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Feb 07 - 13, 2000

  1. International
  2. Finance
  3. Industry
  4. Policy
  5. Trade
  6. Gulf

ECB jacks up rates to prop up ailing euro

The European Central Bank raised its leading interest rates by 1/4 percentage point in a bid to boost the weak euro and counter an expected rise in inflation as Europe's economic recovery takes hold.

The central bank, announcing its third interest rate decision since it took policy control in the euro zone in January 1999 said it was raising its main money market interest rate, the refinancing rate, to 3.25 per cent from 3.00 per cent.

The marginal lending rate, the ceiling for money market rates, was raised to 4.25 per cent from 4.0 per cent and the deposit facility rate to 2.25 per cent from 2.0 per cent.

Euro zone stocks surged, with the Paris and Frankfurt bourses hitting record highs, and the euro staged a spirited rally after a surprise quarter-point rise in European Central Bank interest rates.

The euro fell as much as half a cent against the dollar to set new lows for the day at $0.9709 immediately after the ECB rates announcement, but later surged to around $0.9911.

London's FTSE-100 index finished up 0.34 per cent. In contrast the pan-European Eurotop index of 300 shares was up 0.8 per cent while the narrower Euro Stoxx index of 50 blue chip euro zone shares was up 2.88 per cent.

Frankfurt's DAX ended 2.54 per cent higher, and Paris's CAC was up 3.41 per cent.

ECB President Wim Duisenberg said the euro's weakness had been an important factor in the interest rate decision but stressed that data on the bank's two main policy pillars also indicated that a move was on the cards.

S&P and NYSE to launch index fund

Standard & Poor's and the New York Stock Exchange, the world's No 1 stock market, will unveil an index fund that will trade around the world and consist of 100 companies whose business is truly global in nature, sources familiar with the issue said.

The "S&P Global 100" index fund would be the first of its kind in that it would flee the night, as shares trade around the clock on the New York Stock Exchange, the Tokyo Stock Exchange and the Deutsche Boerse in Frankfurt, the sources said.

Standard & Poor's is expected to hold a press conference on the NYSE trading floor to publicise the new index.

Clinton eases PC export controls

President Bill Clinton eased some U.S. computer export controls to relax what the White House called "unnecessary regulatory burdens" on the high-performance computer industry.

"This decision reflects my commitment to a control system that will enhance U.S. national security by implementing controls on computer exports that are effective and enforceable," Clinton said in a statement.

Bowing to the wishes of manufacturers, the administration relaxed a series of export limits. Unless Congress takes action to block the changes, most will take effect within about six months.

Clinton announced in an executive order that the United States would decontrol the export of all computers operating below 12,300 Millions of Theoretical Operations Per Second (MTOPS) to all countries except for so-called rogue nations.

That would be a computer capable of 12.3 billion operations per second, several times faster than ordinary desktop PCs or laptops but in the range of computer Servers used in offfices or to host Web sites.

Mergers & Acquisitions

Mannesman: Mannesmann AG was ready to agree a friendly merger with Vodafone AirTouch Plc— giving Mannesmann 49.5 per cent and ending a three-month battle for dominance of mobile communications in Europe.

NatWest: Royal Bank of Scotland and Bank of Scotland stepped up their campaigns to win the hearts and top the spreadsheets of National Westminster Bank Plc's shareholders, arguing their offers were the best.

Carnival—Star: American Carnival Corp, the world's leading cruise operator, and Malaysia's Star Cruises surprisingly joined forces in a battle for Norwegian cruise firm NCL Holding.

LSE: The London Stock Exchange (LSE) held out the prospect of a possible merger with a competing stock market as it unveiled plans to poll members on conversion to a public company next month. The announcement that LSE members will decide on March 15 whether or not to ditch its mutual status came as the latest move to safeguard London's standing gas Europe's trading hub.

Telewest—Flextech: Cable operator Telewest and programme maker Flextech have agreed to join forces, forming a 10 billion ($16.4 billion) company to battle it out in a rapidly changing UK television industry.

BSCH—SocGen: Spain's Banco Santander Central Hispano (BSCH) and French partner Societe Generale announced a broad strategic banking alliance that calls for each to acquire a significant stake in the other.

El Paso—PG&E: El Paso Energy Corp has agreed to buy the natural gas and natural gas liquids businesses owned by PG&E Corp for about $900 million, most of it in assumed debt, the companies said.

Saint-Gobain—Meyer: French glassmaker SaintGobain bought a big piece of Britain's consolidating building materials industry picking up Meyer International for 1.04 billion.

Deutsche: Deutsche Bank has pulled out of a deal to buy a controlling 36 per cent stake in South Korea's KorAm Bank through the purchase of depository receipts (DRs), KorAm said.

Zurich—Abbey: Anglo-Swiss Zurich Financial Services, Britain's fifth largest non-life insurer and one of its leading life groups, markedly increased its distribution capacity by buying Abbey Life's network.


BT: British Telecommunications Plc said third-quarter pre-tax profits slumped 24 per cent to 651 million because of accelerating competition in Britain and hefty staff costs.

Qwest: Qwest Communications International Inc. said profits, excluding one-time items, rose to $29.4 million or 4 cents a share, from pro forms earnings of $10.4 million, or 1 cent a share, a year earlier.

Nokia: Nokia, the world's top mobile phone maker, posted a 52 per cent increase in fourth-quarter pre-tax profits to 1.27 billion euros ($1.23 billion) on the back of booming handset sales.

Union Carbide: Chemicals company Union Carbide Corp, which is being acquired by rival Dow Chemical Co, said its fourth-quarter profits rose to $94 million, or 68 cents per share, from $67 million, or 49 cents per share, in the same period a year earlier.

Nomura: Japan's biggest brokerage Nomura Securities Co Ltd benefited from deregulation and a stronger stock market to post a net profit of 128.9 billion yen ($1.2 billion) in the last nine months.

Ericsson: Sweden's Ericsson, posted just a 10 per cent fall in pre-tax profit to 16.4 billion crowns ($1.90 billion) compared to an average forecast of 15.5 billion in a Reuters poll of 25 analysts. Sales rose 17 per cent to 215.4 billion crowns.

Japan banks write off $473b loans

Japan's 17 largest banks have written off 51,000 billion ($472.6 billion) of bad loans in the last eight years in an effort to clean up the country's financial system, according to data collected by the Financial Supervision Agency, Japan's regulator.

The figure is equivalent to about 10 per cent of Japan's gross domestic product. It is slightly larger than South Korea's economy, slightly smaller than Canada's or about equivalent to the economies of Belgium and the Netherlands combined.

The huge write-offs provide a powerful illustration of the degree of damage Japan's 1980s asset price bubble and ensuing collapse in the 1990s have inflicted.

Donors throw $4.7b lifeline to Indonesia

International donors pledged up to $4.7 billion in loans to Indonesia in bid to support the country's 2000 budget but deferred a decision on rescheduling $2.2 billion in debt.

"Indonesian donors committed strong support to the government of Indonesia, pledging to disburse up to $4.7 billion for the fiscal year 2000," the World Bank said in a statement at the end of a two-day meeting of the 33-member donor forum, the Consultative Group on Indonesia (CGI), in Jakarta.

The bank said the largest donor was Japan, which offered $1.56 billion, followed by the World Bank itself with $1.5 billion and the Asian Development Bank with $1.065 billion.

But Indonesian Finance Minister Bambang Sudibyo, asked about an Indonesian request to CGI members to reschedule some $2.2 billion in debt, said: "This matter must be discussed in the second Paris Club" later in the year.

The World Bank statement said the next CGI meeting would be in Tokyo in October.

It added: "Donors representing 33 countries and international agencies lauded Indonesia for completing the political transition in a way that has received strong support at home and abroad.

"Donors noted with satisfaction the stabilisation of the economy and early signs of recovery."

The bank added the CGI welcomed an economic recovery programme put forward by the government of President Abdurahman Wahid and contained in a letter of intent to the IMF.

The Indonesian government last month released the letter out lining the programme and a new budget for April-December 2000.

The bank said the government and the donors agreed to speed up corporate and bank restructuring to revitalise the private sector and job creation.

Japan beefs up arsenal

Japan's government and central bank vowed again to keep supporting the fragile economy, saying the level of the yen is a threat to recovery despite its recent fall against the dollar.

The Finance Ministry beefed up its arsenal for combating the yen's strength through market intervention and the Bank of Japan said it would continue driving short-term interest rates to near zero while watching out for adverse effects from the strong yen.

Despite a jump by the dollar to more than three month highs against the.yen, the still-strong Japanese currency inflames deflationary pressures and erodes the yen value of Japanese companies' overseas earnings.

Malaysia banks meet deadline

Malaysia's 55 financial institutions met a deadline for submitting merger plans and now must tackle the sticky issues of pricing and funding as they seek to tie up their marriages by the end of the year.

Bank Negara Malaysia (BNM) governor Ali Abul Hassan Sulaiman said the central bank had received merger proposals from all of the local banking institutions.

"The deadline for all banking institutions to revert to BNM on their merger proposals has been met," he said. "BNM will make further announcement on the merger groupings that will emerge from the current consolidation exercise in due course."

Ten institutions had filed plans, and they were all believed to be aspiring core banks. Analysts said the banks will likely be bogged down in the weeks ahead with negotiations over pricing and how to finance their purchases.

Philippine growth above estimates

The Philippines said the economy grew 3.2 per cent in 1999, and although the figure was above forecasts the rebound from the region's financial crisis was well below what is anticipated in neighbouring countries.

Socio-economic Planning Secretary Felipe Medalla told reporters gross domestic product grew 4.6 per cent year-on-year in the fourth quarter of 1999, leading to full-year growth of 3.2 per cent after a contraction of 0.5 per cent in 1998.

A Reuters poll of economists had predicted earlier in the week that the fourth quarter figure would come in at 4.12 per cent and the full 1999 growth at 3.02 per cent.

South Korea vows to stabilise forex market

South Korea's Ministry of Finance vowed to take steps to stabilise the foreign exchange market if necessary, but analysts said the warning did little to rein in the feisty won.

"The government believes that stability in the foreign exchange rate is very important for economic recovery," the Ministry of Finance and Economy said in a statement.

"The government will take appropriate action if necessary."

The ministry's pledge came early in the morning as the won looked poised to strengthen further against the dollar on dollar supplies from exporters and foreign equity investors.

EU states defend euro, but keep options open

Finance ministers of the 11 EU states that use the euro reaffirmed their confidence in the single European currency, but left wide open the prospect of intervention by the European Central Bank (ECB).

In a statement issued at the year's first meeting of EU finance ministers, the socalled "euro 11" and the ECB insisted that growth in Europe now is "very robust" and increasingly rooted in domestic demand.

"As a consequence, the euro has the potential for appreciation, firmly based on growth and internal price stability," they said. "A strong economy goes along with a strong currency. "

European Central Bank President Rim Duisenberg voiced concern over the slumping euro, saying for the first time that further weakening could pose a risk to inflation in the euro zone.