German Stocks Climb, With DAX Set for Weekly Gain; MAN SE Rises

May 28 (Bloomberg) — German stocks climbed, with the benchmark DAX Index heading for a weekly gain, led by advancing MAN SE and Daimler AG shares.

MAN SE climbed 1.1 percent after Chief Financial Officer Frank Lutz told Les Echos the truckmaker will sell 25 percent more vehicles this year. Daimler, the world’s biggest truckmaker, also advanced, while Freenet AG rose 2 percent as Berenberg Bank recommended the company’s shares.

The DAX gained 0.3 percent to 5,952.95 as of 4:45 p.m. in Frankfurt, extending its weekly gain to 2.2 percent. The gauge is still 5.9 percent below its April 26 high on concern the sovereign-debt crisis in Europe will grow. The broader HDAX Index rose 0.4 percent today.

“Germany is coming out of the euro crisis as a winner, due to the export-oriented nature of its economy,” said Robert Halver, head of research at Baader Bank in Frankfurt. “I’m still positive for equities in 2010 but political leadership is essential.”

The euro is the worst performer this year among 16 major currencies tracked by Bloomberg, having dropped 15 percent against the dollar and 16 percent versus the yen.

German stocks extended gains as the Thomson Reuters/University of Michigan final May consumer sentiment index increased to 73.6 from 72.2 in April. The gauge, initially reported at 73.3, was projected to rise to 73.3 from the previous month, according to the median forecast in a Bloomberg News survey of 64 economists.

‘Upper End’

MAN SE advanced 1.1 percent to 69.62 euros. Europe’s third- largest truckmaker will sell about 50,000 vehicles this year, an increase of about 25 percent, Lutz told French daily Les Echos in an interview.

Daimler AG rose 1.6 percent to 40.59 euros after raising its profit forecast for the Mercedes-Benz division for the second time in six weeks, as the global recovery spurs demand.

The unit’s full-year earnings before interest and taxes will be at the “upper end” of the carmaker’s target of 2.5 billion euros ($3.1 billion) to 3 billion euros, Stuttgart, Germany-based Daimler said today. Second-quarter Ebit will exceed the first quarter’s 806 million euros, it said.

Daimler makes about a quarter of its vehicle sales outside Europe, Bloomberg data shows, while MAN SE gets more than three- quarters of its revenue from outside Germany, it shows.

Fielmann

Freenet surged 2 percent to 8.09 euros. Germany’s fourth- largest mobile-phone operator was rated “buy” in new coverage at Berenberg Bank, which said the company’s “disciplined and successful management of costs will largely protect its cash flow over the medium term, enabling it to pay the proposed dividends from internally generated cash flow.”

KWS Saat AG increased 2.6 percent to 119.70 euros as the world’s largest producer of beet seeds said it met its growth targets, increasing net sales and profit due to a “good corn and sugarbeet business” in the first nine months of the current fiscal year.

Fielmann AG jumped 5.4 percent to 61.01 euros after Europe’s largest chain of optical stores was raised to “buy” from “sell” at Merck Finck & Co., while Carl Zeiss Meditec AG climbed 0.9 percent to 11.61 euros after it was raised to “buy” from “sell” at DZ Bank AG.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net .

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Portugal Telecom in Talks on Possible Bid for Vivo

May 28 (Bloomberg) — Portugal Telecom SA, escalating a battle for Brazilian wireless operator Vivo Participacoes SA, is in talks with investors from the Middle East and Asia as it weighs a possible offer for Telefonica SA’s stake.

“I can tell you for sure that there are people interested from the Middle East and from Asia,” said Jose Maria Espirito Santo Ricciardi, an executive of Banco Espirito Santo SA, Portugal Telecom’s second-biggest shareholder. He declined to name any of the investors.

Either Portugal Telecom buys Telefonica out of Vivo or the Portuguese operator needs to find another company in Brazil, Ricciardi, chief executive officer of Banco Espirito Santo’s investment banking unit, said in an interview at Bloomberg’s headquarters in New York yesterday. Brazil, whose economy analysts forecast will grow by the most in more than two decades this year, has South America’s largest mobile-phone market.

Telefonica, Spain’s biggest phone company, prompted a fight for control of Vivo with an unsolicited 5.7 billion-euro ($7 billion) offer this month to buy Portugal Telecom’s stake. The Portuguese company rejected the offer. Both companies declined to comment today on remarks from Ricciardi.

What appear to be “irreconcilable differences” probably will lead Portugal Telecom and Telefonica to end their partnership, said Peter Lyons, a telecom analyst at New York- based brokerage Oscar Gruss & Son Inc.

‘Bad Marriage’

“It is like a bad marriage,” he said. “These situations can continue to plod along for years, and they have done already for many years, and could go on for more years but the pressure is building within the shareholder structure of each company to come to some kind of resolution.”

The preferred shares of Sao Paulo-based Vivo fell 1.3 percent to 50.52 reais at 9:58 a.m. New York time after climbing 2 percent yesterday to its highest closing price since February. The voting Vivo shares rose 0.01 percent to 74.11 reais after surging 7.4 percent yesterday. Portugal Telecom slipped 0.1 percent to 8.401 euros in Lisbon while Telefonica rose 1.1 percent to 15.755 euros in Madrid.

Portugal Telecom, based in Lisbon, also is exploring ways to end its partnership with Telefonica in Portugal, Ricciardi, said in the interview. Telefonica of Madrid is Portugal Telecom’s largest shareholder with a 10 percent stake.

“Status quo is not an option anymore, everything is possible,” Ricciardi said. “The only solution that I see on this is to find a way for Portugal Telecom and Telefonica to have important investments in Brazil that are not in the same company.”

Brazil’s economy may grow 6.5 percent this year after shrinking in 2009, according to central bank survey of about 100 economists published this week.

‘Strategic’ Holding

“For us it’s key to stay in Brazil and price is not the issue,” Ricciardi said. His comments echoed those of Portugal Prime Minister Jose Socrates, who said in Sao Paulo yesterday that Portugal Telecom’s stake in Vivo is “strategic.” The government holds Portugal Telecom veto powers, which are being challenged by the European Commission.

Telefonica and Portugal Telecom each own 50 percent of Brasilcel NV, an unlisted company that controls about 60 percent of Vivo. America Movil SAB, the Latin American wireless carrier controlled by Carlos Slim, owns Claro, Brazil’s second-biggest mobile-phone company after Vivo. Brazil’s third-largest wireless carrier is Tim Participacoes SA, which is two-thirds owned by Telecom Italia SpA, Italy’s biggest phone company.

Tele Norte Leste Participacoes SA, known as Oi, is Brazil’s fourth-biggest wireless carrier and its biggest land-line company. It’s controlled by a group of Brazilian investors.

Oi Option

Portugal Telecom is more likely to find another way to stay in Brazil without buying Telefonica’s stake in Vivo, said Lyons, at Oscar Gruss.

“Vivo will likely remain at the end of the day with Telefonica and Portugal Telecom would probably find a better fit in another vehicle in Brazil with such as, at some level of ownership, in Oi,” Lyons said. “That alternative makes more sense than Portugal Telecom buying Telefonica out of Vivo.”

Telefonica Chairman Cesar Alierta first publicly expressed an interest in taking control of Vivo in 2006. Telefonica, whose $4 billion bid last year for Brazil’s GVT (Holding) SA was topped by France’s Vivendi SA’s $4.18 billion offer, needs to revive its Brazilian operations and wants to merge Vivo with Telecomunicacoes de Sao Paulo SA, or Telesp, the Spanish company’s fixed-line unit in Brazil.

Portugal Telecom Chief Executive Officer Zeinal Bava said in an interview in New York this week that the Telefonica offer was “opportunistic” while analysts with ING Grope NV and Sanford C Bernstein suggested Telefonica should raise its offer to 7.5 billion euros

“The current valuation Telefonica is putting on the Vivo asset, we think it’s low, we think it’s opportunistic, clearly taking advantage of the fact that southern Europe is having one of its worst crises for the last three decades,” Bava said in the interview.

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net . Fabiola Moura in New York at fdemoura@bloomberg.net ;

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U.K. Stocks Rise With FTSE Set for Weekly Gain; BHP Advances

May 28 (Bloomberg) — U.K. stocks advanced for a third day, with the benchmark FTSE 100 Index extending its weekly advance, as mining companies and tour operators gained after analysts recommended the shares.

Rio Tinto Plc and Kazakhmys Plc rose more than 1 percent. Thomas Cook Group Plc and TUI Travel Plc gained as Nomura Holdings Inc. upgraded the shares to “buy” from “neutral.” Unilever Plc advanced as UBS AG raised its stance to “buy” on the consumer-products maker. BSS Group Plc surged the most on record after Travis Perkins Plc made an offer for the company.

The FTSE 100 gained 32.81, or 0.6 percent, to 5,227.98 as of 11:45 a.m. in London, extending yesterday’s 3.1 percent surge and heading for a 3.3 percent weekly gain. The FTSE All-Share Index added 0.7 percent while Ireland’s ISEQ Overall Index increased 0.3 percent.

The FTSE 100 is heading for a monthly decline of 6.3 percent, the biggest since February 2009, on concern a sovereign-debt crisis in Europe is spreading, infecting global credit markets and hurting economic growth. The decline has trimmed the valuation of the index to about 12 times the reported profits of its companies, the lowest level since 2008, according to Bloomberg data.

Global economic growth, low interest rates, a “more robust” financial system and oil below $70 a barrel, will help increase the index to 5,800 by the year end, according to Morgan Stanley, which raised its forecast from a previous 5,000.

‘Sustainable’ Recovery

“With our global economists believing that this economic recovery is sustainable, we expect the current growth scare associated with this correction will pass,” wrote a team of Morgan Stanley strategists in a report dated yesterday. “The prognosis for stocks over the next year is good, especially given that recent events are likely to delay the onset of monetary tightening in many regions around the world.”

U.K. new housing registrations, a gauge of future construction, rose 74 percent in the three months through April from a year earlier as the market recovered from the lowest level of homebuilding in more than 60 years, the National House- Building Council said.

Rio Tinto, the world’s third-largest mining company, climbed 1.8 percent to 3,246 pence, while Kazakhmys gained 1.3 percent to 1,210 pence.

European mining stocks were raised to “overweight” by JPMorgan Chase & Co. strategists including Mislav Matejka, who wrote in a report that the basic-resources industry is the only one geared to economic growth to have underperformed the market this year.

Separately, analysts at Nomura also wrote that metals and mining shares in Europe have fallen too far “while fundamentals remain strong.” Stocks are reflecting possible further declines in metals, Nomura wrote, that may not materialize as China may lower borrowing costs in the second half of this year.

Thomas Cook, TUI

Thomas Cook and TUI Travel advanced 1.9 percent to 209.9 pence and 2.9 percent to 245.1 pence, respectively, after Nomura’s upgrade of the tour operators’ shares.

Unilever gained 2.1 percent to 1,877 pence as UBS upgraded the world’s second-biggest consumer-products maker to “buy” from “neutral.” The brokerage also upgraded Marks & Spencer Group Plc to “buy,” sending the shares of the U.K.’s largest clothing retailer to 352.7 pence, a 2.3 percent gain.

The following shares also rose or fell in U.K. markets. Stocks symbols are in parentheses.

BSS (BTSM LN) jumped 35 percent to 439.2 pence, the biggest intraday gain on record. Travis Perkins, the owner of Wickes home-improvement stores, said it made a 553 million-pound ($806 million) takeover offer for BSS Group, whose board and major investors back the attempt to create the U.K.’s largest plumbing and heating materials chain.

888 Holdings Plc (888 LN) sank 15 percent to 57 pence after reporting a “difficult” trading environment, with profit for the year likely to be “significantly lower than previous market expectations.”

Forth Ports Plc (FPT LN) slumped 11 percent to 1,139 pence after an investor group said it wouldn’t proceed with its bid for the operator of Scotland’s biggest container dock.

Reports today may show U.S. consumer spending and consumer sentiment rose in April. Purchases in the U.S. probably increased 0.3 percent last month after rising 0.6 percent in March, according to the median estimate of 77 economists surveyed by Bloomberg News. Incomes may have climbed 0.4 percent, the most in three months.

A report from Thomson Reuters/University of Michigan may show its consumer sentiment index climbed to 73.3 this month from 72.2 in April, according to the survey.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net ;

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Canadian Stocks Fall as U.S. Reports Flat Consumer Spending

May 28 (Bloomberg) — Canadian stocks fell for the first time in three days after U.S. consumer spending stalled and at least four analysts cut their ratings on Royal Bank of Canada.

Royal Bank, the country’s largest bank, dropped 1.5 percent a day after reporting results that missed the average analyst estimate. Barrick Gold Corp., the world’s largest gold producer, declined 1.3 percent as the U.S. dollar gained. Pharmaceutical company Theratechnologies Inc. soared 73 percent after an advisory panel recommended the U.S. approve its HIV drug.

The Standard & Poor’s/TSX Composite Index decreased 54.9 points, or 0.5 percent, to 11,694.22 as of 11:15 a.m. in Toronto.

The S&P/TSX has lost all of its 2010 gains this month as world equity markets tumbled on concerns European austerity measures may threaten the global recovery.

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

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European Shares Fluctuate; Travis Perkins Jumps, BP Retreats

May 28 (Bloomberg) — European stocks fluctuated between gains and losses, with the Stoxx Europe 600 Index set for a weekly advance, as investors awaited further indications on whether the economy can withstand the region’s debt crisis.

Travis Perkins Plc rallied 7.3 percent after the owner of Wickes home-improvement stores offered to buy rival BSS Group Plc. BP Plc led energy shares lower as the company said the “top kill” procedure to plug a leaking oil well in the Gulf of Mexico may last another 24 to 48 hours.

The Stoxx 600 slipped 0.2 percent to 244.34 at 4:07 p.m. in London, having swung between gains and losses at least seven times. The measure has rallied 5.3 percent over the past three days after plunging to an eight-month low on May 25, bringing this week’s advance to 3.1 percent.

“The gains in the U.S. yesterday are helping sentiment but the questions remains how sustainable it is,” said Daniel Knuchel, who oversees about $3 billion as chief investment officer at AAM Privatbank AG in Zurich. “We’ve seen a good technical rebound this week that may last for a few more days buy I expect the market to remain vulnerable. Fears over the debt level in Europe and how it will affect growth haven’t disappeared.”

The Standard & Poor’s 500 Index surged 3.3 percent yesterday as China’s commitment to investing in Europe allayed concern the debt crisis will worsen.

Budget Deficits

The Stoxx 600 has slumped 5.9 percent so far this month, on course for the biggest drop since February 2009, on concern that European nations will have difficulty taming their budget deficits without harming the economic recovery. The decline has left the gauge trading at less than 15 times the reported earnings of its companies, near the cheapest valuation since 2008, according to Bloomberg data.

Consumer spending in the U.S. unexpectedly stalled in April as Americans used growing wages to rebuild savings. Purchases didn’t increase for the first time since September and compared with a 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed today.

The Institute for Supply Management-Chicago Inc. said its U.S. business barometer fell to 59.7 this month from 63.8 in April. Economists had forecast a reading of 61.

‘Recent Wobble’

“The advantage of the recent wobble is that interest rates, even in emerging markets, will not go up soon,” Garry Evans, an equity strategist at HSBC Holdings Plc in Hong Kong, wrote in a report today. “We don’t believe this situation is similar to late 2008. While measures of bank risk have risen a little, the rise is insignificant compared to back then. We would use this as an opportunity selectively to buy equities.”

National benchmark indexes rose in 9 of the 18 western European markets. Germany’s DAX rose 0.2 percent and France’s CAC 40 slipped 0.3 percent.

The FTSE 100 Index was little changed at 5,196.39 even as Morgan Stanley strategists upgraded their year-end estimate for the U.K.’s benchmark gauge to 5,800 from 5,000.

“With our global economists believing that this economic recovery is sustainable, we expect the current growth scare associated with this correction will pass,” London-based strategist Graham Secker wrote in a report. “The prognosis for stocks over the next year is good, especially given that recent events are likely to delay the onset of monetary tightening in many regions around the world.”

Travis Perkins, BSS

Travis Perkins jumped 7.3 percent to 799 pence, the biggest gain in the Stoxx 600, after making a 553 million-pound ($806 million) takeover offer for BSS Group in an attempt to create the U.K.’s largest plumbing and heating materials chain. BSS Group, a distributor of heating and plumbing products, surged 35 percent to 439.9 pence.

BP dropped 4.6 percent to 496.75 pence, leading a gauge of oil and gas producers to the biggest decline among 19 industry groups in the Stoxx 600. Europe’s second-largest oil company said the cost of the operation to clean up and contain the Gulf of Mexico spill has risen to $930 million.

CGGVeritas, the world’s largest seismic surveyor of oilfields, slid 4.2 percent to 18.58 euros as President Barack Obama yesterday extended a moratorium on new U.S. deepwater drilling permits. TGS-Nopec Geophysical Co. ASA, a Norwegian oil and gas service provider, slumped 8.2 percent to 89.7 kroner.

Unilever Plc rose 1.7 percent to 1,870 pence. The world’s second-biggest consumer products company was raised to “buy” from “neutral” at UBS AG.

Thomas Cook

Thomas Cook Group Plc gained 1.2 percent to 208.3 pence as Europe’s second-biggest tour operator was upgraded to “buy” from “neutral” at Nomura Holdings Inc.

Standard Chartered Plc declined 2 percent to 1,648.5 pence. With one day left to complete the offer, the lender that makes at least three quarters of its profit in Asia has yet to find buyers for 84 percent of $500 million of stock it is selling in India.

888 Holdings Plc slid 21 percent to 53 pence, the lowest level since at least 2005. The Internet gambling company said it continues to see a “difficult” trading environment and that it expects profit for the year to be “significantly lower than previous market expectations.”

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net .

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U.S. Stocks Fall as Spending Trails Forecasts, Drillers Decline

May 28 (Bloomberg) — U.S. stocks retreated, with the Standard & Poor’s 500 Index paring yesterday’s 3.3 percent advance, after personal spending trailed economists’ forecasts and energy companies dropped on President Barack Obama moratorium on new deepwater drilling permits.

Baker Hughes Inc., Halliburton Co. and Schlumberger Ltd. fell more than 5 percent after Obama canceled pending lease sales in the Gulf of Mexico as work continued to plug BP Plc’s oil spill. Apple Inc. climbed 1.5 percent as its iPad tablet computer went on sale outside of the U.S.

The S&P 500 fell 0.7 percent to 1,095.21 as of 10:56 a.m. in New York. The Dow Jones Industrial Average declined 67.95 points, or 0.7 percent, to 10,191.04. Two stocks declined for each that rose.

“Consumer spending number coming in a little light was a good excuse to take in some of the gains from yesterday after a enormous move,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “Today is going to be a very light day in terms of activity as it’s the day before a three-day weekend. Any moves could be exaggerated.”

Spending in the U.S. was unchanged last month as Americans used wages to rebuild savings. The pause in purchases compared with a 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent and the savings rate rose for the first time in four months.

BP, Transocean

Baker Hughes declined 6.8 percent to $38.70. Halliburton lost 7 percent to $25.09. Schlumberger slipped 5.4 percent to $56.61. BP Plc’s U.S. shares fell 4.5 percent to $43.33 after it resumed pumping thousands of barrels of mud into a damaged oil well to halt a Gulf of Mexico spill that may be the largest in U.S. history.

The well began leaking after an April 20 explosion and fire on the Deepwater Horizon drilling rig, which resulted in the deaths of 11 workers. BP leased the rig from Geneva-based Transocean Ltd., the largest deep-water driller, which fell 4.4 percent to $57.14.

Energy companies declined the most of 10 industries in the S&P 500, losing 1.4 percent as a group.

Offshore Drilling

Obama is suspending exploration in two areas off Alaska, including planned drilling by Royal Dutch Shell Plc, canceling pending lease sales in the Gulf of Mexico and proposed sales off Virginia’s coast, extending by six months a moratorium on deepwater drilling permits and suspending operations at all 33 exploratory wells being drilled in the Gulf. He also said more must be done to wipe out the “cozy and sometime corrupt relationship” between oil companies and federal officials.

“We’re watching closely the details of the Obama administration’s plan to halt new drilling in the Gulf of Mexico and some existing deepwater drilling facilities,” said Eric Green, senior money manager at Penn Capital Management in Philadelphia, which oversees about $5 billion. “We’re waiting for clarity. It’s been hard to determine who will benefit from this and who will be hurt by it.”

Crude oil for July delivery was unchanged at $74.55 in New York after rising 43.3 percent yesterday on U.S. data yesterday signaled that the economic recovery is gathering momentum.

U.S. stocks rebounded from a three-month low yesterday, sending Dow rallying above 10,000, after China committed to investing in Europe and BP Plc temporarily stopped the flow of oil from the Gulf of Mexico leak.

The S&P 500 is on course for its worst month since February 2009 amid concern European nations will have difficulty reducing their deficits without harming the economic recovery. U.S. equity markets are closed on May 31 for Memorial Day.

Economic Indicators

The Thomson Reuters/University of Michigan final index of consumer sentiment increased to 73.6, higher than the 73.3 median estimate in a Bloomberg News survey of economists, from 72.2 in April. The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 59.7 this month from 63.8 in April, which was the highest level in five years. Figures greater than 50 signal expansion.

Apple rose 1.1 percent to $256.07. The iPad is now available in Australia, Canada, Japan and six European countries following the sale of one million of the devices within a month of its April 3 debut in the U.S. The maker of the iPhone and iPod has popularized a new category of computer between a smartphone and a laptop. Apple may sell 8 million iPads this year, according to Royal Bank of Canada.

J. Crew Group Inc. rose 4.5 percent to $45.82. The U.S. clothing retailer boosted its forecast, saying it expects to earn at least $2.35 a share this year.

OmniVision Technologies Inc. jumped 6 percent to $19.32. The maker of image sensors for camera phones projected first- quarter profit of at least 27 cents a share, topping the 22-cent average analyst estimate.

To contact the reporters on this story: Esmé E. Deprez in New York at edeprez@bloomberg.net ; Sarah Jones in London at sjones35@bloomberg.net

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U.S. Focuses on Deep-Water Dangers, Permits Shallow Drilling

May 28 (Bloomberg) — The Obama Administration, which is halting deep-water oil drilling for six months after the BP Plc spill, will permit development closer to shore, where the safety record is proven, Interior Secretary Ken Salazar said.

President Barack Obama yesterday extended a moratorium on deepwater offshore oil drilling permits, delayed planned exploration in the Arctic off Alaska and canceled a plan to search for oil and gas off the Virginia coast.

The administration is “pausing” deepwater drilling “to ensure this type of disaster doesn’t happen again,” Salazar said yesterday on a call with reporters. The government will be cautious about further development of the outer continental shelf, he said. Operations in waters in depths of less than 500 feet are exempt from the moratorium.

“The administration is on the verge of bifurcating between the risks of shallow-water drilling and the greater risk of deep-water drilling,” Whitney Stanco, a Washington-based analyst for Concept Capital, said in an interview before the announcement. “This is important to the industry because the shallow-water guys go through permits faster.”

The Deepwater Horizon rig, leased by BP, exploded April 20, killing 11 workers and triggering the biggest oil spill in history. The BP well may be gushing much as 12,000 to 19,000 barrels a day, compared with BP’s estimate of 5,000 barrels a day, the U.S. Geological Survey said yesterday.

The Obama administration’s decision to expand offshore oil- and-natural gas drilling, announced March 31, was based on the success of developing more than 35,000 wells in the Gulf of Mexico without incident, Salazar said.

Mistaken Assumption

“The assumption that I made is that these activities could move forward in a safe way,” Salazar said. “That assumption is an assumption that was mistaken given evidence we have seen from the Deepwater Horizon.”

The south Atlantic Ocean had been off-limits to oil companies. Congress let the drilling ban expire in 2008 under pressure from voters angered by record-high gasoline prices. The oil industry’s critics said the White House should have gone further than yesterday’s temporary ban.

Canceling the lease sale off Virginia’s coast and delaying drilling in the Arctic is “a great first step,” said Michael Gravitz, oceans advocate for Environment America. Even so, the BP disaster “calls for far more action,” such as a total drilling ban in the south Atlantic, he said.

The Obama administration’s decision could hurt the economy and reduce the nation’s energy independence, said Jack Gerard, president and chief executive officer of the American Petroleum Institute, which represents the oil industry.

Energy, Economic Security

“Additional moves to curtail domestic production” may “significantly erode our energy and economic security,” Gerard said in a statement.

The administration shouldn’t overreact to the spill, even if it was a “monstrous screw-up,” said J. Bennett Johnston, a former Louisiana Democratic senator who now lobbies for the industry.

“The anger is just palpable,” Johnston said. “When you have anger like that, it can react in unwise ways.”

The energy industry will begin to regain the public’s trust only when the well is sealed and environmental damage begins to be repaired, Johnston said in an interview. Companies should be able to quickly adopt steps to minimize risks of future spills.

Because new offshore oil and gas leases take “years to develop,” Obama shouldn’t cancel the planned sale of permits off Virginia, said Senator Lindsey Graham, a South Carolina Republican.

Foreign Oil

“We can’t become more dependent on foreign oil because of this spill,” Graham said.

Royal Dutch Shell Plc, which paid $2.5 billion for 10-year leases in the Chukchi and Beaufort seas in 2005 and 2006, should get an exemption, Senator Lisa Murkowski, an Alaska Republican, said in an interview yesterday. If the drilling delay is just “an abundance of caution,” the administration should extend Shell’s leases and, by April 2011, make it clear the company can start exploratory drilling, she said.

“I don’t want this to be a back-handed way to kill offshore activity in Alaska,” Murkowski said.

Alaska Governor Sean Parnell said Shell’s proposed exploration has been extensively reviewed, and federal permits have been upheld by a U.S. Appeals Court. Further delay will “have a significant impact on the economy,” delaying hundreds of revenue-generating jobs, Parnell said in a statement yesterday.

‘Materially Different’

“Operating conditions in the shallow water of the Arctic outer continental shelf are materially different from those encountered in the extreme deepwater Gulf of Mexico,” Parnell said. “Shell’s prevention and response plans meet or exceed the stringent requirements to operate in Alaska.”

The U.S. will add requirements for offshore oil producers in the future, including more inspections of equipment designed to prevent blowouts and more training for rig workers, Salazar said.

Separately, Elizabeth Birnbaum, director of the Minerals Management Service that leases offshore drilling rights and collects industry revenue, resigned yesterday. The changes at the agency, part of the Interior Department, are only a part of the overhaul that’s needed, Salazar said.

“We need to do significantly more work to create a much more robust agency,” he said.

To contact the reporters on this story: Jeff Plungis in Washington at jplungis@bloomberg.net ; Jim Snyder in Washington at jsnyder24@bloomberg.net .

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Real Bonds Beat Dollar Debt as ‘Heat Off’ Meirelles

May 28 (Bloomberg) — Brazilian local bonds are climbing after a three month slide relative to international debt, as Europe’s debt crisis prompts traders to pare bets on rate increases in Latin America’s biggest economy.

The yield spread between government real-denominated notes and dollar debt narrowed yesterday to 634 basis points, or 6.34 percentage points, from 660 on May 4, the widest since December 2008, according to JPMorgan Chase & Co.’s indexes. The gap grew 111 basis points from Feb. 8 to May 4 on speculation Brazil’s fastest growth in two decades would lead the central bank to quicken the pace of rate increases.

Europe’s crisis, prompted by credit-rating downgrades of Greece, Spain and Portugal, will help Brazilian policy makers rein in inflation as global economic growth slows, said Tony Volpon, a Latin American strategist at Nomura Holdings Inc. Traders have pared their expectations on borrowing costs, betting central bankers will raise the benchmark Selic rate 75 basis points at their June 9 policy meeting after a similar increase in April, according to data compiled by Bloomberg.

Europe’s struggles are taking “the heat off the central bank,” Volpon, who’s been covering Brazilian markets as a trader and analyst since 1994, said in a telephone interview from New York. “Before this all began, there was a point we were pricing in a 100 basis-point rate increase.”

Falling Yields

The average yield on Brazilian local debt has dropped 35 basis points from a 15-month high of 12.52 percent on May 6, according to JPMorgan’s GBI-EM index. Yields on the country’s dollar debt fell 15 basis points to 5.83 percent over that time.

Local yields, while dropping, were still too high for the government to accept yesterday. Brazil rejected all bids on 150 million reais ($83 million) of fixed-rate bonds due in 2021 because “volatility” left the market with “no consensus on price,” Paulo Valle, the deputy treasury secretary for public debt, said in a telephone interview from Brasilia.

The government sold 500 million reais of fixed-rate bonds due in 2014 and 2.88 billion reais of zero-coupon securities at the auction.

The yield on Brazil’s interest-rate futures contract due in January rose one basis point to 11 percent today. The yield has dropped 12 basis points this month.

“The market is more than certain that we are going to get a bunch of rate hikes this year,” said Aryam Vazquez, an emerging-markets economist at Wells Fargo & Co. in New York. “This crisis has probably led some market participants to speculate on a less aggressive way in coming meetings.”

12 Percent

The January contract level implies traders predict the central bank will raise the benchmark rate to more than 12 percent by year-end from 9.5 percent today. Last month’s increase from a record low 8.75 percent was the first since 2008.

In the U.S., policy makers will raise their key lending rate to 0.5 percent by year-end from a range of zero to 0.25 percent, according to the median estimate in a Bloomberg survey of economists.

Brazil’s real fell 0.3 percent today to 1.8207 per dollar after soaring 3.1 percent yesterday. The currency is down 4.4 percent on the month.

The extra yield investors demand to own Brazilian government dollar bonds instead of U.S. Treasuries held at 227 basis points today, according to JPMorgan. The gap was 249 on May 25, the biggest in seven months.

Default Risk

The cost of credit-default swaps to protect against a default on Brazilian debt for five years fell eight basis points to 134, according to data compiled by CMA DataVision. Credit- default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Brazil’s economy will expand 6.5 percent this year, the fastest pace since 1986, according to a central bank survey of about 100 financial institutions published May 24. The unemployment rate fell more than economists forecast in April to 7.3 percent, the lowest for that month since 2001, a government report showed yesterday.

Central bank President Henrique Meirelles said he’s “confident” inflation will meet the nation’s annual target of 4.5 percent, plus or minus two percentage points. Inflation quickened to 5.3 percent in the 12 months through mid-May, the highest rate in a year.

“We have at this point a solid track record in terms of keeping inflation on target,” Meirelles said in an interview with Bloomberg Television in London yesterday. “We are confident that we will bring inflation to target.”

To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

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China IPOs Post World’s Biggest Gains as Stocks Drop

May 28 (Bloomberg) — China has the world’s worst performing equity market this year and the best returns on initial public offerings.

While the Shanghai Composite Index has slid 19 percent for the steepest drop among the 10 largest stock markets, IPOs are beating the country’s benchmark equity indexes by 33 percentage points on average in their first month of trading, data compiled by Bloomberg show.

Chinese individuals restricted from international investments have helped snap up $25 billion in IPOs this year, three times more than were sold in the U.S., as inflation erodes savings and the government clamps down on property speculation. The rally by newly listed companies has made their shares almost twice as expensive relative to profits as the broader stock market, a sign to firms from KBC-Goldstate Fund Management to hedge fund Platinum Partners that a bubble may be forming.

“Most of the China IPOs are overvalued,” said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate, which oversees about $583 million. “It’s difficult to believe they are going to be able to deliver the sort of exponential growth that the valuations imply.”

The fastest expansion among the 20 biggest economies has helped spur the surge in China’s IPO market. The country’s gross domestic product grew 11.9 percent in the first quarter, the most in almost three years and about four times the U.S. GDP.

World’s Biggest IPO

The amount raised from Chinese IPOs may double after the sale by Beijing-based Agricultural Bank of China Ltd. The nation’s third-largest lender by assets will seek at least $30 billion in Shanghai and Hong Kong, according to the Beijing Times. That would be the world’s biggest initial offering, exceeding the $22 billion deal by Industrial & Commercial Bank of China Ltd. of Beijing in 2006.

Chinese IPOs have advanced 32 percent on average in their first month of trading, while the Shanghai Composite Index and the Shenzhen composite declined, Bloomberg data show.

The rally by newly listed companies has been primarily fueled by individual investors, even as concern that Europe’s debt crisis will hamper the global economic rebound spurred a selloff in equities around the world, according to Andy Xie, an independent economist in Shanghai.

“Chinese investors have this traditional belief that you can’t lose money buying new stocks,” said Xie, formerly Morgan Stanley’s chief economist for the Asia-Pacific region. “This is not sustainable. China’s economy has big bubbles, so does the IPO market. Investors can’t be fooled forever.”

Inflation, Property Market

Local investors who have a total of 146 million brokerage accounts are seeing their investment choices outside of equities limited by inflation that’s eroding China’s $7.2 trillion of savings and government curbs on mortgage loans.

Consumer prices climbed 2.8 percent last month, surpassing the one-year savings rate of 2.25 percent. The pace of inflation is forecast to rise 3.4 percent this year, the median estimate of 18 economists surveyed by Bloomberg shows.

Citigroup Inc. of New York and Paris-based BNP Paribas SA project that home prices will drop 20 percent this year, after Chinese policy makers increased bank reserve requirements three times in the past three months to slow lending. Property prices surged the most on record in April, according to the National Development and Reform Commission.

“Chinese investors can’t allocate their money off-shore,” said Lei Wang, who helps oversee $20.2 billion at the Santa Fe, New Mexico-based Thornburg International Value Fund. “Most of the money is locked up at the home market, so for some of those investors, IPOs are a good short-term profitable trade.”

Relative Value

Gains by Chinese IPOs have pushed valuations to an average 46 times estimated profits, Bloomberg data show.

That’s almost three times as much as companies traded in Shanghai, valued at 16 times earnings, and about double the ratio for Shenzhen-listed stocks.

Chongqing Water Group Co. is valued at 34.9 times its estimated profit after a 59 percent advance in its first month of trading. That’s more than double the average price-earnings ratio for companies in the Shanghai gauge, which fell 5.2 percent over the same period.

The $511 million IPO in March gave the supplier of water to the southwestern municipality of Chongqing a market capitalization of $4.9 billion.

‘Rocket Shots’

Investors in East Money Information Co., the Shanghai-based provider of online financial information, paid 56 times the company’s estimated profits in its IPO, or 117 percent more than the average company in the Shenzhen measure of equities, Bloomberg data show. The company gained 93 percent in its first month of trading, helping to push its valuation to 92 times earnings, or more than three times the broader market.

The Shenzhen index rose 4.9 percent in the same span.

“A lot of the ones trading were really rocket shots,” said Uri Landesman, president of New York-based hedge fund Platinum Partners, which oversees more than $500 million. “It definitely does look like there could be bubble-like tendencies in the Chinese IPO market.”

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net ; Inyoung Hwang in New York at ihwang7@bloomberg.net .

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Fed to Hold First Test of Term Deposit Facility on June 14

May 28 (Bloomberg) — The Federal Reserve announced the schedule for the first tests of the term deposit facility, a tool that may be used to eventually tighten credit by draining cash from the banking system.

The tests “are a matter of prudent planning and have no implications for the near-term conduct of monetary policy,” the Fed said today in a statement in Washington. The Fed announced earlier this month that it would hold five tests of the facility in the summer.

The first auction will be held June 14 and will offer $1 billion of 14-day term deposits. An auction for 28-day deposits will be held June 28, and a sale of 84-day deposits will be held July 12. The statement didn’t specify the size of those auctions. The maximum interest rate for the deposits will be the primary credit rate, or discount rate, currently 0.75 percent.

Chairman Ben S. Bernanke is planning to use the facility, which he says is analogous to certificates of deposit that banks offer to customers, to help policy makers raise interest rates when they decide to do so. The traditional tool of the federal funds rate may be less effective than previously, officials have said, so the Fed is testing new facilities.

At a meeting last month of the Federal Open Market Committee, the central bank signaled it is not ready to begin its exit from its unprecedented expansionary monetary policy. The Fed pledged to keep rates low for an “extended period.”

Excess Reserves

The central bank is aiming to prevent $1.06 trillion in excess reserves, pumped into the banking system as the Fed expanded its balance sheet to combat the financial crisis, from stoking inflation.

The term deposits will be offered through competitive auctions, with the maximum award to a single bidder of $250 million. The program’s offerings will also have a non- competitive bidding option to ensure smaller banks will have access, the central bank said.

Two more tests may be scheduled later in the summer, the central bank said. More details of the first auction will be available June 11 on the Fed’s term deposit facility website.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net .

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