Metro profit triples on stake sale, warns of competition

(Reuters) - Metro Inc, Canada's No. 3 grocer, more than tripled quarterly earnings after selling part of a convenience store operator, but it warned of a "challenging" competitive environment.

Metro and other Canadian supermarket chains face stern competition from Target Corp, the U.S. discount retailer, which opened its first three Canadian stores last month and plans to have more than 100 by the end of this year.

Metro and rivals such as Loblaw Cos Ltd, Canada's largest grocer, are already under pressure from the expansion of Wal-Mart Stores Inc's grocery business in Canada.

"The competitive environment will remain challenging in the coming quarters," Chief Executive Eric La Fleche said in a statement.

Loblaw, in its fourth-quarter earnings in February, had said sales growth in 2013 would be moderated by the entry of a new competitor, among other things.

Metro's net earnings rose to C$366.8 million ($357.5 million), or C$3.77 per share, in the second quarter, from C$96.1 million, or 94 Canadian cents per share, a year earlier.

The earnings were helped by an after-tax, one-time gain of C$266.4 million related to the sale of nearly half of its stake in Alimentation Couche-Tard Inc.

On an adjusted basis, the company earned C$1.02 per share from continuing operations.

Sales fell 3 percent to C$2.51 billion. The fall was primarily due to the inclusion of the week preceding Christmas in the first quarter, compared with the second quarter a year earlier.

Sales at established stores, an important indicator for retailers, were flat for the quarter.

Metro, which operates more than 600 food stores and more than 250 drugstores in Canada, said it planned to repurchase for cancellation up to 1 million of its common shares.

The repurchase would form part of the renewed buyback program, which company announced in September.

Shares of Montreal, Quebec-based Metro closed at C$66.09 on the Toronto Stock Exchange on Tuesday.

(Reporting by Shounak Dasgupta in Bangalore; Editing by Sriraj Kalluvila)

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Bank of Canada cuts growth forecast, warns again of higher rates

By Louise Egan and Randall Palmer

OTTAWA (Reuters) - The Bank of Canada on Wednesday chopped its economic growth forecast for the country and left interest rates unchanged but still insisted the next move in interest rates would likely be a hike.

In the last Monetary Policy Report before Governor Mark Carney leaves for the Bank of England, the Bank of Canada sharply downgraded growth expectations for the first and second quarters to below its 2.1 percent estimate of potential growth, meaning slack was continuing to grow.

It cut its prediction for 2013 annual economic growth to 1.5 percent -- matching this week's International Monetary Fund forecast -- from the 2.0 percent it saw in January, and hopes for 2.8 percent growth in 2014.

Nonetheless, as it has over the past year, the central bank warned of the prospect of higher interest rates down the road.

"With continued slack in the Canadian economy, the muted outlook for inflation, and the constructive evolution of imbalances in the household sector, the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required..." the central bank stated.

RATE HIKE PUSHED OUT?

The bank's governing council reached its interest rate decision on Tuesday and released it on Wednesday with its quarterly Monetary Policy Report.

In the report, the Bank of Canada figured the economy's spare capacity grew to 1-1/4 percent in the first quarter, from the 1 percent it saw in January for the fourth quarter of 2012.

As a result, it will take longer for the economy to hit full capacity and for total and core inflation to rise to the bank's 2 percent target. It now sees this happening by mid-2015, whereas in January it had predicted the second half of 2014.

"It likely pushes (an interest rate hike) out even further. It's likely we won't have higher rates in Canada until well into 2015," said Bank of Nova Scotia chief currency strategist Camilla Sutton.

Sal Guatieri, senior economist at BMO Capital Markets, said the market had already pushed out its expectations for the next hike. "We still look for the bank to remain on hold until the second half of next year," he said.

The culprits for the lower growth this year are downward revisions to growth in government spending, more contraction in housing than forecast, and less-than-expected business investment. It saw signs that factors weighing on business investment were "likely to persist for some time."

Concern over housing is one reason Carney has not dropped the bank's year-long tightening bias as some economists have suggested. But the insistence that the next movement in interest rates is likely up rather than down has also boosted the Canadian dollar.

The bank said the currency's persistent strength was influenced by safe-haven flows and spillovers from global monetary policy, and this continued to restrain export growth.

Despite the export troubles, one bright prospect is the U.S. housing recovery, which the bank projects will boost Canadian export growth by 1 percentage points per year.

Canada has been an outlier among major developed economies, eschewing the unconventional quantitative easing used by the U.S. Federal Reserve, the Bank of England and now the Bank of Japan.

Before Wednesday's statement, global forecasters pushed back their forecasts for the Bank of Canada's next hike to the third quarter of 2014 from the first quarter in a poll in February.

Yields on overnight index swaps, which trade based on expectations for the policy rate, showed traders slightly scaled back their bets of a rate cut later this year.

The Canadian dollar moved was little changed after the announcement at C$1.0265 to the U.S. dollar, or 97.42 U.S. cents, but weaker than Tuesday's North American close of C$1.0205, or 97.99 U.S. cents.

Canadian inflation has long been below the 2 percent target -- overall annual inflation was 1.2 percent in February. The Bank of Canada said that in addition to spare capacity, inflation was subdued by competitive pressures on retailers.

Among those competitive pressures, it noted the expansion of big-box stores, the arrival of large U.S. retailers, and increased online and cross-border shopping, stimulated by the strong Canadian dollar.

(Additional reporting by Alastair Sharp, Cameron French and Solarina Ho in Toronto; Editing by W Simon)

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Venezuelan leader warns of sabotage plans

CARACAS, Venezuela (AP) — Venezuelan leader Nicolas Maduro claims government opponents are planning to sabotage the country's power grid and interrupt food distribution ahead of the April 14 presidential election.

Maduro's comments come amid growing concerns about sporadic shortages of some basic foods and occasional power outages in several regions of Venezuela.

Government foes have rejected similar allegations about planned sabotage in the past.

Opposition politicians argue that the government is to blame for shortages because it has not allotted sufficient U.S. dollars to businesses that import food. They also say the government is responsible for the blackouts because it has not made investments required to maintain the power grid.

Maduro made the allegations during a televised speech on Monday.

He did not provide details of the alleged plans.

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US warns Afghan leader's comments threaten troops

KABUL, Afghanistan (AP) — The top U.S. commander in Afghanistan warned his troops to be ready for increased violence because of a series of anti-American statements by Afghan President Hamid Karzai, NATO said Thursday.

In an email to battlefield commanders, Gen. Joseph Dunford, said the remarks could spur more insider attacks, days after gunmen in Afghan uniforms killed two U.S. special forces troops and a U.S. contractor in two separate shootings.

"We're at a rough point in the relationship," Dunford said in the email, according to a senior U.S. official, speaking anonymously to discuss the confidential communication.

Karzai's office released a new statement Thursday explaining the president's earlier remarks, after news of Dunford's email broke.

"My recent comments were meant to help reform, not destroy the relationship," the statement quotes Karzai telling an audience gathered for a televised talk show filmed at the Presidential Palace Thursday. "We want good relations and friendship with America, but the relationship must be between two independent nations."

That explanation may do little to soothe U.S. officials' unease. Over the weekend, the Afghan leader accused the U.S. of colluding with the Taliban on suicide attacks to keep the country unstable and give foreign forces an excuse to stay beyond their 2014 mandate. His remarks followed two suicide attacks that killed at least 19 Afghans on Saturday, coinciding with the first official visit by U.S. Defense Secretary Chuck Hagel.

Karzai also cautioned that the delay in handing over a U.S.-run detention center to Afghan control "could harm bilateral relations." His remarks came after he and Dunford met Wednesday to discuss the issue but failed to resolve the impasse.

The prison transfer, originally slated for 2009, has been repeatedly delayed because of disputes between the U.S. and Afghan governments about whether all detainees should have the right to a trial and who will have the ultimate authority over the release of prisoners the U.S. considers a threat.

The Afghan government has maintained that it needs full control over which prisoners are released as a matter of national sovereignty. The issue has threatened to undermine ongoing negotiations for a security agreement that would govern the presence of U.S. forces in Afghanistan after the current combat mission ends in 2014.

Dunford and other top U.S. officials have rejected Karzai's allegations of collusion with the Taliban.

Dunford's warning to his troops, first reported by The New York Times, showed the deep U.S. concern that Karzai's words could go beyond angry rhetoric and spark violence targeting U.S. forces, a threat that could harm the larger relationship.

NATO also released a statement explaining the missive, saying it "routinely conducts assessments and adapts its protection posture to ensure our forces are prepared to meet potential threats." The statement calls Dunford's email "prudent given increased coalition causalities in recent days."

Dunford also said unusually warm weather could mean an early start to the Taliban fighting season because militants can return from now-open high mountain passes from Pakistan.

On the detention center issue, NATO released a statement Wednesday saying both parties pledged to continue constructive dialogue to resolve the remaining issues. The facility has an Afghan administrator but is still U.S.-run.

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