north-korea

Dow Average Ends Worst May Since 1940 on Spain Downgrade, Korean Tensions

May 28, 2010

By Rita Nazareth and Elizabeth Stanton May 28 (Bloomberg) — A slide in U.S. stocks halted a global advance, the euro slumped and Treasuries rose as a downgrade of Spain’s debt rating and escalating tensions on the Korean peninsula triggered a flight from riskier assets. The Standard & Poor’s 500 Index lost 1.2 percent to 1,089.39 at 4 p.m. in New York, led by financial shares on the Spanish downgrade and petroleum companies after U.S. President Barack Obama extended a moratorium on new deep-water drilling. Oil erased gains after rallying as much as 1.6 percent to more than $75 a barrel. Ten-year Treasury yields decreased 7 basis points to 3.3 percent after surging 17 basis points yesterday, while the euro slipped 0.8 percent to $1.2267. Equities and commodities extended losses after Fitch Ratings stripped Spain of the AAA rating it’s held since 2003, saying the nation’s economic growth will slow as it attempts to cut its debts. Earlier losses followed disappointing U.S. economic data and a North Korean general’s warning of “all-out war” if any accidental clashes with South Korea break out. “Spain’s downgrade just adds to more uncertainty,” said Quincy Krosby , chief market strategist for Newark, New Jersey- based Prudential Financial Inc., which oversees about $667 billion. “There are too many geopolitical events. We have a three-day weekend in the U.S., and traders will definitely want to lighten their books.” ‘All-Out War’ Losses in U.S. stocks widened earlier after North Korean Major General Pak Rim Su disputed the results of the international investigation that found his nation sank a South Korean warship. “Any accidental clash that may break out in the waters of the West Sea of Korea or in areas along the Demilitarized Zone will lead to all-out war,” he said, according to North Korea’s official news organization. About 9.2 billion shares changed hands on all U.S. exchanges, 4 percent below the average for the year as trading slowed before the Memorial Day holiday. “With volumes being as they are today ahead of the holiday weekend, there is not much in the way of conviction among traders,” said Mark Turner , head of U.S. sales trading at Instinet LLC, which handles about 4 percent of U.S. equity trading volume. “So any headline has the potential to move the market. And the situation in North Korea has especially been in our crosshairs.” The retreat in the S&P 500 today came after the benchmark index rallied 3.3 percent yesterday as China assured investors it was committed to maintaining European investments even as a sovereign debt crisis rattles confidence in the region. Benchmark indexes pared declines late in the day after Goldman Sachs Group Inc. strategist David Kostin raised his estimates for S&P 500 earnings to $78 a share for this year and $93 a share for 2011, up from $76 and $90, to reflect “strong” first quarter earnings and better-than-estimated profit margins. Weekly, Monthly Returns The S&P 500 trimmed its advance for the week to 0.2 percent, while the MSCI World Index of shares in 24 developed nations rose 0.5 percent over the past five days. The U.S. gauge sank 8.2 percent in May and the global gauge lost 9.9 percent, the worst month since February 2009 for both. The Stoxx Europe 600 Index erased gains, dropping 0.3 percent today after rallying as much as 0.7 percent. The MSCI Asia Pacific Index climbed 1.5 percent. BP Plc slid 5 percent in London after Europe’s second- largest oil company said procedures to plug a leaking well in the Gulf of Mexico may last another day or two. BP added rubber golf balls and scraps to the mud it was pumping into its leaking Gulf of Mexico oil well in an effort to stop the spill. Oilfield Services Shares Baker Hughes Inc., Halliburton Co., Transocean Ltd. and Schlumberger Ltd. slumped at least 4.9 percent to help lead declines in U.S. energy shares. Obama is suspending exploration in two areas off Alaska, canceling pending lease sales in the Gulf of Mexico and proposed sales off Virginia’s coast, extending by six months a moratorium on deepwater drilling permits and suspending operations at all 33 exploratory wells being drilled in the Gulf. To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Elizabeth Stanton in New York at estanton@bloomberg.net .

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U.S. Stocks Halt Global Advance on Korea While Treasuries Rally

May 28, 2010

By Michael P. Regan and Elizabeth Stanton May 28 (Bloomberg) — A drop in U.S. stocks halted a global advance and Treasuries rose as economic reports that missed estimates damped optimism about the strength of the recovery and concern grew that tensions are escalating on the Korean peninsula. The Standard & Poor’s 500 Index slipped 0.6 percent to 1,096.19 at 11:58 a.m. in New York, led by petroleum companies after U.S. President Barack Obama extended a moratorium on deep- water drilling. Oil erased gains after rallying as much as 1.6 percent to more than $75 a barrel. Ten-year Treasury yields decreased 4 basis points to 3.32 percent after surging 17 basis points yesterday. U.S. consumer spending was unexpectedly unchanged in April as Americans used higher wages to rebuild savings, Commerce Department data showed, while the Institute for Supply Management-Chicago Inc.’s business barometer fell more than the median economist projection. Equities extended losses as a North Korean general warned of “all out war” if any accidental clashes with South Korea break out. “This definitely sent some jitters through the market,” Craig Peckham , equity product strategist at Jefferies Group Inc. in New York, said of the tensions in Korea. “People seem to be rattled by it, but also are receiving the information a little bit skeptically. The timing seemed peculiar given that it’s the middle of the night in Korea.” ‘All Out War’ The S&P 500 fell to its low of the day after North Korean Major General Pak Rim Su disputed the results of the international investigation that found his nation sank a South Korean warship. He said “any accidental clash that may break out in the waters of the West Sea of Korea or in areas along the Demilitarized Zone will lead to all-out war,” according to a statement from North Korea’s official news organization. Less than 3.8 billion shares changed hands so far today on all U.S. exchanges, 52 percent below the same time last week, as trading slowed before the Memorial Day holiday. “With volumes being as they are today ahead of the holiday weekend, there is not much in the way of conviction among traders,” said Mark Turner , head of U.S. sales trading at Instinet LLC, which handles about 4 percent of U.S. equity trading volume. “So any headline has the potential to move the market. And the situation in North Korea has especially been in our crosshairs.” The retreat in the S&P 500 today came after the benchmark index rallied 3.3 percent yesterday as China assured investors it was committed to maintaining European investments even as a sovereign debt crisis rattles confidence in the region. Weekly, Monthly Returns The S&P 500 clung to a 0.8 percent advance for the week, while the MSCI World Index of shares in 24 developed nations is up 1 percent over the past five days. This week’s gains pared a May drop in the MSCI World to 9.5 percent. The S&P 500 is down 7.6 percent in May. Both are headed for their deepest monthly declines since February 2009. The Stoxx Europe 600 Index erased gains, dropping 0.3 percent after rallying as much as 0.7 percent. The MSCI Asia Pacific Index climbed 1.5 percent. BP Plc slid 6 percent in London after Europe’s second- largest oil company said procedures to plug a leaking well in the Gulf of Mexico may last another day or two. BP added rubber golf balls and scraps to the mud it was pumping into its leaking Gulf of Mexico oil well in an effort to stop the spill. Oilfield Services Shares Baker Hughes Inc., Halliburton Co., Transocean Ltd. and Schlumberger Ltd. slumped at least 3.7 percent to lead declines in U.S. energy shares. Obama is suspending exploration in two areas off Alaska, canceling pending lease sales in the Gulf of Mexico and proposed sales off Virginia’s coast, extending by six months a moratorium on deepwater drilling permits and suspending operations at all 33 exploratory wells being drilled in the Gulf. Treasuries headed for the biggest monthly gain since January, as concern Europe’s fiscal crisis will slow economic growth lifted demand for the safety of government debt and data showed U.S. inflation remained subdued. The 10-year touched 3.06 percent on May 25, the lowest level since April 2009. Its 17 basis-point gain yesterday was the most since June. Crude oil for July delivery slipped 0.1 percent to $74.45 a barrel in New York trading. Copper for July delivery slipped 0.6 percent to $3.1405 a pound in New York. Nickel, tin and zinc also retreated in London. Default Swaps Rise The cost to protect against corporate defaults in the U.S. rose, erasing earlier declines. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 2.7 basis points to a mid-price of 118.53 basis points, according to Markit Group Ltd. The index typically falls as investor confidence improves and rises as it deteriorates. Credit markets slowed this month, with global companies selling the smallest amount of bonds in a decade, according to data compiled by Bloomberg. Borrowers issued $61.1 billion of notes in currencies from dollars to yen, a third of April’s tally and the least since December 2000. The extra yield investors demand to hold the securities instead of benchmark government debt widened 44 basis points to 193, Bank of America Merrill Lynch index data show, the biggest increase since the aftermath of Lehman Brothers Holdings Inc.’s collapse. To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net ; Elizabeth Stanton in New York at estanton@bloomberg.net .

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Stocks Extend Rebound From Nine-Month Low; U.S. Futures Advance, Oil Gains

May 28, 2010

By Stuart Wallace May 28 (Bloomberg) — Stocks advanced for a third day, led by emerging markets, extending the rebound from a nine-month low. Oil rallied above $75 a barrel and the South Korean won strengthened. The MSCI Emerging Markets Index rose 1.8 percent as of 9:36 a.m. in London, poised for the biggest three-day rally in a year. The MSCI World Index, a gauge of equities in 24 developed nations, added 0.7 percent. Futures on the Standard & Poor’s 500 Index advanced 0.1 percent. Crude increased for a third day. South Korea’s won gained 2.4 percent against the dollar and the euro strengthened 0.5 percent against the dollar. This week’s advances in stocks and commodities pared a rout in May that’s the deepest since October 2008, the month after the collapse of Lehman Brothers Holdings Inc. U.S. consumer spending probably rose in April for a seventh consecutive month as incomes improved, economists said before a Commerce Department report scheduled for later today. “I’m an optimist,” James Bevan , chief investment officer at CCLA Investment Management, said in a Bloomberg Television interview. “The economic fundamentals are rather better than some suspect and that’s certainly coming through in terms of the corporate earnings numbers. Companies are demonstrating better profits than many people had dared anticipate.” The Stoxx Europe 600 Index rose 0.4 percent as Travis Perkins Plc rallied. The owner of Wickes home-improvement stores surged 8.3 percent after offering to buy BSS Group Plc to create the U.K.’s largest plumbing and heating materials chain. BP Declines BP Plc slid 1.9 percent after Europe’s second-largest oil company said the “top kill” procedure to plug a leaking well in the Gulf of Mexico may last another 24 to 48 hours. The MSCI Asia Pacific Index climbed for a third day, surging 1.5 percent. The MSCI emerging-markets index headed for its highest closing level in eight days. South Korea’s Kospi Index advanced 1 percent as foreign investors added to stock holdings for the first time in 10 days and a central bank report showed manufacturers’ confidence stayed near a seven-year high. The nation’s equities and currency tumbled earlier this week amid mounting tension with North Korea over the sinking of one of the South’s warships. The ruble in Russia, the world’s largest energy exporter, strengthened 1.1 percent versus the dollar. The euro rose for a second day against the dollar, strengthening 0.5 percent to $1.2430. It appreciated 0.8 percent compared with the yen, which declined against all 16 of its most-traded counterparts. The U.S. Dollar Index , which tracks the currency against six trading partners, slid 0.2 percent. U.S. Futures Futures on the S&P 500 rose 0.2 percent before reports on U.S. personal spending, business activity and consumer confidence. Spending probably increased in April for a seventh consecutive month as incomes improved, economists said before a report due at 8:30 a.m. in Washington. Other data today may show the Institute for Supply Management-Chicago Inc.’s business barometer, due at 9:45 a.m., fell to 61 from a five-year high of 63.8 in April. At 9:55 a.m., a report from Thomson Reuters/University of Michigan may show its consumer sentiment index climbed to 73.3 this month from 72.2 in April. Crude oil for July delivery gained 1.4 percent to $75.61 a barrel in New York trading. Copper for delivery in three months was 0.1 percent higher at $6,992 a metric ton on the London Metal Exchange. Aluminum and zinc also rose. Gold for immediate delivery added 0.2 percent to $1,214.90 an ounce, rising for a fifth consecutive day. Bonds Rise Government bonds rose, with the yield on the 10-year Treasury falling four basis points to 3.33 percent. The yield on the German bund, Europe’s benchmark government security, also dropped three basis points, to 2.69 percent. The cost of protecting against a default on European corporate bonds fell, with the Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies declining 13.1 basis points to 547.1, according to Markit Group Ltd. Contracts tied to Greece’s government debt dropped 15.5 basis points to 670.5, after climbing as high as 941 on May 6 at the height of the country’s debt crisis, CMA DataVision prices show. Credit markets froze this month, with global companies selling the smallest amount of bonds in a decade, according to data compiled by Bloomberg. Borrowers issued $61.1 billion of notes in currencies from dollars to yen, a third of April’s tally and the least since December 2000. The extra yield investors demand to hold the securities instead of benchmark government debt widened 44 basis points to 193, Bank of America Merrill Lynch index data show, the biggest increase since the aftermath of Lehman Brothers Holdings Inc.’s collapse. To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net

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Stocks Extend Rebound From Nine-Month Low; U.S. Futures Advance, Oil Gains

May 28, 2010

By Stuart Wallace May 28 (Bloomberg) — Stocks advanced for a third day, led by emerging markets, extending the rebound from a nine-month low. Oil rallied above $75 a barrel and the South Korean won strengthened. The MSCI Emerging Markets Index rose 1.8 percent as of 9:36 a.m. in London, poised for the biggest three-day rally in a year. The MSCI World Index, a gauge of equities in 24 developed nations, added 0.7 percent. Futures on the Standard & Poor’s 500 Index advanced 0.1 percent. Crude increased for a third day. South Korea’s won gained 2.4 percent against the dollar and the euro strengthened 0.5 percent against the dollar. This week’s advances in stocks and commodities pared a rout in May that’s the deepest since October 2008, the month after the collapse of Lehman Brothers Holdings Inc. U.S. consumer spending probably rose in April for a seventh consecutive month as incomes improved, economists said before a Commerce Department report scheduled for later today. “I’m an optimist,” James Bevan , chief investment officer at CCLA Investment Management, said in a Bloomberg Television interview. “The economic fundamentals are rather better than some suspect and that’s certainly coming through in terms of the corporate earnings numbers. Companies are demonstrating better profits than many people had dared anticipate.” The Stoxx Europe 600 Index rose 0.4 percent as Travis Perkins Plc rallied. The owner of Wickes home-improvement stores surged 8.3 percent after offering to buy BSS Group Plc to create the U.K.’s largest plumbing and heating materials chain. BP Declines BP Plc slid 1.9 percent after Europe’s second-largest oil company said the “top kill” procedure to plug a leaking well in the Gulf of Mexico may last another 24 to 48 hours. The MSCI Asia Pacific Index climbed for a third day, surging 1.5 percent. The MSCI emerging-markets index headed for its highest closing level in eight days. South Korea’s Kospi Index advanced 1 percent as foreign investors added to stock holdings for the first time in 10 days and a central bank report showed manufacturers’ confidence stayed near a seven-year high. The nation’s equities and currency tumbled earlier this week amid mounting tension with North Korea over the sinking of one of the South’s warships. The ruble in Russia, the world’s largest energy exporter, strengthened 1.1 percent versus the dollar. The euro rose for a second day against the dollar, strengthening 0.5 percent to $1.2430. It appreciated 0.8 percent compared with the yen, which declined against all 16 of its most-traded counterparts. The U.S. Dollar Index , which tracks the currency against six trading partners, slid 0.2 percent. U.S. Futures Futures on the S&P 500 rose 0.2 percent before reports on U.S. personal spending, business activity and consumer confidence. Spending probably increased in April for a seventh consecutive month as incomes improved, economists said before a report due at 8:30 a.m. in Washington. Other data today may show the Institute for Supply Management-Chicago Inc.’s business barometer, due at 9:45 a.m., fell to 61 from a five-year high of 63.8 in April. At 9:55 a.m., a report from Thomson Reuters/University of Michigan may show its consumer sentiment index climbed to 73.3 this month from 72.2 in April. Crude oil for July delivery gained 1.4 percent to $75.61 a barrel in New York trading. Copper for delivery in three months was 0.1 percent higher at $6,992 a metric ton on the London Metal Exchange. Aluminum and zinc also rose. Gold for immediate delivery added 0.2 percent to $1,214.90 an ounce, rising for a fifth consecutive day. Bonds Rise Government bonds rose, with the yield on the 10-year Treasury falling four basis points to 3.33 percent. The yield on the German bund, Europe’s benchmark government security, also dropped three basis points, to 2.69 percent. The cost of protecting against a default on European corporate bonds fell, with the Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies declining 13.1 basis points to 547.1, according to Markit Group Ltd. Contracts tied to Greece’s government debt dropped 15.5 basis points to 670.5, after climbing as high as 941 on May 6 at the height of the country’s debt crisis, CMA DataVision prices show. Credit markets froze this month, with global companies selling the smallest amount of bonds in a decade, according to data compiled by Bloomberg. Borrowers issued $61.1 billion of notes in currencies from dollars to yen, a third of April’s tally and the least since December 2000. The extra yield investors demand to hold the securities instead of benchmark government debt widened 44 basis points to 193, Bank of America Merrill Lynch index data show, the biggest increase since the aftermath of Lehman Brothers Holdings Inc.’s collapse. To contact the reporter on this story: Stuart Wallace in London at swallace6@bloomberg.net

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Japan Curbs Transfers of Cash to North Korea, Authorizes Searches of Ships

May 27, 2010

By Takashi Hirokawa May 28 (Bloomberg) — Japan will tighten controls on sending money to North Korea, requiring people to notify the finance ministry on remittances that exceed 3 million yen ($32,800). The reporting cap will be lowered from the current 10 million yen, Chief Cabinet Secretary Hirofumi Hirano said in Tokyo today. The change is a response to recent North Korean aggression.

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Gilbert B. Kaplan: The Manufacturing Sector as Sacrificial Lamb

May 27, 2010

The outcome of today’s Security and Economic Dialogue (S & ED) talks in Beijing is discouraging for those of us who want to see an immediate effect on Main Street. No specific movement has taken place on currency issues. China’s President Hu says he will take action on currency, but he doesn’t say what action he will take or when he will take it. China’s currency is undervalued by about 40%. It is unlikely that anything he is even contemplating would close that gap. And while we wait for him to make up his mind, more jobs in the U. S. will be lost to China. The United States is playing defense everywhere in the world. Militarily we are losing influence and appear to be losing wars. Diplomatically our powers of persuasion are waning. And in international trade, jobs are moving off-shore, we have no sustained manufacturing policy, and the production sectors in other countries’ economies are growing faster than ours. There is certainly a great effort to solve the military and diplomatic problems, but what are we doing on trade? President Obama is aware of the issue, but the solutions are hard to find and are not being articulated. To me, a large part of the problem is that industrial growth in this country, indeed what used to be called industrial policy, takes a second chair to almost every other policy in Washington. The biggest example of that right now is this failure to address currency undervaluation in China, in a forthright and immediate fashion. It has now been years since the problem has been identified. When I served in the United States government, I heard regularly that we could never deal with the Japan trade issues aggressively because we needed our military bases in Japan in order to stand up to the then-Soviet Union. Now we hear we can’t stand up to China because we need their help on Iran and North Korea or on global warming issues. But we can’t keep paying for military and diplomatic victories–assuming we are even achieving these–by trading away our economic prowess. Put simply, the cost is too high and we don’t have enough chips left. As Clyde Prestowitz puts it in his new book, The Betrayal of American Prosperity , “the United States fell into the habit–and the addiction continues today–of making economic concessions in order to obtain geopolitical objectives.” He also notes that the blind adherence to laissez faire economics and trade policy was not the way we became a great power and world technology leader. Indeed, the time when America emerged as a world leader–broadly the beginning through the middle of the twentieth century–was when the U. S. government intervened in the economy and actively supported U. S. manufacturing. Why aren’t we able or willing to do that today? I think the biggest single reason is the failure of the policy community to come up with a sustained and powerful rationale for doing so. There are voices out there calling for this renaissance: Prestowitz, many elected representatives on Capital Hill, Leo Gerard and other union leaders. But for every one of these there are more on the other side, repeating stale mantras calling for more work on the Doha Round, saying we should only talk softly to China while they continue to engage in mercantilist policies, and standing up for a trading system that is not reciprocal. What we need is a renaissance of American production. We need to make things in this country and balance the terms of trade or our future, and even more our children’s future, will be very dim. As a country we will go further in debt and we will not have the productive capacity to work our way out of it. How do we create this renaissance? First, we need to create a sustained policy dialogue that will challenge the current assumptions and develop alternatives. To this end, I plan to sponsor a Conference calling for the revival of American manufacturing which will meet in early fall, bringing together the key players on the issue, companies in the U. S., trade associations concerned about this issue, labor leaders, and policy and legal thinkers. This will be under the rubric of the Committee to Support U. S. Trade Laws, an organization devoted to keeping American trade laws strong, of which I am the President. As part of this effort, we are coming up with new legislation which will strengthen the U. S. trade laws, particularly in the area of ending evasion and fraud. It is amazing that the U. S. has allowed foreign producers to take advantage of weaknesses in enforcement powers under these laws for so long. The conference and our policy analysis needs to lead into 2010 House and Senate elections, and make it clear that, quite simply, we are not going to take it any more. The loss of jobs and manufacturing needs to be an election issue. We cannot walk away from manufacturing and remain any kind of great power in the future. Candidates who support this goal of returning production to the U. S. should be supported by the American electorate. Those who soft pedal it should not. Indeed this was a key issue in the special election in Western Pennsylvania in which Mark Critz was elected to John Murtha’s seat, and where he stood up strongly against the off-shoring of U. S. jobs. Making manufacturing a sacrificial lamb has got to come to an end as part of the 2010 elections.

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China May Shield North Korea as Lee, U.S. Seek Action

May 27, 2010

By Bloomberg News May 27 (Bloomberg) — Chinese Premier Wen Jiabao is likely to resist pressure to acknowledge that North Korea torpedoed a South Korean warship when he flies to Seoul tomorrow to meet President Lee Myung Bak and Japan’s Yukio Hatoyama . China hasn’t followed South Korea, Japan and the U.S. in blaming North Korea for the March 26 sinking of the Cheonan, which killed 46 sailors. Vice Foreign Minister Zhang Zhijun yesterday repeated a call for “restraint” by both sides and said China had no “firsthand information” on the sinking. China wants to avoid a conflict on the Korean peninsula, and is concerned that taking South Korea’s side may provoke North Korea into further escalations and even lead to war, said Shen Dingli , vice dean of the Institute of International Affairs at Shanghai’s Fudan University . “North Korea is dying, and we can make things worse,” Shen said. “We have assumed North Korea is not a rational actor.” South Korea’s navy today began exercises off its western coast, including anti-submarine operations involving the firing of depth charges, a military official said. About 10 warships are participating in the two-day drill, the official said, asking not to be identified because of security concerns. China has a big stake in stability in Northeast Asia. Japan and South Korea are China’s third- and fourth-biggest trading partners after the European Union and the U.S., with combined two-way trade reaching $485.1 billion in 2009, Chinese customs figures show. Trade Imbalance China’s two-way trade with North Korea, at $2.7 billion last year, is less than 1 percent of that total, even though the two countries share a 1,415-kilometer (880-mile) border and an alliance going back to China’s 1950 entry into the Korean War. “If our region falls into chaos it will undermine the interests of all parties concerned,” Zhang said yesterday. South Korea, Japan and the U.S. want the North to acknowledge its responsibility for the incident. An international panel on May 20 concluded North Korea was behind the attack. South Korea wants China to acknowledge the findings. “They won’t be able to ignore the truth,” South Korean Foreign Minister Yu Myung Hwan said yesterday at a joint press conference with U.S. Secretary of State Hillary Clinton in Seoul. President Lee said on May 24 that “no responsible country in the international community will be able to deny the fact that the Cheonan was sunk by North Korea.” Unified Response Clinton is also working to bring China around. “We expect to be working together with China in responding to North Korea’s provocative action and promoting stability in the region,” Clinton said May 25 in Beijing at the conclusion of two days of talks. China’s government may conclude that taking South Korea’s side will only stoke a cycle of escalation, Shen said. Wen is scheduled to have talks with Lee and meet with both Lee and Hatoyama at a three-nation summit on South Korea’s Jeju Island. He met with North Korean leader Kim Jong Il earlier this month in Beijing. China may be willing to condemn the sinking of the Cheonan in a United Nations Security Council resolution provided that North Korea is not singled out for blame, Shen said. Such an outcome may end the cycle of escalation, he said. Hand-Outs Kim’s regime, which has been relying on handouts since the mid-1990s, is suffering from worsening shortages of goods after its botched currency revaluation late last year. Academics including Rudiger Frank , professor of East Asian Economy and Society at the University of Vienna, said that was aimed at rolling back an experiment with free markets that had loosened the state’s control over jobs, food and patronage. The UN World Food Program said this month its food aid to North Korea will run out by the end of next month. UN sanctions imposed on North Korea after its second nuclear test in May 2009 caused the country’s international commerce to shrink 9.7 percent last year, according to Seoul- based trade agency, Kotra. The North doesn’t release its own trade figures. North Korea this week said it will cut all ties to the South in response to the findings of the panel. Kim ordered his military to be combat-ready, a Seoul-based dissident group said, sending the Korean won down 3 percent against the dollar on May 25, the biggest one-day drop since March 30, 2009. Radio Propaganda The South responded by resuming radio broadcasts into North Korea that it called the “voice of freedom.” The won was little changed yesterday at 1,252.28. South Korea’s broadcasting of propaganda into North Korea was “a deliberate and premeditated provocation” aimed at pushing the peninsula “to the brink of war,” North Korea’s state-run Korean Central News Agency said yesterday. In response to the sinking, the U.S. military is preparing exercises with South Korea in anti-submarine maneuvers and interdicting vessels. The U.S. has about 28,500 troops in South Korea, a legacy of its Korean War involvement in the 1950s. “China is doing the thing that best suits China’s interests and everyone’s interest,” Shen said. “China is not pushing the envelope either on the North Korean side to be aggressive or on the South Korean to punish North Korea with warfare.” — Michael Forsythe . With assistance from Bomi Lim and Nicole Gaouette in Seoul. Editors: Ben Richardson , Mark Williams . To contact the reporter on this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

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Templeton’s Mobius Buys BRIC Stocks in Bet Drop Is Bull Market Correction

May 26, 2010

By Mahmoud Kassem May 27 (Bloomberg) — Templeton Asset Management Ltd.’s Mark Mobius said he’s been buying stocks in Brazil, Russia, India and China in the past month and called the slump in emerging-economy shares a “correction” in a bull market. “Despite the fact that a lot of people think that we are entering into a bear market, we don’t believe so,” Mobius, who oversees about $34 billion in emerging markets as Templeton Asset Management’s Singapore-based executive chairman, said in an interview yesterday in Cairo. “This is a correction in an ongoing bull market.” The MSCI Emerging Markets Index has dropped 16 percent from an April 15 high on concern China’s steps to slow inflation and European nations’ struggle to finance their deficits will derail the global economic recovery. The measure has climbed 94 percent from a four-year low in October 2008 and gained 3.2 percent yesterday, rebounding from the steepest drop since March 2009, on speculation valuations are attractive given prospects for accelerating economic growth. “When the time comes, emerging markets will recover faster and in a big way,” Mobius said. “We’ve been buying because we have had net flows into our funds. And most of the buying has been in the BRIC countries.” Templeton has also been buying equities in other nations, including Dubai and Egypt, he said. The firm hasn’t reduced holdings in South Korea because the companies it owns were “relatively inexpensive” when it purchased them and may benefit from international sales should South Korea’s economic rebound stall, Mobius said. North Korea expelled eight South Korean government workers and threatened to close the border yesterday as U.S. Secretary of State Hillary Clinton said in Seoul it’s not too late to make amends for sinking one of the South’s warships. To contact the reporter on this story: Mahmoud Kassem in Cairo at Mkassem1@bloomberg.net

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North Korea Expels Eight South Koreans, Threatens to Shut Last Border Post

May 26, 2010

By Bomi Lim and Nicole Gaouette May 26 (Bloomberg) — North Korea expelled eight South Korean government workers and threatened to close the border as U.S. Secretary of State Hillary Clinton said it wasn’t too late to make amends for sinking one of the South’s warships. “There is an opportunity here for the North Koreans to see that their behavior is unacceptable,” Clinton said in Seoul today after meeting with Foreign Minister Yu Myung Hwan .“They need to look internally to see what they could do to improve the standing of their own people and provide a different future.” North Korea’s threats to sever all ties in retaliation for an accusation it denies have yet to include about 890 non- government workers at the 121 South Korean companies operating in the joint Gaeseong industrial park within its borders. South Korea’s benchmark stock index climbed 1.4 percent, recovering about half of yesterday’s decline, on investor optimism that the worst tension on the peninsula in two decades may soon subside. South Korean stocks are a “screaming buy for investors looking for a quick rebound,” Henry Seggerman , president of New York-based International Investment Advisers, said in a Bloomberg Television interview. “The pullback in the Korean stock market is making it the cheapest market in Asia.” North Korea yesterday said it will cut all ties to the South in response to the findings of an international panel that concluded the North was behind the March 26 sinking of the Cheonan. Kim ordered his military to be combat-ready, a Seoul- based dissident group said yesterday, sending the Korean won down 3 percent against the dollar. The South has responded by resuming radio broadcasts into North Korea that it called the “voice of freedom.” The won was little changed today at 1,252.28. ‘Premeditated Provocation’ South Korea’s broadcasting of propaganda into North Korea was “a deliberate and premeditated provocation” aimed at pushing the peninsula “to the brink of war,” the state-run Korean Central News Agency said today. Amid dual threats of military retaliation, about 890 South Koreans crossed the border as usual today to work at the Gaeseong industrial complex. South Korea has not detected any abnormalities within North Korea or along the border, presidential spokesman Park Sun Kyoo told reporters today in Seoul. South Korea is closely monitoring the situation, Park said. Clinton will be followed to South Korea by Chinese Premier Wen Jiabao , who arrives May 28 for a summit with President Lee Myung Bak and Japan’s Prime Minister Yukio Hatoyama . China, North Korea’s main ally, has so far refused to be drawn into taking a stand on the sinking of the Cheonan, in which 46 South Korean sailors died. Cautious Assessment “We are seriously and cautiously looking at assessing the information coming in from all sides,” Vice Foreign Minister Zhang Zhijun said in Beijing today. “We will objectively handle this case depending on the merits. If our region falls into chaos it will undermine the interests of all parties concerned.” South and North Korea have traded accusations and threats of military action since the May 20 report by an international panel that included experts from the U.S., Australia, the U.K. and Sweden. South Korea announced military exercises with the U.S. close to the disputed border with the North, barred investment and cut trade — excluding the industrial zone. The Gaeseong complex employs almost 44,000 North Korean workers. The zone accounted for 56 percent of North Korea’s $1.7 billion in international trade last year, according to the South’s Unification Ministry. North Korea, which doesn’t release its own trade data, relies on aid from and trade with China to stay afloat. UN Sanctions United Nations sanctions imposed after the North carried out a second nuclear test in 2009 caused trade to drop 9.7 percent last year to $5.1 billion, the ministry said. China now accounts for about 80 percent of commerce with the country. As well as being North Korea’s main ally, China also hosts international talks intended to prod the North to abandon its nuclear weapons program. In addition to the two Koreas, the talks include the U.S. Japan and Russia. The U.S., China and Russia have veto power on the UN Security Council. Russia will cooperate in sending a “clear signal” to North Korea, President Dmitry Medvedev said in a phone conversation with Lee yesterday, according to a statement posted on the website of Lee’s office in Seoul. It may take time to convince China and Russia to join global condemnation against North Korea, Yu said. “They won’t be able to ignore the truth,” he said at a joint press conference with Clinton. Deepening Ties The North Korean crisis comes as U.S. President Obama pursues a strategic goal in Asia of deepening ties with China as its economic and military power expands. The U.S. military is preparing exercises with South Korea in anti-submarine maneuvers and interdicting vessels. The U.S. has about 28,500 troops in South Korea, a legacy of its Korean War involvement in the 1950s. “With all the talk about military drills, this is an opportunity for the U.S. to increase its influence in the region,” Abraham Kim , Asia analyst for the Eurasia Group , a New York-based political-risk analysis firm, said in an interview. “China would consider that problematic, so they may feel forced to take some kind of measures to stabilize the situation.” Threats of war by North Korea carried by KCNA are common. A March 26 report warned of “unprecedented nuclear strikes” against enemies while a June 9, 2009, bulletin warned of “merciless strikes” using the country’s nuclear deterrent. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net .

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Asia Stocks, Copper, Oil Rebound on Speculation China’s Demand to Increase

May 25, 2010

By Darren Boey May 26 (Bloomberg) — Asian stocks rallied from a 10-month low, led by commodity companies, as speculation of rising demand in China overshadowed Europe debt concerns that dragged the euro lower. The won stabilized as South Korea’s government pledged to intervene in markets amid tensions with the North. The MSCI Asia Pacific Index climbed 1 percent to 109.90 as of 1:22 p.m. in Tokyo, rising from its lowest close since July 2009. The measure’s gauge of raw-material producers climbed 2.2 percent as copper and oil gained more than 1 percent. Standard & Poor’s 500 Index futures rose 0.5 percent. The euro fell to $1.2299 in Tokyo from $1.2345 in New York. The won lost 0.1 percent, after slumping yesterday by the most in a year. Investor sentiment improved after Rio Tinto Group, the world’s third-biggest mining company, said it expects commodity demand in China, the engine of the global recovery, to increase in the next 15 years. Concerns the European debt crisis and Chinese property curbs will hurt growth have dragged the MSCI World Index down by 15 percent from its high this year in April. “We’ve got bad news just about every place you can look but at on the other hand, we’ve got rising earnings and better economic conditions in most of the world,” Donald Gimbel , senior managing director at Carret Asset Management LLC, said in a Bloomberg Television interview. “Now is probably an opportune time to pick up some of the bargains that have been created over the past two or three weeks.” Seven stocks rose for every three that fell on the MSCI Asia Pacific Index . Hong Kong’s Hang Seng Index gained 1.2 percent and Australia’s S&P/ASX 200 Index climbed 1.6 percent. Japan’s Nikkei 225 Stock Average increased 1.1 percent. Biggest Advance The MSCI index’s gauge of material producers posted the biggest advance of 10 industry groups on speculation earnings will benefit from rising prices. BHP Billiton, the world’s largest mining company, climbed 3.5 percent to A$37.55, while Rio Tinto increased 3.8 percent to A$64.04. Copper advanced to $6,834 a metric ton on the London Metal Exchange, increasing for the fourth time in five days, while crude oil reached $69.72 a barrel in New York. Oil prices also rose after an American Petroleum Institute report showed that U.S. gasoline stockpiles declined. “China’s demand for iron ore, copper, coal and aluminum is expected to grow over the next 15 years, after which time we expect to see increasing demand from India,” Jan du Plessis, chairman of London-based Rio, said today at its annual meeting in Melbourne. Baltic Dry Shipping stocks gained after the Baltic Dry Index, a measure of shipping costs for commodities, jumped 6.2 percent, the biggest gain since March 4, to its highest level in six months. STX Pan Ocean Co. , South Korea’s biggest bulk carrier, surged 7.1 percent to 11,350 won. Korea Line Corp. , the second- largest, jumped 3.6 percent to 49,150 won. Defense-related shares in South Korea extended advances on speculation demand for their products will increase. Victek Co. , which makes electronic warfare equipment, climbed 2.9 percent to 4,425 won. Speco Co. , a military installation parts developer, advanced 10 percent, taking a four-day surge to 50 percent. The won lost 0.1 percent to 1,252.66 per dollar. Vice Finance Minister Yim Jong Yong said today that “authorities will supply sufficient foreign currency liquidity if needed.” The currency yesterday plunged 3 percent after a report by a defector group based in Seoul said North Korea’s military was ordered to prepare for combat on May 20, when South Korea said its communist neighbor was responsible for the March sinking of a warship. Euro Declines North Korea said it will sever ties with the South and expel its workers from a joint industrial zone as “punishment” for accusing it of the torpedo attack, which killed 46 sailors. The euro fell against the dollar and yen for a third day on speculation tightened financial regulations amidst Europe’s debt crisis will stifle economic growth and demand for higher- yielding assets. “Rebuilding finances will take a long time,” said Masahide Tanaka , a senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “This is a structural problem, which may spread to other nations in the region. The euro is set to go down.” The euro dropped to 110.93 yen from 111.39 yen. It sank to 108.84 yen yesterday, the least since November 2001, and touched $1.2178, the lowest since May 19. Australia’s dollar lost 0.4 percent to 82.44 U.S. cents. European leaders face “the difficult challenge of trying to restore sustainability to an unsustainable system,” U.S. Treasury Secretary Timothy F. Geithner told a group of mid- career Chinese government officials in Beijing yesterday. He said the European Union launched its common currency with a budgeting framework that put restraints on borrowing without tools needed to deal with country-specific imbalances. The cost of insuring Asian bonds from default fell from a 10-month high reached yesterday, according to traders of credit- default swaps. The Markit iTraxx Asia index of 50 investment- grade borrowers outside Japan dropped 12 basis points to 160.5 basis points, according to Royal Bank of Scotland Group Plc. To contact the reporter for this story: Darren Boey in Hong Kong at dboey@bloomberg.net .

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Stocks in U.S. Recover From Rout as Euro Pares Decline Against Dollar, Yen

May 25, 2010

By Rita Nazareth and Nick Baker May 25 (Bloomberg) — U.S. stocks erased losses, paring a global retreat in equities, while the euro wiped out most of its declines against the dollar and yen on speculation financial reform will hurt bank earnings less than estimated. Equities rebounded after briefly falling to the weakest levels of 2010. The Standard & Poor’s 500 Index rose less than 0.1 percent, recovering from a 3.1 percent slump, after dropping its February low of 1,044. The MSCI World Index of shares in 23 developed nations fell 1.5 percent after losing up to 3.4 percent. The euro climbed to $1.2374 and 111.75 yen at 5:50 p.m. in New York, jumping from $1.2178 and 108.84 yen. The yield on 10-year Treasuries dropped 4 basis points to 3.16 percent after touching 3.06 percent as investors snapped up the safest assets earlier. The recovery in U.S. equities reduced losses from a global selloff that sent the MSCI World Index to the lowest intraday level since July 30 and pushed Russian shares down 20 percent from their April peak. U.S. Representative Barney Frank , who will lead congressional talks to produce a financial-regulation bill, said Senate language that would require commercial banks to wall off their swaps-trading operations “goes too far.” “Bulls were inspired to go back into the market,” said Michael O’Rourke , chief market strategist at BTIG LLC in Yardley, Pennsylvania. “It’s tough to sustain that kind of drop without a strong a catalyst. We didn’t see a default.” Bank Mergers Concern the European debt crisis will spread has driven the MSCI World Index down 16 percent after Greece, Spain and Portugal had their credit ratings cut. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners, boosting speculation that the nation’s ailing lenders signal widening turmoil. Goldman Sachs Group Inc. rose 4.3 percent to help the S&P 500 Financials Index erase a 3.4 percent drop. Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp. jumped at least 2.3 percent as a gauge of commodity producers reversed a 3.3 percent tumble. The Dow Jones Industrial Average slipped 22.82 points to 10,043.75 after plunging 292 points in the morning. “It was a technical rebound,” said James Paulsen , who helps oversee about $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “The stock market was oversold. We’ve breached so many levels so quickly. The economic recovery is still in place.” Consumers gained more confidence in May than projected as a recovering U.S. economy raised expectations hiring will pick up in coming months. The Conference Board’s confidence index rose to 63.3, exceeding all estimates of economists surveyed by Bloomberg News and the highest level in two years, according to a report today from the New York-based private research group. Libor Rises Earlier declines in stocks came after bank borrowing rate known as Libor rose for an 11th straight day and North Korea said it will sever ties with South Korea as tensions between the nations escalate. The U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of the Asian nation’s warship. U.S. stocks are “oversold” and likely to rebound to a level short of this year’s intraday high of 1,219.80, according to Marc Faber , publisher of the Gloom, Boom & Doom report. The S&P 500 has slumped 12 percent from its 19-month high on April 23 amid concern the global economic rebound will be derailed as European governments struggle with swelling budget deficits. “The market is near-term oversold,” Faber said in a Bloomberg Television interview today. “I don’t think we’ll go and make a new high above 1,219 on the S&P, but I think we can rally here somewhat.” To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net ; Nick Baker in New York at nbaker7@bloomberg.net .

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Video: Todd Sees Decline in U.S. Stocks as `Healthy Pullback’: Video

May 25, 2010

May 25 (Bloomberg) — Walter Todd, co-chief investment officer at Greenwood Capital Associates LLC, talks with Bloomberg’s Carol Massar and Matt Miller about the outlook for U.S. stocks. Todd also discusses the possible impact of tensions between North Korea and South Korea on financial markets and Europe’s financial crisis on stocks, and his investment strategy. (Source: Bloomberg)

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Home Prices in U.S. Cities Climbed 2.3% in March, Case-Shiller Index Shows

May 25, 2010

By Bob Willis May 25 (Bloomberg) — Home prices in 20 U.S. cities rose less than forecast in March from a year earlier, a sign the housing recovery is cooling. The S&P/Case-Shiller home-price index of property values in 20 cities increased 2.3 percent from March 2009, the group said today in New York. The median forecast of economists surveyed by Bloomberg News projected a 2.5 percent advance. Nationally, prices last quarter dropped 3.2 percent from the previous three months. Federal tax credits have succeeded in propping up home sales and prices, raising concern the looming end of government support will spell another round of losses. Any sustained recovery in housing hinges on maintaining and deepening job growth in the world’s biggest economy. The housing market is “fragile,” Karl Case , co-founder of the index, said in an interview on Bloomberg Radio with Tom Keene. “There’s a lot of inventory out there. It takes guts to buy a house and it particularly takes guts to buy a house in a tough economic environment.” Just the same, “prices are holding,” he said. Confidence among U.S. consumers increased in May to the highest level since March 2008 as Americans became more upbeat about job prospects, another report showed. The Conference Board’s confidence index rose to 63.3, exceeding the highest estimate in a Bloomberg News survey, from a revised 57.7 in April, figures from the New York-based private research group showed. Shares Drop Stocks dropped as bank borrowing costs rose and on reports that North Korea ordered its military to prepare for combat. The Standard & Poor’s 500 Index fell 2.1 percent to 1,050.74 at 10:09 a.m. in New York. Treasury securities jumped, sending the yield on the benchmark 10-year note down to 3.14 percent from 3.20 percent late yesterday. The year-over-year forecast was based on the median of 26 economists surveyed. Estimates ranged from a gain of 1.5 percent to a gain of 3.3 percent. Year-over-year records began in 2001. The group revised February figures to show a 0.7 percent year- over-year gain compared with a previously estimated increase of 0.6 percent. The decrease in the national gauge of home prices last quarter followed a 1 percent drop in the last three months of 2009. The declines followed gains in the previous two quarters. 12-Month Gain In the 12 months ended in March, property values nationally were up 2 percent from the same time last year. Adjusted for seasonal variations, the 20-city index was unchanged in March from February. Unadjusted, the gauge dropped 0.5 percent from February, the sixth consecutive decrease. While the data include month-to-month changes in prices adjusted for seasonal variations, it’s best to focus on the year-over-year trends, the group charged with issuing the report said on April 20. The panel includes Karl Case and Robert Shiller , the economists who created the gauges. The unadjusted data showed 13 of the 20 cities in the S&P/Case-Shiller index decreased over the prior month, led by a 4.1 percent drop in Detroit. “The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices,” said David Blitzer , chairman of the index committee at Standard & Poor’s, in a statement. Buyer Credit The housing rebound late last year and early this year is due in part to a tax credit for first-time buyers. Existing home sales last month rose 7.6 percent to a 5.77 million annual pace, the highest level since November, the month the federal incentive was first due to expire, the National Association of Realtors Home sales may hold up through next month as buyers who close on a deal by June 30 are still eligible for the administration’s credit worth up to $8,000. The deadline for signing contracts was the end of April, and transactions must be completed by June 30. Demand may cool after the effect of the tax credit fades, putting pressure on prices. Also weighing on prices are stockpiles of more than 4 million unsold homes, the highest number since July. That’s not counting the so-called shadow inventory of homes taken over by banks or in the process of foreclosure that may total as many as 800,000, Lawrence Yun , chief economist at NAR, said yesterday. Mortgage payments on as many as 2 million additional dwellings are 90 days or more late and may also be heading for foreclosure, he said in an interview yesterday. Fewer Sales Homebuilders continue to struggle. Pulte Group Inc ., the largest U.S. homebuilder by revenue, said the number of houses it sold in the first quarter fell even after it combined operations with rival Centex Corp. “The U.S. housing industry is finding, and may have already found, a bottom, but that’s different from saying that a recovery is at hand,” Richard J. Dugas , the company’s chairman and chief executive officer, said on a conference call with analysts on May 5. “Even a modest uptick in employment could have a significant impact on demand, assuming it drives greater confidence.” Employers added 290,000 workers to payrolls in April, the biggest increase in four years and the fifth gain in the past six months, the Labor Department reported May 8. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net .

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Bond Trading Costs Soar as Abbott Sells Debt: Credit Markets

May 25, 2010

By John Detrixhe and Bryan Keogh May 25 (Bloomberg) — The gap between the cost to buy and sell corporate credit reached the widest in nine months in another sign investors are increasingly wary of all but the safest government bonds amid Europe’s sovereign debt crisis. The bid-ask spread for credit-default swaps on U.S. investment-grade bonds surged to an average 8.86 basis points as of May 21 from 5.42 basis points a month ago, according to CMA DataVision prices. The difference jumped to a one-year high of 10.57 on May 7, from as low as 3.1 in 2007. Higher trading costs are making it harder for investors to sell riskier securities and for companies to raise cash, at a time when the efforts of governments from Greece to Spain to tackle budget deficits stoke concern the global economy will sink back into recession. Global corporate bond sales are poised for the worst month in a decade, with companies issuing $48.4 billion of debt this month, down from $183 billion in April, according to data compiled by Bloomberg. “A double-dip had not even been on the radar screen,” said Jason Brady , a managing director at Thornburg Investment Management in Santa Fe, New Mexico, who helps oversee $8 billion in fixed-income assets. “It’s now a significant, though still low-probability, event.” The bid-ask spread for AA rated U.S. corporate bonds has increased to about 5 basis points from about 1 basis point earlier this year, said Mark Jicka , managing director at Mizuho Securities USA in New York. The gap for lower rated investment- grade debt has widened to about 10 basis points from 5 basis points. Credit Risk Soars Elsewhere in credit markets, corporate and sovereign credit risk indicators soared to the highest levels in 10 months amid concern about the health of Spain’s banking sector and heightened military tension in the Korean peninsula. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies climbed 50.5 basis points to 640, the highest level since July 29, according to Markit Group Ltd. prices at 12:32 p.m. in London. The Markit iTraxx Asia index of contracts tied to 50 investment-grade borrowers outside Japan jumped 22 basis points to 169.5, the highest since July. Investors use the indexes to hedge against losses on corporate debt or to speculate on creditworthiness. A defector group said North Korean leader Kim Jong Il ordered his military to prepare to fight South Korea. The Communist state leader ordered the military to get ready for “combat” in a May 20 broadcast, the North Korea Intellectuals Solidarity group said in a report on its website, citing a person inside the country. The U.S. said yesterday it plans to conduct anti-submarine exercises with South Korea after the sinking of one of the South’s warships killed 46 people. Korean Swaps Jump The cost of insuring against South Korea defaulting on its debt rose, with credit-default swaps on the nation climbing 33 basis points to 176, also the highest since July, according to CMA DataVision. Spain became the focus of the European debt crisis as four of its savings banks began plans to combine to form the nation’s fifth-largest financial group, with more than 135 billion euros ($167 billion) in assets. Caja de Ahorros del Mediterraneo, Grupo Cajastur, Caja de Ahorros de Santander y Cantabria and Caja de Ahorros y Monte de Piedad de Extremadura submitted a proposal to Spain’s central bank to pool their businesses, as regulators push ailing lenders to merge with stronger partners. The Markit iTraxx SovX Western Europe Index advanced 11 basis points to 150 as contracts on Spain increased 12 basis points to 225, CMA prices show. ‘Too Slow’ Spain is seeking to shore up the lenders as the nation’s sputtering economy and widening budget deficit, forecast at 9.3 percent of gross domestic product this year, drive away investors. The Washington-based International Monetary Fund said yesterday the country’s banking industry “remains under pressure,” as consolidation has been “too slow.” Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, and a basis point equals $1,000 annually on a contract protecting $10 million of debt. The Markit CDX North America Investment Grade Index climbed 6 basis points to 125.25 yesterday, according to Markit Group prices. The extra yield investors demand to own corporate bonds instead of similar maturity government debt rose 1 basis point to 189 basis points, or 1.89 percentage point, up from the low this year of 142 on April 21, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Average yields rose 2.5 basis points to 3.973 percent. Libor Rises The rate banks say they pay for loans rose for an 11th day today on concern government deficits will damage the creditworthiness of financial institutions and slow economic growth. The London interbank offered rate for three-month loans in dollars climbed to 0.536 percent, the highest level since July, from 0.51 percent yesterday, data from the British Bankers’ Association showed. The difference between the dollar interbank lending rate and the overnight indexed swap rate — known as the Libor-OIS spread and a guage of banks’ reluctance to lend — widened 3 basis points to 31 basis points. It surged to 364 after the collapse of Lehman Brothers Holdings Inc. in September 2008. Abbott Laboratories sold $3 billion of notes in the biggest U.S. corporate bond offering in a month. The maker of the arthritis drug Humira tapped the bond market for the first time since February 2009, selling debt to repay some of its $3.6 billion of commercial paper and for general corporate purposes, according to a filing with the U.S. Securities and Exchange Commission. Abbott Bonds The offering included $1 billion of 4.125 percent, 10-year bonds that paid 90 basis points more than similar-maturity Treasuries. The Abbott Park, Illinois-based company’s 5.125 percent notes due in 2019 traded at a spread of 62.1 basis points on May 21, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Debt from drugmakers has returned 1.9 percent this month through yesterday, including reinvested interest, compared with 0.07 percent for corporate bonds, according to Bank of America Merrill Lynch index data. Gentiva Health Services Inc. , the U.S. home-nursing company that’s buying Odyssey HealthCare Inc., will raise at least $1.1 billion in debt to fund the takeover. The financing will include an $800 million six-year term loan, $305 million of eight-year senior bonds and a $125 million revolving line of credit, Chief Financial Officer Eric R. Slusser said in an interview. The bonds will be backed by a $305 million bridge loan. Gentiva, based in Atlanta, has received financing commitments from Bank of America Corp., Barclays Plc, General Electric Co.’s finance unit and SunTrust Bank and SunTrust Robinson Humphrey Inc., according to a statement yesterday. Emerging Markets In emerging markets, the extra yield investors demand to own bonds instead of government debt rose 1 basis point to 338 basis points, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Cia. Energetica de Minas Gerais , Brazil’s second-largest electricity generator and distributor, may sell 600 million reais ($323 million) of local bonds this year. The Brazilian utility known as Cemig may sell the bonds to extend debt maturities, Chief Financial Officer Luiz Fernando Rolla said yesterday at an event in Sao Paulo. The company may bid for the rights to build and operate transmission lines in Brazil on June 11, the executive said. Cemig is also looking for assets to buy . Bid-Ask Spreads Wider bid-ask spreads “make investors more careful how they transact simply because the costs are higher,” said Andrew Sheets , head of European credit strategy at Morgan Stanley in London. “The wider the bid-ask spread, the bigger that initial hit is.” The average bid-ask spread on the 125 companies in the Markit CDX credit-default swap index fell yesterday to 7.94 basis points, from 8.86 basis points on May 21, CMA prices show. The spread reached a record 20.4 basis points in October 2008. Bid-ask spreads on credit swaps tied to sovereign debt soared to near record levels this month on concern the European Union is mishandling the debt crisis sweeping through its member nations. The gap on swaps tied to countries included in Markit’s SovX index for western Europe tightened to 8.48 basis points on May 21 after reaching 13 basis points on May 3, the widest since February 2009, CMA prices show. Europe’s debt crisis may slow the U.S. economic recovery unless officials in the region get budgets under control and adopt policies aimed at boosting growth, World Bank President Robert Zoellick said in an interview on CNBC. “You’re starting to see a recovery in the United States and it’s starting to be broader-based, and that’s a good thing, but events in Europe could bring it down,” he said. Merkel Short-Sell Ban Financial market turmoil was exacerbated last week when German Chancellor Angela Merkel stepped up calls for regulation and forbade some types of short-selling without consulting her European partners. In a short-sale an investor bets on the decline in a security’s price. “Liquidity was still tough but it was improving until” Germany’s ban on short selling, said John Bender , head of U.S. fixed income for Legal & General Investment Management America, who oversees more than $15 billion. “We saw a material decrease in liquidity in the credit markets” for corporate bonds and credit-default swaps. “The credit markets were effectively not functioning” as investors reacted to the recent Europe-led $1 trillion bailout plan to stabilize the debt crisis, he said. “Bid offers were so wide it was very difficult to get trades done.” Goldman Sachs The bid-ask spread on Goldman Sachs Group Inc. ’s 5.375 bonds due in 2020 increased to about 20 basis points, from about 5 basis points to 10 basis points, Brady said. The spread has increased even though the debt is frequently traded, or liquid, and is Goldman’s most recent dollar-denominated issue, he said. “It’s just a function of broker-dealers trying to protect themselves,” Brady said. “When there’s a lot of volatility, they feel the need to protect themselves with a wider bid-ask, and that takes liquidity out.” The New York-based investment bank’s debt rose 0.27 cent to 96.17 cents on the dollar to yield 266.5 basis points more than similar-maturity Treasuries, Trace data show. To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net ; Bryan Keogh in London at bkeogh4@bloomberg.net

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U.S. Stocks Drop on Lending Rates as S&P 500 Hits Six-Month Low

May 25, 2010

By Rita Nazareth May 25 (Bloomberg) — U.S. stocks fell, sending the Standard & Poor’s 500 Index to its lowest level since November, as bank borrowing costs rose and a report said North Korean leader Kim Jong Il ordered his military to prepare for combat. Citigroup Inc. and JPMorgan Chase & Co. fell at least 2.3 percent as the rate known as Libor that banks say they pay for three-month loans in dollars increased to 0.536 percent, the highest since July 7 and the 11th straight gain. Exxon Mobil Corp. and Alcoa Inc. tumbled as crude oil fell below $68 a barrel and metals plunged. Office Depot Inc. and Abercrombie & Fitch Co. lost more than 2.5 percent after the International Council of Shopping Centers cut its forecast for May sales. The S&P 500 dropped 2.2 percent to 1,049.78 at 10:12 a.m. in New York. It fell to 1,040.78 earlier, the weakest intraday level since Nov. 3. The Dow Jones Industrial Average lost 211.23 points, or 2.1 percent, to 9,855.34. Both pared losses for 5 minutes before resuming their drop after the Conference Board’s consumer confidence measure beat the median economist estimate. “We’re back in uncharted territory,” said Art Hogan , chief market analyst at New York-based Jefferies Group Inc. “Korea is a major distraction at a time of global uncertainty. The market is selling for a bigger reason. There’s concern about the banking industry in Europe. The Libor rate has spiked, which certainly signifies that the credit is slowing in an interbank basis. The market is trying to price in the worst-case scenario right now, of not only lending freezing, but of a major bank becoming insolvent.” Budget Deficits The S&P 500 has lost 13 percent from a 19-month high on April 23 amid concern mounting budget deficits in European countries will derail global growth, erasing a quarter of the index’s 80 percent surge since March 9, 2009. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners and after the International Monetary Fund yesterday urged the nation to take more steps to overhaul its financial institutions. Six stocks in the S&P 500 rallied, led by AutoZone Inc.’s 4.3 percent surge to $192.14. The auto parts retailer with more than 4,300 stores reported fiscal third-quarter profit of $4.12 a share, topping the average analyst estimate in a Bloomberg survey by 15 percent. Goldman Sachs Group Inc. climbed 0.9 percent to $137.86. Equities fell worldwide, driving the MSCI Asia Pacific Index down 3.1 percent, after the North Korea Intellectuals Solidarity group said that the country’s military was put on alert. The U.S. announced plans yesterday to conduct anti- submarine exercises with South Korea following the March 26 torpedoing of a warship. ‘Spooking Markets’ “The troubles that we have are big enough to keep this downtrend going for quite some time,” said Philippe Gijsels , head of research at BNP Paribas Fortis Global Markets in Brussels. “Everybody realizes this is going to put severe stress on economic growth. Tension between South and North Korea is another additional negative that is spooking markets.” Corporate and sovereign credit risk indicators jumped to the highest level in 10 months on concerns that heightened military tension in the Korean peninsula and a slump in confidence in the euro will hurt the global economy. The gap between the cost to buy and sell corporate credit reached the widest in nine months in another sign investors are increasingly wary of all but the safest government bonds amid Europe’s sovereign debt crisis. Mohamed A. El-Erian , co-chief investment officer at Pacific Investment Management Co. , said strains evident in Spain’s banking system are intensifying concern that the Greek debt crisis may spread, PBS reported. “Banks have a way of amplifying shocks in the system,” El-Erian, whose company runs the world’s biggest bond fund, said in an interview with PBS’s Nightly Business Report posted on the U.S. public broadcaster’s website. Banks are “like the oil in your car. They link up so many different parts. The minute you introduce strains in the banking system, there’s always a fear that governments will be behind the curve and that you can get contagion. You can get widespread disruption.” Banks slumped. Citigroup tumbled 3.3 percent to $3.66. JPMorgan lost 2.4 percent to $37.71, while Bank of America Corp. declined 2.6 percent to $15. Energy and raw-materials producers sank on concern that demand will slow. Exxon slumped 2 percent to $58.99, while Alcoa slid 4.4 percent to $10.60. Crude oil declined before a report forecast to show U.S. supplies are growing, while concern Europe’s debt crisis will spread prompted investors to sell riskier assets. Crude oil for July delivery fell as much as 4.4 percent to $67.15 a barrel in New York. Copper, aluminum, nickel and zinc fell in London as investors shied away from risky assets on concern that Europe’s sovereign-debt crisis may spread and China might take more steps to cool its economy. The Dollar Index, which measures the U.S. currency against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, climbed for a second day, rising 1.1 percent. Retailers slumped after the International Council of Shopping Centers forecast that sales will rise 2 percent to 2.5 percent in May, compared with a previous projection of 3.5 percent growth, according to an e-mailed statement. Office Depot fell 2.6 percent to $5.68. Abercrombie & Fitch retreated 2.9 percent to $34.33. To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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China, U.S. Sidestep Confrontation on Yuan as Europe, Korea Dominate Talks

May 25, 2010

By Bloomberg News May 25 (Bloomberg) — U.S.-China talks that were set up primarily to head off bilateral disputes spent much of the past two days focused on the world’s ills as Europe’s debt crisis and military tension on the Korean peninsula hijacked the agenda. About 200 U.S. officials today wrapped up meetings in Beijing as the euro’s decline to an eight-year low against the yen and a 4.7 percent plunge in the won overshadowed sparring on trade and China’s control of its exchange rate. The external distractions, both financial and geopolitical, prompted talk of closer cooperation between what will likely be the world’s two largest economies by year end. “The fact that they’re spending lots of time on North Korea and the euro area is a reflection of the current priorities for the global economy,” said Huang Yiping , a professor at the China Center for Economic Research at Peking University and a former Citigroup Inc. chief Asia economist. “These are more pressing issues than the yuan.” Almost half of President Barack Obama ’s Cabinet descended on Beijing for the annual Strategic and Economic Dialogue, led by Secretary of State Hillary Clinton and Treasury Secretary Timothy F. Geithner . The countries signed agreements ranging from shale gas development to safety standards in China for Westinghouse Electric Co.’s nuclear reactors. China also agreed to open stock futures trading to foreign investors with Chinese licenses such as Goldman Sachs Asset Management International and Yale University. Global Police President Hu Jintao set the summit’s tone by portraying the participants as global police with a shared beat. “China and the United States face common tasks and shoulder important responsibilities ranging from promoting full recovery and sustainable growth of the world economy to managing regional hot-spots,” he said in opening remarks yesterday. Those concerns were born out as the two-day meeting wound up. Global stocks, crude oil and Asian currencies tumbled today following a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week. The MSCI Asia Pacific Index dropped 3.1 percent to 108.81 at 6.15 p.m. in Hong Kong. The euro dropped to its lowest level in eight years against the yen on concern weakness in the Spanish banking system would damp economic growth. The won fell as much as 4.7 percent to 1277.90 against the dollar. North Korea was accused by an international panel last week of sinking a South Korean warship in March and killing 46 sailors. China has yet to publicly accept the panel’s finding or condemn its communist neighbor. ‘Working Together’ “We expect to be working together with China in responding to North Korea’s provocative action and promoting stability in the region,” Clinton told reporters in Beijing. “We pledged to stay in very close consultation.” China is North Korea’s main economic and political ally as well as the host of stalled talks on its nuclear weapons program. Kim visited several Chinese cities earlier this month in his first foreign trip in four years, culminating with a Hu summit meeting. Chinese Premier Wen Jiabao is heading to South Korea and Japan later this week for previously scheduled talks. The Chinese government is ready to work with the U.S. and other countries to ease Korean tensions, Vice Foreign Minister Cui Tiankai told journalists in Beijing. Two-way trade discussions made some progress. The U.S. said that Chinese officials had agreed to modify rules on encouraging homegrown technology that U.S. companies have complained may shut them out of the government procurement market. $227 Billion Deficit China in its closing statement emphasized pledges by the U.S. to overhaul controls on exports of technology to China. Last year the U.S. had a $227 billion trade deficit with China, its second-biggest trading partner. Executives from companies such as Tempe, Arizona-based First Solar Inc., Fairfield, Connecticut-based General Electric Co. and Chicago-based Boeing Co. accompanied Commerce Secretary Gary Locke on a trade mission to China that preceded the Beijing talks. The yuan also came up in discussions. I’m “as confident as I’ve ever been” that China has a growing incentive to let the yuan gain against the dollar, Geithner said in an interview with Bloomberg Television. He welcomed President Hu’s pledge of steady and gradual changes to the exchange-rate system. Traders signaled a contrary expectation. Yuan forwards fell by the most in 15 months on speculation China will delay appreciation of its currency because of Europe’s debt crisis, even as the U.S. pushes for an end to a 22-month peg. No Clear Signal “The SED talks haven’t sent any clear signal about the next move in the currency policy,” said Liu Dongliang , a Shenzhen-based analyst at China Merchants Bank Co., the country’s fifth-largest lender by market value. “There is no chance of an appreciation in the currency within the next two months if the European debt crisis doesn’t settle.” China’s Vice Premier Wang Qishan , Geithner’s counterpart at the talks, brought up Europe in the fourth sentence of his opening remarks, saying it had “brought more uncertainties to the slowly recovering world economy.” Wang’s comments were echoed by Geithner, who is heading for two days of meetings in London, Berlin and Frankfurt to discuss the $1 trillion rescue package intended to stem contagion from Greece’s debt spiral. “We agreed to support the strong programs of policy reforms and financial support now being undertaken by the nations of Europe,” Geithner said. Clinton said U.S.-China relations are back on a “positive” track after a frosty period earlier this year following U.S. arms sales to Taiwan and a meeting between Obama and the Dalai Lama , the exiled Tibetan spiritual leader. “Sino-U.S. economic relations have surpassed the bilateral scope and are having a global impact,” Vice Premier Wang said in his closing remarks. “This in itself is the biggest success of the talks.” — Michael Forsythe , Rebecca Christie , Nicole Gaouette , Yanping Li , Kevin Hamlin , Peter Cook , Stephen Engle , Eugene Tang , Judy Chen , Belinda Cao . Editors: Bill Austin , Brendan Murray To contact the reporters on this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net ; Yanping Li in Beijing at yli16@bloomberg.net Rebecca Christie in Beijing at rchristie4@bloomberg.net ; Nicole Gaouette in Beijing at ngaouette@bloomberg.net

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Stocks Drop Worldwide, Commodities Slide on Spanish Banks, Korean Tensions

May 25, 2010

By Stuart Wallace and Rita Nazareth May 25 (Bloomberg) — Stocks plunged from Tokyo to London and New York, dragging the MSCI World Index to a nine-month low, and commodities slid as concern grew that Spain’s ailing banks signal a widening debt crisis and as tension mounted on the Korean peninsula. The German bund yield fell to its lowest since at least 1990. The MSCI gauge of 23 developed nations’ stocks fell 2.8 percent at 10:41 a.m. in New York, dropping to the lowest intraday level since August. The Standard & Poor’s 500 Index lost 2.2 percent, while the MSCI Emerging Markets index declined 4.5 percent. Brent crude oil slid below $69 a barrel for the first time since Feb. 5. Yields on 10-year German bonds declined to as low as 2.56 percent and 10-year Treasury yields sank to the lowest in more than a year. The South Korean won weakened 3.6 percent against the U.S. dollar, and the euro fell as low as 108.84 yen, the weakest since November 2001. Four Spanish banks said they will combine as regulators push lenders to merge with stronger partners and after the International Monetary Fund yesterday urged the nation to take more steps to overhaul its financial institutions. The North Korea Intellectuals Solidarity group said on its website that the country’s military was put on alert, and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of a warship. “It’s like Murphy’s law,” said Win Thin , senior currency strategist at Brown Brothers Harriman & Co. in New York. “When you don’t want something to happen, it happens. The Korea story just happens at the wrong time when the global market is already jittery. I worry more about what’s going on in Europe. We’re going back to nervousness about the banking sector.” Europe, S&P 500 The Stoxx Europe 600 Index tumbled 2.6 percent and earlier fell to the lowest intraday level since Sept. 2. Banco Santander SA, Spain’s biggest lender, slid 5.4 percent and Bank of Ireland Plc plunged 11 percent as banks led declines. The S&P 500 fell below 1,056.74, where it closed on Feb. 8 and the weakest level of the year. The index pared a drop of as much as 3 percent after the Conference Board’s gauge of consumer confidence rose to 63.3 in May, topping the highest economist estimate in a Bloomberg survey and reaching the strongest level in more than two years. The MSCI Emerging Markets Index headed for its biggest decline since March 2009. South Korea’s Kospi Index lost 2.8 percent, the most since Feb. 5. The won weakened 3.6 percent versus the dollar, the most since March 2009, and the cost of insuring against South Korea defaulting on its debt rose, with credit-default swaps tied to the nation climbing 33 basis points to 176, according to CMA DataVision. Russia’s Micex Index fell 5.8 percent, extending its drop from an April 15 high to 22 percent. Ninth Straight Loss Brent crude oil retreated as much as 4.2 percent to $68.15 a barrel in London trading, declining for a ninth straight day. Copper for delivery in three months dropped 3.3 percent to $6,685 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also fell. Palladium for immediate delivery slumped 4 percent to $435.25 an ounce. The euro weakened 1.1 percent to $1.2239, approaching the four-year low of $1.2144 reached on May 19. The 10-year German bund yield fell as much as 10 basis points, or 0.10 percentage point, to 2.56 percent. The 10-year U.S. Treasury yield slid 5 basis points to 3.14 percent. The rate that banks say they charge each other for three- month loans in dollars rose to the highest level since July 7, the British Bankers’ Association said. The London interbank offered rate, or Libor, for such loans, advanced 3 basis points to 0.536 percent, the BBA said. China and the U.S. focused their first day of talks in Beijing on joint efforts to prop up the world’s economy in the face of a European sovereign-debt crunch that pushed off a showdown on the yuan’s value. Discussing the Crisis Officials “spent quite a bit of time discussing the European debt crisis,” Chinese central bank Governor Zhou Xiaochuan said at a press briefing. The nation’s currency policy is being “touched upon” at the talks, he said. U.S. Treasury Secretary Timothy F. Geithner told Bloomberg Television in an interview that he’s “as confident as I’ve ever been” that China has a growing incentive to let the yuan gain against the dollar. Revaluing the yuan is “absolutely” in China’s long-term economic interest, Geithner said. China is committed to preserving stability in the northeast Asian region, U.S. Secretary of State Hillary Clinton said today in Beijing, at the end of the Strategic & Economic Dialogue. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies climbed as much as 67.9 basis points to a mid-price of 652.1 basis points before paring its advance and trading at 636.7, according to Markit Group Ltd. The index is trading at the highest since July 29, end-of-day prices from CMA DataVision show. An increase signals deterioration in investor perceptions of credit quality. To contact the reporters on this story: Stuart Wallace in London at swallace6@bloomberg.net ; Rita Nazareth in New York at rnazareth@bloomberg.net .

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Geithner To China: We’ve Learned From The Financial Crisis – And We’re Fixing The Deficit

May 25, 2010

BEIJING — U.S. Treasury Secretary Timothy Geithner said Washington is getting its deficits under control and called on China to keep technology markets open in a visit Tuesday to a school for future Communist Party leaders. On the second day of a high-level dialogue, Geithner told students at the Central Party School the United States has learned from the crisis and is improving regulation. He said Washington was moving forcefully to cut its swollen budget deficit – a key worry for Beijing, the biggest foreign investor in U.S. government debt. The Strategic and Economic Dialogue brought dozens of U.S. officials led by Geithner and Secretary of State Hillary Rodham Clinton to Beijing. Begun last year in Washington, the dialogue is aimed at easing trade strains and promoting cooperation on issues from financial markets to clean energy research. “The basic strategy is to make sure that our economy is growing, then institute long-term reforms and restore the basic discipline to the budget process that we abandoned in the previous decade,” Geithner said. The party school is a mid-career training center for rising officials from provincial governments. Geithner’s visit was billed as a chance for Washington to reach beyond Beijing and address a future generation of communist leaders. Geithner called on China to keep technology markets open, saying competition would promote innovation. Washington and business groups are alarmed by Beijing’s “indigenous innovation” policy, meant to promote Chinese technology by favoring domestically developed products in government procurement and other areas. Foreign companies say the policy is the biggest threat to their access to Chinese markets and Geithner said he would raise the issue at the dialogue. “You want the marketplace to work with you and not against the objective of promoting innovation,” the secretary said. The talks have highlighted the communist government’s growing assertiveness in promoting its own interests, prompted by China’s rising status as the world’s third-largest economy and its quick rebound from the global downturn. On Monday, President Hu Jintao opened the dialogue with a pledge of more reforms to China’s currency controls, a key irritant in ties with Washington. But he gave no timetable and said Beijing will set the pace of change. Washington and other trading partners complain China’s yuan is undervalued, giving its exporters an unfair advantage and swelling its multibillion-dollar trade surplus. The yuan has been frozen against the dollar since late 2008 to help Chinese exporters compete amid weak global demand. The talks were overshadowed by South Korea’s announcement that it was cutting off trade with North Korea and would take its neighbor to the U.N. Security Council over a torpedo attack that killed 46 sailors. Beijing’s envoys pressed a range of Chinese interests, calling for an end to U.S. curbs on “dual use” high-tech exports with possible military applications. They urged Washington to simplify foreign investment rules that they complained hurt Chinese companies.

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Asian Stocks Fall to 10-Month Low, Won Dives, Commodities Drop

May 25, 2010

By Clyde Russell and Saeromi Shin May 25 (Bloomberg) — Asian stocks and the won plunged to 10-month lows after a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week. The euro weakened and commodities declined on concern Europe’s debt crisis will spread. The MSCI Asia Pacific Index dropped 3 percent to 109.00 at 4 p.m. in Tokyo, set for its lowest close since July 30. The Stoxx Euro 600 slid 1.5 percent to 232.80. Standard & Poor’s 500 futures lost 2 percent. The won lost 3.7 percent against the yen. Korea’s Kospi Index slumped 2.8 percent. The euro fell 1.4 percent against the yen. Crude oil slipped below $70 a barrel. “Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, are affecting investors’ sentiment,” said Kim Young Joon , a fund manager at NH-CA Asset Management in Seoul, which manages $9.7 billion in assets. “But much of North Korea’s comments appear bluffing. I don’t think another disastrous event will happen.” The North Korea Intellectuals Solidarity group said on its web site that the country’s military was put on alert and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of a warship. The International Monetary Fund urged Spain to take more steps to overhaul ailing banks as the nation’s financial sector “remains under pressure.” Defense Stocks Gain The won plummeted fell 3 percent to 1,251.10 per dollar. The Kospi plunged to 1,560.83, down 12 percent from its recent high of 1,752.20 reached on April 26 and has entered a correction, defined as a decline of more than 10 percent from a peak. South Korean defense-related stocks rallied in Seoul. Speco Co. , a military installation parts developer, jumped 14.9 percent to 5,520 won, while Victek Co. , which makes electronic warfare equipment, soared 5.6 percent to 4,330 won. Just 57 of the MSCI Asia Pacific Index ’s 982 companies advanced today. Hong Kong’s Hang Seng Index sank 3 percent and China’s Shanghai Composite Index declined 1.7 percent. The Nikkei 225 Stock Average lost 3.1 percent. Australia’s S&P/ASX 200 Index slid 3 percent. Futures on the Standard & Poor’s 500 Index fell after the measure dropped 1.3 percent in regular trading yesterday. Banks declined the most among the S&P 500’s 24 industries, after the London interbank offered rate, or Libor, for three-month dollar loans advanced to the highest level since July 16, according to data from the British Bankers’ Association. ‘Land Mines’ “Europe is walking on land mines that have yet to explode,” said Fumiyuki Nakanishi , a strategist at Tokyo-based SMBC Friend Securities Co. “Investors are selling shares and adjusting their positions on concerns over European debt.” Four Spanish savings banks plan to combine to form the nation’s fifth-largest financial group with more than 135 billion euros ($167 billion) in assets, as regulators push ailing lenders to merge with stronger partners. The euro traded at 110.25 yen in Tokyo from 111.71 yen in New York yesterday. The common currency fell to $1.2289 from $1.2372. The dollar traded at 89.71 yen from 90.29 yen. Australia & New Zealand Banking Group Ltd. slid 3 percent, leading declines among financial companies. Financial companies were the heaviest drag on MSCI’s Asian gauge as the cost of insuring Asia-Pacific bonds from default rose. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 4 basis points to 151.5 basis points, according to Royal Bank of Scotland Group Plc. Canon Inc. slipped 2.8 percent to 3,605 yen. Olympus Corp. , an endoscope maker that makes 18 percent of its sales in Europe, declined 2.7 percent to 2,237 yen. Emerging Markets Thailand’s SET Index lost 2.1 percent, extending the slump since this year’s peak on April 7 by more than the 10 percent level some analysts consider as a correction, as overseas investors ditched equities following the deadliest political violence in two decades. Foreigners sold $239 million more Thai shares than they bought yesterday, the biggest selloff since December 2006, according to stock exchange data. India’s Sensex Index also declined 2.2 percent. Wipro Ltd. , the nation’s third-biggest software services exporter, declined 1.9 percent. Tata Motors Ltd., the truckmaker that has a unit in South Korea, dropped 3.4 percent, extending an eight-day decline. “When there is a global fear, people try to secure themselves,” said Tejas Doshi , vice president of equity research at Sushil Financial Services Pvt. in Mumbai. “Investors are pulling out of markets they perceive to have relatively higher risk.” Commodities Drop BHP Billiton Ltd., which got 22 percent of its fiscal 2009 revenue in Europe, slid 3.9 percent to A$36.34 in Sydney after copper and oil prices retreated on concern a slowdown in the euro region will reduce demand. Rio Tinto Group, the world’s third-largest mining company, lost 3.7 percent to A$61.81. Crude oil declined 2.4 percent to $68.51 a barrel in New York. Copper dropped 2.2 percent to $6,756.25 a metric ton on the London Metal Exchange. The metal has slumped 11 percent in the past month. Aluminum declined 2.4 percent to $2,035 a ton and nickel slumped 2.7 percent to $21,600 a ton. “I don’t think things have worsened in Europe in the past few days, but the reason we haven’t seen any significant rallies in the market is that the uncertainty hasn’t dissipated,” Ben Westmore , a minerals and energy economist at National Australia Bank Ltd. in Melbourne, said in a telephone interview. “The one thing about the euro zone is that everyone has been revising down their demand outlook. The fundamentals there have no doubt become weaker in the last month.” To contact the reporter for this story: Clyde Russell in Singapore at crussell7@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net

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U.S. Stock Futures Fall on Mounting Korean Tensions, Europe Debt Concern

May 25, 2010

By Jonathan Burgos and Saeromi Shin May 25 (Bloomberg) — U.S. stock-index futures declined after a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week and concerns grew that Europe’s debt crisis may spread. The Standard & Poor’s 500 Index futures expiring in June dropped 1.4 percent to 1,056 as of 11:30 a.m. in Hong Kong. The gauge slipped 1.3 percent to 1,073.65 in New York yesterday. The measure has slumped 12 percent from a 19-month high on April 23. “Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, seem to be affecting investors’ sentiment,” said Kim Young Joon, a fund manager at NH-CA Asset Management in Seoul, which manages the equivalent to $9.7 billion in assets. U.S. index futures followed Asian shares lower earlier as the North Korea Intellectuals Solidarity group reported on its website that the North’s military was placed on alert last week. The U.S. yesterday announced plans to conduct joint anti- submarine exercises with South Korea after the March 26 sinking of one of the South’s warships cost 46 lives. Concerns over the health of European finances deepened after four Spanish savings banks submitted a proposal to the nation’s central bank to merge their businesses. The Bank of Spain is stepping up efforts to buttress or combine the weakest of Spain’s “cajas,” or mutually owned banks. The International Monetary Fund said in a report that Spain’s banking industry “remains under pressure” as consolidation has been too slow. To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net .

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Stocks, Won Plunge on North Korea Combat Report; Euro, Commodities Decline

May 25, 2010

By Clyde Russell and Saeromi Shin May 25 (Bloomberg) — Asian stocks and the won plunged to 10-month lows after a report that North Korean leader Kim Jong Il ordered his military to prepare for combat last week. The euro weakened and commodities declined on concern Europe’s debt crisis will spread. The MSCI Asia Pacific Index dropped 3 percent to 109.00 at 4 p.m. in Tokyo, set for its lowest close since July 30. The Stoxx Euro 600 slid 1.5 percent to 232.80. Standard & Poor’s 500 futures lost 2 percent. The won lost 3.7 percent against the yen. Korea’s Kospi Index slumped 2.8 percent. The euro fell 1.4 percent against the yen. Crude oil slipped below $70 a barrel. “Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, are affecting investors’ sentiment,” said Kim Young Joon , a fund manager at NH-CA Asset Management in Seoul, which manages $9.7 billion in assets. “But much of North Korea’s comments appear bluffing. I don’t think another disastrous event will happen.” The North Korea Intellectuals Solidarity group said on its web site that the country’s military was put on alert and the U.S. announced plans yesterday to conduct anti-submarine exercises with South Korea following the March 26 torpedoing of a warship. The International Monetary Fund urged Spain to take more steps to overhaul ailing banks as the nation’s financial sector “remains under pressure.” Defense Stocks Gain The won plummeted fell 3 percent to 1,251.10 per dollar. The Kospi plunged to 1,560.83, down 12 percent from its recent high of 1,752.20 reached on April 26 and has entered a correction, defined as a decline of more than 10 percent from a peak. South Korean defense-related stocks rallied in Seoul. Speco Co. , a military installation parts developer, jumped 14.9 percent to 5,520 won, while Victek Co. , which makes electronic warfare equipment, soared 5.6 percent to 4,330 won. Just 57 of the MSCI Asia Pacific Index ’s 982 companies advanced today. Hong Kong’s Hang Seng Index sank 3 percent and China’s Shanghai Composite Index declined 1.7 percent. The Nikkei 225 Stock Average lost 3.1 percent. Australia’s S&P/ASX 200 Index slid 3 percent. Futures on the Standard & Poor’s 500 Index fell after the measure dropped 1.3 percent in regular trading yesterday. Banks declined the most among the S&P 500’s 24 industries, after the London interbank offered rate, or Libor, for three-month dollar loans advanced to the highest level since July 16, according to data from the British Bankers’ Association. ‘Land Mines’ “Europe is walking on land mines that have yet to explode,” said Fumiyuki Nakanishi , a strategist at Tokyo-based SMBC Friend Securities Co. “Investors are selling shares and adjusting their positions on concerns over European debt.” Four Spanish savings banks plan to combine to form the nation’s fifth-largest financial group with more than 135 billion euros ($167 billion) in assets, as regulators push ailing lenders to merge with stronger partners. The euro traded at 110.25 yen in Tokyo from 111.71 yen in New York yesterday. The common currency fell to $1.2289 from $1.2372. The dollar traded at 89.71 yen from 90.29 yen. Australia & New Zealand Banking Group Ltd. slid 3 percent, leading declines among financial companies. Financial companies were the heaviest drag on MSCI’s Asian gauge as the cost of insuring Asia-Pacific bonds from default rose. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan climbed 4 basis points to 151.5 basis points, according to Royal Bank of Scotland Group Plc. Canon Inc. slipped 2.8 percent to 3,605 yen. Olympus Corp. , an endoscope maker that makes 18 percent of its sales in Europe, declined 2.7 percent to 2,237 yen. Emerging Markets Thailand’s SET Index lost 2.1 percent, extending the slump since this year’s peak on April 7 by more than the 10 percent level some analysts consider as a correction, as overseas investors ditched equities following the deadliest political violence in two decades. Foreigners sold $239 million more Thai shares than they bought yesterday, the biggest selloff since December 2006, according to stock exchange data. India’s Sensex Index also declined 2.2 percent. Wipro Ltd. , the nation’s third-biggest software services exporter, declined 1.9 percent. Tata Motors Ltd., the truckmaker that has a unit in South Korea, dropped 3.4 percent, extending an eight-day decline. “When there is a global fear, people try to secure themselves,” said Tejas Doshi , vice president of equity research at Sushil Financial Services Pvt. in Mumbai. “Investors are pulling out of markets they perceive to have relatively higher risk.” Commodities Drop BHP Billiton Ltd., which got 22 percent of its fiscal 2009 revenue in Europe, slid 3.9 percent to A$36.34 in Sydney after copper and oil prices retreated on concern a slowdown in the euro region will reduce demand. Rio Tinto Group, the world’s third-largest mining company, lost 3.7 percent to A$61.81. Crude oil declined 2.4 percent to $68.51 a barrel in New York. Copper dropped 2.2 percent to $6,756.25 a metric ton on the London Metal Exchange. The metal has slumped 11 percent in the past month. Aluminum declined 2.4 percent to $2,035 a ton and nickel slumped 2.7 percent to $21,600 a ton. “I don’t think things have worsened in Europe in the past few days, but the reason we haven’t seen any significant rallies in the market is that the uncertainty hasn’t dissipated,” Ben Westmore , a minerals and energy economist at National Australia Bank Ltd. in Melbourne, said in a telephone interview. “The one thing about the euro zone is that everyone has been revising down their demand outlook. The fundamentals there have no doubt become weaker in the last month.” To contact the reporter for this story: Clyde Russell in Singapore at crussell7@bloomberg.net ; Saeromi Shin in Seoul at sshin15@bloomberg.net

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Kim Jong Il Ordered Military to Prepare for Combat Last Week, Group Says

May 24, 2010

By Bomi Lim May 25 (Bloomberg) — North Korean leader Kim Jong Il ordered the country’s military to get ready for combat in a message broadcast nationwide last week following South Korea’s announcement that North Korea torpedoed the South’s warship. The message was broadcast on May 20 by O Kuk Ryol, vice chairman of the National Defense Commission, according to the website of North Korea Intellectuals Solidarity , a Seoul-based group run by defectors from the communist country. Yonhap News agency reported on the group’s posting earlier today. While Kim doesn’t want war, North Korea is ready to counter any attacks from South Korea, O said in the message, according to the group, which cited an unidentified person in the country. North Korea Intellectuals Solidarity is one of the Seoul-based agencies to first report on North Korea’s currency revaluation late last year. Officials at South Korea’s Defense Ministry weren’t immediately reachable for comment. The South Korean won declined as much as 4.3 percent to 1,272.45 against the dollar after the Yonhap report. South Korean defense-related stocks rallied. Speco Co., a military installation parts developer, rose 12 percent to 5,360 won. Victek Co., which makes electronic warfare equipment, surged 7.8 percent to 4,420 won. South Korea’s President Lee Myung Bak said yesterday the country will push for United Nations censure against North Korea for the March 26 sinking of a naval ship, which killed 46 sailors. A multinational team concluded on May 20 that North Korea fired a torpedo to split apart the 1,200-ton Cheonan. Tensions are rising in the Korean peninsula following the report, with both sides threatening counter-measures should they come under attack. South Korea plans to define North Korea as its “main enemy” when it maps out military strategy, Yonhap reported today, citing a government official it didn’t identify. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Kim Jong Il Ordered Military to Prepare for Combat Last Week, Group Says

May 24, 2010

By Bomi Lim May 25 (Bloomberg) — North Korean leader Kim Jong Il ordered the country’s military to get ready for combat in a message broadcast nationwide last week following South Korea’s announcement that North Korea torpedoed the South’s warship. The message was broadcast on May 20 by O Kuk Ryol, vice chairman of the National Defense Commission, according to the website of North Korea Intellectuals Solidarity , a Seoul-based group run by defectors from the communist country. Yonhap News agency reported on the group’s posting earlier today. While Kim doesn’t want war, North Korea is ready to counter any attacks from South Korea, O said in the message, according to the group, which cited an unidentified person in the country. North Korea Intellectuals Solidarity is one of the Seoul-based agencies to first report on North Korea’s currency revaluation late last year. Officials at South Korea’s Defense Ministry weren’t immediately reachable for comment. The South Korean won declined as much as 4.3 percent to 1,272.45 against the dollar after the Yonhap report. South Korean defense-related stocks rallied. Speco Co., a military installation parts developer, rose 12 percent to 5,360 won. Victek Co., which makes electronic warfare equipment, surged 7.8 percent to 4,420 won. South Korea’s President Lee Myung Bak said yesterday the country will push for United Nations censure against North Korea for the March 26 sinking of a naval ship, which killed 46 sailors. A multinational team concluded on May 20 that North Korea fired a torpedo to split apart the 1,200-ton Cheonan. Tensions are rising in the Korean peninsula following the report, with both sides threatening counter-measures should they come under attack. South Korea plans to define North Korea as its “main enemy” when it maps out military strategy, Yonhap reported today, citing a government official it didn’t identify. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Korean Won, Stocks Drop on Report Kim Ordered Combat Readiness Last Week

May 24, 2010

By Bob Chen and Frances Yoon May 25 (Bloomberg) — South Korea’s won plunged to a 10- month low and the nation’s stocks slumped following a report by a defector group that North Korean leader Kim Jong Il ordered military bodies to prepare for conflict. Kim ordered armed forces to get ready for “combat” in a message broadcast on May 20, the North Korea Intellectuals Solidarity group reported on its website, citing a person in the communist country. The U.S. yesterday announced plans to conduct joint anti-submarine exercises with South Korea after the sinking of one of the South’s warships cost 46 lives. “Tensions between the North and South heightened today, with widespread panic, coupled with weaker equity markets driving massive dollar buying interest,” said Bernard Yeung , head of foreign-exchange trading at National Australia Bank Ltd. in Hong Kong. “We saw the won touch 1,270 before possible intervention from the Bank of Korea.” The won fell 3.4 percent to 1,255.15 per dollar as of 11:31 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,272.45, the weakest level since July 16 last year. The Kospi index sank 2.8 percent to 1,559.44 on the Korea Exchange, 11 percent lower than the high of 1,752.20 on April 26. The message was broadcast by O Kuk Ryol, vice chairman of the National Defense Commission, according to the Seoul-based group run by defectors. Yonhap News agency reported on the group’s posting earlier today. Officials at South Korea’s Defense Ministry weren’t immediately reachable for comment. ‘Herd Behavior’ While Kim doesn’t want war, North Korea is ready to counter any attacks from South Korea, O said in the message, according to the group, which cited an unidentified person in the country. Intellectuals Solidarity was one of the agencies to first report on North Korea’s currency revaluation late last year. South Korea is “closely watching” the won’s move for “herd behavior” in the currency market, according to a finance ministry official, who declined to be identified. The Korea tensions will affect the won more than stocks, Morgan Stanley said in a note today. Stocks and the won also fell as rising borrowing costs stoked concern Europe’s debt crisis will stall the global economic recovery. “Increasing tensions on the Korean peninsula, coupled with deepening concern about sovereign debt risks in Europe, seem to be affecting investors’ sentiment,” said Kim Young Joon , a fund manager at NH-CA Asset Management in Seoul, which manages the equivalent to $9.7 billion in assets. “Still, much of North Korea’s comments appear to be bluffing, and I don’t think another disastrous event will happen.” ‘Main Enemy’ The South has resumed propaganda broadcasts across its border with the North after a six-year moratorium, prompting Kim’s regime to threaten to shell loudspeakers used for “psychological warfare.” Mounting tensions with North Korea further pressured South Korea’s won and the Kospi index, which have declined 7.3 percent and 7.5 percent this year respectively. Hankook Tire Co. , South Korea’s biggest tiremaker that had 22 percent of revenue in Europe last year, retreated 5.5 percent to 24,000 won. Samsung Electronics Co. , which derived 21.5 percent of revenue in Europe last year, lost 1.9 percent to 744,000 won. South Korean defense-related stocks rallied. Speco Co. , a military installation parts developer, rose 12 percent to 5,380 won, while Victek Co. , which makes electronic warfare equipment, advanced 8.8 percent to 4,460 won. “The conflict is definitely negative for the Korean won and stocks, especially as international markets are already under pressure from the European crisis,” said Ho Woei Chen , a regional economist at United Overseas Bank Ltd. in Singapore. “Politically, everyone will want a better ending than a war.” To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net ; Frances Yoon in Hong Kong at fyoon2@bloomberg.net

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Euro Declines for Second Day on Concern Europe’s Debt Crisis Is Spreading

May 24, 2010

By Yoshiaki Nohara and Ron Harui May 25 (Bloomberg) — The euro weakened for a second day against the yen and dollar amid signs the European debt crisis is spreading, reviving concern the region’s recovery will slow. The single currency was 2 yen away from the weakest in more than eight years after the International Monetary Fund urged Spain to do more to overhaul its ailing banks, adding to speculation Europe’s financial institutions face more losses. The yen also strengthened as a decline in Asian stocks boosted demand for Japan’s currency as a refuge. The won slumped as tensions escalated between the two Koreas over the sinking of a warship from the South’s navy in March. “I’m concerned about what policy makers can do to contain the debt crisis should it spread from Greece to bigger nations like Spain and Italy,” said Tetsuya Inoue , chief researcher for financial markets at Nomura Research Institute, a unit of Japan’s largest brokerage. “Economic growth can’t help but lose momentum. The euro will stay under downward pressure.” The euro fell 1 percent to 110.65 yen as of 1:14 p.m. in Tokyo from yesterday in New York. The common currency dropped to $1.2303 from $1.2372. The dollar was at 89.05 yen from 90.29 yen, and climbed to $1.4358 per pound from $1.4425. The 16-nation euro touched a four-year low of $1.2144 on May 19, and the weakest since 2001 at 109.51 per yen on May 20. Spain’s banking industry “remains under pressure,” as consolidation has been “too slow,” the Washington-based IMF said in a report yesterday after a regular review of Spain. “We fully support” the new austerity measures, it said, referring to Spain’s plans to rein in its budget deficit with the deepest spending cuts in three decades. Spain’s Banks Four Spanish savings banks plan to combine to form the nation’s fifth-largest financial group with more than 135 billion euros ($166 billion) in assets, as regulators push ailing lenders to merge with stronger partners. “Looking ahead, we suspect contagion risks from the European sovereign debt crisis will remain front-brain for markets,” said Mike Jones , a currency strategist at Bank of New Zealand Ltd. in Wellington. “With negative momentum firmly ingrained, we wouldn’t be surprised to see the euro re-test recent lows around $1.22 in coming sessions.” The Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property-loan defaults. The seizure is the first under a state- financed rescue plan that Standard & Poor’s estimates may cost as much as 35 billion euros, increasing the burden on Spain’s finances as the government tries to reduce its budget deficit. Europe’s currency has lost 6.9 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar has risen 10.2 percent, and the yen has advanced 14.4 percent. Stock Losses Japan’s currency rose versus all 16 major counterparts as the MSCI Asia Pacific Index shares dropped 2.9 percent. “Increasing concerns about a slowdown in economic growth weigh on stocks,” said Yoshiaki Ota , head of the foreign- exchange trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “When stocks fall, investors rush to sell cross currencies against the yen as a knee-jerk reaction.” The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. Australia’s dollar fell for a second day as iron-ore prices dropped before steelmakers in China and South Korea, the world’s largest- and sixth-biggest producing nations, meet today in Beijing to discuss raw material prices. Australia is the world’s biggest exporter of iron ore. ‘Still Pretty Weak’ “Overall sentiment is still pretty weak and people are cutting back on risk positions,” said Khoon Goh , a senior economist at ANZ National Bank Ltd. in Wellington. “Any news reports suggesting further downward pressure on commodity prices will definitely be taken as a negative for Aussie.” Australia’s currency fell 0.9 percent to 81.87 U.S. cents, and lost 1.3 percent to 73.64 yen. The won weakened amid concern conflict between on the Korean peninsula could escalate. O Kuk Ryol, vice chairman of North Korea’s National Defense Commission, said the nation is ready to counter any attacks from South Korea, according to North Korea Intellectuals Solidarity , a Seoul-based group run by defectors from the communist country. Yonhap News agency reported on the group’s posting earlier today. “Tensions between the North and South heightened today, with widespread panic, coupled with weaker equity markets driving massive dollar buying interest,” said Bernard Yeung , head of foreign-exchange trading at National Australia Bank Ltd. in Hong Kong. South Korean President Lee Myung Bak said yesterday the country will push for United Nations censure against North Korea for the March 26 sinking of a naval ship, which killed 46 sailors. A multinational team concluded on May 20 that North Korea fired a torpedo to split apart the 1,200-ton Cheonan. The won slumped 4.2 percent to 1,267.28 per dollar, according to data compiled by Bloomberg, after earlier reaching 1,272.45, the lowest since July 16. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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South Korea Blasts Song Into North as Propaganda War Is Revived on Sinking

May 24, 2010

By Bomi Lim May 25 (Bloomberg) — South Korea broadcast a pop song extolling freedom of choice and a warning on the dangers of overeating into North Korea, ending a six-year moratorium on propaganda in retaliation for the sinking of a warship. The four-hour radio program yesterday evening included a speech by South Korean President Lee Myung Bak outlining his government’s response to the March 26 sinking, which an international panel concluded was caused by a North Korean torpedo. The South, which lost 46 sailors in the attack, will seek more United Nations Security Council sanctions, halt most trade, and bar North Korean vessels from its waters, Lee said. “We have always tolerated North Korea’s brutality, time and again,” Lee said yesterday. “Now, things are different.” Lee’s cutting of ties will increase North Korea’s economic dependency on China, which has yet to accept the panel’s findings and yesterday urged all sides to remain “coolheaded.” Kim Jong Il ’s regime said it will shell South Korean positions that use loudspeakers for “psychological warfare,” the official Korean Central News Agency reported. South Korea’s won weakened to an eight-month low and the cost of insuring South Korean government debt from default climbed to a nine-month high after Lee’s announcements. North Korea last week threatened “all-out war” for any punitive action taking against its regime. Lee’s actions mark “the end of an era of reconciliation and the beginning of a new Cold War,” said Yang Moo Jin , a professor at the University of North Korean studies in Seoul. “China will resist joining international condemnation of North Korea. It doesn’t need to be seen as bending to U.S. pressure.” The propaganda broadcast made on FM radio began at 6 p.m. local time yesterday when a woman anchor announced what she called the “voice of freedom.” North Korean listeners were regaled with a song by a South Korean girl band, Four Minute . ‘Do as I Please’ In the tune, “Huh,” the band sings: “When I say I want to appear on TV, when I say I want to become prettier, everybody says I can’t do it. Baby, you’re kidding me? I do as I please.” The broadcast then explained how South Koreans no longer experience hunger, and are more worried about getting fat. “Always remember, we want to share our prosperity with you,” the anchor said, accusing North Korean officials of enriching themselves while the people go hungry. The UN World Food Program said this month its aid to North Korea will run out by the end of next month. Worsening Shortages Kim’s regime, which has been relying on handouts since the mid-1990s, is suffering from worsening shortages after a botched currency revaluation late last year. Academics including Rudiger Frank , professor of East Asian Economy and Society at the University of Vienna, said the reform was an attempt to roll back an experiment with free markets that had loosened the state’s control over jobs, food and patronage. While the U.S., Japan and other allies of South Korea lined up in support of Lee, China said it was considering the results of the investigation. All sides should “exercise restraint,” Foreign Ministry spokesman Ma Zhaoxu said in Beijing yesterday. “No responsible country in the international community will be able to deny the fact that the Cheonan was sunk by North Korea,” Lee said, without naming China. North Korea’s KCNA has denied the charge, accusing “the traitor” Lee of a smear campaign “written by the master,” referring to the U.S. The increased tension on the Korean peninsula comes as China plays host to Secretary of State Hillary Clinton , Treasury Secretary Timothy F. Geithner and dozens of other American officials for the U.S.-China Strategic and Economic Dialogue. South Korea plans to hold joint anti-submarine exercises with the U.S. off its west coast, Defense Minister Kim Tae Young said. That would put U.S. warships in the Yellow Sea, next to China’s eastern seaboard. Sanctions Bite UN sanctions imposed on North Korea after its second nuclear test in May 2009 caused the North’s international commerce to shrink 9.7 percent last year, according to the Seoul-based Korea Trade-Investment Promotion Agency. Stripping out South Korea’s one-third share, China accounted for 78.5 percent of North Korea’s commerce, the agency said. North Korea, whose leader Kim visited China earlier this month, doesn’t release trade data. In addition to being North Korea’s main source of support, China is also host of multilateral talks on the nuclear weapons program. The forum includes Japan, Russia, South Korea and the U.S. North Korea reiterated its right to develop nuclear weapons to protect it from U.S. aggression, KCNA reported yesterday. The March attack was the deadliest blamed on Kim’s regime since 115 people were killed in the 1987 explosion of a South Korean airliner. Other incidents include attempts in 1968 and 1983 to assassinate South Korean presidents. “Korea is one theater where the two sides in what I call ‘Cold War II’ will interact,” said Frank. “With China being so big and rising, confrontation with the USA seems inevitable. The only hope we can have is that this confrontation does not develop into a hot war.” To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Stocks Rise as U.S., China Discuss Trade, Yuan; U.S. Index Futures Decline

May 24, 2010

By James Regan and Shani Raja May 24 (Bloomberg) — Asian stocks rose, led by the biggest gain in China’s shares since November, as U.S. and Chinese officials met to discuss economic, trade and currency issues as Europe’s debt crisis threatens a global recovery. South Korea’s won hit an eight-month low on escalating tensions with the North. The Shanghai Composite Index jumped 3.5 percent to 2,673.42 and the MSCI Asia Pacific Index rose 0.6 percent to 112.66 at 5:10 p.m. in Tokyo. The Stoxx Euro 600 increased 0.7 percent to 238.85. Yuan forwards projected the least appreciation in eight months. Futures for the Standard & Poor’s 500 Index slid 0.2 percent following gains earlier in the day. U.S. Treasury Secretary Timothy F. Geithner, meeting in Beijing with Chinese leaders, said the U.S. and China are well placed to withstand the European financial crisis, with both nations experiencing stronger-than-expected economic recoveries. Chinese President Hu said China will move gradually and independently in making any changes to the yuan. “Economic growth in the U.S. and China is broader and stronger than many had anticipated, even a few months ago,” Geithner said. Even as European nations face challenges, the United States, China, India, Brazil and other emerging economies are “in a much stronger position today to overcome the challenges ahead,” he said. Standard Chartered Plc today revised its forecast for interest-rate increases in China this year to none, from two, and pushed back its forecast for when yuan appreciation will resume to late in the third quarter following Hu’s comments. China Stocks Just two of the 911 stocks in the Shanghai Composite Index declined. Hong Kong’s Hang Seng Index climbed 0.6 percent and the city’s Hang Seng China Enterprises Index of mainland companies rose 2 percent, rebounding from a three-month low. China Vanke Co. , the nation’s largest listed property developer, jumped 4.3 percent in Shanghai. Beiqi Foton Motor Co. paced gains by automakers, rising 6.9 percent after the Shanghai Securities News reported the government will extend subsidies for trade-in vehicles to the end of this year. Twelve-month non-deliverable yuan forwards weakened 0.2 percent to 6.7501 per dollar in Hong Kong, reflecting bets the currency will strengthen 1.2 percent from the spot rate of 6.8277, according to data compiled by Bloomberg. The yuan has barely moved versus the dollar this year, while against the euro it has appreciated 15 percent. Yuan Move ‘Unlikely’ “With all the volatility going on in financial markets and with the sharp rally in the yuan against most currencies, we think it’s unlikely for them to move anytime soon,” said Thomas Harr , a currency strategist at Standard Chartered in Singapore. “The window of opportunity is not there at the moment.” China will “steadily advance the reform of the formation mechanism of the exchange rate,” moving gradually and independently, Hu Jintao said in Beijing today. Geithner said allowing the yuan to reflect market forces is important to the Chinese economy. Chinese lenders have this year been ordered three times to set aside more funds as reserves and National Development and Reform Commission official Xu Lianzhong , writing in today’s China Securities Journal, urged caution in introducing new curbs. “Any indication China will take a measured approach to controlling overheating in some sectors, rather than crushing economic activity generally, means people can start to check this big item off the ‘macro concerns’ list,” said Prasad Patkar , who helps manage about $1.7 billion in Sydney at Platypus Asset Management Ltd. Beyond China Benchmark stock indexes in Taiwan, South Korea and Singapore, economies that count China as their No. 1 export market, all rose today. Trading resumed in South Korea and Hong Kong after May 21 holidays, while Thailand’s financial markets reopened for the first time since May 19 following anti- government riots. The SET Index of shares dropped 2.2 percent as concern about the worst political violence in 18 years overshadowed a government report today showing the economy expanded at the fastest pace since 1995. Gross domestic product increased 12 percent from a year earlier in the first three months of 2010. South Korea’s won slid 1.7 percent from the close on May 20 to 1,214.65 per dollar, according to Seoul Money Brokerage Services. It earlier touched 1,220.75, the weakest level since Sept. 15. The cost of insuring the nation’s bonds increased 4.5 basis points to a nine-month high of 147 basis points, according to credit-default swap prices at CMA DataVision. The government will seek United Nations Security Council action against North Korea and halt trade with its communist neighbor over the deadly torpedoing of one of its warships in March, which killed 46 sailors. North Korea shipping will also be banned from South Korean waters, President Lee Myung Bak said in Seoul today. North Korea last week threatened “all-out war” against any move to punish it, including any more UN sanctions. “When the news broke about the sinking of the ship, that it had been a North Korean torpedo, it was basically the start” of the won’s slide, said Gerrard Katz , head of foreign-exchange trading at Standard Chartered in Hong Kong. “There’s big concern about that in the market. Risk appetite is pretty weak.” To contact the reporter for this story: James Regan in Hong Kong Jregan19@bloomberg.net ;

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Asian Stocks Rise on China Policy Speculation; ICBC, BHP Climb

May 23, 2010

By Masaki Kondo May 24 (Bloomberg) — Asian stocks rose, led by the biggest gain in Chinese equities since October, on speculation China’s government will delay further measures to cool the country’s property market because of the European debt crisis. Industrial & Commercial Bank of China Ltd. , the world’s largest lender by market value, rose 1.7 percent in Hong Kong. Beiqi Foton Motor Co. jumped 8.6 percent after the Shanghai Securities News reported the government will extend subsidies for trade-in vehicles to the end of this year. BHP Billiton Ltd. , which got 20 percent of its fiscal 2009 revenue from China, climbed 2 percent in Sydney. “The market is expecting a softening in the government’s stance on tightening given the uncertain outlook on global growth,” said Larry Wan , Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which holds about $583 million. The MSCI Asia Pacific Index increased 0.2 percent to 112.21 as of 12:23 p.m. Tokyo time, with 10 stocks rising for every seven that dropped. The gauge had fallen 7.5 percent in the past six days on concern Europe will fail to stop its debt crisis from spreading. German lawmakers approved their country’s share of a $1 trillion euro-region bailout in a May 21 vote. China’s Shanghai Composite Index climbed 3.2 percent, the biggest gain since Oct. 9. Hong Kong’s Hang Seng Index rose 0.5 percent. Australia’s S&P/ASX 200 Index gained 1.2 percent. Japan, South Korea The Nikkei 225 Stock Average dropped 0.3 percent in Tokyo, led by insurers on concern recent declines in share prices will devalued their assets. South Korea’s Kospi was little changed, having earlier dropped 0.9 percent after President Lee Myung Bak said he will take North Korea to the United Nations Security Council over the torpedoing of one of the South’s warships. Futures on the Standard & Poor’s 500 Index lost 0.3 percent. The gauge rose 1.5 percent in New York on May 21, rebounding from the biggest drop this a year, as investors speculated equities may have fallen too much. Industrial & Commercial Bank gained 1.7 percent to HK$5.56 in Hong Kong. China Vanke Co. , the nation’s largest developer by market value, climbed 4.6 percent to 7.73 yuan. Smaller rival Poly Real Estate Group Co. soared 7.5 percent to 12 yuan. China should be cautious in introducing new tightening measures as the global economic environment is complex, Xu Lianzhong, an official with the National Development and Reform Commission’s price monitoring center, wrote in a commentary published today in the China Securities Journal. The European debt problem is one of many global economic uncertainties that China faces, Xu wrote. Subsidy Extension? Chinese automakers rose after the Shanghai Securities News reported the government will extend subsidies for trade-in vehicles to the end of this year. The subsidies were was due to expire on May 31 after its introduction on June 1, 2009. Beiqi Foton advanced 8.6 percent to 19.12 yuan. FAW Car Co. gained 4.3 percent to 17.91 yuan. BHP, the world’s biggest mining company, rose 2 percent to A$37.50 in Sydney amid speculation demand for metals in China can be sustained. Smaller competitor Rio Tinto Group climbed 2.6 percent to A$63.40. Mining and finance companies contributed the most to the MSCI Asia Pacific Index’s advance today. Companies in the gauge are priced at an average 14.2 times estimated profit , near the lowest level since January 2009. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Geithner, `Uncle’ Wang Will Spar Over Revaluing Yuan at Beijing Dialogue

May 23, 2010

By Bloomberg News May 24 (Bloomberg) — The Chinese official who will face Timothy Geithner in Beijing today jokingly calls himself the Treasury secretary’s “uncle” because of a family connection. Geithner may one day call him “Premier.” Vice Premier Wang Qishan leads the delegation meeting with Geithner and Secretary of State Hillary Clinton at the Strategic and Economic Dialogue, which will discuss yuan revaluation, Europe’s debt crisis and North Korea’s nuclear program. Wang, who oversees China’s financial sector, is mentioned for membership in China’s ruling Politburo Standing Committee and as a successor to Premier Wen Jiabao , two China experts say. Geithner says Wang is China’s “definitive preeminent troubleshooter, firefighter, problem solver.” He is also a high-level emissary to business leaders: During a three-month stretch this year, Wang met with Citigroup Inc. Chief Executive Officer Vikram Pandit , JPMorgan Chase & Co. CEO Jamie Dimon and UBS Investment Bank Vice Chairman Leon Brittan . “Wang has done everything and he’s very good at it,” said Robert Hormats , the U.S. undersecretary of state for economics, energy and agriculture and a former Goldman Sachs Group Inc. banker who first met Wang in the 1980s. “He knows the American relationship inside and out. He has had great relations with a number of American officials for decades.” China’s top leaders regularly tap him to extract the country from crises, including the 1998 collapse of a provincial investment company and the 2003 outbreak of a deadly virus in Beijing. As mayor, Wang also headed the Chinese capital’s preparations for the 2008 Olympic Games. Standing Committee? Dimon said in an e-mail that Wang was “extremely smart, engaged and deeply knowledgeable about issues, finance and history.” Li Cheng , director of research at the Brookings Institution’s John L. Thornton China Center in Washington, says Wang’s experience means he’ll likely be named to the standing committee in 2012, giving foreign bankers a familiar face at the top of China’s power structure. Wang, 61, is also being mentioned within the party as a possible candidate to succeed Wen in 2013, when the country will be looking for a seasoned hand to guide China to full yuan convertibility, said Li and Victor Shih , a professor at Northwestern University in Evanston, Illinois, who studies Chinese politics and finance. “He would help push for the convertibility of the yuan in a very positive way,” Shih said. Market Forces Wang is already getting pushed on the currency by Geithner. In a May 14 interview on Bloomberg Television’s “Political Capital with Al Hunt ,” Geithner said: “I think it is in China’s interest that they move to let their exchange rate start to gradually reflect market forces again.” The yuan’s value has been fixed to about 6.83 to one U.S. dollar for almost two years. Wang won’t have the final say. He is one member of the 25- person Politburo, which sets policy for the government and the ruling Communist Party. And up to now, the government has resisted U.S. pressure to end or loosen the peg. “Only the authorities of a sovereign country have the right to decide how to form the exchange rate,” Assistant Finance Minister Zhu Guangyao said in Beijing on May 20. Li Keqiang , the executive vice premier, is a member of the standing committee, now with nine members, and is the front- runner to succeed Wen, Brookings’ Li said. Central Bank Past Yet Wang’s experience, which includes stints as head of China Construction Bank Corp. and China International Capital Corp., the country’s first investment bank, as well as deputy governor of the central bank, outshines Li’s resume, said Brookings’s Li. Hormats said Wang had the “can-do” leadership style of former Premier Zhu Rongji , who led a drive to sell shares of the country’s biggest state-run firms to foreign investors and shepherded China’s 2001 entry into the World Trade Organization. Wang, as vice governor of southern China’s Guangdong province, was tapped by Zhu to oversee the bankruptcy of Guangdong International Trust & Investment Corp. after its 1998 collapse due in part to soured real-estate investments. A native of northern China’s Shanxi province, Wang often speaks without notes when giving speeches, peppering his remarks with anecdotes. He didn’t respond to a request for an interview. Uncle Wang In a Washington speech last July, Wang called himself Geithner’s “uncle,” referring to ties he had with the Treasury secretary’s father, Peter, who headed the Ford Foundation’s office in Beijing in the 1980s. Geithner, 48, who pronounces Wang’s name with the correct Chinese tones, was a Dartmouth College student in Beijing in the early 1980s. On the same trip, Wang met with President Barack Obama at the White House. The vice premier received an autographed basketball. A year earlier, speaking at Washington’s Wardman Park Marriott, Wang’s sense of humor came out as he explained that while China’s economy was large — it is now No. 3 in the world — its per capita gross domestic product was a fraction of that of the U.S. He told Finance Minister Xie Xuren to check out then-Treasury Secretary Henry Paulson . “Look at his wallet,” Wang said. “He has a really fat wallet.” — Michael Forsythe in Beijing. With assistance from Rebecca Christie in Washington and Dawn Kopecki in New York. Editors: Anne Swardson , Bill Austin . To contact Bloomberg News staff on this story: Michael Forsythe in Beijing at +86-10-6649-7580 or mforsythe@bloomberg.net

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Video: Hatoyama to Move U.S. Military Base Within Okinawa: Video

May 23, 2010

May 24 (Bloomberg) — Bloomberg’s Mike Firn reports on Japanese Prime Minister Yukio Hatoyama’s decision to move a U.S. military base within Okinawa in adherence to a bilateral agreement. Hatoyama said security threats from countries such as North Korea trump local sentiment to shift it elsewhere. Hatoyama has “no choice” but to relocate the Futenma Marine Air Base on the island, he told Okinawa Governor Hirokazu Nakaima yesterday, abandoning a campaign pledge to move the Marines elsewhere. Bloomberg’s Susan Li also speaks. (Source: Bloomberg)

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Video: Author Chang Says `Anything’ Could Unsettle Markets Now: Video

May 23, 2010

May 24 (Bloomberg) — Gordon Chang, author of “The Coming Collapse of China” and “Nuclear Showdown: North Korea Takes on the World,” talks with Bloomberg’s Susan Li about the global economy, tensions between North and South Korea, and China’s economic talks with the U.S. this week. (Source: Bloomberg)

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Clinton Calls for `Level Playing Field’ for U.S. Companies in China Trade

May 23, 2010

By Nicole Gaouette May 23 (Bloomberg) — U.S. Secretary of State Hillary Clinton urged China to work more cooperatively with American companies eager for a larger share of the Chinese market. “For trade to work in any economy, it needs to be a level playing field where domestic and international companies can compete freely,” she said today at Shanghai’s Pudong Airport after meeting with 15 U.S. aviation executives to discuss the challenges they face operating in China. U.S. companies “want to sell goods made by American workers to Chinese consumers with rising income and increasing demand.” The Obama administration sees China as central to its goal of doubling exports in five years and creating 2 million U.S. jobs. Clinton and officials including Treasury Secretary Timothy F. Geithner will address trade and investment barriers that could impede that goal at the second annual U.S.-China Strategic and Economic Dialogue that starts tomorrow in Beijing. Clinton said China should increase its transparency in rule making and copyright protection laws, calling them “vitally important in the 21st century economy.” China is America’s second-biggest trading partner after Canada, and the largest foreign investor in U.S. government debt. While there is skepticism in some quarters about how realistic the administration’s export goal is, U.S. officials are confident they can meet it, Commerce Department Undersecretary Francisco Sanchez said yesterday in Shanghai. “We can do that,” he said. Overshadowed Trade and commercial diplomacy were to be the main themes of Clinton’s trip before they were overshadowed by a report finding North Korea responsible for the sinking of a South Korean naval vessel. At the 2010 World Expo in Shanghai, the U.S. Pavilion highlighted American companies including Pepsi Co. and Chevron Corp. , whose donations helped build the 6,000-square meter space. U.S. officials during the Beijing talks will focus on a new Chinese contracting program that could threaten Obama’s export goal. China last year announced an “indigenous innovation” system that proposed to buy only domestically-made software and equipment. “In the coming days, officials at the highest level in our administration will discuss issues of economic balance and competition with our Chinese counterparts,” Clinton said. The new rules could significantly disadvantage foreign companies interested in bidding for government procurement contracts worth an estimated $85 billion a year, Commerce Secretary Gary Locke said in a speech in Beijing on May 21. “Indigenous innovation limits foreign direct investment and imports from abroad that can deliver new products and services to the Chinese people and enhance innovation within Chinese partner companies,” Locke said. Locke brought with him 24 U.S. companies seeking to expand their presence in China, all involved in clean energy technologies or the storage and transmission of electricity. The U.S. and China are the world’s two largest energy consumers and greenhouse gas emitters, Clinton noted in an op-ed in the Beijing-based newspaper Global Times. She said discussions at the Strategic and Economic Dialogue in Beijing would focus “on ways that our two countries can expand our cooperation on energy and climate change.” To contact the reporter on this story: Nicole Gaouette in Shanghai at ngaouette@bloomberg.net .

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Clinton Says North Korea Role in Sinking Demands World Response

May 21, 2010

By Nicole Gaouette and Takashi Hirokawa May 22 (Bloomberg) — U.S. Secretary of State Hillary Clinton urged international action to answer North Korea’s suspected sinking of a South Korean warship, just before she arrived in China for talks set to deal with the crisis. The U.S. wants China to help shape a response to North Korea, an American official told reporters yesterday in Shanghai. China is an ally of North Korea and has hosted now stalled international talks on reining in the regime’s nuclear arms effort. The U.S. official, who asked not to be identified, said South Korea doesn’t want war to break out over the crisis. The evidence that North Korea fired a torpedo and sank the ship is “overwhelming and condemning,” Clinton said at a press briefing in Tokyo with Japanese Foreign Minister Katsuya Okada during a short stop before she flew on to China. The March 26 sinking of the 1,200-ton Cheonan killed 46 South Korean sailors. South Korea’s options for a response include seeking action by the United Nations Security Council, shutting down humanitarian aid work and the Kaesong industrial park in North Korea, and joint military exercises with the U.S., according to John Park, director of the Korea Working Group at the U.S. Institute of Peace in Washington. “The U.S. is in a tough position” at the UN, Park said in an interview. “With talks on Iran sanctions going on, they will be asked by countries like China what their priority is.” China joined the U.S., U.K., France and Russia this week to back a draft UN Security Council resolution on Iran that would bolster an arms embargo, restrict financial transactions and enhance authority to stop and seize Iranian cargo suspected of ties to nuclear or missile work. War Threat Kim Jong Il ’s regime in North Korea, already under UN sanctions for its second nuclear-weapons test last year, threatened “all-out war” if the international body imposes additional restrictions. In Tokyo, Clinton and Okada offered unqualified support for South Korea after an international panel issued a report saying evidence provided “conclusive” proof of North Korea’s role in the ship incident. “The importance of the Japan-U.S. alliance is increasing as the sinking of the South Korean ship shows the instability” in the region, Okada said. Another U.S. official told reporters in Shanghai that the sinking shifted Japan’s attitude in a dispute over moving an American base on Okinawa and that Japan would make a contribution on a deal. The official also asked not to be identified. Futenma Issue Clinton and Okada discussed the dispute over where to relocate the American military facility. Prime Minister Yukio Hatoyama , who initially called for moving the Futenma Marine Base off the island in response to local sentiment, said earlier this month he will transfer the base within Okinawa, largely in line with a 2006 bilateral agreement. Clinton said both countries share the same goals on moving the base and are seeking an “operationally viable and politically sustainable” solution. Both sides would try to conclude the matter by the end of the month, Okada said. Tension on the Korean peninsula is overshadowing the planned centerpiece of Clinton’s Asia trip. She and Treasury Secretary Timothy Geithner will be in Beijing May 23-25 to take part in the U.S.-China Strategic and Economic Dialogue. Climate, Energy While Geithner will press the Chinese to improve domestic demand and address the value of the yuan, Clinton’s agenda includes climate change, energy security and Iran. She then will go to Seoul to discuss the South Korean report. The talks in China come as both countries are trying to improve ties after strains earlier this year. Chinese censorship of Google Inc. , the Mountain View, California-based Internet- search company, a Washington visit by the Dalai Lama and disagreements over China’s currency weighed on relations. In Shanghai, Clinton will visit the U.S. pavilion at the 2010 World Expo . More than 4 million people already have visited the $44 billion, six-month exposition that opened May 1, including French President Nicolas Sarkozy . To contact the reporters on this story: Nicole Gaouette in Shanghai at ngaouette@bloomberg.net ; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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Clinton Says North Korean Sinking of Southern Ship `Cannot Go Unanswered’

May 21, 2010

By Nicole Gaouette and Takashi Hirokawa May 21 (Bloomberg) — U.S. Secretary of State Hillary Clinton said North Korea’s sinking of a South Korean warship “cannot go unanswered” and the response by the international community must not be “business as usual.” The evidence that North Korea fired a torpedo and sank the ship is “overwhelming and condemning,” Clinton said at a press briefing in Tokyo today with Japan’s Foreign Minister Katsuya Okada . “There must be an international, not just a regional, but an international response.” The two diplomats offered unqualified support for South Korea after an international panel yesterday issued a report saying evidence provided “conclusive” proof of North Korea’s role in the March 26 sinking, which killed 46 sailors. South Korea’s National Security Council met today as the North threatened to sever all ties and reiterated a threat of war. “The importance of the Japan-U.S. alliance is increasing as the sinking of the South Korean ship shows the instability” in the region, Okada said. Clinton stopped in Tokyo for four hours on her way to China where she will take part in talks on climate change, the Afghan war and sanctions to curb Iran’s nuclear ambitions. Okada said Japan is studying an agreement Iran struck with Turkey and Brazil to hand over half of its enriched-uranium stockpile in exchange for fuel. In the meantime, Japan supports the U.S. pursuit of a fourth round of UN sanctions on Iran, he said. ‘Eye to Eye’ “We see eye to eye,” Okada said. Clinton said “the burden is on Iran” to live up to its obligations “or face growing isolation.” Clinton and Okada also discussed a dispute over where to relocate an American military facility on Okinawa. Prime Minister Yukio Hatoyama , who initially called for moving the Futenma Marine Base off the island in response to local sentiment, said earlier this month he will transfer the base within Okinawa, largely in line with a 2006 bilateral agreement. Clinton said both countries share the same goals on moving the base, and are seeking an “operationally viable and politically sustainable” solution. Japan and the U.S. will release as early as May 28 a joint agreement on relocating Futenma, the Yomiuri newspaper said today, without citing anyone. Okada today said both sides would make every effort to conclude the matter by the end of the month. War Threats South Korea yesterday demanded a “stern” global response the sinking of the 1,200-ton naval vessel Cheonan. Kim Jong Il ’s regime, already under UN sanctions for its second nuclear test last year, threatened “all-out war” if the international body imposes additional restrictions. Tension on the Korean peninsula is overshadowing the planned centerpiece of Clinton’s Asia trip. She and Treasury Secretary Timothy Geithner will be in Beijing May 23-25 to take part in the U.S.-China Strategic and Economic Dialogue. While Geithner will press the Chinese to improve domestic demand and address the value of the yuan, Clinton’s agenda includes climate change, energy security and Iran. She then will go to Seoul to discuss the South Korean report. The U.S. will be in “deep and constant consultations, not only between the United States and Japan, but also South Korea, China and others to determine our response” to North Korea, Clinton said. Improving Strained Ties The talks in China come as both countries are trying to improve ties after strains earlier this year. Chinese censorship of Google Inc. , the Mountain View, California-based Internet- search company, a Washington visit by the Dalai Lama and disagreements over China’s currency weighed on relations. “It felt like both countries went right up to the edge then looked over into the abyss below and backed away from it,” said Taiya Smith, a senior research fellow at the Carnegie Endowment in Washington. “Now the attitude is, we want to be partners, can we use our time at the highest level to engage on issues in ways that are in each countries’ best interests.” Clinton will start the China portion of her fifth trip to Asia in Shanghai, host to the 2010 World Expo , where she will focus on commercial diplomacy and visit the U.S. pavilion. To contact the reporters on this story: Nicole Gaouette in Tokyo at ngaouette@bloomberg.net ; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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Stocks Drop, Euro Pares Gain, Treasuries Rise on Global Economic Concern

May 21, 2010

By Michael Patterson May 21 (Bloomberg) — Stocks fell for a seventh day, with Standard & Poor’s 500 Index futures falling beneath their low during the May 6 rout, and 30-year Treasury yields dropped to their lowest of the year on concern that Europe’s debt crisis will slow global economic expansion. The euro pared gains. The MSCI World Index of developed-nation shares retreated 0.4 percent at 7:59 a.m. in New York, heading for an almost eight-month low. Futures on the S&P 500 expiring in June slid as much as 1.2 percent to 1,057.6, following a 3.9 percent plunge in the U.S. benchmark index yesterday, and Dow Jones Industrial Average futures retreated below 10,000. The euro rose 0.4 percent to $1.2540, after climbing to $1.2672. The 30-year Treasury yield dropped to as low as 4.05 percent. The plunge in global equities this month wiped out $5.3 trillion of market value as Germany’s crackdown on speculation, plans for spending cuts by Europe’s most indebted nations and proposals to tighten U.S. finance industry regulation shook investor confidence. The German lower house of parliament approved the country’s share of a $1 trillion lending package to ease Europe’s debt woes, which Federal Reserve Governor Daniel Tarullo said yesterday may pose a threat to the global economy. “It’s a material risk that the problem is continuing to get bigger and to get worse,” Arnab Das , the head of global market research and strategy at Roubini Global Economics in London, said in an interview with Bloomberg Television. “As these budget cuts come through, the economies are potentially going to go sharply downward. The general tendency is going to be downward” for the euro, he said. Casualty Insurer The Stoxx 600 extended its slide this week to 6.2 percent. TrygVesta A/S, the Nordic region’s second-largest property and casualty insurer, tumbled 8.4 percent today in Copenhagen after reporting an unexpected first-quarter loss. Lanxess AG slipped 3 percent in Frankfurt after BofA Merrill Lynch Global Research downgraded the shares. The MSCI Asia Pacific Index slumped 1.2 percent. Honda Motor Co., which gets about 81 percent of its sales from overseas, declined 2.5 percent in Tokyo. Sonic Healthcare Ltd. , which provides medical tests, tumbled 20 percent in Sydney after saying earnings will be less than forecast. The retreat in U.S. futures indicated the S&P 500 may extend yesterday’s plunge, the worst since April 2009. The gauge fell to within 6 points of its low on May, when panic selling prompted calls for reform. The S&P 500 is now trading at about 15.5 times the reported earnings of its companies, the lowest level since July, according to Bloomberg data. Investors withdrew some $12 billion from U.S. and European equity funds in the week to May 19, according to research firm EPFR Global. Emerging Markets Fall The euro gained as much as 1.5 percent earlier today amid speculation investors betting on a decline were forced to buy the currency to cover their short positions. European Union President Herman Van Rompuy hosts a meeting of finance ministers in Brussels today to discuss reforms to economic governance. The yen declined 0.4 percent against the dollar after Japanese Finance Minister Naoto Kan said it’s undesirable for currencies to stray from “stable” levels. South Korea’s won forwards weakened for a third day, with three-month contracts falling 0.9 percent. President Lee Myung Bak convened a National Security Council meeting as North Korea threatened to sever all ties and reiterated its war threat after being accused of sinking one of the South’s warships. South Korea’s financial markets were closed today for a holiday. The MSCI Emerging Markets declined 0.5 percent. Benchmark indexes in Taiwan, Indonesia and Vietnam extended declines to more than 10 percent below recent highs after U.S. reports yesterday showed jobless claims unexpectedly rose and a gauge of leading economic indicators posted a surprise drop. Corporate Bonds The German 10-year bund yield slipped three basis points to 2.65 percent after business confidence in the nation unexpectedly fell this month. The extra yield investors demand to hold global corporate bonds rather than benchmark government debt widened 7 basis points to 184, the biggest difference since Dec. 14, according to Bank of America Merrill Lynch index data. Yields on 30-year Treasury bonds decline to the lowest level this year, dropped to 4.05 percent in New York. Crude oil for July delivery fell to $69.49 a barrel on the New York Mercantile Exchange. Nickel dropped 0.8 percent to $21,039 a metric ton on the London Metal Exchange. To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net .

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Clinton Says Evidence North Korea Sank South Korean Ship Is `Overwhelming’

May 21, 2010

By Nicole Gaouette May 21 (Bloomberg) — Secretary of State Hillary Clinton called for an international response to North Korea’s sinking of a South Korean warship, adding that “business as usual” is not possible. The evidence that North Korea fired a torpedo and sank the ship is “overwhelming,” Clinton said at a press briefing in Tokyo today with Japan’s Foreign Minister Katsuya Okada. To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net

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North Korea Sank South’s Warship, Panel Says, Putting Pressure on China

May 19, 2010

By Bomi Lim May 20 (Bloomberg) — North Korea was behind the torpedo attack that sank one of South Korea’s warships in March, a multinational panel said, a finding that puts pressure on China to support international sanctions against its political ally. “The evidence points overwhelmingly to the conclusion that the torpedo was fired by a North Korean submarine,” the investigation team for the March 26 sinking, which claimed the lives of 46 sailors, said today in a statement. “There is no other plausible explanation.” The 1,200-ton Cheonan was split apart by an “external underwater explosion caused by a torpedo made in North Korea,” said the 25-member team, which included experts from the U.S., U.K., Sweden and Australia. Evidence tying North Korea to the sinking, the deadliest attack blamed on the nation in more than two decades, may add weight to efforts by the U.S., Japan and South Korea to isolate the regime of Kim Jong Il . China, which has veto power on the United Nations Security Council, is the main ally of North Korea, providing the trade and aid that keeps the regime afloat. U.S. Secretary of State Hillary Clinton is to visit South Korea next week, followed by the leaders of China and Japan. South Korean President Lee Myung Bak held telephone conversations this week with his counterparts in the U.S. and Japan, and said the investigation team secured “definitive evidence that no one can deny.” The investigation team said it has collected “conclusive evidence” of torpedo parts with markings in the Korean language that are consistent with those seen on a previously obtained North Korean torpedo. The parts also matched the technical drawings and specifications in North Korea’s pamphlets used for overseas buyers of military equipment, the team said. Torpedoes from Russia and China carry markings in their own languages, the report said. Intelligence reports confirmed that a submarine group, together with a support ship, left a North Korean base 2-3 days before the attack and returned to base 2-3 days afterwards. Submarines from neighboring countries were all in or near their home bases, the report said. North Korea said yesterday South Korea’s accusation that the communist country sank the ship was a “smear campaign” and vowed to counter any military move. North Korea on April 17 denied it had anything to do with the incident near the western sea border, where naval skirmishes occurred in 1999, 2002 and November last year. South Korea may raise the issue at the UN Security Council, Foreign Minister Yu Myung Hwan said on April 20. North Korea is already under UN sanctions banning arms trade after carrying out its second nuclear test in 2009. China is North Korea’s principal trading partner and major ideological ally, having fought alongside the country in its 1950-1953 war against South Korean and U.S.-led UN troops. About 28,500 U.S. soldiers are still stationed in South Korea. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Euro Declines on Concern Growth Will Slow on European Austerity Measures

May 19, 2010

By Candice Zachariahs and Ron Harui May 20 (Bloomberg) — The euro weakened against the dollar, trimming yesterday’s gains from a four-year low, on concern the pace of Europe’s economic recovery will slow as governments combat a debt crisis with spending cuts. The common currency slid 0.5 percent to $1.2351 before a European report that may show consumer confidence deteriorated for the first time in three months. The euro rebounded yesterday after Germany’s ban of naked short sales of sovereign debt sent the currency to the lowest since April 2006. The yen climbed and the won dropped after an international panel said a North Korean torpedo caused the sinking a South Korean warship in March. “Growth numbers out of the euro zone are going to be very sluggish for a considerable time, and yields will be low with the European Central Bank in no position to tighten monetary policy,” said Sean Callow , a currency strategist in Sydney at Westpac Banking Corp. “The euro is a sell on rallies.” New Zealand’s dollar strengthened as the government pledged to raise sales tax and lower income taxes to encourage savings, aiming to reduce “vulnerability” to sovereign debt concerns. The euro pared its 1.8 percent increase to $1.2415 yesterday, when it fell to as low as $1.2322. The 16-nation euro slipped to 113.36 yen as of 12:06 p.m. in Tokyo from 113.85 yen in New York. The yen was at to 91.78 per dollar from 91.71. An index of confidence among European consumers fell to minus 16 in May from minus 15 in April, according to a Bloomberg News survey of economists before the European Commission data today. That would echo a report from the ZEW Center for European Economic Research on May 18 that showed its index of German investor and analyst expectations plunged this month. Geopolitical Risk Luxembourg Prime Minister Jean-Claude Juncker , who leads the group of euro-area finance ministers, said he discussed concerns about the euro with Japanese Finance Minister Naoto Kan . Currency intervention isn’t an urgent topic, he said, speaking to reporters in Tokyo. The euro has dropped 7.7 percent this year against developed-world counterparts, according to Bloomberg Correlation Weighted Indexes. The yen advanced against 12 of its 16 most-traded counterparts as demand for the currency as a refuge increased after a 25-member panel said a 1,200-ton South Korean ship was split apart by an “external underwater explosion caused by a torpedo made in North Korea.” South Korea has “undeniable evidence” that North Korea was responsible for the sinking, President Lee Myung Bak told Australian Prime Minister Kevin Rudd when the two spoke by phone, according to a statement from the President’s office. The nation’s military commanders will hold an emergency meeting today, Yonhap News Agency reported, citing the defense ministry. Torpedo Attack “News that a North Korean torpedo attack sank a South Korean warship may spark geopolitical risk,” said Takashi Kudo , Tokyo-based general manager of market information at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “The bias is for the yen to be bought.” South Korea’s won weakened against all major peers, losing 0.7 percent against the dollar and 0.6 percent versus the yen. Europe’s common currency weakened before German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble host talks on financial regulation today in Berlin. Germany’s ban on naked short sales, which lasts until March 31, 2011, applies to government debt and shares of 10 banks and insurers, financial regulator BaFin said May 18. When securities are sold naked, the trader doesn’t borrow the assets before submitting a sell order. European Unity “The question of European Union unity following Germany’s unilateral naked short-selling ban has investors particularly on edge,” Brian Kim , a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a research note yesterday. “We are still negative on the euro.” Euro area policy makers last week unveiled an unprecedented loan package worth nearly $1 trillion and a program of bond purchases to forestall defaults of the region’s most indebted countries, including Greece, Spain and Portugal. The currency has fallen versus the dollar in six of the past eight days amid prospects mandated spending cuts will curtail growth. Spain this month unveiled the biggest cuts in at least 30 years and Portugal pledged to slash wages and raise taxes. Italian Prime Minister Silvio Berlusconi promised yesterday a “very rigorous” control over the country’s public accounts and cuts to “superfluous spending and privileges.” Euro Slide The euro’s slide is good for Europe’s biggest exporters, Berlusconi said at a news conference in Rome. Recent currency moves “allow us to look at the future with optimism, rather than excessive pessimism,” he said. New Zealand’s sales tax will increase to 15 percent from 12.5 percent on Oct. 1, Finance Minister Bill English announced in his annual budget released in Wellington today. Income tax will fall for all workers from the same date, including a cut in the top rate to 33 percent from 38 percent. “New Zealand’s largest single vulnerability is now its large and growing net external liabilities,” English said. The kiwi dollar surged 1.3 percent to 68.69 U.S. cents and climbed to a four-month high versus its Australian counterpart. To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net .

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Robert Teitelman: Transactions: May 17, 2010

May 17, 2010

Europe without Greece is like Main Street without Wall Street. Difficult to fathom, even if Goldman, Sachs & Co. has been naughty. For now, Greece can stay; but it skittered perilously close to getting voted off the Continent, mostly by Germany, which seems to control the votes. There’s a tangle of macroeconomics that makes relations between Greece and Germany fraught (including the threat of infecting Portugal, Spain, Ireland, the U.K.) and the euro-zone situation dire. The crisis is exacerbated by Europe’s uneven evolution, which remains more an economic than political construct, as if the United States consulted the Constitution for economic matters and the Articles of Confederation for politics. That said, the nub of the dispute comes down to matters no treaties, directives or decrees can bury: history, tradition, emotion, perception. In the end, Germany can’t understand why Greeks aren’t, well, German (Greeks disagree): orderly, tax paying, thrifty, export-oriented, resistant to inflationary temptations. And, even stranger, German intellectual tradition has long had deep affinities with the Greeks — unfortunately, the Greece of Pericles and Plato, not Papandreou and his minions. It’s like some alien race dropped into Greece, with a weakness for deficit spending and creative accounting. How will this end? Who knows. Even if you succeed in comprehending Europe’s deepening economic woes (good luck), it’s devilishly more difficult to track deeper emotional currents of a Europe that, socially and culturally, has resisted amalgamation in Brussels’ technocratic melting pot. This raises an issue exposed by the financial crisis: the shaky apotheosis of economics or economic thinking. The crisis left the efficient-market hypothesis, with its engine of rational expectations, less a universal explanation for economic behavior (meaning, ipso facto, any behavior) and more, at best, a tendency. Bailouts and backlashes provoked panic, then frenzy, behavior the theory once defined out of existence. That, in turn, ushered in a remarkable conclusion: folks act for many reasons, rational, irrational, hinged, unhinged. Individuals, groups, societies are not necessarily consistent, logical, informed or coherent. They can, for instance, demand bankers lend while pelting them with rotten fruit. They can admire Greece but not Greeks. They can engage in bouts of world domination led by madmen. Meanwhile, the fissuring of economic hegemony also threatens another set of ideas: theories of global convergence and of determinism, otherwise known as flat-earthism (danke, Thomas Friedman). Indeed, the EMH long ago produced its doppelgänger: economic determinism, that is, the primacy of processes that optimize economic efficiency (including free trade). The demands of efficiency and competitiveness, the theory goes, produce market economies, open societies, liberal democracies, give or take a right or two; this is the end-of-history meme. Economic thinking, lashed to globalization, would roll over local customs, religions, prejudices, idiosyncrasies, cuisine; it is so powerful that even with the EMH reeling, economists remain go-to pundits. Globalization would plane off differences, drive convergence, integration and interdependence: Greeks are simply Germans who can dance. Certainly, there would be holdouts, refuseniks, reactionaries like the lunatic in North Korea; but, eventually, ordinary folks would crave iPads, Google, sweet-running automobiles and a bungalow in a suburb named La Casa Nostra. They would demand peace and Mexican vacations and worry about heaven and hell later. This was progress. This was flat-earthism. This was as much a crock as ultra EMH. The two hypotheses are symbiotic; undermine one, threaten the other. Sept. 11 was a great blow to flat-earthism, but it was also a dramatically presented gesture that economics wasn’t everything. We thought Sept. 11 was about terrorism, religion, power, but it was also a spectacularly staged attack on economic manifest destiny. The financial crisis was more overt, if less focused: Technocrats were as blind to the future as Greeks, mortgage holders and lords of Wall Street. If the future is again uncertain, inevitability is not inevitable. Still, it’s easy to get carried away. Most folks pick flat-panel televisions over jihad. Democracy and consumerism may sway in rhythm for long stretches. Wealth is generally more appealing than poverty. The EMH has its uses; and convergence persists. But the great dream of determinism has been shattered. We are stuck with fallible us. Judging and discriminating (in both senses) re-emerge; differences matter. We no longer fully believe in world-historical forces driving us toward integration, modernity, the freedom to browse. As Jagdish Bhagwati allows, there’s a difference between free trade in finance and in goods. Greeks aren’t Germans. You aren’t me. Free agency creeps back into the equation. It’s harder that way, and lacks utopian éclat, but what’s the choice? After all, the Greeks invented tragedy. See the complete archives of the Editor’s Note Robert Teitelman is Editor In Chief of The Deal

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South Korea Fires Warning Shots After North Korean Ships Enter Its Waters

May 15, 2010

By Bomi Lim May 16 (Bloomberg) — South Korea said its naval forces fired warning shots last night to drive away North Korean patrol ships that had crossed the western sea border between the two nations. Two North Korean ships entered South Korean waters separately between 10 p.m. and midnight, said an official at the Joint Chiefs of Staff in Seoul. The first ship retreated after being warned off by radio and the second retired after a couple of warning shots were fired, said the official, who declined to be named because of military policy. North Korean ships ventured into South Korea’s waters for the first time since the March 26 sinking of a South Korean naval warship in the area. North Korea doesn’t recognize the western sea border demarcated by the United Nations after the Korean War, and the dispute caused skirmishes between the two in 1999, 2002 and November last year. Tensions flared anew on the Korean peninsula after the March sinking, which claimed lives of 46 South Korean sailors. South Korea has said a torpedo probably sank the 1,200-ton Cheonan, indicating possible North Korean responsibility for the incident. North Korea on April 17 denied it was responsible for the sinking. The two nations remain technically at war because the 1950-53 conflict ended with a truce and no peace treaty has been concluded. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Cameron’s Failure to Top Clegg in Debate Polls Signals Minority Government

April 22, 2010

By Robert Hutton and Kitty Donaldson April 23 (Bloomberg) — Conservative David Cameron failed to derail Nick Clegg in the U.K. campaign’s second debate, four instant polls showed, pointing to a hung parliament with Prime Minister Gordon Brown ’s Labour Party as the largest bloc. In a 90-minute televised debate, Brown, 59, compared his 43-year-old opponents to children “squabbling at bathtime.” Cameron, who led polls until Clegg’s surge after last week’s debate, said a government without a majority would prevent “decisive action” to narrow a record budget deficit . Clegg dismissed such warnings as “ludicrous scare stories.” Of four surveys released immediately after the event, two showed Clegg won and a pair favored Cameron. That suggests the debate will produce little change in polls on the overall race in coming days. Most since last week show Labour winning a plurality of seats in the May 6 election. “It would have been a game-changer if Clegg had crashed and burned,” said Justin Fisher, professor of politics at Brunel University in London. “Clegg held up better than I thought he would. He won’t fall back to his pre-debate levels” — about 10 points below where he is now. A YouGov Plc daily poll before last night’s debate put the Conservatives at 34 percent and Labour at 29 percent, with the Liberal Democrats at 28 percent . That would leave Labour with 278 seats to 251 for the Conservatives and 88 for the Liberal Democrats, according to the standard calculations used by academics and pollsters. YouGov questioned 1,576 people April 21 and yesterday. No margin of error was given. Pound Weakens Such a result may roil markets because a divided government would be too weak to fix Britain’s finances, some economists say. The pound slumped 1 percent in the two days after the debate last week and weakened in early Asian trading, dropping 0.2 percent at 8:16 a.m. in Tokyo. It has lost 5.1 percent against the dollar this year. In last night’s debate, Brown, whose party has controlled the government since 1997, addressed his own unpopularity. “Like me or not, I can deliver,” he said. He later told his opponents: “David, you’re a risk to the economy, Nick is a risk to our security.” Brown told Clegg to “get real” and stop opposing nuclear weapons. He criticized Cameron over his European policy and Conservative proposals to cut spending this year as Britain emerges from recession . ‘Get Real’ “Iran, you’re saying, might be able to have a nuclear weapon and you wouldn’t take action against them, but you’re also saying give up our Trident submarines,” Brown told Clegg on the stage of an arts center in Bristol. “Get real about the danger we face if we have North Korea, Iran and other countries with nuclear weapons and we give up our own.” Clegg opposes updating Britain’s submarine-based Trident missile system. Brown said Cameron’s “ anti-Europeanism becomes more and more obvious as this debate goes on.” Cameron said he wanted to be “in Europe but not run by Europe.” Cameron made some direct attacks on Clegg, at one point taking on the Liberal Democrat leader’s claim that his party had escaped censure following disclosures that scores of lawmakers were reimbursed with taxpayer money for personal expenses. “Frankly, Nick, we all had problems with this,” the Conservative said. “Don’t let’s anyone put themselves on a pedestal.” Clegg criticized Cameron over his decision to end the Conservatives’ alliance in the European Parliament with the parties of German Chancellor Angela Merkel and French President Nicolas Sarkozy . EU Allies The Conservatives joined with eastern European parties that include Latvia’s For Fatherland and Freedom, which has come under fire from academics for its links to Latvians who fought with the Nazi SS in World War II. Clegg described the Conservatives’ allies as “a bunch of nutters, anti-Semites, people who deny climate change exists, homophobes.” All three changed their debating tactics, switching away from last week’s emphasis on anecdotes about voters they’d met in the campaign. Brown and Cameron both copied Clegg’s technique from the previous debate of addressing the camera directly, rather than the studio audience. “David Cameron made a really concerted attempt to highlight the differences between the three parties, and how hard it would be to reach agreement in a hung Parliament,” said Jane Green, a lecturer in politics at Manchester University. “But I was surprised he didn’t make more of the message that a vote for Clegg is a vote for Brown.” To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net ; Kitty Donaldson in Bristol at kdonaldson1@bloomberg.net

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Two North Koreans Said to Be Arrested for Alleged Plot to Murder Defector

April 20, 2010

By Bomi Lim April 21 (Bloomberg) — South Korean prosecutors arrested two North Koreans on suspicion they were sent to murder the highest-ranking member of the communist regime ever to defect, an intelligence official said. Two men were detained yesterday after confessing they came to South Korea to kill Hwang Jang Yop , who defected in 1997, a press official at the National Intelligence Service said by phone today in Seoul. Local media including Yonhap News and Chosun Ilbo reported on the arrests earlier. The men entered South Korea this year and confessed to being special agents of North Korea’s Ministry of People’s Armed Forces, the official said, declining to be named in accordance with agency policy. Prosecutors at the Seoul Central District Prosecutors’ Office couldn’t be reached for comment. North Korea’s official Korea Central News Agency hasn’t commented. Tensions have risen on the peninsula since a South Korean warship sank last month close to the disputed maritime border following an unexplained explosion. North Korea on April 17 denied it was responsible after South Korea’s initial investigation indicated an external blast caused the incident. Hwang, 87, served as a secretary on North Korea’s ruling Workers’ Party and a chairman on the Supreme People’s Assembly, the country’s parliament. He is a vocal critic of Kim Jong Il ’s regime and lives under constant police protection. The two North Koreans, identified as Kim Myong Ho and Tong Myong Kwan, entered South Korea via Thailand, posing as defectors, Chosun Ilbo newspaper reported today, citing officials at the intelligence service and prosecutors it didn’t identify. They were on a mission to “slit Hwang Jang Yop’s throat,” the paper said. Kim and Tong, both 36, were trained as special agents since 2004 to infiltrate South Korea and assassinate high-ranking officials, Chosun said. South Korea and North Korea remain technically at war since their 1950-53 conflict ended in a cease-fire that was never replaced by a peace treaty. To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

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Obama Wins Backing from 46 Nations for Nuclear Security Goal After Summit

April 13, 2010

By Viola Gienger and Edwin Chen April 14 (Bloomberg) — President Barack Obama won commitments from 46 nations to lock down nuclear material and keep it out of the hands of terrorists. The next test will be how far global leaders will go to carry out their pledges. The final communiqué issued after two days of meetings in Washington should spur higher security standards for separated plutonium and highly enriched uranium and consolidation of scattered material at fewer locations, Matthew Bunn and other experts told reporters after the summit ended yesterday. “The summit represents a major step to overcome complacency about this threat,” said Bunn, an associate professor at Harvard University in Cambridge, Massachusetts, who has advised on U.S. nuclear controls. “There’s a lot of work yet to be done, but this does represent major progress.” The presidents, prime ministers and other representatives from around the world convened by Obama endorsed the U.S. president’s timeline for securing nuclear material within four years. Obama said he set the goal because the world’s biggest security threat is the potential for al-Qaeda or other terrorist groups to acquire the materials to develop a nuclear weapon through theft or illicit sales. “We have seized the opportunity,” Obama said yesterday during a news conference at the conclusion of the summit. “The American people will be safer and the world will be more secure.” Opening the plenary session earlier in the day, Obama said the world must recognize the changed nature of the nuclear threat. ‘Cruel Irony’ “Two decades after the end of the Cold War, we face a cruel irony of history — the risk of a nuclear confrontation between nations has gone down, but the risk of a nuclear attack has gone up,” Obama said. In the communiqué, the U.S. and the other nations, which included Russia, China, India and Pakistan, pledged “sustained and effective international cooperation” to secure vulnerable nuclear material. They reaffirmed their commitment to preventing terrorists from obtaining “information or technology” required to use nuclear material and to maintain security of such supplies, according to the communiqué, released by the White House. Issues left unaddressed include the continuing production of fissile materials for weapons in countries such as India and Pakistan, Daryl Kimball , executive director of the Arms Control Association in Washington, said. ‘Wiggle Room’ The joint statement “leaves a lot of wiggle room,” said Miles Pomper, a senior research associate at the James Martin Center for Nonproliferation Studies at the Monterey Institute of International Studies in California. He, Bunn and Kimball spoke on a conference call with reporters organized by the Fissile Materials Working Group, which is backing Obama’s effort. The effect of the summit is broader than the technical subject of nuclear raw materials suggests, Finland’s President Tarja Halonen said in an interview at the summit. Because of its civilian use in energy production, such material is found in far more countries and locations than nuclear weapons. “I think it’s a good start,” said Halonen. “This is one of the perhaps easier, feasible steps forward.” Obama also got agreements from individual countries on securing nuclear material. The U.S. announced that Ukraine will relinquish its entire stockpile of roughly 90 kilograms of highly enriched uranium and convert research reactors to use lower-grade fuel. The U.S. will provide some technical and financial support, White House press secretary Robert Gibbs said. Canada, Mexico Canada’s Prime Minister Stephen Harper separately announced his country will send spent highly enriched uranium to the U.S. for processing to make it unusable for a weapon. Canada also joined with the U.S. and Mexico in a plan to convert highly enriched uranium from a Mexican research reactor, removing high-grade material from the country. Chile previously has agreed to give up its stockpile. In another step, Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov yesterday signed a protocol for each side to dispose of 34 metric tons of weapons- grade plutonium, enough material for about 17,000 nuclear weapons. In addition, Obama said several nations at the summit, including Argentina, agreed to bolster security at ports to block smuggling of nuclear material. Country Exposed Obama’s campaign may not have helped him on other nuclear issues in the U.S. Congress, where he faces criticism from Republicans that a nuclear-arms reduction treaty with Russia and his plan to scale back the use of atomic weapons in the nation’s defense leaves the country exposed. “The summit’s purported accomplishment is a nonbinding communiqué that largely restates current policy,” said Arizona Senator Jon Kyl , the chamber’s second-ranking Republican. “The greatest threat of nuclear proliferation and terrorism comes from Iran, which has for years supported terrorists and is growing closer and closer to having a nuclear weapons capability.” Iran and North Korea weren’t invited to the summit and weren’t directly on the agenda. Obama said at the news conference that the United Nations is moving toward tougher sanctions if Iran doesn’t comply with demands it halt enrichment of uranium. Cooperation on sanctions is a sign that “international diplomacy” is making it more possible to isolate countries like Iran and North Korea. “I want to see us move forward boldly and quickly,” Obama said. To contact the reporters on this story: Viola Gienger in Washington at vgienger@bloomberg.net ; Edwin Chen in Washington at echen32@bloomberg.net

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Obama’s Nuclear Summit Ends With 47 Nations Pledging to Secure Stockpiles

April 13, 2010

By Edwin Chen and Roger Runningen April 13 (Bloomberg) — President Barack Obama said a summit on nuclear security is concluding with a strong agreement among 47 countries that the world’s nuclear stockpiles must be secured to reduce the chance of terrorists getting an atomic device. “We have seized the opportunity,” Obama said during a news conference at the conclusion of a two-day summit on nuclear security in Washington. “The American people will be safer and the world will be more secure.” In a 12-point summit communiqué, the U.S. and 46 other nations gathered for the meeting pledged “sustained and effective international cooperation” on Obama’s goal of securing all vulnerable nuclear material in four years. The representatives and heads of state from around the world spent two days discussing a plan of action for locking down global nuclear stockpiles. Obama has said the most significant security threat is the potential for al-Qaeda or other terrorist groups to acquire the materials to develop a nuclear weapon through theft or illicit sales. Opening the summit’s plenary session earlier today, the U.S. president said the world must recognize the changed nature of the nuclear threat. “Two decades after the end of the Cold War, we face a cruel irony of history — the risk of a nuclear confrontation between nations has gone down, but the risk of a nuclear attack has gone up,” Obama said. That requires “we summon the will, as nations, as partners, to do what this moment in history demands,” he said. Blocking Terrorists The leaders and representatives at the summit reaffirmed their commitment to preventing terrorists from obtaining “information or technology” required to use nuclear material and to maintain security of such supplies, according to a copy of the document obtained by Bloomberg News. The communiqué recognizes the role of the United Nations as well as other organizations to enforce compliance “within their respective mandates and memberships” and it calls on states to “work cooperatively” by requesting and providing assistance as necessary. Obama also got agreements from individual countries on actions to secure nuclear material. The U.S. announced yesterday that Ukraine will relinquish its entire stockpile of highly enriched uranium and convert research reactors to use lower- grade fuel. Ukraine’s Uranium Ukraine will dispose of roughly 90 kilograms of uranium, “enough to construct several nuclear weapons,” and will convert nuclear research reactors to use lower-grade fuel, White House press secretary Robert Gibbs said. Canada’s Prime Minister Stephen Harper , who is in Washington for the summit, separately announced his country will send spent highly enriched uranium to the U.S. for processing to make it unusable for a weapon. Canada also joined with the U.S. and Mexico in a plan to convert highly enriched uranium from a Mexican research reactor, the White House said today. The action will result in the removal of all high-grade uranium from Mexico, according to a White House statement. Chile previously has agreed to give up its stockpile. U.S.-Russia Accord In another step toward eliminating such material, Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov today signed a protocol in which each side agrees to dispose of 34 metric tons of weapons-grade plutonium, enough material for about 17,000 nuclear weapons. The U.S. and Russia’s Plutonium Management and Disposition Agreement had been stalled since 2000 over differences on implementation. In addition, Obama said several nations at the summit agreed to bolster security at ports to block smuggling of nuclear material. Two potentially high-risk sources of illicit nuclear materials, Iran and North Korea, weren’t invited to the summit and aren’t specifically part of the agenda. Obama said at the news conference that the United Nations is moving toward tougher sanctions if Iran doesn’t comply with demands it halt any attempt to enrich uranium. Cooperation on sanctions is a sign that “international diplomacy” is making it more possible to “isolate” countries like Iran and North Korea. “I want to see us move forward boldly and quickly,” he said. To contact the reporters on this story: Edwin Chen in Washington at echen32@bloomberg.net ; Roger Runningen in Washington at rrunningen@bloomberg.net

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Obama Urges Nations to `Summon the Will’ to Confront Nuclear-Terror Threat

April 13, 2010

By Roger Runningen and Julianna Goldman April 13 (Bloomberg) — President Barack Obama urged world leaders today to confront the prospect of nuclear terrorism and take concrete action to head off what he called one of the greatest threats to global security. Obama opened today’s session of his nuclear security summit in Washington with a call for a new approach that recognizes the changed nature of the nuclear threat. “Two decades after the end of the Cold War, we face a cruel irony of history — the risk of a nuclear confrontation between nations has gone down, but the risk of a nuclear attack has gone up,” Obama said. That requires “we summon the will, as nations, as partners, to do what this moment in history demands,” he said. Representatives and heads of state from 47 nations are gathered for a second day to come up with a plan of action for locking down global nuclear stockpiles within four years. Obama has said the most significant security threat is the potential for al-Qaeda or other terrorist groups to acquire the materials for developing a nuclear weapon through theft or illicit sales. The United Nations atomic energy agency has documented 18 cases of theft or loss of highly enriched uranium or plutonium, not counting incidents that individual countries haven’t confirmed, according to Matthew Bunn , an associate professor at Harvard University who once worked as an adviser on U.S. nuclear controls. Al-Qaeda’s Goal “Al-Qaeda has been engaged in the effort to acquire a nuclear weapon for over 15 years, and its interest remains strong today,” John Brennan , Obama’s adviser on counterterrorism and homeland security, said at a briefing yesterday. Obama got the first concrete result from the summit yesterday with the announcement that Ukraine will relinquish its entire stockpile of highly enriched uranium and convert research reactors to use lower-grade fuel. Ukraine will dispose of roughly 90 kilograms of the uranium, “enough to construct several nuclear weapons,” and convert nuclear research reactors to use lower grade fuel, White House press secretary Robert Gibbs said. Canada’s Prime Minister Stephen Harper , who is in Washington for the summit, separately announced his country will send spent highly enriched uranium to the U.S. for processing to make it unusable for a weapon. Commitments Gareth Evans , a former Australian foreign minister who is co-chairman of the International Commission on Nuclear non- Proliferation and Disarmament , said he expects the communiqué from the summit to commit each country to take steps toward securing stockpiles and include support for ratifying various international agreements that have been stalled. Neither the summit nor the resulting statement will deal with radiological materials used for so-called dirty bombs, nor the disputed issue of recycling fuel already used in reactors for further use, he said.     “I think we all do anticipate that the summit will leave a substantial amount of unfinished business that will need strong, continued attention,” Evans said. Two potentially high-risk sources of illicit nuclear materials, Iran and North Korea, weren’t invited to the summit and aren’t specifically part of the agenda. Source while Iran isn’t known to have succeeded in enriching uranium to weapons grade, its suspected support for militant groups raises the specter that it ultimately also might slip material to terrorist allies, said Robert Gallucci , a former U.S. special envoy on the spread of missiles and nuclear weapons.      In North Korea, Kim Jong-Il’s government has plutonium and said last year that it has almost succeeded in developing highly enriched uranium.      “We should not limit our concern about the nuclear programs in Iran and North Korea to their acquisition of nuclear weapons,” said Gallucci, now president of the John D. and Catherine T. MacArthur Foundation , which supports projects to reduce the risk of nuclear weapons.     Tracing material back to its source may be difficult and even tracking movement of nuclear supplies across the globe presents challenges, Gallucci said. He cited North Korea’s suspected role in helping Syria construct a nuclear reactor that the Israelis bombed in September 2007.    “To the best of my knowledge, the United States government was surprised to learn that the North Koreans were building a plutonium-production reactor in Syria,” Gallucci said. “That tells me that, if we are looking for relatively small amounts of material, we should not expect to catch that movement.” The U.S. president announced that the next nuclear security summit will be held in 2012 in South Korea. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net ; Julianna Goldman in Washington at Jgoldman6@bloomberg.net .

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Ukraine Accord to Relinquish Uranium Gives Obama First Result from Summit

April 13, 2010

By Viola Gienger and Kate Andersen Brower April 13 (Bloomberg) — Ukraine’s agreement to relinquish its entire stockpile of highly enriched uranium gave President Barack Obama the first concrete result for a summit he convened on securing the world’s atomic material. Under the terms of the accord, Ukraine will dispose of roughly 90 kilograms of the uranium, “enough to construct several nuclear weapons,” and convert nuclear research reactors to use lower grade fuel, White House press secretary Robert Gibbs said. The move was announced yesterday after Obama met with Ukraine’s President Viktor Yanukovych , their first face-to-face discussion since Yanukovych took office in February. “I think that at the end of this we’re going to see some very specific concrete action that each nation is taking that will make the world a little bit safer,” Obama said after he wrapped up a series of individual meetings with some of the leaders and representatives of nations in Washington for the summit. Obama’s stated goal for the event is a plan of action for locking down global nuclear stockpiles within four years to prevent al-Qaeda or other terrorist groups from getting the material through theft or illicit sales to fabricate a weapon. The United Nations atomic energy agency has documented 18 cases of theft or loss of highly enriched uranium or plutonium, not counting incidents that individual countries haven’t confirmed, according to Matthew Bunn , an associate professor at Harvard University who once worked as an adviser on U.S. nuclear controls. Al-Qaeda’s Interest “Al-Qaeda has been engaged in the effort to acquire a nuclear weapon for over 15 years, and its interest remains strong today,” John Brennan , Obama’s adviser on counterterrorism and homeland security, said at a briefing. In another step toward eliminating such material, Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov are scheduled to sign a deal today in which each side agrees to dispose of 34,000 metric tons of weapons-grade plutonium, enough material for about 17,000 nuclear weapons. “These are both very significant measures and exactly the kind of thing that we hoped would be stimulated by holding this conference,” said Gareth Evans , a former Australian foreign minister who is co-chairman of the International Commission on Nuclear non-Proliferation and Disarmament . “It was a matter of this conference actually being the occasion to get people to the line on very specific commitments.” The U.S. and Russia’s Plutonium Management and Disposition Agreement was agreed to in principle by then-Presidents Bill Clinton and Vladimir Putin in June 2000. Disputes between the two governments over protocols to implement the accord delayed action until now. Extended Negotiations The agreement with Ukraine also is the result of years of negotiations. “This is something that the United States has tried to make happen for more than 10 years,” Gibbs said. The U.S. will provide some technical and financial assistance to dispose of Ukraine’s stockpiles by 2012, the date of the next nuclear security summit, Gibbs said. Canada’s Prime Minister Stephen Harper , who is in Washington for the summit, separately announced his country will send spent highly enriched uranium to the U.S. for processing to make it unusable for a weapon. Evans said he expects the communiqué from the summit to commit each country to take steps toward securing stockpiles and include support for ratifying various international agreements that have been stalled. Issues Unresolved Neither the summit nor the resulting statement will deal with radiological materials used for so-called dirty bombs, nor the disputed issue of recycling fuel already used in reactors for further use, he said.     “I think we all do anticipate that the summit will leave a substantial amount of unfinished business that will need strong, continued attention,” Evans said. Two potentially high-risk sources of illicit nuclear materials, Iran and North Korea, weren’t invited to the summit and aren’t specifically part of the agenda.     While Iran isn’t known to have succeeded in enriching uranium to weapons grade, its suspected support for militant groups raises the specter that it ultimately also might slip material to terrorist allies, said Robert Gallucci , a former U.S. special envoy on the spread of missiles and nuclear weapons. North Korea     In North Korea, Kim Jong-Il’s government has plutonium and said last year that it has almost succeeded in developing highly enriched uranium.     “We should not limit our concern about the nuclear programs in Iran and North Korea to their acquisition of nuclear weapons,” said Gallucci, now president of the John D. and Catherine T. MacArthur Foundation , which supports projects to reduce the risk of nuclear weapons.     Tracing material back to its source may be difficult and even tracking movement of nuclear supplies across the globe presents challenges, Gallucci said. He cited North Korea’s suspected role in helping Syria construct a nuclear reactor that the Israelis bombed in September 2007.     “To the best of my knowledge, the United States government was surprised to learn that the North Koreans were building a plutonium-production reactor in Syria,” Gallucci said. “That tells me that, if we are looking for relatively small amounts of material, we should not expect to catch that movement.” To contact the reporters on this story: Viola Gienger in Washington at vgienger@bloomberg.net ; Kate Andersen Brower in Washington at Kandersen7@bloomberg.net .

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Obama Nuclear Summit to Focus on Materials Smuggled for Weapons Production

April 9, 2010

By Roger Runningen and Viola Gienger April 9 (Bloomberg) — President Barack Obama is preparing to host a two-day summit of leaders from more than 40 nations with a goal of cracking down on the threat of nuclear material falling into the hands of terrorists. The gathering next week in Washington will focus on separated plutonium and highly enriched uranium that could be smuggled or sold on the black market to groups such as al-Qaeda, administration officials said today in a conference call with reporters. “Those are the two materials that could be used for nuclear explosives,” said Gary Samore , senior director for non- proliferation at the National Security Council . “If we’re able to lock those down and deny them to non-state actors, then we have essentially solved the risk of nuclear terrorism.” The summit follows Obama’s signing yesterday in Prague of a landmark treaty with Russia to reduce each nation’s nuclear arsenal by about one-third. The accord was signed days after the president announced a shift in U.S. policy to focus more on the threat from extremist groups and nations such as Iran and North Korea rather than confrontation with nuclear powers such as Russia. Al-Qaeda and other terrorist groups “are pursuing the material to build nuclear weapons, and we know that they have the intent to use one,” Ben Rhodes , deputy national security adviser, said on the call. He spoke from Air Force One as Obama returned from Prague. Four-Year Goal The summit will be an opportunity for nations “to commit to specific steps to pursue the goal of securing all vulnerable nuclear materials around the world within four years,” Obama said April 6. The president is highlighting an issue that few of the many heads of state he’s invited can disagree on, unlike next month’s planned United Nations conference on the 1970 Treaty on the Non- Proliferation of Nuclear Weapons. Samore and Rhodes said the summit won’t get into the nonproliferation treaty or other potentially divisive issues. It will focus strictly on securing raw materials and on the risk of nuclear terrorism, Samore said. “We believe that this in particular is an area where there is a very broad and deep international consensus,” Rhodes said. For Obama, the agenda also includes the currency dispute between the U.S. and China, with a planned bilateral meeting with Chinese President Hu Jintao on April 12. In addition, Obama is seeking China’s help in halting Iran’s nuclear weapons development. Face-to-Face Obama planned face-to-face meetings with leaders of Germany, India, Pakistan, Nigeria, Jordan, Malaysia, Armenia, South Africa and Kazakhstan. Some parts of the schedule were still being prepared, Samore said. Nuclear terrorism is the most immediate and extreme threat to global security, Obama said in Prague in April 2009. Even so, not all countries believe it, said Gregory Schulte , who was the U.S. ambassador to the UN’s International Atomic Energy Agency in Vienna from 2005 to 2009. “Many Middle Eastern countries don’t see the threat,” Schulte said April 6 in a lecture at the Washington Institute for Near East Policy, naming such countries as Egypt, Saudi Arabia, Pakistan and Yemen. They regard it as “an American obsession” and “the stuff of Hollywood movies.” The nations represented at the summit include Algeria, Argentina, Armenia, Australia, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Egypt, Finland, France and Georgia. Also, Germany, India, Indonesia, Israel, Italy, Japan, Jordan, Kazakhstan, Malaysia, Mexico, Morocco, the Netherlands, New Zealand, Nigeria, Norway, Pakistan, the Philippines, Poland, the Republic of Korea, Russia and Saudi Arabia. Other countries attending are Singapore, Switzerland, South Africa, Spain, Sweden, Thailand, Turkey, the United Arab Emirates, the United Kingdom, Ukraine and Vietnam. The UN, its nuclear watchdog agency and the European Union will also be represented. To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net ; Viola Gienger in Washington at vgienger@bloomberg.net

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Geithner Says He Is Confident China Will Move to Strengthen Its Currency

April 2, 2010

By Rebecca Christie and Peter Cook April 2 (Bloomberg) — Treasury Secretary Timothy F. Geithner expressed confidence China will decide that a stronger currency is in the country’s interest, saying U.S. is trying to “maximize the chance that they move quickly” on the yuan. “Our strategy is going to be designed to increase the odds that China does decide to do what’s in their interest, which is to let their currency start to move up again, and that’ll be part of making sure we have a more healthy global recovery in place,” Geithner said in an interview today on Bloomberg Television. The Treasury chief declined to say how the U.S. approach will affect the Obama administration’s next foreign-exchange report to Congress, due April 15. He repeated his view that China will allow the yuan to rise in support of its own economic goals. “Their stated policy is they want to move over time to a more flexible exchange rate,” Geithner said in New York. “It’s good for the world that they’re going to do that. And I’m confident they’re going to decide it’s in their interest to move.” China has kept the yuan pegged at about 6.8 to the dollar since 2008 as part of efforts to help their economy weather the global recession. Last month, Chinese executives joined U.S. President Barack Obama in backing a stronger yuan, even as Premier Wen Jiabao says the currency isn’t undervalued. Stronger Yuan Yang Yuanqing , chief executive officer of Beijing-based computer maker Lenovo Group Ltd., said gains would boost consumers’ purchasing power. Qin Xiao, chairman of China Merchants Bank Co., said an end to the yuan’s 20-month peg to the dollar would let lenders set market-based interest rates. Chen Daifu , chairman of Hunan Lengshuijiang Iron & Steel Group Co., said a stronger currency would cut import costs. Geithner said the Obama administration wants to make sure U.S. companies have a “level playing field” as part of its strategy for dealing with China and assuaging concerns that the currency peg provides an unfair advantage. The U.S. and China share common national security interests in Iran and North Korea, as well as a shared commitment to the economic rebalancing effort driven by the Group of 20 nations, he said. “What we want to do is make sure China is growing, they’re buying more from America, more of their growth comes from domestic consumption, less from exports, and that U.S. firms are able to compete,” he said. White House Press Secretary Robert Gibbs , speaking in Washington today, said no formal decision has been made about whether to delay the Treasury Department’s biannual currency report. The Treasury hasn’t labeled any country a currency manipulator since 1994. ‘Market-Based’ “There have not been any formal decisions made on reports,” Gibbs said. “You’ve heard the president say both publicly as well as to Chinese leaders that their currency has to be market-based.” Chinese President Hu Jintao ’s visit to Washington this month does not have any effect on the currency decision, Gibbs said. “We’re obviously pleased that he is attending something that the president believes is so vitally important to our national security and to international security,” Gibbs said. To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net ; Peter Cook in New York at pcook6@bloomberg.net

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U.S. Softens Tone to China Over Google, Seeking Support for Iran Sanctions

April 1, 2010

By Jeff Bliss April 2 (Bloomberg) — The Obama administration has softened its tone in responding to cyber attacks that may have originated in China, betting that playing down the dispute will help the U.S. obtain the Asian superpower’s cooperation on foreign-policy goals, security experts said. That calculation may yield short-term benefits such as Chinese support for additional sanctions against Iran and reining in North Korea, though in the longer term it could wind up endangering U.S. economic leadership, said Tom Kellermann , a former World Bank security official. “The U.S. is in a very difficult position,” said Kellermann, a vice president at Core Security Technologies Inc., a Boston-based security-software company. President Barack Obama needs “help from China.” Mountain View, California-based Google Inc. , owner of the world’s most popular search engine, disclosed in January that it had been the target of cyber attacks that resulted in the theft of intellectual property and the infiltration of e-mail accounts belonging to people active in Chinese human-rights causes. U.S. authorities began an investigation and Secretary of State Hillary Clinton urged China to do so, too. The U.S. response falls short of actions that could deter future attacks such as threatening sanctions or at least complaining to the World Trade Organization, Kellermann said. Currency, Trade Complicating the U.S. posture are long-standing issues such as North Korea’s nuclear program, China’s position as the No. 1 holder of U.S. debt, the trade imbalance between the two nations and the U.S. push for a revaluation of the Chinese currency, the security experts said. Still, the U.S. has much to lose if it doesn’t take a stronger stand on network breaches, said John Bumgarner, chief technology officer of the Norwich, Vermont-based U.S. Cyber Consequences Unit , which produces threat assessments for the government and business. “If we don’t watch out, the long-term gains will be enormous for China,” Bumgarner said. Cyber infiltrations over the past few years have resulted in the theft of software code that has allowed the Chinese to avoid research-and-development costs and sell cheaper products, Kellermann said. China has denied involvement in computer attacks. Google officials have said that while they are certain the attacks originated in China, they haven’t determined who was behind them. Hong Kong Move Last week, after a two-month clash with China over censorship, Google shut its mainland Chinese search engine and redirected users to its Hong Kong site. Google on March 31 blamed the Chinese government-controlled firewall for blocking service on the search engine, which has been restored. At a March 24 congressional hearing, Alan Davidson , Google’s director of public policy, pressed for new trade rules for countries that censor the Internet. This week, the Office of the U.S. Trade Representative issued a report saying that the absence of stated Chinese censorship rules has made it difficult for Internet companies to function there. A report released March 25 by Mountain View, California-based Symantec Corp., the biggest maker of security software, said that 28 percent of targeted cyber attacks last month originated in China. Jay Nancarrow, A Google spokesman, declined to comment specifically on the U.S. response. Taiwan Arms Chinese and U.S. ties deteriorated after the Obama administration announced Jan. 29 that it would sell arms to Taiwan, a move Chinese Foreign Minister Yang Jiechi said March 7 had “seriously damaged” relations. China protested again after Obama met in February with the Dalai Lama , the Tibetan spiritual leader. China viewed the actions as an affront to Chinese sovereignty. More recently, the administration has tried to ease tensions. Deputy Secretary of State James Steinberg on March 29 reaffirmed the U.S. views that Taiwan shouldn’t be independent and Tibet is part of China. U.S. officials are pressing China to support more sanctions against Iran over its nuclear program. Russia and China have used their veto power in the United Nations Security Council to block the U.S.- and European-led sanctions effort. Iran Talks Clinton said last week that China was beginning to ease its policy. Susan Rice , the U.S. ambassador to the UN, said on CNN on March 31 that China would join talks on drafting tougher sanctions on Iran. While Clinton said in a Jan. 21 speech that she expected “Chinese authorities to conduct a thorough review” of their Internet policies, she has distanced herself from the Google dispute. “This is really between Google and China,” she said in an interview with Bloomberg Television in Moscow on March 19. The State Department’s role is to promote the “notion of maintaining and expanding Internet freedom,” not to advocate for a specific company, Michael Posner , assistant secretary for democracy, human rights and labor, said on Bloomberg Television yesterday. The U.S. may be disappointed if it is hoping that the soft- pedal approach will compel China to cooperate on Iran, said Carolyn Bartholomew , vice chairwoman of the U.S.-China Economic and Security Review Commission, a Washington-based group created by Congress. “In the early 1990s it was we couldn’t push them on human rights because we needed their cooperation on North Korea,” she said. “It took a good 15 years before we started getting any sort of cooperation.” For Related News and Information: To contact the reporter on this story: Jeff Bliss in Washington jbliss@bloomberg.net .

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South Korea Seeks 46 Missing After Ship Sinks; No Signs of Links to North

March 28, 2010

By Bomi Lim and Viola Gienger March 28 (Bloomberg) — South Korea’s navy searched for a second day for 46 crew missing after their patrol boat sank near a disputed border, with officials saying there was no indication of North Korea’s involvement. More than 70 military divers were attempting to approach the wreck in waters near Baengnyeong Island, about 210 kilometers (130 miles) northwest of Seoul, after high tides disrupted previous efforts, Defense Ministry spokesman Won Tae Jae said today. It will take “significant time” to establish what caused the 1,200-ton Cheonan to sink at about 1 a.m. yesterday, Won said. U.S. stocks pared gains March 26 on concern North Korean military action might have sank the ship. U.S. and South Korean officials said they were unaware of involvement by North Korea, which is under international pressure to end its nuclear program, and the communist country’s state-run Korean Central News Agency hasn’t issued any statement on the incident. “North Korea can’t afford to worsen its relations with neighbors right now with such large-scale provocations,” said Kim Yong Hyun, a professor of North Korean studies at Dongguk University in Seoul. “ Kim Jong Il wouldn’t want to go down the path that would get it further away from getting economic and political support.” The Seoul-based YTN news channel said the ship may have struck a mine hours before it sank, citing an unidentified official at the South Korean president’s office. President Lee Myung Bak continued meeting with security officials today. Split in Two The Cheonan split in two and started sinking shortly after an explosion at the stern around 9 p.m. on March 26, according to the ship’s captain, Choi Won Il, who was among 58 survivors. “With a loud bang and the sound of an explosion, the ship tilted 90 degrees to starboard,” Choi said. He reported the incident using his cell phone after the blast cut all power and communications, he said. Missing crew members may be trapped inside the sunken ship, Commodore Lee Ki Sik of the Joint Chiefs of Staff told lawmakers yesterday. The water temperature near Baengnyeong island was 3.8 degrees Celsius as of 10 a.m., according to the Korea Meteorological Administration . South Korea is deploying a 3,000-ton rescue vessel to the scene and rescue operation will be easier than yesterday as weather conditions have improved, Won said. Family members of the missing sailors have arrived at the island. U.S. Navy U.S. Navy vessels including the USNS Salvor rescue and salvage ship are standing by to help in the event South Korea requests assistance, said Lt. Anthony Falvo, a spokesman for the U.S. Seventh Fleet, based in Japan. The American ships were wrapping up a joint training exercise nearby with South Korea. “Should our forces be requested to provide assistance, that would be one of our main units,” Falvo said in a telephone interview. North Korea showed no signs of abnormal activity, South Korean President Lee ’s office said on its Web site . Lee told security officials to consider “all possibilities” in studying the cause of the incident, his office said. The U.S. was unaware of any North Korean involvement, said P.J. Crowley, a State Department spokesman. Pressure on North Kim Jong Il ’s regime is under pressure to return to international talks on its nuclear weapons ambitions. Shortages in the nation worsened after a botched currency revaluation late last year and tougher UN sanctions banning arms trading following North Korea’s second nuclear test in May 2009. North Korea doesn’t recognize the maritime border drawn by the United Nations as an extension into the Yellow Sea of the Demilitarized Zone between the two Koreas. The dispute caused skirmishes in 1999 and 2002, and the countries remain technically at war since their 1950-53 conflict ended in a cease-fire, which was never replaced by a peace treaty. In January, North Korea fired artillery in the area during military exercises, prompting warning shots by South Korea. In November, the two exchanged fire after a North Korean vessel ventured across the border. U.S. stocks trimmed gains on March 26 and Treasuries rose as concern that tensions between North and South Korea were escalating triggered a flight from risky assets. The Standard & Poor’s 500 Index fell as much as 0.4 percent, then closed little changed. June futures on South Korea’s Kospi 200 Index and the iShares MSCI South Korea Index Fund both slid 0.6 percent. — Editors: Ann Hughey , Terje Langeland To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net ; To contact the reporter on this story: Viola Gienger in Washington at vgienger@bloomberg.net

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