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Wall Street ready for a rebound as quarter ends
Wall Street is set to resume its rise on hopes that it will get more budding signs of economic recovery.
Data being released later Tuesday include the S&P Case-Shiller January home price index and a private research group's March consumer confidence index. Chicago purchasing managers will also report on March business conditions.
On the last day of the quarter, Dow Jones industrial futures are up 73, or 1 percent, at 7,553. Standard & Poor's 500 index futures are up 5.90, or 0.8 percent, at 790.20. Nasdaq 100 index futures are up 8.25, or 0.7 percent, at 1,231.
The major indexes had dropped about 3 percent Monday as the White House rejected General Motors Corp.'s and Chrysler's turnaround plans, raising the possibility of an automaker bankruptcy.
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OECD sees bleak global outlook, soaring job losses
The world economy will shrink at a far faster pace than originally expected this year, sending unemployment soaring and highlighting the need for extra steps to halt the crisis, the OECD said on Tuesday.
The 30-nation Organization for Economic Co-Operation and Development (OECD) said member economies would contract -4.3 percent this year. That was sharply down from the last forecast of -0.4 percent, made in November.
"The world economy is in the midst of its deepest and most synchronized recession in our lifetime caused by a global financial crisis and deepened by a collapse in world trade," the OECD said in its interim economic outlook.
"We anticipate that the ongoing contraction in economic activity will worsen this year before a policy-induced recovery gradually builds momentum through 2010."
OECD chief economist Klaus Schmidt-Hebbel said jobless numbers in the Group of Seven rich nations would nearly double to almost 36 million and would rise by 25 million across the OECD as a whole by late 2010.
"The impact of the recession on societies will be very substantial," he said, noting that unemployment rates would reach double digit levels in most countries for the first time since the early 1990s.
He said stimulus measures taken so far should stop the world seeing a repeat of the 1930s Great Depression and growth should return in 2010.
But there were substantial risks to the downside for this outlook and some governments and central banks needed to use the room they have for more aggressive policy.
DOWNSIDE RISKS
The OECD report said that "risks remain firmly tilted to the downside" with the largest danger that of the weakening economy further undermining the health of financial institutions, forcing them to curtail lending beyond what is anticipated.
The recession will lead to a sharp rise in unemployment, with a peak in 2010 or early 2011 and many countries reaching double digit levels for the first time since the early 1990s.
G20 leaders will meet in London on Thursday to discuss the crisis. Ahead of the summit, the report included a special focus on economic policies needed for a recovery.
"An essential step to arrest the 'economic hemorrhaging' that is ongoing is to devise and implement without delay a coherent strategy that squarely tackles the mess in financial markets," the report said.
This included decisive measures for dealing with impaired assets and restoring confidence in markets. "Additional macroeconomic stimulus is also critical to cushion the fall in aggregate demand," it said.
The United States has pushed for Europe to take more stimulus action ahead of the summit. The OECD said some countries, including Germany, Canada, and Australia, appeared to have more fiscal room and urged those that could afford it to make a special effort in 2010.
Policy makers should, however, make sure they can lay out a plan for scaling back stimulus as the recovery gathers pace, to persuade markets the plans are sustainable and prevent upward pressure on bond yields from worries over growing debt.
MORE RATE CUTS
The OECD praised the "vigorous" action of central banks with both conventional and unconventional measures.
But it urged the European Central Bank to cut its main policy rate further from 1.5 percent and said it should commit to the quantitative easing hinted at by the bank's policymakers in recent days.
"The grim outlook for economic activity in the euro area and widespread evidence of falling inflation call for exhausting the remaining scope for further cuts," the OECD said.
"With the bleak economic outlook, quantitative easing should be used to support demand," the report said on the ECB.
The Bank of England should keep its policy rate as close to zero as possible until the end of 2010, it said.
The Bank of Japan has used its limited scope for maneuver to cut rates to 0.1 percent and the outlook points to maintaining that rate, the OECD said.
"The Bank of Japan should keep the policy interest rate close to zero and continue measures to increase liquidity until there is a definitive end to deflation," it added.
It also said the U.S. Federal Reserve must be wary of inflation expectations when the recovery takes hold.
"Once economic recovery is well underway and financial conditions are normalized, the Fed will need to start raising interest policy rates ... to keep inflation expectations well anchored, something expected to happen beyond 2010," it said.
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World Bank backs strong dollar, outlines trade boost
The dollar will remain the world's dominant reserve currency and a strong U.S. currency is critical to lifting the world out of economic and financial crisis, World Bank President Robert Zoellick said on Tuesday.
Speaking at a newsmaker event at Reuters' London office, Zoellick announced a $50 billion program to reverse a sharp drop in trade in the global crisis and urged G20 leaders to back the effort.
But he played down the chances of a dethroning of the dollar as the world's leading currency.
"I think the dollar will remain the principle reserve currency. The question will be whether you have complementary measures," Zoellick said in an interview with Reuters.
China has provoked debate about the dollar's status as the world's main unit of exchange by suggesting the wider use of Special Drawing Rights (SDR) created by the International Monetary Fund as an international reserve asset.
While those ideas are worth discussing, for instance to increase international liquidity, Zoellick said that does not change the importance of the dollar.
"A dollar-based system and a strong dollar ... will be critical to pull us out of this hole. Over time, however, you will see discussions over the role of the dollar," he said
Given the important role the U.S. dollar plays in the global financial system, it is incumbent upon the United States to pursue sound economic, fiscal and monetary policies, he said.
"It is appropriate to discuss the monetary system but one also has to be sensible and not throw out the baby with the bath water," Zoellick said.
Moreover, it would take more than a Group of 20 summit to establish a new reserve currency, which requires functioning financial markets.
"To create a reserve currency you need to have more than a summit or a meeting, you have to create financial markets where people feel comfortable moving in and out of the currency," he added.
If the Chinese yuan is to start playing a larger role, it will require full convertibility of its currency and greater transparency, he said. However, China's contribution to the debate is a healthy development showing its engagement in the international financial system, he said.
DANGEROUS YEAR
The World Bank chief also said the world economy faces a "dangerous year" and could stumble deeper into recession.
"Everyone needs to approach this crisis with a healthy dose of humility because we've seen surprises, we still face high uncertainty," he said.
"It remains a dangerous year in terms of downside risks."
Zoellick said the Bank had revised down its growth forecast for the world economy in 2009 to -1.7 percent -- below the IMF's most recent forecasts but still well shy of a 4.3 percent contraction predicted on Tuesday by the OECD.
He said growth would continue in China, albeit at a lower level, and the United States should begin to show signs of recovery, seeding a broader recovery.
"If the U.S. can follow through on its banking program - there is a reasonable chance that you will start growth in the U.S. first, whether it is 2009 or 2010 is a little bit hard for me to tell," Zoellick said.
G20
The World Bank president said his priority at the G20 financial summit of the world's largest industrialized and developing countries on April 2 is to ensure that leaders not only debate reform and regulation, but also consider balanced global growth.
"It would be a big mistake if it were to become a summit of high finance without focusing on the poor," he said.
He is pressing leaders to contributing 0.7 percent of GDP to a vulnerability fund. Investment in the poorest regions, such as Africa and Asia, to raise productivity will bear divides by achieving more balanced economic development, he said.
To this end, the World Bank is promoting a trade finance initiative.
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Oil prices slide on world economy worries
Oil prices fell heavily Monday in line with stock markets on renewed concerns for the global economy, traders said.
New York's main futures contract, light sweet crude for delivery in May, dropped 1.73 dollars to 50.65 dollars per barrel.
Brent North Sea crude for May shed 1.50 dollars to 50.48 dollars a barrel.
"The market is probably a little concerned about the short-term performance of the equity markets," said Mark Pervan, senior commodities analyst of ANZ bank.
European and Asian stock markets dived on Monday as fresh woes for the global auto sector and extremely weak economic data triggered a rush to dump shares.
Tokyo closed down 4.53 percent as bad industrial and auto production data fed the gloomy economic outlook and traders rushed to lock in profits made last week, they added. European indices fell between two and about three percent in morning trade.
Meanwhile oil prices at about 50 dollars a barrel will not support huge investments needed in the sector to meet demand, the secretary-general of the International Energy Forum said on Monday.
"Current prices will not support the huge levels of investment needed to meet future oil demand," Noe van Hulst told the opening of a two-day forum on cooperation between national and international oil companies in Kuwait.
"Around 12 trillion dollars of investments are needed in the oil and gas sector by 2030, or nearly 500 billion dollars per annum, to maintain market balance," Hulst of the Riyadh-based IEF said.
He warned that a delay in investments and projects, which is already taking place, will affect future energy supplies and he called for the maintaining of investment plans, as much as possible, to avoid a "boom-bust cycle."
Oil prices have tumbled from record heights of above 147 dollars a barrel last July as a vicious global economic downturn slammed demand for energy.
However Qatar's Energy Minister Abdullah al-Attiya said on Monday that the latest price of oil is "reasonable" given the ongoing global economic downturn.
"Fifty (dollars a barrel) is a reasonable price for 2009, considering the global economic crisis," Attiya told reporters on the sidelines of the two-day energy forum in Kuwait City.
"The world economy is in depression and has not reached the bottom. I am still waiting to see the worst," the minister said.
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World stocks plummet as auto sector reels
European and Asian stock markets dived on Monday as fresh woes for the global auto sector and extremely weak economic data triggered a rush to dump shares, traders said.
Tokyo closed down 4.53 percent as bad industrial and auto production data fed the gloomy economic outlook and traders rushed to lock in profits made last week, they added.
US automaker General Motors must meanwhile undergo a "substantially more aggressive restructuring" if it is to have a long-term future, the White House said Monday in a tough review.
Publication of the report followed news that GM chief executive Rick Wagoner has resigned under pressure from US President Barack Obama.
On Sunday, Peugeot also said it had removed its chief executive Christian Streiff as France's biggest carmaker struggles with the effects of the international economic crisis.
"One thing is for sure... no-one should expect quick fixes to the current economic malaise," said analyst Dermot O'Leary at Goodbody Stockbrokers.
Ahead for investors this week are the G20 summit on the financial crisis and the ECB's latest rate decision, both due Thursday, while Friday sees the release of key US jobs data.
In early European trade Monday, London dropped 2.20 percent, Frankfurt dived 3.37 percent, Paris slumped 2.67 percent, Madrid shed 2.87 percent and Zurich declined 2.03 percent.
"As the week progresses, the hope that we'll see headway from the G20, rather than simply rhetoric, could offer some support," said CMC Markets dealer Matt Buckland.
US President Barack Obama has rejected suggestions of a split with Europe on how to tackle the global financial crisis when leaders of the Group of 20 rich and emerging economies meet in London.
"The most important task for all of us is to deliver a strong message of unity in the face of crisis," he told the Financial Times newspaper.
Ahead of the summit, stocks tumbled across Asia on Monday. Hong Kong share prices closed 4.70 percent lower, Seoul slumped 3.24 percent, Taipei dived 3.43 percent and Sydney gave up 1.85 percent.
"Today's fall was widely expected," Taiwan International Securities analyst Arch Shih said of Taipei's slide. "The market had scored substantial gains recently. It was time for a correction."
US shares had swung lower Friday on profit taking after a series of strong gains, as investors reassessed the outlook for recovery from the recession gripping the world's largest economy.
The Dow Jones Industrial Average slipped 1.87 percent. The Nasdaq composite fell 2.63 percent and the broad-market Standard & Poor's 500 index shed 2.03 percent.
Ahead of Wall Street's reopening Monday, a task force set up by President Barack Obama found GM's plan to shake-up its ailing business and qualify for more government loans "is not viable and will need to be restructured substantially."
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Automakers cliff hanger, bank woes slam futures
Stock index futures pointed to a sharply lower open on Monday as the Obama administration threatened bankruptcy for two major U.S. automakers and Spain had to rescue regional savings bank CCM.
The Obama administration grabbed control of the failing U.S. auto industry on Monday, forcing out General Motors Corp's (GM.N) CEO, pushing Chrysler LLC toward a merger and threatening bankruptcy for both.
GM shares tumbled more than 20 percent in pre-market trade while Ford (F.N) shed 1.8 percent to $2.79.
"Obviously today it's all about Detroit and the fear factor of bankruptcy," said Peter Cardillo, chief market economist at Avalon Partners in New York.
"The administration forced out GM's CEO and the fear is ... this (could) set a precedent to spread to other companies that have taken money from the government."
European markets fell after Spain was forced into its first bank rescue since the financial crisis began and Germany and Britain also acted to shore up lenders as the sector awaited the brunt of the impact of rising bad loans.
Adding to the bank worry were comments from U.S. Treasury Secretary Timothy Geithner on Sunday that some banks still need large amounts of assistance and the government will have about $135 billion left after other banks give back some of the bailout money.
Banks shares fell in pre-market trade, as Citigroup (C.N) slid 7.3 percent, Bank of America (BAC.N) dropped 7.9 percent, Wells Fargo (WFC.N) shed 6.2 percent and JP Morgan Chase & Co (JPM.N) fell 4.3 percent.
S&P 500 futures fell 18.30 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures slid 180 points, and Nasdaq 100 futures were off 25.25 points.
GM CEO Rick Wagoner, who had presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steven Rattner. A majority of GM's board will also be replaced.
Wall Street capped a strong week on a down note on Friday as investors booked profits in the wake of the recent upward surge and bank shares dropped after bank executives indicated March had been a tougher month for them than the previous two.
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EU, euro economic confidence drops again
EU and euro-zone business and consumer confidence dropped again in March to the lowest level in 24 years, the European Commission said Monday.
The survey of how companies and shoppers see the economy fell more slowly than in the first two months of the year, the EU executive said.
It is now at the lowest level since statistics started in January 1985 for both the 16 nations that use the euro and the entire 27-nation European Union.
The economic sentiment indicator declined from 60.9 to 60.4 in the EU and from 65.3 to 64.6 in the euro area.
Industry and services sectors were more pessimistic than last month but retailers were more upbeat in both regions. Construction confidence was unchanged.
Consumer confidence was stable in the EU, but fell slightly in the euro area. Shoppers were more worried about unemployment, the general economic situation and about their own savings in the year ahead.
In financial services, managers said they expected demand to worsen, with those in the euro area seeing a far bleaker downturn than colleagues across the EU.
Italians saw the biggest drop in confidence during the month with softer falls in France, Poland, Germany and Britain. The Netherlands and Spain rebounded slightly.
A separate survey of euro-zone industry managers also fell again in March to a new low as executives said orders and foreign sales were down, unsold stocks were rising and they expected output to drop in coming months.
The EU said this drop in the business climate indicator — to minus 3.58 — signaled "markedly negative" output for industrial output in February after a record fall in January.
"Given the current levels, it also suggests that industrial production growth will remain clearly subdued in March," it said.
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Treasury head Geithner unveiling regulatory agenda
The Obama administration is proposing an extensive overhaul of financial regulations in an effort to prevent a repeat of the banking crisis last fall that toppled once-mighty institutions and wiped out trillions of dollars in investor wealth.
Officials said the administration will seek to regulate the market for credit default swaps and other types of derivatives and require hedge funds to register with the Securities and Exchange Commission.
Treasury Secretary Timothy Geithner was scheduled to outline the proposals in testimony Thursday before the House Financial Services Committee.
Administration officials provided details of the administration's plan before the testimony only on condition of anonymity.
The program the administration was presenting to Congress will also include a recommendation for creation of a systemic risk regulator, possibly at the Federal Reserve, to monitor risks to the entire system.
The plan also includes a measure that Geithner and Federal Reserve Chairman Ben Bernanke discussed before the committee on Tuesday to give the administration expanded powers to take over major nonbank financial institutions, such as insurance companies and hedge funds that were teetering on the brink of collapse.
That power was aimed at preventing a repeat of the problems surrounding insurance giant American International Group Inc., which sparked a furor last week when it was revealed the company had distributed $165 million in bonuses to employees of its financial products group. The unit specialized in trading credit default swaps, the instruments that drove the company to near-collapse last fall.
The administration, pushing Congress to act quickly on its reform agenda, sent Congress a 61-page bill dealing with the expanded powers to seize control of nonbank institutions late Wednesday. The House Financial Services Committee, chaired by Rep. Barney Frank, D-Mass., has indicated it could move on the measure as early as next week.
However, it was unclear how fast the rest of the financial reform agenda might move through Congress. Geithner was providing only a broad outline of the other proposals, with many thorny details remaining to be worked out.
Administration officials promised that the remaining issues would be hammered out in consultation with Congress with the goal of getting legislation approved as quickly as possible.
The administration is proposing that hedge funds and other private pools of capital, including private equity funds and venture capital funds, be required to register with the SEC if their assets exceed a certain size. The threshold amount has yet to be determined, officials said.
The proposal on credit default swaps and other derivatives would require the markets on which they are traded to be regulated for the first time, and for the buying and selling of these instruments to be conducted in ways that will foster greater oversight.
Credit default swaps, which trade in a $60 trillion global market without government oversight, are contracts to insure against the default of financial instruments like bonds and corporate debt. They played a prominent role in the credit crisis that brought the downfall of investment banking giant Lehman Brothers Holdings Inc. last fall and nearly unraveled AIG, forcing the government to provide more than $180 billion in support.
Hedge funds, vast pools of capital holding an estimated $1.5 trillion in assets, operate mostly outside of government supervision. As the market crisis deepened last fall, hedge fund selling was widely cited as one of the reasons for increased volatility that pounded stocks and bonds. Hedge funds also suffered huge losses last year, notably from investments in securities tied to subprime mortgages.
The outline of the regulatory reform was being unveiled a week before President Barack Obama was scheduled to meet for discussions among the Group of 20 major industrialized and developing countries in London to assess what needs to be done to deal with the global financial crisis.
While the administration is pushing other nations to follow the U.S. lead in putting together sizable economic stimulus programs to jump-start global growth, many in Europe are resisting those calls and arguing that the United States needs to do more to toughen financial regulations. They believe the current troubles can be traced to lax regulation in the United States in such key areas as hedge funds and credit default swaps.
Requiring hedge funds to register would open their books to inspection by regulators. The SEC sought that authority several years ago but was stymied by a federal appeals court in 2006.
Hedge funds have grown explosively in recent years while operating secretively. They have lured an increasing number of ordinary investors, pension funds and university endowments — meaning millions of people now unwittingly invest in hedge funds indirectly.
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Futures point to higher open for Wall Street
U.S. stock index futures pointed to a higher open for Wall Street on Thursday, building on gains from the previous session, when shares were boosted by upbeat economic data.
At 1002 GMT (6:02 a.m. EDT), futures for the Dow Jones, S&P 500 and Nasdaq were up between 0.7 and 0.9 percent.
The FTSEurofirst 300 (.FTEU3) index of top European shares was down 0.2 percent at 742.27 points, having risen for the past five consecutive sessions, with retailers Hennes & Mauritz (HMb.ST) and Kingfisher (KGF.L) both down more than 5 percent after results.
At 1230 GMT (8:30 a.m. EDT), the final reading for U.S. GDP is expected to show that the amount of goods and services produced in the economy shrank at an annual rate of 6.5 percent, more than the preliminary reading of 6.2 percent.
Weekly jobless data, also due at 1230 GMT (8:30 a.m. EDT), are expected to show initial claims edging up to 650,000 from 646,000, and continuing claims rising to 5.48 million from 5.47 million.
At 1400 GMT (10 a.m. EDT), U.S. Treasury Secretary Timothy Geithner is set to outline proposals for new, tougher requirements on major financial firms to protect the financial system and new rules to prevent financial fraud and abuse against consumers and investors.
Atlanta Federal Reserve President Dennis Lockhart said one month of improved data does not constitute an economic recovery and recession in the United States will last for at least a few more months.
Dr Pepper Snapple Group (DPS.N) is among companies reporting.
U.S. auto industry sales are showing no signs of recovery from a weak start to the year, the president of Toyota Motor Corp (7203.T) said, as rival Honda Motor Co (7267.T) announced further delays to the start of a new factory in Japan.
Japan's Mitsubishi UFJ Financial Group (8306.T) and Morgan Stanley (MS.N) will merge their Japanese brokerage units to chase industry leaders Nomura Holdings (8604.T) and Daiwa Securities Group (8601.T).
U.S. stocks rose on Wednesday as unexpectedly strong housing and durable goods data fueled hopes the economy is finally on the mend
The Dow Jones industrial average (.DJI), the Standard & Poor's 500 Index (.SPX) and the Nasdaq Composite Index (.IXIC) rose between 0.8 and 1.2 percent.
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Credit Suisse sees 'solid start' to 2009
Swiss banking giant Credit Suisse, hit by a record loss last year due to the global financial crisis, said Tuesday it had made a solid start to 2009 and was well placed to face the challenges ahead.
Switzerland's second largest bank said in its annual report that it "had experienced a solid start to 2009.
"We have positioned our business to be less vulnerable to negative market conditions, if this environment were to continue in the months to come, and to prosper if recovery takes hold," Credit Suisse said.
The remarks by the bank, which suffered a record loss of 8.2 billion Swiss francs (5.4 billion euros) last year, echo those of several other major lenders such as Citigroup and Bank of America who say they have done better than expected so far this year.
On the stock exchange, Credit Suisse shares were down more than one percent in a broadly stable market after sharp gains on Monday.
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Airline industry to lose $4.7 billion in 2009: IATA
World airlines are set to lose $4.7 billion this year as a result of the global recession that has shrunk passenger and cargo demand, industry body IATA said.
The International Air Transport Association had estimated in December the industry would lose $2.5 billion in 2009.
"The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago," Director-General Giovanni Bisignani said on Tuesday.
"The relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care."
IATA, which represents 230 airlines including British Airways (BAY.L), Cathay Pacific (0293.HK), United Airlines (UAUA.O), and Emirates (EMIRA.UL), also raised its estimate of international airline losses in 2008 to $8.5 billion, from its previous $8 billion estimate.
The Swiss-based body said its latest forecast was based on a view that the economy and air transport demand would hit bottom by mid-2009 and then start to recover.
"We do expect better prospects toward the end of this year or the beginning of 2010," Bisignani told a news conference at Geneva airport.
Leading airlines have slashed fares to encourage continued travel and unveiled a range of cost-cutting measures to stay afloat throughout an economic slump.
Fares should stay low throughout the year while airlines compete for the business that remains until global economic activity rebounds, Bisignani said.
Asia-Pacific carriers will continue to be hardest hit by global economic turmoil and are expected to post losses of $1.7 billion, against the earlier forecast loss of $1.1 billion in 2009, according to the Geneva-based body.
Carriers in North America are expected to deliver the "best performance" among the world's regions with an estimated $100 million profit, IATA said, crediting their strength to early capacity cuts and relatively little fuel hedging that has permitted them to benefit from sliding oil prices.
And European carriers are expected to lose $1 billion in 2009 as a result of the recession that will continue to drag down both economy and premium demand worldwide.
Nearly 40 airlines worldwide have suspended their operations in the last 15 months because they could not pay their bills, Bisignani said.
International passenger demand fell 5.6 percent in January compared to the same month a year ago, and cargo volumes fell 23.2 percent year-on-year, the eighth consecutive month of contraction for cross-border freight.
IATA's February traffic figures are due to be released later this week. The data excludes domestic flights.
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Evans: Fed's efforts to trigger global recovery
The Federal Reserve could expand its already vast efforts to restore normal functioning in financial markets, and its actions ultimately will help restore global economic growth, a top Fed policy-maker said on Tuesday.
"The Federal Open Market Committee's policy decisions have been calibrated to deal with the 'adverse feedback loop' between disruptions to financial market stability and the real economy," Charles Evans, Chicago Fed president, said in remarks prepared for a speech at the Czech National Bank in Prague.
"They will also have a stabilizing effect on markets around the world and will therefore eventually stimulate worldwide economic recovery."
Evans is a voting member of the FOMC in 2009.
The global financial system is suffering the worst crisis in 70 years, and the Fed, for its part, has needed to do more even after slashing its target for the federal funds rate to essentially zero in December, Evans said
Betting in financial markets shows dealers suspect the Fed could keep rates at next to zero through year-end.
"Financial distress, the weak outlook for growth and the prospects for unusually low inflation call for more policy accommodation," he said.
Ultimately the FOMC will resume its focus on traditional monetary policy, Evans said -- echoing a joint statement made on Monday by the Fed and the U.S. Treasury.
For now, as conditions warrant, "we will be expanding existing programs," including the Term Asset-Based Securities Lending Facility, or TALF, now under way, and the FOMC's decision last week to buy up to $300 billion in longer-term Treasury debt.
"When economic activity recovers and financial conditions normalize, the use of non-traditional policy tools and the size of the Fed's balance sheet will be reduced," he said.
Some of the wind-down process will happen naturally, while other facilities will likely be dismantled as the economy improves, Evans said.
For example, loans being made under TALF, which is aimed at restoring lending at the consumer level, "are attractive during current market conditions, but are more costly than those that prevail during more normal times," he said.
Since TALF was announced conditions in the asset-backed securities market have already improved, Evans said, adding that the program, with its three-year loans, "can impact longer-run interest rates."
Still, the market must be "prepared for the eventual dismantling of the facilities that have been put in place during the market turmoil," he added.
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Asian stocks rise on US bank plan; Europe mixed
Asian stock markets extended their rally Tuesday after Wall Street surged on hopes a U.S. plan to rid banks of festering debts at the heart of the financial crisis will revive growth. European markets were mixed in early trade.
Financial firms jumped, Japanese exporters rose on the sliding yen, and South Korean stocks got a boost from plans for massive stimulus spending. The gains came after U.S. stock benchmarks jumped around 7 percent or more Monday.
Investors worldwide appeared heartened by the Obama administration's move to clean up as much as $1 trillion in toxic securities and loans weighing down bank balance sheets — a key part of the government's arsenal aimed at restoring consumer and company lending so crucial to economic activity.
A dose of better-than-expected news about the other big U.S. economic problem — the housing slump — added to the upbeat mood. Data showing a surprise increase in home sales fostered hopes the hard-hit housing industry might finally be stabilizing.
Asian markets have risen sharply recently, with Japan and Hong Kong's indexes each surging a stunning 20 percent over the last two weeks.
But analysts cautioned investor sentiment, while recovering in the short term, was still fragile. Doubts about the U.S. plans — about how to price the assets and account for losses, among other issues — could smother in the coming days what many believe is still an abridged rally in a longer bearish trend.
"At the end of the day there has been no game changer even if the plan is implemented perfectly. And that's an enormous 'if,'" said Kirby Daley, senior strategist at Newedge Group in Hong Kong.
In Japan, the Nikkei 225 stock average gained 272.77, or 3.3 percent, to 8,488.30, and Hong Kong's Hang Seng index was up 462.92 points, or 3.4 percent, at 13,910.34.
South Korea's Kospi gained 1.9 percent to 1,221.70 as the government announced Tuesday it would plow an extra $20.9 billion into creating new jobs and bolstering the economy as the country's slump worsens. That represents more than twice the extra spending implemented during the 1997-98 Asian economic meltdown.
Elsewhere, Shanghai's index rose 0.6 percent, Australia's stock measure added 0.8 percent and Taiwan's benchmark was up 2.3 percent. India's Sensex traded 1.3 percent higher at 9,542.33.
Early in Europe, Britain's FTSE 100 was down 1.2 percent while Germany's DAX and France's CAC-40 added 0.2 percent.
Among Asia's best performers were financials, which have recovered sharply in recent weeks. Mitsubishi UFJ Financial Group Inc., Japan's largest bank, rose 4.5 percent, while top Australian investment bank Macquarie Group galloped ahead by 5 percent.
Banking giant HSBC jumped 9.8 percent in Hong Kong, catching up with an overnight surge in its London shares as trading in its rights to a new share offering got under way.
A weakening yen benefited Japan's exporters, whose overseas earnings hinge on currency moves. Nikon Corp. added 6.8 percent.
Cheered by news about the banks and housing sector, investors sent stocks surging, and the Dow rose 497.48, or 6.8 percent, to 7,775.86, its highest finish since Feb. 13. The Standard & Poor's 500 index rose 54.38, or 7.1 percent, to 822.92, crossing the psychological milepost of 800.
But Wall Street was poised to give up some its gains after U.S. futures fell. S&P futures were down 6.9 points, or 0.8 percent, to 810.4.
Oil prices dipped in Asia, with benchmark crude for May delivery down 23 cents at $53.57. The contract rose $1.73 to settle at $53.80 overnight.
In currencies, the dollar rose to 98.45 yen from 97.10 late Monday in New York. The euro fell to $1.3596 from $1.3626.
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February existing home sales rise by 5.1 percent
Sales of previously occupied homes jumped unexpectedly in February by the largest amount in nearly six years as first-time buyers took advantage of deep discounts on foreclosures and other distressed properties.
Economists said sales, while still at levels not seen since 1997, may finally be coming back to life after declining sharply following the stock market plunge last autumn.
Prices, however, are expected to keep falling well into the year. Tens of thousands of homes reman tied up in the foreclosure process and are not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.
"The four-letter word in the housing market is 'jobs,'" said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "If you're worried about having a job tomorrow, you're not likely to buy a home now."
The National Association of Realtors said Monday that sales of existing homes grew 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January.
It was the largest monthly sales jump since July 2003, with first-time buyers accounting for about half of all transactions. Sales had been expected to dip to an annual pace of 4.45 million units, according to Thomson Reuters. The results, which came after a steep decline in January, mean that sales activity has returned to December's levels, but still remains lower than most of last year.
"If January was a disaster for housing, February may be the rebound month," wrote Joel Naroff, president of Naroff Economic Advisors.
The sales figures don't yet reflect the new $8,000 tax credit designed to lure even more first-time buyers into the market. That should juice up early summer sales, but how much will depend on the overall condition of the U.S. economy.
"If the economy stabilizes around midyear and financial conditions improve, then sales will probably begin to slowly increase as buyers step back into the market," wrote JPMorgan Chase analyst Abiel Reinhart. "An important reason for this is that affordability has already increased sharply, both as a result of lower prices and lower mortgage rates."
The median sales price plunged to $165,400, down 15.5 percent from $195,800 a year earlier. That was the second-largest drop on record and prices are now off 28 percent from their peak in July 2006.
However, in a positive sign, seller asking prices are starting to rise in places like San Diego and Orange County, Calif., where declines have been severe, said Lawrence Yun, chief economist for the Realtors. That could be an early indication that prices are stabilizing in the most distressed parts of the country.
Meanwhile, in contrast with the housing boom, when buyers took out ever-riskier loans and maxed out their home equity lines, "homebuyers are not over stretching" Yun said. "They want to stay within their budget."
The number of unsold homes on the market last month rose 5.2 percent to 3.8 million, a typical increase for the winter months. At February's sales pace, it would take 9.7 months to rid the market of all of those properties.
"Inventories are still high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of rapidly eroding prices," wrote Joshua Shapiro, chief U.S. economist at MFR Inc.
Sellers don't want to compete with foreclosures that have swamped the market, especially in California, Florida, Nevada and Arizona.
About 45 percent of sales nationwide are foreclosures or other distressed property sales, which typically sell at a 20 percent discount, according to the Realtors group.
That's great news for buyers, who are paying the most attractive prices in years. Plus, interest rates have sunk to historic lows.
The Federal Reserve last week moved to reduce already low rates by printing $1.2 trillion and pumping it into the economy through the purchases of mortgage-backed securities and Treasury debt.
The central bank also will double its purchases of debt issued by Fannie Mae and Freddie Mac to $200 billion.
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World stocks rally before launch of US asset plan
Global stock markets surged Monday as investor optimism grew ahead of the official launch of a 500-billion-dollar (366-billion-euro) US government plan to purge banks of toxic assets.
In morning European trade, Frankfurt won 2.04 percent, London gained 2.02 percent and Paris soared 1.37 percent in value.
In Asia, Tokyo leapt 3.39 percent, nearing a two-month high, and Hong Kong rocketed by 4.78 percent.
"Today's focus is squarely going to be back on the US Treasury with an announcement to tidy up the ongoing toxic debt issue amongst the banks being widely expected by traders," said CMC Markets dealer Matt Buckland on Monday.
"This should prove to be good news for equities ... but the detail of the US plan will likely take some time to disseminate which could in turn help extend the rally."
US Treasury Secretary Timothy Geithner will later Monday unveil plans to create a government body to relieve bank balance sheets of the troubled assets that lie at the heart of the global financial crisis.
Geithner wrote in The Wall Street Journal that the administration of President Barack Obama has developed a "Public-Private Investment Program" that will set up funds to provide a market for the troubled loans and securities issued by US banks over the past several years.
"The new Public-Private Investment Program will initially provide financing for 500 billion dollars," US Treasury Secretary Geithner wrote in the newspaper.
This would have "the potential to expand up to one trillion dollars over time, whichis a substantial share of real-estate related assets originated before the recession that are now clogging our financial system," he pointed out.
Geithner explained that the measure was needed because the US financial system as a whole was "still working against recovery" and "many banks, still burdened by bad lending decisions, are holding back on providing credit."
In Asian trade on Monday, Tokyo's Nikkei-225 index closed up 3.39 percent at 8,215.53 points -- which was the best finish since January 29.
The Nikkei has risen in five of the past six sessions, soaring more than 1,000 points, or 14 percent, as investors look beyond the current economic downturn and focus on prospects for a recovery.
"With more details on the US bad bank plan expected to come soon, it's hard for sellers to be aggressive," Daiwa Securities SMBC market analyst Yumi Nishimura told Dow Jones Newswires.
Banks were among the main winners as the US banking plan eased worries about the international credit crunch which has pulled the eurozone, Japan and the United States into recession.
Elsewhere, in Frankfurt on Monday, shares in the German auto and truck maker Daimler leapt higher after the group revealed that a UAE investment would would become its biggest shareholder.
Daimler shares showed a gain of 4.19 percent to 22.23 euros as investors welcomed prospects for a stronger balance sheet.
Daimler, which makes Mercedes-Benz cars, has said Sunday that the Abu Dhabi state investment fund Aabar Investments, would invest 1.95 billion euros (2.65 billion dollars) in return for a 9.1-percent stake.
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Canada's Suncor to buy Petro-Canada
Canada's Suncor Energy Inc. will acquire Petro-Canada in a 19.12 billion Canadian dollar (US$15.5 billion) deal, the oil and gas companies announced Monday.
The move is expected to yield savings in operating costs of over CA$300 million year, and annual capital efficiencies above CA$1 billion, the companies said.
Under the plan of arrangement, Petro-Canada common shareholders will receive 1.28 common shares of the expanded company for each share of Petro-Canada, while Suncor shareholders will receive new shares on a one-for-one basis.
The share exchange represents a 25 percent premium for Petro-Canada shares, based on a 30-day weighted average of the share price. Based on the closing price Friday, the deal values Petro-Canada at CA$19.12 billion.
Petro-Canada shareholders will hold 40 percent of the enlarged company and Suncor shareholders will hold 60 percent. Both companies are based in Calgary.
"This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally," said Rick George, president and chief executive officer of Suncor, who will continue in those roles in the new company.
"The combined portfolio boasts the largest oil sands resource position, a strong Canadian downstream brand, solid conventional exploration and production assets, and low-cost production from Canada's east coast and internationally."
Both companies have put off projects to develop oil sands in Alberta because oil prices now are too low to make the projects viable.
The deal is subject to approval by shareholders of both companies and government agencies.
"The merger will be good for shareholders of both companies with reduced capital requirements, operating efficiencies and complementary integration opportunities between upstream and downstream assets," said Ron Brenneman, president and chief executive officer of Petro-Canada. He will become executive vice chairman in the merged company.
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Wall Street heads for mixed open
Stocks headed for a mixed open Friday, with investors concerned that the Federal Reserve's plan to inject more money into the economy might not be a cure and could lead to some damaging consequences.
The worry is that the Fed's decision to buy Treasury and other securities will weigh on the dollar and stoke inflation. In just two days, the dollar has fallen 5 percent versus the euro and 3 percent versus the yen. Oil prices, meanwhile, soared 7 percent Thursday above $51 a barrel to its highest level this year.
Wall Street had initially jumped on the central bank's announcement Wednesday, but gave up a portion of those gains Thursday. After surging 14 percent over seven trading days, the Dow Jones industrial average fell nearly 86 points, or 1.2 percent.
But considering how much the market has rallied, it appears to be holding up well. Since a batch of troubled banks told investors they were profitable in January and February nearly two weeks ago, the stock market bounced off its 12-year lows. Even after Thursday's retreat, the Dow was still up 13 percent from its lows, and the S&P 500 index was up nearly 16 percent.
The question on Wall Street, though, is whether there will be enough good news in the coming days to keep stocks from wiping out the rally altogether.
With no economic data anticipated Friday and Fed Chairman Ben Bernanke scheduled to give a speech in Phoenix at noon, Wall Street was poised for mixed open.
Ahead of the market's open, Dow Jones industrial average futures rose 3, or 0.04 percent, at 7,414. Standard & Poor's 500 index futures fell 2, or 0.3 percent, to 773.10, while Nasdaq 100 index futures rose 0.75, or 0.06 percent, to 1,204.25.
Government bond prices rose after retreating Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.57 percent from 2.60 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.20 percent from 0.18 percent.
The dollar recovered modestly against other major currencies. Gold prices slipped.
Oil prices fell 52 cents to $51.09 a barrel in premarket electronic trading on the New York Mercantile Exchange.
In corporate news, mobile phone maker Sony Ericsson on Friday warned it expects to post a first-quarter loss before taxes as consumer demand continues to decline.
Printer and copier maker Xerox Corp. slashed its first-quarter profit forecast by nearly 80 percent on restructuring costs and a slowdown in technology spending. Xerox now expects earnings per share in a range of 3 cents to 5 cents, down from its previous forecast of 16 cents to 20 cents.
And Italian automaker Fiat said it will not assume Chrysler's current or future debt as it takes a 35 percent stake in the company.
Overseas, Japan's stock market was closed for a holiday. In afternoon trading, Britain's FTSE 100 fell 0.21 percent, Germany's DAX index rose 0.17 percent, and France's CAC-40 fell 0.38 percent.
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Fiat says it won't assume Chrysler debt in deal
The Italian automaker Fiat says it won't assume Chrysler's debt — current or future — in its deal to take a 35 percent stake in the company.
Fiat issued a statement of clarification on Friday after Chrysler's chief executive said the Italian automaker would be responsible for 35 percent of Chrysler's debt to the U.S. government should a proposed alliance go through.
Fiat shares slipped 5.5 percent to euro4.45 ($6.08) on the Milan stock exchange early Friday on the Chrysler statement.
In a statement, Fiat said it "intends to make absolutely clear that the proposed alliance will not entail the assumption of any current or future indebtedness to Chrysler."
Fiat is discussing trading its small-car technology for a 35 percent stake in Chrysler.
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Motor show cancelled due to downturn
The International Motor Show has been cancelled for 2010 due to the economic downturn, the country's main auto industry body said Thursday, as the crisis hits global demand for cars.
"Following a thorough consultation with the UK motor industry, the Society of Motor Manufacturers and Traders (SMMT) has taken the difficult decision to cancel the 2010 British International Motor Show," said an SMMT statement.
The prestigious show, which is held every two years and is one of the main auto industry events in Europe, was due to be staged at the ExCel exhibition centre in the Docklands area.
"However, the economic downturn and the unprecedented challenges facing the industry both in the UK and around the world have made it impossible for exhibitors to commit to a 2010 event," said the SMMT.
The industry body remains "committed to showcasing the achievements and products of the automotive sector," said SMMT head Paul Everitt.
"The global credit crunch has placed the automotive sector under unique pressure and has created a level of uncertainty that deters manufacturers from committing to large-scale, international events," he said.
Rob Mackenzie, joint head of the show's organisers, added: "We fully endorse the decision to postpone BIMS until market conditions will again permit us to deliver a world class event that truly showcases the UK industry."
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Wall Street opens higher, extending rally
Wall Street is extending its rally after a report showed new unemployment claims dropped last week.
The market, which has advanced six of the past seven sessions, remained upbeat a day after the Federal Reserve said it would pump more than $1 trillion into the economy. The Fed's plans include the purchase of long-term Treasury bonds.
The Labor Department said 646,000 new workers filed for unemployment benefits last week, fewer than expected. But the number of people receiving benefits rose to a record to 5.47 million.
The Dow Jones industrial average is up 25 at 7,511. The Standard & Poor's 500 is up 4 at 798, while the Nasdaq composite index is up 11 at 1,502.
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FedEx profit tumbles on global slump
Package delivery giant and economic bellwether FedEx Corp reported a 75 percent drop in profit due to the global recession, gave a low quarterly outlook and said it was taking fresh actions to cut costs.
"Our financial performance was sharply lower during the quarter due to the global recession," Chief Executive Fred Smith said in a statement on Thursday. "While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions."
The Memphis-based company reported net income for its fiscal third quarter, ended February 28, of $97 million, or 31 cents a share, down from $393 million, or $1.26 a share, a year earlier.
Analysts had expected 46 cents a share, according to Reuters Estimates.
"FedEx's results are not much of a surprise given the current environment," said Dan Ortwerth, a research analyst at Edward Jones. "But this is a wake-up call for us that things are not going to get better any time soon."
"It's a fairly clear indication that the recent stock market rally better have a strong foundation than merely a positive near-term outlook," he added.
Like its main rival, Atlanta-based United Parcel Service Inc, FedEx is considered a bellwether of U.S. economic activity. When the economy does well, companies and consumers ship more goods; in a recession, package volumes drop.
FedEx said third-quarter revenue fell 14 percent to $8.14 billion.
For the current quarter FedEx said it expects to earn between 45 cents to 70 cents a share, below the average of 72 cents expected by analysts.
The company said it was cutting capacity at its FedEx Express and FedEx Freight units, and reducing personnel and work hours.
FedEx said the measures would result in fourth-quarter charges of roughly $100 million and lead to a reduction in expenses of about $1 billion in its 2010 fiscal year.
In December, the company said it had suspended paying matching contributions to its 401 (k) retirement plan for a minimum of one year starting February 1 and would implement pay cuts for all salaried personnel. Smith took a 20 percent pay cut.
"Our goal when we implemented compensation reductions in January for U.S. salaried personnel was to both protect our business and minimize the loss of jobs," the CEO said. "With industrial production and global trade trends worsening since last quarter, we are applying these additional measures to continue to secure as many of our jobs as possible during this downturn."
Both FedEx and UPS have seen package volumes hit by the downturn. Deutsche Post unit DHL shut down its U.S. domestic service in January with the loss of 9,500 jobs, citing the economic slump and its inability to take market share in a market dominated by FedEx and UPS.
Edward Jones analyst Ortwerth said while FedEx's results reflected the recession, one positive sign was that the company is still taking market share.
"In a sense these are good times for FedEx," he said. "I'm not worried about them because they work well in downturns."
In premarket trade FedEx shares were down more than 4 percent at $41.30. UPS shares were down more than 3 percent at $45.10.
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New jobless claims fall more than expected to 646K
New jobless claims fell more than expected last week, but continuing claims set a new record for the eighth straight week and few economists expect the labor market to improve anytime soon.
The Labor Department said Thursday that initial requests for unemployment insurance dropped to a seasonally adjusted 646,000 from the previous week's revised figure of 658,000. That was better than analysts' expectations.
But continuing claims jumped 185,000 to a seasonally adjusted 5.47 million, another record-high and more than the roughly 5.33 million that economists expected.
The four-week average of claims rose to 654,750, the highest since October 1982, when the economy was emerging from a steep recession, though the labor force has grown by about half since then.
The job market has been hammered as employers, squeezed by reductions in consumer and business spending, cut their work forces. The unemployment rate reached 8.1 percent last month, the highest in more than 25 years. Many economists expect the rate could reach 10 percent by the end of this year.
The Federal Reserve said Wednesday it will pump $1.2 trillion into the economy in an effort to lower rates on mortgages and other consumer debt and loosen credit. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
As a proportion of the work force, the number of Americans on the jobless benefit rolls is the highest since June 1983. The 5.47 million continuing claims also were up substantially from a year ago, when only about 2.85 million people were continuing to receive unemployment checks.
The increase in continuing claims is an indication that many newly laid-off workers are having difficulty finding jobs.
And even that number is deceptively low: an additional 1.5 million people were receiving benefits under an extended unemployment compensation program approved by Congress last year. That tally was as of Feb. 28, the latest data available.
More job losses were announced this week. Caterpillar Inc. Tuesday said it would lay off 2,400 workers as global demand for its mining and construction machines slumps. Mobile device maker Nokia Corp. said it would cut 1,700 jobs worldwide.
On Monday, oil producer Baker Hughes Inc. said it would eliminate 1,500 jobs, bringing its total recent cuts to 3,000. And industrial company United Technologies Corp., which makes Otis elevators and Sikorsky helicopters, said it would cut 2,000 to 3,000 jobs, on top of 11,600 layoffs it announced the last week.
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U.S. mortgage applications spike on refinance demand
U.S. mortgage applications surged in the latest week, driven by a spike in demand for refinancing as the averagerate on 30-year fixed-rate home loans fell, the Mortgage Bankers Association said on Wednesday.
Refinancingapplications jumped 30 percent in the week ended March 13 as the borrowing rate dipped 0.07 percentage point to 4.89 percent, tying the record low reached in early January in a survey that dates to 1990.
The MBA's market index, which includes both purchase and refinance loans, jumped 21.2 percent to 876.9, the highest since mid-January.
But purchase applications rose just 1.5 percent last week to 257.1, a one-month high.
The Mortgage Bankers Association said its seasonally adjusted refinancing applications index jumped 29.6 percent in the week ended March 13 to 4,497.6, also the highest level since mid-January.
Home loan rates have fallen as the government has purchased more than $250 billion of mortgage-related assets and announced unprecedented steps to stabilize the deepest housing slump since the Great Depression.
A year ago, the average rate on a 30-year mortgage was closer to 6 percent.
The Federal Reserve purchases of mortgage-related assets is nearing the half-way mark targeted by the end of June to help cut mortgage costs and revive housing. The programs are widely expected to be expanded to bring borrowing costs down, stimulate purchases and help struggling homeowners to refinance and avert foreclosure.
Demand for purchases has been lagging refinancing applications. While homeowners are often compelled to cut current costs, worries about job loss or hopes that prices will cheapen further have keep many potential buyers at bay.
Refinancings requests represented about 73 percent of all mortgage applications last week.
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Frank says statute enabling AIG aid must be redone
Rep. Barney Frank says Congress should rewrite a Depression-era law that the Federal Reserve used to give AmericanInternationalGroup its initial government bailout.
Frank said Congress had no say in the decision last fall to plow $85 billion in taxpayers money into the insurancegiant, and said that because of that no conditions were attached to the deal to limit or restrain the payment of executivebonuses.
The Massachusetts Democrat, interviewed Wednesday on CBS's "The Early Show," said lawmakers have since "gotten tougher on conditions." He said "it is my hope" that Congress will amend the statute that enabled the Fed to make the direct loan to AIG.
Frank is chairman of the House Financial Services Committee. Edward Liddy, the chairman and CEO of American International Group Inc., will appear later Wednesday before a Financial Services panel on Capitol Hill.
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Asia, Europe markets edge higher after US rally
Most Asian and Europeanmarkets rose modestly Wednesday after an overnight surge on Wall Street, while Tokyoshares were buoyed by fresh support for the wobbly financial system from the Japanese central bank.
HongKong'sHangSengindex led the region, gaining 239.08 points, or 1.9 percent, to 13,091.03, while Tokyo's benchmark Nikkei 225 stock average added 23.04 points, or 0.3 percent, to 7,972.17.
The Japanesecentralbank said it was increasing its purchase of government bonds to keep ample cash in the monetary system following a two-day meeting where it also decided to keep its key interest rate at 0.1 percent. The Bank of Japan also said it was considering providing loans to commercial banks as way to shore up their capital bases.
"Investors took heart from the bank's moves. The Bank of Japan is not sitting still. It is taking action aggressively to ensure the smooth liquidity in the financial market," said Masatoshi Sato, a strategist at Mizuho Investors Securities Co. Ltd.
South Korea's Kospi rose 0.5 percent to 1,169.95, while Shanghai's benchmark Composite Index added 0.2 percent to 2,223.73.
Australia's benchmark S&P/ASX 200 dipped 0.2 percent after miner Rio Tinto dropped 8.7 percent on worries over its deal with Aluminum Corp. of China.
In Europe, Britain's FTSE 100 dipped 0.1 percent, while Germany's DAX rose 1.2 percent and France's CAC 40 advanced 0.8 percent.
Wall Street got a surprise boost Tuesday, posting its fifth gain in six trading sessions, from a government report that home construction picked up in February. The news, which was unexpected, injected new vitality into a week-old rally.
Asian markets also have advanced strongly in recent sessions on signs of improvement among major U.S. and European banks. But many analysts are cautious and believe the rally has run its course for now.
"The rebound has almost reached its limit," said Castor Pang, an analyst at Sun Hung Kai Financial in Hang Seng, noting that turnover in most markets is not rising quickly enough to suggest a recovery.
Mainland China's advance faltered toward the middle of the day, although higher commodity prices pushed up shares of metal and coal companies. Major steel maker Baoshan Iron & Steel gained 0.9 percent and Jiangxi Copper Ltd. soared 5.5 percent. But major banks fell back, with Bank of China slipping 0.8 percent and Shanghai Pudong Development Bank falling 1.3 percent.
The World Bank cut its forecast of China's 2009 growth from 7.5 percent to 6.5 percent due to plunging exports. But World Bank economists expressed confidence in Beijing's ability to keep the world's third-largest economy expanding amid global turmoil.
"We see China as a relative bright spot in a rather gloomy global economic picture," said David Dollar, the bank's country director for China.
As the market closed, Japanese electronics company Toshiba Corp. said it was naming a new president in a management reorganization aiming at dealing with Japan's crippling recession. The company's stock rose 0.4 percent.
In New York Tuesday, the Dow Jones industrial average jumped 179 points, or 2.5 percent, to 7,395.70. The Standard & Poor's 500 index climbed more than 3 percent.
U.S.stockindexfutures were down, pointing to a lower open on Wall Street Wednesday. Dow futures were down 32 points, or 0.4 percent, while S&P 500 futures were down 4 points, or 0.5 percent.
Oil prices fell in Asian trading, with benchmark crude for April delivery falling 39 cents to $48.77 a barrel by midday in Singapore on the New York Mercantile Exchange.
In currencies, the dollar fell to 98.56 yen from 98.79 yen late Monday in New York, while the euro rose to $1.3040 from $1.3031.
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Obama plans small-business lending boost
Seeking to counter a chorus of unhappy Republicans and nervous Wall Street investors, President Barack Obama and his economic team are taking a cheerier tone while making billions in federal loans available to the nation's struggling small businesses.
Obama and Treasury Secretary Timothy Geithner on Monday planned to announce a broad package that includes reduced small-business lending fees and an increase on the guarantee to some Small Business Administration loans. A day earlier, the president's advisers said in television interviews that they remained confident in the nation's economic fundamentals, at times adopting upbeat rhetoric the president once mocked.
"The fundamentals are sound in the sense that the American workers are sound, we have a good capital stock, we have good technology," said Christina Romer, who heads the White House Council of Economic Advisers.
Obama, for his part, has embraced the role of "confidence-builder in chief," as one business leader asked him to become. One week after his budget director declared "fundamentally, the economy is weak," Obama's economic advisers offered up a buoyant assessment.
Larry Summers, the director of the National Economic Council and an Obama adviser, quoted the president: "It's never as good as people say it is when they say it's good and it's never as bad as people say it is when they say it's bad."
Dealing with a severe recession, Obama has turned to a public face that emphasizes the potential for recovery instead of its limits.
To that end, the government plans to take aggressive steps to boost bank liquidity with more than $10 billion aimed at unfreezing the secondary credit market, according to officials briefed on the plan who demanded anonymity to avoid pre-empting the president's announcement.
Administration officials confirmed they would unveil details Monday.
"We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them," Romer said Sunday morning, speaking broadly on the outline of the plan. "There are already a lot of things to help them in the recovery package, and some of what will be coming out are the things that were in the recovery package: increasing the SBA loan guarantees, lowering fees."
The move comes as Republicans have sought to build on some bipartisan misgivings over Obama's ambitious spending blueprint. In particular, Republicans say Obama's budget proposal to raise taxes, starting in 2011, on individuals earning more than $200,000 and on households earning more than $250,000 will hurt small businesses, which face higher dividend taxes and limits on itemized deductions.
"We've got to do something to help these small-business people. We know that they're the job creators in this economy," the House Republicans' No. 2 official, Rep. Eric Cantor, said Sunday. "And the problem ... I think we're seeing out of the Obama administration is a lack of focus on how to get things going again."
The new measures taking effect Monday focus on opening up small-business lending, seen as critical to cities' growth. While the SBA typically guarantees $20 billion in loans annually, new lending this year is on track to fall below $10 billion, according to the administration.
Under the two-month-old administration's new initiative, the government will step in to buy these loans to help unlock the frozen credit market, using money from the recently passed bailout package in the range of between $10 billion to $20 billion, one official briefed on the plan said.
The other measures are part of Geithner's financial stability plan announced last month. They involve temporarily eliminating upfront fees of up to 3.75 percent and some processing charges on certain SBA loans that lenders typically pass along to borrowers. It also increases the government guarantees on certain loans to 90 percent, up from 85 percent for loans below $150,000 and 75 percent for larger loans.
Summers appeared on ABC's "This Week" and on CBS's "Face the Nation." Romer and Cantor appeared on NBC's "Meet the Press."
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World markets extend rally amid cautious optimism
Asian stock markets advanced for a second day Monday, with Tokyo's index up nearly 2 percent, on cautious optimism that government efforts to heal the financial system will reinvigorate the flagging world economy. European markets opened higher.
Still, lackluster trade through most of Asia's session outside its two biggest markets — Japan and Hong Kong — reflected lingering uncertainty after a rally last week triggered by upbeat news about Citigroup and other top U.S. banks.
Confidence continued to show signs of improving Monday as Japanese financial stocks surged on reports the country's central bank may buy their subordinated loans and bonds to bolster their capital. In Europe, British lender Barclays PLC became the latest major bank to say it had a good start to 2009.
Helping easing fears about banks were promises over the weekend from finance ministers of Group 20 nations to do "whatever is necessary" to fix the global economy and restore a shaky financial sector still reeling from losses on bad assets. In the U.S., Federal Reserve Chairman Ben Bernanke said America had avoided a depression and its recession will probably end this year if the government succeeds in rehabilitating the banking system.
But sentiment was still fragile in many markets as traders waited to see whether Wall Street would extend its four-day rally. Investors also were anticipating announcements this week from the U.S. Federal Reserve and Treasury Department about the state of the world's largest economy and the government's bank bailout plan.
"Investors are happy to ride a bear market rally, but many are not fully confident that anything of significance has changed," said Kirby Daley, senior strategist at Newedge Group in Hong Kong.
Early going in Europe, Britain's FTSE 100 rose 1 percent, Germany's DAX added 1.8 percent and CAC-40 gained 2.4 percent.
Japan's Nikkei 225 stock average rose 134.87 points, or 1.8 percent, to 7,704.15, after vaulting more than 5 percent on Friday. Hong Kong's Hang Seng climbed 450.91, or about 3.6 percent, at 12,976.71.
In mainland China, Shanghai's main index clawed back from earlier losses to rise about 1 percent. Taiwan, Indian, Australia and Singapore stock measures also rose.
South Korea's benchmark was flat, while the Philippines' stock measure tumbled 4.7 percent.
But the region's optimism was clouded by another round of dismal figures about Asia's economies, hit hard by shrinking Western demand for their electronics, clothes and other exports amid the global downturn.
In Singapore, analysts slashed the country's economic forecasts for 2009 and said the city-state would suffer a severe recession, with gross domestic product shrinking 4.9 percent this year. Meanwhile, foreign direct investment in China dropped in February as companies battered by the financial crisis pulled back.
Trade was choppy in many markets but stabilized later in the day after U.S. stock index futures pointed to more gains on Wall Street. Dow futures were up 66 points, or 0.9 percent, to 7,298, while S&P 500 futures were up 8.9 points, or 1.2 percent, to 763.5.
Friday in New York, Wall Street finished with its biggest weekly advanced since November. The Dow Jones industrial average rose 53.92, or 0.8 percent, to 7,223.98, bringing its weekly gain to a stunning 9 percent. The Standard & Poor's 500 index rose 5.81, or 0.8 percent, to 756.55.
In Asian trade, financials posted strong gains across the region.
In Japan, megabanks like Sumitomo Mitsui Financial Group, Inc., up nearly 6 percent, surged on a report by the country's main business paper about the central bank's possible plan to buy the banks' loans and bonds to boost their capital.
European heavyweight HSBC, listed in Hong Kong, climbed 4.6 percent after its chief financial officer said the company would not need money from the British government.
Asia's major exporters also were higher, with Hyundai Motor gaining 3.3 percent in South Korea and electronics giant Canon Inc. up 4.8 percent on the back of a weaker yen. Resources firms, however, were hit by sinking oil prices.
In oil, crude prices fell near $44 a barrel in Asia on Monday after OPEC decided not to cut production levels at its meeting over the weekend in Vienna. Benchmark crude for April delivery was off $2.22 to $44.03 a barrel by midmorning in Singapore on the New York Mercantile Exchange.
In currencies, the dollar traded higher at 98.18 yen from 97.91 yen late Friday. The euro rose to $1.2971 from $1.2927.
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Insurance giant AIG to pay $165 million in bonuses
American International Group is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than $170 billion dollars.
AIG is paying out the executive bonuses to meet a Sunday deadline, but the troubled insurance giant has agreed to administration requests to restrain future payments.
The Treasury Department determined that the government did not have the legal authority to block the current payments by the company. AIG declared earlier this month that it had suffered a loss of $61.7 billion for the fourth quarter of last year, the largest corporate loss in history.
Treasury Secretary Timothy Geithner has asked that the company scale back future bonus payments where legally possible, an administration official said Saturday.
This official, who spoke on condition of anonymity because of the sensitivity of the issue, said that Geithner had called AIG Chairman Edward Liddy on Wednesday to demand that Liddy renegotiate AIG's current bonus structure.
Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support the company is receiving, this official said.
In a letter to Geithner dated Saturday, Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.
Liddy said in his letter that "quite frankly, AIG's hands are tied" although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.
Liddy said the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.
The large bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.
A white paper prepared by the company says that AIG is contractually obligated to pay a total of about $165 million of previously awarded "retention pay" to employees in this unit by Sunday, March 15. The document says that another $55 million in retention pay has already been distributed to about 400 AIG Financial Products employees.
The company says in the paper it will work to reduce the amounts paid for 2009 and believes it can trim those payments by at least 30 percent.
Bonus programs at financial companies have come under harsh scrutiny after the government began loaning them billions of dollars to keep the institutions afloat. AIG is the largest recipient of government support in the current financial crisis.
AIG also pledged to Geithner that it would also restructure $9.6 million in bonuses scheduled to go a group that covers the top 50 executives. Liddy and six other executives have agreed to forgo bonuses.
The group of top executives getting bonuses will receive half of the $9.6 million now, with the average payment around $112,000.
This group will get another 25 percent on July 14 and the final 25 percent on September 15. But these payments will be contingent on the AIG board determining that the company is meeting the goals the government has set for dealing with the company's financial troubles.
The Obama administration has vowed to put in place reforms in the $700 billion financial rescue program in an effort to deal with growing public anger over how the program was operated during the Bush administration.
That anger has focused in part on payouts of millions of dollars in bonuses by financial firms getting taxpayer support.
In his letter, Liddy told Geithner, "We believe there will be considerably greater flexibility to reduce contractual payments in respect of 2009 and AIG intends to use its best efforts to do so."
But he also told Geithner that he felt it could be harmful to the company if the government continued to press for reductions in executive compensation.
"We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury," Liddy said.
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Wall Street slides as banks fade, tech weighs
U.S. stocks fell on Friday as uncertainty about how the government will help clean up bank balance sheets tempered earlier optimism and hurt financial shares, while large-cap techs weighed.
Citigroup's (C.N) chairman told Reuters late on Thursday the bank did not need any more government aid, sending its stock up 3 percent at midday on Friday. But long-standing worries about the mechanics of the toxic asset clean-up resurfaced, sending the broad KBW bank index (.BKX) down 5.4 percent.
"I really don't think you're going to see a true floor in this market until we get a comprehensive plan on the finance sector," said Peter Jankovskis, director of research at OakBrook Investments LLC in Lisle, Illinois.
Officials have repeatedly said getting banks stabilized is crucial to putting the economy on the road to recovery. Hopes that some stabilization was returning to the banking system helped stocks rise for three straight days.
The Dow Jones industrial average (.DJI) declined 48.43 points, or 0.68 percent, to 7,121.63. The Standard & Poor's 500 Index (.SPX) dropped 6.75 points, or 0.90 percent, to 743.99. The Nasdaq Composite Index (.IXIC) fell 15.83 points, or 1.11 percent, to 1,410.27.
The S&P financial index (.GSPF) fell 3 percent. Bank of America (BAC.N) shares slipped 0.7 percent to $5.81 and Wells Fargo & Co (WFC.N) shares shed 5.5 percent to $13.18.
But Citigroup's stock was up 3 percent at $1.72, although it was off from earlier gains that took it up 13 percent to a session high at $1.89. JPMorgan Chase & Co (JPM.N) shares were flat at $23.20.
Nasdaq was dragged lower by technology bellwethers, including Microsoft (MSFT.O), down 4.1 percent at $16.31, and BlackBerry maker Research in Motion (RIMM.O), down 5.2 percent at $39.30.
In contrast, Merck (MRK.N) shares rose 7.8 percent to $25.90 after Sanford C. Bernstein upgraded the drug maker's stock to "outperform."
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US trade gap shrinks to 2002 low, swells with China
The weak global economy sent the US trade deficit to a six-year low in January amid plunging trade volumes, but the politically sensitive deficit with China widened, data showed Friday.
While the improvement in the trade balance appeared positive at face value, analysts noted the Commerce Department data revealed the troubles in economies around the world reeling from the most severe economic crisis since the 1930s.
"The key takeaway from January's trade report is not that the deficit narrowed but that world trade activity continues to plunge," said Nigel Gault at IHS Global Insight.
The still-expanding US trade chasm with China, by far its largest deficit, fired up critics who say Beijing keeps its yuan currency undervalued to make its exports unfairly cheap.
The Commerce Department reported the country's trade deficit shrank for the sixth consecutive month to a seasonally adjusted 36.0 billion dollars, down 9.7 percent from 39.9 billion in December.
That was the narrowest monthly trade gap since October 2002, mainly due to falling oil prices. It was smaller than analysts' consensus forecast of a 37.5 billion dollar deficit.
Exports dropped 5.7 percent to 124.9 billion dollars, led by autos and auto parts and other capital goods, such as aircraft and semiconductors.
Imports fell more sharply, down 6.7 percent at 160.9 billion dollars, notably because of declining oil imports as the struggling US economy entered its second year of recession.
Gault said the US economy can no longer count on exports to support growth.
"Many foreign economies have been hit even harder by the recession than the US and we are seeing severe consequences for US exporters," he said.
On a 12-month basis, the trade deficit was down 39 percent from January 2008, when it totaled 59.2 billion dollars.
The world's largest energy consumer saw its deficit in petroleum products, notably crude oil, narrow 21.7 percent from December to 14.7 billion dollars, its lowest level since September 2004.
When oil prices were at all-time peaks last July, the gap was 66 percent higher. The price of imported oil has plunged 68 percent since then to 39.81 dollars a barrel in January.
By region in data not seasonally adjusted, the trade gap with Canada, the country's largest trading partner, continued to shrink, to 2.5 billion dollars, its weakest level since May 1999.
The politically sensitive massive gap with number-two trading partner China rose to 20.6 billion dollars in January from 19.9 billion dollars in December.
Peter Morici, an economist at the University of Maryland, accused President Barack Obama of putting a US economic recovery at risk by ignoring the trade problem and China's role in it.
"The economy?s most fundamental structural problems are the destructive consequences of Chinese protectionism and the president's failure either to see this threat or his lack of will to address it," Morici said.
The deficit with Japan fell to its lowest level since January 1998, at 4.3 billion dollars, and Japanese imports were the weakest since May 1993.
With the 16-nation eurozone, the US gap contracted a staggering 40.6 percent in January from the previous month, to 3.4 billion dollars. Trade volume dropped 18.4 percent.
Last month the Commerce Department announced the trade gap shrank in December for the third straight month. But it has revised the 2008 data and found the deficit has been shrinking steadily since August.
The US trade deficit for the full-year 2008 was revised upward to 681.1 billion dollars.
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Insurer Aegon posts net loss of euro1.2 billion in 4Q
Aegon NV, the Dutch insurer that owns Transamerica in the U.S., reported a net loss of euro1.2 billion ($1.53 billion) in the fourth quarter, due mostly to falling values of investments.
The loss compared to a net profit of euro762 million in the same period a year earlier.
The 2008 figure includes a euro770 million ($985 million) decline in the market value of Aegon's investment portfolio and a euro501 million ($640 million) impairment charge on the value of stocks and bonds that have lost more than 20 percent of their value and aren't expected to recover any time soon.
The company said it expects further impairments in 2009.
CEO Alex Wynaendts said in a statement poor business conditions are continuing so far in 2009 and the company expects to "release" euro1.5 billion (nearly $2 billion) in capital in 2009 by "lowering investment risk." The company will also cut euro150 million ($190 million) in costs in 2009 by reducing staff and freezing wages in the U.S.
He said Aegon's business has "solid fundamentals."
Aegon said that its "underlying earnings" — a nonstandard measure intended to strip out some of the impact of its performance as an investor — were a loss of euro181 million ($230 million) before taxes, compared to profit of euro667 million in the same period a year earlier.
At the company's insurance business, new sales of life insurance were down 19 percent, with a 43 percent fall in the U.S., where Aegon has the lion's share of its operations.
Aegon, which received a euro3 billion investment lifeline from the Dutch government last year, said it has euro5.6 billion ($7.16 billion) in surplus capital under European rules. It said that meant its solvency ratio — which measures whether an insurer has enough assets to pay likely claims — was 183 percent, down from 190 percent a year ago.
Shares, which are down more than 80 percent from a year ago, rose 1.2 percent to euro2.29 (US$2.93) on Thursday.
Analyst Ton Gietman of Petercam Bank said Aegon hadn't provided much useful detail in its earnings report or any forecast for 2009. However, he repeated a Buy recommendation on shares, saying they are undervalued.
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Roche to take over Genentech for $47 billion
Switzerland's Roche said Thursday it has agreed to buy all the remaining shares in Genentech for $46.8 billion in a takeover described as the largest in Swiss corporate history.
The deal, approved and recommended by Genentech's board, offers $95 for each outstanding Genentech Inc. share and ends a long corporate struggle between the Basel, Switzerland-based pharmaceutical giant and its cancer-drug partner.
Roche Holding AG, which already owns 56 percent of the stock of the South San Francisco-based company, had increased its bid to $93 per share last Friday.
Roche's initial bid of $89 per share was rejected in July. It then surprised Genentech and Wall Street with a lowered $86.50-per-share bid on Jan. 30, aimed directly at shareholders and seeking to bypass Genentech's board.
Hanging over the negotiations have been expectations of study data on the effectiveness of Genentech's Avastin in treating early-stage colon cancer. The drug, Genentech's best-selling product, is already approved for various types of breast, lung and colon cancers. Some analysts said a positive study could increase the value of Genentech shares.
A joint statement by both companies said, "Roche and Genentech announced today that they signed a merger agreement under which Roche will acquire the outstanding publicly held interest in Genentech for $95 per share in cash."
It said the special committee of Genentech's board of directors had approved the agreement and recommends that Genentech shareholders tender their shares in Roche's offer.
"We believe this is a fair offer for Genentech shareholders, and the committee is pleased to come to a successful conclusion of this process," said Charles Sanders, chairman of the special committee of Genentech's Board of Directors. "We look forward to working with Roche to complete the transaction as expeditiously as possible."
Franz B. Humer, chairman of Roche, said he was pleased that the two sides could agree.
"Working together, we aim to close the transaction quickly, thus removing uncertainty for employees and allowing us to focus even more intently on innovation and long-term projects. We have tremendous respect for our colleagues at Genentech and look forward to working with them to further accelerate our search for solutions to unmet medical needs."
Roche said the combined company would be the seventh-largest U.S. pharmaceutical company in terms of market share and would generate about $17 billion in annual revenues with a payroll of around 17,500 employees in the U.S. pharmaceuticals business alone.
Roche said its Pharma commercial operations in the U.S. will be moved from Nutley, New Jersey, to Genentech's site in South San Francisco, which will become headquarters of the combined company's U.S. commercial operations in pharmaceuticals and operate under the Genentech name.
It said this would take advantage of "the strong brand value of Genentech in the U.S. market."
Research and early development will operate as an independent center within Roche from its existing campus in South San Francisco, it said.
The size of the Roche-Genentech deal eclipses the $39 billion takeover of U.S. eye care company Alcon announced last April by Roche's Swiss rival Novartis AG.
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US economy to recover in five years: Warren Buffett
Billionaire Warren Buffett said Monday the US economy could recover in five years, likening the current battle against prolonged recession as a Pearl Harbor-like situation during World War II.
"I think that economy will be fine in five years, but I wish we'd get there faster," said Buffett, one of the world's richest men, in an interview with CNBC.
"America's best days are ahead, but how fast we'll go there is in question."
He described the current situation, in which unemployment is at a 25-year high and stocks have plunged to 12 year lows, as "an economic Pearl Harbor" and "an important war which could be won."
Japanese planes attacked the US Naval base at Pearl Harbor on December 7, 1941, leaving more than 2,000 servicemen dead. The surprise strike drew the US into World War II.
Buffett, who heads the holding company Berkshire Hathaway, said the Federal Reserve's "prompt and wise action" had prevented the situation from "getting even worse" as the central bank cut interest rates to virtually zero and took other steps to reign in turmoil.
Asked about the lackluster economic recovery and plunging inflation, he said "it will depend on the wisdom of government's politics."
"I've never seen Americans more fearful," he said. "It takes five minutes to become fearful, much more time to regain confidence. The system does not work without confidence," he said.
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