By Adria Cimino
Oct. 9 (Bloomberg) -- U.S. stock futures rose, indicating the Standard & Poor's 500 Index will rebound from a six-day drop, as International Business Machines Corp. repeated its profit forecast and investors speculated market declines were overdone.
IBM, the largest computer-services company, climbed 7 percent in Europe after reporting third-quarter earnings that beat analysts' estimates. Intel Corp., the biggest chipmaker, gained 1.4 percent. American International Group Inc. surged 7 percent as the Federal Reserve Bank of New York said the insurer may access $37.8 billion in additional liquidity.
S&P 500 Index futures expiring in December added 17.5, or 1.8 percent, to 998.50 as of 11:51 a.m. in London. Dow Jones Industrial Average futures gained 139, or 1.5 percent, to 9,340 and Nasdaq-100 Index futures increased 32.25, or 2.4 percent, to 1,352.25.
``IBM's earnings and the tone of the company's outlook reassured the market,'' said Clemence Bounaix, a fund manager at KBL Richelieu Gestion, which oversees about $5.5 billion in Paris. ``This is an early indicator of the economy.''
U.S. stocks fell yesterday after Treasury Secretary Henry Paulson said more banks may collapse and unprecedented global interest-rate cuts failed to convince investors the economy will avoid a recession.
Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.
The S&P 500's six-day losing streak was the longest since 2002. Its year-to-date slump of 32.9 percent is the worst since 1974 and the second-biggest drop ever compared with previous returns through Oct. 8, according to Harrison, New York-based research firm Bespoke Investment Group LLC.
Valuations
The 37 percent decline from a record a year ago has left the measure valued at less than 19 times the reported earnings of its companies, the cheapest since February. Europe's Dow Jones Stoxx 600 Index trades at 9.59 times profit, while the MSCI World is valued at 12.07 times the reported earnings of companies in the index, according to Bloomberg data.
IBM jumped 7 percent to $96.90 in Germany. Profit for the year will be at least $8.75 a share, IBM said, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.
Intel added 1.4 percent to $16.47. Microsoft Corp., the biggest software maker, gained 2.3 percent to $23.55. Hewlett- Packard Co., the largest personal-computer maker, increased 1.4 percent to $40.56.
Earnings Estimates
Analysts expect a 5.6 percent drop in third-quarter profit at S&P 500 companies, according to Bloomberg data. IBM's results came after Alcoa Inc., the biggest U.S. aluminum producer, kicked off the earnings season with lower-than-estimated profit, saying net income slid by more than half.
AIG, the insurer taken over by the government, surged 7 percent to $3.41. AIG can swap as much as $37.8 billion of its ``investment-grade, fixed-income securities'' for cash to ``replenish liquidity'' at the insurer, the Fed said.
Wachovia Corp. rose 4.3 percent to $5.28. An agreement suspending federal litigation over the fate of Wachovia was extended by two days after lawyer David Boies said a ``grand solution'' between bidders Citigroup Inc. and Wells Fargo & Co. was being negotiated.
The end of a three-week ban on short selling financial stocks may reduce the market's record price swings as hedge funds increase trading.
Since the Securities and Exchange Commission started the rule Sept. 19, volume on the New York Stock Exchange dropped 35 percent and the Chicago Board Options Exchange Volatility Index surged to 57.53, its third straight record. Options on the VIX, as the volatility gauge is known, imply it will fall 44 percent in the next two weeks after the rule expired last night.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
Read more...
Thursday, October 9, 2008
Global Stocks, U.S. Futures Rise as IBM, Dexia Rally; Yen Falls
By Sarah Thompson
Oct. 9 (Bloomberg) -- Stocks climbed in Europe and Asia and U.S. index futures rose after International Business Machines Corp. reaffirmed its profit forecast and investors speculated the worst five-day plunge since 1987 was overdone. The yen and Treasuries fell.
IBM, the world's biggest computer-services company, jumped 5.3 percent as earnings topped analysts' estimates. Dexia SA surged 24 percent after Belgium, France and Luxembourg agreed to provide guarantees on borrowings of the world's largest lender to local governments. The yen dropped as low as 139.70 against the euro, the steepest decline in almost eight years after central banks from Hong Kong to Frankfurt and Washington cut interest rates in the past two days.
The MSCI World Index added 0.7 percent to 1,010.68 at 12:40 a.m. in London. The index lost 15 percent in the previous five days, the biggest drop since October 1987. The sell-off left shares in the measure at their cheapest relative to earnings in more than a decade. Standard & Poor's 500 Index futures gained 2.1 percent today.
``Valuations look attractive,'' said Espen Furnes, an Oslo- based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``It's time for a rebound, the stock market has just fallen too rapidly. IBM's numbers show that it's not all doom and gloom out there.''
Industrial & Commercial Bank of China Ltd. and South Korea's LG Electronics Inc. climbed more than 4 percent. BHP Billiton Ltd. led mining shares higher, jumping 10 percent as copper rallied from the lowest in 2 1/2 years.
Yields on two-year notes increased 17 basis points to 1.73 percent, according to BGCantor Market Data.
`Long Road Ahead'
``The coordination involved in yesterday's rate cuts was impressive but there is a long road ahead and the terrible state of the global economy will dominate market activity until confidence returns,'' said Jason McNab, who helps manage $2 billion at Duet Asset Management Ltd. in London.
The European Central Bank offered banks as much cash as they need for six days, bringing forward new auction measures as policy makers step up efforts to unlock credit markets.
The cost of borrowing in dollars for three months jumped to the highest level since December, the British Bankers' Association said today.
Iceland suspended trading today until Oct. 13 after the government seized Kaupthing hf, the country's biggest.
Europe's Dow Jones Stoxx 600 Index advanced 1.4 percent, while the MSCI Asia Pacific Index rose 0.9 percent.
Russia's Micex Index rallied 13 percent, leading gains in developing countries. The MSCI Emerging Markets Index rose 3.3 percent to 624.07, the most in three weeks.
Emerging-market stocks are a ``wonderful opportunity'' for investors after their record slump, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.
``There are bargains on almost every single market around the world,'' Singapore-based Mobius said in a Bloomberg Television interview from Rome.
Valuations
The MSCI World was valued at 12.01 times the reported earnings of companies in the index yesterday, the cheapest since at least 1995. Europe's Stoxx 600 was valued at 9.44 times profit, the cheapest since Bloomberg began compiling the data in January 2002. The S&P 500 traded at 18.82 times earnings.
IBM climbed $4.75 to $95.30 after saying profit for the year will be at least $8.75 a share, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.
Cap Gemini SA, Europe's largest computer-services company, climbed 6.1 euros to 26.78 euros. Atos Origin SA, France's second-largest computer-services provider, rose 2.2 percent to 25.39 euros. Logica Plc, the Anglo-Dutch computer-services provider, advanced 2.1 percent to 87 pence.
Reassuring Investors
``IBM's statement provides some reassurance to investors,'' said Jesper Kruger, a fund manager in Copenhagen at ATP, which has about $64 billion. ``Not only does IBM have a broad exposure across the tech sector, but financial services makes up around 28 percent of its business.''
BHP Billiton, the world's largest mining company, rallied 12 percent to 1,089 pence. Rio Tinto Group, the third-biggest, climbed 11 percent to 2,918 pence. Copper, lead and zinc gained in London.
Dexia jumped 1.19 euros to 6.18 after Belgium, France and Luxembourg said they will back the company's new borrowings. The governments threw Dexia a 6.4 billion-euro ($8.8 billion) lifeline last week to prevent the company's collapse. Belgium said today the nation's other banks will be eligible for the same guarantee on borrowings.
KBC Group NV, Belgium's biggest financial-services company by market value, climbed 2.6 percent to 44.11 euros.
Trichet on Rates
Banks also rallied after European Central Bank President Jean-Claude Trichet said yesterday he can't rule out further rate cuts. ECB council member Erkki Liikanen said today the bank is seeing signs that inflation expectations are settling close to its 2 percent target.
UBS AG, the European bank hardest hit by credit losses, rose 7.1 percent to 19.51 francs. Deutsche Bank AG, Germany's biggest bank, climbed 8.3 percent to 42.165 euros.
Royal Bank of Scotland Group Plc jumped 18 percent to 106.9 pence after Citigroup Inc. upgraded shares of U.K. banks, citing ``underperformance'' and actions by central banks and the government yesterday. RBS is down 43 percent so far this week.
Citigroup raised its recommendation on U.K. banks to ``neutral'' from ``underweight.'' The government yesterday announced a 50 billion-pound ($87 billion) rescue package for the nation's banks.
ICBC, China's largest bank, gained 6.6 percent to HK$4.05 in Hong Kong. LG Electronics, Asia's second-biggest mobile-phone maker, rose 4.8 percent to 109,500 won in Seoul.
China, South Korea, Hong Kong and Taiwan lowered borrowing costs. The cuts followed coordinated rate reductions yesterday by the Federal Reserve, ECB, Bank of England, Bank of Canada and Sweden's Riksbank.
Aviva
Aviva Plc surged 8.8 percent to 445.75 pence after the U.K.'s biggest insurer said it has a ``strong'' capital position following the turmoil in global financial markets. The insurer has surplus capital to meet regulatory requirements of 1.9 billion pounds, the company said.
Nokian Renkaat Oyj climbed 4.6 percent to 14 euros after Merrill Lynch & Co. recommended shares of the world's most profitable publicly traded tiremaker. Shares of the tiremaker have dropped more than 60 percent from highs reached in May and June, Merrill analyst Thomas Besson wrote in a research note dated today.
Johnson Matthey Plc rallied 6.1 percent to 1,156 pence after the maker of a third of all autocatalysts to control vehicle pollution was raised to ``buy'' from ``neutral'' at UBS on its underlying financial strength.
Johnson Matthey has a ``solid balance sheet with little financial risk'' and is ``trading at historical trough multiples,'' London-based analysts Laurent Favre, Thomas Gilbert and Jim Varas wrote in a note dated today.
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
Read more...
Oct. 9 (Bloomberg) -- Stocks climbed in Europe and Asia and U.S. index futures rose after International Business Machines Corp. reaffirmed its profit forecast and investors speculated the worst five-day plunge since 1987 was overdone. The yen and Treasuries fell.
IBM, the world's biggest computer-services company, jumped 5.3 percent as earnings topped analysts' estimates. Dexia SA surged 24 percent after Belgium, France and Luxembourg agreed to provide guarantees on borrowings of the world's largest lender to local governments. The yen dropped as low as 139.70 against the euro, the steepest decline in almost eight years after central banks from Hong Kong to Frankfurt and Washington cut interest rates in the past two days.
The MSCI World Index added 0.7 percent to 1,010.68 at 12:40 a.m. in London. The index lost 15 percent in the previous five days, the biggest drop since October 1987. The sell-off left shares in the measure at their cheapest relative to earnings in more than a decade. Standard & Poor's 500 Index futures gained 2.1 percent today.
``Valuations look attractive,'' said Espen Furnes, an Oslo- based fund manager at Storebrand Asset Management, which has the equivalent of $48 billion. ``It's time for a rebound, the stock market has just fallen too rapidly. IBM's numbers show that it's not all doom and gloom out there.''
Industrial & Commercial Bank of China Ltd. and South Korea's LG Electronics Inc. climbed more than 4 percent. BHP Billiton Ltd. led mining shares higher, jumping 10 percent as copper rallied from the lowest in 2 1/2 years.
Yields on two-year notes increased 17 basis points to 1.73 percent, according to BGCantor Market Data.
`Long Road Ahead'
``The coordination involved in yesterday's rate cuts was impressive but there is a long road ahead and the terrible state of the global economy will dominate market activity until confidence returns,'' said Jason McNab, who helps manage $2 billion at Duet Asset Management Ltd. in London.
The European Central Bank offered banks as much cash as they need for six days, bringing forward new auction measures as policy makers step up efforts to unlock credit markets.
The cost of borrowing in dollars for three months jumped to the highest level since December, the British Bankers' Association said today.
Iceland suspended trading today until Oct. 13 after the government seized Kaupthing hf, the country's biggest.
Europe's Dow Jones Stoxx 600 Index advanced 1.4 percent, while the MSCI Asia Pacific Index rose 0.9 percent.
Russia's Micex Index rallied 13 percent, leading gains in developing countries. The MSCI Emerging Markets Index rose 3.3 percent to 624.07, the most in three weeks.
Emerging-market stocks are a ``wonderful opportunity'' for investors after their record slump, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.
``There are bargains on almost every single market around the world,'' Singapore-based Mobius said in a Bloomberg Television interview from Rome.
Valuations
The MSCI World was valued at 12.01 times the reported earnings of companies in the index yesterday, the cheapest since at least 1995. Europe's Stoxx 600 was valued at 9.44 times profit, the cheapest since Bloomberg began compiling the data in January 2002. The S&P 500 traded at 18.82 times earnings.
IBM climbed $4.75 to $95.30 after saying profit for the year will be at least $8.75 a share, reaffirming a previous forecast. Earnings last quarter increased to $2.05 a share, excluding some items, the company said. That topped the $2.01 average estimate of analysts in a Bloomberg survey.
Cap Gemini SA, Europe's largest computer-services company, climbed 6.1 euros to 26.78 euros. Atos Origin SA, France's second-largest computer-services provider, rose 2.2 percent to 25.39 euros. Logica Plc, the Anglo-Dutch computer-services provider, advanced 2.1 percent to 87 pence.
Reassuring Investors
``IBM's statement provides some reassurance to investors,'' said Jesper Kruger, a fund manager in Copenhagen at ATP, which has about $64 billion. ``Not only does IBM have a broad exposure across the tech sector, but financial services makes up around 28 percent of its business.''
BHP Billiton, the world's largest mining company, rallied 12 percent to 1,089 pence. Rio Tinto Group, the third-biggest, climbed 11 percent to 2,918 pence. Copper, lead and zinc gained in London.
Dexia jumped 1.19 euros to 6.18 after Belgium, France and Luxembourg said they will back the company's new borrowings. The governments threw Dexia a 6.4 billion-euro ($8.8 billion) lifeline last week to prevent the company's collapse. Belgium said today the nation's other banks will be eligible for the same guarantee on borrowings.
KBC Group NV, Belgium's biggest financial-services company by market value, climbed 2.6 percent to 44.11 euros.
Trichet on Rates
Banks also rallied after European Central Bank President Jean-Claude Trichet said yesterday he can't rule out further rate cuts. ECB council member Erkki Liikanen said today the bank is seeing signs that inflation expectations are settling close to its 2 percent target.
UBS AG, the European bank hardest hit by credit losses, rose 7.1 percent to 19.51 francs. Deutsche Bank AG, Germany's biggest bank, climbed 8.3 percent to 42.165 euros.
Royal Bank of Scotland Group Plc jumped 18 percent to 106.9 pence after Citigroup Inc. upgraded shares of U.K. banks, citing ``underperformance'' and actions by central banks and the government yesterday. RBS is down 43 percent so far this week.
Citigroup raised its recommendation on U.K. banks to ``neutral'' from ``underweight.'' The government yesterday announced a 50 billion-pound ($87 billion) rescue package for the nation's banks.
ICBC, China's largest bank, gained 6.6 percent to HK$4.05 in Hong Kong. LG Electronics, Asia's second-biggest mobile-phone maker, rose 4.8 percent to 109,500 won in Seoul.
China, South Korea, Hong Kong and Taiwan lowered borrowing costs. The cuts followed coordinated rate reductions yesterday by the Federal Reserve, ECB, Bank of England, Bank of Canada and Sweden's Riksbank.
Aviva
Aviva Plc surged 8.8 percent to 445.75 pence after the U.K.'s biggest insurer said it has a ``strong'' capital position following the turmoil in global financial markets. The insurer has surplus capital to meet regulatory requirements of 1.9 billion pounds, the company said.
Nokian Renkaat Oyj climbed 4.6 percent to 14 euros after Merrill Lynch & Co. recommended shares of the world's most profitable publicly traded tiremaker. Shares of the tiremaker have dropped more than 60 percent from highs reached in May and June, Merrill analyst Thomas Besson wrote in a research note dated today.
Johnson Matthey Plc rallied 6.1 percent to 1,156 pence after the maker of a third of all autocatalysts to control vehicle pollution was raised to ``buy'' from ``neutral'' at UBS on its underlying financial strength.
Johnson Matthey has a ``solid balance sheet with little financial risk'' and is ``trading at historical trough multiples,'' London-based analysts Laurent Favre, Thomas Gilbert and Jim Varas wrote in a note dated today.
To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.
Read more...
O/n Libor rates fall after rate cuts, government action
LONDON, Oct 9 (Reuters) - The interbank cost of borrowing
overnight funds fell on Thursday, according to latest daily
fixing from the British Bankers Associationa day after central
banks around the world moved to cut interest rates and provide
additional liquidity.
But the wide-ranging measures had little impact on
longer-term lending rates, as three-month dollar London
interbank offered rates jumped almost 23 basis points to their
highest this year.
Three-month term euro and sterling Libor held steady at
recent highs, and the spread over expected official policy rates
-- a key measure of financial market stress -- widened
significantly across all three currencies.
Overnight Libor for dollars, euro and sterling all fell
substantially, but by less than the 50 basis which the three
central banks slashed benchmark lending rates on Wednesday.
Below is a table of the London interbank offered rates
(Libor) for dollar, euro and sterling funds in percentage terms,
with the change from the previous session in parentheses.
For RICs to the above rates, go to <0#LIBORSUPERRICS>.
Read more...
overnight funds fell on Thursday, according to latest daily
fixing from the British Bankers Associationa day after central
banks around the world moved to cut interest rates and provide
additional liquidity.
But the wide-ranging measures had little impact on
longer-term lending rates, as three-month dollar London
interbank offered rates jumped almost 23 basis points to their
highest this year.
Three-month term euro and sterling Libor held steady at
recent highs, and the spread over expected official policy rates
-- a key measure of financial market stress -- widened
significantly across all three currencies.
Overnight Libor for dollars, euro and sterling all fell
substantially, but by less than the 50 basis which the three
central banks slashed benchmark lending rates on Wednesday.
Below is a table of the London interbank offered rates
(Libor) for dollar, euro and sterling funds in percentage terms,
with the change from the previous session in parentheses.
EURO STERLING DOLLAR
O/N 3.93625 (-0.41375) 5.41875 (-0.41250) 5.09375 (-0.28125)
1WK 4.76375 (-0.23500) 5.70000 (-0.15000) 4.76250 (+0.24375)
2WK 4.81625 (-0.20000) 5.84375 (-0.11250) 4.72500 (+0.27500)
1MO 5.10875 (-0.07750) 6.08688 (+0.01188) 4.51250 (+0.21875)
2M0 5.21625 (-0.03125) 6.17388 (+0.00763) 4.58500 (+0.20375)
3MO 5.38625 (-0.00500) 6.28125 (+0.01000) 4.75000 (+0.22625)
6MO 5.43750 (+0.00250) 6.37750 (+0.00250) 4.37500 (+0.26750)
1YR 5.49750 (+0.01250) 6.48500 (+0.01125) 4.23375 (+0.24000)
3MTH LIBOR/OIS SPREAD (BPs)
177.42500 (+11.800) 211.22500 (+11.200) 348.50000 (+30.625)
For RICs to the above rates, go to <0#LIBORSUPERRICS>.
Read more...
TOPWRAP 5-Pressure on G7 after muted response to rate cuts
* Calls for political coordination after rate cuts
* Japan considers measures to stimulate economy
* U.S. Treasury emphasises has authority to buy bank stakes
* U.S. stocks seen higher, short-selling ban removed
By Keith Weir
LONDON, Oct 9 (Reuters) - Finance ministers from the world's top economies faced calls on Thursday for united action after an emergency round of interest rate cuts and government support for ailing banks won only muted market support.
The United States signalled it could consider buying into banks to help get frozen funds flowing again and governments in Europe moved to try to restore confidence in financial firms hit by the worst crisis since the 1930s.
South Korea, Hong Kong and Taiwan lowered their interest rates after coordinated cuts on Wednesday from major central banks including the U.S. Federal Reserve.
The measures were designed to contain the market meltdown that has destroyed lenders from Wall Street to Iceland and left people worried about the security of their savings and jobs.
Attention was turning to a meeting in Washington on Friday of finance ministers from the Group of Seven wealthy nations.
Investors want politicians from the G7 and European Union to show they can cooperate more effectively rather than rely on piecemeal national initiatives.
British Prime Minister Gordon Brown has urged the G7 and EU to guarantee lending between banks, in line with measures Britain has introduced domestically.
However, EU states remained divided over the need to set up a financial supervisor with responsibility across Europe.
European Commission President Jose Manuel Barroso also said he was not satisfied by the level of cooperation among the bloc's 27 members.
Markets were mixed. Japan's Nikkei dipped to its lowest close in more than five years after a volatile day. European stocks traded around one percent higher after falling to near five-year lows on Wednesday despite the emergency rate cuts.
"The rate cuts are a good step in the right direction to stop the bleeding, but this won't be enough. European governments have to act swiftly and decisively together," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.
RECESSION FEARS
U.S. shares were expected to open higher, breaking a six-day losing streak in which they have shed almost 15 percent. U.S. markets face additional uncertainty after a ban on short-selling of financial stocks expired at midnight on Wednesday. Short-sellers bet on falling stock prices and had been blamed for driving share prices lower.
There was little sign the rate cuts had unlocked money markets.
Three-month borrowing on interbank markets remained expensive near this week's highs across all currencies, and lending beyond a week or two remained frozen, traders said.
The emergency rate cuts underlined the grim economic outlook.
The International Monetary Fund said the world was set for a major downturn in the face of the worst financial crisis since the Great Depression.
Japan was considering further measures to stimulate the world's second largest economy after a dive in machinery orders provided evidence that the financial crisis was driving it towards recession.
BOLSTERING BANKS
The crisis stems from the collapse of the U.S. housing market and the spiral of bad debts. Confidence in banks has evaporated, making them loath to lend to each other and it more expensive for business to get access to funds.
The New York Times, quoting unnamed government officials, said the Treasury was considering taking ownership stakes in many U.S. banks.
U.S. Treasury Secretary Henry Paulson, speaking to reporters, stressed that the recently approved $700 billion financial bailout bill gave him wide authority to inject capital into the banking system and would not rule out having Treasury take an ownership position in banks if necessary.
The bank recapitalisation plan, in its preliminary stages, has emerged as one of the preferred options being discussed in Washington and on Wall Street, the New York Times said.
The United States would be taking a leaf out of Britain's book. London said on Wednesday it was prepared to inject 50 billion pounds ($87 billion) of taxpayers' money into its banks and guarantee interbank lending. [ID:nL8586784]
Iceland, the country worst affected by the crisis, took control of the its biggest bank Kaupthing , the third such takeover in a week and suspended all trading in shares. (Additional reporting by Reuters global bureaus; Editing by Mike Peacock)
Read more...
* Japan considers measures to stimulate economy
* U.S. Treasury emphasises has authority to buy bank stakes
* U.S. stocks seen higher, short-selling ban removed
By Keith Weir
LONDON, Oct 9 (Reuters) - Finance ministers from the world's top economies faced calls on Thursday for united action after an emergency round of interest rate cuts and government support for ailing banks won only muted market support.
The United States signalled it could consider buying into banks to help get frozen funds flowing again and governments in Europe moved to try to restore confidence in financial firms hit by the worst crisis since the 1930s.
South Korea, Hong Kong and Taiwan lowered their interest rates after coordinated cuts on Wednesday from major central banks including the U.S. Federal Reserve.
The measures were designed to contain the market meltdown that has destroyed lenders from Wall Street to Iceland and left people worried about the security of their savings and jobs.
Attention was turning to a meeting in Washington on Friday of finance ministers from the Group of Seven wealthy nations.
Investors want politicians from the G7 and European Union to show they can cooperate more effectively rather than rely on piecemeal national initiatives.
British Prime Minister Gordon Brown has urged the G7 and EU to guarantee lending between banks, in line with measures Britain has introduced domestically.
However, EU states remained divided over the need to set up a financial supervisor with responsibility across Europe.
European Commission President Jose Manuel Barroso also said he was not satisfied by the level of cooperation among the bloc's 27 members.
Markets were mixed. Japan's Nikkei dipped to its lowest close in more than five years after a volatile day. European stocks traded around one percent higher after falling to near five-year lows on Wednesday despite the emergency rate cuts.
"The rate cuts are a good step in the right direction to stop the bleeding, but this won't be enough. European governments have to act swiftly and decisively together," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.
RECESSION FEARS
U.S. shares were expected to open higher, breaking a six-day losing streak in which they have shed almost 15 percent. U.S. markets face additional uncertainty after a ban on short-selling of financial stocks expired at midnight on Wednesday. Short-sellers bet on falling stock prices and had been blamed for driving share prices lower.
There was little sign the rate cuts had unlocked money markets.
Three-month borrowing on interbank markets remained expensive near this week's highs across all currencies, and lending beyond a week or two remained frozen, traders said.
The emergency rate cuts underlined the grim economic outlook.
The International Monetary Fund said the world was set for a major downturn in the face of the worst financial crisis since the Great Depression.
Japan was considering further measures to stimulate the world's second largest economy after a dive in machinery orders provided evidence that the financial crisis was driving it towards recession.
BOLSTERING BANKS
The crisis stems from the collapse of the U.S. housing market and the spiral of bad debts. Confidence in banks has evaporated, making them loath to lend to each other and it more expensive for business to get access to funds.
The New York Times, quoting unnamed government officials, said the Treasury was considering taking ownership stakes in many U.S. banks.
U.S. Treasury Secretary Henry Paulson, speaking to reporters, stressed that the recently approved $700 billion financial bailout bill gave him wide authority to inject capital into the banking system and would not rule out having Treasury take an ownership position in banks if necessary.
The bank recapitalisation plan, in its preliminary stages, has emerged as one of the preferred options being discussed in Washington and on Wall Street, the New York Times said.
The United States would be taking a leaf out of Britain's book. London said on Wednesday it was prepared to inject 50 billion pounds ($87 billion) of taxpayers' money into its banks and guarantee interbank lending. [ID:nL8586784]
Iceland, the country worst affected by the crisis, took control of the its biggest bank Kaupthing , the third such takeover in a week and suspended all trading in shares. (Additional reporting by Reuters global bureaus; Editing by Mike Peacock)
Read more...
U.S.futures point to Wall St rebounding
* Wall Street is set for a higher open, with futures in the Dow Jones DJc1, S&P 500 SPc1 and Nasdaq NDc1 up 1.7-3 percent at 1014 GMT.
* U.S. stocks fell for a sixth straight session on Wednesday, as a coordinated worldwide cut in interest rates failed to alleviate fears about a global recession.
* Short-selling will resume, with the SEC-imposed ban now expired.
* U.S. Treasury Secretary Henry Paulson said on Wednesday a recently approved financial bailout bill gives him wide authority to inject capital into the banking system and would not rule out the Treasury taking an ownership position in banks if necessary.
* Oil giant Chevron is expected to report third-quarter earnings per share rising to $3.24, from $1.94 a year earlier. Although oil prices have been falling since July, they were still substantially higher in the period than they were a year earlier. * Shares of IBM in Frankfurt rose 5 percent, with the U.S. shares having risen 2.7 percent to $93 in extended trade on Wednesday after the computer company announced preliminary results. For details see
* Payment processor TSYS TSS set to report earnings slipping to 34 cents a share, from 35 cents a share.
* Weekly jobless claims data due, with initial claims forecast to fall to 478,000, from 497,000.
* Wholesale inventories are forecast to have risen 0.5 percent in August, compared with a rise of 1.4 percent in July. (Reporting by Brian Gorman, editing by Will Waterman)
Read more...
* U.S. stocks fell for a sixth straight session on Wednesday, as a coordinated worldwide cut in interest rates failed to alleviate fears about a global recession.
* Short-selling will resume, with the SEC-imposed ban now expired.
* U.S. Treasury Secretary Henry Paulson said on Wednesday a recently approved financial bailout bill gives him wide authority to inject capital into the banking system and would not rule out the Treasury taking an ownership position in banks if necessary.
* Oil giant Chevron is expected to report third-quarter earnings per share rising to $3.24, from $1.94 a year earlier. Although oil prices have been falling since July, they were still substantially higher in the period than they were a year earlier. * Shares of IBM in Frankfurt rose 5 percent, with the U.S. shares having risen 2.7 percent to $93 in extended trade on Wednesday after the computer company announced preliminary results. For details see
* Payment processor TSYS TSS set to report earnings slipping to 34 cents a share, from 35 cents a share.
* Weekly jobless claims data due, with initial claims forecast to fall to 478,000, from 497,000.
* Wholesale inventories are forecast to have risen 0.5 percent in August, compared with a rise of 1.4 percent in July. (Reporting by Brian Gorman, editing by Will Waterman)
Read more...
GLOBAL MARKETS-Some calm returns after steep losses, rate cuts
By Jeremy Gaunt, European Investment Correspondent
LONDON, Oct 9 (Reuters) - Many stock markets rose strongly on Thursday and winners during the recent turmoil, such as the yen and gold, slipped as at least temporary calm returned to markets a day after coordinated global interest rate cuts.
European shares were 2.3 percent higher. Emerging market shares as measured by MSCI .MSCIEF were up 2.6 percent, primarily reflecting gains in Asia.
Demand for government bonds, gold and low-yielding currencies -- all recent beneficiaries of investors searching for relative safety -- fell.
The direction of the moves was the mirror of what happened on Wednesday and earlier in the week, but nowhere near matched the degree.
MSCI's main world stock index .MIWD00000PUS, for example, was up 1 percent. But it lost 3.9 percent on Wednesday, 3.0 percent on Tuesday and 6.1 percent on Monday.
Thursday's relative calm followed an unprecedented display of international coordination on Wednesday when the U.S. Federal Reserve and central banks from Europe, Canada and China executed emergency rate cuts in the face of amid plunging global equity markets and the worst financial crisis in some 80 years.
"Markets are not turning positive, they are recovering from heavy losses that we saw earlier this week. The sentiment has not really improved," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.
"The rate cuts are a good step in the right direction to stop the bleeding, but this won't be enough."
Echoing this, Japan's Nikkei .N225 closed down, finishing 0.5 percent lower in a choppy session and down for a sixth straight day for its lowest close since June 2003.
Wall Street also closed lower overnight, although early indications from stocks index futures suggested there would be gains on Thursday.
BACK FROM THE BRINK
Steadying stocks markets weakened demand for relatively safer assets.
Spot gold was down 2 percent at $888.75 an ounce having gained around 8.5 percent in the week to late Wednesday.
Japan's yen fell. The dollar rose 1.6 percent from late U.S. trade to 100.80 yen, rebounding from a six-month low of 98.60 yen hit on trading platform EBS on Wednesday.
The euro also recovered against the yen, up 2.3 percent at 138.32 yen, after falling to a three-year low of 134.15 yen on Wednesday.
"At least some kind of confidence has come back to the market and is supporting high-yielders and putting pressure on the yen, said Antje Praefcke, currency strategist at Commerzbank.
Euro zone government bond prices also fell.
Two-year Schatz yields were up 4 basis piints at 3.104 percent, while 10-year Bund yielded 3.878 percent, up 7 basis points. (Additional reporting by Jessica Mortimer and Blaise Robinson, editing by Mike Peacock)
Read more...
LONDON, Oct 9 (Reuters) - Many stock markets rose strongly on Thursday and winners during the recent turmoil, such as the yen and gold, slipped as at least temporary calm returned to markets a day after coordinated global interest rate cuts.
European shares were 2.3 percent higher. Emerging market shares as measured by MSCI .MSCIEF were up 2.6 percent, primarily reflecting gains in Asia.
Demand for government bonds, gold
The direction of the moves was the mirror of what happened on Wednesday and earlier in the week, but nowhere near matched the degree.
MSCI's main world stock index .MIWD00000PUS, for example, was up 1 percent. But it lost 3.9 percent on Wednesday, 3.0 percent on Tuesday and 6.1 percent on Monday.
Thursday's relative calm followed an unprecedented display of international coordination on Wednesday when the U.S. Federal Reserve and central banks from Europe, Canada and China executed emergency rate cuts in the face of amid plunging global equity markets and the worst financial crisis in some 80 years.
"Markets are not turning positive, they are recovering from heavy losses that we saw earlier this week. The sentiment has not really improved," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.
"The rate cuts are a good step in the right direction to stop the bleeding, but this won't be enough."
Echoing this, Japan's Nikkei .N225 closed down, finishing 0.5 percent lower in a choppy session and down for a sixth straight day for its lowest close since June 2003.
Wall Street also closed lower overnight, although early indications from stocks index futures suggested there would be gains on Thursday.
BACK FROM THE BRINK
Steadying stocks markets weakened demand for relatively safer assets.
Spot gold was down 2 percent at $888.75 an ounce having gained around 8.5 percent in the week to late Wednesday.
Japan's yen fell. The dollar rose 1.6 percent from late U.S. trade to 100.80 yen
The euro also recovered against the yen, up 2.3 percent at 138.32 yen
"At least some kind of confidence has come back to the market and is supporting high-yielders and putting pressure on the yen, said Antje Praefcke, currency strategist at Commerzbank.
Euro zone government bond prices also fell.
Two-year Schatz yields
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Iran inflation nears 30 percent in September - media
TEHRAN, Oct 9 (Reuters) - Iran's annual inflation rate jumped 1.8 percentage points in September to 29.4 percent, Iranian media said on Thursday, highlighting a growing source of discontent ahead of next year's presidential election.
Rising prices and the economic policies of President Mahmoud Ahmadinejad are likely to be major issues in the June 2009 election when Ahmadinejad is expected to run for a new four-year term as leader of the world's fourth-largest oil producer.
"Inflation on the verge of 30 percent," business daily Sarmayeh said in a front-page headline.
Consumer prices rose 3.9 percent in the Iranian month that ended on Sept. 21 from the previous month, pushing up the year-on-year rate to 29.4 percent from 27.6 percent, newspapers said, quoting central bank data.
Inflation has been steadily rising from about 11 percent since Ahmadinejad came to power in 2005 on a pledge to share out the Islamic Republic's oil wealth more fairly.
The ISNA news agency said some experts believed the latest price surge was in part due to the Muslim fasting month of Ramadan, when some foodstuffs usually become more expensive. Many Iranians invite guests for breaking the fast in the evenings during Ramadan.
Other countries in the Middle East, including Egypt and Saudi Arabia, also struggle with double-digit inflation rates.
Economists say Iranian inflation has been fuelled by heavy government spending of petrodollars.
The president has dismissed the criticism, saying rising prices are a global problem and that his government is tackling the issue. Earlier this week he said inflation was decreasing.
New Central Bank Governor Mahmoud Bahmani was last week quoted as saying he would inject $15 billion into the banking system to help boost industrial production, a move economists warned could further stoke price rises.
Analysts have said the previous governor, Tahmasb Mazaheri, was replaced in September because he was seeking to tighten credit, while the government was pushing for looser policy.
Iran, which is under U.N. and U.S. sanctions over its disputed nuclear programme, has been reaping windfall gains from its oil wealth in recent years.
But analysts say surging imports have made it more sensitive to any declines in the price of crude, which has tumbled about $60 a barrel from a peak of $147 in July.
The International Monetary Fund said on Wednesday the Middle East had dodged fallout from the global credit crunch but still had problems stemming from overheating domestic economies. (Reporting by Zahra Hosseinian; Writing by Fredrik Dahl; Editing by Ruth Pitchford)
Read more...
Rising prices and the economic policies of President Mahmoud Ahmadinejad are likely to be major issues in the June 2009 election when Ahmadinejad is expected to run for a new four-year term as leader of the world's fourth-largest oil producer.
"Inflation on the verge of 30 percent," business daily Sarmayeh said in a front-page headline.
Consumer prices rose 3.9 percent in the Iranian month that ended on Sept. 21 from the previous month, pushing up the year-on-year rate to 29.4 percent from 27.6 percent, newspapers said, quoting central bank data.
Inflation has been steadily rising from about 11 percent since Ahmadinejad came to power in 2005 on a pledge to share out the Islamic Republic's oil wealth more fairly.
The ISNA news agency said some experts believed the latest price surge was in part due to the Muslim fasting month of Ramadan, when some foodstuffs usually become more expensive. Many Iranians invite guests for breaking the fast in the evenings during Ramadan.
Other countries in the Middle East, including Egypt and Saudi Arabia, also struggle with double-digit inflation rates.
Economists say Iranian inflation has been fuelled by heavy government spending of petrodollars.
The president has dismissed the criticism, saying rising prices are a global problem and that his government is tackling the issue. Earlier this week he said inflation was decreasing.
New Central Bank Governor Mahmoud Bahmani was last week quoted as saying he would inject $15 billion into the banking system to help boost industrial production, a move economists warned could further stoke price rises.
Analysts have said the previous governor, Tahmasb Mazaheri, was replaced in September because he was seeking to tighten credit, while the government was pushing for looser policy.
Iran, which is under U.N. and U.S. sanctions over its disputed nuclear programme, has been reaping windfall gains from its oil wealth in recent years.
But analysts say surging imports have made it more sensitive to any declines in the price of crude, which has tumbled about $60 a barrel from a peak of $147 in July.
The International Monetary Fund said on Wednesday the Middle East had dodged fallout from the global credit crunch but still had problems stemming from overheating domestic economies. (Reporting by Zahra Hosseinian; Writing by Fredrik Dahl; Editing by Ruth Pitchford)
Read more...
Nikkei slips 0.5 pct in day of roller-coaster trade
*Nikkei at new 5-year closing low, wipes out earlier gains
*Expectations for new policies war with fears for economy
*Broader Topix index ends up 0.7 percent
*Retailers battered after Aeon loss, exporters gain (Adds details, stocks)
By Elaine Lies
TOKYO, Oct 9 (Reuters) - Japan's Nikkei stock average fell 0.5 percent on Thursday to its lowest close in more than 5 years amid volatile trade, with hopes for new policy steps to contain the financial crisis warring with concerns over the global economy.
The Nikkei failed to gain ground despite coordinated worldwide interest rate cuts on Wednesday, which came after it tumbled 9.4 percent in its biggest one-day loss since the 1987 stock market crash, with Tokyo shares shedding $250 billion of their value.
Retailers languished in the wake of gloomy results from Aeon Co , which fell more than 10 percent, but Canon Inc and other exporters managed to gain on short-covering and bargain hunting.
Shares briefly surged more than 2 percent after a New York Times report that the U.S. Treasury Department was considering taking stakes in many U.S. banks to address concerns that banks have about lending to one another and to other customers . The benchmark Nikkei .N225 fell 0.5 percent to its lowest close since June 2003, shedding 45.83 points to 9,157.49. The broader Topix finished up 0.7 percent at 905.11 after earlier rising more than 3 percent.
Many said the market could no longer rise on hope alone, with even the possible U.S. Treasury bank stake move doubtful given the fact that the administration of U.S. President George W. Bush has only a few more months left in office.
"There are a lot of expectations, but unless they're backed by concrete action, nothing positive will be expressed in the market," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
Others agreed. "Even if the authorities do manage to ease worry about the financial crisis and the crisis of confidence, worry about the economy will still remain and market attention will shift to that," said Nagayuki Yamagishi, strategist at Mitsubishi UFJ Securities.
RETAILERS RETREAT
Retailer stocks were battered after Aeon, Japan's second-largest retailer, booked a first-half net loss for the first time in three years after writing down the value of stores and other assets as it faces weak consumer spending and a slowing economy.
Aeon lost 10.5 percent to close at 850 yen, Fast Retailing dropped 7.3 percent to 9,560 yen, while Seven & I Holdings , Japan's largest retailer, fell 8.4 percent to 2,410 yen in a sign of growing consumer gloom.
After the market closed, Seven & I said its first-half operating profit rose 2.8 percent, lifted by strong growth in its convenience store business, and it stuck to its full-year outlook.
Fast Retailing, which operates the Uniqlo casual clothing chain, said its 2008/08 group operating profit had soared 34.7 percent.
"Stock prices are falling and I worry about our savings. Food prices are high and there are food safety worries," said Kyoko Okada, 38, mother of a 1-year-old child.
"Everything makes me feel bad," she added, although she said she was not holding back on spending yet.
Canon rose 4.1 percent to 3,330 yen and Kyocera Corp rose 2 percent to 6,530 yen, putting both among the top contributors to the Nikkei. Sony Corp rose 5.7 percent to 2,520 yen.
Sony said on Thursday it would launch PlayStation 3 game consoles with an 80 gigabyte hard disk drive, bigger than previous models, in Japan at the end of October for 39,980 yen ($398).
Trade was active on the Tokyo exchange's first section, with 2.9 billion shares, compared with last week's daily average of 2.1 billion. Advancing stocks beat declining ones, 980 to 656. (Additional reporting by Linda Sieg; Editing by Hugh Lawson)
Read more...
*Expectations for new policies war with fears for economy
*Broader Topix index ends up 0.7 percent
*Retailers battered after Aeon loss, exporters gain (Adds details, stocks)
By Elaine Lies
TOKYO, Oct 9 (Reuters) - Japan's Nikkei stock average fell 0.5 percent on Thursday to its lowest close in more than 5 years amid volatile trade, with hopes for new policy steps to contain the financial crisis warring with concerns over the global economy.
The Nikkei failed to gain ground despite coordinated worldwide interest rate cuts on Wednesday, which came after it tumbled 9.4 percent in its biggest one-day loss since the 1987 stock market crash, with Tokyo shares shedding $250 billion of their value.
Retailers languished in the wake of gloomy results from Aeon Co , which fell more than 10 percent, but Canon Inc and other exporters managed to gain on short-covering and bargain hunting.
Shares briefly surged more than 2 percent after a New York Times report that the U.S. Treasury Department was considering taking stakes in many U.S. banks to address concerns that banks have about lending to one another and to other customers . The benchmark Nikkei .N225 fell 0.5 percent to its lowest close since June 2003, shedding 45.83 points to 9,157.49. The broader Topix finished up 0.7 percent at 905.11 after earlier rising more than 3 percent.
Many said the market could no longer rise on hope alone, with even the possible U.S. Treasury bank stake move doubtful given the fact that the administration of U.S. President George W. Bush has only a few more months left in office.
"There are a lot of expectations, but unless they're backed by concrete action, nothing positive will be expressed in the market," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
Others agreed. "Even if the authorities do manage to ease worry about the financial crisis and the crisis of confidence, worry about the economy will still remain and market attention will shift to that," said Nagayuki Yamagishi, strategist at Mitsubishi UFJ Securities.
RETAILERS RETREAT
Retailer stocks were battered after Aeon, Japan's second-largest retailer, booked a first-half net loss for the first time in three years after writing down the value of stores and other assets as it faces weak consumer spending and a slowing economy.
Aeon lost 10.5 percent to close at 850 yen, Fast Retailing dropped 7.3 percent to 9,560 yen, while Seven & I Holdings , Japan's largest retailer, fell 8.4 percent to 2,410 yen in a sign of growing consumer gloom.
After the market closed, Seven & I said its first-half operating profit rose 2.8 percent, lifted by strong growth in its convenience store business, and it stuck to its full-year outlook.
Fast Retailing, which operates the Uniqlo casual clothing chain, said its 2008/08 group operating profit had soared 34.7 percent.
"Stock prices are falling and I worry about our savings. Food prices are high and there are food safety worries," said Kyoko Okada, 38, mother of a 1-year-old child.
"Everything makes me feel bad," she added, although she said she was not holding back on spending yet.
Canon rose 4.1 percent to 3,330 yen and Kyocera Corp rose 2 percent to 6,530 yen, putting both among the top contributors to the Nikkei. Sony Corp rose 5.7 percent to 2,520 yen.
Sony said on Thursday it would launch PlayStation 3 game consoles with an 80 gigabyte hard disk drive, bigger than previous models, in Japan at the end of October for 39,980 yen ($398).
Trade was active on the Tokyo exchange's first section, with 2.9 billion shares, compared with last week's daily average of 2.1 billion. Advancing stocks beat declining ones, 980 to 656. (Additional reporting by Linda Sieg; Editing by Hugh Lawson)
Read more...
Goverments guarantee Dexia to bolster rescue
By Antonia Van de Velde and Philip Blenkinsop
BRUSSELS, Oct 9 (Reuters) - France, Belgium and Luxembourg will guarantee new financing by Dexia in an attempt to bolster an earlier rescue bid and restore confidence in the banking group.
Belgian Prime Minister Yves Leterme said on Thursday after marathon talks on the bank's future that such a system of guarantees could also be provided to all of the country's banks under the same conditions.
France said that the Dexia measures were not required for French banks.
Dexia shares on Euronext rose 18 percent to 5.90 euros in early trade after the deal was announced, while the DJ STOXX European bank index was up just over 2 percent.
The overnight talks came after shares in the cross-border municipal lender and retail bank continued to dive despite an earlier 6.4 billion euro ($8.72 billion) rescue by the three governments and public bodies.
"This was fundamental to restoring confidence after a sharp drop in the share price," Dexia Chief Executive Pierre Mariani told a news conference of the new measures, which will last to Oct. 31 next year and could be extended by another year.
Dexia's situation is complicated by the fact that it is largely in the hands of public bodies, including Belgium's three regions and local authorities, who signed up for last week's capital injection at 9.90 euros per share.
A source close to the talks said Belgium would provide 60.5 percent of the guarantee, France 36.5 percent and Luxembourg 3 percent.
"It is a carefully considered risk," Leterme told the joint news conference, stressing that the package, while acknowledging some risk to state finances, did not necessarily bring a huge cost burden with it.
Asked if the model could be extended to France, Economy Minister Christine Lagarde said such measures were not needed.
No immediate solution was found for Dexia's loss-making U.S. bond insurance unit FSA.
"That's not something you can improvise on in one night or even two days. We can continue to work on it," said Dexia Chairman Jean-Luc Dehaene, a former Belgian premier.
But Mariani played down the risk of FSA's core activities, adding: "The activities are far from toxic. We have no particular concern on this."
Dexia had lost half of its market value in the last two weeks, including a 15.4 percent drop on Wednesday after credit rating agency Standard & Poor's downgraded Dexia's core entities on Tuesday for the second time in a week. It also said it may cut FSA's triple-A rating.
Leterme urged depositors on Tuesday not to withdraw funds from Dexia, vowing the government would stand by the bank.
"We will take responsibility, as we did in the case of Fortis (FOR.BR: Quote, Profile, Research, Stock Buzz). Above all, I have to say people should remain calm. There is absolutely no reason to withdraw deposits. Dexia is a healthy bank," the prime minister said.
Belgian Finance Minister Didier Reynders said Belgium was likely to raise its raise deposit guarantees to 100,000 euros ($135,900) from 20,000 euros now. (Reporting by Michele Sinner, Writing by Mark John and Paul Taylor; Editing by Erica Billingham)
Read more...
BRUSSELS, Oct 9 (Reuters) - France, Belgium and Luxembourg will guarantee new financing by Dexia in an attempt to bolster an earlier rescue bid and restore confidence in the banking group.
Belgian Prime Minister Yves Leterme said on Thursday after marathon talks on the bank's future that such a system of guarantees could also be provided to all of the country's banks under the same conditions.
France said that the Dexia measures were not required for French banks.
Dexia shares on Euronext rose 18 percent to 5.90 euros in early trade after the deal was announced, while the DJ STOXX European bank index was up just over 2 percent.
The overnight talks came after shares in the cross-border municipal lender and retail bank continued to dive despite an earlier 6.4 billion euro ($8.72 billion) rescue by the three governments and public bodies.
"This was fundamental to restoring confidence after a sharp drop in the share price," Dexia Chief Executive Pierre Mariani told a news conference of the new measures, which will last to Oct. 31 next year and could be extended by another year.
Dexia's situation is complicated by the fact that it is largely in the hands of public bodies, including Belgium's three regions and local authorities, who signed up for last week's capital injection at 9.90 euros per share.
A source close to the talks said Belgium would provide 60.5 percent of the guarantee, France 36.5 percent and Luxembourg 3 percent.
"It is a carefully considered risk," Leterme told the joint news conference, stressing that the package, while acknowledging some risk to state finances, did not necessarily bring a huge cost burden with it.
Asked if the model could be extended to France, Economy Minister Christine Lagarde said such measures were not needed.
No immediate solution was found for Dexia's loss-making U.S. bond insurance unit FSA.
"That's not something you can improvise on in one night or even two days. We can continue to work on it," said Dexia Chairman Jean-Luc Dehaene, a former Belgian premier.
But Mariani played down the risk of FSA's core activities, adding: "The activities are far from toxic. We have no particular concern on this."
Dexia had lost half of its market value in the last two weeks, including a 15.4 percent drop on Wednesday after credit rating agency Standard & Poor's downgraded Dexia's core entities on Tuesday for the second time in a week. It also said it may cut FSA's triple-A rating.
Leterme urged depositors on Tuesday not to withdraw funds from Dexia, vowing the government would stand by the bank.
"We will take responsibility, as we did in the case of Fortis (FOR.BR: Quote, Profile, Research, Stock Buzz). Above all, I have to say people should remain calm. There is absolutely no reason to withdraw deposits. Dexia is a healthy bank," the prime minister said.
Belgian Finance Minister Didier Reynders said Belgium was likely to raise its raise deposit guarantees to 100,000 euros ($135,900) from 20,000 euros now. (Reporting by Michele Sinner, Writing by Mark John and Paul Taylor; Editing by Erica Billingham)
Read more...
HK shares rebound amid coordinated rate cuts
* Thursday's rally follows 2-day, 13 percent slide
* China stocks surge after steep correction,interest rate cut
* Gold miners soar on climbing price of the metal
(Updates to mid-day)
By Parvathy Ullatil
HONG KONG, Oct 9 (Reuters) - Hong Kong shares rallied 2.7 percent on Wednesday, as stocks rebounded from a two-day, 13-percent slide, supported by a coordinated worldwide interest rate easing and a raft of market support measures from Beijing.
Chinese property stocks took off on Thursday after an 27 basis points interest rate cut.
China Overseas Land Investment gained 5.4 percent while Guangzhou R&F Properties advanced 3.9 percent.
Asia's largest refiner, Sinopec Corp , rose 5.9 percent amid an extended oil price pullback, while PetroChina , which also has refining operations, climbed 4.5 percent. China's refiners have been squeezed by the wide gap between international crude oil prices and regulated prices of refined products in China.
The benchmark Hang Seng Index .HSI ended the morning session up 409.69 points at 15,841.42 after climbing to 15,990.20 earlier.
"After the recent massive selloffs a rebound is likely and can be significant when applying the 9-11 scenario," said Ernie Hon, analyst with ICEA Securities.
The U.S. market bounced back 191.9 percent after plunging in reaction to the airliner attacks on New York in 2001 while Hong Kong markets climbed 32.6 percent in the same period, said Hon.
"The current low valuation of Hong Kong stocks, around 10 times 2008 price-to-earnings, also provides downside protection."
Mainboard turnover rose to HK$33.1 billion ($4.2 billion) from HK$34.8 billion at midday on Wednesday.
The China Enterprises Index .HSCE of top locally listed mainland Chinese companies was 3.8 percent higher at 7,735.94.
Shares in China Communication Services rebounded 19.8 percent from Wednesday's 32.5 percent slump on concerns over a reduced market for its telecom infrastructure services after the regulator's announcement on telecom operators' tower-sharing requirements.
Goldman Sachs added the stock to its conviction buy list, saying its recent share price collapse was due to misconceptions about its exposure to telecom tower construction.
Gold stocks rose as the precious metal defied declines in other commodity prices to gain as much as 10 percent this week as fears of global recession lifted its safe haven appeal.
Zijin Mining climbed 4.5 percent while Sino Gold rallied 13 percent.
Chinese banks rallied after a steep correction as analysts weighed in on the second rate cut in a month to say it would have a limited impact on margins at banks. China's central bank also reduced the reserve requirement at banks.
"We believe this policy mix will be modestly positive for China banks given the positive impact on macro economy growth and banks' asset quality, and limited negative impact on banks' net interest margins," said Goldman Sachs analysts in a report.
Top lender ICBC jumped 6.1 percent while China Construction Bank advanced 4.4 percent.
(Reporting by Parvathy Ullatil; Editing by Jonathan Hopfner)
Read more...
* China stocks surge after steep correction,interest rate cut
* Gold miners soar on climbing price of the metal
(Updates to mid-day)
By Parvathy Ullatil
HONG KONG, Oct 9 (Reuters) - Hong Kong shares rallied 2.7 percent on Wednesday, as stocks rebounded from a two-day, 13-percent slide, supported by a coordinated worldwide interest rate easing and a raft of market support measures from Beijing.
Chinese property stocks took off on Thursday after an 27 basis points interest rate cut.
China Overseas Land Investment gained 5.4 percent while Guangzhou R&F Properties advanced 3.9 percent.
Asia's largest refiner, Sinopec Corp , rose 5.9 percent amid an extended oil price pullback, while PetroChina , which also has refining operations, climbed 4.5 percent. China's refiners have been squeezed by the wide gap between international crude oil prices and regulated prices of refined products in China.
The benchmark Hang Seng Index .HSI ended the morning session up 409.69 points at 15,841.42 after climbing to 15,990.20 earlier.
"After the recent massive selloffs a rebound is likely and can be significant when applying the 9-11 scenario," said Ernie Hon, analyst with ICEA Securities.
The U.S. market bounced back 191.9 percent after plunging in reaction to the airliner attacks on New York in 2001 while Hong Kong markets climbed 32.6 percent in the same period, said Hon.
"The current low valuation of Hong Kong stocks, around 10 times 2008 price-to-earnings, also provides downside protection."
Mainboard turnover rose to HK$33.1 billion ($4.2 billion) from HK$34.8 billion at midday on Wednesday.
The China Enterprises Index .HSCE of top locally listed mainland Chinese companies was 3.8 percent higher at 7,735.94.
Shares in China Communication Services rebounded 19.8 percent from Wednesday's 32.5 percent slump on concerns over a reduced market for its telecom infrastructure services after the regulator's announcement on telecom operators' tower-sharing requirements.
Goldman Sachs added the stock to its conviction buy list, saying its recent share price collapse was due to misconceptions about its exposure to telecom tower construction.
Gold stocks rose as the precious metal defied declines in other commodity prices to gain as much as 10 percent this week as fears of global recession lifted its safe haven appeal.
Zijin Mining climbed 4.5 percent while Sino Gold rallied 13 percent.
Chinese banks rallied after a steep correction as analysts weighed in on the second rate cut in a month to say it would have a limited impact on margins at banks. China's central bank also reduced the reserve requirement at banks.
"We believe this policy mix will be modestly positive for China banks given the positive impact on macro economy growth and banks' asset quality, and limited negative impact on banks' net interest margins," said Goldman Sachs analysts in a report.
Top lender ICBC jumped 6.1 percent while China Construction Bank advanced 4.4 percent.
(Reporting by Parvathy Ullatil; Editing by Jonathan Hopfner)
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European stocks rebound in early trade; Dexia soars
PARIS, Oct 9 (Reuters) - European stocks rose in early trade on Thursday, recovering from steep losses in the previous session as efforts by governments and central banks to thaw credit markets helped calm jittery investors.
Dexia jumped 20 percent after France, Belgium and Luxembourg announced they had agreed to provide state guarantees for efforts by the troubled financial group to borrow money.
At 0717 GMT, the FTSEurofirst 300 index of top European shares was up 1.45 percent at 954.43 points.
Banks were the top gainers, with Royal Bank of Scotland and Anglo Irish Bank both up 17 percent and UBS up 5 percent.
South Korea and Taiwan followed the U.S. Federal Reserve and central banks from Europe, Canada and China in cutting interest rates on Thursday, in an effort to ease the financial crisis.
"Markets are not turning positive, they are recovering from heavy losses that we saw earlier this week. The sentiment has not really improved," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.
"The rate cuts are a good step in the right direction to stop the bleeding, but this won't be enough. European governments have to act swiftly and decisively together."
European shares tumbled to a near 5-year closing low on Wednesday after highly volatile trade, shrugging off the coordinated rate cuts by the central banks as credit market and economic growth worries persisted. (Reporting by Blaise Robinson)
Read more...
Dexia jumped 20 percent after France, Belgium and Luxembourg announced they had agreed to provide state guarantees for efforts by the troubled financial group to borrow money.
At 0717 GMT, the FTSEurofirst 300 index of top European shares was up 1.45 percent at 954.43 points.
Banks were the top gainers, with Royal Bank of Scotland and Anglo Irish Bank both up 17 percent and UBS up 5 percent.
South Korea and Taiwan followed the U.S. Federal Reserve and central banks from Europe, Canada and China in cutting interest rates on Thursday, in an effort to ease the financial crisis.
"Markets are not turning positive, they are recovering from heavy losses that we saw earlier this week. The sentiment has not really improved," said Rik Zwaneveld, trader at AFS Brokers, in Amsterdam.
"The rate cuts are a good step in the right direction to stop the bleeding, but this won't be enough. European governments have to act swiftly and decisively together."
European shares tumbled to a near 5-year closing low on Wednesday after highly volatile trade, shrugging off the coordinated rate cuts by the central banks as credit market and economic growth worries persisted. (Reporting by Blaise Robinson)
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Kawamura Says Japan May Help South Korea Prop Up Won
By Takashi Hirokawa and Sachiko Sakamaki
Oct. 9 (Bloomberg) -- Japan may help South Korea prop up the won after it tumbled against the yen, threatening to hurt Sony Corp. and other exporters that compete with Korean companies.
Japan's Chief Cabinet Secretary Takeo Kawamura said in Tokyo today the topic of what Japan can do to help South Korea ``will be discussed'' in the future. Japan will decide on a summit meeting with China and South Korea on financial crisis after next week's Group of Seven meeting in Washington, he said.
South Korea's President Lee Myung Bak last week called on Japan and China to discuss a response to the credit crisis that caused the won to slump 39 percent against the yen this year. South Korean officials have suggested fast tracking an agreement hammered out at the Asian Development Bank in May to create an $80 billion fund to help shield the region's currencies against speculative attacks.
``Japan may help won through a swaps agreement to provide dollars,'' said Tomoko Fujii, Tokyo-based head of economics and strategy at Bank of America Corp. ``Many Japanese companies are doing business there.''
Japan, South Korea and China discussed creating a pool of $80 billion in Asian foreign-exchange reserves to be tapped by nations in case they need to protect currencies at a meeting of the ADB in Madrid in May. The three nations would provide about 80 percent of the pool, with the 10 members of the Association of Southeast Asian nations making up the rest.
The contributions haven't been decided, Shin Je Yoon, South Korea's deputy finance minister in charge of currency and international affairs, said Oct. 5.
``The financial crisis that started in the U.S. is spreading, and international cooperation is a big agenda item,'' Kawamura said. ``Japan-South Korea relations are important, and that will be discussed in the future.''
South Korea's won rose to 7.274 versus the yen at 1:38 p.m. in Seoul from 7.126 late yesterday, the lowest in more than a decade. A lower won makes South Korea exports more competitive versus their Japanese rivals.
To contact the reporter on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net
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Oct. 9 (Bloomberg) -- Japan may help South Korea prop up the won after it tumbled against the yen, threatening to hurt Sony Corp. and other exporters that compete with Korean companies.
Japan's Chief Cabinet Secretary Takeo Kawamura said in Tokyo today the topic of what Japan can do to help South Korea ``will be discussed'' in the future. Japan will decide on a summit meeting with China and South Korea on financial crisis after next week's Group of Seven meeting in Washington, he said.
South Korea's President Lee Myung Bak last week called on Japan and China to discuss a response to the credit crisis that caused the won to slump 39 percent against the yen this year. South Korean officials have suggested fast tracking an agreement hammered out at the Asian Development Bank in May to create an $80 billion fund to help shield the region's currencies against speculative attacks.
``Japan may help won through a swaps agreement to provide dollars,'' said Tomoko Fujii, Tokyo-based head of economics and strategy at Bank of America Corp. ``Many Japanese companies are doing business there.''
Japan, South Korea and China discussed creating a pool of $80 billion in Asian foreign-exchange reserves to be tapped by nations in case they need to protect currencies at a meeting of the ADB in Madrid in May. The three nations would provide about 80 percent of the pool, with the 10 members of the Association of Southeast Asian nations making up the rest.
The contributions haven't been decided, Shin Je Yoon, South Korea's deputy finance minister in charge of currency and international affairs, said Oct. 5.
``The financial crisis that started in the U.S. is spreading, and international cooperation is a big agenda item,'' Kawamura said. ``Japan-South Korea relations are important, and that will be discussed in the future.''
South Korea's won rose to 7.274 versus the yen at 1:38 p.m. in Seoul from 7.126 late yesterday, the lowest in more than a decade. A lower won makes South Korea exports more competitive versus their Japanese rivals.
To contact the reporter on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net
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Singapore Probably Neared a Recession Last Quarter
By Shamim Adam
Oct. 9 (Bloomberg) -- Singapore's economy probably teetered near a recession in the third quarter as slowing growth in its biggest markets hurt exports and a global credit crisis threatened financial services.
Gross domestic product expanded an annualized 0.3 percent from the second quarter, after shrinking 6 percent in the previous three months, according to the median estimate of 11 economists in a Bloomberg survey. Four of the economists expect a second quarter of contraction, marking a recession. The government will release the data at 8 a.m. tomorrow.
Asia's economies face a deepening slowdown as exports weaken amid the escalating global credit crunch that's toppled banks in the U.S. and Europe. That may prompt Singapore's central bank to favor slower gains in the currency in its exchange-rate review tomorrow, joining South Korea, Taiwan, Hong Kong and China, which eased policy by cutting interest rates this week.
``In a synchronized slowdown in all the major markets, it is inevitable for Singapore to experience slower growth or rather weak growth for a rather prolonged period,'' said Alvin Liew, an economist at Standard Chartered Plc in Singapore. ``The easing policy would provide some reprieve for export-oriented sectors.''
Singapore will revise its 2008 economic growth forecast tomorrow, Finance Minister Tharman Shanmugaratnam said in Dubai yesterday. The government in August cut the forecast for a second time this year to between 4 percent and 5 percent as exports fell and tourist arrivals eased.
Rate Cuts
The $161 billion economy probably expanded 0.8 percent from a year earlier last quarter, the slowest pace in five years, a separate survey showed.
Singapore is one of the first countries in Asia to release third-quarter figures, and its weaker expansion may herald a slowdown throughout the region as consumer confidence deteriorates, banks extend fewer loans and companies cut spending and hiring.
Asia Pacific countries had started to cut interest rates as policy makers shifted their focus to supporting growth from fighting inflation, even before yesterday's coordinated rate reductions by global central banks to limit the economic impact of the worst financial crisis since the Great Depression.
The Reserve Bank of Australia this week lowered its key interest rate by one percentage point, the most since a recession in 1992, citing growing evidence of a ``significant moderation in growth in Australia's trading partners in Asia.''
The People's Bank of China last month lowered the one-year lending rate for the first time in six years. It pared its one- year lending and deposit rates by 0.27 percentage point within minutes of rate cuts by the U.S. Federal Reserve and five other central banks yesterday.
Global Recession
``We've ratcheted down another notch as far as the weakening in global economic activity goes,'' said David Cohen, an economist at Action Economics in Singapore. ``It looks like it'll be pretty hard to avoid a global recession.''
Global stocks tumbled this week before central banks in the U.S., Europe and Asia started their concerted interest-rate cuts late yesterday, on concern more banks will fail as the credit crisis deepens and pushes the global economy into recession.
Japan's Nikkei 225 Stock Average yesterday had its biggest drop since October 1987, and stock exchanges in Russia and Indonesia halted trading after their benchmark indexes tumbled more than 10 percent.
``The global economy is entering a major downturn,'' the International Monetary Fund said in a staff report dated Oct. 4. ``Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.''
Exports, Services
Singapore's government expects exports to decline this year, and the island's shipments of electronics goods have fallen for 19 consecutive months. Manufacturing, which accounts for a quarter of the economy, contracted in July and August. Services growth slowed in the second quarter.
Slower gains in the Singapore dollar may help exporters by keeping prices of the island's goods competitive. The Monetary Authority of Singapore in April allowed a faster appreciation in the currency to cool inflation at a 26-year high.
The following table gives forecasts for the percentage change in gross domestic product from a year earlier and the annualized, seasonally adjusted change from the previous quarter.
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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Oct. 9 (Bloomberg) -- Singapore's economy probably teetered near a recession in the third quarter as slowing growth in its biggest markets hurt exports and a global credit crisis threatened financial services.
Gross domestic product expanded an annualized 0.3 percent from the second quarter, after shrinking 6 percent in the previous three months, according to the median estimate of 11 economists in a Bloomberg survey. Four of the economists expect a second quarter of contraction, marking a recession. The government will release the data at 8 a.m. tomorrow.
Asia's economies face a deepening slowdown as exports weaken amid the escalating global credit crunch that's toppled banks in the U.S. and Europe. That may prompt Singapore's central bank to favor slower gains in the currency in its exchange-rate review tomorrow, joining South Korea, Taiwan, Hong Kong and China, which eased policy by cutting interest rates this week.
``In a synchronized slowdown in all the major markets, it is inevitable for Singapore to experience slower growth or rather weak growth for a rather prolonged period,'' said Alvin Liew, an economist at Standard Chartered Plc in Singapore. ``The easing policy would provide some reprieve for export-oriented sectors.''
Singapore will revise its 2008 economic growth forecast tomorrow, Finance Minister Tharman Shanmugaratnam said in Dubai yesterday. The government in August cut the forecast for a second time this year to between 4 percent and 5 percent as exports fell and tourist arrivals eased.
Rate Cuts
The $161 billion economy probably expanded 0.8 percent from a year earlier last quarter, the slowest pace in five years, a separate survey showed.
Singapore is one of the first countries in Asia to release third-quarter figures, and its weaker expansion may herald a slowdown throughout the region as consumer confidence deteriorates, banks extend fewer loans and companies cut spending and hiring.
Asia Pacific countries had started to cut interest rates as policy makers shifted their focus to supporting growth from fighting inflation, even before yesterday's coordinated rate reductions by global central banks to limit the economic impact of the worst financial crisis since the Great Depression.
The Reserve Bank of Australia this week lowered its key interest rate by one percentage point, the most since a recession in 1992, citing growing evidence of a ``significant moderation in growth in Australia's trading partners in Asia.''
The People's Bank of China last month lowered the one-year lending rate for the first time in six years. It pared its one- year lending and deposit rates by 0.27 percentage point within minutes of rate cuts by the U.S. Federal Reserve and five other central banks yesterday.
Global Recession
``We've ratcheted down another notch as far as the weakening in global economic activity goes,'' said David Cohen, an economist at Action Economics in Singapore. ``It looks like it'll be pretty hard to avoid a global recession.''
Global stocks tumbled this week before central banks in the U.S., Europe and Asia started their concerted interest-rate cuts late yesterday, on concern more banks will fail as the credit crisis deepens and pushes the global economy into recession.
Japan's Nikkei 225 Stock Average yesterday had its biggest drop since October 1987, and stock exchanges in Russia and Indonesia halted trading after their benchmark indexes tumbled more than 10 percent.
``The global economy is entering a major downturn,'' the International Monetary Fund said in a staff report dated Oct. 4. ``Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.''
Exports, Services
Singapore's government expects exports to decline this year, and the island's shipments of electronics goods have fallen for 19 consecutive months. Manufacturing, which accounts for a quarter of the economy, contracted in July and August. Services growth slowed in the second quarter.
Slower gains in the Singapore dollar may help exporters by keeping prices of the island's goods competitive. The Monetary Authority of Singapore in April allowed a faster appreciation in the currency to cool inflation at a 26-year high.
The following table gives forecasts for the percentage change in gross domestic product from a year earlier and the annualized, seasonally adjusted change from the previous quarter.
------------------------------------------
GDP GDP
Firm YoY QoQ saar
------------------------------------------
Median 0.8% 0.3%
Average 0.9% -0.3%
High 2.7% 6.2%
Low -1.0% -7.4%
Number of Estimates 13 11
------------------------------------------
Barclays Capital 0.5% 0.8%
CIMB-GK Research -0.6% -6.0%
Citi -1.0% -7.4%
DBS Bank 0.8% -0.4%
Forecast Ltd. 2.6% 6.2%
HSBC Singapore 1.4% 2.0%
Ideaglobal 0.7% 0.3%
ING Groep NV 1.0% 0.2%
JPMorgan Chase 1.4% 0.5%
Morgan Stanley 0.5% --
Nomura Singapore 2.7% --
OCBC Bank 1.9% 3.0%
Standard Chartered 0.4% -2.0%
------------------------------------------
To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net
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Bernanke, Paulson Seek Global Help as Crisis Rebuffs U.S. Steps
By Rich Miller and Simon Kennedy
Oct. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are discovering both the leeway and limits they have as policy makers as they struggle to combat the 14-month-old credit crisis.
The two have worked to come up with novel strategies, including a complex plan for the Fed to backstop the everyday finances of corporate America by buying commercial paper, and potential injections of capital into banks. So far, they've made scant progress in restoring calm to the markets and are turning abroad for help, including joint interest-rate cuts yesterday.
``The relative position of the U.S. in the world economy and the world of finance is much lower than it used to be,'' said Allen Sinai, chief economist at Decision Economics in New York. ``With markets so global, so interconnected, we need a more unified approach to fighting the world financial crisis.''
Which proves more important in the end -- the continued creativity of Bernanke and Paulson in fashioning policies to tackle the turmoil or the intractability of the now global crisis facing them -- will go a long way in determining whether a developing global recession turns into something even worse.
``It is clearly too late for responses to avoid the slowdown, but they can be used to head off the risk of even more dire outcomes,'' Olivier Blanchard, chief economist of the International Monetary Fund, told reporters yesterday. The fund is projecting a ``major downturn'' in the world economy in 2009.
Worldwide Cuts
Along with the Fed's half-point reduction in its benchmark rate, central banks from the European Central Bank to the People's Bank of China lowered borrowing costs yesterday.
The coordinated rate cuts may presage a period in which foreign central bankers and finance ministers take up more of the burden of combating a crisis that Bernanke and Paulson are finding hard to contain on their own.
Policy makers from the Group of Seven industrial nations -- Britain, Canada, France, Germany, Italy, Japan and the U.S. -- meet tomorrow, and how to handle the turmoil is at the top of their agenda.
``The G-7 governments are going to try all kinds of measures to try to get cross-border flows going to unleash locked-up credit markets,'' said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington.
Likely steps include further rate reductions in coming weeks and using taxpayer money to replenish capital at loss- ridden banks, with some chance of extending guarantees to loans between them. One focus, according to Posen: attempting to find a way to get money moving from countries with record trade surpluses and currency reserves to countries where credit is scarce.
`Keep Hitting'
``We should not underestimate the joint power of fully committed global policy makers -- markets will take notice and turn around,'' said Marco Annunziata, chief economist at Unicredit MIB in London. ``Policy makers must keep hitting the markets with decisive measures in the coming days.''
U.S. action so far is unprecedented in scale since the Great Depression. In the past five weeks alone, the government has taken over mortgage-finance firms Fannie Mae and Freddie Mac, rescued insurer American International Group Inc., backed the deposits of money-market funds and authorized a $700 billion bank rescue program.
In putting together those measures, policy makers stretched the limits of what they can do under the law. The Fed has repeatedly invoked emergency powers only available to it at times of ``unusual and exigent circumstances'' to extend credit of up to $123.8 billion to AIG and set up its commercial-paper program.
`All' Tools
And U.S. policy makers aren't finished yet. Paulson yesterday signaled he's considering pumping capital into U.S. financial institutions, saying ``we will use all of the tools we've been given to maximum effectiveness'' under the $700 billion Troubled Asset Relief Program.
Barclays Capital Inc., Macroeconomic Advisers LLC and other forecasters predict the Fed will cut rates by another half-point this month to 1 percent. That would match the lowest level in five decades.
``Policy makers want to get as much stimulus into the system as soon as possible,'' said Brian Sack, a former Fed economist now at Macroeconomic Advisers in Washington.
Yet for all these efforts, investors remain unnerved and financial markets are in turmoil. U.S. stock indexes fell for a sixth day yesterday, plummeting 16 percent in that period.
Fear Grips Markets
Behind the panic: fear that Bernanke and Paulson have yet to get ahead of a problem that's now morphed from a U.S. housing recession into a global financial meltdown.
To finally beat the crisis, policy makers outside the U.S. may have to show the same flexibility as their U.S. counterparts. The markets were unnerved earlier this week after a summit of European leaders concluded without a comprehensive, cross-border remedy for their banks' deepening woes, forcing countries to go it alone.
The U.K. yesterday granted Britain's banks an unprecedented 50-billion-pound ($86 billion) lifeline and emergency loans from the central bank.
``It's going to take a while to work through this problem,'' Paulson said yesterday. ``Some financial institutions will fail'' even after the U.S. actions, he said.
To contact the reporters on this story: Rich Miller in Washington o rmiller28@bloomberg.net; Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are discovering both the leeway and limits they have as policy makers as they struggle to combat the 14-month-old credit crisis.
The two have worked to come up with novel strategies, including a complex plan for the Fed to backstop the everyday finances of corporate America by buying commercial paper, and potential injections of capital into banks. So far, they've made scant progress in restoring calm to the markets and are turning abroad for help, including joint interest-rate cuts yesterday.
``The relative position of the U.S. in the world economy and the world of finance is much lower than it used to be,'' said Allen Sinai, chief economist at Decision Economics in New York. ``With markets so global, so interconnected, we need a more unified approach to fighting the world financial crisis.''
Which proves more important in the end -- the continued creativity of Bernanke and Paulson in fashioning policies to tackle the turmoil or the intractability of the now global crisis facing them -- will go a long way in determining whether a developing global recession turns into something even worse.
``It is clearly too late for responses to avoid the slowdown, but they can be used to head off the risk of even more dire outcomes,'' Olivier Blanchard, chief economist of the International Monetary Fund, told reporters yesterday. The fund is projecting a ``major downturn'' in the world economy in 2009.
Worldwide Cuts
Along with the Fed's half-point reduction in its benchmark rate, central banks from the European Central Bank to the People's Bank of China lowered borrowing costs yesterday.
The coordinated rate cuts may presage a period in which foreign central bankers and finance ministers take up more of the burden of combating a crisis that Bernanke and Paulson are finding hard to contain on their own.
Policy makers from the Group of Seven industrial nations -- Britain, Canada, France, Germany, Italy, Japan and the U.S. -- meet tomorrow, and how to handle the turmoil is at the top of their agenda.
``The G-7 governments are going to try all kinds of measures to try to get cross-border flows going to unleash locked-up credit markets,'' said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington.
Likely steps include further rate reductions in coming weeks and using taxpayer money to replenish capital at loss- ridden banks, with some chance of extending guarantees to loans between them. One focus, according to Posen: attempting to find a way to get money moving from countries with record trade surpluses and currency reserves to countries where credit is scarce.
`Keep Hitting'
``We should not underestimate the joint power of fully committed global policy makers -- markets will take notice and turn around,'' said Marco Annunziata, chief economist at Unicredit MIB in London. ``Policy makers must keep hitting the markets with decisive measures in the coming days.''
U.S. action so far is unprecedented in scale since the Great Depression. In the past five weeks alone, the government has taken over mortgage-finance firms Fannie Mae and Freddie Mac, rescued insurer American International Group Inc., backed the deposits of money-market funds and authorized a $700 billion bank rescue program.
In putting together those measures, policy makers stretched the limits of what they can do under the law. The Fed has repeatedly invoked emergency powers only available to it at times of ``unusual and exigent circumstances'' to extend credit of up to $123.8 billion to AIG and set up its commercial-paper program.
`All' Tools
And U.S. policy makers aren't finished yet. Paulson yesterday signaled he's considering pumping capital into U.S. financial institutions, saying ``we will use all of the tools we've been given to maximum effectiveness'' under the $700 billion Troubled Asset Relief Program.
Barclays Capital Inc., Macroeconomic Advisers LLC and other forecasters predict the Fed will cut rates by another half-point this month to 1 percent. That would match the lowest level in five decades.
``Policy makers want to get as much stimulus into the system as soon as possible,'' said Brian Sack, a former Fed economist now at Macroeconomic Advisers in Washington.
Yet for all these efforts, investors remain unnerved and financial markets are in turmoil. U.S. stock indexes fell for a sixth day yesterday, plummeting 16 percent in that period.
Fear Grips Markets
Behind the panic: fear that Bernanke and Paulson have yet to get ahead of a problem that's now morphed from a U.S. housing recession into a global financial meltdown.
To finally beat the crisis, policy makers outside the U.S. may have to show the same flexibility as their U.S. counterparts. The markets were unnerved earlier this week after a summit of European leaders concluded without a comprehensive, cross-border remedy for their banks' deepening woes, forcing countries to go it alone.
The U.K. yesterday granted Britain's banks an unprecedented 50-billion-pound ($86 billion) lifeline and emergency loans from the central bank.
``It's going to take a while to work through this problem,'' Paulson said yesterday. ``Some financial institutions will fail'' even after the U.S. actions, he said.
To contact the reporters on this story: Rich Miller in Washington o rmiller28@bloomberg.net; Simon Kennedy in Washington at skennedy4@bloomberg.net
Read more...
Paulson Signals U.S. May Invest in Banks to Shore Up Confidence
By Rebecca Christie and Simon Kennedy
Oct. 9 (Bloomberg) -- Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.
Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks' balance sheets. He indicated that an option available may be boosting companies' capital with cash infusions.
``It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,'' Paulson said. ``We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.''
Banks worldwide aren't raising enough capital to offset losses: while posting $592 billion of writedowns and losses during the crisis, they have added just $442.5 billion of new capital, according to data compiled by Bloomberg. The International Monetary Fund anticipates losses will more than double to $1.4 trillion.
Paulson spoke two days before officials from the Group of Seven industrial nations gather in Washington for their first meeting since the financial meltdown accelerated last month. Hours earlier, the Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the credit freeze.
G-7 Efforts
Paulson didn't rule out new programs following the meeting, while noting that it might ``not make sense to have identical policies'' because each countries' circumstances are different. U.K. Prime Minister Gordon Brown has suggested authorities act to guarantee lending in the interbank market. Brown also opted yesterday to spend 50 billion pounds ($87 billion) to partly nationalize at least eight British banks.
Paulson stressed the U.S. rescue plan won't save all firms.
``One thing we must recognize -- even with the new Treasury authorities, some financial institutions will fail,'' Paulson said. Instead, regulators will take measures to limit the systemic risk from any single bank failure, he said.
President George W. Bush's working group on financial markets, which is headed by Paulson and includes the Fed, Securities and Exchange Commission and Commodity Futures Trading Commission, said Oct. 6 the Treasury will move quickly to implement the financial bailout. The plan also allows for guarantees.
Paulson's Powers
The law, approved by Congress Oct. 3, gives the government power to buy assets, provide guarantees and ``address capital raising,'' the working group said.
Beyond the G-7 talks, Treasury Undersecretary David McCormick said this weekend would feature a ``special meeting'' of finance officials from the Group of 20, which combines developed and emerging economies. ``We're reflecting a reality of the global economy,'' he said of the talks.
President Bush signed into law on Oct. 3 a measure that gives Paulson the authority to purchase as much as $700 billion in mortgage-related assets and other securities from financial institutions saddled with illiquid debt.
Since then, the Standard & Poor's 500 Index has dropped about 10 percent and credit markets have tightened further.
``Patience is also needed because the turmoil will not end quickly and significant challenges remain ahead,'' Paulson said. ``Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties.''
Asset Managers
The Treasury this week is recruiting asset managers and other staff to carry out the rescue plan, which will be administered by a newly formed Office of Financial Stability in the Treasury's headquarters in Washington. Pacific Investment Management Co. and BlackRock Inc. submitted bids to manage troubled mortgage-backed assets as part of the program, people familiar with the matter said.
The global economy is headed for a ``major downturn,'' the IMF said in its World Economic Outlook released yesterday.
Global growth is projected at 3 percent next year, down from 3.9 percent this year, the IMF said. In April, the IMF predicted a 25 percent chance of worldwide growth at or below 3 percent, which it said was ``equivalent to a global recession.''
``The turmoil is a global phenomenon,'' McCormick said in a statement. ``We are all affected by it, and strengthened international collaboration is needed now more than ever to find collective solutions to achieve stable and efficient financial markets and restore health to the world economy.''
To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.
Read more...
Oct. 9 (Bloomberg) -- Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the deepening credit crisis.
Paulson told reporters in Washington yesterday that legislation Congress passed last week to rescue financial institutions gave him broad authority that he intends to use, beyond just buying mortgage-related assets on banks' balance sheets. He indicated that an option available may be boosting companies' capital with cash infusions.
``It is the policy of the federal government to use all resources at its disposal to make our financial system stronger,'' Paulson said. ``We will use all of the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size.''
Banks worldwide aren't raising enough capital to offset losses: while posting $592 billion of writedowns and losses during the crisis, they have added just $442.5 billion of new capital, according to data compiled by Bloomberg. The International Monetary Fund anticipates losses will more than double to $1.4 trillion.
Paulson spoke two days before officials from the Group of Seven industrial nations gather in Washington for their first meeting since the financial meltdown accelerated last month. Hours earlier, the Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the credit freeze.
G-7 Efforts
Paulson didn't rule out new programs following the meeting, while noting that it might ``not make sense to have identical policies'' because each countries' circumstances are different. U.K. Prime Minister Gordon Brown has suggested authorities act to guarantee lending in the interbank market. Brown also opted yesterday to spend 50 billion pounds ($87 billion) to partly nationalize at least eight British banks.
Paulson stressed the U.S. rescue plan won't save all firms.
``One thing we must recognize -- even with the new Treasury authorities, some financial institutions will fail,'' Paulson said. Instead, regulators will take measures to limit the systemic risk from any single bank failure, he said.
President George W. Bush's working group on financial markets, which is headed by Paulson and includes the Fed, Securities and Exchange Commission and Commodity Futures Trading Commission, said Oct. 6 the Treasury will move quickly to implement the financial bailout. The plan also allows for guarantees.
Paulson's Powers
The law, approved by Congress Oct. 3, gives the government power to buy assets, provide guarantees and ``address capital raising,'' the working group said.
Beyond the G-7 talks, Treasury Undersecretary David McCormick said this weekend would feature a ``special meeting'' of finance officials from the Group of 20, which combines developed and emerging economies. ``We're reflecting a reality of the global economy,'' he said of the talks.
President Bush signed into law on Oct. 3 a measure that gives Paulson the authority to purchase as much as $700 billion in mortgage-related assets and other securities from financial institutions saddled with illiquid debt.
Since then, the Standard & Poor's 500 Index has dropped about 10 percent and credit markets have tightened further.
``Patience is also needed because the turmoil will not end quickly and significant challenges remain ahead,'' Paulson said. ``Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties.''
Asset Managers
The Treasury this week is recruiting asset managers and other staff to carry out the rescue plan, which will be administered by a newly formed Office of Financial Stability in the Treasury's headquarters in Washington. Pacific Investment Management Co. and BlackRock Inc. submitted bids to manage troubled mortgage-backed assets as part of the program, people familiar with the matter said.
The global economy is headed for a ``major downturn,'' the IMF said in its World Economic Outlook released yesterday.
Global growth is projected at 3 percent next year, down from 3.9 percent this year, the IMF said. In April, the IMF predicted a 25 percent chance of worldwide growth at or below 3 percent, which it said was ``equivalent to a global recession.''
``The turmoil is a global phenomenon,'' McCormick said in a statement. ``We are all affected by it, and strengthened international collaboration is needed now more than ever to find collective solutions to achieve stable and efficient financial markets and restore health to the world economy.''
To contact the reporters on this story: Simon Kennedy in Washington at skennedy4@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.
Read more...
Bernanke's Push for Global Cut Began With Trichet, King Talks
By Scott Lanman
Oct. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke's push for the broadest coordinated interest-rate cut in history started with a weekend of telephone conversations with Jean-Claude Trichet and Mervyn King.
Calling from his Washington office on Oct. 4 and Oct. 5, Bernanke broached the idea with Trichet, the European Central Bank president, and King, the Bank of England governor. The talks culminated Oct. 7 in a conference call where they privately hammered out details of the unprecedented move. Also on the line were central bank chiefs in Canada and Japan.
Twenty-four hours later, the plan came to fruition when policy makers announced half-point reductions aimed at easing the financial crisis. Bernanke's work behind the scenes over those four days illustrates that the ties he's forged with counterparts abroad are helping decisions keep pace with changing economic fortunes.
``It's less difficult than it might seem because there's such continuous communication going on,'' said former Fed Governor Laurence Meyer, who served at the central bank from 1996 to 2002. ``It wasn't something that a snap judgment had to be made about.''
Hours after Bernanke gave a speech Oct. 7 signaling rates may need to go lower, Fed governors, regional-bank presidents and their top advisers gathered in their videoconference rooms across the country at 5:30 p.m. New York time for an emergency meeting.
Ninety minutes earlier, the Dow Jones Industrial Average had ended down 5.1 percent for the day, the fifth straight day of losses.
Plosser Traveling
Some Fed officials found themselves out of their usual zones: Philadelphia Fed President Charles Plosser, who was in New York for a speech the next morning, sat in on the 12th floor of the New York Fed's offices with its President Timothy Geithner and other officials.
First, William Dudley, the New York Fed's executive vice president for markets, briefed officials, followed by Fed Board staffers with an updated economic forecast. Bernanke then skipped the usual roundtable discussion on regional economies and moved straight to discussion of the proposed joint move.
The Federal Open Market Committee vote was unanimous.
Yesterday's move represents closer coordination among central banks than the rate cut in the aftermath of the 2001 terrorist attacks, when a half-point reduction by the Fed was later followed by the ECB, Canada, Switzerland and Sweden.
`Intimate' Cooperation
Then-Chairman Alan Greenspan said during the conference call for the September 2001 emergency rate cut that the other central bankers he spoke with were ``acutely sensitive to what we are going to be doing today, tomorrow, and the next day.''
Yesterday, it was the Fed, the ECB, the Bank of England, Bank of Canada and Sweden's Riksbank reducing their benchmark rates by half a percentage point. The Bank of Japan supported the action, Switzerland also took part and China's central bank separately cut its key rate 0.27 percentage point.
After the announcement, Trichet said it was important the world understand that central banks will act in unison. ``It was appropriate to give a very powerful signal of confidence and of intimate cooperation,'' Trichet said in a Bloomberg Television interview.
Not all central bankers have been keen to cut rates in recent months. Until last week the ECB had been focused on returning inflation below its 2 percent limit with Trichet arguing as recently as mid-September that his economy was in a temporary ``trough.''
That view began to soften when European banks such as Fortis started to get engulfed in the crisis, requiring government help. Trichet shifted gears on Oct. 2 by saying policy makers had begun to consider cutting interest rates. He also hinted the bank was open to acting even before its governing council next convenes Nov. 6.
Bernanke Saw Opportunity
Those words opened the door for Bernanke, 54, to consider the coordinated rate reduction.
Congress' Oct. 3 approval of financial-rescue legislation authorizing the Treasury Department to spend $700 billion on distressed assets failed to halt a worldwide rout in stocks.
The next day, Bernanke began speaking about a possible move with King, 60, a former academic himself who taught at the London School of Economics, and Trichet, 65, who was previously France's chief central banker and a top finance official.
The three had numerous conversations with each other over the weekend and continued on Oct. 6, each coming to the view that a rate cut would be useful.
At 6 a.m. New York time the next day, Bernanke, Trichet and King were joined on a call by Masaaki Shirakawa, head of the Bank of Japan, and Bank of Canada Governor Mark Carney. They discussed a Fed-drafted joint statement and collaborated on changes.
Economists said the first cut may be followed by more, if needed.
``I don't rule out the idea of coordinated rate cuts from the same group of central banks further out in the future,'' Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc., said in a Bloomberg Television interview. ``Pretty much everything is on the table here.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
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Oct. 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke's push for the broadest coordinated interest-rate cut in history started with a weekend of telephone conversations with Jean-Claude Trichet and Mervyn King.
Calling from his Washington office on Oct. 4 and Oct. 5, Bernanke broached the idea with Trichet, the European Central Bank president, and King, the Bank of England governor. The talks culminated Oct. 7 in a conference call where they privately hammered out details of the unprecedented move. Also on the line were central bank chiefs in Canada and Japan.
Twenty-four hours later, the plan came to fruition when policy makers announced half-point reductions aimed at easing the financial crisis. Bernanke's work behind the scenes over those four days illustrates that the ties he's forged with counterparts abroad are helping decisions keep pace with changing economic fortunes.
``It's less difficult than it might seem because there's such continuous communication going on,'' said former Fed Governor Laurence Meyer, who served at the central bank from 1996 to 2002. ``It wasn't something that a snap judgment had to be made about.''
Hours after Bernanke gave a speech Oct. 7 signaling rates may need to go lower, Fed governors, regional-bank presidents and their top advisers gathered in their videoconference rooms across the country at 5:30 p.m. New York time for an emergency meeting.
Ninety minutes earlier, the Dow Jones Industrial Average had ended down 5.1 percent for the day, the fifth straight day of losses.
Plosser Traveling
Some Fed officials found themselves out of their usual zones: Philadelphia Fed President Charles Plosser, who was in New York for a speech the next morning, sat in on the 12th floor of the New York Fed's offices with its President Timothy Geithner and other officials.
First, William Dudley, the New York Fed's executive vice president for markets, briefed officials, followed by Fed Board staffers with an updated economic forecast. Bernanke then skipped the usual roundtable discussion on regional economies and moved straight to discussion of the proposed joint move.
The Federal Open Market Committee vote was unanimous.
Yesterday's move represents closer coordination among central banks than the rate cut in the aftermath of the 2001 terrorist attacks, when a half-point reduction by the Fed was later followed by the ECB, Canada, Switzerland and Sweden.
`Intimate' Cooperation
Then-Chairman Alan Greenspan said during the conference call for the September 2001 emergency rate cut that the other central bankers he spoke with were ``acutely sensitive to what we are going to be doing today, tomorrow, and the next day.''
Yesterday, it was the Fed, the ECB, the Bank of England, Bank of Canada and Sweden's Riksbank reducing their benchmark rates by half a percentage point. The Bank of Japan supported the action, Switzerland also took part and China's central bank separately cut its key rate 0.27 percentage point.
After the announcement, Trichet said it was important the world understand that central banks will act in unison. ``It was appropriate to give a very powerful signal of confidence and of intimate cooperation,'' Trichet said in a Bloomberg Television interview.
Not all central bankers have been keen to cut rates in recent months. Until last week the ECB had been focused on returning inflation below its 2 percent limit with Trichet arguing as recently as mid-September that his economy was in a temporary ``trough.''
That view began to soften when European banks such as Fortis started to get engulfed in the crisis, requiring government help. Trichet shifted gears on Oct. 2 by saying policy makers had begun to consider cutting interest rates. He also hinted the bank was open to acting even before its governing council next convenes Nov. 6.
Bernanke Saw Opportunity
Those words opened the door for Bernanke, 54, to consider the coordinated rate reduction.
Congress' Oct. 3 approval of financial-rescue legislation authorizing the Treasury Department to spend $700 billion on distressed assets failed to halt a worldwide rout in stocks.
The next day, Bernanke began speaking about a possible move with King, 60, a former academic himself who taught at the London School of Economics, and Trichet, 65, who was previously France's chief central banker and a top finance official.
The three had numerous conversations with each other over the weekend and continued on Oct. 6, each coming to the view that a rate cut would be useful.
At 6 a.m. New York time the next day, Bernanke, Trichet and King were joined on a call by Masaaki Shirakawa, head of the Bank of Japan, and Bank of Canada Governor Mark Carney. They discussed a Fed-drafted joint statement and collaborated on changes.
Economists said the first cut may be followed by more, if needed.
``I don't rule out the idea of coordinated rate cuts from the same group of central banks further out in the future,'' Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc., said in a Bloomberg Television interview. ``Pretty much everything is on the table here.''
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
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S. Korea, Hong Kong, Taiwan Cut Rates, Joining Action
By William Sim and Victoria Batchelor
Oct. 9 (Bloomberg) -- South Korea, Taiwan and Hong Kong cut interest rates a day after reductions by the U.S., Europe and China to stem damage from the global financial crisis.
The Bank of Korea and Taiwan's central bank lowered their rates by a quarter of a percentage point and Hong Kong cut its benchmark to 2 percent. The Bank of Japan, which kept its policy rate at 0.5 percent this week, pumped 2 trillion yen ($20 billion) into the financial system.
Stocks in Japan, South Korea and Hong Kong all rose after the rate cuts, snapping market declines that have helped wipe more than $5 trillion off stocks globally this month. The International Monetary Fund yesterday forecast the world's advanced economies will expand at the weakest pace since 1982 next year, sapping growth in emerging nations.
``Investors are a bit relieved with the Asian central banks' actions, which will support flagging economies,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. ``The relief also comes from confirming that those banks are flexible enough for more rate cuts.''
The Federal Reserve, European Central Bank and four other central banks lowered rates by a half point yesterday in an unprecedented, emergency coordinated bid to reduce fallout from the worst financial meltdown since the Great Depression.
Within minutes of yesterday's joint action, the People's Bank of China pared its one-year lending and deposit rates by 0.27 percentage point.
Asian Moves
The Bank of Korea today lowered the seven-day repurchase rate to 5 percent, the first cut in four years. Taiwan's central bank reduced the discount rate on 10-day loans to banks to 3.25 percent. Hong Kong trimmed its base rate to track the Fed's move.
``As the financial crisis in the U.S. and Europe continues to spread, the risk of a global economic slump increases sharply,'' Taiwan central bank Governor Perng Fai-nan told reporters in Taipei after announcing his intra-meeting cut.
The MSCI Asia Pacific Index advanced 0.7 percent to 92.04 as of 4:09 p.m. in Tokyo, ending a five-day, 16 percent slump. South Korea's Kospi index climbed 0.6 percent, Japan's Topix index gained 0.7 percent and Hong Kong's Hang Seng index rose 2.7 percent.
``Policy makers around the world are now extremely keen to boost economic and market activity,'' said Sherman Chan, an economist at Moody's Economy.com in Sydney. ``The effects of the global rate cuts are expected to be positive, but will take time to flow through to the economy and financial markets.''
Australia, New Zealand
The Reserve Bank of Australia, which slashed its benchmark rate by 1 percentage point this week, added A$3.49 billion ($2.3 billion) to money markets today. New Zealand's central bank said it will increase the range of securities it accepts from lenders to help boost liquidity.
``We are committed to ensuring the ongoing health of the financial system and remain ready to respond as appropriate,'' Reserve Bank of New Zealand Governor Alan Bollard said.
The rate cuts in South Korea and Hong Kong did little to free up credit as banks continued to hoard cash on concern that borrowers may become unable to repay loans.
Hong Kong's three-month interbank offered rate jumped 25 basis points to 4.4 percent, a one-year high. The South Korean rate for three-month commercial paper, an unsecured debt instrument issued by corporations, climbed 1 basis point to 6.66 percent, the highest since January 2001.
Taiwan's rate on 90-day commercial paper dropped 4 basis points to 2.17 percent, declining to the lowest since Dec. 20.
Standard & Poor's said this week South Korea's banks face increased difficulties in refinancing loans because of the credit squeeze. Banks' foreign-currency funding was $127 billion as of June 30, double the level at the end of 2005, S&P said.
``It's good Asian central banks have shifted their focus away from inflation to growth,'' said Huw McKay, senior international economist at Westpac Banking Corp. in Sydney. ``But we're in for a very rough ride for the more externally leveraged economies in the region.''
To contact the reporters on this story: William Sim in Seoul at wsim2@bloomberg.net; Victoria Batchelor in Wellington at vbatchelor@bloomberg.net.
Read more...
Oct. 9 (Bloomberg) -- South Korea, Taiwan and Hong Kong cut interest rates a day after reductions by the U.S., Europe and China to stem damage from the global financial crisis.
The Bank of Korea and Taiwan's central bank lowered their rates by a quarter of a percentage point and Hong Kong cut its benchmark to 2 percent. The Bank of Japan, which kept its policy rate at 0.5 percent this week, pumped 2 trillion yen ($20 billion) into the financial system.
Stocks in Japan, South Korea and Hong Kong all rose after the rate cuts, snapping market declines that have helped wipe more than $5 trillion off stocks globally this month. The International Monetary Fund yesterday forecast the world's advanced economies will expand at the weakest pace since 1982 next year, sapping growth in emerging nations.
``Investors are a bit relieved with the Asian central banks' actions, which will support flagging economies,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. ``The relief also comes from confirming that those banks are flexible enough for more rate cuts.''
The Federal Reserve, European Central Bank and four other central banks lowered rates by a half point yesterday in an unprecedented, emergency coordinated bid to reduce fallout from the worst financial meltdown since the Great Depression.
Within minutes of yesterday's joint action, the People's Bank of China pared its one-year lending and deposit rates by 0.27 percentage point.
Asian Moves
The Bank of Korea today lowered the seven-day repurchase rate to 5 percent, the first cut in four years. Taiwan's central bank reduced the discount rate on 10-day loans to banks to 3.25 percent. Hong Kong trimmed its base rate to track the Fed's move.
``As the financial crisis in the U.S. and Europe continues to spread, the risk of a global economic slump increases sharply,'' Taiwan central bank Governor Perng Fai-nan told reporters in Taipei after announcing his intra-meeting cut.
The MSCI Asia Pacific Index advanced 0.7 percent to 92.04 as of 4:09 p.m. in Tokyo, ending a five-day, 16 percent slump. South Korea's Kospi index climbed 0.6 percent, Japan's Topix index gained 0.7 percent and Hong Kong's Hang Seng index rose 2.7 percent.
``Policy makers around the world are now extremely keen to boost economic and market activity,'' said Sherman Chan, an economist at Moody's Economy.com in Sydney. ``The effects of the global rate cuts are expected to be positive, but will take time to flow through to the economy and financial markets.''
Australia, New Zealand
The Reserve Bank of Australia, which slashed its benchmark rate by 1 percentage point this week, added A$3.49 billion ($2.3 billion) to money markets today. New Zealand's central bank said it will increase the range of securities it accepts from lenders to help boost liquidity.
``We are committed to ensuring the ongoing health of the financial system and remain ready to respond as appropriate,'' Reserve Bank of New Zealand Governor Alan Bollard said.
The rate cuts in South Korea and Hong Kong did little to free up credit as banks continued to hoard cash on concern that borrowers may become unable to repay loans.
Hong Kong's three-month interbank offered rate jumped 25 basis points to 4.4 percent, a one-year high. The South Korean rate for three-month commercial paper, an unsecured debt instrument issued by corporations, climbed 1 basis point to 6.66 percent, the highest since January 2001.
Taiwan's rate on 90-day commercial paper dropped 4 basis points to 2.17 percent, declining to the lowest since Dec. 20.
Standard & Poor's said this week South Korea's banks face increased difficulties in refinancing loans because of the credit squeeze. Banks' foreign-currency funding was $127 billion as of June 30, double the level at the end of 2005, S&P said.
``It's good Asian central banks have shifted their focus away from inflation to growth,'' said Huw McKay, senior international economist at Westpac Banking Corp. in Sydney. ``But we're in for a very rough ride for the more externally leveraged economies in the region.''
To contact the reporters on this story: William Sim in Seoul at wsim2@bloomberg.net; Victoria Batchelor in Wellington at vbatchelor@bloomberg.net.
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South Korea Delays Plan to Raise Power, Gas Prices
By Shinhye Kang
Oct. 9 (Bloomberg) -- South Korea, which imports almost all its fuel needs, will delay a plan to raise power and gas prices as growth eases in Asia's fourth-biggest economy.
The government will decide the timing of the increase after checking the economic situation and global oil prices, the Ministry of Knowledge Economy said in an e-mailed statement in Seoul today. The government had planned to raise gas prices by 7.8 percent in September and electricity costs by 5 percent this month.
South Korea's $970 billion economy grew 4.8 percent in the second quarter from a year earlier, the slowest pace in more than a year. The Bank of Korea cut interest rates today for the first time in four years as household spending fell after rising living costs prompted consumers to reduce purchases.
``The delay would only increase net losses at utility companies,'' said Yun Hee Do, an analyst at Korea Investment & Securities Co. ``Investors should not expect earnings of energy utilities to improve next year.''
Korea Electric Power Corp., which supplies almost all of the country's electricity, recorded a loss of 763.6 billion won ($540 million) in the three months ended June 30 compared with a profit of 266 billion won a year earlier. Korea Gas Corp., the world's biggest buyer of liquefied natural gas, posted a second-quarter loss of 4.4 billion won.
South Korea has kept electricity rates unchanged since a 2.1 percent increase on Jan. 15, 2007, to curb inflation. The government also maintained city gas prices this year. Consumer prices rose 5.9 percent in July.
To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net;
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Oct. 9 (Bloomberg) -- South Korea, which imports almost all its fuel needs, will delay a plan to raise power and gas prices as growth eases in Asia's fourth-biggest economy.
The government will decide the timing of the increase after checking the economic situation and global oil prices, the Ministry of Knowledge Economy said in an e-mailed statement in Seoul today. The government had planned to raise gas prices by 7.8 percent in September and electricity costs by 5 percent this month.
South Korea's $970 billion economy grew 4.8 percent in the second quarter from a year earlier, the slowest pace in more than a year. The Bank of Korea cut interest rates today for the first time in four years as household spending fell after rising living costs prompted consumers to reduce purchases.
``The delay would only increase net losses at utility companies,'' said Yun Hee Do, an analyst at Korea Investment & Securities Co. ``Investors should not expect earnings of energy utilities to improve next year.''
Korea Electric Power Corp., which supplies almost all of the country's electricity, recorded a loss of 763.6 billion won ($540 million) in the three months ended June 30 compared with a profit of 266 billion won a year earlier. Korea Gas Corp., the world's biggest buyer of liquefied natural gas, posted a second-quarter loss of 4.4 billion won.
South Korea has kept electricity rates unchanged since a 2.1 percent increase on Jan. 15, 2007, to curb inflation. The government also maintained city gas prices this year. Consumer prices rose 5.9 percent in July.
To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net;
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Cosmo Oil Finds Dead Worker in Refinery Tank in Japan
By Shigeru Sato and Yuji Okada
Oct. 9 (Bloomberg) -- Cosmo Oil Co., a Japanese refiner, said one of its employees was found dead in a petroleum storage tank at a plant in Chiba prefecture near Tokyo.
The body of Minoru Konno, 56, a Cosmo Oil engineer at the 240,000 barrel-a-day refinery, was discovered at 9:30 a.m. local time today in a tank containing an unspecified volume of gasoil, Cosmo spokesman Katsuhisa Maeda said today by telephone.
The Ichihara City police department has started investigations and the cause of death is unknown, a police official said under condition of anonymity because the investigation is under way. Police got a call from the Tokyo- based petroleum producer at 6:07 p.m. yesterday saying Konno was missing, the official said.
Cosmo Oil was operating the refinery as usual as of 1:40 p.m. local time, Maeda said.
The Ichihara fire department has no plans to ask Cosmo Oil to suspend operations, a department official said. The fire department typically requires refiners to halt operations after accidents that threaten safety.
To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net;
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Oct. 9 (Bloomberg) -- Cosmo Oil Co., a Japanese refiner, said one of its employees was found dead in a petroleum storage tank at a plant in Chiba prefecture near Tokyo.
The body of Minoru Konno, 56, a Cosmo Oil engineer at the 240,000 barrel-a-day refinery, was discovered at 9:30 a.m. local time today in a tank containing an unspecified volume of gasoil, Cosmo spokesman Katsuhisa Maeda said today by telephone.
The Ichihara City police department has started investigations and the cause of death is unknown, a police official said under condition of anonymity because the investigation is under way. Police got a call from the Tokyo- based petroleum producer at 6:07 p.m. yesterday saying Konno was missing, the official said.
Cosmo Oil was operating the refinery as usual as of 1:40 p.m. local time, Maeda said.
The Ichihara fire department has no plans to ask Cosmo Oil to suspend operations, a department official said. The fire department typically requires refiners to halt operations after accidents that threaten safety.
To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net;
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Formosa Petrochemical Closes No. 2 Ethylene Plant
By Yu-huay Sun
Oct. 9 (Bloomberg) -- Formosa Petrochemical Corp., Taiwan's only publicly traded oil refiner, shut its No. 2 ethylene plant today to repair a mechanical fault.
The closure will last one to two weeks, spokesman Lin Keh- yen said by phone in Taipei today. The company may extend the maintenance of its No. 3 ethylene plant by five days after delays caused by typhoons, Lin also said.
Formosa Petrochemical, based in Mailiao, western Taiwan, has three ethylene plants with a combined annual capacity of 2.94 million metric tons, including the No. 2's 1.04 million tons. Inventories are being tapped because of the closures, Lin said.
The No. 3 plant, which can produce 1.2 million tons a year, was shut on Sept. 3 for scheduled maintenance. The company had planned to restart it on Oct. 18. Three typhoons hit Taiwan in September, causing crop damages and mudslides.
``We may delay the restart because the maintenance was affected by the typhoons,'' Lin said.
To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net
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Oct. 9 (Bloomberg) -- Formosa Petrochemical Corp., Taiwan's only publicly traded oil refiner, shut its No. 2 ethylene plant today to repair a mechanical fault.
The closure will last one to two weeks, spokesman Lin Keh- yen said by phone in Taipei today. The company may extend the maintenance of its No. 3 ethylene plant by five days after delays caused by typhoons, Lin also said.
Formosa Petrochemical, based in Mailiao, western Taiwan, has three ethylene plants with a combined annual capacity of 2.94 million metric tons, including the No. 2's 1.04 million tons. Inventories are being tapped because of the closures, Lin said.
The No. 3 plant, which can produce 1.2 million tons a year, was shut on Sept. 3 for scheduled maintenance. The company had planned to restart it on Oct. 18. Three typhoons hit Taiwan in September, causing crop damages and mudslides.
``We may delay the restart because the maintenance was affected by the typhoons,'' Lin said.
To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net
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BG May Seek Asia LNG Assets After Origin Bid Failure
By Angela Macdonald-Smith
Oct. 9 (Bloomberg) -- BG Group Plc, the U.K.'s third- biggest oil and gas company, will probably seek alternative investments in the Asian liquefied natural gas industry after its bid for Origin Energy Ltd. failed, Macquarie Group Ltd. said.
Such assets would help boost the Reading, England-based company's LNG project pipeline, which is looking ``a bit thin,'' and improve its ability to profit from the ``premium-priced'' Asian gas market, Macquarie said in an Oct. 8 report. BG said it ``continues to screen opportunities that add value to the global business.''
BG, the biggest LNG importer into the U.S., last month let a A$13.5 billion ($9 billion) hostile offer for Australia's Origin lapse after the Sydney-based target attracted an investment of as much as $8 billion from ConocoPhillips. In February it joined Queensland Gas Co. in an alliance for a A$8 billion LNG venture in northeast Australia to tap rising demand in north Asia.
``BG's failed bid for Origin Energy displayed errors in tactics rather than strategy; we believe it will continue to seek opportunities in the region close to the premium-priced Asian LNG markets,'' London-based Macquarie analysts Iain Reid and Brendan Warn said in the report.
BG is ``building a strong presence in Asia-Pacific and Australia in particular,'' Rob Millhouse, a spokesman for the company in Australia, said in an e-mail.
`Quick Progress'
``Importantly, our plans in Australia, initiated with our February 2008 acquisition of interests in, and alliance with, Queensland Gas, were independent of other opportunities,'' Millhouse said. ``In this context we continue to progress quickly the planning and development of the Queensland Curtis LNG project at Gladstone.''
BG produces LNG in Trinidad and Egypt and its most advanced planned venture is the 14.25 percent-owned OK project in Nigeria, which is suffering delays due to ``political resistance'' and may be shelved altogether if those obstacles can't be resolved, Macquarie said. That would dent the company's ability to expand global LNG production capacity 71 percent to 12 million metric tons a year by 2015, as currently modeled, it said.
The U.K. company still has ``one of the best LNG businesses in the global oil and gas sector'' for its size, Macquarie said. The contracts BG has to buy gas indicate it sells 85 percent more LNG than it produces, Macquarie said. The LNG business, together with BG's exploration success in Brazil, are the main factors making the stock the top pick among seven European oil and gas companies, along with Portugal's Galp Energia SGPS SA, it said.
LNG is natural gas cooled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- BG Group Plc, the U.K.'s third- biggest oil and gas company, will probably seek alternative investments in the Asian liquefied natural gas industry after its bid for Origin Energy Ltd. failed, Macquarie Group Ltd. said.
Such assets would help boost the Reading, England-based company's LNG project pipeline, which is looking ``a bit thin,'' and improve its ability to profit from the ``premium-priced'' Asian gas market, Macquarie said in an Oct. 8 report. BG said it ``continues to screen opportunities that add value to the global business.''
BG, the biggest LNG importer into the U.S., last month let a A$13.5 billion ($9 billion) hostile offer for Australia's Origin lapse after the Sydney-based target attracted an investment of as much as $8 billion from ConocoPhillips. In February it joined Queensland Gas Co. in an alliance for a A$8 billion LNG venture in northeast Australia to tap rising demand in north Asia.
``BG's failed bid for Origin Energy displayed errors in tactics rather than strategy; we believe it will continue to seek opportunities in the region close to the premium-priced Asian LNG markets,'' London-based Macquarie analysts Iain Reid and Brendan Warn said in the report.
BG is ``building a strong presence in Asia-Pacific and Australia in particular,'' Rob Millhouse, a spokesman for the company in Australia, said in an e-mail.
`Quick Progress'
``Importantly, our plans in Australia, initiated with our February 2008 acquisition of interests in, and alliance with, Queensland Gas, were independent of other opportunities,'' Millhouse said. ``In this context we continue to progress quickly the planning and development of the Queensland Curtis LNG project at Gladstone.''
BG produces LNG in Trinidad and Egypt and its most advanced planned venture is the 14.25 percent-owned OK project in Nigeria, which is suffering delays due to ``political resistance'' and may be shelved altogether if those obstacles can't be resolved, Macquarie said. That would dent the company's ability to expand global LNG production capacity 71 percent to 12 million metric tons a year by 2015, as currently modeled, it said.
The U.K. company still has ``one of the best LNG businesses in the global oil and gas sector'' for its size, Macquarie said. The contracts BG has to buy gas indicate it sells 85 percent more LNG than it produces, Macquarie said. The LNG business, together with BG's exploration success in Brazil, are the main factors making the stock the top pick among seven European oil and gas companies, along with Portugal's Galp Energia SGPS SA, it said.
LNG is natural gas cooled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Korean Won Rises From Decade-Low as Stocks Gain After Rate Cut
By Kim Kyoungwha
Oct. 9 (Bloomberg) -- The South Korean won rose from a decade-low after the central bank's surprise cut in interest rates helped boost local stocks.
The won climbed 0.8 percent to 1,383.55 versus the dollar as of 1:35 p.m. local time, according to Seoul Money Brokerage Services Ltd. It earlier slumped as much as 6.1 percent to 1,485.55, the weakest level since April 1998.
The Bank of Korea lowered the seven-day repurchase rate for the first time in four years, reducing it by a quarter-percentage point to 5 percent. The Kospi stock index jumped 1.7 percent, the biggest gain in almost three weeks.
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;
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Oct. 9 (Bloomberg) -- The South Korean won rose from a decade-low after the central bank's surprise cut in interest rates helped boost local stocks.
The won climbed 0.8 percent to 1,383.55 versus the dollar as of 1:35 p.m. local time, according to Seoul Money Brokerage Services Ltd. It earlier slumped as much as 6.1 percent to 1,485.55, the weakest level since April 1998.
The Bank of Korea lowered the seven-day repurchase rate for the first time in four years, reducing it by a quarter-percentage point to 5 percent. The Kospi stock index jumped 1.7 percent, the biggest gain in almost three weeks.
To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;
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Australia, N.Z. Dollars Rise From Six-Year Lows on Rate Cuts
By Candice Zachariahs
Oct. 9 (Bloomberg) -- The Australian dollar rose by the most since it began trading freely in December 1983 against the yen after central banks cut interest rates to ease a financial crisis. New Zealand's currency also gained.
The South-Pacific currencies strengthened from the lowest levels in six years on speculation the global round of rate cuts gave investors confidence to revisit carry trades, where they borrow in yen and buy the nations' higher-yielding assets. Australian employers hired fewer workers in September as a 17- year economic expansion slowed, a government report showed today.
``If you start to see a wee bit more stability come through in Asian equity markets, the chance of a bit more stability in the Australian dollar is actually quite high,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. ``Central bank easing at some point should begin to have a beneficial impact on risk assets and the markets.''
The Australian dollar climbed 6.3 percent to 69.62 yen as of 4:43 p.m. in Sydney, after dropping as much as 12.5 percent yesterday to 63.75, the lowest since September 2002.
New Zealand's dollar rose 3.4 percent to 61.07 yen from 59.07 yen yesterday, when it fell 7.9 percent.
Against the U.S. dollar, the Australian currency advanced 5.4 percent to 69.40 U.S. cents from 65.85 yesterday. The New Zealand dollar climbed 2.5 percent to 60.87 cents from 59.36.
The number of people employed in Australia rose 2,200 last month after increasing a revised 10,200 in August, the statistics bureau said in Sydney. The median estimate of 21 economists surveyed by Bloomberg News was for no change. The jobless rate rose to 4.3 percent from 4.1 percent.
Technical Levels
Traders will watch technical levels on the Australian dollar today, said Westpac's Rennie.
The currency closed below 67.15 U.S. cents yesterday, a 61.8 percent retracement from its April 2001 low to a July 2008 high, according to a series of numbers known as the Fibonacci sequence.
The close below that level could ``open up a deeper sell- off and a long-term target to the 2001 lows at 47.75,'' wrote London-based Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in a research note dated Oct. 8.
The Reserve Bank of Australia reduced borrowing costs by 1 percentage point to 6 percent on Oct. 7 to spur lending, raising speculation other central banks would join to relieve stress in the markets.
The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each reduced their benchmark rates by half a point yesterday. Switzerland, Taiwan, China and South Korea also reduced borrowing costs.
New Zealand Liquidity
Australia and New Zealand's rate advantage over Japan makes the nations attractive for so-called carry trades. Japan's benchmark rate is 0.5 percent compared with 7.5 percent in New Zealand. The risk in the trades is that fluctuations in exchange-rates may erase profits.
New Zealand's central bank said today it will increase the range of securities it will accept from lenders to help increase liquidity in the banking system.
New Zealand banks have high-quality assets and have held up ``relatively well,'' in the face of volatility in world markets, Governor Alan Bollard said in an e-mailed statement. Still, the bank will temporarily broaden its securities program, he said.
Australian government bonds fell. The yield on the benchmark 10-year note rose 17 basis points to 5.098 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 1.363, or A$13.63 per A$1,000 face amount, to 101.212. A basis point is 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, dropped to 6.490 percent from 6.505 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Oct. 9 (Bloomberg) -- The Australian dollar rose by the most since it began trading freely in December 1983 against the yen after central banks cut interest rates to ease a financial crisis. New Zealand's currency also gained.
The South-Pacific currencies strengthened from the lowest levels in six years on speculation the global round of rate cuts gave investors confidence to revisit carry trades, where they borrow in yen and buy the nations' higher-yielding assets. Australian employers hired fewer workers in September as a 17- year economic expansion slowed, a government report showed today.
``If you start to see a wee bit more stability come through in Asian equity markets, the chance of a bit more stability in the Australian dollar is actually quite high,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. ``Central bank easing at some point should begin to have a beneficial impact on risk assets and the markets.''
The Australian dollar climbed 6.3 percent to 69.62 yen as of 4:43 p.m. in Sydney, after dropping as much as 12.5 percent yesterday to 63.75, the lowest since September 2002.
New Zealand's dollar rose 3.4 percent to 61.07 yen from 59.07 yen yesterday, when it fell 7.9 percent.
Against the U.S. dollar, the Australian currency advanced 5.4 percent to 69.40 U.S. cents from 65.85 yesterday. The New Zealand dollar climbed 2.5 percent to 60.87 cents from 59.36.
The number of people employed in Australia rose 2,200 last month after increasing a revised 10,200 in August, the statistics bureau said in Sydney. The median estimate of 21 economists surveyed by Bloomberg News was for no change. The jobless rate rose to 4.3 percent from 4.1 percent.
Technical Levels
Traders will watch technical levels on the Australian dollar today, said Westpac's Rennie.
The currency closed below 67.15 U.S. cents yesterday, a 61.8 percent retracement from its April 2001 low to a July 2008 high, according to a series of numbers known as the Fibonacci sequence.
The close below that level could ``open up a deeper sell- off and a long-term target to the 2001 lows at 47.75,'' wrote London-based Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in a research note dated Oct. 8.
The Reserve Bank of Australia reduced borrowing costs by 1 percentage point to 6 percent on Oct. 7 to spur lending, raising speculation other central banks would join to relieve stress in the markets.
The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each reduced their benchmark rates by half a point yesterday. Switzerland, Taiwan, China and South Korea also reduced borrowing costs.
New Zealand Liquidity
Australia and New Zealand's rate advantage over Japan makes the nations attractive for so-called carry trades. Japan's benchmark rate is 0.5 percent compared with 7.5 percent in New Zealand. The risk in the trades is that fluctuations in exchange-rates may erase profits.
New Zealand's central bank said today it will increase the range of securities it will accept from lenders to help increase liquidity in the banking system.
New Zealand banks have high-quality assets and have held up ``relatively well,'' in the face of volatility in world markets, Governor Alan Bollard said in an e-mailed statement. Still, the bank will temporarily broaden its securities program, he said.
Australian government bonds fell. The yield on the benchmark 10-year note rose 17 basis points to 5.098 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 declined 1.363, or A$13.63 per A$1,000 face amount, to 101.212. A basis point is 0.01 percentage point.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, dropped to 6.490 percent from 6.505 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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Pound Falls to 3-Year Low Versus Dollar; More Cuts Are Needed
By Agnes Lovasz
Oct. 9 (Bloomberg) -- The pound dropped to the lowest level against the dollar in almost three years on speculation more interest-rate cuts are needed to prevent the global financial turmoil from driving the economy into a slump.
Britain's currency also fell for a third day versus the euro after the Bank of England joined central banks around the world yesterday in cutting interest rates and the government announced a rescue plan to restore confidence in banks. A report today may show U.K. house prices declined for an eighth month, adding to evidence the economy has entered a recession.
``The interest-rate cuts didn't really lead to the result the central banks tried to achieve and the coordinated action didn't work,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Risk aversion will get worse. Against this backdrop, the pound has to suffer because of the U.K. banking problems.''
The pound declined to $1.7258 as of 7:21 a.m. in London, from $1.7305 yesterday, and traded at $1.7171, the lowest level since Dec. 28, 2005. The British currency also weakened to 79.34 pence per euro, from 78.90 pence.
The Bank of England reduced its key interest rate half a percentage point to 4.5 percent yesterday, a day before its scheduled decision, as part of an unprecedented joint move by central banks to revive the global economy. Policy makers in the U.S., euro region, Sweden, Switzerland, Canada and China also reduced rates. The U.K. government also said it will invest 50 billion pounds ($87 billion) in the nation's banks to help ease the lending freeze.
Property Prices
Turbulence on financial markets is exacerbating a slump in U.K. property prices that has pushed the economy, Europe's second-largest, to the brink of a recession. Growth stalled in the second quarter, ending the longest stretch of uninterrupted expansion in a century. The International Monetary Fund expects the U.K. economy to contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago.
HBOS Plc, Britain's largest mortgage lender, will say today house prices fell 1.7 percent in September, after declining 1.8 percent in the previous month. The report is due to be published at 9 a.m. London time today.
``No matter which index you look at, we don't see an end to the drop in house prices,'' said Karpowitz. ``It underlines the picture that the economy is heading into a recession. Private consumption will suffer and the banking problems won't go away.'' The pound slide to $1.62 by the end of the month and 81.50 per euro by the end of the month, he said.
Interest-Rate Futures
Traders stepped up bets the Bank of England will reduce its benchmark interest rate further. The implied yield on the March short-sterling futures contract declined 21 basis points to 4.06 percent yesterday. It was 4.72 percent at the end of last week.
``It depends on the news, but if things are going on anything like they're going on now then yes, we'd see another big one,'' Christopher Allsopp, a former U.K. policy maker who voted on the Bank of England's last emergency decision seven years ago, said in an interview yesterday. ``What central banks are always worried about is an upward spiral of prices and wages and there hasn't been a sign of that in Britain.''
The pound may fall to $1.7050 in coming days, according to Pak Lai Ng, a technical analyst at Forecast Singapore Pte, citing the currency's weekly relative strength index.
The index shows sterling's 3 percent loss this month isn't overdone, Ng said. The currency is also poised to weaken as stochastic and moving average convergence/divergence charts are showing sell signals, he said. So-called support at $1.7050 is near the pound's low of Nov. 28, 2005, Ng said.
``The pound looks weak,'' Singapore-based Ng said. ``This move has further to go and it could come very quickly.''
Two-Year Notes
U.K. two-year government bonds advanced yesterday as investors demanded safer, shorter-dated assets. The yield on the two-year gilt, which is more sensitive to the interest-rate outlook, dropped 9 basis points to 3.50 percent. The price of the 4.75 percent security due June 2010 climbed 0.14, or 1.4 pounds per 1,000-pound ($1,726) face amount, to 102.01.
The 10-year gilt dropped, driving the yield 6 basis points higher to 4.29 percent and increasing the difference in yield, or spread, between two- and 10-year gilts to 79 basis points, the widest since July 2003.
The National Institute for Economic and Social Research said yesterday Britain entered a recession in the third quarter. Gross domestic product shrank 0.2 percent in the three months through September, the first contraction for a calendar quarter since 1992, the Niesr said. Consumer confidence fell to its lowest level since at least 2004, a separate report by Nationwide Building Society showed.
As part of the U.K. rescue package, the government will buy preference shares in banks, and the Bank of England will make at least 200 billion pounds available for financial institutions to borrow under the so-called special liquidity plan, the Treasury said. The government said it will also provide a guarantee of about 250 billion pounds to help refinance debt.
The steps provide ``the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses,'' Chancellor of the Exchequer Alistair Darling said in a separate statement.
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
Read more...
Oct. 9 (Bloomberg) -- The pound dropped to the lowest level against the dollar in almost three years on speculation more interest-rate cuts are needed to prevent the global financial turmoil from driving the economy into a slump.
Britain's currency also fell for a third day versus the euro after the Bank of England joined central banks around the world yesterday in cutting interest rates and the government announced a rescue plan to restore confidence in banks. A report today may show U.K. house prices declined for an eighth month, adding to evidence the economy has entered a recession.
``The interest-rate cuts didn't really lead to the result the central banks tried to achieve and the coordinated action didn't work,'' said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-biggest lender. ``Risk aversion will get worse. Against this backdrop, the pound has to suffer because of the U.K. banking problems.''
The pound declined to $1.7258 as of 7:21 a.m. in London, from $1.7305 yesterday, and traded at $1.7171, the lowest level since Dec. 28, 2005. The British currency also weakened to 79.34 pence per euro, from 78.90 pence.
The Bank of England reduced its key interest rate half a percentage point to 4.5 percent yesterday, a day before its scheduled decision, as part of an unprecedented joint move by central banks to revive the global economy. Policy makers in the U.S., euro region, Sweden, Switzerland, Canada and China also reduced rates. The U.K. government also said it will invest 50 billion pounds ($87 billion) in the nation's banks to help ease the lending freeze.
Property Prices
Turbulence on financial markets is exacerbating a slump in U.K. property prices that has pushed the economy, Europe's second-largest, to the brink of a recession. Growth stalled in the second quarter, ending the longest stretch of uninterrupted expansion in a century. The International Monetary Fund expects the U.K. economy to contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago.
HBOS Plc, Britain's largest mortgage lender, will say today house prices fell 1.7 percent in September, after declining 1.8 percent in the previous month. The report is due to be published at 9 a.m. London time today.
``No matter which index you look at, we don't see an end to the drop in house prices,'' said Karpowitz. ``It underlines the picture that the economy is heading into a recession. Private consumption will suffer and the banking problems won't go away.'' The pound slide to $1.62 by the end of the month and 81.50 per euro by the end of the month, he said.
Interest-Rate Futures
Traders stepped up bets the Bank of England will reduce its benchmark interest rate further. The implied yield on the March short-sterling futures contract declined 21 basis points to 4.06 percent yesterday. It was 4.72 percent at the end of last week.
``It depends on the news, but if things are going on anything like they're going on now then yes, we'd see another big one,'' Christopher Allsopp, a former U.K. policy maker who voted on the Bank of England's last emergency decision seven years ago, said in an interview yesterday. ``What central banks are always worried about is an upward spiral of prices and wages and there hasn't been a sign of that in Britain.''
The pound may fall to $1.7050 in coming days, according to Pak Lai Ng, a technical analyst at Forecast Singapore Pte, citing the currency's weekly relative strength index.
The index shows sterling's 3 percent loss this month isn't overdone, Ng said. The currency is also poised to weaken as stochastic and moving average convergence/divergence charts are showing sell signals, he said. So-called support at $1.7050 is near the pound's low of Nov. 28, 2005, Ng said.
``The pound looks weak,'' Singapore-based Ng said. ``This move has further to go and it could come very quickly.''
Two-Year Notes
U.K. two-year government bonds advanced yesterday as investors demanded safer, shorter-dated assets. The yield on the two-year gilt, which is more sensitive to the interest-rate outlook, dropped 9 basis points to 3.50 percent. The price of the 4.75 percent security due June 2010 climbed 0.14, or 1.4 pounds per 1,000-pound ($1,726) face amount, to 102.01.
The 10-year gilt dropped, driving the yield 6 basis points higher to 4.29 percent and increasing the difference in yield, or spread, between two- and 10-year gilts to 79 basis points, the widest since July 2003.
The National Institute for Economic and Social Research said yesterday Britain entered a recession in the third quarter. Gross domestic product shrank 0.2 percent in the three months through September, the first contraction for a calendar quarter since 1992, the Niesr said. Consumer confidence fell to its lowest level since at least 2004, a separate report by Nationwide Building Society showed.
As part of the U.K. rescue package, the government will buy preference shares in banks, and the Bank of England will make at least 200 billion pounds available for financial institutions to borrow under the so-called special liquidity plan, the Treasury said. The government said it will also provide a guarantee of about 250 billion pounds to help refinance debt.
The steps provide ``the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses,'' Chancellor of the Exchequer Alistair Darling said in a separate statement.
To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net
Read more...
Asian Currencies: Rupiah, Baht Lead Gains; Won Halts Decline
By David Yong and Lilian Karunungan
Oct. 9 (Bloomberg) -- Indonesia's rupiah led gains in Asian currencies after a series of interest-rate cuts by global central banks helped bolster investor confidence frayed by the global credit-market crisis.
The currency advanced from near the lowest in two years on speculation Bank Indonesia will intervene to prevent further losses after the government shut the stock exchange for a second day. Thailand's baht halted a six-day slump and the Philippine peso rose from a 17-month low. Taiwan, Hong Kong and South Korea lowered borrowing costs today, following yesterday's coordinated cuts by the U.S. and European central banks.
``There is new hope after central banks decided to unify to cut interest rates,'' said Muhammad Fauzi Halim, a currency trader at PT Bank Resona Perdania in Jakarta. ``Bank Indonesia is still guarding the rupiah.''
The rupiah gained 0.7 percent to 9,595 per dollar as of 12:02 p.m. in Jakarta, according to data compiled by Bloomberg. It touched 9,795, the weakest since January 2006. The baht rose 0.3 percent to 34.42 and the peso climbed 0.4 percent to 47.495.
Bank Indonesia was in the market to support its currency, Deputy Governor Budi Mulya said yesterday. Indonesia's foreign- exchange reserves dropped $3.8 billion to $56.8 billion in the seven weeks through Sept. 12. The local currency, which fell 3.3 percent in that time, has since lost a further 2.1 percent.
Stocks Recover
Asian stocks gained after four of the region's central banks cut rates, joining a global effort to limit the economic impact of the worst financial crisis since the Great Depression. The MSCI Asia Pacific Index of regional shares jumped 1.6 percent.
The baht gained on optimism lower borrowing costs will prompt investors to return to the region's stock markets amid a lull in street protests against the government in Bangkok.
``The coordinated rate cuts are boosting sentiment and also we're seeing relative calm on the political front, which is helping this temporary, short-lived rebound of the baht,'' said Radhika Rao, an economist at Ideaglobal Ltd. in Singapore.
The peso gained after the central bank Governor Amando Tetangco said yesterday coordinated interest-rate cuts by the world's major central banks gave him and fellow policy makers ``greater monetary policy space'' to face the global crisis.
Korea Crisis
South Korea's won swung between gains and losses after the Bank of Korea lowered the seven-day repurchase rate for the first time in four years to 5 percent from 5.25 percent. The Kospi Index of equities jumped 1.7 percent, the most in three weeks.
A global liquidity squeeze threatens to negatively affect the credit quality of Korean banks, mainly due to their ongoing foreign currency funding needs, Standard & Poor's Ratings Services said in a statement today.
Korean banks' foreign currency funding had more than doubled to $127 billion as of the end of June 2008 from the end of 2005, and a shortage of dollars may choke lending to local businesses, S&P analysts including Hong Kong-based JaeMin Kwon said.
The won traded at 1,383 versus the dollar versus 1,395 yesterday, according to Seoul Money Brokerage Services Ltd. It earlier slumped as much as 6.1 percent to 1,485.55, the weakest level since April 1998.
``Few in the market believe that the overnight global action will put an end to this worst crisis,'' said Oh Suk Tae, an economist at Citigroup Inc. in Seoul. ``This is no more than a temporary band-aid.''
Elsewhere, Malaysia's ringgit dropped 0.2 percent to 3.5052, the Singapore dollar weakened to S$1.4698 against the U.S. currency and Taiwan's dollar declined to NT$32.433 from NT$32.448 yesterday. China's yuan fell 0.1 percent to 6.8231.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.
Read more...
Oct. 9 (Bloomberg) -- Indonesia's rupiah led gains in Asian currencies after a series of interest-rate cuts by global central banks helped bolster investor confidence frayed by the global credit-market crisis.
The currency advanced from near the lowest in two years on speculation Bank Indonesia will intervene to prevent further losses after the government shut the stock exchange for a second day. Thailand's baht halted a six-day slump and the Philippine peso rose from a 17-month low. Taiwan, Hong Kong and South Korea lowered borrowing costs today, following yesterday's coordinated cuts by the U.S. and European central banks.
``There is new hope after central banks decided to unify to cut interest rates,'' said Muhammad Fauzi Halim, a currency trader at PT Bank Resona Perdania in Jakarta. ``Bank Indonesia is still guarding the rupiah.''
The rupiah gained 0.7 percent to 9,595 per dollar as of 12:02 p.m. in Jakarta, according to data compiled by Bloomberg. It touched 9,795, the weakest since January 2006. The baht rose 0.3 percent to 34.42 and the peso climbed 0.4 percent to 47.495.
Bank Indonesia was in the market to support its currency, Deputy Governor Budi Mulya said yesterday. Indonesia's foreign- exchange reserves dropped $3.8 billion to $56.8 billion in the seven weeks through Sept. 12. The local currency, which fell 3.3 percent in that time, has since lost a further 2.1 percent.
Stocks Recover
Asian stocks gained after four of the region's central banks cut rates, joining a global effort to limit the economic impact of the worst financial crisis since the Great Depression. The MSCI Asia Pacific Index of regional shares jumped 1.6 percent.
The baht gained on optimism lower borrowing costs will prompt investors to return to the region's stock markets amid a lull in street protests against the government in Bangkok.
``The coordinated rate cuts are boosting sentiment and also we're seeing relative calm on the political front, which is helping this temporary, short-lived rebound of the baht,'' said Radhika Rao, an economist at Ideaglobal Ltd. in Singapore.
The peso gained after the central bank Governor Amando Tetangco said yesterday coordinated interest-rate cuts by the world's major central banks gave him and fellow policy makers ``greater monetary policy space'' to face the global crisis.
Korea Crisis
South Korea's won swung between gains and losses after the Bank of Korea lowered the seven-day repurchase rate for the first time in four years to 5 percent from 5.25 percent. The Kospi Index of equities jumped 1.7 percent, the most in three weeks.
A global liquidity squeeze threatens to negatively affect the credit quality of Korean banks, mainly due to their ongoing foreign currency funding needs, Standard & Poor's Ratings Services said in a statement today.
Korean banks' foreign currency funding had more than doubled to $127 billion as of the end of June 2008 from the end of 2005, and a shortage of dollars may choke lending to local businesses, S&P analysts including Hong Kong-based JaeMin Kwon said.
The won traded at 1,383 versus the dollar versus 1,395 yesterday, according to Seoul Money Brokerage Services Ltd. It earlier slumped as much as 6.1 percent to 1,485.55, the weakest level since April 1998.
``Few in the market believe that the overnight global action will put an end to this worst crisis,'' said Oh Suk Tae, an economist at Citigroup Inc. in Seoul. ``This is no more than a temporary band-aid.''
Elsewhere, Malaysia's ringgit dropped 0.2 percent to 3.5052, the Singapore dollar weakened to S$1.4698 against the U.S. currency and Taiwan's dollar declined to NT$32.433 from NT$32.448 yesterday. China's yuan fell 0.1 percent to 6.8231.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.
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