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INTERNATIONAL

Oct 08 - 14, 2001

Tankan paints gloomy Japan picture

Japanese business confidence is continuing to plunge, according to a key survey released Monday, heightening expectations of a budgetary boost by the Koizumi government.

The Bank of Japan's quarterly tankan survey showed that the diffusion index for large manufacturers dipped to minus 33 in the September quarter, down 17 points from the minus 16 figure recorded in June.

The gloomy view expressed by big business was worse than expected, and confirms Japan "is falling into recession", according to Merrill Lynch chief economist for Japan, Jesper Koll.

Koll told that the result means Japanese Prime Minister Junichiro Koizumi will need another supplementary budget package within three to four weeks.

The tankan's diffusion index measures the per centage of businesses who say conditions are good against those who say conditions are bad.

Some of the survey data was taken after the September 11 terror attacks in the U.S.

The tankan comes amid a sharply deteriorating global economic environment, with the expected slump in U.S. consumer demand further adding to Japanese exporters' woes.

Japan's jobless figure is at a record 5 per cent, many companies have outlined plans to further slash staff and output, earnings forecasts are being revised downward, and falling share prices are hurting the already troubled banking sector, where bad and doubtful loans threaten some banks' viability.

The International Monetary Fund last week said Japan's uncertain economic outlook meant its GDP would likely shrink by 0.5 per cent this year.

But this is a more optimistic outlook than some regional analysts, who see Japan's economy contracting by up to 1.5 per cent.

Ukrainian missile downed Russian jet

Knowledgeable U.S. officials said they have evidence the Russian airliner that crashed Thursday into the Black Sea was shot down by a Ukrainian surface-to-air missile fired during military exercises.

"We believe this was a tragic accident caused by a military exercise gone awry," said a US official.

The Sibir Airlines Tu-154 with 77 people aboard was en route from Israel to Siberia.

U.S. officials said the plane was downed by an SA-5 surface-to-air missile fired from a shore battery during the largest scale Ukrainian military exercises in some years.

The plane started its journey in Tel Aviv, Israel, bound for Novisibersk, Russia. Officials in Israel and Russia said they feared the crash could have been caused by terrorists. An Armenian pilot flying in the vicinity said he saw the plane explode in midair.

Bush seeks up to $75b 3rd Lead

President George Bush said Wednesday his administration will seek a package of measures worth as much as $75 billion to help boost the U.S. economy after last month's terrorist attacks.

At a news conference in New York, the president said the administration will seek a stimulus package of $60 billion to $75 billion "to encourage consumer confidence, enhance business investment, as well as to take care of displaced workers."

The president spoke after meeting with business leaders on his second trip to New York since the Sept. 11 attacks.

His remarks came a day after the Federal Reserve cut interest rates for the ninth time this year — and the second time since the attacks — in a bid to boost the struggling U.S. economy.

Separately, Treasury Secretary Paul O'Neill told the Senate Finance Committee he thought the U.S. economy, as measured by gross domestic product (GDP), would shrink in the third quarter.

Many economists think the terror attacks will sink the U.S. economy into a recession, commonly defined as two consecutive quarters of negative GDP.

But O'Neill said he thought the economy could return to growth in the fourth quarter if consumer confidence rebounds quickly.

O'Neill also discussed the president's stimulus plan, describing no specific aspects of it but saying it should focus on short-term solutions to avoid future government fiscal problems that would harm the economy.

If Congress approves a plan of $60 billion to $75 billion, that would bring the total stimulus approved by the government since Sept. 11 to well over the $100 billion many economists — including Fed Chairman Alan Greenspan — believe is needed to be effective.

NY attack may cost $105B

The attack on the World Trade Center will cost New York City as much as $105 billion over the next two years, the city comptroller's office said Thursday, in the first official estimate of the costs from the Sept. 11 attack.

The cost of the Sept. 11 attacks, in which terrorists slammed two commercial jets into the trade center's 110-story twin towers, destroying the complex and leaving more than 6,000 people missing or dead, includes $45 billion for the value of the buildings destroyed and loss of taxes derived from the victims.

It also includes $45 billion-to-$60 billion for on-going costs, including lost economic activity during the next two fiscal years, Comptroller Alan Hevesi said in the report.

In addition to the World Trade Center, terrorists slammed another plane into the Pentagon near Washington, D.C., killing hundreds. A fourth hijacked plane crashed in a Pennsylvania field after passengers evidently overtook the hijackers.

UK's BoE cuts interest rate

The Bank of England cut interest rates by a quarter point to 4.5 per cent on Thursday, the sixth time this year, to bolster confidence.

The bank, which trimmed rates by a quarter point on September 18, was widely expected to act again to match the emergency half-point rate cut last month by the U.S. Federal Reserve, European Central Bank and other central banks.

While many analysts believe the UK economy is more resilient than other leading industrialised countries, the BoE was expected to trim rates in a worldwide attempt to boost confidence after the terror attacks on the U.S.

And the Fed cut rates again on Tuesday by half a per centage point to 2.5 per cent, its lowest level in nearly 40 years. The cut is the ninth this year and the second since the terrorist attacks.

The BOE's Monetary Policy Committee issued a statement after the cut saying that while the impact of the attacks on the British economy was likely to be less than on that of the U.S, it was concerned about confidence here.

"The weaker world outlook and increased uncertainty have set back UK business and consumer confidence, and may, for a time, restrain business and household spending," said the bank.

Prior to the attacks, the BoE 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 manufacturers are suffering worse conditions than in the country's last recession a decade ago and expect to shed more than 300,000 jobs this year and next, the Engineering Employers' Federation said on Tuesday.

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.

If the monetary policy committee of the BoE does decide to trim rates to 4.5 per cent, that would be the lowest since 1964. Market watchers expect the BoE to cut interest rates once more before Christmas.

Fed unanimous in cut

Federal Reserve policy makers unanimously voted to cut short-term interest rates six days after the worst terrorist attacks in U.S. history, according to minutes of their meeting released Thursday.

On Sept. 17, six days after the attacks on the World Trade Center and the Pentagon, all 10 Fed policy makers voted to cut their target for short-term interest rates to 3.0 per cent from 3.5 per cent, according to the Fed's record of its activities between its Aug. 21 meeting and the Sept. 17 rate cut.

"These actions were taken against the backdrop of heightened concerns and uncertainty created by the ... terrorist attacks and their potentially adverse effects on asset prices and the performance of the economy," the Fed's minutes said.

The Fed cut rates again Tuesday to 2.5 per cent, their lowest level since 1962. Minutes of the policy makers' discussions before that cut aren't yet available.

U.S. techs cling to gains

U.S. equity markets closed with mixed feelings Thursday, with tech investors crying "rally" on the positive Dell Computer quarterly reiteration, while blue chip diehards took negative economic data to heart.

The Nasdaq composite index closed up 16.50 to 1,597.31. The Dow Jones industrial average fell 62.90 to 9,060.88. The Standard & Poor's 500 was down 2.66 to 1,069.62.

Tokyo, HK markets lower

Tokyo's benchmark Nikkei 225 average stayed lower by midday Friday, reflecting the weaker close by industrial stocks on Wall Street and caution ahead of Monday's market holiday.

The Nikkei index was down just over 1 per cent or 108.04 points at 10,097.44. Tokyo's broader capital-weighted TOPIX index lost half a per cent or 5.77 points to 1065.42.

Hong Kong was also down near midday, losing about 1.3 per cent or 141 points to be at 10,145.

Seoul's Kospi, which put on more than 3 per cent Thursday after a three-day holiday break to climb above 500, was just slightly ahead, up 0.59 points to 501.23.

Hynix Semiconductor, which won a reprieve from its creditors this week, put on 6 per cent to 1015 won.

Australia's S&P/ASX200 was up half a per cent or 17.6 points to 3148.5, with bluechips News, BHP, NAB and AMP on the rise. Big bank CBA was slightly weaker.

IBM launches 'Regatta'

In an attempt to steal business from market leaders Sun Microsystems and Hewlett-Packard, IBM launched a line of high-end servers that use technology developed by its mainframe computer team.

Bonds turn to down side

U.S. Treasurys, especially longer-dated maturities, tumbled immediately after the U.S. Treasury announced on Thursday that to ease market pressure, it would sell $6.0 billion in 9-year, 10-month notes later in the day.

On Wednesday, 10-year Treasury yields fell to 4.44 per cent.

Two-year notes were unchanged at 99-31/32, yielding 2.74 per cent. Five-year notes were down 7/32 to 103-19/32, yielding 3.77 per cent. Ten-year notes were down 18/32 to 103-19/32 to yield 4.54 per cent and 30-year bonds were down 7/32 at 100-28/32, yielding 5.32 per cent.

Mortgage rates dip further

The 15-year fixed-rate mortgages hit their lowest level on record, while 30-year rates recorded their lowest rates since 1998, according to Freddie Mac.

And the 30-year fixed rate mortgage averaged 6.64 per cent, with an average 0.8 point, for the week ending Oct. 5.

A year ago period, 30-year rates averaged 7.83 per cent.

The 15-year fixed rate mortgage this week averaged 6.11 per cent, with an average 0.8 point.

Europe soars on techs

Handset maker Nokia led a thumping tech-led European stock rally Thursday as investors cheered reassuring earnings guidance from U.S. tech bellwethers, Dell Computer and Cisco Systems.

London's FTSE 100 rose 2.8 per cent to 5,016.20 and the CAC 40 blue chip index in Paris jumped 4.3 per cent to 4,195.80, while Frankfurt's Xetra Dax gained 1.9 per cent to 4,519.14.

In Amsterdam, the AEX index jumped 3.4 per cent and the SMI in Zurich was 2.7 per cent higher, while Milan's MIB30 index rose 2.6 per cent.

The pan-European FTSE Eurotop 300, a broader index of the region's largest stocks, was up 3.3 per cent, with the information technology, mining and life assurance sub-sectors in positive territory.

U.S. jobless claims soar

New claims for unemployment benefits jumped to the highest level in nine years last week, the government said Thursday, as job cuts from last month's terror attacks hurt the travel and tourism industries.

Separately, orders to factories were unchanged in August, the government said, suggesting a long recession in manufacturing may have been bottoming out before the Sept. 11 attacks. The Commerce Department said new U.S. factory orders were flat at about $332.6 billion in August after a revised 0.1 per cent decline in July. Analysts had forecast a drop of 0.4 per cent.

Job cut plans soar

Businesses announced plans to cut about 248,000 jobs last month, the biggest total so far this year, as planned cutbacks accelerated after the Sept. 11 terrorist attacks, an employment consulting firm said Thursday.

Service sector rises

A key index of U.S. services activity that captured only part of the effects of the Sept. 11 attacks on New York and the Pentagon showed that while the transportation sector suffered, business activity was virtually unchanged during September.

KLM to shed 2,500 jobs

KLM Royal Dutch Airlines said on Thursday 2,500 jobs would be eliminated, as Europe's fourth-largest airline combats the impact of terror attacks.

GE unit to cut 4,000 staff

General Electric's aircraft engine unit announced Wednesday plans to cut as many as 4,000 employees, or 13 per cent of the division's workforce.

NZ steps in with $360m airline rescue

New Zealand's government will inject up to $360 (NZ$885 million) million into Air New Zealand to keep the ailing carrier flying.

The government will own up to 83 per cent of the airline, but says its shareholding will not be long-term.

Gasoline prices fall further

Gasoline prices are continuing their downward slide even as U.S. drivers return to the road, the government reported Wednesday.

The Energy Information Administration said stocks of gasoline increased 1.5 per cent last week despite an increase in demand. Stocks are now nearly 4 per cent higher than a year earlier, keeping downward pressure on prices at the pump.

Meanwhile, the price of regular gasoline fell 6.9 cents per gallon at the pump last week, to a national average of $1.416 per gallon. That's 10.8 cents lower than a year ago, and 29.7 cents lower than the peak May 14.

Swissair gets cash aid

Cash-strapped Swissair has been offered emergency funding by the Swiss government to enable it to keep flying until the end of the month.

Swiss finance minister Kaspar Villiger said on Wednesday: "Swissair's flight operations will be secured until October 28 by a government credit of 450 million francs ($280 million)."

European airlines in crisis

News that Swissair has become the first European airline to file for bankruptcy protection has highlighted the crisis faced by the continent's major airlines following the terrorist attacks in the U.S.

Carriers across Europe are struggling for survival as passengers shun air travel and investors rush to pull their cash from companies being hit by falling trade and revenues.

The attacks on the World Trade Center and the Pentagon could not have come at a worse time for the airlines, as they were already fighting to counter the effects of the global economic downturn.

Glaxo offers elderly aid

GlaxoSmithKline is expected to cut prices by at least 25 per cent Wednesday for elderly U.S. patients who cannot afford full-priced prescription drugs.

Investing during a crisis

Specialists say two things typically drive the markets: greed and fear. Lately, most investors have been experiencing fear, due to current uncertainty.

The tragedy of Sep.11 doesn't change the golden investment rules of diversification and proper asset allocation. Stock prices shouldn't be dictating your decisions; your decisions should be based on business plans.

Attack hit auto sales

Ford Motor Co. warned Tuesday that its third-quarter loss will be larger than expected due to increased incentive costs in the wake of the Sept. 11 terrorist attack and a drop in earnings from its Hertz rental car unit.

Mergers & Acquisitions

Bayer—CropScience: Germany's Bayer agreed on Tuesday to buy Aventis's agrochemicals unit for 7.25 billion ($6.6 billion), including debt.

GlobeSpan—Virata: GlobeSpan Inc. said Monday it plans to buy Virata Corp. in a $582 million stock deal that would create a leading provider of integrated circuits, software and system designs for the digital subscriber line market.

Boeing inks China deal

Boeing Co. signed an agreement Tuesday to sell China 30 commercial 737 aircraft in a $1.6 billion deal.

China plans to use the new aircraft, scheduled for delivery between 2002 and 2005, to replace the aging fleet among its four national carriers, a Boeing spokesman said. The carriers are China Southern, which will get 20 aircraft, China Eastern, which gets 4 planes, and Hainan Airlines and Shanghai Airlines, each of which will receive three.

French consumer morale down

French consumer confidence fell to its lowest levels for more than three years in September, the INSEE statistics office has reported.

The institute said on Tuesday consumers were more pessimistic last month than they had been since May 1998, as France's economic growth continued to lose steam and terrorist attacks in the U.S. dampened hopes of an upturn.

The consumer morale index fell to minus 15 last month from a revised figure of minus 10 in July, according to data gathered before and after the September 11 attacks.

The news comes in the wake of last Thursday's report from the INSEE that confidence among French business leaders fell to a five year low. In the same month, France's second quarter growth in gross domestic product in the euro-zone's second largest economy eased to just 0.3 per cent compared to the first quarter.

U.S. manufacturing slips

U.S. manufacturing slowed in September, the nation's purchasing managers said Monday, and while the sector was stronger than Wall Street expected, it may not yet be feeling the full impact of the Sept. 11 terrorist attacks.

The National Association of Purchasing Management (NAPM) said its Purchasing Managers Index dipped to 47.0 from 47.9 in August. Wall Street economists had expected a much worse reading of 45.0, according to Briefing.com.