Energy cost plunge pulls down euro zone producer prices in Jan

BRUSSELS, March 3 Tue Mar 3, 2015 5:03am EST

BRUSSELS, March 3 (Reuters) - Euro zone producer prices fell by more than expected in January, pulled down by plunging costs of energy, data from the European Union's statistics office Eurostat showed on Tuesday.

Eurostat said prices at factory gates in the 19 countries using the euro fell 0.9 percent month-on-month in January for a 3.4 percent year-on-year fall. Economists polled by Reuters had expected a 0.7 percent monthly and a 3.0 percent annual decline.

Factory gate prices fell by 1.0 percent month-on-month and by 2.6 percent year-on-year in December

Producer prices are an indication of inflationary pressures in the economy early in pipeline as the rise or fall of prices at factory gates usually translates into higher or lower prices for consumers, unless the change is absorbed by intermediaries.

The first estimate of euro zone consumer inflation in February was a 0.3 percent year-on-year fall, data showed on Monday.

The European Central Bank wants to keep inflation below, but close to 2 percent over the medium term and plans to launch euro zone government bond purchases this month to inject more money into the economy to accelerate price growth. (Reporting By Jan Strupczewski; editing by Philip Blenkinsop)

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UPDATE 1-European Banking Authority will not run stress tests in 2015

Tue Mar 3, 2015 5:07am EST

(Recasts lead, adds EBA head comments, background)

MILAN, March 3 (Reuters) - The European Banking Authority (EBA) will not run stress tests to gauge whether European banks can withstand shocks this year, it said on Tuesday, acknowledging the progress made by lenders in beefing up their finances.

"Instead of a stress test, in 2015, EBA will be running a transparency exercise in line with the one conducted in 2013," it said in a statement on its website.

The banking watchdog added the transparency exercise would provide detailed data on the balance sheets and portfolios of European lenders.

The decision not to proceed with another stress test this year reflected progress made by European Union banks in strengthening their capital positions after an asset quality review and EU-wide stress test, EBA said.

Last year, Europe's main banks had their balance sheets scrutinised to make sure they were valuing assets properly and not trying to avoid making provisions for loans souring because of the protracted economic crisis.

In an interview on Tuesday in Italian newspaper La Repubblica, EBA head Andrea Enria said he was satisfied with the previous stress test but added that in the next tests he would like to include the effects of bankers' bad conduct.

"Selling the wrong products to clients, infringing money laundering rules, helping tax evasion, manipulating interest rates and the sanction risks ensuing from such behaviour," he said.

EBA will publish a discussion paper to help improve the reliability of risk-weighted data in banks' internal models before the 2016 tests, he said.

Big banks use their own computer models to assign a level of risk to each asset on their books, which in turn determines how much capital they should hold to safeguard against loans or other assets turning sour.

EBA said on Monday the first EU-wide benchmarking exercise under its new rules on transparency will be run based on banking data for the fourth quarter of this year. (Reporting by Stephen Jewkes; editing by Danilo Masoni and Louise Heavens)

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EMERGING MARKETS-China drags emerging stocks to one-week lows

By Karin Strohecker

LONDON, March 3 Tue Mar 3, 2015 5:33am EST

LONDON, March 3 (Reuters) - Emerging stocks eased to a one-week low on Tuesday, underperforming their developed peers, though currencies traded mixed despite the dollar index easing off 11-year highs.

The overall emerging share index fell 0.2 percent, dragged down by Chinese stocks falling 2.6 percent on a raft of new initial public offerings that have fanned concerns about tighter liquidity.

In Russia, dollar-denominated and rouble-based stocks rose as much as 1.9 percent, getting a helping hand from oil rising above $60 per barrel and progress in talks over gas supplies from Moscow to Kiev.

The rouble also strengthened against the greenback.

"It just feels like things are de-escalating," Ilan Solot, emerging market currency strategist at Brown Brothers Harriman, said of the Ukraine situation.

"We are going to have spikes, more flare ups, there are always going to be negative headlines, but it is going in the right direction."

Ukrainian dollar bond prices rose by 0.7-1.5 cents in the dollar and yield spreads over U.S Treasuries were at their tightest since mid-February after parliament approved a raft of austerity measures on Monday afternoon.

Kiev hopes this will help it clinch a $17.5 billion bailout package to pull the country back from the brink of bankruptcy.

In Turkey, the lira traded flat against the greenback as inflation data came in lower-than-expected but stayed stubbornly above the central bank target, limiting room for policy makers to make the deep interest rate cuts demanded by President Tayyip Erdogan.

Erdogan's fierce criticism of the central bank sent the lira to all time lows on Friday. The central bank will publish minutes from its February policy meeting later in the day.

Polish stocks eased, while the zloty traded flat against the euro as the central bank started a two-day meeting. A Reuters poll showed the bank is widely expected to cut rates by 25 basis points to counter a long decline in consumer prices.

Meanwhile Brazilian central bank policy makers, also due to start a two-day meeting on Tuesday, are expected to announce a 50 bps rise in benchmark interest rates.

For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Additional reporting by Chris Vellacott; Editing by Crispian Balmer)

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RPT-Euro zone prices fall by less than expected in Feb

Mon Mar 2, 2015 5:23am EST

(Repeats with graphic, no changes to text)

BRUSSELS, March 2 (Reuters) - Euro zone consumer prices fell by less than expected in February and core inflation held steady and unemployment eased in January for the third month in a row, data from the European statistics office showed on Monday.

Eurostat estimated that consumer prices in the 19 countries sharing the euro dropped 0.3 percent year-on-year after in February a 0.6 percent annual drop in January and a 0.2 percent fall in December.

Economists polled by Reuters had expected a 0.4 percent price decline.

Eurostat said that much cheaper energy, the prices of which were 7.9 percent lower in February than a year earlier and a 0.2 percent decline in prices of non-energy industrial goods were the main factors pulling down the overall index.

Without the volatile energy and unprocessed food components, a measure the European Central Bank calls core inflation, prices grew 0.6 percent year-on-year, the same as in January.

The ECB wants to keep inflation below, but close to 2 percent over the medium term, so to accelerate price growth it will start printing money later this month to buy euro zone government bonds - a policy known as 'quantitative easing'.

The ECB, which is expected to give more details of the plan after its policy meeting on Thursday, plans to spend 60 billion euros ($67.2 billion) a month on the programme - buying mainly sovereign bonds, but also some private sector assets.

By September next year, more than 1 trillion euros will have been created under quantitative easing, the ECB's last remaining major policy option for reviving economic growth and warding off deflation.

Eurostat data showed there were reasons for cautious optimism as euro zone unemployment, usually the last indicator to react to improving economic conditions, fell for the third month in a row to 11.2 percent of the workforce in January from 11.3 percent in December, 11.4 percent in November and 11.5 percent in October.

The number of people without jobs in the euro zone was 18.059 million in January against 18.199 million in December. (Reporting By Jan Strupczewski, additional reporting by Paul Carrel in Berlin; editing by Philip Blenkinsop)

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Hungary sees central bank-fuelled uptick in corporate lending

BUDAPEST, March 2 Mon Mar 2, 2015 5:05am EST

BUDAPEST, March 2 (Reuters) - Hungarian corporate lending grew by 2.4 percent year-on-year in the fourth quarter, driven by the central bank's cheap loans programme, the bank said in a survey on Monday, adding however that other lending volumes continued to fall.

The bank said the increase was also due to base effects, but even so, 2014 marked the first year since the start of the financial crisis when corporate lending increased in Hungary, adding 0.1 percent to economic growth in the fourth quarter.

But it said business lending outside its cheap loans programme, which provides funding to commercial banks for free to lend on to companies, fell by another 4 percent from the same period of the previous year.

"Lending to small firms outside the scope of the central bank programme is not picking up despite historically low lending rates," the central bank said, adding that lending conditions remained "excessively tight."

Looking ahead, just 16 percent of banks surveyed flagged easier credit conditions.

The National Bank of Hungary, which could cut interest rates further from a record low 2.1 percent as soon as this month, some analysts say, added 500 billion forints ($1.85 billion) to its loans scheme last month to help small firms.

Lending to households continued to fall, it said, but the pace of annual decline had slowed to 4 percent in the fourth quarter from 4.3 percent in the previous three months.

It said weak credit supply to households slowed economic growth by an estimated 0.4 percent in the fourth quarter.

While banks signalled increased demand for home loans, about a third of them flagged a tightening of lending conditions in that segment for the first half, while about half of the lenders surveyed plan to tighten access to consumer loans.

The central bank said the brunt of tightening was related to higher payment-to-income levels launched from January to prevent the kind of unbridled lending seen before the crisis.

Even so, banks expect a continued increase in demand for both home loans and consumer loans in the first half, it said. ($1 = 270.87 forints) (Reporting by Gergely Szakacsn Editing by Jeremy Gaunt)

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UPDATE 2-Turkey's Erdogan to talk to central bank governor, warns of 'treason'

Mon Mar 2, 2015 5:40am EST

* President says governor, Babacan 'need to shape up'

* Erdogan seeks boost to flagging growth before election

* Tension sends lira to record lows (Adds quotes, market comment, lira, background)

By Daren Butler and Nevzat Devranoglu

ISTANBUL, March 2 (Reuters) - Defending high interest rates is tantamount to treason, Turkish President Tayyip Erdogan warned at the weekend, and said the governor of the central bank and deputy prime minister in charge of the economy needed to "shape up".

Deepening a standoff which has rattled investor nerves, Erdogan was quoted on Monday as saying he would hold talks with Central Bank Governor Erdem Basci, under fire for failing to cut rates as sharply as Erdogan wants.

"We will call him and talk," broadcaster NTV quoted Erdogan as saying on his plane travelling to Saudi Arabia, adding the central banker had himself requested a meeting.

Basci sought to calm nervous investors on Friday by dismissing rumours he would resign, days after Erdogan said the bank's monetary policy was "unsuited to the realities of the Turkish economy" even after the bank lowered its main rate for the second straight month.

The bank trimmed the one-week repo rate by 25 basis points to 7.5 percent last week but Erdogan wants more aggressive cuts. Economy Minister Nihat Zeybekci, another critic of central bank policy, wants the repo rate cut to 6 percent.

NTV reported Erdogan, who is determined to see stronger growth ahead of a June general election, as saying he had already held face-to-face talks with Basci and economy czar Deputy Prime Minister Ali Babacan.

"They need to shape up a bit," Erdogan was quoted as saying. "If interest rates don't fall, Turkey can't invest."

The lira hovered near record lows after Erdogan's latest comments, easing as far as 2.5220 against the dollar from 2.5096 late on Friday, when it touched a record low of 2.5275.

"We think these comments and market tension will continue until the election. I don't think anything will become clear before then," said HSBC Turkey's Treasury Director Fatih Keresteci.

"A process which began with a call for an interest rate cut is being dragged unfortunately towards an unknown channel which will require rates to be hiked more."

"TREASON AGAINST THIS NATION"

Erdogan believes current rates are impeding economic growth, potentially denting the ruling AK Party's support in an election crucial to his goal of enacting legislative changes to create an executive presidency.

Growth worries were reinforced by February economic data, with a purchasing managers' index showing manufacturing activity falling to a seven-month low while exports fell 13 percent.

At a news conference on Saturday, Erdogan said Turkey was facing a "very serious threat from the interest-rate lobby".

"Anyone who defends this (high rates) is at the beck and call of the interest-rate lobby, this is treason against this nation," he said.

Last Wednesday, Erdogan questioned whether the central bank was under external influence, in what traders took as a thinly-veiled reference to the network of U.S.-based cleric Fethullah Gulen, a former ally-turned-foe whom Erdogan accuses of plotting against him.

But he told reporters on his plane he did not believe there was such a link to what he calls Gulen's "parallel structure" within the state apparatus.

"I don't think our friends at the central bank have links to the parallel structure," Erdogan said, adding Ankara had looked into possible ties at lower levels in the bank. (Additional reporting by Nevzat Devranoglu; Writing by Daren Butler; Editing by Nick Tattersall and Anna Willard)

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India keeps tight rein on public health spending in 2015-16 budget

By Aditya Kalra

NEW DELHI Sat Feb 28, 2015 8:20am EST

NEW DELHI Feb 28 (Reuters) - India's federal government on Saturday kept its healthcare budget for 2015-16 on a tight leash and asked states to contribute more funds for running the country's flagship health programmes.

The government announced 297 billion rupees ($4.81 billion) for its main health department, roughly 2 percent higher than current year's revised budget of 290 billion rupees.

It had been expected that Prime Minister Narendra Modi would ramp up federal health spending in a bid to achieve his goal of universal health coverage. He has also vowed to revamp the sector and make medical services more affordable for the poor.

"Health has not received adequate attention and allocation in the budget. The promise of universal health coverage will remain unfulfilled unless health is prioritised," K. Srinath Reddy, President of the Public Health Foundation of India, told Reuters.

Asia's third-largest economy spends about 1 percent of its gross domestic product (GDP) on public health, compared with 3 percent in China and 8.3 percent in the United States. Indian states manage their health budgets separately.

Despite rapid economic growth over the past two decades, successive federal governments have failed to invest generously in health. An inadequate number of doctors and a poor network of public hospitals, coupled with bureaucratic bungling, means India often struggles to spend its allocated budgets.

The budget documents said states will be asked to increase their share in funding for the National Health Mission, the country's main health programme that provides basic medical services to millions of poor people.

While the government said it will open six new large public hospitals across the country, the financing left many disappointed.

"This budget allocation is not a significant increase to boost Indian public health standards," said a health ministry official in New Delhi who described the budget figures as "discouraging". ($1 = 61.6489 Indian rupees) (Additional reporting by Zeba Siddiqui in Mumbai and Rajesh Kumar Singh in New Delhi; Editing by Frank Jack Daniel and Louise Heavens)

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Greek PM accuses Spain, Portugal of anti-Athens "axis"

Sat Feb 28, 2015 8:26am EST

* Spain, Portugal leading "axis of powers" against Athens-PM

* Portuguese leader denies taking hard line on Greece

* German anger shows Greece won concessions - Tsipras

* Spanish conservatives face serious threat from Podemos

By Costas Pitas and David Stamp

ATHENS, Feb 28 (Reuters) - Greece's leftist Prime Minister Alexis Tsipras accused Spain and Portugal on Saturday of leading a conservative conspiracy to topple his anti-austerity government, saying they feared their own radical forces before elections this year.

Tsipras also rejected criticism that Athens had staged a climbdown to secure an extension of its financial lifeline from the euro zone, saying anger among German conservatives showed that his government had won concessions.

Greeks have directed much of their fury about years of austerity dictated by international creditors at Germany, the biggest contributor to their country's 240-billion-euro bailout.

But in a speech to his Syriza party, Tsipras turned on Madrid and Lisbon, accusing them of taking a hard line in negotiations which led to the euro zone extending the bailout programme last week for four months.

"We found opposing us an axis of powers ... led by the governments of Spain and Portugal which for obvious political reasons attempted to lead the entire negotiations to the brink," said Tsipras, who won an election on Jan. 25.

"Their plan was and is to wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries," he said, adding: "And mainly before the elections in Spain."

Spain's new anti-establishment Podemos movement has topped some opinion polls, making it a serious threat to the conservative People's Party of Prime Minister Mariano Rajoy in an election which must be held by the end of this year.

Rajoy went to Athens less than a fortnight before the Greek election to warn voters against believing the "impossible" promises of Syriza. His appeal fell on deaf ears and voters swept the previous conservative premier from power.

Portugal will also have elections after the summer but no anti-austerity force as potent as Syriza or Podemos has so far emerged there.

In an interview published before Tsipras made his speech, Prime Minister Pedro Passos Coelho denied that Portugal had taken a hard line in negotiations on the Greek deal at the Eurogroup of euro zone finance ministers.

"There may have been a political intention to create this idea, but it is not true," he told the Expresso weekly newspaper.

Passos Coelho aligned himself with euro zone governments which have called for policies to promote economic growth but without trying to walk away from austerity as in Greece.

"We were on the same side as the French government, with the Italian and Irish governments. I think it's bad to stigmatize southern European countries," he said.

A VICTORY FOR GREECE

Portugal had to take its own bailout in 2011 but left the programme last year. Finance Minister Maria Luis Albuquerque said on Saturday Lisbon would start repaying its loans to the IMF next month, giving back 6 billion euros.

This contrasts to Greece which remains in its EU/IMF programme, almost five years and two bailouts after it had to seek international help.

Tsipras has portrayed the Eurogroup deal as a victory for Greece, even though it meant extending the bailout programme he had promised voters to scrap. He noted German lawmakers from Chancellor Angela Merkel's conservatives had attacked the Greek leadership when they approved the extension on Friday.

"We have all watched the strong opposition within Angela Merkel's party which shows that unacceptable concessions have been made to Greece," he said.

So far he has public backing. A poll conducted by the University of Macedonia for SKAI TV showed 56 percent of Greeks believed the extension had been a success, compared with 24 percent who said it represented a failure.

Ireland's finance minister has said Athens must negotiate a third bailout when the extension expires in June - something Tsipras denied on Friday.

Finance Minister Yanis Varoufakis called into question a major debt repayment Greece must make to the European Central Bank this summer, after acknowledging Athens faces problems in meeting its obligations to international creditors. (additional reporting by Andrei Khalip in Lisbon; Editing by Janet Lawrence)

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Homeland Security funding drama darkens U.S. fiscal outlook

By Richard Cowan and David Lawder

WASHINGTON, March 1 Sun Mar 1, 2015 1:00am EST

WASHINGTON, March 1 (Reuters) - Congress narrowly averted a partial shutdown of the U.S. domestic security agency late on Friday night, but the forces behind the chaotic episode remain - fractious Republicans and House Speaker John Boehner's lack of control over them.

That may portend more serious trouble ahead as Washington confronts fiscal challenges on a grander scale. In five to seven months, the federal debt ceiling will again be reached, and by October Congress must pass spending bills to keep the government running in the new fiscal year.

Failing to deal effectively with these issues could have much more damaging repercussions - such as a broad government shutdown or a debt default - than a partial shutdown of the Department of Homeland Security (DHS).

What happens between now and then, including the handling of a one-week extension of Homeland Security funding, will be crucial. Some conservatives speak of ousting Boehner, but it is unlikely they can muster enough votes, while others made clear on Friday that they were willing to take big risks to score ideological points.

Brinkmanship like this, reminiscent of 2013's 16-day federal government shutdown, was supposed to be over. Republican Senate Leader Mitch McConnell said there would be no more shutdowns after his party won control of the upper chamber and strengthened its grip on the House last November.

Proclamations about Republicans showing they could govern soothed financial markets, which were rattled by the 2013 shutdown and badly shaken by 2011 budget fights that nearly resulted in an historic government default on its debt.

But Friday's confused late-night scramble renewed old concerns about dysfunctional government. The House rejected a three-week funding extension for the agency when conservatives rebelled because the bill did not block Obama's executive orders on immigration. On a second try late in the evening, House Democrats provided the votes to pass a one-week extension.

The angry conservatives' embarrassing rebuke to Boehner showed they are more fiercely determined than ever to rein in federal spending, shrink the government and challenge Democratic President Barack Obama on multiple fronts.

"It's very possible that come September, you could face this again," said conservative Republican Representative Joe Pitts of Pennsylvania, when asked about debt and budget fights ahead.

For small-government Tea Party activists looking to flex their muscles after November's election victory, any attempt to borrow beyond the $18 trillion national debt will be a red flag. Congress also faces a Sept. 30 deadline for passing spending bills that are certain to add to the $18 trillion debt.

Unlike the upcoming debt limit and budget issues, the DHS battle was not about government spending, but about Obama's recent executive actions to suspend the threat of deportation for 4.7 million illegal immigrants.

Still, Trent Lott, a former Senate Republican leader, said some congressional Republicans will not be able to resist further confrontations, especially over spending bills.

"I must say, there are going to be battles for the next two years trying to rein in Obama's excesses with executive power and regulations," Lott said.

More executive actions are expected from Obama in environmental and other controversial areas. That could mean that clashes will intensify, with many conservatives still seeing spending power as their strongest leverage.

Some of them say pressing the immigration fight is part of a non-negotiable duty for Congress to defend the Constitution. They say Obama took steps to change immigration policy that only Congress has the authority to carry out.

"This is not about immigration. This is about whether or not the president has the ability to unilaterally run this country, Representative Austin Scott of Georgia said in House floor debate on Friday.

The Obama administration counters that its unilateral action on immigration, after years of watching House Republicans block legislation, and has many presidential precedents.

Many Republicans are concerned that such fights are an election liability and undermine the party's ability to demonstrate it can govern responsibly. However, similar concerns have been aired with each successive battle.

Republican Senator Mark Kirk, who could face a tough re-election in 2016, told Reuters that his party needs to change.

Referring to the DHS fight, the Illinois senator said: "I would say that this battle should be the end of the strategy of attaching whatever you're upset at the president about to a vital piece of government." (Editing by Stuart Grudgings and Kevin Drawbaugh)

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