Gold Poised to Gain as U.S. Output Data Boosts Easing Prospects

Gold may gain as manufacturing in the U.S. trailed estimates, boosting prospects of further stimulus by the Federal Reserve to spur growth and increasing demand for bullion as a haven.

Spot gold was at $1,599.03 an ounce by 10:37 a.m. in Singapore, after ending little changed at $1,597.10 yesterday. August-delivery bullion was little changed at $1,599.20 an ounce on the Comex in New York, after dropping 0.4 percent yesterday.

Manufacturing in the U.S. shrank in June to 49.7, worse than the most-pessimistic forecast in a Bloomberg News survey, from 53.5 in May, data yesterday showed, helping the dollar rebound from its biggest drop in eight months against a six- currency basket including the euro. The common currency fell today as euro-area unemployment reached the highest on record in May, raising concern the debt crisis is worsening.

“Gold lacks direction, but sees a stronger quarter ahead as spotlight returns to the U.S. economy,” Lynette Tan, an investment analyst at Phillip Futures Ltd., wrote in an e-mail today. “Gold prices have been sensitive to signs of economic weakness, which tend to increase the likelihood of monetary easing by the Federal Reserve.”

Cash gold last week capped its worst quarter since the three months to September 2008, as the Dollar Index rallied 3.3 percent, after the Fed didn’t buy more debt and instead extended a program of replacing short-term bonds with longer-term debt.

Spot silver was little changed at $27.5275 an ounce, after swinging between gains and losses. Cash platinum dropped as much as 0.6 percent to $1,446.50 an ounce, and was last at $1,452.50. Palladium fell for a second day, declining as much as 0.6 percent to $574.75 an ounce, before trading at $575.75.

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G20 summit: US ‘encouraged’ by eurozone plans

US President Barack Obama has said he is encouraged by European leaders’ plans to tackle the eurozone crisis, as the G20 summit in Mexico ends.

In a final communique, world leaders said they would take “all necessary measures” to protect the euro area.

Leaders said they welcomed Spain’s plans to recapitalise its banks, according to the communique.

The talks were being held as Greece seeks to form a coalition government and Spain’s borrowing costs soared.

Speaking to reporters at the end of the summit, President Obama said that European leaders recognised that “bold and decisive” action was needed to address Europe’s debt crisis.

“Euro Area members of the G20 will take all necessary measures to safeguard the integrity and stability of the area”

“What I have heard from European leaders during these discussions, they understand the stakes, they understand why it’s important for them to take bold and decisive action, and I am confident they can meet those tests,” he said.

President Obama said that while there was no “silver bullet” to solve Europe’s crisis, “each step points to the fact that Europe is moving towards further integration rather than break-up”.

“I am confident that over the next several weeks, Europe will paint a picture of where we need to go,” he added.

‘Concrete steps’

As the summit came to a close the European leaders pledged to maintain stability in the eurozone and to work with the next Greek government towards reform and sustainability.

“Euro area members of the G20 will take all necessary measures to safeguard the integrity and stability of the area, improve the functioning of financial markets and break the feedback loop between sovereigns and banks,” the joint statement said.

“We support the intention to consider concrete steps towards a more integrated financial architecture,” it continued.

“The European Union members of the G20 are determined to move forward expeditiously on measures to support growth”.

But German Chancellor Angela Merkel stressed that Greece must hold up its end of the deal.

“It’s obvious that the reforms that were agreed in the past are the right steps and that they therefore must be implemented,” Mrs Merkel told reporters.

She added that world leaders had “very balanced” talks on growth.

“We need the right mix of budget consolidation… and at the same time efforts for growth.”

In the closing discussions of the summit, leaders also agreed not to introduce new protectionist measures until 2014.

But Russian President Vladimir Putin said that the imposition of trade barriers could be a vital tool in protecting Russian jobs.

Meanwhile, the “Brics” economies (Brazil, Russia, India, China and South Africa) also pledged to increase their contributions to the International Monetary Fund (IMF) – which has been seeking to boost its finances to prevent any future financial crisis.

The five Brics nations all offered to contribute $10bn (£6.4bn) to the IMF each in exchange for voting reforms that would give them greater influence in the organisation.

China also pledged $43bn (£27bn) to the IMF’s crisis intervention fund, which has almost doubled to $456bn (£366bn).

The BBC’s diplomatic correspondent Bridget Kendall, at the Los Cabos summit, says the offer of billions of dollars from the developing economies is perhaps the most tangible result of the two-day-long talks.

The funds, which would be released by the IMF if the eurozone crisis spreads, are a sign of support but also indicate how fragile many fear the economic situation in Europe to be, our correspondent adds.

G20: How their economies are faring

Country Growth (% GDP change, 2010-11) Unemployment (% 2011) External debt (% GDP, end of 2011)
Source: Principal Global Indicators
Argentina flagArgentina 8.9 7.5 7.6
Australia flagAustralia 2.2 5.1 86.6
Brazil flagBrazil 2.7 6 17.2
Canada flagCanada 2.4 7.5 70.2
China flagChina – mainland n/a 4.1 n/a
EU flagEuropean Union* 1.5 10.1** 120.0
French flagFrance 1.7 9.3 191.2
Germany flagGermany 3 6.5 159.4
India flagIndia 6.9 n/a 17.2***
Indonesia flagIndonesia 6.5 6.6 26.5
Italy flagItaly 0.4 8.4 115.1
Japan flagJapan -0.7 4.6 52
Mexico flagMexico 3.9 5.2 26.1
Russia flagRussia 4.3 6.6 27.7
Saudi Arabia flagSaudi Arabia 6.8 n/a n/a
South Africa flagSouth Africa 3.3 24.9 29.4
South Korea flagSouth Korea 3.6 3.4 34.9
Turkey flagTurkey 8.5 9.8 42.7
UK flagUK 0.9 8.1 421.9
US flagUS 1.7
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Lessons from the Rock for Europe’s banks

(Reuters) – In November 2010, rumors swirled through financial markets that Spanish bank BBVA (BBVA.MC) was suffering a run on its deposits. The share price fell before excitable traders realized they had made a mistake.

In fact the bank was holding a “fun run” in Madrid and customers had lined up outside its branches to get their T-shirts. In a jittery market, talk spread quickly and few things worry bank investors and customers more than talk of a run.

Nervous times have returned to the euro zone, and customers are worrying again about whether their savings are safe.

Banks, regulators and policymakers in Greece, Spain and across Europe are back on high alert to avoid a repeat of the most catastrophic risk for a bank — a loss of confidence among savers, or a run on the bank.

A run may start irrationally, but once it takes hold the panic can be entirely rational. No-one wants to be last in line if everyone else is pulling out their cash.

A run on Britain’s Northern Rock in September 2007 was one of the most sudden and shocking events of the financial crisis.

It was the first run on a British bank for more than 100 years and critics said it made the country look like a banana republic. Yet it is providing lessons on how to limit the damage in future.

“The key thing to learn is that runs can happen out of nowhere and once they start they are incredibly difficult to stop. And to stop them you have to do far more than you expect, and to do it far more quickly than you expect,” said Alistair Darling, Britain’s finance minister at the time.

“With what’s going on at the moment, it’s clear that many Greeks have taken their money out. If you’re not careful, a trickle can become a flow and it can then become an absolute torrent,” Darling told Reuters in an interview.

The dynamics have shifted, but there is now a greater risk that panic will spread to more than one bank.

“Northern Rock was a question about the soundness of the bank. Now the question is about the soundness of the government,” said Nicolas Veron at Brussels think-tank Bruegel.

“Then there is a related question – for countries that are at risk of leaving the EU, it could make sense to withdraw the deposits. It becomes a currency risk,” he said.

If Greeks fear their country could leave the euro, they may not want to keep their money in a local bank and risk seeing it devalued.

As a result, deposit insurance schemes can offer only limited support.

A guarantee helps, but not if there are doubts that the government can pay, and it doesn’t protect against currency redenomination, as in Argentina in 2001, when the value of deposits fell 20 percent.

Reassuring customers they will not lose money and strengthening the deposit guarantee scheme is nonetheless the biggest lesson learned from Northern Rock.

“It came as a bolt from the blue and people weren’t sure of their protection, and then there was some spectacular and sensational media coverage. It was difficult to control,” said a person involved with events at that time.

RUN ON THE ROCK

Northern Rock was caught on the back foot when news of its problems were reported by the BBC late one Thursday night.

The bank, which had grown rapidly to become Britain’s fifth biggest mortgage lender, had needed emergency funding from the Bank of England a few days before, having been frozen out of wholesale funding markets due to a reckless business model.

The BBC report caused panic among savers, which got worse when policymakers were slow to reassure them.

Thousands queued outside Northern Rock’s branches from early that Friday, over the weekend, and on the Monday. When Darling stood up to tell people their savings would be 100 percent guaranteed, the queues quickly disappeared.

Reassurance came too slowly and ministers were criticized for not doing enough to calm savers.

“Our lesson from Northern Rock is we let it run for three or four days, which was far, far too long,” Darling said.

“The problem was the government did not appear to be in control of events, and it wasn’t. It wasn’t until the Monday evening when I announced the formal guarantees that we were able to stop money leaving,” he said.

Although that slowed the visible run, deposits continued to be pulled from Northern Rock by online, postal and telephone customers in a so-called silent run.

About half of Northern Rock’s 24 billion pounds ($38 billion) of retail deposits were estimated to have been withdrawn.

Other banks also suffered silent runs during the crisis, including Belgium’s Fortis and U.S. lender Wachovia, and in the modern era that is seen as the biggest risk for banks.

It may lack the drama of a High Street panic, but big amounts can move quickly and easily at the click of a mouse.

Britain and other countries have made the rules on compensation less complex and more generous, and banks now regularly communicate that. Four years ago, only the first 2,000 pounds ($3,000) was fully guaranteed, and then 90 percent of the next 33,000 pounds ($52,000). Now it is 100 percent of 85,000 pounds ($133,000), and other European countries guarantee a similar amount.

Consumers are more financially aware. During Northern Rock’s crisis, a branch manager was barricaded in her office after refusing to allow one couple to withdraw 1 million pounds. Deposits are now typically distributed across more banks.

As well as being attacked for a poor communications strategy, British authorities were criticized for a lack of contingency planning, weak coordination between the Treasury, the central bank and the regulator, and lax supervision.

Risks at Northern Rock had been identified in “war games” held in 2005, but steps to address weaknesses were not taken.

But Darling said the Northern Rock crisis did mean the government acted sooner and more decisively a year later when Royal Bank of Scotland (RBS.L) was on the brink of collapse.

“We were determined that we would not let it happen again, and this time we were dealing with big global players … we had no hesitation in taking the action we needed to do,” he said.

SLOW RUN

Other banks have suffered runs before and since Northern Rock, and more will in future.

“If people think that their money might be at risk, it’s entirely rational for them to take it out,” Darling said.

In 1933, President Franklin Roosevelt took drastic action to halt a series of runs on U.S. banks, successfully calming savers with an effective 100 percent deposit insurance.

Greeks were last week rattled after the country’s president said savers had withdrawn 700 million euros ($875 million) in one day. That prompted a similar amount to be withdrawn the next day.

The exodus slowed, and there has been no sign of panic or queues at branches in Athens. But there had already been a slow run on Greek deposits — about 72 billion euros ($90 billion), or 30 percent, has been taken out since the start of 2010.

A bigger worry is that Madrid’s banking crisis or a Greek euro zone exit could prompt an exodus from Spanish banks.

Shares in Bankia (BKIA.MC) plunged last week after a report that 1 billion euros ($1.25 billion) had been pulled out by customers, forcing the government to deny the claim.

There has been no sign of panic in Spain, and the latest deposits data from its central bank showed a slight increase in March, although about 55 billion euros ($69 billion) has been withdrawn in the year to March, or 4.6 percent.

But Santander’s (SAN.MC) British arm did see 200 million pounds ($300 million) withdrawn last Friday after it was included in a Moody’s credit rating downgrade of Spanish banks.

Several local governments withdrew funds from Santander UK due to worries about its parent, Spain, or the euro zone, even though it is an autonomous subsidiary and is self-sufficient in capital and funding, showing the risk of a run is not just about retail customers.

Britain’s local authorities are risk-averse after many lost millions of pounds held in Icelandic banks.

Plymouth City Council told Reuters it removed funds from Santander UK on Friday, while Kent, Oxford and Waltham Forest said they had taken out deposits and were reviewing the situation. John Simmonds of Kent County Council said he was reassured that capital could not be drained by its Spanish parent, but he was now “waiting for the fog to clear a little”.

At least five more councils, including Westminster and Middlesbrough, told Reuters they had stopped depositing cash with Santander UK in the last two years, due to Spain and the euro zone concerns.

Unlike four years ago, there was a swift reaction to quell any panic, and the Financial Services Authority confirmed no money could be sent to bail out the parent. Santander UK said activity returned to normal the day after Friday’s withdrawals.

With the euro zone crisis likely to drag on, there have been calls for a pan-European deposit scheme to reassure savers in countries like Greece. But that would fail to protect against currency risk and would probably face opposition in Germany, which does not want to pay for more problems elsewhere.

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European Stocks Drop on Greek Impasse; Spanish Banks Fall

European stocks dropped for a second day, to the lowest level in almost four months, as investors awaited a resolution to the political impasse in Greece and as Spanish credit risk surged.

Bankia SA led a selloff in Spanish banks. Kloeckner & Co. and Mediaset SpA (MS) both plunged more than 8 percent after reporting first-quarter results. ING (INGA) Groep NV and Carlsberg A/S (CARLA) paced advancing shares.

The Stoxx Europe 600 Index (SXXP) lost 0.3 percent to 249.73 at the close of trading, the lowest since Jan. 13, as the euro weakened for an eighth day. The Stoxx 600 has tumbled 8.3 percent from this year’s high on March 16, trimming this year’s advance to 2.1 percent.

“The real concern isn’t about Greece, it’s about the euro and whether it breaks up — that is key,” Mark Tinker, a fund manager at AXA Framlington Investment Management said on Bloomberg Television in London. “We don’t make a big economic scenario after a couple of days of moves, but I think there is a lot of anxious market repositioning going on right now.”

The benchmark Stoxx 600 yesterday dropped 1.7 percent after Antonis Samaras, the leader of Greece’s biggest political party, failed to reach an agreement on a new government and the mandate passed to left-wing leader Alexis Tsipras, who opposes austerity measures required for the nation’s financial rescue.

The euro fell to 1.2948 against the dollar at 4:25 p.m., for its longest losing streak in 3 1/2 years, as Tsipras meets with leaders of New Democracy and Pasok, the two Greek parties that supported austerity.

Political Stand-off

Tsipras yesterday squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they wanted to enter government.

The stand-off since the inconclusive May 6 election has reignited concerns over Greece’s ability to comply with the terms of its two bailouts negotiated since May 2010. The country is again facing the risk of an exit from the euro.

National benchmark indexes fell in 14 of the 18 western- European markets. France’s CAC 40 lost 0.2 percent and the U.K.’s FTSE 100 declined 0.4 percent, while Germany’s DAX added 0.5 percent. Spain’s IBEX 35 Index sank 2.8 percent, its lowest close since October, 2003.

The cost of insuring against a Spanish default surged to a record on concern a bailout of Bankia (BKIA) won’t fend of a banking crisis triggered by bad real-estate loans. Credit-default swaps insuring Spanish government debt rose 13 basis points to 512 basis points a 10:55 a.m. in London, according to data compiled by Bloomberg.

‘Zombie Bank’

Bankia tumbled 5.8 percent to 2.13 euros, the lowest since it listed its shares in July 2011, as JPMorgan Chase & Co. downgraded the Spanish lender to underweight, the equivalent of a sell recommendation.

“While there is no danger of an imminent collapse at Bankia, there is a risk that it becomes a zombie bank, which has to rely on the European Central Bank to fund it over the long term,” said Roger Francis, an analyst at Mizuho International Plc in London.

Spanish 10-year government bonds extended a decline, pushing the yield on the securities above 6 percent for the first time since April 27. The yield climbed 20 basis points, or 0.17 percentage points, to 6.04 percent.

Banco Santander SA (SAN), Spain’s largest lender, dropped 4.5 percent to 4.64 euros and Banco Bilbao Vizcaya Argentaria SA (BBVA) retreated 4.7 percent to 5.01 euros.

Kloeckner, Mediaset

Kloeckner tumbled 8.2 percent to 8.33 euros after Europe’s largest independent steel trader reported a first-quarter loss of 10 million euros ($13 million), wider than the average analyst estimate for a 900,000 euro-loss. The company said its 2012 earnings will improve only if Europe’s economy recovers.

Mediaset lost 11 percent to 1.45 euros, the lowest since it sold shares to the public in July 1996. The broadcaster reported an 85 percent slump in first-quarter net income to 10.3 million euros after the close of trading yesterday on lower advertising sales. Analysts estimated net income of 6.5 million euros on sales of 984 million euros, according to a Bloomberg survey.

Mapfre SA (MAP) retreated 6.3 percent to 1.94 euros, the most since April 2010. The Spanish insurer reported a 13 percent drop in first-quarter net income to 271.4 million euros. That still beat the average analyst estimate of 250.3 million euros in a Bloomberg Survey.

ING, Carlsberg

ING paced advancing shares, climbing 1.7 percent to 5.08 euros. The biggest Dutch financial-services company reported earnings excluding one-time gains and losses of 705 million euros, surpassing the 632 million-euro estimate of analysts.

Net income sank 51 percent after a charge for a potential settlement of a U.S. probe offset a gain from the sale of its U.S. online bank.

Carlsberg jumped 3.8 percent to 490 kroner as the world’s fourth-biggest brewer confirmed its full-year outlook. The company reported a 43 percent drop in first-quarter operating profit, excluding some items, to 574 million kroner ($100 million) as it sold less beer in Russia. That missed the average analyst projection for 845 million kroner.

Lanxess AG (LXS) advanced 6.4 percent to 61.83 euros after the maker of synthetic rubber said growth in earnings may touch 10 percent this year, outstripping analysts’ estimates, as demand surges in emerging markets and the U.S. recovers.

For 2012, profit will probably grow 5 percent to 10 percent from last year’s 1.1 billion euros. Analysts estimated growth of about 6 percent.

ITV Plc (ITV) rose 2.2 percent to 82.50 pence. The U.K.’s biggest commercial broadcaster said it expects to outperform the TV advertising market in the first half and forecast ad revenue to increase by about 3 percent in the first half.

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PFG – Mining Review

 

 

 

May 07, 2012                                            

Christian Flaherty
Mining Analyst

Xstrata Plc., has stated its copper production fell around 18% year on year over the January-April quarter, while coal production rose 9% and zinc output remained roughly constant.

Russia’s largest gold producer Polyus Gold International Ltd., has stated it would sell 7.5% of  the  company’s shares and would apply for a premium listing on the London Stock Exchange.

Iron-ore producer Metalloinvest has agreed to sell its freight rail arm LLC Metalloinvesttrans to Russian freight operator Globaltrans Investment Plc., for US$540 million.

Hong Kong-based copper producer CST Mining Group Ltd. said it would sell a 70% stake in the Mina Justa copper project to Peru-based base-metals firm Minsur SA, for a total US$505 million.

Anglo American Plc., has sold Scaw South Africa (Pty) Ltd., an integrated steelmaker, for R3.4 completing its US$1.4 billion divestment of Scaw Metals Group.

Rare Earth Elements (REE) product manufacturer Rhodia has signed a letter of intent with Madagascar focused developer Tantalus Rare Earths AG aimed at providing processing expertise and an exclusive off-take facility for up to 15,000t/y.

Mongolia’s mining ministry has suspended mining and exploration licenses for SouthGobi Resources Ltd., two weeks after the Aluminum Corporation of China Ltd., made a US$930 million bid for a majority stake in the coal producer.

Rio Tinto has stated its iron-ore production in the first quarter rose 10% from the year earlier, although shipments were 5Mt below output as ports in Western Australia were closed because of cyclones.

Gold exploration company Chaarat Gold Holdings Ltd., has stated it plans to enter into talks with the newly formed government in the Kyrgyz republic to seek to protect itself from what it considers to be likely changes to taxation, ownership structure and royalties.

Canadian gold producer Iamgold Corp., has stated it would spend around $608 million to buy fellow TSX listed Trelawney Mining and Exploration Inc., expanding its indicated resource base by 5%.

Mutiny Gold Ltd., has intersected extensions to mineralisation at its Deflector gold deposit in Western Australia with reverse-circulation drilling.

Ivanhoe Mines Ltd’s 59%-owned Australian subsidiary, Ivanhoe Australia Ltd., has intersected extensions to copper mineralisation at the Kulthor deposit in Queensland.

Lake Shore Gold Corp’s ongoing drilling programme at the Fenn-Gib gold project in Ontario has extended mineralisation.

Australian base metals producer Kagara Ltd., has stated it has temporarily suspended operations at the Baal Gammon polymetallic project in Queensland after a restructuring of the company’s banking arrangements affected its short term cash flow.

Australian coal producer Gloucester Coal Ltd., has stated its total output was up 273% year on year for the March quarter.

Aurico Gold Inc., has sold the El Cubo silver-gold mine and v silver-gold project to Endeavour Silver Corp., for US$250 million.

Shareholders at Pan American Silver Corp. and Minefinders Corp Ltd., have voted to approve the former’s US$1.5 billion takeover offer.

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Emerging Stocks Extend Worst Slump Since 2008 on French Election

Emerging-market stocks extended the longest string of weekly declines since 2008 after French Socialist Francois Hollande was elected President, U.S. employers added fewer jobs and Taiwan’s inflation accelerated.

PetroChina Co. (857) retreated the most in five weeks in Hong Kong trading after the Shanghai Securities News said gasoline prices may be cut. China Vanke Co. (000002) and Poly Real Estate Group Co. led declines for property developers in Shanghai after the Xinhua News Agency reported Industrial & Commercial Bank of China Ltd. suspended a discount on mortgages for first-time home buyers nationwide. Cathay Financial Holding Co., Taiwan’s largest financial services company, retreated 2.8 percent.

The MSCI Emerging Markets Index (MXEF) lost 1.5 percent to 998.21 as of 10:49 a.m. in Singapore, heading for its biggest slump since April 4. The index dropped for a seventh week last week after U.S. Labor Department data on May 4 showed U.S. payrolls climbed by 115,000 in April, below economists’ estimates for a 160,000 advance. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong lost 2.4 percent. Taiwan’s Taiex Index dropped 2.3 percent, while South Korea’s Kospi Index (KOSPI) fell 1.7 percent.

The U.S. data and the French presidential election are sending “jitters through the Asian markets today,” Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp. in Singapore, said in a Bloomberg television interview. “If the market pulls back another 5 percent, 8 percent, you will see bargain hunters coming back to bargain hunt for stocks because the fundamentals for Asia are still fairly strong.”

European Debt

The MSCI’s developing nations index, which has gained 9 percent this year, is valued at 10.4 times estimated profit, a 15 percent discount to the MSCI World Index’s multiple of 12.4, according to data compiled by Bloomberg.

Hollande, the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity. Hollande got about 52 percent against about 48 percent for Nicolas Sarkozy, according to estimates by four pollsters. His platform calls for policies German Chancellor Angela Merkel opposes, including increased spending and a delayed deficit-reduction effort.

Taiwan’s consumer-price index climbed 1.44 percent in April from a year earlier, compared with a revised 1.25 percent increase in March, the statistics bureau said in Taipei today. The median of 12 estimates in a Bloomberg News survey was for a 1.41 percent gain.

Taiwan Semiconductor Manufacturing Co., the company with the biggest weighting on the Taiex, slid 2.9 percent. Cathay Financial Holding retreated 2.8 percent.

Developers Slump

PetroChina decreased 2.8 percent. The Shanghai Securities News reported gasoline and diesel prices may drop by 300 yuan per ton, or 0.22-0.26 yuan a liter, citing Hu Huichun, an analyst at researcher Chem99.com.

Vanke, the nation’s largest listed property developer, fell 2 percent. Poly Real Estate, the second biggest, dropped 0.5 percent. ICBC, the largest lender, notified its borrowers of scrapping the mortgage rate discount by phone last week, Xinhua reported. The suspension was made amid tighter liquidity and “deposit instability,” according to Sophie Jiang, banking analyst at Religare Capital Markets.

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