Brazilian Stocks Rally for Sixth Day, Best Win Streak in Year

By Alexander Ragir

Jan. 6 (Bloomberg) -- Brazilian stocks gained for a sixth day, their longest winning streak in almost a year, as commodity prices advanced on speculation government spending will help ease the global recession.

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, climbed for a fourth day as crude oil increased to a three-week high. Cia. Vale do Rio Doce and Usinas Siderurgicas de Minas Gerais SA rallied on speculation economic stimulus plans from the U.S. and China will spur demand for metals.

“Falling interest rates favor equities and I still think commodity prices will be bolstered by strong infrastructure investment,” said Carlos Eduardo Ramos, who oversees the equivalent of $2.26 billion as chief investment officer of BNY Mellon Arx in Rio de Janeiro. “The economic prospects are bad, but prices are really low and people are readjusting their portfolios for the year.”

The Bovespa Index climbed 384.28, or 0.9 percent, to 41,902.94 at 8:22 a.m. New York time. The gains for the index are the longest since February 2008. The BM&FBovespa MidLarge Cap index rose 1 percent, while the BM&FBovespa Small Cap index gained 0.4 percent. Chile’s Ipsa added 1.1 percent.

The Bovespa’s new year rally has been spurred by tax cuts and global economic stimulus. The U.S. plan aims at boosting the sagging economy by cutting taxes for individuals and businesses and spending money on government programs to rebuild the nation’s infrastructure. China, the world’s largest user of all industrial metals, is allowing tax-free imports of raw materials of metals for processing into exported products.

Petrobras

Petrobras, as the oil company is known, advanced 1.5 percent to 25.47 reais. Crude oil rose to a five-week high above $50 a barrel in New York.

Vale jumped 2.2 percent to 28.61 reais. Copper rose to a one-month high in London and nickel increased 2 percent to $13,100 a ton, taking this year’s gain to 12 percent.

Usiminas, as Brazil’s second-biggest steelmaker is known, gained 1.3 percent to 31 reais. The shares rose 2.9 percent to 28.90 reais. The UBS Bloomberg Constant Maturity Commodity Index of materials from energy and metals to livestock surged for a sixth day, advancing 2.7 percent.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;

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Best Buy, Evergreen, Indevus, Imation: U.S. Equity Preview

By Cordell Eddings

Jan. 6 (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 a.m. in New York, unless otherwise specified.

Best Buy Co. (BBY US) rose as much as 4 percent to $31.20 in trading before the official open of U.S. exchanges. The largest U.S. electronics retailer said it plans to sell refurbished Apple Inc. iPhones for $50 less than new models. Previously owned 8 gigabyte iPhones will go on sale today for $149 and 16-gigabyte versions for $249 in 350 U.S. Best Buy stores. The sales will expand to all 1,000 stores by the end of the month.

Datalink Corp. (DTLK US): The data-storage company said in a statement of preliminary results that fourth-quarter profit was as much as 8 cents a share, compared with a previous forecast of profit of as much as 14 cents. The stock rose 5.6 percent to $3.38 in regular trading yesterday.

Emulex Corp. (ELX US): The maker of computer chips and cards said it expects to report profit of 20 cents a share for its second quarter, which ended Dec. 28. Emulex in October projected profit in a range of 20 cents to 23 cents. The stock was cut to “neutral” from “buy” at Goldman Sachs Group. Emulex fell 3 percent to $7.11 in regular trading yesterday.

Evergreen Solar Inc. (ESLR US) dropped 7.7 percent to $3.32. The maker of wafers used in solar-power panels idled production at its plant in Marlboro, Massachusetts, and expects to incur a $25 million fourth-quarter charge to write down its value.

Imation Corp. (IMN US) dropped 8.4 percent to $13.20. The maker of Memorex brand DVDs and videotapes lowered its fourth quarter sales forecast to $530 million to $540 million. Analysts surveyed by Bloomberg expected $555 million in sales for the quarter.

Indevus Pharmaceuticals Inc. (IDEV US) rallied 69.35 percent to $5.25. Endo Pharmaceuticals Holdings Inc. (ENDP US) said it will buy Indevus for as much as $637 million and expand it sales force by 100 people.

LDK Solar Co. American depositary receipts (LDK US) fell 13 percent to $12.86. The Chinese maker of silicon wafers used in solar cells said fourth-quarter revenue was as much as $435 million, missing the earlier forecast as customers delayed orders amid a worsening economy. Analysts had expected $551.3 million, according to a Bloomberg survey.

Lithia Motors Inc. (LAD US): The operator of 98 U.S. auto dealerships said the company won’t pay a dividend for 2008’s fourth quarter because of the “economic environment.” The stock fell 0.9 percent to $3.27 in regular trading.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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U.S. Stock Futures Gain; GE, Bank of America Shares Advance

By Lynn Thomasson

Jan. 6 (Bloomberg) -- U.S. stock-index futures gained as speculation that a stimulus package from President-elect Barack Obama will revive the economy overshadowed concern that reports will show the recession deepened at the end of 2008.

General Electric Co., the world’s biggest maker of power generation equipment, and Bank of America Corp. advanced more than 1 percent. Dow Chemical Co. climbed 3.7 percent on its plan to pursue more than $2.5 billion in damages from Kuwait after the country’s government canceled a joint-venture agreement. Apple Inc. climbed 1.9 percent as Oppenheimer & Co. said yesterday’s disclosure about Chief Executive Officer Steve Jobs’ health eased concerns about the company’s leadership.

The Standard & Poor’s 500 Index rebounded 23 percent since Nov. 20 on optimism that Obama will boost the world’s biggest economy with tax cuts and the largest infrastructure investment since the 1950s. The Federal Reserve has slashed interest rates to as low as zero percent, while the European Central Bank also has scope to reduce borrowing costs further after the region’s inflation rate fell to the lowest in more than two years.

“It’s hard not to be positive given how much stimulus is coming through the pipe,” Jason Pride, research director for Haverford Trust Co., which oversees $5.5 billion in Haverford, Pennsylvania, said in a Bloomberg Television interview. “In the back half of ‘09, we do expect some form of recovery.”

Futures on the S&P 500 expiring in March rose 0.8 percent to 934.8 at 8:49 a.m. in New York. Dow Jones Industrial Average futures increased 61 points, or 0.7 percent, to 8,979. Nasdaq-100 Index futures gained 1 percent to 1,277.25.

Europe’s Dow Jones Stoxx 600 Index rose for a sixth day, adding 2.1 percent as forecasts from U.K. retailers reassured investors. More than five shares rose for every four that fell in the MSCI Asia Pacific Index, which slipped 0.1 percent.

$1 Trillion

Global stocks rebounded this year after $1 trillion in credit losses and writedowns at financial firms and the first simultaneous recessions in the U.S., Europe and Japan since World War II sent the MSCI World Index to a 42 percent slump in 2008. The S&P 500’s longest stretch of gains since November was halted yesterday on concern that a slump in corporate profits will stretch into 2009.

Obama told House Speaker Nancy Pelosi he favors a price tag of about $775 billion for the U.S. economic stimulus plan, according to a Democratic aide. Fed officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending.

Fed Chairman Ben S. Bernanke sees the thawing of frozen credit markets as critical to a recovery, and is determined to try to prevent a second wave of credit distress as the U.S. weathers bad economic news over the next two quarters.

GE, Caterpillar

GE added 1.2 percent to $16.80. Caterpillar Inc., the world’s largest maker of earthmoving equipment, increased 1 percent to $46.54. Bank of America gained 1.4 percent to $14.18. Citigroup Inc., the second-largest U.S. bank, advanced 2 percent to $7.22.

Apple rose $1.57 to $96.15. “We’re satisfied that a sudden change of leadership is not imminent,” wrote Oppenheimer analyst Yair Reiner. Jobs’ statement yesterday capped months of speculation that he may have to stop running Apple and hand the CEO job to Chief Operating Officer Tim Cook.

Tax Cuts

U.S. construction companies and investment banks will be among the prime beneficiaries of business tax cuts proposed by Obama, the Wall Street Journal said. Proposals being drafted by congressional Democrats and the incoming administration would allow companies to use tax losses to reduce taxable U.S. profit earned in the last five years, the newspaper said.

Investors should favor U.S. companies that generate most of their revenue at home rather than in Western Europe, Goldman Sachs Group Inc. said in a note. The brokerage has an “overweight” recommendation on the consumer-staples and health- care industries.

“The S&P 500 will begin to trade meaningfully higher once we pass four critical milestones,” Goldman Sach’s New York-based strategist David Kostin wrote. “Passage of a fiscal stimulus plan in the first quarter, improved access to credit for corporations and consumers, home price stabilization and declines in financial writedowns.”

Dow Chemical, the largest U.S. chemical maker, rallied 3.7 percent to $15.60 after Chief Executive Officer Andrew Liveris said the company will pursue “multiple billions of dollars” in damages against Kuwait at a London arbitration forum and in court.

Economy Watch

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the U.S. economy, fell to 36.5 in December, the lowest level since records began in 1997 as consumers retrenched and the housing slump worsened, according to the median forecast in a Bloomberg survey of economist. Readings below 50 indicate a contraction. The report is due at 10 a.m. in Washington.

A report from the Commerce Department at the same time is expected to show U.S. factory orders slid 2.3 percent in November, after a 5.1 percent drop the prior month, according the a Bloomberg survey.

The National Association of Realtors’ index of signed purchase agreements for homes probably fell 1 percent in November, according to Bloomberg data.

Concern that stock losses will deepen remains elevated even after falling from record levels in October and November. The Chicago Board Options Exchange Volatility Index, which measures price swings in the S&P 500, has surged 74 percent since the start of 2008 to 39.08.

Garmin Ltd. dropped 6.3 percent to $20.62. Goldman Sachs added the largest U.S. maker of car-navigation devices to its “conviction sell” list, downgrading it from “neutral.”

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

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Today's Market Outlook

EURUSD

Probes 50% retrace of 1.2549/1.4720 upleg near 1.3629 low from 16 of December ahead of minor equality target at 1.3467. Consolidation breakout at 1.3840 caps for now.

Res: 1.3660, 1.3709, 1.3750, 1.3840
Sup: 1.3467, 1.3407, 1.3378, 1.3250

GBPUSD

Hourly RSI positive reversal projects ensuing recovery from 1.4350 as 31 December 2008 low could reach 1.4772 zone. Regaining 1.4815 highlights 1.4875 target.

Res: 1.4682, 1.4725, 1.4740, 1.4765
Sup: 1.4540, 1.4505, 1.4475, 1.4428

USDJPY

Last Friday's bull flag breakout beckons to eye 93.91, nr 50% -100.56/87.13 fall next. Extended highly conditions however caution and below 92.85 defers.

Res: 93.59, 94.91, 94.25, 94.60
Sup: 92.82, 92.41, 91.80, 91.46

USDCHF

Eyes lower top at 1.1132 while poised for break to open 1.1245 and possibly 1.1310, 50% of 1.2251/1.0370 fall. Lapse below 1.0981/70 delays.

Res: 1.1200, 1.1245, 1.1310, 1.1400
Sup: 1.0981, 1.0950, 1.0917, 1.0846

Windsor Brokers Ltd
http://www.windsorbrokers.biz

The information contained in this document was obtained from sources believed to be reliable, but its accuracy or completeness cannot be guaranteed. Any opinions expressed herein are in good faith, but are subject to change without notice. No liability accepted whatsoever for any direct or consequential loss arising from the use of this document.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Jan 06 09 08:30 GMT |

CHF The pre-planned breakout variant for buyers was realized with overlap of assumed targets. OsMA trend indicator, having marked high bullish activity development at the break of key resistance range gives reasons for supporting buying planning priorities for today. Hence at the moment considering signs of rate correction incompleteness we assume the possibility of pair return to close 1.1020/40 supports, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For buying positions on condition of formation of topping signals the targets will be 1.1090/1.1110, 1.1180/1.1200 and/or further breakout variant up to 1.1260/80, 1.1320/40, 1.1380/1.1400. An alternative for sells will be below 1.0940 with targets 1.0880/1.0900, 1.0820/40, 1.0760/80. GBP The assumed test of key resistance range was confirmed but relative bullish activity rise displayed by OsMA trend indicator was not favorable for immediate realization of the pre-planned positions for sell. Further situation development with realization of the breakout buying variant did not have positive result in attainment of assumed targets but displayed general situation of bullish advantage preservation giving reasons for supporting this direction in trading operations planning for today. At the moment and considering relative bearish activity rise and rate position within indefiniteness range of Ichimoku cloud we assume the possibility of low boundary test of the mentioned indicator at 1.4520/40, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short term buying positions on condition of formation of topping signals the targets will be 1.4580/1.4600, 1.4660/80, 1.4720/40 and/or further breakout variant up to 1.4790/1.4810, 1.4870/90, 1.4980/1.5000. An alternative for sells will be below 1.4450 with targets 1.4380/1.4400, 1.4320/40. JPY The pre-planned breakout variant for buyers was realized with overlap of minimal assumed target. OsMA trend indicator, having marked confirmation of bullish party advantage nevertheless displayed tendency to strengthening bearish resistance activity. Hence and considering the current cycle of bearish development and supporting buying direction of planning we assume the possibility of rate return to 92.20/40 supports, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short term buying positions on condition of formation of topping signals the targets will be 92.80/93.00, 93.40/60 and/or further breakout variant up to 94.00/20, 94.60/80, 95.40/60. An alternative for sells will be below 91.80 with targets 91.20/40, 90.60/80, 90.00/20. EUR The pre-planned breakout variant was realized with overlap of assumed targets. OsMA trend indicator, having marked advantage in bearish activity development at the break of key supports gives reasons for sells planning priority in trading operations for today. At the moment and considering relative strengthening of bullish resistance we assume the possibility of pair correction incompleteness and as a result rate return to 1.3600/20, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For sells on condition of formation of topping signals the targets will be 1.3520/40, 1.3480/1.3500 and/or further breakout variant up to 1.3420/40, 1.3300/20, 1.3120/40. An alternative for buyers will be above 1.3770 with targets 1.3820/40, 1.3890/1.3910, and 1.3960/80. FOREX Ltd www.forexltd.co.uk

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U.K. December Nationwide House Prices: Summary (Table)

By Mark Evans

Jan. 6 (Bloomberg) -- Following is a summary of the December house price report from Nationwide in Swindon, U.K.:

==============================================================================
                         Dec.    Nov.    Oct.   Sept.    Aug.    July    June
                         2008    2008    2008    2008    2008    2008    2008
==============================================================================
                     ------------------- Seasonally Adjusted ----------------
Monthly % Change         -2.5%   -0.4%   -1.4%   -1.7%   -1.9%   -1.7%   -1.1%
Level                    308.9   316.8   317.9   322.5   327.9   334.2   340.1
3 month % change         -4.2%   -4.5%   -4.9%   -5.0%   -4.9%   -5.1%   -4.4%
                     ----------------- Non Seasonally Adjusted --------------
Yearly % Change         -15.9%  -13.9%  -14.6%  -12.4%  -10.5%   -8.1%   -6.3%
Level                    305.3   316.1   316.9   322.8   328.5   337.8   343.9
Average Price          153,048 158,442 158,872 161,797 164,654 169,316 172,415
==============================================================================
NOTE: Levels are based at Q1 1993=100. Average price is in GBP.
     3 month % change shows the latest 3 months on previous 3 months
     percentage change.

SOURCE: Nationwide Building Society

To contact the reporter on this story: Mark Evans in London at mevans8@bloomberg.net

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Metro-Area Foreclosure Sales Tripled in First 10 Months of 2008

By Bob Ivry

Jan. 6 (Bloomberg) -- Foreclosure sales in the 25 largest U.S. metropolitan areas almost tripled in the first 10 months of last year as rising unemployment and falling home values made it tougher for homeowners to sell or refinance their mortgages.

Motivated sales, which include foreclosure auctions and banks selling homes taken over for non-payment, increased 193 percent from January to October 2008 from a year earlier, New York-based real estate data company Radar Logic Inc. said today in a report. Conventional sales rose 6 percent in that period.

“Lenders are motivated to sell foreclosed houses as quickly as possible to get as much of the loan recovered as possible,” Radar Logic Chief Executive Officer Michael Feder said in an interview. “They have a tendency to accept deeper discounts relative to other sales, to the point where motivated sales are driving the market.”

Home prices fell in 24 of 25 U.S. metropolitan areas in October, Radar Logic said, as unemployment hit a 15-year high in November. Almost half the homeowners who bought in 2006 now owe more on their mortgages than their houses are worth, making it difficult for them to refinance without bringing cash to the closing, according to Seattle-based real estate data company Zillow.com.

Forty-one percent of October home sales in Los Angeles and Phoenix were foreclosure auctions or financial firms trying to recoup lost loan value, Radar Logic said.

RPX Report

U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record, according to RealtyTrac Inc., a Irvine, California-based provider of default data.

The RPX Monthly Housing Market Report, published by Radar Logic, measures home values using price per square foot. The data reflects 28-day aggregated values, the company said.

California was home to five of the seven steepest metro area home-price declines in October from a year earlier, Radar Logic said. San Francisco, with a loss of 34.4 percent, was followed by Las Vegas, Phoenix, Sacramento, Los Angeles, San Diego and San Jose.

Milwaukee, with a gain of 5.3 percent compared with October 2007, was the only region where values increased.

Prices are the basis for property derivatives traded on the Residential Property Index with a volume of almost $3 billion, Feder said. The index allows investors to benefit from the movement of metro area home prices without owning land or physical property.

Investors are betting that home prices will continue to decline nationally through 2010, Radar Logic said. Prices will stabilize in Los Angeles and Phoenix in 2010, while values will fall further in Miami and New York, the data company said.

“What the forward contracts are saying is we’re expecting further pain in New York due to further pain in the financial services industry,” Feder said.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net.

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Indonesia GDP May Grow 5% This Year, Sri Mulyani Says

By Shamim Adam and Haslinda Amin

Jan. 6 (Bloomberg) -- Indonesia’s economy may expand about 5 percent in 2009 as the government’s stimulus package and election-year spending stokes demand, Finance Minister Sri Mulyani Indrawati said.

Demand for Indonesian exports will probably slow this year as a global recession curbs orders from the Southeast Asian nation’s biggest markets, Sri Mulyani said in an interview in Singapore today. She expects the economy to grow between 4.5 percent and 5.5 percent this year after expanding about 6 percent in 2008.

President Susilo Bambang Yudhoyono, who is eligible for re-election this year, yesterday announced plans to spend an extra 50 trillion rupiah ($4.5 billion) to help sustain economic growth. The focus of the additional expenditure is to prevent unemployment, Sri Mulyani said.

“The challenge is to compensate for the effect of the global financial crisis on export activity and investment,” Sri Mulyani said. The elections “will stimulate demand. With the global price trend declining both on oil and food, we can maintain the purchasing power of households in Indonesia.”

Asian economies are slowing as demand for their products erodes amid recessions in the U.S., Japan and Europe. Exports account for about 32 percent of Asia’s gross domestic product, according to the World Bank.

Bond Market

The decline in export demand won’t “sharply correct” Indonesia’s expansion because overseas shipments account for less than a fifth of growth, Sri Mulyani said.

The government will tap international bond markets when appetite for risk improves and funding costs are lower, the finance minister said. She declined to say how much debt the government plans to sell.

“The preparations for bond issuance are there but we are not looking for a transaction at all costs,” Sri Mulyani said.

Indonesia’s government revenues are helped by an increase in tax collections which will help cushion the economy during the slowdown, she said.

To contact the reporters on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net

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Manhattan Apartment Sales Drop for Fourth Quarter in Recession

By Peter S. Green

Jan. 6 (Bloomberg) -- Manhattan apartment sales fell for the fourth straight quarter and prices for the most expensive apartments dropped for the first time since the recession began as the national housing slump hit the metropolitan area.

Fourth-quarter transactions dropped 9.4 percent to 2,282 units from a year earlier, New York property appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. While the overall median sales price rose 5.9 percent, luxury prices dropped 3.9 percent and the median for all resale apartments slid 3.6 percent.

The U.S. recession that began in December 2007 and the global credit crisis have claimed at least three financial firms and may cost the city as many as 175,000 jobs. Finance jobs drive the Manhattan market. Employment at Wall Street investment banks accounted for almost 15 percent of the city’s total privately paid wages in the first quarter of 2006, according to the U.S. Bureau of Labor Statistics.

“The end of the year marked the beginning of Manhattan’s entry into a new kind of market,” said Jonathan Miller, Miller Samuel’s chief executive. “For all of 2008 we were seeing a fairly sharp decline in the number of transactions every quarter. Now we are starting to see prices decline.”

The fourth quarter Manhattan property results are the first to reflect the deepest yearly drop for U.S. stocks since the great depression. In 2008, the Standard & Poor’s 500 Index lost 38.5 percent, led by slumping shares of Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc.

National Slump

The city also began to resemble the national real estate scene. The U.S. median home price fell 13 percent in November from a year ago, the biggest drop on record, the National Association of Realtors said.

In Manhattan, the inventory of apartments listed for sale rose almost 40 percent from a year ago to 9,081 units. Apartments sat on the market for an average 159 days before selling in the fourth quarter, up 21 percent from a year earlier, Miller Samuel and Prudential said.

In separate reports today, brokerage Brown Harris Stevens Inc. said the overall median sale price in Manhattan rose 8.1 percent to $895,000 in the fourth quarter from a year earlier and Corcoran Group said it rose 3 percent to $937,000.

The median in the Miller Samuel-Prudential survey rose to $900,000 in the fourth quarter. The median price of resale apartments declined to $732,500 from $760,000. The median for new developments rose 5 percent to $1.26 million.

More ‘Weakness’

Almost no new contracts were signed on condominiums in the quarter, said Miller.

“Based on the contract activity we observed, we are expecting to see continued weakness in terms of declining prices and sales activity in the first quarter next year,” Miller said.

New Yorkers paid less for smaller apartments. The median price of a studio fell 8.5 percent to $420,000, according to Miller Samuel. One bedroom prices were $715,000, down 4.5 percent.

Prices rose 9.1 percent for two-bedroom apartments to a median of $1.62 million. Three bedroom apartments slid 6.4 percent to $4.05 million, Miller Samuel said.

Buyer’s Market

Manhattan has gone from being a seller’s market to a buyer’s market, said Gregory Heym, chief economist for New York brokerage Brown Harris Stevens.

“In the last few years, people knew they were getting a big bonus and went out shopping early,” said Heym. “That’s not the case now.”

Buyers are being now more cautious and hunting for bargains, said Dottie Herman, chief executive officer of Prudential Douglas Elliman.

“The whole process is taking a lot longer,” Herman said in an interview. “Six months ago in New York City people would lose their down payment if couldn’t get a mortgage.” Now buyers are refusing to sign such restrictive contracts, she said.

Sales of luxury condominiums in two buildings, 15 Central Park West, where Goldman Sachs Chairman Lloyd Blankfein and former Citigroup chief Sandy Weill bought homes last year, and the Plaza skewed condo sales prices for the quarter, according to all three reports.

Luxury Drops

In the luxury market, defined as the top 10 percent of sales by price, the median fell to $4.13 million in the fourth quarter from $4.3 million in the fourth quarter of 2007. Inventory rose 26 percent to 1,730 apartments. Luxury units stayed on the market 169 days, 52 more days than the same period a year earlier.

Apartments near Wall Street in the Financial District are likely to be the worst hit by the drop in sales and prices, said Pam Liebman, chief executive officer of Corcoran in Manhattan. Many new condominiums there were built to attract wealthy Wall Street bankers and foreign investors.

“Foreign investors are having a real tough time getting mortgage money, and a lot of those young affluent buyers aren’t so affluent any more,” Liebman said.

To contact the reporter on this story: Peter S. Green in New York at psgreen@bloomberg.net

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Service Industries in U.S. Probably Contracted Most on Record

By Shobhana Chandra

Jan. 6 (Bloomberg) -- U.S. service industries probably shrank in December at the fastest pace on record as consumers retrenched and the housing slump worsened, economists said before reports today.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, fell to 36.5, the lowest level since records began in 1997, according to the median forecast in a Bloomberg News survey. Fewer Americans signed contracts to buy existing homes in November and factory orders fell, other reports may show.

Mounting unemployment, plunging home values and frozen credit markets will keep stifling businesses from banks to builders, and retailers faced what may have been the worst holiday shopping season in at least four decades. President-elect Barack Obama has called for stimulus of unprecedented proportion to prevent the recession from deepening much more.

“The recession is turning out to be a pronounced one,” said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. “There are multiple problems and multiple sources of the downturn, and things are feeding on one another.”

The Tempe, Arizona-based group’s report is due at 10 a.m. New York time. Estimates in the Bloomberg survey of 61 economists ranged from 34 to 42, following a reading of 37.3 in November. Figures less than 50 signal a contraction.

Also at 10 a.m., the National Association of Realtors’ index of signed purchase agreements, or pending home resales, fell 1 percent in November, according to the survey median. The drop would be the fourth in the past five months.

Factory Slump

Orders to factories fell 2.3 percent in November, a fourth consecutive drop, according to the median forecast ahead of a Commerce Department report also due at 10 a.m.

The contraction in services reinforces the deteriorating outlook. The economy probably lost jobs in December for a 12th month as firings rippled from factories and construction companies to retailers and banks, economists project the Labor Department’s Jan. 9 employment report will show.

Manufacturing, which makes up the other 12 percent of the economy, shrank in December at the fastest pace in 28 years as new orders for products from cars to furniture reached the lowest level since records began in 1948, ISM reported last week.

“We have an extraordinary challenge ahead of us,” Obama said yesterday in Washington, where he met lawmakers to garner support and craft a recovery effort that includes tax cuts and spending on roads, schools and energy supplies. The plan aims to create or save 3 million jobs and may cost as much as $850 billion.

Fed Action

The Federal Reserve, which has cut the benchmark interest- rate to as low as zero, yesterday began buying mortgage-backed securities as part of its plan to trim borrowing costs and unclog credit. Minutes of the Fed’s December meeting are scheduled to be released today at 2 p.m.

Expectations that policy makers’ actions will be effective in limiting the damage has pushed up the Standard and Poor’s Supercomposite Homebuilding Index by 66 percent from an eight- year low reached on Nov. 21, 2008. Still, economists project homebuilding, part of the services index, may decline for a fourth year as foreclosures mount.

Retailers also suffered at the end of 2008. Merchants from Macy’s Inc. to AnnTaylor Stores Corp. were among those slashing prices by 70 percent or more to attract holiday shoppers. Sears Holdings Corp. was among chains closing underperforming stores.

“A lot of businesses have been caught flat-footed by how deep and accelerated this recession has been,” Bill Taubman, chief operating officer of shopping-mall owner Taubman Centers Inc., said in a Dec. 26 interview on Bloomberg Television.

                         Bloomberg Survey

================================================================
                         ISM Non-  Factory  Pending
                             Manu   Orders    Homes
                            Index     MOM%     MOM%
================================================================

Date of Release              01/06    01/06    01/06
Observation Period            Dec.     Nov.     Nov.
----------------------------------------------------------------
Median                        36.5    -2.3%    -1.0%
Average                       36.5    -2.4%    -1.7%
High Forecast                 42.0    -0.4%     1.5%
Low Forecast                  34.0    -6.5%    -5.0%
Number of Participants          61       57       33
Previous                      37.3    -5.1%    -0.7%
----------------------------------------------------------------
4CAST Ltd.                    35.0    -2.6%    -5.0%
Action Economics              36.5    -2.3%    -1.0%
AIG Investments               35.0    -2.7%    -4.5%
Aletti Gestielle SGR          36.0    -2.1%     ---
Ameriprise Financial Inc      36.5    -2.0%    -1.2%
Argus Research Corp.          42.0    -2.8%     ---
Banc of America Securitie     35.8    -2.2%     ---
Bank of Tokyo- Mitsubishi     39.3    -0.4%     ---
Barclays Capital              35.0    -3.2%    -3.5%
BMO Capital Markets           35.0    -3.0%    -3.0%
BNP Paribas                   35.0    -2.8%     ---
Briefing.com                  37.0    -2.0%     ---
Calyon                        ---     -2.5%     ---
Citi                          39.0    -2.0%     ---
ClearView Economics           38.0    -1.8%     ---
Commerzbank AG                37.0     ---      ---
Credit Suisse                 35.0    -2.0%     ---
Daiwa Securities America      36.0    -2.5%     ---
Danske Bank                   38.5     ---      ---
DekaBank                      37.5    -2.2%    -1.0%
Desjardins Group              34.5     ---      ---
Dresdner Kleinwort            36.0    -2.5%    -0.8%
DZ Bank                       36.9    -2.8%    -1.2%
Exane                         37.5    -2.5%    -1.0%
First Trust Advisors          37.7    -1.3%     ---
Fortis                        37.0    -1.5%    -2.1%
Goldman, Sachs & Co.          37.0    -2.0%     ---
Helaba                        38.0    -2.5%     ---
Herrmann Forecasting          35.3    -2.3%    -0.8%
High Frequency Economics      35.0    -2.0%    -2.0%
Horizon Investments           37.0    -1.5%    -3.0%
HSBC Markets                  39.0    -3.5%    -0.7%
IDEAglobal                    35.0    -3.0%    -0.3%
IHS Global Insight            37.2     ---      ---
Informa Global Markets        35.0    -3.1%    -0.8%
ING Financial Markets         36.5    -2.0%    -2.0%
Insight Economics             38.0    -1.5%     ---
Intesa-SanPaulo               36.0     ---      ---
J.P. Morgan Chase             35.0    -2.9%    -1.0%
Janney Montgomery Scott L     38.1    -2.8%    -1.2%
Landesbank Berlin             36.0    -6.5%     ---
Maria Fiorini Ramirez Inc     36.5    -2.0%     ---
Merrill Lynch                 34.0    -2.8%     ---
Moody’s Economy.com           37.5    -2.2%     1.5%
Morgan Keegan & Co.           ---     -3.5%     ---
Morgan Stanley & Co.          ---     -2.3%     ---
National City Corporation     35.5    -0.6%    -3.9%
Newedge                       37.0     ---     -0.7%
Nomura Securities Intl.       37.0    -3.1%     ---
PNC Bank                      36.5    -2.0%     ---
RBS Greenwich Capital         34.0    -2.2%     ---
Ried, Thunberg & Co.          35.0    -2.0%    -5.0%
Schneider Foreign Exchang     35.0    -2.8%     0.0%
Scotia Capital                36.0    -2.0%    -1.0%
Societe Generale              38.0    -2.2%     ---
Stone & McCarthy Research     35.3    -1.0%     ---
TD Securities                 35.0    -2.5%    -1.0%
Thomson Financial/IFR         39.0    -2.0%     0.1%
UBS Securities LLC            35.0    -3.1%    -2.5%
University of Maryland        37.0    -2.5%    -1.0%
Wachovia Corp.                37.0    -1.0%     ---
Wells Fargo & Co.             37.0    -2.3%    -1.0%
Westpac Banking Co.           35.0    -3.0%    -2.0%
Wrightson Associates          37.0     ---     -4.0%
================================================================

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Fed Focuses on Consumer, Corporate Rate Spreads Over Treasuries

By Craig Torres

Jan. 6 (Bloomberg) -- Federal Reserve officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending.

Credit costs for households and businesses haven’t followed yields on government debt lower. Fifteen-year fixed-rate mortgages were at 5.06 percent last week, 2.59 percentage points above 10-year Treasury yields; the spread averaged 0.88 point in 2003, when the Fed slashed rates to 1 percent.

Chairman Ben S. Bernanke sees the thawing of frozen credit markets as critical to a recovery, and is determined to try to prevent a second wave of credit distress as the U.S. weathers bad economic news over the next two quarters. The Fed is now looking at ways to revive lending by using its balance sheet to hold loans and bonds that investors don’t want.

“Investors in general don’t want to take on the risk,” said Richard Schlanger, who helps manage $15 billion in fixed income securities at Pioneer Investments in Boston. “It is going to reach the point where the Fed will intervene again.”

One of the options under consideration: reviving the asset- purchase plan originally envisaged under the $700 billion Troubled Asset Relief Program run by the Treasury. The purchases could be combined with fresh injections of capital into banks, and the use of TARP money to help struggling home owners avoid foreclosure.

Obama Team

President-elect Barack Obama’s transition team and central bank officials have discussed such a strategy. Obama, who has advocated a broad-based approach to tackling the issue, takes office Jan. 20. He has picked New York Fed President Timothy Geithner as his Treasury chief, with former Treasury Secretary Lawrence Summers as White House economics director.

The Fed may today offer further insight into officials’ deliberations last month on shifting to using the amount and type of debt the central bank buys as the main tool of monetary policy. Minutes of the Dec. 16 Federal Open Market Committee meeting are scheduled for release at 2 p.m. in Washington.

At that session, the FOMC reduced its target rate for overnight loans between banks to zero to 0.25 percent, the lowest level on record. The panel also indicated readiness to expand programs to alleviate the credit crunch, or set up new ones, such as direct purchases of Treasuries.

Mortgage Bonds

The Fed yesterday began a frontal attack to drive down home-loan costs, buying mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. The effort was part of a $600 billion plan, which also includes purchases of Fannie and Freddie bonds.

Mortgage rates “should be in the low 4s right now based on Fed rates,” said Ben Fox, executive vice president of Premier Mortgage Co. in Fairfax, Virginia. “They are not even close.”

Even after a $1.34 trillion increase in assets on the Fed’s balance sheet last year, private borrowing costs remain at unusually high spreads over U.S. Treasury benchmarks.

Gauges of corporate borrowing costs, which reached record levels in the fourth quarter of 2008, remain three to five times their long-run averages.

The spread on investment-grade corporate bonds is 6.03 percentage points, down from a record 6.56 percentage points on Dec. 5, Merrill Lynch & Co. data show. That compares with an average of 1.23 percentage points in the previous decade.

‘Worst’ Still Ahead

“With the likelihood that the worst news is ahead of us -- as far as the economy, corporate earnings and bankruptcies -- investors are hard-pressed to take on more portfolio risk at this time,” said Keith Wirtz, Cincinnati-based chief investment officer at Fifth Third Asset Management, which manages about $21 billion.

Financial companies around the world have already logged $1.1 trillion in losses and writedowns since the subprime mortgage crisis roiled markets from August 2007. A deteriorating economy means that figure is likely to keep rising.

Macroeconomic Advisers LLC, a St. Louis forecasting firm, estimates the economy contracted at a 5.5 percent annual rate in the fourth quarter, the worst performance since 1982.

Laurence Meyer, a former Fed governor and a founder of Macroeconomic Advisors, said purchases of longer-term Treasuries by the Fed would help keep yields down even as the Obama administration implements its planned fiscal stimulus.

The economic recovery package may be at least $800 billion. Obama “indicated that there’s at least 20 economists that he’s talked with, and all but one of those believe it should be from $800 billion to $1.2 trillion or $1.3 trillion,” Senate Majority Leader Harry Reid said after meeting with Obama yesterday.

‘Potent’ Policy

“The Fed will want to make monetary policy as potent as it possibly can be” by holding down long-term yields, Meyer said. “I certainly don’t think the Fed is done.”

Among other options for the Fed are expanding its planned $200 billion program to finance new securities backed by credit- card, automobile and student loans. That effort, supported with TARP money, is scheduled to start in early February, and the central bank has said it could be widened to include commercial mortgage-backed securities.

Another scenario is using the TARP to remove toxic assets from banks’ balance sheets. The Treasury, possibly in combination with the Fed, could buy the securities, insure them on banks’ balance sheets -- as officials did with Citigroup Inc. in November -- or set up a so-called bad bank to take on the investments.

One challenge: the amount of purchases required to clear the securities would be so big that it could dwarf the remaining TARP funds, which are now less than $350 billion.

Treasury Secretary Henry Paulson originally envisaged using the $700 billion authorized by Congress under the TARP in October to buy troubled assets. He quickly shelved that plan as the crisis intensified, instead opting to directly put capital into the banks in exchange for preferred shares and warrants.

The Washington-based Institute of International Finance, which represents the world’s largest commercial and investment banks, has called for revival of the asset purchase plan, arguing that it would help restore the health of the financial system.

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

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U.K. December House Prices Fall the Most Since at Least 1991

By Svenja O’Donnell and Jennifer Ryan

Jan. 6 (Bloomberg) -- U.K. house prices had the biggest drop since at least 1991 last year and consumer confidence slumped as banks rationed credit and homebuyers shunned the property market, Nationwide Building Society said.

The price of a home declined an annual 15.9 percent in December to 153,048 pounds ($223,235), slipping 2.5 percent from the previous month, the mortgage lender said in a statement today. Nationwide said “highly volatile” conditions make it difficult to give a forecast for house prices in 2009.

The Bank of England will probably cut the benchmark interest rate further this week after reducing it in December to 2 percent, the lowest since 1951, economists say. Prime Minister Gordon Brown also plans to unveil new measures to bolster the economy as it endures its first recession since 1991.

“We did not anticipate the speed of house price falls or the extent of the global and domestic economic slowdown,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “Prices have further to fall before significant numbers of buyers will be willing to return to the market.”

On a quarterly basis, house prices fell 14.7 percent in the final three months of 2008 from a year earlier, Nationwide said. The biggest decline was in Northern Ireland, where home values dropped 34 percent.

U.K. mortgage approvals dropped to the lowest level since at least 1999 in November and banks plan to curtailed loans further across the economy, the Bank of England said on Jan. 2.

Consumer Confidence

Nationwide also released its monthly gauge of consumer confidence today, showing sentiment among shoppers fell to the weakest level since the report began in 2004. The index dropped four points to 47.

The economy contracted 0.6 percent in the third quarter and consumer spending dropped the most since 1995. Unemployment rose at the fastest pace since 1991 in November.

A survey of U.K. services from banks to airlines for December will probably show the biggest contraction since at least 1996, according to the median forecast of 21 economists in a Bloomberg News survey. The Chartered Institute of Purchasing and Supply will release the survey after 9:30 a.m. today.

The U.K. central bank will probably cut the benchmark interest rate by half a point to 1.5 percent on Jan. 8, according to the median forecast of 57 economists in a Bloomberg News survey.

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Jennifer Ryan in London at Jryan13@bloomberg.net.

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Hedge Funds Will Be Ruined by Withdrawal Limits: Matthew Lynn

Commentary by Matthew Lynn

Jan. 6 (Bloomberg) -- Looking for a new definition of a hedge fund? How about an organization that takes 20 percent of the profits on your money in the good times, then refuses to let you have it back when the weather turns rough?

We all know the hedge-fund industry had a terrible 2008. With a few honorable exceptions, its promises of being able to deliver steady, positive returns in either a rising or falling market turned out to be empty.

Yet, in many cases, the industry has taken a bad situation and made it worse. Many funds have placed limits on withdrawals that investors can make. In effect, people are locked into a falling asset.

That is a big mistake. In any investment business, the return of capital is far more important than the return on capital. By forcing investors to keep their money tied up during a bad year, the hedge funds are damaging their own reputation, and it may well never recover.

There are numerous examples of funds limiting withdrawals.

Citadel Investment Group LLC said last month it was stopping year-end withdrawals from its two biggest funds after investors sought to take out $1.2 billion, or 12 percent of assets.

Magnetar Capital LLC took similar action after its largest fund lost 30 percent of its value in the year through November.

Cerberus Capital Management LP last month limited redemptions from a hedge fund that lost 16 percent of its value.

Paulson’s Warning

Shutting the gates on a hedge fund is now commonplace. As of October, 18 percent of the industry’s assets, or about $300 billion, was subject to withdrawal restrictions, according to Peter Douglas, principal of Singapore-based hedge-fund consulting firm GFIA Pte. With plenty of announcements since then, the total now is likely to be far higher.

Not everyone is happy with that turn of events. John Paulson, who runs the $36 billion hedge-fund firm Paulson & Co., reckons his colleagues in the industry are making an error.

“We think it’s a mistake for managers to use gates and other tools to limit investor access to their funds,” Paulson wrote in his 2009 outlook to investors. “While we recognize the difficulties of the current environment, we think it is a manager’s responsibility to raise liquidity to meet the redemption needs of their investors.”

There may well be something self-serving to Paulson’s remarks. As one of the few hedge-fund managers to call the markets right in the past year, he could easily pick up bargains for his own fund if his rivals were forced to liquidate their positions in a hurry. Even so, he’s making a valid point.

Two Arguments

There are two main arguments used to lock investors into the funds they have put money into.

First, hedge funds are meant to be long-term investments. They invest in esoteric instruments that can be virtually impossible to sell in a collapsing market. And if there are too many withdrawals, managers won’t be able to take advantage of all the “opportunities” suddenly available.

Next, if funds are forced to sell off their holdings, prices will collapse even further. Managers aim to maintain an orderly market and to make sure all their investors are treated equally. The investors who don’t sell will be the ones who suffer if half the fund is redeemed at fire-sale prices.

The trouble is, both justifications are nonsense.

Whether a hedge fund is a long-term investment or not is for the investor to decide, not the money manager. Maybe investors want to hold it for a couple of generations, or maybe until Tuesday of next week. It’s their choice.

Empty Claims

A few months ago, hedge funds were claiming that the liquidity they provided in different markets was one of the main justifications for their existence. If the funds haven’t created a liquid market in the instruments they invest in, there isn’t much point to them.

Even worse is the pretence that they are protecting the remaining investors. Sure, if a fund suddenly sells half its assets, that will drive prices down. Yet investors in hedge funds are sophisticated, wealthy people (or at least they are meant to be). They are well aware that this is a bad time to be selling any asset, whether it is factories, property, crude oil or repackaged bonds with funny-sounding names. Then again, perhaps they really need the money. Or maybe they think that while this is a bad time to sell, tomorrow will be even worse.

Hedge funds can’t expect to treat their investors like this and survive. It would be reasonable to say something like this: “It’s a bad time to sell, guys. You will lose what little is left of your shirt, but if you stick with us, we believe we can turn this thing around.” Then the fund holders can make their own decisions.

Telling them they can’t have their money back will surely leave many investors wondering if hedge funds are an asset class they want to stay in or whether it’s better to get out forever -- as soon as that is possible.

(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net.

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Shenhua Group Starts China's First Coal-to-Fuel Plant

By Wang Ying

Jan. 6 (Bloomberg) -- Shenhua Group Corp., China's biggest coal producer, began operating the nation's first plant to turn coal into fuels to boost output of gasoline and diesel.

The Beijing-based parent of China Shenhua Energy Co. started the plant in Inner Mongolia on Dec. 30, it said in a statement posted on its Web site late yesterday. The plant is able to produce 1 million metric tons of fuels a year, research director Shu Geping said in June 2007.

Shenhua Group is the only domestic company authorized to develop coal-to-fuels plants in China after the government limited such projects in August to conserve coal resources, the Ningxia Provincial Development and Reform Commission said in August. Sasol Ltd., the world's biggest converter of coal into motor fuels, halted plans for a project in China's Shaanxi province after the ruling.

Shenhua Group will try to keep ``stable operations'' at its first coal-to-fuels plant, it said yesterday. The plant used Shenhua Group's own so-called Direct Coal Liquefaction Technology, it said.

State-run China Daily reported last month, citing Ning Chenghao, a company researcher, that Shenhua Group may delay operations of the Inner Mongolia plant until early 2009.

China is the world's biggest producer and consumer of coal. The nation's demand for motor fuels is rising as car sales climb. While 2008 car sales growth slowed, China will remain the world's fastest-expanding major vehicle market in the next decade, Kevin Wale, General Motors Corp. China President Kevin Wale said in a statement earlier today.

Sasol said in August it will continue studying the viability of joint venture plant with Shenhua Group in Ningxia province.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net.

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Russia Reduces Gas Deliveries Via Ukraine; Balkan Supply Halted

By Daryna Krasnolutska

Jan. 6 (Bloomberg) -- Russia reduced natural gas shipments to Europe through Ukraine and deliveries to the Balkans were cut at the Romanian border as a dispute over pricing and transit fees led to a sixth day of supply disruption.

OAO Gazprom, the Russian gas exporter, cut gas shipments to Europe through Ukraine to 92 million cubic meters, less than one third of normal levels, NAK Naftogaz Ukrainy spokesman Valentyn Zemlyanskyi said. Russian gas supplies to Bulgaria, Turkey, Greece and Macedonia were cut at the Ukrainian-Romanian border, Bulgaria’s Energy and Economy Ministry said.

The moves came after Russia and Ukraine agreed yesterday to restart talks on their dispute and as Gazprom warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues. Russia, which supplies a quarter of Europe’s gas, cut shipments to Ukraine on Jan. 1, in a repetition of a 2006 dispute which also interrupted supplies to Europe.

“It’s not in the interest of either side for it to drag on and cause a larger drop in supplies,” said Chris Weafer, chief strategist at UralSib Financial Corp., by phone from London yesterday. “The risk of a more substantial pressure drop elsewhere in the pipeline system increases if supplies are cut for more than 10 days.”

Gazprom Chief Executive Officer Alexei Miller told Russian Prime Minister Vladimir Putin in a meeting yesterday that Gazprom intends to reduce gas deliveries to the Ukraine border by 65.3 million cubic meters a day, equivalent to the amount it says Ukraine has taken out of the system. Ukraine denies siphoning the fuel, saying some is needed to keep pipelines operating.

Gazprom Demands

“If this continues then the debt will soon come to billions of dollars,” Miller said. Gazprom says it is still owed $614 million for 2008 supplies, even after it receives a $1.5 billion payment, a claim Ukraine rejects.

Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine this month, reflecting the average price in countries bordering Russia’s neighbor. Ukraine paid $179.50 for its Russian gas last year and says $201 would be fair in 2009.

The European Union sought to help defuse the conflict, sending a delegation headed by Czech Industry Minister Martin Riman for talks with Ukrainian officials. They will meet with Ukrainian Energy Minister Yuriy Prodan, Oleh Dubina, head of state energy company NAK Naftogaz Ukrainy, and presidential advisers at 10 a.m. today, according to Bohdan Sokolovskyi, President Viktor Yushchenko’s energy aide.

“We have a mission in the region,” European Commission President Jose Manuel Barroso told reporters yesterday in Lisbon. “I hope the situation will be resolved.”

Gas Diplomacy

Ferran Tarradellas Espuny, a spokesman for the European Commission, the EU executive in Brussels, said the EU delegation would also meet Gazprom officials in an unspecified EU capital today.

Espuny told a press conference yesterday Russia’s cutoff of gas shipments to Ukraine was a “commercial dispute” that must be solved bilaterally.

“It has to be resolved by the two parties,” he said. “We’re putting pressure on to encourage both countries to go to the negotiating table, because it’s in our interest,” though the EU is “not acting as an intermediary.”

U.K. gas for immediate delivery gained 8.7 percent to 59.35 pence a therm at 4:44 p.m. London time yesterday, according to broker ICAP Plc. That’s equal to $8.66 a million British thermal units. A therm is 100,000 Btus. Gas for tomorrow rose 6.6 percent to 60.75 pence. U.K. gas for delivery next month rose 3.2 percent to 57 pence.

“I’m really surprised that the negotiations haven’t been settled,” said Alexander Rahr, director of Russian Programs at the German Council on Foreign Relations. “Both sides are being very stubborn.”

To contact the reporters on this story: Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net:

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India’s Rupee Weakens on Speculation Importers Bought Dollars

By Anil Varma

Jan. 6 (Bloomberg) -- India’s rupee weakened for the first time in four days on speculation importers bought dollars after the local currency reached a one-week high yesterday.

Indian banks and companies may step up purchases of the U.S. currency, said Vikas Babu, a trader at state-owned Andhra Bank in Mumbai. The rupee also fell on concern the economic and monetary stimulus unveiled by India isn’t enough to reverse the slowdown in Asia’s third-largest economy.

“Bids are coming in for the dollar as it is stronger against several currencies,” Babu said. “There’s also a sentiment that the stimulus package isn’t quite sufficient to fix the economic downturn.”

The rupee weakened 0.3 percent to 48.730 per dollar as of 10:48 a.m. in Mumbai, according to data compiled by Bloomberg. The currency’s 19 percent loss last year was the biggest since 1991 and the second-worst performance in Asia.

India’s import costs rose an average 34.4 percent last year as its currency declined, compared with 24.5 percent in 2007, government data show.

The Indian central bank cut its benchmark overnight lending rate, or repurchase rate, on Jan. 2 to 5.5 percent from 6.5 percent. It also lowered the reverse-repurchase rate, or the rate at which money is drained from the banking system, by a percentage point to 4 percent. Both the rates are now at the lowest levels since they were introduced in 2000.

The government raised the overseas investment limit in local corporate bonds to $15 billion from $6 billion and lifted restrictions on overseas borrowings and recapitalization of state-run banks. The economy may expand as little as 7 percent in the year ending March 31, the slowest pace since 2003, according to a government estimate on Dec. 23.

To contact the reporters on this story: Anil Varma in Mumbai at avarma3@bloomberg.net.

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Gazprom Stops Balkan Gas Supplies Via Ukraine, Bulgaria Says

By Elizabeth Konstantinova

Jan. 6 (Bloomberg) -- Russian natural gas supplies to Bulgaria, Turkey, Greece and Macedonia were cut at the Ukrainian- Romanian border, Bulgaria’s Energy and Economy Ministry said.

The gas shipments were stopped at 3:30 a.m. today, the ministry in Sofia said in an e-mailed statement. Russia’s OAO Gazprom pumps 17.8 billion cubic meters of gas a year through Bulgaria to the four Balkan countries under a 30-year contract signed in 2006. Bulgaria consumes about 3.5 billion cubic meters of that volume.

Bulgaria raised supplies from its only gas storage facility at Chiren in northern Bulgaria today to 4.3 million cubic meters a day and called for emergency measures, the ministry said. Russian gas flows through Ukraine and then Romania to the southern Balkan states.

To contact the reporter on this story: Elizabeth Konstantinova in Sofia at ekonstantino@bloomberg.net

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Asian Currencies: Thai Baht, Malaysian Ringgit Fall; Peso Gains

By Lilian Karunungan and David Yong

Jan. 6 (Bloomberg) -- Thailand’s baht and the Malaysian ringgit fell to three-week lows on concern deepening recessions in the world’s major economies will sap demand for regional assets.

The baht, which dropped 15 percent last year, the most since 1997, extended losses after Prime Minister Abhisit Vejjajiva said the central bank expects the economy to grow between 0.5 percent and 2.5 percent in 2009, the least since 1998. The ringgit declined for a third day against the dollar on speculation the escalating war between Israel and Hamas, and rising oil prices, will increase demand for the U.S. currency.

“The market reflects demand for safe-haven assets due to the prolonged crisis, and to a smaller extent, the weak economic data,” said Tan Voon Ching, a currency trader at OSK Investment Bank Bhd. in Kuala Lumpur.

The baht dropped 0.5 percent to 35.10 per dollar, the weakest since Dec. 12, before trading at 35.03 as of 11:30 a.m. in Bangkok, according to data compiled by Bloomberg. The ringgit weakened 0.1 percent to 3.5010 in Kuala Lumpur. It earlier reached 3.5138, the lowest since Dec. 18.

Thailand’s Finance Minister Korn Chatikavanij yesterday said the benchmark interest rate may be reduced further. The Bank of Thailand will continue “easing monetary policy” and will work closely with the government to stimulate economic growth, Prime Minister Abhisit said yesterday.

Policy Easing

The central bank last month cut its one-day bond repurchase rate by one percentage point to 2.75 percent. Thai policy makers next meet Jan. 14 to decide on borrowing costs.

The nation’s inflation slowed to a six-year low in December. Consumer prices increased 0.4 percent from a year earlier, after rising 2.2 percent in November, the Commerce Ministry said. Exports in November shrank 18 percent from a year earlier, the first contraction since March 2002, official figures show.

“The issue is whether there will be any policy paralysis,” said Emmanuel Ng, a currency strategist at Oversea-Chinese Banking Corp. in Singapore. “The prescription would be for rapid action from the government and monetary authorities. Slowing growth is weighing on the currency. The inherent risk is for further dollar upside.”

Weaker Euro

The baht will trade between 34.50 and 35.30 this month, Ng said.

The euro fell against the yen and traded near a three-week low versus the dollar before European Union data that will probably show slowing inflation, giving the European Central Bank more room to lower interest rates.

The euro declined to 126.27 yen in Tokyo from 127.31 yen late yesterday in New York. The euro traded at $1.3574 from $1.3635 yesterday, when it touched $1.3547, the lowest level since Dec. 15. The dollar was at 92.97 yen from 93.44 yen. It rose yesterday to 93.60 yen, the highest level since Dec. 8.

Malaysia’s ringgit had its longest stretch of losses today since the beginning of December before a government report tomorrow that economists estimate will show exports slumped in November by the most since February 2002.

Exports declined 5.7 percent in November from a year earlier, according to the median estimate in a Bloomberg News survey of economists. They slipped 2.6 percent in October, the first contraction since July 2007.

Malaysian Assets

Foreign investors reduced their holdings of ringgit- denominated bills and bonds for a sixth straight month in October from a record amount in April, according to the latest Bank Negara Malaysia statistics issued in December.

“Data out of Asia highlight the trend of falling inflation, slowing growth and deteriorating external accounts, which we view as negative for regional currencies,” Win Thin, a senior currency strategist in New York at Brown Brothers Harriman & Co., said in a research note. “Policy makers may not want to see significantly stronger currencies for the time being.”

The Philippine peso, which declined 13 percent last year, rose after central bank Governor Amando Tetangco signaled more scope to cut borrowing costs.

“The market is hoping that the central bank will lower rates further,” said Roland Avante, treasurer at Chinatrust (Philippines) Commercial Bank in Manila. “Still, the situation in the Middle East is raising fears that oil prices will spike and threaten inflation again.”

The currency climbed 0.4 percent to 46.943 in Manila, according to Tullett Prebon Plc.

Other Asian Currencies

The inflation rate in December slowed to a nine-month low of 8 percent, according to government figures released today in Manila compared with the median estimate of 8.8 percent in a Bloomberg survey.

“As inflation risks, particularly from food and fuel prices continue to recede, we will carefully consider opportunities for monetary easing, mindful of potential tightening in financial conditions,” Governor Tetangco said in a mobile phone message today.

The central bank cut its benchmark overnight borrowing rate by a half-point last month to 5.5 percent, the first reduction in 11 months. The next policy meeting will be on Jan. 29.

Elsewhere, the South Korean won was little changed at 1,315.05 per U.S. currency. Taiwan’s dollar fell 0.1 percent to NT$33.044. Singapore’s currency traded at S$1.4697 versus S$1.4706 yesterday. The Indonesian rupiah rose to 11,020 from 11,100. Vietnam’s dong was at 17,479 from 17,476.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; David Yong in Singapore at dyong@bloomberg.net.

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