Business Blog Posts

The decision takes the Fed into largely uncharted waters and is aimed at further lowering borrowing costs for consumers and businesses still suffering in the aftermath of the worst recession since the Great Depression.

The U.S. central bank said it would buy about $75 billion in longer-term Treasury bonds per month through the end of June 2011 and could adjust purchases depending on the strength of the recovery.

"The economy is slowly digging itself out of a deep hole," said Brian Bethune, economist at IHS Global Insight in Lexington, Massachusetts. "The Fed is making the right moves here to nudge the pace up a little," he said.

Critics within and outside the central bank fear the Fed's policy will lead to high inflation and worry that low interest rates in the United States risk fueling asset bubbles in other countries and destabilizing currencies.

But with the U.S. economy expanding at only a 2.0 percent annual pace in the third quarter of this year and the jobless rate seemingly stuck around 9.6 percent, the Fed had come under pressure to do more to stimulate business activity. HIGH

UNEMPLOYMENT, LOW INFLATION

In the Fed's post-meeting statement, policymakers described the economy as "slow" and said employers remained reluctant to create jobs. They also called inflation "somewhat low."

"Progress toward (our) objectives has been disappointingly slow," the Fed said, referring to its dual mandate to maintain price stability and foster maximum sustainable employment.

Still, these domestic goals appeared to be creating troubles abroad. The prospect of ultra-low returns in the United States have driven investors into higher-yielding emerging markets, pushing those currencies higher and sparking anxiety over a loss of export competitiveness.

"We are all under attack by the relaxed monetary policy of the United States," Colombian Finance Minister Juan Carlos Echeverry told investors on Tuesday.

With 14.8 million Americans unemployed, factories operating well short of capacity, and inflation well below the range the Fed would prefer, some officials at the central bank see the risk of a vicious deflationary cycle where consumers hold off on purchases, choking off economic growth.

Fed Chairman Ben Bernanke, in an opinion piece posted on the Washington Post's web site on Wednesday, said policymakers could not sit idly by given the anemic economic backdrop. He argued that fears that unconventional monetary policy would spark a future bout of inflation were "overstated."

"Inflation that is too low can pose risks to the economy -- especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation, which can contribute to long periods of economic stagnation," Bernanke wrote.

MARKET REACTION SUBDUED

GM's filing with U.S. securities regulators marks the final step before it begins marketing what is expected to be one of the largest-ever IPOs. The investors are expected to span the globe and include sovereign wealth funds.

The automaker plans to sell 365 million common shares at $26 to $29 each, raising about $10 billion at the midpoint, according to updated initial public offering papers filed with the U.S. Securities and Exchange Commission.

In addition, GM said it plans to sell about $3 billion of preferred shares that would convert to common shares under mandatory provisions, a less risky form of equity that could attract dividend and growth-fund investors.

The offering, potentially the largest U.S. IPO since Visa Inc's $19.7 billion IPO in 2008, would cut the U.S. Treasury's current 61 percent stake to just over 43 percent.

GM's underwriters could sell an additional 54.75 million common shares and 9 million preferred shares if the IPO attracts robust investor demand, raising another roughly $2 billion and potentially taking the total IPO amount to as much as $15.65 billion, the company said in the amended prospectus.

The Treasury, which holds a 60.83 percent stake in GM as a result of its $50 billion bailout, is cutting that stake to 43.26 percent in the IPO, excluding the overallotment option.

Once a blue-chip stock, GM is expected to return to the New York Stock Exchange under the "GM" ticker symbol it had traded under before its 2009 bankruptcy.

GM is expected to price its IPO on November 17 and begin trading on the New York and Toronto stock exchanges on November 18, sources have said.

The governments of Canada and Ontario plan to sell down their combined stake to 9.64 percent from 11.67 percent and the United Auto Workers VEBA trust is expected to reduce its stake to 15.33 percent from 19.93 percent.

(Reporting by Soyoung Kim, Clare Baldwin and David Bailey, additional reporting by Jonathan Stempel; Editing by Gary Hill)

Phosagro Chairman Vladimir Litvinenko has asked Russian Prime Minister Vladimir Putin to approve a potential deal and request financing from Russian banks, Russian business daily Vedomosti reported on Wednesday.

The report reignited speculation about a possible bidding war in the world's biggest takeover for 2010 and came on the day Ottawa is expected to tell BHP whether it will approve or reject the deal.

Vedomosti cited a letter from Litvinenko to Putin, a close ally since Putin defended his 1997 PhD thesis at the St Petersburg institute where Litvinenko is rector.

Privately held Phosagro was not immediately available for comment on the report while BHP and Potash declined to comment.

Analysts said it appeared unlikely Phosagro had the financial firepower to make a rival bid unless in conjunction with other Russian players Uralkali and Silvinit -- being merged by potash tycoon Suleiman Kerimov.

"Only if Phosagro, Uralkali and Silvinit combined into a single $25-30 billion company and consolidated their funding capabilities would the remote potential to make a bid for PotashCorp appear," Troika Dialog analyst Mikhail Stiskin said in a note.

He added that a successful bid would put Russia in control of 65 percent of global potash trade -- a key component of world food supplies.

Credit Suisse analysts said Potash Corp could have drummed up the Russia bid as a 'white knight' defense to the unwelcome BHP offer, adding there was "little likelihood" that a takeover would come about.

Phosagro, which Moscow's VTB Capital said had 2009 sales of $1.8 billion, does not disclose its shareholder structure but market players say it is controlled by billionaire senator Andrei Guryev.

Two Canadian newspapers reported on Tuesday that bureaucrats were advising the government to allow BHP's bid for the world's largest fertilizer market although rumors swirled in the markets that Ottawa would block it.

The federal Canadian government will announce its decision on Wednesday, a source close to the matter told Reuters on Tuesday. Ottawa has until the end of Wednesday (0400 GMT Nov 4) to make its ruling public.

No serious rival bidders for Potash have emerged so far. Potash has said it held talks with 15 strategic, financial and state-sponsored potential bidders and investors but admitted in a tough market, a white knight would need more time to raise financing.

Potash has flatly rejected BHP's current $130-a-share offer as inadequate and has repeatedly said it expects other offers.

The Russian newspaper quoted Litvinenko as saying in the letter he knows well Canada's government officials who make decisions on the matter as well as Potash's senior management and that they were not against an alliance with Russia.

The MSCI index of Asia Pacific stocks outside of Japan .MIAPJ0000PUS was up 0.34 percent helped by gains in materials and energy in line with Wall Street after a swing toward the Republicans in U.S. elections lifted investor sentiment.

Hong Kong's Hang Seng Index .HSI leapt to its highest in 28 months, rising 1.9 percent spurred by gains in banks and oil counters.

South Korea's KOSPI .KS11 gained 1 percent on foreign buying with banks and insurers up amid strengthening expectations for an interest rate hike after the Australia central bank's surprise decision to increase rates.

Japan's financial markets are closed because of a public holiday.

The dollar stayed on the backfoot in Asia with the euro holding above $1.4000 and the Aussie just off parity ahead of the Fed meeting.

Due at around 1815 GMT, the Fed is expected to announce plans to buy hundreds of billions of dollars in U.S. government debt in order to foster a stronger economic recovery.

Markets are generally priced for the Fed to initially commit to buying at least $500 billion in Treasuries over five months, although much uncertainty surrounds the scope and pace of bond purchases.

"I think they'll take the approach that central banks usually take for interest rates, which is to make a small change now and reconsider at the next meeting," said Joseph Capurso, currency strategist at Commonwealth Bank in Sydney.

"The market is going to be surprised and the U.S. dollar is going to have a strong across-the-board rally. The market has a lot priced in now and that's keeping the dollar weak."

Markets were also keeping an eye on the results of U.S. mid-term elections on Tuesday. Television networks projected the Republicans would seize control of the House of Representatives although the Democrats were likely to maintain the Senate.

A divided Congress is typically seen as bullish for stocks as it makes passing new laws harder and lessens uncertainty for business.

Some analysts said a Republican victory could also be positive for the U.S. currency on market hopes for increased fiscal austerity and less government regulation.

Gold inched down despite the weaker dollar as investors stayed on the sidelines on the last day of the Federal Reserve's meeting.

Spot gold eased 55 cents to $1,356.45 an ounce, off a two-week high at $1,365.49 hit on Monday. Gold struck a record around $1,387 last month.