Hang Seng Bank’s Profit Rises 8.4 Percent on Fee-Income Growth

Aug. 2 (Bloomberg) — Hang Seng Bank Ltd., the Hong Kong lender majority-owned by HSBC Holdings Plc, said first-half profit rose 8.4 percent after it earned more fee income from its wealth-management unit.

Net income rose to HK$6.96 billion ($896 million), or HK$3.64 a share, from HK$6.43 billion, or HK$3.36 a share, a year earlier, the bank said in a statement today. Profit beat the HK$6.81 billion median estimate of five analysts surveyed by Bloomberg News.

Hang Seng, the biggest Hong Kong-based bank by market value, and rivals are battling narrowing lending margins as competition intensifies and interest rates stay near a 20-year low. Earnings are primarily supported by growth in wealth-management business income, which surged 15 percent, Chief Executive Officer Margaret Leung said in today’s statement.

“Looking into the second-half, I expect margins will stay under pressure as interest rates don’t seem to be going up any time soon,” Kenny Tang, an executive director at Hong Kong- based Redford Asset Management Ltd., said before the earnings. “There may be some improvement in fee income if the stock market picks up, but overall I don’t expect too much changes in the second half as Hang Seng is quite a conservative bank.”

Hang Seng rose 1.3 percent to close at HK$109, before the earnings announcement. The stock has fallen 5 percent this year, compared with a 4.8 percent loss on the Hang Seng Finance Index, which tracks Hong Kong-listed banks including those based in mainland China. The benchmark Hang Seng Index fell 2.1 percent in the same period.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

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German Stocks Advance as Linde, ThyssenKrupp, Commerzbank Climb

Aug. 2 (Bloomberg) — German stocks advanced with the benchmark DAX Index extending last month’s increase, as Linde AG rose and the nation’s steelmakers and banking shares rallied.

Linde gained 3.8 percent after it reported an increase in first-half net income. ThyssenKrupp AG and Salzgitter AG rose with metal prices. Banking shares increased after BNP Paribas SA reported net income that topped analysts’ estimates. Metro AG fell the most in the DAX after saying its second-quarter net income unexpectedly fell 15 percent.

The DAX rose 2.3 percent to 6,292.13 at the 5:30 p.m. close in Frankfurt, its highest level since June 22. The measure increased 3.1 percent last month, its biggest gain since March, as demand at bond auctions in Greece, Spain and Portugal eased concern that Europe’s sovereign-debt crisis will derail the economic recovery. The broader HDAX Index increased 2.4 percent today.

“It’s amazing how strong the market is today,” said Robert Halver, head of research at Baader Bank AG in Frankfurt. “BNP had great results and Linde gave a wonderful outlook. I’m certain there will be no double dip.”

The Institute for Supply Management’s U.S. manufacturing gauge fell to 55.5 in July from 56.2 a month earlier, according to the Tempe, Arizona-based group. A reading greater than 50 points to expansion. Economists had forecast the measure would drop to 54.5, according to the median of 74 forecasts in a Bloomberg News survey.

Growth in Europe’s manufacturing industry accelerated more than previously estimated in July, indicating that the export- led recovery maintained its momentum.

Germany Recovers

German plant and machinery orders surged 62 percent in June from a year earlier as Europe’s largest economy recovered from its worst crisis in six decades, a report today showed.

Domestic orders soared 67 percent on the year when adjusted for inflation, while export orders jumped 60 percent, the Frankfurt-based VDMA machine makers’ association said in a statement today. In the first six months of 2010, orders rose 32 percent from the year-earlier period.

Linde surged 3.8 percent to 93.32 euros, the shares’ largest gain since January. The world’s second-biggest maker of industrial gases reported first-half net income rose to 445 million euros ($586.6 million) from 248 million euros. The company reiterated its forecast of a full-year earnings record as a rebound in sales helped second-quarter net income climb 86 percent.

Steelmakers Surge

ThyssenKrupp, Germany’s biggest steelmaker, rallied 4.1 percent to 23.70 euros, while Salzgitter, the second-largest, advanced 4.5 percent to 53.58 euros. Aluminum, copper, lead, nickel, tin and zinc all rose on the London Metal Exchange.

HeidelbergCement AG rose 3.7 percent to 40.08 euros as Jefferies Group Inc. recommended buying shares of the world’s largest maker of aggregates used to produce concrete and asphalt.

Deutsche Bank AG and Commerzbank AG, Germany’s biggest banks, rose 2.8 percent to 55.10 euros and 3.5 percent to 7.18 euros, respectively. BNP Paribas, France’s biggest bank, said second-quarter net income rose 31 percent as bad-loan provisions dropped to the lowest level since before Lehman Brothers Holdings Inc.’s 2008 bankruptcy.

Volkswagen AG, Europe’s largest carmaker, climbed 3.9 percent to 84.50 euros. Lower Saxony, the second-largest shareholder in Volkswagen, plans to sell shares in the carmaker to help narrow the state government’s budget deficit, Finance Minister Hartmut Moellring said in an interview.

Metro, Germany’s biggest retailer, declined 2.4 percent to 41.60 euros, the stock’s first retreat in three days. Net income fell to 44 million euros from 52 million euros a year earlier, as the company spent more to eliminate jobs. Profit missed the 87 million-euro average estimate of four analysts surveyed by Bloomberg. Sales rose 2.4 percent to 15.7 billion euros.

The following stocks also rose or fell in German markets. Symbols are in parentheses after company names.

Bilfinger Berger AG (GBF GY) rose 2.5 percent to 44.89 euros. The construction company may hold an initial public offering for its Australian unit early next year, Sueddeutsche Zeitung cited Chief Executive Officer Herbert Bodner as saying in an interview.

Dyckerhoff AG (DYK3 GY) dropped 1.7 percent to 39.50 euros. The cement maker said first-half net income declined to 1 million euros from 45 million euros, as sales fell.

ElringKlinger AG (ZIL2 GY) added 1.8 percent to 21.01 euros. The automotive-equipment supplier was raised to “buy” from “hold” at Equinet AG, which said the second-quarter results “have shown that the crisis is finally over for ElringKlinger and that the company is on a good way to achieve new record results.”

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

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HSBC Profit Doubles as North America Losses Reduced

Aug. 2 (Bloomberg) — HSBC Holdings Plc, Europe’s biggest bank, said first-half net income doubled as the North American unit returned to profit for the first time in three years and as bad-debt provisions fell by 46 percent.

Profit rose to $6.76 billion in the six months to the end of June from $3.35 billion in the year-earlier period. Pretax profit of $11.1 billion beat the $8.8 billion median estimate of 10 analysts surveyed by Bloomberg. The shares gained in London trading.

“HSBC has opened the bank earnings season in some style,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers in London. “The big positive from today’s results is the loan provision figures, which have dropped very significantly.”

HSBC last year closed its U.S. consumer finance division to new customers and sold assets to curtail bad loans which have made the unit unprofitable since the first half of 2007. The bank set aside more than $61 billion of provisions in North America following its acquisition of subprime lender Household International in 2003.

Pretax profit in North America was $492 million, compared with a loss of $3.7 billion a year ago, as bad-loan charges declined to $4.6 billion from $8.5 billion.

“As we focus on building a high quality asset base for the future, it is encouraging that loan impairment charges now stand at their lowest levels since the start of the financial crisis,” said Chief Executive Officer Michael Geoghegan in the statement.

Asia Profit

HSBC is the first of the U.K. banks to report earnings for the period. BNP Paribas SA, France’s biggest bank, today said second quarter profit rose 31 percent as bad loans declined.

The 54-member Bloomberg Europe Banks and Financial Services Index gained 3.7 percent at 4:35 p.m. London time, its highest in more than 15 weeks. HSBC gained 5.3 percent to 680 pence at the close of London trading, the highest in 14 weeks.

Pretax profit in Hong Kong and Asia Pacific rose 30 percent to $5.86 billion, while in Europe it rose 18 percent to $3.5 billion. The bank made a profit of $1.17 billion at its consumer banking division from a loss of $1.25 billion. Total bad debt provisions declined to $7.5 billion from $13.9 billion. The bank made a $1.1 billion profit on changes to the fair value of its debt, compared with a loss of $2.3 billion.

Investment Banking

Investment banking pretax profit declined 11 percent to $5.63 billion, as revenue fell 12 percent to $10.8 billion.

HSBC’s results are “poor quality,” with lower loan losses masking revenue that missed estimates, said Andrew Lim, a London-based analyst at Matrix Corporate Capital LLP with a “sell” rating on the bank. “To merely bring forward a normalization in provisioning, which we already anticipate (albeit later), will only have a small impact on valuation,” he wrote.

Revenue from HSBC’s investment bank was the second-best ever after the “exceptional performance” in the first half of last year, HSBC Chief Financial Officer Douglas Flint said on a conference call with reporters. Profit from foreign exchange and rates were down, while there was a better performance in equities, asset structured finance and some of the transactional business and in principal investments, Flint said.

The bank hired 400 people at the investment banking unit in areas including equities and primary services, said Stuart Gulliver, head of the division, at a press conference today.

‘Anaemic Growth’

Unlike British rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, HSBC wasn’t bailed out using taxpayer funds during the financial crisis. It takes more in customer deposits than it lends, which assists its liquidity.

Geoghegan moved to Hong Kong in February, leaving Chairman Stephen Green in London, as the bank focuses on emerging markets and plans an initial public offering in Shanghai next year. Global growth is likely to remain constrained because of “anaemic growth” in western nations, Geoghegan said today in the statement, while he is “bullish” on emerging economies.

HSBC said the U.K.’s one-off 50 percent bonus tax cost about $91 million. The government imposed the levy on bonuses of more than 25,000 pounds ($38,000) on payouts awarded between Dec. 9, 2009, and April 5.

HSBC has failed to resolve some structural problems, with an inability to increase lending as the run-off of the U.S. subprime unit outstrips accelerated loan growth in Asia, wrote Ian Gordon, an analyst at Exane BNP Paribas SA, in a note to clients. This will limit future profitability, he said.

Auto Loan Sale

The bank agreed to sell the remaining $2.9 billion of U.S. auto finance loans last month, the company said in a statement today. The company has $68.8 billion of U.S. loans in “run off,” it said.

HSBC has a loan-to-deposit ratio of below 80 percent, the bank said today. Total assets increased by 2.3 percent to $2.4 trillion since the end of 2009. The bank will “aspire” to achieve a return on equity at the lower end of between 15 percent and 19 percent, Geoghegan said.

Lloyds, Northern Rock Plc, Standard Chartered Plc, Barclays and RBS report results later this week.

To contact the reporters on this story: Jon Menon in London at jmenon1@bloomberg.net ; Andrew MacAskill in London at amacaskill@bloomberg.net

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New York Times Starts Business to Help Publishers on IPads

Aug. 2 (Bloomberg) — New York Times Co., owner of the namesake newspaper, started Press Engine, a business designed to help other publishers deliver content to digital platforms such as Apple Inc.’s iPad and iPhone devices.

Times Co. will collect license fees and maintenance fees from publishers and media organizations that use the technology and design solutions for digital distribution. Individual publishers will continue to control and own their advertising and subscriptions, the New York-based company said today in a statement.

The Telegraph Media Group, publisher of the U.K.’s Daily Telegraph, and A.H. Belo Corp., the Dallas-based owner of the Dallas Morning News, will be among Press Engine’s customers when the product is introduced in the fourth quarter, Times Co. said.

“This is part of the multi-faceted move into new technology” at Times Co., said Ed Atorino, an analyst at Benchmark Co. in New York. “They’ve got the content, they’ve got the brainpower. We’ll see if people will pay for this stuff.”

Publishers are seeking ways to replace a drop in newspaper print advertising sales, which fell 11 percent in the U.S. in the first quarter, according to Newspaper Association of America data.

The New York Times newspaper is preparing to unveil in January a new online subscription model, which will make much of its Web content available only to visitors who pay fees for access. The company is also planning to sell an enhanced application for Apple’s iPad, which will be offered in addition to the free app currently available on the device.

Times Co. rose 58 cents, or 6.6 percent, to $9.32, at 12 p.m. in New York Stock Exchange composite trading. The stock had declined 29 percent this year before today.

To contact the reporter on this story: Brett Pulley in New York at bpulley@bloomberg.net

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Krugman’s Depression Stymies Sony’s Resurrection: William Pesek

Aug. 2 (Bloomberg) — Sony Corp.’s funk may be ending.

Five years of shaking up the Japanese bellwether are beginning to pay off for Chief Executive Officer Howard Stringer. And not a moment too soon, considering how Apple Inc. and Samsung Electronics Co. now dominate an industry Sony owned before it flirted with zombie status.

Sony’s return to profit in the first quarter would seem to have broader significance. Many in Tokyo say that as Sony goes, so goes Japan Inc. That’s where things get dicey. There are three reasons not to get too excited here: a weakening global economy, a strong yen, and Sony’s reluctance to change.

The global slump is a big challenge for a company that generates more than 70 percent of revenue outside Japan. It’s a concern, too, for a highly developed economy that still puts manufacturing ahead of everything else. Some economists, such as Paul Krugman, are even predicting a depression.

Something is afoot in Japan that explains why the central bank is getting so little traction with near-zero interest rates. This so-called liquidity trap that plagues Japan, Krugman wrote in a July 29 blog posting, is becoming a global phenomenon.

Stuck in Mud

The latest sign that Japan’s monetary wheels are stuck in the mud comes from the Tokyo interbank offered rate, or Tibor. The rate that helps determine costs for about 137 trillion yen ($1.6 trillion) in domestic lending suggests banks are setting benchmark rates at about double what they charge each other for short-term loans.

This is really a low-grade scandal. No clear villains, exactly, but some banks are rigging interbank rates to generate better spreads. What’s good for their quarterly earnings statement is bad for the economy. Officials at the Federal Reserve would be wise to track the Bank of Japan’s chronic inability to turn liquidity into fresh lending.

Sony’s slew of new products, be it 3-D television or motion-sensing controllers for its game platforms, don’t trump a worsening economy. Factory output dropped 1.5 percent in June, while the jobless rate climbed for a fourth straight month to 5.3 percent, figures showed last week.

Sony’s Exposure

That gets us to the yen. Given Sony’s global exposure, it loses about 7 billion yen of annual operating profit for every 1 yen decline in the value of the euro and 2 billion yen for every 1 yen the dollar weakens. Late last week, the yen strengthened against all of the 16 most-active currencies and reached its highest level this year versus the dollar.

Not a good scenario for Sony, or Japan in general. Japan has avoided large-scale government intervention to weaken the yen since 2004. Given Prime Minister Naoto Kan’s slumping approval ratings, it wouldn’t be surprising to see the Finance Ministry spring into action.

Stringer’s biggest weakness is innovation. Sony makes lots of decent stuff that everyone else makes.

Unless you are a video-game enthusiast, Sony hasn’t come out with a must-have product in many years. Every time Apple introduces a new game-changer, Japanese investors are left wondering what has become of the creator of the Walkman. Sony has gone from being the one and only to just one of many.

Fresh Innovation

Since taking the helm in June 2005, Stringer has failed to marry Sony’s vast entertainment content with its hardware. In February 2008, I even argued that Apple CEO Steve Jobs should just buy Sony. Apple needs music and movies to sell to iPod, iPad and iPhone users; Sony has it in spades.

Such a deal would happen over the dead bodies of many Japanese shareholders. And yet a surge of fresh innovation is needed for Sony to thrive. Firing thousands of workers and shutting factories will only get Sony so far. It appears reluctant to make the huge changes that stand between it and steady profits.

At times, Stringer has displayed an impressive understanding of what ails Sony. Take company culture. He put the staff of Sony’s game units in the same building with everyone else in central Tokyo to increase cooperation. The move raised eyebrows. More are needed to make the company relevant.

The urgency to do that is increasing as major economies slow anew. Krugman’s depression concerns are the talk of markets in Japan, and many policy makers are mentioning them in private. Krugman’s narrative about developed nations following Japan into a liquidity crisis is, perhaps, influencing decisions more than the views of his peers.

That phenomenon will boomerang back on executives in Tokyo. Corporate Japan remains maddeningly stubborn about sticking with its postwar business model, the anchor of which is exports. As U.S. growth slows and Europe’s troubles deepen, Japanese companies can expect less demand for their wares.

All the high-fiving going on in Tokyo over Sony’s profit outlook ignores the dreadful state of the global economy. It glazes over how much more needs to be done to resurrect Sony’s greatness. Japan’s, too.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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Climate Change Capital Plans to Raise More Money, Cameron Says

Aug. 2 (Bloomberg) — Climate Change Capital, a London fund manager that has invested more than $1 billion in greenhouse gas credits, plans to attract additional cash and focus future investments on emissions-reducing projects.

“We are ready to raise money for follow-on funds,” James Cameron, executive vice chairman, said in an interview. “The future is likely to involve more investment in the underlying asset,” and less on credits which trade in the UN’s Clean Development Mechanism, the world’s second-largest carbon market.

Doubts about the future of global carbon markets were compounded after the U.S., the world’s largest emitter, shelved climate legislation on July 28 that would cap emissions and create a market in pollution allowances.

“A lot of this uncertainty makes space for people who have conviction over the longer term that investments in reducing emissions will have value,” said Cameron by telephone on July 29 from New Delhi, where he was visiting as part of a delegation to India with U.K. Prime Minister David Cameron. “We figure it’s a good time to invest actually.”

Cameron declined to give further details on fund-raising plans, citing U.S. regulatory restrictions. Current investors include SNS Reaal NV, the second-largest Dutch life insurer, Universities Superannuation Scheme Ltd., the U.K.’s second- biggest private pension fund, and banks such as Standard Chartered Plc and HSBC Holdings Plc, he said.

Need to Adapt

Cap-and-trade markets aim to reduce emissions of carbon dioxide and other heat-trapping gases linked to global warming. Emitters that produce more than their cap buy permits and those releasing less can sell their surpluses to stay below an overall limit.

Their outlook has been shaken by the failure of global talks to agree on caps for nations beyond 2012, as well as delays and oversight problems in the UN system.

“No doubt there’s some pain at the moment,” said Cameron, formerly an attorney at Baker & McKenzie LLP in London. “We’ve had to adapt. It’s extremely difficult to raise money now to deploy directly in carbon market.”

New opportunities may include energy efficiency and solar investments in India, the carbon fund’s biggest investment destination after China, he said. Climate Change Capital is also currently evaluating a hydropower plant in the northern state of Kashmir, he added.

Climate Change Capital’s carbon finance fund has invested more than a billion dollars to date, Cameron said. It also has private equity, property and energy infrastructure funds, according to its website.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net .

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PetroChina to Shut Half of Oil Processing Capacity in Lanzhou

Aug. 2 (Bloomberg) — PetroChina Co., the country’s second- biggest oil refiner, plans to shut almost half of the processing capacity of its Lanzhou plant next week to repair a fault at a secondary unit, a refinery official said.

The plant’s 3 million metric-ton-a-year catalytic cracker will be closed for about 15 to 20 days from Aug. 10 for repairs, the official said by phone from the refinery, declining to be named because of company rules. The plant will shut its 5 million ton-a-year crude distillation unit accordingly, he said.

The refinery has two crude distillation units with a total capacity of 10.5 million tons a year. The distillation units heat up crude and separate it into oil products, while a catalytic cracker upgrades the products separated by the process to get higher-value fuels including gasoline.

The plant in the northwestern province of Gansu will step up production for the rest of the year to meet its annual processing target of 10.5 million tons, or 77.6 million barrels, the official said.

PetroChina’s refineries processed a total of 829 million barrels of crude last year, according to its annual report.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net

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China Manufacturing Faces ‘Slowdown, Not a Meltdown’

Aug. 2 (Bloomberg) — China’s July manufacturing data were the weakest in more than a year as the government clamped down on property speculation and investment in polluting and energy- intensive factories.

A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics slid to 49.4 from 50.4 in June. A separate, government-backed PMI fell to 51.2 from 52.1, the Federation of Logistics and Purchasing reported yesterday. Fifty is the dividing line between expansion and contraction.

Officials may delay raising interest rates from crisis levels as austerity measures and unemployment in advanced economies dim the outlook for exports. China’s stocks rose after today’s data, as analysts including those at Morgan Stanley said the government may do more to aid growth by year-end.

“Government measures are taking overheating risks out of the economy, but any further weakening would be worrisome as China’s export outlook may also deteriorate,” said Dariusz Kowalczyk, a Hong Kong-based economist at Credit Agricole CIB. “The scope for yuan appreciation is declining further and there will be no interest rate hikes in the second half.”

The HSBC PMI’s reading was the first below 50 in 16 months. Measures of output, orders and export orders all showed contractions. The government PMI, released by the statistics bureau and the logistics federation, showed the weakest expansion in 17 months.

‘No Need to Panic’

The Shanghai Composite Index closed 1.3 percent higher today after climbing 10 percent in July for the biggest monthly increase in a year. Twelve-month yuan forwards also gained today.

“We’re in a moderate slowdown, not a double-dip,” said Ken Peng, a Beijing-based economist for Citigroup Inc. Similarly, HSBC economist Qu Hongbin said China is having a “slowdown not a meltdown” and “there is no need to panic.”

Passenger-car sales grew at a faster pace in July, the China Automotive Technology & Research Center reported today. The annual 15.4 percent gain compared with 10.9 percent in June.

Across Asia, manufacturing PMIs released by HSBC and Markit today showed a slowdown in Taiwan and a dip to 53.2 from 53.3 for South Korea. In India, growth accelerated.

China’s economy is still helping to power growth in Europe, reports published today showed. Euro region manufacturing expanded faster than initially estimated in July, with a gauge compiled by Markit Economics rising to 56.7 from 55.6 in the previous month. Swiss manufacturing grew the most on record and U.K. activity slowed less than economists had forecast.

U.S. Slows

In the U.S., manufacturing expanded in July at the slowest pace this year. The Institute for Supply Management’s factory index fell to 55.5 last month from 56.2 in June. A reading greater than 50 points to expansion, and the median forecast of economists surveyed by Bloomberg was 54.5.

Elevated unemployment in the U.S. and austerity measures by indebted European governments put an extra focus on China’s role as a driver of world growth.

Yi Gang, a vice governor of the central bank, said last week that China already had the world’s second-biggest economy. In contrast, the government’s Xinhua News Agency reported July 23 that Japan could retain the No. 2 slot this year because of gains by the yen and China’s moderating growth.

Societe Generale SA cautioned last week that seasonal distortions raised the risk that July PMI readings could fall below 50. Goldman Sachs Group Inc. said yesterday that, adjusted for seasonality, the official PMI rose rather than declined.

HSBC’s PMI is weighted more toward smaller, private businesses, including exporters, than the government’s survey.

Government Goals

The economy is cooling as the government trims credit growth from last year’s record $1.4 trillion, presses for gains in energy efficiency as a five-year plan comes to an end, and discourages multiple-home purchases. Signs of a slowdown include China Petroleum & Chemical Corp., or Sinopec, reporting July 20 that its crude-oil processing increased at a weaker pace in the second quarter.

The government is part-way through exiting crisis policies after raising banks’ reserve requirements three times this year and scrapping the yuan’s peg to the dollar. The benchmark one- year lending rate is 5.31 percent, compared with 7.47 percent before cuts in 2008 to combat the effects of the global financial crisis.

While the nation’s expansion may continue to moderate from a peak in the first quarter, the full-year growth rate may be as high as 9.5 percent, up from 9.1 percent in 2009, State Council researcher Zhang Liqun said yesterday.

Hit to Growth

Morgan Stanley economist Wang Qing said yesterday that a government campaign to close energy-inefficient businesses likely contributed to a slowdown in heavy industry. UBS AG economist Wang Tao estimates economic growth could be cut by 2 percentage points in the second half of the year if officials don’t waiver from energy-efficiency goals.

China’s economic growth dipped to a 10.3 percent annual pace in the second quarter from 11.9 percent in the first three months of the year.

“The Chinese economy is slowing down mainly due to the ongoing property-tightening measures,” Lu Ting, a Hong Kong- based economist at Bank of America-Merrill Lynch, said yesterday. “Beijing will surely ramp up spending on public housing and other public works to stabilize growth.”

The government may keep policies largely unchanged for the rest of the year, making adjustments for “selected” industries as needed to sustain growth, the logistics federation said in a statement on its website today analyzing the official PMI numbers. China’s export rebound is not yet solid, natural disasters could cut agricultural output and inflation risks remain, the organization said.

For Related News and Information: Most-read stories about China: MNI CHINA 1W Most-read China economy stories: TNI CHECO MOSTREAD BN Emerging markets view: EMMV Top China news: TOP CHINA China economic statistics: ECST CH Top economic news: TOP ECO

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Europe Manufacturing Accelerates More Than Estimated

Aug. 2 (Bloomberg) — Growth in Europe’s manufacturing industry accelerated more than previously estimated in July, indicating an export-led recovery maintained its momentum.

A gauge of manufacturing in the 16-nation euro region increased to 56.7 from 55.6 in the previous month, London-based Markit Economics said today. That’s a three-month high and above an initial estimate of 56.5 released on July 22. A reading above 50 indicates expansion.

European manufacturers have helped support the region’s recovery by stepping up output to meet global export demand. Volkswagen AG, Europe’s largest carmaker, on July 29 reported its biggest quarterly profit in two years. Still, Chinese manufacturing growth slowed in July and U.S. factory output probably also weakened, suggesting exporters may struggle to maintain their earnings growth.

“The momentum we’ve seen over the past months won’t be maintained,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “Growth will weaken, but it won’t point to an end of the recovery. It’s a normalization after an initial surge.”

The euro advanced against the dollar after the report, trading at $1.3073 at 10:20 a.m. in London, up 0.2 percent on the day. The European currency gained 1.1 percent last week, capping the biggest monthly gain since May 2009, on signs the region’s economy is gathering strength.

‘Substantial Boost’

The manufacturing industry “continued to provide a substantial boost to the euro-area recovery at the start of the third quarter,” Chris Williamson, chief economist at Markit, said in a statement. “There has been no loss of momentum from the second quarter.”

The gain “was almost entirely driven by a growth spurt in Germany, which saw output and new orders surge at near record rates,” Williamson said. “This is clearly a very uneven recovery.”

A composite index based on a survey of euro-area purchasing managers in both the services and manufacturing industries probably rose to 56.7 in July from 56 in the previous month, while an index of euro-area services increased to 56 from 55.5. Markit is scheduled to release those two indicators on Aug. 4.

In the U.S., the world’s biggest economy, the Institute for Supply Management’s factory index probably dropped to an eight- month low in July, according to the median estimate of 62 economists surveyed by Bloomberg News. The Tempe, Arizona-based ISM’s report is due at 10 a.m. New York time.

A Chinese purchasing managers’ index released today by HSBC Holdings Plc and Markit slid to 49.4 from 50.4 in June. A separate, government-backed PMI fell to 51.2 from 52.1, the Federation of Logistics and Purchasing reported yesterday.

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloombert.net

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U.S. Economy: Manufacturing Slowed in July as Orders Cooled

Aug. 2 (Bloomberg) — The manufacturing rebound that propelled the U.S. out of the recession cooled in July, reflecting a slowing in orders and production.

The Institute for Supply Management’s manufacturing gauge dropped to 55.5 last month, exceeding the median forecast of economists surveyed by Bloomberg News, from 56.2 in June. Readings greater than 50 indicate growth. The group’s bookings gauge, considered a leading indicator, fell to a one-year low.

“It’s important to keep an eye on the new-orders index, which has lost a lot of ground in the past two months,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, who accurately forecast the ISM reading. “It’s signaling a slower pace of growth, though it still suggests expansion in the economy.”

Stocks climbed, boosted by improving earnings and relief that factories held up better than estimated, easing the risk the world’s largest economy would again slump. Growing overseas demand and a pickup in business investment are lifting companies like Caterpillar Inc., while Federal Reserve Chairman Ben S. Bernanke today said rising wages will spur consumer spending.

The moderation in manufacturing compares with a pickup in Europe and a more pronounced slowing in China. The 16-nation euro region factory gauge increased to 56.7 from 55.6 in the previous month, signaling the region’s factories are overcoming the debt crisis, data from London-based Markit Economics showed today. An index of purchasing managers in China slid to 49.4 from 50.4 in June, according to figures from HSBC Holdings Plc and Markit.

Shares Rally

The data helped shares rally, sending the MSCI World Index to an 11-week high, while crude oil climbed above $81 a barrel and U.S. Treasury securities dropped. The Standard & Poor’s 500 Index rose 1.8 percent to 1,121.57 at 12:40 p.m. in New York. The yield on the benchmark 10-year note rose to 2.94 percent from 2.91 percent late on July 30.

The median estimate of 74 economists surveyed projected the ISM index would drop to 54.5. Forecasts ranged from 52.5 to 56.

The factory gauge has peaked and will probably hold above 50 for the rest of the year, Norbert Ore, chairman of the ISM manufacturing survey, said in a conference call with reporters. The slowdown in orders was a “major concern,” he said, adding it will require a pickup in consumer spending to sustain the recovery beyond gains in exports and business investment.

Manufacturing “is not really getting help from the rest of the economy,” Ore said. “Job creation is not happening very quickly.”

Bernanke’s Outlook

Bernanke said that help may soon come as Americans will probably ratchet up their spending in coming months.

“Rising demand from households and businesses should help sustain growth,” and consumer spending “seems likely to pick up in coming quarters from its recent modest pace,” the Fed chairman told lawmakers in Charleston, South Carolina.

A report from the Commerce Department today also showed construction spending unexpectedly rose in June, boosted by a gain in government programs that made up for declines in private residential and commercial projects.

The 0.1 percent increase in outlays followed a revised 1 percent drop in May that was larger than previously estimated.

The ISM’s new orders measure dropped to 53.5, the lowest level since June 2009, from 58.5. The measure was as high as 65.7 in May.

The group’s production gauge decreased to 57 from 61.4.

Jobs, Exports

Other areas were more upbeat as employment and exports grew at a faster pace. Factories have boosted payrolls by 136,000 workers so far this year through June and a Labor Department report on Aug. 6 may show another manufacturing employment increased again last month, according to economists surveyed.

Caterpillar, the world’s largest maker of construction equipment, this month raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment.

“You’ve got strong growth in India and China that provides demand for commodities,” Ed Rapp, chief financial officer of the Peoria, Illinois-based company, said in an interview on July 22. “Most of the mining is happening in the developing parts of the world.”

Further gains in manufacturing require a pickup in consumer spending, which accounts for about 70 percent of the economy. A Commerce Department report last week showed second-quarter gross domestic product grew at a 2.4 percent annual pace, less than the median forecast of economists surveyed by Bloomberg, as household purchases cooled.

A lack of jobs is one reason consumers aren’t convinced the U.S. is in recovery. More than 7 out of 10 Americans say the economy is still mired in recession, according to a Bloomberg National Poll. The U.S. lost 8.4 million jobs during the slump that began in December 2007.

President Barack Obama’s administration in trying to change such perceptions heading into the November elections that will determine the makeup of Congress. Obama last week said the “tough decisions” he made to give almost $60 billion in aid to the U.S. auto industry saved a million jobs and led to the strongest period of growth for automakers in a decade.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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