Archive for December, 2010

Bolivian president cancels gasoline price increase

Friday, December 31st, 2010 | Finance News

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LA PAZ, Bolivia – Bolivian President Evo Morales on Friday abruptly canceled a decree that sharply raised fuel prices, reacting to widespread protests and the threat of more to come in the biggest setback of his five years in office.

Sunday's price hikes had caused a burst of street protests, many of them by core supporters of the leftist who is Bolivia's first indigenous president. Protesters vowed to renew their demonstrations after the New Year holiday, with workers from the crucial mining industry vowing to join in.

Morales said in a televised message about 90 minutes before midnight that he had listened to unions and social groups and decided "to obey what the people say by abrogating the decree raising gasoline and everything that accompanied that measure. That means that all of the measures are withdrawn."

The government announced Sunday that it was raising gasoline prices by 73 percent, to 92 cents a liter ($3.48 a gallon) for regular gasoline, up from 50 cents ($1.89).

Diesel jumped to 97 cents a liter ($3.67 a gallon) from about 50 cents. Some other fuel prices doubled.

The prices had been frozen for six years, and Vice President Alvaro Garcia said the state was paying $380 million a year to subsidize gasoline imports, with much of it smuggled to neighboring countries with higher prices.

The sharp rise prompted strikes by bus and taxi drivers that hobbled transit in many cities, and mass street protests on Thursday turned violent. At least 15 people were reported injured.

Protesters carried posters denouncing the president as a traitor and some shouted, "Evo, the people are angry!"

Morales' government at first tried to mitigate the blow of the higher prices by announcing a 20 percent salary increase for troops, police, health and education workers. The government also offered help for rice, corn and wheat farmers.

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Baltic state of Estonia adopts the euro

Friday, December 31st, 2010 | Finance News

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TALLINN, Estonia – The Baltic state of Estonia early Saturday became the 17th European Union member to adopt the joint European currency, the euro.

The small nation's decision to change from the Estonian kroon to the euro was the final step in a two decade-long effort to integrate its economy with Europe after it achieved independence in 1991. It is the first former Soviet republic to join the single currency club.

Estonian Prime Minister Andrus Ansip was the first person in the country of 1.3 million to withdraw euro notes from a cash machine specially installed for the midnight changeover at the opera house in central Tallinn.

Ansip's example was followed by EU transportation commissioner Siim Kallas, Lithuanian Prime Minister Andrius Kubilius and Latvian Prime Minister Valdis Dombrovskis.

The four men waved their fresh euro notes at a crowd of some 5,000 cheering people as New Year fireworks burst in the cold night marking the advent of 2011 and a new era for Estonia.

"The euro is first and foremost a guarantor of our security. We are now full-fledged members of the world's second largest financial region with all the consequent obligations that this brings," Ansip said, after withdrawing the euros.

"The euro is a good thing. The world is now probably going to see us as being a developed nation," said Erik Villemson, a 21-year-old university student.

The inclusion of Estonia, a minuscule $19 billion economy, in the $12.5 trillion euro area is being touted for it's symbolic importance after the currency was battered throughout 2010 by bad news. Two members — Greece and Ireland — required international bailout funds to avoid bankruptcy.

Estonia could be the last new entrant for several years as all other potential newcomers from Eastern Europe either shy away from adopting an unpopular currency or fail to meet criteria on budget deficits and inflation.

Hours before the currency switch, European Commission President Jose Manuel Barroso welcomed Estonia to the euro zone, saying the euro would boost the nation's economy and send a powerful message to all EU members.

"It is a strong signal of the attraction and stability that the euro brings to member states of the European Union," Barroso said in Brussels on Friday.

Leaders of Germany and France, the euro zone's powerhouses, also made laudatory New Year's statements in support of the common currency after the worst year in it's 12-year history.

"My dear compatriots, don't believe those who propose that we get out of the euro," French President Nicholas Sarkozy said in a televised address to his nation. "The isolation of France would be madness. The end of the euro would be the end of Europe."

In her appeal to Germany on Thursday, Chancellor Angela Merkel called for strengthening the euro, which is now the main currency for 330 million Europeans.

"This is not just about our money — the euro is far more than a currency," she said. "The euro is the basis of our prosperity."

Estonia's leaders and many economists believe the country's economy, which contracted a staggering 14 percent in 2009, will benefit with the euro, though the country still has painful structural reforms to implement before reaching western European living standards.

"The euro will definitely support Estonia's trade," Ansip told reporters Friday, adding that 70 percent of the country's trade takes place with EU members.

Still, polls indicate that more than one-third of the nation is against the changeover.

"I think it's bad for our economy. Prices have been rising and will keep going up," said Kaire Raitme, 20, who was selling spiced roasted almonds in Tallinn's medieval historical center.

Estonia will be the poorest member of the euro zone, a cause for concern for many Estonians who fear they will have to cough up scarce resources to help other member countries that failed to maintain fiscal discipline.

Celebrations included open-air concerts in subzero weather and for foreign dignitaries a gala concert in the national opera house featuring the music of U.S. composer George Gershwin.

The Finance Ministry said banks and information systems were prepared to cope with the changeover as hundreds of ATM machines were being loaded with euro notes.

Selected bank branches and post offices were to stay open over the weekend to accommodate the switch, but police urged citizens not to rush about with large amounts of cash due to robbery risks.

After Slovenia and Slovakia, Estonia is the third East European country using the euro. Seven other countries in the region — Poland, Romania, Hungary, Czech Republic, Bulgaria, Lithuania and Latvia — also are required to phase in the euro as part of European Union membership, though there is no deadline to do so.

Latvia and Lithuania, Estonia's Baltic neighbors, are enthusiastic supporters of the euro and could become the club's newest members in 2014.

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Hangover or afterparty for stocks?

Friday, December 31st, 2010 | Finance News

NEW YORK (Reuters) – A bout of profit taking seems likely early next year after the S&P 500 ended its best December in almost two decades, but stocks may have further to run at the start of 2011.

Technical indicators are pointing to a strained market, though recently stocks have been maintaining the momentum of late 2011.

The potential is certainly there for shares to derail next week with some important economic reports due. A repeat of last month's disappointing U.S. jobs number could spark a sell-off.

"We think in the near term markets are getting ahead of themselves," said Zahid Siddique, portfolio manager for Gabelli Equity Trust in Rye, New York. "The data has to be good for the markets to continue to go up, and if there is any weakness in the data, we think we could have a sell-off."

Analysts in a Reuters poll expect the economy added 126,00 jobs in December, up from 39,000 the prior month, but still not enough to significantly dent unemployment.

A series of global purchasing managers indexes are also due next week, including the Institute for Supply Management's two monthly surveys. They are expected to show growth quickened in December in the U.S. services and manufacturing sectors .

An array of technical factors show the market may be at the top end of its recent trading range, but strongly trending markets often produce false signals.

"There is no denying the fact that the market is overbought," said Paul Hickey, an analyst at Bespoke Investment Group in Harrison, New York. "The entire month of December the S&P 500 has closed in overbought levels everyday."

Hickey considers the S&P 500 overbought when it moves one standard deviation above its 50-day moving average. But looking at prior months where that has occurred he found performance the next month was above average instead of reverting to the mean.

"Momentum tends to carry the market further," he said.

BEST S&P DECEMBER SINCE 1991

Signs of an improving economy, tax breaks and loose monetary policy helped spur a near 20-percent rally in the S&P 500 since the end of August. The index rose 6.5 percent in the last month of the year, its best December since 1991.

The gains stalled in the last week of the year with indexes finishing essentially flat.

Siddique, who helps manage a $1.3 billion equity fund, says his firm raised cash as equities rose by paring positions in strong performing consumer discretionary and industrial sectors.

He says that worries over Europe's sovereign debt crisis, global growth and political tensions may resurface. He is looking at defensive sectors such as utilities, consumer staples and healthcare, which have lagged.

"In some of our fund we have been increasing cash allocations," he said. "So if there is a sell-off, we can reallocate that cash into the relevant sectors."

The S&P 500 relative strength index, which compares price gains to losses over a given period, has been near or above the overbought 70 level for nearly two weeks.

The index's slow stochastic and moving average convergence- divergence (MACD) levels indicate that S&P 500 may be coming to the top of its recent trading range.

Although strongly trending markets can continue in an overbought condition for some time, a convergence of those three indicators in early November heralded a 4 percent correction.

Analysts at UBS point to an 80-90 point uptrend channel for the S&P 500 with a support line linking August and November lows and a resistance line linking peaks in the same months.

That would currently place S&P support at around 1,222 and resistance at 1,314, giving the potential for a 3 percent pullback if the channel holds.

MIDTERM ELECTIONS BECKON

In 2011 the United States is also entering the third year of a presidential cycle. This theory holds that after the midterm elections presidents push less controversial legislation that could hurt markets as their sights are set on reelection.

Since 1914 the Dow Jones industrial average has gained an average of 49.3 percent over 15.5 months from its low in the midterm election year to it high in the following preelection year, according to UBS.

Transposing that onto the S&P 500 for next year could see the index peak at around 1,430 in mid-October.

But some investors who focus more on the economy and corporate results are not convinced.

Rob Russell, president of Russell & Co in Dayton, Ohio, said he expects equities to sideline in 2011 as higher corporate earnings are offset by a stagnant economy.

"Unemployment will continue to be that 800-pound gorilla," he said. "We will continue to see, like we have for a good part of this year, a sea of contradicting economic data."

(Additional reporting by Chuck Mikolajczak; Editing by Padraic Cassidy)

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