Swedish record producer Jezper Soderlund reports that he asked Jobs about the practice known as tethering in an e-mail:

"I'll keep it short.

I'm Jezper from Sweden, a long time Apple fan, currently about to replace the very last computer at home with a brand spanking new iMac i7. I'm also awaiting the release of the iPad. However, I have one question:

Will the wifi-only version somehow support tethering thru my iPhone?

Two devices, based on the same OS, with already built-in technology to share one data plan suggests a secondary contract could possibly be redundant.

From the look of your keynote, where the iPad sits well between my MacBook Pro and my iPhone, I was hoping the three of them could interact as seamless as possible.

All the best,
Jezper Söderlund"

Jobs' reported one word answer: "No."

That means that U.S. iPad buyers will have to pay for separate data plans for their iPhones and iPads. No piggy-backs allowed.

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The largest U.S. student loan company took its first steps into retail banking Tuesday with the launch of two new online savings accounts.

The Reston, Va.-based company said it will offer high-yield savings accounts with a 1.35% interest rate and certificates of deposit offering rates from 1.50% for 12-month CDs to 3.00% for 60-month CDs.

The savings rates will trump the national average of about 0.27% and the CDs are also competitively priced.

"We thought it would be a great time to offer more products," said Kelly Christiano, vice president of retail deposits for Sallie Mae (SLM, Fortune 500), which has over 20 million customers in its student loan and Upromise programs. "We can do some interesting things that other online banks can’t."

The company said the new FDIC-insured products will complement its existing 529 college savings plans from its Upromise Investments division. And its Upromise rewards program, which helps customers save money by offering points for everyday purchases, is an added sweetener.

The programs are available to both those with Sallie Mae loans and new customers.

Although Sallie Mae has had a bank since 2005, it did not collect customer deposits, a cheaper source of funding for banks. Tuesday’s move will help it to diversity its balance sheet, which was squeezed by the credit crunch.

"We want to diversify our funding base, and retail is one excellent way to do that," said Christiano free credit report and score.

Sallie Mae’s first foray into retail banking won’t be a cakewalk. With competitors including ING Direct and the online banks of larger financial institutions, Sallie’s role as the 800-pound gorilla of the student loan industry could hurt it.

"Not all borrowers think highly of them," said Mark Kantrowitz, a financial aid expert and publisher of FinAid.org and FastWeb.com.

Still, savers looking for a deal on savings rates might take a look. "If customers are looking for good rates, they may go for Sallie Mae even if they don’t have warm and fuzzy feelings about them," Kantrowitz said.

But, before you divorce your current bank, shop around. While Sallie Mae’s rates top the national average, there could be better deals out there.

"Sallie’s yields are competitive, but there are quite a number of banks offering higher returns," said Greg McBride, senior financial analyst for Bankrate.com.

Though some banks with higher rates may require minimum balances or charge monthly fees, McBride says customers will still benefit from looking around.

"There is no shortage of banks competing for your business," he said. 

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For the first time since at least 1980, a change in monetary policy may mean the difference between short- and long-term Treasury yields will widen rather than narrow. The threat of the Fed selling the $2.29 trillion in securities on its balance sheet, combined with record Treasury auctions, will keep longer-term yields higher, according to Deutsche Bank AG, one of 18 primary dealers that trade directly with the central bank.

A so-called steeper yield curve would boost borrowing costs for companies and home buyers while attracting money managers deterred by record-low rates. President Barack Obama needs to lure investors more than ever as Treasury extends average debt maturities and finances a budget deficit that the government predicts will expand to an unprecedented $1.6 trillion in the fiscal year ending Sept. 30.

“The policy for the Fed to keep rates low for an extended period of time will keep front-end rates lower for longer,” said James Caron, head of U.S. interest-rate strategy in New York at Morgan Stanley, another primary dealer. “The weight of supply and the risk premiums for inflation may rise as the Fed keeps rates low, that will increase the term premium on the curve and the 10-year note yield will rise to reflect that.”

Fed Funds Anchor

The yield curve, or the gap between 2- and 10-year Treasury note rates, widened to a record 2.94 percentage points on Feb. 18, before narrowing to 2.80 percentage points on Feb. 26. Yields on 2-year notes fell 10 basis points to 0.81 percent last week. Those on 10-year securities dropped 16 basis points to 3.61 percent even after the government sold a record $126 billion in notes and bonds.

Ten-year notes yielded 3.63 percent today as of 9:23 a.m. in Tokyo, and the curve spread was unchanged.

The Fed’s anchoring of its target rate for overnight loans between banks to a range of zero to 0.25 percent since December 2008 and record borrowing by the Treasury pushed the gap up from nothing in June 2007.

Deutsche Bank forecasts the curve will steepen to 3 percentage points as 10-year note yields climb to 4 percent by mid-year. Morgan Stanley expects 3.25 percentage points by the second quarter, with the 10-year note reaching 4.5 percent.

Investors would earn about $415,400 on a $10 million sale of 10-year notes combined with a $42 million purchase of two- year notes if the gap increased by 50 basis points, assuming two-year yield holds steady.

Discount Rate

The yield curve narrowed last week after the Fed raised the discount rate charged on direct loans to banks to 0.75 percent from 0.50 percent. The move increased investor focus on the next policy steps, after the central bank added more than $1 trillion to its balance sheet through emergency loans and securities purchases following the September 2008 bankruptcy of Lehman Brothers Holdings Inc.

Fed Chairman Ben S. Bernanke said last week that the change in the discount rate doesn’t mean the central bank is preparing to boost its target rate. In his semi-annual testimony to Congress, Bernanke reiterated that rates will remain low for “an extended period” because the economy’s “nascent” recovery isn’t strong enough to bear higher borrowing costs.

Excess Reserves

He also said Feb. 10 that he didn’t expect any asset sales in the “near term,” and that any sales would be at a “gradual pace.” Bernanke told Congress that the Fed “will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.”

The economy expanded at a 5.9 percent annual rate in the fourth quarter, the fastest pace in six years, a report showed Feb. 26. Fed officials forecast the economy will grow 2.8 percent to 3.5 percent this year.

Still, the central bank is looking at ways of wrapping up the measures required to unlock credit markets. It expects to complete $1.43 trillion in purchases of mortgage-backed securities and housing agency debt this month and finished a $300 billion Treasury purchase program in October.

Four emergency lending facilities were closed last month. Policy makers are preparing to begin draining the more than $1.1 trillion in excess bank reserves they have pumped into the banking system by paying interest on deposits or using repurchases agreements with bond dealers.

Fed Holdings

The Fed’s assets now consist of about $777 billion of Treasuries, $166 billion of agency debt and more than $1 trillion of mortgages, central bank figures as of December show. When it starts selling, the supply of longer-term securities will increase payday loans with no fax. The average maturity of the Fed’s Treasury holdings is about seven years, according to Fed data.

Policy makers debated in January how to shrink the balance sheet, with some pushing to sell assets in the near future, minutes of the Jan. 26-27 Federal Open Market Committee meetings show. Bernanke and his colleagues agreed that the assets and banks’ excess cash will need to be reduced. They also said the central bank should dispose of mortgage and related securities purchased to support banks when credit market seized up.

‘Curve Steepening Pressure’

Fed officials “kept open the option of outright asset sales, suggesting that the curve steepening pressure would be maintained even as the Fed moves closer to an exit policy,” said Mustafa Chowdhury, head of interest-rates research in New York at Deutsche Bank, who correctly predicted in October that two-year notes would outperform 10-year securities even as policy makers began to consider how to pull back monetary stimulus measures.

A steeper curve provides more potential for profits at U.S. banks in so-called carry trades. JPMorgan Chase & Co., Bank of America and Citigroup Inc. boosted holdings in mostly fixed- income securities by an average of $35.5 billion in 2009’s second half, company filings show. Financial shares in the Standard & Poor’s 500 Index rose 81 percent in the last year.

The yield curve usually flattens when the central bank starts increasing funding costs. During the three months preceding or following the first interest-rate increase in Fed’s tightening cycles since 1980 the yield curve flattened, data compiled by Bloomberg show.

‘Unchartered Territory’

When the central bank last began lifting rates in June 2004, the spread narrowed from 1.9 percentage points to 1.51 percentage points by September. The gap was 2.27 percentage points in March 2004. In the decade before the credit markets seized up, 10-year Treasury yields averaged 0.81 percentage point more than two-year yields.

“We are really treading on unchartered territory through all of this,” said Christopher Sullivan, who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York.

Sales by the Fed would come as the Treasury lengthens the average maturity of its debt to a range of six to seven years. The average due date dropped to a 26-year low of 49 months at the end of 2008 after the U.S. sold $1.9 trillion of short-term securities during the credit crisis.

Mortgage-Backed Securities

Lower 10-year yields would help keep a lid on mortgage rates as the central bank completes purchases mortgage-backed and housing agency securities. The difference between yields on Washington-based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds and 10-year Treasuries was about 0.71 percentage point at the end of last week, just above its smallest since at least 1984, according to data compiled by Bloomberg. Yields on Fannie Mae and Freddie Mac mortgage securities guide U.S. home- loan rates.

Longer-term borrowing costs for the highest rated corporations have already increased. Investment-grade corporate bonds pay the highest yields relative to benchmark rates since September 2007 compared with shorter-maturing notes, according to Bank of America Corp.’s Merrill Lynch index data.

Investors demanded 1.92 percentage points in extra yield to own debt due in at least 10 years, compared with a 1.68 percentage point spread for notes due in three to five years, the data show. The 0.27 percentage point gap on Feb. 9 was the largest since Sept. 14, 2007.

Curve Outlook

As was the case during the last shift to tighter monetary policy in 2004, the curve will begin flattening when a Fed increase becomes imminent, said Adam Kurpiel, an interest rate derivatives strategist at Societe Generale SA in Paris.

‘The cyclical steepening phase for the yield curve has ended,” said Kurpiel. “The yield curve typically begins to flatten in a bear market, once the economy is doing well. We need a bear market for the flattening to really begin.”

Fed fund futures traded on the CME Group in Chicago on Feb. 26 gave a 32 percent chance the Fed will raise the benchmark lending rate by the end of September, down from 51 percent a week earlier.

“Reversing the balance sheet is an experiment in itself,” said George Goncalves, head of interest-rate strategy at primary dealer Nomura Holdings Inc. in New York. “People will start to anticipate that funding costs will go up a little bit, not tremendously.”

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“After the failure of Lehman Brothers and the need to recapitalize the banking system, it became very clear that hedge funds, far from being the villains of the piece, actually represented the attractive part of the solution that we might ultimately get to,” King told the Future of Banking Commission in London today. “The great thing is that none of us could have a sleepless night about wondering whether we cared about whether a hedge fund fails or not.”

The Bank of England and Prime Minister Gordon Brown’s government are seeking to revamp bank regulation to prevent a repeat of the crisis sparked by the collapse of Lehman Brothers Holdings Inc. in September 2008. King has said that he would prefer a financial system which allows lenders to fail without damaging the economy.

“Nobody believed that a hedge fund would be bailed out and they weren’t,” King said fast cash without a hassle. Whether a hedge fund failed was “up to the people who own it,” he said.

Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.

King said 2,000 hedge funds failed during the crisis. Managers of such funds had been previously vilified at international meetings, particularly by European finance ministers, for being “the wicked people who were responsible for all the problems that we had,” he said.

In contrast, the way hedge funds operate may point to “one of the success stories of this crisis,” he said.

King spoke at a public hearing in London in front of a panel including lawmakers and economists backed by Which?, a consumer watchdog, to probe the future of the banking industry.

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Yet setting up a Roth individual retirement account for your teen can be a smart and rewarding move to consider at tax time. You don’t have to be rich, either.

It makes good sense to set aside money that can grow many times over by the time it’s put to use. And establishing an IRA with a teen’s own cash — perhaps supplemented by Mom and Dad or the grandparents — can convey a powerful financial message that no pep talk could match.

A Roth IRA differs from a traditional IRA in that you contribute with after-tax money but pay no taxes on withdrawals, meaning all growth is tax-free.

As with Roths for adults, not every teen qualifies and there are strict rules. You can only open one if the child has income from a job — allowances don’t count. You can’t contribute more than the child made in any given tax year, up to the limit of $5,000.

Here are five reasons why a Roth IRA can be a good idea:

COMPOUNDING

Long-term compounding, or generating earnings from previous earnings, won’t necessarily make your kid a millionaire. But it could with future contributions.

Consider a hypothetical case in which $2,000 is put in a Roth annually for four years. Assuming the money grows at an annual rate of 8 percent, the account would total $456,000 in 50 years. And if the account-holder contributes $2,000 at the start of every year for 50 years, it would be worth more than $1.2 million.

JUMP-STARTS SAVINGS

Starting to save early for retirement is more important than ever at a time when the classic three-legged stool approach to retirement security — employer pension, Social Security and personal savings — is teetering.

Many college graduates focus on paying off their student loans. Starting retirement savings in their teens, even if they aren’t able to contribute much, at least puts some money to work early.

A Roth doesn’t lock up the money for decades. Once the account has been open five years, up to $10,000 can be withdrawn penalty-free if it’s put toward the purchase of a first home.

GOOD HABITS

Educating your teen about the value of compounding interest could be a lasting legacy if it fosters good habits. Teaching young people to put money aside regularly helps them better prepare for various life stages.

TAX ADVANTAGES

A teen working part time will have one of the lowest tax rates, making it a good trade-off to pay taxes on contributions now rather than accumulated savings in a few decades when the total and the tax rate will be much higher.

The tax-free withdrawals allowed with Roths mean having an account is a double winner for a young person.

SMALL AMOUNTS COUNT

Contributing the yearly maximum of $5,000 to a teen’s Roth, or even $2,000, just isn’t feasible for most families. But even a few hundred dollars can start snowballing.

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The report, available here, was completed by the Patty Silverstein of Development Research Partners. It looks at seven major industries in the nine-county Metro Denver and Northern Colorado region: aerospace, aviation, bioscience, broadcasting and telecommunications, energy, financial services, and information technology-software.

Among the key findings:

• Aerospace — The Denver area ranks first among the 50 largest metro regions nationwide for the total number of aerospace employees of non-governmental companies. The region has 19,870 people employed at aerospace companies. Colorado has the nation’s third-largest aerospace economy and is home to four military commands, eight major space contractors, and more than 300 aerospace companies and suppliers.

• Aviation — Denver International Airport, three reliever airports, and top aircraft manufacturing companies create a solid foundation for 15,690 workers directly employed by aviation companies.

• Bioscience — Ten local higher education institutions with bioscience programs and numerous research assets support the region’s bioscience industry. The industry also is helped by the collaborative opportunities at the Fitzsimons Life Science District and the adjacent Anschutz Medical Campus in Aurora.

• Broadcasting & Telecommunications — Metro Denver’s Mountain Time Zone location makes it the largest U.S. region with one-bounce satellite uplinks, providing companies real-time connects to six of seven continents. With a broad mix of broadcasting and telecommunications firms, the region ranks fourth out of the 50 largest metros for employment concentration.

• Energy — The integration of cleantech and the state’s rich energy resource base place the region at the forefront of energy development. The National Renewable Energy Laboratory in Golden is the Department of Energy’s laboratory for renewable energy and energy efficiency research and development.

• Financial Services — The region is one of the few areas outside of the Northeast with a substantial financial services industry in three key market segments. A variety of trade associations and service firms supports the diverse financial services industry base of over 11,930 companies and 93,950 employees in the region.

• Information Technology - Software -— Colorado has the third-highest concentration of high-tech workers per capita in the nation according to TechAmerica’s Cyberstates 2009 report. A strong entrepreneurial spirit fuels this industry, employing nearly 42,300 workers.

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The Palo Alto, Calif. computer giant (NYSE: HPQ) is partnering with Shell (NYSE: RDS.A) to deliver a higher channel count and broader sensor frequency range to get a better seismic picture of what lies beneath in oil and gas reserves.

“We think this will represent a leap forward in seismic data quality that will provide Shell with a competitive advantage in exploring difficult oil and gas reservoirs, such as sub-salt plays in the Middle East or unconventional gas in North America,” said Gerald Schotman, executive vice president of innovation and R&D at Shell free business cards.

The new sensor system, developed by HP Enterprise Services, includes a recent breakthrough in high-performance sensing technology from the company’s research and imaging groups.

“These advances in technology to discover energy resources could transform the ability to pinpoint abundant new oil and gas reserves,” said Joe Eazor, senior vice president and general manager of HP Enterprise Services.

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Bernanke yesterday described how the Fed might use tools such as interest it pays on banks’ deposits to tighten credit “at some point.” In congressional testimony, he said a potential increase in the Fed’s discount rate would be part of the “normalization” of lending “before long” and wouldn’t signal a change in the outlook for monetary policy.

The 56-year-old Fed chief and his fellow policy makers are trying to determine when to tighten credit with unemployment at 9.7 percent and the world’s largest economy forecast to grow at the fastest pace since 2005. Bernanke also said the U.S. still requires a “highly accommodative” Fed policy, reiterating that low rates are warranted for an “extended period.”

Bernanke “kind of walked a fine line,” said Vincent Reinhart, a former Fed monetary-affairs director who’s now a resident scholar at the American Enterprise Institute in Washington. “He wants to reassure investors that they have an exit plan but at the same time not lead them to believe that they’ll head for the exits anytime soon.”

Treasuries fell, pushing the yield on two-year securities to 0.88 percent from 0.83 percent on Feb. 9 and to 3.69 percent on 10-year notes from 3.65 percent. The Standard & Poor’s 500 Index slipped 0.2 percent to 1,068.13 in New York. The dollar climbed 0.6 percent to $1.3711 per euro from $1.3797.

Expanding Strategy

Expanding on a strategy detailed in July, Bernanke said raising the interest rate paid on funds deposited by banks at the Fed, as well as so-called reverse repurchase agreements that temporarily drain cash from the banking system, will probably be the first tools for tightening credit.

Bernanke said he doesn’t expect the Fed “in the near term” to sell the $1.43 trillion of housing debt being purchased through next month, “at least until after policy tightening has gotten under way and the economy is clearly in a sustainable recovery.” Fed officials may decide “in the future” to sell securities, he said in the testimony prepared for a hearing that was postponed because of a snowstorm.

Bernanke said “one possible sequence” of the exit strategy involves first testing tools for draining reserves “on a limited basis.” Then, “as the time for the removal of policy accommodation draws near, those operations could be scaled up to drain more significant volumes of reserve balances to provide tighter control over short-term interest rates,” he said.

‘Firming’ Policy

The Fed would then execute the “actual firming of policy” by raising the interest rate on bank reserves, Bernanke said. Congress granted the Fed the power in October 2008 as part of the law creating the $700 billion Troubled Asset Relief Program.

“Changes in the interest rate will be broadly telegraphed,” said Anthony Crescenzi, senior vice president at Pacific Investment Management Co. in Newport Beach, California, which runs the world’s biggest mutual fund payday loans. “The first thing that will happen is that there will be a language change, taking ‘extended period’ out” of the Fed’s public policy statement.

“By the time we see scaled-up operations” to drain reserves, “they will seem like an afterthought,” Crescenzi said.

At the last FOMC meeting, Kansas City Fed President Thomas Hoenig dissented from the decision to maintain the pledge of low rates for an “extended period.”

“We have moved through the crisis,” Hoenig said in a Feb. 4 speech in Oklahoma City. “We are beginning to think about a growth rate over 3 percent. We need to change the language.”

Policy Guide

Bernanke said the Fed may temporarily replace the federal funds rate as a policy guide with interest it pays on banks’ deposits should fed funds become a “less reliable indicator than usual.”

Such a change may raise governance questions for the Federal Open Market Committee. While the Washington-based Board of Governors and regional Fed presidents together vote on the federal funds rate on the FOMC, the governors alone vote on the deposit rate, meaning the five presidents who sit on the committee would have no official say.

One solution may be to have the FOMC vote on a directive to the New York Fed to increase or lower pressure on bank reserves to achieve a target or range for short-term interest rates. The Board vote on interest on reserves would then follow the FOMC’s decision, much as it did when they raised or lowered the discount rate following the committee’s changes to the federal funds rate.

Market Evolution

Bernanke said “no decision has been made on this issue” of which target the Fed will use. “We will be guided in part by the evolution of the federal funds market as policy accommodation is withdrawn,” Bernanke said.

Separately yesterday, Dallas Fed President Richard Fisher said in a Dallas speech that policy makers must shrink the balance sheet with the “deftness to minimize credit-market disruptions and the timeliness to avoid inflationary pressures.”

The Fed may be months away from tightening credit. U.S. central bankers will begin raising rates in the fourth quarter and increase the benchmark lending rate to 0.75 percent by the end of the year, according to the median estimate of economists surveyed by Bloomberg News in February.

The U.S. economy will expand 3 percent this year, according to the median estimate. The timing and speed of rate increases may also depend on how quickly the economy can begin to generate job growth.

Some economists said Bernanke left out what investors are really watching for: when the Fed will move.

“I don’t really see a whole lot of clarity of the timing of actions,” said Conrad DeQuadros, senior economist and partner at RDQ Economics LLC, a New York research firm he founded with John Ryding, a fellow former Bear Stearns Cos. economist.

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Taiwan has been unable to join in a wave of bilateral or multilateral free-trade agreements in recent years because China regards the island as a rebellious province. Trade talks with Singapore and Japan in the past had failed because those countries didn’t want to offend China, said Chiang Pin-kung, chairman of the Taipei-based Straits Exchange Foundation.

A deal “will reduce the political reservations of these countries and they will be more willing to sign free-trade agreements with us,” he said in a Feb. 5 interview. Taiwan aims to sign an accord with China “before the first half of this year because it is so vital to Taiwan’s economy.”

President Ma Ying-Jeou in his New Year’s Day message warned that free-trade agreements in Asia risk marginalizing Taiwan, which with North Korea is one of only two countries in the region that haven’t secured a deal. Technology companies such as Taiwan Semiconductor Manufacturing Co. and AU Optronics Corp. may be particularly at risk from a trade deal between China and South Korea.

China and Hong Kong combined is Taiwan’s largest overseas market, accounting for 40 percent of the island’s $203.7 billion of exports last year. Overseas shipments of flat screens, computer chips and other electronics goods made up about 28 percent of the total. Asean, which represents a quarter of the world’s population, accounts for 15 percent of Taiwan’s exports, Chiang said.

‘Disadvantage’

“Without free trade agreements with other countries, Taiwan is at a disadvantage as its exporters face higher costs and tariffs,” Cheng Cheng-mount, a Taipei-based economist at Citigroup Inc. said. “If Taiwan can sign an agreement with its toughest critic, China, then other countries will have less objections to sign similar pacts with Taiwan.”

There were only three free trade agreements between Asian countries in 2000, a figure that jumped to 58 by last year, President Ma said in his address. Regional trade accounts for more than half of Asian nations’ total trade, he said.

China signed an accord with the 10-member Association of Southeast Asian Nations that came into force Jan. 1, scrapping tariffs on about 90 percent of goods. Six Asean members enjoy zero-tariffs. Taiwan exporters are subject to an average 9 percent tariff, Chiang said. The value of China’s trade with Asean has surged sixfold over the past decade, reaching $193 billion in 2008. Korea-China trade was $75.5 billion.

“We have to speed up negotiations to get more fair competition in the region,” said Chiang, who is also a vice chairman of the ruling Kuomintang party.

Only Five

Taiwan has signed only five free trade agreements with its 23 diplomatic allies, namely Guatemala, Panama, El Salvador, Nicaragua and Honduras. Those five account for less than 1 percent of the island’s total trade.

China and Taiwan last month started formal negotiations on a proposed Economic Cooperation Framework Agreement aimed at boosting economic and trade ties. The two sides have agreed the accord would include trade in goods and services, as well as a so-called “early harvest list” of industries that would be first to enjoy lower tariffs.

The pro-independence Democratic Progressive Party opposes the proposed trade pact, arguing it would cost jobs and increase Taiwan’s dependence on China. About 100,000 people rallied in the city of Taichung in December to protest the China policies of Ma’s ruling Kuomintang, or nationalist, party. The KMT ruled Taiwan for most of the past five decades after they fled to the island following their defeat at the hand of Mao Zedong’s communists in 1959.

Fresh Start

Cross-strait dialogue between Taiwan and China resumed in June 2008, a month after Ma took office. Discussions were frozen in 1999 after China objected to an assertion by then president Lee Teng-hui that relations should be described as “state-to- state.” The central government in Beijing claims the island and has threatened force to impose unification.

Taiwan and China in December agreed to boost cooperation in fishing, agriculture and industrial goods at the fourth cross- strait talks as ties reached their warmest in 60 years. The two sides in November signed three memoranda of understanding to ease access to each other’s banking, securities and insurance industries.

A study by the government said the accord with China would help boost the island’s economic growth by as much as 1.72 percentage points, spur exports and create more than 260,000 jobs. Export accounts for more than two-thirds of Taiwan’s economy, which has shrunk for the past five quarters, the longest contraction since at least 1961.

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“We have made all the arrangements and we will conduct roadshows in the next couple of months,” Tarin said in an interview in Singapore yesterday. The government may sell about $500 million each of euro-denominated and Islamic bonds, totaling no more than $1 billion, he said.

The country will try to sell state assets in the fiscal year starting in July after pausing for the past two years because of market conditions, he said after meeting investors to update them on Pakistan’s economy.

Pakistan’s budget deficit may widen to 5.3 percent of gross domestic product against a target of 4.9 percent in the year ending June 30 because of higher spending, including the cost of fighting militants in tribal areas, Tarin said on Jan. 27. The country was forced to turn to the International Monetary Fund for a bailout to avert defaulting on its debt in 2008.

“A global bond offering from Pakistan may be more feasible in a few months as global economic conditions improve,” said Asad Farid, an economist at AKD Securities Ltd. in Karachi. “The risk premium is very high so it’s better for the government to opt for funds from donors rather than the markets.”

Debt Protection

The cost of protecting against Pakistan defaulting on its bonds will probably fall from current levels as the government begins to market more debt, Tarin said.

Credit-default swaps protecting the debt of Pakistan rose 27.5 basis points to 950 basis points as of 9:48 a.m. in Singapore, according to prices from Royal Bank of Scotland Group Plc. The cost of protecting the country’s debt has fallen from 3,084.3 basis points on Jan. 1, 2009, to 870.5 yesterday, according to prices from CMA DataVision in New York.

Demand for emerging-market debt may be hurt as countries including Spain, Portugal and Greece struggle to finance their budget deficits. Portugal’s public debt will rise to 91 percent of GDP by 2011, according to European Commission forecasts. Greece’s debt will climb to 135 percent of GDP and Spain’s will increase to 74 percent. Portugal and Greece led a surge in the cost of insuring against losses on European sovereign debt to a record yesterday.

Vietnam raised $1 billion from its second global bond sale last week, offering higher yields than lower-rated Philippines and Indonesia, amid the busiest start to a year for global borrowing by developing nations since 2005.

New Tax

Pakistan also plans to introduce a value-added tax to boost revenue in the next fiscal year, Tarin said. The state’s revenue targets are “intact,” he added.

The country sold local Islamic bonds worth 14.4 billion rupees ($170 million) in September. Islamic law bans the payment and receipt of interest, prohibits investment in businesses tied to gambling and alcohol, and stresses profit-sharing.

The IMF on Aug. 8 agreed to increase a loan to Pakistan by $3.2 billion, after the nation was forced to turn to the Washington-based lender for a $7.6 billion bailout in November 2008. Pakistan is expecting $2.2 billion of aid and loans from the U.S. and Japan before June 30, which may help bridge the government’s financial gap, Tarin said last week.

The Friends of Democratic Pakistan, an aid group that includes the U.S., U.K., Japan and Saudi Arabia, may provide $1.4 billion to $1.8 billion to Pakistan in the current fiscal year ending June 30, Tarin said yesterday.

Foreign Aid

The group, formed in 2008 to provide help to the nation at the forefront of the fight against terrorism, pledged $5.3 billion in aid in April.

The South Asian nation’s war against Taliban guerillas in the country’s northwest has hurt the economy. More than 3,000 people were killed in terrorist attacks in Pakistan last year, according to the Pakistan Institute for Peace Studies in Islamabad.

Growth in the 12 months ended June 30, 2009, cooled to 2 percent, the slowest pace in eight years. The $168 billion economy may expand 3.4 percent this fiscal year, Tarin said yesterday, reiterating an earlier government forecast.

The State Bank of Pakistan kept its benchmark interest rate unchanged at 12.5 percent on Jan. 30 amid accelerating inflation, after reducing the rate by 2.5 percentage points from April to November last year.

Interest Rates

Pakistan aims to bring interest rates lower when inflation eases, which won’t happen “in the next couple of months,” Tarin said. Inflation will average about 11 percent this fiscal year and 6 percent to 7 percent the following year, he said.

Consumer prices rose 10.52 percent in December, the most in four months. The inflation rate may climb further after the government last month raised power tariffs by 14 percent and increased gas prices by as much as 18 percent to help contain its budget deficit.

Foreign direct investment may total as much as $5 billion in the next fiscal year, including asset sales by the government, Tarin said.

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