11:48 PM
By Michael Martina and Laura MacInnis
HONOLULU | Sun Nov 13, 2011 1:18am EST
HONOLULU (Reuters) - President Barack Obama and Chinese President Hu Jintao presented dueling trade agendas at a Pacific summit on Saturday that underscored growing tensions between the world's two biggest economies.
Hu and Obama laid out competing visions of world trade in back-to-back speeches in Honolulu, and Obama then warned Hu in private that Americans were growing increasingly frustrated over what they see as unfair Chinese trade and currency practices.
Taking China to task with some of his sharpest language yet, Obama used an address to CEOs at the Asia-Pacific Economic Cooperation (APEC) summit to threaten punitive economic steps unless it started "playing by the rules," as he sought to reassert U.S. influence in a region vital to America's interests.
Earlier, Hu insisted on more clout for China as an emerging global power. He also made clear Beijing prefers to work through existing global trade architecture rather than allow itself to be subject to U.S.-led efforts to pry open Asia-Pacific markets.
When the two leaders appeared together before reporters as they started face-to-face talks, both sought to play down differences that have tested U.S.-China ties, stressing instead the need for cooperation to tackle global challenges.
But behind closed doors, Obama took U.S. complaints to a new level. It was unclear whether it was a serious effort to get Beijing to change its ways or, at least in part, political posturing aimed at U.S. voters who will decide whether to give him a second term.
Obama faces a tough 2012 re-election battle, in which Republican opponents accuse him of not being tough enough on China.
Obama told Hu the American people and U.S. businesses were "growing increasingly impatient and frustrated with the pace of change" in the U.S.-China economic relationship, senior White House aide Michael Froman told reporters.
Even as Obama used his meeting with executives to highlight U.S. concerns about a rising China, he asserted the United States was partly to blame for having lost ground and said his administration was working to change that.
"We've been a little bit lazy, I think, over the last couple of decades," Obama said. "We've kind of taken for granted -- well, people will want to come here -- and we aren't out there hungry, selling America and trying to attract new business into America," Obama said.
Hosting the APEC summit in his native Hawaii, Obama said earlier the "broad outlines" of a deal had been reached on the Transpacific Partnership, a regional free trade pact being negotiated by the United States and eight other countries.
It was hailed by U.S. officials as Obama's signature achievement of the summit and a possible template for an eventual APEC-wide free trade zone. APEC's 21 members make up the world's most dynamic region and account for more than half of global economic output.
Obama sees increased trade opportunities as an engine for job creation at home that could help him through a troubled 2012 re-election bid with the U.S. economy still struggling.
But Beijing remains wary of the evolving trade pact that Washington is seeking with some of China's neighbors. It is widely seen as part of a U.S. drive to provide a counterweight to China around the Pacific Rim.
SHADOW OF CRISIS
With Europe's debt crisis sending shock waves around the globe, this year's APEC meeting was also emerging as a forum to push the euro zone to sort out its problems and for APEC members to strengthen defenses against the fallout.
Fostering free trade is one of the few steps leaders can take to spur global growth when fiscal and monetary measures are virtually exhausted in many developed countries. But new trade deals usually take years to yield significant benefits.
While insisting the United States was "rooting for China to grow," Obama urged Beijing to do more to allow its currency to appreciate, create a level playing field on trade and prevent theft of U.S. intellectual property. Obama was "very direct" in conveying that in talks with Hu, the White House said. "The bottom line is that the United States can't be expected to stand by if there's not the kind of reciprocity in our trade relations and our economic relationships," Obama said. "Where we see rules being broken, we'll speak out and in some cases we'll take action."
Obama has been under pressure, especially from Republican rivals, for a tougher line on China as he seeks re-election. But U.S. leverage is limited, not least because Beijing is America's largest foreign creditor.
Speaking before Obama, Hu sought to soothe the concerns of foreign businesses over market access in China. He repeated China's commitment to reform and opening up its economy but offered little new to address complaints that American business cannot compete fairly.
At the same time, he insisted China be given what it sees as its rightful place in world affairs.
"The new mechanism for global economic governance should reflect the changes in the world economic landscape," Hu told executives. "It should observe the principle of mutual respect and collective decision-making and increase the representation and voice of emerging markets and developing countries."
China has been reluctant to sign trade deals that would subject it to U.S-led efforts to open its economy further to foreign players because that would put competitive pressure on its state-owned enterprises.
Hu told the business leaders he favors pursuing more open trade through bodies such as the World Trade Organization, saying "we should uphold the multilateral trading regime and deepen regional integration."
With Europe edging toward a recession, fast-growing Asia -- led by China -- is vital to sustaining global economic growth.
(Reporting by Reuters APEC team; Writing by Matt Spetalnick; Editing by Paul Tait)
11:28 PM
Leaders eye final Trans-Pacific deal in 2012
Addison Ray
By Laura MacInnis and Emily Kaiser
HONOLULU | Sat Nov 12, 2011 7:31pm EST
HONOLULU (Reuters) - President Barack Obama and eight other leaders said on Saturday they have made good progress on a groundbreaking pan-Pacific trade deal and expected to finish in 2012.
"Our nine nations have reached the broad outlines of an agreement," Obama said after leaders of countries in the proposed Transpacific Partnership pact, or TPP, met at the annual summit of the Asia-Pacific Economic Cooperation forum.
"There are still plenty of details to work out but we are confident that we can do so. So we've directed our teams to finalize this agreement in the coming year. It is an ambitious goal but we are optimistic that we can get it done."
Malaysian Prime Minister Najib Razak went further, even though a joint TPP leaders' statement had no specific target date.
"We've reached broad agreement that July should be our deadline," Najib told reporters.
With Europe mired in crisis, the Obama administration sees the fast-growing Asia-Pacific region as key to boosting exports and creating jobs to bring down high U.S. unemployment.
The TPP talks got a jolt of excitement on Friday when Japan, the world's third-largest economy, announced its interest in joining the United States, Australia, New Zealand, Singapore, Malaysia, Vietnam, Brunei, Chile and Peru in the pact.
The deal, with Japan included, would create a regional economic group about 40 percent larger than the 27-nation European Union. Canada, Mexico, the Philippines, Papua New Guinea and South Korea are seen as potential TPP participants.
Obama is hosting the annual leaders' meeting of the 21-member APEC forum that also includes China, the world's second-largest economy behind the United States. China has not asked to join the TPP talks.
The pact is seen as key to ensuring the United States helps to write the rules for trade in the Asia-Pacific region and is not left on the outside as countries organize manufacturing, agriculture and service sectors around China.
It aims to phase out tariffs on most goods traded between the countries over 10 years and tackle "21st century issues" such as the role of state-owned enterprises in trade, government innovation policies, cross-border data flows and supply chain management.
Mike Froman, a top White House aide, told reporters the TPP should help U.S. exports in machinery, aircraft, medical instruments, agriculture and other sectors.
CHINA LOOKS ELSEWHERE
Japan's potential entry is a source of concern to some in the U.S. business community and Congress, who fear Tokyo is not serious about dismantling long-standing barriers to its markets and therefore could slow down the talks.
"By and large, participating countries have shown their intention of welcoming Japan's decision to seek to join the talks," Japanese Trade Minister Yukio Edano told reporters. "But we cannot afford to be very optimistic. We aim to make progress slowly but steadily."
Najib said leaders "accepted in principle" allowing Japan and other countries to join those already involved in the trade talks but stressed this should not delay the process.
The July deadline was "ambitious because of the enormous amount of work that needs to be done but we'll push as hard as we can and hopefully we'll be able to achieve the target that has been set," Najib said.
Chinese President Hu Jintao, in a speech to business leaders, reiterated China's commitment to APEC's long-term goal of negotiating a broader Free Trade Area of the Asia Pacific, which would include all 21 members.
He noted the TPP was only one avenue toward that goal, along with two alternatives that currently do not include the United States -- the East Asia Free Trade Area and the Comprehensive Economic Partnership for East Asia.
Hu stressed the importance of advancing the 10-year-old Doha round of world trade talks and suggested one way to create momentum was the "early harvest" of a package to give the least developed countries preferential access to richer markets.
He said China was prepared to do its part by eliminating duties on 97 percent of goods from poor countries with which it has diplomatic relations.
(Additional reporting by Kiyoshi Takenaka; Writing by Doug Palmer; Editing by Warren Strobel and John O'Callaghan)
5:45 PM
Obama, Hu pitch different trade agendas
Addison Ray
By Michael Martina and Laura MacInnis
HONOLULU | Sat Nov 12, 2011 6:06pm EST
HONOLULU (Reuters) - Barack Obama and Hu Jintao presented dueling trade agendas as an antidote to weak global growth as the U.S. and Chinese presidents faced off on Saturday at a Pacific summit where Europe's debt crisis loomed large.
The heads of the world's two biggest economies laid bare their countries' growing rivalry and some of their entrenched differences in back-to-back speeches to executives at the Asia-Pacific Economic Cooperation summit in Honolulu.
Obama took China to task for currency and trade practices -- issuing a veiled threat of more punitive action unless it "plays by the rules" -- as he sought to reassert U.S. influence in a region he said was more vital than any other to America's interests.
Hu pushed back, insisting on more clout for China as an emerging global power. He also made clear Beijing prefers to work through existing global trade architecture rather than allowing itself to be subject to U.S.-led efforts to pry open Asia-Pacific markets.
Obama and Hu will meet face to face later on Saturday.
Hosting the APEC summit in his native Hawaii, Obama said earlier the "broad outlines" of a deal had been reached on the Transpacific Partnership, a regional free trade pact being negotiated by the United States and eight other countries.
It was hailed by U.S. officials as the summit's signature achievement and a possible template for an eventual APEC-wide free trade zone. APEC's 21 members make up the world's most economically dynamic region and account for more than half of global output.
The deal being sought with China's neighbors also reflected a U.S. drive to counter Beijing's competitive threat.
SHADOW OF CRISIS
With Europe's debt crisis sending shock waves around the globe, this year's APEC meeting was emerging as a forum to push the euro zone to sort out its problems and for APEC members to strengthen defenses against the fallout.
Fostering free trade is one of the few steps leaders can take to spur global growth when fiscal and monetary measures are virtually exhausted in many developed countries.
While insisting the United States was "rooting for China to grow," Obama urged Beijing to do more to allow its currency to appreciate, create a level playing field on trade and prevent theft of U.S. intellectual property.
"The bottom line is that the United States can't be expected to stand by if there's not the kind of reciprocity in our trade relations and our economic relationships," Obama said. "Where we see rules being broken, we'll speak out and in some cases we'll take action.
Speaking before Obama, Hu sought to soothe the concerns of foreign businesses over market conditions in China. He repeated China's commitment to reform and opening up its markets but he offered little new to address concerns that American business cannot compete fairly.
At the same time, he insisted China be given what it sees as its rightful place in world affairs.
"The new mechanism for global economic governance should reflect the changes in the world economic landscape," Hu told executives. "It should observe the principle of mutual respect and collective decision-making and increase the representation and voice of emerging markets and developing countries."
China has been reluctant to sign trade deals that would subject it to U.S-led efforts to further open its economy to foreign players because that would put competitive pressure on its state-owned enterprises.
Hu told the business leaders he favors pursuing more open trade through bodies such as the World Trade Organization, saying "we should uphold the multilateral trading regime and deepen regional integration ... fulfill our commitments, firmly oppose and jointly resist protectionism of all forms."
Hu has touted trade with China as a way to boost U.S. growth and help Obama achieve his goal of doubling exports. With Europe edging toward a recession, fast-growing Asia -- led by China -- is vital to sustaining global economic growth.
Developing Asia is expected to grow 8 percent in 2012, roughly four times faster than the United States, according to International Monetary Fund forecasts.
(Reporting by Reuters APEC team; Writing by Matt Spetalnick and Emily Kaiser; Editing by John O'Callaghan)
5:25 PM
By Janeman Latul, Saeed Azhar and Clara Ferreira Marques
JAKARTA/LONDON | Sat Nov 12, 2011 7:15pm EST
JAKARTA/LONDON (Reuters)- It was supposed to be a union of two legendary business dynasties, one West, one East. Nathaniel Philip Rothshild, the 40-year-old scion of the storied European banking family, forged a deal a year ago with the Bakrie brothers, one of Indonesia's mightiest business families, to create an international coal-mining titan.
That deal last November seemed incredible from the start; the dream of creating the world's biggest thermal coal company, with mines in Indonesian Borneo, and aiming to be one of the biggest listed companies on the London exchange. Now a year later the partnership could be on the brink of collapse.
This week Rothschild called for a "radical cleaning up" of the balance sheet and corporate culture at the Bakrie brothers chronically indebted flagship, PT Bumi Resources, his partner in the London-listed coal venture, Bumi Plc.
In a letter written to Ari Hudaya, Chief Executive of both Bumi Plc and Jakarta-listed PT Bumi Resources, Rothschild said the partnership's goal of entering the FTSE-100 in 2012 was still attainable. But he was not satisfied with progress so far with his Indonesian partners, who remain "over-leveraged," which was a major factor in the "corporate governance discount" on the Jakarta's firm's stock price.
The leaked letter was a stunning rebuke to top Bakrie lieutenant Ari Hudaya. Hudaya's dual role as CEO of both the Bakries' PT Bumi Resources and the Bumi Plc joint venture required "closer evaluation and scrutiny," Rothschild wrote in the letter, published on the Financial Times website.
Rothschild knew he was dealing with one of Southeast Asia's most powerful and controversial families, and one with chronic debt issues. Over the past two decades, he has flirted with risk and emerging market powerbrokers, ranging from an oil venture in Iraqi Kurdistan to a friendship with Muammar Gaddafi's son Saif al-Islam, who has been trying to flee Libya after the death of his father.
In the process, Rothschild has shed the party-hard reputation of his university years -- the Sunday Times Rich List anointed him Britain's richest hedge fund manager and he is estimated to be worth around a billion pounds. He has emerged as a serious dealmaker with a contacts book to rival that of his father, Baron Rothschild, and spends the equivalent of around a month each year in his private jet "N4T."
On the Indonesian side, Aburizal Bakrie, the oldest of the brothers, headed the group until 2004, when he joined President Susilo Bambang Yudhoyono's administration. He left after repeatedly clashing with reformers in Yudhoyono's government and now heads Indonesia's biggest political party, Golkar. He is a likely presidential candidate in the 2014 Indonesian elections.
The strain in relations between the future Baron Rothschild and a family that may boast a future president after their hopeful beginning a year ago illustrates some of the difficulties in doing business in Indonesia.
Southeast Asia's largest economy is brimming with opportunities, though it does means navigating through opaque regulations, erratic business relationships, changing policies and deeply entrenched corruption. The World Bank ranks it 129 out of 183 countries in ease of doing business.
GLOBAL MARKET SELL-OFF
For the Bakries, the allure of the deal with Rothschild was to get that prized listing on the London exchange. As Rothschild noted in his letter, their shares on the Jakarta exchange have underperformed, despite the attractiveness of the coal assets.
Rothschilds' company Vallar became Bumi Plc and was relisted on the London Stock Exchange in June -- just ahead of a global market sell-off. The stock dropped steadily from the start as markets fell, until it hit 8.50 pounds. That price triggered a margin call from Bakrie lenders who demanded repayment on loans worth $1.3 billion.
The Bakries brought in a new investor at the end of October to fix that problem, Indonesian coal miner and investment banker Samin Tan. They sold half their original 47 percent stake in Bumi Plc to Tan in a complex deal that featured special purpose share-holding vehicles.
The deal did not dilute Rothschild's 10 percent stake in Bumi Plc, and Rothschild in his letter said he fully supports Tan's entrance into the partnership. What he objected to, Rothschild said, was that Hudaya had refused to call in Bumi Resources' own loans to others to repay debt. Bumi Plc owns a 29 per cent stake in PT Bumi Resources, which in turn controls the lucrative mines.
Chris Fong, a spokesman for the Bakrie family, told Reuters Rothschild's letter had taken them by surprise.
"Nat Rothschild hasn't addressed these issues with us," Fong said, referring to a passage in the letter in which Rothschild said the Bakries also wanted a transformation in the management of Bumi Resources.
"If he wants to raise any issues, as a shareholder and board member, we would expect him to follow accepted corporate governance procedures and raise concerns at the board level and at the appropriate time."
The two sides, according to knowledgeable sources in both camps, had been taking each other by surprise of late.
Rothschild, thousands of miles away in Europe, had called the Bakries after Reuters first broke news in late October of an impending deal with Tan, but he could get no confirmation of the deal.
"The family left Rothschild in the dark until the news that Samin Tan was nearing a deal and he called the family about it," said a source close to the Bakries with direct knowledge of the situation. "The group didn't think he needed to know about this, that he should only know when a deal was done."
Eton-educated Rothschild insisted in an interview last month with Reuters that he had no issue with the Bakries, and that he had "total confidence" in the family.
The latest turns in the Bakries' fortunes seems to be following a script written three years ago during the 2008 global financial crisis. They fended off a $1.2 billion margin call then by selling stakes in group firms, many of them with buy-back clauses, to lenders and investors.
Like then, the Bakries' latest debt refinancing also ensured the prized Borneo mines would remain in Indonesian hands.
LEGACY OF DISTRUST
Indonesia has some of the world's largest deposits of coal, gold, copper, tin and natural gas, spread across the archipelago of 17,000 islands. The legacy of harsh colonialism by the Dutch for over three hundred years has left many Indonesians with a distrust of foreign motives.
The Borneo coal mines at the heart of the deal with Rothschild once belonged to global energy companies Rio Tinto, BP and BHP Billiton, who sold them to the Bakries in 2001 and 2003, after coming under pressure from resource nationalists to divest their assets to local interests.
"Our contacts at the time told us these deals undervalued the companies at pennies on the dollar," said the U.S. Ambassador to Indonesia, Cameron Hume, in a November 2007 classified diplomatic cable released by Wikileaks. Bakrie group executives, Hume added, have said they hoped to do more of these "value-oriented acquisitions."
"In the mining sector, cabinet minister Aburizal Bakrie has been most successful in using nationalism for his private personal gain," Hume noted in that cable.
Aburizal Bakrie's Golkar party at the time was making resource nationalism an issue in the run-up to the 2009 presidential election, threatening to review energy contracts with foreign oil companies.
So it caused ripples of surprise and interest when Nirwan Bakrie celebrated his 59th birthday last year by announcing that the coal assets held by PT Bumi Resources would be injected into Rothschild's London-listed investment vehicle Vallar.
Rothschild put up 100 million pounds of his own money, but the new company's biggest asset would seem to be worth the price. The KPC mines in East Kalimantan province in Indonesia's part of Borneo island are among the world's largest open pit mines, with 4.5 billion tonnes of proven reserves. Bumi Plc expects coal sales this year of 77 million tonnes, which would make it the world's largest thermal coal exporter.
"What we are creating here is the largest exporter of thermal coal to China," Rothschild, whose ancestors advised generations of European royalty and helped to bankroll Britain's war against Napoleonic France, declared at the time.
For Rothschild, the venture was an opportunity to become a key player in the global coal industry, and to cement his image as a buccaneering financier in the mold of his 19th Century forbears.
For the Bakrie family, who escaped financial collapse twice before in 1998 and 2008, the London listing gave it instant credibility and a global profile.
"We needed the London listing to establish a presence in the international capital market ... we wanted to show the world that Indonesia owns a global champion in coal," Nirwan Bakrie told Reuters in Jakarta last month.
SEEDS OF MISTRUST
But not long after that hopeful beginning, seeds of mistrust were sown. In March, three months before Bumi Plc's London listing, the Bakrie group's holding company, Bakrie & Brothers, along with affiliated firm Long Haul, consolidated some of their debt through a $1.35 billion loan arranged by Credit Suisse and backed by their stake in Bumi Plc.
Rothschild and his advisors asked for the details at the time but were told those were private and had no relevance to their joint venture in Bumi Plc, sources close to the Bakrie family said.
By early October, Bumi Plc's falling share price triggered the margin call on that loan, plunging the Bakries into a new debt crisis and ultimately leading to the Tan deal.
According to several sources close to Bakrie family, the Bakries believed Rothschild was ready to buy their now cheapened stake in Bumi Plc if the group was pushed into default.
"He already was looking for a new local partner to replace the Bakries here ... but the coal mining world is small in Indonesia and those local partners declined to do a deal with him," one source said. "I think this guy is not a good partner."
The Rothschild camp denies those claims.
With the mistrust apparently deepening, Ari Hudaya, the CEO of Bumi Resources and Bumi Plc and the target of Rothschild's disgruntlement in his letter, called Rothschild on October 17 on his Blackberry.
He had just met with the Bumi Resources board inside the Bakrie Tower in Jakarta's financial district, whose dark tinted windows afford views of a volcano outside the capital. They had decided to cancel a $2 billion deal announced in June that would have given Bumi Plc 75 percent of Bumi Resources Minerals (BRM), the Bakries' latest mining exploration venture, with promising assets from copper and zinc in the jungles of Indonesia to African diamonds.
Bumi Plc said later in a regulatory announcement from London the deal was canceled due to "continuing market uncertainties," which was affecting the share prices of the companies involved.
The decision left Rothschild with a less diversified mining firm, and closing off what seemed an easy and promising entrance to new mining frontiers.
FRIEND OF BAKRIES
The Bakries had first tried to do a loan deal with Glencore, Reuters reported last month. The commodity trading giant was keen to get a tighter grip on their Indonesian coal marketing rights and keep out rival trader Vitol.
But because lenders wanted the deal to involve an equity stake, the Bakries turned to Tan, who controls Borneo Lumbung Energi and investment bank PT Renaissance Capital. The two sides were no strangers, since Tan had advised the Bakries on their 2003 mine purchases and then tried to buy Bumi's key mines himself in a failed deal several years ago.
Like the Bakries, Tan comes from Sumatra, born into a family of fish traders. He was a partner at accountancy firm Deloitte, before setting up his own investment firm.
"The deal is not only about Bakrie," Tan told Reuters, when asked about the risk of any deal with the Bakries, adding he had prepared some "safety measurement."
Investors were not impressed, given that Tan is financing it with a loan from Standard Chartered that boosts his Borneo Lumbung Energi's debt profile. The firm's stock crashed as much as 17 percent on the day of the deal, and several banks have since downgraded their investment ratings on the miner, from "buy" to "hold" or "reduce."
Investment banks have said it shouldn't not hurt Bumi Plc, and the London stock has steadied this month along with the rest of the market.
Weeks before his scathing letter to his Indonesian partner, Rothschild had told Reuters he was confident he would continue to have a relationship with the Bakries for a long time to come.
"In 10 years' time, I expect to still have the same type of strong and trusting relationship that I have with the Bakries today."
(Saeed Azhar reported from SINGAPORE; Additional reporting by Prakash Chakravarti in HONG KONG and Jackie Cowhig in LONDON; Writing by Neil Chatterjee; Editing by Bill Tarrant)
5:44 AM
By Edward Krudy
NEW YORK | Fri Nov 11, 2011 8:25pm EST
NEW YORK (Reuters) - Wall Street is stuck in a highly volatile range as investors hoping for a rally into the end of the year are browbeaten by Europe's unfolding crisis.
For months, investors have been enthusing about valuations, earnings and, more recently, signs of an improving economy. Those may be good reasons why stocks should rally, but even the most ardent are starting to sound a bit glum.
The political intrigue in southern Europe has flummoxed investors stateside. Papademos has replaced Papandreou. Berlusconi is, well, Berlusconi. The headlines and the subsequent volatility seem relentless.
"It literally just changes consistently each and every night," said Jeremy Zirin, chief U.S. equity strategist at UBS Wealth Management in New York.
"Earlier this week, there were worries about a potential Italian default and now we've seen government and regime change in two of the periphery nations."
Again, events in Europe over the weekend could end up shaping the start of the trading week in U.S. markets.
Italy's Senate approved a new budget law, clearing the way for approval of the package in the lower house on Saturday and the formation of an emergency government to replace that of Prime Minister Silvio Berlusconi.
In Athens, former European Central Bank policy-maker Lucas Papademos was sworn in as Greek prime minister, replacing predecessor George Papandreou after days of political wrangling. He is tasked with meeting the terms of a bailout plan to avert bankruptcy.
The net result was that the S&P 500 ended up almost 1 percent on the week after a drop of nearly 4 percent on Wednesday.
That midweek plunge came after Italy's bond yields blew out to over 7 percent, raising fears that the country, which is also the world's third-largest bond market, could go bankrupt.
But with worries that the crisis could spread to other countries, investors are looking for either the European Central Bank or EU governments to commit more capital in order to backstop sovereign bond markets.
"For the markets to continue to rally, we would need to see market confidence that Italian, Spanish and French bonds are money good," Zirin said. "There is likely to be more volatility around the sovereign debt crisis until we get more capital committed to the solution."
HEDGING THEIR BETS
Many investors picked up put options heading into the weekend to hedge against a potential downdraft in equities next week.
Options traders exchanged about 1.48 million contracts on the Financial Select Sector SPDR fund (XLF.P) -- 3.6 times the average daily volume -- as puts outpaced calls by a factor of more than 13 to 1, according to Trade Alert.
Technical factors are taking on greater significance as the S&P 500 hovers at the top end of its trading range and traders watch for a break either up or down. When that happens, it could be swift if recent volatility is anything to go by.
Ari Wald, a technical analyst at Brown Brothers Harriman in New York, said evidence is building for a move to the downside after the index failed for a second time since late October to push above its 200-day moving average at around 1,272.
"If we keep failing at this, it looks like it's confirming another lower high from the May peak," he said. "This still looks like a downtrend to me."
The 200-day moving average, a closely followed level, has emerged as a key battleground for investors this year, with successive tests to the downside over the summer eventually leading to a 13 percent cascade during five fraught trading days in August.
On the downside, Wald sees support at the 50-day moving average at around 1,200. A breach of that could take the index back to around 1,100 in early 2012, he said.
But market technicians also say positive seasonalities could be in stocks' favor.
'TIS THE SEASON
November marks the start of the "six best months of the year" when the Dow has booked an average gain of 7.5 percent since 1950, compared with just 0.4 percent in the other half of the year, according to the Stock Trader's Almanac.
One reason cited for that seasonal lift, at least during the last few months of the year, is holiday spending.
Investors will look for more improvement in retail sales when data for October is released on Tuesday, especially after the Thomson Reuters/University of Michigan report on Friday showed consumer sentiment rose to a five-month high in November.
During the last major week of earnings season, some prominent retailers are set to report results and give an outlook through the end of the year. They include Wal-Mart Stores (WMT.N), often seen as a barometer of U.S. consumer spending, and a niche retailer such as Abercrombie & Fitch
(ANF.N).
"My guess is we are going to have a reasonably good consumer in the year-end," said Philip Dow, director of equity strategy at RBC Wealth Management in Minneapolis. "My target on the S&P is 1,380. I still think it could happen."
(Wall St Week Ahead runs every Friday. Questions or comments on this column can be e-mailed to: edward.krudy(at)thomsonreuters.com)
(Reporting by Edward Krudy: Editing by Jan Paschal)
5:24 AM
By Barry Moody and George Georgiopoulos
ROME/ATHENS | Sat Nov 12, 2011 6:55am EST
ROME/ATHENS (Reuters) - Italy's parliament was set to approve austerity measures on Saturday, triggering the formation of an emergency government to replace that of Prime Minister Silvio Berlusconi, and meeting European Union demands to avert a euro zone meltdown.
After months of dither and delay, Rome appears to have got the message as bond markets pushed it to the brink of needing a bailout that the euro zone cannot afford.
President Giorgio Napolitano and Italian lawmakers have put the process on a fast track: the Chamber of Deputies was due to start debating at 1130 GMT (6:30 a.m. EST) and final approval of the cuts by the lower house marks the Berlusconi government's final act.
Berlusconi was expected to hold a last cabinet meeting and then hand his resignation to Napolitano at the Quirinale Palace.
A largely technocratic government headed by former European Commissioner Mario Monti was seen in place by Sunday night or Monday morning.
In Athens on Friday, former European Central Bank policymaker Lucas Papademos, a technocrat like Monti, was sworn in to lead a new government tasked with meeting the terms of a bailout, after days of political angling.
WARNINGS OF GLOBAL CONTAGION
In Tokyo, International Monetary Fund chief Christine Lagarde warned that if strains in Europe worsen, Asia would be negatively affected through trade and financial sector links.
At a news conference after meeting Japan's Finance Minister Jun Azumi, she said: "...we touched on the economic situation in the euro zone, the way to address it, and the consequences that the euro zone crisis has and would have if it deteriorated further in the rest of the world, particularly in Asia."
"I insisted with Minister Azumi that no country can be immune under the present circumstances, no matter how developed or how emerging or how far away it is. The countries are totally interconnected. That is what we see at IMF," she said.
Her warning came after pressure from Washington for faster action from the currency bloc.
"The crisis in Europe remains the central challenge to global growth. It is crucial that Europe move quickly to put in place a strong plan to restore financial stability," U.S. Treasury Secretary Timothy Geithner said on Friday.
U.S. President Barack Obama spoke separately with German Chancellor Angela Merkel and French President Nicolas Sarkozy about the crisis late on Thursday.
MARKET RELIEF...BUT WILL IT LAST?
The euro made its strongest gains against the dollar in two weeks on Friday and Italian bond yields, which had raced above sustainable levels this week, fell in relief at the prospect of a new government.
European shares also rose, with Italian banks including Intesa Sanpaolo rallying.
But some investors doubted the recovery would last, as even a technocrat government might struggle for progress on fiscal reforms Italy has long promised but never delivered.
"We can have maybe two or three days of calm -- in inverted commas -- but nothing has really changed underneath," one bond trader said.
Spain, the euro zone's fourth largest economy and due to hold elections in nine days, stopped growing in the third quarter, putting its deficit-reduction goals in doubt.
With European leaders dithering over how to tackle the deepening crisis, pressure has mounted on the European Central Bank to act more forcefully by becoming a full lender of last resort like the U.S. Federal Reserve and the Bank of England.
"There is real turbulence in the markets, real question marks over whether countries can deal with their debts and a big question mark over the future of the euro zone," British Prime Minister David Cameron said.
Russia's Prime Minister Vladimir Putin expressed doubts Europe had the firepower to avoid the "catastrophe" of an Italian collapse. Russian experts "believe that without direct intervention from the ECB this problem cannot be solved," he said.
On the same day that the head of the 440-billion-euro ($600-billion) European Financial Stability Facility (EFSF) was quoted saying market turmoil had made it more difficult to boost the bailout fund, Putin said the EU, which accounts for half his country's trade, badly needed more emergency funding.
"The EFSF, alone or cooperating with the IMF, does not have the necessary resources. I believe that the resources needed to overcome the crisis are about 1.5 trillion euros," said Putin.
MORE ZEROS WON'T HELP
EFSF chief Klaus Regling told the Financial Times it would now be a challenge to boost the fund to 1 trillion euros as euro zone leaders proposed in a late-October summit, hoping to lure bond investors by offering to insure any eventual losses.
"The political turmoil that we saw in the last 10 days probably reduces the potential for leverage," said Regling.
But ECB policymaker Juergen Stark from Germany reiterated his view that it is up to politicians and not central bankers to solve the problems in the euro zone.
"I personally doubt very much that adding two or three zeros to the bailout volume can solve the structural and political problems," Stark, who opposes the ECB's strategy of buying the bonds of problem states such as Greece to prop them up and will quit the bank early this year, told a Swiss paper.
Senior ECB policymakers have rebuffed arm-twisting from investors and world leaders to intervene massively on bond markets to shield Italy and Spain from financial contagion.
Germany, Europe's biggest economy, strongly opposes the ECB taking on a broader crisis-fighting role, arguing that this would compromise the central bank's independence.
Greece's Papademos, a former ECB vice president, faces major challenges at the helm of a unity government forged after a chaotic power struggle between the two main political forces.
"With the unity of all people, we will succeed," Greece's premier told George Papandreou, who led the previous Socialist administration that fell apart last week.
Papademos has about 100 days to start fulfilling the terms of a 130-billion-euro bailout plan to keep Greece solvent while placating warring political factions.
Socialist party big-hitter Evangelos Venizelos will remain finance minister in a new cabinet that includes many of the same politicians who led the nation into crisis.
(Additional reporting by James Mackenzie in Rome, Renee Maltezou in Athens, Nick Edwards in Beijing, Ana Nicolai da Costa and Francesco Canepa in London and Gleb Bryanski in Russia; Writing by Mike Peacock and Stephen Brown; Editing by Louise Ireland)