Finance Blog number 1

Ireland’s international bailout relieved investors Monday but outraged many across the country who find that a requirement to raid state pension funds to protect foreign creditors unjustly burdens average taxpayers for the mistakes of a rich elite.

Shares in Ireland’s banks rose sharply as markets were encouraged by the bailout’s immediate focus on injecting euro10 billion into the cash-strapped banks out of a total of euro67.5 billion ($89 billion) in loans.

But the Irish were shocked by a key condition for the rescue _ that Ireland use euro17.5 billion of its own cash and pensions reserves to shore up its public finances, burdened by bailing out banks’ irresponsible risk-taking.

Opposition leaders and some economists warned that the EU-IMF credit line’s average interest rate of 5.8 percent would be too high to repay _ and questioned why the senior foreign bondholders of Ireland’s struggling banks still weren’t being asked to help bear the cost.

“This is not a rescue plan. It is the longest ransom note in history: Do what we tell you and you may, in time, get your country back,” said Fintan O’Toole, a commentator and author who led a weekend protest by labor-union activists in central Dublin against the imminent bailout. He called the average interest rate being demanded “viciously extortionate.”

The mood on Dublin’s snow-covered streets was just as icy.

“We’ve been screwed by the IMF. It’s going to be years and years until we’re free of this,” said Paul Flood, an unemployed 53-year-old Dubliner sheltering from the cold in a pub doorway. “We have to use our own pension reserve, and we’re still being stung with a 5.8 percent interest rate. It sounds ridiculously high.”

But the senior International Monetary Fund negotiator, Ajai Chopra, insisted that Ireland’s interest bill was reasonably cheap and its redeployment of Irish pension funds the most cost-efficient course to take.

Chopra said Ireland now was well positioned to reassure investors and eventually resume normal borrowing once interest rates being demanded on open markets fall.

“This is a very good deal for Ireland in current circumstances,” said Chopra, who arrived in Dublin 12 days ago to oversee negotiation of a bailout deal that leaders of all 27 EU nations approved Sunday at an emergency Brussels meeting.

“It’s clearly much better than what Ireland could get if it had to borrow on the market right now. … As the program begins to work, we would expect that Ireland would be able to go back into the markets and borrow again,” he said.

The yields on Ireland’s 10-year bonds eased slightly Monday to 9.14 percent. They reached a euro-era record high of 9.24 percent Friday.

The euro currency initially gained but then dropped back as investors remained unconvinced that the Irish deal would soothe wider fears of eventual debt defaults somewhere else in the 16-nation eurozone.

Bond yields rose for Portugal, Spain and Italy, the other three eurozone members whose debt financing needs most worry economists. The 10-year bond yields for Greece _ the highest in the world since its own EU-IMF bailout in May _ dipped to 11.69 percent.

Chopra said it was smart to require Ireland to use its long-term pension money, which was earning around 1 percent interest, to reduce a bailout bill costing far more to finance.

“It’s making the best use of the money that Ireland has set aside. It’s a sign of strength,” Chopra told Irish state broadcaster RTE.

Ireland’s three publicly listed banks surged on the Irish Stock Exchange following Sunday’s deal.

After an immediate euro10 billion to boost the banks’ cash reserves, the EU-IMF deal offers euro25 billion more to draw down if banks still have trouble borrowing on markets.

Irish Central Bank governor Patrick Honohan said the fund would allow the capital ratios of Irish banks to rise to 12 percent, better than the international standard of 8 percent. This means each bank will be required to keep on deposit at least euro12 for every euro100 in loans it has on its books.

The remaining euro50 billion of the bailout loans is earmarked for use to cover Ireland’s expected deficits through 2014.

The European Commission also approved the transfer of more toxic property-based loans to Ireland’s year-old state “bad bank,” which has already taken charge of hundreds of Irish construction sites, office blocks and housing developments gone bust since the 2008 collapse of the property-driven boom.

Ireland faces at least a four-year fight to restore its deficits to the eurozone limit of 3 percent of GDP from its currently post-war European record of 32 percent.

The government of Prime Minister Brian Cowen last week unveiled a four-year plan to impose euro10 billion in cuts and euro5 billion in new taxes in this country of 4.5 million. The harshest cuts loom in the 2011 budget to be unveiled Dec. 7.

Crucially, the government estimates that Ireland’s economy can manage tepid growth in the midst of unprecedented austerity.

The European Commission is clearly less convinced. It offered Ireland a one-year extension to 2015 to reduce its deficit back within eurozone rules, and published economic projections that are less optimistic than Ireland’s own.

The commission expects Irish GDP to grow 0.9 percent next year and 1.9 percent in 2012. Ireland’s deficit-fighting plan is based on expectations of 1.75 percent and 3.25 percent growth.

Chopra says IMF and EU experts in coming weeks will subject each Irish bank to a series of stress tests including worst-case scenarios to determine how much cash they need.

Chopra declined to explain what could be done if Ireland had trouble repaying its loans and needed more help.

Ireland has already committed at least euro45 billion to bailing out five banks, a bill the government was forced to concede in recent weeks it could no longer finance on its own.

Shares in Irish Life & Permanent _ the only bank yet to receive any rescue cash _ rocketed 42 percent on the open off its record low Friday. The bank, a specialist in insurance and residential mortgages, said Monday it doesn’t require any state aid.

Bank of Ireland jumped 23 percent as it announced plans to try to raise euro2.2 billion to avoid resorting to the latest bailout. Analysts expect the Bank of Ireland to require state help to raise the cash, but fears are ebbing that the aid would drive the government’s 36 percent stake in the bank into majority ownership.

Allied Irish Banks rose 7 percent, reflecting its humbled status as much more reliant on bailout funds and likely to face virtual nationalization soon.

Some economists condemned the EU-IMF deal as designed to shackle the losses of Irish banks to taxpayers, rather than pass any losses to senior bondholders _ chiefly other banks in Britain, Germany and the United States.

“We have a choice between the solvency of the state and the solvency of the banks. We needed to sever those links. This deal instead has soldered the links between the banks and the state,” said David McWilliams, a former Irish Central Bank economist who has argued in vain for Ireland to force senior bondholders to share losses.

“Of course the bank shares will rise,” he said of Monday’s sharp gains. “We’ve just put 10 billion in their pocket.”

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BOSTON — FrontPoint Partners, a $7.5 billion (U.S.) hedge fund currently embroiled in the U.S. government’s fast-moving insider trading probe, has been asked to return $3 billion to its investors.

“The deadline for year-end redemptions has elapsed and we have received approximately $3 billion in total redemption requests,” FrontPoint co-chief executive officers Dan Waters and Mike Kelly said in a letter sent to investors Friday.

Reuters obtained a copy of the letter.

A spokesman for FrontPoint declined to comment.

About half of the redemption requests were related to FrontPoint’s healthcare portfolios, which executives decided to liquidate. The portfolios were allegedly at the heart of one of the government’s probes, people familiar with the matter said.

Investors in those portfolios have already received their money back, the FrontPoint executives said in their letter.

Investor redemptions at other FrontPoint strategies, however, underscore just how nervous pension funds, endowments and wealthy individuals have become about the whiff of trouble. This week the probe picked up speed when federal agents raided three hedge funds, sent subpoenas to other fund managers, and arrested one executive at a so-called expert network company.

FrontPoint, which offers more than a dozen portfolios to investors, expects to start 2011 with roughly $5 billion in assets, down from $11 billion before the financial crisis, the letter said.

FrontPoint’s biggest star is Steve Eisman, who made millions by anticipating the housing market collapse long before anyone else did free business cards. Eisman became something of a celebrity in the $1.7 trillion hedge fund world after he was featured prominently in journalist Michael Lewis’ best-selling book The Big Short, which chronicles how a savvy group of traders capitalized on the crisis.

Greenwich, Connecticut-based FrontPoint was acquired by investment bank Morgan Stanley in 2006 and is now being spun off. A Morgan Stanley spokeswoman declined to comment on the redemptions.

Earlier this month, federal authorities arrested Yves Benhamou after charging that he had illegally passed on inside information to a hedge fund manager about Human Genome Sciences Inc in 2008.

Benhamou, a French doctor, was overseeing a clinical trial for the biotechnology company and was also consulting with hedge fund managers who specialized in selecting healthcare stocks.

While neither the hedge fund nor the manager was named in the government’s case, people familiar with the matter said it was FrontPoint and Joseph “Chip” Skowron, a co-portfolio manager at its healthcare funds. FrontPoint put Skowron, who earned his medical degree at Yale, on leave the same day the government announced its charges against Benhamou.

The arrest of Benhamou and Don Ching Trang Chu, a former executive at an expert-network firm, suggest that the government is probing exactly how hedge funds interact with these types of industry consultants.

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Ireland’s debt rating was lowered two steps by Standard & Poor’s and may be cut again as the government prepares to unveil a four-year deficit-cutting plan and contagion spread through the rest of the euro region.

“The Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system,” S&P said in a statement late yesterday. Putting the rating on review for downgrade reflects the risk that talks on a European Union-led rescue may fail to stanch capital flight, it said.

S&P cut Ireland’s long-term rating to A from AA- and the short-term grade to A-1 from A-1+, the statement said. The reduction leaves its long-term grade five steps above Greece, which has the highest junk, or high-risk, grade. S&P said Ireland is “on credit watch with negative implications,” an assessment which carries a three-month timeline.

The downgrade risks worsening an investor exodus from Irish bonds that has sparked turmoil through the euro region as Ireland hammers out an aid package with the EU and the International Monetary Fund to rescue its banking system. The extra yield that investors demand to hold Spanish 10-year bonds over German bunds yesterday rose to a euro-era record.

Prime Minister Brian Cowen said today in parliament in Dublin that a bailout of 85 billion euros ($113 billion) has been discussed, and that talks are continuing.

Bank Control

EU finance ministers cited a figure of about 85 billion euros for Ireland on a conference call on Nov. 21, according to two officials familiar with the talks. Of the total, 35 billion euros would be earmarked for banks and 50 billion euros to help finance the Irish government, the people said.

Irish welfare cuts of 800 million euros are among the steps planned to narrow the deficit to 3 percent of gross domestic product by the end of 2014, said a person familiar with the matter who declined to be identified because the plan is not yet public. The shortfall will be 12 percent of GDP this year, or 32 percent when the costs of a banking rescue are included.

Separately, Bank of Ireland Plc may end up in majority state control as the government injects more capital into the lender, two people familiar with the situation said yesterday.

Ireland’s government will seek to raise the core tier 1 capital levels of its banks to between 10.5 percent and 12 percent, the people said. Dublin-based broadcaster RTE earlier reported the plan, without citing anyone.

‘Day of Reckoning’

The euro slipped 0.2 percent to $1.3340, extending yesterday’s 1.9 percent slide. The yield on Ireland’s 10-year bond rose 34 basis points to 8.988 percent.

While opposition political parties back the aim of reducing the deficit to the EU’s 3 percent limit by 2014, labor unions are planning “mass mobilization” in protest at the planned cuts, with a march in Dublin on Nov no fax payday loan. 27.

“It appears that the day of reckoning has arrived,” said David Begg, head of the Dublin-based Irish Congress of Trade Unions, the umbrella group for unions, which is organizing the demonstration. “The Barbarians are at the gates.”

Cowen is racing to finish talks with the EU and the IMF as support for his government crumbles. His Green Party junior coalition partners said two days ago that they will quit the government next month and independent lawmakers are threatening to block the 2011 budget, the first step in the four-year plan.

Ratings Warning

“The government’s days are numbered,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “What we are likely to see in the next fortnight is growing pressures on the opposition parties to abstain on the major votes and pass the budget for the sake of political stability.”

Moody’s Investors Service said two days ago a “multi- notch” downgrade in Ireland’s credit rating was “most likely” because the bailout would increase its debt burden. Moody’s has an Aa2 long-term rating for the government, three steps higher than S&P’s new grade. Fitch Ratings has an A+ grade, one above S&P, data compiled by Bloomberg show.

An Irish finance ministry spokesman didn’t immediately respond to a call and e-mail seeking comment on S&P’s decision.

“With domestic demand unlikely in our view to recover until 2012, gross debt to GDP at end-2011 looks set to exceed our previous projections of 120 percent,” S&P said today. Ireland’s GDP has contracted for three consecutive years, and Irish Central Bank Governor Patrick Honohan has declared his country’s fiscal deterioration “worse than almost any other country.”

Irish Risk

The risk premium on Ireland’s 10-year debt over German bunds, Europe’s benchmark, widened to 606 basis points today from 586 yesterday. The yield spread reached a record 652 basis points on Nov. 11.

Irish banks forced the government to seek the bailout after loan impairments surged following the collapse of the country’s decade-long real estate boom in 2008. That year, the government pledged to back most liabilities, including all deposits in Irish banks, a promise that led the government to inject 33 billion euros to support the lenders.

As loan losses climbed, the government put the cost of the rescue at 50 billion euros in September this year, fueling investor doubts that Ireland could afford the rescue.

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Exports and investment drove Germany’s economic growth in the third quarter, a detailed breakdown of the data showed today.

Exports rose 2.3 percent from the second quarter and equipment investment increased 3.7 percent, the Federal Statistics Office in Wiesbaden said today. Gross domestic product gained 0.7 percent when adjusted for seasonal swings, the office said, confirming a Nov. 12 estimate. In the second quarter, GDP surged 2.3 percent.

While growth is slowing as export demand wanes, stronger domestic spending may put the expansion on a firmer footing. Germany’s economy, Europe’s largest, will expand 3.7 percent this year, according to the government’s council of economic advisors. That would be the fastest growth since 1991.

“The upswing is broadening,” said Andreas Rees, chief German economist at UniCredit MIB in Munich. “Economic growth is not only driven by exports and investment, but also by private consumption.”

Consumer spending rose 0.4 percent in the third quarter, today’s report showed. Construction spending fell 0.4 percent after its 6.9 percent surge in the second quarter. Government spending advanced 1.1 percent and imports rose 1.9 percent.

Net trade and private consumption both contributed 0.3 percentage point to GDP growth in the quarter, while equipment investment added 0.2 percentage point. Inventory changes dragged on growth.

Germany is driving economic expansion in the 16-nation euro area as the sovereign debt crisis that started in Greece spreads to other countries. Ireland this week became the second euro nation to ask the European Union for a bailout.

Euro-area economic growth slowed to 0.4 percent in the third quarter from 1 percent in the second as governments’ cut spending to rein in record budget deficits. Weaker global and euro-area demand for its goods may damp German growth.

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Dell Inc. reported that booming sales to businesses sharply lifted its profit last quarter, even as consumer sales disappointed.

Sales to large corporate customers soared 27% during the quarter, public sector revenue rose 20% and small- and medium-sized business sales were up 24%. Dell said profit in its SMB division hit an all-time high.

It’s not surprising that Dell’s sales were sharply higher compared to last year. About 80% of Dell’s sales come from enterprise customers, which have finally begun refreshing their old PCs and servers after holding off on buying new hardware during the recession.

Desktop PC sales rose 21% and servers were up 20%.

But sales of Dell’s consumer products rose just 4%, and operating income was break-even in the quarter, thanks to still-timid shoppers.

"We’re seeing weakness in consumer demand, and we’ll continue to manage that," Chief Financial Officer Brian Gladden said on a conference call with the press. "We’re improving profit in our consumer business, which is something we’ve been focused on."

The company has struggled in its with consumer sales in the past few years, and mobile has been a particular weak point.

Dell announced Wednesday that Ron Garriques, the head of the company’s mobile division, is resigning, and its communications unit will be disbanded. Gladden said the move gave the company an opportunity to bring its mobile business into the "core of the company."

By the numbers

The Round Rock, Texas, company said net income for the third quarter, ended Oct. 30, rose to $822 million, or 42 cents per share. That’s up 144% from a year earlier.

Results included a one-time charge of 3 cents per share. Without the charge, Dell said it earned 45 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, forecasted earnings of 32 cents per share.

Sales rose 19% to $15.4 billion, but the results missed analysts’ forecasts of $15.8 billion.

"Dell is growing in the right areas, and I’m very excited about our momentum," CEO Michael Dell said in a prepared statement.

The company reaffirmed its forecast for full-year revenue growth of 14% to 19%, which is echoed by analysts’ consensus expectation of an 18% rise in sales.

Shares of Dell (DELL, Fortune 500) rose 6% after hours.

Rival Hewlett-Packard (HPQ, Fortune 500) is expected to report its earnings on Monday. 

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General Motors’ stock rose the second day it traded as it rebounded from an early swoon.

The automaker’s stock climbed 7 cents, or 0.2 percent, to close at $34.26 on Friday, one day after it began trading on Wall Street again, signaling the rebirth of an American corporate icon that collapsed into bankruptcy and was rescued with a $50 billion infusion from taxpayers.

As trading began Friday, GM’s stock dropped $1.08 to $33.11 as investors sold it to lock in profits. But buying returned and gradually lifted the stock until it passed Thursday’s closing price of $34.19 near the end of the day.

GM stock was traded more than 107 million times, less than one-quarter of the volume traded on Thursday.

As the stock fell, bankers who managed GM’s initial public offering probably asked their larger investors to start buying so it wouldn’t fall below Thursday’s IPO price of $33 per share, said Peter Henning, a law professor at Wayne State University and former attorney with the U.S. Securities and Exchange Commission.

A drop below $33 could anger customers who were persuaded to buy the stock in the IPO. It’s also possible, Henning said, that investors who saw the price drop decided to buy, either for the first time or to increase their stakes.

SEC regulations stop the banks from buying shares on their own, Henning said.

Analysts said the initial sell-off likely was a combination of investors taking profits and people selling on fear that the price would drop even further.

Spokeswomen for GM and Morgan Stanley, one of the lead banks in the deal, would not comment on the day’s trading. A message was left for a spokeswoman from J.P. Morgan, the other lead bank.

There’s a lot riding on GM’s stock price in the coming months, especially for the U.S. government, which loaned the automaker $50 billion to save it from financial ruin last year. In exchange, the government got a 61 percent stake in GM, and it hopes to get the bailout money back from the IPO and several follow-up sales that could take years electronic check payday advance.

GM, just 16 months out of bankruptcy protection, has made an impressive turnaround from losing billions before its restructuring to making $4.2 billion in profits in the first nine months of the year.

GM made a successful return to the New York Stock Exchange on Thursday, at least by some measures. After being priced at $33 a share in the IPO, it opened at $35. It ended the day up 3.6 percent, after trading as high as $35.99 in the first few minutes of trading. Almost 457 million GM shares traded, about one tenth of all shares trading on the exchange.

The government and GM’s other owners sold 478 million common shares in the IPO, bringing in a total of $15.8 billion.

The federal treasury made $11.8 billion in the IPO by selling 358 million shares. It stands to make $13.6 billion _ and lower its stake to 33 percent _ if bankers exercise options for 54 million more shares. If the options are taken, the government will have 500 million shares left, and they must sell them for $53 each in order to recoup all the bailout money.

Ron Bloom, the Obama administration’s point person on the auto industry restructuring, said bankers have 30 days to decide on the options, and it’s “completely their decision. We’ve asked that we be informed when they’ve made it, but we have not asked to weigh in and we do not intend to weigh in.”

The Treasury Department cannot sell additional shares for another six months, and Bloom said no decisions have been made on a timetable for selling the remaining stake. He would not say if he expects the government to get all $50 billion back.

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Ken Thomas contributed to this report from Washington, D.C.

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World stock markets were higher Thursday as European officials sought a way to fix the region’s debt crisis and China appeared poised to cool rising food costs with price controls rather than an interest rate hike that could slow growth.

European bourses advanced early trading. Britain’s FTSE 100 rose 0.8 percent to 5,738.77. Germany’s DAX was up 1 percent to 6,769.48 and France’s CAC-40 added 1 percent to 3,828.27.

Wall Street was poised to open higher with Dow futures up 0.6 percent to 11,060. The dollar was steady against the yen and lower against the euro.

Japan’s Nikkei jumped 2.1 percent to close at 10,013.63 as shares of insurance companies led gains and other stocks benefited from a weaker yen. Insurance stocks gained on a Nikkei business daily report that said MS&AD Insurance Group Holdings Inc. will sell a total of 300 billion yen ($3.6 billion) of its shares in other companies.

Traders looking for bargains after four days of losses helped push up Hong Kong’s Hang Seng index, which added 1.8 percent to close at 23,637.39 as financials advanced.

China shares rebounded Thursday, led by airlines and some financial institutions, as investors hunted bargains following recent weakness.

The benchmark Shanghai Composite Index gained 0.9 percent to 2,865.45. The Shenzhen Composite Index for China’s second, smaller exchange jumped 1.8 percent to 1,260.59.

China’s government said Wednesday it will subsidize food for poor families and could introduce price controls to dampen double-digit increases in the cost of staples. That relieved some of the anxiety in global markets that China would raise interest rates to control inflation, potentially slowing its rapid economic growth.

Kwong Man Bun, chief operating officer at KGI Asia Ltd. in Hong Kong, said the strengthening of the dollar against the yen was also helping lift markets in Asia. Investors in the region like a strong dollar, because exporters in Japan and other Asian countries can sell their products more cheaply payday loan.

Australia’s S&P/ASX 200 edged up 0.3 percent to 4,640.2 while markets in Taiwan and the Philippines also gained.

Singapore’s benchmark fell 0.2 percent amid a government report indicating the city-state’s economic growth will slow sharply next year as U.S. and European demand for its exports weakens. Singapore, with its small population and lack of natural resources, relies on manufacturing, financial services and tourism to drive economic growth.

In New York on Wednesday, stocks ended mixed as concerns that Ireland will need outside help to repay its debts were coupled with a steep drop in housing construction in the U.S.

Britain, which is not part of the 16-nation bloc that uses the euro, offered Wednesday to provide additional support to Ireland beyond what it gets from the European Union or the International Monetary Fund. That eased concerns that Ireland would be unable to pay the cost of rescuing the banks at the center of the country’s financial crisis.

“Investors expect the debt crisis can be resolved,” said Kwong.

In the U.S., construction of new homes fell 11.7 percent in October, the Commerce Department reported.

The Dow Jones industrial average fell 15.62, or 0.1 percent, to 11,007.88. The broader S&P 500 rose 0.25, or less than 0.1 percent, to 1,178.59, and the technology-focused Nasdaq composite index rose 6.17, or 0.3 percent, to 2,476.01.

In currencies, the dollar was little changed from 83.16 yen late Wednesday in New York after earlier this month trading near 80 yen. The euro rose to $1.3586 from $1.3552.

Benchmark oil for December delivery was up $1.01 to $81.45 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.90 to settle at $80.44 on Wednesday.

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Ireland’s debt crisis, and the question of how to avoid a domino effect that could topple other vulnerable nations like Portugal, is set to dominate a meeting of European finance ministers Tuesday.

The 16-country eurozone has been shaken by concerns that Ireland will not be able to endure high debt levels and that a bailout might be necessary to soothe jittery investors. Market tensions are making borrowing more expensive for countries like Portugal, threatening to spread the crisis across the region.

“This is a time for cool heads,” Amadeu Altafaj Tardio, a spokesman for the EU’s Monetary Affairs Commissioner Olli Rehn, said of the finance ministers meeting due to start in Brussels in the afternoon. “This is a time for political determination and this is a time for serious implementation of decisions that have been taken.”

The interest rate, or yield, on Irish bonds inched up again Tuesday, suggesting greater worries among traders even though Dublin repeatedly rejected reports that it would need to tap the eurozone’s euro750 billion ($1 trillion) financial backstop cheap payday loans online. In early afternoon trading, the yield on Ireland’s 10-year bonds reached 8.14 percent, up from 7.98 percent at the open.

Ireland is struggling to slash a budget shortfall that will likely balloon this year to a staggering 32 percent of GDP _ a record for postwar Europe. The government’s budget dropped deep into the red after its euro45 billion rescue of five banks that were hit hard when the country’s real estate bubble burst in 2008.

While well below last week’s record of 8.95 percent, the high yields signal that confidence in Ireland’s ability to repay its debts is still low and that it will have a hard time raising money once it has to return to the markets some time next year. Dublin has said that it has enough money to fund itself until the middle of 2011.

The surge in yields has pushed the EU back into the depths of crisis management, after policymakers had spent their recent gatherings focusing on crisis prevention.

In an interview with French newspaper Le Figaro published Tuesday, Greek Prime Minister George Papandreou insisted his country won’t default on its euro298 billion ($406 billion) in debt because doing so would be a “catastrophe” for Greece, Europe and the euro.

On Monday, Greece said this year’s deficit would likely reach 9.4 percent, well above the 8.1 percent level it forecast earlier this year when it received a euro110 billion ($140 billion) bailout from European partners and the International Monetary Fund cash till payday.

Portugal, which is struggling with high budget deficits, also saw itself forced to deny rumors that it would seek financial assistance.

“Portugal has made no official or informal contacts with a view to seeking European aid,” Finance Minister Fernando Teixeira dos Santos said in an interview Monday with financial newspaper Jornal de Negocios. But he added that “if Ireland’s situation deteriorates” the market pressure on Portugal would increase.

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Japan’s economy grew more than forecast in the third quarter as consumer spending increased, shielding the expansion from a stronger yen and export slowdown likely to have a greater impact this quarter.

Gross domestic product rose an annualized 3.9 percent in the three months ended Sept. 30, following a revised 1.8 percent expansion in the previous quarter, the Cabinet Office said in Tokyo today. In nominal terms, the economy grew 2.9 percent.

Consumption, accounting for about 60 percent of GDP, led the gain as households stepped up purchases of fuel-efficient cars ahead of the expiration of a subsidy program and as smokers stocked up before an Oct. 1 tobacco-tax rise. The yen’s climb to a 15-year high will probably damp growth this quarter as companies from Sharp Corp. to Nikon Corp. cut profit forecasts.

“Japan can’t be wild with joy over the stronger-than- expected GDP figure,” said Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. “There will be a huge payback in the fourth quarter as the waning effects of the government’s incentive programs and the impact of the yen’s gain should materialize.”

Japan’s currency weakened after the release, with the yen trading at 82.72 per dollar at 1:48 p.m. in Tokyo from 82.47 before the report was published. The Nikkei 225 Stock Average rose 0.9 percent to 9,811.91.

Outlook for GDP

The median forecast of 21 economists surveyed by Bloomberg News was for a 2.5 percent increase in GDP last quarter. Growth may slow to a 0.3 percent in October to December, according to a Bloomberg News survey of economists taken before today’s data, with seven of 15 of them predicting GDP will shrink.

“The economy could have slowed in the third quarter” if the one-off factors bolstering household spending were stripped out, said Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo. “The economic trend is shifting downward.”

Household outlays rose 1.1 percent from the previous three months. In addition to the stimulus boost, the nation’s hottest summer in more than a century also fueled demand for air conditioners. The gains in spending at home helped counter slower growth in overseas demand. Net exports, or shipments less imports, were unchanged in the third quarter, after overseas sales grew at half the pace they did in the previous three-month period.

‘Temporary Increase’

Growth was supported by “a temporary increase in consumer spending,” Economy Minister Banri Kaieda said in a statement in Tokyo today. “We’ll probably see weakness in exports and consumption because production slowdowns in Asia and payback for” surging car and tobacco sales at home, the minister said.

Companies plan to step up investment in plant and equipment, today’s report showed. Business spending gained 0.8 percent in the third quarter. A separate report today showed industrial production fell a revised 1.6 percent in September, smaller than the 1 cash advance flexible payments.9 percent drop initially reported.

Even with the faster growth, Japan’s quarterly $1.372 trillion GDP lagged behind China’s $1.415 trillion, figures from the Cabinet Office show, the second straight period Japan’s output was smaller than China’s on a quarterly basis. Japan was still the world’s second-largest economy in the January through September period, with GDP totaling $3.967 trillion versus China’s $3.947 trillion, the government said.

The fallout from the stimulus expiry and the stronger yen may compel the central bank to loosen credit even after it cut rates to near zero last month and introduced a 5 trillion-yen ($61 billion) asset purchase program.

“An expansion of the fund could be in the cards if the yen strengthens further,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The trend of weaker dollar and stronger yen probably will continue for some time” amid speculation of easing by the U.S. Federal Reserve, she said.

Stimulus Funding

Prime Minister Naoto Kan’s Cabinet last month endorsed a 5.1 trillion yen stimulus package and has extended its incentive program to buy energy-saving household appliances by three months to end on March 31. Funding for those measures may be held up in the opposition-controlled upper house of parliament.

The yen climbed to 80.22 against the dollar on Nov. 1, the highest level since April 1995. Japan’s effort to stem the local currency’s advance by intervening in currency markets on Sept. 15 failed to stop the strengthening. The currency’s advance may also be worsening deflation by making imports cheaper. Today’s report showed the GDP deflator fell 2 percent from a year earlier, larger than the 1.8 percent decline reported in the second quarter.

Cutting Forecasts

Nikon, a Japanese maker of cameras, lenses and chip-making equipment, cut its full-year operating profit and revenue forecasts on Nov. 4, citing a stronger yen. Sharp, Japan’s largest maker of liquid-crystal displays, also cut its annual profit forecast by 40 percent last month, blaming the yen’s appreciation and falling prices of panels.

Toyota Motor Corp. President Akio Toyoda said in October he felt an “an extreme sense of crisis” because of the strong yen.

Government reports in the past month show industrial production slumped by more than double the pace economists forecast in September and exports increased least this year. The central bank also lowered its economic assessment this month, describing the expansion as “pausing.”

“The macro-economy should avoid a double-dip,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “Capital spending will likely continue to increase, albeit at a gradual pace.”

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Stocks and commodities prices fell sharply Friday as investors worried that China might try to slow down its surging economy.

The Dow Jones industrial average dropped nearly 120 points in early afternoon trading, led by sharp losses in energy and materials stocks.

Concerns that China might have to raise interest rates in order to fight inflation brought worries that demand from China could wane for a wide variety commodities including crude oil, metals and grains.

Talk of an interest-rate hike in China has led to “mass liquidation” in the commodities market, said John Sanow, an analyst with Telvent DTN in Omaha, Neb. Losses among commodities accelerated throughout the day. Benchmark crude is down more than 3 percent. Silver prices fell more than 5 percent and soybeans are down nearly 5 percent.

Oil companies like Chevron Corp. and ExxonMobil Corp. fell more than 1 percent. Freeport-McMoRan Copper & Gold Inc. fell about 3 percent. Intel Corp. was among the few gainers, rising more than 1 percent after the chip maker said it will raise its dividend 15 percent.

The Dow fell 119.20, or 1.1 percent, to 11,163.90 in early afternoon trading.

The Standard & Poor’s 500 index fell 17.54, or 1.5 percent, to 1,196.00, while the Nasdaq composite index fell 45.62, or 1.8 percent, to 2,509.90.

The losses in the U.S. follow steep drops overnight in major Chinese indexes as traders fear China might be forced to raise interest rates to combat mounting inflation. The Chinese government said Thursday that the pace of inflation hit a more than two-year high in October.

The Shanghai composite index plummeted 5.2 percent Friday, while Hong Kong’s Hang Seng tumbled 1.9 percent.

Brett D’Arcy, chief investment officer at CBIZ Wealth Management Group, said investors turned their attention to China now that the news flow from the U.S. is winding down. Last week was a heavy one for U.S. news between the midterm elections and the Federal Reserve’s announcement of an economic stimulus plan.

Cooling China’s economy could have an impact worldwide because the country’s robust economy has helped offset sluggish growth in places like the U.S. Many companies have credited international sales, particularly in China, as a reason earnings have been strong.

The speculation about a rate hike in China came as little headway was made on a plan to strengthen global growth. Leaders from the Group of 20, which includes large developed and emerging economies, failed to agree on policies about trade and currency manipulation that could stoke protectionism and a trade war.

The group refused to endorse a plan the U.S. presented to force China to allow the value of its currency to rise. The U.S. argues that China is keeping the value of its currency artificially low because a weak currency makes exports cheaper and more attractive globally. That, in turn, gives China an unfair advantage in global markets, helping its economy at the expense of others.

The dollar resumed its slide against other major currencies. It had rallied in recent days, particularly against the euro as Ireland’s debt crunch renewed worries about the European financial system. A fiscal crisis in Greece this spring helped bring down stocks around the world, and investors are hoping Ireland can right its own finances without having to seek a bailout as Greece did.

Bond prices fell, sending interest rates higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.74 percent from 2.65 percent late Wednesday. The bond market was closed Thursday for Veterans’ Day.

Walt Disney Co. shares jumped nearly 5 percent. The gain came a day after shares dropped after its quarterly results, which showed an unexpected drop in earnings, were leaked early.

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