IMF predicts faster global recovery

The world economy is recovering faster than expected in the wake of crises in Asia, Russia and Brazil, but is at risk from an abrupt slowdown in U.S. momentum, the IMF said.

"For the first time in two years ... we are reporting an upgraded assessment" of world growth prospects, International Monetary Fund research director Michael Mussa told a news conference.

The IMF now expects the world economy to grow 3.0 per cent this year and 3.5 per cent in 2000, up from forecasts of 2.3 and 3.4 per cent in April and compared with growth of just 2.5 per cent in 1998 it said in its twice-yearly World Economic Outlook report.

"Global economic and financial conditions have improved markedly" since the emerging market crises of 1997 and 1998 "and most of the economies recently in crisis have begun to recover," the IMF said.

It revised upward its forecast for Asian growth this year to 5.3 per cent from 4.7 in April, with growth next year at 5.4 per cent, down from an April forecast of 5.7.

Latin American growth is now seen at 0.1 per cent this year and 3.9 per cent in 2000, up from April forecasts of negative growth this year and 3.5 per cent growth in 2000, with Brazil's recession looking "significantly less sever than was widely anticipated only a few months ago," Mussa said.

And Russia's economy is also seen turning around, with zero growth this year rather than a shrinking economy and 2.0 per cent growth in 2000. The IMF also warned of "the economic and financial consequences worldwide if the eventual demand slowdown in the U.S. turns out to be sharper than is generally expected at present."

The Outlook revised up its forecasts for U.S. economic growth by 0.4 per centage points for this year and next, to 3.7 per cent this year and 2.6 per cent in 2000, compared with euro area growth this year at 2.1 per cent and next year at 2.8.

Japan has seen two quarters of growth "signalling a clear end to recession ... we believe that a Japanese recovery is under way," Mussa said, with a return to positive growth this year at 1.0 per cent, rising to 1.5 in 2000.

Opec keeps cutbacks

Opec oil producers agreed to maintain a stranglehold on exports, raising the prospect of a sharp rise in the West's oil import costs this winter.

An Opec communique said oil ministers had endorsed existing curbs on five per cent of their output at least until April because they wanted to make sure they had eliminated the glut that caused last year's price crash.

China takes new step to spur markets

China finally announced that bank credit taps would be opened to some brokers and fund managers, the latest step in government efforts to boost the stock markets.

The central bank, in an announcement awaited for months, said seven brokerages and 10 fund management firms could enter the interbank market and conduct T-bill spot and repurchase trading.

The government has been trying to boost the stock markets to allow a smooth listing of large state enterprises and drum up market euphoria ahead of the 50th anniversary of the People's Republic of China on October 1.

 

Results

Morgan Stanley: Morgan Stanley Dean Witter & Co posted a 55 per cent gain in third-quarter profit to $970 million. The company, earned $1.65 a share in the third quarter ended August 31. That compared with a $626 million net profit, or $1.01 a share, in the year-ago quarter.

Goldman: Goldman Sachs Group Inc. one of the leading U.S. investment banks, posted a better-than-expected $638 million profit in the third quarter, driven by fat fees from advising companies on mergers and helping them sell stock to investors. Goldman, earned $1.32 per share in the quarter ended August 31.

 

Japanese tremor rocks Asia marts

Japanese share prices took a tumble, weighing on other Asian markets, after the Bank of Japan's surprise decision to spurn calls for a monetary easing triggered a sharp rise in the yen. Major stock markets in the region lost grind, dragged down by yen-related jitters and a two 4 per cent tumble in Wall Street shares overnight.

Tokyo's benchmark Nikkei average of 225 shares slid more than three per cent in the morning, led by global manufacturers like Canon, Honda and Fujitsu amid worries the yen's rally would erode the yen value of their overseas income.

The yen resumed its upward climb after the Bank of Japan's Policy Board defied expectations on Tuesday and said it would leave monetary policy unchanged, denting hopes of joint U.S.-Japan intervention to weaken the yen.

By midday in Tokyo the dollar was around 104.90 yen after briefly sliding to an overnight low of 103.83 in New York trade and compared with 107 yen just before the BoJ policy announcement on Tuesday.

The Nikkei closed at 17,325.76, down,607.03 points or 3.39 per cent from Tuesday's close but above the early low just under 17,250.

Hong Kong's Hug Seng index was off 1.65 per cent at 13,198.84, hit by the slide on Tokyo and Wall Street, and Singapore's Straits Times Index shed 1.34 per cent to 2,080.73 by 0400 GMT.

In the Philippines, Manila's 33-share main index lost 0.88 per cent to 2,107.7, snapping a three-day gaining streak, while Korea's composite index was down 0.76 per cent at 950.12 after an earlier test into positive territory.

Malaysia's composite index eased 1.41 per cent lower to 728.86, squeezed by Wall Street and weakness in Japan, while New Zealand's NZSE-40 Capital Index slipped 0.96 per cent to 2,064.98.

UK auction sends gold prices soaring

Gold surged nearly $5.00 an ounce to one-month highs as unexpectedly strong demand greeted Britain's controversial auction of a second chunk of its gold reserves.

North American and South African gold shares recovered from recent falls to be several per cent up on the result, though some miners remained critical of Britain's plan to switch over half its gold into dollars, euros and yen to rejig its portfolio.

The gold fetched $255.75 a troy ounce at auction, down on the $261.20 received at the first sale in July but above recent market levels as bids exceeded the 25 tonnes on offer eightfold.

The auction, part of UK plans to cut gold reserves by 415 tonnes in the coming years, netted $206 million.

Gold rose immediately after the auction, then again when New York opened, breaking resistance levels at $256.50, $258.00 and $260.00 before settling back.

Dow slides on wave of worries

The Dow dropped more than 210 points in early trading, prompting the New York Stock Exchange to impose curbs on index arbitrage, a kind of programme trading, at 1804 GMT.

The Dow's slide was linked to Wall Street's worries about a record U.S. trade deficit, a strong Japanese yen, and the economic impact of the deadly Taiwan quake.

News of the earthquake, which measured 7.6 on the Richter scale, rattled semiconductor stocks, since Taiwan accounts for 5 per cent of the world's market for dynamic random-access memory (DRAM) chips.

The Dow Jones industrial average slid 211 points to 10,613 shortly after 1800 GMT.

 

Mergers & Acquisitions

Bell—Vodafone: Bell Atlantic Corp and Vodafone AirTouch Plc said they would fuse their U.S. wireless businesses in a joint venture worth over $70 billion, creating the country's biggest mobile phone network.

MNB—Christiania: Norway's Christiania Bank welcomed a $3.1 billion takeover bid from Swedish-Finnish MeritaNordbanken, saying it was the best alternative for Norway's second largest bank.

RollsRoyce—Vickers: British engineer Rolls-Royce Plc launched a surprise £576 million ($933 million) agreed cash offer for Vickers Plc in a move aimed at making it the global leader in marine power systems.

LVMH—TAG Heuer: French luxury goods group LVMH said it had acquired 50.1 per cent of Swiss watchmaker TAG Heuer in a move analysts see as just one in a long line of acquisitions yet to come.

 

Malaysia slashes tax

Malaysia cut a tax on short-term foreign profits to draw back overseas investors who fled when it imposed capital controls one year ago.

The central bank announced a flat 10 per cent tax on foreign capital gains would, with immediate effect, replace a graduated system of exit taxes ranging from 10 to 30 per cent.

Beforehand, capital gains taken out of the country before one year drew a 30 per cent tax, while those held longer than one year were taxed at 10 per cent.

Now all gains will attract the 10 per cent rate.

The announcement unleashed a flood of buy orders on the Kuala Lumpur Stock Exchange where the main index surged 1.12 per cent in an emphatic endorsement of the move.

It was the second time in a year Malaysia has tinkered with capital controls in response to criticism from foreign investors.

South Korea plans $9.57b bond issue

South Korea will issue government bonds worth $9.57 billion to cover the deficit in its budget for next year, officials said.

The bond issue of 11.5 trillion won ($9.57 billion) comes on top of 12.9 trillion won raised to cover this year's budget deficit, the Budget and Planning Commission said.

Thais not to draw more IMF money

Thailand has decided to wean itself from the International Monetary Fund and will not draw down the last $3 billion of a $17.2 billion bailout arranged by the IMF, a senior finance ministry official said.

Thailand, at the epicentre of the Asian financial crisis when it began in 1997, is convinced it can now sustain economic recovery without more IMF loans, the official said.

The official, who declined to be identified, cited a build-up in foreign reserves to over $32.2 billion, improving economic indicators and a brake in capital outflows from the country.

S. Korea unveils $17b package

South Korea announced a 20 trillion won ($17 billion) package to revive demand in the slumping bond market, curb rising interest rates and prevent corporate debt problems from derailing the country's economic recovery.

Finance and Economy Minister Kang Bong Kyun, Financial Supervisory Commission chief Lee Hun Jai and other senior officials held an emergency meeting to discuss steps to restore stability in the financial markets, shaken by the Daewoo Group's inability to pay its $57 billion of debt.

"The government is determined to contain the fallout of Daewoo's problems," said Kim Jong Chang, a commissioner at the Financial Supervisory Commission. "The central bank will further provide abundant liquidity into the financial system and keep interest rates low."

Pound soars to new high against euro

Sterling surged to its highest level against the euro since its launch this year after a key policymaker suggested the Bank of England may be prepared to accept a higher long-term exchange rate.

Although the pound retreated later in the session, amid some speculation the central bank may have entered the market to keep a lid on the currency, traders and analysts said the outlook over the coming months was improving.

Analysts said the supportive comments late on Thursday from Sushil Wadhwani, a member of the Bank of England Monetary Policy Committee, were trigger for fresh sterling gains and added to the recent upbeat picture of the UK economy painted by the Chancellor of the Exchequer Gordon Brown.

South Korea sells bank to U.S. fund

South Korea said it had reached final agreement with a U.S. investment fund to sell off a bank, winding up nine months of tough talks and easing concerns about its commitment to financial restructuring.

Financial Supervisory Commission's director-general Nahm Sang-duck told a news conference Newbridge Capital would pay 500 billion won ($415.3 million) to acquire 51 per cent of equity in Korea First Bank.

He also said the government held the right to acquire five per cent of the bank's equity three years after the takeover is concluded.