The Business Solution

AIG to pay US$450m in bonuses despite bailout

2009-03-16T00:30:00.001+07:00

AIG plans to pay 450 million dollars in bonuses to finance executives who led the US insurance giant to a 99.3-billion dollar loss last year, US media reported Sunday.

The payments have dismayed the US government as AIG has received 170 billion dollars in federal aid.

The bonuses are for staff at the London subsidiary AIG Financial Products, which helped trigger the collapse and then the nationalization of the former world number one insurer, The Wall Street Journal reported.

American International Group CEO Edward Liddy told Treasury Secretary Timothy Geithner bonuses could not be cancelled due to a risk of lawsuits for breaching employment contracts, The Washington Post said.

In a letter to Geithner, Liddy also indicated a refusal to pay bonuses worth tens of millions of dollars would prompt an exodus of senior employees.

"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 that their compensation is subject to continued and arbitrary adjustment by the US treasury," Liddy wrote, according to the Post.

Some of the bonuses are as samll as 1,000 dollars but seven executives at AIG Financial Products were to receive more than three million dollars in bonuses, The New York Times reported.

For the fourth quarter, AIG announced a loss of 61.7 billion dollars -- the biggest ever for a US firm in one quarter -- pushing up its net loss for 2008 to 99.3 billion dollars.

G20 bridges differences before key finance summit

2009-03-16T00:29:00.000+07:00

Before a key summit on tackling the economic crisis, rich and emerging nations have agreed common ground on hiking IMF funds and stricter market regulation but remain split on stimulus measures.

G20 finance ministers on Saturday vowed to take "whatever action is necessary" on the world economic slowdown, after talks preparing for a London summit of world leaders on April 2.

They played down signs of division between the United States and Europe on how best to boost the global economy, insisting the road to the summit next month was smooth.

"We're prepared to take whatever action is necessary to ensure growth is restored and we're committed to do that for however long it takes," British finance minister Alistair Darling said Saturday after hosting the G20 talks.

"I believe that this does provide a very clear sense of direction."

The politicians managed to reach agreement on the need for an "urgent" and substantial funding boost for the International Monetary Fund (IMF), although a communique issued afterwards did not state a figure.

They also agreed to some tougher regulation of the financial system.

But the meeting failed to reach consensus on a new stimulus package, despite controversial calls from the US, the world's largest economy, for coordinated international pump-priming in recent days.

US President Barack Obama, who will attend the London summit in April, denied there were divisions on how to tackle the financial crisis, deriding such a notion as a "phony" story drummed up by the media.

"I don't know where this notion has emerged that somehow there are sides developing with respect to the G20," Obama told reporters after meeting Brazil's President Luiz Inacio Lula da Silva at the White House.

Agreement on IMF funding came after the United States recently suggested that its lending capacity should be trebled to 750 billion dollars (580 billion euros).

European leaders want to double the figure to 500 billion dollars.

The G20 on Saturday stated its key priority was restoring bank lending to help ease the effects of the crisis.

But Germany and France are opposed to US calls for new stimulus, instead favouring tougher regulation to tackle the crisis.

French Finance Minister Christine Lagarde said she was "delighted" that the G20 was closer on agreeing tighter regulation of markets.

The United States, eurozone, Japan and Britain are all in recession as the global economy struggles to recover from the worldwide credit crunch that erupted in late 2007.

Commercial banks are lending less cash amid fears about their exposure to the collapsed US sub-prime property market.

Also Saturday, British Prime Minister Gordon Brown, who will host the G20 summit, and German Chancellor Angela Merkel talked up the prospect of agreement on April 2.

"I'm very positive, I'm very optimistic that we will be able to... come to an agreement together with the United States, with emerging economies such as China and India," said Merkel after meeting Brown.

Brown, meanwhile, highlighted US support for changes in regulations for hedge funds and other "shadow banking" operations.

Highly speculative and lightly regulated hedge funds have been blamed for fuelling instability in financial markets.

Measures agreed at the G20 talks in Horsham, near London, included regulatory oversight of all credit agencies, blamed for being too slow to alert investors to high-risk instruments, as well as a need for "sufficient supervision and regulation of hedge funds".

US Treasury Secretary Timothy Geithner on Saturday said there was unprecedented unity among the G20 on the economy, insisting: "The world is with us" when asked about stimulus.

"We are seeing the world move together at a speed and on a scale without precedent in modern times," he said.

"We have a very broad basis consensus globally now on the need to act aggressively to restore growth."

The G20, whose members also include Canada, India, Italy, Russia and South Korea, also pledged Saturday to "fight all forms of protectionism and maintain open trade" and stressed commitment to helping developing economies.

OPEC holds oil output until May

2009-03-16T00:28:00.000+07:00

The OPEC oil exporters' cartel on Sunday agreed to keep current production levels unchanged until May, Iraqi oil minister Hussein al-Shahristani said.

"It's a rollover until May," al-Shahristani said after a key production meeting in the Austrian capital.

Qatar's energy minister Abdullah bin Hamad Al Attiyah added that the cartel would meet again on May 28 in Vienna to assess the market situation.

OPEC's official daily output quota currently stands at 24.84 million barrels after the cartel agreed to slash 4.2 million barrels late last year in an attempt to energise weak oil prices -- but questions remain about compliance.

The cartel has slashed its output three times since September as crude prices slumped in the face of a worldwide economic slowdown.

Algerian energy minister Chakib Khelil added Sunday that the May meeting would allow the Group of 20 (G20) richest nations time to respond to the global economic crisis at a London summit of world leaders on April 2.

"I think it was a responsible position (to hold output) and also to give the chance to the G20 to do its job on April 2. In light of the decision they will make, we'll make our decision on May 28."

He added: "All of us will have to make an extra effort to be at 100 percent" in terms of compliance with last year's output cuts. "And then (in May) we will have a chance to review compliance."

Malaysia cuts foreign worker permits by 70%

2009-03-16T00:27:00.000+07:00

Malaysia has slashed its work permit approvals for foreign workers by almost 70 per cent so far this year, faced with the twin threat of layoffs and recession, according to a report Sunday.

In January and February, an average of 250 permits were approved daily compared to 800 last year, following a more stringent vetting process by the authorities, a Home Ministry official told the Star newspaper.

"Those requesting for foreign labour have to prove that they have made the effort to employ locals," the ministry's senior deputy secretary-general Raja Azahar Raja Abdul Manap was quoted as saying.

"If they can prove it, then they will get the clearance," he said.

A ministry spokesman was not immediately available to confirm the report.

In January, Malaysia banned the hiring of new foreigners in the manufacturing and services sectors after a report forecast 45,000 Malaysians would lose their jobs in the next few months.

And last week, the government cancelled work visas issued to 55,000 Bangladeshi workers after unions said the situation for Malaysians was bleak enough without additional foreign manpower being brought in.

Malaysia is one of Asia's largest importers of labour and has an estimated 2.2 million foreign workers, who are the mainstay of the plantation and manufacturing sectors.

However, the government has become concerned about the ramifications of having such a large migrant workforce and periodically tries to reduce it.

Taiwan to allow up to two casino resorts

2009-03-16T00:26:00.000+07:00

Taiwan has taken another step forward in a move to lift a decades-old ban on casinos after it was decided no more than two gambling resorts would be licensed at the beginning, it was reported Sunday.

The ruling Kuomintang (KMT), who control the legislature, pushed through a controversial bill in Parliament in January to lift the ban on casinos despite fears it could lead to more crime and damage morality.

The bill allows offshore islands to build casinos only if they are approved by residents in referendums.

Developers who win a licence would be required to build a hotel with a minimum of 1,000 rooms according to the result arrived at Saturday during a meeting of government agencies, the Chinese-language China Times reported.

The agencies also decided that the government would not issue the third licence within 10 years of licensing the second one to "avoid competition and reduce possible social impacts," the report said.

Officials say it may take a year for government agencies to amend the existing law and complete investment requirements and screening procedures.

Hundreds of activists from religious and environmental protection groups took to the Taipei streets Sunday to demonstrate against casinos.

"President Ma Ying-jeou, who has distinguished himself as a politician of high moral standards, should have a second thought on the matter," Ho Tsung-hsun, one of the protest leaders, told AFP.

"The experience of other countries introducing casinos indicated that they would boost the domestic crime rates," he said.

British developer AMZ Holdings Plc and Taiwan's Penghu Bay Development Co., have been preparing land for casino projects in Penghu, the archipelago located in the middle of the Taiwan Strait, the Penghu county government said earlier.

Penghu hopes to attract half a million tourist visits each year, generating 100 billion Taiwan dollars' worth of revenue annually in gambling and tourism, and creating up to 50,000 jobs.

Local media has speculated that the world's casino giants would pour money into Penghu having suffered a hammering elsewhere in the global financial crisis.

Hong Kong's air cargo traffic drops

2009-03-16T00:25:00.001+07:00

Hong Kong's air cargo traffic dropped nearly 20 per cent year-on-year in February as overseas demand for Chinese goods continued to shrink, the airport authority said Sunday.

Hong Kong International Airport (HKIA) said it handled 198,000 tonnes of cargo in February, 19.7 per cent less than the same month last year, as the global economic downturn took its toll.

February's fall was despite this year's Chinese New Year celebrations falling earlier than in 2008, which meant that manufacturing activities in China had resumed.

HKIA also reported a 13.7 per cent fall in passenger volume to 3.4 million.

The city's air cargo volume has seen double-digit year-on-year declines in recent months as the US, Europe and other major buyers of Chinese manufactured goods cut their orders after being badly hit by the financial crisis.

"It is unlikely that this downward trend (in cargo traffic volume) will reverse in the short term when the world's major economies remain in recession," said Stanley Hui, chief executive officer of HKIA, in a statement.

Kuwait to scrap new refinery project

2009-03-16T00:24:00.000+07:00

Kuwait will scrap a 15-billion dollar project to build a new oil refinery after an independent watchdog said the project was not feasible, the prime minister said in comments published Sunday.

"The government is committed to the Audit Bureau report, and the council of ministers will officially halt the project at its next meeting," which takes place on Monday, Sheikh Nasser Mohammad al-Ahmad al-Sabah told Al-Watan daily.

Kuwait in May awarded contracts to build the 630,000-barrels per day refinery to four South Korean companies and a Japanese firm and later signed letters of intent with them.

The deals prompted a dispute between the government and opposition MPs who alleged the bidding process and awarding of contracts involved flawed procedures.

MPs said the contracts should have been awarded through the state-run Central Tenders Committee (CTC) to ensure transparency, and vowed they would quiz the oil minister if the contracts were signed.

The Gulf state's government in August bowed to political pressure and referred the project to the Audit Bureau for an investigation.

Though the outcome of the report was not published, local media and MPs said the Bureau concluded that the project was technically and economically not feasible and should go through the CTC.

In December, Kuwait scrapped a 7.5-billion dollar partnership with US Dow Chemical after pressure from MPs, citing high cost amid the global economic downturn.

Macau still worth a gamble

2009-03-16T00:23:00.000+07:00

Half-finished casinos and dropping revenues have fuelled fears that Macau's staggering growth has faltered, but analysts insist the gaming haven remains a sure long-term bet.

The former Portuguese colony has transformed itself from a sleepy backwater to a dazzling entertainment centre in the last five years, with foreign and Chinese-owned casinos sprouting up across the territory.

The city of just 550,000 now takes in more gaming revenue than Las Vegas and Atlantic City combined, thanks to the voracious gambling of Chinese visitors who have poured in from the mainland.

But worries over corruption, problem-gambling and foreign companies grabbing the spoils from China's recent economic boom led Chinese authorities to stem the flow of visitors last summer.

The tougher visa restrictions caused a sharp drop in revenue growth sparking a slew of negative stories, plummeting casino stocks and a hiatus in the city's construction boom.

But some analysts are adamant fears about Macau's demise are premature.

"Macau has been used to more than 40-percent growth -- that cannot be sustainable and a slowdown is natural," said Zeng Zhonglu, a professor in gaming economies at Macau Polytechnic Institute.

"My impression is that the economy generally is healthy."

Jonathan Galaviz, an analyst with Las Vegas-based consultancy Globalysis, said any disruption to economic growth will be temporary with Macau's short-term performance expected to fluctuate along with the Asian economy.

While gaming revenues dipped sharply over the second half of 2008, the city still raked in a total of 13.5 billion US dollars for the year, a 31 percent increase year-on-year. Revenues rose 46 percent in 2007.

Meanwhile, employment held steady in the three months to January and retail sales rose 34 percent in 2008. Gaming is a central part of the economy.

During a recent visit, there were lengthy queues at the immigration counter and the city centre jewellery and watch stores were humming with shoppers.

The tables at the Grand Lisboa, the flagship casino of local tycoon Stanley Ho, were three deep with heavy-smoking Chinese gamblers playing their favourite game of Baccarat.

But it is in the hidden world of the VIP gaming rooms where the city has suffered.

VIP revenues have played a central role in the success of Macau's economy with top casinos tussling with each other to attract high-rollers.

But many of the heaviest gamblers were Chinese government officials and the heads of state-owned companies, whose frittering away of public cash in Macau's private rooms has become a national scandal.

Unsurprisingly, official figures are not collated, but Zeng has combed through mainland media reports to establish a clearer picture.

Of the 99 cases he uncovered, he said each official or businessman lost an average of 20 million yuan (2.9 million US dollars) on the tables.

One official lost 100 million yuan in one day in 2007, while another had to be carried out of a Macau casino as he was too weak to walk after six days and nights of constant gambling.

"The central government is highly concerned that so much money is disappearing in Macau," Zeng said.

"It leads to bribes and the theft of public funds, all of which greatly damages the government's reputation."

Glenn McCartney, a tourism academic at Macau University and local businessman, said the city had to change its business focus from VIPs to a genuine mass-market entertainment, attracting visitors from across Asia.

"I am very confident about Macau. The market is not anywhere near maturity level yet," he said.

"But Macau is not Las Vegas. If I was sitting in the marketing department of a casino firm, I would be asking what changes we have to make so we can attract more people from the mainland."

US firm Las Vegas Sands in particular is hoping China will allow more visitors in.

The most aggressive foreign investor in the city, it opened the world's biggest casino, The Venetian, in 2008.

But worsening credit markets have stalled its ventures across the world, and last November it was forced to sack 11,000 workers and halt work on a huge complex of new hotels opposite the gargantuan Venetian.

Four months later, the quiet building site remains the most potent symbol both of Macau's risks for investors and its potential.

British PM promises tougher financial watchdog

2009-03-16T00:22:00.000+07:00

Prime Minister Gordon Brown promised on Sunday to strengthen Britain's financial watchdog, giving it more power and resources to supervise the country's financial sector.

Brown's remarks come just a day after finance ministers from the G20 group of industrialised and developing countries vowed to take "whatever action is necessary" on the world economic slowdown, after talks preparing for a key summit on fighting the crisis next month.

"The world has changed beyond recognition not just in the past 10 years, but in the past 10 months too," the premier, himself a former finance minister for a decade, wrote in the Sunday Telegraph newspaper.

"Our system for financial regulation must change with it. This means a new tougher approach, addressing the new challenges, with a reformed, tougher and better-resourced Financial Services Authority (FSA) at its core."

Brown said other measures that needed to be taken included bringing hedge funds and other investment funds under the FSA's supervision, holding board-room directors to account, greater international co-operation and a new pay and bonus structure.

He said there also needed to be better monitoring of the effect of an institution and its assets on the financial system, and stronger cross-border supervision.

"While the 1997 supervisory system was right for the circumstances we faced then, it is now clear that the detailed regulation of financial markets across the world did not keep up with the pace of change in the global economy," he wrote.

Switzerland risks OECD tax blacklisting

2009-03-16T00:21:00.002+07:00

Switzerland said the OECD economic grouping threatened to blacklist it as a tax haven and it risked being punished with economic sanctions, according to comments published on Saturday.

The comments by Swiss Finance Minister Hans-Rudolf Merz came a day after Switzerland and other states said they would relax their bank secrecy laws, within strict limits, amid global pressure to stamp out tax havens.

"The secretariat general of the Organisation for Economic Cooperation and Development (OECD), without informing us, drew up a proposal for a new blacklist on March 5. I have learned that Switzerland was on it," Merz was quoted as saying by the daily Le Temps.

He said the list was drawn up at the request of the Group of 20 (G20) rich and emerging countries, whose finance ministers were meeting in England on Saturday ahead of a full summit of its leaders on April 2.

The G20 has made the fight against tax havens one of its top priorities, with Germany and France pushing particularly hard.

"For the moment it's just a threat," Merz said of the blacklist proposal. "But if this threat becomes a reality during the G20 on April 2, it could entail economic sanctions for the countries targeted."

Switzerland joined Luxembourg, Austria and Monaco on Friday in saying it would relax bank secrecy laws. Merz said the decision came in response to pressure from the G20.

"We cannot run such a risk" of being blacklisted and suffering sanctions, he said.

Friday's announcements followed similar moves Thursday by Belgium, Liechtenstein and Andorra. The latter two are already on an OECD list of uncooperative tax havens.

G20 agrees to 'regulatory oversight' of credit rating agencies

2009-03-16T00:21:00.001+07:00

The G20 agreed here on Saturday to "regulatory oversight" of all credit ratings agencies, which are under fire for being too slow to alert investors to the dangers of high-risk investments.

The G20 group of rich and emerging economies has agreed to "regulatory oversight, including registration, of all credit rating agencies whose ratings are used for regulatory purposes," said a final communique following talks.

Saturday's meeting of finance ministers and central bankers also recommended that a G20 summit on April 2 agrees to "an appropriate degree of regulation and oversight" of "important financial institutions, markets and instruments."

It also wants to see that "hedge funds or their managers are registered and disclose appropriate information to assess the risks they pose."

Highly speculative and lightly regulated hedge funds have been blamed for fuelling instability in financial markets.

Obama soothes China on US debt

2009-03-16T00:19:00.000+07:00

President Barack Obama has said that China could have "absolute confidence" in the American economy, after Beijing pointedly questioned the safety of its huge haul of US government debt.

Obama took up comments by China's Premier Wen Jiabao on Friday, which represented a rare assessment by Beijing on the health of the US economy and the prospects for China's hundreds of billions of dollars in Treasury bonds.

"Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the United States," Obama said after meeting Brazilian President Luiz Inacio Lula da Silva at the White House.

"There is a reason why even in the midst of this economic crisis you have seen actual increases in investment flows here in the US."

"I think it is a recognition that the stability not only of our economic system but also our political system is extraordinary."

Obama said that his comments were applicable to both US Treasury instruments and investments in the US private and industrial sectors.

Wen told reporters in Beijing on Friday that he was concerned about China's huge stake in the US economy as it endures the worst crisis in generations.

"We have lent huge amounts of money to the United States. Of course we are concerned about the safety of our assets," Wen said.

"To be honest, I am a little bit worried and I would like to ... call on the United States to honour its word and remain a credible nation and ensure the safety of Chinese assets."

Wen's comments caused a stir in global markets, and were the latest disturbance to the critical US-Chinese relationship early in Obama's administration.

Last week, military tensions rose after the United States said Chinese boats harassed the US Navy surveillance vessel Impeccable in the South China Sea, forcing the ship to take emergency action to avoid a collision.

Beijing said the vessel was on a spying mission.

China also balked at US comments on the human rights situation in Tibet -- but both sides tried to smooth over the row with Foreign Minister Yang Jiechi's visit to the White House on Thursday.

Beijing held 727.4 billion dollars in US Treasury bonds at the end of last year, just ahead of Japan, the holder of 626 billion dollars in bonds, according to US government data.

As the largest creditor to the United States, China is "extremely interested in developments in the US economy," Wen said.

Analysts say a loss of confidence in US Treasury securities could cause a dramatic drop in the dollar and force Washington to pay higher interest rates.

In February, Secretary of State Hillary Clinton asked China to keep on buying US debt, saying it could help jumpstart the flagging US economy and stimulate imports of Chinese goods.

"By continuing to support American Treasury instruments the Chinese are recognizing our interconnection. We are truly going to rise or fall together," Clinton said.

Most of China's foreign exchange reserves, which reached 1.95 trillion dollars by the end of 2008, is believed to be held in the greenback.

White House spokesman Robert Gibbs said Friday that "there's no safer investment in the world than in the United States."

Obama rolled out an audacious 3.55-trillion-dollar budget proposal last month that bristles with economic reforms and spending on healthcare, climate change and education.

The budget forecasts a 1.750 trillion dollar deficit in fiscal 2009, but foresees that figure falling to 1.171 trillion dollars in 2010.

The Chinese reportedly are concerned about the enormous amount of borrowed money, including Obama's nearly 800-billion-dollar stimulus, being used to boost US growth.

Concerns are flaring in China that the stimulus plan could hurt dollar-denominated assets, with some observers urging China to cut US Treasury holdings, the official Xinhua news agency said last month.

Domestic critics have charged that, as a developing country, China should be investing at home instead of subsidizing the world's richest country, or else diversifying into other foreign assets.

Iran, China firms sign US$3b LNG deal

2009-03-16T00:17:00.000+07:00

Iran's state-owned gas company and a Chinese consortium Saturday signed a multi-billion dollar deal to produce liquefied natural gas in the Islamic republic's South Pars field, a report said.

The deal, worth 3.39 billion dollars, was signed by Iran LNG company with the Chinese consortium for an annual production of 10.5 million tonnes of LNG, the state broadcaster reported.

It did not reveal the name or give any details of the Chinese consortium.

"According to this contract, building gas liquefying lines in phase 12 and another block of South Pars gas field will be handed to the Chinese consortium," the television said. The gas field is located in the Gulf.

It added that the project would be implemented in three years and that an unnamed European firm would join the Chinese consortium in three months.

In January, Iran and China signed a separate 1.76 billion dollar contract for the initial development of the North Azadegan oil field in western Iran.

Western oil companies have refused to invest in Iran because of the controversy over its nuclear energy programme and Tehran has increasingly turned to Asian companies.

Iran holds the world's second-largest gas reserves and has significant economic ties with China -- a veto-wielding member of the UN Security Council, which has imposed sanctions against Tehran over its refusal to halt sensitive nuclear work.

Iran said on Wednesday that French energy giant Total would have no "active role" in developing phase 11 of the offshore South Pars gas field and that a new partner had been found for the project.

The development of South Pars field, which holds about eight percent of world reserves, has been delayed amid a lack of investment in a country faced with severe gas needs of its own in winter.

G20 to take 'whatever action necessary' on slowdown

2009-03-16T00:01:00.000+07:00

G20 finance ministers vowed Saturday to take "whatever action is necessary" to curb the global slowdown, after talks preparing for a crunch summit next month.

Downplaying signs of division between Europe and the United States, they agreed that there was an "urgent need to increase IMF resources very substantially" although no figure was given.

"We're prepared to take whatever action is necessary to ensure growth is restored and we're committed to do that for however long it takes to do that," said British finance minister Alistair Darling, who hosted the talks.

The G20 would ensure there was "sufficient supervision and regulation" of hedge funds, he added. "In addition to that, we agreed that stronger regulation... was necessary to prevent the build-up of systemic risk.

"We also agreed that we need to do more both to strengthen banks in the good times so they can face the downturn should that occur", including measures that would see regulators stop banks from overextending themselves, he said.

Politicians from the United States, China and Japan plus wealthy European nations and emerging powers had held a day of talks to pave the way for the April 2 London G20 summit on tackling the downturn.

The run-up to Saturday's meeting was marked by splits between the United States and Europe, particularly on whether to launch a new economic stimulus plan or concentrate on tightening market regulation to fight recession.

But Darling said the finance ministers had agreed on a common line.

"Taken together, I believe that this does provide a very clear sense of direction as we move towards the conference of leaders and finance ministers to be held in London on April 2," he said.

"We agreed a significant amount of progress, there was a great deal of consensus both about the urgency of the problems we face and the steps that we ought to be taking."

He said the meeting had also agreed to fight protectionism and protect free trade.

In a separate meeting Saturday Britain Prime Minister Gordon Brown, who will host the G20 summit, and German Chancellor Angela Merkel talked up the prospect of agreement at the much-vaunted London summit in about three weeks.

"I'm very positive, I'm very optimistic that we will be able to... come to an agreement together with the United States, with emerging economies such as China and India," said Merkel.

Brown added that key power-broker the US was ready to support changes in regulations for hedge funds and other "shadow banking" operations.

Highly speculative and lightly regulated hedge funds have been blamed for fuelling instability in financial markets.

The run-up to Saturday's meeting saw splits open up between the United States and Europe after Larry Summers, US President Barack Obama's top economic adviser, this week urged world leaders to take coordinated steps to pump money into the global economy.

That has been rejected by countries including France and Germany, which instead favour tougher regulation to tackle the crisis.

A US stimulus package of 787 billion dollars (615 billion euros), signed into law last month, compares to 400 billion euros committed by 27 EU countries.

The two total economies are of comparable size, but the EU has not forged an integrated response.

The United States, eurozone, Japan and Britain are all in recession as the global economy struggles to recover from the worldwide credit crunch that erupted in late 2007.

Commercial banks are lending less cash amid fears about their exposure to the collapsed US subprime property market.

The agreement on the IMF came after the United States suggested this week that its lending capacity should be trebled to 750 billion dollars (580 billion euros).

G20 emerging powers Brazil, Russia, India and China (BRIC) meanwhile said in a communique Saturday that IMF resources were "clearly inadequate and should be very significantly increased".

It called for new, more flexible facilities to help countries facing financial problems, strengthened IMF surveillance and "urgent action" to ensure that emerging economies play a bigger role within the Fund.

The BRIC nations also warned against protectionism, describing it as "an increasingly real threat to the global economy".

US dollar higher in Asia

2009-03-05T17:02:00.000+07:00

The US dollar rose against other major currencies in Asia on Thursday, approaching four-month highs against the yen, after Washington unveiled a new plan to shore up the troubled US housing sector.

European currencies were weighed down by expectations that the European Central Bank and the Bank of England will reduce their key lending rates when they meet later in the day.

The dollar gained to 99.21 yen in Tokyo morning trade, up from 98.98 in New York late Wednesday, when the greenback hit 99.49 at one point, the highest level since early November.

The euro fell to 1.2619 dollars from 1.2657 and to 125.22 yen from 125.29.

"The dollar continues to be supported by the view that the United States is taking stimulus measures faster than other economies," Hachijuni Bank chief forex strategist Masatsugu Miyata said.

Investors were encouraged by Washington's launch of a 75-billion-dollar scheme to stem rising home foreclosures.

Traders were monitoring the start of China's annual session of parliament, where Premier Wen Jiabao said China would weather the global economic crisis with eight per cent economic growth this year.

Wen struck an upbeat tone but he did not unveil any new stimulus package in addition to the one outlined in November.

Players were also focused on central bank meetings in Europe. The ECB was expected to cut its key lending rate by 50 basis points to 1.5 per cent, the lowest level in the bank's 10-year history, while the Bank of England was expected to trim interest rates by half a percentage point to 0.5 per cent.

Investors will be closely watching whether the central banks will announce a set of unorthodox tools to fight the credit crunch and boost the money supply, dealers said. The pound dropped to 1.4157 dollars from 1.4195.

Markets are also fearful of a particularly bad US labour report on Friday, after a private sector survey showed 697,000 job losses in February.

Oil prices higher in Asian trade

2009-03-05T17:01:00.000+07:00

Oil prices rose in Asian trade Thursday, building on overnight gains on signs that demand in the United States and China could strengthen, analysts said.

New York's main futures contract, light sweet crude for delivery in April, gained 12 cents to 45.50 dollars a barrel.

Brent North Sea crude for April rose 19 cents to 46.31 dollars.

An increase in gasoline demand in the United States as shown in the Department of Energy's weekly report helped pull prices up, analysts said.

"The latest US weekly data show the strongest February week for gasoline demand ever and a further significant improvement in gasoline fundamentals," Barclays Capital analysts said.

While US crude stockpiles dropped by 700,000 barrels during the week ending February 27, they remained 16 per cent above their level a year ago.

US dollar weakens as market fears ease

2009-03-05T17:00:00.000+07:00

The US dollar swung lower against the euro but rose against the yen as financial markets brightened on signs of a big Chinese economic stimulus that capped the greenback's recent fear-driven gains.

The euro rose to 1.2657 dollars at 2200 GMT against 1.2556 dollars on Tuesday after falling at one point to 1.2457 dollars, a three-month low.

The dollar meanwhile edged up to 98.98 yen from 98.15 on Tuesday.

The recent gains for the dollar as well as the yen have been largely driven by worries about a deeper economic slide that has prompted a move into safe-haven assets.

Sacha Tihanyi at Scotia Capital said news of a likely Chinese economic stimulus that could help the global economy "has helped set a more positive tone" in the market.

Analysts largely looked past a report that the US private sector shed a greater-than-expected 697,000 jobs in February as employers slashed payrolls to cope with the shrinking economy. Also having little impact was a grim Federal Reserve Beige Book survey on the US economy through February.

"The US dollar is continuing to give up ground against most major and emerging currencies as tensions continue to ease on encouraging economic news from China and a possible enlargement of the Chinese stimulus package," said analysts at Brown Brothers Harriman.

"The weak US ADP jobs report and a dismal Beige Book pointing to broad-based economic deterioration with temp staffing dismal, a sign Friday's US jobs data could be even worse than the 650,000 loss expected, have not boosted tensions."

The euro began the day on the back foot as investors, rattled by gloomy global economic prospects and crumbling stock prices, bought the dollar, seen as a refuge currency in times of trouble.

In addition, the single currency suffered from widespread forecasts of another eurozone rate cut on Thursday by the European Central Bank.

The ECB is expected to lower its benchmark interest rate by half a point to an all-time low of 1.50 percent as it struggles to remedy a crippling recession in the 16-member eurozone.

Investors are also looking for a rate cut by the Bank of England.

The yen's fall against the dollar came as Japan's opposition leader Ichiro Ozawa, seen as a potential future prime minister, dismissed calls to resign after a close aide was arrested in a fundraising scandal.

In late New York trade, the dollar stood at 1.1683 Swiss francs after 1.1758 on Tuesday.

The pound was at 1.4195 dollars after 1.4050.

"Sterling is one of the better performers today," according to Scotia Capital's Tihanyi, who nonetheless cautioned that the currency could be volatile if the Bank of England takes extraordinary moves such as quantitative easing to boost its economy.

"With the BoE likely to drop the quantitative easing bomb tomorrow, we would be nervous if sterling got too far ahead," the analyst said.

Oil prices leap on US, Chinese demand hopes

2009-03-05T16:57:00.000+07:00

Oil prices rose sharply on Wednesday on signs that demand could strengthen in the United States and China, the world's leading energy consumers.

New York's main futures contract, light sweet crude for April, finished at 45.38 dollars a barrel, a gain of 3.73 dollars from Tuesday's close.

In London, Brent North Sea crude for delivery in April rallied 2.42 dollars to settle at 46.12 dollars a barrel.

The New York contract, which opened higher, built upward momentum after the US government's weekly report on crude reserves in the world's largest oil consumer.

The US Department of Energy said US stockpiles of crude oil dropped 700,000 barrels during the week ending February 27, instead of the rise of one million barrels forecasted by most analysts.

The increase mainly was led by a pickup in refining activity.

But US crude inventories remained high, 16 percent above their level a year ago.

The DoE data revealed gasoline demand once again climbed over the past four weeks compared with a year ago, further underpinning prices.

"The latest US weekly data show the strongest February week for gasoline demand ever and a further significant improvement in gasoline fundamentals relative to the weakness in the middle of the barrel," Barclays Capital analysts said.

Less encouraging for prices was a rise in stockpiles of gasoline, diesel and heating fuel.

"A mixed report - not really supportive for crude as inventories remained at pretty high levels, clearly bearish for heating oil and diesel, but bullish again for gasoline on demand revival," Michael Wittner at Societe Generale summed up.

Crude prices also found support on hopes of greater demand from China, stoked in part by reports that China will soon announce new additional stimulus actions to boost its sluggish economy.

"Crude prices were higher on increased optimism the Chinese economy would recover swiftly from the current downturn following some positive economic news," Sucden analyst Nimit Khamar said.

The Chinese government said manufacturing activity contracted for a fifth straight month in February but the decline slowed, with the data falling just short of the boom-bust line.

The Purchasing Managers Index (PMI) for China's manufacturing sector rose to 49 in February from 45.3 in January, the China Federation of Logistics and Purchasing said.

"The Chinese PMI (showed) a marked improvement from the record low of 38.8 in November 2008," Khamar noted. "However, a reading of below 50 still indicates contraction."

PM Wen says China faces "unprecedented" challenges over crisis

2009-03-05T16:56:00.000+07:00

Premier Wen Jiabao confidently declared Thursday that China would be able to ride out the unprecedented challenges of a worsening global crisis and achieve eight per cent economic growth this year.

In his annual "state of the nation" address to open parliament, Wen gave the most detailed blueprint yet of a four trillion yuan (585 billion dollar) stimulus plan aimed at steering China through the downturn.

However he did not unveil any new stimulus package in addition to the one outlined in November. Stock markets around the world soared Wednesday on expectations of another massive round of spending to boost China's economy.

"We are fully confident that we will overcome difficulties and challenges, and we have the conditions and ability to do so," Wen told the 3,000 delegates gathered for the Communist Party's showpiece political event of the year.

The premier made it clear China's economy, the third biggest in the world, was hurting from the crisis and that the environment was not expected to get better soon.

"We face unprecedented difficulties and challenges. The global financial crisis continues to spread and get worse," he said.

"Demand continues to shrink on international markets. The trend for global deflation is obvious and trade protectionism is resurgent."

Wen acknowledged fundamental problems in China exacerbated by the crisis, such as an inadequate social safety net and incomplete health care, as well as a wealth gap.

Nevertheless, he sought to reassure China's 1.3 billion people that major reforms were being planned and that there was no need for panic.

"Our confidence and strength comes from many sources," he said.

China's economic growth had slumped to 6.8 per cent in the final quarter of last year, worrying figures for a government long used to double-digit expansions and marking a dramatic slowdown from 13.0 per cent growth in 2007.

But he said China's gross domestic product (GDP) will grow by 8.0 per cent in 2009.

"It needs to be stressed that in projecting the economic growth target of about 8.0 per cent, we have taken into consideration both our need and ability to sustain growth," Wen said.

And amid deflation concerns, he said the government had set an inflation target of 4.0 per cent for the year.

Wen outlined a wide-ranging plan for the four trillion yuan package, which is to be spent over two years and which will contribute to a record budget deficit of 950 billion yuan (140 billion dollars) in 2009.

This included plans to boost domestic spending, improve the social safety net, raise incomes for the nation's roughly 800 million people living in the countryside and give support for key industries such as steel and auto.

China's leaders had previously indicated that improving the plight of the nation's least well off would be a top focus for the annual parliamentary session, which will last nine days.

This has become a greater concern due to the economic slowdown, as rising unemployment fuelled fears of further social unrest in a country that sees tens of thousands of protests each year.

Adding to the sense of unease are tensions surrounding China's 58-year rule of Tibet, as an ultra-sensitive 50th anniversary of a failed uprising against Chinese rule falls during the parliament sessions, on March 10.

US economy fell further in February, says Beige Book report

2009-03-05T16:55:00.000+07:00

US economic activity "deteriorated further" through February, dampening prospects for a quick recovery from recession, the Federal Reserve said in its Beige Book report on Wednesday.

The report, to be used at the upcoming meeting of Fed policymakers March 17-18, said the troubles were broad-based, citing weak consumer spending, tight credit and further declines in the factory sector.

"Looking ahead, contacts from various districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010," the report said.

The Beige Book said consumer spending, a key driver of the economy, "remained sluggish on net, although many districts noted some improvement in January and February compared with a dismal holiday spending season."

It cited declines in travel and tourist activity and "a wide range" of services, amid "substantial job cuts."

In manufacturing, most Fed districts reported "steep declines in activity in some sectors and pronounced declines overall."

The real estate market, which set off the economic slide, was "largely stagnant, with only minimal and scattered signs of stabilisation emerging in some areas, while demand for commercial real estate weakened significantly."

In the financial sector, which has been struggling with massive losses, many banks saw "further drops in business loan demand, a slight deterioration in credit quality for businesses and households, and continued tight credit availability," the Beige Book said.

The US economy contracted at a whopping 6.2 percent pace in the fourth quarter of 2008, based on the most recent government estimate. Some analysts say the downturn may be even worse in the first quarter of 2009, with the crisis easing late this year or early 2010.

Obama aims to save billions in federal contracts

2009-03-05T16:54:00.000+07:00

US President Barack Obama on Wednesday outlined a plan to save tens of billion dollars a year in wasteful government spending, especially targeting bloated defence contracting.

"We are spending money on things we don't need, and we are paying more than we need to pay. That's completely unacceptable," Obama said at the White House.

The US leader signed a presidential memorandum reforming the contracting system across the entire government, in line with a vow to cut unnecessary waste.

The president was flanked by Democratic Senator Carl Levin, head of the Senate Armed Services Committee, and his onetime Republican rival for the presidency, Senator John McCain, along with other US legislators and officials.

Obama said it was time to end "an era of fiscal irresponsibility so that we can sustain our recovery, enhance accountability, and avoid leaving our children a mountain of debt."

He homed in on runaway Pentagon spending, vowing that "the days of giving defence contractors a blank check are over," and highlighted steps being taken by Defence Secretary Robert Gates to overhaul military procurement at the Pentagon.

"It's time to end the extra costs and long delays that are all too common in our defence contracting," the president said, vowing to "strengthen oversight to maximise transparency and accountability."

The cost overruns were especially apparent during the war in Iraq, where "too much money has been paid out for services that were never performed, buildings that were never completed, companies that skimmed off the top."

The reforms require the White House budget director to work with cabinet members and agency heads to frame tough new guidelines on contracting work by the end of September.

Obama aims to save 40 billion dollars each year by halting outsourcing in some government jobs, and by ending "no-bid" contracts for favoured companies which proliferated in US operations in Iraq.

Last month, the US leader ordered a review into huge cost overruns on a new fleet of presidential helicopters, as McCain complained at the skyrocketing cost, raising concerns about how many military projects tend to come in well over budget.

"I don't think that there's any more graphic demonstration of how good ideas have cost taxpayers an enormous amount of money," McCain said at the time.

Japan's business investment drops at record pace

2009-03-05T16:50:00.001+07:00

Japanese companies are slashing their investment in plants and equipment at a record pace to cope with a worsening recession in Asia's biggest economy, data showed Thursday.

Investment dropped by 17.3 percent in the three months to December from a year earlier, led by automakers and other manufacturers, the finance ministry said. It was the biggest fall since comparable records began in 2002.

Excluding spending on software, investment declined by 18.1 percent.

"The result confirmed that the Japanese economy is worsening rapidly and going though a very tough phase," a finance ministry official told reporters.

Companies suffered an 11.6 percent drop in sales in the quarter from a year earlier and a 64 percent slump in pretax profits.

Manufacturers were hardest hit, with earnings diving 94 percent.

Before the current downturn, Japan's corporate sector had been a key driver of a recovery in Asia's largest economy following the recessions of the 1990s.

But firms are now cutting back their investment in response to slumping demand and profits, raising fears that the current recession will be deeper and longer than previously feared.

Companies from Sony to Toyota Motor have been slashing jobs to cope with the slump.

Japan's economy shrank 3.3 percent in the fourth quarter of 2008 -- 12.7 percent on an annualised basis -- logging its worst performance since 1974, an initial estimate showed last month.

The business investment figures will be used to calculate revised gross domestic product figures due on March 12.

Taiwan cuts taxes to boost sagging economy

2009-03-05T16:45:00.001+07:00

Taiwan moved to reduce corporate and personal income tax Thursday, as part of the government's efforts to help lift the sagging economy, officials said.

The government plans to lower the corporate income tax rate from 25 to 20 percent, effective 2010, the cabinet said after it approved the cuts during a meeting.

"The tax cuts will strengthen Taiwan's competitiveness, attract investments, and immensely help small- to medium-sized companies," deputy finance minister Chang Sheng-ford told reporters.

The tax cuts, pending parliament's final approval, will lead to an estimated loss of 80.8 billion Taiwan dollars (2.3 billion US dollars) in annual tax revenue, the cabinet said.

However, the move comes as the majority of tax benefits extended to companies, especially those in the electronics sector, are scheduled to expire at the end of 2009, boosting annual tax revenue by 148.3 billion Taiwan dollars.

Taiwan plunged into recession as the economy contracted a record 8.36 percent in the three months to December due to the global economic meltdown, and the economy was forecast to contract 2.97 percent in 2009, the government said.

Philippines' inflation rises to 7.3% in Feb

2009-03-05T16:03:00.000+07:00

Philippine inflation rose to 7.3 per cent in February, up from a year earlier due to price increases in the food, beverage and fuel, light and water sectors, the government said Thursday.

The rise marked an acceleration from the 5.4 per cent rate posted in February 2008 and from the 7.1 per cent rate posted in January this year, the National Statistics Office said.

Excluding the volatile food and energy spaces, the core inflation rate moved at only 6.4 per cent in February, down from 6.9 per cent in January, the office added.

In a statement, central bank deputy governor Diwa Guinigundo said that the inflation rate was within the bank's expectations. The bank had earlier forecast February inflation at 6.6 to 7.5 per cent.

"It is also important to note that core inflation actually slowed down in February versus January," he added.

But he did not say how this would affect the central bank's meeting later in the day to set policy rates.

February marked the first uptick in inflation since September when inflation began to slide down from 17-year highs.

"After slowing in recent months, data in February indicate inflation may move sideways in the coming months. This supports the view that monetary policy will be kept unchanged," Jonathan Ravelas, a market strategist of Banco De Oro told Dow Jones newswires.

Oil prices fall in tandem with stocks

2009-02-24T09:55:00.000+07:00

Oil futures fell on Monday in tandem with global stock markets amid gathering economic gloom, despite hints that OPEC could cut output next month in a bid to boost prices.

New York's main futures contract, light sweet crude for delivery in April, eased 1.59 dollars from the closing price on Friday to 38.44 dollars per barrel after spending much of the day in positive territory.

In London, Brent North Sea crude for April delivery lost 90 cents to settle at 40.99 dollars.

The market rose in early trading after the US Treasury announced that a new programme aimed at shoring up troubled banks would be launched on Wednesday but the rally fizzled out amid concerns the plan may lead to effective government control.

The plan would begin with a "stress test" to be conducted by the authorities on a number of banks amid persistent speculations that leading banks could be nationalised to contain losses incurred from a home mortgage crisis.

Analysts said oil prices fell in line with the equity market, where investors sharply pulled down share prices amid confusion over the future of financial institutions.

"This week's examination of the nation's largest banks will undoubtedly lead to unsettling and misinterpreted headlines and more volatility, not only for oil markets but all financial markets," said Mike Fitzpatrick of MF Global.

He also noted possible moves by the OPEC cartel to cut production further to boost prices, saying market movements would be subject to policy directions.

"They will very likely decide on more production restraints at their next meeting in March," Fitzpatrick said. "OPEC's current resolve may have prevented oil prices from falling even further though.

"The waxing and waning confidence that policy makers manage to elicit from market participants will carry greater weight in the short term than market fundamental," he said.

Algeria's minister for energy and mines said Sunday that OPEC would probably decide on more cutbacks in output in a bid to prevent further price drops, Algeria's APS news agency reported.

"It is very likely that OPEC will decide on March 15 to reduce production again to stabilise prices that are going down," said Chakib Khelil, referring to the oil cartel's next meeting in Vienna, according to APS.

The minister said OPEC's decision to reduce production by 4.4 million barrels per day in September had prevented oil prices from plummeting even further.

In a slowing global economy, crude oil prices have dropped from record highs above 147 dollars reached last July.

The Organisation of Petroleum Exporting Countries pumps 40 percent of the world's oil and late last year cut output by a total 4.2 million barrels per days as prices slumped.

The cartel will find it "extremely difficult" to boost oil prices by cutting output because of the uncertain economic climate, energy consultancy CGES warned on Monday.

"OPEC would like to cut production further to boost prices, but several members have yet to implement the agreed cuts," the Centre for Global Energy Studies (CGES) said in its latest monthly report.

"The weak state of the global economy will make it extremely difficult for OPEC to sustain higher prices."

Powerful OPEC kingpin Saudi Arabia has stated several times that it regards 75 dollars as a "fair price" for crude.

US dollar rises against euro, yen despite banking concerns

2009-02-24T09:53:00.000+07:00

The US dollar rose on Monday against the euro and yen despite persistent concerns over the troubled American banking system.

The euro dipped to 1.2692 dollars as at 2200 GMT in New York trading from Friday's close of 1.2824 dollars.

The dollar also advanced to 94.58 yen from 93.29.

The greenback was lower in early trading on markets concerns of possible nationalisation of leading American banks amid speculations that Citigroup could be the primary candidate for takeover by the government.

But a statement from the US Treasury Department that the government would seek to avoid nationalisation of troubled banks under a new capital aid programme to be launched on Wednesday sent the dollar rising again even if nationalisation concerns persisted, analysts said.

"The initial reaction to nationalisation may continue to prove dollar negative, but we find the argument ... dubious at best," said Boris Schlossberg, director of currency research at Global Forex Trading.

"Under nationalisation, Citi equity and bondholders would be the ones to suffer the most, while the US taxpayer could in fact profit in the long run if the US government were to pick up all of Citi's global infrastructure at pennies on the dollar and then recapitalise that asset ultimately creating value," he said.

The euro was also weak due to worries over the European financial sector's own problems, offsetting the dollar negative news, Schlossberg said.

Comments by several European Central Bank officials that additional interest rates cuts were likely also kept the euro under pressure.

John Sylvia of PNC bank said further weighing on the euro were concerns over the troubled economies of Eastern Europe, which were largely financed by loans from Western European banks.

Amid a global recession, the booming Eastern European economies have seen a dramatic drop off in demand for their goods, dampening their cash flow and possible repayment of their foreign currency loans, he said.

"If the rising default rate of these foreign currency loans continues, the Western European countries may be forced to further bailout their respective eurozone banks," Sylvia said.

"Such a prospect would surely lead to further downgrades of Western European countries, continuing to pressure the euro lower."

In late New York trading, the dollar rose to 1.1685 Swiss francs from 1.1563 on Friday.

The pound was up slightly to 1.4485 from 1.4421 on speculation of improvements within Britain's financial sector, said Kathy Lien of Global Forex Trading.

"Some banks are showing efforts in the purification of their finances as to improve their positions once economic conditions rebound," she said.

US may boost stakes, wants to keep banks private

2009-02-24T09:50:00.000+07:00

US authorities on Monday unveiled details of a new aid plan for struggling banks that could lead to bigger government stakes but with a "strong presumption" that financial firms "remain in private hands."

Amid growing speculation about nationalisation, authorities said the Capital Assistance Programme would offer "mandatory convertible preferred shares," that could be turned into common shares "only as needed over time to keep banks in a well-capitalised position."

Analysts said the plan is the first step in the so-called "stress test" announced by the administration of President Barack Obama for banks hammered by the US housing meltdown and global credit crisis.

Augustine Faucher at Economy.com said the measures "set the stage for the federal government to take a greater ownership role in major US banks that face funding problems, short of total government ownership."

"The Obama administration is trying to avoid completely nationalising banks, while making sure they have enough capital to survive," Faucher said.

A joint statement from the US Treasury, Federal Reserve and banking regulators said that under the new program initiated on Wednesday, "the capital needs of the major US banking institutions will be evaluated under a more challenging economic environment."

The statement added that "because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Programme is that banks should remain in private hands."

The statement provided no details on capital injections to individual banks despite reports that the government might effectively nationalise some large banks on the brink of insolvency.

"The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth," the statement said.

"Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments."

But it said the preferred, nonvoting shares already injected into key banks could be converted into common shares under certain conditions.

"Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital," it added.

"Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis."

The new capital would "provide a cushion against larger than expected future losses."

Any government capital "will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalised position and can be retired under improved financial conditions before the conversion becomes
mandatory," the statement said.

The government could also convert shares obtained from capital injections under the Bush administration's Troubled Asset Relief Program, the statement added.

Kevin Giddis at Morgan Keegan called the plan "a good move for the banks and possibly bondholders, likely bad news for those who own shares in banks because of the dilution" of the shares.

Earlier, reports said the US government was in talks that could lead to a 25-40 percent government stake in Citigroup.

The Wall Street Journal reported Sunday that one plan would allow a portion of the 45 billion dollars in preferred shares held by the US government to be converted to common stock.

The government obtained a 7.8-percent stake in the bank in return for pumping capital into Citigroup.

The stock conversion would not cost the US Treasury additional money, but other Citigroup shareholders would see their shares diluted, the report said.

The paper said the talks reflect a growing fear that Citigroup and other big US banks could be overwhelmed by losses amid the recession and housing crisis.

Obama vows to halve massive budget deficit

2009-02-24T09:46:00.000+07:00

President Barack Obama on Monday vowed to halve by 2013 the huge budget deficit bequeathed by the Bush White House, warning inaction would leave Americans wallowing in debt and thwarted dreams.

Obama pivoted from imploring lawmakers to dish out billions of dollars in stimulus funds to warning of the consequences of buckled US government balance sheets, opening yet another high-stakes week for his young presidency.

He warned that trying to revive the crisis-wracked US economy with his 787 billion dollar economic kick-start plan would be futile without a determined drive to also bring deficits already topping a trillion dollars under control.

"Today, I am pledging to cut the deficit we inherited by half by the end of my first term in office," Obama said, as he opened a "Fiscal Responsibility Summit" with lawmakers, business figures and academics at the White House.

"If we confront this crisis without also confronting the deficits that help cause it, we risk sinking into another crisis down the road," Obama said.

The president warned that years of deficits would undermine confidence in the US economy, cause interest payments on US debt to go up and saddle future generations of Americans with huge debts.

On Tuesday, Obama will take centre stage in a primetime address to a joint session of Congress in a priceless opportunity to directly lay out his political programme and recovery plans to Americans outside Washington.

On Thursday, the president will take the wraps of his first budget, ushering in a prolonged period of political horse-trading on Capitol Hill.

Public attempts to curtail runaway budget deficits come with Obama facing a barrage from critics who say the stimulus plan signed into law last week is packed with bloated, budget-busting spending.

The federal budget deficit is already projected to grow to 1.2 trillion dollars this year, without the stimulus spending, and there are fears a new and era of mushrooming government debt could undermine any economic recovery.

In a concerted political offensive, Obama earlier called on governors from most of the 50 US states to work with him to prevent waste in disbursing the billions of dollars in stimulus funds, at a meeting at the White House.

"We are addressing the greatest economic crisis we have seen in decades by investing unprecedented amounts of the American people's hard-earned money," he said.

"With that comes an unprecedented obligation to do so wisely, free from politics and personal agendas.

"On this, I will not compromise or tolerate shortcuts."

The president also rebuked Republicans, including governors in the room with him on Monday, who raised red flags at aspects of the stimulus plan, warning they must not exploit America's economic plight for political gain.

"I just want to make sure that we're having an honest debate in presenting to the American people a fulsome accounting of what is going on in this programme," Obama said.

Then, looking towards Louisiana Governor Bobby Jindal, a critic of the stimulus plan and a possible future Republican presidential candidate, Obama added: "What I don't want us to do, though, is to just get caught up in the same old stuff that inhibits us from acting effectively and in concert.

"There's going to be ample time for campaigns down the road."

Obama also announced the appointment of veteran government cost-cutter Earl Devaney to scythe through any wasteful spending of stimulus funds and warned he would call governors to account for funds that were frittered away.

He unveiled the release of 15 billion dollars in stimulus funds to help safeguard medical payments for low income patients, in an attempt to alleviate the financial burden on states hammered by the economic crisis.

And he put Vice President Joe Biden in charge of implementing the stimulus law.

Obama aides said at the weekend that the president planned to use raised taxes on the rich and cut war spending in a bid to halve the deficit by 2013.

According to The New York Times, the president is proposing to tax investment income of hedge fund and private equity partners at ordinary income tax rates instead of the capital gains rate, which does not exceed 15 percent.

Stocks plunge, bank plan fails to calm Wall Street

2009-02-24T09:41:00.000+07:00

Wall Street stocks plunged to their lowest close in nearly 12 years on investor disappointment with the latest plan from Washington to prop up the ailing US banking system.

The Dow Jones Industrial Average sank 250.89 points (3.41 percent) to 7,114.78, crashing below its November bear market low and hitting its lowest close since May 1997.

The blue-chip index has fallen by nearly half since its record in October 2007 of 14,198.10.

The broad-market Standard & Poor's 500 index shed 26.72 points (3.47 percent) to 743.33, its lowest finish since April 1997.

The tech-heavy Nasdaq composite slid 53.51 points (3.71 percent) to 1,387.72, its lowest level since November 2008.

Market action came as US authorities unveiled plans for a "capital buffer" for ailing banks but said the programme would seek to avoid nationalisation.

A joint statement from the US Treasury, Federal Reserve and banking regulators said the new lifeline being offered could lead to bigger government stakes but with a "strong presumption" that banks "remain in private hands."

"The government's reassurances contributed to an early morning rally, but the buying mood didn't last long," said Elizabeth Harrow at Schaeffer's Investment Research.

Marc Pado, a stock analyst at Cantor Fitzgerald, said the market had hoped for more clarity on the Obama administration's plan to rescue the banking system.

"The market is still having trouble with the idea that we're not getting the clarity that its needs for the financial system," he said.

"It's good news for the banks that the government is saying that they approved more bailout funds, but that's not a plus for the market that the banks need bailout funds."

Some key banking shares rose on the news but the overall market sank amid growing fears that the financial system would remain hobbled, stifling economic growth.

"The 'no nationalisation' talk failed to help keep the broad market afloat," said Jon Ogg at 24/7 Wall Street.

"The breath of relief was quickly replaced by more flight," he said.

"It feels as though the rest of the air is coming out of the market as Joe Public throws in the towel."

Tech shares weakened on economic fears, with Hewlett-Packard off 6.27 percent at 29.28 dollars and IBM down 4.98 percent at 84.37.

General Electric slumped 5.65 percent to 8.85 dollars after Deutsche Bank analysts said it used a presumption that the GE financial services arm would have to be valued at "zero" due to the credit crisis.

In the banking sector, Citigroup rallied 9.74 percent to 2.14 in a positive reaction to reports that the government could boost its stake in the troubled giant to up to 40 percent to avert its collapse.

Bank of America rose 3.17 percent to 3.91 dollars.

Ailing auto giant General Motors ended unchanged at 1.77 dollars following reports that advisors of US Treasury have started lining up tens of billions of dollars in bankruptcy financing for it and Chrysler.

Ford surged 9.5 percent to 1.73 dollars after it reached an agreement with the United Auto Workers union on changes to pension benefits of workers.

Bonds were mixed. The yield on the 10-year US Treasury bond rose to 2.777 percent from 2.772 percent on Friday while that on the 30-year bond dropped to 3.525 from 3.565 percent.

Advisers readying bankruptcy financing for US automakers

2009-02-23T20:37:00.000+07:00

Talks are underway to secure what would be the largest-ever US bankruptcy loan for General Motors and Chrysler, in the event that the struggling US automakers opt to file for Chapter 11 protection, The Wall Street Journal reported Monday.

The daily reported that discussions are underway between lenders and advisers to the US Treasury Department, who work outside the US government.

Citing "people familiar with the matter," the newspaper said the package could exceed 40 billion dollars.

The two automakers received more than 17 billion dollars in bailout money from the US government last year and have publicly said that bankruptcy was not on the table.

But people involved in talks with senior Obama officials said the administration believes that Chapter 11 filings are an option that should be given serious consideration.

"Everything is on the table right now," the paper quotes one unnamed person involved in the matter as saying.

The discussions call for private banks to provide financing -- known as a debtor-in-possession loan -- with the government guaranteeing it, the report said.

Under this scenario, some of the financing would be used to repay the 17.4 billion the government lent GM and Chrysler last year.

European economies agree on need for greater regulation

2009-02-23T14:09:00.000+07:00

The heads of Europe's largest economies agreed on Sunday on the need for greater regulation of stock markets and to double the IMF's funding in order to avoid a repeat of the finance crisis.

The leaders of Britain, France, Germany, Italy, Spain and the Netherlands met in Berlin to hammer out a joint European stance for the Group of 20 meeting of developed and developing countries in London on April 2.

They agreed that "all financial markets, products and participants - including hedge funds and other private pools of capital which may pose a systemic risk - must be subjected to appropriate oversight or regulation," a summary of the meeting said.

The leaders also agreed to add an extra 250 billion dollars, doubling the current level of funding, to the International Monetary Fund (IMF) budget to allow it to intervene to prevent future financial crises.

British Prime Minister Gordon Brown said such a reinforced IMF would be able to help countries in central and eastern Europe which are swept up in a growing economic crisis as western European banks withdraw credit.

"We need international action to help for example in central and eastern Europe where a number of foreign banks have withdrawn to their home banking territories and where it is difficult to recapitalise the rest of the banking system and restructure it without the support of the international financial institutions," Brown told a news conference with his European counterparts.

"So we are proposing today... a 500-billion-dollar (390-billion-euro) IMF fund that enables the IMF not only to deal with crises when they happen but to prevent crises."

French President Nicolas Sarkozy said the stakes for the April summit - which will be attended by US President Barack Obama - were high.

"By April 2, we have to succeed and we cannot accept that anything or anyone gets in the way of that summit which will bear a historical responsibility... if we fail there will be no safety net," he said.

German Chancellor Angela Merkel said the Europeans were determined that a strengthened, better-regulated financial system would emerge from the wreckage of the deepest financial crisis for decades.

"It's not a case of talking up the situation but we want to send the message that we have a real opportunity to come out strengthened from this crisis," she said.

Merkel admitted that details of how hedge funds and complex financial products would be regulated still needed to be worked out.

But the stance on hedge funds - highly speculative and lightly regulated entities that have been accused of fuelling instability in financial markets - represents a shift in the long-held position of countries such as Britain.

London had previously resisted greater regulation of such funds, which supporters say benefit the economy by bearing risks that others are unwilling to take, although Brown has recently called for stronger rules.

A German government source said the need for direct regulation of hedge funds "is no longer questioned by any of the participants."

The world's major economic powers are under pressure to build on pledges made at the G20 summit in Washington in November, where they formulated an action plan for fighting the crisis.

But the global recession has worsened since then, prompting governments to push through massive economic stimulus packages and overshadowing efforts to reform the global financial system.

The national stimulus plans have sparked fears of protectionism which could hinder efforts to present a united European front.

The end-of-meeting statement however gave a watered-down assessment of protectionism, saying that Europe would only take "measures that keep distortions to competition to an absolute minimum, and we expect the other G20 states to behave likewise."

The results of Sunday's meeting will be discussed by all 27 European Union members at summits in March.

China's fiscal deficit set to hit record high in 2009

2009-02-23T14:08:00.001+07:00

China's fiscal deficit is set to hit a record high this year, as the global crisis shrinks revenues while forcing the government to spend more on pump-priming, local media said.

The finance ministry has foreseen a deficit of 950 billion yuan (US$139 billion) in its draft budget for 2009, the China Business newspaper reported over the weekend.

The figure is nine times higher than a deficit of 111 billion yuan in 2008, and it accounts for about three per cent of the overall economy, which is an internationally recognised alarm level, the paper said.

"It's absolutely possible," said Wang Qian, an economist with JP Morgan in Hong Kong, when asked if the deficit sounded realistic.

"This year, there's nothing surprising in a fiscal deficit of three per cent of the economy," she said.

China Business said the deficit will result from fiscal spending in 2009 topping 7.6 trillion yuan, up 22.1 per cent from 2008, as the government plans to raise investment in 15 sectors including housing and transportation.

Meanwhile, the finance ministry forecasts fiscal revenue to reach 6.6 trillion yuan this year, as the growth rate is expected to slow sharply from last year's 19.5 per cent to eight per cent this year.

China unveiled a massive four-trillion-yuan spending programme in late 2008 to revive the economy and this year has issued or is expected to soon introduce more incentives for 10 sectors such as autos and petrochemicals.

The 2009 budget, with is record-breaking deficit, will be up for a vote at China's parliament, the National People's Congress, which opens next week.

No budget has ever been passed by anything but a crushing majority by the nation's 3,000-member rubberstamp legislature.

39,000 lose jobs in Philippines in four months

2009-02-23T14:06:00.000+07:00

At least 39,000 Filipinos have lost their jobs since October last year as factories and companies slash jobs amid the deepening global financial crisis, an official said Monday.

The 39,000 included more than 5,400 overseas-based Filipinos who had lost their jobs in the Middle East and Taiwan, which accounted for the bulk of the returning expatriates, Labour Secretary Marianito Roque said.

He said the figure was based on official reports by industry leaders as well as trade groups, he said.

He said the government has allotted seven billion pesos (US$149 million) to create 180,000 "emergency jobs" this year as a stop-gap measure to prevent unemployment from ballooning.

"As of last Friday we have about 39,000 fall outs. These are workers who have lost their jobs mainly in the electronics and manufacturing sector," Roque told the Foreign Correspondents Association of the Philippines.

He said the government has enough resources to create temporary employment opportunities in the next two years, but will be hard pressed if the crisis extends beyond that.

Roque noted that many Filipinos lost their jobs in the real estate and services sector in Dubai, but have managed to find employment elsewhere in the United Arab Emirates.

He said of the estimated 300,000 Filipinos in the Emirates, 2,000 were now out of work.

Job orders for Filipino nurses in the United States is also "dropping" with only 700 contracts up for grabs last year, compared with up to 8000 available three years ago, he said.

Asian finance meeting agrees to expand crisis fund

2009-02-22T22:58:00.000+07:00

Asian finance ministers meeting here agreed to boost by 50 percent a multi-billion dollar emergency fund to fight off the global downturn, officials said Sunday.

The proposal was agreed at a ministerial meeting of the Association of Southeast Asian Nations (ASEAN) and China, Japan and South Korea and will be finalised later this year, they said.

"The total size of the Multilateralised Chiang Mai Initiative will be increased from the initially agreed level of 80 billion dollars to 120 billion dollars," an official statement said.

The meeting was called to discuss ways of softening the impact of the economic crisis, with expanding the Chiang Mai Initiative foreign exchange pool -- an emergency credit line for ASEAN countries -- at the top of the agenda.

The statement said the move to expand the fund aimed "to ensure regional market stability and to foster confidence in the markets," and would be finalised at another meeting of finance officials this year in Bali, Indonesia.

The proposal will also likely be discussed at the annual ASEAN summit, which will be held from Friday in the Thai resort town of Hua Hin, although there is no time frame for when the expanded fund will be operational.

Ministers and officials from ASEAN's Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam met Sunday with Chinese and South Korean finance ministers and a top Japanese official.

ASEAN's 10 member states plus China, Japan and South Korea agreed after the 1997-98 Asian financial crisis to set up the Chiang Mai Initiative bilateral currency scheme to prevent a repeat of the turmoil.

The Asian nations now want to expand that agreement into a multilateral reserve pool, as the current economic climate threatens millions of jobs as well as recent robust growth in the developing economies.

A multi-nation scheme of currency swaps aims to make it easier for countries to borrow emergency funds.

The statement said the ASEAN members would contribute 20 percent of the pool with larger economies Thailand, Malaysia, Indonesia, Singapore and the Philippines giving a bigger share.

The remaining 80 percent will come from the big three Asia economies, and Chinese Finance Minster Xie Xuren told reporters that China, South Korea and Japan were still discussing how they would divide up the sum.

ASEAN Secretary General Surin Pitsuwan said earlier the regional fund would be used to help members "badly affected" as the downturn hits Asia's key trading partners in the United States and Europe.

"It is one of the mechanisms -- it is not to replace or compete with the IMF (International Monetary Fund), but it will be an alternative for Asian countries," Surin said on Thai television.

"If it materialises, it will be one of ASEAN's most tangible achievements."

Thai premier Abhisit Vejjajiva said earlier the fund would "serve as a cushion against future weaknesses at the time of the crisis."

Sunday's meeting also agreed to strengthen the region's monitoring and surveillance of the world economic climate, and stressed the importance of expanding bond markets in ASEAN.

"We believe that proactive and decisive policy actions are required in order to restore confidence, financial stability and promote a sustainable economic growth in the region," the statement said.

Oil prices slip on global energy demand jitters

2009-02-21T10:17:00.000+07:00

Oil prices slipped on Friday in a market shaken by worries over slumping energy demand as the global economy grinds to a near halt under a spreading financial crisis.

New York's main futures contract, light sweet crude for delivery in March, fell 54 cents to close at 38.94 dollars per barrel. The contract expired at the close.

In London, Brent North Sea crude for April delivery shed 10 cents to settle at 41.89 dollars a barrel.

Andy Lipow at Lipow Oil Associates said that oil prices were echoing sell-offs in equities markets.

Earlier the New York contract had lost more than two dollars as Wall Street's blue-chip Dow Jones Industrial Average plunged about 200 points.

The modest loss in closing oil prices followed Thursday's sharp rebound after the US Energy Information Administration (IEA) posted a surprise fall in US crude reserves, raising hopes for renewed demand in the world's biggest energy consumer.

New York crude rallied almost five dollars and Brent oil jumped more than two dollars after the IEA said US crude stocks fell 200,000 barrels in the week to February 13, after several weeks of big increases.

However, a greater-than-expected rise in gasoline stockpiles indicated that energy demand was still low, according to traders.

"Despite the run-up yesterday, the pressure emanating from global equities is still permeating the commodities world and causing downward pressure along the entire curve," said analysts at BMO Capital Markets.

The next New York benchmark contract, for delivery in April, could rapidly face pressure, analysts warned. It closed Friday at 40.03 dollars.

Global equities plunged again on Friday amid deep concern over the troubled financial sector and the worldwide downturn.

"Fears over a deteriorating global economic outlook sent equity markets tumbling... as investors shed riskier positions, with oil prices tracking them lower amid weakening demand concerns," said Sucden analyst Nimit Khamar.

Last week, the Organisation of the Petroleum Exporting Countries, the cartel that pumps about 40 percent of the world's oil, trimmed its forecasts for global oil demand for 2009 by 0.67 percent because of "economic depression" in industrialised countries.

Euro firms against US dollar in profit taking

2009-02-21T10:15:00.000+07:00

The euro firmed against the US dollar on Friday as traders took profit at the end of a week riven with worries over US economic rescue efforts and the crisis in Central and Eastern Europe.

The euro traded at 1.2824 dollars at 2200 GMT, compared with 1.2673 dollars late Thursday.

But the single European currency weakened against the Japanese yen, falling to 119.63 yen against 119.35 yen.

The dollar also fell against the yen, to 93.29 yen from 94.18 yen.

"The euro jumped during the US trading session as European Central Bank Governing Council member Ewald Nowotny said that cutting interest rates down to zero was 'neither desirable nor needed,' suggesting that the ECB's dovish bias may be fading quickly," said Terri Belkas, an analyst at Forex Capital Markets.

Belkas noted the markets were still expecting the ECB to slash a half percentage basis point from its key interest rate on March 5, citing signals from various other ECB members in recent weeks.

The euro earlier had slid against the dollar because of mounting economic troubles in the recession-hit eurozone on a day that saw European stock markets plunge, with London's FTSE 100 index losing 3.22 percent.

Investors were also nervous about rescue plans in Germany, which on Friday adopted its biggest economic stimulus since World War II, and new data showing business activity in the eurozone hitting a record low in February.

The eurozone's purchasing managers' index (PMI), compiled by data and research group Markit, plunged to 36.2 points from 38.3 points in January, with output, new orders, employment and prices all down.

"February's sharp drop in the eurozone PMI indices suggests that it is too soon to judge that the region is over the worst of the economic downturn," said Capital Economics analyst Ben May.

Investors also sold the euro after German Chancellor Angela Merkel declined to comment on whether Berlin would offer help for any eurozone country in financial trouble, dealers said.

Her comments doused earlier speculation that Germany might signal it was ready to bail out any fellow eurozone member in dire straits.

"Merkel's comments prompted investors to sell the euro. Things are going from bad to worse" in Europe, said Daisuke Uno, an analyst at Japan's Sumitomo Mitsui Banking Corp.

"The eurozone has seen lots of trouble this week," he added.

Investors are worried about the debt mountains of countries such as Ireland, Greece and Portugal, as well as the exposure of eurozone banks to the economic woes of Central and Eastern Europe.

In late New York trading, the dollar fell to 1.1563 Swiss francs from 1.1735 late Thursday.

The pound was at 1.4421 dollars against 1.4293.

US stocks end lower on bank nationalisation fears

2009-02-21T10:13:00.000+07:00

US stocks dived deeper into six-year lows on Friday on rumours of bank nationalisation which President Barack Obama's administration moved to quash.

The Dow Jones Industrial Average fell 100.28 points (1.34 percent) to 7,365.67 after a sharp sell-off on Thursday.

The tech-dominated Nasdaq dropped 1.59 points (0.11 percent) to 1,441.23 and the broad-market Standard & Poor's 500 index shed 8.89 points (1.14 percent) to 770.05.

The stock market was down more than three percent before rallying in late trading as fears for the banking system eased.

Since the opening bell, traders were concerned about the plight of the banks saddled with losses stemming from a home mortgage crisis that has triggered global turmoil.

"The pain continued on Wall Street today. Financial stocks were hurt by persistent fears that banks might be nationalised and dividends cut," said Wachovia Securities chief market strategist Al Goldman.

"Today's session was highly volatile, reflecting fear about the future of the financial system," experts at Charles Schwab & Co wrote.

Stocks recovered slightly after the White House moved to calm market fears, saying banks should remain under private control.

"This administration continues to strongly believe that a privately held banking system is the correct way to go," White House spokesman Robert Gibbs told reporters.

After the market closed for the week, the US Treasury also rejected the nationalisation speculations.

"There are a lot of rumours in the market, as always, but you should not regard these as any indication of the policy of this administration," said a Treasury spokesman.

"As (Treasury) Secretary (Timothy) Geithner has said, we will preserve a financial system that is owned and managed by the private sector," he said.

Weighing on investor sentiment "is the angst over the spectre of mega banks Citigroup and Bank of America possibly being nationalised in the foreseeable future," said Patrick O'Hare, Briefing.com.

"Whether that actually happens remains to be seen, but their stocks are acting as if it is a distinct possibility," he said.

Citigroup was down 22.31 percent to 1.95 dollars and Bank of America fell by 3.56 percent to 3.79 dollars.

JPMorgan Chase lost 3.40 percent to 19.90 dollars and Wells Fargo down 9.16 percent to 10.91 dollars.

General Electric, which recently reported lower profit, fell 6.76 percent to 9.38 dollars.

Bonds rose. The yield on the 10-year US Treasury bond fell to 2.772 percent from 2.857 percent on Thursday while that on the 30-year bond dropped to 3.565 percent from 3.688 percent. Bond yields and prices move in opposite directions.

Asia shares fall on gloomy US data

2009-02-21T10:12:00.000+07:00

Asian shares fell Friday, with banking stocks hardest hit on concerns over a global liquidity crunch after Wall Street tumbled to six-year lows in the wake of gloomy economic data.

Tokyo's benchmark Nikkei-225 index slumped 1.87 per cent to a near four-month low while the broad-market index fell to its lowest point in 25 years.

Investors took their cue from New York, where the Dow Jones Industrial Average fell 1.19 per cent Thursday, closing at the lowest level since October 9, 2002.

Markets across Asia were spooked by a raft of data underscoring the deepening US recession. The gloomiest report showed continuing claims for unemployment benefits rising by 170,000 to 4.987 million for the week ending February 7.

"With economic worries mounting again, investors are moving to reduce their risky assets," said SMBC Friend Securities strategist Hideaki Higashi in Tokyo.

Hong Kong fell 2.5 per cent, Singapore lost 2.1 per cent, Sydney slid 1.4 per cent and Seoul dropped 3.7 per cent.

"Few can be sure when the market will ride out the current economic meltdown at home and abroad," Concord Securities analyst Allen Lin said in Taipei, where the market slipped 2.03 per cent.

Shanghai was the only bright spot in a sea of red, rising 1.54 per cent as new industry stimulus measures by the Chinese government boosted sentiment.

US consumer prices rise 0.3% in January

2009-02-21T10:04:00.000+07:00

US consumer prices rose in January for the first time in six months, but annual inflation was flat, the weakest level in more than half a century, government data showed on Friday.

The Labour Department said its consumer price index (CPI) rose 0.3 percent in January, matching analysts' consensus forecast, after falling 0.8 percent in December.

The CPI headline number had fallen in the prior three months and was unchanged in August and September. The last time it climbed was in July, by 0.7 percent, when crude oil prices hit all-time highs.

On an annual basis, there was no change from the January 2008 CPI, the weakest reading since August 1955, the department said.

In 2008, December annual inflation rose a meagre 0.1 percent after reaching the year's peak at 5.6 percent in July.

Core CPI, which strips out volatile food and energy prices, rose 0.2 percent in January from December, slightly higher than the 0.1 percent increase expected. On a 12-month basis, core inflation was up 1.7 percent.

Core inflation in December had been unchanged from November.

The rise in consumer prices was led by increases in energy prices, which climbed 1.7 percent in January after falling 9.3 percent in December. Energy prices were a hefty 20.4 percent lower from a year ago.

Gasoline prices surged 6.0 percent from December, but were 40.4 percent lower than in January 2008.

Consumer food prices edged up 0.1 percent on a monthly basis and were 5.2 percent higher than a year ago.

Analysts dismissed the monthly rise in inflation, saying prices seemed to be trending downward.

"Disinflationary pressures slowed down with the modest rebound in energy prices. However, inflation should continue to decrease in the coming months, turning negative for most of 2009," said Elsa Dargent, an analyst at Natixis.

Ian Shepherdson, chief US economist at High Frequency Economics, also saw prices continuing to fall as the economy sinks into its second year of recession.

"Disinflation pressure is still intense and will stay that way for some time," Shepherdson said. Disinflation is a decrease in the inflation rate.

On Thursday, the Labour Department reported US wholesale prices rose 0.8 percent in January after five months of decline, driven by higher energy prices.

But on an annual basis, the pipeline inflation number fell 1.0 percent from January 2008, after declining 0.9 percent in December.

The Labour Department separately reported Friday that weekly salaries fell 0.1 percent in January from December but had climbed 3.4 percent from January 2008.

Oil prices soar on surprise fall in US crude stocks

2009-02-20T15:12:00.000+07:00

Crude oil prices sharply rebounded on Thursday on data showing a surprise fall in US crude reserves that raised the prospect of renewed demand in the world's biggest energy consumer.

New York's main futures contract, light sweet crude for delivery in March, finished at 39.48 dollars a barrel, up a hefty 4.86 dollars from Wednesday's closing level.

In London, Brent North Sea crude for April delivery settled 2.44 dollars higher at 41.99 dollars a barrel.

The US government's Energy Information Administration (EIA) said on Thursday that American crude stockpiles fell 200,000 barrels in the week ending February 13, after several weeks of significant increases.

The EIA said that US gasoline reserves increased by 1.1 million barrels last week, instead of the consensus analyst forecast of a 600,000-barrel drop.

Stockpiles of distillates, including diesel and heating fuel, slid 800,000 barrels, roughly in line with market expectations.

The EIA report - published a day later than normal due to a US public holiday on Monday - is a key focus because the United States is the world's biggest energy-consuming nation. The world's largest economy has been mired in recession for more than a year, dampening demand.

Morgan Stanley analysts Hussein Allidina and Seth Kleinman cautioned against reading the unexpected increase in US crude stockpiles as the beginning of a rebound in demand.

"Despite the hopes being pinned on President (Barack) Obama's stimulus package, we discount a demand response in the near term," they wrote in a client note.

"We are bearish on the entire crude oil complex and believe that OPEC needs to further curtail production in an effort to put a floor under prices."

Oil prices have slumped from record highs above 147 dollars a barrel last July, as the market has been hit by plunging energy demand because of the global economic slowdown.

On Wednesday, the US Federal Reserve projected the US economy would shrink 0.5 percent to 1.3 percent in 2009 and unemployment would rise to 8.5 percent or higher.

Euro rebounds on signs of help for East Europe

2009-02-20T15:08:00.001+07:00

The euro rebounded sharply against the dollar on Thursday on growing hopes for support for the ailing economies of Central and Eastern Europe and profit taking.

The euro was trading at 1.2673 dollars around 2200 GMT, up from 1.2535 dollars late Wednesday.

The European single currency also gained against the Japanese yen, climbing to 119.35 yen from 117.45 yen. The dollar advanced against the yen to 94.18 yen from 93.72 yen.

After several sessions of dollar buying, traders sold them off to take profits, dealers said.

The euro rebounded after sinking to a three-month low on Wednesday against the US currency, at 1.2513 dollars, amid fears over European bank exposure in Central and Eastern Europe.

"The euro surged higher on Thursday to test former support at 1.2725 amidst news that the eurozone's largest economy, Germany, would step up to the plate and help another member nation if they fell into a dire financial situation," said Terri Belkas at Forex Capital Markets.

Belkas noted that 10 international banks, including Commerzbank and Unicredit, had pledged two billion dollars and seven Ukrainian-controlled banks pledged one billion dollars in order to recapitalize their subsidiaries in Ukraine as eastern European banks face ratings downgrades and financing difficulties.

"Overall, these are signs that various governments and financial institutions are willing to coordinate their efforts for the greater good, but ultimately, indications of distress in the financial sector will still have very negative repercussions for risk appetite," she said.

The Hungarian forint, the Czech koruna, the Polish zloty and the Romanian leu all gained ground on Thursday after days of high volatility.

Audrey Childe-Freeman, an analyst at US bank Brown Brothers Harriman, said the dollar fell against most currencies, "helped by hopes of a possible German-led effort to provide support for the weaker members of the eurozone as well as the Eastern European countries".

The market also continued to digest US President Barack Obama's 275-billion dollar strategy to help millions of homeowners avoid foreclosure and stabilize the reeling real-estate sector.

"Since it will likely take time to make an impact, similar to the stimulus plan and the revised bank bailout plan, we expect risk aversion will remain and keep the dollar supported," said UBS analyst Geoff Kendrick in London.

The dollar can be boosted in uncertain economic times since investors tend to see it as a safe haven.

Investors remained unconvinced by the 787-billion-dollar economic stimulus bill signed into law earlier this week by Obama, analysts noted.

And the dollar was also pulled lower after the Federal Reserve forecast on Wednesday that the recession-hit US economy would shrink in 2009.

In Asia, the Japanese central bank announced plans to buy up billions of dollars in corporate bonds from commercial banks as part of efforts to fight the credit crunch.

In late New York trading, the dollar slipped to 1.1735 Swiss francs from 1.1774 late Wednesday. The pound rose to 1.4293 dollars from 1.4213.

Asian stocks slide after Wall Street slump

2009-02-20T15:07:00.001+07:00

Asian stock markets sank in early trade on Friday after Wall Street tumbled to six-year lows as gloomy US unemployment data reinforced fears the world's largest economy is in a severe slump.

With Japan in its worst recession in decades, the once booming Chinese economy slowing sharply and the rest of the region suffering from slumping exports to stricken Western economies, investors were in no mood to buy.

Tokyo dropped 1.35 per cent, Hong Kong slid 2.2 per cent, Sydney slipped 1.5 per cent and Seoul lost 1.4.

"With economic worries mounting again, investors are moving to reduce their risky assets," said SMBC Friend Securities strategist Hideaki Higashi.

Investors took their cue from New York, where the Dow Jones Industrial Average fell 1.19 per cent on Thursday, closing at the lowest level since October 9, 2002.

The market was spooked by a raft of data underscoring the deepening US recession.

The gloomiest report showed continuing claims for unemployment benefits rising by 170,000 to 4.987 million for the week ending February 7.

The figures pointed to "another substantial contraction" in the US economy in the first quarter of 2009 as half a million jobs are lost each month, said Rabobank International analyst Jan Lambregts in Hong Kong.

Worries about Asia's economic woes have deepened in a week when Japan reported its worst economic contraction since 1974 and Chinese President Hu Jintao warned his country's crisis was worsening.

The Japanese central bank announced Thursday plans to spend more than 10 billion dollars (7.9 billion euros) buying corporate bonds to tackle a credit crunch and painted a sombre picture of the world's second-largest economy.

In the United States, investors remained unconvinced by the 787-billion-dollar economic stimulus bill signed into law earlier this week by US President Barack Obama, analysts noted.

"No one's feeling very positive before the weekend," BBY senior trader Peter Copeland told Dow Jones Newswires. "There still doesn't seem to be much evidence the dominos have stopped falling."

Japan's Nikkei is now down 15.8 per cent in 2009 while Hong Kong has lost 11.6 per cent and the Dow Jones Industrial Average is off 14.9 per cent.

Financial stocks were under pressure in Asia following a weak performance by their US peers.

National Australia Bank lost 2.3 per cent in Sydney, Shinhan Financial shed 3.3 per cent in Seoul and Mizuho Financial declined 2.6 per cent in Tokyo.

"US banks dropped to multi-year lows on rising concerns that nationalisation is the only way to restore their solvency," noted Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.

US stocks slump to six-year lows after grim jobless data

2009-02-20T15:04:00.000+07:00

US stocks closed at six-year lows on Thursday after data showed five million people were collecting unemployment benefits, a record high number that underlined the growing depths of the recession.

The Dow Jones Industrial Average sank 89.68 points (1.19 percent) to end at 7,465.95, its lowest closing level since October 9, 2002.

The tech-dominated Nasdaq dropped 25.15 points (1.71 percent) to 1,442.82 and the broad-market Standard & Poor's 500 index shed 9.48 points (1.20 percent) to 778.94.

Markets fell on continued economic concerns, with financial stocks leading the decline, as investors remained jittery about the sustainability of asset valuations on their books, analysts at Charles Schwab & Co said.

"Wall Street is having trouble shaking off the gloom," said Wachovia Securities chief market strategist Al Goldman.

Shares were unable to maintain early gains as sellers entered the action and pushed the Dow index below its November lows posted on Tuesday.

The market was stung by a series of data released on Thursday underscoring deepening US recession.

The gloomiest report showed continuing claims for unemployment benefits rising by 170,000 to 4.987 million for the week ending February 7, another all-time high, according to the Labour Department.

It also said that although initial claims for government unemployment benefits were unchanged at 627,000 for the week ending February 14, the much watched four-week moving average had increased in each of the last four weeks.

"Continuing claims are at a record high. They underscore the difficulty in finding a new job at this juncture and make it apparent for many people why they should be saving more money if possible," said Patrick O'Hare of Briefing.com.

"The increased propensity to save bodes well for consumer balance sheets, but it will be a drain on GDP since increased savings means less spending by the consumer," he said.

Bank stocks faced the biggest rout. Citigroup fell by 2.51 percent to 13.75 dollars, Bank of America by 14 percent to 3.93 dollars, JPMorgan Chase by 4.23 percent to 20.60 dollars and Wells Fargo by 7.97 percent to 12.01 dollars.

General Electric, which reported last month a 44 percent lower fourth-quarter profit, dropped 4.64 percent to 10.06 dollars.

As oil prices recovered on Thursday, energy stocks gained. ExxonMobil added 0.31 percent to 72.16 dollars and Chevron rose 0.85 percent to 66.68 dollars.

Sprint Nextel jumped 19.93 percent to 3.25 dollars after its quarterly loss emerged lower than anticipated while drugstore chain CVS Caremark was also up 6.37 percent to 28.71 dollars on better earnings.

Bonds were down. The yield on the 10-year US Treasury bond rose to 2.857 percent from 2.728 percent on Wednesday while that on the 30-year bond rose to 3.688 percent from 3.525 percent. Bond yields and prices move in opposite directions.

US jobless at 5 million amid recession

2009-02-20T15:02:00.000+07:00

The United States on Thursday reported nearly five million people were collecting unemployment benefits, a record high amid the recession, while Britain sought to rally consensus in the battle against the global economic crisis.

Data showed continuing claims for US unemployment benefits rose by 170,000 to 4.987 million for the week ending February 7, another all-time high, the Labour Department said.

The rapid pace of layoffs in the world's largest economy, which has been in recession for more than a year, was evident in initial US jobless claims.

Although initial claims for government unemployment benefits were unchanged at 627,000 for the week ending February 14, the closely watched four-week moving average has now increased in each of the last four weeks, experts said.

Analysts said the continuing claims number spelled bad news for consumer spending, which drives nearly two-thirds of US economic activity.

"Continuing claims are at a record high. They underscore the difficulty in finding a new job at this juncture and make it apparent for many people why they should be saving more money if possible," said Patrick O'Hare of Briefing.com.

"The increased propensity to save bodes well for consumer balance sheets, but it will be a drain on GDP since increased savings means less spending by the consumer," he said.

In further grim data, the first two US regional manufacturing surveys for February point toward a sharp contraction in production, investment and employment, said Ryan Sweet of Moody's Economy.com.

"The surveys also heighten concerns the economy is headed for a deflationary trap," he said.

Deflation occurs when prices decline on a sustained basis, prompting consumers to delay purchases because they expect prices to fall further.

The reports on growing strains in the economy came a day after US President Barack Obama unveiled a 275-billion-dollar housing rescue plan aimed at staving off foreclosures at the heart of the global financial crisis that has morphed into a spreading world economic crisis.

On Tuesday Obama signed into law a 787-billion-dollar stimulus package, another major round in government economic stimulus efforts across the globe that have sparked protectionism charges.

Czech Finance Minister Miroslav Kalousek on Thursday denounced protectionism as "the road to hell" and launched a broadside at the US stimulus package.

"We have to prevent populists from going on with the Buy Czech, Buy American, Buy French campaigns," added Kalousek, whose country took over the EU presidency from France at the beginning of the year.

Both France and the United States have been criticised for their costly plans to help their struggling economies, which some observers described as protectionist.

British Prime Minister Gordon Brown on Thursday met in Rome with his Italian counterpart Silvio Berlusconi as their countries prepare for upcoming Group of 20 crisis meetings.

"We are going to see unprecedented global cooperation over the next few months," Brown said at a joint news conference with Berlusconi.

The G20 finance ministers and central bank governors are to meet on March 14 in Britain, this year's head of the group of developed and developing countries that includes Brazil, India, China and Russia.

The finance meeting will set the stage for a G20 leaders' summit on April 2 in London.

Brown said the summit would aim to strike "a global bargain ... where each continent will make its contribution to the recovery of the world economy.

He warned the new bargain "must include new arrangements for global financial regulation, but recognise that national supervisors are insufficient in a world where there are global capital flows."

Major credit-boosting moves by Japan, which faces its worst recession in decades, underscored the size of the challenges facing the world's leading economies.

The Japanese central bank announced plans to spend more than 10 billion dollars (7.9 billion euros) buying corporate bonds to tackle a credit crunch and painted a sombre picture of the world's second-largest economy.

Bleak corporate news continued to weigh in. The world's biggest reinsurer Swiss Re reported a 2008 loss of 864 million Swiss francs (735 million dollars, 585 million euros) and French banking giant BNP Paribas booked a fourth-quarter loss of 1.366 billion euros (1.7 billion dollars).

BNP Paribas attributed its results to "deterioration in the economic climate in the United States, Spain and Ukraine" as well as to the deepening global financial crisis.

Brazilian aircraft manufacturer Embraer said it would lay off 20 percent of its 21,000 workers because of the "unprecedented crisis hitting the world economy."

Australia's central bank says interest rates won't hit zero

2009-02-20T15:00:00.000+07:00

Australia's central bank is prepared to cut interest rates further, but they are unlikely to drop to near zero as they have in some other countries, the governor said on Friday.

"We'll be prepared to go low enough to what is needed," Reserve Bank of Australia governor Glenn Stevens told a parliamentary economics committee hearing.

"It is not my present expectation we're going to find ourselves at nothing."

The bank has slashed a total of 400 basis points off the official rate since September, taking it to a 45-year-low of 3.25 per cent this month, on concerns over the impact of slowing world growth.

In the United States, the federal funds target rate is zero to 0.25 per cent while Japan's key lending rate is 0.1 per cent.

Stevens said Australian market expectations were "toying" with a bottom in the cash rate of 2.0 per cent or 2.25 per cent and he had "no particular desire to encourage or disabuse them" of those expectations.

Australia was better placed than many other countries to ride out the global downturn, with its major financial institutions still strong, he said.

"So there are reasonable grounds at this stage to think that the Australian economy will come through this very difficult episode – certainly not unscathed, but well placed to benefit from a renewed expansion," he said.

Stevens noted that major trading partner China was suffering problems of its own, but said the Asian giant was still full of potential for Australia.

China's booming economy and demand for raw materials such as coal and iron ore had driven Australia's own growth for years and the downturn has had a major effect on the local economy.

"It's still the case that the emergence of China as a large, industrialised economy has years and years to run," Stevens said. "So it will be a volatile ride on occasion as it is today.

"But I can't believe that emergence is finished and it seems to be that Australia has plenty of potential to benefit from that over the long run as we did over the last couple of years."

Stevens said 2009 would be a difficult year but "the long-run prospects for Australia have not deteriorated by as much as we may all be feeling just now".

Two government economic stimulus packages totalling more than 52 billion dollars (34 billion US dollars), aimed at increasing consumer spending and protecting jobs, should boost growth, he said.

New Zealand's economic gloom darkens

2009-02-20T14:59:00.000+07:00

New Zealand's already gloomy economic outlook deteriorated on Friday with the release of government accounts showing the operating balance in deficit by 6.2 billion dollars (3.1 billion US).

With the exception of investment losses, there was little difference between the latest results for the six months to December 31 and the previously released October estimates.

But "this difference will widen in subsequent months", Treasury deputy secretary Peter Bushnell said in a statement.

The operating balance was 8.4 billion dollars lower than forecast with tax revenue tracking about one billion dollars below projections and investment losses were 4.9 billion dollars higher than forecast.

The Treasury report said the corporate tax take was down nearly 12 per cent or 564 million dollars lower than forecast.

"We expect that the corporate tax shortfall will persist ... through to the 2009-10 fiscal year" as a result of the global downturn, the report said.

New Zealand sank into recession last year due to the impact of a drought and the end of a property boom, while the global financial crisis has cast more gloom over the economy.

Government forecasts suggest unemployment could rise from 4.2 per cent to as much as 7.5 per cent by next year.

Japan, Switzerland sign free trade deal

2009-02-20T14:57:00.000+07:00

Japan and Switzerland signed a free trade deal on Thursday to bolster economic ties and counter what officials said were growing protectionist tendencies around the world amid the global downturn.

Japan's Foreign Minister Hirofumi Nakasone and Swiss Vice President Doris Leuthard formally initialled the agreement reached last September. Japan is seeking to ratify it as early as June, a foreign ministry official said.

Under the agreement with Switzerland, Japan's first with a European country, 99 percent of trade will be tariff-free within a decade.

The deal will remove tariffs on a wide range of goods including industrial and agricultural products. Only Swiss speciality goods such as natural cheese and chocolate will be subject to duties.

The agreement also encompasses issues such as intellectual property rights and deregulation in electronic commerce.

Swiss exports to Japan amounted to 593.7 billion yen (6.38 billion dollars) in 2006 while Switzerland imported 287.5 billion yen worth of Japanese products, according to official data.

A Japanese foreign ministry official said that "amid the current economic and financial crisis, there are fears of a re-emergence of protectionism ... and so both countries will cooperate to oppose that movement."

Japan has struck 11 free trade agreements, including with a clutch of Asian countries as well as Chile and Mexico. It is also working toward similar deals with Australia, India and South Korea.

Oil mixed in Asian trade

2009-02-19T11:07:00.000+07:00

Oil prices were mixed in Asian trade Thursday ahead of a report expected to show a build-up in US crude inventories during the recession, dealers said.

New York's main contract, light sweet crude for March delivery, eased a penny to 34.61 dollars a barrel, within sight of the 32.40 dollars hit on December 18, when prices hit their lowest point in nearly five years.

Brent North Sea crude for April delivery was 36 cents higher at 39.91 dollars.

Sentiment remained weak, with investors still concerned about the state of the US economy, the world's biggest energy user, dealers said.

The US Federal Reserve in its latest forecast Wednesday said the US economy would shrink this year by 0.5 to 1.3 per cent while unemployment is forecast to rise from 8.5 to 8.8 percent.

"The Fed released its latest economic projections overnight... the tone could hardly be called positive," said Jan Lambregts, head of regional research with Rabobank in Hong Kong.

The US Department of Energy was to publish its weekly report on American energy inventories later Thursday, one day later than normal because of a public holiday in the United States on Monday.

Analysts said the report was expected to show that inventories had risen for an eighth week in the United States as demand slowed during the recession.

Hillary Clinton sees new role for Indonesia in US "smart power"

2009-02-19T11:04:00.000+07:00

US Secretary of State Hillary Clinton on Wednesday said Indonesia - as a democratic and mainly Muslim country - would play a key role in the Obama administration's new commitment to "smart power".

In her first visit to a Muslim country as secretary of state, she said the US president "wants to reach out to the entire world" and Indonesia would be an important partner in that effort.

"Certainly Indonesia, being the largest Muslim nation in the world, the third-largest democracy, will play a leading role in the promotion of that shared future," Clinton told a press conference here alongside Indonesian Foreign Minister Hassan Wirajuda.

"Building a comprehensive partnership with Indonesia is a critical step on behalf of the United States' commitment to smart power," she said.

She added that it was important "to listen as well as talk to those around the world, to support a country that has demonstrated so clearly... that Islam, democracy and modernity cannot only coexist but thrive together."

Clinton said the US looked forward to deepening cooperation with Indonesia on several "shared issues", referring to areas such as the global economic crisis, climate change, security and human rights.

Wirajuda said Indonesia - where Obama went to primary school from 1967 to 1971 - looked forward to US support as Asia-Pacific countries seek to shape a "new architecture" of diplomacy in the region.

"Indonesia will be a good partner of the United States in reaching out to the Muslim world," he said.

A US official, who asked not to be named, acknowledged that "the people of Indonesia obviously have a strong affinity for this new administration" because Obama once lived here and Clinton "would like to build on that good will."

The former first lady later met leaders of the Jakarta-based Association of Southeast Asian Nations - a 10-country bloc comprising around 500 million people.

She said the Obama administration would start the process to accede to the Treaty of Amity and Cooperation, which promotes regional peace and stability via cooperation in scientific, economic and other areas.

"We are taking this step because we believe that the United States must have strong relationships and a strong and productive presence here in Southeast Asia," Clinton said.

ASEAN Secretary General Surin Pitsuwan welcomed Clinton's announcement as "a reaffirmation of the US political and security commitment to the region."

Fifteen non-ASEAN members have acceded to the 1976 treaty, including countries as diverse as New Zealand, Pakistan and China.

Clinton will meet Indonesian President Susilo Bambang Yudhoyono on Thursday before completing her four-nation trip through Asia - her first outing as secretary of state - with visits to South Korea and China.

The son of a white American mother and a black Kenyan father, Obama was born in Hawaii but moved to Indonesia when he was six after his divorced mother remarried an Indonesian.

The US president is hugely popular here and expectations are high that he will prioritise relations with Indonesia as a possible bridge with other Islamic countries and a democratic bulwark against extremism.

He has promised a new chapter in relations with the Islamic world after the ill-will generated by former president George W. Bush's invasions of Iraq and Afghanistan.

Indonesia has seen its share of Islamist violence since 9/11 - including the 2002 Bali nightclub bombings that killed more than 200 people - and has worked closely with US and Australian police to track down terror suspects.

The vast majority of Indonesian Muslims - about 90 percent of the archipelago's 234 million people - are moderates but a small extremist fringe continues to back "holy war" with the West.

About 50 Muslim students protested at the presidential palace earlier on Wednesday, carrying banners reading "America is a rubbish civilisation" and "America is the real terrorist".

Clinton said her talks with Wirajuda covered a range of issues from the economic crisis to climate change, the threat of terrorism, nuclear proliferation and human rights violations in countries like Myanmar.

The United States and Indonesia are among the top five emitters of greenhouse gases and Clinton applauded Jakarta's efforts to "integrate deforestation into the broader climate negotiations".

Wirajuda said Indonesia "shared the joy" of Obama's election and "cannot wait too long" for him to return to the country as president of the United States.

Oil prices drop ahead of US data

2009-02-19T10:48:00.000+07:00

Oil prices fell on Wednesday ahead of government data that is forecast to show falling US energy demand amid a sharp global economic downturn.

New York's main futures contract, light sweet crude for delivery in March, shed 31 cents from Tuesday's close to 34.62 dollars a barrel.

In London, Brent North Sea crude for April delivery dropped 1.48 dollars to 39.55 dollars a barrel.

The US Department of Energy will publish its weekly report on American energy inventories on Thursday, one day later than normal because of a public holiday in the United States last Monday.

The report, keenly awaited by traders, is expected to show that inventories had risen for an eighth week in the United States, the world's biggest energy consuming nation.

"After increasing at a rate of five million barrels per week since end-November, the increase in US oil and oil product stockpiles for the last two weeks has been a far more muted two to three million barrels per week," said Thierry Lefrancois of Natixis.

"With refinery utilisation rates surprising on the downside, crude oil stocks have kept increasing while stocks of oil products have begun to fall," Lefrancois said.

Amid deepening recession in the United States, crude oil inventories over the last seven weeks have risen to more than 350 million barrels as of the week of February 6.

The Federal Reserve said on Wednesday it now estimated the US economy to shrink 0.5 to 1.3 percent in 2009, instead of the prior estimate of between a 0.2 percent contraction and a 1.1 percent increase.

For 2010, the central bank expected the economy to bounce back to positive growth levels of between 2.5 percent and 3.3 percent, up from an earlier 2.3-3.2 percent forecast.

Growth in 2011 would accelerate to between 3.8 percent and 5.0 percent, significantly higher than 2.8-3.6 percent increase seen in the last forecast, the Fed said.

Oil prices have slumped from record highs above 147 dollars a barrel reached last July, as the market has been slammed by plunging demand for energy.

"Things are a mess ... The markets have been beaten badly and are a bit oversold so they may try to rally," said Phil Flynn of Alaron Trading. "A nice recovery should open up good opportunities to get repositioned."

The Organisation of Petroleum Exporting Countries (OPEC), which pumps 40 percent of the world's oil, cut output late last year by a total 4.2 million barrels per day in a bid to prevent further price falls.

US dollar gains, euro falls on European currency jitters

2009-02-19T10:46:00.000+07:00

The US dollar gained against the euro and other major currencies Wednesday, as concern mounted about a fall in the value of currencies in Central and Eastern Europe.

The euro slid to 1.2535 dollars at around 2200 GMT from 1.2585 late on Tuesday.

But the European single currency gained against the Japanese yen, rising to 117.45 yen from 116.31 yen on Tuesday.

The dollar advanced to 93.72 yen from 92.39 yen and climbed to 1.774 Swiss francs from 1.1694.

"The US dollar saw a mixed day of trading on Wednesday, gaining against the euro, Swiss franc, and Japanese yen while falling versus the commodity bloc. Based on broad losses for the Japanese yen, the moves signaled slight improvements in risk appetite," said Terri Belkas at Forex Capital Markets.

The euro hit its lowest point of the day, at 1.2513 dollars, just after the European Commission said it was concerned about the "volatility" of currencies in Central and Eastern Europe (CEE), several of which have fallen sharply in recent days.

The Hungarian forint, the Czech koruna, the Polish zloty and the Romanian leu have been shaken by fears of massive capital flight from the region during the economic crisis and concern over the health of banks there.

"Markets are at risk of developing a vicious circle as CEE countries adjust imbalances ... The Western credit crunch has been exported into CEE," French bank BNP Paribas said in a statement.

"There is talk in the market that France and Germany will be forced to contemplate a bailout of some countries in the CEE given that some of their banks are heavily exposed to the CEE region," BNP Paribas said.

German lender Commerzbank commented: "Market attention is increasingly focusing on the difficulties of the Eastern European currencies. The problems in that area are everything but good news for the euro."

International ratings agency Moody's earlier this week warned that it could be forced to downgrade the credit rating for western European banks because of their debt exposure in crisis-hit Central and Eastern Europe.

Analysts also said the euro could fall further on the possibility of bank nationalizations in Germany, which received a boost on Wednesday with a new temporary law adopted by Germany's cabinet.

The law would allow the government for the first time in modern German history to nationalize banks by seizing their shares -- a measure that the law stressed should be temporary and a "last resort."

In late New York trading, the pound was at 1.4213 dollars compared with 1.4238 Tuesday.

Fed chief says US inflation risks at bay amid global slump

2009-02-19T10:45:00.001+07:00

Federal Reserve chairman Ben Bernanke said on Wednesday that there was "little risk" of inflation risks to the US economy in the near future despite the central bank's massive efforts to ease credit.

"Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve will ultimately stoke inflation," Bernanke said in a speech to the National Press Club in Washington.

"At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time," he said.

Bernanke recalled that the Fed had taken extraordinary measures amid the global financial crisis to pump liquidity into the grid-locked financial system in an effort to get credit - the lifeblood of the economy - flowing again.

Fed slashes 2009 US growth forecast, sets inflation goal

2009-02-19T10:44:00.000+07:00

The Federal Reserve projected on Wednesday that the US economy will contract in 2009 and for the first time set a long-range inflation goal in a bid to strengthen monetary policy.

The Fed said it expects the world's largest economy to shrink 0.5 to 1.3 percent this year and anticipated am "unusually" prolonged recovery, according to the minutes of a Federal Open Market Committee (FOMC) meeting in January.

The prior estimate, in late October, predicted a range between a 0.2 percent contraction in gross domestic product (GDP) and a 1.1 percent expansion.

In 2008, the economy grew 1.3 percent despite being in recession the full year, according to government data.

Unemployment in 2009 was forecast to rise 8.5 to 8.8 percent and gradually fall to 6.7 to 7.5 percent in 2011.

Core inflation, excluding energy and food prices, would rise a weak 0.9 to 1.1 percent this year and only climb as high as 1.5 percent in the following two years.

"The information reviewed at the meeting indicated a continued sharp contraction in real economic activity," said the minutes of the Federal Open Market Committee's January 27-28 meeting, at which policymakers maintained the federal funds rate target at a historically low zero to 0.25 percent.

The committee had said it expected "exceptionally" low rates "for some time."

"Given the strength of the forces currently weighing on the economy, participants generally expected that the recovery would be unusually gradual and prolonged," the minutes noted.

The central bank said it saw the economy recovering in 2010 better than previously expected, at growth between 2.5 percent and 3.3 percent, up from a 2.3-3.2 percent forecast in October.

Growth in 2011 would accelerate to between 3.8 percent and 5.0 percent, significantly higher than 2.8-3.6 percent increase seen in the last forecast.

In a policy breakthrough, the Fed announced for the first time longer-range economic projections on GDP, unemployment and inflation.

The minutes said that Fed chairman Ben Bernanke and his policymakers had decided to provide the extended forecasts in the bank's quarterly economic reports which usually include data on a three-year horizon.

The longer-run projections represent the factors needed under "appropriate monetary policy and absent further shocks to the economy."

It defined appropriate monetary policy as "the future policy deemed most likely to foster outcomes satisfying the Federal Reserve's dual mandate of maximum employment and price stability."

The FOMC's longer-run forecasts were for GDP growth of 2.5 to 2.7 percent, unemployment at 4.8 to 5.0 percent, and inflation measured by the core consumer prices index, excluding food and energy, at 1.7 to 2.0 percent.

Most participants viewed the inflation rate of 2.0 percent as "consistent with the dual mandate," the Fed said.

Until now, the Fed had resisted setting a precise inflation target like other central banks, such as the European Central Bank, which also has a 2.0 percent inflation goal.

The US economy has been in recession since December 2007 stemming from a housing mortgage crisis at the epicentre of global turmoil.

The housing sector remains stuck in a steep downturn, consumer spending is falling, unemployment is on the rise, businesses are curtailing investment and foreign demand for US exports is weakening amid a steep global slowdown.

The Fed minutes noted a degree of uncertainty on projected growth and inflation data "exceeding historical norms." Nearly all participants saw downside risks to growth while all saw the risks to the inflation outlook as "either balanced or tilted to the downside."

Bernanke said on Wednesday in a speech in Washington that there was "little risk" of inflation to the US economy in the near future despite the central bank's massive efforts to ease credit and stabilise the ailing financial sector.

"Some observers have expressed concern that, by expanding its balance sheet, the Federal Reserve will ultimately stoke inflation," he said.

"At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time."

US stocks flat despite government housing plan

2009-02-19T10:42:00.000+07:00

US stocks ended flat on Wednesday in choppy trading as the market shrugged off government plans to stem housing mortgage foreclosures and restructuring programs unveiled by the auto industry.

The Dow Jones Industrial Average rose 3.03 points (0.04 percent) to 7,555.63 a day after sinking a whopping 3.79 percent to an almost three-month low level.

The tech-dominated Nasdaq was down 2.69 points (0.18 percent) to 1,467.97, while the broad-market Standard & Poor's 500 index dipped 0.75 point (0.10 percent) to 788.42.

"The market has been flirting today with important technical support levels," said Wachovia Securities chief market strategist Al Goldman.

Shares remained bearish a day after the rout on Tuesday on pessimism that President Barack Obama's nearly 800 billion dollar economic stimulus package may not be enough to bring the economy out of recession.

On Wednesday, the market shrugged off news of Obama's strategy to help millions of homeowners avoid foreclosure and stabilise the reeling real-estate sector, including 75 billion dollars for at-risk homeowners to help them keep their homes.

The US Treasury Department also announced on Wednesday a doubling of its financial support to troubled mortgage finance giants Fannie Mae and Freddie Mac, to 200 billion dollars each, in an effort to stabilise the real estate sector.

The news did little to stir a reaction among market participants, who continue to wait and see what other plans will be unveiled to help restore conditions in the housing market, financial sector, and broader economy, analysts at Briefing.com said.

They cited "bleak" economic data released on Wednesday.

Housing starts and building permits plunged again in January to new record 50-year lows amid the deepening recession, the Commerce Department reported.

"This is bad economic news that will factor negatively in the first-quarter GDP (gross domestic product) forecasts," said Patrick O'Hare of Briefing.com.

The government also reported on Wednesday that industrial production declined for the third consecutive month, by 1.8 percent in January, more than the 1.5 percent dip expected by the market.

"Today's report is not encouraging, as industrial production keeps decreasing, cuts in manufacturing production continued. We foresee no improvement in the short term," said Elsa Dargent of Natixis.

Experts at Schwab & Co said the fresh economic data was "doing little to stoke optimism."

Shares in US tire giant Goodyear Tire and Rubber rose 5.98 percent to 6.38 dollars after the company announced plans on Wednesday to cut 5,000 more jobs and to freeze salaries in 2009 after a fourth-quarter loss of 330 million dollars.

The job cuts come in addition to 4,000 eliminated in the second quarter of 2008, the company said.

Troubled automaker General Motors fell 5.50 percent to 2.06 dollars after the company and Chrysler said late Tuesday they would need billions of dollars more in government aid even as they announced job and production cuts as part of their restructuring plans.

Banks shares remained weak. Bank of America fell 6.73 percent to 4.57 dollars, Citigroup 4.90 percent to 2.91 dollars and JPMorgan Chase 0.65 percent to 21.51.

Bonds were down. The yield on the 10-year US Treasury bond rose to 2.728 percent from 2.662 percent on Tuesday while that on the 30-year bond rose to 3.525 percent from 3.486 percent. Bond yields and prices move in opposite directions.

US housing starts, permits fall to new record lows

2009-02-19T10:41:00.000+07:00

US housing starts and building permits fell again in January to new record 50-year lows amid the deepening recession, government data showed on Wednesday.

The Commerce Department said the number of housing starts in January dived 16.8 percent to a seasonally-adjusted annual rate of 466,000 units from December, far worse than analysts' consensus forecast of 547,000 units.

Permits to build new homes, an indicator of future activity in the housing sector, dropped 4.8 percent from the prior month to an annualised rate of 521,000. That level also was sharply below expectations of 530,000.

Starts and permits were at their lowest pace since the Commerce Department began tracking the data in January 1959 amid a US housing slump at the epicentre of the global financial crisis.

The department revised the December data to a 14.5 percent decline in housing starts and an 11.1 percent fall in building permits.

On an annual basis, starts were down 56.2 percent from January 2008 and permits fell 50.5 percent.

The January numbers indicated no turnaround in sight for the worst real-estate crisis in decades, analysts said.

Ian Shepherdson, chief US economist at High Frequency Economics, said the numbers were "terrible."

"With the inventory of new homes still rising relative to sales, we can't be confident this is the bottom," he said.

Obama unveils US$275b housing plan

2009-02-19T10:39:00.000+07:00

President Barack Obama on Wednesday targeted the housing crisis at the root of the US economic meltdown, with a programme which could cost 275 billion dollars and reach nine million homeowners.

The strategy includes 75 billion dollars designed as an incentive for lenders to reduce interest rates to prevent at-risk mortgage debtors joining the millions who have already fallen victim to foreclosures.

The government will also put up an additional 200 billion dollars to bolster confidence in efforts by federal lenders Freddie Mac and Fannie Mae to offer affordable mortgages and bring stability to the housing market.

Obama opened the new front in the broad battle against the economic crisis a day after signing a huge, 787-billion-dollar stimulus plan into law, and as he simultaneously attempts to restructure the debilitated US auto industry.

"All of us are paying a price for this home mortgage crisis and all of us will pay an even steeper price if we allow this crisis to continue to deepen," Obama said as he unveiled the plan in Arizona, one of the states worst hit by the crisis.

"When the housing market collapsed, so did the availability of credit on which our economy depends.

"We will help between seven and nine million families restructure or refinance their mortgages so they can avoid foreclosure," Obama said.

Treasury officials said the plan could reach or make affordable one-and-a-half trillion dollars in mortgage debt and deal with a large proportion of the six million foreclosures expected over the next four years.

The plan includes incentives for lenders to help debtors who cannot make monthly payments but also cannot sell their homes due to negative equity, to lower mortgage payments to no more than 31 percent of their income.

The plan will see the Treasury Department double its financial support to troubled mortgage finance giants Fannie Mae and Freddie Mac, to 200 billion dollars each, in an effort to stabilise the real estate sector.

A 75-billion-dollar initiative will target those who cannot afford to pay their mortgages and have seen the price of their properties plunge so cannot sell them and move into cheaper accommodation.

The initiative also aims to help families who put money down on homes and met their regular payments, yet cannot take advantage of refinancing made attractive by low mortgage rates because the value of their homes have sharply dropped.

US stock markets shrugged off the new housing plan, a day after the Dow Jones Industrial Average fell 3.79 percent on pessimism that the stimulus plan and new housing strategy would lead the economy out of recession.

At 2040 GMT, the Dow was down 15.21 points (0.20 percent) to 7,537.39 after posting marginal gains at the opening hour and the tech-heavy Nasdaq was down 2.61 points (0.18 percent) to 1,468.05.

Treasury Secretary Timothy Geithner told reporters here that the plan would not only awake the slumbering housing market, but would also help re-ignite the broader economy.

"This is necessary policy, it is smart economics and it is just and fair," he said.

"By helping keep mortgage rates down, and helping reduce monthly payments, you are putting money in the hands of Americans, in that case it acts like stimulus."

Officials said the plan would not benefit irresponsible homeowners who took out bigger loans than they can afford, or banks that took dangerous risks or speculators who helped build the housing bubble.

"Let us be clear, housing has been a significant part of initiating the economic slide we are in and will be a key part of getting us out," said Housing and Urban Development Secretary Shaun Donovan.

"This is a smart targeted investment which can reach and help to make more affordable more than one-and-half-trillion dollars of mortgage debt."

"It is of a scale that can have a real impact."

The programme, like other aspects of Obama's attempts to clean up the debt-laden finance industry, relies on lenders to thaw out credit.

"This programme creates pretty powerful incentives for initiatives by the servicers to move," said Geithner.

The western state of Arizona was an appropriate spot for Obama to roll out his programme.

In 2008, there were 117,000 foreclosure notices received in Arizona, making it the third worst-hit state in America, according to the online realty market firm RealtyTrac Inc.

CEOs less popular than politicians

2009-02-19T10:36:00.000+07:00

Company bosses are less popular than bankers, lawyers or members of the US Congress, according to a survey by pollsters Rasmussen.

Some 73 per cent of respondents said they had an unfavorable impression of CEOs, five percentage points higher than members of Congress, said the poll published Wednesday.

The survey was carried out February 15 to 16 as controversy raged over huge executive pay packages in the midst of global economic chaos.

Journalists, stock brokers and financial analysts were also among the least respected.

Of nine professions listed, small business owners were the most popular, with a 92 per cent considering them favorably.

Chinese leaders to citizens: Spend, Spend, Spend!

2009-02-19T10:29:00.001+07:00

Across China, communist party officials are handing out millions of food, shopping, and cinema coupons in an effort to get people to go out, have a good time and spend, spend spend.

Chinese people are among the world's most determined savers, with economists estimating they put away 30% to 40% of their disposable income, but a virtue can be an obstacle when trying to jump-start the economy.

So while multi-billion-dollar spending programmes on infrastructure projects and interest rate cuts have stolen the headlines in China in recent months, the humble coupon has quietly emerged as another popular stimulus weapon.

Chengdu, the capital of quake-hit Sichuan province, was one of the early coupon pioneers, giving more than 379,000 low-income residents nearly CNY39 million worth of vouchers in December.

The eastern city of Hangzhou also last month gave 670,000 low-income residents CNY100 million (US$14.6 million) in vouchers to spend in shops and entertainment centres.

"The principle of putting money in people's pockets has been applied literally," Jing Ulrich, JP Morgan's head of China equities said in a research note.

"Consumption coupons could become more common as an alternative to income tax cuts - which might only encourage greater savings," she wrote.

Poor families and retired people in Hangzhou were given ten CNY20 coupons to spend in shopping centres while students received five CNY20 coupons. They were encouraged to use them within three months, after which point they can be used, but at fewer stores.

Some businesses offered extra discounts to draw in coupon users. Cinemas, for instance, were offering half price tickets for coupon users.

Hangzhou - famous for the scenic views of its West Lake - is also giving residents in neighbouring provinces and cities, including Shanghai, CNY40 million worth of coupons to spend at its hotels, resorts and restaurants.

The Hangzhou government is even considering paying its employees up to a tenth of their salaries in coupons, according to the government's Website.

The efforts to boost consumption come as the global financial crisis has hammered consumer confidence in China down to its lowest level in six years.

A confidence index compiled by China-based research group Horizon stood at 59.9 at the end of 2008, a decline of 4.5 points from September, state media reported.

The last time it sank that low was after the outbreak of Severe Acute Respiratory Syndrome, or SARS, in 2003.

It is too soon to gauge the coupons' impact.

The latest retail sales figures show CNY290 billion (US$42.4 billion) was spent nationwide during the week-long Lunar New Year holiday.

That was up 13.8% from the same period last year, but growth had slowed down from 16% in 2008.

Coupons can only be effective for a short time, cautioned Shi Jianxun, an economist with Shanghai's Tongji University.

"After cash coupons are given out, you have a one-off stimulus. As people use up coupons, you have to give out more each month to sustain the boosting effect," he said.

For a lasting solution, China has to resolve imbalances that have led to urban incomes growing on average at a third of the rate of government revenues, with rural incomes lagging even further behind, Shi said.

A woefully inadequate social safety net, meaning people especially in rural areas have to save as much as they can to pay for life in their old age and health care, is one of the big problems.

Oil prices sink in worries over global economy

2009-02-18T09:42:00.000+07:00

Oil prices tumbled Tuesday along with equities markets as investors worried about weakening energy demand in a stalling global economy.

New York's main futures contract, light sweet crude for delivery in March, sank to 34.93 dollars a barrel, down 2.58 dollars from its close Friday.

Floor trading on the New York Mercantile Exchange was closed Monday for a public holiday.

In London, Brent North Sea crude for April delivery slid 2.25 dollars to settle at 41.03 dollars a barrel.

"We continue to have concerns over demand -- economic conditions seem to be worsening," said Bart Melek, an analyst at BMO Capital Markets.

"There is a combination of poor expectations of economic growth and concerns about demand prospects and ultimately the market is realizing that even if OPEC cuts supply, it will take quite a bit of time to unwind inventories and balance the market," he said.

John Kilduff at MF Global agreed the bears were winning.

"The current divide in the market falls between those who conclude that economic deterioration will continue causing energy demand to contract and prices to retreat, and those who think that this effect has largely been priced in and selling overdone," said

"As prices approach recent lows, the majority has clearly shifted to the former school of thought. Certainly, the evidence appears to be mounting to support that thinking," he said.

Traders also took their cue from sinking stock markets amid fears for the health of the banking and automobile sectors, and doubts about the effectiveness of a US economic stimulus package and plan to stabilize the weak financial system.

The price differential between New York crude and Brent oil hit a record of more than 11 dollars last week, which analysts attributed to soaring energy stockpiles in the United States.

"Oil markets are likely to remain vulnerable to further losses with risk aversion on the rise and as bulls lose hope for a swift recovery in global economies following an array of negative economic data recently," said Sucden Financial analyst Nimit Khamar.

Last Friday, the OPEC oil producers cartel trimmed its forecasts for global oil demand, forecasting that it would shrink by 0.67 percent in 2009 because of "economic depression" in industrialized countries.

"Oil supplies are still surging and the demand outlook is worsening. Asian stock markets looked lousy over the weekend as did Europe," said Phil Flynn at Alaron Trading.

The analyst highlighted more reports of slowing global oil demand from the Organization of the Petroleum Exporting Countries and private forecasters.

"That means OPEC will have to try to reduce production by at least two million more barrels a day to keep current and even that might not stop oil supplies from rising," Flynn said.

Russia, China agree multi-bln dlr oil deal

2009-02-18T09:41:00.000+07:00

Russia and China on Tuesday agreed a 20-year deal to pump Russian oil to the energy hungry Chinese market in return for financing for Russian oil majors Transneft and Rosneft, Transneft said in a statement.

"Russia will deliver to China 15 million tonnes of petrol a year over 20 years under financing conditions which suit both sides," said Russian Deputy Prime Minister Igor Sechin, according to Transeft.

A source close to Chinese state oil company CNPC was quoted by the Interfax news agency as saying that China would grant loans worth 25 billion dollars to the Russian oil firms in return.

According to Transneft it will benefit from financing worth 10 billion dollars as part of the deal. The other 15 billion dollars will go to Rosneft.

The contracts were signed in Beijing during a meeting between Sechin and Chinese Deputy Prime Minister Wang Qishan.

As part of the deal, the two sides will also build an extension of the Russian Siberia-Pacific pipeline that flows towards China which will allow oil from Siberia to be pumped into the north of China.

Transneft vice president Michael Barkov said that his group would start construction of the oil pipeline this year so that it can be used from 2010. Its loan from China would be used primarily to finance the pipeline, he added.

Obama signs US$787b stimulus package

2009-02-18T09:40:00.000+07:00

President Barack Obama on Tuesday signed his huge 787-billion-dollar stimulus bill into law, declaring the "beginning of the end" of the worst US economic crisis in 80 years.

"We have begun the essential work of keeping the American dream alive in our time," Obama said, before putting his name on the most sweeping economic kick-start legislation in generations, in Denver, Colorado.

The president, who has been warning darkly of economic "disaster" without quick action by the US government, adopted a more hopeful tone as he signed the bill, which may have deep implications for the success of his presidency.

But US stocks plunged on Tuesday as investors worried about whether government action would save the ailing economy, with the Dow Jones Industrial Average down 258.62 points (3.29 percent) to 7,591.79 at 1631 GMT.

Obama however said the bill's enactment marked a watershed.

"I don't want to pretend that today marks the end of our economic problems nor does it constitute all of what we have to do to turn the economy around," Obama said in the city where he vowed to unleash a wave of change in his convention speech in August.

"But today does mark the beginning of the end -- the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs.

"The beginning of what we need to do to provide relief from families worried they won't be able to pay next month's bills.

"The beginning of the first steps to set our economy on a firmer foundation, paving the way to long-term growth and prosperity," the president said.

Obama signed the bill on a wooden desk in the Denver Museum of Nature and Science, which has a pioneering solar plant, an example of new generation energy sources funded in the bill which Obama says will retool the US economy.

But even as he headed west to enact the historic law, passed at lightening pace for a new president, a clutch of other threats crowded his agenda, including the reeling auto industry and the mortgage crisis.

The White House meanwhile released state-by-state details on what it said would be the impact of the stimulus, which represents a huge multi-billion dollar gamble for Obama's presidency and is known as the "American Recovery and Reinvestment Act."

The figures also included detailed estimates of how many jobs the plan would create in each congressional district, an apparent attempt to pressure Republican House of Representative members who unanimously opposed the bill.

The new bill aims to create or preserve 3.5 million jobs, many of them so-called "green jobs," as the country confronts its highest unemployment rate in 16 years standing in January at 7.6 percent.

Obama aides had warned the unemployment rate would shoot into double figures if Congress refused to pass the plan.

Roughly one-third of the stimulus funds will be spent on tax cuts, totaling 286 billion dollars, in an effort to boost consumer spending, a key engine of the world's largest economy.

But a further 120 billion dollars is being allocated to "shovel-ready" infrastructure projects, for such things as transportation, road-building,
improving the power grid and renewable energy installations.

But there has been Republican anger at the size of the package, and the bill was pushed through Congress only after a bruising battle. In addition to the Republican House boycott, only a handful of senators supported it.

"Our nation is in recession, and responsible action is required to help our economy protect and create jobs, this isn't it," said House Republican minority leader John Boehner in a statement on Tuesday.

"The flawed bill the President will sign today is a missed opportunity, one for which our children and grandchildren will pay a hefty price.

Obama was Tuesday also to learn more about how the auto industry, one of the pillars of the US economy, plans to ride out the economic downturn which has slashed sales and brought the Big Three carmakers to their knees.

General Motors and Chrysler must report to the Treasury by the end of the day on their restructuring plans, a condition of a 17.4-billion-dollar auto industry bailout funded by taxpayers.

US casino group Trump files for bankruptcy

2009-02-18T09:38:00.000+07:00

Trump Entertainment Resorts, US magnate Donald Trump's casino group, said Tuesday it had filed for bankruptcy protection to cope with a "strained" economic environment.

Trump Entertainment Resorts, which own and operates three casinos in the Atlantic City, New Jersey area, filed for Chapter 11 bankruptcy protection in a New Jersey Court to allow the company to pursue a restructuring to avoid collapse.

"We are focused on our goal of successfully restructuring our company to reduce our debt in order to strengthen our balance sheet during this difficult economic period," Mark Juliano, the company's chief executive, said in a statement.

Juliano said the casino resorts would remain open during the restructuring and there would be no change to consumer marketing programs.

"We remain focused on operating as efficiently as possible in this strained economic environment," he said.

Trump, the brash real estate tycoon and reality television star whose investments span the globe, resigned as chairman of the company Friday in protest of a creditors' plan to force the company into bankruptcy, The Wall Street Journal reported Tuesday.

Trump Entertainment Resorts is weighed down by 1.7 billion dollars in debt, the paper said.

The company owns and operates Trump Taj Mahal Casino Resort and Trump Plaza Hotel and Casino, located on the Atlantic City's oceanside boardwalk, and Trump Marina Hotel Casino.

Together, the three casino hotels have nearly 3,000 hotel rooms, more than 9,000 slot machines and 375 table games.

According to the company, Trump is a shareholder and is not involved in its daily operations.

"The company is separate and distinct from Mr. Trump's privately held real estate and other holdings, which the company understands encompasses substantially all of his net worth," it said.

US stocks battered on rescue plan worries

2009-02-18T09:34:00.000+07:00

US stocks plunged Tuesday to November lows as investors fretted over the effectiveness of a new US economic stimulus law and two automakers raced to submit restructuring plans for their survival.

The Dow Jones Industrial Average sank a whopping 297.81 points (3.79 percent) to finish at 7,552.60.

The tech-dominated Nasdaq dropped 63.70 points (4.15 percent) to 1,470.66 and the broad-market Standard & Poor's 500 index retreated 37.67 points (4.56 percent) to 789.17.

The blue-chip Dow index ended within a whisker of its November low, when it closed at 7,552.29.

After Monday's markets holiday, the Dow traded more than three percent lower throughout most of the punishing session.

"Stocks today extended last week's gruesome performance, with the major market indices plummeting right out of the gate this morning," said Elizabeth Harrow, an analyst at Schaeffer's Investment Research.

Al Goldman at Wachovia Securities noted that the losses had followed sharp drops in overseas markets on concern that banks may face rating downgrades and further losses.

"Accusations of 'massive fraud' involving a Houston-based investment firm added to the heaviness," he added.

The US Securities and Exchange Commission Tuesday accused Texas magnate and top cricket promoter Allen Stanford in an international securities fraud scheme involving 9.2 billion dollars.

It was the biggest US financial fraud case since Wall Street financier Bernard Madoff was arrested two months ago on charges he ran a
50-billion-dollar pyramid fraud.

Investors appeared unconvinced about a 787-billion-dollar economic stimulus package signed into law Tuesday by President Barack Obama, who declared the "beginning of the end" of the worst US economic crisis in 80 years.

Analysts said the market does not see any quick relief from the tax cuts and spending bill and has little confidence that it will work.

Frederic Dickson at DA Davidson said the economic stimulus package "hasn't inspired investors, as many have lingering questions about the timing and its ability to achieve near-term economic stability."

Data on manufacturing activity in the New York region deepened the gloom, showing a fall in the Empire State index to another record low in February.

The lack of investor confidence was reflected in the strengthening dollar, seen as a safe-haven currency in times of market uncertainty.

Investors also awaited Tuesday's government deadline for preliminary restructuring plans from General Motors and Chrysler. The two struggling automakers have received a combined 13.4 billion dollars in Treasury Department loans to help them avoid collapse.

Shares in GM plunged 12.80 percent to 2.18 dollars; Chrysler is not publicly traded. Ford, which has said it does not need government aid, skidded 3.98 percent to 1.69.

Banking shares were hammered. Bank of America tumbled 12.03 percent to 4.90, Citigroup lost 12.32 percent at 3.06 and JPMorgan Chase dived 12.31 percent to 21.65.

Wal-Mart, the only gainer among the Dow's 30 blue chips, rose 3.68 percent to 48.24 after posting a relatively small decline in quarterly profit.

Amid plummeting crude oil prices, Dow heavyweight ExxonMobil dropped 4.44 percent to 71.28 and Chevron fell 5.09 percent to 66.18.

Bonds gained as investors fled the equities rout. The yield on the 10-year US Treasury bond slumped to 2.662 percent from 2.882 percent Friday and that on the 30-year bond fell to 3.486 percent from 3.682 percent. Bond yields and prices move in opposite directions.

Russia to launch major gas project near Japan

2009-02-18T09:33:00.000+07:00

Russia on Wednesday opens its first liquefied natural gas (LNG) plant, a project that will greatly increase its role as an energy exporter in the Asia-Pacific region.

Japanese Prime Minister Taro Aso and Russian President Dmitry Medvedev are to attend the opening of the plant, located on Sakhalin Island only about 150 kilometres (90 miles) from Japan's northern island of Hokkaido.

Aso's visit underlines the importance of the project for Japan, which has been seeking to reduce its dependence on Middle Eastern oil and gas.

"This is very good as we have tried to diversify our energy sources," Aso told reporters ahead of his trip, the first visit to Sakhalin by a Japanese prime minister since the days when Japan held the southern part of the island.

Hundreds of thousands of Japanese were evacuated from Sakhalin after the end of World War II.

Sakhalin is also near four small islands at the centre of a long-running territorial dispute that has prevented Russia and Japan from signing a peace treaty to formally end World War II.

Aso said he would discuss the islands -- called the southern Kuril islands by Russia and known in Japan as the Northern Territories -- at talks with Medvedev on Wednesday.

Ironically, the new LNG plant, located outside the port town of Korsakov, stands near the rubble of an old Japanese monument marking the landing of Japanese troops on Sakhalin in 1905.

Around 65 per cent of the plant's production will go to Japan with the rest roughly split between South Korea and the United States, according to Sakhalin Energy, the consortium behind the project.

The plant is expected to produce 9.8 million tonnes of LNG per year, or about five per cent of the world's total LNG supply, the company says.

Its opening marks the culmination of Sakhalin-2, a 20-billion-dollar oil and gas project that has been led by Russian state-run energy giant Gazprom since a controversial change of ownership in 2007.

Gazprom acquired 50 per cent plus one share in Sakhalin-2 after the project's developer, then led by British-Dutch oil major Shell, encountered major legal difficulties with the Russian government.

Shell now owns a 27.5 per cent stake in the project, while Japan's Mitsui and Mitsubishi groups own 12.5 per cent and 10 per cent respectively.

Russia set for 2.2% GDP contraction

2009-02-18T09:30:00.000+07:00

The Russian economy will contract by 2.2 percent this year, a minister warned Tuesday, the first time GDP is to shrink in the world's largest country since the 1998 financial crisis.

"The forecast has worsened to a 2.2-percent contraction in GDP (gross domestic product)," Deputy Economic Development Minister Andrei Klepach was quoted as saying by Russian agencies.

His comments marked a sharp downgrading of earlier estimates of negative 0.2-percent growth and the first official admission that Russia faced a recession in 2009.

Klepach, who has become the government's pointman for gloomy economic predictions, also warned that industrial production would fall by 7.4 percent while investment would be down 14 percent.

Adding to the bad news, he said industrial production could end up being even worse than currently predicted by the ministry.

"This will depend on how the government's anti-crisis measures will work and also how the situation with bank credits for the economy develops," he added.

The cut in the GDP forecast came a day after the statistics office said that industrial production plunged by 16.0 percent in January compared with activity in January 2008, recording its worst fall for 15 years.

Compared with December, industrial production fell by 19.9 percent.

Analysts warned that such figures meant the GDP contraction in 2009 could be even worse than forecast by the ministry.

"We believe the dramatic January industrial figures make our forecast of a 3 percent decline in GDP for the full year look quite optimistic," commented Alfa Bank senior analyst Natalya Orlova.

"The fact of worse to come is a certainty rather than just likely," said UralSib chief strategist Chris Weafer.

"The industrial production report for January confirms that economic activity is still slowing very rapidly and that we may not see the worst of it until Russia?s spring weather arrives in late April," he said.

The effects of the economic crisis have been particularly severe for Russia because of the fall in prices of its main exports crude oil and natural gas.

GDP growth was 5.6 percent in 2008, already well down on previous years when the economy grew by 8.1 percent in 2007 and 7.4 percent in 2006 on soaring commodity prices.

Russian leaders have vowed that while the current situation is tough there will be no repeat of the events of 1998 when a debt default brought the economy to near meltdown.

According to the International Monetary Fund (IMF), GDP contracted by 5.3 percent in 1998. Russia thereafter enjoyed a decade of steady growth.

President Dmitry Medvedev on Tuesday called on all government departments to cut spending in the face of an economic situation which he said was "not simple".

"We need to begin with ourselves. The presidential administration is not the biggest department but it can also show its example," he said, according to Russian news agencies.

In a sign of mounting political concern over the crisis in Russia's regions, Medvedev on Monday used his powers to sack three regional governors before their terms were finished.

Dollar surges amid fresh market turbulence

2009-02-18T09:27:00.000+07:00

The dollar rallied against the other main currencies Tuesday as financial markets were roiled by fresh worries about the global economy and the euro hit by fears about deeper woes in Eastern Europe.

The euro was changing hands at 1.2585 dollars at 2200 GMT compared to 1.2801 dollars on Monday.

The yen meanwhile slid against the dollar as Japan's Finance Minister Shoichi Nakagawa announced he would resign after coming under strong criticism for appearing to be drunk at a Group of Seven nations' weekend meeting in Rome.

The dollar rose against the yen to 92.39 yen from 91.73.

The greenback resumed its role as a safe haven from turmoil as global stock markets fell heavily and oil prices tumbled.

International ratings agency Moody's earlier warned that western European banks may suffer downgrades because of problems in Central and Eastern Europe, sending down the euro as well as local currencies.

Jon Gencher at BMO Capital Markets said the turbulence prompted another rush into greenbacks.

"Once again the dollar is better bid on ongoing risk aversion, with the emerging European countries taking center stage," he said.

"Expectations are that the recession in emerging Europe will be more severe than elsewhere due to large imbalances, and will put financial strength ratings of local banks and their Western parents under pressure. As a result the euro is under some pressure against most the majors."

Barclays Capital analyst David Woo said banks from Austria, Italy, France, Belgium, Germany and Sweden account for 84 percent of western European bank loans in eastern Europe.

"This highlighted the ongoing issue of links between the eurozone and the Central and Eastern Europe economic slowdown," he added.

The Polish government meanwhile said it was ready to step in to support the zloty if one euro rose to more than five zlotys after the Polish currency hit its lowest level since Poland joined the European Union in 2004.

The Hungarian forint hit a record low against the euro and the Czech koruna sank to its lowest level in nearly four years. The Romanian leu also plunged in value.

Simon Derrick at Bank of New York Mellon said that "sentiment towards both Eastern and Western Europe (is) now demonstrably at its worst levels since the height of the first wave of the financial crisis back in October of last year."

The situation "reminds us that even though more developed countries have moved rapidly to address the preeminent problems facing their economies with bailouts and fiscal stimulus packages, the knock-on impact seems to be gaining momentum with export and external finance-dependent emerging economies," added Sacha Tihanyi at Scotia Capital.

In late New York trade, the dollar stood at 1.1694 Swiss francs from 1.1596 Monday.

The pound was at 1.4238 dollars from 1.4298.

Top 20 banks receiving US aid are lending

2009-02-18T09:26:00.000+07:00

The top 20 US banks receiving government aid have continued to lend amid the recession and financial crisis, the Treasury Department said Tuesday.

In the first of a monthly series of bank lending surveys designed to increase transparency in the government's financial stability programs, the Treasury said its findings showed that banks were doing what they were supposed to do with taxpayer dollars.

From October to December 2008, "lending levels largely held steady and would have likely been lower absent capital provided to banks through CPP," the Capital Purchase Program, it said in a statement.

The CPP directly infuses capital into viable banks in a bid to stabilize the financial system and enable banks to continue to provide credit to businesses and consumers. Some 400 banks in 47 states have participated in the program since it began in October.

The 20 major banks hold about 90 per cent of all banking deposits in the country, and include Bank of America, Citigroup, Wells Fargo, Goldman Sachs and JPMorgan Chase, the department said.

"In sum, loan activity was resilient in the face of the worst economic downturn in decades," Treasury said.

Australia central bank says stimulus will take time to work

2009-02-18T09:05:00.000+07:00

Australia's 42-billion-dollar (28 billion US) stimulus package will take time to filter through the economy but should help boost demand later in the year, the central bank said.

Australia had proved "more resilient than other industrial economies" to the global financial crisis, the Reserve Bank of Australia (RBA) board said at its monthly board meeting, the minutes of which were released Tuesday.

The board said there would be little immediate impact from the stimulus package which parliament passed last Friday.

"Nonetheless, the substantial measures taken would help to cushion the economy from the contractionary forces coming from abroad and, over time, work to establish conditions conducive to stronger demand later in the year," it said.

The package includes 28.8 billion dollars spending on schools, housing and roads over four years, tax breaks for small businesses and cash handouts totalling 12.7 billion dollars to eligible workers, farmers and students.

Treasury estimates the plan will boost economic growth by 0.5 percentage points in 2008-09 and 0.75-1.0 points in 2009-10, supporting up to 90,000 jobs.

The Reserve Bank has slashed interest rates by four percentage points since September as it attempts to offset the impact of the financial crisis, with the most recent one-point cut this month that took rates to 3.25 per cent.

Malaysians hoping for more economic stimulus measures

2009-02-18T09:03:00.000+07:00

Businesses in Malaysia are starting to feel the effects of the global economic meltdown. Even street peddlers and normally recession-proof industries have not been spared.

With retrenchment on the rise, retailers and businesses are resorting to price reduction to attract customers.

Some street peddlers have also started lowering their prices in a bid to stimulate demand. For example, a popular local snack called 'you tiao' used to cost 30 US cents a piece. Now, it costs less than 20 cents each.

Mdm Lee and her husband have been selling these traditional deep fried bread sticks for the last 24 years along Jalan Alor in downtown Kuala Lumpur. They said business has fallen by 40 per cent since the Lunar New Year at the end of January.

The couple said due to worries over the grim economic outlook, their customers are less willing to spend on extras.

"Last time, customers would buy and distribute to their friends, orphanages and old folks' homes. They would buy five or six bags each time. Now, they will only buy for their own consumption. Our business has suffered," Mdm Lee said. Still, they hope to draw back customers with their lower prices.

It is the same over at a chicken rice shop, which is offering discounts to civil servants and senior citizens to boost sales.

The operators are upbeat that Hainanese chicken rice, served with a hot bowl of soup, will remain a lunchtime favourite among Malaysians.

Alan Seow, BB Chicken Rice, said: "Even though we have had so many kinds of crises before, like SARS and bird flu, we can still survive."

But the private sector can only do so much. Mr Seow hopes the government will roll out more measures to help businesses ride out the bad times.

"Our government is too busy tackling the political crisis, the internal squabbles within their own political parties. Not much attention has been focused on our economic front.

"They are really wasting their time on something which is irrelevant. The decision-makers and policy-makers have to wake up to make sure they are doing something good for the economy and the people," he said.

All eyes will be on the government's second economic stimulus package, which is expected to be unveiled next month.

British official inflation falls to 3.0% in January

2009-02-18T08:46:00.000+07:00

British 12-month inflation dipped to 3.0 per cent in January from a rate of 3.1 per cent in December as the cost of energy slid, official data showed on Tuesday.

On a monthly basis, the Consumer Prices Index dropped by 0.7 per cent in January from December, the Office for National Statistics said in a statement.

The data was above economists' forecasts given by Dow Jones Newswires for an annual rise of 2.7 per cent and monthly drop of 1.0 per cent.

"The largest downward pressure on the CPI annual rate came from transport costs where the price of fuels and lubricants fell this year but rose last year," said the ONS.

"As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in December, at 3.1 per cent, was above the provisional figure for the European Union as a whole of 2.2 per cent," added the statistics office.

Meanwhile, the Retail Prices Index (RPI) annual inflation rate, which includes the cost of home loans, slowed to 0.1 per cent in January - the lowest level since 1960 - from 0.9 per cent in December.

"The main factors affecting the CPI also affected the RPI," said the ONS, adding: "Additionally, there was a large downward contribution from housing with the main effect coming from mortgage interest payments and house depreciation, which are excluded from the CPI."

Bank of East Asia's net profit falls 99% in 2008

2009-02-17T17:51:00.000+07:00

Hong Kong's Bank of East Asia said Tuesday its 2008 net profit fell 99 per cent compared to the previous year, as it sold off a huge chunk of toxic assets at the centre of the global credit crunch.

Net profit at the lender fell from HK$4.14 billion (US$531 million) in 2007 to just HK$39 million last year, the company said in a statement to the Hong Kong Stock Exchange.

"The financial tsunami that swept over the global economy in September 2008 has left a bleak economic landscape in its wake," said chairman and chief executive David Li.

"This has led to a sudden and sharp plunge in new business for local and regional companies and the unprecedented scale of the decline is destined to have a significant impact well into 2009."

Net interest income rose from HK$5.98 billion in 2007 to HK$6.79 billion.

But the company booked a non-interest loss of HK$336 million compared to a profit of HK$2.84 million in 2007, after it sold a huge chunk of toxic securities.

The bank said in October it expected its 2008 profits to be slashed by HK$3.5 billion after it disposed of its entire portfolio of collateralised debt obligations (CDOs).

The announcement was the latest setback for Hong Kong's fifth largest lender by assets.

In September, savers launched a short-lived run on the bank, following the spread of text message rumours that BEA was overexposed to assets linked to collapsed US investment bank Lehman Brothers and troubled insurer AIG.

BEA is the first of the financial hub's major banks to report its 2008 results. HSBC is expected to release its annual results in early March.

China to boost graduate migration in jobs drive

2009-02-17T17:49:00.000+07:00

China has urged cities nationwide to loosen residency requirements to encourage migration by college graduates, in the latest move aimed at fighting growing joblessness, state media said Tuesday.

A policy document by the State Council, or cabinet, has asked cities to drop a rule that says non-native college graduates must be permanent residents of an area before they can legally be hired for a job, the China Daily reported.

"The Chinese job market is grim amid the global financial crisis and college graduates are facing huge pressure finding jobs," the cabinet said as it justified its request, according to the paper.

The step is the latest taken by the government in a bid to help millions of graduates and recently laid-off migrant workers to keep earning money despite growing business failures due to the world economic downturn.

The move was intended to let applicants "move almost anywhere for a job," the paper said.

All cities across the country except Beijing, Shanghai, Tianjin and Chongqing, were asked to loosen the residency requirements.

The paper did not explain why those cities were excluded, but they are four of the nation's biggest cities that presumably could be flooded with job seekers if the restrictions were removed.

Last month, the cabinet vowed to help train one million unemployed graduates in the next three years to boost their qualifications, and promised loans to business that hire graduates and to graduates seeking to start businesses.

China's leaders have shown increasing concern over growing unemployment stemming from the world financial crisis, warning it could cause social instability.

It said this month that at least 20 million migrant workers had lost jobs.

The government has recently ramped up efforts to retrain such workers and provide them with business start-up loans.

Oil prices dip under US$37 in New York

2009-02-17T09:14:00.000+07:00

Oil prices rose slid on Monday with New York crude falling under 37 dollars a barrel as the market reacted to forecasts of weak energy demand made at the end of last week.

New York's main futures contract, light sweet crude for delivery in March, shed 71 cents to 36.80 dollars a barrel.

In London, Brent North Sea crude for April delivery reversed 99 cents to 43.82 dollars.

"Crude oil futures remain in the broad range, with... (New York crude) looking ready to test the 40 dollar per barrel area again, and Brent futures still holding near the technical support area at 44 dollars per barrel," said Sucden Financial analyst Brenda Sullivan.

"Volume is likely to remain light today as US markets are closed."

Trading on the floor of the New York Mercantile Exchange was shut on Monday owing to a public holiday in the United States, leaving investors able to trade only electronically.

The price differential between New York crude and Brent oil hit a record of more than 11 dollars last week, which analysts attributed to soaring energy stockpiles in the United States.

Last Friday meanwhile, the OPEC oil producers cartel trimmed its forecasts for global oil demand, forecasting that it would shrink by 0.67 percent in 2009 because of "economic depression" in industrialised countries.

Also last week, the International Energy Agency cut its forecast for global oil demand this year, but warned about a future supply crunch because of current low investment levels.

The energy watchdog for industrialized nations forecast that global oil demand would measure 84.7 million barrels per day (bpd) on average in 2009 -- 570,000 bpd less than its last forecast made in January.

At this level, demand would be 1.1 percent or 1.0 million bpd less than in 2008, when demand also fell compared with the year earlier.

Crude futures have in recent months slumped from record highs of above 147 dollars a barrel reached last July when concerns about supply disruptions had sent them rocketing.

Tony Nunan of Mitsubishi Corp's international petroleum business in Tokyo said last week's passage of the US stimulus measures was unlikely to provide much of a boost for oil prices because inventories were high and demand for crude lacklustre.

The US Congress has approved a 787-billion-dollar package of tax cuts and fresh spending, setting the stage for President Barack Obama to sign the measure into law before his self-imposed Monday deadline.

"Most people feel it's going to be a long, hard slog before we get any recovery in the economy," Nunan said.

Japan's economy plummets, China sees crisis worsening

2009-02-17T09:12:00.000+07:00

Japan said Monday it was trapped in its worst economic slump since World War II, as once-buoyant China and India issued stark warnings on the outlook and more job cuts were announced in Europe.

New data released showed the Japanese economy, the world's second largest, shrank for a third straight quarter in the three months to December.

It was the weakest performance since 1974 when the country was reeling from the first oil crisis, and the government said this slump would be even worse.

"This is the worst-ever crisis in the post-war era. There is no doubt about it," Japanese Economic and Fiscal Policy Minister Kaoru Yosano said.

The news came after a weekend meeting of the Group of Seven -- Britain, Canada, France, Germany, Italy, Japan and the United States -- which urged bold reforms to the world financial system and painted a bleak picture of the economy.

The G7 finance officials "appear to fully recognize the gravity of the current situation, and they have said the right things about the actions that need to be taken," said Bill Witherell, economist at Cumberland Advisors.

But he added that "the good words need to be matched by deeds, by prompt and effective action."

Chinese President Hu Jintao warned the crisis was deepening and India's acting finance minister Pranab Mukherjee said "extraordinary economic circumstances" meant India had to ramp up its budget spending.

"The impact of the crisis on economies around the world is still deepening and its grave consequences will be felt more in the days to come," Hu said in the Tanzanian capital Dar es Salaam during a tour of Africa.

Meanwhile the government in India, which like China is considered a global growth leader, abandoned its traditional fiscal caution and approved a sharp increase in budget spending in a bid to beat the crisis.

"Extraordinary economic circumstances merit extraordinary measures," Mukherjee told a session of parliament.

"Employment generation schemes have to be expanded and social security nets have to be strengthened to protect the vulnerable sections of our society."

In Europe, Ukraine suffered a fresh blow on Monday when international ratings agency Standard and Poor's warned of a possible credit rating downgrade as the ex-Soviet republic struggled to get International Monetary Fund credit.

And Russia disclosed that its industrial production plunged by 16.0 percent in January compared with January 2008. Russian officials have already warned that the economy will record a contraction in 2009.

There was more fallout from the crisis in Japan where hundreds of laid-off temporary workers protested and in Britain where German automaker BMW said it would shed 850 workers at a plant in England who help make the Mini car.

BMW said nearly a fifth of workers at its plant in Cowley, near London, would be affected by the downsizing starting on March 2 to coincide with a reduction in the working week to five days from seven.

"While Mini has been weathering the economic downturn, it is not immune from the challenges of the current situation," BMW said in a statement.

A trade union official said Dutch truckmaker DAF will slash its workforce in half at its Westerlo factory in northern Belgium, cutting 873 jobs.

In the United States, where financial markets were closed for a public holiday, President Barack Obama was preparing to sign a new massive economic stimulus plan on Tuesday.

Obama has said his 787-billion-dollar stimulus package, combining public works spending and tax cuts, is the only alternative to catastrophe.

Analysts also expected the US administration to announce a new plan to ease home foreclosures and to offer further details about a bank rescue plan announced last week.

An administration official said Obama is to set up a task force to steer the restructuring of the crippled US auto industry instead of relying on just one "car czar."

As two giant automakers prepare to unveil painful recovery plans to the government on Tuesday, the official said the task force would be headed by Treasury Secretary Timothy Geithner and White House economic advisor Lawrence Summers.

Anxiety high as US bank rescue plan in limbo

2009-02-17T09:10:00.000+07:00

Financial market angst remains high over the lack of a clear strategy to rescue the US banking system under the plan unveiled by the administration of President Barack Obama, analysts say.

Fixing the banking system will be a critical element of any economic recovery by restoring health to the sector and getting credit flowing again.

But Treasury Secretary Timothy Geithner omitted key details in unveiling the plan last week, notably how a proposed public-private partnership would absorb the toxic assets on bank balance sheets, and how a so-called "stress test" for the major financial institutions would work.

"It remains unclear how banks with capital shortfalls will be treated and how much of the plan will be voluntary," said Alec Phillips, analyst at Goldman Sachs.

But Phillips added that "once these details are cleared up, the plan is likely to represent the most important step to date in strengthening the banking system."

Geithner's plan calls for a public-private fund aimed at soaking up toxic assets clogging the financial system, starting with at least 500 billion dollars. It also included new efforts to boost consumer lending, limit home foreclosures and provide new capital for banks.

Some analysts say the new plan aims to identify the weakest banks and either save them through additional capital injections or allow them to be taken over by regulators.

Gerard Cassidy, analyst at RBC Capital Markets, said the plan needs to be tough in weeding out banks that are not viable.

"US regulators need to move in and close down insolvent banks, regardless of size," he said. "The banks are seized, the deposits are sold along with any good assets, and bad assets are transferred" to an authority, to be liquidated.

Nobel laureate economist Paul Krugman said the stress test may help the administration intervene with big banks in the same manner it has been doing with smaller banks in trouble.

"The problem is not toxic assets," he said, referring to risky real estate-related assets being held by banks.

"The problem is that financial institutions have lost a lot of money and many of the big ones, if they are not actually insolvent, are very close."

Krugman said the "stress test" may reveal that "five or maybe seven of these institutions are actually not viable," and thus could be put into government receivership, noting that this is the same process used for smaller banks that fail.

Michael Jones, chief investment officer at Riverfront Investment Group, said the administration must choose between the "punitive" solution of taking over the troubled banks and bad assets or "generous" guarantees for the banks to allow time for beaten-down mortgage assets to recover.

Any effort to find a middle ground, Jones said, could delay a recovery by propping up "zombie banks" that "undermine the profitability of other firms."

Some analysts say the administration may be forced to nationalize key banks despite Geithner's insistence that the sector remain in private hands.

"The US banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it," says Nouriel Roubini, a New York University economist who predicted a major crisis two years ago.

"Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end."

Michael Gregory, economist at BMO Capital Markets, says the administration needs additional time to develop a credible plan.

"Given the enormity and complexity of the US banking crisis, it was probably unrealistic to expect too much detail at this early stage of the new administration," Gregory said.

"Geithner was giving a roadmap, but the market was impatiently asking 'Are we there yet?'

"And, there might be another reason for the disappointment -- the simple realization that time and options may be running out for the banking system to be saved -- last resort: nationalization -- and economic depression averted."

Great Small-Business Snub

2009-02-17T09:08:00.000+07:00

As the U.S. Congress mulls a nearly $1 trillion stimulus package, entrepreneur Scott Gingold is fuming.

"It's about time that [Congress] stops paying small businesses mere lip service," says Gingold, founder of Powerfeedback, a market research firm in Easton, Pa. "I'm just disgusted by what is going on right now, and I'm not alone."

The Senate put its $827 billion to a final vote on Tuesday, Feb. 10, at which point it will try to reconcile that plan with the House's $819 billion version. With any luck, a new law will be on the books in the next month or so.

Meanwhile, small fry cling by their fingernails, even as they collectively generate more than half of the country's GDP. Gingold recently surveyed 3,000 small-business owners and asked what they needed to survive the economic downturn. The overwhelming No. 1 answer--and something, Gingold says, the stimulus package doesn't address nearly enough--was credit."They're not looking for any type of exotic loan that wasn't available in the past," says Gingold. "They're not looking for a handout. They just want credit lines with fair interest rates and payback schedules, but that's something that has dried up during this crisis, and it's starving our small businesses."

Scott Baxter would agree. Serial entrepreneur and founder of SA Baxter, high-end maker of architectural hardware such as door knobs and lights in New York's Hudson Valley, Baxter has managed to clock double-digit sales growth during the recession. Still, he says, there is a lot of pain out there that the stimulus doesn't seem to address.

Take, he continues, all the incentive programs. Many proposals--like the one allowing companies to recoup taxes on profits earned in the last five years, rather that just in the last two years as the law stands now--tend to favor large businesses with a phalanx of lawyers to parse those loopholes, a luxury most small companies can't afford.

"By the time they're done paying their accountants and lawyers, there's not much incentive to the incentive," says Baxter. "It's simply not fair." Baxter's better solution: tax cuts. "That's something that goes straight to our bottom lines, and it doesn't take a bunch of bureaucrats to figure it all out."

Tax cuts can help but, as Gingold points out, they don't do much good if you can't tap credit markets and meet payroll in the meantime. Beyond credit, those surveyed wanted the feds to give smaller companies a fairer shot at government contracts and more input on big-picture decision making.

Politicians like to say that small business is the engine of the American economy. The stimulus bill will offer proof that they actually believe it.

Obama to set up US auto industry task force

2009-02-17T09:07:00.000+07:00

President Barack Obama is to set up a task force to steer the restructuring of the crippled US auto industry instead of relying on just one "car czar," an administration official said Monday.

As two giant automakers prepare to unveil painful recovery plans to the government on Tuesday, the official said the force would be headed by Treasury Secretary Timothy Geithner and White House economic advisor Lawrence Summers.

The administration will also bring on board Ron Bloom, a renowned restructuring expert to work at the Treasury, but the administration will not pick one single official to oversee the ailing "Big Three" auto giants.

"There will be no 'car czar,'" the White House official said, on condition of anonymity.

US automakers are coming under White House pressure to make painful choices as Tuesday's deadline looms for cap-in-hand General Motors and Chrysler to present their recovery plans.

GM and Chrysler, which are receiving 13.4 billion dollars in government loans, have to present preliminary plans to the Treasury Department outlining their steps to reduce costs and plan for the future.

The administration official said the White House expected GM and Chrysler to show immediate progress towards restructuring goals from Tuesday onwards, as it mulls the industry's future.

The final plan will serve as a basis for the Treasury's decision to call in or extend the loans is due by March 31.

The administration will analyze the restructuring plans over the next few weeks and work through them with the car giants.

The presidential task force will encompass a string of US government agencies including the departments of Treasury, labor, transportation, commerce and energy, as well as White House energy and economics officials.

Geithner will also be tasked with overseeing 17.4 billion dollars in federal bailout agreements between the automakers and the US government, under the plan.

David Axelrod, a senior Obama advisor, said on Sunday that the collapse of talks between GM and the United Auto Workers on backing the restructuring plan underlined the gravity of the situation.

"We need a thriving auto industry in this country," he said on Fox News Sunday, stressing that millions are employed by GM, Chrysler and Ford and by related suppliers.

"But as the president has said many times, that's going to involve significant restructuring of the industry so that they're looking forward and not back in producing the kind of cars that people are going to buy in the future," Axelrod said.

"And that's going to involve concessions on the part of everyone, not just the auto workers, but shareholders, creditors and, of course, the executives who run the company."

Neither GM nor Chrysler, which is also locked in tense talks with the UAW, has received approval from the union or from creditors and both have warned they may need more government help if economic conditions deteriorate.

But asked if the White House was ruling out bankruptcy for GM and Chrysler, Axelrod added: "I'm not going to prejudge anything... We'll wait and see what they have to say on Tuesday."

The two companies were brought to the brink of bankruptcy last year as auto sales collapsed amid a credit crunch and widening recession.

Analysts forecast total auto sales will come in at between 10 million and 11 million units this year, which would be the industry's worst performance since World War II after adjusting for population growth.

Ford insists it has sufficient cash reserves to survive the downturn without federal aid despite a 5.9-billion-dollar loss in the fourth quarter.

Chrysler says it needs an additional three billion dollars in loans beyond the four billion dollars approved in December, as well as concessions from creditors and the UAW.

Few surprises are expected in the submission from General Motors, which is using the plan it handed to Congress on December 2 to guide its restructuring plans, GM spokesman Tom Wilkinson told AFP.

GM has already slashed more than one million units of capacity over the past year and could cut more when it makes its preliminary submission to Treasury, he said.

The company last week announced plans to eliminate the jobs of an additional 3,400 of its 29,000 salaried employees worldwide and to offer early retirement packages to all its 62,000 hourly US workers.

Economic crisis deepening, says China's Hu

2009-02-17T09:04:00.000+07:00

The impact of the economic crisis is deepening and will hit developing nations particularly hard, Chinese President Hu Jintao warned on Monday as he embarked on the final leg of a tour of Africa.

A day after inking deals worth more than 20 million dollars in Tanzania, Hu called on rich nations to help African countries cope with the downturn before flying to Mauritius, the last stop on a four-nation trip to the continent.

"The impact of the crisis on economies around the world is still deepening and its grave consequences will be felt more in the days to come," he said in a speech at a town hall gathering in the Tanzanian capital Dar es Salaam.

"It has put developing countries in a particularly disadvantaged position Many African friends are concerned in the face of the daunting challenges of the financial crisis, their international developing partners may scale back aid, debt relief and investment in Africa.

"The developed countries should assume their responsibilities and obligations, continue to deliver their aid, debt relief commitments, maintain and increase assistance to developing countries and effectively help them maintain financial stability and economic growth," he added.

On Sunday, the Chinese president signed deals with his Tanzanian counterpart Jakaya Kikwete totaling 21.9 million dollars covering agriculture, communications and technical cooperation.

Hu arrived later Monday in Mauritius where he is to pen two agreements to finance infrastructure in the Indian Ocean island, home to the biggest Chinese diaspora in Africa, with more than 30,000 nationals of Chinese origin.

He was welcomed by his host, Prime Minister Navinchandra Ramgoolam.

On Tuesday he will meet a Mauritian government delegation led by Ramgoolam then visit a Chinese cultural centre before winding up his visit later in the day.

"During the Chinese president's visit, two deals will be signed to finance the enlargement of an airport and other infrastructure," said Suresh Seeballuck, the cabinet secretary.

China has funded several projects on the Indian Ocean island since 1972 when Mauritius switched its diplomatic allegiance from Taipei to Beijing.

"Mauritius is intensifying its efforts so that much of the Chinese investment in Africa goes through Mauritius," Finance Minister Rama Sithanen said.

Mauritius' imports from China were worth more than 300 million dollars by September 2008, while Beijing has also invested in the Indian Ocean island's textile and communication sectors.

The West has criticised China over its drive to secure natural resources from African states, including from regimes spurned by the West, and Hu has been anxious on his trip to push forward talk of investment and debt-relief.

It is often accused of giving little in return and Hu's trip to four less resource-rich African nations -- Mali, Senegal, Tanzania and Mauritius -- has been seen as a move to counter such claims.

Official Chinese figures show trade between China and Africa jumped 45 percent in 2008, with Chinese exports to the continent up 36.3 percent and its imports, mainly oil, soaring 54 percent.

Critics of China's growing role in Africa accuse Beijing of acting in a colonial fashion, focusing only on its own interests, and dealing with regimes in countries such as Sudan and Zimbabwe which are pariahs in the West.

Japan "faces worst economic crisis since WWII" as Q4 GDP plummets

2009-02-16T21:25:00.000+07:00

Japan's economy shrank at an annualised pace of 12.7 per cent in the fourth quarter of 2008 - its worst performance since 1974 - as the recession deepened, official figures showed Monday.

Asia's largest economy contracted by 3.3 per cent in the three months to December from the previous quarter as exports and factory output slumped due to the global economic crisis, the government said.

It was a third straight quarter of negative economic growth for Japan, which is in the midst of its first recession in seven years.

Exports plunged 13.9 per cent from the previous quarter as demand for Japanese cars, electronics and other goods slumped in recession-hit overseas economies.

Business investment in factories and equipment dropped 5.3 per cent as companies scrambled to reduce their costs to cope with the recession.

Household spending slipped 0.4 per cent as consumers tightened their belts following a wave of job cuts by Japanese companies.

The figures were even worse than the average analyst forecast for an annualised contraction of 11.6 per cent.

The pace of the contraction also picked up sharply compared with the three months to September, when the economy shrank 0.6 per cent from the previous quarter.

Japan’s economics minister warned shortly after the data was released that Japan faces the worst economic crisis since World War II, and that it would not be able to bounce back until the global economic climate improves.

"This is the worst ever crisis in the post-war era. There is no doubt about it," Economic and Fiscal Policy Minister Kaoru Yosano said.

"The Japanese economy, whose growth is heavily dependent on exports of automobiles, machinery, and IT equipment, was literally battered" by the global downturn, he told a news conference.

"Japan alone won't be able to recover. The economy has no border. It is our responsibility to rebuild the domestic economy for other countries."

The government will consider fresh stimulus measures to revive the economy, Yosano said.

China expresses deep concern over US trade protectionism

2009-02-16T21:24:00.000+07:00

China said on Monday it was deeply concerned over trade protectionist measures a range of countries were adopting amid the economic crisis, singling out the United States for special criticism.

Following a "Buy American" clause in the huge US economic stimulus package and an Indian ban on Chinese toys, China's commerce ministry warned it was looking to the World Trade Organisation to guard against rising protectionism.

"Some countries raised clauses to prioritise the purchase of products of their own countries in their economic stimulus packages," ministry spokesman Yao Jian told reporters.

"We express deep concern about these (measures)."

Although Yao was commenting on unnamed countries, he then spoke out when asked specifically about the "Buy American" clause in the US economic stimulus package that lawmakers in Washington passed on Friday.

"Under the current financial crisis, measures issued by all countries should not cause negative impacts, and especially they should not send out wrong messages," Yao said.

His comments came on the same day the state-run China Daily newspaper published a front-page story citing another commerce ministry official criticising the "Buy American" clause.

"Trade protectionism will rise definitely," said Mei Xinyu, a trade expert with the ministry, according to the English-language paper, which the government often uses to send messages to foreign audiences.

"The trend will last for some time."

The "Buy American" clause of the US$787-billion stimulus package requires the use of US iron, steel and manufactured goods in public works projects funded by the bill.

Mei reportedly said that as China supplied bulk goods to the rest of the world, the Asian nation could become "a victim of such protectionism".

The report in the China Daily followed a scathing weekend editorial by the state-run Xinhua news agency saying protectionism was "poison".

"History and economics have told us, facing a global financial crisis, trade protectionism is not a solution, but a poison to the solution," Xinhua said.

"Experience has shown trade protectionism can protect nothing. During the Great Depression in the 1930s, the protective measures taken by countries like the United States triggered trade wars, further hurting international trade and the world economy."

The language of the "Buy American" clause was softened to say the provision on using US products must be applied in keeping with World Trade Organisation obligations.

US President Barack Obama had also said he did not want the stimulus packages to lead to protectionist measures.

But the diluted clause has still attracted concern from various powerful interests aside from China, including Canada, the United States' biggest trading partner.

The Consumer Electronics Association (CEA) in the United States also warned on Friday that the "Buy American" clause could make the United States vulnerable to a trade war.

"The 'Buy American' provisions in the stimulus bill will signal to our trading partners around the world that the United States is returning to the bad old days of protectionism and economic nationalism," CEA president Gary Shapiro said.

China has also already expressed concern over India imposing in January a six-month ban on Chinese-made toys, and threatened WTO action over the issue.

Without mentioning the US or Indian moves, Yao said China was looking to the WTO to ensure trade protectionism did not bite too deeply.

"The Chinese side supports the WTO adopting measures to curb the spread of trade protectionism and strengthening the supervision of bailout plans by different countries," he said.

Jakarta tells civil servants to 'buy Indonesian'

2009-02-16T21:22:00.000+07:00

Indonesian civil servants will be ordered to buy locally made products for everything from clothes to movies under rules intended to boost demand amid the global economic crisis, a senior official said Monday.

"This is an effort for coping with the global financial crisis, to prevent our country from being dominated by imported products," Fauzi Aziz, director of small and medium enterprises at the industry ministry told AFP.

The new rules, which include sanctions for non-compliance, were being prepared by the industry and trade ministries on the direction of President Susilo Bambang Yudhoyono and hoped to be in force by March, he said.

Government workers would be required to buy locally made food, drinks, shoes, clothes, "accessories," and films and music, Trade Minister Mari Elka Pangestu was quoted as saying by the Jakarta Globe daily.

The trade, industry and administrative reform ministries would "join forces" to enforce the rules, Aziz said, without explaining how the country would police the shopping behaviour of its roughly four million civil servants.

Exports fell 21 per cent in December from the year before to 8.69 billion dollars, the steepest drop in seven years, the national statistics agency said earlier this month.

Indonesia's government has also revised down its economic growth forecast for the year to 4.7 per cent from an earlier 6.2 per cent.

India says good times over, warns deficit must go up

2009-02-16T21:21:00.000+07:00

India's ruling Congress party warned Monday the good economic times were over in a pre-poll mini-budget and said the fiscal deficit would have to rise sharply to fight the global slump.

The government, whose five-year mandate expires in May, said the economy had enjoyed a "dream run" over the past few years with annual growth running at an average of close to nine per cent --- "much faster than ever before."

But Acting Finance Minister Pranab Mukherjee said the worldwide economic downturn meant there was now a need for more spending to stimulate domestic growth.

The fiscal deficit will be 6.0 per cent of gross domestic product for the fiscal year to March 2009 -- more than double the government's target of 2.5 per cent.

"Extraordinary economic circumstances (call for) very extraordinary measures," Mukherjee told parliament, presenting what was tantamount to a political manifesto for general elections due in April-May.

The increased spending will have to be financed through borrowings and credit rating agencies have warned that a rise in the fiscal deficit could lead to rating downgrades and deter investors from buying Indian debt.

India's deficit position is already one of the world's worst.

"Expenditure may have to be increased substantially if we are to give the economy the stimulus it needs to cope with the global recession," Mukherjee told parliament.

He said India needed to accelerate financial policy reforms to speed growth and that the government would give the "highest priority" to the vast rural sector -- a signal of the Congress party's election priorities.

The Congress-led government owed its surprise 2004 election win to India's impoverished masses, who turfed out the Hindu nationalist Bharatiya Janata Party because they felt bypassed by an economic boom.

The full budget for the financial year 2009-10 will be presented by the party which wins power and will not come until around July. But the mini-budget, which seeks spending approval for the period until then, will form a bedrock of Congress's re-election campaign.

Mukherjee promised more interest rate subsidies for debt-burdened farmers and spending on infrastructure, education and other social development.

But the lack of any detailed new spending announcements disappointed investors and pushed India's benchmark Sensex index down by 3.09 per cent or 297.39 points to 9,337.35 points by early afternoon.

The mini-budget "was completely a non-event," said Pradeep Jain, chairman of Parsvnath Developers, a real estate group. "There was nothing for any sector."

Industry has been clamouring for more moves to aid the ailing manufacturing, construction, infrastructure, automobile and other sectors.

Half a million workers lost their jobs in the three months to December, with export-oriented sectors worst hit and an export lobby group forecasts the number of unemployed will rise to at least 1.5 million by the end of the current fiscal year.

The government expects growth to slacken this year to 7.1 per cent -- the weakest in six years.

Economists warn the economy could lose more steam next year, slowing to 5.5 per cent, still strong by anaemic world standards but not enough to lift India's millions from poverty.

"Attention is now bound to refocus on the central bank and to what extent it is prepared to cut rates further" to spur spending, said HSBC economist Robert-Prior Wandesforde, adding "some sort of action looks imminent."

China's foreign direct investment down 32.6% in January

2009-02-16T21:19:00.000+07:00

Foreign direct investment in China fell 32.6 per cent in January from a year earlier, the government said on Monday.

Investments last month by foreign enterprises, not including those by financial institutions, reached US$7.54 billion, the commerce ministry said at a briefing.

The number of newly established firms declined 48.7 per cent to 1,496, it said.

The ministry did not immediately give a reason for the decline, but it may have been a factor that the Lunar New Year, the biggest festival of the Chinese calendar, began at the end of January this year.

Last year, foreign direct investment into China rose 23.6 per cent from a year earlier to US$92.4 billion, earlier state media reports said, citing the commerce ministry.

The growth rate for the year was markedly higher than the 13.6 per cent recorded for 2007.

Thai PM says economic growth could be positive from Q3

2009-02-16T21:18:00.001+07:00

Thailand's prime minister said Monday the country's economic growth would recover and could shift to a positive trend by the third quarter of 2009 as his recent fiscal stimulus package kicks in.

Abhisit Vejjajiva also told an audience of private investors in Bangkok that the government would borrow international funds if the 116.7-billion-baht (US$3.3 billion) package did not significantly boost economic fortunes.

"I am confident that our economic growth in the third and fourth quarters this year will recover to become positive... the government's economic measures are likely to show fruitful results," Prime Minister Abhisit Vejjajiva said.

"If the world economy remains in recession we plan to borrow money," in the second half of 2009 from the World Bank, Asian Development Bank or Japan International Cooperation Agency, he added.

Domestic growth figures have not yet been announced for the fourth quarter of 2008, but Thailand's gross domestic product growth slowed to four per cent in the third quarter last year.

GDP was down from 5.3 per cent in the second quarter and six per cent in the first, prompting the National Economic and Social Development Board to revise its outlook for the year to 4.5 per cent.

Abhisit unveiled a 116.7-billion-baht (US$3.3 billion) package at the end of January aimed at combating economic gloom caused by last year's airport blockades and the world financial crisis.

The plan is a mixture of cash handouts for low earners, tax cuts, expanded free education and subsidies for transport and utilities.

But critics have called it a short-term fix to a long-term problem, and have questioned the value of handing out one-off payments of 2,000 baht to poor families and cutting taxes as global financial woes bite.

Economists call on Asia to spend its way out of gloom

2009-02-16T20:42:00.000+07:00

Asians should raid their piggy banks and go shopping if the region wants to dodge the worst fallout from the global economic crisis, but analysts doubt entrenched saving habits can be broken.

As the global slowdown has spread across the region in the past few months, the call from economists for Asia to boost sluggish consumer spending has reached a crescendo.

"I think an important outcome of this global crisis is you will see Asia finally 'get religion' of internal private consumption - the piece that was missing from the response to the financial crisis of 1997-98," Stephen Roach, chairman of Morgan Stanley Asia, said recently.

Demand for goods from South Korea and Japan is collapsing, while even China's previously unstoppable export machine is stuttering.

Chinese exports fell 2.8 per cent in December for the second consecutive month - and the largest drop in a decade.

Asian Development Bank (ADB) Institute head Masahiro Kawai said the region needed people to open their wallets.

"Asia should remain the factory of the world, but Asians have to start consuming more. Asians have to start spending more," he said.

There is little sign that stimulus packages and moves to boost spending have stifled the region's saving habits, the experts said.

"It is hard to see Asia's consumers going on some sort of splurge," said HSBC's senior Asia economist Robert Prior-Wandesforde, who is based in Singapore.

But that hasn't stopped governments across the region from trying.

In Taiwan, the government dished out shopping vouchers worth US$105 to each of the island's 23 million residents.

The government is still to release figures on whether the scheme has been successful, but Johnny Lee of President Securities in Taipei doubted it would help.

"I think most people will use the vouchers and put their own money in the banks," he said.

Similar scepticism was evident in Japan, Asia's largest economy, where the government has handed back US$22 billion, around US$130 a person, to fight the recession.

A recent opinion poll showed 44 per cent of people will use the money just to finance living expenses, followed by 18 per cent who plan to save it.

Government data showed Japan's household spending slumped 4.6 per cent in December year-on-year, the 10th consecutive month of decline, and a pattern repeated across Asia.

South Koreans are hawking jewellery - even their wedding rings in extreme cases - to get extra cash. Office staff are taking packed lunches or using the company cafeteria rather than dining out.

The justice ministry is even considering cutting fines for minor offences committed by poor people because of the economic downturn.

In Malaysia, the government has cut monthly contributions that workers must make to pensions, but there are doubts this will translate into ringing tills.

"People are cautious and they prefer to keep their cash. It will be difficult to convince people to part with their money," said Wan Suhaimi Saidi, an economist at Kenanga Investment Bank Berhad in Kuala Lumpur.

Global and local retailers are inevitably suffering.

Luxury retailer Louis Vuitton, whose growth in the region has been staggering, in December dropped plans for a massive flagship store in Tokyo.

British retailer Marks and Spencer closed it Taiwanese store last year, while in South Korea, total sales at the three leading discount outlets dropped 5.8 per cent year-on-year in December, and department store sales fell 4.5 per cent.

China has put forward some of the region's most aggressive stimulus measures, to tackle both short-term and long-term demand.

These include a huge boost to the healthcare safety net and subsidies for rural residents to buy televisions, refrigerators and mobile phones.

Despite these goodies, consumer spending during the week-long Lunar New Year holiday last month showed weaker growth than the same period last year, although sales were still up.

Prior-Wandesforde said Asians' inveterate saving habits would only be overturned if the region's governments introduced welfare systems that provided a true safety net, so people were not always terrified of having to pay for a family crisis.

Such measures would only bear fruit in the long term, so economists will have to be patient if they are hoping for Asian shoppers to mitigate the global downturn, he said.

"It is all very well the Western world saying that Asia has to increase spending, but the scale of the consumption in the West is what has got it into such significant problems," said Prior-Wandesforde.

"Asia has to be careful not to follow what happened there."

Obama targets housing fix after stimulus victory

2009-02-16T11:26:00.000+07:00

US President Barack Obama readied to head west to unveil a new strategy to arrest the epidemic of home foreclosures after his gargantuan economic stimulus plan finally cleared Congress.

Aides to the president -- who Saturday called the 787-billion-dollar package of investment and tax cuts "a major milestone on our road to recovery" -- said he would outline his housing plan in Phoenix, Arizona on Wednesday.

The day before in Denver, Colorado, Obama will sign the stimulus package into law, setting the seal on the first major legislative triumph of his young presidency.

"I think it's safe to say that things have not yet bottomed out," White House spokesman Robert Gibbs told CNN Sunday.

But US states will start getting the stimulus money "relatively quickly," he said, "so they don't have to lay off police officers or firefighters or teachers" and can begin to create jobs in alternative energy.

Meanwhile Gibbs, underlining that Obama will have signed an ambitious economic bill within just four weeks of taking office, denied that the president's promise of bipartisanship had taken a hit.

"He's going to continue to reach out to Republicans, and he's hopeful that Republicans will start to reach back," he said on CBS television.

But Republicans, chafing already at the price tag of the largest package of government spending in US history, signaled more fights ahead as Obama prepared to take on the stricken housing and financial markets.

Senator Lindsey Graham cited estimates that half a trillion dollars could be needed to fix the property sector, whose tailspin from boom to bust has crippled much of Wall Street and ignited the broader economic crisis.

After the first round of a banking bailout and now the stimulus bill, "it makes it harder for everybody here to go back to the public and say, 'Please give us more money, because we seem irresponsible'," he said on ABC News.

Senator John McCain, Obama's vanquished rival for the presidency, said on CNN: "These are the worst, most difficult challenges, foreign and domestic, perhaps we have faced certainly in our lifetimes.

"So let's start over now and sit down together."

The stimulus package won just enough support from Republican senators to clear the Senate late Friday after a party-line vote in the House of Representatives.

In his weekly radio address Saturday, Obama said the bill will "lay a new foundation for our lasting economic growth and prosperity" by saving or creating more than 3.5 million jobs and enacting investments for the long haul.

Next up is the housing market. Officials said Friday that two US banks -- JPMorgan Chase and Citigroup -- and mortgage finance giants Freddie Mac and Fannie Mae had imposed moratoriums on home foreclosures.

Treasury Secretary Timothy Geithner last week unveiled a plan that could use as much as 2.5 trillion dollars to aid banks, unfreeze consumer credit markets and stem the home mortgage crisis.

But with nearly 10,000 families a day reportedly falling into foreclosure, only a sketchy public-private investment fund was cited under Geithner's plan to buy up troubled mortgage-backed securities held by the banks.

And with just 50 billion dollars so far devoted by Geithner for foreclosure relief, many believe Obama will have to come back to Congress for more funds after his announcement in Arizona this week.

"I don't think it will be enough," Democrat Barney Frank, who chairs the House committee on financial services, told CBS Sunday.

But he added his belief that Obama has "a good set of plans coming forward to begin to reduce foreclosures."

Making his debut on the world stage, Geithner Saturday briefed fellow G7 finance ministers on his recovery strategy at emergency talks in Rome, and called for coordinated global action to forestall a repeat of the crisis.

"We will work closely with our colleagues in the G7 and the G20 to build consensus on reforms that match the scope of the problems revealed by this crisis," Geithner said, ahead of Group of 20 talks in London in April.

Singapore shares kick off week flat

2009-02-16T11:24:00.000+07:00

Singapore shares were flat in early trade Monday while investors remained cautious as finance ministers from the Group of Seven industrialised nations failed to come up with detailed actions to support the global economy.

The blue chip Straits Times Index (STI) was marginally higher, climbing 0.03 per cent, or 0.53 points to 1,706.17 within the first minutes of trade.

Some 74.5 million shares exchanged hands, with losers edging past gainers 59 to 48.

Other Asian markets were mostly lower across the board, with sentiment in Japan hurt by poor gross domestic product data.

Japan's Nikkei 225 was down 1.1 per cent, Australia's S&P/ASX 200 was off 0.7 per cent and New Zealand's NZX-50 fell 1.6 per cent.

South Korea and Taiwan were flat, up 0.16 per cent and 0.11 per cent respectively.

Japan's economy shrank at an annualised pace of 12.7 per cent in the fourth quarter of 2008 - its worst performance since 1974 - as the recession deepened, official figures showed Monday.

Japan's economy shrinks at fastest pace since 1974

2009-02-16T11:20:00.000+07:00

Wen says China confident of overcoming economic difficulty

2009-02-16T11:16:00.000+07:00

China's Prime Minister Wen Jiabao expressed confidence in his government's ability to overcome the nation's economic downturn, his cabinet said on Sunday.

"We are fully confident that we have the conditions and the capability to overcome the challenges we are facing," Wen was quoted as saying in comments posted on the government's website.

"We should fully realise the severity and uncertainty of the global financial crisis... and take firmer action."

Wen's comments came in meetings last week as he sought input from diverse sectors of society for his annual government work report to be read before the nation's parliament on March 5.

"This year's government work report should be a report that strengthens confidence and a report that implements action," Wen said.

Since announcing a four trillion yuan (585 million dollar) stimulus package to overcome the global economic downturn in November last year, Wen has consistently expressed confidence that China's economy would continue its remarkable growth.

But his nation's economy slowed dramatically at the end of 2008 as the full force of the crisis hit home, dragging growth in the world's third-largest economy to a seven-year low.

China's economy expanded by just 6.8 per cent in the final quarter, pulling the full-year growth figure down to 9.0 per cent, the National Bureau of Statistics reported last month.

Coming after 13.0 per cent growth in 2007, the figures offered the most complete picture yet of just how severely the world crisis has hit China's export-dependent economy.

More than 20 million migrant workers, the engine of the nation's economy, have already lost their jobs due to the downturn.

White House ups pressure on US automakers

2009-02-16T09:15:00.000+07:00

US automakers came under White House pressure Sunday to make painful choices as a deadline loomed this week for cap-in-hand General Motors and Chrysler to present their recovery plans to the government.

David Axelrod, a senior adviser to President Barack Obama, said the collapse of talks between GM and the United Auto Workers union underlined the gravity of the situation ahead of Tuesday's restructuring deadline.

"We need a thriving auto industry in this country," he said on Fox News Sunday, stressing that millions are employed by GM, Chrysler and Ford and by related suppliers.

"But as the president has said many times, that's going to involve significant restructuring of the industry so that they're looking forward and not back in producing the kind of cars that people are going to buy in the future," Axelrod said.

"And that's going to involve concessions on the part of everyone, not just the auto workers, but shareholders, creditors and, of course, the executives who run the company."

GM and Chrysler, which are receiving 13.4 billion dollars in government loans, have until Tuesday to present preliminary plans to the Treasury Department outlining their steps to reduce costs and plan for the future.

The final plan that will serve as a basis for the Treasury's decision to call in or extend the loans is due by March 31.

The two companies were brought to the brink of bankruptcy last year as auto sales collapsed amid a credit crunch and widening recession, but Congress responded with scepticism late last year to their recovery plans.

Ford insists it has sufficient cash reserves to survive the downturn without federal aid despite a 5.9-billion-dollar loss in the fourth quarter.

Negotiations on union backing for the restructuring at GM collapsed over the weekend after the UAW reportedly balked at management's plans to reform pensions for retired workers.

"Obviously this is a difficult situation, and everyone's going to have to continue to work toward a solution," Axelrod said in response.

Asked if the White House was ruling out bankruptcy for GM and Chrysler, he added: "I'm not going to prejudge anything... We'll wait and see what they have to say on Tuesday."

Neither GM nor Chrysler, which is also locked in tense talks with the UAW, has received approval from the union or from creditors and both have warned they may need more government help if economic conditions deteriorate.

Analysts forecast that total auto sales will come in at between 10 million and 11 million units this year, which would be the industry's worst performance since World War II after adjusting for population growth.

Chrysler said its plan will not be affected by an alliance announced last month with Italy's Fiat, which some analysts say could complicate the private automaker's efforts to persuade reluctant lawmakers to extend more aid.

"We will be able to do it on our own," said Chrysler vice chairman Jim Press, who added that despite concerns about Fiat benefiting from US government help, the alliance will "save American jobs and speed introduction of fuel-efficient cars."

"I can tell you we have accepted the fact that there really is a harsh new reality in the auto industry," Press said in a speech to the Economic Club of Chicago Thursday, detailing 32,000 jobs cuts that are in the works.

But Chrysler needs an additional three billion dollars in loans beyond the four billion dollars approved in December, as well as concessions from creditors and the UAW, Press stressed.

Few surprises are expected in the submission from General Motors, which is using the plan it handed to Congress on December 2 to guide its restructuring plans, GM spokesman Tom Wilkinson told AFP.

GM has already slashed more than one million units of capacity over the past year and could cut more when it makes its preliminary submission to Treasury, he said.

The company last week announced plans to eliminate the jobs of an additional 3,400 of its 29,000 salaried employees worldwide and to offer early retirement packages to all its 62,000 hourly US workers.

Obama heading west to promote foreclosure fight

2009-02-15T19:19:00.000+07:00

US President Barack Obama next week heads west to tout a new strategy to prevent home foreclosures after his first big win in Congress with the approval of his 787-billion-dollar economic stimulus plan.

Before travelling to Phoenix, Arizona to promote his efforts to stem the foreclosure tide, Obama will Tuesday sign into law the huge stimulus bill at a ceremony in Denver, Colorado.

"This is a major milestone on our road to recovery," Obama said of the package in his weekly radio address Saturday.

The president claimed the biggest political victory yet of his new administration, and expressed confidence his plan "will save or create more than 3.5 million jobs over the next two years, ignite spending by business and consumers alike."

The bill will "lay a new foundation for our lasting economic growth and prosperity," he said.

The Congress late Friday approved the package of tax cuts and fresh spending to salvage the broken US economy, with the Senate voting 60-38 to pass the measure after it cleared the House of Representatives by a 246-183 margin.

Also Friday, officials announced two US banks and top mortgage finance giants had imposed moratoriums on home foreclosures before Obama unveils a comprehensive plan to ease the mortgage crisis, a process set to begin at the Phoenix event on Wednesday.

JPMorgan Chase and Citigroup as well as government-controlled mortgage finance units Freddie Mac and Fanny Mae said they would freeze home foreclosures at the epicentre of global financial turmoil that has slammed the brakes on economic expansion.

Jamie Dimon, chief executive of JPMorgan Chase, said in a letter to a key Democratic lawmaker that his bank would impose a three-week foreclosure moratorium through March 6.

As an initial step to prevent foreclosures, the US Treasury this week said it would commit 50 billion dollars to the effort.

Obama's stimulus legislation, his initial effort to combat the economic meltdown since taking office on January 20, was realized after some weeks of hard-fought negotiations.

The bill allocates 120 billion dollars to infrastructure spending, including money for highways.

Nearly 20 billion dollars is allocated for renewable energy and 11 billion to modernize the US electrical grid -- steps former vice president Al Gore warmly endorsed weeks ago as a major downpayment on Obama's strategy for fighting climate change.

The bill also includes tax cuts -- expected to benefit 95 per cent of US families -- and tens of billions of dollars for extending unemployment benefits, bolstering healthcare for the least well-off and funds to help cash-strapped states avoid cuts in services like education.

A provision inserted by Senate Democrats would also prohibit cash bonuses for top executives at large companies that receive money under the government's bailout programme, US newspapers reported Saturday.

But Obama's victory was somewhat bittersweet because lawmakers only approved a compromise stimulus that was smaller than he had requested, and most Republicans rebuffed the president's appeals to join Democrats in backing it.

"This isn't Monopoly money. It's real. It adds up, and it has to be paid back, by our children and by their children," said Republican Senate Minority Leader Mitch McConnell.

Senator Lisa Murkowski of Alaska, delivering the Republican party's response to the president Saturday, said "Republicans have been supportive of a stimulus plan all along" but were skeptical about whether one of the largest US government outlays in history would create jobs.

In his radio address, Obama vowed to spend taxpayer dollars "with unprecedented accountability, responsibility, and transparency."

He said once the plan is put into action, a new website -- recovery.gov -- will allow Americans to watch where the money goes and weigh in with comments and questions.

But he cautioned the stimulus package would be the beginning rather than the end of efforts to turn the economy around because "the problems that led us into this crisis are deep and widespread.

Over the long term, the president said measures would be needed to tame the country's burgeoning federal deficit, but expressed confidence Americans would be able to overcome the hardships.

"It will take time, and it will take effort, but working together, we will turn this crisis into opportunity and emerge from our painful present into a brighter future."

Experts warn clampdown on bankers' bonuses could be counterproductive

2009-02-15T19:18:00.000+07:00

From Britain to the United States and France, political leaders are clamping down on the bankers' bonus culture they say helped cause the credit crunch -- but some experts warn this could be counterproductive.

The screw-tightening comes amid public fury at big payouts -- thousands of people have joined groups on the Facebook Internet site with names like "Bankers Are Leeches", "Impudence: The Act Of UBS Bank" and "No Ifs, No Buts -- Give Up The Bonus, RBS."

But taking too tough a line with banks could have unintended consequences for taxpayers, according to academics and insiders, who say the risks include banks losing their best staff and their share prices falling even lower.

Scenting public anger, political leaders worldwide have had harsh words for bankers who handed out hefty rewards even as the world economy started to tank.

US President Barack Obama last month branded the behaviour of Wall Street bankers "shameful" and is imposing a half-million dollar (391,000 euro) salary cap on executives at firms which have received a Treasury bailout.

British Prime Minister Gordon Brown has pledged to end the "short-term bonus culture" and backs a "clawback" system, under which bankers may have to pay back historic bonuses if it turns out they made bad decisions.

His government has announced a review of bank governance, including bonuses.

Meanwhile, French President Nicolas Sarkozy has told bank bosses to forgo 2008 bonuses as a condition of receiving state loans, while a new code of conduct for traders' salaries is being introduced.

But experts warn clamping down too hard could have some adverse effects, starting with the best bankers quitting state-owned employers in search of better bonuses at privately-owned competitors.

Peter Hahn, a fellow at Cass Business School in London and ex-senior Citigroup banker, used the example of Britain's Royal Bank of Scotland (RBS), now 68 per cent state-owned, to show how a flight of talent may work.

"If I'm Barclays or HSBC or anyone who's got by without state money, if I was a CEO I would send an order down and say 'what's RBS good at?'" Hahn told AFP. "I'd pick off all the people who aren't going to get bonuses."

David Marsden, professor of industrial relations at the London School of Economics, agreed, saying: "The big unknowns about capping relate to the ability of the capped banks to recruit and retain their star dealers and managers if other banks do not cap bonuses."

Caps at state-controlled banks could also affect the way staff take decisions there, again with implications for their de facto owners, the taxpayer.

Hahn said it was important for banks to "take the right kind of risk".

"If you're the head of a major bank and you don't get paid for risk, your incentive is just to be ridiculously conservative," he added.

"You want banks to understand and regulate risks but you want them to take risks because that funds growth in the economy."

Some argue that, when the upturn does finally come, banks which are majority state-owned may be in a downward spiral and ill-placed to capitalise on it. This would make it hard for governments to sell on their stakes and recoup their money.

"Be careful not to let your desire to punish City boys get in the way of clear thinking," former Cantor Fitzgerald trader Venetia Thompson wrote in Britain's Spectator magazine this month.

"It is the new owners of these public sector banks, the taxpayer... who will ultimately lose out.

"Their shares will continue to plummet and ultimately result in costing the government and the taxpayer even more."

Others say that, despite all the political heat and light they have attracted, bonuses are only part of a much bigger problem.

"Bonuses are important but we must not let them distract attention from reform of the whole business," Marsden said. "One has to ask also why other management control systems were not functioning properly."

Reports say Japan set to launch fresh stimulus package

2009-02-15T19:17:00.000+07:00

Japan is set to launch a fresh stimulus package as the world's second largest economy faces a sizeable economic contraction, local media reported on Sunday.

Prime Minister Aso Taro will order his ruling Liberal Democratic Party (LDP) as early as Monday to start working out details of the package, the Yomiuri Shimbun and Japan's public broadcaster NHK said.

The government will aim at submitting an extra budget to parliament in April to finance the third stimulus since the global economic crisis deepened late last year, Yomiuri said.

Some ruling party officials are calling for a major stimulus boost which should include government spending of more than 10 trillion yen (109 billion dollars), the mass-circulation daily said.

Yoshihide Suga, a senior official of the LDP and a close aid to Aso, sought massive stimulus measures, telling a television interview: "We must take action as a matter of course. We have to do something drastic."

The planned package is likely to feature public projects such as reconstruction of airports, harbours, highways and school buildings, it said.

It may also cover measures to expand Japan's environmentally friendly businesses to counter the twin threats of climate change and the economic downturn, it said.

The move comes with the government scheduled to announce figures on Monday for gross domestic product for the October-December quarter, which some analysts say could show the first double-digit contraction since the mid-1970s.

"The current economic situations are severe," Bank of Japan governor Masaaki Shirakawa told reporters after this weekend's meeting of the Group of Seven financial chiefs in Rome.

Shirakawa signalled the central bank would maintain its easy monetary policy and consider measures to tackle a credit crunch when its policymakers are to hold a regular meeting on Thursday.

In December, Aso announced a stimulus package worth 23 trillion yen, in addition to a 26.9 trillion yen package unveiled in October.

Aso has pledged that Japan will be the first developed country to move out of recession, but Economics Minister Kaoru Yosano has warned it was impossible to say when Asia's biggest economy would bottom out.

Merkel slams bonuses at bailed out banks

2009-02-15T19:16:00.000+07:00

German Chancellor Angela Merkel hit out at banks that have doled out bonuses to executives despite having received government aid to weather the global financial crisis.

"It's incomprehensible that, in several cases, banks that have benefited from the support of the state distribute huge bonuses at the same time," Merkel told Der Spiegel magazine in an interview to be published Monday.

Bank bonuses will be on the agenda at the meeting of the Group of 20 advanced and developing nations in London in April.

"In general, the bonus system, at the international level, must be more clearly linked to the durable performances of banks," the conservative Christian Democrat said in the interview released Saturday.

Vice Chancellor Frank-Walter Steinmeier, a Social Democrat who will challenge Merkel in the elections in September, also criticised bank bonuses.

"I am shocked every time with the cynicism of some executives, who lose the sense of reality," Steinmeier, who is also the foreign minister, told De Spiegel.

Josef Ackermann, the Swiss chief of Germany's biggest bank, Deutsche Bank, said in October he would forgo his annual bonus of several million euros (dollars) to show solidarity with staff in this time of financial crisis.

The economy minister at the time, Michael Glos, urged heads of other financial institutions to follow Ackermann's example.

Hong Kong's airport cargo drops 29%

2009-02-15T19:15:00.000+07:00

Air cargo through Hong Kong's airport dropped 28.9 per cent year-on-year in January, figures showed on Sunday, the latest sign of how the global economic slowdown is hitting Chinese exporters.

Cargo tonnage dropped to 210,000 tonnes, the airport authority said in a statement.

Hong Kong is one of the major hubs for exporting items made in southern China's factory belt. Imports from Japan, Europe and Southeast Asia also suffered, the statement said.

Passenger traffic actually increased year-on-year in January by 0.2 per cent to 4.0 million passengers, although the increase could have been due to the early Chinese New Year this year, a popular time for travel.

The number of visitors from North America and Europe saw a double-digit decline from the previous year.

The overall number of flights in and out of Hong Kong fell 2.0 per cent to 24,245.

"The aviation industry is a reflection of the general economic situation and the declines we are experiencing... are largely consistent with what is happening with the global economy," Stanley Hui, chief executive officer of the Airport Authority, said.

"As companies continue to keep a tight rein on their business activities and consumers on their spending, drops in air traffic figures covering passenger, cargo and aircraft movements will likely continue."

Belgium to take steps to "reassure" Fortis clients

2009-02-15T19:13:00.002+07:00

Belgium's finance minister said the government would take steps to reassure clients of troubled banking group Fortis and hold talks with BNP Paribas after shareholders rejected its breakup.

"We will take measures to completely reassure clients," Finance Minister Didier Reynders said in an interview with the daily Libre Belgique published Saturday.

"Then we will contact the two other partners. One is BNP Paribas, the other is the new board (of directors)," he said.

Reynders did not specify what type of measures the government would take, but he reaffirmed the government's desire to sell parts of the Belgian-Dutch group to the French bank.

While the Belgian government took over Fortis's banking subsidiary, "its vocation is not to stay very long," the finance minister said.

"The ideal situation is to get out of it by recovering its investment and if possible by making a profit," he said.

Fortis shareholders on Thursday rejected Dutch and Belgian moves to nationalise some assets and sell others off to BNP Paribas.

The "no" votes came despite a warning from group chief executive Jan-Michiel Hessels that Fortis was threatened with bankruptcy.

In two votes, the shareholders turned down a decision by the Netherlands to nationalise the group's Dutch assets and narrowly knocked back Belgium's decision to nationalise the Belgian affiliate Fortis Bank.

This also meant a rejection of Belgium's decision to sell on 75 per cent of its Fortis assets to BNP Paribas.

The votes were unlikely to have any immediate impact as, unless there is a new agreement between the parties, the shareholders would have to take more legal action to get the breakup move overturned.

Japan welcomes US stimulus package

2009-02-15T19:13:00.001+07:00

Japan's prime minister Saturday welcomed the approval of a US stimulus package and expressed envy at its speedy passage through Congress.

Taro Aso said he had high hopes for President Barack Obama's 787-billion-dollar package of tax cuts and fresh spending to salvage the US economy.

Aso also took the opportunity to criticise Japan's opposition parties, which control the legislative upper house and have attempted to block many stimulus measures proposed by the ruling party proposed.

"It has been our great interest to see the United States offers a good policy package and see it becomes effective. I am somewhat hopeful that this will lead to good things," he told reporters.

"I envy the speediness of the US legislature, compared to Japan, where we cannot even start an extra budget."

The budget was enacted, but cannot be executed until other bills are passed.

ECB chief won't rule out special monetary measures

2009-02-15T19:11:00.000+07:00

The head of the European Central Bank said on Saturday he would not rule out further exceptional monetary moves to ease the lending crisis afflicting the eurozone.

"I do not exclude additional non-standard actions" to ease monetary conditions in the recession-hit eurozone, Trichet told a news conference after a meeting of finance leaders from the Group of Seven rich nations.

Trichet's comment reiterated a statement he made last month when he was questioned on the possible use in the eurozone of so-called quantitative easing -- injecting cash to increase the money supply and stimulate activity.

A senior member of the bank's governing council, Axel Weber, meanwhile declined to rule out another cut in interest rates -- a measure regarded as a standard tool of monetary policy.

"I wouldn't rule out that we will continue to attempt with proactive interest rate cuts to play an active role... to help contribute to stabilise the real economy," said Weber, who is also the head of Germany's central bank.

The ECB has slashed eurozone borrowing costs from 4.25 percent last October to 2.0 percent at present.

Crisis raises risk of social unrest in Asia

2009-02-15T19:09:00.000+07:00

The global economic crisis heightens the potential for social unrest in Asia, where millions of people suddenly out of work will demand governments take swift and decisive action, analysts say.

And while the prospect of regimes being overthrown is remote at the moment, they say, it will depend also on how long and how deep the financial turmoil goes, in a region not unfamiliar with major political upheaval.

"It's impossible to predict at the moment but the historical record suggests that serious and protracted economic crises may have, in some cases, serious political impact," said Tim Huxley.

The executive director of the International Institute for Strategic Studies in Asia cited Europe's experience during the Great Depression in the 1930s which fuelled the rise of far-right political movements in the run-up to World War II.

"At the moment there's no reason to think that the present crisis will lead to major instability in any Southeast Asian country but it is simply too early to say," Huxley said.

US intelligence chief Dennis Blair last week warned that the current crisis -- the worst since the Great Depression -- could lead to "regime-threatening instability" worldwide.

John Harrison, a security analyst at Singapore's Nanyang Technological University, said that how citizens perceive the effectiveness of government responses to the meltdown is crucial.

"If the public perceives that the government response is reasonable, then they may be less likely to pursue violent means. But the opposite could also be true," Harrison said.

Extremist groups in the Philippines, Thailand and Indonesia could attempt to ride on social discontent spawned by the crisis to pursue their political agenda, he added.

Political analysts in Indonesia said the world's fourth-largest population will be vulnerable to social unrest ahead of and during parliamentary elections in April and presidential polls in July.

"If the country's economic fundamental weakens, social problems cannot be avoided especially when the crisis continues to force more companies to lay off their employees," said Bantarto Bandoro, from the University of Indonesia.

Kusnanto Anggoro, of the Jakarta-based Centre for Strategic and International Studies, said some groups could exploit economic conditions to mobilise "massive demonstrations that will cause social unrest."

Riots, triggered in part by an Asian financial crisis, led to the downfall of then-president Suharto in 1998.

In China, where the government grapples with thousands of violent protests annually, focus is on instability that could arise after millions of migrant workers who have lost their jobs in the cities return to their rural hometowns.

Beijing, always fearful of social unrest, said at least 20 million migrant workers had been left jobless so far, indicating the figure could be even higher.

The Communist Party's mouthpiece, the People's Daily, said a top national public security committee had identified jobless migrants as a key area of concern.

"The flood of unemployed migrants poses big challenges to social stability in the countryside," said Professor Ren Yuan, a labour, migration and population studies expert at Shanghai's Fudan University.

"If they cannot find work in rural areas the situation in the countryside will further deteriorate."

Of particular concern are large numbers of younger migrants whose connection to rural lifestyles has been severed, Ren said.

"If the second generation loses jobs in the city and can't find work in rural areas, and can't or don't want to become farmers, then they are left idle, which certainly increases social instability in rural areas."

In Bangladesh, analysts differed on whether the global economic crisis is a security threat.

Imtiaz Ahmed, a professor of international relations at Dhaka University, said Bangladesh's vital garment exports have remained robust despite the global downturn.

He said Islamic militancy has been the country's major security problem over the last few years, but the militants' influence is on the wane.

"Massive job losses in the coming months or years would not lead to their resurgence as the Islamic militancy in Bangladesh is the direct result of inner struggle within Islam, not any other reasons," Ahmed said.

US President Obama hails stimulus plan as "major milestone"

2009-02-15T19:08:00.000+07:00

US President Barack Obama on Saturday hailed a US$787-billion stimulus plan passed by Congress as "a major milestone on our road to recovery" and promised to sign it into law shortly.

"This is a major milestone on our road to recovery, and I want to thank the members of Congress who came together in common purpose to make it happen," Obama said in his weekly radio address.

The comments came after the US Congress late Friday approved the package of tax cuts and fresh spending to salvage the broken US economy, handing the president his biggest political victory yet.

The Senate voted 60-38 to pass the measure hours after it cleared the House of Representatives by a lopsided 246-183 margin, setting the stage for Obama to sign it into law before his self-imposed February 16 deadline.

Obama expressed confidence that the plan "will save or create more than 3.5 million jobs over the next two years, ignite spending by business and consumers alike, and lay a new foundation for our lasting economic growth and prosperity."

The legislation, a product of hard-fought negotiations this week, allocates US$120 billion to infrastructure spending, including money for highways, trains and expanding broadband Internet access.

It also features nearly US$20 billion for renewable energy and US$11 billion to modernise the US electrical grid - steps former vice president Al Gore warmly endorsed weeks ago as a major downpayment on Obama's strategy for fighting climate change.

The bill includes tax cuts - expected to benefit 95 per cent of US families - and tens of billions of dollars for extending unemployment benefits, bolstering healthcare for the least well-off and funds to help cash-strapped states avoid cuts in services like education.

A provision inserted into the bill by Senate Democrats would also prohibit cash bonuses and almost all other incentive compensation for top executives at large companies that receive money under the government's huge bailout programme, US newspapers reported Saturday.

But Obama's victory was bittersweet, as lawmakers approved a compromise stimulus plan that was smaller than the president had requested, and most Republicans rebuffed his appeals to join Democrats in backing the measure.

"This isn't Monopoly money. It's real. It adds up, and it has to be paid back, by our children and by their children," said Republican Senate Minority Leader Mitch McConnell.

Senate Democratic Majority Leader Harry Reid argued the stimulus plan would strengthen the US economy by creating millions of jobs.

In his address, the president promised to spend taxpayer dollars "with unprecedented accountability, responsibility, and transparency."

He said that once the plan is put into action, a new website - recovery.gov - will allow any American to watch where the money goes and weigh in with comments and questions.

But he cautioned that the stimulus package would be the beginning rather than the end of efforts to turn the economy around because "the problems that led us into this crisis are deep and widespread.

"For our plan to succeed, we must stabilise, repair, and reform our banking system, and get credit flowing again to families and businesses," said Obama.

"We must write and enforce new rules of the road, to stop unscrupulous speculators from undermining our economy ever again."

He also said the US government must stem the spread of foreclosures and do everything it can to help responsible homeowners stay in their homes.

Over the long term, the president said measures would be needed to tame the country's burgeoning federal deficit.

But he expressed confidence that Americans will be able to overcome the hardships.

"America, we will prove equal to this task," he said. "It will take time, and it will take effort, but working together, we will turn this crisis into opportunity and emerge from our painful present into a brighter future."