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LONDON (Alliance News) - The UK inflation rate has fallen back to the Bank of England's 2.0% target for the first time since 2009 after easing unexpectedly in December, welcome news for both the central bank and the government.

The Consumer Price Index hit 2% for the first time since November 2009, thanks mainly to slower increases in the price of food. The discounting seen in the retail sector in the run-up to Christmas also played a part. The Office for National Statistics said the rise in prices of food and non-alcoholic drinks was the smallest it had recorded since 2006.

That'll take some of the pressure off the government in the face of the opposition's focus on falling household incomes, although the news wasn't all good. Higher gas and electricity bills and petrol costs were main contributors to the rise in inflation, while the Retail Price Index rose to 2.7%, from 2.6% in November.

It also takes pressure off the Bank of England as runaway inflation had been one of the triggers the bank had cited as a possible trigger for considering an earlier-than-planned increase in interest rates. The central bank has indicated it won't even start considering rate hikes until unemployment falls to 7%, from 7.4% currently.

"There is no way the Bank of England would have thought they would hit the 2.0% inflation target this quickly, but the eagle has landed. Wage growth still remains stubbornly low, but that should improve if the inflation rate continues to hover around this 2% mark," said Dennis de Jong, managing director at UFXMarkets.

Meanwhile, residential property pries in the UK increased at a weaker annual rate in November, contrary to economists' forecast for a faster growth, latest data showed. The house price index rose 5.4% in November from the same month of last year, the Office for National Statistics said. This followed a 5.5% gain in October. Economists had forecast a faster growth of 5.9% for November.

Elsewhere, US Congressional negotiators late Monday unveiled a massive spending bill that would end the threat of another government shutdown, ahead of a deadline midnight Wednesday, the Washington Post has reported.

The USD1.1-trillion spending bill would fill in the blanks of a December budget agreement and fund federal agencies for the rest of the fiscal year. The bill follows on the bipartisan budget agreement to partially repeal sharp spending cuts known as the sequester and means the Pentagon will avoid a roughly 20-billion-dollar cut set to hit on Wednesday.

The US is going after China on its steel import tariffs. It has charged that China's import tariff on a special kind of US-produced high tech steel violates a ruling by the international trade mediator and has undermined US jobs and exports.

US Trade Representative Michael Froman said the tariff had reduced US exports of the steel to China from USD250 million dollars a year to just USD3 million. Froman said the US was formally challenging China's failure to comply with the Word Trade Organization's decision in November 2012 that found China was in breach of its rules.

Thousands of Thai protesters marched peacefully on government offices Tuesday in a bid to persuade civil servants to stop work and join their "Bangkok shutdown" campaign. The campaign, launched Monday, has occupied seven main intersections in the capital to pressure caretaker Prime Minister Yingluck Shinawatra and her cabinet to resign.

Central African Republic's provisional parliament, meanwhile, began the process of electing a new political leadership, days after the interim president was forced to resign. The 10-day negotiations are being led by National Transitional Council chairman Alexandre Ferdinand Nguendet, who signed a decree late on Sunday giving the country's 135 parliamentarians the authority to elect a new interim president. There has been a power vacuum in CAR since Friday, when Michel Djotodia and prime minister Nicolas Tiangaye stepped down, bowing to pressure from regional leaders.

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FTSE 100: Up 0.1% at 6,764.10
FTSE 250: Down 0.5% at 16,170.75
AIM ALL-SHARE: Down 0.5% at 879.12
GBP-USD: 1.6440
EUR-USD: 1.3670
GOLD: USD1,249.70 an ounce
OIL (Brent): USD106.60 a barrel

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KEY UK CORPORATE NEWS:

FTSE 100: AstraZeneca said it expects revenues for 2017 to be roughly in line with 2013, and that it believes it will return to growth earlier than analysts' currently forecast after it bought Bristol-Myers Squibb out of their diabetes drug joint venture. Ahead of a presentation at the JP Morgan Healthcare Conference In San Francisco, the drugs giant which has been hit hard in recent years as key drugs came off patent, said it has made good progress accelerating and replenishing is portfolio in its three core therapeutic areas: oncology, cardiovascular and metabolic disease, and respiratory, inflammation and autoimmune diseases. Capita has won back the running of London's congestion charge scheme from November 2015 in a five-year deal that should generate it revenues of about GBP145 million. There's an option to extend for a further five years. The company had run the scheme when it was launched in 2003, but was stripped of the contract in 2009 by Transport for London, which instead gave the deal to IBM. Rio Tinto has maintained a 50.8% stake in Turquoise Hill Resources Ltd by participating in the Canadian miner's recent rights issue to the tune of CAD1.3 million.

FTSE 250: Balfour Beatty says overall trading in its continuing businesses remains in line with expectations, although its order book has been hurt by negative foreign exchange movements and a continuing shift in the mix of its construction order book from the UK to the US. The company expects its year-end order book from its continuing businesses to be broadly in line with the GBP13.5 billion it had at the end of 2012. Cobham President of Aerospace and Security, Richard Tyson, is resigning to become chief executive of TT Electronics. IG Group Holdings said its first-half pretax profit rose 17% as its revenue increased on the back of strong client activity in the early part of the reporting period. Asset manager Ashmore Group, meanwhile, recorded a USD3.5 billion net outflow in the second-quarter, as it was hit by investor uncertainty over emerging markets. The assets it manages shrunk to USD75.3 billion at the end of December, from USD78.5 billion at the end of its fiscal first quarter. Unite Group plans to acquire a student accommodation development project in Newcastle city centre from an unnamed firm, subject to achieving planning consent. Barratt Developments again showed the extent of the recovery in the UK housing market as it reported a 19% increase in completions in the last six months and a 37% rise in private reservations. It said it was having to use fewer incentives, helping push up margins, while total forward sales were up 71%. Countrywide, was another beneficiary of the recovery, with total income up 25% in the fourth quarter compared with the previous year. Michael Page International said gross profit fell 1.2% in the fourth quarter, while the figure for the full year was GBP513.9 million, down 2.5% on a reported basis and down 2.7% on a constant currency basis. Self-storage firm Big Yellow reported a rise in revenue in its seasonally weak fiscal third quarter as rent rises offset a usual fall in occupancy, but revenues were down on the quarter. Still, it's still calling a steady recovery in the market and said January was off to a strong start with occupancy growing. Great Portland Estates has let the Skylight office space at City Tower in the City of London to Porta Communications for annual rent of GBP1.0 million. MoneySuperMarket.com Group expects 2013 revenues and operating profits to be significantly higher than in 2012 as it reported a surge in demand for its energy switching service in the wake of price increases announced by energy providers in the autumn. Bank of Georgia Holdings has acquired a hospital in Tbilisi, Georgia. FirstGroup's new Chairman, John McFarlane, has elected to receive his annual salary in FirstGroup shares, in order to "underline his confidence in the long-terms prospects of the company and to align himself with the interests of its shareholders."

AIM: ASOS has started the year with a bang, reporting sales growth of 38% for the first four months of its new financial year, with sales in France and Germany particularly strong. Wildhorse Energy is a big gainer after the Hungarian Parliament approved a modification of the Mining Law to include underground coal gasification as a regulated mining method with a legal development framework. Wildhorse's most advanced UCG asset, the Mecsek Hills UCG Project, is located in Hungary. Its progress in Hungary is now dependent on finding a strategic partner. SolGold is another big gainer after it reported strong porphyry copper gold results from the first 845 metres of a fifth hole it is drilling on the Alpala prospect at its Cascabel Project in northern Ecuador. The company said the results from the drilling done so far indicate it has discovered a large, high-grade copper gold porphyry system. Volga Gas is also up 12% after it said 2013 production was up 46% on 2012, with second-half results boosted by its operating subsidiary, OOO Gaznefteservice, gaining regulatory approval for upgrade works on the Dobrinskoye Gas Processing Plant. Orosur Mining is doing well after it reported higher profit and gold production for its second quarter and raised its production guidance for the whole year while also reducing its cost guidance.

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AFTERNOON WATCHLIST: US Import/Export Price Index, US Retail Sales, US Redbook Index, US Business Inventories

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Wednesday's Key UK Corporate Events

UK Mail Group Interim Management Statement
Tullow Oil Trading statement
Taylor Wimpey Trading statement
Burberry Group Trading statement
Smiths News Interim Management Statement
Diploma Interim Management Statement
Fenner Interim Management Statement
Jupiter Fund Management Trading statement
Genel Energy Trading statement
Fusionex International Full Year Results
WANdisco Bookings Update

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Wednesday's Key Economic Events

02:00 China FDI - Foreign Direct Investment
02:00 China Foreign Exchange Reserves
02:00 China New Loans
06:00 Japan Machine Tool Orders
08:00 Germany Real GDP Growth
10:00 UK CB Leading Economic Index
10:00 EU Trade Balance
12:00 US MBA Mortgage Applications
13:30 US NY Empire State Manufacturing Index
13:30 US Producer Price Index
15:30 US EIA Crude Oil Stocks change
17:50 US Fed's Evans Speech
19:00 US Fed's Beige Book
23:50 Japan Domestic Corporate Goods Price Index
23:50 Japan Machinery Orders

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By Steve McGrath; steve.mcgrath@alliancenews.com; @stevemcgrath1

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