in places like Hong Kong and Singapore. Such outsourcing is illegal in Korea. "Such practices are part of the foreign banks' desire to manage their entire Asian portfolio," Kim said. "In cases of big investment banks, trading on a regional level can have a great impact on the domestic financial markets as such management can lead to sharp changes to the portfolios of the banks' local branches." The FSS plans to inspect 15 foreign banks operating in Korea every year to monitor their fund management from this year, citing the need to proactively manage potential market risks. "Foreign banking branches (in Korea) are considered to have a great effect in increasing the volatility of capital flows in and out of the market," the FSS said in a separate statement, adding such branches tend to take on short-term foreign currency borrowings to conduct derivatives or government bonds trading. Kim told reporters HSBC Holdings PLC and Credit Agricole S.A. have already been sanctioned for improper outsourcing of operations involving derivatives. He added that another European bank may be sanctioned fomined commodities amid rising prices for copper, gold and coal. Caterpillar also is selling more equipment used to generate electricity and power machinery used by the oil and gas industry. The company's acquisition last year of train locomotive builder Electro-Motive Diesel added to engine sales. Sales of construction equipment remained strong in Latin America and Asia - largely due to building of roads, airports and other infrastructure. Construction machinery sales in North America rose 92% from a year earlier and more than doubled in Europe, Africa and the Middle East. The sales growth in the U.S. and Europe came off depressed levels from a year ago and the company acknowledged that construction activity remains weak. Much of the U.S. buying in the quarter was driven by customers forced to replace worn-out equipment and dealers restocking their inventories and upgrading rental fleets. Sales of new machinery in developed countries remains far below the peak levels of 2006 and the average age of equipment in rental fleets remain elevated. "In the U.S., it's a very slow recovery from very low numbers," Oberhelman said during a conference call Friday with analysts. The Peoria, Ill. company said its manufacturing costs rose by $219 million from a year ago because of increased production volumes and incentive pay. The company also cited rising material expenses and freight costs as adding to expenses. But Caterpillar countered the rising expenses with higher product prices that contributed $295 million to the quarter's operating profit. The company's operating margin on machinery and engines sales rose to 14.3% from 6.1% a year earlier and up from 10.1% in the fourth quarter. Analysts said the margin improvement was particularly impressive because of the company's difficulty in the past with holding down costs for supplies and assembly plants when orders surge. "It's one of the best quarterly operating margins we've seen from the company," said Adam Fleck, an analyst for research firm Morningstar Inc. "Caterpillar seems to be managing their suppliers very well, otherwise there would be a margin hit." Caterpillar said it still hasn't caught up with demand for equipment, particularly in China, where it is racing to add production capacit