Asian Stocks Advance as Oil Climbs, Yen Halts Gain; Cnooc Rises

Honda Motor Co. production plant

June 28 (Bloomberg) -- Asian stocks rebounded from a two- week low, led by energy producers and Japanese exporters, after crude oil prices advanced and the yen halted a three-day climb.

Cnooc Ltd., China's largest offshore explorer, gained for the first time in six days. Toyota Motor Corp. advanced after Goldman, Sachs & Co. and Nomura Securities Co. said a weaker yen will boost automakers' profits.

LG.Philips LCD Co. rose after Woori Investment & Securities Co. lifted its share price estimate. Taiwan Semiconductor Manufacturing Co. gained after Oracle Corp. predicted higher sales than analysts forecast.

``I don't think Asia needs to worry too much about earnings,'' said Hugh Young, who oversees $35 billion as managing director at Aberdeen Asset Asia Ltd. in Singapore.

Energy shares posted the biggest gains on the Morgan Stanley Capital International Asia-Pacific Index. The measure climbed 0.6 percent to 151.77 at 5:30 p.m. in Tokyo, after yesterday posting its lowest close since June 14.

China's CSI 300 Index plunged 4.5 percent, the region's biggest drop. Japan's Nikkei 225 Stock Average added 0.5 percent to 17,932.27, halting a four-day, 2.1 percent loss. Benchmarks rose elsewhere in Asia, except for Indonesia, Malaysia and New Zealand.

HSBC Holdings Plc climbed in Hong Kong after the chief executive of Merrill Lynch & Co. said he sees few risks of widespread turmoil in credit markets as a result of rising defaults on U.S. subprime mortgages.

Oil Price

U.S. stocks rose yesterday for the first time in four days, helping the Standard & Poor's 500 Index climb 0.9 percent.

Cnooc jumped 4.1 percent to HK$8.81, snapping a five-day, 7.3 percent slump. PetroChina Co., the nation's largest oil explorer, climbed 2.5 percent to HK$11.62. Woodside Petroleum Ltd., Australia's second-largest producer, added 3 percent to A$45.75, while BHP Billiton Ltd., the largest, rose 2 percent to A$34.89.

Crude oil for August delivery gained 1.8 percent yesterday to $68.97 a barrel on the New York Mercantile Exchange and was recently at $69.11. Futures dropped 2 percent on June 26, the biggest loss in more than two weeks.

``We were due for some relief'' after recent losses, said Atul Lele, who helps manage about $380 million at White Funds Management in Sydney. ``Oil stocks are the clear winners from oil's jump yesterday, which is being sustained.''

Weaker Yen

Toyota, Japan's largest automaker, added 0.9 percent to 7,620 yen, its biggest advance since June 15. Goldman Sachs raised its rating on the stock to ``buy'' from ``neutral,'' while Nomura raised its rating on the industry to ``bullish'' from ``neutral.''

Japan's currency weakened to as low as 123.36 per dollar from 122.67 at yesterday's close of trading in Tokyo. The yen rose the most in 10 weeks against the dollar yesterday, completing three days of gains. Against the euro, it fell to 165.97 from 164.83 yesterday.

Honda Motor Co., Japan's No. 2 automaker by sales, climbed 2.1 percent to 4,420 yen, the most since June 11. Nissan Motor Co., the third biggest, added 1.4 percent to 1,301 yen. The shares also advanced after a report today said vehicle output in Japan by the country's 12 automakers rose 6.3 percent in May.

Nintendo Co., whose Wii game console is outselling rivals in the U.S., jumped 2.2 percent to 45,050 yen.

The yen has lost 4.3 percent against the dollar since the start of Japan's financial year in April, the worst performance among the 73 currencies tracked by Bloomberg, and 5.1 percent versus the euro. Most companies expected the currency to climb to about 114 per dollar this year, according to the Bank of Japan's latest Tankan business confidence report.

Significant Impact

``The yen has caught some people by surprise by how weak it's been and most people don't see the yen bouncing back too much,'' said Tathagata Guha Roy, who helps manage $1 billion for Alliance Trust Plc in Hong Kong. ``It has been significant enough'' to impact exporters' earnings.

LG.Philips, the world's second-largest maker of liquid- crystal displays, added 1.4 percent to 41,000 won. Woori raised its 12-month price estimate by 6.3 percent to 51,000 won.

LG.Philips' second-quarter consolidated operating profit, or sales minus the cost of goods sold and administrative expenses, will be 190 billion won ($205 million), compared with the market consensus of 61 billion won, analyst Young Park wrote in a report.

Taiwan Semiconductor, the world's largest customized-chip maker for computer and communication companies, rose 1.3 percent to NT$70.40. Lenovo Group Ltd., China's No. 1 personal-computer maker, surged 5.6 percent to HK$4.69.

`Solid Outlook'

Oracle, the world's third-largest software maker, said sales may rise to as much as $4.43 billion in its fiscal first quarter. Analysts had expected sales of $4.11 billion, according to a Bloomberg survey.

``The Oracle news signals the solid outlook for the computer-related industry,'' said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei.

Shares tumbled in China, sending the CSI 300 to its biggest drop since June 4. The China Financial Futures Exchange said today it will introduce futures based on the index, while the Ministry of Finance announced plans to raise 1.55 trillion yuan ($204 billion) selling bonds to fund the State Investment Co.

``Both these measures are bearish for the stock market as they tend to divert funds,'' said Wang Zheng, who manages the equivalent of $500 million at the asset management unit of Everbright Securities Co. in Shanghai.

About 40 stocks including Tianjin FAW Xiali Automobile Co. fell by the 10 percent daily cap on the CSI 300. Tianjin FAW, a Chinese partner of Toyota, slumped 0.93 yuan to 8.36. Huadian Power International Corp., a power producer in the eastern province of Shandong, plunged 0.81 yuan to 7.29.

`Containable'

HSBC, the world's third-largest bank by market value, gained 0.4 percent to HK$143.50. Two-thirds of HSBC's $10.6 billion in loan defaults last year were in North America.

Merrill Lynch Chief Executive Officer Stanley O'Neal said yesterday the rising foreclosure rates on U.S. subprime mortgages aren't sapping confidence in other parts of the global debt market.

Concern of subprime fallout ``will come and go,'' said Khiem Do, who helps oversee $8.7 billion at Baring Asset Management (Asia) Ltd. in Hong Kong. ``It's not the end of bad news. But it's definitely containable.''

Meanwhile, Hong Kong Exchanges & Clearing Ltd. jumped 2.2 percent to HK$108.90 on expectations a surge in share trading will boost profit at the operator of the city's stock market.

An average HK$75 billion ($9.6 billion) worth of shares changed hands in the past month, compared with HK$29 billion of daily turnover in the same period a year earlier. Shares of Hong Kong Exchanges were the best performers on the 39-member Hang Seng Index during the period.

U.S. Stocks Gain, Led by Oil, Technology Shares; Intel Rises

June 28 (Bloomberg) -- U.S. stocks rose, led by fuel producers and technology companies, after oil prices jumped and analysts upgraded Intel Corp. and Cisco Systems Inc. on prospects for profit growth.

Exxon Mobil Corp. and Chevron Corp., the biggest U.S. oil companies, advanced after crude prices rose to a nine-month high. Intel, the world's largest computer-chip manufacturer, and Cisco Systems, the biggest maker of networking equipment, led the Standard & Poor's 500 Index higher for a second day.

The potential for higher profit growth at technology companies and energy producers helped equities rebound from early losses spurred by a government report showing inflation climbed more than forecast in the first quarter. Economists expect the Federal Reserve to leave interest rates unchanged after meeting today and for the rest of the year.

``People are underestimating what earnings are going to do here,'' said Wayne Wicker, who helps oversee $31.5 billion as chief investment officer of Vantagepoint Funds in Washington. ``Increasing earnings and global growth are going to be responsible for higher equity prices later on this year.''

The S&P 500 rose 4.61, or 0.3 percent, to 1510.95 as of 12:42 p.m. in New York. The Dow Jones Industrial Average climbed 20.64, or 0.2 percent, to 13,448.37. The Nasdaq Composite Index added 11.3, or 0.4 percent, to 2616.65.

Oil Climbs

Crude oil for August delivery rose 1.7 percent to $70.14 a barrel in New York as U.S. refineries increased output of gasoline and other fuels.

Exxon added 42 cents to $83.90. Chevron climbed 61 cents to $84.50.

Technology shares in the S&P 500 increased 0.4 percent as a group and contributed the most to the index's advance.

Intel gained 22 cents to $24.01. Lehman Brothers upgraded the shares to ``overweight'' from ``equal weight,'' saying a new series of semiconductors designed for laptop computers may boost revenue and earnings growth.

Cisco climbed 93 cents to $28.20. Merrill Lynch & Co. upgraded the world's largest maker of computer networking equipment to ``buy'' from ``neutral,'' saying fiscal fourth- quarter earnings may exceed analysts' estimates on ``strong'' business demand.

Dillard's Inc. had the S&P 500's top gain after a group of investors sent a letter to the department-store chain urging management to take action that will lift the share price. The stock added $3.06, or 9 percent, to $36.99.

Dominion Resources Inc. jumped $3.94 to $87.49 after the largest U.S. utility owner said it will offer to buy back almost 16 percent of its stock, following through on a plan to use cash from sales of oil and gas assets to reduce shares outstanding.

Monsanto

Monsanto Co. added $1.24 to $67.24. The world's biggest seed producer said third-quarter profit jumped to $1.03 a share from 60 cents a year earlier as U.S. corn farmers bought more of the company's products to meet rising demand for ethanol and animal feed. Profit was projected to be $1 a share, the average estimate of eight analysts surveyed by Bloomberg.

A gauge of raw-materials producers in the S&P 500 climbed 0.5 percent, helped also by the biggest jump in copper prices in two weeks and a second day of gains in the price of gold.

Freeport-McMoRan Copper & Gold Inc., the world's largest publicly traded copper company, added 94 cents to $83.01.

Airlines climbed after JPMorgan upgraded the industry and said it expects mergers next year. American Airlines parent AMR Corp. added 96 cents to $26.81. Alaska Air Group Inc., parent of Alaska Airlines, rose $1.49 to $28.45. United Airlines parent UAL Corp. increased $1.33 to $40.28.

The Fed's preferred measure of inflation, which strips out food and energy costs, climbed at a 2.4 percent annual rate, faster than economists' forecast and the government's previous estimate, both of which were 2.2 percent. The economy grew at an annual rate of 0.7 percent in the first quarter, the slowest pace in four years.

The policy-making Federal Open Market Committee will hold its target for the benchmark overnight-lending rate between banks at 5.25 percent for an eighth consecutive meeting today, according to the unanimous forecast of economists surveyed. The announcement is due at about 2:15 p.m.

Immigration Legislation Blocked Again in U.S. Senate (Update1)

June 28 (Bloomberg) -- The U.S. Senate again blocked passage of comprehensive immigration legislation, almost certainly ending chances Congress will act this year on the centerpiece of President George W. Bush's domestic agenda.

Supporters got just 46 of the 60 votes needed to conclude debate and proceed to final passage. Fifty-three senators voted against cutting off debate.

The measure, the biggest rewrite of U.S. immigration law since 1986, would offer 12 million illegal immigrants a path to citizenship while tightening the border with Mexico and creating a guest-worker program to help employers fill low-paying jobs.

Today's vote dimmed prospects the House of Representatives would act on immigration. Bush's fellow Republicans in the House voted 114-23 this week vote to adopt a resolution disapproving of the Senate measure.

``This vote effectively kills comprehensive immigration legislation in the 110th Congress,'' said Representative Zoe Lofgren, the chairwoman of a House Judiciary subcommittee on immigration.

House Speaker Nancy Pelosi, a California Democrat, has said she wants the support of 50 to 70 Republicans before she would bring the immigration measure to a vote. The House hasn't acted on immigration legislation this year while awaiting the Senate outcome.

Today's vote came three weeks after Majority Leader Harry Reid, a Nevada Democrat, pulled the measure off the Senate floor when supporters lost a similar procedural vote to limit debate. The measure was revived after a bipartisan group agreed on a package of some two dozen amendments that would be voted on.

Republican opponents of the legislation denounced it as amnesty for lawbreakers and said their constituents demanded it be rejected, with our without any amendments.

U.S. Economy: First-Quarter Expansion Was Slowest in 4 Years

June 28 (Bloomberg) -- The U.S. economy expanded at an annual pace of 0.7 percent last quarter, the slowest in four years, and a gauge of inflation watched by the Federal Reserve was unexpectedly revised up.

The increase in gross domestic product compares with the 0.6 percent rate estimated last month and followed a 2.5 percent gain in the last three months of 2006, according to a Commerce Department report today in Washington. The price measure rose at the fastest rate since the second quarter of 2006.

The slower growth, combined with the greater-than-forecast inflation, increases the chances that the Federal Reserve, which is projected to leave rates unchanged today, will do so for many months. More recent reports on trade, retail sales and inventories suggest the pace of expansion has already picked up and may exceed 3 percent in the quarter ending this week.

``The economy will accelerate from the first half into the second half,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in New York. ``We are probably going to have continued pressures'' on inflation.

Economists forecast first-quarter growth would be 0.8 percent, according to the median of 73 estimates in a Bloomberg News survey. Projections ranged from 0.5 percent to 1.5 percent annual growth. Today's report is the final of three growth estimates.

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.4 percent annual rate, faster than the 2.2 percent previously estimated. The new estimate reflected higher costs for medical services.

Higher Prices

Some economists boosted forecasts for a report due tomorrow based on today's price revision. The Commerce Department's personal income and spending report was projected to show the price gauge rose 1.9 percent in the year ended May, easing within the 1 percent to 2 percent range preferred by policy makers such as Fed Chairman Ben S. Bernanke.

``Core inflation now is probably still running above 2 percent going into today's'' Fed meeting, said John Shin, an economist at Lehman Brothers Inc. in New York. ``That is significant. Inflation is still above the Fed's comfort zone.''

The policy-making Federal Open Market Committee will hold its target for the benchmark overnight-lending rate between banks at 5.25 percent for an eighth consecutive meeting today, according to the unanimous forecast of economists surveyed. The announcement is due at about 2:15 p.m.

Fewer Americans filed first-time claims for unemployment benefits last week, signaling the labor market remains healthy, a Labor Department report today also showed. Initial jobless claims decreased by 13,000 to 313,000 in the week that ended June 23.

Trade Deficit

Today's GDP revision mainly reflected a narrower trade deficit than previously estimated.

The trade gap last quarter was $606.2 billion at an annual pace, compared with $611.8 billion estimated last month. Trade subtracted 0.8 percentage point from growth, rather than the 1 percentage point estimated last month.

Companies reduced stockpiles at a $4.2 billion annual pace last quarter, compared with previous estimates of a $4.5 billion reduction.

``The inventory correction is over and with that usually comes an acceleration of growth,'' Jonathan Basile, an economist at Credit Suisse Holdings in New York, said before the report. ``What was ailing the economy last year and early this year is really behind us.''

One part of the economy still reeling is housing. Spending on residential construction projects fell at a 15.8 percent annual pace last quarter, after contracting at a 19.8 percent rate in the fourth quarter. The drop subtracted 0.9 percentage point from growth.

Home Sales

Combined sales of new and existing home dropped to a 6.905 million annual pace last month, the lowest level in four years, according to figures from the Commerce Department and the National Association of Realtors. Builders broke ground on fewer homes last month and the drop in sales suggests the slump will persist, economists said.

``We continue to see weak, and perhaps deteriorating, market conditions,'' Stuart Miller, chief executive officer of Lennar Corp., said in a statement this week. ``We currently expect to be in a loss position in our third quarter.''

Miami-based Lennar, the largest U.S. homebuilder, reported an unexpected loss for the quarter ended May 31 and said losses may persist into the next three months. New orders last quarter dropped 31 percent even as incentives rose 77 percent.

Bernanke said this month that restrictions on the availability of mortgage credit may slow housing demand even more. At the same time, he and other officials have said the slump hasn't spilled over into other parts of the economy.

Spending Moderating

Consumer spending will probably cool this quarter as record gasoline prices siphon money away from purchases of other goods and services, economists said.

Spending, which accounts for more than two-thirds of the economy and grew at a 4.2 percent annual rate last quarter, will expand at about half that pace this quarter, according to the median estimate of economists surveyed earlier this month.

The rebound in growth this quarter is based on trade and inventories rather than stronger demand, so the improvement is unlikely to be sustained, according to Jan Hatzius, chief U.S. economist at Goldman.

``Economic growth in the first half of 2007 is shaping up to look much stronger than seemed likely a couple of months ago,'' Hatzius said in a June 22 note to clients. ``The caveat is that final domestic demand is softening, a development that could foreshadow a renewed slowdown later in the year.''

Business Investment

A report yesterday cast doubt on the strength of a rebound in business investment. Durable goods orders excluding transportation equipment unexpectedly dropped 1 percent in May, according to a report from Commerce.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, dropped 3 percent, and shipments of those items, used in calculating GDP, fell 0.2 percent, the report also showed.

Increases in business investment are key to sustaining the expansion now that consumer spending is cooling, economists said.

Today's GDP report included a revised look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, rose 1.4 percent. For all of last year, profits were up 21 percent.

Asian Stocks Slide to Two-Week Low on Metals, U.S. Home Sales

Toyota Motor Corp.'s Premio

June 27 (Bloomberg) -- Asian stocks fell to the lowest in two weeks after commodity prices dropped and on concern a U.S. housing slump will curb growth in the region's biggest export market.

Toyota Motor Corp., Japan's largest automaker, declined the most in almost three weeks. BHP Billiton Ltd., the world's biggest mining company, slid for a third day, its longest losing streak since January.

``It's not a great time for exporters, and we have lower commodities driving the miners down too,'' said Hans Kunnen, who helps manage $107 billion at Colonial First State Global Asset Management in Sydney. ``Markets seem unable to push higher as we get more news every day about the U.S. economy, particularly the housing troubles there.''

Shanghai Automotive Co. paced China's CSI 300 Index to a second day of gains after a government report showed profits by industrial companies jumped.

All 10 industry groups that make up the Morgan Stanley Capital International Asia-Pacific Index retreated. The measure, which rose to a record last week, lost 1.2 percent to 151.03 as of 7:33 p.m. in Tokyo, the lowest since June 14 and its biggest slide since June 8.

Japan's Nikkei 225 Stock Average dropped for a fourth day, falling 1.2 percent to 17,849.28, its longest string of declines in three months. Australia's S&P/ASX 200 Index slid 2 percent, the most since March 14. Benchmarks fell elsewhere in the region, except in Thailand and Pakistan.

In the U.S., the Standard & Poor's 500 Index slid 0.3 percent yesterday, heading for its biggest monthly retreat in more than a year. Purchases of new homes dropped in May, a report by the Commerce Department showed, while an index of consumer confidence fell this month to the lowest since August.

Reassessing the Risks

Toyota, which made almost two-thirds of its sales outside Japan last year, slipped 1.7 percent to 7,550 yen, the most since June 8. James Hardie Industries NV, the No. 1 maker of home siding in the U.S., dropped 3.2 percent to A$8.59, the lowest since April 17. HSBC Holdings Plc, who North American business generated 21 percent of its total pre-tax profit in 2006, lost 0.8 percent to HK$143. Samsung Electronics Co., the world's largest memory-chip maker, declined 1.2 percent to 581,000 won.

``The U.S. housing market is looking bad,'' said Koshi Kumagai, a fund manager at BNP Paribas Asset Management in Tokyo, which manages about $438 billion in assets worldwide. ``Global investors are now reassessing how much risk they're willing to take and that's causing shares to fall.''

Meanwhile, Japan's currency climbed for a third day against the dollar, trading at 122.69 at the close of share trading in Tokyo. The currency fell to a more than four-year low of 124.14 on June 22. The yen also gained against the euro for a third day to 164.84, from a record low of 166.94 last week.

Sony Corp., the maker of the Vaio computer and PlayStation console, lost 2.2 percent to 6,260 yen. Canon Inc., the world's largest digital-camera maker, slid 2.3 percent to 7,210 yen.

Metals, Oil

BHP Billiton retreated 1.8 percent to A$34.20. Its three-day loss is the longest since the period ended Jan. 8. Rio Tinto Group, the third biggest, fell 2.6 percent to A$95.75, extending a five- day, 2.8 percent drop. Sumitomo Metal Mining Co., Japan's biggest nickel producer, dropped 3.9 percent to 2,625 yen.

Signs of slowing consumption in China and the U.S., the world's largest users of copper, helped push prices of the metal 1.5 percent lower yesterday. Zinc and nickel prices also fell, sending a measure of six metals traded on the London Metal Exchange down 2.1 percent, its biggest drop since June 12.

Crude oil for August delivery fell 2 percent to $67.77 a barrel in New York yesterday, the biggest one-day decline since June 8. Futures were recently trading at $67.69.

Inpex Holdings Inc., Japan's largest oil explorer, slid 1.7 percent to 1.13 million yen. Santos Ltd., Australia's third- biggest producer, fell 3.4 percent to A$13.80. Cnooc Ltd., China's biggest offshore oil explorer, lost 1.6 percent to HK$8.46.

China Gains

Stocks in China gained after a government report showed profits generated by industrial companies climbed. Combined net income for five months through May 31 increased 42.1 percent from a year earlier to 902.6 billion yuan ($119 billion), the National Bureau of Statistics said today. Total sales jumped 27.4 percent to 14.2 trillion yuan.

``The figures boosted optimism about first-half earnings for listed companies,'' said Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, which manages about $517 million. ``Growth is still pretty fast.''

Shanghai Automotive, China's largest automaker, climbed 4 percent to 18.95 yuan. Shanghai Zhenhua Port Machinery Co., the world's biggest maker of container cranes, rose 7.3 percent to 20.77 yuan.

Melco International Development Ltd., a casino operator in Macau, southern China, soared 6.8 percent to HK$11.60 in Hong Kong, its biggest advance since April 3 and the No. 1 percentage gainer on the MSCI World Index. The company will operate the gaming operations of Playboy Enterprises Inc.'s entertainment complex in Macau, said Christie Hefner, Playboy's chairman and chief executive.

U.S. Stocks Advance, Led by Energy Producers; Oracle Gains

Freddie Mac headquarters, McLean, Virginia

June 27 (Bloomberg) -- U.S. stocks rose after a rebound in oil lifted energy producers and technology companies rallied on Oracle Corp. results that beat analyst estimates.

Exxon Mobil Corp., the biggest crude producer, and Chevron Corp., the second largest, advanced. Oracle, the No. 3 software maker, gained after saying sales may rise 21 percent.

The Standard & Poor's 500 Index added 1.91, or 0.1 percent, to 1494.8 as of 12:10 p.m. in New York. The Dow Jones Industrial Average slid 4.88 to 13,332.78. The Nasdaq Composite Index increased 8.6, or 0.3 percent, to 2582.76.

Exxon gained 98 cents to $82.80. Chevron climbed 82 cents to $83.52.

Crude oil for August delivery rose 44 cents to $68.21 a barrel in New York after an Energy Department report showed an unexpected decline in U.S. gasoline inventories last week.

Oracle added 34 cents to $19.50. The software industry's most acquisitive company said sales may rise as much as 21 percent in the quarter ending Aug. 31 to between $4.32 billion and $4.43 billion. Analysts had expected sales to rise 15 percent to $4.11 billion, according to a Bloomberg survey.

Brown Plans Change in U.K. to Meet Ordinary Concerns (Update2)

Gordon Brown, U.K. prime minister

June 27 (Bloomberg) -- Prime Minister Gordon Brown, who replaced Tony Blair today, said he will change the face of British politics by reaching across party lines and addressing the concerns of ordinary voters on education, health and housing.

``This need for change cannot be met by the old politics,'' Brown said in Downing Street after his formal appointment. ``I will reach out beyond narrow party interest. I will build a government that uses all the talents.''

Brown, 56, is seeking to revive the ruling Labour Party's flagging popularity after a decade in office under Blair. Brown, who served all that time as chancellor of the exchequer, is attempting to convince voters that his administration marks a change in the way the nation is governed. The Conservative opposition says only new leadership will improve schools, hospitals and police.

``Gordon Brown has always been a very important part of Tony Blair's government,'' Iain Duncan Smith, a former Conservative leader, said in an interview. ``The way we will deal with this is to take him seriously but to recognize his failings and to remind everyone that he didn't arrive out of nowhere.''

Election and Iraq

With three years before he must call another election, Brown has said he will focus on housing, health and education to improve Labour's standing with voters. Blair stepped aside after his support within the party and the electorate ebbed away as opposition to the war in Iraq mounted.

Blair will become an envoy to the Middle East for the ``Quartet'' including the U.S., United Nations, European Union and Russia and step down as a member of the U.K. Parliament.

Brown made his first remarks after meeting Queen Elizabeth II at Buckingham Palace earlier today. In a private ceremony, known as the ``kissing of hands,'' she asked him to form a government. Brown was elected unopposed as leader of the ruling Labour Party on June 24.

His first task is to appoint the rest of his government. Many of those appointments will be made tomorrow at ``lunchtime,'' according to his spokesman, Michael Ellam. Brown will also make changes to the machinery of government that will become apparent when the Cabinet is named, Ellam said.

Trade and Industry Secretary Alistair Darling is most likely to take over from Brown as chancellor of the exchequer, according to Ladbrokes, the world's biggest betting company.

`Need for Change'

``I have heard the need for change,'' Brown said. ``Change in our NHS. Change in our schools. Change with affordable housing. Change to build trust in government. Change to protect and extend the British way of life.''

In most opinion polls published during the past year, Labour has trailed the Conservatives, under leader David Cameron, 40. A YouGov Plc poll published today showed Labour with the support of 36 percent of voters compared with 37 percent for the opposition. The survey of 2,080 people was conducted June 22-25.

``For a political party that has been in power for 10 years the task of refreshing is pretty hard but in Gordon we see a figure of substance compared to David Cameron,'' said Hazel Blears, who served as Labour Party chairman under Blair.

Yesterday, Brown scored an early victory when Conservative lawmaker Quentin Davies announced his defection to Labour, saying that under Cameron's leadership the party has ``ceased collectively to believe in anything.''

Conservative Position

``An opposition party should be in a better place by now if it wants to win the next general election,'' Stephan Shakespeare, chief executive of YouGov, said in an interview. ``Although Cameron wins in the polls on charisma, he loses on toughness and leadership.''

The new prime minister's most immediate challenge will be to break from Blair's legacy in Iraq. More than three-quarters of British voters want the government to set a timetable to bring troops home or to pull them out immediately, according to a YouGov Plc poll finished on June 7.

Brown has already said ``mistakes'' were made ahead of the 2003 invasion of Iraq, though he has rebuffed calls for an independent inquiry into the decision. The U.K. is in the process of cutting the size of its force in Iraq to about 5,500 soldiers this summer from 7,100 in February.

Beginning his leadership campaign on May 11, Brown said education is his ``passion'' and the state-run National Health Service his ``immediate priority.''

Budget Squeeze

His new chancellor also must reduce a budget deficit. Brown ran up deficits totaling 169.4 billion pounds ($338 billion) in the five fiscal years since 2003, erasing three years of surpluses he built after taking office in 1997. The Treasury expects the shortfall to decline to 24 billion pounds in the 2011 fiscal year from 34 billion pounds last year, assuming it can cut the pace of spending growth in half.

The Institute of Fiscal Studies estimates that non-health and education spending growth must slow to 0.5 percent through 2011 if Brown keeps expanding health spending at 4.4 percent, the rate recommended by a report he commissioned in 2001.

``Spending will go back to half the rate departments had got used to in recent years,'' said Carl Emerson, deputy director at the IFS.

In March, Brown set out the size of the spending envelope through 2011. His successor will release a Comprehensive Spending Review in October divvying up the money. The figures call for public spending to rise 2 percent a year through that period, half the pace of the previous few years.

Education Ambition

On Sunday, Brown repeated his commitment to increasing education spending per pupil from 5,500 pounds a year to 8,000 pounds a year. In his emotional remarks in Downing Street, Brown recalled his childhood in Kirkcaldy, a district north of Edinburgh he now represents, and the importance of education.

``I grew up in the town that I now represent in Parliament, and I went to the local school,'' Brown said. ``I wouldn't be standing here without the opportunities that I received there. I want the best of chances for everyone. That is my mission.''

He also said he wanted to help young people who can't afford to buy their first homes. House prices tripled while Brown was chancellor. On May 13, he promised to spur construction of five new environmentally friendly cities as part of a plan to supply 200,000 new homes a year, up from an annual average of 148,000 between 1989 and 2005.

``Affordable homes for all is a very good cause to have adopted,'' said Andrew Cooper, co-founder of Populus Ltd., which conducts polls. ``It's a growing problem related to aspiration among middle classes as well as equality among the poor.''

U.S. Economy: Orders for Durable Goods Drop in May (Update1)

A customer looks at washing machines

June 27 (Bloomberg) -- Orders for U.S. durable goods fell more than forecast in May, the first report to cast doubt on the strength of the rebound in business investment.

Demand for goods meant to last several years fell 2.8 percent, the first drop in four months, after a revised 1.1 percent gain in April that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders dropped 1 percent.

The decline, which was led by fewer orders for aircraft, metals, and machinery, spurred some economists to cut forecasts for economic growth this quarter. Federal Reserve policy makers, who predict a pick up in the pace of economic expansion later this year, are forecast to keep interest rates unchanged when their two-day meeting ends tomorrow.

``The optimism about business spending maybe was a bit overdone,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``The economic rebound will be pretty modest.''

Treasury notes extended gains after the report. The yield on the benchmark 10-year note fell about 4 basis points to 5.04 percent at 10:18 a.m. in New York.

Economists forecast durable goods would fall 1 percent after an initially reported 0.8 percent rise in April, according to the median of forecasts in a Bloomberg News survey.

Excluding transportation equipment, orders were forecast to rise 0.2 percent, according to the survey median, after a previously reported 1.9 percent gain.

`Risk Averse'

``It's clear that businesses are still somewhat risk averse and that they are being cautious in light of the softness in the economy,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Capital spending is not moving forward with the strength we had hoped.''

Economists prefer to track the durable goods figures excluding transportation because orders for aircraft and automobiles tend to be volatile from month to month, obscuring underlying trends in spending.

Total orders have never been up for four months in a row since comparable records began in 1992. The last time bookings for durable goods rose for three consecutive months was from April through June 2005.

Forecasts Trimmed

Following the report, economists at Morgan Stanley in New York lowered their forecast for economic growth this quarter to an annual pace of 3.8 percent from a previous estimate of 4.2 percent. HSBC Securities USA Inc. in New York lowered its estimate to 3.2 percent from 3.5 percent.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, dropped 3 percent, the most since January, after increasing 2.3 percent in April. Shipments of those items, used in calculating gross domestic product, fell 0.2 percent after rising 0.9 percent a month earlier. Unfilled orders for such goods rose 0.6 percent.

Orders for commercial aircraft slumped 23 percent in May after dropping 11 percent in April. Boeing Co. received 92 plane orders in May, down from 136 a month earlier, according to its Web site. The government's figures don't always correlate with industry reports.

Demand for machinery fell 1.6 percent and bookings for metals dropped 3.6 percent.

Inventories

Orders excluding of military gear fell 3.2 percent last month after rising 1.2 percent in April. Inventories of all durable goods rose 0.2 percent. Manufacturers had a 1.46 month's supply of durable goods on hand at the current sales pace in May, the same as in April.

The figures contrast with other reports this month that had shown a pick up in manufacturing as production ramps up to fill increasing orders.

Manufacturing in the Philadelphia region accelerated in June at the fastest pace in more than two years as orders surged, a June 21 report from the Federal Reserve Bank of Philadelphia showed. A similar index from the New York Fed rose to a one-year high.

The Fed factory reports followed a survey from the Institute for Supply Management, which said that manufacturing accelerated last month at the fastest pace in a year.

Manufacturing gained in a majority of Fed districts, the central bank said this month in its regional survey known as the Beige Book. The report will be used by policy makers at their meeting today and tomorrow, after which they are projected to keep interest rates unchanged for an eight consecutive time.

Corporate Investment

Before today's report, economists forecast increased corporate investment and improving demand from overseas would help revitalize growth after the economy expanded at the slowest pace in more than four years during the first quarter.

Some industries are still grappling with too much inventory.

Charlotte, North Carolina-based Nucor Corp., the second- largest U.S.-based steel company, said earlier this month second-quarter profit probably will fall because of slumping metal demand by automakers and homebuilders. U.S. shipments fell after customers stocked up on steel during the first quarter, the company said.

Industrial production stalled last month, in part because manufacturers of cars and machinery scaled back, according to a Fed report on June 15.

Asian Exporter Stocks Fall on U.S. Spending Concern; Sony Drops

June 26 (Bloomberg) -- Asian exporter stocks fell on concern a slump in U.S. housing will curb spending in the world's biggest economy.

Sony Corp., which made 70 percent of its sales overseas last year, and Hon Hai Precision Industry Co., whose customers include Apple Inc., led declines after sales of previously owned homes fell to the lowest in almost four years.

``We had news the past few days suggesting the U.S. housing sector is coming back to haunt all markets,'' said Jason Teh, who helps manage about $4.3 billion at Investors Mutual Ltd. in Sydney. ``We stay away from all investments that are directly linked to that industry.''

China's CSI 300 Index gained, reversing earlier losses, as investors judged as excessive a tumble of as much as 12 percent from its closing high a week ago.

The dollar-denominated Morgan Stanley Capital International Asia-Pacific Index added 0.1 percent to 152.98 at 7:40 p.m. in Tokyo. More than three stocks declined for every two that rose.

SK Corp., South Korea's biggest oil refiner, surged after Samsung Securities Co. raised its stock-price estimate by 29 percent. Sun Hung Kai Properties Ltd. jumped after Goldman, Sachs & Co. increased its rating on the Hong Kong developer's shares to ``buy.''

Japan's Nikkei 225 Stock Average lost 0.1 percent to 18,066.11. Benchmarks fell also fell in Australia, New Zealand, Hong Kong, South Korea, Taiwan, Malaysia and Singapore, whose Straits Times Index slid 1.5 percent, the most in the region.

`Very Worrying Situation'

U.S. stocks slid yesterday after a report showed purchases of previously owned homes declined 0.3 percent in May, while the supply of unsold houses jumped to a record, the National Association of Realtors said. Shares also dropped on speculation Bear Stearns Cos. may have to salvage a second hedge fund that incurred losses linked to subprime, or high risk, mortgages.

Sony, the world's biggest maker of game consoles, lost 0.9 percent to 6,400 yen. Taiwan's Hon Hai, the largest contract- manufacturer of electronics for customers including Apple Inc., dropped 1.9 percent to NT$282.50. James Hardie Industries NV, the No. 1 supplier of home siding in the U.S., slid 1 percent to A$8.87 in Australia.

Subprime defaults may eventually affect U.S. consumption, and ``the market is only just now factoring in that possibility,'' said Allan Conway, who oversees about $10 billion as head of emerging-market equities at Schroder Investment Management Ltd. in London. ``The complacency is starting to disappear and it's a very worrying situation,'' he said at a seminar in Seoul.

China Reverses Loses

Citic Securities Co., the country's most profitable brokerage, rose 1.5 percent to 56.10 yuan. The stock, which fell as much as 3.8 percent earlier today, slumped 13 percent in the past five days. Founder Technology Group Corp., the second- largest computer maker, jumped the 10 percent daily limit to 12.86 yuan, snapping a four-day, 23 percent decline.

China's CSI 300 gained 1.3 percent, snapping a two-day 7.6 percent slide. The measure was lower for most of the day as investor demand for stocks slowed.

Investors opened a daily average of 271,000 brokerage accounts for investments in mainland shares and mutual funds this month, down from an average 440,000 in May, according to the China Securities Depository & Clearing Corp.

``The sharp decline provides a good buying opportunity for investors chasing short-term profits,'' said Wei Wei, an analyst at West China Securities Co. in Shanghai.

SK, Sun Hung Kai

SK Corp. surged 8.7 percent to 125,000 won. Samsung Securities Co. raised its six-month stock-price estimate to 152,000 won from 118,000 won.

The company's full-year operating profit, or sales minus the cost of goods sold and administrative expenses, may be 1.64 trillion won, 13 percent higher than Samsung Securities' previous estimate. Investors should buy the stock before trading is halted for one month starting June 28 prior to the company's split into holding and operating companies, wrote Thomas Yi, an analyst.

Sun Hung Kai, Hong Kong's second-biggest developer by market value, advanced 2.5 percent to HK$93.70, the most since Jan. 15.

Goldman Sachs raised its recommendation on the shares to ``buy'' from ``neutral.'' The company may acquire more land in China, analysts at the brokerage, including Anthony Wu, wrote in a research note today.

Cosco, Posco

China Cosco Holdings Co. plunged in Hong Kong as some investors judged the stock's recent gains excessive, while its Shanghai-listed shares doubled on their debut.

China Cosco, Asia's largest container line, slid 2.3 percent to HK$11.74. The stock's 14-day relative strength index was at 74 yesterday, above the 70 mark that some analysts take as a sign the shares may fall. China Cosco surged 19 percent in the five days to June 22.

The company sold 15.1 billion yuan ($1.98 billion) of shares to buy new ships and a stake in a logistics company. The stock surged 93 percent to 16.38 yuan in Shanghai.

Posco, the world's fourth-biggest steelmaker, lost 1.1 percent to 443,000 won in South Korea. CJ Investment & Securities Co. said the ``weakness'' in global steel prices may continue for longer than expected.

Steel consumption in China has slowed by ``a large degree'' and the Beijing Olympics-related boost in demand may peter out this year, wrote Chung Ji Yun, an analyst at CJ Investment, in a report.

Kroger, Steelcase, Steak n Shake, Synnex: U.S. Equity Movers

June 26 (Bloomberg) -- The following is a list of companies whose shares are having unusual price changes in U.S. exchanges today. Stock symbols are in parentheses after company names. Share prices are as of 11:40 a.m. New York time.

Celgene Corp. (CELG US) gained $1.64, or 2.9 percent, to $57.89. The maker of drugs to treat blood cancers was raised to ``overweight'' from ``equal weight'' by Lehman Brothers Inc. Celgene will be the ``top revenue and earnings performer'' among large biotechnology companies, analyst Jim Birchenough wrote in a note to clients.

Christiana Bank & Trust Co. (CBTD US) jumped $9.95, or 38 percent, to $35.85. National Penn Bancshares Inc. (NPBC US) agreed to buy Christiana Bank for $37.85 a share.

Dolby Laboratories Inc. (DLB US) rose $1.58, or 4.8 percent, to $34.24. Shares of the audio technology company were raised to ``overweight'' from ``neutral'' by JPMorgan's Paul Coster, who said that proliferation of digital television and other new technologies will drive growth. Coster raised his earnings forecast for this year to $1 a share. Analysts expect $1.04, the average estimate in a Bloomberg survey.

Energy East Corp. (EAS US) rose $3.94, or 17 percent, to $26.48. Iberdrola SA (IBE SM) agreed to buy the provider of energy services in the northeast U.S. for $4.5 billion, or $28.50 a share in cash. Shares rose 17 cents to $22.54 in regular trading yesterday. Goldman Sachs raised its rating on the shares to ``neutral'' from ``sell'' and Jefferies raised its rating on the stock to ``hold'' from ``underperform.''

First Community Bancorp Inc. (FCBP US) rose $1.11, or 2 percent, to $57.09. Standard & Poor's said that the California- based bank holding company will replace Investors Financial Services Corp. in the S&P MidCap 400 index.

FreightCar America Inc. (RAIL US) fell 58 cents, or 1.2 percent, to $48.82. The maker of railroad freight cars said in a statement on Business Wire that it expects a second-quarter profit of 85 cents to 95 cents a share. Four analysts estimated the company would post a net income of $1.20 a share, the average in a Bloomberg survey.

GeoPharma Inc. (GORX US) rose 11 cents, or 2.6 percent, to $4.20. The medical products maker said in a statement sent by PR Newswire that fourth-quarter revenue rose 7.9 percent to $14.4 million.

General Growth Properties Inc. (GGP US) rose $1.31, or 2.5 percent, to $52.88. The second-largest owner of U.S. shopping malls by market value will replace Mellon Financial Corp. in the Standard & Poor's 500 Index, S&P said yesterday in a statement posted on its Web site.

Huntsman Corp. (HUN US) rose $5.35, or 28 percent, to $24.25. Basell Holdings NV agreed to buy Huntsman for $9.6 billion, including debt. Huntsman shareholders will receive $25.25 a share, Hoofddorp, Netherlands-based Basell said in an e- mailed statement.

IXYS Corp. (IXYS US) fell 88 cents, or 9 percent, to $8.88. The chipmaker reduced its revenue forecast for the current quarter, predicting sales of as much as $72 million. The company had anticipated $74 million.

Kroger Co. (KR US) fell $1.72, or 5.8 percent, to $27.94. The biggest U.S. supermarket chain said first-quarter earnings rose less than analysts estimated and profit margins fell on costs from a strike in Kentucky and competition with Wal-Mart Stores Inc. (WMT US).

Steak n Shake Co. (SNS US) rose $2.22, or 15 percent, to $17. The restaurant chain said in a U.S. Securities and Exchange Commission filing that hedge fund HBK Investments LP owned a 9.5 percent stake.

Steelcase Inc. (SCS US) fell $1.31, or 6.6 percent, to $18.50. The maker of office furniture said that, excluding some items, it expects to earn 19 cents to 24 cents a share in the second quarter. Analyst Matthew McCall at BB&T Capital Markets forecast 30 cents.

Synnex Corp. (SNX US) fell $1.18, or 5.5 percent, to $20.35. The provider of supply-chain services to the computer industry said it expects to earn 44 cents to 46 cents a share in the third quarter. Six analysts surveyed by Bloomberg had an average estimate of 46 cents.

Ventana Medical Systems Inc. (VMSI US) rose $25.29, or 49 percent, to $77.03. Roche Holding AG (ROG VX), the world's biggest maker of diagnostic tests, offered to buy Ventana for about $3 billion, or $75 a share, in cash.

W Holding Inc. (WHI US) fell $1.61, or 32 percent, to $3.40. The owner of Westernbank Puerto Rico disclosed in a filing with the U.S. Securities and Exchange Commission that one of its larger asset-based loans is ``impaired.''

White House Rejects Lugar's Call to Change Iraq War Policy

June 26 (Bloomberg) -- White House officials today rejected Republican Senator Richard Lugar's call for an immediate change of course in Iraq war policy, saying Congress should give the troop increase a chance to succeed.

Lawmakers should ``give the Baghdad security plan an opportunity to unfold'' before a September assessment due to Congress, White House spokesman Tony Snow told reporters today.

Army General David Petraeus is scheduled to report in September on whether President George W. Bush's policy, including sending 21,500 more combat troops into Iraq, is succeeding in reducing sectarian violence.

Lugar, 75, the top Republican on the Foreign Relations Committee, said yesterday that the troop increase strategy isn't working and the U.S. should alter its approach. While Democrats and some Republicans have opposed Bush's Iraq policy, Lugar hasn't previously called for a course change in Iraq.

``In my judgment, the costs and risks of continuing down the current path outweigh the potential benefits that might be achieved,'' said Lugar, of Indiana. ``Persisting indefinitely with the surge strategy will delay policy adjustments that have a better chance of protecting our vital interests over the long term.''

Lugar's comments are ``really not new,'' Snow said today. ``We've known that he's had reservations about the policy for some time.''

Senate Democratic Leader Harry Reid said that Lugar's remarks are a ``turning point'' in the debate and will aid Democrats' call for reduced U.S. troop levels.

``I look forward to working with Senator Lugar, and I hope and believe a growing number of Republicans, to put his words into action by delivering the responsible end to the war that the American people demand and deserve,'' Reid said.

House Majority Leader Steny Hoyer of Maryland said today that debate on Iraq will resume in the House next month when the chamber debates the annual defense spending legislation.

U.S. Economy: Consumer Confidence, Housing Weaken (Update1)

June 26 (Bloomberg) -- Consumer confidence in the U.S. dropped more than forecast and two other reports signaled that demand for houses is still falling in the second year of the home-building slowdown.

The New York-based Conference Board's index of consumer confidence fell to 103.9 in June from a revised 108.5 the prior month. Purchases of new homes fell 1.6 percent last month to an annual pace of 915,000, the Commerce Department reported in Washington, and housing prices in 20 cities in April fell by the most in at least six years, according to S&P/Case-Shiller.

Dwindling property values may further erode the confidence of shoppers, whose spending kept the economy afloat for the past year. While the Federal Reserve -- which begins a two-day meeting tomorrow that is likely to keep interest rates unchanged -- projects that economic growth will pick up in coming months, further such declines may call that into question.

``There are some pretty significant negative risks for economic growth,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``We are not at the bottom yet in housing. One of the biggest questions is how much longer can the consumer hang on, given the strong headwinds.''

Stocks surrendered gains after the reports before rebounding, while Treasury notes fell. The yield on the benchmark 10-year bond was 5.011 percent at 12:02 p.m. in New York.

The Conference Board's index was forecast to fall to 105, according to the median estimate in a Bloomberg survey of 69 economists, from an originally reported 108.

Labor Market

More Americans said jobs were getting harder to find, the survey showed, while gasoline prices have held near $3 a gallon after reaching an all-time high last month.

The share of consumers who said jobs are plentiful declined to 27 percent, the lowest since November, from 29.1 percent. The proportion who said jobs are hard to get rose to 21.1 percent from 19.7 percent.

The Conference Board's measure of present conditions fell to 127.9 from 136.1. The gauge of expectations for the next six months declined to 87.9 from 90.1.

``The housing market will be a damper on the consumer,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Mortgage equity withdrawal won't be a contributor to consumer spending.''

Housing Slump

A jump in mortgage rates this month and a glut of unsold properties on the market will continue to discourage home construction, economists said. The housing slump, already the worst since 1991, will restrain the economy for the rest of the year and potentially into next.

``The housing market is in a contractionary phase and we don't expect that to end anytime soon,'' said Julia Coronado, a senior economist at Barclays Capital Inc. in New York. ``We won't see another huge decline, housing will just sort of glide down.''

Economists forecast new home sales would decline to a 924,000 annual pace from an originally reported 981,000 rate the prior month, according to the median estimate in a Bloomberg survey of 72 economists.

Home values in the U.S. declined 2.1 percent in April from the same month a year earlier, according to a report today by S&P/Case-Shiller. It was the fourth straight drop in the group's index, which started in 2001.

Deteriorating Conditions

The confidence survey showed 16.4 percent of Americans think overall business conditions are deteriorating, up from 14.6 percent last month.

A survey by Reuters/University of Michigan released earlier this month showed sentiment also fell more than forecast in June. While the University of Michigan and Conference Board surveys generally track each other, the Conference Board's focuses more on labor market conditions.

More Americans filed first-time claims for unemployment benefits in the week ended June 16, suggesting the labor market may be starting to cool. While unemployment is at 4.5 percent, the second-lowest in six years, economists forecast the jobless rate to creep higher in coming months.

Consumer spending grew at a 4.4 percent rate in the first quarter, the biggest gain in a year. Consumer spending may slow to half that rate in the second quarter, according to the median forecast of economists surveyed by Bloomberg News.

Consumer Electronics

Best Buy Co., the largest U.S. consumer-electronics chain, said last week that earnings in the quarter ended June 2 fell more than analysts estimated. The Richfield, Minnesota-based company lowered its profit forecast for the year.

Consumer spending was also hurt by declining house prices and higher fuel costs, Chief Executive Officer Brad Anderson said in an interview June 19.

For now, higher wages are helping cushion the effects of gas prices and the housing slump for the consumer. Average hourly earnings were up 3.8 percent in May from the prior year, the government said June 1.

Consumer spending and retail sales were ``generally up,'' and several banks reported faster sales of ``luxury items'' than lower-end goods, the Fed said this month in its regional survey known as the Beige Book. In four districts, Fed contacts reported sales were ``disappointing or below expectations.''

Asian Stocks Decline on U.S. Home Sale Concern; Taiwan Advances

June 25 (Bloomberg) -- Asian shares fell, led by Sony Corp. and BHP Billiton Ltd., on concern figures this week will show a drop in U.S. home sales, signaling declining demand in the region's largest export market.

``Stocks globally take a fall every time there's more bad news on U.S. housing-related or lending data because there's a threat that this may spill over into other parts of the economy,'' said Eric Betts, a strategist at Nomura Australia Ltd. in Sydney. ``This wouldn't be good for companies that depend on the U.S. consumer.''

Citic Securities Co. led the CSI 300 Index to its biggest drop in three weeks after China's central bank governor Zhou Xiaochuan said the country's shares may be overvalued and interest-rate increases couldn't be ruled out.

The Morgan Stanley Capital International Asia-Pacific Index slid 0.4 percent to 153.03 as of 7:15 p.m. in Tokyo. Japan's Nikkei 225 Stock Average lost 0.6 percent. Taiwan Semiconductor Manufacturing Co. led the Taiex Index to a seven-year high after Citigroup Inc. raised its recommendation on the island's stock market. Thailand, India, Pakistan and Vietnam were the only other benchmarks in the region to rise.

Takeda Pharmaceutical Co. advanced after a study found the company's Actos drug may lower the risk of heart attack and death in diabetic patients with kidney disease.

U.S. stocks dropped on June 22, sending the Standard & Poor's 500 Index to its worst week since early March. The near collapse of a Bear Stearns Cos. hedge fund spurred speculation investors will have to write down the value of securities containing subprime mortgages.

Home Sales

Sony, the world's biggest maker of game consoles, fell 1.4 percent to 6,460 yen. BHP Billiton, the biggest mining company, lost 1.2 percent to A$34.94. Hynix Semiconductor Inc., the world's second-largest memory chipmaker, dropped 2.9 percent to 33,700 won.

A report later today from the National Association of Realtors may show sales of previously owned homes fell to an annual pace of 5.972 million in May from 5.99 million a month earlier, according to the median estimate of economists surveyed.

Tomorrow, the Commerce Department is forecast to report new homes sold at a 925,000 annual rate, down from April's 981,000 pace. The total of 6.897 million of combined sales based on the two estimates would be the lowest since April 2003.

Bubble Warning

Citic Securities, China's biggest publicly traded brokerage, lost 4.6 percent to 55.55 yuan. Shanghai International Airport Co., operator of the country's second-busiest airfield, fell 4.5 percent to 38 yuan. The CSI 300, which dropped 4.3 percent today after a 3.5 percent decline on June 22, has almost doubled in value this year.

China is worried its equity markets may be overvalued and is watching developments closely, Zhou told reporters in Basel, Switzerland, where he attended a meeting of central bankers at the weekend.

``We don't rule out further rate increases if necessary'' and inflation remains a concern, Zhou said.

``Zhou's remarks are damping sentiment in the market and as a result investors may be selling for fear of further'' policy initiatives, said Fan Dizhao, who helps manage about $1.8 billion at Guotai Asset Management Co. in Shanghai.

Taiwan's Taiex jumped 1.4 percent, to its highest since June 2000. Citigroup, the world's largest financial services company, raised its rating on the market to ``overweight'' from ``underweight.''

Government Approval

``Taiwan stocks are undervalued,'' said Eric Chou, who helps manage $1.8 billion at Jih Sun Securities Investment Trust Co. in Taipei. ``Citigroup upgraded Taiwan by two notches, and that will prompt some overseas funds to boost their Taiwan holdings.''

Taiwan Semiconductor, the world's largest maker of customized chips, added 3.1 percent to NT$70.40. The stock also rose after the Commercial Times reported revenue at the company may soar to NT$27.5 billion ($840 million) in June on orders from companies including Texas Instruments Inc. and Qualcomm Inc.

Advanced Semiconductor Engineering Inc., the world's biggest chip packager and tester, jumped 1.5 percent to NT$44.45. The company is among four chip packaging and testing groups that have received approval from the Taiwan government to invest in China, the Commercial Times reported without citing sources.

Greatek Electronics Inc. and Walton Advanced Engineering Inc. also received tacit approval from Taiwan's economic ministry while formal consent has yet to be given, the newspaper said. Greatek surged 3.4 percent to NT$58. Walton rose 5.1 percent to NT$22.70.

Sinopec, Takeda

China Petroleum & Chemical Corp., known as Sinopec, fell 2.9 percent to HK$8.79 in Hong Kong and 5.7 percent to 13.47 yuan in Shanghai, after the company said Chairman Chen Tonghai resigned for ``personal reasons.''

Asia's largest refiner said it will hold an extraordinary general meeting in Beijing on Aug. 10 to elect Su Shulin, a former China National Petroleum Corp. executive, as a director.

Takeda, Japan's No. 1 drugmaker by market value, jumped 1.2 percent to 7,950 yen. Actos may cut the risk of heart attack and death by 44 percent, according to findings reported on June 23. In a separate study, Actos reduced inflammation and blood clots more than a placebo.

Canadian Stocks Decline as Metals, Crude Oil Prices Drop

June 25 (Bloomberg) -- Canadian stocks declined for a fourth time in five days, led by such energy and raw-materials producers as Talisman Energy Inc. and Teck Cominco Ltd., as prices for crude oil, copper and gold declined.

Oil futures fell from a nine-month high in New York after a strike in Nigeria ended. Copper dropped a third day in London on concern that Asian demand may be slowing, while gold declined on speculation a drop in European equity markets may cut demand for bullion.

Raw-materials, energy and other commodities make up more than half of Canada's exports. Resource-related stocks account for nearly half of the main Canadian stock index's value and helped lift it to a record last week on takeovers and higher commodity prices.

The Standard & Poor's/TSX Composite Index fell 70.75, or 0.5 percent, to 13,915.28 as of 9:42 a.m. in Toronto. The benchmark has declined 1.8 percent from its June 18 record of 14,176.42,

Shares of Talisman Energy, which produces oil and gas in the North Sea, dropped 41 cents to C$21.05. Canadian Natural Resources Ltd., the nation's second-largest natural-gas company, declined C$1.42 to C$69.52. Suncor Energy Inc., the second-largest oil-sands producer, fell C$1.77 to C$94.32.

Teck Cominco, a miner of zinc and copper, slid C$1.07 to C$47.13.

Barrick Gold Corp., the biggest bullion miner, retreated 44 cents to C$31.36.

Oil, Gas

Measures of energy and raw-materials shares fell 1.4 percent and 0.7 percent, respectively, today. They account for more than 45 percent of the S&P/TSX's value and have been among the best performers this year among 10 industry groups.

Takeover speculation lifted some shares and helped limit losses in the broader market.

BCE Inc. rise 40 cents to C$40.56. Bidders are expected to submit their offers for Canada's second-largest phone company on June 26, with a decision being urged within 72 hours by company management and BCE's adviser, Goldman Sachs Group Inc., the Globe and Mail reported, citing unidentified people familiar with the situation. BCE spokesmen Mark Langton didn't immediately return a call from seeking comment

The Ontario Teachers' Pension Plan, which has teamed up with Providence Equity Partners Inc., confirmed on June 22 that it will submit a bid, the Globe and Mail reported, without saying where it got the information. In addition to Ontario Teachers, two other private-equity groups, the Canada Pension Plan Investment Board, which includes Kohlberg Kravis Roberts & Co., and Cerberus Capital Management LP may also submit bids, the newspaper said.

Shares of Telus Corp. declined 52 cents to C$63.50. Canada's second-largest phone company, which may also bid for rival BCE in what would be the biggest takeover in Canada, was downgraded to ``sector perform'' from ``sector outperform'' by Robert Goff at Haywood Securities Inc.

Goff was at least the third analyst in the past week to cut his recommendation on the stock, on concern a purchase would slow revenue and profit growth at Telus's wireless unit, which has outpaced that of BCE. Analysts at GMP Securities and National Bank Financial reduced their recommendations on June 21.

Iran Invites UN Atomic Agency Inspectors to Tehran (Update3)

June 25 (Bloomberg) -- A team of United Nations atomic inspectors is preparing to travel to Iran at the invitation of the country's top security chief to break the stalemate over the Islamic Republic's nuclear work.

Iran has ``invited the IAEA to send a team to Tehran to develop an action plan for resolving outstanding issues related to Iran's past nuclear program,'' the Vienna-based International Atomic Energy Agency said today in an e-mail. Iran's Supreme National Security Council secretary, Ali Larijani, issued the invitation to IAEA chief Mohamed ElBaradei yesterday.

ElBaradei predicted a breakthrough on June 22 after a two- hour meeting with Larijani in Vienna. IAEA inspectors want to draft a plan by Aug. 22 to resolve unanswered questions about Iran's atomic work. The Islamic Republic, which has the world's second-largest oil and natural gas reserves, says it wants the uranium to generate electricity. The U.S. says the Islamic Republic is trying to build a nuclear weapon.

The IAEA, which has been investigating Iran's nuclear work since 2003, said the inspection team will go to Tehran ``as early as practicable.'' Larijani made the offer to ElBaradei after meeting with European Union foreign policy chief Javier Solana in Lisbon on June 23.

``The series of negotiations we have had with Mr. Solana have helped us in paving the way for the negotiations to begin,'' Larijani said yesterday.

U.S. Position

The U.S. said it was taking a wait-and-see approach to the potential IAEA inspectors' visit. ``We certainly would like to see Iran cooperate fully wit the IAEA,'' said State Department spokesman Tom Casey, noting that Iranian cooperation with the IAEA was one ``though certainly not the only'' demand of Iran by the UN Security Council.

``They're supposed to be working out some kind of plan of action. I think for the moment we'll wait and see what actually happens. There's already been some statements by Iranian officials indicating that that plan of action may not actually lead to a lot,'' Casey added.

ElBaradei, who is also talking with Solana about Iran's nuclear work, is trying to identify the sources of crude blueprints for missiles and warheads found by inspectors in Iran. Traces of highly enriched uranium have also been discovered at an Iranian waste disposal site, the IAEA has reported.

``Establishing clear tracks on the ground will enable the development of a political solution,'' ElBaradei said June 22. ``Any policy to succeed has to be based on the actual facts.''

No Guarantee

The IAEA can't guarantee the ``exclusively peaceful nature'' of Iran's work, ElBaradei said May 23. IAEA inspectors said in a report last month that their knowledge of Iran's program was ``deteriorating.'' Iran curtailed access to military and research sites last year after the IAEA sent the country's case to the UN Security Council.

The Security Council is gearing up for a round of tighter sanctions against Iran, Group of Eight leaders said June 8 in Germany. Since December, the council has limited the transfer of nuclear technology to Iran and the international travel of some Iranian officials.

U.S. Stocks Rise as Bond Yields Decline; General Motors Gains

June 25 (Bloomberg) -- U.S. stocks advanced on prospects that General Motors Corp. will overcome demand for higher wages and after bond yields fell for a second day, easing concern about rising borrowing costs.

GM, the biggest U.S. automaker, climbed the most in the Dow Jones Industrial Average after Goldman, Sachs & Co. advised clients to buy the shares. Telephone companies and utilities rallied the most in the Standard & Poor's 500 Index as lower interest rates make their dividends more attractive.

The yield on the benchmark 10-year Treasury note fell 5 basis points to 5.08 percent, matching last week's low, as prices rose on speculation hedge-fund losses linked to subprime mortgage loans will fuel demand for safer government bonds. Stocks also got a boost from a drop in energy prices.

``As the price of oil continues to back off from $70 and the 10-year Treasury yields trade lower, it's a big positive for the market,'' said Robert Pavlik, who helps manage $325 million as chief investment officer of Oaktree Asset Management in New York. ``The fact that people are buying on the dip is encouraging.''

The S&P 500 Index added 9.84, or 0.7 percent, to 1512.40 as of 11:23 a.m. in New York. The Dow average increased 106.65, or 0.8 percent, to 13,466.91. The Nasdaq Composite Index rose 13.90, or 0.5 percent, to 2602.86.

U.S. stocks last week retreated the most since early March as concern intensified that banks will be saddled with losses on mortgage bonds.

General Motors

GM gained 82 cents to $36.28. Goldman upgraded GM to ``buy'' from ``neutral,'' saying the UAW may offer larger concessions to the automaker. Separately, people familiar with the matter said the United Auto Workers union will brief employees of GM's biggest supplier, Delphi Corp., today on a contract that ends the union's eight-year effort to keep pay and benefits the same as at GM.

Delphi spokesman Lindsey Williams and GM spokeswoman Renee Rashid-Merem declined to comment on specifics of the contract. Roger Kerson, a spokesman for the Detroit-based UAW, didn't return phone calls seeking a comment.

A gauge of telephone companies advanced 1.3 percent, while a measure of utilities rose 1.7 percent. Both industry groups have dividend yields of more than 3 percent, the highest among 10 industries in the S&P 500.

Home Sales

Sales of previously owned homes in the U.S. fell in May to the lowest in almost four years, reinforcing concerns about a protracted housing slump. Purchases last month declined 0.3 percent to an annual rate of 5.99 million from a revised 6.01 million in April, the National Association of Realtors said. The supply of unsold homes jumped to the highest in almost 15 years.

Weakening demand for existing homes, along with a decline in construction starts on new homes reported last week, makes the housing market the biggest threat to economic growth, economists said.

Energy shares in the S&P 500 fell 0.3 percent as a group. Crude oil for August delivery dropped 2 percent to $67.79 a barrel in New York after the end of a nationwide strike of oil workers in Nigeria eased concern supplies from Africa's biggest producer would be further disrupted.

Schlumberger Ltd., the world's biggest oilfield services provider, lost $1.94 to $87.26.

Bear Stearns Cos. declined $1.32 to $142.43. CIBC World Markets Inc. cut its price estimate for the shares by 12 percent to $159.

``We see tough headline risk and a lousy U.S. mortgage market in the coming three months,'' New York-based analysts at CIBC including Meredith Whitney wrote in a report dated June 24.

Bear Stearns, the second-biggest underwriter of mortgage bonds, last week offered $3.2 billion in loans to bail out one of its hedge funds, which lost about 20 percent this year because of bad bets on collateralized-debt obligations. CDOs are securities backed by bonds, loans, derivatives and other CDOs.

Nvidia Corp. dropped 51 cents to $43.11. Goldman cut its recommendation for the maker of graphics chips to ``neutral'' from ``buy'' and removed them from the bank's ``Americas Buy List.''

Asian Stocks Advance on Gain in Chip Prices, Japan's Exports

June 21 (Bloomberg) -- Asian stocks advanced for a sixth day, the longest winning streak in almost eight months, after prices of computer-memory chips jumped and a report today showed Japan's export growth almost doubled in May.

Samsung Electronics Co. and Toshiba Corp. paced technology shares higher, helping the Morgan Stanley Capital International Asia Pacific Index to a record. China Mobile Ltd. led Hong Kong's Hang Seng Index to a new high after the Chinese government gave its approval for mainland brokerages to buy shares overseas.

``People are more optimistic about the longer-term outlook and look for opportunities to buy shares that lagged benchmarks, such as semiconductor stocks,'' said Hiroshi Chano, who helps manage $7.3 billion at Yasuda Asset Management Co. in Tokyo.

The MSCI index added 0.4 percent to 154.46 as of 7:28 p.m. in Tokyo, after climbing 2.9 percent in the previous five trading sessions. The measure last rose for six days in a row in the period ended Oct. 27.

Japan's Nikkei 225 Stock Average added 0.2 percent to 18,240.30, its highest since May 2000. Benchmarks in Australia and Thailand were the only fallers among the region's 10 biggest markets. China's CSI 300 Index also climbed to a new high.

U.S. shares dropped by the most in two weeks yesterday after the yield on the 10-year Treasury note, which influences rates on mortgages and corporate loans, ended a three-day decline. Yields also climbed in Japan, Australia and South Korea.

DRAM Prices

Samsung, the world's No. 1 computer-memory chipmaker, added 2.1 percent to 589,000 won. Hynix Semiconductor Inc., the second largest, surged 7.3 percent to 34,500 won. Elpida Memory Inc., Japan's biggest, rose 4.4 percent to 5,720 yen. Powerchip Semiconductor Corp., the largest in Taiwan, gained 2.3 percent to NT$20.40.

Prices for the benchmark 512-megabit dynamic random access memory chip, or DRAM, soared 17 percent to $2.21 yesterday, according to Dramexchange.com, Asia's biggest spot market for chips. That's the highest in more than six weeks.

The Bloomberg Asia Pacific Semiconductors Index, which tracks 21 of the region's biggest chipmakers, gained 1.7 percent to 146.04, erasing its loss for the year. The MSCI index is up 9.9 percent since the start of 2007.

``Most investors had anticipated a rally in chip-related shares because of the outlook that demand will recover toward the second half of this year,'' said Koji Uchida, who helps oversee $61 billion at Mitsubishi UFJ Asset Management Co. in Tokyo. ``The DRAM spot price news was good timing.''

Japanese Exports

Japan's exports rose 15.1 percent from a year earlier, compared with 8.2 percent in April, the Ministry of Finance said today. The gain was more than economists expected, a Bloomberg survey showed, and helped the trade surplus widen 9.3 percent to 389.5 billion yen ($3.2 billion).

Toshiba, the world's fourth-largest maker of notebook computers, rose 2 percent to 1,002 yen. Canon Inc., the world's largest digital camera maker, added 0.4 percent to 7,370 yen.

The Hang Seng Index added 1.3 percent after the securities regulator said mainland brokerages will be able to invest money outside the mainland for the first time, including in Hong Kong equities.

``The impact is going to be huge as more money will be coming to Hong Kong,'' said Renault Kam, a director of Atlantis Investment Management Ltd., which oversees $3 billion in Asia. Mainland companies listed in the city are likely to most benefit, as investors would ``rather buy shares of companies with backgrounds they know about.''

Mainland Money

China Mobile, the world's largest mobile-phone operator by users, jumped 2.4 percent to HK$82.35. Ping An Insurance (Group) Co., China's second-biggest insurer, rose 4.6 percent to HK$54. The company also won government approval to buy Ping An Bank to strengthen its banking operations.

China Life Insurance Co., the nation's biggest insurer, jumped today after its asset management unit announced a partnership to invest in the Chinese property market. The stock gained 6.3 percent to HK$28.50 in Hong Kong and 8.3 percent to 43.42 yuan in Shanghai.

Some shares of regional exporters declined on speculation higher bond yields will slow global economic growth and deter consumer spending. The yield on 10-year U.S. Treasuries rose 6 basis points to 5.14 percent yesterday.

In Australia, the yield on the government's 10-year bond climbed 6 basis points, or 0.06 percentage point, to 6.25 percent. The yield on Japan's 20-year government bond gained 4.5 basis points to 2.33, while South Korea's benchmark five-year government bond yield rose 10 basis points to 5.47 percent.

Interest Rates

``You're going to see a reaction from interest rate- sensitive stocks,'' said Paul Xiradis, who manages about $8.3 billion in Australian stocks at Ausbil Dexia Ltd. in Sydney. ``Markets are also correcting from their earlier view that interest rates in the U.S. and perhaps globally were on their way down.''

Nissan Motor Corp., Japan's No. 3 automaker, lost 1.6 percent to 1,330 yen. LG Electronics Inc., the world's second- largest plasma display maker, fell 2.4 percent to 79,000 won. Lenovo Group Ltd., the world's third-biggest personal computer maker, dropped 3.2 percent to HK$5.14 in Hong Kong.

Singapore's Olam International Ltd. rose by the most in seven weeks after it raised its offer for Australia's Queensland Cotton Holdings Ltd. to A$166.5 million ($140 million), or A$5.90 a share, securing the support of rival Louis Dreyfus & Cie. SA.

Olam, which supplies ingredients to companies such as Nestle SA and Kraft Foods Inc., rose 6.1 percent to S$3.48, the most since May 4. Queensland's stock slid 0.3 percent to A$5.88.

``We were surprised that Louis Dreyfus has decided to throw in the towel,'' said Tom Elliott, whose Melbourne-based hedge fund MM&E Capital Pty has built an 8 percent stake in Queensland since Olam's first bid, and hasn't decided to sell.

Coles Group Ltd. shares declined 2.1 percent to A$16.55 in Australia. A TPG Inc.-led buyout group quit plans to bid for the retailer after talks about a joint offer with Woolworths Ltd. broke down, the Australia Financial Review reported, without saying where it got the information. Coles said TPG hasn't advised the company of any withdrawal.