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Sep 25 - Oct 01, 2000

US Senate okays bill on trade ties with China

In what is seen as a historic development, the US Senate on Tuesday overwhelmingly approved legislation meant to normalize America's trade relations with Asian giant China.

The legislation, which had already been passed by the House of Representatives in May, won 83 Senate votes in its favour and 15 against.

Outside Congress, it had the support of big business and the farming sector. A small but vociferous anti-China lobby argued that it marked the Clinton administration's abandonment of democratic principles in the name of corporate profits and lessened pressure on Beijing to improve what they called its human rights record.

But President Clinton, while greeting the "landmark" passage of the legislation and saying it would extend economic prosperity at home, put a political spin on the event. He said the measure would promote economic freedom in China, increasing the prospects for " openness in China and a more peaceful future for all of us". The president is described as having achieved one of the great legislative victories of his eight-year administration, which ends in January.

The stage is now set for China's entry into the World Trade Organization, possibly in the next three months. It ends the practice hitherto followed in the US of a year-to-year approval of trade with China and ensures permanent, normal trade relations with the world's most populous nation. A recent World Bank report had pointed out that China's economy had grown by about 10 per cent a year since 1980.

The US has a trade deficit of $36 billion with China, with markets here flooded with Chinese goods. China's market of 1.3 billion will now be open to American farm goods, automobiles, telecommunication equipment and a number of other products.

Chinese goods will get the same low-tariff access to US markets as imports from most other countries, coming down from 33 per cent to about 14 per cent.

Euro: time to intervene?

As the euro plumbs new depths against the dollar and Japanese yen, debate is intensifying among economists about whether now is the time for the European Central Bank to use its currency reserves to buy euros in an effort to boost its value.

The euro dropped to a new low against the dollar of 84.44 cents Wednesday, and traded recently at 84.59 cents, at the same time as International Monetary Fund Managing Director Horst Koehler joined the growing chorus of voices urging the ECB not to rule out so-called intervention in the currency market.

"The euro is heavily undervalued, and in my view it is also clear that intervention cannot be a taboo," Koehler said at the IMF's meeting in Prague, reinforcing comments made by the fund's chief economist Michael Mussa. Koehler also called for greater coordination and less talk among euro-zone officials.

But the ECB, not the IMF, is the overseer of monetary policy for the euro-zone, with the mandate of maintaining price stability. Government leaders in Germany and Portugal, while asserting that the state of the European economy doesn't justify the euro's dramatic decline, snapped back at the IMF officials for overstepping their role.

Behind the turmoil for the common currency has been a recent upswing in European investment in the United States — through purchases of U.S. companies, for example — a rate of U.S. economic growth that outstrips the pace of the euro zone, and higher U.S. interest rates, which lure investors into dollar-denominated assets.

The weak euro threatens to quicken inflation and curb economic growth in the 11-nation currency bloc by making imports more costly. It has also trimmed profits of some U.S. companies doing business in the zone by reducing the value of European revenue translated back into dollars, and making their exports less competitive to euro-based consumers.

Asia hit by Intel warning

Asian markets sank Friday as a warning by U.S. computer-chip maker Intel of weaker-than-expected demand reverberated across the Pacific.

In Japan, the Nikkei 225 tumbled 3 per cent to close at 15,818.25. In Hong Kong, the Hang Seng index shed 2.5 per cent to trade at 14,791.66 by the end of the morning session.

South Korea's Kospi index nosedived 7.2 per cent and Singapore's Straits Times index slumped 2.8 per cent.

In the U.S. Thursday, the Nasdaq Composite index dropped 1.8 per cent, or 68.56 points, to 3,828.88. The Dow Jones industrial average, on the other hand, gained 0.7 per cent, or 77.60, to close at 10,765.52.

Australia's S&P/ASX 200 index fell 1.9 per cent, to 3,143.5, as investors anticipated big losses on Wall Street later in the day.

Thailand's SET index was down 1.4 per cent while Jakarta's JSX index shed 1.8 per cent. Manila's PHS Composite slipped 0.2 per cent and Kuala Lumpur's KLSE Composite lost 1.4 per cent.

EU asked to remove tariff, quotas

The European Union must remove tariffs and quotas on all goods, including farm products, exported by the world's 48 least developed nations, the EU Commission said on Wednesday.

The EU executive also promised to help developing nations to reduce costs of manufacturing medicines needed to combat AIDS/HIV, malaria and tuberculosis.

The EU aid package for LDCs was described as groundbreaking by officials who said this was the first time the Commission had called for the complete liberalization of imports in the EU's traditionally highly-protected farm sector.

But in a concession to the sensitivities of EU farm-producing nations France, Spain and Portugal, European Trade Commissioner Pascal Lamy said imports of sugar, bananas and rice would only be liberalized progressively over a period of three years.

The LDC measures envisaged by the Commission go further than earlier commitments by the bloc and other industrialized nations to ease essentially all trade with the world's poorest nations.

German confidence slips

Germany's closely watched Ifo business climate index surprised markets by declining in August for a third consecutive month, raising the prospect that the rate of growth in Europe's largest economy may be slowing.

Data from the Ifo research institute's monthly survey showed the headline west German index last month eased to 99.0, the lowest reading since November 1999, from 99.1 in July.

Economists polled by Reuters earlier this week expected, on average, a modest rise in the index to 99.3, with forecasts ranging from 98.0 to 100.1.

Analysts said high oil prices had probably had a dampening effect on business sentiment. The euro shed more than 0.1 cent and fell below 87.40 U.S. cents after the report, nearing all-time lows against the dollar recorded earlier on Wednesday.

To tap or not to tap

President Clinton is considering tapping into the country's Strategic Petroleum Reserve to tame heating oil and gasoline prices, but has yet to reach a decision and senior advisers are split on the course of action, according to senior officials familiar with the deliberations.

World oil prices fell on news the reserve may be tapped. U.S. light sweet crude for November delivery fell $1.24 to $34 a barrel while Brent crude in London fell $1.01 cents to $32.73.

The issue has divided Clinton's top policymakers. Energy Secretary Bill Richardson, several informed sources told, has advocated drawing down perhaps as much as 60 million barrels, although he conceded in his memo to the president that even that approach would likely have only a modest impact on prices.

Mergers & Acquisitions

British Air—KLM: British Airways and KLM Royal Dutch Airlines Thursday ended prolonged merger discussions aimed at creating one of the world's largest air carriers, citing an inability to cut through the complexities of the large transaction.

EMI—Time: EMI Group PLC and Time Warner Inc. have offered to sell one record label each in France, Denmark, Greece and Spain, plus four publishing catalogs — including Virgin Songs — to win European Union approval for their joint venture, an industry source said on Wednesday.

Franco-Nevada Mining—Gold Fields: Franco-Nevada Mining Corp. Ltd., still licking its wounds after the South African government blocked its merger plans with South Africa's Gold Fields Ltd., said on Thursday the deal was "dead."

Lycos Europe—Nordic: Internet portal Lycos Europe NV agreed Thursday to buy Nordic web portal Spray Network for 674 million ($573 million) in stock, as it pledged to play a more active role in Europe's consolidating Web landscape.

Sun—Cobalt: Sun Microsystems Inc. agreed Tuesday to buy Cobalt Networks, a maker of computer servers, for about $2 billion in stock.

Thames—E'town Corp: Thames Water PLC, the British owner of New Jersey-based utility E'town Corp., is in advanced talks Wednesday with an unnamed party about a possible recommended cash offer to buy the U.K. company for about £4.1 billion ($5.8 billion).

EU probes aid to truckers

The European Union has opened an inquiry into tax breaks and subsidies that several member countries have granted truck drivers — moves that proved crucial in convincing them to end recent gasoline protests that clogged roads and held up fuel deliveries.

EU Transport Commissioner Loyola de Palacio has written to France, Italy, the Netherlands and Belgium, giving them one month to supply details of the aid given to truckers, said Gilles Gantelet, a spokesperson for de Palacio. EU rules require member states to seek commission approval before putting in place such tax breaks or subsidies.

Fed sees slowing growth

The Federal Reserve said on Wednesday it saw fresh signs in August and early September that the U.S. economy was losing a step, but said it remained healthy.

"Most districts characterized economic conditions as strong, and several said that economic growth continued to be solid," the Beige Book summary — prepared by the Richmond regional Fed bank — said. Members of the Federal Open Market Committee will use it when they meet on Oct. 3 to plot interest-rate strategy.

U.S. Treasury Bonds

The benchmark 10-year Treasury note rose 6/32 of a point in price to 99-2/32. The yield, which moves inversely to price, fell to 5.87 per cent from 5.90 per cent Wednesday.

The 30-year bond gained 13/32 to 104-15/32, its yield retreating to 5.92 per cent from 5.97 per cent.

CMGI beats estimates

CMGI, based in Andover, Mass., reported net revenue of $377.2 million for the fourth quarter ended July 31, a 568 per cent increase from last year's fourth quarter. Net revenue for the company's search and portals segment increased 6,208 per cent compared with the fourth quarter of fiscal 1999.

Honda recalls 500K cars

Honda Motor Co Ltd, Japan's second-biggest carmaker, said on Wednesday it will recall about half a million cars in Japan to repair stereo systems and engine oil seals at a cost of 2.62 billion yen ($24.42 million).

Honda, the latest in a series of big Japanese manufacturers and food producers to announce a large-scale recall of defective products, told the Transport Ministry on Tuesday it would carry out 556,924 repairs on passenger cars in Japan.

The vehicles, including more than 75,000 made by Honda's U.S. subsidiary, were manufactured from 1991 to 1997.

New IMF chief talks tough

Few words, tough talk. That's the impression Horst Koehler, the new managing director of the International Monetary Fund, has left in the wake of his first public appearance Wednesday, which kicked off both the IMF-World Bank annual meetings and his tenure as the new head of the world's largest and most influential fund.

Koehler spoke candidly about the work that needs to be done at this week's meetings in Prague. On his agenda will be discussions about everything from the way the IMF accepts repayments on its loans to ways of encouraging private sources of capital to invest in lesser-developed economies.

Jobless claims drop

The number of Americans filing new claims for unemployment benefits fell to 308,000 last week from a revised 326,000 the prior week, the government reported Thursday.

Mortgage rates steady

U.S. Mortgage rates for the week ending Sept. 22 remained steady, according to a report released Thursday by Freddie Mac.

The 30-year fixed-rate mortgage, the industry benchmark, averaged 7.9 per cent for the week, up just fractionally from last week's 7.88 per cent average. The average for a fixed-rate 15-year mortgage was 7.57 per cent. One-year adjustable-rate mortgages (ARMs) this week averaged 7.27 per cent.

Trade gap hits record

The U.S. trade deficit hit another record in July, the government reported Wednesday, as high oil prices and a strong dollar drove the gap a bit wider than forecasts to nearly $31.9 billion.

The strong value of the dollar compared with the currencies of major trading partners increased the price of U.S. goods overseas and made imports more attractive to U.S. buyers. Exports of U.S. goods fell to $89.7 billion in July from $91 billion in June. Exports had risen in five of the previous six months this year, despite increasing trade deficits. Imports rose to $121.6 billion from $120.8 billion, with much of the rise due to higher spending on energy. The average price of imported oil rose to $27.76 a barrel in July.

AT&T Liberates TV

In a snub to Microsoft, AT&T Corp. said Thursday it has chosen Liberate Technologies Inc.'s interactive software in its pilot tests for broadband television services.

VW recalls

German automaker Volkswagen AG on Thursday said it was recalling 28,000 Golf and Audi A3 cars manufactured in Brazil this year to inspect a potential problem with welding on the front suspension.