Feb. 9 (Bloomberg) -- China’s banks probably made more new loans in January than the previous three months combined as lenders sought to head off a credit clampdown by policy makers seeking to stem rising inflation pressures.

New bank lending totaled 1.38 trillion yuan ($201 billion) last month, according to the median estimate of 16 economists in a Bloomberg News survey ahead of a government report scheduled for this week. Separate figures are projected to show consumer prices rose the most since 2008 and export gains accelerated.

Regulators are seeking to slow a credit boom loosed last year that may now be inflating a bubble in China’s property market. The week’s economic reports are likely to reinforce expectations for the central bank to start raising interest rates and loosen controls on the yuan in coming months, moves that might trigger similar steps across the region.

“Central banks are looking at China’s policy moves,” said Brian Jackson, an emerging-market strategist at Royal Bank of Canada in Hong Kong who previously worked at the Federal Reserve Bank of New York and Bank of England. “More aggressive policy tightening from China, including interest-rate increases and yuan appreciation, will make it easier for the rest of the region to move as well.”

Year-on-year percent changes in some of China’s January economic data may have been distorted by the lunar new year holiday, which was in January last year but February in 2010. Most businesses close for the week-long celebration.

Inflation Quickens

At the same time, trends show accelerating price pressures across the economy poised to become world’s second biggest this year, behind the U.S. Aluminum Corp. of China Ltd., the nation’s top producer of the metal, on Jan. 4 raised alumina prices for the third time in five months. Beijing Yanjing Brewery Co. Jan. 15 raised prices for some of its beer about 10 percent, citing rising costs of fuel and rice.

“Inflation fears are beginning to take over from China’s growth euphoria as both consumer and producer inflation continue to climb,” said Kevin Lai, an economist at Daiwa Institute of Research in Hong Kong. “The central bank must tighten policies more aggressively,” said Lai, who expects the People’s Bank of China to start lifting its benchmark rate as soon as this month.

Consumer prices probably advanced 2.1 percent in January from a year before, a third straight gain, the median estimate shows. Producer price inflation probably quickened to 3.5 percent, according to the survey. Growth of the M2 money supply measure probably slowed for a second month to 25.9 percent, the median projection shows.

Regional Response

Inflation is also accelerating from South Korea to Vietnam as commodity and food prices rise amid the Asia-led global recovery. Still, South Korea, India, Indonesia, Thailand, Malaysia, Taiwan and the Philippines have yet to raise rates and policy makers in countries including Thailand and Taiwan are restraining currency gains, traders say.

In China, authorities have kept the yuan at about 6.83 per dollar since July 2008 to help exporters after letting it appreciate about 21 percent the previous three years. China may allow the yuan to begin appreciate this quarter, which may make its Asian neighbors more comfortable in allowing their currencies to advance, said RBC’s Jackson.

Any need to restrain the yuan may be easing. Exports probably jumped 28 percent last month from a year earlier, and imports probably surged 85 percent, leaving a trade surplus of $20 billion, Bloomberg surveys show.

Growth Quickens

Economic growth accelerated to a 10.7 percent year-on-year pace last quarter, the fastest since 2007, responding to an unprecedented 9.59 trillion yuan of credit extended by banks in 2009 and a 4 trillion yuan two-year fiscal stimulus plan.

The estimate for new lending in January is 48 percent more than the total extended in the last three months of 2009. It’s also 18 percent of the 7.5 trillion yuan Premier Wen Jiabao’s government set as the target for this year.

Property prices in 70 major cities climbed 7.8 percent in December, the most in 18 months, responding in part to the record credit surge.

“There are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China,” Neil McDonald, a business restructuring and insolvency partner in Hong Kong with law-firm Lovells LLP, said at conference last week, using another term for the yuan. “At some point there’s going to be a reckoning for that.”

The Shanghai Composite Index has slumped 10 percent since the year began on concern the government will curb lending to cool the economy.

The central bank asked lenders to set aside more money as reserves on Jan. 12, the first such increase since June 2008. Some lenders have since been asked to limit credit, punished by even higher reserve ratios.

Full article:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aS5ZriaPd7jc&pos=2

U.S. Stocks Retreat on Concern Europe Finances to Hurt Recovery

Feb. 8 (Bloomberg) -- U.S. stocks slid and the Dow Jones Industrial Average closed below 10,000 for the first time since November amid concern that deteriorating European government finances will derail the economic recovery.

Bank of America Corp. and American Express Co. lost at least 2.8 percent for the biggest declines in the Dow. Nasdaq OMX Group Inc. fell 4 percent to lead the Standard & Poor’s 500 Index lower after its forecast for operating expenses topped some analysts’ estimates. Home Depot Inc. rose 2.2 percent and Google Inc. climbed 0.4 percent on analyst upgrades.

The S&P 500 decreased 0.9 percent to 1,056.74 at 4:07 p.m. in New York, its biggest Monday drop since October. The Dow slipped 103.84 points, or 1 percent, to 9,908.39. Almost four stocks retreated for each that rose on the New York Stock Exchange. All 10 major groups in the S&P 500 fell today.

“There’s risk aversion,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “Good economic and corporate data points in the U.S. are being offset by uncertainties in Europe. Investors should continue to be mindful. I wouldn’t be surprised to see the market flat to down this week.”

U.S. stocks have fallen for four straight weeks, the longest losing streak since July. Stocks rallied in the final hour of trading on Feb. 5, with the Dow average erasing a 167- point drop, on speculation the European Union would devise a solution for the budget deficits.

European Central Bank President Jean-Claude Trichet said the ECB is “confident” Greece will cut its deficit below the limit of 3 percent of gross domestic product in 2012 from 12.7 percent.

G-7 Meeting

“The European members of the G-7 will make sure it is managed,” French Finance Minister Christine Lagarde told reporters on Feb. 6 after meeting counterparts and central bankers from the Group of Seven in Iqaluit, Canada.

The S&P 500 has still surged 56 percent from a 12-year low on March 9 as governments and central banks globally maintained low interest rates and committed more than $12 trillion to stimulate economic growth.

The Group of Seven finance ministers pledged to press ahead with economic stimulus measures even as investors intensify their focus on mounting budget deficits.

“We need to continue to deliver the stimulus to which we are mutually committed and begin looking at exit strategies to move to a more sustainable fiscal track,” Canadian Finance Minister Jim Flaherty told reporters yesterday.

Credit Rating

The U.S. is in no danger of losing its Aaa debt rating, Treasury Secretary Timothy F. Geithner said in an ABC News interview broadcast yesterday.

Even so, UBS AG advised clients to further reduce their holdings in equities for a second time in as many weeks. Economist Larry Hatheway and strategist Kenneth Liew reduced their equity allocation to “neutral” from “a small overweight,” saying “resolution of the challenges facing Greece, Portugal and Spain is likely to take time and as a result risk premiums will remain elevated.”

Fed Chairman Ben S. Bernanke plans to testify before the House Financial Services Committee on Feb. 10 about the central bank’s plans to withdraw emergency stimulus, according to a committee memo to lawmakers on the panel. The Fed’s efforts have helped push U.S. 30-year fixed mortgage rates down to 5.04 percent on Feb. 5 from last year’s high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida.

Financials

The S&P 500 Financials Index dropped 2.2 percent for the biggest decline among 10 industries. JPMorgan Chase & Co. fell 1.6 percent and Bank of America lost 3.5 percent. American Express, the biggest credit-card issuer by purchases, retreated 2.8 percent to $36.79.

“Financials are underperforming the broader market,” said Art Hogan, the chief market analyst at New York-based Jefferies & Co. “It’s a very tricky space. There’s concern over sovereign debt issues in Europe and their resolution. This is going to take a long time to play out.”

Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall. A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program.

“It’s important to remember that equity values, stock prices, are not just paper profits,” Greenspan said. “They actually have a profoundly important impact on economic activity.”

Nasdaq

Nasdaq retreated 4 percent to $18.05. The owner of the second-largest U.S. equity exchange forecast higher 2010 operating costs than some analysts projected. Expenses in 2010 will be $865 million to $885 million, including about $50 million in one-time costs, the New York-based company said today in a statement. In 2009, costs were $850 million, at the top end of the company’s forecast range.

Homebuilders in the S&P 500 surged 2.8 percent as a group after the Wall Street Journal said the industry is looking “a lot less bad,” citing fewer writedowns and new-home order cancellations and improved order rates.

Lennar Corp., Pulte Homes Inc. and D.R. Horton Inc. advanced at least 2 percent.

“The decline of last week was overdone,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which manages $8.5 billion. “There’s nothing in the U.S. market that justified last week’s selloff. The U.S. is emerging as more stable. The economy and corporate earnings are improving.”

Home Depot, Google, Motorola

Home Depot rose 2.2 percent to $28.59. The home improvement retailer was raised to “overweight” from “equal-weight” at Morgan Stanley. Google shares gained 0.4 percent to $533.47. The Internet search company was added to Bank of America-Merrill Lynch’s “U.S. 1” list because the company “remains an attractive macro-economic recovery play,” analysts wrote in a note to clients.

Motorola Inc. climbed 2.7 percent to $6.57. The mobile- phone maker may rise as much as 40 percent during the next year if it spins off its mobile-phone unit and revenue from the radio and data-communications equipment division increases, Barron’s reported.

Hasbro Inc. rose the most in the S&P 500, jumping 13 percent to $34.71. The maker of “Transformers” robot toys reported fourth-quarter earnings excluding some items of $1.09 a share, topping the average analysts’ estimate by 34 percent, according to Bloomberg data.

Full article:

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayR4oaa2Ckzc&pos=1

PS.  Great ops out there away from fluffy specs when it comes to worrying about Greece, China, US, etc..

Cheers,
Dave.