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Beijing Tries to Placate a Skittish Stock Market

June 25, 2013 by Leave a Comment

HONG KONG — The Chinese central bank reassured investors worried about a lingering credit crunch and declared that it has already been selectively supporting bank liquidity, as Chinese stock markets swung wildly again Tuesday after several days of volatility.

The People’s Bank of China, the central bank, eager to rein in soaring lending growth and financial risk, uncharacteristically refrained from intervening as bank-to-bank interest rates shot higher last week. But that decision generated intense nervousness as investors fretted that some lenders could buckle under higher interest rates and that tighter lending conditions could chill an already cooling economy.

The uncertainty produced wide trading swings Tuesday, with the main Chinese stock indexes dropping to their lowest levels since early 2009 before recovering most of the day’s losses near the end of trading. The Shanghai composite index, which had tumbled 5.3 percent Monday, slumped more than 5 percent again by early afternoon, only to recover almost all of those losses later on, closing down 0.2 percent. The index’s total decline since a peak early in February has been nearly 20 percent.

The Shenzhen composite index likewise reversed earlier sharp losses Tuesday. It also finished 0.2 percent lower, but it has sagged more than 15 percent since a high hit in late May. In Hong Kong, the Hang Seng Index seesawed and ultimately eked out a gain of 0.2 percent. An index measuring volatility in the Hong Kong market has risen steeply in recent weeks to its highest level in more than a year.

In Europe, markets had gained more than 1 percent by midafternoon, and Wall Street indexes were up strongly in early trading.

After China’s stock markets closed, the People’s Bank of China issued a statement apparently intended to soothe investors’ nerves and to keep up pressure on banks deemed to be carrying too much financial risk.

“In recent days, the central bank has provided liquidity support to some financial institutions that meet the demands of macro prudence,” the central bank said in a statement on its Web site. “Some banks with ample liquidity have also begun to play a stabilizing role in circulating capital into markets.”

The central bank largely appeared to have sat on the sidelines in recent weeks, but pledged Tuesday that, going forward, it would apply open market operations — buying or selling securities to manage liquidity and rates — and other methods to offset “short-term abnormal volatility, stabilize market expectations and maintain stability in monetary markets.”

The reassurances were accompanied by a warning to commercial banks to contain risk and to report promptly any “sudden major problems.” Chinese banks that follow government policies in lending practices and risk controls can expect support from the central bank if they suffer short-term capital shortfalls, the bank said. But wayward banks can expect tougher treatment, it suggested.

“For institutions that have problems in their liquidity management, corresponding measures will be taken on a case-by-case basis, while maintaining the overall stability of money markets,” it said.

“The stock markets are continuing to react to the very elevated funding costs,” said Dariusz Kowalczyk, a senior economist and strategist at Crédit Agricole in Hong Kong, referring to the recent surge in interbank lending rates. Those rates determine how costly it is for banks to borrow money from one another, often to cover short-term obligations.

The interbank rates reached a record high last Thursday, setting off concerns about the health of China’s financial system and underlining the Chinese authorities’ determination to steer lenders toward more prudent loans, even if that came at the cost of slower overall economic growth.

Interbank lending rates, which began retreating Friday, continued to do so Tuesday. The benchmark overnight lending rate, a gauge of liquidity in the financial market, stood at 5.736 percent. That was down from 6.489 percent Monday and well below the record high of 13.44 percent reached Thursday.

But with rates still well above where they had been over the past 18 months, around 3 percent, jitters over the effect on the financial system and the economy persisted Tuesday.

David Jolly contributed reporting from Paris.

Article source: http://www.nytimes.com/2013/06/26/business/global/china-stocks-tumble-for-second-straight-day.html?partner=rss&emc=rss

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Stocks Finish Flat as Investors Await a Greek Debt Deal

January 24, 2012 by Leave a Comment

Markets ended flat on Monday as few developments affected stocks except investor hopes that Greece would eventually reach a deal with private creditors on lowering its debt.

Greece’s private creditors are being asked to accept longer maturities and lower interest rates on new bonds swapped for their existing ones.

The major Wall Street stock indexes wavered little all day. The Standard Poor’s 500-stock index ended up 0.05 percent, or 0.62 points, to 1,316. The Dow Jones industrial average fell 0.09 percent, or 11.66 points, to 12,708.82. The Nasdaq composite index also lost 0.09 percent, or 2.53 points, to close at 2,784.17.

Greece, which is negotiating alongside fellow members of the euro zone and the International Monetary Fund, wants interest rates as low as 3 percent on the new bonds. But the private creditors believe that is too low, and are aiming for about 4.5 percent.

Both sides said a deal was nevertheless close, heartening investors. The euro was the main beneficiary, climbing 1.3 percent to $1.3033.

Greek officials say negotiations on the private debt write-down are continuing by phone, with no appointment yet for new face-to-face talks.

Greece was to be the main topic of discussion at Monday’s meeting in Brussels of the finance ministers for the 17 European Union members that use the euro.

In Europe, the FTSE 100 index of leading British shares closed up 0.9 percent, while the DAX in Germany rose 0.5 percent. The CAC 40 in France was also 0.5 percent higher.

Optimism that Greece would clinch a deal has brightened market sentiment this year, along with a run of successful European bond auctions and solid economic and corporate news, not least from the United States and China. Many stock indexes have risen to five-month highs, while the euro has headed back toward the $1.30 mark.

Though the Federal Reserve is expected to keep its loose monetary policy unchanged, there will be great interest in the outcome of this week’s rate-setting meeting. It will be the first time the Fed will publish its interest rate forecasts out to 2016, part of a strategy to enhance communication with financial markets.

Investors will be particularly interested to see how long policy makers expect interest rates to remain low. Previously, the Fed said it expected to keep them low until the middle of 2013.

“Most, ourselves included, expect the projections to suggest the Fed sees rates on hold well into 2014,” said Adam Cole, an analyst at RBC Capital Markets.

In the oil markets, traders were watching developments in the Persian Gulf. Iran has threatened to close the Strait of Hormuz if the United States and other countries impose more sanctions on it because of its nuclear program. Many analysts doubt that Iran could set up a blockade for long, but any supply shortages would cause supplies to tighten. Benchmark crude was up $1.25 to $99.58 a barrel on the New York Mercantile Exchange.

The Treasury’s 10-year note fell 9/32, to 99 16/32. The yield was 2.06 percent, up from 2.03 percent late Friday.

Article source: http://feeds.nytimes.com/click.phdo?i=a7ae1bd6b53f32d370b89c7611de0e16

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German Unemployment Edges Lower, Reaching 6.8%

January 3, 2012 by Leave a Comment

FRANKFURT — The German economy remained mostly immune to the malaise afflicting the rest of the euro zone in December, with data released Tuesday showing that unemployment fell slightly during the month and that the average number of jobless people for the full year was the lowest in two decades.

With nearly half a million job openings, Germany appears likely to continue to resist the downward pull of the sovereign debt crisis, at least for several months. The seasonally adjusted unemployment rate fell to 6.8 percent in December from 6.9 percent in November.

The jobless figures came after a number of recent indicators that have been better than expected, helping to drive increases in European stock indexes on Tuesday.

But economists question whether Germany, which has Europe’s largest economy, can remain unaffected by the recession spreading across the rest of the Continent. The German jobless rate contrasts with that of the euro area as a whole, at more than 10 percent.

“Germany is no island, and its economy will rock in this crisis just like any other,” Carl B. Weinberg, chief economist of High Frequency Economics, wrote in a note to clients on Tuesday.

Just how much is a matter of renewed debate, after a number of recent indicators were not quite as bad as economists expected. For example, a survey of British purchasing managers published on Tuesday by the data provider Markit Economics was better than analysts forecast, in part because of an improvement in exports.

Confidence in the euro zone has improved somewhat after the European Central Bank in December flooded banks with low-cost loans, which also helped to push down short-term borrowing costs for some countries. An improving United States economy would also help Europe, which exports many of its goods to the country.

“Uncertainty is still high,” said Eckart Tuchtfeld, an economist at Commerzbank in Frankfurt. “However, for the time being the situation does not seem to be deteriorating sharply.” As long as there is no acceleration of the sovereign debt crisis, Mr. Tuchtfeld said, “we are pretty confident it might not get as bad as people have been expecting.”

The German labor market continues to benefit from changes in 2005 that removed some job protections and put more pressure on unemployed people to look for work. The changes helped German companies become more competitive and take advantage of surging demand for industrial goods from China and other developing countries.

Rigid labor rules in other countries are among the root causes of the debt crisis, economists say. Unemployment stands at more than 18 percent in Greece and nearly 23 percent in Spain. A lack of growth and competitiveness have amplified the two countries’ debt problems.

Germany had its best year almost since reunification in 1990. The average number of unemployed workers in Germany averaged less than three million for all of 2011, a rate of 7.1 percent, the lowest level since 1991.

German companies continue to look for workers despite signs of a slowdown. The number of unfilled jobs in December was 467,000, the German Federal Employment Agency said, an increase of 87,000 from a year earlier. Almost all industries were looking for workers, especially in fields like electronics, machinery and health care.

Mr. Tuchtfeld said unemployment was likely to rise in the spring, but not drastically. Companies will probably take advantage of government subsidies that encourage them to put workers on reduced hours rather than cutting jobs. Such programs allowed German unemployment to fall during much of 2009 despite a sharp downturn.

Without adjusting for the rise in unemployment that is typical for December, the German jobless rate rose to 6.6 percent from 6.4 percent. But there were still 231,000 fewer jobless people than in December 2010.

Article source: http://www.nytimes.com/2012/01/04/business/global/german-joblessness-falls-to-lowest-level-in-two-decades.html?partner=rss&emc=rss

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6 Central Banks Act to Buy Time in Europe Crisis

December 1, 2011 by Leave a Comment

In a sign that the fallout increasingly is global, the Chinese central bank, which has sought to slow the pace of domestic growth over the last year, also moved unexpectedly but independently Wednesday to encourage new lending by allowing banks to reduce their reserves.

In Europe and the United States, where the announcement broke well ahead of stock market openings, the prospect of more cheap money to ease banks’ operations sent stock indexes soaring. A broad index of German stocks, the DAX, jumped almost 5 percent Wednesday, while the broad measure of American stocks, the Standard Poor’s 500-stock index, climbed more than 4 percent. Short-term borrowing costs also declined modestly for some European governments and banks.

But policy makers and analysts were quick to caution that the Fed’s action did not address the fundamental financial problems threatening the survival of the European currency union. At best, they said, efforts by central banks to ease financial conditions could allow the 17 European Union countries that use the euro sufficient time to agree on a plan for its preservation.

“The European sovereign debt problem will not be solved only with liquidity,” the governor of Japan’s central bank, Masaaki Shirakawa, told reporters in Tokyo. He said that he “strongly” expected Europe to “push through economic and fiscal reform.”

European leaders, increasingly concerned by a deteriorating financial picture, said Wednesday they were forming a plan to convince markets that the debts of nations like Italy and Greece were not overwhelmingly large and to set new rules to constrain borrowing by euro zone members. They pointed to a scheduled meeting in Brussels on December 8-9 as a looming deadline for those efforts.

“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union,” Olli Rehn, European commissioner for economic and monetary affairs, said Wednesday after a meeting of European finance ministers.

Politicians in Europe and the United States have seemed paralyzed for more than two years by the twin challenges of reducing debt and increasing economic growth. That has left central bankers to act alone. A JPMorgan Chase analysis of the monetary policy of major central banks found that the tendency was more toward reducing borrowing costs than at any time since the fall of 2009.

The Fed, which announced new measures to stimulate the domestic economy in August and again in September, said the move announced Wednesday was designed to ease a particular strain on the global economy: It has become increasingly difficult for foreign banks to borrow dollars, which they need to finance existing obligations and to make new loans because a significant portion of global financial transactions occur in dollars.

The Fed and the other central banks announced that they would reduce roughly by half the cost of an existing program under which banks in foreign countries can borrow dollars from their own central banks, which in turn get those dollars from the Fed. The banks also said that loans would be available until February 2013, extending a previous cutoff of August 2012.

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” said a statement released by the Fed, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.

The dollar crunch is most pronounced in Europe, because American money market funds reduced their investments in continental banks by 42 percent between the end of May and the end of October, according to Fitch Ratings. The retreat from France was particularly severe, with money funds cutting their exposure by more than two-thirds.

The lending program expansion is mostly a protective measure — by easing access to dollars now, the banks can guard against a full-fledged liquidity crisis later. So far, the Fed has just $2.4 billion in outstanding currency loans, including $522 million lent last week to the European Central Bank. By contrast, at the height of the financial crisis in November 2008, the Fed had outstanding dollar swaps with foreign banks of almost $572 billion.

The European Central Bank will next offer dollar loans to banks on Wednesday. “This is something that is very welcome,” Silvio Peruzzo, an economist at the Royal Bank of Scotland in London, wrote in an analysis. “This will not solve all deep-based funding problems which are due to the sovereign debt crisis. But there is an issue with dollar liquidity, especially with foreign currency, and this measure addresses that.”

Stephen Castle contributed reporting from Brussels, Jack Ewing from Warsaw and Hiroko Tabuchi from Tokyo.

Article source: http://feeds.nytimes.com/click.phdo?i=aaebecba830bac80cf2e6d7c0ffd409d

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Europe Attempting Stronger Response to Debt Crisis

September 26, 2011 by Leave a Comment

European officials said a plan was in the works that would enlarge the bailout fund’s borrowing power but not the amount of money that countries were contributing. The proposal was met guardedly by German officials, who are struggling to swing public opinion in favor of the more modest aid plan they agreed to in July — never mind any new initiatives.

As finance ministers and central bankers trickled back to Europe from meetings in Washington over the weekend, markets were clearly eager for a plan that would isolate Greece’s problems from the rest of the Continent and ensure that Italy and Spain do not also fall victim to the debt crisis.

Major stock indexes in Europe rose Monday, in part because of expectations that a more robust response to the problem was in the works.

A more potent bailout fund would not remove the need for other changes, like strengthening the banking system and improving decision making by the European Union, said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. But it would help, he said.

“I don’t think one measure can solve it all but it would make a significant difference in market sentiment,” said Mr. Véron, who testified last week before the U.S. Senate Banking Committee on the debt crisis.

Meanwhile, Finland appeared to be closer to resolving an impasse that had threatened to hold up deployment of the existing bailout fund. Alexander Stubb, the Finnish minister for European affairs, said the country’s Parliament was likely to approve a plan agreed to by leaders in July.

Finland is also close to resolving a dispute about its demand for collateral in return for granting more aid to Greece. The dispute illustrated how political opposition in just one of the 17 euro members can block initiatives.

“I’m very confident we will get the package through Parliament,” Mr. Stubb said by telephone. He declined to give details of how the collateral dispute would be resolved.

In Brussels, Amadeu Altafaj Tardio, a spokesman for the European Commission, confirmed that discussions were under way on methods to extend the effectiveness of the bailout fund, called the European Financial Stability Facility, or E.F.S.F.

Olli Rehn, the commissioner for economic and monetary affairs, had made clear at meetings in Washington that the euro zone was “contemplating further leveraging of the E.F.S.F.,” Mr. Altafaj Tardio said. That option has been urged by U.S. officials.

Separately, leaders tried to quash rumors that Greece and its creditors had discussed the possibility of banks’ taking a larger cut in the value of their Greek bond holdings — perhaps as much as 50 percent — to reduce the government’s onerous debt burden to a more manageable level.

Such a move remained highly controversial and was opposed by the large banks as well as the European Central Bank, which owns Greek bonds with a value estimated at as much as €60 billion, or $80.8 billion. Any Greek default would probably also require a coordinated bailout of banks with large holdings of Greek debt.

As has often been the case, European leaders seemed to have different perceptions of what was being discussed and how likely it was that the proposals would find support.

A spokesman for the German Finance Ministry, Martin Kotthaus, said in Berlin there was no need to expand the size of the bailout fund by giving it more money than already agreed. There is fear that pumping more money into the fund might threaten the credit rating of countries like France by increasing their liabilities.

But German officials did not appear to be opposed to increasing the rescue fund’s power to leverage its government guarantees. They simply wanted to avoid any discussion until Parliament votes this week on a proposal to expand the size of the fund to €780 billion. That plan was agreed to by European leaders on July 21. Some analysts have said that the fund needs to be two or three times as big to convince markets that it could handle a wider crisis.

On Monday, a senior official in the Greek Finance Ministry, responding to persistent default rumors, said no such event was imminent. And on Sunday, Evangelos Venizelos, the Greek finance minister, said in Washington that the government’s plan to exchange some existing bonds for new, longer-term securities remained on track.

The debt exchange would impose a relatively modest 21 percent loss on the face value of the affected bonds. It is regarded as a good deal for investors because they would get more solid paper in exchange. Greek creditors must still indicate their willingness to participate.

Article source: http://www.nytimes.com/2011/09/27/business/global/europe-attempting-stronger-response-to-debt-crisis.html?partner=rss&emc=rss

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Stocks Slide as Greek Talks Drag On

September 19, 2011 by Leave a Comment

The market’s attention was focused in part on a conference call between Greek officials and the so-called troika of foreign creditors — the International Monetary Fund, the European Commission and the European Central Bank — as well as further meetings among senior officials in Athens struggling to close a gaping budget gap.

But the Greek Finance Ministry tried to deflate expectations of a speedy result. The conversation lasted around two hours Monday evening before it was adjourned until Tuesday morning.

Participating in the call were the Greek finance minister, Evangelos Venizelos; the chairman of the Greek Council of Economic Advisers, George Zanias; the Finance Ministry’s secretary general, Elias Plaskovitis; and the heads of the E.C.B., the commission and the I.M.F., according to a statement from the ministry.

In Europe, market indexes fell 3 percent, the euro declined and the price of safe assets like German bonds rose as investors continued to fret about the possibility of a Greek default. In the United States, stock indexes were a little more than 1 percent lower.

Investors were retreating from what was a strong end to the previous week. The New York indexes had all gained in the five-day trading period, with the broader market up more than 5 percent, after leaders in the euro zone said they were working together to address the sovereign debt crisis.

“The market got ahead of itself,” said Alan B. Lancz, the president of Alan B. Lancz Associates. “They were expecting some news this weekend, and there was absolutely no progress at all. Investors are bailing out now and realizing maybe they made a mistake.”

Meetings of European finance ministers at the end of last week and an emergency meeting of the Greek cabinet on Sunday failed to produce any specific commitments on whether the next tranche of 8 billion euros, or $11 billion, in financial aid would be released in time to help Athens meet obligations coming due in mid-October.

Amid the crisis atmosphere, Prime Minister George Papandreou of Greece canceled a visit to the United States, saying he needed to be at home to work on the rescue package.

Some analysts now fear that given the legal complications in some euro zone countries, and the apparent reluctance of Greece to push ahead on the kind of commitments on spending, wages and privatizations being sought by its partners, Greece might soon default, triggering a domino effect on other countries like Portugal, Italy or Spain.

Those fears were compounded after the party of Chancellor Angela Merkel of Germany lost ground in a regional election in Berlin on Sunday, amid voter anger over her handling of the debt crisis.

“The background noise of the Greek debt crisis resembles a continuous alarm tone,” Rainer Guntermann and Peggy Jäger, Commerzbank analysts, said in a research note. “With few tangible results coming from the finance ministers’ meeting over the weekend and still little official indication that the Greek debt swap may go through, speculation remains high and Bunds remain in demand.”

In afternoon trading, the Standard Poor’s index of 500 stocks was down 1.3 percent, while the Dow Jones industrial average was down 1.4 percent and the Nasdaq composite index was 0.8 percent lower.

In Europe, stocks also eased their early declines by the close. The Euro Stoxx 50 index retreated 2.9 percent. The FTSE 100 shed 2 percent in London, and the DAX dropped 2.8 percent in Frankfurt.

Banking stocks were once again hard hit. Barclays, the British bank, shed 6.5 percent and BNP Paribas of France was down around 5.5 percent.

The euro weakened 0.4 percent to $1.364 and also declined against the yen.

The economic outlook was also downbeat after the secretary-general of OPEC, Abdalla Salem el-Badri, said Monday that global demand for oil was rising less than expected, Bloomberg News reported.

“We have risk aversion, profit taking and a stronger dollar on the back of the ongoing concerns both in Europe and domestically,” said Peter Cardillo, chief market economist for Rockwell Global Capital.

The price of German government bonds rose. For German 10-year bonds, the yield, which moves in the opposite direction of price, declined seven basis points to 1.80 percent. Spanish and Italian bond prices declined even as the European Central Bank was reported to be buying those securities by traders. The United States 10-year bond yield fell to 1.96 percent from 2.0 percent on Friday, and the 30-year yield was down to 3.2 percent.

The decline in yields comes before a Federal Reserve meeting Tuesday and Wednesday, when investors believe policymakers may announce new measures to promote economic growth.

Anthony Valeri, the fixed-income investment strategist for LPL Financial, said he believed investors have already priced in the expected action, making Monday’s movements in bonds “exclusively risk aversion” because of the lack of progress in Europe.

“I think the bond market priced it in last week and probably toward the end of the prior week,” Mr. Valeri said, referring to the expectation that the Fed would sell its short-term securities and buy long-term securities to further reduce rates.

Matthew Saltmarsh reported from London. Niki Kitsantonis contributed reporting from Athens.

Article source: http://www.nytimes.com/2011/09/20/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Business Confidence Slips in Germany

August 24, 2011 by Leave a Comment

The Ifo Business Climate Index, which historically has been a good predictor of German economic performance, fell to its lowest level in August since June 2010, a sign that growth could be tapering off even before the country has made up the ground it lost during the sharp recession of 2009.

In addition, industrial new orders in the euro zone also fell more than expected in June from May, the European Union said Wednesday. The drop of 0.7 percent from the previous month was the latest in a string of indicators that have prompted economists to revise down their forecasts for euro zone growth.

“The economic risks have risen significantly,” Jörg Krämer, chief economist at Commerzbank, wrote in a note. “A recession will be the outcome if the sovereign debt crisis escalates,” he wrote, though he added that he expected political leaders to take steps to contain the crisis.

The Ifo climate index, based on a survey of German companies, fell to 108.7 in August from 112.9 in July, as managers grew more pessimistic about future business prospects. Analysts had expected the index to drop to 111.

The expectations component of the index, which also measures managers’ assessment of their current business, fell the most since October 2008, just after the collapse of Lehman Brothers.

“The German economy is not immune to current worldwide turbulence,” said Hans-Werner Sinn, president of the Ifo Institute for Economic Research at the University of Munich, which conducts the survey.

Global stock markets were battered last week by fears that Europe is headed for a sharp slowdown while political leaders are still struggling with the sovereign debt crisis. However, investors shrugged off the bad news Wednesday and Europe’s main stock indexes recorded measured gains. Germany’s DAX Index was up about 1 percent at midday.

Germany’s powerful economy has been helping to counterbalance slow growth in southern Europe, but the Ifo index provides more evidence the country may not be able to play that role at least for the next few months. If business people become more pessimistic, they tend to invest less in expansion, which subtracts from growth.

On the positive side, German employment has continued to rise, which should support consumer confidence. However, citizens may decide to save more than spend if they fear another downturn, Stefan Schilbe, an economist at HSBC in Frankfurt, wrote in a note.

The Ifo data “fits into the picture of a German economy losing momentum in the second half of 2011, compared to the first six months,” Mr Schilbe wrote.

Article source: http://www.nytimes.com/2011/08/25/business/global/business-confidence-slips-in-germany.html?partner=rss&emc=rss

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Growth in Euro Zone Stalls, Slowing Debt Crisis Solution

August 16, 2011 by Leave a Comment

All of Europe’s main stock indexes lost ground after the data confirmed fears that government austerity programs are taking their toll on the European economy, undercutting efforts to contain the sovereign debt crisis.

Gross domestic product in the 17-nation euro area rose 0.2 percent in the second quarter of 2011 compared with the previous quarter, according to Eurostat, the E.U. statistics agency. Euro area growth was down from 0.8 percent in the first quarter.

G.D.P. growth in Germany, which has been the region’s economic locomotive, fell to 0.1 percent compared with the previous quarter, when the economy expanded 1.3 percent, the German Federal Statistical Office said. Analysts had expected growth of 0.5 percent.

“It now looks like growth is slowing in core countries too,” Christoph Weil, an economist at Commerzbank, wrote in a note. “This could intensify the sovereign debt crisis in so far as the readiness and ability of countries with high credit ratings to help crisis-stricken countries will drop as a result. This could trigger a downward spiral in economic growth.”

Instead, what impetus remains in the European economy came from countries like Austria, Belgium and Finland. Even Italy, with growth of 0.3 percent compared with the previous quarter, outperformed Germany in the second quarter.

German and Italian shares led a broad decline in European stocks Tuesday. Germany’s DAX index was down more than 2 percent at midday, as was the FTSE Italia index . The euro fell 0.8 cents to $1.437.

The German economic rebound since the recession of 2009, driven by exports of cars, machinery and other goods to China and other emerging markets, has helped counterbalance weak economies in southern Europe. If Germany slows, the challenges posed by the European sovereign debt crisis will become that much more daunting.

The German figures, which were seasonally adjusted, follow data released Friday that showed that the French economy, Europe’s second-largest after Germany’s, did not grow at all in the second quarter. Slower growth means that tax receipts will also grow slowly, which will make it harder for Germany and France to support countries like Italy and Spain that are finding it increasingly difficult to borrow money at interest rates they can afford.

However, slower growth might lead to lower inflation, which will give the European Central Bank more leeway to keep interest rates low and intervene in bond markets. Since last week, the bank has been buying Italian and Spanish debt on the open market to hold down yields, which had risen above 6 percent, a rate that would have eventually proved ruinous for the two countries.

The slowdown in Germany was caused by slower household consumption and construction investment, the German statistics office said. In addition, imports rose faster than exports and led to a buildup of inventories.

Analysts at Commerzbank said that a warm spring meant that construction projects in Germany had begun earlier than usual, subtracting some activity from the second quarter. Without that effect, growth for the quarter would have been 0.4 percent, they said.

The slowdown in Germany came despite an increase in the number of people employed. The statistics office said 41 million people were employed in Germany, an increase of 553,000 people, or 1.4 percent, from a year earlier, according to preliminary figures.

The slowdown was foreshadowed by results from companies like Deutsche Bank and Siemens in recent weeks that fell short of analysts’ expectations, and it reinforced the feeling that the extraordinarily fast pace of German economic growth was flattening. E.On, the largest German utility, said last week that it might need to cut as many as 11,000 jobs after experiencing its first loss in a decade.

E.On attributed the loss chiefly to the government’s decision to force some of the company’s nuclear power plants to close early, but sales declines in foreign markets like Britain and Hungary also played a role.

Greece is already in recession, while growth in Spain is slowing down more than expected this year. The Portuguese government expects the economy to contract 2.3 percent this year, compared with a previous forecast for a 2 percent decline.

However, Eurostat said the Portuguese economy was stagnant in the second quarter, an improvement over a decline of 0.6 percent in the first quarter.

The euro area trade surplus also improved slightly in June, to €900 million from €200 million in May, Eurostat said. Germany’s surplus of €9 billion remained by far the largest of any European country.

Article source: http://www.nytimes.com/2011/08/17/business/global/euro-zone-economy.html?partner=rss&emc=rss

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Stocks & Bonds: Stocks on Wall Street Post Gains

March 27, 2011 by Leave a Comment

The government said the economy grew at a 3.1 percent annual rate in the fourth quarter of 2010, slightly better than economists had expected and higher than the estimate made last month.

Technology shares rose after the business software giant Oracle reported a 78 percent increase in income late Thursday. The company, which makes database software, credited new software license sales and the benefit of three full months of revenue from Sun Microsystems, a company it acquired last year. The Dow rose 50.03 points, or 0.41 percent, to close at 12,220.59. It gained 362 points for the week, the most since a 512-point jump during the week ending July 9.

The Standard Poor’s 500-stock index rose 4.14 points, or 0.32 percent, to 1,313.80. The Nasdaq rose 6.64 points, or 0.24 percent, to 2,743.06.

All three stock indexes gained more than 2 percent for the week, helping them erase losses after the March 11 earthquake that hit Japan. The week started with a 178.01 point jump for the Dow after ATT agreed to buy T-Mobile USA for $39 billion, raising hopes for more buyouts. Better economic reports and stronger earnings followed, driving more gains.

Investors were able to set aside a long list of worries including high oil prices, problems with Japan’s nuclear reactors and fresh developments in Europe’s debt crisis. Portugal looked likely to need bailout funds from the European Union after lawmakers rejected a plan to cut the country’s debts and the government fell. Standard Poor’s lowered its credit rating on Portugal late Thursday.

Portugal’s debt troubles aren’t rattling stock investors in the United States because there’s an assumption that the European Union will come to the country’s aid, said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. “There’s really this notion that governments stand ready in Europe or elsewhere to come to the rescue,” he said.

There’s also little incentive to shift money into the safest of investments, like bonds, Mr. Ablin said. The benchmark 10-year Treasury currently pays 3.4 percent a year. Even with a recent bout of turbulence, the Dow has gained 5.6 percent this year. “In the short term, taking risk pays.”

The VIX, a measure of volatility for American stocks, fell 27 percent over the week. That’s the biggest one-week drop since August 2007.

Accenture shares rose 4.5 percent, to $54.29. The consulting firm’s quarterly earnings rose 22 percent on stronger revenue. Both its income and revenue beat analysts’ expectations.

Research In Motion, the maker of the BlackBerry mobile device, fell 11 percent. Its profit jumped, but the company forecast earnings in the current quarter that were well below what analysts had expected.

The dollar rose and Treasury prices fell after Charles I. Plosser, president of the Federal Reserve’s Philadelphia branch, said the stronger United States economy required the central bank to begin planning ways to sell Treasury bonds and raise short-term interest rates in the “not-too-distant future.”

The Treasury’s benchmark 10-year note fell 10/32, to 101 17/32, and the yield rose to 3.44 percent, from 3.40 percent late Thursday.

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