Crude Oil Falls Below $55 as Slowing Economies Curb Consumption

By Christian Schmollinger and Nesa Subrahmaniyan

Nov. 13 (Bloomberg) -- Crude oil fell below $55 a barrel in New York, the lowest in 21 months, as slowing economies in major consuming nations cuts demand for fuels.

U.S. gasoline purchases dropped 4.2 percent last week, the 29th consecutive week of decline, MasterCard Inc. reported yesterday. Asian stocks slumped and China's industrial production grew at the slowest pace in seven years.

``Right now there is nothing that can stop the bears,'' said Victor Shum, senior principal at Purvin & Gertz Inc. in Singapore. ``The fears about reduced oil demand extending through 2009 are putting a lot of downward pressure on oil.''

Crude oil for December delivery declined as much as $1.49, or 2.7 percent, to $54.67 a barrel, the lowest since Jan. 30, 2007. The contract traded at $54.84 at 3:30 p.m. Singapore time on the New York Mercantile Exchange. Futures have dropped 63 percent from the record $147.27 on July 11.

The MSCI Asia Pacific Index tumbled as much 4.9 percent to 82.20. China's industrial output rose 8.2 percent in October from a year earlier, after gaining 11.4 percent in September. None of 18 economists surveyed by Bloomberg News had predicted such a small increase.

Oil has also fallen on speculation that the International Energy Agency will cut its global demand estimate today and the U.S. will report that stockpiles gained.

IEA Forecasts

The IEA is ``more than likely'' to lower its oil-demand forecast for the coming year in its next monthly oil report, according to Executive Director Nobuo Tanaka. The U.S. Energy Department cut its oil-demand and price forecasts yesterday. A department report today may show that crude-oil supplies rose last week.

Oil and commodity producers fell in Asian trading. BHP Billiton Ltd., the world's biggest mining company, tumbled as much as 12 percent to A$25 in Sydney trading. The shares have fallen 40 percent in the past year.

Cnooc Ltd., China's biggest offshore oil and gas producer, dropped as much as 8.2 percent to HK$5.57 in Hong Kong trading.

Nippon Oil Corp., Japan's biggest refiner, is considering cutting capital spending in the next three years because of weaker demand for oil products and a tight credit market, a spokesman said today.

``People are perceiving the economy as the state of demand and the stock market is seen as an indication,'' said Clarence Chu, a trader with options dealer Hudson Capital Energy in Singapore. ``The whole market sentiment is just so bearish.''

Gold, Corn

Gold traded little changed near a three-week low as gains by the dollar and falling oil prices reduced the appeal of the metal as an alternative asset.

Bullion for immediate delivery was at $713.12 an ounce, up 0.1 percent, at 3:32 p.m. in Singapore. Silver for immediate delivery was little changed at $9.3525 an ounce.

The Reuters/Jefferies CRB Index of 19 raw materials yesterday touched the lowest since November 2003.

Corn futures for December delivery were down 0.7 percent at $3.67 a bushel on the Chicago Board of Trade. Copper for December was down 0.9 percent at $3,590 a metric ton on the London Metal Exchange.

``The economy has changed quite a lot in the past three months,'' said Toby Hassall, an analyst at Commodity Warrants Australia Ltd. in Sydney. ``All commodities are being dragged lower by the deteriorating economic outlook.''

Consumer Pessimism

Japan's consumers are the most pessimistic they've been in at least 26 years, making it unlikely they will spend to support an economy weakened by slower global demand and falling stock prices. The confidence index dropped to 29.4 last month from 31.4 in September, the Cabinet Office said yesterday in Tokyo.

The U.S. government reduced its forecast for oil prices next year by 43 percent as the economic slowdown cuts energy use.

West Texas Intermediate crude oil, the U.S. benchmark, will average $63.50 a barrel in 2009, down from $112 estimated in October, the Energy Department said in its monthly Short-Term Energy Outlook released yesterday in Washington.

Global oil consumption will average 85.89 million barrels a day this year, up 80,000 barrels from 2007, according to the report. The estimate is down 250,000 barrels from the forecast a month ago. Demand will average 85.93 million barrels a day in 2009, down 990,000 barrels from last month's forecast.

U.S. Inventories

U.S. crude-oil stockpiles probably increased 1 million barrels in the week ended Nov. 7 from 311.9 million the week before, according to the median of 13 analyst estimates before the Energy Department report.

The department is scheduled to release its weekly report today at 11 a.m. in Washington. The report is being delayed by a day because the Veterans Day holiday on Nov. 11.

Brent crude oil for December settlement fell as much as $1.77, or 3.4 percent, to $50.60 a barrel on London's ICE Futures Europe exchange. It was at $51.04 a barrel at 3:33 p.m. Singapore time.

The December future expires today. The more-active January contract was at $53.57 a barrel, down 95 cents.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.

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Copper Drops to Three-Year Low as Stockpiles Jump, Dollar Up

By Li Xiaowei

Nov. 13 (Bloomberg) -- Copper tumbled to the lowest in more than three years, as global stockpiles climbed to the highest since 2004, adding to evidence a deteriorating global economy is reducing demand for industrial metals.

Inventories monitored by the London Metal Exchange jumped 1.7 percent to 270,100 tons yesterday, the highest since March 2004. The dollar advanced to a two-week high against a basket of six major currencies as economies in Europe and Asia weakened, reducing the investment appeal of raw materials.

``London copper fell on the high level of inventory,'' analysts led by Tan Wentao at HNA Topwin Futures Co. wrote in an e-mailed report today. London's decline adds pressure to Shanghai copper as arbitrage opportunities may occur.

Copper for three-month delivery fell as much as 2.1 percent to $3,545 a metric ton on the London Metal Exchange, the lowest intra-day price since Sept. 19, 2005. It traded at $3,590 as of 12:07 p.m. in Shanghai. The metal has lost 48 percent this year, heading for the first annual drop since 2001.

January-delivery copper on the Shanghai Futures Exchange fell by as much as 3.3 percent to 28,280 yuan ($4,141) a ton and traded at 28,700 yuan a ton at the 11:30 a.m. local time break.

China's industrial production grew at the slowest pace in seven years last month, adding to concerns that the world's fastest-growing major economy risks a deeper slowdown.

Among other LME-traded metals, aluminum dropped 0.3 percent to $1,920 a ton, zinc declined 1.1 percent to $1,136 and tin was unchanged at $13,700 a ton.

To contact the reporters for this story: Li Xiaowei in Shanghai at xli12@bloomberg.net

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South Korean Stocks Tumble to a Two-week Low as Woori Slumps

By Saeromi Shin

Nov. 13 (Bloomberg) -- South Korea's Kospi index fell to a two-week low, led by financial and technology stocks, after the government rejected speculation it plans a fund to help lenders raise capital.

Woori Finance Holdings Co. and Hana Financial Group Inc. tumbled more than 14 percent. LG Display Co., the world's second-biggest maker of liquid crystal display panels, plunged 13 percent after agreeing to pay $400 million in fines for fixing prices in the U.S. Posco, Asia's third-biggest steelmaker, slid 8.3 percent on concern prices of the metal will decline as the global economic slump worsens.

The Kospi index tumbled 49.11, or 4.3 percent, to 1,074.75 as of 3:35 p.m. in Seoul, on course for its lowest close since Oct. 29. Financial stocks accounted for almost a quarter of the drop today. Stock markets opened and will close an hour later than usual today due to college entrance examinations.

``Investors seem to think that Korean banks would ultimately need some kind of capital injection,'' said Mo Jae Sung, a fund manager who helps oversee the equivalent of $995 million at Hanwha Investment Trust Management Co. in Seoul. ``With bad loans rising and banks coming under government pressure to extend more loans, banks will need recapitalization.''

South Korea, which already holds stakes in banks including Woori, last month pledged to guarantee $100 billion in bank debts and supply lenders with $30 billion in dollars to stabilize its financial markets. The Bank of Korea, the central bank, has undertaken the most aggressive round of cuts since the bank began setting a policy rate a decade ago.

No Plans for Fund

The Maeil Business Newspaper reported today that the government planned a fund of at least 10 trillion won ($7.2 billion) to buy subordinated bonds and redeemable preferred shares from banks. Rhee Chang Yong, vice chairman of the Financial Services Commission, said in a telephone interview that while setting up a fund may be ``theoretically possible,'' it isn't on the agenda.

Woori Finance fell 14 percent to 5,330 won, set for the lowest close since May 2003. Prudential Investment & Securities Co. cut its share-price estimate on Woori by 40 percent to 7,500 won, citing its relatively high portion of loans to the construction industry. Shinsung Engineering & Construction Co., to which Woori Bank lent 109.5 billion won, asked a Seoul court to help reschedule its debts with creditors. Hana declined 15 percent to 16,850 won, a record low.

Samsung, Posco

LG Display fell 13 percent to 19,700 won after agreeing to pay the second-highest criminal fine the U.S. Department of Justice's antitrust division has imposed. Samsung Electronics Co., Asia's biggest maker of chips and flat screens, lost 3.8 percent to 462,500 won after Intel Corp., the largest computer- chip maker, lowered its fourth-quarter sales forecast by about $1 billion.

Posco fell 8.3 percent to 317,000 won. JPMorgan Chase & Co. said China's decision to scrap some steel export tariffs may boost overseas shipments in the next few months, a move that might put ``more pressure'' on regional and international steel prices in the next two to three months.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net.

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China Stocks Advance as Dongfang Electric, China Railway Climb

By Zhang Shidong

Nov. 13 (Bloomberg) -- China's stocks rose to the highest in three weeks, led by industrial companies, as the government took steps to implement its 4 trillion yuan ($586 billion) economic stimulus plan.

Dongfang Electric Corp., China's second-biggest maker of power equipment, jumped by the 10 percent limit after the government approved construction of 10 nuclear power plants. China Railway Group Ltd. and China Railway Erju Co. also surged by the maximum as China Construction Bank Corp. pledged more lending for railway and other projects. Baoshan Iron & Steel Co. added 4.8 percent after the government scrapped export tariffs on some steel products.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, rose 72.26, or 4 percent, to 1,874.08 at the close, the highest since Oct. 21. Just two stocks on the 300-member index fell. The gauge is down 65 percent this year.

``The market is showing an initial sign of reaching the bottom,'' said Fan Dizhao, an investment manager at Guotai Asset Management Co. in Shanghai, which oversees the equivalent of $5.1 billion. ``Sentiment has been improving as investors are coming back to buy infrastructure-related stocks on the government's stimulus plan.''

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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Japan Stocks Drop to 2-Week Low on Spending Concern; Sony Falls

By Masaki Kondo and Toshiro Hasegawa

Nov. 13 (Bloomberg) -- Japan stocks fell to a two-week low as earnings forecasts in the U.S. indicated the world's biggest economy is weakening, and reports Japan's biggest banks may sell new shares raised dilution concerns.

Sony Corp. slumped 8.7 percent after U.S. retailer Best Buy Co. cut its forecast on a spending slowdown, and the yen rose to the highest this month. Chipmaker Elpida Memory Inc. plunged 13 percent after rival Intel Corp. cut its sales forecast. Mizuho Financial Group Inc. sank 6.6 percent on speculation it will sell new shares, and the U.S. Treasury scrapped plans to buy mortgage assets, feeding concern the financial crisis is deepening.

The Nikkei 225 Stock Average dropped 456.87, or 5.3 percent, to close at 8,238.64 in Tokyo. The broader Topix index fell 37.70, or 4.3 percent, to 837.53. Both gauges sank to the lowest since Oct. 29. The Nikkei rallied as much as 33 percent from a 26-year low on Oct. 27, and has since pared that gain by more than half.

``Best Buy's poor earnings is an indication of just how fast consumer sentiment is imploding in the U.S.,'' said Kazuya Nakamura, who helps oversee about $10 billion at Norinchukin Zenkyoren Asset Management Co. in Tokyo. ``The continued expansion of targets for the financial bailout package is also indicative of the severity of the crisis.''

Shimizu Corp. led a rally by construction companies after brokerages lifted their ratings on the companies.

U.S. Consumers

Best Buy, the largest U.S. electronics retailer, yesterday slashed its earnings forecast for the year through February, citing a ``seismic'' slowdown in consumer spending. Japan's exports to the U.S., which accounted for about a fifth of the total, fell 11 percent in September.

The International Monetary Fund said on Nov. 7 the U.S., Europe and Japan may see their first simultaneous recession since World War II. At home, Prime Minister Taro Aso has pledged a 2 trillion yen ($20 billion) stimulus plan to help households.

Sony, which gets a quarter of its sales from the U.S., dropped 8.7 percent to 2,000 yen, while Nintendo Co., the world's biggest maker of handheld game players, lost 6.9 percent to 28,550 yen in Osaka trading. Canon Inc., the largest digital- camera maker, retreated 6.3 percent to 2,850 yen.

The yen appreciated against the dollar to as much as 94.52 today from 97.71 at the close of stock trading in Tokyo yesterday, reducing the value of Japanese companies' repatriated sales and threatening deeper cuts in forecasts.

``Declines in home prices, stock values and jobs are a triple threat to U.S. consumers, who also must contend with tighter credit,'' said Masaru Hamasaki, senior strategist at Toyota Asset Management Co. in Tokyo, which manages about $15 billion. ``There is no prospect in sight for spending growth.''

Chip Slump

Elpida, Japan's biggest maker of computer-memory chips, fell 13 percent to 477 yen, near a record low. NEC Electronics Corp., the nation's No. 3 chipmaker, slipped 7.6 percent to 1,041 yen. Tokyo Electron Ltd., the world's second-biggest producer of semiconductor equipment, lost 6.9 percent to 2,925 yen.

Intel, the largest computer-chip maker, slashed its fourth- quarter sales outlook by about $1 billion, as customers worldwide ``aggressively'' cut orders, the California-based company said today. After the announcement, S&P 500 Index futures expiring in December dropped as much as 1.4 percent in Chicago from a 0.4 percent gain.

Mizuho, Japan's second-biggest listed bank, retreated 6.6 percent to 254,500 yen. The lender may sell preferred securities by the end of this year to improve capital, a person familiar with the plan said. Rising bad debts and losses on stockholdings have forced Japan's five-largest banks to cut profit targets.

TARP Change

Market leader Mitsubishi UFJ Financial Group Inc. lost 3.7 percent to 592 yen. The bank will complete the sale of as much as 600 billion yen of common shares in mid-December, advancing a sale that had been planned sometime in the next year, Kyodo News Service said today.

Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Treasury Secretary Henry Paulson said yesterday. Buying mortgage-related assets -- the reason the Troubled Asset Relief Program was established -- is no longer being considered, he said.

Shimizu, builder of Japan's first Western-style hotel in 1859, jumped 13 percent to 492 yen. Obayashi Corp. rallied 10 percent to 526 yen, while Kajima Corp., the country's biggest listed construction company, advanced 8 percent to 297 yen. The three companies were the top winners on the Nikkei today.

Yoshiaki Komatsu, an analyst at Nomura Securities Co. in Tokyo, raised his ratings on Obayashi and Kajima citing prospects for a recovery in profit next year. Mitsubishi UFJ Securities Co. boosted it recommendation on Shimizu to ``outperform.''

Price-Fixing Fines

Sharp Corp., Japan's biggest maker of liquid crystal display televisions, declined 8.4 percent to 667 yen. The Osaka-based company will book a $120 million one-time loss in the third quarter, the company said today before markets opened. Sharp, along with LG Display Co., Chunghwa Picture Tubes, agreed to pay fines for conspiring to fix prices of displays, the U.S. Justice Department announced.

Asahi Glass Co. sank 5 percent to 515 yen and Nippon Sheet Glass Co. lost 9 percent to 314 yen. The companies, Asia's two largest glassmakers, were fined 113.5 million euros ($142 million) and 370 million euros respectively by the European Union over claims they fixed prices on car windows.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

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Asian Stocks Tumble, Extend Global Rout, on U.S. Treasury Shift

By Chua Kong Ho and Kyung Bok Cho

Nov. 13 (Bloomberg) -- Asian stocks and U.S. futures fell, extending a global rout, as the U.S. Treasury scrapped plans to buy mortgage assets, Commonwealth Bank of Australia said bad debts may double and China’s industrial output missed estimates.

Commonwealth Bank slumped 6 percent as Treasury Secretary Henry Paulson shifted the focus of the government’s $700 billion bailout plan to consumer credit. BHP Billiton Ltd., the world’s largest mining company, dropped 12 percent after oil and metals prices sank. LG Display Co. and Sharp Corp. tumbled after being fined for price fixing and as Intel Corp. lowered its sales forecast. China Construction Bank Corp. fell 6.6 percent in Hong Kong after the nation’s factory production slowed.

“Investors had expected corporate earnings and economic data to be bad, but the figures keep getting worse,” said Seo Jung Ho, who helps oversee $2.2 billion at UBS Hana Asset Management Co. in Seoul. “Paulson’s change in plans is making people wonder if our fears are coming true, that the financial crisis in the mortgage sphere is spreading to consumers.”

The MSCI Asia Pacific Index fell 4.7 percent to 82.38 at 4:22 p.m. in Tokyo. The stock index has declined 48 percent this year, valuing it at 9.8 times reported earnings. That compares to 18 times for the Standard & Poor’s 500 Index, and 8.9 times for Europe’s Dow Jones Stoxx 600 Index.

Futures on the S&P 500 lost 0.7 percent. Financial stocks led the U.S. gauge down 5.2 percent yesterday, leaving it less than 0.5 percent above its lowest close in five years. Citigroup Inc. and the S&P 500 Financials Index slid to 12-year lows. The Stoxx 600 Index sank 3.3 percent. The MSCI World Index dropped 1.1 percent today, taking a three-day slide to 8.5 percent.

Mounting Credit Losses

Most Asian markets slumped as Best Buy Co., the largest U.S. electronics retailer, warned of a slowdown in spending, fueling concern that corporate profits worldwide are declining. Dentsu Inc. and Asatsu-DK Inc., two of Japan’s biggest advertisers, lowered their profit forecasts.

Japan’s Nikkei 225 Stock Average dropped 5.3 percent to 8,238.64. The country’s economy is at risk of deteriorating further as the global financial turmoil slows growth worldwide, central bank board member Seiji Nakamura said today. Hong Kong’s Hang Seng Index lost 5.8 percent, led by HSBC Holdings Plc.

The collapse of the U.S. mortgage market sparked $950 billion in losses and writedowns at financial companies and now threatens a global economic recession. The International Monetary Fund said on Nov. 7 the U.S., Europe and Japan may experience the first simultaneous recession in the post-World War II era.

The world is in for an extended period of sluggish growth, David Bonderman, founder of private equity firm TPG Inc., said in Hong Kong today. Central banks in the U.S., U.K. and Japan are among those that have lowered benchmark interest rates to stimulate spending and growth.

‘Troubled Market’

Treasury and Federal Reserve officials are exploring a new “facility” to bolster the market for securities backed by assets, Paulson said. Officials are considering using a portion of the $700 billion financial bailout money to “encourage private investors to come back to this troubled market,” he said.

Buying “illiquid” mortgage-related assets -- the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said. Citigroup, Bank of America Corp., and Goldman Sachs Group Inc. dropped more than 9 percent each in U.S. trading yesterday after Paulson’s comments.

In Sydney, Commonwealth Bank fell 6 percent to A$33, the lowest close since Jan. 25, 2005. Australia’s biggest mortgage lender said bad debts may double this year due to lending to companies including Lehman Brothers Holdings Inc. HSBC, Europe’s largest bank, slid 5.8 percent to HK$81.25 as it will cut jobs in its private-banking division. Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, lost 3.7 percent to 592 yen.

Commodities Slump

Mizuho Financial Group Inc., Japan’s second-largest bank by revenue, slumped 6.6 percent to 254,500 won. The company plans to sell about 300 billion yen ($3.2 billion) of preferred securities to replenish capital depleted by rising bad loans and losses on stock investments.

“It’s hard to get away from the drumbeat of negatives,” said Liam Dalton, who oversees $1.3 billion as New York-based chief executive officer of Axiom Capital Management.

Energy companies on the MSCI Asia Pacific Index lost 5.3 percent as a group, while raw-material producers declined 6.9 percent collectively. Melbourne-based BHP tumbled 12 percent to A$25, after scrapping a possible $4.5 billion nickel project in Indonesia. PetroChina Co., China’s largest oil producer, slumped 8.9 percent to HK$5.45 in Hong Kong. Exxon Mobil Corp., the biggest oil company, fell 5.1 percent to $68.93 in New York.

Oil sank 5.3 percent to $56.16 a barrel at the close of New York trading on forecasts that tomorrow’s Energy Department report will show U.S. crude inventories grew last week amid decreased energy demand. Nickel, gasoline and crude led declines in the Reuters/Jefferies CRB Index of 19 raw materials.

Toshiba, Sony

Companies with U.S. sales fell as Best Buy yesterday slashed its earnings forecast for the year through February, citing a “seismic” slowdown in consumer spending in the largest market for Asian-made products.

The Best Buy report preceded Intel’s announcement that fourth-quarter sales will be lower than its earlier estimate by about $1 billion amid “significantly weaker” demand. Applied Materials Inc., the biggest maker of chip-production machinery, also said yesterday that orders may fall more.

Toshiba Corp., Japan’s largest chipmaker, slumped 4.8 percent to 337 yen in Tokyo. Sony Corp., the world’s second- largest consumer electronics maker, dropped 8.7 percent to 2,000 yen. Samsung Electronics Co., the world’s second-largest semiconductor maker after Intel, lost 1.4 percent to 474,000 won.

‘So Many Problems’

LG Display tumbled 11 percent to 20,100 won, Sharp fell 8.4 percent to 667 yen, while Chunghwa Picture Tubes Ltd. dropped 7 percent to NT$2.79. The three liquid-crystal-display makers agreed to plead guilty and pay $585 million in fines for conspiring to fix prices.

Chinese shares in Hong Kong sank after industrial output rose in October at the slowest pace in seven years. Growth of 8.2 percent missed the 11.1 percent median estimate in a Bloomberg News survey of economists.

China Construction Bank fell 6.6 percent to HK$3.97. Industrial & Commercial Bank of China Ltd. declined 6.3 percent to HK$3.59.

“There are just so many problems around,” said Julian Robertson, founder of hedge fund Tiger Management LLC, who is betting against some Chinese, Irish and Spanish companies. “I don’t think people have recognized the extent of this potential correction which we’re in.”

Dentsu, Japan’s largest advertiser, fell 7.5 percent to 153,300 yen, after cutting its full-year profit forecast by 27 percent. Asatsu-DK dropped 6.1 percent to 2,220 yen, after saying profit will be 46 percent lower than its previous prediction.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Kyung Bok Cho in Seoul at kcho7@bloomberg.net

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LSE Says First-Half Profit Rises 19% on Electronic Trading

By Nandini Sukumar

Nov. 13 (Bloomberg) -- London Stock Exchange Group Plc, Europe's oldest independent market, reported fiscal first-half profit rose 19 percent as financial-market turmoil boosted trading.

Net income for the six months ending Sept. 30 climbed to 81.7 million pounds ($121.65 million) from a restated 68.5 million in the fiscal first half of 2007, LSE said in a Regulatory News Service statement today. That's lower than the 102 million-pound median forecast of five analysts surveyed by Bloomberg News.

LSE, which bought Borsa Italiana SpA last year, restated first-half profit for the year-earlier period to include the Italian bourse.

The company will hold a press conference at 11:30 a.m. London time.

To contact the reporter on this story: Nandini Sukumar in London at nsukumar@bloomberg.net.

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Gulf Shares Fall as Banks Tighten Credit; Kuwait Halts Trading

By Haris Anwar

Nov. 13 (Bloomberg) -- Persian Gulf stocks tumbled, sending Dubai's index lower for a sixth day and spurring a trading halt in Kuwait, as banks tightened credit terms for real-estate investors and oil plunged to a 21-month low.

Emaar Properties PJSC, the Middle East's largest real- estate developer, led the decline in Dubai, sliding to the lowest in more than four years. Arkan Building Materials Co. dropped the most since its listing in January 2007.

The Dubai Financial Market General Index tumbled 4.1 percent to 2,124.51 at 11:40 a.m. local time, bringing the slump for the week to 24 percent. The Abu Dhabi Securities Exchange General Index dropped 3.4 percent.

``Dubai and Abu Dhabi are exposed to the real-estate sector, and that's making investors nervous,'' Ajeev Gopinathan, vice- president at Gulf Baader Capital Markets SAOC, said in a phone interview from Oman. ``It's very difficult to quantify the magnitude of this problem.''

The Kuwait Stock Exchange suspended trading after a court ordered its closure to protect investors from further losses after the bourse's main index slid 31 percent this year. The benchmark index last traded at 8,691 at 9:47 a.m. local time. The measure declined 10 percent this week and is at its lowest since July 2005.

`Social Repercussions'

The market will stay closed until Nov. 17 when the court will sit again to consider whether to extend the suspension, Adel Abdul Hadi, the Kuwaiti lawyer who represented small stock market traders at the court, said in phone interview from Kuwait City today. ``The court not only considered the shares decline, but also the social repercussions on the society from the market losses,'' he said.

Dubai is bracing for a downturn in the property market as economic growth slows, reducing demand for real-estate. Buyers of Dubai property will lose 30 percent of what they have paid if they default, cancel, or breach their purchase contracts, citing the Land Department, Gulf News reported

United Arab Emirates banks, including Emirates NBD, the country's largest, have suspended retail-credit facilities to expatriate employees working for companies in the real-estate industry because of the rising risk of default, Gulf News reported. Emirates NBD Chief Investment Officer Michael Preiss in an interview with Bloomberg denied that there is a blanket ban on lending to real-estate employees, while acknowledging that lending criteria have been tightened at the bank.

Oil's Slump

Crude oil fell below $55 a barrel as slowing economies of the major consuming nations cuts demand for fuels. The Organization of Petroleum Exporting Countries' Gulf members, which produce almost a fifth of the world's oil, have used record crude income to embark on infrastructure projects including man-made islands and the world's tallest tower. Oil for December delivery fell as much as $1.49, or 2.7 percent, to $54.67 a barrel on the New York Mercantile Exchange.

Oman's Muscat Securities Market 30 Index lost 2.3 percent. In Qatar, the DSM 20 Index retreated 3 percent, while the Bahrain All Share Index gained less than 0.1 percent. Saudi Arabia's market is closed for the weekend.

Emaar Properties declined 5.9 percent to 3.17 dirhams, the lowest since October 2004. The shares have dropped 36 percent this week. Arkan, a construction supplies maker, tumbled 9.8 percent to 4.04 dirhams.

To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net

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European, U.S. Stock Futures Decline; Siemens May Retreat

By Adria Cimino

Nov. 13 (Bloomberg) -- European and U.S. stock-index futures tumbled as Germany entered a recession and companies from Intel Corp. to Siemens AG and Zurich Financial Services AG reported disappointing results. Asian shares fell.

STMicroelectronics NV, Europe's biggest chipmaker, may slide after Intel, the world's largest, reduced its fourth- quarter revenue estimate by about $1 billion. BHP Billiton Ltd., the world's largest mining company, sank 12 percent in Australia as metals prices slumped. StatoilHydro ASA may lead energy producers lower as crude oil fell to its lowest in 21 months.

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, fell 24, or 1 percent, to 2,379 at 7:42 a.m. in London. The U.K.'s FTSE 100 Index may decrease 76, according to Cantor Index, a betting firm.

``We're going to see more companies having to cut staff because the economy is slowing,'' said Andrew Lynch, who manages about $3 billion at Schroder Investment Management Ltd. in London. The contraction in Germany's economy ``was a steeper drop than I was fearing. We'll see equities go lower. People will have to revise down further their outlook for corporate earnings.''

The German economy, Europe's largest, shrank more than economists expected in the third quarter, confirming it has entered its worst recession in at least 12 years. Gross domestic product dropped a seasonally adjusted 0.5 percent from the second quarter, when it fell a revised 0.4 percent. Economists expected a 0.2 percent decline in a Bloomberg survey.

Futures on the Standard & Poor's 500 Index lost 0.8 percent, and the MSCI Asia Pacific Index sank 5 percent today.

Earnings Scorecard

Earnings for the 1,428 companies in western Europe that reported results since Oct. 7 declined 17 percent on average, trailing expectations by 7.7 percent, Bloomberg data show. Statistics Office in Wiesbaden said.

More than $29 trillion has been erased from the value of global equity markets as credit losses and writedowns totaled $949 billion in the worst financial crisis since the Great Depression. Europe's Stoxx 600 is down 44 percent in 2008, headed for its worst year since records began in 1987.

U.S. stocks fell for a third day after the Treasury scrapped plans to buy mortgage assets, shifting to use bailout funds to shore up consumer lending, while Best Buy Co. warned of a ``seismic'' slowdown in spending. U.S.-traded securities of Fortis and Royal Bank of Scotland Group Plc fell more than 4 percent from their European close yesterday.

``News that a plan to buy troubled mortgage assets has been shelved in favor of tackling problems with non-bank and consumer finance is certainly going to heap yet more concern on the market as we move towards the weekend break,'' Matthew Buckland, a dealer at CMC Markets in London, wrote.

STMicro, Siemens

STMicroelectronics and Infineon Technologies AG, Europe's second-largest maker of semiconductors, may retreat. Intel, whose chips run more than three-quarters of the world's computers, said its profit margin also will fall short of an earlier prediction. The company cited ``significantly weaker'' demand across its entire product line.

Siemens may decline. Europe's biggest engineering company reported fourth-quarter profit that missed analyst estimates on costs for job cuts at the company's transport and health-care units. Earnings at the main industry, energy and health-care divisions, which Siemens calls sector profit, declined 25 percent to 1.49 billion euros ($1.86 billion).

Zurich Financial will probably drop. Switzerland's largest insurer said third-quarter profit sank 90 percent to $154 million, falling more than analysts estimated, after debt writedowns and losses from hurricanes in the U.S.

BHP tumbled 12 percent in Australia, while Rio Tinto Group, the world's second-biggest iron-ore supplier, lost 8.2 percent. Copper slid to the lowest in more than three years in London.

Oil Tumbles

StatoilHydro, Norway's largest oil and natural-gas producer, may decline. Crude oil fell below $55 a barrel as slowing economies of the major consuming nations cuts demand for fuels.

American depositary receipts of Fortis, the financial- services company bailed out by three governments and BNP Paribas SA, sank 8.4 percent from the stock's close in Belgium. ADRs of Royal Bank, Britain's fifth-largest, lost 4.2 percent from the close in the U.K.

Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Paulson said. Officials are considering using a portion of the $700 billion financial bailout money to ``encourage private investors to come back to this troubled market,'' he said.

Buying ``illiquid'' mortgage-related assets -- the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said.

ICAP, BT

ICAP Plc, the biggest interbank broker, and rival Tullett Prebon Plc had their shares lowered to ``underweight'' at Morgan Stanley, which cited a `tough revenue outlook.'' ICAP was lowered from ``equal-weight'' while Tullett Prebon was cut from ``overweight.''

``Our work with heads of trading/sales and consultants drives our revenue expectations,'' the analysts, including Chris Manners, wrote in a research note dated today. ``We expect 2009 revenue declines of 5-25 percent by product.''

BT Group Plc, the U.K.'s largest phone company, aims to cut 10,000 jobs this year to improve profitability after reporting a slide in second-quarter earnings.

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

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Hedge Funds Lost $100 Billion on Investor Withdrawals

By Tomoko Yamazaki

Nov. 13 (Bloomberg) -- The global hedge fund industry lost $100 billion of assets in October, according to an estimate from Eurekahedge Pte, as firms including Sparx Group Co. and Man Group Plc were hammered by investor redemptions.

Funds fell an average 3.3 percent, based on preliminary figures from the Singapore-based data provider, as measured by the Eurekahedge Hedge Fund Index, which tracks the performance of more than 2,000 funds that invest globally. That compares with a 19 percent slide in the MSCI World Index last month.

The biggest market losses since the Great Depression and investor withdrawals hurt the $1.7 trillion hedge funds industry that manages largely unregulated pools of capital. The index of global funds has lost 11 percent this year, set for the worst performance since 2000 when Eurekahedge began tracking the data.

``This wave of redemption in the hedge fund industry is going to last for at least another six months,'' said Toyomi Kusano, president of Kusano Global Frontier, a hedge fund research firm in Tokyo. ``There are some funds that halted withdrawals, but those funds would eventually have to defreeze, and that means another wave of redemptions.''

Earlier this week, Sparx, Asia's biggest hedge-fund manager with $8.5 billion in assets, posted a first-half loss on redemptions and falling stock prices. Its assets under management on a preliminary basis were 839.1 billion yen ($8.8 billion) as of Oct. 31, compared with a peak of 2 trillion yen in August 2006.

Shrinking Industry

London-based Man Group, the largest publicly traded hedge- fund manager, reported assets under management, which stood at $70.3 billion as of Sept. 30, fell to $61 billion at the beginning of November, the least since March 2007.

``As both hedge fund managers and fund of funds scramble to meet client redemptions, one thing is clear: the industry is going to shrink substantially over the coming months, perhaps as much as 50 percent in terms of both assets under management and number of funds,'' said Kostas Iordanidis, head of hedge funds at Geneva-based Unigestion Holding SA, which invests $3.2 billion in hedge funds worldwide.

Assets in Singapore-based Tantallon Capital's flagship Tantallon Fund shrank to $284 million at the end of October, according to data compiled by Bloomberg. The fund, managed by Nicholas Harbinson, a Tantallon co-founder and former Merrill Lynch & Co. head of sales, stood at $877 million at the end of August, from as much as $1.5 billion at the start of the year.

Outperforming MSCI World

Still, hedge funds have outperformed relative to the MSCI World Index that has lost 46 percent this year. In October, managers who trade futures, or CTAs, and those who invest in Japan helped offset declines, Eurekahedge said.

In terms of regional mandates, the Eurekahedge Japan Hedge Fund Index was the best performer, declining 0.8 percent last month, even as the benchmark Topix index slid 20 percent, the firm said. Trades that involved selling regional stocks and took advantage of currency moves helped stem losses, Eurekahedge said. The yen strengthened more than 7 percent against the dollar in October, the biggest gain since October 1998.

Among Japan funds, the 2.7 billion yen Sparx Japan Stocks Long Short Fund, also known as ``Best Alpha,'' declined 2.2 percent in October, according to monthly data posted on the company's Web site.

Myojo

The Myojo Japan Long Short Fund, run by Myojo Asset Management Japan Co., gained 4.3 percent in October on U.S. dollar-basis, according to letter sent to investors. The gain cut its year-to-date loss to 8.7 percent.

The Eurekahedge Asian Hedge Fund Index lost 4.3 percent. Singapore-based Tantallon's long-short fund, which seeks to profit from both gains and declines in stock prices, fell 28.6 percent this year through October. It was up 0.59 percent last month, Bloomberg data show.

``Although we are seeing and we will see attrition amongst Asian funds, it is unlikely to be as bad as the more developed markets,'' said Peter Douglas, principal of Singapore-based hedge-fund consulting firm GFIA Pte, citing the cost of running a hedge fund in the region.

U.S. hedge-fund managers may lose 15 percent of assets to withdrawals by year-end while their European rivals shed as much as 25 percent, Huw van Steenis, a Morgan Stanley analyst in London, wrote last month in a report to clients. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June.

Strategy

The Eurekahedge North American Hedge Fund Index fell 4 percent, the firm said, while the index tracking Eastern Europe and Russia was the worst performer with a slide of 16 percent. The Eurekahedge European Hedge Fund Index slid 6.8 percent, while the measure tracking Latin American funds declined 4 percent, the data provider said.

By strategy, CTA funds outperformed, with average gains of 6.2 percent as managers exploited directional trends in the commodity and currency markets, the firm said. Similar trades also helped boost the performance of so-called macro-fund managers, who wager on trends in stocks, bonds and currencies worldwide, Eurekahedge said.

Among macro funds, Astmax Commodity Global Macro Fund, run by former Sumitomo Corp. copper trader Tetsu Emori, rose 2.6 percent last month. The 1.4 billion yen fund takes long and short positions in global commodity markets.

The preliminary figures were based on 41.5 percent of the funds reporting their October 2008 returns as of Nov. 12, Eurekahedge said. For CTA managers, the performance figures were based on 60 percent of the funds reporting, it said. The firm plans to release final figures next week.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net

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CanWest, First Quantum, Magna, Onex: Canadian Equity Preview

By John Kipphoff

Nov. 13 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading. Stock symbols are in parentheses, and share prices are from the previous close in Toronto.

The Standard & Poor's/TSX Composite Index dropped 5.3 percent to 8,922.57.

Auto-parts makers: Canadian Industry Minister Tony Clement said the government is considering how it can help car manufacturers cope with the global economic slowdown. He didn't elaborate. Shares of Canada's three biggest car-parts makers fell between 21 percent and 43 percent in October.

Magna International Inc. (MGA CN) dropped 4.8 percent to C$33.99 yesterday. Linamar Corp. (LNR CN) fell 2.3 percent to C$5.91. Martinrea International Inc. (MRE CN) added 0.8 percent to C$3.89.

AbitibiBowater Inc. (ABH CN): The largest newsprint producer will delay filing its quarterly financial statements while it completes amendments to credit facilities. Changes to lending agreements for its Bowater Inc. subsidiary will have a ``significant'' effect on the statements, Montreal-based AbitibiBowater said. The shares dropped 15 percent to C$1.43.

Canwest Global Communications Corp. (CGS CN): Canada's biggest media company plans to eliminate 560 jobs to help reduce annual costs by about C$61 million ($49.3 million). The cuts, in the form of buyouts, attrition and firings, represent about 5 percent of the workforce, Winnipeg-based Canwest said. Shares fell 6 cents to 85 cents.

First Quantum Minerals Ltd. (FM CN): The miner of copper in Africa will curtail exploration and capital spending because of falling metal prices. Sales, profits and cash flow for the rest of the year will be ``materially lower'' than in the third quarter if current copper prices persist, the Vancouver-based company said. The shares declined 14 percent to C$19.35.

Onex Corp. (OCX CN): Canada's biggest publicly traded buyout firm delayed the closing of a new $4.5 billion buyout fund, and ``very difficult'' credit markets may last until 2010, chief executive officer Gerry Schwartz said. Onex also reported a third-quarter profit of C$38 million ($30.8 million), compared with a loss of C$77 million a year earlier. The shares rose 2.8 percent to C$20.25.

To contact the reporters on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.

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Bancolombia, Tele Norte Leste, Usiminas: Latin Equity Preview

By [bn:PRSN=1] William Freebairn [] and James Attwood

Nov. 13 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.

The MSCI Latin America Index fell 8.9 percent yesterday to 1,928.94.

Brazil

Lupatech SA (LUPA3 BS): Brazil's largest offshore oil- equipment provider agreed to buy closely held Fiberware Equipamento Servicos para a Industria Ltda. for 16.4 million reais ($7.2 million) to expand its tube and pipeline business. Fiberware makes fiberglass, high-density polyethylene and other composite coatings for the oil and gas industry, the company said in a statement yesterday. Lupatech fell 7.1 percent to 20.90 pesos.

Tele Norte Leste Participacoes SA (TNLP3 BS): Brazil's largest phone company said Chief Financial Officer Jose Luis Magalhaes Salazar resigned for ``personal reasons,'' and will be replaced on an interim basis by Chief Executive Officer Luiz Eduardo Falco. Separately, Tele Norte Leste wants to delay the payment of a 700 million-real ($301 million) fee for high-speed Internet-capable cellular phone licenses, Dow Jones reported yesterday. Tele Norte Leste fell 9 percent to 27.30 reais.

Usinas Siderugicas de Minas Gerais SA (USIM5 BS): Brazil's second-largest steelmaker will go ahead with $14 billion in capacity expansion projects. Demand for flat-steel in Brazil may increase 2 percent to 3 percent in 2009, the company said yesterday. Usiminas, as the company is known, fell 9.3 percent to 22 reais.

Colombia

Bancolombia SA (BCOLO CB): The country's biggest lender said profit rose 16 percent to 70.1 billion pesos ($30.2 million) in October compared with 60.3 billion pesos in September. Net income in the first 10 months of the year rose 37 percent to 895 billion pesos from the same period last year on higher net interest income. Bancolombia fell 1.4 percent to 11,340 pesos.

Mexico

Corporativo GBM SAB (GBMO MM): The Mexican brokerage said it will charge customers selling shares of its GBM Fondo de Crecimiento fund a 5 percent fee because recent market volatility ``has prevented the appropriate setting of some prices.'' Sales of the GBM Capital Bursatil fund will incur a 10 percent fee, with the fees retained in the fund to compensate remaining shareholders. GBM rose 10 percent to 3.75 pesos when it last traded Nov. 10.

To contact the reporters on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.

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US backs away from plan to buy bad assets

Updated: 2008-11-13

[China Daily] WASHINGTON - The Bush administration on Wednesday largely abandoned its plan to buy up toxic mortgage assets and said it will focus its $700 billion financial bailout fund on making direct investments in financial institutions and shoring up consumer credit markets.

The US Treasury Department initially promoted the financial rescue package approved by Congress last month as a vehicle to buy illiquid mortgage assets from banks and other institutions to spur fresh lending.

US Treasury Secretary Henry Paulson speaks during a news conference at the Treasury Building in Washington November 12, 2008. Paulson on Wednesday said he was backing away from buying troubled mortgage assets using a $700 billion bailout fund, instead favoring a second round of capital injections into financial institutions that would match private funds. [Agencies]

However, that plan never got off the ground and US Treasury Secretary Henry Paulson told a news conference asset purchases were not the most effective use of the funds.

"This is not going to be the focus," he said. Paulson added, however, that the Treasury would continue to examine the usefulness of "targeted" purchases.

The US Treasury has already tapped the fund to inject capital into banks and ailing insurer American International Group (AIG). Paulson said he was considering a second round of preferred share purchases in both banks and non-bank institutions which, in a fresh twist, would match privately raised funds.

He also said the Treasury was working with the Federal Reserve on a plan to help restore credit flows to US households by using financial rescue funds to lure investors back to markets for securitized debt, such as car loans, student loans and credit cards.

The administration's shifting focus disappointed Wall Street and US stock prices tumbled sharply. The Dow Jones industrial average .DJI closed down 408 points, or 4.7 percent.

"This hasn't done the Treasury's credibility a world of good," said Alan Ruskin, chief international strategist at RBS Global Banking and Markets in New York. "Basically, they found that the market would applaud direct capital injections more readily than understanding the complexities of reverse auctions to buy assets, so it's a pragmatic choice."

Paulson was unapologetic, saying that by the time the rescue bill was passed on October 3, it was clear the asset purchase plan would take too long and would not be sufficient to calm roiling markets.

"I will never apologize for changing a strategy or an approach if the facts change," he said.

Cool to Calls for Help

The $700 billion financial sector bailout is the United States' marquee effort to combat a credit crisis spawned by rising US mortgage defaults that is now wreaking economic damage worldwide.

To help ease the crisis, the US Treasury and bank regulators on Wednesday issued "guidance" for banks encouraging them to lend and to rein in any compensation plans that might lead executives to take excessive risks.

Earlier on Wednesday, Canada announced a plan to buy up another $41 billion in insured mortgages and other steps to try to free-up credit.

Paulson said the US Treasury was duty-bound to help prevent mortgage foreclosures, but he warned that further aid would likely mean a significant government subsidy, signaling a lack of support for a Federal Deposit Insurance Corp. proposal for more aggressive aid to borrowers.

Paulson sidestepped questions on whether the Treasury would use bailout funds to help struggling Detroit automakers, as the industry and some lawmakers have called for.

While he said the industry was a "critical" one for the United States, he said the purpose of the program was to provide financial system stability.

He said one option would be to amend legislation to allow $25 billion already approved for efficient vehicle production to be made available more quickly.

So far, the Treasury has focused on providing capital to federally regulated banks and thrifts, but Paulson said it was looking to broaden the effort to cover financial institutions that do not have a federal bank or thrift charter.

"Although the financial system has stabilized, both banks and non-banks may well need more capital given their troubled asset holdings, projections for continued high rates of foreclosures and stagnant US and world economic conditions," he said.

$700 Billion Still Enough?

The Treasury has allocated $250 billion of the bailout funds to direct capital injections into banks and thrifts and it has earmarked another $40 billion to shore up AIG, leaving just $60 billion to dole out before it would have to ask Congress to release the final $350 billion.

Paulson said he had no timeline for that request, which means the decision could be left to the incoming administration of President-elect Barack Obama, who takes office on January 20.

He also signaled he would not seek to increase the overall size of the bailout fund. "I still am comfortable that, with $700 billion, we have what we need," he said.

With an aim to restoring credit for households, Paulson said the Treasury and Fed were considering setting up a program to increase liquidity for top-rated asset-backed securities, but he provided few details.

"The initial shock of abandoning TARP is hitting stocks, but the support for consumer-level lending may be a silver lining as it goes to the root of what's ailing the economy, namely personal consumption," said Brian Dolan, chief currency strategist at FOREX.com in Bedminster, New Jersey.

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N.Z. Treasury Says Budget Deficits Will Deteriorate

By Tracy Withers

Nov. 13 (Bloomberg) -- New Zealand's budget deficits will be wider than forecast less than six weeks ago as a slump in the global economy curbs consumer spending and government revenue, according to a report from the Treasury departments.

The economy will grow just 0.4 percent in the year ending March 31, 2009, and 1.3 percent a year later, the department said in an e-mailed report. The budget cash deficit will be about NZ$1.5 billion ($840 million) wider by 2011, it said.

New Zealand's economy faces a prolonged recession as slowing global demand curbs exports and tightening credit stalls consumer spending and business investment. Prime Minister-elect John Key yesterday said the worse fiscal position won't stop cutting income taxes in April.

The report was written on Nov. 7 for Finance Minister Michael Cullen. The estimates are ``very preliminary'' and the fiscal forecasts ``should be regarded as indicative only,'' Treasury said, adding that forecasts aren't adjusted for new policies that Key, who won a Nov. 8 election, may introduce.

``Given the current international environment, considerable uncertainty surrounds the economic outlook and hence the fiscal implications,'' Treasury said. ``There is the distinct possibility that future revisions to our forecasts will be to the downside.''

Economic Growth

Last month, Treasury said the cash deficit would be NZ$5.9 billion in the year ending June 30, 2009, and NZ$6.6 billion by June 2011. Those estimates were completed before the slump in financial markets and a deepening global economic slowdown.

The deficit will probably be little changed this year, then will balloon to NZ$8.08 billion in the year to June 2011, the department said today.

Economic growth in 2010 will slow from a previously forecast 1.8 percent pace, it said. Treasury said business investment will probably contract and companies are likely to need fewer workers. The jobless may rise to 5.7 percent by mid- 2010, the highest since 2000.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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Japan's Wholesale Inflation Eases as Oil Declines

By Mayumi Otsuma

Nov. 13 (Bloomberg) -- Japan's wholesale inflation rate slowed for a second month, adding to evidence that cost pressures are easing in the world's second-largest economy.

Producer prices, the costs companies pay for energy and raw materials, climbed 4.8 percent from a year earlier after a 6.8 percent increase in September, the Bank of Japan said in Tokyo today. The median estimate of 32 economists surveyed by Bloomberg News was for 5.5 percent.

Falling crude oil prices and the yen's advance against the dollar are making fuel and raw materials imports cheaper, providing some relief to Japanese companies that are threatened by weakening demand. The central bank last month cut the benchmark rate to 0.3 percent to protect the economy from fallout from the global financial crisis.

``The effect of falling crude oil prices will become more evident, subduing gains in producer prices,'' said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. ``Japan's economy will probably head toward a state of zero inflation.''

Revised data show prices peaked in August, when they rose 7.4 percent. Unadjusted figures show inflation fell 1.6 percent in October from September, the biggest drop since the bank started compiling the figures in January 1960.

Recent reports show inflation is easing. Consumer prices cooled in September from a decade high and corporate service costs rose at the slowest pace in almost two years.

Inflation Risk

Central bank policy makers said on Oct. 31 that the risk of inflation ``seems to have decreased'' while concern about a deeper economic slowdown has intensified amid the market turmoil.

Japan's wholesale inflation will probably decline 0.8 percent in the year that starts April 2009 after advancing 4.6 percent this fiscal year, the bank said last month. In July, the policy board projected a 4.8 percent increase in the current year and 1.8 percent the following period.

Still, the board members said the bank should continue to watch the risk of potential inflation and closely watch consumers' inflationary expectations as well as how companies are setting prices.

``If the bank claims it has a forward-looking policy, it's hard to argue that upward risks for prices will stay,'' said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Chase & Co. in Tokyo. ``The central bank may stick to its mantra for inflation risk because it doesn't want to cut interest rates further.''

Crude oil has lost more than half of its value since exceeding $147 a barrel for the first time on July 11. Soybeans, corn and wheat have slumped after climbing to records this year.

The Bank of Japan's overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, slid 30 percent in October, the first drop since September 1991.

The yen has strengthened 12 percent against the dollar in the past three months, making imports cheaper.

``On top of commodity price drops, the yen's exchange rate will keep exerting downward pressure on prices,'' said Morita at Barclays Capital. ``We need to keep our eyes on both factors'' to predict the direction for producer prices.

Gross domestic product probably expanded at an annual 0.1 percent pace in the three months ended September 30 after contracting 3 percent in the second quarter, according to the median estimate of 26 economists surveyed by Bloomberg News. The government will publish the GDP figures on Nov. 17.

Wholesale inflation will probably slow to around 4 percent in March and may start to drop by the third quarter of 2009, according to Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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New Zealand Quarterly Retail Sales Fall in Recession

By Tracy Withers

Nov. 13 (Bloomberg) -- New Zealand's retail sales fell for a third straight quarter, adding to signs that spiraling food prices and soaring credit costs are prolonging a recession.

Sales, adjusted for inflation, dropped 0.9 percent from the second quarter when they declined 1.4 percent, Statistics New Zealand said in Wellington today. The decline was less than the 1.2 percent median estimate of nine economists surveyed by Bloomberg News. Sales rose 0.1 percent in September from August.

Slowing sales at retailers including Warehouse Group Ltd., the nation's biggest discount-store chain, may prompt Reserve Bank Governor Alan Bollard to cut borrowing costs again next month to spur spending. Bollard has reduced the benchmark rate by 1.75 percentage points to 6.5 percent since July after the $130 billion economy contracted in the first half of the year.

``Clearly things are turning down,'' said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. ``We're likely to see some pretty weak sales numbers in coming months and that will add to the case for the Reserve Bank interest-rate cuts.''

New Zealand's dollar fell to 55.69 U.S. cents at 11:45 a.m. in Wellington from 55.98 cents immediately before the report.

New Zealand is in its first recession since 1998. Declining domestic demand and global market turbulence meant the economy probably also shrank in the third quarters, according to central bank and Treasury forecasts.

Spending `Subdued'

The central bank will cut the official cash rate by 1 percentage point to 5.5 percent on Dec. 4, according to the median forecast of 13 economists surveyed by Bloomberg News.

Food prices rose 3.9 percent in the three months through September while home-loan interest rates, which peaked in July, are still higher than a year ago.

Warehouse Group last week said sales in the quarter ended Oct. 26 fell 2.1 percent from a year earlier and it expects spending will remain subdued for some time.

``There has been a slowdown in consumption and volumes on some categories, particularly appliances and larger-ticket items such as outdoor furniture and other discretionary products,'' Chief Executive Officer Ian Morrice said in a statement.

Hallenstein Glasson Holdings Ltd. said sales at its New Zealand clothing stores slumped 8 percent in the 13 weeks ended Oct. 31. The Auckland-based company said first-half profit will be ``considerably below'' the year-earlier period.

Housing Market

Briscoe Group Ltd., which sells home-ware and sporting goods, said on Nov. 4 that sales in the nine months ended Oct. 26 were 6.5 percent less than a year earlier

Spending has slumped 3.5 percent since the start of the year as the housing market plunges, making consumers feel less wealthy. The decline is more than twice the 1.6 percent decline in the nine months ended March 31, 2007 -- the last time spending contracted for three straight quarters.

House sales dropped to a 26-year low in August, according to Real Estate Institute figures. House prices have been falling since March.

The economic slowdown left consumers more pessimistic, with 40 percent of those surveyed in October by Colmar Brunton saying the economy will worsen.

Sixteen of 24 store categories recorded lower sales in the third quarter, led by vehicle dealers, supermarkets, fuel outlets and furniture stores.

Auto Sales

Vehicle dealer sales fell 3.1 percent, the fourth straight decline. The trend in car sales is dropping at the fastest pace since records began in 1995, the statistics agency said.

Supermarket and grocery-store sales fell 1.9 percent. Fuel outlet sales declined 2 percent.

Core sales, which exclude vehicles dealers, fuel outlets and workshops, dipped 0.2 percent in the quarter after falling 0.6 percent in the three months to June.

Department store and appliance retailers posted higher sales as lower prices buoyed sales.

In September, sales rose 0.1 percent, led by spending at car dealers and grocery stores. The monthly series doesn't adjust for higher prices. Economists surveyed by Bloomberg expected a 0.4 percent increase. Core sales fell 0.5 percent from August.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.

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Australia Licenses Credit Agencies, Bans Naked Shorts

By Madelene Pearson

Nov. 13 (Bloomberg) -- Australia will require credit agencies and research companies to be licensed and to provide annual reports, Corporate Governance Minister Nick Sherry said.

The country will also make permanent an existing ban on so- called naked short selling, he told reporters today in Canberra. A prohibition on covered short sales will end on Jan. 20.

``It's very important for retail and wholesale investors in Australia that we have robust ratings and robust research of financial products,'' Sherry said. ``They have a very important gate-keeping role for wholesale and retail investors and they are therefore very important to the confidence in the financial system.''

Rating agencies in the U.S. were one cause of the subprime mortgage crisis in that country, Sherry said today. Banks, insurers and securities firms globally have lost or written down $950 billion in subprime related losses.

Australia will take its credit agency system to the Group of 20 nations meeting of financial leaders this weekend in Washington, Sherry said.

To contact the reporter on this story: Madelene Pearson in Canberra on mpearson1@bloomberg.net

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