Finance and Economic

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Workers stopped a highly radioactive leak into the Pacific off Japan’s flooded nuclear complex Wednesday, but with the plant far from stabilized, engineers prepared an injection of nitrogen to deter any new hydrogen explosions.

Nitrogen can prevent highly combustible hydrogen from exploding _ as it did three times at the compound in the early days of the crisis, set in motion March 11 when cooling systems were crippled by Japan’s 9.0-magnitude earthquake and tsunami.

Nuclear officials said there was no immediate threat of more explosions, and but the nitrogen plans were an indication of the serious remaining challenges in stabilizing reactors at the Fukushima Dai-ichi plant and halting the coastal radiation leaks that have cast a shadow on northeastern Japanese fisheries.

Nitrogen normally is present inside the containment that surrounds the reactor core. Technicians will start pumping more in as early as Wednesday evening, said Junichi Matsumoto, a spokesman for the plant operator. They will start with Unit 1, where pressure and temperatures are highest.

“The nitrogen injection is being considered a precaution,” said spokesman Hidehiko Nishiyama of Japan’s Nuclear and Industrial Safety Agency.

Workers have suffered near-daily setbacks in their race to cool the plant’s reactors since they were slammed by the tsunami, which also destroyed hundreds of miles of coastline and killed as many as 25,000 people.

But there was a rare bit of good news Wednesday when workers finally halted a leak of highly contaminated water into the ocean that had raised concerns about the safety of seafood.

Officials had said the runoff would quickly dissipate in the vast Pacific, but the mere suggestion that fish from the country that gave the world sushi could be at any risk stirred worries throughout the fishing industry.

In the coastal town of Ofunato, Takeyoshi Chiba, who runs the town’s wholesale market, is warily watching the developments at the plant, about 120 miles (200 kilometers) down the coast.

“There is a chance that the water from Fukushima will come here,” he said, explaining that fishermen in the area still haven’t managed to get out to sea again, after the tsunami destroyed nearly all of their boats pay day loan lenders. “If Tokyo decides to ban purchases from here, we’re out of business.”

After radiation in waters near the plant was measured at several million times the legal limit and elevated levels were found in some fish, the government on Monday set its first standard on acceptable levels of radiation in seafood.

“Right now, just because the leak has stopped, we are not relieved yet,” Chief Cabinet Secretary Yukio Edano said. “We are checking whether the leak has completely stopped, or whether there may be other leaks.”

Stemming the leak of highly radioactive water is progress because it limits the contamination of the surrounding environment, but now workers must turn their focus to their primary goal: cooling the reactors and bringing them under control.

That mission has been hampered by highly contaminated water that is pooling throughout the plant, making it difficult or impossible to access some areas.

The pools have been an unavoidable side-effect of a makeshift cooling method: pumping water into the reactors and letting it gush out wherever it can. That messy process will continue until they can restore normal cooling systems _ which recycle water, rather than spitting it out.

Getting rid of that pooling water has vexed TEPCO; it has ordered a floating storage facility and is also requesting a vessel that decontaminates water from Russia.

With those solutions not available for some time, the utility decided to take a drastic measure Monday: pumping 3 million gallons of less contaminated water into the sea to make room in a warehouse for the more highly radioactive water.

The warehouse is almost empty, and officials planned to check it thoroughly for any cracks before starting to fill it up again. The building is not meant to hold water, but it also hasn’t leaked yet, so engineers decided it could make a safe receptacle.

“We must carefully check and repair the facility to make the water will not leak out and affect the environment,” Nishiyama said.

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The economic newspaper Nihon Keizai Shimbun says the government estimates the economic toll from Japan’s earthquake and tsunami could exceed $300 billion.

The newspaper said Economy Minister Kaoru Yosano will present the estimate of 15 trillion yen to 25 trillion yen ($185 billion to $300 billion) at a Cabinet meeting on Wednesday.

The March 11 magnitude-9 Business Card Holders.0 quake and tsunami devastated Japan’s northeastern coast and triggered a crisis at a nuclear power plant.

Utilities have imposed power rationing, many factories remain closed and key rail lines are impassable.

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Asia’s share of the second tranche of European Union bonds sold to help finance aid to Ireland dropped by almost 50 percent, reflecting the securities’ longer maturity and weaker Japanese demand, the EU said.

Asian buyers accounted for 11 percent of the 4.6 billion euros ($6.5 billion) of seven-year securities issued to raise money for Ireland and Romania, the European Commission said. That compares with Asia’s 21.5 percent share of an EU sale of five-year bonds in January. It’s still above Asia’s 4 percent average for EU bond sales between December 2008 and this year.

The decline yesterday resulted from the inability of some Asian central banks to buy bonds with maturities of more than five years and from lower demand in earthquake-stricken Japan, said Gerassimos Thomas, the Luxembourg-based director in charge of the sale at the commission.

“The seven-year maturity is an odd maturity for a benchmark issue and the situation in Japan is obviously difficult,” Thomas said today by telephone. “Despite that, the transaction was an overwhelming success.”

The commission, the 27-nation EU’s executive arm, sold the seven-year bonds at a yield of 8 basis points more than the mid- swap rate. It said the books for the securities paying a coupon of 3.25 percent were oversubscribed more than three times and were closed in less than two hours.

AAA-Rated EFSM

As a result of the issue, the commission will disburse 3.4 billion euros to Ireland through the European Financial Stabilization Mechanism and 1.2 billion euros to Romania under the Balance of Payments facility, which is for EU nations outside the euro area. The AAA-rated EFSM is responsible for providing 22.5 billion euros of the Irish rescue package of 85 billion euros.

The U.K. represented 29 percent of yesterday’s allocation, Germany and Austria a combined 16 percent and France 9 percent, according to the commission. The Americas accounted for 6 percent and the Middle East and Africa a joint 4 percent, it said.

Asset managers and banks were the “drivers” of the transaction, each accounting for 36 percent, the commission said. Central banks and other “official” institutions represented 18 percent, while insurance and pension companies took 8 percent, according to the commission.

The commission-run EFSM plans to raise as much as 17.6 billion euros this year and 4.9 billion euros in 2012 for Ireland. This year, the EFSM intends to issue four to five benchmark bonds worth 3 billion euros to 5 billion euros each. Three of those sales, including the issues yesterday and in early January, are due in the first half.

Japanese Government

The separate European Financial Stability Facility, which is overseen by euro-area governments, is providing 17.7 billion euros to Ireland. In the EFSF’s inaugural bond sale in late January — 5 billion euros of five-year notes — Asian investors represented 38 percent of the allocation. The Japanese government bought more than a fifth of the issue.

The EFSF plans to raise up to 16.5 billion euros this year and 10 billion euros in 2012 to finance its share of the Irish bailout. Because of buffers meant to ensure its AAA credit rating, the EFSF is raising a total of almost 27 billion euros this year and in 2012 in order to lend 17.7 billion euros to Ireland.

The EFSF intends this year to sell a total of three benchmark bonds worth 3 billion euros to 5 billion euros. The second EFSF sale is due before July.

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AOL CEO Tim Armstrong said Thursday the company is cutting 200 jobs in the U.S. and 700 in India following its $315 million purchase of the Huffington Post.

Armstrong, speaking at the Bloomberg Media Summit in New York City, lamented the cuts but said AOL (AOL) is "much more healthy" than it was a few years ago.

"From a portfolio perspective, you need to continue to invest in things that make you profitable," Armstrong said. He added that he would address his employees about the cuts after leaving the conference.

Armstrong added that AOL’s staff is moving toward having 70% of its staff be in editorial or other content divisions. That’s up from a little more than half currently. He also said AOL intended to have more full-time workers and fewer freelancers.

AOL unloaded 40% of its cash on the Huffington Post purchase last month. As part of the deal, HuffPo founder Arianna Huffington became president and editor-in-chief of all HuffPo and AOL content.

At the conference, Armstrong said Huffington was moving to New York City Thursday.

"She is fearless, and she wants to do great things," Armstrong said. "I didn’t know her that well, but we had spoken on a few panels together. She approached me saying that we had a similar vision."

Armstrong said the HuffPo buy was "a signal" to competitors about AOL’s path and a reflection of his belief that the digital space "is only going to get bigger."

In the past year, AOL has spent $530 million on acquisitions as it focuses on becoming a content company rather than an outdated Internet portal payday loans guaranteed no fax. In a single week last September, AOL bought TechCrunch, online video distributor 5Min Media and social media company Thing Labs.

Armstrong also discussed AOL’s dial-up business, which currently accounts for 40% of its revenue. He said that business "still has a few years," but AOL’s annual yearly decline in that revenue stream is 25-29%.

"You have to reinvest in your content," Armstrong said. "Access to cash can be like a rich uncle — you just get money and you never have to learn. It’s time for that to change."

Armstrong implied the content acquisitions are a positive for the "bunch of big shareholders who hold onto the stock." He said AOL stock had a "pretty small float," and he noted that he invested $10 million of his own cash in company stock a few weeks ago.

Nonetheless, AOL’s stock fell about 1% Thursday morning. Shares are currently trading near their lowest level since AOL was spun-off from CNNMoney parent company Time Warner (TWX, Fortune 500) in November 2009. The stock has dropped nearly 25% since its IPO.

But Armstrong remained optimistic.

"AOL will turn around. I have no doubt about that. The employees deserve a ton of credit," he said. "To go from managing a decline to managing growth is physically getting up and doing something different every day." 

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Consumer Reports’ made waves last week with its decision not to recommend the Verizon iPhone 4 because of the same "death grip" antenna problem that plagues AT&T’s iPhone 4. But the magazine may have made the wrong call: Tests show that Verizon’s version is significantly improved over its rival’s.

Gadget analysis group AnandTech, which was the first to diagnose the iPhone 4 antenna issue, ran a thorough test of the new Verizon iPhone 4 and found that the "death grip" problem has been mitigated.

"Apple fixed the problem," said Brian Klug, author of AnandTech’s report. "You can use the Verizon Wireless iPhone with no case without any concern for losing signal because of how it’s held."

That runs contrary to the Consumer Reports test. The magazine found that the Verizon (VZ, Fortune 500) iPhone, like the AT&T (T, Fortune 500) iPhone, "has a problem that could cause the phone to drop calls, or be unable to place calls, in weak signal conditions" when held in a "specific but quite natural way."

AnandTech founder Anand Shimpi criticized the Consumer Reports study for failing to provide data to support its findings. Consumer Reports spokeswoman Melissa Valentino declined to offer the group’s test results, only saying that the Verizon iPhone and the AT&T iPhone performed "similarly" in tests.

The AnandTech study, however, showed that the Verizon iPhone performed roughly on par with its non-iPhone peers — and far better than the AT&T version — in terms of cell signal attenuation (a fancy word for the reception loss experienced when your hand covers the antenna).

Verizon’s device lost 16.5 decibels of signal reception when cupped tightly in the "death grip," compared to 24.6 dB for the AT&T iPhone 4. The average signal loss of seven other smartphones that AnandTech tested was 14.4 dB.

When held naturally, the Verizon device fared worse than non-iPhones, but it still beat the AT&T iPhone by a fairly wide margin.

AnandTech noted that the "held naturally" average was skewed much lower by the excellent performance of the Motorola Droid 2 and the Droid X. The Verizon iPhone actually fared very similarly to the HTC Nexus One and the LG Optimus 2X. Klug said that its performance was within the normal range.

So why does Verizon’s iPhone fare better than its AT&T cousin? A key difference lies in its antenna architecture.

A teardown analysis performed by IHS iSuppli revealed that the Verizon iPhone kept the same integrated antenna design of the AT&T iPhone, but Apple made several improvements to fix the signal problems that the earlier model. The Verizon antenna employs a "dual-antenna design that takes advantage of antenna diversity to improve reception," iSuppli said in its analysis.

Unlike its competition, Verizon requires that all of its smartphones have multiple antennas that can be switched depending on which one has a better signal. That so-called antenna diversity also allows the phone to average out the two antennas to get a better signal.

That function is what Motorola (MMI) referred to its in ads for the Droid X, when the company said you could "hold your phone however you want". The Droid X debuted about two weeks after AT&T’s iPhone 4 launched (right when "Antennagate" dominating in the news).

Klug said he expects Apple to employ that design on future versions of the iPhone. Apple (AAPL, Fortune 500) is expected to debut its new smartphone in June. 

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Foreigners fled the turmoil in Libya by the thousands on Wednesday, climbing aboard ships, ferries and planes or fleeing in overloaded vans to the country’s borders with Egypt and Tunisia. Tripoli’s airport was overwhelmed with stranded people seeking a way out.

Two Turkish ships whisked 3,000 citizens from the chaos engulfing the North African nation and a U.S.-chartered ferry arrived to evacuate Americans to the nearby Mediterranean island of Malta, a five-hour journey. Several countries _ including Russia, Germany and Ukraine _ sent more planes in to help their citizens leave the increasingly unstable situation.

“The airport was mobbed, you wouldn’t believe the number of people,” said Kathleen Burnett, of Baltimore, Ohio, as she stepped off an Austrian Airlines flight from Tripoli to Vienna on Tuesday. “It was total chaos.”

Turkey was cranking up the largest evacuation in its history, seeking to protect some 25,000 citizens and more than 200 Turkish companies involved in construction projects in Libya worth more than $15 billion. Some of the construction sites have come under attack by protesters.

Two Turkish commercial ships left the eastern Libyan port of Benghazi on Wednesday escorted by a navy frigate. The first one is expected to reach Turkey’s Mediterranean port of Marmaris around midnight. Authorities began setting up a soup kitchen and a field hospital at Marmaris and arranged buses to transfer the evacuees. Turkey has also sent two more commercial ships to Libya.

Turkey has now evacuated more than 5,000 citizens from Libya over three days, about 2,000 of them by plane, Foreign Minister Ahmet Davutoglu said.

“We are carrying out the largest evacuation operation in our history,” he said, adding that Turkey was also helping other nations. “So far, a total of 21 countries have asked Turkey to evacuate their citizens as well.”

One Turkish citizen has been killed in Tripoli, he said. Davutoglu said Turkey was considering diverting its ships from Libya to Tunisia for quicker evacuation.

“We will then bring them from Tunisia by planes,” he said.

Davutoglu stressed that Turkey was not leaving Libya and would send “food and medicine to Libyan brothers by ships.”

Libya is one of the world’s biggest oil producers _ producing nearly 2 percent of the world’s oil _ and many oil companies were evacuating their expatriate workers and families.

China was also gearing up for a massive evacuation. There are reportedly 30,000 or more Chinese in Libya building railways and other infrastructure and providing oilfield services. Greece is making plans to help evacuate around 13,000 to Crete by ship.

China’s first chartered evacuation flight, staffed with relief officials and stocked with food and medicine, left for Libya on Wednesday.

Chinese media reports said a site run by China’s Huafeng Construction Co., Ltd. in eastern Libya was attacked by armed looters over the weekend who stole computers and other equipment and forced nearly 1,000 Chinese workers out of their dormitories.

The International Organization for Migration said several Asian, African and one European government requested its help to evacuate their citizens.

Migrants were pouring into Libya’s land borders with Egypt and Tunisia and the group was trying to help find accommodation for those already at the border, said Jemini Pandya, a spokeswoman for the Geneva-based organization.

Vans piled high with luggage and furniture showed up at the Salloum border crossing with Egypt.

Pandya said it was difficult to estimate how many migrants, many of them undocumented, would flee Libya, but “it will be thousands.”

The first planeload of Russians to be evacuated from Libya landed in Moscow, bringing 118 Russians. Three more planes are expected to arrive later in the day. A ship was also setting sail for Ras Lanuf, the site of Libya’s largest refinery and port, to evacuate up to 1,000 Russians, Turks, Serbs and Montenegrins.

Two French military planes evacuated 335 French people and 56 foreigners to Paris from Libya, and a third plane was en route from France to evacuate French tourists.

A Bulgaria Air plane, carrying 110 Bulgarians and six Romanians from Tripoli _ mostly medical and construction workers _ arrived in Sofia. Some passengers said they heard gunfights.

“I saw horror,” a nurse who gave only her first name, Polly, told reporters upon her arrival in Sofia.

Others fleeing were wary of the political situation. Libyan leader Moammar Gadhafi has urged his supporters to strike back against the Libyan protesters, escalating a crackdown that has led to widespread shooting in the streets. Nearly 300 people have been killed in the nationwide wave of anti-government protests.

“We decided to return because the situation is unstable. When we left Tripoli there was some kind of euphoria, everybody was celebrating some kind of victory,” engineer Natalia Vakova said. “But that’s Libya _ absolutely unpredictable.”

Unease over the safety of U.S. citizens intensified after failed attempts to get some out on Monday and Tuesday. British Airways and Emirates, the Middle East’s largest airline, canceled flights to Tripoli on Tuesday.

Dutch Foreign Ministry spokesman Christoph Prommersberger said a Dutch KDC-10 air force transport plane left Tripoli late Tuesday with 32 Dutch evacuees and 50 other nationalities.

“What we hear from our people is it is chaotic but functioning,” he said of the Tripoli airport.

Britain is redeploying a warship, the HMS Cumberland, off the Libyan coast for a possible sea-borne evacuation of British citizens.

Italians continued to take Alitalia flights from Tripoli home, and a few hundred have already returned to Italy. An Italian air force plane landed in Libya on Wednesday to evacuate more people.

Separately, two Italian naval vessels are headed to eastern Libyan ports to rescue citizens from Benghazi and other cities where airports are damaged. Italian citizens based in Misurata, Libya, said their private company was arranging evacuation by sea because the airfield at that coastal city was damaged by the protests.

About 450 Romanians were in the process of being evacuated but some lived far away from Tripoli and it was not clear how they would get to the Libyan capital. Germany was also trying to evacuate about 150 Germans still in Libya.

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Prices in the new home market increased for the 12th straight month in a row, according to figures released by Statistics Canada on Thursday.

But housing market indicators released in the past few weeks have been so contradictory that builders, realtors

Sweden is selling part of its stake in Nordea Bank AB, the Nordic region’s largest lender, in a move that will reduce state debt by as much as $3 billion.

The government initially offered 200 million shares and has an option to sell another 55 million, or about 6.3 percent, in the Stockholm-based bank, according to an e-mailed statement released yesterday by the Finance Ministry. The shares probably sold at around 74 kronor to 75 kronor each, according to two people close to the offer.

Based on a price of 75 kronor per share, the stake has a value of about 19.13 billion kronor ($2.95 billion). Shares in Nordea fell as much as 4.2 percent and were trading at 76.50 kronor at 10:08 a.m. in Stockholm.

The government of Prime Minister Fredrik Reinfeldt ear- marked Nordea for divestment back in 2006, as part of a broader strategy to sell off holdings in assets including phone company TeliaSonera AB and mortgage lender SBAB. Nordea, created after Sweden’s 1990s banking crisis through a series of state- orchestrated mergers, this week posted a 72 percent surge in fourth-quarter profit to 769 million euros ($1.06 billion).

“We are sellers of Nordea because it has fully recovered from the crisis and so other banks look more interesting from an earnings growth perspective,” said Simon Maughan, co-head of European equities at MF Global in London. The timing of the sale may indicate “somebody at the Ministry of Finance thinks most of the juice has been squeezed from the fruit.”

Share Move

Nordea shares rose to 79.60 kronor on Feb. 1, their highest level since May 2008, according to data available on Bloomberg. The planned sale, which started immediately after yesterday’s announcement, will reduce the state’s stake in Nordea to between 13.5 percent and 14.8 percent from 19.8 percent, the government said.

The transaction, known as an accelerated bookbuilding, is expected to be priced and allocated today, the ministry said. The order book in the sale closed before 10 a.m. local time, according to two people familiar with the offering. The Swedish government appointed Nomura Holdings Inc. as global coordinator and joint bookrunner and Morgan Stanley and SEB Enskilda as joint bookrunners. Sweden has agreed not to sell any additional shares in Nordea for 90 days after the completion of the sale.

“There has been increased noise around a sale in recent days and hence an announcement is no surprise,” Maughan said. “What is more surprising is the amount of shares for sale and the fact that there will be a significant, 13.5 percent overhang in 90 days time.”

Baltic Operations

Nordic banks including Swedbank AB, SEB AB and Nordea were hurt by bad loans in the Baltic countries in 2009 as Estonia, Latvia and Lithuania had the steepest recessions in the European Union. All three banks returned to profit in the region in 2010 as the former Soviet economies rebounded. Nordea’s net interest income, the difference between what the bank makes from lending and pays for deposits, rose 5.1 percent to 1.37 billion euros in the fourth quarter, it said on Feb. 2.

Sweden, home to four of the Nordic region’s biggest banks, last year delivered the biggest economic rebound in the European Union, expanding 5.5 percent, the central bank estimates. The government will this year also deliver the smallest budget deficit in the 27-member EU, the European Commission estimates.

“Proceeds from the sale will be used to reduce further the Swedish national debt so as to strengthen the stability of the Swedish economy,” Minister of Financial Markets Peter Norman said in the statement.

Fiscal Sweden

Sweden will post a budget surplus of 18 billion kronor this year and a 78 billion-krona surplus in 2012, the debt office said Nov. 16. Next year’s estimate includes income of 35 billion kronor in the form of state asset sales. Sweden’s debt will narrow to 37.5 percent of gross domestic product next year, less than half the EU average of 83.3 percent, the European Commission estimates. The debt office expects debt to shrink to 29 percent of GDP at the end of next year, it said in November.

The Nordea sale is “bullish for Swedish long bonds and we reiterate our view to stay long Sweden versus Germany in 10 year bonds,” said Lars Martinsson and Martin Tallroth, interest-rate strategists at Swedbank AB in Stockholm, in a client note. “In a country with one of the lowest debt-to-GDP ratios to start with, this is obviously good news for holders of Swedish bonds.

The government has said it plans to divest state assets of about 100 billion kronor by the end of 2014. The opposition, which can block the plans, has signaled it will stop or limit any sale of TeliaSonera, utility Vattenfall or SBAB.

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China’s foreign-exchange reserves probably rose 4 percent to $2.76 trillion in the fourth quarter, adding to pressure on the central bank to drain cash from the economy and allow the yuan to strengthen.

The world’s largest currency holdings jumped $112 billion after a $194 billion gain in the third quarter, according to the median estimate in a Bloomberg survey of nine economists before the central bank releases the data this week. Reserves probably climbed $361 billion for the year, compared with $453 billion in 2009.

People’s Bank of China Governor Zhou Xiaochuan ordered lenders to increase funds on deposit at the authority six times in 2010, as the yuan’s interest-rate advantage over the dollar attracted capital that stoked inflation. The yuan may gain the most among currencies in the so-called BRIC nations, rising 5.3 percent by year-end, compared with a 1 percent drop for Brazil’s real, a 0.3 percent increase for Russia’s ruble and 4.5 percent advance for India’s rupee, according to Bloomberg surveys of strategists.

“We will probably see a round of pretty intense tightening in the first half,” said Ren Xianfang, an economist in Beijing for Lexington, Massachusetts-based research company IHS Global Insight. “The yuan’s appreciation in 2011, particularly in the first half, should be faster than last year.”

The reserves, which exceeded $1 trillion in 2006 and $2 trillion in 2009, will reach $3 trillion by June 30, according to UBS AG estimates. A weaker euro has eroded the value of China’s European debt holdings and is slowing the pace of growth. Hong Kong’s holdings stood at $268.7 billion, Singapore’s at $225.8 billion and Thailand’s at $172.1 billion, government data released Jan. 7 show.

Policy Dilemmas

Premier Wen Jiabao is seeking to sustain the economy’s growth to create millions of jobs each year, while preventing rising prices for homes and food from fueling social unrest. Benchmark borrowing costs for Chinese banks have risen to a two- year high, fuelling an 13 percent decline in the benchmark Shanghai Composite Index of stocks in the past 12 months.

While a stronger currency and higher rates may help tame inflation, they also risk attracting capital from abroad. In November, consumer prices rose 5.1 percent from a year earlier, the most in 28 months, food costs jumped 11.7 percent and property prices gained 7.7 percent, government data show.

The cost of insuring the government’s dollar debt for five years climbed 6 basis points on Jan. 7 to 75, up from a 2 1/2- year low of 52 basis points on Oct. 13, according to CMA prices. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if the government fails to adhere to debt agreements.

Yield Premiums

The yield on the 3.77 percent yuan government bond due in December 2020 advanced 3 basis points, or 0.03 percentage point, to 3.85 percent today, data compiled by Bloomberg show. The extra yield investors demand to hold the debt rather than similar maturity U.S. Treasuries has dropped to 53 basis points from 101 on Dec. 1. China’s 2.75 percent one-year deposit rate is a record 1.955 percentage points more than that of the U.S., the highest in at least 14 years, after two increases last quarter.

The yuan appreciated 2.9 percent versus the dollar since a two-year peg was relaxed in June, and non-deliverable forwards show traders are betting on a 2 paperless payday loans.6 percent increase in the coming 12 months. The currency hit 6.5896 per dollar on Dec. 31, the strongest level since 1993. The yuan slid 0.58 percent to 6.6280 per dollar last week and last traded at 6.6347.

Capital Curbs

The State Administration of Foreign Exchange said Dec. 31 it was expanding a program to let exporters keep revenue overseas, easing pressure for appreciation. On Jan. 6, SAFE said it would step up monitoring of cross-border capital flows.

A less-than-forecast December trade surplus, announced by customs today, may help efforts to rein in supplies of cash. The excess of $13.1 billion compared with the $20.8 billion median estimate in a Bloomberg News survey of 20 economists.

The government’s purchases of foreign exchange from exporters results in extra yuan being pumped into the financial system, money that the central bank drains away by selling bills or raising reserve requirements

Officials will use differentiated reserve ratios to improve liquidity management, Governor Zhou said in an interview published by China Finance magazine on Jan. 4. The system involves setting separate requirements for lenders according to their balance sheets.

‘Hot Money’

“The risk of a widening interest-rate gap attracting hot money inflows may be part of the reason behind the central bank’s inclination to use the reserve ratio tool more frequently than interest rates,” said Wen Pengyong, an economist at Essence Securities Co., a Shenzhen-based brokerage.

Reserve requirements for the biggest banks, such as Industrial & Commercial Bank of China Ltd., stand at 18.5 percent. UBS and Citigroup Inc. expect the ratio to pass 20 percent this year.

China will keep raising interest rates this year even at the risk of attracting more capital because of the threat of inflation, according to Standard Chartered Plc and IHS Global. The central bank may raise the one-year deposit rate to 3.5 percent by year-end, according to the median estimate in a Bloomberg News survey of 13 economists last month.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, dropped two basis points today to 3.17 percent, according to data compiled by Bloomberg. It has climbed from last year’s low of 1.97 percent on Aug. 12.

The seven-day repurchase rate, which measures interbank funding availability, averaged 2.75 percent in the fourth quarter, the highest level since the third quarter of 2008. The rate plunged to 2.38 percent today from 6.34 percent on Dec. 31 as a year-end financing crunch eased.

“The increase in the foreign-exchange reserves will pile pressure on the government to allow faster currency gains,” said Liu Li-Gang, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd., who previously worked at the Hong Kong Monetary Authority and the World Bank.

–Paul Panckhurst, Zheng Lifei, Jay Wang. Editors: Paul Panckhurst, Sandy Hendry

To contact Bloomberg News staff for this story: Lifei Zheng in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net

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