent.

Investors are “grouping together all euro-area bonds in the same basket,” Pranay Gupta, chief investment officer in Hong Kong at ING Investment Management, said in a Bloomberg Television interview. “Asian earnings expectations still have to come down substantially. There is still another 10 or 20 percent downside in Asia.”

The yen appreciated against 12 of its 16 most actively traded counterparts. It pared gains against the dollar after Standard & Poor’s said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

Germany’s Economy

The euro climbed 0.1 percent to $1.3359, recouping some of the 1.2 percent slump yesterday, when German yields climbed 23 basis points and the cost to insure European government debt rose to a record.

The Ifo institute’s business climate index for Germany fell to 105.2 in November, according to the median forecast of economists in a Bloomberg News survey. Figures yesterday showed European services and manufacturing output contracted for a third month.

“Germany may be the safest economy but it’s also the only deep pocket in Europe and as the crisis rises it becomes clearer and clearer that the Germans are going to have to pay up,” George Feiger, chief executive officer of Contango Capital Advisors Inc., said in a Bloomberg Television interview from San Francisco. “It’s not surprising that we’re seeing a sell-off and it could well continue for some time.”

Won, Bond Risk

The won retreated 0.6 percent to 1,158.80 per dollar, after touching 1,160.50 earlier, the lowest level since Oct. 14. Taiwan’s dollar declined 0.1 percent to NT$30.438 against its U.S. counterpart, also a fifth day of losses.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased nine basis points to 234 basis points, according to Royal Bank of Scotland Group Plc prices. The gauge is on course for the highest close since Oct. 7, according to data provider CMA. The Markit iTraxx Australia index advanced 10 to 222, which will be the highest level since Oct. 6, according to RBS and CMA.

MSCI’s Asia Pacific Index earlier dropped as much as 0.7 percent, reaching the lowest intraday level since Oct. 6. The gauge tumbled 1.8 percent yesterday, when Japan’s markets were closed for a holiday.

Canon Inc. dipped 1.2 percent in Tokyo, pacing a drop among exporters to Europe. JFE Holdings Inc. retreated 1.7 percent after the Nikkei newspaper reported the steelmaker is reducing its production target. HTC (2498) sank 6.9 percent to a 16-month low in Taipei after the company said revenue this quarter will be little changed from a year earlier. The smartphone maker had earlier forecast growth of 20 percent to 30 percent. Hanwha Chemical dropped 4.7 percent.

China’s Policies

China’s Shanghai Composite Index (SHCOMP) was little changed after six days of declines. The central bank said it is lowering reserve requirements for more than 20 rural cooperative banks by half a percentage point.

“Europe’s debt crisis is still worsening and that’ll pressure local sentiment by scaring investors away from risk assets,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “China’s policies are in the process of being loosened gradually and there won’t be further tightening. But an overall relaxation is still unlikely.”

S&P 500 futures expiring in December signal U.S. stocks (MXAP) may halt a six-day slump that dragged the benchmark index down to the lowest level since Oct. 7. The market will be closed today for the Thanksgiving holiday and trading will end at 1 p.m. tomorrow. Economic data yesterday showed U.S. durable goods orders fell and jobless claims topped forecasts.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net

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AT&T Runs Low on Options to Get U.S. Approval for T-Mobile

By Scott Moritz, Sara Forden and Serena Saitto - Nov 24, 2011 4:20 AM GMT+0700

AT&T Inc. (T) may be running out of options to win regulatory approval for its proposed $39 billion takeover of T-Mobile USA, forcing AT&T to choose whether to drop the bid or endure months of litigation with the U.S. government.

The Federal Communications Commission took a step toward opposing the deal yesterday, as Chairman Julius Genachowski asked commissioners to send the proposal to an agency judge for a hearing. Agency staff had found the proposed merger would significantly diminish competition and lead to job losses, said an official who spoke on the condition of anonymity.

AT&T may also be losing one possible option for addressing the concerns of the Justice Department, which sued in August to block the deal because it would reduce wireless competition. MetroPCS Communications Inc. (PCS), which has been negotiating to buy assets from AT&T and T-Mobile to become a more viable rival, isn’t interested in customers and spectrum in as many markets as AT&T needs to sell, said two people close to the situation who declined to be identified because the talks are private.

Odds are increasing that Dallas-based AT&T will have a long legal fight if it wants to salvage the deal, said Jeffrey Silva, an analyst at Medley Global Advisors LLC in Washington.

“The FCC and DOJ work hand in hand,” Silva said in a telephone interview. The FCC’s move “shows that AT&T has made no progress in the negotiations with the DOJ.”

Reviewing Options

AT&T said the FCC’s decision was disappointing and that it was “reviewing all options.”

“It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both,” Larry Solomon, an AT&T spokesman, said in a statement.

AT&T, the second-largest U.S. wireless operator, has said the T-Mobile deal would improve customer service because it would boost investments in higher-speed technologies and allow expansion into more rural areas. AT&T also said it needs T- Mobile’s spectrum to serve its 100.7 million customers as an increasing number use data-intensive smartphones.

“The decision disappoints because it doesn’t take into account the deal’s clear advantages for the U.S. market and economy,” said Philipp Kornstaedt, a spokesman for T-Mobile USA’s Bonn-based owner Deutsche Telekom AG. (DTE) “We’re now analyzing the new situation together with AT&T.”

Deutsche Telekom shares closed down 2.9 percent to 8.76 euros in Frankfurt. AT&T fell 1.9 percent to $27.55 at the close in New York.

Industry Concentration

FCC officials, during a background briefing with reporters yesterday, disputed AT&T’s claims that the transaction would create jobs and significantly spur the expansion of wireless high-speed Internet. Wireless industry concentration would increase in 99 of 100 markets, the official said.

The FCC’s commissioners may vote on Genachowski’s proposal for a hearing, which is akin to a trial, in the coming days. The administrative law judge presiding over the hearing delivers an initial decision that goes to agency commissioners for a vote.

“The FCC procedure is even farther-reaching than a court trial,” said Herbert Hovenkamp, a professor and antitrust expert at the University of Iowa College of Law. “This is like two tidal waves coming at AT&T, with the second one potentially even larger than the first.”

‘Significant Obstacle’

The order marks the first time since 2002 that the FCC has moved to bring a communications merger to a hearing before an agency judge, Andrew Lipman, a Washington-based partner with Bingham McCutchen LLP, said in an interview yesterday. The last transaction to face such a hearing was EchoStar Communications Corp.’s bid for fellow satellite company DirecTV (DTV), Lipman said. The companies eventually dropped their bid, he said.

“A hearing could go on for six to 12 months,” Lipman said. “It’s certainly a significant obstacle and roadblock.”

The FCC’s move comes as AT&T struggles to address the Justice Department’s objection to the proposed acquisition. AT&T has been trying to sell assets to soothe regulatory concerns that a reduction in nationwide providers to three from four would undermine competition. MetroPCS had emerged as the frontrunner to buy wireless spectrum and customers from AT&T and T-Mobile to bolster its position as a nationwide competitor, people familiar with the matter said last month.

MetroPCS Prospects

MetroPCS’s interest in buying a large chunk of the assets is now declining and Leap Wireless International (LEAP) is emerging as the most interested party in buying those assets, said the two people familiar with the situation. Deutsche Telekom is ready to finance either buyer, said the people.

Leap may be even less likely to replace T-Mobile as a fourth national competitor than MetroPCS. While T-Mobile had 33.7 million wireless subscribers at the end of September, MetroPCS had 9.1 million and Leap had 5.8 million. Leap also has fewer resources to buy assets, with $800 million in cash and short-term investments compared with $2.1 billion for MetroPCS.

Greg Lund, a Leap spokesman, declined to comment on any negotiations with AT&T. Diana Gold, a MetroPCS spokeswoman, didn’t immediately return a phone call for comment.

AT&T has agreed to pay Deutsche Telekom a breakup fee of $3 billion as well as spectrum if the deal collapses for a total package valued at as much as $7 billion.

“Too much money remains at stake for it to concede defeat and drop the deal,” Andrew Gavil, an antitrust professor at Howard University School of Law in Washington, said in an interview. “They’ve locked themselves in to take it to the mat.”

Still, it will be a struggle for AT&T to complete the deal given the increasing number of hurdles, said Stephen Axinn, an antitrust lawyer with Axinn Veltrop & Harkrider LLP in New York.

“The deal is not dead yet, but this is not a good day for AT&T,” Axinn said in an interview. “It becomes much more of a long shot now.”

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Sara Forden in Washington at sforden@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Michael Shepard at mshepard7@bloomberg.net

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