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Jun 19 - 25, 2000

UK enjoying steady economic expansion

Britain is still enjoying steady economic expansion but there is a risk to growth before the year-end, a top research group said.

The Conference Board, which has been producing the U.S. Leading Economic Indicators since the mid-1990s, issued its first set of indexes for Britain which gave a snap-shot of the economy's current health.

The overall index, which brings together a range of economic variables such as export orders and retail sales, showed an economy enjoying steady expansion but undergoing a slowdown.

"There is a weakening trend in the UK," said Gail Foster, Conference Board senior vice president and chief economist. "It is not in any way dangerous."

The leading and coincident indexes are composite averages of between five and eight indicators which are constructed to reveal common turning point patterns in economic data.

Coincident indicators—which are comprised of data from personal disposable income, gross domestic product, industrial production, retail sales and the jobless rate— showed that Britain's economy grew by 0.2 per cent in April, though not at the strong pace seen over the previous six months.

The Board said the coincident index now stands at 114.7 and that only one variable, retail sales decreased in April.

But the Board said the leading index decreased 0.3 per cent in April. Despite a peak in January leading indicators have declined steadily over the past three months.

Although the fall does not present any short-term threat to expansion in Britain, it said the slowdown may signal economic weakness before the year end.

The Conference Board said the leading index now stands at 115.6, with the most significant downward shifts in consumer confidence, stock prices, new orders for engineering industries and housing starts.

Russian economy seen booming

Russia's economy is booming but the government needs to reinforce growth by making it easier to do business, Prime Minister Mikhail Kasyanov said.

He told the St Petersburg Economic Forum gross domestic product had risen seven per cent in the year to May, and the State Statistics Agency later said May industrial output rose 10.6 per cent on a year ago, against a 5.5 per cent April rise.

"Now we must do everything so that economic growth is not throttled by a lack of structural reform," he said. "We need an accurate, systematic, daily effort to solve this very sensitive problem."

Kasyanov denied there was a split between the government and the central bank on monetary policy, though he renewed a call against a strong rouble even as traders said the bank was orchestrating an appreciation of the currency.

Kasyanov said the government recognised the danger of inaction and would cut bureaucracy to make business easier, close tax loopholes so competitors faced equal conditions and make natural monopolies more transparent.

The government is seen aiming to help bolster budget revenues with a weaker rouble while the central bank has said foreign reserves are high enough to stop speculation against the currency which should not be artificially lowered.

Kasyanov said money supply was growing, indicating businesses were using more roubles and less barter in daily business and that the government would take technical measures, which he did not outline, to restrain rouble strength.

Kasyanov said some changes should be introduced into credit and monetary policy in the second half of this year to provide for sustained growth.

BoJ prepares marts for interest rate hike

The Bank of Japan (BoJ) continued to acclimatise the markets for an eventual tightening of its ultra-easy monetary policy in a key report and news conterence.

"We are approaching a situation in which an end to deflation concerns would be in sight," BoJ Governor Masaru Hayami told a regular news conference, referring to the BoJ's stated condition for ending the zero-rate policy. "But there remain points that we must closely watch a bit longer."

Earlier, the central bank reiterated in its monthly report that the world's second-largest economy is clearly improving, although it is not yet on a self-sustaining recovery path.

Tokyo puts off new rule for life insurers

A Japan Finance Ministry panel decided to postpone the introduction of a mark-to-market accounting standard by Japan's ailing life insurers.

Analysts and industry sources had expected the advisory panel to the Ministry of Finance (MoF) to at least set an introduction date for the new accounting standard.

"We've found that it would be premature to introduce the mark-to-market standard at this stage as an international accounting standard has yet to be agreed," said Koichiro Kurasawa, chairman of the advisory panel of the MoF's Financial Council.

Japan for Asia's say in IMF

Japan will press its Group of Seven partners for Asia to be given a bigger voice in International Monetary Fund decision-making, a top government official said on Thursday.

The IMF, long dominated by the United States and Europe, had to take account of Asia's growing role in the world economy, said vice finance minister for international affairs Haruhiko Kuroda.

The IMF must reflect the reality of the world economy if it wants to continue to perform its central role as a truly global institution in the international financial system, he told the Foreign Correspondents' Club of Japan.

Despite the fact that many emerging economies, including in Asia, have become important economic powers, their international trade has increased dramatically and their weight in the international financial market is growing, the allocation of quota shares, voting shares, and board representation of the Asian countries are limited, he said.

I believe that an immediate review of quota allocation, reflecting changes in the world economy, is essential, Kuroda added.

Japan economy seen expanding further

Japan's economy looks set for further growth this quarter after bouncing smartly back from recession in the first three months of 2000, Economic Planning Minister Taichi Sakaiya said.

And to keep the world's second-biggest economy chugging, Prime Minister Yoshiro Mori— facing voters in less than two weeks—vowed to push ahead with his late predecessor's recovery-first policies.

Data showed the fledgling recovery remains dependent on exports to booming overseas markets and the Bank of Japan (BoJ) remained cautious, deciding to keep pushing interest rates virtually to zero, a policy that senior central bank officials are growing impatient with.

He said gross domestic product could grow as fast as a five per cent annual rate in the quarter, off the blistering 10 per cent annual pace of the first quarter but still respectable for an economy scraping out of its worst downturn in half a century.

The January-March growth, although a touch below economists' forecasts, was the best quarter in four years and allowed GDP to eke out 0.5 per cent growth for the fiscal year to March, breaking a two-year slide.

Banks hit Tokyo stocks

Japan's blue-chip equity index slumped Thursday as the collapse of a three-way tie to create the world's third-largest bank hit financial stocks on an otherwise upbeat day for Asian equities.

Asahi Bank torpedoed its planned merger with Sanwa Bank and Tokai Bank, with media reports citing its concern over loss of control, after its partners decided to drop the original plan for a gradual move to joint operations, in favour of an all-out merger.

Tokyo's benchmark Nikkei 225 closed down 315.7 points, or 1.9 per cent, at 16,338.70.

In Hong Kong, the Hang Seng posted firm gains for a second straight session, rising 1.8 per cent to 16,144. Singapore's Straits Times index was 0.25 per cent higher at 2,041.20. In Seoul, the Kospi index remained volatile, crumbling 5.9 per cent to end at 770.95.

Among smaller markets, Sydney's S&P/ASX200 index ended 0.7 per cent ahead at 3,140.8. Taiwan's Weighted index shed 1 per cent to close at 8,844.97. Manila's PHS Composite adding 2.7 per cent to close at 1,565.69. The Set 50 in Bangkok was 1 per cent higher and the JSX index in Jakarta added 1.6 per cent. Kuala Lumpur's KLSE Composite fell 0.4 per cent.

Mergers & Acquisitions

Thomson Corp: Media company Thomson Corp. said Tuesday it is selling six more of its U.S. daily newspapers, in line with the company's plan to concentrate on electronic publishing. The deal will boost Thomson's already bulging coffers by more than $237 million. The company sold 87 dailies and non-dailies last week for $1.58 billion.

eBay—Half.com: Internet auctioneer eBay Inc. agreed Tuesday to buy Half.com, a privately held online seller of used books and music, for more than $300 million in stock.

Pets.com—pet e-tailer: Online pet supplies store Pets.com Inc. agreed Tuesday to acquire Petstore.com, also an online pet supply store.

Nestle—Nabisco: Nestle SA is interested in selected Nabisco businesses that may be up for sale if the U.S. food company is broken up, industry sources said Tuesday.

Gold firms: Toronto-based Franco-Nevada Mining announced plans Tuesday to create the world's third-largest gold producer by merging with South African rival Gold Fields, forming a company worth some $3.7 billion

Telenor—Sonofon: Telenor, Norway's state-owned telecom company, agreed Tuesday to buy a majority stake in Danish mobile-phone operator Sonofon for 13.65 billion Danish crowns ($1.75 billion) to boost its presence in the Scandinavian market.

EMI—Time Warner: European regulators will carry out a full investigation of the proposed $20 billion combination of EMI and Time Warner's music business, fearing the deal might reduce competition in the market for recorded music and music over the Internet.

AEP—CSR: The Securities and Exchange Commission on Wednesday approved American Electric Power's acquisition of Central and South West Corp., the final regulatory hurdle in a $4.37 billion merger that will create one of the nation's largest utilities.

Nortel—EPiCON: Nortel Networks culminated a busy day Wednesday by agreeing to acquire EPiCON for $275 million in stock, furthering its push into the application service provider market, and signing a deal to deploy one of the most advanced telecommunications networks in Latin America.

Challenge to Tokyo bourse

Next week's start of Nasdaq Japan in Osaka poses a strong challenge to the dominance of the Tokyo Stock Exchange (TSE), but officials of Japan's largest bourse insist they are not flinching at the threat of an upstart.

"We have our own plans for growth and expansion which we'll be sticking to, rather than worrying about Nasdaq Japan," said Hiroyasu Shirahashi, manager of the Listing Department at the TSE which oversees the Mothers market, Nasdaq Japan's rival.

China vows to keep yuan stable

China's central bank governor Dai Xianglong said on Thursday that Beijing's monetary policy would be aimed at maintaining the stability of the yuan (renminbi) as the country enters into the World Trade Organization.

Sound monetary policy will continue to maintain the value of the Chinese yuan, and hence promote economic growth, Dai told a forum on China and globalization.

Feds nab 120 for fraud

In what authorities are calling the largest securities-fraud bust in U.S. history, 120 defendants — including members of all five New York City Mafia crime families and the treasurer of New York City's police-detectives pension fund — were indicted Wednesday for allegedly participating in a securities-fraud scheme involving racketeering and physical violence and costing investors $50 million.

Import prices climb

Prices for imported goods rose in May after tapering off a month before as costs for oil products and imported cars increased, the U.S. government reported Thursday. Excluding oil, import prices declined for the first time in almost a year while export prices gained 0.2 per cent. Prices of imported goods rose 0.6 per cent in May after posting a revised 1.5 per cent decline in April, the Labor Department said. Analysts polled by Reuters had expected import prices to rise 0.4 per cent. Excluding petroleum, import prices fell 0.2 per cent last month after rising 0.1 per cent in April. May's decrease was the first since a 0.1 per cent decline in July.

Deutsche Telekom plans $8b bonds

Deutsche Telekom confirmed plans to sell $8 billion of bonds to fill what analysts said was a warchest to fund third-generation mobile phone licences and a possible acquisition.

Europe's second-largest telecoms company by market capitalisation said it planned to issue bonds in dollars, euros, sterling and yen in the near future, while issuing conditions remain favourable. Such a deal would be among the largest corporate transactions ever sold.