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Aug 13 - 19 , 2001

Japan's PM unveils radical budget plans

A government council headed by Prime Minister Junichiro Koizumi unveiled radical spending cuts on Thursday in the first concrete budget proposals to emerge from Japan's popular new leader.

Deep cuts in spending on public works projects, which have swollen Japan's debts to record levels over the past decade, and reductions to general spending were outlined by the powerful government panel.

Koizumi, who took office in April, ordered the Economic and Fiscal Policy Council to examine drastic economic and fiscal reform to get the world's second-biggest economy back to health.

The council responded with a draft budget for the year to March 2003 which projects a swinging total cut of around $24.3 billion from the 82.65 trillion yen allocated this year. In line with Koizumi's pledge to slash wasteful spending on pork-barrel construction projects, the draft indicates a 10 per cent cut off the 9.7 trillion yen allocated this year to public works. In council, we officially accepted those items, Heizo Takenaka, state minister for economic and fiscal policy, told a news conference.

The cash ceiling on general expenditure will be lowered by 800 billion yen to 47.8 trillion yen, he said after the council concluded its discussions. Social security expenses, which account for nearly 30 per cent of general government spending, were calculated to grow potentially to some one trillion yen because of Japan's ageing population. But the figure will be capped at 700 billion yen owing to a reform of the medical system, the council said.

Five trillion yen will be knocked off core budgetary spending, while fund allocations to seven policy priority areas highlighted by Koizumi are to be boosted by two trillion yen.

The priority areas are information technology, urban growth, the environment, the ageing population, education, science and technology and regional revival. The plans outlined by the powerful economic council will be rubber-stamped by the Cabinet Office and delivered to ministries to use as a guide for their budget requests.

Euro debt-yields down on lower equities

European government bond yields fell on Monday with the two-year note hovering near four month lows as US equities fell and a decline in German manufacturing orders was seen bolstering the case for a euro zone rate cut.

Industrial orders in Europe's largest economy, Germany, fell 2.5 per cent in June after a surprise rise of 4.6 per cent in May. People are of the view that the European Central Bank will cut at the end of the month and that will be the main driver, said Michael O'Sullivan, debt and equity strategist at Commerzbank.

The yield on the two year Schatz was down 1.2 basis points at 4.111 per cent. The yield on the 10-year Bund was down 0.3 basis point at 4.893 per cent. US stocks were down more than half a per cent while the pan-European blue-chip DJ Stoxx was down slightly.

In the morning we had German equity market in positive territory, now it's come down and US equities are weaker too, said a trader. That could provide a bit of support for the bond markets. Persistent weak euro zone data is seen increasing pressure on the ECB to ease monetary policy to revive growth.

The central bank left its benchmark minimum bid rate unchanged at 4.5 per cent last Thursday but the market anticipates the bank cutting as early as August 30 when its council next meets. Bert Ruerup, a top economic adviser to the German government, told Reuters Television on Monday the ECB risks growth in Germany and France with its focus on inflation and should have cut rates before the summer break.

Another of the German government's five economic advisers, Wolfgang Wiegard, said in an interview with Reuters that, given the economic situation, he would not rule out such a rate move in September. He had previously argued an ECB rate cut was not needed, given doubts about the path of future inflation.

Two million may lose jobs in Asia

More than two million workers can expect to be laid off in Asia this year, at least half of them in Japan, because of the economic downturn, according to a regional survey published on Monday.

The figure was compiled from estimates given to the Straits Times by government officials and economists in Japan, Singapore, Malaysia, Thailand, the Philippines, Indonesia, Hong Kong, Taiwan, South Korea and Bangladesh. Unemployment in the 10 countries is forecast to leap more than 12 per cent or 2.29 million retrenchments to total 21.1 million by the end of the year, with female workers particularly vulnerable.

Japan expects the highest number of lay-offs, with one million jobs to disappear in 2001, while Indonesia and Bangladesh project 400,000 retrenchments and South Korea 200,000. Of the other surveyed countries, Malaysia estimates 90,000 retrenchments, followed by Taiwan (80,000), the Philippines (50,000), Hong Kong (34,130), Singapore (20,000) and Thailand (15,000).

Bush to allow limited stem cell funding

In a much-anticipated decision on what he called a "complex and difficult issue," President Bush on Thursday night said he would allow federal funding of research using existing stem cell lines.

Bush said there are about 60 existing stem cell lines in various research facilities — cell lines that have already been derived from human embryos.

The president stopped short of allowing federal funding for research using stem cells derived from frozen embryos, about 100,000 of which exist at fertility labs across the country.

Argentina to finalize loan

The International Monetary Fund and Argentine officials will hold talks Friday and Saturday to tie up loose ends to ensure $1.2 billion in much-needed funds can reach Buenos Aires in August, an international monetary source said Thursday.

And, with speculation high that the Argentine officials were traveling to Washington to discuss a potential additional loan worth as much as $9 billion with the IMF, the source indicated that new money remains a possibility.

"There, all bets are open," the source said of the possibility of increasing the size of Argentina's IMF loan.

The source told Reuters that the talks with Argentine officials — including Treasury Secretary Jorge Baldrich and Daniel Marx, chief debt negotiator and finance secretary — were "going fine" on resolving "a few technical loose ends" that must be resolved before the cash can be sent.

German output declines

German industrial output fell less than expected and unemployment figures came in below forecasts, reducing prospects of a euro zone rate cut.

Industrial production in Europe's largest economy fell 0.4 per cent in June after a 0.9 per cent rise in May, but the drop was less than the 0.7 per cent forecast in a Reuters survey.

Ouput in June was up 1.1 per cent from a year earlier. Earlier Tuesday, Germany's Federal Labour Office said seasonally adjusted unemployment rose to 3.86 million in July, up 11,000 from June, the seventh successive rise. The nationwide jobless rate was unchanged at 9.3 per cent. The increase in unemployment was less than the 20,000 rise forecast by analysts polled by Reuters.

Wall Street flatlines

The Nasdaq composite index fell for its fifth straight session Thursday as frustrated investors opted to keep cash out of the markets, remaining uptight about the sluggish economy.

The Nasdaq composite index fell 3.04 points to 1,963.32, while the Dow Jones industrial average erased its losses to advance 5.06 points to 10,298.56. The Standard & Poor's 500 index shed 0.10 to 1,183.43.

$3b tobacco verdict cut

A California state judge ruled Thursday that a $3 billion verdict again Philip Morris Cos. was excessive and ordered a new trial if the 56-year-old man with lung cancer who brought the suit won't accept the reduced $100 million award as a settlement.

Superior Court Judge Charles McCoy ordered the new trial if Richard Boeken does not accept the reduced amount by Aug. 24.

Philip Morris said in a statement it will "mount an aggressive appeal" challenging the ruling, claiming $100 million is "grossly excessive" and noting no California appeals court has ever upheld a punitive damage award greater than $25 million.

European techs rebound

Europe's major bourses rebounded on Friday, led by technology and telecom stocks that had been pummeled for the last four sessions.

London's FTSE 100 rose 0.6 per cent to 5,436.2, the blue chip CAC 40 index in Paris gained 0.8 per cent to reach 4,928.06, and Frankfurt's electronically traded Xetra Dax climbed 0.7 per cent to 5,550.70.

In Amsterdam the AEX index climbed 1.1 per cent and the SMI in Zurich was 0.8 per cent higher. Milan's MIB30 index rose 0.4 per cent.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was up 0.6 per cent, with the information technology sector rising more than 1.6 per cent and the telecom sub-index gaining 1.3 per cent.

Bonds reverse and retreat

U.S. Treasurys reversed course and fell on Thursday as a tepid auction of 30-year bonds and an afternoon recovery in stocks from their lows prompted investors to take profits after a furious rally on Wednesday.

Two-year notes were down 1/32 to 100-8/32, yielding 3.73. Five-year notes were down 6/32 to 100-7/32, yielding 4.57 per cent. Benchmark 10-year notes were down 12/32 to 99-24/32, yielding 5.03 per cent. Thirty-year notes were down 11/32 to 97-24/32, yielding 5.53 per cent.

Tokyo mixed, Korea, HK advance

Tokyo stocks were mixed at midday Friday, with short-covering in technology issues ahead of the holiday season offsetting losses in auto shares such as Honda Motor.

The benchmark Nikkei 225 average ended the morning up 15.11 points or 0.13 per cent at 11,769.67, while the capital-weighted TOPIX index fell 1.17 points or 0.10 per cent to 1,183.77.

Australia's market was softer, as was Taiwan. But in Seoul the Kospi rose 4.85 points or 0.88 per cent to 554.28, while in Hong Kong the Hang Seng index was up about 30 points shortly before noon.

The S&P/ASX200 in Australia finished the morning down about 9 points to 3407.8. Taiwan's Taiex was down almost 1 per cent, giving up 43 points to 4405.48.

Mortgage rates steady

Mortgage rates in the latest week were virtually unchanged from the previous week, with just the one-year adjustable-rate mortgages dipping lower.

The benchmark 30-year fixed-rate mortgage remained unchanged from the previous week at 7.00 per cent for the week ending Aug. 10. The average this week for the 15-year fixed-rate mortgage was 6.54 per cent, unchanged from last week's average. One-year adjustable-rate mortgages (ARMs) averaged 5.70 per cent, down from last week's average of 5.77 per cent.

Mergers & Acquisitions

Solectron—C-MAC: Solectron Corp., the world's largest supplier of electronics manufacturing services, or EMS, on a contract basis, said Thursday it will buy C-MAC Industries Inc. in a stock deal valued at roughly $2.7 billion.

King: Specialty drugmaker King Pharmaceuticals Inc. said Thursday it acquired the rights to four medicines from Bristol-Myers Squibb Co. for $285 million and changed its revenue guidance for the remainder of 2001 and for 2002.

Cooper—Danaher: Cooper Industries Inc.'s board of directors unanimously rejected Danaher Corp.'s unsolicited $5.5 billion bid to acquire the company Wednesday, calling the bid inadequate, highly conditional, and not in the best interests of shareholders.

GM—EchoStar: General Motors Corp. confirmed Wednesday that it is taking EchoStar Communications Corp.'s $30 billion bid for its Hughes Electronics satellite TV unit seriously.

Nationwide—Provident Mutual Life: Nationwide Financial Services Inc., a major life insurance company, agreed Wednesday to buy Provident Mutual Life Insurance Co. for $1.56 billion in a move to expand Nationwide's sales force and variable life insurance business.

eBay: Internet auction site eBay Inc. acquired leading home auction site HomesDirect.com in a bid to expand its portfolio of real estate offerings.

Textron: Textron Inc. agreed Tuesday to sell its largest auto parts division to rival Collins & Aikman Corp. for stock and cash valued at $1.24 billion as part of the conglomerate's effort to shift out of the volatile automobile industry.

US Air—Global: US Airways Group, whose proposed $4.3 billion purchase by United Airlines was thwarted last month by the U.S. government, dismissed a $1.8 billion cash-and-stock offer from Global.

Interbrew—Beck's: Interbrew, the world's No. 2 beer maker, agreed on Monday to buy German brewer Beck's for $1.6 billion as it expands in the region.

Jobless claims inch up

The number of new jobless claims in the United States rose last week but stayed below 400,000 for the third straight week, suggesting that the worst might be over for the U.S. job market.

New claims for state unemployment benefits rose to 385,000 in the week ended Aug. 4 from a revised 352,000 the prior week, the Labor Department reported. Analysts surveyed by Briefing.com had forecast new claims of 380,000.

Fed: Economy still slow

The malaise in the U.S. economy lingered through June into July, as retail sales slumped and manufacturing weakness spread into other businesses, the Federal Reserve said Wednesday in its latest report on business conditions.

According to the Fed's "beige book" report, a compilation of anecdotal evidence about the economy's health in June and July, most of the 12 Fed districts reported slow growth or, in some cases, flat economic activity.

Tobacco group to set up in Korea

British American Tobacco, the world's second largest tobacco group, said Wednesday it will invest $1.1 billion to set up its own cigarette factory in South Korea.

Gates sells more shares

Microsoft Corp. Chairman Bill Gates plans to sell 1 million Microsoft shares worth $66 million, continuing a routine pattern of selling small amounts of his holdings in the software giant, his spokeswoman said Tuesday.