Asian Stocks Rise on Toyota Industries Profit, South Korea GDP

By Masaki Kondo

Oct. 26 (Bloomberg) -- Asian stocks gained for a second day, led by automakers and consumer companies, after Toyota Industries Corp. reported an unexpected profit and South Korea’s economy grew at the fastest pace in seven years.

Toyota Industries, a parts manufacturer controlled by Toyota Motor Corp., jumped 7.4 percent in Tokyo, while Toyota Motor, the world’s biggest carmaker, rose 1.7 percent. JTekt Corp., another Toyota affiliate, climbed 3.4 percent after posting a narrower-than-estimated loss. Kia Motors Corp., South Korea’s No. 2 carmaker, added 1.9 percent after Credit Suisse Group AG upgraded the stock. Lotte Shopping Co. gained 1.6 percent after posting a 19 percent gain in third-quarter profit.

The MSCI Asia Pacific Index advanced 0.5 percent to 120.12 as of 5:51 p.m. in Tokyo, with four stocks rising for every three that fell. The gauge has climbed 70 percent from a five- year low on March 9 amid signs the global economy is bouncing back from its worst slump since World War II.

“Companies’ desperate efforts to cut costs have resulted in a lower break-even point, and we’re about to see these positive effects in coming earnings reports,” said Hisakazu Amano, who helps oversee the equivalent of $19 billion at T&D Asset Management Co.

Japan’s Nikkei 225 Stock Average rose 0.8 percent. The Kospi Index advanced 1 percent in Seoul after the central bank said the nation’s gross domestic product grew 2.9 percent in the third quarter from the preceding three months.

Australia’s S&P/ASX 200 Index lost 0.6 percent, with BHP Billiton Ltd. falling 1.2 percent after oil prices declined. Hong Kong and New Zealand markets are closed for holidays.

Toyota Industries

Among shares that slumped, Shin-Etsu Chemical Co. declined 2 percent in Tokyo after reporting a 65 percent tumble in first- half earnings. Acom Co. dropped 4 percent after Japan’s largest consumer lender by market value cut its dividend and reported first-half profit that missed its estimate.

Futures on the Standard & Poor’s 500 Index added 0.4 percent. The gauge lost 1.2 percent in New York on Oct. 23 as lower oil prices drove down Exxon Mobil Corp. and Schlumberger Ltd. Capmark Financial Group Inc., the lender owned by companies including Goldman Sachs Group Inc. and KKR & Co., filed for bankruptcy protection yesterday in the U.S.

Toyota Industries, 24 percent owned by Toyota Motor, jumped 7.4 percent to 2,530 yen in Tokyo. In a preliminary earnings statement, the company reported 200 million yen ($2.2 million) in net income for the six months to Sept. 30, compared with its forecast for a loss of 9.5 billion yen.

Kia Upgrade

The unexpected profit “was attributable to brisk sales in the auto parts segment,” Arifumi Yoshida, an analyst at Citigroup Inc., wrote in a report on Oct. 23. The company’s earnings “also raised expectations about results announcements from Toyota affiliates scheduled for next week.”

JTekt, 23 percent owned by Toyota, added 3.4 percent to 1,054 yen. Its six-month loss was probably 32 percent narrower than it had forecast because of cost cuts, according to a preliminary earnings statement from the company.

Toyota Motor added 1.7 percent to 3,650 yen and Honda Motor Co., which gets 47 percent of its sales in North America, climbed 3.4 percent to 2,900 yen. Both were the biggest contributors to the MSCI Asia Pacific Index’s advance.

Kia Motors added 1.9 percent to 18,650 won after Credit Suisse lifted the stock to “neutral” from “underperform.” Hyundai Motor Co., South Korea’s largest carmaker, climbed 4.1 percent to 114,000 won.

South Korean Growth

Lotte Shopping, the country’s largest operator of department stores, rose 1.6 percent to 326,500 won. The company’s third-quarter net income increased 19 percent as margins improved at its discount stores.

South Korea’s third-quarter gross domestic product rose 2.9 percent from the previous quarter, the central bank said today. That was the fastest pace since the first quarter of 2002 and compared with the 1.9 percent growth estimated by economists.

This month, reports showed an export decline slowed in China and U.S. service industries grew for the first time in a year. Amid signs the global economy is improving, Australia’s central bank unexpectedly raised its benchmark rate on Oct. 6 and has signaled further increases in coming months.

Shares on the MSCI Asia Pacific Index traded at an average of 23 times estimated earnings, compared with 18 times for the S&P 500 and 16 times for Europe’s Dow Jones Stoxx 600 Index. Higher valuations on Asian equities have caused concern among investors including T&D’s Amano about whether the current share prices can be justified.

Oil Producers Drop

“There is a doubt as to whether the fundamentals of the global economy and company earnings will improve as fast as share prices indicate,” he said. “It seems to me that the stock market is ahead of an actual fundamental improvement.”

BHP declined 1.2 percent to A$39.73, while Woodside Petroleum Ltd. lost 1.8 percent to A$50.85 in Sydney. Inpex Corp., Japan’s largest oil and gas explorer, fell 1.3 percent to 791,000 yen. Crude oil for December delivery declined 0.5 percent, adding to a 0.9 percent drop in New York on Oct. 23.

Shin-Etsu, the world’s largest maker of silicon wafers used in semiconductors, retreated 2 percent to 5,310 yen and was the second-biggest drag on MSCI’s Asian equity gauge after BHP. Net income tumbled 65 percent in the six months to Sept. 30. The global economy was still in a “severe” situation, the company said, refraining from giving a full-year forecast.

Mitsubishi UFJ

Acom, a consumer lender 37 percent owned by Mitsubishi UFJ Financial Group Inc., fell 4 percent to 1,282 yen. The company said first-half net income was 85 percent lower than its forecast on a preliminary basis and slashed its planned annual dividend by 83 percent. Citigroup reduced its 12-month share- price estimate on the stock by 43 percent to 706 yen.

Stocks on the MSCI Asia Pacific Index trade at the equivalent of 2.3 percent of the dividends the companies have paid during the past 12 months, the lowest level since June 9, 2008, according to data compiled by Bloomberg.

Hitachi High-Technologies Corp., a trader of electronics goods, dived 14 percent to 1,589 yen and was the biggest loser on the MSCI World Index. The company widened its full-year loss forecast by 11 percent after posting a loss in the first half.

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

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U.K.’s FTSE 100 Gains; Rio Tinto, Lonmin Shares Pace Advance

By Alexis Xydias

Oct. 26 (Bloomberg) -- U.K. stocks advanced for a second day, as mining shares followed metals price higher. Rio Tinto Group and Lonmin Plc increased.

The benchmark FTSE 100 Index added 10.22, or 0.2 percent, to 5,252.79 as of 8:47 a.m. in London. The FTSE All-Share Index rose 0.2 percent and Ireland’s ISEQ Index increased 0.4 percent.

The FTSE 100 has surged 50 percent since this year’s low on March 3 amid speculation the worst of a global slowdown is past.

Rio Tinto, the world’s third-largest mining company, gained 0.8 percent to 3,024.5 pence. Lonmin, the third-biggest platinum producer, added 1.5 percent to 1,737 pence.

Copper for three-month delivery gained 1 percent to a 13- month high of $6,712 a ton in London. Lead, nickel and tin also rose on the London Metals Exchange.

British Airways Plc dropped 3.2 percent to 203.2 pence. Europe’s third-largest carrier was cut to “sell” from “hold” at Deutsche Bank AG, which said a merger with Iberia Lineas Aereas de Espana SA and anti-trust immunity with American Airlines “are at risk.”

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net.

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Junk Bond Rally Signals Profits for Stocks as Markets Diverge

By Alexis Xydias

Oct. 26 (Bloomberg) -- The worst performance by U.S. stocks compared with junk bonds since at least 1986 is making investors even more bullish on equities.

While owning debt in the riskiest companies has paid about the same as the Standard & Poor’s 500 Index over the last 23 years, bonds are returning more than twice as much in 2009, according to data compiled by Merrill Lynch & Co. and Bloomberg. When high-yield credit beat the S&P 500 by 32 percentage points in the 12 months ending March 11, 2003, stock gains exceeded bonds by 19 percentage points for the rest of the year.

Barclays Plc and ING Groep NV are increasing share purchases on speculation that improving corporate earnings will prolong the rally in equities and shrink the gap again. Profits for S&P 500 companies are forecast to climb 53 percent over the next two years as the Federal Reserve holds interest rates close to zero to end the worst recession since the 1930s, according to analyst estimates compiled by Bloomberg.

“For the first time in a long while, equities appear inexpensive relative to corporate bonds,” said Kevin Gardiner, the London-based head of investment strategy at Barclays Wealth, which lowered its rating on fixed-income securities to “neutral” this month and recommended owning stocks. “Valuations and the likely news flow over the coming period will inspire people to take more risk.”

Fixed Income

Bonds rated below Baa3 by Moody’s Investors Service and BBB- at S&P are returning more after the worst recession in 70 years spurred purchases of securities that wouldn’t be erased in a bankruptcy. They rose faster than stocks as companies in the S&P 500 reported two years of declining earnings, the longest stretch since the Great Depression.

Merrill Lynch’s High Yield Master II Index has climbed 51 percent in 2009, extending an advance from last year that pushed returns to the highest level ever relative to the S&P 500, which has increased 22 percent, including dividends. That compares with average annual gains of 9.3 percent for equities and 8.4 percent for high-yield credit since 1986, when monthly data on Merrill’s index begins.

“There was a flight up the capital structure that swelled the interest in high-yield bonds,” said Kevin Starke, a CRT Capital Group analyst in Stamford, Connecticut. “Why own the equity of a company, which is almost a guaranteed wipeout in most bankruptcies, when you could own the bonds and have a shot at a recovery and still have an equity-like return?”

The cost of insuring bonds with credit default swaps fell 62 percent since March 9 to the lowest level since May 2008, according to Markit Group Ltd. New York-based S&P lowered its 12-month default-rate prediction on Oct. 21 for U.S. high-yield corporate credit to 6.9 percent, from 14.3 percent in April.

Mean Reversion

Returns evened out in the third quarter, when signs the U.S. economy was rebounding pushed the S&P 500 up 15.6 percent with dividends, compared with 14.8 percent for junk bonds. The gain was the first time the S&P 500 beat the high-yield index since the third quarter of 2008, the data show.

Investors say equities may outpace debt as the economy recovers. Gross domestic product is projected to expand 2.4 percent in 2010, according to the average estimate of economists surveyed by Bloomberg, compared with a prediction of 1.8 percent in March. Consumer confidence, U.S. retail sales and industrial production all grew more than economists forecast in reports released last month.

“Normally we had more 50-50 in stocks and bonds, and now we have two-thirds in stocks,” said Roland Schwab, a partner at Kraemer, Schwab & Co. in Zug, Switzerland, which oversees about $1.5 billion. “Stocks are definitely better valued now. In this situation, high-quality stocks are the place to be.”

Relative Value

Junk bonds beat shares by the most on record even with the S&P 500’s 62 percent return since March, according to data compiled by Bloomberg and Merrill Lynch. Before this year, the 23-year-old high-yield index had only once traded for more than half the price of the S&P 500, in 1994.

The gauge rose to 645.96 at the end of September, or 61.1 percent of the S&P 500’s price of 1,057.08. When the same ratio reached a record low of 23.9 percent in March 2000, junk bonds beat equities for three years.

McMoRan Exploration Co.’s 11.875 percent notes due in 2014 have returned 0.69 percent in October following a 54 percent rally this year through September, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority.

Gas Rally

Shares in the New Orleans-based oil and gas producer soared 22 percent this month, compared with a 23 percent decline in the previous nine months. The rally followed a 21 percent advance in natural gas in September, the biggest gain since at least 2003, according to data compiled by Bloomberg.

The 8.75 percent notes due in 2012 of St. Louis, Missouri- based retailer Brown Shoe Co. jumped 33 percent between January and the end of September, excluding reinvested interest, according to Merrill Lynch & Co. data, while its stock retreated 5.3 percent. Shares in the company, which beat analysts’ profit estimates for three quarters, have rallied 46 percent since Sept. 30, compared with a 0.8 percent advance in the bonds, the data show.

“From a pricing standpoint, junk bonds have absolutely run their course,” said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, which oversees $50 billion. Brady manages both stocks and bonds in the $3.8 billion Thornburg Income Builder Fund, which has beaten 98 percent of its competitors in the past five years.

Still Cheap

Peter Acciavatti, who runs the top-rated junk-bond research team at New York-based JPMorgan Chase & Co., said on Oct. 16 that high-yield debt is still cheap. Slowing job losses and an improving housing market will narrow yields relative to benchmark rates, he said. His team has been ranked first among its peers in Institutional Investor’s annual poll for the past seven years.

The Federal Reserve said Sept. 23 that it will slow its $1.45 trillion program of buying mortgage securities as an economic recovery takes hold. Chairman Ben S. Bernanke indicated for the first time since August 2008 that the economy is accelerating.

Executives are shifting their focus to expansion after preserving cash for most of the year, a strategy that will profit shareholders more than bond investors, according to Edmund Ng, a strategist at Morgan Stanley in London. U.S. companies are emerging from the worst recession in seven decades with a record $1.5 trillion in cash after slashing more than 7 million jobs since December 2007.

Beating Estimates

More than 80 percent of S&P 500 companies that have reported third-quarter results have beaten analyst earnings estimates, exceeding the record pace of 72.3 percent for the period ended in June. Gross domestic product grew in the U.S. at a 3.2 percent annual rate last quarter after shrinking during the previous year, according to the median estimate of economists surveyed by Bloomberg.

“While nine months ago it was time to prefer credit over equities, we think now it is time to flip the trade around,” said Ng. “The rapid repricing of credit in 2009, and a shifting economic and earnings backdrop, suggest that a strong asset allocation argument for credit which existed at the start of the year has now largely vanished, or even reversed.”

The S&P 500 has returned 2.2 percent in October including dividend payments, beating the 1.9 percent gain in Merrill Lynch’s high-yield index. The Dow Jones Industrial Average rose above 10,000 for the first time in a year after profits from JPMorgan Chase and Intel Corp. in Santa Clara, California, topped analyst estimates and the price of oil added 14 percent.

Rising Profits

Profits in the S&P 500 will increase 67 percent this quarter, according to analysts polled by Bloomberg. S&P 500 earnings will increase 25 percent in 2010 and 22 percent in 2011, the analyst data shows.

ING Investment Management, which oversees $507 billion, has equal amounts in stocks and fixed income, with a preference for investment-grade debt over high-yield bonds. Equities may outperform as dividends rise with earnings and mergers and acquisitions gain pace, according to Patrick Moonen, the firm’s senior equity strategist in The Hague.

“Performance year-to-date started in the credit space and equities followed,” said Moonen. “But relative to credit, equities still have room to improve. Equities may be the better investment proposal.”

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net.

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South Korean Economy Probably Expanded in Third Quarter on Cars

By Seyoon Kim

Oct. 23 (Bloomberg) -- South Korea’s economy probably grew in the third quarter as automakers and electronic goods producers boosted sales in the U.S. and China, and government spending strengthened domestic demand.

Gross domestic product increased 1.9 percent in the three months through September, according to the median forecast of 14 economists surveyed by Bloomberg News. The economy expanded at the fastest pace in almost six years in the second quarter. The report will be released at 8 a.m. in Seoul on Oct. 26.

South Korea has led a regional rebound with China and Singapore as companies including Hyundai Motor Co. and Samsung Electronics Co. reported a surge in profits, driven by overseas sales. The government in Seoul frontloaded spending this year to try to cushion the economy from the global recession and the central bank slashed interest rates to a record-low 2 percent.

“The Korean economy has been performing quite strongly, helped by relatively better exports,” said Oh Suktae, an economist at SC First Bank Korea Ltd. in Seoul. “The effects from an expansionary policy waned in the second half, but despite that, the economy is seeing a gradual pickup.”

Hyundai, South Korea’s largest automaker, yesterday posted record third-quarter net income of 979.2 billion won ($827 million). Samsung Electronics Co., Asia’s biggest maker of chips, flat screens and mobile phones, said earlier this month operating profit more than doubled to as high as 4.3 trillion won in the same period.

Stocks, Currency

The nation’s Kospi stock index has risen 45 percent this year and the won gained 4.8 percent against the dollar in the past three months as investors bet the economy is past the worst of the global slowdown.

To prevent the nation sliding into a recession, the central bank cut the benchmark interest rate by 3.25 percentage points between October and February to the current 2 percent and the government boosted spending.

The Bank of Korea and the government have upgraded their economic forecasts for this year. Finance Minister Yoon Jeung Hyun said early this month the economy is likely to contract less than 1 percent in 2009 and central bank Governor Lee Seong Tae said last week he shares that view.

The International Monetary Fund on Oct. 1 raised its forecast for global economic growth in 2010 to 3.1 percent from a July estimate of 2.5 percent, helped by stimulus packages and demand in Asia.

Regional Rebound

South Korea’s rebound comes as Singapore raised its 2009 economic forecast after gross domestic product expanded for a second consecutive quarter in the three months through September. China’s economy grew at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession.

Sales at South Korea’s major department stores rose in September for a seventh straight month and exports fell at the slowest pace in 11 months in September. Manufacturers’ confidence climbed to the highest level in two years, earlier reports showed.

The pickup in the economy may prompt the central bank to raise interest rates in coming months, according to economists including Chun Chong Woo.

“Strong economic growth in the third quarter justifies an increased likelihood the Bank of Korea will raise rates,” said Chun, of Samsung Securities Co. in Seoul. “The central bank has said it wants to raise rates, as the current settings are more suitable for an emergency and it is waiting for the right timing to move.”

Rate Rises

The government has said an unwinding of expansionary policies would be “premature,” while Governor Lee said last week any future rate increases may be larger than normal.

“It’s difficult to say the increase will be by 0.25 percentage point each time” as was the case in the past, Lee said on Oct. 15. “The central bank will review economic conditions” before deciding how much it will raise rates, he said. “I think it’ll be different from the usual baby step.”

Low interest rates have spurred consumer borrowing, with bank lending to households expanding for a seventh straight month in August before falling in September.

Still, there are also signs the recovery may be somewhat subdued. Finance Minister Yoon said on Oct. 21 that it will be “difficult” for the job market to return to the level seen before the financial crisis.

South Korea’s GDP probably contracted 0.3 percent from a year earlier compared with a 2.2 percent decrease in the second quarter, according to the survey of economists.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net

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China May Pare Economic Stimulus to Control Inflation

By Bloomberg News

Oct. 23 (Bloomberg) -- Chinese officials may be preparing to reduce monetary stimulus that propelled growth to 8.9 percent in the third quarter and led the world out of recession.

The economic expansion the government reported yesterday exceeded the 7.9 percent gain in the previous three months and pushed stocks lower in Asia and Europe on concern the central bank may tighten monetary policy. On the eve of the release, the cabinet signaled that inflation concern will play a greater role in setting policy.

China’s government may set a lower loan target for 2010 after new lending reached a record $1.27 trillion in the first nine months of 2009, UBS AG said. Policy makers may raise interest rates in the first quarter of next year, before the U.S., Japan and euro area, according to ING Groep NV.

“Monetary stimulus is becoming unnecessary,” said Kevin Lai, a Daiwa Institute of Research economist in Hong Kong. “The risk is that this aggressive monetary expansion will spill into stocks and property, creating a bubble and making a hard landing for the economy more likely.”

China may raise banks’ reserve requirements, or the proportion of deposits that lenders are required to set aside as reserves, as early as the end of December, according to Lai and analysts at UBS and Credit Suisse Group AG. Currently, the ratio for the nation’s biggest banks is 15.5 percent, down from last year’s high of 17.5 percent.

Borrowing Costs

The People’s Bank of China may begin boosting rates in the first quarter of 2010, Lai said. The benchmark one-year lending rate is at a five-year low of 5.31 percent.

The MSCI Asia Pacific stock index fell 1 percent yesterday to 119.31, and China’s Shanghai Composite gauge slid 0.6 percent. In Europe, the Dow Jones Stoxx 600 benchmark slipped 1.2 percent, the steepest decline in almost three weeks.

China’s State Council said Oct. 21 that policy focus in coming months will need to “balance” the need to aid growth with “the need to better manage inflationary expectations.” That was a shift from a statement in June that didn’t mention price pressures.

Central bank Governor Zhou Xiaochuan said this month that China’s “moderately loose” monetary policy, adopted to combat the impact of the global recession, was exceptional and probably unprecedented for the nation.

‘Prudent’ Policies

“Even after the Asia financial crisis, when we adopted proactive fiscal policies, we maintained a prudent monetary policy stance,” Zhou said at a lecture in Beijing, referring to the 1997-1998 turmoil. “As a transitional economy with rapid growth, China’s monetary policy should always lean towards relatively tight.”

China’s two-year $586 billion stimulus package, announced in November last year, spans earthquake reconstruction work, roads, railways and low-cost housing.

Fan Gang, the academic member of the central bank’s monetary policy committee, said yesterday in an interview in Toronto that the fiscal stimulus must continue for another year to allow for a “full recovery in 2011.”

Besides extra lending and spending to counter an 11-month slide in exports, China also halted the yuan’s gains against the dollar from July last year, to aid exporters.

Barclays Capital analysts said yesterday that currency appreciation may play a role in policy tightening next year as the government tries to control inflation.

Yuan Appreciation

Contracts based on the yuan’s value in a year imply an appreciation of China’s currency of 2.8 percent, compared with 0.5 percent two months ago. Twelve-month non-deliverable forwards touched 6.5440 per dollar on Oct. 20, the highest level since August 2008.

Yesterday’s data showed industrial production climbed in September by the fastest pace in more than a year as tax cuts and subsidies spurred record vehicle sales in the nation for General Motors Co. and Volkswagen AG.

Retail sales recorded the biggest year-on-year increase since December, excluding seasonal distortions. Consumer prices rose 0.4 percent in September from August.

For the first nine months of 2009, the economy grew 7.7 percent, with domestic demand accounting for all of the advance. Consumption, including household spending, contributed 4 percentage points and investment added 7.3 percentage points. Trade shaved off 3.6 percentage points from the total.

The government may limit new lending to 7 trillion yuan for all of 2010, compared with 8.67 trillion yuan already this year, said Wang Tao, an economist at UBS in Beijing.

Asset Bubbles

The 68 percent gain in the Shanghai Composite Index this year and an 11 percent jump in property prices in the southern city of Shenzhen in September from a year earlier highlight the risk of asset-price bubbles.

Qin Xiao, chairman of China Merchants Bank Co., said this week that it’s “urgent” for the central bank to tighten policy to avert bubbles, in comments published in the Financial Times.

Royal Bank of Scotland Group Plc raised yesterday its forecast for China’s economic growth this year to 8.5 percent from 8 percent and UBS, Barclays Capital, Credit Suisse and HSBC Holdings Plc also increased estimates.

The acceleration in China’s growth affirmed it as the world’s fastest growing major economy. The U.S. Commerce Department is projected to report next week that American gross domestic product rose at an annual rate of 3.1 percent in the third quarter from the previous three months.

‘Rush for the Exit’

Policy makers in the U.S. and Europe have given no sign they are yet ready to raise rates. The Federal Reserve said last month it aims to keep the benchmark rate near zero “for an extended period.” European Central Bank Governing Council member Axel Weber said yesterday there is “surely no need to rush for the exit” of monetary stimulus.

China’s acceleration will help pull along the Asian region and benefit the emerging-market currencies, according to Sebastien Barbe, head of emerging markets research and strategy at Calyon, the investment-banking unit of Credit Agricole SA.

“The strong numbers are good news for China and also for the rest of Asia, as China’s demand fuels the rebound of regional trade,” Barbe said in a note to clients yesterday.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing at khamlin@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net

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U.S. Risks Japan-Like ‘Lost Decade’ on Stimulus Exit, Koo Says

By Jason Clenfield and Norihiko Kosaka

Oct. 23 (Bloomberg) -- U.S. officials contemplating an exit from record fiscal stimulus are in danger of repeating mistakes that plunged Japan into its lost decade of stagnant growth, according to Richard Koo of Nomura Research Institute Ltd.

“This isn’t a cold, its more like pneumonia,” said Koo, author of “Balance Sheet Recession,” a 2003 book about the malaise that hit Japan after its stock and real-estate markets crashed in 1990. “We still need more government spending,” he said, adding it could take “three to five years to get out of this mess, even under the best of circumstances.”

Koo’s comments echo the view of economists including Nobel laureate Paul Krugman, who warn that the U.S.’s likely return to growth in the second half of 2009 doesn’t mean a sustained recovery is assured. The Obama administration aims to rein in a record $1.4 trillion budget deficit as growth returns, seeking to safeguard the value of a declining dollar.

“If you learn your lesson from the Japanese experience, you don’t remove your fiscal stimulus until private sector de- leveraging is over,” Koo, 55, chief economist at the research arm of Japan’s biggest brokerage, said in an interview at his Tokyo office last week. “When we see the private sector coming to borrow again, I’ll be the loudest person on earth arguing for fiscal reform. That’s the exit.”

Wealth Destruction

Koo calculates that the bursting of Japan’s asset bubble in 1990 erased 1,500 trillion yen ($16 trillion) in wealth, equivalent to three times the size of the economy. Companies focused on repaying debt rather than undertaking new projects, causing demand to plummet and triggering a cycle in which cash flows fell, asset prices dropped and balance sheets deteriorated.

This time it’s the U.S. consumer that’s inundated with debt. Household debt soared more than 10 percent each year from 2002 to 2005, when the economy expanded an average of 2.75 percent.

Koo, who previously worked at the Federal Reserve Bank of New York, said the solution for what he calls a balance-sheet recession is sustained government spending to fill the hole left as households and businesses retrench.

The Fed’s efforts, lowering the benchmark interest rate to near zero and pumping more than $1 trillion into the banking system, aren’t sufficient, he said.

“We have zero interest rates and still nothing’s happening,” Koo said. Businesses and households don’t want to borrow money even at zero rates; they’re too busy rebuilding savings and paying off debt, he said.

Preventing Collapse

For Japan, it was only government spending that prevented a collapse potentially worse than the Great Depression, Koo argued in his 2009 book, “The Holy Grail of Macroeconomics: Lessons From Japan’s Great Recession.” A decade of investment in roads and bridges also led to a government debt nearing 200 percent of gross domestic product, the biggest among advanced economies.

Krugman wrote earlier this month in the New York Times that “it’s time, I keep hearing, to shift our focus from economic stimulus to the budget deficit. No, it isn’t.” He added that “the complacency now setting in over the state of the economy is both foolish and dangerous.”

The Commerce Department will probably report next week that the U.S. economy grew in the third quarter for the first time in a year.

President Barack Obama’s administration is spending money to stem job losses while also trying to reassure the U.S.’s creditors it plans to rein in debt once a recovery is secured. The dollar has weakened against 15 of the 16 major currencies this year as the budget shortfall widened.

Stimulus Spending

The government’s $787 billion economic recovery plan swelled the federal budget gap to $1.42 trillion for the year ended Sept. 30, more than triple the $455 billion record set a year earlier, according to Treasury Department figures released last week.

Fed Chairman Ben S. Bernanke said Oct. 19 the government should establish “a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time.” Treasury Secretary Timothy Geithner said in an interview with CNBC broadcast Oct. 16 that “when we have an economy that’s growing again and we get unemployment down, we’re going to have to bring those deficits down.”

Japan’s so-called lost decade, a period during which the economy slipped in and out of recession and grew at an average rate of about 1 percent a year, dragged on because the government was in a hurry to pay off debt, according to Koo. A telling example came in 1997 when, after a year of 2.6 percent growth, Prime Minister Ryutaro Hashimoto raised the sales tax, smothering consumer spending and squashing a recovery.

“We had these false starts,” Koo said. “The economy would begin to improve and then we’d say ‘oh my god, the budget deficit is too large.’ Then we’d cut fiscal stimulus and collapse again. We went through this zigzag for 15 years.”

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Norihiko Kosaka in Tokyo at nkosaka1@bloomberg.net

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Cnooc to Beat PetroChina, Sinopec as Oil Rallies: Chart of Day

By Robert Tuttle

Oct. 23 (Bloomberg) -- Cnooc Ltd. will outperform China Petroleum & Chemical Corp. and PetroChina Co. by as much as 30 percent as oil rises above $80 a barrel, Morgan Stanley said.

Sinopec, as China Petroleum is known, and PetroChina, the nation’s biggest refiners, can’t increase prices until the government allows an increase, said Viktor Hjort, senior equity derivatives analyst at Morgan Stanley in Hong Kong. As oil gains to $80 and above, the government will be less willing to raise fuel prices for fear of upsetting consumers. Cnooc drills oil and has almost no involvement in the domestic fuel market.

The CHART OF THE DAY shows Cnooc shares have gained 85 percent in Hong Kong as oil more than doubled from its year-to- date low of $32.70 in January. That beat a 69 percent increase for Sinopec, and PetroChina, 55 percent higher. The trend will intensify as oil passes $80 a barrel, Hjort said.

“The higher the price goes, the lower the probability that the political process will play catch up,” Hjort said. “At some point, political considerations, especially for the young consumers, start to play a role.”

Oil, which has gained 81 percent this year, rose to $82 on the New York Mercantile Exchange this week, the highest price in a year. Morgan Stanley forecasts oil rising above $100 a barrel by 2012.

Traders can profit through purchasing Cnooc call options, bets that prices will rise, financing the purchases by selling Sinopec and PetroChina calls, Hjort said.

(To save a copy of the chart, click here.)

To contact the reporter on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net

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Crude Oil Poised for Fourth Week of Gains on Economic Recovery

By Ben Sharples

Oct. 23 (Bloomberg) -- Crude oil traded above $81 a barrel in New York, poised for a fourth week of gains, on improved prospects for an economic recovery in the U.S., the world’s biggest energy consumer.

Oil has advanced 3.3 percent this week as U.S. equities gained on better-than-estimated company earnings, boosting speculation that the worst recession since the 1930s is over. Prices also increased as the dollar declined against the euro, adding to the appeal of commodities as an alternative investment.

“It has been led by the equity markets,” said Mark Pervan, a senior commodity strategist at ANZ Banking Group Ltd. in Melbourne. Better-than-expected earnings “continue to flag recovering U.S. demand and it puts further downward pressure on the dollar as a lower requirement for risk aversion.”

Crude oil for December delivery traded at $81.15 a barrel, down 4 cents, in electronic trading on the New York Mercantile Exchange at 9:34 a.m. Singapore time. Yesterday, the contract fell 18 cents to settle at $81.19. Prices have climbed 82 percent this year.

The MSCI Asia Pacific Index rose 0.5 percent to 119.79 as of 9:26 a.m. in Tokyo as earnings reports from Australia to Japan boosted speculation that rising demand will help the global economy exit from recession.

U.S. stocks also advanced for the first time in three days yesterday. The Standard & Poor’s 500 Index gained 1.1 percent, recouping more than half of its retreat over the previous two days. The Dow Jones Industrial Average rose 1.3 percent.

“As we enter the tail-end of the U.S. reporting season, you can look back and say that the report card was better than expected,” Pervan said.

Weaker Dollar

The dollar traded at $1.5033 per euro at 10:22 a.m. in Tokyo, unchanged from yesterday in New York. It earlier reached $1.5060, the weakest since August 2008.

Oil dropped 0.2 percent yesterday on speculation the Organization of Petroleum Exporting Countries members will agree to increase production at a December meeting. OPEC may raise output to keep oil in a range of $75 to $80 a barrel, Secretary- General, Abdalla El-Badri said in London. The 12-member group last agreed to increase targets in September 2007.

An increase in OPEC’s production will depend on prices remaining at $75 to $80 a barrel, as well as on stockpiles returning to the five-year average and the elimination of floating storage, El-Badri told reporters in London.

The 12-member group will meet on Dec. 22 in Luanda, Angola, to review output targets.

OPEC accounts for about 40 percent of the world’s oil production. OPEC members agreed in September 2008 that the 11 countries with quotas would trim output by 4.2 million barrels a day to 24.845 million. Iraq is exempt from the quota system.

Brent crude oil for December settlement traded at $79.54 a barrel, up 3 cents, on the London-based ICE Futures Europe exchange at 9:32 a.m. Singapore time. Yesterday, the contract declined 18 cents to settle at $79.51.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

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More News • Yen Falls to Two-Month Low Versus Euro on Economy Prospects, Stock Rally • Euro Rising to $1.60 in Three Months a `Distinct Possibilit

By Yoshiaki Nohara and Shigeki Nozawa

Oct. 23 (Bloomberg) -- The euro may extend its three-month rally to reach $1.53, according to Tokai Tokyo Securities Co., citing trading patterns.

The 16-nation currency, which rose above $1.50 on Oct. 21 for the first time in 14 months, is now on course for $1.5163, a level that represents a 76.4 percent Fibonacci retracement of its decline from $1.6038 in July 2008 to $1.2330 on October 2008, said Yoh Nihei, a trading group manager at Tokai Tokyo.

“The euro finally passed $1.50, which was a key psychological level,” Tokyo-based Nihei said in an interview with Bloomberg yesterday. “There’s still room for the currency to advance. It is also likely to keep rising next year.”

The euro traded at $1.5029 as of 7:35 a.m. in Tokyo, having advanced 2.7 percent this month.

Daily momentum indicators such as moving average convergence/divergence also show buy signals, Nihei said. Should the euro strengthen above $1.5163, it may climb to $1.53 by year-end, the highest level since Aug. 8, 2008, he said.

Fibonacci analysis is based on a theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates a currency may move to the next level. Other significant numbers include 38.2 percent, 50 percent and 61.8 percent.

MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Shigeki Nozawa in Tokyo at Snozawa1@bloomberg.net.

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Yen Falls to 2-Month Low Versus Euro as Risk Appetite Rises

By Yasuhiko Seki and Ron Harui

Oct. 23 (Bloomberg) -- The yen tumbled to a two-month low against the euro as a recovery in corporate earnings and improved prospects for the global economy revived demand for riskier assets.

Japan’s currency headed for a weekly decline versus 13 of 16 major counterparts before reports today forecast to show improvements in German business confidence and U.S. home sales. The pound climbed to a five-week high against the dollar ahead of a report economists say will show the British economy had a quarterly expansion for the first time since March 2008.

“Risk-taking sentiment is firm amid signs economies around the world are recovering,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The yen and the dollar are likely to be sold as their interest rates will probably stay extremely low.”

The yen fell to 137.77 per euro at 11:32 a.m. in Tokyo from 137.24 in New York yesterday. It earlier reached 137.82, the weakest level since Aug. 13. The currency declined to 91.63 per dollar from 91.30. The euro was unchanged at $1.5033 after earlier touching $1.5060, the strongest since August 2008.

The pound rose to $1.6648 from $1.6624, after earlier reaching $1.6678, the highest since Sept. 14. The dollar was at 1.0053 Swiss francs from 1.0045 francs yesterday after earlier trading at 1.0034, the lowest since July 2008.

Australia, New Zealand

The yen is poised for a third weekly drop against the Australian and New Zealand dollars as Asian stocks extended an earnings-sparked rally in the U.S., and on bets the South Pacific nations will increase interest rates faster than other developed countries.

The MSCI Asia Pacific Index of regional shares rose 0.7 percent today. The Standard & Poor’s 500 Index increased 1.1 percent yesterday in New York.

Better-than-expected earnings at companies from Travelers Cos to McDonald’s Corp. boosted optimism the recession in the world’s largest economy is over. Profits have topped estimates at 79 percent of the companies in the S&P 500 that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993.

Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Australia’s dollar rose to 84.96 yen from 84.61 yen yesterday, heading for a 2 percent gain this week. New Zealand’s dollar climbed to 69.39 yen from 69.17 yen, and set for a 3 percent advance for the week.

German, U.S. Data

The euro was poised for a third weekly gain against the yen on optimism the economy in the 16-nation region is on the mend.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 in the previous month, according to a Bloomberg News survey before the data release today.

“Traders will be looking for signs the euro-zone economy is still recovering to remain comfortable with buying the single currency above $1.5000,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note today.

European Central Bank council member Erkki Liikanen said this week on Finland’s YLE Radio Suomi that the euro area’s economy is no longer weakening.

Sales of existing homes in the U.S. rose in September to an annual rate of 5.35 million, a two-year high, according to the median forecast of 76 economists in a Bloomberg survey. The report from the National Association of Realtors is due at 10 a.m. in Washington.

British Pound

The pound was set for a second weekly gain versus the dollar as the Office for National Statistics will say today the U.K. economy expanded 0.2 percent in the third quarter from the second quarter, according to a Bloomberg survey of economists.

The Bank of England should pause its 175 billion-pound ($292 billion) bond-purchase program as the U.K. emerges from recession, the National Institute for Economic and Social Research said on Oct. 21. Gross domestic product will probably expand 0.7 percent in the fourth quarter, the London-based institute said.

“There is a perception among some in the market that the U.K. economy is recovering,” said Shinichi Hayashi, a Tokyo- based dealer at Shinkin Central Bank, the central institution for Japan’s financial cooperatives. “There’s talk that the pound is being bought on this view.”

U.K. policy makers will reassess the scale of their asset- purchase program at their Nov. 5 decision, minutes of the October meeting showed this week.

Technical Charts

The dollar erased losses versus the euro after the European currency’s 14-day relative strength index rose to 69.1 today from 64.9 a week earlier, near the 70 threshold that some traders use as a signal that prices have risen too quickly.

“The recent bout of euro strength is now looking to be over-stretched, given huge accumulation of short positions on the dollar,” said Soichiro Mori, manager of foreign-exchange promotion at FXOnline Japan Co., a margin-trading company. “A rise in the euro beyond the $1.50 level may elicit a sterner warning from European policy makers against the appreciation of their currency.”

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. A short position is a bet an asset will decline.

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

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Soybeans Climb to Two-Month High on Weather Risk to U.S. Crop

By Luzi Ann Javier

Oct. 23 (Bloomberg) -- Soybeans gained to the highest level in more than two months, as freezing weather delayed harvests in the U.S., and on optimism higher oil prices will boost demand from biofuel producers.

January-delivery soybeans advanced 1.2 percent to $10.19 a bushel in Chicago at 9:22 a.m. Singapore time, the highest for the most-active contract since Aug. 14.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Corn Climbs to Four-Month High on Weather Risk to U.S. Harvest

By Luzi Ann Javier

Oct. 23 (Bloomberg) -- Corn rose to the highest in almost four months as thunderstorms, wind and snow hit parts of the U.S., increasing the risk of harvest delays in the world’s largest grower and exporter.

Corn for December delivery rose as much as 0.8 percent to $4.067 a bushel, the highest since June 25, in after-hours electronic trading on the Chicago Board of Trade. The contract traded at $4.0625 at 7:54 a.m. Singapore time.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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China ADRs: Cnooc, PetroChina, Sina, Sinopec, Trina, WuXi

By Tian Huang

Oct. 22 (Bloomberg) -- The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, rose 0.2 percent to 385.88. The American Stock Exchange China Index decreased 0.1 percent. The Shanghai Composite Index fell 0.6 percent to 3,051.41.

The following companies were among the most active Chinese shares in New York trading. Stock symbols are in parentheses.

Travel-related stocks rose after China’s economy grew 8.9 percent in the third quarter, the fastest pace in a year, as stimulus spending and record lending growth helped the nation lead the world out of a recession.

Ctrip.com International Ltd., China’s biggest online- ticketing agent, had its biggest gain since Sept. 4, rising 4.2 percent to $60.70.

Cnooc Ltd. (CEO US) rose 1.9 percent to $159.57, the first gain in three days. China’s biggest offshore oil producer will outperform China Petroleum & Chemical Corp. and PetroChina Co. by as much as 30 percent as oil rises above $80 a barrel, Morgan Stanley said.

PetroChina (PTR US) gained 0.5 percent to $132.04 and Sinopec (SNP US), as China Petroleum & Chemical is known, advanced 0.4 percent to $87.33.

Sina Corp. (SINA US) increased 0.5 percent to $41.36. The operator of China’s largest Web portal was upgraded to “buy” from “neutral” by Tian Hou, an analyst at Pali Capital Inc. on an improving advertising outlook.

Trina Solar Ltd. (TSL US) advanced 1.3 percent to $35.81. The Chinese maker of solar power wafers and modules won a contract to supply 108 megawatts of panels to Spain’s Proinso for renewable energy projects in Europe.

WuXi PharmaTech (Cayman) Inc. (WX US) rose 3.8 percent to $13.47. The pharmaceutical company advanced after naming Hu Cai as vice president of business development.

To contact the reporter on this story: Tian Huang in New York at thuang57@bloomberg.net.

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S&P 500 Retreat Signaled by ‘Bearish Wedge’: Technical Analysis

By Sapna Maheshwari

Oct. 22 (Bloomberg) -- The Standard & Poor’s 500 Index may drop at least 7.5 percent based on a “bearish ascending wedge” pattern, according to Tom McNally, a money manager at Wilbanks, Smith & Thomas.

Drawing a so-called “bottom trend line” from the S&P 500’s 12-year low on March 9 and a “top trend line” from its close on May 8, at the time a four-month high, creates a nearly complete bearish ascending wedge, McNally said. The pattern usually signals stocks are about to retreat and hasn’t preceded a rally in at least five years, he said.

“If this one breaks, I think it’s going to be another bear rally where we’re going to go back to at least 1,000 or so,” McNally, who helps oversees $1.3 billion in Norfolk, Virginia, and allocates assets based on technical indicators, said in a telephone interview. “For me, I’m starting to lighten up on the equities in my account.”

The S&P 500 fell 0.9 percent to 1,081.40 yesterday, its steepest decline in almost three weeks. The benchmark index has not closed above 1,100 since Oct. 2, 2008. Its 60 percent rally from March 9 through yesterday represents a so-called parabolic advance, a surge which tends to lead to a parabolic decline, McNally said.

“We’re losing momentum, the market appears to be overbought, we’re having a tough time getting through 1,100 and got this ascending wedge pattern,” he said. “A lot of guys are watching this, and typically when that happens, people tend to jump ship at the same time.”

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net.

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U.S. Stocks Advance on Better-Than-Estimated Earnings Reports

By Rita Nazareth

Oct. 22 (Bloomberg) -- U.S. stocks advanced for the first time in three days as better-than-estimated earnings at companies from Travelers Cos. to McDonald’s Corp. boosted speculation that the worst recession since the 1930s is over.

Travelers jumped 7.7 percent and McDonald’s climbed 2 percent to help lead the Dow Jones Industrial Average higher, while New York Times Co. and PNC Financial Services Group Inc. also rallied on better-than-estimated results. American Express Co. climbed 3.8 percent to a one-year high after Moody’s Investors Service said credit-card defaults declined.

“I do feel optimistic that profit growth is real and will spur a broader recovery,” said Jeffrey Davis, who oversees $4.6 billion as chief investment officer at Lee Munder Capital Group in Boston. “You have a ton of liquidity, economic fundamentals are in place and that should be supportive for stocks.”

The S&P 500 increased 1.1 percent to 1,092.91 at 4:10 p.m. in New York, recouping more than half of its retreat over the previous two days. The Dow rallied 131.95 points, or 1.3 percent, to 10,081.31. The Nasdaq Composite Index rose 0.7 percent to 2,165.29 as declines in EBay Inc. and Amgen Inc. limited gains.

Benchmark indexes retreated in early trading after a Labor Department report showed initial applications for jobless benefits rose to 531,000 last week, topping the average analyst estimate by 16,000. A separate report showed home prices unexpectedly fell, while the index of leading economic indicators advanced for a sixth straight month.

‘Forced Move’

The S&P 500 is trading at its highest valuation in five years after climbing 62 percent from a 12-year low in March as the government lent, spent or guaranteed $11.6 trillion to combat the recession. The index is valued at almost 21 times the reported operating profits of its companies, more than twice its price-to-earnings ratio on March 6.

“We’re setting up for a really good market in November and December, a year-end rally where you’re getting a forced move into the market by those that have lagged behind,” Steve Leuthold, whose Leuthold Core Investment Fund beat 95 percent of rivals in the past five years, told Bloomberg Television. Stocks will benefit from “capitulation on the part of people who have been cautious,” he said.

Leuthold, who manages $4 billion, reiterated his prediction from an October 1 interview that the S&P 500 will gain through year-end and may rise to 1,350 in 2010 as profits improve.

Dow Leaders

Travelers rallied 7.7 percent to $51.70, its biggest gain this year and the steepest advance in the Dow. The insurer boosted its dividend and said quarterly net income quadrupled to $935 million. Operating income, which excludes some investment results, was $1.61 a share, beating the $1.29 average estimate of analysts in a survey. Travelers benefited from a decrease in storms after hurricanes Ike, Gustav and Dolly contributed to $1 billion in catastrophe expenses in the year-earlier quarter.

Insurance companies in the S&P 500 added 3.9 percent as a group, the second biggest advance among 24 groups after banks, which rallied 4.7 percent.

McDonald’s rose 2 percent to $59.50. Earnings were $1.15 a share. The average analyst estimate in a Bloomberg survey was $1.11 a share. Sales at restaurants open at least 13 months increased 3.8 percent, the Oak Brook, Illinois-based company said in a statement. Analysts projected a rise of 2.9 percent.

AT&T Inc. added 0.6 percent to $26.10. Third-quarter profit excluding some items was 53 cents a share, beating the average analyst estimate by 3 cents.

New York Times Co. had the biggest gain in the S&P 500, surging 23 percent to a one-year high of $10.72. The publisher said third-quarter profit excluding some items rose to 16 cents a share after cutting wages and production costs. Analysts predicted a loss of 1 cent, on average.

Financials Jump

PNC Financial Services, Fifth Third Bancorp and SunTrust Banks Inc. said lending was becoming more profitable as they paid less on customers’ deposits and other borrowing costs declined.

PNC surged 13 percent to $50.65, its steepest advance since May, after the Pittsburgh-based bank said profit more than doubled in the third quarter and its net interest margin, the difference between what it charges for loans and pays on deposits, widened to 3.76 percent from 3.60 percent in the second quarter.

Fifth Third added 6.8 percent to $10.80, while SunTrust advanced 5.3 percent to $21.85.

Financial shares extended gains after Treasury Secretary Timothy Geithner said in a statement that his goal is for bailed-out firms to repay the government “as soon as possible.”

‘Road to Repair’

“We’re on the road to repair,” said Art Hogan, the New York-based chief market analyst at Jefferies & Co. “Geithner’s comments are very positive for the perception of investors about the financial industry. That’s giving support for banks and the overall market rally.”

American Express rose 3.8 percent to $36.44. U.S. credit- card defaults fell in September from a record high as five of the nation’s six biggest card lenders posted monthly declines, Moody’s said.

Profits have topped estimates at 79 percent of the companies in the S&P 500 that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993. Earnings fell for a ninth straight quarter in the July-September period, according to estimates compiled by Bloomberg, and are projected to return to growth in the final three months of the year.

Crude oil for December delivery fell 0.2 percent to $81.20 a barrel. Futures touched $82 yesterday, the highest since Oct. 14, 2008.

EBay, Amgen

EBay sank 4.2 percent to $23.97. The owner of the most- visited e-commerce Web site forecast fourth-quarter profit that missed some analysts’ estimates after shifting into faster growing, less-lucrative businesses.

Amgen, the world’s largest biotechnology company, dropped 4.3 percent to $56.85 on lower third-quarter sales.

Stocks in Europe and Asia retreated on speculation that China may consider withdrawing stimulus measures after economic growth accelerated. Europe’s Dow Jones Stoxx 600 Index slid 1.2 percent, while the MSCI Asia-Pacific Index lost 1.1 percent.

China’s economy expanded at the fastest pace in a year as stimulus spending and record lending growth helped the nation lead the world out of recession.

China Stimulus

The acceleration in growth spurred concerns policy makers may consider withdrawing fiscal and monetary measures in coming quarters. Gross domestic product rose 8.9 percent in the third quarter from a year earlier.

U.S. stocks dropped in the final hour of trading yesterday after analyst Dick Bove downgraded Wells Fargo & Co., erasing a rally spurred by better-than-estimated results at Morgan Stanley and Yahoo! Inc.

Treasuries fell for a second day, sending the yield on 10- year notes up four basis points to 3.43 percent, as the U.S. announced plans to sell a record $123 billion of notes and inflation-protected debt next week.

The S&P 500 may drop at least 7.5 percent based on a “bearish ascending wedge” pattern, according to Tom McNally, a money manager at Wilbanks, Smith & Thomas.

Drawing a so-called “bottom trend line” from the S&P 500’s 12-year low on March 9 and a “top trend line” from its close on May 8, at the time a four-month high, creates a nearly complete bearish ascending wedge, McNally said. The pattern usually signals stocks are about to retreat and hasn’t preceded a rally in at least five years, he said.

“If this one breaks, I think it’s going to be another bear rally where we’re going to go back to at least 1,000 or so,” McNally, who helps oversees $1.3 billion in Norfolk, Virginia, and allocates assets based on technical indicators, said in a telephone interview. “For me, I’m starting to lighten up on the equities in my account.”

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

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Dole Raises $446 Million in IPO, Less Than Planned

By Cotten Timberlake and Michael Tsang

Oct. 22 (Bloomberg) -- Dole Food Co., the world’s largest producer of fresh fruit and vegetables, priced a 35.7 million share initial public offering at $12.50 each, below the low end of its forecast range.

Dole raised $446 million to pay down debt, according to data in a sale document from the Westlake Village, California- based company. The IPO values Dole at $1.09 billion and its shares will begin trading tomorrow on the New York Stock Exchange after a six-year hiatus. Chairman David Murdock took Dole private in 2003 after rescuing the food producer, founded in Hawaii in 1851, from bankruptcy more than two decades ago.

The company which sells fresh bananas and pineapples, packaged spinach and canned fruit had planned to sell shares at $13 to $15 a share, an Oct. 9 filing showed.

“Historically, deals that have been priced below the low end of the initial pricing range have a significantly poorer level of performance in the after-market,” David Menlow, president of IPOfinancial.com in Millburn, New Jersey, said in a telephone interview after the sale was announced. “It is considered in many circles damaged goods.”

The offering is the 16th U.S. company IPO since the start of September, the most over a two-month period since 16 went public in January and February of 2008, data compiled by Bloomberg show.

Lehman’s Collapse

Initial share sales evaporated after New York-based Lehman Brothers Holdings Inc. filed the world’s largest bankruptcy last September, dragging the financial system to the brink of collapse.

The underwriters, including New York-based Merrill Lynch & Co. and Goldman Sachs Group Inc. and Frankfurt-based Deutsche Bank AG, have the option to offer 5.36 million additional shares. Dole initially said it planned to raise about $500 million when it announced the stock sale in August.

Dole intended to use the proceeds to repay $451 million in debt and a prepayment penalty of $17 million, the Oct. 9 filing said. The shares will trade under the ticker DOLE.

The fruit producer also priced $300 million of convertible securities, according to terms obtained by Bloomberg News. The securities were priced at $12.50 a piece and carry a 7 percent coupon. The conversion price was set at $15. They were sold in a private placement to institutional investors.

Vegetables, Bananas

The company has a market value of $1.09 billion, smaller than rival Fresh Del Monte Produce Inc., which is worth about $1.5 billion, and 60 percent bigger than Chiquita Brands International Inc., which has a capitalization of $680 million.

Dole earned $20.9 million in income from continuing operations in the quarter ended in June, according to Dole’s prospectus. That implies a valuation of about 13 times earnings over a full year, based on the company’s market value.

The valuation is higher than the 9.75 times estimated 2009 earnings for Fresh Del Monte, the George Town, Grand Cayman- based fruit and vegetable packer, and 7.12 times for Chiquita, the Cincinnati-based seller of bananas, Bloomberg data show.

To contact the reporters on this story: Cotten Timberlake in Washington at ctimberlake@bloomberg.net; Michael Tsang in New York at mtsang1@bloomberg.net.

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