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A Chinese manufacturing index fell after the government raised interest rates and lenders’ reserve requirements and allowed gains in the yuan to pick up pace.

The Purchasing Managers’ Index was at 52.9 in April from 53.4 in March, China’s logistics federation and the statistics bureau said in an e-mail today. That was below a median forecast of 53.9 in a Bloomberg News survey of 20 economists.

China’s economic expansion, a driver of global growth, may moderate as the government counters the fastest inflation since 2008 and cools a real-estate market that has been at risk of price bubbles. Credit Suisse Group AG says a fifth increase in benchmark interest rates since the global financial crisis may come as early as tomorrow, a Chinese holiday, less than a month after the previous move.

“Growth has been cooled a bit but inflationary pressures have not been meaningfully alleviated,” Qu Hongbin, the Hong Kong-based chief China economist at HSBC Holdings Plc, said before today’s release. “While aggressive tightening seems unlikely, Beijing does need to keep the current pace of tightening for another three to four months to tame inflation.”

Zhang Liqun, a senior researcher at the State Council’s Development Research Center, said in today’s statement that the latest numbers show an increased likelihood that economic growth will slow. Gross domestic product expanded 9.7 percent in the first quarter from a year earlier and the World Bank last week forecast a full-year expansion of 9.3 percent.

‘Very Bullish’

An executive at billionaire investor Warren Buffett’s Burlington Northern Santa Fe expressed confidence that the Asian nation will continue to maintain a pace of growth that bolsters the global expansion.

“I’m very, very bullish about the recovery,” Matt Rose, chief executive officer of the railroad business, said yesterday in an interview in Omaha, Nebraska. “It’s really driven by worldwide demand, specifically China.”

China’s consumer prices jumped 5.4 percent in March, compared with the government’s full-year target of 4 percent. Premier Wen Jiabao aims to restrain inflation that he describes as a “tiger” — once out of control, difficult to tame — while also boosting private consumption and shifting the economy from an excessive dependence on exports and investment.

The International Monetary Fund indicated last week that the premier may be winning the battle to contain prices.

Supply Shocks

“The current episode of inflation does not look like a bout of generalized overheating, with China’s strong growth beginning to bump up against capacity constraints,” the IMF said in a report. “Barring future supply shocks either domestically or in global commodity markets, inflation in China is likely to return toward the low single digits in the second half of 2011.”

The yuan strengthened beyond 6.5 per dollar for the first time since 1993 on April 29 as the U.S. currency slid. A stronger yuan may help to cool inflation by effectively making imports cheaper.

The logistics federation said today’s data showed an “appropriate adjustment” in growth as the nation alters the structure of its economy. Export orders and input prices grew at a slower pace, while an index of output was little changed from the level in March.

Coal and electricity supplies are tight, according to some companies, a situation that needs to be monitored, the logistics group said in a separate statement on its website.

The survey released today was of 820 companies in 28 industries, such as textiles and oil processing. A separate PMI, released by Markit Economics and HSBC, had indicated that manufacturing grew at the same pace in April as in March. That survey covered more than 430 companies.

–Sophie Leung in Hong Kong and Nerys Avery in Beijing, with assistance from Huang Zhe and Feiwen Rong. Editors: Paul Panckhurst, Jim McDonald.

To contact Bloomberg News staff on this story: Nerys Avery at +86-10-6649-7558 or navery2@bloomberg.net;

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Holland Construction Services Inc. has completed a new addition to the Four Paws Animal Hospital, 2006 West Highway 50 in O’Fallon, Ill., now providing more space for existing and added services it offers its clients.

The addition consists of about 6,000 square feet that Four Paws plans to use for expanded dental and surgical services and larger lodging area.

A dedicated chemotherapy area is available to treat cancer patients, and a rehabilitation area with underwater treadmill helps orthopedic patients. A special room was added for end-of-life services.

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Peruvians choosing a new president Sunday were expected to favor an anti-establishment military man who vows to redistribute Peru’s mineral wealth _ yet with far from enough votes to avoid a runoff.

The tight battle for second was crucial. None of former army Lt. Col. Ollanta Humala’s rivals has expressed similar intentions of shaking up the free market-oriented economic status quo.

Initial exit polls showed Humala leading and a technical tie for second place between Keiko Fujimori, 35-year-old daughter of the imprisoned former President Alberto Fujimori _ whom Peruvians alternately adore and vilify _ and Pedro Pablo Kuczynski, a 72-year-old former World Bank economist and investment banker.

Trailing them was Alejandro Toledo, Peru’s president from 2001-2006. Pre-election polls showed he would defeat Humala in a second round while Kuczynski and Fujimori would have a harder time.

Humala prevailed in the first round of the 2006 presidential election only to lose a runoff. He has spooked foreign investors by promising a greater state role in the economy and to divert natural gas exports to the domestic market.

That’s just fine with Federico Sandoval, a 60-year-old veterinarian in Lima’s sprawling lower class Villa El Salvador district. Sandoval said he voted for Humala because the corruption that has long been a hallmark of Peruvian politics _ and that many believe worsened under outgoing President Alan Garcia _ needs to stop.

“In order to improve the situation there need to be changes and they should be radical,” Sandoval said.

Politics in this resource-rich Andean nation have been volatile since the 1980s, when its discredited political parties all but dissolved, and Sunday’s vote was the most unpredictable in decades.

With no candidate expected to capture a simple majority, the top two vote-getters will meet in a June 5 runoff.

“The people are very divided,” said Luis Tamayo, a 25-year-old engineering student in Villa el Salvador who, like many better-educated Peruvians, voted for Kuczynski.

“What you’ve got here are older men who are very nationalist, very leftist and are voting for Humala and women who work in the community kitchens who are Fujimoristas,” he said.

Keiko Fujimori is running on her father’s legacy of delivering essential services to Peru’s forgotten backwaters. She tends to be favored by the most needy in a country of 30 million where one in three live on less than $3 a day and lack running water.

Peru is a top exporter of copper, gold and silver, commodities whose rising prices have helped fuel economic growth averaging 7 percent over the past five years. But it is a growth that has hardly trickled down to the poor.

And although chronic child malnutrition dropped from 25 percent in 2000 to 18 percent last year, Peru still ranks 13th out of 17 countries in the region in terms of citizens’ access to social services, according to a World Bank report instant payday loan lenders. In the country’s rural highlands, where Humala was running strongest, 66 percent of Peruvians live in poverty, half of them in extreme poverty.

Humala was favored with 31.6 percent in an Ipsos-Apoyo exit poll released after polls closed at 4 p.m. (2100 GMT) followed by Fujimori with 21.4 percent; Kuczynski with 19.2 percent; and Toledo with 16.1 percent.

The poll had an error margin 3 percentage points, meaning Fujimori and Kuczynski were in a technical tie.

Kuczynski, a German immigrant’s son who was economics and prime minister under Toledo, climbed into contention in the campaign’s final weeks as he renounced his dual U.S. citizenship. But his light skin is a liability in a country where the European-descended economic elite is meeting a backlash of resentment from natives long excluded from power.

Analysts say about 11 percent of the electorate was undecided going into Sunday’s election _ more than in 2006, when Garcia beat Humala, 53 percent to 47 percent.

Humala, 48, surged into the lead in the campaign’s final days with promises similar to those of Keiko Fujimori: free nursery school and public education, state-funded school breakfasts and lunches, a big boost in the minimum wage, and pensions for all beginning at age 65.

He says he would respect international treaties and contracts, but many Peruvians don’t believe him.

Humala, who launched a bloodless, short-lived revolt against Alberto Fujimori just before the latter fled into exile in 2000, advocates rewriting the constitution, as Venezuelan President Hugo Chavez and his leftist allies in Bolivia and Ecuador have done. He says his reason is to make it easier to enact his agenda, not to allow re-election, as Chavez did to perpetuate himself in office.

Openly associating himself with Chavez in 2006, Humala now keeps his distance and has toned down his radical rhetoric.

Fujimori has a rock-solid constituency thanks to her father’s defeat of the Maoist-inspired Shining Path insurgency, taming of hyperinflation in the 1990s and social agenda.

“Because of him we are free. Because of him we’re at peace,” said Luz Montesino, a 60-year-old bakery owner who voted at a school built during his presidency.

Like other Fujimori voters, Montesino was not bothered by the fact that Alberto Fujimori is now serving a 25-year sentence for corruption and authorizing death-squad killings.

Nor do many Fujimori supporters seem to be concerned by critics’ fears that Keiko would pardon her father, and that he’d be calling the shots in her presidency.

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After bulking up on emerging-market stocks for months, professional investors have cut and run with a speed almost as swift as the power shift in Egypt.

In January, about 43 percent of professional managers were so fond of emerging-market stocks from areas such as Asia, Latin America and the Middle East, they were holding supersize portions in the portfolios they manage.

Now, only 5 percent of global fund managers are favoring emerging markets. That’s the lowest level since the stock market hit bottom in March 2009, according to a Bank of America Merrill Lynch survey of fund managers throughout the world.

The firm’s global equity strategy team called it a “collapse in global investor allocations” and noted that the change is especially dramatic given the sentiment of fund managers. The managers are exceptionally optimistic about stocks in general and eager to invest in global markets. But they are leery of the emerging markets that were popular until recently, countries such as India, South Africa and Brazil.

Egypt, of course, provided a lesson that emerging markets can be volatile and change without warning from seemingly mild-mannered places to hotbeds of strife and uncertainty. But Merrill Lynch global strategist Michael Penn pointed out in a report that fund managers are particularly concerned about the threat of inflation, which is building in some emerging markets while remaining minimal in the U.S.

Emerging-market stocks have declined about 5 percent since early January, after climbing about 122 percent over the past couple of years. For three weeks, investors have been pulling billions out of emerging market funds and adding money to U.S., European and Japan stock funds, a reversal of last year’s tendency to shun the U.S. and steer money to faster-growing areas, according to EPFR Global, which tracks fund flows. The firm said about two-thirds of the money pulled out of emerging markets recently was by institutions or large professional investors such as pension and hedge funds.

UBS economist Jonathan Anderson noted this week that he hadn’t seen such nervousness among clients for a long time. In a report, he said, investors are asking: “Is the emerging economic model falling apart? Should we dump all our (emerging market) exposure? How close are we to a repeat of the 2008 collapse?”

Anderson thinks the questions are “wildly exaggerated,” although he expects nervousness to continue as global food prices and related inflation fears continue, and political tension remain in the Middle East and North Africa.

Some analysts have linked sharply rising food prices over the last year to recent political unrest. They note that in some emerging markets consumers spend substantial portions of their income on food, while Americans spend far less proportionately. As prices of wheat, corn, sugar and edible oils have soared, the World Bank has estimated people in poverty have increased by about 44 million in low- and middle-income countries.

About 75 percent of fund managers surveyed by Merrill Lynch expect inflation to continue climbing globally this year, especially in commodities. Besides the impact on food, rising basic material and energy costs can put pressure on corporate profits and cause stocks to languish or decline.

In addition, as inflation heats up, countries try to slow growth somewhat by raising interest rates, and the fear is they will accidentally go too far and slow the economy too much.

In response, the fund managers are lightening up on stocks in material and manufacturing companies, while adding to companies that produce technology, energy and consumer discretionary products.

Yet Anderson noted that corporate earnings in emerging-market countries continue to outperform developed countries. In general, he said, the recent downturn in emerging-market countries has left stock prices more attractive.

Investors searching for emerging-market stocks may have to be more discriminating than they have been, culling through regions of the world rather than buying all areas. The Leuthold Group, for example, recently cut back its emerging-market exposure and reduced China to its lowest level ever, just 2 percent of the company’s portfolio. Emerging markets, in general, make up 24 percent of the firm’s stock holdings compared with 30 percent late last year.

Meanwhile, the firm is more optimistic about growth picking up steam in developed areas and has raised exposure to the U.S., Japan and Europe to 76 percent, compared with 70 percent at the end of last year.

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Discount broker The Charles Schwab Corp. says its fourth-quarter profit fell 27 percent because of charges related to a settlement over disclosure of the risks of a short-term bond fund.

The San Francisco company says its net income fell to $119 million, or 10 cents per share, for the three months ended Dec. 31. Without the settlement charges disclosed last week, Schwab said profit rose 33 percent. Revenue rose 14 percent to $1.13 billion.

Wall Street was expecting earnings of 10 cents per share on revenue of $1 saving account payday loan.11 billion.

Total client assets rose 11 percent to $1.57 billion. The company ended the year with nearly 8 million clients, up 4 percent from a year ago.

Shares edged up 12 cents in pre-market trading to $18.95.

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Oil prices rose above $89 a barrel Monday after the 800-mile trans-Alaska pipeline owned by BP PLC and four other companies was shut down because of a leak.

Benchmark oil for February delivery climbed $1.24 to $89.27 a barrel in midday trading on the New York Mercantile Exchange.

The pipeline, which carries between 630,000 barrels and 650,000 barrels a day, was shut down Saturday after a leak was reported at a North Slope pump station. The leak has been contained but there is no immediate timeframe for reopening the pipeline, according to Alyeska Pipeline Service Co., which manages the line.

The closure cut oil production on the North Slope to about 5 percent of normal. The pipeline carries 17 percent or less of the U.S. crude output.

Refineries that rely on Alaska crude have several weeks of inventories available so prices aren’t expected to top $100 a barrel because of the closure, according to The Schork Report, an energy consulting firm.

“We don’t believe the news as it stands is enough to push crude oil above the $100 barrier,” The Schork Report said. “If production is reduced to 5 percent until March or April, then we’ll change our mind.”

Once a repair schedule has been released, oil prices could ease, added Cameron Hanover energy consultancy in its Monday report pay day loans.

In addition to BP, the other pipeline owners include ConocoPhillips, ExxonMobil Corp., Unocal Pipeline Co. and Koch Alaska Pipeline Company LLC.

Meanwhile, a stronger dollar tempered the rise in oil and other energy prices. Since crude is priced in dollars, a stronger dollar makes it more expensive for buyers who use the euro or other currencies.

Oil prices were kept in check by a stronger dollar, which makes crude more expensive for investors holding other currencies.

Gasoline pump prices are at a national average of $3.09 for a gallon of regular. That’s about 11 cents more than a month ago and 35 cents above a year ago.

In other Nymex trading in February contracts, heating oil gained 6.25 cents at $2.5488 a gallon, while gasoline futures added 3.83 cents at $2.4514 per gallon. February natural gas futures lost 7.2 cents at $4.350 per 1,000 cubic feet.

In London, Brent crude rose $2.03 to $95.36 a barrel on the ICE Futures exchange.

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South Korea’s current-account surplus widened to a three-month high in October, indicating that exports have so far withstood the won’s appreciation against the dollar.

The surplus was $5.37 billion in October, up from a revised $3.95 billion in September, the Bank of Korea said in a statement in Seoul today. The current account is the broadest measure of international trade, tracking goods, services and investment income.

The nation is one of a number of emerging markets from Asia to Latin America striving to limit currency appreciation this year to support exports. North Korean shelling of a South Korean island three days ago sent the won to a two-month low against after unsettling investors.

“Exports will likely stay firm,” Hwang In Seong, vice president of the Samsung Economic Research Institute in Seoul, said before the release. “The won’s recent weakness due to the risks from North Korea and Europe will help.”

The currency touched 1,172.50 per dollar, the weakest level since Sept. 9, the day after North Korea fired artillery onto South Korean territory for the first time in half a century. The won’s advance in the past 6 months is the biggest climb in Asia, according to data compiled by Bloomberg. The Kospi stock index closed up 0.1 percent yesterday.

President Lee Myung Bak’s government expects limited economic impact from the incident with the North and has pledged to supply ample liquidity to cope with any shocks. The administration last week supported the revival of a tax on foreigners investing in the nation’s bonds to curb fund inflows driving up the won cash advance flexible payments.

Capital Controls

“The government may delay additional steps to control capital flows until international investors feel confident about the security situation,” Hwang said.

Bank of Korea Governor Kim Choong Soo raised borrowing costs by 0.25 percentage point in November, the second increase this year, to 2.5 percent. The current interest rate lags behind inflation, which surged past the monetary authority’s ceiling of 4 percent last month.

Exports account for about half the economy and grew for the 12th straight month in October. Overseas shipments have boosted earnings this year at firms such as Hyundai Motor Co., South Korea’s largest automaker.

Total exports on a customs-cleared basis, which excludes ships, rose 27.6 percent last month from a year earlier, compared with a revised 16.2 percent increase in September. Imports advanced 21.3 percent.

The surplus on traded goods widened to $6.54 billion in October from a revised $5.57 billion in September, today’s report showed. The services deficit, which measures the flow of travel, transport costs and royalties, was $1.69 billion last month, compared with a revised $1.96 billion in September.

The income account had a $756 million surplus, from a revised $509 million surplus in September.

South Korea’s economy is expected to grow 6.2 percent this year and 4.3 percent in 2011, the Organization for Economic Cooperation and Development estimated on Nov. 18.

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U.S. commercial property prices rose 4.3 percent in September from the previous month, the biggest gain in a decade of records, Moody’s Investors Service said.

The Moody’s/REAL Commercial Property Price Index climbed 0.3 percent from a year earlier as a small number of high-priced deals drove up values, Moody’s said in a statement today. The measure had fallen to an eight-year low in August.

“Each of the summer months this year recorded declines in the 3 percent to 4 percent range, followed by this month’s sizeable uptick,” Nick Levidy, a Moody’s managing director in New York, said in the statement. “The relatively large swings seen in the index recently are due in part to the uncertain macroeconomic environment and the effects of a thin market with low transaction volumes.”

Demand is rising for the best office buildings in major markets such as New York and Washington as investors seek returns higher than fixed income. Interest in well-leased commercial properties in smaller markets may also be starting to increase, according to Robert Bach, chief economist for Grubb & Ellis Co cash until payday loans., a Santa Ana, California-based commercial broker.

“The demand is still focused at the core end of the spectrum,” Bach said before the report. “Investors may be broadening their parameters just a little bit.”

43% Below Peak

The Moody’s/REAL index is still 43 percent below its October 2007 peak. The gauge measures overall commercial property values on a monthly basis and breaks the numbers down by property type once each quarter. The changes are based on repeat sales transactions.

While the number of repeat sales had only a “slight uptick” in September, the dollar volume of those transactions doubled from August to $3.7 billion, according to Moody’s. That was the largest volume since January 2008, the company said.

The biggest single-property sale to close in September was a $208 million deal for Union Bank Plaza, a 627,000 square-foot (58,250 square-meter) office building on South Figueroa Street in Los Angeles, according to Real Capital Analytics Inc., a New York-based firm that tracks commercial real estate sales.

Apartment buildings have led prices higher, rising almost 16 percent in the third quarter from a year earlier, Moody’s reported. An index of retail properties fell about 12 percent in that time, while industrial buildings dropped 1.2 percent. Office property values increased 4.4 percent.

Top 10 Areas

Office prices in the top 10 metropolitan areas jumped 22 percent in the third quarter from a year earlier, the most of any property type in major cities. Prices gained 9.4 percent from the previous three months.

Moody’s defines the top 10 metropolitan areas as the ones with the most transactions by dollar volume. New York, Los Angeles, Washington, San Francisco, Atlanta and Chicago are included in the rankings for all four property types.

Two competing indexes show national commercial property prices rising at a faster rate. Green Street Advisors, a real estate research company in Newport Beach, California, reported Nov payday loans in California. 2 that values are up 24 percent in the 12 months through October. Its property index is 21 percent below its 2007 peak.

CoStar Group Inc., a real estate data service based in Bethesda, Maryland, found that prices for investment-grade properties in the U.S. rose 5.5 percent in September. Values are down 4.9 percent from a year earlier and 29 percent from two years ago, according to the company.

CoStar, unlike Moody’s, tracks transactions below $2.5 million. CoStar also limits its index to Class A and B offices, the highest-quality buildings; retail and industrial properties built since 1990; and multifamily buildings of 30 units or more.

Green Street’s index includes deals that are in negotiation or under contract, while Moody’s tracks only closed sales.

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China ordered its banks Friday to hold back more money as reserves in a new move to curb lending and rising inflation that communist leaders worry might stir unrest.

It was China’s second reserve increase in two weeks and came as Beijing tries to restore normal financial conditions following its recovery from the global crisis and cool inflation that surged to a 25-month high in October.

Analysts also expect China to announce a second interest rate hike after its surprise Oct. 19 increase but there was no word Friday of any changes in rates.

The state-owned banking industry was ordered to set aside an additional 0.5 percent of deposits as reserves, effective Nov. 29. Reserves vary by institution but could be as high as 19 percent for the biggest commercial lenders.

Economists say money flooding through the economy from China’s stimulus spending and heavy bank lending helped to push inflation to 4.4 percent in October, well above the government’s 3 percent target. Politically sensitive food costs jumped more than 10 percent.

Poor families in China spend up to half their incomes on food and communist leaders see inflation as a possible trigger of unrest.

Regulators worry that excessive lending is fueling overspending on real estate and other assets and might leave banks burdened with unpaid loans if ill-considered projects default.

Friday’s order came after China’s stock markets closed. Stocks fell this week on investor fears the government might respond to October’s inflation by tightening economic controls and further slowing China’s growth faxless payday loans.

China’s post-crisis expansion peaked at 11.9 percent in the first quarter of this year and cooled to 9.6 percent in the three months ending in September. The World Bank says next year’s economic growth should slow to 8.7 percent.

Raising reserve requirements allows Beijing to slow lending growth without increasing costs for borrowers through a rate hike. The government has used such targeted tools to try to restrain housing costs and make other changes while avoiding large rate increases.

A rate hike is politically fraught because it increases costs for state companies and heavily indebted finance agencies set up by local governments to use bank loans to invest in infrastructure and real estate projects.

Analysts say the modest quarter percentage point rate hike on Oct. 19 was meant as a warning to banks to cut back runaway lending.

Chinese leaders also worry that higher interest rates will attract inflows of foreign speculative “hot money” into stocks and real estate. Unauthorized inflows of money meant to profit from China’s rebound and a rise in its currency, the yuan, have surged in recent months despite Beijing’s moves to tighten capital controls.

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Traders are increasing payments to limit ruble losses faster than any other European emerging- market currency as the Irish debt crisis and China’s vows to cut inflation cause a slump in oil, Russia’s biggest export earner.

Options traders are paying more than double the rate at the end of October for the right to sell the ruble rather than buy it, with the one-week risk-reversal rate against the dollar — the premium of put options over calls — climbing to 1.25 percent yesterday from 0.5 percent on Oct. 29. The increase is the biggest among Europe’s emerging-market currencies and topped the 0.3 percentage point rise in the rate for Brazil’s real and a decline of 0.2 percentage point for China’s yuan.

Russia, which depends on oil and gas for 25 percent of economic output, is losing investor support as fuel prices slump to a four-week low on speculation higher Chinese borrowing costs will erode demand and as Ireland’s fiscal woes drive a selloff in riskier assets. VTB Group, the second-largest Russian bank, cut its economic growth forecast yesterday, citing lower oil prices. The ruble slid to its weakest level in five months against the dollar, the worst performer among the 25 developing- nation currencies tracked by Bloomberg.

“Depreciation pressures on the ruble have intensified,” Alexander Morozov, chief Russia economist at HSBC Holdings Plc, said in a phone interview in Moscow yesterday. “With lower oil prices and higher global volatility, the ruble will naturally weaken.”

Russia’s currency slid as much as 1.2 percent yesterday, its biggest drop in more than a month, and ended the day 0.9 percent lower at 31.37 per dollar, the weakest closing price since June 11. Non-deliverable forwards, or NDFs, which provide a guide to currency movements and allow companies to hedge, yesterday showed the ruble at 31.5963 per dollar, slipping for a fourth trading day to the weakest since June 11.

Dollar Demand

Investors are fleeing to the safety of the dollar as Ireland moves toward a possible European Union bailout that Barclays Capital has estimated may cost about 80 billion euros ($108 billion). The Irish government agreed yesterday to a review of the finances of its debt-laden banks.

The average yield on dollar-denominated Russian corporate bonds jumped 8 basis points yesterday to 5.72 percent, the highest since Sept. 27, as investors shunned emerging market assets.

Market volatility is “characteristic” of the post-credit crisis world, Deputy Finance Minister Dmitry Pankin said in a phone interview in Moscow yesterday.

Fleeing Risk

“There are periods when it seems there is a mass of money that’s just looking for a home and then a moment comes, whether it’s Portugal, Dubai, now Ireland, that spurs outbursts and nervousness on the market,” Pankin said. “Positions are being closed, investors are fleeing to risk-free assets and are no longer able to soberly measure the risk level of any given country.”

Crude lost as much as 2.4 percent in New York trading yesterday after Chinese Premier Wen Jiabao said the government of the world’s fastest growing economy is drafting measures to counter inflation, which at 4.4 percent last month is the fastest in two years. Energy accounts for about 75 percent of Russian exports to the Baltics and countries outside the former Soviet Union, government data show. Urals crude, Russia’s chief export blend, declined 0.2 percent to $84.73 a barrel.

The ruble would have weakened further had the central bank not intervened in the market to stem the drop, HSBC’s Morozov said. Bank Rossii, which has managed the ruble against a basket of dollars and euros since February 2005, is selling about $300 million of foreign currency a day to limit the ruble’s decline, Morozov said. The Moscow-based regulator doesn’t comment on its day-to-day actions in the currency markets.

Currency Basket

Russia’s currency fell for a fourth day against the basket, sliding 0.4 percent to 36.2998 by the close of trading at 5 p.m. in Moscow yesterday. The basket is made up of about 55 percent dollars and 45 percent euros and is used to limit swings in the currency that disadvantage Russian exporters. The ruble was little changed against the euro at 42.3250 yesterday, after hitting its weakest intraday level in a week.

Russia’s federal ruble bonds, or OFZs, have declined, with the yield on notes due 2016 jumping 20 basis points in November to 7.37 percent yesterday. Government dollar bonds due 2020 have also dropped this month, sending the yield 16 basis points higher to 4.67 percent since Oct. 29.

The cost of protecting Russian debt against non-payment for five years using credit-default swaps rose 1 basis point to 145 yesterday, down 72 from this year’s peak of 217, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a debtor fail to adhere to its agreements.

Depreciation Pressure

Credit-default swaps for Russia, rated Baa1 by Moody’s Investors Service, its third-lowest investment grade, cost 13 basis points more than contracts for Turkey, which is ranked four levels lower at Ba2. Russia swaps cost as much as 40 basis points less on April 20. Brazil stood at 109 yesterday and China at 62.

The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell 3 basis points to 212 points, according to JPMorgan’s EMBI+ indexes. The difference compares with 146 for debt of similarly rated Mexico and 175 for Brazil, which is rated two steps lower at Baa3 by Moody’s.

Concern Russia’s economic recovery after the global financial crisis may falter is spurring foreign investors and local companies to switch from rubles and invest their money outside the country, stoking depreciation pressures, said Aurelija Augulyte, a Russia economist at Nordea Bank AB, the Nordic region’s biggest lender.

OAO Sberbank, Russia’s largest bank, said Nov. 16 it will seek a $2 billion loan to help meet client demand for U.S. currency.

Slowing Growth

Russia’s economy expanded at its slowest pace this year in the third quarter at 2.7 percent as the worst drought in 50 years cut agricultural output and reduced consumer demand, according to government data published Nov. 12. China grew three times faster at 9.6 percent in the three months to Sept. 30.

Russia, the world’s largest energy exporter, is also being outpaced by the other so-called BRIC economies, with Brazilian and Indian GDP growing 8.8 percent in the second quarter, compared with 5.2 percent for Russia.

“Russia’s clearly not the strongest link in the emerging- market basket right now,” Nordea’s Augulyte said by phone from Copenhagen yesterday. “The overall picture of Russia in investors’ eyes is just not that attractive.”

Capital Outflows

Net capital outflows from Russia will reach $22 billion this year, the central bank said in monetary policy guidelines published Nov. 16, more than doubling its previous forecast of $8.7 billion. Russian bond funds took in $166 million so far this month, half the $326 million invested in Brazilian debt funds, according to Cameron Brandt, an analyst at EPFR Global, a Boston-based research firm.

Russian companies and the government have a total $17.1 million of foreign-currency denominated debt coming due in December, the most since at least July, according to central bank data. Repayments and the resulting demand for dollars will further depress the ruble until the end of the year, said HSBC’s Morozov, who forecasts the currency will weaken 6 percent to 33.40 per dollar by the end of 2011.

VTB Capital, the investment banking arm of VTB Group, cut its forecast for economic growth to 4 percent from an earlier estimate of 4.3 percent, according to its note e-mailed yesterday. It also lowered its ruble forecast to around 30 per dollar by year-end from a previous estimate of 29.30 per dollar, as oil trades at an average $85 a barrel, from previous forecasts of $92, the note said.

“All this noise about the euro area debt crisis and risk coming off is not going to just die away,” Ivan Tchakarov, chief economist for Russia and the former Soviet Union at BofA Merrill Lynch Global Research in Moscow said by phone from London yesterday. “December is going to be a challenging month for the ruble.”

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