Leaders to rethink global finance

President George W Bush has invited world leaders to gather in the US by the end of the year to discuss reform of the global financial system.

The summit would be the first of a series announced after talks between Mr Bush, French President Nicolas Sarkozy and EU Commission chief Manuel Barroso.

But the agenda is unclear and differences are already emerging.

Mr Bush said any plan must not undermine free markets. Mr Sarkozy said "hateful practices" must be abandoned.

Before he arrived at Camp David, the US presidential retreat in the state of Maryland, the French leader warned the world could not "continue to run the economy of the 21st Century with instruments of the economy of the 20th Century".

Calls for action

After the meeting, Mr Bush said: "It is essential that we work together because we are in this crisis together."

He went on to invite world leaders to an economic summit after the US election in November, to discuss responses to the current financial crisis.

"Together we will work to modernise and strengthen our nations' financial systems so we can help ensure this crisis doesn't happen again," he added.

But Mr Bush said any plan to rethink financial mechanisms should "preserve the foundations of democratic capitalism" and include "a commitment to free markets, free enterprise and free trade".

'New order'

Mr Sarkozy said the crisis could offer a "great opportunity" to build the capitalism of the future and leave behind the "hateful practices" of the past.

"We cannot continue along the same lines because the same problems will trigger the same disasters," he warned.

Mr Sarkozy said the hedge funds, tax havens and financial institutions operating without supervision should all be re-thought.

"This is no longer acceptable," he added. "This sort of capitalism is a betrayal of the sort of capitalism we believe in."

European Commission President Manuel Barroso, who also took part in the talks, said: "We need a new global financial order."

Details of the summits are still to be worked out, but White House spokesman Tony Fratto said the first was likely to be held in November.

He added that Mr Sarkozy had recommended New York as a location. UN Secretary General Ban Ki-moon has proposed using the organisation's headquarters there as a venue.

That summit would seek to "review progress being made to address the current crisis and to seek agreement on principles of reform needed to avoid a repetition," the leaders said in their statement.

"Later summits would be designed to implement agreement on specific steps to be taken to meet those principles," it added. Other world leaders are to be consulted over the plan.

Correspondents say such meetings would echo the Bretton Woods conference of 44 nations after World War II, which established many of the institutions and monetary systems that are now under threat

Spanish airline suspends flights

Spanish-based airline LTE International has suspended operations after telling Spanish authorities that it was in serious financial difficulty.

LTE's website stopped taking bookings late on Thursday after it said it could not cover costs for the next few days.

The company said several thousand passengers had been affected by the cancellation of flights, including some who were stranded in Spain.

LTE runs flights from Spain to the UK, Italy and Saudi Arabia.

It has 300 staff and a fleet of seven Airbus 320s.

LTE said fewer than 100 passengers for scheduled flights were stranded in Alicante, Palma and Barcelona. They had been due to travel home to Norwich over the weekend.

It said it would refund the cost of their flights, but was unable to lay on alternative transport.

Separately, it said approximately 3500 LTE passengers had had their charter flights from Tenerife to destinations all over Europe cancelled.

They include 700 passengers who were due to return to Britain.

But LTE said British tour operators were legally obliged to find alternative carriers for these passengers. It said Cosmos and similar companies were already doing so.

Alternative flights

A Cosmos statement said: "Passengers currently in Tenerife who were due to return to Birmingham at 1125 and to Glasgow at 1735 today will now be flying on a Monarch Airlines flight into Manchester this evening, departing Tenerife at 2345, and will be transferred by coach for their onward journey to Birmingham and Glasgow.


"Passengers due to fly from Birmingham to Tenerife at 1225 lunchtime today will be transferred by coach to connect with the Monarch Airlines flight departing from Manchester at 1830 this evening.

"Passengers who were due to fly from Edinburgh to Tenerife at 0035 tomorrow, 18 October, are currently being contacted and will be offered a full refund or the opportunity to fly from Manchester on this evening's departure at 1830, returning to Manchester on 25 October."

Cosmos said about 320 people were due to travel back to the UK on Friday, with another 350 due back at a later date.

Text messages

LTE issued a statement saying that it was doing "everything to minimise the impact of this suspension of services" on its customers.

"After 20 years operating with maximum dedication to our clients, it just was not possible to avoid this situation, given world events lately," the firm said on its website.

Airline employees were told of the company's difficulties via text messages on their mobile phones.

The Spanish Civil Aviation Authority is due to decide whether to suspend LTE's operating licence.

Problems in the aviation industry have already brought down a series of small airlines over the past year.

The most serious collapse came in September, with the demise of XL Airways and its parent firm, the UK's third-largest tour operator.

Oil prices up before Opec meeting

Oil prices have risen, buoyed by Opec's decision to bring forward its emergency meeting by three weeks to next week.

Analysts expect the oil exporters' cartel to cut its output at next week's meeting, which would boost prices.

US sweet crude oil climbed $2 to settle at $71.85 a barrel in New York after losing more than $4 on Thursday.

London Brent crude added $1.76 to settle at $69.60 a barrel. But oil prices remain far below the peak of more than $147 seen in July.

Demand dip

The main reason for the fall since then has been a global economic slowdown, which has dented demand.

"Oil is dependent on strength in the economy but in order to have a sustainable rally we need to have proof that it has really improved or at least is not collapsing," said Thomas Stevoll, an energy strategist at UBS.

Adbullah al-Attiyah, Qatar's oil minister, said he thought Opec would reduce its daily output by one million barrels.

However, Odein Ajumogobia, Nigeria's oil minister, said no specific decisions had been made about the meeting.

Gold prices tumble

Gold prices failed to maintain its shine on the bullion market during the week on renewed offerings from stockists on the back of fall in overseas markets. Silver also dropped further on poor industrial demand coupled with negative global advi ces.

Gold prices headed for the biggest weekly loss in two months in London as equity markets rose around the world and crude oil prices declined, reducing demand for the metal as a haven and a hedge against inflation.

Yellow metal declined to a one-month low in New York on speculation that investors will sell the precious metal to cover losses in other markets. Gold futures for December delivery dropped to $787.70 an ounce on Friday on the comex division of the New Yo rk Mercantile Exchange.

The price slid 8.3 per cent from last week, the biggest such decline for a most-active contract since August 15. Silver futures for December delivery also declined to $9.335 an ounce.

RBI to auction Rs 14,030 cr under special repo window

The Reserve Bank on Friday said Rs 14,030 crore are available under the special lending window set up by the central bank to deal with the redemption pressures of mutual funds.


On 14th October, the RBI had decided to conduct a special 14-day repo auction at 9 per cent per annum for Rs 20,000 crore, with a view to enable banks to meet the liquidity requirement of mutual funds.


Despite offering funds at a reasonable rate to lenders, only a few banks participated in the window, owing to their limited headroom on the first day.



Following the poor response from banks, the RBI decided to keep the facility open till banks cumulatively avail Rs 20,000 crore.


Welcoming the decision on the special window, Finance Minister P Chidambaram had said, "Government has been informed by the mutual fund industry that against their borrowings from the banks they will give as security mainly certificates of deposits of the bank themselves."



Mutual fund industry had sought a facility for accessing funds and "consequently, the government requested SEBI and RBI to meet on Friday and address the issue," he had said.



The settlement for the special repo would be conducted separately and on gross basis, RBI had said.


The RBI further said that this facility would be in addition to repo/reverse repo auctions conducted under Liquidity Adjustment Facility and Second Liquidity Adjustment Facility.

Sensex ends below 10k level, touch over 2-year lows

The Bombay Stock Exchange benchmark Sensex on Friday sank to more than two-year lows under 10,000 points on panic selling by funds and general investors.


After a promising start, the Sensex dropped by 606.14 points, or 5.73 per cent, to 9,975.35, a level last seen in June 2006.

The key-index dipped to 9,911.32 during the day and a high of 10,786.93.

Similarly, the wide-based National Stock Exchange index Nifty tumbled by 194.95, or 5.96 per cent, to 3074.35 after touching the day's low of 3046.60 and a high of 3335.95 points.

Marketmen said the Sensex dipped to the lowest level in over two years on concerns of a sharp global economic slowdown and sluggish corporate earning.

They said a series of measures announced by the government and the Reserve Bank of India failed to check rising capital outflow by foreign funds.

The market barometer turned significantly down as market major Reliance Industries dropped by 6.58 percent, DLF Ltd. by 10.34 per cent, Bharti Airtel by 7.47 per cent, ICICI Bank by 5.61 per cent and State Bank of India by 8.42 per cent.

Sector-wise, Realty stocks suffered the most as segment index meltdown by 10.25 per cent at 2,524.89 followed by Power sector index by 8.09 per cent at 1,712.27.

US Home building at 17 year Low

Construction of new US homes fell more than expected last month to reach its lowest level in almost 18 years, Commerce Department figures have shown.

The number of new houses and apartments being built in September declined 6.3% compared with the same month in 2007.

This fall was much more severe than the 1.6% dip that analysts had expected.

Analysts predict that housing construction will fall throughout 2009, and only grow again when the banking sector and wider economy recover.

Until then, would-be new homeowners are finding that they either cannot afford to get their first mortgage, or that banks are reluctant to lend.

Without these would-be customers, homebuilders are cutting back on the number of new houses they build.

'Slide continuing'

The report showed that 817,000 new homes were built across the country last month on a seasonally adjusted basis, the slowest pace since January, 1991.

The fall in the construction of one-room apartments was even more pronounced, falling 11% from a year earlier to 544,000, the lowest figure since August 1982.

The study added that the downturn in construction was most notable in the north-east of the country.

Mark Zandi, chief economist at Moody's Economy.com said the fall in construction was "a significant weight on the economy".

"Not only is housing demand falling, but builders can't get credit to build homes," he added.

"The slide in construction will continue into next year."

Fellow analyst, Peter Kenny of Knight Equity Markets, added that construction levels will not rise again until the current glut of unsold properties is sold.

"The housing inventory overhang needs to be digested in order for us to move forward," he said.

Early falls for New York shares

US shares opened 200 points lower on Friday, after official figures showed a sharper-than-expected fall in the number of new homes being built.

The Dow Jones industrial average recovered slightly to trade down 90 points or 1.0%.

European share indexes have fluctuated throughout the day and were trading higher by the early afternoon.

The FTSE 100 was up 2.6%, while Germany's Dax index was up 0.9% and France's Cac 40 had risen 1.8%.

It comes at the end of a week of rallies and slumps, unseen since the crash of 1987.

Rallies and slumps

Stock markets have been rising and falling all week as investors try to decide how severe the global economic downturn will be.

"This is the most volatile week we've seen," said Thierry Lacraz, strategist at Swiss bank Pictet in Geneva.

"The sole intelligent thing is to remain on the sidelines and not make any huge bets."

In his latest effort to reassure the markets, US President George W Bush told the US Chamber of Commerce it would take time for his administration's financial rescue plan to work.

"It took a while for the credit system to freeze up, it's going to take a while for the credit system to thaw," he said, adding that the rescue moves were "big enough and bold enough to work".

Among other developments:

Credit rating agency Fitch downgraded Hungary's outlook from "stable" to "negative" as it considered that the global financial crisis had increased the country's credit risk
The Prague stock exchange fell 10.2% to 842.8 points, its lowest point for four years
Oil prices rose above $72 a barrel on expectations that Opec would decide to cut production at its upcoming meeting
Share indexes in South Korea and Australia fell back slightly, though markets were relatively stable compared with recent gyrations
The Nikkei index climbed 235.37 points or 2.8% to end at 8,693.8, having lost more than 11% on Thursday
The Hang Seng in Hong Kong closed barely changed
German bank shares were helped by news that the German parliament had passed a 500bn euro ($672bn; £389bn) bank rescue package
Bombay's Sensex closed down 5.7% or 606.14 points at 9,975.35

Switzerland unveils UBS bail-out

Switzerland is taking steps to strengthen its largest bank, UBS, becoming the latest European government to unveil a banking rescue plan.

UBS is raising 6bn Swiss francs ($5.3bn; £3.1bn) from the government.

It will also be able to transfer up to $60bn of distressed assets to a fund supported by the Swiss central bank.

Credit Suisse was also offered government assistance but was instead able to raise 10bn Swiss francs from major global investors.

The Swiss National Bank (SNB) said its moves would help to stabilise the financial system and was favourable for the development of the Swiss economy.

"The SNB is convinced that it will result in a sustainable reduction of the strains in the Swiss financial system," it said.

The government also said it would moderately increase the guarantee on bank deposits, echoing steps taken by other European countries.

Thankful

UBS has been one of the heaviest losers from the sub-prime crisis.

It will transfer its exposure to the US mortgage market and other assets to a fund controlled by the central bank.

The fund will be financed by $6bn from UBS and a $54bn loan from the central bank.

The SNB will receive interest on the loans and is entitled to a share in any profits the fund makes.

The Swiss National Bank said it was a "highly unusual" and "unprecedented" operation.

However, it said the risk of losses was limited because UBS had already made aggressive write-downs on its risky positions.

The additional $6bn capital injection means the Swiss government will emerge with a temporary 9.3% stake in UBS.

UBS thanked the Swiss government and central bank authorities for finding a "commercial solution".

"In these turbulent times, we want to ensure that we do everything possible to safeguard the solidity of our bank," said Peter Kurer, chairman at UBS.

"Their efforts and decisiveness to act swiftly demonstrates the professionalism of the Swiss financial centre."

Profit

UBS also announced that it made a small net profit of 296m Swiss francs in third quarter, mainly due to its wealth management business. Its investment banking arm made a loss of 2.8bn francs.

Credit Suisse said it expected to make a loss of 1.3bn Swiss francs in the three months to September.

The bank said that the Qatar Investment Authority was among the group of global investors that had helped the bank to shore up its finances.

Credit Suisse had been required by the SNB to strengthen its capital base.

"Over the past few months we have had a constructive and close dialogue with regulators about future capital requirements," said Brady W. Dougan, the bank's chief executive.

Global shares carry on tumbling

European shares have been trading lower following dramatic falls in Asia that saw Tokyo's Nikkei index fall 11%.

Global falls have largely wiped out the gains earlier in the week, as fears of recession cancelled out any optimism from government bank rescue packages.

In early trading, London's FTSE 100 fell 2.3% while the Cac 40 in Paris and the Dax in Frankfurt both fell 3.1%.

On Wednesday, New York's Dow Jones saw its worst one-day percentage fall since October 1987, closing almost 8% down.

In Tokyo, the Nikkei 225 index fell more than 1,000 points, closing down 11.4% at 8,458.45
Hong Kong's Hang Seng fell 7.6% to 14,785.60 points
Australia's main share index fell 6.7% while India's was down 4%
Fears of a protracted downturn also hit oil prices with benchmark US light, sweet crude for November delivery at a 14-month low of $71.64 a barrel

Oil slides again, now 50 percent off record highs

Oil prices slid further on Thursday as the global credit crunch and fears for slowing energy demand took their toll, with prices now down about 50 percent from July's record highs.

US light, sweet crude fell $2.44 to $72.10 a barrel. London Brent crude fell $2.31 to $68.49 a barrel.

Oil prices are about half what they were in July this year, when they hit a record above $147 a barrel.

"The market is just very worried about a severe international economic downturn," said David Moore at Commonwealth Bank of Australia.

"They're thinking that oil consumption will be weaker than expected."

On Wednesday, US economic data showed that retail sales fell 1.2% in September, a sign that consumers were tightening their belts.

Also the US central bank's Beige Book report, which reflects the economic conditions, said the economy had showed further signs of contraction, fanning fears that the US economy is already in a recession.

According to Mr Moore, oil cartel group Opec is tipped to cut production when it next meets in November.