Cerberus Isn't Seeking GM Management Changes in Chrysler Merger

By Mike Ramsey

Oct. 25 (Bloomberg) -- Chrysler LLC owner Cerberus Capital Management LP isn't seeking to remove General Motors Corp. leaders including Chief Executive Officer Rick Wagoner in a merger of the automakers, a person familiar with the talks said.

Cerberus also wants a ``meaningful'' stake, not a majority, in a combined company, said the person, who asked not to be identified because the negotiations are private. It's too early to say whether the New York-based buyout firm would have board representation, the person said.

Wagoner, 55, is the longest-serving CEO at a U.S. automaker, after taking the top spot at Detroit-based GM in 2000. Alan Mulally joined Ford Motor Co. in 2006, and Robert Nardelli was hired at Chrysler last year. The person declined to comment on Nardelli's role, if any, in a GM-Chrysler merger.

``GM has good management,'' said Laurie Harbour-Felax, president of consulting firm Harbour-Felax Group in Berkley, Michigan. She questioned whether Cerberus ``could force a change.''

Cerberus has been in talks with GM and Nissan Motor Co. on a sale, merger or alliance involving Auburn Hills, Michigan- based Chrysler, whose 25 percent U.S. sales decline through September is the steepest among major automakers. GM's sales slide is 18 percent this year, and the biggest U.S. automaker has posted almost $70 billion in losses since 2004.

GM and Cerberus are targeting month's end to complete a deal, while Cerberus and Tokyo-based Nissan also have exchanged proposals, according to people familiar with the matter.

Spokesmen for GM, Chrysler and Cerberus haven't confirmed that the companies are in talks. Cerberus bought 80.1 percent of Chrysler from Daimler AG in 2007, and is negotiating to acquire the rest.

Chrysler's Losses

The shrinking U.S. auto market is ramping up pressure for Chrysler to find savings and stem losses that the company indicated had totaled more than $1.08 billion through the first half. The third-largest U.S. automaker has said it had $11.7 billion in cash at the end of June.

Chrysler said yesterday it would eliminate 25 percent of its salaried workforce, or about 4,300 jobs, by the end of the year, and trim capital spending on everything except its most- important products. That followed the Oct. 23 announcement of 1,825 job cuts at two sport-utility vehicle plants.

Further ``organizational and restructuring'' actions will be taken in the near future, Chrysler said yesterday, without elaborating.

Merger's Logic Questioned

Analysts including Citigroup Global Markets Inc.'s Itay Michaeli have questioned the logic of a GM-Chrysler merger, arguing that it could drag down both automakers before attaining long-term savings.

A combined company would need $10 billion to $12 billion in fresh liquidity, Michaeli wrote in a note to investors on Oct. 20. The New York-based analyst rates GM as ``sell.''

Cerberus may contribute some liquidity to a deal, people familiar with the negotiations have said.

GM also is working to return to profit. The automaker said yesterday that its planned reductions in the salaried workforce will go beyond the 5,000 jobs already targeted and that it will stop contributing to some retirement-savings plans.

GM fell 15 cents, or 2.5 percent, to $5.95 yesterday in New York Stock Exchange composite trading. Since the end of June 2000, the month Wagoner became CEO, the shares have dropped by 90 percent, the worst performance among the 30 companies in the Dow Jones Industrial Average.

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

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Paulson Weighs Buying Stakes in U.S. Insurers, Regional Lenders

By Robert Schmidt

Oct. 25 (Bloomberg) -- The U.S. Treasury is considering taking stakes in insurers, as it prepares a new round of capital injections targeted at regional banks and other financial companies, a person briefed on the plan said.

A final decision hasn't been made on whether insurers will be included in the government's purchases of preferred equity, said the person, who spoke on the condition of anonymity. The Treasury, which had planned to announce investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.

An initial $125 billion out of the $700 billion approved by Congress was allocated last week to buy shares of nine of the largest U.S. banks and another $125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Treasury Secretary Henry Paulson's Troubled Asset Relief Program as the credit crisis deepens.

``We had a problem that turned into a panic, and now the government is running around trying to put out the fires,'' said James Angel, a finance professor at Georgetown University in Washington. ``If you need capital, it might be the only game in town.''

Paulson has shifted the financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated. The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers two days ago.

Insurers, Automakers

The Financial Services Roundtable, a trade association of the 100 largest banks, securities firms and insurers, pressed Treasury to broaden its guidelines so that insurance companies, broker-dealers, automobile companies and institutions controlled by foreign banks could also sell stakes to the government.

``The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market,'' wrote Steve Bartlett, the group's president, in a letter yesterday to Kashkari.

Separately, a group of insurance companies -- mainly life insurers -- asked the Treasury earlier this week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion.

Some life insurers have asked the government to make the participation mandatory because firms don't want to identify themselves as needing funds, the person said.

PNC Acquisition

Among regional lenders, PNC Financial Services Group Inc. of Pittsburgh said yesterday it is buying Cleveland-based National City Corp. for about $5.2 billion in stock after getting a $7.7 billion infusion from the Treasury.

First Horizon National Corp., Tennessee's largest bank, said yesterday it obtained preliminary approval to receive about $866 million. The board of SunTrust Banks Inc., Georgia's largest lender, earlier this week authorized the sale of $1.6 billion to $4.9 billion in preferred shares to the Treasury.

The rescue law requires that Treasury's investments be publicly revealed within 48 hours. It isn't clear whether that means from the time the bank is approved or from when it receives the funds.

Under the Treasury's rules for the capital injection program, some U.S. insurance companies -- those with a banking business -- are eligible to request an equity investment from the TARP.

The Standard & Poor's 500 Insurance Index yesterday rose 2.31, or 1.7 percent, to 139.66. The broader S&P 500 Index fell 31.34, or 3.5 percent, to 876.77.

A number of insurance companies have been battered by the recent market downturn.

Market Slide

U.S. life insurance stocks have plunged about 45 percent in the past month on concern that losses on corporate debt and mortgage-backed securities will squeeze the firms' liquidity and force them to raise capital.

MetLife Inc., the biggest U.S. life insurer, raised about $2.3 billion this month in a stock offering, and Hartford Financial Services Group Inc. said it would raise $2.5 billion from Allianz SE.

The largest insurers in the U.S. and Bermuda posted more than $93 billion in writedowns and unrealized losses on holdings tied to the collapse of the U.S. subprime mortgage market since the beginning of last year. Insurers invest policyholder premiums in bonds before paying claims.

American International Group Inc., once the world's largest insurer, accounts for about $48 billion of the declines.

AIG, which posted three straight unprofitable quarters because of bad bets on the housing market, agreed last month to turn over an 80 percent stake to the U.S. in exchange for an $85 billion loan. The New York-based insurer subsequently tapped a second federal credit line and has borrowed $90.3 billion.

AIG may need more than the $122.8 billion available, Chief Executive Officer Edward Liddy said Oct. 22 on PBS's ``The NewsHour With Jim Lehrer.''

Insurers including Allstate Corp., Prudential Financial Inc., Lincoln National Corp., MetLife and Travelers Cos. have suspended or scaled back share buybacks to shepherd capital as losses from fixed-income investments mount.

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net

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British Pound Posts Biggest Weekly Drop Since Black Wednesday

By Kim-Mai Cutler

Oct. 25 (Bloomberg) -- The pound fell below $1.53, posting its biggest weekly drop since Black Wednesday in 1992, after a report showed the U.K. economy contracted more than forecast in the third quarter, bringing the nation to the brink of a recession.

The pound's 5.9 percent intraday slide yesterday was the most in at least 37 years and the weekly decline was the biggest since September 1992, when Britain was driven out of Europe's Exchange Rate Mechanism. Gross domestic product shrank in the third quarter by more than twice as much as analysts predicted, a report showed yesterday, putting the economy on course for its first recession since 1991. The FTSE 100 Index slumped and the yield on the two- year gilt had its steepest weekly drop in more than 15 years.

``This is once-in-a-lifetime stuff, we're all sat under our desks with tin hats on,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. ``The U.K. is in the first step toward a recession and the dollar's bid because of repatriation flows.''

The U.K. currency fell 8.2 percent in the week to $1.5269, the lowest level since August 2002, and traded yesterday at $1.5866 as of 6:40 p.m. in London. Against the euro, the pound was at 79.60 pence, declining 2.5 percent in the five days, the most since December 2004.

A collapse in credit markets and the worst housing slump in a generation have buffeted the British economy, Europe's second- biggest. The U.K. is already in a recession and the economy will contract for the next three quarters, Ernst & Young's ITEM Club, which uses the same forecasting model as the Treasury, said in a report on Oct. 20.

`Black Wednesday'

The economy shrank 0.5 percent in the third quarter, the Office for National Statistics in London said yesterday. The median forecast of 35 economists in a Bloomberg survey was for a contraction of 0.2 percent.

The weekly drop in the pound was the most since the week of Black Wednesday on Sept. 16, 1992, when U.K. Prime Minister John Major pulled the currency out of the Exchange Rate Mechanism. The currency lost 9.8 percent that week.

Yesterday's intraday decline was the largest since at least 1971, when former U.S. President Richard Nixon suspended the dollar's convertibility into gold and ended the global fixed exchange-rate regime set up at the Bretton Woods conference at the end of World War II.

``These moves are absolutely without precedent,'' said David Watt, a Toronto-based currency strategist at Royal Bank of Canada Ltd. ``The 1970s are pretty much the extent of the data you're going to get because currencies didn't even float that far back.''

$1.40s `Soon'

Volatility on one-month pound-yen options, a measure of expectations for future price swings, rose to 47.24 percent, the highest on record, indicating greater risk market moves may erode profits. The pound lost 15 percent against the yen in the week.

The pound may fall to the $1.40s ``very soon,'' said Hans- Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, the most accurate forecaster in a 2007 Bloomberg News survey.

``It has a lot to do with the underlying conditions in the British economy and how the situation in Europe as a whole is currently developing,'' Redeker said yesterday in an interview on Bloomberg television.

House prices will continue to fall and the pound may depreciate further, Bank of England Governor Mervyn King said in a speech to executives in Leeds, England, on Oct. 21.

Prime Minister Gordon Brown predicted the next day that the U.K. will slip into a recession for the first time since he took charge of Britain's finances in 1997. The remarks were Brown's first admission that the country's longest unbroken streak of economic growth in more than a century is over.

Rate-Cut Bets

``The combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand,'' King said. The Monetary Policy Committee ``will act promptly to ensure that inflation remains on track to meet our target.''

For the U.K. economy, the pound's drop will benefit manufacturers including Nissan Motor Co. and Ford Motor Co., which have factories in Britain, and help bring about the ``rebalancing'' that King has said for years is needed.

Earlier this week, King signaled he expected sterling to weaken further, noting that investors may be losing their appetite for U.K. assets because of the approaching recession, drying the amount of funds flowing into London banks.

``Unless they are replaced by other forms of external finance, the adjustments in the trade deficit and exchange rate will need to be larger and faster than would otherwise have occurred, implying a larger rise in domestic saving and weaker domestic spending in the short run,'' King said.

Bonds Jump

The chances that the Bank of England will lower its benchmark interest rate by as much as three-quarters of a percentage point by year-end rose to 30 percent yesterday, a Credit Suisse Group AG index of derivatives showed. The odds of a cut of that magnitude were 5 percent a day earlier.

Government bonds rose, with the yield on the two-year gilt plunging 54 basis points in the week to 3.09 percent, the steepest drop since February 1993. The 4.75 percent note maturing June 2010 climbed 0.84, or 8.4 pounds per 1,000-pound ($1,583) face amount, to 102.59. The yield on the 10-year security dropped 31 basis points to 4.36 percent, on course for its biggest weekly decline since 1999. Bond yields move inversely to prices.

To contact the reporter on this story: Kim-Mai Cutler in London at kcutler@bloomberg.net

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Nikkei May Fall to 5,000, Yen to 85 Per Dollar, Nikkei Reports

By Kathleen Chu

Oct. 25 (Bloomberg) -- The Nikkei-225 Stock Average may fall to as low as 5,000 and the Japanese currency may decline to 85 yen per dollar, Nikkei English News said, citing analysts.

Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp., Satoru Ogasawara of Credit Suisse Group and Minoru Shioiri of Mitsubishi UFJ Securities Co. all predicted the dollar might fall as low as 85 yen, Nikkei said.

There is ``no sign of a market bottom with the weak-yen bubble having collapsed,'' Nikkei said, citing Tsutomu Fujita, a strategist at Nikko Citigroup Ltd.

The yen rose 2.8 percent to 94.62 per dollar in New York Oct. 24, after touching 90.93, the strongest since August 1995. The Nikkei 225 Stock Average declined 811.90, or 9.6 percent, to close at 7,649.08 in Tokyo yesterday, a level not seen since April 2003.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

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India's Concerns About Rising Prices Persist, Subbarao Says

By Cherian Thomas

Oct. 25 (Bloomberg) -- India's central bank governor Duvvuri Subbarao said inflation concerns persist, stressing the need to balance price increases with slowing economic growth.

``We can't drop our guard on controlling inflation,'' Subbarao told reporters in Mumbai today.

Subbarao yesterday kept interest rates unchanged and signaled he may hold borrowing costs in the coming weeks, triggering a plunge in stock and bonds prices.

The central bank cut India's growth forecast to between 7.5 percent and 8 percent for the year to March 31, from the 8 percent estimated in July. It kept its inflation estimate unchanged at 7 percent by March 31, while betting the decline in commodity prices will slow price increases.

India's key wholesale price inflation is at 11.07 percent, more than double the 5 percent aim of the central bank.

To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net.

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Honda Operating Profit May Fall 40% on Yen's Gain, Nikkei Says

By Kathleen Chu

Oct. 25 (Bloomberg) -- Honda Motor Co., Japan's second- largest automaker, may have a 40 percent fall in operating profit this year because of the yen's gains against other currencies and slower sales in North America, Nikkei English News said.

Honda's operating profit, sales minus the cost of goods sold and administrative expenses, may decline to as low as 550 billion yen ($5.8 billion) for the year ending March 31, Nikkei reported, without saying where it got the information.

The Tokyo-based automaker earlier forecast its earnings on expected foreign exchange rates of 100 yen per dollar and 160 yen per euro for the second half of the fiscal year, the report said.

Declining sales in North America may contribute to the drop in operating profit, Nikkei said.

Honda Motor cut its full-year forecast for operating income by 3.1 percent to 630 billion yen on July 25, citing increased costs for raw materials.

Calls to Honda's Tokyo office seeking comment on the Nikkei report were unanswered.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

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European Stocks Decline on Earnings Concern; HSBC, Renault Drop

By Michael Patterson

Oct. 25 (Bloomberg) -- European stocks posted the second- steepest weekly drop in six years as a worse-than-expected slump in the U.K. economy and disappointing forecasts from Renault SA, Air France-KLM Group and OC Oerlikon Corp. spurred speculation that earnings expectations are too high.

HSBC Holdings Plc and Barclays Plc, the biggest U.K. banks, fell 13 percent as a 0.5 percent decline in second-quarter gross domestic product signaled Britain may be in the grip of its first recession since 1991. Renault lost 22 percent, Air France declined 20 percent and Oerlikon declined 24 percent. ABB Ltd., the world's largest builder of electricity grids, declined 23 percent on orders that missed analysts' estimates.

Europe's Dow Jones Stoxx 600 Index lost 7.2 percent this week to 198.82, the lowest since June 2003. The retreat was the second-biggest since July 2002, after a 22 percent slump two weeks ago.

``Most companies reporting earnings this week have disappointed or given cautious outlooks,'' Bertrand Lamielle, head of equities at B*Capital in Paris, which oversees $5.1 billion, said in an interview on Bloomberg Television. ``We're waiting for less volatility to start investing again.''

The Stoxx 600 has retreated 45 percent this year as a freeze in credit markets sparked by $659 billion of asset writedowns and credit losses at banks raised concern that the global economy is headed for a recession. The benchmark is valued at 8.3 times the reported earnings of companies in the index, the lowest since Bloomberg began tracking the data in 2002.

Indexes Drop

National benchmark indexes fell in all 18 western European markets except Iceland, with Germany's DAX sinking 10 percent. France's CAC 40 dropped 4.1 percent, while the U.K.'s FTSE 100 retreated 4.4 percent. About $30 trillion of market value has been erased from global equities in 2008, with about a third of the decline coming this month, Bloomberg data show.

The U.K. is the first of the Group of Seven nations to announce GDP figures for the third quarter. The International Monetary Fund predicts the world's advanced economies will grow at the slowest pace since 1982 next year as the U.S. falters.

HSBC declined 13 percent. Morgan Stanley lowered earnings estimates for the lender on concern its Asian operations face the same turmoil roiling financial markets in Europe and America.

Barclays declined 13 percent after the bank was lowered to ``neutral'' from ``buy'' at UBS AG, which said earnings and dividends may be hurt as it shores up capital amid a slowing economy.

Libor

The thaw in lending that began earlier this month after policy makers pumped cash into money markets and governments bailed out banks may be faltering as the global economy slides into a recession.

The London interbank offered rate, or Libor, that banks charge for overnight loans in dollars, climbed 7 basis points to 1.28 percent Oct. 24, the British Bankers' Association said. It gained for the first time in 10 days Oct.23. The comparable rate for U.K. pounds jumped 19 basis points to 4.75 percent.

Renault declined 22 percent. France's second-largest carmaker cut its full-year profit and sales goals after third- quarter revenue fell 2.2 percent amid a slump in auto demand.

PSA Peugeot Citroen, Europe's second-biggest carmaker, cut its full-year earnings target and said production will be slashed by 30 percent following a ``collapse'' in the global car market. The shares lost 11 percent.

Daimler

Daimler AG, the world's second-biggest maker of luxury cars, also cut its full-year earnings forecast, sending the shares down 13 percent.

Earnings at the 66 companies in the Stoxx 600 tracked by Bloomberg that reported profits since September sank by an average of 19 percent, Bloomberg data show. Analysts expect profit for companies in Europe's Stoxx 600 to decline 4.4 percent in 2008, down from 11 percent growth predicted at the start of the year, according to projections compiled by Bloomberg.

Air France dropped 20 percent after Europe's biggest airline said it will be ``very difficult'' to meet full-year earnings targets as the financial crisis undermines demand for travel.

OC Oerlikon, the world's biggest maker of spinning machines, cut its full-year forecast for operating profit on slumping textile-equipment demand. The shares lost 24 percent.

ABB declined 23 percent after orders at the world's largest builder of electricity grids advanced 7 percent to $8.89 billion, down from 33 percent growth a year earlier and short of the $9.56 billion predicted by analysts. Net income rose to a record $927 million, also short of analyst estimates.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.

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China Urges U.S. to Avoid Protective Trade Measures on Steel

By Li Yanping

Oct. 25 (Bloomberg) -- China urged the U.S. to avoid using protective measures against steel imports from the Asian nation.

``China's steel companies are competing with foreign counterparts under an open market environment,'' the Ministry of Commerce said in a statement on its Web site late yesterday. ``There are no government subsidies and the government has taken several measures to limit steel exports,'' the ministry said after steelmakers and trade officials from the two nations met in Beijing for two days.

China has ``paid attention to maintaining balance in the global steel market'' as the world's No. 1 steel producer and consumer, the ministry said.

The U.S. decided on July 17 to impose duties on $200 million of steel pipe imports from China, South Korea and Mexico after a ruling by the U.S. International Trade Commission. As a result, Chinese exporters of light, rectangular piping face countervailing duties used to counter subsidies of as much as 200 percent of the price of the product, and anti-dumping duties, which compensate for goods sold overseas at prices below those at home, of as much as 265 percent.

China followed up by filing a World Trade Organization complaint in September against the U.S. over duties imposed on Chinese steel pipe.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net



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Vietnam Annual Inflation Slows a Second Month on Fuel Prices

By Jason Folkmanis

Oct. 25 (Bloomberg) -- Vietnamese annual inflation slowed for a second month in October, eased by fuel-price cuts and the reluctance of local banks to make loans. The monthly inflation rate declined for the first time since March 2006.

Consumer prices climbed 26.7 percent in October from the same time a year earlier, according to figures released today by the General Statistics Office in Hanoi. Year-on-year inflation in September was 27.9 percent. On a monthly basis, prices fell 0.2 percent in October from September, the first decline in two-and-a-half years.

Inflation has seen ``a vast improvement from earlier in the year,'' DWS Vietnam Fund Ltd. said in a note sent to investors on Oct. 23.

On Oct. 21, the State Bank of Vietnam cut its key interest rate to 13 percent from 14 percent, with HSBC Holdings Plc saying the bank was encouraged by evidence of slowing inflation. U.S. Federal Reserve Chairman Ben S. Bernanke and the heads of six other central banks said this month that global inflationary pressures are moderating amid a financial crisis.

``The world is changing quickly,'' said Alain Cany, the Ho Chi Minh City-based chairman of the European Chamber of Commerce in Vietnam, in an Oct. 20 telephone interview. Vietnam ``may not have to fight inflation so much by themselves. Commodity prices are coming down.''

Prices in the category including transportation rose 24.8 percent from a year ago, down from a 26.1 percent annual rate in September, and fell 0.9 percent from September. The price of 92-RON gasoline, the country's most commonly used grade, is now at 15,500 dong ($0.92) per liter, down from 17,000 dong at the beginning of the month.

Food Prices

Food prices rose 40.6 percent year-on-year, down from a 42.7 percent annual rate in September. On a monthly basis, food prices fell 0.4 percent from September, with prices in the sub- category including rice declining 1.9 percent.

Export prices for Vietnam's top-quality rice grade fell 15 percent in the week ending Oct. 7 from a month earlier, according to the U.S. Agriculture Department. ``Global rice prices continue to decline,'' the Agriculture Department said in a report this month.

Prices in the category including construction materials rose 22.8 percent, down from a 26.1 percent year-on-year rate in September, and declined 1.1 percent on a monthly basis.

Local companies are having difficulty securing financing after a rise in interest rates earlier in the year and amid a government focus on keeping credit expansion in check, the U.K.-listed fund Vietnam Holding Ltd. said this month. ``Inflation has responded to policy changes,'' Vietnam Holding said.

Vietnam's inflation rate in August reached 28.3 percent, the highest year-on-year level since at least 1992, according to figures from the General Statistics Office in Hanoi.

To contact the reporters on this story: Jason Folkmanis in Ho Chi Minh City at folkmanis@bloomberg.net

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Japan May Buy Shares From Banks to Stem Stock Fall, Nikkei Says

By Kathleen Chu

Oct. 25 (Bloomberg) -- Japan's government may buy shares held by the nation's banks to help stabilize financial markets, the Nikkei newspaper reported today, after the domestic benchmark index fell to a five year low.

Global stock markets have lost more than $10 trillion of value this month, almost a third of the total worth of equities, amid growing concern central bankers and finance officials won't be able to stem the erosion of corporate earnings and job losses. Japan's Nikkei 225 Stock Average slid 9.6 percent yesterday to within less than a percentage point of its lowest since 1982.

Fallout from the financial turmoil will prompt Bank of Japan Governor Masaaki Shirakawa and his colleagues to cut their growth forecasts in a twice-yearly outlook on Oct. 31, economists say.

Speculation is growing the central bank will cut interest rates on concern the world's second-largest economy will suffer a prolonged recession. The government this week acknowledged Japan has probably entered its first recession in six years after the economy shrank in the second quarter and factory output, machine orders and household spending fell in August.

Japanese lawmakers may next week consider reviving laws used to prop up bank capital and purchase almost 2 trillion yen ($21 billion) of shares from lenders between 2002 and 2006, Nikkei reported today, without saying where it obtained the information. The government earlier this month said it would stop selling those shares as part of a package of market-support measures.

The Nikkei 225, which closed yesterday at 7,649.08, may plunge as low as 5,000, Nikkei reported today, citing analysts.

`No' to Norinchukin

The nation's largest banks will be eligible for public funds once the government revives a bailout law authorizing injections of public funds into banks that need additional capital, Economic and Fiscal Policy Minister Kaoru Yosano said on Oct. 21.

Japanese opposition parties, led by the Democratic Party of Japan, may oppose any assistance to Norinchukin Bank on the grounds it isn't properly filling its role as the central bank for farm and fishery cooperatives, Nikkei said today. Less than 10 percent of the bank's lending goes to small companies, and the Democratic Party says that should preclude it from receiving funds meant to help banks support local businesses, Nikkei said.

Additional measures the government may take to soothe the markets include stricter rules on stock trading, more flexible regulations on fair-value accounting and changes to the capital requirements on banks, Nikkei English News said today. Japan may announce emergency measures to cope with the financial crisis as early as next week, the report said.

What to Do

Asian and European Union leaders today urged an overhaul of global financial regulation, pledging to ``undertake effective and comprehensive reform of the international monetary and financial systems,'' following a two-day meeting in Beijing.

Leaders from around the world will gather in Washington on Nov. 15 to assess the turmoil at the urging of the EU, which has called for stricter bank supervision and regulation of hedge funds, new rules for credit-rating companies and changes at the International Monetary Fund.

The U.S. has said it will invest $250 billion in its banks and urged lenders to use the funds to spur economic growth. The injection came after France, Germany, Spain, the Netherlands and Austria pledged 1.3 trillion euros ($1.6 trillion) to guarantee bank loans and take stakes in lenders.

MSCI's index of developed and emerging stock markets is heading for its worst year on record, down 48 percent already in 2008 as credit-related losses topped $660 billion.

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

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Hanwha's Takeover of Daewoo Shipbuilding Raises Funding Concern

By Kyunghee Park and Seonjin Cha

Oct. 25 (Bloomberg) -- Hanwha Group's successful bid for the world's third-largest shipbuilder raised concern the South Korean industrial company may struggle to raise funds for the buyout amid the global financial crisis.

A contract for the controlling stake in Daewoo Shipbuilding & Marine Engineering Co. will be signed in December after Hanwha completes due diligence, Chung In Sung, senior executive director at Korea Development Bank, said in Seoul yesterday. The bank, which arranged the sale and is the shipyard's biggest shareholder, didn't disclose how much Seoul-based Hanwha will pay for the 50.4 percent stake.

Hanwha, with interests from explosives to shopping malls, is seeking to expand its construction and energy businesses into areas including oil tankers and deep-sea drilling structures to boost earnings growth. Shares of its main units fell by their daily limits yesterday on concern the global credit crunch will increase costs to fund the offer, valued by analysts at as much as 6.77 trillion won ($4.6 billion), according to a report today by Korea Economic Daily.

``In the current environment, it will be difficult for companies to finance that much money,'' said James Kim, an analyst at KB Investment & Securities Co. in Seoul. ``Shares in companies that are linked in any way with possible mergers and acquisitions get battered.''

Stocks Plunge

Hanwha Chemical Corp. and Hanwha Corp., units of Hanwha Group, plunged 15 percent yesterday in Seoul trading. The key Kospi index slid 11 percent, as the slowest growth in four years stoked concern the economy is headed for a recession.

``We don't expect Hanwha will have problems raising funds for the takeover, based on the proposal it submitted,'' Korea Development Bank's Chung said.

Hanwha will comply with the rules set for the takeover, it said in a statement yesterday. Total debt at the three Hanwha units taking part in the bid, including unlisted Hanwha Engineering & Construction Corp., stood at 7.6 trillion won at the end of June, according to Aug. 14 regulatory filings. They held a combined 1 trillion won in cash.

Daewoo Shipbuilding's order backlog totaled $45.24 billion at the end of August, with drill ships and other offshore platforms accounting for a third of the orders. The shipyard builds vessels in South Korea's Okpo City and in Romania.

``Finally Daewoo Shipbuilding will have an owner that will enable the company to become more aggressive in expanding its business and exploring new opportunities,'' said Lee Jae Kyu, an analyst at Mirae Asset Securities Co. in Seoul.

Hyundai Heavy Industries Co., the world's biggest shipyard, which also bid for the stake, said it accepts Korea Development Bank's decision.

Record Run Ending

The transaction, the largest in the shipbuilding industry, comes as South Korean shipyards show signs their five-year run of record orders is ending as demand for fuel and consumer goods slows. Shipbuilding contracts fell 22 percent in the first eight months of the year, according to Clarkson Plc, the world's largest shipbroker.

Still, orders at South Korean yards, the world's biggest, reached a record $215.6 billion at the end of August, accounting for about 40 percent of a global $544.9 billion, Clarkson said.

Korea Development Bank, which owns 31 percent of Daewoo Shipbuilding, and Korea Asset Management Corp., with 19 percent, became shareholders after rescuing the company from near- collapse. They swapped their debt for equity in December 2000.

To contact the reporters on this story: Kyunghee Park in Hong Kong at kpark3@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net

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Asia Backs Sarkozy Push for Financial-Market Revamp

By Jennifer M. Freedman and Jonathan Stearns

Oct. 25 (Bloomberg) -- Asian and European Union leaders called for an overhaul of global banking rules that date back to World War II, lending support to French President Nicolas Sarkozy as he presses the U.S. to join a worldwide effort to resolve the financial crisis.

The heads of state and government ``pledged to undertake effective and comprehensive reform of the international monetary and financial systems,'' according to a statement released at a two-day meeting in Beijing. Chinese President Hu Jintao, Japanese Prime Minister Taro Aso, German Chancellor Angela Merkel and Sarkozy are among the more than 40 Asian and European leaders participating.

The summit, which ends today, is the first gathering of Asian and EU leaders since calls for coordinated action mounted along with bank failures and plunging stock prices that began last month. The U.S. will host the Group of 20 industrialized and developing nations on Nov. 15 at Sarkozy's urging.

South Korea said it ``highly valued'' Sarkozy's ``strong leadership.'' The French leader has compared the effort to the 1944 Bretton Woods conference in New Hampshire that fixed exchange rates, hitched the world to the gold standard and created the International Monetary Fund and World Bank.

The EU has floated the ideas of including more bank supervision, stricter regulation of hedge funds, new rules for credit-rating companies and changes at the IMF.

`Falling Behind'

``The IMF, World Bank and other agencies are falling behind the times,'' said Jeon Hyochan, a researcher at Samsung Economic Research Institute in Seoul. ``The agencies need to strengthen their ability to take pre-emptive measures.''

The Washington-based IMF is considering an emergency program to prevent a collapse of emerging markets by almost doubling borrowing limits for members and waiving its standard demands for economic austerity measures. The agency agreed yesterday to lend Iceland $2.1 billion in accordance with existing rules after the island nation's banking system collapsed, threatening a prolonged economic contraction.

``There is a unanimous consensus to push forward reform,'' said Kazuo Kodama, a spokesman at Japan's Ministry of Foreign Affairs. No agreement has been reached on the details of that reform, he said.

`Excessively Stringent'

Japan wants the IMF to be able to act in a ``nimble, speedy, timely manner'' and ``without excessively stringent conditions'' when helping poorer nations, said Osamu Sakashita, a spokesman for the prime minister's office.

The EU and Asian leaders were less specific in their statement, which says the ``IMF should play a critical role in assisting countries seriously affected by the crisis.''

Sarkozy's campaign for an overhaul threatens to expose differences with the U.S. over global financial governance. That may provoke tensions and bog down talks while individual countries continue to act on their own to limit the fallout.

South Korea stressed the importance of unity in taking any actions. ``If Europe and the U.S. become united, it would enhance whatever countermeasures are taken,'' South Korean President Lee Myung Bak said today, according to his spokesman, Lee Dong Kwan.

The credit crisis is choking off funds to companies and people, undermining business and consumer sentiment. Economists at Deutsche Bank AG expect the Group of Seven economies to contract 1.1 percent next year, the worst since the Great Depression, and global growth to be the weakest since the 1980s.

Markets Tumble

Stock markets around the world have tumbled this year amid growing concern that governments, central banks and finance ministers are powerless to counter eroding corporate earnings and job losses.

More than $10 trillion has been erased from the market value of equities so far this month, accounting for about one- third of the total value wiped off stocks this year. MSCI's index of developed and emerging stock markets plunged 48 percent in 2008 and is heading for its worst year on record as credit- related losses topped $660 billion.

The Standard & Poor's 500 index is down more than 40 percent this year, poised for its worst annual retreat since 1931. The S&P 500 has lost 26 percent since U.S. investment bank Lehman Brothers Holdings Inc. declared bankruptcy on Sept. 15, while the U.K.'s FTSE 100 has fallen 25 percent, Japan's Nikkei 225 has tumbled 37 percent and Germany's DAX has dropped 29 percent.

To contact the reporters on this story: Jennifer M. Freedman in Beijing at jfreedman@bloomberg.net; Jonathan Stearns in Beijing at jstearns2@bloomberg.net

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Malaysia Holds Rate, Vows Action to Support Economy

By Shamim Adam

Oct. 25 (Bloomberg) -- Malaysia's central bank pledged it will take action to prevent the economy from deteriorating after keeping the benchmark interest rate unchanged for the 20th straight meeting.

``In the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, the bank will take swift monetary policy action to provide support to the economy,'' Bank Negara Malaysia said yesterday, after maintaining the overnight policy rate at 3.5 percent.

The decision contrasts with cuts by central banks in China, India and Australia, which have lowered borrowing costs in recent weeks to spur growth amid a looming global recession. Malaysia's inflation has started to ease from a 26-year high and that may give the central bank room to reduce interest rates should the economy slump.

``Bank Negara will look to ease policy, possibly as soon as the next meeting, especially if the growth risks become clearer and inflation risks diminish,'' said Mark Tan, an economist at Goldman Sachs Group Inc. in Hong Kong. ``The main factor that will influence future rate decisions would be how fast they expect the growth outlook to unravel.''

Earlier this year, the central bank had held off from raising rates to cool inflation as challenges to Prime Minister Abdullah Ahmad Badawi's leadership threatened to hurt consumer confidence and economic growth. Opposition Leader Anwar Ibrahim, who had said he wanted to topple the government by September, said this week that goal is now harder to achieve.

Inflation Peaks

The Malaysian ringgit is the fifth worst performer among 10 Asian currencies, according to Bloomberg data. It has fallen 7.5 percent against the U.S. dollar this year, compared with a 6.7 percent gain by the Chinese renminbi and a 34 percent plunge by the South Korean won.

The central bank said yesterday inflation has peaked and risks to global growth have increased ``significantly.'' Consumer-price gains slowed to 8.2 percent last month from 8.5 percent in August.

Bank Negara expects inflation to slow to below 4 percent before the second half of 2009, Governor Zeti Akhtar Aziz said last week. The government cut gasoline prices three times since late August as crude oil fell from a record in July.

``An increasing number of indicators now signal an easing of inflationary pressures,'' the central bank said yesterday. ``Lower cost pressures and moderating domestic demand are expected to reduce inflation in 2009.''

Global Crisis

Central banks around the world are shifting their focus to supporting growth from damping inflation as the global credit crisis escalates. The turmoil has led to the collapse of banks and forced some countries to approach the International Monetary Fund for loans, while more nations are reporting a contraction in their economies, increasing the risk of a world recession.

During the 1997 Asian financial crisis, Malaysia rejected IMF money, opposing conditions on government policies that came with such loans. Malaysia imposed restrictions on foreign exchange movements in September 1998, trapping about $10 billion in foreign investment in the country, and pegged the ringgit at 3.8 to the U.S. dollar.

``The greater focus of policy makers is now toward restoring the functioning of the international financial markets and toward avoiding a sharp global economic downturn,'' Bank Negara said.

Growth Forecast

Malaysia will cut its 2009 economic-growth forecast on Nov. 4, from the current estimate of 5.4 percent, Finance Minister Najib Razak said this week.

``The slower global growth and the decline in commodity prices will affect the performance of the export sector and consequently, the overall economic growth in 2009,'' the central bank said.

Other central banks have already cut interest rates. The Reserve Bank of India lowered its benchmark by 1 percentage point on Oct. 20, while China has cut borrowing costs twice in the past six weeks.

To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net

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Shanghai Auto Gets Approval to Transfer Shares to Nanjing Auto

By Li Yanping

Oct. 25 (Bloomberg) -- Shanghai Automotive Industry Corp. (Group), China's largest automaker, received government approval to transfer shares in a listed unit to Nanjing Automobile Group Corp.

Shanghai Auto received notice recently from the local state-asset supervision and administration agency to transfer 320 million shares in SAIC Motor Corp. to Nanjing Auto, the listed unit said in a statement to the Shanghai Stock Exchange today.

Nanjing Auto will not sell the shares within 20 months after the transaction is completed, SAIC Motor said in the statement. After the transfer, Shanghai Auto will hold 78.94 percent of SAIC Motor, and Nanjing Auto will hold 4.88 percent, according to the statement.

Shanghai Auto signed an agreement in December to buy Nanjing Auto's auto-assembly and component-making businesses as China urges its carmakers to consolidate.

To contact the reporter on this story: Li Yanping in Beijing at Yli16@bloomberg.net



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GPT Sells A$1 Billion in Shares to Institutions to Repay Debt

By Jacob Greber

Oct. 25 (Bloomberg) -- GPT Group, an Australian real estate investment trust, sold A$1 billion ($620 million) in a rights offer to institutional investors at a 48 percent discount to its last traded share price to repay debt amid falling property values.

Investors bought shares at 60 Australian cents each, GPT said in a statement last yesterday in Sydney. The stock was placed in a trading halt Oct. 22 at A$1.15, valuing the company at A$2.6 billion. In a separate deal, Government of Singapore Investment Corp. bought A$250 million exchangeable securities at A$1.25 a share. GPT will seek an additional A$300 million from retail investors in an offer which opens Oct. 30.

GPT, whose Chief Executive Officer Nic Lyons stepped down this week, is seeking at least A$1.3 billion to repay borrowings after property values dropped. The company is trying to sell almost one-third of its A$14 billion of assets, and in August reported a first-half loss due to property and goodwill writedowns.

The company's shares have dropped 72 percent this year, wiping A$6.1 billion from the trust's market value. Trading in the stock is expected to resume on the Australian stock exchange Oct. 27, the company said in the statement.

The sale to GIC is expected to give Singapore's sovereign wealth fund between 12 percent and 18 percent of GPT, making it the largest shareholder, according to data compiled by Bloomberg. The GIC purchase includes a seat on the company's board and a veto over major transactions.

GIC said in a statement Oct. 23 that it has ``always believed in the fundamentals of the Australian economy and its property sector.''

GPT wrote down assets by A$344 million as it reported a first-half net loss of A$68 million compared with a profit of A$737 million a year earlier.

The new GPT securities are due to be listed on Nov. 11 and commence trading on the same day, it said. The offer is being underwritten by UBS AG, Deutsche Bank AG and Goldman Sachs JBWere Ltd.

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



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Japan's Bonds Complete Best Week Since June on Stocks Rout

By Theresa Barraclough

Oct. 25 (Bloomberg) -- Japan's 10-year bonds yesterday capped the biggest weekly gain since June as investors sought to preserve their capital amid a global stocks rout that wiped out more than $10 trillion of market value this month.

The securities yesterday climbed for a fourth day after Sony Corp. cut its annual earnings target by more than half, sending the Nikkei 225 Stock Average down to the brink of 1982 levels. Demand for shorter-maturity debt increased on mounting speculation the Bank of Japan will lower interest rates this year to prevent a prolonged recession.

``JGBs are relatively attractive,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo. ``The decline in corporate-sector performance will weigh on domestic stocks.''

The yield on the 1.5 percent bond due September 2018 fell 9 basis points this week to 1.48 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.773 yen on the week to 100.172 yen. A basis point is 0.01 percentage point.

Five-year yields declined 11.5 basis points since last week to 1.025 percent. Ten-year bond futures for December delivery gained 1.95 to 137.70 as of the afternoon close at the Tokyo Stock Exchange yesterday.

Sony, the world's second-biggest maker of consumer electronics, on Oct. 23 slashed its forecast for annual operating profit by 57 percent, citing the stronger yen and worsening market conditions for televisions and digital cameras.

The yen has climbed 13 percent against the dollar over the past three months, the sole gainer among the 16 most-actively traded currencies. The Nikkei yesterday dropped below 8,000 for the first time since May 2003, finishing at 7,649.08 in Tokyo, just 41 points shy of the lowest close since 1982.

Stock Losses

Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.97 with the Nikkei 225 this week, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.

The gain in longer-dated bonds was limited on speculation the government will issue debt to finance an economic stimulus package, according to Principal Global Investors. Twenty-year yields increased 3 basis points this week to 2.175 percent.

``People are staying away from the long end,'' said Guthrie Williamson, portfolio manager in Sydney at PGI, which manages $244.9 billion in assets globally. ``The absorption will drive the market in the short term.''

The government will compile a second economic stimulus package by the end of the month, having drafted a 2 trillion yen ($20.8 billion) plan in August. Finance Minister Shoichi Nakagawa said on Oct. 21 that selling bonds to pay for an additional package remains an option.

Rate-Cut Odds

There was a 26 percent chance yesterday the Bank of Japan will lower its benchmark rate to 0.25 percent from 0.5 percent by year-end, up from 3 percent odds a month ago, according to calculations by JPMorgan Chase & Co. using overnight interest- rate swaps.

``With the yen advancing and stocks falling, concerns about Japan's financial system and economy are mounting,'' said Jun Fukashiro, senior fund manager at Toyota Asset Management Co. in Tokyo. ``A rate cut seems unavoidable.''

The government this week acknowledged Japan has probably entered its first recession in six years after the economy shrank in the second quarter and factory output, machine orders and household spending fell in August.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.



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Malaysia Holds Rate, Pledges `Swift' Action to Support Growth

By Shamim Adam

Oct. 25 (Bloomberg) -- Malaysia's central bank pledged it will take action to prevent the economy from deteriorating after keeping the benchmark interest rate unchanged for the 20th straight meeting.

``In the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, the bank will take swift monetary policy action to provide support to the economy,'' Bank Negara Malaysia said yesterday, after maintaining the overnight policy rate at 3.5 percent.

The decision contrasts with cuts by central banks in China, India and Australia, which have lowered borrowing costs in recent weeks to spur growth amid a looming global recession. Malaysia's inflation has started to ease from a 26-year high and that may give the central bank room to reduce interest rates should the economy slump.

``Bank Negara will look to ease policy, possibly as soon as the next meeting, especially if the growth risks become clearer and inflation risks diminish,'' said Mark Tan, an economist at Goldman Sachs Group Inc. in Hong Kong. ``The main factor that will influence future rate decisions would be how fast they expect the growth outlook to unravel.''

Earlier this year, the central bank had held off from raising rates to cool inflation as challenges to Prime Minister Abdullah Ahmad Badawi's leadership threatened to hurt consumer confidence and economic growth. Opposition Leader Anwar Ibrahim, who had said he wanted to topple the government by September, said this week that goal is now harder to achieve.

Inflation Peaks

The central bank said yesterday inflation has peaked and risks to global growth have increased ``significantly.'' Consumer-price gains slowed to 8.2 percent last month from 8.5 percent in August.

Bank Negara expects inflation to slow to below 4 percent before the second half of 2009, Governor Zeti Akhtar Aziz said last week. The government cut gasoline prices three times since late August as crude oil fell from a record in July.

``An increasing number of indicators now signal an easing of inflationary pressures,'' the central bank said yesterday. ``Lower cost pressures and moderating domestic demand are expected to reduce inflation in 2009.''

Central banks around the world are shifting their focus to supporting growth from damping inflation as the global credit crisis escalates. The turmoil has led to the collapse of banks and forced some countries to approach the International Monetary Fund for loans, while more nations are reporting a contraction in their economies, increasing the risk of a world recession.

Global Downturn

``The greater focus of policy makers is now towards restoring the functioning of the international financial markets and towards avoiding a sharp global economic downturn,'' Bank Negara said.

Malaysia will cut its 2009 economic-growth forecast on Nov. 4, from the current estimate of 5.4 percent, Finance Minister Najib Razak said this week.

``The slower global growth and the decline in commodity prices will affect the performance of the export sector and consequently, the overall economic growth in 2009,'' the central bank said.

Other central banks have already cut interest rates. The Reserve Bank of India lowered its benchmark by 1 percentage point on Oct. 20, while China has cut borrowing costs twice in the past six weeks.

To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net



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Asian Currencies Drop in Week, Led by Won, on Recession Concern

By Anil Varma and Kim Kyoungwha

Oct. 25 (Bloomberg) -- Asian currencies slumped this week, led by South Korea's won and Indonesia's rupiah, as stocks slid on concern a global recession will damp demand for the region's exports.

The won had a sixth weekly decline as the central bank said Asia's fourth-largest economy grew 0.6 percent last quarter, the slowest pace in four years. Choi Chun Sin, director general of the Bank of Korea's statistics department, said yesterday growth is slowing ``faster than expected'' and will fall short of the bank's forecast of 4.6 percent for 2008. Nine of the 10 most- active Asian currencies Bloomberg tracks fell this week.

``Sentiment is really fragile,'' said Jo Hyun Suk, a currency dealer at Korea Exchange Bank in Seoul. ``The foreign exchange is being easily swayed by any bad news in a market whose volume shrank sharply of late.''

The won dropped 6.3 percent this week to close at 1,424 per dollar in Seoul, near the lowest level in a decade, according to Seoul Money Brokerage Services Ltd. The rupiah touched 10,315 a dollar, the weakest since October 2005.

The South Korean currency extended its loss this year to 35 percent, making it Asia's worst performer. The Kospi stock index lost 20.5 percent this week as overseas funds sold more of the nation's shares than they bought for an eighth day, according to Korea Exchange.

The MSCI Asia-Pacific Index of shares dropped 5 percent yesterday after Sony Corp. cut its earnings estimates and Korea's economic growth slowed. Japan's Nikkei 225 Stock Average plunged 9.6 percent.

Carry Trades

The yen climbed to a 13-year high yesterday against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher- yielding assets with the Japanese currency. The dollar rose to a two-year high versus the euro.

The yen also surged to the strongest in six years versus the euro after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. Standard & Poor's Ratings Services yesterday threatened to cut Russia's debt ratings.

``I can't rule out the scenario where the yen rises even faster than anticipated,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital. ``Speculators are unwinding carry trades. This risk aversion is coming from the credit crunch and the chance of a global recession.''

The yen rose as high as 90.93 per dollar, the highest level since August 1995, before trading at 93.29 yesterday. Against the euro, it climbed to 113.81 yen before trading at 118.66 yen versus 125.89 yen. The euro bought $1.2703 from $1.2934.

`Bad Sentiment'

Indonesia's rupiah rounded off a weekly loss on speculation investors sold the nation's assets. The currency has dropped 6.8 percent this month as the central bank was forced to rescue its Dutch commercial banking unit to prevent the collapse of the lender from affecting its credibility.

``It's a story of bad sentiment'' locally and in other emerging markets, said Enrico Tanuwidjaja, an economist at Oversea-Chinese Banking Corp. in Singapore.

Bank Indonesia will intervene although it can't defy ``big'' capital outflows, Governor Boediono said yesterday. Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.

The rupiah fell 4.1 percent this week to 10,225 per dollar in Jakarta, according to data compiled by Bloomberg.

Taiwan's dollar completed its biggest weekly loss in 10 years after a government report showed the export outlook worsened more than economists expected last month.

`Contagion'

The currency fell for an eighth day yesterday, the longest losing streak since August, after the Ministry of Economic Affairs said export orders grew at the slowest pace in six years in September as demand from the U.S. and China cooled. The central bank sold about $500 million on Oct. 23 to help slow the local dollar's loss, the Commercial Times reported yesterday, citing traders it didn't identify.

``Taiwan is very exposed to the rest of the world,'' said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. ``Obviously the central bank is slowing the move somewhat but it's a contagion.''

The island's currency slumped 2.65 percent this week to NT$33.412 against the U.S. dollar, the biggest five-day loss since the period ended Jan. 10, 1998, according to Taipei Forex Inc. The local dollar lost 0.4 percent yesterday.

India's rupee fell for an 11th week after the central bank cut the economic growth outlook for the year ending March 31 to as little as 7.5 percent from an earlier estimate of 8 percent.

The currency slid as much as 0.7 percent to 50.165 per dollar, an all-time low, before closing at 49.985 in Mumbai yesterday, data compiled by Bloomberg show. The currency has lost more than 21 percent this year and is headed for its worst year since 1991.

`Troubling Sign'

The Philippine peso fell for a fifth week as manufacturers bought fewer electronic parts for a sixth month in August, suggesting exports of laptops and mobile-phone chips will extend declines.

``The continued drop in electronics imports is symptomatic of the weakening global demand and a troubling sign that exports will slow,'' said David Cohen, an economist with Action Economics in Singapore. ``In this environment, the peso will remain under pressure.''

The peso lost 1.9 percent in the week to close at 48.991 per dollar in Manila, according to Bankers Association of the Philippines. Exports make up about 40 percent of the Philippine economy.

Elsewhere, the Thai baht fell 1.3 percent versus the dollar this week to 34.70 and the Singapore dollar dropped 1.9 percent to S$1.5105. Vietnam's dong weakened 1.5 percent to 16,848.

To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.

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Asian Stocks Retreat for Seventh Week in Eight on Weak Profits

By Patrick Rial and Satoshi Kawano

Oct. 25 (Bloomberg) -- Asian stocks dropped for the seventh week in eight, sending the region's benchmark index to the lowest level since 2004, on signs profits are declining as the credit crisis worsens.

Sony Corp., maker of the Playstation2 game console, slumped 19 percent to the lowest in 13 years after slashing its profit forecast on weaker demand for electronics and the surging yen. Samsung Electronics Co. led South Korea's Kospi Index to its biggest weekly drop in at least two decades after its profit tumbled and as the government stepped up measures to shore up the nation's financial system. Newcrest Mining Ltd., Australia's largest gold producer, led a drop by commodities producers as oil, gold and copper all recorded new lows for the year.

``Financial markets have crashed and are out of control,'' said Yuji Ogino, an executive director at Meiji Dresdner Asset Management Co., which manages the equivalent of $28 billion in Tokyo. ``This crash is different from anything I've experienced since getting into this business in the late 1980s and it's hard to find ways to ride out the situation.''

The MSCI Asia Pacific Index lost 7.9 percent to 80.40 this week, bringing the index to its lowest close since May 2004. Measures of commodity and electronics companies posted the steepest declines among the index's 10 industry groups as only utilities recorded gains.

The MSCI gauge has lost 49 percent this year and is on track for its worst annual performance since it was created in 1987. About half the value of global equities has been erased in the last year, with almost $30 trillion in value lost.

South Korea, Japan


Japan's Nikkei 225 Stock Average dropped 12 percent to 7,649.08, bringing it less than 50 points away from a level last seen in 1982. The yen soared to as high as 90.93 versus the dollar as investors sought a safe haven from the financial crisis, which conversely exacerbated losses by exporters dependent on overseas sales for their profit.

Sony dropped 19 percent to 1,972 yen, the lowest since June 1995. The consumer electronic giant slashed its full-year profit forecast by 58 percent as digital camera and television sales are likely to miss previous estimates.

Samsung retreated 19 percent to 407,500 won. Third-quarter net income declined 44 percent to the lowest level since 2003 and the company abandoned a takeover bid for memory maker SanDisk Corp.

South Korea's Kospi index sank 20 percent as the government proposed a $130 billion bailout package for the nation's banks after Standard & Poor's said it may cut their credit ratings.

Singapore Telecommunications Ltd. fell 18 percent to S$2.06 after announcing job cuts and as partners withdrew from a SingTel-led group bidding to build Australia's national high- speed Internet network.

Hedge Funds Redemptions?

Shares also dropped amid speculation hedge funds are being forced to sell shares as clients put in redemption requests amid losses. Hedge funds worldwide posted an average monthly loss of 4.7 percent in September, a record, according to Eurekahedge Pte.

``Investors are fleeing risky assets,'' said Paul Joseph Garcia, who helps manage $1.33 billion as chief investment officer at ING Investment Management Ltd.'s Manila unit. ``After the hedge funds, long-term funds are now taking their turn and pulling money off the table to meet redemptions.''

Newcrest slumped 23 percent to A$17.45. Inpex Corp., Japan's biggest oil explorer, retreated 14 percent to 518,000 yen. Posco, Asia's third-largest steelmaker, lost 20 percent to 242,000 won as the company announced production cuts due to weakening steel demand.

Crude oil for November delivery dropped as low as $62.65 this week, down by more than half from a July record. Gold futures slumped to the lowest in more than a year, while copper prices retreated for the fifth time in six weeks.

Citic Pacific Ltd. lost 65 percent to HK$5.06 after saying it may have lost about $2 billion on wrong-way currency bets and its debt ratings were cut.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at Skawano1@bloomberg.net.


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Paulson Weighs Stakes in Insurers, Regional Lenders

By Robert Schmidt

Oct. 24 (Bloomberg) -- The U.S. Treasury is considering taking stakes in insurers, as it prepares a new round of capital injections to target regional banks and other financial companies, a person briefed on the plan said.

A final decision hasn't been made on whether insurers will be included in the government's purchases of preferred equity, said the person, who spoke on the condition of anonymity. The Treasury, which had planned to announce investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.

An initial $125 billion out of $700 billion approved by Congress was allocated last week to buy shares of nine of the largest U.S. banks and another $125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Secretary Henry Paulson's Troubled Asset Relief Program as the credit crisis deepens.

``Capital adequacy has been a major concern among investors'' in insurance companies, said Nigel Dally, an analyst at Morgan Stanley in New York, in a note to investors today. ``If the Treasury were to purchase preferred equity stakes in some insurers, it would help calm these concerns.''

Paulson has shifted the government's financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated. The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers yesterday.

Mandatory Participation

A group of insurance companies -- primarily life insurers -- asked the Treasury earlier this week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion.

Some life insurers have asked the government to make the participation of life companies mandatory because firms don't want to identify themselves as needing funds, the person said.

Earlier today, PNC Financial Services Group Inc. said it is acquiring National City Corp. for about $5.2 billion in stock after getting a $7.7 billion infusion from the Treasury.

Regions Financial Corp. and First Horizon National Corp., the biggest banks in Alabama and Tennessee, respectively, said today they received preliminary approval to receive capital from the Treasury. Regions is selling $3.5 billion in preferred stock and warrants and First Horizon is slated for an $866 million injection, the companies said. Other regional banks may say that they have sold shares to the government in the coming days.

Banking Units

Under the Treasury's rules for the capital injection program, some U.S. insurance companies -- those with a banking business -- are eligible to request an equity investment from the TARP.

The rescue law requires that Treasury's investments be publicly revealed within 48 hours. It isn't clear whether that means from the time the bank is approved or from when it receives the funds.

Today, the Financial Services Roundtable, a trade association of the 100 largest banks, securities firms and insurers, asked Treasury to broaden its guidelines so that insurance companies, broker-dealers, automobile companies and institutions controlled by foreign banks could also sell stakes to the government.

``The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market,'' wrote Steve Bartlett, the group's president in a letter today to Kashkari.

45% Plunge

U.S. life insurance stocks have plunged about 45 percent in the past month on concern that losses on corporate debt and mortgage-backed securities will squeeze the firms' liquidity and force them to raise capital.

The Standard & Poor's 500 Insurance Index today rose 2.31, or 1.7 percent, to 139.66. The broader S&P 500 Index fell 31.34, or 3.5 percent, to 876.77.

MetLife Inc., the biggest U.S. life insurer, raised about $2.3 billion this month in a stock offering, and Hartford Financial Services Group Inc. said it would raise $2.5 billion from Allianz SE.

The largest insurers in the U.S. and Bermuda posted more than $93 billion in writedowns and unrealized losses on holdings tied to the collapse of the U.S. subprime mortgage market since the beginning of last year. Insurers invest policyholder premiums in bonds before paying claims.

AIG's Decline

American International Group Inc., once the world's largest insurer, accounts for about $48 billion of the declines.

AIG, which posted three straight unprofitable quarters because of bad bets on the housing market, agreed last month to turn over an 80 percent stake to the U.S. in exchange for an $85 billion loan. The New York-based insurer subsequently tapped a second federal credit line and has borrowed $90.3 billion.

AIG may need more than the $122.8 billion available, Chief Executive Officer Edward Liddy said Oct. 22 on PBS's ``The NewsHour With Jim Lehrer.''

Insurers including Allstate Corp., Prudential Financial Inc., Lincoln National Corp., MetLife and Travelers Cos. have suspended or scaled back share buybacks to shepherd capital as losses from fixed-income investments mount.

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net

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