Tuesday, September 05, 2006

GLOBAL MARKETS-Yen extends gains, Asian markets await US return

By Jeremy Laurence

SINGAPORE, Sept 5 (Reuters) - The yen extended gains on Tuesday, riding to a two-week high against the dollar on economic optimism, while trading in Asian shares was mostly listless after the Labor Day holiday in the United States.

Britain's FTSE 100 index (.FTSE: Quote, Profile, Research), which had climbed to a 3- month high on Monday, opened little changed while France's CAC 40 <.FCHI> and Germany's DAX <.GDAXI> dipped slightly.

Oil prices steadied after their recent fall, which came as fears eased over OPEC producer Iran's nuclear ambitions.

The Tokyo and Seoul share markets closed slightly higher.

The Japanese currency rallied after Monday's strong data on capital spending prompted a market which was heavily short of the yen to buy it back. Data showed short positions in the yen were at a record high last week.

"The spending data was strong ... so the market is testing the upper and lower limits of recent ranges," said Nobuo Ibaraki, forex manager at Nomura Securities, referring to the 114-118 yen range the dollar/yen has traded in for much of the summer.

The dollar traded around 115.85 yen at 0610 GMT, while the euro was trading at 148.73 yen .

Japan's Nikkei average ended up 0.17 percent as investors sought bargains in stocks such as Internet group Softbank Corp (9984.T: Quote, Profile, Research) while a stronger yen prompted some profit-taking on exporters such as Honda Motor Co. Ltd. (7267.T: Quote, Profile, Research).

Sharp Corp (6753.T: Quote, Profile, Research) declined after the Daiwa Institute of Research downgraded the stock while Fast Retailing Co. (9983.T: Quote, Profile, Research) managed to end flat despite announcing it would not make a bid for Hong Kong-listed clothing retailer Giordano International Ltd. (0709.HK: Quote, Profile, Research).

The Nikkei <.N225> eked out a 27.89-point gain to close at 16,385.96 after hitting a three-month high on Monday.

MSCI's broadest index of shares elsewhere in Asia <.MSCIAPJ> was up 0.1 percent at 0618 GMT.


Seoul's benchmark index <.KS11> edged 0.16 percent higher, hitting a three-month closing high. State-run power provider Korea Electric Power Corp. (KEPCO) (015760.KS: Quote, Profile, Research) rose 0.68 percent, while Hynix fell 2.25 percent.

Lee Woo-hyun, an analyst at Kyobo Securities, said he expected the KOSPI index to post more gains this month amid expectations the U.S. economy will avoid a hard landing.

"U.S. markets and global markets have risen to due to easing worries about a slowdown in the (U.S.) economy," he said. "Those factors could continue to drive up the markets in September."

Taiwan's main index <.TWII> dipped 0.24 percent, while Hong Kong's benchmark index <.HSI> was slightly down by midafternoon.

China forex reserves hit 954.5 bln dlrs, must not rise further: VP

[05 Sep 2006]

Vice President Zeng Qinghong

China's forex reserves rose further to hit 954.5 billion dollars at end-July but they must not be allowed to grow much more because of the upward pressure they put on the yuan, Vice President Zeng Qinghong said in an article.

The latest figure translates into 30.3 percent growth from 732.7 billion dollars at the end of July 2005 and places China well on track to hold an unprecedented one trillion dollars in forex reserves by the end of the year.

China's foreign reserve holdings, already the biggest in the world, hit 941.1 billion dollars at the end of June, a 32.4 percent increase from a year earlier, the central bank reported in July.

Zeng, writing in an article published on the website of the official Study Times, said China will take measures to ensure that there is no further significant rise in the reserves.

"The foreign exchange reserves have reflected China's growing economic power but on the other hand they have increased exchange rate risks and added upward pressure on the yuan," he said in the article.

"We will take comprehensive measures to avoid further significant growth in the foreign exchange reserves," he added.

Dollar sidelined as yen powers on

By Carrie LaFrenz
September 05, 2006 06:24pm

THE dollar took a breather today, but the Japanese yen powered ahead on the back of strong capital expenditure figures (CAPEX).

At 5pm (AEST) the local currency was trading at 76.93 US cents, down from yesterday's close of 77.11.

Macquarie Bank divisional director Geoff Bowmer said the local unit took a breather today, lacking direction due to the US Labour Day holiday.

He said the real story on the day was the Japanese yen.

“As some of those yen crosses are unwound, due to the strong CAPEX figures in Japan, the yen has strengthened a bit today again,” he said.

“That has translated to some US dollar weakness.”

Mr Bowmer said over the past year, moves that have been typically yen-related had “morphed” into a general US dollar story.

“The US dollar weakness has acted to support the Australian dollar at about 77 US cents,” he said.

Mr Bowmer said ahead of the Reserve Bank of Australia's announcement on interest rates tomorrow and the release of the national accounts data, US dollar weakness alone is not enough to sustain the local currency's move higher.

Meanwhile, economists made last minute adjustments to their gross domestic product growth (GDP) estimates as they prepare for national accounts.

Estimates of today's government spending data imply a positive contribution to growth in GDP of about one third of one percentage point in the June quarter, AAP economist Garry Shilson-Josling said.

Government final consumption expenditure rose by 1.1 per cent in the quarter, while public sector gross fixed capital formation was up by 3.4 per cent, the Australian Bureau of Statistics said.

Total public sector spending, which makes up about 22 per cent of GDP, was up by 1.5 per cent.

The new market median for GDP growth in the June quarter is 0.7 per cent and 2.6 annually.

During the day the Australian dollar reached a low of 75.94 US cents and a high of 77.19, a level not reached since mid May.

It finished at 89.08 yen from yesterday's close of 89.80 yen and at 59.92 euro cents from 59.98.

The euro was at 1.2838 US dollars from 1.2854 and was at 148.65 yen from 149.69 yen.

The US dollar was at 115.81 yen from 116.47.

Meanwhile, Australian bonds ended the day weaker amid thin trading.

At 4.30pm (AEST) the yield on the Commonwealth Government April 2015 bond was 5.645 per cent compared to yesterday's close of 5.640 per cent, while the yield on the August 2008 bond was 5.895 per cent from 5.855 per cent.

On the Sydney Futures Exchange, the September 10-year bond futures contract price was at 94.360 from yesterday's close of 94.365, while the September three-year bond contract price was at 94.160 compared to 94.190.

Westpac senior market strategist Damien McColough said local bonds struggled in absence of offshore leads.

“There has been very low volume, obviously awaiting the US to come back to see what kind of reaction they have after the long weekend,” he said.

The 90-day bank bill rate was at 6.205 per cent today from yesterday's close of 6.195 per cent, while the 180-day rate was at 6.315 per cent from 6.305 per cent.

At 4pm the dollar on the Reserve Bank of Australia's trade weighted index (TWI) was unchanged from yesterday's close of 64.1 points.

Nikkei gains, Softbank up but stronger yen weighs

By Eriko Amaha

TOKYO (Reuters) - The Nikkei average ended up 0.17 percent on Tuesday as investors sought bargains in stocks such as Internet group Softbank Corp. while a stronger yen saw profits taken on exporters such as Honda Motor Co. Ltd.

Sharp Corp. declined after Daiwa Institute of Research downgraded it while Fast Retailing Co. managed to end flat despite announcing it would not make a bid for a fellow clothing retailer Giordano International Ltd., which is listed in Hong Kong.

"Softbank and Rakuten are rebounding and that shows a healthy appetite among retail investors," said Toru Otsuka, deputy general manager of Mizuho Investors Securities Co. Ltd.'s investment information department, referring to Rakuten Inc. which fell 16 percent last week.

The Nikkei eked out a 27.89-point gain to close at 16,385.96 after hitting a three-month high on Monday. The broader TOPIX index inched up 0.12 percent to 1,651.35.

Investors appear to be split over the outlook for the Japanese economy, keeping the market in check. Pessimists include Takahiko Murai, general manager of equities at Nozomi Securities, who said weak consumer price and industrial production data, among others, had led institutional investors to reallocate money into bonds from stocks.

"The Japanese economy is slowing down. Corporate earnings look strong right now and money is coming into the stock market," he said. "It looks like we might see a limit to profit growth going forward."

But Masaru Hamasaki, a senior strategist at Toyota Asset Management, said his firm projects 7 to 8 percent growth in recurring profit for the year to next March at major non-financial companies on the Tokyo Stock Exchange's first section.

That compares with an average 2 percent rise projected by those firms, according to data compiled by Shinko Research Institute, which raises the possibility that many of them could upgrade their forecasts.

"A slowdown in the economy probably cannot be avoided. But we expect corporate earnings to remain strong with factors such as cost-cutting," he said.


Telecoms and Internet firm Softbank soared 5.7 percent to 2,310 yen, taking its gains to more than 15 percent since it set a one-month low of 1,995 yen on Aug. 28, hit by a bearish report by Lehman Brothers which lowered its target price to 900 yen.

All Nippon Airways Co. Ltd. climbed 2.4 percent to 473 yen after Credit Suisse raised its price target for Japan's No.2 airline to 450 yen from 390 yen on a stronger-than-expected business performance during the peak summer travelling season.

Other gainers included Nippon Steel Corp., which rose 2.0 percent to 509 yen after business daily Nihon Keizai reported that Japan's biggest steel maker and South Korea's POSCO are in talks to jointly develop mines, supply each other with semi-finished products and lift their cross-shareholdings.

Meanwhile, auto stocks slid as the yen rose to a two-week high against the dollar with Honda falling 0.8 percent to 3,950 yen. The stock also hit a three-month high last week, making it susceptible to profit-taking.

In the technology sector, Sharp fell 1.9 percent to 2,080 yen after Daiwa cut its rating on the stock to a "3" from a "2".

Other tech shares lost ground. Shares in Olympus Corp., which hit a five-month high on Monday, dipped 0.6 percent to 3,520 yen while copier maker Fuji Photo Film Co. fell 1.1 percent to 4,330 yen after hitting a four-year high.

Fast Retailing, the operator of the Uniqlo casual-wear chain whose shares had gained some 16 percent since news broke that it was eyeing Giordano, ended unchanged at 11,120 yen.

Among notable stocks, ceramic construction materials maker Nichias Corp. tumbled 5 percent to 824 yen while A&A Material Corp. declined 3 percent to 192 yen after the Fair Trade Commission said it had raided the firms' offices on suspicion of price-fixing.

Separately, mixi Inc, Japan's largest Web operator of social networking systems, has set its initial public offering price at 1.55 million yen ($13,360). The company plans to go public on Sept. 14.

Real estate developer Tokyu Land Corp. and movie producer Toho Co. Ltd. will likely draw buyers on Wednesday as these two issues will join the Nikkei 225 share average when the benchmark is reshuffled next month, the compiler Nihon Keizai Shimbun Inc. said after the market closed.

Trade volume edged up with 1.77 billion shares changing hands, up from 1.66 billion shares on Monday. Advancers outpaced decliners 928 to 646.

Thursday, August 31, 2006

Yen May Fall to 155 per Euro, Bank of Tokyo-Mitsubishi UFJ Says

By Kosuke Goto

Sept. 1 (Bloomberg) -- The yen may weaken to a record 155 per euro in the next six months on speculation a slowing global economy will sap foreign-investor demand for Japanese stocks, according to Bank of Tokyo-Mitsubishi UFJ Ltd.

Concern higher global interest rates will slow world growth and curb risk appetite will harm Japan's equity markets more than Europe's, said Osamu Takashima, chief analyst for the global market sales and trading division for the bank.

``In the phase of global slowing, the euro reaps more benefit from investors reducing risk appetite than the yen,'' said Takashima at the unit of Japan's biggest lender by assets. ``The yen will continue to slide steadily against the euro.''

Japan's currency traded at 150.02 per euro at 12:40 p.m. in Tokyo, from 150.42 late in New York yesterday, when it fell as low as 150.73, the weakest since the euro's 1999 debut. Against the dollar, it traded at 117.22 from 117.40 yesterday.

Investment in Japanese stocks from overseas makes up about 70 percent of total foreign-fund inflow, while in the European region it accounts for no more than 50 percent, Takashima said.

``The inflow of foreign funds into European stock markets has been larger than we expected,'' Takashima said.

The Dow Jones Stoxx 600 Index, which tracks Europe's 600 largest listed companies, has advanced 8 percent this year. By contrast, Japan's Topix index, comprising 1700 stocks, has lost 1.5 percent.

`Strong Vigilance'

Europe's 12-nation currency is heading for a weekly gain against the yen and dollar on speculation faster economic growth will prompt the European Central Bank to keep raising interest rates. President Jean-Claude Trichet yesterday pledged ``strong vigilance'' on inflation, a phrase previously used to signal an imminent increase.

The ECB has raised rates four times since December, last lifting its refinancing rate to 3 percent on Aug. 3. The Bank of Japan increased the benchmark overnight lending rate to 0.25 percent from near zero percent on July 14 for the first time in six years.

Traders are increasing bets the ECB will raise rates twice more this year and the BOJ none.

``Japan's absolute interest-rate disadvantage still prevails, with the ECB heading for higher rates,'' Takashima said. ``This will weigh on the yen.''

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net ;

Dollar May Gain on Speculation U.S. Added Jobs at a Faster Pace

By Chris Young and Ron Harui

Sept. 1 (Bloomberg) -- The dollar may strengthen for a second day against the euro and a third versus the yen on speculation a government report will show the U.S. economy added the most jobs in five months.

Projected gains in employment may prompt investors to restore bets the Federal Reserve will revert to raising interest rates after last month breaking a two-year cycle of increases. The dollar yesterday climbed as a government report showed U.S. consumer spending in July rose the most since January.

``A stronger jobs number will give the dollar a boost,'' said Stephen Koukoulas, chief Asia-Pacific strategist at TD Securities Ltd. in Sydney. ``We're expecting reasonable strength in payrolls numbers and that will probably damp expectations the U.S. economy is slowing too abruptly.''

The dollar traded at $1.2805 at 10:50 a.m. in Tokyo compared with $1.2813 in late New York yesterday. It may rise to $1.27 after the jobs report, Koukoulas said.

The U.S. currency bought 117.26 yen from 117.40 yesterday, when it reached a six-week high of 117.50 yen.

Employers in the U.S. added 125,000 workers to payrolls in August, according to the median forecast of 78 economists surveyed by Bloomberg News.

The unemployment rate fell to 4.7 percent from 4.8 percent in July, the survey showed. The Labor Department plans to release its report at 8:30 a.m. in Washington.

Too Aggressive

The dollar has weakened the first Friday of the past four months as the jobs numbers have fallen short of economists' estimates.

U.S. consumer spending rose 0.8 percent in July, following an increase of 0.4 percent in June, the Commerce Department reported yesterday.

Stronger-than-expected jobs numbers will support the dollar because investors have too aggressively cut bets the Fed will raise rates again, said Koukoulas.

The Fed held its overnight lending rate between banks at 5.25 percent on Aug. 8 after 17 straight increases. Interest-rate futures show the odds of another quarter-percentage point increase by Dec. 31 are about 12 percent from 100 percent in July.


The yen's decline may stall on speculation China will allow faster appreciation of the yuan after International Monetary Fund Managing Director Rodrigo de Rato today said in an Internet-media briefing in Washington the nation needs a currency that reflects an economy that had the quickest pace of growth in a decade.

A stronger yuan increases Chinese consumers' buying power for Japanese products and helps to damp China's export-led expansion. Exports made up about 35 percent of China's gross domestic product last year.

``There's talk China may increase the value of the yuan,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``This would push the yen higher.''

The yen traded at 150.33 per euro from 150.42 yesterday, when it reached 150.73, the weakest since the euro's 1999 debut. It may move between 149.50 and 151.00 versus the euro and 117.00 and 118.00 against the dollar today, he said.

China's trade surplus was a record $14.5 billion in June from $13 billion the prior month, pushing economic growth to 11.3 percent in the second quarter, the fastest in more than a decade.

`Strong Vigilance'

The euro may be supported before European reports today that are likely to show unemployment in the 12-nation region held at a record low in July and its economy grew the most in six years in the second quarter.

The currency is heading for a weekly gain against the dollar and the yen on speculation faster economic growth will prompt the European Central Bank to raise interest rates. President Jean- Claude Trichet yesterday pledged ``strong vigilance'' on inflation, a phrase previously used to signal a rate increase. He will attend a conference in Italy tomorrow.

``He's likely to reiterate `strong vigilance,''' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The bias for the euro is positive.''

The jobless rate of the dozen countries sharing the euro held at 7.8 percent in July, according to the median forecast of 28 economists surveyed by Bloomberg.

The $10 trillion economy expanded 0.9 percent in the second quarter, matching the preliminary figure released Aug. 14, according to a separate Bloomberg survey.

Eurostat, the European Union's statistics office in Luxembourg, releases both reports at 11:00 a.m.

The ECB yesterday left its key rate at 3 percent, as expected by 45 of 46 economists surveyed by Bloomberg News. Trichet said at a news conference rates are ``still low'' and the central bank expects inflation to stay ``elevated.''

Interest-rate futures indicate traders expect the ECB to raise its main rate to at least 3.50 percent this year. The yield on the December contract gained 7 basis points last month to 3.63 percent.

The contracts, traded on the London International Financial Futures Exchange, settle to the three-month interbank offered rate for the euro, which has averaged 16 basis points above the ECB's benchmark rate since the 1999.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net ; Ron Harui in Singapore at rharui@bloomberg.net

Aussie Trades Choppy With Yen Late New York Thursday

8/31/2006 11:27:58 PM Despite positive Australian economic releases, AUD/JPY traded uncertain during late Thursday in New York. According to an Australian Bureau of Statistics release on New York Thursday, the Australia AiG PMI rose 2.4 points in August to 52.1 from 49.7 for the previous month. Also, Australian current account deficit in the second quarter, seasonally adjusted, fell 3% from prior quarter to AS$ 13.24 billion, when the market expected a deficit of AS$ 13.80 billion.

The Australian dollar bounced around between 89.36 and 89.56 against the Japanese currency early Thursday New York dealings. During mid-day trading, the pair ticked up by a few points but started a choppy trend soon after. Amid release of Australian data, AUD/JPY continued its uncertain trading. As of 11:25 pm Eastern Time, Thursday, an AUD collected 89.62 Japanese Yen. Japan's August month vehicle sales report is due out shortly.

Forex - US dollar mixed in Sydney morning; cautious ahead of ECB, Bernanke

SYDNEY (XFN-ASIA) - The US dollar was trading higher against the yen but down on the euro as currencies tread water ahead of tonight's European Central Bank meeting and a speech by Federal Reserve chairman Ben Bernanke, dealers said.

They said no change in official interest rates is expected by the ECB, but possible surprises in the central bank's accompanying statement or in Bernanke's speech is keeping traders cautious.

At 10:27 am Sydney time, (0027 GMT), the US dollar was at 117.24 yen, up from 117.15 yen in late New York trade while the euro was at 1.2839 usd, up from 1.2833 usd.

National Australia Bank strategists said traders appear to be boosting carry trade bets with the fading expectations of another rate hike by year-end in the US and Japan.

They said the implied probability of another Federal Reserve interest rate hike has fallen to just 18 pct from near 30 pct at the start of the week, while the euro hit a fresh record high above 150.00 yen overnight.

But, the NAB strategists warned, "this trade is looking very crowded with speculative investors holding a record net long euro/yen position."

Dealers said the US dollar continued to range-trade overnight, holding between 116.80-117.30 yen and the euro was held in a 1.2810-1.2845 usd band.

They said data released overnight was consistent with the Federal Reserve's view that US economic growth is slowing.

This included the upward revision to US gross domestic product growth in the second quarter to 2.9 pct which was below market expectations of a revision to 3.0 pct.

Meanwhile, dealers said the key inflation gauge favoured by the Federal Reserve - the core measure of personal consumption expenditure (PCE) prices -was revised down to 2.8 pct from the earlier reported 2.9 pct.

Forex - Yen pulls back vs dollar in Singapore afternoon trade on weak July data

SINGAPORE (XFN-ASIA) - The yen lost ground against the US dollar in afternoon trade here, undermined by weak Japanese industrial production data for July released this morning which gave rise to renewed speculation the Bank of Japan is likely to keep its benchmark rates on hold, dealers said.

The dollar meanwhile eased moderately against the euro ahead of the European central bank meeting later today, they said.

At 3.12 pm here (0712 GMT), the dollar was at 117.34 yen, up from 117.26 in Tokyo midday, while the euro was at 1.2836 usd, up from 1.2826 in Tokyo earlier.

The yen retreated against the dollar after Japan said its industrial output fell a preliminary 0.9 pct in July from June. This was the first drop in two months and was weaker than the consensus call of a 0.5 pct gain and a 2.2 pct rise shown in the trade ministry's survey for the month.

"The yen appears headed for its worst performing month since March on renewed speculation the Bank of Japan will hold its benchmark interest rate constant after raising it in July for the first time in

six years," said analysts at Leichtenstein's LGT Bank.

The euro also rose against the yen but held to a relatively tight range against the dollar, while euro-dollar gave a lackluster performance which dealers attributed to caution ahead of the European central bank policy board meeting later today.

The ECB is widely expected to keep rates unchanged.

But iInvestors will be closely watching what ECB president Jean-Claude Trichet will say at the press conference to be held after the rate decision is announced, with many betting he will make hawkish overtures and underpin views of an October rate hike.

"Risks are for Trichet to up the ECB's current stance of 'monitor very closely' price developments, to 'strong vigilance,' a phrase which ECB usually uses to signal an imminent hike," said UOB forex strategist Amy Yeo.

"With such a change likely read as hawkish, this would be in line with expectations for a rate hike at the next policy meeting scheduled in October," Yeo added.

Other than the ECB meeting, investors will also be looking at further US data releases including personal income tonight and tomorrow's key non-farm payrolls data.


08/31/06 02:32 am (GMT)

Currency opens on steady note

THE dollar opened slightly higher today after see-sawing with the US dollar overnight, while traders prepare for today's local current account deficit.

At 0700 AEST the local unit was trading at $US0.7637/41, similar to yesterday's close of 0.7631/33.

Overnight it reached a low of $US0.7610 and a high of 0.7649.

The local unit managed to hold some of its overnight gains despite moving lower against the US dollar.

ICAP's head of economics and strategy Michael Thomas said the local unit rose against the US dollar early on but fell back as the US unit gained on the back of positive economic data.

"Early on the euro was the strongest currency and that was off the back of ECB (European Central Bank) signalling they would put rates up," he said.

"But the US dollar did come back and we have seen a simular pattern with the Aussie dollar."

Today the current account deficit for the June quarter is due which will might attract some interest if its a fair way from expectations, Mr Thomas said.

"Typically, it's something that moves the Aussie dollar around a little bit, however, the other numbers on (Wednesday and Thursday) were very near expectation that they really did no move the market at all," he said.

Economists have estimated the current account deficit to remain at about $14 billion in the June quarter following a deficit of $13.999 billion in the March quarter.

This is equal to 5.7 per cent of gross domestic product (GDP).

Mr Thomas also said commodities are starting to "wobble around again" and with many traders coming back after northern hemisphere summer holidays, and that a move or new trend will likely be more sustained with more.

"I suspect next week that moves we see will be longer lasting than what we have seen over the last couple of weeks," he said.

N.Z. Dollar Heads for Biggest Weekly Gain in Two Years on Rates

By Tracy Withers

Sept. 1 (Bloomberg) -- New Zealand's dollar is headed for its biggest weekly gain in more than two years as investors are attracted to the nation's high yields amid speculation the central bank won't cut interest rates until at least March.

The yield on New Zealand three-year government bonds has widened to 1.76 percentage points more than the equivalent U.S. maturity, from as little as 0.9 points in April, buoying demand for the currency. New Zealand's dollar has gained 3 percent this week, its biggest advance since May 2004.

``Recent New Zealand dollar moves are all about yield,'' said Sean Comber, market economist at ANZ National Bank Ltd. in Wellington. ``It doesn't appear too difficult for the currency to extend'' its gains, he said.

The currency rose to 65.58 U.S. cents at 9:55 a.m. in Wellington from 65.22 cents in late Asian trading yesterday. It bought 63.65 cents in late New York trading on Aug. 25.

The New Zealand dollar's 7.8 percent gain so far this quarter is the best-performance of a major currency. The local dollar, which is near a six-month high, may rise as high as 65.95 cents, Comber said.

Taking advantage of the nation's high yields, Rentenbank, the state-owned German lender to the rural industry, sold NZ$85 million ($56 million) of two-year Uridashi bonds to Japanese individual investors yesterday.

Reserve Bank Governor Alan Bollard on July 27 said it will be some time before he can consider lowering the official cash rate from 7.25 percent because of inflation. Consumer prices rose 4 percent in the three months to June 30, the fastest in five years.

High Rates to Endure

All 12 economists Bloomberg surveyed Aug. 18 expect rates to remain unchanged for the rest of the year. Four expect Bollard to start lowering rates in March. Six expect a cut in the second quarter and two in the third.

Annual inflation will be 3.5 percent in a year's time, according to a survey of 521 companies by National Bank of New Zealand released Aug. 30 Bollard last month said he won't cut rates until he is confident inflation will return to the 1 percent-to-3 percent range he targets.

New Zealand's benchmark interest rate is 2 percentage points more than the Federal Reserve's target rate for overnight bank loans.

Interest-rate futures show traders have cut expectations the Fed will raise borrowing costs again this year. The odds of another quarter-percentage point increase by Dec. 31 are about 12 percent, from 28 percent yesterday and 100 percent last month.

Dollar Hits 6 -week High Vs. Yen Ahead Of Payrolls Report

By Wanfeng Zhou

The dollar rose to a six-week high against the yen and gained against the
euro Thursday, showing limited reaction to a mixed batch of economic news as
traders adjusted positions ahead of Friday's U.S. employment report.

The greenback bounced off a one-week low against the euro -- touched earlier
in the session in reaction to the European Central Bank's decision to keep
interest rates unchanged and its hint at further rate increases ahead.

"I think what you're seeing is the market squaring up a little bit ahead of
[Friday's] payrolls," said Greg Anderson, senior foreign-exchange strategist
at ABN Amro. "The market has been very short of dollars. It's very difficult
to predict what payrolls would be. Most players in the market don't want to be
holding a big position going into payrolls." A short position is essentially a
bet that prices will decline.

In New York trading, the euro was quoted at $1.2795, compared with $1.2831
late Wednesday. The dollar changed hands at 117.34 yen, compared with 117.11
yen, after touching 117.46 yen, the highest level since July 19.

The British pound traded at $1.9023, compared with $1.9043. The dollar was
last at 1.233 Swiss francs, compared with 1.2276 francs.

The euro fetched 150.16 yen, compared with 150.31 yen, after touching a
record high of 150.75.

The Labor Department will report on the August nonfarm payroll figures
Friday. Economists expect a gain of about 130,000 jobs, including government

Matthew Strauss, senior currency strategist at RBC Capital Markets, said the
dollar reversed course after the euro failed to break above the 1.2880 level.

"The turnaround that we saw had very little to do with economic data today,
it was more based on technical trading than anything else," he said.

A mixed batch

The Commerce Department said core consumer prices, as measured by the
personal consumption expenditure price index, excluding food and energy, rose
0.1% in July, the smallest gain since December. Economists were expecting a
0.2% gain.

In the past year, core prices have risen 2.4%, matching the biggest gain in
11 years and well above the Federal Reserve's implied target zone of 1% to 2%
for core inflation.

The inflation figure "fits the Fed's scenario nicely, suggesting that
inflationary pressures are beginning to moderate," said Brian Dolan, director
of research at Forex.com.

This morning's economic reports showed "there's still no real justification
for the Fed to consider tightening its monetary policy for the time being,"
added Andy Cottrill, a trader at CMC Markets.

In a separate report, the Commerce Department said demand for U.S.-made
factory goods fell 0.6% in July on a large drop in orders for transportation
goods. Excluding the 10.1% decline in transportation orders, factory orders
rose 1.1% in July. Economists had expected a 0.9% drop.

Meanwhile, business activity in the Chicago region decelerated slightly, but
continued to expand at a moderate pace, according to NAPM-Chicago.

The Chicago purchasing managers index fell to 57.1% in August from 57.9% in
July, the private group said Thursday. The decline was in line with
economists' expectations, according to a survey conducted by MarketWatch.
Readings over 50 indicate growth in the region.

Elsewhere, initial claims for state unemployment benefits fell by 2,000 to
316,000 for the latest week.

The strong increase in productivity, or output per hour of work, seen over
the past decade is likely to continue for some time, said Fed chief Ben
Bernanke. He did not address the economic outlook or factors that might impact
the Federal Reserve at its next meeting to set monetary policy on Sept. 20.

After 17 straight meetings in which it implemented quarter-percentage-point
increases in benchmark interest rates, the Fed held interest rates steady at
5.25% earlier this month.

Traders are now pricing in a 12% chance that the Fed will lift its target
for overnight rates to 5.5% from 5.25% after either the Sept. 20 meeting or
the Oct. 24/25 meeting, interest-rate futures show. The odds stood at 20% late

Trichet seeks 'strong vigilance'

The ECB kept interest rates on hold at 3%, after hiking by a quarter-point

earlier this month. The bank has lifted its base rate four times in the past
10 months.

ECB President Jean-Claude Trichet said in prepared comments that "strong
vigilance" is needed toward inflation risks and that monetary policy is
"accommodative." He said a further withdrawal of accommodation would be
warranted if its economic projections are confirmed.

Trichet's comments "have been very hawkish. We see the reappearance of the
word 'vigilance,'" said Kathy Lien, chief strategist at FXCM. "As a central
bank that never likes to surprise, the ECB is telling us that they feel that
growth will continue to rise and it remains essential for them to contain

Elsewhere, the Eurostat statistics agency said inflation in the euro zone
was 2.3% in August, above the bank's target of 2%, though below July's reading
of 2.4%. Money growth also has been running ahead of the central bank's

The European Commission's euro zone economic indicator fell more than
forecast, to 106.7 points from an upwardly revised 107.8 in July. The decline
was on weaker industrial confidence, though consumer confidence was unchanged.

Yen under pressure

The Japanese currency weakened to a record low against the euro Thursday,
with the latest bout of selling precipitated by a surprisingly weak industrial
production report.

Japanese industrial production fell 0.9% in July, against expectations of a
0.8% rise, reinforcing the market's view that the Bank of Japan may refrain
from raising interest rates further this year.

The yen has taken a beating lately after a soft Japanese consumer inflation
report damped the prospects of another rate rise this year in the world's
second-largest economy.

Japanese Finance Minister Sadakazu Tanigaki said earlier this week that the
government will be closely watching currency movements in the wake of the
euro's sharp rise against the yen.

Dow Jones Newswires

FOREX-Dollar edges up ahead of U.S. payrolls data

By Steven C. Johnson

NEW YORK, Aug 31 (Reuters) - The dollar crept higher on Thursday after a batch of U.S. economic data landed largely in line with expectations, prompting a bout of position squaring before Friday's keenly awaited U.S. employment report.

The Federal Reserve kept interest rates steady at 5.25 percent earlier in August, and policy makers have said slowing U.S. economic growth should moderate inflation pressures.

So payrolls growth that significantly deviates from the median forecast of 120,000 new jobs could alter the market's outlook on interest rates and sentiment on the dollar.

"Bear in mind that we have a big number (U.S. payrolls) tomorrow and we have a long weekend, so we aren't going to explode before that data," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.

U.S. financial markets will be closed on Monday for the Labor Day holiday.

By late afternoon, the euro was down 0.2 percent at $1.2815 , off session lows of $1.2786.

Earlier, the dollar had slipped against the euro after European Central Bank President Jean-Claude Trichet signaled that the bank may have to raise interest rates soon to stem inflation in the euro zone.

With the market already positioned heavily in favor of euros, however, the dollar rebounded as traders squared up ahead of Friday's jobs report, a key release that could shed light on the direction of U.S. monetary policy.

Brian Garvey, senior currency strategist with State Street Global Markets in Boston, warned markets may be prone to violent moves if there is a wild swing in payrolls growth.

"We suspect economists have been lulled into a false sense of security over the stable trend in payrolls, which means markets should be more sensitive to a surprise in either direction -- even if the report is released on the Friday before the Labor Day weekend!" he wrote in a note to clients.

The market showed little reaction to comments from St. Louis Fed Bank President William Poole, who said Thursday that price stability must be the U.S. central bank's primary goal.

Separate remarks from Fed Chairman Ben Bernanke steered clear of monetary policy, focusing on productivity growth.


After the ECB held interest rates steady at 3 percent as expected, Trichet urged "strong vigilance" on inflation, seen by markets as a sign that rates are likely to rise again soon.

"The rate differential will continue to shift in favor of the euro and away from the dollar and the yen, and that's one reason you've seen the euro gain so much against the yen," said Michael Woolfolk, senior strategist at The Bank of New York.

The euro hit a record high against yen at 150.78 yen before easing to 150.35 yen , nearly unchanged on the day.

The dollar rose 0.3 percent against the yen to 117.37 yen , just below a one-month high of around 117.50 reached earlier in the session.

Many dealers have been frustrated by the market's inability to push the dollar out of narrow ranges this summer.

That could change, analysts said, pointing to Thursday's unexpectedly weak rise in the core personal consumption expenditure index, a key measure of U.S. inflationary pressures, as likely to weigh on the dollar.

The index rose just 0.1 percent in July, below market forecasts for an increase of 0.2 percent.

However, should U.S. jobs growth come in stronger than expected, the near-term direction for the euro could be down to the lower end of the $1.27-$1.29 range, Woolfolk said.

(Additional reporting by Kevin Plumberg)

U.S. Dollar Climbs Against Euro, Yen

(08-31) 13:24 PDT NEW YORK, (AP) --

The dollar rose against the euro and yen Thursday after Washington released generally upbeat data and the European Central Bank hinted at an upcoming interest rate hike.

The euro bought $1.2806 in afternoon New York trading, down from $1.2829 in New York late Wednesday. The dollar also strengthened against the Japanese currency, climbing to 117.33 yen from 117.13.

The British pound, however, edged up to $1.9041 from $1.9035 late Wednesday.

The Commerce Department reported Thursday that consumers boosted their spending in July by the largest amount in six months. Incomes also rose, reflecting stronger wage growth.

Meanwhile, a separate report showed that orders to American factories dropped by 0.6 percent in July, the biggest decline in three months.

Earlier on Thursday, the ECB left its key refinancing rate unchanged at 3 percent Thursday. However, bank President Jean-Claude Trichet then pledged "strong vigilance" on inflation — wording that on previous occasions has signaled a rate rise is a month away.

Higher interest rates boost a currency by making some classes of securities more attractive to international investors.

The dollar was boosted by a two-year campaign of rate rises by the Federal Reserve, but that came to a halt in August. Amid uncertainty over its future course, the currency is sensitive to economic data that might offer pointers.

The markets are looking ahead to the Labor Department's report on non-farm payrolls Friday.

The yen suffered Thursday from disappointing Japanese industrial output data, which fueled speculation that the Bank of Japan would delay raising interest rates. The dollar climbed to a six-week high of 117.47 yen before slipping back.

In other trading, the dollar bought 1.2305 Swiss francs, up from 1.2284 late Wednesday, 1.1046 Canadian dollars, down from 1.1095.

FOREX-Euro extends gains after Trichet comments

(Repeats to add dropped word "President" from first paragraph) (Recasts, updates prices, adds comment, U.S. data, ECB comment, changes byline, dateline; previous LONDON)

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 31 (Reuters) - The euro extended gains against the dollar on Thursday after European Central Bank President Jean Claude-Trichet signalled that the bank may have to raise interest rates soon to stem inflation in the euro zone.

In contrast, U.S. government data showed benign inflationary pressures in July, which had little impact on the dollar as it reinforced expectations that the Federal Reserve would be in no rush to hike rates.

"Trichet sounds hawkish to me and therefore all systems go for an ECB rate hike in October," said Boris Schlossberg, senior currency strategist at Forex Capital Markets in New York.

Trichet, in comments after the bank held interest rates steady at 3.00 percent, said "strong vigilance" on inflation was needed, an indication the bank will likely raise rates soon.

"His comments are weighing on the dollar. They're really as expected but the fact that he is reaffirming his hawkishness exacerbates the chances of a rate increase," Schlossberg said.

The euro rose to session highs around $1.2880 after Trichet's comments, before trading back down to $1.2874 , up 0.3 percent on the day.

Analysts said the weaker-than-expected rise in the core personal consumption expenditure (PCE) index, a key measure of U.S. inflationary pressures, would likely weigh on the dollar. The index rose just 0.1 percent last month, below market forecasts for an increase of 0.2 percent.

"Core PCE index posted a smaller-than-expected gain, that should reinforce the view that there is no urgency for the Fed to raise interest rates again," said Alex Beuzelin, senior market analyst, at Ruesch International in Washington.

"They have room to see whether or not the slowing economy would be sufficient to moderate inflation pressures. pressures. Bottomline, this is a negative for the dollar and that should keep it trending lower," he added.

Futures markets showed perceived chances of a Federal Reserve interest rate hike at its Sept. 20 meeting at 12 percent, unchanged from levels before the data was released. The Federal Reserve kept the federal funds rate at 5.25 percent earlier this month.

The dollar pared gains against the yen, trading flat on the day at 117.03 yen , after earlier climbing to a one-month high of around 117.48, according to electronic trading platform EBS. The yen posted broad losses on Thursday after weak Japanese industrial output data cemented expectations the Bank of Japan would take its time raising interest rates.

The Japanese currency again hit a record low against the euro at 150.73. The pair last traded at 150.59 , up 0.2 percent from late on Wednesday.

The yen also hit a new trough against sterling at 223.83 yen .

Next up would be the Chicago Purchasing Manager's Index due at 10:00 am (1400 GMT) and expected to show a slip to 57.0 in August from 57.9 the previous month.

Fed Chairman Ben Bernanke is expected to take questions after speaking in South Carolina later in the day.

Yen strikes record low against Euro and GB

The Dollar was flat against the Euro and slightly higher against the Yen yesterday, with expectations that interest rates differences remains unchanged between US, Eurozone and Japan. The Yen slid across the board hitting a record low against Gbp and chf after data showed industrial output fell 0.9% in July (vs forcast +0.7%). GbpJpy went to 8 years record of 123.58 (+1.2%). By the end of the day, the Eurusd was nearly unchanged at 1.2835. The Eurjpy also hit a fresh record high at 150.62 early this morning. Also the UsdJpy rose to 117.34 and Usdchf was steady at 1.2280. GbpUsd inched to 1.9062. The other biggest mover was the NzdUsd which rose 1% from 0.6391 to 0.6527 boots by reduced expectations that new zealand’s central bank will cut interest rates next year. But dealers warned that it may be in store for a correction soon.

The market focus on on today policy meeting of the ECB. It is almost fully pricing no change in interest rates but assuming it to rise to 3.25% from 3% next October. Analysing the Fed outllok, the market will hold breath on key data due to land as July’s PCE price index (central bank’s favoured inflation gauge) at 12:30 GMT and payrolls on Friday. US weekly Initial and Jobless claims are today respectively expected 315k vs 313k.

Eurusd, we still expect bullish trend to come, but the 1.2900 and 1.2980 resistances remain the critical steps to erase. Latest consolidation seems to favor a September bullish horizon. Once 1.2842 resistance is clear, then the bulls will likely try to remove 1.2890 level. It could be some small decline intraday, and maybe test 1.2725 support, but holding or taking out 1.2890 will call form break up of 1.2941. UsdJpy could suffer from profit taking at 117.42, but aggressive bulls can maintain long exposure above the support trend line 116.40. Today UsdJpy tone is slightly positive. GBPUSD maintain a bullish posture after pushing above 1.9050. There's little significant trend line resistance till the 1.9110. Only a break of the 1.8897 reaction low from Tuesday would give down pressure in the short term.

Yen continues slide as Japanese data disappoints

August 31st - A slew of disappointing numbers out of Japan overnight has added further pressure to the Yen against a number of currencies, testing 6 week lows over the dollar and continuing to chart new lows against the Euro. A sharper than expected drop in housing starts for July and downbeat industrial output figures have underlined the message that further rate hikes from the Bank of Japan will likely be few and far between, whilst other currencies – especially the Euro – are poised to see yields improve further over the coming months. This certainly seems to be something of a step change from the rather more bullish mood we saw at the BoJ earlier in the year but simply put right now the Yen will likely remain under pressure until we see some more robust economic data emerging. Obviously the ECB rate verdict will be closely watched later in the session – there seem to be few expecting to see another quarter point added today - although a strong suggestion from President Trichet that at least one additional hike will be forthcoming before the end of the year would cause little surprise.


Daily Forex Market Commentary for August 31, 2006

The dollar was all over the place on Wednesday, advancing versus the yen, falling to a near three-week low against the pound, the trading sideways versus the euro and the Swiss franc. There are some US reports today, but keep your eyes on euro/yen and wait until Friday’s non-farm payrolls. Be careful here, as volume is diminishing further.

Euro/dollar made only a minor pullback and then a marginally new high for the upmove on Wednesday but closed virtually unchanged. Choppy trading should persist today as well.

Initial resistance is now seen at 1.2855. That is still followed by 1.2875 and 1.2900. Above 1.2938, the pair has resistance from a pivotal high at 1.2979.

Immediate support is between 1.2815 and 1.2795. That is followed by 1.2748, but this level should not be seen today. Below the1.2715 level, strong support remains between 1.2690 and 1.2700. Distant support is at 1.2655.

Oscillators are mixed.

LONG-TERM: Bullish

Dollar/yen recovered all of the Tuesday losses, but again remained stuck in an inside range. It still needs to break out this range of 116.40 to 117.39 before new positions will be put on. The downside looks more vulnerable, but volume is getting even lighter these days, so anything goes.

The pair has initial support at 116.85 from another 50-point pivot, which targets 116.35 and 117.35. Below 115.80, good support remains at 115.50, from a 50-pip pivot, which targets 116.00 and 115.00.

Above 117.35, resistance is at 117.75. Good resistance is still seen at 118.25 from a 50-point pivot that targets 117.75 and 118.75.

Oscillators are mixed.

MEDIUM-TERM: Mixed to slightly bullish
LONG-TERM: Bearish

The sterling/dollar rallied again on Wednesday and reached a near three-week high of 1.9059. The rally is overdone but the pullback, if any, should be mild.

Above 1.9059, resistance remains at 1.9095. Distant resistance is now pegged at 1.9145.

Initial support is now seen at 1.9015. The next levels are 1.8955 and 1.8915. These are followed by 1.8865. Distant support is at 1.8780.

Oscillators are edging higher.

NEAR-TERM: Mixed to slightly bullish
LONG-TERM: Bullish

Dollar/Swiss franc
Dollar/Swiss franc traded sideways on Wednesday, as the downside was limited.

Below the pivotal support between 1.2268 and 1.2255, distant support remains at 1.2182.

Above 1.2315, dollar/Swiss franc still sees resistance at 1.2345. Strong resistance follows at 1.2375 and at 1.2420. Distant resistance follows at 1.2510.

Oscillators are edging lower.

LONG-TERM: Bearish

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Fed Chairman Sees Continued Strong Productivity Growth

Thursday, August 31, 2006 2:25:08 PM - The head of the U.S. Federal Reserve said Thursday that he sees expects productivity growth to remain strong.

Speaking at a leadership conference in Greenville, South Carolina, Fed Chairman Ben Bernanke stated that he believes an argument can be made that recent strong productivity growth is likely to continue for some time.

The Fed chief reported that leading economists project roughly 2.5% productivity growth per year during the long term. In his speech, Bernanke detailed the productivity boom that began around 1995 and stated his opinion that there was no reason to rethink long-term productivity trends.

On inflation, Bernanke stated that the Fed's long-term goal is to control headline inflation, as this is what determines the value of money. However, the Fed chairman said that the central bank focuses on core inflation in the short run. This statistic excludes the impact of the volatile food and energy sectors, and eyeing the measure prevents the Fed from over-reacting to swings in the prices of these 2 sectors.

Dollar Thrifty Automotive Group Purchases Thrifty Franchise Operations In Phoenix - Update [DTG]

8/31/2006 11:42:56 AM Dollar Thrifty Automotive Group Inc. (DTG), a provider of vehicle leasing services, on Thursday reported the acquisition of Thrifty Car Rental franchise operations in Phoenix. Financial details of the transaction were unavailable.

The Tulsa, Oklahoma-based company said the acquisition also includes an in-terminal location at the new Sky Harbor International Airport consolidated rental car facility, as well as two local market locations. Further, approximately 1,400 vehicles were added to the company's corporate fleet. The Phoenix operations were sold by Cholla Holdings, LLC., owned by Stuart and Laura Boykoff.

Jay Foley, Senior Executive Vice President - Corporate Operations, said. "Phoenix ranks as one of the top five U.S. airport car rental markets and this purchase of the Thrifty franchise operations is another very important link in the execution of the franchise acquisition growth strategy for key U.S. airport markets. The company is aiming at improving operating efficiencies as the Dollar Rent A Car brand is already operating corporately in Phoenix.

DTG is currently trading at $42.67,up $0.22 or 0.52% on a volume of 41,300 shares.

Japanese Yen Accelerated From Record Low Against Euro Amid Hawkish Comments By Trichet

8/31/2006 1:11:50 PM The yen extended Wednesday's losses against its European counterpart Thursday in New York trading. The Japanese currency showed steady losses against the Euro during overnight trading and into the early morning hours. The Japanese yen touched a new record low against its European counterpart of about 150.70. However, the Japanese currency edged up into a range against the Euro, holding steady amid the ECB rate decision. Soon after, the yen reversed its losses against the Euro and entered a high range. This move followed hawkish comments by ECB President Trichet. As of 1:05 pm ET, the Euro was worth 150.13 yen.

Earlier, lower-than-expected industrial production and housing data pushed the yen down further against its counterpart. This move continued downward momentum seen throughout Wednesday as retail trade and earnings data printed below the market consensus. On Friday, vehicle sales for the month of august is the sole piece of Japanese economic data scheduled to be released.

Yen Holding Steady Against British Pound Mid-day Thursday

8/31/2006 1:12:59 PM The Japanese currency weakened against its British counterpart Thursday in New York. The Japanese yen traded down to a fresh multi-year low of about 223.78 against the pound. This came amid the release of much higher-than-expected British nationwide house prices data. However, the yen gained momentum against the pound soon after. The Japanese currency showed small, but steady, advances against its counterpart for several hours before entering a range during intraday trading. As of 1:05 pm ET, the British pound was worth 223.18 yen.

Earlier, lower-than-expected industrial production and housing data pushed the yen down further against its counterpart. This move continued downward momentum seen throughout Wednesday as retail trade and earnings data printed below the market consensus. On Friday, vehicle sales for the month of august is the sole piece of Japanese economic data scheduled to be released.