Stronger exports and a surging euro currency propelled the euro zone's current account balance of payments into surplus last year, reversing the deficit of 2001, the European Central Bank said on Monday.

The surplus for 2002 was 62.0 billion euros, in contrast to the shortfall of 13.8 billion euros the year before.

The shift, equivalent to 1.0 percent of the 12-nation euro area's gross domestic product, resulted from a 2.4 percent increase in exports and a 3.4 percent drop in imports, which led to a substantial increase in the net surplus on traded goods, the ECB said.

Over that period, the euro has risen by over 17.9 percent against the dollar, making imports cheaper.

But analysts doubt the sizeable improvement can be sustained. It was the first current account surplus for the region since the euro currency was launched in 1999, although in 1998 the equivalent region had a 60.3 billion euro surplus, according to ECB figures.

"The trend will go toward a less sizeable surplus in 2003," said Christoph Wiel, senior economist for Commerzbank in Frankfurt. Euro strength is starting to hurt the export sector and oil prices are rising, which will be partly offset by weak consumer demand checking imports, he said .

Markus Heider, senior economist at Deutsche Bank in Frankfurt, agreed. "There is not much hope that exports, at least in the first quarter, will bring any stimulus. So we have very weak internal demand and weak external demand."

The balance of payment figures did not have an impact on the euro , with traders focused on Japan naming a new central bank governor. Debt markets likewise were concentrating on prospects for an ECB interest rate cut, possibly next month, to offset weak growth in the area.

For December, the current account surplus stood at 8.1 billion euros, down from 10.3 billion euros in November, with traded goods declining while services gained.

Portfolio investment money flowed out of the region in December, registering a net loss of 13.9 billion euro, compared with an inflow of 9.7 billion in November. There were almost equal net outflows of equity portfolio investments, and bonds, notes and money market instruments.

For the year, portfolio investment was up, with a net inflow of 50.4 billion euros compared with 38.1 billion inflow in 2001.

Direct investment grew in December to register a net 9.6 billion inflow, but that was largely due to repayment of inter-company loans by euro area residents, the ECB said.

Markets bet on rate cut

Euro zone interest rate futures rocketed to record highs as money markets shortened the odds on a March cut after the European Central Bank signalled at the weekend it may lower interest rates.

ECB President Wim Duisenberg said on the sidelines of a Group of Seven meeting in Paris the bank had lowered its outlook for the economy of the 12-member euro zone and that persistent uncertainties and threat of war with Iraq had stymied growth prospects.

"There is some change in sentiment, I think the ECB obviously are aware of the effect that the appreciation of the euro has had -- quite a negative impact on the large exporters such as Germany -- so the thinking behind the current move is that there has been a change in stance," said Jon Lee, international rate strategist at Barclays Capital in London.

March Euribor futures , an indicator of euro zone rate expectations, hit a contract high of 97.565 after soaring to their highest level on a continuation basis since their launch in January 1999.

March Euribor was last at 97.535, up 120 bps. Money markets are pricing in an 85 percent chance of the ECB cutting rates by 25 basis points in March, up from a 50 percent chance last week.

June Euribor also hit a new contract high, at 97.765, and almost fully prices in a 50 basis point cut by mid-year. Duisenberg said on the sidelines of the meeting of G7 finance ministers and central bankers that economic uncertainty had, if anything, increased. He added that "the prospects of an economic recovery to potential growth this year is not supported by the latest information". Duisenberg said that if the bank got new information or made new assessments about the medium term outlook for price stability or the economy "we will not hesitate to act".

The ECB's key interest rate stands at 2.75 percent and will be reviewed at its policy meeting on March 6. "Duisenberg appears to be saying that the slow start this year means it is unlikely we would hit targets for economic growth later in the year," said Marc Ostwald, a bond broker at Monument Securities in London.

"With inflation likely to fall below the ECB's two percent target, perhaps in the second quarter, current rates no longer appear appropriate." Ostwald said a 25 basis-point rate cut could be in the offing as soon as the meeting of the ECB's governing council on March 6, with another 25 basis-point cut by June.

Duisenberg's weekend comments marked a departure from the mood in his testimony to the European Monetary Affairs Committee last week, during which he left the door open for easing monetary policy, but gave no hint that a cut could be coming soon to stimulate growth in the region.

"I think (the ECB) is coming to terms with reality. We were largely expecting a rate cut so it's not a dramatic surprise but the market is behaving quite violently as if it were a surprise," Barclay's Capital's Lee said.

The euro was easier on Monday, but the single European currency remained close to three-year highs against the dollar. Lee said the sustained flight out of U.S.-denominated assets because of a possible war with Iraq, rising unemployment and a swelling budget deficit in the United States was evidenced by a growing net long position in eurodollars. The most recent weekly Commitment of Traders report from the Commodity Futures Trading Commission showed the net long position in three-month eurodollars had risen to 4,081,896 lots, which Lee said was a record high.

"The CFTC speculative positions show new record longs in combined eurodollars as specs being particularly bearish about the outlook for the U.S. economy," he said.

Investment bank Lehman Brothers is placing 3.6 million shares, or a 1.26 percent stake, in French auto maker Renault on behalf of French media group Lagardere , dealers said.

The shares are being sold via a quick auction to institutional investors, known as an accelerated bookbuilding process, they said.

Renault declined comment, while both Lagardere and Lehman Brothers were unable to comment immediately.

At 1040 GMT, shares in Renault were off 2.23 percent at 38.95 euros. Lagardere was one of a group of French firms that took a stake in Renault when shares in the automaker were sold on the market in 1995.

Through its Matra Automobile unit, Lagardere has produced a number of vehicles for Renault. But last year Renault grabbed back production of its Espace van from Matra, leaving the Lagardere unit with only the Avantime coupe to manufacture at its plant at Romarantin in central France.

The futuristic Avantime has had lacklustre sales, with only 30 of the models coming off assembly lines each day. Last year, sales at Lagardere's auto unit slumped 31 percent to 782 million euros.

Last week, Lagardere chief Jean-Luc Lagardere resigned from the board of Renault in a move many viewed as a prelude to a more formal split. "This has been talked about for quite some time," said Stephen Reitman of Merrill Lynch. "It is better that the (share) overhang is dealt with."

The following statement was released by the ratings agency. According to a research report published on Feb. 21, 2003, by Standard & Poor's Ratings Services, speculative-grade consumer-oriented credit ratings, especially those of companies that have been acquired through leveraged buy-outs (LBOs), tend to be primarily driven by their weak financial profile.

"Standard & Poor's weighs immediate financial risks of these entities more heavily than potential business profile benefits, which can only accrue if a business remains viable over the longer term," said Hugues de la Presle, a credit analyst at Standard & Poor's Corporate Ratings Europe.

These overriding financial risks can stem from issuers' limited access to alternative sources of funding, dependence on steadily increasing internally generated cash flows to meet their financial commitments, onerous debt amortization schedules, and tight financial covenants. High-yield retail, consumer goods, media, and leisure companies, currently represent more than 25% of all Western European corporates in the 'BB' and 'B' categories. Standard & Poor's business risk analysis of such speculative-grade credits--as with that of investment-grade issuers--focuses on industry risk, competitive position, and operating efficiency.

However, an attractive business profile's ability to positively influence a company's rating becomes more limited according to the level of financial stress."The ability of speculative-grade issuers to meet debt repayments through internally generated cash flow is a critical rating factor," said Mr. de la Presle. "Although investment-grade issuers normally have ready access to external cash funding to cover temporary shortfalls, speculative-grade credits--especially LBOs--usually lack this flexibility and are often prevented by their financial documentation from utilizing alternative sources of credit or even sale of assets for repaying debt."

To evaluate an issuer's ability to meet its senior debt repayments, expected prefinancing cash flow is compared with the credit's senior debt repayment schedule.

The ability of issuers to effectively deleverage and rapidly improve their debt protection measures is also a primary rating factor, and one that can enable ratings to be forward looking, even when debt ratios are weak.Most speculative-grade issuers, particularly LBOs, have financial covenants on their senior bank debt, which often gradually tighten over time. Standard & Poor's will likely take negative rating actions if these covenants are at risk of being breached. This reflects that a breach of senior debt covenants, leading to an event of default, could enable secured lenders to gain control over the major assets of a company. These circumstances are usually very negative for junior debtholders.

"Ultimately, neither the business profile nor any given set of financial ratios is likely to be sufficient in itself to support a rating if liquidity is constrained by financial covenants or looming debt amortization," said Mr. de la Presle.

Singapore gas oil prices rose with support from steady demand that outweighed what traders said was a recent rise in supplies from Singapore refiners.

"Everybody's happy with the price. It's not too strong and not too weak. They will keep buying cargoes at these levels, which helps to counter more supply from every refinery," said one Singapore-based trader with a European oil major. However, one Singapore refinery official said crude throughput could not be raised.

"There isn't oil enough around to raise runs," he said. Still, gas oil took support from talk of a fresh buy tender for April from Sri Lankan oil company Ceypetco, which could seek 40,000 tonnes as soon as Tuesday, a company official said. And prices were underpinned by buying interest from the refiners Petron in the Philippines and PTT in Thailand, and by active paper market buying, traders said.

However, gains were capped by the availability of unplaced barrels from South Korea and Malaysia, and concerns that Singapore refiners may have raised runs to cash in on the firm price spread between gas oil and benchmark Middle East crude. Brokers said the March gas oil crack spread put the product at $8.20 a barrel above Dubai crude, marginally weaker compared with $8.40 in early trade.

The gas oil cash market saw one buyer, four sellers, and one deal done for a late March cargo when Kuo Oil paid a premium of $1.55 per barrel to the average of April prices for 150 million barrels from Onyx for lifting from March 22-26, traders said.