Business Blog Posts

London copper futures rallied to a record high after lower than expected consumer price figures from China soothed concerns that Beijing might adopt a more aggressive monetary tightening regime to fight inflation.

Chinese consumer price inflation accelerated to 4.9 percent in the year to January. It matched the widespread figure that swirled through markets on Monday, but was below the earlier consensus forecast of 5.3 percent.

Analysts remained wary of a build-up in China's price pressures, saying Beijing could raise interest rates further, given continued rises in food prices.

"The data probably slightly eased expectations of immediate tightening, although in the overall scheme of things, this doesn't change the fact that China is still in a tightening phase," said Etsuko Yamashita, chief economist at SMBC.

MSCI's Asia Pacific index excluding Japan .MIAPJ0000PUS, which snapped five straight sessions of losses on Monday, was up 0.08 percent.

The Shanghai stock market .SSEC rose more than 1 percent by 0540 GMT, compared with a rise of 0.38 percent before the Chinese inflation data came out. On Monday, it jumped 2.5 percent on market rumors of the inflation data.

Japanese stocks .N225 edged higher to log a 10-month closing high. The Nikkei average ended up 0.20 percent at 10,746.67. .T

South Korea's KOSPI .KS11 gave up some initial gains, weighed by falls in automakers including Hyundai Motor (005380.KS), while Hong Kong stocks .HSI fell 0.45 percent.

EURO INCHES UP, BUT TREND WEAK

In the currency market, the euro edged up 0.24 percent to around $1.3520, after falling as low as $1.3426 overnight, as traders tried to take out stop-loss orders.

But uncertainty remained over concrete solutions to Europe's fiscal problems, keeping the euro vulnerable. Worries about rescue plans for ailing German lender WestLB have also added to the single currency's struggle.

On Monday, euro zone finance ministers agreed that a permanent rescue mechanism, the European Stability Mechanism, to be set up from 2013, would total 500 billion euros, but are waiting for leaders' guidance to agree changes to the existing bailout fund.

Traders are also focusing on U.S. retail sales data for clues on the dollar's near-term outlook. The figures, due later in the day, are expected to show a 0.6 percent rise in January from the previous month.

"The greenback may regain its footing over the next 24 hours of trading as the economic docket is expected to reinforce an improved outlook for future growth," said David Song, currency analyst at DailyFX.

In Asia, Australian bourse operator ASX and suitor Singapore Exchange revised the board structure of their planned $7.9 billion tie-up in an attempt to win the support of Australian lawmakers wary of ceding control of the local bourse.

Nationalism is one of the biggest hurdles to the consolidation sweeping the industry as exchanges are often seen as symbols of national pride. The deals, including a bid by the London Stock Exchange to take over Toronto Stock Exchange operator TMX Group, face intense scrutiny from regulators and politicians around the world.

A number of key details in the Deutsche Boerse and NYSE Euronext merger have been hammered out, sources said. A definitive agreement is expected to be announced on Tuesday, one source said.

But a number of difficult issues have yet to be addressed, which is likely to add to concerns being raised on both sides of the Atlantic.

Political concerns are also seen as the driver behind the SGX giving more board representation to ASX in the combined entity. The bourses said in a joint statement on Tuesday that the two will have equal number of directors in the merged group, compared with less than half for ASX in the earlier proposal.

"All the resistance to the deal has been political. The steps taken today should address some of those political issues," said Mark Nathan, portfolio manager at Arnhem Investments. "It clearly carves out and maintains some sovereignty within Australia, and there should be a lot less resistance to the deal in its new form."

There is no change to the value of the SGX offer and ASX shareholders will still hold about 36 percent of the company under the new proposal.

WHO NEXT?

Some issues facing the Deutsche Boerse-NYSE Euronext tie-up, which could still derail the plan, would need to be resolved over the coming weeks, said the sources, who requested anonymity because talks continue.

"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.

The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.

Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.

BM&FBovespa, the world's fourth-largest financial exchange operator, is closely looking out for tie-up opportunities, Chief Executive Edemir Pinto told Reuters. Pinto said China and India were markets where the bourse could pursue expansion.

Consumer price figures for China that came in lower than had earlier been expected prompted London copper to rally to a record high, as the data soothed concerns that Beijing might adopt a more aggressive monetary tightening regime.

Chinese consumer price inflation accelerated to 4.9 percent in the year to January. It matched the widespread figure that swirled through markets on Monday, but was below the earlier consensus forecast of 5.3 percent.

Analysts remained wary about a build-up in China's price pressures, saying Beijing could further tighten monetary policy, given continued rises in food prices.

"The data probably slightly eased expectations of immediate tightening, although in the overall scheme of things, this doesn't change the fact that China is still in a tightening phase," said Etsuko Yamashita, chief economist at SMBC.

After the Chinese data was released, three-month copper on the London Metal Exchange rose $30 to $10,190 a tonne by 0233 GMT.

The Shanghai stock market .SSEC was up 0.4 percent, compared with a rise of 0.38 percent before the data came out.

Japanese stocks .N225 hit a new nine-month high in early trading on growing investor confidence boosted by recent solid corporate earnings, but remained in a narrow range with no clear direction. .T

MSCI's Asia Pacific index excluding Japan .MIAPJ0000PUS, which snapped five straight sessions of losses on Monday, was up 0.18 percent as of 0258 GMT, while South Korea's KOSPI .KS11 was up 0.4 percent and Hong Kong stocks .HSI dipped 0.5 percent.

In the currency market, uncertainty remained over concrete solutions to Europe's fiscal problems, keeping the euro vulnerable, though it edged up 0.2 percent to around $1.3515, after falling as low as $1.3426 overnight.

On Monday, euro zone finance ministers agreed that a permanent rescue mechanism, called the European Stability Mechanism (ESM), to be set up from 2013, would total 500 billion euros.

Traders are also focusing on U.S. retail sales data for clues on the dollar's near-term outlook. The figures are expected to show a 0.6 percent rise in January from the previous month.

"The greenback may regain its footing over the next 24 hours of trading as the economic docket is expected to reinforce an improved outlook for future growth," said David Song, currency analyst at DailyFX.

The dollar held steady near 83.30 yen, while Aussie rose to the day's high of $1.0056 after China's CPI data.

U.S. crude futures pared some losses in early Asian trade, buoyed by Chinese demand and unrest in the Middle East, which could trigger supply disruptions of crude oil.

(Writing by Yoko Nishikawa; Additional reporting by Hideyuki Sano in Tokyo and; Nick Trevethan in Singapore; Editing by Daniel Magnowski)

The two have hammered out a broad framework for a merger deal that focuses on functions and personalities, with several executives chosen for key posts across Europe and the United States, three people familiar with the plan said.

Another source added that major issues like the exact exchange ratio and the premium to be paid to NYSE Euronext have been sorted out, and a definitive agreement is expected to be announced on Tuesday.

Among the issues they will leave in the too-hard basket for now are what to call the merged entity, how exactly it will cut costs, and which technologies it will favor, sources said.

Putting these off may only add to the questions being asked by some politicians on both sides of the Atlantic about whether the deal should be approved. Any delay could also open the door to rival bidders for NYSE Euronext -- one news report on Monday cited CME Group Inc as a potential buyer.

Some issues facing Deutsche Boerse-NYSE Euronext tie-up, which could still derail the plan, would need to be resolved over the coming weeks, said the sources, who requested anonymity because talks continue.

"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.

The boards of NYSE Euronext and Deutsche Boerse are set to vote Tuesday, two sources said. Deutsche Boerse will also publish quarterly results Tuesday.

The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.

Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.

BM&FBovespa, the world's fourth-largest financial exchange operator, is closely watching for tie-up opportunities, Chief Executive Edemir Pinto told Reuters.

Pinto said BM&FBovespa is interested in China and India as markets where it could pursue expansion because of their growth potential and similarities in terms of products. He added that a partnership with CME also has "room to grow," but did not elaborate.

In Australia, market operator ASX said it was in talks with suitor Singapore Exchange about changes to board arrangements as the sides seek to win political and regulatory support for their proposed tie-up.

'SENSITIVE AND COMPLICATED'

But Republicans, who accuse Obama of being a tax-and-spend Democrat, said the president had not gone far enough in curbing costs.

They aim to make the 2012 presidential election a referendum on his fiscal track record and threaten fights over a legal limit on the U.S. debt and how to fund the government in the short-term.

Obama said his plan was a balance between deficit reduction pain and investment for growth. It only provided a general guide on how to tackle entitlement outlays that include the Social Security and Medicare programs responsible for huge government spending.

"What we have done here is make a downpayment, but there is going to be more work that needs to be done and it's going to require Democrats and Republicans coming together to make it happen," he said at a school in nearby Maryland.

The budget calls for investments in areas such as high-speed rail, broadband Internet, and energy efficiency research. It makes cuts to programs that provide heating help for poor people and grants to big airports, for example.

Obama's $3.729 trillion budget proposal for fiscal 2012 shows the deficit rising to a record $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012.

This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year and meet a pledge Obama made to his Group of 20 partners to halve the deficit by 2013 compared to its size when he entered the White House in January, 2009.

The news was well-timed, with G20 finance ministers meeting in Paris on Friday and Saturday.

Two-thirds of the $1.1 trillion in savings come from spending cuts. The rest comes from higher revenues as U.S. growth steadily picks up pace and from tax increases. The president is seeking an additional $328 billion through a variety of measures, including ending tax breaks for big business on income earned abroad.

FIRST STEP

Standard & Poor's Chief Economist David Wyss said the budget was a "step in the right direction" but more was needed to be done in order to tackle entitlement spending.

He did not comment on the U.S. debt rating. A recent S&P report said a U.S. stable rating outlook assumes the government will "soon reveal a credible plan ... to enable the general government debt-to-GDP ratio to stabilize and then to decline." A ratings downgrade would likely push up U.S. borrowing costs.

Obama's budget for fiscal 2012 is a proposal to Congress and months of wrangling will now follow with Republicans, who control the House of Representatives and increased their seats in the Senate after November elections. They campaigned on deep cuts in federal spending.

"Congress often goes in a different direction," said Michael Moran, chief economist at Daiwa Securities America in New York, who was also disappointed there was not more from the president on tackling entitlements.

The S&P 500 edged up, trading near its highest since June 2008, nominally a good sign, but the index was stuck in the 1,325-1,333 area without enough buyers to get through this technical hurdle.

A mere 6.6 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, the lowest volume so far this year and far below the 8 billion daily average for 2011.

Shawn Hackett, president at Hackett Advisors in Boynton Beach, Florida, said rising index levels on falling volume sets the stage for a pullback.

"Everything I see suggests the driver now is a last bit of greed and momentum before the market runs out of buyers," he said.

Three-month copper hit a record high after Chinese import figures suggested strong demand for basic materials. Freeport McMoRan Copper & Gold (FCX.N) jumped 4.9 percent to $56.14 and the PHLX Gold/Silver index .XAU rose 2.2 percent.

The Dow Jones industrial average .DJI dipped 5.07 points, or 0.04 percent, to 12,268.19. The Standard & Poor's 500 Index .SPX rose 3.17 points, or 0.24 percent, to 1,332.32. The Nasdaq Composite Index .IXIC gained 7.74 points, or 0.28 percent, to 2,817.18.

Wal-Mart Stores Inc (WMT.N) was one of the worst performers on the Dow after JPMorgan downgraded the stock. Shares fell 1.6 percent to $54.80.

The S&P 500 has gained nearly 27 percent since the start of September. It now stands near the 50 percent extension of last year's slide from April to July and also near 100 percent advance from the low hit in March 2009.

The coincidence of the levels makes the technical resistance stronger.

Still, some traders see residual strength in the market and are willing to buy on any declines in prices.

"We wouldn't be surprised to see a pullback, but longer term we think the market has room to grow," said Mitch Rubin, chief investment officer at RiverPark Advisors in New York.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 5 to 4, while on the Nasdaq, about seven stocks rose for every six that fell.

U.S. President Barack Obama proposed a federal budget that he said would cut the U.S. deficit by $1.1 trillion over the next 10 years. Congress must approve the plan, and Republicans, who are in the majority in the House, said it did not curb spending enough.

Obama's budget would provide $8 billion for investment in clean energy, but big drugmakers might take a hit from generic competition under two proposals in the plan.

The two have hammered out a broad framework for a merger deal that focuses on functions and personalities, with several executives chosen for key posts across Europe and the United States, three people familiar with the plan said.

Another source added that major issues like the exact exchange ratio and the premium to be paid to NYSE Euronext have been sorted out, and a definitive agreement is expected to be announced on Tuesday.

Among the issues they will leave in the too-hard basket for now are what to call the merged entity, how exactly it will cut costs, and which technologies it will favor, sources said.

Putting these off may only add to the questions being asked by some politicians on both sides of the Atlantic about whether the deal should be approved. Any delay could also open the door to rival bidders for NYSE Euronext -- one news report on Monday cited CME Group Inc as a potential buyer.

Some issues facing Deutsche Boerse-NYSE Euronext tie-up, which could still derail the plan, would need to be resolved over the coming weeks, said the sources, who requested anonymity because talks continue.

"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.

The boards of NYSE Euronext and Deutsche Boerse are set to vote Tuesday, two sources said. Deutsche Boerse will also publish quarterly results Tuesday.

The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.

Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.

BM&FBovespa, the world's fourth-largest financial exchange operator, is closely watching for tie-up opportunities, Chief Executive Edemir Pinto told Reuters.

Pinto said BM&FBovespa is interested in China and India as markets where it could pursue expansion because of their growth potential and similarities in terms of products. He added that a partnership with CME also has "room to grow," but did not elaborate.

In Australia, market operator ASX said it was in talks with suitor Singapore Exchange about changes to board arrangements as the sides seek to win political and regulatory support for their proposed tie-up.

'SENSITIVE AND COMPLICATED'

But Republicans, who accuse Obama of being a tax-and-spend Democrat, said the president had not gone far enough in curbing costs.

They aim to make the 2012 presidential election a referendum on his fiscal track record and threaten fights over a legal limit on the U.S. debt and how to fund the government in the short-term.

Obama said his plan was a balance between deficit reduction pain and investment for growth. It only provided a general guide on how to tackle entitlement outlays that include the Social Security and Medicare programs responsible for huge government spending.

"What we have done here is make a downpayment, but there is going to be more work that needs to be done and it's going to require Democrats and Republicans coming together to make it happen," he said at a school in nearby Maryland.

The budget calls for investments in areas such as high-speed rail, broadband Internet, and energy efficiency research. It makes cuts to programs that provide heating help for poor people and grants to big airports, for example.

Obama's $3.729 trillion budget proposal for fiscal 2012 shows the deficit rising to a record $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012.

This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year and meet a pledge Obama made to his Group of 20 partners to halve the deficit by 2013 compared to its size when he entered the White House in January, 2009.

The news was well-timed, with G20 finance ministers meeting in Paris on Friday and Saturday.

Two-thirds of the $1.1 trillion in savings come from spending cuts. The rest comes from higher revenues as U.S. growth steadily picks up pace and from tax increases. The president is seeking an additional $328 billion through a variety of measures, including ending tax breaks for big business on income earned abroad.

FIRST STEP

Standard & Poor's Chief Economist David Wyss said the budget was a "step in the right direction" but more was needed to be done in order to tackle entitlement spending.

He did not comment on the U.S. debt rating. A recent S&P report said a U.S. stable rating outlook assumes the government will "soon reveal a credible plan ... to enable the general government debt-to-GDP ratio to stabilize and then to decline." A ratings downgrade would likely push up U.S. borrowing costs.

Obama's budget for fiscal 2012 is a proposal to Congress and months of wrangling will now follow with Republicans, who control the House of Representatives and increased their seats in the Senate after November elections. They campaigned on deep cuts in federal spending.

"Congress often goes in a different direction," said Michael Moran, chief economist at Daiwa Securities America in New York, who was also disappointed there was not more from the president on tackling entitlements.

The two are hammering out a framework deal which focuses on functions and personalities, with Deutsche Boerse Chief Executive Reto Francioni slated to be chairman of what would be the world's largest exchange operator.

NYSE Euronext's general counsel, chief operating officer and global head of technology are set to retain their positions in the combined group, two people familiar with the plan told Reuters on Monday.

The details emerged Monday as Fox Business News reported that CME Group Inc (CME.O), currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would jump in on the global merger frenzy.

Last week, the Frankfurt- and New York-based exchange operators revealed the first details of a merger plan that would give Deutsche Boerse shareholders about a 60 percent stake, and name NYSE Euronext's head Duncan Niederauer as chief executive.

Negotiations over a name, and where to locate various operations across the two continents, highlight some of the difficulties in bringing together companies that are both operationally complicated and symbols of national pride.

"There is an agreement in principle on the broad outlines of the deal," a European source familiar with the deal said.

But other people familiar with the situation said some other issues -- like that of job cuts in technology -- still need to be worked out in detail.

Past merger attempts have failed over such issues.

A deal is set to be presented to the boards of NYSE Euronext and to the supervisory board of Deutsche Boerse on Tuesday, people familiar with the matter said. Deutsche Boerse will also publish fourth-quarter results on Tuesday.

A formal deal announcement could come by mid-morning (Eastern Time) on Tuesday, two sources said.

OUTRAGE

In Germany, the deal is being sold as a German takeover of the NYSE or as a merger of equals. Any suggestion that the NYSE management team will be in control counters that public stance and could create an obstacle to the deal getting done.

Deutsche Boerse risks ceding control to NYSE Euronext (NYX.N), a supervisory board member at the German exchange said.

"The economy is healthier, but it is not yet well," Dudley said in remarks prepared for a press briefing. "In order to reduce joblessness significantly over the coming quarters, the economy needs to grow at a considerably faster rate than we have seen so far in this recovery."

Dudley said persistently low inflation probably hit a trough in the second half of last year but said it would take time for the jobless rate, currently at 9 percent, to fall. He also said it could take up to a year to see a "meaningful recovery" in the housing market.

Dudley is considered one of the more dovish members of the Fed's policy-setting committee and as head of the New York Fed has a permanent voting seat on the panel.

While the U.S. unemployment rate fell unexpectedly in January, Dudley said that was not "an unmitigated positive" and partly reflects people leaving the workforce.

But he said the Fed's $600 billion bond-buying program has helped to ease financial strains and stimulate growth. He expects brisker growth this year and in 2012, adding the "risk of a double-dip has subsided."

"Viewed through the lens of the Federal Reserve's dual mandate -- the pursuit of the highest level of employment consistent with price stability -- the current situation remains unsatisfactory," he said. "However, we appear to be heading in the right direction."

The U.S. economy grew at a rate of 2.9 percent in 2010 after contracting the previous year, and most economists expect quicker growth in 2011.

Dudley, who was speaking at a briefing on economic conditions in the New York Federal Reserve district, also noted that the flow of credit to households increased in the final three months of 2010. For the first time in two years, he noted, households increased their non-mortgage debt, albeit slightly, by $7.3 billion in the fourth quarter to $2.31 trillion.

For example, the number of credit card applications increased, indicating a pick-up in consumer demand for credit.

Total U.S. consumer indebtedness declined to $11.4 trillion as of December 31, continuing a two-year trend, according to a Fed survey also released on Monday. The number of credit card applications. (Reporting by Kristina Cooke and Steven C. Johnson; Editing by Chizu Nomiyama) steven.c.johnson@thomsonreuters.com; 1 646 223 6346

Conservatives say Obama, a Democrat, is a tax-and-spend liberal, and they aim to make the 2012 presidential election a referendum on his fiscal track record.

Details of the budget proposal provided by the White House before its official release showed the deficit rising to $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012.

This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year.

"It's a start, it's a move in the right direction," said Philip Poole, global head of macro investment strategy at HSBC Global Asset Management in London. "It's a lot less than the Republicans wanted to see. It's not clear that this can actually be enacted," he said.

Obama's budget for fiscal 2012, to be formally released at 10:30 a.m. EST (1530 GMT), is a proposal to Congress laying out the president's policy priorities. Months of wrangling with the Republican opposition in Congress will now follow.

"Even though we might have some differences at the outset, we're very eager to work with Republicans to cut spending, reduce our deficit," a senior Obama administration official told reporters.

The official cited a December tax pact forged between Obama and Republicans as evidence the two sides can work together, but the initial reaction from the other party was skeptical.

"The president talks like someone who recognizes that spending is out of control, but so far it hasn't been matched with action," Senate Republican leader Mitch McConnell said in a statement.

"Americans don't want a spending freeze at unsustainable levels. They want cuts, dramatic cuts. And I hope the president will work with us on achieving them soon."

Republicans have already unveiled much tougher proposals aimed at reining in rising U.S. debt, which is set to hit a legal limit in coming months. Failure by lawmakers to agree on funding government operations after a March 4 deadline expires could result in the government shutting down.

That would replay a 1995-1996 showdown between a Democratic president and a Republican-led House of Representatives that ultimately backfired on Republicans. The public sided with then-President Bill Clinton, who won re-election.

GROWTH LIFTS REVENUE

Two thirds of Obama's deficit savings come from spending cuts and expected reductions in interest payments as the deficit declines. The rest comes from higher revenue, in part as provisions in a December pact on payroll taxes and jobless aid expire, and also as stronger growth lifts tax revenue.

As a result, Obama's budget delivers on a promise to halve the deficit by the end of his current term in the White House, in January 2013, compared to when he took office in 2009.

The trade surplus shrank to $6.5 billion from $13.1 billion in December, well short of forecasts for a $10.7 billion gap.

Global stocks and commodity prices climbed higher, with the surprisingly strong imports highlighting China's massive appetite for raw materials and its solid export growth hinting at solidifying recoveries in the U.S. and European economies.

In the past, a weaker surplus would have caused concern for the Chinese government, but more recently it has been trying to shift the economy toward greater reliance on consumption and less on exports, in part to address critics who say that its success has come at the expense of other countries.

It was the third consecutive month of a declining trade surplus, and though not enough to mark a definitive change, that streak provides a symbolic boost to China before the G20 meeting this week of finance ministers from the world's biggest developed and developing economies.

Analysts warned, however, that its surplus could rebound later this year.

"There tends to be a seasonal pattern and there is generally a decline in the trade surplus at the beginning of the year," said Jian Chang, an economist with Barclays Capital in Hong Kong. "Exports tend to be weak in the first quarter, while there is no such pattern in imports."

The G20 meeting in Paris on Feb 18-19 will try to hash out a gameplan for tackling the global economic imbalances that exacerbated and, some say, helped trigger the financial crisis in 2008, with China's yawning trade surplus seen as one of the chief problems.

GLOBAL STRENGTH

China's imports rose 51 percent in January from a year earlier, blowing past market forecasts for a 28 percent rise. Exports rose 37.7 percent in January, topping expectations for a 22.4 percent rise, the customs administration said.

Iron ore prices edged up further to fresh highs after the data, which showed that China was building steel product stockpiles in anticipation of more demand. Asian stocks rallied, snapping five straight sessions of losses.

Yu Song and Helen Qiao, economists at Goldman Sachs, said that the import and export growth reflected well on both the Chinese and global economy.

"The strong exports growth momentum is supported by improvements in economic conditions in China's major trading partners, and strong imports growth momentum is supported by strong domestic demand growth," they wrote in a note. "Besides, the rise in imported commodity prices likely contributed to strong imports data as well."

Copper and iron ore prices ran near record highs for much of January and oil was also costly, pushing up China's import bill.

Commodity-exporting countries were the clear beneficiaries. Imports from South Africa were up 212.5 percent year on year, while shipments from Canada and Brazil were up 146.7 percent and 95.4 percent, respectively.

GE's acquisition John Wood's well support division raised hopes of more deals in the oilfield services sector, where GE has recently been an active buyer of assets.

GE, which is buying the unit through its oil and gas business, in December agreed to buy Britain's oil drilling pipemaker Wellstream Holdings Plc for $1.3 billion.

That followed a 2008 deal to buy pressure control equipment company Hydril for $1.1 billion and a 2007 deal to buy privately held oil and gas field equipment maker Vetco Gray.

The U.S. company has said it could spend up to $30 billion on takeovers in the coming years as CEO Jeff Immelt renews GE's focus on heavy manufacturing after reaching a deal to sell its media unit and scaling back the GE Capital finance arm.

John Wood said it intends to return cash of no less than $1.7 billion to shareholders, helping to boost the company's shares by 14.6 percent to 657 pence at 0921 GMT on Monday, their highest ever level.

"We definitely think they John Wood got an attractive price. It was considerably more than what we were expecting," said Royal Bank of Canada analyst Todd Scholl.

"I would expect that, based on this valuation all of the oilfield services stocks would trade higher. The space certainly is very hot from an M&A perspective. We wouldn't be surprised to see more deals."

Shares in oil services firm Petrofac (PFC.L) traded up 3.1 percent while London-listed pump and valve-maker Weir Group (WEIR.L), which has an oil field services division, rose 5 percent, with the latter helped by speculation that German conglomerate Siemens (SIEGn.DE) could be interested in it.

GE said the John Wood unit acquisition would allow it to tap fast growing demand for enhanced oil recovery from mature oil fields.

"Five years ago, drilling and production in GE did not exist," John Krenicki, CEO of GE Energy said in a telephone interview. "Over the last five years we've built it up to be an industry leader."

He said that GE expects the deal to be 'slightly accretive' in 2011 assuming it closes by the end of the second quarter.

Krenicki doesn't anticipate more deals in the medium term in the specific area of drilling and production, but said there could be deals elsewhere.

"Specific to this space -- drilling and production -- we think we have got what we needed for the medium term," Krenicki said. "But the rest of the energy portfolio has capability to do more and we'll look for things that make sense."

UNLOCKING PUZZLE

U.S. stock index futures for the S&P 500, Nasdaq and Dow Jones were down 0.1 percent to up 0.1 percent at 0943 GMT.

U.S. stocks ended Friday firmly in positive territory after Egyptian President Hosni Mubarak's resignation fueled buying interest. The Egyptian military dissolved parliament on Sunday.

Overnight in Asia, China's trade surplus fell to its lowest in nine months in January after imports surged, data showed, supporting the government's case ahead of a G20 meeting that it is doing enough to spur domestic demand without speeding up currency appreciation.

Traders said China's consumer prices may have risen 4.9 percent in the year to January, well below the consensus forecast of 5.3 percent, helping stem monetary tightening concerns. The official data will be announced on Tuesday.

In European equity markets, the FTSEurofirst 300 .FTEU3 rose 0.7 percent to a 29-month high in early trade on Monday on the Chinese data, with mining stocks among the top gainers.

London copper rallied above $10,000 early on Monday, while in Shanghai the metal rose 1 percent after a surprise jump in Chinese copper imports and hopes of continued restocking by the world's top consumer.

U.S. oil prices rebounded on Monday to near $86 a barrel, after sinking to a 10-week low in the previous session, as tension in the Middle East region dissipated following Mubarak's resignation.

U.S. companies reporting on Monday include Agilent Technologies (A.N), Fmc Technologies (FTI.N), Marriott International (MAR.N) and Masco (MAS.N).

Major macroeconomic data due for release on Monday includes euro zone industrial data at 1000 GMT and U.S. NAHB housing market data at 1500 GMT.

General Electric Co (GE.N), is to buy the well support division of British energy services firm John Wood Group (WG.L) for about $2.8 billion, the companies said on Sunday, the latest move by the largest U.S. conglomerate to boost its presence in oil services.

Dutch bioscience company Pantarhei intends to bid for the bulk of U.S. company Merck's (MRK.N) Netherlands-based bioscience research unit Organan, the Dutch Financieele Dagblad reported on Monday.

Seadrill (SDRL.N) is considering spinning off its harsh environment activities segment.

Russia kicked off a massive privatization drive, with the country's second-biggest bank VTB (VTBR.MM) raising 95.7 billion roubles ($3.26 billion) for the government via a secondary placement.

Global air travelers are expected to rise to 3.3 billion in 2014, up 32 percent from 2.5 billion in 2009, fueled by strong growth in China, the International Air Transport Association (IATA) said on Monday.

Sanofi-Aventis (SASY.PA) has completed a review of the financial books and operations of takeover target Genzyme Corp (GENZ.O), but the two sides continue to discuss a final price for a potential deal, according to The Wall Street Journal.