www.forbes.com Reuters, 01.24.03, 12:32 PM ET

NEW YORK, Jan 24 (Reuters) - Brazilian sovereign bonds drove the emerging debt market lower on Friday as the upcoming Monday release of a key U.N. weapons report kept uncertainty running high, prompting investors to trim some of their holdings. Venezuela's bonds hovered steady as investors saw a glimmer of hope for the oil-reliant economy ravaged by a seven-week-old general strike. Although foes of President Hugo Chavez are maintaining the shutdown, the use of replacement workers has helped lift oil output, which should bolster the finances of the cash-strapped government.

Brazil's share of the J.P. Morgan Emerging Market Bond Index Plus lost 1.33 percent in terms of daily returns, helping to press the broader index down 0.32 percent on the day. Venezuela's portion of the index was little changed.

With weapons inspectors set to deliver their findings of a two-month search for Iraqi arms to the U.N. Security Council on Monday, many investors were lightening their positions or sitting on the sidelines, said traders. If Iraq is found in "material breach" of U.N. resolutions, it could trigger war.

"There's too much in the air for next week so I think people are just a little concerned going into the weekend not knowing what will happen on Monday," said an emerging debt trader. "It's almost like the year-end when people were paring positions just to see what happens."

The war worries have weighed on U.S. stocks and the dollar in recent days as investors fret about the global economic fallout of a possible U.S.-led attack on Iraq. Sliding U.S. markets, in turn, reduce investor appetite for riskier assets, such as emerging debt.

Brazil, in particular, has taken a hit from the Iraq nervousness. Optimism over the economic policies of new President Luiz Inacio Lula da Silva fired up Brazilian bonds in the beginning of the year, giving investors room to take profits.

"In Brazil, I think a lot of guys are just pushing short (positions)," said another emerging debt trader. "It's probably not a bad strategy given people's lack of desire to own anything right now because there's so much uncertainty in the world."

In Venezuela, Chavez is using troops and replacement crews to try to break the strike that is aimed at forcing him to resign or call new elections. Opposition oil workers conceded that crude production was rising and reached 25 percent of capacity at 812,000 barrels per day (bpd) on Thursday. But the government says production is above 1 million bpd.

Investors are also hoping the mediation efforts of former U.S. President Jimmy Carter and a six-nation group led by the United States and Brazil will yield a resolution to the impasse. The group of nations was slated to hold talks in Washington on Friday with Chavez's government and his foes.

"We expect the gradual improvements now underway will fuel a gradual rally back to around 75 on DCB (bonds), up from about 69.5 now, although that rally could take a painful few weeks to develop," said Christian Stracke, head of emerging debt strategy at research firm CreditSights, in a report.

Venezuela's DCB bond <VENDCB=RR> was 0.5 points higher in Friday midday trading at 68.75. (Reporting by Susan Schneider; editing by Phil Berlowitz; Reuters Messaging: susan.schneider.reuters.com@reuters.net, tel: +1 646 223 6319)

news.bbc.co.uk Friday, 24 January, 2003, 16:06 GMT

The head of the oil cartel, Opec, has told delegates at the World Economic Forum (WEF) in Davos that he is powerless to forestall the climb in the oil price.

During the past week, the price of oil has hit a two-year high in response to jitters over the prospect of war in Iraq and a general strike in Venezuela.

"What can we do more? I do not agree there is a lack of oil. The problem of the price is the threat of war," said Alvaro Silva, secretary-general of the Organisation of Petroleum Exporting Countries.

Time is not on North Korea's side

Chung Dong-Young Envoy for South Korean president-elect

So far the gathering in the exclusive Swiss resort of Davos has been dominated by talk of war and gloomy forecasts about the global economy.

Friday's debates will focus on prospects for the sluggish US economy, the enlargement of the European Union and Japan's struggle to return to health.

In addition, there will be sessions on the boom in China and poor growth forecasts for the African continent.

Delegates at Davos were also told that South Korea planned to send a special envoy to its communist neighbour, North Korea, to discuss the region's nuclear tensions.

Meanwhile, US Attorney General John Ashcroft called for greater international cooperation on counter-terrorism measures.

Oil blow

Mr Alvaro's comments crushed hopes that Opec would mandate the pumping of more crude oil should the US start a military campaign in the Middle East.

Ashcroft: Washington has switched terror tactics

Mr Silva said Opec producers, which agreed to a production increase earlier in January, were doing their best to bring crude below $28 a barrel, which is at the top end of the group's targeted price range.

Increasing international tension and a general strike cutting exports from Opec member Venezuela have led to high oil prices, with US crude trading at $32.32 on Friday.

Most Opec members are already pumping oil at full capacity, with only Saudi Arabia and the United Arab Emirates believed to be able to raise production further.

Nuclear fears

An envoy for South Korean president-elect Roh Moo-Hyun told the WEF on Friday that time was running out for North Korea to resolve the dispute about its nuclear programme.

"North Korea must face up to the reality that if it continues to threaten peace, the international community will not simply turn a blind eye," said Chung Dong-Young, co-chairman of the president-elect's Millennium Democratic party.

"Time is not on North Korea's side."

He added North Korea could benefit if it agreed to give up its nuclear programme because Seoul was considering a "bold" reconstruction plan for its isolated neighbour.

In another session, US Attorney General Ashcroft told delegates that the White House had switched tactics following the September 11 attacks.

During a discussion on the impact of counter-terrorism strategies, he said Washington was more concerned with tackling future threats than investigating who was involved in the attacks on the World Trade Center.

"We have shifted our priority from prosecution to prevention," he told world and business leaders, adding that 90 countries were cooperating with the US in the effort.

German optimism

Separately, on the sidelines of the WEF conference, Germany's deputy finance team told delegates that the strong euro was not hurting manufacturing.

Read why Japanese business looks to football for a revival

"So far I do not see a problem, but obviously we have to remain vigilant on further moves," said Caio Koch-Weser.

A rise in the euro could conceivably make it more expensive for German manufacturers to sell their products abroad.

Gerassimos Thomas, a spokesman for the European Commission, added: "The euro has been for a long time undervalued.

"Over the last six months we are seeing a correction by which the euro is more aligned with the fundamentals of the euro area economy."

By Myra P. Saefong, CBS.MarketWatch.com cbs.marketwatch.com Last Update: 11:42 AM ET Jan. 24, 2003

NEW YORK (CBS.MW) -- Crude futures inched higher Friday, but will likely post their second down week this month.

Data on U.S. oil supplies failed to reflect an eight-week-old strike in Venezuela, and oil production from the South American country is headed higher.

Crude for March delivery traded at $32.33 a barrel, up 8 cents on the New York Mercantile Exchange. It closed out last week at $32.95.

The week of Jan. 6 was also a down week for crude, but in five out of the last six weeks, the trading range Friday has been positive, said Patrick Patten, an analyst at technical advisory service United Energy.

"Friday seems to be the day where everyone thinks about the war and doesn't want to be short over the weekend," Patten said.

Also on Nymex, gold futures were poised to end the week up about 3 percent. Investors kept the U.S. dollar and stock market in focus and looked toward a briefing next week by U.N. weapons inspectors on Iraq for clues about whether to buy or sell the precious metal. See Metals Stocks.

"Venezuela is supposedly in the process of getting the oil industry back to work, but it is not clear how cooperative the workers are or how long it will take to resume production," said Todd Hultman, president of DailyFutures.com.

Venezuelan President Hugo Chavez's government now claims that daily oil output has surpassed 1 million barrels, while the opposition, which began its labor strike on Dec. 2, says it's running at around 812,000 barrels per day. Venezuela produced around 3 million barrels per day before the strike began.

Either way, traders realize Chavez is beginning to get some production back on line, said Grady Garrett, chief trading strategist at EnergyTrendAlert.com.

News this week indicates some progress on a resolution to the strike. Some of Venezuela's striking oil tanker pilots reportedly returned to work this week following a government deal to receive back wages.

Iraqi focus

Going into the weekend, Hultman said the biggest news for crude continues to be that "the U.S. and U.K. are headed to war with Iraq, and there is probably nothing that can stop it."

President George Bush will likely make his case to the world in his State of the Union address Tuesday, Hultman said, "showing numerous instances where Iraq is in flagrant violation of U.N. agreements, refusing to cooperate in the disarmament process."

Hultman expects the U.S. and its allies to attack Iraq within a month with the cooperation of Iraq's neighbors.

If that happens, crude prices will likely spike up on the initial news, but the White House will likely announce the release of crude inventories from the Strategic Petroleum Reserve "to soothe the market," he said.

Oil supplies rise

Even though Venezuela's strike is about to enter its ninth week, U.S. crude supplies haven't reflected much of any impact from the loss of oil production in the South American country.

Early Thursday, the American Petroleum Institute reported that crude stocks rose by 181,000 barrels to total 272.4 million barrels in the week ended Jan. 17, up from 272.2 million a week earlier.

The Energy Department said inventories of crude climbed 1.5 million barrels to 273.8 million barrels, up from 272.3 million a week earlier.

Most analysts were expecting a decline because of Venezuela's strike. See full story.

In recent action, petroleum-product prices were mixed. February unleaded gasoline rose by 0.19 cent to 90 cents a gallon. February heating oil traded at 91.05 cents a gallon, down 0.48 cent.

Natural gas inches up

Among other energy futures, natural gas futures rose on expectations for a large decline in next week's U.S. supplies. February natural gas rose 4.2 cents to $5.50 per million British thermal units.

Next week, the Energy Department should report another big decline in U.S. natural-gas supplies, analysts at Fimat said in a report, though starting next week, temperatures will be a lot milder.

The National Weather Service is forecasting normal temperatures for the northern two-thirds of the nation from Jan. 28 through Feb. 1, Fimat said.

On Thursday, the Energy Department reported that natural-gas supplies fell by 210 billion cubic feet during the week ended Jan. 17. Total inventories of 1.985 trillion cubic feet are now 537 billion cubic feet below year-ago levels, and 76 billion cubic feet below the five-year average, the government report said. The data surpassed the year-ago decline of 126 billion cubic feet and was on the high-end of most analyst estimates, Fimat said.

Over in the equities arena Friday, the Oil Service Index ($OSX: news, chart, profile) traded down 1.9 percent after gains of the past two sessions.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, traded at 244.1, up 0.3 percent amid gold's rally. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

By Myra P. Saefong, CBS.MarketWatch.com cbs.marketwatch.com Last Update: 11:42 AM ET Jan. 24, 2003

NEW YORK (CBS.MW) -- Crude futures inched higher Friday, but will likely post their second down week this month.

Data on U.S. oil supplies failed to reflect an eight-week-old strike in Venezuela, and oil production from the South American country is headed higher.

Crude for March delivery traded at $32.33 a barrel, up 8 cents on the New York Mercantile Exchange. It closed out last week at $32.95.

The week of Jan. 6 was also a down week for crude, but in five out of the last six weeks, the trading range Friday has been positive, said Patrick Patten, an analyst at technical advisory service United Energy.

"Friday seems to be the day where everyone thinks about the war and doesn't want to be short over the weekend," Patten said.

Also on Nymex, gold futures were poised to end the week up about 3 percent. Investors kept the U.S. dollar and stock market in focus and looked toward a briefing next week by U.N. weapons inspectors on Iraq for clues about whether to buy or sell the precious metal. See Metals Stocks.

"Venezuela is supposedly in the process of getting the oil industry back to work, but it is not clear how cooperative the workers are or how long it will take to resume production," said Todd Hultman, president of DailyFutures.com.

Venezuelan President Hugo Chavez's government now claims that daily oil output has surpassed 1 million barrels, while the opposition, which began its labor strike on Dec. 2, says it's running at around 812,000 barrels per day. Venezuela produced around 3 million barrels per day before the strike began.

Either way, traders realize Chavez is beginning to get some production back on line, said Grady Garrett, chief trading strategist at EnergyTrendAlert.com.

News this week indicates some progress on a resolution to the strike. Some of Venezuela's striking oil tanker pilots reportedly returned to work this week following a government deal to receive back wages.

Iraqi focus

Going into the weekend, Hultman said the biggest news for crude continues to be that "the U.S. and U.K. are headed to war with Iraq, and there is probably nothing that can stop it."

President George Bush will likely make his case to the world in his State of the Union address Tuesday, Hultman said, "showing numerous instances where Iraq is in flagrant violation of U.N. agreements, refusing to cooperate in the disarmament process."

Hultman expects the U.S. and its allies to attack Iraq within a month with the cooperation of Iraq's neighbors.

If that happens, crude prices will likely spike up on the initial news, but the White House will likely announce the release of crude inventories from the Strategic Petroleum Reserve "to soothe the market," he said.

Oil supplies rise

Even though Venezuela's strike is about to enter its ninth week, U.S. crude supplies haven't reflected much of any impact from the loss of oil production in the South American country.

Early Thursday, the American Petroleum Institute reported that crude stocks rose by 181,000 barrels to total 272.4 million barrels in the week ended Jan. 17, up from 272.2 million a week earlier.

The Energy Department said inventories of crude climbed 1.5 million barrels to 273.8 million barrels, up from 272.3 million a week earlier.

Most analysts were expecting a decline because of Venezuela's strike. See full story.

In recent action, petroleum-product prices were mixed. February unleaded gasoline rose by 0.19 cent to 90 cents a gallon. February heating oil traded at 91.05 cents a gallon, down 0.48 cent.

Natural gas inches up

Among other energy futures, natural gas futures rose on expectations for a large decline in next week's U.S. supplies. February natural gas rose 4.2 cents to $5.50 per million British thermal units.

Next week, the Energy Department should report another big decline in U.S. natural-gas supplies, analysts at Fimat said in a report, though starting next week, temperatures will be a lot milder.

The National Weather Service is forecasting normal temperatures for the northern two-thirds of the nation from Jan. 28 through Feb. 1, Fimat said.

On Thursday, the Energy Department reported that natural-gas supplies fell by 210 billion cubic feet during the week ended Jan. 17. Total inventories of 1.985 trillion cubic feet are now 537 billion cubic feet below year-ago levels, and 76 billion cubic feet below the five-year average, the government report said. The data surpassed the year-ago decline of 126 billion cubic feet and was on the high-end of most analyst estimates, Fimat said.

Over in the equities arena Friday, the Oil Service Index ($OSX: news, chart, profile) traded down 1.9 percent after gains of the past two sessions.

The Reuters/CRB Index, a broad-based measure of the commodity futures market, traded at 244.1, up 0.3 percent amid gold's rally. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

sg.biz.yahoo.com Friday January 24, 7:00 PM Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--After a woeful 2002, the worst- performing year for equities since 1974, the question now facing investors is how to make money in 2003 given the likelihood of war.

Opinion is distinctly divided.

Some pundits see an outbreak of hostilities with Iraq as a likely catalyst to reverse the current grim mood. On the other hand, markets have never been particularly good at discounting political risk and recent heavy market declines could well get worse.

A view widely aired at the moment is that once war starts, a major uncertainty will be banished, giving the equities market an adrenaline shot.

Of course, central to this view is a fast win for U.S. and allied forces in invading Iraq to remove leader Saddam Hussein.

Historically, economic and political crises have been buying opportunities. Mike Lenhoff at Brewin Dolphin says that if, as seems to be happening, the increased likelihood of an invasion can push equities down, the prospect of a successful campaign can push them back up.

But many City of London brokers warn that any relief rally will amount to little more than a classic bear market squeeze.

Anais Faraj, strategist at Nomura, said that even though the outlook for 2003 as a whole doesn't sparkle, it is still wise to pepper a portfolio with a limited amount of risk in view of current geopolitical saber-rattling.

"Of course the best outcome for equities is no war at all, but I would anticipate a big spike up or a possible 20%-30% victory rally if there was a quick military resolution," he says.

However, Faraj cautions that there will be a huge surge in profit-taking once that 20% upside is achieved. He is advising clients to introduce some risk into their portfolios, since these stocks will likely see more upside, but to be aware that any rally isn't likely to be long-lived.

He prefers U.S. drugs group Pfizer Inc. (PFE) and European pharmaceuticals, saying that they look cheap at current levels, but would also hold defensive basic industries such as French cement maker LaFarge SA (LR) and aerospace group Thales SA (F.THL), which has a lot of government contracts.

Kevin Gardiner, strategist at CSFB, said his central case is that the war in Iraq occurs and will be quickly and successfully resolved. He estimates that the most responsive sectors to this scenario would include financials and cyclicals excluding the oil sector.

As a possible hedge, he highlights countries outside the euro zone such as Switzerland and Norway that are likely to have defensive currencies in the event of war with Iraq. Domestic plays in these currencies include Swisscom AG (SCM) and Den Norske Bank.

Oil Price Movements Key

Andrew Archer, oil analyst at Banc of America, believes oil price movements are key. He thinks that the war premium, which has driven the sector to record highs over the past two months, will unwind relatively quickly in the event of a war.

European benchmark Brent crude is trading above $30 a barrel after touching two-year highs in recent weeks. It spiked at $40 per barrel during the "Desert Storm" operation to liberate Kuwait during the last Gulf War in 1991.

"Governments have been building up strategic reserves in anticipation of a conflict in the Middle East," Archer said. "The release of U.S. strategic reserves on the first day of Desert Storm saw the oil price fall $10 a barrel. Hence as CNN showed pictures of burning oil fields, oil prices were falling."

U.S. strategic reserves amount to almost 600 million barrels. At the same time, any resolution to the general strike in Venezuela should drive down oil prices.

Investors may also have to grapple with the prospect of war being postponed or the Arab response if there is no United Nations mandate for a U.S.-led invasion. In this case, analysts say cyclicals would continue to underperform defensives.

Continuing strength in oil prices would then be a concern. Those sectors with the highest exposure to energy as a percentage of costs include chemicals at 60%, building materials at 20%-25%, metals and mining at 20% and cement at 25%.

Airlines would also be at risk - globally, 12%-14% of costs to the industry are fuel-related. Goldman Sachs recently cut estimates for five European flag carriers saying that, even before any war risk, 2003 is likely to see sharp capacity and cost growth against a background of stagnant demand.

Protracted War Still Possible

"What isn't priced into the market is a protracted war that disrupts oil supplies, which will have a detrimental impact on the G7 economies," said Philip Shaw, an economist at Investec Securities.

"The terrorist threat is also impossible to quantify," he added.

Khuram Chaudry at Merrill Lynch said the parallels currently being drawn in the market with 1991 are overdone. "The repercussion of a war will be far greater than the market currently anticipates and I would advise investors to remain overweight defensive assets such as bonds, utilities and oil," he said.

He favors European telecoms, which he says should continue to benefit from restructuring.

"Some perceived defensives may have a very cyclical spread around the globe. Hence investors should look to utilities that haven't grown outside their own market but should avoid pharmaceuticals," Chaudry added.

But even if there is a swift resolution to geopolitical tension, a regime change in Iraq isn't going to prove the miracle cure for European economies.

Although 2003 started off well, with the U.S. December Institute of Supply Management Survey hinting that manufacturing activity could be edging toward recovery, macroeconomic data since then have failed to live up to expectations. Overall, the global economic complexion depicted is one where growth remains subdued.

The outlook for earnings also raises questions as to whether the market can break out of its negative three-year trend. Technology giants Microsoft Corp. (MSFT), Intel Corp. (INTC) and International Business Machines Corp. (IBM) all rattled Wall Street with their lackluster forecasts.

Analysts at Dresdner Kleinwort Wasserstein say Federal Reserve Chairman Alan Greenspan's "economic soft-spot" thesis is too cuddly a description of the current economic picture. "Economic wasteland," would be more apt, they suggest.

They remain underweight equities and believe the outlook for the rest of the year is turbulent, whatever happens in Iraq.

-By Maria Daly, Dow Jones Newswires; +44-20-7842-9308; maria.daly@dowjones.com