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July 09 - 15, 2001

Japan takes cue from US experience

US Federal Reserve boss Alan Greenspan inspired a central plank in Japan's new economic rescue plan — selling off assets tied to bad loans, the Japanese finance minister said on Monday.

Masajuro Shiokawa said Greenspan drew on Washington's experience in cleaning up the US savings-and-loan debacle of the 1980s to suggest how Japan could finally overhaul its economy.

When the two met in Washington in April for a Group of Seven meeting of the richest nations, the Federal Reserve governor said Japan should exploit its Resolution and Collection Corp (RCC) more.

Greenspan suggested to him that "Japan should use the RCC to advance banks' bad-loan write-offs by letting it securitize collateral such as real estate or stocks," Shiokawa told a symposium in Osaka.

Securitized assets can be bundled together and sold off to investors, freeing creditors to repair their finances. Securitization has taken off in the United States in the past three decades, but remains a novelty in Japan.

"The banks should promote write-offs of their bad loans and make more efforts to merge weak companies with poorly performing firms," the Japanese finance minister said.

"If necessary the government should consider injecting public money into the banks to promote write-offs," he said.

Prime Minister Junichiro Koizumi last month unveiled a reform package designed to breathe new life into the world's second-biggest economy, after a decade of drift since the bursting of the asset-inflated bubble.

Central to the plan is entrusting the state-run RCC to buy bad loans from major lenders if they fail to dispose of them within two to three years.

The RCC plan surprised politicians and economists, who said it was the single unexpected factor in the Koizumi guidelines.

Indian economy heading towards stagflation

Confirming widespread public fears that the Indian economy was heading towards stagflation, a quick sample survey of the national statistical organization has put the growth rate in the economy during 1998-99 at 5.8 per cent and for 2001 at 5.2 per cent.

Commenting on this estimate, the finance minister, Yashwant Sinha said:

"I am not saying that the figure of 5.2 per cent will necessarily be revised, but there will be some upward or downward changes." He said that the government was thinking of a series of measures but added, "I can't fix the time frame. But I am hoping that with investments being made presently by October a lot of action could take place on the ground that will give a boost to the economy."

The deputy chairman of the planning commission, K C Pant told a press conference that there was no reason to panic as the deceleration in the economy was a result of the decline in agricultural growth by 0.2 per cent. He expressed the hope that a better monsoon this year was expected, and agricultural growth would pick up, which would have a multiple effect on the economy.

Commenting on the CSO figures, he said, "I am disappointed at the figures. My own estimate was that, because of sharp reduction in agricultural production, the growth rate would be below six per cent but going down as low as 5.2 per cent is something I had not anticipated."

According to the NSS, the revised growth estimate for 2000-01 is essential due to a major deceleration in the fourth quarter. The growth rate, which was above six per cent in the first two quarters of the year 2000, declined to five per cent in the third quarter and then to 3.8 per cent in the last quarter due to a deceleration in the growth in agriculture, mining, construction and some of the major service sectors in agriculture, forestry, and fishing sectors, which grew by a meagre 0.2 per cent.

Growth in manufacturing fell to 5.6 per cent while in construction it dipped to 5.5 per cent compared to 8.1 per cent in the previous year.

Japan, China end trade talks

Chinese and Japanese officials on Wednesday ended two days of talks in Beijing on a simmering trade dispute without reaching a solution, officials on both sides said.

The two sides failed to make any substantial progress because they refused to compromise on matters of principle, China's official Xinhua news agency said, citing the foreign trade ministry.

The negotiations took place in "a sort of friendly atmosphere," and a new round of talks aimed at finding a solution as soon as possible would most likely take place in Tokyo, according to Japanese negotiators.

In late April, Japan slapped emergency tariffs on spring onions, fresh mushrooms and tatami rushes, a move aimed mainly at China which is the top exporter of these products to the Japanese market.

In retaliation, Beijing late last month imposed 100 per cent extra tariffs on automobiles, mobile telephones and air conditioners made in Japan.

EU hails suspension of US trade sanctions

The European Union on Monday welcomed a US decision to suspend $191 million's worth of sanctions imposed two years ago over a long-running dispute over banana imports.

The move means that US duties imposed on European exports of goods like bath oils, car batteries, bedlinen, handbags and wallets are now back to normal levels.

"This is great news for European exporters. A whole cluster of products that had attracted prohibitive duties will once more be available to American consumers at normal prices," European Trade Commissioner Pascal Lamy said in a statement.

"We solved this problem, and we showed that we can work together to manage trade disputes in a business-like manner. This is a very good signal at a time when we are working together on launching a new round of global trade negotiations," Lamy said.

China/WTO talks near end

China has nearly finished negotiating its entry into the World Trade Organization, with only some "small remaining issues" to be settled in a working group session Wednesday.

A representative of the Chinese mission to the United Nations office in Geneva told CNNfn.com that China's chief negotiator with the WTO, Long Yongtu, would hold a press conference after a formal negotiating session.

Long said Wednesday that "all major issues have been resolved" concerning the terms of China's membership in the 141-nation organization that monitors world trade.

China already reached agreements with the United States and the European Union (EU) in June, major hurdles to WTO entry.

Euro dips versus dollar

The dollar soared to its strongest levels in eight months against the euro and to a three-month high vs. the yen on Thursday, buttressed by data showing the faltering U.S. economy may have bottomed and be poised to resume growth.

Early in the session, the National Association of Purchasing Management's gauge of U.S. non-manufacturing activity showed a strong rebound in that sector after two months of contraction. The index jumped to 52.1 in June from 46.6 in May, giving the greenback a strong tone against all major European currencies.

Tokyo tech stocks lead markets down

Tokyo stocks fell sharply by midday Friday as high-technology companies faced renewed pressure from profit warnings in the U.S. and Europe.

The benchmark Nikkei 225 average ended the morning down 1.99 per cent at 12,355.96, dipping below 12,500 for the first time since March 21. The capital-weighted TOPIX index fell 1.48 per cent to 1,255.77.

In Australia, the benchmark S&P/ASX200 was down 15.6 points to 33562.2, a decline of about half a per cent, with telco heavyweight Telstra continuing to fall. It touched a three-year of A$5.00 mid-morning before recovering to A$5.10.

In Seoul, the Kospi lost 12.82 points to 580.79 as SK Telecom and Samsung Electronics declined.

Taiwan's Taiex was down about 15 points in early trade, but recovered by midday to be 38.15 points ahead at 4747.35. With the exception of chip giants TSMC and UMC, tech stocks moved higher.

Nasdaq tumbles nearly 3%

U.S. stocks fell Thursday after another round of corporate profit warnings served up fresh signs that the last quarter was a tough one for doing business.

The Nasdaq fell 60.68 points, or 2.8 per cent, to 2,080.12, widening this year's losses to 15.8 per cent.

The Dow Jones industrial average dipped 91.25, or 0.9 per cent, to 10,479.86 and is down 2.9 per cent this year. Off 7.7 per cent in 2001, the S&P 500 lost 15.21 to 1,219.24 Thursday.

More stocks fell than rose amid light trading volume. On the New York Stock Exchange, declining issues topped advancing ones 1,696 to 1,379 as 929 million shares traded. Nasdaq losers beat winners 2,316 to 1,343 as 1.3 billion shares changed hands.

IBM, Shell in $100M deal

IBM and Royal Dutch Shell Group have signed a five-year strategic alliance agreement under which IBM will be the sole provider of the computer equipment underpinning an ambitious information technology (IT) project.

Bonds down in late day

U.S. Treasurys sank for the seventh time in eight days on Thursday after a report showed that the vast U.S. services sector unexpectedly strengthened in June, boosting hopes that the economy is on the brink of recovery.

Benchmark 10-year notes lost 10/32 to 96-28/32, yielding 5.42 per cent. Thirty-year bonds shed 14/32 to 94-19/32, yielding 5.76 per cent. Two-year notes were unchanged at 99-10/32, yielding 4.23 per cent, while five-year notes lost 7/32 to 98-24/32, yielding 4.91 per cent.

Job cuts soar in June

Job-cut announcements by U.S. companies soared in June, according to an industry survey released Thursday, as corporations continue to shed jobs in an effort to stay afloat in hard economic times.

U.S. companies announced 124,852 job cuts in June, compared with a paltry 17,241 in June 2000 — a jump of 624 per cent — according to a report by outplacement firm Challenger Gray & Christmas Inc. Job cuts increased by 56 per cent from May's total of 80,140.

Mortgage rates move up

Mortgage rates rose a week after the Federal Reserve cut interest rates for the sixth time this year.

The benchmark 30-year fixed-rate mortgage (FRM) averaged 7.19 per cent for the week ending July 6. The average this week for the 15-year fixed-rate mortgage was 6.74 per cent. One-year adjustable-rate mortgages (ARMs) averaged 5.71 per cent.

U.S. jobless claims rise

New jobless claims rose in the United States last week and came in a bit higher than Wall Street forecasts, according to a government report Thursday, pointing to continued weakness in the nation's job market.

New claims for state unemployment benefits rose to 399,000 last week from a revised 392,000 the prior week, the Labor Department reported. Analysts surveyed by Briefing.com had forecast new claims of 393,000.

ECB, UK keep rates on hold

The European Central Bank has kept its benchmark interest rate on hold amid weak economic performance in the euro zone.

The move was widely expected after ECB President Wim Duisenberg said on Tuesday the bank had not received any new data since its last meeting on June 21 to change its view that its benchmark interest rate at 4.50 per cent was appropriate.

The central bank last cut its rate, to the surprise of most analysts, on May 10.

The Bank of England also kept its key interest rate on hold at 5.25 per cent on Thursday, as had been widely expected.

Apple ices G4 cube

Apple Computer Inc. is suspending production of its Power Mac G4 Cube due to lack of demand for the smaller computer.

Apple said Tuesday most customers have opted for the more powerful Power Mac G4 minitower rather than the cube, which is one-fourth the size of most personal computers.

Mergers & Acquisitions

Philips—Marconi unit: Dutch electronics group Philips said on Wednesday it agreed to buy the medical systems business of the UK's Marconi for $1.1 billion.
Powderject Pharmaceuticals, the UK maker of needle-less powder-based injection systems said it will pay $50 million to buy the Swedish vaccine company from Active Biotech. It may pay up to $20 million more if products are approved by regulators.
Sara Lee—Earthgrains:
Sara Lee Corp. is buying Earthgrains Co. in a $2.8 billion deal, including debt, for the nation's second-largest packaged bread and bakery manufacturer.
Irish telecoms operator Eircom says it has agreed to be bought by the Valentia group for 2.8 billion euros ($2.4 billion) in cash.
Primedia—Emap unit:
UK media company Emap said on Monday it had agreed to sell its American magazines business to Primedia of the U.S. for $515 million.
A group led by Fiat launched a hostile takeover bid for Italian power company Montedison, valued at 4.95 billion euros ($4.2 billion).

Tax cuts take effect

Taxpayers in the highest income brackets may notice a small change in their paychecks as early as this week: more money. The tax reductions that were signed into law by President Bush as part of his 10-year, $1.35 trillion tax cut package went into effect Sunday and will soon result in slightly higher pay for millions of Americans.

UAL-US Air deal may die

United Airlines' parent company and US Airways Group Inc. said Monday they were discussing ending their $4.3 billion merger, a move that would scuttle what would have been the biggest acquisition in the airline industry.

U.S. industry stronger

Manufacturing in the United States shrank again in June, the nation's purchasing managers said Monday, but came in a bit stronger than analysts had expected, indicating the worst may be over for the world's largest economy.

Japan sentiment slumps

Business sentiment in Japan worsened in the second quarter as companies hit by weakening demand for their products in overseas markets and plunging profits continued to pare spending, a central bank survey showed Monday.

The Bank of Japan's survey revealed that business confidence among executives at large Japanese manufacturers was minus-16 in the April-June quarter, down from minus-five in the previous three months.