Australian Dollar Slides as Central Bank Keeps Rate Unchanged

By Paul Dobson and Yasuhiko Seki

Feb. 2 (Bloomberg) -- The Australian dollar slid after the nation’s central bank unexpectedly avoided raising interest rates, prompting traders to favor other higher-yielding currencies such as the Norwegian krone and South African rand.

The Aussie fell against all 16 of its most-traded peers monitored by Bloomberg, dropping to the lowest level in almost six weeks versus the U.S. dollar. Reserve Bank of Australia Governor Glenn Stevens left the overnight cash rate target at 3.75 percent, confounding the prediction for a quarter-point increase from all 20 economists surveyed by Bloomberg.

“The foreign-exchange market is definitely seeking yield following the Australian rate decision,” said Paul Robson, a senior currency strategist in London at Royal Bank of Scotland Group Plc.

Australia’s currency slid 1.3 percent to 88.03 U.S. cents as of 10:24 a.m. in London, after weakening to 87.81 cents, the lowest level since Dec. 23. It fell 1.1 percent to 79.89 yen.

The dollar traded at $1.3946 per euro, from $1.3931 in New York yesterday, when it rose to $1.3853, the strongest since July 8. The U.S. currency was at 90.77 yen, from 90.61, and the yen traded at 126.62 per euro, from 126.24.

The RBA’s Stevens became the first central banker among the Group of 20 nations to raise borrowing costs last year, boosting them three times. Officials in the U.S., the U.K. and Europe kept their benchmark rates at record lows. The difference in rates helped make the Australian dollar the top performer versus its U.S. counterpart from Sept. 1 though yesterday.

Rate ‘Surprise’

“It’s a surprise they didn’t hike today,” said Lee Hardman, a currency strategist in London at Bank of Tokyo- Mitsubishi UFJ Ltd. The decision “should help ease some of the downward pressure on the U.S. dollar” because “the market last year got ahead of itself expecting other central banks to tighten more aggressively than the Federal Reserve,” he said.

The Aussie will probably depreciate to 85 U.S. cents as markets begin to bet on rate increases by the Fed, UBS AG said. The Swiss bank advised investors sell the Aussie against Norway’s krone before the Norges Bank meets tomorrow. The “risk clearly” is that the Oslo-based central bank surprises by raising borrowing costs, said Mansoor Mohi-uddin, chief currency strategist at UBS in Singapore.

The Norwegian central bank will keep its main rate unchanged at 1.75 percent, according to all 16 analysts surveyed by Bloomberg.

ECB Meets

The European Central Bank meets the following day and will also keep its main rate unchanged, at 1 percent, according to all 55 economists in a separate Bloomberg survey. The Fed’s target rate for overnight loans between banks is a range of zero to 0.25 percent.

The rand strengthened 0.5 percent to 7.4588. The South African central bank’s main interest rate is 7 percent.

Traders had put the odds of an increase in Australia’s rate at 74 percent, according to contracts traded on the Sydney Futures Exchange.

Borrowing costs in Australia will be “adjusted further” to keep inflation within the central bank’s target range of 2 percent to 3 percent “if economic conditions evolve broadly as expected,” Stevens said in a statement today.

To contact the reporters on this story: Paul Dobson in London at pdobson2@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

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Oil May Pull Back After Rising Above $78: Technical Analysis

By Yee Kai Pin

Feb. 2 (Bloomberg) -- Crude oil may pull back below $73 a barrel even if the market retraces two weeks of losses and climbs back above $78, National Australia Bank Ltd. said.

Oil, which fell in January in its first monthly decline since July, is “on the defensive” after technical support marked by two short-term moving averages was breached, said Gordon Manning, a Sydney-based technical analyst at Australia’s fourth-largest bank. While prices are rebounding, the risk remains skewed to the downside, he said.

“Enough pressure’s come out of the market, but I’m not convinced that the bounce will have much in it,” Manning said today in a telephone interview. “I could see oil getting back to $78 to $79. That wouldn’t surprise me, but any rally is going to conk out.”

Crude oil futures lost 8.2 percent in January, the most since December 2008, amid concern the recovery in global fuel demand would slow. The contract for March delivery on the New York Mercantile Exchange was at $74.76 a barrel in electronic trading, up 33 cents, at 1:09 p.m. Singapore time, after data yesterday showed manufacturing expanded in the U.S. and Europe.

Futures reached $72.43 a barrel on Jan. 29, the lowest in more than five weeks, after chart readings slipped below the 21- day and 30-day moving averages. Should oil hold off from those lows over the first half of this month, the chances for a sustained recovery will be improved, he suggested.

“If within two weeks’ time we’re still around these levels and haven’t broken to new lows, I would think there’s a chance we’re going into a bigger ‘sideways’ period -- with risks to the upside coming back,” Manning said.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net

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AngloGold Chief Cutifani Sees Gold at $1,000-$1,200 This Year

By Carli Lourens

Feb. 2 (Bloomberg) -- AngloGold Ashanti Ltd.’s Chief Executive Officer Mark Cutifani said the metal may trade between $1,000 and $1,200 an ounce this year.

At levels below $1,000, several producers would struggle as total costs to produce the metal are around $800 or $900 an ounce, he told reporters in Cape Town late yesterday. AngloGold is the world’s third-biggest producer of the metal.

To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net.

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Godrej Plans to Triple Palm Oil Output as Indian Demand Surges

By Thomas Kutty Abraham

Feb. 2 (Bloomberg) -- Godrej Agrovet Ltd., India’s biggest palm oil producer, plans to triple domestic output as demand for cooking oil surges, a company executive said.

Godrej will invest 1 billion rupees ($22 million) in the next five years building refineries to process production from more than 100,000 hectares (247,000 acres) of palm trees, Managing Director B.S. Yadav said in an interview in Mumbai yesterday. That may boost the Mumbai-based company’s output to more than 75,000 metric tons, he said.

India surpassed China as the biggest buyer of palm oil last year as rising incomes increased demand for fried and processed food. The country imports almost all its palm oil requirements. Palm represents 80 percent of all cooking oil purchases, which will jump 34 percent to a record 9.4 million tons this year, according to the Solvent Extractors’ Association of India.

“If the government ramps up oil-palm cultivation, they can substantially reduce the import bill,” Yadav said. “We certainly hope to play a part in that growth story.”

Imports will climb this year after drought across half of the country damaged crops and pushed food inflation near to an 11-year high. Shipments will also increase after an import-tax waiver lowered costs, the association said last month.

Monsoon-sown oilseed production may drop 9 percent this season to 13.7 million tons, according to the Central Organization for Oil Industry and Trade, the country’s biggest group of processors.

Government Subsidy

India’s government subsidizes as much as 60 percent of the cost of growing oil palms in a bid to reduce purchases from Indonesia and Malaysia, the biggest producers.

Increasing demand will maintain India’s reliance on imports for the next few years, Yadav said. Boosting the national crop to 1 million hectares would do a lot to cut them, he said.

“It’s a business model that works for the government, the farmer and the companies,” he said.

The company, a unit of Godrej Industries Ltd., has about 36,000 hectares of oil palms in the south Indian states of Andhra Pradesh, Tamil Nadu and Goa, producing 25,000 tons of raw oil annually. The producer plans new plantations in Orissa in east India and Mizoram in the northeast and will consider acquisitions, to help increase the share of sales from palm oil to 10 percent in five years from 7 percent now, Yadav said.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net;

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U.S. Stocks Gain as Manufacturing Beats Estimates, Exxon Rises

By Nikolaj Gammeltoft and Rita Nazareth

Feb. 1 (Bloomberg) -- U.S. stocks rose, driving a rebound in the Standard & Poor’s 500 Index from a three-month low, after measures of manufacturing and income increased more than economists estimated and Exxon Mobil Corp. beat forecasts.

Exxon gained 2.7 percent as profit fell less than estimated because of higher oil prices and output, giving energy companies the second-biggest rally in the S&P 500 behind commodity producers. Coal company Consol Energy Inc. climbed more than 7 percent after the Commerce Department said income advanced 0.4 percent in December and factory output expanded at the fastest rate since 2004. Banks pared gains after demand for business and household loans slipped over the past three months.

The S&P 500 rose 1.4 percent to 1,089.19 at 4 p.m. in New York. The Dow Jones Industrial Average rallied 118.20 points, or 1.2 percent, to 10,185.53. The advance reversed a decline in the MSCI World Index of equities in 23 developed markets, which added 1 percent to break an eight-day losing streak.

“The trend of the market is up,” said David Dreman, chairman and chief investment officer at Dreman Value Management LLC, which has about $5 billion under management. “There’s still good value to be picked up and we’re getting close to 100 percent invested in stocks.”

While the S&P has surged 61 percent since March 9, it completed a third straight weekly loss on Jan. 29 after Qualcomm Inc., Motorola Inc. and Microsoft Corp. tempered enthusiasm about an earning-reporting season in which 80 percent of index members have topped the average analyst profit estimate since Jan. 11, according to Bloomberg data.

“Phenomenal corporate profits are driving stocks up,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas in Norfolk, Virginia, which manages $1.4 billion. “That’s why we won’t get more than a 10 percent correction because the corporate earnings numbers are simply too good.”

Most Since 2004

Manufacturing expanded in January at the fastest pace since August 2004. The Institute for Supply Management’s factory index rose to 58.4, higher than the median economist forecast of 55.5, figures from the group showed. Readings greater than 50 signal expansion. Orders, production and employment increased.

The U.S. factories report followed surveys showing China, the world’s third-biggest economy, sustained its manufacturing expansion in January as export orders jumped and inflation pressures grew.

U.S. Commerce Department data showed U.S. personal income rose 0.4 percent in December, more than the 0.3 percent economist forecast. U.S. gross domestic product grew 5.7 percent at an annual rate in the fourth quarter, the government said on Jan. 29.

“I like the manufacturing number -- it stops the near-term sell-off in the market and it supports Friday’s GDP data,” said Scott Armiger, who helps manage about $2 billion at Christiana Bank & Trust in Greenville, Delaware. “We’re optimistic companies will do better earnings-wise this year, but the question is still whether we’re going to get stronger growth from the U.S. consumer.”

Producers of metals, chemicals and agricultural commodities climbed 3.7 percent for the biggest gain among 10 industries. Energy companies in the S&P 500 rose 3 percent as Exxon rallied.

Higher Output

Exxon added 2.7 percent to $66.18. The largest U.S. company by market value posted a smaller decline in fourth-quarter profit than analysts estimated as gains in oil prices and output cushioned the impact of slumping demand for diesel and gasoline.

Chevron Corp. added 2 percent to $73.58.

The data on manufacturing also boosted coal companies. Massey Energy Co. climbed 7.9 percent to $41.58 for the biggest gain in the S&P 500. Consol Energy Inc. rose 7.2 percent to $49.97. Peabody Energy Corp. advanced 4.9 percent to $44.19.

Cliffs Natural Resources Inc. advanced 7.8 percent to $43.07 for the second-biggest gain in the benchmark index for U.S. equities. North America’s largest iron-ore producer had its fourth-quarter earnings estimate raised to 39 cents a share, from 17 cents, by FBR Capital Markets.

CME Group Inc. added 1.5 percent to $291.22. The world’s largest futures market is in talks to buy the News Corp. stock- index business that owns the Dow Jones Industrial Average for up to $700 million, according to two people familiar with the matter.

Falling Revenue

Financial institutions climbed 1.6 percent, paring an earlier gain of 1.9 percent. The Federal Reserve said loan demand slipped last quarter, according to a quarterly survey of Senior Loan Officers, while fewer banks tightened standards.

Gannett Co. posted the biggest decline in the S&P 500, falling 7 percent to $15.02. The largest U.S. newspaper publisher reported declining revenue and a fourth-quarter profit that was helped by job cuts. New York Times Co. fell 3.3 percent to $12.49.

Amazon.com Inc. had the second-biggest decline in the S&P 500, slipping 5.2 percent to $118.87. The world’s largest Internet retailer said it will start selling Macmillan books on its Web site again and give in to the publisher’s demands to charge more for titles on the Kindle digital reader.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

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Asian Stocks Rise as U.S. Manufacturing Expands; Toyota Climbs

By Jonathan Burgos and Shani Raja

Feb. 2 (Bloomberg) -- Asian stocks climbed, driving the MSCI Asia Pacific Index up the most in more than two weeks, after U.S. manufacturing expanded more than estimated and Australia unexpectedly refrained from raising interest rates.

Canon Inc., a camera maker that gets about 28 percent of revenue from the Americas, added 2.7 percent in Tokyo. Toyota Motor Corp. gained 4.5 percent after the automaker said it will resume some production operations that were halted. Mitsui Mining & Smelting Co. climbed 7.2 percent in Tokyo after raising its profit forecast. Westfield Group, the world’s largest owner of shopping malls by value, climbed 4.5 percent in Sydney after announcing a dividend payment.

“Markets overall were as oversold as they had been for some months and a bounce was expected,” Prasad Patkar, who helps manage about $1.5 billion at Platypus Asset Management in Sydney. “The world is a markedly better place, in an economic sense, than it was 12 months ago so there is good reason to believe the market will stay bid.”

The MSCI Asia Pacific Index gained 1 percent to 117.39 as of 5:29 p.m. in Tokyo, the biggest advance since Jan. 14. The gauge sank 3 percent last month, the most since February last year, on concern central banks from China to India will tighten monetary policy to curb inflation.

Australia’s S&P/ASX 200 Index climbed 1.8 percent, the biggest advance among Asia Pacific benchmark indexes, after the country’s central bank kept the overnight cash rate target at 3.75 percent after three increases.

Nikkei Advances

Japan’s Nikkei 225 Stock Average advanced 1.6 percent. DeNA Co., a Japanese operator of auction and shopping Web sites, soared 19 percent after reporting higher sales. Office equipment maker Brother Industries Ltd. climbed 8.9 percent as it raised its profit forecast.

China’s Shanghai Composite Index lost 0.2 percent as concern the government will curb lending spurred declines by developers and overshadowed gains by commodity producers. Hong Kong’s Hang Seng Index added 0.1 percent.

Futures on the Standard & Poor’s 500 Index lost 0.3 percent. The gauge added 1.4 percent in New York yesterday after measures of manufacturing and incomes increased more than economists estimated.

The Institute for Supply Management’s factory index rose to 58.4, exceeding the highest estimate in a Bloomberg News survey of economists. Readings greater than 50 signal expansion. Incomes climbed 0.4 percent, also more than expected, according to the Commerce Department in Washington.

Pedal Repairs

Canon added 2.7 percent to 3,610 yen. Sony Corp., which gets about 24 percent of sales from the U.S., gained 3.1 percent to 3,155 yen.

Toyota, which gets about 31 percent of sales from North America, climbed 4.5 percent to 3,605 yen after saying its dealers will begin fixing flawed gas-pedals that caused the car maker to recall over 5 million vehicles and that its North American assembly operations will resume on Feb. 8. The stock slumped 18 percent through yesterday since the company announced the initial recall on Jan. 21.

Yesterday’s U.S. data added to signs global growth is accelerating. Two surveys released yesterday showed the Chinese economy sustained its manufacturing expansion in January as export orders jumped and inflation pressure grew. China’s economy expanded 10.7 percent in the fourth quarter while consumer prices rose a higher-than-estimated 1.9 percent in December from a year earlier, government data on Jan. 21 showed.

Mining Stocks Climb

A gauge of material producers on the MSCI Asia Pacific Index rose 1.9 percent as the U.S. manufacturing data boosted the prospects for commodities demand. The materials gauge is the MSCI Asia Pacific’s second-best performer in the past 12 months.

BHP Billiton Ltd., the world’s largest mining company, rose 3.2 percent to A$40.46. Rio Tinto Group, the world’s No. 3 mining company, advanced 5.3 percent to A$71.01. Mitsubishi Corp., a Japanese trading house which gets about 40 percent of sales from metals and energy, rose 5.1 percent to 2,249 yen. Jiangxi Copper Co. Ltd., China’s biggest producer of the metal, gained 1.7 percent to HK$15.82 in Hong Kong.

“The better-than-expected U.S. data are a positive for the market,” said Fumiyuki Nakanishi, a senior strategist at Tokyo- based SMBC Friend Securities Co. “Commodities are also swinging back.”

Mitsui Mining surged 5.1 percent to 247 yen. The company doubled its net income forecast for the year ending March 31 to 8 billion yen ($89 million), saying higher zinc prices are boosting sales.

Unexpected Decision

In Sydney, Westfield climbed 4.5 percent to A$12.90 after reporting a dividend for the six months to Dec. 31 of 47 Australian cents a share.

Commonwealth Bank of Australia rose 1.1 percent to A$53.55, while Telstra Corp., the nation’s biggest phone company, added 1.8 percent to A$3.38 as today’s rate decision confounded the forecast of all 20 economists in a Bloomberg News survey for a quarter-point increase.

“This is a big relief and reduces the serious risk of a policy blunder,” said Platypus Asset’s Patkar.

Concerns that central banks will take steps to prevent regional economies from overheating has brought the average price of the MSCI Asia Pacific Index’s companies down to 1.54 times book value from 1.65 times on Jan. 15, when the index settled at a 17-month high.

China last month required banks to raise their reserve ratios and asked some banks to curb lending. The Reserve Bank of India increased the reserve ratio for banks on Jan. 29, while the Philippines boosted the rate it charges for lending money to banks from yesterday.

‘Buying Opportunity’

“Recent declines provide a good buying opportunity,” Wang Tao, president of the Technical Analysis Society of Singapore, told Bloomberg Television. The MSCI Asia Pacific’s 200-day moving average could provide a strong support for the gauge, he said. The index’s 200-day moving average is presently at 112.21, according to data compiled by Bloomberg.

The MSCI Asia Pacific Index advanced 34 percent last year, the most since 2003, on optimism growth in Asia, led by China and India, will help drag the global economy out of its worst recession since World War II. The MSCI World Index climbed 27 percent in 2009.

DeNA surged 19 percent to 625,000 yen after saying sales for the nine months ended Dec. 31 rose 7.1 percent. Brother Industries gained 8.9 percent to 1,100 yen. The company reported a 19 percent increase in net income for the nine-months ended Dec. 31 and raised its full-year forecast by 16 percent.

To contact the reporters for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.

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European Stocks Advance; Stoxx 600 Index Increases 0.2 Percent

By Andrew Rummer

Feb. 2 (Bloomberg) -- European stocks advanced for a third day, the longest stretch of gains in three weeks, as basic- resources producers climbed.

The Dow Jones Stoxx 600 Index added 0.2 percent to 249 at 9:49 a.m. in London, having previously dropped as much as 0.5 pecent.

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Consumer Spending in U.S. Increases for Third Month

By Timothy R. Homan

Feb. 1 (Bloomberg) -- Spending by U.S. consumers increased in December for a third consecutive month, signaling the biggest part of the economy will contribute more to growth in coming months.

The 0.2 percent increase in purchases was less than anticipated and followed a 0.7 percent gain in November that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent, exceeding expectations.

Retailers such as Amazon.com Inc. are posting profits on increased sales as Americans spent more this past holiday season than the year before. Employment is key to propelling bigger gains in spending, one reason the Obama administration is proposing a fiscal 2011 budget today that calls for $100 billion in additional stimulus focusing on jobs.

“Consumers have the wherewithal to support good spending, however they are going to be reticent until they see a few good months of job gains,” said Craig Thomas, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly forecast the gain in spending. “2010 is lined up to be a moderately good year.”

Stock-index futures held earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.6 percent to 1,076.5 at 9:10 a.m. in New York. Treasury securities fell.

The median estimate of 65 economists surveyed called for a 0.3 percent increase in spending, after an originally reported gain of 0.5 percent the prior month. Projections ranged from no change to 0.7 percent.

Income Gains

The gain in incomes followed a 0.5 percent increase in November and exceeded the 0.3 percent median estimate in the Bloomberg survey. Wages and salaries climbed 0.1 percent in December after increasing 0.4 percent the prior month.

Today’s report showed prices were stabilizing. The inflation gauge tied to spending patterns rose 2.1 percent from December 2008, less than the survey median forecast.

The Fed’s preferred price measure, which excludes food and fuel, climbed 0.1 percent in December from the previous month and was up 1.5 percent from a year earlier.

Adjusted for inflation, spending climbed 0.1 percent following a 0.4 percent rise the prior month.

Because the increase in spending was smaller than the gain in incomes, the savings rate rose to 4.8 percent from 4.5 percent the prior month.

Disposable income, or the money left over after taxes, increased 0.4 percent.

Better Sales

Amazon, the world’s largest Internet retailer, posted profit and sales that beat analysts’ estimates and said revenue growth may accelerate this quarter as consumers start spending more following the recession. Sales may rise as much as 43 percent to $7 billion in the first quarter, more than last year’s 18 percent growth, the Seattle-based company said last week in a statement. Analysts surveyed by Bloomberg had estimated sales of $6.42 billion.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.2 percent in December after rising 2.3 percent the prior month.

Purchases of non-durable goods decreased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent.

The economy grew at a 5.7 percent annual rate in the fourth quarter, exceeding the median forecast of economists surveyed, figures from the Commerce Department showed last week. Consumer spending, which accounts for 70 percent of the economy, climbed at a 2 percent pace, also exceeding expectations.

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

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Manufacturing in U.S. Expands More Than Forecast

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Manufacturing in U.S. Expands More Than Forecast (Update2)

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By Bob Willis

Feb. 1 (Bloomberg) -- Manufacturing expanded in January at the fastest pace since August 2004, spearheading the U.S. recovery from the worst recession since the 1930s.

The Institute for Supply Management’s factory index rose to 58.4, exceeding the highest estimate in a Bloomberg News survey of economists, from December’s 54.9, figures from the Tempe, Arizona-based group showed. Readings greater than 50 signal expansion. The gain reflected increases in orders, production and employment.

Factories are stepping up production as stimulus-fueled gains in demand and record cutbacks in inventory boost orders. After job cuts of 7.2 million in the last two years, some companies such as Ford Motor Co. are beginning to hire again, laying the groundwork for sustained gains in spending.

“Manufacturing is growing, it’s going to continue to expand,” said Hugh Johnson, who manages more than $1.6 billion as chairman of Albany, New York-based Johnson Illington. His forecast of 58 was highest in the Bloomberg survey. “Whether or not this continues to unfold will depend very heavily on final demand.”

Stocks and Treasury yields rose after the report, with the Standard & Poor’s 500 Index gaining 1.1 percent to 1,085.16 at 10:47 a.m. in New York. The yield on the 10-year Treasury note rose 7 basis points to 3.66 percent, according to BGCantor Market Data.

The factory index exceeded economists’ median forecast of 55.5, according to 67 projections in a Bloomberg survey. Estimates ranged from 53.5 to 58. Manufacturing accounts for about 12 percent of the economy.

Spending, Incomes

A separate report today showed U.S. personal spending rose 0.2 percent in December, the third straight gain, according to the Commerce Department in Washington. Incomes climbed 0.4 percent, exceeding expectations.

The pace of global manufacturing is picking up in response to faster economic growth, separate reports showed today. U.K. factories expanded in January at the fastest rate since 1994, figures from the Chartered Institute of Purchasing and Supply and Markit Economics showed.

Growth in the 16-nation euro region’s manufacturing industry accelerated more than estimated in January, according to a separate report from London-based Markit Economics.

The U.S. ISM’s production index rose to 66.2 from 59.7 and the new orders index increased to 65.9, the highest since December 2004, from 64.8.

Employment Rises

The employment index rose to 53.3 in January, the highest since April 2006, from 50.2 a month earlier.

A gauge of export orders increased to 58.5 from 54.5. The index of prices paid jumped to 70 from 61.5.

The supplier delivery gauge, a measure of the time it takes to receive goods, rose to 60.1 from 56.8 the prior month. The measure of orders waiting to be filled increased to 56 from 50. The inventory index rose to 46.5 from 43.

Government stimulus helped spark rebounds in the housing and automobile industries, two of the most depressed areas during the recession.

Factories also benefited from increased orders after companies pared inventories last year by a record $125 billion. Efforts to rebuild depleted stockpiles at the end of the year contributed 3.4 percentage points to a fourth-quarter growth rate of 5.7 percent, the strongest in six years.

Corporate spending on new equipment is also beginning to pick up. Texas Instruments Inc., the second-largest U.S. chipmaker, said it will spend almost $1 billion this year to expand three factories and open a fourth to fill orders.

Federal Reserve

Federal Reserve officials, who left the benchmark lending rate unchanged in a range between zero and 0.25 percent on Jan. 27, noted in their policy statement that “business spending on equipment and software appears to be picking up.”

Employers last month may have added jobs for the second time in the last two years. Economists surveyed by Bloomberg forecast an 8,000 gain in payrolls in January after a loss of 85,000 the previous month. The Labor Department will report the figure on Feb. 5.

Production gains are starting to encourage the hiring needed to ensure the recovery is sustained.

Ford said Jan. 26 it will spend about $400 million and add 1,200 jobs at two Chicago plants to build a new, more fuel- efficient Explorer sport-utility vehicle.

Recalling Workers

Caterpillar Inc., the world’s largest maker of earthmoving equipment, has recalled more than 500 workers and said Jan. 27 that higher production will require “selective” increases in employment. Economies in North America, Europe and Japan are improving and more rapid rebounds are occurring in China and most developing countries, the Peoria, Illinois-based company said.

General Electric Co. is hiring workers in energy, health care and rail transportation, in part because governments’ economic-stimulus plans have helped lift demand.

GE, whose power-plant equipment generates one-third of the world’s electricity, is bidding to supply new passenger locomotives for Amtrak and in November announced a joint venture in China that would make high-speed rail locomotives that may add 200 U.S. jobs.

“We will create jobs in the United States that could not have been created any other way,” John Rice, chief executive officer of GE Technology Infrastructure, said of the rail programs in a Jan. 28 Bloomberg Television interview.

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

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Carlyle’s Rubenstein Warns Against Roubini Pessimism in Davos

By Simon Kennedy and Aaron Kirchfeld

Jan. 27 (Bloomberg) -- Carlyle Group LP co-founder David Rubenstein said it’s a “pretty attractive” time to invest, telling New York University Professor Nouriel Roubini that his pessimism about the economic outlook is misplaced.

“There are a lot of great opportunities we see in the United States and abroad,” Rubenstein said today at the World Economic Forum’s annual meeting in Davos, Switzerland. “Sometimes generals fight the last war, economists fight the last recession.”

Diverging outlooks of investors and economists are being thrown into relief in the ski resort as the worst financial crisis since the Great Depression ebbs. While the MSCI World Index has surged about 65 percent since March, Davos delegates including Roubini and Nobel laureate Joseph Stiglitz say the rally may end as the economic rebound loses steam.

“There is now a debate about the shape of this recovery,” Roubini, who predicted the crisis a year before it began in 2007, told the opening panel before Rubenstein challenged him. “I see a faltering of growth in the U.S., Europe and Japan.”

Rubenstein, who heads the world’s second-largest private equity firm, identified emerging economies as “attractive places” for investors alongside U.S. markets for energy and health care. Prices are low and the risk of systemic failure has been eliminated, meaning deals done last year will be among “some of the best” struck in a decade, he said.

‘Largely Recovered’

“The U.S. economy has largely recovered in the view of professional investors from the worst,” he said. “We’ve gone through a bit of a heart attack and heart attacks are not fatal so much anymore, so we’ve learned a lot.”

While he agreed that emerging markets will outperform their richer rivals, Roubini predicted growth in advanced economies such as the U.S. will slacken in the second half of the year. He cited weakening labor markets, declining consumer spending, tight credit, manufacturing overcapacity, government budget cuts and rising bond yields, he said.

“In advanced economies, the first half of the year is going to better than the second half,” Roubini said.

Roubini’s caution was shared by Dennis M. Nally, global chairman of New York-based PricewaterhouseCoopers LLP. A survey conducted by his company found 81 percent of 1,198 chief executives in 52 nations are confident in the next 12 months, yet majorities are worried by the threat of a protracted recession and intend to cut costs deeper.

‘Cautionary View’

“We’re not out of the woods yet,” Nally said. “There is a cautionary view.”

The International Monetary Fund yesterday raised its forecast for global growth this year to 3.9 percent from 3.1 percent, yet said the recovery in industrial nations will stay “sluggish” amid high unemployment and rising public debt.

Rubenstein and Roubini found common ground in agreeing that rising debt in the U.S. poses a threat to its economy and markets. Failure to tackle the debt will trigger a “sinking” dollar and undermine its role as the world’s reserve currency, Rubenstein said. Roubini warned that investors may “wake up” to the fiscal imbalances and push up long-term interest rates, choking the economic recovery.

To contact the reporter on this story: Simon Kennedy in Davos at skennedy4@bloomberg.net; Aaron Kirchfeld in Davos at akirchfeld@bloomberg.net

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Fed May Take Chance Ending Debt Purchases Won’t Hurt Housing

By Steve Matthews and Vivien Lou Chen

Jan. 27 (Bloomberg) -- The Federal Reserve may take a chance the housing market can stage a comeback without its support by announcing today it will stick to the plan to end a $1.25 trillion program of mortgage-debt purchases in March.

Fed Chairman Ben S. Bernanke and other policy makers meet after the sixth straight monthly gain in home prices in November added to signs housing is stabilizing. With financial markets rebounding, the central bank has said it plans to end emergency aid to bond dealers and money markets by Feb. 1.

The Fed will probably acknowledge growth accelerated last quarter while noting that tight credit and unemployment near a 26-year high still pose risks to the recovery. Officials are likely to maintain a pledge to keep interest rates low for “an extended period” as they look for evidence of a sustained expansion that will create jobs without raising inflation expectations, former Fed governor Lyle Gramley said.

“The Fed wants to sit still until the smoke clears,” said Gramley, a senior economic adviser to Potomac Research Group. “To change the ‘extended period’ language would send a signal to markets that a tightening is not far off, and I don’t think the Fed wants to do that,” Gramley said. He doesn’t expect a rate increase for at least six months.

The Federal Open Market Committee, gathering while Bernanke awaits a Senate vote on whether to confirm him for a second term, is scheduled to issue its statement at around 2:15 p.m.

Regional Fed presidents have differed over whether to continue buying mortgage-backed securities after March 31, with James Bullard of St. Louis saying the central bank should create such an option and Philadelphia’s Charles Plosser saying the purchases should end as scheduled.

Backed by Government

The Fed plans to buy $1.25 trillion of mortgage-backed securities sold by government-backed, housing-finance firms Fannie Mae, Freddie Mac and federal agency Ginnie Mae, along with $175 billion of corporate debt issued by Fannie, Freddie and the government-chartered Federal Home Loan Banks.

During the current meeting “the real discussion will be when they end the MBS program,” said former Atlanta Fed research director Robert Eisenbeis, using the acronym for mortgage-backed securities.

“This raises a huge risk to the recovery,” said Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey. “You don’t want to risk cutting off the recovery in housing by essentially pulling the rug from under it.”

The Fed’s purchases have helped reduce mortgage rates by a range of a 25 basis points to 75 basis points, Boston Fed President Eric Rosengren said through Thomas Lavelle, a spokesman. A basis point is 0.01 percentage point.

Large Portfolio

Rates won’t increase by an equal amount after the end of purchases because the Fed will continue to hold a large portfolio of mortgage-backed securities, Rosengren said.

Eisenbeis disagreed, saying mortgage rates could rise by 75 basis points to 100 basis points.

The rate for 30-year fixed U.S. home loans, which reached a record low of 4.71 percent last month, was 4.99 percent in the week ended Jan. 21, according to mortgage finance company Freddie Mac.

“Housing is so heavily dependent on the Fed right now,” said Sung Won Sohn, former chief economist at Wells Fargo & Co. and now an economics professor at California State University- Channel Islands in Camarillo, California.

“The important thing for them is not to rock the boat and leave themselves plenty of flexibility so that in February and March they can alter their position if they need to,” he said.

Home-Price Index

The S&P/Case-Shiller home-price index increased 0.2 percent in November, the sixth consecutive gain, the group said yesterday in New York. The index was down 5.3 percent from November 2008, more than anticipated and the smallest year-over- year decline in two years.

U.S. central bankers, after reducing the main interest rate to a range from zero to 0.25 percent, switched last year to asset purchases and credit programs as the primary policy tools. The Fed has expanded its balance sheet to $2.24 trillion at the end of 2009 from $879 billion at the start of 2007. Since March, the FOMC has said “exceptionally low” rates are likely warranted for “an extended period.”

Bullard, who votes this year on policy, said in a speech in Shanghai this month the Fed should adjust asset purchases based on changes in the economy. Chicago Fed President Charles Evans told reporters Jan. 13 that the central bank would consider expanding purchases “if conditions were to deteriorate.”

In contrast, Kansas City Fed President Thomas Hoenig, who also votes on policy this year, said in a Jan. 11 interview that “the private market now is healing” and the program should end. Richmond Fed President Jeffrey Lacker said last month, “I think we have to move over time away from channeling resources to the housing market.”

Unexpected Loss

Policy makers will likely note continued “slack” in labor markets following last month’s unexpected loss of 85,000 jobs. The FOMC projects the unemployment rate will be between 9.3 percent and 9.7 percent in the fourth quarter of this year, according to forecasts released after its November meeting.

“It’s still too early to expect a dramatic announcement with regard to the Fed’s exit strategy because the economy is still finding its footing,” said Alan Skrainka, chief market strategist for Edward Jones & Co. in St. Louis, which oversees $500 billion in stocks, bonds, and mutual fund assets.

“It’s a delicate balancing act,” he said. “If the Fed pulls back too soon, the economy falters. If the Fed waits too long, the inflation risk grows.”

The central bank will probably continue to describe inflation as “subdued” and inflation expectations as “stable,” economists said. The Fed’s preferred price measure, which excludes food and fuel, climbed 1.4 percent in November from a year earlier.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Vivien Lou Chen in San Francisco at vchen1@bloomberg.net.

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Weber Says ECB May Take More Exit Steps in First Half

By Francine Lacqua and Simone Meier

Jan. 27 (Bloomberg) -- European Central Bank council member Axel Weber said the bank may take further steps in the first half of this year to withdraw liquidity from the banking system as the economy gathers strength.

“As the economy improves, we’ll take some of the exceptional measures back,” Weber said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland, today. “Not all measures are needed to the same degree, so I don’t rule out that we take some additional steps even before the second half.”

One of the cornerstones of the ECB’s strategy to fight the financial crisis has been to lend banks as much money as they want at its benchmark interest rate of 1 percent, a record low. The Frankfurt-based central bank has already started to scale back its emergency longer-term lending as the economy shakes off its worst recession since World War II.

“Weber is basically confirming a gradual winding down of all the remaining measures,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “They’re making sure that all market participants understand. They want to avoid surprising the markets.”

The euro rose to as high as $1.4097 after Weber’s remarks from $1.4072 yesterday. It was at $1.4048 as of 2:26 p.m. in London. German bonds reversed earlier gains, pushing the yield on the two-year note up 1 basis point to 1.12 percent.

‘Gradual Process’

The ECB last month said its third offer of 12-month loans to banks in December was its last and also announced it will discontinue six-month loans after March. President Jean-Claude Trichet said the provision of unlimited cash in other refinancing operations will continue until at least April 13.

Weber, who is also head of Germany’s Bundesbank, said the ECB will have to discuss a return to a normal auction procedure, though this would not be reintroduced to all tenders at once. Normalization will be a “gradual process,” he said.

“The economy took a really steep fall, it’s been stabilizing” and will show a “protracted recovery,” Weber said. “We still have some bad news ahead of us.”

Inflation Risks

In the euro region, a recovery is already losing some momentum as governments phase out stimulus measures and companies continue to cut jobs, eroding consumer demand. Expansion in Europe’s manufacturing and services industries unexpectedly weakened in January and investor confidence in Germany, Europe’s largest economy, declined.

ECB Executive Board member Juergen Stark said yesterday that council members “expect only moderate growth” and “probably a bumpy recovery” this year. “Overall, I wouldn’t expect a fast return to robust growth,” he said.

The ECB last month forecast the euro-region economy will expand about 0.8 percent this year and around 1.2 percent in 2011. Inflation will average about 1.3 percent this year and 1.4 percent in 2011, the projections show. Weber said today that there are “upside risks” to the inflation outlook.

“Some measures are going to move inflation up but we don’t expect it to significantly surpass 2 percent,” he said. “I’m not worried. I think rates are appropriate at this point.”

Weber said he expects the Eonia overnight rate, or the interest European banks charge each other for overnight loans, to “gradually” move from the 0.25 percent deposit rate toward the ECB’s benchmark interest rate this year. It’s “going to be a slow process” and depends on a market normalization, he said.

“The decisive remark is that the withdrawal of unconventional measures isn’t time dependent but condition dependent,” said Christoph Rieger, co-head of fixed-income strategy at Commerzbank AG in Frankfurt. “The logical steps would be for the ECB to mop up liquidity, remove the full allotment, push the Eonia rate toward 1 percent and then hike.”

Weber declined to comment when asked whether he’s among the potential candidates to replace Trichet in 2011, saying that the bank has a “very good” president at the moment.

To contact the reporters on this story: Simone Meier in Dublin at smeier@bloombert.net; Francine Lacqua in Davos at flacqua@bloomberg.net.

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Tullow to Raise About 1 Billion Pounds in Share Sale

By Morwenna Coniam

Jan. 27 (Bloomberg) -- Tullow Oil Plc, the U.K. explorer with the most licenses in Africa, plans to sell as many as 80.4 million new shares to fund exploration and development in Uganda and Ghana.

“The placing should generate about 1 billion pounds ($1.61 billion) to the company,” Chief Executive Officer Aidan Heavey said by phone today. The shares fell as much as 5.6 percent in London trading, the steepest intraday decline since Sept. 18.

Tullow, which is engaged in a battle with Eni SpA for Ugandan assets being sold by Heritage Oil Plc, identified China National Offshore Oil Corp. and Total SA as the “top two bidders” to join it as partners in the east African nation.

The explorer wants to ensure sufficient capital to maintain a $500 million-a-year exploration program as well as developing its African assets, it said in a statement today. It plans to use some of the capital to conduct additional appraisal and development of Tweneboa and subsequent phases of the Jubilee field in Ghana. About 35 exploration wells are planned for this year.

Tullow slid as much as 68 pence to 1,148 pence. The shares were 4.7 percent lower at 1,159 pence as of 10:10 a.m. local time, valuing Tullow at 9.3 billion pounds.

Increased Spending

The placing will allow Tullow to “secure increased spending over the next three years or so,” Chief Financial Officer Ian Springett said on the same call. The explorer “should be done with equity” afterwards, he said.

Tullow plans an accelerated book-building process to be carried out by Bank of America-Merrill Lynch and RBS Hoare Govett Ltd. acting as joint global coordinators and bookrunners.

Tullow said in a separate trading statement that it has “never been in a better position to deliver growth.” It forecasts 990 million pounds of expenditure this year, up from 690 million in 2009, while net debt at the end of December stood at 720 million pounds.

Tullow yesterday said it signed an agreement to buy Heritage Oil’s 50 percent share in Blocks 1 and 3A in the Lake Albert Rift Basin, Uganda for up to $1.5 billion, in an attempt to block a rival offer by Eni. The deal is subject to approval by the government of Uganda, it said.

In addition to the sale agreement with Heritage, Tullow is seeking to bring in partners to help develop its Ugandan assets. Total and CNOOC will be “presenting what they can do to the government in the next few weeks,” Heavey said.

Total spokeswoman Phenelope Semavoine declined to comment on Uganda.

Additional Interests

Tullow will also use some of the capital raised in the share sale to buy additional interests in Uganda to retain a stake of up to 50 percent of its enlarged acreage position, it said in today’s statement.

Operations in Ghana and Uganda will take up around 60 percent of the anticipated 2010 capital outlay, Tullow said. The explorer plans 10 wells in Uganda and seven in Ghana this year.

An accelerated drilling and exploration program is planned on the Tweneboa field following its establishment as “a major oil and gas-condensate field with a combined hydrocarbon column of at least 350 metres,” Tullow said.

The Tweneboa field is located in the Deepwater Tano block, which is 49.95 percent held by Tullow. The deposit may yield almost as much oil as the nearby Jubilee field, which may hold as much as 1.8 billion barrels of crude, the company said in November.

To contact the reporter on this story: Morwenna Coniam in London at mconiam@bloomberg.net;

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Oil Little Changed Around $75 Before Report on U.S. Inventories

By Grant Smith

Jan. 27 (Bloomberg) -- Crude oil was little changed around $75 a barrel before a report forecast to show crude inventories increased in the U.S., the world’s largest energy user.

Oil has dropped 11 percent from a 15-month high on Jan. 11 amid concern that the U.S. government may limit trading by banks and that China will take further steps to cool its economy. The Energy Department will likely say crude stockpiles climbed 1.5 million barrels last week as refinery throughput dropped, according to a Bloomberg survey before the report today.

“Market sentiment is negative at the moment,” said Tobias Merath, head of commodities research at Credit Suisse Group AG in Zurich. “Falling refinery utilization is in itself a negative sign as it reduces consumption of crude oil. Talk about Chinese monetary tightening, proposed banking regulation, has affected risk appetite.”

Crude oil for March delivery traded at $74.84 a barrel, 13 cents higher, in electronic trading on the New York Mercantile Exchange at 1:15 p.m. London time. Yesterday, the contract dropped 55 cents to settle at $74.71.

U.S. refining rates, already at their lowest level outside the Atlantic hurricane season since at least 1989, probably fell 0.1 percentage point, according to Bloomberg’s survey. Distillate stockpiles, which include heating oil and diesel, may have dropped by 1.8 million barrels, the survey said.

Oil stockpiles probably climbed from 330.6 million barrels in the prior week, according to the median of 18 analyst estimates in Bloomberg’s survey.

API Data

If the Energy Department numbers follow the forecasts, that would be counter to American Petroleum Institute data that were released late yesterday. Inventories of crude fell by 2.23 million barrels last week to 326.1 million, the industry group said. Distillate fuel supplies dropped 1.98 million barrels.

Gasoline supplies rose 916,000 barrels to 228.5 million barrels, the highest since March 1999, the API said.

The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey. Oil-supply totals from the API and DOE moved in the same direction 75 percent of the time over the past four years, according to data compiled by Bloomberg.

The Energy Department is scheduled to release its inventory report at 10:30 a.m. today in Washington.

The dollar rose against the euro as investors sold the European currency on concern fiscal deficits in the region will grow. The dollar climbed to $1.4022 to the euro, the strongest since July 30.

Waning Demand

Crude also dropped on speculation that oil demand may wane in China because of concerns of a slowing economy after banks began restricting new loans in response to a push by regulators to contain credit.

“The short-term outlook is really not showing too much brightness,” said Toby Hassall, commodity analyst at CWA Global Markets Pty in Sydney. “China has been underpinning demand for oil and other commodities, so the idea that they’re going to rein things in is certainly a negative for sentiment.”

Lending growth in China slowed in the third week of January from the month’s first two weeks, the Shanghai Securities News reported yesterday, citing unidentified people.

Brent crude for March settlement was at $73.57 a barrel, up 28 cents, on the London-based ICE Futures Europe exchange at 12:50 p.m. local time. The contract declined 40 cents, or 0.5 percent, to $73.29 a barrel yesterday.

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net

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ConocoPhillips Reports Profit After Record Loss

By Edward Klump

Jan. 27 (Bloomberg) -- ConocoPhillips, the third-largest U.S. oil company, reported fourth-quarter profit of $1.22 billion after posting a record loss a year earlier when falling energy prices dragged down the value of acquired assets.

Net income was 81 cents a share, compared with a net loss of $31.8 billion, or $21.37, Houston-based ConocoPhillips said today in a statement. Excluding such items as writedowns on asset values, ConocoPhillips earned $1.16 a share, 4 cents more than the average of 16 analysts’ estimates compiled by Bloomberg. Revenue fell 2.8 percent to $43.6 billion.

ConocoPhillips said in October that it planned to sell some $10 billion of assets over two years, cut spending and reduce debt. In December, the company said its capital budget will be an estimated $11.2 billion for 2010, a drop of 10 percent from last year. That comes after the fourth quarter of 2008 included costs of about $34 billion to reflect a drop in asset values.

“They’re trying to reposition the company as best they can,” said James Halloran, a consultant with Financial America Securities in Cleveland. “Going forward, I think they have more of a hurdle to overcome to get back to being viewed as a company that’s sort of in control of its own destiny.”

ConocoPhillips rose 57 cents, or 1.1 percent, to $51 as of 8:44 a.m. in pre-market trading on the New York Stock Exchange. The stock has 9 “buy” ratings from analysts, 10 “holds” and 2 “sells.”

ConocoPhillips is first among the nation’s largest producers to report fourth-quarter earnings. Exxon Mobil Corp. of Irving, Texas, is scheduled to announce its results Feb. 1. San Ramon, California-based Chevron Corp. plans to report earnings Jan. 29.

Refining Capacity

Fourth-quarter worldwide crude-refining capacity utilization rate at ConocoPhillips, which has the largest U.S. refining capacity among integrated oil companies, was 76 percent.

“One reason it’s lagged here the last year or so is it has a larger exposure to refining than its peers just given its smaller size,” said Brian Youngberg, an analyst at Edward Jones near St. Louis who has a “buy” rating on ConocoPhillips shares and owns none. “As refining improves here as we go forward, which I think it will, that should provide a bit of a catalyst for them to play some catch-up with their peers.”

The company said fourth-quarter production of oil and natural gas fell to about 1.83 million barrels of crude equivalent a day. Daily output, which excludes the company’s stake in Russia’s OAO Lukoil, was 1.87 million barrels a year earlier.

‘Pretty Decent Year’

ConocoPhillips also said that full-year output for 2009 was about 1.85 million barrels a day. Daily production was equivalent to 1.79 million barrels of crude in 2008.

“Production-wise, they had a pretty decent year,” said Philip Weiss, an analyst at Argus Research in New York who has a “hold” rating on ConocoPhillips shares and owns none.

ConocoPhillips agreed to buy gas producer Burlington Resources Inc. in 2005, the day before prices hit an all-time high of $15.78 per million British thermal units. Gas averaged $4.93 in the fourth quarter, a drop of 23 percent from a year earlier.

On Jan. 19, ConocoPhillips said it would record fourth- quarter costs of $54 million related to its stake in Lukoil after that company’s third-quarter profit was lower than ConocoPhillips estimated when it determined the amount to include from the stake in its own earnings.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

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Asia Currencies: Won, Rupiah Lead Gains on Signs of Recovery

By Patricia Lui

Jan. 27 (Bloomberg) -- Asian currencies rose, led by the South Korean won and Indonesia’s rupiah, on optimism the region’s economic recovery will gain momentum.

The International Monetary Fund said yesterday the global economy this year will be stronger than it previously forecast with few signs of inflation, allowing central banks to keep interest rates low to ensure a sustained expansion. A report today showed Japan’s exports rose in December for the first time since Lehman Brothers Holdings Inc. collapsed in September 2008. The rupiah also rose from the lowest level in more than three weeks as concern eased about further lending curbs by China on domestic banks.

“In my view, markets may have over-reacted on all of the shocks, especially monetary tightening in China,” Stephen Jen, managing director of macroeconomics and currencies at BlueGold Capital Management LLP in London and former head of foreign exchange research at Morgan Stanley, wrote in a report yesterday.

The won rose 0.4 percent to 1,158.80 per dollar as of 12:45 p.m. in Seoul, according to data compiled by Bloomberg. Malaysia’s ringgit climbed 0.1 percent to 3.4220 and the rupiah gained 0.3 percent to 9,390.

The MSCI Asia Pacific Index of regional stocks lost 0.3 percent after swinging between gains and losses. The index slumped 5.8 percent in the previous seven days as U.S. President Barack Obama proposed measures to limit risk taking at U.S. banks and on concern China will rein in economic growth.

‘Monster Surplus’

Asian currencies slumped yesterday after Reuters reported reserve requirements for several Chinese lenders would be increased again, citing banking sources it didn’t identify. China’s central bank ordered banks on Jan. 12 to set aside more cash as reserves to slow record lending and curb inflation.

“Rumors China didn’t ask banks to raise reserve ratios again lifted Asian currencies,” said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore.

The won rose, rebounding from this year’s low, after the central bank reported a record current-account surplus for 2009.

South Korea posted a surplus of $1.52 billion in December, the 11th month in a row, the Bank of Korea said today. The current account is the broadest measure of trade, tracking the flow of goods, services and investment income, and for 2009 recorded a surplus of $42.7 billion. The surplus may shrink “substantially” in January, Lee Young Bog, a Bank of Korea official, said today.

“The current-account surplus was a monster last year, but this year it’s expected to be lower as imports were really weak” in 2009, said Sean Callow, a currency strategist in Sydney at Westpac Banking Corp. “But it’s still quite substantial and will be a net positive for the won this year.”

Overseas investors pumped $944 million into Korean shares this year through yesterday, building on net purchases of $24.4 billion in 2009.

The ringgit climbed from its lowest level this year after the central bank said the economy’s recovery from recession has been underpinned by improvements in manufacturing and trade. Bank Negara Malaysia yesterday maintained the overnight rate at a record-low 2 percent for a seventh straight meeting.

Southeast Asia’s third-largest economy will probably expand 3.7 percent this year and 5 percent in 2011 after shrinking a projected 3.3 percent in 2009, the Malaysian Institute of Economic Research said this week. Prime Minister Najib Razak said Jan. 20 it may be 3.5 percent or more.

“The assessment leaves no doubt that the economic recovery is taking shape, which is positive for the ringgit outlook,” said Irwaan Iskandar Abrahim, who helps manage $130 million at ASM Investment Services Bhd. in Kuala Lumpur.

Improved China Link

Taiwan’s dollar rose on speculation overseas investors will add to their purchases of local stocks after the island’s government and China held talks yesterday on strengthening economic ties. The Taiex index slid 3.5 percent yesterday.

The island’s cabinet has agreed in a preliminary review to let local financial companies and banks acquire stakes in Chinese lenders, the Economic Daily News reported today, citing an unidentified senior official. Chinese banks will only be allowed to set up branches on the island, according to the paper.

“Maybe foreign investors are comfortable again with Taiwan money,” said Eric Hsing, a debt trader at First Securities Inc. in Taipei. “In the long run, I have confidence in Taiwan because relations between Taiwan and China are turning friendly.”

The local dollar advanced 0.1 percent to NT$32.031 against its U.S. counterpart, according to Taipei Forex Inc. The currency earlier reached NT$32.065, the weakest since Jan. 4.

Elsewhere in Asian currency trading, the Singapore dollar rose 0.1 percent to S$1.4034 versus the greenback, while the Thai baht and China’s yuan were little changed at 33.04 and 6.8268, respectively.

To contact the reporters on this story: Patricia Lui at Plui4@bloomberg.net

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