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Fuel Costs Cause Interest Rise in South Korea


Fear of higher inflation caused by increased energy costs has prompted South Korea to raise its interest rates, while Malaysia will be making the use of alternate fuel mandatory.

South Korea has raised its interest rates for the first time in more than three years. The Bank of Korea increased its key rate target for October by a quarter of a point, to 3.5 percent.

Korea expert Joseph Lau of Credit Suisse First Boston in Hong Kong says the rise was mainly a response to expectations of higher inflation, due to increased energy prices.

"It is also based on a fair level of confidence that the economic cycle has thrived and that Korea is embarking on, if not a strong domestic economic recovery, at least on a firm economic recovery, particularly in consumption and to some extent investment," said Mr. Lau.

Climbing oil prices and dwindling petroleum supplies have prompted Malaysia to look for energy alternatives. The government has announced plans for a mandatory switch from straight diesel oil to bio-fuel by 2008.

Bio-fuel is a blend of diesel mixed with five percent processed palm oil, of which Malaysia is the world's largest producer. The government is negotiating with Malaysian petroleum companies to manufacture the new fuel.

Singapore's economy in the third quarter was up six percent over the previous year, and analysts believe growth for the entire year will be higher than the 4.5 percent predicted by the government.

The third-quarter growth was led by the manufacturing sector, the main driver of the economy. It rose 10 percent from a year earlier. The Ministry of Trade and Industry said the expansion was driven by an upsurge in biomedical manufacturing. Officials said biomedical research and production would be a priority area for Singapore in the long term.

Singapore's service industry was also up, helped by tourist arrivals that reached a record high in July, when the International Olympic Committee met in the city to pick the host of the 2012 Summer Games.

BNP Paribas, the second-largest bank in France, has signed a deal to buy almost one-fifth of China's Nanjing City Commercial Bank. The deal, the French lender's first direct investment in a Chinese bank, still requires Chinese regulatory approval, and is expected to be finalized by the end of this year.

When it joined the World Trade Organization in 2001, Beijing committed itself to opening its banking industry fully to foreign competition by the end of 2006. Foreign acquisitions in China's banking sector have increased this year as a result.

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