Business News: Qatar Shares Surge to 2-Year High on Winning World Cup 2022 Bid

Business News: Qatar Shares Surge to 2-Year High on Winning World Cup 2022 Bid

Qatar Shares Surge to 2-Year High on Winning World Cup 2022 Bid

Posted: 05 Dec 2010 03:00 AM PST

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By Zahra Hankir

Dec. 5 (Bloomberg) -- Qatar’s shares rose to the highest in two years, after the country won rights to host soccer’s 2022 World Cup, becoming the first Arab nation to hold the world’s most-watched sporting event.

Qatar National Bank, the emirate’s biggest lender by assets, climbed to the highest in more than five years. Barwa Real Estate Co., Qatar’s largest publicly traded property developer by assets, gained 6.2 percent. The QE Index rose 3.6 percent to 8477.32 at the 12:30 p.m. close in Doha, the highest since October 2008, after 19 shares advanced and one declined.

“Sentiment is understandably flying extremely high,” said Akber Khan, a director at Al Rayan Investment in Doha. “There will be a material impact on some companies as the government fast-tracks billions of dollars of spending. Banks, real estate and construction-related names would be among the key beneficiaries.”

Qatar, projected by the International Monetary Fund to have the world’s fastest-growing economy this year, plans to more than double the number of hotel rooms, build nine stadiums and refurbish three others and construct a rail and metro network for the tournament. The U.S. estimates that the tournament is worth $5 billion to the hosts.

Qatar National Bank jumped 4.5 percent to 183.6 riyals, the highest since September 2005. Barwa Real Estate Co. rose to 36 riyals, the highest since October 2009.

Air-conditioned Stadium

The country plans to spend $4 billion on the stadium construction and refurbishment program. With summer temperatures approaching 50 degrees Celsius (122 Fahrenheit), each facility will be designed with a solar-powered air-conditioning system. A new 200,000-population city called Lusail, north of the capital, is scheduled to be built over the next decade and will feature the stadium that hosts the World Cup final.

Qatar expects to construct a rail and metro network, costing more than $25 billion, in Doha and extending to cities outside the capital. It’s also planning the longest bridge in the world to connect to the nearby island kingdom of Bahrain, and aims to open a new airport next year.

Soccer ruling body, the Federation Internationale de Football Association, or FIFA, announced that Qatar won the World Cup bid in Zurich Dec. 2 after competing with the U.S., Australia, Japan and South Korea. Russia was chosen to host the 2018 tournament.

Industries Qatar, the second-biggest petrochemicals maker in the Middle East, advanced 4.3 percent to 135 riyals.

Crude oil rose to the highest level in 25 months, with oil for January delivery settling at $89.19 a barrel on the New York Mercantile Exchange on Dec. 3. Futures increased 6.5 percent last week and 12 percent this year. The six Gulf Arab nations, including Saudi Arabia and the U.A.E., supply about a fifth of the world’s oil.

Regional Movements

Bahrain’s All Share Index gained 0.3 percent and Kuwait’s gauge increased 0.7 percent. Oman’s MSM30 Index advanced 0.5 percent while Saudi Arabia’s Tadawul All Share Index retreated 0.5 percent at 12:42 p.m. in Riyadh. Markets in the United Arab Emirates are closed today for an Islamic holiday.

In North Africa, Egypt’s benchmark stock index rose 0.9 percent. The Tel Aviv 25 Index also rose 0.9 percent to the highest in almost two weeks after Perrigo Inc. climbed 4 percent to 232.6 shekels as the manufacturer of over-the-counter pharmaceuticals was rated “buy” in new coverage at UBS AG.

Israeli bonds fell, with the yield on the benchmark 5 percent Mimshal Shiklit due January 2020 rising 1 basis point to 4.65 percent, the highest level since July 15.

--Editors: Digby Lidstone, Shanthy Nambiar.

To contact the reporter on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net or

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

Branson Says Oil Might Hit $200 a Barrel Without New Policies

Posted: 04 Dec 2010 10:31 PM PST

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By Kim Chipman

Dec. 5 (Bloomberg) -- Oil prices may soar to $200 a barrel if the world doesn’t move more rapidly to a clean-energy economy, Richard Branson, founder of Virgin Atlantic Airways Ltd., said in an interview.

“It’s certainly conceivable unless we can start to conserve energy quickly and come up with alternative fuels,” Branson said yesterday in Cancun, Mexico, where countries are meeting to negotiate a new accord to combat climate change.

Branson predicts an “unbelievably painful” economic slump if governments don’t do more to encourage renewable energy as an alternative to fossil fuels such as oil. In the U.S., where efforts to cap carbon-dioxide emissions failed in the Senate earlier this year, unemployment could reach record highs, the British billionaire said.

“We are going to have the mother of all recessions if we don’t sort out our energy policy fast,” Branson said earlier yesterday at the World Climate Summit in Cancun. “We think we’ve got it bad today. In five years time unemployment could go to 15 percent without any difficulty at all in America.”

Branson, 60, spoke alongside U.S. billionaire Ted Turner, founder of Cable News Network. Branson and Turner, 72, also will speak tomorrow at the two-day conference focused on how businesses can help combat climate change.

Balking on Kyoto

Meanwhile, negotiators from about 190 countries are grappling with how to proceed in United Nations-led treaty talks to cut greenhouse-gas emissions. Industrialized and developing nations are divided over the 1997 Kyoto Protocol.

Japan, Russia and Canada have refused to sign up for a second round of emissions reductions once the current ones written into Kyoto expire in 2012.

Emerging economies such as China, India and Brazil are “completely unanimous” in their position that developed countries must agree on a new commitment period, UN climate chief Christiana Figueres said yesterday. Discord over Kyoto threatens to take attention away from talks for a new global climate agreement that includes the U.S., she said. The U.S. is the only developed nation not part of Kyoto.

Turner urged countries to reach agreement.

“Let’s do it,” he said. “Let’s do it now before it’s too late.”

--Editors: Jim McDonald, Michael Heath

To contact the reporter on this story: Kim Chipman in Washington at kchipman@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

Obama Says South Korean Trade Accord Is ‘Win’ for U.S. Workers

Posted: 04 Dec 2010 09:01 PM PST

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By Hans Nichols and Nicholas Johnston

Dec. 5 (Bloomberg) -- President Barack Obama said a trade accord with South Korea is a “win-win” for both countries that shows the alliance between them is “stronger than ever.”

The trade deal offers “more choices for Korean consumers and more jobs for American workers,” Obama told reporters in Washington, a day after the government reported the U.S. unemployment rate rose to 9.8 percent in November. The deal is one example of how the U.S. government can “do more to accelerate the economic recovery and create jobs for the millions of Americans who are still looking for work,” he said.

The two nations yesterday announced an agreement to change automobile provisions in the free-trade deal, removing an obstacle that had prevented agreement on the pact during Obama’s visit to South Korea last month.

Obama requested the changes in the accord, which was negotiated during the administration of President George W. Bush, to meet demands from lawmakers and U.S. automakers including Ford Motor Co. regarding Korean barriers to American vehicles.

Winning the agreement was a key component of Obama’s plan to double American exports in five years. With almost $68 billion in trade between the nations, the accord would be the U.S.’s largest since the North American Free Trade Agreement in 1994.

AT&T, Wal-Mart Support

The White House said Dec. 3 the agreement will increase U.S. exports by as much as $11 billion and support at least 70,000 U.S. jobs. Yesterday it released a compilation of supportive statements from industry groups and companies, including AT&T Inc. and Wal-Mart Stores Inc., and lawmakers from both major U.S. political parties to bolster Obama’s effort to win congressional approval of the trade deal.

Under the agreement, both nations will scale back initial tariff cuts for cars, and South Korea said it would allow more imports of U.S.-made vehicles that meet American standards rather than Korean rules. The U.S. will maintain a 25 percent tariff on truck imports for eight years instead of beginning to phase it out immediately.

After Obama and South Korean President Lee Myung Bak failed to reach agreement during a summit last month in Seoul, trade negotiators from both nations spent last week huddled at a hotel in Columbia, Maryland, to resolve their differences on autos, pork and beef.

While the two sides didn’t announce changes on beef trade, Obama yesterday said the U.S. will keep trying for “full access” to the Korean market for beef exports.

The agreement is subject to approval by Congress before taking effect, and polls show waning public approval for trade deals. Two other trade agreements with Panama and Colombia, also signed by Bush administration officials, are awaiting approval in Congress.

North Korea Tensions

Obama said yesterday the U.S. trade deal with South Korea was also important amid “increasing tensions on the Korean peninsula.” North Korea shelled an island in South Korea Nov. 23, killing two soldiers and two civilians. Following the “unprovoked attack,” the trade deal reinforces the “defense alliance and partnership” between the U.S. and South Korea, he said.

Obama also urged Congress to pass legislation extending jobless benefits, which expired Nov. 30 for thousands of the nation’s long-term unemployed. The Labor Department has estimated that aid to 1.36 million Americans will be interrupted by the end of the third week in December without an extension.

Democrats have put forward a plan to extend jobless benefits for a year, with the $56 billion cost to be financed with borrowed money. Republicans have blocked the measure, demanding the extension be offset with savings elsewhere in the government’s budget.

--With assistance from Jungmin Hong in Seoul and Mark Drajem, Simon Lomax and Brian Faler in Washington. Editors: Ann Hughey, Mark Rohner.

To contact the reporters on this story: Hans Nichols in Washington at hnichols2@bloomberg.net; Nicholas Johnston in Washington at njohnston3@bloomberg.net

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

Senate Rejects Tax-Cut Proposals as Negotiators Seek Compromise

Posted: 04 Dec 2010 09:01 PM PST

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By Ryan J. Donmoyer and Peter Cohn

Dec. 5 (Bloomberg) -- The U.S. Senate rejected two tax-cut extension proposals in procedural votes as talks continued that lawmakers say likely will result in renewal of lower rates for all taxpayers.

The votes followed passage Dec. 2 in the House of a measure that would extend tax cuts only on the first $200,000 of individual income and $250,000 for a married couple, setting the stage for the emergence of compromise legislation.

Senator Robert Corker, a Tennessee Republican, congressional and administration negotiators likely will reach an agreement by the end of the week on tax-cut extensions.

“There’ll be a deal by the end of next week,” Corker said yesterday. “It’ll be existing policy, in my opinion, and maybe some other attachments.”

In the voting, largely along party lines, the Senate rejected, 53-36, a measure to extend Bush-era tax policies set in 2001 and 2003 on the first $200,000 of an individual’s income and $250,000 for a married couple. A second proposal to set that threshold at $1 million also failed, 53-37. The votes fell short of the 60 necessary to clear procedural hurdles and pass.

Democratic Opposition

Four Senate Democrats and independent Joe Lieberman of Connecticut joined all present Republicans in opposing the first measure setting the tax-cut threshold at $250,000. They included Russ Feingold of Wisconsin, Joe Manchin of West Virginia, Jim Webb of Virginia, and Ben Nelson of Nebraska.

Lieberman and Feingold also voted with three other Democrats in opposing the $1 million threshold. They included Tom Harkin of Iowa, Richard Durbin of Illinois, and Jay Rockefeller of West Virginia.

Lawmakers and administration officials have said a compromise likely would extend lower tax rates on income and capital gains and dividends for all Americans, including high- income taxpayers, for two or three years.

Republicans oppose extending only the middle-income tax cuts, saying selective extensions would hurt job creation and economic growth.

Obama Disappointed

President Barack Obama told reporters in Washington yesterday that he’s “very disappointed” the Senate failed to end an “impasse” over the expiring tax cuts.

“We need to redouble our efforts to resolve this,” he said. Obama said he wants the issue resolved “in the next few days.” He also said Congress must pass an extension of jobless benefits.

The votes last week gave Senate Democrats an opportunity to express displeasure with Obama and Republicans who’ve railed against budget deficits for allowing the Bush-era tax cuts to continue for those with the highest incomes.

During the floor debate, Majority Leader Harry Reid of Nevada compared Republicans with the character Lucy in the “Peanuts” comic strip gag where she repeatedly tricks Charlie Brown by inviting him to kick a football, only to yank the ball away at the last second.

“It’s obvious by now that our Republican friends have drawn their political strategy from this cartoon,” Reid said. “We’ve all heard Republicans weep for the deficit. They’ve pulled away the football and said rather than reduce the deficit, we’d really rather give an unnecessary, unwanted, unaffordable handout to the richest of the rich.”

Reid’s Schedule

Even as lawmakers talked of a deal, Reid was scheduling matters other than tax cuts for Senate floor time this week. That led Senate Minority Leader Mitch McConnell of Kentucky to say Reid was clogging the year-end agenda with less pressing legislation.

The floor agenda includes procedural votes on, among other things, an immigration bill, impeaching a federal judge, and compensation for workers injured while cleaning up the World Trade Center after the Sept. 11, 2001, terror attacks.

“I think it’s time for the games to stop,” McConnell said.

The first bill rejected yesterday was offered by Senate Finance Committee Chairman Max Baucus. In addition to extending lower tax rates for middle-income taxpayers, it would retain the 15 percent tax rate on capital gains and dividends for people earning under $250,000, who comprise about 97 percent of all taxpayers. Higher tax rates would be allowed to take effect Jan. 1 on higher incomes.

The Baucus bill also reinstates dozens of expired business tax breaks, rolls back a $66 billion alternative minimum tax increase on the books for 2010, and reinstates a federal tax on multimillion-dollar estates that lapsed this year for the first time in nearly a century.

The second bill, preserving the tax cuts on the first $1 million of income, was proposed by Senator Charles Schumer, a New York Democrat.

--With assistance from James Rowley, Hans Nichols and Simon Lomax in Washington. Editors: Jodi Schneider, Ann Hughey.

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Peter Cohn in Washington at pcohn@bloomberg.net.

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

Palin ‘Absolutely’ Electable in 2012, Republican Jindal Says

Posted: 04 Dec 2010 09:01 PM PST

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By Lisa Lerer

Dec. 5 (Bloomberg) -- Louisiana Governor Bobby Jindal said that Sarah Palin is “absolutely” electable as president, a topic of debate among Republicans even though she has yet to announce her intentions for 2012.

“It’s up to her to make the case to voters,” Jindal said in an interview on “Political Capital With Al Hunt” airing this weekend on Bloomberg Television.

Jindal was asked about recent comments by Joe Scarborough, an MSNBC commentator and former Republican congressman from Florida, who said it was time for Republicans to “man up” and recognize the former Alaska governor is a reality TV show star who cannot be elected.

“I think there are several strong contenders,” said Jindal, who stopped short of endorsing Palin and said he doesn’t like “the Republican establishment” telling people how to vote.

Palin, the Republican Party’s 2008 nominee for vice president, has said that she is considering a campaign for president in 2012. Asked about her potential for winning election as president, Jindal said he is “biased towards governors and those that have run organizations and executives who’ve had to balance budgets, make tough choices.”

Jindal, 39, said he still believes that government bailouts of financial services firms and automobile manufacturers were a “mistake,” even though the programs have returned tens of billions to taxpayers. The Congressional Budget Office said this week that the Troubled Asset Relief Program will cost taxpayers about $25 billion -- far less than initially expected.

‘Winners and Losers’

“When the government’s picking winners and losers, you have the potential for politics to interfere and determine who gets the money and who benefits,” Jindal said.

He said a “much better” approach would have been for government to set broad “rules of the road,” instead of spending hundreds of billions on the rescue programs that top officials at the Federal Reserve and the White House said were necessary to save the U.S. economic system from collapse.

“The government could do more to stimulate the economy by providing a predictable, transparent environment, not trying to pick winners and losers,” Jindal said.

Jindal, the son of immigrants from Punjab, India, said he opposed legislation now before Congress that would grant legal status to some younger undocumented immigrants.

‘Secure the Borders’

“It’s a mistake to start with anything other than securing our borders,” he said. “Let’s secure the borders, and then let’s move on to the other pieces.”

Democrats are pushing to take up the bill, known as the DREAM Act, in the final weeks of the year. The legislation would allow people who arrived in the U.S. before age 16 and have remained in the country for at least five years to gain legal residency after completing two years of college or military service.

Asked whether his party might be perceived as anti- immigrant, Jindal said Republican principles -- the party’s “core conservative principles” -- are “applicable to people of all different backgrounds.”

“We talk about the American dream of homeowner, of building and owning small businesses, offering better education for all of our children regardless of their geography or zip code, the idea that it doesn’t matter what your last name is or where you come from,” he said.

Contrary to reports, Jindal said he would not slash funding to state college campuses by 35 percent. The governor reportedly told campuses to prepare for state funding cuts of up to that amount, ranging from $290 million to $500 million.

‘Do More with Less’

“We have cut higher education by about 4.5 percent,” he said. “We’re all going to have to do more with less.”

Jindal was seen as a rising star in the Republican Party soon after becoming the first Indian-American elected governor in the U.S. in 2007. He emerged as a leading critic of the Obama administration, refusing to take some of the money earmarked for his state in the 2009 federal stimulus bill that Obama signed.

His profile dimmed after he was criticized by both Republicans and Democrats for delivering what some commentators called a “cheesy” televised response to Obama’s first State of the Union address last year.

In a new book, Jindal accuses the Obama administration of leading an ineffective and overly politicized response to the oil spill in the Gulf of Mexico. The White House rejects the charges.

The July release of the book, “Leadership in Crisis,” was pushed back five months due to the summer spill.

--Editors: Mark Silva, Ann Hughey.

To contact the reporter on this story: Lisa Lerer in Washington at llerer@bloomberg.net.

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

Obama Says Tax Cut Bill Must Include His Policies, Jobless Aid

Posted: 04 Dec 2010 09:01 PM PST

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By Ryan J. Donmoyer and Mike Dorning

Dec. 5 (Bloomberg) -- President Barack Obama, making his first demands in negotiations to sustain Bush-era tax cuts, said any legislation must extend federal jobless aid and include his own soon-to-expire tax policies.

An administration official said Obama told Democratic leaders in Congress he’d reject even a temporary extension of the Bush-era tax cuts if the legislation doesn’t encompass his own policies, which include the “Making Work Pay” tax credit that adds up to $800 per year in a married couple’s paycheck. Obama also wants more generous credits for the working poor, college students and adoptive parents enacted in 2009 to be renewed.

The ultimatum ratchets up the stakes as negotiators race the calendar before the tax cuts expire; the jobless aid expired Nov. 30 and the Bush tax-cuts expire Dec. 31. Obama’s demands also would add about $150 billion in cost to the bill, all of which would be financed by deficits. Allowing his own tax cuts to expire, the official said Obama told lawmakers, would result in a tax increase on 95 percent of Americans.

Obama made his demand after the U.S. Congress failed to advance legislation that would renew the Bush-era policies only for American individuals who earn less than $200,000 and couples who make under $250,000, thresholds Obama set as a campaign promise. The Senate rejected legislation with that cap today as well as another measure with a $1 million threshold.

Combining Proposals

West Virginia Senator Jay Rockefeller, who voted for extension of tax cuts on the first $200,000 of income and against the measure setting that threshold at $1 million, said combining an extension of lower tax rates for high-income Americans with provisions that help low-income and jobless workers would present him with a “moral dilemma” and win his vote.

“That would help,” he said.

Senator Robert Corker, a Tennessee Republican, said today that congressional and administration negotiators likely will reach an agreement by the end of next week on tax-cut extensions.

“There’ll be a deal by the end of next week,” Corker said today. “It’ll be existing policy, in my opinion, and maybe some other attachments.”

In today’s voting, largely along party lines, the Senate rejected, 53-36, a measure to extend Bush-era tax policies set in 2001 and 2003 on the first $200,000 of an individual’s income and $250,000 for a married couple. A second proposal to set that threshold at $1 million also failed, 53-37. The votes fell short of the 60 necessary to clear procedural hurdles and pass.

Democratic Opposition

Four Senate Democrats and independent Joe Lieberman of Connecticut joined all present Republicans today in opposing the first measure setting the tax-cut threshold at $250,000. They included Russ Feingold of Wisconsin, Joe Manchin of West Virginia, Jim Webb of Virginia, and Ben Nelson of Nebraska.

Lieberman and Feingold also voted with three other Democrats in opposing the $1 million threshold. They included Tom Harkin of Iowa, Richard Durbin of Illinois, and Jay Rockefeller of West Virginia.

Lawmakers and administration officials have said a compromise likely would extend lower tax rates on income and capital gains and dividends for all Americans, including high- income taxpayers, for two or three years.

Republicans oppose extending only the middle-income tax cuts, saying selective extensions would hurt job creation and economic growth.

The votes this week gave Senate Democrats an opportunity to express displeasure with Obama and Republicans who’ve railed against budget deficits for allowing the Bush-era tax cuts to continue for those with the highest incomes.

Peanuts Cartoon

During the floor debate, Majority Leader Harry Reid of Nevada compared Republicans with the character Lucy in the “Peanuts” comic strip gag where she repeatedly tricks Charlie Brown by inviting him to kick a football, only to yank the ball away at the last second.

“It’s obvious by now that our Republican friends have drawn their political strategy from this cartoon,” Reid said. “We’ve all heard Republicans weep for the deficit. They’ve pulled away the football and said rather than reduce the deficit, we’d really rather give an unnecessary, unwanted, unaffordable handout to the richest of the rich.”

Even as lawmakers talked of a deal, Reid was scheduling matters other than tax cuts for Senate floor time next week. That led Senate Minority Leader Mitch McConnell of Kentucky to say Reid was clogging the year-end agenda with less pressing legislation.

Floor Agenda

The floor agenda includes procedural votes on an immigration bill, impeaching a federal judge, and compensation for workers injured while cleaning up the World Trade Center after the Sept. 11, 2001, terrorist attacks.

“I think it’s time for the games to stop,” McConnell said.

The first bill rejected today was offered by Senate Finance Committee Chairman Max Baucus. In addition to extending lower tax rates for middle-income taxpayers, it would retain the 15 percent tax rate on capital gains and dividends for people earning under $250,000, who comprise about 97 percent of all taxpayers. Higher tax rates would be allowed to take effect Jan. 1 on higher incomes.

The Baucus bill also reinstates dozens of expired business tax breaks, rolls back a $66 billion alternative minimum tax increase on the books for 2010, and reinstates a federal tax on multimillion-dollar estates that lapsed this year for the first time in nearly a century.

The second bill, preserving the tax cuts on the first $1 million of income, was proposed by Senator Charles Schumer, a New York Democrat.

--With assistance from James Rowley, Hans Nichols and Simon Lomax in Washington. Editors: Jodi Schneider, Paul Tighe.

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net; Peter Cohn in Washington at pcohn@bloomberg.net.

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

North Korea Says South Korean Drills Push Tensions to ‘Extreme’

Posted: 04 Dec 2010 08:37 PM PST

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By Jungmin Hong and Paul Tighe

Dec. 5 (Bloomberg) -- North Korea said South Korea is pushing tensions on the peninsula to an “uncontrollable extreme phase” by holding military exercises with the U.S. and staging a live-firing drill by naval artillery tomorrow.

South Korea “is so hell-bent on the moves to escalate the confrontation and start a war that it is recklessly behaving bereft of reason,” the state-run Korea Central News Agency said in a commentary today. North Korea is “maintaining a maximum self-possession and self-control,” it said.

The drills starting tomorrow will include live firing from ships into seas near Daecheong Island, South Korea’s Joint Chiefs of Staff said last week. North Korea said today shells will land in its territorial waters.

Tensions on the Korean Peninsula have increased since North Korea’s Nov. 23 shelling of South Korea’s Yeonpyeong island that killed two soldiers and two civilians. South Korea’s new defense minister, Kim Kwan Jin, two days ago vowed retaliation that would include airstrikes if North Korea made another attack.

“I will mobilize all combat capabilities available to severely punish the enemy,” Kim, former chairman of the Joint Chiefs of Staff, said at his confirmation hearing on Dec. 3. “I will surely use planes. This is a matter of self-defense.” KCNA said today that North Korea denounced the minister’s comments.

Areas to Avoid

The South Korean government warned ships to avoid 29 areas around its coast before tomorrow’s drill. One zone lies about 7 miles (11 kilometers) off Daecheong, in waters claimed by North Korea that are about 100 miles (160 kilometers) from the South Korean mainland.

The area lies to the southwest of the island, in the opposite direction to the North Korean coastline, a spokesman for South Korea’s Joint Chiefs of Staff said last week.

North Korea fired artillery at the fishing community and military outpost of Yeonpyeong in the first shelling of South Korean soil since the 1950-1953 war. North Korea said it was responding to a military provocation after South Korea fired into waters each country claims as its own.

The incident was “deserved punishment” for South Korea’s shelling, KCNA said today.

North Korea yesterday denounced the U.S., South Korea and Japan for “reckless moves” to create a military alliance that threatens peace in North Asia.

“The situation on the Korean Peninsula is getting tenser as the days go by and the danger of a war is increasing hour by hour,” the KCNA reported, citing a commentary in the Rodong newspaper. ‘The U.S. is giving spurs to an arms buildup and preparations for a war.”

Navy Exercises

The U.S. sent the USS George Washington to join South Korean naval forces in an exercise in the Yellow Sea at the end of November and the aircraft carrier is now taking part in drills with Japan involving about 400 aircraft and 60 warships. More than 40,000 Japanese and U.S. military personnel began a weeklong exercise on Dec. 3.

Secretary of State Hillary Clinton will host Japan’s Foreign Minister Seiji Maehara and South Korean counterpart Kim Sung Hwan tomorrow to discuss regional security.

“Just as the U.S. has NATO in Europe, it is in the process of establishing a war structure of an ‘anti-Communist crusade’ called the U.S.-Japan-South Korea tripartite military alliance in Northeast Asia,” KCNA cited the Rodong commentary as saying. Joint actions such as defense studies and military exercises have become frequent between the three nations, it said.

No Link

The Japan-U.S. military exercise has no link to any “existing or perceived political or geographical situation nor is it directed at any nation,” U.S. Lieutenant Colonel Kenneth Hoffman, an Air Force spokesman, said in an e-mailed message.

China last week criticized the exercise as an obstacle to easing tensions that have risen on the peninsula since the March sinking of the South Korean warship Cheonan. An international panel blamed the incident on a North Korean torpedo, which Kim Jong Il’s regime has denied.

Japan and the U.S. joined South Korea in condemning North Korea’s shelling of Yeonpyeong, rejecting China’s call for talks with North Korea and calling on the government in Beijing to do more to rein in its ally.

China has “much influence and therefore much responsibility,” Admiral Michael Mullen, chairman of the U.S. Joint Chiefs of Staff, said at a forum of the Center for American Progress in Washington Dec. 1. “We need China to step up.”

Chinese opposition has stalled United Nations Security Council negotiations condemning the shelling and North Korea’s expanding nuclear program.

China on Nov. 28 proposed “emergency consultations” with negotiators from the two Koreas, Japan, Russia and the U.S. to defuse tensions. Talks among the six countries aimed at getting North Korea to abandon its nuclear program stalled in April 2009.

--Editors: Jim McDonald

To contact the reporters on this story: Jungmin Hong in Seoul at jhong47@bloomberg.net; Paul Tighe in Sydney at ptighe@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net