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Sep 04 - 10, 2000

ECB raises rates to 4.5%

The European Central Bank raised its key interest rate by one-quarter of a per centage point to 4.5 per cent on Thursday, as expected, aiming to head off inflationary pressures amid a climate of high oil prices and a weak European currency.

The central bank raised its minimum bid rate on refinancing operations, its primary interest rate, by 25 basis points — the fifth ECB rate rise this year. That matched most economists' forecasts, although some had expected the 17-person council to opt for a rise of one-half per cent.

"The protracted depreciation of the exchange rate of the euro and the renewed rise in oil prices have increasingly put upward pressure on import prices and consumer prices in the euro area," the ECB said in a statement Thursday.

But economists said the ECB's rate hike may not be its last this year, as lofty oil prices and the weak euro — which makes imports more expensive in the 11-nation euro zone — filter through the economy in coming months.

"This is not going to be enough — we're still looking for another 50 basis points by the end of the year," said David Page, an economist at Investec Bank UK.

"But it's the right move for the moment. A rise of 50 basis points would have cast doubt in the market about the sustainability of growth, in Germany in particular."

The latest monthly report by Germany's respected Ifo research institute last week showed business confidence in Europe's biggest economy fell unexpectedly for a second consecutive month in July.

ECB officials appeared to look past that Thursday, instead concentrating on the oil price picture and the weak currency.

Clinton to veto tax repeal

Small business owners will not be free of the burden of estate tax planning this year. They had hoped, after a bill eliminating the tax was passed by Congress earlier this year, they might finally be able to give up time-consuming and costly estate-planning measures designed to ease the pain of paying the hefty tax.

President Clinton has called the measure, which would cost $100 billion over 10 years, fiscally irresponsible because it would consume too much of the budget surplus, and has promised to veto it since it passed Congress in July.

"I believe that this latest bill, this estate tax bill, is part of a series of actions and commitments that when you add it all up would take us back to the bad old days of deficits, high interest rates and having no money to invest in our common future," said Clinton today at the White House.

Small-business groups have vowed not to give up the fight against what they call the "death tax." The coalition of business groups that has led the lobbying effort to repeal the tax, called the Family Business Estate Tax Coalition, massed its troops shortly after Clinton's announcement, to plot a strategy for the week ahead.

The House of Representatives has scheduled an override vote on Sept. 7. Before then, the Family Business coalition is planning a massive lobbying and grass-roots effort to keep the votes of the 65 Democrats who broke ranks to vote in favour of eliminating the tax back in June.

They are going to be courted by small-business lobbyists; they will receive letters and phone calls from small-business owners in their district and there may be an editorial or two in their hometown papers.

At this point, however, the fate of the estate tax is sealed. Senate Democrats did not vote elimination in enough numbers to override a veto by President Clinton. Now, it's a political issue.

Jakarta unveils 10-point plan

Indonesia's chief economics minister Rizal Ramli unveiled a 10-point plan to boost the embattled economy, saying one of the most pressing tasks was to boost public confidence in the country's new cabinet.

At a news conference, Ramli said the 10-point programme had been devised at the first formal working meeting of Indonesia's economics team earlier in the day.

It included creating financial sector stability, accelerating exports, lifting village incomes to strengthen political stability, implementing decentralization of the economy and maximising the extraction of Indonesia's vast natural resources.

But Ramli made clear that doubts among Indonesians and financial markets over the new cabinet, announced by President Abdurrahman Wahid last Wednesday, needed to be dealt with.

German GDP climbs

German gross domestic product grew 1.1 per cent in the second quarter of 2000 from the first quarter, and expanded 3.1 per cent from a year earlier, the government reported Tuesday, saying it expected continued strong growth in the months ahead.

The data were in line with market expectations and Bundesbank estimates published last week.

"The upturn should continue to profit from favorable developments in the world economy," the German finance ministry said.

The Federal Statistics Office raised its estimate of first-quarter growth to 0.8 per cent quarter-on-quarter from 0.7 per cent, while the annual rate was revised up to 3.4 per cent from 3.3 per cent.

Asia mixed, Tokyo retreats

Asian markets were mixed on Friday, with bank and property stocks leading gains in Singapore and Hong Kong as investors bet U.S. interest rates will not rise again this year.

Japan's Nikkei average of 225 stocks fell 121.48 points, or 0.5 per cent, to close at 16,739.78, reversing an earlier advance, as weakness in the retail sector outweighed gains for semiconductor stocks.

Hong Kong's Hang Seng rose 223.73 points, or 1.3 per cent, to 17,321.24, led by HSBC Holdings.

The Straits Times index in Singapore rose 0.7 per cent to 2,162.15.

South Korea's Kospi index rose 0.5 per cent, to 692.19.

In Sydney, the S&P/ASX 200 rose 1 per cent to 3,331.7.

Techs lead Europe higher

Europe's major markets opened higher Friday, boosted by gains in technology and telecom stocks following strength in those sectors on Wall Street the previous day.

London's FSTE 100 index was up 0.1 per cent at 6,683.0, led by chip designer ARM Holdings (ARM), which rose 3 per cent.

The CAC 40 in Paris rose 0.5 per cent at 6,659.25, with both France Telecom (PFTE) and phone equipment maker Alcatel (PCGE) up more than 1 per cent.

Frankfurt's Xetra Dax was trading 0.3 per cent higher at 7,241.93. Europe's biggest software maker SAP (FSAP) gained 1.6 per cent.

The SMI edged up 0.1 per cent in Zurich.

The FTSE Eurotop 300, a broad index of the region's largest stocks, rose 0.3 per cent, pulled higher by gains in its telecom and computer sub-indexes.

Wall St. sizzles in August

U.S. stocks soared Thursday, capping off a strong August on Wall Street as investors snapped up many of the month's best-performing shares.

Nasdaq composite index, after advancing nearly every day this month, rose 2.5 per cent on strength in Intel, Cisco Systems and Oracle. The index ended up 11.5 per cent on the month.

The Dow, meanwhile, jumped 112.09 to 11,215.10. And the S&P 500 added 15.09 to 1,517.68, climbing 6 per cent in August.

Lanka sees economy rebounding

Sri Lanka should see higher-than-expected gross domestic product growth in 2000 after the economy registered a sharp 7.4 per cent expansion in the second quarter year-on-year, the Central Bank said.

"If the same growth trend remains during the balance half the year is estimated to record a growth rate around six per cent," the Central Bank said in a statement.

Sterling plunges

Sterling fell below $1.46 for the first time since 1994 amid speculation interest rates in Britain's decelerating economy might peak sooner than in other major economies.

A slowdown in British wage growth, inflation levels below the government's target and a recent sharp drop in house prices have all fanned expectations that British rates are on hold.

Mortgage rates

Mortgage rates continued to float in a sea of calm this week, buoyed by a healthy economy and no signs of inflation, according to a report released by Freddie Mac.

A 30-year fixed-rate mortgage (FRM) averaged 7.96 per cent for the week ending Sept. 1. The average for a fixed-rate 15-year mortgage was 7.67 per cent. A one-year adjustable-rate mortgage (ARM) averaged 7.27 per cent.

Mergers & Acquisitions

SmithKline—Roche—Novartis: SmithKline Beecham will sell the rights to its cancer drug Kytril to Roche Holding AG for $1.23 billion and its antiviral products Famvir and Vectavir/Denavir to Novartis AG for $1.63 billion.

Bell Canada—Taiwan Cement Corp: Bell Canada International Inc. agreed to sell Thursday its 20 per cent stake in KG Telecom to Taiwan Cement Corp. for US$1.70 (C$2.51) a share, or about US$536 million (C$790 million).

NTT—Verio: NTT Communications, a unit of Japan's former state monopoly NTT Corp., completed its $5.5 billion acquisition of U.S. Internet service provider Verio Inc. Thursday, after the U.S. government gave the go-ahead a week ago.

Suez—E.ON: France's Suez Lyonnaise des Eaux SA and Germany's E.ON AG are close to finalizing a merger that would create one of the world's biggest utilities, according to a published report Thursday.

Bayer—Sybron: German diversified chemical and drug manufacturer Bayer AG on Wednesday said it agreed to buy polymer and specialty chemical maker Sybron Chemicals Inc. for $35 a share cash, or about $202 million, to expand its market in the area covered under the North American Free Trade Agreement (Nafta).

Commerzbank—Generali: Germany's Commerzbank AG and Italian insurer Assicurazioni Generali SpA said on Wednesday they were in talks, bilaterally and with other partners, to strengthen their existing alliance.

Dai-Ichi—Yasuda Fire: Japan's Dai-Ichi Mutual Life Insurance and Yasuda Fire & Marine Insurance Co Ltd said on Monday they had agreed a broad tie, the nation's first major alliance between a life and non-life insurer.

Telekom—Powertel: Ignoring looming regulatory concerns, Germany's Deutsche Telekom AG moved to buy its second U.S. wireless carrier in a month late Sunday, striking a $6 billion all-stock buyout of Powertel Inc., a fast-growing mobile operator based in the Southeast.

Titan—Tarmac: Greece's Titan Cement SA announced Monday it agreed to purchase cement company Tarmac America for $636 million in an all-stock deal.

SpectraSite—SBC: SpectraSite Communications said on Monday it would pay local phone company SBC Communications $1.3 billion for lease rights to 3,900 wireless communications towers, giving SpectraSite the largest tower portfolio in the top 50 U.S. markets.

Philips—Atos SA: French computer services group Atos SA said Monday it would merge with Origin, a unit of Royal Philips Electronics NV, in a 2.6 billion euro ($2.4 billion) deal aimed at creating a leading European IT services player.

Alcoa—Billiton PLC: Alcoa Inc. is selling its stake in Australia's highly regarded Worsley mine to Britain's Billiton PLC in a deal Tuesday in which Billiton will buy Australian metals company Reynolds Australia Alumina Ltd. for $1.49 billion in cash.

Factory orders tumble

Orders for new goods from U.S. factories fell at the fastest clip on record in July, led by a dive in demand for aircraft and other transportation goods, the Commerce Department said Thursday.

Total orders plummeted 7.5 per cent to a seasonally adjusted $377.6 billion on the heels of a 5.2 per cent increase in orders in June. The July drop exceeded Wall Street economists' forecasts for a 6.1 per cent decline in factory orders, a report noted for its volatility.

Jobless claims dip

The number of Americans filing for unemployment benefits fell after a three-week rise, to 318,000 last week from a revised 321,000 the prior week, the government reported Thursday.

Economists polled by Briefing.com had forecast U.S. jobless claims of 315,000 for the period.

Investors revisit Russia

International investment in Russia for the first half of the year rose to $4.78 billion, up nearly 12 per cent from the same period a year ago, according to the State Statistics Committee.

International investment in Russia plunged markedly after the financial crisis that hit in August 1998, but the economy recently has shown signs of significant recovery.

The largest share of international investment in the first half this year was in manufacturing, accounting for $2.27 billion, nearly half the total, the committee said, according to the news agency Interfax.

Fund assets drop

Assets in mutual funds fell 0.6 per cent in July, affected mostly by market performance and volatility rather than net cash flow. Combined net assets in all U.S. mutual funds rose fell to $7.077 trillion from $7.117 trillion in July, according to a monthly survey of the industry. Assets in stock funds decreased by $84.30 billion for a total of $4.232 billion, with net new cash flow of $17.58 billion during the month, down from $22.14 billion in June.

Sony sets $399 organizer

Sony Corp. said Wednesday it will launch a hand-held personal organizing device next month that will cost less than $400 and be the latest entry in an increasingly competitive market.

The device, the Sony CLIE, will use the Palm Inc. operating system, but will surpass other Palm-based devices on certain multimedia capabilities, such as letting users play digital videos. Users will be able to store digital images as well.