Reuters News - Shares fall as Europe debt worry stings risk appetite

By Chikako Mogi

TOKYO | Thu Apr 5, 2012 4:56am BST

(Reuters) - Asian shares fell on Thursday after a weak Spanish bond sale heightened concerns about funding difficulties for weaker euro zone countries, further undermining sentiment hurt by fading expectations of more stimulus from the U.S. Federal Reserve.

MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell for a second straight session, easing as much as 1.3 percent to a four-week low, while Japan's Nikkei average .N225 fell 0.9 percent, also to a four-week low, after putting in its worst performance in five months a day earlier.

Shanghai shares .SSEC, which resumed trading after a three-day break, gained after a private sector survey of purchasing managers showed that China's services sector expanded in March and business confidence hit an 11-month high, though overall activity remained below its long-term average.

The renewed risk aversion after a strong Asian equity performance in the first quarter comes as investors factor in less support for global economic growth, waning hopes of more monetary easing from the United States, and the potential fading of the effects of the European Central Bank's huge liquidity injections.

"More policy support from the ECB in the near-term appears unlikely, following the hawkish slant in tone during its press conference," said Barclays Capital analysts. "Widening peripheral European government bond spreads, higher Treasuries, higher implied vol, a lower EUR and a stronger USD are reminiscent of past episodes of elevated European concern."

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Fed, ECB stimulus vs global stocks: r.reuters.com/rec57s

Spanish economy in graphics: link.reuters.com/quf25s

Asian CPI, food inflation: link.reuters.com/wah74r

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Risk currencies steadied, with the Australian dollar off a near three-month low of $1.0245 (64 pence) hit on Wednesday, and the euro holding above $1.3100 after falling nearly 1 percent the day before. Gold and oil also recovered on Thursday.

Spot gold inched up 0.3 percent to $1,624 an ounce. U.S. crude futures rose 0.8 percent to $102.23 a barrel while Brent crude added 0.5 percent at $122.90 a barrel.

On Wednesday, global stocks .MIWD00000PUS fell over 1 percent, gold tumbled to its lowest in nearly three months and oil shed more than 2 percent.

Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 5 basis points.

ASIA WARY OF INFLATION

Frances Cheung, senior strategist for Asia ex-Japan at Credit Agricole CIB in Hong Kong, said market liquidity was very thin and investors were digesting mixed signals about economic and monetary policy outlook.

"Triggered by inflation pressures, room for easing (by Asian central banks) is reduced now. Supply-side inflation is not good for the economy, so investors are more cautious," she said, but added that the current market downturn was a correction from strong performance earlier in the year.

Inflation in most Southeast Asian countries has slowed, so policymakers are likely to continue supporting growth by keeping rates steady, but they remain wary of the recent rise in oil prices.

ECB CALM ON SPAIN

Borrowing costs for Spain, the euro zone's fourth largest economy, jumped at bond auctions on Wednesday, with the 10-year bond yield leaping to 5.7 percent, its highest since January. It overshadowed a successful step back into debt markets by similarly highly indebted Portugal.

Ten-year Spanish yields had fallen as low as 4.6 percent in late January as cheap ECB cash fuelled a rally in weaker peripheral state debt.

But ECB President Mario Draghi appeared relaxed about the rise in Spanish yields, after the bank kept interest rates steady as expected at a policy meeting on Wednesday.

Draghi also dismissed a German-led push for the ECB to start planning a retreat from emergency crisis-fighting. But some financial market analysts detected a shift in the ECB's monetary policy back to a more traditional one focusing on maintaining price stability, as Draghi stressed the bank was keeping a close eye on price pressures.

Some market players said such fears may be overdone, pointing to a key gauge of how investors perceive risk, the VIX index .VIX.

The VIX, which measures expected volatility in the Standard & Poor's 500 index .SPX over the next 30 days, failed to keep its gains after rising above resistance at its 50-day moving average. The index hit a high of 17.74 on Wednesday, its highest in nearly a month, before retreating. A fall in the index reflects easing risk aversion.

Upbeat U.S. private-sector jobs data by payrolls processor ADP on Thursday suggested the labour market was continuing to strengthen ahead of key non-farm payrolls data due on Friday, which is expected to show the U.S. economy added 203,000 jobs last month, after February's non-farm payrolls rose 227,000.

(Editing by Alex Richardson)

Reuters News - China keen on free trade pact with U.S.: Greenberg

China's Premier Wen Jiabao gestures as he delivers a speech at a news conference after the closing ceremony of the National People's Congress (NPC) at the Great Hall of the People in Beijing March 14, 2012.

Credit: Reuters/Jason Lee

By Paul Eckert

(Reuters) - China is eager to begin talks on a free trade pact with the United States and key leaders seem willing to step away from the state capitalism Beijing has been pursuing, a senior U.S. executive with access to China's leadership said on Tuesday.

Maurice Greenberg, chairman of Starr International Company Inc and former AIG chief, met with Premier Wen Jiabao, Wen's expected successor Li Keqiang and other top official's during a two-week visit to China.

"The Chinese would negotiate a free trade agreement with the United States and they would start immediately to have talks to see if it can be negotiated," Greenberg told a think tank conference in Washington, speaking from New York.

Commerce Minister Chen Deming "said he'd start negotiating tomorrow if the U.S. were prepared to do so," said Greenberg.

"It will take 10 years in my judgment to negotiate a free trade agreement, in the complexities that would be involved," added the insurance executive and prominent figure in U.S.-China business ties.

Greenberg said he saw no sign the U.S. government was interested in free trade talks with China, adding that although the negotiations would be arduous, they could iron out bilateral trade problems and avoid a trade war.

Meetings with top Chinese leaders convinced Greenberg that they were serious about tackling a major U.S. trade complaint: the rampant violation of patents, trademarks and copyrights by Chinese firms.

"They're committed to eradicating all intellectual property misbehavior and they'll be very harsh on those who continue to do it," he said. "I believe they're sincere in trying to enforce the rules on intellectual property."

REFORMIST PATH

Premier-designate Li and China's likely next president, Xi Jinping, were "very smart" and likely to keep China on a reformist path, Greenberg said.

"My own belief is that he's less devoted to state capitalism than has been their strong trend," he said of Li.

Greenberg said Beijing appears willing to adjust economic policies, including the favoritism shown to China's state-owned enterprises (SOEs) that are at the core of most U.S. trade disputes with China.

"There'll be less emphasis on SOEs than there has been historically, and there'll be more emphasis on small and medium-sized companies," said Greenberg.

"They recognize that the SOEs have been sopping up virtually all of the liquidity out of the banks and that small and medium-sized companies have to go to the secondary markets where they pay huge interest rates, which keeps them from developing," he said.

OUSTED BO GOING "WRONG WAY"

Greenberg also touched on the scandal in the southwestern Chinese city of Chongqing, whose charismatic leader Bo Xilai was abruptly ousted last month.

"You don't go around trying to promote yourself to a political position in China. That doesn't fly," said Greenberg.

"His behavior, singing Mao songs and wanting to go back to that era, was just the wrong way to do it," said.

Bo, who had led a campaign to revive radical songs and slogans of the 1966-76 Cultural Revolution, was removed as Chongqing party boss in mid-March, six weeks after his vice mayor, Wang Lijun, fled to a nearby U.S. consulate.

Greenberg said he had a "very pleasant" 90-minute meeting with Bo and Chongqing mayor in that city in February.

"About two days later, things blew up," he said.

(Reporting By Paul Eckert; Editing by Anthony Boadle)

CNN News - UNICEF aims to raise awareness of children at risk in Africa's Sahel region

Alarm over deadly food crisis in Africa


By the CNN Wire Staff

(CNN) -- The United Nations Children's Fund set in motion a worldwide social media campaign Tuesday to raise awareness about children in the Sahel region in northern Africa who are in urgent need of food aid.

Called #SahelNOW, the campaign asks users on Facebook, Twitter and other social media to post messages through the day to spread word of the problem and raise funds for the estimated 1 million children in danger.

According to UNICEF, a "severe and ongoing drought in these desert regions means that 1 million children could die of malnutrition; we can save them if we act now."

The Sahel, a belt of arid land that stretches across Africa below the Sahara Desert, is a zone prone to cycles of drought. At the moment, eight countries -- from Senegal on the Atlantic Coast to Chad in the middle of the continent -- are experiencing the worst conditions.

The U.N. Food and Agriculture Organization says the main causes of the humanitarian crisis in the region are "drought, chronic poverty, high food prices, displacement and conflict."

The United Nations estimates that more than 10 million people in total are in danger of starving to death.

Aid workers on the ground say the situation is rapidly deteriorating.

"It's related to the lack of rains in 2011 and the drought," said David Gressly, UNICEF's regional director.

"People are trying to cope with that by selling their personal belongings -- cattle, livestock," he said. "They're pulling children out of school to adapt to this."

UNICEF has asked governments for about $120 million to help tackle the crisis. At this point, it has about $30 million on hand.

"We have the technology and the knowledge to treat these children who suffer from severe acute malnutrition very effectively," said Werner Schultink, chief of nutrition at UNICEF.

"If we identify them, if we get to them quickly enough, we can really cure them and prevent them from dying," he said.

The Food and Agriculture Organization said last month that it had only $10.3 million of the $75.4 million it needed to support more than 4.7 million individual beneficiaries in the region.

The United States says it has so far earmarked almost $200 million this year to respond to the humanitarian crisis in the Sahel. The assistance aims to help address short-term and long-term needs.

UNICEF's social media campaign comes after a celebrity-backed video that went viral helped make the alleged crimes of an African militia leader more widely known.

The nonprofit group Invisible Children produced the "Kony 2012" half-hour documentary, which was viewed tens of millions times on YouTube.

The video brought international attention to the activities of Joseph Kony, the notorious leader of the Lord's Resistance Army in central Africa.

BBC News - New UK attempt to capture carbon

By David ShukmanScience editor, BBC News

A renewed attempt to develop ways of making power stations greener is set to be unveiled by the government.

The aim of carbon capture is to is to prevent CO2 escaping into the atmosphere

For the second time in five years, £1bn will be offered for schemes to trap and bury carbon dioxide.

An earlier competition collapsed after all nine entrants pulled out, most citing cost as the main problem.

The last to withdraw was a project run by Scottish Power at its Longannet station in Fife, and the prize money was not awarded

Known as "carbon capture and storage" (CCS), the idea is to prevent CO2 escaping into the atmosphere.

A major part of the government's low-carbon strategy, CCS has been plagued by delays and uncertainty.

Its attraction is that existing fossil fuels including coal and gas can be burned without releasing the usual quantities of CO2, the key greenhouse gas.

Instead of being vented into the air, the gas would be trapped and then piped into long-term storage in old oil fields under the North Sea.

The original hope was for British firms to design systems that could be fitted to the soaring numbers of coal plants in China and India to reduce their emissions.

However the research has proved costlier and more complicated than many expected, and the timescale keeps slipping.

Revised rules

Only last month the National Audit Office criticised the government for taking "too long to get to grips" with the commercial and technical risks involved.

Now ministers are hoping that by revising the rules for the competition they will have a better chance of attracting more interest.

In the last contest, entries were originally limited to designs that could only be used at power stations burning coal, not gas.

And the rules also only allowed systems that trapped carbon dioxide after the fuel was burned - so-called "post-combustion".

By contrast, the new competition will be open to coal and gas stations, and to schemes that attempt to capture carbon before combustion.

As one official put it to me: "Lessons have been learned and we're not closing our eyes to what industry is suggesting."

A three-month consultation opens with selected projects expected to be running by 2016-2020.

But, as with the last competition, a key factor will be viability. Although many of the technologies have been proven at a small scale, no industrial-scale project has yet been tested.

A further concern is price. With the precise designs still to be settled, estimates for future running costs are uncertain, including the price of emitting carbon and the size of low-carbon subsidy.

The announcement comes amid uncertainty about the government's energy policy, after RWE and e.ON pulled out of a major project for new nuclear power stations last week.

The policy has four key strands: new nuclear stations, a huge expansion of renewables like wind, efficiency measures to cut energy use and reducing emissions from coal and gas by using carbon capture and storage.

So the new announcement will mark another important effort to revive a potentially crucial technology that has faltered so far.

CNN News - Celebrate Aung San Suu Kyi's victory -- ease sanctions on Myanmar

Supporters pack a truck with the hope of seeing democracy leader Aung San Suu Kyi on her visit to her constituency for the parliamentary elections April 1, 2012 in Myanmar.

By Suzanne DiMaggio and Priscilla Clapp, Special to CNN

Editor's note: Suzanne DiMaggio is vice president of global policy programs at the Asia Society (Follow her on Twitter). Priscilla Clappis a retired minister-counselor in the U.S. Foreign Service and former Chief of Mission at the U.S. Embassy in Burma.

(CNN) -- Democracy leader Aung San Suu Kyi's victory in Myanmar's by-elections on Sunday represents the nascent return of opposition politics to the country after nearly half a century of military rule. It also has created an opportunity for the United States to begin easing economic sanctions that are hindering reform.

Aung San Suu Kyi, kept under house arrest by the government for 15 years, won a seat in the parliament with a handy plurality.

Votes continue to be tallied, but reports indicate that her National League for Democracy (NLD) party captured most of the 45 seats up for grabs. The military-backed Union Solidarity and Development Party (USDP) will maintain its grip on the majority of the 662 seats in the Union Parliament, but now opposition members will have a voice in lawmaking.

The international community should take this moment to encourage Myanmar's moves toward liberalization. For the United States, the time has come to seriously address its myriad financial sanctions on Myanmar to ensure that they are not working at cross-purposes with reform efforts.

The reformers in Myanmar believe that popular support for the political transition can be consolidated only if real improvements in the quality of life can be delivered to the country's poverty-struck masses and struggling middle class. They fear that if the country's economic decline is not arrested and reversed relatively soon, it will lead to widespread dissatisfaction and instability, threatening a return to harsh security measures.

The draconian application of U.S. financial sanctions is having a serious negative impact on legitimate economic actors in Myanmar who are struggling to institute positive changes. They are also impeding Americans who are working to assist in the reforms.

While those aspects of the financial sanctions aimed at inhibiting corrupt economic activity should be retained, they should be modified to ensure that they do not prevent legitimate financial transactions essential to the development of a vibrant private sector, that they allow wider assistance for capacity building which Myanmar so urgently needs, and that they contribute positively to the transformation of the country's banking and financial system.

Gradually easing the trade sanctions could help develop certain sectors of the economy as they begin to expand. Investment sanctions should also be reduced as the macroeconomic structures are reformed and anticorruption measures are put in place.

The complex web of U.S. sanctions targeted at Myanmar over the past 20 years includes five federal laws and four presidential executive orders, all of which require different conditions to be met for lifting.

Throughout the sanctions-building process, very little thought was given to how to unpack them if and when it was warranted. By necessity, this will be a gradual process, enabling the United States to continue to test the commitment of President Thein Sein's government to pursuing democratic reforms, halting conflict in ethnic areas and seeking a genuine political settlement and expanding individual freedoms and civic activity.

Some of Myanmar's new leaders are trying to move decisively in the direction of democracy, free enterprise, and the protection of human rights, which the United States has been advocating for decades.

To insist on solutions to all of the country's problems before sanctions can be relieved at all would be self-defeating. A more reliable measure of progress than the by-elections will come in 2015, when Myanmar plans to hold its next general elections.

By this time, the civilian population should have a better idea of whether the government is making sincere efforts to serve the public interest, whether it is safe to run for office and engage openly in political activity, and whether a new generation of socially responsible political and military leaders is emerging.

The United States should do all it can to help Myanmar get to this point.

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The opinions expressed in this commentary are solely those of the authors.

BBC News - Eurozone ministers boost firewall to $1tn

Finance ministers in Copenhagen have agreed to increase the size of the eurozone's rescue funds.

Denmark's Economy Minister Margrethe Vestager discusses the firewall as the summit begins

Eurozone countries agreed to boost the joint lending power of the "firewall" from 500bn to 800bn euros ($1.1tn; £667bn).

The firewall is the permanent mechanism to bail out troubled eurozone nations.

But in reality, what the eurozone countries are doing is making commitments available earlier that they had already agreed to give.

As Spain and Italy's finances have looked more precarious, investors have been worried about whether the eurozone's firewall could cope with more bailouts.

The new enlarged fund, combined with what the International Monetary Fund has agreed to lend to the eurozone, should be enough to cope with a new crisis, some suggest.

"Including the IMF commitments, this is enough to take care of Italy and Spain for the next three years and that was the point of this exercise," Christoph Weil, senior economist at Commerzbank in Frankfurt, told the BBC.

He added that he did not think Spain and Italy would require bailouts.

Others were less convinced.

"Today's decision is a classic European compromise," said Carsten Brzeski, economist at ING bank in Brussels.

"It was as far as the German government was willing to go and it was the minimum most other eurozone countries were expecting.

"A bigger increase... could have sent a stronger signal and would have been more convincing," he said.

IMF head Christine Lagarde welcomed the move.

"The IMF has long emphasised that enhanced European and global firewalls, together with the implementation of strong policy frameworks, are critical for ending the crisis and securing international financial stability," she said.

'Strategy paid off'

The existing fund - the European Financial Stability Facility (EFSF) - has already been used to rescue the Republic of Ireland and Portugal, and is committed to providing part of Greece's second bailout.

It will have only 200bn euros in remaining lending capacity from the middle of this year, which can only be used for new rescues "in exceptional circumstances".

The European Stability Mechanism (ESM) was originally intended to be a permanent replacement for the EFSF, but now the two will overlap from the middle of this year.

The combined lending of the two funds will be set at a total of 700bn euros.

Including two other loans already made to Greece, the eurozone said the firewall is now above 800bn euros.

"Robust firewalls have been established," the eurozone ministers said. "This comprehensive strategy has paid off and led to a significant improvement of market conditions."

Debate over size

Earlier this week the Organisation for Economic Co-operation and Development - a forum of the world's rich democratic nations - recommended increasing the bailout funds to 1 trillion euros, or about 11% of the eurozone's gross domestic product.

Its head, Angel Gurria, called for ministers to agree what he described as "the mother of all firewalls".

But Germany favoured only a modest increase at the summit of the finance ministers of the 17 nations that use the euro in the Danish capital.

As recently as this week, German Chancellor Angela Merkel said that she would favour only a temporary increase to 700bn euros.

But any increase beyond the 800bn euros that the eurozone agreed would be hard to get through the German parliament, Commerzbank's Mr Weil said.

"There was speculation that the total would be higher, but from the German perspective, this was the maximum they could extract," he added.

Speaking before the meeting, the Republic of Ireland's Michael Noonan said: "If we get to 800 or beyond 800, the denominated amount in dollars... presents a very serious firewall to prevent attacks on Europe."

Many eurozone members, including France, were thought to be in favour of a big increase in order to ensure that larger eurozone countries are not drawn back into the crisis.

Concerns have been raised over Spain, which has failed to cut its borrowing as much as promised, and which faces violent protests against labour market reforms intended to boost its flagging economy.

"I am confident of our capacity to reach an agreement, we will reach a consensus," said French Finance Minister Francois Baroin as he arrived for the talks.

"The right size of the fund depends on how you approach the issue."

Third bailout?

Meanwhile, Greek Prime Minister Lucas Papademos has raised the possibility of a third bailout for his country in an interview with Italian daily Il Sole 24 Ore.

"It cannot be excluded that some financial support may be necessary, but we must try hard to avoid such an outcome," Mr Papademos said.

"Greece will do everything possible to make a third adjustment programme unnecessary.

"Having said that, markets may not be accessible by Greece even if it has implemented fully all measures agreed upon," he said.

A meeting to decide who will be the next head of the Eurogroup - which is the eurozone countries plus the head of the European Central Bank and the Commission - broke up on Friday without a decision.

Jean-Claude Juncker, the current chairman, cancelled a scheduled news conference after becoming angry with the Austrian finance minister Maria Fekter for leaving the meeting early and announcing the decision on the firewall prematurely.

It means a delay - until mid-April - to find out who will replace Mr Juncker and whether Yves Mersch from Luxembourg will take a seat on the ECB board.

BBC News - Spain budget: Cuts to total 27bn euros this year

Spain is cutting 27bn euros ($36bn; £22.5bn) from its budget this year as part of one of the toughest austerity drives in its history.

Deputy Prime Minister Soraya Saenz de Santamaria said "serious efforts" were needed

Changes will include freezing public sector workers' salaries and reducing departmental budgets by 16.9%.

The government says it will raise 12.3bn euros this year, aided by an increase in tax for large companies.

Deputy Prime Minister Soraya Saenz de Santamaria said the nation was in an "extreme situation".

"Our top priority is to clean up public accounts," she said.

"This is a moment that demands serious efforts to reduce spending but also structural reforms to cause the economy to grow and create jobs."

But economists are questioning whether the cuts will be enough to satisfy Spain's European partners.

'Insufficient' cuts

Last month Prime Minister Mariano Rajoy agreed with the European Commission to reduce Spain's deficit from 8.5% to 5.3% of GDP in 2012.

Javier Diaz Gimenez, professor of economics at IESE Business School in Madrid, said: "This [budget] seems to be non-credible.

"They will not be making the 5.3% target agreed with Brussels, because the cuts are insufficient given the growth forecast," he told BBC News.

This could mean further cuts are needed before long.

"I suspect that the government could be forced to implement further austerity measures later this year, with lingering economic downturn set to place additional strains on an already perilous budget deficit reduction plan," said Raj Badiani, an economist at IHS Global Insight.

The main risk is that the government's tax revenue projections for 2012 look too optimistic," he said.

There are concerns, however, that even the latest spending cuts could further damage the chances of getting the Spanish economy growing again. It is in recession and is expected to shrink by 1.7% this year.

Soraya Saenz de Santamaria said this would not happen.

"Our obligation towards Spanish people and the rest of the EU citizens is to get public accounts into shape," she said.

"Not at any cost, but with measures that support those citizens who need it the most and not paralysing a possible recovery or job creation."

Budgets slashed

Under the 2012 budget the unemployed will see their benefits maintained and pensions will continue to rise.

Consumers have also been spared some pain as VAT will remain at its current level.

But they can expect higher living costs as Energy Minister Jose Manuel Soria announced a 7% rise in electricity bills and 5% rise gas bills from 1 April.

The government is also going ahead with a previously-announced increase in income tax by 1.9%.

The 27bn euros of cuts is equivalent to 2.5% of the country's economic output.

Amongst government ministries, the big losers are the foreign office, whose budget has been halved. Industry, energy and tourism will get a 32% cut, while the public works budget will be slashed by 34%.

More details will be published next Tuesday when the budget goes before Parliament. It is expected to be passed formally in June.

'Not yielding'

On Thursday, police clashed with demonstrators as hundreds of thousands swamped the streets in Barcelona and other cities.

Unions said 800,000 people joined the protest in Barcelona. Police put the number at 80,000.

Some marchers in the city smashed windows and set rubbish bins alight. Police fired tear gas and shot rubber bullets at the ground, TV pictures showed.

In the capital, Madrid, unions said about 900,000 people took part. The government did not give a figure.

The BBC's Europe editor, Gavin Hewitt, says the size of the demonstrations on Thursday were an indication that many are losing patience with austerity.

Unemployment in Spain is currently the highest in the EU at 24%. Nearly half of Spain's under-25s are out of work.

The general strike was the government's first big challenge since Mariano Rajoy took office after elections last November.

Despite the opposition, the government says it is committed to reining in its spending.

"The question here is not whether the strike is honoured by many or few, but rather whether we get out of the crisis," Mr Montoro said.

"That is what is at stake, and the government is not going to yield."

Bailout fears

Separately, eurozone ministers have agreed the expansion of Europe's bailout reserves.

The ministers, meeting in Copenhagen, have decided to boost the joint lending power of the "firewall" to 800bn euros.

Investors - worried about a bailout for Spain or Italy - wanted the fund to increase from its current size of about 500bn euros to closer to 1 trillion euros. But there was resistance from Germany to an increase of that scale.

Planned labour market reforms have proved deeply unpopular in Spain