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Financial Focus

MOODY’S Investors Service last night cut Spain’s sovereign rating by two notches, saying high levels of debt in the banking and corporate sectors leave the country vulnerable to funding stress. Spain could be downgraded again if the Eurozone debt crisis escalates further, Moody’s warned.

BEN BERNANKE said yesterday that central banks may need to resort to monetary policy to combat asset bubbles, although regulation should be a first line of defence. “The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out,” Bernanke said.

FRANCE has warned that European unity could be at risk if Eurozone leaders failed to take bold action to tackle its sovereign debt crisis at a crucial summit this weekend. President Sarkozy said leaders will make “very important decisions in the coming days” and said the destruction of the euro will risk “conflict and division” in Europe.

MARKETS:

THE NIKKEI stock average rose today after a media report raised expectations that Europe will act to strengthen the euro zone’s rescue fund, though skepticism about whether it can put such a bold step into practice limited further gains.

WALL STREET rallied in its last hour of trade yesterday after Britain’s Guardian Newspaper said France and Germany will increase the euro zone’s rescue fund to 2 trillion Euros as part of a plan to resolve the sovereign debt crisis. A senior Eurozone source stated that there had been no mention of such a deal and any many market players doubt whether such an increase is immediately possible.

CURRENCIES:

THE YEN rose against the majority of its most traded peers as futures indicated U.S. shares will fall, bolstering demand for Japan’s currency as a haven. THE EURO gained, erasing an earlier decline against the greenback, before European Union leaders hold a summit on October the 23rd to deal with the region’s debt crisis.

ENERGY:

OIL snapped a rally to the highest price in more than a month yesterday as forecasts of rising crude supplies in the U.S. countered speculation Europe may contain its debt crisis and prevent a slump in demand. Futures were little changed after advancing 2.3% yesterday before the release of Energy Department data today that may show supplies climbed by 2 million barrels.

COMMODITIES:

AT A TIME when the world is facing its biggest sugar glut in at least four years, trade barriers mean the European Union is contending with a second consecutive annual shortage. EU supply will fall 1.1 million tons short of demand in the 12 months ending September, according to the Committee of European Sugar Users. Global output will exceed usage by 5.32 million metric tons. As world sugar prices fell 23% in the last eight months, costs in the 27 nation bloc reached a two year high.

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