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 1. INTERNATIONAL   2. INDUSTRY
 3. FINANCE  4. POLICY
 5. TRADE  6. GULF

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INTERNATIONAL


July 01 - 07, 2002

MARKETS FALL ON $3.8BN WORLDCOM SCANDAL

Shares in the London stock market took a deep plunge on Wednesday in reaction to a massive accounting scandal from US giant WorldCom.

More than 35 billion pounds wiped from shares in just few hours as traders reacted to a massive accounting scandal at the WorldCom.

The market, already racked with post-Enron nerves, slumped after the telecoms giant reported that it disguised $3.8 billion (2.5 billion pounds) in expenses in what appears to be one of the largest cases of accounting fraud ever.

The falls are slightly less than the slump on September 11, when the Footsie fell 5.72 per cent which was the last time the index fell by more than 4 per cent in one day. The Footsie on Wednesday was down 188.1 points at 4,442.9, a fall of 4 per cent and its lowest since September 21. However, by midday it had pulled back slightly, down 150.6 points at 4480.4.

Just one Footsie share managed to rise, and among the sea of red, banks, telecoms and tech stocks were hard hit. Vodafone, Cable & Wireless, mmO2 and BT all fell between 3 per cent and 6 per cent.

Global markets reeled on Wednesday after US long-distance carrier WorldCom Inc. shocked investors with its disclosure of a $3.8 billion accounting scandal, one of the largest in history.

WorldCom, the second-biggest US long-distance telecoms group, on Tuesday night fired its Chief Financial Officer Scott Sullivan and said it would restate its results for the last five quarters, erasing all profits from the beginning of 2001.

Stock markets reeled from Asia to Europe to the United States, with already beleaguered telecoms stocks touching new, historic lows. Tokyo's Nikkei stock average tumbled 4 per cent to close at a four-month low, and the pan-European FTSE Eurotop 300 index was off by a similar amount about 1-1/2 hours ahead of Wall Street's opening bell. US stock indices fell on the opening bell, with the tech-heavy Nasdaq falling 3.2 per cent to 1,378.74, and the Dow Jones industrial averaging tumbling 2 per cent to 8,947.61.

FRANCE HOPES TO CALM BUDGET FEARS

France's new right-of-centre government has accused its predecessor of leaving state finances in disarray, but has promised to balance the budget by 2004 nonetheless.

According to Finance Minister Francis Mer, the French public deficit could be up to 2.6% of gross domestic product (GDP) this year, against the 1.8-1.9% forecast by the previous government, ousted in elections earlier this month.

The new government, headed by Jean-Pierre Raffarin and politically allied to President Jacques Chirac, has pledged to cut taxes, without dramatically reining in public spending.

France's European neighbours are keenly interested in its state finances, since it is coming close to breaching agreed rules on budgetary discipline a key foundation underpinning faith in the euro.

At a European summit in Seville in mid-June, France was given a little leeway in its budget strictures, a recognition that political considerations were taking priority this year.

Keen to establish a reputation for fiscal probity, Mr Mer rushed to stress that targets would still be hit.

He said that accelerating GDP growth should help balance the budget.

The French economy has been more robust than the EU average over the difficult past six months, and has avoided slipping into recession.

The government is counting on the economy growing by at least 3% this year and next.

If growth does not materialise, and France fails to balance its budget, Brussels has a range of theoretical sanctions to force it into line.

Germany and Portugal came close to being punished by Brussels earlier in the year, but were let off at the last minute.

WORLD'S RICHEST GIVE $1BN TO POOREST

The world's seven richest nations have agreed to increase debt relief for the poorest countries by $1 billion.

The seven countries which with Russia form the Group of Eight (G8) will reduce the debt repayments for up to 22 African states under the Highly Indebted Poor Countries initiative.

But aid agencies said the debt relief would barely make up for the fall in prices in commodities such as coffee and cotton on which many developing nations' economies are reliant.

The $1bn pledge came in a G8 summit in the Canadian Rocky Mountain resort of Kananaskis, as the eight national leaders prepare to meet African heads of state to discuss ways to help the poorest continent.

NO FUDGING ON EURO' - BROWN

Chancellor Gordon Brown has stressed the government's five economic tests will still be the key factor in the decision over whether Britain should join the euro.

In his keynote Mansion House speech, Mr Brown said the future of the UK's economy was crucial to any decision to join, and dismissed speculation the tests would be watered down.

The chancellor also expressed cautious optimism about the economy saying he believed Britain was "well-placed" to weather the storm of business collapses.

BANK OF ENGLAND WARNS OF RISKS

The Bank of England has warned that there are potential risks to the UK financial system from the continued fall in share prices following a series of corporate scandals in the United States.

In particular, it raises concerns about the financial health of the life-insurance industry, which it says "has generally been adversely affected by recent equity market weakness".

And it warns that the stock market falls "have also put pressure" on company pensions schemes.

SENEGAL AGREES EU FISHING DEAL

The European Union has agreed to pay Senegal 64m euros (41.2m) to exploit its fishing grounds for the next four years.

The deal ends months of uncertainty after a previous agreement expired at the end of 2001.

The EU made several concessions to reach the deal, including paying 4m euros a year more than under the previous deal.

It also bans 'pelagic' fishing, where a net is dragged by two trawlers and results in many fish being caught that are not wanted and then thrown overboard.

MAHATHIR TO STEP DOWN NEXT YEAR

Veteran Malaysian leader Mahathir Mohamad will step down as prime minister and be replaced by his deputy Abdullah Ahmad Badawi next year, his ruling party announced on Tuesday.

Party secretary general Khalil Yaacob said in a national broadcast that Mahathir's resignation would take effect after a summit meeting of the Organization of the Islamic Conference on October 24-25, 2003.

ENRON FRAUD CHARGE FOR BRITISH BANKERS

The US Department of Justice has charged three British bankers with involvement in a fraudulent investment scheme involving failed energy giant Enron.

The three men worked for National Westminster Bank and allegedly made secret investments in an Enron front company, diverting proceeds amounting to $7.3m.

JAPAN UNEMPLOYMENT HEADS HIGHER

Unemployment in Japan has gone up for the first time in five months, official figures have revealed.

The country's official unemployment rate rose to 5.4% in May from 5.2% in April, erasing hopes that the rate would fall below the psychologically important 5% mark anytime soon even though industrial output rose for the fourth month in a row in May.

The number of people who had jobs fell 1.8% during the month to 63.56 million people, the second largest monthly fall since records begun in the 1950s.

DEUTSCHE BANK TO LAY OFF 3,800 STAFF

Germany's largest bank, Deutsche Bank, has announced plans to cut 3,770 jobs. The reduction, which comes in addition to 9,200 previously announced job cuts, is part of the bank's push to slash costs in order to save 2bn euros (1.29bn; $1.97bn) a year.

NIKE PROFITS CONTINUE TO SOAR

The US sportswear and trainers maker, Nike, has reported a sharp rise in profits during the March to May quarter.

Net income for the quarter rose 28% to $208m (136m) from $162m a year earlier.

MOTOROLA TO CUT 7,000 JOBS

Motorola, the world's second-biggest maker of mobile phones, has announced plans to cut 7,000 jobs and take a $3.5bn (2.29bn) charge to pay for a massive restructuring.

PENSIONS SCANDAL COSTS 11.8BN

The Financial Services Authority (FSA) has announced that the pensions mis-selling scandal will have cost insurers and financial advisers at least 11.8bn in compensation payments.

More than one million customers who were mis-sold personal pensions and pension top-ups are in the process of receiving pay-outs.

The City watchdog said 1.7m consumers will have had their cases reviewed by the end of June and received their payments.

CAP GEMINI CUTS 5,500 JOBS

Beleaguered consultancy Cap Gemini Ernst & Young is to axe a further 5,500 jobs, as it attempts to stem a slump in demand in its core tech market.

BT BUYS SCOOT.COM FOR 5M

BT has agreed to buy online directory firm Scoot.com for 5m, in a move that will bolster its own directory business.

Scoot.com was worth 2bn at the height of the dot.com bubble, but its shares tumbled as the dot.com dream turned sour and the company was due to run out of cash.

SURPRISE JUMP IN US GROWTH

The US economy grew at its fastest rate in two years in the first quarter, revised figures show.

Gross domestic product (GDP) grew at a revised 6.1% during the first three months of this year.

This compares with an earlier estimate of 5.6% for the quarter, while growth in the last quarter of last year grew just 1.7%.

The growth can be attributed to the continued enthusiasm of the American shopper, who spent more than had previously been estimated.

Other factors at play included an increased government spend on defense.

It had originally been estimated that business investment fell 8.2%. The new figures show that it fell by just 6.2%.

Business spending is regarded by many as crucial to a sustainable economic expansion.

RATING BOOST FOR SOUTH KOREA

The credit rating agency Fitch has raised South Korea's debt rating by two notches in a move which indicates faith in the country's economic strength.

The upgrade reflects "the international financial community's firm belief that [the] economy will sustain solid economic growth despite an unfavourable external economic situation", said South Korea's ministry of finance and economy.

The rating upgrade helped lift South Korea's index as much as 2.9% to a high of 721.97 points, though it pared some of its gains to close 1.2% higher on the day.

ROCHE BECOMES BIG IN JAPAN

The Swiss pharmaceuticals giant Roche is set to become the fourth largest drugs company in the world's second largest pharmaceutical market, Japan.

The group's leap up the league table is expected after its bid for a 51% stake in Chugai Pharmaceutical was approved by shareholders.

The takeover, which would also hoist Roche back up among the world's ten leading drugs groups, could set off a wave of similar deals in the Japanese pharmaceutical sector, analysts predicted.

US INTEREST RATES KEPT ON HOLD

The US central bank has left interest rates on hold, amid concerns over falling consumer confidence, and plunging share values.

The Federal Reserve, the US central bank, retained rates at 1.75%, their lowest for 40 years.

The Fed cited continuing concerns over the pace of US economic recovery in a statement announcing the decision.

"The committee expects the rate of increase of final demand to pick up over coming quarters... but the degree of the strengthening remains uncertain," the statement said.

EURO RISES NEAR TO PARITY WITH DOLLAR

The euro has neared parity with the dollar, as the WorldCom scandal dealt another blow to the greenback.

The euro surged 1.5% in early trade on Wednesday to a 28-month high of $0.9944, after WorldCom's admission of accounting fraud trashed investor confidence in the US.

LOSS-MAKING ALCATEL STUNS MARKETS

Shares in telecom equipment maker Alcatel have plunged by more than 20%, after the firm warned it would fall into loss this year.

French Alcatel, which had previously expected to post a modest profit in 2002, said it would aim to slash costs by 12% this year and next.

This programme will cause the loss of 10,000 jobs, over and above the tens of thousands Alcatel plans to cut this year.

SOUTH KOREA BOOM ACCELERATES

South Korea's economy is likely to grow more than 6% this year, thanks to a sustained economic upturn buoyed by its experience of hosting the World Cup.

The Finance and Economy Ministry in the capital, Seoul, said it was boosting its estimate of likely economic expansion from the 5% it had previously expected.

WORLD BANK FUNDS BANGLADESHI PROJECT

The World Bank has approved almost $200m (131m) in grants and loans for renewable energy projects in Bangladesh.

"This project will support Bangladesh's efforts to raise levels of social development and economic growth by increasing access to electricity in rural areas, where 85% of the country's nearly 63m poor people live," the bank said in a statement.

The project will promote the use of solar energy in rural areas to improve the delivery of social services such as health and education.