Global Efforts Extend By European Central Banks

Europe’s leading central banks resumed crisis-fighting, expanding a push by global monetary- policy makers to support economies and financial markets while governments struggle to act.

The European Central Bank, after a meeting today in Berlin, said it would reintroduce purchases of covered bonds and yearlong loans for banks to support markets rattled by the region’s sovereign-debt crisis. In London, the Bank of England boosted its asset-purchase program by more than a third to 275 billion pounds ($424 billion) in a bid to avert a new recession in the U.K.

International central bankers are softening their anti- inflation stances or reviving programs to keep financial systems liquid as they race to keep slumping growth from turning into a full-fledged contraction. TheFederal Reserve has eased policy two months in a row, while central banks in Malaysia and South Korea have refrained from raising rates as they focus on maintaining growth over damping price increases.

“There has been a recent shift in central banking across the world, in the West toward easing and in emerging markets putting tightening on hold with an option to ease if necessary,” said Gerard Lyons, London-based chief economist at Standard Chartered Bank. The fiscal and monetary policy “cupboard is almost bare in the West, so pressure is on the central banks to do more of the heavy lifting.”

Australia’s central bank signaled Oct. 4 it has scope to lower the highest benchmark interest rate among developed economies if necessary as inflation pressures ease. Turkey and Russiastepped up sales of foreign-currency reserves this week.

Risk Aversion

“We have a substantial increase in risk aversion, and that is affecting flows into the emerging markets and their economies,” said Ted Truman, a former Fed official and assistant Treasury secretary, who’s now a senior fellow at the Peterson Institute for International Economics inWashington. “Many of their currencies are weakening, and there’s a recognition that the global economy which they live off of is slowing down.”

Brazil plans moderate interest-rate reductions after a surprise cut Aug. 31 to 12 percent, a government official familiar with monetary policy said this week on condition of anonymity. Last week, Israel’s central bank lowered its benchmark rate for the first time in 2 1/2 years, to 3 percent.

The Fed said last month it would replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in a program dubbed Operation Twist. In August, the central bank said its benchmark interest rate would probably stay near zero through at least mid-2013, amending previous language for a less-specific “extended period.”

Additional Easing

Additional easing may be in the offing. JPMorgan Chase & Co. (JPM) economists last week forecast the average interest rate of developed economies, weighted for gross domestic product, will fall to 0.62 percent by the end of the year from 0.80 percent. In emerging markets, it will drop to 5.80 percent from 5.93 percent.

“We’re going to see further measures,” said Tim Drayson, a global economist at Legal & General Investment Management in London. “There’s clearly more scope for the Fed for going to QE3, and the ECB can cut rates,” he said, referring to a third round of quantitative easing, or large-scale asset purchases.

The euro reversed losses after the ECB’s rate decision to trade at $1.3398 at 12:46 p.m. in New York, compared with $1.3348 yesterday. The pound fell as much as 1.2 percent against the dollar to $1.5272. The Standard & Poor’s 500 Index of stocks was up 1.1 percent to 1,156.27.

Final Meeting

ECB President Jean-Claude Trichet, overseeing his final monetary-policy decision before retiring, said at a Berlin press conference today that the central bank will spend 40 billion euros ($53 billion) on covered bonds starting next month and will offer banks two additional unlimited loans of 12 and 13- month durations. He also said the ECB will continue to lend banks as much money as they need in its regular refinancing operations at least until July 2012.

Policy makers left the benchmark interest rate at 1.5 percent, where it’s been since July 7. With inflation accelerating to 3 percent last month, the ECB is resisting calls to reverse this year’s two quarter-point rate increases even amid speculation a recession is impending, Greece edges toward default and investors express concern about potential European bank losses. The ECB is the first line of support for markets as European governments piece together a new plan to solve their region’s debt strains.

‘Intensified Downside Risks’

“Ongoing tensions in financial markets and unfavorable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year,” Trichet said. There are “intensified downside risks” to the economic outlook, he said.

The Bank of England’s nine-member Monetary Policy Committee, led by Governor Mervyn King, raised the ceiling for so-called quantitative easing from 200 billion pounds. That’s the biggest expansion since the first round of stimulus in March 2009. Only 11 of 32 economists in a Bloomberg News survey predicted an increase in asset purchases.

The central bank acted a day after a report showed Europe’s second-biggest economy grew less than previously estimated in the quarter through June.

The pledge to buy the most bonds since the depths of the credit crisis shows King and his colleagues are prioritizing the recovery over the threat from inflation, which is running more than double the central bank’s target. The onus to boost expansion is on Bank of England as the nation’s government remains committed to delivering the toughest fiscal squeeze since World War II.

Vietnam, Kenya

Not every country is considering easier monetary policy. Vietnam’s central bank today said it would lift its refinancing rate by a percentage point to 15 percent. The Central Bank of Kenya raised its benchmark interest rate yesterday by four percentage points to 11 percent.

Other emerging market central banks have room to join developed economies in providing stimulus if growth falters, said Lyons at Standard Chartered Bank. The People’s Bank of China has raised interest rates five times and increased the reserve requirement nine times in the past 12 months, slowing growth in the world’s second-largest economy behind the U.S.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net;Simon Kennedy in London at skennedy4@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net.

30-Year Mortgage Rates Fall Below 4% in U.S.

Mortgage rates in the U.S. fell, sending longer-term borrowing costs below 4 percent for the first time on record, as stricter credit standards and the slowing economy hold back a housing rebound.

The average rate for a 30-year fixed loan dropped to 3.94 percent in the week ended today from 4.01 percent, Freddie Mac said in a statement. That’s the lowest in the McLean, Virginia- based company’s records dating back to 1971. The average 15-year rate declined to 3.26 percent from 3.28 percent last week.

Mortgage rates have tracked a slide in 10-year Treasury yields amid concern that Europe’s debt crisis is worsening and the U.S. economymay slide back into a recession. Low borrowing costs have done little to revitalize the U.S. property market as unemployment sticks above 9 percent, banks tighten credit and home values decline. The Federal Reserve announced a plan last month aimed at bolstering the economy and reducing loan rates further by replacing shorter-term securities in its portfolio with longer-term debt.

“There’s nothing to gloat over,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said in a telephone interview today. “The record low interest rates are a reflection of the times. The U.S. economy is fragile and the global economic headwinds remain brisk.”

Loan Applications

Home-loan applications decreased 4.3 percent in the period ended Sept. 30 from the prior week, according to a Mortgage Bankers Association index. The refinancing gauge dropped 5.2 percent while the purchasing measure fell 0.8 percent, the Washington-based trade group said yesterday.

Mortgage demand may be tested because new loan limits were introduced this week for certain high-priced areas. The 9.1 percent drop in purchase applications for September from the previous month suggests that buyers weren’t rushing to meet the deadline and the limits won’t have a significant impact on borrowing, according to Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto.

The number of contracts to purchase previously owned homes declined 1.2 percent in August, following a 1.3 percent drop the previous month, the National Association of Realtors reported last week. The S&P Case-Shiller index of home values in 20 U.S. cities decreased 4.1 percent in July from a year earlier.

Purchases of new houses fell in August to a six-month low, according to the Commerce Department. The median price slumped 7.7 percent from August 2010, the steepest 12-month drop since July 2009.

To contact the reporter on this story: Prashant Gopal in New York at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

It May Cost $2 Trillion on Europe Bank Rescue

Governments and private-sector partners may have to spend as much as $2 trillion to rescue Europe’s banks, said Laurence D. Fink, the chairman and chief executive officer of BlackRock Inc. (BLK)

“Stabilizing Europe is very costly,” Fink, who heads the world’s largest asset manager, said today during an event in Toronto. “It could be as much as a couple trillion dollars.”

World equity markets have plunged over the past two months amid concern the European debt crisis is intensifying. The International Monetary Fund cut its forecast for global growth last month and predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan.

Fink said his firm has purchased equities this week including Morgan Stanley (MS), after the MSCI All-Country World Index slumped 22 percent between May 2 and Sept. 30. BlackRock oversaw $3.66 trillion in assets as of June 30.

“The hysteria is so rampant now, it’s probably a good time to invest,” he said.

A European rescue program would be more of an investment opportunity than a bailout, Fink said today. On Sept. 14, he recommended a $1 trillion plan similar to the U.S. Troubled Asset Relief Program. He said today that he envisioned Europe needing an additional $1 trillion public-private partnership.

“It’s not lost money,” he said. “It’s no different than what the U.S. government did with TARP. In most cases, the U.S. got its money back.”

‘Euro Two’

Greece is unlikely to leave the euro region, as returning to a single-country currency would be too disruptive to credit markets, Fink said.

“If there is a restructuring of the euro, it would be good countries leaving the euro and creating the ‘euro two,’ and all the other countries keeping the euro,” he said.

A solution to the European crisis will return the world’s attention to the U.S. and the lack of progress toward reducing the country’s budget deficit, Fink said. The failure of U.S. politicians to compromise on taxes and spending is leaving Americans too uncertain about the country’s future to return to the markets, he said.

Reducing the deficit will probably require less spending and increasing taxes or changing the tax code, he said.

Fink said he is pessimistic the Federal Reserve’s plan to buy longer-term debt, known as Operation Twist, will improve the economy.

“This program is really baffling me,” he said. “U.S. companies are sitting on trillions of dollars of cash. Lowering finance costs by 1 percent for 10-year money, I don’t see how that can stimulate the economy.”

To contact the reporter on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

HP said NO to BIG Softwares

Hewlett-Packard Co. (HPQ) won’t look for big takeover targets in thesoftware industry following its $10.3 billion purchase of Autonomy Corp., Chief Executive Officer Meg Whitman said at an event in San Francisco today.

“It’s certainly the end of big acquisitions,” said Whitman, when asked whether she would continue the software expansion strategy of her predecessor, Leo Apotheker, who was ousted as CEO last month.

Whitman said the company has to pay attention to its hardware businesses, such as servers and printers.

“You don’t transform $129 billion companies,” she said at a forum to discuss California’s economic future hosted by the Public Policy Institute of California. “We have to take the most incredible assets we have and make them great.”

Yesterday, Whitman told a conference on women in leadership sponsored by Fortune magazine that Hewlett-Packard would decide whether to spin off its $41 billion personal-computer division by the end of October, pushing up the company’s timetable.

As for the economy, Whitman said it’s a “very difficult environment, particularly for a company the size of HP.” She said the Palo Alto, California, technology giant hasn’t decided yet if job cuts are needed. “I don’t know yet,” she said.

Seeking Harmony

Whitman, former CEO of EBay Inc., joined Hewlett-Packard’s board in January after a failed run for California governor in 2010. She took over as CEO of the computer maker on Sept. 22, when Apotheker was ousted after less than 11 months on the job. Whitman and Executive ChairmanRay Lane have promised to bring accord to the company’s executive suite and improve employee morale.

The Public Policy Institute of California is a nonprofit research group that studies issues including economic development, education and immigration. Walter B. Hewlett, son of Hewlett-Packard co-founder William Hewlett, is on the institute’s board, according to its website.

Shares of Hewlett-Packard gained 84 cents, or 3.7 percent, to $23.86 at 4 p.m. today on the New York Stock Exchange. The stock has slumped 43 percent this year.

To contact the reporters on this story: Aaron Ricadela in San Francisco ataricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Samsung Seeks Ban on IPhone 4S in France, Italy

Samsung Electronics Co. aims to stop Apple Inc. (AAPL)’s iPhone 4S handset being sold in France and Italy on patent-infringement claims, escalating the dispute between the world’s two biggest makers of smartphones and tablets.

Samsung will file motions with courts in Paris and Milan seeking the ban, each citing two patent infringements on wireless telecommunications technology, the Suwon, South Korea- based company said in an e-mailed statement yesterday. Apple unveiled the iPhone 4S in Cupertino, California this week and aims to start sales later this month.

The move adds to legal disputes that began in April, when Apple claimed that Samsung’s Galaxy devices ‘‘slavishly” copied the iPad and iPhone. At stake is dominance in the fastest- growing segment of the $207 billion mobile-phone market, where Apple is competing against makers of handsets powered by Google Inc. (GOOG)’s Android operating system.

“It’s clearly part of this increasing mobile patent war that we’ve been seeing in recent months,” said James Cordwell, a London-based analyst at Atlantic Equities Service who rates Apple’s shares “overweight” and doesn’t own any. “What’s at stake is your long-term strategic position. It’s less about the country-by-country blockade.”

Steve Park, a Seoul-based spokesman for Apple, declined to comment on Samsung’s statement. Florence Catel, a spokeswoman for Samsung France, did not have any additional information on when the suit will be filed or when a hearing will take place.

‘Flagrantly Violate’

Samsung plans to file preliminary injunctions in other countries after further review, it said in the statement. Apple, maker of the iMac computer and the iPad tablet, is also one of the South Korean company’s biggest buyers of chips and displays.

“Apple has continued to flagrantly violate our intellectual property rights and free ride on our technology,” Samsung said. “Samsung believes that Apple’s violation as being too severe and that iPhone 4S should be barred from sales.”

Samsung gained 1.7 percent to 842,000 won at the 3 p.m. close of trading in Seoul, before the company issued the statement. Apple lost 0.6 percent to $370.23 in New York trading as of 10:44 a.m. local time.

Apple this week introduced the iPhone 4S equipped with a faster processor, a higher-resolution camera and a new software interface to help it vie with Google’s Android, which powers Samsung’s Galaxy phone and tablets.

Smartphone Sales

At stake is leadership in the market for smartphones, which is projected to double by 2015, when 1 billion of the handsets will be sold, according to research firm IDC. While Apple is the single biggest smartphone maker, the Android coalition leads the market, accounting for 41.7 percent. The iPhone accounted for almost half Apple’s sales in the most recent quarter.

“If Samsung just sits there doing nothing, they will end up letting Apple label them as a copycat,” said Choi Do Yeon, an analyst at LIG Investment & Securities Co. in Seoul. “Samsung will want to win something from any court, whether it’s a ban or an agreement from Apple to pay royalties.”

Apple had earlier won backing from a Dusseldorf court that upheld a temporary ban on sales of the Galaxy Tab 10.1 in Germany, which Strategy Analytics forecasts will be Europe’s third-largest market for tablets this year. Samsung filed an appeal against the ruling.

Apple’s Blockade

In Australia, Apple has delayed the release of the product for two months by seeking a temporary judicial ban.

Samsung will abandon plans to sell the Galaxy Tab 10.1 in Australia if it doesn’t win approval to sell it in the next two weeks, Neil Young, a Samsung lawyer told Federal Court Justice Annabelle Bennett in Sydney this week. Missing the Christmas season would result in the new tablet being “dead,” he said.

Samsung avoided an injunction on its tablet computers in the Netherlands, where it was ordered by a court in The Hague to halt some sales of the Galaxy S, S II and Ace smartphones.

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net;

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net