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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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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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Spain Meets Bond Target While French Borrowing Costs Fall

Spain Meets Bond Auction Target as French Borrowing Costs Fall

The Spanish Treasury sold 2.52 billion euros of bonds, exceeding its maximum target.

The Spanish Treasury sold 2.52 billion euros ($3.31 billion) of bonds, exceeding its maximum target. Still, Spain had to pay 4.037 percent to sell debt for three years, up from 2.617 percent at a March 1 sale.

The auction was the first long-term debt sale since Standard & Poor’s lowered the nation’s credit rating last week, leaving Spain three notches from junk status. The effect of the European Central Bank’s 1 trillion-euro three-year refinancing operation is also fading, leaving a clearer indication of demand.

“This is a proper, good, honest market now,” Peter Chatwell, a bond analyst at Credit Agricole SA in London, said in a telephone interview. “Expectations of big, blow-out auctions need to disappear. The yields are all sub-5 percent, that’s a comfortable level.”

The yield on Spain’s existing five-year benchmark declined 7 basis points to 4.7 percent at 12 p.m. in Madrid, and the yield on the benchmark 10-year bond fell 3 basis point to 5.82 percent. Spain also sold two five-year bonds at 4.752 percent and 4.96 percent.

France held its final auction before the nation chooses its next president in a final round of voting on May 6. The Treasury sold 3.32 billion euros of 10-year bonds at an average yield of 2.96 percent, down from 2.98 percent on April 5, as part of an auction of 7.43 billion euros of government debt. France’s 10- year bond yield fell 3 percent to 2.92 percent after the sale.

Rating Cut

S&P cut Spain’s credit rating two levels to BBB+ from A on April 26, citing concerns that losses buried in the country’s banking system may overwhelm government efforts to shore up public finances. The government has embarked on a third attempt to clean up the banking industry since a real estate bubble burst in 2008, leaving them hobbled with bad loans and overvalued assets.

Spanish bonds were the worst-performing of 26 sovereign- debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies in April, with losses of 1.8 percent. Italian securities were second worst, dropping 1.3 percent, after gaining 11 percent in the first quarter.

In February, the Spanish government increased the ratio of provisions to be set aside for land to 80 percent, while raising the ratio on unfinished developments to 65 percent and to 35 percent for other troubled assets including finished houses. The new provisioning rules cover about 180 billion euros of assets.

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EU slams governments for not enacting growth laws

BRUSSELS  — The 27 member countries of the European Union have been slammed for not implementing laws designed to boost growth on the crisis-hit continent.

The President of the European commission Jose Manuel Barroso delivers his statement on how to combat the economic crisis, at the European Parliament Wednesday, April 18, 2012 in Strasbourg, eastern France.

The criticism, from the president of the European Union’s executive Commission, comes as the EU finds itself increasingly under pressure to do more to get its economy growing again as many of its members slash government spending, pushing some states into recession.

International bodies like the Organization for Economic Cooperation and Development have long pointed out that the EU’s internal market — which in theory should allow people and businesses to move as freely in Europe as they can in the U.S. — often falls short in practice.

“It is incomprehensible that member states are still not fully implementing growth-friendly legislation we have in place,” European Commission President Jose Manuel Barroso told the European Parliament in Strasbourg, France.

The European Commission for years has been pushing states to remove administrative barriers that prevent workers from taking jobs and companies from offering services in other EU countries.

The EU’s internal market “is probably the largest engine for growth within the European Union,” Barroso said. “It gives European business unfettered access to other companies and half a billion consumers and allows them to develop the scale to compete globally.”

Barroso spoke after the Commission approved a series of initiatives to boost jobs and growth in the crisis-hit bloc. Many of the proposals in the 27-page plan have been made before but have failed to overcome resistance by governments.

The push to free up jobs has become increasingly urgent as unemployment in Europe has jumped to more than 10 percent as the continent struggles with a series of debt crises that have caused Greece, Ireland and Portugal to seek a bailout .

Joblessness varies widely from country to country, however. In Spain and Greece, unemployment stands above 20 percent and among young people almost one out of two is looking for a job. In rich countries like Germany, Austria or the Netherlands the unemployment rate is below 6 percent.

But getting a job in Germany or Austria is difficult for a Greek or Spaniard. Not only do most jobs require workers to speak the local language, there are also practical and administrative barriers.

The Commission called Wednesday for an easier way to transfer a worker’s pensions from country to country and the way cross-border workers are taxed to be simplified. Job seekers should be able to receive their unemployment benefits for up to six months while they are looking for work in another country and non-nationals should be hired for jobs in a country’s public sector, it added.

Getting governments to implement such initiatives is not easy. Citizens are often wary of foreign workers — even in countries with relatively low unemployment — and some rich states have seen nationalistic parties rise in the polls.

The EU has also come under fire from unions for its push to make the labor market more flexible — making it, they argue, easier to fire workers. The Commission argues that knowing they can easily get rid of workers during a slump would encourage businesses to hire more in good times. However implementing the reforms in the middle of an economic crisis can create more pain in the short-run. Critics also warn that shifting taxes away from income to consumption on things like energy — as the Commission has long favored — will effectively leaves workers with less money as their bills rise.

Laszlor Andor, the EU’s commissioner for employment and an outspoken critic of the focus on austerity, said governments needed to do more to ensure people who work full-time make enough money to live.

Even when adjusted for varying price levels, minimum wages range for less than €300 a month in countries like Bulgaria to almost €1,500 in rich states like Luxembourg — leaving many workers below the poverty line. Some countries, such as Germany, don’t have a minimum wage at all.

While low wages can make country’s exports more competitive, they also hurt consumption in rich states.

In addition to strengthening its internal markets, Barroso said the EU should try to improve its trade relations with non-European countries, including the United States.

“The United States is our largest economic partner,” Barroso said, adding that trade between the EU and the U.S. was worth almost €450 billion last year and that they had invested more than €1 trillion in each others’ economies.

“Any further gains, including through reducing non-tariff barriers, would be significant for both sides,” Barroso said. “We are exploring ways in which to broaden and deepen these ties.”

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Debate Grows as Europe Fears Return of a Crisis

Angela Merkel, the Chancellor of Germany

Angela Merkel, the Chancellor of Germany (Photo credit: Wikipedia)

BERLIN — The European financial crisis has shown signs of reigniting in recent days, sharpening the debate between the champions of austerity and a growing chorus urging more expansionary policies to promote growth.

Even the traditionally hard-line International Monetary Fund called on Tuesday for stronger European nations to ease the fiscal brakes by stretching out budget cuts over a longer period. But if that message was intended foremost for Germany, it seemed destined to fall on deaf ears: with two state elections coming up next month, Chancellor Angela Merkel is unlikely to shift her position, popular with voters, against additional help for the economies of struggling European partners.

“We don’t see the need that perhaps other countries see to boost growth through additional increases in expenditures,” said a senior official in the German Finance Ministry, speaking on the condition of anonymity.

“Instead, we see quite clearly, and will remind our partners about their responsibilities from Toronto,” the official said, referring to commitments made at the Group of 20 summit meeting in June 2010, “to cut their deficits in half and stabilize their debt levels.” At the same time, the official said that Germany hoped other countries would join in increasing the International Monetary Fund’s resources to help it combat the crisis.

Politics as much as economics is adding to the sense of uncertainty in Europe. President Nicolas Sarkozy of France, who is trailing the Socialist candidate François Hollande in the polls before the first round of the presidential election on Sunday, has joined his opponent in promoting pro-growth policies. In Greece, nationalist anti-German fringe parties are gaining strength ahead of next month’s parliamentary election.

The German state elections may not directly affect the federal government in Berlin, but they distract from Continent-wide concerns and crisis management while thrusting parochial issues to the forefront. The German government does not have a mandate to share further the burden of the common currency on less competitive economies like those of Greece, Portugal, Ireland and, increasingly, Spain and Italy.

What seems certain, however, is that the crisis will continue to fester until new measures are taken to address its root causes. Borrowing costs for struggling southern European countries like Spain and Italy have begun to rise again as the effect of the European Central Bank’s injection of about $1.3 trillion in cheap loans into the banking system in December and March has faded much faster than expected. The three-year loans were meant to buy time for struggling governments and financial institutions, but the breathing room appears likely to be measured in months rather than in years.

The recent shift has underscored that there have been no substantive fixes beyond promises by countries to reduce their budget deficits. “It looks like it’s coming back with a vengeance, largely because none of the underlying problems have been solved,” said Philip Whyte, a senior research fellow at the Center for European Reform.

Mr. Whyte said that despite two years of crisis management, the fundamental structure of the euro zone remained intact, with lower-productivity economies in the south yoked to higher-productivity economies in the north, which prevents the laggards from competing through a currency devaluation.

“The E.C.B. bought time, but what it ended up doing was simply tightening the link between national banks and their sovereigns,” Mr. Whyte said. “They made the system more vulnerable if markets started losing faith in debt sustainability in countries like Spain.”

Yields on Spain’s 10-year bonds climbed above 6 percent on Monday, though they fell slightly on Tuesday after a successful auction of short-term debt by Spain’s treasury. Spain has emerged as the central test this year after missing its deficit targets as it slips back into recession. The government in Madrid has had a difficult time reining in spending by the 17 regional governments.

A bailout of Spain would be much costlier than one for smaller economies like those of Greece, Portugal or Ireland, testing the resources of the euro zone countries. Many economists, particularly in the United States, have argued that Spain has to stimulate its economy with additional spending if it hopes to return to economic growth, an argument rejected by the German government.

In an interview with the German newspaper Frankfurter Allgemeine Zeitung on Tuesday, Christine Lagarde, the managing director of the International Monetary Fund, said she was concerned about the health of Spanish banks and warned against slashing spending too quickly. It is not a view shared here in the German capital.

In an interview with Reuters on Tuesday, Germany’s finance minister, Wolfgang Schäuble, praised Spain for making difficult economic changes. “You don’t win back trust overnight,” Mr. Schäuble said, adding that Spain was following the right path by cutting spending. German officials have also recommended changes in labor markets as a longer-term strategy to promote growth.

As deficits balloon in countries across Europe, Germany continues to watch its deficits and financing costs fall. In another sign of Germany’s recent strength, the Bundesbank said on Tuesday that the country’s debt had fallen to 81.2 percent of gross domestic product in 2011, compared with 83 percent in 2010. That is still far above precrisis levels: in 2007, German debt was 65.2 percent of the size of the country’s economy.

“The problem with the crisis in Germany is that we know we have a crisis, but we don’t feel it,” said Eckart D. Stratenschulte, a political scientist and the director of the nonprofit European Academy Berlin.

Even as the European Central Bank loans improved market conditions, European leaders, including Ms. Merkel, were clear that they did not believe that the crisis was over. Many in Germany argue that a sense of crisis — and the elevated borrowing costs that come with it — is necessary to end out-of-control spending in the heavily indebted nations and to push through the economic liberalization they need to restore growth.

But the higher borrowing costs and austerity measures cut into growth, critics say, lowering government revenues in a self-defeating downward spiral and leading to higher interest rates and further budget cuts. “It’s concerning that the markets are again running out of patience and driving yields higher,” said Thomas Mayer, chief economist at Deutsche Bank in Frankfurt. “That creates further head winds.”

The I.M.F. on Tuesday raised its forecast for global growth slightly for the year. In Europe, the fund projected recovery in the second half of 2012, except for Spain, Italy, Greece and Portugal, where substantial improvement is not expected until next year.

The crisis, Mr. Mayer said, is like “a manic depressive moving between euphoria and worries, and now we’re in the valley of worries again.”

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