Portugal banks at risk unless public spending cut

Portugal's central bank said on Tuesday the country's banks faced an "intolerable risk" unless the government manages to bring its public spending under control as it struggles to combat a debt crisis.
The Bank of Portugal report spelled out a tricky scenario for the banks as concerns grew in markets over the nation's prospects of avoiding a bailout and thus becoming the next domino to fall in the euro zone.
Prime Minister Jose Socrates last week pushed through an austerity budget which will raise taxes and cut public sector wages and he insists no international rescue package is needed.
But for many economists, the question is not if a bailout will happen, but if it will be sooner rather than later.
Ireland received an 85 billion euro (USD 113 billion) bailout package from the EU and IMF this weekend. Economists fear that unless Portugal takes the same medicine, the contagion will spread to its neighbour Spain, a considerably larger economy than the peripheral countries hit so far by the crisis.
The Bank of Portugal financial stability report said that failure to consolidate public finances would put the Portuguese banking sector in jeopardy, especially if the sovereign debt crisis continued in Europe.
"The risk will become intolerable if we do not see the implementation of measures that consolidate public finances in a credible and sustainable way," it said.
Budget execution has been poor so far this year, with the core state sector deficit widening 1.8% in the first 10 months, and Brussels is pushing Socrates to do more.
The government has promised to cut next year's budget deficit to 4.6% of gross domestic product from 7.3% this year with across-the-board tax hikes and five percent cuts in civil servant wages.
Portugal's risk premium, measured by the spread on its 10-year government bonds over safer German Bunds, was two basis points higher at 458 basis points.
Banking shares led Portuguese stocks lower, with Banco Espirito Santo slumping two percent and Millennium BCP down 0.5 percent.
Timing of any bailout uncertain
The report said the austerity measures would harm the economy next year although the impact could be mitigated by external demand for Portuguese products.
An economic downturn would mean the banks had less money to offer companies and households in credit. They needed to find new strategies to tap clients' resources in order to dampen liquidity risks as they had been shut out of the interbank funding and have had to rely on European Central Bank funding.

Toyota to fix 650,000 Prius hybrids for heat risk

Toyota Motor Corp will pay to fix about 650,000 Prius models worldwide for a coolant pump glitch that could cause the top-selling hybrid to overheat and lose power, the automaker said.
The repair campaign covers Prius cars for the model years 2004 to 2007. The bulk of the cars, or 378,000 units, are in the United States.
The Japanese automaker said it had not received any reports of accidents or injuries from problems with the pump, which circulates coolant for the hybrid system.
Major automakers, including Toyota, often conduct repair campaigns that are separate from safety recalls filed with U.S. regulators in cases where they determine that a defect does not present a safety risk.
Toyota said the design of the electric water pump let air bubbles enter the system, slowing coolant circulation and allowing the hybrid's components to heat up.
The heating up of the components could trigger a warning light. If left unattended, the Prius could overheat and drop into a "fail-safe" mode where engine power would be reduced, Toyota said.
Toyota said it would begin notifying owners of the Prius repair campaign in the United States in early December.
The automaker has used a different pump design on the Prius hybrid since that time and uses a different type of pump for other hybrids, Toyota spokesman John Hanson said.
Toyota will cover the cost of the repairs, including more than USD 100 in labour for each Prius fixed at a U.S. dealership.
The repair campaign on one of the best-known Toyota vehicles comes at the end of a year in which the top global automaker has struggled to distance itself from a damaging series of recalls and concerns about its quality management.
Since last November, Toyota has recalled about 14 million vehicles worldwide, including about 11 million in the United States.

Vedanta delays $1.1 bn Zambian copper IPO

London-listed Indian miner Vedanta has delayed an initial public offering (IPO) of its Zambian copper business until next year, citing stock market volatility.
It is the first big European IPO to fall victim to a renewed wave of financial market turbulence brought on by the Irish debt crisis.
Earlier this month, Vedanta announced plans to list Konkola Copper Mines (KCM), the second-biggest integrated copper producer in Africa, selling new and existing shares to raise about USD 1.1 billion to be used by KCM to boost output.
Kishore Kumar, chief executive of KCM's holding company Konkola Resources, had told Reuters the London listing was expected next month, while a source close to the deal had said final pricing was expected in mid-December.
But the company said on Tuesday the listing was not expected before next year.
"With year end approaching and the current stock market volatility, the boards of Vedanta Resources plc and Konkola have decided to pursue such listing in 2011," it said in a statement.
After a relative resurgence in European offerings in October and early November, supported by stock markets trading at two-year highs, concerns over euro zone debt following Ireland's bailout have increased market turbulence.
The IPO market is also winding down. No further new deals are likely to be launched this year as there would not be enough time to complete the usual month-long process and allow newly listed shares to trade properly before the Christmas break.
Shares in Vedanta, which also plans to list its Indian Sterlite Energy commercial power generation subsidiary, fell sharply following the announcement but recovered some losses to trade 0.5% lower at 2,000 pence by 1130 GMT.
Vedanta has an indirect 79.4% stake in KCM, with the remainder held by ZCCM Investments Holdings, majority-owned by the Zambian government. Vedanta will retain a majority of KCM, which will also be listed in the Zambian capital of Lusaka.
KCM has 404.8 million tonnes of proved and probable mineral reserves, with contained copper of 6.52 million tonnes. It has 20,777 employees and third-party contractors, making it the largest private employer in Zambia.
The group plans to more than double output to 400,000 tonnes a year by 2014 from around 173,000 tonnes and to cut integrated cash costs to below USD 1 per pound from USD 1.80.
Goldman Sachs and JP Morgan Cazenove are acting as joint sponsors and co-ordinators of the offer.

Vedanta delays listing Zambian copper unit

London-listed Indian miner Vedanta said on Tuesday a planned initial public offering (IPO) of its Zambian copper business would not take place until next year, due in part to stock market volatility.
Earlier this month Vedanta announced plans to list Konkola Copper Mines (KCM), the second-biggest integrated copper producer in Africa, selling new and existing shares to raise about USD 1.1 bn to be used by KCM to boost output.
Kishore Kumar, chief executive of KCM's holding company Konkola Resources, had previously said the London listing was expected next month, while a source close to the deal had said final pricing was expected in mid-December.
"With year end approaching and the current stock market volatility, the boards of Vedanta Resources plc and Konkola have decided to pursue such listing in 2011," the company said in a statement.
After a relative resurgence in European offerings in October and early November, supported by stock markets trading at two-year highs, concerns over euro zone debt following Ireland's bailout have increased market volatility.
Shares in Vedanta fell sharply following the announcement and by 1000 GMT, stood 1.19% lower at 1,988 pence.

China funds cut equities allocation from record high

Mutual funds in China cut their recommended equity weightings to 84.8% from a record high in October while raising allocations to cash and bonds, as expectations of inflation and further monetary tightening reduce risk appetite, a monthly Reuters poll of fund managers showed.
Suggested equity weightings over the next three months fell from 88.9% last month, while recommended allocations for bonds rose to 3.2% from a record low of 2.4% in October, the poll of nine China-based funds showed.
Suggested cash weightings rose to 12% from 8.7%, the poll showed.
Six fund managers surveyed cited inflation and monetary tightening as the biggest risks, with one manager saying: "Inflation is likely to invite further monetary tightening, which will reduce market liquidity and hurt the stock market."
China's stock market slumped in November after October's 12% rise, with previously bullish commodity-related stocks turning bearish. The poll showed that fund managers are shifting their preferences back to hi-tech and consumer-related stocks.
Fund managers expected the benchmark Shanghai Composite Index to trade between 2,800 and 3,200 points in the next three months, lower than the previous poll's range of 2,900 to 3,500 points.
The main index tumbled 3% to 2,778.9 points in morning trade on Tuesday.
Within an equities portfolio, the suggested weightings for consumer stocks were raised from last month's 22.7% to 32.6%, the highest level seen since the poll started in 2007.
In comparison, fund managers avoided financials and property stocks, cutting the suggested weighting to the financial services sector to 9.8%, the lowest level on record.

Expert advice: Stocks that can make you money

In a chat with CNBC-TV18's Sonia Shenoy and Ekta Batra, SP Tulsian gives fundamental view and Vijay Bhambwani of bsplindia.com gives technical view on various stocks/sectors.
On State Bank of India (SBI):
Tulsian says, “The recent correction in the market has really made the public sector bank stocks quite attractive. In fact somebody who wants to play very safe that he doesn’t mind even waiting for couple of months also, but he wants to catch it at bottom, probably Rs 2,800 looks the level where he should look to buy. But my advice for him would be that probably to wait for a fall of Rs 70. He may lose an opportunity of stock going up by maybe Rs 100-150 because we keep the good bounce back coming up in the stock, the moment sentiments keeps improving. So, in my view, SBI is virtually ruling at its bottom and buying is a advice at current levels.”
On Ranbaxy:
Tulsian says, “I have been maintaining quite positive view on the stock for last four-six months. I see the normalcy returning back for the company on the USFDA front because they had a lot of problems, lot of litigations and all that. But now with the new management probably Lipitor could be the real big booster, which is likely to happen or the launch is likely to happen from November 2011. So, maybe one year horizon is may be little short. If somebody can keep a view of two-three years, in my view in three-year time, one can expect the stock to again breach four digit mark. But still somebody wants to have a one year's view, I don’t think that Rs 700 to Rs 720 should be the target one can look for on the stock because I don’t think that this will just give a linear kind of growth. The moment we will be seeing good improvement in the financial performance that can give a very good upside on the stock from here on. So, I have quite positive view, buying is advised at the current levels.”
Bhambwani says, “This is a long-term story that’s likely to yield good results, probably even market outperformer as relative to the Nifty 50. Since its trading at Rs 570, the short-term inflection point or resistance would be close to Rs 580-585. Once it trades consistently above Rs 580 or Rs 585 band, I think going past the immediate hurdle of Rs 625 and scaling the all time peak of Rs 650 will not really be to much of a problem. On the downsides, ample support exists close to the Rs 520 odd levels. Looking at the volatility the market is undergoing, there might be a possibility that stocks including Ranbaxy may just be available at lower levels, so one gets a chance to basically average out one's cost.

Shipping Corp sets FPO price band at Rs 135-140/share

Shipping Corporation of India (SCI), one of India's largest shipping companies in terms of Indian flagged tonnage, has set a price band at Rs 135-140 a share for its follow-on public offer (FPO) of 8,46,90,730 equity shares, which will open for subscription on Tuesday, November 30, 2010, reports CNBC-TV18.
The issue comprises of a fresh issue of 42,345,365 equity shares by the company and an offer for sale of 42,345,365 equity shares by the President of India, acting through the ministry of shipping, government of India. The issue comprises a net issue to the public of 84,267,276 equity shares and a reservation of up to 423,454 equity shares for subscription by eligible employees.
The share closed at Rs 145.40, down Rs 1.3, or 0.89% on the Bombay Stock Exchange while the price band is set at a 3.7% discount to its current market price. The company aims to raise around Rs 1,100 crore through the FPO.
SCI has approximately 35% share of Indian flagged tonnage as of June 30, 2010, according to the website of Directorate General of Shipping, Government of India (DG Shipping). As of September 30, 2010, it owned a fleet of 74 vessels of 5.11 million dead weight tonnage (DWT).
Its fleet includes dry bulk carriers, very large crude carrier (VLCC) tankers, crude oil tankers, product tankers, container vessels, passenger-cum-cargo vessels, phosphoric acid and chemical carriers, LPG and ammonia carriers, and offshore supply vessels.
The issue will close for subscription on December 3. Central and state governments' holding will reduce to 63.75% post issue.
The company will not receive any proceeds from the offer for sale by governments. However, net proceeds from fresh issue will be used for part funding the equity portion for the acquisition of certain vessels by company and general corporate purposes.
SBI Capital Markets Limited, ICICI Securities Limited and IDFC Capital Limited are the book running lead managers to the issue.

ECB's Noyer assures cagey markets over Ireland rescue

European Central Bank policymaker Christian Noyer sought to bolster market confidence in the euro zone's rescue for Ireland, telling cagey investors they should have faith in the plan's success.
Euro zone ministers -- acting under pressure to prevent the crisis of confidence in the region's finances from engulfing Portugal and Spain -- also backed a long-term mechanism intended to prevent the debt crisis from tearing the zone apart.
Noyer, the first member of the ECB's policy council to speak after euro zone ministers sealed an 85 billion euro (USD 115 billion) loan package for Ireland on Sunday, said he was confident the deal would bring down Dublin's borrowing costs to more normal levels.
"There is no reason to doubt the recovery plans of the two countries," Noyer said in a speech in Tokyo, referring to Ireland and Greece.
But market reaction showed investors thought the crisis that started with Greece's budget blow-out more than a year ago was far from over.
The euro rose slightly against the dollar in early Asian trading on Monday, but quickly slipped back to two month lows.
"I don't think this is going to be a silver bullet. I think there are still going to be some question marks on Portugal and Spain," said Peter Westaway, chief economist at brokers Nomura.
One of the questions that has been dogging markets for weeks and helped drive Ireland off the cliff was whether and under what circumstances private bondholders could be made to take losses, or "haircuts", on euro zone government debt.
The new European Stability Mechanism outlined on Sunday would make private investors share the pain in the case of a debt default or restructuring, but it would apply only to debt issued after 2013.
Noyer, who is also governor of the Bank of France, said that he believed even then it should remain only a theoretical possibility.
"As far as I'm concerned, I exclude that there will be haircuts in the future. It will be a major objective of all members of EU to do everything necessary to be in a position to fully honour their debts in the future.
European officials have been at pains to play down the links between Ireland and Portugal, widely seen as the next euro zone "domino" at risk. Troubles in Portugal could quickly spill over to Spain because of their close economic ties.
Noyer joined the chorus on Monday, saying Portugal was making good progress in consolidating its public finances.
With anxiety rattling bond markets, the Irish government had been under intense pressure to accept a bailout despite repeatedly saying in recent weeks it did not need one.
"This agreement is necessary for our country and our people. The final agreed programme represents the best available deal for Ireland," Irish Prime Minister Brian Cowen said.
The deal aims to help Dublin cover bank debts amassed when a property bubble burst and bridge its budget deficit, which ballooned to about a third of the country's annual economic output.
Debt worries have marred Europe's recovery from global recession for the past year, severely denting confidence in the 12-year-old euro currency and leading to what amounts to a showdown between European politicians and financial markets.
Irish banks
Some 35 billion euros was earmarked to help fix Irish banks, of which 10 billion will be an immediate capital injection and the rest a contingency fund. Ireland will contribute 17.5 billion euros in cash and pension reserves.
The rest of the emergency loans, which Dublin said were granted at an average interest rate of 5.8% , will help cover the giant hole the banks have blown in public finances. The IMF will contribute 22.5 billion euros.
In a key concession, Ireland was given an extra year, until 2015, to bring its budget deficit down to the EU limit of 3% of gross domestic product.
And Cowen, whose government is close to collapse over the EU/IMF bailout, said the deal did not involve any change to Ireland's jealously guarded 12.5% corporate tax rate.

Wal-Mart to pay $2.1 bln for control of Massmart

Wal-Mart Stores Inc, has made a formal bid to pay USD 2.1 billion for control of South Africa's Massmart, a deal that would give the world's largest retailer a major foothold in fast-growing Africa.
The two companies said in a statement on Monday Wal-Mart would pay 148 rand for a 51% stake in the South African discount retailer, valuing the deal at 15.2 billion rand (USD 2.13 billion), according to Reuters calculations.
Wal-Mart said in September it was looking to buy up to all of the South African retailer, but scaled the bid back to more than 50% last month.
By taking 51% of Massmart, Wal-Mart will gain control of the firm and keep it listed in Johannesburg, which may have been critical to gaining regulatory approval. South Africa's government last year scuppered a USD 24 billion tie-up between local telecom MTN Group and India's Bharti Airtel, due to concern that MTN would lose its local listing.
The deal will also likely put Wal-Mart, which has long battled with organised labour in the United States, up against South Africa's powerful trade unions. The deputy general secretary of the South African Commercial, Catering and Allied Workers Union (SACCAWU) said this month he could not rule out the possibility of a strike if the deal went through.
The two companies said Wal-Mart has received "irrevocable undertakings" from institutional shareholders holding 35.2% of Massmart shares that they would vote in favour of the deal. In addition it has received non-binding letters of support from shareholders holding about 15% of Massmart's shares.

Panel seeks temporary withdrawal of POSCO permit

A forest panel examining any potential violation of forest laws for a proposed steel mill by South Korea's POSCO in Orissa has recommended temporary withdrawal of existing permits, Environment Minister Jairam Ramesh said on Monday.
The long-delayed plant in India's eastern state of Orissa has been stalled by protests and environmental reports spearheaded by Jairam Ramesh, who has scrapped many big-ticket projects including some by London-listed miner Vedanta Resources Plc.
POSCO is among several companies that have come under scrutiny from Ramesh, whose tough approach has sparked criticism from businesses and even other members of the government pushing for rapid industrialisation.

Wild swings on D-Street: Is it time for bottom fishing?

The party is over. Indian markets are badly are bruised falling from the levels of 21000 in Diwali.
It was a day of carnage for the market due to repercussions of the corruption scandal. We saw a deep sell off in early trade which saw the Nifty fall to levels of 5690. It was the broader markets that saw the most pressure today with the midcap index falling as much as 5% on an intra-day basis but what followed was a recovery as well.
Excerpts from Closing Bell on CNBC-TV18 Watch the full show »
So by the end of day the Nifty was down 7.80 points or 0.82% points ending below 5800 to settle at 5,751.95 and the Sensex lost 181.55 points or 0.94% to close at 19,136.61.
In the last three weeks, the Sensex shed 1,868.35 points and the Nifty 560.5 points from their all-time closing highs of 21,004.96 and 6,312.45 touched on Mahurat trading day, respectively.
In this week, the markets continued downtrend for fourth consecutive day today. Heavy sell-off due to lingering impact of housing finance scam dragged Nifty below the all important technical support area of 5700 and the Sensex below 19000 mark in morning trade but in second half of trade, indices managed to show recovery due to short covering. Some gains again wiped out in last half an hour of trade due to further fall in European markets.
So, is it time for some bottom-fishing?
Pashupati Advani of Advani OTC Dealers thinks that markets are oversold in the short term. He suggests buying stocks atleast those which have fallen off the cliff.
Advising to cherry pick stocks, Advani adds, “There have been a number of stocks that have sort of come off a lot and I would even look at some of the troubled stocks which I don’t think are perhaps may be as not involved as they should be and have come in on the breadth of the scam. I don’t know if the scam is as big as it should necessitate the kind of market capitalization that we have lost.”
Advani thinks that Tuesday will actually be the true test for markets as US will return to business again after the series of holidays lined up this weekend. Advani suggests buying HDFC and HDFC Bank.
According to Vibhav Kapoor, IL&FS the markets should find logical support at 5700 and it’s already fallen 10% in a matter of 14 days almost consecutively. Kapoor believes that most of the worst is over and hopes the markets might be trading between 5700 and 5950 or 6000 for a few weeks.
On an optimistic note, Kapoor says that if there are no more negative news then there are many chances that markets might consolidate from here on. “I think 5400 – 5450 are very important levels from the point of view of defining that it is a continuing bull market or are we getting into bear market because around 5400 – 5450 I think the market would be trading at about 13.5 times - 14 times FY12 earnings,” explains Kapoor.
Top picks of Kapoor include banking and IT sector. “IT is a reasonably good sector although some of the largecaps like Infosys are not cheap because they haven’t fallen all that much but it’s a good defensive sector,” adds Kapoor.
In the realty sector, Kapoor prefers DLF and Unitech.
Technical Analyst, Mitesh Thacker agrees that though stocks have lost heavily, most of them have also bounced back. So there is a possibility that markets may touch bottom but it will only be temporary phase.
“We have seen a lot of stocks loosing 25-30% probably even more and then bouncing back, the markets have bounced back, so it tells you about some kind of demand at lower levels and that could also be due to short covering. But I am still not very sure that we have made a significant low or whether we can say with confidence this is it and we will not see much lower levels,” Thacker reiterates.
Warns Radhika Gupta, Director, Forefront Capital Management that in the short-term there might be more downside particularly if one continues to see bad sovereign debt. According to Gupta, the banking sector might hold up a bit but real estate sector is going to see some downside and that it will hit the index.
She is moderately bullish on metal space in a medium-term because according to her metal prices will pick up after being beaten down. Among the metal stocks, SAIL and Tata Steel are her top picks.

Bear of the day: Stock that tumbled 30% in 3 days

The bribes-for-loans scam and environmental hurdles at its Lavasa project weighed heavy on Hindustan Construction Company (HCC) as it tumbled a further 18.99% or Rs 9.4 to end at Rs 40.10. It touched a 52-week low of Rs 39.60. It touched an intraday high of Rs 55 and an intraday low of Rs 39.60. Over the last three days, the stock has fallen 30%. There were pending sell orders of 6,353 shares, with no buyers available. The total traded volumes were of 20,507,923 shares on the BSE. Its market capitalisation stands at Rs 2,432.20 crore.
The stock has taken a severe beating as it has been closely associated with Money Matters—the company that has been implicated in the bribes-for-loans scam.
The CBI on Wednesday addressed a press conference regarding arrests of eight officials of public sector banks and financial companies.
Speaking to the press, CBI's EOW chief P Kandaswamy said the agency has busted a housing loan scandal racket and arrested CEO of LIC Housing, General Managers of Bank of India and Central Bank of India (New Delhi) and CGM of Punjab National Bank. Several other bank officials have also been arrested on bribery charges. The CBI said classified business information was also given out for favours.
The CBI's remand notice filed with the Sessions Court says these favours were routed chiefly through Rajesh Sharma, the CEO of Money Matters. MS Johar, the official named in the charge sheet, who is the director and Chartered Accountant at Central Bank of India had demanded an amount of Rs 37.5 lakh in lieu of providing undue favour in the case of Lavasa Corporation, a project billed as India's first hill city near Pune, which is 65% owned by HCC and is in charge of construction.
Speaking to CNBC-TV18, HCC CMD Ajit Gulabchand said he was surprised by the investor reaction, as all dealings in regards to its Lavasa project had been transparent. Gulabchand said it had engaged Money Matters services for a fee.
He said that the CBI allegations had no substance and that all the company’s transactions with clients were transparent in nature. Gulabchand said he does not fear reprising or calling back of any of the bank loans. "All our transactions were syndicated without any favours, he said. He also does not expects credit flow to infrastructure companies as a whole to halt.
In addition, the environment ministry today asked Lavasa Corporation to defend construction built post 2006 in its township project.
The ministry has asked Lavasa to prove it had not violated any green laws in building a town outside Pune and why the government should not raze the construction.
Lavasa has 15 days to respond to the letter, dated November 25, but released on Friday. Lavasa Corp's Rs 2,000 crore IPO received SEBI nod on November 19, 2010.
Also read: Transactions with Money Matters fee based: HCC
What experts say:
Shardul Kulkarni, Angel Broking said, "Infrastructure as a whole, if you look at HCC wherein definitely we will stay away. We will also stay away from Punj Lloyd. You can use L&T to buy but L&T being a largecap stock and if one can qualify that in the infrastructure space, we advice buying in L&T."
On November 25, 2010 Devang Mehta, Vice President & Head - Equity Sales, Anand Rathi Financial Services said that, “HCC is suffering because it has already filed for the Draft Red Herring Prospectus (DRHP) in its Lavasa IPO which was going to be announced soon. So probably people are just feeling that it would be a difficult sort of a capital raising now for HCC regarding the Lavasa IPO. So probably it's going to be a good long-term bet when infrastructure starts performing."

Japan passes extra budget, focus shifts to next FY

Japan passed an extra budget on Friday, paving the way for officials to begin compiling next fiscal year's budget amid pressure to delay spending cuts needed to soothe bond investors' worries.
The extra budget, which expands the social safety net and brings forward public works, will have a small economic impact partly because the government limited spending to avoid selling debt.
This show of fiscal discipline is welcome as public debt is almost twice the size of Japan's USD 5 trillion economy, but maintaining spending and debt caps for next fiscal year's budget will be more difficult.
The Democratic Party-led government is struggling with a combative opposition in a split parliament. Ruling party members could resist spending cuts as they seek to improve the cabinet's low public support, but that would risk unsettling investors who are already on edge as Europe's debt crisis unfolds.
"It will be extremely difficult for the government to keep new bond issuance down to 44 trillion yen as pledged in the next fiscal year," said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance in Tokyo.
"The problem with Japan is its weak revenue structure, as tax rates are low. The public is unaware of the impending crisis, unlike people in Europe."
Test of fiscal discipline
Opposition parties that control the upper house rejected the extra budget for the current fiscal year to March 31, which contains 4.4 trillion yen (USD 52.64 billion) in actual spending.
But the legislation became law since it had already been approved by the more powerful lower house, which has overriding power on budget bills.
The budget for the fiscal year starting next April 1 will be a test of Prime Minister Naoto Kan's ability to stick to his target of 44 trillion yen in new debt issuance and 71 trillion yen in general spending, excluding debt servicing costs, which mirrors the current fiscal year's budget.
Japanese bond yields are already on the rise, so signs the government will forgo the debt cap could push yields even higher and weigh on the economy.
Public finances are very much in the spotlight as Ireland's negotiations for a bailout due to the cost of saving its banking sector push up borrowing costs for other European countries with weak finances.
The enactment of Japan's extra budget on Friday comes after much jousting between ruling and opposition parties in the divided parliament.
The opposition only agreed to vote on the bill after the justice minister quit this week over a gaffe.
Opposition parties have threatened to submit embarrassing censure motions against the chief cabinet secretary and transport minister in the upper house, signalling potential disruptions to deliberations.
Government ministries have submitted 72.6 trillion yen in spending requests, less debt servicing costs, meaning the government must cut 1.6 trillion yen before the budget is due at the end of December and still allocate funds to policies it says will promote growth.

Japan faces struggle with 2011/12 budget process

Japan's government wants to keep its self-imposed cap on new bond sales in the 2011/2012 budget draft it plans to complete in December as Europe's debt crisis highlights the woes of heavily indebted nations.
The outlook for the budget process is clouded by Prime Minister Naoto Kan's struggle with a divided parliament and plunging popularity ratings.
Following are some questions and answers on Japan's budget process and its implications for markets:
When will the budget be ready?
Likely by the end of December. The Ministry of Finance usually prepares a draft late in December and sends it to a cabinet meeting for approval. The government sends budget bills to parliament in January so they can come into force by the start of fiscal year on April 1.
The preparations could get sidetracked if Kan were to fire his chief cabinet secretary who faces a non-binding but embarrassing censure motion by the opposition. Kan is, however, expected to keep his No. 2, which means that the opposition could use its control of the upper house of parliament to delay the budget's implementation.
Can opposition stall the budget's implementation?
Yes. The ruling Democratic Party of Japan (DPJ) can push the budget through parliament thanks to its majority in the more powerful lower house, and a rule that makes it become law after 30 days even if the upper house votes it down.
But in order to implement the budget the government needs so-called enabling bills, such as one on issuing deficit-financing bonds, which need to be approved by both houses of parliament.
That gives the opposition leverage to win concessions from the government or, in an extreme case, force an early election.
How can a possible deadlock be resolved?
The prime minister may allow for more spending in the budget in a concession to the opposition. Some analysts say Kan might be forced to step down or call a snap election for the lower house to break the deadlock even though no election is mandated until late 2013. This is, however, considered unlikely, given that an election would almost certainly cost the ruling party some of its seats.
How markets might react?
A mere delay could unnerve investors and drive up bond yields temporarily. But none of the possible ways out of a potential deadlock would please investors either. More spending would be seen as backtracking on Kan's pledge to improve fiscal discipline. An early poll could be even more troubling. The main opposition Liberal Democratic Party (LDP) would have trouble winning a majority on its own, so a snap vote could lead to much horse-trading to form a new coalition or possibly even a realignment of party allegiances.
Can the government keep to its spending, borrowing limits?
Maybe. The 2011/12 budget is the first to be compiled under the government's long-term fiscal plan announced in June and will be viewed as the first test of the government's ability to reign in public debt, which is about twice the size of the USD 5 trillion economy and the worst in the developed world.
The government has vowed to keep new bond issues at the current fiscal year's level of about 44 trillion yen (USD 526 billion) and general spending excluding debt-servicing costs at the current 71 trillion yen.
Some market players are sceptical if it can do that as the government is struggling to cover social welfare costs, including public pensions, and fund new schemes such as expanded child support.
Others say a recovery in corporate profits should boost tax revenues and help the government meet the targets.
Hidenori Suezawa, chief strategist at Nikko Cordial Securities, estimates tax revenues will rise 4.4 trillion yen to 41.8 trillion yen, and that the bond sales target can be met if the government manages to scrape together non-tax revenues worth 6.5 trillion yen while sticking to its spending plans.
Do markets worry about new bond issuance?
Not at the moment. That's different from last year when DPJ just came to power and investors doubted its ability to manage state finances. Now markets are less jittery because of expectations of higher tax revenues. Investors were also encouraged by the fact that the government put together this year's 4.4 trillion yen extra budget without issuing more bonds.
Even if new bond sales moderately exceed the target, investors say it would not affect much the direct sales of bonds to institutions via monthly auctions, which is of chief interest to bond investors.
Analysts say such issuance, which excludes the amount underwritten by the Bank of Japan or sold to retail investors, could be limited to a few trillion yen partly by raising the amount of JGBs for the BOJ to underwrite

EU denies pushing Portugal towards bailout

European officials denied "absolutely false" reports Portugal was under pressure to seek a bailout and Spain ruled out on Friday needing help to manage its finances, despite fears of a spreading euro debt crisis.
The Financial Times Deutschland quoted unidentified sources as saying some euro zone states wanted Portugal to seek aid in order to avoid Spain, the fifth largest EU economy, from having to follow suit.
"If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal," the paper quoted a source in Germany's finance ministry as saying.
EU Commission President Jose Manuel Barroso dismissed the FT report, echoing a vehement denial by Portugal.
"I can tell you that it's absolutely false, completely false," Barroso said, adding that an aid plan for Portugal had neither been requested nor suggested.
A German government spokesman said Berlin was not pressuring anyone to request financial help and said it expected Portugal's austerity measures -- due to be passed later on Friday -- to work.
A Spanish government source told Reuters that neither was Madrid pushing Lisbon to seek help.
Ireland, which agreed to seek an EU/IMF rescue under heavy pressure from European partners keen to stem the contagion risk, will likely agree terms on aid deal on Sunday, euro zone sources told Reuters.
The rapid public denials of the FT report suggested some alarm among euro area leaders at the prospect of the debt crisis engulfing ever more of its members.
A Reuters poll this week showed 34 out of 50 analysts surveyed believe Portugal will be forced to ask for help although only four thought Madrid would seek aid.
The cost of borrowing rose again on Friday for Ireland, Portugal and Spain as markets demanded a premium for holding their debt.
Spain has already passed its own austerity budget and Spanish Prime Minister Jose Luis Rodriguez Zapatero "absolutely" ruled out that Madrid would have to follow Ireland and Greece and seek financial assistance.
"Those who are taking short positions against Spain are going to be mistaken," he told RAC1 radio.
A rescue aimed at meeting Spain's financing needs for 2-1/2 years would cost 420 billion euros (USD 557 billion) according to a Capital Economics estimate, the lion's share of the 440 billion euro European Financial Stability Facility (EFSF) reserve set up by the euro zone after the Greece bailout.
But two separate EU funds, augmented with International Monetary Fund backing, could provide loans worth 750 billion euros in total.
German Bundesbank chief Axel Weber, a powerful member of the European Central Bank's governing council, said this week that the EFSF and other EU rescue funds had enough money, if needed, to cover the borrowing needs of stretched euro zone members Greece, Ireland, Portugal and Spain.
But he added: "If that is not enough, I am convinced euro zone states will do what is necessary to protect the euro."
German Finance Minister Wolfgang Schaeuble dismissed calls for the rescue fund to be topped up.
"I hope the necessary decisions in the case of Ireland will be made next week so that calm returns to the markets and these completely exaggerated speculations are ended," Schaeuble said.
Markets are concerned the 16-nation group is split on how to handle the debt and deficit crisis that has seen the euro fall sharply against the dollar since May.
They remain acutely worried by the threat of debt crises in Greece and Ireland spreading further and have pushed the borrowing costs of Portugal and Spain to record highs.
"I think Portugal has already crossed the point of no return. Its bond yield has gone beyond a sustainable level. The market is now watching whether Spain will need a rescue," said a Japanese bank foreign exchange trader.
No Euro Zone breakup risk
On Thursday, top EU officials stressed that there was no risk of the euro zone breaking up after Ireland caved into pressure and requested a bailout.
German Chancellor Angela Merkel, who unsettled markets by her comment this week that the euro was in an "exceptionally serious" situation, said she was confident the euro area would emerge stronger from the crisis.
And Klaus Regling, chief of the euro's financial safety net, said: "There is zero danger. It is inconceivable that the euro fails."
Merkel agreed with French President Nicolas Sarkozy late on Thursday that the mechanism set up to protect the euro should not be changed before it expires in mid-2013 -- another attempt to convince spooked investors they would not be made to share the cost of any sovereign default before then.
German proposals for so-called "haircuts" for bond holders have raised peripheral euro zone states' borrowing costs yet higher.
In another effort to shore up confidence, ECB policymakers on Thursday brushed off the flare-up in debt market turmoil and said the bank's plans to scale back its crisis support remained on track.
The Irish government said it was confident it would be able to pass the toughest budget in the country's history next month to meet the terms of an 85 billion euro EU/IMF rescue which euro zone sources told Reuters was likely would be announced on Sunday.
However, results on Friday are expected to show Prime Minister Brian Cowen will lose a by-election, further weakening his ability to pass an austerity budget of 15 billion euros in spending cuts and tax increases on which the bailout depends.

Air Berlin, ICBC ink $700m aircraft deal

Air Berlin said it signed a USD 700 million deal with a unit of Industrial and Commercial Bank of China to sell or sell and lease back a total of 18 narrow-body aircraft.

Germany's second-biggest airline after Lufthansa said on Thursday the deal covers six used narrow-body aircraft as well as 12 planes the carrier has ordered but not yet received.

The deal "creates a solid and trustful basis for additional future business between (Air Berlin and ICBC) and we are looking forward to develop it," Air Berlin Chief Financial Officer Ulf Huettmeyer said in a statement.

Air Berlin earlier this month said it will cut its fleet of aircraft by seven planes next year to cope with the burden of an air passenger tax due to be imposed in Germany from 2011.

Irish low-cost carrier Ryanair has also said it will cut capacity at its German base Hahn.

At the end of September, Air Berlin had 169 planes, including 65 Boeing 737s and 49 Airbus A320.

As part of the agreement with ICBC, Air Berlin is selling 10 planes -- four Boeing B737-800 aircraft and six Airbus A320-200s -- as well as selling and leasing back two Airbus A319-100s, two A320-200s and four Boeing 737-800s.

Most parts of the deal will be executed in 2011 and 2012, Air Berlin said.

Data hints US recovery is becoming self-sustaining

New US claims for jobless benefits hit their lowest level in more than two years last week while consumer spending rose for a fourth straight month in October, suggesting the economy is nearing a self-sustaining recovery.

The picture was further brightened by another report on Wednesday that showed consumer sentiment in November reached its highest level since June, likely reflecting the surge in stock prices in the wake of a Federal Reserve decision to loosen monetary policy.

But the upbeat mood was tempered somewhat by unexpected declines in new home sales and orders for long-lasting manufactured goods in October.

"Up to this point I was very reluctant to say we have turned the corner into a self-sustaining expansion. I think we are verging on that," said Robert Dye, senior economist at PNC Financial Services in Pittsburgh.

Initial claims for state unemployment benefits fell 34,000 to 407,000, the lowest since mid-July 2008, the Labor Department said. That was well below economists' expectations for a fall to 435,000.

Claims have broken out of lofty ranges that had held for much of the year and are now firmly in territory that economists say suggest solid job creation.

A separate report from the Commerce Department showed consumer spending rose 0.4% in October, just a touch below the 0.5% rise expected on Wall Street.

Strengthening recovery

The jobs and spending data provided further evidence of a strengthening in economic activity and helped to divert investors' attention from Ireland's debt crisis. US stocks rose, while prices for government debt tumbled. The US dollar was little changed against a basket of major currencies.

Spending is expected to get a boost this Friday, the traditional start to the holiday shopping season.

Consumers' willingness to open their wallets was highlighted in upscale jeweler Tiffany & Co's quarterly results, which beat Wall Street forecasts.

"It looks like Christmas is coming this year after all, and holiday spending will be the best since 2006," said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi UFJ in New York.

Although spending increased last month, inflation continued to slow, helping to deflect criticism of the Fed's decision to pump more money into the economy by buying an additional USD 600 billion worth of government debt.

The consumer spending report showed the Fed's preferred core inflation measure slipped to just 0.9% when measured from year-ago levels, the smallest gain on records dating to 1960. Fed officials, who are worried an unexpected shock could tip the economy into a troubling deflation, want to see inflation running around 1.7% to 2%.

Citi to open 'Apple-like' flagship store in Europe

Citigroup is planning to open a small network of flagship bank branches in key Western European cities next year to re-focus its retail offer on affluent "global citizens," the Financial Times said on Friday.

The bank, whose operations in the UK, Spain, Greece and Belgium are being wound down under terms of the US government bailout, would be seeking to slim down and target major cities in France, Britain and Germany, the FT said.

"Further down the road, we will open up in key cities in Western Europe," the FT quoted one person familiar with the plan as saying, "2011 is a potential turning point."

No one at Citi was available for comment on the report.

The strategy would fit into the global plan outlined by Chief ExecutiveVikram Pandit in the summer to redefine banking operations.

The bank would focus its network on about 100 cities around the world, including 10 to 15 in Western Europe, targeting wealthy customers who travel frequently by opening big, flagship outlets modeled on the Apple stores, the paper said.

In Poland, where Citigroup has 200 branches spread across the country, the bank would refocus on Warsaw and a couple of smaller cities.

"We're not going to compete on bricks and mortar - it wouldn't make sense," a person familiar with the plan told the FT.

Loan scam: RBI seeks info on loans granted to 15 cos

The bribes-for-loans case may be connected to the stock markets—CBI sources say the Rs 1,000 crore raised by five companies through such loans may have been used to manipulate shares. The Reserve Bank of India (RBI) too has swung into action. Sources say that the RBI has sought details of all secured loans. The central bank will also look into consortium loans approved by managing committees, reports CNBC-TV18’sGopika Gopakumar quoting sources.

It is learnt that RBI has sought details of all secured loans and will look into consortium of loans approved by credit commutes. The Central Bank has asked for details from banks on 15 accounts including BGR Energy, OPG Power, Ashapura Mines, Lavasa, DB Realty, Entertainment World Lucknow, Mantri Realty, PK Tayal Promoted Krishna Group, Suzlon, Indore City Treasures, Pantaloon, Adani Group, JP Hydro, JSW Power andEmaar MGF.

Power Grid Corp hits 52-week low on listing of FPO shares

Follow-on public offering' shares of Power Grid Corporation of India - country's largest electricity transmission utility - listed on the exchanges today. The stock touched a 52-week low of Rs 94.

At 09:41 hours the share was trading at Rs 94.85, down Rs 3.7, or 3.75% on the Bombay Stock Exchange. It was trading with volumes of 8,466,772 shares, compared to its 5-day average of 1,922,206 shares, an increase of 340.47%.

Yesterday the share closed down 1.62% or Rs 1.60 at Rs 96.95. Market capitalisation of the stock stands at Rs 39,920.86 crore.

Power Grid issued 84.17 crore equity shares by way of public issue, which included fresh issue of 42.08 crore shares and the rest was offer for sale by Government of India. The issue price was at Rs 90 a share while for retail investors and employees - the issue price was at Rs 85.5, 5% discount to issue price. The company allotted these shares on November 23.

The issue was subscribed 14.5 times due to strong investor response.

UBS, others sued for $2 billion over Madoff fraud

The trustee seeking to recover money for defrauded Bernard Madoff investors has sued UBS AG and others for more than USD 2 billion, accusing them of collaborating in the imprisoned swindler's massive Ponzi scheme.

UBS was accused of sponsoring foreign feeder funds that sent client money to the once-respected money manager, lending them "an aura of legitimacy" while shielding itself from liability through secret side agreements.

Despite identifying red flags at Bernard L. Madoff Investment Securities LLC, the Swiss bank and feeder funds "chose to enable Madoff's fraud for their own gain," collecting at least USD 80 million in fees, court-appointed trustee Irving Picard said in a 107-page complaint.

"Madoff's scheme could not have been accomplished unless the UBS defendants had agreed to look the other way and to pretend that they were truly ensuring the existence of assets and trades," the complaint said. "In fact they were not and never did."

The complaint alleges 23 counts of fraudulent transfers and other misconduct.

In a statement, UBS called Picard's allegations "completely unfounded and without merit" and pledged to defend itself.

The estimated USD 65 billion Ponzi scheme run by Madoff for decades was uncovered on Dec. 11, 2008, and cost thousands of former clients all or most of their savings.

Madoff, 72, pleaded guilty in March 2009, and is serving a 150-year sentence in a North Carolina federal prison.

Prosecutors have also filed criminal charges against seven people tied to Madoff. Two of them have entered guilty pleas.

Picard, a partner at Baker & Hostetler LLP in New York, is liquidating Madoff's investment business.

He has filed at least 20 "clawback" lawsuits to recover $17.5 billion from feeder funds that steered money to Madoff's firm, friends and family members, as well as others.

The trustee filed his complaint against UBS under seal with the U.S. Bankruptcy Court in Manhattan on Tuesday. He made an edited version available to the public on Wednesday.

Suicide

Picard accused UBS of working with co-defendant Access International Advisors LLC and associated individuals "to extend the Ponzi scheme to European investors."

Access was once led by Thierry Magon de la Villehuchet, a French executive found dead in an apparent suicide in New York less than two weeks after Madoff's fraud was uncovered. He was reported to have been distraught over losing up to $1.4 billion of client money.

Other defendants include the feeder funds Luxalpha SICAV, with offices in Luxembourg, and Groupement Financier Ltd, with offices in the British Virgin Islands.

The complaint said these firms withdrew USD 796 million in the 90 days before his firm was forced into bankruptcy after the fraud was revealed, and USD 1.12 billion in the prior six years.

UBS said in its statement that Luxalpha was created for wealthy clients who requested a fund to let them invest with Madoff.

"UBS does not have responsibility to these shareholders for the unfortunate results of the Madoff scandal," the bank said.

Alain Rukavina, a Luxalpha liquidator, said about the lawsuit: "We have to see if there are any conflicts with our case."

A representative for Groupement Financier did not return a request for comment.

It is unclear whether Picard plans to pursue lawsuits against other European banks.

In March, a Luxembourg court rejected efforts by former Madoff clients to file direct claims against UBS, saying they must instead seek recovery through Madoff's liquidators.

That ruling signaled that investors who claim to have lost nearly $1 billion through Herald, a fund affiliated with a Luxembourg unit of British bank HSBC Holdings Plc, might have to pursue the same path.

HSBC declined to comment.

Picard said he has through Sept. 30 recovered USD 1.5 billion for former Madoff clients. He is also reviewing which clients are entitled to recover, and through Nov. 19 has accepted 2,305, or 15%, of the 15,105 claims he has reviewed.

Fiscal odds still stacked against Ireland

Ireland's blueprint for tackling the worst budget deficit in Europe looks impressive on paper but the odds of Dublin getting its shortfall under control by 2014 remain stacked against it.

The four-year plan forms the basis for Dublin's discussions on emergency assistance, possibly as much as 85 billion euros, from the IMF and EU.

Optimistic growth frecasts

Investors are unconvinced that the growth rates underpinning the four-year plan can be achieved in the face of a vicious round of spending cuts and tax increases that could tip Ireland's domestic economy into a prolonged downturn.

Ratings agency S&P said on Wednesday Ireland's growth assumptions were too optimistic. The government is assuming real GDP will grow by an average of 2.75 percent in the years from 2011 to 2014, but S&P said nominal GDP would be "close to flat" over the next two years.

The government-funded Economic and Social Research Institute warned Dublin last month that 15 billion euros in fiscal adjustments risked pushing Ireland into a "lost decade".

International comparisons do not bode well.

Greece, the first euro zone state to get a bailout, will miss a full-year budget deficit target by about 1.5 percentage points this year due to problems with tax collection, wasteful healthcare and inefficient state firms.

Latvia, Romania and Hungary -- the other European Union states to get bailouts in the current crisis -- have all missed targets for cutting their deficits by big margins and the spending cuts and tax hikes they introduced pushed them into deeper recessions.

Signs of a more sustainable recovery in the United States do offer, however, some hope for Ireland, which is one of the most trade-dependent economies in the world.

Banks remain the big unknown

Fears of spiralling bank losses are at the heart of Ireland's crisis and are unlikely to be fully allayed until the central bank conducts fresh stress tests on the lenders early next year.

Dublin is expected to agree an aid package with the IMF and the EU by Sunday to cover sovereign funding costs and a fresh wave of bank recapitalisations but the terms of any deal will be crucial.

If a "shock and awe" aid package fails to impress investors it will overshadown the government's fiscal efforts and ensure that the Irish sovereign and the banks continue to get the cold shoulder from foreign investors.

Political uncertainty

There is a risk that Prime Minister Brian Cowen's four-year plan will fall at the first hurdle.

Cowen's coalition government is teetering on the brink of collapse and he may have to rely on the goodwill of opposition parties to get the 2011 budget, which will account for a major chunk of the adjustments, through parliament on December 7.

Cowen has promised to call a general election once the 2011 budgetary process is completed, meaning there will be a poll in February or March.

Given the government's huge unpopularity, they are almost certain to lose the election, meaning a new administration, with fiscal plans of its own, will be in charge from 2011-2014.

The centre-right Fine Gael party is likely to lead a new coalition government following a general election and it has said it would not be bound by Cowen's strategy.

Fine Gael's finance spokesman said on Wednesday the European Commission had told it the four-year plan could be renegotiated.

While Fine Gael is fiscally conservative, favouring a heavy weighting on spending cuts and possibly forced redundancies in the public sector, its likely partner in a new administration, the leftwing Labour Party, prefers a less harsh approach.

In reality, a new administration will not have much room for manoeuvre given that the IMF and the European Union will have had a big say in the fiscal measures outlined by Cowen.

The Irish public are angry with how the government has handled the economic crisis but they are resigned to years of fiscal austerity and the risk of social unrest appears low.

Europe's plans for bondholders

Germany wants bondholders to pay up in any future sovereign debt crisis and a proposal for euro zone countries to include private sector liability clauses in their bonds from 2011 could deter investors from taking a punt on Irish debt, complicating its eventual return to the debt markets.