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Empire Global FX: Obama urges higher taxes to curb deficit by $3 trillion

(Reuters) - President Barack Obama, in a rallying call to his Democratic base, will vow on Monday to veto any cuts in Medicare if Congress fails to raise taxes on corporations and wealthy Americans to curb the deficit.

Obama's recommendations to a congressional "super committee" would deliver deficit savings of more than $3 trillion over the next decade, his aides said, with roughly half of those savings coming from higher tax revenues.

Under fire from Democrats to defend Medicare and Medicaid healthcare programs as he seeks to galvanize supporters ahead of the election next year, Obama will demand that all Americans share the burden of controlling the budget.

"He will veto any bill that takes one dime from the Medicare benefits seniors rely on without asking the wealthiest Americans and biggest corporations to pay their fair share," a senior administration official told reporters.

Medicare, for elderly and disabled Americans, and Medicaid for the poor, are viewed by analysts as the biggest contributors to the long-term deficit.

The so-called super committee of six Democrat and six Republican lawmakers is seeking at least $1.2 trillion in new budget savings by November 23. That is on top of $917 billion in 10-year savings agreed in an August deal to raise the debt limit.

Obama will lay out his recommendations in the White House Rose Garden at 10.30 a.m. EDT on Monday.

"In his remarks tomorrow, the president will make clear he is not going to support any plan that asks everything of some Americans, nothing of others," the official said.

The plan will include a "Buffett Rule," named after billionaire investor Warren Buffett, that would set a minimum tax rate for anyone making more than $1 million a year.

A clearly populist step, the tax would only apply to a tiny minority of the millions of Americans who file tax returns every year. But White House aides said it would set a standard of fairness that would yield more revenue if it became law.

Congress can ignore his suggestions. With the House of Representatives controlled by Republicans who oppose any tax hikes, they are likely to be declared dead on arrival.

Obama's opening bid to find deficit savings by December 23 to head off painful automatic cuts will be under close scrutiny.

 

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S&P cuts Italy ratings one notch, outlook negative


(Reuters) - Standard and Poor's cut its unsolicited ratings on Italy by one notch on Monday, warning of a deteriorating growth outlook and damaging political uncertainty, in a move that took markets by surprise and added to pressure on the debt-stressed euro zone.

S&P's downgraded its unsolicited ratings on Italy to A/A-1 from A+/A-1+ and kept its outlook on negative, sending the euro more than half a cent lower against the dollar.

The agency, which put Italy on review for downgrade in May, said that the outlook for growth was worsening and there was little sign that Prime Minister Silvio Berlusconi's fractious center-right government could respond effectively.

Under mounting pressure to cut its 1.9 trillion euro debt pile, the government pushed a 59.8 billion euro austerity plan through parliament last week, pledging to balance the budget by 2013.

But there has been little confidence that the much-revised package of tax hikes and spending cuts, agreed only after repeated chopping and changing, will do anything to address Italy's underlying problem of persistent stagnant growth.

"We believe the reduced pace of Italy's economic activity to date will make the government's revised fiscal targets difficult to achieve," S&P's said in a statement.

"Furthermore, what we view as the Italian government's tentative policy response to recent market pressures suggests continuing future political uncertainty about the means of addressing Italy's economic challenges," it said.

Berlusconi's coalition has been plagued by infighting and policy disagreements and the prime minister himself has been battling a widening prostitution scandal which has distracted the government and badly damaged his personal credibility.

On Monday, Italian sources said the government was preparing to cut its growth forecast to 0.7 percent in 2011 from a previous forecast of 1.1 percent and cut the 2012 forecast to "1 percent or below."

SURPRISE MOVE

Italy, the euro zone's third largest economy, has been dragged to the center of the debt crisis over the past three months as concern has grown over a debt burden equal to some 120 percent of gross domestic product.

But the move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.

"Was it anticipated tonight? No. But again is it really shocking given what yields have done?" said James Paulsen, Chief Investment Strategist, Wells Capital Management.

Only the European Central Bank, which has been buying Italian bonds to prop up the market, has kept Rome's borrowing costs from spiraling out of control, but yields have crept back up steadily since the ECB stepped into the market in August.

On Monday, yields on Italian 10 year bonds stood at 5.59 percent, within sight of the levels above 6 percent they reached just before the ECB intervention.

The intervention has caused growing strain within the central bank, causing Chief Economist Juergen Stark to announce his resignation and prompting open opposition from the Bundesbank.

The S&P downgrade, which came as Greece struggles to meet demands from lenders for yet more austerity measures, underlined the mounting seriousness of the euro zone crisis, which has seen global markets hammered.

"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.

"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news. The Aussie dollar is influenced by expectations for commodity prices and so sensitive to the outlook for global demand.

S&P 500 futures also dropped 0.7 percent and early hopes for a bounce in Asian shares on Tuesday looked to be still-born now.

European stocks had already slid on Monday, while yields on Italian and Spanish bonds rose sharply on fears of a Greek default, compounded by the failure of EU finance ministers to agree new steps to resolve Europe's debt crisis at weekend talks.

International lenders told Greece on Monday it must shrink its public sector and improve tax collection to avoid running out of money within weeks as investors spooked by political setbacks in Europe dumped risky euro zone assets.

 

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Empire Global FX: Gold to clear $2,000 in 2012 as rally cools: LBMA poll

(Reuters) - Gold's rally will extend beyond $2,000 an ounce in the next year, but won't match the record-breaking 50 percent surge of the last 12 months, according to an annual survey of gold investors and analysts at the world's biggest bullion traders event.

With no let up seen in the financial markets uncertainty that fanned the safe-haven investment spree, bullion is expected to rise to $2,019 an ounce by November 2012, according to an anonymous survey of delegates at the conclusion of the London Bullion Market Association's (LBMA) annual conference on Tuesday. That is about 12 percent above current levels.

If history is any guide, the consensus view from the biggest gathering of gold market traders, experts and users may prove too conservative -- for the past three years, prices have outpaced the survey. A year ago delegates predicted gold would rise to $1,450 in 12 months; on Tuesday it hit $1,800.

Most were optimistic on the outlook in spite of the past month's extraordinary volatility, which has caused some traders to question gold's credentials as a haven of stability. But few expect a repeat of the past year's torrid rally.

"We've heard so much about the perfect storm that has driven gold to where it is now, that the odds of it increasing a similar amount have to be a lot less," Robin Bhar, an analyst at Credit Agricole, told Reuters at the conference.

"There are good reasons why gold has been taken to where it has, but can we really assume that those factors are going to remain, for it to power on to $3,000, $4,000? We are assuming global GDP will grow and the fear factors will lessen, so there will be less reason to be owning gold."

Well over 500 analysts, traders, fund managers, refiners and miners, as well as official sector and wider industry delegates, attended the meeting, one of the most significant in the precious metals calendar.

Attendance at the meeting has swelled as gold has become an increasingly sought-after asset in recent years, with prices hitting a record $1,920.30 an ounce on September 6. They have since retreated, however, and are down 2.5 percent so far this month after a period of intense volatility.

The view was largely similar at a simultaneous conference of major gold miners halfway across the continent, in Colorado Springs, where executives from the likes of Newmont Mining Corp (NMC.TO) (NEM.N) and AngloGold Ashanti Limited (ANGJ.J) saw prices rising to $2,200 an ounce and beyond.

"I'm a big believer that all of the ingredients for a higher gold price are there: geopolitical risk, economic uncertainty, inflation," Yamana Gold (YRI.TO) Chief Executive Peter Marrone said on Monday. "It just seems natural to me for gold prices to go to substantially higher levels."

STRETCHED, BUT NOT TO BREAKING POINT

Analysts have suggested this volatility pointed to overstretched conditions, but delegates disputed that it marked the start of a deeper correction.

"The higher levels of volatility is a function of increased economic uncertainty... but it doesn't portend a reversal of the gold market," HSBC analyst Jim Steel, who has a 2012 gold forecast of $2,025 an ounce, said on the sidelines of the conference.

"The macroeconomic climate remains positive for gold. The fact that there's a high level of volatility in the market doesn't take away from its safe-haven status. You've got to look at it over time compared to paper assets. If it were treated as a currency, it would have outperformed every other currency in the last 12 months."

John Fallon, president of hedge fund Pia Capital Management, said gold is "in an orbit by itself" among commodities and remains his favorite investment in the sector, due to its high liquidity and the support offered by solid physical demand.

"Gold still has our undivided interest," he told Reuters at the conference. "We favor both the (gold) ETFs and the actual spot OTC market."

There were few outright bearish views.

Christoph Eibl, CEO and founding partner of the $2 billion Swiss commodity hedge fund Tiberius Group, was a rare voice of stern caution, warning that gold could fall back below $1,000 an ounce in line with production costs for miners.

But even Eibl, who considers himself a converted contrarian after years as an unabashed gold bug, wasn't prepared to bet big against bullion's newfound popularity.

"We know it's too dangerous to stand in front of a truck that may run you over," he said.

Unsurprisingly, delegates expected leading gold consumers China and India to remain main demand drivers for the yellow metal, with the World Gold Council estimating that Chinese demand could grow 10 percent this year.

Chinese consumers are willing to spend more on gold jeweler as product quality and disposable income increase, and due to the investment function of gold, Wai-Chan Chan, a partner at China's OC&C Strategy Consultants, said.

PLATINUM FAVORED

Among other precious metals, delegates forecast a platinum price of $2,163 an ounce in November next year, giving it a touch more upside than gold from its current price near $1,770 an ounce. Palladium was forecast at $826 an ounce, compared to its current $710.

Platinum group metals prices will have to rise, or the rand to weaken, to ease pressure on South African platinum miners, Aquarius Platinum chief executive Stuart Murray argued in a well-received presentation on Monday.

Once tax, royalties, costs and investments were taken care of, he said, shareholders and capital providers were seeing a return of less than 3 percent.

"The reality is that for us, for the risks that are taken, for the effort that goes into mining an ounce of platinum, returns greater than 3 or 4 percent are needed," he said.

Delegates forecast silver prices at $47 an ounce next year.

Silver was favored by Claymore Investments president Som Seif, who argued in a presentation on Monday that rising demand from the industrial and investment sectors and supply constraints argued for higher prices.

However, analysts said investors were likely to remain wary of silver after its sharp correction from record highs earlier this year. Prices lost a third of their value in the six trading sessions after they peaked near $50 an ounce in April.

Nonetheless, the Royal Canadian Mint said its silver bullion sales were on track for a 30 percent rise this year, taking them to 25 million ounces.

 

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Nikkei drops 2 percent after Fed; Softbank plunges

(Reuters) - The Nikkei stock average lost more than 2 percent on Thursday after the Federal Reserve cited significant risks to the U.S. economy, while Softbank Corp (9984.T) plunged to its lowest since July 2010 on a report it would lose exclusive rights to sell the iPhone in Japan.

Some strategists said selling could intensify after September 27, which is the last day for investors to buy many Japanese stocks and still get dividends on them for the April-September half year.

"Once the dividend-buying factor is no longer supporting the market next week, we could see a tough situation, and the Nikkei could break below 8,500," said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities.

Market participants said Tokyo's losses were also due in part to domestic position adjustments ahead of the end of the April-September half-year this month, when investors often lock in profits.

But market players say attractive valuations still support the Tokyo market. The Nikkei has lost more than 15 percent since early July, when it last traded above 10,000, while the Standard & Poor's 500 Index markets/index?symbol=us%21spx">.SPX lost about 13 percent in the same period.

The Nikkei finance/markets/index?symbol=jp%21n225">.N225 ended down 2.1 percent at 8,560.26. It was trading below its 25-day moving average of 8,756, but remained above support at its September 14 low of 8,499.34, which was its lowest intraday level since March.

The broader Topix index .TOPX slipped 1.7 percent to 744.54.

Also weighing on Japanese shares on Thursday were reports from China that suggested the world's No. 2 economy may not be able to pick up the slack from flagging U.S. and European growth.

A preliminary survey showed China's manufacturing sector contracted for a third consecutive month in September, while separate indicator showed inflation picked up.

"The China data just adds to negative factors already on everyone's mind, such as U.S. economic worries, the yen's strength against the dollar and the euro, as well as Europe's debt problems and whether Greece will default," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

U.S. WOES

The decline in the Nikkei was, however, more moderate than Wall Street, which slid 3 percent for its worst drop in a month after the Fed's announcement, with selling accelerating as volume spiked in the last hour of trading.

The Fed said there were significant risks to an already weak U.S. economy, including strains on global financial markets, even as it launched a new plan to lower long-term borrowing costs and bolster the battered housing market.

The U.S. central bank said it would sell $400 billion of short-term Treasury bonds to buy the same amount of longer-term U.S. government debt.

Shares of Softbank, which has long been the sole provider of Apple Inc's (AAPL.O) iPhone in Japan, plunged 12.3 percent to 2,282 yen. It earlier sank as low as 2,271 yen, its lowest point in 14 months, on a report that rival KDDI Corp (9433.T) will start selling the iPhone 5 in November.

KDDI initially rose, but then gains unraveled and its shares fell 0.8 percent to 624,000 yen. Softbank and KDDI were the heaviest-traded shares by turnover.

Financial shares fell after a slide in their U.S. counterparts, after Moody's Investors Service lowered debt ratings for Bank of America Corp (BAC.N), Citigroup Inc (C.N) and Wells Fargo & Co (WFC.N) on Wednesday, saying the U.S. government is getting less comfortable with bailing out large troubled lenders.

Sumitomo Mitsui Financial Group (8316.T), the fifth-most traded issue by turnover, fell 1.8 percent to 2,089 yen, while Mitsubishi UFJ Financial Group (8306.T) shed 1.5 percent to 332 yen. Nomura Holdings (8604.T) lost 4.8 percent to 281 yen.

Volume was slightly below recent daily averages, with about 1.70 billion shares trading on the Tokyo Stock Exchange's main board. That fell short of last week's average of 1.75 billion shares, but topped Wednesday's volume of about 1.44 billion.

 

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Greece sees possibility of 50 percent haircut on debt: reports

(Reuters) - Greece's finance minister has told lawmakers he sees three scenarios to resolve the debt crisis, including one involving an orderly default with a 50 percent haircut for bondholders, two Greek newspapers reported on Friday.

A government spokesman dismissed the reports, which said the other scenarios would be a disorderly default or the implementation of a second, 109 billion euro ($146 billion) bailout plan agreed between Greece and its lenders on July 21.

Newspaper Ta Nea, citing a person who heard a speech by Finance Minister Evangelos Venizelos to ruling Socialist party lawmakers, quoted him as saying "it would be dangerous to request" the 50 percent haircut.

He also said: "This would require an agreed and coordinated effort by many," the paper reported.

A finance ministry spokeswoman said she could not comment on the reports, but deputy government spokesman Angelos Tolkas said the government would stick to the bailout plan agreed between Greece and its lenders two months ago.

"What we are choosing is (for Greece) to stay in the heart of Europe by implementing the July 21 decisions," he said. "The big challenge is to avoid any default or collapse."

Two Socialist deputies who said they were present at the speech in which Venizelos tried to rally support among the ruling party for a new wave of austerity measures, denied that he had floated the 50 percent haircut scenario.

"I categorically deny it. There is no such scenario," lawmaker Theodora Tzakri told Reuters.

Venizelos is traveling to Washington for a weekend meeting with inspectors from Greece's lenders, the International Monetary Fund and the European Union.

The reports came as Moody's Investors Service cut the credit ratings of eight Greek banks. It cited a struggling domestic economy and falling deposits among reasons for the move, which markets had expected.

Moody's said the outlooks for all the ratings remained negative. The downgrade concluded a review begun on July 25.

Some European banks in July agreed to contribute to a rescue plan for Greece by taking a 21 percent loss on bonds maturing before 2020.

The deal, which involves banks swapping debt for longer maturity bonds of 15 or 30 years, prompted banks to take a loss on their bonds in second-quarter results.

The European sovereign debt crisis has kept banks hostage to market worries about their capital strength and access to funding.

Earlier this month, Deutsche Bank (DBKGn.DE) Chief Executive Josef Ackermann said many European banks could go under if they had to accept a haircut at current market valuations on their entire sovereign debt holdings instead of the 21 percent writedown that has been proposed on Greek sovereign debt.

 

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Silver, gold tumble as recession fear grips markets

(Reuters) - Gold and silver prices tumbled on Monday, led by a nearly 10 percent drop in spot silver prices, as investors liquidated their positions on fears of an impending recession.

Spot gold fell more than 3 percent to $1,604.29 an ounce, wiping off gains over the past two months.

U.S. gold dropped 2 percent to $1,607.2, tracking the weakness in spot prices.

U.S. silver shed 6.6 percent to $28.10.

 

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World stocks fall on doubts over EU plans


(Reuters) - World stocks fell toward the previous week's 14-month low on Monday and the euro hit a 10-year low against the yen as doubts grew over how effective Europe's latest crisis-battling steps would be in containing the continent's sovereign debt problems.

European policymakers began working on new ways to stop fallout from Greece's near default, focusing on ways to beef up their existing 440-billion-euro rescue fund.

But deep differences remained over whether the European Central Bank should commit more of its massive resources to shoring up Europe's banks and help struggling euro zone member countries.

Concerns over the potential effect from Greece's possible default, especially on the banking sector, and worries over a U.S. economic slowdown have been weighing on world stocks, fanning safety-seeking flows into top-rated government bonds.

"Overall it's still an inconclusive situation -- no tangible action plan coming out of the weekend gathering so the net result will still be risk aversion," said Rainer Guntermann, strategist at Commerzbank.

MSCI world equity index fell 1.1 percent, having hit its lowest since July 2010 on Friday. The index has fallen more than 23 percent since hitting a three-year high in May and is also down 17 percent since January.

European stocks lost 0.8 percent while emerging stocks hit their weakest since September 2009.

"The lurch lower in risk appetite can only reflect a growing fear that policymakers will be incapable of acting in time or with sufficient potency to turn things around," said Herv Goulletquer, analyst at Credit Agricole.

U.S. crude oil dropped 1.8 percent to $78.40 a barrel.

Bund futures were up nine ticks before trimming gains.

The dollar was steady against a basket of major currencies.

The euro fell as low as 101.90 yen and hit an eight-month low of $1.3361.

 

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Stocks rise, euro steady on European hopes

(Reuters) - Global equities rose and bond prices fell on Monday on hopes that Europe was tackling Greece's debt woes.

Wall Street stocks recovered from early declines but European shares pared gains of more than 2 percent as concerns about Europe's ability to contain the crisis persisted. Markets have whipsawed for months over fears of European debt contagion and hopes that officials will finally contain the long-simmering crisis.

Still, European shares closed higher and broad indexes on Wall Street climbed more than 1 percent after a weekend meeting of European policymakers buoyed hopes for a larger bailout fund and the injection of money into weaker banks.

But euro zone officials played down reports of nascent plans to halve Greece's debts and recapitalize European banks, saying no such plan is yet on the table.

"Europe is a day-to-day story, it seems like we flip-flop back and forth over whether Greece is going to get the bailout they want and how concerned the markets are about Greece," said James Newman, head of Treasury and Agency trading at Keefe, Bruyette and Woods in New York.

"I don't see that ending any time soon," he said.

The euro extended losses and damped risk appetite after data showed U.S. new home sales fell 2.3 percent in August to a six-month low, a fresh sign of the struggling housing market -- a pillar of the U.S. economy.

The euro rebounded at midday to trade near break-even at $1.3507.

MSCI's all-country world equity index .MIWD00000PUS was little changed, down 0.01 percent.

The FTSEurofirst 300 markets/index?symbol=gb%21FTPP">.FTEU3 added 1.7 percent, following a 0.8 percent gain on Friday.

A broad measure of the U.S. stock market, the S&P 500 index, climbed into positive territory after an early loss, as did the tech-rich Nasdaq, while the Dow traded higher.

After three hours of trading, the Dow Jones industrial average finance/markets/index?symbol=us%21dji">.DJI was up 143.42 points, or 1.33 percent, at 10,914.90. The Standard & Poor's 500 Index .SPX was up 9.96 points, or 0.88 percent, at 1,146.39. The Nasdaq Composite Index .IXIC was up 1.00 points, or 0.04 percent, at 2,484.23.

Government debt prices on both sides of the Atlantic fell on reports the European Union was looking at boosting the region's 440 billion euro rescue fund and other ways to avert a Greek debt default.

The benchmark 10-year U.S. Treasury note was down 18/32 in price to yield 1.89 percent. The December Bund future shed 72 ticks to 137.40.

Brent and U.S. crude oil futures turned positive in volatile trading as the U.S. dollar weakened against a basket of currencies, improving investors' risk appetite.

Brent crude oil slipped below $104 a barrel as investors worried European governments and banks would be unable to resolve the euro zone debt crisis and avert wider financial contagion.

Brent futures for November rose 62 cents to $104.59.

U.S. light sweet crude oil rose 52 cent to $80.37 a barrel.

"These are very critical days and weeks ahead, reminiscent very much of the touch-and-go situation we were in back in 2008," said Edward Meir, senior commodities analyst at brokers MF Global. "The key difference this time around is that it is countries and not companies that are in danger of going bust."

Gold futures fell, on course for their largest monthly slide in three years as investors scrambled for cash in the face of mounting fear over the impact of a potential Greek default.

Spot gold prices fell $55.30 to $1,599.90.

 

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European shares climb on euro zone debt plan hopes

(Reuters) - European shares climbed to their highest in nearly a week on Tuesday on renewed hope that European policymakers will act to contain Greece's debt problems and resolve a regional debt crisis threatening to derail the world economy.

Financials, previously hard hit because of their exposure to peripheral euro zone economies, were among the top gainers, with the STOXX Europe 600 banking index .SX7P up 3.6 percent and insurers .SXIP up 4 percent. The indexes are still down 32 percent and 19 percent, respectively, in 2011.

"Given so much uncertainty at the moment, there is room for both pessimism and optimism. The optimists have taken the forefront on hopes that we could see European politicians getting to grips with the current situation over the coming weeks," said Keith Bowman, analyst at Hargreaves Lansdown.

"But there are still a lot of concerns. Investors remain skeptical about the success of the measures being planned to resolve the euro zone credit crisis."

Thomson Reuters Datastream data also highlighted weak investor sentiment, with the ratio of put/call open interest on the Euro STOXX 50 markets/index?symbol=de%21SX5E">.STOXX50E -- down to 1.1139 to hover near a 10-month low -- showing that investors still have little faith in the rebound.

However, the FTSEurofirst 300 finance/markets/index?symbol=gb%21FTPP">.FTEU3 was up 2.3 percent at 918.57 at 0859 GMT, after hitting 921.63, the highest since September 21. It gained 1.8 percent on Monday on talk policymakers were drawing up plans to boost the size of the regional bailout fund, halve Greece's debts and recapitalize banks.

Despite the rally, the 30-day implied volatility for many European indexes rose, indicating investors' wariness of the situation.

The market awaited a policy meeting of the European Central Bank next week, with ECB officials saying on Monday they were keeping their options for a rate cut open. There were signals the bank could start offering 12-month, limit-free loans to banks again.

Auto shares rose on hopes a solution for the euro zone crisis could bring the global economy back on track and improve demand for vehicles. The sector index .SXAP rose 4.3 percent, while Daimler (DAIGn.DE) gained 5.1 percent after Credit Suisse upgraded its stock to "outperform" from "neutral."

KEY TECHNICAL LEVELS

The Euro STOXX 50 .STOXX50E, the euro zone's blue-chip index, was up 2.9 percent at 2,142.57 points, after climbing to its highest in more than a week earlier in the session.

Analysts said the index was likely to stay in a 2,000-2,200 range in the coming session. If the price stays above 2,098 -- a gap on the daily candlestick chart -- on a sustained basis, the index could test 2,200.

"It is worth noting a possible double-bottom formation on the daily chart should the price recover above 2,200, which has the measuring targets at 2,343 and 2,436. It is important to watch the next three closes," Dmytro Bondar, technical analyst at RBS, said.

Charts indicated that if the index closed below 2,000 in coming days, the move could suggest a drop to 1,810.

Equity investors face two major headwinds -- the European sovereign debt crisis which undermines the banking sector, and the threat of a global economic slowdown, with the former affecting the banking sector and the latter hurting miners.

"While the European problem has a lower probability of materializing but a massive tail risk, the potential for a premature end to this global expansionary cycle is much more probable," said Lothar Mentel, chief investment officer at Octopus Investments, which manages nearly $4 billion.

"Long-term investors should not get too stressed by mistiming concerns, given risk assets are much, much cheaper than they have been, which is what counts rather than miraculously hitting the absolute low of markets in this cycle," Mentel said.

Europe's STOXX 600 index currently trades at 8.4 times its expected earnings, below a 10-year average of 13.2, according to Datastream. This compares with a price-to-earnings ratio of 11 for U.S. S&P 500 index .SPX.

 

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Barroso comments lifts euro, risk appetite shaky

(Reuters) - The euro edged up against the dollar on Wednesday after a top EU official indicated more would be done to resolve the debt crisis but was vulnerable to selling in the absence of concrete steps to beef up region's rescue fund.

In his State of the Union address European Commission President Jose Manuel Barroso said he expected the European Central Bank would ensure the stability of the euro area and indicated Greek banks could receive more help.

He also said the euro zone could issue jointly underwritten bonds once there was deeper integration.

The single currency rose to last trade up 0.2 percent on the day at $1.3623, and off a low of $1.3541. It pared some of the previous day's gains when it hit a high of $1.3668.

But market players warned the lift from Barroso's comments and a bounce the previous day on talk of proposals to leverage up the 440 billion euros European Financial Stability Facility, could just be temporary.

"Barroso sounded very optimistic but I don't think he will be able to give much lasting impetus to the FX market," said Lutz Karpowitz, currency analyst at Commerzbank.

"The recovery in euro/dollar and in equity markets amid speculation we might see leveraging of the EFSF was overdone. I cannot see how that proposal will work and there is likely to be some disappointment ahead in the market."

Event risk remains high for the euro this week, with the Finnish parliament voting on proposals to enlarge the EFSF as agreed back in July later on Wednesday, while Germany's parliament votes on Thursday.

Technical charts showed as long as the euro remained stuck below resistance at $1.3670/1.3710 the risk was for a break of $1.3540 support. A move below $1.3470 would open the door to new lows in the $1.3250/00 area.

YEN STRENGTH

Meanwhile, the yen rose, buoyed by Japanese fund repatriation and buying by Japanese exporters ahead of the quarter-end and the end of Japan's financial half-year.

The dollar slipped 0.5 percent to 76.42 yen, not far from a record low of 75.941 yen hit in August on trading platform EBS. Traders cited heavy system fund stops layered under 75.90 yen and real money stops under 75.70 yen.

The euro fell 0.3 percent to 104.13 yen paring some of the previous day's gains, when it climbed 1.1 percent. The euro had hit a decade-low versus the yen near 101.95 earlier in the week.

Some market players had been speculating Japan could intervene this week ahead of its financial half-year end, to offer some relief to Japanese exporters, which have been stung by the dollar's 5.9 percent drop versus the yen so far in 2011.

Tsutomu Soma, senior manager at Okasan Securities' foreign securities department in Tokyo said that while yen-selling intervention may be a possibility, it would probably only happen if moves in the yen turned particularly violent.

"If the dollar falls below its record low near 75.95 yen, triggers some stops and the move becomes volatile, I think there is the possibility of another one-off intervention," he said.

The Australian dollar edged 0.1 percent higher to $0.9911, although selling by model funds weighed on the currency, traders said. It struck a 10-month trough of $0.9622 earlier in the week.

The dollar index firmed slightly, up 0.15 percent at 77.618 as risk sentiment remained fragile.

Federal Reserve Chairman Ben Bernanke gives a speech at 2100 GMT and might offer some reaction to the market's mostly negative response to last week's Operation Twist. Any hint that even more easing is possible could help underpin risk appetite.

 

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Wall Street drops, led by commodities on economic fear


(Reuters) - Commodity-related stocks drove Wall Street lower on Wednesday as stiff declines in energy and metals prices underscored investor concerns about global economic weakness and Europe's raging debt crisis.

A sharp 7 percent dive in the price of copper, seen as a leading indicator for the economy, rattled investors and led to a drop of 4.5 percent in the S&P materials index. Freeport-McMoRan Copper & Gold Inc fell 7.3 percent to $32.29.

Investors were on a knife edge as inspectors from the EU and IMF headed to Greece to scrutinize austerity plans while German Chancellor Angela Merkel worked to defuse a revolt within her government ahead of a vote to expand Europe's bailout fund on Thursday.

Wednesday's declines put the S&P 500 on course for its worst quarter since the high noon of the financial crisis in the fourth quarter of 2008. The drop also illustrates how sensitive the market has become to news on Europe's troubles.

"There is certainly a lot of headline risk and a lot of weak hands that hold stocks after this big rally we've had in the last three days," said Robert Francello, head of equity trading for Apex Capital, a hedge fund in San Francisco.

"Traders who have either gotten long during the rally or covered their shorts are probably going just to flatten themselves out, either taking profits or getting out of the market," he said.

Brent crude resumed its downward trend, falling more than $3 in afternoon trade, sending an S&P index of energy stocks down 3 percent. Chevron fell 1.9 percent to $91.74.

News early in the afternoon that bans on short-selling stocks in France, Italy and Spain have been extended highlighted the regulatory risk faced by investors and increased selling pressure.

The Dow Jones industrial average dropped 179.79 points, or 1.61 percent, to 11,010.90. The Standard & Poor's 500 Index dropped 24.32 points, or 2.07 percent, to 1,151.06. The Nasdaq Composite Index dropped 55.25 points, or 2.17 percent, to 2,491.58.

Traders said volume would likely be light and market movements accentuated during the rest of the quarter due to the Jewish New Year holiday of Rosh Hashanah.

So far, the S&P 500 has fallen 12.8 percent this quarter, its worst decline since the fourth quarter of 2008 when it fell 22.6 percent.

In the commodities sector, Cliffs Natural Resources Inc sank 8.4 percent to $55.66. Gold prices fell more than 2 percent.

"It's fear of a global slowdown," said Wayne Kaufman, chief market analyst at John Thomas Financial in New York. "It's a pure flight to safety into the dollar here, and that's killing commodities."

A push to solidify a euro-zone rescue fund and alleviate the region's sovereign debt crisis lifted stocks on Tuesday for a third consecutive session, following four straight days of losses for the benchmark S&P 500. The S&P gained more than 4 percent over that three-day period.

Amazon.com Inc gained 2.5 percent to $229.71 after it unveiled a new tablet computer with a $199 price tag. Apple Inc, which makes the popular iPad tablet, fell 0.6 percent to $397.01.

Microsoft Corp dipped 0.4 percent to $25.58 after Samsung Electronics Co Ltd unveiled software pacts with the company.

In earnings news, Jabil Circuit Inc advanced 8.2 percent to $18.81 a day after reporting fourth-quarter earnings that beat expectations, while Family Dollar Stores Inc fell 1.6 percent to $53.31 after its results.

In economic news, orders for long-lasting U.S. manufactured goods slipped in August on weak demand for motor vehicles, but a rebound in a gauge of business spending suggested the economy would avoid another recession.

About five stocks fell for every one that rose on both the New York Stock Exchange and the Nasdaq. About 7.96 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, in line with this year's average.

 

[EmpireGlobalfx]

Greece to face inspectors, Merkel hints at bailout

(Reuters) - EU and IMF inspectors will return to Greece on Thursday to decide whether Athens has done enough to secure a new batch of aid vital to avoid bankruptcy, while Germany suggested a new bailout may have to be renegotiated.

Facing a wave of strikes and protests, Greece's Socialist government is accelerating budget measures to meet the terms of an International Monetary Fund and European Union rescue deal so it can receive a new loan next month.

The "troika" team of inspectors, which had threatened to cut off aid if Athens did not move faster, will hold talks on a plan to deepen budget cuts and raise taxes which has driven protesters back onto the streets for the first time since June.

"I can confirm the Eurogroup (of euro zone ministers) will hold an additional meeting as soon as possible, still in October, to discuss the situation of Greece and consider the disbursement of the next tranche," a European Commission spokesman said in Brussels, announcing the troika's return.

German Chancellor Angela Merkel suggested that parts of a planned new 109-billion-euro ($148.6 billion) rescue for the debt-laden country could be reopened, depending on the outcome of the troika's audit.

"We have to wait and see what the troika ... finds and what it will tell us (whether) we will have to renegotiate or not," she told Greek state television NET, without elaborating.

Several hundred activists affiliated with the Greek Communists converged on the finance ministry on Wednesday waving a banner saying "We won't pay!." They burned bills for a new one-off income tax introduced this summer, while Athens and other parts of the country were hit by transport strikes.

If deemed adequate by the inspectors, the new austerity drive will secure an 8-billion-euro loan Greece needs to pay bills and salaries in October and bring it closer to moving on to a second bailout agreed in July.

As a condition of the visit and to resolve the row with the lenders, the Greek government had promised to send a written assurance outlining its new plan to meet its bailout targets. Its contents have not been made public.

"Instead of coming and going, the troika should spend a month with a pensioner, a family-man and then tell us whether these measures are human," said 50-year-old aviation worker, Costas Papalambros, a father of two.

"The next tranche will just be an aspirin, it won't cure the patient. What we need is growth and I don't see it happening They need to change policies," he told Reuters.

Even Deputy Prime Minister Theodoros Pangalos, who said he faced selling real estate to pay a new property tax, admitted Greeks' pain threshold was being tested.

"I think that the tax-paying limits of Greek society have been exhausted. I would say they have been exhausted for some time now," he told Mega TV. "But I think that we should act on the other side of the problem which is spending."

Germany has repeatedly said negotiations about the details of the second rescue deal can begin only when the troika says Greece has qualified to receive the tranche expected in October, the sixth under a first bailout agreed in 2010.

At the same time, leaders from around the world have urged euro zone capitals to end a tortuous debate and create a safety net big enough to prevent Greece's problems from spreading to other euro members and triggering a fresh global downturn.

DEBT SWAP DEBATE DEEPENS

The second bailout aims to ease Greece's debt burden by imposing a 21 percent loss on private Greek bondholders.

After intensifying debate among economists and policymakers that only a 50 percent loss would make the country's debt viable, more investors have signed up to the bond exchange plan, Greek financial daily Naftemporiki reported.

Citing an unidentified finance ministry official, it said Greece's weeks-long struggle to lure private bondholders into the rescue plan had ended with it reaching the 90 percent participation target.

The finance ministry declined to comment on the report.

There is no agreement yet among euro zone governments on whether a renegotiation is needed, including more pain for Greece's bank creditors, or on a U.S.-sponsored plan to leverage the bloc's rescue fund to give it more firepower.

Germany's Bundestag (lower house) will vote on Thursday on widening the scope of the European Financial Stability Facility bailout fund, as agreed by the EU leaders on July 21.

Merkel faces a revolt within her conservative camp and may have to rely on support from the opposition Social Democrats and Greens to get the measure approved, damaging her authority.

STRIKES GRIP GREECE

Late on Tuesday, police dispersed about 1,000 anti-austerity protesters with tear gas in Athens' Syntagma Square, the epicentre of anti-austerity protests.

Taxi drivers, bus and tram operators staged strikes on Wednesday, causing long traffic jams leading into the ancient city center and forcing luggage-hauling tourists scrambling to find rides to the airport.

Other trades ranging from craftsmen, printers and tax officials also staged stoppages and activists planned marches on

parliament and the port of Piraeus later in the day.

"I've been trying to find a job for a year now and it's impossible," said Maria Kappa, a graduate of the School of Philosophy in Athens. "I don't see the rich people hurt by this austerity, it's always the poor who have to pay."

Lawmakers opened the way to the troika visit on Tuesday by passing a property tax bill. That piles the pressure on Greeks suffering from several waves of belt-tightening and deepens an economic downturn heading into its fourth year.

Prime Minister George Papandreou's 154 Socialist deputies forced the measure through in the 300-seat parliament.

In the accelerated strategy, the government will cut the 730,000 public workforce by a fifth, reduce the public wage bill by 20 percent, as well as lower overall pensions by 4 percent in addition to a 10 percent cut already agreed in previous plans.

It will also now extend the new real estate tax until 2014, two years longer than originally planned, after the troika judged Greece's estimate that it would raise 2 billion euros a year to be too high.

 

[EmpireGlobalfx]

Asian stocks fall on euro crisis fears

(Reuters) - Asian shares and commodities fell on Thursday on growing worries that Europe's intractable debt problems will plunge the world into a second global financial crisis.

Copper fell 3 percent, gold slipped toward $1,600 an ounce to stand more than $300 below its record high earlier this month, and commodities-related stocks such as global miner Rio Tinto were dumped on worries that demand will weaken as the international economy slows.

The past week has seen a broad sell-off of commodities, equities and emerging markets bonds and a rally in the dollar that has been reminiscent of the rout surrounding the collapse of Lehman Brothers investment bank three years ago.

"It seems periods of optimism are getting shorter and the pessimism is getting longer," said David Land, analyst at CMC Markets in Sydney.

"This is being driven by the clear realization that while there are many plans as to how to deal with the Euro situation, the reality of getting agreement will be that much harder."

Tokyo's Nikkei share average fell 1 percent, while MSCI's broadest index of Asia Pacific shares outside Japan dropped 0.8 percent, with its materials sub-index shedding more than 2 percent.

S&P 500 index futures were mildly negative, after Wall Street's broad benchmark dropped 2.1 percent on Wednesday.

"The market situation is still tough, with worries about global growth," said Fujio Ando, senior managing director at Chibagin Asset Management in Tokyo.

GERMAN VOTE

The latest source of nervousness was a vote in Germany's parliament at 0900 GMT on Thursday to approve new powers for the euro zone's 440 billion euro ($598 billion) rescue fund.

While opposition votes will ensure the bill passes, a big rebellion within Chancellor Angela Merkel's own center-right coalition could weaken her politically and cloud future policy making at a time when financial markets and other nations are urging euro zone leaders to act boldly and decisively.

The euro was a little firmer around $1.3555, while the dollar rose 0.2 percent against a basket of currencies.

"You would suspect weakness until Germany votes, given that it is the big guy that has to fund it," said Gavin Stacey, head of Australia and New Zealand research at Barclays Capital.

"The euro is most likely to continue its trend deterioration until it gets really bad, forcing a resolution to come."

Commodities continued to slide, with copper, which is highly sensitive to expectations for global growth, falling 3 percent to $7,036.75 a tonne.

U.S. crude oil futures fell 0.6 percent to $80.70 a barrel and Brent crude lost 0.4 percent to $103.37.

Gold, which has seen a shift from a negative to a positive correlation with riskier assets over the past week or so as investors seeking safety have turned their back on the metal in favor of the dollar and U.S. Treasuries, fell 0.2 percent to around $1,605 an ounce.

Japanese government bonds were in demand for their safe haven appeal, with the benchmark 10-year yield falling 1 basis point to 0.995 percent following similar moves in Treasuries, where the 10-year yield dipped back below 2 percent on Wednesday.

 

[EmpireGlobalfx]

Worst quarter for UK, German, French stocks in 9 years

(Reuters) - Shares in major European economies suffered their biggest quarterly loss in nine years, hit by concerns the global economy was slipping into recession and the euro zone debt crisis was deepening with Greece facing possible default.

The steep sell-off this quarter, wiping $1.2 trillion off European share values, was sparked by an intensification in the euro zone sovereign debt crisis and concerns the United States could be heading for a recession.

U.S. and German government bonds, however, were in demand as investors sought shelter in safe-haven assets.

Karen Olney of UBS said European stock valuations may be cheap but investors would remain cautious until euro zone politicians can come up with a decisive plan to finally put to rest the bloc's debt crisis, now threatening Italy and Spain, its third and fourth largest economies.

"Politicians tend to react better when the markets are falling than rising. If we don't get a solution imminently, we could have another leg down," said Olney, head of European thematic research at UBS.

"In a rising market, they are not going to come up with a grand slam plan. If the markets are suffering again, they may be pushed to come up with a solution that we need. This is why some people consider Europe difficult to invest in, almost uninvestable at the moment."

Among the worst to suffer in the recent sell-off was Germany's DAX finance/markets/index?symbol=de%21daxx">.GDAXI which had outperformed all other European markets in the first half of the year.

The German blue-chip index, home to conglomerate Siemens (SIEGn.DE) and automakers Daimler (DAIGn.DE) and BMW (BMWG.DE), lost 25.4 percent in July-September, its worst quarterly performance since the third quarter of 2002.

SHORTING BAN

France's CAC 40 .FCHI, and Spain's IBEX 35 .IBEX also posted their biggest three-month fall since the third quarter of 2002, despite their regulators, along with those from Italy and Belgium, banning short selling of financial stocks starting on August 12.

The CAC 40 fell 25.1 percent in July-September, with French bank Societe Generale (SOGN.PA) losing 51 percent over the same period -- its biggest quarterly loss ever.

The IBEX 35 index, meanwhile, was off 17.5 percent, while Italy's FTSE MIB .FTMIB was down 26.5 percent.

Britain's FTSE 100 .FTSE was down 13.7 percent, faring better than other major European markets but still posting its worst three-month performance in nine years.

That compared with a 17.1 percent fall over the same period for the pan-regional STOXX Europe 600 .STOXX index, which was its biggest quarterly loss since the fourth quarter of 2008 after the global economy was sent into a tailspin following the collapse of Lehman Brothers.

In terms of valuations, the DAX and the CAC 40 carried a 12-month forward price-to-earnings ratio of 8 and 7.7 respectively, slightly cheaper than the FTSE 100's 8.8 and the U.S. S&P 500's .SPX 10.9, data from Thomson Reuters Datastream showed.

"You don't get a sustainable rally until either the growth outlook improves or you get substantial progress on the sovereign debt crisis. In the absence of either of those things, investors should remain cautious and defensive positioned," said Ronan Carr, European equity strategist at Morgan Stanley.

Morgan Stanley was "overweight" telecoms .SXKP and healthcare .SXDP, and "underweight" banks .SX7P and industrials .SXNP.

However, RBS analysts said both the DAX and the FTSE 100 looked hard done by, based on their index composition, with German auto stocks and UK oil stocks among the most attractive on a relative value basis.

 

[EmpireGlobalfx]

Brent down in biggest quarterly drop since Q2 2010


(Reuters) - Oil prices slumped on Friday on renewed global economic worries, pushing back Brent more than 10 percent this month for its biggest quarterly decline in five quarters.

U.S. crude futures fared even worse, posting their weakest quarterly performance since the financial crisis of 2008 as a wobbly economy sparked more demand worries.

Crude futures fell with a broad array of commodities, led by copper, which with U.S. equities tumbled to its worst quarter since 2008. <.

In London, ICE crude for November delivery settled at $102.76 a barrel, dropping $1.19, or 1.14 percent, after touching a session low of $101.78.

For the quarter, Brent crude fell $9.72, or 8.64 percent, the biggest percentage loss since the second quarter of 2010. For the month, front-month Brent dropped $12.09, or 10.53 percent, the biggest monthly decline since May 2010.

U.S. November crude settled at $79.20 a barrel, falling $2.94, after dropping to an intraday low of $78.77.

For the quarter, U.S. crude fell $16.22, or 17 percent, the biggest percentage loss since the fourth quarter of 2008. For the month, it dropped $9.61, or 10.82 percent, the biggest monthly decline since May 2010.

Brent's premium against U.S. crude rose back to $23.56, after dropping to $21.81 on Thursday.

CHINA DATA ADDS TO CLOUDY OUTLOOK

The day's sell-off began after data showed that China's manufacturing sector contracted for a third consecutive month in September, adding to doubts about Europe's ability to solve its debt crisis.

That drove investors to sell riskier assets such as equities and commodities. Trading was volatile on quarter-end booksquaring, traders said.

The dollar rose while the euro sank, curbing risk sentiment across many commodities markets. <USD/> .DXY

A gloomy economic outlook and weak demand in the United States have dragged markets down this quarter, while the expected return of oil exports from Libya, cut off by the civil war, added a bearish spin this month.

"Declines in the stock market and the euro prompted much of today's weakness amidst reduced risk appetite," said Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois.

Trading in Brent was more hectic than U.S. crude, reaching 701,000 contracts as of 3:45 p.m. EDT (1945 GMT), which was 33 percent above its 30-day average.

U.S. crude volume hit nearly 599,000 contracts, down 5.3 percent from its 30-day average.

OPEC, LIBYA ADDING TO GLOBAL SUPPLIES

Supply from all 12 members of the Organization of the Petroleum Exporting Countries is forecast to average 30.25 million barrels a day this month, up from 30.15 million in August, according to a Reuters survey. <OPEC/O>

Libya's output has begun to recover after falling to almost nothing in the civil war, the survey found. The country exported one small crude cargo on September 25 and is reported to be sending some oil to refineries.

"If the current positive reports from Libya are confirmed, then domestic production could reach 1.3 million barrels per day by the end of next year," JP Morgan said in a note.

"On an annual average, this would lead to exports of around 0.6 mbd of light sweet crude, which together with rising Iraqi and non-OPEC output could lift supply by around 1.9 million bpd above today's levels."

 

[EmpireGlobalfx]

Kodak denies bankruptcy plan but shares plummet


(Reuters) Eastman Kodak Co shares lost more than half their value on Friday as the company hired a law firm well-known for bankruptcy cases, triggering speculation that the photography pioneer could file for bankruptcy.

Kodak, which delivered the first consumer camera in 1888, denied it had a bankruptcy plan, saying it was committed to meeting its obligations and is still looking for ways to "monetize" its patent portfolio.

Once synonymous with photography, Kodak has struggled with the move to digital cameras and failed to turn a profit since 2007. It has been exploring a sale of its digital imaging patents, worth an estimated $2 billion, and hired investment bank Lazard in July to explore options.

Rochester, New York-based Kodak said it has "no intention of filing for bankruptcy," after its shares plunged as much as 68 percent to 54 cents before recovering slightly to close down 53.8 percent at 78 cents on the New York Stock Exchange.

The company's market value plummeted to roughly $210 million on Friday, down from a lofty height of $31 billion in February 1997, as shown by regulatory filings. The cost to insure Kodak's debt with credit default swaps (CDS) surged on Friday as investors priced in greater bankruptcy risk.

Kodak had already scared markets on Monday when it tapped a credit line but refused to divulge its cash position. The stock dived to a 38-year low that day.

Then investors took fright again Friday after Bloomberg reported that potential buyers for its patent portfolio were cautious about going ahead with a bid as they could risk having Kodak creditors sue them after a bankruptcy filing.

Mark Kaufman, an analyst at Rafferty Capital Markets, said that Kodak urgently needed to seal a patent deal.

"I don't believe bankruptcy is inevitable. This is a pretty valuable portfolio, they should get a good price," he said. "They need to get this (sale) out of the way. They need to sell this portfolio, raise some type of cash."

The company said in July that it hired Lazard to advise on strategic options for its patents -- increasingly seen as lucrative assets. Bankrupt Canadian company Nortel fetched $4.5 billion in a patent sale in June, also run by Lazard. Google Inc agreed in August to buy Motorola Mobility for $12.5 billion primarily for its patent portfolio.

One expert -- Robert Miller, a professor at Villanova University School of Law -- said filing for bankruptcy may actually end up boosting the value of a patent sale.

Even if the company holds a robust, public auction outside of bankruptcy, the headache of litigation still looms if Kodak goes bankrupt later, said Miller.

Selling the assets as part of a bankruptcy court-supervised auction would solve that concern, Miller said.

Kodak confirmed that it has hired Jones Day but did not explain why, beyond saying it was "not unusual for a company in transformation to explore all options."

Investors for the company have been up in arms about everything from its share price decline to its management.

One shareholder had asked the company's board on Thursday to start a sales process while others sharply criticized Chief Executive Antonio Perez.

The company's board is not considering replacing Perez at this time, according to a story in the Wall Street Journal, which cited two people familiar with the matter.

Kodak CDS costs rose to 70 percent Friday from 61 percent Thursday, data provider Markit said. That means it would cost $7.0 million in upfront payments, plus $500,000 a year to insure $10 million debt if Kodak debt for five years.

"This is pretty expensive insurance at this point and the reason it's so expensive is that people believe there's a high likelihood of default," said Markit analyst Otis Casey.

 

[EmpireGlobalfx]

Qatar Holdings to invest $1 billion in European Goldfields


(Reuters) - Qatar's sovereign wealth fund will invest $1 billion in European Goldfields (EGUq.L) (EGU.TO) including $600 million to finance operations in Greece, where the London-based firm has a permit to mine gold, the fund's head said on Saturday.

It was the second major investment in Greece by the Gulf state in two months. Qatar struck a deal in August to provide funding for a merger of two of the recession-hit country's largest banks.

Greece, which is in dire need of private investment as its worst recession in four decades is seen extending into next year, has long sought to convince the wealthy emirate to invest in its private and public companies.

Qatar Holdings will buy a 10 percent stake in European Goldfields from Greek building firm Ellaktor (HELr.AT) and has a call option to buy another 5 percent, CEO Ahmad al-Sayed said after a meeting between Greek and Qatari officials in Athens.

"In total, we will invest in the company about $1 billion," Sayed told reporters.

Sayed also said Qatar was "examining different opportunities in the country."

Greece granted European Goldfields a long-awaited permit in July that allows it to mine for gold in the north of the country, a move set to turn the London-based firm into the European Union's largest primary gold producer.

The European Goldfields deal was announced after Qatar's Emir Sheikh Hamad bin Khalifa al-Thani met Prime Minister George Papandreou in Athens on Saturday.

"Qatar's investments show trust in the Greek economy," Papandreou told a news conference after the meeting.

Qatar's investment in Greek banks in August will give it about 17 percent of the lender that will be created by the merger of Alpha Bank (ACBr.AT) and Eurobank (EFGr.AT).

Paramount, a company controlled by Qatar, will own the stake after taking part in a 1.25 billion euro rights offer and fully taking up a 500 million euro convertible bond issue.

 

[EmpireGlobalfx]

Nikkei drops 2.3 percent on European debt fears


(Reuters) - The Nikkei average dropped 2.3 percent on Monday, as fears of slowing global growth and the spreading impact of Europe's credit woes encouraged investors to pull funds out of risk assets.

Bank shares slipped after news that Greece will miss a deficit target set just months ago in a massive bailout package. Government draft budget figures released on Sunday showed that drastic steps taken to avert bankruptcy may not be enough.

"The October-December quarter begins today, so there is hope for domestic fund buying, but right now the market's focus is Greece's problems and how Europeans will address the situation, as well as U.S. data this week that will show us more about the economy," said Fujio Ando, senior managing director at Chibagin Asset Management.

The Bank of Japan's tankan survey released before the market open showed business sentiment turned positive in the third quarter as companies restored supply chains hit by the March earthquake, even as a strong yen and the euro zone debt crisis clouded the outlook.

"The results show that the domestic economy is holding up even with the strong yen, and the biggest concerns are external, not internal, such as the impact of Europe's debt problems on global growth," said Yutaka Shiraki, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

The Nikkei markets/index?symbol=jp%21n225">.N225 fell 2.3 percent to 8,503.88 by the midday break. The benchmark gained 1.6 percent last week but lost 2.8 percent for the month and 11.4 percent for the quarter, turning in its worst quarterly performance since June 2010.

The broader Topix index finance/markets/index?symbol=jp%21ixj">.TOPX declined 2.7 percent on Monday to 740.46.

EUROPEAN EXPOSURE

U.S. investment bank Morgan Stanley (MS.N) plummeted on Friday on concerns about its exposure to European banks, leading financial shares lower, and that weighed on their counterparts in Japan.

Mitsubishi UFJ Financial Group (8306.T) fell 4 percent to 340 yen and Sumitomo Mitsui Financial Group (8316.T) slipped 3.9 percent to 2,120 yen.

Major Japanese producers of electric cables and wires extended their slide into Monday, led by Sumitomo Electric (5802.T), which was down 9.7 percent at 828 yen on more than twice its average 30-day volume, after Furukawa Electric (5801.T) agreed on Friday to a $200 million fine to settle investigations into price-fixing in the United States.

Analysts said Sumitomo and Fujikura (5803.T), which are also under investigation by U.S. authorities, risk similar fines. Furukawa declined 6.6 percent to 199 yen while Fujikura was 4.3 percent lower at 246 yen.

Shares of Mitsui OSK Lines (9104.T) slumped to their lowest since March 2003 after the shipping company slashed its first-half earnings outlook to a net loss of 17 billion yen ($221 million) from a profit of 1 billion yen. Rival Kawasaki Kisen (9107.T) fell 4.3 percent and Nippon Yusen (9101.T) dropped 5.2 percent.

Softbank Corp (9984.T) rose 3.3 percent to 2,367 yen and was the heaviest-traded issue by turnover, after Jack Ma, CEO of China's e-commerce leader Alibaba, said he was keen on buying Yahoo Inc (YHOO.O). Softbank owns about 30 percent of Alibaba Group, and holds 42 percent in Yahoo Japan (4689.T), which is owned 35 percent by Yahoo.

Promise Co (8574.T), a Japanese consumer lender, remained untraded as buy orders outnumbered sell offers after the company said on Friday that SMFG would launch a tender offer to buy the outstanding shares of Promise it does not already own for 780 yen each.

Promise shares closed at 659 yen on Friday, 18 percent below the tender offer price. They were bid at 759 yen on Monday.

Aiful (8515.T), a consumer lender affiliated with Mitsubishi UFJ Financial, rose 3.5 percent to 117 yen, while Acom (8572.T), a lender which had sought rescheduling of debt repayments, rose 6.5 percent to 1,598 yen.

Volume was moderate, with 790 million shares traded on the Tokyo Stock Exchange's main board, suggesting the daily total could fall short of last Friday's 2 billion shares.

 

[EmpireGlobalfx]

Euro hits 8-mth low as Greek woes deepen

(Reuters) - The euro sank to an eight-month low against the dollar on Monday and is poised to fall further after the Greek government said the debt-ridden country will miss a deficit target set just months ago in a massive bailout package.

Traders and analysts said that with Europe divided over the best cure for the debt crisis and with the possibility of a Greek default looming larger than ever, the euro was likely to grind lower in the coming days.

"A Greek default is a sort of Pandora box no one wants to open. While some markets seem to have priced in such possibility, it looks like euro has still some way to go should it happen," said Teppei Ino, a currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The euro dived as deep as $1.3323, from $1.3418 in New York on Friday, before nudging back up to $1.3344. The single currency lost 7 percent in September, its largest monthly drop since November 2010.

It also fell to a one-week low against the yen at 102.98, moving a notch closer to a decade low at 101.95 yen.

If Greece defaults on its debt, Ino said he thought the euro could initially fall to $1.32 and would then quickly move toward $1.30.

Underscoring jitters over European financial institutions, reports emerged that ministers from France and Belgium would meet to shore up the balance sheet of troubled financial services group Dexia.

Making matters worse, Germany's finance minister ruled out a higher contribution to the euro zone's rescue fund beyond an already approved 211 billion euros ($281.3 billion), while a key German coalition member of parliament said "Greece is bankrupt."

For now, technical support for the single European currency lies at January lows around $1.3250-80 and then in the $1.3250-00 zone, formed by trend channels, internal wave targets and Fibonacci projection objectives.

This support area combined with the strong resistance on the dollar index at 78.75-90, formed by a cluster of highs and lows on the daily charts, has the capacity to provoke a correction to the euro's decline from $1.4939.

Greece will miss a deficit target despite severe austerity measures, although inspectors from the IMF, EU and European Central Bank --the troika--are widely expected to release the next aid package.

While all eyes will be on the inspectors' forecasts for 2012-2014, Greek bond holders may have to take even larger haircuts, according to some reports. [ID:nL5E7KU270]

Euro zone finance ministers are expected to discuss various plans about Greece and the rescue fund later on Monday.

Dexia, which received a combined 6 billion euro bailout from Belgium and France at the height of the financial crisis in 2008, has been badly hit by its huge exposure to Greece as well as the freeze in the inter-bank lending markets.

EDGING HIGHER

The dollar index hit an eight month high, edging up 0.5 percent to 78.888.

The greenback also gained a little on the yen, adding 0.1 percent to 77.10 yen after breaking above its 55-day moving average at 77.17 for the first time since its spike after intervention on August 4. Stop losses loom around 77.30 yen, traders said.

Although the dollar failed to maintain early gains above 77.17, a close above the mark could improve sentiment toward the pair, especially as seasonal selling before end-Sept book-closings by Japanese exporters has run its course.

Tokyo dealers also reported macro funds building dollar-long positions and analysts said that if the current crisis deepened, this time the yen could weaken versus the dollar, unlike the global financial crisis in 2008.

"Contrary to what happened during the global financial crisis in 2008, this time the yen carry trade has not been as active," said Junya Tanase, chief strategist at JPMorgan Chase in Tokyo, adding that the dollar may strengthen to 78-79 yen over the next two weeks, although other yen crosses were likely to soften.

PMI numbers from China and the export numbers from Korea suggest global demand has not eased as quickly as some investors had feared in recent weeks, but this failed to make much of an impact on financial markets.

The Australian and New Zealand dollars were off to a rocky start on Monday with the Aussie at $0.9665.

European manufacturing PMI will be released on Monday and another deterioration below the key 50 level could see the euro sink further. It is also a big week for U.S. data with ISM Manufacturing on Monday and non-farm payrolls on Friday.

 

[EmpireGlobalfx]

Gold rises for third day after Greece rocks markets


(Reuters) - Gold headed for its largest one-day rise in nearly a month on Monday and silver climbed almost 5 percent after Greece warned it will miss deficit targets set to avoid bankruptcy, unleashing a sell-off in equities and commodities.

European stocks slid nearly 2 percent .STOXX, while U.S. crude futures fell 2.1 percent and palladium dropped 3.3 percent to hit one-year lows after Greece said it will miss the deficit targets set in July.

Gold has assumed a more habitual trading pattern of rising in times of uncertainty after staging its largest monthly drop since the credit crunch of 2008 in September as the escalating Greek crisis prompted investors to seek safety in the dollar.

Spot gold was up 2 percent at $1,655.19 an ounce at 1350 GMT. U.S. gold futures for December delivery were up 2.2 percent to $1,657.40 an ounce.

"The environment for gold is still kind of perfect," said Ronald Stoeferle, gold analyst at Erste Group. "We have negative real interest rates more or less all over the world, there's extreme systemic risk, and there is a very fundamental need for a safe-haven currency."

Gold's status as a haven has not been damaged by last month's sharp correction, he added.

"We're still up (16.5 percent) in 2011. Compared to the equity markets, that's a pretty nice outperformance," he said. "Corrections like this are healthy for the long-term uptrend."

On the currency markets, the euro slipped to within sight of an eight-month low against the dollar as mounting concerns of a Greek default deepened investor worries about the health of the euro zone's banking sector.

Financial markets are awaiting a spate of events this week, including key U.S. non-farm payrolls data on Friday and the European Central Bank's interest rates decision on Thursday.

The ECB is expected to leave benchmark euro zone rates on hold this week and signal a shift in its interest rate-rise cycle after a raft of weak economic data and a deterioration in funding conditions for some of the bloc's indebted nations.

Also on the slate, Federal Reserve chairman Ben Bernanke is scheduled to testify on the economic outlook to the Joint Economic Committee on Tuesday.

The head of the U.S. central bank put markets on notice last week, signaling that despite already having spent trillions of dollars to stimulate growth, the Fed would do more if inflation falls too far and the threat of deflation grows.

PRICE DROP PROMPTS PHYSICAL BUYING

The gold price fell nearly 11 percent in dollar terms in September, its largest one-month fall since October 2008. On a quarterly basis, however, the third three months of 2011 marked gold's strongest performance since the last quarter of 2010.

Gold's 20 percent fall from September's record high at $1,920.30 an ounce has tempted physical consumers of the metal back into the market, even though speculators cut their investment the precious metal in favor of owning U.S. dollars.

The latest data from the Commodity Futures Trading Commission on holdings of gold futures shows speculators cut their position to its lowest since the second quarter of 2009, highlighting the move from hard assets to U.S. dollars.

"After the recent washout, gold positioning is far from extended and this is quite a bullish signal for price strength ahead," said UBS in a note. "The 'clean' nature of current spec positions, along with physical and long-term demand, is creating a very healthy foundation for gold to climb from."

Markets are closed in number two gold consumer China for a public holiday. But demand from other key gold-buying regions has picked up in the last couple of weeks, pushing Asian premiums to their highest since the start of the year.

In the world's third largest consumer, Turkey, gold imports hit 18.23 tonnes in September, their highest in three years, data from the Istanbul Gold Exchange showed.

Silver was up 2.7 percent at $30.68 an ounce, having earlier risen as high as $31.38. It fell by nearly 28 percent in September, its biggest one-month drop since the early 1980s.

Echoing weakness in other industrial commodities, platinum fell 1.9 percent to $1,495.74 an ounce, while palladium dropped 3.4 percent to near one-year lows at $589.25.