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Confidence regained - UK recovery expected to strengthen

Britain’s economic recovery is expected to strengthen in 2014 as the world’s sixth-largest economy shrugs off fears over the sustainability of the upswing, according to a poll of economists. After three years of virtual stagnation amid an intense international debate over austerity measures taken by the UK government, the country’s economy was one of the few to beat expectations over the second half of 2013, when the recoveries in the euro area and Japan faltered. Several quarters of strong growth have spurred UK economists, largely caught out by the strength of the upturn, to become much more optimistic. A poll of 100 economists by the Financial Times adds support to the UK government’s decision to stick with its plans for fiscal consolidation in the face of sharp criticism from the International Monetary Fund earlier in the year. "UK growth should be strong in 2014. The speed-up of 2013 looks broad-based across sectors and sources of demand. The main reason to be optimistic is the shift in corporate mood," said Neville Hill, economist at Credit Suisse. The poll respondents’ optimism chimes with the Treasury’s most recent collection of private sector forecasts, published in mid December, which showed economists on average expect growth of 2.4 per cent for 2014 – up from their estimates of 1.4 per cent for last year. Subsequent upward data revisions raise the likely growth rate close to 3 per cent, many of the economists said. A slim majority of the economists polled said the upturn had vindicated chancellor George Osborne’s pursuit of austerity, which senior officials at the IMF had called for the UK to moderate, though many of the 100 respondents warned the chancellor against boastfulness. Despite its strong performance over the past year, the performance of the UK economy has consistently lagged behind that most of its rivals since the crash. Up until last year it was among the worst performers of the world’s largest Group of Seven economies. In contrast to the sour mood twelve months ago, most of the 100 respondents to the annual poll believed Britain’s recovery would gain ground over 2014. Even households, squeezed by high inflation and little pay growth, would begin to feel better off with wages rising faster than prices for the first time in years. Sushil Wadhwani, a former member of the Bank of England’s Monetary Policy Committee said: "There is catch-up potential in various components of demand that had been temporarily held back by several factors including perceptions of tail risk in the eurozone." The BoE’s decision to become the latest central bank to adopt forward guidance to markets and the public on when interest rates will rise was roundly panned by respondents. Respondents grumbled that the MPC’s pledge to keep rates low at least until unemployment hit 7 per cent was a mistake and that the sharp fall in joblessness in the UK would force the BoE to modify the policy. There was also concern that the recovery and government policies, such as the Help to Buy scheme, could stoke a housing bubble. Building more homes was the best way to counter any frothiness in the housing market respondents said. Some wanted the BoE to follow the lead set by New Zealand and a handful of Asian economies and impose bans on mortgages with low deposits. A yes vote for Scottish independence in the referendum set for the autumn was a potential stumbling block to recovery. Dhaval Joshi of BCA Research said: "It would be deeply ironic if the United Kingdom established fiscal independence with monetary union just as the euro area concludes that such a set-up is unworkable."

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BN 01/02 05:06 *HANDELSBLATT CITES UNIDENTIFIED SUPERVISORY BOARD MEMBERS BN 01/02 05:05 *RWE WANTS AGM TO APPROVE POSSIBILITY OF CAP. HIKE:HANDELSBLATT BN 01/02 05:05 *RWE WANTS RIGHT FOR UP TO 10% CAPITAL INCREASE: HANDELSBLATT

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*RWE WANTS RIGHT FOR UP TO 10% CAPITAL INCREASE: HANDELSBLATT 2014-01-02 05:05:23.490 GMT

--COLIN KEATINGE

-0- Jan/02/2014 05:05 GMT

Asian Market Update: China PMIs slip but remain in expansion; Hyundai Motors shares slump on soft 2014 outlook

***Observations/Insights*** - China official manufacturing PMI hits 4-month low, below consensus; HSBC final PMI is inline with consensus, marks 3-month low; Economists attribute overall declines to tight liquidity in December, but also note contraction in export orders (53.9 v 54.5 prior) indicative of softer external demand. - China State Information Center economist forecasting 2014 GDP at 7.5%, M2 +13%, industrial production at 9.3%, exports +9%, imports +7.5%. - North Korea's Kim Jong-Un hints he is prepared to improve relations with South Korea but also warns of "nuclear disaster" in event of war. - Australia House price index up nearly 10% for 2013 - highest rate of growth in 4 years. - South Korea's staples Samsung Electronics and Hyundai Motors sharply lower; Samsung down on after local press speculated Q4 op profits may miss forecasts, Hyundai down after forecasting 2014 vehicle sales up just 3.9% from 2013 - slowest growth in 10 years.

***Economic Data*** - (CN) CHINA DEC MANUFACTURING PMI: 51.0 V 51.2E (lowest in 4 months) - (CN) CHINA DEC HSBC/MARKIT MANUFACTURING PMI: 50.5 V 50.5E (3-month low) - (AU) AUSTRALIA DEC AIG PERFORMANCE OF MANUFACTURING INDEX (PMI): 47.6 V 47.7 PRIOR (2nd month of contraction) - (AU) AUSTRALIA DEC RPDATA/RISMARK HOUSE PRICE INDEX: 1.4% V 0.1% PRIOR - (SG) SINGAPORE Q4 ADVANCED GDP Q/Q: -2.7% V -1.3%E; Y/Y: 4.4% V 4.8%E - (KR) SOUTH KOREA DEC TRADE BALANCE: $3.68 V $3.6BE; 2013 trade surplus $44.2B - record high - (KR) SOUTH KOREA DEC HSBC/MARKIT MANUFACTURING PMI: 50.8 V 50.4 PRIOR - (TW) TAIWAN DEC HSBC/MARKIT MANUFACTURING PMI: 55.2 V 53.4 PRIOR (4TH CONSECUTIVE EXPANSION) - (ID) INDONESIA DEC HSBC/MARKIT MANUFACTURING PMI: 50.9 V 50.3 PRIOR - (ID) INDONESIA DEC CPI M/M: 0.6% V 0.5%E; Y/Y: 8.4% V 8.3%E; CPI CORE Y/Y: 5.0% V 4.8%E - (VN) VIETNAM DEC HSBC/MARKIT MANUFACTURING PMI: 51.8 V 50.3 PRIOR - (SL) SRI LANKA CUTS REVERSE REPO RATE BY 50BPS TO 8.00% FROM 8.50%; LEAVES REPURCHASE RATE UNCHANGED AT 6.50% (EXPECTED)

***Fixed Income/Commodities/Currencies*** - (CN) PBoC won't conduct open market operations (OMO) in today's session; Drains CNY29B this week v injected CNY29B prior (first net drain in 3 weeks) - NZD/USD: (NZ) Westpac chief economist Stephens: NZD/USD likely to remain in mid $0.80s to low $0.90s range for most of 2014; Expects RBNZ to raise rates 5 times this year vs prior forecast of 4 times - NZ press

- AUD and NZD gapped down at the open after the disappointing China official PMI data, falling below $0.8890 and $0.8190, before paring some of those losses. With Tokyo still closed, USD/JPY pair was little changed, trading sideways around ¥105.30. EUR/USD was at session lows late in the day, down over 30pips from the highs below $1.3750. Sterling outperformed amid press reports UK GDP may top prior estimates from the UK Treasury, rising over 40pips above $1.6590.

***Speakers/Political/In the Papers*** - (CN) China State Information Center: 2014 GDP may be 7.5%; 2014 PPI may decline 0.5% - Chinese press - (CN) China to introduce draft policy on imported coal quality - financial press - (CN) According to a survey by China Real Estate Index System (CREIS), Dec home prices in the 100 largest cities rose 0.7% m/m and 11.5% y/y - financial press - (CN) China Foreign Ministry spokeswoman Hua: Both China and South Korea are indignant about Japan PM Abe's visit to Yasukuni shrine - (CN) PBoC Dep Gov Yi Gang: China to promote trade and investment conveniences - Qiushi - (CN) Industrial Bank Chief Economist Lu Zhengwei: China's economy to continue to "adjust" in 2014; Monetary policy in 2014 to be "generally the same" as 2013 - (CN) China state economist: 2014 consumption growth may reach 13-14%; total investment growth may reach 20% - Chinese press - (HK) Thousands of protesters marched in Hong Kong on New Years Day, demanding more say over how HK leaders are chosen - Chinese press - (JP) Japan PM Abe's New Year address indicating he may look to revise the constitutional limits on military use by 2020 - financial press - (JP) Japan Automakers Association Chariman Toyoda: Looking at 2014 as the turning point for recovery in Japan's economy - Nikkei - (JP) Japan Health Ministry: 2013 saw a record decline in Japan's population of 244K - financial press - (AU) Ports in Australia's Pilbara region resume normal loading operations; Only minor damage said to be sustained by Port Hedland from cyclone Christine earlier this week - press - (KR) Kookmin Bank: South Korea Dec housing price +0.4% y/y (2nd consecutive rise), +0.2% m/m (4th consecutive rise) - financial press - (KR) North Korea's Kim Jong-Un: Prepared to create atmosphere to improve relations with South Korea; Also warns Korean peninsula would be engulfed in massive "nuclear disaster" if war breaks out - (UK) According to a poll from economists, UK 2014 economy's growth rate seen close to 3% v 2.4% forecasted by UK treasury last month - FT

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 closes, S&P/ASX +0.5%, Kospi -1.8%, Shanghai Composite -0.4%, Hang Seng -0.3%, Mar S&P500 +0.3% at 1,846, Feb gold +1.6% at $1,222, Feb crude oil +0.3% at $98.67/brl

US markets: - AMGN: Romosozumab Phase 2 Data Published In New England Journal Of Medicine Show Significant Increases In Bone Mineral Density At Both Spine And Hip

Notable movers by sector: - Consumer discretionary: Anhui Saunaking 300247.CN +10.0%, Zhejiang Double Arrow Rubber Co Ltd 002381.CN +6.0%, Shanghai Sanmao Enterprise Group Co Ltd 600689.CN +1.1% (China issues statement on pension services) - Industrials: Hyundai Motor 005380.KR -4.7%, Kia Motor 000270.KR -5.9% (2014 sales targets); CSR Corp 1766.HK +0.6% (awarded orders) - Financials: Lander Real Estate 000558.CN +9.9% (acquisition); Insurance Australia IAG.AU +0.4% (announces shares purchase plan) - Materials: Yunnan Lincang Xinyuan Germanium Industrial 002428.CN +4.5% (awarded contract) - Healthcare: Beijing Tiantan Biological Products 600161.CN -4.9% (company's vaccine could cause death) - Energy: Woodside Petroleum WPL.AU -0.8% (Shell may sell stake) - Technology: Ourpalm 300315.CN +4.9% (tax rate adjusted); Shenzhen Changfang Light Emitting Diode Lighting 300301.CN +10.0%, Guangzhou Hongli Opto-Electronic 300219.CN +7.7%, Everlight Electronic 2393.TW +6.1%, Epistar Corp 2448.TW +4.0% (US federal bans incandescent light bulbs, as expected) - Utility: CT Environmental Group 1363.HK +10.6% (receives approval for project)

Fiat S.p.A Reaches agreement to buy remaining 41.5% Chrysler stake for $3.65B in cash, including $1.9B in special dividend

- Does not expect to require additional capital to close the deal. Terms of agreement: - Agreed to a memorandum of understanding to supplement Chrysler Group's existing collective bargaining agreement. Under the MoU, Chrysler Group will provide additional contributions to the VEBA Trust of an aggregate of $700 million in four equal annual installments. The initial payment will be made on closing of a transaction in which the VEBA Trust will sell to Fiat North America, one of Fiat's wholly owned subsidiaries, all of the VEBA Trust's equity interest in Chrysler. Additional payments of $175 million will be payable on each of the next three anniversaries of the initial payment. Chrysler Group expects to fund the initial contribution to the VEBA Trust from available cash on hand. - In consideration for these contributions, the UAW will agree to certain commitments to continue to support the industrial operations at Chrysler Group and the further implementation of the Fiat-Chrysler alliance, including to use best efforts to cooperate in the continued roll-out of Fiat-Chrysler World Class Manufacturing programs, actively participate in benchmarking efforts associated with implementation of these programs across ll of Fiat-Chrysler manufacturing sites to ensure objective performance assessments and provide for proper application of WCM principles and actively assist in the achievement of the Group's long-term business plan. The Chrysler Group Board of Directors has also determined to support the declaration and payment by Chrysler Group of a special distribution in an aggregate amount of approximately $1.9B subject to the Board completing its diligence and receiving independent assurance regarding the distribution payment capacity of Chrysler Group, a process that management expects will be completed on or before January 20, 2014.

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MORE: Fiat to Buy Remaining Stake in Chrysler It Doesn’t Own 2014-01-01 18:54:24.652 GMT

By Louisa Fahy Jan. 1 (Bloomberg) -- Fiat to pay $3.65b for VEBA Trust’s equity membership interests in Chrysler representing 41.46% stake. * Fiat to fund purchase with cash on hand * Purchase consists of special distribution of ~$1.9b payable by Chrysler to its members and $1.75b paid to VEBA Trust at closing * Chrysler, UAW also in memorandum of understanding under collective bargaining agreements to provide for added contributions by Chrysler to VEBA Trust totaling $700m in 4 equal, annual isntallments; initial payment to be made on closing with Fiat * UAW agrees to certain commitments to continue to support industrial ops at Chrysler and further implementation of Fiat-Chrysler alliance * Fiat, VEBA Trust agree to dismiss lawsuits before Delaware Court of Chancery over call option agreement * Fiat doesn’t expect the need to raise capital for deal Link to Statement:NSN MYQJ7P3PR6RK <GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

--Editor: Jeran Wittenstein

To contact the reporter on this story: Louisa Fahy in Washington at +1-202-624-1942 or lnesbitt@bloomberg.net

To contact the editor responsible for this story: Louisa Fahy at +1-202-624-1942 or lnesbitt@bloomberg.net

ECB modestly successful in tempering eurozone rates divergence European Central Bank action has had only modest success in easing big differences in interest rates paid by businesses across the eurozone, which remain near peaks seen at the height of the region’s debt crisis. Companies in the eurozone’s weakest economies still face significantly higher borrowing costs than rivals in countries such as Germany, according to a cross-market analysis by Goldman Sachs. The extent of the divergence has fallen since a peak in May 2013 but is higher than in mid-2011.

The degree of fragmentation will disappoint the ECBand fuel its concern about constraints on private-sector credit flows to the eurozone "periphery" economies. Mario Draghi, president, warned earlier in December that it was "essential that the fragmentation of euro area credit markets declines further". The ECB has slashed official interest rates and Mr Draghi has pledged to prevent a eurozone break-up, moves which have pushed yields on the government debt of peripheral countries sharply lower. But the effects have failed to feed through into interest rates charged by banks in countries such as Spain or Italy. "We have turned an important corner in Europe and the acute, financial phase of the crisis is behind us. But the process of healing financial markets . . . is slow and hesitant," said Huw Pill, European economist at Goldman Sachs, who was previously a senior monetary policy official at the ECB. If severe fragmentation became a long-term feature of the eurozone, it could cast doubt on whether a single monetary policy was workable, Mr Pill warned. "If we have to live with the current level of fragmentation, the viability of monetary union will eventually be called into question." The divergences highlight weaknesses of the eurozone banking system, which policy makers are urgently trying to resolve. They also reflect the greater attention being paid by financial markets to country-specific risks and the impact the eurozone crisis has had on perceptions about the dangers of defaults. "The problem is that the genie is out of the bottle, because Greece did default and Cyprus also came close to exiting the eurozone. It is going to take a very long time to get the genie back in the bottle," said Julian Callow, international economist at Barclays. "Interest rates are still high in those countries that most need lower interest rates." Goldman Sachs’ interest rate divergence indicator measures cross-border variations in interest rates charged by eurozone banks on a variety of business loans. The indicator hit a high of 4.7 percentage points in May 2013 and fell to 3.9 in October, the latest month for which data were available and the lowest reading since September 2011. Eurozone policy makers hope the creation of a European "banking union," with a common regulatory and bank resolution framework will help break the link between borrowing costs for banks and those for sovereigns. But analysts said the interest rates in different countries would always reflect differences in the credit standing of borrowers. The ECB is also encouraging greater use of "securitisation" – the packaging up of loans to redistribute among investors – as a way of improving credit flows to job-creating small- and medium-sized companies in the eurozone periphery.

CHINA DEC MANUFACTURING PMI: 51.0 V 51.2E (lowest in 4 months)

Components: - New orders: 52.0 v 52.3 prior - New export orders: 49.8 v 50.6 prior - Output: 53.9 v 54.5 prior - Inventory of finished goods: 46.2 v 47.9 prior - Inventory of raw materials: 47.6 v 47.8 prior - Employment: 48.7 v 49.6 prior - Input prices: 52.6 v 52.5 prior