Indonesia Cuts Rate for Third Month to Spur Growth

By Aloysius Unditu

Feb. 4 (Bloomberg) -- Indonesia’s central bank lowered its benchmark interest rate for a third straight month to cushion Southeast Asia’s biggest economy from the global recession.

Governor Boediono and his seven colleagues cut the key rate to 8.25 percent from 8.75 percent, according to a statement on Bank Indonesia’s Web site today. The decision was predicted by 20 of 23 economists in a Bloomberg News survey.

Policy makers across Asia have slashed borrowing costs as demand for the region’s exports plummet amid the global slump. Bank Indonesia, which reduced its key rate after inflation eased to a nine-month low and exports plunged, said the world economy had become “gloomier” in recent months.

“Inflation is clearly no longer an issue,” said Lim Su Sian, an economist at DBS Group Holdings Ltd. in Singapore. “More significantly, the domestic economy needs all the support it can get, with trade data pointing to rapidly deteriorating external demand.”

The rupiah increased 0.3 percent to 11,690 against the dollar at 9:49 a.m. in Jakarta following the central bank’s second consecutive half-point cut. The benchmark stock index rose 0.5 percent.

Consumer prices in Indonesia rose 9.2 percent in January from a year earlier, after increasing 11.1 percent in the previous month. Exports dropped 20 percent in December from a year earlier, the biggest decline since 2001.

‘Gloomier’ Outlook

Sluggish overseas demand is crimping Indonesia’s economic expansion. The central bank expects growth to weaken to as little as 4 percent this year, the slowest pace since 2001, from an estimated 6.1 percent in 2008.

“Several indicators show that the global economy is gloomier than estimated several months ago,” the central bank said in today’s statement. “The impact is being felt in the nation, particularly in sectors related to foreign trade.”

Growth may remain subdued unless commercial lenders are prepared to pass on the central bank’s cuts to their borrowers, said economists including Enrico Tanuwidjaja.

A half-point cut “is an important signal to the banking sector to ease borrowing costs in order to stimulate domestic business activities,” said Tanuwidjaja from Oversea-Chinese Banking Corp. in Singapore.

Bank Indonesia has reduced its policy rate by 1.25 percentage points to an eight-month low since December, while commercial banks have lowered the overnight base lending rate to 16.44 percent from 16.47 percent in the same period, according to central bank data.

Liquidity Management

“Bank Indonesia will take the necessary measures to strengthen the Indonesian banking sector, including the necessary liquidity management,” the central bank said.

The rate cut in Indonesia follows the Reserve Bank of Australia’s decision yesterday to reduce borrowing costs by one percentage point to the lowest level since 1964.

The Philippine central bank lowered its benchmark rate for the second time in six weeks on Jan. 29, cutting the overnight deposits rate to 5 percent from 5.5 percent.

Malaysia’s central bank cut its key rate by the most in more than a decade on Jan. 21, reducing its overnight policy rate by three-quarters of a percentage point to 2.5 percent.

Indonesia forecasts inflation will slow to between 5 percent and 6 percent by August, Finance Minister Sri Mulyani Indrawati said on Feb. 2. To boost growth in the $433 billion economy, the government plans to spend 71.3 trillion rupiah ($6.1 billion) this year, Sri Mulyani said.

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

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British Economy Will Shrink Until Fourth Quarter, Niesr Says

By Svenja O’Donnell

Feb. 4 (Bloomberg) -- The British economy will shrink until the fourth quarter of this year as the world endures the slowest growth since the end of World War II, the National Institute of Economic and Social Research said.

Gross domestic product will fall 2.7 percent in 2009, compared with a previous forecast of a 0.9 percent contraction, Niesr, whose clients include the Treasury and the Bank of England, said in a report today. It predicts the global economy will expand 0.5 percent, the slowest pace in 60 years.

Consumer confidence dropped to the lowest level in at least four years last month as job losses stoked pessimism about the economy, Nationwide Building Society says. The central bank may cut the benchmark interest rate to a record low of 1 percent tomorrow as policy makers try to unblock credit markets and fight the recession.

“The U.K. economy has itself entered a rather severe recession,” said Simon Kirby, an economist at Niesr. “Household consumption expenditure will be a major contributor to the contraction.”

The forecasts show Britain’s recession, which began in the three months through September, will last through the third quarter of this year. With five quarters of uninterrupted contraction, that would match the length of the recession from 1990 until 1991.

Chancellor of the Exchequer Alistair Darling has suggested that he may have to scale back his prediction of a recovery in the second half of the year. He said yesterday that major economies are facing the worst slump since the 1930s.

Confidence Slump

An index of consumer sentiment fell 8 points to 40 in January, the lowest since the survey began in 2004, Nationwide said today. A gauge of the present situation dropped to 23 last month from 29 in December, the report showed. The readings were taken from a survey of 1,000 people between Dec. 15 and Jan. 18.

Demand for staff fell at the fastest pace in more than a decade, a report by the Recruitment and Employment Confederation and KPMG showed today. Job vacancy levels slumped to 27.4 in January from 29.2 in December, falling for an eighth consecutive month, at the fastest pace since the survey began in 1997.

The Bank of England cut its interest rate to 1.5 percent last month in a bid to kick-start the economy, its lowest level since the bank was created in 1694. Policy makers will trim the rate by a half-point at their next meeting tomorrow, according to the median forecast of 61 economists surveyed by Bloomberg.

Darling has also given the Bank of England authority to manage a 50 billion-pound ($71 billion) fund to purchase bonds and commercial paper, providing policy makers with another tool to fight the recession.

“I would be inclined to do it sooner rather than later,” Niesr’s director, Martin Weale, told journalists at a briefing yesterday. “I don’t see any reason why conventional interest changes should be preferred over this sort of policy.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.

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Australian Retail Sales Surge Most in Eight Years

By Jacob Greber

Feb. 4 (Bloomberg) -- Australian retail sales rose in December by the most in more than eight years after the government handed out cash grants to families and pensioners and urged them to spend the money.

Retail sales, seasonally adjusted, increased 3.8 percent from November, when they advanced 0.4 percent, the Bureau of Statistics said in Sydney today. The median forecast of 16 economists surveyed by Bloomberg News was for a 1.4 percent gain.

Consumer spending is being stoked by government handouts and the central bank’s decision to cut borrowing costs yesterday to the lowest level in 45 years. Retail sales may gain in coming months after Treasurer Wayne Swan said the government will distribute another A$12.7 billion ($8.2 billion) to families from next month. A separate report shows home approvals fell.

“A strong surge in retail spending is likely the only thing that could have prevented the Australian economy from experiencing a sharp fall in the fourth quarter,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney.

The Australian dollar traded at 64.78 U.S. cents at 12:28 p.m. in Sydney from 64.94 cents before the report was released. The two-year government bond yield fell 2 basis points, or 0.02 percentage point, to 2.55 percent.

Shares of Harvey Norman Holdings Ltd., Australia’s biggest furniture and electronics retailer, rose 2.4 percent to A$2.15 in Sydney at 12:21 p.m. in Sydney. The benchmark S&P/ASX 200 stock index fell 0.7 percent to 3485.6.

Department Stores

Spending on household goods rose 9.9 percent in December while sales at department stores gained 8.3 percent, the report showed. Consumers also spent 5.8 percent more on clothing.

The surge in December spending was the biggest increase since August 2000, one month after the government introduced a goods and services tax.

Treasurer Swan distributed A$8.9 billion at the start of December to the elderly and families after retailers including David Jones Ltd., the nation’s second-biggest department store chain, reported waning sales.

Today’s retail sales report is “disappointing,” said Andrew Hanlan, a senior economist at Westpac Banking Corp. in Sydney.

“The government gave away all that money and it needed only a small portion of it to be spent to boost retail sales by 5 percent,” he said. “This result suggests the majority of the handout was saved or is going to be spent in the first quarter.”

Furniture, Electronics

David Jones said today that sales in the three months through Jan. 24 fell 6.6 percent to A$619.9 million from the same period a year earlier as consumers curbed spending on furniture, electronics and homewares.

Prior to December, retail sales gained by an average of 0.1 percent a month in 2008, according to the bureau’s trend series, down from 0.6 percent monthly growth in 2007.

The statistics bureau shifted its focus in July to trend retail sales after it cut the sample size of the survey by two thirds to reduce costs. The bureau reinstated the full seasonally adjusted survey for today’s report and didn’t include a trend figure for December because of the stimulus package.

Consumers cut spending during the first 11 months of last year amid speculation the economy faces its first recession since 1991, after expanding just 0.1 percent in the third quarter, the weakest pace in eight years.

Home-building approvals unexpectedly fell in December for a sixth month, matching the longest run of declines in more than four years, and sales of cars and trucks tumbled 18.5 percent in January compared with the same month a year earlier, separate reports showed today.

Reports published this year show the jobless rate rose to a two-year high of 4.5 percent in December as companies cut 43,900 full-time jobs, bank lending unexpectedly fell for the first time since 1992, manufacturing shrank in January for an eighth month and house prices dropped for a third straight quarter.

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

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Utsumi Says G-7 Nations May Reinstate Call for Yuan Flexibility

By Keiko Ujikane and Kyoko Shimodoi

Feb. 4 (Bloomberg) -- Makoto Utsumi, a former top currency official at Japan’s Finance Ministry, said Group of Seven nations may reinstate their call for China to increase the flexibility of its currency when they meet next week in Rome.

“There may be discussions on the yuan, laying the ground work for future talks,” Utsumi, 74, said in an interview in Tokyo last week. “The yuan may be singled out” in the statement, he said.

Treasury Secretary Timothy Geithner said last month that the U.S. believes China is “manipulating” its currency, suggesting President Barack Obama’s administration may take a tougher line over its trading partner’s exchange-rate management. China’s commerce ministry said it wasn’t manipulating the yuan and such accusations could fuel U.S. protectionism.

Finance ministers and central bankers from the G-7 nations gather on Feb. 14 in Rome. In April, the group said they “encourage” further appreciation of the yuan, language that was omitted an from October statement.

China has limited appreciation of the yuan since July 2008 after the currency rose 21 percent against the dollar following the end of a fixed exchange rate in 2005. International Monetary Fund Managing Director Dominique Strauss-Kahn said yesterday the currency remains undervalued, while adding that China should focus on sustaining growth as the global economy falters.

‘Not in Quiet Times’

The yuan “would be the main problem if we were in a quiet period,” Strauss-Kahn said. “We’re not in quiet times, so we’d better concentrate today on recovery, keeping in mind it is true to say the renminbi is still undervalued.”

Utsumi, who is now president of Japan Credit Rating Agency Ltd., said the nations probably won’t single out the pound’s weakness as a major issue even after the currency slumped to a 23-year low against the dollar last month. Instead, the G-7 may address the need for stability in the currency markets.

Speculation leaders would focus on the pound has risen since French Finance Minister Christine Lagarde called on the Bank of England to do more to support the declining currency.

“When the dollar is strong, the yen’s partial strength and the pound’s weakness may not become a serious issue,” said Utsumi, who led Japan’s currency policy from 1989 to 1991. “There’s a possibility that the G-7 may use a cliché that abrupt movement in currencies is undesirable and currencies should reflect economic fundamentals.”

Creating Demand

The dollar has strengthened against 15 major currencies excluding the yen this year. Companies are bringing money back to the U.S. as they cut back overseas investment and investors cancel funds, creating demand for the dollar, he said.

At the April meeting in Washington, leaders voiced concern about the dollar’s slide, saying there had been “sharp fluctuations in major currencies” that merited concern about “possible implications for economic and financial stability.”

Utsumi said the yen may weaken beyond 100 against the dollar by the end of the year. The yen rose to a 13-year high of 87.13 against the dollar on Jan. 21.

The former vice finance minister for international affairs said he didn’t think the yen’s current level will compel the government to intervene in the market alone. Utsumi correctly predicted coordinated action to boost the euro in September 2000, when the G-7 nations last intervened in currency markets.

“Demand for the dollar may remain firm given the tight funding situation in the U.S. It’s difficult to think of a scenario where the dollar is in a free-fall exclusively against the yen,” Utsumi said. “The yen has been overbought” because investors see it to be a relatively safe currency amid a deepening financial crisis in the U.S. and Europe.

As well as the U.S. and Japan, the G-7 includes Canada, France, Germany, Italy and the U.K.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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No One Gets Out of This Financial Crisis Alive: William Pesek

Commentary by William Pesek

Feb. 4 (Bloomberg) -- Australia’s budget surplus is history.

That’s the upshot of the government’s plan to spend A$42 billion ($26.5 billion) on grants and infrastructure to keep the economy out of recession. It will produce a A$22.5 billion shortfall, the first since fiscal 2001-02. Given the state of the global economy, that’s more than appropriate.

The implications of this go beyond Australia’s 21 million people. It’s as clear an indication as any that no economy, small or large, will escape the global crisis unscathed. Or, as Bill Evans, Westpac Banking Corp.’s chief economist, quips: “No one gets out of this one alive.”

Australia had been a prime candidate for avoiding the worst of the credit meltdown that began in the U.S. Six months ago, many saw Japan as a haven. Not quite. Asia’s biggest economy is now in a deepening recession. With Europe also sliding, Australia had stood out as an oasis of stability.

Forget that idea. Australia’s economy has probably followed the U.S., U.K., Japan and Europe into its first recession since 1991. Gross domestic product rose a scant 0.1 percent in the third quarter, the weakest pace in eight years. The fourth quarter was an ugly one around the globe.

Australia is facing greater obstacles than officials in Sydney and Canberra acknowledge. It would have been better to issue a more specific warning about recession risks. Can Australia really avoid negative growth? It’s doubtful.

Adult in Room

Relative to the most developed economies and Asia’s developing ones, Australia looks pretty good. Even after yesterday’s 100 basis-point interest-rate cut, Australia’s central bank has 3.25 percentage points worth of ammunition. That compares with essentially zero in the U.S. and Japan.

Australia also has some fiscal room for maneuver after years of surpluses. That makes Australia look like an adult in a room full of irresponsible adolescents, according to former Prime Minister Paul Keating.

“The G-7 is made up of debtor countries, countries like the U.S., Britain, France, Italy -- these are all borrowers,” Keating told Australian Broadcasting Corp.’s Lateline program this week. “There are no surplus countries in that.”

Useless G-7

Keating’s argument is that an overhaul of the global financial framework is needed to stem this crisis. Neither the Group of Seven nations nor the International Monetary Fund is up to the challenge as the U.S. deals with a debacle that might last six or seven years, he said.

“Get rid of the old G-7,” Keating said. “We’ve got to get rid of the old IMF. We’ve got to bring the surplus countries into the political framework.”

It’s a valid point. Why should it be left to the U.S. and other nations that created the system now crashing around us to concoct a new one? Steps taken to date in the U.S. seem aimed more at saving the old financial arrangements than presenting something new or different. Australia has done a solid job of managing its economy, so it should have a bigger say in a new financial world.

“Things are going to be very difficult,” says John Edwards, chief economist at HSBC Bank Australia Ltd. in Sydney. “But we also need to be conscious that our circumstances are very different. We limped through the fourth quarter last year, whereas other countries were in the most desperate circumstances.”

Those circumstances will become less unique as global growth cascades lower. A slump in world demand is cutting profits at companies, boosting unemployment and eroding household sentiment.

Australia’s Doorstep

Hence the central bank’s five interest-rate reductions since September and the government’s sudden willingness to go into deficit. There can be no doubt that the full weight of the credit crunch has arrived on Australia’s doorstep.

There are some complications worth considering. With short- term rates at a 45-year low, Australia is “getting to the point where monetary policy can do no more,” Evans says.

Household debt has almost doubled since 1999 to about 160 percent of incomes, a higher ratio than in the U.S. and U.K., AMP Capital Investors said in November. And the specter of a Chinese recession bodes poorly for Australian trade, which makes up one- fifth of the economy. Australia was too fast to rely on a developing nation for growth and may pay a price this year.

The China angle is clearly weighing on Prime Minister Kevin Rudd’s mind. On Feb. 2, Rudd said China’s slowdown and the global crisis would punch a A$115 billion hole in government revenue over the next four years. If China bears are right and growth in the third-biggest economy slows to less than 5 percent, Australia is in for an even more difficult 2009.

The question is whether Australia is truly less vulnerable to global events than its peers or experiencing the crisis in slow motion. The answer is anyone’s guess, though one senses an odd optimism in Sydney as global trends darken and head this way.

Australia won’t get out of this one without some bruises.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Sydney at wpesek@bloomberg.net

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BHP Says Petroleum an ‘Extremely Attractive’ Business

By Angela Macdonald-Smith

Feb. 4 (Bloomberg) -- BHP Billiton Ltd., Australia’s biggest oil and gas producer, said petroleum is an “extremely attractive” business that it expects to continue to invest in even after the drop in oil prices.

“We’re obviously very, very pleased with the petroleum division’s ability to continue to grow,” Chief Executive Officer Marius Kloppers said today on a conference call. First- half earnings for the unit jumped 36 percent, mostly on higher output, Melbourne-based BHP said today in a statement.

BHP, also the world’s largest mining company, has approved more than $1 billion of investment in three oil and gas projects in the past six months as it seeks to meet a target of expanding output by at least 10 percent for the next four to five years. Crude oil traded in New York has plunged more than 70 percent since reaching a record $147.27 a barrel in July.

“Their margins in petroleum are still quite strong; it was one of the bright spots” in the half, said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney. “I don’t think their view on petroleum would be altered to any degree by circumstances in the market. If you look forward, oil is one commodity where there’s probably more prospect than any other of some sort of price improvement in the near term.”

BHP gained as much as 67 cents, or 2.3 percent, to A$30.45 on the Australian stock exchange and was at $30.25, up 1.6 percent, at 1:03 p.m. Sydney time. The gain compared with a slide of 0.6 percent in the exchange’s benchmark index.

Budget Cut

Crude for March delivery was at $41.04 a barrel on the New York Mercantile Exchange at 1:23 p.m. Sydney time. Prices may rise to average $70 a barrel in the fourth quarter, according to the median of 33 analyst estimates compiled by Bloomberg.

BHP still expects to reduce spending on petroleum exploration this business year by as much as 14 percent. The budget has been cut to between $600 million and $700 million in the year ending June 30, from $700 million, Chief Financial Officer Alex Vanselow said.

Total costs for BHP’s production are expected to be less than $20 a barrel, Kloppers said.

“If you take that total figure and you take even today’s petroleum price you can see that it’s an extremely attractive business with high margins, given the portfolio that we’ve got,” Kloppers said.

BHP and Exxon Mobil Corp. are “aggressively pursuing” options for the development of their Scarborough gas field off northwest Australia to supply liquefied natural gas, said J. Michael Yeager, chief executive of the petroleum unit. The field is the largest single discovery in BHP’s portfolio.

‘Very Optimistic’

The resources producer is “very optimistic about bringing that forward and actively working it,” Yeager said.

Investments approved in the past six months include $625 million for the Turrum gas project off Australia’s southeast coast, $245 million for an upgrade of the North West Shelf venture’s Cossack oil project and $180 million for an expansion of the Angostura gas project in Trinidad. BHP is also developing the Shenzi and Atlantic North projects in the Gulf of Mexico, and the Pyrenees and Kipper ventures in Australia.

Almost all of BHP’s projects under development “would have been sanctioned with industry long-run prices probably at the level of the spot price today,” Kloppers said.

First-half earnings before interest and tax in petroleum rose to $2.7 billion, partly due to gains in average received prices. Average liquefied natural gas prices jumped 65 percent to $12.82 per thousand cubic feet, while gas prices rose 16 percent to $3.97 and crude oil prices advanced 5 percent to $85.22 a barrel. Output advanced 12 percent to 68 million barrels of oil equivalent.

“One of the big, powerful drivers of BHP from time to time, and we think it will be in future, is its oil division,” said Peter Arden, senior research analyst at Ord Minnett Ltd. in Melbourne.

Total petroleum production costs comprise cash costs plus depletion, depreciation and amortization charges, Kloppers said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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Refiners, Union Reach Tentative Deal, Avert Nationwide Walkout

By Aaron Clark and Barbara Powell

Feb. 4 (Bloomberg) -- The tentative contract deal struck by labor negotiators and refiners averted a strike that would have idled as many as 30,000 U.S. workers, cut fuel production and likely increased prices in the midst of the deepest recession since World War II.

The union accepted higher wages while giving in over safety provisions after 12 days of meetings in Austin, Texas, with Royal Dutch Shell Plc. The three-year agreement includes 3 percent raises annually.

“We opted to reach a tentative agreement on economic issues and withdrew our bargaining demands for the safety language we and the public sorely need,” said United Steelworkers International Vice President Gary Beevers, the union’s top negotiator. “But let it be clear, we are not finished with our struggles for meaningful change in the health and safety arena.”

The workers who produce two-thirds of the gasoline and other fuels made in the U.S. sought higher wages and improvements in plant safety practices after a March 2005 explosion at BP Plc’s refinery in Texas City, Texas, killed 15 people and injured 170.

“The settlement means there will be no interruption in refinery operations, which would have impacted product supply in advance of the gasoline driving season and probably led to higher prices,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

The International Monetary Fund predicts the U.S., Japan and euro region will simultaneously contract in 2009 for the first time since World War II. The agreement includes a signing bonus for union workers who approve it by Feb. 16 as well as the 3 percent raises, said Eric Hamilton, chairman of the bargaining committee at the Motiva refinery in Port Arthur, Texas.

‘Tough’ Negotiations

“These were tough negotiations given the economic conditions of an economy still in a total free-fall,” said Steelworkers International Vice President Leo W. Gerard in a statement. “The oil companies were not willing to work with us fully to improve process safety.”

The agreement with Shell will be extended to workers at 86 plants, including operations owned by Exxon Mobil Corp., Valero Energy Corp., BP and Chevron Corp. The agreement averted as many as six plant closures and about 1.7 million barrels of daily capacity going off line within days.

Regular gasoline pump prices, averaged nationwide, rose 1 cent to $1.89 a gallon, AAA, the nation’s biggest motoring group, said today on its Web site. Gasoline prices rose almost 10 percent last week on concern over a possible strike.

Shell Reaction

“Shell is pleased that it has reached a mutually satisfactory tentative agreement on national bargaining items with the USW for our manufacturing sites,” said Stan Mays, a Shell spokesman, in an e-mail. “We are optimistic agreements will be ratified at the local level in the near future.”

The union rejected three contract offers from Shell as it tried to strengthen contract language on health and safety. Last week, the union refused a three-year contract with a $500 signing bonus and 2.5 percent increases in the second and third years.

The previous contract was signed in 2002 and extended in 2005. Some individual refiners are negotiating with local unions on additional contract terms that might result in isolated work stoppages.

Exxon, the world’s biggest oil company and owner of the largest refinery in the U.S., declined to comment on the agreement. “All I can tell you is that we have put an offer forward to our local unions,” Kevin Allexon, a company spokesman, said in an e-mail. “Beyond that, I have no further details to share.”

Pattern Agreement

The agreement will likely be copied by other refiners because the provisions for raises, signing bonus and an 80 percent employer health care cost contribution, are “plain vanilla,” said Dominick Chirichella, senior partner of the Energy Management Institute in New York.

“I think everybody is going to buy into it,” Chirichella said. If the unions had won concessions on safety, “those features could have be objected to because different companies might have interpreted it differently.”

The threat of a nationwide strike came at a time when Valero and ConocoPhillips, the two largest refiners by U.S. capacity, were slowing fuel output after margins narrowed. In the fourth quarter, oil processors made gasoline at a loss for a record number of days, as indicated by futures prices, as fuel demand slowed.

“Valero is satisfied with the agreement on the national level, and we’re presenting it to our local unions to ask for their approval,” Bill Day, a spokesman for Valero, said in an e- mail.

BP planned to shut refineries in California, Texas, Ohio and Indiana in the event of a nationwide strike. Valero planned to shut plants in Tennessee and Delaware. Shell and Exxon Mobil, among other refiners, said Jan. 28 that they would keep their U.S. plants running with contingency crews.

U.S. refiners operated at 82.5 percent of capacity the week of Jan. 16, down from 85.2 percent the previous week, according to the Energy Department in Washington.

To contact the reporter on this story: Barbara Powell in Dallas at Bpowell4@bloomberg.net; Aaron Clark in New York at aclark27@bloomberg.net.

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Reliance Supplies Gasoline, Gasoil to Iran, Oil Daily Says

By Dinakar Sethuraman

Feb. 4 (Bloomberg) -- Reliance Industries Ltd. is continuing to supply gasoline to Iran, the International Oil Daily said without saying where it got the information.

Reliance shipped a 35,000 ton gasoline cargo each in December and January and 70,000 tons in October and November, the trade daily said. The company shipped two smaller cargoes of gasoil to Iran in January after Mangalore Refinery & Petrochemicals Ltd. failed to renew a term contract with National Iranian Oil Co., the report said.

Iran imported around 140,000 barrels per day of gasoline last year to meet domestic demand, the report said. Swiss traders Vitol Group and Trafigura Beheer BV accounted for more than 80 percent of the 120,000 barrels a day of gasoline shipped to Iran in January.

Reliance halted gasoline shipments to Iran after pressure by U.S. senators to suspend loan guarantees to the company from their nation’s Export-Import Bank, the Foundation for Defense of Democracies, a Washington-based policy institute, said Jan. 7. A spokesman for Reliance didn’t immediately respond to a request for comment made outside Mumbai office hours.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.

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Yen May Rise to 80 a Dollar Unless Japan Intervenes, RBS Says

By Yasuhiko Seki and Shigeki Nozawa

Feb. 4 (Bloomberg) -- The yen may climb to 80 per dollar by mid-year unless Japan intervenes to support its export-dependent economy, according to Royal Bank of Scotland Group Plc.

The U.S. government, which is raising record amounts through bond sales to spend its way out of a recession, may welcome Japanese intervention as long as the dollars it buys are used to purchase U.S. Treasuries, Masafumi Yamamoto, head of foreign-exchange strategy at Royal Bank of Scotland in Tokyo, wrote in a research note yesterday.

“The U.S. needs to issue a huge amount by selling Treasuries but China is unlikely to increase purchases,” said Yamamoto at the biggest U.K. bank, who confirmed the contents of the report. “Japan, which wants to avoid further appreciation in the yen, is now the best candidate to replace China’s role. Mutual interest between U.S. and Japan now match.”

The yen strengthened to 87.13 per dollar on Jan. 21, the strongest level since July 1995, after gaining 23 percent last year as the global financial turmoil spurred investors to buy Japan’s currency as a haven. The yen traded at 89.59 per dollar as of 11:48 a.m. in Tokyo.

The yen’s strength has sapped earnings at Japanese exporters such as Toyota Motor Corp. and Honda Motor Co., the nation’s two largest carmakers, which led the biggest drop in the country’s auto sales in 35 years last month.

‘Worst Case’

Further yen appreciation is likely to shrink profits of exporters further, weigh on share prices and induce an increase in the repatriation of funds to Japan, Yamamoto said. This is “the worst-case scenario” facing the Japanese government and may cause the yen to climb to 80 per dollar, he said.

The world’s second-biggest economy will shrink 2 percent this year, according to the median estimate of 21 economists surveyed by Bloomberg News. The worst estimate is for a 5 percent contraction.

“The yen is the most critical problem for exporters,” Masakazu Kubota, a managing director in Tokyo at Keidanren, a Japanese business lobby, said in an interview with Bloomberg last week. “Whether the government does it alone or in cooperation with others, they should do something about the yen. Industry is crying out for it.”

While the Bush administration was opposed to intervention in the foreign-exchange markets, President Barack Obama’s economic team may welcome Japanese authorities selling the yen as that may increase their ability to buy Treasuries, Yamamoto said.

Record Sales

The U.S. Treasury said on Feb. 2 it will borrow 34 percent more this quarter than initially projected as weaker economic growth and a Federal Reserve borrowing program spur the government to sell more debt.

Borrowing needs in the three months to March 31 will be $493 billion, compared with $368 billion predicted in November, the Treasury said. The U.S. will probably borrow a record $2.5 trillion this fiscal year ending Sept. 30, versus $892 billion in notes and bonds sold in the previous 12 months, according to Goldman Sachs Group Inc.

Japan sold some 35 trillion yen ($39.2 billion) to prevent the appreciation of the currency between 2003 and April 2004 and invested the proceeds in Treasuries, which boosted its foreign- exchange reserves.

By using the same strategy, Japan may enhance the impact of monetary easing in its own economy, while helping to finance the U.S. debt and supporting global stocks, Yamamoto said.

To contact the reporter on this story: Yasuhiko Seki in Tokyo at Yseki5@bloomberg.net; Shigeki Nozawa in Tokyo at snozawa@bloomberg.net.

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Asian Bonds Lose Allure on Yields, Currencies, DBS Asset Says

By Lilian Karunungan

Feb. 4 (Bloomberg) -- Asia’s local-currency government bonds have lost their allure after central bank interest-rate cuts reduced yields, DBS Asset Management Ltd. said.

Declines in Asian currencies will also discourage overseas investors from buying the debt, Desmond Soon, vice-president for fixed income at a unit of Southeast Asia’s largest lender, said in a Jan. 30 interview. DBS Asset and its associated companies manage the equivalent of $15.5 billion in assets.

“There is no risk premium for owning Asian local-currency bonds, which most investors still regard as emerging-market assets,” Soon said. “We see limited downside for yields but expect them to stay low as well.”

Asia’s bonds had their biggest monthly gain in almost a decade in December as policy makers lowered borrowing costs, shifting their focus from quelling inflation to supporting economic growth. The securities dropped last month on concern slumping exports will erode government finances and deter foreign investors from buying assets in the region.

Bond yields in the region’s developing nations have declined to an average of 4.35 percent from as high as 19.8 percent on Oct. 24, according to JPMorgan’s Emerging Local Markets ELMI Plus Asia index. The average yield for all emerging markets is 8.2 percent, according to a separate JPMorgan index. The yield on the 10-year U.S. Treasury note is 2.75 percent, 54 basis points higher than at the start of 2009.

Rate Cuts

Bank Indonesia will probably lower its benchmark borrowing cost by 50 basis points to 8.25 percent today, according to 20 of 23 economists in a Bloomberg News survey. Bank Negara Malaysia cut its overnight policy rate last month by three- quarters of a percentage point to 2.5 percent. The Bank of Thailand in January reduced its one-day repurchase rate by the same amount to 2 percent.

The rate cuts have brought yields on shorter-maturity debt down faster than longer-dated bonds. The yield on 10-year Thai government debt is now 164 basis points higher than that on three-year bonds, compared with 65 basis points at the start of the year.

“Local players may continue to find Asian local government bonds attractive as local money-market rates are low and the yield curve is relatively steep,” said Soon. “However, for offshore players with no onshore funding, the equation is different.”

Eight of Asia’s 10 most-active currencies excluding the yen have weakened against the U.S. currency this year as falling rates damped their allure. The Korean won fell 8.7 percent and the Indonesian rupiah 6.6 percent.

Foreign Investment

Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the International Monetary Fund said in an update of its World Economic Outlook report last week. The MSCI AC Asia Pacific excluding Japan Index of regional stocks has declined 8.5 percent this year.

“Asian currencies will weaken as many Asian countries depend on foreign fund inflows to sustain their asset markets,” Soon said. “If there is an economic recovery, investors will return to Asia but the question is: will there be a strong recovery in the second half of 2009? I am not optimistic about this scenario.”

Local currency debt in the region declined 3.6 percent in January, following a 9.7 percent rally that was the biggest since at least 2001, according to an index tracking 10 Asia markets compiled by HSBC Holdings Plc. Thailand’s local-currency bonds have lost 2.9 percent this year, second only to India’s 3.3 percent drop.

“With Thai government bond yields ranging from 2 percent to 3.4 percent in the 2 to 10-year tenors, these are not compelling valuations for the foreign-currency investor,” Soon said.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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Australia, New Zealand Dollars Rise on Stimulus Boost, Equities

By Candice Zachariahs

Feb. 4 (Bloomberg) -- The Australian dollar jumped the most in a month as U.S. equities gained and a A$42 billion ($27 billion) government stimulus package boosted investor appetite for the nation’s assets. New Zealand’s currency also rose.

Australia’s currency also gained after the central bank cut interest rates to the lowest since 1964 yesterday to boost demand and the Treasury said its plan would help the economy grow 1 percent in the 12 months to June 30. The South Pacific nations’ currencies advanced as prices of commodities, which account for more than half their exports, ended three days of losses.

“Australian sentiment has definitely been buoyed by yesterday’s announcement, both on the monetary and fiscal side,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The currency may inch back towards 67 cents over the next couple of days.”

Australia’s currency rose as much as 3.1 percent to 65.46 U.S. cents, the biggest gain since Dec. 17, and traded at 64.83 cents as of 12:23 p.m. in Sydney, from 63.49 cents late in Asia yesterday. The currency advanced 2 percent to 57.97 yen.

New Zealand’s dollar gained 1.6 percent to 51.02 U.S. cents from 50.22 in Asia yesterday. It bought 45.63 yen from 44.95.

Equities, Commodities

The currencies advanced as U.S. equities gained for the first time in four days on better-than-estimated earnings at Merck & Co and Schering-Plough Corp. The UBS Bloomberg Constant Maturity Commodity index of 26 products advanced 0.6 percent as crude oil, Australia’s fourth most valuable raw material export, rose as production cuts by the Organization of Petroleum Exporting Countries may reduce inventories.

China, Australia’s biggest trading partner, is considering a stimulus plan for the petrochemicals industry, an official at the state-backed China Petroleum and Chemical Industry Association said yesterday.

Australia’s dollar advanced for a third day against New Zealand’s as Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, said near-term whole milk powder auction prices extended declines amid slowing global demand.

Prices slumped in six of the seven preceding auctions and are down 58 percent since the company began monthly sales in July. New Zealand’s currency traded at NZ$1.2699 per Australian dollar.

Investors should buy Australia’s dollar if it declines against the New Zealand currency as short-term dips probably will be followed by advances toward the 2008 peak of NZ$1.2965, RBC Capital Markets said.

Investors should exit such trades if the Australian currency closes below NZ$1.1989, analysts led by George Davis, Toronto- based chief technical analyst at RBC, said in a note to clients yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Euro Declines Toward Eight-Week Low Before Retail Sales Report

By Ron Harui and Yasuhiko Seki

Feb. 4 (Bloomberg) -- The euro fell toward an eight-week low against the dollar before a report that may show retail sales slid for a seventh month, supporting the case for the European Central Bank to cut interest rates.

The British pound weakened versus the greenback on concern an industry report will show U.K. services shrank at close to the fastest pace in 12 years. The yen may gain for a fifth day versus the dollar on speculation widening credit-market losses will erode corporate earnings, prompting investors to sell higher-yielding assets financed in Japan.

“While the ECB is widely expected to stand pat on interest rates this week, speculation about further rate cuts will persist, which will pose strenuous downside risk on the single currency,” said Osamu Takashima, chief analyst for global market sales and trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest publicly listed lender.

The euro fell to $1.3001 as of 12:20 p.m. in Tokyo from $1.3040 late in New York yesterday. It reached $1.2706 on Feb. 2, the lowest level since Dec. 5. The 16-nation currency declined to 116.47 yen from 116.63 yen. The yen traded at 89.57 per dollar from 89.44 yesterday.

The pound declined 0.5 percent to $1.4391 from late in New York yesterday. Against the euro, the currency weakened to 90.34 pence from 90.16 pence. Japan’s currency advanced 0.3 percent to 45.82 against New Zealand’s dollar and 0.3 percent to 58.06 versus Australia’s dollar.

ECB Meeting

The euro fell versus 12 of the 16 most-active currencies before the European Union statistics office report that may show retail sales fell 1.4 percent in December from a year earlier, according to a Bloomberg News survey of economists. The report is due at 11 a.m. in Luxembourg.

“If traders think that the eurozone recession will be more prolonged, that’s ultimately bad news for the euro,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington.

The ECB will keep its main refinancing rate at 2 percent at a policy meeting tomorrow, according to the median forecast of 53 economists surveyed by Bloomberg.

The yen advanced the most against the Australian and New Zealand dollars among the 16 major currencies as Centex Corp., the second-largest U.S. homebuilder by sales, reported a seventh quarterly loss yesterday after taking a $590 million write-down.

The world’s largest financial firms have announced more than $1 trillion of losses and credit-market writedowns since 2007, according to data compiled by Bloomberg.

‘Risk Reduction’

“Risk reduction has become a key theme,” said Michiyoshi Kato, a senior vice president of currency sales at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “Investors are buying the yen.”

Benchmark interest rates are 3.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan, encouraging investors to borrow in yen and buy higher-yielding assets elsewhere. In these so-called carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits.

The pound fell for a third day against the euro after the National Institute of Economic and Social Research said in a report today that the British economy will shrink until the fourth quarter of this year.

Economy Shrinks

The U.K.’s gross domestic product will fall 2.7 percent in 2009, compared with a previous forecast of a 0.9 percent contraction, said the institute, whose clients include the Treasury and the Bank of England.

The pound also weakened as a index based on a survey of about 700 U.K. service companies by the Chartered Institute of Purchasing and Supply will likely be 40.3 in January, close to the 12-year low of 40.1 set in November, a separate Bloomberg survey shows. The report is due at 9:30 a.m. in London today.

“It is risky to invest in pound-denominated assets,” said Mitsuru Saito, chief economist at Tokai-Tokyo Securities Co. in Tokyo.

The Bank of England will lower its benchmark rate by a half-percentage point to a record low of 1 percent at its Feb. 5 meeting, a Bloomberg survey of economists showed.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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Asian Currencies Climb, Led by Won, on Stock Rally, Dollar Swap

By David Yong

Feb. 4 (Bloomberg) -- Asian currencies gained for a second day, led by the South Korean won, as a rally in global stocks and government support for financial markets bolstered demand for emerging-market assets.

Malaysia’s ringgit strengthened the most in a week as regional stocks rallied after the U.S. government said it will step up efforts to fight the recession. The won climbed after the central bank agreed a six-month extension for a $30 billion currency swap with the Federal Reserve, a facility that helped ease a shortage of dollars.

“Risk appetite has improved and if money flows out of the U.S., it will find a new home in Asian markets where currencies have depreciated a lot,” said Ang Kok Heng, chief investment officer at Phillip Capital Management in Kuala Lumpur with $150 million in assets. “There’s still concern about the economy and banks, but there’s optimism for improvement.”

The won climbed 1 percent to 1,375.50 per dollar as of 10:59 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd. The ringgit appreciated 0.3 percent to 3.6107 per dollar, according to data compiled by Bloomberg. The Taiwan dollar gained 0.2 percent to NT$33.66.

The MSCI Asia Pacific Index of regional shares rose 0.8 percent, tracking yesterday’s gains in the Standard & Poor’s 500 Stock Index. Investors demanded a lower yield premium to buy emerging-market debt, according to the JPMorgan & Chase’s EMBI+ Index.

Korean Won

The Korean currency has dropped 8.4 percent versus the greenback so far this year, after tumbling 26 percent in 2008, on concern sliding exports will starve the country of foreign exchange. Korea’s exports slumped by a record 33 percent in January. The swap deal with the Fed will now last a year and can be utilized through October.

“The extension is a positive signal to a market wary of a shortage of dollars,” said Park Sang Bae, a currency dealer with state-run Industrial Bank of Korea in Seoul. “Sustained foreign buying of shares is also a boost to the won.”

Global funds bought more Korean shares than they sold for a sixth day, the longest run of net purchases in a month, according to Korea Exchange. The Kospi index added 2.3 percent.

“Risk appetite is making a slight comeback as in the past couple of days, we had more announcements of fiscal stimulus plans by major governments and more interest-rate cuts,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. “This is helping sentiment on Asian currencies in the short term. But we are skeptical if it will have a lasting impact.”

Taiwan’s government will offer tax breaks, subsidized loans and rent reductions on land to lure local investors back from China, the economics ministry said yesterday.

Elsewhere, the Singapore dollar rose 0.6 percent to S$1.5067 against the U.S. currency and the Chinese yuan gained 0.1 percent to 6.8331.

To contact the reporters on this story: David Yong in Singapore at dyong@bloomberg.net

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Copper Trades Near One-Week High on U.S., China Stimulus Plans

By Li Xiaowei

Feb. 4 (Bloomberg) -- Copper traded near a one-week high in London on speculation government spending plans in China and the U.S., the world’s largest copper users, will spur economic growth and boost demand for the industrial metal.

Asian stocks gained for a second day after Japan and Australia widened efforts to revive economic growth. China started investing the second part of its 4 trillion yuan ($580 billion) stimulus plan and the U.S. Senate has started debate on an estimated $885 billion spending package.

“Stimulus plans around the world are the focus of the financial markets, bolstering sentiment in metals too,” Wang Lei, an analyst at Haitong Futures Co., wrote in an e-mailed report today.

Copper for three-month delivery rose as much as 1 percent to $3,406.75 a ton on the London Metal Exchange, the highest intraday price since Jan. 28. The contract traded at $3,380.25 at 10:14 a.m. in Shanghai.

April-delivery copper on the Shanghai Futures Exchange rose 3.3 percent to 27,350 yuan at the same time.

China’s manufacturing shrank for a fourth month as exports fell because of the global recession, a government-backed survey showed today.

The Purchasing Managers’ Index rose to a seasonally adjusted 45.3 in January, from 41.2 in December, the China Federation of Logistics and Purchasing said today in an e- mailed statement. A reading below 50 indicates a contraction.

Among other LME-traded metals, aluminum was unchanged at $1,405 a ton and zinc added 0.5 percent to $1,179.75.

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

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Oil Gains as OPEC May Cut Production Further, Asian Stocks Rise

By Christian Schmollinger

Feb. 4 (Bloomberg) -- Crude oil rose for a second day in New York after OPEC’s president said the group may reduce output further to trim stockpiles and Asian equities extended gains.

Angolan Oil Minister Jose Maria Botelho de Vasconcelos, the producer group’s current president, said “new measures” may be taken at OPEC’s March 15 meeting in Vienna if the current round of cuts don’t raise prices. OPEC reduced 1.05 million barrels a day of production last month, according to a survey of producers, oil companies and analysts.

“Most indications are that OPEC is moving to a high rate of compliance” with lower output quotas, said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. “There is certainly the possibility of another cut. OPEC realizes that oil consumption has weakened and they are trying to balance supply against that as a way to support the price.”

Crude oil for March delivery rose as much as 35 cents, or 0.9 percent, to $41.13 a barrel in electronic trading on the New York Mercantile Exchange. It was at $41.06 a barrel at 10:38 a.m. Singapore time. Yesterday, futures advanced 70 cents, or 1.8 percent, to settle at $40.78. Prices are down 8 percent this year and 54 percent from a year ago.

The Organization of Petroleum Exporting Countries, responsible for more than 40 percent of global oil supply, agreed on Dec. 17 in Oran, Algeria, to lower production as oil prices headed for their first annual decline since 2001.

OPEC members with output quotas, all except Iraq, pumped 26.2 million barrels a day, 1.36 million more than their target of 24.85 million barrels a day, according to data compiled by Bloomberg.

‘50-50 Chance’

For Angola, an oil price of $75 a barrel “would already be very good,” Botelho de Vasconcelos said yesterday, according to Portuguese news agency Lusa. There is a “50-50 probability” that OPEC will trim quotas at its March 15 meeting, Algerian Oil Minister Chakib Khelil said yesterday.

Asian stocks rose for a second day as the region’s automakers strengthened their market share in the U.S. and memory-chip prices advanced. The MSCI Asia Pacific Index rose 0.8 percent to 82.60 as of 10:47 a.m. in Tokyo. Mitsui O.S.K. Lines Ltd. paced gains among shipping lines as transport rates climbed for an 11th day.

Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge added 1.6 percent yesterday as Treasury Secretary Timothy Geithner said the government will step up efforts to fight the recession.

U.S. Stockpiles

Governments around the world are boosting efforts to revive the global economy. The number of Americans signing contracts to buy previously owned homes rose in December for the first time since August, an industry report showed.

U.S. crude-oil stockpiles increased 3 million barrels last week, according to the median of 13 analyst estimates in a Bloomberg News survey. The Energy Department is scheduled to release its weekly petroleum supply report at 10:30 a.m. today in Washington.

The industry-funded American Petroleum Institute reported that U.S. supplies rose 8.13 million barrels to 346.2 million last week. The API published its weekly report on oil inventories at 4:30 p.m. in Washington yesterday.

The API moved the release of its inventory data to Tuesday afternoons beginning last week. It had been issuing its reports on Wednesday mornings since 2003 to coincide with supply totals released by the government.

The price of oil for delivery next January is 31 percent more than for the current month, increasing the opportunity for traders to profit from storing crude for later use. This structure, in which a future month’s price is higher than the one before it, is known as contango.

Brent crude oil for March settlement was at $44.39 a barrel, up 31 cents, on London’s ICE Futures Europe exchange at 10:23 a.m. Singapore time. The contract gained 26 cents, or 0.6 percent, yesterday to end the session at $44.08 a barrel.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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Hong Kong’s HSCEI May Drop 40%, Bank of America Says

By Lu Wang

Feb. 4 (Bloomberg) -- Hong Kong’s Hang Seng China Enterprises Index may drop 40 percent, extending a 15-month slump, as earnings growth stalls amid an economic slowdown, according to Bank of America Corp.

The benchmark, which tracks PetroChina Co. and 42 other mainland companies listed in Hong Kong, may decline to 4,200 in the first half of this year, predicted David Cui, the China strategist for Bank of America’s Merrill Lynch & Co. unit. The last time the index touched that level was in August 2004.

It’s “a long way from a bull market,” Hong Kong-based Cui wrote in a note to clients. Stocks may trade in a range “for a few years until a prospect of economy and corporate earnings resuming decisive healthy growth is in sight.”

The HSCEI, which closed at 6,960.11 yesterday, tumbled 66 percent since setting a record in October 2007. China faces its slowest economic growth in almost two decades, threatening to erode earnings at companies including PetroChina, the country’s biggest oil producer.

Analysts may reduce their profit forecast for the index’s companies by at least 20 percent after first-quarter results are announced, he said.

“We expect a poor recording card,” Cui said.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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Japan Stocks Rebound on U.S. Recovery Optimism, Metal Prices

By Masaki Kondo

Feb. 4 (Bloomberg) -- Japanese stocks rallied from a three- day drop as an unexpected gain in U.S. home sales sparked optimism a recovery in the world’s biggest economy will prompt greater demand for resources.

Sumitomo Metal Mining Co., Japan’s No. 2 copper producer, leapt 7.1 percent after prices for the metal climbed, while Honda Motor Co., which gets more than half its profit from North America, jumped 4.6 percent. Mitsui O.S.K. Lines Ltd., the nation’s No. 2 shipping line, added 3.4 percent after commodity- shipping fees increased for the longest stretch in four months.

“It’s about time investors prepared for a possible rebound in resources and shipping as the global economic slump bottoms out,” said Yoshinori Nagano, a senior strategist at Daiwa Asset Management Co., which oversees about $96 billion. “These shares will be the first ones to climb up from the bottom.”

The Nikkei 225 Stock Average added 168.58, or 2.2 percent, to 7,994.09 at the 11 a.m. break in Tokyo. The broader Topix index rose 10.47, or 1.4 percent, to 784.26, with 27 of its 33 industry groups advancing. Both gauges climbed for the first time since Jan. 29.

The Nikkei plunged by a record 42 percent last year and another 9.8 percent in January, the steepest monthly slump since October. The U.S., Japan and China are among countries seeking to revive their economies through interest-rate cuts, capital injections into banks and public spending.

The Nikkei’s members trade at an average 25.8 times estimated net income for this fiscal year, according to Nikkei Inc., the benchmark compiler. Stocks on the Standard & Poor’s 500 Index trade at 12.8 times projected profit.

Commodities, Cars

Sumitomo Metal leapt 7.1 percent to 909 yen, sending a gauge of metal producers to the biggest gain among Topix groups, followed by an index of precision-instrument makers. Inpex Corp., Japan’s largest oil explorer, advanced 7 percent to 715,000 yen, and Mitsubishi Corp., a trading company that gets more than half its profit from commodities, added 5.6 percent to 1,292 yen.

A measure of six metals traded in London rallied 5.5 percent yesterday, while copper futures for March delivery climbed 6.4 percent in New York. Copper rose as much as 1 percent today. Crude oil gained for a second day in New York after the president of the Organization of Petroleum Exporting Countries said the group may reduce output further.

Honda, Japan’s second-biggest automaker, leapt 4.6 percent to 2,155 yen, and Toyota Motor Corp. surged 4.5 percent to 3,010 yen. Canon Inc., which earns a third of its sales from the Americas, added 4.2 percent to 2,510 yen.

The U.S. index of pending home resales climbed 6.3 percent in December from the previous month, the first advance since August, the National Association of Realtors said yesterday. Economists had estimated the index would be unchanged.

Severance Pay

Hoya Corp., Japan’s largest maker of optical glass, jumped 6.7 percent to 1,716 yen, even after cutting its full-year profit projection by almost half and saying it will book about 10 billion yen ($112 million) for severance pay.

“We are positive on Hoya’s move to quickly enact structural reforms,” Shin Horie, an analyst for Goldman Sachs Group Inc. wrote in a note to clients dated today. The reduction in fixed costs will boost the company’s earnings in the year to March 2010, said Horie, who maintained his “buy” rating on the stock.

Mitsui O.S.K. added 3.4 percent to 604 yen, while smaller rival Kawasaki Kisen Kaisha Ltd. advanced 2.6 percent to 362 yen. The Baltic Dry Index, a measure of shipping costs for commodities, jumped 4.5 percent yesterday, extending its best start to a year since at least 1986, on demand for hauling iron ore to China.

Nikkei futures expiring in March added 3 percent to 8,000 in Osaka and gained 2.5 percent to 7,980 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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Asian Stocks Gain on Automakers’ U.S. Market Share, Chip Prices

By Jonathan Burgos

Feb. 4 (Bloomberg) -- Asian stocks rose for a second day as the region’s automakers strengthened their market share in the U.S. and memory-chip prices advanced.

Hyundai Motor Co. and Kia Motors Corp. jumped more than 6 percent as Asia’s carmakers boosted their slice of the U.S. market to a record 49.5 percent. Samsung Electronics Co., the world’s largest computer-memory maker, gained 3.5 percent in Seoul after chip prices rose to the highest in more than three months. Mitsui O.S.K. Lines Ltd. paced gains among shipping lines as transport rates climbed for an 11th day.

“Asia certainly is in a good position to recover before the rest of the developed economies,” said Steven Lim, who manages $300 million at Daiwa SB Investments in Singapore. “At this point, we are seeing a range-bound market, which is reacting to positive news flow. If we are again hit by negative news there could be more downside.”

The MSCI Asia Pacific Index rose 0.8 percent to 82.60 as of 10:47 a.m. in Tokyo, with five stocks advancing for every two that fell. The gauge is down 8.2 percent this year amid mounting signs the global recession is pummeling corporate profits.

Japan’s Nikkei 225 Stock Average rose 1.2 percent. Australia’s S&P/ASX 200 index slipped 0.9 percent, led by Westfield Group’s record slump following a share sale.

Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge added 1.6 percent yesterday as Treasury Secretary Timothy Geithner said the government will step up efforts to fight the recession.

Record Market Share

Governments around the world are boosting efforts to revive a global economy burdened by more than $1 trillion of losses tied to the credit crisis. The number of Americans signing contracts to buy previously owned homes rose in December for the first time since August, an industry report showed.

Hyundai Motor jumped 6.8 percent to 51,300 won. Kia climbed 6.5 percent to 8,530 won. Hyundai’s U.S. sales gained 14 percent in January, while Kia’s rose 3.5 percent. The automakers defied lower demand to help Asian brands grab almost half of the U.S. market. The share of U.S. rivals dropped to a record low 42.5 percent.

Toyota Motor Corp., the world’s largest automaker, gained 3.8 percent to 2,990 yen, even as its U.S. sales slid 32 percent.

Samsung gained 3.5 percent to 507,000 won. Hynix Semiconductor Inc., the world’s second-largest computer memory maker, rose 6.2 percent to 9,670 won.

Average prices of the benchmark dynamic random access memory chips rose 3.7 percent to $1.12 yesterday, the highest since Oct. 14, according to Dramexchange Technology Inc., Asia’s largest spot market for the chips. Prices jumped 27 percent on Feb. 2, the most since November 2007.

Baltic Dry

Elpida Memory Inc., Japan’s largest computer memory-chip maker, gained 5.7 percent, to 645 yen in Tokyo. The company said it may seek public funds.

Mitsui O.S.K, operator of Japan’s largest fleet of iron-ore ships, added 2.9 percent to 601 yen. STX Pan Ocean Co. Ltd., South Korea’s biggest bulk carrier, rose 6.1 percent to 11,400 won in Seoul.

The Baltic Dry Index, which tracks the cost of shipping commodities like iron ore, added 4.5 percent in London yesterday, the 11th day of gains.

Hanjin Shipping Co., South Korea’s largest shipping line, jumped 4.3 percent to 21,750 won. The company said 2008 net income more than doubled on a 35 percent increase in sales.

Westfield, the world’s biggest shopping-center owner by market value, slumped 11 percent to A$10.72 in Sydney after selling A$2.9 billion ($1.9 billion) of shares to reduce debt.

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

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