Feb 26 -Mar 04, 2001

Turkish lira crashes

Turkey abandoned its currency peg Thursday in the face of a massive outflow of funds, sending the lira into a 36-percent dive and dealing a potentially huge shock to the economy.

The lira plunged to 1,072,00 lira to the dollar from 689,000 lira the previous day.

"Due to recent developments, the foreign exchange rate will be left to float," said a statement from Prime Minister Bulent Ecevit's office after a 13-hour emergency government meeting.

"The government is determined to strictly follow the economic program." The pegged currency rate was a key element of a three-year four-billion-dollar stand-by deal with the IMF that Turkey began implementing in December 1999 to reduce its chronic inflation.

"It is a very serious shock, one should not minimise it," said Val Koromzay, Organisation for Economic Cooperation and Development (OECD) economic director for country studies.

The sudden drop in the lira would force up inflation, drag down economic growth and sharply jack up the cost of paying for Turkish debt denominated in dollars, he told AFP.

Share prices, which had slumped by 18.1 per cent the previous day, closed 9.8 per cent higher as liquidity returned to the market and stocks became cheaper for foreigners.

Turkey, which had a "crawling peg" regime of gradually devaluing the lira to account for inflation, was forced to drop the policy as a political crisis triggered a loss of confidence, Koromzay said.

Prime Minister Ecevit had stormed out of a key meeting Monday after a row with President Ahmet Necdet Sezer over ways to fight corruption, triggering fears of political instability.

Turkish banks, which had amassed huge sums of lira to enjoy the high interest rates available, suddenly rushed to sell the local currency for dollars, the OECD expert told AFP.

The Turkish authorities had tried in vain to halt the massive outflow by squeezing liquidity, forcing overnight interest rates up to more than 4,000 per cent.

Banks issue trading guidelines

Banks active in the global foreign exchange market on Thursday released a set of voluntary guidelines for good trading practise in response to currency crises in Asia and Russia in 1997 and 1998.

The guidelines, which amount to best practice, have been endorsed by bodies responsible for foreign exchange market standards in the major centres of London, New York, Tokyo, Singapore and Hong Kong.

Guy Heald, treasurer of HSBC Bank and co-chair of the group of 16 banks which drew up the guidelines, said he hoped they would help reduce the potentially detrimental effects of speculative foreign exchange trading.

"We are not saying we can stop the situation happening again whereby currencies go well beyond the realm of overshooting, but we may be able to help," Heald told a news briefing.

The standards were drawn up in response to a recommendation by the Financial Stability Forum's working group on highly leveraged institutions. The working group is chaired by Howard Davies, chairman of the UK's Financial Services Authority, which regulates financial institutions in Britain.

The FSF was set up in 1999 following financial crises in Asia and Russia to coordinate the efforts of regulators worldwide and across institutions to promote financial stability and reduce systemic risk by improving the functioning of markets.

The 16 banks which drew up the guidelines are:

ANZ Bank, Barclays, DBS, HSBC, Societe Generale, Banamex, JP Morgan Chase, Deutsche Bank, Morgan Stanley, Standard Bank of South Africa, Bank of Tokyo-Mitsubishi, Citibank, Goldman Sachs, Nomura Securities, Standard Chartered and UBS Warburg.

The 40-member FSF, set up at the behest of former Bundesbank President Hans Tietmeyer, meets about once every six months and serves as a platform that lets high-level officials and regulators exchange information.

Asia to remain attractive for FDI

Asia will see soaring foreign direct investment (FDI) flows over the next five years, with China maintaining its position as the region's star attraction, a report said on Thursday.

The Economist Intelligence Unit (EIU) said in a report released that FDI inflows into the Asia-Pacific region had risen markedly each year since 1992, with a record total of US$126.80 billion invested in the region in 2000 fuelled by a wave of merger and acquisition (M and A) activity.

A slowdown in mergers and acquisitions would result in a slowing of FDI inflows into Asia to 123.10 billion in 2001 from 126.80 billion in 2000, the report said, but would rise steadily thereafter to $170.7 billion in 2005, the report said.

New laws in UK to curb foreign groups

New laws intended to prevent radical foreign groups using Britain as a base for promoting violent campaigns in their home countries came into force on Monday.

The new legislation replaces the Prevention of Terrorism Act of 1973, which focused almost entirely on the paramilitary threat from Northern Ireland.

Under the new law other groups can now be added to a list of banned organizations, and radical Muslim groups are likely to be early targets.

Ministers have not said which organizations will be banned, but the interior ministry is said to be drafting a list.

This is likely to include Sri Lanka's rebel Tamil Tigers, the Kurdistan Workers' Party, Islamic Jihad, Hamas and Hezbollah, informed sources said.

Nasdaq hits 25-month low

Fresh evidence that sales at technology companies are slowing sent the Nasdaq composite index to its lowest close in more than two years Thursday.

The Nasdaq dipped 23.98 points, or 1 per cent, to 2,244.96. Thursday marks the lowest close for the Nasdaq since Jan 4, 1999, when it finished at 2,208.05. But the close also marks a turnaround. Earlier in the session, the Nasdaq fell as much as 4 per cent to levels last seen in late 1998.

The Dow Jones industrial average ended little changed, inching up 0.23 to 10,526.81, while the S&P 500 lost 2.45 to 1,252.82.

More stocks fell than rose. Declining issues on the New York Stock Exchange topped advancing ones 1,902 to 1,141 as 1.3 billion shares traded. Nasdaq losers beat winners 2,450 to 1,289 as 2.4 billion shares changed hands. In other markets, the dollar rose against the euro and yen.

Results

Standard Chartered: Standard Chartered announced a pre-tax profit of £949m for the fiscal ending Dec 31, 2000 as against £507m in 1999.

Nestle: Switzerland's Nestle, posted a 22 per cent surge in 2000 net profit on Friday. Nestle said net profit for the year ending December 31 rose to 5.76 billion Swiss francs ($3.4 billion), from 4.72 billion Swiss francs in the previous year.

WPP: WPP, the world's top advertising agency, posted a 25 per cent jump in pretax profit. The U.K.-based company, said Wednesday pretax profit climbed to £318 million ($528 million) in 2000, up from £255.4 million a year earlier.

Peugeot: France's PSA Peugeot-Citroen said net profit surged 80 per cent to 1.3 billion ($1.2 billion) in 2000.

Porsche: Porsche announced first-half pretax profit rose 19 per cent to 273 million marks ($127.3 million).

Glaxo: GlaxoSmithKline, Europe's largest drugs maker, reported 2000 pretax profit rose 11 per cent. The British company, said pretax income rose to £5.33 billion ($7.72 billion), up from £4.71 billion a year earlier.

VW: Volkswagen AG posted a 2000 net profit Tuesday that more than doubled the previous year's results. Volkswagen's net profit skyrocketed last year to 4.03 billion ($3.7 billion) from 1.65 billion in 1999.

Halifax: Halifax, Britain's biggest mortgage bank, said full-year profit rose almost 10 per cent. Net income rose to £1.17 billion ($1.7 billion), or 52.3 pence a share, from £1.06 billion, or 46 pence a share, a year ago.

Eurotunnel: Eurotunnel, the Anglo-French company posted on Monday an operating loss of 1.14 billion francs ($158.5 million) in 2000, compared to 1.27 billion francs a year ago.

Dresdner: Dresdner Bank said pretax profit fell by a quarter in 2000. Germany's third-largest bank reported pretax profit of 1.6 billion ($1.5 billion).

Logica: Logica's first-half net income rose to £39 million ($56 million), or 9.1 pence a share, in the six months ended December 31, from £22.3 million, or 5.4 pence a share, in the year earlier period.

Medtronic: Medical equipment maker Medtronic Inc. earned $313.9 million, or 26 cents a diluted share.

L'Oreal: French cosmetics maker L'Oreal posted a 24 per cent rise in full-year net profit on Thursday. L'Oreal said net profit for the year ended December 31 rose to 1.1 billion ($990 million) from 827 million in 1999.

Bridgestone: Japanese tire maker Bridgestone Corp has suffered its worst result in a decade. Consolidated net profit fell to ¥17.74 billion ($152.4 million) in calendar 2000, down 80 per cent from ¥ 88.69 billion the year before, for its lowest profit since 1991.

Mergers & Acquisitions

Siemens to—Efficient: Germany's Siemens agreed on Thursday to buy U.S. broadband network company Efficient Networks for $1.5 billion in cash.

Callahan—Telenet: Callahan Associates International LLC, a U.S. investment firm, agreed Thursday to buy a 54.2 per cent stake in Belgian communications firm Telenet Holding N.V. The purchase values Telenet at $1.68 billion.

Luxottica—Sunglass Hut: Luxottica Group SpA agreed Thursday to acquire Sunglass Hut International Inc. for $462 million cash, expanding the Italian eyewear maker's footprint in the U.S. retail market.

SEB and Swedbank: Swedish banks SEB and Swedbank agreed on Thursday to a 68.3 billion crown ($6.9 billion) merger, creating Scandinavia's second-largest bank.

JDS—OPA: JDS Uniphase agreed Wednesday to acquire Optical Process Automation Inc., one week after consummating its $14 billion acquisition of SDL Inc.Crown—Marc Rich: Energy trader Crown Resources said on Tuesday it had reached a deal to acquire Marc Rich Investments (MRI), the Swiss-based commodities trading arm of Marc Rich Holding GmbH, owned by billionaire and former fugitive Marc Rich.

Energy East—RGS: Energy East Corp. agreed Tuesday to acquire RGS Energy Group Inc. for $1.4 billion in cash and stock deal, in a move that will expand Energy East's footprint in New York state.

Jobless claims increase

New claims for state unemployment benefits rose by 4,000 last week, the U.S. government reported Thursday, after dropping slightly in the previous week.

The number of new claims climbed to 348,000 for the week ended Feb. 17 from a revised 344,000 the prior week, the Labor Department reported.

Tokyo shrugs at downgrade

Asian markets rose on Friday, as investors anticipated possible reform in Tokyo while a deal in the telecom sector lifted Hong Kong.

Tokyo's benchmark Nikkei 225 average ended 1.3 per cent higher at 13,246.00 while Hong Kong's Hang Seng index was up 1.2 per cent at 15,274.65 in trading.

Singapore's Straits Times index rose 0.6 per cent to 1,955.40.

Taipei's Taiwan Weighted index closed down 0.6 per cent at 5,726.93, as technology shares slumped after the Nasdaq's fall.

In Seoul, the KOSPI index ended little changed at 583.52, as a rebound in SK Telecom was nearly wiped out by Samsung Electronics.

Bangkok's SET index surged 3.1 per cent on strong financial gains amid expectations of developments in the government's efforts to tackle its debt and also set up an equity fund to support the market.

Kuala Lumpur's KLSE composite was 0.2 per cent higher, in Jakarta the JSX edged up 0.2 per cent and PHS composite ended 0.4 per cent higher in Manila.

U.S. Treasurys mixed

Shorter-dated U.S. Treasury bond prices rose Thursday as major stock indexes sagged to near two-year lows, outpacing long-term bonds as speculation grew that the Federal Reserve will press ahead with steep interest-rate cuts to steady the economy.

Two-year Treasury notes were up 5/32 to 100-1/32, yielding 4.61 per cent. Five-year notes were up 4/32 at 103-18/32, yielding 4.89 per cent.

Benchmark 10-year notes were down 2/32 at 98-28/32, yielding 5.14 per cent, while 30-year bonds were down 15/32 to 97-29/32, yielding 5.52 per cent.

Mortgage rates climb

Long-term mortgage rates pushed higher this week as lenders braced themselves against the growing threat of inflation.

The 30-year fixed rate mortgage rose to 7.12 per cent with an average 0.9 point for the week ending Feb. 23.

The 15-year fixed rate mortgage climbed to 6.69 per cent, with an average 0.8 point.

One-year adjustable rate mortgages (ARMs) indexed to the Treasury average 6.43 per cent this week, with an average 0.9 point.

Europe closes mostly lower

European shares ended mostly lower Thursday as tech and financial issues fell in step with the Nasdaq's losses and amid concern over Turkey.

The blue-chip CAC 40 index in Paris fell 0.4 per cent to 5,452.48, led by bank BNP Paribas (PBNP) and insurer AXA (PCS).

Frankfurt's electronically traded Xetra Dax shed 1.4 per cent to 6,260.60, as DaimlerChrysler (FDCX) and software maker SAP (FSAP3) skidded.

London's benchmark FTSE 100 index bucked the region's downtrend and gained 0.5 per cent to end 6,003.1, with business telecom provider COLT Telecom (CTM) and pay-TV operator Carlton Communications (CCM).

Among other top European markets, the AEX index in Amsterdam fell 1.5 per cent and Milan's MIB30 index lost 0.8 per cent. The SMI in Zurich edged up 0.2 per cent.

The broader FTSE Eurotop 300 index, composed of a basket of Europe's largest companies, slipped 0.4 per cent.

U.S. indicators jump

A key index of U.S. economic activity jumped in January after three consecutive months of declines, suggesting that the economy is rebounding and no recession is on the horizon, according to a report by a private business research group Thursday.

The New York-based Conference Board said its index of leading economic indicators climbed 0.8 per cent to 109.4 last month, following a revised 0.5 per cent decline in December. The latest gain is double what analysts had expected.

Microsoft wooing small biz

Microsoft Corp. released a new package of software Wednesday to run small business networks.

Microsoft's Small Business Server 2000 targets businesses with fewer than 50 personal computers, and is based on its flagship Windows 2000 operating system, group product manager Katy Hunter said.

Japan slumps to trade deficit

Fresh proof of Japan's economic woes has emerged in the form of its first trade deficit in four years, amid slumping demand out of the United States.

Japan's Ministry of Finance said exports plunged 5.1 per cent, year on year, in January as the country fell to a ¥95.3 billion ($824.1 million) trade deficit — the first since January 1997.

While data for the first part of the year is always erratic because of holidays, economists said the latest data points to a definite slowdown in the Japanese economy, and warned of a thinning trade surplus for calendar 2001.

"Figures raise special concerns about slumping economic activity," says Nikko Salomon Smith Barney economist Tomoko Fujii.

"Export prospects are worsening at an alarming pace, removing one of the primary supports to the mild economic expansion Japan has managed over the last two years."

Trichet details strong euro

Confidence is the key when European Central Bank officials and other finance ministers discuss the euro, the Bank of France governor told.

"When you are speaking of currencies, confidence is of the essence," Trichet said.

Trichet sits on the ECB's governing council and is the heir apparent to Wim Duisenberg as ECB president under a back-room deal cut when the central bank was created.

"When we say a solid, strong euro is in the interest of Europe, we mean you can trust the euro," Trichet said in an interview with CNN.

ABN to cut 7,000 jobs

Faced with a big drop in profit at its home-turf unit, Dutch bank ABN AMRO said on Thursday it's cutting some 7,000 jobs and closing branches.

The bank said it will reduce its workforce in its consumer business to 23,000 staff from 29,000 and cut 770 jobs from its corporate banking unit in Holland. The company previously had expected to cut just 2,500 jobs.

U.S. prices jump

Consumer prices rose much more sharply than expected in January, raising worries about inflation on Wall Street.

The consumer price index jumped 0.6 per cent in January, the government said Wednesday, double Wall Street forecasts for an increase of 0.3 per cent. Excluding food and energy, the CPI, the government's main inflation gauge, rose 0.3 per cent, which was also above economists' forecasts.