Biz Watch

European investors are missing out on one of the biggest stock-market rallies of the year — in Japan. As France's economy officially entered recession and Germany showed optimistic signs (and continued sputters), the Nikkei index of Japan's largest companies closed above 10,000 points last week for the first time in a year, and is up more than 30% from its low in April, outperforming the U.S. and many other markets. Behind the rise are signs that Japan's prolonged slump may be over.

Foreign capital is pouring back into the stock market, but so far it's mainly from the U.S. The latest statistics show U.K. investors actually withdrew money from

INDICATORS Holed Parachute Former Alstom CEO Pierre Bilger agreed to return the €4.1 million he received from the ailing French engineering firm when he left in March. Alstom has since been bailed out by the government. E.U. Says "Fly Right" Charging undue favoritism, the European Union issued a warning after China Airlines, Taiwan's mostly state-owned carrier, ordered 24 engines from U.S. firm GE instead of the U.K.'s Rolls-Royce. GE admitted its engines are not even certified for the type of aircraft involved in the deal. Cutting Hedge Germany's cabinet approved a law allowing hedge funds to operate for the first time, from Jan. 1. Analysts predict the German hedge-fund market will quickly become worth billions of dollars.

Japanese funds in April and May. "After a decade of disappointment, there's a very low level of interest," says Richard Eats of Threadneedle Investments.

That may be changing; some fund managers say they've seen growing interest in the past two weeks. But such latecomers "may have missed the big move," says Bob Parker, deputy chairman of Credit Suisse Asset Management, who still expects the rally to continue, albeit less dramatically.

Carlyle's Euro Shopping Spree
A secretive, well-connected U.S. financial firm may be close to achieving what European governments and companies have long failed to do: consolidate Europe's defense industry. The Carlyle Group, a Washington, D.C.-based private equity firm whose officers include former U.S. Defense Secretary Frank Carlucci and former Secretary of State James Baker, this month won E.U. clearance to buy Fiat's defense subsidiary, Fiat Avio, for about €1.5 billion. And now it's bidding for DaimlerChrysler's MTU, which makes military aircraft engines, and is also expected to fetch about €1.5 billion. Industry sources say Carlyle wants to put the two together. But first it must outbid U.S. rivals such as KKR and the Blackstone Group. And Economy Minister Wolfgang Clement said this month he wants the firm to remain German. Carlyle is betting that the MTU-Fiat combination may be the "European solution" needed to satisfy the Germans.

Milking The Customer
Voters in Seattle, Washington, are steamed over a September ballot proposal to slap a 10¢ surcharge on any espresso-based coffee sold. The "latte tax" would help fund child-care and preschool programs.

The Bottom Line
	The handwriting is not only on the wall, it is in capital letters on the wall.
		U.S. Senator MITCH McCONNELL, on the consensus that decades of multibillion-dollar price supports for American tobacco farmers are about to end