December 3, 2023

Stocks Slip Lower, Continuing a Trend

Stocks slipped lower on Friday, a day after the largest drop on Wall Street in nearly two months set major indexes on course for their second consecutive weekly decline.

In early trading the Standard Poor’s 500-share index was down 0.2 percent, the Dow Jones industrial average fell 0.1 percent and the Nasdaq composite was unchanged.

Investors are concerned the economic recovery is slower than they had hoped as corporate revenue growth has disappointed even as companies’ bottom-lines have hit the mark.

“We haven’t seen the revenue growth the market was anticipating,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City.

“We are unlikely to see a large-scale correction in the market right now, but it certainly is losing the momentum that took it to strong highs earlier this year,” he said.

From Wal-Mart and Gap to Macy’s and McDonald’s, chains that cater to middle- and lower-income Americans are feeling the pinch of an uneven economic recovery.

Nordstrom, the luxury department store chain, reported lower-than-expected revenue in its second quarter Thursday, prompting the company to trim its full-year sales and profit forecasts. Its shares fell 2.9 percent.

Across the Atlantic, surprisingly strong growth in France and Germany dragged the euro zone out of an 18-month recession and data showed Britain’s recovery gathering momentum.

Growth in China’s giant economy also appears to be stabilizing, and Japanese exports for July due on Monday are forecast to show the fastest growth in over three years.

“The global economy is improving and even if the Fed does taper in September they are unlikely to move in a significant fashion, so the caution is perhaps overdone,” said Chris Beauchamp, market analyst at IG.

In Europe, stock markets were generally lower, with the FTSEurofirst 300 index of blue chips 0.2 percent lower. Asian markets ended the session down, with Japan’s Nikkei off 0.8 percent, and China’s Shanghai composite 0.6 percent lower.

Expectations that the Federal Reserve would scale back its bond buying next month drove the yield on the benchmark 10-year Treasury note up to 2.78 percent in Europe, sent the dollar down 0.1 percent against a basket of currencies and the euro up to $1.3372.

“Given that the 10-year U.S. yields are headed towards 3 percent, we think the general direction is for a stronger dollar,” said Tom Levinson, FX strategist at ING.

Data on Friday showed housing starts and permits for future home construction in the United States rose less than expected in July, suggesting that higher mortgage rates could be slowing the housing market’s momentum.

United States nonfarm productivity rose in the second quarter after a surprise decline in the first one, separate data showed.

Pandora Media shares jumped 6.7 percent following a bullish call on the stock from Goldman Sachs.

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Fair Game: Bankers Are Balking at a Proposed Rule on Capital

If the rule goes into effect, it will require the nation’s largest banks, those whose parent companies have more than $700 billion in consolidated assets, to double the amount of capital they have on hand to cover losses. Under the new rule, for example, Chase Bank would have to hold capital equal to 6 percent of its assets, up from the current requirement of 3 percent. Its parent company, JPMorgan Chase, would also have to increase its capital from that level to 5 percent.

Even better, the design of the new capital requirement would be much harder for bankers to game. They did just that with other types of capital rules, such as those issued under the Basel regime, the international system devised by regulators and central bankers.

The proposal, which would raise what is known as a bank’s leverage ratio, was issued jointly by the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Office of the Comptroller of the Currency.

Naturally, the financial sector hates it.

The proposal would “make it harder for banks to lend and keep the economic recovery going,” said Tim Pawlenty, president of the Financial Services Roundtable, in a statement. Not that the banks are lending with abandon now.

Increasing capital will most likely reduce these institutions’ returns on equity, a measure that many stockholders use to judge a bank and that banks’ boards use to calculate top executives’ bonuses.

At the moment, big banks are riding high. On Friday, JPMorgan Chase said its net income for the second quarter was $6.5 billion, up 31 percent from the same period of 2012. The six largest banks will enjoy an average increase of 20 percent in earnings during the second quarter, according to analysts’ estimates.

Over the next two months, regulators will receive and weigh public comments about their proposal. You can be sure that, from now to then, the nation’s largest banks will do whatever they can to weaken it.

JUST getting the proposed capital rule out the door seems to have been tough, judging from one regulator’s public comments. As Jeremiah Norton, a director at the F.D.I.C., said in a statement on Tuesday: “It should not have been as difficult as it has been for the agencies to come together on today’s leverage-ratio proposal, which hardly seems like a seismic shift in capital requirements and represents an attempt to address one of the core causes of the financial crisis.”

But seismic it is to the nation’s biggest bankers. As soon as the proposed rule came out, their representatives began warning about the dire effects it would have on the economy.

Mr. Pawlenty, the former Minnesota governor and candidate for the Republican presidential nomination, trotted out that time-honored claim that is used to undercut so many regulations — that the higher capital rule was a bad idea because it would put American banks at a competitive disadvantage to foreign institutions that needn’t abide by it.

This, by the way, was the same argument that banks made just before the financial crisis. Back then, they were arguing that United States regulators should join their European counterparts in relying solely on the Basel II rules, and not impose additional capital requirements. The big banks liked those rules because they leaned heavily on bankers’ own, rosy risk models and allowed the institutions to compute capital based on the supposed risks in various assets.

This so-called risk-weighting approach was an abject failure. For example, the assumptions characterized the sovereign debt of Greece as risk-free, requiring that banks set aside no capital against those holdings for possible losses. The risk-weight system also determined, incorrectly, that highly rated mortgage securities fell low on the risk scale.

That’s what’s so beneficial in the leverage-ratio rule proposed last week: it allows for much less subjectivity in analyzing risks on a bank’s balance sheet. It also has the benefit of including more of a bank’s off-balance-sheet holdings — like derivatives — in the capital calculation. That helps give investors a truer picture of a bank’s financial position.

“The reason our banks, with their much larger exposure to toxic mortgage securities, fared better than their European counterparts during the crisis was that the U.S. regulators had already required them to meet a leverage ratio on top of the Basel requirements,” said Joshua Rosner, an analyst at Graham Fisher in New York. “Where other countries merely used Basel — which proved to be a loose belt — we required suspenders as well.”

If the new rule goes into effect, it will trump the heavy reliance on risk-weighting that remains central to the Basel rules. Once again, that would put United States banks in a better position than their foreign peers to survive future downturns.

“The United States has the opportunity to lead the world in bringing forward a financial system that is sounder in the long run,” said Thomas M. Hoenig, vice chairman of the F.D.I.C., in an interview last week. “With stronger capital, banks still have the ability to make loans, but if they do have losses they can absorb those losses without imploding the economy.”

THE regulators concede that increasing capital at these large and powerful institutions may increase the costs of borrowing. But they note that the societal benefits to increased capital — fewer expensive bailouts — will far outweigh the possible rise in borrowing costs.

Over the next two months, the regulators proposing this rule will no doubt encounter a lobbying buzz saw. Mr. Hoenig said he and his colleagues were bracing for that. Bankers, after all, prefer things just the way they are. They can load up on leverage to take risks and reap the rewards. But when losses abound? Well, they’re the taxpayers’ problem.

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Wholesale Inventories Fall

The Commerce Department said on Wednesday wholesale inventories dropped 0.5 percent during the month, confounding the expectations of analysts polled by Reuters, who expected an increase.

The data led many economists to cut their forecasts for economic growth in the April-June period, which was already expected to come in below the lackluster 1.8 percent annual rate posted in the first quarter. Deep federal budget cuts are holding back growth by trimming wages for government workers.

Yet despite ever-darker views of economic output around mid-year, policymakers and Wall Street economists appear confident the fiscal pain will prove transitory.

Employers also seem to see better days ahead. Data last week showed relatively robust hiring in June, raising expectations the economy was healing quickly enough for the Federal Reserve to begin paring back monetary stimulus later this year.

“While upcoming U.S. GDP data will continue to show a fairly weak picture, … the jobs market is healthier,” said Richard Gilhooly, an interest rate strategist at TD Securities in New York.

Wednesday’s data highlighted how bumpy the road to economic recovery could be this year. The decline in inventories in May was the sharpest since September 2011. The government also revised its estimate for inventories in April to show a 0.1 percent decline rather than a previously reported modest increase.

Inventories are a key component of gross domestic product changes. Economists at Macroeconomic Advisers, a respected forecasting firm, cut their estimate for second-quarter economic growth by a half point to a 0.7 percent annual rate. The firm sees a return to much stronger growth by the end of the year.

The declines in inventories during May were broad based, from long-lasting manufactured goods to groceries and farm products. The fall in durable goods stocks was the largest since December 2009.

However, sales were stronger than expected during the month, rising 1.6 percent.

Prices for U.S. government debt and stocks fell as traders awaited the minutes from the June Federal Reserve policy meeting, which will be released later on Wednesday.

In recent weeks, interest rates have been rising sharply as the Fed prepares to reduce its extraordinary monetary stimulus.

Last week, mortgage rates rose to their highest level in two years, depressing demand from potential homeowners, data from an industry group showed.

Interest rates on fixed 30-year mortgages rose for the ninth week in a row to average 4.68 percent in the week ended July 5, the Mortgage Bankers Association said. It was the highest level since July 2011 and a 10 basis point increase over the week before.

The surge in costs had been expected to push some undecided buyers into the market as they rush to lock in rates before they rise even more, but the MBA’s seasonally adjusted gauge of loan requests for home purchases fell 3.1 percent, the second straight week of declines.

Rates have been rising since early May, and the increase accelerated after comments from Fed Chairman Ben Bernanke last month that the U.S. central bank expects to wind down the pace of its quantitative easing program later this year if the economy improves as expected.

(Reporting by Jason Lange; Additional reporting by Leah Schnurr in New York; Editing by Andrea Ricci)

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Markets Wait for a Twitch Either Way in Jobs Data

The difference between a market rally and a rout on Friday could come down to a few hundredths of 1 percent.

On Friday, Wall Street will be closely watching the employment figures for June, which the Labor Department is set to report before the opening bell.

Analysts expect the economy to have added 165,000 jobs in June. But a swing of just 50,000 jobs — a few hundredths of a percent in a job market of more than 135 million people — could have broad implications.

If the economy created significantly more positions, the strong numbers would increase the odds that the Federal Reserve will begin in the coming months to taper its $85 billion in monthly bond purchases aimed at stimulating the economy. That would be a negative for stocks, which have benefited from the flood of money into the financial system.

A weak jobs figure would call into question just how vigorous the economy is and whether it is too early for the Fed to start stepping back. In the hall of mirrors that is Wall Street, investors would see that as a positive for stocks, since it might extend the central bank’s stimulus efforts.

Further complicating the market calculus, volatility will most likely be heightened on Friday. Many traders are off for the long weekend after the Independence Day holiday, so trading volumes could be thin.

“Any number between 150,000 and 175,000 is a nonevent,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “Anything over 200,000 would get people really concerned about a Fed exit, while a really weak number would force everyone to rethink if the economic recovery is going well. So no news is good news.”

The possibility of a change in Fed policy has caused recent swings in financial markets. Yields on 10-year government bonds have risen sharply, lifting mortgage rates, while stocks have sold off slightly.

On Wednesday, shares edged higher in an abbreviated trading session ahead of the holiday. The Standard Poor’s 500-stock index has risen more than 13 percent this year.

Friday’s figures could provide a clue as to whether the stock market rally continues in the second half of 2013. But even veteran economists admit the intensity of the focus on a sliver of one month’s worth of data is a bit much.

“There is double the normal focus on a number, which already gets too much of a reaction,” Mr. Harris said. “And payroll surprises of 100,000 happen every year.”

What is more, there is added uncertainty since seasonal factors make June numbers particularly hard to predict. High school and college graduates enter the work force, for example, while teachers in some cases exit for the summer. Uncertainty in the jobs survey is greatest at the beginning of the summer, the end of the summer and the New Year, Mr. Harris noted.

And this time, economists are struggling to gauge the impact of the recent budget cuts in Washington in certain sectors, like military contractors. So far, sequestration, as the process of mandatory spending cuts is known, has not had a sizable effect on the labor market, at least according to government data.

Last month, the chairman of the Fed, Ben S. Bernanke, said the central bank could begin easing back stimulus efforts later this year if the job market continued to show signs of strength, with the $85 billion monthly bond-buying program wrapping up when unemployment sinks to 7 percent. The Fed currently expects that to happen by the middle of 2014. The June unemployment rate, which is based on a separate survey from the one that calculates the change in overall payrolls, is expected to fall by 0.1 percentage point, to 7.5 percent from 7.6 percent.

“They’re always significant but Bernanke’s tying it to the 7 percent rate does ramp up the employment figures’ importance,” said Dean Maki, chief United States economist at Barclays. Mr. Maki is estimating that the economy added 150,000 jobs, slightly below consensus, but not enough to alter the Fed’s plan to begin tapering later this year, possibly as early as September.

Job creation has been slowing, however, he said. The average number of jobs created each month over the last three months — a better indicator than one month alone — totaled 155,000. That compares with a three-month average of 233,000 for December, January and February.

If the economy were to reverse course and add 250,000 jobs, and the rate fell more sharply in June, Mr. Maki said, the tapering could begin as early as late July, when Fed policy makers next meet. “We’re not in that camp,” Mr. Maki said. More likely, he said, the scaling back will be announced after the Fed meeting in mid-September, when Mr. Bernanke will hold a news conference as well, unlike the July meeting.

On Wednesday, Automatic Data Processing, which tracks private payrolls, reported an increase of 188,000 jobs in June, a bit above the 160,000 consensus and significantly stronger than in May, when A.D.P. reported a jump of 134,000 jobs. A.D.P.’s data often varies from the government figures, however, adding to the confusion on Wall Street. New claims for unemployment fell slightly last week to 343,000, the Labor Department also reported Wednesday, in line with the trend of the last four weeks.

The robust A.D.P. number prompted Ian Shepherdson, chief macroeconomist at Pantheon Macroeconomics, to lift his estimate for Friday to 175,000 jobs. But he, too, admits the Wall Street guessing game is hardly scientific. “You can have a Platonically perfect model and still get the number wrong.”

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Shares Rise Broadly After Upbeat Reports On Retailing and Jobs

Good news about hiring and spending at retail businesses helped send the stock market sharply higher on Thursday.

A pair of government reports offered investors more encouragement that the economic recovery would continue, even as Europe and Japan struggle. The Standard Poor’s 500-stock index rose 23.84 points, or 1.5 percent, to 1,636.36.

The Dow Jones industrial average rose 180.85 points, or 1.2 percent, to 15,176.08. The Nasdaq composite rose 44.94 points, or 1.3 percent, to 3,445.37.

The gains were broad. All 10 industry groups within the S. P. 500 rose, led by retailers and other consumer-discretionary companies. Gannett, the media company, rose 34 percent, the most in the S. P. 500, after it said it would buy another media company, Belo, based in Dallas.

“The underlying fundamentals of our economy are clearly doing much better,” said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Mass.

Markets have been turbulent over the last three weeks. The S. P. 500 rose 17 percent from the start of the year to May 21 when it hit a high of 1,669. The index began sliding the next day after the Federal Reserve said it would consider pulling back its support for the economy this year.

Since then, the index has fallen as low as 1,608, a trading range of 3.7 percent.

Investors have been debating when the Fed will begin slowing its bond purchases, and they have been worrying about the results. They could get a better sense on Wednesday, when the bank releases its policy statement and when the Fed’s chairman, Ben S. Bernanke, holds another news conference.

“A lot of investors are worried about the Fed,” said Robert F. Baur, chief global economist at Principal Global Investors in Des Moines. “That’s going to create a bumpy market, at least until they get some clarity on that. But we really think the U.S. is in pretty good shape.”

Mr. Baur said he thought the economic recovery would pick up speed later this year, which could help push corporate earnings and the stock market higher.

The latest positive news came early Thursday when the government said the number of Americans seeking unemployment benefits fell 12,000, to 334,000, below what economists had expected. Jim O’Sullivan, chief United States economist at High Frequency Economics, wrote in a note to clients that the government’s weekly numbers, while volatile, “continue to signal an improving labor market.”

The government also reported that retail sales increased 0.6 percent in May from April. That was up from a 0.1 percent gain in April and the fastest pace since February.

Some investors, like Anton Bayer, the chief executive of Up Capital Management in Granite Bay, Calif., say financial markets will falter when the Fed and other central banks begin to pump less money into the system. The Fed has artificially propped up the economy, he said, which is why investors are nervous about what will happen when the central bank starts buying fewer bonds every month.

“What the markets are seeing is the economic engines are not being primed,” Mr. Bayer said. “The fear is of the stimulus going away and exposing an economy that is not really chugging along. It’s the big risk.”

The 10-year Treasury note rose 22/32 to 96 15/32, with the yield dropping to 2.15 percent from 2.23 percent late Wednesday.

In Japan, the benchmark Nikkei 225 index slumped 6.4 percent as doubts grew that Prime Minister Shinzo Abe’s economic turnaround plan would succeed. The Japanese market is down 20 percent from a high reached on May 22, the definition of a bear market.

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Political Economy: The Euro Zone’s 2nd Chance to Clean Up Banks

One reason the euro zone is in such a mess is that it has not had the courage to clean up its banks. The United States gave its lenders a proper scrubbing, followed by recapitalization, in 2009. By contrast, the euro zone engaged in a series of halfhearted stress tests that missed many of the biggest banking problems, like those in Cyprus, Ireland and Spain.

In recent years, Europe has started to address these problems on a piecemeal basis. But it is still haunted by zombie banks, which are not strong enough to support an economic recovery.

The European Central Bank now has a golden opportunity to press the reset button in advance of taking on the job of banking supervisor in mid-2014. It must not flunk the cleanup.

Mario Draghi, the E.C.B. president, is alive to the opportunity and the threat. His fear is that, even if the supervisor does its job properly, there will not be a safety net for troubled banks that cannot recapitalize themselves. This is why he called on governments last week to make an explicit commitment to provide such a “backstop.”

Mr. Draghi highlighted the contrast between the U.S. stress test, in which Washington committed to plug any balance sheet holes, and the last stress test conducted by the European Banking Authority in 2011, which lacked such a commitment by governments. The U.S. test started the American economy on the road to recovery; the European one set off a new phase in the crisis.

The moral is obvious: Without a safety net, shining a light on problems can provoke panic. The supervisor may as a result be tempted to continue sweeping problems under the carpet. The euro zone’s recovery would then be further delayed, and the E.C.B.’s credibility destroyed.

So far, governments have not responded to Mr. Draghi’s request for a backstop. In the meantime, the E.C.B. and the banking authority — which are working on different aspects of the cleanup — have many issues to clarify.

First, who exactly will review the banks’ assets? The E.C.B. does not yet have the manpower to do it. So it has to rely on national supervisors. The snag is that these supervisors could have an incentive to hide problems in their banks, so the cost of bailing them out is borne by the euro zone as a whole.

Mr. Draghi’s answer is to get supervisors to cross-check the balance sheets of banks in other countries — and to reinforce the audit’s independence by involving private-sector assessors. The latter suggestion originally provoked unhappiness in France. But at a recent dinner with central bank governors, Mr. Draghi pushed his solution through.

That still leaves the question of whether the E.C.B. can conduct a sufficiently in-depth review given that it wants to finish the whole process by next spring. It needs to figure out how likely loans are to turn sour and whether banks have taken adequate provisions against that possibility. About 140 of the euro zone’s top banks will be reviewed.

The E.C.B. should also look into whether lenders have used appropriate “risk weights” for their assets. A risk weight determines the size of the capital buffer a bank is required to hold. There is a widespread suspicion that many lenders are using artificially low weights to give the misleading impression that they are well-capitalized.

After the E.C.B. completes its review, the banking authority will conduct a stress test to check whether banks can survive a shock. This raises many other questions, on matters including how big a shock it will test; how much capital banks will need to have in this stressed scenario; and how long they will get to restock their capital if they fail the test. If the banking authority is too soft, the test will be exposed to ridicule in financial markets.

Yet another issue is whether capital shortfalls will be expressed as an absolute number — like €1 billion, or $1.3 billion — or as a percentage of risk-weighted assets. The last banking authority test plumped for the percentage method, with the disastrous consequence that many banks solved their capital problem by selling assets and stopping lending — and thus further crushing the economy. Ewald Nowotny, an E.C.B. council member, suggested to Reuters last month that this error would not be repeated.

Once all this is dealt with, the question then becomes who will provide a backstop in the event that a bank has a capital shortfall that it cannot fill itself, and its government has too much debt to help out.

One option would be for the European Stability Mechanism, the zone’s bailout fund, to inject capital directly into banks. But Germany seems to have rejected this.

The main alternative is that the stability mechanism should lend money to national governments, which could then inject it into their banks. That is what happened last year when Spain’s lenders got into trouble.

The snag is that this would add to the government’s deficit and debt. A partial workaround could be for the European Commission to ignore any capital injections when it determines whether governments are doing enough to cut their deficits. Without such forbearance, the countries could be forced into another round of growth-pummeling austerity measures.

With so many issues to resolve, there is a risk that Europe’s megabank cleanup will either be another damp squib or even create more damage. Having wasted five years failing to address the problem properly, the euro zone must make sure this does not happen.

Hugo Dixon is editor at large of Reuters News.

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Home Prices Rise, Producing a Buying Mood

The latest sign emerged Tuesday as the Standard Poor’s Case-Shiller home price index posted the biggest gains in seven years. Housing prices rose in every one of the 20 cities tracked, continuing a trend that began three months ago. Similar strength has appeared in new and existing home sales and in building permits, as rising home prices are encouraging construction firms to accelerate building and hiring.

The broad-based housing improvements appear to be buoying consumer confidence and spending, countering fears earlier this year that many consumers would pull back in response to government austerity measures.

In January, the two-year-old payroll tax holiday ended, stripping about $700 from the average household’s annual income, according to the nonpartisan Tax Policy Center. Federal government spending cuts that started in March are also serving as a drag on economic growth, economists say. And some recent data on other parts of the economy, like manufacturing and exports, have also disappointed.

Yet consumer confidence reached a five-year high in May, according to a Conference Board report also released on Tuesday, with big improvements in Americans’ views about both the current economy and future economic conditions. Consumer spending has also been strikingly resilient so far this year, given the tax hikes.

“Five years after the start of the financial crisis in earnest, and four years and a week’s time from the beginning of the economic recovery, we’re finally starting to get more of a pickup,” said John Ryding, chief economist at RDQ Economics. “It’s been a very drawn-out process, but you have to remember what we’ve been digging our way out of.”

The recent decline in gas prices is probably helping, as are increases in the stock market even though only about half of Americans own any equities. Perhaps most important, economists say, the growth in the value of the existing housing stock means that homeowners around the country are finally feeling richer, and that so-called wealth effect is probably making consumers loosen their purse strings a bit.

The positive impact of rising home values and the appreciating stock market is expected to offset at least a third of the fiscal tightening, according to Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors.

The Case-Shiller 20-city composite index rose 10.9 percent over the last year, the biggest increase since April 2006. Several cities — Charlotte, N.C.; Los Angeles; Portland, Ore.; Seattle; and Tampa, Fla. — had their largest month-over-month gains in more than seven years.

Stock markets rose on the news, with the S. P. 500-stock index up 10.46, or 0.63 percent, at 1,660.06 and the Dow up 106.29, or 0.69 percent, at 15,409.39 at the close on Tuesday. The Nasdaq was up 29.74, or 0.86 percent, at 3,488.89. The 10-year Treasury yield surged to 2.17 percent, its highest level in over a year.

The double-digit housing price increase is being driven by a confluence of factors.

For one, employers have added jobs for 31 straight months, so families are willing to start buying again. At the same time, the inventory of homes available on the market remains unusually low, thanks to little new building in the last few years and the large number of homeowners who are still underwater on their mortgages, making them reluctant to sell at a cash loss.

Now there are signs that higher prices are beginning to encourage some would-be sellers to come off the sidelines and place their homes on the market. That could be healthy for the market, countering concerns that housing might become overvalued again.

“You’ve had this dynamic that has been favorable for price increases now, but it’s also favorable for supply to come back on market, so that will mean some moderation in the pace of price increases,” said Daniel Silver, an economist at JPMorgan Chase, who said that he expected home prices to continue growing but not necessarily at the double-digit rate seen in May.

Construction has been picking up, too, in response to the rise in home prices, but builders cannot bring homes to the market as quickly as buyers want them.

Victoria Shannon contributed reporting.

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Fed Stimulus Still Needed to Help Recovery, Bernanke Says

While acknowledging the risks of historically low interest rates and the Fed’s aggressive policy of buying government bonds to help stimulate the economy, Mr. Bernanke said in testimony that “a premature tightening of monetary policy could lead interest rates to rise temporarily but also would carry a substantial risk of slowing or ending the economic recovery.”

After his opening statement, however, Mr. Bernanke seemingly opened the door a bit wider to tapering down.

Under questioning by Representative Kevin Brady, a Texas Republican who chairs the Joint Economic Committee, Mr. Bernanke said the Fed could prepare to “take a step down” in the next few meetings if the outlook for the labor market improved.

“It’s dependent on the data,” he said. “If the outlook for the labor market improves, we would respond to that.”

Mr. Brady asked if the tapering could begin before Labor Day, prompting Mr. Bernanke to say, “I don’t know.”

“We are buying a certain amount of assets each month,” he continued. “We are looking for increased confidence and in steps respond to that.”

In his opening statement, Mr. Bernanke said that since last summer, “financial conditions in the euro area have improved somewhat,” helping lessen the headwinds faced by the American economy as well.

He noted that the federal government’s fiscal policy had become “significantly more restrictive,” even as the Fed had pursued a looser monetary policy. The expiration of the payroll tax reduction in January and tax increases, as well as automatic spending cuts imposed by Congress and lower military spending, will collectively “exert a substantial drag on the economy this year.”

Speculation had been rising in recent weeks that the Fed might be preparing to taper its bond purchases, which total $85 billion a month. The bond-buying program has been credited with increasing growth, but some observers worry it could create a bubble in the prices of assets like stocks.

At its most recent meeting this month, the Fed said it was “prepared to increase or reduce the pace of its asset purchases,” prompting some analysts to speculate that bond purchases might be reduced in the coming months.

“In considering whether a recalibration of the pace of its purchases is warranted,” Mr. Bernanke told the Joint Economic Committee, the Fed “will continue to assess the degree of progress made toward its objectives in light of incoming information.”

Stocks on Wall Street surged after Mr. Bernanke’s remarks but pulled back in afternoon trading.

This article has been revised to reflect the following correction:

Correction: May 22, 2013

An earlier version of this article incorrectly described the timing given by Mr. Bernanke of a potential Fed move. He said the Fed could prepare to “take a step down” in the next few meetings, not the next few weeks.

This article has been revised to reflect the following correction:

Correction: May 22, 2013

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Italy Orders Seizure of $2.35 Billion in Siena Bank Inquiry

The unusual move to seize such a large sum, and go after prominent bankers, underlined the importance of the case in Italy and the euro zone, where it has contributed to jitters about the country’s ability to rebuild the economy and survive the financial crisis.

Prosecutors said the former head of Nomura in Europe, Sadeq Sayeed, was a target of the investigation. Mr. Sayeed, who retired in 2010, denied any wrongdoing and said he had not learned of the accusations until asked about them by reporters on Tuesday. Another senior Nomura executive, Raffaele Ricci, is also a target of the inquiry, prosecutors said. Mr. Ricci could not be reached for comment.

The new moves by Italian prosecutors also intensify the pressure on Nomura, and are a sign that the authorities are not letting up in their efforts to find out whether anyone bears criminal responsibility for transactions that left Monte dei Paschi in need of a €4 billion, or $5.25 billion, bailout by the Italian government and unable to fulfill its traditional role as benefactor to the community of Siena, a small Tuscan city.

The bank, founded more than five centuries ago, is the oldest in the world and the third-largest bank in Italy. A foundation that was the bank’s main shareholder used its share of profits to help pay for services like day care, ambulances and even the Palio, the bareback horse race that is the city’s trademark.

But the scandal surrounding the bank has reverberated well beyond the medieval streets of Siena and its 55,000 people. The bank’s problems, and the questions of who was to blame, played a role in the election campaign this year that left Italy so factionalized that a new national government has still not been formed. The lack of a strong government in Italy remains a risk to the euro zone. Meanwhile, the country’s struggling banks are unable to provide enough credit to support an economic recovery that Italy badly needs.

Nomura has been sued by the new management of Monte dei Paschi for helping to design transactions that may have allowed previous managers at the bank to hide losses from regulators and shareholders.

In a statement, Nomura said that no assets had been seized yet. “We will take all appropriate steps to protect our position and will vigorously contest any suggestions of wrongdoing in this matter,” the bank said, declining to elaborate further.

The Siena prosecutor’s office said in a statement that most of the assets to be seized were collateral that Monte dei Paschi had posted with the Italian unit of Nomura in return for a loan. The operation was carried out by the Italian financial police in Siena, Rome, Milan and Bologna, as well as in the southern Italian city of Catanzaro, prosecutors said.

In addition, the authorities ordered the freezing of assets in accounts of three former executives of Monte dei Paschi who are also under investigation: €2.3 million from Giuseppe Mussari, former chairman of the bank; €9.9 million from Antonio Vigni, the former director general; and €2.2 million from Gianluca Baldassarri, the former chief financial officer. Mr. Baldassarri has been under arrest since February.

Prosecutors said Mr. Mussari, Mr. Vigni and Mr. Baldassarri were suspected of obstructing the functions of regulators and misrepresenting corporate assets, as well as other possible misdeeds. No formal charges have been filed against any of the people under investigation.

Italian news reports had previously mentioned Mr. Sayeed in connection with the case, but Tuesday marked the first time that prosecutors officially confirmed that he was a target of the investigation. Speaking by telephone from London on Tuesday, Mr. Sayeed said, “I completely and absolutely and vigorously deny any allegations,” which he said had “no basis in fact.”

This article has been revised to reflect the following correction:

Correction: April 16, 2013

A headline with an earlier version of this article misstated the amount of assets seized from Nomura. It was $2.35 billion, not $1.8 billion.

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South Korea Proposes $15.3 Billion Stimulus Budget

SEOUL — The South Korean government proposed a 17.3 trillion won stimulus Tuesday to revive slowing growth in the country.

The $15.3 billion effort would be the third-largest supplementary budget ever in South Korea. It would be exceeded, when measured as a proportion of gross domestic product, only by the efforts approved after the 1998 Asia financial crisis and the 2008 global financial turmoil.

The Ministry of Strategy and Finance said the budget would add 0.3 percentage point to growth this year and create 40,000 new jobs.

A ministry statement said the budget would be used to cover a shortfall in tax revenue, to aid small and medium-size companies and to lift the stagnant real estate market. It said it would submit the plan to Parliament on Thursday.

The ministry estimated a tax revenue shortfall of 6 trillion won because of the slower-than-expected economic recovery and another shortfall of 6 trillion won from delays in selling stakes in state-owned banks. The remaining 5.3 trillion won would be a net increase in the government’s budget.

In addition to the extra budget, which requires parliamentary approval, the ministry will use 2 trillion won in state funds that do not need to go through the assembly to stimulate the economy.

“The extra budget is aimed at finding growth momentum for South Korea’s economy,” the finance minister, Hyun Oh-seok, said in a news release.

The stimulus plan comes after a cut last month in the ministry’s forecast for South Korea’s economic growth this year. It said South Korea’s economy would expand 2.3 percent, instead of the 3 percent it had predicted earlier. The ministry said the slide in Japan’s yen had hurt exports and weakened weak consumer sentiment.

The Bank of Japan’s unprecedented monetary measures, which have driven down the yen’s value, are meant to help lift Japan’s economy out of years of deflation. But the weaker yen puts major South Korean exporters like Samsung Electronics and Hyundai Motor at a disadvantage against Japanese rivals like Sony and Toyota Motor.

The fiscal measures also come amid heightened tensions with North Korea. The increase in threats from the North has caused jitters in South Korea’s financial markets.

The stimulus plan underlines the government’s search for a quick fix to the economic slowdown. South Korea’s economy expanded 2 percent in 2012, the slowest rate in three years, because of weak global recovery and trade. The opposition, however, could use procedural tactics to slow parliamentary approval of the extra budget.

Despite the government’s calls for all-out efforts to help the economy, South Korea’s central bank has resisted lowering interest rates.

Last week, Bank of Korea kept its main interest rate unchanged at 2.75 percent for a sixth month. Governor Kim Choong-soo said the economy was on track for a slow recovery and monetary policy was “accommodative” enough to encourage borrowing and spending.

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