UPDATE 2-Santander Brasil beats profit estimates as provisions tumble

Thu Jan 31, 2013 5:21am EST

* Recurring profit at 1.598 bln reais beats poll estimates

* Provisions slump 15.2 pct even after defaults increased

By Guillermo Parra-Bernal

SAO PAULO, Jan 31 (Reuters) - Banco Santander Brasil SA posted on Thursday fourth-quarter profit that beat analysts' expectations as Brazil's largest foreign lender aggressively cut bad-loan provisions to offset sliding revenue and a spike in delinquencies.

The São Paulo-based bank, also the local subsidiary of Spain's Banco Santander SA, reported recurring profit, or net income excluding one-time items, of 1.598 billion reais ($803 million), up 6.5 percent from the prior three months, according to a statement. A Thomson Reuters poll of six analysts predicted recurring profit of 1.29 billion reais.

Compared with the same period of 2011, recurring profit dropped 2.7 percent from 1.643 billion reais. Investors in Brazil follow quarter-on-quarter results more closely than annual comparisons.

The results confirmed the impact that record-low interest rates are having on Brazilian banks' revenue stream and the still-fragile situation of delinquencies as the economy enters a third year of sub-par economic expansion.

On Monday, Banco Bradesco SA said that a small decline in provisions, stubborn loan delinquencies and a continuing squeeze on margins led Brazil's No. 2 private sector bank to miss fourth-quarter profit estimates.

Management at Santander Brasil led by Chief Executive Marcial Portela Álvarez slashed provisions on bad loans by 4.1 percent to 3.096 billion reais from the third quarter even as delinquencies spiked. The bank has cut provisions, or the amount of earnings set aside to cover for credit-related losses, by more than 700 million reais in the past two quarters.

Loans in arrears for 90 days or more, the benchmark for delinquencies, rose to the equivalent of 5.5 percent of its loan book, compared with 5.1 percent in the prior three months. Analysts in the poll expected the so-called default ratio at 5.2 percent.

Net interest income, or proceeds from lending transactions excluding funding costs, fell to 4.717 billion reais from 4.883 billion reais in the third quarter. Fee income, or revenue stemming from financial services such as investment-banking, rose 3 percent on a sequential basis, well below expectations in the poll.

Annualized return on average equity at Santander Brasil rose to 12.2 percent from 11.7 percent in the third quarter. ROE, as the widely used indicator for profitability in the banking industry is known, was 13.5 percent a year earlier.

Analysts in the poll expected ROE at 9.9 percent.

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TREASURIES-Benchmark yield breaks below 2 pct in Fed aftermath

LONDON | Thu Jan 31, 2013 5:22am EST

LONDON Jan 31 (Reuters) - U.S. Treasury debt prices advanced in Europe on Thursday after the Federal Reserve pledged to keep economic stimulus in place to bring down unemployment.

The U.S. central bank left its monthly $85 billion bond purchase programme in place, arguing that the support was needed even as it indicated a recent stall in economic growth was likely to be temporary.

"It looks like the Fed is not going to be in a hurry to do anything on its policy stance and that's supporting the market, especially the front end," a trader said.

The benchmark U.S. 10-year T-note was last up 3/32 in price to yield 1.98 percent, pulling away from a nine-month high of 2.037 percent hit on Wednesday. Month-end buying as investors readjust their portfolios and bond buybacks by the Fed were keeping Treasuries firm although significant falls in the benchmark yield were seen as unlikely before Friday's market-moving non-farm payrolls report.

Although no one had expected a radical change in the Fed's policy stance, some market players had been worried it could rejig its statement to reflect uneasiness among some Fed board members about its asset-buying programme.

"We expect the Fed will continue its bond-buying programme - mortgage-backed securities and Treasuries - until late 2013 ... That said, the Committee might begin earlier to gradually decrease the monthly purchase amount from the current $85 billion in order to ensure a smooth transition," UniCredit strategists said in a note.

The focus is now moving to January payrolls data, due on Friday, as an unexpectedly strong improvement in the job market could spark speculation that the Fed may wind up its bond-buying programme earlier than expected.

Analysts polled by Reuters expect U.S. employers added 160,000 new jobs this month, up marginally from 155,000 new positions added in December. The unemployment rate is expected to be unchanged from December at 7.8 percent.

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Indonesia's Bank Rakyat to raise up to $1 billion in global bond

JAKARTA | Thu Jan 31, 2013 5:25am EST

JAKARTA Jan 31 (Reuters) - Bank Rakyat Indonesia, the world's biggest microlender, aims to raise $500 million to 1 billion in a global bond offer this year, the firm said on Thursday.

The state-owned bank has appointed Citigroup Inc and Standard Chartered Bank as lead underwriters.

Indonesia's second-largest lender by assets reported full-year 2012 net profit of 18.52 trillion rupiah ($1.90 billion), up 22.8 percent from 15.08 trillion rupiah in the previous year.

Loan growth was 22.8 percent for the full year, up from 14.8 percent and on par with an industry average of above 20 percent.

Bank Rakyat specialises in small-scale lending to farmers and small businesses in Southeast Asia's largest economy.

Its shares closed on Thursday at 7,950 rupiah, up 1.27 percent, outperforming the Jakarta index's 0.02 percent rise.

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UPDATE 2-Mursi heads to Germany on trip cut back by Egypt crisis

Wed Jan 30, 2013 4:57am EST

* Egyptian president cancels Paris leg of Europe trip

* Seeks badly needed foreign investment

* West unsettled by post-revolution violence

By Edmund Blair and Alexandra Hudson

CAIRO/BERLIN, Jan 30 (Reuters) - Egyptian President Mohamed Mursi flew to Germany on Wednesday to convince Europe of his democratic credentials, leaving behind a country in crisis after a wave of violence that has killed more than 50 people.

The Egyptian army chief warned on Tuesday that the state was on the brink of collapse if Mursi's opponents and supporters did not end the street battles that have marked the two year anniversary of the revolt that toppled autocrat Hosni Mubarak.

Because of the crisis, Mursi has curtailed the schedule of his European visit, cancelling plans to go to Paris after Berlin. He is due to return to Cairo later on Wednesday.

Near Cairo's Tahrir Square on Wednesday morning, dozens of protesters threw stones at police who fired back with teargas, although the scuffles were short-lived.

"Our demand is simply that Mursi goes, and leaves the country alone. He is just like Mubarak and his crowd who are now in prison," said Ahmed Mustafa, 28, a youth who had goggles on his head to protect his eyes from teargas.

Opposition politician Mohamed ElBaradei called for a meeting between the president, government ministers, the ruling party and the opposition to halt the violence. But he also restated the opposition's precondition that Mursi first commit to seeking a national unity government, which Mursi has so far rejected.

Mursi's critics accuse him of betraying the spirit of the revolution by keeping too much power in his own hands and those of his Muslim Brotherhood, the Islamist movement banned under Mubarak which won repeated elections since the 2011 uprising.

Mursi's supporters say the protesters want to overthrow Egypt's first democratically elected leader. The unrest has prevented a return to stability ahead of new parliamentary elections due within months, and worsened an economic crisis that has seen the pound currency tumble in recent weeks.

The worst violence has been in the Suez Canal city of Port Said, where rage was fuelled by death sentences passed against soccer fans for deadly riots last year. Mursi responded by announcing on Sunday a month-long state of emergency and curfew in Port Said and two other Suez Canal cities.

Protesters ignored the curfew and returned to the streets on Monday although the streets grew quieter on Tuesday. Human Rights Watch called for Mursi to lift the emergency decree.

Mursi will be keen to allay the West's fears over the future of the most populous Arab country when he meets German Chancellor Angela Merkel and powerful industry groups in Berlin.

"DISTURBING IMAGES"

"We have seen worrying images in recent days, images of violence and destruction, and I appeal to both sides to engage in dialogue," German Foreign Minister Guido Westerwelle said in a radio interview on Wednesday ahead of Mursi's arrival.

Germany's "offer to help with Egypt's transformation clearly depends on it sticking to democratic reforms", he added.

Germany has praised Mursi's efforts in mediating a ceasefire between Israel and Palestinians in Gaza after a conflict last year, but became concerned at Mursi's efforts to expand his powers and fast-track a constitution with an Islamist tint.

Berlin was also alarmed by video that emerged in recent weeks showing Mursi making vitriolic remarks against Jews and Zionists in 2010 when he was a senior Brotherhood official. Germany's Nazi past and strong support of Israel make it highly sensitive to anti-Semitism.

Westerwelle called Mursi's past anti-Jewish remarks "unacceptable. But at the same time President Mursi has played a very constructive role mediating in the Gaza conflict".

Egypt's main liberal and secularist bloc, the National Salvation Front, has so far refused talks with Mursi unless he promises to include opposition figures in a national unity government.

"Stopping the violence is the priority, and starting a serious dialogue requires committing to guarantees demanded by the National Salvation Front, at the forefront of which are a national salvation government and a committee to amend the constitution," ElBaradei said on Twitter.

Those calls have also been backed by the hardline Islamist Nour party - rivals of Mursi's Muslim Brotherhood. Officials from Nour and the Front were due to meet on Wednesday to discuss Nour's proposals, suggesting an unlikely alliance of Mursi's critics from opposite ends of the political spectrum.

Mursi has agreed to the opposition demand to explore changes to the constitution he passed in a referendum last year, but has so far resisted the Front's calls for a unity government.

Brotherhood leader Mohamed El-Beltagy dismissed the unity government proposal as a ploy for the Front to take power despite having lost elections. On his Facebook page he ridiculed "the leaders of the Salvation Front, who seem to know more about the people's interests than the people themselves".

German industry leaders see potential in Egypt but are concerned about political instability.

"At the moment many firms are waiting on political developments and are cautious on any big investments," said Hans Heinrich Driftmann, president of Germany's Chamber of Industry and Commerce.

Mursi's supporters blame the opposition for preventing an economic recovery by halting efforts to restore stability. The opposition says an inclusive government is needed to bring calm.

"The economy depends on political stability and political stability depends on national consensus. But the Muslim Brotherhood does not talk about consensus, and so it will not lead to any improvement in the political situation, and that will lead the economy to collapse," said teacher Kamal Ghanim, 38, a protester in Tahrir Square.

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WRAPUP 1-S.Korea, Thailand warn over fallout from easy money, currencies

By Se Young Lee and Kitiphong Thaichareon

SEOUL/BANGKOK | Wed Jan 30, 2013 5:01am EST

SEOUL/BANGKOK Jan 30 (Reuters) - South Korea warned on Wednesday it might consider a tax on financial transactions and Thailand said it was worried its strong currency would hurt exporters as moves by advanced economies to flood markets with easy money increasingly spill over into other countries.

Government officials in two of the four Asian tiger economies, which fell victim to massive outflows of speculative money in the late 1990s, expressed concerns over the negative impacts of super-loose monetary policy just two weeks before a Group of 20 finance chiefs' meeting in Moscow.

Policymakers in advanced countries, particularly Japan and the United States, have been acting aggressively to print more money and reflate their economies since the global financial crisis.

This has had the effect of weakening their currencies while strengthening those of many other countries from South Korea to Mexico, making their exports less competitive, roiling their financial markets and threatening to feed destabilising asset bubbles.

"The external environment and foreign exchange market movements since the fourth quarter of 2012 have created a considerably worrying situation," South Korean Deputy Finance Minister Choi Jong-ku told a seminar in Seoul.

"The recent wave of quantitative easing policies has created an unprecedented situation and makes it necessary (for affected countries) to adopt a paradigm shift in response," Choi said.

The South Korean government will tell state-controlled firms to refrain from borrowing abroad and will further tighten rules on banks' currency derivatives trading to ease volatility in foreign exchange markets, Choi said.

Seoul was opposed to imposing an outright levy on financial transactions such as the Tobin tax being debated in Europe, but would consider similar measures should speculation in the won currency intensify over time, he added.

Such a tax could discourage speculation but might also reduce normal investment, possibly even causing foreign investors to flee a market en masse.

In Bangkok, Finance Minister Kittirat Na Ranong told reporters that Prime Minister Yingluck Shinawatra was worried about the fallout from advanced economies' easy money policies and has ordered policymakers to discuss ways to deal with it.

He said authorities will use normal financial measures to manage flows of money into and out of the country but added there were no plans to use capital controls or taxes.

The Thai baht is hovering near a 17-month high and has risen close to 3 percent against the U.S. dollar so far this year.

Talk about a currency war, or competitive devaluation of currencies aimed at giving exporters an upper hand in pricing goods abroad, dominated discussions at the World Economic Forum in Davos last week, with many central bankers and business executives questioning the wisdom of such money policy.

German Chancellor Angela Merkel last week singled out Japan as a source of concern following recent moves by its central bank to quicken the pace of money-printing.

CURRENCY WAR?

Authorities in Thailand, South Korea, Taiwan and the Philippines have repeatedly intervened in foreign exchange markets in recent months to try to slow the advance of their currencies, which they fear could jeopardise their expected economic recoveries.

Latin American policymakers have also been bolstering their defences.

Colombia cut interest rates this month and said it would ramp up dollar purchases, Peru plans to pre-pay up to $1.5 billion in foreign debt this year and is intervening aggressively to curb currency gains, and Mexico is considering an interest rate cut that some economists believe reflects as much a desire for a weaker peso as it does concerns about growth.

"I sincerely hope other countries do not get into competitive depreciation of their currencies," Indian Finance Minister Palaniapan Chidambaram told Reuters Television in London on Tuesday.

Chidambaram said it was too early to say Japan's latest round of policy easing earlier this month constituted a currency war but expressed strong concerns about such a scenario.

"It will hurt us very badly. Our exports are down this year compared to last year because of the global situation...If (there is currency war), our exports will suffer even more."

Japanese Prime Minister Shinzo Abe, whose campaign for unlimited money printing has sent the yen plunging, waded into the growing global debate about currency wars for the first time on Wednesday, shrugging off such criticism.

The yen fell 10 percent against the dollar in the final quarter of 2012 alone, its sharpest quarterly loss in 17 years, on expectations the BOJ and a new government would launch additional stimulus.

This dealt an especially heavy blow to export-dependent economies in the region such as South Korea and Thailand as their currencies were firming against the dollar.

As a result, the value of the South Korean won and Thai baht against the yen surged 16.5 percent and 12.1 percent, respectively, in the fourth quarter, marking their biggest quarterly gains in nearly 15 years, Thomson Reuters data shows.

"I don't think Japan or any specific country will be singled out (at the G20 finance chiefs' meeting), but obviously this is among the top issues taking place in the financial markets and therefore will likely be discussed," a G20 negotiator from an Asian country told Reuters recently.

G20 leaders agreed at a summit in Seoul in 2010 to avoid waging competitive currency devaluation and instead to make efforts to ease the current account imbalances identified as one of the causes behind the global financial instability.

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Moody's assigns Baa3 long-term issuer rating to OJSC Phosagro; stable outlook

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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EURO GOVT-Bund sell-off pauses at technical barrier

Tue Jan 29, 2013 4:21am EST

* Ten-year Bund yields meet technical resistance

* Fresh strong data needed for sell-off to resume

* Spanish, Italian yields slightly higher

By Marius Zaharia

LONDON, Jan 29 (Reuters) - Bunds edged up on Tuesday, with investors waiting for more evidence that the global economy is recovering before deciding whether to sell German debt through key technical levels.

Monday's better-than-expected U.S. durable goods data added momentum to a recent sell-off in Bunds triggered by the European Central Bank's announcement last week that banks planned to repay 137 billion euros of three-year loans taken in late 2011.

Analysts did not expect a reversal in the selling pressure Bunds have felt since the start of the year, but said yield levels were approaching key technical resistance which warranted a pause for breath.

"Ten-year yields are pretty close to the September highs from last year so we're getting into a territory where perhaps it's time for a pause and a reality check," Rabobank market economist Elwin de Groot said.

Ten-year German yields were last 1.6 basis points lower on the day at 1.68 percent, according to Reuters data, just off Monday's 4-1/2 month highs of 1.712 percent and almost 40 bps higher since the end of last year.

Last September, they rose as high as 1.737 percent, the highest level seen in the second half of 2012.

Last week's ECB data was taken as a sign the banking system was recovering, sparking selling pressure in Bunds led by the shorter-dated maturities. A raft of upbeat data in the United States this year has also contributed to weakness in Bunds, prompting some market participants to expect a more lasting sell-off near-term.

"We're in a scenario in which we have a bit of a sell-off, then technicals kick in and it all becomes a bit self-fulfilling," one trader said.

"Trying to buy feels like catching a falling knife. You need a strong reason to buy and I don't think we've seen one apart from just some views that it (the sell-off) has gone too far."

FOCUS ON DATA

Bund futures were 8 ticks higher on the day at 141.87. They hit a two-month low of 141.61 on Monday, having fallen by almost two full points in the past three sessions.

The trader said that if Bund futures fell through last session's lows, their next target would be late October lows around 140.85.

"Yesterday was a pretty messy day so we may have a few people looking to oppose this move," he said. "I'd like to see stronger data going forward to vindicate these moves."

Investors will pay particular attention to Wednesday's economic sentiment data out of the euro zone and U.S. non-farm payrolls data on Friday.

Italian and Spanish bonds, which have rallied strongly this year, were weaker on Tuesday. Spanish 10-year yields were 4.4 bps higher on the day at 5.27 percent.

On Monday, the European Union's economic and monetary affairs commissioner, Olli Rehn, said Spain's fiscal targets could yet be relaxed again if the economy was found to have seriously deteriorated. Spain has already been given an extra year, until 2014, to meet its deficit target.

"I'm not saying this is what is moving the markets today, but it underlines the tough climate Spain is facing ... and shows how long is the road to budget consolidation in these countries," de Groot said.

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BOJ's Shirakawa: possible for JGB purchases to rise even further

TOKYO | Tue Jan 29, 2013 4:35am EST

TOKYO Jan 29 (Reuters) - Bank of Japan Governor Masaaki Shirakawa told cabinet ministers that it is possible for the central bank to increase asset purchases even further to inject funds into the economy, minutes from a meeting of a top government panel showed on Tuesday.

The BOJ last week made an open-ended commitment to purchase 13 trillion yen ($143.4 billion) in assets each month from 2014 to achieve a 2 percent inflation target it agreed with the government. Most of the asset purchases are likely to focus on government debt.

"We've already announced in December that over the next year we will supply around 50 trillion yen in funds," Shirakawa said, according to the minutes of a Council on Economic and Fiscal Policy (CEFP) meeting held last week.

"From 2014, purchases will increase again. We'll examine the situation every month, so it's possible for purchases to increase further still."

The CEFP is the government's top panel to decide economic policy and is the forum where the Prime Minister Shinzo Abe's cabinet will monitor the central bank's progress in achieving 2 percent inflation.

The BOJ's forecast is for core consumer prices, which exclude fresh food but include energy costs, to rise 0.9 percent in the fiscal year starting from April 2014.

This is well below the inflation target, leading one private sector member of the CEFP to suggest that the BOJ issue price forecasts for the following fiscal year, minutes of the meeting showed.

In response, Shirakawa said that while prices are likely to continue rising, uncertainty about overseas economies means there are large differences in each monetary policy board member's views beyond fiscal 2014.

Japan's government has made reviving the economy and ending nearly 20 years of mild deflation a top priority, but some economists say it will not be easy to achieve 2 percent inflation quickly.

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UPDATE 1-Renco Group sued over RG Steel's pension obligations

Tue Jan 29, 2013 4:37am EST

Jan 29 (Reuters) - The U.S. Pension Benefit Guaranty Corp has sued Renco Group Inc for $97 million, accusing it of trying to avoid the pension obligations of bankrupt steelmaker RG Steel LLC, a court filing showed.

Renco Group, founded by New York billionaire Ira Rennert, had a controlling interest in RG Steel, which had sponsored two pension plans for about 1,350 people.

Last year, Renco sold 24.5 percent of its ownership stake in RG Steel to an affiliate of the New York-based investment firm Cerberus Capital Management before the steelmaker filed for Chapter 11 protection.

The Pension Benefit Guaranty Corp (PBGC) said in the court filing that Renco had reduced its ownership stake in an attempt to free itself from RG Steel's pension obligations. It said in the filing that ownership of 80 percent or more in RG Steel would have made Renco responsible for the steelmaker's pension plans.

The $97 million in damages sought by the PBGC includes the plans' unfunded benefit liabilities, unpaid minimum funding contributions and termination premiums.

Renco is a private holding company that makes long-term investments in companies across a range of industries, including mining and steel. It and its subsidiaries employ more than 20,000 people worldwide and have revenues in excess of $5 billion annually, the filing showed.

"The facts will show that these claims are baseless," Andrew Shea, a spokesman for Renco Group, told Reuters on Tuesday.

RG Steel filed for Chapter 11 bankruptcy protection last May, saying it could not overcome the deterioration of the steel market and would sell off the three plants it had bought from Russian steelmaker Severstal for $1.2 billion.

The PBGC is a U.S. government agency that was created by the Employee Retirement Income Security Act of 1974 to encourage the continuation and maintenance of private-sector defined benefit pension plans.

The PBGC is not funded by general tax revenues. It collects insurance premiums from employers that sponsor insured pension plans, earns money from investments and receives funds from pension plans it takes over.

The case is Pension Benefit Guaranty Corp vs The Renco Group et al, Case No. 13-cv-621, U.S. District Court, Southern District of New York.

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UPDATE 1-Euro zone lending falls for 8th month

Mon Jan 28, 2013 5:17am EST

* M3 annual growth rate in Dec 3.3 pct vs 3.8 pct in Nov

* Monthly flow of loans to firms down 22 bln euros

* Monthly flow of loans to households down 3 bln euros

FRANKFURT, Jan 28 (Reuters) - Loans to companies and households in the euro zone contracted for the eighth month running in December, showing low official borrowing costs are having little success in reviving investment and spending.

Loans to the private sector fell 0.7 percent from the same month a year ago, European Central Bank data showed, in line with the mid-range forecast in a Reuters poll of economists.

The monthly flow of loans to non-financial firms fell 22 billion euros in December after falling by 7 billion euros in November. The monthly flow of loans to households showed a drop of 3 billion euros after a rise of 6 billion euros in the previous month.

The cheap funds the ECB is pumping through the monetary system are still not reaching households and businesses evenly across the euro zone as some countries struggle to get their stricken economies back on track, though progress has been made.

On a country-by-country basis, the data showed a 22 billion euro drop in private-sector lending in Spain, the largest monthly fall since July.

In Portugal, private-sector lending fell by 2.6 billion, the biggest drop in a year.

"Although euro zone banks' liquidity positions improved during 2012, it is clear that this has had little effect in boosting private-sector lending," said Howard Archer, economist at IHS Global Insight.

Italy, however, posted a healthy rise of 12.6 billion euros to 1.757 trillion in private-sector loans.

The central bank has taken some of the heat out of the euro zone crisis by announcing a new, as yet unused, bond-purchase programme, but the bloc's economy remains weak and is expected to have shrunk in the final months of 2012.

ECB President Mario Draghi noted in early January some economic indicators had stabilised at low levels and financial markets' confidence had improved, which along with the ECB's accommodative policy should lead to a recovery later this year.

Draghi even spoke of "positive contagion" in financial markets, with Monday's data already pointing in that direction with consumers and firms' deposits in banks in troubled euro zone member states rising in December.

But it might still take some time before this filters through in better loan availability, analysts said.

"The much more positive sentiment about the euro zone future that has prevailed in financial markets so far this year will probably take some time to materialise in greater credit availability and economic growth," Oxford Economics' Marie Diron said.

Euro zone M3 money supply - a more general measure of cash in the economy - slowed to annual growth of 3.3 percent in December from 3.8 percent in November, just below the consensus of 3.9 percent from analysts polled by Reuters.

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UPDATE 3-Ex-chairman of firm linked to Caterpillar fraud "dismayed"

Mon Jan 28, 2013 5:44am EST

By Clare Baldwin

HONG KONG Jan 28 (Reuters) - The former chairman of a Chinese mining equipment firm bought by Caterpillar Inc said on Monday he was dismayed by allegations of accounting misconduct at a subsidiary that prompted the U.S. firm to take a $580 million writedown.

Emory Williams Jr said Caterpillar had conducted extensive due diligence before its takeover of Hong Kong-listed ERA Mining Machinery Ltd last June, adding that he was seeking further details from the company, the world's largest maker of tractors and excavators.

"We were shocked and dismayed to learn, from press reports, about the very significant goodwill impairment that Caterpillar is taking in relation to the acquisition of ERA's subsidiary Siwei," Emory Williams Jr said in a statement.

Caterpillar said on Jan. 18 that it would write off most of the $654 million it paid for ERA after uncovering "deliberate, multi-year, coordinated accounting misconduct" at its subsidiary Zhengzhou Siwei.

"We cooperated very closely with the Caterpillar team during their extensive due diligence," Williams said, adding that he and John Lee -- the English name used by fellow ERA director Li Rubo -- had taken the company's fiduciary and reporting responsibilities very seriously prior to its acquisition.

A Caterpillar spokesman declined to comment.

Caterpillar is due to report earnings in the United States later on Monday, with the Siwei writedown expected to wipe out more than half its earnings for the fourth quarter of 2012.

Williams is a Beijing-based U.S. businessman. He is a former chairman of the American Chamber of Commerce in China and the son of a former Sears Bank and Trust Co. chairman and chief executive.

Li, his long-time business associate, is a graduate of the South Dakota School of Mines and a former Chinese government official.

Monday's statement was the first comment by any of ERA's former directors or major shareholders since Caterpillar's statement 10 days ago.

INVENTORY ISSUES

ERA had absorbed Siwei through a reverse takeover in 2010, a corporate manoeuvre that has become controversial in the United States following a series of accounting scandals involving small Chinese companies listed there.

Announcing the writedown, Caterpillar said an internal investigation had uncovered improper accounting of inventories, revenue recognition and cost allocation at Siwei, designed to overstate the profitability of the business in the years before it bought it.

Williams said the former ERA directors had contacted Caterpillar senior management last week to ask for further details.

"To date we have received no response and are now taking advice on how best to respond to the situation in a manner which is constructive for all parties involved," he said.

"We are absolutely committed to providing a comprehensive response to any information Caterpillar shares with us."

Caterpillar said it found discrepancies in November between the inventory on the books of Siwei, which makes hydraulic supports for coal mines, and its actual physical inventory, triggering the internal probe.

The company blamed "several senior managers" whose misconduct it said began some years before it acquired Siwei. Caterpillar did not identify the senior managers. It said it believed its due diligence process was "rigorous and robust".

Citigroup Inc and law firm Freshfields Bruckhaus Deringer LLP served as financial and legal advisers to Caterpillar on the transaction. Blackstone and DLA Piper acted as ERA's financial and legal advisers.

A source directly involved with the Caterpillar deal previously told Reuters that RSM Nelson Wheeler was ERA's auditor, while Deloitte and Ernst & Young acted on Caterpillar's side. None of the auditors has commented.

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UPDATE 2-Brazil's Bradesco sees modest growth after profit miss

Mon Jan 28, 2013 3:23am EST

* Recurring profit at 2.92 bln reais misses poll estimate

* Provisions fall on sequential basis, helping net income

* Loan book expands slightly below guidance for last year

* Bank issues prudent lending expansion, expense estimate

By Guillermo Parra-Bernal

SAO PAULO, Jan 28 (Reuters) - Profit at Banco Bradesco SA slightly missed analysts' estimates in the fourth quarter as lower insurance-related income and higher operating expenses offset the positive impact of a decline in bad loan provisions.

Osasco, Brazil-based Bradesco earned recurring profit, or net income excluding one-time items, of 2.918 billion reais ($1.44 billion) in the quarter, up 0.9 percent from the prior three months, the bank said on Monday. On an annual basis, recurring profit climbed 5.3 percent.

The number came in below the average estimate of 2.950 billion reais in a Thomson Reuters poll of six analysts. Recurring profit was, however, the highest since at least the first quarter of 2009, according to Thomson Reuters data.

In the statement, Bradesco forecast its loan book to expand this year at a slightly slower pace than in 2012, reflecting an economic recovery in Brazil that has so far turned out to be weaker than previously expected. The bank estimates credit growth between 13 percent and 17 percent for this year, compared with a revised range of 14 percent to 18 percent in 2012.

Provisions fell 2.8 percent from the third quarter, helping prop up recurring profits. But insurance income, or the difference between underwritten premiums and casualties, sank 7.2 percent from the prior quarter and expenses rose - limiting profit gains.

Return on equity, a measure of profitability in the banking industry commonly known as ROE, dropped to 19.2 percent in the fourth quarter from 21.3 percent a year earlier and 19.9 percent in the third quarter. The indicator fared better than the 18 percent forecast in the poll but slid to the lowest in almost four years.

Analysts in the same poll predicted that earnings data from Bradesco could help reinforce the view that profitability in the sector will keep declining as record-low rates in the country hamper revenue and force lenders to roll over maturing loans at a discount. In their view, ROE likely will keep sinking throughout this year.

Loans in arrears for more than 90 days, the industry's benchmark gauge for delinquencies in the banking system, remained unchanged at 4.1 percent of outstanding loans for the second straight quarter. The poll predicted that the so-called default ratio would decline to 4 percent.

Last year, Bradesco's loan book rose 11.5 percent on an annual basis to 385.53 billion reais, slightly below management guidance. On a sequential basis, the bank's loan book rose 3.7 percent, way above the poll's estimate of 2.4 percent quarter-on-quarter lending growth.

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UPDATE 5-Leading U.S. Senate liberal Harkin of Iowa to retire

Sat Jan 26, 2013 6:24pm EST

* Harkin is third senator to announce upcoming retirement

* Obama praises Harkin for helping people with disabilities

* Party officials say ample time to find strong candidate

By Kay Henderson

DES MOINES, Jan 26 (Reuters) - U.S. Senator Tom Harkin, a veteran Iowa Democrat and one of the most liberal senators, said on Saturday he will not seek re-election in 2014, putting at risk what was considered a safe Democratic seat.

Harkin, 73, who has focused much of his nearly 40-year congressional career on farm policy, education and expanding rights for people with disabilities, is the third senator facing re-election next year who has announced his retirement, following Democrat Jay Rockefeller of West Virginia and Republican Saxby Chambliss of Georgia.

"It's somebody else's turn. It's time for me to step aside ... . I think that's not only good for our party, it's good for our state and for our nation," Harkin said in an interview with Reuters.

He said he had no health problems but had promised his wife that he would quit before it was too late to enjoy other things in life.

Iowa, site of the country's first presidential nominating contest, is considered a political swing state. Republican Charles Grassley is Iowa's other U.S. senator.

In remarks to the Iowa Democratic Party central committee after his announcement, Harkin said he would stay politically active.

"I'm not quitting today. This is not a time for legacy talks or anything like this," said Harkin, who has served in Congress since 1974.

Several committee members had tears running down their cheeks as he spoke.

President Barack Obama, a fellow Democrat, praised Harkin for his decades of public service.

"During his tenure, he has fought passionately to improve quality of life for Americans with disabilities and their families, to reform our education system and ensure that every American has access to affordable health care," Obama said in a statement.

Senate Majority Leader Harry Reid, a Nevada Democrat, in a statement described Harkin as "a passionate progressive, whose deeply held principles have provided a guiding light to Democrats for decades."

SEARCH IS ON

Party officials said Harkin's announcement, coming early in the current two-year election cycle, provides ample time to recruit a strong Democratic candidate.

Among Democrats, U.S. Representative Bruce Braley is widely seen as a front-runner. U.S. Agriculture Secretary Tom Vilsack, a former Iowa governor, and his wife, Christine Vilsack, who ran unsuccessfully for Congress last year, are also viewed as potential candidates.

Among Republicans, U.S. Representatives Tom Latham, a moderate, and Steve King, a conservative, are mentioned as possible candidates, which could produce a divisive Republican primary.

Obama won Iowa in the November election. But the state has a Republican governor, and a divided legislature and congressional delegation.

Harkin's retirement "just reinforces our belief that a grassroots Republican comeback can take place in 2014. Let's have it start in Iowa," Iowa Republican Party Chairman A.J. Spiker said in an email appeal to state Republicans.

The party needs to pick up six seats in the mid-term elections next year to get a majority in the 100-member Senate.

One of the last of the Senate's old-guard liberals, Harkin angrily opposed the White House over the recent fiscal cliff compromise that Vice President Joe Biden negotiated with Senate Republican leader Mitch McConnell of Kentucky.

Harkin said the deal that raised taxes only on the very rich helps the wealthy at the expense of the middle class.

First elected to the House of Representatives in 1974 and to the Senate in 1984, Harkin said someone younger needs to take his place.

"I've been there 40 years. I'm 73. By the time I run (for re-election), I'd be 75," he said.

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UPDATE 3-EU, Mercosur to unblock trade talks, hurdles remain

Sat Jan 26, 2013 7:35pm EST

* Latin American, European leaders meet to deepen trade ties

* Europe says time to wrap up long-stalled Mercosur deal

* Both sides to present new offers this year to open up markets

By Robin Emmott

SANTIAGO, Jan 26 (Reuters) - EU leaders won a promise from Argentina and Brazil on Saturday to revive stalled talks on a free-trade deal that would be a major prize for Europe as it emerges from crisis, but disputes over key issues mean a breakthrough appears distant.

At a summit in Santiago, German Chancellor Angela Merkel led the Europeans in a new push in the negotiations with the South American trade bloc Mercosur that is made up of Argentina, Brazil, Paraguay, Venezuela and Uruguay.

In a region whose economies are in markedly better shape than Europe's, Merkel's persistence appeared to pay off after she met her Brazilian and Argentina counterparts and warned them not to revert to the kind of protectionism of the 1930s that deepened the Great Depression.

"A tremendous effort has been made to install new momentum into the discussions," the EU's Trade Commissioner Karel De Gucht told Reuters during the summit. Asked if there had been a breakthrough, he said: "I think we have to be careful with that word. It's moving on the political front."

Five years after the global financial crisis and with the euro zone in its second recession since 2009, the European Union needs Latin America's buoyant economies. But it is frustrated by Brazil and Argentina's policies to protect local industry.

Both sides have now agreed to exchange offers by the end of the year on how far they are willing to go in opening up sectors ranging from services to agriculture and De Gucht said the European Union will reciprocate Mercosur's offers.

"We need to have open markets in terms of free trade and not protectionism," Merkel told a meeting of business leaders. "History taught us that in the '20s and '30s," she said, flanked by the pro-free trade presidents of Mexico and Chile.

Negotiations on a trade pact with Mercosur began in the 1990s and were relaunched in 2010. If successful, the accord would encompass 750 million people and $130 billion of annual trade.

But talks have yet to make real progress due to disputes over European farm subsidies and moves by Brazil and Argentina to shield local industry from cheaper, foreign-made imports.

In a further complication, Venezuela became a member of the bloc last year. Its president, Hugo Chavez, is an outspoken critic of free trade.

In the meantime, Brussels has signed free-trade deals with a number of Latin American countries, including Mexico, Peru and Chile, exposing a split between the free-trade advocates on the Pacific side and the more closed economies, such as Brazil, Argentina and Venezuela, on the other side of the continent.

Standing out in orange among other leaders' dark suits, Merkel shared a joke with Brazilian President Dilma Rousseff and Argentina's Cristina Fernandez as about 60 leaders posed for a summit photo.

"Within Mercosur, those in favor of this agreement have won the battle," said Gianni Pittella, vice president of the European Parliament, which has to approve the EU's trade pacts.

'LATIN AMERICA'S DECADE'

Europe wants to retain its influence in a region it conquered 500 years ago and where it remains the biggest foreign investor as China steps up its investment in mining and energy.

After decades of hyperinflation and financial crises, Latin America's economic fortunes are now better than Europe's. Latin America's economic output is expected to grow almost 4 percent this year, while the 17-nation euro zone will probably contract.

Latin America's per capita gross domestic product could double by 2030, according to the InterAmerican Development Bank, meaning Europe will have more potential buyers of its cars, luxury goods, banking services and pharmaceuticals.

Gathered at a luxury hotel in a part of the Chilean capital dotted with newly built glass skyscrapers, Colombian President Juan Manuel Santos declared it was "Latin America's decade."

But differences with Argentina and Brazil represent a new hurdle to a Mercosur deal, one that Germany as Europe's top exporter is especially keen to see resolved.

Argentina's fiery, left-leaning Fernandez, slapped sweeping controls on imports in February 2012 in a bid to prop up the trade surplus and keep industry competitive as labor costs soar.

According to Global Trade Alert, an independent body monitoring commerce, Argentina is the world's worst offender when it comes to protectionist measures because the policies affect so many industries and sectors all over the world.

Neighboring Brazil - Latin America's largest economy - has also raised import barriers on goods ranging from European steel to powdered milk. In the first 10 months of 2012, Brazil opened 47 trade defense cases, more than double the number in all of 2011.

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Ontario Liberals pick province's first woman premier

By Claire Sibonney and Janet Guttsman

TORONTO | Sat Jan 26, 2013 9:14pm EST

TORONTO Jan 26 (Reuters) - Ontario's Liberals on Saturday chose a former Cabinet minister to become the province's first female premier and first openly gay leader of a Canadian province.

In her acceptance speech as the new provincial Liberal Party leader, Kathleen Wynne, 59, a former Ontario education minister, thanked her partner, Jane, for her support during a three-month campaign. Ontario was one of the first Canadian provinces to allow same-sex marriage.

Wynne's victory means Canada's four most powerful provinces will all be led by women. British Columbia, Alberta and Quebec already have female premiers. Women are also at the helm in the Atlantic province of Newfoundland and Labrador and in the thinly populated Arctic territory of Nunavut.

Wynne replaces Dalton McGuinty, who said in October he was stepping down as party leader and premier amid controversy over costly cancellations of two natural gas power plants and battles with teachers over provincial plans to freeze wages.

The center-left Liberals have been in power for nine years in Ontario, Canada's most populous province and home to most of Canada's banks and a large part of its manufacturing sector. But the party lost seats in the 2011 provincial election and needs support from at least one other party to stay in power.

The left-leaning New Democrats are the natural ally for Wynne, who has a reputation for seeking compromise and is viewed as being to the left of other Ontario Liberals.

In her address to the party faithful, she invited leaders from both opposition parties to work with her to advance the interests of Ontario communities.

"But make no mistake. If that stops working, I will fight them for every seat, for every poll, for every vote in the next election," she said.

Wynne will have her work cut out to hold on to power. The next election is due in October 2015, but the Liberals lag their rivals in opinion polls.

The Liberals are facing a C$12 billion ($12 billion) budget deficit. They have vowed to curb growth in spending, as modest economic growth hurts revenues, and say it will take five more years to balance the budget.

Ontario accounts for roughly 40 percent of Canadian gross domestic product and is among the largest sub-national borrowers in the world, issuing bonds worth nearly C$35 billion in 2012.

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PIMCO managing director Simon to leave firm

NEW YORK | Fri Jan 25, 2013 8:41pm EST

NEW YORK Jan 25 (Reuters) - Scott Simon, a managing director at Pacific Investment Management Co who heads mortgage- and asset-backed securities investing, plans to retire from the manager of the world's largest bond fund, a source familiar with the situation said.

Simon's departure follows that of Neel Kashkari, managing director and head of global equities at PIMCO, who is leaving the firm to consider running for public office in California as a Republican, according to people familiar with the situation.

Simon's savvy bets in mortgage-backed securities have helped PIMCO, which oversees $1.92 trillion in assets, turn 2012 into one of its most successful years in investing. His departure was first reported by Bloomberg.

Mortgage debt is the largest holding of Pimco's $285 billion Total Return Fund (PTTRX) - the largest mutual fund in the world - after the firm last year repeated a successful bet from 2008 that the Federal Reserve would buy government-backed home-loan securities to boost the economy. The fund, managed by Bill Gross, was 42 percent invested in mortgages in December, down from 44 percent the previous month.

The Total Return fund, which is Pacific Investment Management Co's flagship bond fund, earned a return of 10.36 percent in 2012, besting 88 percent of U.S. intermediate-term bond funds, according to Morningstar. The fund also attracted $18 billion in new cash over the year, Morningstar said.

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UPDATE 2-Holdout creditors to U.S. court: Argentina must pay up

Fri Jan 25, 2013 11:36pm EST

* Holdout creditors say not an injustice to be paid

* Argentina says case could threaten billions in debt

* US appeals court showdown set for Feb. 27

By Martha Graybow and Jonathan Stempel

NEW YORK, Jan 25 (Reuters) - Investors who refused to join two sovereign debt restructurings by Argentina are urging a U.S. court to force the country to pay them, in a case whose outcome could make it much harder for emerging market countries facing cash crunches to borrow money.

These investors, who own Argentina bonds that have been in default for a decade, are demanding the $1.33 billion that a federal judge said must be paid when the South American country makes a payment on its restructured bonds.

The demand came one month ahead of a Feb. 27 showdown before the 2nd U.S. Circuit Court of Appeals in New York.

Argentina is seeking to have the appeals court overturn a finding in favor of the "holdout" creditors, which are led by NML Capital Ltd, part of a firm run by billionaire hedge fund manager Paul Singer, and the Aurelius Capital Management funds.

But in written arguments submitted to that court on Friday, Aurelius said Argentina must stop going "far beyond the reach of accountability" by letting holdouts go unpaid for more than a decade even as it pays holders of restructured bonds.

"It is hardly an injustice to have legal rulings which, at long last, mean that Argentina must pay the debts which it owes," Aurelius said, quoting an earlier decision in the case.

The case stems from Argentina's $100 billion debt default in 2002, and has been pursued in U.S. courts because they have jurisdiction under Argentina's bond contracts with investors.

NML, an affiliate of Elliott Management Corp, in a separate brief Friday said the "stability of this sophisticated market, and voluntary restructurings in general, depends critically upon courts' willingness to enforce all the terms in such contracts."

NOT ONE DOLLAR

Holdouts refused to take part in debt restructurings in 2005 and 2010 in which about 92 percent of the bondholders received between 25 cents and 29 cents on the dollar.

This stance angered investors who joined the swaps, and Argentina has called the holdouts "vultures."

The 2nd Circuit issued a key decision in October finding that Argentina must treat all bondholders equally, rather than allow holders of restructured debt to have priority.

That largely upheld earlier decisions by U.S. District Judge Thomas Griesa in Manhattan, who oversees much of the litigation.

Then in November, Griesa ordered Argentina to pay $1.33 billion into escrow for the holdouts when it paid restructured bondholders. The 2nd Circuit later put that order on hold so Argentina could appeal.

But Argentina does not want its ability to pay holders of restructured bonds to be conditioned on a requirement that it pay the holdouts.

In a filing last month, Argentina argued that paying the holdouts would threaten its ability to service $24 billion of restructured debt.

It said it could try to resolve the litigation by reopening the restructuring upon legislative approval, but the holdouts are viewed as unlikely to accept that.

NML said Friday it was "difficult to believe" Argentina would avoid making the payment and risk another default when it has $40 billion in reserves.

ADDRESSING SOVEREIGN DEBT CRISES

The case is seen as having broad reach, potentially impeding the abilities of countries to respond to economic crises in the face of resistance from creditors.

And in court papers last year, the U.S. government said that to award full payment to the holdouts could undermine efforts to encourage global efforts to address sovereign debt crises.

A loss for Argentina would be a setback for President Cristina Fernandez, who is trying to avert a potential "technical default" on tens of billions of dollars of debt. She has said the country will not pay "one dollar" to the holdouts.

The case is NML Capital Ltd et al v. Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

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Chile finance minister would support cbank intervention on peso

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Sat Jan 26, 2013 4:32am EST

  * Peso boosted by strong Chile growth, copper      * Chile's central bank last intervened in 2011      * Larrain sees emerging markets remaining strong        DAVOS, Switzerland, Jan 26 (Reuters) - Chile's government  would support any intervention by the country's independent  central bank to weaken the strong peso, Finance Minister Felipe  Larrain said on Saturday.      "The central bank may decide to intervene but it is their  own decision ...if they do, we would certainly support them,"  Larrain told Reuters in a television interview at the World  Economic Forum in Davos.      "We're trying to prevent further appreciation," he said.       The peso, which has been boosted by Chile's robust economic  growth and healthy prices for top export copper, ranked  among the strongest foreign currency performers against the U.S.  dollar among 152 currencies tracked by Reuters in 2012.         Last month, central bank president Rodrigo Vergara  reiterated that intervening in the local peso currency market  was a tool at the bank's disposal, but that if it hadn't  intervened so far it was because it hadn't been deemed  necessary.       The central bank deployed a dollar-purchasing program in  2011 to curb peso strength after it appreciated to its highest  level in more than 2-1/2 years at 465.50 per dollar.         Larrain said it was hard to counter the weight of U.S.  quantitative easing: "Against this massive QE, we have a few  tools but not many."      Chile's central bank has kept rates steady since a surprise  cut in January 2012, as it weighs external risks against a  buoyant domestic economy.       Due to robust domestic demand and investment, Chile's small,  export-dependent economy has for the most part fared better than  expected despite slowing demand from top trade partner China and  fallout from the euro zone crisis.      Larrain added that the global economic picture was somewhat  rosier at this year's Davos than in 2012.      "We're not yet out of the woods. The real economy still  needs to undergo some tough work and the financial markets are  helping but it's not to say this is over," Larrain said.      "It is the emerging markets that will continue pulling the  world economy again in 2013."  

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UPDATE 2-Britain's economy shrinks anew, flirts with "triple dip"

Fri Jan 25, 2013 5:33am EST

* UK Q4 GDP -0.3 pct qq versus -0.1 pct estimate

* Finance ministry says UK faces "very difficult" situation

* Sterling falls to 5-month low versus dollar on data

By David Milliken and Olesya Dmitracova

LONDON, Jan 25 (Reuters) - Britain's economy shrank more than expected at the end of 2012 with a North Sea oil production slump, lower factory output and a hangover from London' Olympics pushing it perilously close to a "triple-dip" recession.

The country's gross domestic product fell 0.3 percent in the fourth quarter, the Office for National Statistics said on Friday, a sharper fall than the 0.1 percent decline forecast by analysts.

The news is a blow for Britain's Conservative-led government, which a day earlier defended its austerity programme against criticism from the International Monetary Fund. It needs solid growth to meet its budget targets, keep a triple-A debt rating and bolster its chances of winning a 2015 election.

Sterling fell to its lowest in 13-1/2 months against the euro and hit a five-month low against the dollar in response to the data. The euro was also buoyed by a stronger-than-expected German Ifo sentiment survey.

"This is a very disappointing outturn," said Philip Shaw, economist at Investec in London. "Clearly now the talk will focus on whether we are in a triple dip recession. Certainly the news is unwanted."

Britain's economy is now 3.3 percent smaller than its peak in Q1 2008, having recovered only about half the output lost during the financial crisis - a worse performance than most other major economies.

The country slipped back into recession in the last three months of 2011, and only emerged from it in the third quarter of 2012, after a boost from the London Olympics.

After a bout of inclement snowy weather in January - which is likely to have hit spending and output - the risk is that the economy will continue to shrink in the first three months of this year, technically pushing it into a rare and unwelcome "triple dip" recession.

Britain's biggest department store group, John Lewis , said earlier on Friday that snow was responsible for its sales growth stalling in the latest week.

POLITICALLY INCENDIARY

In economic terms, the picture remains one of stagnation over the past year. But politically, the latest dip in national output is more incendiary.

"Stagnation is going to be the theme for the next couple of quarters or so. This obviously brings Osborne's strategy into sharp relief and also the (Bank of England) strategy of maintaining or not sanctioning further monetary policy action," said Rob Wood at Berenberg Bank. "The Bank of England were forecasting a return to some growth in Q1 and that is likely to be disappointed."

Finance minister George Osborne stuck fast to his austerity plan on Thursday, rejecting suggestions from the International Monetary Fund's chief economist that he should consider slowing his deficit reduction plan.

Prime Minister David Cameron this week staked his political future on offering a referendum on Britain's place in the European Union. But it is Osborne's gamble that austerity will deliver strong growth before a 2015 election that will be crucial in determining his Conservative party's chance of winning.

After the figures were released, the Treasury conceded that Britain still faced a "very difficult economic situation".

"While the economy is healing, it is still a difficult road," it said in a statement.

Britain's chief central banker Mervyn King expects no more than a "gentle recovery" this year, while this week the IMF cut its 2013 forecast for British economic growth to 1.0 percent from 1.1 percent predicted in October.

However, economists and business groups warn that even such lacklustre growth could be derailed by a hit to firms' and consumers' confidence from talk of a triple-dip recession.

That prospect will add to pressure on the ruling coalition of Conservatives and Liberal Democrats to loosen its deficit-cutting drive and bolster the economy as George Osborne prepares his 2013 budget, due in March.

The biggest driver for the fourth-quarter fall in GDP was a 10.2 percent drop in mining and quarrying output, the biggest since records began in 1997, driven by disruption from extended maintenance affecting North Sea oil and gas fields.

This knocked 0.18 percent off GDP, while slightly smaller amounts of damage were done by falls in factory output and in the 'government and other services' category, where the Olympics had boosted sports and recreation services in the third quarter.

Friday's figures showed output in the service sector -- which makes up more than three quarters of GDP -- was flat in the fourth quarter. Industrial output was 1.8 percent lower.

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UPDATE 1-Greek current account gap narrows on recession, debt cut

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Fri Jan 25, 2013 5:41am EST

  * Greek current account gap narrows 73 pct y/y      * Drop reflects falling imports and debt payments      * Export performance weak, tourism drops          ATHENS, Jan 25 (Reuters) - Greece's current account gap  narrowed by more than two-thirds in the year to November due to  falls in imports by austerity-hit consumers and lower interest  payments after a sovereign debt cut.      According to figures from the Greek central bank released  said on Friday, the current account balance narrowed by 63  percent in November to 850.3 million euros ($1.14 billion). This  brought the January-November gap to 5.05 billion euros, 73  percent lower than in the same period last year.      The current account balance is a key measure for how  competitive a nation's economy is and on whether it lives within  its means. The reading deteriorated during Greece's debt-fuelled  economic boom to a record deficit of 14.7 percent of gross  domestic product in 2008.      But a severe economic contraction, partly due to austerity  measures as part of the country's international bailout, is  expected to narrow the gap to 4.2 percent in 2012 and almost  eliminate it in 2014, according to IMF estimates.      Still, the biggest part of the improvement so far does not  reflect improving economic competitiveness but rather falling  imports, as austerity-hurt businesses and households cut down on  their purchases of foreign machinery and consumer goods that are  not produced at home.      Imports dropped by an annual 12 percent to 38.61 billion  euros in Jan-Nov, according to central bank figures. Exports of  products, excluding fuels processed by the country's two  refineries, rose by a mere 2.4 percent over the same period to  12.57 billion.      Tourism, the country's chief money spinner, did not help  either, falling by 4.6 percent to 9.89 billion euros. Arrivals  from Germany, Greece's biggest tourism market, dropped by almost  a fifth, partly on fears about a backlash on German tourists  caused by Berlin's tough austerity demands on Athens.      But interest payments on Greece's sovereign debt dropped  sharply after a 75 percent writedown Athens imposed on private  sector bondholders back in March. The income account balance,  which reflects such payments, narrowed by 72 percent to 2.13  billion.      Greece's foreign exchange reserves stood at 6.0 billion  euros at the end of November, the Bank of Greece added.  ************************************************************      KEY FIGURES (bln euros)     2012      2011      November                  -0.850     -2.284                  October                   -0.684     -1.469      September                 +0.775     -1.069      August                    +1.601     -0.103      July                      +0.642     -0.880      June                      -0.274     -1.598      May                       -1.194     -1.922      Jan-Nov.                  -5.050    -18.491      -------------------------------------------      source: Bank of Greece  

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EMERGING MARKETS-Stocks head for weekly loss; forint hit by data

LONDON | Fri Jan 25, 2013 5:48am EST

LONDON Jan 25 (Reuters) - The Hungarian forint hit 10-day lows versus the euro on Friday after poor economic data reinforced rate cut expectations while weakness in Asia took emerging equities to their lowest since early January.

Central European currencies failed to recover despite a buoyant IFO business sentiment reading in Germany.

The forint fell 0.6 percent, approaching recent 7-month lows as poor retail sales suggested the central bank could extend its rate cutting campaign. The Polish data on Thursday pushed the zloty to a 5-month low.

"If you look at Central Europe you see a lot of weakness... In Hungary we again had a batch of horrible numbers so with the exceptions of a few credits such as Turkey the picture is still very depressed," said Luis Costa, head of CEEMEA FX and fixed income strategy at Citi.

"It's a very grey picture which reinforces that the currencies won't perform well."

Central European stock markets in Warsaw and Budapest however inched up, benefiting from gains in Western Europe.

Broader emerging equities lost 0.3 percent trimming 2013 gains to just 1.2 percent and on track for the biggest weekly loss since mid-November. The losses were driven by weakness in Asia where currencies' strength against the yen and dollar is causing foreigners to dump shares.

But in emerging Europe, the rouble jumped half a percent to trade under 30 per dollar for the first time since May 2012, supported by local tax payments and inflows to local bond markets.

Russian stocks rose 0.7 percent while Turkish and South African equities slipped off record highs hit on Thursday.

Trading at around 9 per dollar, the South African rand remained close to April 2009 lows hit earlier this week.

"There is a risk of further weakness in the rand, especially as a weaker currency seems to be a desirable outcome for the central bank," Societe Generale said in a note.

The rand was also supported by gains on South African bonds as buyers crept back after this week's selloff.

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Dutch PM says should be possible to leave the euro

DAVOS, Switzerland | Thu Jan 24, 2013 5:44am EST

DAVOS, Switzerland Jan 24 (Reuters) - Dutch Prime Minister Mark Rutte, questioned about Greece, said on Thursday it should be possible for a country to leave the euro zone.

Rutte was asked on a World Economic Forum panel in the Swiss resort of Davos whether it was now certain that no countries would be leaving the single currency area after euro zone leaders agreed last year to further aid for Greece in return for draconian austerity measures and structural reforms.

"I believe our aim shoud be to have the whole euro zone intact," he said. "At same time, you can never predict whether some country may want to leave the euro zone. I think that should be possible."

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Brazil inflation driven by tax changes, seasonal pressures-cenbank

BRASILIA | Thu Jan 24, 2013 5:45am EST

BRASILIA Jan 24 (Reuters) - Brazil's central bank said on Thursday that a recent pick-up in inflation was due to expiring tax breaks and seasonal transportation pressures, but again signalled that interest rates will remain on hold for some time.

The central bank held rates steady for the second straight time at 7.25 percent at its last meeting on Jan 16, in a bid to fire up a fragile economic recovery without fueling already high inflation.

In the minutes of that meeting, the bank warned that inflation has worsened in the short-term and that the recovery in domestic activity has been less intense than expected.

The government of President Dilma Rousseff is scrambling to keep a lid on inflation, which rose faster in the month to mid-January than most analysts expected. Trailing 12-month inflation rose to 6.02 percent in mid-January, well above that of regional peers like Mexico and Chile whose economies are growing at a much faster pace.

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TREASURIES-T-note prices gain on U.S. spending cuts concerns

LONDON | Thu Jan 24, 2013 5:58am EST

LONDON Jan 24 (Reuters) - U.S. government bond prices rose on Thursday, as investors sought safe havens due to concerns about potential automatic spending cuts in the world's top economy and weak French data.

* A Republican plan to extend the U.S. Treasury's borrowing authority will allow it to borrow money through mid-May, temporarily easing default concerns, which have recently caused a sell-off in U.S. T-bills but supported longer-term notes.

* But after the plan's approval on Wednesday in the House of Representatives, speaker John Boehner said Republicans would take the next opportunity - automatic spending cuts set for March 1 - to demand reforms from President Barack Obama.

* "Tensions are ongoing and this may be one of the factors playing in today," said Alan McQuaid, chief economist at Merrion Stockbrokers. "But I think they'll kick the can down the road in the end and eventually come to a solution."

* U.S. 10-year T-note yields were 1.4 basis points lower to 1.8136 percent. T-note futures were last 11/64 higher at 132-15/32.

* U.S. yields fell in tandem with those of triple-A rated German Bunds early in the European session, after data showed French business activity shrank in January to the lowest level since March 2009.

* McQuaid said North Korean plans to carry out further rocket launches and a nuclear test that would target the United States was also giving a bid to safe-havens.

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CORRECTED-EURO GOVT-Bunds push higher as Portugal debt sale eyed

Wed Jan 23, 2013 5:39am EST

(Removes reference in eighth paragraph to Portuguese 5-year debt yielding less than Spain)

* Bund recovery seen short-lived; charts point to more falls

* Portugal in spotlight as 5-year bond tap eyed

* Will be Portugal's return to bond market post 2011 bailout

By Emelia Sithole-Matarise

LONDON, Jan 23 (Reuters) - German Bunds rose on Wednesday, propped up by month-end related buying by some investors looking to balance their portfolios and as traders acting on technical signals looked to profit out of recent rangebound performance.

The rebound in low-risk Bunds looked fragile, traders and strategists said, with investors still upbeat about higher-yielding euro zone debt after robust Spanish sale of 10-year bonds with Portugal expected to return this week to bond markets for the first time since its 2011 bailout.

The Bund future was last 28 ticks up on the day at 143.40, as some traders tried to push it to the top of the range around 143.70 that has held over the past 10 sessions. German 10-year yields were 1.5 basis points lower at 1.5 percent.

"There's some month-end related buying going on. With supply from the core out of the way after Holland yesterday, there's a good amount of redemptions now not just in Germany and going into month-end that is going to have an impact on the market," a trader said.

In supply, focus is on Portugal which is expected to reopen its October 2017 bond later in the day, according to a report by Thomson Reuters service IFR citing a bank managing the deal.

Portugal will aim to sell 2 billion euros of the bond via syndication, Portuguese business newspaper Diario Economico said, without giving a source.

"The Portuguese syndication should go pretty well. It probably will be as impressive as Spain but both Portuguese and Spanish bonds have performed really well and I expect that to continue," said RIA Capital Markets strategist Nick Stamenkovic.

Portuguese 10-year yields held steady on the day at 5.86 percent, after breaking below 6 percent for the first time in over two years on Tuesday after the report, with its five-year debt now yielding less than 5 percent.

The yields have tumbled from peaks above 17 percent hit early last year, as Lisbon's won cautious plaudits for its fiscal reforms and after the European Central Bank backed a pledge in July to do whatever it too to save the euro with a new bond purchase scheme.

Comments from EU commissioner for economic affairs, Olli Rehn, on Tuesday that the commission will support Portugal's return to the bond market added to investor confidence that the country could be on its way to exit its bailout due to expire at the end of this year.

Spanish 10-year yields were 3 bps down on the day at 5.12 percent, basking in the afterglow of the country's sale on Tuesday of a new 10-year bond since late 2011 which drew unprecedented demand from investors.

"There seems to be a lot of interest and hunt for yield so it's difficult to call an end to the rally in periphery," another trader said. (Editing by Toby Chopra)

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Germany warns UK against 'cherry-picking' on Europe

BERLIN | Wed Jan 23, 2013 5:51am EST

BERLIN Jan 23 (Reuters) - Germany wants Britain to remain a full member of the European Union but London cannot expect just to pick and choose the aspects of membership that it likes, Foreign Minister Guido Westerwelle said on Wednesday.

Westerwelle was speaking shortly after British Prime Minister David Cameron promised in a long-awaited speech to give Britons a straight referendum choice on whether to stay in the EU or leave, provided he wins an election due in 2015.

"Germany wants the United Kingdom to remain an active and constructive part of the European Union... But cherry picking is not an option," Westerwelle told reporters, adding that Europe needed more, not less, integration.

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Gagfah scraps unit sale after getting new loan - sources

FRANKFURT | Wed Jan 23, 2013 5:55am EST

FRANKFURT Jan 23 (Reuters) - German real estate group Gagfah has called off the sale of its Woba unit after securing a 1 billion euro ($1.3 billion) loan from Bank of America Merrill Lynch, two people close to the transaction told Reuters.

The unit comprises 38,000 flats located in the eastern German city of Dresden and makes up a quarter of the portfolio of Gagfah, owned by private equity investor Fortress.

Gagfah had put Woba on the block after running into difficulties refinancing a 1 billion euro loan of Woba maturing in May.

Bidders included peer Deutsche Wohnen but none offered more than 1.6 billion euros, a price Gagfah was unwilling to accept, the sources said on Wednesday.

The refinancing - expected to be finalised and announced in the next couple of days - made the sales plan redundant, they said.

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Spain sets 10-yr bond at mid-swaps +365 basis points - IFR

MADRID | Tue Jan 22, 2013 5:26am EST

MADRID Jan 22 (Reuters) - Spain has set the final price for a 10-year bond at mid-swaps plus 365 basis points while booking interest of more than 17 billion euros ($22.6 billion), a source told Thomson Reuters news and analysis service IFR.

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EURO GOVT-Spain yields steady as launches new 10-year bond

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Tue Jan 22, 2013 5:42am EST

  * Price moves suggest market easily absorbing supply      * Spain's first new 10-year benchmark since November 2011      * Bunds fall after strong ZEW economic sentiment data          By Ana Nicolaci da Costa      LONDON, Jan 22 (Reuters) - Spanish 10-year yields held  steady on Tuesday as the launch of the country's first new bond  of that maturity in over a year drew early strong interest.      German Bund futures fell 20 ticks to 142.70 after  German ZEW sentiment data came in far above expectations.      Spain has got off to a flying start to its funding this year  as abundant liquidity and the prospect of European Central Bank  support underpinned appetite for its debt.       The 10-year sale, via syndication, represents a strong show  of confidence for the country, which only last year came near to  needing a sovereign bailout.      "Sentiment is positive for peripheral markets as we saw last  week with Italy's 15-year syndicated sale. We can expect it will  go fine," Alessandro Giansanti, senior rates strategist at ING  said.      Ten-year Spanish yields were about one basis  point lower at 5.16 percent. Five- and two-year yields were  slightly higher at 3.72 percent and 2.32 percent   respectively.      Spain's Treasury hopes to raise at least 3 billion euros ($4  billion) through the placement of the 10-year bond, and could  shift upwards of 4 billion if the transaction went well, a  government source said on Tuesday.       It set the final price on the bond at midswaps plus 365  basis points, booking interest in excess of 17 billion euros, a  source told IFR, a Thomson Reuters news and market analysis  service.      Madrid's sale follows Rome's successful 6 billion euro sale  last week of its first 15-year bond in more than two years.      The decision to do the sale via syndicate was expected to  secure demand, while Spain should still benefit from an  environment where the pledge of central bank support had allowed  investors the luxury to seek returns.      "I think people will look at the carry that's there... and  in the current mood there will be more than enough people out  there who will be willing to chase (yields), plus the  domestics," Marc Ostwald, strategist at Monument Securities  said.      Among core euro zone debt, German Bund futures fell after  the Mannheim-based ZEW think tank said its monthly poll of  economic sentiment rose to 31.5 points from 6.9 in December,  beating a median forecast for 12.0 points in a Reuters poll of  37 economists.  

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DAX selloff leads European shares lower; banks hit

Tue Jan 22, 2013 5:44am EST

LONDON Jan 16 (Reuters) - European shares were dragged lower by a slide in Germany's blue-chip DAX index on Tuesday, after several large futures trades pushed it down through technical support, led by the country's top bank.

The large orders appeared to start the selloff that then snowballed, triggering further selling in the futures market as the index passed through 7,700 points, several traders said.

A stronger than expected ZEW index of investor sentiment had helped it trim losses by 1022 GMT, however, when the DAX traded down 0.5 percent at 7,707.55 points and the FTSEurofirst 300 index of leading European shares was down 0.2 percent at 1,163.98 points.

"With the stress about peripheral Europe easing, it's not a surprise to see big asset allocation trading programmes switching out of the DAX, and the money should flow into markets seen as riskier," a senior Paris-based trader said.

The reason for the trades was not immediately clear, although Deutsche Bank, down 1.8 percent and taking most points off the index, was the worst hit stock, and traders cited several potential triggers. Commerzbank also fell.

Some pointed to a report in German daily Boersen-Zeitung which said German regulator BaFin had ordered large banks to simulate a breakup, while others cited vague talk that Deutsche Bank would issue a profit warning.

BaFIN was not immediately available for comment and Deutsche Bank declined to comment when contacted by Reuters.

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LEG has funds to buy 10,000 flats in next two years

FRANKFURT | Mon Jan 21, 2013 5:08am EST

FRANKFURT Jan 21 (Reuters) - German residential property group LEG, which plans to float on the Frankfurt stock exchange, said on Monday it has 170 million euros ($226 million) of liquidity available, enough to buy 10,000 flats in the next two years.

LEG, which has 91,000 flats in Germany, hopes to raise up to 1.43 billion euros in its planned initial public offering.

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TEXT-S&P assigns Z Beta Sarl 'B-' L-T rtg; on watch pos

Mon Jan 21, 2013 5:09am EST

Rationale

The positive CreditWatch implications indicate the likelihood that we will raise Zobele's long-term rating to 'B' with a positive outlook if the bond issuance is successfully completed under the preliminary terms and conditions that we have reviewed. These include amounts and maturity of the bond and the revolving credit facility (RCF), absence of maintenance covenants, and the conversion of the group's entire shareholder loan into equity.

Zobele's 'B-' corporate credit rating is constrained by our view of its "less-than-adequate" liquidity position, and its high debt-to-EBITDA ratio.

Under the current capital structure, we calculate tight--below 10%--headroom under the leverage maintenance covenant of Zobele's syndicated bank debt on Sept. 30, 2012, and we project a likely breach of covenants over the next 12 months without refinancing. This translates into our assessment of the group's liquidity as "less than adequate."

We also calculate a Standard & Poor's adjusted ratio of debt to EBITDA, including the shareholder loan, in excess of 7x, and we anticipate limited deleveraging without refinancing and conversion of the entire shareholder loan into equity due to the payment-in-kind (PIK) characteristics of the shareholder loan. This translates into our assessment of Zobele's financial profile as "highly leveraged."

We view Zobele's business risk profile as "weak," reflecting its fairly small scale of operations and bargaining power with its customers, mostly large household and personal care companies. In our opinion, Zobele is highly reliant on its top four customers--including Henkel AG & Co. KGaA (A/Stable/A-1), Procter & Gamble Co. (AA-/Stable/A-1+), Reckitt Benckiser Group PLC (A+/Stable/A-1)--that represent nearly 80% of its sales. However, this is tempered by our view of Zobele's solid position in the growing niche market of air care and insecticide devices, its track record of innovation, and its long-standing relationship with the large household and personal care players.

The proposed transaction includes a EUR180 million bond whose proceeds will be used to repay all outstanding bank debt, an undrawn EUR30 million RCF, and the conversion of the full shareholder loan into equity. We understand that none of the instruments will carry maintenance covenants. Bullet maturities and lack of maintenance covenants will improve the group's liquidity into "adequate" territory after the transaction. Moreover, we calculate that adjusted leverage will decline to about 5x after the proposed transaction. Sustained leverage below 5x could lead to an improvement of the financial profile to "aggressive."

Our base-case scenario over the next two years includes the following assumptions:

-- Mid-single-digit organic growth in revenues. This reflects our opinion that Zobele will continue to grow its operations with its existing customer base, which we expect to increase by 2%-4%. The growth forecast also reflects our opinion that Zobele should be able to win new contracts as the trend toward outsourcing and cost reduction continues for household and personal care players like Reckitt Benckiser and Procter & Gamble.

-- Limited improvement in profitability. This reflects our expectation of higher sales and therefore improved operating leverage, and increasing contribution from the higher-margin insecticide business as Zobele develops this activity in emerging markets. But we think the company's negative country mix might offset some of these improvements--large household and personal care players tend to have weaker profitability in emerging markets than in mature markets, which we believe may ultimately harm Zobele's margins.

-- Capital expenditure (capex) of about EUR15 million, in line with previous years.

-- No dividend payment.

-- Limited merger and acquisition activity.

Liquidity

Under the current structure, we view Zobele's liquidity as "less-than-adequate."

We project that sources of cash will exceed uses of cash by 1.2x in 2013. However, we have assessed liquidity as less than adequate because of upcoming maturities in 2014 and 2015--EUR22 million of term loan A and EUR24 million of the currently drawn RCF will mature in December 2014, and EUR55 million of term loan B and EUR55 million of term loan C will mature in 2015. Zobele had EUR11 million of cash on balance sheet at year-end 2011, and we project limited--below EUR10 million--annual free cash flow generation under the current capital structure.

Under the current capital structure, our assessment of the group's liquidity as less than adequate includes our projection of a likely breach of covenants over the next 12 months if the proposed refinancing is not completed successfully.

We believe the group's liquidity will improve to adequate on completion of the proposed transaction. We expect Zobele to have EUR26 million in cash on balance sheet after the transaction based on Sept. 30, 2012, figures, EUR30 million under the long-term undrawn RCF, break-even free cash flow, and no debt maturities until the bond matures in 2018-2020.

Recovery

The recovery prospects for the proposed bond reflect our view that the company would be reorganized as a going concern in the event of a default due to its international presence and value-added relationship with fast moving consumer goods companies. However we believe that recovery prospects for bondholders are limited because of the amount of debt facilities ranking ahead, and our view of the Italian insolvency regime as less favorable for secured lenders. While the proposed bond is senior secured, we believe the security package provided for bondholders is fairly weak, comprising pledges over shares, receivables, and some moveable assets.

Our simulated default scenario assumes a default in 2016 primarily due to a loss of a key customer, leaving manufacturing capacity unutilized, increased competition, and reduced margins. We believe this would be compounded by global fast moving consumer goods companies attempting to reduce costs in a weaker macroeconomic environment, with a negative impact on Zobele's margins and an inability for the company to pass through raw material price increases, leading to a payment default in 2016. At our hypothetical point of default we envisage EBITDA to have reduced to around EUR26 million. We envisage a stressed enterprise value of about EUR130 million at the point of hypothetical default, equivalent to 5.0x the assumed stressed EBITDA multiple. We deduct priority liabilities, mainly enforcement costs and factoring lines. We then deduct EUR31 million for the super senior RCF. This leaves around EUR70 million for the senior secured bond, resulting in average (30%-50%) recovery prospects for bondholders.

CreditWatch

The positive CreditWatch implications reflect the likely enhancement of Zobele's liquidity profile and financial risk profile upon successful completion of the proposed transaction. We could raise the corporate credit rating to 'B' and assign a positive outlook if the transaction was completed under the preliminary terms that we have reviewed, including the amount and maturity of the bond and RCF, the lack of maintenance covenants in the new capital structure, and the conversion of the shareholder loan in its entirety into equity.

We expect to resolve the CreditWatch placement on completion of the proposed transaction, or, if the transaction is delayed, over the next three months.

Related Criteria And Research

-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012

-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

-- Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt, Aug. 10, 2009

Ratings List

New Rating; CreditWatch/Outlook Action

Zobele Group

Corporate Credit Rating B-/Watch Pos/--

Zobele Holding S.p.A.

Senior Secured EUR180 mil bnds* B

Recovery Rating 4

*Guaranteed by Zobele Group

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