Oil prices fall in tandem with stocks

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.

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US dollar rises against euro, yen despite banking concerns

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.

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US may boost stakes, wants to keep banks private

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.

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Obama vows to halve massive budget deficit

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.

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Stocks plunge, bank plan fails to calm Wall Street

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.

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Advisers readying bankruptcy financing for US automakers

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.

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European economies agree on need for greater regulation

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.

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

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.

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39,000 lose jobs in Philippines in four months

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.

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Asian finance meeting agrees to expand crisis fund

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.

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Oil prices slip on global energy demand jitters

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.

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Euro firms against US dollar in profit taking

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.

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US stocks end lower on bank nationalisation fears

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.

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Asia shares fall on gloomy US data

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.

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US consumer prices rise 0.3% in January

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.

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Oil prices soar on surprise fall in US crude stocks

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.

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Euro rebounds on signs of help for East Europe

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.

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Asian stocks slide after Wall Street slump

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.

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

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.

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US jobless at 5 million amid recession

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."

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

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.

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New Zealand's economic gloom darkens

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.

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Japan, Switzerland sign free trade deal

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.

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Oil mixed in Asian trade

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.

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

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.

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Oil prices drop ahead of US data

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.

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US dollar gains, euro falls on European currency jitters

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.

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Fed chief says US inflation risks at bay amid global slump

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.

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Fed slashes 2009 US growth forecast, sets inflation goal

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."

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US stocks flat despite government housing plan

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.

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US housing starts, permits fall to new record lows

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.

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Obama unveils US$275b housing plan

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.

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CEOs less popular than politicians

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.

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Chinese leaders to citizens: Spend, Spend, Spend!

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.

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Oil prices sink in worries over global economy

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.

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