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Rio Tinto dumped plans for a landmark investment from China last Friday, opting instead to raise US$21B through a rights issue and a joint venture with one-time suitor BHP Billiton. Rio’s US$19.5B deal with Chinese metals group Chinalco was put together in February at the height of the financial crisis in a bid to halve Rio’s US$38B debt. Its collapse last Friday under shareholder pressure left China, the world’s biggest steel-making nation, vulnerable to just two suppliers, the Rio/BHP combination and Brazil’s Vale, controlling 70% of global iron ore trade. “This is a big slap in the face for China,” said Paul Bartholomew at Steel Business Briefing in Shanghai “Rio has effectively been talking to BHP behind Chinalco’s back and Chinalco is entitled to feel like a two-timed lover this morning,” he said. Rio is to pay Chinalco a US$195MM break-up fee.

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The S&P 500, since sinking to a 12- year low of 676.53 on March 9 surged 25% as banks from Citigroup Inc. to JP Morgan Chase said they made money in the first two months of 2009 and Treasury Secretary Timothy Geithner announced plans to finance as much as US$1T in purchases of distressed assets from financial firms.

“No matter how you feel about the stimulus package, some of it is going to stick and the economy should stabilize in the second or third quarter,” said Bruce Bittles the Nashville- based chief investment strategist at Robert W. Baird & Co.“If that’s going to happen, the market will sniff it out.”

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A visiting Chinese business delegation sealed deals amounting to 2 billion U.S. dollars with British firms in London on Friday afternoon in a significant move to stave off protectionism in the wake of the global financial crisis. The agreement between Hainan Airlines Co. Ltd and Rolls-Royce Plc was the largest deal totaling 1.2 billion dollars.

Rolls-Royce is to provide 20 engines for the Airbus 330 of the Hong Kong fleet, in addition to a 15-year service support. The 11 procurement deals and agreements covered areas ranging from textile, metal services, airplane and automobile parts, pharmaceutical, new materials, eco-town building, and motion picture production.

Chen Deming, China’s commerce minister who led a 150-strong delegation of government officials and entrepreneurs, said at a China-UK business symposium on trade and economic cooperation that the trip is aimed at boosting bilateral business confidence amid the current economic downturn. According the Chen, trade between China and Britain dropped 2.6 percent in January this year, a clear sign of the global economic recession.

However, he believed that Chinese businesses would like to take advantage of the British strength in research and development, high technology, even retail and textile to find ways for collaboration. “This is just a beginning of our trade ties this year. A further group of Chinese businesses will come to Britain in a week’s time to explore trade and investment opportunities,” said the minister.

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The U.S. economy shrank in the Y 2008 Q-4 at its fastest rate since 1982 after a massive decline in inventories held by companies, according to official figures released on Friday.

Economists said that given bleak near-term prospects for consumption and investment, the US faced its worst economic downturn since the second world war, with even the US$787B stimulus plan signed by President Barack Obama earlier this month promising little immediate relief. “Finally the GDP data have caught up to the severity of the recession and, unfortunately, we expect the first quarter report to show similar weakness to the fourth quarter,” wrote an economist.

Updated data showed US gross domestic product contracting at an annualized rate of 6.2% in Y 2008 Q-4, below both the first estimate of a 3.8% c fall and economists’ predictions of a revision to a 5.4% decline. The biggest reason for the contraction was a revision to inventories, which are estimated to have fallen by US$19.9B rather than up by US $6.2B, shaving 1.1% points off the final figure.

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Investors are buying record amounts of Gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system. The US Mint sold 92,000 ozs of its popular American Eagle coin in January, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007. Other countries’ mints have also reported strong sales. “Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying,” said John Reade, a precious metals strategist at UBS.

Inflows into Gold-backed exchange traded funds also surged in January 2009, pushing their bullion holdings to an all-time high of 1,317 tonnes. Last month’s flows of 105 tonnes were above September’s previous record of 104 tonnes, and absorbed about half the world’s Gold mine output for January, said Barclays Capital. “We estimate that investment demand [into Gold] could double in 2009 compared to 2007,” said Mr. Reade. “Purchases of physical Gold have jumped over the past six months as investors’ fears about the current financial crisis … have intensified.” The move into Gold is being driven by the very rich, with bankers saying that some clients are hoarding Gold in their vaults. UBS and Goldman Sachs said last week that investor hoarding would drive prices back above US $1,000 oz.

Last Monday Gold was trading at US$892 oz. and closed last Friday at US$942.20 + US$ 50.20 (5.6%) on the week. Traders and analysts said jewelry demand, historically the backbone of gold consumption, had collapsed under the weight of the high prices. Sharp falls in demand in the key markets of India, Turkey and the Middle East have capped the potential of any price rally. But the lack of jewelers demand has not discouraged investors. Jonathan Spall, director of commodities at Barclays Capital in London, said: “We have seen more new enquiries about investing in gold so far this year than during the whole 2008.”

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BHP Billiton Ltd. Pc announced that they would cut 6,000 jobs and close the giant Ravensthorpe nickel mine in Australia, writing off US$1.6 B, as the global resources giant battles a collapse in commodity prices. Until now BHP, the world’s largest miner, had set itself apart by maintaining production and just last month said sales volumes were holding up despite a global downturn.

But as it became increasingly apparent there would be no quick fix to the slump in commodity prices, BHP was forced to close mines and cut jobs.”Clearly their balance sheet is in a respectable position. But they are not immune from the commodity price environment that we’re seeing, and earnings are going to suffer,” said Neil Boyd-Clark, managing partner at Fortis Investment Partners.BHP Chief Financial Officer Alex Vanselow warned last week that more mines could be closed given the uncertainty in commodity markets, with the Australian metallurgical coal mines already slated to reduce output by 10-15%.

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