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 3. FINANCE  4. POLICY
 5. TRADE  6. GULF

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INTERNATIONAL

Jan-07- 13, 2002

Euro soars against major currencies

The euro has rallied strongly on the foreign exchange markets after investors took heart from its mostly trouble-free introduction as a cash currency.

In early Asian trade the currency soared to 119.7 yen its highest level since August 1999 before settling back to around 119.45 yen.

On Wednesday the single European currency had posted its biggest ever one-day gains against the pound in early trade, climbing 2.7% to 62.80p before slipping back to 62.40p.

The new currency also reached a two-week high of 90.66 US cents, but then dropped back to 90.40 in Asian trade.

Analysts attributed the single currency's strong performance to the smoother than expected introduction of euro notes and coins, which began on 1 January before the foreign exchange markets opened for the new year.

"So far everything is working relatively smoothly, and so we are seeing a relief rally in the euro," said Michael Klawitter, senior currency strategist at WestLB.

A survey on Wednesday showing that the pace of output decline among eurozone companies slowed during December gave the single currency an added boost.

But analysts stressed that the euro was unlikely to hold onto its gains against the pound and dollar until there was firmer evidence of a sustained economic recovery in mainland Europe.

"The fact is there is more confidence in the UK and in our economic management than there is in euroland and its economic management," Richard Jeffrey, economist at ING Barings told the BBC.

The introduction of euro notes and coins proceeded with few disruptions on 2 January, the first full working day of the year.

The most serious glitch came when Austria's entire cash machine network went down for two hours due to excessive customer demand for the new euro notes.

UK euro entry decision 'political'

The decision on whether or not Britain joins the euro will be a political not economic one, a Treasury official has reportedly said.

Gus O'Donnell told a private seminar of economics students that the Treasury would be "unable to deliver a clear and unambiguous" verdict on the five economic tests for entry, according to The Times.

The comments by the economics expert, appear at odds with the government's claim that the five tests are pre-conditions for a referendum on the single currency.

And they come the day after Prime Minister Tony Blair gave fresh backing to the euro.

The paper says that, despite calls for an early referendum following the introduction of the euro in 12 countries this week, senior government sources have indicated Chancellor Gordon Brown may deliver a "not proven" verdict.

UK growth 'to slow to 1.5%'

Britain's economic growth will slow in 2002 as fears of rising unemployment cause consumers to spend less, hurting the vital retail sector, leading economists have said.

The UK economy will grow by about 1.5% this year, well below the target set out by Chancellor Gordon Brown in November, research firm Cambridge Econometrics said.

Meanwhile the manufacturing sector finished 2001 mired in recession, a separate report showed.

Britain's manufacturing output fell for the 10th straight month in December and at the sharpest rate for three years, according to the Chartered Institute of Purchasing and Supply (CIPS).

Mr Brown has predicted the UK economy would grow at between 2.0-2.5% this year.

Consumer spending is critical for the health of the British economy, accounting for about two thirds of economic activity.

But although widely expected, the contraction in manufacturing paints "a dismal picture," said CIPS spokeswoman Melinda Johnson.

The CIPS Purchasing Managers' Index fell to 45.2 compared with 45.6 in November. Any number below 50 indicates contraction.

Many UK manufacturers are fulfilling new orders from existing stocks, Ms Johnson said.

Falling manufacturing sales reflected the weakness of global demand, CIPS said.

More than a quarter of manufacturers questioned by CIPS shed staff in December - a finding that lends support to warnings that households may tighten their purse-strings.

Cambridge Econometrics cautioned that "During 2002 households are expected to cut back spending as unemployment edges up."

The boom in credit card spending could also lead to slower growth as consumers face up to debt.

UK consumers 'over-spending'

The Governor of the Bank of England has warned that interest rates may have to go up this year to put the brakes on a credit card fuelled spending boom in the UK.

Sir Edward George, speaking in an interview with the BBC television's World Business Report broadcast on Friday morning, said consumer demand in the medium term was unsustainable.

"Consumer demand will have to moderate," Sir Edward said.

"I think there's a good possibility that it will begin to moderate of its own accord, " he continued, adding that when "I say moderate,

I don't mean it falls off a cliff, but it slows down".

If market forces were to make shoppers less keen to spend, that would be the "most desirable outcome", Sir Edward said.

Argentina braced for crisis measures

Argentines expect to find out on Friday how the new government will tackle the country's economic crisis, amid widespread talk it is planning a major devaluation of the currency.

Newly-appointed interim President Eduardo Duhalde is expected to announce a package of emergency economic measures to try to end the country's four-year recession, blamed for causing the social unrest which has seen Argentina go through five presidents in two weeks.

A member of Mr Duhalde's economic team told the BBC that Argentina was on the edge of a precipice, but that the crisis was also a chance to rebuild.

But for millions of ordinary Argentines, the emergency measures are likely to mean the economic situation gets worse before it gets better.

"Argentina will suffer major changes that are necessary in this time of crisis," said Cordoba provincial Governor Jose de la Sota.

Many observers are fearful of the reaction to the measures expected to be announced on Friday.

Mr Duhalde's newly-appointed economy minister, Jorge Remes Lenicov, is reported to be preparing to end Argentina's policy of pegging its national currency, the peso, at one-to-one to the US dollar.

The peso would then be allowed to fall in value to a target range of 1.30 to 1.40 to the dollar, a devaluation of about 30%. It would then be pegged to a basket of currencies including the Brazilian real, the Japanese yen and the euro.

Devaluation would help Argentina's exporters and, in time, the economy.

But people with mortgages and debts most of which are denominated in dollars will have to find more pesos to keep up the payments.

Argentina debts soar

Argentina's public debt rose to $141bn (97bn) during the January to September months of 2001, official figures have revealed.

The 9.3% rise compared to a year earlier was revealed as the new President Eduardo Duhalde said Argentina cannot afford to pay its debts though technically it still has until the end of the month before it defaults.

Ahead of the news, Argentina's stock market ended Wednesday trading sharply higher, having rebounded after a sharp fall following the resignation of president Fernando de la Rua on 20 December.

The rise came after Mr Duhalde indicated that he intends to make a dramatic break from the economic policies of the past.

Micron-Hynix deal inches closer

Amid prices rises, stock market gains and signs of optimism in the semiconductor market, the world's second and third biggest memory chipmakers are inching closer to their long-mooted merger.

US firm Micron is expected to offer about $5bn to take over the core memory chip operations of South Korea's Hynix.

US factory output picks up

Hopes of an end to the US manufacturing slump have risen with an unexpectedly large rise in an influential sector index.

Factory activity as measured by the Institute for Supply Management, formerly the National Association of Purchasing Management, rose to an index level of 48.2 in December.

While the figure was below the 50 'breakeven' level, and meant that US manufacturing had suffered its 17th successive month of contraction, it was higher than Wall Street had expected.

Analysts had been expecting the index to hit only 46.

US economy turning up?

The rolls of the unemployed may be still on the rise in the US, but other economic indicators are showing encouraging signs of economic recovery, analysts say.

An upswing in manufacturing orders, a rise in consumer confidence as well as stocks, and a stable and robust housing market all have economists upbeat at the beginning of the new year.

Adding to that enthusiasm were Monday's figures showing December's manufacturing activity, known as the Purchasing Managers Index (PMI), moving closer to expansion than any time since October 2000, after 17 months of contraction.

The index of manufacturing activity, as calculated by the Institute for Supply Management (ISM), also revealed that new orders rose into expansion territory for the first time since the 11 September attacks.

French bank unions call off strike

French bank workers have decided to call off their strike after it managed to achieve only a very limited support.

The strike, which had threatened to disrupt the launch of the euro on its first working day, appeared to have little impact on business, as majority of bank branches remained open throughout the day.

France's finance minister, Laurent Fabius, said the strike was "not at all being followed", and that the protest did not cause significant trouble.

"People have a big responsibility," he said.

"Everyone has problems but one can not take the euro hostage."

Europe loses Senegal fishing rights

The European Commission has failed to secure an extension to a fishing rights accord which has allowed European vessels to fish Senegalese waters since 1997.

As a consequence, trawlers from Spain, Portugal, France, Italy and Greece have pulled in their nets and ceased operations, awaiting a resolution to the deadlock if and when talks resume next month.

The European Union (EU) had paid Senegal 48m euros for the right to fish its waters from 1997 to March 2001.

The fishing rights accord has since been extended twice. But agreement on a third extension could not be reached as the EC clashed with the Senegalese authorities over which area should be fished, and the length of rest periods to enable the fish stock to recover, a commission adviser said.

Economic challenge for Zambia

Levy Mwanawasa, newly sworn in as Zambian president, faces huge challenges in reviving the country's ailing economy.

At the time of independence in 1964, Zambia was one of Africa's richest countries, with deep copper deposits and a healthy agricultural sector.

But the economy has been ravaged by years of mismanagement and corruption, with many Zambians living on less than $1 a day.

"Zambia enjoyed the peak of its prosperity in the early 1970s," metals analyst Tony Warwick Ching told the BBC's World Business Report, crediting buoyant copper prices and high production levels.

Mr Mwanawasa, candidate for the ruling party, also faces legal challenge to his presidency, with opposition leaders planning to contest the election results in the courts, amid allegations of irregularity.

Balkans slip quietly into eurozone

The euro is now the official currency in Kosovo and Montenegro but banks report only a slow trickle of people changing old notes for new.

This could be more a reflection of the sanctity of the New Year public holiday than of any lack of faith in the new currency many people here earnestly believe will improve their chances for membership of the European Union.

At the very least, there are hopes that the euro will become a symbol of stability in Yugoslavia less than a decade after bank swindles, pyramid saving schemes and hyper-inflation wiped out people's savings.

Asia in line for telecoms boom

The telecoms services market and the information technology market is set for rapid growth in the Asia Pacific region, excluding Japan, this year.

The telecoms services market is forecast to grow 21% to $161bn (110.6bn; 180.2 euros) during 2002, researchers at International Data Corp said.

And the telecoms sector will get a further boost in the following two years, thanks to the roll out of broadband internet services and third generation mobile phone networks.

"By 2005, this market will be worth around $269bn, growing at a compound annual growth rate of 19% between 2001 and 2005," the report predicted.

UK water cooler maker buys rival

PHS Group, the country's leading supplier of plumbed-in water coolers, has bought out its main rival UK Water in a 6.4m cash-only deal.

The move marks a radical consolidation in the UK market for plumbed-in coolers, which is now shared by just three companies.

ECB set to keep rates on hold

The European Central Bank (ECB) is expected to leave eurozone interest rates unchanged when it meets later on Thursday, with the launch of euro cash continuing to be the focus of attention.

The ECB last cut interest rates in early November, when it trimmed the cost of borrowing by half a percentage point to 3.25%.

But with the changeover to euro notes and coins only just underway, analysts reckon the Bank is unlikely to make a move.

"They don't want to surprise markets in a situation where they want to create a calm environment for the introduction of euro notes and coins," said Michael Schubert, an economist at Commerzbank in Frankfurt.

Argentine cabinet takes shape

Argentina's new President Eduardo Duhalde has been putting together the government team he hopes will lead the country out of economic crisis.

Mr Duhalde was sworn in at a brief ceremony on Wednesday, before immediately entering into talks on forming a cross-party cabinet which he says will deliver a "programme of national salvation".