European Stocks, U.S. Index Futures Fall; Infineon, ASML Drop

By Adam Haigh

Dec. 3 (Bloomberg) -- Stocks fell in Europe and U.S. index futures dropped on disappointing earnings from Infineon Technologies AG and Research In Motion Ltd., a record contraction in European services and higher-than-forecast job cuts in America.

Infineon, Europe’s second-largest maker of semiconductors, tumbled 29 percent on a wider-than-expected net loss. ASML Holding NV and Nokia Oyj sank more than 3 percent. Research In Motion, whose BlackBerry competes against Apple Inc.’s iPhone, declined 7.9 percent after third-quarter profit missed its forecast.

Europe’s Dow Jones Stoxx 600 Index lost 2.3 percent to 192.66 at 2:13 p.m. in London, extending this year’s retreat to 47 percent. More than $31 trillion has been erased from the value of global equities as the collapse of the U.S. mortgage market sparked financial turmoil that pushed economies into recession.

“Everybody has been surprised by the scale of this mess and it is going to get worse,” said Hans Goetti, who oversees $10 billion as chief investment officer at LGT Bank in Liechtenstein (Singapore) Ltd., part of the bank for the wealthy owned by Liechtenstein’s royal family. “We may see this downturn lasting well into 2010.” Goetti is underweight global equities.

Standard & Poor’s 500 Index futures slipped 2.6 percent before a report that will probably show service industries shrank in November at the fastest pace on record, sending the world’s largest economy deeper into what may become the worst recession in decades. Futures on the Dow Jones Industrial Average fell 2.3 percent.

The 30-company Dow average has swung by an average of 517 points between intraday highs and lows over the last two months, and the 20-day average exceeded a record 600 points in October.

Job Cuts

European stocks and U.S. index futures extended declines after the ADP Employer Services report indicated that American companies cut a more-than-forecast 250,000 jobs in November, the most since 2001. Economists predicted a decline of 205,000 jobs, according to a Bloomberg survey.

The MSCI Asia Pacific Index gained 1.3 percent as GST Holdings Ltd., a Chinese fire-alarm maker, and China Mobile Ltd. rallied.

Stocks worldwide will withstand a “full-blown” global recession, according to UBS AG. The S&P 500 may jump to 1,300 by the end of 2009, a 53 percent rally from its current level, New York-based strategist David Bianco wrote in a report dated Dec. 2.

U.S. stocks climbed yesterday, rebounding from the market’s worst tumble since October, after General Electric Co. announced plans to maintain its dividend and the Federal Reserve extended terms of three emergency loan programs. GE jumped 14 percent, while Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. advanced at least 9 percent.

Bankruptcy ‘Not an Option’

House Speaker Nancy Pelosi yesterday said she believes either Congress or the Bush administration will step in to aid domestic automakers because bankruptcy is “not an option.”

National benchmarks slid in 16 of the 18 western European markets. The FTSE 100 lost 1.8 percent, as Stagecoach Group Plc slipped after forecasting tough times ahead. France’s CAC 40 dropped 2.9 percent, led by Electricite de France SA after it bid $4.5 billion for half of Constellation Energy Group Inc.’s nuclear power business. Germany’s DAX slid 2.8 percent.

European services shrank at a record pace and retail sales fell more than forecast in October, reports today showed. In the U.K., services contracted at the fastest pace in at least 12 years in November, and consumer confidence dropped.

The reports bolstered the case for interest-rate cuts. Economists predict European Central Bank policy makers will lower their benchmark rate by a half percentage point, and the Bank of England will probably slash its key rate by 1 percentage point. Both central banks are due to announce decisions tomorrow.

Bigger Cut

HSBC Holdings Plc said it now forecasts the ECB cutting the rate by 0.75 percentage points, having previously estimated a 0.5 percentage point decrease.

Infineon declined 29 percent to 1.17 euros after saying it sees full-year 2009 sales down at least 15 percent from this year and reported a 763 euros fourth-quarter net loss, missing analysts’ estimates for a 321 million-euro loss.

ASML, Europe’s largest maker of semiconductor equipment, lost 3.1 percent to 10.80 euros. Nokia, the world’s biggest maker of mobile phones, declined 3.2 percent to 10.53 euros.

Research In Motion sank 7.9 percent to $34.38 in pre-market trading in New York. Profit rose to no more than 83 cents a share in the quarter ended Nov. 29, missing a company forecast of as much as 97 cents. The results were preliminary, with the full financial report due on Dec. 18.

Stagecoach fell 18 percent to 140.9 pence after the owner of the U.K.’s biggest rail franchise said it may cut jobs as the slowdown begins to threaten passenger numbers.

Pressure on Margins

Bouygues SA fell 9.5 percent to 28.815 euros after signaling orders and building margins may decrease next year. The world’s second-largest construction company is already seeing “pressure” on profit margins at road-building unit Colas and predicts fewer orders and a similar squeeze on new civil-works contracts, the Chief Financial Officer Philippe Marien said yesterday during a conference call on the company’s third-quarter earnings.

Analysts have slashed earnings estimates this year as economies from Germany and the U.K. to the U.S. slip into recession. Profit for companies in the Stoxx 600 will slide 13 percent in 2008, compared with 11 percent growth forecast at the start of the year, according to Bloomberg data. Earnings for S&P 500 companies will slide 11 percent in 2008, the data show.

Since Oct. 7, quarterly earnings for the 329 companies in the Stoxx 600 that reported results declined 15 percent on average, trailing expectations by 6 percent, Bloomberg data show. For the 465 companies in the S&P500 that have reported results, earnings sank 17 percent and missed estimates by 4.2 percent, the data show.

Thwarting Buffett

EDF slumped 5.4 percent to 42.175 euros after the world’s biggest operator of nuclear reactors bid for half of Constellation’s nuclear business to expand in the U.S. and thwart a rival bid from billionaire Warren Buffett. Constellation agreed earlier this year to be bought by Berkshire Hathaway Inc.’s MidAmerican Energy Holdings Co. for $4.7 billion.

GST surged 38 percent to HK$2.62 after United Technologies Corp. offered to buy the remaining 71 percent of the company it doesn’t already own for HK$1.9 billion ($245 million). The stock resumed trading today after being suspended since Nove. 10.

China Mobile climbed 3.2 percent to HK$72.55. State radio said the country will invest a total of 800 billion yuan ($116 billion) to provide 3G mobile services, and issue three licenses by the end of the year.

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

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Merrill Said to Cut Bonuses by 50% as Revenue Slumps

By Bradley Keoun and Jacqueline Simmons

Dec. 3 (Bloomberg) -- Merrill Lynch & Co. plans to cut year- end bonuses in half after more than $20 billion of losses that forced the U.S. securities firm to sell itself to Bank of America Corp., two people with knowledge of the situation said.

The average bonus reduction will be about 50 percent at the New York-based company, and some traders and investment bankers will face steeper cuts, said the people, who declined to be identified because the plans aren't public. While employees won't find out their bonuses until later this month, division managers are being told now how much they'll get to distribute.

Merrill's revenue through September fell 96 percent from a year earlier, forcing Chief Executive Officer John Thain to slash compensation -- the firm's biggest expense. Congressmen and regulators scrutinizing Wall Street pay have sought to ensure that economic-rescue funds from the U.S. government are used to stimulate lending and not to enrich executives.

The drop in bonuses at Merrill would be less severe than the 70 percent average cut for senior Wall Street executives that compensation consultant Johnson Associates predicted last month. Bonuses for rank-and-file workers may fall by 10 percent to 45 percent, according to Johnson.

Bonuses account for the bulk of a year's pay for most traders and investment bankers, and usually fall when markets sour.

Merrill spokeswoman Selena Morris declined to comment. The shares slipped 4.3 percent to $11.06 in New York trading today.

Shareholder Vote

A crisis of confidence sent Merrill shares plunging 36 percent in a single week during September, forcing the firm to sell itself to Charlotte, North Carolina-based Bank of America. Shareholders of both companies are scheduled to vote on the deal this week, with the closing targeted for the end of December.

Merrill and Bank of America were allotted a combined $25 billion of government money in October, when the Treasury Department agreed to invest $125 billion in nine of the biggest U.S. banks to bolster their dwindling capital.

Hit with mortgage-bond writedowns and plunging investment- banking fees, Merrill may report a loss this year of $13.3 billion, based on the average estimate of nine analysts surveyed by Bloomberg. That would be almost twice as wide as the $7.8 billion loss for 2007, then a record for the 94-year-old firm.

The company has dropped 78 percent this year in New York Stock Exchange composite trading and closed yesterday at $11.56.

Compensation Costs

Merrill's costs for compensation and benefits this year through September totaled $11.2 billion, down 3 percent from a year earlier. Although bonuses aren't paid until the end of the year, Wall Street firms usually estimate them in advance and account for a portion of the payout costs in each quarter.

Even if Merrill set aside nothing for compensation in the fourth quarter, the firm's 60,900 employees still would reap an average of $184,000 in compensation and benefits for the full year.

In 2007, Merrill paid out a total of $15.9 billion in compensation, or about $248,000 per employee.

Merrill's net revenue for the first nine months of this year totaled $834 million, or $13,695 per employee, compared with $19.4 billion in the 2007 period. The plunge in revenue stemmed from trading losses on bonds and other assets. The bulk of Merrill's writedowns came in the fixed-income-trading division, which contributed negative net revenue of $21.4 billion. Investment-banking net revenue plunged 25 percent to $2.58 billion.

Advisers' Commissions

Merrill's brokerage division, the biggest of its kind in the U.S. with 16,850 financial advisers, generated $10.2 billion of net revenue during the first nine months, down 2 percent from the prior year. Brokers don't depend on bonuses as traders and investment-bankers do, because their annual pay is based on a formula that's linked to sales.

Goldman Sachs Group Inc., Wall Street's most profitable firm, said last month Chief Executive Officer Lloyd Blankfein and six deputies would forgo year-end bonuses. Executives at Frankfurt-based Deutsche Bank AG and UBS AG in Zurich also have agreed to waive pay.

Merrill officials have declined to comment on bonuses for top executives, saying the payouts hadn't been set. Thain, 53, a former Goldman Sachs executive, received a $15 million bonus when he joined Merrill last December.

To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net

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U.K. Stocks Fall on Economy Concern; Barclays, Rio Shares Slide

By Michael Patterson

Dec. 3 (Bloomberg) -- U.K. stocks fell after service industries contracted at the fastest pace in at least 12 years, consumer confidence dropped and a private U.S. payrolls report showed companies cut more jobs than forecast.

Barclays Plc lost 3.7 percent and Marks & Spencer Group Plc declined 2.6 percent as the services and confidence reports added to evidence the U.K. recession is deepening. Rio Tinto Group retreated 12 percent as copper slid and ABN Amro Holding NV cut its 2009 profit estimate for the third-biggest mining company.

The benchmark FTSE 100 Index dropped 49.99, or 1.2 percent, to 4,072.87 at 1:48 p.m. in London. The FTSE All-Share Index declined 1.3 percent and Ireland’s ISEQ Index slipped 0.2 percent.

“This financial crisis and credit crunch and everything related to it, is severely impacting the real economy,” said Philippe Gijsels, a Brussels-based senior equity strategist at Fortis Global Markets, which has $62 billion under management. “It is hitting every sector.”

The FTSE 100 has retreated 37 percent this year as mortgage- related losses and frozen credit markets forced the government to rescue banks and pushed the economy into a recession.

Barclays, the U.K.’s third-biggest bank, dropped 5.6 pence to 146.9.. Marks & Spencer, the U.K.’s largest clothing retailer, fell 5.75 pence to 219 pence. TUI Travel Plc, Europe’s largest tourism company, slid 3.7 percent to 203.25 pence.

Sentiment Falls

A index based on a survey of about 700 service companies fell to 40.1, the lowest since the gauge began in 1996, Markit and the Chartered Institute of Purchasing and Supply said today. Nationwide Building Society said consumer confidence fell to the lowest since at least 2004.

Companies in the U.S. eliminated an estimated 250,000 jobs in November, the most since November 2001, ADP Employer Services said. The ADP report was forecast to show a decline of 205,000, according to the median estimate of 22 economists in a Bloomberg News survey.

Separately, Marks & Spencer said it will hold its second one-day sale in as many weeks tomorrow. The company will offer 20 percent off clothing, homeware, Christmas cakes and some wine.

Rio fell 150 pence to 1,120. ABN Amro Holding NV cut its 2009 profit forecast 36 percent, citing declining commodity prices. Copper dropped 4.4 percent in London, while Zinc and Nickel also slid.

Stagecoach Group Plc, owner of the U.K.’s largest rail franchise, lost 19 percent to 139.3 pence after predicting “downward pressure” on profits through 2010. The Perth, Scotland-based company said it would reduce the headcount in its rail businesses.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

U.K. companies:

3i Group Plc (III LN) dropped 4.1 percent to 373.75 pence. Europe’s largest publicly traded private equity firm will announce it will cut about 15 percent of its staff, the Financial Times reported, without saying where it got the information. The London-based firm didn’t immediately respond to calls made by Bloomberg after normal office hours.

New Star Asset Management Group Ltd. (NSAM LN) slipped 15 percent to 5.75 pence. The U.K. money manager trying to renegotiate its debt was dropped from the list of funds recommended by financial advisers Bestinvest Brokers Ltd. and Hargreaves Lansdown Plc.

Irish companies:

Anglo Irish Bank Corp. (ANGL ID) dropped 16 percent to 79 cents. Ireland’s third-biggest lender by assets said fiscal-year profit dropped 33 percent as it put aside 500 million euros ($635 million) in provisions for future loan losses. Earnings missed the median estimate of six analysts surveyed by Bloomberg.

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

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BM&FBovespa, CSN, Gol, Tim Participacoes: Brazil Equity Movers

By Paulo Winterstein

Dec. 3 (Bloomberg) -- The following companies are having unusual price changes in Brazil trading. Stock symbols are in parentheses, and share prices are as of 8:11 a.m. New York time. Preferred shares are usually the most-traded class of stock.

The Bovespa index dropped 1 percent to 34,635.27.

BM&FBovespa SA (BVMF3 BS) fell 1.3 percent to 4.52 reais, the lowest price in more than a week. Foreign investors sold more Brazilian shares than they bought for a sixth consecutive month, the longest streak of outflows in almost eight years. The value of shares bought and sold by foreigners fell below 25 billion reais ($10.4 billion) each during the month, the lowest level since January 2007, BM&FBovespa, Latin America’s biggest exchange, said yesterday.

Cia. Siderurgica Nacional SA (CSNA3 BS) fell 2.4 percent to 23.60 reais, the lowest in more than a week for the maker of flat steel for Brazil’s auto industry. Brazilian auto parts makers plan to cut about 4 percent of their workforce by year-end as slowing global growth erodes demand for automobiles, Folha de Sao Paulo reported today, citing Brazil’s auto parts makers association.

Gol Linhas Aereas Inteligentes SA (GOLL4 BS) gained 1.1 percent to 9.50 reais, the highest price in almost one month. Brazil’s second-biggest airline rose for a third day as oil traded near a three-year low. Fuel, which accounted for about 40 percent of airline costs when crude peaked, now likely makes up 20 percent of costs, Edigimar Maximiliano, an analyst at Bradesco Corretora, said yesterday. Bigger rival Tam SA (TAMM4 BS) gained 1 percent to 17.83 reais. Empresa Brasileira de Aeronautica SA (EMBR3 BS), the world’s fourth-biggest airplane maker, rose 2.5 percent to 9.12 reais.

Tim Participacoes SA (TCSL3 BS) fell 4.6 percent to 6.20 reais, leading declines on the index. Telecom Italia SpA, the parent of Brazil’s third-largest mobile-phone company, said it won’t sell Tim and instead will cut jobs in Italy and cut its revenue growth forecast for a fifth time.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.

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Grey Wolf, Infineon Technologies, Marvell: U.S. Equity Preview

By Whitney Kisling

Dec. 3 (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 8:40 a.m. in New York, unless otherwise specified.

Constellation Brands Inc. (STZ US) increased 1.6 percent to $12.36. The world’s largest winemaker said it settled some foreign-currency hedges, gaining about $50 million after taxes to pay down debt.

Constellation Energy Group Inc. (CEG US) rallied 20 percent to $30.24. Electricite de France SA, the world’s biggest operator of atomic reactors, offered $4.5 billion for half of the U.S. power marketer’s nuclear business. EDF owns 9.5 percent of Constellation, which agreed earlier this year to be bought by Berkshire Hathaway Inc.’s MidAmerican Energy Holding Co. for $4.7 billion.

Freeport-McMoRan Copper & Gold Inc. (FCX US) fell 18 percent to $17.79. The world’s largest publicly traded copper producer cut its production and sales forecast by 5 percent next year and 11 percent in 2010 after a “sharp decline” in prices for the metal. The company also suspended its annual dividend of $2 a share.

General Electric Co. (GE US) declined 2.3 percent to $17.20. The Fairfield, Connecticut-based company whose products include power-plant turbines and locomotives may buy a 54.4 stake in Indo Tech Transformers Ltd., an Indian maker of power and distribution transformers, the Times of India reported, without saying where it got the information. GE would pay a “substantial premium” to Indo Tech’s closing price yesterday.

General Motors Corp. (GM US) fell 4.5 percent to $4.63. The largest U.S. automaker and Chrysler LLC said they need $11 billion just to survive until next month, when President-elect Barack Obama takes office.

Grey Wolf Inc. (GW US) gained 20 percent to $5.34. The U.S. provider of contract land drilling for oil and gas delayed a shareholder meeting to Dec. 23 to approve an acquisition by Precision Drilling Trust, Canada’s largest driller. The companies said the delay doesn’t affect the deal’s conclusion, which they announced in August.

Infineon Technologies AG American depositary receipts (IFX US) fell 30 percent to $1.43. Europe’s second-largest chipmaker reported a wider-than-estimated loss and forecast revenue will drop this fiscal year on sliding orders from automakers and mobile-phone manufacturers.

Lockheed Martin Corp. (LMT US): The world’s largest defense company won a contract valued at as much as $1.09 billion to build the next series of weather satellites for the National Aeronautics and Space Administration. The stock rose 3.6 percent to $73.63 in regular trading yesterday.

Marvell Technology Group Ltd. (MRVL US) gained 9.8 percent to $5.59. The maker of chips for mobile phones which gets most of its revenue from the Asia-Pacific region posted third-quarter earnings excluding some items of 23 cents, beating the average analyst estimate by 11 percent.

Motorola Inc. (MOT US) fell 4.9 percent to $4.06. The mobile-phone maker may have its credit rating lowered by Moody’s Investors Service because of the company’s “prolonged” decline in performance amid the global financial crisis.

OmniVision Technologies Inc. (OVTI US) tumbled 19 percent to $4.45. The maker of image sensors for camera phones forecast an unexpected loss and revenue that trails analysts’ estimates for the third quarter ending in January.

Research in Motion Ltd. (RIMM US) fell 7.2 percent to $34.65. The maker of the BlackBerry smart phone reported preliminary third-quarter sales and profit that missed its forecasts, as product delays crimped orders for phones.

Apple Inc. (AAPL US), the maker of the iPhone, lost 2.7 percent to $89.99.

Strayer Education Inc. (STRA US) slid 2.5 percent to $223.51. The for-profit provider of university courses was cut to “underweight” from “equal weight” at Morgan Stanley, which said the stock trades at a premium to the industry and is more exposed to a “weakening economy” than peers.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

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Certicom, Fortis, Manulife, RIM, Teck: Canada Equity Preview

By John Kipphoff

Dec. 3 (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 0.9 percent to 8,327.81.

Certicom Corp. (CIC CN): Research In Motion Ltd. (RIM CN), the maker of the BlackBerry e-mail phones, said it will offer to buy all the outstanding stock of the Mississauga, Ontario-based maker of computer-security software, for C$1.50 a share in cash.

The offer represents a 77 percent premium over Certicom’s closing share price on Dec. 2, Waterloo, Ontario-based Research in Motion said in a statement distributed by Marketwire. Certicom shares fell 2.3 percent to 85 cents.

Fortis Inc. (FTS CN): The owner of utilities in Canada and the Caribbean said that it’s raising C$300.1 million ($240.3 million) by selling 11.7 million common shares at C$25.65 apiece to a group of brokerages, who will in turn sell the stock on to the public. Proceeds from the sale will be used to pay down debt, St. John’s, Newfoundland-based Fortis said in a statement distributed by Marketwire. The shares fell 1 percent to C$27.

Ivernia Inc. (IVW CN): The company that used to produce 3 percent of the world’s mined lead said Western Australia state approved the shipment of 8,000 metric tons of the metal that’s been blocked from export since last year. The shares gained 20 percent to 6 cents.

Manulife Financial Corp. (MFC CN): Canada’s biggest insurance company may have to raise more capital if stock prices fall further, Chief Executive Officer Dominic D’Alessandro said after his company announced yesterday that it will sell as much as C$2.13 billion ($1.7 billion) in common shares. The shares fell 2.8 percent to C$19.89.

Research In Motion Ltd. (RIM CN): The maker of the BlackBerry e-mail phone reported third-quarter sales and profit that missed its forecasts, signaling that the popularity of smart phones isn’t immune to the economic slump.

Profit rose to no more than 83 cents a share in the quarter ended Nov. 29, missing a company forecast of as much as 97 cents, Waterloo, Ontario-based Research In Motion said yesterday. The results were preliminary, with the full financial report due on Dec. 18. The shares fell 7.5 percent to C$46.46.

Teck Cominco Ltd. (TCK/B CN): Canada’s largest diversified miner said “difficult” market conditions that have hurt demand for metals and other materials could persist for more than 18 months. “We think that this slowdown has its roots so deep that the difficult conditions we face now could last for 12 to 18 months, or longer,” Chief Executive Officer Don Lindsay said. The shares fell 3.6 percent to C$4.78.

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.

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U.S. Stock-Index Futures Retreat; Research in Motion, GM Fall

By Elizabeth Stanton

Dec. 3 (Bloomberg) -- U.S. stock futures dropped after an industry report showed companies cut the most jobs since 2001 and Research In Motion Ltd.’s earnings trailed its forecast, spurring concern the recession is deepening.

Citigroup Inc. and Alcoa Inc. dropped more than 3 percent to lead declines in Dow Jones Industrial Average stocks trading in Europe as ADP Employer Services said U.S. payrolls shrank by a larger-than-forecast 250,000 jobs last month. Research In Motion, maker of the BlackBerry, tumbled 6.9 percent. General Motors Corp., the largest U.S. automaker, slid 5.8 percent after telling Congress it needed $8 billion to stay in business.

Futures on the Standard & Poor’s 500 Index expiring in December lost 18.8, or 2.2 percent, to 830.2 at 9:03 a.m. in New York. Dow Jones Industrial Average futures fell 163, or 1.9 percent, to 8,269, while Nasdaq-100 Index futures retreated 2.7 percent to 1,102.75.

“Investors are being blown around with the wind and the economic situation is horrible,” said Roger Nightingale, a London-based global strategist at Pointon York Ltd. “There is not a single piece of good data.”

Futures extended declines as ADP’s estimate of job losses topped the 205,000 forecast by economists in a Bloomberg survey, spurring concern that the government’s Dec. 5 jobs data will also be worse than forecast. Another report today may show service industries contracted in November at the fastest pace on record as the economy sinks deeper into recession.

42 Percent Slide

The S&P 500 is down 42 percent this year as credit losses and writedowns at financial firms approach $1 trillion and more economists forecast that the U.S. recession will be one of the most severe in the post-World War II era. The economy entered a recession in December 2007, the panel of economists that dates American business cycles said this week.

U.S. equities rose yesterday, rebounding from the market’s worst tumble since October, after General Electric Co. announced plans to maintain its dividend and the Fed extended terms of three emergency loan programs.

The 30-company Dow average has swung by an average of 517 points between intraday highs and lows over the last two months, and the 20-day average exceeded a record 600 points in October.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 42, the lowest level since records began in 1997, according to the median forecast in a Bloomberg News survey of economists. Readings below 50 indicate a contraction. ISM said earlier this week that its factory index dropped in November to the lowest level since 1982.

Missing Forecast

Research In Motion slid 6.9 percent to $34.75. The company said profit rose to no more than 83 cents a share in the quarter ended Nov. 29, missing a company forecast of as much as 97 cents. The results were preliminary, with the full financial report due on Dec. 18.

Apple Inc., maker of the iPhone handset, retreated 2.7 percent to $89.94.

Earnings dropped 17 percent on average at companies in the S&P 500 that have reported third-quarter results and analysts estimate full-year profits to fall 11 percent, data compiled by Bloomberg show. That compares with 15 percent growth forecast in January.

GM slumped 5.8 percent to $4.57 in Germany. The automaker told Congress it must have $4 billion this month and $4 billion more by the end of January to stay in business. Chrysler LLC also told Congress it needs $7 billion right away.

“I believe that an intervention will happen,” House Speaker Nancy Pelosi, a California Democrat, told reporters at a briefing yesterday as GM, Chrysler and Ford Motor Co. sent their aid requests to Congress. “Everybody is disadvantaged by bankruptcy, including our economy, so that’s not an option.”

‘Pretty Frightful’

GM’s total request is $18 billion; Chrysler’s is $7 billion and Ford’s is $9 billion for a credit line it said it may not need to tap. Ford shares rose 3.7 percent to $2.80 in Germany.

“In the near future the outlook is pretty frightful,” said Pointon York’s Nightingale. “Sales are going to plunge and there is far too much capacity. There will be failures.”

Freeport-McMoRan Copper & Gold Inc. tumbled 16 percent to $18.30. The world’s second-largest copper producer said it will reduce output by 5 percent next year and 11 percent in 2010 after a “sharp decline” in prices.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

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FOREX-Yen rises on weak European shares, c.banks awaited

* Yen rises, slide in Europe shares keeps risk aversion high

* Markets await central bank meetings on Thursday

* Aggressive rate cuts may boost dollar, yen

(Changes dateline, byline, releads, updates throughout; previous TOKYO)

By Naomi Tajitsu and Harpreet Bhal

LONDON, Dec 3 (Reuters) - The yen rose on Wednesday, boosted as a slide in European shares kept investors wary of taking on risky positions, while the market awaited interest rate meetings by major central banks.

Currency movements were subdued as markets braced for rate decisions by the central banks of the euro zone, the UK, New Zealand and Sweden on Thursday, with most of them expected to slash a full percentage point or more from their benchmark rates to help steer their economies through a global recession.

The yen hovered near a five-week high against the dollar and was well-supported across the board on a 1.9 percent fall in European shares .FTEU3, while data on the European service sector showed increasing weakness in the single currency zone.

"The risk appetite environment is still very brittle," said Paul Robson, strategist at RBS in London.

"The only risk trade here is the yen, which is benefitting against all currencies."

China's central bank entered the domestic foreign exchange market on Wednesday to offer dollar liquidity. However many in the market believe China is adjusting its currency policy towards moderate yuan depreciation to stimulate the economy [nSHA298852].

By 0914 GMT, the euro had fallen 1.1 percent to 117.32 yen, and slipped 0.6 percent against the dollar to $1.2630 .

The dollar slipped 0.5 percent to 93.05 yen, hovering near a five-week low of 92.63 yen struck on electronic trading platform EBS on Tuesday.

The low-yielding yen was broadly supported, pushing the high-yielding New Zealand dollar down 1.8 percent , and keeping sterling near a 13-year low around the 137 yen hit on Tuesday.

RATE DECISIONS AHEAD

Euro zone services PMI fell to 42.5 in November from 45.8 in October, showing that the services sector is deteriorating in tandem with the manufacturing sectors as the region slides into recession [nL1417755].

Ongoing signs of economic weakness are seen prompting the European Central Bank to cut interest rates by 50 basis points or more on Thursday, from 3.25 percent at the moment. The Bank of England is seen slashing rates by 100 basis points or more from 3.0 percent

Analysts say bigger-than-expected rate cuts could push high-yielding currencies including the euro, sterling and the New Zealand dollar lower, as they would decrease the yield advantages that these currencies have over their rivals.

"The biggest risk is for non-dollar currencies simply because central banks such as the Riksbank and the ECB and the BoE have the scope to lower interest rates by a greater extent and that is priced into the markets," said Philip Shaw, chief economist at Investec in London.

He added that aggressive cuts by the BoE and the ECB would likely put the euro and sterling under selling pressure, while boosting the dollar. (Reporting by Naomi Tajitsu and Harpreet Bhal)

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Weak oils, caution on banks depress early FTSE

* Oils down despite slight crude price rally

* Rio falls on rights issue talk

* Stagecoach dives on cautious outlook statement

By Jon Hopkins

LONDON, Dec 3 (Reuters) - Britain's top share index .FTSE fell 1.3 pct in early trade on Wednesday with oils majors weak again and investors cautious about banks ahead of Thursday's interest rate decisions in the UK and Europe.

At 0915 GMT, the FTSE 100 index .FTSE was down 56.68 points at 4,066.18, having closed 57.37 points, or 1.4 percent higher at 4,122.86 on Wednesday. "With weaker economic growth, falling profitability, and a soft labour market are unnerving investors it's no surprise that equities remain volatile," says Henk Potts, equity strategist at Barclays Stockbrokers.

Weakness in oil majors was a drag on blue chip sentiment as crude prices CLc1 rallied slightly but stayed around the $47 a barrel level -- over $100 down on this year's peak.

BP (BP.L: Quote, Profile, Research, Stock Buzz) shed 3.1 percent, while Royal Dutch Shell (RDSa.L: Quote, Profile, Research, Stock Buzz) fell 2.7 percent and BG Group (BG.L: Quote, Profile, Research, Stock Buzz) lost 0.4 percent

Shares in miner Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) tumbled 9 percent as traders noted rumours of asset writedowns and a possible rights issue to pay for its takeover battle costs.

Other miners were broadly higher with Eurasian Natural Resources (ENRC.L: Quote, Profile, Research, Stock Buzz) adding 0.1 percent, Kazakhmys (KAZ.L: Quote, Profile, Research, Stock Buzz) up 1.1 percent, and Vedanta Resources VED gaining 1.5 percent in spite of trading ex-dividend Wednesday.

BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) firmed 0.6 percent as Citigroup resumed coverage on the stock with an upgrade to "buy" from "hold".

Citigroup also upped its rating for Rio Tinto to "buy" from "hold".

BANKS CAUTIOUS, STAGECOACH FALLS

Trading in banks was cautious ahead of Thursday's Bank of England interest rate news as the sector's woes continued to dominate.

Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz), a big gainer ahead of an index re-weighting last night, fell 0.3 percent, HBOS (HBOS.L: Quote, Profile, Research, Stock Buzz) and Lloyds TSB (LLOY.L: Quote, Profile, Research, Stock Buzz), also risers on Tuesday, lost 1.9 and 2.6 percent respectively while Barclays (BARC.L: Quote, Profile, Research, Stock Buzz) shed 2.6 percent.

"There is lots of nervousness as to how aggressive the Bank of England will be tomorrow, with a 50 basis point rate cut certainly priced in and expectations for a full point high," Potts added.

"The bigger the party, the worse the hangover and the credit expansion party was very big, so some historically strong medicine is needed from the Bank of Englnd," Potts added.

Stagecoach (SGC.L: Quote, Profile, Research, Stock Buzz) was the biggest FTSE 100 faller, down 19.8 percent as a cautious outlook statement from the bus and rail operator accompanied a 24 percent rise in first half profits.

The firm forecast challenging markets for its rail division and said it was planning to cut jobs.

Blue chip peer Firstgroup (FGP.L: Quote, Profile, Research, Stock Buzz) lost 5.1 percent, and mid cap Go-Ahead Group (GOG.L: Quote, Profile, Research, Stock Buzz) shed 10.9 percent.

Power generator Drax was also weak, down 5.1 percent as Credit Suisse cut its rating to "underperform" from "outperform" in a cautious review of European utilities.

National Grid (NG.L: Quote, Profile, Research, Stock Buzz), down 2 percent, was also downgraded by Credit Suisse to "underperform" from "neutral", with the stock also trading ex-dividend Wednesday.

Stocks changing hands without their dividend attractions accounted for 2.4 points of the FTSE 100 index falls.

British Prime Minister Gordon Brown will propose measures later in the day aimed at helping hard-pressed families and small firms through a recession. [ID:nL2657245]

(Editing by David Cowell)

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Nikkei gains 1.8 pct as domestic demand stocks gain

* Nikkei up 1.8 pct after 6.4 pct fall the previous day

* Domestic demand stocks gain in face of global downturn

* Carmakers drop on plunging U.S. sales, Honda expansion cuts (Adds comment, details)

By Aiko Hayashi

TOKYO, Dec 3 (Reuters) - The Nikkei average rose 1.8 percent on Wednesday, buoyed by a jump in retailer Seven & I Holdings (3382.T: Quote, Profile, Research, Stock Buzz) after a brokerage upgrade, though automakers weighed on the market in the face of a sharp drop in U.S. car sales.

Fast Retailing (9983.T: Quote, Profile, Research, Stock Buzz) surged on robust November same-store sales at its domestic Uniqlo casual clothing chain, while NTT Data (9613.T: Quote, Profile, Research, Stock Buzz), Japan's largest domestic system integrator, also advanced after a brokerage upgrade.

Among automakers, Honda Motor Co (7267.T: Quote, Profile, Research, Stock Buzz) dropped to become the top drag on the Nikkei 225 after a report by the Nikkei business daily that it is scaling back its overseas expansion plans.

"Stocks not dependent on spending in the United States and Europe are being picked up as investors screen for companies that will likely book smaller declines in earnings," said Takahiko Murai, general manager of equities at Nozomi Securities.

"Consensus has been built in the market that the U.S. economy won't recover easily -- until late 2009 or early 2010 at the earliest -- despite a raft of measures taken by the government."

The benchmark Nikkei .N225 added 140.41 points to finish at 8,004.10, after rising more than 2 percent earlier. It lost 6.4 percent the previous day to book a nearly two-week closing low.

The broader Topix .TOPX gained 1.5 percent to 799.19.

The dollar was trading around 93.51 yen , compared with a five-week low of 92.63 yen hit on trading platform EBS the previous day. Investors fret over a stronger yen as it curbs exporters' overseas profits when they are repatriated.

Analysts said that investors' focus is now on the fate of U.S. automakers' bailout pleas and that helped cap further gains in the market.

A top lawmaker predicted Washington would approve a bailout for U.S. carmakers after they submitted survival plans, and General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) and Chrysler LLC said they needed an immediate infusion of cash to avoid failures. [ID:nN021255]

"Money won't really move until we know what will happen to the U.S. automakers," said Naoki Koga, a senior fund manager at Toyota Asset Management.

"Investors are nervous about the outcome (of the bailout requests) as that would affect the U.S. economy, which has a huge impact on Japanese exporters including automakers."

DOMESTIC DEMAND-RELIANT SHARES IN FAVOUR

Shares of Seven & I shot up 12 percent to 2,810 yen after Macquarie Research lifted its rating on the retailer to "outperform" from "neutral", citing strong convenience store sales and solid results at its financial unit.

Fast Retailing jumped 10.2 percent to 10,790 yen after it said November same-store sales at its domestic Uniqlo casual clothing chain jumped 32.2 percent from the same month a year earlier, marking the biggest monthly gain since March 2001.

The stocks were the top two positive contributors to the Nikkei 225.

NTT Data gained 4.9 percent to 344,000 yen after Mizuho Securities upgraded the stock to "2" from "3", citing its stable earnings prospects.

But Honda skidded 4.7 percent to 1,797 yen and Toyota Motor (7203.T: Quote, Profile, Research, Stock Buzz) slipped 0.9 percent to 2,800 yen, after U.S. monthly auto sales in November plunged 37 percent to the lowest level since 1982, data showed on Tuesday. [ID:nL2340060]

U.S. sales for Toyota dropped 34 percent, Honda fell 32 percent, Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) was off 31 percent, Nissan Motor Co (7201.T: Quote, Profile, Research, Stock Buzz) tumbled 42.2 percent and Chrysler LLC sales fell 47 percent.

Trade was light on the Tokyo exchange's first section, with 1.72 billion shares changing hands, compared with last week's daily average of 1.84 billion.

Advancing stocks outpaced declining ones by more than 2 to 1. (Reporting by Aiko Hayashi; Editing by Chris Gallagher)

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Euro-Zone Services PMI Revised Down to 42.5, Fueling Bets For Bold Rate Cuts

Daily Forex Fundamentals | Written by DailyFX | Dec 03 08 09:24 GMT |

The Euro-Zone November Services PMI was revised down to 42.5 from 43.3 reported with the preliminary number and down from 45.8 in October. The composite Index was revised down to 38.9 from 39.7 reported initially and versus 43.6 in October. The breakdown for the Services Index showed the reading for new business revised down to just 40.4 from 41.1 in the flash estimate and compared to 43.2 in October. The sharp deterioration in new business suggests that a quick turnaround in services activity is unlikely and indeed, the reading for business expectations was revised down to 41.6 from 42.0 in the flash estimate. The employment reading is also falling further below the 50 point no change mark, which points to an acceleration in the pace of job cuts. At the same time readings for input and output price inflation continue to fall with the reading for output prices revised down to just 47.1, which is in stark contrast to the 50.4 in October and points to a drop in output prices that will add to concerns that the Euro-Zone is heading for deflation. Not surprising then that Bund futures have rallied into the release, which will increase speculation of a bold ECB cut tomorrow. The December 10-year future is now trading at 123.47, up 50 ticks on the day.

Meanwhile, the German November Services PMI was revised to 45.1 from 46.2 and versus 48.3 in October. Expectations had been for a confirmation of the preliminary number so data were disappointing. The breakdown shows a downward revision to the reading for new business, which at 43.4 points to ongoing contraction and does not make much hope for a quick turnaround. The reading for business expectations was confirmed at 31.4, unchanged from the preliminary number and down from 34.5 in October. At the same time input and output price inflation is coming down sharply. The reading for input prices was revised down to 51.7 from 53.8, which is the lowest since June 2005. The reading for output prices fell below the 50 point no change mark, which suggests falling prices for the first time in nearly 3 years. In addition, The French November Services PMI was revised to 46.2 from 46.6 reported initially and versus 47.5 in October. The Italian November Services PMI dropped to 39.5 from 45.7 in the previous month.

DailyFX

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HK stocks rise 1.4 pct, led by banks, telecoms

By Nerilyn Tenorio

HONG KONG, Dec 3 (Reuters) - Hong Kong shares climbed 1.4 percent on Wednesday, with financials leading the charge, while Chinese telecom stocks gained on renewed speculation that 3G licences will be issued by the end of the year.

Financial stocks climbed after Central Huijin, an arm of China's sovereign wealth fund, said it had raised its holdings of A shares in China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz) (601939.SS: Quote, Profile, Research, Stock Buzz). [ID:nSHA264730].

Construction Bank's shares jumped 3.4 percent, ICBC (1398.HK: Quote, Profile, Research, Stock Buzz), China's largest lender, rose nearly 3 percent and global lender HSBC Holdings (0005.HK: Quote, Profile, Research, Stock Buzz) gained 1.7 percent.

Major Chinese telecom companies and telecom equipment suppliers got a boost from renewed talk that the long-awaited 3G licences may be released on the mainland soon.

"There were expectations that the new policy measures that are coming out soon in China -- our own rescue plan -- may include the issuance of 3G licences in the near term. They're just rumours, but that helped the telecom sector today," said Linus Yip, strategist with First Shanghai Securities.

China Unicom (0762.HK: Quote, Profile, Research, Stock Buzz), the smaller of the country's two mobile operators, rallied 5 percent, while industry leader China Mobile (0941.HK: Quote, Profile, Research, Stock Buzz) gained 2.5 percent.

Centron Telecom (1155.HK: Quote, Profile, Research, Stock Buzz), China's No. 3 maker of wireless coverage equipment, surged 14 percent, while rival Comba Telecom Systems (2342.HK: Quote, Profile, Research, Stock Buzz) soared 29 percent. China Wireless (2369.HK: Quote, Profile, Research, Stock Buzz), a wireless solution and equipment maker, vaulted 41 percent.

The benchmark Hang Seng Index .HSI closed up 182.81 points at 13,588.66. A total of HK$37.96 billion ($4.9 billion) worth of shares were traded, down from HK$38.5 billion on Tuesday.

The China Enterprise index of Hong Kong-listed Chinese companies .HSCE finished up 3.3 percent at 7232.54.

Property stocks bucked the broad market trend after Bank of China (Hong Kong) (2388.HK: Quote, Profile, Research, Stock Buzz) joined the city's major lender, HSBC (0005.HK: Quote, Profile, Research, Stock Buzz), in raising Hong Kong mortgage rates, helping to drag the blue chip property index .HSNP down 1.8 percent to 15,236.59.

A spokeswoman for the Chinese bank said on Wednesday it would increase the mortgage rate by 50 basis points to between 3.5 and 3.75 percent with effect from Dec 4.

Sun Hung Kai Properties (0016.HK: Quote, Profile, Research, Stock Buzz) fell 6 percent, while rival Cheung Kong (0001.HK: Quote, Profile, Research, Stock Buzz) dropped 2.7 percent.

Hong Kong property transactions fell to a 17-year low in November, with home sales plunging from a year earlier as a deepening global financial crisis shattered potential buyers' confidence in the market. [ID:nHKG273377]

Hopson Development (0754.HK: Quote, Profile, Research, Stock Buzz) bucked the weak property trend, surging 21.7 percent after the Chinese property developer said late on Tuesday it had made a successful bid for a piece of land in Beijing for 859.2 million yuan.

Shares of CITIC Pacific (0267.HK: Quote, Profile, Research, Stock Buzz) slid 7.3 percent as the stock resumed trading after the steel-to-property conglomerate urged shareholders to support a $1.5 billion bailout plan. [ID:nHKG294627] (Additional reporting by Donny Kwok, Editing by Anne Marie Roantree)

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Will ECB Bow to Widespread Cries for Sharply Lower Rates?

Daily Forex Fundamentals | Written by KBC Bank | Dec 03 08 09:21 GMT |

... Negative economic growth in 2009 and ... ... inflation dropping well into the ECB target area ... ... in a context of a financial crisis and signs that the prospect of a strong, timely and coordinated fiscal policy response is fading... ... will convince the ECB to accelerate its easing policy... ... ECB is at crossroads... At the November ECB press conference, president Trichet used his answer to the first question, asking why the ECB was not more aggressive, to signal that the December ECB meeting would be an important one. He referred to the staff projections that would be available and allow for an occasion to review facts, figures and data before deciding on policy. Clearly, this was intended to signal policy rates would fall again before Christmas. While an ECB rate cut on Thursday is virtually certain, there is significant uncertainty as to how large it might be. ... .Projections to show negative growth in 2009... The dataflow has been horrendous in recent months. While the demise of Lehman brothers in mid-September has altered financial markets thinking dramatically, it appears a pronounced step-down in the ‘real' economy was already underway by the end of the Summer. The most recent figures brought certainly no relief. If anything, they suggest problems are intensifying. The various sentiment surveys, the timeliest reliable indicators for economic activity, were unequivocal in their message: the EMU economy is now in a recession that will be deep and protracted. The EU Commission economic sentiment index (see graph) dropped a historical unprecedented 12.6 points in the last two months to 74.9 and is now close to the bottom reached during the severe 1992/93 recession (73). The index is well below the levels registered during the 2001 recession. In the November 2008 ECB monthly bulletin, the ECB examined the reliability of survey data during periods of financial turmoil. The study concluded that the survey indicators didn't tend to exaggerate swings in activity or give false signals about real economic developments. This research adds to the weight of recent awful EU confidence survey data in current monetary policy debates within the ECB. Official and private forecasters have cut their 2009 growth forecast at a very rapid rate in recent months. The IMF slashed its 2009 forecast to -0.5% from +0.2% in October, while OECD projects a 0.6% crimp before a recovery pushes growth in 2010 to 1.6%. So, it is unlikely the ECB staff projections can come out with a positive growth estimate for 2009. In September, the ECB staff projections still put 2009 growth at 1.2%. So, a negative growth figure now would be a dramatic but necessary revision that reflects a radically changed economic out- look in the past few months. ... and to slash inflation forecast too... In September, the ECB revised up its 2009 inflation forecast to 2.6% from 2.4% in June, but now a larger downward revision seems inevitable. Recent projections by IMF and OECD that are in line with the KBC in-house forecast may once more be a good pointer for the staff projections. The IMF puts 2009 inflation at 1.6% and the OECD at 1.4%, while the latter estimates 2010 inflation at 1.3%. The ECB acknowledged in its November statement that not only would inflation decline in the next months and reach a level in line with price stability during the course of 2009, but warned that even stronger downside movements in HICP could not be excluded around the middle of next year, largely due to base effects. The ECB, noblesse oblige, immediately added that such movement would be short-lived and thus not relevant from a monetary policy environment. Some ECB members even suggested that some months of outright decline in (Y/Y) inflation was possible. Nevertheless, in the current chilly economic climate of contraction, inflation dropping towards zero will affect sentiment and should downside growth risks materialise it won't take long before talk of deflation get ingrained. ... debate in the ECB council nevertheless to be heated... . The ECB has never favoured an activist policy and during the first ten years of its existence preferred a step-bystep approach, within a well-defined framework, that was mostly well communicated in advance to markets. Confidence, predictability and accountability were three cherished characteristics of policy. Other Central Banks have been extremely aggressive, especially in recent months. The Fed started a de facto quantitative monetary policy after it slashed rates drastically in early 2008; the BoE cut its rates by 150 basis points during its November meeting and even the traditionally conservative Swiss National Bank surprised friend and foe by a surprise inter-meeting 100 basis points rate cut in mid November, after having participated in the co-ordinated rate cut earlier that month. After the November ECB meeting, governor Trichet said that the Council had discussed both the option of lowering rates by 50 and by 75 basis points, suggesting that some policymakers already were already in favour of a more aggressive approach at that stage, but after all was said and done, the council unanimously decided it was appropriate to lower rates by 50 basis points. It seems that the issue of how to alter policy in a crisis situation was again discussed at the non-policy meeting of Thursday 20 November. ECB member Mersch warned hours after the meeting was finished that “a large rate cut could be counterproductive and signal the opposite of what we wish to signal, namely certainty and confidence.” He said the central bank has to keep a steady hand on the tiller and provide certainty in a time when many have lost their bearings. Even before that non-policy meeting, voices out of the ECB Executive board stressed the need for a disciplined monetary and fiscal policy. ECB chief economist Stark stressed that monetary and fiscal policy need to remain fully committed to their respective medium term objectives and pleaded for a global financial pact. Acting in disrespect of medium term objectives might lead to a third step in the crisis, namely a crisis of public finances, he concluded. In the same vein, ECB board member Bini Smaghi in a speech on “Restoring confidence” warned that in case the transmission mechanism was impaired, there was a risk that policy action, even when rapid and ample, would not succeed in reversing the trend. That might leave policymakers out of ammunition too early. He suggested it was better to try to restore the transmission mechanism first, as rate cuts have little impact on the real economy as long as the transmission mechanism is impaired. Of course, within the ECB Council, other policymakers are likely to plead for a more aggressive approach, particularly as the most recent data point towards a further acceleration in the deterioration in the Eurozone economy and an associated sharp easing in inflation pressures. As a result, the internal debate on Thursday is likely to be heated. Will the ECB cross the Rubicon and throw far more forceful ammunition in the fight against a deepening economic slump and a sharp disinflation? Markets firmly believed that the ECB will need to signal a radical change in its thinking. Ultimately, we think the ECB will decide to cut rate by 75 basis points. The economy is in a deepening recession and the risks are firmly for a quite deep and protracted weakness in activity and employment. An accelerating downward spiral of depressed consumer and producer confidence leading to declining demand, delayed or skipped investment, rising unemployment and still lower demand requires an early and forceful policy response. The global character of the downturn and the credit crisis exacerbate these woes and emphasise the need for decisive action. Inflation is fast declining and will next month fall below 2%. By mid-2009 consumer prices could be falling. We agree with the ECB that such an outcome may not turn into a prolonged deflation. But it will raise such risks, particularly if the cost of consumer staples as well as asset prices remains under downward pressure. In the November ECB statement, it was stated that “upside risks to price stability at the policy-relevant horizon are alleviating”. We are eagerly looking whether the ECB would now indicate that upside inflation risks have disappeared. That might also be a sign that the ECB would take a more aggressive stance on rates going forward. Such a prospect requires a far more aggressive policy response than the ECB has countenanced to this point. At very least to make its policy more accommodative, the ECB need to cut rates at least as fast as inflation is imploding, otherwise real rates will rise. In our previous ECB flash that previewed the November ECB meeting we suggested that the ECB would become an aggressive rate setter, but also pointed out that the orientation of fiscal policy would decide how aggressive monetary policy would become. Merkel lukewarm about coordinated fiscal policy The EU Commission unveiled last week proposals for a fiscal stimulus package worth 1.5% of GDP, but it received only a lukewarm response from a number of countries, particularly the German government. Chancellor Merkel is afraid that once more countries look to Germany for pulling the economy out of the morass. However, it is felt as unfair by Merkel as Germany has made great efforts in recent years to restore its economic health by far-reaching labour market reforms, wage moderation, budgetary austerity. The country also avoided a housing bubble and doesn't feel much enthusiasm to put these achievements in danger. On top of that the German government doesn't feel that tax cuts will make consumers spend more. On Monday, Merkel toned down her opposition as she said that Germany would keep all options open to tackle the economic crisis, but the risks are that it will remain a case of too little too late, putting more pressures on monetary policy to take the lead in aggressively fighting the recession. We still feel more confident in our expectation for an official ECB rate of at most 1.5%, to be reached in early spring. German bonds have thrived well in the current climate, but recently the short end of the curve lagged the longer end. A more aggressive monetary policy might still push the 2-year yield below 2%, an attempt that failed previously. 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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Technical Analysis Daily: GBP/USD

Daily Forex Technicals | Written by iFOREX.bg | Dec 03 08 09:21 GMT |

GBP/USD 1.4765 GBP/USD Open 1.4895 High 1.5065 Low 1.4756 Close 1.4916 Pound/Dollar made an indecisive movement on Tuesday. The currency couple tried lowering to the bottom 1.4779, but further bearish impetus was rejected and after a steep increase the Cable made peak at 1.5065 and closed the day at 1.4916. Although the last descendants scenario is maintained, today we can see more rising attempts. Immediate resistance is seen at 1.5065. The nearest support is at 1.4745, followed by 1.4630. The CCI indicator is in the neutral zone on the one and four hour chart. Technical resistance levels: 1.4940 1.5060 1.5200 Technical support levels: 1.4700 1.4580 1.4470 Trading range: 1.4775 - 1.4705 Trend: Downward Sell at 1.4765 SL 1.4795 TP 1.4715 iFOREX.bg Forecasts and Trading Signals http://www.zifx.com

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Aso’s Stimulus Won’t Spur Japanese Recovery, LDP Lawmaker Says

By Keiko Ujikane and Takashi Hirokawa

Dec. 3 (Bloomberg) -- Japanese Prime Minister Taro Aso’s stimulus package won’t be enough to jolt the economy from a recession and more should be spent on public works, a lawmaker from the ruling Liberal Democratic Party said.

“The global community is facing a common challenge of how to make up for a shortage of demand,” Takeshi Noda, head of the LDP’s panel for revitalizing rural areas, said in an interview in Tokyo on Dec. 1. The stimulus “includes measures to spur demand, but no one really believes they are enough.”

Aso is losing the support of voters and lawmakers within his own party over his handling of the world’s second-largest economy. Noda, 67, called on the prime minister to loosen spending restrictions and backtrack from cutting the largest debt burden in the industrialized world.

“The disarray within the ruling camp signals Aso’s political power and influence are waning,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “Aso is becoming a lame duck.”

The approval rating for Aso’s Cabinet plunged 17 percentage points in the past month to 31 percent, a survey by the Nikkei newspaper showed this week. The disapproval rating climbed 19 points to 62 percent, and respondents cited dissatisfaction with Aso’s stimulus and management of the economy, which shrank in each of the past two quarters. No margin of error was provided.

Economic and Fiscal Policy Minister Kaoru Yosano said yesterday that the 5 trillion yen ($53 billion) package announced by the prime minister in October would be “no instant panacea.” Former economy minister Hiroko Ota said last month that she would have considered resigning if she had to implement the policy.

LDP’s Plea

LDP lawmakers yesterday urged Aso to loosen spending caps to bolster growth. Aso said the government will keep setting a ceiling on the budget, while adding that “given current economic conditions” other options may be pursued.

Noda said Aso should abandon goals of trimming public works spending by 3 percent and containing increases in social welfare costs, pledges made by then Prime Minister Junichiro Koizumi in 2006 as a step toward balancing the budget in five years. Koizumi’s successors, Shinzo Abe and Yasuo Fukuda, achieved the cuts when they compiled budgets for 2007 and 2008.

“Koizumi’s legacy of balancing the budget by cutting spending is on the verge of collapsing,” Noda said. “The pressing priority for Japan is to prevent the economy from deteriorating further.”

Roads, Buildings

Koizumi’s predecessors emphasized spending on infrastructure to spur growth after a decade of economic stagnation, pushing Japan’s public debt to more than 1.7 times the size of the economy. Noda, a former construction minister who has served 12 terms in the lower house, said more should be spent on “necessary” roads in rural areas as well as disaster preparation, such as reinforcing buildings for earthquake resistance.

“Creating public works to maintain jobs is probably not the right solution,” said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. Fink said the government should relax rules on investment to attract money from abroad, and find ways to make the shrinking workforce more productive.

Economy Minister Yosano told the Financial Times this week that investing in high-speed railways would be a better option than the favored target of erecting public buildings because the latter requires additional spending on maintenance. He said the government should spend more on unemployment benefits to offset the social costs of joblessness, the FT reported Dec. 1.

“If they’re simply saying they want to increase public works spending for the sake of it, that’s a risky idea,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.

Noda, who also advises the LDP’s tax panel, said the government won’t be able to balance the budget by 2011 unless it raises the country’s sales tax from the current 5 percent. The economy would have to resume expanding before the levy is increased, he said.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net.

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