June 03 - 09, 2002

ANALYSTS DROP JAPAN TO 'LATVIA STATUS'

Rating agency Moody's has downgraded state bonds issued by Japan — the world's second biggest economy — to the same status as those from Latvia and Poland.

Moody's researchers blamed the downgrade, by two notches, on concerns over the government's ability to solve Japan's economic malaise.

"The Japan government's current and anticipated economic policies will be insufficient to prevent continued deterioration in Japan's domestic problems," Moody's said.

The levels of debt the government has run up, after years of attempting to kick-start economic revival through large infrastructure projects, meant it was testing new economic frontiers, Friday's report said.

"Japan's general government indebtedness... will approach levels unprecedented in the post-war era in the developed world, and that as such Japan will be entering 'uncharted territory."

The news came as official data showed that the number of unemployed Japanese workers hit 3.75 million last month, up 270,000 from a year before.

The figure represented the 13th successive monthly rise in unemployment, and defied a more optimistic outlook by many analysts, including those at the Bank of Japan, over the country's economic prospects.

But many economists restated on Friday that they expected an export led recovery to ease unemployment problems.

"We believe in general the Japanese economy hit the bottom in the first quarter of this year," Junichi Makino, senior economist at Daiwa Institute of Research, said.

"It usually takes three to four quarters for unemployment rate to come down after the overall economy bottoms out," said

"We believe, by the end of this year, we will start seeing clear signs of the unemployment rate coming down."

EU JUST AVOIDS RECESSION

The European Union avoided recession during the winter depths of the economic downturn, official statistics have revealed.

The overall EU economy, which declined by 0.2% over the last three months of 2001, grew by 0.2% in the first three months of the year, European Commission economists said.

A second successive quarter of contraction would have signalled that the 15-member EU had officially entered recession.

The Commission also revised its forecast for growth in the current quarter up from 0.3-0.6% to 0.4-0.7%.

This would put Europe on course to meet its estimated growth of 1.4% over the year as whole. But Thursday's report also revealed the challenge the EU faces in matching the recovery of the US, where growth hit 1.4% over the first three months of the year alone.

The figures will add to the dilemma facing the European Central Bank which announces its latest decision on interest rates in exactly one week.

With inflation still above its target level of 2.0%, there has been speculation — reinforced by comments by some ECB board members — that interest rates will soon have to go up.

But the weakness of the European recovery, and uncertainty about the prospects for the rest of the world, could make this a risky strategy.

EU economists credited the area's return to positive growth largely to a strong performance by the construction sector, where output rose by 1.0% in the January to March period.

The financial services and business activities sector was the second strongest, recording growth of 0.5%.

Exports, which slid by 1.3% during the last three months of 2001, rose by 0.6% in the first three months of this year.

CHINA SEEKS WTO RULING ON LEGALITY

China on Monday became the latest country to ask the World Trade Organization (WTO) to rule on whether US steel tariffs conform to international trade rules, the WTO said.

Following similar moves by the European Union, South Korea and Japan, Beijing has lodged a request with the Geneva-based WTO to set up an expert panel to examine the up-to-30-per cent US tariffs on some imported steel.

A WTO spokesman said China had asked for its request to be considered by the WTO's dispute settlement body on June 7.

Pressure is mounting on the United States. Japan and South Korea said last week they would join the European Union in calling for a WTO panel to rule on the three-year tariff program.

Although Washington blocked an EU request for the establishment of a panel on Wednesday, the EU announced it would present the request again on June 3 when the US will have no right to refuse it.

ARGENTINA SCRAPS KEY ECONOMIC LAW

Argentine senators have ditched a controversial law which has been putting off international lenders.

The International Monetary Fund has made abolition of Argentina's so-called economic subversion law a condition for lending to the cash-strapped nation to restart.

The country urgently needs new money — as much as $9bn is sought — after its economy's four-year tailspin resulted in a default on $141bn of existing loans in December.

The 1974 law, which gives judges wide powers to investigate banking practices, led to fears that financiers could be scapegoated for the country's financial crisis.

AUSTRALIA AND THAILAND AGREE TALKS

Another block has been laid in the construction of Asia's economic powerhouse, with steps to free trade between Australia and Thailand.

The two countries have agreed to start talks on a rolling programme of breaking down barriers to commerce.

The proposal, covering commerce between the nations currently estimated at $3.4bn a year, could end up as Thailand's first bilateral trade deal.

Australia has a longstanding agreement with New Zealand, with a deal with Singapore set to be finalised in October, and moves afoot to boost "co-operation" with Vietnam.

The announcement also progresses moves towards liberalising commerce in the Asia-Pacific region, which accounts for almost half of world trade and output.

LONDON TECH INDEX HITS ALL-TIME LOW

British hi-tech shares have plumbed new depths as the depression about when technology earnings might recover deepened.

By the close of trading on 30 May, the TechMARK 100 index — the main gauge of tech stocks on the London Stock Exchange — was at 990.86, off 13.62 points on the day.

The finish was by some distance the lowest on record, less than half the 2,421.3 at which it ended its first day in November 1999.

The recent slide is hardly surprising, given the presence in the index over the past year of firms such as Marconi, Colt Telecom and Telewest.

In early 2000, just before the hi-tech bubble burst, the Techmark traded as high as 5,800.

DOLLAR SINKS TO 15-MONTH LOW VS EURO

The dollar sank to 15-month lows against the euro and a six-month nadir against the yen on Thursday as fresh losses on Wall Street kept the US currency pinned against the ropes.

The single European currency jumped to 0.9400 dollars — its highest level since February 2001. It later slipped back to stand at 0.9374, against 0.9260 late on Wednesday in New York. Meanwhile, the dollar tumbled to 122.85 yen — its lowest level since November — before partially recovering to 123.06, still well down on Wednesday's level of 124.39.

GOLD PRICES HIT 5-YEAR HIGH

Gold soared to its highest level in nearly five years on Wednesday as investors scrambled into the ultimate safe haven asset to protect themselves from a possible India-Pakistan war and a slumping dollar.

Gold was set or "fixed" in London at $327.05 a troy ounce, its highest fixing level since October 16, 1997.

The "fix" is a price set by market makers with the London Bullion Market Association in a wood-panelled room at merchant banker and bullion house N.M. Rothschilds. It tracks movements in the 24-hours a day spot market.

Gold's advance crowned a 17 per cent rally in the bullion price since the start of this year which has sent global equity stocks from Canada to South Africa soaring to new highs.

Spot gold closed in London at $324.50/325.00 an ounce, up from Tuesday's New York close of $324.10/324.60.

AUSTRALIAN INTEREST RATES 'TO SOAR'

Interest rates may have to rise by two percentage points in Australia to cut the risk of overheating, the country's central bank chief has warned.

The warning affirms the position of the Australian economy as one of the world's strongest, with growth hitting 3.6% for 2001-02, a year during which many other leading industrialised nations entered recession.

ITV'S GRANADA LOSES £169M

The collapse of pay-TV service ITV Digital has helped push broadcaster Granada to a £169m loss for the six months to March 2002.

SUZUKI SEALS MARUTI TAKEOVER

Suzuki Motor of Japan has gained control of India's biggest automaker, Maruti Udyog, boosting India's state enterprise privatisation programme.

Suzuki chairman Osamu Suzuki presented a cheque of 10bn rupees (£139.8m) to the Indian minister of power and heavy industries, Suresh Prabhu, in New Delhi on Thursday.

WTO HURDLES REMAIN FOR MOSCOW

Despite the announcement this week that the European Union intends to recognise that Russia has a market economy, significant obstacles remain to the country's accession to the World Trade Organisation.

Alexei Portanski, Director of the WTO office in Moscow, told on Thursday that gaining market economy status from the European Union reflects Russia's progress in pushing through economic reforms.

ACCOUNTS PROBE AT CHENEY FIRM

US oil services and engineering firm Halliburton is being investigated for its accounting practices when US Vice President Dick Cheney was at the helm.

Halliburton is the latest in a string of companies to come under fire for allegedly shielding their true financial position from investors and analysts.

Mr Cheney was chairman and chief executive of the company between 1995 and 2000 and the probe revolves around the firm's accounts in 1998.

BANK CHIEFS UPBEAT OVER KOREA

Financial chiefs have again revised upwards estimates for South Korea's economic growth, crediting thriving exports for the upgrades.

The Bank of Korea said growth would be "slightly higher" than 6% over 2002.

The estimate is the Bank's third in six months.

The Bank in December, with the world still wallowing in economic downturn, forecast growth of 3.9%, revising that figure in April to 5.7%.

The BoK's upgrade was mirrored on Tuesday by an uprated estimate from the Korea Development Bank of 6.2% growth this year.

NORTEL TO CUT 3,500 JOBS

Telecoms giant Nortel Networks has said it is to cut 3,500 jobs and may sell off its optical components business.

SAINSBURY RECOVERS

The supermarket group, Sainsbury, says its recovery plan is working. After two years of falling profits, the company is seeing a change in its fortunes. In the 12 months to March, pre-tax profits, before one-off items were up 14% at £627m.

MMO2

The British mobile phone company MMO2 has disappointed investors with its first set of results since demerging from British Telecom last year. The firm made a pre-tax loss of £873m, against a loss of £3.5bn last year.

URUGUAY PASSES TAX RISE LAW

Lawmakers in Uruguay have passed a tax bill which the International Monetary Fund (IMF) has demanded as a condition of fresh loans to the struggling South American country.

Workers held a general strike last week to protest against the bill, which will raise taxes on salaries and pensions.

Congressional approval for the bill came a day after the IMF signalled its willingness to give the Uruguay an extra $1.5bn of aid to help it cope with the financial crisis in neighbouring Argentina.

IMF DENIES TELLING MALAWI TO SELL FOOD

The International Monetary Fund (IMF) has denied that it recommended the sale of Malawi's strategic maize reserves just before a crop failure occurred.

President Bakili Muluzi declared a state of national disaster in April and has asked for $21m (£14.4m; 22.6m euros) in international assistance for food relief.

Up to 76% of Malawians lack food and more than 300 people are reported to have died of hunger this year.

FOREIGNERS SNUB MALAYSIAN MOBILE BID

Five mobile firms serve Malaysia's 23 million people International telecoms firms have turned down the chance to cash in on Malaysia's next generation of mobile phones.

Five Malaysian firms have put in bids for the third generation licences, but foreign firms have decided to steer clear.

Existing cellular operator DiGi.com, majority owned by Norway's Telenor, said it decided not to bid for "strategic" reasons.

The three 3G licences are being sold for 50m ringgit ($13.2m; £9m) each, a fraction of the price paid by many operators several years earlier during the telecoms boom.