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Sep 24 - 30, 2001

China to carry out economic reforms

China's 15-year battle to join the World Trade Organization (WTO) appeared on the verge of success on Monday, but the negotiators who eventually made the breakthrough have also set the stage for a potentially painful transition in the country's history, analysts said.

An accord was due to be signed later Monday in Geneva clearing China's membership of the global trade body, following agreement on a series of issues in last-minute talks in the Swiss city.

Chinese membership of the WTO will inevitably force the country to undertake a fundamental overhaul of its entire economic system, the analysts said, but the ramifications could go even further than that.

It will encourage the Chinese government to carry out reform — first economic reform and maybe later also political reform, said Bob Zhang, an economist with BNP Paribas Peregrine in Beijing.

According to Zhang, a reshuffled Chinese cabinet that is expected to assume office under a new prime minister in 2003 could have much-delayed political changes on its agenda.

One possible measure could be to expand the use of direct elections of officials from the current village level, he said.

After entry into the WTO, political reform will have to change in accordance with international practices, he said. But we expect it to be gradual and smooth.

Following the signing of the accord in Geneva, the working group which thrashed out the agreement will then have to formally recommend China's WTO membership at a ministerial conference scheduled for November in Qatar, due to be attended by 142 WTO member states.

China must then ratify the accord and wait 30 days before its membership becomes final and official, in all likelihood early next year. The direct economic impact of Chinese membership could be undramatic in the short term, according to many economists.

Investment bank ING Barings estimates the Chinese economy post-WTO will expand between seven and eight per cent a year, the typical rate of economic growth over the past few years.

Wall St. whacked again

U.S. markets logged a fourth straight losing session Thursday as heavy selling continued across the board, precipitated by more corporate warnings and growing concerns over what direction the United States will take following the terrorist attacks of Sept. 11.

The sustained selling has lopped at least 10 per cent off all three major indexes this week and pushed the Nasdaq and the Standard & Poor's 500 index to their lowest levels in nearly three years.

"This is an extraordinary time for investors. Whenever there is a steep drop, the knee-jerk reaction from investors is to sell. And that often is the wrong decision. The best thing to do is to sit tight and wait for the dust to settle," said Henry Herrmann, president and chief investment officer of Waddell & Reed told.

"On a long-term basis, this is a great time to buy. Stocks are on sale and investors should be adding to positions. But investors are reacting intuitively to the emotional aspect of what has happened," said Reed.

The three major indexes closed near session lows. The Dow Jones industrial average ended with another triple-digit loss of 382.92 points, or 4.3 per cent, at 8376.21.

The Nasdaq lost 56.87 points, or 3.7 per cent, to close at 1.470.93. The S&P 500 fell below 1,000, losing 31.56, or 3.1 per cent, to close at 984.54.

More stocks fell than rose on heavy volume. On the New York Stock Exchange, declining stocks topped advancing ones by a more than 5-to-1 margin as 1.9 billion shares traded, the exchange's fourth heaviest trading day on record. Nasdaq losers beat winners by a than 3-to-1 edge as 2 billion shares changed hands.

Added to the mix was the fact that Friday is a "triple witching," the quarterly expiration of futures, index options, and individual stock options on same day. Many traders opt to close out of these positions ahead of the actual expiration day.

In other markets, the dollar fell sharply against the yen and strengthened versus the euro. U.S Treasurys moved lower, with 30-year bonds sliding for a fourth straight session.

BOJ follows lead, cuts interest rates

The Bank of Japan cut interest rates Tuesday and said it would pump more cash into the country's economy.

The BOJ said it would cut the discount rate to 0.10 per cent, from 0.25 per cent. But the cut is essentially symbolic, with interest rates already virtually at zero in Japan.

It met Tuesday under heavy pressure to help out the world's second-largest center of business, in the wake of the U.S. attacks.

In Tokyo, the Nikkei stock index ran up almost 2 per cent ahead of the move. It closed up 1.85 per cent at 9,679.88.

The central bank's decision was widely anticipated, mimicking similar rate cuts around the world.

The ease of the decision was shown by the BOJ's call to scale back its meeting, which started and finished Tuesday. It was originally slated to run two days.

But experts are skeptical about how much the BOJ action will help.

UK cuts key interest rate

The Bank of England has cut its key repurchase rate by one-quarter per centage point to 4.75 per cent.

The move came Tuesday after the European Central Bank, U.S. Federal Reserve and other banks around the world reduced their rates in a bid to bolster the world economy following last week's terrorist attacks on the U.S.

Ryan Shea, of Bank One, told Reuters: "I'm pleased to see they've decided to move in line with everyone else.

"Twenty five basis points is a little bit disappointing and that could highlight the fact that they are still a little bit concerned about domestic growth with consumer spending remaining so strong."

The BoE said it had called a special meeting of its Monetary Policy Committee to vote on the reduction after considering the reaction of financial markets and other central banks to the tragic events in the U.S.

Fed cuts rates again

The Federal Reserve cut interest rates half a per centage point Monday to bolster the economy and U.S. markets after the worst terrorist attacks ever against the United States.

The cuts, the eighth by the Fed this year, came six days after the attacks that destroyed the World Trade Center in New York and damaged the Pentagon last Tuesday. They were widely expected as the central bank seeks to keep funds flowing through the economy -- and boost consumer confidence -after the attacks.

The central bank cut its target for short-term rates to 3.0 per cent from 3.5 per cent, the lowest level since September 1992, in a bid to make money more accessible to consumers and help avoid a recession. The Fed also cut the seldom-used discount rate to 2.5 per cent from 3.0 per cent.

ECB joins Fed with rate cut

The European Central Bank joined the U.S. Federal Reserve with a surprise half a per centage interest rate cut Monday, aimed at boosting confidence following last week's attacks on U.S. cities.

The bank said its key minimum bid rate was lowered to 3.75 per cent from 4.25 per cent. Earlier in the day the Fed lowered its key lending rate also by 50 basis points to 3.00 per cent.

"In the view of the Governing Council, the recent events in the U.S. are likely to weigh adversely on confidence in the euro area, reducing short-term outlook for domestic growth," the bank said in a statement following an ad hoc meeting of its governing council carried out via a telephone conference.

S&P cuts rating of nine US airlines

Standard & Poor's on Thursday cut its credit and debt ratings for nine US airlines, including five of the six largest — American Airlines Inc., Continental Airlines Inc., Delta Air Lines Inc., United Airlines Inc. and US Airways Inc.

The rating agency said last week's air attacks caused "sharply reduced air traffic," leading to expectations for only a "slow recovery" for the airline industry in coming months, and "worsens significantly an already grim airline industry outlook." S&P's cuts follow similar cuts this week by Moody's Investors Service of most US airlines.

Asian markets continue to tumble

Asian markets led by Japan tumbled Friday as they took the impact of a fourth straight day of declines on Wall Street Thursday.

By midday, Tokyo's benchmark Nikkei average had fallen 2.8 per cent or 271 points to 9513.92. At one point in the morning it touched a 17-year record low of 9382.95.

The broader capital-weighted TOPIX index was off 3 per cent or 30.1 points at 994.51.

Hong Kong and Singapore took the hardest hits, down 3.7 per cent and 4.8 per cent in early trade Friday.

In Australia, the benchmark S&P/ASX200 was down 61.8 points or 2.1 per cent to 2921.5, while the NZSE Top 40 was down 29.05 points or 1.6 per cent to 1789.14.

In Seoul, the Kospi slid 2.45 per cent or 11.78 points to 468.49, as the market weighed the signing Friday morning of a landmark deal between bankrupt Korean automaker Daewoo and its U.S. suitor, GM.

Mergers & Acquisitions

Duke—Westcoast: Duke Energy agreed Thursday to acquire Westcoast Energy for about $4.5 billion in cash and stock, in a bid to expand its footprint in the North American natural gas market.

GM—Daewoo: General Motors finally put pen to paper Friday to buy much of bankrupt Daewoo Motor for $400 million.

Vodafone—J-Phone: Vodafone, the world's biggest wireless operator, has agreed to pay 1.8 billion pounds ($2.7 billion) in cash to take control of Japan Telecom.

Bristol—ImClone: Bristol-Myers Squibb Co. agreed Wednesday to purchase a 20 per cent stake in biotech developer ImClone Systems Inc. for $1 billion cash, signaling a move by Bristol to strengthen its position in the cancer treatment market.

RWE—American Water: German utility RWE AG agreed Monday to buy U.S. water utility American Water Works for $4.6 billion plus $3 billion in debt, giving it a major foothold in the world's biggest water market.

Bush, House agree on airline bailout

The White House and the bipartisan House leadership have agreed on a $15 billion bailout for the airline industry that includes $5 billion in direct aid, $10 billion in loan guarantees, and much of the liability and insurance protection the industry sought, according to senior administration and congressional sources.

Mortgage rates fall again

Long-term mortgages rates dropped again in the week ending Sept. 21, falling to a level not seen since February 1999 and reflecting the impact on the economy of last week's terrorist attacks.

The 30-year fixed-rate mortgage averaged 6.80 per cent, with an average 0.9 point, for the week. The 15-year fixed rate mortgage this week averaged 6.30 per cent, with an average 0.9 point. One-year adjustable-rate mortgages (ARMs) indexed to the Treasury averaged 5.58 per cent this week.

zreasury prices fall

U.S. Treasury bond prices fell Thursday as investors booked profits after a powerful two-day rally that pushed yields on short-term notes to historic lows.

10-year notes fell 12/32 to 102, yielding 4.74 per cent, and 30-year bonds were down a full point at 96-12/32 to yield 5.63 per cent. Two-year notes were down 4/32 at 101-12/32, yielding 2.89 per cent, down from 3.19 per cent just after last week's terrorist attacks. Five-year notes fell 5/32 to 103-9/32, yielding 3.85 per cent, just above their lowest levels since June 1963.

European stocks plunge

European bourses plunged on Thursday, closing near three-year lows as the financial fallout from last week's terrorist attacks in the U.S. continued.

London's FTSE 100 closed 3.5 per cent lower at 4,556.9 and the CAC 40 blue chip index in Paris ended down by 3.9 per cent at 3,738.18, while the Xetra Dax in Frankfurt dived 5.1 per cent to 3,835.30.

In Amsterdam the AEX index tumbled 5.1 per cent and the SMI in Zurich was 4.5 per cent lower, while Milan's MIB30 index lost 4.9 per cent.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was down nearly 4 per cent, with the insurance and transportation sectors in negative territory.

Jobless claims drop

New jobless claims fell in the United States last week, but the government said the latest figures do not account for the massive layoffs in the airline and aerospace industry after last week's attacks.

Initial claims for state unemployment benefits fell to 387,000 last week from a revised 436,000 the prior week, the Labor Department reported. According to Briefing.com, private economists had forecast a small decline to 420,000 new claims.

Fed saw more weakness

The Federal Reserve said the U.S. economy was slowing even before the worst terrorist attacks in U.S. history, according to its periodic "beige book" report, released Wednesday.

"Reports from Federal Reserve districts generally indicated that overall economic activity remained sluggish in August and early September, with several suggesting that activity slowed further," the Fed said.

The Fed saw "broad-based" manufacturing weakness, sluggish consumer spending and a "soft" labor market in August and early September, according to the report, named for the color of its cover.

U.S. oil, gold prices drop

Crude oil headed lower in a shortened trading session Tuesday following a bomb scare at the New York Mercantile Exchange.

NYMEX October crude last traded at $27.70, down $1.11, or nearly 4 per cent, on the day and ending slightly below the $27.77 level traded before last Tuesday's terrorist attacks on the United States.

The day's abbreviated session opened an hour late as traders were evacuated from the NYMEX trading floor .

NYMEX November Brent crude last traded at $27.60, down $1.02.

December gold moved lower after a delayed start on the NYMEX's Commodities Exchange division, falling $1.80 to close at $289.70 an ounce.

IMF-World Bank parley off

The International Monetary Fund and World Bank, as expected, canceled their joint meeting that had been scheduled for Washington, D.C., at the end of this month, due to security concerns arising from last week's terrorist attack.

"This decision was taken out of deepest respect and sympathy for the families of all those touched by the horrific events of last Tuesday, and in order to dedicate law enforcement personnel fully to the extraordinary and immediate priorities at hand," the two organizations said jointly in a release Monday morning.