Market Rumours

2010/08/19 21:17=DJ WORLD FOREX:Dollar Falls To Intraday Low Vs Yen On US Jobs Data -3-
NEW YORK -The dollar fell to an intraday low against the yen Thursday after U.S. jobless claims unexpectedly rose to their highest level in nine months, further stoking fears about the country's already weak labor market. The dollar was also lower against the U.K. pound after better-than-forecast U.K. data helped sterling to post gains in European trading. U.S. initial unemployment claims rose by 12,000 to 500,000 in the week ended Aug. 14, the Labor Department said in its weekly report Thursday. It was the highest level since Nov. 14, when claims stood at 509,000. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 4,000. The rise in claims is particularly troubling because analysts have been expecting an improvement for some time. They said recent data were likely distorted by seasonal adjustment factors tied to factory shutdowns by carmakers and the hiring and firing of temporary workers for the 2010 Census. Early Thursday, the euro was at $1.2840 from $1.2860 late Wednesday, according to EBS via CQG. The dollar was at Y85.31 from Y85.43 after falling as low as Y85.24. The euro was at Y109.50 from Y109.87. The U.K. pound was at $1.5637 from $1.5605. The dollar was at CHF1.0328 from CHF1.0420. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.289, from 82.259. Sterling gained in European trading after U.K. retail sales and public sector borrowing data painted a brighter picture than expected. The dollar fell back after rising close to Y86 overnight following speculation that the Bank of Japan may consider taking extra steps should the yen rise further or government pressure increase. A report Thursday in The Sankei Shimbun said the BOJ may decide on steps at an emergency policy board meeting ahead of a possible meeting between Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa. The Sankei report said likely steps the BOJ could take would be to expand the funds it offers to financial institutions at a 0.1% fixed rate to Y30 trillion from Y20 trillion, or to lengthen the program to six months from three months.

2010/08/19 21:13=DJ DATA SNAP: US Jobless Claims +12K To 500K In August 14 Week -2-
WASHINGTON -The number of U.S. workers making new claims for jobless benefits unexpectedly rose last week to the highest level in nine months, a distressing sign for an already weak labor market. Initial unemployment claims rose by 12,000 to 500,000 in the week ended Aug. 14, the Labor Department said in its weekly report Thursday. It was the highest level since Nov. 14, when claims stood at 509,000. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 4,000. The four-week moving average, which aims to smooth volatility in the data, rose by 8,000 to 482,500. It was the highest level since Dec. 2009. New claims for the previous week, ending Aug. 7, were revised up, to 488,000 from the originally reported 484,000. The rise in claims is particularly troubling because analysts have been expecting an improvement for some time. They said recent data was likely distorted by seasonal adjustment factors tied to factory shutdowns by carmakers and the hiring and firing of temporary workers for the 2010 Census. The level of new claims has fallen steadily from a high of 651,000 in March 2009 to a low of 439,000 in early February. Since then, it's been creeping back up and the latest rise to 500,000 is particularly worrying. U.S. labor conditions already looked poor. The economy lost 131,000 jobs in July, and the unemployment rate stayed at a high 9.5%. After its policy-setting meeting last week, the Federal Reserve noted that the recovery in the jobs market had slowed. The central bank decided to prevent its balance sheet from shrinking to counter the slowdown in the economy. In the Labor Department's claims report Thursday, the number of continuing claims - those drawn by workers for more than one week in the week ended Aug. 7 - fell by 13,000 to 4,478,000 from the preceding week's revised level of 4,491,000. The previous estimate was 4,452,000. Continuing claims are reported with a one-week lag. The unemployment rate for workers with unemployment insurance for the week ended Aug. 7 was 3.5%, unchanged from the prior week. The report has a state-by-state breakdown of new claims for the week ended Aug. 7, when there was another troubling increase. The largest increase in claims occurred in California, which saw a rise of 4,393 due to layoffs in the service industry. The largest decrease in claims took place in Wisconsin, which saw a fall of 1,873. No details were provided for Wisconsin. The Labor Department report on jobless claims can be accessed at: http://www.dol.gov/opa/media/press/eta/ui/current.htm

2010/08/19 21:12*DJ Euro Rises Above $1.29; Disappointing US Jobless Claims Weigh

2010/08/19 21:11DJ China, India To Grow Faster Than Peers In Asia - ADB
NEW DELHI -China and India lead capital formation in Asia and this would help their economies expand at a faster pace than other large economies in the region, the Asian Development Bank said in a report Thursday. China and India along with Japan produce 70% of Asia's total output, and the two neighbors' booming middle class with increasing spending power has spurred innovations such as the $2,200 Tata Nano car and Godrej Group's $70 battery-operated refrigerator, the report on the rising middle class in Asia Pacific said. India's middle class, defined by ADB as those consuming between $2 and $20 a day, grew by about 205 million between 1990 and 2008, lagging only China's growth, ADB said. However, more than 75% of India's middle class remains in the $2-$4 daily consumption bracket, leaving them at risk of slipping back into poverty in the event of a major economic shock. To help unlock the full potential of the Indian middle class as consumers and drivers of growth, the report says the government must continue to remove structural and policy impediments to the sector's development and improve income distribution across the population. Actions should include infrastructure improvements and social security that encourage spending, while providing a buffer during hard times. The government should also put in place policies that stimulate the creation of stable, well-paid jobs, and encourage entrepreneurship and education, the report added. 'Policies that bolster the middle class may have benefits not only for economic growth, but may be more cost-effective at long-term poverty reduction than policies that focus solely on the poor,' said Jong-Wha Lee, ADB's chief economist.

2010/08/19 21:05=DJ WORLD FOREX:Dollar Falls To Intraday Low Vs Yen On US Jobs Data
NEW YORK -The dollar fell to an intraday low against the yen Thursday after U.S. jobless claims unexpectedly rose to their highest level in nine months, further stoking fears about the country's already weak labor market. The dollar was also lower against the U.K. pound after better-than-forecast U.K. data helped sterling to post gains in European trading. U.S. initial unemployment claims rose by 12,000 to 500,000 in the week ended Aug. 14, the Labor Department said in its weekly report Thursday. It was the highest level since Nov. 14, when claims stood at 509,000. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 4,000. The rise in claims is particularly troubling because analysts have been expecting an improvement for some time. They said recent data were likely distorted by seasonal adjustment factors tied to factory shutdowns by carmakers and the hiring and firing of temporary workers for the 2010 Census. Early Thursday, the euro was at $1.2840 from $1.2860 late Wednesday, according to EBS via CQG. The dollar was at Y85.31 from Y85.43 after falling as low as Y85.24. The euro was at Y109.50 from Y109.87. The U.K. pound was at $1.5637 from $1.5605. The dollar was at CHF1.0328 from CHF1.0420. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.289, from 82.259. Sterling gained in European trading after U.K. retail sales and public sector borrowing data painted a brighter picture than expected. The dollar fell back after rising close to Y86 overnight following speculation that the Bank of Japan may consider taking extra steps should the yen rise further or government pressure increase. A report Thursday in The Sankei Shimbun said the BOJ may decide on steps at an emergency policy board meeting ahead of a possible meeting between Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa. The Sankei report said likely steps the BOJ could take would be to expand the funds it offers to financial institutions at a 0.1% fixed rate to Y30 trillion from Y20 trillion, or to lengthen the program to six months from three months.

2010/08/19 20:52=DJ DATA SNAP: US Jobless Claims +12K To 500K In August 14 Week
WASHINGTON -The number of U.S. workers making new claims for jobless benefits unexpectedly rose last week to the highest level in nine months, a distressing sign for an already weak labor market. Initial unemployment claims rose by 12,000 to 500,000 in the week ended Aug. 14, the Labor Department said in its weekly report Thursday. It was the highest level since Nov. 14, when claims stood at 509,000. Economists surveyed by Dow Jones Newswires had predicted filings would decline by 4,000. The four-week moving average, which aims to smooth volatility in the data, rose by 8,000 to 482,500. It was the highest level since Dec. 2009. New claims for the previous week, ending Aug. 7, were revised up, to 488,000 from the originally reported 484,000. The rise in claims is particularly troubling because analysts have been expecting an improvement for some time. They said recent data was likely distorted by seasonal adjustment factors tied to factory shutdowns by carmakers and the hiring and firing of temporary workers for the 2010 Census. The level of new claims has fallen steadily from a high of 651,000 in March 2009 to a low of 439,000 in early February. Since then, it's been creeping back up and the latest rise to 500,000 is particularly worrying. U.S. labor conditions already looked poor. The economy lost 131,000 jobs in July, and the unemployment rate stayed at a high 9.5%. After its policy-setting meeting last week, the Federal Reserve noted that the recovery in the jobs market had slowed. The central bank decided to prevent its balance shrink from shriking to counter the slowdown in the economy. In the Labor Department's claims report Thursday, the number of continuing claims - those drawn by workers for more than one week in the week ended Aug. 7 - fell by 13,000 to 4,478,000 from the preceding week's revised level of 4,491,000. The previous estimate was 4,452,000. Continuing claims are reported with a one-week lag. The unemployment rate for workers with unemployment insurance for the week ended Aug. 7 was 3.5%, unchanged from the prior week. The report has a state-by-state breakdown of new claims for the week ended Aug. 7, when there was another troubling increase. The largest increase in claims occurred in California, which saw a rise of 4,393 due to layoffs in the service industry. The largest decrease in claims took place in Wisconsin, which saw a fall of 1,873. No details were provided for Wisconsin. The Labor Department report on jobless claims can be accessed at: http://www.dol.gov/opa/media/press/eta/ui/current.htm

2010/08/19 20:36DJ EU: Greece Fulfils Conditions For 2nd Tranche Of EU Aid
BRUSSELS -Greece has fulfilled the conditions to receive a second tranche of euro-zone aid amounting to EUR9 billion, the European Commission said Thursday.

2010/08/19 20:15DJ Fed Call: Fed To Buy Treasurys Maturing Aug 2016-Aug 2020
NEW YORK -The Federal Reserve is scheduled to buy Treasurys Thursday, targeting maturities between August 2016 and August 2020. The operation, up around 10:15 a.m. EDT, will be conducted by the Federal Reserve Bank of New York. Fed funds were last quoted at 0.2000%, compared with the federal-fund target range of 0 to 0.25%, according to Tullett Prebon data.

2010/08/19 19:28=DJ DATA SNAP: UK Industrial Orders Balance Hits Two-Year High-CBI
LONDON -U.K. industrial orders strengthened to their highest balance for two years in August, driven by a revival in exports, a monthly survey by one of the U.K.'s leading business organizations showed Thursday. The Confederation of British Industry said its industrial total order book balance rose to -14 in August from -16 in July, the strongest level since August 2008. The balance measures the difference between the percentage of respondents that report higher and lower orders than normal. The balance measuring the volume of output for the next three months also rose to +10 in August from +6 the previous month, slightly higher than the market consensus estimate of +9 from a Dow Jones Newswires survey of economists last week. Lai Wah Co, head of economic analysis at the CBI, said prospects for the manufacturing sector remain very positive. 'Demand is steadily improving, helped by the revival of export orders after some weakness last month, and manufacturers expect slightly stronger production growth in the next three months ahead,' she said in a statement. The CBI's exports order book balance firmed to -1 in August from -12 in July. The survey was carried out between July 23 and August 11, with 485 manufacturing firms responding, the CBI said CBI website: www.cbi.org.uk

2010/08/19 18:22*DJ EU: Greek Deficit Is Declining Faster Than Planned
2010/08/19 18:10*DJ EU:Greece Fulfils Conditions For 2nd Tranche Of Eurozone Aid
2010/08/19 18:01*DJ UK CBI: Aug Price Expectations Balance +11 Vs Jul +5
2010/08/19 18:01*DJ UK CBI: Aug Industrial Export Orders -1 Vs Jul -12
2010/08/19 18:01*DJ UK CBI: Aug Industrial Output Forecast Was +9
2010/08/19 18:01*DJ UK CBI: Aug Industrial Output Balance +10 Vs Jul +6
2010/08/19 18:01*DJ UK CBI: Aug Industrial Order Book Balance -14 Vs Jul -16
2010/08/19 17:45*DJ Japan PM: Government To Consult With Ruling DPJ Over Size, Timing Of Stimulus -Kyodo

2010/08/19 17:39=DJ DATA SNAP: UK Retail Sales Stronger Than Expected In July
LONDON -U.K. retail sales posted their strongest increase in five months in July, with support from the final days of the World Cup soccer tournament and sales of sports equipment, games, watches and jewelry, official data showed Thursday. The volume of retail sales rose 1.1% from June, and was 1.3% higher than in July last year, marking the strongest monthly gain since February, the Office for National Statistics said. In June, sales rose 0.7% on the month and a downwardly revised 1.1% on the year. Economists were expecting sales to rise 0.6% on the month and 1.1% on the year, according to a Dow Jones Newswires survey last week. The monthly gain was driven by sales from other stores, a broad category which includes sports shops and jewelers. Other stores sales rose 6.1% from June, the strongest monthly increase since February 2008, the ONS said. The World Cup, which ran from June 11 to July 11, also helped support retail sales volumes. The tournament also boosted sales of food, drink, and new televisions sets in June. In July, sales in predominantly food stores fell 1.0% on the month and 1.7% on the year, the sharpest annual drop since February 2009. The ONS said the weakness in food sales may be related to price increases. By contrast, sales in predominantly non-food stores gained 1.8% on the month and 4.1% on the year, it said. ONS Web site: www.ons.gov.uk

2010/08/19 17:38=DJ Forex Focus: Greece Will Keep Euro On The Slide
LONDON -Greece is like an albatross hanging around the euro's neck. Forget successful auctions in Ireland or bill issues in Spain, or even higher than expected second-quarter growth in Germany. Instead, international investors remain convinced that the Greek economic restructuring is not going to work and that the country will still default on its debts. The evidence is there for all to see in the price for insuring Greek debt. Instead of falling in recent weeks as tensions over the sovereign debt crisis in the euro zone have eased, the cost of Greek credit default swaps has remained firmly over 800 basis points. Not only is this higher--up to a factor of six--than the cost of insuring most other euro-zone debt, but it has continued to increase even after countries such as Spain and Ireland tapped the financial markets successfully this week. On Wednesday, the cost of Greek CDS rose to as much as 826 basis points after closing lower Tuesday at 804, completely undermining any hopes that the sovereign debt crisis is going away. In fact, tensions over the crisis could increase, especially as forward-looking surveys suggest that euro-zone growth could fall off a cliff in the second half of this year, making conditions even more difficult for those countries struggling to pay their debt. A hint of the problems to come were flagged in the latest ZEW business sentiment survey from Germany this week, which showed that while current market conditions might be much better than expected, economic expectations were much lower than forecast. So even though the euro may have staged a little bounce on the news that Spain and Ireland had successfully completed their latest round of funding, market attention has quickly refocused on Moody's warning over Spain's fiscal outlook and the admission by the Bank of Ireland governor that the country's domestic banking system needs more capital. News that the European Central Bank's overnight borrowing reached a three-month high this week will also have injected fresh concerns about the health of European banks in general. It is not surprising that the euro, which not so long ago looked as though it were headed for $1.35 or higher, now finds itself struggling below $1.30. Even the news from Ireland and Spain wasn't enough to help it back over resistance just above $1.2900. See how the euro has slipped against the dollar in recent weeks: http://www.dowjoneswebservices.com/chart/view/4447 While a further decline against the U.S. dollar is more than likely, especially if the U.S. Federal Reserve doesn't raise expectations of further quantitative easing, the euro could find that fiscal fears about Greece keep it sinking particularly fast against the currencies of countries where fiscal rectitude remains the rule, such as the Norwegian krone and the Canadian dollar. The euro was taking another hit early Thursday in Europe after a report in German magazine Der Spiegel suggested that the Greek economy was being dragged down by the country's austerity measures, with unemployment rising to 70% in some places. By 0645 GMT, the euro has fallen to $1.2813 from $1.2860 late Wednesday in New York, according to EBS. However, the euro bounced to Y110.09 from Y109.87 after a report in a Japanese newspaper, Sankei, suggested that the Bank of Japan was considering additional easing measures including fresh injections of liquidity. The dollar rose to Y85.91 from Y85.43.

2010/08/19 16:44*DJ 10Y UK/German Yield Spread Stable At 70Bps After UK Data
2010/08/19 16:41*DJ Sterling Sharply Higher On Strong Retail Sales

2010/08/19 16:34DJ Japan Industry Minister: Current Dollar/Yen Level 'Very Harmful' To Firms -Nikkei
TOKYO -Japanese government officials Thursday reiterated concerns over the impact of the strong yen on the country's export industry, the Nikkei reported.Japanese Trade Minister Masayuki Naoshima told reporters that the current dollar level of around Y85 is "very painful" to Japanese companies because their assumed exchange rate is Y90.00.Vice Finance Minister Naoki Minezaki echoed Naoshima's view, telling another group of reporters that the current foreign exchange trend is "tough on exporters."But the tone of the comments was roughly in line with those from other ministers over recent days, suggesting that Japanese officials may not move immediately to curb the yen's rise.Minezaki also said he would not comment on any specific dollar levels against the yen.

2010/08/19 16:31*DJ UK Jul PSNCR Was Expected At +GBP1.5B
2010/08/19 16:31*DJ UK Jul PSNB Was Expected At +GBP4.3B
2010/08/19 16:31*DJ UK Jul PSNCR -GBP4.1B Vs +GBP0.9B Year Ago
2010/08/19 16:30*DJ UK Jul Retail Sales Forecast +0.6% On Mo; +1.1% On Yr
2010/08/19 16:30*DJ UK Jul PSNB +GBP3.2B Vs +GBP5.5B Year Ago
2010/08/19 16:30*DJ UK Jul Retail Sales +1.1% On Mo; +1.3% On Yr

2010/08/19 16:24DJ JGB Yields Hit Fresh Multi-Year Lows On BOJ Easing Speculation
TOKYO -Japanese government bond yields marked fresh multi-year lows Thursday, as investors picked up the safe haven assets on the view that further monetary easing steps by the Bank of Japan would be unlikely to stem the yen's rise. Speculation is growing that the government will pressure the central bank to further loosen its monetary policy, including a possible extension to its fund-provision programs. The Sankei Shimbun reported Thursday without citing sources that the BOJ will consider expanding its 0.1% fixed-rate lending facility by either increasing the amount to Y30 trillion from Y20 trillion, or lengthening the duration to six months from three months. Such steps could push JGB yields down further, widening the interest rate gap between Japan and the U.S., but analysts said the measures would not be bold enough arrest the yen's recent surge. 'Investors are buying JGBs because they think expanding the fund-provision steps can't stop the yen's rise. If the dollar falls below Y85.00 again, we should be ready for JGB yields to mark fresh multi-year lows down the road,' said Makoto Noji, a senior market analyst at Mizuho Securities. Currency dealers echoed that view, saying that investors will be disappointed if the BOJ is only considering a slight expansion to its fund provision programs, and the yen could rise again as a result. In addition, some investors speculate that the central bank may cut its key policy rate from the current 0.10%, said Credit Suisse's strategist Kenro Kawano. If the BOJ eases its policy by expanding fund provision programs, then short-term JGB yields will likely fall further, making it difficult for the BOJ to keep overnight call rate around 0.10%, he said. 'So it's natural for investors to think that a rate-cut will follow steps to expand the BOJ's lending facilities,' Kawano said. On Thursday, the two-year yield fell to 0.110%, its lowest point since September 2005. the five-year yield hit 0.255%, its lowest level since June 2003. The 20-year yield fell to 1.540%, a level unseen since September 2003. The 30-year yield declined to 1.555% for the first time since July 2003.

2010/08/19 15:50DJ Tokyo Shares Rise On BOJ Easing Hopes, Tokyo Electron's Surge
TOKYO - Tokyo stocks rose on Thursday as signs of strong demand for chip-making equipment fueled a sharp rise in Tokyo Electron's shares, while heightened speculation for central bank monetary easing steps drove up real estate and consumer lender stocks.The Nikkei 225 Stock Average climbed 122.14 points, or 1.3%, to close at its intraday high of 9362.68. The Topix index of all the Tokyo Stock Exchange First Section issues also advanced 8.75 points, or 1.1%, to 843.98, with 29 of 33 subindexes ending in positive territory.Real estate and consumer lender shares charged ahead after the Sankei Shimbun reported in its morning edition that the Bank of Japan (BOJ) may consider expanding its lending facility, rumors about which have been rife in the market all week.Speculation was also strong that the BOJ may hold an emergency gathering before a reported meeting between Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa on Monday.'The scary prospect is that investors may prod authorities to act further by pushing share prices down in the case only half-baked measures come out,' said Masayoshi Yano, senior market analyst at Meiwa Securities.With investors increasingly pricing in the possibility of a BOJ easing step--albeit perhaps symbolic--share gains may last only until the prospective formal announcement is actually out, cautioned Fumiyuki Nakanishi, general manager at SMBC Friend Securities.'Monetary easing may briefly calm market concerns about the yen's rise, but this will not be a remedy for fundamental economic conditions,' Nakanishi said, putting near-term Nikkei resistance around 9448, its present 25-day moving average.Mitsui Fudosan and Mitsubishi Estate closed up 3.1% at Y1,442 and up 3.4% at Y1,323, respectively, on local media reports that the government plans to extend its stimulus package for low-interest, fixed-rate housing loans, to prop up the economy.Consumer lender Takefuji soared 8.1% to Y214 on heavy volume as increased BOJ easing prospects raised hopes that capital raising costs may fall. Other consumer lenders also benefited, with Acom's shares adding 2.8% to Y1,449.Tokyo Electron was the single heaviest-weighted Nikkei contributor, closing up 5.3% to Y4,370 on strong July chip-making manufacturing equipment book-to-bill ratio data. Advantest also rose 3.8% to Y1,779 after U.S. peer Applied Materials projected bullish fourth-quarter earnings.Utilities shares sharply underperformed the market following UBS Securities' rating cuts to several group constituents. Tokyo Electric Power, or 'Tepco', closed down 0.7% at Y2,438 as the brokerage cut it to Neutral from Buy, citing falling energy prices and a shrinking bottom line.September Nikkei 225 futures closed up 120 points, or 1.3%, at 9360 on the Osaka Securities Exchange.

2010/08/19 15:14DJ Forex Options: Dollar/Yen Options Down As Spot Moves Limited
TOKYO -Dollar/yen currency options dropped in Asia Thursday as the underlying exchange rate stayed within a narrow range, reducing demand for protection against sharp moves in the greenback.The U.S unit was confined to a Y85.34-Y85.81 range in the morning session, prompting some investors to sell options contracts, an options dealer at a major Japanese bank said. The dollar stood at Y85.66 as of 0330 GMT.Benchmark one-month at-the-money volatilities were at 10.45%/11.15% from 10.60%/11.30% in New York Wednesday.Volatilities may decline to around 11.00% later in the global day, and target 10.00% in the coming days, if the spot rate stays around current levels, the dealer said.Some investors sold six-day dollar-put/yen-call options with a Y84.50 strike price at 10.00% with a face value of at least $100 million, the dealer said, suggesting they think they can sell dollars higher than Y84.50 in the spot market in the coming six days.

2010/08/19 14:54=DJ WORLD FOREX: Euro Falls Vs Yen On Greece Concerns; Eyes On BOJ -3-
TOKYO -The euro fell against the yen in Asia Thursday, as a report in German magazine Der Spiegel rekindled concerns about Greece's fiscal challenges. Traders said the euro's fall--led by selling by non-Japanese hedge funds--may be short lived, however, given mounting speculation that the Bank of Japan may do more to ease monetary conditions. The central bank has come under increasing pressure from the Japanese government to cooperate more closely in halting deflation and, more urgently, fending off a recent sharp rise in the yen that has alarmed many Japanese exporters. The BOJ may consider taking extra steps should the yen rise further or government pressure increase, people familiar with the situation have told Dow Jones Newswires. Speculation action could come soon increased after a report Thursday in The Sankei Shimbun, which said the BOJ may decide on steps at an emergency policy board meeting ahead of a possible meeting between Prime Minister Naoto Kan and BOJ Gov. Masaaki Shirakawa. Yuichiro Harada, a senior trader at Mizuho Corporate Bank, said the yen may slide against the dollar and euro if the BOJ takes further easing measures and 'delivers a surprise.' But 'if its announcement turn out to be in line with expectations, that may fail to stop the yen's recent strength,' he said. The Sankei report said likely steps the BOJ could take would be to expand the funds it offers to financial institutions at a 0.1% fixed rate to Y30 trillion from Y20 trillion, or to lengthen the program to six months from three months. In early Asian trading, non-Japanese hedge funds sold the euro following the Der Spiegel report that the austerity measures that were supposed to fix Greek problems are dragging down the Greek economy. That heightened concerns over its economic recovery down the line. 'Even though the report wasn't particularly new, players remained very sensitive to a negative news recently,' encouraging them to use the report as a good reason to sell the unit, said Harada. Traders said the euro stop-loss sell orders were triggered at around $1.2830, accelerating the euro's fall to as low as $1.2782. The euro dropped to a day's low of Y109.30. As of 0450 GMT, the single unit was traded at $1.2797 and Y109.70, compared with $1.2860 and Y109.87 in New York Wednesday. Concerns about the global economic outlook, however, continue to weigh on the dollar's upside. If U.S. Treasury bond yields continue to grind lower, the dollar could lose support, possibly falling below Y85.00, traders said. Meanwhile, the euro's weakness may persist in coming weeks against the greenback due to continued worries about European financial system and its economic outlook, traders said. At 0450 GMT, the dollar was at Y85.74, up from its New York level of Y85.43. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, rose to 82.558 from 82.259.

2010/08/19 14:30=DJ DATA SNAP: German Producer Prices Accelerated In July
FRANKFURT -Factory gate prices in Germany rose at their fastest annual rate in nearly two years in July, due largely to rising energy prices, the German Federal Statistics Office Destatis reported Thursday. Destatis said producer prices rose 0.5% from June and were up 3.7% from a year earlier. The monthly rise was the seventh in a row and was above the consensus forecast of 0.1% from analysts polled by Dow Jones Newswires. The annual rate of 3.7% was the highest rate since the autumn of 2008, in the immediate aftermath of the collapse of Lehman Brothers Inc. Excluding the volatile energy component of the index, prices rose by a more moderate 0.1% on the month and by 2.4% from July 2009. Energy prices themselves were up 1.3% on the month and 6.7% on the year. This in turn was due to increases in the prices of electricity and natural gas, which generally lag developments in the crude oil market by up to nine months. Prices for petroleum products, by contrast, softened slightly, falling 1.6% from June. Web site: http://www.destatis.de

2010/08/19 14:29*DJ 2-Yr JGB Yield Falls To 0.110%; Lowest Since September 2005

2010/08/19 14:21DJ Japan, US Plan Naval Drill Near Disputed Islets - Report
TOKYO (AFP)--Japan and the U.S. are planning a joint naval exercise in southwestern Japanese waters later this year near islets disputed with China and Taiwan, a media report said Thursday. The war games in December, to be joined by the U.S. Navy's Seventh Fleet, are based on a scenario involving Japan recapturing an unnamed remote southwestern island from an enemy, the Yomiuri Shimbun reported without citing sources. Japan is to send fighters and patrol planes, as well as 250 paratroopers from cargo planes guarded by F-15 fighters to the drill in Oita prefecture, near Okinawan and other southern islands, the report said. A defense ministry spokesman wasn't immediately able to confirm the report. Such an exercise could bring a stern response from China, which has built up its fleet and strongly asserted its maritime territorial claims in recent years. The U.S. and Japan, security allies since the end of World War II, usually stage their naval exercises east of Japan in the Pacific. A U.S. government report warned this week that China's rising defense power is changing East Asia's military balance, a view shared by Japan that has protested over several tense naval incidents with China this year. In April, Tokyo protested after a Chinese naval helicopter made a close fly-by of one of its destroyers on the high seas off a southern Japanese island chain in Okinawa prefecture, during exercises Japan considered provocative. A similar incident took place near the Okinawan islands in the same month, when 10 Chinese naval vessels, including two submarines, were seen sailing through international waters between Japan's southernmost islands. Japan has territorial disputes with both China--its key Asian economic rival--and Taiwan over a cluster of small uninhabited islets called Senkaku in Japan and Diaoyu in China, which lie between Japan and Taiwan. The defense ministry has said it will review the basing of its ground forces in coming years to strengthen the defense of remote southwestern islands. Former defense minister Yasukazu Hamada said last year he would study the possibility of stationing troops on Yonaguni island, located in the East China Sea only about 100 kilometers east of Taiwan.

2010/08/19 14:10*DJ Japan Revised Machine Tool Orders Up 144.9% On Year In July
2010/08/19 14:01*DJ German Jul PPI Forecast +0.1% On Mo; +3.3% On Yr
2010/08/19 14:01*DJ German Jul PPI Excl Energy +0.1% On Mo; +2.4% On Yr
2010/08/19 14:00*DJ German Jul PPI +0.5% On Month; +3.7% On Year

2010/08/19 12:26PRESS RELEASE: Moody's Affirms Icbc Asia's A2 Deposit Ratings; Outlook Stable
Hong Kong, August 19, 2010 -- Moody's Investors Service has affirmed Industrial and Commercial Bank of China (Asia)'s (ICBC Asia) Bank Financial Strength Rating (BFSR) of C-, local and foreign currency deposit ratings of A2, and short-term ratings of Prime-1. The outlook for all ratings is stable.The rating affirmation follows the announcement on August 10, 2010 that ICBC Asia's parent -- Industrial and Commercial Bank of China -- has made a proposal to privatize ICBCA.'The affirmation of the ratings and stable outlook reflect two factors: ICBC Asia's solid financials and adequate capital position -- in line with our expectations -- and our view that the likelihood of support from the parent after the privatization would remain very high,' says Youngil Choi, a Moody's Vice President and Senior Analyst.'The privatization would also provide greater flexibility for ICBC to support ICBC Asia's future business growth, and further enhance business integration by leveraging the large network and customer base of ICBC in China,' adds Choi. ICBC currently owns 72.81% of ICBC Asia. The total cash offering for minority shareholders under the proposal is approximately HK$10.8 billion. In affirming the BFSR, Moody's assumes that the strategies and financial policies of ICBC Asia following the privatization will not materially change. In this context, we reiterate our previous guidance that increases in the core capital ratio to 11% or above and risk-adjusted profitability --defined as pre-provision profits as a percentage of risk-weighted assets -- to 2.5% or above could lead to an upgrade of the BFSR. On the other hand, a downgrade of the BFSR could occur if -- among other factors -- there is an aggressive expansion of the business at the expense of capital, with its core capital ratio falling to 7% or less; asset quality declines, with its impaired loan ratio equal to or above 2%; and there are new impairment charges of more than 100 bps of loans per annum. The extent and quality of ICBC Asia's China lending, which is likely to keep growing strongly, will also be considered in assessing the future evolution of the BFSR. Moody's last rating action on ICBC Asia was taken on May 7, 2010 when its outlook was changed to stable from negative. The principal methodologies used in rating ICBC Asia were 'Bank Financial Strength Ratings: Global Methodology' (February 2007) and 'Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology' (March 2007). These are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website. ICBC Asia, headquartered in Hong Kong, reported total assets of HK$215.8 billion (approximately US$27.8 billion) as of end-2009.

2010/08/19 11:44*DJ 5-Yr JGB Yield Falls To 0.255%; Lowest Since Jun 2003

2010/08/19 11:32=DJ BOE WATCH: Period Of Policy Stasis May Be Longest Since WWII
LONDON -The Bank of England may be on track to keep policy on hold for the longest period since World War II, as it struggles to walk a tightrope between fostering growth and keeping a lid on inflation.The central bank's Monetary Policy Committee last week cuts its forecasts for economic growth, thereby leaving open the possibility that it could provide even more stimulus in the months ahead.But the MPC also acknowledged that the annual rate of consumer-price inflation will stay above its 2.0% target until the end of next year. So justifying the provision of further stimulus would be difficult.MPC members are acutely aware that with inflation having been above target in 41 months out of the past 50, there's a danger that public inflation expectations could rise. That risk was highlighted Tuesday by official figures showing that inflation edged down to 3.1% in July from 3.2% in June, but remained at least a percentage point above the target for a seventh consecutive month.So while the minutes from the Monetary Policy Committee's August meeting, published Wednesday, noted that the BOE 'stood ready to respond in either direction,' the more likely scenario is that its members will opt to leave policy at its current extremely accommodative level for a long time to come.In February, the BOE completed purchases of GBP200 billion in mostly U.K. government bonds with freshly created central bank money. It launched this so-called quantitative easing policy in March 2009, having cut its key interest rate to an all-time low of 0.5%.If the bank were to start raising rates in the second quarter of 2011, in line with the market assumptions on which their forecasts were based, that would match the 15-month interest-rate ceasefire seen from November 2001 to February 2003. Waiting until the August 2011 Inflation Report would equal the 18-month abstention from policy changes seen between March 1952 and September 1953.Anything more would mark the longest period of non-action since October 1939 to November 1951, spanning the war years and their economic impact.That's not unlikely. Analysts point out that the MPC's forecasts show that the inflation rate would be well below target in mid-2012 if the key interest rate were to be raised by a quarter of a percentage point twice next year and once a quarter in 2012.'This means that the BOE does see a rate hike in the second half of 2011 as premature, given their current growth and inflation outlook,' said Chiara Corsa, an economist at UniCredit MIB.The BOE's new projections--the first to fully take into account the government's plans for GBP113 billion of fiscal tightening by 2015--were more bullish than many analysts had expected, showing economic expansion averaging around 3% in 2011 and 2012.That's also more optimistic than official forecasts from the Office for Budget Responsibility for growth of 2.3% and 2.8% respectively.As a result, a number of economists believe there's a significant possibility of future downgrades to the central bank's projections.'Our view is that this is probably an overestimate and that the output gap will turn out to be larger than the MPC expects,' said Don Egginton, head of long-term analysis and modeling at Daiwa Capital Markets Europe.'Consequently, downward pressure on inflation may be greater than the MPC anticipates. This will give them leeway to delay Bank Rate rises in 2011 well beyond May,' he said.

2010/08/19 10:49=DJ FOREX VIEW: Canadian Dollar May Be In Line For M&A Bounce
TORONTO -The Canadian dollar is demonstrating renewed fortitude against the U.S. dollar, buttressed by BHP Billiton's now-hostile US$38.6 billion bid for the Canadian Potash Corp. of Saskatchewan Inc. Mergers of such magnitude can send shock waves across foreign-exchange markets, as investors take positions in anticipation of swollen demand for a particular currency. The Canadian dollar has climbed more than 1.7% against the greenback since BHP launched the unsolicited takeover bid Tuesday morning for the Saskatchewan-based fertilizer giant. For analysts, the move calls to mind the autumn of 2007, when Rio Tinto's $38 billion acquisition of Canadian aluminum producer Alcan Inc. helped push the U.S. dollar to a low of C$0.9065. It was believed to be the greenback's lowest point against the Canadian dollar since the 1800s, although official records don't go back that far. The Potash deal could help drive another push to record highs for the Canadian dollar, said Michael O'Neill, managing director at Knightsbridge Foreign Exchange in Toronto. 'There's a real risk it could go all the way back down to C$0.9000 and even through there,' he said. If the Canadian dollar does rally sharply, it likely won't be because BHP will need to raise large quantities of Canadian currency to plunk down on the cash-only deal. The world's largest mining company indicated on its website Wednesday the offer is in U.S. dollars, which are far more readily available. It is because the deal will result--months down the road--in a pro-Canada currency conversion, when Canada-based stockholders look to reinvest their U.S. denominated payouts in Canadian assets. About 24% of Potash's shareholders live in Canada, according to Thompson Financial. 'Traders are always well ahead of the curve,' said Jack Spitz, managing director of foreign exchange, financial markets and derivatives at National Bank in Toronto. They will be pricing in Canadian dollar strength as long as a possible deal is on the table. The U.S. dollar was at C$1.0281 against its Canadian counterpart Wednesday afternoon, down from C$1.0333 late Tuesday, according to EBS via CQG. Spitz says the expanse of the cash deal 'could easily' push the Canadian dollar beyond parity with the dollar. The Canadian dollar has already moved higher, with the market jumping to conclusions that either BHP will sweeten the bid or other suitors will step up to the plate, now that Potash is seemingly 'in play,' said C.J. Gavsie, managing director of corporate and institutional foreign exchange sales at BMO Capital Markets in Toronto. The move has had investors buying Potash shares at higher prices and buying Canadian dollars to do so. Details about how much Canadian-dollar buying the deal could generate and when that would occur are unclear. 'We can only speculate what the actual cash flows of the deal would be; however at a minimum, there would be significant [Canadian dollar] buying by Canadian shareholders receiving [U.S. dollars], Scotia Capital said in a note to clients Wednesday. In addition, it resurrects the potential importance of Canadian-dollar-positive M&A flow, said Scotia. But whether the Canadian dollar can hold its current strength against the greenback may be another matter altogether. 'We'll have to see how this one plays out. The more it drags out, and the more the price tag continues to hike, I'd say the stronger the Canadian dollar is going to get because of it,' said Gavsie. If BHP, or another large deal, is approved, and the Bank of Canada moves to tighten policy further as largely expected when it meets in September, Canada dollar holders could see 'some very increased demand,' Gavsie added.

2010/08/19 09:44=DJ FOREX VIEW: 'Frontier' Markets Ahead For Currency Investors?
NEW YORK -Ringgit, rupiah, hryvnia, dong...it's time for currency investors to learn some new words. With interest rates set to stay low for a long time in the world's most developed economies, more exotic currencies could soon enjoy a moment in the sun. The State Bank of Vietnam's move to devalue the dong versus the U.S. dollar by 2.1% Wednesday has put the country's currency in the headlines--an unusual event since fears of a double dip recession in the U.S., strain on Europe's fiscal and banking systems and deflationary pressures in Japan have dominated the news flow of late. Yet analysts say that negative picture in developed economies has also prompted some cautious interest in emerging markets. Unfamiliar currencies like the Malaysian ringgit, Uruguayan peso or Indonesian rupiah may attract investment from currency speculators rather than just quizzical looks. 'With what you call the 'frontier' markets, there is some interest again,' said Win Thin, senior currency strategist at Brown Brothers Harriman in New York. Thin said in the heady days of 2006 and 2007, investors often asked him questions about frontier currencies such as the Ukrainian hryvnia and Romanian leu. The inquiries stopped abruptly when the global recession made investors wary about taking on riskier assets. Now, as developed economies begin to recover, albeit slowly, investors are again beginning to show some interest in more exotic currencies. 'In June, I began getting questions about Uruguay, Vietnam and others,' said Thin. The interest is partly driven by the fact that slowdowns in developed markets such as the U.S. and Europe mean that interest rates will remain low for an extended period, said Paul Biszko, emerging markets strategist at RBC Capital Markets in Toronto. Investors are now looking for markets with a higher return, he said, although still 'nothing compared to the heated days of 2007 and 2008.' 'They're not putting both feet in, but they are starting to dip into those markets,' he said. Certainly, more conservative investors will likely continue to steer clear of exotic currencies, analysts said. Minor currencies tend to be quite illiquid, and there is a risk of getting stuck with a currency because there are no interested buyers. 'It's not like the Group of 10, or even the more liquid emerging market currencies, where, if you decide you've made a mistake you can get out,' said Ram Bala Chandran, a Latin Americas analyst for Citigroup in New York.***********Complex currency systems that are strictly controlled by central banks, as in Vietnam, can also make it difficult to execute trades swiftly.

2010/08/19 09:01DJ Japan Finance Minister Noda: To Watch Markets Cautiously
TOKYO -Japanese Finance Minister Yoshihiko Noda said Thursday he wants to continue carefully watching financial markets, as the persistently strong yen has prompted the government to consider more stimulus steps for an economy vulnerable to the soaring currency. 'I want to continue cautiously watching' financial markets, Noda told reporters at the Ministry of Finance.

2010/08/19 08:19=DJ US Fed Orders Barclays To Improve Economic Sanctions Compliance
WASHINGTON - The U.S. Federal Reserve on Wednesday ordered Barclays Bank PLC (BCS, BARC.LN) to better comply with U.S. economic sanctions on a global basis. A federal judge earlier Wednesday approved a $298 million legal settlement that allows Barclays to avoid prosecution on charges that it violated U.S. economic sanctions, even though the judge voiced concerns that the agreement is too lenient. The U.S. on Monday filed charges alleging Barclays for more than a decade hid transactions banks and other entities in countries including Iran and Cuba.

2010/08/19 05:51=DJ WORLD FOREX: Sterling, Canadian Dollar Rise Against US Dollar
The U.K. pound bounced from a three-week low against the dollar Wednesday after minutes from a Bank of England committee painted a brighter economic picture than expected, while the Canadian dollar also took center stage in currency markets after spiking higher on a possible corporate takeover.With the effects of the U.K.'s belt-tightening budget weighing on expectations for future growth, some analysts had expected some members of the BOE's Monetary Policy Committee to have voted for an expansion of so-called quantitative easing, or QE, the asset purchasing program intended to stimulate a sagging economy. A new effort to kick-start the U.K. economy would have likely dented the pound.The minutes released Wednesday showed the committee considered arguments for easing and for tightening policy at the August meeting, but eight of its members ultimately decided to leave policy on hold, with one dissenter who wanted to increase key rates.'There was speculation that maybe the discussion regarding QE would have been more emphasized,' with members perhaps even voting to increase the bond-buying program, said Ian Stannard, currency strategist at BNP Paribas in London.The pound was also supported by the continued dissent of MPC member Andrew Sentance, who wanted to increase key rates to keep inflation under control.But Stannard said inflation expectations are likely to diminish, and that, along with slowing growth, is likely to push the pound lower in the medium term.Late Wednesday, the U.K. pound was at $1.5605 from $1.5572 late Tuesday, according to EBS via CQG. Sterling ticked as high as $1.5687 before wobbling U.S. stocks took some shine off higher-yielding currencies-from the pound to the Australian dollar. The euro was at $1.2860 from $1.2879. The dollar was at Y85.43 from Y85.50, while the euro was at Y109.87 from Y110.12. The dollar was at CHF1.0420 from CHF1.0440.The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.259 from 82.236.To see the pound's performance against the dollar, please see:http://dowjoneswebservices.com/chart/view/4446The Canadian dollar gained, bolstered by continued positive knock-on effects from news of Australian firm BHP Billiton Ltd.'s bid for Potash Corp. of Saskatchewan Inc.BHP initially made a $38.56 billion offer on Tuesday that was rejected by Potash Corp.'s board. It announced earlier Wednesday that it will make its bid directly to the target's shareholders. Demand for Canadian dollars to pay for the acquisition would give the currency a boost.Late Wednesday, the U.S. dollar was at C$1.0292 from C$1.0333 late Tuesday.The euro slipped against the dollar after tracing above $1.29, with strong government-debt auctions in Portugal and Germany benefiting the common currency.With the euro failing to sustain gains above $1.29, a BNP Paribas technical analysis calls for it to fall, with a break below $1.2735 signaling a new downtrend in the common currency.Even with the well-received government bond auctions, investors still worry about Greece--the original epicenter of the region's sovereign-debt crisis--being able to implement its austerity programs, said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.The cost to insure against default on Greek government debt remains elevated, Thin said, which tells markets 'there is serious trouble' lurking there.'That's ultimately going to limit the upside for the euro,' he said.The yen also continued to make gains against the dollar. While Japan's central bankers don't think the yen's rise poses an immediate threat to the economy, they are ready to consider additional monetary steps if the currency surges higher or if politicians apply more pressure for action, people familiar with the situation told Dow Jones Newswires.With the ICE Dollar Index strengthening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 0.04% from late Tuesday, while its PowerShares U.S. Dollar Index Bullish was up 0.08%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE's Dollar Index.

2010/08/19 05:28=DJ US Small-Cap Stocks Rise Slightly, Consumer Sectors Lead
NEW YORK -U.S. small-capitalization stocks modestly rose for a third-straight day as strength in the consumer sectors fueled Wednesday's gains.Consumer-discretionary stocks and consumer staples propelled small caps following positive quarterly earnings reports from large-cap retail giant Target and women's apparel retailer Chico's FAS. Small caps, considered riskier assets than their large-cap counterparts because of their volatile trading and small cash positions, have risen each day this week following more than 6% declines last week.The Russell 2000 index of small-cap stocks rose 1.74 points, or 0.28%, to 628.04, its longest winning streak since July 26. But for the month, the measure is still down 3.51%.The Standard & Poor's 600 gained 1.30, or 0.39%, to 335.93."We're in the doldrums of summer right now and markets tend to be skittish in this sort of environment," said Scott Billeadeau, portfolio manager at Fifth Third Asset Management. "Whichever way the market goes, it's not going to happen with a lot of volume, so the conviction among market participants isn't going to be real high."Chico's jumped 84 cents, or 10%, to 9.25, after its fiscal second-quarter profit more than doubled and exceeded analysts' estimates. The Fort Myers, Fla., company's revenue climbed, margins grew and it announced a $200 million buyback effort. Other gainers among consumer discretionary stocks included Capella Education, which rose 4.55, or 7.2%, to 68, and restaurant operator O'Charley's gained 30 cents, or 5.4%, to 5.86.Consumer staples also rose. Hain Celestial Group, an organic food company, gained 56 cents, or 2.8%, to 20.95 and poultry processor Sanderson Farms rose 68 cents, or 1.6%, to 43.15.But energy fell 0.6% on the S&P 600, the index's biggest declining sector, as crude oil settled slightly lower following conflicting oil inventory data. Oil and natural-gas company Penn Virginia slid 86 cents, or 5.4%, to 15.22, and oil-and-gas explorer PetroQuest Energy fell 12 cents, or 2.1%, to 5.66.

2010/08/19 05:10DJ 30-Year Treasury Bond Up On Economic View; Gain Tempered By Stocks
NEW YORK -The 30-year bond rose Wednesday as concern about the global economic outlook spurred demand for what are considered safe assets.Buying was heaviest in the morning, and at one point the bond's yield touched 3.678%, the weakest level since April 2009. The rally faded in the afternoon as U.S. stocks rebounded from early losses, which pushed shorter-dated Treasury securities, including the benchmark 10-year note, to give up gains and trade little changed.Shorter-dated Treasurys also underperformed ahead of a new government debt sale announcement due Thursday morning. The Treasury is scheduled to sell two-year, five-year and seven-year notes next week as well as 30-year Treasury inflation-protected securities.As of 4 p.m. EDT, the benchmark 10-year Treasury note was flat to yield 2.641%, and the 30-year bond was 18/32 higher to yield 3.739%. The two-year note was flat to yield 0.500%, near the record low of 0.484% touched Tuesday. Bond prices move inversely to yields.Treasury yields have tumbled over the past few months as concerns have grown that the economic recovery could lose traction in the second half of the year, when most of the fiscal stimulus fades. The 10-year note's yield, the benchmark for consumer and corporate borrowing, touched 2.556% Monday, the lowest level since March 2009. The yield has plunged about 140 basis points after briefly rising above 4% in early April.Economic worries also boosted demand for government bonds in other major economies, including Germany and the U.K. Wednesday. The benchmark 10-year German bund's yield hit a record low of 2.302%, while the 10-year U.K. gilt's yield touched 3.004%, the lowest level since March 2009."The falling yields reflect a mindset that we are going to have slow economic growth for years," said Charles Comiskey, head of Treasury trading at Scotia Capital in New York. With the Federal Reserve holding interest rates near record lows and buying Treasurys, "the bond market is well bid as the risks of big back-up in yields are muted."The Fed embarked on bond-buying this week to push down long-dated interest rates and prevent the economy from slipping back into recession. The central bank on Tuesday bought $2.551 billion in Treasurys maturing between August 2014 and February 2016. The next round of buying will be Thursday, targeting maturities between August 2016 and August 2020.Traders noted active purchases from Japanese investors who are worried the U.S. economy may experience the deflation that has been haunting Japan since the 1990s. Such concern has spurred strong buying in Treasurys from Japan's banks, life insurance companies and individuals, traders said. Deflation boosts the return on nominal bonds, but hurts the economy by discouraging consumer spending, damping business investment and reducing corporate earnings.Japan's recent appetite for U.S. government debt has eased fears that rates in the U.S. could jump as China diversifies some of its $2.45 trillion reserves out of dollars into Japanese and euro-zone government bonds.Robust demand from Japan has contributed to a significant drop in yields on Treasurys over the past few months, pushing U.S. mortgage rates to record lows while allowing the U.S. government and many U.S. companies to refinance debt at historically low interest rates."Japanese investors have the best informed opinion that deflation forces are coming in a big way, and generally there is nothing left to buy that has such a good yield as long-dated Treasurys versus shorter maturities," said Tom di Galoma, head of U.S. rates trading at Guggenheim Partners in New York. "[A] cheap dollar attracts them."Michael Pond, an interest-rate strategist in New York at Barclays Capital Inc., expected a $2 billion reduction in the two-year note auction size to $36 billion, while the five-year and seven-year notes sales will be down $1 billion each to $36 billion and $28 billion. Pond said the 30-year TIPS sale's size, an additional offering of the $8 billion sale in February, will be $7 billion. 10-Year Swap Spread Turns Positive The 10-year swap spread, which measures the extra 10-year swap rate over Treasury yield, turned positive Wednesday after staying below zero over the past several weeks. It was 2.5 basis points wider at 1.5 basis points in the late-afternoon session. The two-year spread was 0.75 basis point tighter at 18 basis points