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Sep 10 - 16, 2001

Japan's economy shrinks

Japan's June quarter GDP numbers are pointing to more difficult times ahead for the world's second largest economy.

Japan's economy shrank 0.8 per cent in the second quarter, roughly in line with analysts' expectations.

Economics Minister Heizo Takenaka noted that the dip in growth was within government forecasts. But he said the country will have to revise its forecast for this year.

Experts say there is no hope Japan will hit its official target of 1.7 per cent growth for 2001.

Another down quarter will see Japan lumber into its fourth recession in the last 10 years.

With no sure sign of a U.S. recovery, the world's powerhouses of the United States, Europe and Japan are struggling to lift out of the global meltdown.

Finance Minister Masajuro Shiokawa said after the data was released that Prime Minister Junichiro Koizumi had instructed his cabinet to prepare an extra budget to prop up the ailing economy.

That extra budget has been the subject of much debate in Japan in recent weeks, with the government resisting pressure to increase spending in the fiscal year.

Global credit ratings agency Moody's Investors Service added to the gloom on Thursday, saying it had put Japan's debt on review for possible downgrade.

The GDP figures and Wall Street's weak performance sent the Tokyo stock market down Friday, with the benchmark Nikkei index losing 2 per cent by the midday break.

The figures released by the Cabinet Office were slightly better than expected. But they were hardly good news for the Koizumi government, which is struggling to revive an economy that has been slumping for most of the past decade. Economists had expected a 0.9 per cent contraction.

UK leaves rates on hold

The Bank of England on Thursday left UK interest rates on hold, as expected, even as the world's fourth-largest economy slows.

The Bank has trimmed rates four times this year in quarter-point steps to 5 per cent as the global economic slowdown pushed companies to cut jobs in the UK and internationally.

British Airways, Europe's biggest airline, this week became the latest UK blue chip company to wield the cost-cutting axe, slashing 1,800 jobs this year as it battles against falling profitability.

But consumer spending growth shows no sign of abating, confounding economists and members of the Bank's rate setting committee, who cut rates last month as an insurance against deteriorating markets.

"Manufacturing is in a hole but the housing market is pretty buoyant," Michael Dicks, an economist at Lehman Brothers, told CNN.

The latest figures on consumer spending showed sales grew at their fastest annual pace in five years in August and house prices surged.

Consumer confidence is high as unemployment remains at a 26-year low. Average wages grew 4.8 per cent in the year to June 30.

But a survey on the services sector, the powerhouse of the UK economy, showed only meagre growth in August as the downturn in manufacturing industry began to make itself felt more widely.

Britain's economy is set to grow around 2.0 per cent this year, according to the Bank of England, below the country's average annual growth rate over the past four decades, which is around 2.3 per cent.

The current forecast by theTreasury - the UK government's finance ministry is more optimistic that estimates from the Bank and most private-sector forecasters, pitching for a growth of between 2.25 and 2.75 per cent for 2001

In contrast to the general picture of slowing activity, house prices rose 10.9 per cent in the year to August, the fastest pace for 15 months, the UK's biggest lender Halifax has said. Consumers have been buoyed by mortgage rates that are at a 40-year low.

China, EU pledge to form alliance for peace

With Sino-American relations still under serious strain, China moved swiftly this week to build a new political and economic alliance with the 15-nation European Union.

Surmounting long-standing disagreements over China's human rights record, Chinese Premier Zhu Rongji and EU leaders ended summit talks in Brussels on Wednesday with a pledge to forge an alliance for "peace, prosperity and stability" in the world.

Political discussions are to be intensified through greater exchanges, contact and cooperation, said Belgian Prime Minister and current EU "president" Guy Verhofstadt at a first-ever joint EU-China press conference.

EU asked to give more importance to South Asia

European Union governments must "reflect more deeply" on the major political challenges facing South Asia, the bloc's executive Commission said on Tuesday.

A new strategy paper calling for reinforced Euro-Asian relations unveiled by European External Relations Commissioner Chris Patten said an increasingly influential EU could no longer be a passive bystander, watching South Asia's problems from the sidelines.

"The EU should be ready to adopt a more assertive and forward-looking approach to its policy dialogue" with key South Asian countries, the EU executive said.

Tokyo, other Asian markets tumble

Tokyo shares ended the morning session down Friday, after figures showing gross domestic product shrank 0.8 per cent in the June quarter confirmed the weakness of Japan's economy.

The benchmark Nikkei 225 stock average fell more than two per cent, losing 22.74 points to 10,427.59. At one point it touched 10,405.

The broader capital-weighted TOPIX index was down 18.86 points or 1.73 per cent at 1,071.88.

Australia's S&P/ASX200 was down 1.1 per cent to 3232.1 as banks and miners slipped. In Seoul, the Kospi was down about 0.85 per cent to 548.77.

Taiwan's Taiex was off 1.3 per cent or 56 points to 4282 as tech stocks such as TSMC and UMC slipped. Hon Hai Precision was a rare tech gainer.

Mergers & Acquisitions

HP—Indigo N.V: Hewlett-Packard Co. agreed Thursday to acquire the rest of Indigo N.V., a commercial and industrial printing systems company, it doesn't already own for up to $882 million in stock and cash.

AngloGold—Normandy Mining: South Africa's AngloGold Limited, the world's largest gold miner, launched a $1.7 billion friendly takeover bid for Normandy Mining Wednesday.

Fiorina—Capellas: Printer and computer maker Hewlett-Packard Co. said on Tuesday that it plans to merge with Compaq Computer Corp. in a $25 billion stock deal.

Devon—Anderson: Devon Energy Corp. entered an agreement Tuesday to purchase Anderson Exploration Ltd. for $4.6 billion -- a deal that would make Devon the largest independent producer of oil and natural gas in North America.

W.L. Ross—Hyundai: American International Group and W.L. Ross & Co. have offered to give ground in their deal to buy Hyundai Securities. The U.S.-led team agreed on Aug. 22 to buy three Hyundai financial companies, including Hyundai Securities, South Korea's third-biggest brokerage.

Santa Fe International—Global Marine: Santa Fe International Corp. said it agreed to buy Global Marine Inc. in a $3 billion stock-swap deal, creating the world's second-largest offshore oil and natural gas driller.

Bonds up as stocks fall

U.S. Treasurys moved higher Thursday, erasing some of the steep losses earlier in the week, as investors once again turned optimistic about more interest-rate cuts to come after disappointing new key economic data contributed to a selloff on Wall Street.

Two-year Treasury notes were up 8/32 at 99-31/32, yielding 3.63 per cent, and five-year notes gained 15/32 to 100-29/32 to yield 4.40 per cent. Benchmark 10-year notes jumped 25/32 to 101-2/32, yielding 4.86 per cent, and 30-year bonds rose 30/32 to 99-14/32 to yield 5.41 per cent.

P&G settles with Unilever

Procter & Gamble Co. reached a settlement with Unilever PLC over improper corporate spying by P&G into Unilever's hair care business.

P&G Chairman John Pepper said he has been personally involved to ensure that any information gained by P&G will not be used in any of its plans. Terms of the agreement were not disclosed.

Mortgage rates dip again

Long-term mortgage rates dipped back down to their lowest level for the year this week, helping to fuel demand for real estate in an otherwise lagging economy.

The 30-year fixed rate mortgage averaged 6.89 per cent, with an average 0.9 point, for the week ending Sept. 7. The 15-year fixed rate mortgage this week averaged 6.44 per cent, with an average 0.9 point.

At the same time, one-year adjustable-rate mortgages (ARMs) indexed to the Treasury averaged 5.64 per cent this week, with an average 0.9 point.

Techs sink European markets

Europe's main bourses dived to close deeply in the red Thursday, after Marconi, SAP, Alcatel and STMicroelectronics worsened gloom in the tech sector.

London's FTSE 100 dropped 2.1 per cent, or 111.2 points, to end at 5,204.8, hitting a three-year low, while the CAC 40 blue chip index in Paris slid 2 per cent, or 90.81 points, to close at 4,480.75. Frankfurt's Xetra Dax dived 3.3 per cent, or 165.73 points to 4,882.35.

In Amsterdam the AEX index dipped 2.5 per cent while the SMI in Zurich fell 1.7 per cent and Milan's MIB30 index was off 2.9 per cent.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, slipped 2.4 per cent, with the computer services and technology sectors being the poorest performers.

Jobless claims fall

New jobless claims fell last week, but came in slightly above Wall Street forecasts, indicating the torrent of layoffs due to the sluggish economy may not be over.

The Labor Department reported new claims for state unemployment benefits fell to 402,000 last week from a revised 405,000 the prior week. Economists expected new claims to come in at 400,000, according to Briefing.com.

China ready to open TV to News,

As talks continue between two of the world's largest media companies and Beijing, China has said it is ready to open up its television market.

Xu Guangchun, the Chinese minister who oversees radio, film and television, told the Financial Times he intends to let media giants NewsCorp. and AOL Time Warner get access to cable viewers in southern China.

In return Beijing says it wants state-sponsored China Central Television channel to be broadly distributed in the United States.

Bank earnings stay firm

U.S. commercial banks earnings slipped slightly in the second quarter, but remained in good shape despite a few economic "soft spots," the Federal Deposit Insurance Corp. said on Wednesday.

The regulatory agency said even though earnings dipped to $19.2 billion from a record of $19.9 billion in the first quarter, the quarterly numbers were well above the $14.7 billion posted in the second quarter a year ago.

U.S. index improves

U.S. manufacturing picked up a bit of steam in August, the nation's purchasing managers said Tuesday, coming in stronger than most private economists had expected, in what may be an early sign of a revival in the world's largest economy.

The National Association of Purchasing Management (NAPM) said its Purchasing Managers Index, which measures manufacturing activity, rose to 47.9 from 43.6 in July. Wall Street economists had expected a reading of 44, according to Briefing.com.

China ban spooks banks

Top investment banks have scaled back their contacts with Taiwan after China penalized CSFB for doing business with the island nation, a report said.

The Beijing government last week barred CSFB, the investment bank unit of Credit Suisse, from taking part in future equity offerings in China to show its anger at the bank's involvement in Taiwan's fund-raising efforts.

CSFB offended the Chinese by hosting investment forums in which Taiwanese government officials took part. The Wall Street Journal said Monday a number of leading banks had axed plans for similar events in light of Beijing's displeasure.