Finance and Economic

Wholesale costs in the U.S. rose more than forecast in April, led by higher prices for food and fuel.

The 0.8 percent increase in the producer-price index compares with the 0.6 percent median estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The core measure, which excludes volatile food and energy costs, climbed 0.3 percent, more than projected.

Rising costs may lead businesses such as Whole Foods Market Inc. (WFMI) to increase prices, boosting the cost of living for American consumers. At the same time, Federal Reserve Chairman Ben S. Bernanke said he expects commodity prices to moderate.

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A battle between Libyan troops and rebels spilled over the western border into Tunisia Friday, drawing a sharp rebuke of Moammar Gadhafi’s regime from the neighboring government.

Clashes along the Tunisian border have escalated since Thursday, posing a new challenge for Gadhafi within the western half of the country where he must consolidate his control to cling to power. Rebels captured most of the east early on in the uprising against Gadhafi that began in February.

On the other major front in western Libya, NATO foiled attempts by regime loyalists to close the only access route to the besieged rebel city of Misrata, intercepting boats that were laying anti-ship mines in the waters around the port. The port is the only lifeline for the city of 300,000, which has been under siege for two months.

The government offensive on the Tunisian border along with shelling that killed 15 in Misrata on Friday and the attempt to mine the Misrata port show the regime is redoubling efforts to crush stubborn pockets of resistance in the west.

In the capital Tripoli, residents reported rising tensions over fuel shortages, a result of international sanctions imposed on Gadhafi. Witnesses said there have been clashes between residents and troops, including with stones and tear gas, at gas stations in recent days, after security forces tried to cut into huge lines.

In another indication of shortages, the government sent text messages to mobile phones of armed supporters, urging them to stop firing in the air in order to save ammunition for “our crusader enemies,” said two city residents who spoke on condition of anonymity for fear of reprisals.

Gadhafi has clamped down hard on dissent in the capital. Shooting is heard frequently in Tripoli, some of the volleys fired in the air in pro-Gadhafi rallies. However, opposition figures say there have also been sneak nighttime shooting attacks on army checkpoints in the city.

The actions of the Libyan leader, increasingly isolated since the start of the crisis, drew new condemnations Friday.

The Tunisian Foreign Ministry summoned Libya’s ambassador to convey its “most vigorous protests” for the “serious violations” at the Dhuheiba border area Thursday and Friday, a ministry statement said.

Since early Friday, the Tunisian army had swept through the frontier town Dhuheiba searching for Gadhafi forces who fled to Tunisia following combat with rebels over control of the nearby border crossing. Tunisia’s state news agency, citing the Tunisia military, said battles at the border have left dozens dead However, the number could not be independently confirmed.

Town residents sent out distress calls after several shells fell, according to the Tunisian news agency TAP.

At one point Friday, 15 Libyan military vehicles, carrying troops armed with anti-aircraft guns and rocket launchers, were spotted in Dhuheiba. Town resident Mohamed Hedia said angry Dhuheiba civilians and the families of Libyan rebels who had been staying there set upon the Gadhafi troops, creating a “chaotic situation.” Tunisian forces fired warning shots, Hedia said. Another resident, Ismail al-Wafi, said Libyan troops fired indiscriminately, injuring three people.

The Tunisian army stopped “several members of Gadhafi’s brigades, regrouping them and leading them back to Libyan territory,” the Tunisian Defense Ministry said, according to TAP.

The Tunisian news agency, citing military officials, said dozens of Libyan troops and rebel fighters were killed in the two-day battle over the Dhuheiba crossing which ended with rebels regaining control Friday, after Libyan forces held it for a day. An Associated Press Television News crew spotted the bodies of two Libyan soldiers near the crossing.

The crossing is a strategic lifeline for Libya’s western Nafusa mountain area where members of the ethnic Berber minority _ who have complained of systematic discrimination by the regime _ have been fighting the Gadhafi’s forces for several weeks.

Thousands of residents of the mountain area have fled to Dhuheiba and other Tunisian border towns. TAP said thousands more Libyan refugees streamed into Tunisian overnight.

Near the coast of Misrata, meanwhile, NATO vessels intercepted several boats laying anti-shipping mines, said British Brig. Rob Weighill, director of NATO operations in Libya.

NATO said the sea mines were being laid one to two miles offshore by sinking the inflatable boats on which they were being carried. Three mines were found and disposed of. The alliance alerted Misrata authorities who temporarily closed the port, NATO said. Two aid ships put off their journeys.

Misrata has been under siege by Gadhafi loyalists for two months. Rebels have managed to expel regime forces from the center of the city, but the enclave is isolated and remains dependent for much of its food and other supplies on the sea link with the rebel capital of Benghazi.

It appeared to be the first time sea mines have been used in the Libyan conflict. Under international law, nations laying naval mines must alert shipping about their general locations to avoid accidents.

“It again shows his complete disregard for international law and his willingness to attack humanitarian delivery efforts,” said Weighill, adding that NATO crews disposed of the mines.

Gadhafi loyalists also pounded the city with shells, mortar and anti-aircraft guns from positions on the outskirts of Misrata. In all, 15 people were killed Friday, a majority fighters, but also a 9-year-old boy, said Ahmed Diab, emergency room doctor at the city’s Hikma hospital. He 80 people were wounded, the vast majority by artillery shells fired from the Misrata airport where Gadhafi forces have set up positions.

In one the strikes, Gadhafi forces fired with tanks and anti-aircraft guns on a group of 50 rebel fighters in the village of Zawiyat al-Mahjoub, on the outskirts of the city, said rebel fighter Abdullah Shiguman, 31.

Medics scrambled to evacuate six bodies and 10 wounded people to the hospital. Some of the wounded had lost limbs and huge chunks of flesh. One was a medic who had been shot in the back. Two of the dead were carried in bundled in blankets holding nothing more than body parts.

Rebel field commander Salahidin Badi said Gadhafi’s force had been firing mortars and rockets into the city all morning and that rebels had fired back with mortars. Badi said a shoe factory caught fire during the battle.

NATO has destroyed or damaged 600 targets since the alliance began bombing Gadhafi’s military installations last month, Weighill said. In addition, 19 NATO ships are patrolling the central Mediterranean.

Weighill said the targets hit since last month include 220 tanks and armored personnel carriers, 200 ammunition facilities and 70 surface-to-air missile systems.

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Standard & Poor’s Ratings Service has lowered its long-term outlook for the United States’ sovereign debt to “Negative” from “Stable” due to risks from the country’s growing deficit.

But the agency also reaffirmed the investment-grade credit ratings on country’s long-term and short-term debt.

S&P says the U.S. has a high-income, diversified and flexible economy that has helped it to encourage growth while containing inflation. But the country’s ballooning deficit could offset those positives over the next two years.

The agency noted that the deficit grew to 11 percent of gross domestic income in 2009. That is much higher than the average of 2 percent to 5 percent in the previous six years.

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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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Nigeria’s central bank will meet the rising need from investors for foreign currency before elections next month as it tries to stabilize the naira and control inflation, Governor Lamido Sanusi said.

The jump in demand this month is “temporary,” based on investors’ fears that violence between religious and ethnic groups may disrupt elections, Sanusi said in an interview in Nigeria’s capital, Abuja, yesterday.

Sanusi has been defending the naira, keeping it within a range of between 3 percent above or below 150 per dollar, in a bid to curb inflation in Africa’s biggest oil producer. That policy has led the bank to deplete its foreign currency reserves, raising concern at the International Monetary Fund, which said last month the central bank should allow for more exchange-rate flexibility.

“So long as we’re comfortable with the coverage given by the reserve position of the country we will pursue a stable exchange rate policy,” Sanusi said. “If we see an elevation in demand, that in our judgment is temporary, we will meet that demand. Nothing has changed fundamentally as far as the economy is concerned. But people want to see a smooth transition, a free and fair election before they bring back the money.”

The naira weakened to its lowest level in 18 months against the dollar today, depreciating 0.1 percent to 156.30 per dollar as of 12:15 p.m. in Lagos.

April Elections

Africa’s most populous nation, with 150 million people, will hold elections for parliament on April 2, the president on April 9 and state officials on April 16. Attacks by Islamic militants in northern Nigeria, including Christmas Eve bomb blasts that killed 80 people, are deepening religious tensions before the polls. The last election in 2007, won by Umaru Yar’Adua, was marred by violence and election fraud.

“With an African country like Nigeria going into elections, where people are talking about ethnicity and religion, you get people trying to get out, to buy dollars and hedge their risks,” Sanusi said. “That puts pressure on the exchange rate and foreign currency reserves.”

Nigeria’s foreign exchange reserves plunged by almost $10 billion to $33.1 billion in the year through Nov. 29 as the central bank propped up the currency and the government withdrew oil savings from its excess crude account. The government has now reversed that trend, with reserves climbing to a five-month high of $36.4 billion on March 8, according to the central bank’s data.

Rate Impact ‘Questionable’

With import costs accounting for about 70 percent of the consumer price index, keeping the naira stable is crucial to fight inflation, Sanusi said.

Nigeria’s inflation rate fell to an annual 11.1 percent in February from 12.1 percent in the previous month, the statistics office said yesterday. The central bank, which raised its benchmark interest rate by a quarter of a percentage point to 6.5 percent on Jan. 25, is due to make its next rate decision next week.

While the bank is concerned about the impact of rising government spending, oil and food costs on inflation, the short- term impact of raising interest rates is “questionable,” Sanusi said.

“I have no doubt in my mind that sustained expansion in money supply and low interest rates for a long time would be inflationary,” Sanusi said. “But the extent to which a short- term movement in rates and monetary aggregates would affect inflation in the short term is more questionable.”

The Monetary Policy Committee will assess the “balance of risks” of rising costs against the stability of the banking system when making its next interest-rate decision, he added.

– Editors: Ana Monteiro, Karl Maier.

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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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China faces a 60 percent risk of a banking crisis by mid-2013 in the aftermath of record lending and surging property prices, according to a Fitch Ratings gauge.

Fitch sees the risk of “holes in bank balance sheets” should a property bubble burst, Richard Fox, a London-based senior director, said in a phone interview on March 4. The risk assessment is from a macro-prudential monitor used by the ratings company.

Chinese banks fueled record property-price gains by extending a record 17.5 trillion yuan ($2.7 trillion) of loans over 2009 and 2010 under the stimulus program that propelled the nation through the financial crisis. Regulators’ efforts to contain the risks for lenders have included stress tests for declines in house prices and a crackdown on lending to local- government financing vehicles.

China’s risk of a systemic crisis is based on the nation’s MPI3 classification, the highest of three risk categories, in a Fitch monitor begun in 2005. The indicator signaled crises in Iceland and Ireland and has been tested back to the 1980s, Fox said.

In contrast with Fitch’s concern, the Hang Seng Finance Index (HSF), which includes five Chinese banks traded in Hong Kong, advanced 1.5 percent as of 3:34 p.m. local time.

Fitch’s concern contrasts with gains in banks’ profits and capital adequacy ratios and declines in non-performing loan ratios, according to data released by the China Banking Regulatory Commission payday loan.

The industry’s “capitalization has been noticeably strengthened throughout 2010, with capital ratios of major banks being well supportive of their standalone credit profiles,” Liao Qiang, a director of financial institutions ratings for Standard and Poor’s in Beijing said today.

‘Strong Liquidity’

“With reasonable loan loss reserves at present, good pre- provisioning profitability and strong liquidity, Chinese banks are likely to gradually absorb potential spikes in credit costs caused by looming bad loans, particularly from China’s property sector and local government financing platforms,” Qiang said.

Chinese banks listed in Hong Kong will likely report “strong” 2010 earnings when they report at the end of the month, BNP Paribas SA said in a report today.

In November, Moody’s Investors Service said that it had “concerns over the intrinsic, stand-alone strength of China’s banking system.” At the same time, the largest lenders weren’t materially damaged by the global financial crisis and aren’t likely to pose any significant contingent liability risk to the government balance sheet, the ratings company said.

Absorbing Losses

“Furthermore, we expect that future credit losses — arising from the surge in lending in 2009, from exposures to the property market, from risky loans to local government financing vehicles, and from off-balance sheet operations in the ‘shadow’ banking system — will be mostly absorbed by the banks themselves, either from capital, or from future earnings,” Moody’s said in a statement.

To limit risks for banks, China has increased oversight of lending to the local-government vehicles, which surged during the nation’s two-year stimulus program. In a March 5 speech to lawmakers, Wen pledged a “comprehensive audit” of local- government debt, while the Ministry of Finance said separately that “local governments face debt risks that can’t be overlooked.”

Banks have also been told to assign a higher risk rating to local-government loans.

The country’s “systemically important” lenders may be subject to an overall capital adequacy ratio of as high as 14 percent when their credit growth is judged excessive, a person with knowledge of the matter said on Jan. 28. Other lenders would need to meet a 13 percent threshold, the person said. The minimum ratio, used to gauge banks’ ability to withstand financial stress, is currently 11.5 percent for big banks.

Lenders including China Minsheng Banking Corp. and Agricultural Bank of China Ltd. (1288) have announced plans to sell more than 80 billion yuan ($12 billion) of shares and 70 billion yuan of subordinated bonds this year.

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U.S. government bonds may post losses like those seen in 1994 if “vigorous” economic growth causes the Federal Reserve to change policy, said Jim O’Neill, chairman of Goldman Sachs Asset Management.

“I’ve been around for 30 years and that includes having gone through 1994 when we probably had about the only savage bear market in bonds” over those three decades, O’Neill, 53, said in an interview in London today on Bloomberg Television’s “On The Move” with Francine Lacqua. “There are a number of circumstances that could lead to a repeat of that, probably the most important one being a very dramatic recovery in growth.”

Treasuries lost 3.3 percent in 1994, according to data from Bank of America-Merrill Lynch & Co., as the Fed almost doubled the target for the federal funds rate to 5.50 percent in response to inflation threats. Treasuries returned 5.9 percent last year even after a 2.7 percent loss in the fourth quarter, the Bank of America-Merrill Lynch data show.

“If we have continued signs of a vigorous U.S. recovery, at some stage the Fed’s going to change their view of the world, and that’s what caused the damage in 1994,” O’Neill said. “So I’m very mindful and on the lookout for that because it might not be very pleasant if it happens.”

Bull Market

Pacific Investment Management Co. Co-Chief Investment Officer Bill Gross said last month that while he anticipates the end of the bull market in bonds, it’s not the beginning of a significant bear market as economic growth and government stimulus fail to translate into broader employment gains. Pimco reduced its holdings of government related debt to the lowest level since January 2009 last month.

O’Neill said today the U.S. won’t suffer the same fate as debt-stricken euro-area members over its budget deficit. The European Union and the International Monetary Fund last year approved rescue packages for Ireland and Greece after concerns about mounting shortfalls pushed up bond yields and eroded confidence in the single currency.

European leaders meet on March 11 at a special 17-nation euro-region summit to agree on a comprehensive package to resolve the region’s debt crisis.

“I don’t think we have a sovereign-debt crisis in Europe. It’s a crisis about European Monetary Union structure and leadership,” O’Neill said. “It’s a test in some ways of Germany’s desire and if Germany stands behind this thing in March full square and simple, European bonds will turn out to be one of the best investments this year.”

In a separate radio interview on “Bloomberg Surveillance” with Tom Keene today, O’Neill said mounting concerns about a pickup in global inflation was “good” because it will prompt policy makers to act.

“If one of the consequences of getting out of this mess is that we sow the seeds for a big pickup in inflation, undoing arguably the best thing that’s happened to the whole world, developed and developing, in my 30 years, that would be bad,” he said. “But in that sense, we’re all sort of vigilantes and I think it’s very difficult for inflation to pick up significantly because it forces a policy response to stop it.”

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South Korea and the United States have signed amendments to their landmark free trade agreement, paving the way for the deal to be voted on by lawmakers in both countries.

The two governments exchanged documents signed by South Korean Trade Minister Kim Jong-hoon and U.S. Trade Representative Ron Kirk, the Ministry of Foreign Affairs and Trade said in a statement Thursday.

Kim and Kirk worked out a hard-fought compromise in early December to salvage the original agreement, which was signed in June 2007. Moves to ratify it had stalled amid changes in government in both countries, the global financial crisis and American demands that South Korea take steps to increase U.S. auto imports and ease restrictions on American beef.

President Barack Obama and South Korean President Lee Myung-bak made a major push last year to restore momentum to the pact, but were unable to achieve a breakthrough when they met on the sidelines of the Group of 20 summit held in Seoul in November. Kim and Kirk eventually hashed out the final deal during four days of negotiations outside Washington about three weeks later.

The two sides agreed to revisions on the elimination of auto tariffs and South Korea said American manufacturers could export a limited number of vehicles that conform only to U.S. safety standards. The beef issue, however, was ultimately not included.

The free trade agreement, which requires approval by the U.S. Congress and South Korea’s National Assembly, is the largest for Washington since the North American Free Trade Agreement with Canada and Mexico in 1994.

Kirk said Wednesday that Obama plans to send the agreement to Congress in the next few weeks, telling the House Ways and Means Committee that Obama hopes lawmakers will approve it in the spring. The administration says that the accord could mean billions of dollars in increased U.S. exports and create tens of thousands of jobs.

The statement by the South Korean ministry said the government will consult with lawmakers to work toward ratification of the agreement by the National Assembly.

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Associated Press writer Jim Abrams in Washington contributed to this report.

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Canadians Trading Short Term Gain for Long Term Pain in Media Merger Review

This week the Canadian Radio-television and Telecommunications Commission will hold hearings on Canada