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Nokia’s Delay on `Shiny Things’ Leaves It Last in Line for Apps Developers

June 14, 2010

By Diana ben-Aaron June 14 (Bloomberg) — As Nokia Oyj prepares to introduce its latest flagship smartphone, developer Jan Ole Suhr says he knows why the brains behind addictive applications are shunning the Finnish company. “It’s difficult for small developers to invest in the smartphone segment of Nokia when nobody knows its future,” said Suhr, creator of Twitter application “ Gravity ,” which was showcased by Nokia when it opened its Ovi applications store last year. “The new shiny things aren’t available and there’s only the old-fashioned stuff, where it takes a lot of work to make the software look good.” Nokia’s 41 percent share of the smartphone market, the fastest-growing piece of the mobile-phone industry, has failed to make it the platform of choice for software writers. It is instead at the bottom of the pile, behind Apple Inc. ’s iPhone and devices based on Google Inc. ’s Android. Developers of games, music, videos, media and other apps want to see if the N8, Nokia’s first device running the Symbian 3 system for touchscreen phones, delivers on promises of improved look and feel, an easier interface and operability across devices — in short, if it’s more like an iPhone. For many, the device scheduled to be released in the third quarter has been too slow in the making and may still disappoint. “Symbian needs a more competitive platform to attract users, early adopters who are the sort of people who download lots of apps,” said Gartner Inc. analyst Nick Jones . “We may have to wait until Symbian 4 to get a really compelling Symbian device, so that the ecosystem may not start to achieve its full potential until 2011.” ‘No Visibility’ The world’s largest mobile-phone maker’s failure to lure apps developers, whose products help sell iPhones and Android devices, adds to the perception that its devices are behind the times. With Apple last week unveiling iPhone 4, with a video- chat feature, and Android devices chalking up sales, the Espoo, Finland-based Nokia risks not being able to recoup lost ground. Nokia may post lower-than-expected second-quarter profit because of a weak product range and falling prices, Macquarie Group Ltd. analysts said last week. There’s “no visibility on the N8, continued heavy competition in handsets and softening demand,” Phil Cusick and colleagues wrote in a June 9 report. Chief Executive Officer Olli-Pekka Kallasvuo said in April he expects sales of handsets and associated services to be between 6.7 billion euros and 7.2 billion euros in the second quarter. He cut the company’s full-year margin forecast, citing the slow development of the N8. Apple Effect Nokia shares have plummeted 51 percent since Apple opened its App Store on July 11, 2008. Its market value has shrunk to 29 billion euros from 203 billion euros in 1999, when it was Europe’s most-valuable company. Nokia, which doesn’t disclose its catalog size, says it has 1.7 million downloads a day of apps including QuickOffice, Skype Internet calling service, Shazam music identifier, Spotify music, Snake games and Lonely Planet travel guides. The company’s secrecy about the number of apps is “probably because it’s still rather small,” said Gartner’s Jones. Its offerings lag behind Apple’s App Store, which has more than 225,000 apps. Android has more than 70,000 , according to Androlib.com, which tracks the platform’s apps. More than 5 billion programs have been downloaded from its store, Apple says. IPhone users spend more on apps than people with Android devices, who in turn spend more than users of Nokia handsets, developers say. That drives software efforts. ‘Six of Six’ Nokia opened the Ovi Store to offer developers a channel to the 68 million people a year who buy its smartphones. Developers spoiled by iPhone tools say they found Nokia’s software and storefront clunky. Many are turning to Android and Research In Motion’s BlackBerry. “The Ovi Store doesn’t have any traction in the U.S.,” said Ken Willner , CEO of Zumobi Inc. in Seattle “They’re probably number six of six,” behind Apple, Google, Palm Inc., RIM and Microsoft Corp. Willner’s company, whose applications present media content such as MSNBC and Parenting magazine on iPhones, chose Android- run devices as its second platform, bypassing Nokia. “Large numbers of developers see Nokia as less relevant for distributing apps,” said Martin Garner , a London-based analyst at CCS Insight. “They prefer to work with software that has obvious growth momentum in the market.” Shrinking Share The market share of Symbian, Nokia’s main smartphone operating system, fell to 44.3 percent in the first quarter from 48.8 percent a year ago, according to Gartner. Although mostly on Nokia phones, Symbian is also used by Samsung Electronics Co. and Sony Ericsson. iPhone’s share rose to 15.4 percent from 10.5 percent, while Android soared to 9.6 percent from 1.6 percent. Nokia says its new line of smartphones with Symbian 3 and Symbian 4 improves the user interface and carries a new version of tools for developers, making cross-device development easier. “You’ll see a big improvement in terms of the store experience with the introduction of the N8, as well as with subsequent devices,” said George Linardos , the Nokia vice president who runs the Ovi Store. He cautioned that there won’t be any “immaculate moment” when the store is perfect. “I look at this as the first innings of a very, very long game.” Switching to Android Many developers don’t want to wait, and say they can’t take the risk of developing for a yet-to-be-perfected platform. Even long-time Nokia software authors are looking elsewhere. Take Alan Masarek , chief executive officer of Quickoffice Inc. in Plano, Texas. Nokia helped his 150-person company become one of the biggest independent mobile apps developers with its stripped-down word processor and spreadsheet running on more than 240 million mobile devices worldwide. About 1 1/2 years ago Masarek, whose software is preloaded on all Nokia Symbian devices, began working on Android phones. “That in hindsight has proven to be a good move,” he said. “The numbers on Android are very ascendant right now. We’re on all these devices that just started shipping in meaningful volumes the last two quarters.” Android-based smartphones threaten to top the iPhone in 2013 in market share, according to Framingham, Massachusetts- based IDC. Shipments of Android devices may reach 68 million that year, making it the second-most popular operating system after Symbian, according to IDC. For Quickoffice, Apple and Android now each account for about 30 percent of shipments against 40 percent on Symbian. ‘No Comparison’ Some developers are shunning Symbian entirely so far. “Development on Symbian has historically been difficult and Google and Apple leapfrogged Nokia in terms of developer friendliness in the past two years,” said Phil Libin , chief executive officer of Mountain View, Calif.-based Evernote Corp. “There’s no comparison.” His 30-person company’s main product is a note-taking application that runs on desktop computers, iPhone, Android, BlackBerry, Palm ’s WebOS and Microsoft’s Windows Mobile — all except Nokia’s Symbian. Apple has a system in place that makes selling and buying apps easy and painless, said Joseph Darling , a long-time Nokia user in Sydney, Australia, who opted to develop his ParkWatch parking monitor application for Apple. “They have a payment system that was already popular for music and video,” he said. “That takes you from browsing to buying in a couple of clicks. They’ve brought that entire community over into apps. It’s hard for others to duplicate.” Gravity’s Suhr, who lives in Berlin, is one of the few developers to have worked on mastering the Nokia system, supporting himself by writing apps for it since 2002. His application, which lets users read and write Twitter messages on phones, was touted by Nokia at the launch of its N97 smartphone last year. Suhr says Gravity is “almost the only application that makes a Nokia device look like an iPhone.” “It should have been very easy to create Gravity-like applications to cover other functions,” he says. “And then I bet the whole reception of the platform and the phone would have been very different.” To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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Asian Stocks Decline for Second Week on U.S. Jobs, European Debt Concerns

June 11, 2010

By Masaki Kondo June 12 (Bloomberg) — Asian stocks fell for a second week after a U.S. jobs report missed economist estimates and concern grew that Europe’s crisis of government debt is spreading. LG Electronics Inc. , which counts North America as its biggest market, slumped 11 percent in Seoul this week after a government report showed U.S. employers hired fewer workers in May than forecast. Nintendo Co., a Japanese game maker that gets 34 percent of its sales in Europe, retreated 8.1 percent after the euro weakened. Mitsui & Co. , which holds a stake in an oil field operated by BP Plc where an oil spill is unfolding, tumbled 9.5 percent in Tokyo on concern earnings will suffer. The MSCI Asia Pacific Index slid 0.9 percent to 112.44 this week. The gauge plunged 3.3 percent on June 7, its steepest drop since March 30, 2009, after a Hungarian government official said the country’s economy was in a “very grave situation.” “What I’m afraid of is that the volatility of the euro can trigger turmoil in the financial markets, prompting investors to reduce risk assets including stocks,” said Akio Yoshino , chief economist in Tokyo at Societe Generale Asset Management (Japan) Inc., which manages the equivalent of $18 billion. Japan’s Nikkei 225 Stock Average tumbled 2 percent this week even as a government report showed Japan’s gross domestic product rose at an annualized 5 percent rate in the three months ended March 31, faster than the 4.2 percent projected by economists. The S&P/ASX 200 Index gained 1.3 percent in Sydney, as gains in oil and copper prices lifted mining companies. The statistics bureau reported on June 10 that the jobless rate fell to 5.2 percent in May from 5.4 percent from the previous month. U.S. Jobs The MSCI Asia Pacific Index has slumped about 13 percent from its high this year on April 15 amid growing concern European countries in addition to Greece will struggle to curb their budget deficits or repay debt. The decline has dragged the average price of companies in the gauge to 14.4 times estimated earnings , compared with 20.1 times at the beginning of this year, according to data compiled by Bloomberg. Companies relying on demand in the U.S. dropped after Labor Department figures on June 4 showed the country’s private payrolls rose by 41,000, trailing the 180,000 gain projected by economists. LG Electronics Inc., South Korea’s No. 2 electronics maker, lost 11 percent to 94,600 won. James Hardie Industries SE, the biggest seller of home siding in the U.S., slumped 8.6 percent to A$6.9 in Sydney. The euro sank to an eight-year low against the yen this week, depreciating to as low as 108.08 on June 7. A weaker euro reduces the value of European income at Japanese companies. ‘Grave Situation’ Nintendo, the maker of the Wii video-game machine, fell 8.1 percent to 24,480 yen. Sony Corp., which makes the rival PlayStation 3 player, declined 7.2 percent to 2,571 yen. Honda Motor Co. , a carmaker that gets 81 percent of its revenue outside Japan, slipped 7.8 percent to 2,606 yen. Peter Szijjarto , a spokesman for the Hungarian Prime Minister, said on June 4 that the nation’s economy is in a “very grave situation” and that it was “no exaggeration” to talk about a default. State Secretary Mihaly Varga said the next day that comments about a possible default were “unfortunate.” “We might as well think Hungary is in the same situation as Greece,” said Societe Generale’s Yoshino. “I remember Greece’s announcement on its deficit didn’t appear to be a big deal in the media coverage at first.” Fitch Ratings further fueled concern about Europe after saying June 8 that the U.K. is facing a “formidable” challenge in curtailing its budget shortfalls. In April, Greece, Spain and Portugal had their credit ratings cut by Standard & Poor’s as spending to stimulate their economies swelled budget deficits. Mitsui Tumbles Mitsui, Japan’s second-biggest trading company by market value, tumbled 9.5 percent to 1,092, this week’s biggest drop on the Nikkei 225. Through its subsidiary, the company holds a 10 percent stake in the Mississippi Canyon 252 block in the Gulf of Mexico, the location of BP’s leaking well. The worst spill in U.S. history has cost BP $1.25 billion, the company said June 7. Commodity-linked shares advanced as prices for oil and copper rose. BHP Billiton Ltd., the world’s largest mining company, climbed 1.9 percent to A$38.58 in Sydney, and Rio Tinto Group, the world’s No. 3 mining company, gained 2.2 percent to A$69.1. Oil jumped 4.8 percent this week before Asian markets closed, while copper gained 2.1 percent. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Papandreou’s Overhaul Hinges on Vanquishing Greek Tradition of Corruption

June 11, 2010

By Natalie Weeks and Jonathan Stearns June 11 (Bloomberg) — Socialist Prime Minister George Papandreou promised to undo decades of welfare policy to win an international bailout for Greece. Keeping the lifeline will force him to reverse another legacy left by past leaders, including his father: corruption and a bloated bureaucracy. Papandreou has promised “clean hands” to win public support for austerity measures that will cost all 11 million Greeks — from newborns to retirees — as he introduces in coming weeks a plan to overhaul the pension system, the fattest target in his deficit-cutting campaign. The nation’s financial crisis, which has sparked dozens of anti-government demonstrations including one in which three bank employees were killed, presents an opportunity for a political and economic overhaul that Papandreou must grasp, analysts and investors say. Failure by the 57-year-old, U.S.-born leader threatens default and a cataclysm that may undermine the euro. “Papandreou has a window,” said Loukas Tsoukalis , an economist at Athens University. “If he proves he can deliver the goods, and that the situation is changing, not just in terms of the budget, but the reality in Greece is changing, then he has a great chance of success.” Euro-area governments and the International Monetary Fund have vowed to halt payments from the 110 billion-euro ($132 billion) aid package approved last month should quarterly reviews show Papandreou is failing to meet targets. The threat reflects Greece’s history of understating its budget deficit. Papandreou’s challenge to Greek political tradition extends to his own family. His late father, Andreas Papandreou , founded the Socialist Pasok party. In 1981, he led Greece’s first Socialist government and increased wages for state employees. Anything Goes “It was under Andreas Papandreou that a mindset of ‘anything is allowed and nothing is controlled’ developed,” said Christos Giannaras, a philosophy professor at Aristotle University of Thessaloniki in the northern part of the country. “Policies such as getting rid of wage increases based on merit, skill and level of responsibility had unbelievable social repercussions.” Greece’s so-called core public sector has about 403,000 workers based on the latest data, according to Spyros Papaspyros , chairman of the federation of civil servants’ unions. Finance Minister George Papaconstantinou plans to start documenting the number of state employees and a report is scheduled to be published later this year. The younger Papandreou has promised austerity measures equal to 14 percent of gross domestic product in a bid to bring Greece’s deficit within the European Union limit of 3 percent of GDP in 2014 from 13.6 percent last year. He has reduced wages and pensions, increased levies on tobacco, alcohol and fuel, pledged to limit public-sector hiring to one employee for every five that depart, and promised a crackdown on tax evasion. Pension Overhaul Papandreou faces his toughest test as he seeks to overhaul the pension system. With some retirees earning more than when they worked, Greece may spend 25 percent of GDP on pension costs by 2050 unless policies are changed, the government estimates. Papandreou’s proposals would raise the retirement age to 65 from 62.5, increase it with life expectancy and index benefits to prices. He also proposes to restrict early retirement. The minimum contribution period would be raised to 40 years from 37 years by 2015 and pensions would be awarded on the basis of earnings over an entire working life, instead of the last five years. This is an “even harsher test” than the austerity measures that lawmakers approved last month, according to Sotiris Rizas, a researcher at the Academy of Athens’s Center for the Study of Neo-Hellenic History. ‘Major Reorientation’ Overall, the goal is a “major reorientation” in the 238 billion-euro economy by scaling back the role of the state to make it more efficient and restore investor confidence, according to the EU-IMF aid agreement with Greece. Papandreou, educated at Amherst College in Massachusetts and the London School of Economics, has a challenge on his hands as Greeks made 900 million euros of payoffs nationwide in 2008, according to Berlin-based Transparency International. The latest survey of 6,000 Greek citizens found that the rate for a bribe to pass a car-emission inspection was 300 euros and the cost to jump to the top of a waiting list for an operation in a state hospital was about 2,500 euros. Greece ranks as the most corrupt euro country and 71st of 180 worldwide in terms of corruption, according to the organization’s survey published last year. ‘Not Attractive’ “Greece isn’t an attractive investment nation due to the bureaucracy and inefficiencies inherent in its economy and political system,” said Nick Stivactas, business manager at Ingredients Plus Pty Ltd., a Sydney, Australia-based seller of chemicals. “I commend the Pasok government for the initiatives they have put in place.” The shrinking of the civil service must also ensure that merit-based hiring ends political parties’ decades-old practice of using state jobs to reward supporters, according to Nikiforos Diamandouros , the Strasbourg, France-based official responsible for investigating complaints about EU institutions. “I would hope that there is a sufficient degree of realization of how critical the situation is in Greece so that the government will push forward,” Diamandouros said. “The timeframe is now and not tomorrow.” Cracking down on tax cheats is also a central government objective. Papandreou has said these people deprive the state of as much as 30 billion euros a year. Target Tax Evaders The finance ministry has said it will target professions in which tax evasion allegedly runs rampant. In November, the ministry put the spotlight on evasion by doctors and vowed to stamp it out. The ministry fined 11 physicians for dodging taxes and will press criminal charges against four of them as part of a “name-and-shame” crackdown. Previous Greek governments, including the New Democracy administration of Kostas Karamanlis , whom Papandreou defeated, failed to follow through on anti-corruption promises. Greeks increasingly realize they now have no choice, said Claude Giorno, head of the Greece desk at the Organization for Economic Cooperation and Development in Paris. “There is a change in culture which is spreading, probably rapidly,” he said. “Most people are seeing the consequences of this poor management. They need to catch up pretty quickly, but in a sense there is not much alternative.” Popular Support In a poll published May 8, 54 percent of 1,000 people surveyed by ALCO for the Proto Thema newspaper said they supported the bailout and the accompanying wage and pension cuts and tax increases. A separate poll of 1,030 people by Kappa Research on May 6, the day Greece’s parliament debated the austerity program, showed 55.2 percent accepted the measures to stave off bankruptcy. Papandreou’s government has already struggled with corruption in its ranks. Deputy Culture Minister Angela Gerekou resigned on May 18 after the government said her husband owed about 5.5 million euros in unpaid taxes and fines. In another case, former Pasok Transport Minister Anastassios Mantelis said when speaking last month to a bribery probe that he received money from the Greek unit of German engineering company Siemens AG in 1998, according to Kathimerini newspaper . The OECD’s Giorno said controlling the budget depends on improving health care and education, steps that would help fight corruption. As long as “the quality of services is really poor,” Greeks will continue to make under-the-table payments to doctors for better treatment, Giorno said. They’ll also spend on private education because of dissatisfaction with state schools and engage in the “national sport” of tax evasion, he said. To contact the reporters on this story: Natalie Weeks in Athens nweeks2@bloomberg.net ; Jonathan Stearns in Brussels at jstearns2@bloomberg.net

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Stocks Rise in Europe, Asia on Economic Recovery Signs Bond Risk Declines

June 11, 2010

By Nicolas Johnson and Anna Kitanaka June 11 (Bloomberg) — Asian stocks rose to a one-week high on an increased estimate of technology spending and a gauge of bond risk declined after the European Central Bank said it will extend measures to battle the region’s debt crisis. The MSCI Asia Pacific Index of equities climbed 1.3 percent to 112.43 at 4 p.m. in Tokyo. The Stoxx Europe 600 increased 0.5 percent to 249.73. The cost of protecting Asia-Pacific corporate and government bonds from non-payment fell the most since May 27. Standard & Poor’s 500 futures were little changed. The euro strengthened, heading for its first weekly gain in three. Computer-related companies led stocks higher after Acer Inc. , the world’s largest vendor of laptop computers, said May sales jumped 45 percent and Taiwan Semiconductor Manufacturing Co., the biggest maker of custom chips, said it’s optimistic about the chip industry and the global economy for the second half of 2010. Asian markets extended a worldwide rally after the ECB raised its economic growth forecast and said it will continue to offer unlimited cash and buy government bonds. “We’re very much on track in terms of Europe getting through its issues,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Overall the signs are encouraging. Investors generally are prepared to take more risk today.” Advancing stocks beat decliners 8 to 1 in the MSCI Asia Pacific Index, with information-technology companies rising the most among the measure’s 10 industry groups. Japan’s Nikkei 225 Stock Average jumped 1.7 percent, the biggest increase among equity gauges in Asia. Investor Optimism “People are now optimistic about the global economy,” said Juichi Wako , a senior strategist at Tokyo-based Nomura Holdings Inc. “Investors who had avoided risk assets have started buying them.” Acer climbed 3.1 percent to NT$79.2 in Taipei, its highest level in a week. Taiwan Semi gained 1.9 percent to NT$60.5. Chairman Morris Chang said he is upbeat about the chip industry and the global economy in the second half of this year. The chip market is “still very good,” he said yesterday. Samsung Electronics Co. , Asia’s biggest chipmaker, advanced 3.1 percent to 797,000 won in Seoul. Global sales of microchips will rise 28 percent to $290.5 billion this year, boosted by demand in China and India, compared with a November forecast of 10 percent growth, the Semiconductor Industry Association said yesterday in the U.S. Commodity Shares Gain BHP Billiton Ltd., the world’s largest mining company and Australia’s No. 1 oil producer, advanced 2.6 percent to A$38.58 in Sydney and was the biggest contributor to the MSCI Asia Pacific Index. Aluminum Corp. of China Ltd. climbed 3.9 percent for the steepest increase on Hong Kong’s Hang Seng Index. Crude oil jumped 1.4 percent to $75.48 yesterday in New York, its highest settlement in four weeks, and was at $75.28 today. The London Metal Exchange Index climbed yesterday for a third consecutive day. The S&P 500 surged 3 percent yesterday on reports of accelerating growth from China, Japan and Australia. S&P futures were little changed before a report today that may show sales at U.S. retailers rose in May at the slowest pace of the year. Purchases increased 0.2 percent following a 0.4 percent April gain, according to the median estimate of 76 economists surveyed by Bloomberg News. Treasuries rose, trimming a weekly decline. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 9 basis points to 142 basis points, on course for its biggest daily drop since May 27, according to Royal Bank of Scotland Group Plc and CMA DataVision in New York. ‘Panic Scenario Eliminated’ The euro strengthened to $1.2103 and 110.78 yen, bringing its gain for the week against the dollar to 1.2 percent following two weeks of losses. Against the yen, it’s set to rise 0.9 percent, snapping a six-week decline that was the longest since the euro’s introduction in 1999. The ECB is buying state debt and pumping unlimited funds into the banking system to support the 16-nation currency. The MSCI World Index tumbled 8 percent and the euro weakened 15 percent against the dollar this year on concern countries from Greece to Spain will struggle to cut deficits and repay debt. Earlier this week, Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank will act as needed to aid financial stability and economic growth after restarting emergency currency-swaps to help contain Europe’s debt crisis. “The panic scenario has been eliminated for now and the euro may grind higher,” said Phil Burke , chief dealer for foreign-exchange trading at JPMorgan Chase & Co. in Sydney. “There should be a slightly bullish bias short term.” To contact the reporters for this story: Nicolas Johnson in Tokyo at nicojohnson@bloomberg.net ; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net .

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Asia Stocks Rise on Japan GDP, Australia Jobs Kiwi Gains on Rate Increase

June 9, 2010

By Linus Chua and Anna Kitanaka June 10 (Bloomberg) — Asian stocks rose, led by energy producers, and U.S. index futures rebounded after economic reports from Japan to Australia showed accelerating growth. The New Zealand dollar rose after the central bank raised interest rates and the Korean won fell. The MSCI Asia Pacific Index climbed 0.8 percent to 110.71 as of 1:23 p.m. in Tokyo, boosted by a 1.2 percent rally in the S&P/ASX 200 Index and a 0.5 percent increase in the Nikkei 225. Standard & Poor’s 500 index futures gained 0.3 percent. The New Zealand dollar strengthened against all 16 of its most-traded counterparts, including a 2.7 percent advance versus the won. Japan’s economy grew at an annualized 5 percent rate in the three months ended March 3, Australian employers added workers for a third straight month and the Federal Reserve’s Beige Book survey said the U.S. economy expanded in all 12 Fed districts for the first time in more than two years at a “modest” pace. “Macro data has been good and the signs of a modest recovery are on track,” said Nader Naeimi , a Sydney-based strategist at AMP Capital Investors, which holds $90 billion “Macro economic data hasn’t really suffered. Volatility has been settling down a bit compared to what it was.” Advances beat decliners two to one on the MSCI Asia benchmark. A gauge of energy stocks in the index jumped 1.3 percent. The S&P/ASX 200 Index climbed after Australia’s jobless rate fell to 5.2 percent from 5.4 percent. The number of people employed gained 26,900 from April, the statistics bureau said in Sydney today. The median estimate of 23 economists surveyed by Bloomberg News was for an increase of 20,000. New Zealand’s dollar climbed after central bank Governor Alan Bollard raised the benchmark interest rate to 2.75 percent, the first increase in three years as the nation’s economy recovers from recession. He also said borrowing costs were raised as “underlying inflationary pressures are expected to increase.” South Korea’s won slumped 1.5 percent to 1,267.85 per dollar after Vice Finance Minister Yim Jong Yong said the government will “soon” announce plans to reduce volatility in capital flows. The Maeil Business Newspaper said today the regulations will limit banks’ currency-forward transactions, raising concern they may reduce foreign-exchange borrowings used to hedge such trades and take the proceeds out of the country. Crude oil reversed earlier losses in New York on expectations of higher fuel demand as China’s exports surged and as the falling dollar spurred investors to buy commodities. Oil for July delivery was at $74.36 a barrel, down 2 cents, in electronic trading on the New York Mercantile Exchange. The contract earlier dropped as much as 66 cents, or 0.9 percent, to $73.72 a barrel. Yesterday, it rose $2.39, the biggest advance since May 27, to settle at $74.38. Futures have fallen 6.6 percent this year. To contact the reporters for this story: Linus Chua at lchua@bloomberg.net ; Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

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Asian Stocks Fall, Yen Strengthens on Concern Europe Crisis to Curb Growth

June 8, 2010

By Darren Boey June 9 (Bloomberg) — Asian stocks fell, led by Japanese exporters, and the yen strengthened to near an eight-year high against the euro on growing concerns that Europe’s debt crisis will hurt global economic growth. The MSCI Asia Pacific Index declined 0.5 percent to 109.74 as of 11:42 a.m. in Tokyo. Japan’s Nikkei 225 Stock Average slumped 1 percent and Standard & Poor’s 500 Index futures fell 0.4 percent. The yen appreciated to 109.13 per euro from 109.51 in New York yesterday. Copper futures in London, up as much as 1.3 percent, were little changed. Investors became more risk averse after Fitch Ratings said yesterday the U.K. faces a “formidable” fiscal challenge. Global investors have little confidence in Europe’s efforts to contain its debt crisis, a quarterly poll of investors and analysts who are Bloomberg subscribers showed, with 73 percent of those surveyed calling a default by Greece likely. The International Monetary Fund said economic risks have risen “significantly.” “Market sentiment is very bearish,” said Prasad Patkar , who helps manage about $1.5 billion in Sydney at Platypus Asset Management Ltd. “Everyone is focusing on any bad news they can get their hands on. When the tide is so heavily bearish, any reason is used to sell-off and any good news is ignored.” Seven stocks declined for every six that advanced on the MSCI Asia Pacific Index . The Nikkei 225 sank even as a Cabinet Office report showed the nation’s machinery orders rose more than economists estimated in April. Canon, Honda Japan’s exporters dropped on concern a stronger yen will hurt the value of repatriated overseas earnings. Nissan Motor Co., a carmaker that gets about 75 percent of its revenue outside Japan, slumped 2.7 percent to 623 yen in Tokyo. Canon Inc. , which counts Europe as its biggest market, declined 1.7 percent to 3,630 yen. Honda Motor Co. , which makes 81 percent of its sales abroad, fell 2.8 percent to 2,622 yen. “European fiscal issues have reduced risk tolerance, which drags down Japanese stocks because companies here are greatly dependant on external demand,” said Hideo Arimura , a senior fund manager who oversees $2.2 billion at Mizuho Asset Management Co. The yen strengthened to as much as 108.90 per euro, near the 108.08 level on June 7 that was the highest since November 2001. Europe’s shared currency declined to $1.953 from $1.973 yesterday in New York. It reached $1.1877 on two days ago, the weakest level since March 2006. Fed Tightening The euro weakened as economists surveyed by Bloomberg forecast the European Central Bank, which meets tomorrow, will leave its key interest rate at a record low. Federal Reserve Chairman Ben S. Bernanke testifies before a House Budget Committee today after saying June 7 in Washington that the central bank will raise rates before the economy returns to full employment. “The Fed will be tightening before the ECB with the U.S. economy recovering at a faster pace,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. “Both those things are dollar supportive.” Copper for three-month delivery in London traded 0.1 percent higher at $6,170 a metric ton, having advanced as much as 1.3 percent earlier. Zinc tumbled 2 percent, aluminum fell 0.2 percent and nickel declined 0.7 percent amid concerns demand will decline should economic growth slow. Most advanced economies are experiencing a “subdued” recovery, IMF Deputy Managing Director Naoyuki Shinohara said in remarks prepared for delivery in Singapore today. “A key concern is that the room for continued policy support has become much more limited and has, in some cases, been exhausted.” Oil gained for a second day, rising 0.6 percent to $72.43 a barrel in new York, after the industry-funded American Petroleum Institute said U.S. crude supplies dropped last week. To contact the reporter for this story: Darren Boey in Hong Kong at dboey@bloomberg.net .

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Pimco&rsquos Crescenzi Sees &lsquoEndpoint&rsquo in Devaluations

June 8, 2010

By Wes Goodman and Garfield Reynolds June 8 (Bloomberg) — Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi , an investor at Pacific Investment Management Co., the world’s largest bond-fund manager. “Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note titled “Keynesian Endpoint” that referenced the Great Depression era economist John Maynard Keynes . Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.” A debt crisis that began in Greece is threatening to slow global economic growth, pushing the euro down 17 percent this year as governments across Europe cut spending. Spain lost its AAA credit grade at Fitch Ratings, and Moody’s Investors Service said the U.S.’s top ranking will come under pressure unless the government reduces budget deficits. In the U.S., public borrowings passed $13 trillion for the first time this month, according to the Treasury Department. The debt will be larger than U.S. gross domestic product, now $14.2 trillion annually, in 2012, according to the International Monetary Fund. ‘Dirty Shirts’ “The world is full of dirty shirts in terms of excessive debt, and the United States is one of those countries, but it still remains the reserve currency and still remains the flight- to-quality haven,” said Bill Gross, who runs the world’s biggest bond fund at Newport Beach, California-based Pimco. “The U.S. is the least dirty shirt,” he said in a June 4 radio interview on Bloomberg Surveillance with Tom Keene . The Obama administration forecast a $1.6 trillion budget deficit, the most ever, in the current fiscal year that began Oct. 1. U.S. finances have been “substantially worsened by the credit crisis, recession, and government spending to address these shocks,” Moody’s analysts led by Steven A. Hess wrote in a report on May 25. “The ratios of general government debt to GDP and to revenue are deteriorating sharply, and after the crisis they are likely to be higher than the ratios of other Aaa-rated countries,” according to the analysts. Fitch cut Spain’s rating by one level on May. 28. The euro slid as low as $1.1877 yesterday, the weakest level since 2006. It traded at $1.1930 at 7:18 a.m. in New York. ‘Work Together’ “The recent economic volatility in Europe has underscored the continued need for the G-20 to work together to secure the global recovery,” Treasury Undersecretary Lael Brainard said yesterday at the Federal Reserve Bank of San Francisco’s Asia Banking and Finance Conference. “What happens in Europe matters for the United States and Asia.” The weakness in nations’ balance sheets also means “the citizenry will require politicians that can think outside the box and act with greater unity and resolve than perhaps they are used to,” Crescenzi wrote. During the Great Depression, British economist Keynes advocated using government money to fill the void until consumer spending and business investment recovered. The record-size $228 billion Pimco Total Return Fund yielded about 13 percent in the past year, beating more than half of its competitors, according to data compiled by Bloomberg Pimco had $1.07 trillion assets under management as of March 31 and is a unit of Munich-based insurer Allianz SE. To contact the reporters on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net ; Garfield Reynolds in Sydney at greynolds1@bloomberg.net .

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Virgin, Qantas Say They’re Open to Bids as Airline Industry Consolidates

June 8, 2010

By Steven Rothwell and Cornelius Rahn June 8 (Bloomberg) — Qantas Airways Ltd. and Virgin Atlantic Airways Ltd. said they’re open to merger proposals as efforts to cut costs and boost traffic push carriers to combine. Qantas, Australia’s biggest airline, favors an inter- continental deal and would be “a great asset for anyone,” Chief Executive Officer Alan Joyce said in an interview. Virgin is exploring options as U.S. and European mergers squeeze its position in the North Atlantic market, CEO Steve Ridgway said. “Consolidation isn’t easy to do and cross-border inter- continental mergers have not occurred yet, but I think they will and Qantas will be at the forefront of that,” Joyce said in Berlin, adding that the process “will take some time.” Joyce didn’t say if he favored a combination with British Airways Plc , which held merger talks with Qantas in 2008 before agreeing to a deal with Iberia Lineas Aereas de Espana SA. Virgin, British Airways’s biggest competitor at London’s Heathrow airport, is reviewing its standalone stance after regulators said they’d approve an expanded alliance between its rival and AMR Corp.’s American Airlines and after United Airlines agreed to combine with Continental Airlines Inc. “We’re a small company still,” Ridgway said in an interview in Berlin where, like Joyce, he was attending the annual meeting of the International Air Transport Association. “We would be looking potentially just to grow ourselves, to become part of a bigger group. We just need to look at what happens in the industry over the next 18 months.” LOT, SAS Polish national carrier LOT said its forecasts of a return to profit this year are attracting interest from other carriers and private-equity firms, while SAS Group AB CEO Mats Jansson said a new wave of consolidation in Europe is likely to begin in earnest next year as prospects improve. Sydney-based Qantas’s previous negotiations with British Airways were called off after the pair failed to agree on how to split ownership, the U.K. carrier has said. A combination would have created a carrier with $24 billion in sales and 500 planes. Talks were complex because the London-based company had more revenue and Qantas a higher market value. That’s still the case. “I don’t think you can ever look back and have any regrets,” Joyce said. “I think you have to look forward, and we do look forward at what other opportunities do exist.” The airline rose as much as 2.4 percent to A$2.52 in Sydney and changed hands at A$2.50 at 11 a.m. The shares have fallen 16 percent this year. Singapore Stake Qantas is already partnered with British Airways in the Oneworld alliance, as are American Airlines and Spain’s Iberia, with which the U.K. company aims to complete a merger this year British billionaire Richard Branson ’s Virgin Atlantic isn’t in a global grouping and specializes in point-to-point travel to business destinations and high-end tourist resorts. Singapore Airlines Ltd. owns a 49 percent stake in the Crawley, England-based company, though CEO Ridgway said it’s possible that the holding could be offered for sale as the Asian carrier modifies its strategy to reflect the expansion of the Indian and Chinese markets in the past 10 years. “Singapore Airlines is a great shareholder, and I don’t think they’re in any hurry to do that,” he said. “At the end of the day it’s down to them, but it could be an opportunity.” Malaysian Airline System Bhd. , which like Virgin stands apart from the Oneworld, Star and SkyTeam alliances, also favors consolidation to boost earnings and cut costs, CEO Tengku Azmil Zahruddin said yesterday at the IATA event. “As an industry we are far too fragmented and that is one of the reasons that we don’t make reasonable returns for shareholders,” the CEO said during a roundtable discussion. ‘Too Early’ SAS, the unprofitable owner of Scandinavian Airlines rescued by share sales that saw the Swedish, Danish and Norwegian governments increase their stakes, has said it’s unlikely to remain independent once earnings are restored. CEO Jansson said yesterday that the level of losses suffered by European carriers during the recession means it’s “too early” to contemplate consolidation this year. “2011 is the time for new steps in the consolidation process,” Jansson said in an interview. “When companies feel they’ve done their homework, they’re in good shape and the market is stable, then boards will start to look at the acquisition list, but not now.” “Good Moment” Poland’s LOT, or Polskie Linie Lotnicze LOT SA, said right now is “a very good moment” to seek a buyer. The company, which aims to post a profit in 2010 after losing money for the past two years, has sent “teasers” that attracted interest from “a few” airlines and investment funds and a transaction could in theory be agreed “very quickly,” CEO Sebastian Mikosz said in an interview. At Qantas, Joyce said an investment-grade debt rating will be a major attraction for a merger partner. The Asia-Pacific market is also now “very healthy,” though demand on routes to Europe is weak and of most strategic concern, he said. Air France’s purchase of KLM Royal Dutch Airlines in 2004 is the airline industry’s biggest deal to date. It would be surpassed by merger of United Airlines parent UAL Corp. and Continental in a $3 billion stock swap announced on May 3. To contact the reporters on this story: Steven Rothwell in Berlin via srothwell@bloomberg.net ; Cornelius Rahn in Berlin via crahn2@bloomberg.net

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Euro Rises From Eight-Year Low, Asian Stocks Gain on Bernanke’s Comments

June 7, 2010

By Clyde Russell and Candice Zachariahs June 8 (Bloomberg) — The euro rose from an eight-year low against the yen and commodity producers led Asian stocks higher after Federal Reserve Chairman Ben S. Bernanke said the U.S. economic recovery is intact. Gold traded near a record high. The MSCI Asia Pacific Index rose 0.4 percent to 110.08 as of 12:25 p.m. in Tokyo. Standard & Poor’s 500 Index futures climbed 0.8 percent after the index declined 1.4 percent yesterday. Japan’s currency weakened to 109.67 per euro after touching 108.08 yesterday, the strongest since November 2001. Copper rose 0.8 percent to $6,150 a metric ton, advancing for the first time in seven days, and gold traded within 1.5 percent of its May 14 record of $1,249.40 an ounce. The U.S. economic recovery is “moderate-paced,” Bernanke said yesterday, boosting investor confidence after concern over Europe’s debt crisis drove benchmark U.S. stock indexes to seven-month lows. The U.S. has supplanted China and Brazil as the most attractive market, with investors betting money on President Barack Obama ’s stewardship of the U.S. economy, according to a global quarterly poll of investors and analysts who are Bloomberg subscribers. “Bernanke’s comments have had a soothing effect on markets after what’s been a pretty bleak few sessions,” said Tim Waterer , a foreign-exchange dealer with CMC Markets in Sydney. “The mood on Asian equities is a bit calmer and that’s allowed some of the currencies that have been heavily hit, like the euro and Aussie, to eke out gains.” Nikkei, Kospi Gain Japan’s Nikkei 225 Stock Average rose 0.4 percent and South Korea’s Kospi gained 1 percent. China’s Shanghai Composite Index added 0.3 percent. Australia’s S&P/ASX 200 Index advanced 1 percent. Five stocks gained for every three that declined on the MSCI Asia . The measure has slumped 15 percent from its high this year on April 15, dragging the average price of its companies to 14.1 times estimated profit. That’s near the lowest level since January 2009. A gauge of material producers in the MSCI Asia index climbed 0.7 percent, the most of 10 industry groups, amid speculation global growth will revive metals demand. Rio Tinto Group, the world’s third-largest mining company, gained 1.6 percent to A$66.62 in Sydney. BHP Billiton , the world’s largest mining company, gained 0.8 percent to A$36.82. Newcrest Mining Ltd., Australia’s largest gold producer, jumped 3 percent after bullion advanced. Softbank Corp. , the mobile-phone company with a monopoly on Japanese sales of Apple Inc.’s iPhone, climbed 2.5 percent after the U.S. company unveiled a new model yesterday. Bernanke ‘Positive’ “Bernanke’s comment is positive for the stock market in that he is saying the economy is improving,” said Yoshinori Nagano , a senior strategist at Tokyo-based Daiwa Asset Management Co., which oversees the equivalent of $94 billion. “I don’t think we have to worry about the U.S. economic recovery. It’s unlikely to go wrong.” The euro traded at $1.1962 per dollar from $1.1923 in New York yesterday, when it sank as low as $1.1877, the weakest since March 2006. The Australian dollar rose 1.3 percent to 74.98 yen and the New Zealand currency gained 1 percent to 60.77 yen, ending two days of losses, as Hungary eased concerns it faces a Greece-like debt crisis, reviving demand for higher-yielding assets. The so-called Aussie strengthened against all of its 16 major counterparts as Hungary’s government pledged to control its budget deficit and make structural changes to overhaul the economy. The New Zealand dollar rallied amid speculation the nation’s central bank will raise interest rates from a record low on June 10. Hungary ‘Excuse’ “Hungary was obviously used as an excuse,” said Ray Attrill , global research director at Forecast Ltd. in Sydney. “Short-term speculative players are moving quickly” to buy back the Aussie and kiwi. “That’s why we are seeing more volatility,” he said. Oil for July delivery rose for the first day in three, gaining 0.3 percent to $71.64 a barrel in electronic trading on the New York Mercantile Exchange. The cost of protecting Japanese and Australian corporate bonds from default fell. The Markit iTraxx Japan index of credit swaps dropped 1 basis point to 149 basis points, according to Morgan Stanley. The Markit iTraxx Australia index fell 1 basis point to 140, according to Nomura Holdings Inc. Prices fall when perceptions of credit-market conditions improve, and vice versa. To contact the reporters for this story: Clyde Russell in Kuala Lumpur at crussell7@bloomberg.net ; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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Asia Stocks, Metals Fall Euro, S&ampP 500 Futures Pare Losses

June 7, 2010

By James Poole and Candice Zachariahs June 7 (Bloomberg) — Asia stocks dropped the most in 15 months and commodities declined after a smaller-than-estimated increase in American jobs led to a rout in U.S. equities. The euro and Standard & Poor’s 500 Index futures pared losses. The MSCI Asia Pacific Index slid 3.3 percent to 109.73, the biggest decline since March 30, 2009, and the Stoxx Europe 600 lost 1.6 percent at 8:52 a.m. in London. Standard & Poor’s 500 Index futures decreased 0.6 percent after dropping as much as 1.3 percent. Oil fell 1.2 percent to $70.62 a barrel and copper dropped 2.8 percent. The Hungarian forint strengthened after depreciating 3.9 percent on June 4, while the euro pared losses to trade 0.2 weaker against the dollar. Investor sentiment deteriorated in Asia, catching up with U.S. markets after the government said private-sector employers added 41,000 jobs in May, below the 180,000 median forecast of 35 economists in a Bloomberg News survey.While stocks fell in Europe, the forint stabilized as Hungary’s government said June 5 that there’s no danger of default. The currency lost 7.3 percent last week on concern that Europe’s debt woes were spreading beyond countries participating in the euro. ““The market is groaning under the weight of excessive debt levels and there’s a lot of concern over the state of European banks,” said Greg Gibbs , a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “Hungary is just another straw being piled onto the camel’s back.” Stocks Plunge Only 54 of 983 stocks in the MSCI Asia index rose. The benchmark has slumped about 15 percent from its high this year on April 15 on growing concern over the European debt crisis and Chinese measures to curb property prices. The Nikkei 225 Stock Average sank 3.8 percent and Australia’s S&P/ASX 200 Index dropped 2.8 percent. The Kospi index lost 1.6 percent in Seoul and Taiwan’s Taiex index lost 2.5 percent. The S&P 500 dived 3.4 percent to a four-month low on Friday. Canon Inc. , a camera maker that gets 78 percent of its revenue outside Japan, slid 5.3 percent. KB Financial Group Inc. slumped 3.1 percent in Seoul, leading declines among financial companies. Melbourne-based BHP Billiton Ltd., the world’s largest mining company, declined 3.8 percent. Hon Hai Precision Industry Co. , the world’s largest contract electronics manufacturer, declined 5.6 percent, the most in more than four months, after the company announced the base wage for workers at a China factory will double following a spate of employee suicides. The euro dropped 0.6 percent to 109.39 versus the yen and touched a four-year low against the dollar. The yen gained against all 16 of its most-traded counterparts. Currencies “Markets have to price for lower growth than what they had previously,” said Richard Grace , chief currency strategist in Sydney at Commonwealth Bank of Australia. “The yen will probably maintain a bias toward strength.” Hungary’s government said June 5 that there’s no danger of default, a day after a spokesman for Prime Minister Viktor Orban said it’s not “an exaggeration at all” to speculate that the country may be unable to pay its debt. The Hungarian forint rose 0.5 percent against the common European currency. The forint traded at 287.89 per euro as of 9:15 a.m. in Budapest, versus 289.35 the previous trading day, according to data compiled by Bloomberg. Asian currencies fell, with the Malaysian ringgit set for its biggest decline in 12 years and the won sliding the most in two weeks, according to data compiled by Bloomberg. The ringgit dropped 1.8 percent to 3.3328, the most since June 1998. The won weakened 2.8 percent to 1,235.35 per dollar. “Disappointing U.S. non-farm payrolls and concerns about European debt refinancing are keeping the pressure on risk appetite and Asian currencies,” said Mirza Baig , a Singapore- based currency analyst at Deutsche Bank AG. Treasuries Rise Treasuries advanced, sending yields toward a one-year low. Traders cut bets for the Federal Reserve to raise interest rates this year, and economists reduced their yield forecasts. The yield on the U.S. 10-year note slid two basis points to 3.19 percent as of 8:14 a.m. in London, according to BGCantor Market Data. The 3.5 percent security due May 2020 rose 5/32, or $1.56 per $1,000 face amount, to 102 21/32. “Fear has taken over,” said Roger Bridges , who oversees $9.9 billion as head of debt at Tyndall Investment Management Ltd. in Sydney. “People are flying to the U.S.” Asian bond risk gauges jumped the most in almost two weeks. The Markit iTraxx Asia credit swap index of 50 investment-grade borrowers outside Japan rose 12 basis points to 148.5 points in Singapore, according to Deutsche Bank AG. That’s the most since May 25, prices from CMA DataVision in New York show. Japan’s and Australia’s benchmarks also climbed. “European sovereign fears were very much in focus again,” National Australia Bank Ltd. analysts led by Michael Bush wrote in a note to clients. Hungary’s government “later downplayed the comments as exaggerated, but the damage had been done.” Crude oil for July delivery has dropped 6.1 percent since closing at $74.61 a barrel on June 3, the biggest two-day decline since May 6. Copper, which entered a bear market last week, extended its decline to the lowest price in more than seven months on concern demand may weaken from the U.S., China and Europe. Aluminum, lead, zinc and nickel and tin also dropped. Three-month delivery copper slumped as much as 3.2 percent to $6,076.25 a metric ton in London and traded at $6,083 a ton. To contact the reporters for this story: Candice Zachariahs in Sdney at Czachariash2@bloomberg.net ; James Poole at jpoole4@bloomberg.net

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Stocks, Commodities Drop on Concern Growth Is Faltering Amid Debt Crisis

June 7, 2010

By James Poole and Candice Zachariahs June 7 (Bloomberg) — Asia stocks dropped the most in 15 months and commodities declined after a smaller-than-estimated increase in American jobs led to a rout in U.S. equities. The euro and Standard & Poor’s 500 Index futures pared losses. The MSCI Asia Pacific Index slid 3.3 percent to 109.73, the biggest decline since March 30, 2009, and the Stoxx Europe 600 lost 1.6 percent at 8:52 a.m. in London. Standard & Poor’s 500 Index futures decreased 0.6 percent after dropping as much as 1.3 percent. Oil fell 1.2 percent to $70.62 a barrel and copper dropped 2.8 percent. The Hungarian forint strengthened after depreciating 3.9 percent on June 4, while the euro pared losses to trade 0.2 weaker against the dollar. Investor sentiment deteriorated in Asia, catching up with U.S. markets after the government said private-sector employers added 41,000 jobs in May, below the 180,000 median forecast of 35 economists in a Bloomberg News survey.While stocks fell in Europe, the forint stabilized as Hungary’s government said June 5 that there’s no danger of default. The currency lost 7.3 percent last week on concern that Europe’s debt woes were spreading beyond countries participating in the euro. ““The market is groaning under the weight of excessive debt levels and there’s a lot of concern over the state of European banks,” said Greg Gibbs , a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “Hungary is just another straw being piled onto the camel’s back.” Stocks Plunge Only 54 of 983 stocks in the MSCI Asia index rose. The benchmark has slumped about 15 percent from its high this year on April 15 on growing concern over the European debt crisis and Chinese measures to curb property prices. The Nikkei 225 Stock Average sank 3.8 percent and Australia’s S&P/ASX 200 Index dropped 2.8 percent. The Kospi index lost 1.6 percent in Seoul and Taiwan’s Taiex index lost 2.5 percent. The S&P 500 dived 3.4 percent to a four-month low on Friday. Canon Inc. , a camera maker that gets 78 percent of its revenue outside Japan, slid 5.3 percent. KB Financial Group Inc. slumped 3.1 percent in Seoul, leading declines among financial companies. Melbourne-based BHP Billiton Ltd., the world’s largest mining company, declined 3.8 percent. Hon Hai Precision Industry Co. , the world’s largest contract electronics manufacturer, declined 5.6 percent, the most in more than four months, after the company announced the base wage for workers at a China factory will double following a spate of employee suicides. The euro dropped 0.6 percent to 109.39 versus the yen and touched a four-year low against the dollar. The yen gained against all 16 of its most-traded counterparts. Currencies “Markets have to price for lower growth than what they had previously,” said Richard Grace , chief currency strategist in Sydney at Commonwealth Bank of Australia. “The yen will probably maintain a bias toward strength.” Hungary’s government said June 5 that there’s no danger of default, a day after a spokesman for Prime Minister Viktor Orban said it’s not “an exaggeration at all” to speculate that the country may be unable to pay its debt. The Hungarian forint rose 0.5 percent against the common European currency. The forint traded at 287.89 per euro as of 9:15 a.m. in Budapest, versus 289.35 the previous trading day, according to data compiled by Bloomberg. Asian currencies fell, with the Malaysian ringgit set for its biggest decline in 12 years and the won sliding the most in two weeks, according to data compiled by Bloomberg. The ringgit dropped 1.8 percent to 3.3328, the most since June 1998. The won weakened 2.8 percent to 1,235.35 per dollar. “Disappointing U.S. non-farm payrolls and concerns about European debt refinancing are keeping the pressure on risk appetite and Asian currencies,” said Mirza Baig , a Singapore- based currency analyst at Deutsche Bank AG. Treasuries Rise Treasuries advanced, sending yields toward a one-year low. Traders cut bets for the Federal Reserve to raise interest rates this year, and economists reduced their yield forecasts. The yield on the U.S. 10-year note slid two basis points to 3.19 percent as of 8:14 a.m. in London, according to BGCantor Market Data. The 3.5 percent security due May 2020 rose 5/32, or $1.56 per $1,000 face amount, to 102 21/32. “Fear has taken over,” said Roger Bridges , who oversees $9.9 billion as head of debt at Tyndall Investment Management Ltd. in Sydney. “People are flying to the U.S.” Asian bond risk gauges jumped the most in almost two weeks. The Markit iTraxx Asia credit swap index of 50 investment-grade borrowers outside Japan rose 12 basis points to 148.5 points in Singapore, according to Deutsche Bank AG. That’s the most since May 25, prices from CMA DataVision in New York show. Japan’s and Australia’s benchmarks also climbed. “European sovereign fears were very much in focus again,” National Australia Bank Ltd. analysts led by Michael Bush wrote in a note to clients. Hungary’s government “later downplayed the comments as exaggerated, but the damage had been done.” Crude oil for July delivery has dropped 6.1 percent since closing at $74.61 a barrel on June 3, the biggest two-day decline since May 6. Copper, which entered a bear market last week, extended its decline to the lowest price in more than seven months on concern demand may weaken from the U.S., China and Europe. Aluminum, lead, zinc and nickel and tin also dropped. Three-month delivery copper slumped as much as 3.2 percent to $6,076.25 a metric ton in London and traded at $6,083 a ton. To contact the reporters for this story: Candice Zachariahs in Sdney at Czachariash2@bloomberg.net ; James Poole at jpoole4@bloomberg.net

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Asian Stocks, Euro Tumble on U.S. Jobs Report, Hungary Debt Bonds Rally

June 6, 2010

By James Poole and Candice Zachariahs June 7 (Bloomberg) — Asia stocks dropped the most in 15 months and the euro weakened to a four-year low after U.S. employment rose less than economists estimated and Hungarian leaders raised concerns about a potential default. Bonds rose. The MSCI Asia Pacific Index lost 3.3 percent to 109.73 at 1:30 p.m. in Tokyo and Standard & Poor’s 500 Stock Index futures decreased 0.7 percent following Friday’s 3.4 percent drop to a four-month low. The euro fell 0.6 percent against the dollar and oil plunged 2.1 percent to $70.02 a barrel, while the U.S. 10- year note yield declined three basis points to 3.17 percent. Investor sentiment deteriorated in Asia after the U.S. government reported that private-sector employers added 41,000 jobs in May, down from 218,000 in April and below the 180,000 median forecast of 35 economists in a Bloomberg News survey. The euro continued to depreciate. Hungary’s government said June 5 that there’s no danger of default, a day after a spokesman for Prime Minister Viktor Orban said it’s not “an exaggeration at all” to speculate that the country may be unable to pay its debt. “The euro is the clearest sell out of all this,” said Greg Gibbs , a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. “The market is groaning under the weight of excessive debt levels and there’s a lot of concern over the state of European banks. Hungary is just another straw being piled onto the camel’s back.” Stocks Plunge Only 27 of 983 stocks in the MSCI Asia index rose. The benchmark has slumped about 15 percent from its high this year on April 15 on growing concern over the European debt crisis and Chinese measures to curb property prices. The Nikkei 225 Stock Average sank 3.5 percent in Tokyo, while Australia’s S&P/ASX 200 Index dropped 2.8 percent. The Kospi index lost 2.1 percent in Seoul and Taiwan’s Taiex index lost 2.9 percent. Canon Inc. , a camera maker that gets 78 percent of its revenue outside Japan, slid 4.9 percent. KB Financial Group Inc. slumped 3.3 percent in Seoul, leading declines among financial companies. Melbourne-based BHP Billiton Ltd., the world’s largest mining company, declined 3.5 percent. Hon Hai Precision Industry Co. , the world’s largest contract electronics manufacturer, declined 6.4 percent, the most in more than four months, after the company announced the base wage for workers at a China factory will double following a spate of employee suicides. The euro dropped 1.3 percent to 108.52, its weakest level since November 2001 versus the yen and touched a four-year low against the dollar. The yen gained against all 16 of its most- traded counterparts. Asian Currencies “Markets have to price for lower growth than what they had previously,” said Richard Grace , chief currency strategist in Sydney at Commonwealth Bank of Australia. “The yen will probably maintain a bias toward strength.” Asian currencies fell, with the Malaysian ringgit set for its biggest decline in 12 years and the won sliding the most in two weeks, according to data compiled by Bloomberg. The ringgit dropped 1.8 percent to 3.3350, the most since June 1998. The won weakened 3 percent to 1,237.15 per dollar. “Disappointing U.S. non-farm payrolls and concerns about European debt refinancing are keeping the pressure on risk appetite and Asian currencies,” said Mirza Baig , a Singapore- based currency analyst at Deutsche Bank AG. Treasuries advanced for a second day, sending yields toward a one-year low. Traders cut bets for the Federal Reserve to raise interest rates this year, and economists reduced their yield forecasts. “Fear has taken over,” said Roger Bridges , who oversees $9.9 billion as head of debt at Tyndall Investment Management Ltd. in Sydney. “People are flying to the U.S.” Bond Risk Asian bond risk gauges jumped the most in almost two weeks after Hungarian officials roiled global markets by comparing the nation’s finances to Greece. The Markit iTraxx Asia credit swap index of 50 investment- grade borrowers outside Japan rose 12 basis points to 148.5 points in Singapore, according to Deutsche Bank AG. That’s the most since May 25, prices from CMA DataVision in New York show. Japan’s and Australia’s benchmarks also climbed. “European sovereign fears were very much in focus again,” National Australia Bank Ltd. analysts led by Michael Bush wrote in a note to clients. Hungary’s government “later downplayed the comments as exaggerated, but the damage had been done.” Crude oil for July delivery has dropped 6.1 percent since closing at $74.61 a barrel on June 3, the biggest two-day decline since May 6. Copper, which entered a bear market last week, extended its decline to the lowest price in more than seven months on concern demand may weaken from the U.S., China and Europe. Aluminum, lead, zinc and nickel and tin also dropped. Three-month delivery copper slumped as much as 3.2 percent to $6,076.25 a metric ton in London and traded at $6,090 a ton. To contact the reporters for this story: Candice Zachariahs in Sdney at Czachariash2@bloomberg.net ; James Poole at jpoole4@bloomberg.net

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Xstrata `Optimistic’ Australian Mining Tax Will Be Revised, Freyberg Says

June 5, 2010

By Angus Whitley June 6 (Bloomberg) — Xstrata Plc , which has shelved spending on A$6.6 billion ($5.6 billion) of Australian projects because of a planned mining tax, said it’s “optimistic” the levy will be changed after future talks with the government. Xstrata, based in Zug, Switzerland, said June 3 that A$586 million of work expanding the Ernest Henry copper mine and the A$6 billion Wandoan coal project aren’t viable under the new tax. The announcement made the company the first global miner to suspend major work because of Prime Minister Kevin Rudd ’s planned levy on mine profits. “We’re optimistic the tax as proposed will be revised and rethought in total,” Xstrata Coal Chief Executive Officer Peter Freyberg said in an interview with Sky News broadcast in Australia today. “We would like to engage in discussions to try and find a way forward for these projects.” Freyberg said in the interview that the shelved projects could “possibly” be implemented rather than scrapped. Still, that won’t be possible if the tax proposal goes ahead unchanged, he said. “Xstrata wants to show they are open to dialogue, but those talks have to involve the government reanalyzing this proposal and starting from scratch,” Gavin Wendt , senior resource analyst with Mine Life Pty in Sydney, said by phone. “I can’t see the government backing down. It would be political defeat. We’re going to see a stalemate.” Media Battle The desire for talks comes as the media and advertising battle between Rudd’s government and those against the tax, including the Minerals Council of Australia , intensifies. BHP Billiton Ltd. and Rio Tinto Group, which are reviewing projects in Australia, are campaigning against the tax. Fortescue Metals Group Ltd., Australia’s third-largest iron ore producer, last month put $15 billion of projects on hold. Xstrata is the world’s largest thermal coal exporter. Last week, the head of Australia’s sovereign wealth fund, the Future Fund, became the latest business leader to criticize the planned 40 percent tax on so-called super profits. David Murray, the fund’s chairman, said the tax should be amended or scrapped and shouldn’t apply to existing projects. To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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U.S.’s $13 Trillion Debt Poised to Overtake GDP Chart of Day

June 4, 2010

By Garfield Reynolds and Wes Goodman June 4 (Bloomberg) — President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.” The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades. “Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu , a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.” Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.” Dan Fuss , who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s. “The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury,” Boston-based Fuss said. “Do you really want to buy the debt of the biggest issuer?” (To save a copy of the chart, click here.) To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net ; Wes Goodman in Singapore at wgoodman@bloomberg.net .

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Foster vs Foster’s Showdown Hits Australia Goliath With Losses

June 4, 2010

By Robert Fenner June 4 (Bloomberg) — Adam Foster ’s annual wine production of 2,500 cases is a fraction of the sales of Foster’s Group Ltd. , the world’s second-largest producer. Yet it’s a factor in breaking up the rival he shares a name with. Foster’s Group , the Australian brewer that sells lager in 150 countries, spent A$7 billion ($5.9 billion) building its wine unit, acquiring such labels as Beringer of the Napa Valley. Wine earnings fell 53 percent in the six months through December on a grape glut, currency moves and competition from thousands of smaller rivals unencumbered by shareholder and analyst expectations. After a decade, investors are left with about A$2.5 billion of dollars worth of writedowns and a stock that has gained 20 percent since the start of 2001, or about half the 39 percent rise in the benchmark S&P/ASX 200 index. Chief Executive Officer Ian Johnston said May 26 he plans to spin off the wine business. Foster’s Group “just don’t seem to know whether they are selling beer or wine, but my customers know what I do because I do it all myself,” said Adam Foster, 35, who started making wine in 2004 in a friend’s vineyard. “I do this for my lifestyle and that is what drives me, not trying to make a million cases or dollars a year.” He produces wine under the Syrahmi label that sells for about A$50 a bottle as well as Foster e Rocco, a joint venture with Lincoln Riley, the sommelier at Gordon Ramsay ’s Maze restaurant in Melbourne. ‘Irrational Davids’ Australia has about 2,300 wine companies and is the world’s sixth-largest producer, according to the Australian Wine & Brandy Corp. Foster’s Group gets 32 percent of its A$4.7 billion of annual sales from outside Australia , New Zealand and Asia, most of which is in the wine unit. “There are lots of little irrational Davids in the wine industry and many of them are not in it for an economic return,” said Theo Maas , who holds shares of Foster’s Group among the A$5 billion of equities he helps manage at Arnhem Investment Management in Sydney. “Many are in it for lifestyle, which makes it hard if you are the goliath.” Currency moves sliced 13 percent off earnings in the six months ended December, compounding problems for Foster’s Group , which paid “too much” for wine assets and has struggled to increase prices in the face of rising production, Maas said. The company makes 36 million cases of wine a year, generating A$2.1 billion in sales. Aussie Dollar Foster’s Group shares rose 1.1 percent to A$5.65 at the close of trading in Sydney today. The stock has risen 2.7 percent this year and posted two annual gains since 2001. The company’s wine business may be worth as much as A$4 billion given its brands, vineyards and inventory, Morgan Stanley analyst Martin Yule said in a May 31 report. The Australian dollar has risen more than 20 percent since the beginning of 2009. The gain helped slice earnings before interest and tax by A$83 million in the six months ended December. Foster’s Group made its first wine acquisition in 1996 with the A$482 million purchase of Mildara Blass Ltd. It paid A$2.7 billion for California’s Beringer Wine Estates Holdings Inc. in 2001, and its A$3.2 billion purchase of Southcorp Ltd. in 2005 cemented its ranking as the world’s second-biggest winemaker. Top-ranked Constellation Brands Inc. , based in Victor, New York, has taken more than $500 million in wine impairments and restructuring charges in the past two years. More Wine The Foster’s Group acquisitions coincided with growth in Australian wine production, which increased discounting. The nation’s output of table wine grew to 1.16 billion liters last year, compared with 1995’s 433 million liters, as growers were attracted to then-higher prices and tax deductions for vineyards. The Wine Grape Growers Australia , representing about 5,500 producers, estimates 17 percent of the nation’s capacity is “uneconomic.” “We have too much fruit,” Executive Director Mark McKenzie said. “This is rewarding consumers with low prices but locking in the industry into a discount mentality.” Analysts at Bank of America Merrill Lynch estimate Foster’s Group ’s beer unit is worth more than A$12 billion, higher than the company’s current market value of A$10.8 billion. “The reason wineries survive despite the lack of profitability is that a lot of people have other interests,” said Al Fencaros, a former industrial chemist who established Allinda Winery in the Yarra Valley northeast of Melbourne 20 years ago. Lindemans, Rosemount Foster’s Group has written down wine assets, including the Lindemans and Rosemount brands, to about A$3.3 billion since completing the Southcorp deal, less than half of what it cost to create the business. In addition to the A$2.5 billion of charges, in 2008 the company transferred A$600 million of goodwill from the Southcorp purchase to the more profitable beer unit and sold some of its vineyards and wineries. Euromonitor International estimates Australia domestic wine demand at 463 million liters, less than half of production. Vintners must sell overseas, competing with products from South Africa and South America that are cheaper to make. Australia’s five largest producers account for 59 percent of the market, with none of the rest representing more than 1 percent, Euromonitor estimates. The top 10 Australian producers account for about 61 percent of the market, compared with 73 percent for their U.S. counterparts. Narrowing Profitability Foster’s Group , which makes Meridian and Stag’s Leap, has 5.2 percent of the U.S. market, ranking it behind E&J Gallo, the Wine Group Inc. and Constellation Brands, according to Euromonitor, which estimates the U.S. wine market to be worth about $35 billion, compared with A$7.9 billion for Australia. Rising output in North America, South America and Europe has hurt Foster’s profitability. For every dollar of sales, the company earned 9.8 cents before interest and tax in its first half. Five years earlier, before acquiring Southcorp, it earned 21.3 cents. Making and selling wine are better suited to artisans instead of corporations, said Martin Joy , a Melbourne lawyer whose family vineyard Pyren makes 3,000 cases a year, including Block E shiraz, which retails for A$28. “The margins are so slim that you need to be in the wine game for other reasons,” Joy said. “You do become irrationally attached to the land.” To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net .

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Hatoyama Resignation Makes Japanese Equities Less Attractive, ING, AMP Say

June 2, 2010

By Shani Raja June 3 (Bloomberg) — Yukio Hatoyama ’s resignation has added to Japan’s political instability, blunting the appeal of equities at their cheapest in 17 months, fund managers at ING Investment Management and AMP Capital Investors Ltd. said. Prime Minister Hatoyama quit yesterday, less than nine months after a landslide election victory, as funding scandals and a broken promise to relocate U.S. troops cost him the support of four in five voters. The Nikkei 225 Stock Average sank 1.1 percent, the most in a week, while the yen depreciated to a two-week low versus the dollar. “The political instability has made Japan less attractive,” said ING’s Philip Schwartz , who manages about $1.2 billion of international equities in New York for the firm. “I’ve been gradually reducing exposure to Japan due to both economic and leadership issues. I’m not so sure what will drive the market higher.” The Nikkei 225 has fallen 8.8 percent since the end of August, when Hatoyama’s Democratic Party of Japan ousted the Liberal Democratic Party, ending almost 50 years of rule. Hatoyama’s term was the shortest for a Japanese leader since 1994, and his resignation forces parliament to select the nation’s fifth prime minister in four years. The DPJ may choose a new head on June 4, legislator Yoshimitsu Takashima told reporters yesterday, and the new leader would become prime minister because of the party’s majority in the lower house of parliament. ‘Structural Problems’ “For a while there’s been an atmosphere of political instability,” said Nader Naeimi , a Sydney-based strategist at AMP Capital, which holds $90 billion. “There were hopes this new government would address the country’s structural economic problems, but still you’re not seeing enough in terms of improving domestic demand because people are afraid about their jobs and salaries.” The Nikkei has tumbled 15 percent from its high this year on April 5 on concern Europe’s debt crisis will spread and on signs Japan’s economic recovery is losing momentum. Companies on the Nikkei 225 were priced at an average 17.7 times estimated earnings on May 25, the cheapest since Dec. 24, 2008. They were valued yesterday at 17.9 times. The country’s industrial production grew in April by less than economists forecast, according to a May 31 Trade Ministry report. Data last week showed the nation’s export-led revival has been slow to spread to consumers — the nation’s unemployment rate rose in April, job prospects worsened, and household spending and consumer prices fell. Bonds, Yen Japan’s public debt is approaching 200 percent of gross domestic product, the biggest among the 30-member Organization for Economic Cooperation and Development. Takao Komine , a professor at Hosei University and a former bureaucrat, has said the government may suffer fiscal collapse in 10 to 15 years if the DPJ maintains its expansionary spending policy. “We’re waiting for more clarity on the political landscape before making any new investment decisions even though valuations are looking pretty attractive,” said AMP Capital’s Naeimi. “We’re looking to see improvements in household spending, alongside a clear economic roadmap for moving forward.” The cost of insuring corporate bonds from non-payment in Japan rose yesterday, according to Morgan Stanley prices, while the yen weakened against all of its most-traded counterparts. Any weakness in the yen will give little more than a short- term boost to companies reliant on overseas sales such as Toyota Motor Corp. , the world’s largest carmaker, and electronics maker Sony Corp., said ING’s Schwartz. Japan’s currency has risen 1.5 percent versus the dollar and 19 percent against the euro this year through yesterday, curbing the appeal of export stocks. “If the yen stays weak, that’s great,” Schwartz said. “I’m just not sure it can stay weak.” Fifth Leader Hatoyama’s resignation makes him the shortest-serving Japanese Prime Minister since Tsutomu Hata led a minority government for two months in 1994. He would also make way for the country’s fifth leader since Junichiro Koizumi stood down in September 2006. Likely candidates to replace Hatoyama include Finance Minister Naoto Kan , National Strategy Minister Yoshito Sengoku and Foreign Minister Katsuya Okada , according to Gerald Curtis , a professor of Japanese politics at Columbia University in New York. “We won’t majorly change our investment strategy,” said Ayako Sera , a strategist at Tokyo-based Sumitomo Trust & Banking Co., which manages the equivalent of $307 billion. “The only change we would make is if we get a more coherent group of policymakers.” To contact the reporters for this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Hatoyama Resignation Makes Japanese Equities Less Attractive, ING, AMP Say

June 2, 2010

By Shani Raja June 3 (Bloomberg) — Yukio Hatoyama ’s resignation has added to Japan’s political instability, blunting the appeal of equities at their cheapest in 17 months, fund managers at ING Investment Management and AMP Capital Investors Ltd. said. Prime Minister Hatoyama quit yesterday, less than nine months after a landslide election victory, as funding scandals and a broken promise to relocate U.S. troops cost him the support of four in five voters. The Nikkei 225 Stock Average sank 1.1 percent, the most in a week, while the yen depreciated to a two-week low versus the dollar. “The political instability has made Japan less attractive,” said ING’s Philip Schwartz , who manages about $1.2 billion of international equities in New York for the firm. “I’ve been gradually reducing exposure to Japan due to both economic and leadership issues. I’m not so sure what will drive the market higher.” The Nikkei 225 has fallen 8.8 percent since the end of August, when Hatoyama’s Democratic Party of Japan ousted the Liberal Democratic Party, ending almost 50 years of rule. Hatoyama’s term was the shortest for a Japanese leader since 1994, and his resignation forces parliament to select the nation’s fifth prime minister in four years. The DPJ may choose a new head on June 4, legislator Yoshimitsu Takashima told reporters yesterday, and the new leader would become prime minister because of the party’s majority in the lower house of parliament. ‘Structural Problems’ “For a while there’s been an atmosphere of political instability,” said Nader Naeimi , a Sydney-based strategist at AMP Capital, which holds $90 billion. “There were hopes this new government would address the country’s structural economic problems, but still you’re not seeing enough in terms of improving domestic demand because people are afraid about their jobs and salaries.” The Nikkei has tumbled 15 percent from its high this year on April 5 on concern Europe’s debt crisis will spread and on signs Japan’s economic recovery is losing momentum. Companies on the Nikkei 225 were priced at an average 17.7 times estimated earnings on May 25, the cheapest since Dec. 24, 2008. They were valued yesterday at 17.9 times. The country’s industrial production grew in April by less than economists forecast, according to a May 31 Trade Ministry report. Data last week showed the nation’s export-led revival has been slow to spread to consumers — the nation’s unemployment rate rose in April, job prospects worsened, and household spending and consumer prices fell. Bonds, Yen Japan’s public debt is approaching 200 percent of gross domestic product, the biggest among the 30-member Organization for Economic Cooperation and Development. Takao Komine , a professor at Hosei University and a former bureaucrat, has said the government may suffer fiscal collapse in 10 to 15 years if the DPJ maintains its expansionary spending policy. “We’re waiting for more clarity on the political landscape before making any new investment decisions even though valuations are looking pretty attractive,” said AMP Capital’s Naeimi. “We’re looking to see improvements in household spending, alongside a clear economic roadmap for moving forward.” The cost of insuring corporate bonds from non-payment in Japan rose yesterday, according to Morgan Stanley prices, while the yen weakened against all of its most-traded counterparts. Any weakness in the yen will give little more than a short- term boost to companies reliant on overseas sales such as Toyota Motor Corp. , the world’s largest carmaker, and electronics maker Sony Corp., said ING’s Schwartz. Japan’s currency has risen 1.5 percent versus the dollar and 19 percent against the euro this year through yesterday, curbing the appeal of export stocks. “If the yen stays weak, that’s great,” Schwartz said. “I’m just not sure it can stay weak.” Fifth Leader Hatoyama’s resignation makes him the shortest-serving Japanese Prime Minister since Tsutomu Hata led a minority government for two months in 1994. He would also make way for the country’s fifth leader since Junichiro Koizumi stood down in September 2006. Likely candidates to replace Hatoyama include Finance Minister Naoto Kan , National Strategy Minister Yoshito Sengoku and Foreign Minister Katsuya Okada , according to Gerald Curtis , a professor of Japanese politics at Columbia University in New York. “We won’t majorly change our investment strategy,” said Ayako Sera , a strategist at Tokyo-based Sumitomo Trust & Banking Co., which manages the equivalent of $307 billion. “The only change we would make is if we get a more coherent group of policymakers.” To contact the reporters for this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Australia Keeps Door Open for Resuming Rate Rises With `Near-Term’ Pledge

June 1, 2010

By Jacob Greber June 2 (Bloomberg) — The Reserve Bank of Australia’s pledge to keep borrowing costs unchanged in the “ near term ” leaves room for a resumption of the most aggressive round of rate increases in the Group of 20 in the third quarter. “The central bank’s tightening cycle has paused, not ended,” said Stephen Walters , chief economist at JPMorgan Chase & Co. in Sydney. A report on July 28, less than a week before Stevens and his policy-setting board meet in August, will deliver an “inflation shock” that will prompt further tightening of monetary policy, he said. Governor Glenn Stevens kept the overnight cash rate target at 4.5 percent yesterday after boosting the rate six times in the previous seven meetings to prevent consumer-price gains from breaching the top of his 2 percent to 3 percent target range. Inflation accelerated to 2.9 percent in the first quarter, the fastest pace in more than a year, as a mining boom driven by Chinese demand for resources stokes Australian wages. “We still think that the RBA would prefer to have rates closer to 5 percent by the end of the year,” unless a second financial crisis threatens the market, said Robert Mead , who helps manage A$28 billion ($23.3 billion) as head of portfolio management at the Australian unit of Pacific Investment Management Co. Stevens increased the benchmark rate last month by a quarter percentage point, adding to five similar moves since early October, citing surging Asian demand for Australian commodities and a jobs boom that has pushed down unemployment to around half that of the U.S. and Europe. ‘Strangely Absent’ The interest-rate moves helped stoke a 27 percent gain in Australia’s dollar in the 12 months through April 30, making it the second-best performer among the world’s 16 most-traded currencies. The currency tumbled 9 percent in May, driving up import prices, as European Union policy makers moved to prevent a potential Greek debt default. Stevens’s 337-word statement published after yesterday’s board decision was his shortest in 11 meetings. “Strangely absent from the statement was a discussion about the domestic economy,” where data has been “a bit softer” in recent weeks, said Scott Haslem , chief economist at UBS AG in Sydney. Gross domestic product growth slowed to 0.5 percent last quarter from 0.9 percent in the previous three months, analysts predicted in a Bloomberg survey late yesterday. The figures will be published at 11:30 a.m. in Sydney today. The central bank will raise its benchmark rate by the end of the third quarter, according to 12 of 21 surveyed economists. Terms of Trade Stevens yesterday said the “high level” of the nation’s terms of trade, a measure of income from exports, will ensure the Australian economy grows “about trend” over the year ahead. “Inflation appears likely to be in the upper half of the target zone over the next year,” the governor said. Annual inflation may have accelerated to as much as 3.7 percent last month on higher gasoline, tobacco and financial- services costs, according to a TD Securities Ltd. monthly gauge released on May 31. “This is very much a bank that is looking through near- term volatility and associated rot to focus on the globe’s medium-term growth prospects, which remain excellent,” said Adam Carr , a senior economist at ICAP Australia Ltd. in Sydney. Turmoil on global financial markets since late April has prompted traders to scrap bets that Stevens will resume raising borrowing costs until next year, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. There is also a 16 percent chance of a quarter-point cut in October, the futures showed late yesterday. ‘Too Sanguine’ That market assessment is “too sanguine,” said Paul Brennan , an economist at Citigroup Inc. in Sydney. “Above-trend GDP growth, a labor market that is facing little spare capacity and inflation running above the target means that the RBA is not finished with the tightening cycle,” he said. Investors last week boosted bets that rates would remain on hold as reports showed Australia’s economy, which skirted last year’s global recession and surged in the final three months of 2009, is showing signs of slowing as higher borrowing costs and the end of government stimulus weigh on domestic demand. Future interest-rate moves will depend on signs of domestic growth “and calmer markets need to prevail offshore,” said Annette Beacher , an economist at TD Securities Ltd. in Singapore. To contact the reporters for this story: Jacob Greber in Sydney at jgreber@bloomberg.net ;

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BP Needs Equivalent of Lottery Win in August to Seal Leak at First Attempt

June 1, 2010

By James Paton June 1 (Bloomberg) — BP Plc would need the equivalent of a lottery win to succeed with its first attempt to end the Gulf of Mexico oil spill in August using a so-called relief well, the president-elect of the American Association of Petroleum Geologists said. A relief well intercepts the damaged well at an angle thousands of feet below the seabed and permanently closes it with heavy mud and cement. The method is the surest way for BP to end the largest oil spill in U.S. history, yet initial failure is “almost a certainty,” the association’s David Rensink said by phone from Houston. “It would be like winning the lottery to get it on the first shot.” BP faces some of the same challenges PTT Exploration & Production Pcl encountered last year in trying to stop a leak 2,600 meters (8,500 feet) below the seabed off northwest Australia. The Thai oil and gas explorer finally plugged the well in the Timor Sea after 10 weeks when a relief well enabled the company to pump 3,400 barrels of heavy mud to stanch the flow of oil. During one of the failed attempts to halt the leak on Nov. 1, a fire erupted while the Bangkok-based company was injecting the mud, engulfing and destroying the West Atlas drilling rig. BP forecasts it will finish the first of two relief wells it has started drilling in early August, according to Doug Suttles , the executive in charge of the spill response. The first well has reached a depth of 12,090 feet, London-based BP said today in a statement, two-thirds of the way to completion. A second has reached 8,576 feet. The challenge is intersecting the damaged well, not the actual drilling, said Rensink, who becomes president of the association in July. ‘Hit-or-Miss’ “What you’re doing is trying to intersect a well bore that is probably roughly a foot across with another well that is about a foot across,” he said. “It’s a hit-or-miss sort of thing. Ultimately the relief well will work. It’s just a matter of time, of continuing to poke at it until you intersect it.” BP is drilling two wells because there is a risk it may not reach the target with just one, said Edson Nakagawa, head of the petroleum and geothermal division of Australia’s Commonwealth Scientific and Industrial Research Organization. “Drilling in this kind of environment is challenging with the deep water, deep wells, high pressure and high temperature,” Nakagawa said from Perth today. The cost of responding to the leak has risen to $990 million, BP said today. The well has spewed 12,000 to 19,000 barrels of oil a day, a U.S. government panel estimated May 27. The spill began after the Deepwater Horizon rig hired by BP exploded April 20, killing 11 crew members. PTTEP estimated as much as 400 barrels of oil a day may have leaked into the ocean between Aug. 21 and Nov. 3. That would make it the third-biggest spill in Australian history, based on figures from the Maritime Safety Authority . A commission set up to investigate what happened at the Montara field, about 250 kilometers (155 miles) northwest of Australia’s Kimberley coast, is expected to issue a report and make safety recommendations in mid-June, Australia’s Resources and Energy Minister Martin Ferguson said last month. To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net .

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BP Needs Equivalent of Lottery Win in August to Seal Leak at First Attempt

June 1, 2010

By James Paton June 1 (Bloomberg) — BP Plc would need the equivalent of a lottery win to succeed with its first attempt to end the Gulf of Mexico oil spill in August using a so-called relief well, the president-elect of the American Association of Petroleum Geologists said. A relief well intercepts the damaged well at an angle thousands of feet below the seabed and permanently closes it with heavy mud and cement. The method is the surest way for BP to end the largest oil spill in U.S. history, yet initial failure is “almost a certainty,” the association’s David Rensink said by phone from Houston. “It would be like winning the lottery to get it on the first shot.” BP faces some of the same challenges PTT Exploration & Production Pcl encountered last year in trying to stop a leak 2,600 meters (8,500 feet) below the seabed off northwest Australia. The Thai oil and gas explorer finally plugged the well in the Timor Sea after 10 weeks when a relief well enabled the company to pump 3,400 barrels of heavy mud to stanch the flow of oil. During one of the failed attempts to halt the leak on Nov. 1, a fire erupted while the Bangkok-based company was injecting the mud, engulfing and destroying the West Atlas drilling rig. BP forecasts it will finish the first of two relief wells it has started drilling in early August, according to Doug Suttles , the executive in charge of the spill response. The first well has reached a depth of 12,090 feet, London-based BP said today in a statement, two-thirds of the way to completion. A second has reached 8,576 feet. The challenge is intersecting the damaged well, not the actual drilling, said Rensink, who becomes president of the association in July. ‘Hit-or-Miss’ “What you’re doing is trying to intersect a well bore that is probably roughly a foot across with another well that is about a foot across,” he said. “It’s a hit-or-miss sort of thing. Ultimately the relief well will work. It’s just a matter of time, of continuing to poke at it until you intersect it.” BP is drilling two wells because there is a risk it may not reach the target with just one, said Edson Nakagawa, head of the petroleum and geothermal division of Australia’s Commonwealth Scientific and Industrial Research Organization. “Drilling in this kind of environment is challenging with the deep water, deep wells, high pressure and high temperature,” Nakagawa said from Perth today. The cost of responding to the leak has risen to $990 million, BP said today. The well has spewed 12,000 to 19,000 barrels of oil a day, a U.S. government panel estimated May 27. The spill began after the Deepwater Horizon rig hired by BP exploded April 20, killing 11 crew members. PTTEP estimated as much as 400 barrels of oil a day may have leaked into the ocean between Aug. 21 and Nov. 3. That would make it the third-biggest spill in Australian history, based on figures from the Maritime Safety Authority . A commission set up to investigate what happened at the Montara field, about 250 kilometers (155 miles) northwest of Australia’s Kimberley coast, is expected to issue a report and make safety recommendations in mid-June, Australia’s Resources and Energy Minister Martin Ferguson said last month. To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net .

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National Australia Gets More Time to Gain Regulator’s Approval on Axa Asia

May 31, 2010

By Angus Whitley June 1 (Bloomberg) — National Australia Bank Ltd. , the country’s biggest business lender, won more time to overcome regulatory opposition to the company’s A$13.3 billion ($11.3 billion) takeover of Axa Asia Pacific Holdings Ltd. National Australia Bank, Paris-based bidding partner Axa SA, and Axa Asia Pacific will extend their agreement until July 15, National Australia Bank said in a statement today. Any of the three companies can end it if the deal remains blocked after that date, the bank said. National Australia Bank is in talks with potential buyers of Axa Asia Pacific’s North investment platform to gain approval from the Australian Competition and Consumer Commission, people familiar with the matter said last week. The regulator, which blocked the takeover in April, has said competition would be hurt if the Melbourne-based bank controlled the North unit. “NAB continues to pursue its options in relation to the ACCC objections to the proposal,” the lender said in the statement. In a separate announcement, Axa Asia Pacific said that “NAB is currently in discussions with the ACCC to determine whether the ACCC’s concerns can be addressed.” National Australia Bank is in talks with asset manager IOOF Holdings Ltd. and Tower Australia Group Ltd. to sell the North platform, an Internet portal offering investment and pension products, the Australian newspaper reported today. National Australia Bank said on Dec. 17 it had agreed to buy Axa Asia Pacific with Axa SA, the French insurer that owns 54 percent of Axa Asia Pacific. Under the plan, the bank would keep the Australian and New Zealand divisions and sell eight Asian units to Axa SA. Rival suitor AMP Ltd. has said the regulator’s stance will determine whether it makes a fresh bid for Axa Asia Pacific after its initial offer last year was rejected by the company’s board. To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

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Yen Weakens as Japan’s Coalition Government Splits Asian Stocks Advance

May 30, 2010

By Will McSheehy and Yasuhiko Seki May 31 (Bloomberg) — The yen fell after Japan’s Social Democratic Party quit the country’s coalition government, while Asian stocks rose, with the MSCI benchmark paring its biggest monthly decline since October 2008. The yen weakened against all of its 16 major counterparts at 2:47 p.m. in Tokyo, declining to 91.39 per dollar from 91.06 in New York on May 28. Almost twice as many shares rose as fell on the MSCI Asia Pacific Index , which increased 0.2 percent to 113.67, erasing earlier losses. Standard & Poor’s 500 Index futures gained 0.6 percent. Japan’s Social Democratic Party left the government after Prime Minister Yukio Hatoyama dismissed its only Cabinet minister, weakening the coalition less than two months before parliamentary elections. Stocks rose as Japanese factory output rose 1.3 percent in April from March, when it gained 1.2 percent, the Trade Ministry said in Tokyo today. “There is no reason to buy the currency of a country when the political situation is unstable,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd. “The yen has never been bought for positive reasons but merely drew interest when risk aversion was strong.” The Nikkei 225 Stock Average rose 0.4 percent after falling as much as 0.4 percent. Astellas Pharma Inc., Japan’s No. 2 drugmaker, climbed 2.1 percent after Mizuho Securities Co. boosted its investment rating. The yen declined to 91.39 per dollar from 91.06 in New York on May 28. Won Weakens South Korea’s won headed for the biggest monthly drop since February 2009 as concern Europe will struggle to reduce fiscal deficits prompted investors to sell riskier assets. The currency slid 0.3 percent to 1,197.55 per dollar. Bank of Korea Governor Kim Choong Soo proposed that central banks set up a permanent arrangement for foreign-currency swaps to help address the type of funding shortages that emerged during the global financial crisis. The yen dropped after the government split dented the currency’s appeal as a refuge from Europe’s debt crisis. The euro pared its biggest monthly drop since January 2009 on speculation futures traders are exiting from bearish bets on the currency. The yen slid to 112.77 per euro from 111.77 last week. The euro was at $1.2317 in Tokyo from $1.2273 in New York. Copper for July delivery rose 1.1 percent in New York to $3.1380 a pound. The most active contract tumbled 7 percent this month, the most since January. Gold for immediate delivery declined 0.1 percent to $1,212.65 an ounce. Crude oil rose 0.7 percent to trade above $74.50 a barrel in New York. Crude was still poised for its biggest monthly fall since December 2008, having declined 14 percent in May. Bond Risk The Markit iTraxx Australia index of credit-default swaps climbed 7 basis points to 125 basis points in Sydney, according to Nomura Holdings Inc. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 4 basis points to 137 and the Markit iTraxx Japan index increased by the same amount to 138, Royal Bank of Scotland Group Plc and Morgan Stanley prices show. Stocks tumbled in the U.S. on May 28, capping the worst May for the Dow Jones Industrial Average since 1940, after a business barometer fell and Fitch Ratings stripped Spain of its top AAA credit ranking, forecasting slower economic growth as the European nation attempts to cut debt. The Institute for Supply Management-Chicago Inc. said its U.S. business barometer fell to 59.7 this month from 63.8 in April, missing the 61 estimated by economists in a Bloomberg poll. U.S. and U.K. markets will be closed today for holidays. “If Spain downgrades there’s going to be concern about who’s downgraded next,” said Gerrard Katz , head of foreign- exchange trading at Standard Chartered Plc in Hong Kong. “Interbank lending is quite tight, which is one of the reasons they are asking for those swap agreements. You could take that as kind of a negative outlook on sentiment.” To contact the reporters on this story: Will McSheehy in Singapore at wmcsheehy@bloomberg.net Masaki Kondo in Tokyo at mkondo3@bloomberg.net

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Yen Weakens as Japan’s Coalition Government Splits Asian Stocks Advance

May 30, 2010

By Will McSheehy and Yasuhiko Seki May 31 (Bloomberg) — The yen fell after Japan’s Social Democratic Party quit the country’s coalition government, while Asian stocks rose, with the MSCI benchmark paring its biggest monthly decline since October 2008. The yen weakened against all of its 16 major counterparts at 2:47 p.m. in Tokyo, declining to 91.39 per dollar from 91.06 in New York on May 28. Almost twice as many shares rose as fell on the MSCI Asia Pacific Index , which increased 0.2 percent to 113.67, erasing earlier losses. Standard & Poor’s 500 Index futures gained 0.6 percent. Japan’s Social Democratic Party left the government after Prime Minister Yukio Hatoyama dismissed its only Cabinet minister, weakening the coalition less than two months before parliamentary elections. Stocks rose as Japanese factory output rose 1.3 percent in April from March, when it gained 1.2 percent, the Trade Ministry said in Tokyo today. “There is no reason to buy the currency of a country when the political situation is unstable,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd. “The yen has never been bought for positive reasons but merely drew interest when risk aversion was strong.” The Nikkei 225 Stock Average rose 0.4 percent after falling as much as 0.4 percent. Astellas Pharma Inc., Japan’s No. 2 drugmaker, climbed 2.1 percent after Mizuho Securities Co. boosted its investment rating. The yen declined to 91.39 per dollar from 91.06 in New York on May 28. Won Weakens South Korea’s won headed for the biggest monthly drop since February 2009 as concern Europe will struggle to reduce fiscal deficits prompted investors to sell riskier assets. The currency slid 0.3 percent to 1,197.55 per dollar. Bank of Korea Governor Kim Choong Soo proposed that central banks set up a permanent arrangement for foreign-currency swaps to help address the type of funding shortages that emerged during the global financial crisis. The yen dropped after the government split dented the currency’s appeal as a refuge from Europe’s debt crisis. The euro pared its biggest monthly drop since January 2009 on speculation futures traders are exiting from bearish bets on the currency. The yen slid to 112.77 per euro from 111.77 last week. The euro was at $1.2317 in Tokyo from $1.2273 in New York. Copper for July delivery rose 1.1 percent in New York to $3.1380 a pound. The most active contract tumbled 7 percent this month, the most since January. Gold for immediate delivery declined 0.1 percent to $1,212.65 an ounce. Crude oil rose 0.7 percent to trade above $74.50 a barrel in New York. Crude was still poised for its biggest monthly fall since December 2008, having declined 14 percent in May. Bond Risk The Markit iTraxx Australia index of credit-default swaps climbed 7 basis points to 125 basis points in Sydney, according to Nomura Holdings Inc. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 4 basis points to 137 and the Markit iTraxx Japan index increased by the same amount to 138, Royal Bank of Scotland Group Plc and Morgan Stanley prices show. Stocks tumbled in the U.S. on May 28, capping the worst May for the Dow Jones Industrial Average since 1940, after a business barometer fell and Fitch Ratings stripped Spain of its top AAA credit ranking, forecasting slower economic growth as the European nation attempts to cut debt. The Institute for Supply Management-Chicago Inc. said its U.S. business barometer fell to 59.7 this month from 63.8 in April, missing the 61 estimated by economists in a Bloomberg poll. U.S. and U.K. markets will be closed today for holidays. “If Spain downgrades there’s going to be concern about who’s downgraded next,” said Gerrard Katz , head of foreign- exchange trading at Standard Chartered Plc in Hong Kong. “Interbank lending is quite tight, which is one of the reasons they are asking for those swap agreements. You could take that as kind of a negative outlook on sentiment.” To contact the reporters on this story: Will McSheehy in Singapore at wmcsheehy@bloomberg.net Masaki Kondo in Tokyo at mkondo3@bloomberg.net

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Healthscope Gets Two $1.5 Billion Bids, Topping Offer From Blackstone, TPG

May 30, 2010

By Simeon Bennett May 31 (Bloomberg) — Healthscope Ltd. received two additional takeover offers that value Australia’s second-biggest hospital owner at A$1.84 billion ($1.6 billion) and top a bid by Blackstone Group LP and its partners. The new proposals, both of A$5.80 a share, are 11 percent above Healthscope’s May 28 closing price. The board considers the offers to be at least equal to an earlier A$5.75-a-share bid, the Melbourne-based company said in a statement today. Last week, Blackstone joined TPG Capital and Carlyle Group in bidding for Healthscope, according to a person familiar with the matter. Healthscope, whose profit has grown an average of 36 percent over the past nine years, said it’s allowing the new bidders to review its financial accounts. Selling the pathology business and putting its hospitals in a real estate fund could value the shares at as much as A$7 each, UBS AG said. “A breakup makes most sense,” said Andrew Goodsall , a health-care analyst at UBS in Sydney, in a telephone interview. Healthscope’s managers “are solid operators,” he said. “If there’s earnings upside to be had, they would have had it.” Healthscope shares advanced 5 percent to A$5.49 as of 12:34 p.m. local time, headed for a two-year high. The S&P/ASX 200 Index slipped 0.3 percent. KKR Bid The stock has climbed 22 percent on the Australian stock exchange since first announcing a takeover approach on May 14. Concern among investors that the deal may not proceed is preventing the shares rising further, said John Hester , a health-care analyst at Linwar Securities Ltd. in Sydney. “These are non-binding offers,” Hester said in a telephone interview. “There’s potential for these bids to all fall over. If I was a significant holder, I’d certainly be looking to reduce my position.” Hester rates the stock “market perform.” Kohlberg Kravis Roberts & Co. may make a bid for Healthscope tomorrow, the Australian Financial Review reported today, without saying where it got the information. KKR may bid with another firm and offer about A$6 a share, the report said. Healthscope, which is being advised by Goldman Sachs JBWere Pty and Lazard Ltd., hasn’t given the names of any of its bidders. One may be a U.S.-based private hospital operator being advised by Citigroup Inc., the Australian Financial Review said in a separate report today, without identifying the company or saying where it got the information. Private hospital groups in Australia, including Healthscope’s larger rival Ramsay Health Care Ltd. , are benefiting from increasing demand from an aging population and government measures aimed at boosting private coverage. Uptake of health insurance reached a 27-year high in March and one in two Australians have hospital policies, Health Minister Nicola Roxon said this month. Healthscope owns or operates 43 hospitals in Australia, including the Prince of Wales Private Hospital in Sydney’s eastern suburbs and Melbourne Private Hospital on the fringe of the city’s central business district. It also runs the Gribbles pathology chain in Australia, New Zealand, Malaysia, Singapore and Mauritius. To contact the reporter on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net

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Rio Chief Says Australian Mining Tax Makes Government His `Silent Partner’

May 30, 2010

By Shani Raja May 30 (Bloomberg) — Tom Albanese , chief executive officer of Rio Tinto Group , said Australia’s plan to boost taxes on resources producers would make the government a “silent partner” in businesses such as itself. The proposal for a 40 percent super profits tax on resource companies has also damaged Australia’s reputation overseas and added to sovereign risk, Albanese said in an interview broadcast today on ABC’s “Inside Business.” “This is half our balance sheet at risk because we have someone now coming in to say, ‘I want to be your silent partner: I want 40 percent of your pretax profits and largely written-off assets,’” Albanese told the program. He said the related cost was difficult to assess because of the complexity of the tax, and may amount to “well over 50 percent.” The government set aside A$38.5 million ($32.6 million) in its May 11 budget to promote an overhaul of the nation’s tax system, including the resources levy. Mining companies oppose the tax, scheduled to take effect in 2012, placing full-page advertisements in Australian newspapers to lobby for changes. Last week, the government said it will run its own advertising campaign to counter the “misinformation.” Treasurer Wayne Swan said in an e-mailed statement today that the super profits tax, or RSPT, wouldn’t be retroactive. ‘Misleading’ Claims “There has been much comment from mining companies in recent weeks about the supposed ‘retrospectivity’ of the RSPT,” Swan said. “These claims are clearly misleading, as the RSPT will apply to mining profits from 1 July 2012. It does not apply to past profits.” Rio’s CEO said it was important to reconsider the proposal and he’s ready to work with Prime Minister Kevin Rudd ’s government on a fundamentally different approach. The world’s third-largest mining company is already paying almost 35 percent tax plus royalties, and will publish independently audited data on its tax payments later in the week, he said. “Albanese left no doubt he’s willing to engage on a long- term, workable solution, arguably a process companies like Rio should have been involved in before the tax was announced,” said Tim Schroeders , a fund manager at Pengana Capital Ltd. in Melbourne. Core Elements The government “won’t back away” from the core elements of its proposal, Finance Minister Lindsay Tanner told Channel Ten’s “Meet the Press” program today. Still, Swan told parliament last week that the government was continuing to consult with industry as criticism of his administration’s proposed advertising campaign mounted. The Shadow Minister for Employment and Workplace Relations, Eric Abetz , today called for a senate inquiry into the government’s handling of its advertising campaign. “Labor is breaking its own guidelines in order to run a partisan political campaign,” he said in a media release. “This has all the stench of a desperate government facilitating false excuses to run a political campaign at taxpayers’ expense.” The government’s use of taxpayer money to get its message across is “a scandalous situation,” billionaire businessman Clive Palmer said on “Meet the Press” today. The super-tax proposal itself is also hurting overseas investment and is likely to damage Australian jobs and livelihoods, he said. ‘National Interest’ Rudd told journalists in Melbourne yesterday the campaign is in the national interest, while Tanner said Australia’s economy could be harmed if misinformation about the tax went unanswered. Wal King , the head of Leighton Holdings Ltd. , Australia’s biggest construction company, said builders are also worried about the tax, the Weekend Australian reported yesterday. He made the comments in a statement as president of the Australian Constructors Association, the newspaper said. The mining-tax plan has prompted Rio Tinto to re-evaluate all its projects in Australia, Albanese said in the ABC interview. “I have said to each of my managers, including during discussions this week while I’ve been in Australia, that every single project in Australia needs to be tested and retested and recalibrated, basically remodeled, on a worst-case tax assumption,” he said. Minerals Council The Minerals Council of Australia ran an advertisement on YouTube and began a radio campaign on May 24 against the tax, saying Australian miners will pay a levy of 58 percent, “by far the world’s highest tax on mining.” It compares with the 23 percent paid in Canada, 30 percent in Russia and 33 percent in South Africa, the council said. Rudd’s government and resources companies are also clashing over the definition of a “super” profit, which the proposed tax sets at returns above the long-term Australian government bond rate of about 6 percent. Rudd’s Labor party and the Liberal-National opposition coalition led by Tony Abbott are tied in the polls, according to a Newspoll survey of 1,159 people taken between May 14 and 16 and published in the Australian newspaper on May 17. Voter dissatisfaction with Rudd rose to 51 percent, from 40 percent in February, in the lead up to a national ballot that must be called by April. Rudd would lose an election called now, according to a Herald/Nielsen poll published on May 10. To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Europe Crisis Chokes Asia-Pacific Loan Market on Concern Exports to Slump

May 26, 2010

By Bloomberg News May 27 (Bloomberg) — Asia-Pacific companies are borrowing less for expansion on concern Europe’s debt crisis may cut export demand, hampering banks’ efforts to revive loan markets shuttered in the global credit freeze. Syndicated lending in Singapore plunged 72 percent to $1.8 billion this year from $6.5 billion in the same period of 2009, according to data compiled by Bloomberg. It slumped 17 percent in Australia and New Zealand to the lowest since 2004, and 18 percent in Indonesia to the least since 2006, the data show. “The low levels of deal volumes are because of a hesitation on the part of the corporates to take on fresh leverage,” Atul Sodhi , head of loan syndication for Credit Agricole CIB in the region, said in a telephone interview before the Asia-Pacific Loan Market Association ’s 12th annual conference in Beijing today. “Lack of demand is the issue here rather than supply” of credit, he said. While Asia has led a recovery from the deepest global recession since World War II, concern Europe’s debt woes will derail growth has jolted investors and pushed the MSCI Asia Pacific Index down 8.9 percent this year. “Downside risks have intensified,” Singapore’s trade ministry said May 20 after New York University professor Nouriel Roubini said fiscal problems may push Europe into a “double-dip” recession. “Most Asian corporates are exporting to Europe or the U.S. and demand conditions in these markets are not necessarily very buoyant, so the rationale to invest in big projects or developments is not so strong,” Sodhi said. Asian Exports About 60 percent of exports by companies in developing Asian nations end up in the U.S., Europe or Japan, according to the Asian Development Bank. The euro has lost 15 percent this year, making Asian goods more expensive for buyers in the 16 European nations that use the common currency. Australian business investment unexpectedly fell in the three months through March as manufacturing companies spent less on equipment and machinery, the Bureau of Statistics said in Sydney today. Capital spending dropped 0.2 percent from the previous quarter, when it climbed a revised 6.1 percent. The three-month London interbank offered rate for dollars, a benchmark for borrowing costs, fell to a record 0.2488 percent on Dec. 21 amid signs the world was emerging from recession. It advanced to 0.5378 percent yesterday, the highest since July 6, on concern about Europe and rising tensions between North Korea and South Korea. ‘Shuddering Halt’ “There’s a lot of liquidity in the Asian markets and that means pricing could come down,” Phil Lipton , HSBC Holdings Plc’s head of syndicated finance for Asia-Pacific debt capital markets, said at an APLMA discussion panel yesterday. “However, I think we could potentially reach a shuddering halt very soon if banks’ cost of borrowing continues to go up.” Should Europe’s debt crisis continue, the amount banks have to charge companies “will start to tick up sooner than we think,” Didier Leblanc , head of Asia-Pacific loan syndication at BNP Paribas SA, said at the panel. Syndicated lending in China has fallen 76 percent to $6.2 billion this year, Bloomberg data show, as the government stepped up efforts to curb credit expansion after a record surge in property prices. Hong Kong Lending more than tripled to $20.8 billion in Taiwan, helped by Taiwan High Speed Rail Corp.’s $12 billion state- supported loan in the local currency. It jumped more than six- fold in Hong Kong to $12.2 billion, bucking the regional trend, amid record borrowing by Chinese developers circumventing the crackdown at home and betting a revaluation of the yuan will cut repayment costs, according to Wilson Wan , head of leveraged and structured finance for Bank of China International. “Chinese banks have a limited foreign currency position in China so everyone is trying to borrow foreign currency because when they pay it back the yuan would have appreciated,” Wan said in a phone interview from Hong Kong. China has kept the yuan pegged to the U.S. dollar for 22 months to help exporters weather the global financial crisis, after allowing its currency to rise 21 percent in the previous three years. At the start of this month forward contracts were indicating investors were factoring in a 1.2 percent gain in the yuan over a year. Some companies “possibly believe that pricing is going to fall so they can wait a bit longer before raising funds,” HSBC’s Lipton said in a phone interview before the conference. “That’s quite a risky strategy. As we’ve seen with the Greece fallout, things can turn.” — Henry Sanderson and Shelley Smith . Editors: Will McSheehy , Ed Johnson To contact Bloomberg News staff on this story: Shelley Smith in Beijing via the Hong Kong newsroom at +852- 2977-6623 or ssmith118@bloomberg.net ; Henry Sanderson in Beijing at +86-10-6649-7548 or hsanderson@bloomberg.net .

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Foster’s May Be $11 Billion Takeover Target After Splitting Wine and Beer

May 26, 2010

By Robert Fenner May 27 (Bloomberg) — Foster’s Group Ltd. ’s plan to spin off its wine unit may prompt bids from SABMiller Plc , Asahi Breweries Ltd. and other global beermakers attracted to the wider profit margins in Australia, fund managers said. The brewing business may be worth more than A$13.5 billion ($11 billion) and draw interest from Suntory Holdings Ltd. and Sapporo Holdings Ltd. of Japan, said Theo Maas , who helps manage A$5 billion at Arnhem Investment Management in Sydney. The brewer of Foster’s Lager and Victoria Bitter, Australia’s top- selling brand, controls about 50 percent of the local market. Foster’s Chief Executive Officer Ian Johnston , 62, unveiled the plans yesterday, unwinding a A$6.8 billion wine expansion marred by falling prices and declining profitability . SABMiller will begin brewing in Australia this year through a venture with Coca-Cola Amatil Ltd. , taking on Foster’s and second-ranked Lion Nathan, who together control more than 90 percent of the market. “I wouldn’t be surprised to see Coca-Cola Amatil and SAB bid for the beer business,” said Rhett Kessler , who helps manage about $1.1 billion at Pengana Capital Ltd. in Sydney and doesn’t hold Foster’s shares . Sally Loane , a spokeswoman for Sydney-based Coca-Cola Amatil , Australia’s largest soft-drink maker, declined to comment in an e-mail. Suntory spokeswoman Aya Takemoto said, “we haven’t heard anything about it.” Molson Coors ‘Interested’ Molson Coors Brewing Co. Chairman Peter Coors said it’s too early to speculate whether the Foster’s move makes it more attractive. “Obviously we’re interested because we’ve got a stake in it,” he said today. “We’re just going to wait and see what happens and where it’s valued.” Molson Coors holds about 5 percent in Foster’s through an arrangement with Deutsche Bank AG. Foster’s shares fell 0.4 percent to A$5.51 at 10:44 a.m. in Sydney. The stock rose 7.4 percent yesterday after the plan was announced to close at A$5.53, giving it a market value of about A$10.7 billion. Sapporo spokesman Katsuhito Ogawa and Asahi spokesman Takayuki Tanaka declined to comment. Asahi may buy alcohol and food companies in the Asia-Pacific region, President Naoki Izumiya said last month. Foster’s hasn’t received takeover offers, Johnston said yesterday. Asahi and Suntory have acquired Australasian drink businesses in the past two years. Suntory agreed to buy Groupe Danone SA’s Frucor unit for more than 600 million euros ($732 million) in October 2008. Two months later, Asahi said it would acquire Cadbury Plc’s Schweppes soft-drink business in Australia for 550 million pounds ($792 million). Lion Nathan Multiple Japan’s Kirin Holdings Co. last year acquired the 54 percent of Lion Nathan it didn’t already own in a bid worth 12.5 times forecast earnings. Foster’s yesterday forecast annual earnings before interest, tax and items of as much as A$1.08 billion. “If you put the Lion Nathan multiple on the Foster’s beer business you get a price above A$7 a share,” said Maas, who owns Foster’s and Coca-Cola Amatil stock. The CUB brewing unit generates 85 percent of Foster’s earnings and has a 38.5 percent profit margin . Anheuser-Busch Inbev NV , the world’s largest brewer, has a margin of 27.9 percent, Heineken NV ’s is 12.4 percent and Asahi’s is 5.6 percent, according to data compiled by Bloomberg. “Although Foster’s has been subject to takeover speculation for the past number of years, the major hurdle has been a ‘solve for the wine business’,” Greg Dring , an analyst at Macquarie Group Ltd., said in a note to clients today. “A full demerger of the two businesses is expected to be the solution many have been looking for.” Taking on Duopolists CUB may be worth A$12.5 billion alone, David Errington , an analyst at Bank of America Merrill Lynch, said in a note to clients. Its Foster’s Lager is sold in more than 150 countries. Coca-Cola Amatil and SABMiller “are number one on my list and they are in a position to take one of the duopolists out,” Maas said. “The beer business as a standalone business is not going to remain independent for very long.” Australians drink an average of 85.1 liters (22.5 gallons) annually, ranking them 12th globally, ahead of Spain, according to 2008 data from Kirin. The Czech Republic topped the table at 149.9 liters and the U.S. was 16th with 82.3 liters. The Foster’s wine business, producer of Wolf Blass and Beringer, is the world’s second largest, behind New York-based Constellation Brands Inc. Foster’s paid A$482 million for Mildara Blass Ltd. in 1996. It moved into California with the A$2.6 billion purchase of Beringer Wine Estates Holdings Inc. in 2001, before paying A$3.2 billion in 2005 for Southcorp Ltd., the largest maker of Australian wine. Australia’s Youngest Olympian The Southcorp purchase was led by then CEO Trevor O’Hoy , who resigned in July 2008. Johnston, who was Australia’s youngest Olympian , came out of retirement to take on the role. The company’s stock has had two annual gains since 2001 and was 2.1 percent lower than when it bought Southcorp at yesterday’s close. Foster’s yesterday announced pretax charges worth as much as A$1.3 billion against the wine unit, the biggest in three straight years of writing down the business. Angus McKay , Foster’s chief financial officer, yesterday said the wine business will have assets worth about A$3 billion. The “long awaited” split “potentially makes the two businesses strategically more appealing,” Morgan Stanley analyst Martin Yule said in a note to clients. Foster’s hired Gresham Advisory Partners to assist on the plan, Johnston said. The company has yet to make a decision on management, final structure or debt holdings and no split is likely before 2011, he said. To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net .

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Foster’s to Split Beer, Wine Units, Take $1 Billion Charge; Shares Surge

May 25, 2010

By Robert Fenner and Malcolm Scott May 26 (Bloomberg) — Foster’s Group Ltd. , Australia’s biggest liquor maker, plans to split its beer and wine assets into separate companies, abandoning a foray into wine that has cost billions of dollars. Foster’s shares surged the most in more than two years after the announcement of the plan, which is unlikely to be implemented until 2011, the Melbourne-based company said in a statement today. It will write down the wine unit by as much as A$1.3 billion ($1.1 billion) before taxes. Australia’s biggest brewer spent A$6.8 billion expanding into wine to reduce its reliance on stalling beer demand, a strategy that backfired as grape gluts in Australia and North America combined with currency moves to crimp profit margins. Its beer making unit CUB accounted for 85 percent of earnings in the more recent half with brands such as Victoria Bitter and Crown Lager. “A demerger allows management and the market to focus on the beer business which is fundamentally solid,” said Prasad Patkar , who helps manage about $1.3 billion in Sydney at Platypus Asset Management Ltd. “The wine business hasn’t worked for Foster’s since it was acquired.” Foster’s jumped as much as 8.7 percent to A$5.60 in Sydney trading, the biggest intraday gain since Aug. 29, 2006. The stock traded at A$5.52 as of 10:31 a.m. Sydney time. Foster’s Assets “We see A$1.50 per share available to Foster’s shareholders if the company is split into two separate companies,” David Errington , an analyst at Bank of America Merrill Lynch, said in a note to clients today. “The concern is that if the current performance is allowed to continue, the value of Foster’s assets will erode…permanently.” He estimated CUB to be worth at least A$12.5 billion. Foster’s wine business is the world’s second largest trailing only Victor, New York-based Constellation Brands Inc. Foster’s began its wine expansion in 1996 by paying A$482 million for Mildara Blass Ltd. In 2001, it moved into California with the A$2.6 billion purchase of Beringer Wine Estates Holdings Inc. before adding Southcorp Ltd. in 2005 for A$3.2 billion. Foster’s expects earnings before interest and tax of A$1.05 billion to A$1.08 billion for the year ending June and expects a non-cash impairment charge of A$1.1 billion to A$1.3 billion before tax. Wine Earnings Foster’s in February reported its lowest first-half profit in four years as gains in the nation’s currency slashed the value of overseas sales and wine demand fell. Wine profits slumped as a grape glut in Australia prompted discounting, the U.S. recession curbed restaurant demand and the Australian dollar’s gain against its U.S. counterpart hit the almost one- third of sales that come from overseas. “The beer business is Australia’s market leader and, under new leadership, is focused on reinvesting in its key brands to continue its track record of positive earnings growth,” Foster’s Chief Executive Officer Ian Johnston said. “Foster’s wine business is showing signs of growth but continues to be impacted by oversupply in Australia, subdued consumer demand in key international markets and a strong Australian dollar during the 2010 financial year.” Foster’s is being advised by Gresham Advisory Partners and Corrs Chambers Westgarth. To contact the reporters on this story: Robert Fenner in Melbourne rfenner@bloomberg.net ; Malcolm Scott at Mscott23@bloomberg.net

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BHP, Xstrata Group Offers $4 Billion for Australian Coal Railroad Network

May 25, 2010

By Elisabeth Behrmann and Ben Sharples May 26 (Bloomberg) — BHP Billiton Ltd., Xstrata Plc and 11 other coal miners in Australia bid A$4.85 billion ($4 billion) for the nation’s biggest coal railroad network as they seek to speed expansion. The group is committed to expanding the network to support growth and has arranged an acquisition loan of A$1.35 billion and A$2.05 billion for capital spending, Nick Greiner , Chairman of the Queensland Coal Industry Rail Group, said in an e-mailed statement. The 13 miners including Rio Tinto Group and Peabody Energy Corp. want to boost shipments from Australia, the largest coal exporter, to feed demand from steel mills in Asia and benefit from higher prices. The bid is an alternative to Queensland state Premier Anna Bligh ’s plan for an initial public offering this year of the non-passenger assets, which includes coal tracks and trains. “This is about control of infrastructure build,” UBS AG analyst Glyn Lawcock said in Sydney before the announcement. Rail constraints in Queensland’s Bowen Basin will persist for as long as two years, hindering export growth, Deutsche Bank AG said in March, citing an independent report. To contact the reporters on this story: Elisabeth Behrmann at Ebehrmann1@bloomberg.net ; Ben Sharples in Melbourne at bsharples@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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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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Asia Stocks Gain as China Rises Most in Seven Months on Policy Speculation

May 23, 2010

By James Regan and Shani Raja May 24 (Bloomberg) — Asia stocks rose, led by the biggest gain in China’s shares since November, on speculation Chinese policy makers will rein in efforts to cool the economy 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 3.1 percent to 2,664.65 and the MSCI Asia Pacific Index rose 0.5 percent as of 1:47 p.m. in Tokyo. Yuan forwards gained after President Hu Jintao pledged to work toward exchange-rate reform at the start of China-U.S. talks in Beijing. Standard & Poor’s 500 Index futures slid 0.2 percent, after the benchmark rallied 1.5 percent on May 21. China’s importance as an engine of global economic growth is increasing as austerity measures needed to repair public finances in Europe damp spending. 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. More than 95 percent of the 911 stocks included in the Shanghai Composite Index advanced, while just three 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. Chinese Stocks China Vanke Co. , the nation’s largest listed property developer, jumped 4.5 percent in Shanghai. Beiqi Foton Motor Co. paced gains by automakers, rising 8.1 percent after the Shanghai Securities News reported the government will extend subsidies for trade-in vehicles to the end of this year. 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 percent. Yuan Forwards Twelve-month non-deliverable yuan forwards climbed 0.2 percent to 6.7498 per dollar in Hong Kong, reflecting bets the currency will strengthen 1.2 percent from the spot rate of 6.8275, according to data compiled by Bloomberg. China will “steadily advance the reform of the formation mechanism of the exchange rate,” President Hu said, echoing language in a May 10 central bank report. Treasury Secretary Timothy F. Geithner said allowing the yuan to reflect market forces is important to the Chinese economy. “The market wants to see something happen,” said Sean Callow , a currency strategist in Sydney at Westpac Banking Corp., Australia’s fourth-largest bank. “If there is nothing changed in the exchange-rate regime by early July, the Treasury will be under a lot of pressure.” South Korea’s won slid 1.4 percent from the close on May 20 to 1,210.90 per dollar, according to Seoul Money Brokerage Services. It earlier touched 1,220.75, the weakest level since Sept. 15. 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 this move from 1,180 to 1,240,” said Gerrard Katz , head of foreign-exchange trading at Standard Chartered Plc 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 Have Biggest Weekly Drop in 15 Months on European Debt Crisis

May 21, 2010

By Shani Raja May 22 (Bloomberg) — Asian stocks fell this week, dragging down the MSCI Asia Pacific Index by the most since February 2009, after U.S. jobless claims unexpectedly rose and concern grew that Europe will fail to stop its debt crisis from spreading. Honda Motor Co. , a Japanese carmaker that gets about 80 percent of its sales overseas, sank 6.4 percent in Tokyo. Esprit Holdings Ltd. , a clothier that earns 85 percent of its revenue in Europe, slid 8.9 percent in Hong Kong. Rio Tinto Group , the world’s third-largest mining company, slumped 9.1 percent in Sydney as oil and metal prices fell. Sonic Healthcare Ltd. tumbled 23 percent in Sydney after cutting its profit forecast. “A combination of events has made investors reassess the outlook for the global economy,” said Stephen Halmarick , Sydney-based head of investment-markets research at Colonial First State Global Asset Management, which holds about $138 billion. “There’s clearly been a major reduction in risk appetite globally and it’s difficult to see the situation stabilizing in the near term.” The MSCI Asia Pacific Index slipped 6.7 percent to 111.98 this week, its lowest close since August 2009. The index has fallen about 13 percent from a 20-month high on April 15, as Europe’s debt crisis and concern China will quell inflation eroded confidence in the global economic recovery. China’s Shanghai Composite Index, which entered a bear market last week as China increased steps to cool its property market, sank 4.2 percent, and Hong Kong’s Hang Seng Index declined 3 percent in a holiday-shortened week. Benchmark Indexes Drop Japan’s Nikkei 225 Stock Average declined 6.5 percent as Japan’s finance minister warned about continuing deflation. South Korea’s Kospi Index retreated 5.6 percent and Australia’s S&P/ASX 200 Index fell 6.6 percent. Qantas Airways Ltd. , Australia’s largest airline, dropped 9.9 percent to A$2.38 in Sydney, pacing drops in consumer stocks. Li & Fung Ltd. , the No. 1 supplier for retailers including Wal-Mart Stores Inc., slipped 2.3 percent to HK$34.35 in Hong Kong. Honda, which gets about 42 percent of sales from North America, sank 6.4 percent to 2,823 yen in Tokyo. Toyota Motor Corp., the world’s biggest carmaker, fell 5 percent to 3,355 yen. U.S. economic reports exacerbated concern that growth in the world’s largest economy may slow. Stocks also fell this week after Germany’s financial-services regulator introduced a temporary ban on naked short selling of certain securities. ‘Naked Trading’ “Investors are afraid that Germany’s ban on naked trading will reduce people’s appetite for risk,” said Hiroichi Nishi , an equities manager in Tokyo at Nikko Cordial Securities Inc. France, the Netherlands and Finland said they have no plans to follow German Chancellor Angela Merkel ’s effort to control what she called “destructive” markets, indicating a lack of coordination in attempts to resolve Europe’s debt crisis. Canon Inc. , a camera maker that counts Europe as its largest market, retreated 7.9 percent to 3,725 yen in Tokyo. Panasonic Corp. , which gets almost half of its revenue overseas, declined 8.9 percent to 1,143 yen. Samsung Electronics Co., Asia’s biggest maker of chips, lost 6.7 percent to 756,000 won. Esprit fell 8.9 percent to HK$44.55. Former Chairman Michael Ying sold his stake in the biggest Hong Kong-listed clothier in March and raised about $160 million, according to a sale document. Billabong International Ltd., an Australian maker of surfwear that gets 23 percent of its sales in Europe, slumped 9.9 percent to A$10.15. “The problems in Europe are likely to drag on longer than expected and the correction may extend until the summer,” said Kim Yong Tae , a fund manager in Seoul at Yurie Asset Management, which oversees $3.3 billion. “The macroeconomic issues will continue to be the key for the market in the mid to long term.” Oil, Metals Raw-material and energy companies fell the most this week among the MSCI Asia Pacific Index’s 10 industry groups, all of which declined. Rio Tinto plunged 9.1 percent to A$61.80 in Sydney as copper prices dropped. BHP Billiton Ltd. , the world’s largest mining company and Australia’s biggest oil producer, lost 4.8 percent to A$36.77 as crude slumped. Woodside Petroleum Ltd. , the nation’s second-largest producer of oil and gas, declined 7.6 percent to A$41.38. Cnooc Ltd., China’s biggest offshore oil explorer, retreated 5.1 percent to HK$12.22 in Hong Kong. The MSCI Asia Pacific Index ’s slump since April erased its 2010 advance, leading to a drop of about 7 percent this year. That cut the average price of its stock to 14 times estimated earnings yesterday, the lowest level since January. Sonic Healthcare Ltd. tumbled 23 percent to A$10.07. The provider of medical tests cut its profit forecast for the first time since listing, saying earnings will be as much as 20 percent less than the company expected. Primary Health Care Ltd., Australia’s second-largest provider of medical diagnostic tests, lost 9.5 percent to A$3.82 this week. “With the volatility at present it’s difficult for investors to swim against the tide,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “Doubts over Europe’s ability to keep its own house in order remain, along with concerns about the robustness of global growth. Many investors are sitting on the sidelines until the way forward becomes clearer.” To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net .

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Stocks Rout Halts, Euro Advances as Risk Demand Stabilizes

May 21, 2010

By Michael P. Regan and Whitney Kisling May 21 (Bloomberg) — A global slide in stocks stabilized as U.S. bank shares rallied, the euro gained for a third day and Treasuries pared their advance on speculation the rout in risky assets overshot the potential damage from Europe’s debt crisis. The Standard & Poor’s 500 Index climbed 0.9 percent to 1,081.66 at 12:50 p.m. in New York, erasing a drop of as much as 1.5 percent that dragged the gauge below its weakest level during the May 6 crash. Brazil’s Bovespa index surged 2.2 percent, while copper jumped the most since February on signs of stronger demand in China. Currencies of commodity producing nations rallied versus the dollar. The 30-year Treasury yield slipped less than one basis point to 4.09 percent after earlier dropping to 3.98 percent, its lowest level of the year. The expiration of U.S. stock options may add to market swings after the S&P 500 yesterday tumbled 3.9 percent, the most in more than a year. Financial shares in the S&P 500 rose 3 percent as a group as the Senate’s passage of legislation to reform the industry eased uncertainty surrounding the impact of the new rules. “Technically speaking we’re very oversold — really that’s the understatement of the year,” said Walter Todd , who helps manage about $800 million at Greenwood Capital in Greenwood, South Carolina. “I’d rather be buying now than I would three weeks ago.” Rebound After Correction Today’s gain in the S&P 500 came after the benchmark index for U.S. stocks slumped 3.9 percent yesterday, the most in more than a year, and closed at its lowest level since February. The rally that began 14 months ago is probably intact if history is any guide, Birinyi Associates Ltd. said. The S&P 500 had fallen as much as 12 percent from a 19-month high on April 23 as concern grew that Europe’s sovereign debt crisis would snuff out the global economic recovery. Thirteen of 15 comparable drops the Westport, Connecticut- based firm calculated since 1945 have occurred either at bear market bottoms or during lasting advances. “If we assume the bull market ended on April 23rd, it would be one of the weakest and shortest gains in the last 48 years,” Cleve Rueckert, an analyst at the research and money- management firm founded by Laszlo Birinyi, wrote in a note to clients today. “A more likely scenario is that the current bull market is experiencing its first official correction.” JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. rallied more than 3.8 percent to pace gains in 76 of 79 stocks in the S&P 500 Financials Index . Financial Reform The U.S. Senate brought Congress to the brink of passing the most comprehensive regulation of the financial industry since the Great Depression. Senators approved a bill that imposes restrictions on proprietary trading by banks and creates a consumer protection agency designed to prevent lending abuses. The legislation was approved by a 59-39 vote yesterday and requires reconciliation with a bill passed by the House of Representatives in December. The bill provides a mechanism for liquidating financial institutions that until recently were considered too big to fail. It also establishes a council of regulators monitoring threats to the economy and specific restraints on the trading of derivatives. ‘Not as Onerous’ “It’s an enormous document — the devil will be in the details,” said David Katz, chief investment officer at Matrix Asset Advisors Inc. in New York, which manages $1.2 billion. “The early read is that it’s not as onerous as some feared.” European stocks trimmed losses, while still sliding to the lowest since Nov. 3., on lingering concern that the region’s governments lack a common position on how to resolve the debt crisis. The Stoxx Europe 600 Index closed down 0.5 percent after sinking as much as 2.9 percent during the day. The gauge tumbled 4.6 percent this week, while the S&P 500 has lost 4.5 percent. The euro climbed to its highest level in a more than week against the dollar amid speculation investors who bet on its decline had to buy back the currency as it strengthened for a third day. The euro headed for its largest five-day gain in eight months after yesterday rising from its lowest level since 2006 as traders theorized the European Central Bank may intervene to support the currency. German lawmakers today approved their country’s share of a $1 trillion euro-region bailout. The yen swing between gains and losses against the dollar as U.S. stocks gained for the first time in four days. Brazil Rallies Brazil’s Bovespa rose for the first time in seven days as homebuilders and commodity producers surged after the measure fell to the cheapest level in more than a year. The Bovespa’s 19 percent drop from an April high dragged it to 11 times analysts’ earnings estimates yesterday, the lowest level in 13 months. Copper futures for July delivery climbed 16.3 cents, or 5.5 percent, to $3.1075 a pound in New York. A close at that price would be the biggest gain for a most-active contract since February. Inventories monitored by the Shanghai Futures Exchange fell for a third straight week, the longest slide since October. China imported 309,772 metric tons last month, the second- biggest amount since June, the government said. Before today, copper dropped 6 percent this week on European debt concerns. Gold fell in New York, heading for its biggest weekly loss in five months, as some investors sold to lock in gains after a rally to a record a week ago. Gold futures for June delivery lost as much as $22.60, or 1.9 percent, to $1,166 an ounce on the Comex in New York and recently traded at $1,179.40. The metal is down 3.9 percent this week, the most since the five days to Dec. 11. Oil Rebounds Oil followed stocks higher, with crude for July delivery rise 30 cents, or 0.4 percent, to $71.10 a barrel in New York. Futures slid as much as 2.5 percent to $69 earlier. The U.S. dollar weakened against 13 of 16 major counterparts, with Sweden’s krona, the New Zealand dollar, the Brazilian real, Mexican peso and Canadian dollar all climbing more than 1 percent. The yen fell against all 16 major counterparts but the Korean won. The MSCI Asia Pacific Index of stocks slumped 1.3 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 cost to protect against defaults on U.S. corporate bonds retreated from near the highest in 10 months, trading in a benchmark credit derivatives index shows. 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, slipped 5.8 basis points to a mid-price of 119.88 basis points. To contact the reporters on this story: Michael P. Regan in New York at Mregan12@bloomberg.net ; Whitney Kisling in New York at wkisling@bloomberg.net .

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Phuket Villas Go Empty as Bangkok Riots Frighten Tourists Away From Island

May 21, 2010

By Chan Sue Ling May 21 (Bloomberg) — About 860 kilometers (534 miles) south of the rioting in Bangkok, the island of Phuket is again counting the cost of events beyond its control. The worst political violence in at least 18 years, which escalated yesterday as security forces struggled to clear rioters from buildings in the capital, is deterring travel to Thailand and damaging Phuket’s $3 billion tourism industry. Hotel occupancy there has dropped below 40 percent, about a third less than normal, according to the Bangkok-based Thai Hotels Association. At least 43 countries have warned people against visiting parts of Thailand during the standoff in Bangkok that began in March. From hoteliers to elephant handlers, workers in Phuket say the fighting may be more damaging to the island than the 2004 tsunami that wrecked its coastline. Tourism accounts for 70 percent of the resort’s economy. “The situation now is graver than during the tsunami,” said Vivian Ng, a resort sales director, who checks her Blackberry and iPhone for the latest news about the protests. “With the tsunami, the world knows it’s just a one-off.” Now, she said, “there are concerns about security and safety.” Ng says her employer, Minor International Pcl ’s Anantara resort, which has hosted American actor Kevin Spacey and the British fashion model Kate Moss , is now losing business by the day. Cancellations The Mai Khao coast resort’s 83 private-pool villas have received 70 cancellations for rooms between April and August, said Ng. The Anantara is asking workers to take vacation days and turn off unneeded air conditioning and lights to save on electricity, she said. Nationwide, tourism revenue may fall by about 20 percent to 480 billion baht ($15 billion) this year, Kongkrit Hiranyakit, president of the Tourism Council of Thailand , said in a telephone interview. “The impact will be the worst in 50 years of Thai tourism history” and it may take as long as eight months to win back confidence, he said. At Amazing Bukit Safari , a lack of customers has left elephant minders passing the time by sleeping in hammocks and watching television. “Tourists are scared to come to Thailand because of what’s happening in Bangkok,” said Oi Supawadee, who oversees the animals at Bukit’s elephant ride concession. “We only have about 20 rides a day since April compared with about 60 last year.” Travel Bargains The slump is also forcing down prices. Gogo.com.sg, a Singapore-based online travel agent, is offering seven-night stays at the JW Marriot Mai Khao for S$59 ($42) a night until June 10, about one quarter of the one-night room rate offered at the hotel’s own website . Thaianna Padgong, who takes tour bookings from a closet-sized booth in a shop she shares with a cell phone supplier at Phuket’s Patong Beach, said she’s cut some prices by 50 percent to win customers. “Some days, I had no bookings,” said Thaianna, manager of Thaianna Tour & Travel, watching TV for news from Bangkok. “I can’t sleep sometimes because I have bills to pay.” Battle of Bangkok Clashes in Bangkok between Thai security forces and so- called Red Shirt demonstrators, who want fresh elections and view Prime Minister Abhisit Vejjajiva ’s rule as illegitimate, have left more than 70 dead in the past six weeks. “Those travel advisories against Thailand are affecting everyone, not just travel to Bangkok,” said Somboon Chirayus, president of the Phuket Tourist Association. “Some insurance companies don’t cover if an advisory has been issued. What we worry about is the new bookings going forward.” Thailand’s $261 billion economy, Southeast Asia’s largest after Indonesia, may suffer from less foreign direct investment because of the riots, according to Fitch Ratings. Tourism accounts for as much as 20 percent of total employment nationwide, Finance Minister Korn Chatikavanij said today. The riots are “going to have a very disastrous impact on tourism.” Growth may be trimmed by “between 0.3 percent and 0.5 percent” because of the unrest, he said at a forum in Tokyo. Following the tsunami, Thailand’s economy contracted 0.6 percent in the first quarter of 2005 from the fourth quarter of 2004, partly due to a drop in tourism, which makes up 6.5 percent of the economy. ‘Self-Inflicted’ “This is a self-inflicted wound, where you shoot yourself in the foot not once but twice or three times,” said Wolfgang Meusburger, an Austrian living in Phuket for 19 years. “Something is broken and you hope that it can be mended, but this time, the damage is very great.” Thailand’s military today ended its mission to disperse anti-government protesters from their central Bangkok base after a May 19 assault left 15 people dead and sparked gunfights and arson attacks on shopping malls and banks. Reported disturbances in northeast Thailand, home to many of the Red Shirt demonstrators, underscore the widening social rifts that may thwart political reconciliation. “This unfortunate situation is yet another blow to Thailand’s recovering tourism industry,” said Robert Bailey, president of Singapore-based Abacus International Pte , Asia’s largest travel agency. “A protracted stand-off will only further dampen confidence in Thailand’s government and its country’s stability.” Feeling Safe For some, Phuket’s jungle groves and beaches are far enough away from the street battles in Bangkok. “We don’t think it’s going to impact us, because most of the problem is in Bangkok and not outside,” said Ken Brunton, a retired Sydney real-estate agent on his way to dinner in Patong Beach . “We are not overly concerned, although we have been reading the papers and following the news.” Thai Airways International Pcl has kept its two daily direct flights to Phuket from Tokyo, Minako Komata, a spokeswoman for the airline, said yesterday by phone. Passengers are avoiding Phuket flights that stop in Bangkok, she said. HIS Co ., Japan’s second-largest travel company, stopped offering travel packages that include Bangkok as of May 25, Manabu Shimizu, a spokesman for the company, said. The island’s past recoveries from tidal waves and virus scares showed an “incredible bounce-back for tourism,” said Bill Barnett, managing director of C9 Hotelworks Ltd. , a Phuket-based asset management and hospitality company. “We saw it after SARS, we saw it after the tsunami. It roars back.” Meantime, Oi said her 17 elephants may be the only ones benefiting from the lull, munching bananas and leaves under corrugated iron shelters and bathing at a nearby pool. “I think the elephants are happier these days because they have less work to do,” said Oi. “You could almost see them smiling.” For Related News and Information: Top transportation stories: TOP TRN Thai political news: TNI THAI POL

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Australian Climate Law Delay Stalls Sales of CO2-Storing Gum-Tree Forests

May 20, 2010

By Ben Sharples May 21 (Bloomberg) — Carbon Conscious Ltd. , an Australian company that plants gum-trees to absorb greenhouse gas emissions, said demand from customers for forests has stalled after the nation shelved climate-change laws. “We were having quite a detailed conversation with a particular client, which has pretty much stopped since the government made the announcement,” Chief Executive Officer Peter Balsarini said in a telephone interview yesterday. “We’ve certainly stopped fielding interest in Australia.” BP Plc, Europe’s second-largest oil company, and Origin Energy Ltd. last year hired Carbon Conscious to plant as many as 40 million eucalypt trees on less-arable farmland. Australian Prime Minister Kevin Rudd delayed the climate change bill on April 27, and will assess actions taken by other nations at the end of 2012 before reintroducing it in parliament. Carbon Conscious, which has slumped 72 percent since the start of the year in Sydney trading, will plant about 6 million seedlings for BP and Origin in Western Australia this year, Balsarini said from Perth. Melbourne-based competitor CO2 Group Ltd. has dropped 48 percent. “It is unfortunate that the early movers and innovators in the low-carbon economy are now being burnt by the lack of political will,” said Seb Henbest , a Sydney-based analyst for Bloomberg New Energy Finance. “Climate change is not going to go away and so the introduction of a carbon price at some point in the future is inevitable.” Carbon-Storing Trees Carbon Conscious plants mallee eucalypt trees that absorb and store emissions in their leaves, twigs and roots. Planting the trees would generate permits tradable under the pollution reduction laws Australia has now delayed. About five trees are needed to absorb 1 metric ton of carbon, according to Balsarini. “We’re fortunate. We’ve got some clients and we’ve got plantings over this year and next year,” Balsarini said. “Those plantings come with 15-year management revenue streams.” Carbon Conscious will plant as many as 4 million trees in 2011, he said. Carbon Conscious plans to sell shares and convertible notes to raise about A$3.87 million ($3.2 million), the Perth-based company said yesterday. The funds will be used to acquire land and finance planting, Balsarini said. Inpex Corp. has hired CO2 Group for a pilot project to offset emissions from its proposed Ichthys liquefied natural gas venture in Australia’s Northern Territory. Woodside Petroleum Ltd. in June expanded a 50-year plantation management agreement with CO2 Group. Greens Party Rudd’s legislation to cut emissions by at least 5 percent was blocked in the Senate by the Greens party and the Liberal- National coalition last year, creating a possible trigger for an early election. The government’s climate plan would have taxed companies with high emissions like energy, steel and cement makers and offset the charges with free emissions permits and financial compensation. “It doesn’t make a lot of sense that to achieve a unilateral 5 percent cut in greenhouse emissions, the government is now waiting to assess commitments from other nations before moving ahead with its domestic carbon-trading scheme, which it has acknowledged is the best policy,” New Energy Finance ’s Henbest said. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@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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Asia Stocks, Euro Drop on Japan Economy, Europe Debt; Commodities Rebound

May 19, 2010

By James Poole and Shani Raja May 20 (Bloomberg) — Asia stocks dropped to near a six- month low after slower-than-estimated growth in Japan caused shares in Tokyo to slide for the second day. The euro fell after climbing yesterday and commodities rallied from three-month lows. The MSCI Asia Pacific Index lost 0.7 percent to 113.96 at 12:43 p.m. in Tokyo and the Nikkei 225 Stock Average shed 0.8 percent to 10,101.08. Standard & Poor’s Index futures gained 0.2 percent after the U.S. benchmark fell 0.5 percent yesterday. The euro lost 0.4 percent versus the dollar. Copper rose 2.8 percent. While Japan’s economy grew at the fastest pace in three quarters, the 4.9 percent expansion was less the 5.5 percent median forecast of 21 economists in a Bloomberg survey. Finance Minister Naoto Kan warned the economy was in a deflationary state. Investors are jittery after Germany’s decision to ban naked short-selling on sovereign debt and some financial stocks. “Doubts over Europe’s ability to keep its own house in order remain, along with concerns about the robustness of global growth,” said Tim Schroeders , who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “It’s difficult for investors to swim against the tide.” More shares dropped than gained on the MSCI Asia Pacific Index , which headed for its lowest close since Nov. 27. Today’s Japan growth report showed more than half of the expansion came from trade. Consumer spending grew 0.3 percent in the first quarter, slowing from the previous period’s 0.7 percent gain. Nintendo, Toyota Nintendo Co. , which gets 34 percent of its revenue in Europe, dropped 2.5 percent in Osaka. Toyota Motor Corp. slumped 2 percent as the Tokyo Shimbun newspaper reported the company will recall its Passo subcompacts in Japan to fix engine problems. BHP Billiton Ltd. , the world’s largest mining company, gained 0.5 percent in Sydney after commodities advanced. Crude oil for June delivery climbed 1.2 percent to $70.72 a barrel, the second day of gains. Copper for delivery in three months rebounded to $6,690 per metric ton after slumping 2.8 percent yesterday. Singapore’s economy expanded at a faster pace than initially estimated last quarter. Gross domestic product grew an annualized 38.6 percent from the previous three months, more than the median estimate for a 33.4 percent increase in a Bloomberg News survey of eight economists. The euro fell against the dollar and yen on concern the pace of Europe’s economic recovery will slow as governments take measures to cut spending to stem the debt crisis. German Talks German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble host talks on financial regulation today in Berlin. The euro slid to a four-year low yesterday after Germany banned naked short-selling on sovereign debt and some financial stocks. 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 euro fell to $1.2364 against the dollar and posted a similar decline to 113.44 against the yen. The Conference Board’s index of U.S. leading indicators probably rose 0.2 percent in April, the smallest gain since March 2009, according to a Bloomberg News survey. Other reports today will show jobless claims were little changed last week and manufacturing in the Philadelphia region grew this month, separate Bloomberg surveys show. The cost of insuring Asia-Pacific bonds against default increased, reversing an earlier drop, as Asian stocks and the euro fell on concern Europe’s debt crisis will spread. Bond Risk The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan increased 1 basis point to 142 basis points as of 9:55 a.m. in Singapore, after dropping 7 basis points, according to Royal Bank of Scotland Group Plc. South Korea’s won weakened 0.7 percent to 1,173.55 after the currency’s slide beyond its 200-day moving average increased concern more losses were likely. The currency reached 1,176.43, the weakest level since Feb. 5. To contact the reporters for this story: James Poole in Singapore jpoole4@bloomberg.net ; Shani Raja in Sydney at sraja4@bloomberg.net .

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Mining Profit-Tax `Contagion’ Is Poised to Spread Worldwide From Australia

May 19, 2010

By Madelene Pearson and Jesse Riseborough May 20 (Bloomberg) — Australia’s planned 40 percent tax on mining profits has set a benchmark for other countries weighing higher levies, reducing earnings forecasts for BHP Billiton Ltd. and Rio Tinto Group and the attraction of mining stocks. “It could create what the miners are now describing at a global level as a type of tax contagion,” said Tom Price, commodities analyst with UBS AG in Sydney, in an interview. “They might levy a new tax at the miners in Brazil. Canada is another mineral province and South Africa.” BHP, the world’s largest mining company, Xstrata Plc and Rio said they are reviewing projects in Australia, the No. 1 exporter of coal and iron ore, after the government unveiled the tax this month, saying a country’s resources belong to the people. Citigroup Inc. Sydney-based analyst Craig Sainsbury said Canada, Peru and Chile may be next. “Resource nationalism” is a major risk facing miners in the next few years, Evy Hambro , manager of BlackRock Investment Management Ltd.’s flagship $14.3 billion World Mining Fund said last month. Chile, the biggest copper exporter, is proposing a temporary rise in mining taxes to help pay for earthquake reconstruction that may cost BHP, Xstrata and Anglo American Plc $1.2 billion in the next two years. Brazil, the second-biggest iron ore exporter, may tax shipments of the commodity or raise royalties, Energy and Mining Minister Edison Lobao has said. ‘Markets Suicide’ The Australian tax plan is “global financial markets suicide,” according to Charlie Aitken , the executive director of Southern Cross Equities Ltd., the equal top ranked predictor of BHP’s share price performance of 17 analysts, according to data compiled by Bloomberg. Mining companies’ earnings may be cut by almost a third when the tax starts in 2012, Moody’s Investor Services said this week. The tax would be broadly credit negative for the sector and raise uncertainty for some companies over the short-to- medium term, Moody’s said this month. The tax may also prompt European and Scandinavian nations to seek a greater share of revenue from production, Magnus Ericsson , a senior partner at Raw Materials Group, a mining data and analysis company, said this month. The proposal will make Australian mines the highest taxed in the world, according to Minerals Council of Australia. “Economies, particularly European economies, are going to have to deal with deficits,” said Jamie Nicol , chief investment officer at Dalton Nicol Reid in Brisbane, which manages about A$550 million ($472 million) including BHP and Rio shares. “They are going to look at some sort of innovative tax solutions to try and claw back some of that.” Levy Wars Fortescue Metals Group Ltd. , Australia’s third-largest iron ore exporter, has dropped 16 percent and BHP’s Melbourne-traded stock has fallen 9.3 percent, while the Australian currency has slid 7.6 percent since the government announced the tax on May 2. Fortescue this week placed $15 billion of projects on hold, citing the tax. Nations that resist may attract investment. South Africa taxes mining companies at 33 percent, Canada 23 percent and China 30 percent compared with a forecast 58 percent in Australia after the tax, according to Citigroup data. Australian Treasurer Wayne Swan has said he “strongly disagrees” with claims the tax will damage miners. China’s demand for Australian metals will outweigh higher taxes, according to AMP Capital Investors Ltd., a unit of the country’s largest pension plan provider, which hasn’t changed its industry assessment. Rio , the world’s third-largest mining company, this month said it will spend $401 million to boost iron ore output in Canada, citing the “attractiveness of investing” in the North American nation. BHP has said the tax would stymie investment. “It doesn’t matter if it’s the Congo or Sudan, or it’s Australia or Canada, these projects require commitments by governments that are 30 years and when they move the goal posts they will have a serious rippling effect,” said Frank Holmes , chief investment officer of U.S. Global Investors Inc., which manages about $3 billion. “They could stifle the world.” To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Asian Stocks Fall for Fifth Day on Europe Concern; Commodity Shares Gain

May 19, 2010

By Kana Nishizawa and Masaki Kondo May 20 (Bloomberg) — Asian stocks fell for the fifth straight day amid concern the Europe’s debt crisis will hurt the global economic recovery. Commodity companies advanced. Nintendo Co. , a Japanese maker of game console which gets 34 percent of its revenue in Europe, dropped 1.5 percent in Osaka. Toyota Motor Corp. slumped 2.1 percent as the Tokyo Shimbun newspaper reported the company will recall its Passo subcompact vehicles in Japan to fix engine problems. BHP Billiton Ltd. , the world’s largest mining company, gained 0.7 percent in Sydney after commodity prices gained. The MSCI Asia Pacific Index fell 0.5 percent to 114.17 as of 9:52 a.m. in Tokyo. The gauge has declined 12 percent from a 52-week high on April 15 on concern debt problems in countries from Greece to Spain will spill over into other European nations. Germany this week introduced a temporary ban on naked short selling to calm the region’s financial markets. “Germany’s short-sale restriction is spurring suspicion that the situation is actually worse than investors think,” said Mitsushige Akino , who oversees the equivalent of $450 million in Tokyo at Ichiyoshi Investment Management Co. “The global economy is improving and corporate earnings are good, so there are investors who see the recent slump as the best opportunity to buy.” Japan’s Nikkei 225 Stock Average sank 0.6 percent, as a government report showed the economy grew slower than economists expected in the first quarter. South Korea’s Kospi Index rose 0.2 percent and Australia’s S&P/ASX 200 Index advanced 0.1 percent. Futures on the Standard & Poor’s 500 Index gained 0.4 percent. The index slid 0.5 percent yesterday as Germany’s trading restrictions and a jump in mortgage foreclosures to a record triggered a flight from equities. German regulators banned investors from naked short sales of 10 banks and insurers, as well as naked credit- default swaps on euro-area government bonds, starting yesterday. Short sellers borrow assets and sell them, betting the price will fall and they’ll be able to buy them later, return them to the lender and pocket the difference. In naked short- selling, traders never borrow the assets so betting is unlimited. To contact the reporters for this story: Kana Nishizawa in Tokyo at knishizawa5@bloomberg.net ; Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Stocks, Commodities Fall as Euro Hits Four-Year Low on German Trading Ban

May 18, 2010

By Patrick Chu May 19 (Bloomberg) — Asia stocks dropped to a three-month low and metals tumbled after Germany banned speculators from some bets against government bonds and financial institutions. Treasuries rallied. The MSCI Asia Pacific Index lost 1.3 percent to 114.95 at 12:55 p.m. in Tokyo. Standard & Poor’s 500 futures fell 0.6 percent following a 1.4 percent decline in the index yesterday. The euro weakened below $1.22 for the first time since April 17, 2006 before recovering. Yields on 10-year Treasury notes slid 2 basis points to 3.33 percent. Oil slumped to a seven-month low below $68 a barrel and copper dropped as much as 2.8 percent. German Chancellor Angela Merkel ’s government shook investor confidence with the new regulations. The nation’s BaFin markets regulator banned investors from naked short sales — speculating on declines of stocks they don’t own — for 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds starting today. “It almost looked panicked, which further undermines confidence in the markets,” said Michael O’Rourke , chief market strategist at BTIG LLC in Yardley, Pennsylvania, which serves institutional investors. “They’ve done as poor a job as one can do in delivering a message.” The rules hurt demand for European assets on concern that investors will face challenges hedging their holdings or selling assets. The euro weakened to as low as $1.2144 before recovering at $1.2217. The pound slumped to a 13-month low of $1.4278 and the yen gained against all 16 major counterparts. The German ban will last until March 31, 2011, BaFin said yesterday in an e- mailed statement. Concern Increases “If you don’t feel like you can sell bonds and equities in Europe, you’re left with selling the euro to express a negative view,” said Greg Gibbs , a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. The ban “creates a view that the authorities sense bigger problems than what may appear on the surface, creating more nervousness and fear.” The MSCI Asia Pacific Index has declined 11 percent from its high for the year on April 15 as Europe’s debt crisis and concern China will quell inflation eroded investor confidence. A decline of 10 percent is the level some analysts refer to as a correction. All stock markets in the Asia Pacific region fell. Japan’s Nikkei 225 Stock Average dropped 0.9 percent. South Korea’s Kospi Index slumped 1.4 percent and Australia’s S&P/ASX 200 Index declined 1.4 percent. Hong Kong’s Hang Seng Index retreated 1 percent. Share Movers Nippon Sheet Glass Co. , which gets 42 percent of its revenue from Europe, tumbled 3.6 percent to 243 yen in Tokyo as a stronger yen dimmed the earnings prospects for Japan’s exporters. Daiwa Securities Capital Markets Co. cut its rating on the stock to “neutral” from “outperform.” Canon Inc. , a camera maker that counts Europe as its largest market, retreated 1.1 percent to 3,930 yen. Materials companies posted the biggest declines among the MSCI Asia Pacific Index’s 10 industry groups. Woodside Petroleum Ltd. , Australia’s second-largest oil and gas producer, dropped 1.3 percent in Sydney to A$42.50 after oil retreated for a seventh consecutive day. Crude oil for June delivery declined as much as 1.9 percent in New York. Rio Tinto Group , the world’s third-largest mining company, fell 1.7 percent to A$62.76. Banks Fall Financial-services companies dropped as European deficit concerns caused the cost of protecting Asia-Pacific corporate and sovereign bonds from non-payment to rise. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 10 basis points to 131.5 basis points, Royal Bank of Scotland Group Plc prices show. HSBC Holdings Plc slumped 1.3 percent to HK$72.45 in Hong Kong. Commonwealth Bank of Australia , fell 1.8 percent to A$51.70 in Sydney. Guangzhou R&F Properties Co. , the biggest real estate company in the southern Chinese city, dropped 1.3 percent after Goldman Sachs Group Inc. downgraded Chinese developers. Shimao Property Holdings Ltd., controlled by billionaire Xu Rongmao, lost 1.2 percent. Yanlord Land Group Ltd. declined 1 percent. Short Selling Short selling involves the sale of borrowed securities in the hope of profiting by buying them later at a lower price and returning them to the owner. When securities are sold naked, the trader fails to borrow the assets before sending an order to sell. BaFin will prohibit trading in credit swaps on euro-area governments that aren’t used to hedge against losses in the event the government defaults, the regulator said. BaFin said it was taking the step because of “exceptional volatility” in euro-area bonds. “Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system.” “This is a mistake of a serious fundamental nature and of severe consequence,” Mark Grant , managing director of Southwest Securities Inc., in Fort Lauderdale, Florida, said in a note to institutional clients. Germany is making “an obvious attempt to control financial markets across the globe by this action just as they plead for investors to provide funding,” he said. The MSCI World Index of stocks in 23 developed nations slipped 0.7 percent, erasing a 1.3 percent rally. European financial markets closed before BaFin posted the ban. The Stoxx Europe 600 Index ended the session up 1.3 percent. To contact the reporter on this story: Patrick Chu in Tokyo at pachu@bloomberg.net ;

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Euro Falls to Lowest Since 2006 as German Shorts Ban Spurs Risk Aversion

May 18, 2010

By Candice Zachariahs and Ron Harui May 19 (Bloomberg) — The euro weakened for a second day to the lowest level in four years as Germany’s ban on some speculative sales triggered concern Europe’s debt crisis will worsen. The euro slid to its least since April 2006 after Germany prohibited naked short-selling and speculating on European government bonds with credit-default swaps, and the Bank of Italy allowed lenders to exclude losses on government debt. New Zealand’s dollar dropped a fourth day as central bank Governor Alan Bollard said a gradual currency depreciation was desirable. “If you don’t feel like you can sell bonds and equities in Europe, you’re left with selling the euro to express a negative view,” said Greg Gibbs , a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney. The German ban “creates a view that the authorities sense bigger problems than what may appear on the surface, creating more nervousness and fear.” The euro fell to as low as $1.2144, the weakest since April 17, 2006, before trading at $1.2166 as of 9:02 a.m. in Tokyo from $1.2202 yesterday in New York. It declined 0.6 percent to 111.86 yen. The dollar traded at 91.87 yen from 92.23 yen. New Zealand’s currency weakened 0.9 percent to 68.76 U.S. cents, near the least since March 5. The German ban, which lasts until March 31, 2011, also applies to the shares of 10 banks and insurers including Allianz SE and Deutsche Bank AG, financial regulator BaFin said late yesterday in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said. 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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U.S. Bond Sales Rise as Contagion Concern Fades: Credit Markets

May 18, 2010

By Tim Catts May 18 (Bloomberg) — Corporate bond issuance in the U.S. is showing signs of a revival as investors speculate companies in the world’s largest economy will be insulated from the worst of Europe’s sovereign debt crisis. Borrowers came to the market with at least $3.2 billion of debt yesterday, after selling $1.15 billion a week earlier and $13.6 billion in the five days ended May 14, according to data compiled by Bloomberg. Franklin Resources Inc., the manager of the Franklin and Templeton mutual funds, sold $900 million of notes in its first offering since 2003. EOG Resources Inc., a Houston-based pipeline operator, issued $1 billion of bonds. The flurry signals improving sentiment that the European plan to provide almost $1 trillion of loans to help indebted nations avoid default will keep the regional crisis from spreading around the globe. Of the 460 companies in the Standard & Poor’s 500 Index that reported first-quarter results, 77 percent said earnings exceeded analysts’ estimates, Bloomberg data show. “Fundamentally, companies are doing great and balance sheets are strong,” said Gregory Nassour , head of investment- grade portfolio management at Valley Forge, Pennsylvania-based Vanguard Group Inc., who helps oversee about $40 billion of assets. “I would expect issuance to continue unless something new comes out of Europe to quiet it down.” Nissan Motor Corp. of Yokohama, Japan, the country’s third- largest carmaker, plans to sell $750 million of bonds backed by auto leases, a person familiar with the offering said. Banco Santander SA, Spain’s largest bank , will issue $1 billion of notes backed by auto loans, the bank said yesterday in a filing with the U.S. Securities and Exchange Commission. The Higher Education Loan Authority of the State of Missouri is marketing $817.7 million of debt backed by student loans, a person said. Europe Lags Europe’s bond market has yet recover, with no benchmark corporate sales, typically for at least 500 million euros ($617 million), since May 5, according to Bloomberg data. Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt was unchanged at 171 basis points, or 1.71 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Average yields rose 1.9 basis points to 3.946 percent. Libor Rises The rate banks pay for three-month loans in dollars is set to rise for a sixth day, according to a Credit Agricole CIB forecast. The London interbank offered rate , or Libor, may advance to 0.465 percent, Credit Agricole said, from a nine-month high of 0.46 percent yesterday and 0.445 percent at the end of last week. The spread between the three-month Libor rate and the overnight indexed swap rate, a barometer of the reluctance of banks to lend that’s known as the Libor-OIS spread, increased to 23.5 basis points today, from 24, the most since Aug. 17. The three-month Singapore Interbank Offered Rate rose to 0.46 percent, near a nine-month high, from 0.45083 percent. The cost to protect against defaults on European investment-grade bonds snapped three days of increases, according to traders of credit-default swaps. The Markit iTraxx Europe index of contracts on 125 companies fell 5.75 basis points to 110.25, Markit Group Ltd. prices at 9:37 a.m. in London show. Investors use the index to hedge against losses on corporate debt or speculate on creditworthiness, and a decline signals an improvement in perceptions of credit quality. Greek Default Risk Credit-default swaps tied to Greece’s government debt dropped 14 basis points to 634, according to CMA DataVision. The Markit iTraxx Asia index of swaps on 50 investment- grade borrowers outside Japan fell 4 basis points to 122.5 in Singapore, according to Barclays Plc. The Markit iTraxx Australia index decreased 7 basis points to 107 in Sydney, according to Nomura Holdings Inc. The Markit CDX North America Investment Grade Index Series 14 rose 0.6 basis point to 108.5 basis points yesterday, the highest since May 7, according to Markit Group. In emerging markets, the extra yield investors demand to own bonds instead of Treasuries fell 2 basis points to 293 basis points, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Spreads reached 328 on May 7. ‘Bad Neighborhood’ The European Union said today it transferred to Greece the first 14.5 billion-euro installment of the 750 billion-euro emergency loan package aimed at preventing the region’s sovereign debt crisis from spreading. Still, investors who aren’t convinced European leaders have solved the continent’s fiscal woes may be buying U.S. corporate debt in a bet it won’t suffer as much, said Arthur Tetyevsky , chief fixed-income strategist at Broadpoint Gleacher Securities Inc. in New York. “The result has been investors putting capital to work in the U.S.,” Tetyevsky said. “It’s like buying the best house money can buy in a bad neighborhood.” Corporate bond sales in the U.S. have fallen 59 percent this month to $18.2 billion, compared with $44.6 billion in the same period in April, Bloomberg data show. Companies issued $52.7 billion of investment-grade bonds in all of April and $33.3 billion of high-yield debt, which is rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. U.S. investment-grade company debt returned 0.43 percent last week, rebounding from a 0.33 percent loss in the period ended May 7, Bank of America Merrill Lynch index data show. High-yield debt gained 0.69 percent last week and was down 1.8 percent for the month through May 14. Franklin Resources Franklin Resources’ $250 million of 3.125 percent notes due in 2015 priced to yield 95 basis points more than similar- maturity Treasuries, Bloomberg data show. In its April 2003 sale of $420 million of five-year, 3.7 percent notes, the San Mateo, California-based company paid a spread of 88 basis points. EOG Resources’ offering included $500 million of 10-year notes that pay a spread of 95 basis points, Bloomberg data show. The company sold $900 million of debt due in 2019 a year ago at 245 basis points more than Treasuries. High-yield bond sales haven’t recovered, Bloomberg data show. Last week’s $10.5 billion of new investment-grade bonds issued in the U.S. were 37 percent less than the 2010 average of $16.5 billion, while junk issuance of $3.12 billion was 45 percent below the $5.67 billion average. Regal Entertainment Group, the largest U.S. cinema operator, postponed a planned offering of $250 million of senior notes due 2019, citing “unfavorable market conditions,” the Knoxville, Tennessee-based company said in a statement. American Tire Distributors Holdings Inc. of Huntersville, North Carolina, planned to sell $250 million of seven-year notes and Franklin, Tennessee-based Capella Healthcare Inc. is marketing an offering of $500 million of debt due in 2017, according to people familiar with the transactions. To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

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Euro Falls Toward Lowest Since 2006 on Concerns Growth to Slow

May 18, 2010

By Candice Zachariahs and Ron Harui May 18 (Bloomberg) — The euro fell toward its lowest level since April 2006 even as European finance ministers sought to assuage concern that spending cuts to combat the region’s debt crisis will derail growth. The single currency weakened against 11 of its 16 major counterparts before a German report forecast to show deteriorating confidence among analysts and investors in Europe’s largest economy. Australia’s dollar approached a three- month low after central bank minutes of its May 4 meeting damped expectations for continued interest-rate increases as policy makers warned about effects from Europe’s fiscal woes. “Some of the austerity measures that are going to be put in place will see euro-zone growth crimped and it was already looking fairly weak,” said Mike Jones , a currency strategist at Bank of New Zealand Ltd. in Wellington. “We’ll probably see the euro slide continue in coming sessions, perhaps toward $1.20.” The euro dropped to $1.2356 as of 6:50 a.m. in London, from $1.2395 in New York yesterday, when it fell as much as 1 percent to $1.2235, the lowest since April 18, 2006. It weakened to 114.32 yen from 114.77 yen yesterday, when it reached the least since May 6. The dollar was at 92.53 yen from 92.59. Australia’s currency declined 0.4 percent to 87.37 U.S. cents from yesterday when it touched 86.86 cents, the least since Feb. 9. The Mannheim-based ZEW Center for European Economic Research will say its index of investor and analyst expectations fell to 47 in May from 53 the previous month, according to a Bloomberg News survey of economists before today’s report. Spending Cuts Euro area policy makers last week unveiled an unprecedented loan package worth nearly $1 trillion and a program of bond purchases to forestall defaults by countries including Greece, Spain and Portugal. The currency has fallen five of the past six days amid prospects mandated spending cuts will curtail growth. Spain unveiled on May 14 the biggest cuts in at least 30 years and Portugal followed a day later, pledging to slash wages and raise taxes. Italian officials said May 16 it may make an extraordinary reduction in spending and France is slated to submit spending plans this week. “Worries are lingering that the austerity steps will slow down Europe’s recovery,” said Yuji Saito , director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. High-Deficit Countries Only high-deficit countries will be ordered to make additional cuts, European finance ministers said after a meeting in Brussels. “Not everyone will accelerate consolidation in a very uniform way,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters early today. “That would lead to a very restrictive fiscal stance for the euro area as a whole, which would risk depressing economic growth.” The euro dropped 8.8 percent this year against its developed world counterparts, according to Bloomberg Correlation Weighted Indexes. The common currency rebounded from a four-year low yesterday after the European Central Bank explained how it would absorb excess liquidity from bond purchases. The euro’s 14-day relative-strength index, a measure of how rapidly prices rise or fall, was at 24.01 today. Readings below 30 are a signal that an asset’s value has dropped too fast and is poised to rebound. RBA Minutes The euro also came under pressure after the U.S. Senate voted for a measure that would require the Treasury Department to certify that International Monetary Fund loans to highly indebted countries get repaid. The IMF is taking part in the euro-zone bailout. The Australian dollar fell for a third day against its U.S. counterpart on speculation the Reserve Bank of Australia will slow down the pace of interest rate increases as Europe’s debt crisis threatens to stall the global economic recovery. “Increases in interest rates to date had been timely” with signs that the moves were “beginning to affect behavior” of consumers and home buyers, RBA officials said in minutes released today in Sydney of their May 4 meeting. “The RBA is signaling a slowdown in the pace of rate hikes ahead, giving way to the kiwi for which interest rate expectations are gradually rising,” said Akira Maekawa , a senior economist at online currency trader Global Futures & Forex Ltd. in Tokyo. Losses in the euro may be tempered as European policy makers signaled they will provide enough funds for Greece to pay its debt as scheduled. Greece will receive 14.5 billion euros ($17.9 billion) in the first installment of emergency European Union loans today, a Greek Finance Ministry official, who declined to be identified, said by phone yesterday in Athens. In Brussels, EU spokesman Amadeu Altafaj confirmed the bloc will send the first loan tranche today. The funds will arrive one day before 8.5 billion euros of bonds come due and will cover the country’s financing needs for May and June, the Greek official said. 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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Japanese Stock Futures Climb on Weakening Yen; Australian Futures Advance

May 17, 2010

By Masaki Kondo May 18 (Bloomberg) — Japanese and Australian stock futures rose after the euro rebounded from a four-year low, easing concern the shared European currency will collapse in the face of the region’s debt crisis. American depositary receipts of Sony Corp. , an electronics maker that gets 69 percent of its sales outside Japan, closed 0.8 percent higher than the Tokyo close. Those of Mitsubishi Corp. , a Japanese trading company that gets 40 percent of its sales from commodities, lost 0.4 percent after prices for metals and oil dropped. ADRs of Westpac Banking Corp. gained 4.4 percent after the stock tumbled 6.5 percent in Sydney yesterday. Yen-denominated futures on Japan’s Nikkei 225 Stock Average expiring in June closed at 10,290 in Chicago yesterday, 0.3 percent higher than 10,255 in Singapore. They were bid in the pre-market at 10,340 as of 8:05 a.m. in Osaka. The Nikkei 225 plunged 2.2 percent to 10,235.76 yesterday, a level not seen since March 4. “The recent selloffs were excessive,” said Fumiyuki Nakanishi , a senior strategist at Tokyo-based SMBC Friend Securities Co. “I’m expecting the euro to recover sooner or later as the European Union takes more steps to maintain the current system.” Futures on Australia’s S&P/ASX 200 Index rose 0.7 percent. New Zealand’s NZX 50 Index advanced 0.2 percent in Wellington. The MSCI Asia Pacific Index has lost 9.6 percent from its high for the year on April 15 on concern a government-debt crisis in countries from Greece to Spain will spill over to other European nations. Stocks in the gauge trade at 1.49 times book value, lower than 2.15 for the Standard & Poor’s 500 Index and 1.51 for the Stoxx Europe 600 Index. Yen Weakens Futures on the S&P 500 gained 0.2 percent. The gauge advanced 0.1 percent in New York yesterday after a drop in commodity prices drove down the index as much as 1.8 percent. The euro rose yesterday against the dollar for the first time in five days, rebounding from its lowest level since April 2006 reached earlier in the day. The yen weakened to 114.84 versus the euro from 112.90 at the 3 p.m. close of Tokyo stock trading yesterday. Against the dollar, the Japanese currency depreciated to 92.65 from 92. A weaker yen boosts the value of overseas sales at Japanese companies when converted into their home currency. The London Metals Index tumbled 6 percent yesterday to the lowest level since Feb. 8. Crude oil for June delivery fell 2.1 percent in New York and dropped for a fifth session. To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net .

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Stocks, U.S. Futures, Euro Tumble on Bailout Plans; Pound Drops, Oil Falls

May 17, 2010

By Will McSheehy and Shani Raja May 17 (Bloomberg) — Asian stocks fell the most in more than three months, the euro dropped to the lowest level against the dollar since 2006 and the cost of insuring bonds from default jumped on concern European austerity measures will derail the economic recovery. The MSCI Asia Pacific Index tumbled 2.7 percent to 116.72 at 1:15 p.m. in Tokyo and Standard & Poor’s 500 Index futures declined 1.2 percent. The euro fell as much as 0.7 percent against the dollar to as low as $1.2235. The British pound lost 1.6 percent versus the U.S. currency. The Markit iTraxx Asia index of credit-default swaps climbed 10 basis points to 125 basis points and oil traded in New York lost 1.8 percent. “Europe is certainly the scary story at the moment,” said Jason Teh , who helps manage $2.6 billion at Investors Mutual in Sydney. “Corporate debt risk was the 2008 story, now its sovereign debt risk. The countries that can print money may have to do it again to keep their economies afloat.” One week after agreeing to a $1 trillion financial lifeline for the euro region, European finance ministers meeting in Brussels today are under pressure to show they can reduce deficits fast enough to satisfy investors and then police budgets once targets are met. Investors are growing increasingly skittish after Greek Prime Minister George Papandreou said Greece is considering legal action against U.S. banks that may have contributed to the country’s debt crisis. Japan’s Nikkei 225 Stock Average plunged 2.5 percent as a government report showed machinery orders rose less than economists estimated in March. Australia’s S&P/ASX 200 Index sank 2.5 percent and South Korea’s Kospi slumped 2.8 percent. Thai Crackdown The Stock Exchange of Thailand Index slipped 2.4 percent after 35 people were killed and 244 wounded in clashes between the army and anti-government demonstrators since last week. Thai sovereign bond risk climbed the most in two months. Canon Inc ., which gets 31 percent of revenue from Europe, lost 2.4 percent to 3,950 yen in Tokyo. Sony Corp., which gets 21 percent of revenue from the European region, slumped 4.1 percent to 2,828 yen. BHP Billiton Ltd., the world’s largest mining company, dropped 3.8 percent on lower commodity prices. The Shanghai Composite Index fell for a second day, declining 3 percent after Premier Wen Jiabao said the Chinese government will “decisively” contain home prices. China Vanke Co., the country’s largest listed developer, lost 3.3 percent. South Korea’s won slid 2.2 percent to 1,155.73 per dollar as foreign investors sold more shares than they bought, adding to net sales of $2.7 billion in the first two weeks of this month. Twelve-month non-deliverable forwards on China’s yuan fell 0.3 percent to 6.6820 per dollar on speculation China will delay appreciation of its currency as Europe’s debt crisis threatens to damp global demand. Euro Weakness The euro sank to the lowest value against the dollar since April 21, 2006, from $1.2358 in New York on May 14. The Japanese currency gained against all of its 16 most-traded counterparts. The yen was at 91.873 versus the dollar from 92.47. “The fact that European leaders have failed to restore confidence in the single currency is worrying,” Khoon Goh , a senior economist at ANZ National Bank Ltd. in Wellington, wrote in a note to clients today. “Markets are now focusing on the tough austerity measures that will come and the impact that will have on the euro-zone economy.” The pound tumbled to a 13-month low after a U.K. report showed London house prices recorded their first drop this year and before Chancellor of the Exchequer George Osborne will a plan to reduce the government’s deficit today. Bond Risk Credit-default swaps on Thai government debt jumped 23 basis points to 170 basis points, according to BNP Paribas SA prices. That increase is the most since March 2, 2009, according to CMA DataVision. The baht weakened for a third day dropping 0.2 percent to 32.44 per dollar in Bangkok, after the biggest withdrawal by foreign funds from equities in almost three years. The Markit iTraxx Asia index’s 10 basis point rise to 125 basis points puts the index on track for its highest close since May 7, according to CMA in New York. Bond risk benchmarks also climbed in Australia and Japan. Crude oil declined for a fifth day, falling as much as $1.27 to $70.34 a barrel in electronic trading on the New York Mercantile Exchange. Copper for three-month delivery dropped 2.5 percent to $6,755 per metric ton. Aluminum fell 2 percent to $2,060 per ton. Commodities tumbled the most in nine months on May 14, with the Reuters/Jefferies CRB index of 19 commodities slumping 2.7 percent to 258.55. To contact the reporters on this story: Will McSheehy in Singapore at wmcsheehy@bloomberg.net Shani Raja in Sydney at sraja4@bloomberg.net .

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Asian Stocks Fall as Euro’s Decline Fuels Concern Economic Growth to Slow

May 16, 2010

By Anna Kitanaka and Kotaro Tsunetomi May 17 (Bloomberg) — Asian stocks fell as the euro declined against the yen on concern European measures to reduce fiscal deficits will hurt the region’s economic growth. Canon Inc. , which receives 31 percent of its revenue from Europe, slumped 2.4 percent in Tokyo. Toyota Motor Corp. , the world’s biggest carmaker, declined 0.7 percent. BHP Billiton Ltd., the world’s largest mining company, dropped 3.1 percent in Sydney on lower commodity prices. Posco , Asia’s third-biggest steelmaker, declined 1.9 percent in Seoul. The MSCI Asia Pacific Index fell 1.2 percent to 118.58 at 9:40 a.m. in Tokyo. The index has lost 8.2 percent from its high for the year on April 15 as Europe’s debt crisis and concern China will quell inflation eroded confidence in a global economic recovery. “The euro nations are taking actions for their fiscal problems but they are running out of options,” said Kazuhiro Takahashi , a general manager at Daiwa Securities Capital Markets Co. in Tokyo. “People are worried about the economic outlook.” Japan’s Nikkei 225 Stock Average declined 1.5 percent as a government report showed the country’s machinery orders rose less than economist estimated in March. Australia’s S&P/ASX 200 Index sank 1.7 percent and South Korea’s Kospi Index slumped 1.7 percent. Futures on the U.S. Standard & Poor’s 500 Index fell 0.4 percent. The gauge lost 1.9 percent on May 14 as concern Europe’s debt crisis is destabilizing its currency overshadowed stronger-than-estimated government reports on retail sales and industrial production. Exporters in Japan slumped as the yen appreciated to 113.65 per euro compared with 116.26 at the close of stock trading in Tokyo on May 14. Against the dollar, the Japanese currency strengthened to 92.20 from 92.78. The stronger yen reduces income when overseas revenue is converted into local currency. Raw-material producers accounted for 19 percent of the MSCI Asia Pacific Index’s drop today. Crude oil for June delivery tumbled 3.8 percent to $71.61 a barrel in New York on May 14, the lowest settlement since Feb. 5. The London Metals Index, a measure of six metals including copper and zinc, tumbled 3.6 percent on May 14, the steepest drop since May 4. To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net ; Kotaro Tsunetomi at ktsunetomi@bloomberg.net

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FINANCE VIDEO: Laguna Resources NL (ASX:LRC) MD Nicholas Lindsay speaks at RIU Sydney Resources Roadshow at the Sofitel Hotel in Sydney in May 2010.

May 16, 2010

FINANCE VIDEO: Laguna Resources NL (ASX:LRC) MD Nicholas Lindsay speaks at RIU Sydney Resources Roadshow at the Sofitel Hotel in Sydney in May 2010.

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FINANCE VIDEO: Bannerman Resources (ASX:BMN) CEO Len Jubber Speaks at RIU Sydney Resources Roadshow in May 2010

May 14, 2010

FINANCE VIDEO: Bannerman Resources (ASX:BMN) CEO Len Jubber Speaks at RIU Sydney Resources Roadshow in May 2010

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