DW Investment help RadioShack stave off bankruptcy -Bloomberg

Fri Nov 7, 2014 7:32pm EST

Nov 7 (Reuters) - RadioShack Corp was helped by David Warren's DW Investment Management LP from going bankrupt, as the hedge fund bought the biggest piece of the struggling electronics retailer's loan, Bloomberg reported on Friday citing people familiar with the matter.

RadioShack had earlier said that it may need to file for bankruptcy protection if its cash situation worsens. The company said it was also exploring other options, including a sale or an investment, and liquidation as the last resort.

The hedge fund, DW Investment Management LP, which advises Brevan Howard Asset Management LLP on credit investments, owns at least $100 million of the $325 million first-lien loan arranged last month by RadioShack's biggest shareholder, according to the report. (bloom.bg/1pxVCZd)

Standard General LP, which lined up the loan as part of a $585 million financing package, sold the rest of the first-lien loan to other hedge funds, Bloomberg reported citing people familiar with the matter.

RadioShack was not immediately available for comment. (Reporting by Rosmi Shaji in Bangalore)

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BofA still seeking SEC relief in $16.7 bln settlement -Bloomberg

Fri Nov 7, 2014 8:09pm EST

Nov 7 (Reuters) - Bank of America Corp is still trying to get a penalty waiver from the U.S. Securities and Exchange Commission over a $16.7 billion settlement involving bad mortgages, Bloomberg reported on Friday, citing two people familiar with the matter.

BofA reached a record $16.65 billion settlement with the U.S. government to settle charges it misled investors into buying toxic mortgage-backed securities. Securitized mortgages were a major cause of the 2007-2009 financial crisis.

According to Bloomberg, BofA's lawyer, Gary Lynch, asked that additional sanctions tied to the settlement be waived. He argued the bank it is being unfairly treated compared with other firms that were given waivers in similar cases.

The disagreement is over a penalty that could prevent BofA from selling investments in hedge funds, Bloomberg said.

A vote on the waivers scheduled for last week was scrapped at the last minute, Bloomberg reported, citing one of the people. The SEC's staff have recommended that the commissioners approve the relief, it said.

BofA could not be reached for comment outside regular U.S. working hours. (Reporting by Anjali Rao Koppala in Bangalore. Editing by Andre Grenon)

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Uber looks to pick up another $1 bln in equity -FT

Fri Nov 7, 2014 8:26pm EST

Nov 7 (Reuters) - U.S. taxi service firm Uber said it is in early talks with investors to raise money at a higher valuation than $17 billion it secured with June's round of funding, Financial Times reported on Friday citing people familiar with the matter.

Uber is planning to raise at least $1 billion more in capital from its existing investors, which includes Blackrock, TPG, Google Ventures and Menlo Ventures, and new funds from beyond Wall Street and Silicon Valley, especially in Asia, FT reported. (on.ft.com/1wCSoo3)

Google Ventures is a capital investment arm of Google .

The company still has $1 billion in the bank from its most recent round, FT reported, citing people familiar with Uber's finances.

The ridesharing company gained ground in Las Vegas last week when a District Court judge ruled against a restraining order that would have temporarily prohibited it from operating in Clark County, the Las Vegas Review-Journal reported.

Taxi drivers around the world have urged lawmakers to regulate or ban such services, which allow users to use apps on their smartphones to hire a private driver, rather than calling a taxi company.

Uber could not be immediately reached for comment. (Reporting by Anjali Rao Koppala in Bangalore; Editing by Bernard Orr)

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Pay up in instalments, EU to tell Britain on disputed bill

By Robin Emmott

BRUSSELS Fri Nov 7, 2014 3:40am EST

BRUSSELS Nov 7 (Reuters) - EU finance ministers will tell Britain on Friday that the only way to resolve a row over a surprise budget bill to Brussels is to pay in interest-free instalments, officials said, but Britain's finance minister insisted the bill was "unacceptable".

Italy, which holds the EU's rotating presidency, will present the instalment compromise at a ministerial meeting in Brussels, seeking to give British Prime Minister David Cameron a way to save face over the 2.1-billion euro ($2.6-billion) bill.

Interest on the late payments would also be waived.

The row has put Cameron, who told parliament he will not pay the bill in full, under pressure from Eurosceptics at home in the run-up to a general election in May. His EU counterparts are sympathetic to Britain because the bill is unusually large as it results from a statistical review stretching back over a decade.

"The demands for that Britain pays 1.7 billion pounds on the first of December is unacceptable," Chancellor George Osborne told reporters as he arrived for the meeting. "I will make sure we get a better deal for Britain."

But Osborne's counterparts and EU officials say it is out of the question to let Britain, Europe's third largest economy, contribute less, despite Cameron's promise to the British parliament that will not pay "anything like" the full amount.

"The rules for calculating that are not only quite precise, they are also just," Polish Finance Mateusz Szczurek told Reuters. "The budget contributions are based on gross national income and I don't really believe that they should be changed."

Ministers said they expect a political deal on Friday and the technical details to be worked out at another meeting on Nov. 14 in Brussels, before the Dec. 1 payment deadline.

EU officials say any deal has to strike a balance between Britain - which already receives a much envied annual rebate on its EU contribution - and those states, including Germany and France, which will benefit from the statistical revision.

The technical and legal details of how the regulation stipulating full payment on Dec. 1 can be waived also require work and could need votes by ministers and even EU lawmakers.

(Additional reporting by Jan Strupczewski and Alastair Macdonald; Editing by Alastair Macdonald)

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REFILE-GLOBAL MARKETS-Rouble sinks, markets await U.S. jobs numbers

Fri Nov 7, 2014 4:24am EST

(Adds reporting credit)

* Rouble more than 10 percent lower this week

* European stock markets edge higher at opening, Asia dips

* U.S. nonfarm payrolls later on Friday expected to show rise

By Patrick Graham

LONDON, Nov 7 (Reuters) - A deepening crisis of confidence in the rouble dominated financial markets action in Europe on Friday, with another 3 percent fall meaning the Russian currency has lost more than a tenth of its value in less than a week.

As investors await monthly U.S. jobs data, European shares edged higher, supported by signs on Thursday that the European Central Bank is edging towards providing more help for the moribund euro zone economy. The FTSE Eurofirst index of leading European shares was up 0.3 percent.

The rouble's slide -- and the broader problems around Ukraine and lower oil prices which it reflects -- are likely to put yet more pressure on exports by European companies already struggling with very poor demand at home.

With the currency battered by concerns about the conflict with Ukraine and the tit-for-tat sanctions that have resulted, Russia's central bank effectively gave up supporting its existing peg against the dollar earlier this week.

With intervention to support the rouble limited to just $350 million daily, a further slide is likely, traders said.

"This is full-blown panic, with signs of a self-fulfilling currency crisis," Dmitry Polevoy, chief Russia economist at ING Bank in Moscow, said in a note.

"At such times, the central bank should intervene -- after all, if this isn't a risk to financial stability, then what is?"

President Vladimir Putin held talks with top security chiefs on Thursday over a "deterioration of the situation" in eastern Ukraine after pro-Russian rebels there accused Kiev of launching a new offensive in violation of a ceasefire.

The dollar was worth 48.39 roubles in morning trade in Europe, compared to Thursday's close of 46.86 roubles. .

PAYROLLS

Asian stock markets edged down overnight ahead of the U.S. employment numbers, due at 1330 GMT, while the euro wallowed around two-year lows after ECB President Mario Draghi vowed to take more steps to support growth in the euro zone.

Investors were likely to remain cautious ahead of the U.S. nonfarm payrolls report. Solid gains in employment are projected, which could increase speculation the Federal Reserve will raise U.S. interest rates in the middle of next year.

"The market is positioned for a big number," said Chris Weston, chief market strategist at IG Markets in Melbourne.

MSCI's broadest index of Asia-Pacific shares outside Japan was down about 0.2 percent, on track for a weekly loss of about 1.8 percent.

Japan's Nikkei stock average rose 0.5 percent, gaining 2.8 percent for the week following the Bank of Japan's surprise announcement of more easing steps on Oct. 31.

Japanese cabinet ministers expressed concern about the yen's recent rapid fall, suggesting that the government may be trying to ward off criticism that it is intentionally devaluing its currency to boost exporters' competitiveness.

The dollar bought 115.28 yen, not far from a fresh seven-year peak of 115.52 touched overnight. The euro inched up to $1.2398 after brushing a more than two-year low of $1.2368.

The stronger dollar and supply fears continued to pressure oil prices. Brent dropped about 0.4 percent to $82.55 a barrel, while U.S. crude had recovered from overnight losses to be a touch higher at $77.99. (Additional reporting by Vladimir Abramov in Moscow; Editing by Catherine Evans)

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UPDATE 1-Pay up in instalments, EU to tell Britain on disputed bill

Fri Nov 7, 2014 5:57am EST

* Budget issue damaging British support for staying in EU

* Britain gets back 66 pct of its net contribution to EU budget (Adds Spanish minister, figures on EU budget, poll numbers)

By Robin Emmott

BRUSSELS, Nov 7 (Reuters) - EU finance ministers told Britain on Friday that the only way to resolve a row over a surprise budget bill to Brussels is to pay in interest-free instalments, officials said, but Britain's finance minister insisted the bill was "unacceptable".

The row has become a highly contentious issue in Britain in the run-up to a general election in May, putting Prime Minister David Cameron under pressure from Eurosceptics at home and costing British support for the country's continued membership of the European Union.

"The demands for that Britain pays 1.7 billion pounds on the first of December is unacceptable," Chancellor George Osborne told reporters as he arrived for the meeting. "I will make sure we get a better deal for Britain."

Cameron, who displayed vivid anger over the issue at a summit in Brussels last month, has found sympathy from Italy, Germany and France because the bill is due to a historical statistical review stretching back over a decade.

Italy, which holds the EU's rotating presidency, presented the instalment compromise at a ministerial meeting in Brussels, seeking to give British Prime Minister David Cameron a way to save face over the 2.1 billion euro ($2.6 billion) bill.

Interest on the late payments would also be waived.

"We are open to being flexible," Spain's Economy Minister Luis De Guindos said as he arrived for the meeting.

But Osborne's counterparts and EU officials say it is out of the question to let Britain, Europe's third largest economy, contribute less, despite Cameron's promise to the British parliament that will not pay "anything like" the full amount.

"The rules for calculating that are not only quite precise, they are also just," Polish Finance Mateusz Szczurek told Reuters. "The budget contributions are based on gross national income and I don't really believe that they should be changed."

Britain's opposition Labour party has called on Cameron to consider taking the case to the European Court of Justice, the EU's top court, in Luxembourg.

Cameron has promised a referendum on Britain's EU membership in 2017 if his Conservative party wins the May election and the budget issue appears to have made a vote for leaving in more likely, at least for now.

The latest YouGov poll on the referendum issue showed 41 percent of Britons would vote to leave the European Union, compared to 38 percent who would vote to stay. That compared to a slight majority in favour of staying in before the budget issue emerged to dominate the political debate in Britain.

Ministers said they expect a political deal on Friday and the technical details to be worked out at another meeting on Nov. 14 in Brussels, before the Dec. 1 payment deadline.

EU officials say any deal has to strike a balance between Britain - which already receives a much envied annual rebate on its EU contribution - and those states, including Germany and France, which will benefit from the statistical revision.

The technical and legal details of how the regulation stipulating full payment on Dec. 1 can be waived also require work and could need votes by ministers and even EU lawmakers.

STATISTICS, SEX AND DRUGS

The dispute is part of the EU's long-term, 960 billion euro budget for the 2014-2020 period, an amount that represents a nominal decrease of around 3 percent on the last budget. Money goes to areas from farming to foreign policy and Britain and its EU partners agreed to it in February last year.

EU countries review the budget on an annual basis and Britain's surprise bill is part of London's 2014 contribution, which does not change the overall size of the budget but means some countries pay less because Britain pays in more.

That reflects a review of national statistics across Europe and in particular a larger than previously estimated rise since 2002 in the contribution of non-profit organisations - including clubs, churches and universities - to the British economy.

But officials in Brussels are at pains to stress that the review does not mean Britain will always pay more.

Changing the rules could threaten London's EU budget rebate, a contentious issue as Britain has become wealthier relative to its EU peers since it was agreed in 1984.

Three decades ago, Britain's then prime minister, Margaret Thatcher, won a rebate on the budget contributions that means the country gets back two thirds of its net contribution to the EU budget of the previous year. In 2014, the rebate is worth 5.4 billion euros. (Additional reporting by Jan Strupczewski, Alastair Macdonald and Francesco Guarascio; Editing by Toby Chopra)

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EU's finance chief to unveil capital market plan in 2015

BRUSSELS Thu Nov 6, 2014 4:31am EST

BRUSSELS Nov 6 (Reuters) - The EU's new financial services chief pledged on Thursday to set out his plans for a pan-European capital market by the middle of next year, aiming to reduce companies' reliance on banks and help revive the bloc's fragile economy.

Jonathan Hill, the European Commissioner for financial services, said he was seeking to create an integrated capital market over the next fives years and would develop a plan by next summer following a public consultation.

"We still do not have a fully functioning single market for capital," Hill told a conference of EU officials and business leaders. "I will be bringing forward proposals to deliver a capital markets union; a project for all 28 EU Member States."

Channelling more money into small companies is seen as crucial for Europe's efforts to avoid economic stagnation because small and medium enterprises provide two out of every three private sector jobs in the European Union.

Following the worst financial crisis in a generation, banks are reducing riskier lending, a problem in a continent where banks account for 80 percent of corporate loans.

A capital markets union would mean the EU moving beyond public subsidies and loans to coordinate financing for companies and infrastructure through project bonds, public-private partnerships and infrastructure funds.

Hill said his first steps would be to push a proposal for European long term investment funds for infrastructure and businesses, to develop a framework for securitisation and to carry out analysis of private placements - the sale of securities to a small number of chosen institutional investors.

"I am interested in ideas for more market finance instruments - but not just in safe short-term debt, but in longer term stable debt that encourages long term investment, and in real risk capital that encourages innovation."

The European Central Bank is at the heart of wider efforts to create a capital markets union by trying to revive securitisation, or the bundling of loans into bonds to raise cash for companies to invest. (Reporting by Robin Emmott)

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GLOBAL MARKETS-Euro edges higher, stocks sag before ECB meeting

Thu Nov 6, 2014 4:46am EST

  * Euro nudges up, eyes ECB meeting after report of internal  rift      * European stocks drop 0.4 percent after recent big gains      * Dollar rally eases, commodities remain under pressure      * EM, commodity-linked currencies strained        By Marc Jones      LONDON, Nov 6 (Reuters) - The euro edged higher and European  stocks pulled back on Thursday as investors waited to see what  message ECB chief Mario Draghi will send after the European  Central Bank's monthly meeting, following another run of poor  euro zone data.      Markets were also watching for signs Draghi may temper his  readiness for more aggressive stimulus given reports of internal  opposition to his leadership style and long-standing unease  about quantitative easing.       Having jumped 1.7 percent on Wednesday and over 10 percent  over the last two weeks, European shares opened down  0.4 percent as a mixed batch of company earnings gave investors  an additional spur to cash in some of their recent gains.       In the currency market, the euro also nudged back above  $1.25 as a recent sharp rally in the dollar, particularly  against the yen, came to a halt after volatile moves overnight.      But with markets having picked themselves up again after  last month's beating, and political hurdles like the U.S.  mid-term elections out of the way, there was a general feeling  that the upward trend in stocks and the dollar would continue.      "The market feels great," said Nick Lawson Managing Director  in Global Markets Equity at Deutsche Bank.       "It is a very risk-on mindset set at the moment and if you  do get a much more inclusive tone from the ECB and some  information on what assets could be bought, we could be off to  the races."      Disappointing euro zone business surveys, a big cut in  European Commission growth forecasts and the Bank of Japan's  surprise decision last week to enhance its already massive  monetary stimulus have raised pressure on the ECB to ease more.      The euro last traded at $1.2515, flirting once again  with a two-year low of $1.2439 set early in the week, while  demand for euro zone government bonds from Germany to Greece  gradually picked up as trading gathered momentum.                    COMMODITY ROUT      In Asian trading, the region's shares and commodity  currencies had stumbled as the ongoing rout in oil, copper,  gold, silver and other key commodities trumped cautious optimism  about a strengthening U.S. economy.      MSCI's broadest index of Asia-Pacific shares outside Japan   fell as much as 0.5 percent before largely  recovering, led by declines in Australia and China.      The Australian dollar, often used a liquid proxy for China,  to which it is heavily exposed, flirted with Wednesday's  four-year low of $0.8606 while the Canadian dollar  stood near five-year lows of C$1.1466 to the U.S. dollar  .        Many other commodity exporters took an even bigger  hammering.      The Brazilian real remained within touching distance of a  six-year trough hit last week and Russia's rouble   tumbled to another record low a day after the  central bank effectively abandoned daily inventions.      Reflecting the selloff, the MSCI's emerging market index   is now at its cheapest level since 2005 in comparison  to the U.S. S&P 500. Almost 30 percent of emerging markets are  oil exporters and many others depend on mining or other  commodities.      "While I would put about a 70 percent chance that the global  economy will chug along, the fact that two of the BRICs bloc are  facing problems does raise some caution," said Soichiro Monji,  chief strategist at Daiwa SB Investments.           Japan's Nikkei ended down 0.9 percent as speculators  booked profits from their 8-plus percent rise over the past  three days, fuelled by the BOJ's extra monetary stimulus.      That triggered a knee-jerk buyback in the yen, with the  dollar falling to 114.55 yen after having hit a seven-year peak  of 115.52 yen.      Still generally solid U.S. economic data and expectations of  business-friendly policies following the Republican Party's  election victory underpinned the dollar and saw record closing  highs on Wednesday for the Dow and the S&P 500.       Payroll processor AD reported solid U.S. private-sector job  growth in October, auguring well for jobs data due on Friday.      The strong dollar continued to weigh on commodities and  metals though, sending the price of gold and silver   to 4-1/2-year lows after big falls on Wednesday.       Copper, a barometer of global demand, eased 0.3  percent to $6,618.25 per tonne, while Brent oil, which has  slumped 30 percent since June, remained near a four-year low at  82.70 a barrel.         (Additional reporting by Hideyuki Sano in Tokyo; Editing by  Catherine Evans)  

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OECD sees gradual U.S.-led recovery despite euro zone weakness

Thu Nov 6, 2014 5:00am EST

* Global growth seen at 3.3 pct in 2014, 3.7 pct in 2015

* ECB urged to launch QE easing, buy government bonds

By Leigh Thomas

PARIS, Nov 6 (Reuters) - The global economy is only gradually picking up momentum as stagnation in the euro zone and growing weakness in some big emerging economies weighs on the U.S.-led recovery, the OECD said on Thursday.

With the euro zone a stubborn weak spot in the global economy, the OECD called on the European Central Bank to live up to a promise "to do what ever it takes" to revive its economy and begin purchasing government bonds.

The ECB holds its latest policy-setting meeting on Thursday.

The Paris-based Organisation for Economic Cooperation and Development updated its outlook ahead of a summit next week in Australia of leaders from the Group of 20 economic powers. It is to provide a more complete outlook and analysis on Nov. 25.

Marginally trimming estimates dating from May, the OECD forecast that the world economic growth would accelerate from growth of 3.3 percent this year to 3.7 percent next year and 3.9 percent in 2016.

"The global economy is continuing to run in low gear," the OECD's new chief economist, Catherine Mann of the United States, told Reuters in an interview.

"Even though we are looking at global growth to increase up to 3.9 percent by the end of 2016, that still leaves us about a half a percentage point below our historical experience."

The OECD forecast the U.S. economy would see growth speed up from 2.2 percent this year to 3.1 percent next year as an improving job market gives private spending a boost.

Firming U.S. growth warranted a gradual increase in the Federal Reserve's interest rates from the middle of next year, the OECD said, warning however that hikes could trigger turbulence in emerging markets.

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Graphic: link.reuters.com/nyc43w

Presentation video: video.oecd.org/

OECD presentation: www.oecd.org/economy/economicoutlook.htm

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ECB EASING

The improving U.S. outlook contrasted sharply with the euro zone, which was forecast to see growth of only 0.8 percent before accelerating to 1.1 percent next year despite a slower pace of belt-tightening in many countries.

With the euro area at risk of a "prolonged period of stagnation", the OECD called on the ECB to launch a full-scale U.S.-style quantitative easing drive.

Though ECB chief Mario Draghi has promised to do whatever it takes to stabilise the euro zone economy, the ECB has so far stopped short of buying government bonds as the U.S. Federal Reserve did and the Bank of Japan is doing amid internal tensions over how to ease policy.

"The strategy of purchasing sovereign bonds is a challenge with the structure and rules governing the ECB's approach," Mann said in an interview. "But if you are going to say you need to do whatever it takes we need to think about that."

Turning to Japan, the OECD said the Bank of Japan should push ahead with its exceptional monetary stimulus, which was stepped up last week, until the central bank gets inflation higher on a permanent basis.

With ultra-loose monetary policy seen weakening the yen and thus boosting exports, the OECD forecast the Japanese economy would accelerate from growth of 0.9 percent this year to 1.1 percent next year.

Amid reports a planned sales tax hike next year may get postponed, Mann recommended sticking to plan as it would encourage consumers to bring forward spending.

Among major emerging economies, the OECD estimated China's growth would slow from 7.3 percent this year to 7.1 percent in 2015 as it rebalances towards more service-sector focused growth from an export-dominated economy.

But the outlook diverged widely among big emerging economies that have driven growth until recently with commodity-focused countries suffering as oil and other raw material prices fall.

Brazil's economy was seen eking out growth of only 0.3 percent this year before accelerating to 1.5 percent in 2015, while growth in Russia's sanctions-hit economy was expected to fall from 0.7 percent to zero in 2015. (Reporting by Leigh Thomas; Editing by Toby Chopra)

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UPDATE 1-European Commission cuts forecasts, euro zone recovery delayed

Tue Nov 4, 2014 5:36am EST

* Euro zone to grow 1.1 pct in 2015 vs earlier 1.7 pct forecast

* Inflation to remain low, unemployment high even in 2016 (Updates with Moscovici quotes)

By Robin Emmott

BRUSSELS, Nov 4 (Reuters) - The fragile euro zone will need another year to reach even a modest level of economic growth, the European Commission said on Tuesday, revising down its forecasts and predicting more of the low inflation and high joblessness that plagues the bloc.

In its autumn estimates, the EU executive said the euro zone's economy would expand 0.8 percent this year, 1.1 percent next year and by 1.7 percent in 2016 - a level the Commission said six months ago would be achieved next year. The delay in the upturn was due to drag on the economy from France and Italy.

"There is no single and simple answer. The economic recovery is clearly struggling to gather momentum," the EU's economics commissioner, Pierre Moscovic, told a news conference.

The euro zone's faltering recovery from the financial crisis is becoming a wider concern as the currency bloc that generates a fifth of world economic output holds back a broader global revival led by the United States.

While the bloc's hangover from its banking and debt crisis is largely to blame for its fragility, tensions with Russia over Ukraine and the economic sanctions that the EU has imposed on Moscow have also damaged business confidence and exports.

"The slowdown in Europe has occurred as the legacy of the global financial and economic crisis lingers," said Marco Buti, the director general of the Commission's economics department.

"We see growth ... coming to a stop in Germany ... protracted stagnation in France and contraction in Italy," he said in a statement on the forecasts for 2014 to 2016.

The Commission data appears to avoid the relapse into recession that European Central Bank President Mario Draghi warned EU leaders of at a summit in Brussels last month, but despite a slowly improving trend, indicators remain dour.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a related story on budget deficits:

For a TABLE on the forecasts:

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'ACCELERATION IN INVESTMENT'

Inflation will be 0.5 percent this year, 0.8 percent in 2015 and 1.5 percent in 2016, still below the ECB's target of the 2-percent level it judges as healthy for the economy, while unemployment will barely budget at 10.8 percent in 2016.

The data is likely to support calls by economists and some investors for the ECB to embark on the kind of bond-buying programme of quantitative easing that Japan, Britain and the United States have employed to recover from the crisis.

But Draghi has told the euro zone it cannot just rely on the ECB, which is banned from directly financing governments, to help, and that countries such as France must reform to get more young people into work and help carry the burden of an ageing population.

Draghi said he wanted to see governments draw up a reform program by the next EU summit in December.

For now, euro zone leaders are putting their faith in a proposed 300 billion euro fund to invest in projects to get the economy going, while calling on Germany, Europe's biggest economy, to spend more.

The European Commission's new president, Jean-Claude Juncker, has promised to unveil the plan in December, but economists warn that the programme will not be enough.

"Investment is still considerably lower than the level it was at before the crisis," said Moscovici. "This is not specific to the most vulnerable countries ... An acceleration of investment is essential," he said.

But the Commission forecasts Germany will post a budget surplus this year, a balanced budget in 2015 and another surplus in 2016, showing little appetite for more government spending. (Reporting by Robin Emmott; Editing by Alastair Macdonald)

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UPDATE 1-Moody's says growth environment challenges Turkey's sovereign credit profile

Tue Nov 4, 2014 5:37am EST

(Adds markets, details)

ISTANBUL Nov 4 (Reuters) - A weaker growth environment than in recent years is challenging Turkey's sovereign credit profile while its exposure to volatile foreign capital flows has been heightened by regional political risks and domestic policy uncertainty, Moody's said on Tuesday.

The rating agency said Turkey's government finances were a credit strength but that they were likely to be adversely affected by slower growth and fragile investor confidence.

"External vulnerabilities continue to weigh on the credit profiles of Turkey's sovereign, its banking and its corporates," Moody's, which has a Baa3 rating on Turkey with a negative outlook, wrote in a report.

It said Turkish companies would be particularly hard hit by the slower growth while a reduction of capital inflows would reduce their access to funding. It also said inflation and geopolitical risks would dampen consumer and investor sentiment.

Turkey is struggling to control inflation, which is well above the central bank's year-end target of 5 percent, while economic growth is faltering.

Markets were little moved by the Moody's report.

The lira firmed to 2.2245 against the dollar by 1015 GMT from 2.2375 late on Monday. The 10-year benchmark bond yield fell to 8.74 percent from 8.82 percent.

The main share index was up 0.51 percent at 80,425.56, outperforming the broader emerging markets index , which was down 0.22 percent.

(Writing by Seda Sezer; Editing by Nick Tattersall)

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EMERGING MARKETS-Dollar, China knock emerging assets; Ukraine bonds under pressure

By Chris Vellacott

LONDON Tue Nov 4, 2014 5:50am EST

LONDON Nov 4 (Reuters) - Emerging stocks and currencies mostly slipped on Tuesday, pressured by dollar strength and more evidence of slowing Chinese growth, while a renewed flare-up in geopolitical tensions knocked Ukrainian dollar bonds.

MSCI's emerging stocks index dropped by 0.2 percent while the Asian benchmark index, which excludes Japan, fell by a similar amount as the dollar stayed just off four-year highs against a basket of major currencies.

A rising dollar puts pressure on emerging market assets as the promise of better returns for relatively low risk lures many investors to take their money to the United States.

"The stronger dollar and possibility of higher U.S. interest rates clearly are negative for emerging markets. These are the two crucial variables for the market now and they are beyond the control of emerging markets," said Cristian Maggio, a strategist at TD Securities in London.

Korea's won and the Malaysian ringgit both hit nine-month lows against the greenback , with the former also flirting with new six-year lows against the yen, close to levels where the central bank tends to intervene.

South Korea's finance minister said on Tuesday the government was concerned about yen weakening and would continue market-stabilising efforts after the Bank of Japan decided to expand its massive stimulus last week.

Also weighing was news that China's factory activity unexpectedly fell to a five-month low in October as firms fought slowing orders and rising costs in the cooling economy.

However some currencies enjoyed slight relief as the dollar eased off four-year highs hit on Monday, with the rand and lira rising 0.3 and 0.4 percent respectively .

Russia's rouble weakened 0.3 percent to the dollar as local markets remained shut. The currency is close to all-time lows, with fresh pressure coming from elections in rebel-held eastern Ukraine that threatened to jeopardise a two-month long ceasefire.

The cost of insuring Russian debt exposure rose with 5-year credit default swaps (CDS) at 259 basis points, compared with 253 bps a day earlier, according to Markit.

Ukrainian President Petro Poroshenko called an emergency meeting of his security chiefs for Tuesday to discuss new ways of dealing with the separatist challenge in the east after rebel elections.

Ukraine's yield spreads over U.S. Treasuries widened by 21 basis points on the EMBI Global bond index of emerging debt to 1038 bps. Dollar bonds maturing in 2022 fell 1 cent in the dollar while five-year rose 5 bps to 1220, according to Markit.

Ukraine's 2017 and 2023 bonds also fell 0.5 cent and 0.75 cent respectively.

"The rebel-sponsored 'elections' in the Ukrainian Donbass region have resulted in President Poroshenko saying he is going to revoke the autonomy status law for the rebel-held areas, which essentially means that the Minsk ceasefire agreement is also now on tenterhooks," Commerzbank analysts said in a note

In Central Europe, Romania's leu was 0.15 percent weaker versus the dollar ahead of a central bank rate-setting meeting. Analysts expect policymakers to shave another quarter point off interest rates and bring them to a new record low of 2.75 percent. <ID:nL6N0S31DC>

The zloty firmed moderately versus the dollar to stand just off two-year lows and it was flat to the euro as the central bank entered a two-day policy meeting.

For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Editing by Andrew Heavens)

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RPT-GLOBAL MARKETS-Strong dollar squeezes oil, China data limits stock gains

Mon Nov 3, 2014 5:12am EST

* Yen hits seven-year high vs yen, two-year high vs euro

* After BOJ, investors look for more ECB stimulus

* Chinese data adds note of caution for investors

* Strong dollar hits oil, gold

By Nigel Stephenson

LONDON, Nov 3 (Reuters) - The dollar powered to a seven-year peak against the yen and a two-year high against the euro on Monday, extending gains after the Bank of Japan's latest stimulus and punishing oil and gold priced in the U.S. currency.

The BOJ's moves to lift growth and inflation raised expectations the European Central Bank, which meets on Thursday, would eventually resort to large-scale purchases of government bond, driving benchmark euro zone yields lower.

However, data showing China's economy losing momentum tempered investors' mood, weighing on global stocks.

China's services sector grew at its slowest pace in nine months, the National Bureau of Statistics said, as a cooling property sector weighed on demand.

Another official purchasing managers' index survey on Saturday showed factory activity in the world's second-largest economy unexpectedly fell to a five-month low in October as firms fought slowing orders and rising borrowing costs.

"The optimism created by the Bank of Japan by increasing their purchase of quantitative assets has been hit by the Chinese manufacturing data released today, which fell well short of expectations," Naeem Aslam, chief market analyst at Ava Trade, said.

Final European manufacturing PMI data for October showed activity in France contracted by less than first reported while German factory activity rebounded after a slight shrinkage in September.

European shares dipped in early trade, pausing after sharp gains last week. The pan-European FTSEurofirst 300 index was down 0.1 percent at 0900 GMT.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, off a five-week high hit after the Bank of Japan on Friday expanded its huge stimulus spending in a stark admission that growth and inflation had not picked up as expected after a sales tax hike in April.

Tokyo stocks, which rose more than 4 percent on Friday, were closed on Monday for a holiday.

On Wall Street, both the Dow Jones Industrial average and the S&P 500 saw record closing highs on Friday.

STRONG DOLLAR

The yen came within a shade of 113 to the dollar on Monday and was last down 0.4 percent at 112.72.

"The big question is when is dollar/yen going to stop," said Jane Foley, a senior currency strategist at Dutch bank Rabobank in London.

"Part of the answer to that question lies not just with the Bank of Japan, but it lies with the Fed and the U.S. dollar and so it depends how much momentum the dollar can draw."

The euro hit a low of $1.2439, its weakest in more than two years. It was last down 0.3 percent at $1.2489.

The dollar touched highs not seen since mid-2010 versus a basket of currencies.

The strong dollar and the Chinese data helped push crude oil prices lower. Brent crude was last down 0.6 percent at $85.33 a barrel.

Gold held close to four-year lows, also due to the strength of the U.S. currency. It last traded at $1,168.80 an ounce.

The Chinese numbers gave safe-haven German government bonds a lift as European markets opened. Ten-year German yields fell 2.6 basis points to 0.823 percent.

"There was a bit of risk aversion in overnight markets which is spilling over to the European open," said Rainer Guntermann, a strategist at Commerzbank. (Additional reporting by Wayne Coe in Sydney, Blaise Robinson in Paris, Jehn Geddie and Jemima Kelly in London; Editing by Hugh Lawson)

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EMERGING MARKETS-Emerging stocks off 5-wk highs on China data, firmer dollar

By Sujata Rao

LONDON Mon Nov 3, 2014 5:42am EST

LONDON Nov 3 (Reuters) - Emerging equities and currencies started the week on a sour note on Monday, hit by the dollar at four-year highs, lacklustre Chinese data and a possible fresh flare-up in tensions over Ukraine.

Russian stocks fell in a holiday-thinned trading session, while the rouble slipped another 0.8 percent versus the dollar as a controversial poll in Eastern Ukraine added to pressure from domestic factors.

MSCI's emerging equities index pulled back from five-week highs hit on Friday after the Bank of Japan's decision to embark on more money-printing, as purchasing managers' data from China showed services as well as the manufacturing sector had lost further momentum.

Mainland Chinese shares shrugged off the PMIs to touch the highest levels since February 2013, but Hong Kong markets slipped 0.3 percent.

Most Asian currencies were at multi-month lows versus the greenback which touched four-year highs versus a basket of major currencies, though the Korean won hit six-year highs against the rapidly weakening yen.

But the Turkish lira and South African rand slipped slightly against the dollar . The Polish zloty was flat near July 2012 lows but Hungary's forint dropped almost half percent to the greenback.

David Hauner, head of fixed income and economics for Emerging Europe, Middle East and Africa at Bank of America/Merrill Lynch said emerging currency depreciation was likely to be measured as U.S. yields have failed to rise sharply.

"You have an environment where the key trend is clearly for a stronger dollar," Hauner said.

"Data continues to suggest the first U.S. hike could only be after next summer. As long as this remains the case we will continue to see flows into EM debt. EM weakness against the dollar will be gradual and partly offset by strength against euro and yen," he added.

Emerging European shares mostly dropped, tracking Western bourses despite PMI data showing Polish manufacturing back in growth, Hungary picking up speed and Turkey expanding at the fastest rate in seven months.

But Russia's manufacturing sector fell to 50.3 from 50.4 in September, holding just above the 50 mark that separates expansion from contraction and the second monthly drop in a row.

Russia is shut for a two-day holiday but Moscow stocks were trading, with rouble-denominated stocks up a quarter point and dollar-denominated index down 0.7 percent.

The rouble also slipped after the central bank disappointed markets on Friday by raising interest rates by 150 basis points but deciding not to move to a free-floating exchange rate regime that would have allowed it to intervene at will.

Implied volatility on the rouble -- a gauge of expected swings in a currency -- rose to new record highs around 23 percent while rouble-dollar forwards priced in further depreciation over the next three and six months.

As companies' demand for dollars is primarily behind rouble weakness, many say rate hikes will not provide much support.

"It's a hard call to make (on) where the rouble can stabilise, it depends on how much dollar demand corporates ultimately want to satisfy," Hauner said.

Russian assets are also being pressured by an election in eastern Ukraine where pro-Moscow rebels voted for a separatist leadership. While the United States and European Union have denounced the election, Russia says it will recognise the result, deepening its rift with the West.

Ukraine's five-year credit default swaps (CDS) rose marginally to one-week highs of 1,188 basis points, according to Markit.

"The election may increase tension and jeopardise the shaky Minsk cease-fire agreement from September," analysts at SDEB said in a note.

For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Editing by Ruth Pitchford)

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UPDATE 1-Greece unlikely to end bailout without new help -senior EU official

Mon Nov 3, 2014 5:30am EST

(Adds details on decision timing)

BRUSSELS Nov 3 (Reuters) - Greece is "highly unlikely" to end its euro zone bailout programme without some new form of assistance that will require it to meet targets, a senior EU official said on Monday.

"A completely clean exit is highly unlikely," the official told reporters, on condition of anonymity. "We will have to explore what other options there are. Whatever options we may be adopting, it will be a contractual relationship between the euro area institutions and the Greek authorities," the official said.

The euro zone/IMF bailout support of 240 billion euros began in May 2010. Greece is in negotiation with EU institutions and the International Monetary Fund ahead of the expiry of its bailout package with the European Union on Dec. 31. Athens has said it wants its bailout to finish when EU funding stops, though the IMF is scheduled to stay through to early 2016.

The EU official said he expected euro zone ministers and Greece to decide on how best to help Athens at a meeting of finance ministers in Brussels on Dec. 8. That should give time for parliamentary approval before the December recess.

The official gave no details of what new aid might look like, but policymakers have said that the most likely tool is an Enhanced Conditions Credit Line, or ECCL, from the European Stability Mechanism.

That means Greece would be under detailed surveillance from the European Commission, the EU executive, for the duration of the credit line.

"There needs to be money available for drawing on," the official said. "If you look at market volatility over recent weeks, one doesn't need any further explanation of why a contractual arrangement makes sense."

The official also said unused euro zone funds earmarked for bank recapitalisation in Greece could be used in a new credit line.

Greece has some 11 billion euros in a special fund that was set up to recapitalise Greek banks, but results of the European Central Bank Asset Quality Review and stress tests, released last week, showed that only a fraction of that sum will be needed.

"What is left over from the recapitalisation buffer could be used in such a programme or credit line," the official said. (Reporting by Jan Strupczewski and Robin Emmott, editing by Susan Fenton)

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Egypt signs $350 mln in oil, power financing deals with Saudi

CAIRO Sat Nov 1, 2014 11:05am EDT

CAIRO Nov 1 (Reuters) - Egypt signed $350 million worth of financing agreements with Saudi Arabia on Saturday aimed at upgrading its power grid and securing imports of petroleum products as it seeks to end its worst energy crisis in decades.

Power cuts have become common in Egypt as the cash-strapped government struggles to supply enough gas to its power stations let alone upgrade a grid suffering from decades of neglect.

The energy crunch has become a political hot potato in the Arab world's most populous country, which has turned from a gas exporter into a net importer in recent years as it diverts gas once destined for export to meet burgeoning domestic demand.

Lines at petrol stations and a shortage of gas were among the main public grievances against former President Mohamed Mursi of the Muslim Brotherhood. But oil-producing Gulf allies have come to Egypt's aid since the army, prompted by mass protests, ousted Mursi last year.

Two loan agreements signed on Saturday worth a total of about $100 million will be invested in two electricity stations that are expected to boost the capacity of the national grid. A further $250 million in assistance will come in the form of petroleum products.

Saudi Arabia sent Egypt $3 billion worth of refined oil products between April and September of this year, according to an Egyptian oil official, while the total value of Saudi oil aid since July 2013 amounted to about $5 billion.

Egypt has also turned to the United Arab Emirates for oil products, signing deal in September that commits it to purchasing about 65 percent of its needs from its Gulf ally in the next year.

Egypt introduced deep cuts to energy subsidies in July, which have resulted in price rises of more than 70 percent, as it seeks to curb public spending and fuel waste. (Reporting by Lin Noueihed; Editing by Toby Chopra)

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Ebola costs encourage budget flexibility among U.S. Republicans

By David Lawder and Richard Cowan

WASHINGTON Sat Nov 1, 2014 8:00am EDT

WASHINGTON Nov 1 (Reuters) - Worries about Ebola are chipping away at some congressional Republicans' support for maintaining across-the-board spending caps on U.S. government agencies and the military.

An increasing number of Republicans are speaking out in favor of Ebola "emergency" funds, which would be passed outside of the normal budget process, and would not require offsetting spending cuts or explicit sources of revenue.

"I think we're going to give the money that's needed," Republican Representative Blake Farenthold of Texas told Reuters, when asked about emergency funds. "If they need more, they need to ask for it."

Farenthold and others open to special measures for Ebola generally insisted that any broad increase in spending would need to be paid for with cuts. And the pre-election pledges to fight Ebola from rank and file Republicans and some party leadership could still have strings attached.

But concerns about the disease are adding to pressures on the 20-month-old "sequester" spending caps. These include the growing costs of fighting Islamic State militants in Iraq and Syria, maintaining U.S. military superiority over a more aggressive Russia and addressing a surge of child migrants from Central America. Some see concern over Ebola paving the way for other action.

Lawmakers and aides now expect an emergency funding request from the Obama administration within days to provide more money for the Centers for Disease Control and other agencies to stop the virus from spreading in West Africa and in the United States. A White House spokeswoman declined to comment on any Ebola request.

"Whatever the CDC thinks they need, we'll give it to them," Senate Republican leader Mitch McConnell said in a recent MSNBC interview, referring to Ebola funding.

Congress' deficit-cutting fervor has cooled somewhat as an economic rebound and tax increases have more than halved the government's deficits to $483 billion last fiscal year from the recession-driven $1 trillion-plus that were prevalent when the controls were enacted in 2011.

Approving emergency funds is probably the easiest way for Congress to circumvent the budget caps. Congress did this in August when it approved $16 billion to speed medical care to veterans languishing on long waiting lists at Veterans Affairs Department clinics and hospitals.

Lawmakers could also raise caps through a one-or-two year budget agreement like one crafted last year.

The most difficult change would be a comprehensive budget deal in Congress that ends seven future years of caps.

Many Republican lawmakers, including Farenthold, a member of the conservative Tea Party faction, have been chafing at the spending controls on the military and are talking more openly about easing the sequester outright. Farenthold said he hoped to be able to work with Democrats to target alternative cuts.

"I think there's a good chance it gets replaced at some level," Republican Representative Tom Cole said of the sequester. He said the building pressures from Ebola and other "international imperatives," along with lower deficits, mean that Congress has a better chance of reaching an agreement to change sequester.

"The stars are beginning to align so that we can achieve something, but it will have to be a compromise," the ally of House Speaker John Boehner told Reuters.

Although he supports offsetting savings, he said Republicans may be more open to allowing higher tax revenue to be an offset to spending if it is part of a broader tax reform plan that boosts economic growth. Previously, he has ruled out any tax increases after the "fiscal cliff" tax hikes were passed in January 2013.

There is still broad resistance to anything that could be interpreted as a tax increase among the party's most conservative wing, but more conservatives are talking about the need for a sequester replacement. The relatively modest size of Ebola funding makes it less controversial. International Medical Corps, a non-profit group working in West Africa, estimates that it will cost $1.6 billion over the next six months to bring the disease under control.

"I didn't vote for sequestration, I'm for ending it," Representative Jim Jordan said. Jordan, one of the most conservative Republicans in Congress, told Reuters the "pressing" issues from Ebola to Islamic State represent emergencies that need funding, though he added that he will insist on spending reductions elsewhere in the budget to offset increases in spending for Ebola and the military.

"Let's hope (Ebola) forces the hand to increase military spending and make savings and reductions other places so that we actually are treating taxpayers with the respect that they deserve," he said. A year ago, he vowed that Republicans would stay united in defending the spending caps. (Reporting By David Lawder, editing by Caren Bohan and Peter Henderson)

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Upside-down politics in Rhode Island governor's race

By Hilary Russ

Sat Nov 1, 2014 7:00am EDT

Nov 1 (Reuters) - In Rhode Island, the next governor could be a Democrat preferred by Wall Street or a Republican favored by rank-and-file union members.

"It's upside down politics in Rhode Island now," said Wendy Schiller, associate professor of political science at Brown University.

The strange situation stems largely from a divisive battle over public pension benefits and a more mundane question that's normally the pragmatic purview of public finance geeks: bond payments.

The race pits Democrat Gina Raimondo, Rhode Island's current Treasurer and a former venture capitalist, against Republican Allan Fung, the mayor of Cranston, a city of 80,500 residents southwest of Providence.

Polls had shown Raimondo in the lead. But the latest from Brown put the two contenders in a statistical tie, with each at about 38 percent.

While in office, Raimondo spearheaded one of the most far-reaching pension reforms in the United States. Public sector labor unions sued, and the case is set for trial after the police union scuttled a settlement in April.

The benefit cuts and other overhauls aimed to shore up the pensions, funded at just 49 percent in fiscal 2010, among the lowest of all U.S. states.

If the state loses in court, the next governor would face a huge bill. It could cost the state at least $220 million annually to pay down an extra $2.5 billion in unfunded liabilities, state data showed.

"The loss... would be quite catastrophic," said John Simmons, executive director of the Rhode Island Public Expenditure Council.

Fung also boosted his city's pension system by striking a deal with unions, though his changes weren't as sweeping.

While Raimondo won endorsements from some union heads, her tough stance on pensions may have lost her votes from workers. Fung led Raimondo 42 - 30 percent among union households, according to an early October poll by WPRI-TV and The Providence Journal.

Currently, Florida-based Cumberland Advisors doesn't own any Rhode Island general obligation debt. John Mousseau, director of fixed income at Cumberland, said he "would look much more favorably upon it" if Raimondo gets elected.

The candidates also differ on whether the state should repay $75 million of bonds it backed in 2010 for ex-Red Sox Pitcher Curt Schilling's video game company.

The company went bankrupt, putting taxpayers on the hook for bond payments. Credit rating agencies warned that if Rhode Island doesn't repay bondholders, they would slash the state's rating.

That would cause higher borrowing costs - anywhere from $26.3 million over 10 years to $260.4 million over 20 years, state budget officials said.

Raimondo says the state must make payments to avoid long-term fiscal penalties. Fung, however, says he would not make the payments because taxpayers should not have to "bail out" investors.

But the decision would not be up to the next governor alone. State lawmakers decide whether to allocate payments in their annual spending plan, which the governor signs.

House Speaker Nicholas Mattiello, a conservative Democrat, backed the payment of the 38 Studios bonds. (Reporting by Hilary Russ; Additional reporting by Megan Davies; Editing by David Gregorio)

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CANADA FX DEBT-C$ slides on soft Canadian GDP, U.S. dollar flows

Fri Oct 31, 2014 4:47pm EDT

  (Updates with fresh comment, new details, closing figures)      * Canadian dollar at C$1.1286 or 88.61 U.S. cents      * Bond prices mostly weaker across the maturity curve        By Solarina Ho      TORONTO, Oct 31 (Reuters) - The Canadian dollar dropped to  its weakest level in more than a week against its U.S.  counterpart on Friday after data showed the country's economy  unexpectedly shrank in August for the first time in eight  months.      The currency's weaker tone was set overnight after the Bank  of Japan shocked financial markets around the world by expanding  its massive stimulus spending. The move sent the yen   plunging to a near seven-year low against the U.S. dollar.          Meanwhile, inflation data in the euro zone reinforced the  view that the European Central Bank would hold off on any policy  action at its meeting next week.       "What happened in Japan overnight and Europe (caused) a  significant flow to the U.S. dollar, which Canada wasn't able to  keep up with. It started us off on the wrong foot overnight,"  said Ken Wills, currency strategist and broker at CanadianForex.      U.S. data showed the pace of business activity growth  accelerated more than expected this month, which furthered the  flow into U.S. dollars, Wills said.      The Canadian dollar finished the week at C$1.1271  to the greenback, or 88.72 U.S. cents, significantly softer than  Thursday's close of C$1.1196, or 89.32 U.S. cents.      At one point during the session, the loonie, which was  underperforming most of its counterparts, weakened to C$1.1332,  or 88.25 U.S. cents.      Wills said there was still room for further Canadian dollar  weakness, however, he did not anticipate the currency to break  the C$1.1385 level.      In Canada, real gross domestic product fell 0.1 percent in  August, hurt by plant maintenance in the oil and gas industry  that slowed production and by a drop in manufacturing activity.          "It's just a bit of an additional headwind. It doesn't quite  buy into the narrative that we're hoping to see," said David  Tulk, chief Canada macro strategist at TD Securities, who said  the GDP drop was not too surprising given fairly weak economic  data globally for August.      "Our expectation is that it will reassert itself in  September and going into the final quarter of the year."      In the United States, consumer spending fell for the first  time in eight months in September, but the slowdown was expected  to be temporary as other data showed the biggest increase in  wages in more than six years in the third quarter.         "It's sort of a perfect storm, where you get the weakness in  the Canadian economy ... But also on the U.S. side, you have the  employment cost index that was stronger than people had  thought," Tulk said.      "That gives you your perfect storm, insofar as you see that  potential momentum in wages under the surface in the United  States, which brings the Fed arguably closer to taking rates  higher."      Earlier this week, the U.S. central bank said it was ending  its monthly bond purchase program and adopted a more hawkish  tone on the economy.      Canadian government bond prices were mixed across the  maturity curve, with the two-year bond up 2.5  Canadian cents to yield of 1.025 percent. The benchmark 10-year   lost 2 Canadian cents to yield 2.049 percent.         (Reporting by Solarina Ho; Editing by Peter Galloway and  Meredith Mazzilli)  

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Fich Affirms Lesotho at 'BB-'; Outlook Stable

Fri Oct 31, 2014 5:05pm EDT

(The following statement was released by the rating agency) LONDON, October 31 (Fitch) Fitch Ratings has affirmed Lesotho's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BB-' and 'BB', respectively. The Outlooks are Stable. The Country Ceiling has been affirmed at 'A-' and the Short-term foreign currency IDR at 'B'. KEY RATING DRIVERS Lesotho's 'BB-' rating is supported by its currency peg to the South African rand, which has contributed to a stable macro environment, including moderate inflation. GDP growth has been resilient despite a volatile external and domestic environment. Dependence on volatile South African Customs Unions (SACU) revenues is a weakness. At 42% of GDP, government debt is slightly above the 'BB' median but Lesotho remains a net external creditor. Lesotho's 'BB-' IDRs also reflect the following key rating drivers: Recent tensions illustrate the political risk in a country with a short democratic history and periodical military involvement in politics. Rivalry between Prime Minister Thabane and Deputy Prime Minister Metsing led to open confrontation between the army and the police in the capital city in August this year and the Prime Minister temporarily fleeing the country. International mediation led by South Africa resulted in an agreement by all parties to hold early elections in February 2015. Fitch's baseline scenario is for an orderly resolution. Fitch expects the political crisis to affect confidence in the economy and GDP growth to slow to 3% in 2014, from 5.8% in 2013. The agency expects growth to pick up in the medium term, to 5% in 2015 and 5.5% in 2016 supported notably by the construction of the Lesotho Highland Water Project (LHWP). Fitch's baseline assumes the renewal of the African Growth and Opportunity Act (AGOA), which provides preferential access to the US market for Lesotho's textiles (12% of GDP), in 2015. Non-renewal would result in lower GDP growth. The budget deficit is expected to widen to 2.2% of GDP in fiscal year 2015 (FY15, fiscal year ending in March 2015) from 1.2% of GDP in FY14 reflecting the impact of the slower economy on tax receipts. Fitch expects the deficit will remain around 2% of GDP in the medium term and public debt will decline as a percentage of GDP, to 40% by FY17 (from 42% in FY14). In the longer term, government debt will increase as the financing of the LHWP will increase the primary deficit to 4% of GDP from 2017. Debt could reach 46% of GDP by 2023. Fitch expects the current account to widen to negative 4.5% of GDP in 2014 from negative 1.2% of GDP in 2013 due to a higher trade deficit and continuing weak global environment. The agency expects the current account will deteriorate in the medium term as investment projects funded by government external borrowing accelerate. The higher external imbalance will weigh on official reserves, expected to drop to 3.8 months of current account payments by 2016, from 4.6 in 2014. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well-balanced. The main factors that individually or collectively might lead to rating action are as follows: Negative: - If the early 2015 election does not lead to normalisation of the political situation, it could lead to negative rating pressure if it affects macro stability, GDP growth and potentially external financial support from the international community. - Deterioration in the budget balance due to pressure from non-capital spending and leading to weakening debt ratios. Positive: - Further progress in developing tax receipts that lessen dependence on SACU revenues. -Sustained high GDP growth supported by an improvement in the business environment and favouring a diversification in the economy. KEY ASSUMPTIONS Fitch assumes that economic growth in Lesotho will be supported by a gradual recovery in its key economic partners, namely the US, Europe and South Africa. Fitch assumes there will be no major revision to the SACU revenue-sharing formula that could negatively affect SACU revenues to Lesotho. Fitch also assumes the AGOA will be renewed in 2015. Contact: Primary Analyst Arnaud Louis Director +44 20 3530 1539 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Christopher Findlay Analyst +44 20 3530 1342 Committee Chairperson James McCormack Managing Director +44 20 3530 1286 Add Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 12 August 2014 and 'Country Ceilings' dated 28 August 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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Fitch Affirms Norway at 'AAA'; Outlook Stable

Fri Oct 31, 2014 5:05pm EDT

(The following statement was released by the rating agency) LONDON, October 31 (Fitch) Fitch Ratings has affirmed Norway's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AAA'. The Outlooks are Stable. The issue ratings on Norway's senior unsecured bonds have also been affirmed at 'AAA'. The Country Ceiling has been affirmed at 'AAA' and the Short-term foreign currency IDR at 'F1+'. KEY RATING DRIVERS Norway's 'AAA' ratings reflect the strength of the sovereign balance sheet, very high human development and governance indicators, a very high income per capita, and a strong macroeconomic policy framework. North Sea revenues have been prudently managed and invested through a Sovereign Wealth Fund (SWF). At 2Q14, net public sector financial assets amounted to 208% of GDP, comfortably surpassing Norway's outstanding government debt (which stands at around 29% of GDP). Oil exports support the country's external position - the current account surplus has averaged 13.5% of GDP over the past 10 years. Norway's fiscal policy rule ensures that the non-oil deficit in structural terms should average 4% of the capital value of SWF. However, when the SWF is growing consistently faster than GDP, it can lead to fiscal expansions over a number of consecutive years - and the market value of the SWF is now around twice the size of the mainland economy. The Norwegian government recently announced that a commission will examine how to apply the fiscal rule and consider options for supplementing the rule with guidelines to avoid excessively loose fiscal policy. The draft budget for 2015 includes discretionary tax cuts worth just under NOK8.5bn (around 0.3% of GDP). Fitch expects only a slight fall in the government's balance over the forecast horizon, to 9.5% of GDP in 2016, from 10.9% in 2013. In itself, Norway's high commodity dependence is a rating weakness, although windfall revenues are a benefit. Moreover, an increasing share of economic activity is generated by the supply of goods and services to the oil sector, which creates competitiveness pressures in the rest of the economy. However, these risks are mitigated by Norway's strong economic policy framework, which safeguards economic stability. Its strong net asset position and substantial twin budget and current account surpluses mean that the recent dip in oil prices is not a rating issue for Norway. Norway's recent record of macroeconomic stability compared with its rated peers is an additional rating strength. Real mainland GDP declined by only 2.6% in the recession following the global financial crisis, and is almost 13% above its trough in 3Q09. Fitch expects GDP growth of 2.2% this year, and an average 2.5% over 2015 and 2016. House prices have risen strongly in recent years and household debt is high in Norway, although households have a strong net wealth position. House prices rose over 1H14, after falling by almost around 1.5% in 2H13. Household income has risen faster than house prices over the past six months, so the house price to income ratio has continued to edge down, and in 2Q14 was 8 percentage points lower than its peak in 1Q13. Sharp downward corrections in house prices could have a negative impact on private consumption, housing investment, and corporate profitability. RATING SENSITIVITIES Fitch judges Norway's credit profile as strong and solid, implying that a negative rating action in the near term is unlikely. However, the following factors could, individually or collectively, put downward pressure on the ratings: -An extreme and sustained fall in the oil price. This would represent a significant shock to the Norwegian economy, given its heavy dependence on the petroleum sector. -A worsening of economic imbalances. Sustained real wage growth not accompanied by productivity gains, or sharp increases in house prices, household indebtedness, and private sector credit, would not be sustainable in the medium term and would increase the risk of a sharp correction. - Over the longer term, a failure to address the fiscal burden of ageing would lead to an erosion of Norway's fiscal position. Current estimates imply that Norway's SWF would not be able to absorb the cost of an ageing population without corrective measures in the long run. KEY ASSUMPTIONS The ratings and outlooks are based on a number of assumptions: - Fitch's latest published forecasts are for Brent oil prices to average USD105p/b this year, USD100p/b in 2015 and USD95p/b in 2016. Recent outturns mean that some downward revision for 2014 and 2015 is likely in our December forecasting round. However, the agency views the likelihood of a fall in oil prices severe and sustained enough to materially erode Norway's buffers to be low. - Fitch assumes that the Norwegian government will continue to adhere to the fiscal policy rule in its current form. Consistent with the implementation of the rule, Fitch assumes that the long-term real return for the SWF will be 3%-4% per annum. Contact: Primary Analyst Alex Muscatelli Director +44 20 3530 1695 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Krisjanis Krustins Research Analyst +44 20 3530 1487 Committee Chairperson Edward Parker Managing Director +44 20 3530 1176 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Criteria' dated 12 August 2014 and 'Country Ceilings' dated 28 August 2014, are available at www.fitchratings.com. Applicable Criteria and Related Research: Sovereign Rating Criteria here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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