Taiwan eases China currency rules

Taiwan has lifted some restrictions on Chinese currency exchange, in another sign of improving bilateral ties.

The move is part of a number of financial liberalisation measures agreed by the government last week.

It follows a pledge by Taiwan's new President, Ma Ying-jeou, to promote better economic ties with China, which sees Taiwan as part of its territory.

For the first time, Chinese bank notes will be officially available at authorised Taiwanese banks.

They will also be available at foreign-currency trading counters at tourist hotels, airports and gift stores.

Tourist influx

The move comes just a few days before the start of regular direct weekend charter flights between Taiwan and China - marking a new chapter in relations between the two political rivals.

But the step is also considered a virtual necessity, since from next month up to 3,000 Chinese tourists will be allowed to visit Taiwan each day.

The move will provide a legal channel for them to exchange their money for local currency to spend in Taiwan.

The absence of a currency exchange service between Taiwan and China had led to rampant black market currency trading.

Under the new regulations, anyone will be able to buy or sell Chinese yuan at authorised institutions, although the government has initially set a cap of 20,000 yuan - just under $3,000 (£1,500) - for each transaction.

Yuan conversion by institutions and companies will still be barred.

In the longer term, it is hoped that officials from Taiwan and China will be able to negotiate currency settlement agreements to provide mechanisms for normalising cross-strait currency clearance.

Until now, the conversion of Chinese currency could only take place on Taiwan's outlying islands of Matsu and Kinmen.

Dollar flat against euro in Asia

The dollar was steady against the euro in Asian trade on Monday as traders weighed prospects for higher interest rates in the eurozone ahead of a key European Central Bank policy meeting, dealers said.

They said that while markets expect the ECB to raise rates on Thursday to try to contain inflation, there are doubts about whether it will be the start of a series of rate rises given concerns about slowing economic growth.

The dollar regained some of last week's losses against the Japanese currency, firming to 106.40 yen in Tokyo morning trade from 106.11 in New York late Friday.

The euro was unchanged at 1.5790 dollars but edged up to 168.05 yen from 167.22.

Traders have already priced in a 25-basis-point interest rate hike by the European Central Bank on Thursday to 4.25 in response to simmering inflation.

Markets will be looking for clues from ECB chief Jean-Claude Trichet on the future direction of rates in the 15-member eurozone, with the rate rise expected to be a one-off for now as the economy loses steam, dealers said.

"The dollar's weakness was limited by receding expectations of a series of rate hikes in Europe amid uncertainty over the economic outlook," said Yuya Koike, forex strategist at Hachijuni Bank.

The interest rate gap between the eurozone and the United States -- where the Federal Reserve's key rate is at 2.0 percent -- has weighed on the dollar, which has also been weakened by lacklustre US economic growth.`

The dollar was pressured by Friday's sell-off on Wall Street amid fresh jitters over the economic outlook, as oil prices shot above 142 dollars a barrel.

The market is also skittish ahead of Friday's monthly labour market report for June in the United States, particularly after a much bigger-than-expected jump in the unemployment rate in May to 5.5 percent.

But the US currency's fall has been curbed by speculation that Washington may take steps to try to bolster the greenback, either by trying to talk up the currency or perhaps even with market intervention, dealers said.

"There are expectations that (US officials) may need to do something to support the dollar as the economic outlook is worrying," said Koike.

He said US authorities were expected to reiterate support for a stronger dollar, while intervention to buy the US currency -- while possible -- would require cooperation from European nations to be effective.

G8 leaders to set up task force on food crisis: report

Leaders from the Group of Eight industrial powers will agree to establish a task force at their summit next month to tackle the world food crisis, a report said on Monday.

The group will aim to address the immediate problem of food shortages in poorer countries as well as address longer-term challenges such as boosting food production, the Yomiuri Shimbun said, citing unnamed government sources.

The working group is also expected to discuss removal of export restrictions and directing global food stockpiles to those most in need, the daily said.

The report came after UN Secretary-General Ban Ki-moon said he would press G8 leaders at their July summit in Japan to tackle the world food crisis, as well as climate change and the flagging fight against global poverty.

The G8 is made up of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.

G8 leaders are expected to issue a statement on the food crisis at the summit in the northern Japanese resort town of Toyako, senior Japanese official Masaharu Kohno has said.

G8 finance ministers warned at their meeting earlier this month that soaring oil and food prices pose "a serious challenge to stable growth worldwide" and may worsen poverty and stoke global inflation.

Iraq to award oil contracts to foreign companies

Iraq on Monday will award oil contracts to dozens of foreign companies in a bid to boost production that could also give multinationals a foothold in the country's huge but underdeveloped oil fields.

The oil ministry is to hold a press conference to announce the deals which include five technical support agreements with companies such as Shell, ExxonMobil, Chevron, Total and BHP Billiton, ministry spokesman Asim Jihad said.

The ministry also plans to sign contracts with 41 other foreign companies for extracting oil, Jihad had told AFP last week. These are expected to be short-term arrangements.

The contracts do not allow investments by the foreign companies in the oil sector but do pave the way for global energy giants to return to Iraq 36 years after executed dictator Saddam Hussein chased them out.

The move is also seen as a first step to access the third largest proven crude reserves on the planet.

Jihad had said the selected companies will have the first right to develop the fields once competitive bidding comes after the nation's long-delayed hydrocarbons law is passed by parliament.

Iraq wants to ramp up output by 500,000 barrels per day from the current average production of 2.5 million bpd, about equal to the amount being pumped before the US-led invasion in March 2003.

Exports of 2.11 million bpd currently form the bulk of the war-torn nation's revenues, and the oil ministry is keen to raise capacity over the next five years to 4.5 million bpd.

Iraq's crude reserves are estimated at about 115 billion barrels, but it is sorely lacking in infrastructure and the latest technology to which it was denied access under years of international sanctions after the 1991 Gulf War.

Oil prices close in on record-high 143 dollars

World oil prices rose to within touching distance of a record-high point of 143 dollars on Monday, as French truckers protested at high fuel costs and energy leaders met to discuss soaring crude.

New York crude oil had hit an all-time record of 142.99 dollars on Friday as the US currency remained weak. The ailing dollar has fuelled demand for oil, which is priced in dollars, from traders holding stronger currencies.

In early European trading on Monday, London's Brent crude struck a record high 142.98 dollars a barrel, one cent above its previous high reached last Friday.

Brent North Sea oil for August delivery later stood at 142.60 dollars a barrel, a rise of 2.29 dollars from Friday's close.

Meanwhile, New York's main oil contract, light sweet crude for August delivery, jumped by 2.35 dollars to 142.56 dollars per barrel on Monday, after an intra-day peak of 142.94.

Crude futures have doubled in the past year, triggering fears over inflation and slower economic growth.

On Monday, high fuel prices sparked protests among hundreds of truckers across France, blocking main highways and snarling commuter traffic around Paris.

Leading figures in the oil world gather in Madrid on Monday for one of the industry's biggest events that will focus on the future of the sector at a time of unprecedented crude prices.

A week after failing to deflate the price of crude at a summit in Saudi Arabia, the world's biggest oil producers and consumers will get another chance during talks here to explore ways of calming tense global energy markets.

More than 3,000 delegates, including leading corporate and political figures, are attending the four-day World Petroleum Congress (WPC), which runs from Monday to Thursday after an official opening reception on Sunday.

US pays $2.5 million for NKorean nuclear demolition: official

The United States said Friday it contributed 2.5 million dollars for the demolition of the cooling tower of North Korea's key nuclear reactor as part of a denuclearization effort.

A US official, speaking on condition of anonymity, confirmed the sum but could not verify reports that the total cost of the 30-metre (99-foot) tower's demolition was five million dollars as claimed by the North Koreans.

The New York Times said in a report Friday that conservative hard-liners in Washington skeptical of the nuclear deal with North Korea felt the US contribution was too much.
TV footage showed the tower engulfed in a huge cloud of smoke as a landmark piece of the country's nuclear history collapsed in ruins.

"It was a significant and very important step," US State Department official Sung Kim told a reporter at the scene Friday.

Dollar falls as ECB rate hike expectations mount

The dollar weathered fresh losses Friday, despite a stronger-than-expected snapshot on consumer spending, amid expectations that euro zone interest rates will be hiked next week.

The gap in US and euro zone rates, US rates are considerably lower, has already weighed on the dollar, which has also been weakened by lackluster economic growth in the United States.
Traders generally prefer to hold currencies in countries where rates are higher so they can reap higher yields on their investments.

The euro was changing hands at 1.5790 dollars around 2100 GMT, up from 1.5756 late Thursday.

The dollar also fell against the Japanese yen, to 106.11 from 106.73 Thursday.

The US currency came under renewed pressure this week after the Federal Reserve brought its rate-cutting campaign to a halt Wednesday as it opted to keep its key base rate pegged at 2.0 percent in the face of mounting inflation pressures.

The dollar lost ground Friday despite a government report showing that consumer spending rose 0.8 percent in May, as Americans spent the proceeds of one-off tax rebate checks.

The financial markets follow the monthly snapshot closely because consumer spending is the main driver of US economic activity, which has been sapped, by a lengthy housing downturn and a related credit squeeze.

Oil prices hit Japanese inflation

Rising oil and commodity prices sent Japanese inflation rising to the highest for a decade in May.

Core inflation, which excludes volatile fresh food prices, rose 1.5% from the same month in 2007.

Household spending fell 3.2% in the month, according to the Ministry of Internal Affairs and Communications.

Japan struggled with deflation until last year, but Friday's figures showed consumers reining in their spending as the prices of basic items rose.

Non-fresh food prices soared, with spaghetti up 32.2%, instant noodles up 20.7% and white bread rising 12%.

Japanese drivers were hit particularly hard as the government reinstated a fuel tax that had been suspended in April.

"The impact of higher raw material prices on corporate earnings and consumer sentiment still warrants close attention," said Japanese Economics Minister Hiroko Ota.

Huge Kashagan oilfield development put off until 2013

Kazakhstan and a consortium of Western oil companies, developing the huge Kashagan oilfield, have agreed to put off the start of production until 2013, a senior Kazakh government official said on Saturday.

The agreement paves the way for Kashagan's further development after a year of tension between the consortium and the Kazakh government over production delays and cost overruns at the world's biggest oil discovery in 30 years. In May, Kazakhstan threatened to impose sanctions if the consortium decided to delay production from the $136 billion project, but on Saturday, Energy Minister Sauat Mynbayev struck a more conciliatory tone.

"Yes, we have put it off," he told reporters. Earlier he had told a government meeting that Kazakhstan and the Kashagan group had signed a new memorandum on Friday setting out details of Kashagan's future development and fixing the start of its commercial production at October 2013. "I think this time it will be the last delay," he said.

The stand-off over Kashagan started in August 2007 when the government accused its shareholders of allowing costs to spiral to $136 billion from $57 billion, and missing the original 2005 production start target.

The consortium unites Eni, Royal Dutch Shell Plc, Exxon Mobil Corp, Total, ConocoPhillips, Kazakh state oil company KazMunaiGas and Japan's Inpex Holdings Inc Kashagan holds an estimated 38 billion barrels of oil-in-place and production is expected to increase from an initial 75,000 barrels per day to peak production of 1.2 million bpd in the second half of the next decade.

Apart from fixing the schedule, Mynbayev said the memorandum stipulated the consortium would not be able to use proceeds from oil production to compensate for costs sustained after October 2013--a move designed to prevent further cost rises. He said Kazakhstan also rejected the consortium's proposal to extend its production sharing agreement (PSA) beyond 2041. "The final year, 2041, will stay intact," Mynbayev said.

Gulf oil route at risk if attacked: Iran

The Revolutionary Guards said Iran would impose controls on shipping in the vital Gulf oil route if Iran was attacked and warned regional states of reprisals if they took part, a newspaper reported on Saturday. Fear of an escalation in the standoff between the West and Iran, the world's fourth largest oil producer, have been one factor propping up sky-high oil prices.

Crude hit a record level on international markets near $143 a barrel on Friday. Speculation about a possible attack on Iran because of its disputed nuclear ambitions has risen since a report this month said Israel had practised such a strike, prompting increasingly tough talk of retaliation, if pushed, from Tehran.

"Naturally every country under attack by an enemy uses all its capacity and opportunities to confront the enemy," Guards commander-in-chief Mohammad Ali Jafari told Jam-e Jam newspaper in some of the toughest language Iran has used so far. "Regarding the main route for exiting energy, Iran will definitely act to impose control on the Persian Gulf and Strait of Hormuz," he said of the Gulf waterway through which about two-fifths of all globally traded oil passes.

Iranian officials have in the past sent mixed signals about whether Iran would use oil as a weapon. But such threats when made have sent jitters through the crude market for fear of disrupting supplies from big Opec producers in the Gulf. The Islamic Republic insists its nuclear programme is peaceful and aimed at generating electricity. But the West and Israel fear Iran is seeking to build atomic bombs. Israel is believed to be the only Middle East state with nuclear arms.

'OIL PRICES WILL RISE'Washington has said it wants diplomacy to end the nuclear row but has not ruled out military action should that fail. "If there is a confrontation between us and the enemy from outside the region, definitely the scope (of the confrontation) will reach the oil issue," Jafari said. "After this action (of Iran imposing controls on the Gulf waterway), the oil price will rise very considerably and this is among the factors deterring the enemies," he said.

Jafari warned neighbours not to let their territory be used. "If the attack takes place from the soil of another country ... the country attacked has the right to respond to the enemy's military action from where the operation started," he said.

Kuwait, the launchpad for the US-led invasion of Iraq, and Iraq itself, where US troops are now stationed, have both said they would not let their land be used for a strike on Iran. The US military has bases in other Gulf states and Afghanistan.

Jafari said US forces were "more vulnerable than Israelis" because of its troops in the region. Iran's top authority, Supreme Leader Ayatollah Ali Khamenei, has in the past said Iran would target US interests if the country came under attack.

"Iran can in different ways harm American interests even far away," the Guards commander said. Jafari suggested Iran's allies in the region, who include Lebanon's Shia militia Hezbollah, could also retaliate. He referred to Iran's ties with those living in Lebanon's Shia heartland of south Lebanon but did not refer to any group.

"Israelis know if they take military action against Iran ... the abilities of the Islamic and Shia world, especially in the region, will deliver fatal blows," Jafari said, adding that Israel was in range of Iranian missiles.

The Revolutionary Guards are the ideological wing of Iran's military with air, sea and land capabilities and a separate command structure to regular units. Jafari said Iran's long coastline along the Gulf, Strait of Hormuz and Sea of Oman meant those attacking Iran or backing such an operation "will be harmed".

Indian inflation at record levels

There are growing fears that further rises in Indian interest rates will be needed after inflation hit its highest rate since records began 13 years ago.

Wholesale prices went up by 11.42% in the 12 months to 14 June, which was higher than had been expected.

Earlier in the week, the Reserve Bank of India (RBI) raised interest rates from 8.0% to 8.5% in an attempt to keep inflation under control.

It was the second increase in interest rates in two weeks.

The government has cut duties on items such as crude oil as well as cutting exports of rice to try to keep prices down, but interest rates are still expected to have to go up again.

"We expect inflation to head higher in the coming months and peak somewhere between 12 to 13%," said A Prasanna from ICICI Securities.

"In order to reinforce its policy stance, the RBI will hike rates in the course of the year."

Sony Ericsson warns over profits

Mobile phone maker Sony Ericsson has warned investors that its profits would be less than previously forecast as demand for expensive handsets waned.

The company, a joint venture between electronics firm Sony and telecoms equipment maker Ericsson, said markets would continue to be challenging.

Ericsson's shares tumbled 11% to 58.5 Swedish crowns on the news.

Consumer demand has been hurt by a credit crunch that prompted banks to withdraw many loans and mortgages.

As a result, many consumers have had less money to spend and have had to cut back on their outgoings.

At the same time, economic growth in many of the world's largest economies such as the US, UK and Japan has been slowing, putting a further damper on consumer and corporate spending.

Analysts said that the figures may point to an industry-wide problem of weakening consumer spending.

Sony Ericsson said its problems were caused by a deterioration of its gross margins, or the amount of money it makes on each phone.

"Gross margin is expected to decline both year over year and sequentially," the company said.

It now expects to break even in the three months from April to June.

No let-up in global stocks slide

Global stock markets have suffered a sell-off sparked by concerns about the global economy and crude oil prices which have hit a new record.

New York's Dow Jones closed down 0.93%, or 106.9 points, at 11,346.51 as the cost of oil rose to a fresh high above $142 a barrel.

Losses were mirrored across the Atlantic, as share indexes in Paris and Frankfurt ended about 0.6% lower.

But London's FTSE shrugged off earlier losses to register a 0.2% rise.

Stock markets across Asia fell - earlier China's benchmark Shanghai index dropped by 5.3%, while India's Sensex index declined by 4.3%.

Indexes in Japan, Taiwan and South Korea all shed more than 2%.

Crude oil surged to a record, as Brent crude jumped to $142.13 a barrel, while New York light crude climbed as high as $142.26, on concerns about supply.

The global stock market downturn began in New York on Thursday, when the Dow fell more than 3% to a two-year low.

The fear on Wall Street is that rising prices and tighter finances will force Americans to curb spending and push the economy into recession.

Consumer concerns

Traders brushed aside positive news about US consumers on Friday.

The US economic stimulus package, which will hand out $107bn to Americans this year, boosted household budgets and helped consumer spending rise 0.8% last month.

But analysts are not convinced May's feelgood factor will last.

"We have had very strong consumer spending, but most of the tax rebates went into savings, which might mean they are going to stay there," said Pierre Ellis, an economist at Decision Economics in NewYork.

Investors also reacted to a string of bad news about key sectors of the US economy, while worries remain about the credit crunch and sub-prime fallout.

Oil price still near record $142

The price of crude oil has retreated slightly after hitting record highs above $142 a barrel, amid concerns that supply will not meet demand.

In London, Brent crude was trading at $140.16, having earlier hit $142.13.

New York light crude had climbed as high as $142.26 a barrel, but later fell back to $140.34.

Producers' group Opec has been under pressure to boost production, though recent reports have shown its members are split over whether to lift output.

Libya has threatened to cut production because the market is well supplied.

Libyan threats

Libya's most senior oil official, Shokri Ghanem, said on Thursday he was looking into the possibility of cutting production in response to US threats against oil producers.

Analysts blame the price of crude on a variety of factors from basic supply and demand to hedge funds.

Opec has said speculators have played a part in the oil spike this year, but others are not convinced.

"We believe the factors driving oil prices higher are fundamental and not speculative," Deutsche Bank said in a research note.

"Oil needs to rise to $150 a barrel for oil as a share of global Goss Domestic Produce to reach the levels that occurred in the early 1980s," according to the bank.

But tensions between oil consumers and producers are rising.

The US House of Representatives has passed a bill that would allow the Justice Department to sue Opec members for limiting supplies.

But the bill has yet to be backed by the Senate and the White House has already said it would veto the bill.

There was also scepticism about whether there will actually be a cut in Libya, because of soaring prices.

"I doubt that any real effort in cutting output would be forthcoming, considering that pricing continues to hit new records," said Victor Shum, an analyst at Purvin & Getz.

'Radically new level'

Meanwhile, the chief executive of Gazprom, Alexei Miller, has been talking down the influence of Opec.

Saying that Opec had no real impact on prices, he told the Financial Times: "Not a single decision has been passed of late that would really influence the global oil market."

He also said that the world was undergoing "a great surge in oil and gas prices, which will end with prices at a radically new level".

Mr Miller predicted that Gazprom would become the most influential company in the energy business.

On Friday, the firm approved the replacement of former chairman Dmitry Medvedev, who is now Russian president, with former prime minister Viktor Zubkov.

India in new interest rate rise

India's central bank has announced an unexpected rise of half a percentage point in its prime lending rate in an attempt to control inflation.

The Reserve Bank of India's increase in its benchmark interest rate to 8.5% is the second in less than two weeks.

Indian inflation reached more than 11% earlier this month, the highest level in 13 years.

The government has been under pressure to control escalating prices of essential commodities.

The Indian Reserve Bank said its priority was to "eschew any further intensification in inflationary pressures".

It hopes that higher interest rates will reduce demand for goods.

Significant increases

The bank said the recent increase in the rate of inflation was largely due to higher international crude oil and metal prices feeding through to domestic prices.

Twelve months ago India's wholesale price index measure of inflation was 4.28%. It rose to 7.75% in March this year, before hitting 11.05% earlier this month.

There are concerns that the rate of inflation will derail India's fast-growing economy which is expanding at a record 8.8%.

"Growth could come down to as low as 6.5% by 2010," said Rajiv Kumar, director of the Indian Council for Research on International Economic Relations.

The benchmark rate, which was increased on Tuesday, is used as a reference by commercial banks to set their own lending rates.

The commercial banks are expected to increase rates for home and other loans following the central bank's decision.

Nigerian oilfield resumes pumping

Oil production has resumed at a Nigerian offshore installation six days after an attack by militants.

The Bonga oil field, 120km (75 miles) offshore accounts for a tenth of Nigeria's production.

The facility was previously thought safe from militants' attacks, which have shut down oil production by around a quarter in recent years.

The Movement for the Emancipation of the Niger Delta (Mend) claimed it carried out the attack.

"We're up and running on Bonga", a spokeswoman for the energy company Royal Dutch Shell told the AFP news agency.

One American was kidnapped from another boat during the attack but was later released.

US slowdown reduces Japan surplus

Japan's trade surplus fell for a third consecutive month in May, down by 7.6% on a year ago, figures have shown.

Surging crude oil prices and the rising cost of other commodities meant its imports bill rose, cutting the surplus to 365.61bn yen ($3.4bn; £1.7bn).

The US slowdown meant demand for Japanese cars and machinery continued to fall, and the trade surplus with the US was down by 11%.

But its surplus with the rest of Asia rose for the second straight month.

Overall imports grew by 4.4% to 6.44 trillion yen in May, while exports rose 3.7% to 6.8 trillion yen, the finance ministry said.

Economy fears

Analysts say Japan, a key exporter, is likely to leave rates unchanged for some time, because of inflationary pressures and the US slowdown.

Japan has the lowest interest rates among the Group of Eight industrialised nations. Its last rate increase was in February 2007, from 0.25% to 0.5%.

Earlier this month, Japan revised its economic growth rate upwards for the first quarter of the year after higher-than-expected capital investment, but economists expect slower growth ahead.

Fears remain about what will happen to the world economy, as food and fuel prices continue to rise.

Army of labourers races to get Saudi oil oasis ready

Deep in the Saudi desert, 28,000 Asian workers are racing to get a giant oil processing complex ready to help King Abdullah keep a vow to meet world demand for crude.

In a year's time, the Al-Khurais field will be supplying 1.2 million barrels a day of Arab light crude to thirsty global markets, under a tight schedule set by Saudi Aramco, the national oil giant.

The king, and other top Saudi officials, promised at an oil summit they hosted in Jeddah on Sunday to increase current production by 200,000 barrels a day to 9.7 million barrels and to supply any further increase in global demand.

In temperatures that seldom fall under 100 degrees Fahrenheit (38 Celsius) during the day, workers from Indonesia, Bangladesh, India, the Philippines and other nations wear hoods against the sun as they finish the hundreds of kilometres (miles) of pipelines, three 600,000 barrel storage tanks, 15,000 horsepower pumps and a bomb proof control centre that make up the 10 billion dollar complex.

Khurais is city-sized but can only be reached up a seemingly endless desert road, with truck tyres and carcases of burned out cars strewn along the sides and black camels roaming in the dunes.

Aramco took journalists this week to its latest "mega project", about 100 miles (160 kilometres) east of Riyadh, which will handle oil extracted from its Khurais, Abu Jifan and Mazalij fields.

The company calls it "the largest industrial project in the world."

Together the three fields have estimated reserves of 27 billion barrels and their joint daily production of 1.2 million barrels will be more than OPEC's three smallest members Indonesia, Qatar and Ecuador, according to Aramco.

World demand is growing by about one percent a year and Saudi Arabia has vowed to invest tens of billions of dollars to take production capacity to 12.5 million barrels by the end of next year and eventually 15 million if the demand is there.

Aramco vice president for production Amin Al-Nasser said 500,000 barrels a day will start coming out of its Khursaniyah field in August, and by the end of the year 250,000 barrels will be coming from the Shaybah field and 100,000 barrels a day from the Nuayyim field.

But Khursaniyah is eight months behind schedule and Saudi Aramco has faced questions about whether it can get Khurais ready on time as well as the sustainability of Ghawar, the world's biggest oil field currently producing five million barrels a day.

Nasser said he was "100 percent confident" that Khurais would be ready on time and insisted that Aramco's other fields are nowhere near peak production.

"If we want more oil, we open the valves across the fields and none of them is yet wide open," he said.

He said that the depletion rate -- the amount of oil it produces each year as a proportion of its reserves -- averaged about two percent where other countries average 4.0-9.0 percent.

Aramco is dismissive of "peak production" theorists who say Saudi Arabia's production will now start to fall as it has in the North Sea and Alaska's Prudhoe Bay.

Nasser said the theory does not apply to his country, even though the Ghawar field has now been in operation for 50 years.

The Saudi firm has embarked on a huge operation to find new fields to add to its estimated 260 billion barrels of crude oil reserves.

Aramco research chief Muhammad Saggaf said that over the next 20 years the company's overall resource base -- a more theoretical measure of reserves that may or may not be available -- could grow to 900 billion barrels from the current level of 735 million.

"We have never failed to replace what we have produced through our exploration programme," said Nasser, "and it is expanding year-by-year."

Dollar eases in Asian trade

The dollar eased in Asian trade on Wednesday as the markets waited for the close of a US Federal Reserve meeting for clues on the outlook for interest rates, dealers said.

The dollar eased to 107.73 yen in Tokyo morning trade from 107.83 in New York late Tuesday.

The euro edged up to 1.5570 dollars from 1.5565 but slipped to 167.71 yen from 167.83.

Markets were on tenterhooks for clues on the direction of US interest rates as the Federal Open Market Committee (FOMC) was to wrap up its two-day meeting later in the day and issue a statement.

Market watchers expect the US central bank to keep its rates on hold at 2.0 percent after gloomy data on the world's largest economy, but the focus was on what the Fed will do in the future.

The Conference Board, a business research firm, on Tuesday said US consumer confidence plunged to its lowest in June amid growing concerns about jobs, the economy and higher fuel prices.

At the same time, home prices in some US cities tumbled at a record rate as the woes of the property market showed few signs of abating.

"Everyone expects the Fed will keep rates steady... so the key for the dollar is whether the central bank's statement raises or lowers the likelihood of interest rate hikes in coming months," NAB Capital said in a note to clients.

"Traders price an 87 percent chance that the Fed hikes rates by 25 basis points on September 16," the next Fed meeting after one in August, it said.

The statement released after the meeting is expected to focus in part on inflation, which has been a growing concern for Fed chairman Ben Bernanke as well as the European Central Bank.

Dealers will watch to see the balance between concerns over inflation -- which could signal a desire to raise rates -- and the housing woes, which have led to a credit crunch.

But some analysts questioned the effects of a tighter monetary policy as there are still fears that the US economy could slip into recession.

"The Fed slashed rates nine times but the effects were not visible," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corporation. "Bernanke's Fed has undone all its efforts to shore up economic conditions through a loose monetary policy by shifting full-scale to a hawkish tone to beat inflation," he said.

Oil prices ease ahead of US report

Oil prices eased in Asian trade on Wednesday ahead of a weekly report on US energy stockpiles and after Opec's president rebuffed calls for the cartel to boost output.

New York's main oil futures contract, light sweet crude for August delivery, fell 19 cents to 136.81 dollars a barrel after rising 26 cents to close at 137.00 dollars per barrel in New York on Tuesday.

Brent North Sea crude for August eased six cents to 136.40 dollars following a climb of 55 cents to 136.46 dollars in London.

Oil prices have almost doubled over the past year and last week both contracts struck intraday highs near 140 dollars a barrel.

The soaring crude costs, in a market facing tight supply, have triggered protests in several countries and fears for global economic growth.

Traders will be watching for supply signals in the weekly US Department of Energy report on inventories of crude, due out later Wednesday.

"People are waiting for the US inventory data," said Tetsu Emori, a fund manager with Astmax asset management in Tokyo.

Saudi Arabia, the largest crude oil exporter in the Organisation of the Petroleum Exporting Countries (Opec) cartel, said at a weekend summit of oil consumers and producers that it was raising daily output by more than 200,000 barrels to 9.7 million.

But Emori said the move was not really affecting the price of crude.

Sucden analyst Andrey Kryuchenkov stressed that "overall, the market remains well supported, despite Saudi Arabia's promise to pump more oil".

The Saudi output increase, to counter the fears of inflation-hit consumers, exposed divisions within Opec at the summit.

Opec president Chakib Khelil and others were opposed to increasing production.

"Opec has already done what Opec can do and prices will not come down," Khelil said Tuesday as he arrived for a meeting with European Union energy officials in Brussels.

Consuming nations have been calling for Opec to pump more oil. The cartel produces about 40 percent of the world's crude.

Khelil blamed high prices on the US "subprime crisis and the ensuing impact of the dollar devaluation and the influx of funds that were looking for good returns that they could not find in other investments".

He estimated that hedge fund zeal for positions in the oil market added 40 dollars to crude prices.

"Other member countries don't want to increase their production because, as they've said many times, from our perspective we don't see any shortage in the market," Opec secretary general Abdullah al-Badri said.

Emori said unrest in Nigeria continues to be an important factor in the market.

Anglo-Dutch oil giant Shell said its offshore Bonga oilfield in Nigeria was running again Tuesday after an attack by militants last week halted production.

After the unprecedented raid, Shell had said it could not promise to deliver 225,000 barrels per day for June and July.

Militants also blew up a key Nigerian Chevron supply pipeline late last week, forcing the US oil giant to shut operations, halting output by 120,000 barrels per day, an industry source said.

Palm oil futures listless, rising reserves eyed

Malaysian crude palm oil futures made little headway on Tuesday as firm crude and
soy oil prices clashed with slowing demand amid a high production cycle
for the vegetable oil.

Prices of the vegetable oil, which fell
more than 5 percent last week, have been meandering on a lack of fresh
news, although many traders see the market going lower as stockpiles
are expected to swell above 2 million tonnes this month.

By the
midday break, the benchmark September contract on the Bursa Malaysia
Derivatives Exchange was unchanged at 3,558 ringgit ($1,091) per tonne.

The market cannot move, there is no big news to spice things up," said a trader with a foreign commodity brokerage.

"Demand
is slow, but it is still maintained at 1 million-1.2 million tonnes for
the past few months, the only problem is that production is rising and
stocks will surely bloat."

Other traded months rose marginally. Overall trade shrunk to 1,307 lots at 25 tonnes each from the usual 5,000 lots.

Exports
of Malaysian palm oil products for June 1-20 fell 9.8 percent to
749,776 tonnes from 830,873 tonnes shipped between May 1 and 20, cargo
surveyor Intertek Testing Services said on Friday.

Another surveyor Societe Generale de Surveillance reported declines of 11.2 percent to 754,539 tonnes.

Oil
rose for a third straight session to around $137 a barrel on Tuesday
amid fears of Nigerian supply disruptions and tensions between Israel
and Iran.

Strength in crude oil spilled over to other vegetable
oil markets. Soy oil for July delivery at the Chicago Board of Trade
rose 0.3 percent while the most-active September soy oil contract on
China's Dalian Exchange edged higher.

In Malaysia's cash market,
crude palm oil for June and July shipments in the southern and central
regions was quoted at 3,570/3,580 ringgit. Trades were done at 3,570.

Dollar mixed in Asia ahead of Fed meet

The dollar was mixed in sluggish Asian trade on Tuesday with market
participants waiting for a US Federal Reserve meeting for clues on the
direction of interest rates, dealers said.

The dollar was at 108.00 yen in Tokyo morning trade, slightly up from 107.87 in New York late on Monday.

The euro edged up to 1.5519 dollars from 1.5513 and to 167.58 yen after 167.36.

The
Federal Open Market Committee (FOMC) opens its two-day meeting later
Tuesday, with dealers widely expecting it to leave US interest rates
unchanged at 2.0 percent.

"It will be difficult to take
positions all day long today ahead of FOMC," said Shigeru Nakane,
senior client manager at Resona Bank.

"Our consensus is no
change in rates. But all of the players are now paying attention to the
policy statement, trying to gauge how seriously the Fed will hint at a
future rate hike," Nakane said.

The Fed has slashed its key rate
by 3.25 percentage points since the subprime, or high-risk, mortgage
crisis erupted in mid-2007.

While market players have scaled
back their expectations of a series of US rate hikes this year, they
still see a chance of one or two quarter-point rate rises by the end of
2008 to keep a lid on inflation, dealers said.

The euro
rebounded moderately in Tokyo after sliding overnight on weak economic
indicators, including Germany's key business climate index, which
dropped to an 18-month low in June due to high oil prices.

Oil prices won't come down: Opec president

Oil prices 'will not come down,' Opec president Chakib Khelil said
Tuesday, assuring that the oil cartel has already done what it can on
the matter.

"Opec has already done what Opec can do and prices
will not come down," Khelil told journalists as he arrived for a
meeting with EU energy officials in Brussels.

Ahead of a summit
between producers and consumers in Jeddah last weekend, Opec
heavyweight Saudi Arabia promised on Thursday to lift its oil
production by 200,000 barrels per day.

However, Saudi Arabia's
increased output, to counter the fears of inflation-hit consumers,
exposed divisions within Opec at the summit with Khelil opposed to a
production hike.

In the face of calls from consumer countries
for an oil output hike, Opec secretary general Abdullah al-Badri
insisted that supply was currently sufficient.

"There is no
shortage, the market is full of oil," he assured, blaming "other
factors" for the high price of crude, including refinery problems and
hedge funds piling into the market.

EU Energy Commissioner
Andris Piebalgs urged Opec to do away with the grouping's production
ceiling in order to provide relief to the market.

"In my
opinion, there is no reason to keep ceilings on production," he told
journalists. "If there are no ceilings, markets will adapt much
faster," he added. "In this respect we could expect prices to go down,
not going up as the tendency has been till now."

Ford 'to make fewer big vehicles'

Car giant Ford has said it will cut its production of large trucks and large sports utility vehicles (SUVs) in favour of more fuel efficient models.

It will also delay the introduction of its new pick-up truck by two months.

The US economic slowdown has reduced sales and soaring fuel prices have put consumers off buying bigger vehicles.

Ford said it will make a loss this year and predicted that the worsening US economic situation would make it difficult for it to break even in 2009.

"Demand for large trucks and SUVs [is] at one of the lowest levels in decades," said Ford president and chief executive Alan Mulally.

Ford's sales were down 16.8% last month compared to May 2007, according to industry analysts Autodata.

The company's new F-150 pick-up truck will now go on sale two months later than anticipated in the autumn of next year.

Ford said it expected to produce 90,000 fewer vehicles in the second half of 2008.

Production in the third quarter will now be 475,000 vehicles, 25% fewer than during the same period in 2007, Ford said.

'Responding to demand'

The company will increase the production of smaller vehicles including the Ford Focus sedan, the Ford Escape and the Mercury Mariner.

"We view the move to smaller, more fuel-efficient vehicles as permanent, and we are responding to customer demand," Mr Mulally said in a statement.

Most of the production cuts will be achieved by extending the summer shut-downs, reducing production line speeds and cutting the number of shifts at some plants. Shifts will be added at factories making the smaller vehicles.

Ford has said it wants to reduce its workforce by 12% and further cuts cannot be ruled out. The company will announce further details of its restructuring plan when it announces its next set of financial results in July.

As a result of Ford's announcement, Standard and Poor's said it was reviewing its ratings for major car producers including Ford, Chrysler and General Motors.

If it downgrades their investment ratings, their borrowing costs could increase.

Ford shares closed down 8.1% and General Motors fell 6.8%.

Earlier this month, General Motors said it was closing four SUV and truck factories in the US, Canada and Mexico in response to falling demand.

Developing countries gloomy on WTO farm talks

Brazil and other developing countries have complained that agriculture proposals at the World Trade Organisation do not open up markets enough, dimming prospects of a deal being reached this year. "The options on the table do not seem to fulfil the mandate for substantial improvements in market access."

The G20 group of developing countries said in a statement issued late Friday, referring to proposals on the farm sector. The G20 blamed developed countries, saying: "we have no indication of what those countries are prepared to do" in terms of cutting subsidies.

The WTO's 152 member states remain mired in an impasse over the Doha round, which was failed to make significant headway since it was first launched in the Qatari capital in 2001. Talks are stuck because of disagreements between rich and poor countries over the removal of subsidies and trade barriers for agricultural and industrial products.

WTO Director General Pascal Lamy has repeatedly said a deal is "doable" before the end of the year, but chances of any breakthrough look to be dwindling, with French President Nicolas Sarkozy being particularly unoptimistic. "It would be highly unrealistic to keep wanting to negotiate a deal where we haven't received anything on services, nothing on industry ... and which would cut farm output by 20 percent while 800 million people are dying of hunger," Sarkozy said Friday.

Saudi pumping extra oil to meet demand-Saudi source

Top world oil exporter Saudi Arabia has decided to increase oil supply to meet demand from customers, a Saudi oil source said on Saturday.

Saudi Arabia will raise output to 9.7 million barrels per day in July, the fastest daily rate in decades.

"We increased because they (our customers) asked for it," the source said.

He was speaking as delegates from oil consuming and producing countries arrived in Jeddah for a meeting on Sunday to try tackle record oil prices.

There was no consensus yet between consumers and producers on the causes of high oil prices, he said, but he believed there was a collective will to try to stem the record rally.

"I really believe strongly that there is a political will of oil producers and consumers to lower the price and stabilise it, otherwise they would not have come," he said.

Oil markets were well-balanced but the price of oil was unjustifiably high, the source said.

"Right now the majority of people think the price of oil is very high," he said. "There is no justification for this price."

The kingdom currently has spare output capacity of around 2 million barrels per day, he said.

Saudi Arabia has a long-held policy of keeping a cushion to deal with any surprise global supply disruptions of between 1.5 million and 2 million bpd.

Oil higher as supply fears return

Oil prices have rebounded as investors begin to consider that a fuel price rise in China may actually increase demand there.

US sweet, light crude rose as much as $4 to $136 a barrel, while London Brent rose $3.52 to $135.52.

The rises almost erased Thursday's losses after the unexpected announcement that China would increase petrol and diesel prices by 18%.

Soaring oil costs will be discussed in Jeddah this weekend at a key meeting.

Oil prices have risen about 40% this year, reaching almost $140 a barrel earlier this week.

Prices in London and New York fell back slightly at the end of their normal trading sessions.

In New York, US light sweet crude was $2.69 higher at $134.62. While in London, Brent crude rose $2.86 to $134.86.

Mixed reaction

China's rapid economic growth has been one factor driving up prices.

Some analysts have said that fuel subsidies in China have helped to increase demand, and an increase in retail prices could dampen energy consumption.

A view that sparked Thursday's sell-off.

But an increasing number of analysts believe the effect could be the opposite, as refiners will be encouraged to increase production to take advantage of the better prices.

This would lead to improved fuel supply at the pumps, which would help to meet pent-up demand.

Chinese fuel prices have been frozen since an 11% rise in November. Refiners have been cutting output to minimise losses and this has led to rationing and queues at petrol stations.

Volatile market

"The markets could go back and forth on the Chinese announcement for a while," said Edward Meir at commodities brokerage MF Global.

With supply running short in many parts of the country, he added, "demand could move even higher, as much of the country's pent-up needs would be met".

Other factors behind the relentless rise in oil prices over the past few months include political problems in major oil producing countries, which have either reduced or threatened to reduce global supply.

Some analysts site this as another reason for Friday's spike.

"Traders don't want to be short going into the weekend, " said Gerard Rigby of Fuel First Consulting in Sydney.

"There are just too many hotspots around the world now. There is more potential for bullish news than bearish news," he said.

Venezuelan President Hugo Chavez has threatened to stop exports to European countries if the EU applies stringent new immigration laws.
His comments came as the country said it would not attend the emergency meeting on Sunday in Saudi Arabia between oil producers and consumers to discuss prices.

Chinese steel imports 'injure' US

The $1.4bn US steel pipe-making industry has been "injured" by subsidised imports from China, a US commission has concluded.

The US International Trade Commission said the Chinese products had been sold at "less than fair value".

As a result, the Department of Commerce will impose duty of up to 700% on the imported goods.

This is the first time a US industry has successfully won protection from subsidised Chinese products.

Until last year, the US government refused to consider complaints from industry about the dumping of Chinese products as it did not classify China as a market economy.

The policy was changed in the face of growing anger from industrial producers who claimed they could not compete with much cheaper imports from China.

The tariffs on the imports of steel pipe will range from 99% to 701%.

The circular steel pipe affected by this judgement is used for home plumbing and sprinkler systems.

It is made by 21 producers in the US employing almost 2,500 people.

Europe split over oil price plan

European Union leaders have agreed to a 3-month study to find ways of cushioning the impact of soaring energy prices on the region's citizens.

At an energy summit in Brussels, ministers discussed plans to ease the pain of record oil and gas prices on consumers and companies.

They asked French President Nicolas Sarkozy to report back to the commission with a plan by October.

The plan follows protests across Europe by farmers, truckers and fishermen.

But opinion was divided about what action the European countries should take.

European Commission President Jose Manuel Barroso said there were no easy solutions.

"We have sent out a very clear message that there will not be a quick fix for the issue of the oil prices," Mr Barroso said.

The EU wants to prevent another spate of militant action across the region, but there is little common ground on exactly how to tackle the oil prices spike.

France had proposed to cap Value Added Tax (VAT) on fuel, a plan that was rejected by Germany.

President Nicolas Sarkozy said: "I will not give way, I will fight for the issue."

"It is a case of justice," he added.

'Cool response'

The Italian government has introduced a windfall tax on oil companies, with the money being redistributed to the needy.

This plan received a cool response from other EU nations, who said it was difficult to decide who should get the money.

Meanwhile, oil companies complain the tax will prevent them from reinvesting their profits into further exploration.

In the official concluding document of the summit, European leaders said they would support investment in energy efficiency and the use of renewable energy resources.

But they stopped short of backing France and Italy's radical proposals.

EU Energy Commissioner Andris Piebalgs told the BBC: "There are already EU directives which can be used to help the most vulnerable families to counter the effect of high fuel prices.

"Heads of government should agree to restructure some industries so that they can respond to higher oil prices," he said.

The meeting comes as key energy consuming and producing countries meet this weekend in Saudi Arabia to discuss the volatile world oil market.

India inflation rate rises to 11%

Indian inflation has risen to a new 13-year high, hitting shares and weakening the rupee.

The wholesale price index rose to 11% in the 12 months to 7 June, up from the previous week's 8.75%. The inflation rate is now at its highest since 1995.

Rising fuel and food costs are pushing inflation well above the government's target of between 5% and 5.5%.

The jump took many analysts by surprise. More interest rate rises are now expected.

Unlike most countries, India calculates inflation on the wholesale price of a basket of 435 basic goods, which means actual prices paid by the consumer are much higher.

Cooking gas prices have risen by 20% and diesel is up 21%.

In Mumbai (Bombay), India's main Sensex index ended 516.70 points, or 3.4%, lower at 14,571.29.

Shares have slumped since the Sensex broke through the 21,000 level earlier this year.

Election

Indian Finance Minister Palaniappan Chidambaram admitted it was "a difficult time", and said the government would look at introducing measures to tackle the problems.

"Naturally we'll have to look at stronger measures on the demand side as well as the monetary side," he said.

The BBC's Sanjoy Majumder in Delhi said the inflation numbers are piling pressure on the governing party, which is facing elections in a number of states this year.

Although a general election must be held by May 2009, our correspondent says there is some suggestion it may be held later this year.

With the central bank expected to increase interest rates to try to control inflation, India's economic growth is expected to slow down and combined with rising prices, this may translate into voter anger, our correspondent adds.

Rate rises

Last week, India's central bank raised short-term borrowing rates from 7.75% to 8%.

The unexpected rate increase was the first since March 2007.

The Reserve Bank of India is keen to address spiralling inflation.

But there are concerns that interest rate rises will not do anything to curb rising energy prices, which saw India recently cut fuel subsidies and raise petrol and diesel prices by about 10%.

This sparked protests in many parts of the country from consumers and transport operators.

India imports nearly 75% of its crude oil requirements, making it heavily reliant on the whims of international oil markets.

The government subsidises the cost of domestic fuel products, but even allowing prices to increase slightly can have a massive impact on the living standards of the majority of India's poor population.

Three out of four people in the country live on $2 a day.

Paranjoy Guha Thakurta, an independent economic and political analyst, told the BBC that inflation was "like a tax on the poor".

"But when it is driven by high food prices it's like a double tax because it many cases food costs account for half or more of the expenditure of those that live below the poverty line," he added.

Oil summit dispute over market speculators

Oil powers and consumers haggled on Saturday over how much to blame market speculators for the spectacular rise in crude prices ahead of a summit on the energy crisis, officials said.

Saudi Arabia has organised a meeting of producers and consumers for Sunday at which Britain's Prime Minister Gordon Brown is to be a keynote speaker.

While growing demand is highlighted along with the need for greater investment in refining capacity, some nations want to blame market funds that speculate on oil futures for the rise of oil to almost 140 dollars a barrel, officials said.

A working paper for the summit's final declaration, obtained by AFP, calls for action to "improve the transparency and regulation of financial markets through measures to capture more data on index fund activity and to examine cross exchange inter-actions in the crude market."

A senior international energy official involved in the summit talks called the document "highly controversial" because of the attack on markets.

The document says that index funds and other investors have "unrealistic assessments" of the future value of oil.

The senior energy official said that the attack may be toned down in the final document of the Jeddah Energy Meeting on Sunday because of opposition from the United States and other major industrial powers.

Saudi Arabia is believed to be a supporter of the movement to put pressure on market players.

Ibrahim Al-Muhana, a top advisor to Saudi Arabia's oil ministry, told a press conference in Jeddah on Friday: "The emergence of new players has made it difficult for us to put our fingers at a clear reason" for the price rise.

Saudi media quoted him as attributing the rises to increased market speculation on oil.

The oil powers have sought to divert consumer calls for greater production to counter the energy inflation, despite Saudi Arabia's promise to produce an extra 200,000 barrels a day.

Organisation of Oil Exporting Countries (Opec) president Chakib Khelil said "just because car and computer prices were high, would one ask their producers to make more?"

The summit document calls for improved information gathering by groups such as OPEC, the International Energy Agency (IEA) and the International Energy Forum (IEF) "to improve transparency" and better assess "the impact of financial markets on the level, volatility of oil prices which can be used to better understand the market situation."

The different forecasts on production and consumer needs produced by the different groups "send mixed signals to the market," fuelling fears about oil supplies, said the international energy official.

The draft calls for international action for "reducing uncertainties" and "necessary actions to ensure stability and sustainability of the energy system."

It says increased refining capacity is needed because new construction has been shackled by "constrained refining investment, environmental standards, cost inflation and stringent laws and regulations, resulting in poorer refining returns."

"Spare capacity throughout the oil supply chain is important for the stability of the global oil market, hence an appropriate increase in investment both upstream and downstream is necessary to ensure that the markets are supplied in a timely and adequate manner," says the document.

The final declaration is also expected to call for greater assistance from governments, institutions and regional groups to "alleviate the consequences of higher oil prices on the least developed countries."

The senior international energy official said: "We want to cool down markets. Saudi Arabia is really concerned. They are after stabilization because if the world economy goes into recession that will hurt oil demand."

Nigerian attack closes oilfield

Oil company Royal Dutch Shell says it has temporarily stopped production at its main offshore oilfield in Nigeria, following a militant attack.

The raid took place overnight on the Bonga oil platform about 100km (65 miles) off the coast of the Niger Delta, the company said.

It is the first attack on the oilfield, which normally produces about 200,000 barrels a day.

Attacks in the inshore Niger Delta have helped drive up the world oil prices.

Nigeria's valuable offshore oilfields had always been considered difficult for most militants to attack, the BBC's Alex Last reports from Lagos.

But for the first time in the early hours, gunmen in boats reached the Bonga installation, Shell's flagship project.

The shutdown has cut a tenth of Nigeria's total output in one go.

This comes on top of a reduction of at least 20% in recent years following inland attacks.

Our correspondent says Bonga was new, expensive, and working well despite the difficulties and repeated attacks affecting the company's inshore operations in the Delta.

The militants in the Delta are getting more sophisticated and better equipped and armed, he says.

Now they have proven that in terms of distance at least, all of Nigeria's facilities are within their reach.

US tanker deal thrown into doubt

Boeing should get a second chance to bid for a $35bn US Air Force contract, a US government agency has said.

The Government Accountability Office (GAO) upheld Boeing's protest against the awarding of the air tanker deal to rivals Northrop Grumman and EADS.

It said that the Air Force had made a "number of errors" that could have swung the outcome of the competition.

The GAO's ruling is not binding, but it puts huge pressure on the Air Force to put the process out to tender again.

The GAO said in a statement: "The Air Force made a number of significant errors that could have affected the outcome of what was a close competition.

"We therefore sustained Boeing's protest."

Massive victory

The decision is a massive victory for Boeing, paving the way for it to win back all or part of the contract, which was for 179 new aircraft.

It was welcomed by many US lawmakers, who had been angered over the possibility that US jobs could be lost to Europe, particularly with the economy so fragile.

The Air Force said it would review the ruling and set out its response.

"The Air Force will select the best value tanker for our nation's defence, while being good stewards of the taxpayer dollar," it added.

The news was met with disappointment from Airbus parent firm EADS, but chief executive Louis Gallois remained upbeat.

"It's important to recognise that the announcement is an evaluation of the selection process, not the merits of the aircraft," he said.

Randy Belote at Northrop Grumman said, "We continue to believe that Northrop Grumman offered the most modern and capable tanker."
The Northrop tanker - the KC-30 - would be based on the Airbus A330, while Boeing's offering is the KC-767, a new version of the Boeing 767.

Oil lower on profit-taking in Asia

Oil prices fell in Asia on Thursday as investors took profits ahead of a high-profile weekend meeting in Saudi Arabia between oil producers and consumer nations, dealers said.

New York's main oil futures contract, light sweet crude for July delivery, fell 61 cents to 136.07 dollars a barrel after a jump of 2.67 dollars to a close of 136.68 dollars on Wednesday at the New York Mercantile Exchange.

Brent North Sea crude for August delivery eased 54 cents to 135.90 dollars per barrel after a gain of 2.72 dollars to 136.44 dollars Wednesday in London.

"We see a little bit of profit-taking so far in Asia today," said Dave Ernsberger, Asia director of global energy information provider Platts.

"There are at least some people in Asia who think there is good value in selling at these prices."

Global finance officials fear runaway oil prices -- which surged to almost 140 dollars on Monday before dropping back -- pose a threat to world economic growth as higher inflation leads central banks to raise interest rates.

OPEC's top producer Saudi Arabia has called an unusual meeting this Sunday in Jeddah in response to the record-breaking run up in oil prices, which have roughly doubled over the past year.

Ahead of the summit, there has been mounting speculation about a fresh output hike from Saudi Arabia, the biggest producer in the Organisation of the Petroleum Exporting Countries (OPEC) cartel.

United Nations Secretary General Ban Ki-moon said Sunday that Saudi Arabia told him it would increase its oil output by 200,000 barrels per day (bpd) in July.

The desert kingdom currently produces 9.45 million bpd after announcing an increase of 300,000 bpd last month following a visit by US President George W. Bush.

Dollar dips as rate hike speculation

The dollar drifted lower in Asian trade on Thursday, pressured by a rise in oil prices and fading expectations of US interest rate rises this year, dealers said.

The dollar slipped to 107.72 yen in Tokyo morning trade from 107.86 in New York late Wednesday.

The euro edged up to 1.5554 dollars from 1.5532 but was flat at 167.54 yen.

The greenback fell after another surge in oil prices. A White House spokesman downplayed expectations of an immediate impact on crude costs from a meeting of producer and consumer countries in Saudi Arabia on Sunday.

Traders buy commodities such as oil, which is priced in dollars, as a hedge when the currency weakens.

The greenback was also weighed down by losses on Wall Street, where investors were concerned about financial problems at a big regional banking group and the jump in crude prices.

The gloomy news caused investors to reassess their expectations of higher borrowing rates in the United States, despite inflation worries.

"Traders continued to scale back expectations for Fed interest rate hikes this year," noted NAB Capital strategist John Kyriakopoulos.

"The implied probability of an August 5 Fed rate hike has fallen to around 40 percent from above 70 a week ago," he added.

At the same time, traders expect the European Central Bank to raise its benchmark lending rate next month.

Inflation in the eurozone, which hit an annualised 3.7 percent in May, is at an "unacceptable" level, ECB chief economist Juergen Stark said.

But other ECB officials have dampened expectations the central bank might be preparing for a series of rate increases.

"We see the July rate hike by the ECB as a one-off and so unlikely to be a source of strength for the euro," predicted Kyriakopoulos.

Traders were waiting for earnings results from regional US banks amid fears of subprime-related writedowns.

Most expensive flat in Asia sold in Hong Kong: report

A luxury flat in Hong Kong has sold for 225 million Hong Kong dollars (28.8 million US), the most expensive apartment per square foot ever sold in Asia, a report said on Wednesday.

The 80th floor penthouse with a private swimming pool and spectacular view of Hong Kong's Victoria Harbour sold for 41,000 dollars per square foot, a report in the Sing Tao Daily said, citing an unnamed real estate source.

The 5,497-square-foot (511-square-metre) flat, with its own roof-top terrace, is located in a new complex called The Arch, in Hong Kong's Kowloon area.

The Arch is close to a yet-to-be-completed office tower, the International Commerce Centre.

The new tower is attracting multinational firms away from the central business district, where rocketing property prices have scared away even the world's richest firms.

The flat's price beat the record of 39,800 dollars per square foot set last November for a larger apartment on Hong Kong island, according to the report.

Hong Kong's property market has boomed in recent years, following a major crash during the Asian financial crisis in the later 1990s.

Bush to press Congress to drop offshore drilling ban

President George W. Bush will call on US lawmakers on Wednesday to pass legislation lifting the ban on offshore oil drilling, the White House said.

"With gasoline now over four dollars a gallon, tomorrow he will explicitly call on Congress to also pass legislation lifting the congressional ban on safe, environmentally-friendly offshore oil drilling," White House spokeswoman Dana Perino said in a statement late Tuesday.

The announcement came just hours after Republican presidential candidate John McCain called for the federal government to scrap its 27-year-old moratorium on offshore oil drilling.

His demand tapped into voters' anxiety about sky-high fuel prices but his Democratic rival, Barack Obama, dismissed it as "political posturing" that would not help gas prices and might do much to ruin the coastal environment.

Perino said the president had long pushed Congress to expand the United States' domestic oil supply but blamed Democrats for blocking any action.

"The president believes Congress shouldn't waste any more time," she said, while adding that he "is not taking any executive action tomorrow."

World Bank loan to boost Pakistan power supply

The World Bank on Tuesday approved a $256.85 million line of credit for Pakistan to improve the reliability and efficiency of power supply in a country where poor electricity service is a major constraint to economic growth.

The World Bank estimates that Pakistan's electricity system lacks about 2,000 megawatts to cover peak demand. The country's transmission and distribution power networks are over-loaded and lack proper investment, with high technical and commercial losses.

The so-called Electricity Distribution and Transmission Improvement project aims to improve distribution and transmission networks to meet increasing demand for electricity and to strengthen capacity of electricity companies.

"While Pakistan has added about 1 million new, mainly household, electricity connections each year, about a quarter of its population still has no access to electricity, and the quality of service has been deteriorating sharply, " said Yusupha Crookes, World Bank country director for Pakistan.

"This has an adverse impact on both the normal conduct of social and economic activity and the delivery of social services."

Japan to announce joint gas exploration with China: reports

Japan is to announce on Wednesday an accord with China to jointly develop gas fields in the East China Sea, resolving a spat that was a thorn in relations of the two major energy importers, reports said.

Japan will announce the deal on the long-running spat at an evening press conference by Foreign Minister Masahiko Komura and Economy, Trade and Industry Minister Akira Amari, Jiji Press news agency and other media said.

No immediate confirmation was available from the government.

Japanese media said Japan would make an investment in China's already existing production at the Chunxiao gas field and win the right to resources in proportion with its financial contribution.

The exact level of Japanese investment is to be worked out later, they said.

Chunxiao, called Shirakaba by Japan, is located just west of the Japanese-proposed median line and Japan has earlier voiced worries that China's drilling may siphon gas from its own side.

China has said the gas field falls easily within its sovereign zone.

The Sankei daily also reported the two countries would make a 50-50 joint development of the Longjing field, called Asunaro by Japanese, which is the northernmost of four gas fields near the the median line.

Prime Minister Yasuo Fukuda said Tuesday the long-running row on gas fields would be resolved soon.

"There is a strong likelihood that this dispute will be resolved," Fukuda told news agencies from the Group of Eight rich nations ahead of their summit in Japan in July.

"The idea is to jointly excavate and drill and produce," he added.

Japan and China have been working to repair relations which have long been tense due in part to the legacy of Japanese imperialism.

China started drilling in the area in 2003, stirring tensions with Japan.

Dollar dips against euro in Asian trade

The dollar slipped against the euro in Asian trade on Wednesday amid doubts about the chances of a series of US interest rate rises this year to quell inflation, dealers said.
The euro firmed to 1.5519 dollars in Tokyo morning trade from 1.5508 in New York late on Tuesday.

The dollar was flat at 107.93 yen. The euro gained to 167.43 yen from 167.39.

Despite a sharp rise in US wholesale prices, traders were unsure whether the US central bank will embark on a series of rate hikes given sluggish growth in the world's largest economy.

Markets are now reassessing their view after being too quick to bet on US rate hikes, said Hideaki Inoue, chief forex manager at Mitsubishi UFJ Trust and Banking Corporation.

"They were expecting the Fed to raise rates two or three times this year. But due to continuing slow economic conditions, the Fed will find it difficult to boldly raise rates," he said.

US wholesale prices leapt a surprisingly strong 1.4 percent in May, the strongest surge in six months, but a closely watched "core" inflation rate stripping out energy and food remained tame, government data showed Tuesday.

US housing starts fell 3.3 percent in May as industrial production declined a larger-than-expected 0.2 percent compared with April, suggesting the economy is still being pressured by the fallout from the mortgage default crisis.

The dollar's fall was capped by remarks from central bank officials downplaying expectations for higher borrowing rates in the eurozone and Britain as economic conditions sour, dealers said.

British inflation hit a 16-year high of 3.3 percent in May, driven by soaring food and energy costs prices, figures showed Tuesday.

But Bank of England governor Mervyn King in a letter to finance minister Alistair Darling suggested that the breach of the 3.0 percent inflation target would not be trigger the central bank to raise rates aggressively.

British interest rates will be left on hold until early 2009 but the Bank of England "may have to cut rates more deeply than the market is currently pricing to revive the UK economy," Barclays Capital analysts wrote in a note to clients.

Meanwhile European Central Bank board member Lorenzo Bini Smaghi indicated that a 25-basis point rate hike could be enough to bring inflation down to the bank's inflation target of 2.0 percent in the eurozone, dealers noted.

Traders are waiting for quarterly results from US investment bank Morgan Stanley due Wednesday, after better than expected earnings at Goldman Sachs.