China Inflation Reaches 11-Year High, Trade Gap Grows

China's inflation accelerated at the quickest pace in 11 years and the trade surplus swelled, adding pressure on the central bank to raise interest rates and let the currency appreciate faster to cool the economy.

Consumer prices rose 6.9 percent in November from a year earlier after climbing 6.5 percent in October, the statistics bureau said today. That was more than the 6.5 percent median estimate of 21 economists surveyed by Bloomberg News.

Surging food and fuel costs and a record $238 billion surplus in the first 11 months have prompted the government to name inflation and overheating as the biggest threats to growth. U.S. Treasury Secretary Henry Paulson is in Beijing to press for yuan gains that would narrow the trade gap and staunch the flow of money into the world's fastest-growing major economy.

Liquidity from the trade surplus will continue to cause the economy to overheat in 2008, said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. The yuan will need to appreciate at a firmer pace, interest rates will rise and the reserve requirement for banks will go to 17 percent by the end of next year.

The yuan gained by the most in a month against the dollar. The currency, which has climbed 12 percent since a fixed exchange rate was scrapped in July 2005, rose 0.22 percent to 7.3792 per dollar as of 4:46 p.m. in Shanghai from 7.3952 late yesterday. It touched 7.3770, the highest since the end of the dollar link.

The People's Bank of China last week ordered lenders to set aside 14.5 percent of deposits as reserves, up from 13.5 percent. China's one-year lending rate is at a nine-year high of 7.29 percent after five increases this year.

U.S. Gap

The yield on the 4.68 percent bond due September 2022 rose 4 basis points, or 0.04 percentage point, to 4.72 percent.

The trade surplus climbed 14.7 percent to $26.3 billion in November from a year earlier, the third-biggest monthly total, the customs bureau said today. The $15.2 billion trade surplus with the U.S. pushed the 11-month total with that country to $149.2 billion.

The central bank will strictly control bank lending, raise interest rates this month and allow a faster pace of currency appreciation in 2008, said Liang Hong, a senior economist at Goldman Sachs Group Inc. in Hong Kong.

Export Growth

People's Bank of China Governor Zhou Xiaochuan said today that currency policy will be used to help narrow the trade gap.

A stronger Chinese currency would lower import costs and push up export prices. Export growth has slowed from 29 percent in the seven months through July to between 22 percent and 23 percent for each of the past four months, after cuts to tax incentives.

A more flexible currency is especially important now, when the risks of inflation are clearly rising in the Chinese economy, Paulson said last week. The Treasury Secretary, in Beijing for the so-called Strategic Economic Dialogue, is fending off calls in Congress for legislation to punish China for its currency policy.

The inflation rate is almost double the 3.5 percent pace in the U.S. in October. It's also more than the 3.01 percent increase in wholesale prices in India, the key inflation measure for the world's second-fastest growing economy, in the week ended Nov. 24.

China's inflation was 4.6 percent in the first 11 months, more than the central bank's 3 percent target for the year and the key one-year deposit rate of 3.87 percent.

Food makes up a third of the consumer price index and rising costs pose a threat to social stability, illustrated by a stampede last month at a cooking-oil sale that killed three people in the central city of Chongqing.

Overall, food climbed 18.2 percent. Non-food prices rose 1.4 percent, accelerating from a 1.1 percent gain in the previous month. Utility prices including water, electricity and gas rose 5.6 percent.

The inflow of cash from record exports, besides stoking inflation, has also fueled a surge in property and stock prices, with the benchmark CSI 300 Index gaining 152 percent this year. The central bank today ordered banks to tighten rules for real estate loans after property prices in 70 cities jumped 9.5 percent in October, the fastest pace in two years.

China's economy, the world's fourth largest, expanded 11.5 percent in the third quarter from a year earlier.

There's a chance the central bank will raise interest rates again before the end of this year, said Wang Tao, head of economics and strategy for Greater China at Bank of America Corp. in Beijing. The government is also likely to accelerate appreciation of the currency.

Source - Bloomberg

China stocks plummet

Worries that Beijing will try to rein in economy send Shanghai index lower 4.4%; Tokyo's Nikkei edges higher.

Most Asian markets fell Thursday, with shares in Hong Kong and Shanghai sliding sharply on concerns that Beijing will take steps to cool China's economy.

The region's biggest bourse in Tokyo ended mixed amid persistent worries over the outlook for the U.S. economy, a vital export market for Asia, after Wall Street dropped again overnight.

There still is a lot of uncertainties in the U.S. economic outlook, as well as on China's macro policies, that could dampen buying interest in the near term, said Peter Lai, a director at DBS Vickers in Hong Kong.

In Hong Kong, the Hang Seng index sank 613.27 points, or 2.3 percent, to 26,004.92 after earlier rising as much as 1.4 percent. Leading decliners were port operator China Merchants Holdings and rival Cosco Pacific.

Some investors held back because of the U.S. Thanksgiving holiday Thursday.

They were were also discouraged by economic data in the U.S. released Wednesday that showed a drop in consumer sentiment, with the Conference Board's Index of Leading Economic Indicators falling 0.5 percent in October. The Dow Jones industrial average fell 1.62 percent Wednesday to 12,799.94.

Asian markets have been battered in recent weeks.

Since reaching record highs in October, benchmark indices in both Hong Kong and Shanghai - two of the world's best-performing markets this year - have fallen 17 percent. In Japan, the Topix index of all the issues of the Tokyo Stock Exchange's First Section, has declined nearly 21 percent from its 2007 high in February.

Some analysts see a buying opportunity.

There are not enough factors to justify a further drop in Japan shares, said Yasushi Hoshi, strategist at Daiwa Securities in Tokyo.

On the Chinese mainland, the Shanghai Composite Index plunged 4.4 percent to 4,984.16 on expectations of further economy-cooling measures. Premier Wen Jiabao suggested earlier this week that China needs to do more to prevent a bubble in stock and property prices.

Concerns over PetroChina's valuation following its Nov. 5 trading debut, when it tripled from its initial public offering price, also dampened buying sentiment. PetroChina lost 4.6 percent Thursday.

Still, traders said the Shanghai index was unlikely to fall much further given the ample liquidity available for share dealings.

What the market lacks isn't cash but confidence, said Simon Wang, an analyst at Xiangcai Securities.

In Tokyo, the benchmark Nikkei stock index rose 0.34 percent to 14,888.77 in a pre-holiday session as the dollar rebounded against the yen from a 2 1/2-year low hit overnight.

But concern over the exposure of insurance companies to the problems in the U.S. mortgage market dragged down the broader Topix index, which dipped 0.09 percent to 1,437.38 points.

Finance Minister Fukushiro Nukaga and Bank of Japan board member Seiji Nakamura both expressed concern about how problems in the U.S. economy might affect Japan. Traders said the market is especially sensitive to the health of consumer spending ahead of Christmas in the U.S.

Japanese trading houses Mitsui & Co. and Sumitomo Corp. were among the gainers.

Katokichi Co. jumped 17 percent to 694 yen after Japan Tobacco Inc. and instant noodle maker Nissin Food Products Co. said Thursday they will jointly buy the frozen food producer in a deal exceeding ¥100 billion (nearly $1 billion) to create Japan's biggest frozen food maker.

In currency dealings, the U.S. dollar was trading at ¥109.00 midafternoon, up from ¥108.68 late Wednesday in New York. It dropped as low as ¥108.25 in the New York session. The euro rose to $1.4860 from $1.4848.

Financial markets in Japan will be closed Friday for the Labor Thanksgiving Day holiday. The markets will reopen on Nov. 26.

Elsewhere, Thailand's benchmark stock index rose 0.2 percent to 808.8, shaking off sour sentiment that dragged it to a 10-week low of 796.9.

Indonesia's main index rose 0.2 percent to 2,569.5 in thin volume.

Malaysian shares fell on concerns over the health of the U.S. economy and high oil prices. The Kuala Lumpur Composite Index fell 1.2 percent to 1,344.2.

Philippine shares continued to fall, weighed down by the heavy losses on Wall Street. The Philippine Stock Exchange Index dropped 0.9 percent to end at 3,478.9, its third day of decline.

South Korean shares fell for a sixth straight session, dropping below the psychologically important level of 1,800 despite gains in the telecommunications sector and exporters such as Samsung Electronics and Hyundai Motor. The Korea Composite Stock Price Index, or Kospi, shed 0.4 percent to finish at 1,799.0.

Australian investors remained nervous over global fallout from the problems with risky housing loans in the U.S. The benchmark S&P/ASX 200 index dropped 0.8 percent to close at 6,334.3, after hitting its lowest level in two months at 6,312.6.

Taiwan shares rose on bargain-hunting. The Weighted Price Index of the Taiwan Stock Exchange rose 0.2 percent to 8,499.4, rebounding from Wednesday's three-month low.

New Zealand stocks fell after sharp drops in the U.S. and U.K. overnight. The NZX-50 index lost 0.4 percent to close at 4,054.2 point.

Source - CNN Money

Asian markets fall sharply on subprime fears

Japan's benchmark Nikkei index falls 2.5 percent on renewed concerns of the credit market turmoil.

Asian markets fell sharply Monday after Wall Street declined at the end of last week on renewed concerns about U.S. mortgage problems. European markets, however, were mixed in early morning trade.

Basically, the subprime loan issue still drags on, and there is no prospect of what can end the problem, said Shinichi Ichikawa, chief strategist at Credit Suisse of the falls in Asian markets.

Major banks warned last week of further losses in their debt portfolios, raising investor concerns that the credit market slump isn't abating.

Japan's benchmark Nikkei 225 index fell 2.5 percent, and Hong Kong's Hang Seng dropped 3.9 percent. In South Korea, the Korea Composite Stock Price Index, or Kospi, fell 3.4 percent.

Both the Hang Seng and the Kospi fell more than 4 percent during intraday trade, and the Nikkei dipped below 15,000 points for the first time since July 2006.

As for the U.S. economy, the risk of recession is increasing toward the next year amid the lingering subprime loan problems, which, combined with higher oil prices, prompted players to sell the dollar, Ichikawa said.

Japanese traders sold exporter issues on the strengthening yen, which is at its highest levels against the dollar in 18 months.

Automaker Honda Motor Co. fell 3.58 percent and rival Toyota Motor Corp. shed 2.76 percent. Sony Corp. dropped 2.61 percent.

A stronger yen makes the exporters' goods less competitive overseas and cuts into their foreign earnings.

In Hong Kong, bank HSBC shed 2.8 percent on subprime exposure woes.

Chinese financial shares were also lower after China's central bank raised the reserve requirement for banks by 50 basis points to 13.5 percent at the weekend in another of its money-tightening measures.

Bank of China fell 3.9 percent. China Construction Bank fell 4.4 percent. ICBC fell 5.0 percent.

Meanwhile, European markets opened mixed early Monday, with Germany's DAX down 0.2 percent, France's CAC 40 down 0.1 percent and Britain's FTSE 100 up 0.7 percent.

In other Asian markets, shares tumbled as well. The Shanghai composite index lost 4.7 percent amid unconfirmed rumors the China Securities Regulatory Commission recently ordered funds to hold off on aggressive buying.

The benchmark indices lost ground in Australia, the Philippines, Taiwan and Thailand.

The dollar was trading at 110.41 yen, down from 110.07 yen late Friday in New York. The euro fell to $1.4646 from $1.4673.

On Friday, the Dow Jones industrial average fell 1.7 percent to 13,042.7

Source - CNN Money

China moves to cool its inflation

China's central bank has moved to cool inflation by raising the proportion of funds that the county's lenders must keep in reserve rather than lend out.

Aiming to cut the levels of yuan in circulation, the People's Bank of China is increasing the banking reserve ratio by half a percentage point to 13.5%.

To take effect from 29 November, it will be a record high for the reserve ratio, and the ninth rise this year.

China's inflation is near a 10-year high, driven by its booming economy.

Chinese inflation hit 6.5% in August, its highest level since 1997, before declining slightly to 6.2% in September.

October's data, which is out on Tuesday, is expected to show that inflation has risen again to 6.4%.

The central bank predicts the Chinese economy will grow at a breakneck 11% this year, as exports continue to surge.

China has also raised interest rates five times this year, another move to cool inflation.

The reserve ratio rise is a signal that the central bank is still in liquidity tightening mode and is very keen to control loan growth, said a trader at a European bank in Shanghai.

The new level of 13.5% suggests there is no ceiling, so the bank may raise reserve ratios again this year.

Source - BBC News

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

Gold settles at record high

Investors seek safe haven as the dollar falls on a report that China may diversify its exchange reserves, but one analyst sees rally fading.

Gold settled at a record high of $833.50 an ounce in New York trading Wednesday as the dollar's decline and oil's record surge caused inflation-wary investors to seek stability in precious metals.

The previous high was $825.50, set Jan. 21, 1980, or $2,128.09, adjusted for inflation, according to the Minneapolis Fed Calculator.

Trading in gold offers investors a hedge against stock market volatility because it is a store of value, compared to stocks, which are subject to a variety of unpredictable economic factors.

The euro hit a fresh record against the dollar, rising to $1.4729 before retreating. The dollar was dragged down by a report that a Chinese political figure said that Beijing should favor the euro, not the dollar, in diversifying its exchange reserves valued at $1.43 trillion.

Meanwhile, oil hit a new intraday record at $98.62 a barrel early Wednesday ahead of the government's weekly inventory report that was expected to show a 1.6-million barrel drop in crude stockpiles. Oil's drive to the $100-a-barrel mark slowed when it turned out that inventories were down slightly less than expected. Still, oil has surged more than 20 percent in the past month.

In addition to the dollar's decline and oil's rally, the ongoing fallout of the credit crisis has investors flocking to the relative safety of gold.

But one analyst wasn't so sure the metal will stay in record territory.

Safe-haven buying accounts for only one third of gold consumption, according to Jon Nadler of Kitco Bullion Dealers. He says most gold is used to make jewelry, with the biggest demand coming from India and the United States.

If consumers in India and the U.S. deem the price of gold unacceptable you will begin to see a big shift, Nadler said.

Source - CNN Money

China's market capitalisation swells to $3.37 trillion, emerges world's fourth largest

China has emerged fourth in the world in equity market capitalisation with a volume of 25.32 trillion yuan ($3.37 trillion) as of September 30 this year, accounting for about 5.7 per cent of the world's total.
A total of 1,517 companies went public on the stock markets of the mainland by the end of September, official media said.

The overall volume at Shanghai and Shenzhen bourses was around 4 trillion yuan at the end of 2002, ranking China the fourth largest in Asia, data furnished by a delegation of the central financial authorities to the ongoing communist party congress showed.

China's equity markets raised a total of 425.04 billion yuan ($56.7 billion) through initial and secondary public offers in the first nine months of this year, surpassing the combined funds from 2002 to 2006, the China Securities Journal reported.

In September alone, money raised through 15 initial public offers (IPO) amounted to 149 billion yuan, or half of the money raised through IPOs so far this year. China Shenhua, the nation's biggest coal producer, raised 66.58 billion yuan from IPO, refreshing the 58.05 billion yuan record set by the China Construction Bank.

China securities regulatory commission chairman Shang Fulin cited shareholder reform initiated in 2005 to float non-tradeable state owned shares, tighter market supervision on insider trading and the clean-up of the securities sector as factors leading to the bull run on the stock market.

He said the stock market is playing a better part acting as a barometer of china's economy.

Institutional investors control 46 per cent of the market equity, reports quoted Shang as saying.

The market was also driven by sufficient liquidity, rapid economic growth and the return of heavyweight state-owned enterprises from overseas bourses to domestic share markets.

Source - domain-b