CURRENCIES

CHINA LIKELY TO LET YUAN GAIN 5% BY 2007

China is likely to let the yuan gain 5% against the dollar by 2007, not enough to slow its economy or end criticism from America that the nation has an unfair trade advantage, according to a Bloomberg survey.

The People’s Bank of China will allow the yuan to reach 7.7 per dollar, based on the median forecast of 37 traders, strategists, and investors. The central bank let its currency rise 2.1% on July 21 after a decade of being pegged at about 8.3 to the U.S. currency.

Additional appreciation of 5% is unlikely to appease lawmakers such as Senators Schumer and Graham, who said last month’s shift was a first step and that the currency remains undervalued. China’s expansion accounted for more than 10% of world economic growth last year, according to JPMorgan Chase & Company estimates.

“The U.S. has made clear that there will be political ramifications if the Chinese do not make their currency more flexible,” a professor at Columbia University, former World Bank chief economist and Nobel Prize winner Joseph Stiglitz said. “The 2% revaluation is not of economic significance. It is a political gesture.”

China’s economy expanded 9.5% last quarter and exports surged 30%. Critics say a stronger yuan may make China’s exports more expensive and at the same time make imports cheaper. The nation had a record $162 billion trade surplus with America, the Commerce Department said.

“We become a little more competitive selling to the Chinese,” a professor of finance at the Wharton School of Business in Philadelphia, Jeremy Siegel, said. China is “more worried about maintaining their markets with us than they are with us penetrating their markets.” – Bloomberg News

FINANCIAL SERVICES

WHITE HOUSE SEEKS SETTLEMENT WITH KPMG

The Bush administration is seeking a settlement with KPMG LLP over its sale of tax shelters to avoid criminal charges that could drive the accounting firm out of business, people familiar with the case said.

The Justice Department in Washington directed the U.S. attorney for the Southern District of New York, David Kelley, to negotiate a deal, the people, who requested anonymity, said. One issue is the size of the fine the Big Four firm must pay, with prosecutors demanding as much as $500 million, the people said.

A settlement that avoids criminal charges would ease concerns in the Justice Department and among securities regulators that KPMG’s collapse would eliminate thousands of jobs and reduce the number of major accounting firms to three. Hundreds of large companies would be left, at least temporarily, without an auditor if KPMG disappears.

“KPMG could survive a huge, unprecedented fine,” an accounting professor at New York University’s Stern School of Business, Paul Brown, said. “It will position a cloud over this firm for probably 10 years, but it will not put it out of business.”

If the talks between Mr. Kelley and KPMG break down, the firm could still be indicted, the people familiar with the discussions said. KPMG may face charges that it obstructed justice, sold abusive tax shelters to rich clients, and misled investigators from the Internal Revenue Service.

– Bloomberg News

WALL STREET

TREASURY WILL BRING BACK 30-YEAR BOND

The U.S. Treasury will bring back the 30-year bond, four years after stopping sales, to lower the government’s borrowing costs and to meet demands from pension funds and insurance companies for low-risk, long-term debt.

America will resume sales of the securities in the first quarter of 2006 and auction them twice a year, the department said yesterday in Washington. Investors clamored for the return of the bond, which for a quarter century had served as the safest long-term investment.

“There’s a place in our portfolio for these long-duration assets, and there aren’t enough in the marketplace right now to tap into,” the chief investment officer at MetLife, Steven Kandarian, said. “It’s a benchmark reference for us.”

The return of the so-called long bond offers another way for the government to sell debt in the world’s deepest and most active bond market. The Bush administration ended sales of 30-year bonds in 2001, after the budget surplus peaked at a record $236.9 billion a year earlier.

– Bloomberg News

NYSE SEAT SELLS FOR RECORD $3M

A New York Stock Exchange membership sold for a record $3 million yesterday, surpassing the mark set near the height of the 1990s bull market in equities.

The price of a membership, known as a seat, rose by $400,000, or 15%, from the last sale on July 15. The previous record of $2.65 million was set on August 23, 1999, seven months before the Standard & Poor’s 500 Index reached an all-time high.

Interest in memberships has been revived by the Big Board’s proposed takeover of Archipelago Holdings Incorporated. The transaction turns the 213-year-old institution into a for-profit public company and will allow the world’s largest stock market to expand into other areas such as options trading.

– Bloomberg News