. .

Dec 25 - 31, 2000

U.S. GDP revised lower

The U.S. economy grew at its slowest rate in four years in the third quarter, the government said Thursday in its final reading on gross domestic product for the July-September period.

The Commerce Department cut its estimate of GDP — the total output of goods and services — to a 2.2 per cent growth rate in the quarter from the 2.4 per cent reported a month ago. GDP is the broadest measure of the nation's economy.

That was less than half the second quarter's sizzling 5.6 per cent growth rate and the slowest since a 2 per cent rate in the third quarter of 1996.

The final third-quarter numbers came in even weaker than Wall Street analysts predicted. Analysts had expected a final reading of 2.4 per cent, according to a survey by Briefing.com.

A key index of inflation rose 1.8 per cent, which was a shade below Wall Street forecasts of 1.9 per cent. Weaker exports contributed to the reduced reading, the Commerce Department said.

The report is the latest pointing to much slower growth in the world's largest economy. The Federal Reserve said Tuesday that the economy now faced more risk of a downturn than from inflation, signaling it was set to cut rates next year in a bid to prevent a recession after nearly 10 years of growth — the longest expansion in U.S. history.

Kathleen Camilli, chief economist at Tucker Anthony, told CNNfn's Before Hours that the Fed could potentially step in even before its next scheduled meeting in late January to reduce interest rates if the markets take a major tumble before then.

She has lowered her estimate of fourth-quarter GDP to 2.8 per cent from 5.5 per cent, "because indeed it looks like the Christmas selling season is turning out to be a little lackluster."

The slowing economy has sparked debate between Clinton officials and the incoming administration of president-elect George W. Bush, who is angling for tax cuts as a centerpiece of his program for growth.

Economic recovery

The Bank of Japan, bowing to mounting evidence that growth has peaked, on Monday lowered its forecast of the country's economic recovery for the first time since July 1998.

The central bank said in its monthly report for December that the world's second-largest economy was still gradually recovering, but at a somewhat slower pace because of a slowdown in the growth of exports.

"Overall, the economy is likely to follow a gradual upward trend, led mainly by business fixed investment," the report said.

The downgrade mirrors a similar move last month by the EPA. A source at the government's Economic Planning Agency (EPA) said growth in year ending March 31 could be as low as 1.2 per cent and not 1.5 per cent as previously forecast.

The central bank's new report follows a sober assessment on Friday by BOJ Governor Masaru Hayami, who said that the recovery had stalled and that a renewed pick-up would depend on external factors.

Other evidence last week also suggested that the economy is losing steam after a burst of growth supported by capital spending on information technology and, to a lesser extent, by exports and government spending.

The BOJ's quarterly "tankan" business survey showed sentiment had weakened, while the Ministry of Finance's own survey of corporate sentiment for the third quarter was so weak that economists now estimate that gross domestic product shrank during the July-September period.

A preliminary estimate pointed to GDP growth of 0.2 per cent in the quarter.

Europe closes in the red

European markets closed in the red Thursday as telecom and technology stocks retreated, following warnings from U.S. counterparts AT&T and Lucent Technologies.

London's FTSE 100 index closed down 66.8 points, or 1.1 per cent, at 6,109.9. In Frankfurt the electronically traded Xetra Dax shed 48.05 points or 0.77 per cent to end at 6,200.7, while the blue-chip CAC 40 index in Paris dropped 25.58 points or 0.4 per cent to 5,740.72.

In other markets, the AEX index in Amsterdam dropped 0.2 per cent, Zurich's SMI closed down 0.6 per cent and the MIB 30 in Milan fell 0.3 per cent. The Ibex index, Madrid's stock market benchmark, was Europe's exception, climbing 1.2 per cent.

The broader FTSE Eurotop 300 index, a basket of the region's biggest stocks, dropped 0.94 per cent to 1505.62, with its computer sector losing 3.1 per cent and the telecom sub-index ending 2.5 per cent down.

Mixed trade in Asia

Gains on the Nasdaq did little to impact markets in Japan, but elsewhere Asian markets saw modest gains.

In Tokyo, the Nikkei 225 was nearly flat — down 21.62 points or 0.16 per cent to 13,401.59 by midday. In Hong Kong, the Hang Seng was up 1.31 per cent at 14,851.67.

The Hang Seng Index was up 1.31 per cent, or 192.35 points, at 14,851.67 at 10:17 a.m.

The Korea KOSPI was up 0.22 per cent, or 1.14 points at 513.04. Samsung Electronics was down 0.6 per cent at 265,500 won. SK Telecom was down 0.6 per cent at 161,000 won.

In Taiwan, the Weighted Index was up 38.04 points, or 0.79 per cent, at 4,855.26. Taiwan Semiconductor Manufacturing Co. was up T$0.50 at T$79.50, while rival United Microelectronics Corp. was up T$0.10 to T$43.90.

In Singapore, the Straits Times Index was up 0.88 per cent, or 16.80 points, at 1,915.64. OCBC Bank was up 2.40 per cent at S$12.80.

The S&P/ASX 200 index edged up 3.9 points to 3,189.7.

Nasdaq finally gains

The Nasdaq composite index inched higher Thursday for its first gain in almost two weeks in a turnaround unlikely to keep the index from posting its worst year on record.

The Nasdaq rose 7.34 points to 2,340.12. The first gain in eight sessions comes one day after the Nasdaq fell to a 20-month low. The Dow climbed 168.36 points, or 1.6 per cent, to 10,487.29 while the S&P 500 advanced 10.12 to 1,274.86.

Market breadth was mixed in heavy trading volume. Advancing issues on the New York Exchange edged out declining ones 1,684 to 1,232 as 1.4 billion shares traded. Nasdaq losers topped winners 2,241 to 1,799. More than 2.6 billion shares changed hands.

In other markets, Treasury securities were mixed. The dollar declined against the euro and yen.

U.S. trade gap narrows

The U.S. appetite for overseas goods waned in October, leading to a narrowing of the nation's trade deficit from a record level the previous month, a government report showed Tuesday.

The Department of Commerce report showed the deficit fell to $33.18 billion. That's slightly above the level forecast by analysts surveyed by Briefing.com, which predicted a $33.0 billion gap. But other forecasts had put the deficit as high as $33.25 billion.

The narrowing of the trade gap from September's revised figure of $33.74 billion appears to have been partly due to the slowing of the U.S. economy. Even though exports slipped from the September level, imports were down more, as purchases of overseas cars, industrial products and food fell in the period.

The trade deficit is a measure of the difference in the amount of money spent on imports versus exports, including both goods and services.

Overall exports dropped to $91.2 billion from $92.7, while imports fell to $124.4 billion from $126.4 billion in September. However, the trade gap with major trading partners such as Canada, China, Japan and Western Europe all increased.

Mergers & Acquisitions

Northrop—Litton Industries: Northrop Grumman Corp. agreed Thursday to acquire Litton Industries Inc., the No. 1 builder of non-nuclear ships for the U.S. Navy, for $3.8 billion in cash, a move that will solidify Northrop's place among the world's leading defense companies.

Microsoft—Great Plains: Microsoft Corp. said Thursday it will acquire Great Plains Software Inc., a provider of business software applications, in a stock swap valued at $1.1 billion.

NetCreations—DoubleClick: NetCreations Inc. agreed Thursday to accept a rival $7-a-share bid from an unnamed third party and terminate what was originally a proposed $200 million stock merger with DoubleClick Inc.

Vodafone—Eircell: Vodafone Group PLC agreed Thursday to buy Ireland's leading cell-phone operator Eircell for 4.5 billion ($4.1 billion) in stock, plus debt.

Boilermaker—Hepworth: Germany's Vaillant agreed Thursday to buy Hepworth PLC for 285 pence per share, valuing the British maker of building products at 692 million ($1 billion).

Buffett—Manville: Johns Manville Wednesday agreed to be acquired by Warren Buffett's Berkshire Hathaway Inc. for about $1.9 billion in cash, less than two weeks after the building products company called off a $2.4 billion buyout by an investor group.

Regions—Morgan: Regions Financial Corp., a leading Southeast bank holding company, agreed Monday to acquire U.S. securities firm Morgan Keegan Inc. for $789 million in cash and stock, significantly bolstering the company's brokerage and wealth management capabilities.

Glaxo—SmithKline: Glaxo Wellcome PLC and U.K. rival SmithKline Beecham PLC are set to complete their 46 billion ($67 billion) merger after clearing the last regulatory hurdle Monday.

IMF bails out Argentina

Argentina has clinched nearly $40 billion in IMF-led aid over the next three years, Economy Minister Jose Luis Machinea announced Monday, quashing fears the country could default on its debt next year.

The $39.7 billion aid package — bigger than the $20-30 billion the markets had been expecting — includes a $13.7 billion contribution from the International Monetary Fund and $2.5 billion each from the World Bank and Inter-American Development Bank.

About $25.4 billion of the package will be available next year, more than covering the $15.3 billion in both local and foreign debt coming due in 2001. The government forecasts a budget deficit of roughly $6.5 billion in 2001.


RIM: Research In Motion's net income for the quarter ending Nov. 30 was $1.5 million, or two cents per share, beating analysts' estimates but still below profit of $3.2 million, or five cents per share, in the year-ago third quarter.

Morgan: Morgan Stanley's fourth-quarter earnings for the quarter ended Nov. 30 fell to $1.2 billion, or $1.06 a share, from $1.6 billion, or $1.42 a share, a year earlier.

Goldman: Goldman's earned $781 million for the three months ended Nov. 24, up 3 per cent from the same quarter a year ago. For the year, Goldman earned $3.25 billion, or $6.35 per share, compared with $2.55 billion, or $5.27 per share, for fiscal year 1999.

Foreign funds pull $474m out of Malaysia

Foreign funds withdrew nearly half a billion dollars from Malaysia in October, registering rising disenchantment with the slow pace of corporate restructuring.

Latest data posted by the National Economic Action Council (NEAC) on its website (www.neac.gov.my) showed that net foreign portfolio outflow totalled $474 million between October 4, and November 1.

Foreign funds have withdrawn $1.3 billion from Malaysia since NEAC started keeping score in February, 1999.

A good part of the exodus in October was attributed to funds anticipating Morgan Stanley Capital International (MSCI) would re-jig its global investment index to Malaysia's disadvantage.

Treasurys stage late rally

U.S. Treasurys motored higher on Thursday, powered by late session weakness in the U.S. equity market.

The March Treasury bond recovered to a 105-17/32 session high, also a new contract high. March 10-year notes hit a new contract high and matched nearby bonds' ascent to 105-17/32. March five-years hit a 103-25.5/32 contract high.

Mortgage rates dive

Mortgage rates fell to a 17-month low this week, as fear of inflation on Wall Street gave way to the more immediate threat of an economic recession.

The benchmark 30-year fixed-rate mortgage averaged 7.17 per cent, with an average 1 point, for the week ending Dec. 22. The 15-year fixed-rate mortgage averaged 6.84 per cent this week, with an average 1 point. Treasury-indexed adjustable rate mortgages, or ARMs, averaged 7.02 per cent this week, with an average 0.9 point.

U.S. jobless claims climb

The number of Americans filing new claims for unemployment benefits for the week ended Dec. 16 rose to 354,000, from 320,000 for the week prior, the U.S. Labor Department reported Thursday.

Economists polled by Briefing.com had forecast claims of 340,000 for the period.

IMF readmits Yugoslavia

Yugoslavia has rejoined the International Monetary Fund after being kicked out eight years ago.

The international lending body said on Wednesday that membership had been approved, bringing the number of member countries to 183.

The IMF board also approved a loan of $151 million to help stabilise Yugoslavia's economy and rebuild administrative capacities.

BoE hints at rate cut

The Bank of England hinted it may cut interest rates soon, after two members of its rate-setting committee voted for lower borrowing costs.

According to minutes of the bank's last monthly meeting, released Wednesday, two of the nine-member Monetary Policy Committee favoured reducing rates by a quarter point.

The BoE decided to keep its key interest rate on hold at 6 per cent for the 10th month in a row on Dec. 7, amid signs the world economy is slowing.

Britain's economy has shown some signs of cooling in recent months, and inflation minus the cost of home loans has been below the BoE's target for 20 months. Inflation is just 2.2 per cent, compared with a target of 2.5 per cent.

Euro tramples yen

While the euro's rise against the dollar has carried it to a three-month high near 90 U.S. cents, Europe's common currency is likely to fare even better against the slumping yen, analysts said.

"Buying euros and selling yen is a better way to trade the euro recovery story," said Bob Lynch, currency strategist at BNP Paribas.

Japan is unlikely to meet its growth targets, and the yen could fall to 120 to the dollar by the end of the first quarter of 2001, from around 112.75 at present, he forecast.

The market's attention this week will be focused on Tuesday's meeting of the U.S. Federal Open Market Committee, although no rate cut is expected.

"The FOMC is likely to see balanced risks in the economy, with the threat of a sharp slowdown about equal to the threat of inflation," Lynch said.

Clinton vetoes bankruptcy bill

President Clinton vetoed legislation Tuesday that proposed the most sweeping changes in the bankruptcy law in 20 years because he said it was unfair to ordinary debtors and working families who fall on hard times.

Supporters of the bill, including credit card companies, have pushed for three years to pass a bill to overhaul the nation's bankruptcy system. Clinton also favors revamping the bankruptcy laws but thinks the current bill is not evenhanded.