Fed Seeks to Be `Nimble' as Spending, Housing Signs Diverge

The Federal Reserve, with consumer spending and housing figures sending conflicting signals, is likely to reduce interest rates today while leaving itself leeway either to take back the move or cut more.

Since the Fed met Sept. 18, new reports have shown higher retail sales, record exports and a further slump in home-buying. Chairman Ben S. Bernanke and his colleagues, who this month have repeatedly stressed ``uncertainty'' in the economic outlook, will probably cite risks of both slower growth and higher inflation in today's statement, Fed watchers said.

``They've got to leave it open on both sides and see how the economy moves along,'' said Thomas Garcia, head of trading in Santa Fe, New Mexico, at Thornburg Investment Management, which oversees $50 billion. ``Regardless of whether they do cut rates, they definitely have to have language that says, `If we start to see inflation pick up, we can still raise rates.'''

Ninety-one of the 108 economists surveyed by Bloomberg News forecast a quarter-point reduction in the target rate for overnight loans between banks, to 4.5 percent. Fourteen predict no change and three expect a half-point reduction.

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Fidelity Sets Japan Bond Funds as Baby Boomers Retire

Fidelity Investments Japan Ltd., trailing Nikko Asset Management Co. and Nomura Asset Management Co., plans to move oversight of its bond funds to Tokyo from Hong Kong to gain customers in the country's retirement market.

``We will be looking to increase the number of asset allocation specialists based here,'' Chief Investment Officer John Ford said in an e-mail. ``We will be accelerating our efforts in Japanese fixed income.''

Fidelity Japan, set up in 1969 by Boston-based Fidelity Investments, the biggest U.S. mutual fund company, oversees 3.7 trillion yen ($32 billion) for clients, behind Citigroup Inc.'s Nikko and Nomura, which have more than four times more money under management.

Japan has 6.9 million people born between 1947 and 1949 who will get about 85 trillion yen of retirement payouts in the next five years, according to estimates from Tokyo-based Nomura Holdings Inc., the nation's biggest brokerage. Nomura estimates about 60 percent of the money, or 51 trillion yen, will be invested in stocks and mutual funds. Thirty percent will be used to pay debt and 10 percent will go to short-term spending.

Retirees account for 25 percent of household savings in Japan, a bigger proportion than in any other country, according to estimates from analysts at New York-based Goldman Sachs Group Inc.

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St. George Bank's Profit Climbs to Record, Boosted by Lending

St. George Bank Ltd. reported an 8.2 percent gain in half-year profit, the second Australian bank in a week to post record earnings on increased lending.

Net income for the six months ended Sept. 30 climbed to A$591 million ($543 million), from A$546 million a year earlier, the Sydney-based bank said.

Paul Fegan, who was appointed acting chief executive officer in August following the departure of Gail Kelly to rival Westpac Banking Corp., forecast earnings will grow 10 percent in 2008. St. George joins Australia & New Zealand Banking Group Ltd. in reaping record earnings as the economy enters its 17th year of expansion.

``We're particularly pleased that the acting chief executive isn't straying from his predecessor's habit of providing sound advice about the bank's future earnings,'' said Peter Vann, who helps manage about $1.6 billion at Constellation Capital Management in Sydney, including St.George Bank shares. ``There are no big nasties in this result.''

The bank's shares rose 1.6 percent to A$35.90 as at 11:00 a.m. in Sydney after the company posted full-year profit of A$1.16 billion, inline with the median A$1.17 billion estimate of 13 analysts surveyed by Bloomberg.

Westpac Banking Corp., the No. 4 lender, and National Australia Bank Ltd., the nation's biggest financial institution, may also post record earnings in the next two weeks as the fastest credit growth since 1989 helps insulate banks from higher global funding costs.

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BOJ Cuts Inflation, Growth Outlook; Policy Unchanged

The Bank of Japan forecast slower economic growth and abandoned a prediction that consumer prices will increase this year, making it harder to raise the world's lowest borrowing costs.

``Downside risks are increasing,'' Governor Toshihiko Fukui said in Tokyo today after his policy board kept interest rates on hold. He repeated the bank's commitment to raise rates as long as the economy keeps expanding and prices resume gaining.

Japan's longest expansion in more than 60 years is losing steam as U.S. mortgage defaults threaten global growth, higher oil prices squeeze profits and stagnant wages fail to spur consumer spending. Housing starts in Japan plunged 44 percent in September to the lowest level in four decades, the Land Ministry said today, after stricter rules delayed building approvals.

``The clear signal is that the BOJ intends to continue to gradually normalize rates,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``Realistically speaking, though, it will be difficult to hike rates before the end of this year.''

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South Korea to Start $22 Billion Resources Fund

South Korea will start a 20 trillion won ($22 billion) fund to invest in global oil and gas projects, vying with China, Japan and India for resources as prices soar.

The state-run National Pension Service, South Korea's biggest investor with $235 billion in assets, is in talks with the commerce ministry and government agencies to start the fund by the end of this year, the service's chief said in an interview.

South Korea imports 97 percent of its energy needs and is following China, India and Japan in tapping sources in Asia, Africa and Russia. Shifting pension money from bonds to oil, which rose to a record this week, will also help boost returns.

``We have great interest in resource commodities, such as oil, gas and metals,'' National Pension Service President Kim Ho Shik said yesterday. ``We want to invest a lot in assets with higher risks and higher returns.''

China, the world's biggest consumer of coal, copper and iron ore, said in January it may use its $1 trillion foreign- exchange reserves to buy ``strategic'' resources.

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Stock-Market Bubble May Burst

China's benchmark CSI 300 Index has surged 170 percent this year as the country's households invest more of their $2.3 trillion of savings in equities. The rally has given China more of the world's 10 largest companies than the U.S. for the first time and prompted billionaire investor Warren Buffett to warn that prices have risen too fast.

`Carried Away'

China's stock market value is $3.7 trillion, compared with $18.7 trillion for the U.S.

``It's easy to be carried away in the stock market when things are going very well,'' Buffett said Oct. 24. ``We at Berkshire never buy stocks when we see prices soaring.''

Greenspan also said the view of many analysts that the U.S. current-account deficit will cause further declines in the dollar isn't valid.

``We are likely to see a long-term erosion of the dollar,'' in part because ``others are doing much better,'' he said.

Greenspan said Oct. 24 that the dollar's decline to a record against the euro also reflects on a widening interest- rate gap between the U.S. and the euro region.

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Hong Kong Stocks Fall From a Record; Angang Steel, Cnooc Slide

Hong Kong stocks fell, capping the Hang Seng Index's biggest monthly advance in eight years, as a drop in profit at Angang Steel Co. and lower oil prices fanned concern that recent gains were excessive.

Angang Steel, China's third-largest steelmaker by output, slid the most in four weeks after third-quarter earnings fell on higher costs. Cnooc Ltd. led declines among oil producers as crude oil slumped the most in almost three months.

``The market climbs a wall of worry,'' said Donald Gimbel, who manages $1.8 billion including Hong Kong shares at New York- based Carret & Co. ``People get nervous and they sell a little bit. When people don't worry, watch out.''

The Hang Seng Index fell 214.57, or 0.7 percent, to 31,423.65 at 3:24 p.m., snapping a four-day, 7.9 percent rally. The measure is still up 57 percent this year and yesterday closed at a record. The Hang Seng China Enterprises Index, which tracks the so-called H shares of 43 mainland companies, slid 1.2 percent to 20,153.31.

The main Hang Seng benchmark pared an earlier decline in the morning session of as much as 1.5 percent as some mutual funds ``took the opportunity to buy on the dips,'' said Andrew Sullivan, head of Asian sales trading at Daiwa Securities SMBC Co. in Hong Kong.

``Fundamentally, you would think the index should correct and go below 30,000 but with this amount of liquidity in the market, that's not about to happen,'' he said.

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Japanese Shares Rise on Denso Forecast, MUFJ Buyback Report

Japanese shares climbed, led by auto companies, after Denso Corp. boosted its profit forecast on rising demand in overseas markets such as Europe.

Denso, the nation's largest auto-parts maker, rose by the most in more than six years. Mitsubishi UFJ Financial Group Inc. jumped after the Nikkei newspaper reported the company will spend 150 billion yen ($1.3 billion) to conduct its first share buyback.

``This earnings season is pretty healthy,'' said Jon Easton, who manages about $100 million in Japanese equities at EN Asset Management in Tokyo. ``I think this is a tremendous buying opportunity right now.''

Mitsui & Co., whose profits are the most sensitive to oil prices among trading companies, had the biggest drop since August, leading commodities shares lower.

Sapporo Holdings Ltd. surged the most in more than seven years after the company said it will sell stake in a Tokyo office and shopping complex to Morgan Stanley.

The Nikkei 225 Stock Average rose 86.62, or 0.5 percent, to 16,737.63 at the close of trading in Tokyo, reversing a 0.6 percent drop. The Topix index added 12.86, or 0.8 percent, to 1,620.07. The Nikkei lost 0.3 percent in October and the Topix added 0.2 percent, a second month of gains.

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Asian Stocks Advance on Earnings; Toyota, Mirae Asset Climb

Asian stocks rose after Denso Corp., Japan's largest auto-parts maker, boosted its profit forecast and Mirae Asset Securities Co. reported earnings more than tripled.

Toyota Motor Corp., which holds a stake in Denso and is its biggest customer, climbed to a two-week high. Mirae Asset, South Korea's second-largest brokerage by value, advanced to a record.

``This earnings season is pretty healthy,'' said Jon Easton, who manages about $100 million in Japanese equities at EN Asset Management in Tokyo. ``I think this is a tremendous buying opportunity right now.''

Mitsubishi UFJ Financial Group Inc. climbed after the Nikkei newspaper said the lender will have its first stock repurchase. Hynix Semiconductor Inc. rose on plans to start producing digital camera components after a three-year ban on new types of products ended this month.

The Morgan Stanley Capital International Asia-Pacific Index added 0.3 percent to 171.63 as of 4:15 p.m. in Tokyo. It has gained to 5.1 percent this month. The Nikkei 225 Stock Average advanced 0.5 percent to 16,737.63.

Hong Kong stocks fell after an earnings report from Angang Steel Co. raised concern the Hang Seng Index's recent advance to a high may have been overdone. Benchmarks also fell in Taiwan, Malaysia, Singapore, the Philippines, New Zealand and Indonesia.

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Balda, Deutsche Boerse, Fresenius, MAN: German Equity Preview

The following stocks may rise or fall in German markets.

Germany's X-DAX Index rose 0.4 percent to 7947.04. The index provides an estimate of the DAX Index, based on trading in DAX futures after the Xetra electronic market closes. The DAX fell 0.4 percent to 7,977.94 on the Xetra electronic-trading system.

Stock symbols are in parentheses after the company names and prices are from the Xetra close unless otherwise stated.

Balda AG (BAD GY): The world's second-largest maker of plastic mobile-phone cases is scheduled to release third-quarter results. Balda in August posted a fourth straight quarterly loss and scrapped its full-year forecasts because of delays at its touch-screen components unit. The shares fell 48 cents, or 6.3 percent, to 7.19 euros.

Bijou Brigitte Modische Accessoires AG (BIJ GY): The discount jewelry retailer plans to report nine-month results. The company in August said first-half earnings fell 2.6 percent after a sales-tax increase. The shares climbed 3.08 euros, or 2.4 percent, to 130 euros.

Deutsche Bank AG (DBK GY): Germany's biggest bank is scheduled to report final third-quarter results. The bank will probably report an increase in profit as gains from tax credits and asset sales help offset investment-banking losses, according to analysts surveyed by Bloomberg News. The shares climbed 75 cents, or 0.9 percent, to 88.80 euros.

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