U.S. Stock Futures Climb Before Inflation Report

By Sarah Jones - Dec 16, 2011 7:14 PM GMT+0700

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Dec. 16 (Bloomberg) -- Francisco Jeronimo, an analyst at IDC, talks about the outlook for Research In Motion Ltd. He speaks with Owen Thomas on Bloomberg Television's "On the Move." (Source: Bloomberg)

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index (SPX) will advance for a second day, before a report that may show inflation is in check.

Alcoa Inc. (AA) and Freeport-McMoRan Copper & Gold Inc. (FCX) climbed in early New York trading as base metals advanced. Research In Motion Ltd. (RIM) dropped 8.8 percent after the company delayed the release of a new generation of BlackBerry devices.

Futures on the S&P 500 expiring in March rose 0.5 percent to 1,218 at 7:12 a.m. in New York. The gauge increased 0.3 percent yesterday, trimming this week’s decline to 3.1 percent. Dow Jones Industrial Average Index futures added 42 points, or 0.4 percent, to 11,864 today.

“Today’s interest will be directed at consumer prices,” Viola Stork, an analyst at Helaba Landesbank Hessen-Thueringen in Frankfurt, wrote in a note to clients today. “Overall, fears of inflation shouldn’t arise as the mid-term perspectives expect a weakening of inflation.”

U.S. stocks snapped a three-day decline yesterday after reports on jobless claims and manufacturing boosted confidence in the world’s largest economy.

Today’s Labor Department report may show the cost of living the U.S. was little changed in November as gasoline prices fell, economists said. The consumer-price index increased 0.1 percent last month after falling 0.1 percent in October, according to the median economist forecast in a Bloomberg News survey. So- called core prices, which exclude volatile food and energy costs, may have also risen 0.1 percent. The figures are due at 8:30 a.m in Washington.

Weekly Drop

The S&P 500 has still lost 3.1 percent this week after the Federal Reserve refrained from taking new action to bolster growth. The central bank said the U.S. economy is maintaining its expansion even as the global economy slows.

Fed Bank of New York President William C. Dudley in a prepared testimony reiterated the central bank isn’t planning to undertake additional steps to curtail the impact of Europe’s debt crisis, while standing by to boost liquidity if necessary. He is scheduled to appear at 9:30 a.m. at a hearing in Washington.

Alcoa, the largest U.S. aluminum producer, climbed 2.4 percent to $8.99 in New York. Freeport-McMoRan, the biggest publicly traded copper producer, gained 1.7 percent to $37.50.

Copper led base metals higher on the London Metal Exchange as yesterday’s economic data continued to ease concerns that the global economic recovery is at risk.

‘Powerful Impetus’

“Yesterday’s economic data already have a hint that fortunes could turn more positive for industrial metals in 2012,” Tobias Merath, head of global commodity research at Credit Suisse AG, wrote in a report today. “When economic growth stabilizes, this could deliver a powerful impetus.”

RIM (RIMM) dropped 8.8 percent to $13.80 in New York after saying a new generation of BlackBerrys designed to fuel a comeback won’t be out until the “latter part” of 2012.

The smartphone maker, which originally planned to release the new devices in the first quarter of next year, also gave sales and profit forecasts that missed analysts’ estimates.

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

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

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Monti Faces Confidence Vote to Speed Approval of Emergency Budget Proposal

By Lorenzo Totaro - Dec 16, 2011 4:42 PM GMT+0700

Italian Prime Minister Mario Monti faces a confidence vote in Parliament to speed passage of a 30 billion-euro ($39 billion) emergency budget plan aimed at spurring growth and convincing investors he can cut Europe’s second-biggest debt.

The Chamber of Deputies in Rome began the debate on the package at 10 a.m. before the confidence vote, which Monti’s government requested to end debate and force lawmakers to vote or risk the fall of the government. A final vote will be held in the lower house at 7:30 p.m., and then the package will pass to the Senate, which is set to give final approval on Dec. 23.

Monti has said the measures, which include an overhaul of the pension system, the reinstatement of a property tax on primary residences and measures to boost growth and fight tax evasion, will help protect Italy from the spread of the debt crisis and bring down record borrowing costs. The Treasury had to pay 6.47 percent to sell five-year debt on Dec. 14, the most in more than 14 years.

“The package has some limits, a significant part of it is based on higher taxes, but it’s absolutely indispensable,” Emma Marcegaglia, head of employers’ lobby Confindustria, said yesterday in Rome at a presentation of the group’s new economic forecasts.

Fifth Recession

The euro-region’s third-largest economy has slipped into its fifth recession since 2001, Confindustria said. The group forecasts the Italian economy will contract 1.6 percent next year, after predicting growth of 0.2 percent in September.

Italian bonds gained for the first day in four yesterday after Spain sold more debt than forecast at a bond sale, easing concern about demand for new debt. The yield on Italy’s benchmark 10-year debt fell 17 basis points to 6.40 percent today. Before the Spanish sale, the Italian yield rose as high as 6.82 percent, approaching the 7 percent threshold that led Greece, Ireland and Portugal to seek bailouts.

“We are confident that markets will react positively to the efforts Italy is making, maybe not tomorrow, but the reduction in borrowing costs that we anticipate in the coming months will help spur the economy,” Monti told the Finance and Budget Committees of the Chamber of Deputies on Dec. 13. Europe must avoid internal conflicts between northern and southern countries over the debt crisis, Monti said today at a Rome conference.

New Measures

The premier said yesterday that his government was working on a new package of measures that aim to spur economic growth, which has lagged behind the European Union average for more than a decade. He reiterated a pledge to open up closed professions and said he would go ahead with plans to overhaul labor market rules and the welfare system.

Monti, who took office a month ago as head of a so-called technical government without a political base in Parliament, is seeking to show investors he can tame a debt that is bigger than that of Spain, Greece, Portugal and Ireland combined. This week he accepted changes to the plan to ease a pension freeze and the impact of the property tax on families in a bid to build support before the vote.

The plan was changed this week to raise the threshold on pensions that will be frozen to about 1,400 euros a month, from just under 1,000 euros in the original package. Families paying the new property tax will get a 50-euro credit per child, the amendment says. Italians whose checking-account balances average less than 5,000 euros a year will no longer have to pay a 34- euro annual tax.

The government will cover the lost revenue by increasing the planned levy on Italians who took advantage of previous amnesties on tax evasion. The amendment will also add a tax surcharge on pensions of more than 200,000 euros a year and will impose a levy on property owned by Italians outside of Italy.

Monti won backing for his government of non-politicians last month in the parliament from most parties. While the budget plan has met criticism from Berlusconi and his People of Liberty Party, the former premier would risk a political vacuum at a time when Italy’s bonds are under pressure should his forces vote against the plan.

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net;

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

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Dollar, Yen Weaken as Signs of U.S. Growth Damp Safety Bid; Aussie Gains

By Anchalee Worrachate and Monami Yui - Dec 16, 2011 7:19 PM GMT+0700

The dollar and yen weakened against most of their major counterparts as evidence the U.S. economy is gaining momentum reduced demand for safer assets.

The Australian and New Zealand dollars led gains versus the greenback as rising commodity prices boosted investor appetite for the South Pacific nations’ assets. The euro pared its biggest weekly decline against the dollar in three months as Italy’s Prime Minister Mario Monti survived a vote on his budget plan. India’s rupee surged from a record low after the central bank took steps to curb speculation.

“Sentiment overall remains fragile, but at least recent reports in the U.S. suggest there’s some degree of economic healing going on,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in Tokyo. “That helps to stabilize risk sentiment in the near term, and it’s negative for haven currencies.”

The dollar declined 0.2 percent to $1.3035 versus the euro at 7:12 a.m. New York time, trimming this week’s advance to 2.7 percent, still the most since the period ended Sept. 9. The yen depreciated 0.2 percent to 101.50 per euro after rising yesterday to 101.05, the strongest level since Oct. 4. The dollar was little changed at 77.88 yen.

The Stoxx Europe 600 Index gained 0.2 percent, and futures on the Standard & Poor’s 500 Index (SXXP) rose 0.4 percent.

The Australian dollar advanced 0.8 percent to $1.0002, and the New Zealand currency, also known as the kiwi, climbed 0.9 percent to 76.05 U.S. cents.

‘Factored In’

“The market has already factored in a fairly negative outcome from Europe and there’s some scope for sentiment to improve,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. The Australian currency is likely to “firm up,” he said.

The Indian rupee extended its rally from an all-time low reached yesterday after the Reserve Bank of India announced measures to curb speculation in the foreign-exchange market. The currency appreciated 1.7 percent to 52.74 per dollar after touching the all-time low of 54.3050 yesterday.

“The RBI has taken decisive measures to reduce onshore speculation against the rupee,” said Olivier Desbarres, head of regional foreign-exchange strategy at Barclays Plc in Singapore. “These measures have certainly caught the market’s attention, and it reduces the chances of a rapid weakening.”

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 80.154 after touching 80.730, the highest level since January.

Consumer Prices

U.S. consumer prices rose 0.1 percent last month after falling 0.1 percent in October, according to the median forecast of 82 economists in a Bloomberg News survey before today’s report from the Labor Department.

Gross domestic product will expand 2.19 percent in 2012 after growing 1.80 percent this year, according to forecasts compiled by Bloomberg News.

U.S. initial jobless claims fell by 19,000 to 366,000 last week, the least since May 2008, the Labor Department said yesterday. Other reports showed manufacturing in the regions covered by the Federal Reserve Banks of New York and Philadelphia accelerated in December more than forecast.

The Fed’s policy-setting panel said on Dec. 13 the economy “has been expanding moderately,” compared with the Nov. 2 assessment that growth “strengthened somewhat.”

The dollar has appreciated 1.8 percent in the past month in the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 1.8 percent, and the yen has advanced 0.6 percent.

Euro Versus Dollar

Bets that the euro will drop against the dollar fell from last week in the options market. Traders paid 3.3 percentage points more for the right to sell the euro against the dollar than to buy it, down from 3.6 percent on Dec. 9.

“The U.S. economy has certainly been pretty stable for several months,” Gibbs said. Recent demand for the U.S. dollar may have been “excessive,” he said.

The euro was headed for a weekly decline against most of its major counterparts after European Central Bank President Mario Draghi said there’s no “external savior” for indebted countries that don’t implement structural reforms.

The ECB is purchasing the bonds of debt-strapped nations such as Italy and Spain after they agreed to implement austerity measures to improve their finances. Draghi nevertheless reiterated in a speech in Berlin this week that the ECB’s bond program is “neither eternal nor infinite.”

Further gains in the euro will be limited, according to Morgan Stanley.

“We expect the downtrend to resume shortly as concerns linger, particularly surrounding the implementation risk for the EU Summit agreement,” Hans-Guenter Redeker, a strategist in London, wrote in a note to clients. “We do not expect bank repatriation to provide much support for the euro against the dollar going into the year-end as we believe that much of this flow may well have been already taken place.”

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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Most European Stocks Advance Before U.S. Inflation Data; Kazakhmys Gains

By Corinne Gretler - Dec 16, 2011 7:30 PM GMT+0700

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Dec. 16 (Bloomberg) -- Jim McCafferty, a Hong Kong-based Asia research product manager for Royal Bank of Scotland Group Plc, talks about the outlook for China economic growth and stocks. McCafferty also discusses the Indian rupee. He speaks with Rishaad Salamat, Angie Lau, John Dawson and Mia Saini on Bloomberg Television. (Source: Bloomberg)

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Dec. 16 (Bloomberg) -- Stewart Paterson, the Singapore-based co-founder of Riley Paterson Investment Management Pte, talks about Europe's debt crisis and its impact on Asian financial markets. Paterson speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will pare its weekly loss, commodities climbed and the yen weakened as better-than-forecast data signaled the world’s biggest economy is strengthening.

S&P futures expiring in March rose 0.6 percent at 7:24 a.m. in New York, while the Stoxx Europe 600 Index increased 0.1 percent. The yen depreciated against all 16 major peers tracked by Bloomberg and India’s rupee jumped 1.5 percent as the central bank introduced measures to curb currency speculation. Copper led commodities higher.

U.S. initial jobless claims unexpectedly dropped to a three-year low yesterday and Federal Reserve gauges of manufacturing in the New York and Philadelphia regions topped estimates. Singapore’s exports exceeded economists’ projections, while Fitch Ratings boosted Indonesia’s sovereign debt ratings to investment grade. A report today may show the cost of living in the U.S. was little changed in November.

“The downside risk in equity markets, most notably European equity markets at the moment, is very low,” Bob Parker, a senior adviser at Credit Suisse Asset Management, said from London in a Bloomberg Television interview. The firm oversees about $453 billion. “We’re still in a situation where Chinese growth will be maintained above 8 percent in 2012.”

European Stocks Climb

The Stoxx 600 pared an earlier gain of 0.7 percent. The gauge has tumbled 15 percent this year. Rio Tinto Group climbed 2.8 percent, leading a gauge of mining companies higher. The MSCI Asia Pacific Index rallied 0.8 percent and the Shanghai Composite Index (SHCOMP) snapped a six-day losing streak.

The gain in S&P 500 futures signaled the U.S. equity benchmark may extend yesterday’s 0.3 percent advance. The S&P 500 has lost 3.3 percent in 2011, the second-best performance among 24 developed markets after New Zealand.

Research In Motion Ltd. dropped 8.8 percent in early New York trading after the smartphone maker delayed the release of a new generation of BlackBerry devices.

The benchmark 10-year Treasury yield rose one basis point to 1.917 percent. U.S. consumer prices probably climbed 0.1 percent in November after falling the previous month, according to a survey of 82 economists before the Labor Department report today. Inflation-linked debt has returned 14 percent to investors this year, set for the biggest annual gain since 2002, an index compiled by Bank of America Corp. shows.

Yen Weakens

The yen fell the most against higher-yielding currencies, dropping 1 percent versus the South African rand and 1.2 percent against the New Zealand dollar. The euro was 0.1 percent stronger at $1.3032 and climbed 0.2 percent to 101.49 yen. The dollar was little changed at 77.87 yen.

Spanish two-year notes rallied for a sixth day, dropping 54 basis points to 3.12 percent, a two-month low. Italian two-year note yields were 49 basis points lower at 5.05 percent.

Italian Prime Minister Mario Monti won a confidence vote in the lower house of parliament today on a 30 billion-euro ($39 billion) package of austerity and growth measures. A final vote will be held this evening before the package passes to the Senate, which is set to vote on the plan on Dec. 23.

German two-year note yields fell to a record 0.23 percent. Ten-year yields slipped two basis points to 1.93 percent.

The cost of insuring against default on sovereign debt fell, with the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments declining 4.5 basis points to 378 basis points. Corporate swaps indexes were little changed.

Metals Climb

Copper, zinc and aluminum rose more than 1 percent and gold climbed 1.6 percent to $1,595.64 an ounce, the first gain this week. The S&P GSCI index of 24 commodities was 0.5 percent higher, the first increase in three days. Oil in London advanced 0.6 percent to $104.24 a barrel.

The MSCI Emerging Markets Index (MXEF) rose 0.9 percent, snapping six days of losses. Indonesia’s Jakarta Composite Index climbed 1.9 percent and the rupiah appreciated 0.6 percent against the dollar after Fitch Ratings upgraded the country to investment grade yesterday.

The Shanghai Composite Index jumped 2 percent as investors speculated China will cut lenders’ reserve requirements, according to Zheshang Securities Co. India’s rupee led gains in emerging-market currencies, strengthening 1.4 percent from a record low after the central bank announced measures to curb speculation in the foreign-exchange market.

To contact the reporter on this story: Andrew Rummer in London at arummer@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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Gold Market Rout Leaves Traders Least Bullish in Four Months: Commodities

By Nicholas Larkin - Dec 16, 2011 5:46 PM GMT+0700

Gold’s biggest rout in three months means traders are the least bullish since July and Dennis Gartman, the economist who sold the last of his metal on the day the slump began, warned of further declines.

Ten of 21 surveyed by Bloomberg expect the metal to gain next week, the lowest proportion since July 29. Three were neutral. While bullion’s slide of as much as 9 percent this week took its drop from the record $1,923.70 an ounce reached in September to almost 20 percent, the common definition of a bear market, investors are still holding near the most metal ever in exchange-traded products, a wager now valued at $120.3 billion.

Commodities retreated the most in almost three months and more than $640 billion was wiped off the value of global equities on Dec. 14 after the Federal Reserve refrained from taking new stimulus measures. That combined with signs of increased funding stress in Europe helped drive the dollar to the highest since January against the euro. Gold typically moves in the opposite direction to the U.S. currency.

“Bears are in the driver seat,” said Miguel Perez- Santalla, vice president of sales at Heraeus Precious Metals Management LLC in New York, whose clients include jewelers and mining companies. (BWMING) “But the problems in Europe have not been solved and buying will come back and we will see higher prices because of a lack of confidence in the financial system.”

Bank of America

Bullion rose 12 percent to $1,594.20 an ounce this year on the Comex in New York. Even after this week’s rout, it’s still the third-best performer in the Standard & Poor’s GSCI gauge of 24 commodities, which fell 1.9 percent. The MSCI All-Country World Index of equities retreated 12 percent this year and Treasuries returned 9.6 percent, a Bank of America Corp. index shows.

Options traders are still bullish. The most widely held option gives owners the right to buy gold at $2,000 by March, data from the bourse show. The eight biggest holdings are all call options at 13 percent or more above prices today.

While investors cut 13.3 metric tons of gold from their ETP holdings yesterday, the most since Aug. 24, assets are less than 1 percent below the record set Dec. 14, data compiled by Bloomberg show. Holders have a combined 2,347.5 tons, greater than the reserves of all but four of the world’s central banks and equal to more than 10 months of global mine supply.

Debt Crisis

Demand for physical gold accelerated this quarter at the fastest pace in more than a year as Europe’s debt crisis deepened. The European Central Bank cut interest rates for a second consecutive month last week to shore up growth. Lower interest rates increases the appeal of gold because it generally earns investors returns only through price gains.

“The fundamentals remain positive,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland. “Both the European Central Bank and Fed remain easy. After this cleansing, gold will move up again.”

Gartman said on Dec. 13 traders were witnessing the “death of a bull” and “the beginnings of a real bear market” that may drive prices as low as $1,475. Bullion may “cascade” lower if prices drop below yesterday’s lows by early next week, he wrote today in his Suffolk, Virginia-based Gartman Letter. If that were to happen, he would “begin to look again at buying gold,” he wrote.

While gold is heading for an 11th consecutive annual gain, this week’s declines mean it is also poised for its first quarterly drop in three years.

Money Managers

Hedge funds and other money managers boosted bets on higher futures prices by 3.5 percent to 151,347 contracts in the week ended Dec. 6, the first gain in three weeks, U.S. Commodity Futures Trading Commission data show. Prices declined 4 percent in the week through Dec. 13 and dropped another 5.6 percent since then. The CFTC will announce the latest data today.

Gold may drop below $1,500 an ounce in the “short term,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, who is forecasting an average of $1,800 next year. “Gold is not a safe haven at the moment,” he said.

The metal plunged as much as 20 percent in the three weeks through Sept. 26 as investors sold to cover their losses elsewhere, before rebounding as much as 18 percent in the following six weeks. The September plunge halted at the metal’s 200-day moving average. Two days ago, gold closed below that measure for the first time since January 2009.

Gold Rally

That move means prices may tumble to $1,400 “in a hurry,” said Dave Lutz, head of exchange-traded-fund trading and strategy at Stifel Nicolaus & Co. in Baltimore. Gold may drop to $1,550 before rallying to as high as $2,400 in the second half of next year, Citigroup Inc.’s CitiFX Technicals predicted in a report Dec. 14.

The plunge may spur more buying from central banks, who are expanding reserves for the first time in a generation, and put a “floor” on prices, said Day of Adrian Day Asset Management. The World Gold Council expects central banks to buy as much as 450 tons this year. Official holdings stand at 30,708 tons, data from the London-based council show.

The metal should rally in the second half of next year “given the turmoil in Europe,” Bank of America wrote in a note yesterday, predicting bullion will reach $2,000 in 12 months.

Twelve of 24 traders and analysts surveyed by Bloomberg expect copper to fall next week. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, declined 24 percent to $7,325.50 a ton this year.

Sugar Slumps

Raw sugar retreated 28 percent this year to 22.99 cents a pound on ICE Futures U.S. in New York. Six of 10 people surveyed expect prices to drop next week.

Nine of 21 anticipate a gain in corn, with four neutral, while the same number said soybeans will rise. Corn slipped 8 percent to $5.7875 a bushel in Chicago this year, and soybeans slid 20 percent to $11.2575 a bushel.

“Stock markets are going down, the euro zone is going into recession, China is slowing down, you’ve got a million reasons to go underweight commodities,” said Jesper Dannesboe, an analyst at Societe Generale SA in London. “It may bottom out in the first quarter. You’re going to see quantitative easing and that will stabilize the markets. There’s not going to be a big bull market, but it will help stabilize.”

Gold survey results: Bullish: 10 Bearish: 8 Hold: 3
Copper survey results: Bullish: 10 Bearish: 12 Hold: 2
Corn survey results: Bullish: 9 Bearish: 8 Hold: 4
Soybean survey results: Bullish: 9 Bearish: 8 Hold: 4
Raw sugar survey results: Bullish: 3 Bearish: 6 Hold: 1
White sugar survey results: Bullish: 2 Bearish: 7 Hold: 1
White sugar premium results: Widen: 2 Narrow: 4 Neutral: 4

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

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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Euro Set for Biggest Weekly Drop in 3 Months

By Monami Yui - Dec 16, 2011 10:18 AM GMT+0700

The dollar and the yen declined against most of their major peers as evidence the U.S. economy is gaining momentum eased demand for havens.

The Australian and New Zealand dollars rebounded from two- week lows as Asian stocks extended gains in global equities, boosting demand for higher-yielding assets. The euro headed for the steepest weekly drop versus the greenback in three months as European nations prepare for bill auctions next week amid concern policy makers can’t contain the region’s debt crisis. China’s yuan rose the most since a dollar peg ended July 2005.

“The U.S. numbers were better yesterday and that’s certainly giving a little bit of upside to risk appetite,” said Mitul Kotecha, head of global currency strategy at Credit Agricole CIB in Hong Kong. “That might provide some support for risk currencies” such as the euro and Australian dollar.

The U.S. dollar declined 0.1 percent to $1.3036 per euro as of 12:16 p.m. in Tokyo from New York yesterday. The currency has strengthened 2.7 percent this week, the biggest advance since the five days ended Sept. 9. The U.S. currency was little changed at 77.87 yen. The yen dropped 0.2 percent to 101.55 per euro.

The 17-nation euro is headed for a 2.6 percent loss versus the dollar this year and a 6.4 percent decline against the yen.

The so-called Aussie climbed 0.5 percent to 99.71 U.S. cents, after touching 98.61 cents yesterday, the lowest level since Nov. 28. The kiwi jumped 0.8 percent to 75.94 U.S. cents from yesterday, when it sank to 74.62, also the least since Nov. 28.

The MSCI (MXAP) Asia Pacific Index of shares rose 0.4 percent.

U.S. Data

U.S. Labor Department figures yesterday showed initial jobless claims decreased by 19,000 to 366,000 last week, the fewest since May 2008. The median forecast of economists surveyed by Bloomberg News was 390,000.

Separately, two reports yesterday showed manufacturing in the regions covered by the Federal Reserve Banks of New York and Philadelphia accelerated more than forecast in December.

The Fed’s policy-setting panel said on Dec. 13 the economy “has been expanding moderately,” compared with the Nov. 2 assessment that growth “strengthened somewhat.”

The dollar has appreciated 2 percent in the past month, the best performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 1.7 percent and the yen has advanced 0.7 percent.

“The U.S. economy has certainly been pretty stable for several months,” said Greg Gibbs, a foreign-exchange strategist in Sydney at Royal Bank of Scotland Group Plc. Recent demand for the U.S. dollar may have been “excessive,” he said.

Debt Auctions

France is scheduled to sell as much as 7 billion euros ($9.1 billion) of bills on Dec. 19. Spain and Greece will also offer short-term government securities next week.

Standard & Poor’s said last week it may lower France’s credit rating by two levels in a possible euro-area downgrade stemming from the failure of the region’s leaders to arrest a debt crisis that began in Greece in 2009 and now presents the biggest threat to the world economy.

“The French debt sales in particular will be closely watched,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Poor results may intensify the market’s fear that France will lose its AAA rating, and it may add to downward pressure on the euro.”

Ishikawa forecasts the euro may fall to the January low of $1.2867 by the end of this month.

ECB’s Draghi

Gains in the euro were also limited after European Central Bank President Mario Draghi said yesterday there’s no “external savior” for indebted countries that don’t implement structural reforms and the central bank’s program of buying government bonds isn’t limitless.

The ECB is buying the bonds of debt-strapped nations such as Italy and Spain after they agreed to implement austerity measures to improve their finances. Draghi nevertheless reiterated in a speech in Berlin yesterday that the ECB’s bond program is “neither eternal nor infinite.”

He said an “unavoidable” short-term economic contraction in the euro area may be mitigated by a return of confidence if governments implement budget consolidation plans.

“In the medium term, sustainable growth can be achieved only by undertaking deep structural reforms that have been procrastinated for too long,” Draghi said.

China’s yuan gained amid optimism policy makers will avoid a sharp slowdown in the world’s second-largest economy.

“The fixing was firmer and at market open there was solid dollar offer interest, in particular by Chinese banks,” said Dariusz Kowalczyk, Hong Kong-based senior strategist at Credit Agricole CIB. “Improved sentiment in global markets is helping as is news that China is easing curbs in the property sector which will limit downside risks to growth.”

The Chinese currency gained 0.4 percent to 6.3475 per dollar after earlier rising as much as 0.7 percent, according to China Foreign Exchange Trade System. The central bank raised its daily reference rate by 0.1 percent to 6.3352.

-- With assistance from Mariko Ishikawa in Tokyo and Kyoungwha Kim in Beijing. Editors: Garfield Reynolds, Benjamin Purvis

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net;

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Asia Stocks, Gold Rise on U.S. Economic Strength

By Lynn Thomasson and Yoshiaki Nohara - Dec 16, 2011 10:27 AM GMT+0700 .

Asian stocks (MXAP) rose for the first time in four days as metals and the Australian dollar climbed after better-than-expected U.S. data signaled the world’s biggest economy is strengthening.

The MSCI Asia Pacific Index gained 0.4 percent as of 12:13 p.m. in Tokyo, paring a 2.7 percent drop for the week. Standard & Poor’s 500 Index futures increased 0.3 percent. The Chinese yuan strengthened the most in two months, the Indonesian rupiah appreciated and the Australian dollar advanced against most of its 16 major counterparts. Gold, copper and aluminum rose at least 0.6 percent.

U.S. initial jobless claims unexpectedly dropped to a three-year low and Federal Reserve gauges of manufacturing in the New York and Philadelphia regions topped estimates. Singapore’s exports exceeded economists’ projections, while Fitch Ratings boosted Indonesia’s sovereign debt ratings to investment grade. European Central Bank President Mario Draghi said yesterday there’s no “external savior” for indebted countries that don’t implement structural reforms and the central bank’s buying government bonds isn’t limitless.

“The U.S. economy is ending the year in a bit better shape than people had anticipated, and that is good, but Europe is obviously not,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The European economy is heading toward recession next year, and I think it’s going to continue to weigh on markets.”

Euro Gains

The euro climbed 0.2 percent to $1.3041, trimming the biggest weekly decline in three months. Italian Prime Minister Mario Monti faces a confidence vote in Parliament today to speed passage of a 30 billion-euro ($39 billion) emergency budget plan aimed at spurring growth.

S&P 500 futures rose to 1,214.80. The number of applications for unemployment payments in the U.S. dropped by 19,000 to 366,000 in the week ended Dec. 10, a lower total than was forecast by any of 47 economists surveyed by Bloomberg News, according to government figures released yesterday.

About two stocks rose for each that fell in the MSCI Asia Pacific Index, which has fallen 19 percent this year. The Nikkei 225 Stock Average increased 0.3 percent and Australia’s S&P/ASX 200 Index climbed 0.4 percent.

New China Life Insurance Co., the nation’s third-largest life insurer, surged 14 percent on its first trading day in Shanghai.

The Chinese currency gained as much as 0.7 percent to 6.3294 per dollar, the strongest level since China unified official and market exchange rates at the end of 1993, as signs credit curbs are easing bolsters optimism policy makers will avoid a sharp slowdown in the world’s second-largest economy.

‘Improved Sentiment’

“Improved sentiment in global markets is helping as is news that China is easing curbs in the property sector which will limit downside risks to growth,” said Dariusz Kowalczyk, Hong Kong-based senior strategist at Credit Agricole CIB.

Indonesia’s rupiah gained 0.2 percent to 9,070 per dollar. The country’s long-term foreign and local currency debt was raised to BBB- from BB+, Fitch said in a statement yesterday. It had lost the investment grade rating in December 1997, during the Asian financial crisis.

India’s SGX S&P CNX Nifty Index futures for December delivery were little changed in Singapore. India’s central bank will probably leave interest rates unchanged for the first time since 2010, ending a streak of seven increases. All 13 economists in a Bloomberg survey predict that the Reserve Bank of India will hold the repurchase rate at a three-year high of 8.5 percent today.

Gold, Copper

Immediate-delivery gold rose for the first time in five days, gaining 0.6 percent to $1,579.57 an ounce. Copper for three-month delivery climbed 0.9 percent to $7,278 a metric ton on the London Metal Exchange. Aluminum increased 1 percent to $1,995 a ton.

Oil rose less than 0.1 percent to $93.92 a barrel, poised for a 5.5 percent weekly retreat, the most since September. Wheat for March delivery fell 0.2 percent to $5.78 a bushel in Chicago. The price earlier dipped to $5.7725, matching a level reached yesterday, the lowest for the most-active contract since July 21, 2010, on reports of increased supplies from Canada and Argentina.

The cost of insuring Asia corporate and sovereign bonds against non-payment decreased, according to traders of credit- default swaps. The Markit iTraxx Asia index of 40 investment- grade borrowers outside Japan fell 4 basis points to 212 basis points, Royal Bank of Scotland Group Plc prices show. The gauge is set for its lowest close since Dec. 15, according to data provider CMA.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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Adobe Forecasts Sales That May Top Estimates on New Programs

By Aaron Ricadela - Dec 16, 2011 8:17 AM GMT+0700

Adobe Systems Inc. (ADBE) forecast fiscal first-quarter sales that may top analysts’ estimates amid buoyant demand for a new breed of tools that help customers design Web pages and create online video.

Revenue in the quarter that ends March 3 will be $1.03 billion to $1.08 billion, the company said in a statement today. That compared with $1.06 billion, the average estimate in a Bloomberg survey of analysts. Profit excluding certain items will be 54 cents to 59 cents a share, compared with the average 58-cent estimate. Shares gained in late trading.

Adobe, the largest maker of graphic-design software, last month reduced its sales outlook and said it will cut 750 jobs and stop making Flash software for mobile devices. The company is retooling its product line to better support the HTML5 Web- programming language, which has backing from companies including Apple Inc., Microsoft Corp. and Google Inc. It’s also aiming to get more revenue from online subscriptions.

“Adobe remains the premier company in terms of share, breadth of products and brand name” in the graphic-design software market, said Jay Vleeschhouwer, an analyst at Griffin Securities Inc. in New York. “It was a mistake to think Adobe would somehow not be right in the middle of participating in the HTML5 phenomenon.”

Vleeschhouwer has a “buy” rating on the shares and doesn’t own them.

Creative Suite

The San Jose, California-based company is releasing a new version of its flagship print- and Web-design software, Creative Suite 6, next year. The suite, plus individual sales of its programs such as Photoshop, Dreamweaver and Illustrator, supplies more than half of Adobe’s sales. Adobe will focus on tools that help customers work with HTML5 to design Web pages and produce online video.

For the fourth quarter, which ended Dec. 2, sales increased 14 percent to $1.15 billion, compared with analysts’ average $1.09 billion estimate. Profit excluding some costs was 67 cents a share, compared with analysts’ 60-cent estimate. Net income fell 35 percent to $173.7 million, reflecting the cost of job cuts in the quarter.

Shares rose in extended trading, advancing 5.6 percent to $27.95. The stock had slipped less than 1 percent to $26.46 at the close in New York.

Online Sales Pickup

One-third of Adobe’s design-software revenue will come from online subscriptions in three years, up from almost none now, Chief Financial Officer Mark Garrett said in an interview. The company’s advertising-software business may reach three-quarters of a billion dollars this fiscal year and will grow at about 25 percent annually, he said.

“This will be a billion-dollar business by itself,” he said. “We’re working hard to take a very fragmented market and pull it together.”

Chief Executive Officer Shantanu Narayen said the company’s design software business benefited from sales to large customers through traditional channels as well as individuals and smaller businesses through Adobe’s website.

“We had a healthy pipeline and the team executed,” he said on a conference call today.

Sales in the current fiscal year will increase 4 percent to 6 percent, Adobe said last month. At the time, analysts on average had estimated a revenue gain of 9 percent.

New Business Model

“A lot of the guidance takedown was due to the business model change,” said Ross MacMillan, an analyst at Jefferies & Co. in New York. “What’s maybe more surprising is the strength of the underlying business in Q4,” said MacMillan, who has a “buy” rating on the shares.

The company is overhauling the way it sells the Creative Suite to spur more frequent purchases of programs like Photoshop and Dreamweaver. As more customers seek to buy and use software over the Internet, Adobe plans to release a software package called Creative Cloud in the fiscal second quarter, Garrett said on today’s call.

Perhaps 15 percent of Creative Suite customers may buy cloud computing versions of the software, said Walter Pritchard, a San Francisco-based analyst at Citigroup Inc.

Adobe plans to introduce more tablet-computer software and subscription pricing plans starting at $50 a month, designed to attract new customers. It will also stop developing the Flash Player for mobile devices and instead emphasize the Air software, which will work with online application stores.

Recent acquisitions aim to expand Adobe’s Web publishing and advertising prowess. Last month, it said it would acquire online advertising company Efficient Frontier, which sells software that lets advertisers buy keywords on Google and place ads on Facebook. Adobe bought video advertising company Auditude Inc. on Nov. 1.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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

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Olympus Drops as Takayama Backs Away From Drastic Revamp

By Mariko Yasu - Dec 16, 2011 8:54 AM GMT+0700

Olympus Corp. (7733) fell as much as 11 percent, the biggest drop on the Nikkei 225 Stock Average (NKY), after President Shuichi Takayama signaled a planned revamp of management may stop short of demands by some overseas investors.

The Japanese camera maker, reeling from a $1.7 billion accounting fraud, has lost more than a quarter of its market value since restating earnings and slashing net assets Dec. 14. Takayama said yesterday he didn’t see a need for the entire board to resign over the cover-up, even after an independent review said they had failed to stop a “rotten” core of managers from hiding losses over more than a decade.

Shareholders including Southeastern Asset Management Inc., the biggest overseas stockholder in Tokyo-based Olympus, have said the entire board must go, along with all executives who were involved in the fraud. Takayama and Michael Woodford, who was fired as chief executive officer after challenging his fellow directors over the accounts, are in a battle for control that will test Japanese shareholders’ appetite to shake up one of the country’s best-known global companies.

While Takayama and Woodford both said yesterday they want to avoid a damaging proxy battle, they also traded barbs. Woodford said Takayama must quit and should play no role in deciding Olympus’s future management. Takayama repeated criticisms of Woodford’s abrasive personality and said it was unlikely management could work with him.

Delisting Threat

Since Woodford questioned inflated fees and takeover costs after he was fired Oct. 14, the company admitted to a 13-year scheme to hide losses and purged some senior executives. It still faces criminal probes, a battle for management control and a TSE review that may yet see it ejected from the world’s second-biggest bourse.

Takayama said that while he was willing to work with Woodford, he won’t meet him until after a separate panel to advise on changes in management reports.

The shares plunged 21 percent yesterday after Olympus took a $1.3 billion reduction in net assets, sparking a cut in the company’s credit rating. The stock was 8.6 percent lower as of 10:28 in Tokyo trading today.

Takayama said he will consider all options to restore capital, including a tie-up with other companies. Tokyo Stock Exchange rules permit companies to issue new shares to a third party with a dilutive effect of as much as 25 percent without seeking shareholder approval.

Shareholder Vote

Shareholders will vote on new management in March or April, Olympus said yesterday. Takayama said the replacement of the entire board may not be necessary.

“We’ll review our management structure, corporate governance and our business plans as we prepare for the shareholder meeting,” Takayama told reporters in Tokyo. “We’ll be reborn as new Olympus so that we can provide value to all our stakeholders including shareholders, customers, banks and our employees.”

The independent panel set up to investigate the fraud found a culture of “yes men” and a board that failed in its duty to stop a “rotten” core of executives from duping auditors, regulators and investors.

The board unanimously voted to fire Woodford when he challenged the accounting practices. Some board members and senior executives, including the head of the treasury department, Shigemi Sugimoto, signed off on documents that formed part of the fraud and were at yesterday’s press briefing.

Net Assets

Repeated attempts to reach Olympus executives accused of being involved in the schemes have failed.

Olympus’s net assets fell to 46 billion yen ($590 million) as of Sept. 30 from 151 billion yen reported in the previous quarter. That took the ratio to total assets to 4.8 percent, compared with the 44 percent average of 15 global peers in the precision-engineering sector, data compiled by Bloomberg show.

“Equity capital has eroded more than expected,” Tokyo- based Rating & Investment Information Inc. said in a statement announcing its decision to cut Olympus two levels to BBB-, with a view to a further downgrade. The rating is one above non- investment, according to data compiled by Bloomberg. “The possibility of additional losses from a lawsuit and other factors also cannot be ruled out.”

TSE Review

R&I is the only company with a credit rating on Olympus, according to data compiled by Bloomberg.

The TSE removed the company from its watch list for automatic delisting after it filed corrected earnings from fiscal 2006 on Dec. 14. It remains on a separate list for delisting pending a review of the fraud by the exchange.

Olympus stock plunged as much as 81 percent, wiping $7.1 billion off the company’s market value, after Woodford’s dismissal. The shares had recouped about half that loss before their two-day plunge.

Olympus had a net loss of 32 billion yen for the fiscal first-half ended Sept. 30, compared with a revised net income of 3.8 billion yen a year earlier. Revenue was 414.5 billion yen for the six months, from 417.3 billion yen a year earlier.

The company withdrew its earnings forecasts for this fiscal year.

To contact the reporter on this story: Ben Richardson in Hong Kong at brichardson8@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Asian Stocks Snap Three-Day Losing Streak on Stronger U.S. Economic Data

By Jonathan Burgos and Yoshiaki Nohara - Dec 16, 2011 8:53 AM GMT+0700

Asian stocks rose, snapping three days of losses, after U.S. data on jobless claims and manufacturing beat estimates, easing concern Europe’s debt crisis will drag the global economy into a recession.

Samsung Electronics Co. (005930), South Korea’s biggest exporter of consumer electronics, increased 1.1 percent in Seoul. BHP Billiton Ltd., the world’s No. 1 mining company, climbed 0.5 percent as copper prices advanced. JB Hi-Fi Ltd. tumbled 15 percent after at least five analysts cut their recommendation as Australia’s second-largest electronics retailer predicted lower first-half earnings.

“The U.S. economy is ending the year in a bit better shape than people had anticipated, and that is good, but Europe is obviously not,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The European economy is heading toward recession next year, and I think it’s going to continue to weigh on markets.”

The MSCI Asia Pacific Index added 0.4 percent to 111.98 as of 10:50 a.m. in Tokyo, with about three shares rising for every two that fell. The gauge is headed for a 2.5 percent loss this week after Moody’s Investors Service and Fitch Ratings warned that Europe faces lower credit ratings as it struggles to contain its debt crisis.

Japan’s Nikkei 225 Stock Average added 0.3 percent, while South Korea’s Kospi Index gained 0.5 percent. Australia’s S&P/ASX 200 rose 0.4 percent.

Singapore’s Straits Times Index advanced 0.3 percent after the city-state’s exports unexpectedly rose in November as pharmaceutical sales countered weak demand.

‘Escalating’ Crisis

Futures on the Standard & Poor’s 500 Index (SPXL1) gained 0.2 percent today. The index rose 0.3 percent in New York yesterday after U.S. initial jobless claims fell by 19,000 to 366,000 last week, the fewest since May 2008. The median forecast of economists surveyed by Bloomberg News was 390,000.

Some exporters advanced as two reports showed manufacturing in the New York and Philadelphia regions expanded more than forecast in December.

Gains in stocks may be limited today after International Monetary Fund Managing Director Christine Lagarde said yesterday that Europe’s crisis is “escalating” and cannot be resolved by one group of countries.

The MSCI Asia Pacific Index declined 19 percent this year through yesterday, compared with a 3.3 percent drop by the S&P 500 and a 15 percent loss by the Stoxx Europe 600 Index. Stocks (MXAP) in the Asian benchmark were valued at 12.5 times estimated earnings on average, compared with 12.3 times for the S&P 500 and 10.2 times for the Stoxx 600.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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Amazon Says Kindle Sales Topping 1 Million Devices a Week

By Danielle Kucera - Dec 16, 2011 5:04 AM GMT+0700

Amazon.com Inc. (AMZN), the world’s largest online retailer, said customers have bought about 1 million of its Kindle e-book readers and tablets in each of the past three weeks, the most detailed sales numbers the company has released.

The Kindle Fire tablet, which sells for $199, has been the best-selling product on Amazon.com since its introduction 11 weeks ago, the Seattle-based company said in a statement today. Kindle Fire sales have risen week-over-week for the past three weeks, Amazon said.

The Kindle Fire, which has a 7-inch (18-centimeter) display and runs on Google Inc. (GOOG)’s Android operating system, costs less than half the price of Apple Inc. (AAPL)’s least-expensive iPad tablet. Amazon Chief Executive Officer Jeff Bezos said in October that the company may post a loss in the fourth quarter as it ramps up spending. Operating margin may narrow to 0.79 percent this quarter from 3.66 percent in the year-earlier period, according to the average analyst estimate compiled by Bloomberg.

“They have not talked about numbers at all, so it’s a big deal that they for some reason think they need to disclose metrics now,” said Brian Blair, an analyst at Wedge Partners Corp. in New York. “It’s a part of their strategy to show the strength of it against Apple -- a way to say, ‘we’re a player, and we’re going to start letting you know.’”

Amazon shares jumped 0.6 percent to $181.26 today at the close in New York. The stock is little changed this year.

Content Revenue

While IHS (IHS) Inc. says Amazon is losing money on every $199 tablet it sells, Susquehanna Financial Group LLLP said Nov. 15 that each machine may generate a total of $384 in revenue for the company, including money spent on books, videos and other content.

Estimates for sales have varied. Amazon has raised production of the tablet two or three times since its introduction and will probably sell 5 million to 6 million Kindle Fires by the end of the year, Blair said.

Anthony DiClemente, an analyst at Barclays Plc in New York, said the company may sell 4.5 million tablets in the fourth quarter, while Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco, estimates Amazon will sell 5 million to 6 million units of the device.

After hitting store shelves on Nov. 14, the Kindle Fire has surpassed more established tablets from Samsung Electronics Co. and Barnes & Noble Inc. (BKS) in challenging Apple, which will ship an estimated 18.6 million iPads in the fourth quarter, IHS said. That would give Apple a market share of 66 percent, compared with an estimated 14 percent for Amazon, IHS said. The researcher forecasts overall tablet sales of 28.3 million units this quarter.

“They’re getting traction by selling no-profit hardware,” said Colin Gillis, an analyst at BGC Partners LP in New York. “Bad for margins, but it is giving them some share.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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U.S. Stocks Rise as Strengthening Economic Data Overshadow Europe Crisis

By Inyoung Hwang - Dec 16, 2011 5:18 AM GMT+0700

U.S. stocks rose, snapping a three- day decline in the Standard & Poor’s 500 Index (SPX), as data on jobless claims and manufacturing signaling a strengthening economy overshadowed concern over Europe’s debt crisis.

Utilities, health-care and consumer staples had the biggest gains out of 10 S&P 500 groups, advancing at least 0.9 percent. FedEx Corp. (FDX), the operator of the world’s biggest cargo airline, jumped 8 percent after earnings beat analysts’ estimates on increased holiday orders. Novellus Systems Inc. (NVLS) surged 16 percent as Lam Research Corp. (LRCX) agreed to acquire the company.

The S&P 500 rose 0.3 percent to 1,215.75 at 4 p.m. New York time, paring an earlier rally of 1.1 percent as oil declined and financial companies erased gains. The Dow Jones Industrial Average added 45.33 points, or 0.4 percent, to 11,868.81.

“The news on the U.S. front is surprisingly positive and provides some counterbalance to the uncertainty in Europe,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a telephone interview. “We’re focusing increasingly on the domestic economy which looks to be on the recovery track.”

The S&P 500 lost 3.5 percent during the first three days of this week after posted its first back-to-back weekly gain since October. The benchmark stock measure slumped on Dec. 13 after the Federal Reserve refrained from taking new actions to bolster growth at the world’s largest economy. The central bank said the U.S. economy is maintaining its expansion even as the global economy slows.

Jobless Claims

Global stocks extended gains this morning after Labor Department figures showed initial jobless claims fell by 19,000 to 366,000 last week, the fewest since May 2008. The median of 47 economists had projected 390,000, according to a Bloomberg News survey.

Two reports showed manufacturing in the New York and Philadelphia regions expanded more than forecast in December. The Federal Reserve Bank of New York’s general economic index accelerated to the highest level in seven months, to 9.5 from 0.6 in November. Readings higher than zero signal expansion among companies in the region, which covers New York, northern New Jersey and southern Connecticut. The Federal Reserve Bank of Philadelphia’s index, covering eastern Pennsylvania, southern New Jersey and Delaware, increased to 10.3 from 3.6.

Equities pared early gains after International Monetary Fund Managing Director Christine Lagarde said at an event in Washington that Europe’s “crisis is not only unfolding, but escalating” and cannot be resolved by one group of countries.

‘Get a Sense’

“Investors are trying to get a sense of not only how the economy is performing but also looking at what happens with policy, what happens in Europe,” Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., said in a telephone interview. His firm has about $108 billion in client assets.

FedEx jumped 8 percent, the biggest rally since April 2009, to $83.47. The company, considered an economic barometer because it delivers goods ranging from pharmaceuticals to financial documents, posted a quarterly profit that beat analysts’ estimates as U.S. consumers increased holiday orders from online retailers. FedEx also ordered 27 Boeing Co. (BA) 767 jet freighters to retire some of its older planes. Boeing increased 1 percent to $70.61.

Novellus Surges

Novellus Systems surged 16 percent to $40.37 for the biggest gain in the S&P 500. Lam Research agreed to buy the maker of machinery used in semiconductor production for about $3.3 billion in stock, valuing it at $44.42 a share. Lam Research fell 8.4 percent to $36.17.

Financial companies were unchanged as a group after rallying as much as 1.6 percent after Spain sold more debt than it had planned. Shares in the group erased their gains as the Securities and Exchange Commission appealed a District Court judge’s decision to reject its proposed $285 million settlement with Citigroup Inc. (C) The New York-based bank slumped 0.5 percent to $25.92, after earlier rising as much as 3.3 percent.

Michael Kors Holdings Ltd., the clothing company founded by the designer of that name, rose 21 percent to $24.20 in its trading debut. The company sold 47.2 million shares yesterday for $20 apiece to raise $944 million, 19 percent more than planned.

Technology and energy companies in the S&P 500 posted the only declines among 10 groups, falling at least 0.2 percent. First Solar Inc. (FSLR), the world’s largest maker of thin-film solar panels, slumped 6 percent, the biggest drop in the S&P 500, to $31.45. The company was downgraded to “neutral” from “outperform” by Robert W. Baird & Co. Chevron Corp. (CVX) slid 0.9 percent to $99.67, as the price of crude oil tumbled to its lowest level in six weeks.

Options Expiration

Tomorrow is the expiration of futures and options contracts on indexes and individual stocks, an event known as quadruple witching, which occurs once every three months.

The S&P 500 has slumped 3.3 percent in 2011 and 11 percent from its high on April 29. The index posted losses in six of the past seven months through November. The gauge’s decline this year may mean there are lower odds the measure will rally during the last two weeks of 2011, if history is any guide, according to Nautilus Capital LLC.

Since 1928, the benchmark index has rallied at year-end 60 percent of the time when it had fallen year to date, compared with 80 percent when it was up for the year, data from Nautilus show. The S&P 500 produced an average gain of 1.3 percent during the last two weeks of the year.

Hedge Funds

Stocks favored by hedge funds fell more than the S&P 500 during the first three days of the week. A Goldman Sachs index of companies that appear most often in funds’ top 10 holdings lost 4.5 percent in the first three days of the week, a period in which the S&P 500 fell 3.5 percent. The index rose 0.4 percent today.

Hedge funds selling assets because of client redemptions may have exacerbated declines for equities and reinforced market volatility, according to Eric Green, a Philadelphia-based fund manager at Penn Capital Management. His firm oversees about $6 billion.

“The hedge fund exposure continues to go down -- it’s year end, they’re squaring positions off, they’re preparing for redemptions,” Green said in a telephone interview. “The volatility is pretty extreme, the market is getting whipped around on nothing and most of them want to shut things down. They probably have to sell more things than buy because they have net redemptions.”

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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Zynga Said to Price 100M Shares at $10 in IPO

By Lee Spears - Dec 16, 2011 5:10 AM GMT+0700

Zynga Inc., the largest maker of games for Facebook Inc.’s website, raised $1 billion in its initial public offering, pricing the shares at the top of the marketed range, said a person with knowledge of the IPO.

The developer of games such as “CityVille,” “FarmVille” and “Mafia Wars” sold 100 million shares for $10 each, according to the person, who declined to be identified because the details haven’t been released. Zynga had offered the stock for $8.50 to $10 apiece. It will start trading tomorrow on the Nasdaq Stock Market under the symbol ZNGA.

The offering is the biggest by a U.S. Internet company since Google Inc. (GOOG) raised $1.9 billion in its 2004 IPO, Bloomberg data show. The game maker’s surging sales appeal to investors seeking growth that outpaces members of the Standard & Poor’s 500 Index, according to Tim Cunningham, a money manager at Thornburg Investment Management Inc.

“Growth is really scarce, so I think that makes it more valuable than usual,” said Cunningham, who helps oversee about $74 billion at Thornburg in Santa Fe, New Mexico. Founded by Chief Executive Officer Mark Pincus in 2007, Zynga doubled sales to $829 million in the first nine months of 2011.

The IPO values Zynga at as much as $7 billion, or 6.8 times revenue in the year through Sept. 30. That’s more than three times rival Electronic Arts Inc. (ERTS)’s price relative to sales over the same period.

Electronic Arts, based in Redwood City, California, bolstered its own online services by purchasing PopCap Games this year. EA, the maker of “The Sims” and “Scrabble” for mobile devices had a market value of $6.9 billion, or about 1.8 times trailing 12-month sales.

‘More Competition’

Nexon Co., a Tokyo-based maker of games for Facebook including “Zombie Misfits,” fell on each of its first two days of trading this week after holding a $1.2 billion IPO, Japan’s biggest this year. The stock is down 4.3 percent since the offering.

“You’re definitely going to see more competition” for Zynga as other companies expand their user bases, said Richard Greenfield, an analyst at BTIG LLC in New York. “On the other hand, I think it’s also going to bring more people into the overall social gaming space.”

Zynga planned to offer about 14 percent of its common stock, according to a regulatory filing. That compares with less than 10 percent for companies including Groupon Inc., LinkedIn Corp., and Pandora Media Inc., which made their public debuts this year. Internet companies have used smaller free floats to boost initial demand for their stock, pushing the price higher.

Avalon Ventures, Google

Zynga planned to sell all of the shares in the IPO, and to use net proceeds of about $889 million for game development, marketing and general corporate purposes.

Backers including Avalon Ventures, Foundry Group and Google may trim their stakes if underwriters exercise an over-allotment to buy 15 million additional shares, according to the original terms of the offering. Venture firm Kleiner Perkins Caufield & Byers, Zynga’s biggest shareholder after Pincus, didn’t plan to sell shares in the IPO.

The market value Zynga sought in its IPO was less than a $14.1 billion fair-value estimate of the company’s worth as of August, according to the prospectus. The company settled on a price range after taking into account recent IPOs that underperformed, according to a Dec. 10 filing. Morgan Stanley and Goldman Sachs Group Inc. led Zynga’s offering.

Social Media

Groupon, the Chicago-based provider of online coupons, raised $805 million in its IPO last month, including the over- allotment option. The shares, which surged as much as 31 percent in the first weeks of trading, have since fallen 12 percent from their high.

Angie’s List Inc., the Indianapolis-based operator of a consumer-reviews website, raised $132 million in its IPO last month, including an over-allotment. The stock surged in its first day of trading before falling as much as 11 percent below its offer price.

Both Groupon and Angie’s List are trading above their offer prices. Sixty percent of the Internet or social-media companies that completed U.S. IPOs since 2010 are trading below offer price, Kevin Pleines, an analyst at Birinyi Associates Inc. in Westport, Connecticut, said in a Dec. 13 research note. Buyers of the shares at their opening trade in the public market have lost an average of 32 percent, Pleines said.

Zynga gets more than 90 percent of its revenue from Palo Alto, California-based Facebook, operator of the world’s largest social network. Facebook is examining a $10 billion IPO that would value the company at more than $100 billion, a person with knowledge of the matter said last month.

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

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BofA, Goldman, Barclays Have Fitch Credit Ratings Cut

By Hugh Son - Dec 16, 2011 8:29 AM GMT+0700

Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) had their credit grades cut by Fitch Ratings as the impact of financial regulation and market turmoil (VIX) weighed on the industry.

The lenders’ long-term issuer default ratings were cut one level to A from A+, Fitch said yesterday in a statement. Barclays Plc (BARC), based in London, Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK) and BNP Paribas SA also had their grades lowered.

The moves complete a review of financial firms by the three major rating companies. Moody’s Investors Service cut banks in September, citing a lower probability that the U.S. will support the industry in an emergency. Standard & Poor’s lowered ratings last month. Lenders including Bank of America and Citigroup have said they may have to post billions of dollars in collateral and face higher funding costs in the event of downgrades.

“It’s hard to take anything positive from this; it speaks to the sentiment overall on global financial firms right now,” said Michael Nix, who helps manage about $925 million at Greenwood, South Carolina-based Greenwood Capital Inc., including Morgan Stanley (MS) shares. “It also validates what the other raters have already done, and to an extent was expected.”

Bank of America climbed 0.6 percent to $5.26 yesterday, New York-based Goldman Sachs fell 1.5 percent and Citigroup slid 0.5 percent. The shares of all three were little changed in extended trading after Fitch’s announcement.

Biggest Lenders

Credit ratings of the world’s biggest lenders have come under pressure amid weak economic growth and doubts about whether European regulators have done enough to end the sovereign-debt crisis. Lenders in the region must raise about 114.7 billion euros ($149 billion) in capital to help address the turmoil, the European Banking Authority said last week.

Fitch downgraded Barclays and Zurich-based Credit Suisse to A from AA-, while lowering France’s BNP Paribas (BNP) and Deutsche Bank to A+ from AA-. Fitch corrected an earlier version of its statement to announce that Frankfurt-based Deutsche Bank was cut one level instead of two. Morgan Stanley’s long-term issuer default rating was affirmed at A.

The downgrades may increase pressure on firms facing stagnant revenue growth. Bank of America said last month that a one-level downgrade by all rating companies could amount to $5.1 billion in collateral demands as of Sept. 30.

The full scope of damage from a credit-rating downgrade is “inherently uncertain” because it depends upon the behavior of counterparties and customers, the Charlotte, North Carolina- based firm said.

‘Strong Liquidity’

“This decision is driven more by concerns about the global economy than the specific credit quality of Bank of America,” Jerry Dubrowski, a spokesman for the lender, said in an e-mailed statement. “We continue to maintain strong liquidity levels and to build capital.”

A one-level rating reduction for Citigroup’s deposit-taking unit could trigger an estimated $4 billion of collateral payments and other cash obligations, the company said in a regulatory filing.

Citigroup has made “enormous progress refocusing our business strategy to take advantage of our global network” Jon Diat, a spokesman for the New York-based bank, said in an e- mailed statement. “With a strong capital base, robust structural liquidity and ample reserves, Citi is well-positioned for the future.”

Representatives for Goldman Sachs, BNP, Deutsche Bank, Credit Suisse and Barclays declined to comment. Mark Lake, a spokesman for New York-based Morgan Stanley, said the firm was “gratified” that Fitch affirmed its ratings.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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IMF’s Lagarde: Europe Crisis ‘Escalating’

By Nicole Gaouette - Dec 16, 2011 12:39 AM GMT+0700

The European debt crisis is growing to the point that it won’t be solved by one group of countries, Christine Lagarde, the managing director of the International Monetary Fund said today.

Lagarde said that if countries don’t work together, the world will face a situation similar to the 1930s, before the world slid into World War II.

“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super- advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do,” Lagarde said.

If the international community doesn’t work together, “the risk from an economic point of view is that of retraction, rising protectionism, isolation,” Lagarde said. “This is exactly the description of what happened in the ‘30s and what followed is not something we are looking forward to.”

Lagarde said the world economic outlook “is quite gloomy” with pervasive downside risk, downward revisions, slower growth than expected, higher deficits than predicted and public finances in shaky condition. “And that is pretty much true the world over,” Lagarde said.

The one exception, she said, is emerging markets and the Asian economies most badly hit during the 1990s economic crisis. They, too, will have to help manage the current crisis if the world is to weather the risk, she said. Leadership has to rest with Europe, she said.

Crisis Core

“It’s going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the eurozone, which are sharing this monetary union,” Lagarde said.

She described the eurozone, the countries that use the euro, as a “monetary union which has not been properly been completed by an economic and fiscal union, which is currently in the works.”

As Europe’s leaders work to resolve their “monumental” challenges, the impatience of financial markets is a problem, she said.

“It would be lovely from a market perspective if it was not just ‘currently’ but immediately, a signed, sealed, delivered done-deal overnight,” Lagarde said. “Unfortunately, those of you who have the privilege of belonging to democracies know things do not happen in that way, things take time.”

‘Fiscal Solidarity’

Lagarde said international support would probably be channeled through the IMF for “organizing a collective financial responsibility, a fiscal solidarity and that element of risk-sharing that is expected, pretty much, around the globe.”

Lagarde spoke at the State Department, where Secretary of State Hillary Clinton had invited her to address an event to promote greater involvement of women in public policy.

The leadership skills that are needed to face this crisis are ones that management consultants such as McKinsey & Co Inc. have found women possess in abundance, Lagarde said.

“Because it’s a question of courage or actually facing the issues, not being in denial, accepting the truth, accepting the reality and then dealing with it,” Lagarde said. “And frankly, from my previous life either in the private sector, or as minister of finance, or in my current position, it’s a set of skills that women excel at.”

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Corzine: MF Staff Said Fund Transfer Legal

By Silla Brush and Clea Benson - Dec 16, 2011 2:29 AM GMT+0700

Jon S. Corzine, former chairman and chief executive officer of MF Global Holdings Ltd., told lawmakers today that the firm’s back-office staff “explicitly” informed him that fund transfers made before the company filed for bankruptcy were legal.

Corzine, testifying today before U.S. lawmakers for the third time in a week, was responding to allegations made at a U.S. Senate hearing earlier this week when the executive chairman of Chicago-based CME Group Inc. (CME) told lawmakers Corzine had known of a $175 million loan using client money that was made before the Oct. 31 bankruptcy.

Corzine used today’s hearing of an oversight panel of the House Financial Services Committee to rebut the suggestion that he may have authorized improper use of customer money.

Lawmakers and U.S. authorities are investigating what happened to as much as $1.2 billion in customer funds that is missing from MF Global accounts.

“I did not instruct anyone to lend customer funds to anyone,” Corzine said.

Corzine suggested Terrence Duffy, CME Group executive chairman, may have been referring to some funds transfers that occurred as MF Global was selling billions of dollars in securities. JPMorgan Chase & Co. (JPM), which was involved in the transactions, told MF Global the sale could not be completed until overdrafts in some accounts in London were corrected.

“I contacted the firm’s back office in Chicago and asked them to resolve the issues, which I understood they did,” Corzine said. He didn’t say explicitly whether he was aware at the time that the loan may have included funds from customer accounts.

Operations Staff

Corzine’s testimony today marked the second time that he appeared to be suggesting that MF Global’s Chicago-based operations staff might be the appropriate target for scrutiny over what happened to the missing money.

“The back office in Chicago explicitly confirmed to me that the funds were appropriately transferred,” Corzine said.

On Tuesday, Corzine named Christine Serwinski, the company’s chief financial officer for North America, as someone in charge of the responsible department, though he said she had been on vacation during the final days of MF Global. Serwinski did not respond to a message left at her home telephone number.

Texas Republican Randy Neugebauer, chairman of the oversight subcommittee, said he was uncomfortable with the amount of power Corzine held at MF Global before he stepped down.

“What we saw was one person had an extreme amount of authority, Mr. Corzine, as the chair of the board and the CEO of the company,” Neugebauer said in his opening statement. “And, according to people we have interviewed, one of the principal traders of this company. There was no real barrier or firewall for protecting the investors of the company.”

Second-Hand Account

Duffy, who is also scheduled to testify today, said Tuesday his information was based on a second-hand account of a conversation between CME and MF Global employees. He didn’t say whether Corzine learned of the loans in advance of the funds being moved. He also didn’t say whether the loans were a legitimate use of customer funds.

Corzine has repeatedly testified that he cannot explain why the money is missing, and that he had been surprised to learn of the shortfall on the night of Oct. 30.

Officials from regulators including the Federal Reserve Bank of New York, the Commodity Futures Trading Commission, and the Securities are also expected to appear at today’s hearing.

Illegitimate Transfers

Investigators are attempting to determine which transactions involving customer funds were illegitimate, Jill E. Sommers, the senior CFTC commissioner overseeing the investigation said in a telephone interview yesterday.

“We’re far enough along the trail to see the transactions going out” of segregated accounts, Sommers said. Investigators are searching e-mails and other documents to trace the transactions. “Following a trail is not as easy as it sounds because money isn’t just transferred from point A to point B and stopping,” she said.

Sommers said she expects regulators will eventually be able to determine where all the money went. There may still be a shortfall because some money may not be available to be clawed back for customers, she said.

Corzine and MF Global didn’t receive preferential treatment in a bid to become a primary dealer of government securities, Thomas C. Baxter Jr., general counsel of the New York Federal Reserve, said in testimony prepared for today’s hearing.

Corzine met with officials at the New York Fed on June 1, 2010, and discussed the broker’s efforts to improve its credit structure by raising $150 million in equity, Baxter said.

Primary Dealer

MF Global, starting before Corzine became CEO, sought to expedite a New York Fed review in order to become a primary dealer. The firm was under orders from the Commodity Futures Trading Commission to overhaul its internal controls. The Fed’s policy was to impose a one-year waiting period after such an enforcement action. MF Global argued the matter wasn’t material to its application, Baxter said.

The New York Fed disagreed and reviewed MF Global’s application “without fear or favor,” Baxter said in the testimony. MF Global was approved as a primary dealer on Feb. 2, 2011. That status was revoked by the Fed on Oct. 31, the same day the firm filed for bankruptcy.

Primary dealers participate in auctions of U.S. government debt and provide the New York Fed’s trading desk with information and analysis about the market as the central bank implements interest rate policies.

To contact the reporters on this story: Silla Brush in Washington at sbrush@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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