Business News: Shoppers, Start Your Engines

Business News: Shoppers, Start Your Engines

Shoppers, Start Your Engines

Posted: 24 Nov 2010 02:00 PM PST

Weekend Sales Climb 6.4% on Deals

Posted: 29 Nov 2010 05:07 AM PST

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By Lauren Coleman-Lochner and Yi Tian

Nov. 29 (Bloomberg) -- The average shopper in the U.S. spent 6.4 percent more over Thanksgiving weekend than last year as more shoppers picked up jewelry and toys, heartened by the economic rebound.

About 212 million shoppers went to stores and websites over the holiday weekend, on average spending $365.34, the National Retail Federation said yesterday. The proportion of sales online rose to more than one-third of the total, according to the Washington-based trade group.

Retailers lured people into stores with promotions like Wal-Mart Stores Inc.’s $5 Barbie and J.C. Penney Co.’s $10 diamond-accented earrings. Customers such as Barb Capa, shopping at Saks Inc.’s flagship store yesterday in New York, said they’re ready to buy again as their fortunes improve.

“I just feel like spending more because of an increase in my salary,” the 22-year-old nurse from New York said. In 2009 Capa spent $1,000 during the holiday season. This year she is ready to “splurge” and drop five times as much on designer bags, clothes and shoes.

U.S. retail sales during Thanksgiving weekend totaled about $45 billion, the NRF said, citing a survey conducted by BIGresearch. More people are scouring for deals earlier, with the number of customers shopping on Thanksgiving Day more than doubling over the past five years, the group said.

“Consumers are more comfortable spending again, and that trend has held up,” Maggie Taylor, a vice president at Moody’s Investors Service in New York, said yesterday. “I don’t think people are as worried about losing their jobs anymore.”

On Black Friday itself, so named because that’s when many retailers become profitable, traffic rose 2.2 percent, ShopperTrak said on Nov. 27. The Chicago-based consulting firm said sales rose 0.3 percent to $10.7 billion.

Rebounding Sentiment

The increase follows improvements in consumer sentiment. Confidence among U.S. consumers increased more than forecast in November to the highest level in five months, according to the Thomson Reuters/University of Michigan index. Consumer spending accounts for about 70 percent of U.S. gross domestic product.

More shoppers surveyed said they visited department stores this year, and fewer went to discounters as shoppers put more emphasis on service and selection, Ellen Davis, an NRF spokeswoman, said on a conference call yesterday. Men outspent women as they shopped for electronics and other big-ticket items, often for themselves, Davis said.

The NRF predicts a gain of 2.3 percent to $447.1 billion this holiday period after a rise of 0.4 percent last year and a 3.9 percent drop in 2008. The group may revise its forecast up if the trends of the past weekend continue, Davis said. Nevertheless, she cautioned that a strong start isn’t always indicative of the season -- the NRF recorded an increase in its 2008 Black Friday survey, yet saw overall holiday sales decline that year.

First-Time Shopper

Andy Bogats, a 38-year-old father of five, braved the crowds and rain on the morning of Black Friday for the first time in his life. He bought two 32-inch flat-screen Emerson televisions for $198 apiece at a Wal-Mart location outside Pittsburgh.

“We targeted these TVs, and were fortunate to get them,” said Bogats, a former mortgage broker who now works in the construction industry. “Things are getting better.” So much so, that he and his wife may splurge on each other this year. “We didn’t do that last year,” he said.

While some shoppers plan to spend more this season, others are trimming their budgets.

Shannon Parker, 39, and her sister-in-law Tracy Knapp, 42, have made a Black Friday shopping marathon an annual tradition. This year was no exception. The 12-hour shopathon took them from Wal-Mart, Target Corp. and Best Buy Co. to Kohl’s Corp. and Bon Ton Stores Inc. Along the way, they snagged everything from a TV to iPod docking stations to Christmas Eve pajamas for their kids.

Better Budgeting?

There was one difference, however. Parker, a school administrator from Baltimore, put all of her purchases on prepaid credit cards to avoid busting her budget.

“I’m still swiping the plastic, but it’s already paid for,” said Parker, who was visiting her sister-in-law in Allentown, Pennsylvania.

Some Americans plan to wait for the deals to improve. One is Debbie Schwig, who declined to buy anything when she visited Apple Inc.’s Fifth Avenue store in Manhattan on Nov. 27 with her husband and dog.

“We’re here to check things out today,” said the 47-year- old nurse from Hoboken, New Jersey. “We’ll wait until vendors get more desperate.”

Avoiding Bedlam

Others opted to avoid the bedlam of Black Friday altogether. Bridget Hujsa, a teacher from Bethlehem, Pennsylvania, is buying nearly all of her gifts online at Target and Gap Inc.’s Old Navy, where she found discounts on clothes and baby toys for her 7-month-old son.

“I prefer online,” she said. “You don’t have to drive and deal with the crowds.”

She may get her chance today by joining in on Cyber Monday, known as the kickoff for the online holiday shopping season. More than 106 million people are projected to surf the Internet for deals, according to the NRF. Best Buy, for example, began a two-day Cyber Monday sale yesterday with discounts on 32-inch LCD televisions and Dell Inc. laptops.

--With assistance from Matthew Boyle, Mina Kawai and Ian Thomson in New York, Burt Helm in Allentown, Pennsylvania, and Matt Townsend in Pittsburgh. Editors: Julie Alnwick, Robin Ajello

To contact the reporters on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Yi Tian in New York at ytian8@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

Holiday Sweets for Those Who Tweet

Posted: 24 Nov 2010 02:00 PM PST

Next Home Buyers: Ozzie & Harriet

Posted: 28 Nov 2010 06:10 PM PST

The Most Expensive Suburbs

Posted: 29 Nov 2010 05:38 AM PST

A Good Day for Obama's Auto Bankers

Posted: 24 Nov 2010 02:00 PM PST

A Stock Windfall for GM's Creditors

Posted: 24 Nov 2010 02:00 PM PST

Why the Estate Tax Debate Just Won't Die

Posted: 28 Nov 2010 09:19 PM PST

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By Ryan J. Donmoyer

Nov. 29 (Bloomberg) -- Ending the uncertainty over extending Bush-era tax cuts may rest on resolving a decade-long debate over death and taxes.

The federal levy on estates is set to increase the most of all as tax cuts expire Jan. 1, jumping from zero to 55 percent for fortunes worth more than $1 million at death. President Barack Obama and Democrats in Congress barely mention it as they spar with Republicans over whether to keep income-tax reductions for top earners.

A new tax on multimillion-dollar estates may emerge as the final hurdle to a deal that preserves most or all of former President George W. Bush’s tax cuts, analysts said. Congress has unsuccessfully sought at least a half-dozen times to resolve the issue since 2000, including an abandoned effort last December to prevent the estate tax’s expiration.

“The history on the estate tax is every time there’s almost an agreement someone leaves the table in the belief they’ll get a better deal next time,” said Clinton Stretch, a managing principal at the Washington consulting firm Deloitte Tax LLP.

With Obama planning to meet with bipartisan congressional leaders at the White House tomorrow, three main factions have formed in the Senate, none of which has the 60 votes needed to advance an estate-tax proposal. One includes Republicans such as South Carolina’s Jim DeMint who favor permanent repeal. Another is led by Democrats including Majority Leader Harry Reid who support a top rate of 45 percent that would apply after a $3.5 million tax-free allowance.

Moral Issue

A third faction, led by Arizona Republican Jon Kyl and Arkansas Democrat Blanche Lincoln and embraced by Republican leader Mitch McConnell of Kentucky, backs setting the top rate at 35 percent after a $5 million exemption.

Forging an agreement has proven more complicated than splitting the difference on the numbers because this has been cast as a moral issue, said Lee Farris, senior organizer on estate-tax policy for United for a Fair Economy, a Boston-based group that advocates reinstating the estate tax.

Opponents criticize the estate tax as an unfair levy that destroys family businesses while proponents of the tax, who include billionaires Warren Buffett and Bill Gates, view it as essential to preserving meritocracy in U.S. society. That argument has gained steam this past year with the deaths of at least five U.S. billionaires, including New York Yankees owner George Steinbrenner.

“People are more dug in on their estate-tax positions on both sides than they are on the other positions,” Farris said.

Central Feature

The one-year repeal of the tax in 2010 was a central feature of the Bush tax cuts. It was repealed for only one year because a deal made in 2001 between Republicans and deficit-wary Democrats gradually reduced the tax through 2009 before it was repealed. The same bargain placed the Dec. 31, 2010, expiration date on all of the 2001 and 2003 tax cuts with which Obama and Congress are now wrestling.

The repeal also was the pinnacle for business groups and anti-tax activist organizations such as the American Family Business Institute and Americans for Tax Reform.

In the past year trade groups such as the National Federation of Independent Business and the National Association of Manufacturers, alarmed by the possibility of a 55 percent rate in 2011, have pivoted toward urging lawmakers to adopt the approach favored by Kyl and Lincoln. Though Lincoln lost her bid for re-election on Nov. 2, she says she still backs the proposal to set a top rate of 35 percent after a $5 million exemption.

Separate Laws

The business groups have been frustrated with a sequence of three separate estate-tax laws starting in 2009, when the first $3.5 million of an individual’s estate passed to heirs tax-free before a 45 percent rate kicked in. The Congressional Research Service says using those parameters in 2011 would subject 0.25 percent of U.S. estates to any tax in 2011 and generate $18.1 billion in revenue.

By contrast, a 55 percent top rate, with a $1 million exclusion, would affect 1.76 percent of estates and generate $34.4 billion in revenue, the CRS said. That’s enough to fund the departments of Labor and State. The Kyl-Lincoln approach would subject just 0.14 percent of estates to any tax and generate $11.2 billion, according to the CRS.

The anti-tax groups say they will continue to pressure lawmakers for repeal.

“What we would very much like to see is an extension of death taxes where they are right now, see an extension of the zero rate,” said Dick Patten, president of the group founded by Alabama lawyer Harold Apolinsky and funded heavily by investment banker Raymond Harbert, the son of a billionaire heiress.

The group refers to the levy as the “death tax,” even though 99 percent of U.S. residents don’t accrue a large enough fortune in their lifetime to pay it.

Most lawmakers likely will be wary of setting a tax-free allowance at $1 million, when it was $3.5 million only a year ago, said Jade West, a lobbyist for the National Association of Wholesaler-Distributors. “It doesn’t take a lot to get to a million.”

--Editors: Jodi Schneider, Robin Meszoly

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Treasuries Rise on Concern Irish Aid Won’t Contain Debt Crisis

Posted: 29 Nov 2010 05:33 AM PST

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By Cordell Eddings and Keith Jenkins

Nov. 29 (Bloomberg) -- Treasuries rose, with 10-year notes up for a third day in a row, on concern the rescue for Ireland will fail to contain Europe’s sovereign-debt crisis, increasing demand for the safety of U.S. government debt.

The Federal Reserve will buy Treasuries twice today as part of its plan to pump $600 billion into the economy through June and keep yields low. Bonds fell earlier as euro-region governments agreed to an 85 billion euro ($113 billion) aid package for Ireland.

“You have the package for Ireland, but the initial happiness has quickly subsided, and we are seeing worries about what is next for Europe,” said Jason Rogan, director of U.S. government trading at Guggenheim Partners LLC, a New York-based brokerage for institutional investors. “You have to look to buy the market, especially with the nervousness from Europe and the Fed buybacks coming.”

The 10-year note yield fell four basis points, or 0.04 percentage point, to 2.83 percent at 8:27 a.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in November 2020 rose 10/32, or $3.13 per $1,000 face amount, to 98 7/32. Ten-year yields are up 23 basis points this month, while down 101 basis points this year.

Bond Yields

The 30-year bond yield decreased two basis point to 4.19 percent. The two-year note yield was little changed at 0.51 percent after rising two basis points earlier today.

European finance chiefs ended crisis talks in Brussels yesterday by endorsing a Franco-German compromise on post-2013 rescues that means investors won’t automatically take losses to share the cost with taxpayers as German Chancellor Angela Merkel initially proposed.

“Given the uncertain landscape with Europe and the Korean peninsula and the upcoming Fed purchases in the U.S., there should be an underlying bid in the market, and that is what we are seeing,” said Martin Mitchell, head government bond trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis- based brokerage firm.

The Fed is scheduled today to buy $1.5 billion to $2.5 billion of Treasuries due from February 2021 to November 2027 and $6 billion to $8 billion in government debt maturing from May 2013 to November 2014.

Fed Focus

The central bank plans to focus about 86 percent of its purchases on notes due in 2.5 years to 10 years, leaving the 30- year bond as the security that most closely reflects market expectations for inflation. Since the Fed’s Nov. 3 announcement, the 30-year yield rose 0.28 percentage point, suggesting growing investor confidence in the central bank’s efforts to avoid deflation as the economy expands.

“The 30-year, with minimal Fed involvement, will become the bellwether issue for the bond market’s outlook on the economy and inflation,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York.

Treasuries have handed investors a 1.1 percent loss in November, according to Bank of America Merrill Lynch data. The decline would be the biggest since the debt lost 2.6 percent in December 2009. Treasuries have returned 7.4 percent this year, the indexes show.

Recovery Speed

The speed of the U.S. recovery is surprising, said Zeal Yin, who invests in dollar-denominated debt at Shin Kong Life Insurance Co., Taiwan’s second-largest life insurer.

“It will be difficult for Treasuries to rally,” said Yin, who helps oversee the equivalent of $49.2 billion. “The U.S. economy is recovering.” Ten-year yields will rise to 3 percent by June 30, he said.

The average U.S. shopper spent 6.4 percent more over the Thanksgiving weekend than a year earlier, the National Retail Federation reported yesterday, as the Christmas retail sales season began.

The 10-year note yield will advance to 3.24 percent by the end of 2011, according to a Bloomberg survey of banks and securities firms, with the most recent forecasts given the heaviest weightings.

Fund managers in a weekly survey by Ried Thunberg ICAP Inc. became less bearish on the outlook for Treasuries through June, with the research company citing the Korean tensions and Europe’s fiscal crisis.

Ried’s sentiment index rose to 45 for the seven days ended Nov. 24, matching this year’s high, from 43 the week before. A figure less than 50 indicates investors expect prices to fall.

The company, which is a unit of the world’s largest interdealer broker and is based in Jersey City, New Jersey, surveyed 22 money managers controlling $1.37 trillion.

--With assistance from James G. Neuger and Stephanie Bodoni in Brussels and Daniel Kruger in New York. Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net;

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net.

U.K. Trims Growth Forecasts, Sees Deficit Little Changed

Posted: 29 Nov 2010 05:25 AM PST

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By Gonzalo Vina

Nov. 29 (Bloomberg) -- The British economy faces a “sluggish” recovery in the medium term and will grow more slowly over the next two years than previously forecast, the Treasury’s fiscal watchdog said.

The Office for Budget Responsibility cut its 2011 growth forecast to 2.1 percent from 2.3 percent and said the economy will expand 2.6 percent in 2012 instead of 2.8 percent.

The budget deficit will be 117 billion pounds ($182 billion) in the year through March 2012, compared with a previous forecast of 116 billion pounds. The budget office added 1 billion pounds to its forecast for the four years starting April 2011.

“The economy will continue to recover from recession, but at a slower pace than in the recoveries of the 1970s, 1980s and 1990s,” the budget office said in a statement. The “outlook reflects the gradual normalization of credit conditions, efforts to reduce private-sector indebtedness and the impact of the government’s fiscal consolidation.”

Prime Minister David Cameron is facing growing public pressure over his plans to slash the record deficit, expected by the OBR to be 10 percent of economic output this year. The opposition Labour Party has called for the government to moderate the pace of tightening, saying the economy is too fragile to take it.

The OBR, led by Chairman Robert Chote, raised its 2010 economic growth forecast to 1.8 percent from 1.2 percent. The deficit for the current fiscal year will be little changed at 148.5 billion pounds, it said.

Chancellor of the Exchequer George Osborne has said he is sticking to his spending cuts and rejected International Monetary Fund calls to scale back the tightening should the U.K. economy slide back into recession.

The OBR was set up by Osborne to oversee Treasury forecasts and judge the government against its goal of achieving structural budget balance in the year ending April 2016.

The OBR said there is more than a 50 percent chance of meeting the forecast on existing tax and spending plans, with the current budget forecast to show a surplus of 0.5 percent of gross domestic product in 2014-15 and net debt falling.

The OBR said 330,000 jobs will be axed by April 2015 instead of the 490,000 it forecast in June. The revisions largely reflect the impact of Cameron’s decision last month to find an extra 7 billion pounds in welfare cuts and allocate the money to departments.

Osborne will later today deliver a statement to Parliament on the forecasts.

Labour introduced the Pre-Budget Report in 1997 to consult on changes for the following year. The occasion became popularly known as a “mini budget” as it took on greater significance during the financial crisis when Gordon Brown used it to introduce emergency measures including cutting value-added tax.

-- Editors: Andrew Atkinson

To contact the reporters on this story: Gonzalo Vina in London on gvina@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Basel Said to Seek Liquidity Deal, Weigh Bond Losses

Posted: 29 Nov 2010 05:23 AM PST

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By Jim Brunsden

(Updates with bank group’s comment in seventh paragraph.)

Nov. 29 (Bloomberg) -- Global banking regulators will seek agreements on liquidity and the quality of capital to fill gaps in an overhaul of rules endorsed by world leaders, according to two people familiar with the discussions.

Regulators may fail to agree on all the details at a two- day meeting of the Basel Committee on Banking Supervision starting tomorrow, said the people, who declined to be identified because the talks are private. That’s because of their potentially large effect on national banking industries, one of the people said.

The Basel committee will also discuss how bondholders may contribute to the costs of saving banks on the verge of collapse and what should trigger such burden sharing, the people said.

The Group of 20 nations decided to bolster banks’ liquidity and capital to prevent a rerun of the worst financial crisis since the Great Depression. An exodus of deposits from Irish lenders caused a funding shortfall which led European governments and the International Monetary Fund yesterday to agree on an 85 billion-euro ($112 billion) aid package for the country.

The G-20 this month endorsed rules, known as Basel III, which will more than triple the highest-quality capital, such as shareholders’ equity, that banks must hold to cushion against losses. The leaders left it to regulators to complete the details of the new rules. The G-20 has called on the committee to agree on them before the end of this year.

‘Balanced Decisions’

The Basel committee should “come to balanced decisions” on banks’ liquidity and capital that “do not risk hampering their lending capacity,” the European Banking Federation said in an e-mailed statement.

Regulators should avoid a “one-size-fits-all approach” to setting standards for bank liquidity so “firms are not obliged to change their business models fundamentally,” said Irving Henry, director of the British Bankers’ Association, in a telephone interview.

The Basel group is evaluating measures which would require bondholders to contribute to support for banks in times of stress. These include the use of so-called contingent convertible bonds, which convert to equity if certain triggers, such as preset capital levels, are breached, and bonds which automatically lose value if certain conditions are met. The Basel committee has said it plans to complete this work by mid- 2011.

A Swiss government-appointed panel recommended last month that UBS AG and Credit Suisse Group AG should hold as much as 9 percent of their risk-weighted capital in contingent convertible bonds by 2019.

‘Subordinated Debt’

The Basel committee suggested in August that regulators should have the option of writing off the subordinated debt and preferential shares of a bank that is about to fail, or of converting such instruments into common shares. The meeting will discuss the next steps to take, the people said.

The Basel meeting will also discuss criteria to identify banks that are deemed to be too big to fail. Regulators are aiming to complete work on “provisional” criteria to assess “the systemic importance of financial institutions at the global level,” by the end of this year, the committee said last month.

--Editors: Peter Chapman, James Amott

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

Coty Said to Be Close to Buying Nail-Polish Maker OPI

Posted: 29 Nov 2010 05:23 AM PST

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By Jeffrey McCracken and Serena Saitto

(Updates to add advisers in fifth paragraph.)

Nov. 29 (Bloomberg) -- Coty Inc., the seller of perfumes by Sarah Jessica Parker and Vera Wang, is close to buying nail-care company OPI Products Inc. for about $1 billion in cash, said two people with knowledge of the situation.

The two closely held companies may announce the deal by today, said the people, who asked not to be identified because the matter is private. Private-equity firms Bain Capital LLC and Advent International Corp. were among the companies that also made bids, people close to the situation said last month.

OPI, founded almost three decades ago by Chief Executive Officer George Schaeffer, sells polish used in nail salons, hand-and-foot care products and body lotion. Coty has bolstered its cosmetics business with acquisitions this month, agreeing to buy skin-care maker Philosophy and Dr. Scheller Cosmetics AG.

Cysette Burset, a spokeswoman for New York-based Coty, wasn’t reachable for comment, nor was Harris Shepard, a representative for OPI, which is based in North Hollywood, California.

Moelis & Co. served as financial adviser to Coty, while Lazard Ltd. advised OPI. Gibson Dunn & Crutcher LLP provided legal counsel to Coty and Skadden Arps Slate Meagher & Flom did the same for OPI.

Coty agreed to buy Philosophy on Nov. 23 from private- equity firm Carlyle Group, without disclosing the terms. Less than two weeks before that, Coty said it agreed to buy Dr. Scheller Cosmetics AG from Russia’s OAO Concern Kalina. It also purchased Unilever Cosmetics International in 2005 for 632.6 million euros ($860.6 million).

Financial Performance

OPI has annual sales of about $300 million and earnings before interest, taxes, depreciation and amortization of about $80 million, the people said last month. The company is seeking 11 to 12 times its earnings for the sale, they said.

Coty distributes perfumes such as “Lovely” from Parker, star of “Sex and the City,” and “Princess” from designer Wang.

A purchase of OPI would be at least the second acquisition of a nail-care company this year. In April, L’Oreal SA agreed to buy Essie Cosmetics to expand in the nail color market in the U.S. Terms weren’t disclosed.

--Editors: Andrew Dunn, Julie Alnwick

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net.

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net

Iran Scientist Killed by Bomb Worked on Atomic Project

Posted: 29 Nov 2010 05:11 AM PST

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By Ladane Nasseri

(Updates with Iran minister accusing U.S., Israel in fifth, sixth paragraphs.)

Nov. 29 (Bloomberg) -- A physicist working on Iran’s nuclear program was killed in a bombing in Tehran and another scientist was injured in a second blast, authorities said.

Majid Shahriari died early today as he was heading to his teaching job at Shahid Beheshti University, state-run news agencies including Mehr reported. Fereydoun Abasi, a physicist at the same university, was injured along with his wife, Mehr said. The bombs were attached to their cars by magnets, Hossein Sajedinia, Tehran’s police chief, was cited as saying by the official Islamic Republic News Agency.

“Majid Shahriari was one of my students for years and had a good cooperation with the organization,” Ali Akbar Salehi, head of Iran’s Atomic Energy Agency, told IRNA. “He was involved in one of the great projects of the organization.”

Iran is under international pressure over its nuclear program, which the U.S. and allies say is a cover for building atomic weapons. Iran rejects the allegation and says it needs nuclear technology for civilian purposes. Israeli Prime Minister Benjamin Netanyahu said this month that Iran should know that “all options are on the table” to halt the program.

Interior Minister Mostafa Mohammad-Najjar accused the U.S. and Israeli intelligence services of being behind the attack on Shahriari. The Iranian physicist’s killing follows a similar attack January that Iran also blamed on the U.S. and Israel.

“The CIA and Mossad are enemies of the Iranian nation and always sought to harm it as they want to prevent our scientific progress,” Mohammad-Najjar said, according to state television. “The enemy is resorting to such actions because it didn’t succeed by threatening and imposing sanctions on Iran.”

Salehi, who visited Abasi at a hospital, warned Iran’s enemies not to “play with fire” and said that “the patience of Iranian people is limited,” according to IRNA.

The January attack targeted Massoud Ali-Mohammadi, who was killed by a remote-controlled bomb planted outside his home in Tehran.

--Editors: Ben Holland, Eddie Buckle, Heather Langan.

To contact the reporter on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net.

To contact the editor responsible for this story: Maher Chmaytelli at mchmaytelli@bloomberg.net.

Hungary Unexpectedly Raises Rates on Budget, Prices

Posted: 29 Nov 2010 05:09 AM PST

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By Zoltan Simon

(Adds analyst comment in fourth and seventh paragraphs.)

Nov. 29 (Bloomberg) -- Hungary’s central bank unexpectedly raised its benchmark interest rate after holding it at a record low for six months as concern that country risk is rising and inflation is accelerating outweighed potential harm to growth.

The Magyar Nemzeti Bank in Budapest raised the benchmark two-week deposit rate to 5.5 percent from a record-low 5.25 percent, matching the forecast of two analysts in a Bloomberg survey. Sixteen predicted no change. Central Bank President Andras Simor will explain the decision at 3 p.m., when the bank’s inflation and growth forecasts will be published.

Hungarian stocks, bonds and the currency tumbled last week after the government moved to funnel private pension-fund accounts to the budget to help reduce a shortfall. Prime Minister Viktor Orban is also relying on special industry taxes to meet budget goals, which the central bank forecasts will boost inflation. A reliance on short-term measures may threaten budget sustainability, Fitch Ratings said.

“The government has essentially forced the central bank into this rate increase,” Gabor Ambrus, analyst at 4Cast Ltd. said by the phone. The special taxes levied by the Cabinet may lead to “a multiyear inflation shock” and a plan to boost domestic spending with a cut in the personal income tax may also boost prices, he said.

Forint, Stocks Fall

The forint has weakened 3.3 percent this month, the worst performance among more than 170 currencies tracked by Bloomberg, and traded at 280.59 per euro at 2:42 p.m. in Budapest from 280.11 on Nov. 26. The country’s benchmark BUX stock index fell 2.1 percent to its lowest since June 7.

Hungary’s risk assessment worsened last week after the government told citizens they will lose their state pensions unless they transfer their private pension-fund accounts to the state. The country’s five-year credit default swap, measuring the cost to protect against default, soared to 372.62 at 12:55 p.m. today, the highest in 11 weeks. The yield on the benchmark 10-year government bond rose to 8.18 percent, the highest in the past year.

“Investors’ risks perception of Hungary has deteriorated very significantly recently, partly due to country-specific reasons,” Ambrus said. “The central bank simply had no other option.”

Inflation Accelerates

Industry taxes the government is levying to reduce the budget shortfall to less than 3 percent of output next year will raise the inflation rate by 0.3 percentage points next year, the central bank said on Nov. 11. The inflation rate has been rising for two months to 4.2 percent in October, the highest level since June.

Fitch Ratings may cut Hungary’s credit grade by the end of this year because the government’s plan to funnel private pension funds to the state may have a “negative impact” on fiscal sustainability, David Heslam, a London-based director at Fitch in, said in a Nov. 26 phone interview.

Most analysts in a Bloomberg survey predicted the bank would keep the key interest rate unchanged because of the economy’s “fragile” recovery from its worst recession in 18 years and as unemployment remains near a record high. The Cabinet is probably overestimating the effects of personal income-tax cuts on growth next year, Citigroup Inc. said.

“Given the fragile economic recovery and uncertain growth outlook, it seems too early to start the monetary tightening,” Piotr Kalisz, a Warsaw-based economist for Citigroup, said in a research note before the rate decision. “We expect interest rates to remain on hold until the third quarter of 2011.”

--With assistance from Edith Balazs in Budapest. Editors: Balazs Penz, Willy Morris.

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net

Greece Wins EU Pledge for Extension to Repay Bailout

Posted: 29 Nov 2010 05:08 AM PST

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By Jonathan Stearns

(Updates with Greek stocks in sixth paragraph.)

Nov. 29 (Bloomberg) -- Greece is set to get an extra four- and-a-half years to repay emergency loans to match the seven- year term for the rescue Ireland received yesterday. Greek bonds and stocks gained.

Greece in May got a three-year aid package of 110 billion euros ($146 billion) from the euro area and the International Monetary Fund to prevent a debt default. Ireland yesterday won an 85 billion-euro package for seven-and-a-half years at a meeting where European finance ministers said they would “rapidly examine the necessity of aligning the maturities of the financing for Greece to that of Ireland.”

“This should now kill off any remaining doubt over Greece’s ability to repay aid,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said after the meeting in Brussels. He said the step, which will be preceded by talks with the Greek government, would be “very important” in helping to ensure the “debt sustainability” of Greece.

Prime Minister George Papandreou’s government may be unable to respect the original timeframe for repaying quarterly aid installments as tax revenue slumps in an economy forecast to contract 4.2 percent this year and 3 percent in 2011. Higher EU estimates for Greece’s 2009 debt and deficit in mid-November forced the government to announce extra austerity measures to reach targets set as a condition for receiving the funds.

Budget Deficit

Greece’s budget deficit last year was 15.4 percent of gross domestic product, a record for the euro area, according to the EU statistics office. The gap will be 9.4 percent of GDP this year -- above an original 8.1 percent goal agreed to in May -- and 7.4 percent next year, according to the Greek government.

Greek bonds rose today, sending the 10-year yield down 13 basis points to 11.78 percent. Greek stocks advanced for the first time in seven sessions, led by banks including EFG Eurobank Ergasias SA and National Bank of Greece SA.

Greece’s first aid repayment is due in 2013. The country’s gross borrowing needs will rise to 70.8 billion euros in 2014 from 53.2 billion euros in 2013 on repayments to EU states and the IMF, IMF documents show.

IMF Managing Director Dominique Strauss-Kahn said in October that he would be ready to give Greece more time to pay back its aid from the Washington-based lender, which provided 30 billion euros of the Greek bailout, if European nations decide to do so first.

The government of German Chancellor Angela Merkel reacted the same month by saying it was “not in favor of extending the repayments schedule” for Greece and any such move would be “premature.”

--With assistance from James G. Neuger and Stephanie Bodoni in Brussels and Maria Petrakis in Athens. Editors: James Hertling, Jones Hayden

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net