www.forbes.com Reuters, 01.10.03, 8:47 AM ET By Dominique Vidalon

PARIS, Jan 10 (Reuters) - The reporting season heats up next week and investors hope for positive signals from top European retailers and from technology giants on both sides of the Atlantic that may inject confidence into glum stock markets.

France's Alcatel <CGEP.PA> talks strategy on Tuesday while quarterly earnings from Microsoft (nasdaq: MSFT - news - people) and more sales data from British retailers may bolster markets knocked down by mounting evidence of weak corporate earnings. Profit warnings from the likes of British retailer Dixons <DNXS.L> have nearly derailed a new year rally in major European indexes after three straight years of losses.

Expected U.S.-led military action in Iraq coupled with confrontation between the U.S. and North Korea over nuclear arms and political upheaval in Venezuela also weighed.

"Earnings growth remains elusive and war in Iraq looms large. Until investors can price in a recovery in earnings, markets are going nowhere fast," said Deutsche Bank analysts in a research report released this week.

THE CONSUMER STILL IN LIMELIGHT The week starts with more Christmas season trading updates from top European retailers like Pinault-Printemps-Redoute <PRTP.PA>, Marks & Spencer <MKS.L> and Germany's KarstadtQuelle <KARG.F> -- amid worries consumer confidence, one of key engines of European growth, is starting to crack.

The sector was pummelled this week after Britain's biggest electronics retailer Dixons warned on profits after poor Christmas sales.

"As for year-end sales, it's hard to say if it's just an accident along the way, or if this heralds a bigger slowdown for the retail sector," said CIC analyst Emmanuelle Thollon Pommerol.

British retailers GUS <GUS.L>, New Look <NEW.L>, Woolworth <WLW.L>, Sainsbury <SBRY.L>, Burberry <BRBY.L>, the luxury fashion label, and women's fashion retailer Monsoon <MSN.L> all report next week.

In Germany, KarstadtQuelle AG <KARG.DE>, Europe's largest department store and mail order group, issues a trading statement on January 13, which is expected to add to national sector gloom.

Investors will focus on whether the group meets its stated goal of a three percent decline in sales in 2002.

Its bigger rival Metro <MEOG.DE>, which is less exposed to the difficult German market, this week revealed a four percent rise in sales, falling short of its own goal, while the 2002 sales of French supermarket group Carrefour also disappointed.

In France, household appliances group Seb <SEBF.PA> posts annual sales on Tuesday followed by electrical equipment supplier Rexel <CDME.PA> on Wednesday and by Rexel's parent Pinault-Printemps-Redoute <PRTP.PA> on Thursday.

"There is a risk that (PPR) Q4 sales could disappoint, however Gucci had already reported and mail order seems to be reasonably robust," said BNP Paribas in a research note.

TECH NERVES As a slew of U.S. technology giants open up their fourth quarter books next week -- including Apple Computer (nasdaq: AAPL - news - people) on January 15 and software giant Microsoft and Juniper Networks (nasdaq: AAPL - news - people) on January 16 -- investors brace for further earnings shocks which may hit software and network equipment makers.

"Looking at this week's reports, risk is that the data will be below expectations, which would potspone a profit recovery to the second half of 2003, possibly 2004," said Aurel Leven strategist Jean-Noel Vieille.

Bad news largely outpaced good news in the technology sector this week. Personal computer maker Gateway (nyse: GTW - news - people) warned of a deeper quarterly loss than previously expected while Intel (nasdaq: GTW - news - people), the world largest chipmaker, predicted little improvement in technology spending in the next six months and Dutch electronics firm Philips <PHG.AS> no recovery in the semiconductor market in 2003.

Dutch chip equipment maker ASML <ASML.AS> will post yearly sales on January 16 amid worries over falling capacity and utilisation at its largest client Taiwan Semiconductor Manufacturing Co (TSMC) <2330.TW>.

In France, telecoms equipment giant Alcatel, which last month predicted a furter deterioration in its markets in 2003, will discuss its strategy at a January 14 meeting ahead of full year earnings on January 30.

Investors will focus on whether Alcatel sticks to a prediction that fourth quarter sales should grow by about 20 percent from the third quarter.

Elsewhere investors also await third quarter sales from French heavy engineering group Alstom <ALSO.PA> on January 16 after market rumours on its financial health knocked down its shares this week.

WAITING FOR OPEC Investors also await the outcome of an emergency meeting of the Organisation of the Petroleum Exporting Countries (OPEC) on Sunday to discuss plans to raise output in a bid to cool rampant oil prices which are threatening world economic growth.

"But as long as we do not get a clearer picture on Iraq, uncertainty will continue to steer oil prices," said JCF Group strategist Jean-Luc Buchalet.

U.N. inspectors late Thursday gave a mixed interim report on Iraq's arms programmes.

The next U.N. inspection report is due January 27 and that date is often viewed as a decisive moment on whether Iraq's cooperation has been sufficient to head off military action.

On the data front, investors will scan U.S. December retail sales on Tuesday along with Wednesday's Beige Book and Friday's University of Michigan's preliminary consumer sentiment for January amid growing doubts consumer spending can hold up.

www.forbes.com Reuters, 01.10.03, 7:57 AM ET By Suleiman al-Khalidi

AMMAN, Jan 10 (Reuters) - A senior World Bank official said on Friday that the possibility of war in Iraq was hanging like a "sword of Damocles" over the prospects for reforms and economic recovery right across the Middle East.

Jean-Louis Sarbib, the World Bank's Vice President for the Middle East and North Africa, said the region would be hit dramatically by the consequences of a U.S.-led war on mainstay sources of income such as oil, remittances and tourism.

"The region has had two major impacts. The first has been the overall slowdown of the world economy. The second has been essentially September 11 and its immediate impact on the countries that rely on tourism as an export," Sarbib said.

"Combined with the concerns about the situation that may or may not develop in Iraq, that is making the Middle East a place where the economic environment and the investment climate on a technical side are not the most attractive and where the risks are perceived to be very high," he told Reuters in an interview.

Egypt, Morocco and Jordan in particular have suffered from holidaymakers' reluctance to visit the region. Other states reliant on oil imports have also been hit hard.

Oil prices have soared by 25 percent in the last two months to touch two-year highs because of an export halt in Venezuela and fears of more shortages if U.S. forces massing in the Gulf launch military action to disarm Iraq.

"If you are an oil exporting country it's good. If you are an oil importing country that's not so good. So that's where the balance is going to be," he added.

The World Bank's latest 2003 growth prospects for the region hinge on whether conflict in Iraq occurred. If conflict is averted and confidence in the region is gradually restored, the region's growth is forecast to increase to 3.7 percent by 2004.

Despite high oil prices that propped up Gulf oil producers, a global economic slowdown has sapped oil exports and the region's overall estimated GDP growth declined to 2.5 percent in 2002, down from 3.2 percent in 2001.

INVESTMENT WANES, SOCIAL TENSION BREWS In 2002 foreign direct investment (FDI) in the region suffered from a sagging global economy, which has reduced private flows by at least 25 percent to developing countries since 1997.

"FDI in the region is even lower than in sub-Saharan Africa, and that says something about the attractiveness of the investment climate in the region," Sarbib said.

"You are not going to see a rush of private investment in the region and I am not talking simply about foreign direct investment. A lot of the money from the region is invested outside the region," he added.

A conflict in Iraq would also hit confidence in fragile capital markets and possibly trigger cross-border capital flows particularly from countries near war zones, he said.

Sarbib said "the sword of Damocles over the region as to whether or not the United States is going to have a war with Iraq" was prompting already nervous governments to drag their feet over International Monetary Fund-guided structural reforms.

"There are social tensions exacerbated by the very understandable fear of governments to create any more social unrest at a time when populations are very edgy," Sarbib said.

Serious reforms are needed to create jobs and cut poverty across the middle east and north Africa region, in which 80 million people or some 30 percent of the population live on less than $2 a day.

But Iraq worries are adding to worsening living conditions and ongoing Israeli-Palestinian violence to make governments even more hesitant to embark on politically difficult reforms.

"So all of these things create a very fragile and very tense environment in which decision makers are understandably not ready to jump ahead into reforms," Sarbib said.

"Right now it's such a volatile, such a difficult environment...but if you have a world economy that is not particularly growing or healthy in a region that is on edge right now then you are not going to do (reforms)," he added.

Reuters, 01.06.03, 12:44 PM ET By Hugh Bronstein

NEW YORK, Jan 6 (Reuters) - Brazilian sovereign bonds shot higher on Monday as investors returned from their winter holidays, took a fresh look at Brazil's new president, the former hard left union boss Luiz Inacio Lula da Silva, and liked what they saw.

Since winning October's election and being sworn in last week, Lula has increased his appeal on Wall Street by appointing a confidence-inspiring Cabinet and promising not to bust the budget in his quest to help the poor.

"In the short term people are feeling positive about Brazil because, so far, Lula has said and done the right things," said Americo DaCorte, managing partner at Latin World Asset Management in New York.

Benchmark Brazil C bonds <BRAZILC=RR> rose 1-7/8 to bid 70. The bonds have risen more than 20 points from the depths of last summer when fear of Lula was at its highest, based on his notoriety among investors for once advocating default in order to steer money toward the needy.

"In Brazil there are more buyers than sellers even at these higher levels," said one emerging debt trader. Brazil C bonds started last year trading in the high 70s before election-related uncertainty took its toll.

The Lula government has pledged to place pension reform high on the agenda when Congress reconvenes in February; music to Wall Street's ears as Brazil's bloated social security system is one of the greatest drains on its public finances.

"People are putting their money into countries that they think are going to do the right thing," DaCorte said. "And as of today, Jan. 6, people believe that Brazil is going to do the right thing."

Lula, who was once jailed for his opposition to Brazil's 1964-1985 military dictatorship, won this year's campaign after steering his rhetoric toward the political center. Also contributing to his win, Lula refused to participate in the country's notoriously negative campaigning, dubbing himself the candidate of "peace and love."

PEACE AND LOVE IN BRAZIL, NEITHER IN VENEZUELA Venezuela bonds meanwhile traded flat to lower -- with total returns edging down by 0.9 percent -- as a five-week-old national strike ate into the nation's economy and investor confidence.

"The longer the crisis goes on the more you have to believe that the ability as well as the willingness of the government to pay (its bond service) is going to be affected," DaCorte said. "It's a deteriorating situation."

Venezuelan President Hugo Chavez has vowed to punish opposition strikers for crippling the country's oil industry. His opponents, who demand that he resign and hold early elections, have pledged no letup in the conflict, which has plunged the world's No. 5 oil exporter into economic chaos.

Chavez was democratically elected in 1998 vowing to wrest control from the country's corrupt elite and enact reforms to help the poor. But opposition has grown amid charges the president wants to establish a Cuban-styled authoritarian state.

Merrill Lynch on Monday cut its allocation of Venezuelan bonds to underweight from market weight in its model portfolio, suggesting investors increase allocations to Ecuador, an oil producer benefiting from higher world crude prices.

Ecuador bonds got a boost on Friday when the incoming government of Lucio Gutierrez named respected economic consultant Mauricio Pozo as finance minister, a move seen by analysts as opening the door to a much-needed International Monetary Fund deal.

"The announcement of the finance minister last week is still drawing money into Ecuador," one emerging debt trader said.

JANUARY 6, 2003 STREET WISE By Geri Smith

Investors take note: Improvement in the region's economic picture depends largely on what happens in the U.S. and even more so in Brazil

For many in Latin America, 2002 was a year to forget. Argentina's economy shrank by 14% following a disastrous currency devaluation and a messy default on its international debt. As a result, neighboring Uruguay was forced to devalue its own currency.

Brazil had a turbulent year full of election jitters, as investors fretted that it might default on its $250 billion net public debt. And Venezuela spent the entire year in political limbo, as beleaguered President Hugo Chavez survived a military coup in April only to face an intractable, month-long civic strike and near-shutdown of the country's vital oil industry that continues today.

The region's woes weren't entirely homegrown, however. Capital flows to Latin America virtually dried up in 2002, as Enron and other corporate scandals soured investors on all but the most familiar of investments. Since the Russian crisis in 1998, capital flows have fallen from 5% of regional gross domestic product to less than 1%, according to the Inter-American Development Bank. And spreads on Latin American debt spiked upward in mid-2002, along with U.S. junk bond rates, making it difficult to issue new debt.

AS BRAZIL GOES...  Foreign direct investment (FDI) flows are just half what they were at their 1999 peak. For a region with insufficient domestic savings, the drying-up of portfolio flows and FDI put a significant damper on growth. Latin American economies shrank on average 1% in 2002. The outlook for 2003 isn't much better: growth of perhaps 2% at most.

Two big question marks could challenge even the most conservative estimates for the region's growth: the U.S. economic recovery and the new Brazilian government's policy direction. If the U.S. rebounds after the first quarter, the benefit would spread all the way to Patagonia, especially Mexico, which sends nearly 90% of its exports north of the border. A sluggish U.S. economy or continuing corporate scandals would do little to ease emerging markets' interest rate spreads.

Of even greater concern is the outlook for Brazil. During 2002, investors were worried that a victory by leftist candidate Luiz Inácio Lula da Silva would unleash a spending spree. But President da Silva, inaugurated on Jan. 1, has reassured the markets by naming respected economists and businesspeople to key government finance positions. "Lula measured the costs and benefits of breaking with the markets long ago, and he realized that he had a lot to lose by doing so," says Gray Newman, chief Latin America economist for Morgan Stanley in New York.

INFLATION PATROL.  The new administration realizes it must stay within budget and exercise great fiscal responsibility to reassure financial markets. "Although they hope at some point they can do things differently, at least initially they are committed to the idea that they can't print money to do what they want to do," says Newman.

Indeed, one of Lula's biggest challenges will be to promote economic growth without exacerbating Brazilian inflation. The cost of living rose by around 12% in 2002 -- triple the planned-for rate. But vanquishing triple-digit inflation was one of the key achievements of former President Fernando Henrique Cardoso. It not only improved the living standards of Brazil's poor but it convinced foreign investors to make the country the region's largest recipient of FDI in recent years. Lula's economic team likely will have to keep interest rates -- currently 25% -- high just to keep growth at just 2% to 2.5% this year.

Even Mexico, which along with Chile is one of region's few oases of economic stability -- and investment-grade ratings -- has to keep an eye on inflation: The Central Bank missed its target for the first time in four years, registering inflation of nearly 6%, compared to its 4.5% target. That overshooting was due mainly to the Mexican Congress' failure to approve fiscal reform. To boost revenue, the administration of President Vicente Fox hiked prices on gasoline and electricity by 16.5%. Central Bank President Guillermo Ortiz, whose six-year term ends in December, is likely to pursue a tight monetary policy so he can exit in style.

MUDDLING THROUGH?  Considering the less-than-rosy outlook, investors should venture into Latin America only if they believe in a timely U.S. recovery. Mexico is the safest bet because of its export potential and its still fairly robust consumer market. Leading retailer Wal-Mart de Mexico (WALMEXV.MX ) manages to outstrip competitors even in a slow economic environment, while dominant telecom Telmex (TMX.N ) continues to hold onto the lion's share of long-distance business.

And America Movil (AMX.N ), a spin-off of Telmex' cell-phone company that has snapped up mobile-phone operations throughout Latin America, including Brazil, offers investors a chance to get in on the still fast-expanding market for wireless telephony in the region.

If Brazil manages to avoid fireworks this year, the region should muddle through. Lots of upside can be found in Brazilian equities, which dropped 44% in dollar terms in 2002. Among the possibilities: Utilities, telecoms, and even state-run oil company Petrobras (PBR.N ), whose ADRs are now trading at around $13.50 on the New York Stock Exchange, down from around $20 a year ago.

LOW EXPECTATIONS.  The region's biggest challenge remains battling poverty. Latin America needs to grow 4% annually to make any progress at all in combating this scourge, according to most economists. Yet it has averaged only 1.7% annual growth in the past five years.

Poverty is still very much on the rise: The proportion of Latin Americans living on less than $2 a day rose from 40% to 43% from 1998 to 2001. More than 6 million people joined the ranks of the "extremely poor," subsisting on less than $1 a day. Per capita income is lower than it was in 1997, and investment is at its lowest in a decade. No wonder polls show that two of every three Latins believe economic conditions are bad or very bad, and only 25% expect improvement in the future.

That perception has soured support for free-market policies.

"Investors will be looking very closely at countries' ability to stick to pro-market reforms," says Guillermo Calvo, chief economist for the Inter-American Development Bank. "It will be difficult for politicians to explain to their constituents why it's taking so long for growth to pick up."

For investors, that's a sobering outlook for a region that thought a decade of painful economic reforms would have born fruit by now.

Reuters, 01.06.03, 8:56 AM ET By Nigel Stephenson

LONDON, Jan 6 (Reuters) - Gold hit its highest level for almost six years on Monday, oil hovered near two-year peaks and the dollar slipped as the United States and Britain were reported readying troops for possible action in Iraq.

Stocks dipped in Europe in the first full trading week of the year after a profit warning from Dutch airline KLM <KLM.AS> and British insurer Britannic showed the earnings picture was cloudy at best, although Asian shares rallied.

Gold <XAU=>, seen as a safe haven in turbulent times, hit a high of $356.25 an ounce, pushing past the previous high of $353.75 touched last month, its highest since March 1997. It later pulled back to $354.65.

"Gold should remain firm for some time to come with the threat of war between the U.S. and Iraq and/or North Korea," said James Moore, metals analyst at TheBullionDesk.com.

The metal's price has soared in the past month as tension has mounted over possible war in Iraq, North Korea's nuclear brinkmanship and as the U.S. dollar has fallen. Bullion is 28 percent higher than this time last year.

The U.S. military has put at least 275 Army Reserve units, involving more than 10,000 soldiers, on alert to be ready to move overseas as soon as this week, the USA Today newspaper reported on Monday. Britain will begin deploying troops to the Gulf on January 15, the London Sunday Times reported.

Oil, which has surged in recent weeks on fears war in the Middle East could disrupt supplies and as a strike in Venezuela has strangled exports from that country, stayed within a dollar of two-year highs.

However, it pulled back from peaks after the OPEC cartel said it would hike output to cover lost supplies from Venezuela.

Brent crude for February delivery was last at $30.55 a barrel, down 22 cents after some profit-taking. It hit a 15-month high of $31.02 a week ago. U.S. crude was at $32.65 a barrel, down 43 cents and off a two-year high of $33.65 hit on December 30.

"Prices are off a little after a big rise during Christmas and the New Year," said Richard Savage of Bank of America. "With uncertainty over the Venezuelan strike and OPEC's response, I would expect volatile trade over the next few days."

DOLLAR SLIPS AGAIN The dollar, seen at risk from the economic fallout of any war with Iraq, fell again on Monday, hovering above recent lows. It was last at $1.0480 per euro <EUR=>, nearly half a cent above last week's three-year low beyond $1.05.

Against the safe-haven Swiss franc <CHF=> it was half a percent down at 1.3891 francs, above the four-year low of 1.3805 set last week.

"Dollar weakness is feeding off the Gulf situation," said Neal Kimberley, senior foreign exchange manager at Bank of Tokyo Mitsubishi. "The market is in weak dollar mode and wants to see how far it can go."

The greenback was half a percent down on Friday's levels at 118.65 yen <JPY=>, about a yen above a 3-1/2 month low set last week. Wariness about potential Japanese intervention to sell the yen increased after Finance Minister Masajuro Shiokawa said there was a global perception the currency was too strong.

European stocks were lower after a surge in Tokyo shares.

At 1345 GMT the FTSE Eurotop 300 index <.FTEU3> was down 0.78 percent while the narrower DJ Euro STOXX 50 index <.STOXX50E> was down 0.3 percent.

KLM shares fell after the airline said it was unlikely to achieve a full-year operating profit as worsening economic conditions and geopolitical instability hit traffic.

Shares in Britannic Group <BRT.L> lost half their value after the company issued a profit warning and scrapped its final dividend. "There will be more profit warnings as the difficult business environment unearths companies with flawed strategies and management," said John Hatherly, head of global analysis at M&G Asset Management.

Tokyo's Nikkei index <.N225> closed 1.57 percent higher as exporters such as Canon <7751.T> led to a broad-based advance. U.S. stock index futures were down slightly, indicating Wall Street was likely to open lower.

Safe-haven euro zone government bonds traded mixed. The yield on the two-year German Schatz <EU2YT=RR>, which moves in the opposite direction to the price, was down 3.8 basis points at 2.73 percent but off last week's 3-1/2 year low of 2.674 percent.

The 10-year German Bund <EU10YT=RR> was yielding 4.31 percent, down one basis point.