Dollar Falls to Lowest Since '95 Versus Yen Before Retail Sales

The dollar fell to the lowest since 1995 against the yen on speculation U.S. retail sales growth slowed, adding to evidence the economy is entering a recession.

The currency also slid to a record low against the euro as brokerages including ABN Amro Holdings NV and Westpac Banking Corp. said Arab nations in the Middle East may consider ending their fixed exchange rates and selling U.S. assets. The dollar traded near an all-time low versus the Swiss franc as U.S. President George W. Bush said the dollar is adjusting and its decline isn't good tidings.

We are in a clear bear trend for the dollar, said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Mizuho Financial Group Inc., Japan's second-largest publicly traded lender. Signs that retail sales are falling off will expose the dollar to further declines.

The U.S. currency fell to 101.68 yen at 9:37 a.m. in Tokyo after reaching 101.10, the lowest since December 1995, from 101.79 in late New York yesterday. The dollar traded at $1.5527 per euro from $1.5551. It touched $1.5573 per euro, the weakest level since the European currency's 1999 debut. The euro fell to 157.82 yen from 158.30.

The dollar bought 1.0158 Swiss francs, just above a record low of 1.0128 reached yesterday. The British pound was little changed at $2.0268. The Australian dollar rose to 93.57 U.S. cents from 93.33 cents after data showed companies in the Southern Hemisphere country hired extra workers for a record 16th month. The Singapore dollar rose to a record of S$1.3826 against the U.S. currency.

`Real Trouble'

U.S. retail sales rose 0.2 percent in February after a 0.3 percent rise in the previous month, according to a Bloomberg survey. The Commerce Department will release the data later today in Washington. Crude oil in New York touched $110.20 a barrel, the highest intraday price since the futures began trading in 1983.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 72.20 yesterday and was last at 72.30.

The dollar looks in real trouble and there is no obvious resistance level against the euro, said Greg Gibbs, a currency strategist at ABN Amro in Sydney. I don't think you can pick a level for where it will stop.

Middle East, China

The Central Bank of Jordan is reducing the amount of dollars in its foreign reserves because of the declining value of the U.S. currency and the need to service debt, Deputy Governor Faris Sharaf said yesterday in an interview in Amman, Jordan. Sharaf would not provide a break down of the bank's reserves, totaling around $7 billion. The Jordanian dinar has been pegged to the dollar since October 1995 at an average price of 0.709 fils.

A Qatar central bank official denied an Emirates Business 24/7 report that Gulf-region policy makers will consider currency revaluation when they meet next week. The dollar's 10 percent drop against the euro last year has stoked inflation in the region.

China wants to invest more of its reserves abroad, Minister of Commerce Chen Deming said yesterday. China's reserves are the world's largest at $1.5 trillion.

We're probably going to remain in the situation where long-term money moves away from the dollar, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. `There is a lot of discussion in the market about China. There's also a lot of discussion about the Middle East dropping their dollar pegs. They're looking for an alternative store of wealth.

The U.S. currency may weaken below 100 yen, he said.

`Adjusting'

U.S. President George W. Bush said the dollar is adjusting. and its decline isn't good tidings for proponents of a strong dollar. Bush also reiterated his commitment to a strong dollar, in an interview with the U.S. Public Broadcasting Service to be aired later today.

Bush's comments were about as lukewarm as you can get, said Brian Dolan, research director at Forex.com, a unit of currency trading firm Gain Capital in Bedminster, New Jersey. Some may have interpreted his `adjusting' comment as tacit acceptance that we're in a broad-based dollar devaluation.

The dollar also fell as firms from Citigroup Inc. to Goldman Sachs Group Inc. said yesterday the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

U.S. Rates

Traders bet the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The likelihood of a reduction to 2.25 percent was 76 percent, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.

The Fed's measures are not a panacea, more like an aspirin for the dollar, analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note. There is a reasonable risk that this Fed move reflects the depth of their concern with U.S. asset markets.

The dollar may decline to $1.57 per euro this month, according to a Merrill Lynch forecast released March 6.

Bernanke Pledges Fed Will Act in a `Timely Manner'

Federal Reserve Chairman Ben S. Bernanke signaled the U.S. central bank is prepared to lower interest rates again even amid signs of accelerating inflation.

The Federal Open Market Committee will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks, Bernanke said in semiannual testimony on the economy before the House Financial Services Committee in Washington.

Bernanke's remarks may reinforce investors' expectations that the central bank will lower interest rates further to help a faltering economy. While officials have expressed concern that inflation is accelerating, Bernanke signaled he shares Vice Chairman Donald Kohn's view that financial market turmoil and slowing growth pose the greater threat.

The Fed chief's testimony came as government figures today showed the U.S. economic expansion, now in its seventh year, is increasingly in peril. Durable-goods orders fell 5.3 percent, more than forecast, in January as companies cut spending. New- home sales fell last month to the lowest level since February 1995 even as prices slid by a record 15 percent from a year ago.

Bernanke referred to downside risks for the economy four times in his testimony, and noted that data since the last Fed meeting in January pointed to sluggish growth. Policy choices have also become more complicated as energy and commodity prices rose in recent weeks, he indicated.

Stocks advanced after Bernanke's remarks, with the Standard & Poor's 500 index gaining 0.3 percent to 1,384.86.

Inflation Concern

Inflation is picking up and the public's expectations for prices may also be rising, Bernanke said. He reiterated remarks from testimony to a Senate hearing Feb. 14 indicating policy makers will increasingly take account of the inflation outlook later in the year as the economy stabilizes.

Further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month, Bernanke said.

Consumer prices last year surged 4.1 percent, the most in 17 years, spurred by higher fuel and food costs. A government report yesterday on producer prices showed the 12-month increase in wholesale costs accelerated to 7.4 percent in January, the biggest jump since 1981.

Growth Risks

Risks to the outlook include the possibilities that the housing market or the labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further, the Fed chairman said.

Traders anticipate the central bank will lower the benchmark rate by at least half a point by the end of the next meeting, on March 18, futures prices show. Officials have lowered the rate by 2.25 percentage points since September, to 3 percent.

A half-point reduction to 2.5 percent would bring the rate adjusted for inflation, less food and energy, to almost zero.

Bernanke, 54, is in the seventh month of a credit crisis that began with rising delinquencies on subprime mortgages, while also grappling with the economic impact of the worst housing recession in a quarter century. Banks are making it tougher to get loans after financial companies posted $162 billion in asset writedowns and credit losses since the beginning of 2007.

Price Expectations

In its separate monetary-policy report released with the testimony, the Fed said near-term inflation expectations, measured by surveys, rose somewhat in 2007 and early 2008, presumably because of the increase in headline inflation. Longer-term expectations changed only slightly,

A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability, the Fed chairman said.

Economic reports since the Fed last met on Jan. 29-30 showed the first decline in U.S. payrolls in more than four years in January and a slide in consumer confidence to the lowest level since 2003 this month.

The economic situation has become distinctly less favorable since the time of our July report, Bernanke said. Still, the $168 billion stimulus package enacted by Congress and signed by President George W. Bush this month and continued gains in exports should help growth, he said.

`Little Momentum'

In the semiannual report, the Fed said that the U.S. economy seems to have entered 2008 with little momentum. Labor demand has slowed further of late, it said.

The semiannual monetary policy report used to include a twice-a-year set of economic forecasts by Fed governors and district bank presidents. Bernanke last year increased the frequency of the predictions to quarterly, and the latest projections were released Feb. 20 and included in today's report.

The projections showed officials lowered their prediction for economic growth this year by half a point, to 1.3 percent to 2 percent. Economists surveyed by Bloomberg News predict economic growth will slow to a 0.5 percent annualized pace in the first quarter after expanding 0.6 percent in the previous three months.

Fed officials see inflation returning toward their preference range of 1.7 to 2 percent after running at a 2 to 2.2 percent pace this year, minus food and energy.

Bernanke said the forecasts depend in part on a flattening in energy and food prices. Crude oil this month surpassed $100 a barrel for the first time.

Bernanke focused the final pages of his testimony on the Fed's efforts to strengthen consumer protections and prevent foreclosures. He said in answering questions that the final rules will be released before July.

Fed Cuts Interest Rate to 3% as U.S. Growth Falters

The Federal Reserve lowered its benchmark interest rate by half a point to 3 percent, the second cut in nine days, and indicated its willingness to do so again to prevent a U.S. recession.

Downside risks to growth remain, the Federal Open Market Committee said in a statement after meeting today in Washington. In a reference to the volatility of the past five months, the Fed added that financial markets remain under considerable stress and credit has tightened further for some businesses and households.

The dollar tumbled and two-year Treasury notes rose after the decision as traders anticipated another reduction at the Fed's March meeting, if not before. The cumulative reduction in rates since Jan. 22 is the fastest easing of monetary policy since 1990. The Standard & Poor's 500 Index closed 0.5 percent lower and is down 7.7 percent this year.

They're going full-bore trying to keep the economy from recession, said David Resler, chief economist at Nomura Securities International Inc. in New York. Conditions in the market place are the driving force right now.

Hours before the decision was announced, the Commerce Department reported that gross domestic product grew at an annual pace of 0.6 percent in the fourth quarter.

The Fed has gotten religion and is going do what they need to do, said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina.

Readiness to Respond

Fed officials said they will continue to assess financial markets and the economy and will act in a timely manner as needed.

Recent information indicates a deepening of the housing contraction as well as some softening in labor markets, the central bank's statement also noted.

Chairman Ben S. Bernanke and the Fed's Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, to 3.5 percent from 4 percent.

Dallas Fed President Richard Fisher dissented from today's decision, preferring no change.

Policy makers presented revised three-year economic forecasts at this week's gathering. The Fed will release the projections along with minutes of the meeting on Feb. 20.

Today's Commerce Department figures showed the Fed's preferred inflation gauge rose at a 2.7 percent annualized rate last quarter. Fed officials in October forecast the personal consumption expenditures price index minus food and energy would rise 1.6 percent to 1.9 percent in 2010, offering a measure of their longer-term inflation objective.

Inflation

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully, the Fed said in today's statement.

Wall Street firms including Morgan Stanley, Merrill Lynch & Co., Goldman Sachs Group Inc. and Citigroup Inc. are forecasting the first recession since 2001 this year. Still, executives at firms such as Dow Chemical Co. said they don't detect a downturn yet, while risks remain.

This year will be slower than 2007, Andrew Liveris, the chairman and chief executive officer of Dow Chemical, said yesterday. It is an inconvenience, not a catastrophe.

United Parcel Service Inc., Caterpillar Inc. and General Electric Co. are relying on gains overseas to counter slower growth at home.

Evolution Since August

Fed policy makers have struggled since August to contain the economic damage sparked by the worst housing recession in a quarter-century. The world's largest banks and securities firms have recorded more than $133 billion in asset writedowns and credit losses since the beginning of 2007, which analysts blamed on weak and fragmented supervision and poor credit analysis.

The Fed's move lowers the cost of financing for Wall Street which is struggling to raise capital after being hit with writedowns not seen since the Great Depression, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Foreclosure rates rose 75 percent in 2007 as a record amount of adjustable-rate loans to borrowers with weak or limited credit histories reset to higher rates, RealtyTrac Inc. data show. Home prices in 20 U.S. metropolitan areas fell 7.7 percent in November from a year earlier, the 11th consecutive decline, the S&P/Case-Shiller home-price index showed yesterday.

We are in a historic housing bust right now, comparable to that of the Great Depression, said Robert Shiller, chief economist of MacroMarkets LLC in Madison, New Jersey, who co- founded the house-price index. The unraveling of that has unpredictable consequences.

Delay in 2007

Fed officials waited until September to cut the benchmark lending rate, even though premiums on corporate bonds and lower- rated securities began to climb in late June.

By December, Fed policy makers had cut the benchmark lending rate 1 percentage point, yet still described the policy rate as somewhat restrictive as they deliberated whether to cut again that month, minutes show.

The government's December payroll report, which showed a loss of 13,000 private sector jobs, the first decline since July 2003, began to reshape Fed officials' views about risks.

Bernanke used a Jan. 10 speech to update the public. The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced, he said, breaking with the Fed's statement a month earlier which only expressed uncertainty about the outlook. He pledged substantive additional action as needed.

Fed Signals Shift as Traders Anticipate Deeper Rate Reductions

Federal Reserve officials signaled they've shifted their stance in favor of taking out greater insurance against the growing risk of recession.

Fed Governor Frederic Mishkin said today that policy makers must be ready to abandon inertia and act decisively in cases of major financial disruptions. Philadelphia Fed Bank President Charles Plosser, whom economists consider to be the toughest on inflation, said he's now most concerned about consumer spending.

The comments, following Chairman Ben S. Bernanke's speech yesterday pledging substantive additional action, spurred traders to predict a faster and deeper pace of interest-rate cuts. That strategy would be a break from the forecast-driven policy approach to date, Fed watchers said. Mishkin joined Bernanke in stating the strategy is now one of insurance.

I am delighted the Fed is moving in a very different direction, said former Fed governor Lyle Gramley, now a senior adviser at the Stanford Group in Washington. Risk-management is what they should be doing.

Mishkin, 57, a former collaborator with Bernanke on academic research, said in New York today that waiting too long to ease policy could result in further deterioration of the macroeconomy and might well increase the overall amount of easing that would eventually be needed.

Disappointing Markets

While the Fed cut the benchmark rate by a half-point, more than anticipated in September, officials have since disappointed some investors by refusing to commit to a series of reductions. When lowering borrowing costs in October and December by a quarter-point each, policy makers refrained from saying that growth was a bigger concern than inflation.

By the time they met Dec. 11, officials acknowledged that the Fed's stance appeared to be somewhat restrictive, minutes of the session showed last week.

They underestimated the magnitude of the credit shock, said Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington. The markets got it a lot faster than the Fed and now they are catching up.

Plosser, 59, said he's certainly open to more rate cuts, in an interview with PBS's Nightly Business Report today. By contrast, when he spoke Nov. 27 he warned that the Fed's rate cut the previous month posed a risk to inflation expectations.

The most thing we are concerned about right now is consumer spending, Plosser said today.

Boston Fed President Eric Rosengren, 50, said today in South Burlington, Vermont that declining house prices are likely to dampen consumer and business confidence in spending.

`Gasoline on the Fire'

Rosengren, Plosser and especially Mishkin arguably poured more gasoline on the fire after Bernanke's remarks, Ian Morris, chief economist at HSBC Securities USA Inc., said in a note to clients. The market is betting that the Fed may cut in an inter-meeting move, wrote Morris, who yesterday doubled his rate-cut call for this month to a half-point.

Traders anticipate at least a half-point reduction in the target rate for overnight loans between banks this month, according to contracts quoted on the Chicago Board of Trade.

Odds of 0.75 percentage point of reductions this month jumped to 34 percent, from zero yesterday, futures show. That suggests some investors see the chance of a move before the Federal Open Market Committee meets Jan. 29-30, with an additional cut when it gathers.

Bernanke's Opportunity

Bernanke, 54, will have another opportunity to send signals on rates Jan. 17, when he testifies on the economic outlook before the House Budget Committee.

This week's shift may have been driven by the Labor Department's Jan. 4 report showing the jobless rate jumped to 5 percent in December, economists said. The figures also showed the first decline in private-sector employment since 2003.

We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks, the Fed chief said to the Women in Housing and Finance and Exchequer Club in Washington. The committee must remain exceptionally alert and flexible.

U.S. Stocks Fall After Job Growth Misses Forecast

The U.S. stock market got off to its worst start since 2000 after government reports on jobs and manufacturing added to concern the economy will sink into recession.

Apple Inc., maker of the iPod music player, fell the most since April 2005 and was the biggest drag on the Standard & Poor's 500 Index. Apple declined after Intel Corp., the largest chipmaker, was downgraded by JPMorgan Chase & Co. Alcoa Inc., Home Depot Inc. and Hewlett-Packard Co. led the Dow Jones Industrial Average to its third retreat in four days.

The economy's clearly downshifting rapidly, said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $204 billion. For equities it means some turbulence ahead.

The S&P 500 slipped 35.53, or 2.5 percent, to 1,411.63, bringing its three-day loss to 3.9 percent, the most since it fell 4.6 percent to start 2000 and wiping out its gain from last year. The Dow average decreased 256.54, or 2 percent, to 12,800.18, marking its worst start since 1904. Ten shares declined for every one that rose on the New York Stock Exchange.

Computer-related shares dropped the most, dragging the Nasdaq down 98.03, or 3.8 percent, to 2,504.65. The 5.6 percent decline so far this year is the worst start since the electronic market opened in 1971. An index of computer companies in the S&P 500 fell the most in five years.

Apple, Intel Drop

Apple, the biggest gainer among technology stocks in the S&P 500 last year, lost 7.6 percent to $180.05. Intel dropped 8.1 percent to $22.67, the lowest since June. Research In Motion Ltd., maker of the BlackBerry e-mail device, slumped 8.4 percent to $103.35.

Chain stores and discounters in the S&P 500 declined 3.9 percent, their seventh straight retreat. Bed Bath & Beyond Inc., the largest U.S. home furnishings retailer, fell to a six-year low.

An index of stocks with the biggest hedge fund ownership posted its steepest drop in five months. The Goldman Sachs GSTHHVIP Basket fell 2.9 percent, the most since Aug. 9, when the world's largest securities company said its North American Equity Opportunities Fund sold holdings after losing 15 percent.

U.S. payrolls grew by 18,000 last month, about one-quarter the rate forecast by economists, and unemployment jumped to a two-year high of 5 percent. On Jan. 2, the Institute for Supply Management's manufacturing index had its steepest drop in five years, falling to 47.7 for December.

`Cast Some Doubt'

The one thing that people have pinned their hopes on about avoiding a recession was that the labor market continued to be pretty strong, said Daniel Manion, manager of the $1.4 billion Sentinel Common Stock Fund in Montpelier, Vermont. This number really starts to cast some doubt on that.

Two-year Treasury note yields dropped to the lowest since November 2004 on speculation the Federal Reserve will cut borrowing costs. The dollar touched a one-month low against the euro and yen.

Alcoa, the world's second-largest aluminum company, fell $1.32 to $34.87. Home Depot, the largest home-improvement retailer, fell 86 cents to $24.96, an almost five-year low. Hewlett-Packard, the No. 1 personal computer maker, slipped $2.78 to $46.87.

Intel was lowered to neutral from overweight by JPMorgan Chase & Co. A slowdown in order rates from the personal- computer market may result in downside to estimates in the first half of 2008, analysts including Christopher Danely wrote in a note today.

Most Since 2004

Semiconductor shares in the S&P 500 lost 6.3 percent, the most since July 2004.

Bed Bath & Beyond dropped $1.21 to $26.19. Quarterly profit fell for the first time in at least 15 years as customers grappled with declining home values and higher energy costs.

Talbots Inc. fell $1.22 to $9.46. The clothing retailer that lost half its market value last year said it plans to exit its children's and men's clothing units, close 78 stores and eliminate 800 jobs.

I would expect consumer stocks to take the brunt of this sell-off, continuing the trend, said Daniel McMahon, head of equity trading at CIBC World Markets Corp. in New York.

Shares of retailers, homebuilders and automakers in the S&P 500 have fallen 6.2 percent since Dec. 31, the second-worst performance among 10 industry groups in the S&P 500 behind technology. The group lost 14 percent last year, trailing only financial companies, which plunged 21 percent.

Since 1931

Ford Motor Co. fell 32 cents to $6.13, the lowest since 1986, after losing its status as the second-largest seller of autos in the U.S. for the first time in 76 years. Automakers' 2007 year-end sales reports yesterday showed Toyota Motor Corp. taking the No. 2 spot held by Ford since 1931.

SLM Corp. declined $2.49, or 13 percent, to $16.67 for the steepest drop in the S&P 500. The biggest U.S. educational lender said it will be more selective in pursuing loan originations and will cut services to borrowers.

Regions Financial Corp. declined $2.48, or 11 percent, to $20.80. Alabama's biggest bank will quadruple its reserve for loan losses to $360 million for the fourth quarter because of slowing real estate markets in Florida and Georgia.

The Fed is behind the curve in lowering interest rates, and today's weak job growth is further evidence of that, said Dan Veru, who helps manage $3 billion as co-chief investment officer at Palisade Capital Management in Fort Lee, New Jersey.

Half-Point Cut?

The odds that the Fed will lower its target for the overnight lending rate between banks by half a percentage point when policy makers hold their next scheduled meeting on Jan. 30 rose to 68 percent from 34 percent in the interest-rate futures market. The odds of a quarter point cut slipped to 32 percent from 66 percent.

The central bank began a series of rate cuts with a half- point move in September, followed by two quarter-point cuts in October and December, bringing the federal funds rate target to 4.25 percent.

Source - Bloomberg

India's Sensitive Index Climbs to Record; Tata Steel Advances

India's Sensitive Index climbed to a second straight record. Tata Steel Ltd., the world's fifth- biggest steelmaker, rose after announcing a $1.5 billion investment in an iron-ore mine overseas.

Profit margins at Corus will improve significantly once the ore is shipped, Vishal Chandak, an analyst at Emkay Share & Stock Brokers Ltd., said in Mumbai. This is good news.

Infosys Technologies Ltd. led software exporters lower on concern the U.S. Federal Reserve's quarter-point rate cut won't be enough to avert a recession in their largest export market.

The Bombay Stock Exchange's Sensitive Index rose 84.98, or 0.4 percent, to 20,375.87, surpassing yesterday's 20,290.89 record. The S&P/CNX Nifty Index on the National Stock Exchange gained 62.05, or 1 percent, to 6,159.30. Nifty futures for December delivery added 1.2 percent to 6,178.

Tata Steel rose 28.6 rupees, or 3.4 percent, to 864.45. The mine will supply Tata's European mills in the next two to three years, Managing Director B. Muthuraman said. Supplies from the project will help lower costs at Tata's mills in Europe that were acquired as part of its 6.83 billion pound ($14 billion) takeover of Corus Group Plc in April.

U.S. stocks tumbled the most in a month yesterday, sending the Standard & Poor's 500 Index 2.5 percent lower.

Recent developments, including deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation, the Federal Open Market Committee said in a statement after yesterday's meeting, when the benchmark interest rate was cut to 4.25 percent.

U.S. Growth Concerns

Infosys, India's second-biggest software exporter, dropped 58.25 rupees, or 3.3 percent, to 1,684.80. Satyam Computer Services Ltd., the fourth largest, declined 10.55 rupees, or 2.4 percent, to 431.15.

Investors were speculating on a 50 basis-point rate cut which did not happen, said Sanjay Dongre, who oversees about $1 billion in stocks at UTI Asset Management Co. in Mumbai. The Fed also pointed to slowing growth in the U.S. economy.

Indian software companies get more than half their sales from the U.S.

Overseas funds bought a net 3.01 billion rupees ($76 million) of Indian shares on Dec. 10, boosting their total equity purchases this year to $16.8 billion, according to the Securities & Exchange Board of India's Web site.

The following stocks rose. Stock symbols are in parenthesis after company names.

Edelweiss Capital Ltd. (EDEL IN) surged 684.95 rupees, or 83 percent, to 1,509.95 on its first day of trading. The Indian financial services company raised 6.9 billion rupees selling shares at 825 rupees each in an initial share sale.

Reliance Capital Ltd. (RCFT IN) added 89.75 rupees, or 3.7 percent, to 2,511.50. The Indian financial services provider controlled by billionaire Anil Ambani said its unit Reliance Capital Asset Management Ltd. will sell a 5 percent stake to Eton Park Group. Eton Park, a global investor, will pay 5.01 billion rupees for the stake, Reliance Capital said in a stock-exchange filing, valuing the company at 100 billion rupees.

Television Eighteen India Ltd. (TLEI IN) added 3 rupees, or 0.6 percent, to 488.10. The media firm, which runs the CNBC-TV18 channel, said it agreed to buy a majority stake in Infomedia India Ltd., a publisher of business and telephone directories. Infomedia slid 13.85 rupees, or 5.4 percent, to 244.25.

UTV Software Communications Ltd. (UTV IN) climbed 65.7 rupees, or 6.9 percent, to 1,025.10. Future Group is offering more than Walt Disney India to buy a 51 percent stake in UTV Software, DNA Money reported, without saying where it got the information. Future Group denied the report.

Source - Bloomberg

Wall Street to Fed: Not good enough

Stocks tank after the Fed cuts rates by a quarter-percentage point, rather than the half some had hoped. Dour comments on the economy factor in too.

Stocks slumped and bonds rallied Tuesday after the Federal Reserve cut the fed funds rate by a quarter-percentage point, as expected, but disappointed some investors looking for a bigger cut.

The Dow Jones industrial average lost 294 points, or 2.1 percent. It was the blue-chip indicator's seventh worst day of the year in terms of both the point and percentage loss.

The broader S&P 500 index lost 2.5 percent. The tech-fueled Nasdaq composite lost almost 2.5 percent. The Russell 2000 small-cap index fell 3.1 percent.

"The stock market was looking for a bigger cut and so there's some disappointment," said Georges Yared, chief investment strategist at Yared Investment Research.

The selling was also influenced by the recent rally on Wall Street, which had left the Dow and S&P 500 within reach of the record highs hit in October.

"The market has gone up in recent weeks on expectations that the Fed would cut, so you're seeing a 'buy the rumor, sell the news' reaction," said Alan Skrainka, chief market strategist at Edward Jones.

Wednesday brings the October trade balance and the weekly oil inventories report.

The central bank voted to cut the fed funds rate by a quarter-percentage point to 4.25 percent. The fed funds rate is a key short-term lending rate that influences consumer loans. The central bank has cut it three times since September, in an attempt to loosen up tight credit markets and protect the economy from falling into a recession amid the fallout in the housing market.

Many Wall Streeters had been looking for the Fed to cut rates by a quarter-percentage point, or 25 basis points, particularly after last week's upbeat November jobs report cooled some fears about the slowing economy. But some on Wall Street had been looking for a bigger cut of a half-percentage point, or 50 basis points. There are 100 basis points in one percentage point.

The Fed also cut the discount rate, which influences bank loans, by 25 basis points, versus broader expectations for a 50-basis point cut.

In the accompanying statement, the bankers changed the language to suggest the economic slowdown was more pronounced than it had been at the time of the last meeting at the end of October.

"Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending," the bankers wrote.

That was more negative than in October, when the bankers said that economic growth was solid and strains in financial markets had eased somewhat. Although at that meeting, the bankers also said that the pace of expansion would slow as a result of the housing market correction.

Stocks had posted modest gains ahead of the decision but quickly turned lower following the afternoon decision and statement. Treasury market gains accelerated rapidly, lowering the corresponding yields.

"Clearly the stock market did not like that they [the bankers] sort of talked down the economy and then only gave them a quarter-point cut," said Joshua Shapiro, chief economist at Maria Fiorini Ramirez Inc. He said that the bond market was also reacting to the perception of a more negative economic outlook.

Treasury prices surged, lowering the yield on the 10-year note to 3.97 percent from 4.15 percent late Monday. Treasury prices and yields move in opposite directions.

In corporate news, General Electric said that 2008 earnings should rise at least 10 percent to $2.42 per share, short of expectations for earnings of $2.49 per share. The stock lost 1 percent.

Citigroup announced that Vikram Pandit would take over the job of chief executive, over a month after former CEO Charles Prince stepped down.

However, Citigroup shares tumbled regardless of the announcement, falling with the rest of the banking sector. JP Morgan Chase, Merrill Lynch, Morgan Stanley and Lehman Brothers were among the other bank stocks falling.

Declines were broad-based, with 28 of 30 Dow stocks falling, including General Motors, American Express, Alcoa, Boeing and Home Depot.

But other corporate news was less positive. Washington Mutual said late Monday that it was cutting both its dividend and more than 3,000 jobs in the wake of the housing and credit market crisis. Citi Investment Research downgraded the stock to "sell" from "hold."

Freddie Mac's chief executive said Tuesday that the company will probably lose another $5.5 billion to $7.5 billion over the next few years amid the ongoing housing market fallout.

H&R Block said it expects to report a steep quarterly loss, due to the impact of its faltering mortgage unit.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over 5 to 1 on volume of 1.55 billion shares. On the Nasdaq, decliners topped advancers by 3 to 1 on volume of nearly 2.23 billion shares.

In economic news, wholesale inventories were flat in October, the government reported, versus forecasts for a rise of 0.5 percent. Inventories rose 0.6 percent in September.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for January delivery rose $2.16 to $90.02 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery added $3.60 to settle at $817.10 an ounce.

Source - CNN Money

Oil rises, anticipating Fed rate cut

Analysts believe that an interest rate cut will ease worries about the U.S. economy and boost oil demand.

Oil prices rose Tuesday in anticipation that the U.S. Federal Reserve will cut interest rates later in the day, a move that would likely help the U.S. economy - the No. 1 oil consumer - and bolster demand for crude.

News of several crude oil pipeline shutdowns in the U.S. Midwest due to ice storms also supported prices.

Light, sweet crude for January delivery rose 38 cents to $88.24 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract had fallen 42 cents to settle at $87.86 a barrel on Monday.

In London, Brent crude futures rose 20 cents to $88.24 a barrel on the ICE Futures exchange.

The Federal Reserve is widely expected to lower its key rate, now at 4.5 percent, by a quarter of a percentage point - or perhaps more - to try to keep troubles in the housing and credit markets from sinking the economy.

"What's been weighing down on the crude oil futures market is concern about the U.S. economy," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "If the expected cut indeed holds true or is actually larger, it will bolster the U.S. economic outlook, and that's supportive of oil pricing."

Others, however, said the rate cut would have to be something other than a quarter point to affect oil prices.

"Today all eyes will be on the Fed but with a 25-basis-point cut already priced in, it will take a surprise to move (Nymex oil) out of its current trading range," said Olivier Jakob of Petromatrix in Switzerland.

Dow Jones Newswires reported that several crude oil pipelines, including ones operated by Enbridge and Magellan Midstream Partners, were affected by power outages which forced them to shutdown. There were no estimates of when the pipelines were expected to restart.

Oil futures have dropped more than $10 from their highs in recent weeks as OPEC increased output and as demand slid in the face of high prices.

Several recent reports have suggested U.S. demand for oil and gasoline is falling even as OPEC is boosting production. Total production by the Organization of Petroleum Exporting Countries rose to 31.15 million barrels a day in November, up 40,000 barrels a day from October, according to Platts, the energy research arm of McGraw-Hill Cos. Analysts surveyed by Dow Jones Newswires predict the U.S. government will report on Wednesday that domestic oil inventories rose last week.

Some analysts expect oil futures to trade in a range around $90 until more evidence surfaces of either further demand erosion or supply growth. Others believe futures have begun a seasonal move that could take them as low as $70 a barrel.

"It's nearly the end of the year and many investors are booking profits to boost their annual returns and hence their annual bonuses," Shum said. "Given that, I don't think we're going to rally to $100 a barrel again in the remaining weeks of this year unless there are some unexpected events."

Many analysts have blamed the weakening dollar, in part, for oil's run-up to nearly $100 a barrel last month. The dollar's continuing decline against the euro and other currencies makes oil look more attractive to foreign investors.

Heating oil futures rose 0.78 cents to $2.4852 a gallon (3.8 liters) while gasoline prices rose 0.23 cent to $2.2524 a gallon. Natural gas futures added 6.9 cents to $7.101 per 1,000 cubic feet.

Source - CNN Money

Fed May Cut Interest Rates, Leave Door Open for Further Action

The Federal Reserve will probably cut interest rates today and lay the ground for more to prevent the economy from sliding into recession.

The Federal Open Market Committee will be loath to repeat language from its last meeting that risks between inflation and growth are roughly balanced, economists said. Keeping the phrase would open officials to criticism they're oblivious to the credit squeeze that's threatening growth.

They pretty much tried to draw a line in the sand by going to a balanced-risks statement at the last meeting, and now the world's changed, said Keith Hembre, who used to work at the Fed and is now chief economist in Minneapolis at FAF Advisors Inc., which manages $105 billion. Officials will leave themselves the opening for further cuts, he said.

Chairman Ben S. Bernanke is trying to steer through the housing recession that entered its third year and alleviate a jump in borrowing costs for companies and consumers. The FOMC will lower the benchmark rate by a quarter point to 4.25 percent, according to 113 of 123 economists surveyed by Bloomberg News. Seven anticipate a half-point move and three see no change.

Officials may also enhance their efforts at providing a backstop for bank funding amid a surge in demand for cash, some economists said. Options include reducing the charge for direct loans to banks by half a point, to 4.5 percent.

Most Since Recession

The Fed is scheduled to announce its decision at about 2:15 p.m. in Washington. A quarter point rate cut, after 0.75 percentage point of reductions in September and October, would mark the greatest easing of borrowing costs since the last recession in 2001.

Bernanke and Vice Chairman Donald Kohn recognized in speeches last month a deterioration in credit markets that jeopardizes lending to businesses and consumers, threatening spending. That was a shift from the Oct. 31 statement, when officials signaled they were reluctant to do more.

The reality is, markets have gotten worse in a way they couldn't have expected, and they've gotten worse to a point where there are legitimate concerns that it will spill over to the macroeconomy, said Vincent Reinhart, who was Bernanke's chief staff adviser on monetary policy before leaving in September to join the American Enterprise Institute in Washington. Not acting would be too much of a surprise.

Traders estimate a 26 percent chance of a half-point reduction today, with a quarter-point fully discounted, according to futures prices quoted on the Chicago Board of Trade.

Recession Calls

Economists including former Treasury Secretary Lawrence Summers and the chief U.S. economists of Morgan Stanley and Merrill Lynch & Co. predicted a recession in the past month as strains in credit markets increased.

The collapse of the U.S. subprime mortgage market has led Citigroup Inc., Merrill and other banks and securities firms around the world to write down about $76 billion of losses and markdowns this year.

Concern about the mounting losses diminished banks' willingness to lend cash to each other, sending funding costs higher. The three-month dollar London Interbank Offered Rate climbed to as high as 65 basis points more than the Fed's benchmark rate last week. That's the widest spread, except for on Sept. 18 when the Fed cut rates, in seven years.

Yields on two-year Treasury notes dropped as low as 2.79 percent on Dec. 4, the lowest since November 2004, as investors flocked to the perceived safety of government debt.

Demand for Cash

The scarcity of cash comes at a time when banks typically conserve funds to buttress balance sheets before closing their books for the year.

The Fed's New York branch said Nov. 26 it planned a series of repurchase agreements extending into 2008 to help fill cash shortages. Stephen Cecchetti, a former New York Fed research chief, said officials may consider further steps, such as extending discount-rate loan terms to 90 days, from 30. The outstanding loans rose to the highest since September last week.

If I backed myself into this position, I would grit my teeth and just cut, big time, said Cecchetti, who is now a professor at Brandeis University in Waltham, Massachusetts.

Some Fed officials indicated heightened concern inflation would quicken, before Bernanke and Kohn spoke two weeks ago. Philadelphia Fed President Charles Plosser said Nov. 27 that price expectations may increase because of the rate cuts.

Source - Bloomberg

Bet your bottom dollar

The Fed's last two rate cuts helped send the greenback drastically lower. But experts say the worst may be over for the dollar even if the Fed cuts again.

Wall Street is betting that the Federal Reserve will deliver another rate cut at its policy meeting Tuesday, but that may not necessarily spell more doom for the dollar.

Currency experts argue that the greenback's steep decline this year has come too far, too fast and that investors have factored in one, if not more, rates cut by the Fed in the coming months.

"At these levels quite a bit of interest rate reduction is already priced into the dollar," said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc.

The dollar has managed a modest recovery in recent weeks, but is still sharply lower for the year against a number of currencies, most notably the euro and the British pound.

The U.S. Dollar Index, which measures the currency's performance against six of its biggest trading partners, is down more than 8 percent so far this year, after hitting a record low late last month.

Much of the dollar's recent decline can be blamed on the Fed's recent policy actions. In October, the central bank cut the key federal funds rate, which affects the rate at which consumers borrow on a variety of loans, by a quarter of a percentage point. That followed a half-point cut in September.

A rate cut puts pressure on the dollar since it makes dollar-denominated investments less attractive to outside investors.

Although a weak dollar also typically drives domestic and overseas demand for U.S. goods, it also poses an inflationary risk to the economy by limiting consumers' buying power overseas and pushing up the price of commodities such as oil and gold.

Traders are split as to whether the Fed will lower the federal funds rate by a quarter-point or a half-point on Tuesday.

But Tom Fitzpatrick, global head of currency strategy at Citigroup in New York, said that if the Fed cuts by a half-point, he thinks there would be "quite a sharp reaction in terms of dollar selling."

With a rate cut all but certain though, Fitzpatrick and other currency experts said investors are likely to pay close attention to what the Fed says in its statement.

At its October meeting, policymakers said that the risks of inflation and economic growth were roughly in balance. If they stick to that same script, that could bode well for the dollar, said Nick Bennenbroek, head currency strategist at Wells Fargo Bank in New York.

"The key question is whether they feel comfortable or bold enough to repeat that assertion," said Bennenbroek. "If that statement is there, then we might see the dollar stabilize or even move higher."

Whatever action the Fed takes on Tuesday, there have been encouraging signs for the U.S. economy - a bullish indicator for the greenback.

Last Friday, the Labor Department reported that the economy added 94,000 jobs in November, while the unemployment rate held steady, suggesting that the U.S. economy was unlikely to enter a recession in 2008.

Source - CNN Money

Wall Street bets on rate cuts

Stocks gain as investors weigh a better-than-forecast pending home sales index and await Tuesday's Federal Reserve rate-cut decision.

Stocks jumped Monday as investors welcomed a stronger-than-expected pending home sales report and geared up for Tuesday's expected interest-rate cut from the Federal Reserve.

The Dow Jones industrial average added 0.7 percent. The broader S&P 500 index added 0.8 percent and the tech-fueled Nasdaq composite added 0.5 percent.

Treasury prices slumped, boosting the corresponding yields. The dollar fell versus the euro and was little changed versus the yen. Oil prices dipped and gold prices rose.

The Fed's policy committee, meeting Tuesday, is widely expected to cut the fed funds rate, a key short-term lending rate, by a quarter-percentage point, to 4.25 percent, after cutting rates at the last two meetings.

Some Wall Streeters are looking for a cut of a half-percentage point, but such bets were diminished by last week's mostly upbeat November jobs report.

"I think people are pretty positive that we'll get a quarter-percentage point cut and also hoping that maybe we'll get a half-percentage point cut," said Curtis Teberg, portfolio manager of the Teberg Fund.

The central bank has been cutting the fed funds rate, which impacts consumer borrowing costs, since September, as a means of loosening up the credit market and trying to keep the economy out of falling into a recession.

Investors will also be looking to the statement Tuesday that accompanies the decision to shed further light on the Fed's outlook for the economy and the risks to that outlook.

Stocks are also continuing to coast on the positive momentum that has been in place for the last few weeks, said John Merrill, CEO at Tanglewood Capital Partners.

He said that the market has been driven over the last few weeks on a combination of technical factors and hopes that the Fed will cut rates again. As such, "we may see some selling after Tuesday, as investors take a buy on the rumor, sell on the news reaction," Merrill said.

Ahead of the meeting, Wall Street eyed the morning's pending home sales index, which showed a rise of 0.6 percent, versus forecasts that sales would fall 1 percent.

After the close of trade Monday, mortgage lender Washington Mutual said it was cutting its dividend and more than 3,000 jobs in the wake of the housing and credit market crisis.
The Fed's plan B

In corporate news, UBS issued a profit warning, said it will write down about $10 billion related to the credit market crisis and will borrow about $11.5 billion from outside investors.

Troubled bond insurer MBIA said Monday that it will receive a $1 billion investment from private equity firm Warburg Pincus. Shares jumped around 13 percent.

McDonald's, a Dow component, reported November sales at its stores open a year or more rose 8.2 percent, well above estimates. Shares gained nearly 3 percent.

MGI Pharma rallied nearly 20 percent after the drug company agreed to be bought by Japanese drug company Eisai for $3.9 billion in cash.

McDonald's was one of many Dow components rising, with 26 of the 30 blue-chip components higher. Other gainers included Alcoa, General Motors, Citigroup, Caterpillar, Honeywell and JP Morgan.

Market breadth was positive. On the New York Stock Exchange, winners topped losers 5 to 3 on volume of 1.17 billion shares. On the Nasdaq, advancers beat decliners eight to seven on volume of 1.81 billion shares.

Treasury prices slipped, boosting the yield on the 10-year note to 4.15 percent from 4.10 percent late Friday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and was little changed against the yen.

U.S. light crude oil for January delivery fell 42 cents to settle at $87.86 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery rallied $13.30 to settle at $813.50 an ounce.

Source - CNN Money

Dollar Heads for a Weekly Advance Against the Euro

The dollar headed for the biggest weekly gain in two months against the euro on concern the reluctance of banks to lend is worsening in Europe.

The U.S. currency was near the highest in a week versus the British pound as the cost of borrowing in euros for one month rose by a record amount as banks sought funds to cover their commitments through to the start of next year. A U.S. government report today is forecast to show personal spending increased 0.3 percent last month.

The U.S. dollar is looking relatively cheap and I would be looking to sell the euro and pound, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-biggest lender. Credit concerns are spreading like a disease from one continent to the next. There are signs of slowing in the European economy.

The U.S. currency, which has fallen 11 percent on a trade- weighted basis this year, was at $1.4771 per euro at 9:25 a.m. in Tokyo from $1.4744 late in New York yesterday. It touched $1.4712 on Nov. 27, the strongest since Nov. 20. The dollar was at $2.0638 per pound from $2.0612 yesterday. It was at 109.79 yen and the euro bought 162.14 yen.

The yield on the March Euribor interest-rate futures contract was unchanged yesterday at 4.4 percent. It has declined 33 basis points since reaching 4.73 percent on July 6. The yield on the 90-day sterling interest-rate futures contract for June fell 8 basis points to 5.33 percent. It was 6.4 percent on July 17. A basis point is 0.01 percentage point.

The London interbank offered rate that banks charge each other for euro loans that only come due after the end of 2007 climbed 64 basis points to 4.81 percent yesterday, the British Bankers' Association said. The rate charged for dollars rose 40 basis points to 5.23 percent.

The dollar will gain to $1.44 per euro and 112 against the yen by the end of June, according to the median forecast of 39 analysts and brokerages surveyed by Bloomberg.

Bernanke

The dollar pared its weekly advance after Federal Reserve Chairman Ben S. Bernanke said volatility in credit markets has affected the economy's prospects and policy makers must decide whether the risks between growth and inflation have now shifted.

The outlook has also been importantly affected over the past month by renewed turbulence in financial markets, Bernanke said in a speech in Charlotte, North Carolina late yesterday. The committee will have to judge whether the outlook for the economy or the balance of risks has shifted materially.

He also led a group of analysts in a report forecasting a gradual relaxation of credit concerns in the financial sector over the coming months.

Japan's Inflation

The yen remained higher against the dollar after a Japanese government report showed consumer prices unexpectedly rose for the first time since last December, boosting the central bank's case for interest-rate increases.

Japan's prices are on an uptrend, said Yuji Kameoka, a senior economist and currency analyst at Daiwa Institute of Research in Tokyo, a unit of Japan's second-largest brokerage. This raises expectations of the Bank of Japan's next rate increase and should be yen positive.

Japan's currency may rise to 109 per dollar and 160 a euro by year-end, Kameoka forecast.

Housing Slump

The dollar has declined against 15 of the 16 major currencies this year amid the worst housing market slump since 1991 and a credit squeeze that sent three-month interbank borrowing costs to the highest since 2001. Fed policy makers reduced the benchmark rate twice to 4.5 percent to keep the economy out of recession.

The key borrowing rate in the U.K. is 5.75 percent after five increases since 2006, and 4 percent in the euro region after eight increases since 2005.

Futures contracts on the Chicago Board of Trade showed yesterday traders saw a 100 percent chance the Fed will lower its target for overnight loans between banks at least a quarter- percentage point to 4.25 percent on Dec. 11. The chance of a cut to 4 percent is 30 percent.

A separate report today may show the Federal Reserve's preferred gauge of inflation was 1.8 percent in the 12 months through October, according to the median forecast of 29 economists surveyed by Bloomberg News. Fed officials have said they would be comfortable with the reading between 1 percent and 2 percent.

Source - Bloomberg

Dollar again hits all-time low vs. euro

Greenback keeps losing ground amid growing unease about U.S. economy.

The dollar hit a new record low against the 13-nation euro on Thursday in thin holiday trading.

The euro spiked to $1.4873 before falling back slightly to $1.4844 in early European trading.

Its previous high of $1.4856 was hit Wednesday, before it settled at $1.4848 in late New York trading.

The dollar was unchanged against the yen, buying ¥108.68 - the same as in late New York trading. The British pound, meanwhile, rose slightly to $2.0652 from $2.0644 the night before.

The Thanksgiving holiday kept many players on the sidelines, while Japanese financial markets will be closed Friday for the Labor Thanksgiving Day holiday.

While the thin holiday trade could invite sudden, sharp moves, traders expected the market to be largely subdued for the rest of the day.

The euro, the pound and other currencies have been climbing steadily against the dollar since August amid fears for the health of the U.S. economy, stoked by the subprime credit crisis.

The dollar has been further weakened by U.S. interest-rate cuts - which can be used to jump-start an economy, but can also weaken a currency as investors transfer funds to countries where they can earn higher returns. The Federal Reserve has already cut rates twice.

Source - CNN Money

Oil Surges Above $99 as Weaker Dollar Spurs Commodity Demand

Crude oil rose above $99 a barrel for the first time in New York as a weakening U.S. dollar increased demand for commodities.

Oil, gold and silver gained as the dollar fell yesterday to a record low against the euro on speculation that the Federal Reserve will lower interest rates for a third time this year. Oil gained after Royal Dutch Shell Plc said a fire more than halved output from a 155,000 barrel-a-day oil-sands plant in Alberta, potentially cutting shipments to U.S. refineries.

Oil has become a hedge for investors and the weaker U.S. dollar has contributed to the rise in gold and oil, said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. The price strength in oil is also supported by the tight fundamentals.

Crude oil for January delivery climbed as much as $1.26, or 1.3 percent, to a record $99.29 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The contract was at $98.90 at 11:11 a.m. in Singapore.

The contract climbed $3.39, or 3.6 percent, to $98.03 a barrel yesterday, the highest close since trading began in 1983.

Brent crude oil for January settlement gained as much as $1.04, or 1.1 percent, to $96.53 a barrel on the London-based ICE Futures Europe exchange, the highest since trading started in 1988. It was at $96.20 at 11:11 a.m. Singapore time.

Nobody wants to sell, said Tom Hartmann, commodity broker at Altavest Worldwide Trading Inc. in Mission Viejo, California. Oil has its own bullish factors but on top of that, with the weaker dollar, prices kind of have to go up, he said.

Dollar, Heating Oil

The dollar touched $1.4854 per euro yesterday, the lowest since the 13-nation currency was started in 1999. U.S. Federal Reserve policy makers yesterday lowered their growth forecast for 2008 on concern that the housing slump and credit market losses risked slowing growth in the world's biggest economy.

The financial pundits all interpreted that to mean the Fed might cut interest rates again in December and that would further weaken the dollar, said Purvin & Gertz's Shum.

West Texas Intermediate, the New York-traded crude-oil benchmark, is up 61 percent this year. Oil has gained 43 percent in euros, 53 percent in British pounds and 49 percent in yen.

Crude also gained as distillate fuel prices surged to a record the day before an Energy Department report that may indicate supplies declined last week. Oil demand typically peaks in the fourth quarter during the Northern Hemisphere winter.

Gasoline Surges

U.S. retail unleaded gasoline prices have climbed above $3 a gallon, reaching as high as $3.11 on Nov. 14, a level not seen since June. About 38.7 million people will travel more than 50 miles for the Thanksgiving holiday tomorrow, according to the American Automobile Association, more than the previous mark of 38.1 million last year.

Distillate-fuel stockpiles, which include heating oil and diesel, probably dropped 450,000 barrels, according to the median of 16 analyst estimates in a Bloomberg News survey. The futures also rose as forecasters said most of the U.S. will experience below-normal temperatures over the next two weeks.

Heating oil for December delivery rose 1.59 cents, or 0.6 percent, to a record $2.7060 a gallon on the New York Mercantile Exchange at 10:40 a.m. Singapore time. It rose 3.3 percent, to settle at $2.6901 yesterday and is up 61 percent from a year ago.

Inventories

An Energy Department report today is expected to show that U.S. crude-oil inventories rose a second time, gaining 750,000 barrels last week, according to the median estimate from a Bloomberg News survey of 16 analysts.

There will be no floor trading in New York tomorrow because of the Thanksgiving holiday in the U.S.

Trading volumes the past three sessions have been light and prices would have probably fallen yesterday had it not been for the weak dollar, Altavest's Hartmann said. Light trading again today is likely to exaggerate any reaction to the inventory data.

We could be in for a wild day, he said. We could have a big exhaustion tail where people take profits before the long weekend.

Source - Bloomberg

Treasuries Rise to the Highest in Two Years on Credit Concern

Treasuries rose to the highest since 2005 as credit-market losses related to delinquent subprime mortgages drove investors to the safety of government debt.

Two-year notes gained for a fifth straight week, extending their rally to the longest in eight months on speculation the Federal Reserve will cut borrowing costs a third time this year. The Fed will release minutes of its October meeting next week, and the Commerce Department is expected to report that housing starts fell to the lowest since 1993.

The market's pricing in an easing by the Fed, said Anne Briglia, senior fixed-income strategist in New York at UBS Wealth Management Research. Price action is being driven by institutional investors who are acutely aware of the broader financial stresses here.

The two-year note's yield fell 8 basis points, or 0.08 percentage point, to 3.34 percent this week, according to bond broker Cantor Fitzgerald LP. It reached 3.28 percent yesterday, the lowest since February 2005. The price of the 3 5/8 percent security due in October 2009 rose 1/8, or $1.25 per $1,000 face amount, to 100 17/32. Yields move inversely to bond prices.

Yields on 10-year notes decreased 5 basis points to 4.17 percent after yesterday touching 4.13 percent, the lowest since September 2005. They yielded 84 basis points more than two-year notes, the widest spread since March 2005. A steepening of the yield curve suggests investors are favoring shorter-dated notes in anticipation of rate reductions by the Fed.

A slump in global credit markets will force banks, brokerages and hedge funds to cut lending by $2 trillion, triggering the risk of a substantial recession in the U.S., Jan Hatzius, chief economist in New York at Goldman Sachs Group Inc., wrote in a report dated Nov. 15.

Goldman Forecast

Losses related to record U.S. home foreclosures using a back-of-the-envelope calculation may be as high as $400 billion for financial companies, according to Hatzius.

Citigroup Inc. and Merrill Lynch & Co. have led companies writing down more than $50 billion on securities linked to subprime mortgages. The risk of further losses by banks has pushed their borrowing costs above the average for investment- grade companies.

The credit stories continue, said Paul Horrmann, a strategist in Jersey City, New Jersey, at ICAP Plc, the world's largest inter-dealer broker. The addition of this one, of that one, add up to a sizeable amount, and we're starting to feel it. There is some doubt now about global growth.

In a sign of increased short-term credit risk, the three- month London interbank offered rate, or Libor, for dollars rose 7 basis points to 4.95 percent, the biggest weekly gain in two and a half months.

Fed Rate Outlook

Interest-rate futures on the Chicago Board of Trade showed a 84 percent chance that the Fed will lower its target rate for overnight lending between banks by an additional quarter- percentage point on Dec. 11. The Federal Open Market Committee cut the benchmark borrowing cost to 4.5 percent at its Oct. 31 meeting. Minutes will be released Nov. 20.

Fed Governor Randall Kroszner said yesterday in a speech in New York that an economic rough patch in coming months won't be enough to warrant additional rate cuts. St. Louis Fed President William Poole told Dow Jones that he's an optimist about credit market problems clearing up.

The Fed is trying to jawbone the market away from the view that they will ease again in December, said Thomas Atteberry, who oversees $2.8 billion in fixed income in Los Angeles at First Pacific Advisors LLC. We continue to see mortgage and credit problems worm their way into different places and causing concern for people.

Housing Starts

Housing starts probably fell in October to 1.17 million, the lowest since March 1993, according to the median forecast of 66 economists surveyed by Bloomberg News. The Commerce Department is scheduled to release the report Nov. 20.

U.S. debt was supported as a government report showed investors purchased the most Treasuries in September in six months. International demand for U.S. debt increased by $26.3 billion, compared with a loss of $2.8 billion in August.

Total holdings of equities, notes and bonds rose a net $26.4 billion after sales of a revised $70.6 billion in August, the Treasury Department said yesterday.

Source - Bloomberg

Sales Probably Cooled as Fuel Prices Rose: U.S. Economy Preview

Sales at U.S. retailers slowed in October as rising fuel prices and falling property values left Americans with little extra cash to spend, economists said reports this week will show. Purchases rose 0.2 percent after increasing 0.6 percent in September.

Consumer spending, a mainstay of the expansion, will continue to cool as Americans skimp on items such as clothing and furniture to pay their energy bills. The jump in fuel costs keeps inflation risks alive, preventing the Federal Reserve from lowering interest rates again soon.

There is no question that things are slowing, said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. It's primarily due to the higher prices of energy. Consumers are cutting back on all kinds of discretionary purchases.

The projected increase in October sales would be the smallest in four months. Purchases excluding automobiles increased 0.3 percent after a 0.4 percent September gain, according to the median forecast in the Bloomberg survey.

Unseasonably warm weather last month made matters worse for merchants as demand for jackets and sweaters waned. Seven out of 10 retailers, including Wal-Mart Stores Inc. and Macy's Inc., reported October sales below analysts' forecasts, according to a report last week from Retail Metrics LLC.

Chain-Store Sales

Sales at chain stores increased 1.6 percent from the same month last year, the worst October since 1995, the International Council of Shopping Centers said last week. The results, based on 44 chains, missed the New York-based group's 2 percent forecast and suggest a slowdown in holiday spending.

The housing slump may also be partly responsible for decreasing demand for furniture and appliances, economists said. A report from the National Association of Realtors on Nov. 13 may show the real-estate recession was getting worse.

The number of Americans signing contracts to buy previously owned homes dropped to the lowest level on record in September, the agents' group is forecast to report. Higher credit costs and lending restrictions after the collapse in subprime mortgages may mean the industry's slump will linger well into 2008, economists said.

Housing will probably be bad for the next 18 months, said Jeffrey Immelt, chief executive officer of General Electric Co., in a Nov. 8 PBS interview with Charlie Rose. We have to be cautious about the U.S. consumer. The consumer has used their house as a piggy bank.

Prices Rise

A Labor Department report Nov. 15 may show prices paid by consumers rose 0.3 percent in October for a second month, according to the survey median. Excluding food and energy, so- called core prices probably increased 0.2 percent for a fifth consecutive month.

Gasoline and heating oil prices rose late in the month, suggesting the inflation news will only get worse.

We will see the higher energy prices show up in the November data next month, said Wachovia's Vitner.

Fed policy makers won't have the November figures available until three days after their final meeting of the year on Dec. 11. For that reason, economists forecast the central bank will keep the target interest rate unchanged until early next year, according to the median forecast of economists surveyed this month.

Balanced Risks

The Fed currently views the risks of higher inflation and slower growth as being equally balanced after it lowered the rate target twice in as many months, Chairman Ben S. Bernanke said Nov. 8 in testimony to Congress. The jump in fuel costs is aggravating both concerns, he said.

Further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity, Bernanke said.

Finally, factory reports this week may show manufacturing has cooled last month as consumer demand slowed. Industrial production rose 0.1 percent, the same as September, the Fed is projected to report Nov. 16.

The figures suggest the two-year housing slump is spilling over to other areas. Still, a weaker dollar and stronger growth abroad are boosting demand from overseas and will keep output from tumbling, economists said.

Source - Bloomberg

Bernanke warns on economic growth

Fed chairman says he remains concerned about credit crunch and oil prices - and traders now think another rate cut is near certain.

Federal Reserve Chairman Ben Bernanke, warning that higher inflation and weaker economic growth could be in store, told Congress Thursday that the central bank is keeping a close eye on the subprime mortgage crisis and recent spike in oil prices.

Bernanke, testifying before Congress Joint Economic Committee, said the Fed expected growth to slow noticeably in the fourth quarter. But he also downplayed fears of a recession, saying the central bank expects the economy to grow next year, albeit at a more moderate pace than in recent quarters.

Federal Reserve chairman Ben Bernanke told Congress Thursday that the central bank is worried about both the mortgage meltdown and inflation as oil prices approach $100.

Since the Fed cut interest rates on Oct. 31, financial market volatility and strains have persisted, Bernanke said.

Incoming information on the performance of mortgage-related assets has intensified investors concerns about credit market developments and the implications of the downturn in the housing market for economic growth, Bernanke said in his prepared remarks.

He also expressed concern that the rise in energy prices - oil is now trading at about $96 a barrel - could lead to both higher inflation and weaker levels of economic growth.

In addition, further sharp increases in crude oil prices have put renewed upward pressure on inflation, and may impose further restraint on economic activity.

Wall Street interpreted Bernankes comments as a sign that the Fed may now be more likely to cut a key short-term interest rate at its next meeting on Dec. 11.

The Fed lowered the federal funds rate, an overnight bank lending rate that impacts how much consumers pay for credit card debt, home equity lines of credit and auto loans, by a quarter of a percentage point on Oct. 31. That move followed a half-point rate cut on Sept. 18.

According to futures listed on the Chicago Board of Trade, investors as of late Thursday were pricing in an 88 percent chance that the Fed will lower the federal funds rate by a quarter of a point to 4.25 percent in December. Earlier this morning, traders were pricing in a 70 percent chance of a rate cut.

The Fed may be forced into further easing, said Ashraf Laidi, chief currency analyst with CMC Markets U.S, a currency brokerage firm. The Fed may cut rates even it doesnt want to.

Nonetheless, stocks fell Thursday and one market expert said investors might now be worrying about the possibility of stagflation: sluggish economic growth combined with inflation.

The Fed is in a tight spot. Its hard to combat deflation in housing and inflation in commodities spurred by a falling dollar at the same time, said Mike Larson, an analyst with Weiss Research, an investment research firm based in Jupiter, Fla.

However, Bernanke also said that recent economic data releases suggest the overall economy remained resilient in recent months.

But in opening remarks before Bernankes testimony, Sen. Charles Schumer (D-N.Y.), the chairman of the joint economic committee, said that he has begun to worry about the threat of a recession.

I think we are at a moment of economic crisis stemming from four key areas: falling housing prices, lack of confidence in creditworthiness, the weak dollar and high oil prices, Schumer said. Each of these problems alone would be enough of a threat to our economic well-being. But taken together, they are essentially the four horsemen of economic crisis.

For his part, Bernanke said during a question-and-answer portion of the hearing that the spillover to the economy from housing still appears to be limited and that it was the Feds hope that the housing market would find a bottom by next spring.

Bernanke declined to specifically answer a question from Schumer about what, on a scale of 1 to 10, he thought the chances of a recession were.

A recession has historically been defined as two consecutive quarters of declines in gross domestic product. But the National Bureau of Economic Research now officially defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months.

On Thursday, Bernanke warned that delinquencies for subprime mortgage borrowers are likely to rise further but that the Fed will continue to work with community groups to help borrowers avoid foreclosure.

When the Fed cut rates on Oct. 31, it cited an intensification in the housing markets weakness.

But the central bank also hinted in its statement that it may not cut rates again at its next meeting since it felt that strains in financial markets have eased somewhat.

That was before a slew of negative developments from financial institutions that have caused investors to worry about problems stemming from the subprime mortgage meltdown.

Bernanke said Thursday that estimates about financial institutions eventually losing $150 billion as a result of the subprime debacle were in the ballpark.

Speculation that China, a big holder of U.S. dollars, may reduce its exposure to the greenback in light of the dollars weakness also has contributed to market volatility as of late.

But in the question-and-answer session, Bernanke said he was not concerned about any change in the currency investments of China or other countries for that matter.

In his testimony, Bernanke said that the Fed would act as needed in order to make sure that it can keep inflation under control as well as maintain sustainable economic growth.

The Fed has to decide what is the lesser of two evils: helping the housing market or being tougher on inflation, Larson said. The reality is dawning on investors that the Fed cant fix every problem facing the market.

Source - CNN Money

Dollar Falls to Record Low Versus Euro on Quarter-Point Fed Cut

The dollar fell to a record low against the euro after the Federal Reserve cut its benchmark interest rate for the second straight month.

Central bank policy makers lowered their target rate for overnight loans between banks by a quarter-percentage point to 4.5 percent to keep the worst housing slump in 16 years from threatening growth. Rate cuts can dim demand for deposits in the currency.

The weak dollar trend remains, said Paresh Upadhyaya, who helps manage $29 billion in currency assets at Putnam Investments in Boston. If growth slows further, the Fed may still need to act to cut rates.

The dollar declined to $1.4489 per euro at 2:46 p.m. in New York from $1.44432 late yesterday, and touched $1.4495, the weakest since the European currency's debut in January 1999. The U.S. currency traded at 115.33 yen from 114.63.

The U.S. Dollar Index traded on ICE Futures U.S. in New York touched 76.498 today, the lowest since the index began in 1973. The index is headed for its fifth drop in six years.

Fed Lowers Benchmark Rate by a Quarter Point to 4.5 Percent

The Federal Reserve cut its benchmark interest rate by a quarter point to 4.5 percent to cushion the U.S. economy from the housing recession that officials predict will extend into next year.

Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets, the Federal Open Market Committee said in a statement after the meeting today in Washington. The committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth.

Policy makers lowered borrowing costs for a second month even after reports today showed the economy expanded more than forecast last quarter and companies stepped up hiring. Chairman Ben S. Bernanke emphasized this month that the outlook is uncertain and housing will constrain growth into 2008.

Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance, the Fed said. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.

Discount Rate

The Fed also lowered the discount rate, the cost of direct loans to banks, by 25 basis points to 5 percent, from 5.25 percent. A basis point is 0.01 percentage point.

Policy makers said in the statement that inflation risks remain and the committee will continue to monitor inflation developments carefully.

Economists anticipated the decision, according to the median of 108 forecasts in a Bloomberg News survey. Futures contracts on the Chicago Board of Trade showed traders also expected a quarter-point move.

Economists and former officials said before the meeting that the central bank would want to preserve leeway to take back the rate cuts should the economy weather the risks from credit and housing markets. Vice Chairman Donald Kohn said Oct. 5 the Fed must be nimble in adjusting policy to promote both growth and price stability.

Bernanke, 53, and other officials in speeches this month have described the importance of taking out insurance to protect the economy from risks when the outlook is difficult to judge.

Consumer-price increases have slowed, while a falling dollar and rising oil costs threaten a renewed acceleration. The Fed's preferred gauge, the personal consumption expenditures price index excluding food and energy, probably rose 1.8 percent in September from a year ago, according to the median forecast. The Commerce Department reports the figures tomorrow.

The index remained below 2 percent from June to August. Bernanke, before taking the Fed's helm, said his comfort range for the measure was 1 percent to 2 percent.

The Commerce Department said today that the expansion picked up in the third quarter, though economists surveyed by Bloomberg predict a slowing this quarter. A private report showed companies hired 106,000 this month after creating 61,000 jobs in September.

The economy grew at a 3.9 percent annual rate in July to September, up from 3.8 percent in the previous three months, Commerce figures showed. It will slow to a 1.8 percent pace in the current period, according to the median estimate in a survey published Oct. 10.

Housing figures this month showed the industry has yet to find a bottom. A private survey yesterday showed home values in 20 metropolitan areas slid the most in at least six years. Sales of previously owned homes fell to the lowest level since National Association of Realtors began keeping records in 1999, and government figures recorded a 14-year low for housing starts.

Continued stress in credit markets may lengthen the housing recession and temper business investment plans. The world's largest banks and securities firms announced more than $30 billion of third-quarter charges.

Citigroup Inc. the biggest U.S. bank, said Oct. 15 that earnings fell 57 percent as loan losses increased. Merrill Lynch & Co. last week wrote down the value of subprime mortgages, asset-backed debt and leveraged loans by $8.4 billion.

The benchmark rate is now at the lowest level since January 2006. Bernanke took office the following month, and continued a series of rate increases that lifted the federal funds rate to 5.25 percent by June last year.

Source - Bloomberg

U.S. Economy Grew More Than Forecast in Third Quarter

Economic growth in the U.S. unexpectedly accelerated in the third quarter as increases in exports, consumer spending and business investment made up for another plunge in home construction.

Gross domestic product grew at an annual rate of 3.9 percent in the quarter, the most since the first three months of 2006, compared with a 3.8 percent pace in the prior quarter, the Commerce Department said today in Washington. The Federal Reserve's preferred price gauge rose more than forecast.

The report comes as Federal Reserve policy makers meet to set interest rates, with most economists predicting officials will lower their benchmark rate for a second month. The figures may give the central bank reason to signal it isn't inclined to make further reductions, analysts said.

Looking forward, the Fed is probably still going to argue that the economy is softening, said Peter Kretzmer, a senior economist at Bank of America Corp. in New York. The language in today's statement could become a little more indicative of a Fed that will be reluctant to move again.

The median forecast of 82 economists surveyed by Bloomberg News projected the growth rate at 3.1 percent. Estimates ranged from 2.0 percent to 4.0 percent.

The dollar strengthened against the euro and yen in the minutes after the GDP report was released, before later paring its gain. Treasury notes declined. A report from the National Association of Purchasing Management-Chicago today showed business activity unexpectedly shrank this month.

Advance Report

Companies in the U.S. added 106,000 jobs in October, more than economists had forecast, according to a report today from ADP Employer Services. A report from the Labor Department also showed employment costs rose in the third quarter at a slower pace than in the previous three months, suggesting increases in wages and benefits aren't heating up inflation.

The GDP report is the first for the quarter and will be revised in November and December as more information becomes available.

The Fed's preferred inflation gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.8 percent annual pace following a 1.4 percent increase the prior quarter, according to the report.

The gain leaves prices within the 1 percent to 2 percent range policy makers, including Ben S. Bernanke before becoming Fed chairman, have said is their preferred zone.

Certain Rate Cut

Federal funds futures indicate a near certainty that the Fed will cut its benchmark rate by 25 basis points today to 4.5 percent, following its half percentage point cut on Sept. 18. The Fed will announce its decisions today at around 2:15 p.m.

Consumer spending grew at a 3 percent pace following a 1.4 percent increase in the prior quarter, contributing the most to the gain in growth. Still, many economists project spending will slow as declining property values turn Americans pessimistic.

The dreaded collateral damage from the housing market hasn't showed up yet in consumer spending, though it's just a matter of time, said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. The economy will probably expand at a 1.8 percent pace in the current quarter, according to the median forecast of economists surveyed earlier this month.

Consumers weren't the only ones buying last quarter. Gains in both commercial construction projects and purchases of equipment and software contributed to a 7.9 percent increase in business investment. The 5.9 percent rise in spending on new equipment was the biggest since the first quarter of 2006.

An increase in inventories contributed another 0.4 percentage point to growth.

Rise in Exports

The economy was also buttressed by a narrowing of the trade deficit that added 0.9 percentage point to the rate of expansion. The gap shrank to $546.2 billion at an annual pace, the smallest since the last three months of 2003.

General Electric Co.'s third-quarter profit rose as large- equipment orders climbed 39 percent amid a surge in demand from countries that are building airports and power grids, the Fairfield, Connecticut-based company said Oct. 12.

We see orders everywhere around the world, GE's Chief Executive Officer Jeffrey Immelt said on a conference call earlier this month. That seems to be accelerating, not diminishing.

Home construction remained the biggest drag on GDP, the report showed. A 20.1 percent plunge in homebuilding, the seventh consecutive decline, subtracted a percentage point from growth.

Credit restrictions since the August collapse in subprime lending intensified the blow to housing at the end of the quarter. Existing home sales in September fell 8 percent from the prior month, while housing starts declined 10 percent to the lowest since March 1993, reports earlier this month showed.

Source - Bloomberg