Dollar Heads for Monthly Gain Against Yen on Oil, Fed Outlook

May 30 (Bloomberg) -- The dollar headed for a second monthly advance against the yen and euro as rising stocks and declining crude oil brightened the outlook for the U.S. economy, the world's biggest oil importer.

The U.S. currency traded near a three-month high versus the yen as traders increased bets the Federal Reserve will raise interest rates later this year. The yen fell against the New Zealand dollar and the Brazilian real, favorites of so-called carry trades, as a rally in stocks encouraged investors to boost holdings of higher-yielding assets funded in Japan's currency.

``The dollar looks strong,'' said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital, the U.K.'s third-biggest bank. ``With the market turmoil calming down, people are focusing on inflation risks. Falling oil prices are positive for U.S. growth, bringing some relief to people.''

The dollar traded at 105.44 yen at 1:15 p.m. in Tokyo, from 105.50 yen in New York yesterday, when it reached 105.87, the highest since Feb. 28. The U.S. currency traded at $1.5521 per euro, from $1.5519 yesterday, when it touched $1.5486, the strongest level since May 19. The euro traded at 163.66 yen from 163.71 yen yesterday and 162.36 a month ago.

The dollar is heading for a 1.5 percent gain against the yen and a 0.7 percent advance versus the euro this month. The U.S. currency may reach 106.20 yen and $1.5450 a euro today, Ogawa forecast.

Carry Trades

The yen fell 1.3 percent to 82.31 per New Zealand's currency and 2.9 percent to 64.3922 versus the Brazilian real. It also traded at 100.75 per Australian dollar from 100.80 in New York yesterday, when it fell to 101.08, the lowest since Nov. 14, as the MSCI Asia Pacific Index of regional shares advanced for a second day.

``With investors' risk appetite improving, the yen is highly likely to weaken against major currencies across the board,'' Koji Fukaya, a senior currency strategist at the Tokyo unit of Deutsche Bank AG, the world's largest currency trader, wrote in a research note today. Japan's currency may fall to 107 per dollar in one month, Fukaya forecast.

In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is currency market moves erase those profits.

Japan's benchmark rate of 0.5 percent is the lowest among major economies. Government reports today showed Japan's consumer-price inflation slowed to a 0.9 percent pace in April and job vacancies fell to a three-year low. The central bank rate is 4 percent in Europe, 2 percent in the U.S., 7.25 percent in Australia, 8.25 percent in New Zealand and 11.75 percent in Brazil.

Yield Spread

The yield advantage on two-year Treasuries over similar- maturity Japanese government debt was about 1.8 percentage points, close to the widest since January. The gap between the yields fell below 1 percentage point in March.

The correlation between the dollar-yen rate and two-year Treasury note yields was 0.97 in the past year.

The dollar may extend gains to a three-month high of 108.62 yen should it close above so-called resistance at 105.70 yen, according to Citigroup Global Markets Inc., a unit of Citigroup Inc., the biggest U.S. bank.

Resistance at 105.70 yen represents the May 2 high, according to a Citigroup research note published yesterday. Resistance is where sell orders may be clustered.

Fed Outlook

The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, climbed 0.7 percent to 72.994 this month, following a 1.2 percent rise in April. The U.S. currency traded at $1.9765 against the British pound from $1.9766 yesterday and was at 1.0483 versus the Swiss franc from 1.0494.

Futures on the Chicago Board of Trade show a 34 percent chance the Fed will raise its target rate by a quarter- percentage point to 2.25 percent on Sept. 16, up from 26 percent a month ago.

Crude oil for July delivery fell 0.4 percent to $126.08 a barrel after declining more than $4 a barrel yesterday, the biggest drop since March. The price has doubled from a year ago.

The correlation coefficient between oil and the euro-dollar exchange rate was 0.94 for the past year, indicating the two tend to move in the same direction, Bloomberg data show. A reading of 1 signals they move in lockstep.

European Inflation

The euro was poised for its second straight monthly advance versus the yen on speculation the 15 countries that share the currency are strong enough to withstand a slowdown in the U.S., allowing the European Central Bank to keep interest rates on hold to fight inflation.

A report today will probably show consumer prices in the euro region rose 3.5 percent in May, faster than the 3.3 percent gain in April, according to a Bloomberg survey.

``With the euro-dollar trading fixated by oil prices, stronger-than-expected consumer prices in the euro zone will likely lead to a rebound in the euro,'' Masafumi Yamamoto, head of foreign-exchange strategy in Tokyo at Royal Bank of Scotland and a former Bank of Japan currency trader, wrote in a research note today. The euro may rise to $1.63 by Sept. 30, he wrote.

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

Upbeat U.S. Data Boosts Asian Exporters

Exporters led Asian stock markets higher Thursday after better than expected durable goods orders in the U.S. calmed worries about a slowdown in consumer spending.

In Tokyo, a weaker yen also contributed to enthusiasm for auto and electronics stocks. The Nikkei was up 2.7% to 14,082.30 in midafternoon trading, and the Topix gained 2.2% to 1,377.89.

Consumer electronics giant Sony (nyse: SNE - news - people ) rallied 3.9% to 5,090 yen ($48.47), office equipment manufacturer Canon (nyse: CAJ - news - people ) rose 4.3% to 5,560 yen ($52.95) and automaker Toyota Motor (nyse: TM - news - people ) jumped 2.6% to 5,150 yen ($49.04).

In Tokyo trading, the dollar strengthened to 104.84 yen, up from 104.70 overnight in New York.

In Seoul, the Kospi added 1.6% to 1,834.84, with technology issues rebounding from the prior session's sell-off. Samsung Electronics shot up 2.9% at 712,000 won ($691) after Nomura upgraded its rating on the stock to "buy," citing improving fundamentals in the DRAM market. LG Electronics rose 3.7% at 139,000 won ($135).

The U.S. Commerce Department said Wednesday that orders for items such as aircraft, machinery, cars, refrigerators and computers dipped by a smaller than expected 0.5% in April. Excluding the transportation sector, orders rose 2.5%, the largest gain in nine months.

The Dow Jones industrials rose 45.68 points or 0.4% to 12,594.03 on Wednesday.

'The market got a bit of direction from U.S. markets being up on stronger durable goods data--there seems to be a feeling the U.S. economy is not as bad as had been thought but that feeling might only prove temporary,' said Michael Heffernan, a private client adviser at Reynolds & Co in Sydney.

In Australia, the S&P/ASX 200 gained 0.9% to 5,700.1, while the All Ordinaries rose 0.9% to 5,808.6.

With oil prices rebounding over $131 a barrel, mining heavyweight BHP Billiton (nyse: BBL - news - people ), Australia's biggest oil producer, rose 1.8% to 45.93 Australian dollars ($44.10). Woodside Petroleum (other-otc: WOPEY - news - people ) surged 4% to 65.50 Australian dollars ($62.86). BHP's takeover target Rio Tinto (nyse: RTP - news - people ) added 1.3% to 143.84 Australian dollars ($138.06).

Iron ore stocks also remained in demand with Fortescue Metals trading at record levels, as institutional investors short of the stock topped up their portfolios. Fortescue was up 2.3% at 10.56 Australian dollars ($10.13).

In Hong Kong, the Hang Seng index was up 0.3% at 24,313.37, while the Shanghai Composite index ticked down 1.2 points to 3,457.83.

Banks were the major gainers amid talk of a stake sale in the sector. Wing Hang Bank advanced on reports that China Life Insurance may acquire a stake in one of Hong Kong's smallest family-run banks.

Wing Hang added 1.4% to 112.50 Hong Kong dollars ($14.41). The company issued a statement denying it is in talks with a third party relating to the sale of a stake.

A mainland newspaper, the 21st Century Business Herald, quoted market sources as saying China Life had started negotiations to acquire Wing Hang shares from the Fung family.

Other banks extended gains on hopes they could be potential acquisition targets of bigger financial companies.

Vietnam Stocks Turn Into World's Worst Market on Ratings, Dong

May 30 (Bloomberg) -- The worst may not be over for Vietnam's stock market, the world's biggest decliner, as the stock exchange returns to business after a computer breakdown halted trading for three days.

The benchmark VN Index may extend this year's 55 percent retreat after a government report showed prices jumped the most since at least 1992, Morgan Stanley said Vietnam is heading for a ``currency crisis'' and Fitch Ratings cut its outlook on the nation's debt rating.

The Ho Chi Minh City Stock Exchange fixed the computer error that interrupted the VN Index's 16-day tumble, the longest streak since October 2003, according to a statement yesterday from the bourse. The gauge had tripled in value from the end of 2005 through 2007.

``We'll see a continuation of the selling,'' said John Shrimpton, a director of Dragon Capital Group, a Ho Chi Minh- based fund manager with assets of $2 billion. ``Inflation is one aspect causing the drop. The market was clearly overvalued.''

The VN Index, started in 2000, surged almost fivefold in the two years through its March 12, 2007, peak as the economy grew at the fastest pace in a decade and a government equity sale program helped lure foreign and domestic investors. Refrigeration Electrical Engineering Joint-Stock Co., the Ho Chi Minh City- based maker of air conditioners and electrical appliances, rose 523 percent from the end of 2005 through 2007. The company's shares have slumped 74 percent in 2008.

Lost Savings

Local investors who own about 75 percent of listed shares in Vietnam, a Communist Party-led nation of more than 85 million people, are reeling from the plunge. Nguyen Van Hai lost almost 700 million dong ($43,000), and his parents sold their house to help repay loans he'd used to invest.

``I entered the stock market with hopes that I could earn enough to own a house and get married,'' the 29-year-old Hanoi- based taxi driver said. ``Those wishes have now vanished.''

Even after the tumble, Vietnamese stocks aren't cheap enough to prompt Templeton Asset Management Ltd.'s Mark Mobius to buy.

The 151 companies in the VN Index trade below 10 times estimated earnings, down from as high as 30 times, according to data from Dragon Capital. Stocks in the MSCI Emerging Markets Index trade for 13.5 times profit, data compiled by Bloomberg show.

`Little Way to Go'

``It's got a little way to go down still,'' said Mobius, who oversees $47 billion in emerging-market equities at Templeton in Singapore. ``If you're going to go in there, you better think long-term, otherwise you can get stuck with a very illiquid security.''

About 52,000 stocks and bonds changed hands on average each day this month on the Ho Chi Minh exchange, plunging from the 2007 daily average of 965,000.

The International Monetary Fund said last November that inflation in Vietnam was more ``entrenched'' that in any other Asian country.

Consumer prices jumped 25.2 percent in May from a year earlier, the most since at least 1992 and the fastest pace in Asia, according to May 27 figures from the General Statistics Office in Hanoi. Food prices surged 67.8 percent.

Vietnam's central bank raised its key interest rate to 12 percent on May 17, the highest since it was introduced in 1998, from 8.75 percent. The country is heading for a ``currency crisis'' because the bank has kept the dong too strong as inflation soars and the trade deficit widens, Morgan Stanley said in a May 28 report.

Rating Outlook

Fitch Ratings cut its outlook for Vietnam's BB- rating to negative from stable yesterday, citing risks to the banking system because the government was too slow to respond to higher inflation.

Property developers slumped amid concern higher borrowing costs will curb home purchases. Idico Urban & House Development Joint-Stock Co., a Dong Nai province-based builder, retreated 80 percent, the most this year for any company listed on the Ho Chi Minh exchange.

Some foreign investors say the market is attractive enough to add to their holdings.

``We're increasing our investments in Vietnam even more,'' said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management. ``This is an embryonic market that had a strong birth. Now the baby is struggling a little, but we think it'll get its strength back.''

Luong Minh, a 53-year-old state employee, who earns 5 million dong a month in Ho Chi Minh City, is less sanguine after losing 100 million dong in the stock market.

``I don't want to sell the shares I have, but the longer I keep them, the bigger the loss,'' Minh said. ``It is hard to sell now anyway as the market is almost frozen. We are desperate.''

To contact the reporters on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net.

U.S. Probably Grew at Faster Pace in First Quarter on Exports

By Shobhana Chandra

May 29 (Bloomberg) -- The U.S. economy probably grew in the first quarter at a faster pace than originally estimated as exports rose, economists said before a government report today.

Gross domestic product expanded at an annual pace of 0.9 percent from January through March, up from the 0.6 percent projected last month, according to the median estimate of 74 economists surveyed by Bloomberg News.

Surging fuel and food bills and falling home values signal consumer spending, the biggest part of the economy, is unlikely to accelerate in coming months. Stricter lending, a worsening housing slump and shrinking job market will constrain households and businesses, even as government tax rebates give growth a temporary boost.

The economy ``still faces a host of problems,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``The only bright spot is exports.''

While a recession is often described as consecutive declines in GDP, the National Bureau of Economic Research, the official arbiter in the U.S., defines contractions as a ``significant'' decrease in activity over a sustained period of time.

The group says that in a recession, decreases would be visible in payrolls, production, sales and incomes in addition to GDP.

Declines in payrolls and production indicate the odds are better than even that the U.S. is in a recession, said Shapiro. ``Looking at the GDP revisions as an indicator would be missing the forest for the trees.''

Second Estimate

The Commerce Department's revised growth figures are due at 8:30 a.m. in Washington. The report is the second of three estimates. Economists' forecasts ranged from gains of 0.6 percent to 1.3 percent.

Following a 0.6 percent growth rate in the fourth quarter, the projected reading would mark the smallest back-to-back pace of expansion in five years.

A report from the Labor Department, also due at 8:30 a.m., may show the number of workers filing initial claims for jobless benefits rose to 370,000 last week from 365,000 the prior week, according to the Bloomberg survey median.

The revision to economic growth last quarter probably reflected a bigger narrowing of the trade deficit than the government projected on April 30. A cheaper dollar and economic growth overseas are benefiting exports, while slower U.S. demand is limiting imports.

Spending Slows

Consumer spending, which accounts for more than two-thirds of the economy, probably grew at a 1 percent pace in the first quarter, according to the survey median. The gain would be the smallest since the 2001 recession and match last month's advance estimate.

Purchases are likely to slow even more as Americans struggle with surging fuel and food costs, fewer jobs and declining property values. Confidence among consumers fell in May to the lowest level since 1992, the Conference Board reported this week.

Auto sales in April slid to a 14.4 million annual rate, the lowest level since 1998, according to industry figures. Spending this quarter will grow at a 0.5 percent pace, the smallest gain since 1991, according to the median estimate of economists surveyed earlier this month.

Federal Reserve policy makers last month trimmed their economic growth projections for this year by a percentage point to a range of 0.3 percent to 1.2 percent.

`Financial Headwinds'

``A number of participants were of the view that financial headwinds would probably continue to restrain economic activity through much of next year,'' minutes of the Fed's April meeting showed last week. ``The strength of U.S. exports remained a notable bright spot.''

The gain in growth last quarter would have been even larger if not for a reduction in estimates for inventories. A measure of total sales, which strips out stockpiles, will probably be revised to show a gain rather than a decline.

``Not only is the GDP gain likely to be somewhat larger than originally reported, but the mix was likely healthier'' with more growth coming from increases in demand and less from inventories, said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. Still, it was ``an anemic performance,'' he said.

Reports this month showed declines in home building will remain a drag on growth. Builders began work in April on the fewest single-family houses in 17 years, Commerce said earlier this month. Decreases in residential construction have subtracted from growth since the first three months of 2006.

Indonesia's Stock Index May Rise 15%, Firmansyah SaysBy Berni Moestafa

By Berni Moestafa

May 29 (Bloomberg) -- Indonesia's benchmark stock index may rebound from the worst year since 2000 after the government cut fuel subsidies to spend more on projects that will boost the economy, the stock exchange's chief said.

The 375-stock Jakarta Composite Index may rise as much as 15 percent this year, Indonesia Stock Exchange President Director Erry Firmansyah said in a May 27 interview. The index, which climbed the past six years, is down 11 percent in 2008. It advanced 0.4 percent to 2,444.3 at 10:25 a.m. local time.

PT Telekomunikasi Indonesia, the nation's largest company by market value, and PT Astra International, the biggest car dealer, dragged the index lower as the government cut its economic growth forecast and inflation accelerated. This month's decision to trim subsidies that made up 14 percent of the budget will free funds for bridges and roads, Firmansyah said.

``Money that previously was for subsidizing fuel can now be spent on infrastructure,'' said Firmansyah, 52, who has been president at the exchange since 2002. ``Infrastructure has a big multiplier effect as it absorbs labor and increases demand for cement and steel. The market needs certainty in the economy to rebound.''

Jakarta Composite companies trade at an average 15.07 times reported profit, making them cheaper than the 15.4 times profit for companies in the MSCI Asia Pacific Index. The Jakarta Composite rose 1.5 percent yesterday to 2,433.769.

Higher Estimate

Firmansyah is more optimistic than some strategists. UBS AG's Jakarta-based analyst Joshua Tanja predicts the index will rise to 2,925 this year, or about a 20 percent increase from today. Firmansyah's forecast would put the index at as high as 3,157.699 at year-end.

The government raised domestic fuel prices by an average 28.7 percent this month. Without an increase, the government would have to spend 190 trillion rupiah ($20 billion) on subsidies, Finance Minister Sri Mulyani Indrawati said May 21.

The government's plans to spur growth include adding 20,000 megawatts of power generating capacity by 2010 to keep up with demand.

``We were concerned that government infrastructure spending would be curtailed,'' said Raymond Gin, director of investment at Jakarta-based PT Manulife Asset Management, which oversees about $1.2 billion. ``Government expenditure will be appropriate and more balanced'' after the fuel-price increases, he said.

Indonesia's benchmark stock index dropped 2.8 percent the first two trading days after the energy price increase took effect May 24 on concern higher fuel prices will spur inflation. The change may push inflation to 11.2 percent by year-end, Sri Mulyani said. That could erode consumer demand, which accounts for about two-thirds of the economy.

Slowing Economic Growth

Inflation quickened to a 19-month high in April, prompting the central bank to raise its key interest rate to 8.25 percent on May 6, the first increase since December 2005. The government lowered its estimate for 2008 economic growth to 6.4 percent in February from its previous estimate of 6.8 percent.

Bandung, West Java-based Telkom fell 22 percent this year on concern consumer spending will decline. Jakarta-based Astra, the country's largest auto retailer, lost 25 percent.

``People are haunted by inflation issues and the policy direction of Bank Indonesia,'' said Patrick Chang, who helps manage $4.5 billion in equities at CIMB-Principal Asset Management Bhd. in Kuala Lumpur.

Firmansyah said higher inflation from fuel prices will ebb after six months, if history is a guide.

Overseas Investors

Inflation jumped to a six-year high of 18.4 percent in November 2005, a month after the government last raised fuel prices. The central bank began cutting interest rates in May 2006 after price rises slowed to 15.4 percent the previous month. The Jakarta Composite gained 16 percent in 2005 and 55 percent the following year.

Firmansyah also cited increased demand for the nation's equities by foreign investors as a reason to forecast a rebound. Overseas fund managers this month bought a net $336.7 million of stock, exchange data through May 27 show, set for the biggest monthly inflow since December.

``The index is now more stable and participation by foreign investors has returned,'' Firmansyah said. ``Hopefully, this will continue to improve.''

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net.

As food prices spiral, farmers, others profit

WILLMAR, Minn. -

The steepest run-ups in food prices since 1990 are hurting grocery shoppers, restaurants and school cafeterias but they're making others rich.

The winners in the new food economy include crop farmers selling corn and wheat for near-record highs after years of crushingly low prices. Ingredient makers like Cargill and ADM are rife with profits. Fertilizer and tractor companies are cashing in. Hedge funds who made big bets on rising wheat, soy and corn were spectacularly correct. Oil and gas companies, too - it takes natural gas to cook those Wheaties and diesel to haul them around the country.

Travel along the nation's food chain and you'll find some of the biggest profits closest to the land. The nation's farmers, who raise everything from cows to cucumbers, saw their average household income climb about 7 percent last year to more than $83,000. But in grain-rich states, the results were dramatically higher. In Minnesota alone, the median income for crop farmers soared 80 percent to $95,000.

That brings us to Chad Willis.

Willis raises corn and soy beans on 550 acres near Willmar, some of the nation's best corn-growing country.

He sells his grain nine miles up the road from an ethanol plant he invested in. His family cars are powered by an 85 percent blend of the corn-based fuel. His black and gold-trimmed cap reads "E85 Everywhere." And he knows that grocery shoppers jolted by higher prices for cereal or eggs or chicken think it's because of ethanol, which consumed 20 percent of last year's corn crop.

Willis isn't saying how much he made last year. While he acknowledges these are good times to be a farmer, he says he's not pulling in as much as the median income for crop farmers.

"Most people are excited, yes, but cautious about when things are going to turn around, and how hard it's going to turn around," he said.

In between Willis' farm and town, the owners of Haug Implement are having some of the best times anyone can remember. The Deere & Co. dealer sells farm tractors that can run to $160,000 or more and combines that can cost $300,000, a major investment even in the best of times.

Normally Haug would still be taking orders for combines for delivery for the fall harvest. But Deere cut off new orders in mid-November because demand was so high.

Owner Donald Haug Jr. says it wasn't long ago that he couldn't close on new equipment unless he narrowed the gap between trade-in and the sale price to $10,000.

"We're seeing some substantial purchasing, and we're talking over $100,000, and the guy just strokes the check for it," he said.

The boom times in farm country have arrived. Corn, soybean, and wheat prices have been pushed at or near record highs by a combination of high demand and new money from hedge fund traders who used to show little interest in those markets. Over the past 20 years, Minneapolis Grain Exchange trading volume has risen almost six-fold to a new record last year. The run-up is because in the frenzied trading the same commodities are changing hands far more than they used to.

"Grain farmers are making a hell of a lot of money," said Peter Georgantones, president of Investment Trading Services, a commodities brokerage in Bloomington, Minn. "I got grain farmers - a ton of them - who are going to improve their net worth this year - net, now - by a half a million bucks minimum. For one year. That's a nice gain. Not to mention their land's worth more."

Newspapers cover much of the floor in his office and 22 yellow Post-it notes cover much of his desk, where one computer terminal shows nothing but commodity prices. Every few minutes his phone rings with a call from a farmer checking crop prices.

"These guys, they grow 60, 70, 80 thousand bushels of beans," he said. "I got guys sitting on $2, $3 million worth of grain right now. Farmers are making good money."

The International Monetary Fund estimates biofuels accounted for almost half the increase in consumption of major food crops in 2006-2007, saying it has propelled prices for corn, other grains, meat, poultry and dairy.

Others dispute that. A report last month from the Agricultural and Food Policy Center at Texas A&M University said higher corn prices have had little to do with rising food costs because other factors, such as rising energy costs, have been at least as important.

Willis, the farmer near Willmar, is quick to point out that farmers pay much of those profits right back out to their own suppliers.

The liquid propane that runs his corn drier cost $1.55 per gallon last year. He's been told to expect $2 this year. Fertilizer last year ran $115 per acre. This spring it cost double that. He bought 2,500 gallons of diesel fuel for his tractors last year, at a price that started at $2.50 a gallon and rose to $3.09 by the end of the year and has risen further since then.

"You look at the grain prices, yeah, that's nice," he said. "But everything's going up right along with it."

While virtually all businesses are contending with higher energy costs, the rising commodities prices are proving to be bottom-line boosters for other sectors, too.

Profits at seed and pesticide maker Monsanto Inc. reached nearly $1 billion last year - a 14-fold increase since 2003. They've tripled to $1.1 billion at agrichemical maker Syngenta and agriculture divisions of DuPont Co. and Dow Chemical Co. have also seen their earnings balloon.

Cargill, which makes ingredients and trades in commodities markets, boosted its profits to $2.3 billion, up nearly six-fold since 2001.

Meanwhile, profits at agricultural processor Archer Daniels Midland Co. have more than quadrupled to $2.16 billion during the same period.

Fertilizer makers are winning big, too.

Mosaic Co. saw its third-quarter profits jump tenfold to $520.8 million because strong demand from farmers is giving it power to raise prices.

Companies like Deere, the world's biggest maker of farm machinery, are in the midst of flush times, too.

Between 2005 and 2007, Deere's net profit rose more than 25 percent to $1.8 billion. Meanwhile, operating profits of the Moline, Ill.-based company's agriculture division rose nearly 50 percent, to $1.4 billion.

"Everybody is getting their little piece. Everybody wants a piece of the pie," said Lee Richardson, a 37-year-old farmer from Willards, Md., who's seen the robust profits of his grain harvest consumed by the increasing costs of raising more than 1 million chickens annually on his family's 2,200-acre farm

Food prices in the U.S. rose about 4 percent last year, which may not sound like much, but it's the fastest rate since 1990, according to the Agriculture Department. Prices on some foods rose much faster. White bread prices rose 13 percent last year, bacon 7 percent. Peanut butter jumped 9 percent.

And it's picking up speed. Food inflation is running at an annualized rate of 6.1 percent as of April, the Bureau of Labor Statistics reported on May 14.

In addition, a weakened dollar makes American produce cheap and desirable abroad while weather-wrecked harvests in some foreign countries have generated regional scarcities, increasing global demand for products. At the same time, emerging economies in India and China are creating nations of residents demanding higher-quality ingredients and food.

The rising prices are forcing changes at food and ingredient buyers such as Kraft Foods Inc.

Kraft Foods Inc. has seen its commodities costs grow 9 percent, or $1.3 billion. This year, the company expects to see an even bigger input cost increase.

It's raising prices across the board, but the Northfield, Ill.-based food maker is also getting innovative by changing some product packaging to save money. It switched its classic Miracle Whip jar from glass to plastic. The lighter packaging saves Kraft 87,000 gallons of fuel each year, said spokesman Mike Miller.

Even if this year's global harvest is robust, shoppers shouldn't expect big price breaks anytime soon. The USDA said it expects food prices to rise another 4 percent to 5 percent this year.

"We're in a new era," said Mike Helmar, director of industry economics at Moody's Economy.com, "where prices are going to be a bit higher than they were in the past."

Freed reported from Willmar and Minneapolis; Heher reported from Chicago.

Japan Output Probably Fell, Inflation Stayed Near Decade High

May 28 (Bloomberg) -- Japan's factory production probably fell in April for a second month as the U.S. slowdown crimped world demand and higher energy costs cut into corporate profits. Inflation stayed near a decade high, economists said.

Output declined 0.5 percent from March, when it slid 3.4 percent, the biggest drop in five years, according to the median estimate of 35 economists surveyed by Bloomberg News. The Trade Ministry will release the report on May 30 at 8:50 a.m. in Tokyo.

Record oil and commodity prices are squeezing businesses and consumers in Asia, where demand has helped Japanese exporters withstand the U.S. slump. Higher costs and fewer sales may cause profits to fall this year for the first time since 2001, prompting companies to pare spending and restrain wages.

``The global economy is slowing but commodity prices are still going up. It's really damaging,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo. ``Japan's biggest market is Asia. They're big importers of commodities, so they're getting hit just like Japan.''

Analysts will look for clues about Japan's economic outlook in companies' forecasts for production in May and June. The Trade Ministry asks manufacturers about their production plans in the two months ahead. Companies said last month they expect May output to rise 3.4 percent.

``I think the projection is over-optimistic because the global environment is getting worse and worse,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo.

BOJ's Shirakawa

Bank of Japan Governor Masaaki Shirakawa said yesterday that the outlook for the world's second-largest economy is ``extremely uncertain'' because costlier oil and raw materials could squeeze companies and consumers as well as fan inflation.

Consumer-price inflation probably eased from the steepest rate in 10 years as the temporary expiry of a gasoline tax provided relief to consumers facing rising prices of bread, milk and beer.

Core prices, which exclude fresh fruit, fish and vegetables, climbed 1 percent in April from a year earlier, according to the median estimate of 35 economists surveyed. Prices rose 1.2 percent in March, the fastest pace since 1998. The statistics bureau will release the figures on May 30 at 8:30 a.m. in Tokyo.

The expiration of the gasoline tax lowered the average price of the fuel nationwide by about 17 percent in April, according to the Bank of Japan. The levy was reinstated this month, bringing regular gasoline prices to a record 160.1 yen a liter ($5.84 a gallon).

Oil Prices

``The gasoline tax temporarily dragged down core prices, but the effect of recent oil gains will defiantly appear in consumer-price data from May,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo.

Crude oil exceeded $135 a barrel for the first time last week. Japanese companies' pretax profits will fall 5 percent in the year ending March 2009, ending seven years of growth, according to the Shinko Research Institute.

Higher commodity costs aren't all bad news for Japan's exporters. They're increasing the wealth of emerging and resource-producing countries, spurring demand for Japanese goods in those markets, Governor Shirakawa said. Export growth accelerated last month as demand in emerging markets made up for a slump in shipments to the U.S., Japan's largest market.

``We're not looking for a collapse in exports. We're basically expecting them to be held up by commodity-exporting countries,'' said Lehman's Shiraishi. ``The economy's path is dependant on this balance between commodity prices and global growth. That balance isn't going in a favorable direction.''

A Whole New Crop

A gene-altering technology from biotech Sangamo BioSciences may radically change what we eat

Jerome Peribere, the chief executive of Dow AgroSciences, has a slide show for investors. It explains how one could theoretically turn the offspring of a wild, berry-size tomato into a plant bearing full-size tomatoes just by tinkering with one gene. The sweet corn we eat for dinner would be a shriveled gray precursor called teosinte were it not for the activity of a handful of genes.

Food scientists have understood these distinctions for a decade thanks to traditional plant biotechnology research. It's what's on the next few slides that gets Peribere going: the possibility of easing world hunger by turning inedible oil crops like crambe into edible versions; tomatoes that will always taste good; crops that can survive through severe drought. These traits could be edited into a new form of the same species in a far more precise and accurate way than with the existing tricks in genetics' kit bag.

This technology, which Dow AgroSciences is moving toward the market, is called a zinc finger, a naturally occurring protein that can be used in a cell nucleus like an editor's red pencil. Zinc fingers, so named because they contain a zinc atom and are shaped like an index finger, can turn specific genes off or on or to some point in between, delete genes altogether or add new genetic material. "Within biotech," says the 54-year-old Peribere, "we believe this is one of the very disruptive technologies."

Success with the zinc finger could also give Dow AgroSciences, the crops unit of $54 billion (sales) Dow Chemical (nyse: DOW - news - people ), the second-largest chemical company in the world, a bigger share in the global agbiotech boom. Monsanto (nyse: MON - news - people )'s stock is up sevenfold since 2004 (trouncing Dow shares) thanks to its huge success selling seeds bioengineered to fight off bacteria and withstand direct application of Monsanto's own weed killer Roundup. Peribere's group, with $3.8 billion in revenue, lacks a significant presence in the genetically modified seed business. Its sales still come mostly from weed and bug killers, and in sum are less than half the sales of either Monsanto or Syngenta (nyse: SYT - news - people ). But zinc fingers, because of their precision, could give Dow a significant leg up by cutting a year or two off the six to eight years it now takes to develop a modified plant and get it past regulators.

In October 2005 Dow AgroSciences entered into an exclusive research agreement with Sangamo BioSciences (nasdaq: SGMO - news - people ), a biotech company in Richmond, California that controls most of the intellectual property around zinc finger research. It has drugs in development for ten diseases and two ongoing clinical trials, including ones for diabetic nerve injuries. Sangamo has also licensed its technology to Sigma-Aldrich (nasdaq: SIAL - news - people ), a chemicals firm, for use in discovering novel reagents for research. Amgen (nasdaq: AMGN - news - people ) and Genentech (nyse: DNA - news - people ) are also using Sangamo's zinc finger proteins to improve their manufacturing yields.

"We can target and regulate genes inside any cell in any organism," boasts Edward Lanphier, founder and chief executive of Sangamo. "This is enormously powerful science."

Dow Agro will likely sign an exclusive commercial licensing agreement with Sangamo between now and October, paying it royalties on sales of products developed using zinc finger proteins. So far Dow Agro has paid Sangamo $20 million, including a $4 million equity investment. The first fruits of the partnership aren't expected for four more years. Dow is coy about its plans, but Peribere drops hints.

"What about dramatically improving the sugar content in sugarcane?" he asks. Dow Chemical, in a separate project, already plans to make polyethylene from sugarcane ethanol in Brazil. Upping the sugar content in the cane would lead to a higher yield of ethanol per acre. A second possibility: altering specific genes to make it easier to break down the lignin in the cell walls of corn leaves and stalks, with an eye to making so-called cellulosic ethanol out of the unused part of the plants. Dow Agro biologists have already accurately inserted genetic material into specific locations in maize and rapeseed genomes using Sangamo's technology.

Use of highly targeted gene-modification tricks comes at a fortuitous time. Biologists are unearthing a trove of genomic information about plants. The rice genome was fully mapped in 2005. Corn's rough DNA blueprint was released in February, and the soybean's DNA is being mapped now. With maps in place, Dow and Sangamo's zinc fingers can be aimed directly at the genetic locations that would play the biggest role in curtailing the recent and sure to be ongoing disruptions in food and biofuels supply. "We are at the Stone Age of plant biotechnology," says Peribere. "In 25 years we are going to be laughing about what we are doing now."

Zinc fingers may also offer a way to get some genetically altered foods through regulatory approval faster than before. The European Commission and armies of environmentalists battled Monsanto nearly to a standstill over its GM seeds, but thanks to pressing global grain demand, Monsanto eventually won approval in all the world's biggest markets. The knock against Monsanto's technology was the use of foreign genes, something that Peribere says zinc fingers can avoid. When zinc fingers are used to delete genetic material, the mechanism for doing so, called a zinc finger nuclease, does not remain in the plant for more than a few days. "Our expectation is that as you are not introducing anything that stays in the ,plant, this is going to be considered non-GMO [by regulators]," Peribere told analysts in December.

That remains to be seen. Greenpeace International, a vocal opponent of genetically modified crops, is skeptical that zinc fingers can evade the GMO labeling. "It's not 100% clear, but I think that most of this would still be considered GMO because you're introducing a new gene, even if [the finger] doesn't stay in the plant," says Greenpeace International scientist Janet Cotter. Friends of the Earth Europe, another anti-GMO group, says that the Sangamo technology may well turn out to be a type of genetic modification that it would oppose.

If, that is, Sangamo crops ever make it out into the field. Zinc fingers are still unproved outside the lab. Dana Carroll, a biochemist at the University of Utah who has licensed some research to Sangamo, has run fruit fly experiments using zinc finger nucleases, in which the flies' genomes were cut in unintended places apart from the target area. Sangamo and other researchers have worked to fix some of this errant DNA editing, but Carroll says it is impossible to know if all unintended cutting has been eliminated.

Thai Economy Kept Fastest Growth Rate in Two Years on Spending

May 26 (Bloomberg) -- Thailand's economy grew 6 percent in the first quarter as the nation's first elected government since 2006 increased confidence and consumer spending.

Gross domestic product in Southeast Asia's second-biggest economy expanded from 5.7 percent in the previous three months, the government said today in Bangkok. The median estimate of 15 economists in a Bloomberg survey was for 6 percent growth.

Prime Minister Samak Sundaravej's government, which replaced the military junta that deposed former leader Thaksin Shinawatra in 2006, aims to achieve 6 percent economic growth this year, partly by spending on trains and buses in Bangkok and irrigation in rural areas. Automotive exports, which helped drive fourth-quarter growth, may slow as global demand eases.

``The government's higher spending on infrastructure projects will increase public and private investments,'' said Mark Mobius, who oversees about $47 billion of emerging market equities at Templeton Asset Management Ltd. in Singapore.

Total investment in the first quarter rose 5.4 percent, accelerating from 4 percent in the previous quarter, today's report showed.

GDP expanded 1.4 percent in the first quarter from the previous three months, when it grew a revised 1.7 percent, seasonally adjusted. That matched the 1.4 percent median estimate of economists surveyed by Bloomberg.

Rising Oil

``First-quarter growth was supported by pent-up local demand,'' said Ramya Suryanarayanan, an economist at DBS Bank in Singapore. ``Rising oil and food prices will hurt the economy in the second quarter but I don't think that will derail growth.''

Finance Minister Surapong Suebwonglee said growth is now cooling as rising oil prices spur inflation and constrain consumer spending. To counter the slowdown, the government has cut taxes, increased spending on infrastructure and given loans to villages.

The Bank of Thailand, which kept its interest rate unchanged on May 21, said it may raise borrowing costs if inflation accelerates.

Consumer prices gained 6.2 percent in April from a year earlier, the fastest pace since 2005. The inflation rate was at 5 percent in the first quarter this year compared to 2.9 percent in the fourth quarter, according to the Commerce Ministry.

Confidence Slips

Consumer confidence fell for the first month in six in April and may drop further as prices increase, Thanavath Phonvichai, an economist at the Thai Chamber of Commerce, said May 15.

Private consumption rose 2.6 percent from a year earlier, after gaining 1.6 percent in the fourth quarter.

Thailand's trade deficit was the widest in 12 years last month because of the higher cost of oil, almost all of which is imported and which has almost doubled in price in the past year. The nation is the second-least efficient user of fuel in Southeast Asia after Vietnam, according to the Tokyo-based Institute of Energy Economics, Japan.

``Rising oil prices may derail recovering local demand,'' said Santi Vilassakdanont, chairman of the Federation of Thai Industries. ``Some companies have suspended their investment plans. Consumers are more cautious about spending and are starting to cut expenses.''

A private consumption index, comprising electricity use, imports of consumer goods and gasoline sales, gained 7 percent in the first quarter, accelerating from 4.2 percent in the previous quarter, according to the central bank. A private investment measure rose to 7.2 percent from 4.1 percent in the fourth quarter, the Bank of Thailand data showed.

Surging Imports

Import growth in the first quarter was 34.5 percent, more than double the prior three months. Overseas purchases will surge 25.5 percent this year, compared with 9.6 percent in 2007, the central bank forecasts.

Growth in exports, which make up 70 percent of the economy, slowed to 21 percent in the first quarter from 24 percent in the previous three months, according the Bank of Thailand. Still, soaring rice prices, which breached $1,000 a metric ton for the first time this month, helped buoy the value of shipments to a record in March.

``Rising prices of agricultural products may partially offset the impact of surging oil prices on local demand,'' said Luz Lorenzo, an economist at ATR-Kim Eng Securities Inc. in Manila.

Google, Chevron Build Mirrors in Desert to Beat Coal With Solar

May 23 (Bloomberg) -- Along a dusty two-lane highway in California's Mojave Desert, 550,000 mirrors point skyward to make steam for electricity. Google Inc., Chevron Corp. and Goldman Sachs Group Inc. are betting this energy will become cheaper than coal.

The 1,000-acre plant uses concentrated sunlight to generate power for as many as 112,500 homes in Southern California. Rising natural gas prices and emissions limits may make solar thermal the fastest-growing energy source in the next decade, say backers including Vinod Khosla, the founder of computer maker Sun Microsystems Inc.

Costs for the technology will fall below coal as soon as 2020, the U.S. government estimates. JPMorgan Chase & Co. and Wells Fargo & Co. invested last year in the biggest solar plant built in a generation; Chevron and Google are funding research; and Goldman Sachs is seeking land to lease as demand outpaces wind turbines and geothermal.

``Solar thermal can provide a substantial amount of our power, more than 50 percent,'' says Khosla, who along with the Menlo Park, California, venture capital firm Kleiner Perkins Caufield & Byers led a $40 million investment in solar power producer Ausra Inc. ``This is an industrial-strength solution.''

Developers need to overcome limited power lines and the need for energy storage systems, while lobbying for the extension of tax credits.

``They have to prove their technology,'' says Reese Tisdale, senior analyst at consulting firm Emerging Energy Research, which estimates solar thermal will lure more than $85 billion in investments by 2020. ``There need to be some significant technology jumps.''

Steam Turbines

The Ardour Solar Energy Index, covering all forms of solar power, climbed 55 percent in the 12 months through yesterday, outperforming an 8.5 percent decline in the Standard & Poor's 500 Index.

Unlike photovoltaic solar panels that convert sunlight to electricity, solar thermal focuses sunrays with mirrors to heat oil in glass pipes to about 700 degrees Fahrenheit (370 degrees Celsius). The oil turns water to steam, which spins an electric turbine.

Nine solar thermal plants built in the California desert from 1985 to 1991 still operate, with Juno Beach, Florida-based FPL Group Inc. running seven. They have combined capacity of 354 megawatts, enough to power 230,000 Southern California homes.

Development slowed when Congress eliminated tax credits for alternative energy in the early 1990s. Laws put in place in 2005 give solar investors a 30 percent tax credit.

Desert Sun

At FPL's solar thermal site in the Mojave, 90 miles northeast of Los Angeles, sunshine beats down 340 days a year. The parabolic reflectors have an efficiency of more than 90 percent, compared with 80 percent for a typical bathroom mirror. FPL uses 4,000-gallon (15,000-liter) trucks to spray water weekly to clean the surfaces, seven feet (two meters) off the ground.

``There's always been a solar resource here,'' says Harvey Stephens, a production manager and one of 100 workers at the plant. ``It's just that it hasn't been cost-effective enough.''

At noon on a typical workday, technicians in a two-story control room monitor a dozen screens showing the heat generated by each array of mirrors. As temperatures creep past 700 degrees, icons blink to red from green, indicating the center is ready to feed electricity to the California grid.

Clouds' Challenge

Temperatures and power production drop as clouds blow across the sky. Solar thermal companies are trying to develop backup heat storage using pressurized boiling water or molten salt that can be warmed to more than 1,000 degrees.

Solar power ``fits with our peak demand very well as long as the sun is cooperating,'' says Michael Yackira, chief executive of Sierra Pacific Resources, the company that owns utilities serving Las Vegas and other Nevada cities. ``When it's cloudy, when it's raining, when it's dark, it doesn't produce power.''

A solar thermal unit that begins operation in 2010 will produce power at 14.2 cents a kilowatt hour, almost triple the 4.8 cents for a plant using pulverized coal, the Energy Information Administration estimates.

Costs for solar thermal may fall as low as 3.5 cents a kilowatt hour by 2020, according to a report commissioned by the U.S. Energy Department. Meanwhile, coal expenses may rise. Congress is considering limits on carbon dioxide and other greenhouse gas emissions. The purchase of pollution permits may be required under a measure the Senate will begin debating next month.

`To Beat Coal'

Ausra's plants will produce electricity at 10 cents a kilowatt-hour starting in 2010, and the price will fall to 8 cents a few years later as it adopts systems with fewer parts that will be less costly when widely deployed, the company says.

``We are going to beat coal,'' says Bob Fishman, Ausra's chief executive officer. His company has a contract with PG&E Corp.'s Pacific Gas & Electric for a site in central California.

Chevron, Goldman Sachs, FPL, PG&E and other companies have filed more than 50 applications with the Bureau of Land Management to lease government-owned desert property for solar power systems. Chevron, which has invested in the solar thermal builder BrightSource Energy Inc. in Oakland, California, and Goldman, the biggest U.S. securities firm, declined to comment.

Google's philanthropic division put $10 million into eSolar, a start-up in Pasadena, California. Dan Reicher, a former Energy Department official who manages the unit's climate and energy initiatives, said there will be more such investments.

Buy Big Blue

Sam Subramanian, editor of AlphaProfit Sector Investors' Newsletter, recommends buying IBM. "Benefiting from a weak U.S. dollar, technology heavyweight IBM posted a strong first-quarter report card, earning $1.65 a share, up 36% from the year-ago period as revenue increased 11%," he says.

"Bucking economic weakness, the company managed to grow its U.S. revenue by 6%. Jettisoning some of its hardware businesses, IBM has become more of a software and IT services company over time," he says. "Providing stability, a large chunk of the company's revenues comes from long-term contracts."

International sales--especially in emerging markets--have driven the profits of most of the largest multinational companies higher, even as U.S. growth has slowed. Subramanian offers IBM's (nyse: IBM - news - people ) substantial international exposure as another reason for wanting to own the stock now.

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"IBM derives two-thirds of its revenues from outside the U.S., with BRIC nations [Brazil, Russia, India and China] providing one-fourth of the company's revenues," he says. "IBM is well positioned to benefit from global growth and is optimistic on its future, recently raising its 2008 earnings forecast to $8.50 a share and hiking the quarterly dividend by 25%."

At $123.62 a share, IBM trades for 13.7 times forecast current-year earnings of $8.54 per share, and 12.9 times expected earnings per share for 2009. The shares yield 1.6%."

Investors are not paying IBM the earnings multiple it deserves, contends Subramanian. Based on the company's forecasts, he has a point.

"Looking farther out, the company expects earnings to grow at a 14% to 16% clip, enabling EPS to range between $10 and $11 in 2010," he says.

Applying a conservative and slightly below-market price-to-earnings ratio of 15 to those earnings produces a stock price of $150 to $165 in the next two years. Subramanian says that a share price of $145 is "certainly doable" in the next several months.

"IBM now sits above its 50- and 200-day moving averages," says Subramanian, who likes buying the stock after the pullback of the past few days.

BOJ Is Watching Inflation Expectations, Minutes Show

May 23 (Bloomberg) -- Bank of Japan policy makers said they need to monitor consumers' inflation expectations as prices increase at the fastest pace in a decade, minutes today showed.

``Consumers' inflation expectations were rising, reflecting the ongoing rise in the price of daily necessities, and this warranted attention,'' some members said at the April 8-9 policy meeting, according to the minutes released today in Tokyo. A few members said rising prices have damped consumer sentiment.

Since the meeting, the central bank cut its growth forecast, raised its prediction for inflation, and shelved a policy of gradually raising interest rates. Governor Masaaki Shirakawa told parliament yesterday that costlier energy and raw materials will erode corporate profits and household incomes and that may force companies and consumers to pare spending.

``If you're a central bank you've got to be worried when you see such a pickup in inflation expectations,'' said Richard Jerram, chief Japan economist at Macquarie Group Ltd. in Tokyo. ``In the short term, they want to be comfortable with the cyclical outlook, but once you get into next year you could see reasonably aggressive tightening.''

The yen traded at 104.13 per dollar at 9:49 a.m. in Tokyo from 104.04 before the minutes were published. The yield on Japan's 10-year bond rose 4 basis points to 1.705 percent.

Some 86.2 percent of households predict prices will rise a year from now, the second-highest proportion on record, a government report showed last week.

Worldwide Inflation

The seven board members agreed that the risk of higher inflation worldwide is increasing because of rising prices of commodities and crude oil, according to the minutes. They also concurred that the increase in energy and raw-materials costs will cause Japan's economy to slow ``for the time being'' before returning to a ``moderate growth path.''

Crude oil exceeded $135 a barrel for the first time yesterday. Japanese companies' pretax profits will fall 5 percent in the year ending March 2009, ending seven years of growth, Shinko Research Institute data showed this week.

The members also agreed that ``downside risks'' for the U.S. economy are rising and the outlook for global growth is ``uncertain.'' Financial markets around the world remain volatile, they said.

``Risk factors have been increasing both at home and abroad,'' the policy makers said. The central bank must closely examine ``both upside and downside risks'' to Japan's economy when setting policy, they said.

BOJ's Outlook

The central bank dropped a call for gradual rate increases in its twice-yearly outlook on April 30 and cut its estimate for this fiscal year's expansion to 1.5 percent from 2.1 percent. It said consumer prices excluding fresh food will climb 1.1 percent, raising its inflation projection from 0.4 percent.

Core consumer prices rose 1.2 percent in March from a year earlier. Gains probably eased in April, though prices will keep rising as a trend, one board member said.

The Bank of Japan has kept borrowing costs unchanged since February 2007, when it doubled the overnight lending rate to 0.5 percent. The rate remains the lowest in the industrialized world.

Only two of 31 economists surveyed by Bloomberg News predict the bank will raise rates this year, with the remaining 29 expecting no change.

The International Monetary Fund said this week that the central bank's policy represents a ``wait-and-see attitude.'' That's the ``appropriate stance'' to safeguard growth, said Daniel Citrin, IMF deputy director and mission chief for Japan.

Shirakawa was appointed governor of the central bank on April 9, while the policy meeting was under way. He had been acting chief since March 20, after the term of his predecessor, Toshihiko Fukui, expired and the opposition blocked the government's first two choices for the role. Two positions on the nine-member policy board remain unfilled.

Singapore's GDP Grows Less Than Estimated; CPI Jumps

May 23 (Bloomberg) -- Singapore's economy expanded less than initially estimated in the first quarter, adding to concerns growth may ease in the coming months as global demand weakens and inflation accelerates.

Gross domestic product increased 6.7 percent in the first three months of the year from a year earlier, less than the government's April 10 estimate of 7.2 percent, the trade ministry said in a statement today. Inflation soared to a 26- year high of 7.5 percent last month, a separate report showed.

Asian countries including Singapore are expecting growth to slow in the coming quarters as surging consumer prices hurt spending and demand for exports weaken. Malaysia and the Philippines, which will be releasing first-quarter economic numbers next week, are expected to report slowing expansion.

``In an environment where oil and food prices are at very high levels, the outlook is cloudy for Singapore and the rest of Asia as we head into the second half,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte. in Singapore. ``Inflation is a big worry and the top priority for most governments.''

Singapore's quickening inflation prompted the central bank's decision to allow the currency to strengthen further last month. The monetary authority said today the exchange rate is its most important tool to fight consumer price gains and its currency stance ``remains appropriate.'' It has no plans to review its policy before its next meeting in October.

Inflation Forecast

Consumer prices are expected to rise between 5 percent and 6 percent in 2008, from a previous forecast range of 4.5 percent to 5.5 percent, the government said today.

The Singapore dollar, Asia's second-best performing currency this year, was little changed at S$1.3590 against its U.S. counterpart as of 9:03 a.m. local time. The Straits Times Index rose 0.1 percent to 3,164.54.

Economists surveyed by Bloomberg News expect Malaysia's growth to have slowed to 6.4 percent in the first quarter from 7.3 percent in the previous three months. Philippine growth may have eased to 5.9 percent from 7.4 percent, a separate survey showed. Malaysia will release its first-quarter data on May 28, and the Philippines the next day.

Export Dependent

Asia is almost twice as reliant on exports as the rest of the world, with 60 percent of shipments abroad ultimately destined for the U.S., Europe and Japan. The Japanese government yesterday cut its view on exports for the first time in three months and maintained its assessment that a recovery in the world's second-largest economy is ``pausing.''

Some Asian governments and central banks are predicting economic growth will be at the lower end of their targets this year, or are cutting their forecasts, even as they raise estimates for inflation.

Philippine growth may have slowed to as little as 5.2 percent last quarter as accelerating inflation dented consumer spending, Economic Planning Chief Augusto Santos said yesterday.

Rising energy and food prices are also stoking inflationary pressures and crimping domestic consumption across the region. Oil has more than doubled in the past year, and prices of grains such as rice and wheat reached unprecedented levels in 2008.

Singapore's economy increased an annualized 14.6 percent in the first three months of the year, less than an earlier estimate of 16.9 percent. The government today reiterated its forecast for the economy to grow between 4 percent and 6 percent in 2008.

`Remain Weak'

The island's manufacturing industry expanded 12.4 percent last quarter from a year earlier, accelerating from a 0.2 percent gain in the fourth quarter.

Pharmaceutical production by companies such as Merck & Co. rose almost 52 percent last quarter from a year ago, government figures show, offsetting faltering electronics output.

Singapore's electronics exports have declined for 15 consecutive months and the island's central bank in April said it expects the industry to ``remain weak.'' Electronics account for about 30 percent of Singapore's manufacturing and drugs make up around 22 percent.

Singapore's trade promotion body today lowered its forecast for export growth this year to between 2 percent and 4 percent, from an earlier range of 4 percent to 6 percent. Overseas shipments rose 0.6 percent last quarter.

Services climbed 7.5 percent in the first quarter from a year earlier, while the construction industry grew 14.7 percent, according to today's report.

City Developments Ltd., Singapore's second-largest real estate company, this month said it will delay sales of new residential projects. Confidence among prospective home buyers has been eroded by the subprime-mortgage crisis in the U.S. and the contraction in global credit markets, the company said.

Singapore home sales totaled 787 units in the first quarter, about half of the 1,449 sold in the previous three months, according to the city state's Urban Redevelopment Authority. Prices rose 3.7 percent, the smallest gain in a year.