Snow says premature to comment on CNOOC-Unocal deal

WASHINGTON (MarketWatch) -- The Bush administration will carefully consider all national security concerns of a possible takeover of Unocal Corp. (UCL) by Chinese oil company Cnooc Ltd. (CEO), U.S. Treasury Secretary John Snow said Tuesday.

"It is a little premature; there isn't a transaction yet," Snow said in a wide-ranging interview with CNBC's Squawk Box. "We will look at anything that raises national security issues and there is a good process in place to do that."

Snow leads an inter-agency panel that reviews foreign direct investment into the U.S. for threats to U.S. national security - the Committee on Foreign Investment in the U.S.

Snow said approval would depend on the circumstances of the deal and the companies involved, for example the types of technology they use.

The majority state-owned Cnooc has offered Unocal shareholders $67 a share for a total $18.5 billion.

Snow said the U.S. review shouldn't discourage foreign investment in the U.S.

"U.S. capital markets need to stay open," he said. "We welcome investment into the U.S. as a general rule. If it raises national security issues we are very careful to scrutinize it and be sure we don't put our national security at risk."

The U.S. remains an attractive destination for foreign investment, Snow said, dismissing the suggestion that Chinese investors might lose their appetite for U.S. Treasury bonds.

"The U.S. offers the highest risk-adjusted returns in the world," he said. "It is in China's interest to bring capital into the U.S. Any rash act on their part would punish them more than us."

Snow again called on China to introduce a more flexible foreign exchange system. He said he believes engagement with China is the best way to persuade the government to ease its peg to the U.S. dollar.

"The best way to get China to act is the quiet but firm financial diplomacy we are engaged in," Snow said.

Turning to the state of the U.S. economy, he said high energy costs are hurting the global economy, although the U.S. is coping with the adjustment.

"Energy prices are way too high for my book," Snow said, adding that supplies are very tight. The U.S. economy is "pushing through" the headwind of high energy costs, growing above trend and showing resilience, Snow said.

Oil prices settled at $60.54 on Monday, the highest level since oil futures began trading on Nymex in 1983.

Still, inflation expectations remain subdued, Snow later said while offering his view of why U.S. bond yields remain at historically low levels, a phenomenon Federal Reserve Chairman Alan Greenspan has called a conundrum.

Inflation is low and productivity is expected to remain high, Snow said. Global competition is keeping prices low and global savings are strong, he said.

"The supply of loanable funds is large and it seeks places to get returns...holding interest rates low," Snow said.

Snow also repeated his allegiance to a strong U.S. dollar set by currency markets, which he said is the best policy for supporting the health of the U.S. economy.

"We have a strong dollar policy," Snow said. "At the same time we think the exchange value of any currency is best said in open, competitive currency markets."

The U.S. dollar hit a 10-month high against the euro Friday at $1.1981, as political turmoil in Europe has shifted investors' focus away from risks posed by large U.S. trade and budget deficits.

Snow dismissed a suggestion that political strain in Europe could lead the E.U. to abandon the euro.

"The euro is there and it's going to stay there," he said, adding that Europe "has come a long way" in unifying its national economies.

Snow said rising tax revenues generated by faster U.S. economic growth and job creation is bringing the federal budget down faster than expected. He repeated his view that stronger economic demand in Europe and Japan would help bring down the U.S. current account deficit.

Europe's largest economy, Germany, would quickly reap benefits from structural reforms to the economy, Snow said.

"If they can get policies in place to bring more flexibility, I think Germany is ready for a rebound," Snow said.

Snow again said he doesn't believe that U.S. home prices are overvalued across the nation, although they could be unsustainably high in some markets.

"In some markets housing prices have risen out of alignments with incomes," he said. "Investing in your own home is a good investment."

Snow deflected the question of President George W. Bush's choice to replace Federal Reserve Board Chairman Alan Greenspan, whose term leading the interest-rate-setting Federal Open Market Committee expires at the end of the year.

"Stay tuned," Snow said. "As the White House has said on all these issues, and this includes any openings on the Supreme Court, there is a process; in the event we will be ready," he said.

Snow expressed confidence that Congress will eventually pass legislation reforming the U.S. Social Security system. Since re-election, Bush has campaigned for an overhaul of the U.S. pension system to reduce a projected funding shortfall and to introduce private investment accounts. Public opinion polls show Americans are wary of changes to the popular government program.

"There is real progress being made, even if it isn't all that visible," Snow said, adding that legislative proposals from House Ways and Means Chairman Bill Thomas, R-Calif., and other members of Congress has injected new energy into the issue.

Bush also plans to take up projected deficits in the U.S. retiree health care program, Medicare, Snow said.

"Everywhere I go, small business owners say health care costs are the issue we have to get resolved," Snow said. "That's why the president will soon turn his attention to reining in Medicare costs and health care costs."

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