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Communique will not urge Fed against rate hikes: G20 delegate

ANKARA Emerging markets have voiced concern about the possibility and timing of rate hikes by the Federal Reserve but a G20 communique from a meeting of finance chiefs in Turkey will not urge the U.S. central bank against such moves, a delegate said on Friday.

“There will be no language saying the Fed shouldn’t move,” the delegate told Reuters as two days of meetings got underway in the Turkish capital Ankara.

(Writing by Nick Tattersall; Editing by David Dolan)

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Asian shares fall as U.S. jobs jitters outweigh ECB support

SINGAPORE/TOKYO Asian shares extended losses on Friday as caution over a U.S. jobs report overshadowed signals from the European Central Bank that it is willing to take further steps to shore up the European economy.

Financial spreadbetters expected Britain’s FTSE 100 .FTSE to open down as much as 1.5 percent, Germany’s DAX .GDAXI to fall as much as 1.7 percent and France’s CAC 40 .FCHI to drop as much as 1.8 percent.

U.S. stock futures ESc1 fell 0.8 percent during the Asian day, pointing to a weaker opening on Wall Street as well after U.S. stocks ended slightly higher overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8 percent, and was on track to end the week down 4.2 percent.

Japan’s Nikkei .N225 fell 1.9 percent after earlier plunging 3.2 percent to a seven-month low of 17,608.17. The index is set for a weekly loss of 6.8 percent.

“Only one theme is on every trader’s mind today – the U.S. jobs report tonight and how that may possibly play into the Fed’s September rate decision,” said Nicholas Teo, analyst at online trading platform provider CMC Markets in Singapore.

A strong jobs number could help ease fears about a China-led global economic slowdown but it could rekindle speculation of an early rate hike, which could hurt riskier assets, particularly in emerging economies.

Economists polled by Reuters expect the U.S. economy produced 220,000 new non-farm jobs last month, continuing the robust employment creation of the past five years, while average hourly earnings are predicted to have risen by a modest 0.2 percent, as they did in July.

A drop in average prices charged by U.S. service businesses in August after 25 months of increases supports the case for a delay in rate hikes even though the overall service sector expanded at the fastest pace since May.

While the Fed has so far stuck to its script that interest rates will likely be raised this year, the ECB and China’s central bank are tilting towards more easing.

The ECB cut its growth and inflation forecasts on Thursday, warning of possible further fallout from China and paving the way for an expansion of its already massive 1 trillion-euro plus asset-buying program.

For the first time, ECB President Mario Draghi also said explicitly the bond-buying program may run beyond September 2016 and the bank may adjust its size and composition.

“It looked as if the ECB is preparing stimulus,” said Masahiro Ichikawa, senior strategist at Mitsui Sumitomo Asset Management. “As it cut its growth projections and uncertainty over emerging economy is rising, it probably had to show that it is ready to take action.”

That pushed down German 10-year yields, the benchmark for euro zone borrowing costs, to 0.730 percent DE10YT=TWEB, compared to a two-week high of 0.82 percent hit on Monday.

The euro also fell to a two-week low of $1.10875 and it last fetched $1.1124 EUR=. Against the yen, the common currency hit 132.73 yen, the lowest in more than four months EURJPY=R.

The yen’s surge against the euro also nudged it up versus the dollar. The greenback slipped 0.7 percent to $119.27 yen JPY=.

The Australian dollar was down 0.8 percent at $0.6962 AUD=D4 after stooping to a new 6-1/2 year trough of $0.6959.

In commodities markets, which have been battered by fears of a hard landing in China, trade remained highly volatile.

After gains in early trading, Brent crude futures LCOc1 slipped 1.1 percent to $50.10 per barrel.

Copper fell 1.2 percent to $5,181 per tonne after surging to $5,314 on Thursday, its highest in over three weeks, as bearish investors closed out positions ahead of U.S. job data.

Aluminum also shot up, touching a one-month peak $1,641 a tonne on the London Metal Exchange on Thursday. It was last trading down 0.6 percent at $1,620.

China’s financial markets were closed on Friday for a national holiday.

A flood of data from China in coming weeks is likely to point to further weakness in the world’s second-largest economy, reinforcing expectations that Beijing needs to roll out fresh stimulus measures and keeping global financial markets on edge.

(Reporting by Nichola Saminather and Hideyuki Sano; Editing by Eric Meijer Kim Coghill)

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U.S. job gains seen solid in August, spotlight on Fed

WASHINGTON The U.S. economy likely added jobs at a steady pace in August and the unemployment rate probably fell to a near 7-1/2-year low of 5.2 percent, which could allow a cautious Federal Reserve to consider a September interest rate hike.

A Reuters survey of economists forecast non-farm payrolls increased by 220,000 last month, up from 215,000 new jobs in July.

That would underscore the economy’s vibrancy in the face of volatile global financial markets and China’s slowing growth, and keep alive the prospect of the Fed raising benchmark overnight rates at its next policy meeting, on Sept. 16-17.

“We don’t think it will detract from the possibility that the Fed is considering a September rate hike, only if we saw ominous signs of a deterioration elsewhere in the data,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The Labor Department will release its closely watched employment report on Friday at 8:30 a.m. EDT (1230 GMT).

In the wake of the recent global equities selloff, financial markets significantly scaled back bets on a rate hike over the past month. But Fed Vice Chairman Stanley Fischer told CNBC last week it was too early to decide whether the stock market rout had made a September rate increase less compelling.

Economists acknowledge a risk that job gains could come in below expectations as the first reading of August payrolls has tended to be weaker in the last several years before being revised higher.

They say the model the government uses to smooth the data for seasonal fluctuations often does not fully capture statistical noise from the start of a new school year. In addition, the response rate from employers to the government’s job survey tends to be low in August.

According to Goldman Sachs, preliminary August payroll numbers have undershot expectations by an average of 30,000 since 2010, while subsequent revisions have averaged 79,000 over the past five years.


“Despite the stock market volatility this month and the growing cracks in China’s economy … we don’t see any signs of slowing in the labor market yet,” said Andrew Chamberlain, chief economist at Glassdoor in San Francisco.

Sturdy payroll gains would add to a string of upbeat data, including figures on automobile sales and housing, that has suggested the economy was moving ahead with strong momentum early in the third quarter after growing at a robust 3.7 percent annual rate in the April-through-June period.

If the jobless rate falls one-tenth of a percentage point as expected that would take it to its lowest level since April 2008 and bring it into the range that most Fed officials think is consistent with a low but steady rate of inflation.

Jobs gains were likely spread across nearly all sectors of the economy in August. The energy sector, which is still grappling with last year’s sharp drop in crude oil prices, is expected to be the exception.

Robust demand for autos is seen boosting manufacturing employment, while solid gains are forecast for construction payrolls as housing gains muscle.

Average hourly earnings are expected to have risen 0.2 percent – the same as in July. That would leave them around 2.2 percent above their year-ago level, still well below the 3.5 percent growth rate economists consider healthy.

Some analysts think earnings are being held back by falling wages in oil field services.

But a tightening labor market and decisions by several state and local governments to raise the minimum wage should eventually translate into faster earnings growth and give the Fed confidence that inflation, which collapsed with oil prices, will move closer to its 2 percent target.

A number of retailers, including Walmart (WMT.N), Target (TGT.N) and TJX Cos (TJX.N), have increased pay for hourly workers.

(Reporting by Lucia Mutikani; Editing by Leslie Adler)

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Investor flight from US stocks fails to lift bond market

NEW YORK The “flight to safety” into bonds many expected when U.S. stocks slumped last week never took off, making big losers out of prominent fund managers and further confusing investors at a volatile time in the market.

Stocks plunged in the second half of August, largely on fears of China’s worsening economy, but U.S. Treasury yields did not see the kind of safety bid that many were expecting and has been typical in times of stock-market stress in the past.

Strategists link the lack of a move to bonds to a number of events: Hawkish rhetoric from Fed officials even as the equity market stumbled; a bout of selling by hedge funds that had expected a rally in the bond market that they didn’t get; and bond sales by central banks in China and other emerging market economies trying to protect their currencies from depreciating.

Reduced appetite from overseas, along with the outlook for the Fed, will be crucial in coming weeks if equities fall again and bonds don’t respond. The Fed decision on September 17 could mark the first rate increase in almost a decade, and uncertainty surrounding that decision is likely to keep many in the bond market on the sidelines.

“The correlation between bonds and stocks is more situational now because it’s the central banks calling the shots,” said Robert Vanden Assem, head of developed markets investment grade fixed-income at PineBridge Investments in New York.   

During the recent U.S. stock market sell-off in the third week of August, for instance, the SP 500 .SPX dropped 9 percent, but U.S. 10-year Treasury yields, which move inversely to prices, fell by only 12 basis points.

That’s not typical. According to Bank of America Merrill Lynch, the relationship between stocks and bonds that has held since 2009 suggests 10-year yields should have declined by 22 basis points.

Bond yields since then have drifted higher and buying interest has been minimal. The lack of a rally in the U.S. Treasury market made big losers out of notable hedge funds, including Bridgewater Associates’ All-Weather Fund, which fell 4.2 percent in August.

These funds borrowed heavily to augment their returns, but as things became turbulent, that leverage generated losses that forced them to wind down that borrowing.

Strategists say part of what kept Treasury yields from reflexively falling through a run to safe-haven debt were hawkish signals from the Fed, particularly Fed Vice Chair Stanley Fischer.

At last week’s central bank gathering in Jackson Hole, Wyoming, several Fed officials, including Fischer, seemed to boost the odds on a rate increase if not in September, then certainly in December. The message the Fed delivered over the weekend came between a Friday and Monday that saw the U.S. Standard Poor’s 500 lose 7 percent of its value.

Leading brokerages, including Citigroup and Bank of America, commented that though it’s a close call, the odds favor an increase in the next few weeks.

“Unless the U.S. economy shows signs of slowing, the bond market is likely to keep yields relatively firm,” said Alan Gayle, director of asset allocation at RidgeWorth Investments, even if the SP 500 falls in the weeks ahead on concern about growth in China and other emerging market economies, he said.

Interest rate futures this week saw a more than 50 percent chance of a rate hike in December FFZ5 and a 28 percent probability in September FFU5, according to CME Group’s FedWatch program.

If that happens, bonds won’t look as attractive. Higher interest rates diminish the value of an investor’s bond holdings, resulting in lower portfolio returns.

“Treasuries have been a good diversifier to portfolios, but their benefit as a diversifier has been reduced because yields are already extremely low and the Fed is starting to normalize rates,” said Rick Rieder, chief investment officer of fundamental fixed income at BlackRock in New York.



Further supporting yields on U.S. Treasuries was the sell-off in reserves by China and other emerging market economies to shore up their slumping economies. U.S. Treasuries represent the bulk of the Chinese and emerging market reserves.

Fears over weakened growth prospects and plunging commodity prices in some emerging markets have taken a toll on their currencies. As China sold currency reserves in recent months, real yields have moved higher since the beginning of the year, while inflation expectations have declined.

China and emerging markets led the build-up in global foreign exchange reserves following the 1997 Asian crisis to a peak of $12 trillion last year. This cash pile shielded them from the 2007-08 crisis, and it looks as if it is once again being deployed.

It’s not clear whether China has sold U.S. Treasuries over the last month, or if so, how much. Bank of America Merrill Lynch speculated in a research note that if China sold between $7 billion to $10 billion a day of U.S. Treasuries in the three weeks since the Chinese yuan devaluation on Aug. 11, it might have dumped as much as $150 billion in U.S. government bonds.

These are large numbers given the fact that the total net issuance of Treasuries this year will only be about $500 billion, said Bank of America Merrill Lynch in its research note. As of June 2015, China held $1.27 trillion in U.S. Treasury securities, according to capital flows data from the U.S. Treasury Department.

“The presence of central banks within our markets is over-riding and it’s all-encompassing and has driven the activity since 2008,” said PineBridge’s Vanden Assem.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Michael Connor, Richard Leong, and David Randall; Editing by David Gaffen and John Pickering)

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Putin urges investors to invest in Russia’s Far East

VLADIVOSTOK, Russia President Vladimir Putin urged domestic and foreign investors on Friday to help develop Russia’s vast Far East region, promising high returns and reassuring Asia-Pacific economies about their strategic importance.

Putin, speaking at the Eastern Economic Forum in the city of Vladivostok, an event he initiated, told his government to increase its efforts to develop the region.

“(We) will provide to investors the best conditions to do business so the Far East of Russia can successfully compete in terms of efficiency and return on capital with leading business centers,” Putin told participants at the inaugural forum.

He said Russia’s largest oil firm, Rosneft (ROSN.MM), would invest 1.3 trillion rubles ($19.56 billion) in projects in the region.

Russia’s Far East, which covers the extreme part of Russia between Lake Baikal in Eastern Siberia and the Pacific Ocean, has an abundance of natural resources, including forestry and fish stocks.

Putin was chiefly courting Chinese, Korean and Japanese investors in Vladivostok after Moscow’s relations with the West ebbed following the Ukraine crisis. Russia has since turned east, seeking economic, political and military cooperation.

“I am confident that Asia-Pacific countries, despite the current problems, will surely remain the engine of the world economy, the most important market for goods and services,” Putin said.

“The strengthening of relations with the countries of the region has a strategic importance for Russia,” he said.

Putin promised more state money for the region and said Russia, with its vast resource base, could support growth acceleration for the region.

“We see and understand that the Asia-Pacific region is interested in a strong and successful Russia, one that is open for cooperation and that opens a constructive agenda,” he said.

(This version of the story was refiled to fix language in second graph)

(Reporting by Denis Dyomkin, Katya Golubkova and Lidia Kelly; Editing by Ken Wills and Paul Tait)

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Sanofi’s Genzyme pays $32.59 million in criminal Seprafilm case

Genzyme Corp agreed to pay $32.59 million, admit wrongdoing and enter a deferred prosecution agreement to resolve U.S. criminal charges over its marketing of the surgical implant Seprafilm, the Department of Justice said on Thursday.

The biotechnology unit of French drug company Sanofi SA (SASY.PA) was accused of two misdemeanor counts of violating the federal Food, Drug and Cosmetic Act from 2005 to 2010 by allowing Seprafilm to be adulterated and misbranded while being sold. Sanofi bought Genzyme in 2011.

Seprafilm is a clear film used to reduce abnormal internal scarring that can cause organs and tissues to stick together following pelvic and abdominal surgeries known as laparotomies.

But the Justice Department said some sales representatives taught surgeons how to turn Seprafilm into a “slurry” for use in increasingly popular laparoscopic surgery, even though U.S. regulators had never approved the film for that use.

According to papers filed with the federal court in Tampa, Florida, Genzyme admitted and accepted responsibility for the facts underlying the two criminal counts.

The two-year deferred prosecution agreement calls for improved oversight, and steps to halt Seprafilm sales for off-label uses. If Genzyme complies, the government will dismiss the charges.

Genzyme, based in Cambridge, Massachusetts, said in a statement it is “confident” in the compliance measures it has taken.

In December 2013, Genzyme reached a $22.28 million civil agreement to resolve claims related to Seprafilm under the federal False Claims Act.

The Justice Department said Thursday’s settlement reflects Genzyme’s “significant” cooperation during the probe.

The case is U.S. v. Genzyme Corp, U.S. District Court, Middle District of Florida, No. 15-cr-00352.

(This version of the story corrects name of court in case citation)

(Reporting by Jonathan Stempel in New York; Editing by Diane Craft)

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Wall Street rises in volatile session ahead of jobs data

U.S. stocks ended slightly higher on Thursday as investors, on edge after recent turmoil in China’s markets, looked toward a key U.S. jobs report that may figure in the Federal Reserve’s decision about when to lift interest rates.

Major U.S. indices at one point rose strongly over 1 percent but relinquished those gains to dip into negative territory as worries about China’s economy weighed on traders’ minds, though the Dow Jones industrial average and SP 500 managed to hold on to end modestly higher.

It was the second consecutive day of increases after over two weeks of China-driven market turmoil that has left the SP 500 down 9 percent from its all-time high in May.

“After a waterfall decline like we had over a week ago, you can have violent moves both up and down,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. “That’s a little of what we’re seeing now as well as positioning in advance of the jobs number tomorrow.”

European Central Bank chief Mario Draghi hinted at additional stimulus measures for the euro zone, helping drive Wall Street’s early gains.

His remarks came a day ahead of the monthly U.S. nonfarm payrolls data, which is expected to show that the economy added 220,000 nonfarm jobs in August, up from 215,000 in July.

The combination of a healing U.S. labor market and worries about a stumbling Chinese economy are challenging the Fed as it heads into a policy meeting on Sept 16-17 at which it may raise interest rates for the first time since 2006.

Near-zero rates have allowed the U.S. stock market to stage a spectacular bull-run since the financial crisis. But the market was rocked by volatility in the past two weeks, triggered by fears of slowing growth in China.

Some investors believe the market volatility, which left the SP 500 with its biggest monthly drop in three years in August, may lead the Fed to delay a rate hike until the end of the year.

The CBOE Volatility index .VIX, known as Wall Street’s “fear gauge”, fell 2.11 percent to 25.54, slightly above the long-term average of 20. The index spiked as high as 53.29 early last week.

The Dow Jones industrial average .DJI rose 0.14 percent to 16,374.76 and the SP 500 .SPX gained 0.12 percent to 1,951.13 points. The Nasdaq Composite .IXIC ended 0.35 percent lower at 4,733.50.

Eight of the 10 major SP sectors were higher, with the telecommunications index’s .SPLRCL 0.77 percent rise leading the advancers.

Apple (AAPL.O) was the biggest drag on SP 500 with a 1.75 percent drop while Exxon Mobil’s 0.76 percent gain helped push the index higher.

Joy Global’s (JOY.N) shares were down 14.60 percent after the mining equipment maker reported a fall in quarterly profit and cut its full-year forecast.

Caterpillar (CAT.N) also fell 2.1 percent and was the biggest drag on the Dow.

Advancing issues outnumbered decliners on the NYSE by 1,964 to 1,066. On the Nasdaq, 1,434 issues rose and 1,363 fell.

The SP 500 index showed no new 52-week highs and one new low, while the Nasdaq recorded 30 new highs and 42 new lows.

Volume was lighter than in recent days. About 7.1 billion shares traded on U.S. exchanges, compared to an average of 8.5 billion in the past five sessions, according to BATS Global Markets.

(Additional reporting by Tanya Agrawal and Caroline Valetkevitch; Editing by Chizu Nomiyama)

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Detroit Three show interest in UAW healthcare overhaul idea

DETROIT The Detroit Three automakers are showing increased interest in the United Auto Workers union’s proposal that they pool their healthcare systems, a sign that contract talks between the union and manufacturers are down to the big money issues.

The UAW and bargainers for General Motors Co (GM.N), Ford Motor Co (F.N) and Fiat Chrysler Automobiles (FCHA.MI) (FCAU.N) face a Sept. 14 deadline to negotiate new labor agreements for 142,000 U.S. workers. Rising healthcare costs have emerged as a stumbling block in the way of raises for blue collar workers.

UAW President Dennis Williams has for months advocated replacing company-run plans with a cooperative that would cover U.S. workers at all three companies and have a more powerful bargaining position with healthcare providers.

“We are talking to them about a co-op and it is an idea we support,” FCA said in a statement Thursday that was the clearest signal yet that automakers are giving serious consideration to Williams’ proposal.

GM said, “The pressures of rising health care costs require collaboration to find creative solutions,” but didn’t explicitly endorse the cooperative idea. On Wednesday, Ford Chairman Bill Ford said his company was discussing the idea with the union.

Williams and officials at the Detroit Three have said rising health care costs, a wage system in which new hires are paid significantly less than veterans, pension liabilities and future investment in UAW-represented plants are the key issues they want to address in this round of contract bargaining.

The Detroit Three shifted health care costs for about 900,000 UAW retirees to union-managed trusts as part of a 2007 agreement. The automakers say their combined spending on healthcare is $2.25 billion a year for active UAW workers, up 55 percent from 2011.

A deal to curb healthcare costs would give the automakers and the UAW more flexibility to give pay raises or narrow the wage gap between newly hired UAW workers, who make about $16 an hour, and veterans hired before 2011, who make about $28 an hour.

Workers at the three U.S. automakers have made bonus checks based on their employer’s North American profits as the companies have rebounded from the recession. But veteran UAW workers have not had a base wage increase in nearly a decade.

The UAW wants automakers to commit to investments to secure U.S. jobs. The July disclosure that Ford plans to shift some small car production to Mexico jarred UAW leaders.

(Reporting by Bernie Woodall; Editing by Cynthia Osterman)

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Qualcomm president says splitting company may not create value

NEW YORK Qualcomm Inc’s (QCOM.O) President Derek Aberle, under pressure from activist hedge fund Jana Partners to improve the licensing and chip design firm’s stock performance, on Thursday sounded a cautionary note about a potential breakup of the company.

Stressing that the board and management do not expect to complete a review of a possible split until the end of the year, Aberle told Reuters that Qualcomm agrees with Jana that its stock is undervalued. Shares have fallen 25 percent over the past 12 months, whereas the SP 500 is down 2.25 percent.

Aberle said that investors calling for a split are taking a “sum of the parts” analysis and believe that Qualcomm’s two divisions – its highly profitable licensing arm and its chips unit – would be valued more highly as independent companies.

“You have to step back and say why is that and would a separation actually solve whatever the underlying issues are that are creating the current valuation?,” he said. “You have to be careful that it’s not too simplistic an analysis.”

The company’s current structure, Aberle said, also allows Qualcomm to leverage relationships with Chinese customers, since the chipmaker is well-positioned to help them expand to other countries.

At the same time, Aberle acknowledged that having both a chips and licensing division has at times created conflicts with customers, “but we manage it pretty well.”


Jana in April unleashed a public campaign to reform Qualcomm, calling its chip business “essentially worthless” at current valuations and pressing the company to spin it off or pursue strategic mergers or acquisitions.

Aberle said that when Qualcomm was approached by Jana, the hedge fund which owned $2 billion in stock did not pressure it to pursue a breakup but rather wanted them to review a split as one option to unlock value.

It is also working on adding a third independent board member, whom Aberle declined to name. Qualcomm has already added two new board members in cooperation with Jana.

“A lot of the things (Jana) put on the table were very consistent with things we’d already been talking to our shareholders about and already been planning for a long time,” Aberle said.

Qualcomm said in July it would reduce costs by about $1.4 billion, cut about 4,500 full-time staff, or 15 percent of its workforce, and boost capital returns to shareholders.

(Reporting by Liana B. Baker in New York; Editing by Eric Effron and Andrew Hay)

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