Berlin supports Spanish gov't on Catalonia - Merkel aide

BERLIN, Sept 19 Fri Sep 19, 2014 6:26am EDT

BERLIN, Sept 19 (Reuters) - Berlin supports the Spanish government in its rejection of a Catalan vote on independence, Angela Merkel's spokesman said on Friday, in response to a question over whether the Spanish region should have a right to decide like the Scots.

"It is a completely different legal situation in Spain than in the United Kingdom and the chancellor and the government share the legal opinion of the Spanish government," said Steffen Seibert.

In July Merkel said there was a difference between giving regions autonomy and allowing countries to break up. Catalonia, which accounts for around a fifth of Spanish economic output and 16 percent of its population, has its own language and a long history of fighting for greater autonomy. (Reporting by Stephen Brown; Writing by Alexandra Hudson)

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UPDATE 1-Russia may use up to $7.8 bln from fund to help energy champions -Tass

Fri Sep 19, 2014 6:29am EDT

(Adds background, comments)

MOSCOW, Sept 19 (Reuters) - Russia may prop up energy companies Rosneft and Novatek with up to $3.9 billion each from its National Wealth Fund, a reserve of oil proceeds set up to buoy the country's pension system.

Russia's government has promised to support those companies which, under EU and U.S. sanctions over Ukraine, are unable to access Western markets. Rosneft and Novatek, both run by allies of President Vladimir Putin, have signalled they will need help, with Rosneft asking for $40 billion.

Finance Minister Anton Siluanov was quoted by Itar-Tass news agency as saying the government was considering a proposal by the two companies for the wealth fund to invest 80 to 150 billion roubles in their bonds.

"We are considering the proposals ... I think that in this year we will be able to take such decisions," he said, adding that the proposals were for investment of up to 150 billion roubles in each company, Tass reported.

The government has so far avoided pushing the country into debt, instead planning on using reserves - including those set aside for Russia's 40 million pensioners - to support what Putin calls the country's "national champions", pillars of the economy in sectors such as energy and defence.

The National Wealth Fund was set up to support the pension system, which will be stretched in the future as the population ages and the working population shrinks. Using these funds has raised concerns that Russia is robbing the future to pay for today.

Russian officials are increasingly split over how to boost companies and an economy that is teetering on the brink of recession due to the sanctions imposed on its leading state companies and banks over Moscow's role in the Ukraine crisis.

The budget for 2015 to 2017 relies on high oil prices to cover social spending promises and offers little to those who want to see investment in companies to try to kick-start an economy expected to grow only 0.5 percent this year.

Rosneft, led by Igor Sechin, a long-time ally of Putin, has grown rapidly since it took over most of the assets from Yukos in the mid-2000s, and acquired rival TNK-BP last year, amassing large debts.

It will need to repay $26.2 billion between July this year and December 2015, with peak repayments of $9.4 billion in the fourth quarter this year and $11.8 billion in the first quarter next year, Moody's rating agency said in a July note.

Novatek, co-owned by Gennady Timchenko, another Putin ally, has good liquidity, with only a $350 million syndicated loan maturing within the next 18 months, according to Moody's.

However, Timchenko has admitted that the sanctions have deterred financing from European as well as U.S. banks - complicating investment projects such as its flagship $27 billion Yamal liquefied natural gas project in the Arctic. ($1 = 38.4430 Russian rouble) (Reporting by Alexander Winning, writing by Elizabeth Piper; Editing by Will Waterman)

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UPDATE 1-Russian PM Medvedev vows to keep economy open, hails pivot to China

Fri Sep 19, 2014 6:47am EDT

(Combines stories, adds quotes, detail)

By Darya Korsunskaya and Katya Golubkova

SOCHI, Russia, Sept 19 (Reuters) - Prime Minister Dmitry Medvedev said on Friday that Russia would not isolate its sanctions-hit economy from the West but said improving relations with Asian countries has become a key strategy.

Sanctions imposed by the West over Moscow's involvement in the separatist conflict in Ukraine have limited Russia's access to foreign cash, sent the rouble to historic lows and slowed economic growth to a crawl.

Moscow in retaliation has imposed sanctions on Western countries. Some politicians and economists, including the head of the nationalist Liberal Democratic Party of Russia, Vladimir Zhirinovsky, and an economic adviser to President Vladimir Putin, Sergei Glazyev, have called for isolating the Russian economy from Western markets.

"Any discussions about fundamental changes to the model of economic development, in the direction of a mobilisational or closed economy, are inappropriate and unnecessary," Medvedev told a business conference in the Black Sea resort of Sochi.

He said Russia is ready to work on improving its relations with the European Union and the United States, which are currently at their worst since the fall of the Soviet Union, but said Moscow's partners must "learn to listen to Russia."

"History shows that any attempts to put pressure on Russia have been unsuccessful," he told a crowd of mostly Russian businessmen and politicians.

ASIAN STRATEGY

Following Russia's annexation of Ukraine's Crimea region in March and Western penalties for the move, Moscow has embarked on a pivot to Asia, signing a series of trade and business agreements, mainly with China.

The country's top gas producer, state-controlled Gazprom , struck a 30-year $400 billion gas supply deal with China in May.

Medvedev said things are not moving as fast as needed when it comes to improving those relations. But Russia's pivot East is an "absolutely objective" development, he said.

"I hope everyone understands that our new strategy in Asia is not senseless revenge against Europe as it is presented by many political analysts in the West," Medvedev said.

"This is the natural course of events and a thought-through response to the changing conditions of economic development."

Much work is still needed to improve political and corporate trust between Russia and Asian partners, but the benefits of the tactical shift would be far-reaching, he said.

"The growth of our country's role in the Asian region ... without doubt contributes to raising our authority in other places as well, including in the West." (Additional reporting by Gabriela Baczynska and Alexander Winning in Moscow; Writing by Lidia Kelly; Editing by Susan Fenton)

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War pushes Ukraine's industrial output down more than a fifth in August

KIEV, Sept 18 Thu Sep 18, 2014 6:50am EDT

KIEV, Sept 18 (Reuters) - Ukraine's industrial output plummeted 21.4 percent year-on-year in August, the national statistics office said on Thursday, reflecting the impact of the separatist war in the industrial east of the country.

It was the biggest drop in industrial production since the global crisis of 2009 and followed a 12 percent fall year-on-year in July.

The statistics office said the main industries of Ukraine's Donetsk region, one of the areas where the war is most intense, had suffered, with coal extraction down almost 60 percent and steel production down by 30 percent. (Reporting by Natalia Zinets; Writing By Richard Balmforth, editing by John Stonestreet)

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UPDATE 1-Arrest of billionaire hurts business climate - Russian minister

Thu Sep 18, 2014 6:50am EDT

(Adds more comment, background)

MOSCOW, Sept 18 (Reuters) - The arrest of Russian billionaire Vladimir Yevtushenkov on money laundering charges has hurt Russia's business climate and could spur capital flight, Economy Minister Alexei Ulyukayev said on Thursday.

In the first critical comments by a Russian official since Yevtushenkov, chairman of the Sistema telecoms-to-oil conglomerate, was placed under house arrest on Tuesday, Ulyukayev said clarification on the situation was needed.

"This is certainly reflected in the investment climate. It is clear that the suspicion that there is some economic motive behind this complicates investors' decision-making," he told reporters, adding that the situation could spur capital flight.

"We have a (growth) forecast for -2.4 percent this year for investment, however this is without a doubt under threat and here we have been waiting for some kind of clarification of the situation."

Analysts say Yevtushenkov's arrest over a 2009 deal in which he acquired a stake in oil producer Bashneft may be aimed at putting pressure on the businessman to sell the shares to state oil major Rosneft, led by an ally of President Vladimir Putin.

Rosneft has denied the allegations.

The arrest prompted fears that the practice of state intervention in business was on the rise in Russia and that even businesses loyal to the Kremlin could be targeted.

Shares plummeted and Yevtushenkov's Sistema lost a third of its value on Wednesday, striking the stock market and investment climate at a time when the already-weak economy is being dragged lower by Western sanctions over Ukraine.

Ulyukayev also said Moscow had not yet prepared retaliatory measures to Western sanctions.

"There are no prepared decisions. In this situation it would not be productive because any action should be based on the interests of our consumers, and I do not see any clear way of doing this." (Reporting by Alexei Anishchuk, writing by Elizabeth Piper, editing by Gabriela Baczynska)

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UPDATE 1-Blackstone-backed Vivint Solar's IPO to raise up to $371 mln

Thu Sep 18, 2014 6:54am EDT

Sept 18 (Reuters) - Vivint Solar Inc, a residential solar panel installer backed by Blackstone Group LP, is expected to raise up to $371 million in its initial public offering.

The company on Thursday said it expected its IPO to be priced between $16 and $18 per share, valuing it at about $1.9 billion at the top end of the price range. (bit.ly/XmSMIM)

Provo, Utah based-Vivint Solar was launched in 2011 and has become the second-largest installer of residential solar panels in the United States after SolarCity Corp.

Vivint Solar is selling all the 20.6 million shares in the IPO.

Blackstone's stake will be diluted to 75.3 percent from 97 percent after the offering, assuming underwriters exercise their full option to buy additional shares.

Blackstone bought Vivint Solar's parent, Vivint Inc, in 2012 for more than $2 billion.

Vivint also provides home security services.

Goldman Sachs, Merrill Lynch, Pierce, Fenner & Smith and Credit Suisse are lead underwriters to the IPO.

Vivint Solar intends to list on the New York Stock Exchange under the symbol "VSLR".

The company had said in its filings that it expected to use the proceeds from the IPO to repay debt, investments and general corporate purposes. (Reporting By Neha Dimri in Bangalore; Editing by Sriraj Kalluvila)

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UPDATE 1-European bank test results to be announced Oct. 26 -sources

Wed Sep 17, 2014 5:57am EDT

(Adds background, comment)

By Eva Taylor

FRANKFURT, Sept 17 (Reuters) - The results of Europe's most comprehensive ever review of its banks' health will be announced on Sunday, Oct. 26, sources told Reuters.

The sources all spoke on the condition of anonymity as the date has not yet been publicly disclosed. An announcement is expected soon.

The tests will reveal whether around 130 of Europe's largest banks need to raise more capital for losses they have already incurred and future crises.

The tests are designed to finally banish fears about the health of Europe's banks, whose valuation has lagged behind US peers since the region's debt crisis struck. link.reuters.com/buf36v

The results must be published before the European Central Bank becomes the euro zone's banking supervisor on Nov. 4.

Banks will be given their results about 48 hours before publication, to enable them to review the figures and prepare any response.

Picking a Sunday publication date reduces the risk of sensitive information leaking while major markets are still trading, since the information can be given to banks after markets close on Friday evening.

"We haven't confirmed any dates around the publication of the results," said a spokesman for the European Central Bank, which is carrying out tests on the euro zone banks.

"All we can say still is second half of October."

The European Banking Authority (EBA), which is co-ordinating tests across 28 EU countries, said there was "no approved date yet".

The ECB results will include granular detail on the finances of about 130 euro zone banks and the capital actions they must take.

They will also form part of the EBA's EU-wide results, which give less detailed information about the finances and capital needs of 124 banking groups across the EU.

Both sets of results will be released simultaneously. (Reporting By Eva Taylor; Editing by Steve Slater and Toby Chopra)

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REFILE-Two Bank of England officials back rate rise, others firmly against - minutes

Wed Sep 17, 2014 5:06am EDT

(Adds dropped word in first paragraph, removes duplicate word in paragraph 7)

LONDON, Sept 17 (Reuters) - Two Bank of England policymakers again voted to raise interest rates this month, leaving the central bank divided for a second successive month, but the rest of their colleagues remained firmly against tighter policy.

Minutes of the BoE Monetary Policy Committee's Sept. 3-4 meeting released on Wednesday showed that external members Martin Weale and Ian McCafferty voted to raise interest rates to 0.75 percent from their record-low 0.5 percent.

But the other seven members of the MPC saw no need to rush into the BoE's first rate rise since 2007, citing increased signs of weakness in the euro zone as well as weaker domestic housing activity, manufacturing and exports.

The MPC said that it was concerned that temporary weakness in the euro zone could turn into a prolonged period, and revive worries about the solvency of some euro zone governments.

"This could damage confidence and disrupt financial markets, and, as a result, the downside risks to UK growth in the medium term had probably increased," the MPC said.

The MPC made little mention of a referendum on Scottish independence due to take place on Sept. 18, beyond noting that it had triggered some volatility in foreign exchange markets.

Instead, it was more struck by a "remarkable" lack of volatility in markets - particularly for crude oil - against a backdrop of increased tension in Ukraine and the Middle East.

The BoE's staff had revised up their forecast for third-quarter growth to 0.9 percent - well above Britain's long-run average - but the MPC said they saw some signs of a slowdown in the fourth quarter, though they noted they had been wrong on this before.

The MPC also took increased interest in the growth of unit labour costs - how much workers produce for a given amount of salary - rather than official wage growth figures.

Average weekly earnings have been very weak, and the MPC said this could be partly due to the long-term unemployed re-entering the labour market in low-skilled work.

Unit labour cost developments - which blend wage growth with productivity - were more important for the inflation outlook, it said. For now, unit labour cost growth was well below rates that could trigger inflation pressure.

Even if wages picked up as workers became more experienced, this would not necessarily be an inflation problem if productivity improved.

Previously much of the MPC's commentary on inflation pressure has focused heavily on wage growth.

Price pressures appear muted, after figures on Tuesday showed inflation fell to just 1.5 percent in August - well below its 2 percent target - and wage rises have been even smaller.

BoE Governor Mark Carney said last week that central bank forecasts in August had shown that interest rates did not need to rise until the spring of 2015 to ensure that inflation remained on target for the foreseeable future. Wage growth was unlikely to exceed inflation until later that year, he added. (Reporting by David Milliken and Andy Bruce)

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UPDATE 1-Euro zone inflation slightly exceeds forecasts in August

Wed Sep 17, 2014 6:04am EDT

* August annual inflation at 0.4 pct, unchanged from July

* Eurostat had predicted the rate would fall to 0.3 pct (Updates with economist reaction, ECB details)

BRUSSELS, Sept 17 (Reuters) - An increase in rents and car-repair prices lifted euro zone inflation in August slightly higher than a first estimate, a small piece of good news for the European Central Bank but not one that radically changes the economic outlook.

Consumer inflation in the 18 countries sharing the euro rose 0.1 percent month-on-month in August for a 0.4 percent year-on-year increase, the EU's statistics office Eurostat said on Wednesday, revising upwards its initial estimate, from Aug. 29, of a 0.3 percent annual gain.

That leaves the inflation rate unchanged from July.

"Every positive surprise is welcome in terms of market psychology and for the European Central Bank," said Frederik Ducrozet, an economist at Credit Agricole.

"But it is far from the kind of shift you need to rule out QE," he said, referring to quantitative easing, the programme of bond purchases the United States and Britain have used to lift their economies.

Eurostat said that rising rents, higher prices in cafes and restaurants and more expensive car repairs did the most to raise year-on-year inflation. Cheaper fuel, fruit and phone calls pulled it down the most.

In its initial estimate, Eurostat had said that prices of services grew 1.2 percent year-on-year in August. In the revised data, it changed that value to 1.3 percent.

Inflation has fallen steadily since the end of 2011, reflecting a weak euro zone economy and near-record unemployment, after a debt crisis nearly ripped the bloc apart. Economic growth came to a standstill in the second quarter and Italy has slipped back into its third recession since 2008.

The ECB targets an inflation rate at below, but close to, 2 percent over the medium term, a level not seen since the first quarter of 2013. It also considers anything below 1 percent over time to be in a "danger zone".

With August's number, inflation has now been in that zone for 11 straight months. BNP Paribas expects the annual inflation rate to slip to 0.2 percent in September because of lower oil prices, then rebound around the end of the year.

To push up inflation, the ECB has cut interest rates to almost zero and will start buying asset-backed securities next month, flooding the banking system with cheap cash that it hopes banks will lend on to companies and individuals.

Investors are watching to see if the ECB will go further and start a U.S.-style bond-buying programme - purchasing sovereign debt on a monthly basis to stimulate the economy.

The ECB is most closely watching core inflation, stripping out volatile energy and food prices. Core inflation was 0.9 percent year-on-year last month, up from 0.8 percent in July and a low of 0.7 percent in May, Eurostat data showed. (Reporting by Jan Strupczewski and Robin Emmott; Editing by Larry King)

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French PM Valls mollifies rebels before confidence vote

By Emile Picy

PARIS, Sept 16 Tue Sep 16, 2014 6:19am EDT

PARIS, Sept 16 (Reuters) - Allies of French Prime Minister Manuel Valls tipped him to survive a confidence vote in parliament on Tuesday after the centre-left leader pursued a two-day charm offensive to cajole rebel backbenchers into the government camp.

But the wider question remained over whether Valls, whose poll ratings have crumbled since he took on the job of President Francois Hollande's premier in April, will retain the authority needed to revamp the euro zone's second largest economy and narrow the public deficit.

Socialist Party managers expect some 30 deputies to abstain in a vote whose result is due around 7:30 pm local time (1730 GMT). That would allow Valls to win a majority in the 577-seat assembly with backing from centrist allies in other parties.

Valls summoned Socialist lawmakers to a "seminar" on Monday at which he painted a grim picture of the foreign policy challenges facing France before wining and dining them in the 18th century Hôtel de Lassay mansion near parliament.

His campaign for their votes continued on Tuesday with more closed-door meetings before Valls opens the parliament session with a policy speech expected to reaffirm the more business-friendly line adopted by Hollande since January but which has yet failed to stimulate growth and trigger new hiring.

Christian Paul, one of the rebel Socialist backbenchers, expected the number of abstentions to be "probably around 30, perhaps a bit more" and stressed the protest was not an attempt to unseat Valls and push for new elections.

"Our intention is not to quit the coalition," he said.

"I want new policies - with or without Manuel Valls ... We worked together for more than 10 years to come to power and every time we move away from the promises we made in 2012 I think we are getting ourselves lost," he told RTL radio.

VALLS EYES 2017

The vote comes after France finally conceded last week that near-zero economic growth would prevent it from bringing its public deficit below three percent of output next year, the second time Hollande has broken such a promise to EU partners.

Hollande - his popularity ratings at record low levels for a modern-day French leader - is due on Thursday to hold a marathon news conference outlining plans for the rest of his five-year mandate and swatting away calls for critics for him to resign.

Financial markets and EU capitals from Berlin to Rome will look closely for clues on how fast France will enact promised new reforms on its labour market and how credibly Hollande re-commits to lowering the public deficit from its current level above four percent.

German officials have in recent days insisted that euro zone economies can only unlock growth and hiring with a mix of fiscal rigour and sometimes painful reforms, while Valls' Italian counterpart Matteo Renzi backs France in its quest to seek more flexibility on budget targets.

Even if Tuesday's confidence vote is positive, the Hollande-Valls duo already have a tough task convincing left-wing allies to back a plan to shave 50 billion euros of public spendings by 2017 and hand business over 40 billion euros in tax cuts.

They also face street protests at upcoming reforms to de-regulate tightly protected professions including notaries, pharmacists and taxi-drivers and to ease rules on worker representation in companies which bosses say are a cost burden.

With Hollande's approval rating already down at 13 percent, the government had been banking on Valls' popularity and more dynamic image to carry through the reforms.

Yet a survey by pollster Ipsos in Le Point magazine on Monday showed even his popularity was being contaminated by the sense of disarray surrounding Hollande, with his rating falling four points to 30 percent and a full 63 percent saying they had an "unfavourable view" of what he has done so far.

Yet Valls brushed off suggestions he would abandon ship before 2017 presidential elections in which he is expected to run himself.

"I will go all the way to accomplish my mission, you can be sure of that," he told reporters on Monday.

Of France's current economic woes, he noted: "That does not get solved in a few months, not even a couple of years." (Writing and additional reporting by Mark John; editing by Anna Willard)

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