BBC News - India and Japan sign new $15bn currency swap agreement

India and Japan have signed a $15bn (£9.7bn) currency swap agreement as the two nations seek to boost financial co-operation.

Japan and India are seeking to boost financial co-operation and bilateral trade

It will see them swap currencies for US dollars and tap into each other's foreign exchange reserves to ease any liquidity problems.

The pact is expected to boost the Indian rupee which has been Asia worst performing currency this year.

The Japanese yen has also been volatile in wake of an uncertain global outlook.

"Amid global economic uncertainties, ensuring the stability of the financial markets is all the more important for the stable economic development of the two countries," Japanese prime minister Yoshihiko Noda and Indian prime minister Manmohan Singh said in a joint statement after their meeting in New Delhi.

Capital outflows

The deal comes at a time when there have been growing concerns about foreign institutional investors (FIIs) pulling out of the Indian market.

Investors have been concerned that the ongoing economic problems in the eurozone and the US may hurt demand for Indian exports and slow its growth.

Fears of a slowdown in the Indian economy saw FII's withdraw almost 32,000m rupees ($600m; £390m) from the Indian securities market in November alone.

The huge capital outflows has hurt the Indian currency which has hit an all time low against the US dollar in recent weeks.

There have also been fears of the impact of these withdrawals on the overall Indian economy.

Analysts said though the Indian foreign exchange reserves were healthy, the deal will help allay any fears of a potential problem in the short-term.

"If we add to this the still huge uncertainty on the resolution of the European debt crisis, it seems clear that India can benefit from an additional cushion against capital outflows," said Alicia Garcia-Herrero, chief economist for emerging markets at BBVA bank.

Infrastructure development

The Japanese prime minister also promised to provide financial assistance for infrastructure development in India.

Mr Noda said that Japan will invest $4.5bn to help build the industrial corridor between New Delhi and Mumbai, a project that is expected to boost India's growth further.

The corridor, which is expected to cost $100bn, includes plans for nine mega industrial zones, a high speed freight line, three ports, six airports and a six-lane intersection-free expressway connecting India's political and financial capitals.

Analysts said Japanese businesses were likely to benefit from the project.

"One big objective of the industrial corridor is to create a manufacturing base for Japanese companies to export to Europe and Africa," said Robinder Sachdev of think tank Imagindia.

Mr Noda also said that Japan would provide an extra $1.7bn in funding for other projects including the expansion of Delhi's metro railway network.

India has been looking to further develop its infrastructure to boost economic growth

BBC News - Recession 'to return' to Europe, say economists

The vast majority of leading economists polled by the BBC believe recession will return to Europe next year.

Government austerity has undermined growth and caused a great deal of anger around Europe

One fifth said the eurozone would not exist in its current 17-member form, while the majority put the possibility of a eurozone break-up at 30%-40%.

The poll also found that most economists expect UK interest rates to remain at 0.5% throughout next year.

It was conducted among 34 UK and European economists who regularly advise the Bank of England.

Of the 27 who responded, 25 forecast recession for Europe next year.

Closer union

Growth in Europe has slowed in recent months as the eurozone debt crisis has forced governments to rein in spending and has undermined confidence in global financial markets.

The eurozone economy grew by 0.2% between July and September, while the 27 economies of the European Union grew collectively by 0.3%.

Politicians have attempted to resolve the crisis, including an agreement to forge closer ties between EU members, but markets have yet to be convinced the measures they have taken are sufficient.

The longer the debt crisis rumbles on, the more likely Europe will return to recession, economists believe.

'Deficit pain'

Growth in the UK during the third quarter was 0.6%. However, growth in the previous three months was flat.

The CBI business group said that 2012 could be the beginning of a more prosperous future if the "pain" of deficit reduction passed quickly.

In his New Year message, the CBI's John Cridland said the eurozone crisis posed a "significant threat" to the British economy, because 40% of UK exports were sold there.

Mr Cridland added that the faltering recovery and the continuing debt crisis were stark reminders of the need to rebalance Britain's economy away from household and government debt.

BBC News - Italy borrowing costs fall sharply at auction

The cost of borrowing faced by the Italian government has fallen sharply at its latest debt auction.

Nicola Marinello Glendevon King Asset Management says "waters are much calmer now for Italy"

The government raised 9bn euros ($11.8bn, £7.56bn) in short-term debt at half its previous interest rate.

The interest on the six-month bills was 3.251%, down from 6.504% at the last similar auction in November.

The auction follows the extension of 489bn euros in three-year loans to eurozone banks by the European Central Bank (ECB) last week.

It was the first time the ECB had agreed to lend banks money for longer than one year, and has led to speculation that the new cash may be used by banks to lend to their respective governments.

Of the 489bn euros, some 300bn euros was used by banks to refinance their own existing debts, leaving about 190bn euros in spare cash to invest elsewhere, including in government debt.

Austerity

Also on Wednesday, the Italians raised a further 1.7bn euros in two-year debt at an interest rate of 4.85%, down from 7.81% last month.

The auctions follow the introduction of further austerity measures and other reforms in Italy by the government of Prime Minister and economist Mario Monti, which have reassured the markets.

Among these reforms was a cap on the size of cash payments - designed to crack down on tax evasion.

"The [ECB loans] reduced the possibility of a credit crunch, so banks don't have to reign in all the liquidity they have, so that may have helped," said Marco Stringa, senior economist at Deutsche Bank. "What the Monti government did in December definitely helped."

Market boost

Italy has significant borrowing needs in the new year, including 161bn euros in debt repayments falling due between February and April, all of which it will have to refinance through new borrowing.

The implied cost of borrowing on longer-term Italian debt traded in the market fell sharply on the news, with the 10-year bond yield down to 6.74% by mid-morning on Wednesday.

But yields rose back above 7% later in the day. This is an unacceptably high rate for the government to borrow at when it needs to go back to the market to refinance its existing debts.

The Italian government is due to issue long-term debt on Thursday, including 10-year bonds.

BBC News - Soyuz back in service after failed launch

Five days after a failed launch, the Russian Soyuz rocket system has been pressed back into service.

This is the second generation of Globalstar satellites

The vehicle successfully put six spacecraft in orbit for US satellite phone and data company, Globalstar.

The Soyuz lifted away from the Baikonur Cosmodrome in Kazakhstan at 1709 GMT, ejecting the last of the six Globalstar platforms an hour and 40 minutes later.

Last Friday, a Soyuz malfunctioned soon after launching from the Plesetsk spaceport in northern Russia.

Parts were reported to have crashed back down into the Novosibirsk region of central Siberia.

Last week's Soyuz was a type 2.1b, compared with the 2.1a version used for the Globalstar mission.

The two variants share many design features but use different engines in their third segment, or stage - the part of the Soyuz said to have been responsible for the failure five days ago.

Pressing concern

Wednesday's successful outing will come as a huge relief for Globalstar.

The company is the first of the major sat-phone concerns to start upgrading its systems. The six latest satellites follow 12 others launched in July this year and October last year.

The upgrade is a pressing concern for the company because its existing constellation is failing.

Rolled out in the late 1990s, many of these original satellites have suffered suspected radiation damage to their S-band transmitter equipment, which has limited their ability to handle two-way communications.

Globalstar is pinning its future on its second-generation constellation. It plans to put in orbit at least another six satellites to boost service reach and quality.

Following Wednesday's flight, Tony Navarra, Globalstar's president of global operations, was quick to thank the Soyuz team and Arianespace, the French company that markets commercial Soyuz launches through its Starsem subsidiary.

"These satellites were flawlessly placed exactly where we needed them so that our ground stations could find them on the very first pass," he said. "It's amazing that we can find six satellites within 30 minutes of them being placed into space."

Investigations continue into the cause of last Friday's launch malfunction, which resulted in the loss of a Russian Meridian telecommunications satellite.

It was the latest in a recent run of flight failures for the national rocket industry.

In August, a Soyuz failure on an unmanned mission to resupply the space station led to a six-week suspension of flights.

On 18 August, the week before the loss of the space station mission, a Proton rocket failed to put a communications satellite in its proper orbit.

Back on 1 February, a Rokot launcher also underperformed with a similar outcome.

And on 5 December last year, a Proton carrying three navigation spacecraft fell into the Pacific Ocean. This particular failure is widely believed to have contributed to the decision of the Russian government to replace the then space agency chief, Anatoly Perminov.

Vladimir Popovkin took over as the head of Roscosmos in April.

The rocket failures come on top of the loss of Phobos-Grunt, Russia's most ambitious planetary mission in decades. It became stuck in Earth orbit after its launch in November and will probably fall back to Earth next month.

BBC News - North Korea holds two-day state funeral for Kim Jong-il

North Korea has begun two days of funeral services for its late leader Kim Jong-il, with hundreds of thousands expected to attend in Pyongyang.

Kim Jong-il has been lying in state since his death on 17 December

Few details are known and there will be no foreign delegations but a procession is expected on Wednesday, echoing that for Kim's father, Kim Il-sung, in 1994.

As then, the funeral is expected to be used to cement the succession of new leader Kim Jong-un.

Kim Jong-il died of a heart attack on 17 December, aged 69, state media said.

He has been lying in state since then.

'Memorial service'

No schedule has been released for the commemorations and as of 0230GMT North Korean state television was not broadcasting events live.

But Itar-Tass agency, the only Russian news organisation operating in the reclusive country, reported that a funeral service had begun.

If the funeral does mirror 1994, there will be much pomp and military might, with tens of thousands of weeping North Koreans.

Foreign diplomats have been asked to assemble at a stadium to be taken to the Kumsusan Memorial Palace - where Mr Kim is lying in state - for a funeral procession through Pyongyang, AP news agency reports.

As in 1994, observers say there will probably be a large photograph of the late leader, smiling, on prominent display.

Citizens will line the streets, with many of the women in traditional black dresses.

There have been many images of distraught citizens released by state media since the death. Early on Wednesday it broadcast more footage of weeping mourners.

Thursday is expected to feature a three-minute silence at noon local time, followed by trains and ships sounding horns. The national memorial service will then begin.

The inter-Korean Kaesong industrial park has been closed for two days for the mourning following a North Korean request, South Korea's Yonhap news agency reports.

Closely watched

Kim Jong-il was not in the funeral motorcade for his father's death and observers will be watching to see how prominent a role Kim Jong-un - who is Mr Kim's third son - plays.

Kim Jong-un's name is first on the list of members of the "national funeral committee" published by the main North Korean news agency, and the committee did take part in Kim Il-sung's funeral.

Kim Jong-il's two other sons are not members of the committee and have not been seen during the mourning period.

State media have portrayed Kim Jong-un as leader since his father's death. On Wednesday state media said he had paid a fifth visit to his father's body to pay his respects.

The younger Kim is thought to be in his late 20s and has very little political experience.

Kim Jong-il was in the process of formalising him as his successor when he died but the transition was not complete, leaving regional neighbours fearful of a power struggle in the nuclear-armed pariah state.

The Rodong Sinmun newspaper has described Kim Jong-un as the head of the Workers' Party Central Committee, meaning that he now controls one of the country's highest decision-making bodies.

The newspaper earlier gave him the title of "supreme commander" of the armed forces.

Analysts say he will be surrounded by a group of experienced military insiders and relatives, as the Pyongyang elite attempts to hold on to power.

BBC News - ECB reports record cash deposits from banks

The European Central Bank (ECB) has reported receiving record cash deposits of 412bn euros (£344bn; $539bn).

It is hoped that banks will use the loans to buy eurozone sovereign bonds

The total beat the previous record of 384bn euros set in June 2010.

The rising usage of the ECB deposit facilitysince the summer reflects nervousness among Europe's banks about lending the money to each other.

The latest jump in deposits comes from cash lent to the banks by the ECB itself last week in order to ward off a fresh banking crisis and credit crunch.

The central bank provided 489bn euros of its new three-year loans just before Christmas, of which banks used some 200m euros to repay existing debts. The rest has gone into cash accounts, including the deposit facility.

Cash from those loans arrived in the banks' accounts on Friday just before Christmas.

The ECB's decision to offer the three-year loans - as well as a significant broadening of the types of collateral that the ECB would accept from the banks as security for its loans - had appeared to settle financial markets in the run-up to Christmas.

Prior to the ECB's interventions, there had been growing fears in the international financial community that a major European bank was about to run out of money and go bust, threatening to spark a full-blown market meltdown.

The ECB has in effect had to fill the role of a safe intermediary in the market for short-term lending between the banks - which is crucial to their functioning - by receiving their spare cash as deposits, and then lending it back out to those banks that find themselves short of ready money.

But the banks pay a price for the safety provided by the ECB.

They must pay approximately 1% interest on the loans they receive from the central bank, whereas the ECB pays them only 0.25% annualised interest on the spare cash they put in the deposit facility.

Debt bulge

There has also been speculation - including from the French government - that banks would invest a large chunk of the proceeds from the three-year loans in medium-term eurozone government debt.

Thanks to fears about the governments' creditworthiness, the interest rates available on southern European government three-year debts - 3.6% for Spain, 5.7% for Italy - are much higher than the interest rate on the ECB loans.

Southern European governments have large debt repayments falling due in the coming months - much of which they will need to reborrow from markets.

Italy - southern Europe's biggest and most worrying borrower - must meet some 161bn euros of debt repayments between February and April, and is expected to look to its own banks for much of the money.

The country's 10-year implied cost of borrowing in financial markets continued to hover around 7% on Tuesday - a level widely seen as unsustainable if Rome is actually forced to reborrow money at that interest rate.

Meanwhile, other data from the ECB in recent weeks has suggested that cash has been piling up in German bank accounts in the latter half of this year, while banks in other eurozone countries - notably Greece and other southern European nations - have found themselves short of ready money.

Earlier this month, the head of the Greek central bank, Georgios Provopoulos, said that a run on the Greek banks had accelerated during the autumn, as many Greek depositors feared a failure of their bank or an exit from the eurozone, or were simply being forced to run down their savings by the country's recession.

BBC News - Brazilian economy overtakes UK's, says CEBR

Brazil has overtaken the UK as the world's sixth largest economy, an economic research group has said.

A large part of Brazil's economy relies on the production of commodities

The Centre for Economics and Business Research (CEBR) said its latest World Economic League Table showed Asian countries moving up and European countries falling back.

The CEBR also predicted that the UK economy would overtake France by 2016.

It also said the eurozone economy would shrink 0.6% in 2012 "if the euro problem is solved", or 2% if it is not.

CEBR chief executive Douglas McWilliams told BBC Radio 4's Today programme that Brazil overtaking the UK was part of a growing trend.

"I think it's part of the big economic change, where not only are we seeing a shift from the west to the east, but we're also seeing that countries that produce vital commodities - food and energy and things like that - are doing very well and they're gradually climbing up the economic league table," he said.

A report based on International Monetary Fund data published earlier this year also said the Brazilian economy would overtake the UK in 2011.

Brazil has a population of about 200 million, more than three times the population of the UK.

Brazil's economy grew by 7.5% last year, but the government has cut its growth forecast for 2011 to 3.5% after the economy ground to a halt in the third quarter, with analysts blaming the country's high interest rates and the worsening situation in the eurozone.

And although Brazil currently sells more to China than it imports, Brazilian manufacturers have complained that their industries are being affected by cheap mass-produced goods from the Asian giant.

The CEBR also said that Russia moved up one spot in its league table to ninth in 2011, and predicted that it would rise to fourth spot by 2020.

It predicted that India, the world's 10th biggest economy in 2011, would become the fifth largest by 2020.

And it said European countries would drop down the table, with Germany falling from fourth in 2011 to seventh in 2020, the UK from seventh to eighth, and France from fifth to ninth.

CEBR World Economic League Table
Rank	2011	2020 (forecast)
1	US	US
2	China	China
3	Japan	Japan
4	Germany	Russia
5	France	India
6	Brazil	Brazil
7	UK	Germany
8	Italy	UK
9	Russia	France
10	India	Italy

BBC News - World 'dangerously unprepared' for future disaster

The world is "dangerously unprepared" for future disasters because rich nations are not doing enough, warns the international development secretary.

Japan says it may cost $309bn to rebuild areas damaged by the tsunami in March

Andrew Mitchell blames the failure of several countries to pay into the Central Emergency Response Fund (CERF).

The UK government has pledged £20m to the fund - in addition to £40m already promised - but an estimated £45m shortfall is still expected next year.

The international community must "wake up" to the challenge, he said.

The fund, set up by the UN, has been hit hard by a wave of natural disasters this year - the tsunami in Japan; an earthquake in New Zealand; famine in the Horn of Africa; and floods in Pakistan and the Philippines.

Mr Mitchell said the increasing numbers of people living in low-lying or famine-prone areas meant the scale of future tragedies would be greater.

The CREF was set up in the wake of the Indian Ocean tsunami on Boxing Day 2004.

Mr Mitchell said many countries wait for events to happen before offering money but he said this could affect critical emergency response work.

He said in the first few hours of a disaster, when survivors are trapped in the rubble of an earthquake, delays and lack of resources can mean the difference between life and death.

"This year the world has been rocked by devastating disasters and the evidence suggests this trend is likely to continue.

"The past shows that international responses could have been more effective if they had been properly planned and coordinated as part of one single system instead of a patch-quilt approach we see all too often."

Mr Mitchell said: "The system is in place but too many countries and agencies are failing to back it, leaving the world dangerously unprepared for the scale and number of shocks that lie ahead.

"The international community must wake up to this challenge and unite its efforts under one umbrella," he added.

DONORS TO CREF IN 2011

• UK - £94m
• Sweden - £74m
• Norway - £67m
• Netherlands - £54m
• US - £6m
• Japan - £3m
• China - £500,000
• Source: UN CREF website