reuters.com Wed January 22, 2003 01:36 PM ET By Andrea Ricci

NEW YORK (Reuters) - The dollar was barely changed on Wednesday as it consolidated after recent losses, but dealers said the greenback remained vulnerable to news on Iraq.

The dollar, which has plumbed fresh three-year lows against the euro for five sessions in a row, climbed off the latest low of $1.0744 per euro reached during Asian trading hours but failed to make much headway.

It was the same story against the Swiss franc, where the dollar was idling above four-year lows touched on Tuesday.

"The dollar has had a really big move down, and there are still people who are looking for a correction ... and willing to buy on dips," said Bob Lynch, currency strategist at BNP Paribas in New York.

"But by and large, the dollar's declines against the euro and the Swiss franc are intact," he said.

The dollar has fallen almost uninterrupted since early December on worries over possible war with Iraq, and dealers said that the bias toward the greenback would remain negative as long as geopolitical tensions persisted.

The White House kept up the pressure on Iraq on Wednesday, with President Bush warning Iraq's military that its members would be prosecuted as war criminals if they used weapons of mass destruction on U.S. troops or their own people.

In early afternoon in New York, the dollar was trading at $1.0716 per euro, nearly flat on the session but above the overnight lows. Against the Swiss franc, it was up about a tenth of a percent at 1.3641 francs to the dollar, above the four-year low of 1.3605 struck on Tuesday.

DOLLAR NOT TOO WEAK?

The dollar's sharp decline has not gone unnoticed by policymakers outside the United States; but in Europe at least, few appear concerned.

Indeed, European Central Bank council member Ernst Welteke told the German sister paper of the Financial Times that the dollar was not too weak on foreign exchange markets and needed no support.

Japan, on the other hand, on Wednesday once again reminded the market that it was ready to act against foreign exchange moves which were too rapid. Japan would like a weaker yen to help its export sector, and its threats of yen-selling intervention have given support to the dollar.

Japanese Prime Minister Junichiro Koizumi was one of a number of officials who weighed in on Wednesday, with Koizumi saying the government would take appropriate action on foreign exchange as needed.

The dollar was at 118.29 yen JPY= in early afternoon in New York, up 0.16 percent.

Dealers said the White House policy toward the dollar appeared to be one of benign neglect, but most were waiting to see how John Snow, the White House nominee for Treasury Secretary, addressed the issue.

Snow goes before the Senate for confirmation hearings next Tuesday.

The White House on Wednesday said it was confident Snow would be confirmed, despite revelations that he had been arrested in 1982 on a drunk driving charge, which was dismissed, and had been involved in a child support payment dispute in 1988.

VENEZUELA ENACTS CURRENCY CONTROLS

In Venezuela, the central bank on Wednesday said it was closing the country's foreign exchange market for five trading days as the government moved to stem capital flight spurred by a crippling seven-week opposition strike against leftist President Hugo Chavez.

The bolivar has tumbled more than 24 percent against the dollar since the start of this year and 28.5 percent since the strike started on Dec. 2.

Clyde Wardle, emerging markets currency strategist at HSBC in New York, said the central bank wanted to give the market a breather.

"The bank is hoping that in the next few days there might be a resolution to the strike, which would lead to a pullback in the bolivar," he said.

But without movement on the strike front, the central bank's efforts were unlikely to be successful, he said.

"If there is no progress on ending the strike, or at least seeing the two sides come closer together, then what we may see is that the central bank extends the moratorium," he said.

reuters.com Wed January 22, 2003 01:26 PM ET By Pedro Nicolaci da Costa

NEW YORK (Reuters) - Treasuries trudged higher on Wednesday, but trading was muted as uncertainty over the prospect of a U.S. war against Iraq forced investors to play a waiting game.

A drop in stocks following a number of lukewarm corporate earnings reports also benefited safe-haven bonds.

"There's fear, fear of war," said Bill Hornbarger, chief fixed-income strategist at A.G. Edwards & Sons in St. Louis. "That's really the thing that is hanging over the financial markets right now."

Government debt will likely remain stuck in its current range, with yields on the benchmark 10-year note US10YT=RR hovering around 4 percent until further developments on Iraq lend the market a sense of direction, Hornbarger said.

After a wave of selling that started the year when a flood of fund managers and traders dumped government bonds and shifted funds into the equity market, Treasuries have retraced most of their losses and two-year yields are back close to record lows.

At 12:40 p.m. (1740 GMT), two-year notes US2YT=RR edged up 1/32 in price for a yield of 1.63 percent from 1.64 percent on Tuesday. Five-year notes US5YT=RR added 6/32 giving a yield of 2.88 percent from 2.92 percent on Tuesday.

Benchmark 10-year notes added 9/32 in price taking yields to 3.94 percent from 3.97 percent. The 30-year bond US30YT=RR advanced 13/32 to 107-23/32, yielding 4.87 percent, versus 4.90 percent at Tuesday's close.

A weekly ABC News/Money magazine report showing a record drop in consumer confidence to a fresh nine-year low in the latest week also reinforced feelings of malaise surrounding the economy.

Meanwhile, disappointing earnings results from corporate giants like Motorola Inc. MOT.N and Eastman Kodak EK.N and J.P. Morgan Chase JPM.N burdened the stock market, dragging major indices lower on the day and giving the bond market a modest safe-haven bid.

"The Street is short, corporate earnings are bad, stock prices are lousy, there's a chance of war," said Vincent Verterano, head governments trader at Nomura Securities. "There's no place for investors to put their money, so they're putting it into Treasuries again."

Michael Moran, chief economist at Daiwa Securities, said should the U.S. go to war, the economy risked slowing further.

"Two things point in that direction. One is what might happen to oil prices and what might occur in terms of terrorist retaliation. Both of those things could crimp economic activity," Moran said.

Global oil production has already been crippled by general strike in Venezuela, now in its 52nd day, aimed at ousting President Hugo Chavez. News that the South American country shut down its forex market for five trading days, looking for ways to curb capital flight amid the ongoing political crisis, was also supportive for U.S. Treasuries, analysts said.

NYMEX crude oil futures CLH3 were little changed on Wednesday, but at $33 a barrel, are well above the roughly $20 a barrel at which they traded just a year ago.

www.creditman.biz   Jan 22 2003 The number of manufacturers operating below capacity has risen to a 20 year high, fuelled by a relentless two-year decline in orders and output.

The CBI's Quarterly Industrial Trends survey, published today (Wednesday), also shows manufacturers' confidence dropping further as weak global demand threatens to keep the sector mired in recession.

Seventy-four per cent of firms are now working below capacity, the highest percentage recorded since January 1983. This follows two consecutive surveys where 67 per cent of companies operated under capacity.

The survey says 31 per cent of firms saw a fall in total orders in the four months to January, while 22 per cent saw a rise. The balance of minus nine per cent follows the minus 16 per cent recorded in the October survey, and marks the eighth consecutive quarter of declining demand.

Output also fell and firms no longer expect any noticeable rise in either orders or output over the next four months. This follows three consecutive quarters in which expectations for rising demand and production were disappointed.

Conditions in overseas markets have continued to deteriorate. Export orders fell at the fastest rate for a year while the decline in export prices accelerated to the fastest rate since July 2000. As a result, export optimism for the year ahead fell for the second consecutive quarter.

Overall optimism also fell, with 30 per cent of firms less optimistic about the business situation than four months ago, and eleven per cent more optimistic. The balance of minus 19 per cent matches the figure recorded in October and compares with plus four per cent in July.

Employment fell further than expected, with no sign of respite over the next four months. The CBI predicts 42,000 manufacturing job losses in the first quarter of 2003.

Firms plan to cut investment in buildings, plant and machinery at a significant rate over the next 12 months. Projections for spending on innovation are flat, but encouragingly, plans for training expenditure are holding up surprisingly well.

The employer's organisation chose not to call for an immediate cut in interest rates because of the uncertain effects of housing market developments and the government's tax-and-spending policy on inflation. But it urged the Bank of England to remain vigilant and act swiftly if the economy deteriorates further.

Ian McCafferty, CBI Chief Economist, said: "Large sections of UK factories are standing idle. Figures show the number of manufacturers working below capacity has risen to a 20-year high, causing firms to plan further cuts in investment and jobs. With little let-up in the two-year decline in orders and output, the overall picture will concern manufacturers.

"External demand shows no sign of a pick-up and the German economy is worsening. Rising oil prices have been exacerbated by problems in Venezuela and uncertainties in the Middle East. April's rise in National Insurance contributions will be a blow to firms that are already under the cosh. This promises to be another challenging year for manufacturers."

Prices fell further than expected last quarter for the third consecutive survey, and firms expect a further, albeit more modest, decline next quarter. Manufacturers have now been subject to serious price deflation for four years.

www.forbes.com Reuters, 01.21.03, 1:36 PM ET By Hugh Bronstein

NEW YORK, Jan 21 (Reuters) - Emerging market bond prices edged lower on Tuesday as investors, already nervous about the outlook for the bellwether U.S. economy, cashed in profits earned from Brazil and other Latin American countries since the start of the year.

Traders said the market was not being driven by news. Rather, they said, investors took a breather after bidding Brazilian bonds more than 5 percent higher over the last three weeks.

"You can point to nervousness over the possibility of a war with Iraq, but I think it has more to do with the fact that the market had been up for a while, it stalled and then someone woke up this morning and decided to lessen their position," said Paul Masco, head of emerging market trading at Salomon Smith Barney.

"Selling always begets more selling," he said. "No one wants to be alone out here."

If the United States leads an attack on Iraq, investors fear Latin America could suffer from any short term economic shock waves.

Benchmark Brazil C bonds <BRAZILC=RR> lost 1.0 point to bid 68-3/4. Mexico PAR bonds <MEXPAR=RR> shed 1/8 to bid 98-7/8. Due to Mexico's close trade ties to its northern neighbor, the country is particularly vulnerable to U.S. economic troubles. "As soon as you have any concern or risk looming on the horizon for the U.S. economy, Mexico suffers," said Fernando Losada, senior Latin American economist at ABN-AMRO. "Because there is a lot of uncertainty about a war with Iraq, people in Mexico are nervous."

MARKET DOLDRUMS OVERSHADOW ECUADOR NEWS Despite market predictions that Ecuador would rally on the back of a government austerity plan unveiled over the weekend, the country's total returns slumped 3.26 percent on Tuesday, according to JP Morgan's Emerging Markets Bond Index Plus. "I don't think this necessarily has anything to do with Ecuador specifically," Masco said. "The whole market is lower."

Ecuador's new president, Lucio Gutierrez, will freeze wages and raise fuel prices under an austerity decree aimed at closing a financing gap inherited when he took office, the government said on Sunday.

The decree raises the price of the most commonly used gasoline from $1.12 to $1.48 a gallon for consumers, a hike that some of Gutierrez's leftist and Indian supporters have threatened to protest. Venezuela total returns, already battered by the country's sharp economic downturn and political instability, fell 2.5 percent, adding to losses of 8.36 percent since Jan. 1.

Nobel Peace Prize winner Jimmy Carter said on Tuesday he had proposed an agreement on elections aimed at ending a political impasse between leftist Venezuelan President Hugo Chavez and his foes.

The former U.S. president said after talks with Chavez in Caracas his blueprint included an end to the seven-week-old opposition strike that is crippling the economy of the world's No. 5 oil exporter. Strike leaders have been calling for the populist president to resign and hold early elections.

news.bbc.co.uk Tuesday, 21 January, 2003, 11:53 GMT

Worries over cuts in oil supplies boost the price

The price of oil touched two-year highs on Tuesday, as the build-up of troops in the Gulf tested the nerves of oil traders.

With the prospect of a war in Iraq becoming ever more likely, trading remained volatile as fears of an oil shortage pushed up prices.

The US Secretary of State, Colin Powell, told the United Nations Security Council that it should not be scared into "impotence" when it came to dealing with Iraq.

The markets are still very edgy with both Venezuela and Iraq remaining the key issues

Simon Games-Thomas Oil analyst

In London, Brent crude edged up 37 cents to $31.02 a barrel, while US light crude rose 44 cents to $34.35, its highest since December 2000.

A seven-week-old general strike in Venezuela has also limited oil exports and helped boost the price.

"The markets are still very edgy with both Venezuela and Iraq remaining the key issues," said independent oil analyst Simon Games-Thomas.

"Prices appear destined to trade higher given the current set of drivers and $35 beckons inexorably in the short term," Mr Games-Thomas added.

Shredded nerves

The shooting of contractors working for the US military in Kuwait, resulting in one fatality, also added to the pressure.

A report from Hans Blix could affect prices

Oil traders are concerned that any war in Iraq would limit supplies, despite the resolve of the oil cartel, Opec, to maintain the flow.

Just over a week ago, Opec agreed to increase official production after an emergency meeting in Vienna.

"Opec is trying to send a very strong message that it will do its utmost to stabilise demand and supply," said the cartel's president Abdullah bin Hamad al-Attiyah.

The release of a major report by Chief UN weapons inspector Hans Blix next Monday will provide further direction for the oil price.

The evaluation of the report on 29 January could provide more clues as to the likelihood of a war.

Tension builds

Both the US and the UK are planning a major deployment of forces in the Gulf.

On Tuesday, the US announced it would send nearly 37,000 more personnel to the area in preparation for possible military action.

Meanwhile, the nationwide strike in Venezuela - designed to bring about the resignation of President Hugo Chavez - is strangling oil supplies.

As the world's fifth-largest exporter, Venezuela accounts for 13% of US petroleum imports.

A shortfall in supplies has cut US commercial crude stockpiles to 26-year lows.