ECB, BOE May Follow U.S. Fed Cut, Economists Say

(Bloomberg) -- The European Central Bank and the Bank of England may have to follow the Federal Reserve and cut interest rates as the risk of a U.S. recession threatens to drag down a global expansion, economists said.

``From a European and a U.K. perspective, the Fed cut adds to the risk of more and quicker rate cuts,'' said Amit Kara, an economist at UBS AG in London. Kara, a former economist at the U.K. central bank, predicts four cuts from the Bank of England this year and two by the ECB.

The Fed today lowered its benchmark rate in an emergency move for the first time since 2001 after global stock markets tumbled amid signs the world's largest economy is sliding into recession. The move spurred a rally in European stocks, though failed to stem a decline in U.S. indexes.

The widening interest-rate gap between the U.S. and Europe may spur gains in the euro, worsening the outlook for an economy already showing signs of a slowdown by hobbling exports. German investor confidence dropped to the lowest since 1992 in January and European manufacturing growth slowed in December.

``This market has been calling for help,'' said Alberto Espelosin, who helps to manage about $12 billion at Zaragoza, Spain-based Ibercaja Gestion. ``The ECB should follow suit.''

The Bank of Canada, in a scheduled meeting, lowered its main rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown.

Yields Fall

Investors are increasing bets Europe's two major central banks will cut borrowing costs, interest-rate futures trading shows. The ECB's benchmark rate is currently 4 percent, while the Bank of England's 5.75 percent is the highest among the Group of Seven industrial nations.

The yield on the June ECB contract fell to 3.80 percent today from yesterday's close of 3.94 percent. On the June U.K. contract, the yield fell 3 basis points to 4.89 percent.

The ECB and the U.K. central bank refused to give away their intentions. The Bank of England said it has no plans to bring forward next week's meeting of the Monetary Policy Committee, which is scheduled for Feb. 7. ECB council member Juergen Stark declined to comment on the Fed's decision when questioned by reporters in Brussels.

The Swiss National Bank also declined to comment, as did spokespeople for the central banks of Norway and Sweden.

The euro, which touched a record $1.4967 on Jan. 23, rose 1.1 percent to $1.4619 at 6:08 p.m. Frankfurt time after the Fed's announcement. The pound climbed 0.8 percent to $1.9592.

`Forced to Act'

``If it becomes clear that this is merely a temporary fix, and the situation deteriorates further, then the ECB will be forced to act,'' said Ken Wattret, an economist at BNP Paribas SA in London.

While David Brown, chief European economist at Bear Stearns Cos. in London, predicted the Bank of England will cut its rate next month and the ECB will do so in the second quarter, he ruled out either following the Fed in reducing rates outside their normally scheduled meetings, as they did in September 2001.

``It's not their style,'' said Brown. ``European central banks tend to move by the calendar.''

European inflation at a six-year high of 3.1 percent, breaching the ECB target of just below 2 percent, is limiting policy makers' room for maneuver. President Jean-Claude Trichet said Jan. 10 that the bank is ready to act ``preemptively'' to raise rates to contain consumer prices.

 

Read more at Bloomberg

U.S. Stocks Pare Declines; Exxon Retreats, Financials Gain

(Bloomberg) -- U.S. stocks fell for a fifth day, the longest streak of declines in 11 months, as growing concern about the slowing economy prompted the Federal Reserve to cut interest rates by the most in two decades.

The Standard & Poor's 500 Index pared its worst loss in five years after some investors were persuaded the Fed would continue cutting rates after its emergency reduction today. Exxon Mobil Corp., Microsoft Corp. and AT&T Inc. led declines. Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. helped carry financial shares higher for the first time in three days after the Fed cut its benchmark rate by 0.75 percentage point.

``It shows that they're trying to stem the negative sentiment that's out there that there's a recession under way,'' said Ed Peters, chief investment officer at PanAgora Asset Management in Boston, which manages $25 billion.

The S&P 500 retreated 23, or 1.7 percent, to 1,302.19 at 12 p.m. in New York. The Dow Jones Industrial Average decreased 179, or 1.5 percent, to 11,920.3. The Nasdaq Composite Index lost 56.66, or 2.4 percent, to 2, 283.36. About three stocks fell for every two that rose on the New York Stock Exchange.

Growing evidence that the U.S. economy is slowing has dragged more than half of the world's biggest stock indexes into a bear market and wiped out $7.3 trillion in global stock-market value this year.

`Increasing Downside Risks'

The Fed cited ``a weakening of the economic outlook and increasing downside risks to growth'' for its first emergency cut since 2001. Policy makers weren't scheduled to gather on rates until Jan. 29-30.

The U.S. market was closed for Martin Luther King Day yesterday. Stocks posted the steepest weekly drop since July 2002 last week after lower-than-estimated home construction, retail sales and manufacturing reinforced speculation that the economy is contracting.

Exxon, the largest U.S. crude producer, decreased $2.48 to $82.60. Chevron Corp., the second biggest, lost $2.96 to $80.50. Crude oil dropped to a six-week low, falling $2.39 to $88.18 a barrel in New York, on concern demand will diminish in an economic slowdown.

Microsoft, the biggest software company, retreated $1.04 to $31.87. AT&T slid 78 cents to $35.33.

Bank of America

Bank of America gained 87 cents, or 2.4 percent, to $36.84 even after reporting earnings that fell 97 percent. Fourth- quarter net income slumped to $268 million, or 5 cents a share, from $5.26 billion, or $1.16, a year earlier the bank said in a statement. Excluding merger and restructuring costs and a gain from the sale of Marsico Capital Management LLC, the company earned 5 cents a share, missing the 21-cent average estimate of analysts surveyed by Bloomberg.

Wells Fargo, the biggest bank on the West Coast, rose $1.35 to $26.83. JPMorgan, the third-largest U.S. bank, increased $1.30 to $40.89.

The MSCI World Index fell 0.6 percent. The Dow Jones Stoxx 600 Index of European shares added 2.4 percent.

The Nasdaq Composite today entered a so-called bear market, marked by a decline of at least 20 percent from a high. The S&P 500 and Dow average have both lost about 16 percent from their Oct. 9 records. The Nasdaq reached an almost seven-year high on Oct. 31.

Wachovia Corp., the fourth-largest U.S. bank, said profit fell 98 percent after writedowns for bad loans and mortgage- backed securities. Its shares added 15 cents to $30.95.

 

Read more at Bloomberg

Blackouts a worry: Lehman

(Fin24) - Global analysts Lehman Brothers has expressed concern over the effect of Eskom's blackouts on infrastructure-related work in South Africa.

Wide-scale blackouts continued over the weekend as Eskom could not keep up with demand.

"Of concern are reports in the local press that the power cuts are now affecting infrastructure work related to the World Cup and industry in general," said the analysts in a research note.   

According to the energy supplier, the country needs to reduce its load demand by about 20%.
 

Read more at Fin24

Business asked to cut power use

(Fin24) - Eskom has requested that business cut its energy usage by 10% to 15%, the energy supplier said on Monday.

Speaking to reporters after meeting in Midrand with top business leaders about the energy crisis in SA, Eskom CEO Jacob Maroga said "the biggest lever we can pull is reducing demand and the discussion this morning with the key customers is how we can collaborate in reducing demand".

Maroga said "voluntary saving targets" had been discussed with the 131 executives representing 38 companies present at the meeting.

He said Eskom had been talking with business about voluntarily reductions for some time.

"In some cases we've had some support where they've voluntarily reduced where they can"

He said: "We've put to them that where it's possible they can help us in reducing voluntarily.

"The quantum we are looking at is between 10% to 15%."

Maroga said he would aspire to a 20% reduction; "but anything between 10% and 15% is something we need to aspire to in terms of reduction.

"That reduction will relieve and reduce the probability of loadshedding."

 

Read more at Fin24

Fujitsu reorganizes semiconductor operations

(Reuters) - Japanese electronics firm Fujitsu Ltd (6702.T: Quote, Profile, Research) said on Monday it would put its struggling semiconductor operations into a new unit, in a move that could smooth the way for partnerships with other chip makers.

Fujitsu's business building system chips, used in products ranging from digital cameras to supercomputers, has suffered from falling prices and the high cost of keeping up with the latest technology.

The company also said it would transfer development and test production of state-of-the art system chips to its Mie plant in central Japan from a technology centre in Tokyo, at a cost of some 10 billion yen ($94 million).

 

Read more at Reuters

Northern Rock bids deadline set

(Reuters) - Britain set a two-week deadline for a private-sector rescue of Northern Rock, as it confirmed plans to convert its almost 25 billions pounds ($49 billion) of loans to the stricken bank into bonds in a bid to smooth a deal.

The financing package will tie the government to Northern Rock, Britain's biggest casualty of the global credit crunch, for years to come.

But it also increases the prospect of a private-sector takeover, which would avoid a politically damaging nationalization for Prime Minister Gordon Brown, who has seen his popularity slump in opinion polls in recent weeks.

Details of the plan sent Northern Rock's battered shares soaring on Monday. By 1105 GMT they were up 40 percent at 90.5 pence, valuing the bank at 380 million pounds ($746 million), still down over 90 percent since the end of May.

The financing package will be available to the three front-runners for a private-sector deal -- Richard Branson's Virgin Group, a rival consortium led by investment firm Olivant, and an in-house solution under new Northern Rock management.

 

Read more at Reuters

L.A. Times editor fired, "significant changes" ahead

(Reuters) - The editor of the Los Angeles Times, James O'Shea, has been fired over a budgetary dispute only 14 months after he took over the post, the newspaper said on Sunday.

O'Shea, a veteran of the Chicago Tribune who was hired by the Times in November 2006, was fired by publisher David Hiller after he refused to carry out some $4 million in cuts, said the newspaper on its Web site, citing an unnamed source. The news was first reported by The Wall Street Journal.

In a separate statement late on Sunday, the newspaper said that like all newspaper companies, it was "facing major challenges in charting a course that will be successful for the future".

"In that vein, we will be making several significant organizational changes to put us in the best position to succeed."

It said as a result of these changes, O'Shea would be leaving the newspaper, and did not elaborate further.

O'Shea's firing comes one month after the paper's parent, Tribune Co, completed an $8.2 billion buyout led by Chicago real estate tycoon Sam Zell.

The deal restructured Tribune as an employee-owned company funded largely by debt.

The Times has struggled along with other media companies in an adverse newspaper advertising environment, and has cut staff and editorial resources in recent years.

 

Read more at Reuters