U.S. Retailers’ Sales Rise at Fastest Pace in 4 Years

July 7 (Bloomberg) -- U.S. retailers’ sales are growing at the fastest pace in four years, a sign consumers may be overcoming concern about unemployment and depressed home values.
Sales probably expanded at an average monthly rate of 4 percent in the first five months of the retail fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said in advance of its June report tomorrow. Nordstrom Inc. and Kohl’s Corp. are among chains that will report June sales increases at stores open at least a year, according to analysts’ estimates.
Retailers may have bucked last month’s drop in consumer confidence that threatens to temper the rebound. The year-to- date growth in sales shows that spending, a key driver of the U.S. economy, is faring better than many investors are betting, said Michael Niemira, the New York-based ICSC’s chief economist.
“The sales results have been uneven, which makes people worry about the recovery,” Niemira said in a telephone interview. “If you look at the underlying growth rate, it suggests a relatively healthy, moderate pace of spending for the remainder of the year.”
In the current fiscal year, the ICSC’s monthly number swung as high as 9 percent in March, then receded to a 0.8 percent gain in April, partly because of an earlier Easter.
June sales probably came in at the high end of a projected
3 percent to 4 percent range, the ICSC said today.

Luxury, Wholesale

The sales growth has been driven by a 4.2 percent increase at wholesale clubs, excluding gasoline sales, and an 8 percent jump at luxury chains this year, according to the ICSC. Wealthy consumers tend to “come out of hibernation” first after a recession, and the clubs are luring value-seeking customers, Niemira said.
“Our customers in the U.S. are feeling more confident than a year ago, tied to improved levels of net worth,” Tiffany & Co. Chief Financial Officer James Fernandez told an investors’
conference June 30. “It’s probably also true, and not surprising, that economic issues and stock-market volatility still affect consumer psychology.”
The potential spoiler remains a lack of U.S. jobs.
Employment fell in June for the first time this year, reflecting a drop in federal census workers and a smaller-than-forecast gain in the private sector, the Labor Department said July 2.
Unemployment was one reason Deborah L. Weinswig, a retail analyst at Citigroup Inc., lowered her stock price forecasts and earnings estimates for Macy’s Inc. and other retailers.
“We are tempering our outlook for retail sales for the back half of 2010 based on mounting pressures against the consumer,”
the New York-based analyst wrote in a July 5 report. She also cited a lack of consumer credit, less home equity, and tax increases.

Wary Investors

The Standard & Poor’s 500 retail index rose 2.4 percent today. The 31-member index has declined 4.4 percent this year after surging 47 percent in 2009.
“Investors seem to have given up on the consumers,” Bill Dreher, an analyst with Deutsche Bank AG in New York, said on a July 1 conference call with clients. “Most of our retail operators are very bullish.”
June sales reports will meet or beat analysts’ estimates, and the positive comparable-sales trend will continue, Dreher predicted. Retailers are well-positioned for profitability, with inventories and operating expenses tightly controlled, he said.
Nordstrom will report a same-store sales increase of 11 percent for June and Kohl’s and Macy’s will post gains of 8 percent, Dreher estimated.
Consumer spending accounts for about two-thirds of the U.S.
economy. The Conference Board’s confidence index slumped to 52.9 in June from a revised 62.7 in May, the New York-based private research group said June 29. Same-store sales are a key indicator of a retailer’s growth because they exclude results from new and closed locations.

Year-Earlier Declines

The chains’ numbers don’t tell the whole picture because some retailers, including Wal-Mart Stores Inc., the world’s largest, and New York-based Tiffany, don’t post figures monthly, and the reports don’t include all spending online.
The industry’s latest gains look better partly because they are coming off steep declines a year earlier, and while the growth rates have improved, many retailers haven’t recovered their earlier sales volumes, Niemira said.
Sales in 2010 will grow 3.5 percent to 4.5 percent at the more than 30 chains it tracks, the ICSC predicted in mid-May, faster than its January projection of 3 percent to 3.5 percent.
An increase within the latest forecasted range would be the largest since 2006. Those sales dropped 1.6 percent last year.
“These growth rates are the best we’ve seen in several years, after a multiyear slump,” Craig Johnson, president of Customer Growth Partners LLC, a consulting firm in New Canaan, Connecticut, said in a July 2 telephone interview. “Some of the analysts get caught up in the month-to-month comparable sales, and they can be misleading.”

Malaysia Equity Preview - June 29,2010

June 29 (Bloomberg) -- The following companies may have unusual price changes in Malaysia trading. Stock symbols are in parentheses, and share prices are from the most recent close.
Malaysia’s FTSE Bursa Malaysia KLCI Index dropped 0.1 percent to 1,325.54.

Aeon Co. (M) Bhd. (AEON MK): The Malaysian unit of Japanese retailer Aeon Co. said it agreed to buy 17.3 acres of land in Perak state for 27.1 million ringgit ($8.4 million). Aeon plans to build a shopping mall on the site, it said in a statement.
Aeon was unchanged at 4.90 ringgit.

Atlan Holdings Bhd. (ALN MK): The electronics and stamped metal components maker said it’s proposing a reverse takeover of Esmart Holdings Ltd. to give the company greater access to “alternative funding options” in the Singapore market. Atlan will inject two subsidiaries, DFZ Capital Bhd. and Darul Metro Sdn Bhd into Esmart, according to a statement to the Kuala Lumpur Stock Exchange today. Atlan was unchanged at 3.25 ringgit on June 25. DFZ was unchanged at 3.27 ringgit. Both stocks were suspended yesterday.

Kencana Petroleum Bhd. (KEPB MK): The oil and gas services provider said profit in the third quarter ended April 30 dropped
13 percent from a year earlier to 31.2 million ringgit. Kencana was unchanged at 1.47 ringgit.

Malayan Banking Bhd. (MAY MK): The Employees Provident Fund, Malaysia’s largest pension fund, had net sales of 7.7 million shares in Malayan Banking, the nation’s biggest bank, a stock exchange filing showed. The sales, made between June 21 and 22, trimmed the fund’s stake to 10.8 percent, according to the filing. Maybank, as the lender is known, added 0.1 percent to 7.59 ringgit.

UMW Holdings Bhd. (UMWH MK): The vehicle assembler said it viewed losses at its oil and gas division as a “temporary setback” and the company is in the final stages of negotiations to lease its jack-up drilling rigs. UMW doesn’t need to make provisions for the losses, it said in a statement. UMW was unchanged at 6.32 ringgit.

Zelan Bhd. (ZELAN MK): The builder said it sold 9.4 million shares of IJM Corp. (IJM MK) for 45.5 million ringgit or at an average price of 4.85 ringgit a share. Zelan will book a gain of
6.5 million ringgit at the group level from the sale, it said in a statement. The money raised will be used to pare debt, the company said. Zelan gained 1.9 percent to 54 sen. IJM rose 0.4 percent to 4.93 ringgit.

George Soros: We Are Just Entering "Act 2" Of The Crisis, And We're Totally Screwed

George Soros recently gave a speech at a conference in Vienna. Here's a transcript, courtesy of Australia's The Age. We've highlighted the important bits.

In the week following the bankruptcy of Lehman Brothers on Sept. 15, 2008 — global financial markets actually broke down, and by the end of the week, they had to be put on artificial life support. The life support consisted of substituting sovereign credit for the credit of financial institutions, which ceased to be acceptable to counterparties.

As Mervyn King of the Bank of England brilliantly explained, the authorities had to do in the short term the exact opposite of what was needed in the long term: they had to pump in a lot of credit to make up for the credit that disappeared, and thereby reinforce the excess credit and leverage that had caused the crisis in the first place. Only in the longer term, when the crisis had subsided, could they drain the credit and re-establish macroeconomic balance.

This required a delicate two-phase maneuver just as when a car is skidding. First you have to turn the car into the direction of the skid and only when you have regained control can you correct course.

The first phase of the maneuver has been successfully accomplished — a collapse has been averted. In retrospect, the temporary breakdown of the financial system seems like a bad dream. There are people in the financial institutions that survived who would like nothing better than to forget it and carry on with business as usual. This was evident in their massive lobbying effort to protect their interests in the Financial Reform Act that just came out of Congress. But the collapse of the financial system as we know it is real, and the crisis is far from over.

Indeed, we have just entered Act II of the drama, when financial markets started losing confidence in the credibility of sovereign debt. Greece and the euro have taken center stage, but the effects are liable to be felt worldwide. Doubts about sovereign credit are forcing reductions in budget deficits at a time when the banks and the economy may not be strong enough to permit the pursuit of fiscal rectitude. We find ourselves in a situation eerily reminiscent of the 1930s. Keynes has taught us that budget deficits are essential for counter cyclical policies, yet many governments have to reduce them under pressure from financial markets. This is liable to push the global economy into a double dip.

It is important to realize that the crisis in which we find ourselves is not just a market failure but also a regulatory failure, and even more importantly, a failure of the prevailing dogma about financial markets. I have in mind the Efficient Market Hypothesis and Rational Expectation Theory. These economic theories guided, or more exactly misguided, both the regulators and the financial engineers who designed the derivatives and other synthetic financial instruments and quantitative risk management systems which have played such an important part in the collapse. To gain a proper understanding of the current situation and how we got to where we are, we need to go back to basics and re-examine the foundation of economic theory.

I have developed an alternative theory about financial markets which asserts that financial markets do not necessarily tend toward equilibrium; they can just as easily produce asset bubbles. Nor are markets capable of correcting their own excesses. Keeping asset bubbles within bounds have to be an objective of public policy. I propounded this theory in my first book, “The Alchemy of Finance,” in 1987. It was generally dismissed at the time, but the current financial crisis has proven, not necessarily its validity, but certainly its superiority to the prevailing dogma.

Let me briefly recapitulate my theory for those who are not familiar with it. It can be summed up in two propositions. First, financial markets, far from accurately reflecting all the available knowledge, always provide a distorted view of reality. This is the principle of fallibility. The degree of distortion may vary from time to time. Sometimes it’s quite insignificant, at other times it is quite pronounced. When there is a significant divergence between market prices and the underlying reality I speak of far from equilibrium conditions. That is where we are now.

Second, financial markets do not play a purely passive role; they can also affect the so-called fundamentals they are supposed to reflect. These two functions that financial markets perform work in opposite directions. In the passive or cognitive function, the fundamentals are supposed to determine market prices. In the active or manipulative function market, prices find ways of influencing the fundamentals. When both functions operate at the same time, they interfere with each other. The supposedly independent variable of one function is the dependent variable of the other, so that neither function has a truly independent variable. As a result, neither market prices nor the underlying reality is fully determined. Both suffer from an element of uncertainty that cannot be quantified. I call the interaction between the two functions reflexivity. Frank Knight recognized and explicated this element of unquantifiable uncertainty in a book published in 1921, but the Efficient Market Hypothesis and Rational Expectation Theory have deliberately ignored it. That is what made them so misleading.

Reflexivity sets up a feedback loop between market valuations and the so-called fundamentals which are being valued. The feedback can be either positive or negative. Negative feedback brings market prices and the underlying reality closer together. In other words, negative feedback is self-correcting. It can go on forever, and if the underlying reality remains unchanged, it may eventually lead to an equilibrium in which market prices accurately reflect the fundamentals. By contrast, a positive feedback is self-reinforcing. It cannot go on forever because eventually, market prices would become so far removed from reality that market participants would have to recognize them as unrealistic. When that tipping point is reached, the process becomes self-reinforcing in the opposite direction. That is how financial markets produce boom-bust phenomena or bubbles. Bubbles are not the only manifestations of reflexivity, but they are the most spectacular.

In my interpretation equilibrium, which is the central case in economic theory, turns out to be a limiting case where negative feedback is carried to its ultimate limit. Positive feedback has been largely assumed away by the prevailing dogma, and it deserves a lot more attention.

I have developed a rudimentary theory of bubbles along these lines. Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. When a positive feedback develops between the trend and the misconception, a boom-bust process is set in motion. The process is liable to be tested by negative feedback along the way, and if it is strong enough to survive these tests, both the trend and the misconception will be reinforced. Eventually, market expectations become so far removed from reality that people are forced to recognize that a misconception is involved. A twilight period ensues during which doubts grow and more and more people lose faith, but the prevailing trend is sustained by inertia. As Chuck Prince, former head of Citigroup, said, “As long as the music is playing, you’ve got to get up and dance. We are still dancing.” Eventually a tipping point is reached when the trend is reversed; it then becomes self-reinforcing in the opposite direction.

Typically bubbles have an asymmetric shape. The boom is long and slow to start. It accelerates gradually until it flattens out again during the twilight period. The bust is short and steep because it involves the forced liquidation of unsound positions. Disillusionment turns into panic, reaching its climax in a financial crisis.

The simplest case of a purely financial bubble can be found in real estate. The trend that precipitates it is the availability of credit; the misconception that continues to recur in various forms is that the value of the collateral is independent of the availability of credit. As a matter of fact, the relationship is reflexive. When credit becomes cheaper, activity picks up and real estate values rise. There are fewer defaults, credit performance improves, and lending standards are relaxed. So at the height of the boom, the amount of credit outstanding is at its peak, and a reversal precipitates false liquidation, depressing real estate values.

The bubble that led to the current financial crisis is much more complicated. The collapse of the subprime bubble in 2007 set off a chain reaction, much as an ordinary bomb sets off a nuclear explosion. I call it a superbubble. It has developed over a longer period of time, and it is composed of a number of simpler bubbles. What makes the superbubble so interesting is the role that the smaller bubbles have played in its development.

The prevailing trend in the superbubble was the ever-increasing use of credit and leverage. The prevailing misconception was the belief that financial markets are self-correcting and should be left to their own devices. President Reagan called it the “magic of the marketplace,” and I call it market fundamentalism. It became the dominant creed in the 1980s. Since market fundamentalism was based on false premises, its adoption led to a series of financial crises. Each time, the authorities intervened, merged away, or otherwise took care of the failing financial institutions, and applied monetary and fiscal stimuli to protect the economy. These measures reinforced the prevailing trend of ever-increasing credit and leverage, and as long as they worked, they also reinforced the prevailing misconception that markets can be safely left to their own devices. The intervention of the authorities is generally recognized as creating amoral hazard; more accurately it served as a successful test of a false belief, thereby inflating the superbubble even further.

It should be emphasized that my theories of bubbles cannot predict whether a test will be successful or not. This holds for ordinary bubbles as well as the superbubble. For instance, I thought the emerging market crisis of 1997-98 would constitute the tipping point for the superbubble, but I was wrong. The authorities managed to save the system and the superbubble continued growing. That made the bust that eventually came in 2007-8 all the more devastating.

What are the implications of my theory for the regulation of the financial system?

First and foremost, since markets are bubble-prone, the financial authorities have to accept responsibility for preventing bubbles from growing too big. Alan Greenspan and other regulators have expressly refused to accept that responsibility. If markets can’t recognize bubbles, Greenspan argued, neither can regulators — and he was right. Nevertheless, the financial authorities have to accept the assignment, knowing full well that they will not be able to meet it without making mistakes. They will, however, have the benefit of receiving feedback from the markets, which will tell them whether they have done too much or too little. They can then correct their mistakes.

Second, in order to control asset bubbles it is not enough to control the money supply; you must also control the availability of credit. This cannot be done by using only monetary tools; you must also use credit controls. The best-known tools are margin requirements and minimum capital requirements. Currently, they are fixed irrespective of the market’s mood, because markets are not supposed to have moods. Yet they do, and the financial authorities need to vary margin and minimum capital requirements in order to control asset bubbles.

Regulators may also have to invent new tools or revive others that have fallen into disuse. For instance, in my early days in finance, many years ago, central banks used to instruct commercial banks to limit their lending to a particular sector of the economy, such as real estate or consumer loans, because they felt that the sector was overheating. Market fundamentalists consider that kind of intervention unacceptable, but they are wrong. When our central banks used to do it, we had no financial crises to speak of. The Chinese authorities do it today, and they have much better control over their banking system. The deposits that Chinese commercial banks have to maintain at the People’s Bank of China were increased 17 times during the boom, and when the authorities reversed course, the banks obeyed them with alacrity.

Third, since markets are potentially unstable, there are systemic risks in addition to the risks affecting individual market participants. Participants may ignore these systemic risks in the belief that they can always dispose of their positions, but regulators cannot ignore them because if too many participants are on the same side, positions cannot be liquidated without causing a discontinuity or a collapse. They have to monitor the positions of participants in order to detect potential imbalances. That means that the positions of all major market participants, including hedge funds and sovereign wealth funds, need to be monitored. The drafters of the Basel Accords made a mistake when they gave securities held by banks substantially lower risk ratings than regular loans: they ignored the systemic risks attached to concentrated positions in securities. This was an important factor aggravating the crisis. It has to be corrected by raising the risk ratings of securities held by banks. That will probably discourage loans, which is not such a bad thing.

Fourth, derivatives and synthetic financial instruments perform many useful functions, but they also carry hidden dangers. For instance, the securitization of mortgages was supposed to reduce risk through geographical diversification. In fact, it introduced a new risk by separating the interest of the agents from the interest of the owners. Regulators need to fully understand how these instruments work before they allow them to be used, and they ought to impose restrictions guard against those hidden dangers. For instance, agents packaging mortgages into securities ought to be obliged to retain sufficient ownership to guard against the agency problem.

Credit-default swaps (C.D.S.) are particularly dangerous. They allow people to buy insurance on the survival of a company or a country while handing them a license to kill. C.D.S. ought to be available to buyers only to the extent that they have a legitimate insurable interest. Generally speaking, derivatives ought to be registered with a regulatory agency just as regular securities have to be registered with the S.E.C. or its equivalent. Derivatives traded on exchanges would be registered as a class; those traded over-the-counter would have to be registered individually. This would provide a powerful inducement to use exchange traded derivatives whenever possible.

Finally, we must recognize that financial markets evolve in a one-directional, nonreversible manner. The financial authorities, in carrying out their duty of preventing the system from collapsing, have extended an implicit guarantee to all institutions that are “too big to fail.” Now they cannot credibly withdraw that guarantee. Therefore, they must impose regulations that will ensure that the guarantee will not be invoked. Too-big-to-fail banks must use less leverage and accept various restrictions on how they invest the depositors’ money. Deposits should not be used to finance proprietary trading. But regulators have to go even further. They must regulate the compensation packages of proprietary traders to ensure that risks and rewards are properly aligned. This may push proprietary traders out of banks, into hedge funds where they properly belong. Just as oil tankers are compartmentalized in order to keep them stable, there ought to be firewalls between different markets. It is probably impractical to separate investment banking from commercial banking as the Glass-Steagall Act of 1933 did. But there have to be internal compartments keeping proprietary trading in various markets separate from each other. Some banks that have come to occupy quasi-monopolistic positions may have to be broken up.

While I have a high degree of conviction on these five points, there are many questions to which my theory does not provide an unequivocal answer. For instance, is a high degree of liquidity always desirable? To what extent should securities be marked to market? Many answers that followed automatically from the Efficient Market Hypothesis need to be re-examined.

It is clear that the reforms currently under consideration do not fully satisfy the five points I have made, but I want to emphasize that these five points apply only in the long run. As Mervyn King explained, the authorities had to do in the short run the exact opposite of what was required in the long run. And as I said earlier, the financial crisis is far from over. We have just ended Act II. The euro has taken center stage, and Germany has become the lead actor. The European authorities face a daunting task: they must help the countries that have fallen far behind the Maastricht criteria to regain their equilibrium while they must also correct the deficiencies of the Maastricht Treaty which have allowed the imbalances to develop. The euro is in what I call a far-from-equilibrium situation. But I prefer to discuss this subject in Germany, which is the lead actor, and I plan to do so at the Humboldt University in Berlin on June 23. I hope you will forgive me if I avoid the subject until then.

Malaysia Equity Preview - June 25,2010

June 25 (Bloomberg) -- The following companies may have unusual price changes in Malaysia trading. Stock symbols are in parentheses, and share prices are from the most recent close.
Malaysia’s FTSE Bursa Malaysia KLCI Index fell 0.3 percent to 1,325.87.

Genetec Technology Bhd. (GENE MK): The Malaysian industrial automated equipment maker said it won orders worth 13.5 million ringgit ($4.2 million) from its existing clients in the hard disk drive industries. Genetec dropped 2 percent to 25 sen.

Gamuda Bhd. (GAM MK): The construction and infrastructure company said third-quarter net income rose 58 percent from a year earlier to 73 million ringgit on higher contributions from all its divisions. Construction projects are progressing on schedule and the property market is recovering, it said in a statement. Gamuda added 0.3 percent to 3.21 ringgit.

Goldis Bhd. (GOLD MK): The investment company and information technology services provider said profit in the first quarter ended April 30 fell 49 percent from a year earlier to 4.24 million ringgit. Goldis was unchanged at 1.29 ringgit.

IJM Land Bhd. (IJMLD MK): The Malaysian property developer said it agreed to sell a company that owns a shopping mall in Melaka state for 66.3 million ringgit. The stock lost 1.8 percent to 2.16 ringgit.

IOI Corp. (IOI MK): The Employees Provident Fund, Malaysia’s largest pension fund, disclosed net sales of 3.4 million shares in IOI, the nation’s second-biggest listed palm oil producer, a stock exchange filing showed. The sales, made between June 17 and 18, trimmed the fund’s stake to 13.5 percent, according to the filing. IOI added 0.4 percent to 5.11 ringgit.

KFC Holdings (Malaysia) Bhd. (KFC MK): The country’s biggest fast-food operator said it bought 4.6 million shares in Al-’Aqar KPJ REIT (AQAR MK), an Islamic property trust, for 4.86 million ringgit. KFC bought the shares in the open market, it said in a statement. KFC added 0.8 percent to 10.06 ringgit.

SapuraCrest Petroleum Bhd. (SCRES MK): The Malaysian oil and gas services provider said profit in the first quarter ended April 30 jumped 99 percent from a year earlier to 50.7 million ringgit on higher sales. The stock dropped 0.5 percent to 2.23 ringgit.

Zeti Says Malaysian Exchange Rate Policy to Remain, Reuters Says

June 24 (Bloomberg) -- Malaysian central bank Governor Zeti Akhtar Aziz said the country will stick to its exchange rate regime as she didn’t expect a more flexible yuan policy to have an impact in the region’s financial markets, according to a Reuters report carried in the Star newspaper.
European debt woes haven’t posed a threat to market stability and the central bank would only consider intervening in the currency market if there were disorderly market conditions, the report said, citing Zeti.

Malaysia credit outlook 'stable': Moody's

Malaysia’s sovereign credit outlook is “stable” and “adequately supported by favorable expectations” for economic performance and policy management, Moody’s Investors Service said in a report today.

The country’s A3 rating has been underpinned through the global crisis by its “strong” external position, “deep and liquid” domestic capital markets and “well-managed” financial system, Moody’s said. -- Bloomberg

Updata: 10th Malaysia Plan (2)

Malaysia has identified 52 high- impact projects worth 63 billion ringgit to implement, Prime Minister Najib Razak said in parliament in Kuala Lumpur today.
They include seven highway projects at an estimated cost of
19 billion ringgit, he said in his speech. The government also plans two coal electricity generation plants at a cost of 7 billion ringgit, he said.

Malaysia plans to establish a 500 million-ringgit Mudharabah Innovation Fund to provide risk capital to government venture capital funds, Prime Minister Najib Razak said in a speech today in Kuala Lumpur.
This will bridge the financing gap betwen the early stage of commercialization and venture capital financing for high- technology products, he said.

Malaysia has earmarked plans to develop the Malaysian Rubber Board’s land in Sungai Buloh at an estimated cost of 10 billion ringgit, Prime Minister Najib Razak said in parliament in Kuala Lumpur today.
The land covers an area of 3,300 acres, he said in his speech.

Updata: 10th Malaysia Plan

Malaysia will unveil its economic transformation program in October, Prime Minister Najib Razak said in parliament in Kuala Lumpur today.
Malaysia will set up an economic transformation unit to plan and coordinate the implementation and development of the government’s so-called national key economic areas aimed at generating high income, he said.

Malaysia will target private investment growth of 12.8 percent a year, Prime Minister Najib Razak said as he unveiled the nation’s five-year development plan in Kuala Lumpur today.
The country aims to generate 115 billion ringgit in private investments a year, Najib said.

Malaysia’s government expects economic growth to average 4.2 percent in the 2006-2010 period, Prime Minister Najib Razak said in Kuala Lumpur today.
Gross national income per capita may reach 26,420 ringgit in 2010, Najib said as he unveiled the nation’s five-year plan in parliament.

Malaysia Equity Preview - June 4,2010

June 4 (Bloomberg) -- The following companies may have unusual price changes in Malaysia trading. Stock symbols are in parentheses, and share prices are from the most recent close.
Malaysia’s FTSE Bursa Malaysia KLCI Index rose 1.4 percent to 1,294.44.

Axis Real Estate Investment Trust (AXRB MK): The Islamic office and industrial REIT said it agreed to buy two industrial properties in the states of Selangor for 134 million ringgit
($41 million). The company also may raise about 130.1 million ringgit from a private share placement to repay debt, it said in a statement. The stock fell 1 percent to 2 ringgit.

Boustead Heavy Industries Corp. (BHIC MK): The Malaysian shipbuilding and engineering company said it agreed to form a joint venture with two companies including Eurocopter Malaysia Sdn. to maintain, repair and overhaul rotary and fixed wing aircrafts. Boustead climbed 2.5 percent to 3.69 ringgit on June 2.

Kenmark Industrial Bhd. (KIC MK): The furniture maker said businessman Ishak Ismail has bought a 32 percent stake in the company and it’s in talks with receivers to resume business operations at its paper unit. Kenmark also appointed a special auditor to undertake an investigation into the financials of the company to identify any potential irregularities, it said in a statement. Kenmark gained 92 percent to 11.5 sen on June 2 before its shares were suspended.

Mega First Corp. (MFCB MK): The Malaysian heavy equipment manufacturer, said it signed a preliminary agreement with Electricite Du Laos to develop a hydropower project in Laos.
Mega First added 1.3 percent to 1.61 ringgit.

SP Setia Bhd. (SPSB MK): The Employees Provident Fund, Malaysia’s largest pension fund, disclosed net purchases of 1.2 million shares in the nation’s biggest property developer, a stock exchange filing showed. The purchases increased the fund’s stake to 15.8 percent. SP Setia rose 1.8 percent to 3.98 ringgit.

Malaysia Equity Preview - June 1,2010

June 1 (Bloomberg) -- The following companies may have unusual price changes in Malaysia trading. Stock symbols are in parentheses, and share prices are from the most recent close.
Malaysia’s FTSE Bursa Malaysia KLCI Index rose 1.3 percent to 1,285.01.

AirAsia Bhd. (AIRA MK): Southeast Asia’s largest budget carrier reported a 10 percent increase in first-quarter profit after flying more passengers and added routes. Net income totaled 224.1 million ringgit ($69 million) in the three months ended March, compared with 203.2 million ringgit the year before, it said in a statement. AirAsia gained 4.3 percent to 1.22 ringgit.

Affin Holdings Bhd. (AHB MK): The banking group part-owned by Hong Kong’s Bank of East Asia Ltd. said it submitted an application to Malaysia’s central bank to commence takeover talks with EON Capital Bhd. (EON MK) and its major shareholders.
Affin added 0.7 percent to 2.90 ringgit. EON gained 2 percent to
7.01 ringgit.

Alliance Financial Group Bhd. (AFG MK): The banking group said fourth-quarter net income surged to 77.3 million ringgit from 897,000 ringgit a year earlier, after net interest income rose and provisions for bad debts declined. Alliance gained 1.1 percent to 2.78 ringgit.

Maxis Bhd. (MAXIS MK): Malaysia’s biggest mobile-phone operator posted a profit of 552 million ringgit in the first quarter compared with a loss of 42 million ringgit a year earlier after adding more customers to its wireless broadband services. Maxis slid 0.4 percent to 5.22 ringgit.

RHB Capital Bhd. (RHBC MK): Malaysia’s fourth-largest banking group said first-quarter net income rose 53 percent from a year earlier to 349.7 million ringgit, after net interest income increased and bad debt provisions dropped. RHB Capital added 0.2 percent to 5.75 ringgit.

Sealink International Bhd. (SELI MK): The Malaysian builder and operator of offshore marine vessels said it agreed to hire advisors to conduct a feasibility study on its plan to list a shipbuilding division. The company is considering “several locations” for the listing, it said in a statement. Sealink added 2.3 percent to 66 sen.

Ta Ann Holdings Bhd. (TAH MK): The Malaysian timber producer said it plans to give shareholders one new share for every five held as part of a bonus issue. Ta Ann advanced 2.2 percent to 5.08 ringgit.

Malaysia Stocks

May 31 (Bloomberg) -- Malaysia’s FTSE Bursa Malaysia KLCI Index rose 15.85, or 1.3 percent, to close at 1,285.01, its highest close since May 21. The gauge slid 4.6 percent this month, its biggest monthly decline since a 15 percent slump in October.

Axiata Group Bhd. (AXIATA MK), a mobile-phone operator, rose 2.2 percent to 3.77 ringgit, its highest close since May 18.
The company said first-quarter profit surged more than 14-fold from a year earlier to 921.5 million ringgit ($280 million), bolstered by income from its overseas units and the sale of shares in an Indonesian subsidiary.

Genting Bhd. (GENT MK), Asia’s second-biggest publicly traded casino operator, added 1 percent to 6.80 ringgit, its highest level since May 18. The company said first-quarter profit rose 9 percent to 232.4 million ringgit, helped by revenue from its new gambling resort in Singapore. The company’s casino and hotel unit Genting Malaysia Bhd. (GENM MK) gained 4.9 percent to 2.78 ringgit.

Sime Darby Bhd. (SIME MK), the world’s biggest listed palm oil producer, dropped 1 percent to 7.75 ringgit, the worst performer on the stock index today. The company posted its first quarterly loss in more than a decade after cost overruns prompted the company to remove its chief executive officer. The third-quarter net loss was 308.6 million ringgit, compared with a profit of 150.6 million ringgit a year earlier, the company said in a statement.

Telekom Malaysia Bhd. (T MK), a fixed-line phone and internet operator, advanced 2.8 percent to 3.35 ringgit, its largest gain since March 23, after saying first-quarter net income jumped to 242.9 million ringgit from 27.7 million ringgit a year ago.

Zelan Bhd. (ZELN MK), a builder, tumbled 9.5 percent to
47.5 sen, its lowest close since March 19, 2009, after its fourth-quarter loss widened to 184.3 million ringgit from 57.5 million ringgit a year earlier on cost overruns in some of its overseas projects.

Malaysia Equity Preview - May 31,2010

May 31 (Bloomberg) -- The following companies may have unusual price changes in Malaysia trading. Stock symbols are in parentheses, and share prices are from the most recent close.
Malaysia’s FTSE Bursa Malaysia KLCI Index rose 1.6 percent to
1,269.16 on May 27. The market was closed on May 28 for a public holiday.

Axiata Group Bhd. (AXIATA MK): The mobile-phone operator said first-quarter profit surged more than 14-fold from a year earlier to 921.5 million ringgit ($280 million), bolstered by income from its overseas units and the sale of shares in an Indonesian subsidiary. Axiata climbed 0.5 percent to 3.69 ringgit.

Genting Bhd. (GENT MK): Asia’s second-biggest publicly traded casino operator said first-quarter profit rose 9 percent to 232.4 million ringgit, helped by revenue from its new gambling resort in Singapore. Genting added 2.6 percent to 6.73 ringgit.

Sime Darby Bhd. (SIME MK): The world’s biggest listed palm oil producer posted its first quarterly loss in more than a decade after cost overruns prompted the company to remove its chief executive officer. The third-quarter net loss was 308.6 million ringgit, compared with a profit of 150.6 million ringgit a year earlier, the company said in a statement. Sime gained 3 percent to 7.83 ringgit.

YTL Corp. (YTL MK): Malaysia’s biggest builder said profit in the third quarter dropped 32 percent from a year earlier to
330.6 million ringgit because of increased taxes. YTL added 2.5 percent to 7.12 ringgit.

Malaysia Equity Preview - May 27,2010

May 27 (Bloomberg) -- The following companies may have unusual price changes in Malaysia trading. Stock symbols are in parentheses, and share prices are from the most recent close.
Malaysia’s FTSE Bursa Malaysia KLCI Index fell for a ninth day, sliding 0.1 percent to 1,248.94, the longest losing streak since March 20, 2001.

Bintai Kinden Corp. (BKC MK): The Malaysian engineering group said it won a $32.4 million contract to provide mechanical and electrical works for the proposed Indochina Plaza project in Hanoi, Vietnam. Bintai was unchanged at 32 sen.

IJM Corp. (IJM MK): The construction, property and plantation group said fourth-quarter net income doubled to 111 million ringgit ($33.4 million) from 53.3 million ringgit a year earlier, helped by a foreign exchange translation gain of 57 million ringgit on its U.S. dollar denominated debt. IJM advanced 0.9 percent to 4.48 ringgit.

Kuala Lumpur Kepong Bhd. (KLK MK): The Malaysian palm oil producer said second-quarter net income almost doubled to 215.9 million ringgit ($65 million) from 112.7 million ringgit a year earlier on higher revenue. The stock added 0.1 percent to 15.58 ringgit.

Proton Holdings Bhd. (PROH MK): The Malaysian state- controlled carmaker said it had a profit of 22.8 million ringgit in the fiscal fourth quarter compared with a loss of 323 million ringgit a year earlier. Sales climbed to 2.26 billion ringgit from 1.4 billion ringgit, the company said in a statement.
Proton was unchanged at 4.44 ringgit.

SHL Consolidated Bhd. (SHLC MK): The Malaysian property developer said fourth-quarter net income more than doubled to
7.72 million ringgit from 2.9 million ringgit a year earlier, on higher sales. SHL fell 14 percent to 1.03 ringgit on May 25.

TRC Synergy Bhd. (TRC MK): The construction company said it secured a $9.36 million contract to build homes in Cambodia for Delta Garden Ltd. TRC added 1 percent to 1.03 ringgit.

Malaysia Stocks

May 26 (Bloomberg) -- Malaysia’s FTSE Bursa Malaysia KLCI Index fell for a ninth day, sliding 1.19, or 0.1 percent, to close at 1,248.94, the longest losing streak since March 20, 2001.

IGB Corp. (IGB MK) and KLCC Property Holdings Bhd. (KLCC MK) slid ahead of their removal from the MSCI Malaysia Index as of the close of today. Shares of IGB, a property developer, fell
6.1 percent to 1.54 ringgit, the most since Oct. 26. KLCC lost
3.9 percent to 2.75 ringgit, its lowest since Dec. 30, 2008.

DRB-Hicom Bhd. (DRB MK), a builder and auto assembler, gained 1.6 percent to 98.5 sen, its largest increase since May 10. The company said it had a profit of 259.4 million ringgit
($77 million) in the fourth quarter ended March 31 compared with a loss of 60.7 million ringgit a year earlier.

Lion Corp. (LION MK), a steel producer and builder, advanced 5.7 percent to 28 sen, the most since April 9. The company said it swung to a profit of 18.5 million ringgit in the third quarter ended March 31 from a loss of 479.9 million ringgit a year earlier after sales advanced.

MMC Corp. (MMC MK), a ports, power and construction group, added 2.2 percent to 2.28 ringgit, its biggest gain since May 13.
The company said first-quarter net income rose 9.9 percent from a year earlier to 34.4 million ringgit, helped by higher contributions from transport and logistics, as well as energy and utilities.

MISC Bhd. (MISC MK), the world’s biggest owner of liquefied natural gas tankers, slid 3.4 percent to 8.13 ringgit, its steepest drop since Feb. 24. An oil tanker owned by MISC’s AET Tanker Holdings Sdn. that spilled 2,500 metric tons of crude into the Singapore Strait yesterday following a collision with a bulk carrier, is being unloaded as efforts to clean up a slick resumed. “The incident caused significant damage to the vessel’s hull,” AET said in a statement.

Market Commentary

May 26 (Bloomberg) -- Hong Kong stocks rose, with the benchmark index rebounding from a 10-month low, on optimism mainland insurers will be allowed to invest in more of the city’s shares, and as shipping companies gained on higher transport fees.
Ping An Insurance (Group) Co., China’s second-largest insurer, jumped 5 percent. Pacific Basin Shipping Ltd., Hong Kong’s largest commodity-vessel operator, advanced 2.3 percent.
Gome Electrical Appliances Holdings Ltd., China’s second-biggest electronics retailer by market value, soared 14 percent after winning a distribution contract with LG Electronics Inc. worth as much as 9.3 billion yuan ($1.4 billion).
“Equity markets may have found a bottom in the short term,” Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees
$11 billion, said in a Bloomberg Television interview. “Now one has to look at some growth opportunities, which have been beaten down. That’s value to us.”
The Hang Seng Index advanced 1.1 percent to 19,196.45. The measure closed yesterday at the lowest level since July 17, dragging its 14-day relative strength index to 30, a threshold that signals to some traders that shares are poised to rise.
The Hang Seng China Enterprises Index of so-called H-shares of Chinese companies rose 2.7 percent to 11,016.05.

A Billionaire Goes All-In on Gold

Gold is setting records again, boosting the holdings of central banks, Armageddon worrywarts, and ordinary people who own gold bars, coins and jewelry.

But few individuals stand to benefit as much as low-profile billionaire Thomas Kaplan. A New York-born commodities magnate who earned a doctorate in British colonial history at Oxford, Mr. Kaplan oversees an empire devoted largely to gold.

Many fund managers and high-rollers have allocated small percentages of their portfolios to gold as a hedge against inflation. But Mr. Kaplan is the bull of bullion. He has gone further than perhaps any other major investor, betting the majority of his wealth on gold and other precious metals. And it reflects his deeply held conviction that global economic instability could bring rising demand for gold.

Through his firm, Tigris Financial Group, and affiliates, Mr. Kaplan has loaded up on bullion and bought up properties in 17 countries on five continents, where geologists are exploring for more. Tigris subsidiaries have taken stakes in mining companies, including tiny firms that have yet to produce an ounce.

Though he won't disclose how much physical gold he owns, Mr. Kaplan, who is 47 years old, controls up to 30% of the shares in some so-called junior miners. Together, his holdings amount to a nearly $2 billion bet on gold, more than the Brazilian central bank's bullion is currently worth.

"I've reached a point where I feel the only asset I have confidence in is gold," Mr. Kaplan said in an interview at Tigris's midtown Manhattan headquarters.

Mr. Kaplan's views are shaped by a concern, shared by many investors, that heavy government spending hasn't contained the woes facing the financial system. Gold hit an exchange record of $1,242.70 a troy ounce at the Comex division of the New York Mercantile Exchange on May 12, days after euro-zone leaders announced a nearly $1 trillion bailout for ailing member states.

He has experience with how supply and demand can drive the price of raw materials. His doctoral thesis studied Britain's involvement after World War II in Malaya, home to prized rubber and tin. That taught him how far people and governments will go to secure natural resources.

Wanting to apply his insights, he went to Israel to advise hedge funds. His nose for finding valuable resources was developed at firms he started that explored for silver and natural gas, which helped him make his fortune.
On Demand and Supply

Gold miners are struggling to make major discoveries and it takes years to bring new finds into production. If people want to stock up on gold in a hurry, it will be hard to ramp up production enough to satisfy them, Mr. Kaplan believes.

"You've got a perfect storm with no apparent solution," he said. "If the world does well, gold will be fine. If the world doesn't do well, gold will also do fine … but a lot of other things could collapse."

Mr. Kaplan is known in the mining industry for his all-in approach. "When he likes something, he dives in with both feet," Egizio Bianchini, a banker at BMO Capital Markets in Toronto, said of Mr. Kaplan, whom he has worked with in the past.

In his charitable endeavors, Mr. Kaplan works similarly. In 2006, he co-founded Panthera Corp., whose "single-minded pursuit" is preserving the world's endangered wild cats, he wrote in an open letter on the group's site in which he cited inspirational quotes by Winston Churchill, Edward R. Murrow and Marcus Aurelius.

Mr. Kaplan is also president of the board of directors at New York's 92nd Street Y, a prominent cultural organization that is a magnet for New York's elite. And he is a benefactor of Eternal Jewish Family, a group dedicated to uniform rules governing conversions to Judaism whose leader resigned last year amid an alleged sex scandal.

In some cases, Mr. Kaplan has invested in gold miners that have also attracted the attention of fellow billionaires, such as George Soros and John Paulson.

Mr. Kaplan put money into one firm, Gabriel Resources Ltd., in late 2007 after Mr. Paulson, who made billions of dollars betting against housing markets, mentioned how low the stock had fallen while they attended "The Nutcracker" at the New York City Ballet.

"I'm there," Mr. Kaplan recalls was his response.

In early March, Mr. Paulson's firm, Paulson & Co., and Quantum Partners, Ltd., an investment fund run by Soros Fund Management, invested $100 million and $75 million, respectively, in NovaGold Resources Inc., a Canadian miner, paying $5.50 a share. Their move came a year after Mr. Kaplan, who has $69 million invested in the company, acquired 30% of the firm for $1.30 a share.

Gold prices are up 7.4% this year, after rising 24% last year, which was the ninth straight up year for bullion. Mr. Kaplan thinks that greater gains are coming. "I wouldn't even say we're in a bull market yet," he said.

But Mr. Kaplan has concentrated risk in a volatile sector, and he knows the potential pitfalls better than most.

In 2008, for instance, a company that Mr. Kaplan founded, Apex Silver Mines Ltd., went bankrupt, felled by the terms of a loan made after Mr. Kaplan left the company in 2004. The company emerged from bankruptcy last year, and now operates as Golden Minerals Co.

In January 2009, Mr. Kaplan received a so-called Wells notice from the Securities and Exchange Commission related to what the company said were "impermissible payments" of $125,000 to government officials by executives at a South American subsidiary.

The SEC delivers Wells notices to inform recipients that it may bring an enforcement action, providing an opportunity for the recipient to persuade the agency not to pursue charges. No charges have been filed against Mr. Kaplan. An SEC spokesman declined to comment.
Concentrated Risk

Mr. Kaplan's current investments also carry risk. Gabriel Resources owns Europe's biggest undeveloped gold deposit, in Romania, but has been waiting for government approval for years. He has $100 million at stake in the company.

Mr. Kaplan acknowledges the dangers involved in investing in small mining companies. "It's not the kind of thing I would suggest for widows and orphans," he said.

And, he added, he isn't in a rush to cash in on his gold investments. "If I am right about the big picture," he said, "I will be rewarded for my patience."

Ghosn: Europe's Crisis Is Overblown

DETROIT—The economic crisis in Europe prompted by Greece that has roiled stock markets internationally will be short-lived and is being "outplayed," said Carlos Ghosn, chief executive officer of both Nissan Motor Co. of Japan and Renault SA of France.

Mr. Ghosn said Tuesday at a Detroit Economic Club luncheon he doubts that Greece will leave the European Union and said the situation on the continent will settle down soon.

"I personally don't think it's going to be Armageddon," Mr. Ghosn said. "There are a lot of extremes in the thinking today. But it will come back into a much more balanced thinking."

Leaving the European Union would have major consequences both for Greece and the union and it would be very difficult for the country to re-enter, he said.

Mr. Ghosn said it natural that governments have intervened to rescue auto companies. In the U.S., the government became shareholders in both General Motors Co. and Chrysler Group LLC last year. In Europe, car companies including Renault received loans while auto makers in Japan received access to low-cost credit through the government.

"No government in the world is going to allow hundreds of thousands of jobs" to disappear, Mr. Ghosn said. "I don't think it changes the industry. We can consider it fair or unfair, but it's going to happen."

On another topic, Mr. Ghosn said Renault has no plans to resume selling its vehicles in the U.S.

Alcom, Kencana, KNM, Malaysian Pacific: Malaysia Equity Preview - May 26, 2010

May 26 (Bloomberg) -- The following companies may have unusual price changes in Malaysia trading. Stock symbols are in parentheses, and share prices are from the most recent close.
Malaysia’s FTSE Bursa Malaysia KLCI Index fell for an eighth day, sliding 1.9 percent to 1,250.13, the longest losing streak since July 8, 2008.

Aluminium Company of Malaysia Bhd. (ALC MK): The aluminum producer said it had a profit of 1.42 million ringgit in the fourth quarter ended March 31 compared with a loss of 8.5 million ringgit a year earlier after sales gained. Alcom, as the company is known, dropped 5.2 percent to 92 sen.

DRB-Hicom Bhd. (DRB MK): The builder and auto assembler said it had a profit of 259.4 million ringgit ($77 million) in the fourth quarter ended March 31 compared with a loss of 60.7 million ringgit a year earlier. DRB-Hicom fell 2.5 percent to 97 sen.

Kencana Petroleum Bhd. (KEPB MK): The oil and gas services provider was awarded a $15.5 million contract by Mumbai-based Larsen & Toubro Ltd. to construct a so-called jacket for an off- shore platform. Kencana fell 4.5 percent to 1.27 ringgit.

KNM Group Bhd. (KNMG MK): The oil and gas services provider said first-quarter net income fell 59 percent from a year earlier to 40.3 million ringgit after sales declined. KNM lost 4 percent to 48 sen.

Lion Corp. (LION MK): The steel producer and builder said it swung to a profit of 18.5 million ringgit in the third quarter ended March 31 from a loss of 479.9 million ringgit a year earlier after sales advanced. Lion fell 7 percent to 26.5 sen.

Malaysian Pacific Industries Bhd. (MPI MK): The country’s biggest listed semiconductor company reported a third-quarter profit of 27.1 million ringgit, compared to a 53.8 million loss in the same period a year ago as sales climbed. The stock dropped 3.2 percent to 6 ringgit.

MMC Corp. (MMC MK): The Malaysian ports, power and construction group said first-quarter net income rose 9.9 percent from a year earlier to 34.4 million ringgit, helped by higher contributions from transport and logistics, as well as energy and utilities. MMC fell 1.3 percent to 2.23 ringgit.

Petronas Dagangan Bhd. (PETD MK): The retail arm of Malaysia’s state oil company Petroliam Nasional Bhd. said fourth-quarter net income fell 6.5 percent from a year earlier to 161.1 million ringgit because of higher operating expenses.
Petronas Dagangan slid 0.2 percent to 8.95 ringgit.

Malaysia’s Anti Corruption Unit Starts Sime Probe, Times Reports

By Soraya Permatasari
May 26 (Bloomberg) -- The Malaysian Anti-Corruption Commission has started a probe into the losses of Sime Darby Bhd., the New Straits Times reported, citing Investigations Director Mustafar Ali.
The agency will start with an investigation focusing on the internal inquiry being carried out by Sime, Mustafar was quoted as saying by the newspaper. The Malaysian plantation and energy company removed Ahmad Zubir Murshid as chief executive officer on May 13 after holding him responsible for losses and cost overruns, the report said.

U.S. Stock-Index Futures Drop on Korean Tension, Europe Concern

By Jonathan Burgos and Adam Haigh
May 25 (Bloomberg) -- U.S. stock-index futures sank after a report that North Korean leader Kim Jong Il last week ordered his military to prepare for combat and amid mounting concern Europe’s debt crisis will endanger the global recovery.
Morgan Stanley retreated 3.7 percent in German trading, leading a decline among bank shares. Microsoft Corp. lost 2.6 percent after the world’s largest software maker’s Chief Executive Officer Steve Ballmer said he is less optimistic about China as a market.
Standard & Poor’s 500 Index futures expiring next month dropped 2.6 percent to 1,043.6 as of 10:33 a.m. in London. The U.S. equities benchmark has slumped 12 percent from a 19-month high on April 23 amid concern mounting budget deficits in some European countries and China’s steps to curb asset bubbles will derail global growth. Dow Jones Industrial Average futures lost
2.2 percent to 9,827 today and Nasdaq-100 Index futures retreated 2.2 percent to 1,772.
“The troubles that we have are big enough to keep this downtrend going for quite some time,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. “Everybody realizes this is going to put severe stress on economic growth. Tension between South and North Korea is another additional negative that is spooking markets some more.”

North Korea

Asian and European shares retreated as the North Korea Intellectuals Solidarity group reported on its website that the North’s military was placed on alert last week. The U.S.
yesterday announced plans to conduct joint anti-submarine exercises with South Korea after the March 26 sinking of one of the South’s warships cost 46 lives.
Concerns over the health of European finances deepened after four Spanish savings banks submitted a proposal to the nation’s central bank to merge their businesses. The Bank of Spain is stepping up efforts to buttress or combine the weakest of Spain’s “cajas,” or mutually owned banks.
The International Monetary Fund said in a report yesterday that Spain’s banking industry “remains under pressure” as consolidation has been too slow.
The worsening European debt crisis “may limit the pace of the global recovery,” Adam Posen, a member of the Bank of England’s Monetary Policy Committee said in a speech yesterday.

Home Prices, Confidence

The S&P/Case-Shiller index of property values in 20 cities, due at 9 a.m. New York time, rose 2.5 percent in March from a year earlier, the best performance since 2006, according to the median forecast of economists surveyed by Bloomberg News. The Conference Board’s consumer sentiment index for May, due at 10 a.m., may climb to 58.5, the highest level since September 2008.
Morgan Stanley declined 3.7 percent to $24.79 in German trading. Goldman Sachs Group Inc. slid 2.8 percent to $132.87.
Microsoft lost 2.6 percent to $25.57. The software maker is less optimistic about China as a market than India or Indonesia because of the country’s lack of progress in stamping out software piracy, Chief Executive Officer Steve Ballmer said.
Neurocrine Biosciences Inc. surged 41 percent to $3.84. The drug company said a clinical study on its experimental drug elagolix showed positive results in treating patients with endometriosis.

Euro Falls for Concern Europe Debt Crisis Spreading

By Yoshiaki Nohara and Ron Harui
May 25 (Bloomberg) -- The euro weakened for a second day against the yen and dollar as signs the European debt crisis is spreading revived concern the region’s recovery will slow.
The single currency dropped to within one yen of its weakest in more than eight years after the International Monetary Fund urged Spain to do more to overhaul its ailing banks, adding to speculation Europe’s financial institutions face more losses. The yen strengthened as a decline in Asian stocks boosted demand for Japan’s currency as a refuge. The won slumped as tensions escalated between the two Koreas over the sinking of a warship from the South’s navy in March.
“I’m concerned about what policy makers can do to contain the debt crisis should it spread from Greece to bigger nations like Spain and Italy,” said Tetsuya Inoue, chief researcher for financial markets at Nomura Research Institute, a unit of Japan’s largest brokerage. “Economic growth can’t help but lose momentum. The euro will stay under downward pressure.”
The euro fell 1.3 percent to 110.29 yen as of 6:45 a.m. in London from yesterday in New York. The common currency dropped to $1.2283 from $1.2372. The dollar was at 89.81 yen from 90.29 yen, and climbed to $1.4339 per pound from $1.4425.
The 16-nation euro touched a four-year low of $1.2144 on May 19, and the weakest since 2001 at 109.51 per yen on May 20.
Spain’s banking industry “remains under pressure,” as consolidation has been “too slow,” the Washington-based IMF said in a report yesterday after a regular review of Spain.
“We fully support” the new austerity measures, it said, referring to Spain’s plans to rein in its budget deficit with the deepest spending cuts in three decades.

Spain’s Banks

Four Spanish savings banks plan to combine to form the nation’s fifth-largest financial group with more than 135 billion euros ($166 billion) in assets, as regulators push ailing lenders to merge with stronger partners.
“Looking ahead, we suspect contagion risks from the European sovereign debt crisis will remain front-brain for markets,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “With negative momentum firmly ingrained, we wouldn’t be surprised to see the euro re-test recent lows around $1.22 in coming sessions.”
The Bank of Spain said on May 22 it appointed a provisional administrator to run CajaSur, a savings bank crippled by property-loan defaults. The seizure is the first under a state- financed rescue plan that Standard & Poor’s estimates may cost as much as 35 billion euros, increasing the burden on Spain’s finances as the government tries to reduce its budget deficit.

‘Widespread Disruption’

Stresses in Spain’s banking system are intensifying concern that the Greek debt crisis may spread, Mohamed A. El-Erian, whose company runs the world’s biggest mutual fund, said in an interview with PBS.
“The minute you introduce strains in the banking system, there’s always a fear that governments will be behind the curve and that you can get contagion,” El-Erian, co-chief investment officer at Pacific Investment Management Co., said on PBS’s Nightly Business Report. “You can get widespread disruption.”
Europe’s currency has lost 6.9 percent this year, based on Bloomberg Correlation-Weighted Indexes. The dollar has risen 10 percent, and the yen has advanced 15 percent.
Japan’s currency rose versus all 16 major counterparts as the MSCI Asia Pacific Index shares dropped 2.8 percent.
“Increasing concerns about a slowdown in economic growth weigh on stocks,” said Yoshiaki Ota, head of the foreign- exchange trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “When stocks fall, investors rush to sell cross currencies against the yen as a knee-jerk reaction.”

Commodities Prices

The yen typically strengthens in times of financial turmoil as Japan’s trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders.
Australia’s dollar fell for a second day as iron-ore prices dropped before steelmakers in China and South Korea, the world’s
largest- and sixth-biggest producing nations, meet today in Beijing to discuss raw material prices. Australia is the world’s biggest exporter of iron ore.
“Overall sentiment is still pretty weak and people are cutting back on risk positions,” said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. “Any news reports suggesting further downward pressure on commodity prices will definitely be taken as a negative for Aussie.”
Australia’s currency fell 1 percent to 81.81 U.S. cents, and lost 1.5 percent to 73.48 yen.

Korea Tensions

The won weakened amid concern conflict between on the Korean peninsula could escalate. O Kuk Ryol, vice chairman of North Korea’s National Defense Commission, said the nation is ready to counter any attacks from South Korea, according to North Korea Intellectuals Solidarity, a Seoul-based group run by defectors from the communist country. Yonhap News agency reported on the group’s posting earlier today.
“Tensions between the North and South heightened today, with widespread panic, coupled with weaker equity markets driving massive dollar buying interest,” said Bernard Yeung, head of foreign-exchange trading at National Australia Bank Ltd.
in Hong Kong.
South Korean President Lee Myung Bak said yesterday the country will push for United Nations censure against North Korea for the March 26 sinking of a naval ship, which killed 46 sailors. A multinational team concluded on May 20 that North Korea fired a torpedo to split apart the 1,200-ton Cheonan.
The won slumped 3.7 percent to 1,260.60 per dollar, according to data compiled by Bloomberg, after earlier reaching 1,277.85, the lowest since July 16.