Europe cannot afford to rescue Greece

To bail out Greece or not? The question is grabbing headlines daily. Supporters of a bail-out argue that if Greece collapses, others would follow. Financial markets have already identified the next candidates. As such, European economic and monetary union is at risk. Only financial aid and “solidarity” with highly indebted members can rescue the euro.

It is certainly true that this is a decisive moment for Emu – but for the opposite reason. Greece will continue to receive support from several European Union funds. But financial aid from other EU countries or institutions that amounted, directly or indirectly, to a bail-out would violate EU treaties and undermine the foundations of Emu. Such principles do not allow for compromise. Once Greece was helped, the dam would be broken. A bail-out for the country that broke the rules would make it impossible to deny aid to others.

It seems that quite a number of observers have forgotten what Emu is, and what it is not. The monetary union is based on two pillars. One is the stability of the euro, guaranteed by an independent central bank with a clear mandate to maintain price stability. The other is fiscal solidity, which has to be delivered by individual member states. Member countries are still sovereign. Emu does not represent a state; it is an institutional arrangement unique in history.

In the 1990s, many economists – I was among them – warned that starting monetary union without having established a political union was putting the cart before the horse. Now the question is whether monetary union can survive without such a political union. The current crisis must be handled in such a way as to produce a positive answer. The viability of the whole framework – nothing less – is at stake.

By joining Emu, a country accepts its rules. Greece, moreover, also knew that adopting a stable currency that was not controlled by its own central bank implied a total break with the past. Devaluation of the national currency and an inflationary monetary policy were no longer options. A single monetary policy is implemented by the European Central Bank and it is the responsibility of each country to adjust its economic policies so that this one size fits all.

Participation in Emu brings huge advantages. The benefits of joining a stable economic area are greatest for countries that were unable to deliver such conditions before. Thanks to the euro, Greece has enjoyed long-term interest rates at a record low. But instead of delivering on its commitment at the time of entry to reduce public debt levels, the country has wasted potential savings in a spending frenzy. The crisis with which it is now confronted is not the result of an “external shock” such as an earthquake, but the result of bad policies pursued over many years. Bailing out Greece would reward such behaviour and create moral hazard of a dimension hardly seen before.
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PRECIOUS-Gold inches up as dollar steadies vs euro

Gold prices edged higher on Tuesday
after falling the previous day on the strength of the dollar,
with investors keeping a close eye on currency markets for
bullion's near-term direction.

The dollar has been the main driver for gold in recent weeks:
a firmer dollar typically hurts the precious metal, as it makes
dollar-priced gold more expensive for non-dollar holders and
dampens interest in bullion as an alternative asset.

A weaker greenback supports gold if investors are selling the
U.S. currency to buy other assets including gold. If dollar
selling is due to U.S.-related concerns, gold can also benefit
from its status as a hedge against risk.

"The dollar's still the main driver behind gold's movement,"
said Adrian Koh, an analyst at Phillip Futures in Singapore.

"Gold's very much still in a sideways consolidation pattern
between $920-$980," he said, adding that he expected the market
to remain in that range until a clearer picture of the U.S.
economy emerged.

Spot gold XAU= rose 0.3 percent to $944.60 an ounce as of
0531 GMT, compared with New York's notional close of $941.40. It
hit a one-week high of $957.65 on Friday and has since hovered
below that level.

In the currency market, the yen was broadly firmer as
investors took a pause from a recent rush to stocks and
higher-yielding currencies, with focus shifting to U.S. data.
[USD/]

The dollar was nearly flat against the euro EUR= after
inching up against the single currency on Monday.

U.S. gold futures for December delivery GCZ9 were up 0.3
percent at $946.10 an ounce, compared with $943.70 an ounce on
the COMEX division of the New York Mercantile Exchange.

Traders are looking to consumer confidence, durable goods
orders and housing data due this week to gauge the state of the
U.S. economy.

Koh said traders were looking for housing data for further
signs that the housing market may have stabilised.

Reflecting a lack of market direction, no new investment was
made in the world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust GLD, which said its holdings were steady at
1,066.41 tonnes as of Aug. 24. [GOL/SPDR] link....

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Clunkers: Dealers get ready for the 'hangover'

After the mad rush of car sales sparked by Cash for Clunkers, dealers will now find they have plenty of downtime to count their money.

The popular program, which ended Monday, will leave many showrooms without cars to sell or customers looking to buy them.

"We're definitely going to have a hangover," said Edward Tonkin, vice president of the Ron Tonkin Family of dealerships in Portland, Oregon and vice chairman of the National Automobile Dealers Association.

As of Monday morning, dealers had submitted 625,000 Clunkers applications to the government seeking a total of $2.58 billion, according to the Department of Transportation.

The Department of Transportation said Monday that it would give dealers extra time to file their rebate applications after its Web site for handling the submissions was overwhelmed.

The department said the deadline for dealers would be extended beyond 12 noon Tuesday to make up for time that was lost while the system was down.

After the heady rush of Clunkers sales, the return to normal -- especially in a market where "normal" means deeply depressed -- may be difficult to deal with.

"I think you're going to be able to shoot a cannon through here and not hurt anybody," Tonkin said.

In the short run, dealers will see sales drop precipitously, said Jeremy Anwyl, CEO of the auto Web site Edmunds.com. link....

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Asian stocks jump on Bernanke comments, home sales

HONG KONG — Asian stock markets jumped Monday as upbeat comments from the Federal Reserve's chairman and signs the U.S. housing industry was healing strengthened confidence in a global recovery.

Tokyo shares led the way with a 3 percent gain as the region, taking cues after Wall Street closed Friday at its highest levels since November, staged a broad-based rebound from last week's heavy selling. Oil prices rose above $74 a barrel and the dollar climbed against the yen.

Investors poured into stocks after Fed Chairman Ben Bernanke said the prospects for a near-term recovery in the world's largest economy appeared to be good. Also boosting confidence was a better-than-expected rise in U.S. home sales last month that helped relieve some of the fears about American consumers that have held stock markets down lately.

There was evidence of economic renewal in Asia as well. Thailand's economy emerged from recession in the second quarter thanks to increased government spending and manufacturing resuming growth after steep declines.

"The numbers coming through continue to show economies are in better shape," said Song Seng Wun, economist at CIMB-GK research in Singapore. "But we could see more up and down in the markets as investors keep looking over their shoulder and asking themselves how much optimism is justified."

Japan's Nikkei 225 stock average gained 342.85 points, or 3.4 percent, to 10,581.05.

In China, the main Shanghai index was up for a third straight day, gaining 0.8 percent to 2,983.22, after its sharp falls last week helped trigger selling around the world. Hong Kong's Hang Seng added 1.6 percent to 20,536.64. link.....

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Car Buyers Make ‘Mad Dash’ to Dealers as Clunkers Program Ends

Bernie Saric has watched the U.S. government’s “cash for clunkers” program burn through more than $2 billion in car-purchase assistance. As the program enters its last weekend, she said she decided to grab her share.

Saric, who works for an auto-parts maker, plans to trade in her 1996 Ford Explorer this morning for a 2010 Ford Edge, two days before the program expires Aug. 24.

“I definitely felt the pressure to make a decision and say, ‘If I felt good about a car I test-drive, I have to go for it,’ ” said Saric, of Howell, Michigan, who declined to give her age. “It’s like a mad dash to get a deal done now.”

The clunkers plan, which offers auto buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles, has recorded more than 489,000 dealer transactions valued at $2.04 billion in rebates, according to Transportation Department data released yesterday.

Last-minute shoppers looking to capitalize on the trade-in program may have few cars or dealerships to choose from. AutoNation Inc. and Group 1 Automotive Inc., two of the country’s largest car dealership groups, said yesterday they will opt out of “cash for clunkers.” Some independent dealers have done so, too, citing cumbersome bureaucracy.

Bryan Mason, 40, of San Francisco, founder of an Internet start-up company, said he had planned to buy a new car to replace his red 2000 Jeep Cherokee with 133,000 miles during the next couple of weeks.

Filling Out Paperwork

“When I heard the program was ending on the news last night, I was here this morning when the doors opened,” Mason said yesterday, while filling out paperwork to buy a 2009 Honda Fit from a dealership in Oakland, California. He said it was the only place that had the car in the color he wanted.

“I’ve had my eye on it,” he said. “I am here today because I wanted to make sure all my paperwork is processed in time.” link....

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Quantcast 'Cash for clunkers' won't be running much longer, government says

The government will announce a plan as soon as tomorrow for winding down its popular but problem-plagued "cash for clunkers" program.

The announcement by Transportation Secretary Ray LaHood came as a New York dealership group said that hundreds of its members had stopped doing clunker transactions because of delays in getting reimbursed by the federal government.

Dealers worry that the $3-billion program will run out of money before they are reimbursed for discounts given to car buyers on clunker transactions. The National Automobile Dealers Assn. said "it is difficult, if not impossible, to accurately project the 'burn rate' of available funds" for the promotion, which provides discounts of $3,500 or $4,500 to consumers who trade in an older car for a more fuel-efficient new car.

That could leave dealers holding the bag, the group said, because the rules stipulate that the government doesn't have to pay dealers who submit claims for reimbursement after the program runs out of money.

LaHood said at a news conference that a wind-down plan would be announced in the next couple of days.

"I know dealers are frustrated, but they're going to get paid," he said.

As of Wednesday morning, dealers had submitted 435,102 clunker transactions to the Transportation Department and requested $1.8 billion in reimbursements.

In California, which tops the list of states in terms of clunker transactions, most dealerships appear to be sticking with the program. The frenzy of buyer interest that greeted the program when it kicked off July 24 has dropped considerably partly because of shortages of popular cars such as the Toyota Corolla, Honda Civic and Ford Focus.

"The gold rush is over," said Eric Choi, fleet manager at Hollywood Ford. "We're still getting some business from it, but like every other dealer, we're pretty much out of cars."

Fritz Hitchcock, who owns Toyota dealerships in Puente Hills, Santa Barbara and Northridge, said his inventory has plummeted since the program began. His Santa Barbara dealership, for instance, normally has around 120 vehicles on the lot. Wednesday it had 12. link.....

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Pimco, Goldman Sachs exit Federal Reserve mortgage bond program

The Federal Reserve Bank of New York plans to get along without the help of bond giant Pimco or Goldman Sachs Group as the central bank continues its massive purchases of mortgage-backed securities.

The New York Fed on Monday said it had "streamlined" its 8-month-old, $1.25-trillion program to buy mortgage bonds from four investment managers to two.

Saying the changes were "not performance related," the bank said it was retaining Wellington Management Co. and BlackRock Inc. Newport Beach-based Pacific Investment Management Co. and Goldman Sachs Asset Management will exit.

The bank said it had "anticipated that it would make adjustments to its use of external investment managers as it gained more experience with the program. . . . The New York Fed is committed to implementing its programs in the most efficient and cost-effective manner possible."

The bank didn't indicate why Wellington and BlackRock won out over Pimco and Goldman, or whether the latter two wanted out for some reason.

A Goldman spokeswoman said the firm had no comment. A Pimco spokesman couldn't be reached.

The mammoth purchase program is aimed at keeping a lid on mortgage rates by providing a constant source of demand for home-loan-backed bonds issued by Fannie Mae, Freddie Mac and Ginnie Mae.

Bloomberg News calculates that Pimco and Goldman each stood to earn $7.8 million in fees per quarter once the Fed's holdings of bonds reached $1 trillion. The Fed has purchased $742 billion of mortgage bonds so far, according to Bloomberg's tally.

Pimco in July surprised Wall Street by dropping out of the running for the Treasury's program of partnering with money managers to buy rotting mortgage bonds from banks. link.....

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Stocks Finish the Week Down as Reports Dull Optimism

Wall Street closed a roller-coaster week in negative territory Friday, as investors locked in profits and concerns rose that a five-month rally had pushed stocks up further than warranted by early signs that the economy is stabilizing.

The losses were broad, dragging down financial and technology shares, but energy stocks lost significant ground as crude oil prices tumbled 4 percent, to $67.51 a barrel, on the New York Mercantile Exchange. Exxon Mobil and ConocoPhillips were down 0.8 percent and 1 percent, respectively.

After a two-day rally lifted the Standard & Poor's 500-stock index to a 10-month high, the index fell 0.9 percent, or 8.64 points, to close at 1004.09. The Dow Jones industrial average, an index of blue-chip stocks, was down 0.8 percent, or 76.79 points, to 9321.40, and the tech-heavy Nasdaq composite index fell 1.2 percent, or 23.83 points, to 1985.52.

That wiped out gains secured just a few days ago and left all of the major indexes in negative territory for the week, breaking a four-week streak of gains. The Dow and S&P were down 0.5 percent and 0.6 percent for the week, respectively. The Nasdaq fell 0.7 percent.

Investors had rallied this week on signs of a stabilizing economy, deriving reassurance from a Federal Reserve move to begin curtailing one of its extensive programs to prop up the economy. But traders have also become concerned that the market rebound might have come too quickly and sprinted ahead of the recovery.

That was reinforced by a report of an unexpected drop in retail sales last month, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

"Many people have been looking for a pullback, and this week that retail sales data was a potential game changer," he said. "If we are in a recovery mode, it's a very gradual recovery."

Also, traders were disappointed by a decline in consumer confidence as measured by the latest Reuters/University of Michigan index released Friday. The index fell to 63.2 in August from 66 in July. Analysts had expected a rise. link.....

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AB InBev Signals Profitability Gains Will Slow as Sales Shrink

Anheuser-Busch InBev NV, the world’s biggest brewer, signaled that profitability gains stemming from the $52 billion takeover that formed the company will be harder to come by.

Chief Financial Officer Felipe Dutra, speaking after the brewer reported earnings today, said the Leuven, Belgium-based brewer of Stella Artois won’t match its first-half margin increase in the second half of the year, and expects no “short- term improvement” for the stagnant beer market.

The shares fell as much as 5.1 percent today, the most since April. AB InBev’s first-half profit beat analysts’ estimates as the company paid less for brewing ingredients and advertising after buying Budweiser maker Anheuser-Busch Cos. last year. Optimism about the deal’s cost-cutting potential has helped the shares triple from their low in November, when AB InBev announced a stock sale to repay debt.

“The shares have come a long way from a terribly depressed level, and it is clear that the quantum of improvement from here is likely to be less,” said Rob Mann, an analyst at Liberum Capital in London. “There is still plenty left to happen, though. The story isn’t over.” He recommended that longer-term investors buy the shares on today’s weakness.

Manufacturing and advertising cost cuts helped the company eliminate $315 million of expenses in the second quarter, bringing first-half savings to $610 million. AB InBev is targeting $1 billion in savings this year and $2.25 billion within the first three years of the Anheuser acquisition.

Bud Light Ads

Profitability, as measured by ebitda margin, widened 7.5 percentage points to 37.9 percent on the merger savings and falling prices for brewing ingredients.

AB InBev shares fell 1.28 euros cents, or 4.4 percent, to 27.53 euros at 12:25 p.m. in Brussels trading. The stock reached a low of 10.32 euros on Nov. 24, when the company revived a share sale to pay short-term debt from the takeover.

Sales and marketing expenses fell in the first half of the year because of declining media rates in the U.S., the brewer said. In western Europe, the brewer cut $82 million of marketing expenses, savings that may not be repeated in the latter half of the year. link....

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'It Was All Fake': Madoff Aide Pleads Guilty to Fraud

Bernard Madoff's right-hand man pleaded guilty Tuesday to fraud, conspiracy and other criminal charges, making him the first of Madoff's employees to confess to helping the infamous money manager orchestrate a Ponzi scheme worth up to $65 billion.

Frank DiPascali Jr., who was the chief financial officer of Madoff's firm and oversaw his investment strategy, faces 10 criminal charges that could send him to prison for 125 years.

Madoff pleaded guilty in March and was sentenced to 150 years in prison.

DiPascali's guilty plea is part of a mix of criminal and civil cases that federal and state regulators have filed to punish firms and people who may have had a hand in the largest Ponzi scheme in history.

The targets of these cases have ranged from Madoff and his associates to hedge funds that funneled money to him.

DiPascali said he is cooperating with the government, which is trying to locate billions of dollars of fraud money and figure out who else was in on it. Madoff has reportedly not cooperated with that investigation.

"From the early 1990s until December 2008, I helped Bernie Madoff and others carry out a fraud," DiPascali told the court, according to Bloomberg News.

"It was all fake. It was all fictitious," he said. "It was wrong, and I knew it was wrong at the time." link.....

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Rise in Heathrow passengers signals soft landing for BAA

Planes line up to land at Heathrow. Photograph: Matt Cardy/Getty Images

Heathrow reported its third busiest month on record today, as July passenger numbers indicated that the UK's main airport is recovering from the recession.

Airport group BAA said Heathrow handled 6.5 million passengers last month, up nearly 1% on the same period last year. A reduction in flights at the airport, plus the increase in passengers, resulted in Heathrow recording its highest ever figure for the average number of passengers per plane, at 162. Total long-haul traffic, excluding North America, was up by 5.5%.

Passenger numbers across BAA's seven UK airports - which include Gatwick, Stansted, Southampton, Edinburgh, Glasgow and Aberdeen - also showed strong signs of recovery, although the overall number was still negative. BAA handled 14.5 million travellers in total, a decline of 2.4% on July 2008. However, the fall compares with declines of 5.9% in June and 7.3% in May. BAA said the data was "further evidence of stabilising passenger figures across the group".

Glasgow was BAA's worst performer, reporting a 13% dip in passengers with Stansted the worst performing London airport as it recorded a 5.7% fall in passenger numbers due to Ryanair and easyJet cutting back services.

The strongest perfoming market was long-haul destinations excluding the US and Canada, which saw a 4.8% increase in travellers. However, in bad news for airlines the highly profitable North America route remains very weak and passenger numbers were down 8%, although Heathrow fared better and reported a 2.1% decline in North American traffic.

One week after the transport secretary, Lord Adonis, called for the demise of domestic air travel, BAA also confirmed an ongoing decline in UK-only flights. Domestic air travel at its airports fell 4.8% as it handled 109,000 fewer travellers.

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Intel Fine Defended After WSJ Says EU Ombudsman Criticized Case

European Union regulators defended their handling of a case against Intel Corp. that resulted in a record 1.06 billion-euro ($1.5 billion) fine against the world’s biggest computer-chip maker.

The EU’s ombudsman criticized the European Commission on the way it handled the case against Intel, the Wall Street Journal reported. The EU watchdog said the antitrust regulator failed to record “potentially exculpatory” evidence from a witness in its investigation, the newspaper said.

“The commission has fully respected Intel’s right of defense,” Alain Bloedt, a spokesman for the Brussels-based European Commission, said by telephone today.

The commission, the EU’s executive and regulatory branch, accused Intel in May of using rebates to thwart competitors. After an eight-year investigation, it ordered Intel to stop giving unlawful discounts to computer makers that buy all or almost all their chips from Intel.

Santa Clara, California-based Intel has appealed the ruling, and said that the European Commission “misinterpreted and ignored evidence.”

The antitrust fine was the biggest in the 27-nation EU’s history, more than double the 497 million-euro penalty against Microsoft Corp. in 2004. Advanced Micro Devices Inc., which originally filed the antitrust complaint to the EU, has been struggling to make inroads into Intel’s hold on 80 percent of the market for processors that run PCs. link.....

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Excited shoppers enjoy S.C. Tax-Free holiday

AIKEN, S.C. - People in Georgia-Carolina are taking advantage of some bargain shopping. The tax-free holiday was in full swing in South Carolina Saturday.

Stores all over South Carolina removed taxes from clothes, shoes and school supplies.

Shoppers in Aiken County say they're excited to stock up and save money.

“That's the hardest thing for us, shoes and book bags. Everything else is basic but shoes and book bags are our thing,“ shopper Nami Johnson said.

Johnson is doing both back-to-school and birthday shopping. Her son said his favorite kind of cake is the "Incredible Hulk".

Johnson says while her son enjoys his cake she enjoys the money she’s saved.

“You save a few dollars on certain items especially when you have to buy in bulk, as I said I have more than one so it does help me every penny counts,” Johnson said.

Johnson wasn't the only one with back to school shopping on her mind. Jenn Seawright is preparing for her first year in college.

“I’m her for the sales tax, I come her every year, get paper, notebooks, clothes, socks everything,” Seawright said.

She says the tax break definitely helps her out.

“I always wait for the sales tax weekend to go shopping and it always works,” Seawright said.

Katie Barrett was also excited about the deals.

“The crayons, I mean just, just really cheap, 20 cents. You can't beat it,” Barret said.

Even though shoppers are happy with the money they save during the sales tax holiday.

According to South Carolina's Department of Revenue the state loses $2.9 million in tax revenue.

The tax-free holiday started Friday and ends midnight Sunday.

Here's a list from the S.C. Department of Revenue listing what items are tax free and which ones aren't:

Tax Free
Clothing, handbags, footwear, hats, scarves, school supplies, computers, printers, computer software, towels, bed linens. link....

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Pound Falls After RBS Loss; Bank of Tokyo Sees ‘Tipping Point’

The pound fell against the dollar and the euro after Royal Bank of Scotland Group Plc, the U.K.’s biggest government-controlled bank, reported a first-half loss and set aside more than $12 billion to cover bad loans.

The U.K. currency dropped most against the Japanese yen. Gilts gained and the FTSE 350 Index of British banks slid after RBS chief executive officer Stephen Hester said “performance over the next two year” will continue to be “poor.” Bank of Tokyo-Mitsubishi UFJ Ltd. said the pound has reached “tipping point” after the Bank of England said yesterday it will expand an unprecedented program of bond purchases to boost the economy.

“RBS shows that there are still vulnerabilities in the banking system and that works against sterling,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking arm of Credit Agricole SA. ‘Had it not been for the Bank of England’s decision yesterday, the market would have been more inclined to overlook RBS. Sterling was already on the defensive.”

The pound slid to $1.6738 as of 11:25 a.m. in London, from $1.6783 yesterday. It weakened to 85.80 pence per euro, from 85.49 pence, and to 159.45 yen, from 160.22 yen.

RBS posted a net loss of 1.04 billion pounds ($1.7 billion), compared with 827 million pounds a year earlier. Analysts had predicted net income of 1.1 billion pounds, according to the median of six estimates in a Bloomberg survey.

‘Tipping Point’

Britain’s currency fell the most against the dollar yesterday since June 3 after the Bank of England said it will extend its asset-purchase program by 50 billion pounds, citing the “fragile” state of the U.K. economy.

“Yesterday’s BOE actions have raised the downside risks to the pound as it is likely to raise foreign-investor concerns over the BOE’s policy credibility similar to the Federal Reserve, edging the pound closer to an eventual tipping point,” Lee Hardman, a currency economist at Bank of Tokyo in London, wrote today in a report. “The U.K. needs a weak pound more than ever. In these circumstances, we believe that pound-dollar levels above $1.70 will prove unsustainable.” link.....

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Tide Turns Toward 'Basic' as P&G Battles Downturn

DALLAS -- Procter & Gamble Co., under assault by penny-pinching consumers, has quietly rolled out a version of Tide detergent that the company freely admits isn't "new and improved."

The product, Tide Basic, is currently for sale in about 100 stores throughout the South. It lacks some of the cleaning capabilities of the iconic brand -- and costs about 20% less. Its very existence is one of the most telling signs to date of how the sour U.S. economy is forcing mass marketers to shift course. On Wednesday, the company reported an 18% plunge in fiscal fourth-quarter profits as sales of its premium-priced brands shrank amid tightened consumer budgets.

Patrick Conlon/The Wall Street Journal

The decision to develop Tide Basic didn't come easily. For decades, P&G had held fast to a strategy of promoting new features to convince shoppers to pay a premium for detergent, shampoo and other household staples. Then, as cheaper store brands gained traction in the aisles, P&G began offering lower-priced versions of some products -- Charmin toilet paper, Bounty paper towels -- to suit leaner budgets.

P&G agonized over whether to go down a similar path with Tide, its top-selling brand in the U.S. A more "basic" version would balance Tide's premium prices. It could also help expand its market share, which while dominant, has been slipping. For the four weeks ended July 12, Tide held 41.4% of the liquid laundry-detergent category and 44% of the powder detergent category, both down from a year ago, according to estimates by Information Resources Inc. Figures don't include data from Wal-Mart Stores Inc.

Executives feared that a cheaper version might cannibalize sales of regular Tide, which accounts for more than $3 billion of P&G's $79 billion in annual revenues. Marketers at the company have been so loath to sully their prized soap brand that they've wrestled with the matter at least eight times in the past three decades.

Last November, two managers at P&G's Cincinnati headquarters walked into a roomful of executives to gently suggest another try. "Just listen and keep an open mind," Suzanne Watson, an associate marketing director, told them.

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Toyota Narrows Loss Forecast as Stimulus Spurs Sales

Toyota Motor Corp., the world’s largest automaker, narrowed its full-year net loss forecast as government stimulus measures boost demand in its largest markets.

The company expects a net loss of 450 billion yen ($4.7 billion) in the year ending March, compared with an earlier forecast of 550 billion yen, it said in a statement today.

Toyota joined Honda Motor Co. in raising its earnings forecast as government measures to spur car demand took effect. The U.S., Germany, Japan and China offered consumers credits, tax breaks and subsidies for trading in old cars as the worst slump in decades for the car industry forced Chrysler LLC and General Motors Corp. into bankruptcy.

“There is a huge possibility that Toyota will become profitable next fiscal year,” said Hitoshi Yamamoto, chief executive officer of Tokyo-based Fortis Asset Management Japan Co., which manages $5.5 billion in Japanese equities. “Up until now, they’ve been quite pessimistic.”

The company had a first-quarter loss of 77.8 billion yen, compared with a net profit of 353.7 billion yen a year earlier, it said in a statement today. The Toyota City, Japan-based automaker was projected to make a 184 billion yen loss based on the median of five analyst estimates compiled by Bloomberg. Sales slipped 38 percent to 3.8 billion yen.

‘Worst is Over’

“It seems like the worst is over,” said Masayuki Kubota, a senior fund manager in Tokyo at Daiwa SB Investments Ltd., which oversees the equivalent of $37 billion in assets. “Automakers have more fixed costs than other industries and in recessions their performances plunge, but in recoveries they do very well.”

The carmaker narrowed its full-year operating loss forecast to 750 billion yen from 850 billion yen previously. Toyota didn’t include the effect of government incentives in its forecast given in May.

The automaker fell 1.5 percent to 4,030 yen at the 3 p.m. close on the Tokyo Stock Exchange. The earnings announcement came after the end of trading.

Toyota expects to boost sales in Japan for the first time in five years, helped by government support for sales of fuel- efficient vehicles. The company had received 245,000 orders for the new Prius hybrid in Japan as of July 24. It had a monthly sales target of 10,000 units.

Prius Sales

“The Prius is selling way beyond expectations,” said Yamamoto. “Even if the profit margins are small, it’s having a positive impact on the overall performance.”

President Akio Toyoda will introduce four new gasoline- electric hybrid models in Japan and three overseas by the end of March. Vehicle sales in the quarter ended June fell to 1.4 million from 2.19 million a year earlier.

In the U.S., which is traditionally Toyota’s biggest market, a “cash for clunkers” program to spur new car sales was suspended because it ran out of money six days after it began. The program helped slow Toyota’s sales decline to 11 percent in July compared with a 32 percent decline in June.

The measures “have begun to trigger a revival,” Takahiko Ijichi, senior managing director, said today in Tokyo.

Toyota based its full-year forecast on exchange rates of 92 yen to the dollar and 131 yen to the euro, compared with 95 yen against the dollar and 125 yen against the euro in May.

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Asian Shares End Higher; PMI Data Help Shanghai Stocks

-Asian share markets ended mostly higher Monday, with resource and shipping shares jumping in line with commodity prices and as data showed Chinese manufacturing activity continued to gather pace in July.

China's Shanghai Composite gained 1.5% to 3,462.59, the index's highest closing level in 14 months. Hong Kong's Hang Seng Index rose 1.1% to 20,807.26.

Sentiment was boosted in Shanghai after two gauges of China's manufacturing activity showed further expansion in July. The CLSA China Purchasing Managers Index rose to a 12-month high of 52.8 in July from 51.8 in June. The official PMI, issued by the China Federation of Logistics & Purchasing on Saturday, inched up to 53.3 last month, from 53.2.

"Manufacturing activity continues to accelerate and importantly, orders growth is being driven by the domestic economy," said CLSA's head of economic research Eric Fishwick. "Output and input prices rose for the first time in 11 months. Export prices lag, another sign of China looking inwards for growth."

Japan's benchmark Nikkei 225 Average ended flat after moving in a narrow range, though the broader Topix Index rose 0.8% to 957.56, stretching its winning run to a 12th successive session.

Banking stocks surged in Tokyo, after Mitsubishi UFJ Financial Group Friday reported a sharp rise in profits. Mitsubishi UFJ jumped 6%, while Mizuho Financial Group advanced 6.1%.

Elsewhere in the region, Australia's S&P/ASX 200 and South Korea's Kospi climbed 0.5% each, India's Sensex had risen 1.6%, New Zealand's NZX 50 finished up 1.1%, Singapore's Straits Times had gained 0.8% and Taiwan's Taiex slipped 0.3%.

Energy producers rallied strongly after the Chinese manufacturing data helped crude-oil futures rise above the $70 a barrel level on the Globex electronic platform. The front-month contract was recently up $1.06 at $70.51 a barrel. Mineral extractors' shares also gained on higher prices for base metals. The rally also sparked strong gains for the region's shipping stocks.

"The Chinese have basically cornered the London Metal Exchange copper market and I expect that strategy will move to other base metal markets," said Southern Cross Equities director Charlie Aitken. "They are trying to diversify away from the U.S. dollar and what better strategy than buying the world's excess metal inventories," he said.

Yunnan Copper rose 4.7% in Shenzhen while Aluminum Corp. of China soared 7.2% in Hong Kong. Alumina gained 2.3% and BHP Billiton advanced 0.6% in Sydney. Steelmakers were up sharply in Shanghai, with Wuhan Iron & Steel up 6.5% and Baoshan Iron & Steel 4.9% higher.

Among shipping names, China Cosco Holdings soared 10.2% in Hong Kong and 8.1% in Shanghai, with Korea Line Corp. rising 1.9%, Mitsui O.S.K. Lines gaining 2.1% in Tokyo and Neptune Orient Lines jumping 6.1% in Singapore.

Auto makers were also higher on growing hopes ahead of Toyota's earnings Tuesday, with Toyota up 2.5%. Nissan Motor Co. jumped 5.4% after it unveiled an electric vehicle over the weekend. Sentiment was also bolstered by news that U.S. giant Ford Motor Co. saw an increase in its July monthly sales.

Australian banks gained after Goldman Sachs JBWere upgraded major lenders to reflect a more optimistic macroeconomic outlook, following similar upgrades last week by Citigroup. National Australia Bank rose 2.6% and Australia and New Zealand Banking Group gained 2.5%.

In Mumbai, shares of Larsen & Toubro gained 0.8% in afternoon trading after the major engineering firm bagged orders worth $1.1 billion from state-owned Oil & Natural Gas Corp.

Shares of Bharti Airtel climbed 0.6%, little changed by news the mobile operator and South Africa's MTN Group have agreed to extend their exclusive talks for a merger by a month to Aug. 31.

In foreign exchange markets, the euro was up against its major rivals, recently buying $1.4293, compared with $1.4255 in late New York trade Friday and Y135.55 from Y134.95. The dollar was up at Y94.84 from Y94.66.

The Australian dollar touched $0.8411, a fresh high for the year, on improving risk appetite. It was recently buying $0.8390. The pound traded above $1.68 for the first time since October 2008.

Barclays Capital said conditions remained supportive of the strength in riskier assets. It expects key indicators this week, including U.S. ISM manufacturing purchasing managers index, non-manufacturing PMI and non-farm payrolls to show improvement and come out in line or better than market consensus forecasts.

Spot gold was down 20 cents at $953.70 per troy ounce. link....

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MARKET SNAPSHOT: Heady July Stock Gains Turn Focus On Laggards

A rally in stocks that pushed the Dow industrials to its best monthly gain since 2002 has prompted investors to focus on sectors that came late to the party.

Energy, July's third-worst performing of the ten industry groups that make up the S&P 500, is one group ready to recoup some of those lost hours of fun, they say.

"We're focusing very closely on energy investment," said Bill Greiner, chief investment officer of Kansas City-based Scout Investment Advisers, which manages $6 billion. His team is forecasting oil could rise to $75 or $80 a barrel by the end of 2009, which could set energy companies up for easy year-over-year comparisons in the fourth quarter.

"We think we'll see pretty good numbers come out of the oil patch between now and year-end," he said.

July fire-works

July started out under a cloud of worries that the rally that started back in March had gone "too far, too fast". It has turned out to be a break-out month for stock investors, thanks largely to corporate results that deteriorated a little less sharply than analysts expected.

The Dow Jones Industrial Average (DJI) finished its best month since October 2002 with an 8.6% gain and posted its best July - usually a tepid month for the market, as many traders take vacation - since 1989.

The S&P 500 also finished the month with historic gains. The index of large- cap stocks gained 7.4%, its best July finish since 1997. From its March 9 closing low, it's up 46%, according to Standard & Poor's.

And the broader Wilshire 5000 index notched its best July gain in its 39-year history, with a 7.8% gain.

Among industry groups, the spoils have gone to cyclical stocks. Materials outperformed the S&P 500's July advance with a gain of 13%. Consumer discretionary, a sector that includes retailers, was the second-best performer with a 9.4% gain. Industrials gained 9.2%.Gains in materials and other-resource intensive stocks are typical of a market whose economy is exiting a recession, says Greiner. The surprise is that energy companies didn't join other resource- dependent stocks beating the broader market. link.....

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Time Warner Profit Drops 34% on Tumbling Ads at AOL, Magazines

Time Warner Inc., owner of the Warner Bros. film studio, said second-quarter profit fell 34 percent on declining advertising sales at its AOL and publishing divisions.

Net income dropped to $519 million, or 43 cents a share, from $792 million, or 66 cents, a year earlier, the New York- based company said today in a statement distributed by Business Wire. Excluding some items, earnings of 45 cents a share exceeded the 37 cent average of analysts’ estimates in a Bloomberg survey.

The recession continued to hurt ad sales at AOL and Time Warner’s magazines, offsetting rising revenue at the cable networks, which include CNN and TBS. Chief Executive Officer Jeffrey Bewkes plans to spin off AOL this year, unwinding a failed 2001 merger and removing a drag on the company’s profit.

Time Warner fell 59 cents to $27.01 yesterday in New York Stock Exchange composite trading. The shares have increased 21 percent this year.

Time Warner said in a regulatory filing this week that it bought back Google Inc.’s 5 percent stake in AOL on July 8 for $283 million, a fraction of the $1 billion Google paid in 2005.

Warner Bros. unit received court approval July 1 to buy most of the assets of Midway Games Inc., the bankrupt creator of the “Mortal Kombat” video-game series. Time Warner offered $33 million for most of the U.S. assets, including development studios in Chicago and Seattle.

Viacom Inc., the owner of the MTV cable-TV network and the Paramount Pictures film studio, reported yesterday that second- quarter profit dropped 32 percent, and said there are signs the U.S. advertising market is improving. Viacom, based in New York, said its cable networks have sold most of their advanced advertising spots at acceptable prices. link.....

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Austria to decide on Lufthansa/AUA extension this week

Austria's takeover commission said on Tuesday it would meet this week to decide on whether Lufthansa (LHAG.DE) can have more time to clear up conditions on its planned takeover of Austrian Airlines (AUAV.VI).

Lufthansa has asked the Vienna-based takeover commission to extend the deadline to Aug. 31 from July 31 so that it can continue to work out deal conditions with the European Commission.

The takeover commission's senate will meet this week to decide on Lufthansa's request, spokesman Stefan Arnold said.

"The choice depends primarily on the interests of the minority shareholders as well as the parties involved in the deal and taking into account the combined interests of all sides," he said in a statement. link....

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