GLOBAL MARKETS-Stocks dip but dollar gains as Fed minutes awaited

Wed Aug 21, 2013 4:41am EDT

* European shares extend losses as markets brace for Fed minutes

* Dollar recovers from 6-month low vs euro

* Emerging currencies calmer but stay under pressure

* Tokyo stocks recoup losses, Japan raises radiation alert

By Richard Hubbard

LONDON, Aug 21 (Reuters) - European shares hovered near three-week lows on Wednesday while the dollar found some support as investors braced for a U.S. Federal Reserve report which may shed light on when it will trim its stimulus policy.

Emerging market currencies remained under pressure from expectations that the minutes from the Fed's last policy meeting in July, due out later, will signal an early end to the supply of cheap dollars they have relied on.

"I don't think we're going to get that clear signal as to whether September is when they pull the trigger on tapering, but that is what the markets are hoping for," said Daragh Maher, FX strategist at HSBC.

European shares had edged down 0.2 in early deals after a 0.8 percent fall in the previous session, following on from a weaker session in Asia where MSCI's index of Asia-Pacific shares outside Japan eased 0.3 percent.

Reports that Japan's government would raise the severity of the latest leak at Fukushima to a level 3 event, or a serious radiation incident, had also sent shivers through stocks there.

However, in Japan the Nikkei had recouped all its losses and ended 0.2 percent higher, as investors drew support from a declaration by Bank of Japan Governor Haruhiko Kuroda that he would not hesitate to expand the bank's massive asset buying campaign if the economic outlook darkened.

Among the major currencies - where safe-haven flows ahead of the Fed minutes have tended to favour the yen and Swiss franc - the greenback had recovered slightly, gaining 0.2 percent against a basket of currencies to move away from a two-month low.

The euro had eased 0.2 percent against the dollar to $1.3390 , having touched a six-month high of $1.3452 on Tuesday. Traders have cited European investors repatriating funds from emerging markets as one reason the single currency euro had spiked.

In the fixed income markets, benchmark 10-year Treasury yields edged back to 2.82 percent but analysts are worried the Fed minutes could jolt them higher again. A break past a major chart level at 2.90 percent would be especially bearish.

"The minutes should continue to reinforce this theme of tapering at the September meeting as long as the labour market holds up," said Michelle Girard, chief U.S. economist at RBS.

"Along with that theme, they should also repeat another tune dear to FOMC hearts, 'tapering is not tightening.'"

German bond yields were holding within tight ranges ahead of the release of the minutes with investor attention focused on a two-year bond auction which was seen garnering good demand.

"We do not expect much new guidance from the minutes so the risk is that we see a bit lower yields in U.S. Treasuries and Bunds," said DZ Bank strategist Christian Lenk.

The widespread conviction that the Fed will have to start tapering at some point was still having a major effect on emerging market currencies.

The Turkish lira fell to record lows on Wednesday, with investors brushing aside central bank efforts to shore up the currency.

The Indian rupee had cratered to a record low of 64.13 per dollar on Tuesday, before steadying at 63.3 on Wednesday. Indonesia's rupiah was at its lowest since 2009.

Late on Tuesday, India's central bank took steps to support the beaten-down bond market, a move that did work to bring yields and market interest rates down sharply.

Commodities markets were generally softer as the Fed loomed large. Copper futures dipped 0.4 percent to $7,292.75 a tonne, while spot gold inched down to $1,366.80, and away from a two-month high set on Monday.

Brent crude prices eased 53 cents to $109.62 a barrel, while U.S. oil for October delivery lost 47 cents to $104.64.

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Leverage crackdown puts spotlight on Credit Agricole, Deutsche

Wed Aug 21, 2013 6:22am EDT

* Global regulators put new emphasis on leverage in June

* Barclays, Deutsche already announced measures to fill gap

* Deutsche seen likely to have to do more

* Credit Agricole also under the spotlight

By Christian Plumb and Edward Taylor

PARIS/FRANKFURT, Aug 21 (Reuters) - A regulatory crackdown on debt could hit Deutsche Bank harder than expected and embroil Credit Agricole despite the French bank's insistence that its ownership structure reinforces its capital defences.

Global regulators meeting in the Swiss city of Basel in June surprised banks with a new focus on leverage to measure risk, prompting banks holding large amounts of financial derivatives such as Barclays and Deutsche Bank to either tap investors for more equity funding or make plans for yet another purge of assets to free up capital.

With euro zone banks still considered too large - their assets are over three times the size of the bloc's economy - others are expected to have to raise capital and shrink with Credit Agricole seen by some analysts as most at risk.

France's third-biggest bank will have to reduce its balance sheet by 242 billion euros, or 14 percent, and generate 17 billion euros in capital over the next three to five years to meet new regulatory requirements, according to a recent study by analysts at Royal Bank of Scotland (RBS).

The analysts estimate that banks in the euro zone will have to cut 3.2 trillion euros in assets over the next three to five years, with the 11 largest, including Credit Agricole, Deutsche, Societe Generale and Commerzbank, axing 661 billion euros and having to raise 47 billion in capital.

The capital cloud is putting off some investors.

"I have a neutral stance on banks worldwide at this point for several reasons, but I am more underweight the euro zone banks because they have a chronic problem of being undercapitalized, even if there are some exceptions," said Jacques-Pascal Porta, a portfolio manager for OFI Optima International fund.

Credit Agricole has declined to disclose capital or leverage ratios for its listed bank under the proposed new Basel III rules. The regulations call for a leverage ratio of 3 percent, meaning for every dollar of assets and some off-balance-sheet commitments, a bank has to hold at least three cents of equity.

Credit Agricole has said regulators and rating agencies are focused only on the capital of the broader Credit Agricole group, which is bolstered by its wealthy regional savings banks.

At a group level, Credit Agricole says it has a 3.5 percent leverage ratio using existing European requirements, which are less strict than the proposed new rules. On a standalone basis, the listed bank's leverage ratio is 1.6 percent, the lowest among large euro zone banks, according to RBS research.

Credit Agricole said RBS's estimate reflected transactions between its regional savings banks and the listed bank.

"So the only good way of looking at things is to calculate a leverage ratio at the group level," said a spokeswoman.

Key to Credit Agricole's confidence is a guarantee, or "switch mechanism", from the parent company set to be strengthened early next year, but details of which remain sparse pending an "Investors' Day" in November or December.

Fitch ratings agency said Credit Agricole's group structure was a key support - if the listed arm needed more capital, it could raise it internally without resorting to the market as long as the wider group had enough capital of its own.

Not everyone is convinced the "switch" is iron-clad.

"A guarantee is never the same as having the capital at hand for emergencies," said KBW analyst Jean-Pierre Lambert. "There's still a risk of a capital increase," Lambert said. "There will be a component of switch, yes, but they could balance this by doing some form of capital increase."

Issuing debt or equity or curbing dividends would cap a recent rally in Credit Agricole stock. It has gained 35 percent in 2013, nearly triple the European sector, as confidence grows over its exit from Greece and a refocus on its home market.

EARNINGS

Until recently, regulators focused mainly on getting banks to hold more capital and liquidity so they can better absorb losses in future financial crises. But concern that banks might be underestimating the riskiness of their lending prompted regulators to lean more heavily on the leverage ratio, which does not rely on banks' in-house risk models.

The Basel III proposals on leverage, which measure a bank's capital against all its assets, including loans and derivatives, require the ratio to be based on gross derivatives rather than lower net figures, hitting banks such as Deutsche and Barclays.

Shrinking bank balance sheets by trillions of euros is likely to cut lending and weigh on the fragile European economy.

Given the large banks on their patch and the severity of their banking crises, the British, along with the Swiss and the United States, are taking a tougher line on leverage beyond the Basel III rules. For a factbox

Heeding a warning from the Bank of England not to damage the domestic economy in trying to meet the leverage target, Barclays opted for a 5.8-billion-pound rights issue and issued 2 billion pounds in debt to meet a June 2014 deadline for a 3 percent leverage ratio, up from 2.2 percent now.

Barclays stock has dropped nearly 12 percent since rumours of a rights issue first surfaced late last month, but the capital hike has pleased some investors.

"We're taking another look at Barclays because they've finally managed to put their house in order - they are now a bit less bothered by undercapitalisation," said Porta.

Having already tapped investors for 3 billion euros in a rights issue in April, Deutsche Bank is planning to shrink its balance sheet, one of Europe's biggest, by some 250 billion euros by 2015, to meet the new Basel III leverage rules.

A study by JP Morgan analysts argued that Deutsche Bank needed to axe 500 billion euros rather than 250 billion euros.

Deutsche has already said that shrinking its balance sheet as planned could cost it approximately 600 million euros in one-off costs and roughly 300 million euros in future pretax profit.

Any further cuts could see its profits further crimped.

A spokesman for Deutsche Bank declined to comment on the JP Morgan estimate, and referred to recent comments by Chief Financial Officer Stefan Krause, who said the bank meets all current regulatory demands and has sufficient flexibility to meet more severe requirements if necessary.

Deutsche's balance sheet has already contracted by 15 percent to 1.91 trillion euros in less than a year, putting pressure on its flagship fixed-income business, which underperformed in the second quarter.

"Deutsche meets the rules on leverage and capital, where German regulators have taken a less aggressive approach than their UK, U.S. and Swiss counterparts. That said, the bank faces pressure from investors to comply with the rules in all jurisdictions," said Chris Wheeler, analyst at Mediobanca.

"The big worry is what additional cutbacks on balance sheet size will mean for earnings."

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RPT-On road trip, Obama will try to steer focus back to economy

Wed Aug 21, 2013 6:59am EDT

* President's handling of Egypt crisis under fire

* Struggles with "summer swoon" in poll numbers

* Will seek to frame message ahead of budget battles

By Mark Felsenthal and Roberta Rampton

WASHINGTON, Aug 21 (Reuters) - Shadowed by turmoil in Egypt and domestic controversies, President Barack Obama will seek to regain political momentum on a bus tour during which he will push his plans for stoking the U.S. economy and taming the high cost of college tuition.

On a two-day tour this week in the Northeast, where he has a strong base of support, Obama will grab the microphone while Congress is still out on a five-week summer break and cast Republicans as obstructionists.

The trip to New York and Pennsylvania is a chance for him to rally public opinion to his side ahead of fall clashes with Republicans on the budget.

"The Obama administration has been on defense for the majority of the president's second term," said Brandon Lenoir, a political scientist at Oklahoma State University.

"By going on the offensive, the president may be able to turn the attention of the American public away from the controversies and toward an agenda that will contribute to his legacy."

Obama is just back from an eight-day break on the Massachusetts summer resort island of Martha's Vineyard. But the vacation might not have been the reprieve he had hoped for.

He was forced to take a break from golf and family outings to step in front of microphones to condemn a crackdown by the Egyptian military that killed hundreds of people.

His remarks did little to stem criticism of his administration's handling of the crisis, with the Washington Post editorial page taking him to task for what it said was an "extraordinary passivity."

Half of the respondents in a Pew Research poll on Monday said they believed Obama has been "not tough enough" in his response to the Egyptian military's actions.

Obama's popularity has been sliding and is hovering around 45 percent, according to a Real Clear Politics average. A Reuters/Ipsos poll released on Tuesday put the president's approval at 41 percent.

SUMMER SWOON

In what analysts call the "summer swoon," U.S. presidents often find that one of their most powerful tools - the bully pulpit - is less effective when many Americans are focused on vacations and barbecues. Indeed, a Gallup poll this week showed that falling poll numbers also plagued Presidents George W. Bush and Bill Clinton.

As he visits Buffalo, New York; Scranton, Pennsylvania and other cities, Obama will press his criticism of Republican budget austerity, which he says is stifling economic growth.

In earlier appearances in places like Chattanooga, Tennessee, he has offered recommendations for improving U.S. housing markets, repairing crumbling roads and bridges, and creating more jobs.

Even before the latest unrest in Egypt, Obama was wrestling with controversies including questions about the death of diplomats in Benghazi, Libya, improprieties at the Internal Revenue Service, and revelations of massive collection of phone and Internet records by spy agencies.

In the fall, Obama faces another round of budget fights. The possibility of a government shutdown looms on Oct. 1 unless Congress passes spending bills. The country also faces the danger of a disastrous debt default if lawmakers fail to raise the government's borrowing limit.

Obama will confront a big test of his signature healthcare insurance program when enrollment for healthcare exchanges opens Oct. 1. He is expected to ramp up his efforts to encourage healthy adults to enroll in the program in coming months.

The bus tour is also a chance for Obama to get a head start boosting the Democrats' chances in the 2014 midterm elections just over a year away.

The strong presence of the conservative Tea Party at town hall meetings in 2009 caught the Obama administration off guard, and President George W. Bush was hurt by taking a lengthy vacation in 2005 as casualties mounted in Iraq, followed by the devastation of Hurricane Katrina.

Those woes foreshadowed midterm election losses in Congress for Obama's Democrats in 2010 and Bush's Republicans in 2006.

Simply by being active and staying in the public eye, Obama might avoid some of the pitfalls that have waylaid other presidents, said John Ullyot, a former Senate Republican aide now with the strategy firm High Lantern Group.

"Presidents can get really behind the power curve if they are seen as taking too much vacation or not concentrating enough on issues," Ullyot said.

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RPT-Fitch: Funding Sri Lanka's Growth

Tue Aug 20, 2013 6:01am EDT

Fitch Ratings says Sri Lanka's strong economic growth is attracting foreign capital but foreign direct investment inflows remain modest compared with rated peers, leading to rising external indebtedness. This could be a source of vulnerability as the central banks of major advanced economies tighten global funding conditions.

In a report published today, Fitch says mobilising more domestic savings could help fund growth without increasing reliance on foreign capital. A smaller fiscal deficit would directly boost domestic savings, while lower and less volatile inflation could lead to higher private sector savings.

The report, "Sri Lanka: How to Fund Growth?", is available from www.fitchratings.com or by clicking on the link above. The report contains slides presented to Fitch's "Sovereign and Banking Round-table" on 6 August 2013.

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RPT-Fitch Affirms L'Oreal SA at 'F1+'

Tue Aug 20, 2013 6:22am EDT

Aug 20 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed L'Oreal SA's (L'Oreal) Short-term Issuer Default Rating (IDR) at 'F1+'. The agency has also affirmed L'Oreal USA Inc's commercial paper (CP) programme guaranteed by L'Oreal at 'F1+'.

The rating reflects L'Oreal's strong business profile and financial flexibility. L'Oreal's business profile is underpinned by the group's leading position in the cosmetics industry and its comprehensive market coverage, seen in its high diversification by segment, product, price range and geography. Its strong financial flexibility is supported by high cash flow generation capacity, ample liquidity reserves and sound financial metrics. Fitch believes this should allow L'Oreal to both meet its current financial policy, characterised by steadily increasing returns to shareholders and measured bolt-on acquisitions, or any deterioration in its operating performance, notably from its sales exposure to the more cyclical luxury and hair care professional markets.

KEY RATING DRIVERS

Consolidating Leading Market Position

L'Oreal's strong business profile is underpinned by its leading position in the cosmetics industry. In 2012 the company's sales grew faster than the cosmetics market in all its geographical areas of operations, with total organic growth excluding currency fluctuations of 5.5% against estimated market growth at 4.6%. Comprehensive market coverage, product range and pricing points enable the group to address structural factors affecting the cosmetics industry, such as an ageing global population and the economic development of emerging markets.

Enhanced Geographical Diversification

In 2012 emerging markets became L'Oreal's largest sales contributors, representing 38% of its total revenues. This reflects the company's successful strategy at adapting to local consumer tastes in the context of fast-growing beauty products consumption in these geographies. At EUR1.5bn before non-allocated expenses, their operating profit contribution to L'Oreal's cosmetics branch is now close to the company's historic market of Western Europe's operating profit of EUR1.6bn. Increasing sales exposure to fast-growing emerging markets provides L'Oreal with greater resilience in operating performance and strengthens its long-term growth prospects.

Tough Consumer Environment

The group's sales development continues to be mainly constrained by the tough consumer environment in Western Europe, which represents 36% of 2012 total revenues. In terms of operating profit this is mitigated by the group's strong innovation capacity, marketing power and ability to control costs. In 2012 L'Oreal increased its operating margin in Western Europe by 40bps mainly thanks to optimised marketing expenses combined with market share gains due to leading share of voice amongst competitors.

Partial Exposure to Cyclical Markets

L'Oreal's sales and operating profit are exposed to cyclical markets through its Professional products and Luxury divisions (38% of 2012 revenues). Due to the economic growth deceleration experienced in major emerging countries such as China and Brazil since the end of 2012, Fitch expects the company's sales growth pace to slow down to the low single digits in 2013, from the high 10.4% reached in 2012.

Strong Free Cash Flow

The rating also reflects L'Oreal's strong free cash flow (FCF) generation capacity. In 2012 FCF after dividends was EUR1.4bn, up from EUR0.9bn in 2011. Over the next three years Fitch expects the group's annual FCF after dividends to remain above EUR1.0bn. Further EBITDA uplift should compensate for working capital needs growing in line with sales, as well as a continued steady increase in dividends.

Strong Credit Metrics

L'Oreal lease-adjusted gross funds from operations (FFO) leverage decreased to 0.9x in 2012 from 1.8x in 2009 (to 0.8x from 1.6x on a lease-adjusted net debt/EBITDAR basis over the same period). The company's financial flexibility is further reflected in its positive net cash position, at EUR1.6bn at year-end 2012. With a lease-adjusted gross FFO leverage ratio that Fitch expects to remain at or below 1.0x in the near-term in the absence of major debt-funded acquisitions, the company's short-term IDR should remain comfortably at 'F1+'.

M&A, Returns to Shareholders

Fitch expects L'Oreal to pursue bolt-on acquisitions and share buybacks, in addition to further increase in dividends. The group restarted its share buyback programme in 2012 and has bought back EUR1.0bn worth of shares since. Fitch believes the company's strong cash flow generation capacity, sound credit metrics and high liquidity reserves should allow the company to continue to conduct this financial policy without significantly hampering its financial profile.

RATING SENSITIVITIES

Negative: Future developments that could lead to negative rating action include:

- Total CPs back-up lines below 100% of total amount drawn under the CP programmes

- Sharp deterioration in the group's FCF profile

- Adjusted gross FFO leverage ratio above 2.0x (1.5x net) or temporarily higher

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German Fin Min says Greece will need a 3rd aid programme

AHRENSBURG, Germany | Tue Aug 20, 2013 6:43am EDT

AHRENSBURG, Germany Aug 20 (Reuters) - German Finance Minister Wolfgang Schaeuble said more explicitly than ever before that international lenders will have to offer Greece a third aid programme.

"There will have to be another programme in Greece," Schaeuble said at an election campaign event in northern Germany on Tuesday. He reiterated the government's stance, however, that there will be no debt haircut for Athens.

Schaeuble has said in the past that international lenders may have to consider a new aid programme for Greece after the current one expires at the end of 2014, but he has never described this as inevitable, as he appeared to do on Tuesday.

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UPDATE 1-Petrobras raises $2.1 bln in petrochemical, oil assets sale

Fri Aug 16, 2013 7:31pm EDT

SAO PAULO Aug 16 (Reuters) - Brazilian state-controlled oil company Petróleo Brasileiro SA raised $2.1 billion on Friday from the sale of stakes in several petrochemical and oil exploration projects, making progress in its effort to shed non-core assets and protect cash.

Petrobras, as the Rio de Janeiro-based company is known, sold a 35 percent stake in a Santos Basin oil exploration project to China's Sinochem Group Co Ltd for $1.54 billion, all of the shares it owned in a petrochemical compound, as well as stakes in a Gulf of Mexico bloc and a thermal energy company in Brazil, according to a securities filing.

The sale of oil fields, exploration rights, refineries and other assets are being made to help finance a $237 billion, five-year investment plan. However, selling assets has been harder than expected. In March, Petrobras lowered its forecast for the value of asset sales by nearly 40 percent to $9 billion from $14.8 billion.

Chief Financial Officer Almir Barbassa said this week that the bulk of the five-year, asset sale program will be completed this year. A dearth of cash, rising debt and what seems as signs of over stretching caused by increasing goals and projects are taking a toll on the company, whose shares have slumped 20 percent over the past 12 months.

"These transactions represent an important step for Petrobras' asset divestment program," the filing said.

The slew of asset sales comes at a time when investors are concerned with the possibility of rapid cash burn in the coming months as Petrobras steps up investments. Debt rose to 34 percent of the company's capital in the second quarter and to 2.6 times last 12-month earnings before interest, tax, depreciation and amortization.

The sale of the 35 percent stake held by Petrobras in block BC-10, known as Parque das Conchas, to Sinochem Group comes in the wake of recent similar deals. Block BC-10 is located in Campos Basin, some 100 kilometers (63 miles) off the southern coast of the Espírito Santo state, with partners in the venture including Royal Dutch Shell Plc, with a 50 percent stake and ONGC with a 15 percent participation.

In a separate transaction, Petrobras sold all of Petroquímica Innova SA to the majority shareholder of Videolar SA for about $372 million, including debt.

The company also raised $185 million from the sale of its stake in blocks MC 613, GB 244 and EW 910, all located in the U.S. Gulf of Mexico. The transaction is subject to third party preemptive rights and approval by the Bureau of Ocean Energy Management, the filing said.

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EMERGING MARKETS-Brazil real slumps 2.4 pct on Fed, domestic fears

Fri Aug 16, 2013 6:12pm EDT

  By Walter Brandimarte and Tiago Pariz      RIO DE JANEIRO, Aug 16 (Reuters) - The Brazilian real fell  to its weakest level in more than four years on Friday even as  the government tried to calm investors nervous about a faltering  domestic economy and an expected withdrawal of U.S. stimulus  measures.      While the central bank intervened twice to provide dollar  liquidity in the futures market, Finance Minister Guido Mantega  said Brazil has several "weapons" to fight volatility in the  foreign exchange rate, including its foreign reserves.      Efforts to support the real  failed to stop it  slumping 2.4 percent to 2.3945 per dollar, its weakest level  since early March 2009. Some analysts did not rule out a  short-term spike in the real toward 2.50 per greenback.      "We have a scary market in the very short term," said Jaime  Ferreira, currency desk manager at Intercam, a brokerage in Sao  Paulo. "We have pressure for the roll-over of swaps and the  possibility of the Federal Reserve cutting back on stimulus."      Brazil's central bank has been offering traditional currency  swaps, derivatives that emulate a sale of dollars in the futures  market, to smooth out a currency sell off resulting, in part,  from fears that U.S. policymakers are about to cut down on  stimulus measures that have long supported appetite for emerging  market assets.      Growing expectations that the Fed will start rolling back  the stimulus as early as next month have weighed on most  emerging market currencies on Friday: the Mexican peso   lost 0.7 percent to 12.91 per dollar, while the Chilean peso  ended 0.9 percent weaker at 512.60 per greenback. (See table  below)        The real has suffered more than its peers as investors also  fret about deteriorating prospects for the Brazilian economy.      "In the short-term, before nervousness about Fed tapering  abates, a spike towards the neighborhood of 2.5 per dollar  cannot be ruled out," analysts at Brasil Plural brokerage wrote  in a research note.            SWAPS OR SPOT DOLLAR SALES      So far, Brazil's central bank has avoided burning its  foreign reserves to fight a dollar appreciation trend that  analysts consider global.       Instead, it has provided investors with hedge against a  further depreciation of the real by selling currency swaps.      That strategy has already run its course, however, as  companies are no longer interested in buying FX protection at  current levels, said Sidnei Nehme, a director with NGO brokerage  in Sao Paulo.      "Those who wanted hedge, have already done it. Besides that,  the spot market is lacking liquidity now. That's where the  pressure is coming from," Nehme said, joining the chorus of  analysts who say that only with dollar sales on the spot market  will the central bank be able to halt the real's depreciation.      However, in a Thursday statement announcing plans to roll  over expiring swaps, the central bank said it would continue  with its policy of intervention in the futures market, leading  investors to believe that spot dollar sales are off the table  for now.       Instead, the central bank remains focused on rolling over  100,800 swaps worth about $5 billion that mature on Sept. 2.  Allowing those contracts to expire would further weigh on the  exchange rate.       The roll-over began on Friday with a sale of 20,000  contracts maturing on April 1, 2014. The auction was worth about  $990 million, enough to replace nearly one-fifth of the expiring  maturities. After the markets closed, the central bank announced  another roll-over auction for Monday.      The bank also sold 21,600 contracts maturing on Nov. 1 and  April 1, 2014 during the Friday session, injecting an additional  $1.08 billion worth of swaps in the market.             Latin American FX prices at 2145 GMT:         Currencies                         daily %    YTD %                                       change   change                              Latest              Brazil real                2.3945    -2.40   -14.80                                                  Mexico peso               12.9100    -0.66    -0.35                                                  Chile peso               512.6000    -0.90    -6.61                                                  Colombia peso           1912.0000    -0.58    -7.64                                                  Peru sol                   2.7960     0.00    -8.76                                                  Argentina peso             5.5900    -0.18   -12.12     Argentina peso             8.9000     0.56   -23.82  

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Canada lets Quebec rail disaster company operate through Oct. 1

Fri Aug 16, 2013 8:53pm EDT

Aug 16 (Reuters) - Canada will let the rail company whose tanker train blew up in a Quebec town last month, killing 47 people, operate through early October after the firm provided new evidence about its insurance, a government regulator said on Friday.

The July 6 crash was North America's deadliest rail accident in two decades. It took place when a runaway train hauling tankers of crude oil derailed in the center of the little Quebec town of Lac-Megantic, and exploded in a series of giant fireballs. The town center was flattened and an estimated 1.48 million U.S. gallons (5.6 million liters) of oil were spilled.

The Canadian Transportation Agency said it will now allow Montreal, Maine and Atlantic Railway (MMA) and its Canadian subsidiary to operate through Oct. 1, because the firms had provided evidence of adequate third-party insurance.

That reversed an Aug. 13 order that would have halted the railroad's operations from early next week. MMA must still show it has the funds to pay the self-insured portion of its operations, or the regulator will suspend its operations from Aug. 23, CTA spokeswoman Jacqueline Bannister said in an email.

MMA, which operates rail lines in Quebec and Maine, filed for bankruptcy protection in Canada and the United States last week. It said in a court filing that its insurance covered liabilities up to C$25 million ($24.2 million), while clean-up costs could exceed C$200 million ($193.6 million).

MMA also faces a series of class-action lawsuits in Quebec and in the United States on behalf of the victims, as well as a notice of claim from a firm that is unable to ship from its Lac-Megantic production facilities.

Lac-Megantic, a town of around 6,000, was developed around the railway and businesses have already expressed concern about the impact if the MMA rail link closes permanently.

Under Canadian federal regulations, there is no set minimum or maximum amount of insurance coverage required for railway operators. Coverage is based on a risk assessment carried out by the insurance company and the railway company.

The Canadian Transportation Agency - an independent government body that oversees railway insurance - is now planning to review the adequacy of third-party liability coverage to deal with catastrophic events, especially for smaller railways.

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UPDATE 2-Czech president sees early election in late October

Fri Aug 16, 2013 5:51am EDT

* President to call vote for Oct. 25-26

* Lower house set to vote on dissolution on Aug. 20

* Early poll to return country to centre-left rule

By Jason Hovet and Robert Muller

PRAGUE, Aug 16 (Reuters) - Czech President Milos Zeman will call an early election for Oct. 25-26 if parliament votes to dissolve itself next week to try to end a political standoff that has paralysed decision making in a country recovering from recession.

The second election in three years looks set to usher in a new government led by the left-leaning, pro-European Social Democrats after the centre-right coalition collapsed because of spying and corruption allegations.

It could also mark a new role in policymaking for the Communist Party (KSCM), which has not had a share in power since 1989 when its totalitarian rule of Czechoslovakia ended. The Party's return to power could trigger protests among strident anti-Communists.

"In the event that the lower house will pass the motion for its dissolution on Tuesday, then I will call an early election for October 25 and 26," Zeman told Halo Noviny newspaper.

The president's office confirmed the date.

Zeman said he had decided to announce the date in Halo Noviny, which has personal ties to the Communist party, because of the party's backing of his prime minister, and longtime ally, Jiri Rusnok in a confidence vote earlier this month.

Rusnok lost the confidence vote after the largest political parties on the left and right accused leftist Zeman of trying to grab power when he appointed Rusnok as prime minister in June.

There will be a vote on dissolving parliament on Aug. 20. Most parties agree on an early election that should return the Social Democrats to power for the first time since 2006.

Polls show the party, which says it will cancel so-called second pillar pension accounts and proposed new taxes to boost public coffers by the centre-right, would win by a double-digit margin over the nearest contender but not gain a majority in the house.

LEFTIST COALITION

The Social Democrats, which want to prepare for the euro and are more passionate about deeper European integration than rightist rivals, won the most votes in the country's last election in 2010 but could not form a coalition.

To avoid a repeat, the party has said it will try to form a minority cabinet backed by - but not including - the far-left Communist party, which is running second or third in opinion polls. It could also look for partners among smaller centrist or even centre-right parties.

In the interview, Zeman suggested he would back a minority cabinet of Social Democrats supported by the Communist party. The president has a largely ceremonial role but has powers to appoint prime ministers and central bankers, and past actions have shown he is willing to use his powers.

The Social Democrats (CSSD), which have pushed hardest for early elections, said the proposed election date fell in line with their expectations. "CSSD has wanted an election at the earliest (possible date)," spokesman Martin Ayer said.

The confidence vote revealed the centre-right no longer had a lower house majority.

The conservative TOP09 party, part of the former ruling coalition along with the Civic Democrats, joined the main leftist parties - the Social Democrats and Communists - in support of the new election.

TOP09's vote will give the motion to dissolve parliament the needed constitutional majority to pass.

The former ruling coalition parties have seen their popularity slip sharply after three years of tax rises and spending cuts that along with the euro zone crisis pushed the European Union state into its longest recession in two decades.

The economy grew on a quarterly basis for the first time since mid-2011 in the second quarter.

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