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Wednesday, December 14, 2011

Lying with statistics

7.3 magnitude earthquake hits Papua New Guinea

The 7.3 magnitude tremor was centred near Lae, the country's second-largest city, at a depth of around 1

15 km (71 miles) the U.S. Geological Survey said.

"It was very, very big," said Dolly Kinibo, a receptionist at the Lae International Hotel.

"It lasted for two to three minutes. The whole building moved. The Christmas tree moved, we all moved, people are very shaken. There are no reports of injuries or damage, but our managers are checking."

The quake sent goods flying from the shelves of Lae's Foodmart store but caused only minor damage and no injuries. "It wrecked some displays and caused some damage to the ceiling, but touch wood nothing serious," said store manager Albert Martinez.

Residents in the capital Port Moresby, 223 km (138 miles) from the epicentre, also reported feeling the quake.

The Telegraph

Wall Street backpedals as global risks rise

(Reuters) - Stocks fell for a third day and hit their lowest level in two weeks on Wednesday as widespread risk aversion sank commodity prices, drove the euro to its lowest in a year, and pushed Italian bond yields to a record high.

Investors are disappointed the European Central Bank is not buying more bonds of troubled European countries, a move that was widely seen in markets as a requisite next step following last week's EU summit on strengthening fiscal unity in the bloc.

With the crises festering as Europe slides into recession, the outlook for the world economy is growing bleaker.

A 5 percent slump in oil prices hit energy stocks, with S&P's energy index .GSPE down nearly 3 percent. Chevron Corp .CVX fell 3.6 percent to $99.90.

"There is a growing realization that the global economy is in jeopardy," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. "Business is cooling everywhere. Right now, the U.S. appears to be operating in a vacuum, but that's not sustainable."

The S&P 500 .SPX fell below its 50-day moving average, signaling a breakdown of its recent trading range between that level and 200-day moving average at the top end. The move has some analysts expecting further weakness.

The Dow Jones industrial average .DJI dropped 153.22 points, or 1.28 percent, to 11,801.72. The Standard & Poor's 500 Index .SPX fell 14.62 points, or 1.19 percent, to 1,211.11. The Nasdaq Composite Index .IXIClost 45.11 points, or 1.75 percent, to 2,534.16.

Copper fell near a three-week low, Aluminum hit its lowest in 17 months and tin made a three-month low. The S&P's materials sectors index .GSPM fell nearly 1 percent. Shares of miner Cliffs Natural Resources (CLF.N) dropped 1.7 percent to $63.13.

Italy's borrowing costs rose to a record after an auction of five-year debt, while the euro fell to an 11-month low against the dollar.

U.S. stocks have been weighed down this week in part on fears that the agreement at last week's European Union summit did not go far enough to resolve the two-year-old debt crisis.

"The main issue right now is the complete, absolute failure of the European Union to come to any kind of solution. They're back to where they started from," said Jeffrey Sica, president and chief investment officer of SICA Wealth Management in Morristown, New Jersey.

"Borrowing costs are going to rise, and that's going to continue to put pressure on us. The summits they've had have taken us nowhere, and soon we're going to pay the price."

Gold dropped to its lowest level since early October as the weak euro and a shortage of dollar funding near the year-end prompted investors to sell aggressively. Commodity-related shares were further pressured by a strengthening U.S. dollar.

The Arca Gold Bugs index .HUI, which measures the performance of 16 of the world's largest gold producers, fell 3.7 percent. Shares of Yamana Gold (AUY.N), the Canadian producer, was one of the biggest losers, falling 6.3 percent to $13.92.

Investors were also disappointed the U.S. Federal Reserve made no mention of possible new stimulus measures after its Tuesday meeting.

Though a majority of economists polled by Reuters expected no more Fed action to boost the economy in the short term, another survey showed most primary dealers saw the central bank enacting some type of stimulus.

Technology shares sold off sharply. A number of companies in the industry and beyond have cutearnings outlooks over recent days, another sign of the fallout from a slowing economy. The latest was First Solar Inc (FSLR.O), which tumbled 20.2 percent to $33.96 after it cut its 2011 sales and profit forecast.

The maker of solar power systems joins a list of companies, including Intel Corp (INTC.O), DuPont and Co (DD.N) and Texas Instruments Inc (TXN.N), which have cut their outlooks in recent days.

An index of home builder stocks .DJUSHB dropped 2.5 percent after the National Association of Realtors said data on sales of previously owned homes will be revised downward because of double counting.

Iran in Dramatic War Scenario with Preemptive Strikes by Israel and the United States

Euro falls below $1.30 for first time since January

The euro has fallen further against other major currencies as fears continue over the eurozone's future.

The euro fell below $1.30 for the first time since 12 January. Against the pound, one euro bought 84 pence, while the pound was worth about 1.19 euros.

Last week, 26 of the 27 members of the European Union backed new fiscal rules, with only the UK abstaining.

But many fear that the budget pact will still not be enough to prevent more countries from seeking a bailout.

European stock markets resumed their slide in afternoon trading on Wednesday. London's FTSE 100 was down about 1.8% by 15:30 GMT.

Frankfurt's Dax was 1.25% lower, with the Paris Cac 40 was down 2.35%.

US markets also fell at the open of trading on Wall Street, with the Dow Jones 0.7% lower.Continue reading the main story

In other developments, the costs of borrowing for eurozone countries continued to diverge. Italy's government paid an interest rate of 6.47% to borrow 3bn euros for five years at a bond auction, up from 6.3% last month.

Following the auction, the borrowing cost for the country implied by market prices rose further, with yield on 10-year Italian bonds rising to 6.77%.

That is close to the 7% level that Italy reached last month, triggering anxiety among Europe's political leaders that Rome's debts were becoming unsustainable.

Meanwhile on Wednesday, Germany - whose debt is viewed by markets as the safest place within the eurozone to invest - saw its borrowing costs fall further.

At an auction of 5bn euros' worth of two-year bonds, the yield was 0.29%, down from 0.39% last month.


Last secret door of Great Pyramid 'to be opened in 2012'

The secret gates Great Pyramid of Khufu could open for the first time next year, as Leicester robot company Scoutek UK hopes to conclude their exploration of the legendary inner chamber in 2012

The secret gates at the heart of the Great Pyramid may be opened for the first time in 2012, a British robot company believes - solving a mystery that has puzzled archaeologists since 1872.

Scoutek UK had already begun exploring behind the gates earlier this year - and produced the first-ever images from behind the gates using a 'micro snake' robot. But the exploration was halted by the recent unrest in Egypt.

Expedition leader Shaun Whitehead said, 'I'm very confident we can resume work in 2012.'

Egypt's Supreme Council of Antiquities stopped granting permits for research such as the Djedi robotic exploration of the Great Pyramid.

But it has recently started granting permits again.

'We're still waiting for permission to return to the pyramid,' Whitehead told Mail Online today. 'In the meantime, we have been working on enhancing the robot.'

'The main plan is to carefully survey and document the shafts, to gather as much information as possible to allow archaeologists to determine their purpose. We also still plan to look beyond the blocking stones at the ends of the shafts, if it is safe and practical to do so.'

The expedition is named Djedi after the magician who Khufu consulted while building the pyramid. It is a joint project founded by Dr Ng from Hong Kong University, and Scoutek UK, in cooperation with the Supreme Council of Antiquities, Egypt, Dassault Systèmes in France and the University of Leeds.

The four narrow shafts deep inside the 4,500-year-old Great Pyramid have puzzled archaeologists ever since they were first found in 1872.

The shafts are just eight inches across - and thus can't be explored by human explorers. Many experts believe that the shaft was designed to provide an 'exit' for the Pharaoh's spirit into.

Read more: http://www.dailymail.co.uk/sciencetech/article-2073544/Secret-gates-Great-Pyramid-opened-2012-predicts-British-company.html#ixzz1gWJOEi4h

Bumpy ride for fiscal compact in Dublin, Prague, Helsinki

BRUSSELS - The EU’s new fiscal compact is again getting a bumpy ride from a number of quarters in member states, with opposition parties in Ireland warning over loss of sovereignty and the leaders of the Czech Republic and Finland also underlining concerns.

In non-eurozone Prague on Tuesday, Prime Minister Petr Necas stressed to reporters that the government must wait for full details of the new agreement, which calls for tighter fiscal discipline and monitoring of budgets by the EU, before it can sign up to it.

"Our position has been absolutely clear -- we won't pledge to join the deal unless its parameters are known," he said.

The leader added that the country’s central bank should not be the actor that takes the decision on whether to chip in to the planned €200 billion loan to the International Monetary Fund, which would then be loaned on to eurozone states.

"I personally think the Czech Republic should not take part" he added, although the governing coalition is to discuss the issue Wednesday.

In Finland on Tuesday, the prime minister, Jyrki Katainen, said that the government could not agree to a transfer of national budget sovereignty to the European Commission.

He also added that the country cannot sign off on majority-based decision making on the boards of the EU’s bail-out funds, the European Financial Stability Facility and the soon-to-be-established European Stability Mechanism.

The leader made the comments during a debate in the parliament where the head of the eurosceptic True Finns party, Timo Soini, attacked the fiscal compact as eroding Finnish budget sovereignty, according to a report from YLE.

A vote of confidence in the government is to be held on Wednesday.

In Ireland the same day, after Taoiseach Enda Kenny briefed opposition parties on the deal, both Fianna Fail and Sinn Fein said that the new rules must be put to a referendum.

The government has said that it must consult its legal advisors before saying whether such a plebiscite should be held.

Fianna Fail chief Micheal Martin, whose party in government had signed up to EU-IMF imposed austerity in return for a bail-out, honed in on balanced budget rules that would limit deficits to just 0.5 percent of GDP, saying this would require the confidence of the people before going ahead.

"This will require a referendum from a political perspective, that people be consulted on the issue given that it seems to be the intention of the European leaders to write in to either constitutional law or its equivalent,” he said.

Sinn Fein leader Gerry Adams for his part also attacked the 0.5 percent ceiling.

"The government has signed up to a new and draconian 0.5 percent of GDP deficit limit. They have done this without having conducted an assessment of the social or economic consequences of such a move,” he said.

Separately on Tuesday, the honeymoon period for the technocrat government of Mario Monti came to rapid end, with Italian unions launching a week of strikes against his €33 billion austerity package.

Rolling strikes in different sectors, which enjoy for the first time in six years joint co-ordination between the normally bitterly divided three main union centrals, will continue through 19 December.


N. Korea could miniaturize nuke warhead if it conducts 3rd nuke test: U.S. scientist

SEOUL, Dec. 14 (Yonhap) -- North Korea will be able to master the technology needed to put a nuclear warhead atop a missile if the communist regime carries out a third nuclear test, a prominent U.S. scientist warned Wednesday.

Siegfried Hecker, who was shown the North's modern uranium enrichment facility during a visit to the country in November last year, urged regional powers to stop Pyongyang from staging another nuclear test and more missile tests.

Yonhap News

Postal Service delays closings until May 15

WASHINGTON (CNNMoney) -- The U.S. Postal Service has agreed to hold off on closing any more post offices or mail facilities until May 15, 2012, to allow Congress time to work on a plan to save the service.

The Postal Service agreed to voluntarily enact a moratorium on closures, after a series of talks with senators, lawmakers said. Sen. Richard Durbin, an Illinois Democrat, said the service agreed to the deal, and he called it a challenge to Congress to "put up or shut up."

The news of the moratorium comes just a week after the Postal Service announced a plan to slow down first-class mail, which would have closed some 250 mail processing plants nationwide and eliminated 28,000 jobs.

"If you don't like what the postal service has put forward (to cut costs) by closing processing facilities and post offices and eliminating jobs, then come up with a better approach," Durbin said. "It's a challenge we need to accept, and this agreement with the postal service gives us that opportunity."

The Postal Service issued a statement saying that they agreed to delay all closings and consolidations, but they'll continue to review the facilities slated for possible closure during this period.

"The Postal Service hopes this period will help facilitate the enactment of comprehensive postal legislation," the agency said in a statement.

Durbin said that in the Senate, Majority Leader Harry Reid has said that reforming the postal service and getting it out of its debt spiral is his first priority when Congress comes back in 2012.
USPS wants to limit next day service

The financially troubled agency is on the brink of insolvency and has unveiled a series of proposals to close post offices, mail processing plants and even slash Saturday mail service as ways to cut costs.

The Postal Service has racked up $5.1 billion in debt this year and faces a deadline to make another $5.5 billion payment to pre-fund health care retirement benefits for future retirees due later this week, a payment required by law.

Durbin said that when lawmakers finish working on a deal to fund the federal government past this Friday, that the measure would relieve the postal service of its obligation to make those payments to the health care retirement fund during the moratorium.

However, Durbin could not provide more details since those negotiations are still underway.

CNN Money

Nigel Farage: Bully Boys in Brussels Building Europrison

German Bank 'Seeking A Second Bailout'

Germany's second largest bank, Commerzbank, is reportedly in discussions with the German government about a bailout after regulators said it needed to raise more money to cope with a potential default on its loans to governments.

"Intense talks" have been going on for several days, according to sources who spoke to the news agency Reuters.

Several people familiar with the matter told the agency that the aim was to reach an agreement in principle by the Christmas holidays.

Commerzbank told Sky News it does not comment on market rumour and speculation.

Last week, the bank said it needed to raise an extra 5.3 billion euros by June 2012 to cope with a potential default of European government debt under new rules laid down by the European Banking Authority.

It has until January to explain how it will raise the money.

The bank, which has 14 million customers, is trying to raise the extra funds from private investors and has said it could also sell off parts of its business, cut costs or reinvest its profits to shore up its reserves.

Commerzbank's chief financial officer Eric Strutz said: "We are aware of our responsibility for the supply of credit to the German economy and we will continue to stand by our customers.

"We stand by our intention not to make use of additional public funds," he said.

Banking and Finance reporter at the Wall Street Journal, David Enrich, told Sky News he was not confident the money could be found through the usual channels.

He said: "The (German) Government already owns about 25% of Commerzbank...they have other options other than going to the Government.

"They can sell assets, they can try and get money from private investors...the Government is likely to come back in and act as a fallback option."

Shares in Commerzbank have fallen by 74% in value this year.

It is already 25%-owned by German taxpayers after it was given a previous bailout of 18.2 billion euros following the damaging takeover of rival Dresdner bank at the height of the financial crisis in August 2008.

The European Banking Authority has ordered banks across Europe to raise an extra 114.7 billion euros to maintain a minimum requirement of 9% capital reserves in the event of a more widespread partial default by European governments on their loans.

Commerzbank is one of six German banks that need to raise a total of 13.1 billion euros - up from a previous estimate of 5.2 billion euros - to cope with a potentially more damaging series of defaults.


EU Banks Selling ‘Crown Jewels’

European banks, under pressure from regulators to bolster capital, are selling some of their fastest-growing businesses to competitors from outside the region -- at the expense of future profit and economic growth.

Spain’s Banco Santander SA (SAN), Belgium’s KBC Groep NV (KBC)and Germany’s Deutsche Bank AG are accelerating plans to exit profitable operations outside their home markets. Santander, which said in October it needs to plug a 5.2 billion-euro ($6.9 billion) capital gap, sold its Colombian unit last week to Chile’s Corpbanca for $1.16 billion. Deutsche Bank is weighing options including a sale of most of its asset-management unit, while KBC may dispose of businesses in Poland.

Such sales risk hurting long-term profit, just as Europe enters recession, investors say. It’s the unintended consequence of the decision by European regulators to make banks increase core capital to 9 percent by June instead of 2019. Unwilling to raise equity because their share prices are too low, lenders are selling profitable assets because they’re struggling to find buyers willing to pay enough for their troubled loans to avoid a loss that would erode capital. Investors say the sales risk leaving banks focused on a stagnant economy and deprive them of economic growth from outside the region.

“These are the most profitable parts of their business,” said Azad Zangana, European economist at London-based Schroders Plc, the 200-year-old British asset manager, citing Spanish and Portuguese banks selling assets in Latin America. “They’re being forced by regulators to sell them off. You begin to become a less profitable organization. Your business model stops working if you’re being forced to lend only to an economy that’s going through a very deep recession.”
Hurting Profitability

The divestitures are likely to hurt banks’ profitability in coming years, analysts say. Shrinkage will cut their return on net asset value by 1.5 percentage points on average, according to a Dec. 6 report by Huw van Steenis, a Morgan Stanley analyst in London. Return on asset value at Frankfurt-based Deutsche Bank will shrink by almost 1 percentage point and at Santander by about 0.8 percentage point because of deleveraging, he said. The shrinking economy will help cut returns by an additional 2.5 percentage points, he added.
‘Cheaper Way’

For French banks BNP Paribas SA (BNP), Societe Generale (GLE) SA and Credit Agricole SA (ACA), return on equity may fall to between 7 percent and 9 percent in 2013, from 12 percent to 21 percent in 2007, according to Christophe Nijdam, an analyst at AlphaValue in Paris. The ratio may rise to between 10 percent and 12 percent by 2015, assuming the economy recovers by then, he said.

“There’s nothing wrong in theory about selling the crown jewels,” Nijdam said. “It’s always a question of price. European banks will be less profitable -- but less risky.”

For banks, selling assets has become a cheaper way to raise capital than selling new stock after their shares tumbled. The Bloomberg Europe Banks and Financial Services Index (BEBANKS) has slumped 33.5 percent this year, leaving bank stocks trading at an average of 63 percent of book value.

“Many of those banks are trading at 50 percent of their book value, so if you can sell an asset at more than that, it’s a cheaper way to raise capital,” said Symon Drake-Brockman, former chief executive officer of Royal Bank of Scotland Group Plc (RBS)’s global banking and markets in the Americas and now managing partner of private-equity firm Pemberton Capital Advisors LLP in London.
‘Adverse Selection’

Banks across Europe have pledged to cut more than 950 billion euros of assets over the next two years, according to data compiled by Bloomberg. About two-thirds of that will come from sales of profitable units and performing loans, said van Steenis. Sales of distressed assets and souring loans will account for just 4 percent, or about 100 billion euros, he said.

“European banks are likely to sell good, performing assets to foreign banks and investors,” he said in an interview. “The question is: When are you getting to the point of adverse selection? When you’re selling the good assets and you’re keeping the more risky assets. There is a risk we’re moving in that direction.”

Buyers, for the most part private-equity and hedge funds, are offering too steep discounts for underperforming assets. For banks, a fire sale would trigger losses they can ill afford at a time when they’re required to boost capital.

“Lenders are selling more liquid assets so they can get a price that avoids additional capital losses,” said Joseph Swanson, co-head of restructuring at Houlihan Lokey in London. “Unfortunately, this strategy can result in lower asset quality and increased earnings volatility.”

Raising Capital

Regulators are forcing European banks to raise capital as the region’s sovereign-debt crisis worsens. The European Banking Authority last week ordered the region’s financial firms to raise 114.7 billion euros of additional capital. The EBA, which co-ordinates the work of the region’s 27 national regulators, told lenders to bolster their core Tier 1 capital ratios to more than 9 percent of risk-weighted assets by the middle of 2012.

Faced with a potential credit crunch, the regulator told banks to raise the money from investors, retained earnings and lower bonuses. Failing that, companies may sell assets, provided the disposals don’t limit overall lending to the European Union’s “real” economy, the EBA said in a Dec. 8 statement.
‘Family Jewels’

“The family jewels are being sold,” Richard Mattione, a portfolio manager at Boston-based Grantham, Mayo, Van Otterloo & Co., wrote in a report this month. “A big chunk of private sector loans can’t be reduced because they involve property that will be inactive for years, perhaps a decade. So, once banks trim their healthiest borrowers, and perhaps reduce their overseas exposures, they quickly run into the need to cut loans to small and medium enterprises, providing another negative impulse to European growth.”

Santander completed the sale of its Brazilian insurance operations to Zurich Financial Services AG for $1.7 billion and sold a $958 million stake in Banco Santander Chile, the South American country’s biggest bank by assets. The Chilean bank’s net profit grew 45 percent (BSAN)between 2008 and 2010 and may increase by another 15 percent this year to about $970 million, according to analyst estimates compiled by Bloomberg. Santander said it will also sell a stake in its Brazilian banking unit.

The Spanish lender’s sale of its U.S. consumer-loan business to a group led by private-equity firm KKR & Co. may cut net profit for Santander’s shareholders by 150 million euros, according to an Oct. 28 estimate by Raoul Leonard, an analyst at RBS in London.


Euro in a tailspin: Rescue deal for single currency under threat as markets take a fright

Euro slides to an 11-month low against the dollar

Fears UK has been tied to £30bn bailout of eurozone countries via IMF

Alarming figures suggest Greece is potentially in the grip of a run on its banks, with around 20% of deposits withdrawn since start of the year
Downing St fears Eurosceptics could force Commons vote on UK relationship with EU in new year

Stock markets across Europe slid into the red today and currency traders buffeted the euro as doubts grew over whether last week's European Union deal can stem the immediate debt crisis.

Markets were put additionally on the back foot by the Federal Reserve, which last night warned Europe's sovereign debt crisis could hurt the U.S. economy but failed to signal fresh action to stimulate growth.

That sent Wall Street shares into reverse and the FTSE 100 index reacted today by slipping 36.11 points to 5,454.0. The leading German and French indices were also 1 per cent down.

The euro meanwhile struggled to remain above the $1.30 mark, having hit 11-month lows yesterday as doubts emerged in several countries over whether the EU agreement struck late last week will ever come into force.

Germany’s Angela Merkel did not help matters by ruling out beefing up a bailout fund for debt-stricken eurozone economies.

Ratification of a deal creating an effective single EU economic government appeared fraught with difficulty last night in Sweden, Holland, Denmark, Finland and the Czech Republic.

There are even doubts over whether France will implement the package after its main opposition party – currently on course to oust Nicolas Sarkozy in elections in April – rejected the deal.

And alarming figures suggested Greece is potentially in the grip of a run on its banks, with around 20 per cent of deposits withdrawn since the start of the year.

David Cameron's EU veto has given the Tories a major poll boost, putting his party ahead of Labour for the first time this year.

However, there are fears he could face an ambush in the new year from Eurosceptic backbenchers keen to force Commons vote on Britain's relationship with Europe.

A senior member of the Tory backbench 1922 Committee told The Times: 'I can imagine that happening. The Prime Minister has bought himself time. But if there's an impression we squander it, then there could be difficulty.'

In a separate development, fears are raised that the UK has been tied into a further bailout of indebted eurozone countries that may run to tens of billions of pounds following the EU summit in Brussels last week.

A further €200billion injection to the International Monetary Fund (IMF) from all European nations was announced following the summit on Friday. Officials said a further comparable amount could also come from non-European nations.

But there is confusion about the proportion of the €200bn European element that will come from non-euro countries, such as Britain.

The Telegraph newspaper reports today that IMF chief Christine Lagarde told her organisation's own outlet, Survey Magazine, that €150billion would come from single-currency nations, with the remaining €50billion to come from countries outside the eurozone.

As by far the largest of the non-euro EU countries, Britain would face the lion's shares of that bill. The Telegraph said the UK contribution could reach £30billion.

That fear was compounded by confirmation from Germany's central bank, the Bundesbank, that it was being asked to stump up further €45billion for the IMF. That total suggests the Germans are contributing a GDP pro-rata share of €150billion, rather than €200billion.

Amid bitter recriminations in Brussels over the Prime Minister’s decision to veto last week’s attempt at a new EU-wide treaty, senior figures said they would now try to strip Britain of its annual EU rebate in an act of vengeance.

The rebate – which has reduced the size of the UK’s contribution to the EU budget over the past 25 years by billions of pounds – including £2.7billion this year, was won by Margaret Thatcher but is up for renegotiation soon.

Former Belgian prime minister and Liberal MEP Guy Verhofstadt refused to speak English to deliver his speech on the summit, saying: ‘I shall speak my native language today because I don’t think English is a very appropriate language to use.’

He added: ‘When you are invited to a table, it is either as a guest or you are part of the menu. That can happen.

‘This selfish British strategy of protecting the City is one we cannot tolerate any longer.’

Joseph Daul, leader of the largest party in the European Parliament, the centre-right European People’s Party – from which the Prime Minister withdrew his Tory MEPs on coming into office – said Mr Cameron had acted with no consideration for EU solidarity.

He told MEPs: ‘I believe the British rebate should be put into question.

‘Our taxpayers’ money should be used for things other than rewarding selfish and nationalistic attitudes.’

But the markets believe that the creation of a strong ‘firewall’ to prop up debt-laden European economies and the recapitalisation of European banks are far more important than institutional changes to the EU.

Mrs Merkel’s refusal to support proposals to strengthen the European Stability Mechanism – a permanent rescue pot due to come into force next year – drove the euro down on the international markets.

Mrs Merkel’s refusal to support proposals to strengthen the European Stability Mechanism – a permanent rescue pot due to come into force next year – drove the euro down on the international markets.

It fell to an 11-month low against the U.S. dollar and a nine-month low against the pound.

Analysts said the prospect of a string of credit ratings downgrades to eurozone countries, including Germany and France, was also weighing on the euro.

And data from Greece revealed that a record €6.8billion was taken out of corporate and household bank deposits in Greece in just one month, meaning deposits have fallen by 20 per cent this year.

Joseph Daul, leader of the largest party in the European Parliament, the centre-right European People’s Party – from which the Prime Minister withdrew his Tory MEPs on coming into office – said Mr Cameron had acted with no consideration for EU solidarity.

He told MEPs: ‘I believe the British rebate should be put into question.

‘Our taxpayers’ money should be used for things other than rewarding selfish and nationalistic attitudes.’

But the markets believe that the creation of a strong ‘firewall’ to prop up debt-laden European economies and the recapitalisation of European banks are far more important than institutional changes to the EU.

Mrs Merkel’s refusal to support proposals to strengthen the European Stability Mechanism – a permanent rescue pot due to come into force next year – drove the euro down on the international markets.

It fell to an 11-month low against the U.S. dollar and a nine-month low against the pound.

Analysts said the prospect of a string of credit ratings downgrades to eurozone countries, including Germany and France, was also weighing on the euro.

And data from Greece revealed that a record €6.8billion was taken out of corporate and household bank deposits in Greece in just one month, meaning deposits have fallen by 20 per cent this year.

Read more: http://www.dailymail.co.uk/news/article-2073815/Euro-tailspin-Rescue-deal-single-currency-threat-markets-fright.html#ixzz1gWHNFqIh

GRAPHIC: Amateur video of Belgium grenade attack aftermath

Italy bond costs hit new high, Germany's near zero

(Reuters) - Italy's funding costs reached a new euro era record at auction on Wednesday, piling pressure on the new Rome government after last week's EU summit failed to convince markets the bloc's debt crisis can be resolved.

Italy paid 6.47 percent to sell five-paper just minutes after Berlin placed 4 billion euros (3 billion pounds) of two-year bonds at an average yield of just 0.29 percent - a sign of how strongly cautious investors favour safety over returns.

Measures agreed by European leaders at the summit to strengthen fiscal discipline have not reassured investors who now fear a raft of credit downgrades from ratings agency Standard and Poor's on some or all of the 15 euro zone countries it has on watch.

"Uncertainties on the future of the debt crisis remain high and the market seems to be mainly driven by flight-to-quality this morning," said Annalisa Piazza, a market economist at Newedge Strategy.

Saddled with a debt equivalent to 120 percent of gross domestic product, Italy has seen its funding costs spiral since taking centre stage in the euro zone crisis in early July, raising questions about whether it can afford such rates over the longer term.

Concerns about the widening impact of the crisis on all euro zone members have dented demand for top-quality German paper at some previous auctions.

But at German and Swedish debt sales on Wednesday, investors were prepared to accept ultra-low interest rates to park their money in comparatively safe assets. Germany's 0.29 percent yield was down from 0.39 percent at a similar auction in November, while Sweden - outside the euro zone - sold 5-year bonds at a record low yield of 1.023 percent, down from 3.132 percent in April.

Italy managed to sell 3 billion euros of its five-year benchmark, at the top of an unusually small range it targeted at the auction.

The yield rose further from a previous euro lifetime record high of 6.29 percent hit at a mid-November sale, but was well below peaks reached earlier this week on the secondary market of

above 7 percent, in the immediate aftermath of the summit.

Italy has trimmed the size of its auctions in reaction to market pressure but it will have to step up issuance in the coming months if it is to meet a gross funding goal of around 440 billion euros next year.

"The cost of funding will become a crucial factor in the first quarter of 2012, when Italy has to issue 62.5 billion euros of bonds," said Michael Leister, at WestLB. "For now however, the market is happy with supply being digested."

Nearly 26 billion euros of BTP bonds mature on February 1, with 91 billion euros of bonds falling due by the end of April.

"ECB buying in the secondary market will help, but, if the crisis worsens, it is difficult to see how Italy will retain independent market access in 2012 and help from the International Monetary Fund may at some stage be needed," Citi analysts said in a note.

The European Central Bank has propped up Italian and Spanish government bonds though purchases on the secondary markets since early August. Analysts say its indirect support has been key in helping purchases by primary dealers at auctions because they can sell at least part of their holdings to the central bank.

Expectations that measures to be agreed at the summit would prompt more aggressive ECB bond buying -- coupled with a new austerity package by the Rome emergency government aimed at staving off financial disaster -- had driven Italian yields lower last week.

But selling pressure returned after ECB President Mario Draghi dashed hopes the central bank would ramp up its purchases in response to the EU agreement on more stringent fiscal rules.

ECB sources told Reuters purchases would remain limited for the time being but analysts say a radical shift may be needed next year if the situation deteriorates.

Bank of Italy Governor Ignazio Visco said last week that Italian borrowing costs must fall in a sustained way to around 5 percent to ensure Rome can continue to manage its 1.9 trillion euro debt.

S&P puts Sun Life on negative watch

Ratings giant Standard & Poor’s warned on Tuesday it may downgrade Sun Life Financial Inc. a day after the company announced it will discontinue U.S. sales of variable annuities and individual life products.
S&P said the move to reduce the U.S. product line could result in “a reduction in earnings quality or diversification”, potentially impacting Sun Life’s business or financial risk profile.
S&P placed its ratings including its counterparty credit rating on Canada’s third largest life insurer on watch for a possible downgrade.
Further, S&P said it no longer considers Sun Life U.S. “to be core to Sun Life Financial Inc.”, the Canadian parent, “primarily because Sun Life U.S. will cease writing meaningful new business as of Dec 31, 2011,” diminishing the company’s presence south of the border.
It said it expects to make a final decision on the ratings within three months following further analysis of the situation.
Insurance companies typically employ the premium payments from policy holders to buy fixed income investments, relying on the interest revenue to meet future policy obligations.
But the current low interest rate environment has put huge pressure on the industry as revenue from investments has plummeted, slashing profit margins and forcing players to reconsider strategy.
In addition, new financial industry regulations especially in the United States have also been onerous, increasing both administrative and capital costs.
Meanwhile, the variable annuity business has been hit by stock market volatility and declining expectations in the face of the European debt crisis.
Sun Life isn’t the only player to revamp strategy around life insurance. At the end of November Standard Life Assurance of Canada, a subsidiary of U.K.-based Standard Life Plc, announced it would stop selling plain vanilla life policies in this country.
Shares in Sun Life slipped 3.2% to close at $19.22.

Iraq throws open doors to US firms as army exits

AFP - Prime Minister Nuri al-Maliki issued an open invitation for US firms to help rebuild Iraq on Tuesday, as his oil-rich nation closes the door on a nearly nine-year American military presence.

Hailing a new phase in the country's history, Maliki declared the long war-scarred nation was ready to build a new economy that held "limitless" opportunities for US firms.

"It is not now the generals but the businessmen and the corporations that are at the forefront" of Iraq's future, he told a business gathering just steps from the White House.

"Circumstances have improved because of better security," said Maliki, playing the role of salesman-in-chief for an economy that was ravaged by authoritarian rule and multilateral sanctions even before the war began in 2003.

"We are not satisfied with the number of US corporations in Iraq," he added. "All sectors of the economy are there, open for business for American business."

Oil is at the top of that list of sectors.

With massive proven reserves of 115 billion barrels of oil, the fourth largest in the world -- much of it untapped -- foreign oil companies are girding to return to the country.

Output today is around 2.5 million barrels per day, but could be nearly doubled by 2016 according to oil cartel OPEC.

But a political tug-of-war between the semi-autonomous Kurdish north and Baghdad has stalled efforts to create a new law governing the sector for the last three years.

While many companies, including ExxonMobil, have piled into Iraq despite the absence of a clear regulatory framework, there has often been confusion about their legal status.

Crafting such a law that makes the most of the country's resources, while attracting knowledgeable and deep-pocketed foreign firms, will be essential to putting the country on a sound footing.

Oil exports already account for around two thirds of Iraq gross domestic product, but actual revenues could be increased dramatically if production can be ramped up and if an estimated $100 billion of funds to rebuild the oil sector can be found.

Maliki gave little indication that a deal on the so-called hydrocarbons law was imminent, but said, "we do need a great package of new laws."

On Monday Maliki held talks with US President Barack Obama in an attempt to create a new paradigm in relations that have frequently been overshadowed by Iraq's descent into civil war and fierce divisions in the United States over the war's prosecution.