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For companies, a rocky road ahead in emerging markets


CHICAGO/LONDON (Reuters) – International companies are taking steps to mitigate the effects of the turmoil in emerging markets, including hedging foreign currency exposure more aggressively, reducing some investment plans, cutting costs, and raising prices frequently.

While executives are not hitting the panic button just yet, and many say the risks they face are hardly unique, they are still aggressively tackling costs and making sure that revenue keeps up with inflationary pressures. And many warn that if China suffers a credit crisis as some fear, then things could get a whole lot worse.

From Africa to Asia to Latin America, policymakers are scrambling to prop up their currencies and prevent a sudden exodus of foreign capital by jacking up interest rates and taking other steps – all this just as many emerging economies were already starting to slow sharply after a decade-long boom.

The sudden onslaught of market volatility in Turkey, Argentina, South Africa and Brazil, along with worries about an abrupt slowdown in China, means companies are now bracing for deeper reversals in demand for their products in emerging economies. And this is happening at a time when their U.S. dollar or euro revenues from many of these countries are also taking a hit because of plunging emerging market currencies.

Automakers Ford Motor Co. (F.N) and Fiat SpA (FIA.MI), home appliance manufacturer Whirlpool Corp (WHR.N) and liquor giant Diageo (DGE.L) all cited weakness and a more sober outlook in once-roaring emerging markets in earnings reports this week.

Still, for many executives, especially those with decades of experience in the developing world, wild currency swings and economic ups and downs are a fact of life that they must deftly navigate.

“We have had quite a bit of currency changes, particularly in the very weak emerging markets. But let’s put it in context,” Jeff Fettig, Whirlpool’s chairman and chief executive said. “We’ve been in the Brazilian market for over 60 years and we’ve managed hyper inflationary periods, busts, booms, and we’ve never had a loss-making year in Brazil.”

Fettig said the appliance maker was not overly concerned that the downturn in emerging markets would significantly affect the company financially, since the most troubled economies account for less than 3 percent of overall revenue. The company has taken steps in countries where currency devaluations had occurred to recoup dollar-based raw materials costs.

Economists at Bank of America Merrill Lynch described the turmoil of the past week as “a perfect storm of idiosyncratic risks” within emerging markets – citing credit risks in China, political crises in Turkey, Ukraine and Thailand, and the currency devaluation in Argentina.

While all these events have further dimmed an already bearish outlook for many emerging economies, a full-fledged crisis does not look likely.

“We do not view the current wobble as the start of an EM-wide crisis,” Alberto Ades, co-head of Global Economics Research at BofA Merrill Lynch wrote in a note on Thursday.

TAKING NO CHANCES

Companies with operations in emerging economies are nonetheless dusting off contingency plans, with strategies varying country by country.

“We are taking a wait-and-see attitude in terms of decisive action,” said the treasurer of a multi-billion dollar advertising company that books about half its revenue outside the United States. The executive, who asked for anonymity because the company has not yet disclosed fourth-quarter results, said his traders are not actively hedging now for currency volatility but could begin doing so at any minute.

For others, like Swedish apparel retailer Hennes Mauritz (HMb.ST), hedging is a permanent strategy in emerging markets.

“We always live with a bit of currency risk,” said HM Chief Executive Officer Karl-Johan Persson. “We will keep the hedging strategy that we have. We think it works well for us.”

While it is impossible to predict exactly where and when economic or market turmoil might arise, most companies constantly monitor the political, economic and financial developments in the countries where they operate.

“Everybody right now is focusing on India, South Africa and Turkey, but the issues there are not new. They just haven’t been on the front page,” said another corporate treasurer who asked not to be identified.

Even the mightiest of global companies can run into trouble in emerging markets. Wal-Mart Stores Inc (WMT.N), the world’s largest retailer, has struggled in hard-to-crack markets like India, Brazil and China. On Friday, it cut its outlook to account for the closure of 50 underperforming stores in the Brazilian and Chinese markets.

While voicing concerns about the year ahead in developing economies, executives from motorcycle manufacturer Harley-Davidson Inc (HOG.N), heavy equipment maker Caterpillar Inc (CAT.N) and Philips (PHG.AS) all stressed their long-term commitment to those markets.

“Overall, we like emerging markets. What worries me are the currency fluctuations and the unrest in some of the countries,” said Frans van Houten, chief executive of Philips, the Dutch healthcare, lighting and consumer appliances company. “I’m cautiously optimistic for the longer term economic development.”

Diageo, the world’s biggest distilled drinks company, has also seen its sales growth slow in emerging markets in the last six months, especially in China. But the company, which gets about 42 percent of its sales in emerging markets, is betting big that the growing middle class in developing nations will be a driver of growth for years to come.

“You will have economic growth in the emerging markets, even when there are shocks and ups and downs,” Diageo CEO Ivan Menezes told reporters on Thursday. He said the company is streamlining operations and seeking to become more agile in some of the more volatile markets.

The volatility is also an opportunity for deep-pocketed players looking to up the ante in emerging markets.

“As far as emerging markets go in real estate, there are some fantastic opportunities all of a sudden because of the flight of capital out … and the tighter money in those countries,” Blackstone Group LP’s (BX.N) President Tony James said on a conference call with reporters.

“We’re suddenly able to buy real estate properties in fast-growing markets at less than physical replacement cost.”

THE WILD CARD: CHINA

For some newcomers and smaller players, though, the challenge in emerging markets may not be worth the headache.

British private equity group 3i (III.L) said on Thursday it had scrapped plans to raise a new Brazilian fund and that it would not make any new investments there because of changing macroeconomic conditions.

“Brazil remains a really interesting market but conditions have changed over the past 12 months, there is much greater market and political uncertainty and that has also been reflected in currency volatility,” the firm’s finance director, Julia Wilson, told reporters on a conference call.

Like China, India and other high-profile emerging markets, Brazil was one of the world’s economic success stories of the past decade, chalking up lofty growth rates while also lifting more than 30 million people out of poverty. But Brazil has slowed sharply since 2010 under President Dilma Rousseff, whose heavy-handed economic policies have scared off some investors.

The real wild card for emerging markets seems to be China, where signs of strains in the banking system have stirred concerns about the sustainability of Chinese growth.

“China has now become the second-largest economy in the world with a GDP that is more than half that of the U.S. and since 2008 has functioned as the engine of global growth,” said Robbert Van Batenburg, director of market strategy at Newedge USA LLC in New York.

“If this escalates into a credit crisis that causes Chinese economic growth to come to an abrupt stop, it will impact almost every nook and cranny of the global economy.”

(Additional reporting by Jed Horowitz, Ben Hirschler, Kylie MacLellan, Lewis Krauskopf, Emma Thomasson, Gregory Roumeliotis and David Gaffen; Writing by Todd Benson; Editing by Martin Howell and Grant McCool)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/zz-7eQDaOgs/story01.htm

Court approves Bank of America’s $8.5 billion mortgage settlement


NEW YORK (Reuters) – A New York state judge on Friday approved most of Bank of America Corp’s (BAC.N) $8.5 billion settlement with investors in mortgage securities, which would resolve much of the bank’s liability from its acquisition of Countrywide Financial Corp during the financial crisis.

Justice Barbara Kapnick ruled that Bank of New York Mellon (BK.N), the trustee overseeing the securities, had acted reasonably in determining that a large part of the settlement was in the best interests of the investors.

Mark Zauderer, a lawyer who represents American International Group Inc (AIG.N), said the insurer plans to appeal aspects of the decision.

Kevin Heine, a spokesman for Bank of New York Mellon (BK.N), declined to comment immediately after the ruling was made public.

Bank of America agreed to the settlement in June 2011 to resolve the claims of investors who had bought $174 billion of mortgage-backed securities issued by Countrywide. The investors said Countrywide misrepresented the quality of the underlying home mortgages, which went sour in the housing crisis.

Countrywide, based in Calabasas, California, was the biggest home mortgage lender in the United States until the housing market collapsed, specializing in so-called subprime loans, most of which it packaged into securities and resold to investors. It was bought by Bank of America in 2008.

A group of 22 investors supported the settlement, including institutions such as BlackRock Inc (BLK.N), MetLife Inc (MET.N) and Allianz SE’s (ALVG.DE) Pacific Investment Management Co.

But investors led by AIG (AIG.N) objected, arguing that they were cut out of negotiations and that there was no evidence the settlement was adequate.

The objectors said Bank of New York Mellon was protecting its own interests in supporting the settlement and said that it got business from Bank of America. The objectors also criticized the trustee for failing to review loan files to identify defective loans in the securities.

In her ruling on Friday, Kapnick said the trustee had acted reasonably in reaching the settlement, with the exception of its agreement to settle claims related to mortgages that had been modified.

“This court finds that, except for the finding … regarding the loan modification claims, the trustee did not abuse its discretion in entering into the settlement agreement and did not act in bad faith or outside the bounds of reasonable judgment,” Kapnick wrote.

In a statement, Zauderer said AIG was pleased by the judge’s exception for modified loans but disagreed with the other aspects of the ruling.

“This case is very far from over because the settlement will not take effect until many potential post-trial motions and appeals are resolved,” Zauderer said in his statement.

(Reporting by Karen Freifeld; Editing by Nick Zieminski)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/wGNrSay64N4/story01.htm

Exclusive: Chinese-backed Blu LNG slows down U.S. growth plans


LOS ANGELES (Reuters) – Blu LNG, one of the biggest names in the move to wean U.S. trucks off diesel onto natural gas, has laid off 20 percent of its staff, ousted several senior executives and slowed down development of fueling stations as it waits for more truckers to embrace the switch to the cheap and cleaner-burning fuel.

The move, confirmed by the company’s Chief Executive Officer, Merritt Norton, and other people familiar with the situation, marks an important pullback in a nascent sector that is expected to improve U.S. energy security, lower transportation costs and create jobs.

Just three days ago, President Barack Obama threw his weight behind the industry in his State of the Union speech. “Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas,” Obama said.

Blu a year ago pledged to build dozens of liquefied natural gas fueling stations along U.S. highways in 2013 with the help of millions of dollars from ENN Group, one of China’s largest private companies.

But fueling stations need customers, and trucks that run on natural gas have been slower to hit the market than many anticipated and are still far more expensive than their diesel equivalents, making even the allure of far cheaper fuel difficult to swallow for many fleet owners.

“This year is a year of trying to let the trucks catch up to us,” Blu CEO Norton said in an interview.

Regarding Obama’s remarks this week, Blu said it appreciated the president’s comments and would like to see a federal effort to bring the fuels tax on LNG in line with that of diesel, which is far higher. The company also said it would like to see a cap on the federal tax for new natural gas trucks, adding that any incentives should be directed to vehicles.

Blu’s retreat is coming to light months after Clean Energy Fuels Inc (CLNE.O), the market leader in natural gas fueling and backed by Texas billionaire T. Boone Pickens, said it had slowed development of LNG stations due to truck availability.

There are many reasons to believe in the market for natural gas trucks. Companies like shipper United Parcel Service Inc (UPS.N) and consumer products giant Procter Gamble (PG.N) are amassing fleets of them during a boom in U.S. shale gas production that has kept prices on the domestic fuel low.

IMPATIENCE OVERSEAS

Blu, formed in 2012 as a joint venture between ENN and a small Utah company called CH4 Energy Corp, has built about 25 permanent stations where trucks powered by LNG can refuel – about half the number it pledged to build in 2013, it said.

The company, whose legal name is Transfuels LLC, also appears to have tempered its longer-term expectations. Originally, it hoped to spend more than $1 billion to build 500 natural gas fueling stations within three years, according to sources with knowledge of the company’s plans at that time.

This week Norton predicted the company will have “in the low hundreds” of both permanent and so-called terminal stations by 2017. Terminal stations are semi-portable, and Blu is in the process of delivering 15 to 18 of them to customers so they can refuel their fleets themselves.

But ENN, which has a majority stake in Blu and controls its board of directors, last year grew increasingly impatient with the slow pace of the market’s development, according to sources close to the company who said expectations were too high at the home office in China. That led to the ouster over the last three months of not only key executives in charge of finance, sales and marketing, and business development, but also its Chinese chairman, Jun Yang.

Norton would not comment on the dismissal of people from specific positions, but said “there were some changes that our board wanted to make around how we were going to market.”

The company has identified a new chairman but would not say who it is until the person’s required working documents are in order. The other vacant management positions are being filled, Norton said.

ENGINES SLOW TO REV UP

Station development has slowed down, Norton said, in part because of issues rolling out natural gas engines for trucks.

At the end of last year engine maker Westport Innovations Inc (WPT.TO) pulled the plug on a 15-liter natural gas engine that Norton said was the best option for trucks hauling heavy loads across mountainous terrain in the Western United States. To make matters worse, Cummins Inc (CMI.N) this month put plans for its own 15-liter natural gas engine on ice indefinitely, saying “the timing of the adoption of natural gas in long haul fleets preferring a 15-liter engine is uncertain.”

An eagerly anticipated 12-liter engine by Cummins and Westport’s joint venture hit the market last year after some delay, but it is better suited to haul somewhat smaller loads on flatter terrain. As a result, Blu is refocusing on the Midwest and Southeast markets, Norton said, and was therefore forced to slash 20 percent of its staff. The Salt Lake City-based company still has 170 employees.

In addition, Westport spokeswoman Nicole Adams said most of the 12-liter engines that have been ordered so far are configured for compressed natural gas (CNG) as opposed to LNG, the fuel Blu and rivals Clean Energy Fuels and Royal Dutch Shell Plc (RDSa.L) are banking will eventually be the fuel of choice for heavy-duty trucks running on natural gas. LNG trucks are faster to refuel, can go farther on one fillup, and have lighter storage tanks than CNG trucks.

Clean Energy has built 80 public LNG fueling stations along U.S. highways, and it too, has slowed down development to account for a delay of about a year in its expectations for natural gas truck availability. Only about 22 of those stations are open for business, though the company opens a new one about once every 10 to 14 days as fleets of LNG trucks are delivered, spokesman Gary Foster said. Shell plans to open its first LNG fueling station this year and is planning about 100 such stations over multiple years, according to a spokeswoman.

The big issue long term, however, is cost, Norton said. A natural gas truck can run between $40,000 and $80,000 more than an equivalent diesel vehicle.

“Customers are saying the trucks need to cost less for them to really purchase large numbers of trucks,” Norton said. Within three years he expects an LNG truck to cost the same as a diesel truck. With equivalent truck costs and lower prices for natural gas, Norton said, “it’s pretty hard for diesel to compete.”

(Additional reporting by Terry Wade in Houston; Editing by Grant McCool)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/obP8s9csbO0/story01.htm

Chevron’s weak production outlook spooks Wall Street


(Reuters) – Chevron Corp (CVX.N) plans to keep spending roughly $40 billion per year for the next several years on new oil and natural gas projects in a bid to lift production that is on track to be flat for the third straight year.

That stay-the-course approach, announced on Friday after the second-largest U.S. oil company said its quarterly profit dropped 32 percent, spooked investors and prompted the stock to fall 3.5 percent, the most of any large energy producer this quarter.

Like Exxon Mobil Corp (XOM.N), Royal Dutch Shell (RDSa.L) and other international energy companies, Chevron has tried to offset declining production at its existing oil and natural gas wells by spending massively on new exploration projects.

But Shell announced earlier this week that it would focus more on energy projects that have the best chance of success, cutting spending and also selling underperforming assets. The news boosted Shell’s stock.

Chevron has taken the opposite approach and plans to keep the cash flowing. It spent $41.9 billion last year on energy projects, a 23 percent increase from 2012. Chevron Chief Executive John Watson said he expects capital spending to be in the $40 billion range for the next few years.

Chevron is betting that its relatively high dividend yield for the energy industry and its large stock buyback program will appease investors until five of its major projects, including two massive liquefied natural gas projects in Australia and deepwater wells in the U.S. Gulf of Mexico, are online.

“Basically it’s a treadmill,” said Oppenheimer Co analyst Fadel Gheit. “Yes, all these new projects will add oil. But guess what, until they hit that goal, their base line production is declining.”

Chevron’s oil and natural gas production fell 3.4 percent in the fourth quarter to 2.6 million barrels of oil equivalent per day (boed).

Rising production in the United States and Nigeria wasn’t enough to offset declining production at legacy fields around the world, which typically see production slip 4 percent annually, Chevron said.

For 2014, Chevron expects total production of 2.6 million boed, up only 0.5 percent from 2013 levels. The estimate missed Wall Street’s expectations and disappointed investors, who had hoped 2014 would be a “positive transition year” toward 2017 when new projects come online, Credit Suisse analyst Edward Westlake said in a note.

Even if Chevron hits its 2014 production goal, it would only be on par with 2012 levels.

Looking forward, Chevron said it has made significant progress on its five main growth projects. In total, the five new protects will add 500,000 boed in production, the company estimates, once fully online.

“We are in a depleting resource business, and you do need to add to the portfolio,” Watson said on a conference call with investors.

The company reported net income of $4.93 billion, or $2.57 per share, compared with $7.25 billion, or $3.70 per share, in the year-ago period.

The quarterly profit met expectations of Wall Street analysts, according to Thomson Reuters I/B/E/S.

The results were not a total surprise to Wall Street, as Chevron hinted earlier this month that its fourth-quarter profit would be “comparable” with third-quarter results, when it posted net income of $4.95 billion.

In refining, profit plunged 58 percent due to shrinking margins, largely due to price differentials between different types of crude oil.

Refiners make more money when the price difference between various types of crude oil is wide. When the gap narrows in the price differences, costs tend to rise. Exxon on Thursday posted weakness in its own refining unit.

Profit also fell in Chevron’s smallest unit, the power generation and mining unit.

Chevron shares fell $4.02, or 3.5 percent, to $112.40 in afternoon trading. The stock is down about 2.4 percent over the past 52 weeks.

(Reporting by Ernest Scheyder; Editing by Jeffrey Benkoe, Sofina Mirza-Reid and Meredith Mazzilli)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/u-_-HZ_FRAI/story01.htm

Volkswagen and Daimler at loggerheads over boardroom defection


BERLIN (Reuters) – German carmakers Volkswagen (VOWG_p.DE) and Daimler (DAIGn.DE) are at loggerheads over the potential defection of a Daimler executive, whom VW wants to head up its trucks business but the CEO of Daimler has said cannot join a rival anytime soon.

Andreas Renschler, who had been tipped as a future Daimler CEO, resigned unexpectedly on Tuesday as head of manufacturing at the company’s Mercedes-Benz Cars business.

Volkswagen (VW) has offered an attractive package to Renschler to head up its trucks operations, a VW source familiar with the matter told Reuters on Friday, confirming newspaper reports, but without giving details.

Europe’s biggest carmaker has been struggling for years to forge an alliance of its heavy-trucks brands MAN SE and Scania and wants Renschler, who ran Daimler Trucks for almost a decade, to join as soon as possible, the source added.

However, Daimler boss Dieter Zetsche said late on Thursday that Renschler would not be able to join a rival soon because of a non-compete clause in his contract.

Such clauses usually prevent executives from switching to a rival for about one year, the VW source said.

The stakes are high. Having spent billions of euros in its holdings in MAN and Scania, VW is growing frustrated with a lack of progress under 68-year-old trucks chief Leif Oestling, whose contract at VW expires in 2015.

VW’s lawyers are thus likely to be pouring over Renschler’s contract.

Germany’s Stuttgarter Zeitung newspaper reported on Thursday that VW Chairman Ferdinand Piech had indicated an offer was made to Renschler that may soon be approved by VW’s supervisory board, due to meet next on February 21.

The tussle is not the first time that executive moves between domestic carmaking rivals have proved sensitive.

The appointment of Carlos Tavares as PSA Peugeot Citroen’s (PEUP.PA) CEO-in-waiting raised French eyebrows even after three months had elapsed since his resignation as Carlos Ghosn’s second-in-command at Renault (RENA.PA).

Wolfgang Bernhard, formerly Mercedes-Benz production chief who switched jobs with Renschler last April, has also moved between Daimler and VW. He rejoined Daimler in 2009 after being ousted at VW two years earlier.

(Additional reporting by Jan Schwartz and Edward Taylor; Editing by Mark Potter)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/rEKzj-7bkCw/story01.htm

Yellen to deliver second day of testimony on February 13


WASHINGTON (Reuters) – Incoming Federal Reserve Chair Janet Yellen will testify on the economy before the U.S. Senate Banking Committee on February 13, an aide for the panel said on Friday.

The hearing will be held at 10:30 a.m., the aide said.

It will be Yellen’s second day of testimony on the Fed’s semiannual monetary policy report. She is scheduled to testify before a House panel on February 11.

(Reporting by Margaret Chadbourn; Editing by James Dalgleish)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/f5SZBjMsItA/story01.htm

In India, would-be Microsoft CEO showed inquisitive streak


MUMBAI (Reuters) – In his university days in India, Satya Nadella, likely the next chief executive officer of Microsoft Corp, was a relentless questioner.

“When all other students will quietly listen to what I would teach, he will ask a lot of questions – ‘why does it have to be like this, why can’t we do it like this?’,” said Harishchandra Hebbar, who taught digital electronics to Nadella at Manipal University.

“Sometimes it felt like he was just testing my patience,” said Hebbar, laughing.

That questioning nature has served Nadella well in his 22-year career at Microsoft, the world’s largest software company. Last year he was promoted to run the company’s fast-expanding cloud, or Internet-based, computing initiatives.

His elevation to the top spot at Microsoft would end a five-month search for a tech-savvy heavy-hitter to lead the company co-founded by Bill Gates. A source familiar with the matter told Reuters on Thursday that Nadella’s appointment was likely, although the board had not yet met to finalize it.

Nadella grew up in the southern Indian city of Hyderabad, a technology hub that is home to the biggest Microsoft research and development center outside of the United States.

His father was a member of the elite Indian Administrative Service and a member of the Planning Commission during 2004-2009 under Prime Minister Manmohan Singh. His father, B. N. Yugandhar, who still lives in Hyderabad, declined to speak with Reuters when reached by phone.

Born in 1967, Nadella attended the prestigious Hyderabad Public School, where he met his future wife. Nadella studied electronics and communication engineering, at Manipal University, where people who knew him at the time described him as friendly, modest and well-spoken.

Manipal is a mid-ranking private institution, and does not have the cachet of the elite Indian Institute of Technology (IIT) and Indian Institute of Management (IIM) where many of India’s global power players were educated.

GLOBAL INDIAN

If he gets the top job at Microsoft, Nadella would join the growing list of Indian-born executives to head a major global corporation. They already include PepsiCo Inc CEO Indra Nooyi and Deutsche Bank co-CEO Executive Anshu Jain.

After graduating in 1988, Nadella, like many ambitious Indians, moved to the United States to study, earning a master’s degree in computer science from the University of Wisconsin-Milwaukee.

Ganesh Prasad, a classmate of Nadella at Manipal who remains in touch with him, recalled a conversation in 1991 when Nadella was working at Sun Microsystems.

“We were having a conversation and talking about Sun as the future of hardware … and he was like: ‘you know where I need to go? I need to be in software and I need to be in marketing and I need to be in Microsoft’,” Prasad recalled by phone from Bangalore, where he now lives.

Prasad, who worked for 20 years in the United States with Intel Inc, said Nadella started with a base in technology and then became interested in how to market it – a skill set that will be called upon in his new role.

By comparison, Microsoft’s previous CEO, Steve Ballmer, was regarded more as a salesman and cheerleader than a technology visionary.

“While he comes from a very strong technology background, his outlook over the years has changed to: ‘so, what, what am I going to do with this thing? How do I position it? How do I make sense of it all?’,” said Prasad.

(Additional reporting by Devidutta Tripathy in NEW DELHI; Editing by Tony Munroe and Andrew Hay)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/F5-R5pvJJMw/story01.htm

U.S. downgrades India aviation rating, hits Air India, Jet


NEW DELHI (Reuters) – U.S. authorities have downgraded India’s aviation safety rating, citing a lack of safety oversight, meaning Indian carriers cannot increase flights to the United States and face extra checks for existing ones.

The Indian government said it expected to resolve by March all concerns raised by the U.S. Federal Aviation Administration (FAA), including appointing an adequate number of flight operation inspectors, and would approach the U.S. regulator for a review of its decision.

“The FAA has determined that India at this time is not in compliance with the international standards for aviation safety oversight,” the U.S. regulator told India in a communication, extracts of which were released by the Indian aviation ministry.

Jet Airways (JET.NS) and state-run Air India AIN.UL, the only two carriers that fly from India to the United States, would be impacted by the downgrade. Air India has 21 weekly flights between India and the United States, Jet has seven.

Jet Airways shares closed 3.7 percent lower after the news in a Mumbai market that ended 0.3 percent higher.

“It’s very disappointing and also surprising,” Indian Aviation Minister Ajit Singh told a news briefing on Friday after the FAA told Indian authorities that it was downgrading the country to Category 2 from Category 1.

“In our view, 95 percent of all the issues raised have been solved,” Singh said, adding they would address all of FAA’s concerns by March.

India joins countries such as Indonesia, the Philippines and Bangladesh who have a Category 2 rating. As on November 22, the FAA kept 81 of the 96 countries reviewed in Category 1.

Amber Dubey, head of aerospace and defense at consultancy KPMG’s Indian unit, said safety regulators in some other countries may follow suit after the FAA downgrade, which would then affect carriers like IndiGo and SpiceJet (SPJT.BO) who have flights to Asian and Middle Eastern countries.

“FAA’s downgrade typically has a domino effect,” Dubey said.

The European Aviation Safety Agency said on Friday it was closely monitoring operations by non-European Union airlines but so far had “no major concerns” with regard to India.

HEIGHTENED SURVEILLANCE

Airlines from countries rated Category 2 can continue operations at current levels under “heightened FAA surveillance”, but cannot expand or change services to the United States, as per rules of the FAA’s International Aviation Safety Assessments (IASA) programme.

State-run Air India currently does not have any plan to increase flights between India and the United States, Prabhat Kumar, head of India’s aviation regulatory body, told reporters.

Jet Airways, which last year sold a 24 percent stake to Abu Dhabi’s Etihad and is expanding its international flights, did not reply to an email seeking a comment.

The FAA, which periodically reviews air safety preparedness of different countries, audited the Indian aviation regulator in September and December last year and had raised issues including lack of adequate number of flight inspection safety officers and training of officers who certify a plane is airworthy.

India had earlier this week approved appointing 75 officers in a bid to avert a downgrade and said it had addressed 29 of the 31 issues raised by the FAA’s safety audit.

(Additional reporting by Maria Sheahan in Frankfurt, editing by David Evans)

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U.S. consumer spending rose in December, confidence slips this month


WASHINGTON (Reuters) – U.S. consumer spending rose in December, but an ebb in consumer confidence and signs of cooling in factory activity this month suggested economic growth could moderate in the first quarter.

The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent after advancing 0.6 percent in November.

Last month’s rise beat economists’ expectations for a 0.2 percent gain.

While December’s increase provided a firmer base for first-quarter spending, weak income growth could erode momentum. Income was flat after rising 0.2 percent in November.

“The inability of income growth to keep pace with the increase in consumer expenditure places the sustainability of recent expenditure-driven economic growth into question,” said Gennadiy Goldberg, an economist at TD Securities in New York.

“In fact, stagnant income growth and dwindling savings could lead consumers to moderate some of their spending plans in the months ahead, weighing on growth in early 2014.”

Separately, the Thomson Reuters/University of Michigan’s consumer sentiment index slipped to 81.2 in January from 82.5 in December. Confidence was down among households with annual incomes below $75,000.

Consumer spending recorded its strongest gain in three years in the fourth quarter, helping to lift the economy to a 3.2 percent annual growth rate during that period.

In another report, the Institute for Supply Management-Chicago business barometer fell to 59.6 from 60.8 in December. A measure of factory employment in the U.S. Midwest contracted for the first time in nine months, while deliveries to suppliers fell.

However, production, new orders and order backlogs increased slightly after falling in the prior two months.

WEAK INCOME A WORRY

The reports had little impact on U.S. financial markets, which took their cue from a weak inflation report from the euro zone, an ongoing emerging markets sell-off and disappointing corporate earnings.

U.S. Treasury prices gained while equities dropped sharply.

Income is being held back by stagnant wage growth as the economy works through slack in the labor market.

But there are signs that wage growth could be on the brink of acceleration. In a fourth report, the Labor Department said wages and salaries increased 0.6 percent in the fourth quarter, the biggest jump since the third quarter of 2009.

It followed a 0.3 percent advance in the third quarter. Wages and salaries account for 70 percent of employment costs.

Last month, income at the disposal of households after adjusting for inflation fell 0.2 percent. That move could take some steam out of consumer spending in the first quarter.

Weak income growth against a fairly strong spending backdrop at the end of last year led to less saving. The saving rate – the percentage of disposable income households are socking away – fell to an 11-month low of 3.9 percent in December.

It was at 4.3 percent in November.

“The U.S. consumer has continued to rely heavily on savings,” said Eugenio Aleman, a senior economist with Wells Fargo Securities in Charlotte, North Carolina.

“The U.S. can continue to rely a bit longer on bringing down the saving rate. At some time during this year we expect that consumption is going to weaken if we do not see some pickup in personal income and or a stronger recovery in consumer credit.”

In light of the firming demand, inflation increased a bit in December. A price index for consumer spending rose 0.2 percent after being unchanged for two consecutive months.

Over the past 12 months, prices rose 1.1 percent, compared to an advance of 0.9 percent in November.

Excluding food and energy, the price index for consumer spending rose 0.1 percent, rising by the same margin for a sixth straight month. Core prices were up 1.2 percent from a year ago, after rising 1.1 percent in November.

Both inflation measures remain stuck below the Federal Reserve’s 2 percent target. That suggests that the Fed, which is gradually reducing the amount of money it is pumping into the economy, will hold interest rates near zero for a while.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Paul Simao)

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