Regions

[Muthukali]

ECB gearing up to buy euro zone bonds, but not yet

(Reuters) - The European Central Bank will gear up to buy Italian and Spanish bonds on the open market but would only act after euro zone governments have activate bailout funds to do the same, ECB President Mario Draghi said on Thursday.

Draghi indicated that any ECB intervention would start at the earliest in September and would depend on countries in trouble on bond markets making a request and accepting strict conditions and supervision.

He also indicated that German central bank chief Jens Weidmann had expressed reservations about bond-buying and further efforts would be needed to persuade the Bundesbank before a final vote to take action.

At a news conference following the central bank's monthly meeting, Draghi said the bank would consider other "non-standard" measures to rein in the euro zone crisis.

"The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective," Draghi said after the bank kept euro zone interest rates at a record low 0.75 percent.

The bank has already spent 210 billion euros buying bonds under its now dormant Securities Markets Programme (SMP) since May 2010, with limited impact, but Draghi said the new effort would be different in scope and conditionality.

Any new ECB action was conditional on euro zone governments using their EFSF and ESM bailout funds first, he said.

"Governments must stand ready to activate the ESM/EFSF in the bond market when exceptional financial market circumstances and risks to financial stability exist," he said.

Financial markets seemed underwhelmed by the announcements, with some investors having interpreted Draghi's comments last week as a sign of imminent rather than future and conditional action.

"It is quite disappointing ... There is a lack of any action so he has basically passed the buck back on to politicians," said Ioan Smith, strategist at Knight Capital.

German bund futures extended gains, a sign of investors seeking safety, and the euro fell by more than one cent to below $1.22 at 0930 EDT.

Draghi was under intense pressure from investors, European leaders and even the United States to deliver on Thursday on his pledge to do whatever it takes to save the euro by bringing high borrowing costs down and salving the debt crisis.

His comments in London last Thursday that the ECB would do whatever it takes within its mandate to protect the currency bloc from collapse - "and believe me, it will be enough" - had already eased tensions on the debt markets.

PRESSURE
Other countries, especially the United States, have raised pressure on the ECB to act as the two-and-a-half year old euro zone crisis weighs on global growth.

The U.S. Federal Reserve dashed expectations among some investors on Wednesday by taking no immediate new measures to revive the economy.

The Fed stopped short of offering new monetary stimulus, though it signaled more strongly that further bond buying could be in store to help a U.S. economic recovery that it said had lost momentum this year.

ECB action, meanwhile, is hamstrung by EU rules forbidding it from financing governments. The ECB issued a legal opinion in March 2011 ruling out perhaps the biggest gun, giving the ESM bailout fund rights to tap the ECB for funds to increase its firepower.

The ECB also has to find a way to get any measures past Germany, the euro zone's largest economy and its principal paymaster. The Bundesbank issues regular reminders of inflationary dangers stemming from non-standard measures such as bond purchases and the limits central banks face.

Draghi said all members of the Governing Council endorsed Thursday's statement with one exception - a reference to Bundsbank president Jens Weidmann.

"The decision to do whatever it takes to preserve the euro as a stable currency has been unanimous," Draghi said.

"It's clear and it's known that (Germany's) Bundesbank have their reservations about the programme of buying bonds. The idea is we now have the guidance, the monetary policy committee, the risk committee and the markets committee will work on this guidance and then (we) will take a final decision and the votes will be counted."

His wording suggested he was prepared to outvote the German central banker if necessary.

(Reporting by Sakari Suoninen; Editing by Paul Taylor/Jeremy Gaunt)

 

[Muthukali]

Knight Explores Options on $440 Million Trade-Error Loss

Knight Capital Group Inc. (KCG) said losses from yesterday’s trading breakdown are $440 million, almost quadruple its 2011 net income and more than some analysts had estimated, and the firm is exploring strategic and financial alternatives. Its stock has lost 66 percent in two days.

Knight said it will continue its trading and market-making today as it considers its options. Yesterday’s issue was related to the installation of trading software and resulted in the company sending “numerous erroneous orders,” the Jersey City, New Jersey-based firm said today. The stock tumbled 50 percent to $3.46 at 9:36 a.m. New York time today.

Shares of Knight, one of the largest U.S. market makers, plunged 33 percent in record volume yesterday as investors speculated on how much the breakdown that sent stocks swinging as much as 151 percent will cost the company. Analysts at JPMorgan Chase & Co. estimated yesterday that Knight’s loss would be as much as $170 million, while Raymond James & Associates Inc. said the amount could be “hundreds of millions.”

“Although the company’s capital base has been severely impacted, the company’s broker/dealer subsidiaries are in full compliance with their net capital requirements,” Knight said today. “The company is actively pursuing its strategic and financing alternatives to strengthen its capital base.”

140 Stocks
The New York Stock Exchange reviewed trading in 140 stocks from Molycorp Inc. (MCP) to AT&T Inc. yesterday as the market’s open was disrupted. Trades that occurred during the height of the volatility were canceled in six securities, where prices swung at least 30 percent in the first 45 minutes.

Knight’s market-making unit executed a daily average of $19.5 billion worth of equities in June with volume of 3.1 billion shares, according to its website.

The $440 million loss compares with net income of $115.2 million in 2011 on revenue of $1.4 billion, data compiled by Bloomberg show.

‘More Monitoring’
“This loss is larger than we expected,” Rich Repetto, a New York-based analyst with Sandler O’Neill & Partners LP, wrote in an e-mail. “More monitoring and safeguards need to be built into these trading algorithms of both market makers and exchanges.”

As stock swings mounted yesterday, the company told some clients of its market-making business that a “technical issue” was affecting its systems and advised them to route orders elsewhere, according to e-mails from spokeswoman Kara Fitzsimmons yesterday. The issue was confined to that unit and its other operations were unaffected, she said.

The errors were caused by a malfunction in a trading algorithm, according to a person at Knight who asked to remain anonymous because the matter hasn’t been publicized.

While Knight reported July 18 that second-quarter earnings exceeded analyst projections, sales fell short by 1.7 percent. Cash and short-term investments rose 55 percent to $7.5 billion in the second quarter of 2012, and the company’s debt amounted to 46.4 times total assets, compared with 64 a year ago, data compiled by Bloomberg show.

To contact the reporter on this story: Whitney Kisling in New York at [email protected]

To contact the editor responsible for this story: Lynn Thomasson at [email protected]

 

[Muthukali]

U.S. Payrolls Rise More Than Forecast; Unemployment 8.3%

Payrolls in the U.S. climbed more than forecast in July, boosted by a pickup in employment at automakers, even as the jobless rate unexpectedly rose to a five-month high.

The increase of 163,000 followed a revised 64,000 gain in June payrolls that was less than initially reported, Labor Department figures showed today in Washington. The median estimate of 89 economists surveyed by Bloomberg News called for a gain of 100,000. Unemployment rose to 8.3 percent.

Uneven hiring may hold back consumer spending, the biggest part of the economy, as a global slowdown and impending U.S. tax changes weigh on businesses. Job cuts at companies from Morgan Stanley (MS) to Cisco Systems (CSCO) Inc. mean unemployment may remain elevated, one reason the Federal Reserve this week said it is prepared to take new steps if needed to boost growth.

“Job growth is not enough to make a big dent in the unemployment rate,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. “It is unrealistic to expect strong gains in consumer spending. Fed officials will wait until they get a better idea of what will happen on the fiscal policy front.”

Stock-index futures extended gains after the figures, with the contract on the Standard & Poor’s 500 Index rising 1.1 percent to 1,376.5 at 8:40 a.m. in New York.

Estimates in the Bloomberg survey ranged from increases of 50,000 to 165,000 after a previously reported 80,000 gain in June. Revisions to prior reports subtracted a total of 6,000 jobs to payrolls in the previous two months.

Private Payrolls
Private payrolls, which exclude government agencies, rose 172,000 after a revised gain of 73,000. They were projected to rise by 110,000, the survey showed.

The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. Estimates in the Bloomberg survey ranged from 8.1 percent to 8.3 percent. The report showed more people left the labor force.

Factory payrolls increased by 25,000, more than twice the survey forecast of a 10,000 increase and boosted by a 12,800 pickup in employment at makers of motor vehicles and parts.

The figures may have reflected fewer shutdowns at automakers for annual retooling related to the new model year, indicating the jump will be reversed this month. Chrysler Group LLC and Ford Motor Co. (F) are among companies that said they would idle fewer plants.

Auto Sales
Demand for so-called big-ticket items like automobiles may be cooling. Car and light trucks sold at a 14.1 million annual rate in July, down from a revised 14.3 million in June and indicating little momentum as the industry heads for the best year since 2007, according to Ward’s Automotive Group.

“Economic fundamentals have remained soft,” Jenny Lin, Ford’s senior U.S. economist, said on an Aug. 1 conference call with analysts. “Job growth as measured by non-farm payroll is modest.”

Employment at private service-providers increased 148,000, the most in five months and reflecting more jobs in education and health services. Construction companies cut payrolls by 1,000 workers and retailers added 6,700 employees.

Government payrolls decreased by 9,000 for a second month.

Average hourly earnings rose by 2 cents to $23.52 in July, today’s report showed.

The average work week for all workers held at 34.5 hours.

Underemployment Rate
The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 15 percent from 14.9 percent.

The jobless rate, derived from a separate survey of households, has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948.

Fed officials, after meeting this week, left unchanged their statement that economic conditions would likely warrant holding the benchmark interest rate target near zero at least through late 2014. They said unemployment “remains elevated.”

Policy makers “will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” the Fed statement said. Economic growth is expected to “remain moderate over coming quarters and then to pick up very gradually.”

Fed’s Bernanke
Monthly payroll growth of about 100,000 is needed to keep the jobless rate stable, while growth of roughly 150,000 to 200,000 is needed to lower unemployment, Fed Chairman Ben S. Bernanke said at a news conference in April, citing a “very rough estimate.”

Through June, the U.S. had recovered about 3.8 million of the 8.8 million jobs lost as a result of the 18-month recession that ended in June 2009.

Charlie Jones, a resident of Washington, who has been out of work for more than a year, says he is relying on food stamps for meals while his girlfriend pays the rent. He signed up with a temporary agency for jobs in office installation and is searching actively for other openings.

“It’s a very tough job market,” said Jones, 35. “It’s discouraging. I keep waiting but they haven’t called me in a long time. I have a friend like me who recently got work, so I think hopefully something should turn up for me.”

Presidential Election
Employment and the economy are central themes in the presidential campaign, with President Barack Obama and Republican challenger Mitt Romney debating whose policies would best boost the expansion.

Gross domestic product grew at 1.5 percent annual rate in the second quarter after a 2 percent gain in the first three months of the year, according to figures from the Commerce Department. Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year.

Cisco Systems, the biggest maker of computer-networking equipment, plans to eliminate about 1,300 jobs, or 2 percent of the workforce, as Europe’s debt crisis and sluggish corporate spending threaten sales.

Financial firms are also trimming jobs as revenue softens. Morgan Stanley said its headcount will drop by about 700 in the second half, bringing total 2012 reductions to 4,000. Credit Suisse Group AG will eliminate 138 positions in New York starting this month. Deutsche Bank AG will cut about 1,900 jobs by year-end, mostly outside Germany. The lender is also shrinking compensation and benefits.

Fiscal Cliff
The so-called fiscal cliff, in which taxes will rise and government agencies will reduce spending next year if Congress doesn’t act, raises the risk of more cutbacks. Lockheed Martin Corp. (LMT), the world’s largest defense contractor, may have to dismiss about 10,000 of its 120,000 employees if lawmakers don’t act before $1.2 trillion in across-the-board cuts to federal spending, according to Robert Stevens, the Bethesda, Maryland- based company’s chief executive officer.

The Labor Department, in guidance posted on its website, said it would be “inappropriate” for defense companies to send 60-day notices to employees given the uncertainty about whether the reductions will occur or which jobs will be cut.

Honda Motor Co. (7267) is among companies looking to expand. The Tokyo-based auto maker, which relies on U.S. vehicle sales for more than half its profit, said it is investing $40 million at its Greensburg, Indiana, plant that produces the Civic compact and will hire 300 workers later this year.

To contact the reporter on this story: Shobhana Chandra in Washington at [email protected]

To contact the editor responsible for this story: Christopher Wellisz at [email protected]

 

[Muthukali]

U.S. Stock-Index Futures Advance After Employment Report

U.S. stock futures advanced, indicating the Standard & Poor’s 500 Index will halt a four-day decline, as payrolls climbed more than forecast in July even as the jobless rate unexpectedly rose to a five-month high.

LinkedIn Corp. (LNKD), the biggest professional-networking website, surged 10 percent after forecasting sales that beat estimates. Facebook Inc. (FB), which has tumbled 47 percent since it went public, rose 1.8 percent. American International Group Inc. (AIG) added 0.5 percent amid a 27 percent jump in profit. Knight Capital Group Inc. (KCG) advanced 6.2 percent after tumbling 75 percent in two days on losses from a trading breakdown.

S&P 500 futures expiring in September rose 1.1 percent to 1,376.70 at 8:52 a.m. New York time. Dow Jones Industrial Average futures added 121 points, or 0.9 percent, to 12,952.

“The jobs report is neither here nor there,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. “There’s not enough evidence for the Fed to act imminently. At the same time, the numbers are not so good, which means that Fed could still do something. It’s not something that one could look at and say: this is either an aberration or one should get enthused about it. On balance, the number was decent.”

Equity futures rose as payrolls increased 163,000 following a revised 64,000 rise in June that was less than initially reported, Labor Department figures showed today in Washington. The median estimate of 89 economists surveyed by Bloomberg News called for a gain of 100,000. Unemployment rose to 8.3 percent.

Uneven Hiring
Uneven hiring may hold back consumer spending, the biggest part of the economy, as a global slowdown and impending U.S. tax changes weigh on businesses. Job cuts at companies from Morgan Stanley to Cisco Systems Inc. mean unemployment may remain elevated, one reason the Federal Reserve this week said it is prepared to take new steps if needed to boost growth.

Stocks fell over the last four days as European Central Bank President Mario Draghi and Fed Chairman Ben S. Bernanke failed to reassure investors on immediate efforts to bolster the economy. Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of the ECB’s plan to buy government bonds.

Investors also watched second-quarter corporate earnings. About 73 percent of companies which reported quarterly results have beaten analysts’ estimates, according to data compiled by Bloomberg. Sales missed estimates at 59 percent of companies.

LinkedIn surged 10 percent to $103.20. Chief Executive Officer Jeff Weiner has lured subscribers and increased revenue from hiring services, the largest of the company’s three main product lines.

Social Media
The first among social media companies to hold initial share sales since early 2011, LinkedIn has done a better job than consumer-focused peers Facebook and Zynga Inc. (ZNGA) at wringing sales from a growing user base. Facebook added 1.8 percent to $20.40. The shares yesterday dropped to a record low. The world’s largest social-networking service last week reported earnings that showed slowing growth.

AIG advanced 0.5 percent to $31. Chief Executive Officer Robert Benmosche is counting on growth at AIG’s Chartis property-casualty and SunAmerica life insurance operations to attract private capital as the Treasury reduces its stake. The insurer said it purchased $7.1 billion in mortgage-related securities from the Maiden Lane III rescue fund this year as part of a plan to increase investment yields.

Procter & Gamble Co. (PG) gained 2 percent to $64.81. The consumer products company targeted by activist investor Bill Ackman reported fourth-quarter profit that beat analysts’ estimates, helped by price increases.

Knight Capital
Knight Capital rose 6.2 percent to $2.74. The company opened its books to potential buyers, including private-equity firms and at least one securities-industry rival, as it seeks an investment or takeover to survive after a $440 million trading loss, said two people with knowledge of the matter.

Knight is working with Goldman Sachs Group Inc. and Sandler O’Neill & Partners LP as advisers in the rescue talks, said one of the people, who spoke on condition of anonymity because the discussions are private. The company is under pressure to strike a deal within days, the people said.

“They need to do something fast,” said Peter Lenardos, an analyst at RBC Capital Markets in London. “There is a desperate need for capital, as Knight themselves acknowledge,” he said. “It might be private equity, it could be a big sell-side bank, it could be a peer like Citadel.”

Viacom Inc. (VIAB) slumped 4 percent to $44. The owner of the Paramount film studio and cable networks such as Nickelodeon and MTV reported third-quarter profit that missed analysts’ estimates after posting lower advertising sales.

To contact the reporter on this story: Rita Nazareth in New York at [email protected]

To contact the editor responsible for this story: Lynn Thomasson at [email protected]

 

[Muthukali]

Second TSE System Error in Seven Months Halts Derivatives Trade

The Tokyo Stock Exchange Group Inc.’s second major system error in seven months halted derivatives trading for about 95 minutes, cutting equity volumes, driving government bonds lower and sending futures traders to its smaller Osaka rival.

The failure lasted from about 9:20 a.m. to 10:55 a.m. local time, the bourse operator said. Trading in Topix Index shares was 20 percent below the average for the time of day after index and government bond futures were halted. Japanese 10-year government bonds fell during the breakdown. The exchange suffered its biggest disruption in six years on Feb. 2 as a fault halted trading for 3.5 hours in some of the country’s biggest companies.

The outage is a further setback for the Tokyo exchange as it pursues a takeover bid for the smaller Osaka bourse, which dominates Japan’s equity derivatives business. It also highlights the vulnerability of global markets to computer malfunctions, a week after errors at market-maker Knight Capital Group Inc. (KCG) led to incorrect trades for more than 100 U.S. stocks. This week is the second-busiest for earnings on the 1,672-company Topix.

“This shouldn’t be happening at all, and it’s a risk for investors that they can’t trade when they want to,” said Kazuyuki Terao, chief investment officer of RCM Japan Co. RCM oversees about $153 billion globally. “A system error happened earlier as well, and I have to have reservations about what’s going on.”

Share Volume
The error took place somewhere in the Tdex+ system used for derivatives at the bourse, not Arrowhead that handles cash transactions, said Naoya Takahashi, a TSE spokesman. Tokyo started using Tdex+, based on NYSE Euronext’s Liffe Connect platform, for options trading in Oct. 2009 and for futures in November 2011. Osaka’s J-Gate derivatives system uses technology from Nasdaq OMX Group Inc.

Volume on the Topix Index was about 20 percent below the 10-day average for the time of day when derivatives resumed trading. Average daily turnover for futures on Japan’s broadest measure of stock performance was 737 billion yen ($9.42 billion) in June, the Tokyo bourse said.

“The failure of Topix futures reduced the number of people doing index arbitrage,” said Naohide Une, head of equity derivatives trading at Goldman Sachs Japan Co. “That’s why the system error is not only affecting futures, but making cash- equity trading thinner. I thought lower volume could cause unusually big moves in stocks, but what actually happened was market participants were holding back trading.”

Trading Osaka
The breakdown diverted investors to Osaka, the only place in Japan where contracts on the benchmark Nikkei 225 Stock Average are traded, said Yuji Nakagawa, manager of derivatives trading at Toyo Securities Co. in Tokyo. Osaka Securities Exchange Co. reported daily average turnover of 1.29 trillion yen in contracts and mini contracts on the Nikkei 225 during June.

“It just prompted people to buy back short positions on the Topix using Nikkei 225 futures, because Nikkei 225 futures and cash are still being traded,” said Toyo Securities’ Nakagawa. “I haven’t seen a major effect.”

The Tokyo exchange reported an average of 45,537 10-year JGB futures changed hands during June. An auction of 40-year Japanese government bonds went ahead as scheduled. Yields on the 10-year JGB climbed as much as three basis points while the futures-trading halt was in force. The bonds extended losses after the lunch break.

“Because investors can’t sell futures before today’s auction, bonds are susceptible to selling for hedging,” said Okasan’s Suzuki, before trading was resumed. Okasan is one of the 25 primary dealers obliged to bid at government debt sales.

‘Highest Standard’
The Tokyo exchange operator and the Osaka venue cited cost savings from integrating computer systems as a reason for merging when they announced the takeover bid on Nov. 22.

Tokyo, which hosts the world’s No. 2 cash equities venue by the value of companies listed, stopped trading in 241 securities for 3.5 hours on Feb. 2 after a server failure. That error, which also occured during the height of earnings season, followed a Dec. 29 cable malfunction that slowed trading. Another bug in 2006 derailed all trading.

A Tokyo Stock Exchange information technology planning document from September last year made building and maintaining “a trading system of the highest global standard” a core priority for developing the company’s derivatives market.

“They need to build a reliable infrastructure regardless of the cost,” said Goya Nakao, a senior investment manager at Sompo Japan Nipponkoa Asset Management Co., which manages about 5 trillion yen ($64 billion) in assets. “A bourse is part of the social infrastructure and impacts the public.”

To contact the reporters on this story: Toshiro Hasegawa in Tokyo at [email protected]; Yoshiaki Nohara in Tokyo at [email protected]; Yumi Ikeda in Tokyo at [email protected]

To contact the editor responsible for this story: Nick Gentle at [email protected]

 

[Muthukali]

RBA Holds Rate as Household Spending, Currency Surge

Australia’s central bank kept interest rates unchanged at a developed-world high, citing a domestic expansion that’s weathering a global slowdown. The local currency touched the strongest in 4 1/2 months.

Governor Glenn Stevens and his board left the overnight cash-rate target at a 2 1/2-year low of 3.5 percent for a second month, the Reserve Bank of Australia said in a statement today in Sydney. Policy makers lowered rates by 1.25 percentage points from November to June, leaving borrowing costs “a little below their medium-term averages,” Stevens said today.

“While it is too soon to see the full impact of those changes, dwelling prices have firmed a little over the past couple of months, and business credit has over the past six months recorded its strongest growth for several years,” he said. “The exchange rate, however, has remained high, despite the observed decline in the terms of trade and the weaker global outlook.”

The Australian dollar has risen 8.6 percent since the RBA’s last rate reduction on June 5, extending gains that have helped keep core inflation at the lower end of the central bank’s 2 percent to 3 percent target. While Europe’s fiscal crisis is weighing on global growth and Chinese demand for Australian commodities, Stevens’s 75 basis points of cuts in May and June helped boost retail sales and housing in an economy driven by resource investment.

‘Prudent Strategy’
“Unless the volatile situation in Europe deteriorates further, the most prudent strategy for coming months is to hold tight and gauge the impact of earlier monetary stimulus on the domestic economy,” said Katrina Ell, an economist at Moody’s Analytics in Sydney.

The Australian dollar touched $1.0603 after the statement, the highest level since March 20. It traded at $1.0581 as of 3:17 p.m. in Sydney.

Policy makers in Australia’s biggest trading partner, China, lowered rates in June and July, to help protect their economy from Europe’s turmoil.

“China’s growth has moderated to a more sustainable pace, but does not appear to be slowing further,” Stevens said today. “Conditions in other parts of Asia have recovered from the effects of last year’s natural disasters, though the ongoing trend is unclear and could be dampened by the effects of slower growth outside the region. Growth in the United States continues, but at only a modest pace.”

Inflation Pressure
In Australia, a gauge of annual inflation by TD Securities Inc. and the Melbourne Institute released this week showed consumer prices rose at the slowest pace in three years.

“The outlook for inflation is unchanged: it is expected to be consistent with the target over the next one to two years,” Stevens said. “Maintaining low inflation over the longer term will, however, require growth in domestic costs to continue their recent moderation as the effects of the earlier exchange rate appreciation wane.”

Recent reports have shown stronger consumer spending in Australia, fueled by A$2 billion ($2.1 billion) in government carbon rebates and benefit checks paid out since May, as well as four rate cuts since November. Retail sales in June matched the biggest advance since April 2011.

“In Australia, most indicators suggest growth close to trend overall,” Stevens said today. “Labor market data show moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low.”

Mining Boom
Even after the May and June rate cuts, Australia has the highest borrowing costs among major developed nations as Stevens seeks to manage a boom in iron ore, coal and natural gas that is bringing investment projects the government estimates to be worth A$500 billion. Reflecting the resource boom, Australia’s dollar has almost doubled in the past decade against the U.S. currency, the biggest advance among more than 150 currencies tracked by Bloomberg.

The so-called Aussie’s strength is hurting non-resource industries. Private reports last week showed a manufacturing gauge declined in July to the lowest level in three years, and the services industry shrank for a sixth straight month.

Stevens said in June his decisions to cut rates by 25 basis points in November and December, 50 basis points in May and another 25 in June were made easier by the judgment there was a low risk of reigniting a boom in borrowing and home prices.

House Prices
Even so, house prices unexpectedly rose in the three months through June, ending five straight quarters of declines, a government report showed Aug. 1. House and apartment prices in major cities climbed 0.6 percent in July from the prior month, when they rose 1 percent, according to the RP Data-Rismark home value index released on the same day.

A key risk to the global economy remains Europe, and Italy’s Prime Minister Mario Monti warned in an interview published this week of a potential breakup without greater urgency in efforts to lower government borrowing costs.

Monti, in an interview with Germany’s Der Spiegel magazine published Aug. 5, said that disagreements within the 17-nation euro area are detracting from the policy response to the debt crisis and undermining the future of the European Union.

“The most significant area of weakness continues to be Europe, where economic activity has been contracting and policy makers confront the very difficult task of seeking to put both bank and sovereign balance sheets onto a sound footing, while promoting conditions for improved long-term growth,” Stevens said today.

To contact the reporter on this story: Michael Heath in Sydney at [email protected]

To contact the editor responsible for this story: Stephanie Phang at [email protected]

 

[Muthukali]

Asia Stocks Rise As Japan 10-Year Yields Climb To One-Month High

Asian stocks rose for a third day as speculation that central banks will take steps to spur growth and better-than-forecast U.S. corporate earnings boosted the outlook for the economy. Oil and metals fell, while Japanese 10- year yields advanced to the highest level in one month.

The MSCI Asia Pacific (MXAP) Index climbed 0.9 percent as of 10:59 a.m. in Tokyo as Japan’s Nikkei 225 Stock Average surged 1.7 percent. Futures on the Standard & Poor’s 500 Index fell 0.1 percent after the underlying gauge rose to a three-month high yesterday. Oil traded 0.3 percent lower at $93.42 a barrel in New York, while aluminum and copper in London slid at least 0.4 percent. The yield on Japan’s 10-year debt rose three basis points to 0.81 percent, the highest since July 5.

The Bank of Korea is set to consider cutting rates for a second month tomorrow, while the Bank of Japan starts a two-day policy meeting today. Federal Reserve Bank of Boston President Eric Rosengren told CNBC yesterday the central bank should pursue an open-ended easing program of “substantial magnitude” to boost growth and hiring. More than 70 percent of the S&P 500 companies that reported second-quarter results beat estimates, data compiled by Bloomberg show.

“There’s expectations that global easing policies may help stem the economic slowdown,” Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc., said. “The recovery in U.S. business conditions will bring benefits for the Asian economy.”

About three stocks rose for every one that fell on the MSCI Asia Pacific Index. Of the 1,008 companies listed on benchmark, 161 firms are scheduled to post earnings this week, according to data compiled by Bloomberg. Of the 341 companies to have reported since July 1 that have issued forecasts, 45 percent have exceeded expectations.

Russian Wheat
The Topix (TPX) Index, Japan’s broadest gauge of stocks, gained 1.2 percent. South Korea’s Kospi Index climbed 1.4 percent while Hong Kong’s Hang Seng Index advanced 0.2 percent

Standard Chartered (STAN) Plc dropped 1 percent in Hong Kong. The lender’s London-traded stock slumped 16 percent yesterday after New York State’s Department of Financial Services this week threatened to withdraw the firm’s license in the state, saying the London-based lender processed transactions for institutions subject to U.S. economic sanctions.

Wheat traded little changed at $9.0225 a bushel in Chicago before a meeting scheduled later today between Russian Deputy Prime Minister Arkady Dvorkovich and Agriculture Minister Nikolai Fedorov to discuss grain supplies.

Russia may harvest less wheat this season than in 2010, when the country banned exports amid the worst drought in at least a half century, Moscow-based researcher SovEcon said yesterday. Wheat has rallied 38 percent this year as dry weather hurt crops from the U.S. to Russia.

The Markit iTraxx Japan index advanced 1 basis point to 205.5, Citigroup Inc. prices show. The measure has climbed every day since Aug. 1, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at [email protected]

To contact the editor responsible for this story: Alexander Kwiatkowski at [email protected]

 

[Muthukali]

Knight Losses Push SEC To Write Tighter Automated-Trading Rules

The U.S. Securities and Exchange Commission is writing new rules in the wake of Knight Capital Group Inc. (KCG) losses that could turn longstanding policies for how exchanges manage their automated systems into regulations.

After Knight suffered a $440 million trading loss Aug. 1 that almost put it out of business, the SEC began work to bolster existing policies meant to ensure the exchanges’ systems can safely handle trading demands, according to a person familiar with the SEC’s work who spoke on condition of anonymity because the process isn’t public.

SEC Chairman Mary Schapiro said in an Aug. 3 statement that she asked her staff to hasten work “to require exchanges and other market centers to have specific programs in place to ensure the capacity and integrity of their systems.” The agency expects to hold a public meeting with industry participants next month to talk about ways the SEC can better oversee trading technology, the person said.

The malfunction at Knight tripped safeguards previously put into place by the SEC after the one-day May 6, 2010, market crash also caused by technical faults, including activating single-stock circuit breakers to halt trading. Schapiro pointed out her agency’s recent market-access rules already require broker-dealers to keep tabs on their own trading systems “to ensure they are operating properly.”

The SEC’s so-called automation review policies with the exchanges, put in place after the 1987 market crash, require the exchanges to notify the regulator of trading failures or security lapses. Portions of those policies will serve as the basis for the new rules, the person said.

Schapiro said in a March 2011 speech that the policies with exchanges should be made mandatory.

“Such a regulation would require market participants to meet adequate standards for the capacity, resiliency, and security of their automated systems,” she said. “These rules could apply to exchanges, alternative trading systems handling appreciable volume, clearing agencies, depositories and securities information processors.”

To contact the reporter on this story: Jesse Hamilton in Washington at [email protected]

To contact the editor responsible for this story: Maura Reynolds at [email protected]

 

[Muthukali]

Stocks Drop After Rally as Commodities Slip, Euro Rises

Stocks fell, with the Standard & Poor’s 500 Index halting its longest rally since 2010, and commodities declined amid concern about slowing Asian growth. The euro gained as Italy sold all the debt it planned at an auction and Greece’s economy shrank less than forecast.

The S&P 500 lost 0.1 percent to 1,404.11 and the Stoxx Europe 600 Index declined 0.4 percent at 4 p.m. in New York. About 4.5 billion shares changed hands on U.S. exchanges, the slowest full-day session of the year. Even as stocks fell, the cost of options to protect against further declines in the S&P 500 slid to a five-year low. Cocoa, soybeans and Kansas wheat lost at least 2.4 percent to lead commodities lower. Treasuries were little changed. The euro added 0.4 percent to $1.2338.

The S&P 500 retreated after six straight gains, its longest advance since December 2010. The index had rallied for five straight weeks and rebounded 10 percent from a five-month low on June 1, closing on Aug. 10 at the highest level in four months. Today’s decline followed data showing a slower-than-forecast expansion in Japan’s economy and a reduction in Bank of America Corp.’s growth estimate for China.

“The markets have come a long way in a reasonably short period of time, so we could see maybe a couple of weeks of sideways, consolidation activity,” Jim Russell, the Cincinnati- based chief equity strategist at U.S. Bank Wealth Management, which oversees about $104 billion, said in a phone interview. “A lot of people are on vacation, volumes seem to be very low. We can see this week being a fairly quiet one.”

Gauges of commodity, health-care and utility companies lost at least 0.4 percent for the biggest declines among the 10 main groups in the S&P 500 today. Trading of companies in the benchmark index was about 30 percent below the average over the last 30 sessions. The Chicago Board Options Exchange Volatility Index, the benchmark gauge of options prices known as the VIX, sank 7.1 percent to 13.70, the lowest since June 2007.

Market Leaders
DuPont Co., Alcoa Inc. and Cisco Systems Inc. slid more than 1 percent for the biggest losses in the Dow Jones Industrial Average, which decreased 38.52 points to 13,169.43.

Treasury 30-year yields rose less than one basis point to 2.75 percent. The Federal Reserve’s primary dealers offered fewer than average of the securities for sale as the central bank bought $1.83 billion of longer-maturity debt. Ten-year yields increased 0.5 basis point to 1.66 percent.

The Stoxx 600 (SXXP) slipped after capping 10 weeks of gains, its longest rally in six years. Julius Baer Group AG dropped 7.4 percent after agreeing to pay about 860 million Swiss francs ($879 million) to buy the wealth-management business outside the U.S. of Bank of America’s Merrill Lynch unit. Nokia Oyj retreated 6 percent as Danske Bank A/S said the mobile-phone maker may soon sell new shares.

Italy Auction
Italy sold 8 billion euros ($9.8 billion) of one-year bills at a yield of 2.767 percent, up from 2.697 percent at the previous auction. Investors bid for 1.69 times the amount of 364-day bills offered today, up from 1.55 times on July 12. Italy’s 10-year bond yield was little changed at 5.90 percent.

The euro gained against all 16 most-traded counterparts, advancing 0.5 percent against the yen and gaining at least 0.9 percent versus the currencies of Australia, Sweden and South Africa.

“Demand held up well” at Italy’s auction, Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mailed comment. “Borrowing costs more or less held steady, which, all things considered, is probably not a bad result.”

Greece’s economy contracted 6.2 percent in the second quarter, compared with 7 percent forecast in a Bloomberg survey.

Oil swung between gains and losses during the day, closing down 0.2 percent at $92.73 a barrel in New York. The S&P GSCI Index of commodities slipped 0.4 percent as 20 of 24 commodities tracked by the index advanced.

Commodity Bets
Hedge funds trimmed bets on a commodity rally for the first time in nine weeks as signs of U.S. growth and speculation that central banks will do more to stimulate economies drove prices to a three-month high.

Money managers lowered their net-long positions across 18 U.S. futures and options by 1.9 percent to 1.2 million contracts in the week ended Aug. 7, U.S. Commodity Futures Trading Commission data show. The decline ended eight consecutive weeks of gains, the longest streak on record. Soybean wagers dropped by the most since early June just as prices surged for three days and reached a two-week high.

The MSCI Emerging Markets Index dropped 0.6 percent after four weeks of gains. The Shanghai Composite Index lost 1.5 percent, the most in four weeks, as Bank of America cut its 2012 growth forecast for China to 7.7 percent from 8 percent. South Korea’s Kospi Index slipped 0.7 percent.

‘Rather Wait’
China’s economy will slow “considerably,” said Marc Faber, the publisher of the Gloom Boom & Doom report, who is buying European stocks.

“The growth rate we had in the last 10 years, which was around 10 percent annually, is going to slow down considerably,” Faber told Tom Keene and Ken Prewitt in a “Bloomberg Surveillance” radio interview today. “I would rather wait to buy Chinese stocks until we see the result of the stimulus packages.”

Japan’s Cabinet Office said today the nation’s growth slowed to an annualized 1.4 percent pace in the three months through June. The median forecast of economists surveyed by Bloomberg was for 2.3 percent growth.

To contact the reporters on this story: Inyoung Hwang in New York at [email protected]; Julia Leite in New York at [email protected]

To contact the editor responsible for this story: Lynn Thomasson at [email protected]

 

[Muthukali]

Hong Kong Exchanges Denies Report of Printer Hacking Attack

Hong Kong Exchanges & Clearing Ltd. (BNWEXCH), the second-largest bourse operator by market value, said errors at a printer, not hackers, were behind the erroneous filing of three documents under the wrong companies’ tickers on Sunday.

Lijun International Pharmaceutical Holding Ltd. (2005) and Natural Dairy N.Z. Holdings Ltd. remained suspended today after the error, which saw Lijun’s first-half financial data wrongly released and documents relating to a takeover of G-Prop Holdings Ltd. (286) published under Natural Dairy’s ticker. A printing firm hired by the companies uploaded the wrong information by mistake, the bourse’s head of corporate communications Henry Law said, denying a report in the South China Morning Post that hackers were suspected.

Exchanges and their trading systems are under scrutiny globally after computer errors halted transactions on parts of the Tokyo Stock Exchange twice this year and after an automatic- trading malfunction drove Knight Capital Group to the brink of bankruptcy. Hong Kong Exchanges suffered two days of attacks on its website by hackers almost exactly one year before Sunday’s error.

“The issue was not with our system, there were mistakes made at the printer,” Law said by phone. “The issue is one of internal control at the printers and at the listed companies who have to authorize publication of the documents.”

There are safeguards in place to prevent erroneous publication of filings on Hong Kong Exchange’s system, Law said. Printers have a unique code for accessing the system and cannot upload without the concerned company also entering its unique access code as a final authorization, he said.

To contact the reporter on this story: Nick Gentle in Hong Kong at [email protected]

To contact the editor responsible for this story: Nick Gentle at [email protected]

 

[Muthukali]

SingTel First-Quarter Misses Estimates on Currency Impact

Singapore Telecommunications Ltd. (ST), Southeast Asia’s biggest phone company, posted first-quarter profit that missed analyst estimates as currency moves and lower sales at its Australian unit cut earnings.

Net income rose 3.2 percent to S$945.3 million ($759 million) in the three months ended June 30 from a year earlier, the company known as SingTel said in a statement today. That compares with the S$974.3 million average of three analyst estimates compiled by Bloomberg.

Increased sales in Singapore, where the former government agency has about 46 percent of the mobile-phone market, was offset by falling sales at its Australian Optus unit, where customers canceled contracts and bought less equipment, SingTel said. Earnings growth from its Indonesian and Thai associates was undermined by declines in the countries’ currencies against the Singapore dollar, the company said.

“They still need to look for new ways to drive their revenues,” Sachin Gupta, an analyst at Nomura Holdings Inc. in Singapore, said by telephone before the results. Nomura has a neutral rating on shares of the Singapore-based company.

The company’s Australia-listed depositary instruments fell 0.4 percent to A$2.55 at 10:10 a.m in Sydney.

SingTel, with a dividend yield of 4.7 percent, has climbed 9.7 percent this year up to yesterday’s close in Singapore trade, compared with a 16 percent gain for the city state’s Straits Times Index.

“The market has been buying this stock for the yield, maybe expecting some sort of better-than-expected dividend,” Gregory Yap, an analyst at Kim Eng Securities Pte., said by telephone from Singapore. “I don’t think that’s going to happen.”

Regional Operations
The earnings contribution from regional associates rose 2.4 percent to S$483 million in the quarter, the company said.

SingTel holds minority stakes in phone operators in more than 10 countries in Asia and Africa, with a total customer base of about 462 million as of June 30, making its earnings vulnerable to currency fluctuations.

Among 10 Asian currencies tracked by Bloomberg, the Indonesian rupiah is the worst performer against the Singapore dollar this year, depreciating 8.3 percent, while the Thai baht has fallen 3.8 percent.

Revenue Sources
SingTel is expanding its revenue streams amid slowing growth from its main markets in Singapore and Australia, and has announced about $899 million of acquisitions in the 12 months through June, including mobile advertiser Amobee Inc. for $321 million.

Excluding one-time items, profit after tax fell 3 percent to S$850 million, the lowest figure on that measure since the quarter ended December 2008, according to data compiled by Bloomberg.

“We are embracing the changes in our industry by strengthening our telco business and establishing new growth platforms in the digital space,” Chua Sock Koong, chief executive officer, said in a statement.

Revenue for the full year will increase at “low single digit” rates, while earnings before interest, tax, depreciation and amortization will be “stable,” the company said.

Sales from Singapore rose 8 percent to S$1.67 billion, while those from Optus fell 3 percent in Australian dollars to A$2.24 billion ($2.4 billion). Total revenue dropped 1.6 percent to S$4.53 billion.

To contact the reporter on this story: David Fickling in Sydney at [email protected]

To contact the editor responsible for this story: Michael Tighe at [email protected]

 

[Muthukali]

Asia Stocks, Aussie Fall Before U.S. Data As Grains Rise

Asian stocks and the Australian dollar declined amid speculation U.S. data will weaken the case for the Federal Reserve to expand stimulus in the world’s biggest economy. Grains advanced and oil retreated.

The MSCI Asia Pacific (MXAP) Index of shares fell 0.5 percent and Standard & Poor’s 500 Index futures dropped 0.2 percent as of 11:40 a.m. in Tokyo. The so-called Aussie dollar slid 0.2 percent to $1.0473, while corn and wheat gained 0.6 percent in Chicago. Oil slid 0.4 percent to $93.10 a barrel and cotton gained 1 percent in New York.

Reports due today are forecast to show improvements in the U.S. industrial sector, following retail sales data for July that yesterday beat economist estimates. Consumer sentiment in Australia declined the most in five months, a private report indicated today.

“The U.S. economy is growing slowly,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. The expansion is “at a sufficient pace for the Fed to hold fire. This lends support to the dollar.”

The greenback gained against most major counterparts and added 0.1 percent to 78.80 yen, near an almost one-month high. South Korea’s won dropped 0.2 percent.

About five stocks declined for every two that gained on the MSCI Asia Pacific Index. Hong Kong’s Hang Seng Index was 1 percent lower. The Topix Index, Japan’s broadest gauge of shares, declined 0.3 percent while Australia’s S&P/ASX 200 index lost 0.4 percent. Stock markets in South Korea and India are closed today for holidays.

Fed Prospects
Gree Inc. (3632) slid 5.3 percent in Tokyo after the social networking company forecast operating profit that missed estimates. China Life Insurance Co. (2628) declined 2.3 percent in Hong Kong after the mainland’s biggest insurer posted a decline in premium income.

Output at U.S. factories, mines and utilities probably rose 0.5 percent last month after gaining 0.4 percent in June, according to the median estimate of economists in a Bloomberg News survey ahead of today’s data.

Manufacturing in the New York region may have grown in August, a separate poll showed.

Retail sales in the U.S. jumped 0.8 percent in July, compared with a 0.3 percent increase estimated by economists, data showed yesterday.

U.S. central bank officials refrained from boosting monetary stimulus at the conclusion of their last meeting on Aug. 1. The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to cap borrowing costs.

Australia Confidence
The Aussie fell after Westpac Banking Corp. and the Melbourne Institute said their sentiment index for August dropped 2.5 percent to 96.6, with numbers below 100 indicating pessimists outnumber optimists.

The Philippine peso weakened 0.3 percent to 42.125 per dollar after Credit Agricole CIB said in a note today the Asian currency has shown “excessive outperformance,” given weakening fundamentals in the country.

Wheat for December delivery climbed to as much as $8.6475 a bushel and corn for December delivery reached $7.9425 a bushel as droughts cut grain crops from Russia to the U.S. Cotton climbed as much as 2.2 percent to 73.69 cents a pound on the ICE Futures U.S. after the International Cotton Association president said prices may gain as China builds reserves.

The cost of insuring Asia-Pacific corporate and sovereign bonds from non-payment fell. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreasing 1 basis point to 148, Royal Bank of Scotland Group Plc prices show.

To contact Bloomberg News staff for this story: Chua Baizhen in Beijing at [email protected]

To contact the editor responsible for this story: Rocky Swift at [email protected]

 

[Muthukali]

S&P 500 Climbs to Four-Month High While Commodities Rally

Stocks jumped, sending the Standard & Poor’s 500 Index to the highest level in four months, as Cisco Systems Inc. (CSCO)’s sales topped estimates, U.S. building permits surged and speculation grew that Spain will get a bailout. Commodities rallied and the euro strengthened.

The S&P 500 rose 0.7 percent to 1,415.51 at 4 p.m. in New York, its highest closing level since April 2. Wheat jumped 1.8 percent and oil topped $95 a barrel for the first time in three months to lead the S&P GSCI Index of commodities to the highest level since May. The euro added 0.6 percent to $1.2357, halting a two-day slump. Spain’s bonds climbed and the IBEX-35 stock index surged 4.1 percent on bets a bailout will pave the way for policy makers to buy the nation’s debt.

Cisco surged 9.6 percent to lead technology shares to the best gain among 10 groups in the S&P 500. An index of builders surged to a four-year high as permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008, the Commerce Department said. A person familiar with the matter said Spain is about to get an emergency disbursement from a 100 billion-euro ($123 billion) package, while German Chancellor Angela Merkel pledged to hold the euro area together.

Today’s U.S. data are “confirmatory that things are really improving,” Greg Peterson, director of investment research at Ballentine Partners LLC in Waltham, Massachusetts, which has about $4 billion in assets, said in a phone interview. “American corporations are in great shape,” he said, and “everybody is seeing an emerging good story coming out of Europe.”

Homebuilders Rally
The S&P 500 Total Return index, which assumes dividends are reinvested back into the gauge’s 500 stocks, climbed to a record today even as the regular S&P 500 remained almost 10 percent below its peak in 2007.

The S&P 500 is up almost 13 percent this year and approaching the four-year high of 1,419.04 reached on April 2. An S&P gauge of 11 homebuilders surged 4.4 percent today and has rallied 60 percent in 2012 on optimism the industry is rebounding. While building permits increased, housing starts fell. Another report showed initial jobless claims rose by 2,000 to 366,000 last week.

Cisco, Home Depot Inc. and Microsoft Corp. led gains in 23 of 30 stocks in the Dow Jones Industrial Average, sending the gauge up 85.33 points to 13,250.11, its highest close since May 2.

Cisco surged the most in a year after job cuts kept costs in check and price reductions attracted customers. Sears Holdings Corp. climbed 6.5 percent after its loss narrowed. Facebook Inc. dropped 6.3 percent to $19.87, the lowest closing price since its initial public offering in May, as 271.1 million of its shares were allowed to trade following the end of a post- IPO lockup. Wal-Mart Stores Inc. fell 3.1 percent after posting second-quarter sales that trailed analysts’ estimates.

Fisher’s Stance
The S&P 500 index (SPX) had hovered around 1,400 for the previous seven trading sessions as investors awaited the Fed’s summit in Jackson Hole, Wyoming, at the end of the month. Intraday price movements in the index averaged 0.6 percent, the smallest fluctuations over a comparable period since January 2011, according to data compiled by Bloomberg. Daily swings in the Dow Jones Industrial Average averaged 0.7 percent from Aug. 6 through yesterday, the narrowest since March, the data show.

Federal Reserve Bank of Dallas President Richard Fisher repeated his view yesterday that the economy probably won’t lapse into a recession in 2013 and that new stimulus won’t spur growth. Fisher in 2011 dissented twice against moves to push down long-term rates and to keep the benchmark U.S. interest rate near zero until at least mid-2013. He voted five times in 2008 in favor of tighter policy. This year he isn’t a voting member of the Federal Open Market Committee.

European Markets
More than two stocks rose for each that declined in the Stoxx 600. (SXXP) Novozymes A/S (NZYMB) jumped 4.8 percent after reporting second-quarter net income that exceeded analysts’ estimates. Telekom Austria NV tumbled 5.6 percent after the phone company that is partly owned by Carlos Slim’s America Movil SAB cut its profit and sales forecast for 2012.

The yield on Spain’s 10-year bonds fell for a fourth day, losing 12 basis points to 6.52 percent. The rate on benchmark German bunds dropped four basis points to 1.53 percent, while the yield on similar-maturity Italian bonds rose two basis points to 5.79 percent. Ten-year U.S. Treasury rates added two basis points to 1.83 percent, the highest since May.

Germany’s Merkel said the European Central Bank’s insistence on conditionality in return for help to lower borrowing costs in indebted countries matches Germany’s priorities to end the crisis in the euro region.

“The ECB is completely in line with what we’ve said all along,” Merkel told reporters in Ottawa today at a joint press conference with Canadian Prime Minister Stephen Harper.

‘Everything We Can’
Merkel said that time is running out to resolve the crisis that emerged in Greece in late 2009 even as European leaders make progress in overcome the turmoil. All the same, policy makers in the 17-nation euro region “feel committed to do everything we can in order maintain the common currency.”

Spain will apply for aid at a meeting of finance ministers and central bank governors next month, allowing the ECB to buy Spanish government debt in the secondary market once approval is won, according to a Medley Global Advisors report Bloomberg News obtained. Medley officials weren’t immediately available to comment.

The euro strengthened against all 16 major peers.

“It’s all very soothing stuff that’s going on, and it’s likely to bolster support for the euro,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency-trading company in Saddle River, New Jersey, said in a telephone interview. The “Medley report, while it didn’t say anything new, it just reminded everybody that in their view the Spaniards will eventually ask for a bailout, and with a bailout will likely come some ECB buying, which is likely to smack bond yields.”

Pound Strengthens
The pound appreciated 0.4 percent against the dollar after British retail sales including auto fuel gained 0.3 percent in July, compared with a 0.1 percent decline predicted by the media estimate of 22 economists in a Bloomberg survey.

The S&P GSCI gauge of 24 commodities rose 0.8 percent. Wheat gained for a second day on speculation that demand will increase for U.S. and European grains as dry weather reduces supplies in Russia. Farmers in Russia, the world’s third biggest wheat exporter last season, have harvested 27.9 million metric tons of the grain so far this year, 17 percent less than in 2011, as yields declined, the country’s Agriculture Ministry said today.

Crude oil rallied 1.3 percent to $95.60 a barrel in New York. Coffee was down the most among commodities tracked by the index, losing 1.9 percent, and cocoa declined 1.5 percent.

The MSCI Emerging Markets Index added 0.3 percent after dropping as much as 0.3 percent. The Shanghai Composite Index slid 0.4 percent after the smallest inflow of foreign direct investment since July 2010. India’s Sensex lost 0.4 percent, while Russia’s Micex Index added 0.3 percent.

To contact the reporters on this story: Lu Wang in New York at [email protected]; John Detrixhe in New York at [email protected].

 

[Muthukali]

Thai Growth Accelerates as Local Demand Counters Global Woes

Thailand’s economy grew faster than economists forecast in the second quarter as the government’s stimulus measures boosted domestic demand after last year’s floods, helping offset a global slowdown.

Gross domestic product increased 4.2 percent in the three months through June from a year earlier, after expanding a revised 0.4 percent in the previous quarter, the National Economic and Social Development Board said in Bangkok today. That exceeded all 16 forecasts in a Bloomberg News survey that had a median prediction of a 3.1 percent rise.

Prime Minister Yingluck Shinawatra, who marked her first year in office this month, has shelved politically contentious legislation to focus on the economy as Thailand recovers from the worst floods in almost 70 years in 2011. Southeast Asian nations from Indonesia to Malaysia have also cut interest rates or increased public spending to boost consumption as Europe’s debt crisis and a faltering U.S. recovery curb exports.

“Economic uncertainty, especially from the euro region, remains a key risk in the second half,” Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said at a media briefing. “We need to accelerate budget spending to boost the local economy.”

The government agency cut its estimate for expansion this year to a range of 5.5 percent to 6 percent, from an earlier outlook for 5.5 percent to 6.5 percent growth, and reduced its forecast for export growth to 7.3 percent from 15.1 percent on concern the European debt crisis will damp demand, Arkhom said.

Outlook ‘Bleak’
“Domestic consumption and investment are pillars of the Thai economy amid a very bleak external demand outlook,” Supavud Saicheua, managing director at Phatra Securities Pcl in Bangkok, said before the data release. “My biggest concern will be next year. The end of some stimulus policies may slow down domestic consumption, while the economic crisis in Europe will continue to hurt exports.”

The baht was little changed at 31.52 per dollar as of 10:36 a.m. in Bangkok, according to data compiled by Bloomberg. Thailand’s benchmark SET Index (SET) of stocks fell 0.3 percent.

The Bank of Thailand kept its policy rate at 3 percent for a fourth meeting last month, and cut its expansion forecast for the year to 5.7 percent from 6 percent. It reduced its export growth estimate to 7 percent from 8.3 percent and said inflation will be 2.9 percent from an earlier prediction of 3.3 percent.

Adjust Policy
There is room to adjust monetary policy to support economic growth if needed, and the central bank is ready to do more, it said at the time. Finance Minister Kittiratt Na-Ranong said earlier this month he’d like to see the baht weaken slightly to help exporters and the benchmark rate should be 2.5 percent as inflation is now manageable.

“The stronger data is unlikely to alter the call for easing by the BOT, although the timing might be delayed,” said Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong. “Export data has already shown weakness.”

Exports fell 4.2 percent in June from a year earlier, the fourth decline in six months, even as the local unit of Toyota Motor Corp. had record local sales this year after supply constraints eased and the Thai government offered as much as 100,000 baht ($3,172) in tax savings for first-time buyers.

Meeting the government’s full-year export growth target of 15 percent will be “difficult,” after shipments contracted by 2.1 percent in the first half, Arkhom said.

“To reach the target, we need to ship $25 billion per month, which is a very high level,” he said.

Higher Wages
Yingluck’s government has raised minimum wages and pledged to spend more than 2 trillion baht on infrastructure and water- management projects over the next seven years to boost growth and prevent a repeat of the flood disaster, which killed more than 700 people and cost the economy 1.4 trillion baht.

Thailand’s economy, the biggest in Southeast Asia after Indonesia, grew 3.3 percent last quarter from three months earlier, compared with a revised 10.8 percent increase in the previous period. The median forecast in a Bloomberg News survey was for a 2 percent gain quarter on quarter.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at [email protected]

To contact the editor responsible for this story: Stephanie Phang at [email protected]

 

[Muthukali]

Banks Use $1.77 Trillion to Double Treasury Purchases

The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010.

As deposits increased 3.3 percent to $8.88 trillion in the two months ended July 31, business lending rose 0.7 percent to $7.11 trillion, Federal Reserve data show. The record gap of $1.77 trillion has expanded 15 percent since May, the biggest similar-period gain since July, 2010. Banks have already bought $136.4 billion in Treasury and government agency debt this year, more than double the $62.6 billion in all of 2011, pushing their holdings to an all-time high of $1.84 trillion.

Faced with a slowing U.S. economy, unemployment above 8 percent for more than three years and regulations forcing them to hold more and higher-quality assets, banks are lending at below pre-recession levels. The bond purchases help explain why even after rising this month, Treasury 10-year note rates are about half the 3.5 percent median forecast of 43 economists in a Bloomberg survey a year ago.

“Bank deposits continue to explode and in turn they continue to buy Treasuries as the economy loses momentum, inflation is trending down, Europe continues to hang over our heads and political uncertainty reigns” said Michael Mata, a money manager in Atlanta at ING Investment Management Americas, which oversees about $160 billion. “There is no reason for interest rates to climb in any meaningful way any time soon.”

Borrowing Rises
While the gap has narrowed to $1.75 trillion as of Aug. 8 as lending of $7.12 trillion trailed $8.87 trillion in deposits, the gap is more than 17 times the $100 billion average in the decade before credit markets seized up, Fed data show.

Commercial and industrial lending reached a peak of $1.61 trillion in October 2008, a month after the bankruptcy of Lehman Brothers Holdings Inc. As the credit crisis deepened, loans tumbled to $1.2 trillion two years later, before recovering to $1.46 trillion Aug. 1.

The recent rise isn’t keeping up with record bank deposits as savings of U.S. households have risen to 4.4 percent of incomes as of June from 1.7 percent in 2007, the data show.

“Every bank is looking for a way to increase their yield,” said Mike Pearce, president of Bank of The West in Grapevine, Texas, whose company has been purchasing government securities after deposits grew faster than loans in 2010 and 2011. Instead of earning the Federal Funds rate of zero to 0.25 percent on the deposits, its bond holdings are yielding about 3.25 percent, he said.

Seeking Safety
Bank Treasury holdings reached $500 billion, the highest since June 2011, even with interest rates minus inflation for benchmark 10-year notes of 0.38 percent, compared to the average of 1.26 percent over the past decade.

Yields on 10-year Treasury notes rose 15 basis points, or 0.15 percentage point, last week to 1.81 percent. The price of the 1.625 percent security maturing in August 2022 declined 1 12/32, or $13.75 per $1,000 face value, or 98 9/32. The rate was little changed today as of 11:34 a.m. in Tokyo.

They increased from a record low 1.379 percent on July 25 as investors became more optimistic about the economy. The U.S. added 163,000 jobs last month, a government report showed Aug. 3, more than the 100,000 projected by analysts. Sales at U.S. retailers increased 0.8 percent, more than the 0.3 percent forecast and following a 0.5 percent slide in June, Commerce Department data released Aug. 14 showed.

Rate Forecast
The benchmark notes will yield 1.60 percent by the end of September, below June’s projection of 1.90 percent, median estimates in separate Bloomberg surveys show. The year-end forecast fell to 1.65 percent from 2.1 percent.

Banks may be forced into more risky assets and lending practices if yields continue to hover about record low levels, said David Hendler, an analyst at financial research firm CreditSights Inc. in New York. Their net interest margin, a measure of lending profitability, has declined to 3.52 percent, the lowest since 2009, according to FDIC data.

“It doesn’t pay to be aggressive right now if you are a bank, but continuing to buy bonds near these levels is not sustainable in the long run,” Hendler said in an Aug. 14 telephone interview.

The Federal Reserve said in its quarterly survey of senior loan officers, released Aug. 6, that “domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months.” Lending standards for large and medium-sized firms loosened, while those for small business were little changed for the fourth consecutive period.

Recession Legacy
Wall Street’s five biggest banks are off to their worst start in four years. JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley had combined first-half revenue of $161 billion, down 4.5 percent from 2011 and the lowest since $135 billion in 2008. The firms blamed the decline on low interest rates and a drop in trading and deal-making.

Low government bond yields are a legacy of the credit crisis that caused more than $2 trillion in write downs and losses at global financial institutions, according to data compiled by Bloomberg.

After cutting its target rate for overnight loans between banks in 2008 to a range of zero to 0.25 percent, the Fed under Chairman Ben S. Bernanke bought $2.3 trillion of Treasury and mortgage-related debt to reduce market interest rates and stimulate the economy.

The central bank owned $1.66 trillion of Treasuries as of August, ahead of China’s $1.16 trillion.

Extra Deposits
Investors are more willing to accept low yields “when you have large demand from the Fed as well as natural demand from banks,” said Matthew Duch, a fixed-income money manager at Calvert Investments, which oversees more than $12 billion in assets. “Are bonds where banks want to be right now? No, but given the uncertainty over regulation, the economy and still weak loan demand in the market it’s the best of lots of bad options,” he said.

Banks have “very conservative” balance sheets, JPMorgan Chief Executive Officer Jamie Dimon said in a July 13 conference call with analysts. The bank lent out $700 billion of its $1.1 trillion in deposits in the second quarter. “That would generally be considered totally conservative,” Dimon said.

JPMorgan increased the Treasury and government agencies portion of their available-for-sale credit portfolio to $11.743 billion as of June 30, from $8.351 billion at the start of the year, according to a filing with the Securities and Exchange Commission on Aug. 9.

Added Incentive
“We get a lot of deposits in,” he said. “The extra deposits of $423 billion, plus equity, plus some other net liabilities, give us $522 billion that’s not being lent out that we have to invest.”

The global supply of the highest-quality securities, as measured by ratings companies, is poised to fall by as much as $4 trillion. Reforms such as the Dodd-Frank financial-overhaul law and global regulations set by the Bank for International Settlements require institutions to hold more top-graded debt.

Lenders have an added incentive to buy Treasuries after the Basel Committee on Banking Supervision proposed rules in 2011 that banks increase available capital to bolster the cushion against potential losses and better measure and control their risk. Treasuries’ safety and liquidity makes them suitable capital under regulations designed to prevent a repeat of the global financial crisis.

Loans are being damped by the slow recovery. Gross domestic product expanded at a 1.5 percent annual rate in the second quarter after a revised 2 percent gain in the prior three months, below the average of 2.6 percent since 1982, the Commerce Department said on July 27.

Wrong Direction
The share of U.S. households viewing the economy as heading in the wrong direction rose to 45 percent in August, the highest since November, from 36 percent in July, the Bloomberg Consumer Comfort survey showed today. The monthly expectations gauge dropped to minus 22 from minus 11. The weekly Bloomberg Consumer Comfort Index fell to minus 44.4 in the period ended Aug. 12, the lowest since January, from minus 41.9.

Household purchases, which account for about 70 percent of GDP, grew at the slowest pace in a year, according to the commerce department’s report on GDP.

Stimulus Pledge
Fed policy makers said Aug 1 they would provide more monetary stimulus “as needed.”

“There’s all sorts of good long-term developments that are occurring on household balance sheets, but you sense the Fed would like them to be not quite as thrifty and instead put a little more money to work,” said Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee. “But that’s not going to happen without salary incomes rising.”

That explains the gap between deposits and lending, said Jeffrey Caughron, a partner at Baker Group LP in Oklahoma City who advises community banks on more than $30 billion of investments.

“It’s a function of inherently weak demand for loans and that relates to inherently weak demand in the economy,” he said. “Consumers, households, businesses: they’re paying down debt, they’re saving money, they’re not borrowing. They don’t have an appetite.”

To contact the reporters on this story: Cordell Eddings in New York at [email protected]; Daniel Kruger in New York at [email protected]

To contact the editor responsible for this story: Dave Liedtka at [email protected]

 

[Muthukali]

Criminal probe launched into loss-making brokerage SBS: report

Vietnamese police have opened a criminal investigation into allegations concerning information disclosure at troubled brokerage Sacombank Securities Joint-Stock Co., which is facing huge losses.

Investigators will look into several malpractices including manipulation of stock prices and hiding or falsifying information, news website VnExpress reported Friday. It said officials of the company, one of Vietnam’s five largest brokerages, refused to comment on the investigation.

The brokerage, also known as SBS, has been placed under stock exchange scrutiny since July 23 after reporting a cumulative loss of VND1.4 trillion (US$68.4 million) as of the end of March.

Analysts have accused the company of intentionally hiding its financial problems over the past few years, leading to the huge loss.

SBS, listed on Vietnam’s main exchange in Ho Chi Minh City, has not released financial results for the second quarter.

Le Minh Truyen, one of its brokers, was sentenced to 12 months on probation late last year for colluding with a stock tycoon in the country’s first criminal case filed for stock price manipulation.

Vietnam earlier this month arrested two leaders of SME Securities Corp. on suspicion of cheating PetroVietnam Insurance Joint Stock Corporation out of VND57 billion ($2.69 million).

 

[Muthukali]

Trucking Stocks Offer Bet on U.S. Consumers for Holidays

Holiday sales probably will grow at a slower rate this year than last. That may present an opportunity for investors prepared to wager they’ll be better.

Most investors aren’t betting on a strong shopping season in the U.S. because of unemployment that’s remained above 8 percent since February 2009 and ambiguity about future tax rates, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago, part of the BMO Financial Group which oversees about $60 billion of assets. Even so, now is the time to consider a trucking-stocks strategy because these conditions may offer a favorable risk-reward, he said.

“Everyone associates retail stocks with the holiday season, but trucking companies may be a smarter play for a positive surprise from the consumer,” Ablin said. Truckers are “an interesting” opportunity because their shares have trailed the market since 2009, reflecting pessimism about the economy; meanwhile, retailers have enjoyed an “enormous rally” -- a sign more optimism has been priced into these stocks, he said.

Retail sales, excluding restaurants, vehicles and gasoline, rose 0.9 percent last month from June, the biggest gain since January, based on data from the Census Bureau. Robert Dye, chief economist at Comerica Inc. (CMA) in Dallas, estimates they may increase an inflation-adjusted 2 percent to 3 percent in November and December, the traditional holiday rush, compared with 2.7 percent last year.

“It’s not doom and gloom, but it’s not a robust forecast, either,” Dye said, adding that holiday sales rose as much as 4.7 percent on an inflation-adjusted basis in 2005.

Fiscal Cliff
Weak consumer confidence is hurting discretionary spending and probably will continue through the rest of this year because of anemic job growth and the looming fiscal cliff, he said. The U.S. faces higher taxes and reductions in spending on defense and other government programs that will take effect at year-end unless Congress acts.

The Bloomberg U.S. Asset-Heavy Trucking Index (BNUSAHTD) -- with 14 companies including Knight Transportation Inc. (KNX) and Werner (WERN) Enterprises Inc. -- has lagged behind the Russell 2000 Index by about 51 percent since Dec. 31, 2008. In the same period, the Standard & Poor’s Retail Select Industry Index has led the broader S&P 500 by 146 percent.

Trucking stocks continue to trail the Russell 2000 and now are at the same “key support level” as a year ago, in part because earnings for several companies -- including Werner and Con-way Inc. (CNW) -- were weaker than investors anticipated, said Jim Stellakis, founder and director of research at New York-based research company Technical Alpha Inc.

Relative Performance
Although investors may be wary about identifying this level as a bottom, trucking stocks last year outperformed the Russell 2000 by 10.6 percent between mid-September and Dec. 30, when their relative performance was previously this low, he said.

Based on the depth of the current underperformance, investors appear to be bracing for “very anemic volume growth,” said Art Hatfield, an analyst in Memphis, Tennessee, with Raymond James & Associates. “Nobody’s pricing in anything positive in terms of a pick-up in economic activity in the near-term.”

The rally in the retail index has stalled after it broke an uptrend that began in February 2011, indicating investor sentiment has become a little bearish in recent months, said Stellakis, a chartered market technician. “Retail stocks may be a group investors are looking to underweight now.”

No Comfort
Gross domestic product grew at a 1.5 percent annual rate in the second quarter, after expanding 2 percent in the period ended March 31. The jobless rate rose to 8.3 percent in July, the 42nd consecutive month above 8 percent; and consumer sentiment, measured by the Bloomberg Comfort Index, fell to minus 44.4 in the week ended Aug. 12, the lowest since January.

One bright spot: The U.S. added 163,000 jobs in July, the most since February, after four consecutive months when gains trailed the median estimate of economists surveyed by Bloomberg.

Amid continued weakness in “big-picture drivers” of spending, investors are “a little squeamish” about what to expect from this year’s holiday-sales season, said John Manley, chief equity strategist for Wells Fargo Funds Management in New York. Still, it “wouldn’t be unusual” for consumers to figure out a way to splurge, even if it means skimping on other purchases, he said, adding that if shoppers can exceed what will probably be “fairly conservative” sales estimates, trucking companies may benefit.

“Betting against the American consumer is a tough bet to make,” he said.

Short-Lived Rally
The same things holding back shoppers may inhibit trucking stocks from overcoming the years of underperformance, Hatfield said. Even if Americans deliver on a strong holiday season, a rally in this group may be short-lived until the U.S. economy exhibits sustained signs of improvement and expands at a faster pace, he said.

For now, companies that transport items including retail goods have indicated activity remains stable, Hatfield said, adding that even though volumes and the prices truckers charge their customers are weak by historic standards, there’s no indication another recession is imminent.

Kevin Knight, chairman and chief executive officer of Phoenix-based Knight Transportation, sees reason for “some optimism” that the second half of this year will “end up being more seasonal,” he said on a July 25 conference call. “Compared to my expectations, I would say that June has been a little bit behind what I would have hoped for and that July has been a little bit ahead.”

‘Strong Note’
Volume for Con-way ended June “on a strong note” after it was a “little light” early in the month, President and Chief Executive Officer Douglas Stotlar said on an Aug. 1 conference call. The Ann Arbor, Michigan-based company also saw daily tonnage strengthen in July to finish “slightly ahead” of last year, he said.

Based on conversations with customers, “we continue to see people pretty optimistic about their business, even with really, really slow economic growth,” Greg Lehmkuhl, president of Con- way’s freight division, said on the same call.

While freight volume of companies including retailers and consumer packaged-goods makers -- a barometer of the broader economy -- fell 0.7 percent in July from the prior month, it exceeded the trailing 10-year average of minus 2.5 percent for July’s sequential change in shipments, based on data compiled by Bloomberg from Cass Information Systems.

Forecasting holiday sales this year still is more difficult than in the past, Dye said. In addition to all the economic impediments, Americans also are saving more -- 4.4 percent of their disposable personal income in June, the highest in a year -- which could hurt spending if people are worried about jobs and taxes, he said.

Nonetheless, consumers have to be “hit over the head pretty hard” to cut back meaningfully on gift-giving, Wells Fargo’s Manley said.

“When expectations are modest, Americans rarely disappoint when it comes to holiday sales,” he said.

To contact the reporters on this story: Anna-Louise Jackson in New York at [email protected]; Anthony Feld in New York at [email protected]

To contact the editor responsible for this story: Anthony Feld at [email protected]

 

[Muthukali]

India Considers $35 Billion Debt Revamp After Biggest Blackout

India plans to restructure about $35 billion of loans held by its utilities to boost their ability to supply electricity and avert outages like the one that cut off power to half the nation’s 1.2 billion people.

Half of the short-term borrowings of the state-owned utilities, which generate or buy and distribute electricity, will be transferred to the books of the regional governments, according to a power ministry draft proposal obtained by Bloomberg News. The rest will be rescheduled by the banks and allowed a three-year moratorium on principal repayments.

Cash losses at utilities widened 15 times over three years to 288 billion rupees ($5.2 billion) in the year ended March 2010, prompting them to seek short-term loans even as dues to power producers and coal miners rose. The difference between the average cost of supplying electricity and the average tariff has almost doubled in the 11 years to March 2010, according to the draft, leading banks to refuse loans.

“For some state utilities today, selling more power means incurring more losses,” said Salil Garg, a New Delhi-based director at Fitch Ratings India. “Restructuring their debt seems to be the only solution. Utilities will look to turn around, while banks will seek to minimize sacrifices.”

The proposal is expected to be circulated among cabinet members in a week, Power Secretary P. Uma Shankar said on Aug. 13. There will be a separate arrangement for financing part of the operational losses and interest payments for the first three years, according to the plan.

Biggest Blackout
The utilities are “servicing the interest on existing loans by fresh borrowings, which leads to a virtual debt trap in the long run,” according to the draft report.

Almost 27 percent of India’s electricity is lost in transmission because of dissipation through wires and theft, causing a peak shortfall of 9 percent. Distribution utilities, unable to retrieve their costs through tariffs, accumulate debt and losses and cut purchases of electricity, leading to blackouts. Grid collapses on two consecutive days in India last month caused the world’s biggest blackout.

NTPC Ltd. (NTPC), the country’s biggest power producer, was forced to cut generation by 13 billion kilowatt hours, or 6 percent of total production in the year ended March 31, as state government utilities reduced purchases, Chairman Arup Roy Choudhury said on Aug. 7. The company may have to cut output by almost as much this fiscal year.

Free Power
Most state utilities often adhere to political demands of the local governments by providing free or cheap power to people. Punjab and Haryana, two of India’s biggest producers of food crops, provide subsidized power to farmers. Some utilities don’t receive subsidies announced by governments in lieu of free power they give to farmers, Garg of Fitch Ratings said.

States, including Tamil Nadu, Andhra Pradesh, Punjab and Karnataka, have increased tariffs since April to reduce the gap between cost and sales. Tamil Nadu increased tariffs after almost a decade.

“We are hoping to break even this year, thanks to the increase in tariffs,” S.C. Arora, finance director at Punjab State Power Corp. said by telephone. “Deficient rains have forced us to buy more power for irrigation and we are appealing to people to use electricity judiciously.”

Punjab State Power has 200 billion rupees of liabilities, half of which is short-term and being considered for restructuring, Arora said. The utility lost 0.07 rupees on every kilowatt hour of electricity it sold last year, he said.

Higher Tariffs
“States have accepted the inevitability of increasing tariffs, but there’s a limit to the increase,” Garg of Fitch Ratings said. “Ultimately, the solution lies in improving efficiencies.”

The burden of any increase in tariffs will be borne by industrial users more than households. Industries pay more than double the price households pay for their electricity, which affects profitability.

“India has to have a tariff system that reflects the change in costs,” said Debasish Misra, senior director at consulting firm Deloitte Touche Tohmatsu in Mumbai.

Increasing losses at state utilities are also endangering investment in generation projects in states, as concerns mount that generation companies may find it difficult to recover their dues from utilities.

Nervous Lenders
“The risks of offtake and fuel availability are two biggest concerns in the minds of lenders today,” said Ashish Sethia, head of India research for Bloomberg New Energy Finance. “Banks will obviously be nervous in lending to a generation project in a state that has a financially stressed distribution company.”

Damodar Valley Corp., a power producer in the eastern part of the country, posted a loss of 1.2 billion rupees in the year ended March 2011 after interest payments on short-term loans increased.

“The biggest challenge in the power sector today is getting the money for what you sell,” NTPC’s Roy Choudhury said on Aug. 7. “If we are able to address that issue, this is the most viable sector.”

To contact the reporter on this story: Rajesh Kumar Singh in New Delhi at [email protected]

To contact the editor responsible for this story: Jason Rogers at [email protected]

 

[Muthukali]

Asian Stocks Rise as Gold Gains to 16-Week High on Easing Bets

Asian stocks gained and gold rose to a 16-week high on speculation central banks in the U.S. and China will ease monetary policy to boost their economies. Soybeans rose to a record.

The MSCI Asia Pacific Index (SPX) advanced 0.6 percent at 11:35 a.m. in Tokyo. Hong Kong’s Hang Seng Index rose 0.7 percent. Standard & Poor’s 500 Index futures gained 0.2 percent. Gold for immediate delivery climbed for a seventh day, up as much as 0.5 percent to $1,662.25 an ounce, the highest since May 2. Soybeans touched an all-time high of $17.4475 a bushel. The dollar traded at 78.56 yen after sliding to 78.28 yesterday, the weakest since Aug. 13.

Minutes of the U.S. Federal Reserve’s last meeting showed many members favored more stimulus unless the pace of the economic recovery picks up. People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible after the central bank stepped up temporary cash injections this month. A preliminary report today showed China’s manufacturing may contract at a faster pace in August.

“Some form of quantitative easing is coming soonish,” said Matthew Sherwood, Sydney-based head of investment markets research at Perpetual Investments, which manages about $25 billion. “U.S. policy makers are frustrated with the anemic pace of the recovery and this increased the odds that some form of additional Fed easing will be implemented at the central bank’s September meeting.”

Gold Advances
About four stocks rose for every four that fell on the MSCI Asia Pacific Index, which headed for its highest close since May 8. QR National Ltd. increased 1.7 percent after Australia’s largest coal-train operator posted full-year profit that topped estimates. Qantas Airways Ltd. rose 4.3 percent in Sydney as the airline canceled an order for 35 Dreamliner jets, easing concern about funding requirements.

Gold’s seven-day advance is the longest such streak since June. Assets in gold-backed ETPs reached 2,442.263 metric tons yesterday, data compiled by Bloomberg show, and are now the world’s fourth-largest hoard when compared with national reserves.

Soybeans for November delivery rose 0.5 percent to $17.365 a bushel, while December-delivery corn added 0.1 percent to $8.3575 a bushel after touching a record $8.49 on Aug. 10. The worst U.S. drought in half a century curbed crop supplies, driving the S&P GSCI gauge of 24 raw materials up for a fourth day to the highest level since May.

Asia’s emerging-market currencies strengthened, with South Korea’s won and Malaysia’s ringgit climbing the most in more than two weeks. Thailand’s baht rose to a three-month high.

To contact the reporters on this story: Glenys Sim in Singapore at [email protected]; Jonathan Burgos in Singapore at [email protected]

To contact the editor responsible for this story: Shelley Smith at [email protected]

 

[Muthukali]

Many on FOMC Favored Easing Soon if No Pickup in Growth

Many Federal Reserve policy makers said additional stimulus probably will be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent meeting.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the record of the Federal Open Market Committee’s July 31- Aug. 1 gathering released today in Washington.

U.S. stocks and bonds rose as investors saw greater odds the central bank will increase accommodation. Chairman Ben S. Bernanke will have an opportunity to clarify his views in an Aug. 31 speech at a forum for central bankers in Jackson Hole, Wyoming, where he signaled a second round of bond buying by the Fed in 2010. Fed officials next meet on Sept. 12-13.

“They’re closer to doing QE3 than I would have guessed,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, referring to a third round of bond purchases known as quantitative easing. “It may not be September. It could be October.”

Many participants at the Fed’s meeting said a new large- scale asset-purchase program “could provide additional support for the economic recovery,” according to the minutes. Policy makers said in a statement after the meeting that they will step up record stimulus if needed to spur growth and cut a jobless rate stuck above 8 percent since February 2009.

‘Substantial Capacity’
The minutes also noted a discussion on the merits of purchasing Treasury securities compared with mortgage-backed securities. While “some” members worried about the impact on debt markets, a staff analysis showed “substantial capacity for additional purchases without disrupting market functioning.”

Policy makers, who said in their Aug. 1 statement that economic conditions “warrant exceptionally low levels for the federal funds rate at least through late 2014,” discussed extending the duration for how long they will keep the main interest rate near zero, the minutes show.

The Standard & Poor’s 500 Index (SPX) erased losses, adding less than 0.1 percent to 1,413.49 at the close of trading in New York after falling as much as 0.5 percent before the release of the minutes. The yield on the 10-year Treasury note tumbled 11 basis points, or 0.11 percentage point, to 1.69 percent in the biggest intraday decline since June 1.

Improving Data
Since the FOMC meeting, some U.S. economic data have exceeded expectations, with retail sales increasing in July and employers adding 163,000 jobs, the most in five months. Industrial production and consumer confidence also rose, and a report today showed sales of existing homes climbed in July from an eight-month low.

The brighter data has helped push the S&P 500 to six straight weekly gains and to almost a four-year high.

In the discussion of pushing back the time horizon for low interest rates, “it was noted that such an extension might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed,” according to the minutes.

The Fed reduced its key interest rate almost to zero in December 2008 and has since engaged in two rounds of large-scale asset purchases totaling $2.3 trillion.

Questions on Guidance
Participants questioned whether the guidance was clear enough, and “a few” suggested that the committee replace the date with changes in the economy that would prompt policy makers to raise the fed funds rate, or cut guidance language entirely, the minutes show.

Policy makers “agreed to defer a decision on this matter” until the September meeting when they will update their economic forecasts, the minutes said.

All of the Fed’s 12 regional presidents and seven Washington-based governors are participants in meetings of the FOMC.

The FOMC members are the 12 participants with the power to vote on policy. The governors, the New York Fed President and a rotating group of four of the regional presidents serve as voting members of the committee. This year, the Cleveland, Richmond, Atlanta and San Francisco Fed Presidents hold a vote.

The minutes show the committee also discussed other options for boosting stimulus, including cutting the interest rate paid on reserves banks keep at the Fed.

Money Markets
“While a couple of participants favored such a reduction, several others raised concerns about possible adverse effects on money markets,” the minutes said.

A couple of Fed members also “expressed interest” in exploring programs similar to the Bank of England’s Funding for Lending Scheme which seeks to encourage lending to households and firms.

The minutes show the FOMC continuing to discuss the ways they communicate with the public about policy. The Fed’s staff presented research on so-called monetary policy rules that would guide Fed action.

The subcommittee on communications developed an “experimental exercise” to see whether the committee could present a “consensus forecast” of the committee’s views.

Atlanta Fed President Dennis Lockhart said yesterday the committee faces a risk of easing too much while trying to energize a “disappointing” three-year-old recovery. In contrast, he said last month that weak economic data increased the odds he would back more Fed purchases of bonds known as quantitative easing to cut borrowing costs.

Sufficient Stimulus
Dallas Fed President Richard Fisher said on Aug. 8 the Fed has already provided sufficient economic stimulus.

Retail sales rose 0.8 percent in July, the biggest gain since February and first increase in four months, the Commerce Department said Aug. 14. A separate report the same day showed that inventories at U.S. companies rose in June at the slowest pace in nine months.

Boston Fed President Eric Rosengren and John Williams of San Francisco have called since the FOMC meeting for additional stimulus to jump-start growth and reduce unemployment. Rosengren told CNBC on Aug. 7 that policy makers should pursue an “open- ended” program of bond purchases known as quantitative easing.

Williams said in an interview with the San Francisco Chronicle that weakening employment, consumer spending and economic growth suggest the Fed should begin a third round of bond purchases.

Pace Slows
Record Fed stimulus has failed to bring about a sustained decline in the jobless rate, which climbed in July to 8.3 percent, the same level as January. The pace of payrolls growth slowed to an average of 73,000 a month in the second quarter compared with an average of 226,000 in the first quarter.

Policy makers are concerned economic growth is too weak to buoy the job market. The world’s largest economy will probably expand 1.8 percent in the third quarter and 2.1 percent in the final quarter, according to the median of 75 estimates in a Bloomberg survey. Gross domestic product grew 2 percent in the first quarter of this year before decelerating to 1.5 percent from April until June.

To contact the reporters on this story: Joshua Zumbrun in Washington at [email protected]; Jeff Kearns in New York at [email protected]

To contact the editor responsible for this story: Chris Wellisz at [email protected]