By Andrea Shalal

WASHINGTON (Reuters) - Developing countries spent nearly half a trillion dollars to service their external public and publicly guaranteed debt in 2022, draining funds from critical health, education and climate needs, and putting the poorest countries at increasing risk of "tumbling into a debt crisis," the World Bank said on Wednesday.

In its latest International Debt Report, the bank said the debt-service payments - including principal and interest - rose 5% to a record $443.5 billion from a year earlier amid the biggest surge in global interest rates in four decades. It said the payments could shoot 10% higher in 2023-2024.

The 75 poorest countries were hardest hit, said the report, now in its 50th year. Their external public debt service payments reached a record $88.9 billion in 2022 and would surge by 40% over the 2023-2024 period. Their interest payments alone had quadrupled since 2012 to $23.6 billion, it said.

"This is the decade of reckoning," World Bank chief economist Indermit Gill told Reuters in an interview. "Record debt levels and high interest rates have set many countries on a path to crisis,” he said, warning that continued high interest rates would push more developing countries into debt distress.

Gill said he was paying close attention to Ethiopia's discussions with bondholders after a breakdown in talks over how long to extend the maturity and spread out repayments of its single $1 billion international bond maturing in December 2024.

"Ethiopia is like a canary in the coal mine," he said. "It's the biggest country that would default. That's an important one. It's one of the five biggest economies in sub-Saharan Africa."

Ethiopia is careening toward default after it said last week it could not pay a $33 million bond coupon due on Monday.

Gill told reporters that steep debt servicing costs, high debt burdens and slowing growth in many countries raised concerns about a new debt crisis and the risk of contagion, but said he does not view that risk as "imminent."

He said the situation would remain difficult for developing countries, with past experience indicating that interest rates were unlikely to come down "anytime soon" especially since supply shocks could jack up inflation again quickly.

Gill called for "quick and coordinated action" by debtor countries, private and official creditors, and multilateral financial institutions to improve transparency, develop better debt sustainability tools, and speed up debt restructurings.

African countries faced "another lost decade," Gill told Reuters, noting they had seen no per capita income growth since 2014 on average.

The report said one in every four developing countries was now priced out of international capital markets and there had been 18 sovereign debt defaults in 10 countries over the past three years, more than in the past two decades combined.

Debt service payments consumed an ever-larger share of export revenues, with some countries now "just one shock away from a debt crisis," Gill wrote in the report, noting that about 60% of low-income countries already in or at risk of debt distress. Domestic debt levels were also high in countries like Argentina and Pakistan, increasing risks.

Countries that deferred making principal and interest payments under the Group of 20's Debt Service Suspension Initiative (DSSI) adopted during the COVID pandemic also faced additional costs now that those payments were due, the bank said, although exact data won't be reported until 2024.

The report noted private capital had largely withdrawn from developing countries, favoring higher interest rates in advanced economies. Private creditors received $185 million more in principal repayments than they disbursed in loans, the first time that was seen since 2015. Overall, there was a net outflow of $127.1 billion from low- and middle-income countries to bondholders, compared to an average inflow of $202 billion from 2019-2021.

The World Bank and other multilateral creditors, helped fill the gap, providing a record $115 billion in new financing for developing countries in 2022, the report said.

By Laura Matthews and Carolina Mandl

NEW YORK (Reuters) - U.S. Treasury market participants hope the securities regulator will heed pleas for a careful phase-in of a rule it is due to finalize on Wednesday that would force more central clearing of transactions in a seismic overhaul of the $26 trillion market.

The top five Securities and Exchange Commission (SEC) officials are scheduled to vote at 10:00 a.m. ET on the rule. It was proposed over a year ago in a broad effort to boost Treasury market resilience during liquidity crunches, when buyers and sellers find it hard to complete transactions.

If adopted, the reforms would mark the most significant changes to the world's largest bond market, a global benchmark for assets, in decades.

"This is going to significantly change the Treasury market landscape," said Angelo Manolatos, macro strategist at Wells Fargo Securities, citing "a lot of costs."

The rule could also potentially increase systemic risks by concentrating risk in the clearing house, he added.

A central clearer acts as the buyer to every seller, and seller to every buyer. Overall, just 13% of Treasury cash transactions are centrally cleared, according to estimates in a 2021 Treasury Department report, referring to the outright purchase and sale of those securities.

The draft rule, which applied to cash Treasury and repurchase agreements, was partly aimed at reining in debt-fueled bets by hedge funds and proprietary trading firms. These firms have accounted for a growing chunk of the market over the past decade but are lightly regulated, allowing few insights into their activities.

Many details about the final rule remain unknown, including the effective date, whether it would be adopted in phases, the scope of instruments, and parties included.

Advocates for central clearing, including the SEC, say the rule makes markets safer, while critics say it adds costs and are concerned about the possibility of a hurried phase-in.

"It is critical that policymakers do not blindly tinker with (the Treasury market's) underpinnings," wrote Jennifer Han, head of Global Regulatory Affairs at the Managed Funds Association in a Dec. 4 letter.

The MFA stressed the market infrastructure needs to be more fully developed and recommended improving the way clients access clearing.

Hedge fund and market maker Citadel said in a comment letter that the clearing requirement for cash transactions should be expanded beyond hedge funds to include a broader range of investors, leveling the playing field.

Another key issue is whether the SEC will require minimum "haircuts" on collateral pledged against trades, which would raise trading costs and potentially reduce market liquidity. A haircut is a percentage deduction from the collateral value.

Industry practice suggests that a large share of hedge funds trading in repo markets put up no haircut, suggesting that they are fueling activity using enormous amounts of cheap debt.

The Depository Trust and Clearing Corporation's (DTCC) FICC subsidiary clears Treasuries and could be tasked to come up with rules.

"The implementation timeline is quite important," said Gennadiy Goldberg, head of US rates strategy at TD Securities USA. "And what are the haircuts? Those are the two big questions that the market is going to be asking."

STEADYING THE MARKET

The rule is part of a series of reforms designed to boost Treasury market resilience following liquidity crunches. In March 2020, for example, liquidity all but evaporated as COVID-19 pandemic fears gripped investors.

"While central clearing does not eliminate all risk, it certainly does lower it," said SEC Chair Gary Gensler in the 2022 press release announcing the proposed rule.

The DTCC said in a comment letter that during times of market stress, market participants submit a greater volume of transactions for clearing to limit their credit risk.

Jason Williams, director of U.S. rates research at Citi, said there were pros in having additional margin in the system but balancing that are higher costs.

"It's going to be an interesting juggling act," he added.

By Rae Wee

SINGAPORE (Reuters) - Asian shares were mixed on Wednesday, while oil prices slid to six-month lows as traders waited for the year's final policy decision from the Federal Reserve and clues on whether the central bank will cut rates next year.

Brent bottomed at $72.75 a barrel, its lowest level since late June, while U.S. crude slid to $68.14 a barrel on concerns of softening demand and oversupply. [O/R]

The Fed takes centre stage on Wednesday, where it is due to announce its rate decision at the conclusion of its two-day policy meeting.

Market expectations are for policymakers to keep rates on hold, unfazed by a reading on U.S. inflation that came in largely in line with consensus.

That leaves focus on Powell's press conference and the Fed's dot plot of future policy trajectory.

"The December FOMC is poised to be short on action, given the consensus for no rate hike, but may nevertheless be big on drama," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

"In particular, as a refreshed dot plot accompanied by revisions to the summary of economic projections that offer ample fodder to interpret the propensity for a Fed pivot... as well as confidence around a soft landing.

"But the growing danger is that the Fed's inclination may be to calibrate expectations for a pivot."

Nonetheless, investors continue to bet that the Fed is all but certain to begin easing monetary policy in 2024, and are pricing in a 75% chance the first cut could come as early as May, according to the CME FedWatch tool.

Those expectations kept market sentiment buoyant, lifting U.S. stocks to fresh 2023 highs on Tuesday. [.N]

MSCI's broadest index of Asia-Pacific shares outside Japan however failed to extend the rally and edged 0.2% lower, though moves were subdued ahead of the Fed decision,

Japan's Nikkei bounced 0.6%.

In China, blue-chip stocks fell nearly 0.5% while Hong Kong's Hang Seng index slid 0.8%, as investors continue to look for clues for further policy support from Beijing.

U.S. bond yields hovered near their recent lows, with the two-year Treasury yield last at 4.7245%, having earlier in December hit a nearly six-month trough of 4.5400%.

The benchmark 10-year yield steadied at 4.2006%, near its lowest in three months. [US/]

In the currency market, the U.S. dollar was on the defensive and stood at $1.2558 on the British pound.

British wage growth slowed by the most in almost two years, data on Tuesday showed, though pay was likely still rising too fast for the Bank of England to relax its tough stance against cutting interest rates.

The greenback meanwhile last bought 145.48 yen.

While investors look for signs of rate cuts next year across major central banks, over in Japan, many are betting for the Bank of Japan (BOJ) to shift away from its ultra-loose monetary policy.

"We expect the BOJ to stay steady at the December meeting," said analysts at Maybank in a note.

"We still think they will only exit (negative interest rate policy) and (yield curve control) in Q2 2024 after a strong spring wage negotiations' result."

In commodity markets, gold was kept pinned near a three-week low and was last at $1,980.79 an ounce.

By Ankika Biswas, Khushi Singh and Bansari Mayur Kamdar

(Reuters) -France and Germany's benchmark stock indexes briefly touched record highs on Tuesday after data showed U.S. consumer prices unexpectedly rose last month, adding to nervousness in a week packed with interest rate decisions by major central banks.

The pan-European STOXX 600 slipped 0.2% by the close, as traders pulled back bets the Federal Reserve could start interest rate cuts as soon as March after the U.S. consumer prices report.

France's CAC-40 index eased 0.1% after rising as much as 0.4% and hitting an all-time high of 7,582.47 points intraday.

Germany's DAX gained as much as 0.3% and touched a record high of 16,837.18 points, before closing the session flat.

Also weighing on the market, British wage growth slowed by the most in almost two years, though pay is probably still rising too fast for the Bank of England to relax its stance against cutting interest rates.

"I'm expecting all the central banks to remind markets they could still hike if they want to," said Giles Coghlan, chief market analyst at brokerage GCFX.

"The last thing they want to do is to signal they've won the inflation battle prematurely, because that will just allow markets to run positive on risk."

Carl Zeiss Meditec jumped 6.5% after the medical technology firm reported higher annual revenue and a more optimistic forecast.

Italy's Banco BPM rose 1.2% after pledging to moderately grow profits through 2026.

Novo Nordisk (NYSE:NVO), the producer of blockbuster obesity drug Wegovy, fell 1.2% after a study showed patients regained weight after stopping rival Eli Lilly (NYSE:LLY)'s weight-loss drug.

AstraZeneca (NASDAQ:AZN) gained 0.8% on plans to buy U.S.-based vaccine developer Icosavax in a $1.1 billion deal.

Hargreaves Lansdown fell 6.7% after Britain's market watchdog expressed concerns about the amount of interest and fees charged by some investment platforms.

BT Group (LON:BT) fell 3.9%, with traders linking the drop to British communications regulator Ofcom proposing a ban on mid-contract price hikes linked to inflation.

Telefonica (NYSE:TEF), which owns British telecom services provider O2 UK, was down 5.4%, as its shares traded ex-dividend in Madrid.

Hannover Re advanced 2.1% as the reinsurer said it expected a 24% surge in 2024 net profit over its current-year guidance.

Meanwhile, Warsaw's WIG 20 eased 0.9%, a day after Donald Tusk was appointed as the country's prime minister.

WASHINGTON (Reuters) - The U.S. federal budget deficit jumped 26% in November from a year earlier to $314 billion, a record for the month and the highest since March, the Treasury Department said on Tuesday, driven by sharply higher interest costs and other outlays.

Economists polled by Reuters had estimated the deficit for the second month of the fiscal year would come in at $301.05 billion.

Federal revenues in November rose $23 billion to $275 billion, a 9% increase from a year earlier.

Outlays jumped $88 billion to $589 billion, 18% higher than a year earlier. Interest payments on U.S. government debt accounted for $25 billion of the increase.

Debt service costs have surged since March 2022 when the Federal Reserve began raising borrowing costs sharply to rein in inflation, driving up the benchmark overnight interest rate by 5.25 percentage points.

The outlay for interest on the debt in November, at $80 billion, surpassed the $66 billion outlay for national defense, which was up $8 billion from a year earlier. The outlay for the government-run Medicare health insurance program also rose by $8 billion, to $93 billion, while the outlay for the government-run Medicaid program for the poor and disabled climbed $2 billion to $50 billion.

The biggest outlay was the $122 billion for monthly Social Security payments.

The weighted average interest rate on the $26 trillion of outstanding Treasury securities rose to 3.10% last month from 2.22% in November of last year.

The Treasury's year-to-date deficit for fiscal 2024 grew by 13% to $381 billion, versus $336 billion in the comparable period a year earlier.

WASHINGTON (Reuters) - Auto dealers will be barred from luring vehicle buyers with promises they do not keep and will not be able to charge junk fees - like a service contract for an oil change for an electric vehicle - under a new rule, the U.S. Federal Trade Commission said on Tuesday.

The rule could fundamentally change how millions of Americans buy vehicles annually by requiring up-front pricing in dealers' advertising and sales discussions, and bars the sale of add-on products or services that confer no benefit to consumers.

The FTC, in a rule finalized on Tuesday that was first announced in 2022, said it had been concerned about dealers that allegedly targeted young men and women in the military.

"By the age of 24, around 20% of young servicemembers have at least $20,000 in auto debt," the agency said in a statement which said that the rule "prohibits dealers from lying to servicemembers and other consumers about important cost and financing information."

Consumer Reports said the FTC proposal would bar "shady tactics" by car dealers that can boost the cost of new vehicles.

Sam Levine, director of the FTC's Bureau of Consumer Protection, said that consumers often begin car shopping by comparing prices before going to a dealer.

"The reality is once you actually get to the dealership, you find the car, you find the model you like, it's in stock, and you get closer to the end of the transaction, you realize that the price that's been advertised is not actually the price that you can drive away with the car with," he said.

The rule, which attracted sharp criticism from the National Automobile Dealers Association (NADA), takes aim at practices the FTC says costs consumers $3.4 billion annually and prolongs the vehicle-shopping process.

NADA President and CEO Mike Stanton said the rule was "heavy-handed bureaucratic overreach and redundancy at its worst, that will needlessly lengthen the car sales process by forcing new layers of disclosures and complexity into the transaction."

"We are exploring all options on how to keep this ill-conceived rule from taking effect," said Stanton in an email.

Carvana's Chief Brand Officer Ryan Keeton said the company has championed transparency. "We support efforts to introduce more transparency across the industry to help consumers make informed decisions on their own terms," Keeton said in an email comment.

While the FTC did not name any companies in its release, other of the biggest auto dealers include AutoNation (NYSE:AN), Penske, Lithia Motors (NYSE:LAD), CarMax (NYSE:KMX), Group 1 Automotive (NYSE:GPI) and Sonic Automotive (NYSE:SAH). None had an immediate comment.

The rule would specifically bar misrepresentations about price, cost and the total cost of the vehicle.

Dealers will also be required to obtain consent for any charges they add to a vehicle's price. They would be barred from charging for add-ons that are useless to the buyer, such as selling nitrogen-filled tires that contain no more nitrogen than normal air.

The Alliance for Automotive Innovation, representing General Motors (NYSE:GM), Toyota Motor (NYSE:TM), Volkswagen (ETR:VOWG_p) and other major automakers, raised concerns about the FTC plan and warned of "excessive regulation and micromanagement of the sales experience."

HONG KONG (Reuters) - Children are the most worthy investment for China's economy to help stimulate consumption and expand domestic demand a Beijing policy institute said, after the country posted its first population drop in more than six decades last year.

China, the world's second-largest economy, has struggled to mount a strong post-pandemic recovery and any decline in its future workforce and consumer demand could have a profound impact on its economy.

"In the current Chinese economy, children are the best investment. Infrastructure investment is becoming saturated, manufacturing has overcapacity ... but investment in the number of children is not enough," said the policy paper by the Yuwa Population Research institute published on Tuesday.

The paper urged authorities to "urgently" reverse a rapid decline in the number of newborns.

China's advantage will shrink in the future as the young population shrinks rapidly, while economic measures such as cutting interest rates, activating the capital market and optimising real estate regulation have not helped to bolster economic growth and the recovery remains weak, it said.

In order to boost the economy, the Yuwa report recommended that maternity subsidies be distributed at a national level rather than by local governments and targeted measures be implemented to reduce the large cost of childbearing and rearing.

Local governments have announced a series of measures to help lower childcare costs in recent years but many policies

have not been implemented or remain on paper due to insufficient funding and lack of motivation by local governments, it said

"Nowadays people are unwilling to get married and have children ... Because the cost of childbearing is too high, the difficulty for women to balance family and work, the average fertility willingness of Chinese people is almost the lowest in the world."

Current subsidies are still insufficient, lower than most European countries it said.

China reported a drop of roughly 850,000 people for a population of 1.41175 billion in 2022, marking the first decline since 1961, the last year of China's Great Famine.

(Reuters) - Goldman Sachs has raised its 12-month forecast for the pan-European STOXX 600 index to 500, implying a nearly 6% gain through 2024-end, on expectation of lower interest rates.

Goldman's target is roughly 1% above the index's January 2022 high. The U.S. Federal Reserve began raising interest rates in March of the year.

The brokerage had earlier expected the index to close 2024 at 480 points. The STOXX 600 has risen more than 11% so far this year.

"We find that lower inflation combined with lower rates is typically associated with modestly higher valuations," Peter Oppenheimer, chief global equity strategist at Goldman, said in a note dated Dec. 8.

The markets have already priced in expectations of lower inflation, he added.

"On average, since 1973 European equities have delivered 7% real per annum price returns in an environment of 1-3% inflation and falling."

Despite weaker economic activity, especially in Germany, and concerns over profits for capex- and China-exposed companies, Oppenheimer said the valuation of STOXX 600 remains "unchallenging".

The index currently trades at 12.5 times forward earnings over the next 12 months.

For 2024, Goldman Sachs maintains that European companies' earnings will grow by 7%.

The brokerage has downgraded its recommendation on European banks to "neutral" as the European Central Bank is expected to cut interest rates next year.

(This story has been corrected to say that the Fed began raising interest rates in March 2022, and not January, in paragraph 2)

(Reuters) -The U.S. Treasury Department on Monday said its Financial Crimes Enforcement Network (FinCEN) unit is planning to propose a long-awaited rule aimed at curbing money laundering in real estate in early 2024.

The regulator is also aiming to issue a notice of proposed rulemaking that would require investment advisers flag suspicious transactions to regulators.

THE TAKE

The proposal, which FinCEN was previously slated to unveil this year, is expected to require real estate professionals report the identities of the beneficial owners of companies buying real estate in cash to the regulator.

Anti-corruption advocates have been pushing for years for regulators to close a loophole they say allows criminals to hide money in U.S. real estate.

THE CONTEXT

While banks have long been required to understand the source of customer funds and report suspicious transactions, no such rules exist nationwide for the real estate industry. Criminals have for decades anonymously hidden ill-gotten gains in real estate, Treasury Secretary Janet Yellen said earlier this year.

The existing regulatory regime for real estate is easy to skirt, anti-corruption advocates have said.

KEY QUOTE

The proposal "will be will be an important step toward bringing greater transparency to this sector," the agency said in a statement.

"Treasury is also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector."

KEY QUOTE

"This long-delayed step would plug a gaping loophole in our anti-money laundering rules to make sure that drug traffickers, Russian oligarchs, and environmental criminals can't hide their wealth in U.S. real estate," said Ian Gary, executive director the Financial Accountability and Corporate Transparency (FACT) Coalition.

By Ankur Banerjee

SINGAPORE (Reuters) - Asian shares crept higher on Tuesday while the dollar eased as investors stayed cautious ahead of a crucial U.S. inflation report later in the day that will set the tone for the week filled with central bank meetings.

The U.S. Federal Reserve is widely expected to hold rates on Wednesday, with the spotlight squarely on comments from Chair Jerome Powell during his press conference as well as the central bank's dot plot and summary economic projections.

Before that, the U.S. Labor Department's Consumer Price Index (CPI) report later on Tuesday is expected to show inflation still cooling but staying well above the Fed's 2% annual target, with core CPI expected to come in at 4%.

That has meant investors are hesitant in placing major bets, with MSCI's broadest index of Asia-Pacific shares outside Japan 0.38% higher. Japan's Nikkei rose 0.72%.

"Should core CPI come in at or above 4.2% year-over-year, equity traders will likely rush to hit the sell button first and ask questions later," said IG market analyst Tony Sycamore.

"Should core CPI print at 3.9% or less, it would be the green light for equity markets to extend gains into year-end." 

Overnight, U.S. stocks registered modest gains but managed to close at new highs for the year. [.N]

In China, blue-chip stocks eased 0.28%, while Hong Kong's Hang Seng index fell 0.20% as investors looked for signs of policy support after data showed China's November consumer prices posted their fastest fall in three years.

In a busy week for central bankers, the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all also meet on Thursday.

Investors have steadily dialled back some of the expectations of the Fed cutting rates early next year. Markets are now pricing in a 45% chance of a rate cut in March compared with 57% a week earlier, according to CME FedWatch tool. Markets though have priced in 75% chance of a rate cut in May.

"While any fireworks (from the Fed meeting) are ruled out, the market will likely be hoping for a message that at least helps keep the current rally intact," said Gary Dugan, CIO of Dalma Capital.

"We struggle to see how the Fed could endorse such a move higher in bonds and equities when the medium-term strength of economic data is unclear."

The yield on 10-year Treasury notes eased 0.6 basis points to 4.233% in Asian hours after lacklustre three- and 10-year note auctions on Monday. [US/]

Investors were reluctant to buy Treasuries in the auctions given thinner liquidity with the U.S. consumer price data and the Fed policy meeting on the horizon this week.

The Treasury Department will sell $21 billion in 30-year reopened bonds on Tuesday, following Monday's auction of $50 billion in reopened three-year notes and $37 billion in 10-year notes.

In currency market, the Japanese yen remained in the spotlight as expectations that the Bank of Japan was ready to walk away from its ultra loose monetary policy faded after Bloomberg reported on Monday, citing sources, that BOJ officials see little need to rush out of negative rates.

Tom Kenny, senior international economist at ANZ, said a hike now seems premature with a backdrop of weak consumer spending but recent trends in inflation and wages suggest the BOJ is edging closer to achieving its 2% inflation target.

"We anticipate the BOJ will start its journey of rate normalising by April 2024 ... other aspects of policy stance will remain open for adjustment, such as more tweaks to YCC or its complete end and removing its forward guidance that rates could go lower."

The Japanese yen strengthened 0.41% to 145.58 per dollar in early Asian trade after sliding nearly 0.8% on Monday. The BOJ is due to meet next week. [FRX/]

The dollar index, which measures the U.S. currency against six rivals including yen, eased 0.067% to 103.99.

Gold prices edged higher after touching a three-week low in the previous session ahead of the inflation report and Fed policy decision. Spot gold added 0.2% to $1,984.29 an ounce. [GOL/]

U.S. crude rose 0.14% to $71.42 per barrel and Brent was at $76.09, up 0.08% on the day. [O/R]