By Mayumi Otsuma

Jan. 25 (Bloomberg) -- Japan's inflation rate doubled in December to the fastest in more than nine years, as companies passed rising oil and commodity costs to consumers.

Core consumer prices, which exclude fresh food, climbed 0.8 percent from a year earlier, the statistics bureau said today in Tokyo. The median estimate of 44 economists surveyed by Bloomberg News was for a 0.6 percent gain.

Dairy farmers on the northern island of Hokkaido yesterday raised the price of milk by 3 percent because of higher costs of feed for cows. Higher energy and materials expenses hurt growth by eroding corporate profits and spending by consumers whose wages are falling.

``The global economy is slowing while prices of food and energy keep advancing,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo, who expects the central bank to keep interest rates on hold this year. ``That's the worst combination for the Japanese economy, which depends on exports and has stagnating domestic demand.''

The yen traded at 107.23 per dollar at 10:38 a.m. in Tokyo from 107.12 before the report was released, and is heading for a weekly decline against the world's 16 most-active currencies after global stocks rebounded. The yield on Japan's 10-year bond rose 6 basis points to 1.445 percent.

Reduced Bets

Investors reduced bets that the central bank will lower the key lending rate from 0.5 percent later this year. There is a 45 percent chance of a cut by July, down from 67 percent before the inflation report, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.

Bank of Japan policy makers said it's likely growth will slow and inflation will quicken in the short term, according to minutes of their December policy meeting released in Tokyo today. Central bank Governor Toshihiko Fukui said this combination makes it ``difficult'' to decide interest-rate policy.

``Rising daily-goods prices are negative for consumer spending when wage growth has stalled,'' Economic and Fiscal Policy Minister Hiroko Ota told reporters today. ``We can't say Japan has made a major step'' toward the end of deflation.

Consumer confidence fell to a four-year low in December and wages only rose in two of the first 11 months of last year.

Core consumer prices were unchanged in 2007, today's report showed. Prices started rising in October after falling for eight months. Even before then, they either hovered near zero or fell since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.

`Soft Stagflation'

``Japan is experiencing a sort of soft stagflation this quarter,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo, who estimates 1 percent inflation in the period. ``Price increases combined with sluggish demand will cut disposable incomes and weaken consumption further.''

Tokyo's core prices, a harbinger of the nationwide index, rose 0.4 percent in January from a year earlier, following a 0.3 percent gain in December.

Excluding energy as well as food, nationwide consumer prices fell 0.1 percent in December. By that measure, they've failed to rise for nine years.

Crude oil rose to a record $100 a barrel this month. A UBS Bloomberg index of 26 commodities that tracks the prices of oil, industrial metals, agriculture and livestock climbed to a record on Jan. 14 after surging 22 percent last year.

Central bank policy makers said this week that growth in the year ending March will probably be slower than the 1.8 percent they forecast three months ago. Board members said consumer prices will probably rise faster than they had anticipated in October, when they said inflation would be flat this fiscal year.

Top Breweries

Japan's top breweries -- Kirin Holdings Co., Asahi Breweries Ltd. and Sapporo Holdings Ltd. -- plan to raise beer prices in the next three months to cover higher malt costs. Nisshin Foods Inc., Japan's biggest macaroni maker, will increase pasta prices as wheat costs soar.

The biggest reason for an economic slowdown is that companies, particularly small ones, remain unable to pass on costs out of concern that sales may decrease, said Ryutaro Kono, chief economist at BNP Paribas in Tokyo.

``Some companies, worrying that worsening performance may force them to go bankrupt, started to raise prices,'' Kono said. ``But without wage increases, higher prices will only hurt households' purchasing power and choke off spending.''

By Chen Shiyin and Masaki Kondo

Jan. 25 (Bloomberg) -- Asian stocks advanced, led by technology companies and miners, after U.S. lawmakers agreed on a plan to boost spending and South Korea's economy grew faster than economists had expected.

Canon Inc. and LG Electronics Inc. paced gains on speculation the plan that includes tax rebates to U.S. families will bolster growth in Asia's largest overseas market. Posco rose in South Korea. BHP Billiton Ltd., the world's largest mining company, had its first three-day increase in a month as copper, gold and crude oil prices rallied.

``Investors will continue buying back into the market,'' Mamoru Shimode, an equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television. ``The focus is on how fast the U.S. will introduce additional policies to help the economy.''

About nine stocks rose for each that retreated in the MSCI Asia Pacific Index, which climbed 3.1 percent to 143.78 at 10:54 a.m. in Tokyo, following a two-day, 5.6 percent advance. The benchmark is on course for its fourth straight weekly decline as gains failed to offset losses in the first two days of the week.

Japan's Nikkei 225 Stock Average added 2.2 percent to 13,378.59. South Korea's Kospi index climbed for a third day. All other benchmarks open for trading advanced, apart from China.

Technology companies also climbed after Nintendo Co., the maker of the Wii game console, raised its profit forecast and Microsoft Corp., the world's largest software maker, reported net income that topped analysts' estimates.

Stimulus Plan

U.S. stocks rose yesterday, helping the Standard & Poor's 500 Index to its biggest two-day rally since November. Xerox Corp., the world's largest maker of high-speed color printers, and Lockheed Martin Corp., the biggest defense company, advanced after reporting profit that exceeded analysts' expectations.

Canon, the world's largest of digital camers, jumped 4.4 percent to 4,750 yen, poised for its highest close in two weeks. LG Electronics added 3.4 percent to 96,200 won. Asia's No. 2 handset maker said yesterday profit climbed to a record.

The Bush administration and lawmakers announced an agreement on an economic stimulus plan that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment. The proposal also aims to stem mortgage-market losses by allowing lenders to buy more expensive home loans.

Speculation that any stimulus package will fail to stave off a recession sparked a two-day, 10 percent plunge in the MSCI's Asian index at the start of the week. Stocks rebounded after the Federal Reserve cut its benchmark interest rate by the most in 23 years and New York regulators met with U.S. banks to consider bailing out bond insurers, easing concern that credit-market losses will widen.

Macquarie, Posco

Macquarie Group Ltd., Australia's biggest securities firm, jumped 5.9 percent to A$67.81. Mizuho Financial Group Inc., the third-largest publicly traded bank by market value in Japan, added 4.8 percent to 482,000 yen.

Posco, Asia's third-biggest steelmaker, added 2.5 percent to 500,000 won in South Korea. SK Telecom Co., the nation's largest mobile-phone operator, rose 2 percent to 206,000 won.

South Korea's growth accelerated to 1.5 percent from the third quarter's 1.3 percent, the central bank said in Seoul today. That beat the median estimate of 1.3 percent in a Bloomberg News survey of economists.

The report comes after China said yesterday its economy expanded more than 11 percent for the fourth straight quarter, supporting global growth amid a U.S. slowdown.

BHP jumped 3.3 percent to A$35.95, extending a two-day, 12 percent surge. The three-day rally will be the longest since a similar period ended Dec. 27. Rio Tinto Group, the world's third- biggest mining company, gained 4.2 percent to A$113.

Metals, Oil

A gauge of six metals traded on the London Metal Exchange, including copper and nickel, jumped 2 percent yesterday, while crude oil prices surged 2.8 percent. Gold for immediate delivery yesterday rose 2.5 percent to $912.85 an ounce.

Nippon Mining Holdings Inc., Japan's biggest copper producer, climbed 3.8 percent to 623 yen. Newcrest Mining Ltd., Australia's largest gold mining company, added 1.7 percent to A$34.58.

A measure of technology shares on the MSCI Asian index jumped 2.9 percent today, the best performer among the 10 industry groups. Advances today helped trim the technology index's 2008 loss to 12 percent.

Nintendo, Microsoft

Nintendo jumped 3.2 percent to 54,800 yen. Profit in the third quarter gained 63 percent from a year earlier. The world's biggest maker of handheld game players raised its annual forecast for operating profit by 9.5 percent to 460 billion yen.

Microsoft reported yesterday that net income climbed 79 percent to 50 cents a share, topping the 46-cent average of estimates compiled by Bloomberg. Chief Executive Officer Steve Ballmer increased the annual sales forecast to as much as $60.5 billion, signaling Microsoft can withstand a slowdown in the U.S. economy.

Taiwan Semiconductor Manufacturing Co., the world's largest custom-chip maker, added 3.4 percent to NT$55.50. Hon Hai Precision Industry Co., which makes iPods for Apple Inc., jumped 5 percent to NT$166.50.

Centro Properties Group, the Australian owner of 700 U.S. malls, surged 37 percent to 65.5 Australian cents, extending yesterday's 35 percent gain. New Chief Executive Officer Glenn Rufrano yesterday ruled out a fire sale of assets as he seeks to refinance A$3.9 billion ($3.4 billion) of the company's debt.

``There were those comments from the new CEO that he didn't expect the banks to act precipitously,'' said Rob Patterson, who manages the equivalent of $3.8 billion at Argo Investments Ltd. in Adelaide. ``People have taken heart from that.''

By Seyoon Kim

Jan. 25 (Bloomberg) -- South Korea's economy expanded faster than expected in the fourth quarter, stoked by the biggest increase in exports in four years and a pickup in business investment.

Growth accelerated to 1.5 percent from the third quarter's 1.3 percent, the central bank said in Seoul today. That beat the median estimate of 1.3 percent in a Bloomberg News survey of 14 economists. The economy expanded 5.5 percent from a year earlier, the fastest pace in almost two years.

South Korea's stock index rose as the report added to confidence that exports to China, the Middle East and other emerging markets is helping Asian nations weather the U.S. slump. As global growth cools, the economy will be increasing reliant on spending by businesses and consumers to extend its longest expansion in 15 years.

``The Chinese economy is supporting economic growth in Korea and across Asia as the U.S. slows,'' said George Worthington, chief Asia-Pacific economist at Thomson IFR in Sydney. The report also shows ``quite a solid performance from the domestic economy even in the face of record oil prices.''

The Kospi index climbed 1.4 percent to 1,685.93 at 11:15 a.m. in Seoul. The won rose 0.2 percent to 947.25 per U.S. dollar. The yield on the three-year government bond jumped 9 basis points to 5.19 percent.

China's economy expanded more than 11 percent for the fourth straight quarter, figures showed yesterday, supporting global growth as a recession looms in the U.S.

Economists Disagree

Goldman Sachs Group Inc. this month raised its forecast for South Korea's economic growth, predicting an expansion of 5 percent in 2008 compared with 4.9 percent last year.

Others aren't as optimistic.

UBS AG today cut its 2008 growth forecast to 3.6 percent, which would be the weakest in five years, saying both exports and consumption will slow. It previously estimated 4.1 percent.

South Korea's ``challenges appear to be growing now we expect a U.S. recession,'' said Duncan Wooldridge, a Hong Kong- based economist at UBS. ``Export growth should slow in line with weaker demand from the U.S., Europe, and Japan. And a slowdown in credit will lead to weaker domestic demand, especially consumption.''

Concern that the U.S. slump will curb demand for Korean made cars and mobile phones has sent the Kospi index plunging 11 percent this year.

Domestic Demand

``The issue now is how much the U.S. slowdown will hurt exports and economic growth, not whether we'll be affected,'' said Oh Suktae, an economist at Citibank Korea Inc. in Seoul. ``Clearly, South Korea will have to rely more on the role of domestic demand.''

Private consumption increased 1.1 percent last quarter, today's report showed, compared with a 1.2 percent gain in the previous three months. Corporate investment in factories reversed the third quarter's drop and climbed 4.4 percent last quarter. Construction investment rose 0.4 percent.

The lowest jobless rate in five years and wage gains are underpinning consumer spending as fuel costs surge to a record.

President-elect Lee Myung Bak aims to stoke growth by encouraging firms to invest more and increase hiring. He announced a series of tax breaks on capital expenditure and has proposed relaxing rules that limit investment in banks by industrial groups.

`Engine for Growth'

``The engine for economic growth this year will be corporate investment,'' said Kwon Goohoon, Seoul-based economist at Goldman. ``Companies will spend if regulations are eased swiftly.''

The government expects domestic demand will account for about 90 percent of its forecast 4.8 percent growth rate in 2008.

For now, exports remain a major driver of growth. China surpassed the U.S. in 2003 to become South Korea's largest market, buying more than 21 percent of the nation's goods

Overseas shipments surged 7.3 percent in the fourth quarter, accelerating from a 1.5 percent gain in the third quarter, today's report showed. That was the biggest increase since the final quarter of 2003.

Exports to China jumped 18 percent in the period from Jan. 1 to Dec. 20 and shipments to the Middle East surged 40 percent.

Samsung Electronics Co., whose overseas sales account for 16 percent of the nation's total exports, has tapped demand in China and India. Asia's largest semiconductor maker forecast on Jan. 15 mobile-phone shipments will expand in the first quarter from the previous three months.

``Sales to emerging markets like the Middle East and Latin America are rising. That's what makes Korea less vulnerable to external shocks,'' said Ma Tieying, an economist at DBS Bank Ltd. in Singapore.

By Laura Litvan and Roger Runningen

Jan. 24 (Bloomberg) -- The Bush administration and House lawmakers announced agreement on an economic stimulus package that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment.

``The stimulus package will put money in the hands of hardworking Americans,'' House Speaker Nancy Pelosi said at a press conference with House Republican Leader John Boehner and Treasury Secretary Henry Paulson at the Capitol.

Lawmakers are racing to enact a stimulus measure to try to counter escalating risks of a recession. The Federal Reserve this week made an emergency cut in its benchmark overnight lending rate, lowering it three-quarters of a point to 3.5 percent.

President George W. Bush, in a statement at the White House, said the U.S. economy faces short-term disruptions in the housing market and rising energy prices.

``The country needs this boost to the economy now,'' Bush said. The agreement will result in ``higher consumer spending and increased business investment this year.''

Under the plan, individuals would receive rebates of up to $600 and couples could receive $1,200, plus $300 per child, Paulson said. Rebates would be phased out for individuals earning more than $75,000 and couples earning more than $150,000. Individuals must earn at least $3,000 to get a $300 rebate.

Paulson said the rebate checks may be mailed 60 days after the proposal becomes law, possibly in May.

`Fast Track'

``This is on a fast track,'' Paulson said.

The accord also seeks to address the growing number of housing foreclosures by including a provision allowing Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies, to temporarily buy mortgages of as much as $729,750, exceeding a $417,000 federal limit.

Some lawmakers protested that the measure doesn't include more spending. Democrats sought to extend unemployment benefits or provide additional food-stamp aid.

Representative Charles Rangel, a New York Democrat who heads the tax-writing House Ways and Means Committee, said he did ``not understand, and cannot accept'' the dropping of an extension of unemployment benefits from the final stimulus package.

``These are the families we need to protect in times of recession as they struggle to put food on their tables, clothes on their backs and keep a roof over their heads,'' Rangel said in a statement. Rangel added, however, that he wouldn't block the legislation from ``moving forward.''

Business Incentives

Two business incentives were included in the measure. One would allow large businesses to deduct more of the price of new equipment they purchase this year. Small businesses would be allowed to deduct twice the current limit of $112,000 for new equipment purchases.

Senate Democratic leaders, while praising the House agreement today, said the measure will be amended in that chamber.

Senate Republican Leader Mitch McConnell called for quick action.

``We can all agree that we must act soon if we want to provide timely relief to American families and job creators, and boost our fundamentally strong economy,'' he said in a prepared statement.

WASHINGTON (AP) -- A federal judge said Thursday that CIA interrogation videotapes may have been relevant to his court case, and he gave the Bush administration three weeks to explain why they were destroyed in 2005 and say whether other evidence was destroyed.

Lawyers for several Guantanamo detainees say the government has defied orders to preserve evidence.

Several judges are considering wading into the dispute over the videos.

But U.S. District Judge Richard W. Roberts was the first to order the administration to provide a written report on the matter.

The decision is a legal setback for the Bush administration, which has urged courts not to get involved.

The tapes showed harsh interrogation tactics used by CIA officers questioning al Qaeda suspects Abu Zubaydah and Abd al-Rahim al-Nashiri in 2002.

The Justice Department and Congress are investigating the destruction of the tapes.

When they were destroyed, the government was under various court orders to retain evidence relevant to terrorism suspects at the U.S. detention center at Guantanamo Bay, Cuba. After it became public in December that the tapes had been destroyed, lawyers for several detainees went to court demanding to know more.

"There's enough there that it's worth asking" whether other videos or documents were also destroyed, said attorney Charles H. Carpenter. "I don't know the answer to that question, but the government does know the answer and now they have to tell Judge Roberts."

The Justice Department has warned that a judicial inquiry could jeopardize the criminal investigation. U.S. District Judge Henry H. Kennedy, the first judge to consider the question, held a public hearing before agreeing not to hear evidence in the case.

Earlier this month, a federal judge in New York said destroying the tapes appeared to have violated his order in a case involving the American Civil Liberties Union. But U.S. District Judge Alvin Hellerstein has not yet said how he will rule.

Roberts issued a three-page ruling late Thursday siding with Carpenter, who represents Guantanamo Bay detainee Hani Abdullah. The judge said the lawyers had made a preliminary "showing that information obtained from Abu Zubaydah" was relevant to the detainee's lawsuit and should not have been destroyed.

Roberts said he wants a report by February 14 explaining what the government has done to preserve evidence since his July 2005 court order, what it is doing now and whether any other potentially relevant evidence has been destroyed.

Justice Department spokesman Dean Boyd had no comment.

David Remes, an attorney in a similar case who unsuccessfully sought information about the videotapes, praised the ruling.

"It was only a matter of time before a court ordered the government to account for its handling -- or mishandling -- of evidence in these cases," Remes said.

U.S.: N. Korea to stay on terror list

Rogue trader in $7.2B bank fraud

PARIS, France (CNN) -- French banking giant Societe Generale said Thursday it had uncovered an "exceptional" fraud case that cost it a staggering €4.9 billion ($7.2 billion).

A woman withdraws money from a cash machine at French bank Societe Generale.

The bank said one of its traders, a French man in his 30s, had made "fraudulent" transactions involving European index futures that were beyond his permitted trading limits, then created false transactions to cover his tracks.

Adding to the pain, the bank said it has taken a financial hit as a result of exposure to the subprime mortgage market in the United States.

Several Paris newspapers, citing sources inside Societe Generale, identified the trader as Jerome Kerviel, 31. Contacted by CNN, the bank would neither confirm nor deny that name as the identity of the trader.

The bank said it discovered the fraud over the weekend and confirmed it was an isolated case. It said the employee, who had worked for Societe Generale since 2000, had confessed and would be dismissed, and that his supervisors would also leave the company.

"This activity, concealed and hidden, was of an enormous size and was running considerable risks to the bank and to a lot of operators," chief executive Daniel Bouton told a news conference shortly after the bank announced the fraud.

The bank said the trader, a mid-level employee who earned about €100,000 ($146,000) a year, was responsible for "plain vanilla" basic stock futures in European markets.

Bouton said he had set up a ficticious company and used that to trade futures. His risky trades then racked up losses.

The trader used his knowledge of the company's control procedures to elude detection, Bouton said. The man knew the times he was likely to be checked and avoided fraudulent activity during those times, he said.

Bouton said it did not appear that the trader made money from his transactions, and that he may have been trying to cover up losses.

Had world markets not been so volatile this week, the man's activity might not have been discovered, Bouton said.

"It was through an extraordinary stroke of bad luck that this activity was uncovered quickly in context of the markets' fall initiated by the Asian markets' fall," Bouton said.

The chief executive said the bank's profits were substantially reduced, but that it remained solid and had no solvency problems.

Still, as a result of the fraud, Societe Generale announced it was selling €5.5 billion ($8 billion) to raise capital.

Societe Generale said it would post additional writedowns of €2.05 billion ($2.99 billion) because of exposure to the U.S. subprime mortgage crisis. It means the bank would devalue its assets because it had bought U.S. subprime mortgages which might not be repaid.

The fraud at Societe General is the largest-ever fraud by an individual in the securities business. It eclipses the case of British trader Nick Leeson, whose losses of more than $1.6 billion led to the collapse of Barings Bank.

It is also bigger than the case of Yasuo Hamanako, a Japanese copper trader whose risky bets on copper futures in the late 80s and early 90s cost the Sumitomo Copper company $2.6 billion. He was nicknamed "Mr. Five Percent" because at one time he was said to have controlled five percent of the world copper market.

Shares of Societe General were suspended from trading at the start of the morning, and when trading resumed they immediately dropped by 5 percent before improving slightly to close at 4.1 percent down.

Bouton said he offered his resignation but the board decided not to accept it.

After discovering the fraud, Societe Generale immediately notified the Bank of France, the central bank.

But Bouton faced questions about why the bank did not immediately notify police, and whether that delay allowed the trader, whose whereabouts are now unknown, to flee.

 

Commenting on the scandal, CNN International's Financial Editor Todd Benjamin asked: "Could the fraud have been prevented? I'm sure there has already been and will be a lot finger-pointing in the coming days.

"But the bottom line is if this guy had inside knowledge of the control procedures and used it to his own advantage, then it's tough to see how the bank could have prevented it outside of not hiring him as a trader to begin with."

WASHINGTON (CNN) -- U.S. taxpayers would get checks of several hundred dollars from the federal government under a plan to stimulate the economy, congressional and Bush administration officials said Thursday.

House Speaker Nancy Pelosi, Treasury Secretary Henry Paulson, right, and House Minority Leader John Boehner announce the package Thursday.

"Tens of millions Americans will have a check in the mail," House Speaker Nancy Pelosi, D-California, said at a Capitol Hill news conference. "It is there to strengthen the middle class, to create jobs and to turn this economy around."

House Minority Leader John Boehner, R-Ohio, said, "I'm looking for quick action in the House. I hope that the Senate will follow quickly so that we can put this money in the hands of middle-income Americans as soon as possible."

Speaking a few minutes later at the White House, President Bush said the package will "boost our economy and encourage job creation."

Sources on Capitol Hill and at the Treasury Department said the plan would send checks of $600 to individuals and $1,200 to couples who paid income tax and who filed jointly.

People who did not pay federal income taxes but who had earned income of more than $3,000 would get checks of $300 per individual or $600 per couple.

A Democratic aide and Republican aide said there will be an additional amount per child, which could be in the neighborhood of $300.

Those who earn up to $75,000 individually or up to $150,000 as a couple will be eligible for the payments, said Republican and Democratic sources familiar with the tentative deal.

Pelosi said as many as 116 million American families will get a rebate check.

Checks could be in taxpayer mailboxes by June, according to an Associated Press report.

The agreement includes a robust package of business incentives and help for homeowners facing possible mortgage foreclosures.

The Treasury Department still must analyze the numbers to determine the price tag of the stimulus package, sources said.

To get to the agreement, Democrats dropped calls for increases in food stamps and an extension of unemployment compensation. Republicans agreed to allow people who pay Social Security taxes but not income taxes to get the checks, sources said.

"This package has the right set of policies and is the right size," Bush said Thursday. "The incentives in this package will lead to higher consumer spending and increased business investment this year."

He added, "This package recognizes that lowering taxes is a powerful and efficient way to help consumers and businesses."

The stimulus package may face resistance from fiscal conservatives in both parties over worries that it would increase the federal debt. Auditors report that the federal deficit -- the difference between what the government takes in and what it spends -- is increasing.

The nonpartisan Congressional Budget Office estimated Wednesday the deficit would jump to $250 billion, mainly because of a weakening economy. That estimate does not include any additional spending that would be part of a stimulus package.

The proposal is intended to address economic worries stemming from a worldwide credit crunch created by the mortgage crisis and plunging stock markets. The president proposed the package last week.

Officials in both parties credited Paulson, the former Goldman Sachs executive known for a shrewd grasp of the markets, with pushing the package aggressively.

"He's been on the phone with practically every member of Congress -- some of them a few times," one Senate Republican aide said. "He's not fooling around."

Warning of more turmoil as investors flee markets

Disarmed Ebola virus to aid quest for vaccine

Mark Henderson, Science Editor

Scientists disarmed the Ebola virus by removing a single gene, providing a new laboratory tool that will help the development of drugs and vaccines against the lethal tropical disease.

Efforts to find ways of treating Ebola, a haemorrhagic fever that kills between 50-90 per cent of the people it infects, have so far been greatly held up by its extreme virulence. The extreme health hazard posed by the virus means that it can be studied only in highly specialised laboratories equipped to biosafety level four (BSL 4), the highest category of containment facility.

This is to protect researchers who handle it and to prevent accidental escapes, but it limits studies to about half a dozen laboratories worldwide and often makes research prohibitively expensive.

The new version of Ebola, developed by scientists at the University of Wisconsin-Madison, will allow the virus to be handled at lower levels of security, expanding the opportunities for research.

“We wanted to make biologically contained Ebola virus,” Yoshihiro Kawaoka, who led the study team, said. “This is a great system.”

In the study, which is published in the journal Proceedings of the National Academy of Sciences, the researchers inactivated one of Ebola’s eight genes. Without the gene, known as VP30, the virus cannot replicate itself and grow in human cells.

It can, however, grow in cells which have themselves been genetically modified to produce the viral protein that would normally be made by VP30. This means that it will be possible to study modified Ebola in these modified cells without any risk that a virulent virus might infect people.

“The altered virus does not grow in any normal cells,” Professor Kawaoka said. “We made cells that express the VP30 protein and the virus can grow in those cells because the missing protein is provided by the cell.

“This system can be used for drug screening and for vaccine production.”

Such studies are at present extremely difficult to run, because they are impractical in level-four facilities.

“This is an emerging virus and it’s highly lethal,” Professor Kawaoka said. “But because of the BSL 4 requirement, knowledge of this virus is limited.”

Ebola is thought to have first emerged in 1976 with outbreaks in Sudan and Zaire, and it has several strains. A new strain has recently emerged in Uganda, where it has killed at least 40 people.

The virus causes fever, diarrhoea and vomiting, and often also leads to heavy internal and external bleeding. It is highly infectious and is lethal in more than half of all cases. Treatments are available only to manage symptoms, and there is no human vaccine.

In a separate study published in the same journal, scientists at the US National Institute of Allergy and Infectious Diseases have found a new clue to a version of MRSA that is found in the community in parts of North America.

In Britain the superbug is generally confined to hospitals but in the US “community-associated” MRSA has been identified in settings such as gyms. The new study has isolated a particular strain that is responsible for most of these outbreaks.

Vision of the future seen in bionic contact lens

Prototype includes light-emitting diodes, basic wiring and a tiny antenna

INTERACTIVE Bionic vision A bionic contact lens that includes light-emitting diodes, basic wiring for electronic circuits and even a tiny antenna could change the way we surf the Internet or monitor medical conditions. University of Washington

By Bryn Nelson

Columnist

MSNBC contributor

updated 11:01 a.m. ET Jan. 21, 2008

Bryn Nelson Columnist

Thumper has seen the future.

Researchers at the University of Washington have created the prototype for a bionic contact lens — recently tested on rabbits — that includes light-emitting diodes, basic wiring for electronic circuits and even a tiny antenna. Future versions, the scientists believe, could serve as a flexible plastic platform for applications such as surfing the Internet on a virtual screen, immersing gamers in virtual worlds and monitoring patients’ medical conditions. 

Babak Parviz, an assistant professor of electrical engineering at the University of Washington, said he and his collaborators began by thinking about contact lenses and their normal purpose of correcting vision. What if his group’s collective expertise in nanotechnology and microfabrication could transform the lenses into something else entirely?

Adding displays directly onto the lenses, visible to the wearers but no one else, could project critical information onto windshields for drivers or pilots or superimpose computer images onto real-world objects for training exercises. And with a wireless connection to the Internet, the lenses could allow bus or train riders to surf the Web on virtual screens suspended in midair or pave the way for gaming enthusiasts to immerse themselves in virtual worlds with no restrictions on their range of motion (although perhaps adding a further nuisance for fellow commuters).

A boon for mobile devices
If successful, the bionic lens could prove a huge boon for mobile-device manufacturers.

“One of the problems is that we can make the electronics smaller and smaller, and then the user wants to interface,” Parviz said. “A really tiny display is not useful.” But putting that display directly onto the user’s contact lenses would effectively solve the problem of size and allow personal electronics to continue shrinking. 

Whether a future iPod will come equipped with a bionic contact remains to be seen — literally — but a lens with a basic display could be ready in the near future.

Parviz said the health care field also might benefit from the technology. “How do we constantly monitor someone’s health?” he said. “It turns out that a lot of indicators that tell if a person is healthy or not show up on the surface of the eye.”

A biosensor-equipped lens could provide a non-invasive way of gleaning that information and sending it on to a database or serving as a relay station for data or power from retinal implants designed to correct vision problems.  

Microfabrication technique
One of the first big obstacles for the team was resolving the fundamental incompatibility between the fabrication process for microchips and light-emitting diodes and the types of polymers used for contact lenses. To get around the issue, the researchers first constructed electronic circuits from ultra-thin metal layers — each only one-thousandth the width of a human hair — and fashioned diodes so small that nearly 100 could fit within an inch.

On the lens itself, the researchers created multiple receptor sites that each attracted a separate component by exploiting the same capillary forces that push water up through a plant’s roots. This microfabrication technique allowed the tiny parts to self-assemble on the surface of the lens and bind themselves together to form the different devices. Although circuitry covers much of the current prototype’s surface, Parviz said there should be enough room on the periphery of the lens to ensure that future nano-gadgetry wouldn’t obstruct a person’s view. 

For the prototype, the group successfully integrated an antenna, tiny metal wires for an electronic circuit, and red light-emitting diodes onto the lens surface. Harvey Ho, a former graduate student in Parviz’s lab, presented the research Thursday at the Institute of Electrical and Electronics Engineers’ international conference on Micro Electro Mechanical Systems in Tucson, Ariz.

Focusing on image quality
Some scientists have been less gung ho. Daniel Palanker, a retinal implant expert at Stanford University, questioned the ability of a display generated by the contact lens to produce a sharp image on the retina of its wearer’s eye, noting that the normal focal distance for seeing objects clearly is about 25 centimeters in front of a person’s eye.

But Glenn Chapman, a professor in the School of Engineering Science at Simon Fraser University in Burnaby, British Columbia, said researchers could overcome that obstacle by precisely adjusting the angle of incoming light emitted by diodes on the contact lens.

Assuming the light beam is high-quality, he said, correcting the beam's incoming angle could make up for the cornea's lack of focusing ability and instead allow the transparent crystalline lens behind the eye's iris to focus the image onto the wearer's retina. Of course, contact-wearing rabbits won't be able to tell researchers when they've hit upon the right angle to produce a crisp image, Chapman said, but an artificial eye overlaid with the lens could do the trick.

Parviz said his team also will try to pair microlenses to each pixel in a display created by the contact lens, hopefully manipulating the image and changing its perceived location in such a way that the viewer would have the feeling of seeing an in-focus picture suspended in midair. But he agreed that the challenge will be a complicated one. "It's unprecedented," he said. "No one has ever tried to form an image right on the surface on the cornea."

As for the microfabrication process, Chapman said he was impressed with how the self-assembly technique allowed the University of Washington researchers to basically float into position metal pieces that normally don't adhere well to plastic surfaces. The technique had been developed previously by Parviz and others, he said, "but it's a nice application of it."

And with further advances in the microfabrication field, Chapman said, the potential is "very high" for wires that are essentially invisible to the human eye and for even tinier organic light-emitting diodes.

'Like a normal contact lens'
If size isn’t necessarily a limitation, adequate power could be. Parviz said his group is now working on the issue of how to run displays or biosensors without the need for awkward batteries. So far, the prototype’s lens-mounted antenna has shown promise in collecting radio frequency waves and turning them into useful energy.

If all goes well, putting in or taking out the bionic lens should be as easy as popping a regular one in or out, he said. “It should feel like a normal contact lens. It should be completely smooth against the surface of the eye.”

Which isn’t to say the lens is inconspicuous. “If you look into the rabbits’ eyes, you would notice that something is going on,” Parviz said.

Nevertheless, the rabbits tolerated the bionic lenses well during their 20-minute fittings, though none of the systems have yet been switched on. The group has yet to seek permission for the necessary safety trials in humans.

If safety and engineering issues are addressed, future iterations could perhaps be engineered to camouflage the circuitry, thus sparing bionic lens-wearing commuters the stares of passersby swearing they’d just seen the Terminator or a visor-less Geordi La Forge from “Star Trek: The Next Generation.”

LONDON, England (CNN) -- Stock markets around the world plummeted Monday, prompted by pessimism about U.S. President George W. Bush's plans to boost the U.S. economy.

Tokyo investors are worried about how a possible U.S. recession could hurt exporters' profits.

From Paris to Mumbai to Tokyo, it was one of the worst days for stocks since the terror attacks of September 2001, as share prices in Asia, Europe and the Americas all plunged by significant amounts; Wall Street only avoided joining the tumble because U.S. markets were closed Monday for Martin Luther King Day.

Investors remain skeptical about Bush's plan and are worried that a U.S. slowdown will lead to a global recession.

If the United States slips into recession, Americans may buy fewer goods, especially those from overseas. That's why shares from Toyota in Tokyo to BMW in Frankfurt were down heavily.

Markets in Europe reacted with London's FTSE 100 Index down 5.5 percent at 5,578.20; the CAC-40 in Paris down 6.8 percent to 4,744.15; and Frankfurt's DAX dropping 7.2 percent to 6,790.19.

In Japan, the benchmark Nikkei 225 index closed on 13,325.954 points, a slide of 3.9 percent and its biggest dip in two years. Shanghai's Composite index fell 5.1 percent.

Hong Kong's Hang Seng index suffered its largest percentage drop since the terrorist attacks of September 11, 2001 when it fell 5.5 percent to 23,818.86 points.

India's Sensex stock index fell nearly 1,353 points or 11 percent -- its second biggest percentage drop ever -- to 17,605.35 points before recovering to 7.4 percent.

Markets also dove across South America, where the United States is the largest trading partner for many economies. Brazil's Bovespa exchange, the continent's largest, closed down 6.6 percent, Argentina's Merval dropped 6.3 percent, Colombia's IGBC was down 7.7 percent and Peru's General Index was off 8.4 percent.

In North America, the Toronto stock exchange fell 4.75 percent, while Mexico City closed down 5.35 percent.

The Dow Jones industrial average, which was not trading Monday, finished Friday 0.5 percent down at 12,099.30. It has now lost more than 8 percent of its value since the year began.

On Friday U.S. President George W. Bush announced an economic stimulus plan involving a $145 billion tax relief package.

"I think a lot of people had been hoping that when the new year started that we would find that the U.S. housing market's problems were largely isolated to that market," said Royal Bank of Scotland's Kit Jukes. "Every piece of news we've had since Christmas has argued against that position."

Traders now want to see how Wall Street reacts when it reopens Tuesday. "I think the expectation is the U.S. will open further down tomorrow," said analyst Howard Wheeldon of BGC Partners. "That is a big kick in the teeth for President George W. Bush."

Banks also fell hard as the lending policy during the boom time continues to concern analysts. Banks and insurance companies also own a lot of equities.

Commodity-led shares, like oil firms and mining companies, were also hit hard, after flying high for most of 2007. If the world economy falters consumers are likely to less oil and buy fewer products like gold and copper.

CNN's Eunice Yoon said investors are wondering whether Bush's tax breaks will tackle weaknesses in the financial and housing sectors whiel also persuading people to get spending.

"People out here in Asia rely very heavily on the consumer in the United States and that's one of the reasons why Toyota, which has about 54 percent of its business in the United States, saw its share price tank this morning," she said.

By only the 14th trading day of 2008, shares in Europe's main markets are now down between 12 to 15 percent on the year. During the market gyrations of 2007, sharp falls were often followed by sharp rises. There is no evidence of that yet in 2008.

By Masahiro Hidaka

Jan. 22 (Bloomberg) -- There's almost no chance that Japan will fail to appoint a central bank governor before Toshihiko Fukui's term expires in March, an opposition lawmaker said.

``It's 99 percent impossible'' that the Bank of Japan's top position will be left unfilled, Kohei Otsuka, deputy head of the Democratic Party of Japan's upper house policy council, said in an interview in Tokyo on Jan. 17. DPJ leader Ichiro Ozawa ``has no intention'' of letting the post become vacant, Otsuka said.

The party's landslide victory in Upper House elections last July gives it the power to block the nominations for Bank of Japan governor. Some economists say a stand-off between the government and opposition could delay any appointment, leaving a leadership void at the central bank.

``The chances are better than half they won't find a replacement for Fukui in time,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``Everything depends on Ozawa, who's basically the DPJ's decision maker.''

The DPJ already vetoed three of 28 candidates for other government-appointed jobs in November, the first such rejections in parliament in 56 years.

Otsuka said the government should present three candidates: a former central banker, an ex-Finance Ministry official and another person with neither experience. Otsuka, who worked at the central bank until 2000, is one of the DPJ's lawmakers involved in the process for selecting the governor.

Opposition to Muto

In 2003, the DPJ opposed the appointment of Deputy Governor Toshiro Muto, a former Finance Ministry official, citing objections to parachuting senior bureaucrats into top government appointments. Muto is the frontrunner to replace Fukui, according to a Bloomberg News survey of economists in December.

Muto meets required credentials, but ``there are other former Finance Ministry officials who also do,'' Otsuka said.

``The DPJ believes a Muto-led bank would be less independent from the bureaucracy,'' Morgan Stanley's Sato said. ``The DPJ believes monetary policy and fiscal policy should be absolutely separate.''

Fukui's policy board will leave the benchmark overnight lending rate at 0.5 percent at the conclusion of a two-day meeting in Tokyo today, according to all 38 economists surveyed by Bloomberg News.

The government wants to begin the selection process for appointing the governor and two deputies in February, Chief Cabinet Secretary Nobutaka Machimura said on Jan. 11. The five- year terms of both Muto and fellow deputy Kazumasa Iwata also expire in March.

Negative Effects

Otsuka said he will consider reappointing the current deputy governors because there may be negative effects from reshuffling the three leadership posts at the same time.

Otsuka named Yutaka Yamaguchi, a former deputy governor and now adviser to Barclays Plc, as a possible candidate to head the central bank, adding that those who don't have experience as deputy may also qualify.

Other people economists say could replace Fukui include Kazuo Ueda, a former central bank board member, and Haruhiko Kuroda, head of the Asian Development Bank and a former Finance Ministry official.

Otsuka said there may still be a 1 percent risk of a leadership vacuum, but that will ``depend on how the government and the ruling coalition handle the matter.''

Fellow DPJ lawmaker Naoki Minezaki, also involved in the selection process, said in an interview last month that a vacancy would be a ``disaster.''

To contact the reporter on this story: Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net .

By Patrick Rial

Jan. 22 (Bloomberg) -- Japan's stocks plunged, with the Nikkei 225 Stock Average set for its worst two-day drop in more than a decade. The yen strengthened while commodities prices and European shares plunged, adding to concern world economic growth is faltering.

Honda Motor Co. fell to the lowest since September 2005, and Canon Inc. extended its decline for the year to 18 percent after the yen rose to the highest in more than two years against the dollar and five months versus the euro. Both companies generate the majority of their revenue abroad.

The Nikkei 225 Stock Average slipped 641.21, or 4.8 percent, to 12,684.73 as of 9:55 a.m. in Tokyo. The index has lost 8.4 percent in the last two days, its biggest drop over two sessions since December 1997. The broader Topix index fell 61.55, or 4.8 percent today, to 1,232.19.

Europe's Dow Jones Stoxx 600 Index sank 5.7 percent yesterday, pushing it into a bear market, and the price of crude oil dropped to the lowest in more than a month.

``Losses are causing investor sentiment to take a turn for the worse,'' Terunobu Kinoshita, who helps manage $785 million at Fund Creation Co. in Tokyo, said in an interview with Bloomberg Television. ``Previously investors had drawn comfort from the strength of emerging markets and European shares.''

Honda, Japan's second-largest automaker, fell 150 yen, or 4.8 percent, to 2,950. Canon, the world's largest seller of digital cameras, tumbled 190 yen, or 4.3 percent, to 4,250. Elpida Memory Inc., the nation's largest memory chipmaker, plunged 270 yen, or 7.5 percent, to 3,340.

Commodities Slump

The yen strengthened to as high as 105.62 against the dollar, a level not seen since May 2005. Versus the euro, Japan's currency rose to as high as 152.32, the strongest since August 17. A stronger yen decreases the value of Japanese exporters' sales made overseas when converted into local currency.

Crude oil for February declined 2.1 percent to $88.69 per barrel in New York yesterday, the lowest since Dec. 12. A measure of six metals traded on the London Metal Exchange, including copper and zinc, slid 3.4 percent, the most in two months.

Mitsui & Co., which generates the biggest proportion of its profit from commodities trading, dropped 134 yen, or 7.2 percent, to 1,734. Sumitomo Metal Mining Co., Japan's biggest nickel maker, lost 119 yen, or 7.2 percent, to 1,529.

Nikkei futures expiring in March declined 4.3 percent to 12,740 in Osaka and dropped 4.4 percent to 12,725 in Singapore.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net .

By Mike Firn and Hiroshi Suzuki

Jan. 22 (Bloomberg) -- Sony Corp., the world's video-game console maker, sold a record number of PlayStation 3 machines in Europe during the holiday shopping season after lowering prices to compete against Nintendo Co.'s Wii.

Sony, which began selling PlayStation 3s in Europe in March, shipped about 1.2 million consoles in the region during the five- week period ended Dec. 31, Kazuo Hirai, president of Sony's game division, said in a Bloomberg Television interview aired today. That's in line with U.S. shipments during the period, he said.

Price cuts and the introduction of a cheaper model helped Sony approach its goal of selling 11 million PlayStation 3s in the year ending March. Still, analysts at Nikko Citigroup Ltd. and Daiwa Institute of Research Ltd. predict the Tokyo-based company will miss the target after being outsold by the Wii and Microsoft Corp.'s Xbox 360.

``It's an industry consensus that PS3 sales will fall short of the target,'' said Mitsuhiro Osawa, a Tokyo-based analyst at Mizuho Investors Securities Co., who rates Sony shares ``outperform.'' ``Sony must think it's okay as long as the game business doesn't drag much on its overall earnings.''

Sony, which generated 12 percent of revenue from the game unit during the three months ended Sept. 30, has posted seven straight quarters of losses at the division.

Higher sales, coupled with lower production costs, will reduce the company's operating losses related to PlayStation 3s by 90 percent to $158 million in the fiscal second half ending March 31, according to Dec. 27 estimates by Nikko Citigroup.

Shares Fall

Sony fell 3.3 percent to 5,310 yen as of 9:16 a.m. on the Tokyo Stock Exchange, contributing to a 14 percent decline this year. The benchmark Nikkei 225 Stock Average dropped 4.1 percent today.

In October, Sony cut prices by 100 euros ($145) in Europe, 17 percent in the U.S. and as much as 10 percent in Japan to compete with the Wii and Xbox 360. The company also introduced a cheaper model, equipped with 40 gigabytes of storage capacity, after removing components that allowed the machine to function with PlayStation 2 games.

``We want to promote games only available for PlayStation 3,'' said Hirai, president of Sony Computer Entertainment Inc. ``The introduction of the 40-gigabyte model is in line with that strategy.''

In November, the PlayStation 3 outsold the Wii for the first time in Japan and almost doubled its market share in the U.S., according to estimates at research firms Enterbrain Inc. and NPD Group Inc. Sony this month said it would discontinue the sale of its two priciest PlayStation 3 models to focus on the cheaper 40- gigabyte machine.

Missing the Target

Sony is expected to sell 8 million PlayStation 3s in the year ending March 31, missing its annual target by 27 percent, Daiwa said in a Jan. 18 report. Nintendo will probably sell 19 million Wii machines and Redmond, Washington-based Microsoft will ship 9.1 million Xbox 360 consoles, according to Daiwa.

``We haven't made any conclusion whether we have to give it up,'' Hirai said, referring to this fiscal year's 11 million shipment target. ``It depends on how aggressively dealers buy our PS3 inventory.''

Chief Financial Officer Nobuyuki Oneda said on Oct. 25 that Sony may miss the goal.

Nintendo's Wii sales will exceed those of Sony's game consoles, including the PlayStation 2, next fiscal year, according to Tokyo-based Daiwa.

Sony failed to sell as many machines as Nintendo and Microsoft in the market for the latest generation of consoles partly because it trailed behind rivals in the ``completeness'' of its lineup of games, Nikko Citigroup analysts Kota Ezawa and Soichiro Fukuda wrote in a Dec. 27 report.

To spur the development of titles, Sony in November slashed by 50 percent the price of a software package used by programmers to develop games in Japan and the U.S.

To contact the reporters on this story: Mike Firn in Tokyo at mfirn@bloomberg.net ; Hiroshi Suzuki in Tokyo at hsuzuki5@bloomberg.net .