Dec 04 - 10, 2000

GDP growth slower in 3Q

The U.S. economy grew at the slowest pace in four years in the third quarter, the government said Wednesday, scaling back its initial reading of a month ago. The report was the latest sign that the Federal Reserve's interest rate increases are slowing growth in the world's largest economy.

The Commerce Department said gross domestic product, the country's total output of goods and services, grew at an annual rate of 2.4 per cent in the quarter, down from the 2.7 per cent rate estimated a month ago. Analysts were looking for a revised reading of 2.2 per cent, according to Briefing.com.

The economy has slowed sharply from the second quarter's 5.6 per cent rate of growth. The department attributed the decline to downturns in investment and in federal government spending as well as less inventory building by businesses.

Economists said the Fed is basically getting what it wanted after it raised rates six times since mid-1999 and that the central bank may officially shift its position away from raising rates again.

Investors mostly liked what they saw and sent the Dow Jones industrial average up about 105 points, or 1 per cent, to 10,613 at mid-session. The Nasdaq composite was little changed.

Spending on computers and software was lower than previously calculated. Also, businesses added to inventories at a slower $73.5 billion-a-year rate instead of the $79.9 billion pace of the third quarter, further shaving from the rate of GDP advance.

Personal spending by consumers grew 4.5 per cent in the quarter, up from a 3.1 per cent increase in the second quarter, the department said. Imports rose 17.4 per cent, a bit slower than in the second quarter, while exports rose 15.4 per cent, up from the previous quarter.

German growth slows

The pace of German economic growth fell to 0.6 per cent in the third quarter as higher interest rates and oil prices hit consumer spending, backing the view that the European Central Bank will keep interest rates on hold for the time being.

The Federal Statistics Office said Tuesday that growth in the quarter slowed to a seasonally-adjusted 0.6 per cent from the second quarter, when the economy had expanded at a rate of 1.1 per cent. Year over year, adjusted for seasonal and calendar factors, growth slowed to 3.4 per cent from 3.7 per cent in the second quarter.

The slowdown was in line with economists' expectations that growth in Europe's largest economy, which accounts for a third of output in the region, was well past its peak.

Economists said the ECB, whose policy-makers council next meet Thursday, was now likely to keep interest rates unchanged for the time being.

They said slowing growth and moderate underlying inflation — stripping out the impact of higher oil prices — was offsetting recent oil price-induced increases in overall inflation figures to well above the ECB's 2 per cent ceiling.

The bank is likely to refrain from interest rate rises while it assesses the impact of its seven rate hikes since last November which moved its benchmark interest rate up by 2.25 per centage points to 4.75 per cent, economists said.

"It shows that interest rate increases by the European Central Bank have had a dampening impact," said Klaus Schruefer, an economist at BfG Bank in Frankfurt.

ECB holds rate at 4.75%

The European Central bank voted to maintain its key short-term rate at 4.75 per cent Thursday, in line with economists' predictions.

Amid signs that economic growth in the 11-nation euro zone may be going off the boil, the ECB is expected to have no more than one or two interest rate increases in its locker, before it starts easing monetary policy to stimulate growth.

Although inflation remains above the ECB's target level of 2 per cent, the central bank appears happy with the view that elevated oil prices are the principal culprit, something it can do nothing about.

Klaus Baader, European economist at Lehman Brothers in London, said that although recent inflation numbers have been disappointingly high, "the growth outlook is a lot more uncertain".

He predicted the ECB's last rate increase in this economic cycle would come in the first quarter of 2001, taking the short-term rate up to 5 per cent.

Global warming talks fail

The failure of U.N. climate talks has dashed business hopes for clear rules over potentially lucrative technology transfer to the developing world and the emerging market of trading greenhouse gas emissions.

"Business is disappointed with the outcome," said Nick Campbell, chairman of the Climate Change Working Group at the International Chamber of Commerce.

"We came here expecting a decision which would have clarified the rules and guidelines of the Kyoto Protocol. We now walk away as empty handed as everyone else and leave as confused as when we arrived about the role we might play in contributing to solutions."

The two-week conference ended without agreement on measures to fight global warming, after the United States and the European Union failed to settle a bitter wrangle over ways to cut greenhouse gas emissions implicated in climate change.

Europe ends lower

European bourses ended lower Thursday as high-tech shares dived following profit warnings from key U.S. computer hardware firms while losses spread to the auto, financial and telecom sectors.

London's benchmark FTSE 100 index fell 23 points, or 0.4 per cent, to 6,141.9, with Anglo-American fund manager Amvescap (AVZ) and fiber-optic component maker Bookham Technology (BHM) posting double-digit losses.

The blue-chip CAC 40 in Paris fell 133.57 points, or 2.2 per cent, to 5,928.08, led by information technology consultant Cap Gemini (PCAP) and telecom equipment maker Alcatel (PCGE).

The electronically traded Xetra Dax in Frankfurt dropped 171.82 points, or 2.6 per cent, to 6,426.50.

Among other European markets, the AEX index in Amsterdam shed 1.9 per cent. The SMI in Zurich, less exposed than others to tech stocks, shed 1 per cent, while the MIB30 in Milan sank 2.7 per cent.

The broader FTSE Eurotop 300 index, sank 1.9 per cent,.

Asian markets strengthen

Despite a major slide on the Nasdaq and a lagging Dow, stock markets in Asia rose Friday.

Japan's benchmark Nikkei Stock Average rose 34.66 points to end the morning session at 14,683.17. In Hong Kong, the Hang Seng index was up 71.26 points, at 14,055.65 by midmorning. Australia's S&P/ASX 200 index was up 12 points at 3,286.6.

In New York trading Thursday, the Dow Jones industrial average lost 214.62 points to close at 10,414.49.

The Hang Seng index was up 0.51 per cent, or 71.26 points, at 14,055.65 at 10.05 a.m. (0205 GMT).

The S&P/ASX 200 index was up 12 points at 3,286.6, and at one point had managed a 36-point turnaround from its poor start to the session.

Mergers & Acquisitions

Citigroup—Associates: Citigroup Inc., the No. 1 U.S. financial services conglomerate, on Thursday completed its purchase of Associates First Capital Corp., the nation's largest publicly-traded finance company, shortly after winning final regulatory clearance for the deal.

DoCoMo—AT&T: NTT DoCoMo, Japan's leading wireless telephone provider, agreed Thursday to pay $9.8 billion to acquire a 16 per cent stake in AT&T Wireless, gaining a long-sought foothold in the U.S. wireless market.

Wellpoint—Cerulean: Cerulean Cos, the parent of Blue Cross and Blue Shield of Georgia, on Wednesday said it agreed to be bought by WellPoint Health Networks Inc. for $700 million in cash, as WellPoint countered an unsolicited $675 million cash offer from Trigon Healthcare Inc.

Agilent—Objective: Technology test equipment maker Agilent Technologies Inc. agreed Monday to acquire Objective Systems Integrators Inc. for about $665 million in cash, in a bid to expand its focus on the communication services provider market.

NEC—Hitachi: A joint venture between Japanese electronics companies NEC Corp. and Hitachi Ltd. announced plans to invest ¥160 billion ($1.45 billion) to build a computer memory chip production plant in Hiroshima.

 Nokia—AT&T: Nokia Corp., the world's largest mobile phone supplier, said on Thursday it had inked a deal with AT&T Corp. Wireless Group to supply the U.S. telecom operator with high-speed network systems, expanding the Finnish firm's reach in the U.S. market.

Results

Granada: Granada Media, Britain's biggest terrestrial TV broadcaster, said operating profit for the year ended Sept. 30 rose 8 per cent to £253 million ($354 million).

Marconi: British telecom equipment maker Marconi PLC reported a 9 per cent jump in first-half profit. Pretax profit before goodwill and exceptional items grew to £276 million ($392.3 million) from £253 million a year earlier.

Imperial: Britain's Imperial Tobacco Group PLC reported a 13 per cent rise in annual profit. Pretax profit for the year ended Sept. 30 rose to £450 million ($630 million), from £400 million a year earlier.

U.S. Treasurys still rising

U.S. Treasurys shot higher Thursday as plunging stock markets, rising unemployment claims and a weak manufacturing report boosted prospects a steadily slowing economy will spur Federal Reserve interest rates cuts.

Two-year Treasury notes were up 1/32 at 100-2/32, as their yield fell to 5.58 per cent. Five-year notes were up 12/32 at 101-16/32, yielding 5.40 per cent.

Benchmark 10-year notes climbed 18/32 to 102-6/32, yielding 5.45 per cent. Thirty-year bonds gained 23/32 to 109-15/32, yielding 5.59 per cent, their lowest yield in 19 months.

Jobless filings up

The number of Americans filing new claims for unemployment benefits last week was the highest in more than two years, the government reported Thursday.

The Labor Department said the number of first-time claims climbed to 358,000 for the week ended Nov. 25 from a revised 339,000 the previous week. That's the highest total since the 384,000 claims in the July 4, 1998 week.

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Mutual fund assets drop

Assets in U.S. mutual funds headed south in October, dropping 1.1 per cent to $7.196 trillion, according to a trends report Wednesday by the Investment Company Institute, a Washington-based trade group.

Stock funds' assets overall took the biggest hit, falling 2.5 per cent to $4.289 trillion. But the drop was due mainly to volatility, ICI spokesman John Collins said. That's in part because stock funds received the greatest amount of net new cash flow from investors — $19.1 billion — than any other fund group. And, Collins noted, year-to-date through October, equity funds have received $291.4 billion, more than twice the amount received during the same period in 1999.

Heating oil drops 6%

Forecasts of mild weather sliced nearly six per cent off U.S. heating oil prices and more than a dollar of crude oil on Tuesday, despite continued worries over thin pre-winter supplies.

December heating oil futures on the benchmark New York Mercantile Exchange (NYMEX) dropped 6.15 cents to $1.0237 a gallon, while January crude oil ended $1.16 lower at $34.22 a barrel.

Gas prices fell the equivalent of 6.5 cents a gallon, or 35.2 cents per million British thermal units — a decline which set off selling in the heating oil and crude oil markets, despite low supplies.

Dollar loses strength

The dollar slumped across the board Monday, slipping away from nine-month peaks against the yen and tumbling more than 1.5 per cent against the euro as protracted uncertainty surrounding the U.S. presidential election began to take its toll.

The dollar, which surged to fresh nine-month peaks near 111.50 yen in Europe — its highest level against the Japanese currency since Feb. 22 — turned tail after running into stiff resistance at its peaks, extending losses in midday trading to hit fresh session lows near 110.55 yen.

EU to align tax rules

European Union finance ministers on Monday agreed to a package to curb tax evasion in the 15-nation trading bloc, a French official said, in a move that may pave the way to the adoption of an EU-wide savings tax.

A spokeswoman for the French finance ministry said objections raised by several members toward the withholding tax plan were resolved in the early hours of Monday morning, leading to a tentative accord.

"There is full agreement," she told reporters.

French Finance Minister Laurent Fabius was expected to make a formal statement later Monday. France currently holds the EU presidency, which changes hands every six months.

Income falls, spending up

Americans' incomes fell in October for the first time in nearly two years while consumer spending barely edged higher, pushing the savings rate to a record low, the government said Thursday — the latest signs of slower economic growth in the United States.

The numbers, combined with lower durable goods orders, declining consumer confidence, and shaky retail sales, leave many analysts believing the Fed is getting ready to either lower interest rates or at least move toward a neutral stance on inflation when it meets Dec. 19.

Daewoo preps for sale

Creditors of South Korea's Daewoo Motor on Wednesday agreed to provide 727.9 billion won ($613.7 million) in fresh loans to the insolvent automaker to help pave the way for its sale to General Motors Corp.

"The fresh loans would help put the operation of Daewoo Motor back on track and ease financial crunches at its subcontractors," state-run Korea Development Bank (KDB), Daewoo's main creditor, said in a statement.

Toyota to sell Fords?

Officials of Toyota Motor Corp. and Ford Motor Co.'s Japan unit are considering selling Ford cars at Toyota dealerships in Japan as a way to boost sagging Ford sales there, according to a published report.

Americas investors worry

Stocks in Latin America and Canada experienced major sell-offs Thursday but Toronto held steady with a rally by the end of the day that helped recover earlier losses.

In Brazil, the Bovespa index lost 3.6 per cent ending at 13,287.

In Mexico, the IPC index gave back 4.31 per cent, or 254.61 points, at 5652.63 points.

The Toronto Stock Exchange's 300 Composite index closed down 1.18 points, or .01 per cent, at 8819.92.

Interbrew raises $2.5bn

Belgian beer giant Interbrew said on Thursday it had set an offer price of 33 euros ($28.79) per share for the 88.2 million shares, or 21 per cent of its capital, it plans to list on Euronext Brussels on Friday.

Boeing gets $1.6B order

Boeing Co. capped a strong sales year for its 777 wide-body jets Monday by selling eight of that aircraft to Japan Airlines, bringing its sales for the year for the model to at least 113.

Philips in TV tube alliance

Dutch-based Royal Philips Electronics NV and South Korea's LG Electronics announced Monday plans to merge their TV and computer monitor tube businesses in a joint venture with more than $6 billion in annual revenue.