BP's Hayward Says Lower Oil Prices Will Spur Demand

By Ayesha Daya

Nov. 3 (Bloomberg) -- Falling oil prices will spur a recovery in demand for crude, according to Tony Hayward, chief executive officer of BP Plc, Europe's second-biggest oil company.

Oil's 54 percent drop from its July record in New York was caused by higher OPEC output, slower economic growth and lower U.S. consumption, Hayward said in a speech to the Abu Dhabi International Petroleum Exhibition and Conference in the United Arab Emirates.

Lower oil prices haven't stopped or stalled the pace of industrialization, he added.

Hayward cited so-called unconventional projects, including oil sands and Arctic reserves, as key sources of new oil supply.

``Lower trade barriers and tariffs are welcome and necessary'' to help add oil reserves, he said. ``So are strict and enduring fiscal and regulatory policies.''

BP's CEO cited the example of the U.S., which managed to increase oil and gas output for the first time last year since 1991, following policy changes.

He also extolled the virtues of Enhanced Oil Recovery, which involves injecting gas into fields to bring heavier, harder-to-pump oil to the surface.

A 5 percent increase of oil-in-place would add 170 billion barrels to global oil reserves, enough for five years of supply.

``We believe we could add 15-20 percent to recovery rates with EOR,'' Hayward said.

To contact the reporter on this story: Ayesha Daya in Abu Dhabi at adaya1@bloomberg.net

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Seychelles Rupee Falls 43% Against Euro in First Day of Trading

By Garth Theunissen

Nov. 3 (Bloomberg) -- The Seychelles rupee sank 43 percent against the euro in its first day of trading as a free-floating currency, following a package of financial reforms instituted by the Indian Ocean island nation's government.

The rupee traded at an average rate of 19.97 per euro by midday in the capital Victoria, compared with 11.3421 on Oct. 10, according to Caroline Abel, head of monetary analysis and statistics at the Central Bank of Seychelles in Victoria. It traded at 15.58 per dollar, from 8.9090 at the end of last week, she said. Against the pound it dropped to 25.02, from 14.3227.

``These are the average levels that the rupee was trading at in banks and foreign exchange bureaus,'' Abel said in a telephone interview. ``Today is the first day of trading as a free-floating currency, so banks can set whatever rate they want.''

To contact the reporter on this story: Garth Theunissen in Johannesburg at gtheunissen@bloomberg.net



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Yen Falls on Speculation Stock Rally to Encourage Carry Trades

By Lukanyo Mnyanda and Ron Harui

Nov. 3 (Bloomberg) -- The yen fell against the dollar and the euro as a rally in Asian and European stocks encouraged investors to step up purchases of higher-yielding assets financed with the Japanese currency.

The yen also weakened versus Australia's dollar on expectations the Reserve Bank of Australia will cut interest rates tomorrow to sustain economic growth. The Japanese currency slid against South Korea's won and India's rupee after Korea announced a $10.8 billion stimulus package and India's central bank cut borrowing costs for the second time in two weeks. The dollar declined against the euro before reports this week that may add to evidence U.S. economic is slowing.

``We're seeing a bit of risk appetite returning as things stabilize and I wouldn't be surprised to see the yen even lower,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the most accurate forecaster in a 2007 Bloomberg survey. ``We should see lower-yielding currencies coming under some more pressure.''

Japan's currency declined to 99.17 against the dollar as of 6:21 a.m. in New York, from 98.46 on Oct. 31. It dropped to 127.66 per euro, from 125.30. The dollar weakened to $1.2874 per euro from $1.2726, and was at $1.6197 versus the pound from $1.6076.

The yen has appreciated 8.8 percent versus the greenback since Sept. 12, the last trading day before Lehman Brothers Holdings Inc. filed for bankruptcy. The remainder of the world's 16 most-active currencies declined as frozen credit markets and a rout in stocks that wiped out more than $13 trillion of market value fueled risk aversion. The yen may drop to 103 against the dollar in the next week, Stannard said.

`Riskier Trades'

The Japanese currency fell to 67.39 against the Australian dollar from 65.74 on Oct. 31. It reached 55.13 on Oct. 24, the strongest since Australia's currency started trading freely in 1983. The yen dropped to 12.70 versus the South Korean won and to 2.036 against the Indian rupee.

The won rose 2.2 percent to 1,262 per dollar after Finance Minister Kang Man Soo said the government plans to spend an extra 14 trillion won ($10.8 billion) next year to help the economy.

``The riskier trades are a little bit better bid,'' said Gerrard Katz, head of foreign-exchange trading at Standard Chartered Plc in Hong Kong. ``Some of the crosses are performing well'' against the yen, he said.

The biggest rout in Asian currencies since the regional financial crisis of 1997 is tempting investors, drawn by the world's fastest economic growth and $4 trillion of reserves.

Growth, Reserves

Franklin Templeton Investments, which manages about $500 billion, favors the Malaysian ringgit and China's yuan. Sydbank A/S, Denmark's third-largest bank, is buying South Korean won, Indonesian rupiah and Indian rupee. Goldman Sachs Group Inc. said last week that the won, Asia's biggest decliner this year after falling 26 percent against the dollar, may gain 10 percent in the next six months.

``We have taken advantage of the recent broad-based weakness to increase our exposure to some Asian currencies,'' said Michael Hasenstab, manager of the $9.6 billion Templeton Global Bond Fund in San Mateo, California. ``The differential in growth between Asia and other regions should continue to attract capital, and growth may further benefit from initiatives of local governments that have significant resources to bolster domestic demand.''

The MSCI World Index rose for a fifth day, gaining 0.7 percent, while Europe's Dow Jones Stoxx 600 Index advanced 0.3 percent. Trading volumes in the foreign-exchange market may be lower than normal today because of a public holiday in Japan.

Rate Cuts

Economists forecast the Reserve Bank of Australia will cut its benchmark interest rate by a half-percentage point to 5.5 percent tomorrow, after policy makers in the U.S., Japan and China announced reductions last week.

The Federal Reserve lowered its target rate to 1 percent last week, matching a half-century low, after a government report showed the U.S. economy contracted by the most since 2001 in the third quarter. Futures on the Chicago Board of Trade indicate a 56 percent probability the Fed will reduce the target rate to 0.5 percent at its Dec. 16 meeting. The odds a week ago were zero.

Gains by the euro and pound may be muted on speculation the European Central Bank and the Bank of England will reduce their key interest rates by a half-percentage point to 3.25 percent and 4 percent, respectively, at policy meetings on Nov. 6, according to Bloomberg surveys of economists. The euro-area economy probably entered a recession in the third quarter and will grow 0.1 percent next year, the worst performance since 1993, the European Commission said today.

Less Volatility

The yen also weakened as volatility implied by one-month euro options against Japan's currency fell to 42.40 percent, from 43.93 percent on Oct. 31, signaling a reduced risk of exchange-rate fluctuations that make so-called carry trades unprofitable. Volatility was 49.62 percent Oct. 27, the highest level since the common European currency's debut in 1999.

In carry trades, investors get funds from countries with low borrowing costs, such as Japan, where the benchmark interest rate is 0.3 percent, and invest the money in overseas markets where returns are higher. Japan's main interest rate compares with 3.75 percent in the 15 nations that share the euro and is the lowest among industrialized countries.

The dollar fell for the first time in three days against the euro on speculation slowing growth in the world's largest economy will support the case for the Fed to cut interest rates.

ISM

The Institute for Supply Management's factory index, scheduled for release at 10 a.m. in New York, declined to 41.5 in October from 43.5 the previous month, according to economists surveyed by Bloomberg News. A reading of less than 50 signals contraction. A Labor Department report on Nov. 7 will probably show payrolls fell for a 10th straight month in October, a separate survey showed.

``I would expect another week of poor economic news that will reinforce the headwinds facing the global economy,'' said John Horner, a currency strategist at Deutsche Bank AG in Sydney. ``This is something that should weigh on the dollar'' against the yen in particular, he said.

The foreign-exchange markets may be ``distracted'' by the U.S. presidential election tomorrow, according to UBS AG, the world's second-largest currency trader.

Democratic presidential nominee Barack Obama holds a 54 percent to 43 percent lead among likely voters over Republican candidate John McCain in the presidential campaign, according to a Washington Post-ABC News tracking poll.

``With the result largely priced in, we are not expecting a significant impact on the currency markets,'' Geoff Kendrick, a senior currency strategist in London at UBS, wrote in a research note today.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

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Nickel, Copper Decline on Inventories; Aluminum Erases Advance

By Claudia Carpenter

Nov. 3 (Bloomberg) -- Nickel and copper declined on the London Metal Exchange as stockpiles expanded and demand growth from China, the world's biggest user, slowed. Aluminum fell.

Global copper demand will fall 0.2 percent next year, down from an earlier forecast of a 1 percent advance, because of slower economic growth in China, Credit Suisse Group analyst Jeremy Gray wrote in a report today. Copper stockpiles in warehouses monitored by the LME are at their highest since March 2004 and nickel inventories the most since May 1999.

``Until we either see some further large cuts in production or more importantly some signs of improvement on the demand side, it's too early to get bullish'' about nickel, said Adam Rowley, an analyst at Macquarie Group Ltd. in London.

Nickel for delivery in three months fell $125, or 1 percent, to $11,975 a metric ton as of 12:17 p.m. in London. The metal used to make stainless steel declined 24 percent last month.

Copper for delivery in three months dropped $98, or 2.4 percent, to $4,001 a ton. Prices fell 36 percent in October. Stockpiles of copper in warehouses monitored by the LME gained 7,275 tons, or 3.2 percent, to 237,925 tons, the most since March 16, 2004.

China's economic slowdown is quickening and demand won't rebound until 2009, Rio Tinto Group Chief Executive Officer Tom Albanese said yesterday.

Nickel producers including Brazil's Cia. Vale do Rio Doce will make supply cutbacks totaling about 140,000 tons this year and another 100,000 tons probably will be cut next year, Macquarie said in a report today. The global supply surplus will narrow to 20,000 tons next year from 30,000 tons this year and 95,000 tons last year, Macquarie said.

New Capacity

``The market has needed substantial cuts and it needs delays in the start up of new capacity, and those are starting to come,'' Rowley said. The narrowing surplus is a ``slight positive.''

This year's 54 percent decline in nickel is the most since at least 1988 as stainless steel mills reduced purchases because of contractions in construction in the U.S. and Europe.

Tin climbed $200 to $13,600 a ton. Yunnan Tin Co., the world's biggest producer, plans to cut production 30 percent in the fourth quarter because of falling demand and lower prices. Tin declined 22 percent last month.

Aluminum declined $3 to $2,037 a ton after earlier rising $54.75 a ton. Aluminum inventories jumped 4,075 to 1.53 million tons, the highest since Feb. 3, 1995. Dubai Aluminium Co., the United Arab Emirates aluminum producer building the world's largest smelter in Abu Dhabi, said output was ``partly affected'' by an interruption to electricity supplies yesterday.

Lead fell $18 to $1,490 a ton and zinc climbed $25 to $1,150 a ton.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net

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Oil Falls as Asian Import Cuts Heighten Demand Slowdown Concern

By Grant Smith

Nov. 3 (Bloomberg) -- Crude oil fell as reduced imports by Asian refiners reinforced concerns that a demand slowdown is spreading to emerging markets.

China Petroleum & Chemical Corp., Asia's biggest refiner, will process less crude at some plants because of falling fuel demand, its parent said today. South Korea imported 1.4 percent less crude oil in October as the global credit crisis sent shockwaves through Asia's fourth-biggest economy.

``Demand growth in the emerging markets seems to be slowing down massively,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``The outlook is disturbingly weak and alarming for commodity traders and investors.''

Crude oil for December delivery dropped as much as $1.27, or 1.9 percent, to $66.54 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $66.72 a barrel at 1:19 p.m. London time.

Oil climbed 5.7 percent last week, the first gain in five weeks, as the U.S. and China lowered interest rates to prop up economic growth. Crude has fallen 53 percent from its record $147.27 a barrel on July 11.

The United Arab Emirates has notified customers that they will receive less crude as a result of OPEC's Oct. 24 resolution to cut production by 1.5 million barrels a day, Oil Minister Mohamed al-Hamli told reporters in Abu Dhabi today.

Iran will cut crude oil sales to Total SA, Europe's third- largest oil company, by some 70,000 barrels per day, Iranian oil Minister Gholamhossein Nozari said on Nov. 2. Nigeria's national oil company announced shipment cuts of 5 percent in November and December last week.

Algeria Meeting

The Organization of Petroleum Exporting Countries, producer of more than 40 percent of the world's crude, is next due to meet on Dec. 17 in Algeria.

``Most market participants expect that oil supplies will tighten up in the months ahead,'' said Victor Shum, senior principal at energy consultant Purvin & Gertz Inc. in Singapore.

Brent crude oil for December settlement dropped as much as $1.71, or 2.6 percent, to $63.61 a barrel on London's ICE Futures Europe exchange. It traded at $64.17 at 1:17 p.m. in London.

Hedge-fund managers and other large speculators reversed from a net-long position to a net-short position in New York crude-oil futures in the week ended Oct. 28, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 8,406 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Last week, traders were net-long 483 contracts.

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

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German Stocks Gain for Third Day, Led by Banks; BASF Advances

By Stefanie Haxel

Nov. 3 (Bloomberg) -- German stocks rose for a third day, led by banks, as lower money-market rates fueled speculation the financial crisis will ease.

Deutsche Bank AG climbed 5.5 percent after Chief Executive Officer Josef Ackermann said the country's biggest bank by assets doesn't need to tap the government's rescue fund. Deutsche Postbank AG and Commerzbank AG advanced at least 4 percent. BASF SE gained for a second day as the world's largest chemical maker said its bid for Ciba Holding AG was successful.

The benchmark DAX Index added 51.21, or 1 percent, to 5,039.18 as of 1:02 p.m. in Frankfurt. DAX futures expiring in December declined 0.2 percent. The HDAX Index of the country's 110 biggest companies increased 1.2 percent.

``Investors are happy that we survived the crash month of October,'' said Matthias Jasper, head of equities at WGZ Bank in Dusseldorf. ``The government's help is easing the situation. Commerzbank's acceptance of the rescue package was expected and isn't viewed negatively.''

The DAX retreated 14 percent last month and has slumped 38 percent this year on concern bank bailouts in the U.S. and Europe won't prevent a recession as credit-related losses and writedowns topped $680 billion in the worst financial crisis since the Great Depression.

The decline in money-market rates signals as much as $3 trillion of emergency funds provided by governments to alleviate the credit crisis may be easing interbank lending. The cost of borrowing euros for three months dropped by 3 basis points to 4.73 percent today, the 17th straight decline, the European Banking Federation said.

Borrowing in Dollars

Rates on comparable dollar loans dropped 17 basis points to 2.86 percent, the lowest level since the collapse of Lehman Brothers Holdings Inc. on Sept. 15. It was the 16th consecutive retreat, according to British Bankers' Association data.

Deutsche Bank advanced 1.61 euros, or 5.5 percent, to 31.06.

``From today's perspective we won't take part'' in the 500 billion-euro ($642 billion) rescue package for financial institutions ``because we are strong,'' Chief Ackermann told German broadcaster ZDF.

Postbank, the country's biggest consumer bank by clients in which Deutsche Bank agreed to buy an almost 30 percent stake, added 1.01 euros, or 6.4 percent, to 16.92.

Commerzbank climbed 38 cents, or 4.5 percent, to 8.80 euros. The country's second-largest bank accepted an 8.2 billion-euro capital injection from the government ``to strengthen its capital base.'' The lender had a net loss of 285 million euros in the third quarter after earning 339 million euros a year earlier.

BASF climbed 1.42 euros, or 5.5 percent, to 27.49, the highest since Oct. 14. The chemical maker now holds 70.82 percent of Ciba's share capital and voting rights and will move to delist the Swiss supplier of paper chemicals.

The following stocks also rose or fell in German markets. Symbols are in parentheses. Symbols are in parentheses.

Celesio AG (CLS1 GY) dropped 34 cents, or 1.5 percent, to 22.84 euros. Equinet AG lowered its recommendation for the drug wholesaler to ``accumulate'' from ``buy,'' saying ``writedowns on Celesio's Anzag stake and a recession in the U.K. might burden the name.''

Fraport AG (FRA GY) surged 3.48 euros, or 14 percent, to 28.80, the highest in more than two weeks, after a bid by Germany's Social Democrats to form a new state government that may have delayed construction of a new runway faltered.

Separately, the owner of Frankfurt Airport is among bidders shortlisted to buy a stake in China's Yunnan Airport Group and in a new airport, the South China Morning Post reported, citing unidentified people.

IDS Scheer AG (IDS GY) rallied 54 cents, or 11 percent, to 5.44 euros, on course for the biggest gain in more than two weeks. The software company may be sold, Wirtschaftswoche reported, citing an interview with founder and supervisory board chairman August-Wilhelm Scheer. A sale of the company ``wouldn't be an unrealistic development,'' Scheer was quoted as saying.

Munich Re (MUV2 GY) fell for the first time in four days, losing 2.14 euros, or 2.1 percent, to 100.76 WestLB AG cut its share-price estimate for the world's biggest reinsurer 3.9 percent to 122 euros.

Solarworld AG (SWV GY) surged 1.65 euros, or 8.4 percent, to 21.19, the highest in almost three weeks. Frank Asbeck, Chief Executive Officer of Germany's third-largest solar company, said profit and sales will rise next year, boosted by demand at home and in the U.S.

To contact the reporters on this story: Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.

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Gold Gains for 1st Time in Three Days in London as Dollar Drops

By Nicholas Larkin

Nov. 3 (Bloomberg) -- Gold rose for the first time in three trading sessions in London, paring its worst monthly drop in a quarter-century, after the dollar weakened against the euro, boosting the appeal of the metal as an alternative investment.

Gold declined 17 percent last month, the worst loss since February 1983. The relationship between gold and the euro-dollar exchange rate has strengthened this year, with a correlation of 0.58, compared with 0.52 a year earlier. A figure of 1 would mean the two moved in lockstep.

Bullion is ``a few bucks higher on the back of a slightly firmer euro,'' James Moore, an analyst at TheBullionDesk.com, said by phone today. The market will be ``keeping an eye on currencies and whether there's a reaction'' to central bank rate decisions later this week, he said.

Gold for immediate delivery gained $13.48, or 1.9 percent, to $735.28 an ounce as of 10:47 a.m. in London. Futures for December added $16.80, or 2.3 percent, to $735 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange.

Gold rose to $734 in the morning ``fixing'' in London, used by some mining companies to sell production, from $730.75 at the previous afternoon fixing.

The dollar weakened today on speculation that growth in the U.S., the world's largest economy, will slow further, backing the case for the Federal Reserve to cut interest rates.

``All eyes will likely be on the European Central Bank and Bank of England interest rate decisions later this week,'' Walter de Wet, an analyst at Standard Bank Ltd. in Johannesburg, wrote in a note. ``The market expects both central banks to cut rates by 50 basis points,'' which may cause the euro and pound to weaken against the dollar, he said.

Refinancing Rate

ECB policy makers meet Nov. 6, when they will probably reduce the region's main refinancing rate a half point to 3.25 percent, a Bloomberg survey of economists showed. The Bank of England will also announce a cut in borrowing costs on the same day to 4 percent, a separate survey indicated.

Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Oct. 28, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 78,315 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions fell by 20,887 contracts, or 21 percent, from a week earlier.

Among other metals for immediate delivery, silver rose 26 cents, or 2.6 percent, to $10.11 an ounce. Platinum climbed $17.15, or 2.1 percent, to $837 and palladium lost $1, or 0.5 percent, to $198.75 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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Most European Stocks Rise, Led by ING, HBOS; U.S. Futures Gain

By Adam Haigh

Nov. 3 (Bloomberg) -- Most European stocks gained and Asian advanced, pushing the MSCI World Index higher for a fifth day, as declining money-market rates overshadowed evidence the global economy is slipping into a recession. U.S. index futures rose.

ING Groep NV, the Netherlands' biggest financial-services provider, added 3.5 percent, and Hannover Re, Germany's second largest reinsurer, climbed 6.5 percent as a leading money-market indicator slid to the lowest level since the collapse of Lehman Brothers Holdings Inc. HBOS Plc rallied 4.2 percent on speculation the mortgage lender may receive a rival bid to Lloyds TSB Group Plc's offer.

The MSCI World added 0.7 percent to 964.44 at 12:59 p.m. in London, as eight of the 10 industry groups increased. The gauge of 23 developed countries headed for the longest winning streak since July as money-market rates fell in Europe and Asia on speculation central banks will keep cutting interest rates to spur lending and shore up the economy.

``You are seeing some signs of the stress indicators, or interbank lending, are reducing,'' said Andrew Bell, head of research and strategy at Rensburg Sheppards Plc. ``Clearly liquidity is being provided from central banks and governments to show that the banks can continue to function. I don't think the bank bailouts are over, but what you have now is a belief that sufficient capital will be found to plug the holes.''

Europe's Dow Jones Stoxx 600 Index advanced less than 0.1 percent as almost three stocks rose for every one that fell. Futures on the Standard & Poor's 500 Index added 0.3 percent before tomorrow's presidential election.

Rate Cuts

The MSCI Asia Pacific excluding Japan Index rose 5.2 percent as South Korea pledged to pump $10.8 billion into its economy and India cut interest rates to ease the fallout from the global credit crisis. Japanese markets are shut for a holiday.

Shares in emerging markets gained, extending last week's record 20 percent surge for the MSCI Emerging Markets Index. Even so, some money managers expect a record $40 billion which has been pulled form emerging markets so far this year to grow further as economic growth deteriorates.

Europe's Stoxx 600 has climbed 14 percent in five days as central banks from the U.S. to Japan cut borrowing costs to revive economic growth.

Stocks pared gains after the European Commission today said the region's economy probably entered a recession in the third quarter and trimmed its growth forecast for this year to 1.2 percent from 1.3 percent. Manufacturing in the U.K. shrank for a sixth month in October, according to the Chartered Institute of Purchasing and Supply's index of manufacturing.

Worst Year

ING gained 3.5 percent to 7.49 euros, and Hannover Re added 6.5 percent to 20.94 euros.

Even after last week's gains, European stocks are headed for their worst year on record as a jump in U.S. mortgage defaults saddled global banks with more than $684 billion of losses and caused credit markets to lock up. The Stoxx 600 has tumbled 39 percent in 2008 and reached a five-year low on Oct. 27 when the gauge traded at 7.9 times reported earnings of the companies in the index, the cheapest level since at least January 2002, according to data compiled by Bloomberg.

The London interbank offered rate, or Libor, that banks charge for three-month loans in dollars dropped 17 basis points to 2.86 percent, the lowest level since the collapse of Lehman on Sept. 15.

$3 Trillion

Hong Kong's three-month interbank offered rate, or Hibor, declined 26.5 basis points today to a six-week low of 3.08 percent. The similar rate for U.S. dollar loans in Singapore, or Sibor, dropped 16 basis points to 2.93 percent, the lowest since Sept. 16, according to the Association of Banks in Singapore.

The decline in money-market rates signals as much as $3 trillion of emergency funds provided by governments to alleviate the credit crisis may be easing interbank lending. The cost of borrowing dollars for three months in London fell 49 basis points last week to 3.03 percent, capping the first monthly decline since May, according to the British Bankers' Association.

Taylor Wimpey Plc, the U.K.'s largest homebuilder, rallied 28 percent to 12.75 pence as investors bought shares to close short positions, betting the stock will benefit from an interest rate cut.

ECB Meeting

European Central Bank policy makers meet Nov. 6, when they will probably reduce the region's main refinancing rate a half point to 3.25 percent, a Bloomberg survey of economists showed. The Bank of England will also announce a cut in borrowing costs on the same day to 4 percent, a separate survey indicated.

HBOS, John Wood

HBOS rose 4.2 percent to 103.5 pence. Scottish financier Jim Spowart contacted Scottish Secretary Jim Murphy this past week about ``another potential bid,'' the Scottish Office said in a statement in London. For now, though, ``there is only one bid,'' it said. HBOS spokesman Shane O'Riordain declined to comment.

Edinburgh-based HBOS agreed to be bought in September after its shares plunged amid concerns with the company's access to cash as the credit crunch discouraged loans between banks.

Lloyds TSB agreed to buy HBOS in a government-assisted rescue.

John Wood Group Plc, the U.K.'s largest oilfield-services provider, gained 4.5 percent to 251 pence. UBS AG raised its recommendation on the shares to ``buy'' from ``neutral'' and separately Morgan Stanley upgraded the stock to ``equal-weight'' from ``underweight.''

Volkswagen

Volkswagen AG fell 15 percent to 425.04 euros after Deutsche Boerse AG limited the stock's weighting in the DAX Index to 10 percent after the close on Oct. 31 and said that from today it may at any time remove a DAX stock whose weighting exceeds 10 percent and whose share price over the preceding 30 trading days had annualized volatility of more than 250 percent. The carmaker currently comprises 8.5 percent of the gauge.

A report today may show manufacturing in the U.S. probably contracted in October at the fastest pace since the 2001 recession. The Institute for Supply Management's factory index dropped to 41.5 last month from 43.5 in September, according to the median estimate in a Bloomberg News survey. A reading of 50 is the dividing line between expansion and contraction.

Stocks may extend their gains if Barack Obama beats John McCain in tomorrow's presidential election if history is any guide.

Since 1900, the Dow Jones Industrial Average rose 9.8 percent in the 12 months after the Democratic Party captured the White House, based on the median change following the election of seven Democrats from Woodrow Wilson to Bill Clinton. Only twice did the average decline, after Wilson's victory in 1912 and Jimmy Carter's in 1976.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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JPMorgan Picks 26 Small, Mid-Cap Equities to Beat U.S. Market

By Michael Patterson

Nov. 3 (Bloomberg) -- JPMorgan Chase & Co. recommended 26 companies with a market capitalization of $7 billion or less, including Agco Corp. and Dean Foods Co., that may outperform the U.S. stock market as the global economy slumps.

The list includes companies identified by Thomas Lee, JPMorgan's chief U.S. equity strategist, as ``core investments'' for the next 12 to 18 months, according to a research note today.

The companies were selected from a group of 1,370 small- and mid-capitalization U.S. stocks because they have high net current assets as a percentage of market value, large dividend or stock-buyback yields, high free-cash flow yields and profit margins as well as ``price momentum'' greater than their peers, as measured against the 200-day moving average. They're also viewed by JPMorgan analysts as having the ability to prosper as the global economy weakens, Lee wrote.

``The SMid cap investor faces considerable challenges, given the lack of clarity on the depth of this economic downturn, coupled with the dislocations in financial markets,'' wrote New York-based Lee. ``These companies needed some combination of pricing power, market dominance, counter-cyclical profile, revenue visibility or a secular story outweighing the cyclical.''

The Standard & Poor's Smallcap 600 Index and Midcap 400 Index have dropped more than 20 percent this quarter, compared with a 17 percent retreat in the S&P 500 Index of the largest American companies, as concern deepened that the credit crisis may prompt banks to cut back lending to smaller companies and push the U.S. economy into a recession.

The following is a list of all 26 companies recommended by JPMorgan today:

Agco Corp.
Alberto-Culver Co.
Alkermes Inc.
BJ's Wholesale Club Inc.
Cabot Microelectronics Corp.
Cephalon Inc.
Dean Foods Co.
Equifax Inc.
Gen-Probe Inc.
Global Payments Inc.
Idexx Laboratories Inc.
McAfee Inc.
MFA Mortgage Investments Inc.
Minerals Technologies Inc.
MKS Instruments Inc.
Myriad Genetics Inc.
National Instruments Corp.
NeuStar Inc.
Omnicare Inc.
PrivateBancorp Inc.
Robert Half International Inc.
Strayer Education Inc.
Volcano Corp.
Waste Connections Inc.
Wind River Systems Inc.
WMS Industries Inc.

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

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U.S. Stock Futures Advance; Citigroup, American Express Climb

By Adria Cimino

Nov. 3 (Bloomberg) -- U.S. stock futures advanced as lower money-market rates lifted financial shares, offsetting concern a report today may show manufacturing contracted in October at the fastest pace since the 2001 recession.

Citigroup Inc. and American Express Co. rose at least 1 percent in Germany on signs that as much as $3 trillion of emergency funds provided by governments to alleviate the credit crisis may be easing interbank lending. Boeing Co. fell after Goldman Sachs Group Inc. added the stock to its ``conviction sell'' list. Motorola Inc. slipped as Merrill Lynch & Co. cut its recommendation on the shares.

Standard & Poor's 500 Index futures expiring in December advanced 0.4 percent to 971.2 as of 11:57 a.m. in London. Dow Jones Industrial Average futures gained 0.5 percent to 9,344 and Nasdaq-100 Index futures were little changed.

The S&P 500 sank 17 percent last month and closed at a five- year low on Oct. 27. The October sell-off erased more than $9.5 trillion from the value of stocks worldwide, almost one-third of the total value wiped out this year, as credit-related losses and writedowns by financial firms approached $700 billion.

The Institute for Supply Management's factory index dropped to 41.5 last month from 43.5 in September, according to the median estimate in a Bloomberg News survey. The report is due for release at 10 a.m. New York time.

Polls show Democrat Barack Obama ahead of Republican John McCain as the economy looms as the main concern among voters. Obama, 47, widened his lead to 8 percentage points over McCain, 72, in an average of polls released in the last week, according to RealClearPolitics.com.

Election History

Election history indicates that U.S. stocks have a better chance in the first year of an Obama presidency than a McCain administration.

Since 1900, the Dow average rose 9.8 percent in the 12 months after the Democratic Party captured the White House, based on the median change following the election of seven Democrats from Woodrow Wilson to Bill Clinton. Only twice did the index drop, after Wilson's victory in 1912 and Jimmy Carter's in 1976.

Citigroup, the second-largest U.S. bank, added 1.5 percent to $13.86 in Germany. American Express, the nation's biggest credit-card company by purchases, gained 1.5 percent to $27.90.

The London interbank offered rate, or Libor, that banks charge for three-month loans in dollars dropped 17 basis points to 2.86 percent, the lowest level since the collapse of Lehman Brothers Holdings Inc. on Sept. 15. It was the rate's 16th consecutive drop, according to the British Bankers' Association.

General Motors

General Motors Corp., the biggest U.S. automaker, added 3.8 percent to $6.01 in Germany. Crude oil fell, giving up earlier gains, as reduced imports by Asian refiners reinforced concerns that a demand slowdown is spreading to emerging markets.

Separately, merger talks with Chrysler LLC may intensify this week as the companies wait to see whether the U.S. will provide financial aid to help complete the deal, people familiar with the matter said.

U.S. stocks staged their steepest weekly surge in 34 years after the Federal Reserve's interest-rate cut and signs the credit crisis is ebbing boosted equities trading at the lowest valuations in two decades.

Boeing, the world's second-largest commercial-aircraft maker, slipped 0.6 percent to $52.11. Goldman added the stock to its ``conviction sell'' list.

``There is no change to the cyclical and weakening economic fundamentals behind our cautious view,'' analyst Richard Safran wrote in a research note dated today.

Motorola lost 0.6 percent to $5.34. The stock was downgraded to ``neutral'' from ``buy'' at Merrill, which said overhauling the company's mobile-phone business may take longer and be riskier than originally predicted.

Halliburton Co. fell 1.4 percent to $19.52. The world's second-largest oilfield-services provider was cut to ``neutral'' from ``buy'' at Goldman, which cited ``product risks and valuation'' in a note to clients.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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Europe shares gain as investors bet on rate cuts

 * FTSEurofirst 300 rises 0.3 pct

 * Oil shares lead advance

 * Investors count on likely ECB, BoE rate cuts this week

 By Rebekah Curtis

 LONDON, Nov 3 (Reuters) - European stocks rose early on
Monday, heading for a fifth straight day of gains as oil shares
climbed and investors cheered the prospect of likely rate cuts
in Europe this week.

 At 0958 GMT the pan-European FTSEurofirst 300 index
was up 0.3 percent at 931.19 points, tracking gains in Asia
overnight and on Wall Street on Friday. But the index is down 38
percent this year, rattled by the ongoing financial crisis.

 Commodities shares led the advance, in spite of a fresh dip
in the oil price CLc1. Shares in BP (BP.L: Quote, Profile, Research, Stock Buzz), Royal Dutch Shell
(RDSa.L: Quote, Profile, Research, Stock Buzz) and Total (TOTF.PA: Quote, Profile, Research, Stock Buzz) added between 0.9 and 1.6 percent. 

 Among miners, Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz), Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz) and Vedanta
Resources (VED.L: Quote, Profile, Research, Stock Buzz) added between 7.7 and 12.4 percent as a weaker
dollar helped to lift gold prices.

 The European Central Bank and the Bank of England are
expected to lower interest rates this week, following recent
rate cuts by China, India, Japan and the United States.

 "Given the massive scale of the reflation efforts we now see
globally, be it in the form of rate cuts or fiscal packages, the
odds of a more durable rally have increased, albeit that the bad
news will not be over" said Gerhard Schwarz, head of global
equity strategy at UniCredit in Munich.

 "It will be erratic going forward and a bit more choppy, but
nonetheless the odds have improved that the markets have found a
bottom for now."

 Major U.S. stock indexes rose by 1.3-1.6 percent on Friday,
while Europe's FTSEurofirst 300  registered a 2.8
percent gain in the previous session.

 A choppy banks sector also rose. Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz)
gained 2.3 percent after reporting third-quarter net profit was
down 83.7 percent but saying it is financially strong enough to
withstand the difficult market environment.

 Standard Chartered (STAN.L: Quote, Profile, Research, Stock Buzz) added 4.4 percent and
Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) rose 9.3 percent after saying it will take
an 8.2 billion euro ($10.5 billion) capital injection from the
German state and a further 15 billion in guaranteed funding to
secure refinancing.

 Germany's second-biggest bank also said it swung to a net
loss of 285 million euros in the third quarter after a profit of
339 million in same period last year.

 But Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) sagged 6.4 percent on concern that
raising capital privately is too expensive and dilutive.

 Barclays is raising 7 billion pounds, mostly from investors
in Abu Dhabi and Qatar. Analysts at Merrill Lynch estimated the
fundraising may cost investors 3.2 billion pounds. 

 Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) rose 7.2 percent. Germany's largest
bank will not tap into a rescue fund launched by the German
government to help banks hit by the global financial crisis, its
chief executive said on Sunday. [ID:nL2392075]

 PHARMAS GAIN

 Shares in UCB (UCB.BR: Quote, Profile, Research, Stock Buzz) gained 12.6 percent after U.S.
regulators approved the Belgian drugmaker's over-active bladder
drug Toviaz, which is being distributed by Pfizer (PFE.N: Quote, Profile, Research, Stock Buzz).

 Other pharmaceuticals forged higher, with Novartis (NOVN.VX: Quote, Profile, Research, Stock Buzz)
up 0.8 percent, GlaxoSmithKline (GSK.L: Quote, Profile, Research, Stock Buzz) rising 1 percent and
Merck (MRCG.DE: Quote, Profile, Research, Stock Buzz) up 1.6 percent.

 Defensive utilities shares also rose, with E.ON (EONGn.DE: Quote, Profile, Research, Stock Buzz)
gaining 4.8 percent, RWE (RWEG.DE: Quote, Profile, Research, Stock Buzz) up 2.6 percent and Veolia
(VIE.PA: Quote, Profile, Research, Stock Buzz) adding 0.8 percent.

 Volkswagen (VW) (VOWG.DE: Quote, Profile, Research, Stock Buzz) shed about 13 percent and was the
biggest percentage faller in Europe. Ordinary shares in VW could
be expelled from the DAX index .GDAXI as early next Thursday,
the Frankfurt stock exchange operator said on Friday.
[ID:nLV594948]

 Separately, VW plans to produce virtually all the components
for motors used in hybrid and electric vehicles on its own,
unlike competitors who rely on suppliers, German magazine auto
motor und sport reported. The magazine said, citing company
sources, VW wants to invest 3.2 billion euros in the coming five
years into new component production sites.

 Meanwhile, Equinet cut its price target on the stock to 82
euros from 88 euros.

 Renault (RENA.PA: Quote, Profile, Research, Stock Buzz) added 1.5 percent. The group said it
expected Nissan's (7201.T: Quote, Profile, Research, Stock Buzz) fiscal second-quarter earnings to
lead to a contribution of 189 million euros to Renault's
second-half net profit. [ID:nWEA5200]
(Editing by Victoria Bryan)

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Repsol plans talks with Ecuador to save contract

MADRID, Nov 3 (Reuters) - Spain's largest oil group Repsol (REP.MC: Quote, Profile, Research, Stock Buzz) is sending its head of upstream activities Nemesio Fernandez Cuesta to Ecuador for talks in an attempt to save its operations in the country, a spokesman for the company said on Monday.

"He is going this week and it is still planned for him talk to the Ecuadorean government," the spokesman said.

Ecuador said late on Friday it had decided to terminate a production contract with Repsol after a disagreement over new terms for oil extraction.

The termination marked President Rafael Correa's toughest move yet in the key industry.

In the past he has threatened to end deals with foreign companies as part of a negotiation strategy to secure better terms for the state.

Repsol, one of the Andean country's largest investors, extracts around 65,000 barrels of oil per day in Ecuador, though its work there represents a small part of its global operations. (Reporting by Jonathan Gleave; Editing by David Holmes)

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Only handful in euro zone to breach budget limit-EU

BRUSSELS, Nov 3 (Reuters) - Euro zone budget gaps will rise over the next two years because of the sharp economic slowdown, but only a few countries will break the European Union limit of 3 percent of GDP, the European Commission said on Monday.

In its twice-yearly economic forecasts for the 27-nation bloc, the EU executive arm said the aggregate budget deficit for the 15 countries in the euro zone would more than double to 1.3 percent this year, and rise to 1.8 percent in 2009 and 2.0 percent in 2010.

"Most countries will be affected although with significant differences," the Commission said. "Uncertainties over the fiscal implications of the financial rescue packages also cloud the fiscal outlook," it said.

Ireland, whose economy will contract this year and next, will see the biggest increase in the deficit to 6.8 percent next year from 5.5 percent seen this year and 7.2 percent in 2010.

France, which has been warned by the Commission earlier this year it needed to do more to bring its deficit down, is expected to have a budget gap of 3.0 percent this year and 3.5 percent in 2009, rising to 3.8 in 2010.

In 2010 Spain and Portugal would also breach the 3 percent limit with deficits of 3.2 and 3.3 percent respectively unless policies change. Greece will touch the limit with a 3 percent gap.

Other euro zone countries will stay safely below the 3 percent limit despite the economic slowdown and some, like Italy and Slovenia, are even likely to improve their budget balance in 2010 after a slight deterioration in 2009, the Commission said. (Reporting by Jan Strupczewski, editing by Mark John)

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European banks suffer, stimulus measures planned

* Top banks SocGen, HBOS and Commerzbank suffer

* South Korea announces $11 bln fiscal stimulus

* Euro zone, Britain and Australia set to cut rates

* Asian stock markets up 6 pct, Europe up 0.5 pct

(For more on the financial crisis, click [nCRISIS])

By Mike Peacock

LONDON, Nov 3 (Reuters) - Profits evaporated at top European banks on Monday and authorities worldwide pressed on with efforts to bolster weakening economies as data from Europe and China suggested a sharp global downturn was gathering pace.

French bank Societe Generale (SOGN.PA: Quote, Profile, Research, Stock Buzz) reported an 83.7 percent drop in third-quarter net profit but said it was strong enough to withstand the global financial crisis. [ID:nL2427993]

Net profit fell to 183 million euros ($234 million) with losses from the collapse of Lehman Brothers and other writedowns costing the bank 1.208 billion euros in pre-tax income.

Germany's second-biggest bank Commerzbank (CBKG.DE: Quote, Profile, Research, Stock Buzz) said it would take an 8.2 billion euro capital injection from the state and another 15 billion to secure refinancing. It posted a third quarter net loss of 285 million euros. [ID:nL3543865]

And Britain's biggest home lender HBOS Plc (HBOS.L: Quote, Profile, Research, Stock Buzz) raised its hit from the value of risky assets and bad loans to over 5 billion pounds ($8.14 billion) as its takeover partner Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz) predicted a sharp fall in profits. [ID:nL3542383]

Lloyds stepped in to buy HBOS in a government-brokered deal after HBOS was hit by a global financial crisis and concerns about its exposure to Britain's weakening housing market.

The United States, Germany, France and Britain have offered to inject capital into their banks to prevent systemic meltdown.

France has earmarked 360 billion euros for the country's finance sector and French Prime Minister Francois Fillon was quoted by Le Figaro newspaper on Monday as saying that if the banks did not use the money to lend to businesses, then the government could take direct stakes in them. [ID:nL3535556].

The credit crunch, which stemmed from a collapse in the U.S. housing market, has prompted banks to clam up on lending to each other, businesses and households for over a year now.

STIMULUS

Governments worldwide have also put together fiscal stimulus packages to ward off the effects of a recession born of the worst financial crisis in 80 years.

Euro zone manufacturing activity sank in October to a record low as employment shrank faster than at any time since early 2002, a key survey showed on Monday.

The Markit Eurozone Purchasing Managers Index for the manufacturing sector slumped to 41.1 -- the lowest in the survey's 11-year history -- from September's 45.0,

Berlin aims to safeguard one million jobs after putting together a 500 billion euro bank rescue package.

"With the package we will approve in cabinet next Wednesday, we will definitely mobilise more than 30 billion euros," Economy Minister Michael Glos told Sunday's Bild am Sonntag newspaper.

South Korea announced plans to pump an extra $11 billion into its economy next year to temper the global financial storm.

Finance Minister Kang Man-soo said economic growth could fall to its lowest in more than a decade without the stimulus, which will need approval by parliament.

Policymakers will gather again to plot their next moves.

Euro zone finance ministers meet in Brussels later on Monday to discuss reform of institutions that manage the global financial market and bodies such as credit rating agencies, accounting rules-setters, banks and their management. [ID:nLV2413]

Finance chiefs from the "Group of 20" world economies meet in Brazil later this week to prepare for a Nov. 15 summit of world leaders to chart a way out of the financial crisis.

RATE CUTS COMING

Central banks will also put their shoulders to the wheel.

Following rate cuts from the U.S. Federal Reserve, China and Bank of Japan last week, the European Central Bank, Britain and Australia are expected to cut interest rates by at least 50 basis points this week.

"The focus this week is clearly on some of the major central banks and it is hard not to see the disease that started in the United States spreading to other economies," said Robert Rennie, chief currency strategist at Westpac in Sydney.

The efforts to buoy the world economy encouraged some investors to shop for bargains after world stock markets fell 20 percent in October alone, their worst month ever.

The MSCI index of stocks in the Asia-Pacific region outside Japan rose 5.9 percent, up for a fifth consecutive session, and European shares gained nearly one percent. [ID:nL3271496]

But while trillions of dollars in bank bailouts may have averted financial meltdown, the economic outlook is grim. Many economists and policymakers say the world's top economies are in recession already and prospects for corporate earnings look dim.

Even new economic powerhouse China was not spared the pain. Its manufacturing survey showed a sharp drop in output in October, coinciding with official pledges to do more to boost domestic demand. [ID:nPEK294272]

The global economic upheaval has relegated Tuesday's U.S. presidential election to little more than a footnote for financial markets. Investors have factored in a victory for Democrat Barack Obama, who leads in opinion polls. (Editing by Elizabeth Piper)

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Asia stocks rally continues on policy hopes

By Kevin Plumberg

HONG KONG (Reuters) - Asian stocks rose for a fifth straight day on Monday on hopes policy efforts to dampen the impact of the financial crisis would ultimately take hold, though data still painted an ugly picture of the global economy.

Investors were also cautiously shopping for bargains after shares and commodity prices globally in October posted their biggest decline ever on fears of a deep recession in the world economy.

Major European stock markets were expected to open up as much as 2.5 percent, according to financial bookmakers, with momentum seen carrying over from Asia.

Expectations of more interest rate cuts this week from Australia, Britain and the euro zone following last week's reductions from China, India, Japan and the United States, among others, has at the least slowed the panicked selling of risky assets that dominated most of October.

"Some weeks back, what were needed were coordinated global policy responses. Though there have been a few wobbles and maybe less coordination than ideal, it is difficult not to look back and consider that we are moving in the right direction," said Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale in Hong Kong.

"For Asia, a renewed focus on the real economy cannot ignore the fact of slower global growth and resultant slower external demand," he said in a note.

The scramble to exit equities, commodities and local currency emerging market bonds in October had poured money into yen, U.S. Treasuries and the U.S. dollar, which had its largest monthly in gain in 17 years. These trends were not expected to reverse any time soon, but investors were taking advantage of the relative calm in markets to balance their portfolios.

The MSCI index of stocks in the Asia-Pacific region outside Japan .MIAPJ0000PUS rose 5.9 percent, up for a fifth consecutive session after having dropped 24.6 percent in October for its biggest monthly decline in the gauge's 20-year history.

Hong Kong's Hang Seng index .HSI climbed 5.3 percent, with bank shares posting solid gains after a Chinese central bank official reportedly said Beijing had abandoned its lending caps in a move that could make funneling money to small firms much easier.

The benchmark KOSPI in South Korea .KS11 gained 1.4 percent, boosted by details on a $11 billion government fiscal stimulus package that officials said would add a full percentage point to total output.

Australian stocks rose 5.1 percent, while Japanese markets were closed for a holiday.

RATE CUTS ALL AROUND

The parade of rate cuts from Beijing to Washington and massive amounts of U.S. dollar liquidity flooding the financial system have pulled lower lending rates between banks and improved investor sentiment, despite the strong potential for higher unemployment and softer consumer spending around the world.

JPMorgan asset allocation strategists expect gross domestic product in developed economies in the current and next quarters to shrink by the most since 1974. They recommended keeping bets on short-dated government bonds, and against the industrial, materials and energy sectors in equities.

Growth in Korean exports was at a 13-month low in October, hurt by crimped demand from both developed and emerging markets, while a measure of China's factory segment fell to a record low. The reports underscored the region's biggest vulnerability to the global slowdown: exports.

Crude prices climbed, with dealers taking cues from equities and the U.S. dollar. U.S. light crude for December delivery rose $1.11 to $68.92 a barrel.

Gold in the spot market was trading at $733.00 an ounce, up $8.95 from New York's notional close on Friday.

"It appears the systemic risk that supported gold through the heat of the credit crisis has been alleviated somewhat by the action of the world's central bankers, however, it has not totally vanished," UBS analyst Glyn Lawcock said in a report on Monday.

Easing in fear-driven trades pushed up the U.S. dollar against the yen and pulled it lower against the euro, with investors bracing for another round of interest rate cuts this week by the world's major central banks.

The dollar was at 99.43 yen, up from around 98.45 yen late in New York on Friday. The euro was at $1.2880, up from $1.2730 on Friday.

U.S. Treasury prices were mostly unchanged, though the benchmark 10-year note rose 4/32, pushing the yield down to 3.96 percent from 3.97 percent on Friday.

In the last week, the difference of the 10-year yield over the 2-year yield, also called the yield curve, has increased, especially after the Federal Reserve left the door open for more rate cuts to stabilize the economy.

(Additional reporting by James Regan in SYDNEY; Editing by Lincoln Feast)

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Oil falls below $67 on demand concerns

LONDON (Reuters) - Oil fell more than $1 to below $67 a barrel on Monday as traders shifted their focus back to slowing global energy demand amid the financial crisis.

Analysts said traders would now be looking for signs that Saudi Arabia was cutting back its crude production in line with OPEC's agreement last month to reduce output by 1.5 million barrels per day (bpd).

U.S. crude was down 88 cents at $66.93 a barrel by 0937 GMT, after falling as low as $66.54. London Brent crude was down $1.20 at $64.12.

"Demand concerns haven't gone away so that's a factor that is weighing on the oil price this morning," said David Moore, a commodities strategist at the Commonwealth Bank of Australia.

U.S. oil settled up $1.85, or 2.8 percent, at $67.81 a barrel on Friday, but ended the month down more than 32 percent, the steepest monthly decline ever, as global demand slows.

In three months, oil has wiped out gains that took more than a year to build, down more than half since they struck a record $147.27 a barrel in July as poor economic data added pressure from weak demand reports in the United States and other key consumer nations.

OPEC members have no choice but to implement agreed output cuts and inform customers of the reductions if they want a stable oil price between $70-$90 a barrel, OPEC President Chakib Khelil said on Sunday.

Khelil said Saudi Arabia was the key to the success of the reductions, and if the world's biggest oil exporter took its time over the operation the oil price could be affected.

(Reporting by Fayen Wong in Perth and Alex Lawler in London; Editing by Anthony Barker)

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HK shares end up 2.7 pct on easier lending in China

* China banks, properties rise on signs of loan cap easing

* China Unicom extends losses after weak Q3

* HSBC underperforms on Goldman Sachs downgrade

By Parvathy Ullatil

HONG KONG, Nov 3 (Reuters) - Hong Kong shares rose 2.7 percent on Monday, with Chinese counters leading the charge after a central bank official indicated Beijing had eased lending restrictions, but the main index closed off highs in a late bout of profit taking.

State media also quoted a central bank spokesman as saying the People's Bank of China must flexibly adjust its economic policies, including monetary policy. [ID:nSHA270955] China has cut interest rates three times in six weeks after a series of tightening measures earlier to rein in runaway inflation.

"We are not sure about the impact this move will have -- whether banks will be willing to lend given the current global financial situation or whether there will be huge demand from property developers and industrial companies," said Steven Leung, sales director with UOB Kay Hian.

"But this is a major policy shift and that itself has improved sentiment greatly."

Index heavyweight HSBC (0005.HK: Quote, Profile, Research, Stock Buzz) lagged gains in the broader market, gaining 0.5 percent, after Goldman Sachs downgraded the stock to neutral from buy, citing headwinds in the global lender's Asia and Middle Eastern business. The U.S. investment bank also slashed its target price on Europe's largest lender to HK$102 from HK$150.

Wireless carrier China Unicom (0762.HK: Quote, Profile, Research, Stock Buzz), which announced a 13 percent drop in third-quarter earnings on Thursday, bucked the trend to fall another 6.7 percent, adding to Friday's 4.3 percent drop.

Analysts said the company's merger with fixed-line service provider China Netcom could be a drag on its business amid increased competition from rivals and a slowdown in China's economic growth.

The benchmark Hang Seng Index .HSI closed up 375.70 points at 14,344.37 in a strong start to a month investors hope will bring stability to the market after it posted its worst monthly drop in more than a decade in October.

The index had rallied to 14,889.13 earlier.

"We have a seen a bit of profit taking post-lunch today but the market will continue to rise in the near term," said Linus Yip, strategist with First Shanghai Securities.

"China is working hard to stimulate the markets and the correction in the last three months has been unprecedented. So we should see the market bounce at least till it hits 15,000 points."

Mainboard turnover fell to HK$52.1 billion ($6.7 billion) from HK$58.5 billion on Friday.

Offshore oil specialist CNOOC (0883.HK: Quote, Profile, Research, Stock Buzz) shot up 4.9 percent as commodity prices rose. Asia's largest oil and gas producer, PetroChina (0857.HK: Quote, Profile, Research, Stock Buzz), jumped 4.4 percent.

The China Enterprises Index .HSCE of top locally listed mainland Chinese companies gained 3 percent to 6,806.33, led by a 5.1 percent surge in top lender ICBC (1398.HK: Quote, Profile, Research, Stock Buzz).

China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz) gained 2.7 percent, while China Merchants Bank (3968.HK: Quote, Profile, Research, Stock Buzz) climbed 3.3 percent.

Property developer China Overseas Land Investment (0688.HK: Quote, Profile, Research, Stock Buzz) jumped 5.5 percent, with easier lending seen helping demand in the ailing sector. Guangazhou R&F Properties (2777.HK: Quote, Profile, Research, Stock Buzz) rose 5.6 percent.

Chinese footwear maker Walker Group (1386.HK: Quote, Profile, Research, Stock Buzz) plunged 28.9 percent after it issued a profit warning on Friday, indicating substantial losses on account of slower sales due to the Sichuan earthquake and the Olympics, as well as mark-to-market losses on its investments.

CITIC Pacific (0267.HK: Quote, Profile, Research, Stock Buzz) which was suspended on Friday after a 21 percent surge in its share price early in the day, remained suspended pending a price-sensitive announcement.

Speculation is rife that the Beijing-backed conglomerate, which announced a $2 billion potential loss from bad currency bets last month, will see an asset injection from its parent -- CITIC Group -- to help support its operations.

But sister company CITIC Resources (1205.HK: Quote, Profile, Research, Stock Buzz) surged 19.3 percent after saying one of its units was in advanced talks on a possible deal but no agreement had yet been reached.

Analysts said the announcement may signal the sale of the oil supplier's manganese unit. The stock soared more than 60 percent to HK$0.94 earlier in the day.

Hutchison Telecommunications International Ltd (2332.HK: Quote, Profile, Research, Stock Buzz) added 3.8 percent after the company said its board was meeting on Nov. 12 to consider payment of a dividend.

"Our recent cut in our target price reflected our view of bumper special dividends as unlikely in current financial conditions where cash is king. HTIL's announcement indicates we could be wrong and bodes an immediate catalyst for what we consider is anyway a great defensive investment case in these markets. We stay buyers," said Citigroup analyst Anand Ramachandran on Monday.

Johnson Electric (0179.HK: Quote, Profile, Research, Stock Buzz), which makes mini-motors, slid 12.5 percent after it said on Monday it expects second-half profit to be lower amid weakness in the automotive sector. (Editing by Anne Marie Roantree)

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