U.S. Officials Signal No Need for More TARP Funds From Congress

By Timothy R. Homan and Robert Schmidt

April 20 (Bloomberg) -- Obama administration officials signaled there may be no need to request more financial-rescue funds from Congress as several banks plan to return taxpayer money and others are pushed to tap private markets first.

White House chief of staff Rahm Emanuel said while he had not seen results of stress tests on the 19 biggest banks, he believed “we won’t” have to get more money. Aide Lawrence Summers said “the first resort for more capital is going to the private markets,” by issuing new equity or swapping some liabilities into stock that dilutes other stakeholders.

The remarks yesterday indicate the administration isn’t girding for a battle with lawmakers who have warned that a popular outcry against aiding Wall Street means approval of an expansion of the $700 billion Troubled Asset Relief Program would be a challenge.

“We believe we have those resources available in the government as the final backstop to make sure that the 19 are financially viable and effective,” Emanuel said on ABC’s “This Week” program. He added that “we will be able to avoid” temporary nationalization of the weakest of the big banks.

Summers, National Economic Council director, said on NBC’s “Meet the Press” that “there’s the capacity to turn to the private market” first for firms needing more capital. The government can also deploy “if necessary” additional taxpayer cash, which is likely be buttressed “over time” by lenders “that are in the strongest position” of paying back U.S. money.

Scheduled Release

The stress tests are scheduled for release May 4, with the Federal Reserve and other regulators aiming to publish the methodology behind the assessments on April 24. The exams aim to ensure that the 19 companies, including Citigroup Inc., Bank of America Corp., GMAC LLC and MetLife Inc., have enough capital to weather a deeper economic downturn.

The U.S. Treasury and financial regulators are clashing with each other over how to disclose results from the tests, with some officials concerned about potential damage to weaker institutions.

There is no set plan for how much information to release, how to categorize the results or who should make the announcements, people familiar with the matter said. While the Office of the Comptroller of the Currency and other regulators want few details about the assessments to be publicized, the Treasury is pushing for broader disclosure.

Risk for Geithner

The disarray highlights what threatens to be a lose-lose situation for Treasury Secretary Timothy Geithner: If all the banks pass, the tests’ credibility will be questioned, and if some banks get failing grades and are forced to accept more government capital and oversight, they may be punished by investors and customers.

“There are plenty of ways to go wrong here,” said Wayne Abernathy, executive vice president of the American Bankers Association in Washington. “It might have sounded good at the time, but now looking back, it has far more risk than benefit.”

President Barack Obama said the tests will show “different banks are in different situations,” in a news conference in Trinidad and Tobago yesterday. He pledged that any new injections of government money won’t go “into a black hole where you aren’t going to see results or some exit strategy so the taxpayers ultimately are relieved of these burdens.”

Fed officials have pushed for the release of this week’s white paper on the methodology of the assessments in an effort to bolster their credibility. The central bank has been leery of inserting politics into the examination process, two people familiar with the matter said.

Regulators’ Concern

Regulators, all of which regularly administer exams to the lenders they oversee, have privately expressed concern about the tests and whether they will be effective, the two people said.

The 19 companies may get preliminary results as soon as April 24, a person briefed on the matter said.

While weaker banks deemed to need additional capital will be given six months to raise it, financial markets may have little more than six minutes of patience before punishing them if the information is publicly released, one official said.

The banks haven’t been consulted on how the information will be released and have raised the issue with the Treasury, three industry officials said on condition of anonymity.

Some banks “are going to have very serious problems, but we feel that there are tools available to address these problems,” David Axelrod, a senior White House adviser, said on CBS’s “Face the Nation” yesterday.

Transparency Goal

Geithner has said he crafted the stress test program in an effort to provide more transparency about the health of banks’ balance sheets.

The economy has worsened since the Treasury announced the tests in February, raising questions about whether the scenarios regulators are applying to bank portfolios are rigorous enough.

Under the assessments’ “more adverse” scenario, the unemployment rate is seen rising to 10.3 percent in 2010. When officials designed that scenario, the most-recent jobless rate was 7.6 percent. It has already soared to 8.5 percent since then.

There have been signs this year of some recovery in the banking industry. Goldman Sachs Group Inc. reported earnings on April 13 that exceeded analysts’ forecasts. The New York-based firm sold $5 billion in stock to help repay government capital injections.

JPMorgan Chase & Co. last week also reported profit that beat analysts’ estimates. Chief Executive Officer Jamie Dimon labeled the TARP program a “scarlet letter” and said the firm could repay the government “tomorrow.”

Banking lawyers and industry officials said the Treasury needs to be clear with the public about the reviews. Because of the intense interest from the media and investors, the government needs to “explain early and often” the purpose of the program, said the ABA’s Abernathy.

“It’s very possible that we are seeing the turning of the corner for the banking industry,” he said. “Our biggest fear is that it becomes a confidence-eroding episode at just the wrong time.”

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net

Read more...

Fed’s Kohn, Dudley Defend Size, Scope of Emergency Loan Plans

By Vivien Lou Chen and Timothy R. Homan

April 20 (Bloomberg) -- Two Federal Reserve policy makers defended the central bank’s emergency lending, saying it won’t cause an inflationary surge or create “significant” risk for U.S. taxpayers.

Vice Chairman Donald Kohn, speaking at a conference in Nashville, Tennessee, said the Fed has loaned to “sound” borrowers and plans to disclose more about such credit. New York Fed Bank President William Dudley, speaking at the same gathering two days ago, said he’s “not worried at all” that a doubling in the central bank’s balance sheet to $2.19 trillion will spur inflation.

Policy makers are pursing an unprecedented strategy to end the recession by providing credit to companies other than banks and cutting the main interest rate to as low as zero. The Fed plans to buy as much as $1.25 trillion in agency mortgage- backed securities this year and is providing financing for securities backed by loans to consumers and small businesses.

The increased credit has provoked concerns prices will surge. Central bank officials are “dramatically underplaying the risks and liability side of the balance sheet,” former St. Louis Fed President William Poole said in an interview in Nashville.

“We are very vulnerable to an inflation explosion,” said Poole, a senior economic adviser to Merk Investments LLC in Palo Alto, California.

Former Fed Chairman Paul Volcker said Congress will probably review the authority granted to the Fed following the expansion in its assets.

Political Reaction

“I don’t think the political system will tolerate the degree of activity that the Federal Reserve, in conjunction with the Treasury, has taken,” Volcker, head of President Barack Obama’s Economic Recovery Advisory Board, said in remarks to the gathering at Vanderbilt University.

U.S. lawmakers from both political parties, including House Financial Services Committee Chairman Barney Frank, have expressed concern in recent months that the central bank has overstepped its authority by providing emergency credit.

“I think for better or for worse we are at a point where the Federal Reserve Act, after all that has been happening in the last year or more, is going to be reviewed,” Volcker said.

Central bank officials are “underestimating the political forces they’re going to face once the recovery starts,” said Poole, a contributor to Bloomberg News.

Fed Vice Chairman Kohn said “intense scrutiny” of the central bank’s emergency programs is “natural and appropriate.”

No ‘Fundamental Change’

Still, such attention “should not lead to a fundamental change in our place within our democracy,” he said. “And I believe it will not.”

While the central bank may be channeling credit to some markets more than others, “we are not taking significant credit risk that might end up being absorbed by the taxpayer,” Kohn said. “For almost all the loans made by the Federal Reserve, we look first to sound borrowers for repayment and then to underlying collateral.”

Kohn made an exception for financial institutions such as Bear Stearns Cos. and insurer American International Group Inc. that would cause widespread disruption in markets should they fail. Such companies would “probably have higher credit risk,” he said.

Kohn said the Fed would disclose more details on its loans and borrowers involved in central bank programs “in coming weeks.” The Fed’s refusal to provide such information prompted a lawsuit by Bloomberg News in November and criticism from U.S. Republican Senator Richard Shelby of Alabama and other lawmakers.

Public Interest

“Understandably, given the sharp increase in loans to new institutions and markets, the public is naturally interested in our lending practices,” the vice chairman said.

Dudley said he sees no legitimate reason for rising “investor anxiety” that participation in the $1 trillion Term Asset-Backed Securities Loan Facility will provoke government scrutiny.

The TALF, aimed at supporting financing of loans to credit card borrowers, students, car buyers and small businesses, is off to a “slow start,” Dudley said, recording just $6.4 billion in loans.

Investors have shied from joining some emergency credit programs after lawmakers criticized the compensation practices of financial companies that accepted taxpayer funds to shore up capital, Dudley said.

Misplaced Fears

“My own view is that these fears are misplaced,” Dudley said. He said TALF is “completely a Federal Reserve program and operation,” and that government funds would only be used to protect the Fed against a credit risk such as a default.

Treasuries fell for a fourth week as better-than-expected earnings at banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. bolstered speculation the longest recession in the postwar era may be easing. The yield on the 10-year note rose two basis points last week, or 0.02 percentage point, to 2.95 percent.

In an unusual public exchange between a current and former U.S. central banker, Volcker asked Kohn to explain the merits of a 2 percent inflation goal, instead of a 1 percent or 3 percent objective.

“By aiming at 2, you have a little more room on nominal interest rates, a little more room to react to an adverse shock to the economy or better odds of stabilizing the economy,” Kohn said.

Clearer Objective

“By being clearer about our objective about what we consider price stability, we will have armed ourselves to lean against tendencies for inflation to rise,” Kohn said.

The vice chairman also said that he doesn’t expect deflation, or a consistent decline in consumer prices, over the next five years, while not ruling out the possibility.

The Fed’s credit programs “have helped ease financial conditions, though they can’t address all the problems in financial markets,” Kohn said. “The situation in financial markets and the economy would have been far worse if the Federal Reserve hadn’t taken the actions.”

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

Read more...

Darling to Map Fiscal Consolidation in U.K. Budget

By Gonzalo Vina and Mark Deen

April 20 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling will outline steps to curb the fiscal deficit in his budget this week as Britain confronts its worst recession in almost three decades and soaring unemployment.

Darling will pledge to pare government running costs and slow public spending in effort to rebuild credibility with investors as borrowing swells to levels not seen since World War II. Prime Minister Gordon Brown wants more help for the jobless and embryonic high-tech industries.

“We have to make sure that we are taking cost and efficiency measures to make spending affordable,” Business Secretary Peter Mandelson said. “We have to recognize that spending will not grow in the future as it has done in the past because of our need to stabilize the public finances.”

With the economy estimated to shrink by almost 4 percent this year, Darling is having to balance the need to stimulate growth and rein in the deficit, which is being inflated by higher welfare payments and plunging tax receipts. Brown today said Britain has to “invest out of the downturn,” not cut investment.

The Confederation of British Industry today said the economy will shrink 3.9 percent this year, pushing the deficit to 11.2 percent of gross domestic product while Ernst & Young LLC’s Item Club, which advises business, estimates a 3.5 percent contraction. The International Monetary Fund says the U.K. will run the biggest deficit in the Group of Seven nations this year.

‘Day of Reckoning’

The budget “will be a day of reckoning,” Conservative lawmaker George Osborne, who is the spokesman for Treasury affairs for the party, said of budget, due April 22. “We will see the worst public finances in the world and since the second World War.”

With the economy contracting at such a pace, Darling isn’t likely to begin the reduction in spending until at least March 2010, economists say. That’s just months before the deadline of June that year by which time Brown must call an election.

The budget deficit will reach 160 billion pounds ($236 billion) in the fiscal year ending in March 2010 and 167 billion pounds the following year, according to the median estimate of 24 economists surveyed by the Treasury April 1-8.

That’s higher than the 118 billion pounds and 105 billion pounds, respectively, that Darling forecast in December. The BBC reported today that Darling will announce “efficiency savings” in government of 15 billion pounds a year.

‘Extreme Fiscal Tightening’

“There must be an extreme fiscal tightening,” said David Page, economist at Investec Bank Ltd. in London. “The appropriate economic time for this sharp tightening is likely to be at the start of fiscal year 2010-11.”

Darling has offered 25 billion pounds ($37 billion) in tax cuts and new spending and hundreds of billions of pounds of support to banks including Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc. The Financial Times today reported that Darling will say the losses from helping the banks will cost 60 billion pounds.

The Bank of England has also slashed interest rates to a record low of 0.5 percent and begun a program of creating new money to buy corporate and government debt.

The government will refrain from making reductions in public spending while the economy is in recession. The Item Club, which uses the same forecasting model as the Treasury, expects output to stabilize next year with GDP contracting just 0.1 percent.

Help for Unemployed

Darling is likely to unveil further help for the unemployed, according to people with knowledge of the plans, including 2 billion pounds to help the under 25s who are out of work.

Brown and Mandelson today announced an industrial strategy for British companies that will include help for high-technology and clean-energy industries.

Brown said the plan would provide financing for small pioneering companies, boost export credit guarantees -- an idea championed by the prime minister during the Group of 20 summit in London earlier this month -- and more resources to improve infrastructure.

“This strategy represents a big shift in government policy and a sensible recognition that previous approaches have not worked,” said Brendan Barber, general secretary of the Trades Union Congress, an umbrella group representing more than 5 million workers in the U.K.

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.netMark Deen in London at markdeen@bloomberg.net

Read more...

U.S. Leading Economic Indicators Index Fell in March

By Bob Willis

April 20 (Bloomberg) -- The index of U.S. leading economic indicators in March fell more than forecast, indicating any recovery from what may be the longest recession in the postwar era is still many months away.

The Conference Board’s gauge fell 0.3 percent after a 0.2 percent drop in February that was smaller than previously estimated, the New York-based research group said today. The index points to the direction of the economy over the next three to six months.

Rising unemployment and tight credit mean recent gains in consumer spending, the biggest part of the economy, will probably not be sustained, extending the contraction well into the second half of the year. The report cautions that Federal Reserve and Obama administration measures to boost the financial system may not immediately pay off.

“It isn’t indicating any kind of quick uptick in growth,” said Dean Maki, co-head of U.S. economic research at Barclays Capital Inc. in New York. “We are looking for a recovery that is significantly less robust than what is typically seen after deep recessions.”

The index was forecast to decline 0.2 percent, according to the median of 51 economists in a Bloomberg News survey, after an originally reported decrease of 0.4 percent the prior month. Estimates ranged from a drop of 0.7 percent to a 0.1 percent gain.

Permits, Stocks

Six of the 10 indicators in today’s report subtracted from the index, led by a plunge in building permits and declining stock prices. Faster vendor performance -- signaling a decrease in order backlogs -- a decline in factory hours, rising jobless claims and a drop in bookings for capital goods also contributed to the drop.

Two of those gauges show signs of improving this month. The number of applications for jobless benefits two weeks ago fell to the lowest level since January and stocks through last week rallied 29 percent since reaching a 12-year low on March 9.

The rebound in stocks that began last month was sparked by reports that banks were again turning a profit. A report today from Bank of America Corp., the largest U.S. bank by assets, has taken some of the shine off the jump in equities. The Standard & Poor’s 500 index fell 2.6 percent to 846.68 at 10:13 a.m. in New York.

Rising Delinquencies

Charlotte, North Carolina-based Bank of America said first- quarter profit more than tripled on gains from home refinancing and trading. Still, the stock dropped as more borrowers fell behind on their payments.

“We continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment,” Chairman and Chief Executive Officer Kenneth D. Lewis, said in a statement.

Three of the leading components improved last month, led by an increase in the supply of money. Other positives were a gain in the University of Michigan consumer expectations gauge and a widening spread between the 10-year Treasury and the overnight fed funds rate. Orders for consumer goods were little changed.

A preliminary report last week showed consumer expectations continued to improve this month.

Increased lending and purchases of securities by the Fed since credit markets seized last year have contributed to a jump in the money supply, the biggest component of the leading index.

‘Long-Lasting’ Damage

Still, Fed Chairman Ben S. Bernanke last week said the credit crisis will probably cause “long-lasting” damage to home prices and household wealth.

Economists surveyed by Bloomberg in the first week of April forecast consumer spending will falter this quarter after a first-quarter spurt and recover only gradually toward the end of the year. Purchases will drop at a 0.5 percent pace from April to June and grow at an average 0.9 percent rate the next six months, economists forecast.

Gross domestic product will probably decline at a 2 percent pace in the second quarter after an estimated 5 percent drop in the first three months of the year, according to the survey. Growth will pick up to an average pace of almost 1 percent in the second half, the surveyed showed.

The recession that began in December 2007 already matches the longest since 1933, and the 6.3 percent decline in fourth- quarter GDP was the biggest since 1982. The downturn has cost 5.1 million jobs and economists surveyed by Bloomberg forecast the unemployment rate will rise to 9.5 percent by the end of the year.

Ongoing Recession

The Conference Board’s index of coincident indicators, a gauge of current economic activity, decreased 0.4 percent, after falling 0.6 percent the prior month. The index, which tracks payrolls, incomes, sales and production, is used by the National Bureau of Economic Research to Help determine the end of recessions.

The gauge of lagging indicators also dropped 0.4 percent following a 0.3 percent decrease in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net

Read more...

IMF Lending Exceeding $55 Billion Prompts Bondholders’ Anxiety

By Simon Kennedy and Sandrine Rastello

April 20 (Bloomberg) -- The International Monetary Fund may be so conscious of having handed out bad advice to needy countries in the past that it isn’t offering them enough guidance now.

The Washington-based lender is combating the worst financial turmoil in its 64-year history with more than $55 billion in loans for nations from Pakistan to Serbia. As the fund prepares to lend even more, it is retreating from its practice -- carried out with adverse effects a decade ago in Asia -- of demanding that governments overhaul their economic systems in return for aid.

The risk is that without more-stringent loan requirements, borrowers won’t reform their foundering economies, leaving investors to enforce the discipline -- and delay recovery -- by shunning the nations’ debt and currencies. Among the economies whose markets may be most vulnerable are those in eastern Europe such as Latvia and Hungary, say Brown Brothers Harriman & Co. and Royal Bank of Scotland Group Plc.

“The pendulum may be swinging too far,” says Claudio Loser, former head of the fund’s Western Hemisphere department and now a fellow at the Inter-American Dialogue in Washington. “There was a strong perception that the IMF used to ask too much of countries. Now there is a major danger it’s moved too far in the direction of not setting enough conditions.”

$750 Billion

Little more than a year ago, the IMF -- which convenes its spring meeting in Washington April 25 -- lacked both relevance and resources. Now its lending firepower is being tripled to $750 billion by the Group of 20 nations. The G-20 also agreed to give the IMF another $250 billion in Special Drawing Rights, an overdraft facility for its 185 members.

“The IMF needs to adapt,” Dominique Strauss-Kahn, the fund’s managing director, said in an April 16 speech. “Its lending must become more flexible and better tailored to country circumstances.”

The fund said last month it would set fewer goals for nations to commit to in return for aid and would place less emphasis on structural reforms such as overhauling banking or tax systems. It also eased terms for a credit line introduced in October that is now attracting interest from Mexico and Poland.

“There’s lots of money but little pressure for economies to adjust,” says Kenneth Rogoff, former IMF chief economist and now a professor at Harvard University in Cambridge, Massachusetts. “It’s much more fun being Santa Claus than Scrooge.”

Market Rally

So far, aid packages from the IMF have buoyed markets in some emerging economies. Mexico’s peso strengthened 8 percent against the U.S. currency, and Poland’s zloty appreciated 1.1 percent versus the euro since the countries said they will seek IMF credit lines.

Ukraine’s equities and bonds have rallied since the IMF announced its $16.4 billion bailout in October, with the benchmark PFTS stock index gaining 47 percent, and the nation’s 7.65 percent U.S. dollar bonds due 2013 climbing 35 percent.

If governments don’t improve their fiscal policies, though, investors will deprive their economies of capital and punish their bonds, stocks and currencies, says Win Thin, senior currency strategist at Brown Brothers Harriman in New York.

“We cannot see investors piling back into the emerging- market countries with the worst fundamentals, even if the global crisis continues to abate,” Thin says.

Triple the Yield

Investors are demanding more than triple the yield they sought a year ago to own Hungarian bonds denominated in foreign currencies. Pension funds may pull out of Latvia after Fitch Ratings on April 8 downgraded its debt to junk, says Karlis Danevics, head of the Latvian credit department of Stockholm- based bank SEB AB.

Fitch said about half the countries in central and eastern Europe may face credit-rating downgrades. The ability of governments to stick with their IMF commitments will help determine the ratings, Fitch said.

Thin says ratings companies may still be too confident in the sovereign debt of Latvia, Hungary and Romania. ING Romania analysts say the country may exceed the budget-deficit target of 4.6 percent of gross domestic product that its government agreed on with the IMF.

“IMF money helps resolve issues to do with liquidity, but is only one part of the process of overhauling economies with more fundamental problems, for example Latvia, Ukraine and Hungary,” says Timothy Ash, head of emerging-market economics at Royal Bank of Scotland.

Missing Opportunity

Economists from countries now receiving aid say the fund is missing an opportunity to force lasting reforms.

Zoltan Torok of Raiffeisen International Bank AG in Budapest says the IMF has been “very soft” on Hungary -- first calling for the budget deficit to be reduced to 2.6 percent of gross domestic product from 3.4 percent last year, then settling for about 3 percent.

He says the IMF didn’t go far enough in pushing for cutbacks to Hungary’s pension system. Almost a third of the population of 10 million is retired, and their benefits account for 10 percent of GDP, according to the Paris-based Organization for Economic Cooperation and Development.

In Serbia, Stojan Stamenkovic, head of the Belgrade-based Economic Institute, says the fund has suggested it “will accept any solution” from the government that cuts the 190 billion- dinar ($2.7 billion) budget deficit by 100 billion dinars. That’s not enough, given that Serbia’s economy is likely to contract 10 percent this year, he says.

Social Programs

Elsewhere, the fund has eased its embrace of free markets and aversion to big government while increasing its emphasis on social programs. For its $7.6 billion loan package, Pakistan was given the goal of tripling spending for the poor to 0.9 percent of GDP. Asad Farid, an economist at AKD Securities in Karachi, says the IMF lacks a “long-term policy” that would encourage Pakistan to cut its trade deficit and increase capital investment.

The biggest test for the IMF’s new strategy may come in Turkey, where aid talks collapsed in January. Economic Minister Mehmet Simsek said March 26, after the talks resumed, that he expected the fund to show more flexibility.

“It would be positive if the new approach means there’s a new perspective” on the size of the spending cuts the IMF will seek, he said.

Ukraine’s Deficit

The fund hasn’t completely rolled over. It delayed a second installment of financing for Ukraine after objecting to the government’s proposal to run a budget deficit of 5 percent of GDP, agreeing April 17 to accept a shortfall of 4 percent. It also postponed a 200 million-euro ($264 million) transfer to Latvia after the government failed to cut its deficit quickly enough. Iceland was ordered to lift its benchmark interest rate to a record 18 percent.

Such demands prove to Kevin Daly, who helps oversee about $4 billion in emerging-markets bonds at Aberdeen Asset Management Plc in London, that the IMF is “striking the right balance” between support and restraint.

“There’s a realization that there is still some discipline from the IMF and that countries will have to address its measures,” Daly says.

Still, the fund’s shift signals recognition that it went too far in the 1990s demanding free-market policies that often deepened crises and alienated it from nations it sought to help.

Sweeping Cuts

In 1997 the IMF pushed sweeping spending cuts and interest- rate increases on Thailand in return for a $3.9 billion loan. Within six months, the fund conceded it had been too aggressive as Thailand’s growth and tax revenue plunged. Riots flared in Indonesia when the government carried out the IMF’s call to eliminate fuel and food subsidies for the poor.

“The good news is that they’ve committed themselves not to have the structural conditionality that was part of the rigidity, part of the problem in the East Asia crisis,” Nobel Prize-winning economist Joseph Stiglitz said in an April 16 interview.

For some countries that need aid, such as Mexico and Poland, “we won’t ask them for anything to change, because they have the right policies and it’s absolutely not their fault that they’re in a difficult situation,” Strauss-Kahn, 59, said in response to a question after his April 16 speech.

In other cases, such as aid to Romania, he said he asked his team not “to fix the world, fix all the problems” as sometimes they wanted to do in the past “but just to fix the problems they’re facing.”

Jonathan Anderson, an economist at UBS AG in Hong Kong, says that even if the IMF has relaxed its conditions for assistance, that’s no reason for governments to delay paring debts and fiscal imbalances.

“If depositors in Latvia, Lithuania, Ukraine or other cases wake up one morning and decide they all want to get out of the currency at once, it probably doesn’t matter how big the IMF package is,” Anderson says. “There are still potential blowup scenarios out there.”

To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net; Simon Kennedy in Paris at skennedy4@bloomberg.net

Read more...

Canadian Currency Drops to One-Week Low on Weakness in Stocks

By Chris Fournier

April 20 (Bloomberg) -- Canada’s dollar fell to the lowest level in more than a week as U.S. stock-index futures declined and before the Bank of Canada’s decision on interest rates and its report on monetary policy.

“The U.S. dollar is stronger across the board as equities once again dominate price action in foreign exchange,” Adam Cole, London-based global head of currency strategy at RBC Capital Markets Inc., wrote in a note to clients today. “It’s a critical week for the Canadian dollar with the Bank of Canada announcement and monetary policy report.”

The Canadian currency dropped for a third day, declining as much as 1.7 percent to C$1.2337 per U.S. dollar, the weakest level since April 9, before trading at C$1.2328 at 8:13 a.m. in Toronto, compared with C$1.2132 on April 17. One Canadian dollar buys 81.11 U.S. cents.

Futures on the Standard & Poor’s 500 Index expiring in June retreated 1.6 percent on speculation the index has moved too high too quickly. The Canadian dollar tends to track swings in equity indexes.

The loonie will weaken to C$1.26 against the U.S. dollar this quarter before rebounding to C$1.16 by the end of 2010, according to the median forecast in a Bloomberg survey of 36 analysts and economists.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Read more...

Pound Slides as Bank Shares Drop, CBI Forecasts Contraction

By Gavin Finch

April 20 (Bloomberg) -- The pound slid the most in six weeks against the dollar as bank shares tumbled and the Confederation of British Industry forecast the U.K. economy will shrink more than initially expected this year.

The British currency also fell versus the euro, the yen and Swiss franc as the FTSE 350 Banks Index, a benchmark for the country’s lenders, dropped 3.5 percent. The economy will contract 3.9 percent in 2009, compared with an earlier prediction of 3.3 percent, the CBI said today. U.K. financial- services companies may cut about 29,000 jobs this year, according to the Centre for Economics & Business Research Ltd.

“There’s plenty of negativity about the U.K. economy for sterling to be dealing with,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International, the Netherlands’ biggest mortgage lender. “If you’re an international investor, the U.K. probably doesn’t look like a safe bet at the minute.”

The British currency slipped to $1.4559 by 12.45 p.m. in London, from $1.4797 last week. It earlier declined to $1.4538, the biggest drop since March 9, and the lowest level since April 2. The pound weakened to 89.01 pence per euro, from 88.22 pence.

A slump in house prices and the first recession since the 1980s have driven the pound 26 percent lower versus the dollar in the past 12 months, battering the popularity of Prime Minister Gordon Brown’s Labour government before next year’s general election.

House prices declined 7.3 percent over the past year, according to Rightmove Plc, the operator of the biggest U.K. residential property Web site. They advanced in April compared with the previous month, with the average asking price climbing 1.8 percent to 222,077 pounds ($328,000), Rightmove said today.

Stock Losses

The FTSE 100 Index, a benchmark for U.K. stocks, fell 1.1 percent, while the MSCI World Index slipped 0.8 percent. Futures on the Standard & Poor’s 500 Index dropped 1.4 percent.

U.K. 10-year gilts advanced after the CBI, the country’s main business lobby, said Chancellor of the Exchequer Alistair Darling should limit spending on economic-stimulus packages, which are funded through selling government debt.

Darling, who presents his budget to lawmakers on April 22, should avoid “any further major fiscal boosts,” CBI Director General Richard Lambert said. The Bank of England will buy 3.5 billion pounds of gilts today as part of its quantitative-easing plans.

The gains pushed the yield on the 10-year bond down three basis points to 3.32 percent. The 4.25 percent security due March 2019 rose 0.28, or 2.8 pounds per 1,000 pound face amount, to 109.85.

The two-year yield was little changed at 1.41 percent. Bond yields move inversely to prices.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

Read more...

Euro Falls to One-Month Low on Concern ECB Discord Deepening

By Bo Nielsen and Ye Xie

April 20 (Bloomberg) -- The euro dropped to less than $1.30 for the first time in a month and fell versus the yen on bets disagreement is deepening among European Central Bank policy makers on measures needed to combat the recession.

The 16-nation currency declined against the Swiss franc after Financial Times Deutschland cited ECB Executive Board member Lorenzo Bini Smaghi as saying the bank’s 1.25 percent target lending rate is “very close” to its floor. The yen and dollar rose against all of the other major currencies on increased demand for safety.

“The ECB is the focal point,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “People are looking for reasons to sell the euro. We are seeing a significant liquidation of the trades that outperformed in recent weeks as we are moving back to risk aversion.”

The euro dropped 0.6 percent to $1.2970 at 9:04 a.m. in New York, from $1.3044 on April 17. It earlier fell to $1.2947, the lowest level since March 17. Europe’s currency slid as much as 1.5 percent to 127.41 yen, the lowest level since March 30, before trading at 127.59, compared with 129.33. The euro lost 0.2 percent to 1.5164 francs. The yen gained 0.8 percent to 98.37 per dollar from 99.16.

Europe’s currency will decline to “mid-$1.27” should it fall below $1.2946, a 61.8 percent retracement of the currency’s 8 percent rise from March 4 to March 19, according to Osborne.

The yen appreciated 2.1 percent to 55.15 per New Zealand dollar and 3.2 percent to 69.41 per Australian dollar as stocks declined on speculation U.S. banks face more losses, reducing speculation that investors will buy higher-yielding assets.

Stress Tests

President Barack Obama said yesterday he will demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen. The Federal Reserve plans to give results May 4.

The Australian dollar fell as much as 2.5 percent to 70.41 U.S. cents, the biggest intraday decline since Feb. 10. The Canadian dollar dropped as much as 1.7 percent to C$1.2342 per U.S. dollar, the weakest level since April 9.

Europe’s Dow Jones Stoxx 600 Index slipped as much as 3 percent, the most since March 30, and futures on the Standard & Poor’s 500 Index fell 1.8 percent.

The euro dropped to a three-week low versus the yen on signs the recession in the 16-nation region is deepening. The contraction in Germany, Europe’s largest economy, worsened in the first quarter, the country’s central bank said.

‘Recessive’ Trend

“The recessive underlying trend in the German economy deepened after real gross domestic product fell by 2.1 percent” in the three months to December, the Frankfurt-based Bundesbank said in its monthly bulletin today.

Bini Smaghi, asked if he favors cutting the benchmark rate to 1 percent and leaving it there, said “it would be more credible to act that way,” according to Financial Times Deutschland. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy. The ECB’s next meeting is May 7.

To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

Read more...

Global Stocks Rally May Falter, State Street Says

By Chua Kong Ho

April 20 (Bloomberg) -- A rally in global stocks is likely to falter as a prolonged recession dents corporate earnings, according to State Street Global Advisors Inc.

The MSCI AC World Index has surged 27 percent since its March 9 low after lenders from JPMorgan Chase & Co. to Bank of America Corp. said they made money at the start of 2009 and the U.S. government unveiled plans to buy as much as $1 trillion in toxic assets from financial firms. The Standard & Poor’s 500 Index advance in the past six weeks is the steepest since 1938.

“We’re likely to see a pullback in stock markets as earnings disappoint,” said George Hoguet, global investment strategist at Boston-based State Street Global Advisors, which oversees $1.4 trillion. “We are undergoing a severe shock and the global economy will take several quarters to get back to trend growth.”

Profits at S&P 500 companies dropped for six straight quarters through December and are forecast to decline until September. The world economy will contract 1.7 percent this year, the World Bank said last month, while the International Monetary Fund said April 16 the “severe” global recession has “worrisome parallels” to the Great Depression.

“It’s hard for global equities to sustain a rally absent stabilization in the U.S.,” Hoguet, who is also a senior portfolio manager at State Street Global, said in an April 18 interview in Shanghai.

‘Sucker’s Rally’

Mark Jolley, strategist at MainFirst Securities Hong Kong Ltd., and economist Nouriel Roubini share the view that equities are set for a correction.

“Six weeks of consistent gains is typically a healthy medium-term signal for any equity market but is also typically indicative of a market overdue for some consolidation,” Jolley wrote in a report published today.

Roubini, the New York University professor who predicted the financial crisis, said in Hong Kong today the current stock market advance is a “dead-cat bounce, sucker’s rally, whatever you want to call it.” Earnings will “surprise on the downside,” he said.

The S&P 500 advanced 29 percent to 869.60 through April 17 since hitting a 12-year low on March 9. More than $12 trillion in government spending to fix the financial system and revive the economy pushed banks up 83 percent since March 6, paring the S&P 500’s 2009 decline to 3.7 percent from as much as 25 percent.

Investors like billionaire Kenneth Fisher and Marc Faber say gains will continue. Fisher predicted last week that the S&P 500 will rally as much as 70 percent above its March lows, as stocks were cheap compared with long-term interest rates.

Government Stimulus

Faber, who publishes the Gloom, Boom and Doom report, said last week government spending will boost bank profits, lifting the U.S. stock gauge to 1,000 in the next three months.

S&P 500 futures fell 1.2 percent to 856.2 as of 5:12 p.m. in Tokyo, while the MSCI Asia Pacific Index gained 0.2 percent.

State Street added to its “overweight” on emerging market stocks a month ago, said Hoguet. Banks in emerging markets face fewer uncertainties and potential write-offs on asset values than financial companies in developed economies, he said.

The Boston-based firm, the world’s largest money-manager for institutions, is “overweight” Russia, Turkey, Israel and Brazil among emerging markets, and “underweight” China, where first-quarter gross domestic product grew at the slowest pace in almost a decade, Hoguet said.

The Shanghai Composite Index has rallied 38 percent this year through last week, trailing only Peru among 89 stock gauges tracked by Bloomberg.

“I’d be cautious on the A-share market, which has seen a sustained run,” said Hoguet, referring to China’s local- currency stocks. “For China’s rally to continue, we need to see improving macroeconomic data coming not just out of China, but a slowdown in the rate of decline in the U.S.”

To contact the reporter on this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

Read more...

Bovespa Falls to Lowest in Week on Commodity Drop; Bolsa Slips

By Alexander Ragir

April 20 (Bloomberg) -- Brazil’s Bovespa index fell to the lowest in more than week after commodity prices tumbled and economists forecast a bigger contraction for Latin America’s largest economy this year.

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, slid 1.5 percent as oil fell the most in three weeks. Cia. Vale do Rio Doce, the world’s biggest iron ore miner, sank 1.6 percent as metal prices retreated. Itau Unibanco Banco Multiplo SA, Latin America’s biggest bank, declined more than 2 percent on concern a slowing economy will cut demand for loans.

“You’ve moved from many distressed valuations to fair value,” said Bill Rudman, who helps manage $1.5 billion at Blackfriars Asset Management in London. “We wouldn’t be adding at this point” to the country’s stocks.

The Bovespa declined for a second day, losing 2 percent to 44,876.25 at 9:28 a.m. in New York. Brazilian stocks fell on April 17, paring a weekly gain, on concern demand from China won’t sustain commodity prices and the prospect earnings estimates may need to be cut as global growth slows this year.

The six-week advance in the Bovespa pushed its price-to- earnings ratio to a nine-month high of 14.7 last week, 31 percent more expensive than the five-year average, according to data compiled by Bloomberg.

Analysts reduced 2009 earnings estimates last week to the lowest level since Bloomberg began compiling the data in 2006 as Brazilian companies scaled back output in a recession that economists predict will be the most severe since 1992.

Worsening Economy

Brazil economists forecast the economy will contract 0.49 percent this year, bigger than the 0.3 percent average of the previous week’s central bank survey of about 100 economists.

The Bloomberg Base Metals 3-Month Price Commodity Index lost 2.4 percent to 138.57. The Dollar Index, a measure against six counterpart currencies, rose for a fifth consecutive day, making dollar-denominated commodities more costly for those holding other currencies.

Vales decreased 46 centavos to 29.34 reais.

Cia. Siderurgica Nacional SA, Brazil’s third-biggest steelmaker, fell 2.4 percent to 39.31 reais on concern lower metal prices will hurt earnings.

Benchmark steel prices in China have dropped 9 percent since February, according to Beijing Antaike Information Development Co. China’s steel prices will fluctuate at a low level this year because of the industry’s overcapacity, said Xu Lejiang, chairman of Baoshan Iron & Steel Co., China’s biggest steelmaker.

Petrobras dropped 46 centavos to 29.06 reais. Oil plunged more than 6 percent in New York.

Itau sank 71 centavos to 27.59 reais.

The index has climbed 19 percent this year on speculation government measures, falling interest rates and a recovery in commodity prices will boost growth. The gauge is up 56 percent from its Oct. 27 low.

In other Latin America markets, the Bolsa index slid 1.2 percent and Chile’s Ipsa retreated 0.4 percent.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

Read more...

U.S. Stocks Fall as Banks, Commodity Shares Drop

By Rita Nazareth

April 20 (Bloomberg) -- U.S. stocks declined, indicating the market may retreat following six weeks of gains, as concern grew that credit losses are worsening and lower commodity prices dragged down energy and material producers.

Bank of America Corp., the lender that’s fallen 72 percent in the past year, tumbled 11 percent as rising charge-offs for uncollectible loans overshadowed better-than-estimated earnings. Citigroup Inc. dropped 12 percent as Goldman Sachs Group Inc. said the bank’s credit losses are growing at a “rapid rate.” U.S. Steel Corp. and Halliburton Co. declined as oil and industrial metal prices decreased.

The Standard & Poor’s 500 Index slid 1.9 percent to 853.48 at 9:35 a.m. in New York. The Dow Jones Industrial Average lost 130.47 points, or 1.6 percent, to 8,000.86. The Russell 2000 Index of small companies fell 2.1 percent.

“We’ve had a big rally for six weeks and I wouldn’t be surprised to a see consolidation phase that could last anywhere from two to four weeks,” said Bruce Bittles, the Nashville-based chief investment strategist at Robert W. Baird & Co., which oversees $16 billion. “Financials had a bigger run than the market and certainly they are not out of the woods as well as the rest of the economy.”

The S&P 500 wrapped up its steepest six-week gain since 1938 on April 17, as profits at Goldman Sachs and JPMorgan Chase & Co. ignited gains in bank shares. The rally may falter as a prolonged recession dents corporate earnings, George Hoguet, global investment strategist at Boston-based State Street Global Advisors Inc., said in an April 18 interview.

Leading Indicators

The S&P 500 surged 29 percent from a 12-year low on March 9 through last week as banks including Citigroup said they were profitable at the start of the year and expectations grew that the worst of a global recession is past. The index of U.S. leading indicators for March may today show the longest economic slowdown in the post-World War II era will start loosening its grip in coming months.

The gauge of the outlook over the next three to six months dropped 0.2 percent following a 0.4 percent February decrease, according to the median estimate of 40 economists surveyed by Bloomberg News. The New York-based Conference Board’s index is due at 10 a.m. Washington time.

Analysts estimate that profits at S&P 500 companies decreased for the seventh straight quarter in the January to March period, the longest stretch of declines since at least the Great Depression.

‘Pullback’

“We’re likely to see a pullback in stock markets as earnings disappoint,” Hoguet said in an interview in Shanghai. “We are undergoing a severe shock and the global economy will take several quarters to get back to trend growth.” State Street Global Advisors oversees $1.4 trillion.

Bank of America fell 11 percent to $9.43 even after saying first-quarter net income more than tripled on gains from home refinancing and trading.

Citigroup declined 45 cents, or 12 percent, to $3.20. The bank’s credit losses are growing at a “rapid rate,” undermining Chief Executive Officer Vikram Pandit’s efforts to stabilize the company, according to Goldman Sachs.

While Citigroup posted first-quarter net income of $1.6 billion last week, the New York-based bank suffered an “underlying” loss of 38 cents a share, Richard Ramsden, a Goldman Sachs analyst, wrote in a research note dated yesterday. He repeated a “sell” rating on the stock.

American International Group Inc. fell 7.4 percent to $1.50. The insurer bailed out by the U.S. agreed to sell preferred stock and warrants for common shares to the government in return for access to $29.8 billion.

Stress Tests

Obama administration officials signaled there may be no need to request more financial-rescue funds from Congress as several banks plan to return taxpayer money and others are pushed to tap private markets first.

The White House chief of staff, Rahm Emanuel, said while he had not seen results of stress tests on the 19 biggest banks, he believed the White House won’t have to request more bailout funds.

“The first resort for more capital is going to the private markets,” by issuing new equity or swapping some liabilities into stock that dilutes other stakeholders, National Economic Council Director Lawrence Summers said.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

Read more...

Dubai Stocks Drop Most in 3 Months, Lead Gulf Slump on Earnings

By Tal Barak Harif and Arif Sharif

April 20 (Bloomberg) -- Dubai stocks dropped the most in three months, leading a slump in Gulf markets after Arabtec Holding PJSC and Saudi International Petrochemical Co. said first-quarter profit tumbled.

Arabtec, the United Arab Emirates’ biggest construction company, lost the most in two months after saying first-quarter profit declined 30 percent. Saudi International Petrochemical Co. dropped the most in two weeks. Doha Bank QSC, Qatar’s third- biggest bank by assets, fell for the first time in five days.

The Dubai Financial Market General Index slid 4.5 percent to 1,666.52, the lowest in five days and the second-biggest decline worldwide after Vietnam. Abu Dhabi shares fell for the first time in eight days, losing 2.7 percent. Before today the measures had gained 11 percent and 8.3 percent in April. Saudi Arabia’s Tadawul All Share Index retreated 0.6 percent.

First quarter earnings “aren’t enough to push the market out of the gloom,” said Vyas Jayabhanu, head of Al Dhafra Financial Brokerage LLC. in Abu Dhabi. The market “went a bit too high without any strong fundamentals,” he said.

The worst financial crisis since the 1930s has hurt Dubai’s once booming real-estate industry as banks cut back on mortgage lending and speculators fled. Dubai house prices have fallen as much as 42 percent in the past six months and are likely to drop further as new homes are completed amid waning demand, Colliers CRE Plc said in a research report yesterday.

Arabtec posted a consolidated first-quarter profit of 161 million dirhams ($43.8 million). Saudi International Petrochemical said first-quarter profit slumped 87 percent as demand for plastics and chemicals dropped because of the global financial crisis.

Doha Bank

Arabtec fell 8.4 percent to 2.19 dirhams, while Saudi International retreated 3.4 percent to 17.25 riyals.

Doha Bank lost 2.6 percent to 34 riyals after Chief Executive Officer Raghavan Seetharaman said he expects earnings to grow by less than 10 percent this year.

Saudi Research & Marketing Group fell 6.1 percent to 29.5 riyals after the newspaper publisher said first-quarter profit tumbled 65 percent to 20.5 million riyals ($5.5 million).

Oman’s Muscat Securities Market fell 3.1 percent, the Bahrain All Share Index declined 0.3 percent and Qatar’s measure retreated 1.4 percent. Kuwait’s gauge added 0.1 percent.

Aldar Properties PJSC declined the most in three months, retreating 7 percent to 3.87 dirhams. The real-estate developer that raised cash this year expects a “flat period” for property values in its home market of Abu Dhabi, Chief Executive Officer John Bullough said.

Sorouh Real Estate Co. fell 7 percent to 2.78 dirhams after the Abu-Dhabi-based real estate developer said it will reduce prices at its Alghadeer project, a 3 million square-meter development on the border between Abu Dhabi and Dubai.

To contact the reporter on this story: Tal Barak Harif in Tel Aviv at tbarak@bloomberg.netArif Sharif in Dubai at asharif2@bloomberg.net

Read more...

Gold Extends Decline for Third Day as Equity Rally Trims Demand

By Glenys Sim

April 20 (Bloomberg) -- Gold dropped for a third day as the strength of global equity markets eroded demand for the precious metal as a safe-haven investment.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell for a second day, dropping 1.2 percent to 1,105.98 metric tons on April 17, the lowest since March 19. The decline in the fund’s holdings may put pressure on bullion at the start of the week, according to UBS AG.

“The decline in the SPDR, while significant, does not yet challenge the view that most holders of gold ETFs are in it for the long-term,” John Reade, UBS’s head metals strategist, said in an e-mail. “Sustained, large declines in holdings of the SPDR will give us cause for concern.”

Bullion for immediate delivery fell as much as 0.4 percent to $865.33. It was at $867.18 at 9:31 a.m. Singapore time.

Gold fell in each of the past four weeks, the longest losing streak since August, on speculation bullion sales by central banks or the International Monetary may depress prices and as U.S., European and Asian stocks capped six straight weekly gains.

Still, gold may climb this week on speculation the decline in prices may boost demand from jewelers and other buyers of the physical metal. Fourteen of 34, or 41 percent, of traders, investors and analysts surveyed by Bloomberg News said gold would advance this week. Eleven of them forecast lower prices and nine were neutral.

Hedge-fund managers and other large speculators increased their net-long position in New York gold futures by 2 percent in the week ended April 14, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 129,895 contracts on the Comex division of the New York Mercantile Exchange.

Among other precious metals for immediate delivery, silver was little changed at $11.87 an ounce, platinum lost 1.1 percent to $1,196.75 an ounce, and palladium dropped 0.4 percent to $233 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

Read more...

Crude Oil Falls on Concern Recession to Sap Demand for Fuels

By Christian Schmollinger

April 20 (Bloomberg) -- Crude oil fell on concern inventories will rise as the global recession saps demand for fuels in the U.S., the world’s biggest energy user.

A U.S. Commerce Department report on April 24 may show orders for durable goods such as refrigerators and computers declined for the fifth time in six months in March, according to a Bloomberg News survey of economists. Crude-oil inventories are at 366.7 million barrels, the highest since September 1990, the Energy Department said on April 15.

“The U.S. is clearly the economy we have to look at to see how the demand side of the equation is working,” said Geoff Clear, the head of Asia Commodities for Australia & New Zealand Banking Group Ltd. in an interview with Bloomberg Television in Singapore. “With that in mind we’ve seen stockpiles growing and we aren’t seeing signs that these builds are being tempered.”

Crude oil for May delivery fell as much as $1.03, or 2.1 percent, to $49.30 a barrel in electronic trading on the New York Mercantile Exchange. It was at $49.50 a barrel at 2:34 p.m. Singapore time. Prices are up 11 percent this year.

The May contract expires tomorrow. The more-active June futures were down 82 cents, or 1.6 percent, to $51.65 a barrel, at 2:36 p.m. Singapore time.

“The uncertain demand outlook is going to continue to dominate the outlook for crude,” said Toby Hassall, an analyst at Commodity Warrants Australia Ltd. in Sydney. “The fundamentals really haven’t shown any improvement.”

China’s Demand

Crude rose on April 17 on reports that oil refiners in China, the world’s second-largest crude consumer, increased their output last month. The country refined 29.4 million metric tons of crude, or about 6.92 million barrels a day, in March, the China Mainland Marketing Research Co. said in a statement April 17. That’s up 0.7 percent from a year earlier.

Still, China’s gross domestic product increased 6.1 percent in the first quarter, the slowest pace in 10 years, a sign that oil-demand growth could be tempered by the global recession.

“China’s GDP number was slightly weaker than expected last week,” said Commodity Warrants’ Hassall. “We are looking to China as well as India to underpin demand as a lot of the industrialized nations contract.”

Oil prices around $50 a barrel will help the economy recover, according to Mohamed al-Hamli, the oil minister of the United Arab Emirates.

OPEC is concerned about oil demand uncertainty and maintaining crude prices at reasonable levels is vital, he said.

U.S. fuel demand in the first quarter fell to the lowest for the period in 11 years, the American Petroleum Institute said in a monthly report on April 16. Deliveries of petroleum products, a measure of consumption, averaged 19.2 million barrels a day, 3.4 percent less than during the same period in 2008, the industry-funded API said.

Angola Loadings

Angola, Africa’s second-largest producer, will increase daily crude shipments, including the Palanca grade, by 7.3 percent in June as OPEC’s output cuts stall.

BP Plc, Total SA, Chevron Corp., Exxon Mobil Corp. and other companies are scheduled to load an average of 1.83 million barrels a day in June, compared with May’s 1.7 million barrels a day, according to loading programs released through today.

Angola’s output totaled 1.6 million barrels a day in March, according to a Bloomberg survey of analysts, traders and producers. That’s 103,000 barrels a day over their quota, set by the Organization of Petroleum Exporting Countries.

“It’s unlikely that you’ll get 100 percent compliance,” said Hassall. “Given the lift we’ve seen in oil prices there is a greater incentive to cheat on those quotas.”

Brent crude oil for June settlement fell as much as 90 cents, or 1.7 percent, to $52.45 a barrel on London’s ICE Futures Europe exchange. It was at $52.61 at 2:37 p.m. Singapore time.

Hedge-fund managers and other large speculators decreased their net-long positions in New York crude-oil futures in the week ended April 14, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 4,962 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 7,531 contracts, or 60 percent, from a week earlier.

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

Read more...

Rio’s Albanese Says Chinalco Pact Good for Australia

By Jesse Riseborough and Madelene Pearson

April 20 (Bloomberg) -- Rio Tinto Group, the mining company that agreed to a $19.5 billion investment from Aluminum Corp. of China, said Australia has a large stake in the outcome of the proposed deal.

“There is currently an opportunity for Australia to position itself for a mutually rewarding relationship that could define the next few decades,” Chief Executive Officer Tom Albanese said in speech notes prepared for today’s annual shareholder meeting in Sydney.

State-owned Chinalco, as the Beijing-based company is known, plans to buy $7.2 billion of convertible debt and $12.3 billion worth of stakes in projects owned by Rio, the world’s third- largest mining company. The deal faces scrutiny from Australian politicians because the bailout plan would hand partial ownership of some mines and plants to a state-owned Chinese firm. Shareholders are calling for an alternate proposal.

“By facilitating a deeper engagement with China, including by allowing substantial inflows of capital, we could forge stronger and more enduring export markets,” Albanese said in the speech notes. “The Australia-China relationship is critical for both countries and Rio Tinto supports efforts that will bring the two countries closer together.”

To contact the reporter on this story: Jesse Riseborough in Sydney at jriseborough@bloomberg.net; Madelene Pearson in Melbourne on mpearson1@bloomberg.net.

Read more...

OneSteel Raises $422 Million Selling Shares to Funds

By Gavin Evans

April 20 (Bloomberg) -- Onesteel Ltd., the second-largest Australian producer of the metal, raised A$584 million ($422 million) selling shares to institutions to bolster capital.

The shares were offered at A$1.80 each, 30 percent below the last traded price, the Sydney-based company said in a statement today. Existing shareholders took up A$344 million of shares through entitlements, 95 percent of the facility announced as part of the capital raising last week.

OneSteel joins BHP Billiton Ltd. and Alcoa Inc. in selling shares and bonds to help trim debt and boost cash as the global recession crimps demand and slashes earnings. The company last week cut its operating earnings forecast citing lower iron ore prices, falling demand and lower output.

OneSteel shares traded at A$2.56 on April 9 before being halted. Existing retail investors will be offered A$295 million of stock at A$1.30, the company said today. The offer opens April 22 and will close May 6.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

Read more...