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Aug 21 - 27, 2000

Japan mulls spending plan

Japanese politicians are gearing up to consider a new spending plan for the economy when they return from summer break as attention shifts to fiscal policy in the wake of the nation's first interest rate hike in a decade.

But although the Bank of Japan's end to 18 months of virtually zero interest rates prompted politicians to accelerate their planned budget deliberations, economists generally say they still believe the fresh spending will be only a modest three trillion to five trillion yen ($27 billion to $46 billion).

Within hours of the BOJ decision to nudge its overnight rate target up to 0.25 per cent, the vacationing Mori was on the phone to Economic Planning Minister Taichi Sakaiya, saying he wanted a supplementary budget prepared "at an early date."

By Wednesday night, ruling party elders were telling the Japanese press that they would accelerate the start of an extraordinary session of parliament by several weeks to early September to debate the extra budget.

"The interest rate hike has increased the probability of a substantial supplementary budget later this year," said Michael Naldrett at Dresdner Kleinwort Benson Asia. "The government believes that the recovery is still fragile and may decide to expand fiscal policy to compensate for monetary tightening."

Indeed, the government asked the BOJ Policy Board to delay the rate hike by a month to assess April-June gross domestic product data due on Sept. 10. The government has said the data will be key to deciding on the size of the budget as well.

But although the rate hike has stirred politicians to hasten their spending plans, most economists said the recovering economy and constraints of runaway public debt meant they would not change their previous assumptions that the supplementary budget would merely plug a drop-off from last year's total spending.

$10 billion investment applications received

More than 900 investment applications for projects worth nearly 400 billion baht ($10 billion) were received by Thailand's Board of Investment (BOI) in the first seven months of this year, the government revealed on Wednesday.

"According to BOI figures, applications for promoted projects was higher than anticipated," said Thai Prime Minister Chuan Leekpai, addressing a seminar on Thailand's economic recovery.

The BOI is the government chief promotional office for foreign and local private investments in the kingdom.

In the first seven months of this year, some 920 foreign and local companies applied for investment privileges such as tax reductions at the BOI, a 113 per cent increase from the same period last year.

Total investment applications amounted to 385 billion baht ($9.6 billion) worth of projects, a whopping 343 per cent jump compared with the same period in 1999, said BOI sources.

"The investment figures have given us confidence that the economic trend, once these investments have been made, will be positive," said Chuan.

BOI officials, however, noted that the surge in investment applications, especially last month, may have also reflected the eagerness of private companies to get their BOI applications in before new rules went into effect as of Aug 1, which would shorten tax holidays and withdraw certain provinces such as Rayong and Phuket from the most favoured zone for promotional privileges.

While Thailand's economy has recovered remarkably from its deep recession in 1998, many still question whether foreign and domestic investments in the economy will return as a major engine for growth, given the state of over-production in many sectors.

Nikkei gains, HK slumps

Asia's major markets were mixed late Friday, with telecom stocks boosting Tokyo's benchmark index while their sector

counterparts in Hong Kong slipped, after Hutchison Whampoa pulled out of its alliance to tap the European mobile-phone market.

Tokyo's Nikkei 225 average closed up 119.46 points, or 0.7 per cent, to 16,280.49.

In Hong Kong, the Hang Seng index was down 1.4 per cent at 17,376.26, while the Straits Times in Singapore shed 0.55 per cent to 2,194.94 in late trading.

Among other top Pacific Rim markets, Australia's S&P/ASX 200 index edged up 0.2 per cent, the Taiwan Weighted index in Taipei tacked on 0.4 per cent and the KOSPI index in Seoul dropped 2 per cent.

In other markets, the JSX index in Jakarta fell 0.3 per cent, the KLSE composite in Malaysia shed 0.4 per cent, the PHS composite in Manila rose 0.5 per cent while the Bangkok SET fell 1.3 per cent.

UK wages, joblessness fall

Average earnings growth in Britain slipped to its slowest rate in almost three years in June, hinting that inflation pressures are at bay, even as joblessness fell to its lowest level in a quarter-century, official data showed Wednesday.

But the market-friendly news on earnings growth was overshadowed by the release of the minutes of the Bank of England monetary policy committee's latest meeting. The minutes showed a close 5-4 committee vote to leave interest rates unchanged at 6 per cent.

The Office for National Statistics reported average earnings growth slowed to an annual 4.1 per cent in June, from 4.6 per cent in May, the fourth monthly slowdown in a row and the lowest level since July 1997.

Mexican economy strong

Mexico's economy extended its run of breakneck growth in the second quarter, with consumers showing no signs of curbing their spending spree.

The Finance Ministry on Tuesday reported Mexico's gross domestic product (GDP) grew at an annualized rate of 7.6 per cent in the April-June period.

The second-quarter expansion brought Mexico's GDP growth in the first half of 2000 to 7.8 per cent compared with the same period of 1999.

Mergers & Acquisitions

AT&T—BT: AT&T Corp. and British Telecommunications PLC reportedly have held exploratory talks about a merger, in what would build upon the existing alliance of the old-line telephone companies and create a transatlantic telecommunications behemoth valued at about 202 billion euros ($185 billion).

CSC—Alysis: Computer Sciences Corp., the No. 3 computer service provider, announced on Thursday plans to acquire the CheckVision application framework and other assets of Alysis Technologies Inc., a provider of online billing software.

Seagram—Vivendi: Entertainment and liquor giant Seagram Co. Ltd. announced Thursday that it has cleared one regulatory hurdle in its proposed merger with French utilities and media group Vivendi.

dELIA*s—iTurf: Teen-oriented Web retailer dELiA*s Inc. on Wednesday announced an $86 million deal to merge with its 54-percent owned subsidiary iTurf Inc. in yet another sign of consolidation within the Internet retail sector.

BT—Viag: British Telecommunications PLC is planning to acquire an additional 45 per cent stake in Viag Interkom, its German telecom joint venture, and take control of the company, published reports said Wednesday.

MetLife—N.J. bank: MetLife Inc. said Wednesday it plans to buy local New Jersey bank Grand Bank N.A. for an undisclosed sum, moving forward with its plans to enter retail banking.

Viacom—Infinity: Media conglomerate Viacom Inc. offered Tuesday to purchase the remaining shares of Infinity Broadcasting Corp. it does not already own for nearly $15.5 billion in stock, hoping to reunite the radio broadcasting company with its one-time parent CBS.

Boeing—Tribune: Boeing Co. agreed Tuesday to purchase Jeppesen Sanderson Inc., the world's No. 1 provider of flight-information services, from Tribune Co. for $1.5 billion in cash.

Nortel—Sonoma: Nortel Networks Corp. said Tuesday it is buying Sonoma Systems, a privately held maker of high-speed Internet access devices, for $540 million in stock, aiming to extend its position in optical Internet service offerings to businesses.

Clear Channel—AMFM Inc: Federal regulators on Tuesday approved Clear Channel Communications Inc.'s $15.5 billion acquisition of AMFM Inc., a deal that creates the biggest U.S. radio station operator.

Results

ABN Amro: Dutch investment bank ABN Amro NV posted a 13 per cent increase in first-half net profits Thursday. Net profit totaled 1.63 billion ($1.5 billion), from 1.44 billion in the 1999 first half.

Novell: Provo, Utah based Novell reported that its third quarter net income plunged 83 per cent to $8.57 million from $49.3 million in the same period last year. Earnings per share dropped to 3 cents from 14 cents.

Qantas: Australia's biggest airline, Qantas Airways Ltd., said Thursday profit soared 14 per cent. Asia's third-largest airline said full-year net profit before exceptional items rose to A$435 million ($257 million) from A$382 million a year ago.

Baer: Switzerland's Julius Baer Group, a family-controlled private bank that caters to wealthy clients, posted an 80 per cent increase in net profit for the first half of the year. The Zurich-based bank, said net profit totaled 249 million Swiss francs ($144.8 million) for the period, up from 139 million Swiss francs in the 1999 first half.

Hutchison exits Germany

Hong Kong conglomerate Hutchison Whampoa Ltd. on Friday abandoned plans to build a next-generation mobile phone network in Germany just hours after winning one of the coveted licenses, saying the 8.4 billion euro ($7.7 billion) price tag was too expensive. Hutchison Whampoa will transfer its stake in the E-Plus consortium to alliance partner KPN Telecom.

Bond prices climb

U.S. Treasury bonds moved higher Thursday as investors remained optimistic that the Federal Reserve will not boost interest rates next week. The benchmark 10-year Treasury note rose 6/32 of a point in price to 99-17/32. The yield was unchanged from 5.82 per cent Wednesday. The 30-year bond gained 13/32 to 107-19/32. Its yield retreated to 5.71 per cent from 5.73 per cent, as yields move inversely to price.

Mortgage rates head south

U.S. Mortgage rates maintained their downward turn this week, aided by the market's confidence that the Federal Reserve will not take any action at its meeting next Tuesday, according to a report released by Freddie Mac.

A 30-year fixed rate mortgage (FRM) averaged 7.96 per cent for the week ending Aug. 18. The average for a fixed-rate 15-year mortgage was 7.70 per cent this week. A one-year adjustable-rate mortgage (ARM) averaged 7.21 per cent.

China Tel outpaces rivals

Using bare-knuckle business tactics, state-owned giant China Telecom is gobbling up a mobile phone market it was never supposed to enter. In Lanzhou, the biggest city in western China, its ultra-cheap mobile service is pulling in subscribers faster than its stunned competitors China Mobile and China Unicom can dial for help.

Consumer prices edge up

Inflation edged up only slightly in July while housing starts slowed somewhat, according to U.S. government reports released Wednesday — reports that spurred investor expectations that the Federal Reserve will not raise short-term interest rates next week.

The closely watched consumer price index, a measure of inflation, rose 0.2 per cent in July, according to a Department of Labor report.

Funds bullish as rates ebb

U.S. fund managers are buying Wall Street shares, convinced that signs of an economic slowdown indicate that interest rates have peaked, according to the Merrill Lynch Gallup Survey for August released on Tuesday.

Only 27 per cent now expect the Federal Funds rate to be higher in a year, down from 47 per cent a month ago and 87 per cent in May.

The survey was carried out shortly after data showed annual U.S. productivity growth hit 17-year highs of 5.1 per cent in the second quarter of 2000.

German inflation jumps

German wholesale inflation increased faster than expected in July, rising to an 11-year high, providing more evidence that the European Central Bank may raise interest rates next month.

The Federal Statistics Office said Tuesday that wholesale prices rose 0.3 per cent on the month and increased 5.8 per cent year-over-year, the biggest annual increase since May 1989 when the figure peaked at 6.1 per cent.

German retail sales rise

German retail sales rose 2.5 per cent in the first half of 2000, the government reported Monday, suggesting consumers are supporting economic growth in Europe's largest economy.

In June, retail sales were down 1.3 per cent on a year-over-year basis, less than the 2.5 per cent fall predicted by economists polled by Reuters. Month-over-month, June retail sales slipped 1.3 per cent.