May 13 -19, 2002

ASIAN INTEREST RATES TO REMAIN LOW

Asian interest rates should stay at their current lows until late this year despite hikes in Australia and South Korea as economic recovery remains fragile, economists said on Wednesday.

Australia and South Korea have notched better-than-expected economic growth and have a more robust domestic sector to drive growth compared with other Asian countries, they said.

Any shift by regional central banks towards higher interest rates should come only in the fourth quarter, as the economic recovery gains a more stable footing, they added.

South Korea on Tuesday raised its overnight call rate by a quarter percentage point to 4.25 per cent, becoming the first major Asian country to increase rates.

Australia's central bank on Wednesday followed suit, announcing a rise — the first in nearly two years in official interest rates of a quarter point to 4.5 per cent amid inflationary pressures and signs of overheating in some sectors.

I think the key difference is that those two countries have shown stronger-than-expected growth, said Song Seng Wun, a regional economist with G.K. Goh Research Pte. Ltd. While their growth was boosted by exports, domestic demand in the two countries, particularly South Korea, was "a lot more robust", he told AFP.

The central banks of both countries want to stay ahead of the curve. For the region, the headline GDP (gross domestic product) numbers may be improving but the quality of the growth is still at issue. It's not a full-fledged recovery, he said.

Japan, the region's sputtering economic engine, is unlikely to change monetary policy within the next 24 months, despite short-term interest rates being near zero.

UK INTEREST RATES KEPT ON HOLD

The Bank of England has announced that it is keeping UK interest rates on hold at 4%.

It is the sixth month in a row that rates have been held at this level - their lowest level for 38 years.

The Monetary Policy Committee (MPC) made its decision after figures showed that manufacturing was still struggling to recover from a downturn.

The Engineering Employers' Federation (EEF) welcomed the bank's decision.

EEF chief economist, Stephen Radley, said:

"While order books are filling up, manufacturers are still looking to repair badly damaged balance sheets.

"We applaud the Bank for giving the recovery chance to take root before acting," he added.

The EEF said that the absence of inflation anywhere but in the housing market would give the Bank of England time to assess the pace of recovery.

Ian Fletcher, chief economist at the British Chambers of Commerce, agreed: "Although the case for raising rates in mounting, we believe the Bank is correct to postpone that decision.

"The MPC should not be trying to second guess whether manufacturing recovery is on a firm footing," he added.

Most analysts believe rates will rise towards the end of the year.

David Hillier at Barclays Capital told he expected to see a 0.25% increase in July and he thought that interest rates would reach 4.75% by the end of the year.

But John Monks, the TUC general secretary, said the next rate move should be down.

ANGER GREETS US FARM AID

An international outcry has greeted the decision by the US senate to pass a subsidy bill offering US farmers $173.5bn over ten years.

The furore arose fro representatives of rich countries and poor alike.

"It is a very sad day for the poor farmers of then developing countries," said a senior World bank official, speaking on condition of anonymity.

"We are absolutely appalled," said Oxfam America policy department director Jo Marie Griegsgraber.

"Logically, it will have an adverse impact on most of the rest of the world," said Bill Reinsch, president of the National Foreign Trade Council.

Australian prime minister John Howard made it clear that the bill — which boosts crop and dairy subsidies by two thirds to shore up support in an election year — runs directly against the US's professed support for freer trade.

US BUDGET SURPLUS SHRINKS

The US budget surplus in April will be the smallest since 1995, according to the Congressional Budget Office (CBO) forecast.

A wave of income tax receipts usually boost the surplus in April.

But these receipts were drastically lower this year, according to the CBO.

The decline in income tax payments and social insurance taxes was "the largest percentage decline in decades," it said.

April is a critical month for the government's overall budget year because of the deadline for filing taxes.

Managing the US economy has been getting gradually tougher, as the government has implemented tax cuts to help boost the ailing economy whilst fighting the War on Terror.

The CBO now predicts that the budget forecast will be $68bn, almost three times lower than the $189.8bn surplus achieved in the same month the previous year.

Corporate income tax collections fell 40% to $14bn.

JAPANESE FIGURES HINT AT REVIVAL

Japan's economy could be on the verge of climbing out of recession, new government figures suggest.

The data could make life easier for beleaguered Prime Minister Junichiro Koizumi as he struggles to put together a fresh economic stimulus package.

The key number is the diffusion index, which puts together a range of indicators to come up with an estimate of whether growth or contraction is on the cards.

For the first time in 15 months the coincident index, measuring current performance, crept up from 40.0 in February to 56.3 in March, above the boom-or-bust dividing line of 50.0.

And the leading index, intended to reflect predictions for the next three to six months, leapt to 80.0, up from a revised 54.5 the previous month.

CHANGING THE GUARD AT THE FED

The Federal Reserve, the body which sets US interest rates, is getting two new members one of whom could be in the running to succeed chairman Alan Greenspan.

President George W Bush is expected to name Fed insider Donald Kohn and Princeton Professor Ben Bernanke to the seven-member board of governors of the Fed later on Wednesday.

Mr Greenspan, who has served as Fed chairman since 1987, is widely expected to retire in June 2004 at the age of 78 when his four-year term expires.

EASYJET BLASTS GO PARTNER

Stelios Haji-Ioannou, the chairman of Easyjet, has dismissed Go chief Barbara Cassani's opposition to the £400m merger of the two budget airlines, saying the business woman of the year was allowing "emotions and ego to cloud her judgement".

STOCK MARKET RALLY FIZZLES OUT

US stock markets ended the day sharply lower, dashing hopes of a sustained recovery in share prices.

The blue-chip Dow Jones index closed 104 points lower, while the Nadaq technology index lost almost 3% of its value.

Wednesday saw an explosive rally in US tech stocks, with the key Nasdaq index rising 8% following news of a threefold increase in profit at internet and telecoms equipment maker Cisco Systems.

In London, the FTSE 100 blue chip index closed 11.5 points lower at 5,198.

In Japan, the benchmark Nikkei 225 index ended its second straight session of gains up almost 1% or 112.55 points at 11,633.30.

VIRGIN MOBILE MAKES FIRST PROFIT

The company said profit before interest, tax, depreciation and amortisation was £3.4m for the first three months of the year.

ARGENTINES BARTER TO SURVIVE

In the latest of a series of personal testimonies on Argentina's crisis, psychotherapist Adriana Kundergraber describes life as "by now ex-upper middle class Argentine professional."

"Buenos Aires used to be the Paris of South America, the most cosmopolitan city, but things have got so bad that hunger has become a growing reality."

"We're permanently being confronted with homeless, with young children, with beggars asking for food — as a growing reality — it's terrible now."

"You still have areas where you can see restaurants packed," she says.

GAS GROUP WARNS ON NORTH SEA TAX

The UK gas explorer and producer, BG Group, has cheered the markets by reporting little change in its profits for the first three months of this year.

This was seen as good news because its bigger rivals in the energy sector, BP and Shell, have reported heavy falls in their earnings.

NISSAN RESULTS SHINE

Results out on Thursday showed that the company made a 490bn yen ($3.8bn; £2.6bn) operating profit in the year to March, more than even the most optimistic estimates, and up 69% on the year before.

INDIA SEES JUMP IN FOREIGN INVESTMENT

Foreign investment in India in the year to March shot up by 65% to $4.06bn (£2.8bn) with the information technology sector the main driving force, according to government figures.

The Indian government has an annual target of $10bn for foreign direct investment (FDI), but has recently managed only about $3bn a year.

WORLD CUP PROMPTS MARKETING SPREE

The football World Cup finals to be staged in Japan and Korea have generated a frenzy of commercial exploitation.

In the past, products endorsed by players and teams bore some relation to the game — but that is no longer the case.

We are accustomed to stars such as David Beckham promoting products but even the English national team coach, Sven Goran Eriksson, has been taking advantage of the occasion.

Although Mr Eriksson may be aging and balding, he apparently has enough glamour to be earning millions of dollars endorsing products.

MAURITIUS TO INVEST IN 'CYBER CITIES'

Mauritius is to look to the information technology sector to help boost its flagging economic growth.

It is planning the creation of several "cyber cities" where hi-tech facilities are concentrated and wants to be seen as a "cyber island" Prime Minister Anerood Jugnauth told.

ROYAL AND SUN ALLIANCE

The group made an operating profit of £160m in the first three months of the year, compared with £163m in the same period in 2001. It made a pre-tax loss of £72m, compared with £311m last time.

HOUSE PRICE GROWTH RECOVERS

House prices in England and Wales are growing strongly again after a slowdown in late 2001, an authoritative survey has confirmed.

The cost of the average house in England and Wales rose to £121,881 between January and March 2002, 10.23% up on the same period last year, the Land Registry said in its latest report.

JOBS EVAPORATE IN AUSTRALIA

The ranks of Australia's jobless swelled unexpectedly in April, just a day after the country's central bank began tightening interest rates to keep a lid on the consumer boom.

The seasonally adjusted figures showed that a net 43,500 jobs disappeared last month, contrary to expectations of a slight rise in employment.

But a fall in the number of people looking for work meant the headline rate stayed steady at 6.3%, lower than at any time since January 2001.

OUTPUT BLOW TO UK MANUFACTURING

The UK's struggling manufacturing sector has suffered a set-back with an unexpected fall in output in March, official figures show.

Analysts had expected to see a rise of 0.3% in manufacturing output in the last month, but Office for National Statistics (ONS) data showed it shrank by 0.8%.

Industrial output, which includes oil, gas and utilities, was down 0.4%.

INVESTORS BET ON GRANADA-CARLTON MERGER

Shares in ITV's two biggest companies, Granada and Carlton, have jumped because investors now expect them to merge.

The UK government cleared the way for a merger or takeover in its draft Communications Bill, published on Tuesday.

US JEWELLERY FIRM RESUMES TANZANITE SALES

New rules govern the mining of Tanzanite Zales, the owner of some of the leading US shopping mall jewellery stores, has become the first retailer to lift the boycott of the gemstone Tanzanite.

Zales, Tiffany and QVC — who make up the world's largest market for Tanzanite — stopped selling the gemstone last year after The Wall Street Journal claimed proceeds from its sale were funding supporters of Osama bin Laden.

GHANA RECEIVES DEBT RELIEF BOOST

The African Development Bank (ADB) has said it will write off four fifths of the money owed to it by Ghana.

The $131m (£90m) debt cancellation came less than a week after a visit to the country by the managing director of the International Monetary Fund (IMF), Horst Koehler.

The ADB said Ghana was eligible for debt relief under an IMF and World Bank scheme for so-called Heavily Indebted Poor Countries.

"With this reduction, Ghana will be relieved of 80% of its obligations on the annual servicing of its debt to the ADB group," the Development Bank said.

The debt relief scheme aims to relieve poverty in countries committed to economic reforms.