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China funds cut suggested equity allocations as hopes for recovery evaporate: Reuters poll

SHANGHAI (Reuters) – Chinese fund managers will cut the proportion of their portfolios invested in stocks over the next three months, following July’s upward trend, as hopes for a quick economic recovery falter, a Reuters poll shows.

“China’s recovery is not at all stable. It is still possible that things will get worse, so market sentiment is volatile,” a fund manager based in south China said.

Chinese fund managers reduced their suggested equity allocation for the next three months to 77.2 percent from 81.9 percent a month earlier, according to a poll of nine China-based fund managers conducted this week.

Funds sharply increased their suggested bond allocation to 10.1 percent from 4.5 percent a month ago, while lowering their cash weightings to 12.7 percent from 13.6 percent in July.

Growth in China’s vast factory sector slowed to a three-month low in August as output and new orders moderated, a preliminary private survey conducted by HSBC showed last week, heightening concerns about increasing softness in the economy.

Eight of the fund managers said their most serious short-term concern was the cooling of the domestic real estate market, which could have knock-on effects on the financial system and potentially cause a spike in bad debts.

This month, suggested allocations to financial services and real estate fell sharply, while consumer and electronic technology stocks were in favor.

The average recommended allocation for financial services fell to 14.8 percent from 18.5 percent last month, while recommended weightings for real estate shares dropped to 6.1 percent from 10 percent in July.

For electronics, the average recommended allocation rose to 16.1 percent from 14.4 percent last month, as weightings for consumer goods rose to 23.7 percent from 20.4 percent in July.

(Reporting by David Lin and Engen Tham; Editing by Jacqueline Wong)

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Exclusive: Morgan Stanley plans natural gas export plant in new commodities foray

NEW YORK (Reuters) – Morgan Stanley has quietly filed plans to build and run one of the first U.S. compressed natural gas export facilities, the first sign the bank is plunging back into physical commodity markets even as it sells its physical oil business.

In a 23-page application to the U.S. Department of Energy’s Office of Fossil Energy submitted in May, the Wall Street bank outlined a proposal to build, own and operate a compression and container loading facility near Freeport, Texas, which will have capacity to ship 60 billion cubic feet a year of compressed natural gas (CNG).

While the size of the project is small compared with bigger liquefied natural gas (LNG) projects, the plan highlights the bank’s ability to exploit its status as one of two Wall Street banks which are allowed to own and operate infrastructure for the manufacture, storage and operation of raw materials. The other one is Goldman Sachs.

Their physical commodities activities were both “grandfathered” in when they became bank holding companies during the financial crisis more than five years ago.

It also showcases a nimble and novel approach to exporting cheap domestic gas that could replace oil for power plants in Caribbean nations, as the United States pumps out record amounts of gas from its fracking revolution.

The strategy skirts the multibillion-dollar upfront investments, long lead times and stringent application processes associated with building liquefied natural gas (LNG) terminals in favor of using readily-available containers and inexpensive container ships, in one of the first projects of its kind.

The bank plans to ship CNG to countries with which the U.S. has free trade agreements, including the Dominican Republic, Panama, Guatemala, El Salvador, Honduras and Costa Rica, according to the filing, which has not been previously reported.

Those countries now mainly use oil for their power plants. Natural gas, which in the U.S. is often used to power trucks and buses, could provide a cheaper alternative.

“You can collect U.S. gas at $4, it costs you $1 to ship it and gasify it, you bring it in at $5 and the equivalent that they are paying for fuel is $20 plus,” said a person familiar with the project. “There is a lot of money to be made.”

A spokeswoman for Morgan Stanley declined to comment on the plan beyond the contents of the filing.


The boom in natural gas production in the U.S. has pushed prices down to $4.02 per million British thermal units. Natural gas contracts sold outside of the U.S. are often linked to higher-priced oil, which can inflate the cost of the gas.

The U.S. Energy Information Administration projects total domestic natural gas production to hit 73.9 billion cubic feet per day, portending sustained low prices going forward. About 1,000 cubic feet of natural gas yields 1 million BTU. One barrel of oil is roughly equivalent to 5,800 cubic feet of natural gas.

Billions of dollars are being poured into sophisticated export terminals for LNG, which require specialized equipment to cool the fuel to turn it into a liquid, as well as infrastructure to warm it at the receiving end, and take years to build.

Cheniere Energy, for example, is investing $5.6 billion to expand its Sabine Pass terminal in Louisiana to export LNG, which is expected to be operational by 2015.

The permitting process is also lengthy, with almost two dozen applications awaiting approval.

By contrast, the source familiar with Morgan Stanley’s plans estimated the cost of building the plant at $30 million to $50 million, with minimal investment needed on the receiving end. The bulk of the expenditure would be in buying thousands of containers to ship the gas.

“They’ll lease some land, buy some cranes,” he said. “But you need literally thousands of these containers.”

It will take 12 months to complete the plant from the time Morgan Stanley receives final regulatory approvals, according to the filing.

In November 2013, Florida-based energy company Emera CNG LLC applied to export 9.125 billion square feet a year; the status of its application is not clear and its lawyers and executives did not return calls for comment in time for publication.

Andy Weissman, an energy lawyer at Haynes Boone in Washington, said the Morgan Stanley proposal was one of the first such CNG export projects he was aware of.

“This could be something very significant, and if it was done successfully, there would undoubtedly be more of these,” he said.


The 50-acre proposed site in Texas is currently being inspected for suitability, according to a second source familiar with the plans. Freeport is a deepwater port on the Gulf of Mexico with a 45-foot draft, and already receives large container ships carrying tropical fruits imported by Dole and Chiquita.

Morgan Stanley will lease pre-existing loading docks there, but plans to supply the containers itself, said the second source.

According to the filing, gas would be piped into the proposed facility on an 11-mile third-party pipeline connected to the Brazoria Interconnector Gas Pipeline (BIG), which moves natural gas within Texas. Gas that travels in a pipeline is already compressed.

After further compressing and containerizing the gas, Morgan Stanley can load the pressurized natural gas containers on standard container ships.

“It’s a logistics nightmare, putting [the gas] in containers and shipping them around – it’s hard to do. Most people can’t figure out how to make money doing it,” said the second source.  “For once, the price of gas is low enough that it makes sense.”


The project marks a new foray into the physical commodity market for Morgan Stanley after it sold the bulk of its physical oil operations, ending its long run as the biggest physical oil trader on Wall Street amid intense regulatory pressure.

The assets included oil storage and transport company TransMontaigne Inc [TMG.UL] as well as its global physical oil trading operation, which it has agreed to sell to Russia’s Rosneft.

Thanks to a provision in the 15-year-old Gramm-Leach-Bliley Act, Morgan Stanley and Goldman Sachs alone among Wall Street banks enjoy “grandfather” status for any commodities activities they engaged in before 1997, although the provision has never been publicly interpreted by the banks’ regulators at the Federal Reserve.

It was unclear whether the bank was using its grandfathered status to undertake the natural gas plant. However, the appointment of two of its commodities executives as officers of the natural gas subsidiaries indicates they could have more day-to-day control than in an arm’s-length investment done under merchant banking authority.

The application is filed under the name Wentworth Gas Marketing LLC, a Delaware company with a business address in Purchase, New York, home to Morgan Stanley Capital Group, its commodities group.

Wentworth Gas Marketing and another company, Wentworth Compression LLC, are both wholly owned by Wentworth Holdings LLC, which is indirectly owned by Morgan Stanley.

The filing contains an agreement that Wentworth Compression will sell CNG to Wentworth Gas Marketing , which is signed by two Morgan Stanley commodities executives, Deborah Hart and Peter Sherk.

Hart, whose LinkedIn profile lists her as Morgan Stanley’s chief operating officer North American Power Gas, is a vice president of Wentworth Compression. Sherk, a managing director and co-head of commodities trading, is a vice president of Wentworth Gas Marketing.

The Federal Reserve declined to comment on the natural gas project, and Morgan Stanley did not answer questions about what authority it was using to pursue it.

The filing for the project landed just months before the bank bought Deutsche Bank’s North American natural gas trading book.

(Reporting by Anna Louie Sussman, editing by Josephine Mason and John Pickering in New York)

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China’s Wanda, Tencent, Baidu to set up $814 million e-commerce company

BEIJING (Reuters) – China’s Dalian Wanda group and Tencent Holdings Ltd (0700.HK) said on Friday they would set up a 5 billion yuan ($814 million) e-commerce joint venture with Baidu Inc (BIDU.O), as the firms push into the high-growth e-commerce sector.

The joint venture, to be registered in Hong Kong, will be 70 percent owned by privately-held Wanda, while Chinese internet giants Tencent and Baidu will hold 15 percent respectively, Wanda and Tencent said in separate press releases.

China is the biggest e-commerce market in the world, with its No. 1 player, Alibaba Group Holding Ltd [IPO-BABA.N], transacting more goods than Inc (AMZN.O) and eBay Inc (EBAY.O) combined.

By teaming up with Tencent and Baidu, Wanda will become the biggest online-to-offline e-commerce platform in the world, said Dong Ce, the chief executive of the new venture. Online-to-offline, or O2O, involves people using their smartphones to find and purchase goods and services, often physically close to them.

“O2O is the biggest pie in e-commerce … this is just the beginning,” said Wang Jianlin, chairman of Wanda and China’s wealthiest man with a net worth of $16 billion, according to Forbes.

The tie-up will also vie with Alibaba for a slice of that growing pie. The Tencent and Baidu rival is also quickly ramping up its mobile e-commerce and O2O offerings.

In the April-June quarter, Alibaba’s mobile revenue was roughly a third of its total transaction volume, up from 27.4 percent in the first three months of the year.

The deal is structured over three years, Tencent said. The initial investment by the three firms will amount to 1 billion yuan, the company said.

“Within five years the total investment will be around 20 billion yuan,” Wang said. “We will bring in new investors to increase the cash flow.”

Wanda, which bought U.S. cinema operator AMC Entertainment Holdings Inc (AMC.N) in 2012, is a commercial property, luxury hotel and film conglomerate.

The Beijing-based company said the joint venture, which Wanda has not yet named but was referred to as Wanda e-commerce, will set up e-commerce services in its 107 commercial real estate properties throughout China this year.

By 2015, the conglomerate will have established these services in all of its shopping malls, hotels and holiday resorts, Wanda said.


Social media and video games giant Tencent and Baidu, China’s dominant search engine, will help the tie-up build internet finance and payment products, big data services and customer account and membership systems.

For Tencent, the deal will give them an opportunity to expand their online payment services into the new e-commerce company and Wanda’s existing properties, the company said.

“The three partners will further deepen collaboration on initiatives such as traffic sharing, media and advertising resources sharing, membership benefits, payment and internet finance, big data, etc.,” Tencent said.

This includes TenPay and WeChat Payment, which is linked to the hugely popular mobile messaging app WeChat, known as Weixin in China. WeChat, China’s most popular app, had 438 million monthly active users by the end of June and has quickly become a digital Swiss Army knife, capable of everything from messaging to buying meals and booking taxis.

Tencent will also be able to expand its online video library, drawing from Wanda’s licensed content including films and television programs.

Baidu declined to provide immediate comment.

(1 US dollar = 6.1454 Chinese yuan)

(Additional reporting by Beijing Newsroom; Editing by Stephen Coates)

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Asian shares slump as Ukraine tensions flare

TOKYO (Reuters) – Asian shares slumped on Friday, after flaring Ukraine tensions spoiled investor risk appetite and bolstered the safe-haven yen.

Ukraine’s president said Russian troops had entered his country in support of pro-Moscow rebels who captured a key coastal town, escalating a five-month-old separatist conflict.

The United States on Thursday openly accused Russia of sending combat forces into Ukraine and threatened to tighten economic sanctions, but Washington stopped short of calling Moscow’s latest step an invasion.

“Risky assets were weaker on rising concerns about Russia-Ukraine, as well as weak data out of the euro area,” strategists at Barclays wrote in a note to clients.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down about 0.2 percent, pulling away from Thursday’s high of 515.13, its highest since early 2008. It was on track for a weekly drop but still poised for gain of around 0.3 percent in August.

Japan’s Nikkei stock average .N225 shed 0.6 percent after a spate of weak Japan data. It was also down for the week, bringing its monthly loss to about 1.6 percent.

On top of geopolitical concerns, bond yields worldwide have come under pressure this week on speculation that the European Central Bank would unveil new stimulus steps as soon as next week, to stave off deflation in the euro zone.

The yield on the 10-year German Bund DE10YT=RR plunged to a record low of 0.868 percent on Thursday, and yield on 30-year U.S. Treasury bonds US30YT=RR slumped to a 14-month low of 3.059 percent.

Sources told Reuters on Wednesday that the ECB is unlikely to take new policy action next week unless inflation figures due out later on Friday show the euro zone sinking significantly towards deflation.

German inflation for August released on Thursday came in at a steady 0.8 percent ahead of Friday’s euro zone number, in line with forecasts but well shy of the ECB’s target of close-to-but-just-under 2 percent for the euro zone.

Corresponding Spanish figures saw a slightly smaller-than-forecast drop as revised second quarter GDP held steady.

The data pushed the euro back toward Wednesday’s one-year low of $1.3152 EUR=. It was last at $1.3182, steady on the day, and on track for a monthly drop of over 1.5 percent, after it lost 2.2 percent in July.

The dollar fell to 103.72 JPY=, down slightly and well below its recent seven-month high of 104.49 touched earlier this week, despite a spate of Japanese data that underscored how much the nascent economic recovery is struggling to gain traction.

Japanese household spending fell more than expected, the jobless rate edged up and factory output remained anemic in July after plunging last month, government data showed on Friday, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected.

“A rise in the jobless rate could undermine the BOJ’s scenario that an improving job market boosts wages and inflation,” said Minori Uchida, chief FX strategist at the Bank of Mitsubishi-Tokyo UFJ.

“The market appears not much interested in Japanese economy now but that may change towards the year-end as the government has to decide on whether or not it will go ahead with a tax hike planned next year,” he added.

Spot gold XAU= was steady on the day at $1,290.23 an ounce after rising for the third straight session against a backdrop of Ukraine tension. It was on track for its first monthly gain since June.

Brent crude LCOc1 added about 0.3 percent to $102.79 a barrel, but was on track for its second monthly loss as ample supply and softening demand in Europe and China outweighed geopolitical concerns.

(Additional reporting by Hideyuki Sano; Editing by Eric Meijer)

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Japan household spending slumps, output flat as tax pain persists

TOKYO (Reuters) – Japanese household spending fell much more than expected and factory output remained weak in July after plunging in June, government data showed, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected.

While the Bank of Japan is in no mood to expand monetary stimulus any time soon, the data undermines the BOJ’s rosy economic forecasts and will keep it under pressure to act if the economy fails to gather momentum, analysts say.

The soft readings may also fuel speculation that the government could delay a second sales tax increase scheduled for next year, or try to compile another fiscal stimulus package, which would further worsen Japan’s debt burden.

“Production and consumption are both stagnating, and the economy is clearly undershooting projections of the government and the BOJ,” said Taro Saito, senior economist at NLI Research Institute.

“The BOJ will be forced to cut its economic view sooner or later, although it is unlikely to move anytime soon as it argues for rising inflation.”

Household spending fell 5.9 percent in July from a year earlier, nearly double the drop forecast in a Reuters poll, as the higher levy and bad weather kept consumers at home instead of going out shopping.

Weak exports left companies with a huge pile of inventories, forcing them to continue cutting back on factory output, separate data showed.

Industrial output rose 0.2 percent in July, much less than a 1.0 percent increase projected in a Reuters poll, data by the Ministry of Economy, Industry and Trade showed. That was a tepid rebound from a 3.4 percent fall in June, the fastest drop since the March 2011 earthquake.

Manufacturers expect output to rise 1.3 percent in August and 3.5 percent in September. But a ministry official told a briefing there was uncertainty on whether production will rise as companies had continued to overestimate their outlook plans.

Most industries, except for makers of industrial machinery, cut output in July and an index gauging inventory hit the highest level since November 2012, underscoring the view the post-tax slump in consumption was bigger than expected.

Analysts expect factory output in July-September to fall from the previous quarter, suggesting that any rebound in the economy will be modest and casting doubt on the BOJ’s view the recovery will be strong enough to lift inflation to 2 percent.

“The BOJ says now that output is rising as a trend, but I think it’s hard to continue saying so with today’s data as output has been falling after peaking in January,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“The economy is still recovering, so the BOJ will probably hold off on easing this year. But if data continues to remain weak, it might be forced into action,” he said.


The BOJ is likely to keep monetary policy steady and stick to its view that the economy is recovering moderately when it meets for a rate review next week, though pessimists in the board may argue for more downbeat language in describing consumption and output, given Friday’s weak data. [ID:nL3N0QW2XE]

The soft data also complicates Prime Minister Shinzo Abe’s decision on whether to proceed with the next proposed sales tax hike in October 2015, to 10 percent from 8 percent.

Analysts generally expect Abe to approve another tax hike in December, but that decision promises to be politically divisive, coming just as the government hammers out details of a promised corporate tax cut.

Economics Minister Akira Amari told reporters after the data there was no need to be so pessimistic about household spending, while Finance Minister Taro Aso said that the impact of April’s sales tax hike on the economy is gradually easing but it needs close monitoring from now on.

Despite weak signs in the economy, the BOJ is optimistic that a tightening job market will lead to higher wages and more income for households to spend, thereby keeping Japan on track to meet its 2 percent inflation target.

The jobless rate rose to 3.8 percent in July from June’s 3.7 percent but the jobs-to-applicants ratio remained at a 22-year high of 1.10, a good omen for the BOJ.

Data due next week on employee wages and the manufacturing purchasing managers index (PMI) will offer further clues to whether domestic demand will weaken further or gain momentum.

Separate data showed core consumer inflation, which excludes volatile prices of fresh foods but includes oil products, hit 3.3 percent in the year to July, matching a median market forecast. When excluding the effect of the April tax hike, it stood at 1.3 percent, still distant from the 2 percent inflation target the Bank of Japan pledged to meet sometime next year.

Japan’s economy shrank at an annualized 6.8 percent in the second quarter from the previous three months, more than erasing the 6.1 percent first-quarter surge in the run-up to the sales tax hike.

Many analysts agree with the BOJ that growth will rebound in the current quarter, though some warn that the recovery may falter later this year if the tax-hike pain is prolonged and exports fail to emerge from the doldrums.

(Additional reporting by Tetsushi Kajimoto; Editing by Eric Meijer Shri Navaratnam)

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U.S. banking group says unaware of any ‘significant’ cyber attack

BOSTON (Reuters) – An influential U.S. financial services industry group that shares information about cyber threats has said it is unaware of any “significant” cyber attacks, downplaying concerns about possible breaches at JPMorgan Chase Co and other banks.

The group, known as the Financial Services Information Sharing and Analysis Center, or FS-ISAC, includes all major U.S. banks and dozens of smaller ones along with some large European financial institutions.

“There are no credible threats posed to the financial services sector at this time,” the group said in an email to its members.

FS-ISAC told members in the email that it decided not to raise its barometer of threats facing banks during a regularly scheduled conference call on Thursday. During the call, members discussed threats facing the financial services sector, including reports of suspected cyber attacks on JPMorgan and other banks.

It added that it was “unaware of any significant cyber-attacks causing unauthorized access to sensitive information at any member institutions.”

JPMorgan had said early on Thursday that it was working with U.S. law enforcement authorities to investigate a possible cyber attack.

The bank provided little information about the suspected attack, declining to say whether it believed hackers had stolen any data or who might be responsible.

“Companies of our size unfortunately experience cyber attacks nearly every day. We have multiple layers of defense to counteract any threats and constantly monitor fraud levels,” it said in a statement.

The FBI had said late on Wednesday that it was looking into media reports on a spate of attacks on U.S. banks, raising concerns that the sector was under siege by sophisticated hackers.

Yet several cyber security experts said that they believe those concerns are overblown.

“Banks are getting attacked every single day. These comments from FS-ISAC and its members indicate that this is not a major new offensive,” said Dave Kennedy, chief executive officer of TrustedSEC LLC, whose clients include several large U.S. banks.

“While we should remain diligent and active in monitoring, it doesn’t appear there is a major offensive,” said Kennedy.

The email said that FS-ISAC was maintaining the threat level at “guarded,” noting that financial services firms continue to face a variety of threats.

It cited recent attacks on retailers using malicious software that targets point-of-sales systems, SMS phishing campaigns targeting bank customers and a recently disclosed attack on hospital operator Community Health Systems Inc.

The group also warned members about the potential for cyber-related activity emerging from conflicts in the Middle East and Ukraine.

“They are basically saying that the attacks they are seeing are the standard patterns. That it is business as usual,” said Daniel Clemens, chief executive of cyber security firm PacketNinjas.

Renewed concerns that banks might be victims of significant cyber attacks emerged after Bloomberg News reported on Wednesday that Russian hackers were believed to have recently stolen sensitive data from JPMorgan and another unnamed U.S. bank. The New York Times subsequently reported that JPMorgan and at least four other U.S. banks had been attacked.

The FBI and has said it would work with the Secret Service to investigate those reports.

One cyber security executive who frequently works with large banks said that he suspected the activity described by Bloomberg and the Times was likely run-of-the-mill attacks that financial institutions fend off on a regular basis.

“There are intrusions every single day. It would be news if banking institutions were not being attacked,” said the executive, who is not authorized to publicly discuss the matter. “There have been no disruptive attacks that I am aware of.”

(Additional reporting by Mark Hosenball and Doina Chiacu in Washington)

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Malaysia Airlines shares suspended pending announcement

KUALA LUMPUR (Reuters) – Shares in Malaysia Airlines (MASM.KL) (MAS) will be suspended on Friday ahead of a material announcement.

MAS said its shares will be suspended from 9 a.m. local time (9 p.m. ET), confirming an earlier report by Reuters.

The share suspension comes ahead of the announcement of the airline’s planned restructuring, which could include job cuts and a change in top management.

Khazanah Nasional, the airline’s majority shareholder, will be holding a press conference on MAS at 3 p.m. local time(3 a.m. ET) on Friday.

MAS reported a net loss of 307.04 million ringgit ($97.27 million) in its second quarter and said its earnings in the second half will be hit by lower passenger bookings after the two jet disasters this year.

(Reporting by Al-Zaquan Amer Hamzah; Editing by Ryan Woo)

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Vanishing euro zone inflation seen intensifying ECB policy headache

BRUSSELS/FRANKFURT (Reuters) – If euro zone inflation falls deeper into the ‘danger zone’ as expected on Friday, it will at the very least complicate the European Central Bank’s plans to wait and see whether its recent policy move to ignite the euro zone economy will work.

Inflation in the 18 countries using the euro is seen dropping to 0.3 percent in August, following a surprise dip to 0.4 percent in July, according to a Reuters poll of analysts. The data is due at 5 a.m. ET on Friday.

Together with updated projections from ECB staff, the data is likely to lead to a lively discussion at the ECB’s Sept. 4 policy meeting about whether to accelerate existing policy measures because of the danger of deflation.

New action is unlikely though not impossible, according to ECB sources, who told Reuters the ECB is unlikely to act at next week’s meeting unless the inflation figures show the euro zone sinking significantly toward deflation.

Inflation in the bloc’s largest economy Germany on Thursday suggested the overall headline for the euro zone may not deliver a bigger than expected drop.

It was steady at 0.8 percent growth. Spain, the fourth largest economy, reported consumer prices fell 0.5 percent, lower than in July.

The ECB targets an inflation rate at below-but-close to 2 percent, a level not seen since the first quarter of 2013. It has been in what ECB President Mario Draghi has called “the danger zone” of below 1 percent since October last year.

Speaking in Jackson Hole last week, Draghi conceded that financial markets indicated “significant declines at all horizons” in inflation expectations, pledging to use “all the available instruments needed” to ensure price stability.

His comments fueled expectations that the central bank could soon follow the path of the U.S. Federal Reserve and others and start buying large quantities of private and sovereign debt in the market to boost inflation and growth, a process known as quantitative easing (QE).

A Reuters poll on Thursday suggested the bank will probably launch a QE program by March.

In his speech, Draghi also said fiscal policy could play a greater role alongside the ECB’s monetary policy to support the recovery. While his comments were seen by some observers as a major shift away from a focus on austerity, others disagree.

“Mario Draghi did not call for a complete U-turn in the euro zone fiscal consolidation strategy, nor did he signal an imminent monetary stimulus on top of the measures announced in June,” said Frederik Ducrozet, senior euro zone economist at Credit Agricole.

In June, the ECB cut interest rates to record lows, started charging banks to keep their funds overnight and launched a new long-term loan program, which will start in September and aims to give banks an incentive to lend more to the real economy.

Since then, the ECB has been in a wait-and-see mode, wanting to see the impact of its new liquidity injection first before considering further stimulus measures, though Draghi has stressed repeatedly the ECB stands ready to do more if needed.

(Reporting by Martin Santa in Brussels and Eva Taylor in Frankfurt Editing by Jeremy Gaunt)

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Bank of America seeks to void verdict in $1.27 billion ‘Hustle’ case

NEW YORK (Reuters) – Bank of America Corp on Thursday asked a federal judge to throw out a jury verdict finding it liable for fraud over defective mortgages sold by its Countrywide unit that resulted in a $1.27 billion penalty.

The bank urged U.S. District Judge Jed Rakoff in Manhattan to rule for it as a matter of law or order a new trial, arguing that the evidence at trial did not support the jury’s October 2013 verdict.

Bank of America said prosecutors were required at trial to prove that loans originated by Countrywide Financial Corp in a process called “Hustle” that were then sold to government mortgage finance giants Fannie Mae and Freddie Mac were not as good as the lender represented.

“The trial evidence, even viewed in the light most favorable to the government, did not prove fraud under this standard,” the bank’s lawyers wrote.

A spokeswoman for Manhattan U.S. Attorney Preet Bharara, whose office brought the case in 2012, declined comment. Bharara’s office is expected to respond Sept. 18.

The motion came a week after Bank of America agreed to a record $16.65 billion settlement with the U.S. government to settle charges that it and companies it bought misled investors into buying troubled mortgage-backed securities.

While the settlement went a long way to resolving the bank’s exposure to government cases and probes stemming from the financial crisis, the deal did not include the case before Rakoff, which Bank of America said it would appeal.

The lawsuit centered on a program called the “High Speed Swim Lane” – also called HSSL or Hustle – that the government said began in 2007 at Countrywide, which Bank of America acquired in 2008.

The government said the program emphasized quantity over quality, rewarding employees for producing more loans and eliminating checkpoints designed to ensure the loans’ quality.

Last year, a jury found Bank of America and a former mid-level Countrywide executive, Rebecca Mairone, liable for fraud.

In a decision last month, Rakoff ordered Bank of America to pay $1.27 billion and Mairone to pay $1 million.

The judge at that time called the Hustle program “from start to finish the vehicle for a brazen fraud” and said the evidence of the fraud was “ample.”

The case is U.S. ex rel O’Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

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