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The biggest gilt investors say U.K. government securities provide little value even though the Bank of England will likely extend its bond-purchase program.

The U.K.’s growing budget deficit and the central bank’s reluctance to say when and by how much it will expand so-called quantitative easing are keeping Pacific Investment Management Co., which runs the world’s biggest bond fund, and BlackRock Inc. from increasing their holdings of the securities.

Guessing which gilts the central bank is going to buy is like “playing Russian roulette,” said Philip Laing, the Edinburgh-based director of government bonds at Standard Life Investments, which has about 118 billion pounds ($191 billion) under management. “While they’ll probably extend it, we are focused on the end of quantitative easing.”

Investors are losing confidence in Prime Minister Gordon Brown’s economy as the government embarks on the biggest fund- raising effort in Britain’s history. The Treasury plans to sell a record 220 billion pounds of gilts this fiscal year to fund bank rescues and stimulus programs designed to pull the economy out of its deepest slump since World War II.

Yields on 10-year gilts will likely rise to 3.97 percent in June from 3.61 percent yesterday, according to the median estimate of seven strategists and economists surveyed by Bloomberg. Foreign investors cut their gilt holdings since the start of quantitative easing, selling 10.9 billion pounds of the securities in April, the most since at least 1982, according to central bank data. They sold 960 million pounds in May.

Extending Purchases

The Bank of England bought 107 billion pounds of gilts and almost 3 billion pounds of corporate bonds and commercial paper as part of a 125 billion-pound asset-purchase plan to reduce borrowing costs and stave off deflation. The bank has permission from the Treasury to increase that to 150 billion pounds if required.

The central bank may say it intends to take up that option after its monthly interest-rate meeting today, according to Stephen Nickell, a former member of the Bank of England’s Monetary Policy Committee.

“They still have a little bit left of the 150 billion, and I expect them to use it,” he said in an interview on July 7. “It’s possible” the central bank will even ask to spend more than 150 billion pounds, he said.

All 54 economists in a Bloomberg survey said policy makers will keep their key rate at a record low of 0.5 percent.

Extended Recession

The U.K.’s recession extended into a fifth quarter during the three months ended June 30, according to the National Institute of Economic and Social Research. House prices fell in June, a sign Britain has yet to shake off the property slump as unemployment increases, a report by Halifax, a division of Lloyds Banking Group Plc, showed yesterday.

Brown’s Labour Party has the support of 25 percent of voters, compared with 38 percent for David Cameron’s Conservatives, according to a YouGov/Telegraph survey on June 25. The poll showed the Conservatives extended their lead from seven points in December. U.K. parliamentary rules require Brown to call a general election by June of 2010.

The yield on the benchmark 4.5 percent gilt due March 2019 plunged 58 basis points, or 0.58 percentage point, to 3.06 percent in the two days after Bank of England announced the quantitative easing plan on March 5. It then rose as high as 4.08 percent by June 11 as optimism that the global economy was starting to recover sapped demand for the safety of government securities.

‘Layer of Complexity’

The yield has since fallen to 3 instant payday loans.61 percent, as stocks declined amid signs that the economic recovery is sputtering, while the pound has dropped 2.3 percent since trading at a high this year of $1.6743 on June 30.

Buying securities of nations involved in quantitative easing “adds another layer of complexity” to investment decisions that are already difficult given the competing forces of an unfavorable economic outlook and increased debt supply, said Andrew Balls, a managing director in London at Newport Beach, California-based Pimco. “We prefer German bunds over gilts and Treasuries.”

German government bonds returned 0.4 percent this year, compared with losses of 1.6 percent from gilts and 3.9 percent on U.S. Treasuries, according to Merrill Lynch & Co. indexes. The German 10-year note yielded 3.27 percent and the equivalent Treasury 3.30 percent yesterday.

Targeted Securities

Should the central bank expand purchases beyond 125 billion pounds, it’s likely to start outside the current range of maturities targeted, according to New York-based BlackRock, the world’s third-largest custodian of financial assets, and Kokusai Asset Management Co. in Tokyo. BlackRock and Kokusai are among the top 10 holders of gilts by value, according to data compiled by Bloomberg.

The Bank of England excluded the 5 percent gilt due 2014 and the 8 percent security maturing in 2021 from its so-called asset-purchase facility “until further notice,” the central bank said on June 25. Policy makers will take into account the size of gilt purchases by the bank relative to the amount in circulation when deciding whether to withdraw them from the program, it said.

“They are running up against owning too much of any one particular security,” said Scott Thiel, the London-based head of fixed-income at BlackRock, which overseas more than $2.7 trillion. “If they were to expand it, they would probably go in both directions, down to two years and up to 30. We favor long Treasuries and bunds versus long gilts.”

Kokusai’s Concern

The Bank of England will probably start buying longer- maturity gilts, although not immediately, said Masataka Horii, who overseas $47 billion as a manager of the Kokusai Global Sovereign Open fund in Tokyo.

He’s avoiding longer-dated gilts, “because we’re concerned about the budget deficit,” Horii said.

U.K. Chancellor of the Exchequer Alistair Darling said on April 22 the budget shortfall in the year through March 2010 will reach 12.4 percent of gross domestic product, the most among the Group of 20 nations.

Britain is borrowing record amounts after rescuing financial institutions including Northern Rock Plc and Royal Bank of Scotland Group Plc. The Treasury, in the budget submitted to Parliament in April, estimated the bailout may cost taxpayers 50 billion pounds. The International Monetary Fund’s estimate is about 132 billion pounds.

The British economy contracted 2.4 percent in the first quarter, the most since 1958, the Office for National Statistics in London said June 30. Gross domestic product will shrink 4.3 percent this year, the Organization for Economic Cooperation and Development said last month.

“The Bank of England will want to keep some ammunition for a worst-case scenario, so there’s certainly a high degree of probability that they will extend the quantitative easing program,” said Brian O’Reilly, head of research at UBS Wealth Management in London. “We could very well see the program extended to 200 billion pounds in total.”

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The Bank of Korea kept its interest rate unchanged today for a fourth month amid evidence record-low borrowing costs and fiscal stimulus are reviving the economy.

Governor Lee Seong Tae and his board left the seven-day repurchase rate at 2 percent in Seoul, as expected by all 15 economists surveyed by Bloomberg. The bank cut borrowing costs by 3.25 percentage points since October, the most aggressive easing since it began setting a policy rate a decade ago.

The Kospi stock index has gained 26 percent this year and the won has climbed by a fifth in the past three months on speculation the economy has passed its worst. New Zealand kept its benchmark rate unchanged at 2.5 percent today and Thailand last month ended its series of rate cuts as Asia-Pacific central bankers assess the region’s recovery from the global recession.

“There are signs the financial crisis has passed a critical point and the economic slump is easing,” said Park Hyuk Soo, a fixed-income analyst at Dongbu Securities Co. in Seoul. “The central bank is likely to keep rates where they are through the end of the year while gauging further recovery signs.”

The Kospi index rose 0.4 percent to 1,420.89 at 1 p.m. in Seoul. The won fell 0.4 percent to 1,251.60 per dollar.

South Korea joined India and China as one of the few major economies that expanded in the first quarter of 2009. The $929 billion economy grew 0.1 percent last quarter from the previous three months, when it contracted 5.1 percent.

Factory output increased for a fourth month in April and consumers became the most confident in almost two years in May.

Slump Over

“We think any drastic slowdown in the economy is over but there still are lots of uncertainties on how much the economy will rebound,” Governor Lee told reporters in Seoul today. “There are some factors that raise concerns in terms of prices, but the central bank’s stance is that it’s appropriate for overall monetary policy to be accommodative.”

Finance Minister Yoon Jeung Hyun said yesterday domestic financial markets have been stable in the face of increased tensions with North Korea payday advance online. The communist North tested a nuclear weapon in May and threatened military strikes against the South.

“The local economy is continuing its recovery trend and the global economic slump is showing signs of easing,” the finance ministry said on June 4. “Still, it’s too early to be optimistic about the outlook as there are uncertainties in the global markets, concerns about rising oil and the recovery is weak.”

Signs of Weakness

Among signs of weakness, exports fell at the fastest pace in four months in May as demand from major buyers including Japan, China and the U.S. slumped. Overseas shipments are about 60 percent of South Korea’s gross domestic product.

The jobless rate rose in May to the highest level in almost four years as slowing sales prompted manufacturers, builders and retailers to reduce their workforce to rein in costs.

To stoke economic growth, parliament on April 30 approved a 17.2 trillion-won ($13.8 billion) package of cash handouts, cheap loans, labor-market aid and infrastructure spending. That adds to the 50 trillion won in relief measures already allocated.

The Bank of Korea may even have to raise interest rates toward the end of the year as growth picks up and pressures on prices increase, according to economist Kwon Young Sun.

“It’s a matter of the central bank’s credibility to try to anchor inflation expectations,” said Kwon, from Nomura International Ltd. in Hong Kong. “Asset prices are likely to rise in coming months and the key point will be when the central bank’s policy focus changes to controlling inflation.”

Consumer prices rose 2.7 percent in May from a year earlier, the slowest pace in almost two years. The central bank aims to keep inflation between 2.5 percent and 3.5 percent on average.

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Another 171 Chrysler workers in Fenton have accepted voluntary severance or retirement incentives, a local union official said Wednesday. This brings the total number of local workers opting to leave Chrysler to more than 800.

The bankrupt automaker closed the sign-up window Tuesday, nearly four months after it first announced the offers. The packages depended on years of service and age, and there were several separation and retirement categories. Workers who accepted the offers left the company by Wednesday.

On Wednesday, Joe Shields, president of United Auto Workers Local 110, had a final tally of his workers, which wasn’t available Tuesday evening: 171 of his members accepted one of the offers. Local 110 represents workers who had built minivans at the idled Fenton plant. About 300 members were eligible, Shields said.

As previously reported, about 640 pickup plant workers retired or left the company under the offers. UAW Local 136, which represents the Dodge Ram workers, had about 1,250 eligible members as of March multiple car insurance quotes.

Chrysler announced this round of incentives in February.

The offers include a severance package of $75,000 and a $25,000 new-vehicle voucher for the least senior worker, to a retirement deal composed of a $50,000 payment and a $25,000 new-vehicle voucher for a worker qualified for retirement.

Under the previous round of offers made in November, more than 1,800 Fenton workers decided to leave voluntarily or retire. That offer was extended just weeks after Chrysler ended production at the minivan plant.

In recent weeks, UAW members have faced several more changes. On April 29, the UAW approved labor and health care concessions. Then, the next day, Chrysler filed for bankruptcy reorganization. It slated the Fenton minivan and pickup plants, along with six other locations, for closure.

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Cash-strapped cities and states will get a $5 billion boost from Citigroup.

The bank announced Tuesday that it will lend up to $5 billion to states and local governments, municipal agencies and universities and nonprofit hospitals to help finance construction and other capital projects. The money can fund the construction of schools, airports, roads, hospitals and other infrastructure projects.

Municipalities can also use the three-year loans to refinance existing variable-rate debt. Only those with AA rating can access the funds.

The initiative is part of four lending programs Citi unveiled in a report on how it’s using government bailout funds. The Treasury Department has pumped $45 billion into the troubled institution. Citi now has $1.6 billion in outstanding loans to municipalities.

State and local governments, which depend on debt to fund capital projects, have suffered as the credit crisis pushed up interest rates to unaffordable levels. Many, such as California, had to put work on hold until they could once again access the bond markets.

Nearly one in two city finance officers reported difficulties in gaining access to credit and bond financing, according to a National League of Cities February report.

Rates have come down and financing is getting easier to obtain, but it’s still not normal yet, said Sujit CanagaRetna, senior fiscal analyst at the Council of State Governments, a research group.

This credit crunch comes on top of a general fiscal crisis that’s gripping state and local governments, which are struggling to balance their budgets amid declining tax revenues car insurance.

Citi’s financing won’t help public officials cover their daily operating expenses, but it will help jumpstart some projects that have idled and lower the pricetag of some borrowing, experts said.

While most municipalities favor issuing bonds over taking loans, they can put the money to work. Citi said it has made proposals to potential borrowers for more than half the funds. While the rates depend on many factors, the loans might carry a floating 1.5% rate, rather than a variable rate of up to 4%.

"Anything that will drive down the cost of capital is advantageous for state and local governments," said Bart Hildreth, director of the Kansas Public Finance Center.

Since $5 billion is not a lot of money to spread around for construction projects, most recipients will likely use it to refinance existing debt, he said. Some might use it to get infrastructure programs off the ground before issuing bonds to cover the bulk of the costs.

States and cities are already working to spend $27 billion on highway infrastructure, as well as billions more for airports, schools and public transit, as part of the $787 billion federal stimulus package.  

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Japan’s corporate bankruptcies rose for an 11th month in April as companies struggled to obtain funds, indicating unemployment may increase.

Bankruptcies climbed 9.4 percent from a year earlier to 1,329 cases, Tokyo Shoko Research Ltd. said in Tokyo today.

Bank of Japan Governor Masaaki Shirakawa said last week that funding conditions for companies remain “severe.” The jobless rate, which advanced at the fastest pace in four decades in March, will probably rise further as more companies go out of business, weighing on consumer spending and prolonging the recession.

“Companies, especially small ones, are still having trouble securing funds because of weak demand,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “The major concern for increasing bankruptcies is higher unemployment, which could sap consumers’ ability to support the economy.”

Chuo Corp., a yarn maker, and Life Stage Co., a condominium developer, filed for bankruptcy last month, taking the number of publicly traded business failures to 16 this year. A record 33 companies went out of business in 2008.

“As profits worsened, we couldn’t escape from tight funding conditions” even after cutting jobs and wages, Chuo said in a statement.

Rising Unemployment

The companies that went out of business last month employed 11,537 workers faxless payday loan. Japan’s unemployment rate climbed to 4.8 percent in March from 4.4 percent in February, the biggest increase since 1967.

Prime Minister Taro Aso plans to spend 3 trillion yen ($32 billion) from his $15.4 trillion yen stimulus package unveiled last month on measures including financial support for small and midsized companies, which employ 70 percent of Japan’s workforce.

He also expanded the ceiling on an emergency credit program to 30 trillion yen from 20 trillion yen. Some 492,000 small and midsized companies have applied for 10.1 trillion yen of funds under the program as of May 8, according to the National Federation of Credit Guarantee Corporations.

The 9.4 percent increase in bankruptcies was the slowest in five months, in part because the program may be helping some companies stay afloat, said Nobuo Tomoda, manager of information and publications at Tokyo Shoko. Still, he added, demand is so weak that companies may struggle to cope with rising debt and bankruptcies are likely to keep climbing.

Pioneer Corp. is preparing to apply for public funds, company President Susumu Kotani said last month. The maker of car audio equipment and navigation systems is forecasting its sixth year of losses and plans to cut 9,800 jobs.

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Jean-Pierre Danthine, who joins the Swiss central bank’s board next year, says the financial crisis will force a rethink of the economic models he worked with during his lifelong academic career.

“The enormous progress that we have made in monetary theory has led to excellent control of inflation,” he said in an interview with the Swiss daily Le Temps today. “Today, this progress looks only intermediary. It leaves a gaping hole, that of interaction with the financial world.”

The 58-year old professor of economics and finance will get a hands-on chance to address those shortcomings when he joins Philipp Hildebrand and Thomas Jordan on the Swiss National Bank’s governing board next year. Danthine, who has published on topics ranging from financial asset pricing to business cycles, joins a central bank that has run out of conventional monetary policy tools as it contends with falling prices, a contracting economy and the bailout of the country’s biggest bank, UBS AG.

“This will certainly be new for him,” said Ernst Baltensperger, professor of macroeconomics at the University of Bern and head of the SNB’s Gerzensee research foundation. “He has an outstanding reputation as a macroeconomist but he’s not particularly oriented towards monetary policy.”

Danthine will take over the part of the central bank responsible for implementing monetary policy. The SNB last month began buying Swiss franc bonds and weakening the currency to inject funds into the economy as interest rates approach zero.

Dual Citizen

“He has tremendously good judgement as an economist,” said Darrell Duffie, a professor of finance at Stanford University who spent last year on sabbatical at University of Lausanne with Danthine. “He’s able to bridge across areas and apply common sense in a way that’s perfectly suited to the climate he faces at the Swiss National Bank.”

Danthine, a dual citizen of Belgium and Switzerland, holds a doctorate in economics from Carnegie-Mellon University in Pittsburgh, Pennsylvania, and has been head of the Swiss Finance Institute since its inception in 2005. He has also held visiting appointments at CUNY Graduate Center, University of Southern California and Universite Laval in Quebec.

In academic circles, Danthine is most known for his work on real business cycle theory, which argues that fiscal and monetary policy should not intervene to smooth short-term fluctuations, Baltensperger said.

The SNB has not subscribed to that theory in recent months. It has slashed 250 basis points from its benchmark rate since October, bringing the rate to 0.25 percent my credit score. With rates near zero, the SNB resorted to buying foreign currencies to weaken the franc and directly purchasing corporate bonds in a bid to cushion the impact of the recession.

Activist?

“He certainly does not have a particularly activist monetary approach,” said Joerg Baumberger, professor of monetary economics and finance at the University of St. Gallen. Still, “he’s not an ideologue. He can also be pragmatic when necessary.”

Danthine, in the interview with Le Temps, said he expects the economy to improve by January of next year, except for unemployment.

“We will have to make sure that the turnaround happens under the best possible conditions, and that the major risk is no longer deflation but inflation,” he said.

The bank is also grappling with $38.7 billion in toxic assets it took over from UBS, as part of a government rescue the SNB helped engineer in October. Zurich-based UBS has amassed the biggest losses of any European lender from the credit crisis. Its unprecedented rescue has fuelled calls for more controls on banks and executive compensation.

Incentives

SNB President-designate Philipp Hildebrand, in a speech on Feb. 5, said the central bank, the government and banking regulators must make the financial sector resilient and sustainable, by changing compensation and performance incentives for bank executives and ensuring that the country’s big banks can no longer put financial stability at risk.

Danthine, who has published extensively for more than 30 years, has argued that bonuses are making up too big a part of executive pay, and has questioned the rationale behind a series of consolidations in the banking industry.

His research includes articles entitled “On the Consequences of State Dependent Preferences for the Pricing of Financial Assets,” “Executive Compensation and Stock Options: An Inconvenient Truth,” and “Banking: Is Bigger Really Better?”

Married to Renee-Paulee, he has two children, including a son, Samuel, who has followed him into economics and is assistant professor of economics at the University of Quebec at Montreal.

“We’re not looking at a conventional economic crisis by any means, so you need someone who doesn’t have a doctrinaire, dogmatic attitude,” Duffie said. “You need that has common sense and is open minded and has great training as an economist. And that describes completely Jean-Pierre’s ability.”

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The Department of Business, Economic Development and Tourism is expecting Hawaii’s economy to slow more in 2009 than previously forecast, but a turnaround is expected in 2010.

The department said in its latest quarterly economic report released Friday that it expects a 0.2 percent decline in the state’s 2009 gross domestic product and the total wage and salary job count is expected to decline 1.3 percent.

Tourism will likely be impacted more than previously expected. Arrivals are expected to decline 5.9 percent for the year, down from the 1.9 percent projected in the previous forecast, DBEDT said.

“National and international economic conditions continue to slow Hawaii’s economy and this will likely be the case for most of 2009,” said DBEDT Director Ted Liu, in a statement. “We are hopeful of a turnaround beginning late this year, but recovery is likely to be a gradual process. The American Recovery and Reinvestment Act of 2009 will also have a positive impact beginning in the latter half of the year and will allow the state to make investments in some transformational changes especially in the area of energy no fax payday loans.”

Personal income growth has been lowered to 0.8 percent for 2009, but lower inflation will limit the decline in real personal income to the previously forecasted 0.4 percent, DBEDT said.

The economy will be better in 2010, however, as DBEDT said it expects it to stabilize with a modest 1.3 percent growth in visitor arrivals and slight increases in real personal income and real GDP.

The net job count, however, will likely remain flat in 2010, DBEDT said. Inflation will remain low with a 1.5 percent increase.

DBEDT said it expects modest growth in Hawaii’s economy in 2011, with a 4.6 percent increase in visitor arrivals and spending up 7.2 percent. Real personal income is expected to increase 1 percent and real GDP by 1.6 percent in 2011. The state’s job count could see a 0.5 percent increase.

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Benjamin Netanyahu plans to apply the same small-government policies when he becomes Israel’s prime minister as he did six years ago as finance minister. Then, his tax and spending cuts helped lift the economy out of recession. They may be less suitable this time around.

The Likud party leader, who has until April 3 to form a coalition, faces a shrinking economy, a growing budget deficit and a frozen corporate bond market. The recession in the U.S. and Europe has clobbered Israeli exports, which account for about half of gross domestic product in a country whose economy is smaller than Singapore’s. His only fiscal tool for the moment is a budget drawn up in August and stalled in the parliament.

“Israel must take steps in the same spirit as the U.S. and Europe, to allow an even bigger deficit” than is already being created by falling tax revenue, said Avi Ben Bassat, a professor of economics at the Hebrew University in Jerusalem. “The situation requires a change in economic policy.”

Netanyahu’s plans for the economy may encounter objections from his future partners. Although assembling his coalition could take several weeks, one probable member, the Shas party, said during the election campaign that it would seek to restore child allowances that had been reduced under Netanyahu.

Losing Jobs

Israeli GDP fell at a 0.5 percent annualized rate in the final quarter of 2008. The Bank of Israel, whose index of leading indicators posted its steepest drop in January since records began in 1975, forecasts a 0.8 percent decline in GDP this year. The government’s Export Institute forecast today that exports of goods and services will drop 17 percent this year to about $65 billion.

Israel’s state Employment Service says a record 19,700 people lost their jobs in January. The Tel Aviv Stock Exchange’s benchmark TA-25 Index is down 47 percent from its peak on October 2007 and was down 0.5 percent today at 9:55 a.m. local time.

“There will be a certain amount of deterioration before we can turn around the economy’s direction,” Netanyahu said Feb. 23 at a meeting of Likud lawmakers. “We face an economic crisis that we haven’t seen in many years.”

Netanyahu, 59, has vowed to lower Israeli taxes as he did as finance minister. He also promised during the campaign to liberalize the real-estate market, saying the Israel Land Administration’s near-monopoly inflates housing costs.

To solve the credit crunch, he says Israel should use existing U.S. loan guarantees to extend credit to companies, and proposes spending an unspecified amount of money on building roads and rails.

Industrial Policy?

Gidi Grinstein, president of the Tel Aviv-based Reut Institute policy group, said that won’t be enough. He proposes the government undertake an “industrial policy” aimed at opening markets in China and India and developing new technologies.

“The paradox of Netanyahu is that he has set very ambitious growth objectives for the Israeli economy, but the steps he has proposed won’t bring about the kind of growth he is talking about,” Grinstein said by telephone.

Ben Bassat said Netanyahu should focus on reducing Israel’s debt, which is now about 78 percent of GDP, higher than the average for developed countries, rather than lowering taxes online payday advance. Israel must not let its deficit reach the same level as in the U.S. because it has high defense costs and because it faces a continual threat of war, he said.

State Control

Almost since its creation in 1948, Israel’s economy has been dominated by government. Officials decided everything from the exchange rate to whether companies could raise capital. The government and labor unions controlled such big companies as Koor Industries Ltd. and Israel Chemicals Ltd.

While liberalization began in the 1980s, it stalled in the following decade — including during Netanyahu’s first tenure as prime minister from 1996 to 1999 — as the country’s technology industry and the Palestinian peace process boosted growth.

By the time Netanyahu left the Finance Ministry in 2005 to protest the government’s withdrawal from the Gaza Strip, he had sold or begun selling El Al Israeli Airlines Ltd., the biggest carrier; Bezeq Ltd., the biggest telecommunications provider; and Israel Discount Bank Ltd., the third-largest lender.

“It’s very important to create an internal engine by reining in the size of government, cutting taxes and the bureaucracy,” said Ohad Marani, who served as the top aide during Netanyahu’s first year as finance minister. “He’s very much for small government.”

‘Very Decisive’

By cutting spending, Netanyahu helped reduce Israel’s budget deficit to 1.8 percent of GDP in 2005 from 5.1 percent in 2003. The TA-25 plunged 5.2 percent the day he announced he was stepping down. The deficit may reach 5 percent of GDP this year, Ben Bassat estimates.

“He was very decisive,” said Yossi Bachar, who replaced Marani. “He resisted all the pressures on him, even if it cost him politically.”

Thanks in part to Netanyahu’s actions as finance minister, his government will have fewer challenges than those in the U.S. and Europe, said London-based Senior Economist Reinhard Cluse of UBS AG.

“Israel has a tough business cycle outlook, but no more than that,” Cluse said by telephone, adding that the government must take “expansionary” fiscal measures soon or risk seeing the slump extend into 2010.

Biggest Challenge

One of the biggest challenges Netanyahu faces is the crisis in Israel’s corporate bond market, said Leo Leiderman, chief economist at Bank Hapoalim Ltd. in Tel Aviv.

The Tel Bond 20 index of the biggest corporate bonds fell as much as 19 percent in the last quarter as pension funds and other institutions were forced to sell securities to meet cash calls from investors. About 20 billion shekels ($4.7 billion) in non-bank debt comes due this year, the Bank of Israel estimates.

“The question is how the corporate sector will meet its obligations to bondholders and banks,” Leiderman said by telephone. “The economy is small enough that two or three significant players getting into trouble could paralyze the whole system.”

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Whirlpool Corp., the world’s biggest appliance maker, reported lower quarterly profit Monday as sales fell worldwide, and it posted an operating loss in North America, its biggest market.

The company, which has cut thousands of jobs in the past year, said it was taking additional moves to reduce costs, and it forecast lower earnings for 2009.

Fourth-quarter profit fell 76% to $44 million, or 60 cents a diluted share, from $187 million, or $2.38 a share, a year earlier.

Analysts on average expected profit of 78 cents a share. Whirlpool cited restructuring charges and other one-time items, and it was not immediately clear whether the Wall Street outlook compared directly with the result, Reuters Estimates said.

Quarterly sales fell 19% to $4.3 billion.

In North America, sales fell 18% to $2.5 billion as industrywide shipments of appliances dropped about 10%. Whirlpool said it expected U.S. industry shipments, an important gauge of sales, to fall about 10% this year.

The North American unit had an operating loss of $20 million, against a year-earlier profit of $175 million, hurt by the lower sales, product recall costs and higher material and oil expenses payday loan lenders.

Fourth-quarter sales fell 16% in Europe, 26% in Latin America and 10% in Asia.

The company, whose debt ratings have been downgraded recently, said it had tapped into a $2.2 billion credit facility during the fourth quarter and was in full compliance with bank covenants. But it added that it had begun talks with banks to "seek additional flexibility within its capital structure."

Whirlpool (WHR, Fortune 500) said it expected 2009 profit of $3 to $4 a share from continuing operations, down from $5.50 for 2008.

Analysts have forecast profit of $4.07 a share for this year, according to Reuters Estimates.

Talkback: Is the economy giving you wedding jitters? Are you cutting back on your big-day plans or are you still going all out? Email realstories@cnnmoney.com and you could be included in an upcoming article. 

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South Korea posted a current-account surplus for a second straight month in November, easing pressure on the won, the region's worst-performing currency this year.

The surplus widened to $2.06 billion from $1.67 billion in November 2007, the Bank of Korea said in Seoul today. A surplus means there are more U.S. dollars flowing into the country than going out, increasing demand for the local currency. The nation posted a record $4.75 billion excess in October.

The won climbed to 10-week high after the report. The currency has gained 21 percent since setting a decade low on Nov. 21 amid speculation the central bank bought it to help bolster balance sheets before year-end accounts are filed and after the government signed swap deals with the U.S., China and Japan, giving access to dollars.

“Things are looking better as we had a good surplus again last month,” said Chun Chong Woo, a senior economist at SC First Bank Korea Ltd. in Seoul. “It'll help stabilize the currency if this trend continues. The worst seems to be over for the won.”

A decline by the won earlier this year led to speculation that the government may have return to the International Monetary Fund for help 10 years after a bailout during the Asian financial crisis. President Lee Myung Bak said last week the economy may shrink in the first half of next year, which would mark the nation's first recession in a decade.

The Korean currency rose 0.6 percent to 1,257.75 per dollar at 11:09 a.m. in Seoul. The won's 26 percent this year makes it the region's worst performing currency. The Kospi stock index gained 1 payday cash loans.7 percent.

More Surpluses

South Korea may keep posting current-account surpluses in coming months as imports fall faster than exports amid a decline in oil costs, Yang Jae Ryong, a statistics official at the central bank, said in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income.

The nation's current account has been in deficit every month but three this year as higher oil prices and the weaker won drove up the cost of imported goods.

The surplus on traded goods narrowed to $994.6 million last month from $2.63 billion in October, today's report showed. The trade surplus was $2.72 billion in November 2007.

Total exports on a customs-cleared basis, which excludes ships, dropped 19 percent in November from a year earlier, compared with an 8 percent gain in October. Imports fell 14.9 percent compared with a 10.3 percent gain in October.

South Korea's income account, which tracks the flow of interest payments, investment income and wages, posted a surplus of $720.2 million last month.

The deficit on the services account, which measures the international flow of travel, transport costs and royalties, widened to $130 million from $54.8 million.

The capital account, a measure of total inflows and outflows of international investment, recorded a deficit of $12.14 billion last month, narrowing from October's shortfall of $24.83 billion.

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