Banco do Brasil Loses in Unibanco on Pressure to Buy

By Fabio Alves

Nov. 4 (Bloomberg) -- Banco do Brasil SA was left out of a rally in Brazilian banks on concern the merger of the country’s second- and third-largest lenders will force it to pay more for its acquisitions.

Every company in the MSCI Brazil Financials Index rose except Banco do Brasil yesterday after Banco Itau Holding Financeira SA agreed to acquire Uniao de Bancos Brasileiros SA for stock. The deal creates a lender with 575 billion reais ($261.4 billion) in assets, overtaking the federally controlled Banco do Brasil as Latin America’s biggest financial institution.

Banco do Brasil lost 3.1 percent to 14.32 reais in Sao Paulo trading yesterday, extending its decline this year to 53 percent, compared with a 40 percent retreat in the Bovespa Index. The shares rebounded 4.4 percent at 8:43 a.m. in New York today.

“Investors worry that Banco do Brasil will now make a deal in response to the Itau and Unibanco merger and I’m not sure that there’s anything out there that’s very attractive,” said Greg Lesko, who helps oversee $900 million at Deltec Asset Management Corp. in New York. “There’s concern that Banco do Brasil may overpay in order to compete.”

Banco do Brasil said in an e-mailed statement that it won’t comment on acquisitions.

More Consolidation

Analysts said the Unibanco acquisition may signal more consolidation ahead among Brazilian banks after local credit markets dried up. Nossa Caixa SA, the Sao Paulo state-controlled company in talks to be acquired by Banco do Brasil, climbed 8.8 percent to the highest level in a month yesterday.

Nossa Caixa surged 4.5 percent to 36.71 reais today after gaining as much as 7.6 percent earlier.

Nossa Caixa is among several state-controlled banks such as Banco do Estado do Piaui SA and Banco de Brasilia in talks with Banco do Brasil. Banco do Brasil is also holding talks to buy Banco Votorantim SA for an undisclosed sum, Exame magazine reported without saying where it obtained the information. A spokesman for Banco Votorantim said the bank “isn’t for sale and the negotiation talks are a rumor.”

Talks between Itau and Unibanco accelerated as the global credit crisis deepened, Itau Chief Executive Roberto Egydio Setubal said at a press conference in Sao Paulo. Itau posted a 26 percent decline in third-quarter profit, while Unibanco’s net income plunged 41 percent.

Banco do Brasil may report an 8.8 percent drop in third- quarter profit on Oct. 13, according to the average estimate by three analysts surveyed by Bloomberg. Yesterday’s decline follows Banco do Brasil’s worst monthly performance since at least January 1995 as the stock plummeted 35 percent in October.

Buying Stakes

The sell-off increased after President Luiz Inacio Lula da Silva on Oct. 22 signed a decree authorizing federally controlled banks to buy stakes in financial firms as part of an effort to boost liquidity and revive lending.

“In times like this, investors don’t have patience for any uncertainty at all and there’s a risk, with the decree, that the government would use Banco do Brasil to further policy ends,” said Urban Larson, Latin America portfolio manager at F&C Management Ltd. in London, which oversees about $2.5 billion in stocks.

Banco do Brasil, which has 403 billion reais in assets, paid 685 million reais to buy state-controlled Banco do Estado de Santa Catarina SA last month, the first of at least four acquisitions by the government to challenge faster-growing private competitors.

“It’s possible that the acquisitions that would take place as a result of the decree may be positive, as we don’t have a concrete example to make an assessment,” said Luiz Fernando Figueiredo, head of the association of capital markets investors and founder of Maua Investimentos Ltda., which oversees $350 million in stocks and bonds.

To contact the reporter on this story: Fabio Alves in New York at falves3@bloomberg.net

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U.S. Stock-Index Futures Advance; MasterCard, GE Shares Rise

By Adria Cimino and Elizabeth Stanton

Nov. 4 (Bloomberg) -- U.S. stock-index futures advanced, as Americans began voting for a new president, after MasterCard Inc. reported better-than-estimated earnings and money-market rates retreated.

MasterCard, the world's second-biggest credit-card company, rallied 12 percent on profit boosted by higher overseas revenue. Citigroup Inc., the second-biggest U.S. bank, increased 2.2 percent as interbank lending rates declined. General Electric Co. and CIT Group Inc. climbed on a Wall Street Journal report that the U.S. Treasury may include financial companies beyond banks and insurers in its $700 billion rescue. Gains in Europe and Asia sent the MSCI World Index to a sixth straight advance.

``Investors are looking forward to the campaigns being over and moving on with the results,'' James Dunigan, managing executive of investments at PNC Wealth Management in Philadelphia, which oversees $63 billion, told Bloomberg Television.

Standard & Poor's 500 Index futures expiring in December added 20.5 points, or 2.1 percent, to 990 at 8:32 a.m. in New York. Dow Jones Industrial Average futures rose 172 points, or 1.8 percent, to 9,504 and Nasdaq-100 Index futures advanced 25.5, or 1.9 percent, to 1,367.

U.S. stocks fell yesterday, after drifting between gains and losses before the election, on the worst contraction in manufacturing since 1982 and forecasts that the sagging economy will curb profits. The winner between Democrat Barack Obama, who leads in national polls, and Republican John McCain must contend with an economy crippled by declining corporate profits and the highest unemployment in five years.

`Big Change'

``The worst is behind us in terms of the financial crisis,'' said Chloe Magnier, an equity strategist at Saxo Banque in Paris. ``Obama is the candidate markets are expecting. He represents a big change for the U.S.,'' she told Bloomberg Television.

The S&P 500 has dropped farther and faster than any time since the administration of Gerald Ford, losing 38 percent from an all-time high last year.

Concern economic growth is slowing sent the S&P 500 down 17 percent in October, the steepest monthly loss since 1987. The 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.

`Looking to Add'

``There has been some discussion about a post-election rally,'' JPMorgan Chase & Co. strategist Thomas Lee wrote in a note to clients. ``We have had more than one conversation with investors about what `we will be looking to add' after the elections.''

MasterCard rallied $17.30 to $161.19 after posting third- quarter earnings excluding some items of $2.47 a share, exceeding the average analyst estimate by 11 percent. The company also pledged that expenses won't increase next year.

American Express Co., the largest U.S. credit-card company by purchases, advanced 88 cents, or 3.1 percent, to $29.20.

Citigroup Inc. climbed 2.2 percent to $14.30. JPMorgan, the largest U.S. bank by market value, rose 1.8 percent to $41.45.

Tokyo's three-month interbank rate, known as Tibor, slid 9.8 basis points to 0.791 percent, the biggest drop since December 1999. The euro interbank offered rate, or Euribor, that banks charge each other for three-month loans fell 3 basis points to 4.70 percent, the lowest level since March 25, according to the European Banking Federation.

Earnings Watch

Viacom Inc., the media company controlled by Sumner Redstone, posted third-quarter profit excluding some items of 55 cents a share, beating the average analyst estimate. The company also reiterated its forecast for full-year adjusted earnings. The shares didn't trade in Europe.

Earnings have dropped 8.5 percent on average for the 357 companies in the S&P 500 that have reported third-quarter results so far, according to Bloomberg data. Analysts expect full-year profits in the measure to fall 7.7 percent, estimates compiled by Bloomberg show.

A report at 10 a.m. Washington time may show U.S. factory orders declined 0.8 percent in September, according to a Bloomberg survey.

Should either party have an edge in reviving the stock market, history suggests it is the Democrats.

Election Returns

Since 1928, the S&P 500 climbed 9.3 percent in the 12 months after the Democratic Party captured the White House, based on the median change following the election of six Democrats from Franklin D. Roosevelt to Bill Clinton.

Only once did the benchmark for American equities decline, after Jimmy Carter's victory in 1976.

Among the six newly elected Republicans, five -- including Herbert Hoover, Richard Nixon and George W. Bush -- preceded stock-market declines, with a median retreat of 4.3 percent for the group, data compiled by Bloomberg show. The data excludes incumbents that won re-election.

Overall, the S&P 500 generated a median 62 percent advance from the time a Democrat is elected in November or elevated from the vice presidency until the next president is chosen. For Republicans, the gain is 28 percent.

``We have been bombarded with negative news,'' said Michael Holland, the New York-based chairman of Holland & Co., which oversees more than $4 billion. ``I think we'll have a little relief from all of this once these campaigns are behind us. One of the reasons is we keep getting reminded of how bad things are and how we need change. And I'm talking about from both candidates. We're moving forward now.''

To contact the reporters on this story: Adria Cimino in Paris at acimino1@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.

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Agrium, Barrick, EnCana, Magna, Talisman: Canada Stock Preview

By John Kipphoff and Whitney Kisling

Nov. 4 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading today. Stock symbols are in parentheses, and share prices are from yesterday's close in Toronto.

The Standard & Poor's/TSX Composite Index fell 0.4 percent to 9,721.26.

Brokerages may be active on expectations they will report lower earnings. Canaccord Capital Inc. (CCI CN) and GMP Capital Trust (GMP-U CN), Canada's two biggest independent brokerages, will probably post quarterly profit declines on Nov. 6, analysts' predicted, after stock sales and mergers dried up amid a global financial crisis. Canaccord added 1 percent to C$6.10. GMP shares gained 3.1 percent to C$5.26.

Energy and precious metals producers may be active after oil rallied more than $1 a barrel in electronic trading in New York and gold appreciated in London. EnCana Corp. (ECA CN) fell 4.5 percent to C$58.50. Suncor Energy Inc. (SU CN) dropped 6.2 percent to C$27.17. Canadian Natural Resources Ltd. (CNQ CN) declined 5.4 percent to C$57.51. Barrick Gold Corp. (ABX CN) slid 4.5 percent to C$26.32. Goldcorp Inc. (G CN) retreated 1.6 percent to C$22.17. Yamana Gold Inc. (YRI CN) slumped 5.9 percent to C$5.41.

Agrium Inc. (AGU CN): North America's third-largest fertilizer company was raised to ``buy'' from ``hold'' at Citigroup Inc., which also upgraded rival fertilizer companies CF Industries Holdings Inc. (CF US) and Terra Industries Inc. (TRA US). Agrium shares fell 3.2 percent to C$44.70.

Enghouse Systems Ltd. (ESL CN): The Canadian software developer that's lost 29 percent of its value this year plans to buy back as much as 10 percent of shares. The stock declined 0.2 percent to C$5.29.

Inca Pacific Resources Inc. (IPR CN): The Canadian mineral- exploration company will delay its $400 million (C$467.2 million) Magistral copper and molybdenum mine in Peru because of financing difficulties, Chief Executive Officer Anthony Floyd said. The shares slumped 4.4 percent to 22 cents.

MacDonald Dettwiler & Associates Ltd. (MDA CN): The space technology and software company won a contract worth about C$4.1 million ($3.5 million) to expand support to Canada's Navy Maritime Command Operational Information Network system. The shares slid 2.9 percent to C$21.

Magna International Inc. (MG/A CN): North America's largest auto-parts maker reported a third-quarter loss of $215 million, compared with a year-earlier profit of $155 million, and cut the dividend in half, after U.S. sales declined and it wrote down the value of assets and restructured parts of the business.

Excluding one-time items, Magna posted a profit of 17 cents a share, missing the 91 cents average estimate of 16 analysts surveyed by Bloomberg. The shares added 1.4 percent to C$41.

Open Text Corp. (OTC CN): The maker of networking software posted fiscal first-quarter profit excluding some one-time items of 53 cents, beating the average analyst estimate by 6.2 percent, according to Bloomberg data. The shares rose 4.7 percent to C$32.

Talisman Energy Inc. (TLM CN): The oil and natural-gas producer said that third-quarter profit more than quadrupled to C$1.43 billion, or C$1.38 a share, from C$352 million, on record crude-oil prices and a gain on commodities contracts.

Profit excluding one-time gains and costs rose to 72 cents a share from 25 cents a year earlier. On that basis, the company was expected to earn 76 cents a share, the average of analyst estimate compiled by Bloomberg. The shares fell 2.1 percent to C$11.66.

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net



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Ameren, CKX, Otter Tail, Talisman Energy: U.S. Equity Preview

By Elizabeth Campbell and Whitney Kisling

Nov. 4 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading today. Stock symbols are in parentheses, and share prices are as of 8:25 a.m. in New York, unless otherwise specified.

Ameren Corp. (AEE US) slid 5.3 percent to $30.45. The owner of utilities in Missouri and Illinois reported third-quarter profit, excluding some items, of $1.17 a share, missing the average analyst estimate of $1.27 a share, according to Bloomberg data. Ameren lowered its full-year forecast to a range of $2.80 to $3 a share from a previous estimate of $2.80 to $3.20 a share.

Archer-Daniels-Midland Co. (ADM US) gained 15 percent to $24.36. The world's largest grain processor reported first- quarter profit, excluding some items, of $1.62 a share, beating the average analyst estimate of 72 cents a share, according to Bloomberg data.

Automatic Data Processing Inc. (ADP US): The world's biggest payroll manager posted fiscal first-quarter profit of 54 cents a share, exceeding the average analyst estimate from a Bloomberg survey. The company also reaffirmed its 2009 earnings forecast. The shares rose 18 cents to $33.45.

Blackbaud Inc. (BLKB US) rose 1.4 percent to $15.45 in late-trading yesterday. The designer of software programs for nonprofit organizations posted third-quarter profit excluding some items of 26 cents a share, beating the average analyst estimate by 4 percent.

CKX Inc. (CKXE US) slipped 4.1 percent to $4.01. The owner of the ``American Idol'' brand said a group led by Chief Executive Officer Robert F.X. Sillerman ended plans to acquire the company, citing the ``extraordinary national and global economic conditions.'' Sillerman now plans to pursue an ``alternative transaction for the acquisition.''

Coldwater Creek Inc. (CWTR US) slid 5.9 percent to $3.21 in late-trading yesterday. The clothing retailer for women 35 and older cut its forecast for the third quarter and withdrew its fourth-quarter forecasts, citing the ``unprecedented consumer environment.'' The company also lowered the number of stores it plans to open in 2009 to 15 from 40.

Google Inc. (GOOG US) added 2.5 percent to $355. The most popular U.S. search engine and Yahoo! Inc. (YHOO US) are scaling back their Internet-advertising agreement to win support from U.S. antitrust officials, people familiar with the matter said.

Yahoo, the U.S. search engine company that rejected takeover bids from Microsoft Corp. (MSFT US) this year, climbed 2 percent to $13.

Herbalife Ltd. (HLF US) fell 15 percent to $21.65. The seller of nutritional and weight-loss supplements lowered its forecast for the year to below analyst estimates, citing foreign exchange rates. The company also forecast 2009 earnings below estimates.

Mastercard Inc. (MA US) rallied 11 percent to $160. The world's second-biggest credit-card network posted third-quarter profit excluding some items of $2.47 a share, exceeding the average analyst estimate by 11 percent. A settlement with Discover Financial Services allows Mastercard to focus on expanding credit and debit-card revenue amid the economic slowdown.

Otter Tail Corp. (OTTR US) slumped 7.3 percent to $22.20. The provider of electricity and energy services in the upper Midwest cut its 2008 earnings estimates, citing economic conditions. The company had lowered the forecast twice before, once in August because of ``growing pains'' from its wind tower unit and an adverse energy rate ruling and once in September because of cooler weather and increased startup costs.

Principal Financial Group Inc. (PFG US): The life insurer that cut its dividend in half last month said third-quarter profit fell by 59 percent as turmoil in global credit markets caused the value of investments to plunge. The shares added 5 cents to $22.44.

Royal Bank of Scotland Group Plc American depositary receipts (RBS US) slid 13 percent to 99 cents. The Edinburgh- based bank waiting to take up the U.K.'s biggest bank bailout abandoned a full-year profit forecast as credit-market losses worsened and bad loans rose. Chief Executive Officer Stephen Hester said the company may have a full-year loss.

Talisman Energy Inc. (TLM US) advanced 6.5 percent to $10.50. The oil and natural-gas producer with about two-thirds of its reserves in North America or the North Sea said third- quarter profit more than quadrupled on record crude-oil prices and a gain on commodities contracts.

UBS AG ADRs (UBS US): The European bank with the biggest losses from the global credit crisis said ``difficult'' market conditions will further drag on the fees it earns from managing money for wealthy customers. The shares dropped 9 cents to $16.09.

Viacom Inc. (VIA/B US): The media company controlled by Sumner Redstone posted third-quarter profit excluding some items of 55 cents a share, beating the average analyst estimate. The company also reiterated its forecast for full-year adjusted earnings. The shares fell 1.1 percent to $19.99 in regular trading yesterday.

To contact the reporters on this story: Elizabeth Campbell in New York at ecampbell11@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net



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EUR/USD Continues To Fight An Uphill Battle

Daily Forex Fundamentals | Written by KBC Bank | Nov 04 08 08:25 GMT |
Sunrise Market Commentary

* US Treasuries start the week on a strong footing
In a very thin market, Treasuries rallied even before awful ISM, disastrous car sales, a stunning Senior Loan officers' survey and dovish comments of Fisher hit the newswires. The curve steepens to new highs. Today, we expect again thin trading as the calendar is unexciting and the presidential results won't be published until well after closure.
* Intra-EMU spread widening increases calls for a single European government bond issuer
Yesterday, European bonds rallied higher, but surprisingly the short end lagged the longer end of the curve. This may be related to the huge supply centred at the short end this week, which also fuelled a further widening of the intra-EMU spreads and increases the calls for a single European government bond issuer.
* EUR/USD continues to fight an uphill battle
EUR/USD continues to lose ground. Overall economic uncertainty and the expectation that the ECB will also be forced to execute aggressive rate cuts weigh on the single currency. In this context, awful US eco data fail to give the euro any lasting support. For now, the US presidential elections have hardly any impact on currency trading.

The Sunrise Headlines

* US equities close little changed in a thinly traded session, as investors stayed sidelined ahead of elections and the payrolls report. Japanese stocks sharply up following a market holiday, but other Asian equities mostly moderately down.
* Reserve Bank of Australia cut rates by a bigger-than-expected 75 basis points to 5.25%, but the Aussie moves very little. Move raises expectations about the size of the rate cuts in Europe.
* Car sales drop substantially in Japan, US and Italy, as consumer retrenches, contributing to recession fears.
* US banks tightened lending conditions across the board according to the Fed Senior Loan Officers report.
* EU Commission says EMU and EU-15 is in technical recession, slashes 2009/10 growth forecasts and calls for coordinated action.
* WTI Crude (63.40 $, -4 $ on the day) slide sharply, closing in on cycle lows, as recession fears intensify. Brent Crude trades below 60 $, effectively testing lows.
* US presidential election lonely focus for markets today.

Currencies: EUR/USD Continues To Fight An Uphill Battle
EUR/USD

On Monday, EUR/USD again delivered a disappointing performance. The pair traded in the high 1.28-area early in the European session, but there was again no room for further gains of the single currency despite a decent start on the European stock markets. The EU commission in its autumn forecasts painted a very bleak picture for the European economy for the second half of 2008 and going into 2009. This only confirmed the market feeling that the single currency will continue to lose interest rate support in the near future as even the ECB will be forced to execute aggressive interest rate cuts, starting with this week's meeting. However, later in the session, the US ISM manufacturing index came in at an awful 38.9, suggesting that the US heading for a deep recession, too. However, at that time this release failed to give EUR/USD any lasting support. On the contrary, EUR/USD extended and even accelerated the intraday decline that started early in US trading and closed the session at 1.2643, compared to 1.2726 on Friday. The steep decline in the oil price apparently is still an important guide for EUR/USD trading, as the eco data fail to set the tone for trading at the current juncture.

Overnight, the dollar only extended its rebound, or probably even better, the euro extended its decline (USD/JPY lost ground in Asia) and the pair trades in the 1.26 area at the moment of writing.

For today, the US presidential elections will dominate the headlines on all news wires. However, the least one can say is that the election, just like the eco data, until now had hardly any impact on (currency) trading and we don't see any reason why this should change today. In case of an Obama/democratic victory, a more stimulating fiscal policy (and thus less room for monetary easing) in theory could be dollar positive in a first stage, but we wouldn't give much weight to this argument at the current juncture. With the outcome of the election only available tomorrow morning, one might expect investors to keep a wait-and-see attitude. The market focus will probably remain with the economic crisis and the interest rate cuts that will be executed in the days and weeks to come. At least in the recent past, this focus on the global crisis proved to be a negative factor for the single currency.

We advocated that a prolonged period of sub par growth and a deflationary environment is more supportive to the dollar than to the single currency and this was an important factor behind the decline of EUR/USD from 1.60 to below 1.24. This is also the main reason for our EUR/USD negative view longer term, which remains intact. Shorter-term, following the rebound of the pair last week, we think that the pair is looking for some sideways trading that might develop within the boundaries of 1.231 and 1.3297. Indeed, the EUR/USD rebound ran out of steam around the first key resistance level at 1.3259, previous low, which we singled out as a potential entry point in a sell euro-on-up-ticks.

From a technical point of view, EUR/USD since the last week of September tumbled from the 1.4866 reaction high to levels below the 1.24 mark early last week. High profile intermediate supports like the longstanding daily uptrend line since 2002, the previous low at 1.3882 and the 1.3259 10 Oct reaction low were all taken out with remarkable ease, but a powerful rebound occurred last week. EUR/USD needs to return above the 1.3259 reaction low in a sustainable way to get a first indication that pressure is easing. Such a move looks very difficult for now. The short-term trend in EUR/USD is again down with the 1.2330 reaction low the most obvious short-term target. A break below this level could put the trigger for an additional down-leg.

EUR/USD: sliding lower in the range

Support comes in at 1.2727 (today low), at 1.2470 (Daily envelope), at 1.2439 (Daily stop and reverse), at 1.2344/31 (Weekly Bollinger bottom/ reaction low) and at 1.2300 (2nd target channel break).

Resistance is seen at 1.2649 (Reaction high), at 1.2768 (STMA), at 1.2831/67 (daily envelope/MTMA), 1.2898 (Reaction high), at 1.3006 (Weekly envelope).

The pair is in neutral conditions.
USD/JPY

On Monday, USD/JPY again showed some wild intraday swings. However, as the Japanese markets were closed one should be cautious to draw firm conclusions from yesterday's price action. The pair was sold at the start of the US trading session, maybe due to the ongoing negative global economic sentiment, but remarkably, the pair gained ground later in US trading, despite a very weak US manufacturing ISM and a rather lackluster US stock market performance. So also for this pair, we didn't see much of a strong economic logic to explain yesterday's price action. Trading again was mostly inspired by technical factors. The pair closed the session at 99.12 compared to 98.46 on Friday.

Today, Japanese markets restart trading after yesterday's holiday. The Nikkei showed quite an impressive gain (more than 6% at the moment of writing). However, even this positive news fails to give USD/JPY a strong boost. The pair even trades slightly lower compared to the close yesterday evening.

Later this week, the calendar in Japan is thin, but the minutes of the BOJ meeting will get quite some attention. In the US, the eco calendar is important (Payrolls) and should confirm the US is in recession. An eventual post-election equity rally on the contrary should be yen negative.

On the charts, global market stress hammered the pair through the 103.50 range bottom three weeks ago and the pair set a new reaction low at 90.93 on Friday two weeks ago. Recently, we were not fond of buying yen on the argument of extreme stress, as the yen may rapidly lose ground if the financial markets stabilize and the past sessions show the argument isn't totally unfounded, even if we admit that in a longer term perspective, the yen did very fine and was the world outperforming currency. Even on the recent stock market rally, the losses for the yen should be considered as rather contained (except for the spike on Tuesday last week). Short term, we are neutral for USD/JPY and the pair may consolidate in the wide 99.70/101.30 to 90.93 range with risk aversion/appetite the driver. In a day-today perspective, we have the impression that the upside becomes more difficult.

USD/JPY: rebound loses momentum ahead of first key resistance

Support stands at 99.28/20 (Broken MTMA/Week low, at 97.68 (daily envelope), at 96.34/06 (Reaction low hourly), at 94.91/07 (reaction low hourly/Break-up).

Resistance comes in at 99.34 (ST high), at 0.9964/70 (ST high / 29 Oct reaction high), at 100.07 (First Cwave) and at 100.77 (50% retracement/ weekly envelope).

The pair is in neutral territory.
EUR/GBP

EUR/GBP traded extremely volatile over the last two weeks and this pattern hasn't changed yesterday. The pair traded in the 0.7850 area at the start of European trading, but the sterling was again sold quite aggressively throughout the European trading session. The UK manufacturing PMI came out at a low 41.50, but the outcome was even slightly better (less worse) than expected. However, this didn't prevent some market watchers to speculate on an aggressive BOE rate cut later this week and this weighs on the sterling. EUR/GBP closed the session at 0.7990, compared to 0.7921 on Friday. Overnight, the sterling lost further ground as EUR/GBP trades in the 0.8035 area at the moment of writing.

Today, the UK calendar contains the October PMI construction survey. However, this release is no market mover. Eco news is recently also less important in trading, that seems to be mostly order-driven, as the economic situation in the UK is maybe worse than in Euroland, but not so different. Regarding the rate decisions, in both countries a 50 basis points rate cut is expected, but some analysts are going in the UK for a bigger cut. We have no strong opinion on it. However, a steeper-thanexpected rate cut in the UK may have some impact on the sterling.

Already for some time, we advocated that we don't see the need for a sustained comeback of the sterling against the euro based on the eco (and financial) picture in both areas. Our view came under pressure two weeks ago with EUR/GBP extensively testing the key 0.77 support area. However, the range held and the pair in extremely volatile trading even revisited the highs in the 0.8200. Longer-term we think that the established sideways trading pattern between 0.7700 and 0.81/82 can hold in the foreseeable future. In a day-to-day perspective, we put the risk for EUR/GBP on the upside due to lingering uncertainty on the amount of Thursday's rate cut.

EUR/GBP: Volatile, but still in range.

Support stands at 0.7973 (Reaction low), at 0.7945/41 (Break-up/STMA), at 0.7929 (Break-up daily), at 0.7904 (Daily envelope), at 0.7839/07 (Yesterday low/last week low).

Resistance is seen at 0.8052/58 (Boll Top/ST high+ daily envelope), at 0.8086 (MT reaction high), at 0.8107 (Weekly envelope), at 0.8123 (Last week high) and at 0.8197 (Reaction high).

The pair is in neutral territory
News
US: Manufacturing sinks further in the morass

The October ISM report confirmed what the regional manufacturing surveys had suggested: the US manufacturing industry is in dire straits and the overall economy is slipping deeper into recession. Levels below 50 mean contracting in activity of the sector, while econometrical studies put the boom/bust level for the overall economy at 41. The index is now at its lowest level since the double dip recession of 1980/82. The standstill in financial markets in the past six weeks has pushed the economy over the cliff. The headline, composite, ISM index dropped to 38.9 in October from 43.5 in September and 49.9 in Augustus. The details brought no relief: new orders shed 6.6 points to 32.2, production fell by a similar amount to 34.1 and backlog of orders dropped 5.5 points to a very low 29.5. Employment slid even 7.4 points lower to 34.6. Other sub-indices with the exception of inventories were lower too. A vicious spiral of lower orders leading to lower production and employment cutbacks, eating into demand generating another round of lower orders…. Is now well in place and should postpone any sizeable improvement in the months ahead. Interestingly, the sharp growth slowdown is together with plunging commodity prices easing inflationary pressures. The price index nose-dived to 37 from 53.5 in September and 77 in August.

September construction spending came out stronger than expected, but still at - 0.3% M/M (instead of -0.8% M/M expected). The August figure was revised to a rise of 0.3% M/M compared to an initial flat figure. Looking to the composition, residential spending fell by 1.3% M/M while non-residential spending was up 0.1% M/M. The outcome suggests that Q3 GDP will be slightly revised higher. However, there are still some figures missing (inventories/net export) that may still impact the Q3 GDP revisions.

Car sales tumbled another 17.9% M/M in October to 7.8 million units, the weakest face since 1983. The results are staggering and show how the credit crunch is affecting big ticket sales, credit availability and consumer confidence.
EMU: PMI drops even more

In October, the headline manufacturing PMI slumped to a new 11-year low of 41.1 from 45 previously, according to the final report. It has now been five months below the boom/bust level of 50 and suggests that the economy is in very bad shape. The outcome was below the 41.3 preliminary results published two weeks ago. Looking into the details, new orders fell 5.5 points to 36.3, while output fell 4.3 points to a 39.8 low. Most other activity data fell too. Interestingly, inflationary pressures are receding rapidly. Input prices fell a huge 12 points to 51.4, while out prices eased to 51.6 from 54.9 previously.

Looking to the various countries, the picture is uniformly bad, but Spain is one of the hardest hit countries in the region, with an new orders index below 30!!, dragged down by the bursting of its real estate bubble.
Other: UK PMI rebounds slightly from record low

In the UK, the October manufacturing PMI rebounded slightly from the record low at 41.2 in September to 41.5. Most activity indicators reflected the rebound, but the further decline in new export orders (43.5 vs. 44.0) indicates that the weakness of the pound is offering little relief now that the world economy is struggling as a whole. Input and output prices eased further, but

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Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.



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EU Rules Out Joint Stimulus, Backs Coordinated Action

By Fergal O'Brien and Sandrine Rastello

Nov. 4 (Bloomberg) -- European finance ministers ruled out a joint stimulus package to revive the region's economy and vowed instead to coordinate national policies as they try to limit the fallout from a recession on consumers and companies.

``We do not believe that in the euro area we need a general revival package, a sort of traditional program designed to stimulate the economy,'' Luxembourg Finance Minister Jean-Claude Juncker told a press conference after leading a meeting of euro- area counterparts in Brussels yesterday.

Euro-area finance chiefs met hours after the European Commission slashed its growth forecasts and predicted that the economy would stagnate next year. While French President Nicolas Sarkozy has called for a joint package to help the region combat the economic slump, the ministers indicated they favor a looser system of ``coordinated'' measures.

European Union countries have already begun planning measures to jumpstart their own economies, with Germany preparing a two-year program of investments and incentives to provide a 50 billion-euro ($64 billion) stimulus. EU Monetary Affairs Commissioner Joaquin Almunia said such plans weren't at odds with the EU approach.

``I don't think adopting measures at the national level is inconsistent with the need to coordinate actions, provided the national decisions are integrated in an adequate framework,'' he said at the press conference late yesterday. ``What I want to avoid is the negative spillover of some decisions that can create problems for the good functioning of the internal market.''

Financial Rules

Both Sarkozy and U.K. Prime Minister Gordon Brown have called for a redrawing of global financial rules under a ``new Bretton Woods,'' referring to the 1944 conference that created the modern global economic system as well as institutions including the International Monetary Fund and World Bank.

French Finance Minister Christine Lagarde may continue to push for an EU-wide plan when ministers from all 27 EU nations meet today. European heads of state are set to meet later this week before a Nov. 15 summit of the so-called Group of 20 industrialized and developing nations in Washington.

``It's a goal the president never gave up on, so I'm not going to give up on it either,'' Lagarde said in an interview with Bloomberg News before yesterday's meeting, referring to Sarkozy. ``We must tackle it collectively.''

Her Finnish counterpart Jyrki Katainen said countries ``who can afford it should use stimulus measures for the economy.''

`Quite a Lot'

``We have done quite a lot already,'' Katainen said in an interview today in Brussels. ``We must talk about the economic measures and finance-policy measures which must also be coordinated.''

Juncker and Almunia both said any measures must not be introduced at the expense of the EU's Stability and Growth Pact, which sets a budget-deficit limit of 3 percent of gross domestic product.

``We don't intend to change the rules of the Stability and Growth Pact,'' Juncker said. Almunia said countries could ``draw on the flexibility provided by the pact,'' which allows temporary breaches in ``exceptional circumstances.''

As well as cutting its economic-growth outlook, the Brussels-based commission yesterday forecast that the euro area's average budget deficit will widen to 1.8 percent in 2009, which would be the biggest since 2005, from 1.3 percent this year. The euro region's economy will grow just 0.1 percent next year, the worst performance since 1993, after shrinking for three consecutive quarters this year, it said in its autumn forecasts.

`Strong Slowdown'

``Some of the countries are technically in recession,'' said Slovenian Finance Minister Andrej Bajuk. ``We are in a very strong slowdown.''

The European Central Bank, which has already offered unlimited dollars to unfreeze credit markets, cut interest rates last month for the first time since 2003 as part of a global coordinated move. The ECB and the Bank of England both will probably cut their key rates by another 50 basis points this week, surveys of economists show.

The commission's forecast ``reflects the downside risks'' to the economy, said German Finance Minister Peer Steinbrueck. ``We are facing a very serious and problematic year.''

Europe's manufacturing industry is already shrinking at a record pace, according to data published yesterday, while executive and consumer confidence has plunged to the lowest in 15 years. Still, inflation is easing as oil prices drop, giving the ECB room to cut interest rates more.

While the EU's outlook includes a technical recession this year and little growth in 2009, it may still be too optimistic, said economists at Citigroup Inc. and BNP Paribas, both of which have forecast a contraction next year.

The forecasts ``are a dramatic shift for the commission,'' said Luigi Speranza, an economist at BNP in London. ``But there is more downside to come.''

To contact the reporter on this story: Fergal O'Brien in Brussels at fobrien@bloomberg.net; Sandrine Rastello in Paris at srastello@bloomberg.net.



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Japan's Wage Growth Remains at 0.1% as Profits Deteriorate

By Toru Fujioka

Nov. 4 (Bloomberg) -- Japan's wages grew 0.1 percent for a second month, signaling that consumer spending is unlikely to provide impetus for the slowing economy.

Monthly wages, including overtime and bonuses, rose to 273,175 yen ($2,761) from a year earlier, matching the slowest pace this year set in August, the Labor Ministry said in Tokyo today.

Japan's economy is slowing as export-growth cools and the surge in the yen against the dollar cuts the value of overseas sales. Companies such as Sony Corp. and Canon Inc. have cut profit forecasts, worsening the prospects for wages and employment.

``Wage growth is steadily heading toward negative territory,'' said Tatsushi Shikano, a senior economist at Mitsubishi UFJ Securities Co. in Tokyo. ``Consumer spending won't be able to help the economy recover from a recession.''

In an attempt to spur growth, the Bank of Japan cut interest rates to 0.3 percent from 0.5 percent, and the government said it would pump 5 trillion yen into the economy in its second stimulus package since August. Neither move is expected to have much effect of growth.

``It's difficult to imagine those measures will stimulate consumer spending,'' said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. ``Consumers are concerned about a recession and they know those policies from BOJ and government aren't a panacea for the economy.''

A 42 percent drop in Japan's Nikkei 225 Stock Average is also weighing on consumers: household spending fell for a seventh month in September amid record low consumer sentiment.

Overtime Declines

Overtime working hours among manufactures fell 7.9 percent, the biggest drop since March 2002, today's report showed. Manufacturers plan to cut production this month and next month as the global financial crisis damps overseas demand, the Trade Ministry said last week.

``We can see Japan's weakening economy from today's report,'' said Akira Motokawa, head of the Labor Ministry's statistics division. ``Wages have clearly been weakening.''

Second-quarter profit at Sony, the second-largest maker of consumer electronics, fell 72 percent. Canon's profit fell for the first time in nine years, the world's largest camera maker said last week.

Though the economy is slowing and profits are declining, real wages may actually rise as the pace of inflation slows, said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.

Consumer prices excluding fresh food climbed 2.3 percent from a year earlier, after rising 2.4 percent in August. The Bank of Japan last week forecast that inflation would slow to 1.6 percent for the year ending March 31.

``The next few quarters could see real wage growth accelerate during a recession, which would be a very unusual pattern,'' said Jerram. ``Firms appear to be under less pressure to shed labor as their financial position is stronger.''

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net



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Swiss Consumer-Price Inflation Slows as Oil Declines

By Joshua Gallu

Nov. 4 (Bloomberg) -- Swiss inflation slowed in October as the price of oil dropped.

Consumer prices rose 2.6 percent from a year earlier after increasing 2.9 percent in September, the Federal Statistics Office in Neuchatel said today. Economists forecast the rate to drop to 2.5 percent, according to the median of 18 estimates in a Bloomberg News survey. Prices rose 0.5 percent from the previous month.

Swiss households may see price increases ease further in the coming months as a 55 percent drop in oil prices since mid- July helps reduce energy costs. With inflation pressures abating, the Swiss central bank may have more room to lower interest rates amid faltering growth.

``It appears the inflationary trend peaked in July and now we'll see the rate continue to drop in the coming months,'' said David Marmet, an economist at Zuercher Kantonalbank in Zurich. ``There aren't any signs that second-round effects took hold. Inflation doesn't present a big danger going forward.''

Switzerland's leading economic indicators fell to the lowest level in more than five years in October. As a global slowdown hurts exports and financial market turmoil hits banks' earnings, the Swiss economy may contract in the coming two quarters, the Zurich-based KOF economic research institute said Sept. 28.

``Taking into account that inflation in Switzerland traditionally starts at a very subdued level, the discussions about potentially deflationary developments are already looming around the corner,'' Reto Huenerwadel, senior economist at UBS AG in Zurich, said in an Oct. 31 research note.

At 2.50 percent, Switzerland's interest rate is the third- lowest among major economies, after Japan's 0.3 percent and the U.S.'s 1 percent. The Swiss National Bank holds its next monetary-policy meeting in December.

To contact the reporters on this story: Joshua Gallu in Zurich at jgallu@bloomberg.net



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Eastern Star Gas Is in Talks to Gain Further Sales

By Angela Macdonald-Smith and Catherine Yang

Nov. 4 (Bloomberg) -- Eastern Star Gas Ltd., the Australian developer of coal-seam gas reserves in New South Wales state, said it's in talks on potential fuel sales agreements to add to two existing accords.

The Sydney-based company is seeking to benefit from the additional 350 megawatts a year of power generation capacity that Australia's most-populous state needs to add to meet demand, Managing Director David Casey said today in an interview.

The coal-seam gas industry is at an earlier stage of development in New South Wales than in Queensland, where companies including ConocoPhillips and BG Group Plc are planning to use the fuel for liquefied natural gas export projects. Eastern Star has accords to supply gas extracted from coal seams to Macquarie Generation and a unit of Babcock & Brown Ltd. for use in power stations.

``It is a state that has enormous potential, and which hasn't realized the potential of its gas resources to date,'' Casey said. ``In the first instance you're looking at delivering into power generation projects. LNG options will come in time.''

Eastern Star gained 8 percent to 47.5 cents in Sydney trading.

The company has 185 petajoules, about 174 billion cubic feet, of proven and probable reserves and is seeking to increase that sevenfold to 1,300 petajoules by the end of next year. That will enable Eastern Star to firm up its gas sales accords into contracts, Casey said.

Add to Valuation

``Successful delineation of gas reserves and the conversion of the MOUs to gas sales agreements would add significantly to our valuation of Eastern Star Gas,'' ABN Amro Morgans Ltd. said in an Oct. 13 report. The securities firm values the stock at 57 cents.

Santos Ltd., Australia's third-biggest oil and gas company, Molopo Australia Ltd., Metgasco Ltd. and AJ Lucas Group Ltd. are among other companies with coal-seam gas exploration projects in New South Wales.

``There will be a train of new projects coming on stream,'' Casey said.

Coal-seam gas, mostly comprising methane, bonds as a thin film on the surface of coal and is released when pressure is reduced, usually after water is removed. LNG is natural gas that has been chilled to liquid form, reducing it to one-six- hundredth of its original volume for transportation by ship to destinations not connected by pipeline.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net; Catherine Yang in Hong Kong at cyyang@bloomberg.net



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Indonesia May Lower Retail Gasoline Prices by 13%

By Naila Firdausi and Bambang Dwi Djanuarto

Nov. 4 (Bloomberg) -- Indonesia may reduce gasoline prices by as much as 13 percent as global crude oil prices fall, said an official at the Energy and Mining Ministry.

``We have proposed to President Susilo Bambang Yudhoyono to cut gasoline prices by between 500 rupiah and 800 rupiah a liter,'' from the current price of 6,000 rupiah (67 U.S. cents), Evita Legowo, director general of oil and gas at the energy ministry, said today.

Indonesia increased retail gasoline prices by 33 percent on May 24 after crude oil futures in New York doubled to $132.19 a barrel in the 12 months to May 23. After reaching a record $147.27 on July 11, ``crude costs have fallen and stayed at $60 to $65 a barrel,'' Legowo said.

Southeast Asia's biggest economy, which has already exceeded its 2008 oil subsidy target, may have to spend an extra 3 trillion rupiah to 5 trillion rupiah in November and December if gasoline prices were cut, she said.

The country spent 132 trillion rupiah on fuel subsidies between January and October, more than the 126 trillion rupiah allocated in the 2008 budget, Legowo said.

The benchmark crude futures contract on the New York Mercantile Exchange was at $63.29 a barrel in electronic trading at 11:32 a.m. Jakarta time.

To contact the reporters on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net; Bambang Dwi Djanuarto in Jakarta at Or bdjanuarto@bloomberg.net.



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Credit Suisse Cuts Oil Price Forecasts on Slower Chinese Demand

By Stephen Cunningham.

Nov. 4 (Bloomberg) -- Credit Suisse Group AG, Switzerland's second-biggest bank, cut its 2009 and 2010 oil price forecasts on concern over slower Chinese demand.

Next year's oil price forecast was cut to $58 a barrel from $73, while the estimate for 2010 was reduced to $78 from $98 at Credit Suisse. The forecasts are for Brent crude.

``Our oil price forecast has changed on the back of the latest set of economic data from China, which suggests a more severe economic slowdown is underway there,'' Credit Suisse analysts Tao Ly and Stuart Joyner wrote in a note today.

The bank predicts global oil demand will fall 300,000 barrels a day next year, the steepest drop since 1982.

To contact the reporter on this story: Stephen Cunningham in London at scunningha10@bloomberg.com



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Marathon Oil's Texas Refinery Fire Put Out, Daily News Reports

By Nesa Subrahmaniyan

Nov. 4 (Bloomberg) -- A fire at Marathon Oil Corp.'s Texas City refinery on Nov. 3 was extinguished in less than 30 minutes, the Daily News reported.

The fire broke out at 8 p.m. and the refinery's fire crew was deployed to the scene, putting out the blaze by 8:20 p.m. local time, the newspaper said.

A pump house near a storage tank had caught fire, the newspaper said, citing Bruce Clawson, the head of homeland security for Texas City, who was informed by Marathon officials about the fire.

The refinery can process about 81,500 barrels of oil a day, according to the U.S. Energy Department.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.



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Tokyo Electric, Tokyo Gas Gain on Improved Outlooks

By Megumi Yamanaka
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Nov. 4 (Bloomberg) -- Tokyo Electric Power Co., Asia's biggest utility, and Tokyo Gas Co. climbed in Japan trading after improving their earnings forecasts as fuel costs drop.

Tokyo Electric gained 4 percent to 2,890 yen on the Tokyo Stock Exchange, the highest close since Sept. 10. Tokyo Gas advanced 6 percent to 445 yen, a one-month high. Osaka Gas rose 5 percent to 362 yen.

Utilities in the world's third-biggest energy-consuming nation are benefiting from a drop in crude-oil prices, which have more than halved since reaching a record $147.27 on July 11, cutting estimated costs for purchasing petroleum, liquefied natural gas and coal, which move in tandem with oil.

``We can expect a V-shaped recovery for gas and power utilities' profits, reflecting drops in costs for purchasing LNG and other fossil-fuel costs,'' Hirofumi Kawachi, an energy analyst at Mizuho Investors Securities Co. in Tokyo, said by phone today. ``In the past couple of years, they suffered from surges in oil prices. The opposite will likely happen during the next year.''

Tokyo Electric on Oct. 31 forecast a narrower full-year net loss of 220 billion yen ($2.2 billion) for the year ending March 2009, compared with the 280 billion yen loss forecast in July. The improved result would still be a record loss for the utility. Tokyo Gas, the country's largest distributor of the fuel, predicted profit of 9 billion yen, reversing its 7 billion yen loss forecast made in July.

Pretax Loss

Tokyo Gas on the same day posted the biggest pretax loss since it began releasing group earnings in fiscal 2000. The utility had a pretax loss of 11.5 billion yen for the six months ended Sept. 30.

Osaka Gas, Japan's second-biggest gas distributor, on Oct. 31 unveiled a plan to enter the Australian gas and power market by purchasing a stake in an unlisted energy company from Australia's APA Group, together with Tokyo-based Marubeni Corp. The Japanese group will hold an 80.1 percent stake, of which Osaka Gas plans to own 30.2 percent, by the end of December.

Crude oil in New York traded at $64.05 a barrel at 3:41 p.m. Tokyo time.

To contact the reporter on this story: Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net.



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BG to Boost Oil Reserves on Brazil Discoveries, Exploration

By Eduard Gismatullin

Nov. 4 (Bloomberg) -- BG Group Plc, the U.K.'s third- largest gas producer, said it expects its oil and gas reserves to rise on discoveries in Brazil and exploration progress in some other counties.

The company plans to increase is proved and probable reserves by more than 2 billion barrels of oil equivalent, or about 60 percent, this year, the Reading, England-based BG said today in a statement distributed by the Regulatory News Service. Total reserves and resources will gain by about 3 billion barrels of oil equivalent, or 30 percent, this year.

It had ``excellent exploration and appraisal results with success in eight countries so far in 2008,'' BG said today. ``Increasing resource base underpins potential to sustain'' a 6 percent to 8 percent annual growth rate in exploration and production to 2020.

Together with Petroleo Brasileiro SA and Portugal's Galp Energia SGPS SA, BG reported on Sept. 11 the discovery of ``another first-class'' oil field in the Santos Basin offshore Brazil. The Iara deposit is to the north of BG's Tupi field, whose 5 billion to 8 billion barrels of oil makes it the largest find in the Americas since 1976.

BG's net share of reserves and resources in Brazil totals more than 3 billion barrels of oil equivalent, the company said.

BG will hold a Webcast earnings presentation at 12 p.m. London time.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net



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Bangladesh Sends Envoys to Myanmar to Resolve Standoff Over Oil

By Jay Shankar

Nov. 4 (Bloomberg) -- Bangladesh is sending envoys to Myanmar today to try to resolve a territorial dispute, as ships from the neighboring countries face off in the Bay of Bengal over potential oil and gas deposits.

``Bangladesh has lodged a strong protest with Myanmar and its ambassador has been summoned twice,'' Nazrul Islam, director of the Ministry of Foreign Affairs, said by telephone from the capital, Dhaka. Foreign Secretary Touhid Hossain will lead the team of Bangladeshi officials to the nation formerly known as Burma.

A Myanmar exploration vessel escorted by three smaller naval ships traveled to the area about 50 nautical miles (93 kilometers) southwest of St. Martin's island a week ago, Islam said. Bangladesh insists the area falls within its territorial waters and has demanded the Myanmar vessels withdraw until a maritime boundary can be established through negotiations.

The two impoverished nations are eager to control as much of the potentially energy rich Bay of Bengal as possible. A delegation from Myanmar will arrive in Dhaka on Nov. 16 for a two-day visit to discuss the issue, Islam said.

Bangladesh wants the situation to be ``defused,'' Islam said. Myanmar hasn't publicly commented on the dispute.

Bangladesh had 13.77 trillion cubic feet of natural-gas reserves, or 0.2 percent of the world's total, while Myanmar had 21.19 trillion cubic feet, or 0.3 percent, at the end of 2007, according to BP Plc. Most of this is located in the Bay of Bengal, though not all as it includes onshore fields.

Myanmar and Bangladesh had per capita gross domestic product of $1,900 and $1,400 respectively in 2007, according to U.S. government data.

To contact the reporter on this story: Jay Shankar in Bangalore at jshankar1@bloomberg.net



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Malaysia's Ringgit Falls as U.S. Slowdown May Curtail Exports

By David Yong

Nov. 4 (Bloomberg) -- Malaysia's ringgit weakened after declines in U.S. manufacturing, auto sales and construction spending added to speculation that a slowdown in the world's largest economy will damp demand for Asian exports.

The currency fell from near a two-week high before a trade ministry report tomorrow that may show Malaysia's exports increased in September by the slowest pace in six months. The government will today cut its growth forecast of 5.3 percent for 2009, Deputy Prime Minister Najib Razak said last month.

``The financial crisis has started to affect the real sector and that should curtail global demand,'' said Joanna Tan, an economist at Forecast Pte. in Singapore. ``Trade is on a weakening trend and we expect further weakness in the ringgit.''

The ringgit dropped 0.6 percent to 3.54152 per U.S. dollar as of 9:02 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency yesterday reached 3.5075, the highest since Oct. 15.

Malaysian exports grew 7.7 percent in September from a year earlier, the least since March, according to the median forecast in a Bloomberg News survey. The U.S. accounted for 11 percent of Malaysia's shipments this year, the most after Singapore.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.



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Asian Currencies: Won, Ringgit Lead Drop on Reserves, Exports

By David Yong

Nov. 4 (Bloomberg) -- South Korea's won declined, leading losses among Asian currencies, after the nation reported its biggest drop in foreign-exchange reserves since the Asian financial crisis.

Korea's currency, the region's worst performer this year, fell after the central bank said today its reserves slumped 11 percent to $212.3 billion in October, the most since the nation received a $57 billion loan from the International Monetary Fund in 1997. Singapore's dollar and Malaysia's ringgit tumbled on concern a slowdown in the U.S., the world's largest economy, will damp demand for Asian exports.

``Traders are probably focusing on the decrease in reserves,'' said Jay Won, a currency dealer at Korea Exchange Bank in Seoul. ``Nevertheless, the market has found some stability, which will reduce wild swings in movements.''

The won fell 2 percent to 1,288 against the dollar as of the 3 p.m. local time close, according to Seoul Money Brokerage Services Ltd. Singapore's currency slumped 0.7 percent to S$1.4792 and the ringgit weakened 0.2 percent to 3.5275 at 4 p.m. in Kuala Lumpur.

Traders bet the won will still advance to 1,260 per dollar in three months, while a similar contract for the ringgit shows the currency is likely to weaken to 3.5350, according to non- deliverable forwards contracts. Forwards are agreements in which assets are bought and sold at current prices for delivery at a specified future date. Non-deliverable contracts are settled in dollars.

Half of the 10 most-traded currencies in Asia outside Japan declined today after reports yesterday showed U.S. manufacturing fell in October at the fastest pace in 26 years, construction spending eased and auto sales at General Motors Corp. slumped 45 percent for the worst month since World War II.

Yen Gains

The yen advanced against higher-yielding currencies on speculation a series of global interest-rate cuts will make it less attractive to buy overseas assets using funds from Japan.

Japan's currency climbed to 125.13 against the euro from 125.33 late yesterday in New York. The yen rose 1 percent to 66.49 per Australian dollar and 0.9 percent to 154.30 versus the pound. It gained to 98.83 per dollar from 99.12.

Australia's central bank today lowered its benchmark cash target rate by three-quarters of a percentage point to 5.25 percent, the third cut in as many months, on evidence global financial turmoil is buffeting the economy.

Malaysia's ringgit fell from near a two-week high before a trade ministry report tomorrow that may show the nation's exports rose in September at the slowest pace in six months. The government will today reduce its growth forecast of 5.3 percent for 2009, Deputy Prime Minister Najib Razak said last month.

Curtail Demand

``The financial crisis has started to affect the real sector and that should curtail global demand,'' said Joanna Tan, an economist at Forecast Pte in Singapore. ``Trade is on a weakening trend and we expect further weakness in the ringgit.''

Malaysian export growth slowed to 6.6 percent in September from a year earlier, the least since March, according to the median forecast in a Bloomberg News survey of economists. The U.S. accounted for 11 percent of Malaysia's shipments this year, the most after Singapore.

Singapore's dollar weakened before a Singapore Institute of Purchasing & Materials Management report today that may show its key manufacturing index declined to 48.3 last month from 49.5 in September. A reading below 50 indicates factory output shrank.

Taiwan's dollar gained 0.1 percent to NT$32.864, as stock exchange data showed foreign investors bought more local shares than they sold for a fourth day in five.

Elsewhere, the Philippine peso was little changed at 48.505, erasing a loss of as much as 0.7 percent. The Thai baht declined 0.2 percent to 34.97 per dollar and China's yuan was little changed at 6.8376. Indonesia's rupiah gained 0.2 percent to 10,955 and India's rupee traded at 48.645 after falling as low as 48.9375.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.



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New Zealand Dollar to Drop 7% on Rate Cuts, CBA Says

By Lukanyo Mnyanda

Nov. 4 (Bloomberg) -- The New Zealand dollar may drop 7 percent by April on speculation the central bank will cut interest rates, extending the currency's longest losing run since the Asian financial crisis more than a decade ago, CBA Europe Ltd. said.

The Reserve Bank of New Zealand will probably lower its benchmark rate 1 percentage point by March to revive the economy, reducing the currency's yield as a slowing global economy boosts demand for U.S. dollars, according to Divyang Shah, chief strategist in London at CBA Europe, a unit of Commonwealth Bank of Australia. That will drive the currency to as low as 55 U.S. cents by the end of the first quarter, from 59.01 as of 9 p.m. in Auckland today.

``There's further easing to come from the RBNZ,'' Shah said in a telephone interview today. ``Demand for safety and liquidity will continue to dominate and that should support the dollar and mean a weaker kiwi along the way,'' Shah said, referring to the currency by its nickname. His forecast is more bearish than the median prediction of 58 U.S. cents from 22 analysts and strategists surveyed by Bloomberg.

New Zealand's dollar fell against the U.S. currency in each of the past five months, its longest losing streak since 1997, as tumbling equity markets prompted investors to dump high- yielding assets for safer holdings in the U.S. and Japanese currencies. The kiwi slumped 23 percent this year against the dollar. It hasn't lost more than 20 percent since 1984.

Australian Cut

The central bank, led by Governor Alan Bollard, reduced the main interest rate by 1.75 percentage points to 6.5 percent since July after the economy contracted in the first half. Policy makers will probably cut another half a point in early December, according to eight of 10 economists surveyed by Bloomberg. That may be followed by two reductions of 0.25 percentage point each by March, Shah said.

New Zealand's currency dropped with the Aussie today after the Reserve Bank of Australia cut its benchmark overnight cash rate target by 0.75 percentage point to 5.25 percent. Fifteen of 16 economists surveyed by Bloomberg News forecast a 50 basis- point reduction, with one predicting 25 basis points.

High-yielding currencies including the kiwi, the Australian dollar and the South African rand have dropped as concern the world economy is headed for recession slashed prices for commodities from gold to oil. Raw materials make up 70 percent of New Zealand's overseas shipments. The Baltic Dry Index, a measure of shipping costs for commodities, has slumped more than 90 percent since Jan. 2.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net



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Sarkozy `Marshall Plan' for Suburbs Takes Backseat in Crisis

By Helene Fouquet

Nov. 4 (Bloomberg) -- Mohammed El Rhazi, a worker at mattress-maker Dunlopillo, calls the credit crisis the ``new plague'' in his impoverished Paris suburb of Mantes-la-Jolie, after riots tore through there in 2005.

``French suburbs are hit by this global crisis like everyone else,'' said the 43-year-old father of four, whose company is under court protection since its parent faced a cash shortage. ``The difference is that our suburbs carry scars. The crisis comes on top of an open wound.''

Three years ago this month, young people in poor French neighborhoods rioted for 21 days, burning cars and destroying property. The violence in those areas -- with large immigrant populations packed into concrete high-rise buildings and youth unemployment of about 40 percent -- prompted President Nicolas Sarkozy to create a plan to revive the suburbs, known as ``banlieues'' in French.

Now, as his government focuses on containing a banking crisis and countering a possible recession, the plan is taking a backseat. Without what Sarkozy once called a suburban ``Marshall Plan'' -- similar in spirit to the effort that rebuilt Europe after World War II -- the financial turmoil will hit these areas the hardest and may make an already fragile situation worse, social analysts and businessmen said.

``People from the wealthy Neuilly suburb are less likely than the ones in Mantes or Clichy to lose jobs,'' said Aziz Senni, 31, who created ATA SA, a minicab company in Mantes, and heads a group trying to help boost employment. ``Suburban workers live on construction, small services and temporary jobs, and these are the first ones to go.''

Auto-Plant Layoffs

PSA Peugeot Citroen, Europe's second-biggest carmaker, cut 700 temporary jobs at its Poissy plant in September. Many of the now-unemployed workers live 30 kilometers (19 miles) from there, in Mantes. Renault SA's Flins factory, which produces the Clio 3 car, said it may soon lay off assembly-line workers, most bussed in daily from Mantes and Les Mureaux, another suburb.

Signs of frustration are already evident. Luc Besson's movie-production company, Europacorp SA, was forced last month to cancel filming of ``From Paris With Love,'' starring John Travolta, in the Paris suburb of Montfermeil after youths torched its cars and threatened the crew.

``It really saddens me,'' Besson, the director of such films as ``The Big Blue,'' told Le Parisien. ``We created 200 jobs. The problem always comes with the 201st person, who says `Why my brother, my cousin? And I, I get nothing?'''

November Rampage

Such hostility has largely been contained. Still, rioters in Villiers-le-Bel, north of Paris, went on a rampage in November for a few nights, this time with guns. Things are ``much more violent than in 2005,'' Patrick Ribeiro, head of the Synergie Officiers police union, said at the time. ``The youths are shooting at us with handguns and hunting rifles.''

The 2005 clashes started after two boys in the Paris suburb of Clichy-sous-Bois were electrocuted in a power substation where they were hiding from the police. About 10,000 cars were burned across France and damages reached 200 million euros ($255 million).

In the three years since then, ``nothing was really done to help the suburbs become strong enough to face the kind of tsunami arriving now,'' Senni said.

`National Priority'

When Sarkozy, who was elected president in May 2007, presented his ``Suburb Hope'' plan in February, he called it a ``national priority'' that would ``break intellectual, cultural, social and psychological ghettoes,'' earmarking 1 billion euros for the program.

Forty-eight companies -- including road builder Eiffage SA; Areva SA, the world's biggest builder of nuclear reactors; and Total SA, France's biggest oil company -- pledged to create 40,000 jobs by 2010. About 11,800 have been generated so far.

Now, ``the target does not seem very realistic,'' said Laurence Boone, an economist at Barclays Capital in Paris. ``This plan needs to be revised. If a company has no business in the near future, like in this crisis, why would it hire, even if it's a state-subsidized job?''

The pessimism comes after the national statistics institute said last month that France slipped into a recession in the third quarter, the first in more than 15 years. The number of job seekers rose by 42,000 in August, the most since at least 1993. The International Monetary Fund says France's economy will grow 0.2 percent in 2009.

Urgent Attention

The government has set aside 360 billion euros to boost the capital of French banks and help them step up lending. While it tries to rekindle the economy, it is underplaying concerns that suburban projects may need immediate, urgent attention.

``The tensions in the projects have existed for 30 years,'' Fadela Amara, the secretary of state for urban affairs in charge of the projects plan, told reporters Oct. 29. ``It's not in 48 hours that you are going to solve the problems.''

For Dunlopillo's El Rhazi, the financial turmoil dashes any hope conditions in his neighborhood will improve soon.

``Project or no project, this crisis is bad news for all of us,'' he said. ``More jobless people, more impoverished families will just make things here more unpredictable.''

To contact the reporter on this story: Helene Fouquet in Paris at Hfouquet1@bloomberg.net



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Bet on Euro to Drop 7% Against Yen on Risk Aversion, UBS Says

By Candice Zachariahs

Nov. 4 (Bloomberg) -- Investors should buy one-month options granting the right to sell the euro because the currency may slide more than 7 percent against the yen as money managers lose appetite for higher-yielding assets, UBS AG said.

``We continue to see risk aversion as the dominant theme, with the market yet to fully realize the extent of the economic slowdown to come,'' wrote Geoff Kendrick, a London-based currency strategist with UBS.

The euro has weakened 26 percent against the yen in the past three months as the collapse of Lehman Brothers Holdings Inc. froze lending and raised concern that the financial crisis will plunge the global economy into recession.

Investors should buy a so-called 25-delta euro put option against the yen with a strike price of 115.75 yen, wrote Kendrick. Delta measures the rate of change in an option's value relative to moves in the underlying currency. The strike price is the rate at which a holder may buy or sell a currency.

The euro gained versus the yen for the three days through Oct. 30, advancing nearly 10 percent, on speculation the Bank of Japan would sell yen for the first time in four years to arrest the currency's appreciation. The BOJ reduced its benchmark rate to 0.3 percent on Oct. 31.

The euro was 0.6 percent lower at 124.54 yen as of 11:50 a.m. in Tokyo from 125.33 yen yesterday. The currency has weakened 14 percent against the yen over the past month.

The European Central Bank will reduce rates to 2.5 percent by the second quarter of 2009 according to the median forecast of 28 economist surveyed by Bloomberg News, to boost the region's slowing economies. The ECB will cut its benchmark 50 basis points to 3.25 percent on Nov. 6, according to the median estimate of 53 economists surveyed by Bloomberg. A basis point is 0.01 percentage point.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net



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New York Commercial Property Sales Plunge 61% in Credit Freeze

By David M. Levitt

Nov. 4 (Bloomberg) -- New York City commercial real estate transactions plunged 61 percent in 2008 through October as the global credit crisis roiled lending and sidelined buyers.

About $17 billion of transactions have closed so far and the market is headed for its worst year since 2004, according to data from Real Capital Analytics Inc. of New York. Sellers have made 237 deals of $5 million or more, a four-year low in a market that posted a record $51 billion in sales in 2007.

``The banks are not lending, and most of them are saying we're done for the year,'' said Scott Latham, executive vice president for New York investment sales at Cushman & Wakefield Inc., the largest closely held commercial brokerage. ``In all likelihood, you will see next to no transactions between now and the end of the year.''

The property recession that began in housing during 2006 is spreading to the commercial market. About 85 percent of domestic banks tightened lending standards on commercial and industrial loans to large and mid-size firms in the past three months, the highest since the Federal Reserve's Senior Loan Officer Survey began in 1991, the Fed said yesterday. Financial firms have recorded writedowns and losses of more than $680 billion.

The office market will likely get worse in 2009 and may not improve for at least another year, said Andrew Simon, executive managing director for the New York City office of NAI Global, a worldwide network of 325 independent commercial property brokerages. The bankruptcy of Lehman Brothers Holdings Inc., the takeover of Merrill Lynch & Co. and the city comptroller's forecast that New York may lose as many as 165,000 jobs are also weighing on the market.

No Rosy Outlook

``I don't think the first half of 2009 is going to be very rosy,'' said Simon. ``I believe you're talking about a year from now before you see more movement toward normalcy.''

Buyers and sellers are looking for a bottom, he said.

``People are going to be waiting on the sidelines until a floor is established,'' said Simon. ``People aren't going to sell unless they have to sell. Unless that floor is established you will not see significant sales.''

With no letup in sight for the property industry, investors have dumped real estate investment trusts focusing on offices.

The 14-member Bloomberg Office REIT Index lost 43 percent in the 12 months through October, led by Maguire Properties Inc. and SL Green Realty Corp., which together control almost 50 million square feet of office space in the Los Angeles and New York metropolitan areas.

Sales Fall

SL Green, the biggest owner of Manhattan office buildings, has dropped 65 percent in the 12 months through October. Maguire, the largest owner of downtown Los Angeles office towers, has plunged 87 percent and is the worst performer in the index.

Global commercial sales fell 57 percent this year through August, Real Capital said in an Oct. 9 report. In the third- quarter, they fell 64 percent from the same period a year ago, according to preliminary data from the company.

In the U.S., sales have declined 72 percent this year through October, the biggest drop since the firm's recordkeeping began in 2001, Real Capital said. Starting in 2004, property investors, fueled by cheap and abundant debt, began an unprecedented run to $514 billion of U.S. deals in 2007, said Dan Fasulo, Real Capital's director of market analysis.

``I think it will be a while before we get to that figure again,'' Fasulo said. ``We're going to do less than half of that in 2008.''

`Disastrous' September

September was ``disastrous'' for the financial and commercial property markets, Real Capital said. Office sales totaled $13.4 billion in the third quarter in the U.S., the lowest since the first quarter of 2004. Sales for all of 2008 aren't likely to exceed the volume of the first quarter of 2007.

``Until we have some kind of watershed transaction that gives people a sense of what the market is, you're not going to see a lot of transactions,'' Lynne Sagalyn, director of the Paul MilsteinCenter for Real Estate at Columbia University, said in an interview.

Sales involving New York real estate investor Harry Macklowe, perhaps commercial real estate's most prominent casualty of the credit crisis, accounted for more than two- fifths of New York's year-to-date dollar figure through October.

Macklowe paid $6 billion last year for seven Midtown skyscrapers, primarily using short term debt. His lender, Deutsche Bank AG, took control of the towers in February and sold five of them for $2.83 billion. Macklowe also sold the General Motors Building and three other buildings for $3.97 billion to Mortimer Zuckerman's Boston Properties Inc.

Mortgage Originations Sink

Second-quarter commercial and multifamily mortgage originations tumbled 63 percent in the second quarter from the same period a year earlier, according to the Mortgage Bankers Association in Washington.

Office property loans fell 65 percent, retail property loans fell 63 percent and industrial property loans slid 57 percent, the MBA said. Loans slated for the commercial mortgage- backed securities market declined 98 percent in the second quarter from a year earlier, the group said.

Financing of deals by so-called portfolio lenders, companies like commercial banks and life insurers that originate loans and keep them on their books, was also down. Loans by banks fell 29 percent and 27 percent for insurers, the MBA said.

The few deals being made usually require sellers to either provide financing or allow buyers to take over their existing loans, said Howard Michaels, chairman of the New York-based Carlton Group LLC, a real estate investment banking firm, which arranged the recapitalization of the GM Building for Macklowe in 2004, and Chicago's Sears Tower in 2007.

Wachovia Sale

At 1372 Broadway, a 20-story pre-World War I office building in New York's Garment District, buyer Lloyd Goldman received financing for 86 percent of the tower's cost from the seller, Wachovia Corp., the lender being acquired by Wells Fargo & Co.

Wachovia and partner SL Green sold the building for $274 million, $61 million less than what they paid a year before, according to city records. The price dropped $20 million from the signing of the contract in July and last month's closing, said people familiar with the transaction.

A standoff between sellers and buyers over price appears to be stalling the market, said Michaels.

``Most people are waiting to see how 2009 shakes out. Until then, nobody's putting any buildings on the market unless they have to.'' he said. ``I don't think that anybody would voluntarily sell into this market right now.''

Two properties remain on the market five months after they went up for sale. They are Worldwide Plaza on Eighth Avenue, a 1.7 million square-foot tower, and 1540 Broadway in Times Square, the former Bertelsmann Building.

The seller of both buildings: Harry Macklowe's lender, Deutsche Bank.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.



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Australia Dollar Extends Decline as Central Bank Slashes Rates

By Candice Zachariahs
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Nov. 4 (Bloomberg) -- The Australian dollar extended declines after the Reserve Bank of Australia cut interest rates by more than economists estimated, reducing investor appetite for higher-yielding assets. New Zealand's currency also fell.

Australia's dollar slid 2.5 percent to 66.49 U.S. cents as of 4:34 p.m. in Sydney from 68.06 cents late in Asia yesterday. It traded at 67.17 cents just before the RBA announced the 0.75 percentage point cut to 5.25 percent at 2:30 p.m. The currency bought 65.41 yen from 66.34 before the decision.

``The Aussie might come under downside pressure from the bigger rate cut,'' said Besa Deda, acting chief economist and strategist at St. George Bank Ltd. in Sydney, referring to the currency by its nickname. ``Clearly, international conditions, with further signs that China is slowing, are one of the key factors for the RBA to cut rates.''

Fifteen of 16 economists surveyed by Bloomberg News forecast a 50 basis-point cut, with one predicting 25 basis points. Today's decision follows a 1 percentage point reduction last month, the bank's biggest cut since May 1992 as the economy was emerging from a recession.

New Zealand's dollar declined 0.9 percent to 58.70 U.S. cents from 59.23 cents. It bought 57.90 yen from 58.81.

Australia's currency has plunged 29 percent against the dollar over the past three months and 35 percent versus the yen after the collapse of Lehman Brothers Holdings Inc. froze credit markets and prompted investors to dump higher-yielding assets on concern over a global recession. New Zealand's dollar is 20 percent and 27 percent lower versus the greenback and the yen, respectively.

U.S. Stocks

The currencies also declined after stocks in the U.S. fell on the worst contraction in manufacturing since 1982 and forecasts that the sagging economy will reduce profits. About 1 billion shares changed hands on the floor of the New York Stock Exchange, the slowest trading day since August. The S&P 500 lost 2.45 points, or 0.3 percent, to 966.3.

``For the Aussie to continue to recover the ground that was lost, particularly in the last couple of weeks, we would need to see stocks trading higher,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp.

New Zealand's currency also fell as the nation's commodity export price index slumped to an 18-month low in October led by beef, aluminum and wool, according to ANZ National Bank Ltd. Exports make up 30 percent of the New Zealand economy.

Australian government bonds advanced. The yield on the benchmark 1-year note dropped 39 basis points to 3.785 percent, according to data compiled by Bloomberg. The yield on 90-day bank bill futures fell to 4.48 percent from 4.95 yesterday.

New Zealand's two-year swap rate, a fixed payment made to receive floating rates, declined to 6.31 percent today from 6.34 yesterday.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net



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JPMorgan Faces `Challenging' 2009, Rebound in 2010

By Cathy Chan

Nov. 4 (Bloomberg) -- JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said the company faces ``highly challenging conditions'' next year, while projecting a possible ``strong recovery'' in 2010.

Speaking to 550 employees in Hong Kong yesterday, Dimon also said the acquisitions of Bear Stearns Cos. and Washington Mutual Inc., both victims of the credit crunch, will help JPMorgan's performance in the ``longer term,'' according a document seen by Bloomberg News and confirmed by a person in attendance. JPMorgan spokesman Ray Bashford declined to comment.

Dimon, 52, also questioned the ability of Asian economies to weather the fallout from the deepest financial crisis since the Great Depression. The region so far has evaded the worst of the contagion that toppled Lehman Brothers Holdings Inc. and forced Merrill Lynch & Co. to sell itself.

``In Asia it's going to get worse than you think,'' he told employees at the Hong Kong Convention Centre. ``I don't think Asia can avoid the fallout from the global problems.''

Wall Street executives including Merrill CEO John Thain and Citigroup Inc. Chief Financial Officer Gary Crittenden have signaled economic contraction will weigh on profits into 2009. Dimon said last month he will set aside more money to cover loan losses and predicted the slowdown will last longer and strike deeper than many had previously expected.

JPMorgan on Oct. 15 posted an 84 percent drop in third- quarter profit, and Dimon forecast earnings will decline in coming quarters. The stock has lost 6.7 percent this year.

Shanghai Meeting

While forecasting more difficult conditions in Asia in the short term, Dimon said the region has potential for `very substantial natural growth'' over a longer time horizon.

Economic growth in Asia will be ``robust'' this year and next even as the U.S. financial crisis cools global expansion, Asian Development Bank President Haruhiko Kuroda said in an Oct. 9 interview. He forecast the region will grow 7.5 percent this year and 7.2 percent in 2009.

Dimon's Asia tour included a stop in Shanghai, where he joined the J.P. Morgan International Council for its annual two- day meeting, the document said. Attendees included former U.K. Prime Minister Tony Blair, former U.S. Secretaries of State George Shultz and Henry Kissinger; and Lee Kuan Yew, Minister Mentor of Singapore.

JPMorgan may increase staff in India and the Philippines in coming years because they serve as ``major international hubs for outsourcing of support functions,'' Dimon said.

The CEO also said an expected increase in government regulation may take time to impact JPMorgan, as any changes would have to ``go through the legislative process,'' according to the document.

To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net



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Corn, Soybeans Drop as Dollar's Strength Curbs Demand Prospects

By Jae Hur

Nov. 4 (Bloomberg) -- Corn and soybeans declined as a strengthening dollar reduced the appeal of supplies from the U.S., the biggest exporter of both commodities. Wheat also fell.

The dollar rose for a fourth day against the euro on speculation the European Central Bank will lower rates to cushion the impact of a slowing economy. Corn lost 18 percent in October and soybeans 11 percent, the fourth straight monthly decline. The dollar rose 9.7 percent last month against the euro, the biggest monthly rally in 16 years.

``The dollar's strength has been working as a negative factor on the grain market,'' Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd. in Tokyo, said today by phone. ``The downside will be limited following a private forecast of less-than-estimated U.S. harvests.''

Corn for December delivery fell 2.25 cents, or 0.6 percent, to $4.0075 a bushel in electronic trading in Chicago by 2:11 p.m. Singapore time. The price has fallen 50 percent from a record $7.9925 on June 27.

Soybeans for January delivery were down 0.4 percent at $9.335 a bushel after trading between $9.2925 and $9.4425. The contract has fallen 43 percent from a record $16.3675 on July 3.

U.S. corn and soybean harvests will be less than the government forecast last week after wet weather in June trimmed corn acreage and reduced soybean yields, according to FCStone Group Inc., a commodity research and brokerage company.

Corn Crop

Production of corn will total 11.99 billion bushels, 0.4 percent less than the 12.033 billion estimated last week by the U.S. Department of Agriculture, Bevan Everett, a risk-management consultant at the West Des Moines, Iowa-based FCStone, said yesterday. The company had predicted 12.026 billion bushels in October. Farmers harvested a record 13.1 billion last year.

The soybean harvest will be 2.916 billion bushels, 0.7 percent less than the 2.938 billion forecast on Oct. 28 by the government and up from the 2.889 billion estimated by FCStone in October, Everett said. Farmers harvested 2.676 billion bushels last year and a record 3.19 billion bushels in 2006.

FCStone's crop estimates are based on a survey of grain elevator managers, grain processors and farmers in 18 states and reflect actual harvest results. About 55 percent of the corn crop was harvested as of Nov. 2 and 86 percent of the soybeans were collected, the USDA said yesterday.

The government is scheduled to release its fourth survey- based production forecasts for corn and soybeans on Nov. 10 at 8:30 a.m. in Washington, after questioning farmers and making yield tests in randomly selected fields across the Midwest.

The dollar gained as much as 0.9 percent to $1.2527 per euro and the MSCI Asia Pacific Index added as much as 2.7 percent to 90.10.

Wheat for December delivery dropped 11.5 cents, or 2.1 percent, to $5.5050 a bushel at 2:31 p.m. Singapore time. The contract gained 4.8 percent yesterday on speculation a drop of 21 percent in October, the biggest monthly decline since February 1986, may boost interest. Futures have lost 59 percent from a record $13.495 on Feb. 27.

To contact the reporter for this story: Jae Hur in Singapore at jhur1@bloomberg.net



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Platinum Futures in Tokyo Gain as Traders Withdraw Bets on Drop

By Dave McCombs

Nov. 4 (Bloomberg) -- Platinum futures in Tokyo advanced, after plunging the daily limit on the previous trading day, as some traders closed positions in contracts betting on further declines in the metal.

The most-active contract may still decline after Japanese carmakers release monthly sales figures today. Automakers are the biggest users of platinum, which they use in emissions filters.

``The market will reverse this afternoon, pushing platinum down after Japanese car companies report bad sales,'' Kazuhiko Saito, a strategist at Interes Capital Management, said in Tokyo today by phone. ``The only buyers today are short-coverers.''

Platinum for October delivery gained 5.7 percent to 2,590 yen a gram ($814 an ounce) at the 11 a.m. break on the Tokyo Commodity Exchange. Only 6,361 contracts had traded, compared with the full-day average of 17,798 for the past 15 days.

Metal for immediate delivery declined as much as $3.50 to $816.50 an ounce, a 0.4 percent drop from yesterday in New York. It traded at $819.50 an ounce at 11:21 a.m. in Tokyo.

Industrywide U.S. auto sales dropped for the 12th straight month in October, extending the longest slide in 17 years. Tight credit, falling consumer confidence and a weak economy, the same forces that suppressed buying in September, hurt automakers gain this month. Sales plummeted 32 percent in October to the lowest monthly total since January 1991.

To contact the reporter for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net



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