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U.S. Stocks Advance in Longest Winning Streak for S&P 500 Since April 2009

April 10, 2010

By Joanna Ossinger April 10 (Bloomberg) — U.S. stocks rose for a sixth week , giving the Standard & Poor’s 500 Index its longest winning streak since April 2009, as reports showed the fastest job growth in three years and higher-than-estimated retail sales. Banks and retailers led the advance in the S&P 500, with Regions Financial Corp. and Macy’s Inc. rising 5.2 percent or more following the economic reports. American Express Co. and Microsoft Corp. rallied at least 4 percent, leading the Dow Jones Industrial Average, as European Central Bank President Jean-Claude Trichet saying he doesn’t expect Greece to default on debts bolstered optimism a financial crisis will be averted. The S&P 500 advanced 1.4 percent to 1,194.37 this week, building on its biggest first-quarter rally since 1998. The Dow climbed 70.28 points, or 0.6 percent, to 10,997.35. It exceeded 11,000 for about 10 seconds yesterday, crossing that threshold for the first time since September 2008. Stocks “remain in a powerful bull market,” said Michael Sheldon , chief market strategist at RDM Financial Group in Westport, Connecticut, which oversees $650 million. “Until something changes, it seems unlikely we’re going to have a substantial pullback.” Alcoa Inc. becomes the first Dow company to report quarterly results on April 12. Combined profit for S&P 500 companies will increase 30 percent from a year earlier, according to analyst estimates compiled by Bloomberg. Intel Corp., JPMorgan Chase & Co., Bank of America Corp. and General Electric Co. also post results next week. Jobs, Retail Sales Economic reports helped drive this week’s rally by stocks. U.S. employers added 162,000 jobs last month, the most since March 2007, figures from the U.S. Labor Department showed on April 2, which stock exchanges were closed for Good Friday. March sales at 31 chain stores rose 9 percent, the biggest one- month gain since March 1999, the New York-based International Council of Shopping Centers said April 8. The Institute for Supply Management’s index of service industries, which make up about 90 percent of the economy, showed the fastest growth since May 2006. Inventories at U.S. wholesalers rose 0.6 percent in February, a sign companies are ramping up orders as sales climbed to the highest level in more than a year. Measures of S&P 500 banks and retailers advanced 4.4 percent, 3.7 percent and 3.4 percent, the most among 24 industries in the index. Takeover Speculation Regions Financial climbed 11 percent to $8.59. SunTrust Banks Inc. rallied 5.5 percent to $28.65 after Credit Suisse Group AG said it may be a takeover target for overseas financial companies. Goldman Sachs Group Inc. rose 5.2 percent to $179.12. Bank of America Corp. increased 3.1 percent to $18.59. Gap Inc. gained 5.2 percent to $24.85 after March sales at the clothing seller rose 11 percent, about three times the estimate by Retail Metrics. Target Corp. , the second-largest U.S. discount chain, climbed 4.8 percent to $55.67 after exceeding estimates for March sales and saying first-quarter profit will top forecasts. US Airways pared its weekly retreat to 1.1 after surging 11 percent on April 8 amid speculation it would purchase UAL Corp. The tie-up probably would be an all-stock transaction, with the smaller US Airways as the acquirer, said two people familiar with the matter, who asked not to be identified because the negotiations are private. Spokesmen for the companies declined to comment. UAL, the owner of United Airlines, rose 5.1 percent to $20.50. Casinos Surge Wynn Resorts Ltd. advanced 13 percent to $87.17, MGM Mirage surged 23 percent to $14.80 and Las Vegas Sands Corp. advanced 13 percent to $24.12. A Nevada report showed gaming revenue statewide rose almost 14 percent in February from the same month a year earlier. Las Vegas Strip revenue increased 33 percent. The S&P 500 rallied 4.9 percent during the first quarter, the biggest advance to start a year since 1998. The index is up 2.1 percent in the second quarter. “We’ve come back from the brink fairly meaningfully, we’ve seen huge recovery in the value of risk assets,” Tobias Levkovich , New York-based Citigroup Inc.’s top U.S. equity strategist, said in a Bloomberg Radio interview. “What we still have are intermediate and justifiable concerns around sovereign credit, around the structural unemployment issues.” Massey Energy Co. slid 12 percent to $46.72. An April 5 explosion at the company’s Upper Big Branch mine in Montcoal, West Virginia, killed 25 people in the worst U.S. mining disaster since 1970. The mine was issued two citations on the day of the explosion. One was given because inspectors found that mine maps were out-of-date. A similar situation contributed to the deaths of two Massey miners in January 2006 at the Aracoma Coal Co. Alma Number 1 mine fire. To contact the reporter on this story: Joanna Ossinger in New York at jossinger@bloomberg.net .

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Ten-Year Treasury Yield Hits 4% for First Time Since June on Growth Data

April 5, 2010

By Cordell Eddings and Daniel Kruger April 5 (Bloomberg) — Treasury 10-year notes rose to 4 percent for the first time since June as reports on the service industries and pending home sales added to signs the U.S. economic recovery is gaining traction. Ten-year yields rose for a third day as the Institute for Supply Management’s gauge of non-manufacturing businesses expanded in March at the fastest pace in almost four years and pending home sales last month gained the most since October 2001. The U.S. will sell $8 billion in inflation-indexed notes. “The data shows that the economic recovery has momentum and the Treasury market is starting to price that in,” said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of 18 primary dealers required to bid at Treasury auctions. “Rates should head higher into the auctions.” The 10-year note yield rose 6 basis points, or 0.06 percentage point, to 4 percent at 12:02 p.m. in New York, according to BGCantor Market Data. That’s the highest level since June 11. The 3.625 percent security due in February 2020 fell 16/32, or $5 per $1,000 face value, to 96 30/32. Bond dealers forecast the yield on the 10-year note will climb to 4.2 percent at the end of this year, the highest since October 2008, according to the median estimate in a survey by Bloomberg News. Debt Sales The ISM’s index non-manufacturing businesses, which make up almost 90 percent of the U.S. economy, rose to 55.4 in March from 53 the prior month. Readings above 50 signal expansion. U.S. pending home sales gained 8.2 percent in February from the previous month. Today’s auction of 10-year Treasury Inflation-Protected Securities is the first of four note and bond sales this week totaling $82 billion. Ten-year notes fell the most since December the week of March 27, when the U.S. sold $118 billion of 2-, 5- and 7-year debt. Demand for U.S. debt was below forecasts at the Treasury’s last series of auctions, sparking concern that record spending is damping investor interest. “The market is starting to react to growing fiscal deficits,” said Martin Mitchell , head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-based brokerage firm. “The last round of weak auctions are still fresh on everyone’s mind. This week’s auctions will be telling to see if sponsorship continues to decline.” President Barack Obama and congress have increased U.S. marketable debt to a record $7.41 trillion to fund spending programs and service a deficit that his administration projects will probably expand to $1.6 trillion this year. Last year’s deficit was a record $1.4 trillion. Fed Expectations The yield on 10-year notes, which move inversely to prices, rose eight basis points on April 2 after the Labor Department reported U.S. companies added 162,000 workers in March, after a loss of 36,000 in February. Traders added to bets the Federal Reserve will raise interest rates after a report last week showed the fastest employment growth in three years. Futures on the CME Group Inc. exchange show a 62 percent chance the Fed will increase the target for overnight lending between banks by at least a quarter percentage point by November, compared with 58 percent odds a month ago. The Fed Board of Governors may raise the discount rate to 1 percent from 0.75 percent at a meeting today, Andy Brenner , global head of emerging market fixed income at New-York based brokerage Guggenheim Capital Markets, wrote in a note to clients. ‘Underlying Facts’ The board last increased the rate, which it charges to banks for direct loans, on Feb. 18, when it raised by a quarter percentage point to 0.75 percent. It said the move would encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs. “Last week’s more positive data, the worry about this week’s supply and then potential that the Fed increases the discount rate today all add to continued bearish sentiment in the Treasury market,” said Ian Lyngen , a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Still, the prices have changed, but the underlying facts haven’t. The market should cheapen up some for the auctions, so we are buyers after the auction process.” Treasury 10-year notes will be attractive around 4.06 percent, Lyngen said. Investors bid for 2.65 times the amount of 10-year TIPS offered at the last sale of the securities on Jan. 11, versus the average of 2.31 times at the past 10 auctions. Indirect bidders, which include foreign central banks, purchased 40.7 percent of the securities, versus the 10-sale average of 39 percent. TIPS about broke even in March, while conventional Treasuries handed investors a 0.9 percent loss, according to indexes compiled by Bank of America Corp’s Merrill Lynch unit. To contact the reporters on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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U.S. Service Industries Grow at Fastest Pace Since May 2006, Creating Jobs

April 5, 2010

By Shobhana Chandra April 5 (Bloomberg) — Service industries expanded in March at the fastest pace since in more than three years, a sign the U.S. recovery is extending beyond manufacturing and starting to create jobs. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 55.4, the highest level since May 2006, from 53 in the prior month. Today’s figure exceeded all forecasts in a Bloomberg News survey. Readings above 50 signal expansion. Pending home sales in February posted the biggest gain since 2001, another report showed today. The manufacturing rebound that helped the world’s largest economy dig out of the worst recession since the 1930s is starting to extend to other industries, benefiting companies such as Carnival Corp. and Best Buy Inc. A government report last week showed employment rose 162,000 in March, the most in three years, making a sustained recovery more likely. “You’re seeing a broadening of the recovery from manufacturing into services,” said Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York. “Given these two areas of the economy — the services sector and home sales — have been lagging, it’s comforting to see they’re making progress.” Pending Home Sales More Americans signed contracts in February to buy previously owned homes, according to the National Association of Realtors. The index of purchase agreements, or pending home sales, rose 8.2 percent, the second-biggest gain on record and the largest since October 2001. A measure of U.S. job prospects rose in March for a seventh consecutive month, signaling the labor market is likely to add more workers, a private report showed. The Conference Board’s Employment Trends Index increased 0.7 percent to 94.4 from 93.7 the previous month, the New York-based private research group said today. The measure is up 5.5 percent from a year ago. Stocks extended gains and Treasury securities fell after the reports. The Standard & Poor’s 500 Index rose 0.8 percent to 1,187.04 at 10:51 a.m. in New York. The 10-year Treasury note declined, pushing up the yield to 3.99 percent from 3.95 percent on April 2. Estimates before the Tempe, Arizona-based group’s gauge ranged from 51 to 55, according to the Bloomberg survey of 68 economists. Factory Rebound Manufacturing grew in March at the fastest pace in more than five years, the supply managers’ group reported on April 1. The factory index jumped to 59.6, the highest level since July 2004. Today’s report showed the non-manufacturing gauge of new orders rose to 62.3, the highest since August 2005, from 55 the prior month, and the index of employment increased to 49.8 from 48.6. The measure of new export orders jumped to 57.5 in March, the highest level since June 2007, from 47, while the index of prices paid rose to 62.9 from 60.4. Categories in the ISM services survey include utilities, health care, housing, transportation and finance and insurance. The unemployment rate was 9.7 percent in March for a third month, the Labor Department reported April 2. Payrolls rose for the third time in the past five months and by the most since March 2007, signaling companies are becoming more confident that the economy is healing. Service-producing companies added 82,000 workers to their payrolls in March, the third straight gain and the largest increase since November, the Labor Department’s data showed. Consumer Demand Retailers experiencing a pickup in demand include Best Buy, the largest U.S. electronics retailer. The Richfield, Minnesota- based company last month reported fourth-quarter profit that exceeded analysts’ estimates as discounts helped to boost sales. Carnival, the biggest cruise-line operator, last month raised its full-year profit forecast as ticket prices rebounded from 2009’s lows amid more bookings. “The booking environment continued to improve,” Chief Executive Officer Micky Arison said in a March 23 statement. “We returned to top line revenue growth after a challenging 2009.” To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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U.S. Manufacturing Expands at Fastest Pace Since July ’04, ISM Index Shows

April 1, 2010

By Shobhana Chandra April 1 (Bloomberg) — Manufacturing expanded in March at the fastest pace since July 2004, indicating factories will be a source of strength for the U.S. recovery in coming months. The Institute for Supply Management’s factory index rose to 59.6, exceeding the most optimistic forecast in a Bloomberg News survey of 77 economists, from 56.5 in February. Readings above 50 signal expansion. The Tempe, Arizona-based group’s gauge of exports rose to the highest level since 1989, while orders and production increased at faster rates last month. Rising demand in the U.S. and Asia, combined with the need to restock inventories, is giving a boost to companies from Honeywell International Inc. to Boeing Co. A factory rebound may also help propel employment gains throughout the economy, one reason analysts anticipate a government report tomorrow will show payrolls rose this month by the most in three years. “Manufacturing is on a tear,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, whose forecast of 59 was the highest in the Bloomberg survey. “Manufacturing-driven growth and export-driven growth are getting us out of the recession and turning this recovery into a more sustainable one. As production increases, it means job gains are going to spread.” Stocks extended gains and Treasury securities declined after the report. The Standard & Poor’s 500 Index rose 0.8 percent to 1,179.22 at 10:36 a.m. in New York. The 10-year Treasury note fell, pushing up the yield to 3.87 percent from 3.83 percent late yesterday. Exceeds Forecast Economists projected the factory index to rise to 57, based on the median forecast in the Bloomberg survey. Estimates ranged from 54 to 59. American factories are sharing in a manufacturing revival that extends from Asia to Europe as the global economy rebounds. In China, manufacturing expanded for a 13th month, while European factories grew at the fastest pace since November 2006, figures released today showed. China’s Purchasing Managers ’ Index increased to 55.1 in March from 52 the previous month, Hong Kong-based Li & Fung Group said. A factory index based on a survey of euro-area purchasing managers rose to 56.6 last month from 54.2, according to London-based Markit Economics. A gauge of U.K. manufacturing reached a 15-year high. Readings above 50 indicate expansion. Jobless Claims Fall Fewer Americans filed claims for jobless benefits last week, according to the Labor Department in Washington. Initial jobless applications dropped by 6,000 to 439,000 in the week ended March 27. The average number of claims during the last four weeks fell to the lowest level since September 2008. The U.S. ISM’s gauge of export orders jumped to 61.5 in March, the highest since September 1989, from 56.5. The production index rose to 61.1 from 58.4 the prior month, and new orders index increased to 61.5 from 59.5. The supplier delivery gauge, a measure of the time it takes to receive goods, rose to 64.9 from 61.1 the prior month. The measure of orders waiting to be filled fell to 58 from 61. The index of prices paid rose to 75 from 67. The inventory index increased to 55.3, expanding for the first time since April 2006, from 47.3. A figure below 50 means manufacturers are reducing stockpiles. The employment index decreased to 55.1 from 56.1. Caterpillar Inc. , the world’s largest maker of construction equipment, in March said it plans to hire 500 workers this year to expand a generator plant in Newberry, South Carolina. Employment Forecast A report tomorrow from the Labor Department is forecast to show manufacturing jobs increased 14,000 in March, the third straight gain, according to the median estimate in a Bloomberg survey. All employers may have added about 180,000 workers to their payrolls during the month, an increase that reflects better weather than in February and temporary hiring by the federal government to conduct the 2010 census, the survey showed. Makers of business equipment are enjoying a pickup in investment, which advanced at a 19 percent annual rate in the final three months of 2009. It was the biggest gain since 1998, according to the Commerce Department. Honeywell, the Morris Township, New Jersey-based maker of controls for planes and buildings, this week raised its first- quarter profit forecast on stronger orders and cost controls. “We continue to see signs of recovery throughout our portfolio and are encouraged by improving customer order trends,” Chief Executive Officer David Cote said in a March 30 statement. Boeing Production Chicago-based Boeing, the world’s second-biggest commercial-plane maker, said it’ll boost production of its largest jets in coming years to meet stronger demand as airlines rebound from the recession-induced travel slump. Efforts to stabilize inventories provided the biggest boost to growth in the final three months of 2009, when the economy expanded at a 5.6 percent annual rate, the fastest in six years. Job gains are still needed to spur consumer spending, which accounts for about 70 percent of the economy. The Labor Department figures tomorrow may also show the jobless rate held at 9.7 percent. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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Video: Ore Says ISM Data Show U.S. Recovery Is Broadening: Video

April 1, 2010

April 1 (Bloomberg) — Norbert Ore, chairman of the Institute for Supply Management’s manufacturing business survey committee, talks with Bloomberg’s Mark Crumpton about a report today showing U.S. manufacturing grew in March at the fastest pace in more than five years. The ISM’s factory index rose to 59.6, the highest level since July 2004, exceeding the most optimistic forecast in a Bloomberg News survey of 77 economists. Readings greater than 50 signal growth. (Source: Bloomberg)

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China Leads Global Manufacturing Resurgence

April 1, 2010

By Simone Meier April 1 (Bloomberg) — China’s manufacturing expanded for a 13th month, business sentiment in Japan rose to the highest since 2008 and factories in Britain and the euro region stepped up output as the global economic recovery strengthened. The Purchasing Managers’ Index for China rose to a seasonally adjusted 55.1 in March from 52 the previous month, Hong Kong-based Li & Fung Group said today. In Japan, the Tankan index of sentiment jumped to minus 14 in March from minus 25 in December, while Europe’s manufacturing industry expanded at the fastest pace in more than three years. A gauge of U.K. manufacturing rose to a 15-year high. Surging economic growth in China is pulling the global economy out of its worst slump in more than six decades and benefiting companies from Honeywell International Inc. in the U.S. to Germany’s Bayerische Motoren Werke AG . Stocks around the world rallied on today’s data. In the U.S., the world’s largest economy, manufacturing probably expanded last month at the fastest pace since 2005. “It seems the epicenter of the global manufacturing cycle is in Asia,” said Ken Wattret , chief euro-area economist at BNP Paribas SA in London. “The sector is going strong, but what we see is a rebound from exceptional declines. The momentum is there, but we still have a long way to go.” The MSCI Asia Pacific Index climbed 1 percent to 126.40 in Tokyo today. The Stoxx Europe 600 increased 1.03 percent to 266.28, an 18-month high, at 11:28 a.m. in London, while futures on the Standard & Poor’s 500 Index rose 0.5 percent. Five Times The International Monetary Fund forecasts that the global economy will grow 3.9 percent this year after a 0.8 percent contraction in 2009 with China expanding 10 percent, almost five times the pace expected for the U.S. The euro area economy may expand 1 percent, the IMF forecast in January. In China, the acceleration may buttress the case for Premier Wen Jiabao ’s government to consider allowing gains in the yuan for the first time since mid-2008 and raising interest rates. Central bank Governor Zhou Xiaochuan said last month that “sooner or later” China will end the contingency measures it adopted during the global recession. “There’s a very strong pick-up in global trade,” said Jacques Cailloux , chief European economist at Royal Bank of Scotland Group Plc in London. “It’s a cycle that started in Asia led by China that’s now filtering through to developed economies and Europe in particular.” ‘Export Story’ Manufacturing in Germany, Europe’s biggest economy, expanded at the fastest pace in 14 years, today’s data showed. In Switzerland, a measure of manufacturing activity jumped last month to the highest in more than three years, while Ireland’s manufacturing industry grew for the first time since 2007. In the U.S., the Institute for Supply Management’s factory index , which will be released later today, probably rose to 57 in March from 56.5 in the prior month, according to a Bloomberg survey. Other reports may show fewer Americans filed claims for jobless benefits and construction dropped. Honeywell , the Morris Township, New Jersey-based maker of controls for planes and buildings, this week raised its first- quarter profit forecast on stronger orders and cost controls. BMW , the world’s biggest maker of luxury vehicles , last month forecast 2010 deliveries to rise with Chinese sales projected to show a “strong double-digit” percentage gain. “The expansion we’re seeing is largely an export story,” said David Tinsley , an economist at National Australia Bank in London. “So, even now you’ve got very robust rates of growth according to these PMI indices, it’s just covering some of the level lost. It’s not forging a new growth trajectory.” To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net .

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Dell Says India May Be Poised to Become New Technology Manufacturing Hub

March 25, 2010

By Mehul Srivastava, Connie Guglielmo, and Mary Childs March 26 (Bloomberg) — Dell Inc. Chief Executive Officer Michael Dell said in a conversation with Indian Prime Minister Manmohan Singh that the south Asian nation is poised to become a technology manufacturing center. The remarks came this week during a discussion with Singh about ways to boost hardware manufacturing in India, Dell spokesman David Frink said in an interview. The company denied an account of the discussion by Singh, who said Dell may be looking for a “safer environment” than China. “With the right kind of progress, Mr. Dell said that he believes India also has an opportunity to become a hardware manufacturing hub, generating employment and adding to that country’s impressive growth,” Frink said. India, Asia’s third-largest economy, needs to spend $1 trillion on roads, ports, power and other infrastructure between 2012 and 2017 to help accelerate economic growth to 10 percent and cut poverty, Singh said this week. Getting computer makers like Dell to invest in India rather than China is “an area where there are immense opportunities,” Singh said in a March 23 speech to members of India’s Planning Commission. Singh and Dell met a day after Google Inc. started routing China-based users to an unfiltered search service on its Hong Kong site. The move capped a standoff between China and Google, which in January said hackers in China stole data and targeted the e-mail accounts of human-rights activists. ‘Safer Environment’ Singh later said Dell was considering shifting purchasing of components from China to a “safer environment,” according to the text of the Indian official’s speech released by India’s Press Information Bureau . Dell denied that account and the Web site for the Press Information Bureau, where releases of Singh’s speeches are posted, no longer has a copy of the remarks. “There was no discussion concerning any change in how or from where Dell will source component parts for the computers it manufactures in Asia,” Minari Shah, a Dell spokeswoman, said in an e-mailed statement. Harish Khare, a media adviser to Singh, declined to comment. Dell said it has no plans to abandon its partners in China. The company currently spends about $25 billion a year on components from suppliers there. Companies besides Google have been reluctant to publicly criticize China, the world’s third-largest economy, over the country’s Internet policies and alleged human rights violations. Biggest, Fastest China accounted for more than 60 percent of all PCs shipped in the Asia-Pacific region last quarter, according to Gartner Inc. Shipments in that area climbed 44 percent, the fastest rate among the regions surveyed, according to the Stamford, Connecticut-based researcher. Still, India has lured technology investments as companies tap into its well-educated workforce. Dell has a design center in Bangalore. In 2007, the company opened a manufacturing and distribution hub in Chennai, according to the company’s Web site . Rival Hewlett-Packard Co. also operates a research lab in Bangalore, as does Microsoft Corp., which opened a research lab and software development center there in 2004. Cisco Systems Inc. , the biggest network-equipment maker, said earlier this month that it plans to boost its workforce in India faster than anywhere else to meet surging data traffic. CEO John Chambers said the number of employees is projected to rise to 10,000 from about 6,000 today, though he didn’t specify a timeframe for the expansion. Not Zero-Sum Dell should consider expanding manufacturing in India since it is a key market for its products, said Ashok Kumar, an analyst at Northeast Securities Inc. in New York. He doesn’t own any Dell shares. “India and China both see themselves as competitors for this economic opportunity, so it doesn’t have to be a zero-sum game,” Kumar said. “By sourcing and having larger manufacturing in India, they’re better positioned to service the local market.” Dell, based in Round Rock, Texas, fell 12 cents to $14.87 in Nasdaq Stock Market trading yesterday. The shares have climbed 3.6 percent this year. India and China are two of the fastest-growing markets for Dell , which has been working to revive sales and profit after losing top rankings in the PC market to Hewlett-Packard and Acer Inc. over the past three years. Sales in India were about $1 billion, or 2 percent of Dell’s total revenue. Dell is No. 2 in that market with a 13.6 percent share in the fourth quarter, according to researcher IDC, compared with Hewlett-Packard’s 16.2 percent. To contact the reporters on this story: Mehul Srivastava at msrivastava6@bloomberg.net ; Connie Guglielmo at cguglielmo@bloomberg.net

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Australian Economy Will Grow Faster Than Average, Reserve Bank’s Lowe Says

March 9, 2010

By Jacob Greber March 10 (Bloomberg) — Australia’s economy is likely to expand at or above its average pace over the next few years, stoking inflation pressures and house prices, central bank official Philip Lowe said. “We will need to keep a strong focus on improving the supply side of the economy so that demand can grow solidly without putting upward pressure on inflation ,” Assistant Governor Lowe said in Sydney today. “We also face the significant challenge of increasing the supply of housing at a time when business investment is also very high.” Reserve Bank of Australia policy makers led by Governor Glenn Stevens last week raised borrowing costs for the fourth time in five meetings to ensure the nation’s faster-than- forecast economic rebound doesn’t push inflation above their target range of 2 percent to 3 percent. Unlike other advanced economies, Australia’s consumer price gains aren’t expected to stay below the target for an extended period, Lowe said. “The central scenario for the Australian economy is a positive one with growth over the next couple of years at, or above, average, a relatively strong labor market, and inflation consistent with the medium-term target,” Lowe, who heads the central bank’s economic analysis and research departments, told a gathering of the Urban Development Institute of Australia. The assistant governor also said a proposal by senior staff at the International Monetary Fund for central banks to raise their inflation targets to 4 percent “does not seem particularly sensible.” History Lessons “As history has taught us, inflation distorts decision- making in the economy, discourages saving, and increases uncertainty about the future,” Lowe said. “Ultimately higher inflation means higher nominal interest rates.” Lowe’s remarks echo Governor Stevens’ view that the nation’s economy has been growing for some months at or close to “trend,” as a surge in Asian demand for minerals and energy prompts companies such as Chevron Corp. and BHP Billiton Ltd. to boost hiring and investment in new resources projects. Stevens increased the overnight cash rate target on March 2 by a quarter point to 4 percent, adding to similar moves in December, November and October. He is the first policy maker from a Group of 20 nation to raise borrowing costs this year. Gross domestic product grew last quarter at the fastest pace in almost two years, rising 0.9 percent from the three months through September, and advertisements for job vacancies jumped in February by the most in more than a decade, according to reports published in the past week. Spare Capacity “Australia starts the current expansion with considerably less spare capacity than earlier thought likely, and with less than at the starting point of previous expansions,” Lowe said. Employers added 194,600 jobs in the five months through January, the biggest increase in more than three years, driving the unemployment rate to an 11-month low of 5.3 percent, which is almost half the level in the U.S. and Europe. Another 15,000 jobs were created in February, a report will show tomorrow, according to the median estimate of 25 economists surveyed by Bloomberg News. Investment and productivity growth are the “obvious keys” to enable domestic demand to expand without causing inflation to accelerate, the assistant governor said. Business investment is currently equivalent to around 16 percent of GDP, which is “not far below its peak level in the past four decades and is expected to rise a little further over the next couple of years,” Lowe said. ‘Bear Fruit’ The capital spending is “starting to bear fruit” among mining companies where “significant increases in resource exports are expected,” he said. Business confidence increased in February for a second month, matching November’s seven-year high, according to a National Australia Bank Ltd. survey published yesterday. “Given that countries with relatively high returns on capital typically have relatively high real interest rates, it should not be surprising that interest rates in Australia are above those in other countries where the return on capital is currently much lower,” Lowe said. Australia also faces the challenge of building more homes to satisfy demand from a growing population, which has been increasing recently at around the fastest pace in 50 years, according to the central bank. “With population growth above average, and the growth in housing stock below average, it is not surprising that there has been upward pressure on housing costs,” Lowe said. House Prices House prices surged 11.8 percent in the year through January, according to a Feb. 26 report by real-estate monitoring company RP Data-Rismark. One issue will be whether Australia can deal with an increase in dwelling construction at a time when investment elsewhere in the economy is “also very high,” Lowe said. “If housing construction is very strong at the same time that the resources sector is expanding, there will be competing demands for a range of skilled workers and specialized services,” he said. “Managing these competing demands and ensuring the adequate supply of workers with appropriate skills will be a challenge.” To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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China Plans to Cut Infrastructure Spending as Wen Aims to Spur Consumption

March 4, 2010

By Bloomberg News March 5 (Bloomberg) — China pledged to pare spending on roads, railways and airports and boost outlays on health and social security as Premier Wen Jiabao seeks to raise the role of consumer spending in the world’s third-largest economy. “The domestic economy still faces some prominent problems,” Wen, 67, said in the text of a speech to the National People’s Congress, similar to the U.S. State of the Union address. He cited a surge in property prices, one result of the record fiscal stimulus and credit expansion from last year that was designed to counter the impact of the global recession. Today’s pledges include raising health and social security outlays by more than 8 percent and expanding pensions, efforts that may help boost consumer spending and ease a reliance on exports that tumbled last year. At the same time, Wen indicated no roll-back in the fiscal stimulus that spurred a rebound: the government targeted a deeper budget deficit for 2010. “Wen needs policy consistency to sustain the economic recovery, create enough jobs and maintain social stability,” Shen Minggao , chief economist for greater China at Citigroup Inc. in Hong Kong, said before today’s report. After budgeting for a record 950 billion yuan fiscal deficit in 2009, Wen today pledged a 1.05 trillion yuan shortfall this year to fund the second year of a 4 trillion yuan stimulus package. Spending on transportation will fall 2.7 percent, the government said. Growth Accelerated China’s growth accelerated to 10.7 percent, the fastest pace since 2007, in the fourth quarter of last year, partly because of record bank lending. “Last year’s meeting was all about policies to boost growth,” Tim Condon , a Singapore-based chief Asia economist at ING Groep NV, wrote before today’s meeting of lawmakers. “This year’s will be about adjusting policies to deal with some of the side effects of the policies put in place last year.” The government needs to tackle “the fastest money supply growth since the over-heating, hard-landing period” of the early 1990s, Condon said. The property market will probably weaken because the government has signaled that it wants prices to fall, billionaire Zong Qinghou , the chairman of Hangzhou Wahaha Group Co. , said March 3. China may struggle to fix economic imbalances because key leaders are nearing the end of their tenures and vested interests can block measures such as a property tax that could help to wean local governments from dependence on land sales and taxes on industrial production . ‘Election Mode’ “China’s in severe election mode,” said Jim McGregor , a senior counselor in Beijing at APCO Worldwide, a public-affairs group advising clients including China Cosco Holdings Co. , Asia’s biggest shipping company. “They have 2 1/2 years left in their term,” he said before the meeting. There is “a lot of jockeying for position.” Wen has said China’s growth model is unbalanced and unsustainable. In last year’s work report, the premier said that the nation faced “unprecedented difficulties and challenges” and he pledged to “significantly increase” spending to reverse an economic slide. In contrast, this year the central bank has twice raised lenders’ reserve requirements to cool the economy. Still, policy makers have left interest rates unchanged and also maintained the yuan’s effective peg to the dollar, which has kept the currency at about 6.83 since July 2008, aiding exporters as global demand remains weak. The Shanghai Composite Index has fallen about 13 percent from last year’s August high on concern that monetary tightening will slow growth and cut profits. After last year overtaking the U.S. as the biggest auto market and Germany as the largest exporter, China is poised to surpass Japan this year as the second-largest economy. The nation will contribute more than a third of global growth in 2010, according to Nomura Holdings Inc. — Li Yanping . Editors: Paul Panckhurst , Chris Anstey To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Turbines Blur Good View of U.S. Business Investment, Economist Feroli Says

March 4, 2010

By Courtney Schlisserman March 4 (Bloomberg) — Seasonal quirks in demand for turbines means the outlook for U.S. business investment isn’t as “dire” as implied by today’s factory orders report, according to economist Michael Feroli . Orders for non-defense capital goods excluding aircraft fell 4.1 percent in January and shipments, a measure used in calculating gross domestic product, declined 1.7 percent, a report today from the Commerce Department showed. The biggest component in both cases was turbines, which are expensive machines used to generate power. “The culprit here is turbines,” Feroli, an economist at JPMorgan Chase & Co. in New York, said in an interview. “You smooth it out and things weren’t as robust as they seemed in December, but maybe not as dire as they seemed in January.” Gains in manufacturing helped pull the economy out of the worst recession in seven decades last year, and continued strength is now needed to spur other parts of the economy. A report yesterday showed service industries expanded last month at the fastest pace in more than two years. The sheer size of turbine and generator orders may explain why they are the “most volatile” part of the factory orders report and therefore difficult to adjust for seasonal variations, said Chris Savage, an economist at the Census Bureau who works on the factory orders release. Each turbine can cost millions of dollars and companies may try to close deals at the end of the year, resulting in large increases in the measure in December followed declines in January, Savage said. The government’s figures show turbine and generator bookings have fallen in eight of the past 10 Januaries and shipments declined in every one of those years. Sustained Gains Excluding turbines and aircraft, another volatile component, shipments of capital goods climbed in the five months to January, when they increased 0.9 percent, Feroli said. The declines in orders and shipments of equipment reported today “don’t change our opinion that capital spending is recovering,” said Aaron Smith , an economist at Moody’s Economy.com in West Chester, Pennsylvania. “There’s always a tendency for the turbines and generator category to be weak in the first month of the quarter and stronger in the last month and that trend is particularly strong for the first part of the year.” The economy grew at a 5.9 percent annual pace in the fourth quarter of last year, the fastest in six years. Spending on equipment and software rose at an 18 percent annual pace during the period, the strongest rate of growth since 2000, according to Commerce Department data. Sentiment Measures Sentiment measures, which may not be as influenced as orders by the value of goods, are showing manufacturing has continued to prosper this year. The Institute for Supply Management’s manufacturing gauge showed expansion for a seventh straight month in February. Qualcomm Inc. , the world’s biggest maker of mobile-phone chips, said March 2 it expects second-quarter sales and profit to be at the higher end of its forecast range and cited improving handset shipments. The company’s customers are telling it that phone shipments are showing “respectable year-over-year improvements,” Chief Financial Officer Bill Keitel said at Qualcomm’s annual shareholder meeting. To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net .

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Stocks, Commodities Advance on Greek Deficit Cuts, U.S. Employment Report

March 3, 2010

By Mark Gilbert March 3 (Bloomberg) — Stocks and commodities rose as Greece’s Prime Minister George Papandreou announced plans to reduce Europe’s biggest deficit, while signs of an improving U.S. job market and more takeovers bolstered investor optimism. The MSCI World Index of equities in 23 developed nations increased 0.5 percent, while the Standard & Poor’s 500 Index advanced 0.2 percent at 9:45 a.m. in New York. Crude oil climbed above $80 a barrel in New York, while copper, lead, zinc and nickel advanced in London. The yield on the 10-year Greek government bond declined 20 basis points to 5.96 percent. The pound strengthened after six days of losses, its longest losing streak against the dollar since 2008. Greece announced an additional 4.8 billion euros ($6.6 billion) of budget cuts, including higher taxes and reduced salaries for civil servants, after European Union leaders called for greater austerity measures before considering aid. U.S. companies in February cut the fewest jobs in two years, according to ADP Employer Services data based on payrolls. “Latest soundings out of Greece are on balance positive,” said Padhraic Garvey , head of investment-grade debt strategy at ING Bank NV in Amsterdam. “This is paving the way for more clarity on how Greece will maneuver its deficit lower and manage to fund existing needs.” The S&P 500 rose for a fourth straight day as Novell Inc. rallied 28 percent on a takeover offer. Pfizer Inc., the world’s biggest drugmaker, was said to bid as much as $4.08 billion for Germany’s Ratiopharm GmbH. United Parcel Service Inc. rallied 1.3 percent after Goldman Sachs Group Inc. advised buying the shares. Greek Bonds Greek bonds rose, extending the longest run of gains since January. The extra yield investors demand to hold 10-year securities instead of benchmark German bunds declined 23 basis points to 282, the least since Feb. 11. The cost of insuring Greek government bonds against default fell, with credit swaps dropping 5 basis points to 315, according to CMA DataVision prices. The contracts soared to a record 428 on Feb. 4. The pound climbed 0.5 percent to $1.5052, snapping a six- day drop, the longest run of declines in 16 months. Sterling strengthened 0.4 percent to 90.58 pence per euro, its first gain in six days. The euro fluctuated against the dollar and the yen. Emerging Markets Gain The MSCI emerging markets gauge rose 0.6 percent, heading for the highest close since Jan. 21. The Bombay Stock Exchange Sensitive Index rose 1.4 percent after Nomura Holdings Inc. raised its growth forecast for India and a report showed the nation’s services industry expanded at the fastest pace in more than a year. Kazakhstan’s KASE Index climbed 0.5 percent while Egypt’s Hermes Index also rose 1.3 percent. The Stoxx Europe 600 Index increased 0.4 percent after earlier falling as much as 0.5 percent. Adidas AG, the world’s second-largest sporting-goods maker, dropped 5.4 percent in Frankfurt after posting a 64 percent drop in profit. Puma AG, the second-biggest European sporting-goods maker, slipped 2.4 percent. The MSCI Asia Pacific Index gained 0.6 percent. National Australia Bank Ltd. rose 2.3 percent in Sydney as government data showed the economy expanded at the fastest pace in almost two years. Toyota Motor Corp. gained 3.2 percent in Tokyo after February U.S. sales beat analysts’ estimates. Copper for delivery in three months rose 0.9 percent to $7,548 a metric ton on the London Metal Exchange and zinc gained 1.6 percent to $2,290 a ton. Gold for immediate delivery added 0.3 percent to $1,137.95 an ounce. To contact the reporter for this story: Mark Gilbert at magilbert@bloomberg.net

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Canada Keeps Benchmark Rate at 0.25%, Says Inflation Rate Above Forecast

March 2, 2010

By Greg Quinn March 2 (Bloomberg) — The Bank of Canada kept its benchmark interest rate at a record low today, and said that inflation and economic output have been higher than policy makers expected. The target rate for overnight loans between commercial banks remained at 0.25 percent, where it’s been since April, as predicted by all 22 economists surveyed by Bloomberg. The bank also repeated a pledge to leave it unchanged through June unless the “current” inflation outlook shifts. The economy grew at a 5 percent pace in the fourth quarter, Statistics Canada said yesterday, faster than the bank’s Jan. 21 prediction of 3.3 percent. Inflation has also accelerated close to the central bank’s 2 percent target. “Core inflation has been slightly firmer than projected, the result of both transitory factors and the higher level of economic activity,” the Ottawa-based bank said in a statement. Fourth quarter growth came from “vigorous domestic spending and further recovery in exports.” The bank said the expansion, which was the fastest in almost a decade, pushed Canada’s output to a level “slightly higher than the Bank had projected.” Governor Mark Carney has said there must be a transition towards private expenditures instead of government stimulus to create a sustained recovery. The bank’s statement dropped a reference made in January to inflation risks being “tilted slightly to the downside.” The statement also omitted a reference to the central bank having “flexibility” even with the key interest rate close to zero. Sending a Message “It doesn’t take huge changes in words to send a message,” said Doug Porter , deputy chief economist with BMO Capital Markets in Toronto before the announcement. “They have to slowly but surely set the landscape for rate hikes.” Canada’s annual inflation rate was 1.9 percent in January, the fastest pace in more than a year, Statistics Canada said Feb. 18. The so-called core inflation rate , which excludes gasoline and seven other volatile items, rose 2 percent, underscoring what Carney has called “stickiness” in that rate. Carney has also said Canada’s economy will operate with “slack” through the middle of 2011. Growth will be curbed by the Canadian dollar’s strength and a low volume of U.S. orders, the bank reiterated today. Canada’s dollar appreciated 25 percent against the U.S. dollar over the past 12 months to about 96.6 U.S. cents. “It’s better to move sooner than later but be less aggressive,” said Yanick Desnoyers , assistant chief economist at National Bank Financial in Montreal. He predicts an April rate increase. Spare Capacity Statistics Canada also revised its earlier growth figures to show the country’s first recession since 1992 was deeper than thought, with a 7 percent annualized contraction in the first quarter of last year. The capacity left in the economy means the bank can wait until after its June commitment ends to raise rates by a quarter point, Porter said. “It would take an awful lot to push the bank into an earlier move,” he said. The bank should raise its key lending rate in half-point moves after June, University of Western Ontario professor Michael Parkin said in a Feb. 23 paper. Taking the rate to 3.75 percent by mid-2011 is needed to keep inflation in check as an economic recovery is “taking hold,” Parkin wrote for the C.D. Howe Institute, a research group chaired by former Bank of Canada Governor David Dodge . The Bank of Canada will probably raise the key rate to 0.75 percent in the third quarter and to 1.25 percent by the end of the year, according to the median forecast of economists surveyed by Bloomberg News. A separate survey for the U.S. shows economists don’t expect the Federal Reserve to raise its benchmark rate to 0.75 percent until the fourth quarter. To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net .

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U.S. Durable-Goods Orders Rise More Than Estimated on Airplane Purchases

February 25, 2010

By Bob Willis Feb. 25 (Bloomberg) — Orders for U.S. durable goods rose more than forecast in January, boosted by a surge in bookings for commercial aircraft that masked a decline in demand for some business equipment. Bookings for goods meant to last several years jumped 3 percent last month after a revised 1.9 percent increase, figures from the Commerce Department showed today in Washington. Durable goods orders excluding transportation equipment unexpectedly fell 0.6 percent, the biggest drop since August. Factories may be taking a pause to gauge demand after boosting production in the second half of 2009 as companies replenished inventories. Restrained consumer spending and home sales underscore Federal Reserve Chairman Ben S. Bernanke’s comments yesterday that the recovery is “nascent” and still requires interest rates near zero. “Capital spending is probably still increasing but not at the robust pace we saw in the fourth quarter,” Michael Feroli , an economist at JPMorgan Chase & Co. in New York, said before the report. “It looks like in the first half the recovery is slowing from the pace we saw in the fourth quarter.” Economists forecast orders for all durable goods would rise 1.5 percent, according to the median forecast of 72 economists surveyed by Bloomberg News. Estimates in the Bloomberg survey ranged from a decline of 0.5 percent to a gain of 5 percent. Excluding demand for transportation equipment, which includes commercial aircraft and tends to be volatile month to month, orders were forecast to increase 1 percent. In the prior two months, those orders rose 2 percent. Boeing Orders The larger-than-expected increase in total durable goods orders reflected a 126 percent jump in demand for commercial aircraft. Boeing Co . said it received orders for 59 aircraft two months ago, up from nine in November and an increase that wasn’t captured in the Commerce Department’s durables data for December. The world’s second-biggest airplane maker said it received 10 orders in January. Orders for motor vehicles and parts dropped 2.2 percent in January after a 5.5 percent gain. Shipments of non-defense capital goods excluding aircraft, which are used in calculating gross domestic product, declined 1.5 percent in January after a 2.4 percent gain in December. Bookings for such goods, a proxy for future business spending, fell 2.9 percent last month. Orders for machinery slumped 9.7 percent in January, while demand increased for primary metals, communications equipment and computers. Fourth-Quarter Investment Purchases of equipment and software added 0.8 percentage point to fourth-quarter economic growth, according to Commerce Department figures released Jan. 29. Today’s figures suggest the pace of such investment may not be sustained in the current quarter. Spending on equipment and software rose at a 13.3 percent annual pace in the fourth quarter, the fastest since 2006, the Commerce Department said in the report on gross domestic product. Efforts to stabilize inventories accounted for 3.4 percentage points of the fourth quarter’s 5.7 percent pace of economic growth. Inventories of durable goods were unchanged in January after a 0.2 percent decrease, today’s report showed. Manufacturing, which accounts for 12 percent of the economy, expanded in January at the fastest pace since August 2004, according to the Institute for Supply Management’s factory index released Feb. 1. Global Demand Sales at manufacturers, wholesalers and retailers increased in the seven months through December, the Commerce Department reported Feb. 12. The rise left businesses with 1.26 months’ supply of goods on hand, the fewest since June 2008. Manufacturers are also benefiting from rising exports as global demand recovers after the worst slump since World War II. A 10 percent drop in the value of the dollar from a four-year high on March 3, 2009 is making American goods more competitive. Exports have risen for eight consecutive months since reaching a three-year low in April. “Private final demand does seem to be growing at a moderate pace,” Bernanke told lawmakers yesterday. The Fed chairman, who continues his semiannual testimony today, said slack labor markets and low inflation would allow the Fed to keep the benchmark lending rate low “for an extended period.” Some manufacturers are beginning to bring back workers or hire. Caterpillar , the world’s largest maker of bulldozers and excavators, is recalling about 100 laid-off technicians at an Indiana plant because of increased demand and may be hiring more, Bridget Young, a Caterpillar spokeswoman, said Feb. 18. Recalling Workers “Caterpillar may be recalling or hiring employees in business units at various facilities this year based on demand fluctuation,” Young said. Factories added 11,000 workers to payrolls in January, the first increase in three years and the most since April 2006, the Labor Department said on Feb. 5. Overall, payrolls declined by 20,000, and the unemployment rate fell to 9.7 percent. An absence of job growth is limiting optimism even as the economy expands. The Conference Board reported Feb. 23 that consumer confidence fell to a 10-month low in February, while a measure of current conditions slumped to the lowest level in 27 years. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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India’s Economy May Grow 8.2% Next Year, Creating Room for Stimulus Exit

February 25, 2010

By Cherian Thomas and Kartik Goyal Feb. 25 (Bloomberg) — India’s economic growth may accelerate to as much as 8.2 percent in the year starting April 1, providing room for a “gradual rollback” of fiscal stimulus, the finance ministry said before tomorrow’s budget. “The economy has posted a remarkable recovery from the global recession,” according to the annual Economic Survey prepared by officials advising Finance Minister Pranab Mukherjee , which was released in New Delhi today. “The recovery creates scope for a gradual rollback, in due course, of some of the measures undertaken over the last 15 to 18 months.” Mukherjee may raise excise tax by 2 percentage points and the service tax to 12 percent from 10 percent, Goldman Sachs Group Inc. said last week. India and China, the world’s fastest growing major economies, are withdrawing stimulus as consumer demand strengthens, stoking inflation and asset bubble concerns. India’s benchmark wholesale-price inflation accelerated to 8.6 percent in January, the fastest pace since October 2008. In China, where the economy grew 10.7 percent last quarter, property prices have surged 9.5 percent in January, the most in 21 months, as total new loans surged to 1.39 trillion yuan ($204 billion), more than in the previous quarter combined. Sixty percent of India’s inflation reading is contributed by food items after monsoon rains were deficient last year, the ministry said. Since December 2009, there have been signs of food-price inflation spreading to manufactured goods and services, the ministry said. “Inflation management therefore should involve controlling the demand situation as well as reining in inflationary expectations through various monetary measures,” the Indian finance ministry said. Budget Deficit Mukherjee is scheduled to unveil the budget for the fiscal year starting April 1 tomorrow at 11 a.m. in parliament in New Delhi. He had cut excise tax by 4 percentage points and stepped up government spending on roads and power since December 2008 to support the economy amid a global recession. The budget deficit may widen to 6.5 percent of GDP in the year ending March 31, a 16-year high, the ministry estimated today. India’s central bank governor Duvvuri Subbarao last month said the government must withdraw fiscal stimulus steps and cut the budget deficit to help cool inflation. The central bank, on its part, last month raised the proportion of deposits that lenders need to maintain as cash reserves to 5.75 percent from 5 percent to contain inflation. India must cut its debt to 68 percent of GDP by March 2015 from the current 82 percent, the ministry said, citing recommendations of the 13th Finance Commission, a government panel appointed to suggest a roadmap to reduce government debt. Savings Rate Mukherjee can start to reverse tax cuts as India’s $1.2 trillion economy may “breach” the 9 percent growth pace by March 2012, the finance ministry said, citing the country’s savings rates that now match those in Japan, South Korea and Malaysia. The economy may grow 7.2 percent in the year ending March 31, the nation’s statistics department said today. India’s savings rate is at 32.5 percent of gross domestic product compared with 28 percent in Japan, 30 percent in South Korea and 38 percent in Malaysia, according to the report. “Since these indicators are some of the strongest correlates of growth and do not fluctuate wildly, they speak well for India’s medium-term growth prospects,” the ministry said. “The savings rate is likely to rise further as the demographic dividend begins to pay off in India.” The finance ministry estimates 440 million Indians out of a total population of 1.2 billion are under the age of 18. India’s population will rise to 1.7 billion by 2050 and will overtake China as the world’s most populous nation, according to the United Nations. Rising Demand “It is entirely possible for India to move into the rarified domain of double-digit growth and even attempt to don the mantle of the fastest-growing economy in the world within the next four years,” the finance ministry said. Rising demand helped Tata Motors Ltd. , India’s largest truckmaker, post a 68 percent gain in sales in the three months ended December, while sales at Bajaj Auto Ltd, the second- largest motorcycle maker, more than doubled in January. Still, expansion in gross capital fixed formation, a proxy for investment growth, is at 5.2 percent, below the economic growth rate. That makes it necessary to watch the growth recovery in private investment in the fiscal third and fourth quarters while scaling back fiscal stimulus, the ministry said. To contact the reporters on this story: Cherian Thomas in New Delhi at cthomas1@bloomberg.net ; Kartik Goyal in New Delhi at kgoyal@bloomberg.net .

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King May Write U.K. Inflation Letter as Rate Poised to Reach 14-Month High

February 16, 2010

By Scott Hamilton Feb. 16 (Bloomberg) — U.K. inflation accelerated in January to the fastest pace in 14 months as an increase in sales tax pushed the rate high enough to prompt a public letter of explanation from Bank of England Governor Mervyn King . Consumer prices rose 3.5 percent from a year earlier, the most since November 2008, the Office for National Statistics said in London today. A reading deviating more than a percentage point from the bank’s 2 percent target requires King to write to Chancellor of the Exchequer Alistair Darling setting out his plans to return to the goal. The letter will be published at 10:30 a.m. in London, the central bank said. King predicted last week that this bout of inflation will ebb as slack caused by the recession curbs consumer-price pressures. The Bank of England, which paused its 200 billion- pound ($314 billion) emergency bond-purchase plan this month, is bracing for volatile data in the aftermath of the slump at a time when the looming election also clouds the economic outlook. “It’s a big overshoot, but the issue is less where about where it peaks, but how quickly it comes back,” Ross Walker , an economist at Royal Bank of Scotland Group Plc in London, said in a telephone interview before the announcement. “Inflation is going to fall back, I just don’t think it’s going to fall back anything like as quickly as the Bank of England projects.” The pound pared gains against the dollar after the report and was trading at $1.5699 as of 9:39 a.m. in London. Government bonds stayed higher, with the 10-year gilt yield at 4.05 percent. VAT Rate Reversal Inflation accelerated as prices of alcohol, tobacco, recreation, and bills at restaurants and hotels were pushed higher by Darling’s reversal of a 2.5 percentage-point cut in sales tax last month. Transport costs also increased, climbing 11 percent on the year, the most on record. Inflation has also accelerated as retail discounts in the depths of the recession a year earlier weren’t repeated and because of the pound’s decline of about a quarter on a trade- weighted basis in the past three years. The inflation rate matched the 3.5 percent median forecast of 30 economists in a Bloomberg News survey. On the month, prices fell 0.2 percent, the smallest drop for January since records began in 1997. Core inflation, which excludes costs of energy, food, alcohol and tobacco, accelerated to 3.1 percent in January, the fastest pace on record, the statistics office said. Economists had forecast 3.2 percent, according to the median of 11 predictions in a Bloomberg News survey. Short-Term Moves King said last week that the central bank can’t control short-term price moves as the pound’s weakness, higher commodity costs and the expiry of the sales-tax cut stoke consumer prices. Inflation will slow as low as 0.9 percent later this year and stay below the target as slack in the economy suppresses price pressures, the Bank of England said on Feb. 10. Today’s letter from King is the sixth since the bank was granted independence in setting interest rates in 1997. The governor said last week that it’s “far too soon” to say policy makers have finished buying bonds to aid the economy. “If inflation doesn’t start to fall back as rapidly as they project — and by the middle of this year we will have an early sense of that — that could be the point where their credibility starts to get tested a bit more,” RBS’s Walker said. The retail price index, a cost of living measure used in wage negotiations, showed a 3.7 percent annual increased, compared with 2.4 percent the previous month. Excluding mortgage interest payments, it rose 4.6 percent, t7he most since October 2008, the statistics office said. To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net .

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Video: Xie Says China Has to Raise Rates Soon to Stem Inflation: Video

February 12, 2010

Feb. 12 (Bloomberg) — Andy Xie, an independent analyst and former chief Asia economist at Morgan Stanley, talks with Bloomberg’s Jon Erlichman and Deirdre Bolton about the Chinese central bank’s policy and concerns about rising inflation in the nation. China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing economy. The reserve requirement will increase 50 basis points effective Feb. 25, the People’s Bank of China said on its Web site today. (Source: Bloomberg)

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China Raises Reserve Requirement for Second Time in a Month to Cool Growth

February 12, 2010

By Bloomberg News Feb. 12 (Bloomberg) — China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing major economy after loan growth accelerated and property prices surged. The reserve requirement will increase 50 basis points effective Feb. 25, the People’s Bank of China said on its Web site today. The current level is 16 percent for big banks and 14 percent for smaller ones. China’s policy makers aim to avert asset bubbles and restrain inflation after flooding the economy with money last year to drive the nation’s recovery from the first global recession since World War II. The central bank said yesterday that it wants to gradually normalize monetary conditions from a “crisis mode” after gross domestic product expanded a more- than-forecast 10.7 percent in the fourth quarter from a year earlier, the fastest pace in two years. “Liquidity continues to flood the financial system this year,” said Lu Zhengwei , a Shanghai-based economist at Industrial Bank Co. “The central bank needs to stay ahead of the curve by tightening before inflation starts to gain pace.” The central bank on Jan. 12 increased banks’ reserve requirements for the first time since June 2008 after a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009. New loans in January soared to more than the previous three months combined, prompting the central bank to impose even higher reserve ratios on some individual banks. Surging Loans January’s 1.39 trillion yuan of loans amounted to 19 percent of the 7.5 trillion yuan target set by the banking regulator for this year. M2 broad money supply rose 26 percent, compared with the central bank’s forecast of a 17 percent gain for this year as a whole. Shanghai’s property market is in a bubble and the government is trying to “take some heat out of the economy,” investor Jim Rogers , author of “A Bull in China,” said Jan. 19. Property prices surged 9.5 percent in January from a year earlier, the fastest pace in 21 months, after Premier Wen Jiabao pledged in the previous month to clamp down on real-estate speculation and keep inflation at “reasonable” levels. Inflows of so-called hot money from abroad are complicating the central bank’s efforts to soak up liquidity and reduce the risk that the economy will overheat. Consumer prices rose for a third month in January after nine months of deflation. Trade Boon Improved global trade may also aid China’s growth this year, with the customs bureau reporting a second straight increase in exports in January. Economists at the government-backed Chinese Academy of Social Sciences warned Jan. 11 that gross domestic product could expand as much as 16 percent in 2010 unless policy makers withdrew stimulus. While the central bank has reiterated it will maintain a “moderately loose” monetary policy stance this year, Governor Zhou Xiaochuan told reporters Feb. 9 that price increases will be “closely” monitored. According to a Jan. 22 note from DBS Holdings Ltd., Southeast Asia’s largest bank, “China has already been in exit-strategy mode for seven months” as policy makers gradually impose tightening measures. Besides record lending, a 4 trillion yuan, two-year stimulus package and subsidies for consumer purchases have driven China’s recovery. The nation has also kept its currency pegged at about 6.83 per dollar since July 2008 to aid exporters. To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

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India Says It Can’t Be Lax in Fighting Inflation as It Aims to Cool Prices

February 7, 2010

By Jacob Greber Feb. 8 (Bloomberg) — India can’t afford to be lax about fighting inflation as the nation seeks to slow price gains to 5 percent or less, central bank Deputy Governor K.C. Chakrabarty said yesterday. “You cannot afford to be in any way lax in monitoring inflation and controlling it,” Chakrabarty said in an interview in Sydney. “We would not like to have more than 4 or 5 percent inflation. That’s the challenge.” Central Bank Governor Duvvuri Subbarao raised the amount lenders are required to set aside as reserves last month to prevent excess money in the banking system from fanning price gains. India’s wholesale-food inflation rate rose to 17.56 percent in the week to Jan. 23, moving closer to an 11-year high and fueling speculation that Subbarao may raise interest rates. India’s “inflation is edging up, and that’s why you see we have already exited from the monetary stimulus, almost exited,” Chakrabarty said. “We hope that this will anchor inflation” expectations. Consumer-price inflation in India is the highest among Asia-Pacific countries, according to data compiled by Bloomberg. Prices paid by industrial workers rose 14.97 percent in December from a year earlier, the most in 11 years, while consumer-price inflation for farm workers in the country accelerated to 17.21 percent. The benchmark wholesale-price inflation rate was 7.31 percent in December, the highest in 13 months. Monsoon Rains Food costs are rising as the June-to-September monsoon rains, the main source of irrigation in Asia’s third-largest economy, were the weakest since 1972, hurting agriculture. The Reserve Bank of India hopes to cool inflation to 4 percent or 5 percent in 2011 or 2012, Chakrabarty said. Price gains won’t come to that level “so soon,” the deputy governor said, without saying if he was referring to consumer or wholesale prices. The central bank on Jan. 29 increased the so-called cash reserve ratio by 0.75 percentage points to 5.75 percent, a move it estimates will drain about 360 billion rupees ($7.7 billion) from the banking system. Subbarao left the benchmark reverse repurchase rate unchanged at 3.25 percent. “Our main policy instruments are all currently at levels that are more consistent with a crisis situation than with a fast-recovering economy,” Subbarao said at the time. “It’s therefore necessary to carry forward the process” of exiting them, he said, signaling the central bank may boost policy rates as growth strengthens. Growth Forecast The central bank raised its economic growth forecast to 7.5 percent in the fiscal year through March 2010, from an earlier estimate of 6 percent, and increased its inflation forecast to 8.5 percent from 6.5 percent. The Reserve Bank will give a forecast for the following year in April, Chakrabarty said. The government injected fiscal and monetary stimulus of more than 12 percent of gross domestic product between September 2008 and April last year, helping the South Asian nation’s economy grow 7.9 percent in the three months ended Sept. 30, the fastest pace in 18 months. Industrial production climbed 11.7 percent in November, the fastest pace in two years, as stimulus measures stoked demand for cars made by Maruti Suzuki India Ltd., the plasma screens of the Indian unit of LG Electronics Inc., and Hero Honda Motors Ltd. motorcycles. Global stocks plunged last week while bond default risks soared after Greece’s biggest union approved the second mass strike this month and tax collectors began a 48-hour walkout, showing that Prime Minister George Papandreou ’s parliamentary majority may not be enough to implement his plan to cut the European Union’s largest deficit. “Any time anywhere sovereign crisis is happening, we need to be cautious,” Chakrabarty said. “But we hope that we don’t have much exposure to these small countries until it affects the other economies. I think if it is controlled at the Greece level, I don’t think” it will spread. India’s financial markets “are more or less stable,” he added. “With higher growth it has to have the stability.” To contact the reporter on this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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China’s Property Market `Bubble’ Set to Burst on Lending Curbs, Xie Says

February 1, 2010

By Bloomberg News Feb. 2 (Bloomberg) — China’s property market “bubble” is set to burst as the government curbs credit growth and clamps down on speculation, according to independent economist Andy Xie . As bank lending slows, “it’s very difficult to see this demand continuing,” Xie, formerly Morgan Stanley’s chief Asian economist, told Bloomberg Television in Hong Kong today. Tougher property policies may lower 2010 sales volumes 10 percent, compared with an earlier forecast for growth of as much as 5 percent, BNP Paribas said in a report today. The Shanghai Composite Index has slid 10 percent this year, the worst performer among the 94 global gauges tracked by Bloomberg, on concern that China will add further lending curbs. Shanghai Mayor Han Zheng said Jan. 31 property prices are “too high,” undermining sustainable development of the nation’s commercial hub. Asset bubbles are the “real worry” as China emerges from the global financial crisis into a “boom time,” central bank advisor Fan Gang said in Beijing yesterday. Residential and commercial property prices in 70 Chinese cities rose 7.8 percent in December from a year earlier, the fastest pace in 18 months, the National Development and Reform Commission said. China’s economy expanded 10.7 percent in the fourth quarter, as the government’s 4 trillion yuan stimulus package and a record 9.59 trillion yuan of new loans last year fueled the fastest growth in two years. Speculation The government last month raised the amount of money banks are required to keep as reserves and re-imposed a sales tax on homes sold within five years of their purchase. Premier Wen Jiabao pledged in December to stabilize property prices, crack down on speculation and keep housing affordable. The government told banks to raise interest rates on third mortgages and demand bigger down-payments, a person with knowledge of the matter said. The China Banking Regulatory Commission warned lenders of the risks from “hot money” flowing into the property market, the person said, requesting anonymity because the agency hasn’t published the measures. Mortgage defaults are rising, the person said, without giving figures. “We’re seeing some significant measures that have been introduced in the last couple of weeks,” Xie said. “If these changes are implemented, the demand from third-flat buyers is going to dry up and it’s going to have a major impact.” Vacant Many properties bought for investment are now left vacant and rental yields are low, pointing to a “bubble,” Xie said. Shanghai Zendai Real Estate Co. agreed to pay 9.22 billion yuan ($1.35 billion) for a plot of land adjacent to the city’s riverside Bund area, according to the Shanghai Real Estate Trading Center. Zendai is paying 34,148 yuan per square meter for the lot, the highest per meter price paid for land in China this year, according to property Web site Soufun.com. “Developers paying record prices for land might get trapped this year,” Xie said. Property prices will be “flat” this year, BNP Paribas analysts Trevor Cheung and Frank Chen said in their report. — Chua Kong Ho , Haslinda Amin . Editors: Reinie Booysen , Linus Chua To contact the Bloomberg News staff for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net

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Video: Romer Expects Positive Jobs Growth by `Spring’ in U.S.: Video

January 29, 2010

Jan. 29 (Bloomberg) — Christina Romer, chairman of the White House Council of Economic Advisers, talks with Bloomberg’s Betty Liu about fourth-quarter U.S. economic growth and the outlook for jobs creation. The U.S. economy expanded a rate of 5.7 percent in the fourth quarter, the fastest pace in six years. Romer also discusses the confirmation of Federal Reserve Chairman Ben S. Bernanke to a second term. (Source: Bloomberg)

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Video: Silvia Says Economic Growth Continues at `Subpar’ Pace: Video

January 29, 2010

Jan. 29 (Bloomberg) — John Silvia, chief economist at Wells Fargo Securities LLC, talks with Bloomberg’s Betty Liu about U.S. fourth-quarter gross domestic product, which expanded at the fastest pace in six years as factories cranked up assembly lines to prevent inventories from plunging. GDP expanded 5.7 percent in the quarter, exceeding the median forecast of economists surveyed by Bloomberg News. (Source: Bloomberg)

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Mark Logic Names Jeff Miller to Board of Directors

January 12, 2010

SAN CARLOS, CA–(Marketwire – January 12, 2010) – Mark Logic® Corporation ( www.marklogic.com ), a leading provider of information infrastructure software, today announced the appointment of Jeff Miller to its board of directors. Miller is an accomplished senior executive and venture capitalist with over 30 years of experience working with some of the hottest software companies in Silicon Valley. From 1993 to 2001, he served as president and chief executive officer of Documentum, Inc., growing it to become one of the fastest growing technology companies in the world.

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India’s Industrial Output Growth Accelerates at Fastest Pace in 25 Months

January 12, 2010

By Kartik Goyal Jan. 12 (Bloomberg) — India’s industrial production grew at the fastest pace in 25 months in November, strengthening the case for the central bank to raise interest rates in the first half of this year. Output at factories, utilities and mines rose 11.7 percent from a year earlier after increasing 10.3 percent in October, the statistics agency said in New Delhi today. The gain exceeded the median estimate of 10 percent estimate in a Bloomberg News survey of 25 economists. The acceleration of India’s economy, Asia’s third-largest, parallels a rebound in China that may also lead policy makers there to boost borrowing costs in coming months. India’s biggest stock-market advance in 18 years, along with fiscal and monetary measures, have stoked demand for cars made by Maruti Suzuki India Ltd . and plasma screens from LG Electronics Inc. “The RBI will prefer to normalize the monetary setting following the aggressive and successful easing to cushion the economy,” said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore, said before the report. The Reserve Bank of India will raise ratio of assets that banks must hold in cash at or before its next policy review on Jan. 29, he added. Bonds, Stocks India’s bonds fell and stocks rose after the report. The yield on the 10-year government note gained 6 basis points to 7.71 percent as of 12:12 p.m. in Mumbai, according to the central bank’s trading system. The Bombay Stock Exchange’s Sensitive Index, or Sensex, gained 0.4 percent to 17,587.21 at 12:02 p.m. Economies are recovering across Asia after the region’s policy makers unveiled about $1 trillion in stimulus measures and cut rates to spur growth. China’s industrial production rose 19.2 percent in November and its exports climbed 17.7 percent in December. Recent data show growth is gaining traction in India as well, with manufacturing rising at the fastest pace in seven months in December, according to the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics. Exports surged to a 15-month high in December after rising 18.2 percent in November, the first increase in 14 months. RBI Governor Duvvuri Subbarao “should begin monetary action by shrinking the excess liquidity in the local money markets and then move to increasing policy rates around March and April,” Macquarie’s Malik said. The central bank “will be concerned about the excess liquidity and second-order inflationary effects of high food inflation.” Food Prices India’s benchmark wholesale-price inflation rate rose to 4.78 percent in November, more than three times October’s 1.34 percent. Wholesale food prices soared 18.22 percent in the week to Dec. 26 from a year earlier, near the most in 11 years. “With both growth and inflation heading toward 8 percent, we expect the Reserve Bank of India to start increasing its policy rates in January,” said Sonal Varma , a Mumbai-based economist at Nomura Securities Co., Japan’s largest brokerage. Subbarao slashed the cash reserve ratio by 400 basis points to 5 percent between October 2008 and January 2009 to shield the economy from the global recession. The central bank has left its reverse repurchase rate and repurchase rate unchanged since April, after respective cuts of 2.75 percent and 4.25 percent. By comparison, China’s one-year lending is at a five-year low of 5.31 percent and its one-year deposit rate is 2.25 percent. Fridges, TVs Manufacturing output increased 12.7 percent in November from a year earlier, accelerating from an 11.1 percent gain in October, today’s report showed. Mining grew 10 percent, compared with 9 percent in the previous month and electricity rose 3.3 percent from 4.7 percent. Production of consumer durables such as refrigerators and televisions surged 37.3 percent in November, compared with a 20.2 percent gain. Prime Minister Manmohan Singh last year cut taxes on consumer products, increased spending on roads and utilities, raised salaries for government workers and waived farm loans. The central bank injected about $130 billion into India’s banking system by reducing interest rates and lowering lenders’ reserve requirements. That helped the $1.2 trillion economy to grow 7.9 percent in the three months ended Sept. 30, the most in 1 1/2 years. Faster growth has attracted overseas inflows into stocks, taking the Sensitive Index to the highest in 18 years in 2009. The rupee gained 4.8 percent. Surpassing China India’s growth may quicken to 10 percent in a “couple of years,” exceeding that of China as early as 2014, Kaushik Basu , chief economic adviser to the South Asian nation’s finance ministry, said Jan. 4. The government has no plans to “suddenly” withdraw last year’s stimulus, he said. The strength of the Indian economy is enticing foreign companies to expand and set up operations. Toyota Motor Corp., Volkswagen AG and other carmakers introduced 10 new models at the Delhi Auto show last week. Passenger car sales hit 1.43 million units in 2009, the most in three years, according to the Society of Indian Automobile Manufacturers on Jan. 8. ArcelorMittal, the world’s biggest producer of steel, and Posco, the sixth-biggest maker of the alloy, plan to set up new steel mills in southern India. Posco will invest 323 billion rupees ($7 billion) on a mill in Karnataka state, the regional government said Jan. 7. ArcelorMittal plans to sign an accord in June for a 300 billion-rupee project in the same state. To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

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Scott Neslund Joins Red Bricks Media as CEO

January 11, 2010

Former Mindshare CEO Takes Reins of One of the Fastest-Growing Agencies in Country as Major Advertisers Turn to Independent Digital Shops for Thought Leadership; Marks Enhanced Significance of New York Office

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Chinese Central Bank Guides Bill Yields Higher in a `Signal of Tightening’

January 7, 2010

By Bloomberg News Jan. 7 (Bloomberg) — China’s central bank sold three-month bills at a higher interest rate for the first time in 19 weeks after saying its focus for 2010 is controlling the record expansion in lending and curbing price increases. Stocks fell across Asia and oil declined on concern growth will slow in China, the engine of the world economy’s recovery from its worst recession since World War II. The People’s Bank of China offered 60 billion yuan ($8.8 billion) of bills at a yield of 1.3684 percent, four basis points higher than at last week’s sale, according to a statement . “It’s definitely a signal that the central bank is tightening liquidity,” said Jiang Chao , a fixed-income analyst in Shanghai at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “The rising yield is used to prevent excessive growth in bank lending.” Premier Wen Jiabao said on Dec. 27 that last year’s doubling in new loans had caused property prices to rise “too quickly,” while surging commodity costs were increasing inflationary pressure. Guiding market rates higher may be a prelude to raising reserve requirements or benchmark interest rates, said Shi Lei , a Beijing-based analyst at Bank of China Ltd., the nation’s third-largest lender. The MSCI Asia Pacific Index of regional stocks fell 0.5 percent and oil for February delivery slid 0.7 percent after 10 days of gains. Copper for three-month delivery dropped 0.7 percent. The Shanghai Composite Index fell 1.9 percent, led by Bank of China Ltd. and Industrial & Commercial Bank of China Ltd. Tightening in Asia “We expect some tightening of monetary policy in Asia in the first half,” said Norman Villamin , Singapore-based head of investment analysis for Asia Pacific at Citigroup Private Bank. “Markets will struggle to go higher.” Australia’s central bank raised borrowing costs by a quarter percentage point on Dec. 1 to 3.75 percent after similar moves in November and October. The Bank of Korea, which meets tomorrow, will probably raise its benchmark rate one percentage point to 3 percent by end-2010, according to a Bloomberg survey of economists. By contrast, the Federal Reserve target rate is close to zero and policy makers last month discussed increasing asset purchases should the economy weaken. Policy makers will seek “moderate” loan growth while managing inflation expectations, the People’s Bank said yesterday in a report on its annual work meeting. The government has told lenders to pace lending, while tightening mortgage rules for second-home purchases. Liu Mingkang , the top banking regulator, wrote in an opinion piece in Bloomberg News this week that “structural bubbles threaten to emerge” in the economy. Bill Sales Guotai Junan’s Jiang said the yield on benchmark one-year bills will climb in open-market operations next week. The central bank resumed sales of those bills on July 9 after an eight-month suspension to help drain cash from banks. The central bank is set to withdraw 137 billion yuan from the financial market this week, the biggest since the week ended on Oct. 23, according to data compiled by Bloomberg News. China’s one-year interest-rate swap , the cost of receiving a floating rate for 12 months, rose 10.5 basis points to 2.24 percent. A basis point is 0.01 percentage point. The central bank kept the benchmark one-year lending rate at a five-year low of 5.31 percent last year after five reductions in the last four months of 2008. It may rise to 5.85 by the end of 2010, according to a Bloomberg News survey of 29 economists in November. Lending Boom “There’s no doubt that lending has been excessive and that explains why policy makers are starting to be more cautious about lending this year,” said Qu Hongbin , chief China economist for HSBC Holdings Plc in Hong Kong. Qu estimates new loans will be limited to 7 trillion yuan in 2010. Banks extended an unprecedented 9.21 trillion yuan of loans in the first 11 months of 2009, compared with 4.15 trillion yuan a year earlier. The People’s Bank said it would curb volatility in lending and monitor the property market, while reaffirming a “moderately loose” monetary policy. The statement contrasted with the start of 2009, when the central bank targeted “appropriate” increases in lending and said monetary policy would play “a more active role in promoting economic growth.” Consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of declines. The central bank is on alert for inflation after economic growth accelerated to 8.9 percent in the third quarter of 2009, the fastest in a year. Property Prices Housing Minister Jiang Weixin said yesterday that the nation will limit credit for some home purchases to reduce property-market speculation. Prices across 70 cities rose at the fastest pace in 16 months in November, gaining 5.7 percent from a year earlier, led by Shenzhen, Wenzhou and Jinhua. The central bank didn’t state a 2010 target for growth in M2, the broad measure of money supply , after overshooting a 17 percent goal last year. The actual rate was more than 25 percent for most of 2009, rising to a record 29.7 percent in November. “Growth will probably slow this year as tight credit will dampen the demand side,” said Zhang Ling , who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “That will dash investors’ hopes of another year of fast growth.” — Zhang Dingmin , Luo Jun , Sophie Leung , Judy Chen . Editors: Paul Panckhurst , James Regan To contact Bloomberg News staff for this story: Dingmin Zhang in Beijing at +86-10-6649-7576 or dzhang14@bloomberg.net Jun Luo in Shanghai at +86-21-6104-7021 or jluo6@bloomberg.net

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Chinese Central Bank Guides Bill Yields Higher in `Signal of Tightening’

January 6, 2010

By Bloomberg News Jan. 7 (Bloomberg) — China’s central bank sold three-month bills at a higher interest rate for the first time in 19 weeks after saying yesterday that it will target a “moderate” expansion in lending in the fastest-growing major economy. The People’s Bank of China offered 60 billion yuan ($8.8 billion) of bills at a yield of 1.3684 percent compared with 1.3280 percent on Dec. 29, according to a statement posted on its Web site today. The increase added to signs that the government won’t allow a repeat of last year’s record expansion in credit. Policy makers need to support “relatively fast” economic growth while stabilizing prices and managing inflation expectations, the People’s Bank of China said in a statement after an annual work meeting. “It’s definitely a signal that the central bank is tightening liquidity,” said Shanghai-based Jiang Chao , a fixed- income analyst at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “The central bank may want to show its determination to control inflation. Also, the rising yield is used to prevent excessive growth in bank lending.” The Shanghai Composite Index slipped 0.2 percent, retreating for a second day. The yield on the 2.18 percent treasury note due September 2012 climbed three basis points to 2.45 percent, according to quotes provided by the China Interbank Bond Market. Inflation Risk China is trying to cement a recovery while preventing excessive liquidity in the financial system from causing resurgent inflation, asset bubbles and bad debts for banks. Property prices are surging in some cities and Liu Mingkang , the top banking regulator, wrote in an opinion piece in Bloomberg News this week that “structural bubbles threaten to emerge.” “There’s no doubt that lending has been excessive and that explains why policy makers are starting to be more cautious about lending this year,” said Qu Hongbin , chief China economist for HSBC Holdings Plc in Hong Kong. Guotai Junan’s Jiang said the yield on one-year bills will climb in open-market operations next week, following the resumption of gains for rates on three-month notes. The yield will increase about four basis points from the 1.7605 percent level it’s been kept at since Aug. 11, he predicted. The central bank resumed sales of one-year bills on July 9 after an eight-month suspension to help drain cash from banks. Higher bill yields may encourage lenders to part with more cash, reducing funds in the banking system available for loans. Lending Boom Qu estimates new loans will be limited to 7 trillion yuan ($1 trillion) in 2010. Banks including Industrial & Commercial Bank of China Ltd., the world’s biggest by market value, extended an unprecedented 9.21 trillion yuan of loans in the first 11 months of 2009, compared with 4.15 trillion yuan a year earlier. Lending was biggest in the first half of 2009. Premier Wen Jiabao said Dec. 27 that it would be better if lending weren’t on such a large scale. He also said that China should anticipate inflation because of factors including rising global commodity costs, pledging to limit price increases. The China Banking Regulatory Commission’s recommended range for lending this year is between 7 trillion yuan and 8 trillion yuan, a person familiar with the matter said last month. Banks should guard against risks including overly-rapid credit growth, the People’s Bank of China said yesterday. ‘Moderately Loose’ Policy The central bank said it would curb volatility in lending, monitor the property market and “stabilize the stock market’s operations,” without elaborating on the latter comment. It reaffirmed a “moderately loose” monetary policy. The statement contrasted with the start of 2009, when the central bank targeted “appropriate” increases in lending and money supply and said monetary policy would play “a more active role in promoting economic growth.” Policies may be adjusted this year according to the performances of the domestic and international economies, the global financial crisis, and liquidity levels, the People’s Bank of China said. Consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of declines. The central bank is on alert for inflation after economic growth accelerated to 8.9 percent in the third quarter of 2009, the fastest in a year. Property Prices The government has pledged to curb excessive property-price increases in some parts of the country and Housing Minister Jiang Weixin said yesterday that the nation will limit credit for some home purchases to reduce speculation. Prices across 70 cities rose at the fastest pace in 16 months in November, gaining 5.7 percent from a year earlier, led by Shenzhen, Wenzhou and Jinhua. The central bank will “closely watch changes in the property market, strictly implement relevant property lending policies and promote the healthy development of property finance,” its statement said. The People’s Bank of China will also seek to prevent “abnormal volatility” in lending between quarters and at the ends of months, it said. The central bank didn’t state a 2010 target for growth in M2, the broad measure of money supply , after overshooting a 17 percent goal last year. The actual rate was more than 25 percent for most of 2009, rising to a record 29.7 percent in November. The central bank said it will ensure adequate credit growth, guide the pace of lending and encourage the flow of money into existing projects rather than new ones. The People’s Bank of China reaffirmed its commitment to a “stable” yuan and said it will aim for balanced international payments. China has rebuffed calls from the U.S. and Europe to let the market set the exchange rate, pegging the yuan at about 6.83 per dollar since July 2008 to help exporters weather the global slump. — Zhang Dingmin , Luo Jun , Sophie Leung , Judy Chen . Editors: Paul Panckhurst , James Regan To contact Bloomberg News staff for this story: Dingmin Zhang in Beijing at +86-10-6649-7576 or dzhang14@bloomberg.net Jun Luo in Shanghai at +86-21-6104-7021 or jluo6@bloomberg.net

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China Targets `Moderate’ Loan Growth in 2010 Amid Inflation, Bubble Risks

January 6, 2010

By Bloomberg News Jan. 7 (Bloomberg) — China’s central bank said it will target “moderate” loan growth in 2010, adding to signs that policy makers won’t allow a repeat of last year’s record expansion in credit. Policy makers need to support “relatively fast” economic growth while managing inflation expectations, the People’s Bank of China said in a statement on its Web site yesterday after an annual work meeting. China is trying to cement a recovery while preventing excessive liquidity in the financial system from causing resurgent inflation, asset bubbles and bad debts for banks. Property prices are surging in some cities and Liu Mingkang , the top banking regulator, wrote in an opinion piece in Bloomberg News this week that “structural bubbles threaten to emerge.” “There’s no doubt that lending has been excessive and that explains why policy makers are starting to be more cautious about lending this year,” said Qu Hongbin , chief China economist for HSBC Holdings Plc in Hong Kong. Qu estimates new loans will be limited to 7 trillion yuan ($1 trillion) in 2010. Banks including Industrial & Commercial Bank of China Ltd., the world’s biggest by market value, extended an unprecedented 9.21 trillion yuan of loans in the first 11 months of 2009, compared with 4.15 trillion yuan a year earlier. Lending was biggest in the first half of 2009. Premier Wen Jiabao said Dec. 27 that it would be better if lending weren’t on such a large scale. He also said that China should anticipate inflation because of factors including rising global commodity costs, pledging to keep price increases in a “reasonable range.” Lending Volatility China’s central bank said yesterday that it would curb volatility in lending, monitor the property market and “stabilize the stock market’s operations,” without elaborating on the latter comment. It reaffirmed a “moderately-loose” monetary policy. Consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of deflation. The central bank is on alert for inflation after the economy accelerated to expand 8.9 percent in the third quarter of 2009, the fastest pace in a year. The government has pledged to curb excessive property-price increases in some parts of the country and Housing Minister Jiang Weixin said yesterday that the nation will limit credit for some home purchases to reduce speculation. Prices across 70 cities rose at the fastest pace in 16 months in November, gaining 5.7 percent from a year earlier, led by Shenzhen, Wenzhou and Jinhua. ‘Close Watch’ on Property The central bank will “closely watch changes in the property market, strictly implement relevant property lending policies and promote the healthy development of property finance,” its statement said. The People’s Bank of China will also seek to prevent “abnormal volatility” in lending between quarters and at the ends of months, it said. The central bank didn’t state a 2010 target for growth in M2, the broad measure of money supply , after overshooting a 17 percent goal last year. The actual rate was more than 25 percent for most of 2009, rising to a record 29.7 percent in November. The central bank said it will ensure adequate credit growth, guide the pace of lending and encourage the flow of money into existing projects rather than new ones. The People’s Bank of China reaffirmed its commitment to a “stable” yuan and said it will aim for balanced international payments. China has rebuffed calls from the U.S. and Europe to let the market set the exchange rate, pegging the yuan at about 6.83 per dollar since July 2008 to help exporters weather the global slump. For Related News and Information: Most-read stories on China: MNI CHINA 1W Most-read China economy stories: TNI CHECO MOSTREAD BN For top economic news: TOP ECO For top China news: TOP CHINA Credit crunch page: WCC Government relief programs: GGRP

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Asian Stocks Advance on China Manufacturing, Stronger Dollar; Honda Rises

January 3, 2010

By Masaki Kondo Jan. 4 (Bloomberg) — Asian stocks rose after Chinese manufacturing expanded in December and a stronger dollar boosted the earnings outlook for Japanese car and electronics manufacturers. Nippon Yusen K.K., Japan’s biggest shipping line, added 1.4 percent in Tokyo on optimism trade with China will rise. Honda Motor Co., which gets 42 percent of its revenue from North America, gained 1.9 percent. Japan Airlines Corp. soared 31 percent after the government said the Development Bank of Japan will double the amount of credit it will provide for the carrier. The MSCI Asia Pacific Index rose 0.5 percent to 121.08 as of 10:51 a.m. in Tokyo. The gauge advanced 34 percent last year, the steepest annual climb since 2003 as lower interest rates and stimulus packages helped drag the global economy out of the worst slowdown since World War II. “Asia is expected to remain the engine of growth for the world’s economy,” said Hiroshi Morikawa , a senior strategist at MU Investments Co., which manages the equivalent of $13 billion in Tokyo. “The first trading day of a year is often seen as a predictor of the year’s market climate. People are hoping this year will be better than last year and become more responsive to good news.” The Nikkei 225 Stock Average rose 1.3 percent in Tokyo after a four-day recess. Australia’s S&P/ASX 200 Index added 0.2 percent even as a manufacturing index shrank in December for the first time in five months. Futures on the Standard & Poor’s 500 Index added 0.5 percent. The gauge fell 1 percent on Dec. 31 as falling jobless claims raised speculation the economy was improving enough to allow the central bank to reduce stimulus measures. Government figures showed initial jobless claims in the week ended Dec. 26 fell to the lowest level since July 2008. Last year’s jump boosted the price-book value ratio of the MSCI Asia Pacific Index to 1.61 times, the highest level since September 2008, data compiled by Bloomberg show. China’s Purchasing Managers’ Index climbed to a seasonally adjusted 56.6, the Federation of Logistics and Purchasing said on Jan. 1. It was the fastest expansion in 20 months. South Korean exports increased 33.7 percent in December from a year earlier, the fastest pace in 17 months, the Ministry of Knowledge Economy said on Jan. 1. That exceeded the 27.9 percent gain projected by economists. The yen weakened to as much as 93.15 per dollar on Dec. 31, a level not seen since Sept. 7, and traded at 92.88 today. A weaker yen increases the value of overseas sales at Japanese companies when converted into their home currency. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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South Korea’s Exports Rise at Fastest Pace in 17 Months as Demand Revives

December 31, 2009

By Shinhye Kang and Seyoon Kim Jan. 1 (Bloomberg) — South Korea’s exports increased at the fastest pace in 17 months, adding to signs that Asia’s fourth-largest economy is recovering from the global recession. Overseas shipments gained 33.7 percent in December from a year earlier to $36 billion, the Ministry of Knowledge Economy said today in Gwacheon. That was more than the median 27.9 percent forecast in a Bloomberg News survey of 10 economists. Imports rose 24 percent to $32.9 billion for a trade surplus of $3.3 billion. Higher overseas sales suggest a strengthening recovery in South Korea’s $929 billion economy, which grew 3.2 percent in the third quarter. Exports in November 2008 recorded their biggest fall of the year as the financial crisis weakened demand, providing a low-base comparison for the figures released today. “Exports will post growth for the coming months given the low base from last year and also as demand from overseas rises,” said Kim Jae Eun , an economist at Hyundai Securities Co. in Seoul. “South Korea should benefit from orders from China and emerging nations less affected by the global recession.” Hyundai Motor Co. and other South Korean carmakers may sell 1.4 million vehicles in the domestic market this year from an estimated 1.37 million in 2009, the Korea Automobile Manufacturers Association said in December. Hyundai Heavy Industries Co., the world’s biggest shipbuilder, aims to win $17.7 billion in new orders in 2010. Markets Closed For 2009, the country’s trade surplus reached $41 billion as imports dropped 25.8 percent while exports declined 13.8 percent, according to separate figures released by the ministry. South Korea’s financial markets are closed for a public holiday today. The nation’s benchmark Kospi stock index gained 50 percent last year, the most since 2005. South Korean exports will increase 13.2 percent this year, after a 13.9 percent decline in 2009, the finance ministry said last month. Earlier reports showed industrial production climbed 1.4 percent from October while an index of leading economic indicators and manufacturers’ confidence increased. South Korean President Lee Myung Bak said Dec. 30 the nation’s economy is likely to expand more than 5 percent in 2010, the fastest pace in three years helped by exports and domestic spending. Both the finance ministry and the central bank in December raised economic growth forecasts for 2009 and 2010. To contact the reporters on this story: Shinhye Kang in Seoul at skang24@bloomberg.net ; Seyoon Kim in Seoul at skim7@bloomberg.net

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ISM December: U.S. Companies’ Growth Is On Fastest Pace Since 2006

December 30, 2009

Dec. 30 (Bloomberg) — Companies in the U.S. expanded in December at the fastest pace in almost four years, signaling the economic recovery is gaining speed heading into 2010. The Institute for Supply Management-Chicago Inc. said today its barometer rose to 60, exceeding the most optimistic estimate of economists surveyed by Bloomberg News and the highest level since January 2006. The gauge, in which readings greater than 50 signal expansion, showed companies boosted production and employment as orders climbed.

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Chinese Foreign Direct Investment Jumps 32% on Lure of Economy’s Recovery

December 15, 2009

By Bloomberg News Dec. 16 (Bloomberg) — Foreign direct investment in China climbed at the fastest pace in 16 months in November, aiding the recovery in the world’s third-largest economy. Investment rose 32 percent from a year earlier to $7.02 billion, the Ministry of Commerce said at a briefing in Beijing today. That compared with a 5.7 percent increase in October. Investment fell 9.9 percent in the first 11 months of the year, the government said. China’s economy grew at the fastest pace in a year in the third quarter and the expansion will be 9.3 percent in 2010, according to the median forecast of a Bloomberg News survey of analysts. Fast-growing developing nations will lure funds away from advanced economies for the next 10 to 20 years, according to Thomas Deng , head of China strategy at Goldman Sachs Group Inc. in Hong Kong. “China’s recovery, and especially the expanding consumer market, will continue to attract foreign investors,” said Xing Ziqiang , an economist at China International Capital Corp. in Beijing. “The Chinese market may be the brightest spot for growth for many multinational companies this year.” Luxury car maker Bayerische Motoren Werke AG said last month that it will build a new factory worth 5 billion yuan ($732 million) in China to tap an auto market set to overtake the U.S. as the world’s largest. Foreign direct investment will grow steadily in the next few months and may stay within the $7 billion to $8 billion monthly range attracted since August, the ministry said. Accelerating Pace “China’s long-term growth potential is bringing foreign capital into the country at an accelerating pace in the second half,” said Dariusz Kowalczyk , chief investment strategist at SJS Markets Ltd. in Hong Kong. Inflows of foreign direct investment have climbed for four months and that bodes well for private investment in a country that this year has garnered most of its growth from government- linked investment, said Kowalczyk. “It’s important for policy makers to see that the private sector can pick up the baton at some point,” he said. “The fact that the foreign private sector is recovering and investing quite a lot is definitely positive.” Developing economies will expand 5.1 percent in 2010 compared with 1.3 percent in advanced nations, according to the International Monetary Fund . China’s industrial output grew more than economists estimated last month and exports fell the least in 13 months, confirming the nation’s role as the leader of the world recovery. In China, gross domestic product will expand 10.5 percent this quarter, helping the government to top its 8 percent target for the year, according to the median estimate of 38 economists. The Shanghai Composite Index has gained more than 80 percent this year. — Li Yanping , Kevin Hamlin . Editors: Paul Panckhurst , Lily Nonomiya To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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China November Industrial Output Rises 19.2%, Above Economists’ Estimates

December 10, 2009

By Bloomberg News Dec. 11 (Bloomberg) — China’s industrial production grew more than economists estimated in November, signaling the economic recovery is strengthening. Factory output climbed 19.2 percent from a year earlier, accelerating from 16.1 percent in October and more than the 18.2 percent median estimate in a Bloomberg News survey of 25 economists. Consumer prices rose 0.6 percent, the first increase in 10 months, the statistics bureau said in Beijing today. A $586 billion stimulus package, record bank lending and incentives for purchases of cars and home appliances are supporting industrial output, which will get another boost as exports recover. China’s government this week fine-tuned its growth policies by extending subsidies for rural consumers and increasing payments for automobile trade-ins, while scrapping a tax break on property sales. “Beijing’s fine-tuning of stimulus measures shows that it’s getting more comfortable with the economy’s recovery,” said Lu Ting , an economist at Bank of America-Merrill Lynch in Hong Kong. “The government may start to exit stimulus via curbing investment and loans from April.” The Shanghai Composite Index added 6.04, or 0.2 percent, to 3,260.31 as of 10:08 a.m. local time, erasing a loss of as much as 0.3 percent. China’s growth accelerated to 8.9 percent in the third quarter, helping Asia to lead the recovery from the global economic slump. Retail Sales November’s gain in industrial output was boosted by the comparatively low level a year earlier, when exports and growth slumped after the collapse of Lehman Brothers Holdings Inc. Retail sales climbed 15.8 percent in November from a year earlier, compared with 16.2 percent in October, according to the statistics bureau. Urban fixed-asset investment rose 32.1 percent in the January-to-November period from a year earlier after climbing 33.1 percent through October, today’s data showed. Producer prices fell 2.1 percent last month from a year earlier, after dropping 5.8 percent in October. While President Hu Jintao pledged this week to maintain a “moderately loose” monetary policy and a “proactive” fiscal stance, China’s banking regulator plans to slow new lending in 2010, a person familiar with the matter said this week. Bank Lending New loans in November totaled 294.8 billion yuan, the central bank said. Banks extended 9.21 trillion yuan of new local-currency loans in the 11 months through November. The regulator plans a limit of between 7 trillion yuan and 8 trillion yuan for all of next year, the person said. The credit boom has raised the risk of asset bubbles and bad loans. Forecasts for China to maintain the fastest growth of any major economy are encouraging companies to boost production and spurring overseas investors to expand. China Petroleum & Chemical Corp. , the country’s biggest refiner, said this month that it plans to expand the capacity of its second-biggest oil-processing plant by a third. Bayerische Motoren Werke AG , the world’s largest maker of luxury cars, said last month that it will build a new factory worth 5 billion yuan to tap an auto market set to overtake the U.S. as the world’s largest this year. China’s cabinet and the nation’s top economic planner said this week that they will increase policy flexibility, manage inflation expectations and curb speculative property purchases. Property prices in 70 cities rose at the fastest pace in 16 months in November and the benchmark Shanghai Composite Index has jumped almost 80 percent this year. Food and energy price increases helped to bring deflation to an end, said Sun Mingchun , chief China economist at Nomura Holdings Inc. in Hong Kong. The government last month approved increases of as much as 8 percent to gasoline, diesel and jet fuel prices and raised retail power charges for the first time in 16 months. — Li Yanping , Kevin Hamlin . Editors: Paul Panckhurst , Russell Ward To contact Bloomberg News staff for this story: Li Yanping in Beijing at +86-10-6649-7568 or yli16@bloomberg.net

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Obama to Send 30,000 More Troops to Afghanistan With Goal of 2011 Pullout

December 1, 2009

By Nicholas Johnston and Julianna Goldman Dec. 1 (Bloomberg) — President Barack Obama will say tonight he will send 30,000 more U.S. troops to Afghanistan in the first six months of 2010, “the fastest pace possible,” to secure the country and train local security forces. Additional U.S. and other allied troops will “allow us to accelerate handing over responsibility to Afghan forces, and allow us to begin the transfer of our forces out of Afghanistan in July of 2011,” the president says in excerpts of an address he’s scheduled to deliver at 8 p.m. New York time at the U.S. Military Academy at West Point, New York. Obama is set to unveil his new strategy for the war in Afghanistan, including sending the additional troops to reinforce the 69,000 American military personnel already in the country. The cost for the additional forces in the current fiscal year will be between $25 billion and $30 billion, along with added expenses for diplomatic and civilian efforts to stabilize Afghanistan, an administration official said. To contact the reporter on this story: Nicholas Johnston in Washington at njohnston3@bloomberg.net

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Manufacturing in U.S. Expands a Fourth Month as Factories Lead Recovery

December 1, 2009

By Bob Willis Dec. 1 (Bloomberg) — Manufacturing in the U.S. expanded in November for a fourth consecutive month, putting factories at the forefront of the recovery . The Institute for Supply Management’s manufacturing index fell to 53.6, lower than forecast, from October’s three-year high of 55.7, according to the Tempe, Arizona-based group. Readings above 50 signal expansion. Growing exports and lean inventories may keep manufacturing growing into 2010, helping drive the economic expansion. Factory production , which rose at the fastest pace in a quarter century in the three months through September, will probably climb at a slower pace in coming months as mounting unemployment restrains American consumers. “This dip down is more of a mid-course correction rather than a sign the boom is over.” Ethan Harris , head of North America economics at BofA Merrill Lynch Global Research in New York, said before the report. October was “a little too strong relative to other information on the economy, which generally looks like a very moderate recovery.” The figure compared with economists’ median forecast for a decrease to 55, according to 76 projections in a Bloomberg News survey. Estimates ranged from 53.5 to 57. Fifty is the dividing line between expansion and contraction. Manufacturing accounts for about 12 percent of the economy. Pending Sales The number of contracts to buy previously owned homes unexpectedly rose in October as consumers rushed to take advantage of a tax credit that was due to expire, another report today showed. The index of signed purchase agreements, or pending home sales, climbed 3.7 percent to 114.1 after increasing 6 percent in September, the National Association of Realtors said. The ninth consecutive gain compares with the median forecast of a decline in a Bloomberg News survey of economists. The ISM’s production index fell to 59.9 from 63.3, which was the highest level since July 2004, and the new orders index improved to 60.3 from 58.5. A gauge of export orders increased to 56, the highest level since August 2008, from 55.5. The employment index fell to 50.8 from 53.1. The index of prices paid dropped to 55 from 65. The supplier delivery gauge, a measure of the time it takes to receive goods, fell to 55.7 from 56.9 the prior month. The measure of orders waiting to be filled decreased to 52 from 53.5. Inventories Drop The inventory index dropped to 41.3 from 46.9. A figure below 50 means manufacturers are reducing stockpiles. General Motors Co . is among auto companies leading the rebound in output after emerging from bankruptcy. Sales are now stabilizing after slumping in September following the expiration of the government’s “cash-for-clunkers” incentives. “The encouraging thing for the industry and for GM is that this is being accomplished now without either ‘cash for clunkers’ or any federal stimulus,” Michael DiGiovanni , GM’s sales analyst, said on a conference call on Nov. 19. “Our sales appear to be right on target.” Economists surveyed by Bloomberg at the beginning of November forecast the economy would grow at a 3 percent pace in the last three months of the year, following a 2.8 percent pace in the third quarter. Global Rebound A rebound in global growth and a 16 percent drop in the dollar since March against a basket of six major trading partners is helping spur demand from abroad. Exports climbed 9.4 percent in the five months through September, the biggest such gain since comparable records began in 1992, according to figures from the Commerce Department. China’s manufacturing grew last month at the fastest pace in five years, a purchasing managers’ survey issued today showed. President Barack Obama’s renewal last month of tax credits for first-time homebuyers should spur demand for homes and new construction into next year, while infrastructure-related construction projects are expected to ramp up in the new year. “Final demand shows signs of strengthening, supported by the broad improvement in financial conditions,” Federal Reserve Chairman Ben S. Bernanke said Nov. 19 in a speech before the Economic Club of New York. “Additionally, the beneficial influence of the inventory cycle on production should continue.” To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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Worker Productivity in U.S. Increases 9.5%, the Fastest Pace in Six Years

November 5, 2009

By Shobhana Chandra Nov. 5 (Bloomberg) — The productivity of U.S. workers surged in the third quarter at the fastest pace in six years as companies squeezed more from remaining staff to boost profits. The measure of employee output per hour jumped at a 9.5 percent annual rate, topping the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. Labor costs fell at a 5.2 percent rate, capping the biggest 12-month drop since records began in 1948. Companies such as Johnson & Johnson are slashing payrolls to curb expenses until sales show sustained gains following the worst recession since the 1930s. Rising efficiency helps limit inflation, one reason Federal Reserve policymakers yesterday reiterated a pledge to keep interest rates “exceptionally low” in coming months. “It’s a favorable environment for profits,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who had the highest productivity forecast among economists surveyed. “Business are being extraordinarily cautious on costs. Employment will have to go up before long.” Stock-index futures climbed after the productivity report indicated profits will probably climb. The contract on the Standard & Poor’s 500 Index was up 0.4 percent to 1,051.4 at 8:49 a.m. in New York. Treasury securities were little changed. Exceeds Forecast Economists had projected productivity would rise at a 6.5 percent annual pace, according to the median of 70 forecasts in a Bloomberg News survey. Estimates ranged from gains of 3.8 percent to 8.5 percent. Efficiency in the second quarter was revised up to 6.9 percent from 6.6 percent. Unit labor costs, which are adjusted for efficiency gains, were projected to fall 4.2 percent and followed a 6.1 percent drop in the prior quarter that was larger than previously estimated, according to the survey median. Separately, Labor Department figures showed fewer Americans than forecast filed claims for unemployment benefits last week, a sign job losses are slowing as the economy begins to recover. Initial jobless claims dropped by 20,000 to 512,000 in the week ended Oct. 31, the fewest since January, from 532,000 the prior week. The number of people receiving jobless benefits fell to the lowest level since March, while those who had exhausted their allotment and were receiving extended payments climbed. The productivity report also showed hours worked declined at a 5 percent pace, while output climbed at a 4 percent rate. Compensation for each hour worked climbed at 3.8 percent annual pace, up from a 0.3 percent rate the prior quarter. Record Surge Among manufacturers, productivity soared at a 13.6 percent pace, the biggest gain since records began in 1987. Compared with the third quarter of 2008, productivity rose 4.3 percent, and labor expenses decreased 3.6 percent. The year-over-year measure of hours worked dropped at the fastest pace since data began six decades, while the 12-month increase in hourly compensation at 0.5 percent was also the smallest on record. The economy grew last quarter for the first time in more than a year, even as employers cut 768,000 workers from payrolls, indicating those Americans that still had jobs were more efficient. The third quarter’s 3.5 percent rate of expansion was the strongest in two years. Stephen Stanley is among economists projecting companies will soon need to hire more workers in order to keep the recovery going. More Hiring “Having cut payrolls to the bone during the last downturn, firms will not in our view be able to rely solely on productivity increases for long,” Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut, said in a note to clients. “Thus, we look for companies to begin expanding payrolls in early 2010, which is sooner than many market participants expect.” The economy has lost 7.2 million jobs since the recession began in December 2007, and unemployment reached a 26-year high of 9.8 percent in September. In addition to signaling that interest rates will stay near zero, the Fed yesterday reiterated that growth will probably “remain weak for a time.” Policy makers also acknowledged the economy had picked up as housing rebounded and consumer spending grew. For the July to September quarter, profits exceeded the consensus estimate of analysts for 81 percent of S&P 500 companies that have reported so far, data compiled by Bloomberg show. Cost Cutting Much of the improvement in earnings has come from reducing costs. Johnson & Johnson, the world’s largest health-products company, said this week it plans to fire more than 7,000 workers as consumers reduce spending on items ranging from drugs to skin care. While the majority of cuts will occur outside the U.S., the New Brunswick, New Jersey-based company said within the country they’ll be across all businesses. “People just aren’t spending as much as they used to,” Chief Executive Officer Bill Weldon said in a telephone interview on Nov. 3. In the 1990s, former Fed Chairman Alan Greenspan was one of the first to recognize productivity was accelerating because of the increased use of computers and the Internet, and that the improvement would contain inflation even as the economy gained strength and unemployment stayed low. The realization allowed the Fed to keep interest rates little changed from 1996 to 1999. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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U.S. Stocks Climb as Ford Motor’s Profit, Economic Data Exceed Estimates

November 2, 2009

By Sapna Maheshwari and Lynn Thomasson Nov. 2 (Bloomberg) — U.S. stocks fluctuated as a Federal Reserve official said the banking system is still “far from robust,” triggering a slide in financials that tempered an earlier rally following better-than-estimated economic data. Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. lost at least 1.6 percent as Jon Greenlee, associate director of the Fed division that regulates banks, said lenders still face threats from defaults on commercial-real estate loans. CIT Group Inc. plunged 64 percent after the commercial lender filed for bankruptcy protection. The dollar erased most of its earlier loss, paring gains in commodities. “Financials have been leading the rally, so any indication that it could be based on false hope could worry people,” said Scott Tapley , who helps oversee $2.5 billion at 1st Source Investment Advisors Inc. in South Bend, Indiana. “The sudden lurches lower, we haven’t seen anything like that for a while. It gets some people wondering if we’re not going to go back into a meltdown.” The S&P 500 added 0.1 percent to 1,037.42 at 2:32 p.m. in New York. The Dow Jones Industrial Average , which has moved more than 100 points on six of the previous seven days, rose 34.99 points, or 0.4 percent, to 9,747.72 after climbing as much as 146 points earlier. About four stocks fell for every three that rose on the New York Stock Exchange. The S&P 500 gained as much as 1.5 percent earlier in the day on better-than-estimated economic data. The Institute for Supply Management’s factory index climbed to 55.7 in October as U.S. manufacturing expanded at the fastest pace in more than three years. Construction spending unexpectedly increased 0.8 percent in September, the Commerce Department said, while the National Association of Realtors said pending sales of existing homes advanced 6.1 percent. ‘Better Off’ “The ISM is a measure of the direction of improvement, not the degree, so don’t extrapolate that we’re partying like its April ‘06, but we are certainly better off than April ‘09,” Peter Boockvar , equity strategist at Miller Tabak & Co. in New York, wrote in a note to clients. Citigroup, the lender 34 percent owned by the U.S. government, lost 4.7 percent to $3.90. Wells Fargo retreated 1.6 percent to $27.07. Goldman Sachs declined 1.6 percent to $167.43. Financials in the S&P 500, which have fallen 12 percent since Oct. 14, retreated 0.9 percent as a group after erasing an intraday gain of as much as 2.5 percent. ‘Far From Robust’ “Although conditions and sentiment in financial markets have improved in recent months, significant stress and weaknesses persist,” said Greenlee, who works at Fed’s Division of Banking Supervision and Regulation in Washington, in testimony to a House Oversight subcommittee hearing in Atlanta. “The condition of the banking system is far from robust.” The S&P 500 slid 4 percent last week as lower-than- estimated new-home sales and a drop in consumer spending added to speculation that the seven-month rally outpaced prospects for an economic recovery. The losses came even as more companies beat analysts’ projections for third-quarter earnings . Dean Foods Co. had the second-steepest decline in the S&P 500, falling 8.8 percent to $16.63. The biggest U.S. dairy processor forecast fourth-quarter profit of 36 cents a share. The average profit estimate of 13 analysts in a Bloomberg survey was 39 cents. Of 334 companies in the S&P 500 that have reported quarterly earnings since Oct. 7, 84 percent have topped the average of analyst estimates, according to data compiled by Bloomberg. Sales have exceeded predictions by 58 percent. CIT Plunges CIT plunged 64 percent to 26 cents. The company filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout. CIT listed $71 billion in assets and $64.9 billion in liabilities in a Chapter 11 petition yesterday in U.S. Bankruptcy Court in Manhattan. The Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT. Office Depot Inc. slid 4.7 percent to $5.77. The second- largest office supply retailer was cut to “underperform” from “neutral” at Credit Suisse Group AG, which said the company is overvalued. Ford Motor Co. jumped 6 percent to $7.42 for the S&P 500’s steepest advance. The only major U.S. automaker to avoid bankruptcy reported third-quarter per-share profit excluding extraordinary items of 26 cents, beating the 20-cent loss estimated by analysts in a Bloomberg survey. Wall Street analysts are forecasting S&P 500 earnings will increase 25 percent in 2010, the fastest growth in two decades. Investors are paying the lowest so-called price-to- earnings growth ratios since 1995, according to Bloomberg data . Companies in the gauge traded for an average of 15.4 times annual profit this year, or 0.6 times equity analysts’ projection for 2010 earnings growth, according to data compiled by Bloomberg. That’s the lowest so-called PEG ratio since 1995 and half the median of 1.3 since 1961. To contact the reporters on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net ; Lynn Thomasson in New York at lthomasson@bloomberg.net .

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U.S. Stocks Advance After Ford’s Profit, Economic Data Exceed Projections

November 2, 2009

By Sapna Maheshwari Nov. 2 (Bloomberg) — U.S. stocks rose, with the Standard & Poor’s 500 Index rebounding from its biggest weekly drop since May, as Ford Motor Co.’s profit beat estimates and gauges of manufacturing, home sales and construction topped projections. Ford rallied as much as 12 percent, the most since April, following its first operating profit since early 2008. Bank of America Corp., DuPont Co. and Alcoa Inc. jumped at least 2.3 percent. European shares erased an earlier drop, while Shanghai Composite Index rose 2.7 percent as China’s manufacturing industry expanded at the fastest pace in 18 months. CIT Group Inc. plunged 54 percent after the commercial lender filed for bankruptcy protection. The S&P 500 added 1.3 percent to 1,049.76 at 10:44 a.m. in New York. The Dow Jones Industrial Average , which has moved more than 100 points on six of the previous seven days, gained 125 points, or 1.3 percent, to 9,837.73. About four stocks advanced for each that fell on the New York Stock Exchange. “What we’re seeing is a general improvement in the economy as reflected in that ISM number,” said Kevin Caron, a market strategist at Stifel Nicolaus & Co. in Florham Park, New Jersey, which oversees about $90 billion in client assets. “Beyond that we saw some fairly decent numbers out of new home construction as well, so that’s also a positive. So long as the data continues to come in positive like we saw today, the market will take comfort.” ISM, Construction, Homes Stocks rallied as the Institute for Supply Management’s factory index climbed to 55.7 in October as U.S. manufacturing expanded at the fastest pace in more than three years. Construction spending unexpectedly increased 0.8 percent in September, the Commerce Department said, while the National Association of Realtors said signed purchase agreements advanced 6.1 percent. The S&P 500 slid 4 percent last week as lower-than- estimated new-home sales and a drop in consumer spending added to speculation that the seven-month rally outpaced prospects for an economic recovery. The losses came even as more companies beat analysts’ projections for third-quarter earnings. Of 333 companies in the S&P 500 that have reported quarterly earnings since Oct. 7, 84 percent have beaten estimates, according to data compiled by Bloomberg. Sales have exceeded predictions at 58 percent. Wall Street analysts are forecasting S&P 500 earnings will increase 25 percent in 2010, the fastest growth in two decades. Investors are paying the lowest so-called price-to-earnings growth ratios since 1995, according to Bloomberg data. ‘PEG’ Ratio Companies in the gauge traded for an average of 15.4 times annual profit this year, or 0.6 times equity analysts’ projection for 2010 earnings growth, according to data compiled by Bloomberg. That’s the lowest so-called PEG ratio since 1995 and half the median of 1.3 since 1961. Ford, the only major U.S. automaker to avoid bankruptcy, gained 9.1 percent to $7.64 after rallying to as high as $7.84 earlier. The company reported third-quarter per-share profit excluding extraordinary items of 26 cents, beating the 20-cent loss estimated by analysts in a Bloomberg survey. CIT Group plunged 68 percent to 23 cents. The company filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout. CIT listed $71 billion in assets and $64.9 billion in liabilities in a Chapter 11 petition yesterday in U.S. Bankruptcy Court in Manhattan. The Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT. All 10 industry groups in the S&P 500 advanced, with financial shares climbing 2.4 percent for the biggest advance. “This is the post-Halloween pick-up,” said Burt White , chief investment officer at LPL Financial in Boston, which oversees $234 billion. “Ford’s earnings today were very, very good. I think that a lot of folks were concerned about the CIT bankruptcy, but the market is kind of shaking it off pretty resoundingly.” To contact the reporter on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net .

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Manufacturing in U.S. Probably Grew by Most Since 2006, Driving Expansion

November 2, 2009

By Shobhana Chandra Nov. 2 (Bloomberg) — Factories in the U.S. probably grew at a faster pace, while the number of people signing contracts to buy houses showed no improvement, signaling a shift to manufacturing as the driver of the expansion, economists said before reports today. The Institute for Supply Management’s manufacturing index rose to 53 in October, the highest level in three years, according to the median forecast of 62 economists surveyed by Bloomberg News. Another report may show pending home sales in September were unchanged, the first time since January they didn’t increase. Increasing demand, boosted in part by the administration’s “cash-for-clunkers” plan, has led to a record plunge in stockpiles that may keep assembly lines humming. After rising last quarter at the fastest pace in two decades, home building will probably cool as uncertainty over another government initiative, the first-time buyer tax credit, slows sales. “Manufacturing is back in expansion territory on a sustained basis,” said Adam York , an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The recovery in housing is going to be gradual. The economy will be growing, but this isn’t necessarily going to be a great quarter.” The Tempe, Arizona-based ISM group’s report is due at 10 a.m. New York time. Forecasts ranged from 52 to 55, after a reading of 52.6 in September. Fifty is the dividing line between expansion and contraction. Manufacturing accounts for about 12 percent of the economy. Global Recovery Factories worldwide are starting to raise output. Chinese manufacturing expanded at the fastest pace in 18 months in October, bolstered by exports, a purchasing managers’ index showed today. Europe’s manufacturing industry grew for the first time in 17 months, a separate report showed. Pending U.S. home sales, due from the National Association of Realtors at 10 a.m., jumped 6.4 percent in August. Survey estimates for September ranged from a drop of 2 percent to a gain of 5.5 percent. While falling prices and low mortgages rates have steadied demand, some buyers are waiting while lawmakers debate whether to extend the $8,000 tax credit that has helped housing emerge from its worst slump in eight decades. Also at 10 a.m. today, a Commerce Department report may show spending on construction projects fell 0.2 percent in September, the seventh decrease this year, according to the survey median. S&P 500 The Standard & Poor’s 500 Index fell last week, marking the first monthly drop since February, after reports prompted concern that consumers will restrain the economic recovery. Reports on manufacturing have shown improvement. The ISM- Chicago Inc.’s business barometer rose in October to the highest level in 13 months, the group reported last week. Gains in the gauges for new orders, production and backlogs signaled the recovery will persist. Regional Federal Reserve Bank reports showed manufacturing in the New York district expanded in October for a third month and grew in the Philadelphia region at a slower pace. Texas Instruments Inc., the second-largest U.S. chipmaker, is among companies saying the future looks brighter. The Dallas- based company forecast fourth-quarter profit and sales that beat the average estimate of analysts surveyed by Bloomberg, indicating demand for electronic components is recovering further. “Our customers are winding down their inventory corrections and have begun to increase production levels in their factories,” Chief Executive Officer Rich Templeton said in a statement on Oct. 19. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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U.S. Stock Futures Gain Before Manufacturing Data; Ford, Alcoa, GE Advance

November 2, 2009

By Alexis Xydias Nov. 2 (Bloomberg) — U.S. stock-index futures rose, indicating the Standard & Poor’s 500 Index may rebound from its worst week since May, before a report economists expect will show manufacturing expanded at the fastest rate in three years. Alcoa Inc., General Electric Co. and Procter & Gamble Co. gained in European trading. CIT Group Inc. tumbled by half after the 101-year-old commercial lender filed for bankruptcy. Futures on the S&P 500 expiring in December added 0.7 percent to 1,040 at 10:57 a.m. in London. Dow Jones Industrial Average futures gained 0.6 percent to 9,721 and Nasdaq-100 Index futures increased 0.3 percent to 1,671.25. The S&P 500 lost 4 percent last week as new-home sales that missed forecasts and a drop in consumer spending added to speculation that the seven-month rally outpaced prospects for an economic recovery. The losses came even as more companies beat analysts’ expectations for the latest quarterly earnings. “There has been underlying economic activity that has to feed through to the market,” said Georgina Taylor , an equity strategist at Legal & General Group Plc in London, which oversees $456 billion worldwide, in a Bloomberg Television interview. Investors need economic and earnings data to start beating estimates “to get convinced that we are actually on track for the recovery to go into next year,” Taylor said. Of 326 S&P 500 companies that have reported their latest quarterly earnings, 273 have beaten estimates while 49 have disappointed, according to Bloomberg data. The ratio in sales is less buoyant, with 189 companies exceeding predictions and 133 lagging behind. Earnings Forecasts Wall Street analysts are forecasting S&P 500 earnings will increase 25 percent in 2010, the fastest growth in two decades. Investors are paying the lowest so-called price-to-earnings growth ratios since 1995, according to Bloomberg data. The Institute for Supply Management’s manufacturing index probably rose to 53 in October, according to the median forecast of 62 economists surveyed by Bloomberg News. Another report may show pending home sales in September were unchanged, the first time since January they didn’t increase. Non-manufacturing businesses make up almost 90 percent of the economy and fifty is the dividing line between expansion and contraction. The Tempe, Arizona-based ISM group’s report is due at 10 a.m. New York time. Pending home sales, due from the National Association of Realtors, jumped 6.4 percent in August. Alcoa, the largest U.S. aluminum producer, increased 1.4 percent to $12.60 in Germany. GE , the world’s biggest maker of power-plant turbines, rose 0.7 percent to $14.36. Procter & Gamble , the largest consumer-products company, climbed 1.1 percent to $58.64. CIT CIT , which saw its funding dry up in the credit crunch, halved to 33 cents from 72 cents. The company filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout. CIT listed $71 billion in assets and $64.9 billion in liabilities in a Chapter 11 petition yesterday in U.S. Bankruptcy Court in Manhattan. The Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT. Dean Foods Co. , the biggest U.S. milk-products maker, and Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, are among companies scheduled to report earnings today. To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net .

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Europe Exports Decline Most in 7 Months as Euro’s Gain Undermines Recovery

October 16, 2009

By Simone Meier Oct. 16 (Bloomberg) — European exports declined the most in seven months in August as the region struggled to emerge from the deepest recession since World War II and the euro’s appreciation threatened to undermine the recovery. Exports from the 16-nation euro region fell a seasonally adjusted 5.8 percent from July, when they rose 4.7 percent, the European Union’s statistics office in Luxembourg said today. That was the biggest decline since January. Imports fell 1.3 percent in August and the trade surplus shrank to 1 billion euros ($1.5 billion) from 6 billion euros in the previous month. The euro has gained 15 percent against the dollar in the past seven months, eroding export returns for European companies just as the region is starting to recover from the global slump. European Central Bank President Jean-Claude Trichet yesterday said it is “extremely important” that U.S. authorities pursue policies supporting a strong dollar and called excessive currency volatility “an enemy.” “Exports are likely to have to be the engine of growth again,” said Colin Ellis , an economist at Daiwa Securities SMBC Europe Ltd. in London. “But given the expected sluggish recovery in world demand and the headache of the rising euro that engine won’t be firing on all cylinders. The risk of a double dip in the euro-area economy is still lurking in the shadows.” Governments around the world have spent $2 trillion to fight the recession and the ECB has cut its key interest rate to a record low of 1 percent and started buying covered bonds to stimulate bank lending and boost the economy. Trichet said on Oct. 9 that the recovery likely will be “rather uneven.” Third Quarter The economy may expand 0.2 percent in the third quarter and 0.1 percent in the fourth, after contracting in five straight quarters, the European Commission forecast last month. In the three months through June, euro-area gross domestic product fell 0.2 percent as Germany and France emerged from the recession. The euro was down 0.2 percent against the dollar today as the U.S. currency rose from a 14-month low. The European currency traded at $1.4921 at 10:48 a.m. in London, still up more than 10 percent in the past 12 months. Goldman Sachs Group Inc. said yesterday that it projects the dollar will weaken to $1.55 versus the euro in the next three to six months before recovering to $1.35 a year from now. ‘Very Difficult’ “At current levels, the situation is becoming very difficult for all industrial companies that have their costs in euros,” Airbus SAS Chief Operating Officer Fabrice Bregier said in Paris on Oct. 8. “We can only appeal to monetary authorities to ensure currency stability.” Airbus, the world’s largest maker of commercial aircraft, said the day before that orders dropped 80 percent in the nine months through September from the same period a year earlier. Euro-area exports to the U.S., the world’s biggest economy, dropped 20 percent in the first seven months of 2009 from a year earlier, today’s report showed. Shipments to the U.K., the largest market for euro-area goods, declined 26 percent, while exports to China, the fastest-growing major economy, fell 4 percent. The detailed country data are published with a one- month lag. There are signs of a global recovery and European exporters from luxury-goods maker Hermes International SCA to car maker Bayerische Motoren Werke AG have reported increasing orders . Confidence in the world economy rose for a third month in October, a Bloomberg survey of users on six continents showed yesterday. U.S. service industries expanded last month for the first time in a year and China’s manufacturing grew at the fastest pace in 17 months in September. Hermes Chief Executive Officer Patrick Thomas said on Oct. 8 that luxury-goods brand sales are “booming” in China and elsewhere in Asia, while the U.S. market has turned “slightly positive.” Munich-based BMW posted its first monthly sales increase this year in September. To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net .

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Europe Exports Decline Most in 7 Months as Euro’s Gain Undermines Recovery

October 16, 2009

By Simone Meier Oct. 16 (Bloomberg) — European exports declined the most in seven months in August as the region struggled to emerge from the deepest recession since World War II and the euro’s appreciation threatened to undermine the recovery. Exports from the 16-nation euro region fell a seasonally adjusted 5.8 percent from July, when they rose 4.7 percent, the European Union’s statistics office in Luxembourg said today. That was the biggest decline since January. Imports fell 1.3 percent in August and the trade surplus shrank to 1 billion euros ($1.5 billion) from 6 billion euros in the previous month. The euro has gained 15 percent against the dollar in the past seven months, eroding export returns for European companies just as the region is starting to recover from the global slump. European Central Bank President Jean-Claude Trichet yesterday said it is “extremely important” that U.S. authorities pursue policies supporting a strong dollar and called excessive currency volatility “an enemy.” “Exports are likely to have to be the engine of growth again,” said Colin Ellis , an economist at Daiwa Securities SMBC Europe Ltd. in London. “But given the expected sluggish recovery in world demand and the headache of the rising euro that engine won’t be firing on all cylinders. The risk of a double dip in the euro-area economy is still lurking in the shadows.” Governments around the world have spent $2 trillion to fight the recession and the ECB has cut its key interest rate to a record low of 1 percent and started buying covered bonds to stimulate bank lending and boost the economy. Trichet said on Oct. 9 that the recovery likely will be “rather uneven.” Third Quarter The economy may expand 0.2 percent in the third quarter and 0.1 percent in the fourth, after contracting in five straight quarters, the European Commission forecast last month. In the three months through June, euro-area gross domestic product fell 0.2 percent as Germany and France emerged from the recession. The euro was down 0.2 percent against the dollar today as the U.S. currency rose from a 14-month low. The European currency traded at $1.4921 at 10:48 a.m. in London, still up more than 10 percent in the past 12 months. Goldman Sachs Group Inc. said yesterday that it projects the dollar will weaken to $1.55 versus the euro in the next three to six months before recovering to $1.35 a year from now. ‘Very Difficult’ “At current levels, the situation is becoming very difficult for all industrial companies that have their costs in euros,” Airbus SAS Chief Operating Officer Fabrice Bregier said in Paris on Oct. 8. “We can only appeal to monetary authorities to ensure currency stability.” Airbus, the world’s largest maker of commercial aircraft, said the day before that orders dropped 80 percent in the nine months through September from the same period a year earlier. Euro-area exports to the U.S., the world’s biggest economy, dropped 20 percent in the first seven months of 2009 from a year earlier, today’s report showed. Shipments to the U.K., the largest market for euro-area goods, declined 26 percent, while exports to China, the fastest-growing major economy, fell 4 percent. The detailed country data are published with a one- month lag. There are signs of a global recovery and European exporters from luxury-goods maker Hermes International SCA to car maker Bayerische Motoren Werke AG have reported increasing orders . Confidence in the world economy rose for a third month in October, a Bloomberg survey of users on six continents showed yesterday. U.S. service industries expanded last month for the first time in a year and China’s manufacturing grew at the fastest pace in 17 months in September. Hermes Chief Executive Officer Patrick Thomas said on Oct. 8 that luxury-goods brand sales are “booming” in China and elsewhere in Asia, while the U.S. market has turned “slightly positive.” Munich-based BMW posted its first monthly sales increase this year in September. To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net .

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Meredith Whitney: Small Business Left Out In The Cold In Bailout

October 2, 2009

Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source to small businesses) have been cut by 25% since last year.

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FDIC Says Banks Must Prepay Fees Through 2012 to Boost Depleted Reserves

September 29, 2009

By Alison Vekshin Sept. 29 (Bloomberg) — The Federal Deposit Insurance Corp., seeking to replenish deposit reserves as banks fail at the fastest pace in 17 years, today voted unanimously to have lenders prepay fees through 2012, raising about $45 billion. Lenders would prepay FDIC premiums for the fourth quarter and next three years on Dec. 30, to replenish the deposit insurance funds that staff estimated will have a negative balance at the end of this quarter, the agency said. The agency raised its estimate for the cost of bank failures to $100 billion through 2013, from $70 billion, and said about half the expenses will be incurred by the end of this quarter. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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Should You Buy Into A Distressed Debt Fund?

September 9, 2009

San Jose Business Journal (subscription) · Catawba County man charged with securities fraud – Hickory Daily Record · Should You Buy Into A Distressed Debt Fund? Where are Healthcare Costs Rising the Fastest? …

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European Stocks, U.S. Futures Decline; Copper Gains on China Manufacturing

September 1, 2009

By Stuart Wallace and Dan Hauck Sept. 1 (Bloomberg) — European stocks and U.S. equity futures dropped on speculation valuations have overtaken the economic recovery. Copper rose in New York as Chinese manufacturing expanded at the fastest pace in more than a year. Europe’s Stoxx 600 slid 1.2 percent at 10:27 a.m. in London and futures on the Standard & Poor’s 500 Index declined 0.7 percent. Copper rose 1.2 percent in New York trading. The Dow Jones Stoxx 600 Index’s 48 percent rally since March 9 drove the average price-earnings valuation for its companies to the highest level since 2003. Investors are concerned the gain may have outpaced the prospects for a recovery from the first global recession since World War II. European manufacturing contracted in August, an industry report showed, and a similar gauge in the U.K. dropped unexpectedly. “This type of number shows that things aren’t as solid as expected, there’s a fragility,” said Guillaume Duchesne , a Geneva-based equity strategist at Fortis Private Banking, which oversees about $117 billion. “Economic statistics direct the market. The question is, do we believe in a recovery that’s rather smooth or something that isn’t as good.” Paul Tudor Jones ’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are among funds betting that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery. The firms oversee a combined $15 billion in so-called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities. BHP, Rio Fall BHP Billiton Ltd. and Rio Tinto Group declined more than 1.9 percent in London. The Dow Jones Stoxx 600 Index had earlier climbed as much as 0.7 percent as earnings from Vivendi SA and Hon Hai Precision Industry Co. beat analysts’ estimates. The MSCI Emerging Markets Index advanced 0.6 percent as technology companies surged. Hon Hai, the world’s largest contract maker of electronics, jumped 6.8 percent to the highest level in a year on earnings that topped analysts’ estimates. OAO Rosneft and OAO Lukoil , Russia’s biggest oil companies, led a 0.9 percent increase in the nation’s Micex index on the gain in crude prices. The euro was little changed near a three-week high against the dollar after a government report showed that German unemployment unexpectedly fell in August, adding to signs that the 16-nation currency region is emerging from the recession. Euro Gains The euro gained versus the Australian dollar and the New Zealand dollar after Germany’s Federal Labor Agency said unemployment held at 8.3 percent in August, after economists forecast a rise to 8.4 percent. The yen fell against 11 of 16 major currencies as China’s manufacturing report spurred demand for higher-yielding currencies. The pound declined against the dollar after an index of U.K. manufacturing compiled by the Chartered Institute for Purchasing and Supply unexpectedly fell to 49.7 in August from 50.2 in July. The British currency fell 0.1 percent against the U.S. dollar, erasing gains of as much as 0.5 percent before the figures. U.S. Treasuries reversed earlier losses to trade little changed. The yield on the 10-year note declined to 3.40 percent, after rising to 3.41 percent. German government bonds advanced, driving the yield on the two-year note 3 basis points lower to 1.21 percent as of 9:30 a.m. in London. The U.K. two-year gilt yield fell to a record low of 0.819 percent, a level not seen since since January 1992, when Bloomberg started collecting data on the security. Copper Rallies Copper for December delivery rose 1.2 percent to $2.861 a pound on the Comex division of the New York Mercantile Exchange. The metal declined in trading on the London Metal Exchange, which was closed for a national holiday yesterday. China, the world’s biggest metals consumer, said manufacturing expanded at the fastest pace in 16 months in August. White sugar advanced 5.1 percent to a record $602.40 a metric ton on the Liffe exchange in London on speculation supply will fall short of demand. Crude oil added 0.4 percent to $70.22 a barrel. The cost of protecting European corporate bonds from default jumped the most in two weeks, with the Markit iTraxx Europe index of credit-default swaps rising 4.25 basis points to 95.25, the highest since Aug. 21, according to JPMorgan Chase & Co. prices. To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net ; Daniel Hauck at dhauck1@bloomberg.net

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Wall Street Leverage Rising At Fastest Pace Since ’07

August 28, 2009

Aug. 28 (Bloomberg) — Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007.

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FDIC May Ease Entry for Private Equity Firms Seeking to Buy Failed Lenders

August 24, 2009

By Alison Vekshin Aug. 25 (Bloomberg) — The Federal Deposit Insurance Corp., is poised to make it easier for private-equity firms to buy banks after the fastest pace of bank closings in 17 years cost the agency’s insurance fund more than $21 billion. The FDIC board meets tomorrow in Washington and probably will lower the requirements for private investors to buy failed lenders after a proposal made in July sparked opposition from the industry. The agency needs new bidders as bankers avoid buying failed lenders, forcing the FDIC to share losses or take other steps that deplete its insurance fund. “There are a lot of private-equity bidders that have been waiting to see how this rule plays out,” Mark Tenhundfeld , senior vice president at the American Bankers Association , said yesterday in a telephone interview. “As modified, I think private equity is likelier to want to get back in the game.” Banks are collapsing at the fastest pace since 1992, with 81 failures so far this year, as losses mount on unpaid real- estate debt. The failures have cost the FDIC’s deposit insurance fund an estimated $21.5 billion this year. The agency may impose an emergency fee in the third quarter — sooner than planned — to replenish the fund, the second such assessment this year. The modifications may lower to 10 percent from 15 percent the Tier 1 capital ratio private-equity investors must maintain after buying a bank, Tenhundfeld said. Tier 1 ratios measure a lender’s ability to withstand losses and new banks must maintain at least 8 percent to be deemed well capitalized. “It is a proposed rule,” FDIC spokesman Andrew Gray said in a telephone interview. “The purpose of the comment period is to get feedback from all stakeholders and refine the proposal based on that.” FDIC Brokers Deals The FDIC has twice brokered deals with investor groups this year. In March, California-based IndyMac Federal Bank was sold to investors led by Steven Mnuchin , an ex-Goldman Sachs Group Inc. investment banker, and including buyout firm J.C. Flowers & Co. Florida’s BankUnited Financial Corp. was sold in May to firms including Blackstone Group and WL Ross & Co. Senator Jack Reed , a Rhode Island Democrat who leads a subcommittee overseeing the securities industry, wrote in May to FDIC Chairman Sheila Bair and Federal Reserve Chairman Ben S. Bernanke asking them to spell out rules for investments in banks so private investors can’t take advantage of U.S. assistance. The FDIC is a state-bank regulator that insures consumer deposits at lenders, finds buyers for institutions on the verge of collapse and unwinds them after they fail. The agency in July gave the industry 30 days to comment on the guidelines and tomorrow plans to release modified rules based on the feedback. The capital requirement as proposed “is onerous” and would eliminate interest from private-equity investors, Douglas Lowenstein , president of the Private Equity Council , a Washington-based industry group, wrote in an Aug. 6 comment letter to the FDIC. Guarantee Provision The FDIC also may drop the cross-guarantee provision, which would require a private-equity firm with investments in more than one failed bank to provide guarantees for losses based on its level of investment in each of the institutions, said Joseph Lynyak, a partner specializing in banking at Venable LLP in Washington. “It’s an open-ended loss guarantee that I don’t think anybody is willing to accept,” Lynyak said of the proposal. Even with the changes, private-equity firms may be reluctant to participate out of concern the government could modify the rules later, Lynyak said. To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net .

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