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Oil falls, shares gain on delay in Syria action

Thu Aug 29, 2013 9:28am EDT

LONDON (Reuters) – Strong growth in the U.S. economy and signs of a delay in expected Western military strikes on Syria lifted world share markets on Thursday, but investors were on edge over potential future turmoil in the Middle East.

The American economy grew faster than expected in the second quarter, new data showed, and weekly claims for unemployment fell, bolstering the case for the Federal Reserve to begin winding down its massive economic stimulus program.

Wall Street stocks were set to gain on the data when trading opens, while the dollar extended its gains against a basket of major currencies to reach a three-week high .DXY.

But hard-hit emerging currencies in India, Brazil and Indonesia were firmer against the greenback as their central banks moved to stem capital outflows.

Most major risk asset markets had already been recovering ahead of the U.S. economic data on signs that divisions among lawmakers in Britain and the U.S. would delay any imminent action on Syria in retaliation for alleged gas attacks last week.

“The overall sentiment remains cautious, but the fact that military action against Syria doesn’t look imminent any more is prompting a number of investors to bet on a rebound,” said Guillaume Dumans, co-head of research firm 2Bremans.

President Barack Obama has told Americans a military strike against Syria is in their interests, and administration officials are expected to brief congressional leaders on Thursday about plans to respond.

In the oil markets, the reduced likelihood of an immediate major supply disruption saw Brent crude drop to around $116 a barrel, ending its strongest two-day gain since January 2012. U.S. oil was down 85 cents to $109.22 following its near 4 percent gain over the past two days.

“The market is reassessing the supply implications of the conflict in Syria,” said Eugen Weinberg, global head of commodities at Germany’s Commerzbank.

Traditional safe-haven gold eased 0.5 percent to around $1,413 an ounce after reaching a 3-1/2 month high in Wednesday’s flight to safety.


The better tone in world equity markets emerged after energy shares on Wall Street gained on the back of the rise in oil prices, and this spread to Asia where MSCI’s Asia-Pacific index, excluding Japan .MIAPJ0000PUS, rose 1 percent.

European stocks joined the charge higher, lifted by a surge in Vodafone (VOD.L) shares on renewed talks with Verizon (VZ.N), while U.S. stock index futures pointed to further gains when Wall Street reopens later.

The MSCI world equity index .MIWD00000PUS, which tracks shares in 45 countries, was virtually flat by mid-morning in Europe, but lost two percent this week as the Syrian tension adds to worries about the impact of an expected reduction in the Federal Reserve’s stimulus policy.

Most analysts see the Fed cutting back on the $85 billion a month it spends buying bonds to boost economic activity next month, though this week’s sudden rise in oil prices and the sell off in emerging markets have complicated the outlook.

European shares meanwhile were making good gains across the board on Thursday, helped by the resolution of a political crisis in Italy and evidence of steady improvement in corporate earnings.

The FTSE Eurofirst 300 index .FTEU3 of top European firms was up 0.35 percent while Italy’s main benchmark index, the FTMIB .FTMIB, outperformed with a rise of 0.4 percent. .EU

However, an auction of new Italian debt showed investors remained concerned about the shaky coalition with the government borrowing costs over five years rising.


World currency markets have stabilized, with the dollar rising against major developed world currencies to its strongest level in two weeks .DXY, while the actions among some emerging market nations limited their losses against the greenback.

The dollar was up about 0.7 percent against the yen at 98.32 yen, and gained against the euro to leave the single currency down 0.7 percent at $1.3250.

“A slight easing of the tensions in Syria and emerging markets, has helped the dollar,” said Simon Derrick head of currency research at Bank of New York Mellon.

In emerging markets, Brazil’s decision to raise its benchmark interest rate to a 16-month high of 9 percent on Wednesday helped stabilize the real, while in Indonesia the rupiah strengthened slightly after its central bank hiked its key lending rates.

The Indian rupee rose as high as 66.85 per dollar, up sharply from a record low of 68.85 per dollar hit on Wednesday when its central bank moved to provide dollars directly to oil companies to give the currency some relief.

Emerging market currencies in countries with high current account deficits such as India, Turkey and Brazil have plunged between 12 and 18 percent against the dollar this year, as portfolio flows exited on expectations of a withdrawal of the U.S. monetary stimulus that has boosted riskier assets. ($1 = 0.7496 euros)

(Additional reporting by Blaise Robinson and Anooja Debnath. Editing by Elizabeth Piper and Hugh Lawson)

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Rupee falls in front of slowing Indian economy

Thu Aug 29, 2013 6:59am EDT

NEW DELHI (Reuters) – The sense of crisis building around the rupee’s precipitous fall is likely to deepen on Friday with the release of data expected to show India’s economy slowing to dangerously low levels.

A dearth of investment lies at the heart of India’s economic malaise. Little improvement is expected any time soon, with investors doubting whether Prime Minister Manmohan Singh’s minority government can force through bold reforms with an election due within eight months.

Economic growth virtually halved in two years to 5 percent in the fiscal year that ended in March — the lowest level in a decade — and most economists surveyed by Reuters in the past week expect 2013/14 to be worse.

“The economy appears to be entering a tailspin as business confidence collapses under the weight of rapid rupee depreciation, rising energy costs, sharply tightening financial conditions and policy confusion,” BNP Paribas said in a note on Wednesday.

The withdrawal of funds from emerging markets as investors re-adjust portfolios in anticipation of higher U.S. interest rates has caused tremors from Brasilia to Jakarta. But the weight of India’s current account and fiscal deficits has seen the rupee sink faster than most currencies.

However much Finance Minister P. Chidambaram protests that the market’s move is overdone, investing in a currency that has lost around 20 percent since May would be a test of bravery that even India’s richer diaspora living abroad could flunk.

In the eight sessions through Tuesday, investors pulled out $1 billion from India stocks. Total net outflows from stocks and bonds have totaled $7.4 billion since May.

Thank heavens for a good monsoon, which should boost rural income and perk up flagging consumer demand, because without it the economy would be looking a lot worse than it already does.

India’s statistics office is due to release GDP data for the June quarter at 1200 GMT on Friday, bringing down the curtain on what has probably been the worst week for the rupee in nearly 17 years.

The GDP print is likely to be fittingly gloomy.

A Reuters poll of 36 economists showed India’s gross domestic product (GDP) expanded 4.7 percent year-on-year in the quarter to June, near decade lows on an annual basis and a tad under the 4.8 percent growth in the previous three months.


Raghuram Rajan, the much-vaunted former chief economist at the International Monetary Fund chief economist, is set to take over as governor of the Reserve Bank of India next Thursday, but so long as the rupee remains under attack he will find it hard to lower interest rates to encourage growth.

With inflation moving back above 5 percent, the upper limit of the central bank’s perceived comfort zone, its hands are even more tightly tied.

“With RBI set to sustain, even extend, recent monetary tightening, we now expect the palpable downside risks facing the Indian economy to largely crystallize over the next 6-9 months,” said BNP Paribas.

The French bank has cut India’s growth forecast to 3.7 percent for this fiscal year, which would be the lowest since 1991/92.

That is nowhere near good enough for a country with India’s demographics. It has a population of 1.2 billion and a per capita income of around $1,000.

Chidambaram warned on Tuesday that the economy needs to be averaging 8 percent growth to generate jobs for the increasing numbers of youth joining the workforce, but it is about far more than jobs.

With nearly 270 million people living in poverty, India is a vastly different kind of economy.

On Tuesday, parliament approved a Food Security Bill that critics fear will push up a fiscal deficit that at nearly at 5 percent of GDP is among the highest among major economies.


With enough foreign exchange reserves to cover six months of imports and relatively low levels of sovereign foreign debt, India’s situation is less acute than it was in 1991 balance of payments crisis.

But, once lionized as the finance minister whose liberalization of the economy rescued it from that crisis, Prime Minister Singh is now widely criticized for having feet of clay during his nine years at the helm.

His government has loosened rules for foreign investors, but it has failed to introduce the tax and labor reforms that Singh has long advocated.

Instead, policy flip-flops, high-profile tax disputes and numerous regulatory hurdles have stymied investments to a point where many firms find it easier to invest overseas than at home.

“India’s fundamentals have deteriorated steadily under the missteps of Singh, his aides and the central bank,” Morgan Stanley said in a research note on Wednesday.

Singh and Chidambaram over the past year cut budget busting fuel subsidies, sped up the clearances for infrastructure projects and relaxed rules for foreign investments into a swathe of industries. But most analysts view their actions so far as too little, too late.

Dismal earnings from India’s heavily indebted corporates suggest consumer demand is weak. Manufacturing activity has virtually stagnated, hitting merchandise exports and widening the trade deficit.

At nearly $90 billion India’s current account deficit is the third largest in the world. Chidambaram has pledged to narrow it to $70 billion this fiscal year.

Exports might benefit from the rupee’s descent, but it will exacerbate the oil import bill, increase fuel subsidy costs and pump up inflation. It appears to be a vicious circle.

The rupee could recover if growth attracted investment, but the trends are going the wrong way, with the June quarter expected to mark a third consecutive quarter below five percent.

“Expectations about economic growth are already rock bottom. But if the GDP data undershoots them, it could prompt more weakness in the rupee,” said Mark Williams, chief Asia economist at Capital Economics in London.

(Editing by Frank Jack Daniel and Simon Cameron-Moore)

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Singapore’s Fraser & Neave says in beer spat with Myanmar partner

Thu Aug 29, 2013 6:41am EDT

SINGAPORE (Reuters) – Singapore property and drinks conglomerate Fraser and Neave Ltd (FRNM.SI) said on Thursday its joint venture partner, which is run by the Myanmar military, plans to start arbitration proceedings over the company’s stake in Myanmar Brewery Ltd.

The brewery represents only a small part of FN’s business but losing its stake would mean being shut out of one of Asia’s fastest growing beer markets. In a May earnings briefing, FN said its Myanmar beer business had recorded double digit growth from a year earlier.

FN, which is controlled by Thai billionaire Charoen Sirivadhanabhakdi, currently holds 55 percent of Myanmar Brewery while Myanmar Economic Holdings Ltd (MEHL) holds the remaining 45 percent.

In a statement, FN said the Myanmar company was trying to obtain its share in the brewery by citing a joint venture agreement. MEHL officials could not be reached for comment.

“The company maintains that there is no basis for MEHL to give that notice. The company has engaged lawyers and intends to vigorously resist the claim,” the FN statement said.

Myanmar Brewery, which manufactures beer brands such as Myanmar Beer, Myanmar Double Strong and Andaman Gold, is estimated to have an 83 percent share of Myanmar’s growing beer market by volume, FN said in a recent presentation.

“Myanmar Brewery is important to FN because of the emerging market exposure, the growth story for Myanmar is pretty strong and they are the dominant brewer,” said Jit Soon Lim, head of Southeast Asia equity research at Nomura.

FN said on Tuesday it would list shares in its property arm, Frasers Centrepoint Ltd, on the Singapore Exchange this year. FN will keep the food and beverage as well as the publishing and printing businesses.

(This story corrects time frame for briefing in second paragraph to May)

(Reporting by Eveline Danubrata; Editing by Miral Fahmy)

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Euro zone, IMF to press Greece for foreign agency to sell assets

Thu Aug 29, 2013 6:22am EDT

BRUSSELS (Reuters) – Greece’s international lenders will press Athens next month to transfer state-owned real estate to a holding company managed by the euro zone to spur flagging privatization efforts, officials said on Thursday.

The plan, to be put to the Greek government by the troika of lenders – the IMF, the European Central Bank and the European Commission – in September, will propose creating a Greek-owned holding company outside Greece and run by foreign experts.

The plan, first suggested two years ago, reflects growing frustration with Greece, which will probably need further aid and has made scant progress in reforming its public sector and selling assets.

Acting as a warehouse for property, it would seek to overcome Greek bureaucracy that has undermined the privatization program, agreed as part of a 240-billion-euro ($320-billion) rescue. It will also ensure that the money raised will help pay off Greece’s debt.

“The main point is to maximize the value of state-owned real estate assets in Greece by making them more attractive for investors,” said a spokesman for the European Stability Mechanism (ESM), stressing that the plan had not yet been discussed by euro zone finance ministers.

“The benefit of privatization is to generate resources for Greece to help overall development and pay back its own debt faster,” said the spokesman for the euro zone’s bailout fund.

The idea of transferring assets to a Luxembourg-based holding company was reported by Reuters in 2011, when Finland supported it. Luxembourg attracts multi-nationals seeking lower corporation tax and is home to other special purpose vehicles

A Greek finance ministry official said the holding company would issue asset-backed bonds to pay down Greek debt.

“It is under discussion to base the holding company in Luxembourg because it would be easier to run it from there. It would be fully controlled by the Greek government,” the official said on condition of anonymity.

Under Greece’s bailout agreement, the ESM was supposed to draw up a report on how to raise money from real estate assets currently not included Greece’s privatization plan.

Athens has screened for possible sale 81,000 real estate properties with an estimated value of up to 28 billion euros. Athens will propose by the end of this year a plan to prepare those properties for securitization or direct privatization.

But Greek officials have rejected moving control of its state property abroad, saying it would not solve the problems.

This time, Greece’s international creditors are eager to try to convince the centre-right government of Prime Minister Antonis Samaras as the country’s privatizations struggles.

Athens’ original plan to raise 50 billion euros by 2016 was scaled back to 15 billion euros. Only 5 billion euros have been raised so far and the flagship sale of the country’s gas utility flopped this year when the only bidder pulled out.

The credibility of its privatization agency was eroded in August when the government dismissed its chairman for using the private plane of a businessman who had bought a state company. ($1 = 0.7496 euros)

(Additional reporting by Harry Papachristou and Lefteris Papadimas in Athens, editing by Elizabeth Piper)

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Israel looks to glitter in world diamond trade

RAMAT GAN, Israel |
Thu Aug 29, 2013 6:20am EDT

RAMAT GAN, Israel (Reuters) – The Israel Diamond Exchange flexed its muscles this week, hosting a four-day show it hopes will strengthen its position as a major hub, and market leaders voiced optimism the struggling industry would have a strong end to the year.

Hundreds of companies crowded the world’s biggest diamond trading floor on the outskirts of Tel Aviv, where buyers, under heavy security and armed with eye loupes, ambled through rows of tables that displayed $2 billion of precious stones.

It was the largest event the exchange had held.

Official figures were not made public, but Yair Sahar, president of the exchange, said sales were in the hundreds of millions of dollars, and he expected the show to provide a $2 billion boost by the end of the year.

“The eyes of the world are watching us. The mining companies, the jewelry manufacturers, they are wishing – ‘please be successful’,” Sahar said.

Israel is already a key trading center and diamonds account for about 20 percent of all industrial exports. Manufacturing has dwindled, but trading has thrived, reaching an annual turnover of $25 billion.

Now it wants to expand its role.

The four-building exchange unveiled plans to triple its size, though it could take several years to get the necessary approvals.

And with the industry in flux in the wake of the global financial crisis, Sahar said mining companies such as Alrosa (ALRS.MM) and Rio Tinto (RIO.AX) were for the first time coming to do business.

“In the last few months we saw all those companies bringing hundreds of millions of dollars of rough to share with the Israeli companies, to share with the manufacturers,” he said.

Reuven Kaufman, president of the Diamond Dealers Club, the largest trading center in the United States, said the event was a chance to bring back the trading floor, which has been overlooked as deals were increasingly made in back offices and on the Internet.

“All of a sudden (dealers) say well, people are trading, we better get in on the act, maybe prices are going to go up. It’s very illusionary, it’s psychological, in the end it turns into real money,” he said.

Kaufman was optimistic that end-of-year sales would be up from last year.

“There is more confidence in America today. They feel America’s coming back. I think because of that we’ll see a good Christmas season,” he said.

About a fifth of the foreign dealers came to the show from India, where a weak rupee has weighed on the global market. About a dozen of them who spoke to Reuters said they believed the currency would stabilize in six months to a year.

India processes more than 90 percent of the world’s diamonds, most of which are exported. But the weakness of the rupee, which reached a record low of 68.85 per dollar on Wednesday, could hit Indian demand for rough diamonds.

Martin Rapaport, whose diamond price list is an industry benchmark, said things in India would likely worsen before getting better.

“India is a disaster. And it’s unfortunate. The government of India is irresponsible, so people are not going to believe in their currency,” he said.

“As long as the Indian government tries to over-manage the (diamond) industry, tries to control the economy, I think India is in for even a worse time.”

(Reporting by Ari Rabinovitch; Editing by Dale Hudson)

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Asian shares stabilize; Syria worries limit gains

Wed Aug 28, 2013 8:51pm EDT

TOKYO (Reuters) – Asian shares stabilized on Thursday after two days of steep losses as fears abated that U.S.-led forces would soon launch a military strike on Syria, and oil prices retreated from a six-month peak.

Gains in stocks were likely to be limited, however, with investors remaining on edge as the United States sketched out plans for multinational air strikes on Syria that could last for days.

Brent crude prices fell 0.7 percent to below $116 a barrel after climbing as much as 2.6 percent to a six-month high on Wednesday on concerns that any Western military strike could prompt retaliation and disrupt crude supply in the Middle East region, which pumps a third of the world’s oil.

Gold held steady at around $1,416 an ounce after gaining as much as 1.2 percent to a 3-1/2 month high in the previous session’s flight to safety.

“Wall Street’s rebound will provide enough push for the market to regain some of the previous sessions’ losses,” said Dongbu Securities analyst Lee Eun-taek.

U.S. stocks rose overnight as energy shares rallied on the back of higher oil prices. .N

This helped soothe nerves in Asia, with MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS up 0.1 percent after falling 2.2 percent in the previous two sessions.

Japan’s Nikkei share average .N225 advanced 0.5 percent.

In the foreign exchange markets, the safe-haven yen cut some of the recent chunky gains that had taken it to a three-week high against the dollar.

That paring of yen positions also helped the euro edge off a 1-1/2 week low. The dollar last bought 97.85 yen, having risen from 96.81, while the euro traded at 130.45 yen, up from 129.66.

“We assume that NATO military action is still the likely scenario even if relatively limited in scope. Until there is more clarity, our bias is to keep positioning low at the moment,” strategists at BNP Paribas said in a note.

Emerging markets, which have been hurt by an expected reduction in stimulus measures by the U.S. Federal Reserve, took further battering from the rising geopolitical tensions.

Brazil raised its benchmark interest rate to a 16-month high of 9 percent on Wednesday in part to help shore up its currency.

In Asia, Indonesia’s central bank board will meet on Thursday amid speculation it will have to raise interest rates again to defend the fast-falling rupiah, now its lowest since April 2009.

The Indian rupee fell sharply on Wednesday to hit a record low of 68.85 to the dollar, closing down 3.7 percent on the day in its biggest single-day percentage fall in nearly 18 years.

In the latest attempt to support its currency, India’s central bank said it will provide dollars directly to state oil companies “until further notice”.

(Additional reporting by Jungmin Jang in Seoul and Ian Chua in Sydney.; Editing by Eric Meijer)

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Blackstone to pay $85 million to settle lawsuit over IPO

Wed Aug 28, 2013 8:48pm EDT

NEW YORK (Reuters) – Blackstone Group LP (BX.N) has agreed to pay $85 million to settle an investor class action lawsuit accusing the private equity giant of not disclosing bad investments before its $4.7 billion initial public offering in 2007.

The proposed deal follows more than five years of litigation between investors and Blackstone and helps the world’s largest private equity firm avert a rare securities class action trial that was due to begin September 16.

The settlement, disclosed in court papers filed Wednesday in U.S. District Court in Manhattan, also covers claims against individuals including Stephen Schwartzman, Blackstone’s chief executive.

Blackstone spokesman Peter Rose declined to comment. The company continues to deny wrongdoing as part of the settlement, court papers state.

Lawyers for the plaintiffs said in court papers the settlement represents about 12 percent of the $691.5 million they believed were achievable at trial.

Investors contended Blackstone did not properly disclose at the time of offering that its investments in a bond insurer, a semiconductor company and real estate were declining in value.

As a result, investors alleged that there was an increased risk Blackstone’s potential performance fees would be “clawed back” by limited partners.

Blackstone offered up 153 million common units at $31 a piece at the time of its June 2007 IPO. By the time plaintiffs filed an amended complaint in October 2008, they were trading at about $7.75 a unit.

Shares in Blackstone closed up 25 cents, or 1.17 percent, at $21.65 on Wednesday on the New York Stock Exchange.

U.S. District Judge Harold Baer, who must approve the settlement, initially dismissed the case in September 2009.

But in February 2011, the 2nd U.S. Circuit Court of Appeals in New York revived the case. The U.S. Supreme Court rejected Blackstone’s further appeal in October 2011.

At the time of the settlement, the parties had been awaiting a decision by Baer on whether to again dismiss the case, this time following depositions and document discovery.

David Brower, a lawyer for the lead plaintiffs Martin Litwin and Francis Brady at the law firm Brower Piven, in an email said he was “very pleased with the result.”

The case is Landmen Partners Inc v. Blackstone Group LP, U.S. District Court, Southern District of New York, No. 08-3601.

(Additional reporting by Gregory Roumeliotis; Editing by Gary Hill and Edwina Gibbs)

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Heir to fortune hidden in Switzerland pleads guilty to U.S. tax fraud

Wed Aug 28, 2013 7:50pm EDT

WASHINGTON (Reuters) – An heir to a wealthy New York investment manager’s fortune has pleaded guilty to conspiring with family members to hide more than $12 million from the U.S. Internal Revenue Service in Swiss bank accounts, federal prosecutors said on Wednesday.

Henry Seggerman, 60, and his five siblings inherited about $24 million from their father, Harry Seggerman, who died in May 2001, according to court documents released by the U.S. Attorney for the Southern District of New York.

That amount included more than $12 million hidden in secret Swiss bank accounts that the younger Seggerman, co-executor of the estate, did not disclose, prosecutors said.

Seggerman awaits sentencing and faces up to 11 years in prison, according to his plea deal. He pleaded guilty to one count of conspiracy to defraud the United States and two counts of falsifying tax returns.

“This is a sad case of the sins of the father being visited upon his children,” Seggerman’s attorney Christopher Ferguson, of Kostelanetz Fink LLP, told Reuters. He added that his client is cooperating with prosecutors.

Four of the five siblings were co-executors. The fifth was not excluded from the estate, but did not receive a portion of the offshore inheritance, according to Ferguson.

Three Seggerman estate beneficiaries – Edmund, Yvonne and Suzanne – pleaded guilty months ago to related charges.

“Henry Seggerman and three of his siblings inherited and continued a family tax fraud scheme. Now, four members of this family stand convicted of tax crimes,” said Manhattan U.S. Attorney Preet Bharara in a statement.

Two other siblings, Patricia and Marianne Seggerman, have not been charged.

The case is assigned to Judge Alvin Hellerstein and no sentencing date has been set. As part of his plea, Seggerman agreed to pay $600,000 as partial restitution.

(Editing by Kevin Drawbaugh and Phil Berlowitz)

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