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. THE Federal Government has welcomed proposed legislation for the bail-out package in the United States, while analysts have described as a “drop in the ocean” its own $4 billion rescue plan for Australian small- to mid-sized lenders.
The Prime Minister, Kevin Rudd, and the Treasurer, Wayne Swan, said passage of the US legislation would help to stabilise global financial markets.
Mr Swan stressed that the Government’s plan to buy $4 billion of AAA-rated mortgage-backed securities from smaller Australian lenders was vastly different to the US proposal to buy up bad debts. “It’s the right course of action,” Mr Rudd said. “This measure – enabled by legislation passed by the Rudd Government in June – will make our strong banking system even stronger and more competitive.
“It should be noted that those developments are entirely different from the Rudd Government’s announcement on Friday to enhance competition in the Australian mortgage market,” Mr Swan said.
An analyst at TD Securities, Joshua Williamson, said: “$4 billion is a .”
However, market analysts yesterday were critical of the plan. . . It’s more of a political step. drop in the ocean in the total market. . It will help [smaller lenders] keep their heads above water . but it’s not going to make the credit crunch go away. .
An interest rate strategist at JPMorgan, Sally Auld, said the package was unlikely to ease funding costs for non-bank lenders.”
The total annual market for AAA-rated mortgage-backed securities was close toly $50 billion before the credit crunch, making the Government’s proposed purchase less than 10 per cent of that market. My suspicion is I doubt it. “To me, it’s not that big a deal, and whether or not it’s going to be enough to bring competition back into the mortgage market, I don’t know.”
By supporting smaller lenders against big banks, Ms Auld described the package as industry policy on the sly. I think there is a good chance that this will happen and you won’t get a benefit from it.”
However, the head of Rismark International, Christopher Joye, who co-authored a paper this year arguing for an intervention of this type, said the size of the Government’s purchase was less important than its impact on market sentiment. “They’re essentially willing to say, `we’re going to subsidise this part of the finance industry’. The whole objective of the exercise is that the Government is sending a very strong signal to the market that it’s willing to support that market and it has absolute faith in the integrity of those assets. The whole objective of the exercise is that the Government is sending a very strong signal to the market that it’s willing to support that market and it has absolute faith in the integrity of those assets.
“Australian home loans are among the most attractive investments anywhere in the world.”
Mr Joye advised the Treasurer’s office in July that between $5 billion to $10 billion was preferable.
The Australian Office of Financial Management said it would begin consulting industry on a tender process. A first tender of $2 billion has been slated for December, with another of the same value next year.

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. Shares in the German bank Hypo Real Estate (HRE) plunged by more than 55 per cent in opening trades after it had been granted a “multi-billion euro” credit line from a consortium of German banks that allowed it to avoid declaring bankruptcy.
HRE shares shed 55.01 euros, while the Dax index of leading shares had opened with a loss of 0.45 per cent to 6.
The troubled real estate lender said a consortium had provided the bank with “a major new credit facility which is designed to shield the company from the impact of the current malfunctioning of the international money markets”.88 per cent, as the bank also issued a profit warning following the agreement.
The German central bank and the stock market watchdog BaFin said separately that they “felt that Hypo Real Estate’s viability was thus guaranteed”.
The unspecified amount was enough to ensure that HRE “will not need to go back to the unsecured money market for its refunding in the foreseeable future,” a statement quoted chief executive Georg Funke as saying.
“This impairment will have a significant material effect on the group’s profit and loss statement,” it warned.
But HRE also said that as a result of the agreement, it would have to write down the value of its German-Irish investment unit Depfa.
Banks that normally borrow money on interbank markets have seen that source dry up since the US subprime mortgage crisis erupted more than a year ago, and institutions that depended on regular refinancing of their debts have run into crisis.
The lender had launched talks with unidentified German banks “in response to the extremely challenging conditions on the international money markets following the Lehman collapse,” HRE said in reference to the bankrupt US investment bank Lehman Brothers.
The report said the bank, which is listed among Germany’s 30 blue chip Dax index companies, had fallen victim to speculation by Depfa.
The daily Financial Times Deutschland reported that private German banks had been trying “feverishly” to find a way to rescue the institution, hit hard by the US subprime loan crisis that began in August 2007.
HRE operates in three sectors: commercial real estate; public sector and infrastructure finance; and capital markets and asset management.
The paper said Depfa had pursued long-term projects with heavy loans and generally ensured refinancing only at the last minute, which due to the current global credit crunch was no longer possible. .
Meanwhile, the British government confirmed it was nationalising troubled bank Bradford and Bingley, as the global financial crisis claimed another victim in Europe

. Morgan Stanley agreed to sell a 21% stake to Japan’s Mitsubishi UFJ Financial Group Inc. for $US9 billion ($11 billion), seeking to shore up investor confidence after borrowing costs climbed and its stock fell by half. Morgan Stanley shares fell 15% amid a collapse in bank stocks after a $US700 billion financial-rescue bill failed to pass in Congress today and Wachovia Corp.

Mitsubishi UFJ, Japan’s biggest lender, will buy $US3 billion of common stock and $US6 billion of convertible preferred stock that pays a 10% dividend, the two companies said today in a statement.

Morgan Stanley Chief Executive Officer John Mack is raising capital, seeking to boost deposits and transforming the second- biggest US securities firm into the fifth-biggest bank-holding company after investors lost confidence in firms that depend on bond markets for financing. sold most of its assets to Citigroup Inc.3 billion in credit-market losses and writedowns since last year, compared with $US15. Mitsubishi UFJ has reported about $US1.

“I don’t know if they really need the capital now, it’s more perception in the market that they should get that capital,” said Peter Kovalski, who helps oversee $US12 billion at Alpine Woods Capital Investors LLC and owns Morgan Stanley stock.7 billion at Morgan Stanley.76 to $US20.

Even with the new capital, Morgan Stanley dropped $US3. Earlier today the stock traded as low as $US19.99 in New York Stock Exchange composite trading, extending its decline this year to 60%.

Rescue fails

The US House of Representatives voted 228 to 205 to reject a $US700 billion financial-rescue package crafted over the weekend by leaders of the House and Senate.14.

The vote added to concern about financial stocks, which had already fallen around the world after European governments stepped in over the weekend to rescue Fortis, Bradford & Bingley Plc and Hypo Real Estate Holding AG and after Citigroup bought Wachovia’s banking assets in a deal brokered by the Federal Deposit Insurance Corp. The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies.

Mitsubishi UFJ agreed to buy 9. The 85-member S&P 500 Financials Index dropped about 10%.25 per share, 2% more than Morgan Stanley’s closing price of $US24.9% of Morgan Stanley’s common stock for $US25. 26.75 on Sept.25 a share, according to the statement.25 a share, according to the statement.

Mitsubishi’s loss

At today’s closing price of $US20.99, Mitsubishi UFJ has already lost $US4.26 on each Morgan Stanley common share it’s acquiring, or about $US506 million in total.

Mitsubishi UFJ will get a seat on Morgan Stanley’s board. After one year, half of the preferred stock automatically converts into common shares when Morgan Stanley trades above 150% of the conversion price for a certain period. The other half converts on the same basis after two years.

The transaction differs from a “letter of intent” to pursue an alliance the two companies announced on Sept. 22. In that agreement, Tokyo-based Mitsubishi UFJ planned to acquire 10% to 20% of New York-based Morgan Stanley for about 900 billion yen ($US8.5 billion).

The bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15 has increased investor concern about deteriorating asset values and leverage, or the ratio of assets to shareholder equity, at Morgan Stanley and larger rival Goldman Sachs Group Inc.

`Huge’ premiums

“There appears to be no step that will instill confidence,” David Trone, an analyst at Fox-Pitt, Kelton Cochran Caronia Waller wrote in a note to investors today. “With Lehman’s demise, debt investors are requiring huge risk premiums for brokers, even though the problem asset risk is much lower for Morgan Stanley, in our view.”

Trone cut his fourth-quarter earnings estimate for Morgan Stanley to 83 cents per share from a prior forecast of $US1.03 to reflect the dilution from the Mitsubishi UFJ investment.

“Mitsubishi is definitely in the driving seat in stipulating the terms it wants with Morgan Stanley,” said Amir Anvarzadeh, director of Japanese equity sales at KBC Financial Products in London.

On Sept. 18, Morgan Stanley fell as low as $US11.70 and its credit-default swaps, or the cost of insurance against a bond default, rose to a record before declining on news about a proposed US government financial rescue package. Within days, both Morgan Stanley and Goldman won approval from the Federal Reserve to change into bank-holding companies, expanding their ability to borrow from the Fed and allowing them to account differently for some of their assets.

Buffett and Goldman

Goldman, the biggest and most profitable US securities firm before becoming the fourth-biggest bank-holding company by assets, raised $US5 billion from Warren Buffett’s Berkshire Hathaway Inc. on Sept. 23 and an additional $US5 billion from a public offering.

In return for the investment, Buffett was granted a 10% dividend and warrants to purchase $US5 billion of common stock at a discount to the market price, terms called “extraordinarily expensive” for Goldman by Meredith Whitney, an analyst at Oppenheimer & Co.

That heightened speculation that Mitsubishi UFJ might seek to renegotiate the terms of its Morgan Stanley investment. Mack, 63, sent employees a memo on Sept. 26 assuring them that the Mitsubishi UFJ deal was “moving ahead as anticipated.”

`Important deal’

“It’s an important deal” for Morgan Stanley, said Steve Roukis, who helps oversee $US1.4 billion, including Morgan Stanley stock, as managing director of Matrix Asset Advisors Inc. “It helps them facilitate their move from being an investment bank to a commercial bank, and it gives them another equity investor in Asia, where a lot of the deals will be sourced going forward.”

Morgan Stanley, which hired former US Comptroller of the Currency Eugene Ludwig last week as an adviser on its transformation into a bank-holding company, has teams working “to explore the most attractive opportunities offered by this new structure,” Mack said in the memo.

With $US9 billion of new equity from Mitsubishi UFJ, Morgan Stanley’s leverage ratio would drop to 22.1-to-1 from 27.6-to-1 at the end of August. The leverage ratio measures the amount of assets held with each $US1 of shareholder equity, with higher numbers reflecting greater reliance on borrowing. Morgan Stanley had $US988.8 billion of assets at the end of August.

Tier 1 ratio

Morgan Stanley’s Tier 1 ratio, which measures capital based on the risk of a bank’s assets, will jump to 15% from about 12.7% at the end of August when measured using the new Basel 2 accounting standard, according to Susan Roth Katzke, an analyst at Credit Suisse Group AG. Based on the previous Basel 1 standard still used by most banks, the Tier 1 capital ratio will climb to about 14%, said Mark Lake, a spokesperson for Morgan Stanley. Banks are required to have a Tier 1 ratio of at least 6% to be deemed “well capitalized.”

With $US10 billion of capital raised, Goldman’s leverage ratio dropped to 19.4-to-1 from 23.70-to-1 at the end of August. Goldman held $US1.08 trillion of assets at the end of last month.

Mitsubishi UFJ, formed in October 2005 after a merger between Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc., reported a 66% decline in first-quarter profit to 51.2 billion yen on Aug. 5 as bad-loan costs rose and income from investment sales declined.

The Japanese lender today completed its offer to take control of San Francisco-based UnionBanCal Corp. for about $US3.5 billion. Mitsubishi UFJ also is raising its stake in Japanese consumer lender Acom Co. to 40% from 16% for about $US1.4 billion.

Japanese writedowns

Japanese companies account for less than 3% of the more than $US585 billion in markdowns and losses by global banks following the collapse of the US subprime mortgage market last year.

“The financial turmoil is likely to wake people up to how well Japanese banks are capitalized,” said KBC Financial’s Anvarzadeh.

Nomura Holdings Inc., Japan’s biggest brokerage, agreed this month to buy Lehman’s Asian and European operations for less than a month’s revenue after the fourth-largest US securities firm filed for bankruptcy, the biggest in US history.

Lazard Freres & Co., a unit of Lazard Ltd., provided financial advice to Mitsubishi UFJ. BlackRock Inc. advised Mitsubishi UFJ on asset valuations.

News

. Stocks listed on the Australian Securities Exchange could be in for a shellacking today, led down by the financial and resources sectors, after the US House of Representatives rejected a $US700 billion ($860 billion) rescue package earlier today.

At 7.

Economic releases today include the Reserve Bank of Australia’s financial aggregates data for August.01am, the December Share Price Index futures contract on the Sydney Futures Exchange was down 339 points to 4510.

Fortescue Metals Group and Gleneagle Gold will hold general meetings, and Incremental Petroleum will hold its annual general meeting, all in Perth.

The Australian Bureau of Statistics will release retail trade and building approvals data for August.

It is day two of the two-day Commodity Fundamentals conference in Sydney, and it’s also day two of the three-day Coal Tech 2008 conference in Brisbane.

Ambri will hold its annual general meeting in Brisbane.

Yesterday, the benchmark S&P/ASX200 index lost 97.

It is day one of the two-day Paydirt Asia Pacific Down Under conference in Perth.9%, to 4807.4 points, or 1.45 points, or 1.35, while the broader All Ordinaries gave up 95.18.9% to 4839.

. Citigroup Inc.’s rescue of Wachovia Corp.

The purchase gives Citigroup about 4,300 US offices and 3,300 worldwide. and its banking operations creates the third-biggest US branch network while aiding regulators seeking to prop up confidence in financial institutions.3 billion). The bank will cut its dividend in half, to 16 cents from 32 cents, and raise $US10 billion ($12.

Citigroup Chief Executive Officer Vikram Pandit, who has been shedding assets after reporting two straight quarterly losses totaling a record $US15 billion, said on a conference call the Wachovia acquisition made sense. The stock deal, announced before rejection of a bank bailout sent US shares tumbling the most in 20 years, values Wachovia at $US1 a share. and JPMorgan Chase & Co. The purchase will push New York-based Citigroup to third place among US bank networks, behind Bank of America Corp. “It’s a vote of confidence from regulators that they think Citigroup either has enough capital to survive or has the ability to raise more capital.

“It’s certainly vaults them from being subscale to being a leader in domestic branch banking,” Jeff Harte, an analyst at Sandler O’Neill & Partners in Chicago, said in a Television interview. said in a statement.
”
Citigroup will absorb as much as $US42 billion of losses on Wachovia’s $US312 billion in loans, the Federal Deposit Insurance Corp.

Shares tumble

Citigroup fell $US2. The regulator will take on additional losses in exchange for $US12 billion in preferred stock and warrants.75 at 4:15 p.40, or 12%, to $US17. in New York Stock Exchange composite trading, tumbling after the US House voted along party lines to reject a $US700 billion bank rescue plan.m.

The deal, which may close by the end of the year, is expected to add to Citigroup’s earnings in its first year and will be 10% accretive in the second year, Pandit said on a conference call with analysts and investors. Citigroup shares have dropped 36% this year. “This is one of those rare high-return acquisitions in which we have contained the risks.

“This creates a dominant US franchise,” Pandit said.”

Citigroup expects $US3.”

Citigroup expects $US3.7 billion in pretax restructuring charges for severance costs in the next four years, the company said in a statement.

“Long-term, it’s pretty good for Citi, which gets $US700 billion of assets for $US2 billion with backstop from the government and an opportunity to raise capital,” said Michael Nix, portfolio manager at Greenwood Capital Associates LLC in Greenwood, South Carolina.

$US600 billion deposits

The purchase will add about 3,300 branches and offices in 21 states, making Citigroup No. 3 behind Charlotte, North Carolina-based Bank of America and JPMorgan. Citigroup will have more than $US600 billion in deposits, or 9.8% of the US market. Citigroup’s deposits globally will be $US1.3 trillion, about $US350 billion more than Bank of America.

“This augments Citigroup’s deposit base and also its position in markets, particularly along the Eastern seaboard and somewhat more also in California, where it already has a position,” Gary Townsend, chief executive officer of Hill- Townsend Capital LLC in Chevy Chase, Maryland, said in a TV interview.

Citigroup’s ratings today were placed on CreditWatch by Standard & Poor’s Ratings Service and Moody’s Investors Service, raising the possibility of a cut by the two ratings companies.

S&P

“The acquisition is a positive for the franchise in building out Citigroup’s thin presence it its home country,” S&P said today in a statement. “Integration risk and the distractions of dealing with a poor business environment, asset risks, and corporate restructuring could prove daunting.”

Pandit in May said Citigroup will shed $US400 billion in “legacy assets,” including real-estate holdings and collateralized debt obligations, such as bonds backed by pools of subprime mortgages. Citigroup at the time announced plans to cut $US15 billion in costs in the two to three years, while aiming for revenue growth of 9%, he said.

Citigroup Chief Financial Officer Gary Crittenden said he expects $US5.2 billion in writedowns in this quarter in addition to $US1 billion announced earlier. The bank cut 10,000 jobs in the period, bringing headcount reduction to 23,000 this year.

The purchase “imposes integration challenges at a time when Citigroup’s asset quality is being undermined by weakening consumer and commercial markets,” Moody’s said in a statement today.

Financial crisis

Wachovia is the latest casualty of a financial crisis that drove Lehman Brothers Holdings Inc. and Washington Mutual Inc. into bankruptcy and led to the arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos. Wachovia will retain the A.G. Edwards Inc. brokerage and the Evergreen mutual-fund family.

Wachovia’s stock, which fell last week at $US10 on the New York Stock Exchange, traded for 95 cents at 9 a.m. in early transactions. Trading was halted during regular hours. It sold for more than $US48 in February 2007.

Wachovia’s slide toward collapse began when the bank paid more than $US24 billion in October 2006 for Golden West Financial Corp., the California lender that specialized in option-ARM home mortgages. The bank holds about $US122 billion of the adjustable- rate home loans.

News

. Global markets went into convulsions after US lawmakers rejected a $US700-billion ($A840 billion) rescue of the financial system, raising the prospect of deeper financial turmoil.
The Dow Jones Industrial Average plunged 700 points — one of its biggest drops ever — on the news and then swung wildly as investors tried to gauge the next step for the plan and the financial sector.34 points (5.
At 1907 GMT (0507 AEST Tuesday), the Dow blue-chip index had plummeted 565.79.07 per cent) to 10,577.50 points (6.
The Nasdaq tumbled 150.84 and the broad-market Standard & Poor’s 500 index sank 80.89 per cent) to 2,032.63 per cent) to 1,132.48 points (6.
“The important question is whether the system can save itself before the (Dow) moves toward 9,000,” said Douglas McIntyre at 24/7 Wall Street.79.”
Crude oil plunged more than $US10 a barrel as investors scrambled in the face of panicked markets. “That would wipe out over five years in gains.52 a barrel to close at $US96.
New York’s main contract, light sweet crude for November delivery, tumbled $US10.
“It is unclear what the next step will be.37.com. It took days of painstaking negotiations to put together the deal, and congressional leaders and administration officials may have to go back to the drawing board,” said Augustine Faucher at Economy.”
The panic extended to Brazil, where the Sao Paulo stock market plunged 10 per cent and suspended operations.
“The US is looking at a severe recession if Congress fails to pass some sort of package.1 per cent and Mexico’s Bolsa tumbled 6.1 per cent and Mexico’s Bolsa tumbled 6.2 per cent.
Brian Bethune at Global Insight said if no new deal can be struck, the US Federal Reserve may have to look for new tools to avert a deeper crisis.
“If the legislation is indeed moribund – as it seemed to be this afternoon – then the baton will pass quickly to the Fed and other central banks to deal with the fall-out – which would be further tightening of credit conditions and upward pressure on borrowing spreads,” he said.
“A coordinated central bank rate reduction of 50 basis points, or more, by the Fed, the Bank of England, the Bank of Canada and the Reserve Bank of Australia, is certainly not off the table given the scale of the crisis. At a minimum we would be looking for the Federal Reserve to cut interest rates sooner rather than later.”

. US blue-chip stocks have suffered their worst single-day point decline ever as markets went into convulsions after US lawmakers rejected a $US700 billion ($A845 billion) rescue of the financial system.
The Dow Jones Industrial Average sank 770.92) per cent to 10,372.59 points (6.
The slide eclipsed a 684-point drop on September 17, 2001, when the markets reopened following the September 11 terror attacks.54 after the closing bell in the worst single-day point decline ever, based on provisional data at the close of trade.61 points (9.
The market bloodbath sent the Nasdaq down 199.73 and the broad-market Standard & Poor’s 500 index lower by 104.14 per cent) to 1,983.64 per cent) to a preliminary close of 1,108.39 points (8.
Markets went into panic after the House of Representatives rejected a fragile compromise plan to spend up to $US700 billion ($A845.22.
“The important question is whether the system can save itself before the (Dow) moves toward 9,000,” said Douglas McIntyre at 24/7 Wall Street.67 billion) to revive a financial sector weakened by a US housing meltdown.”
Crude oil plunged more than 10 dollars a barrel as investors scrambled in the face of panicked markets. “That would wipe out over five years in gains.52 dollars a barrel to close at 96.
New York’s main contract, light sweet crude for November delivery, tumbled 10.
“It is unclear what the next step will be.37 dollars.com. It took days of painstaking negotiations to put together the deal, and congressional leaders and administration officials may have to go back to the drawing board,” said Augustine Faucher at Economy.” .”

. The US dollar fell against the yen as a majority in the House of Representatives voted against the $US700 billion ($860 billion) rescue of the US financial industry. The Australian dollar also fell. The pound had its biggest intraday drop against the US dollar in 16 years and the euro fell as European governments bailed out banks.

The yen and the Swiss franc gained against all the other major currencies including the Brazilian real and the South African rand as stocks plunged, encouraging investors to sell higher-yielding assets and pay back loans in Japan.3 US cents, and 83.

The Australian dollar plunged back toward 80 US cents, and recently traded at 80.

“It’s unbelievable,” said John Taylor, chairman of New York-based FX Concepts Inc.7 yen. “Nobody wants to be stuck with the fact they’re voting on something the average voter hates., the world’s biggest currency hedge fund company.”

The dollar dropped 1. It’s going to be a catastrophe.28 yen in New York, from 106.6% to 104. 26.01 on Sept.9%, the biggest intraday decrease in a week. It dropped as much 1.7% to 150. The euro declined 2.94.82 yen, from 154.4465, from $US1. The US currency pared its gain versus the euro, increasing 1% to $US1.

The House voted 205 to 228 against the measure to authorize the biggest government intervention in the markets since the Great Depression.

The House voted 205 to 228 against the measure to authorize the biggest government intervention in the markets since the Great Depression. The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies. Fed Chairman Ben S. Bernanke warned of “grave threats” to the financial system if Congress rejected the plan.

`More uncertainty’

“This is the worst of all outcomes,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “It sows the seeds of more uncertainty. We may hit new lows in the dollar-yen.”

The euro dropped against the dollar and the yen after Belgium, the Netherlands and Luxembourg extended an 11.2 billion euro ($US16.1 billion) lifeline to Fortis, the largest Belgian financial-services firm. The pound dropped as much as 2.6% to $US1.7959 and 3.6% to 188.52 yen as the U.K. Treasury seized Bradford & Bingley Plc, the nation’s biggest lender to landlords. It was sterling’s biggest intraday drop versus the dollar since September 1992.

“There’s still a lot of lingering issues out there,” said David Watt, a senior currency strategist in Toronto at RBC Capital Markets, Canada’s biggest bank by assets. “Do you really want to go into the euro right now? Do you really want to go into the British pound given the events that happened there over the weekend?”

Surging yen

The yen rose 8% to 52.89 versus the Brazilian real while the franc increased 4% to 7.70 South African rand on speculation an 8% drop in the Standard & Poor’s 500 Index will reduce trades in which investors get funds in countries with low borrowing costs and buy assets where returns are higher. Japan’s target rate of 0.5% and Switzerland’s 2.75% benchmark compare with 13.75% in Brazil and 12% in South Africa.

Futures on the Chicago Board of Trade indicated a 66% chance that the Fed would reduce the 2% target lending rate by a half-percentage point by its Oct. 29 meeting, compared with 32% odds a week ago. There was a 34% chance policy makers would cut by a quarter-percentage point.

The Fed increased its existing currency swaps with foreign central banks to $US620 billion from $US290 billion to make more dollars available worldwide. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

Wachovia deal

Citigroup Inc., the biggest US bank by assets, agreed to acquire the banking operations of Wachovia Corp., rescuing the Charlotte, North Carolina-based lender beset by mortgage losses for more than $US2 billion in stock.

Traders raised bets the ECB would lower borrowing costs in the months ahead to revive the 15-nation economy. The implied yield on the Euribor futures contract expiring in March fell 18 basis points to 4.49% today. Policy makers will keep the benchmark rate at 4.25% when they meet Oct. 2, according to a News survey of 58 economists.

An index of European executive and consumer sentiment dropped to 87.7 this month from 88.5 in August, the European Commission in Brussels said today. That’s the lowest since the index fell to 86.6 in November 2001. Economists had forecast the indicator would drop to 87.3 this month, according to the median estimate of 33 economists surveyed by News.

Implied volatility on one-month euro-dollar options rose to 15.77%, the highest in almost eight years. On Sept. 18, it increased to 15.55%, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27% slide from its 1999 debut.

News