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Sep 11 - 17, 2000

Japan's debt downgraded

Japan was hit by the downgrade of one major ratings agency on Friday due to the high level of public debt as it tries to pull itself out of recession.

Moody's Investors Service said it had downgraded Japan's sovereign rating for debt denominated in yen to Aa2 from Aa1 and declared the outlook for the rating negative.

In November 1998, Moody's downgraded Japan's sovereign debt rating to Aa1, one step below its top-notch Triple-A rating.

In contrast, the other premier ratings agency, Standard & Poor's, has kept its rating at the top-notch Triple-A.

Japan has traditionally been considered one of the world's safest credit risks, given its huge level of private savings and trade surpluses.

But Moody's has repeatedly voiced concerns about the stagnant economy and the ever-growing mountain of public debt, now rising to 130 per cent of annual GDP, the worst among the major G-7 industrialized nations.

Financial markets had been guessing that the influential U.S. rating agency was about to deliver its verdict on the rating.

The agency had placed the sovereign rating on review for downgrade on February 17, sending shockwaves through bond and currency markets.

Moody's said Japan's foreign currency debt rating remained unchanged at Aa1.

Ministers try to lift euro

Germany and France tried Thursday to halt the decline of the euro, now hovering around an all-time low against the dollar, but government ministers' words did little to underpin confidence in 20-month-old currency.

German Finance Minister Hans Eichel spoke with his French counterpart Laurent Fabius by telephone and agreed the euro's value on foreign exchange markets did not reflect Europe's economic strength, officials in Berlin and Paris said.

"They had an exchange of views which showed a strong convergence between them that economic fundamentals were not reflected in the current exchange rate," a French finance ministry official said.

The euro hit a new low against the dollar of 86.34 U.S. cents early Thursday, down from 87.08 cents in late New York trading Wednesday. The currency has weakened more than 25 per cent against the dollar since the euro came into being in January 1999. It traded at 86.73 cents in afternoon trade in London.

The euro has been undermined by the slower rate of economic growth in the 11-nation euro-zone, relative to the buoyant U.S. economy. Social unrest in France and seemingly unsupportive comments from German Chancellor Gerhard Schroeder earlier in the week have added to the currency's woes.

The 11-country currency bloc plans to issue a statement at talks near Paris on Friday, which would drive home the message that the euro was out of line with economic fundamentals, a German official said. The statement by the so-called Euro Group is unlikely to refer to possible central bank intervention on foreign exchanges to prop up the currency.

Rolf Breuer, chief executive of Germany's top bank Deutsche Bank, called the weakness of the euro "embarrassing" but did not favour currency intervention by the European Central Bank.

Senate to debate China

After months of delay, the U.S. Senate opens debate this week on President Bill Clinton's landmark trade pact with China, setting the stage for a final showdown between free-trade supporters and their foes that could transform Sino-U.S. relations.

Clinton's allies in the fight said they had more than enough votes to ensure Senate passage of the trade bill, which would end the annual ritual review of Beijing's trade status and guarantee Chinese goods the same low-tariff access to the U.S. market as products from nearly every other nation.

But opponents of the market-opening pact said they still had a chance to scuttle the measure during the Senate debate by bogging it down with amendments.

Under congressional rules, if any amendment is approved, congressional leaders would be forced to negotiate a final compromise and schedule a new round of votes on the trade bill in the Senate as well as in the bitterly divided House. It is unlikely those votes could be completed this year since the congressional session will be cut short by the November election, congressional aides and White House officials say.

Asian markets mixed

Asian markets were mixed Friday afternoon, as the Tokyo market took its cue from the previous day's rise on the U.S. Nasdaq, while Hong Kong and other regional markets were trading lower.

Tokyo's Nikkei average closed up 1.2 per cent, snapping an eight-day losing streak with the help of gains among high-tech shares.

Hong Kong's Hang Seng index was down 0.5 per cent in late trading, while Singapore's Straits Times index nudged up less than 0.1 per cent.

Elsewhere in Asia Pacific Taipei's Taiwan Weighted index closed down 0.9 per cent at 7,367.99. South Korea's benchmark index also closed lower. The KOSPI index slipped 0.4 per cent to 653.68

In Australia, the S&P/ASX 200 index closed up 0.4 points at 3,320.3.

Kuala Lumpur's KLSE Composite fell 1.1 per cent, Jakarta's JSX index was down 0.4 per cent. Bangkok's SET index was 0.1 per cent lower, and Manila's PHS Composite index was virtually unchanged.

Nasdaq sees healthy rebound

The Nasdaq composite index surged more than 2 per cent Thursday, attracting bargain hunters after two days of selling shaved 5 per cent off the tech-heavy index.

But DuPont and J.P. Morgan helped propel the Dow Jones industrial average lower as investors rotated out of blue chips.

The Nasdaq gained 85.00 to 4,098.34. The Dow industrials fell 50.77 to 11,259.87, while the S&P 500 advanced 10.16 to 1,502.41.

New York Stock Exchange, decliners beat advancers 1,282 to 1,524, as more than 976 million shares changed hands. On the Nasdaq, winners outpaced losers 2,260 to 1,734, as more than 1.6 billion shares were traded.

Mitsubishi boss driven out

The president of Japan's Mitsubishi Motors Corp. resigned Friday over a decades-long cover-up scandal that forced the company to seek support from partner DaimlerChrysler AG and drew the wrath of government regulators.

Europe mixed

London's benchmark FTSE 100 index edged up 0.2 per cent to 6,702.8, led by a 4 per cent gain for utility Scottish & Southern Energy (SSE). But hotels and catering company Granada Compass (GCP) plunged 11.6 per cent after a report said the firm's own broker had lowered its profit forecast.

The blue-chip CAC 40 in Paris dropped 0.1 per cent 6,826.71, with industrial gases company Air Liquide (PAI) dropping 6 per cent despite reporting a 14 per cent rise in first-half profit.

Frankfurt's electronically traded Xetra Dax edged up a modest 3.08 points to 7,376.42.

Elsewhere, Amsterdam's AEX index and Zurich's SMI index were little changed, while the MIB 30 index in Milan rose 0.2 per cent.

The broader FTSE Eurotop 300 index, a basket of Europe's largest companies, rose 0.1 per cent to 1,697.55.

Mergers & Acquisitions

Tiscali—World Online: Tiscali SpA, Italy's second-largest Internet service provider, agreed Thursday to buy ailing Dutch counterpart World Online NV for 5.9 billion euros ($5.1 billion) in stock, creating Europe's second-largest ISP behind the Deutsche Telekom subsidiary T-Online International AG.

Microsoft—CBS: Viacom unit CBS Television said Thursday it will use Microsoft's WebTV Network's interactive programming under an alliance beginning in the 2000 to 2001 season.

Valley—Merchants: Valley National Bancorp, the owners of Valley National Bank, said on Wednesday it would buy Merchants New York Bancorp, which is the parent company for the Merchants Bank of New York, for approximately $375 million in common stock.

Citigroup—Associates: Citigroup Inc. agreed Wednesday to purchase Associates First Capital Corp., the No. 1 U.S. consumer finance company, for about $31 billion in stock, boosting the company's international reach and providing significant depth across its already broad range of consumer products.

Northrop—Fed Data: Northrop Grumman Corp. announced Wednesday that it will buy Federal Data Corp. for $127 million in cash from Carlyle Group, a move aimed at strengthening its business supplying information technology to the federal government.

WorldCom—Intermedia: Following its commitment to pursue new growth along the digital band, WorldCom Inc. struck a deal Tuesday to acquire fast-growing communications company Intermedia Communications Inc. for nearly $3 billion in stock, significantly expanding its Web hosting capabilities.

Riverdeep—Edmark: Riverdeep Group PLC, an Irish educational-software company, announced Tuesday that it has completed its acquisition of Edmark Corp. from International Business Machines Corp. in a stock deal.

Mortgage rates flat

U.S. Mortgage rates continued to stay flat remaining below 8 per cent for the third consecutive week, tempered by indicators signaling a stable economy, according to a report released this week by Freddie Mac. A 30-year fixed-rate mortgage (FRM) averaged 7.94 per cent for the week ending Sept. 8. The average for a fixed-rate 15-year mortgage was 7.65 per cent. A one-year adjustable-rate mortgage (ARM) averaged 7.33 per cent.

U.S. inventories rise

U.S. wholesale inventories increased for the 18th consecutive month in July, the Commerce Department reported Thursday, suggesting businesses may still expect consumer spending to remain strong. The government said wholesale inventories rose 0.3 per cent in July to a seasonally adjusted $324.15 billion, after gaining 1.0 per cent in the previous month. The stock-to-sales ratio — a measure of how long it would take to totally deplete inventories at the current sales pace — edged up to 1.30 months, the highest level since a matching 1.30 in July of last year. The ratio was 1.29 in June.

Jobless claims fall again

The number of Americans filing for new claims for unemployment benefits fell for the second straight week, to 316,000 last week from a revised 319,000 the prior week, the government reported Thursday. Economists polled by Briefing.com had forecast U.S. jobless claims of 310,000 for the period.

U.K. interest rates on hold

The Bank of England decided on Thursday to leave U.K. interest rates unchanged at 6 per cent, holding steady for the seventh straight month, as recent economic data indicated that inflationary risks in Europe's second biggest economy are diminishing.

Most economists had said they would not have been surprised by a hike in the key rate to 6.25 per cent, given that the vote at last month's meeting of the Bank's Monetary Policy Committee split 5-4 in favour of holding rates, and because there were signs that the economy is still growing robustly.

"Data since the August vote has generally been a little softer than expected," economists at Chase Manhattan said in a report to clients. "But the strength in previous months means that there is still no conclusive slowdown evident in the U.K."

Euro weakens versus yen

The euro tumbled to fresh lifetime lows against the Japanese yen and came within a hair of its record lows against the dollar on Tuesday, as bearish sentiment outweighed upbeat European economic news.

And the yen also cast off overnight losses against the dollar that were racked up on rumors of a possible near-term downgrade of Japanese debt and weaker Tokyo stocks.

The latest decline of Europe's single currency erased a bounce initiated last Friday after soft U.S. employment and manufacturing data bruised the dollar.

Bonds hold steady

U.S. Treasury securities ended little changed Tuesday in quiet post-holiday trading as investors expressed optimism that the Federal Reserve will not raise interest rates this year.

On September 5, the benchmark 10-year Treasury note fell 1/32 of a point in price to 100-15/32. The yield, which moves inversely to price, was unchanged from 5.68 per cent Friday.

The 30-year bond dipped 1/32 to 108-10/32, its yield falling to 5.66 per cent from 5.67 per cent.