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Feb 12 - 18, 2001

Japan GDP shrinks 0.6%

Japan's economy shrank 0.6 per cent in the July-to-September quarter, the government said Thursday, in a sign the country's rebound from a lengthy slowdown is stalling.

The gross domestic product data were revised from a preliminary announcement in December of 0.2 per cent growth, handing the world's second largest economy its first quarter of contraction since October-to-December of 1999.

The Cabinet Office's announcement raises concerns that Japan may not meet its target for 1.2 per cent growth this fiscal year -- which could prove troubling for embattled Prime Minister Yoshiro Mori, who has promised to usher in an era of growth.

But Eiji Kawade, vice minister of the Cabinet Office, said the government stands by its growth estimates for this year.

"When we made the forecasts...we factored in" the possibility of slower growth, Kawade said.

Mori, whose approval ratings have dropped to 14 per cent, is already under pressure from recent scandals that have shaken public support for his government. Thursday's figures show Japan has not managed to pull out of its deepest economic slump in decades and throw into question Mori's ability to lead a turnaround.

Hit by concerns over the economy, Japanese stocks tumbled Thursday to their lowest level this year.

The benchmark Nikkei 225 average finished Thursday's trading down 227.78 points, or 1.70 per cent, to 13,138.23.

The revisions, the largest made to GDP figures since 1978, indicate that corporate Japan is not making a significant contribution to getting the economy back on track.

Business investment increased 1.5 per cent in the July-to-September quarter from the previous one — far weaker than the 7.8 per cent growth in the preliminary data. The slower growth suggests that corporations, a driving force of the economy, are not investing in new equipment and machinery as aggressively as economists had believed.

Bush sends tax-cut outline to Congress

President Bush transmitted the blueprint for his $1.6 trillion, 10-year tax relief package to Congress on Thursday, fulfilling a major presidential campaign promise three weeks into his term.

Bush, in the first Rose Garden ceremony of his nascent presidency, signed two bound documents containing the parameters for a tax-cut bill that will have to be written in the House of Representatives over the next few weeks.

Bush said signs of a slowing economy are becoming more obvious by the day, and he is betting his tax cut package will boost sagging prospects for wage earners and business owners.

"We need tax relief now -- in fact, we needed tax relief — and I will work with Congress to provide it," Bush told a gathering of Hispanic business leaders who observed the signing ceremony.

The expected arrival of the documents at the Capitol, on their way up Pennsylvania Avenue from the White House at late morning, allowed the leaders of the Democratic minorities in the House and the Senate to begin their maneuvering against the soon-to-be-written tax bill.

The documents were handed over by Treasury Secretary Paul O'Neill to Senate Majority Leader Trent Lott, R-Mississippi, and House Speaker Dennis Hastert, R-Illinois, just before noon, and just after the Democrats stepped forward to launch their counteroffensive.

House Minority Leader Richard Gephardt of Missouri and Senate Minority Leader Tom Daschle of South Dakota told reporters the Bush plan is based on economic projections that could crumble, and they warned the nation should not be locked into a 10-year commitment that cannot be reversed.

"We cannot count on the economic forecasts that the Republicans rely on to hold up 10 years from now," Gephardt said. "No family, no business would act in this manner, and we shouldn't either."

BoE cuts rate to 5.75%

The Bank of England cut interest rates to 5.75 per cent on Thursday, as expected, its first reduction in 20-months.

The U.S. Federal Reserve cut interest rates by one per centage point in January to counter fears of recession in the world's biggest economy. The BoE is concerned a U.S. slowdown could impact the UK economy.

The BoE is "worried that European growth has been affected by a slowdown in the U.S.," Vicky Pryce, an economist at KPMG, told CNN before the rate cut. "There is more evidence that the UK is slowing, and the bank will respond."

The UK economy has enjoyed an unprecedented period of stability recently, with the BoE able to resist tweaking monetary policy for almost two years.

The cut in interest rates pushed some mortgage lenders to lower their rates for borrowers. Halifax, the UK's biggest mortgage lender, cut is variable mortgage interest rate by 0.24 per centage points to 7.50 per cent.

Anti-money laundering bill

The Russian Finance Ministry has prepared an anti-money laundering bill that will impose stricter monitoring of financial transactions, a Russian daily newspaper reported on Monday.

Kommersant published a copy of the draft law, which would give the government the right to monitor all operations that could possibly be used in a money laundering scheme. The monitoring bill includes most forms of cash transactions, anonymous accounts, money and securities transfers involving dubious offshore centres as well as property dealings, suspicious loans, lotteries and other activities.

If passed, it will oblige all institutions through which such operations are carried out to keep strict records and automatically report them to a special body set up by the Interior Ministry.

Tokyo hits 28-month low

Japanese stocks plunged to a 28-month low on Thursday, after data suggested the economy may be heading for another recession.

The Nikkei 225 index dropped 227.78 points, or 1.7 per cent, to 13,138.23, led by Matsushita Communication.

In Hong Kong, the Hang Seng index fell 120.07 points, or 0.9 per cent, to 15,909.4.

In Sydney, the S&P/200 ASX gained 0.5 per cent to end the session at 3,329.4, with index heavyweight News Corp, the world's fifth-largest media company.

In other markets, the Kospi index in Seoul rose 2.7 per cent, the Taiwan Weighted gained 1.1 per cent, Manila's PHS composite index added 1.5 per cent, and Bangkok's SET index rose 1.3 per cent.

The JSX index in Jakarta slipped 0.8 per cent, and Kuala Lumpur's KLSE composite lost 1.3 per cent.

Stocks slide on Wall St.

U.S. stocks tumbled Thursday as investors cashed in profits and, on a day with little else to chew on, sat on the sidelines amid renewed concerns about how much corporate profits will be affected by a slowing economy.

The Nasdaq composite index slipped 45.76, or more than 1 per cent, to 2,562.06, giving back its early gains. The Dow Jones industrial average dropped 66.17 to 10,880.55. The S&P 500 slipped 8.36 to 1,332.53.

On the New York Stock Exchange, declines beat advances 1,649 to 1,435 as more than 1.08 billion shares changed hands. Losers outpaced winners on the Nasdaq 2,071 to 1,675 as more than 1.82 billion shares were traded.

In other markets, Treasury securities were mostly lower. The dollar rose against the euro and was little changed against the yen.

Europe ends mixed

Europe's bourses ended mixed Thursday as investors snapped up 'old economy' stocks while heavyweight British Telecom dragged London lower.

The CAC 40 blue-chip index in Paris gained 0.4 per cent to 5,773.46, led by auto parts maker Valeo (PFR) and Schneider Electric (PSU). Frankfurt's electronically traded Xetra Dax climbed 0.6 per cent to 6,618.98. London's FTSE 100 bucked the upward trend, dipping 0.3 per cent to 6,206.1.

In Amsterdam, the AEX index rose 0.3 per cent, with Philips Electronics up 2.2 per cent. The SMI in Zurich dipped 1.1 per cent.

In the currency market, the euro weakened against the U.S. dollar to 91.88 U.S. cents from its late-trading price of 92.84 in New York Wednesday.

Gujarat jolted again

A major tremor measuring 5.3 on the Richter scale rocked quake-ravaged Gujarat late on Thursday, sparking panic among residents. The seismological office in New Delhi said the quake struck at 10.25pm (9.55pm PST) and lasted thirty seconds. Its epicentre was located at 23.6 degrees latitude and 70.1 degrees longitude, 25 kilometres northwest of Bacha one of the towns worst hit by the 7.9 magnitude quake that struck on Jan 26.

Mergers & Acquisitions

Bank Asia—Scotiabank: Bank Asia, a Bangladeshi private sector bank, took over the operations of the Bank of Nova Scotia in Dhaka on Monday, the first acquisition of a foreign bank by a local institution in the country.

Patterson—UTI: Onshore drilling company Patterson Energy Inc. said Monday it agreed to acquire rival UTI Energy Corp. for stock valued at $1.34 billion, creating the No. 2 U.S. land-based drilling services contractor.

Dow Chemical—Union Carbide: Antitrust regulators cleared Dow Chemical Co.'s $7.3 billion purchase of Union Carbide Corp. after Dow agreed to divest a key plastics technology and sell three other overlapping chemical businesses.

E.ON—Iberdrola: Spanish utility Iberdrola, up for grabs after regulators thwarted its merger with rival Endesa, may now face a buyout bid from Germany's E.ON. The German utility has approached Iberdrola with a takeover bid valued at up to 18 per share - or a total of 16.1 billion ($15.2 billion), Reuters reported late on Wednesday, citing industry sources.

GE—Equitable: GE Capital has withdrawn its bid for The Equitable Life Assurance Society, a spokeswoman told.

Calpine—Encal: Calpine Corp. said Thursday it will purchase Canadian energy company Encal Energy Ltd. for $868.8 million in stock, providing the independent power producer with a critical natural gas transportation link between western Canada and the United States.

Indonesia backs further cut

Indonesia would support further cuts in crude oil production at the next OPEC meeting because of an anticipated decline in oil consumption, a minister was quoted as saying Monday.

"With lower demand in the second quarter, we believe the price will drop and Indonesia will support OPEC cuts to maintain prices at our budget level," the Indonesian Observer quoted Mines and Energy Minister Purnomo Yusgiantoro as saying.

Asian poverty

Asia's rising poverty could become a source of political instability in the region, the presidents of the Asian Development Bank and the World Bank warned on Monday.

"Growing dissatisfaction with inequality threatens social and political cohesion and casts doubts on the morality of economic reform, liberalization and globalization," ADB president Tadao Chino told delegates as he opened a four-day international conference on combating poverty in Asia and the Pacific.


Network Appliance: Network Appliance reported an operating profit of $38.9 million, or 11 cents per share, during the quarter ended Jan. 26. That's up from $20 million, or 6 cents per share in the same period a year earlier.

AIG: American International Group Inc., said fourth-quarter profit excluding realized investments rose to $1.53 billion, or 65 cents per share, from $1.32 billion, or 56 cents per share, in the year-earlier quarter.

Shell: Royal/Dutch Shell plans to buy back shares worth up to $6.4 billion, the oil firm said on Thursday as it unveiled a $3.6 billion fourth-quarter profit. Shell said net income, excluding one-off items, increased 60 per cent in the fourth quarter, up from $2.24 billion in the year earlier period.

Unilever: Food-to-soaps firm Unilever reported a 16-per cent rise in 2000 profit on Thursday. The Anglo-Dutch maker of Lipton tea and Ragu sauces said operating profit before one-off items rose to 5.3 billion ($4.9 billion) last year, up from 4.6 billion in 1999.

WorldCom: WorldCom Inc. reported earn $710 million, or 25 cents per diluted share, down from $1.3 billion, or 44 cents per share, in the 1999 period.

Hasbro: Hasbro Inc., the world's No. 2 toymaker, posted a loss of $58.4 million for the fourth quarter Thursday and said the loss, before unusual charges, amounted to 34 cents per diluted share. A year earlier, the company reported earnings of $155.4 million, or 79

Polo: New York-based Polo said its income for the quarter, ended Dec. 30, rose to $50.6 million, or 52 cents per diluted share, from $32.3 million, or 33 cents a share, a year earlier.

PepsiCo: PepsiCo Inc. posted profit of $567 million, or 38 cents per share, up from $490 million, or 33 cents a share, in the 1999 period. Sales grew 13 per cent to about $6.4 billion.

Rio Tinto: Global miner Rio Tinto earned a record $1.5 billion on the back of stronger commodity prices and high global growth in 2000.

Ryanair: Budget airline Ryanair's third-quarter net profit soared 42 per cent. Ryanair said net profit for the three months ended December 31 jumped to 21.3 million ($20 million) as sales increased 28 per cent to 114.9 million.

U.S. Treasurys bounce

Thirty-year U.S. Treasury bonds rebounded in trading Thursday after a sale of $10 billion in new bonds found good demand and gave the broader market a boost, dealers said.

30-year bonds were up 11/32 at 110-13/32, yielding 5.53 per cent. New benchmark 10-year notes were down 1/32 at 99-10/32, yielding 5.09 per cent. Two-year Treasury notes were unchanged at 100-2/32, yielding 4.72 per cent. Five-year notes were up 3/32 at 103-19/32, yielding 4.89 per cent.

Mortgage rates dip lower

Mortgage rates slipped below 7 per cent for the first time in four weeks, as market sentiment remains optimistic about another Federal Reserve slash in short-term rates going forward.

The benchmark 30-year fixed-rate mortgage (FRM) averaged 6.98 per cent for the week ending Feb. 9. The average this week for a 15-year fixed-rate mortgage was at 6.60 per cent. One-year adjustable rate mortgages (ARMs) averaged 6.45 per cent.

Jobless claims up sharply

New claims for unemployment benefits rose sharply last week, the government reported Thursday, demonstrating a continuing slowdown in the labor market as the economy weakens.

The number of Americans filing first-time claims for state unemployment benefits was 361,000 for the week ended Feb. 3, up from 346,000 the week before, according to the U.S. Labor Department.

U.S. productivity slows

Worker productivity growth in the United States slowed in the fourth quarter while a key measure of labor costs increased, the government reported Wednesday, a further reflection that the U.S. economy has cooled.

U.S. productivity, a closely watched gauge that measures how much workers produce per hour, grew at an annual rate of 2.4 per cent in the final three months of 2000, the Labor Department said.

ECB's Welteke: no rate cut

European Central Bank bigwig Ernst Welteke reiterated the panel's 'wait-and-see' attitude on interest rates in an interview on Wednesday.

The Bundesbank president, who sits on the ECB's governing council, said signs of a U.S. slowdown have caused the ECB to watch economic conditions closely, but no rate cut is likely for now.

"We still feel it is not yet the time to reduce interest rates," said Welteke, speaking with CNN International on Wednesday. "Of course we will watch closely what goes on in the United States ... [But] we are optimistic there will be strong growth in the euro zone this year."

Banks toughen lending

Worried bankers kept toughening terms for making loans to businesses and to consumers in the past three months as they grew wary about being repaid, a Federal Reserve survey said.

"In general, banks indicated that the most important reasons for tightening standards and terms were a worsening economic outlook and a reduced tolerance for risk," said the survey of 57 large U.S. banks and 24 branches of foreign-owned banks operating in the United States.

Pfizer's Zeldox gets OK

The U.S. Food and Drug Administration on Monday approved Pfizer Inc.'s schizophrenia treatment Zeldox, setting the stage for a showdown with competing products made by Eli Lilly and Co. and Johnson & Johnson.