Canadian economy up 3.4 pct in Q2 on strong spending

Aug 31, 2007 - Canada's economy roared ahead for a second straight quarter on strong consumer spending, likely pushing the Bank of Canada to resume hiking interest rates as soon as the credit market turmoil subsides.

Consumers spent heavily on durable goods like cars and household appliances, making them the biggest contributor to stronger-than-expected 3.4 percent annualized economic growth in the quarter, Statistics Canada said on Friday.

A surge in oil and gas exploration lifted June gross domestic product by 0.2 percent, down from growth of 0.3 percent in May.

Analysts had expected growth to moderate to 2.8 percent in the second quarter after a 3.9 percent growth spurt in the first quarter, and they had expected zero growth in June.

"It was a barnburner performance for consumers in particular but it was a solid report through and through," said Eric Lascelles, strategist at TD Securities. "It certainly does reiterate the point that the Canadian economy is on fire."

Statscan revised its first-quarter GDP growth number upward from 3.7 percent.

The fast growth is likely to make the Bank of Canada's job a little less easy when it ponders its next interest rate announcement on Sept. 5.

After hinting in July that it would hike its key overnight lending rate for a second time, the bank has made clear that financial market liquidity problems caused by the global credit squeeze takes first priority and that higher rates can wait.

"From a domestic standpoint there is still a very compelling case that the bank's next move will be to hike rates," said Porter. "So the issue now is how long does the bank have to wait before they get back on the tightening wheel."

The bank raised its overnight rate by 25 basis points to 4.50 percent on July 10 after pausing for over a year. On Monday, Deputy Governor Pierre Duguay said the risks to economic growth have grown as a result of the credit turmoil, and the bank would take that into account when reviewing rates.

Recent inflation data have been tame, buying the central bank more time. But the fast-paced growth reinforces the bank's concern that there is excess demand in the economy, which in turn fuels inflation.

Statscan noted strength throughout the economy. Personal spending rose 1.2 percent in the quarter, and business investment and housing construction also posted healthy gains. Exports climbed after a steady first quarter but their 0.7 percent rise was outweighed by a 1.6 percent surge in imports.

Even the beleaguered manufacturing sector, reeling from job losses and a strong Canadian dollar, registered its first quarterly gain since the fourth quarter of 2005, advancing 0.3 percent.

Compared to the first-quarter of this year, Canada's economy grew 0.8 percent.

Brazil budget sees economy growing 5 pct in 2008

Aug 31, 2007 - The Brazilian government's budget proposal for 2008 forecasts the economy will expand 5 percent next year, in line with previous estimates and slightly above official expectations of about 4.5 percent growth in 2007, the Planning Ministry said on Friday.

The proposal also estimates that Brazil's benchmark IPCA consumer price index will rise 4 percent in 2008, in line with market forecasts and below the central bank's annual target of 4.5 percent inflation.

The IPCA, which the central bank uses as a guide when setting interest rates, is widely expected to rise less than 4.5 percent in 2007 as well.

The budget proposal, which will be sent to Congress for approval, estimates that the government will set aside 30.2 billion reais ($15.4 billion) next year for investments. Some 18.8 billion reais of that will go to the government's so-called growth acceleration package, a series of measures aimed at jump-starting Brazil's sluggish economy.

The budget also earmarks 62.1 billion reais for investments in 2008 in state-run enterprises such as oil giant Petrobras.

The proposal estimates the social security deficit will fall to 41.6 billion reais at the end of 2008 from a projected 45 billion reais in 2007. The social security system has long been a major drag on Brazil's public finances.

The budget also estimates that the monthly minimum wage will climb to 407.33 reais in 2008 from 380 reais at present. ($1 = 1.96 reais)

Lula Plans to Boost Brazil Spending 9.7% Next Year

Aug 31, 2007 - Brazilian President Luiz Inacio Lula da Silva plans to boost spending 9.7 percent in 2008 as faster economic growth boosts tax revenue, allowing the government to spend more on public works and social programs.

Lula proposed total spending of 389.4 billion reais ($198.9 billion) next year, compared with 354.9 billion reais authorized for this year, the Budget Ministry said today in a statement distributed in Brasilia. The proposal forecasts that revenue will rise 11 percent to 565.6 billion reais.

"The government is taking advantage of a good situation in the economy to boost spending," said Alexandre Lintz, senior economist for Latin America at BNP Paribas in Sao Paulo. "The spending increase doesn't represent a risk to the fiscal situation because the government only spends money after making sure the revenue met the target."

Lula plans to boost spending as record-low interest rates and rising demand for Brazilian commodity exports are expected to fuel economic growth and boost tax revenue. The budget proposal, based on market estimates, assumes that Brazil's economy will grow 5 percent in 2008 from an expected 4.7 percent in 2007, and that annual inflation next year will quicken to 4 percent from 3.68 percent in 2007.

"The government's first goal with this bill was to maintain fiscal policies and austerity," Budget Minister Paulo Bernardo said at a news conference in Brasilia. "The second was to consolidate the president's second-term goals of emphasizing policies in the social area and building up and improving infrastructure."

Projections

The budget deficit will drop to the equivalent of 1.1 percent of gross domestic product next year from an expected 2007 deficit of 2.2 percent, as revenue growth outpaces spending growth, the statement said. The government in April forecast that the 2008 budget deficit would fall to 1.5 percent of GDP.

"Government spending next year will be stable as a percentage of GDP and that is good news," Lintz said.

The government plans to boost social spending 17 percent next year to 73 billion reais and spending on public works, including roads and ports, 12 percent to 23 billion reais. It also plans to raise the country's minimum wage 7.2 percent to 407.33 reais from 380 reais today, the statement said. The government increased the minimum wage 8.6 percent this year.

U.S. core inflation gauge up 0.1 pct in July

Aug 31, 2007 - Core U.S. consumer prices rose by a less-than-expected 0.1 percent in July, showing stable prices that held the year-on-year rate of nonfood, nonenergy inflation to 1.9 percent for the second month in a row, the Commerce Department said on Friday.

"It doesn't seem like pricing pressures are moving out of control," said George Davis, chief technical strategist at RBC Capital Markets in Toronto.

But personal income and spending rose smartly, sending investors mixed signals about the chances for a Federal Reserve interest rate cut ahead of keenly awaited speech by Fed Chairman Ben Bernanke on Friday.

Analysts polled by Reuters were expecting the core price index to gain 0.2 percent on the month. The June month-on-month core price index gain was revised upward to a 0.2 percent gain from 0.1 percent reported previously.

In the same report, the government said in seasonally adjusted data, personal income rose by a bigger-than-expected 0.5 percent in July, marking the largest month-on-month gain since a 0.8 percent gain in March.

Personal spending rose 0.4 percent in July after an upwardly adjusted 0.2 percent increase for June. Analysts polled by Reuters were expecting both personal income and personal spending to rise 0.3 percent.

Overall prices, as measured by the government's personal consumption expenditures index, also rose 0.1 percent in July after an upwardly revised 0.2 percent gain in June.

July's 1.9 percent rise in the core PCE index, the Federal Reserve's favorite inflation gauge, was the lowest reading since a 1.9 percent rise in March 2004 and was within the Fed's normal comfort range of between one and two percent.

But market reaction to the report was muted ahead of a speech scheduled for 10 a.m. EDT (1400 GMT) by Bernanke in Jackson Hole, Wyoming on housing and monetary policy.

In federal funds futures markets, investors have priced in a 25-basis-point cut in the Fed's overnight lending rate for September. But after the data was released, the implied chance of a 50-basis point cut fell to 42 percent against 64 percent late on Thursday.

In the Commerce Department report the personal savings rate rose to 0.7 percent of disposable personal income from 0.5 percent in June.

Japan July jobless rate 3.6 pct

Aug 31, 2007 - Japan's seasonally adjusted unemployment rate fell to a nine-year low of 3.6 percent in July,against a market consensus forecast of 3.7 percent, government data showed on Friday.

It matched a low of 3.6 percent in February 1998.

Japan manufacturers' PMI up amid subprime worries

Aug 31, 2007 - Manufacturing activity in Japan picked up slightly in August, helped partly by firm exports, a survey showed on Friday, but the sector was still fragile amid worries about fall-out from U.S. credit problems.

The NTC Research/Nomura/JMMA Purchasing Managers Index (PMI), which gives an early snapshot of the health of manufacturing, edged up to a seasonally adjusted 49.6 in August, recovering from a four-year low of 49.0 in July -- but it was still a negative result for the second month in a row.

A reading above 50 suggests expansion, while a figure below points to a contraction.

Italian Producer Price Monthly Inflation In Line With Expectations

Aug 31, 2007 - Italian producer prices rose 0.4% month-on-month in July, the statistical office ISTAT revealed Friday. On a yearly basis, producer prices grew 2.1% in July. While the monthly increase was in line with economists' consensus, the annual increase came in a tad lower than the 2.2% expected. During the first seven months of the year, producer prices climbed 3.2% year-over-year.

Swiss CPI Inflation Decelerates In August

Aug 31, 2007 - Consumer prices in Switzerland grew 0.4% on an annual basis, in August, the statistical office said, Friday. Consumer prices advanced 0.7% in the previous month. Economists had predicted a 0.8% annual rise in August. On a monthly basis, consumer prices eased 0.1%, while economists were looking for a 0.2% increase. Prices tumbled a monthly 0.6%, in the last month.

In August, prices in the transport group eased 1.0%, pulled by the 3.6% decline in gasoline prices. Communication prices decreased 0.2%, due to a fall in tariffs of telephone conversations on the fixed network, while housing and energy prices slipped 0.1%. In comparison, prices of food and soft drinks gained 0.1%, while prices of other goods and services edged up 0.1%.

Prices of products of Switzerland remained stable on a monthly basis, while prices of imported products dropped 0.4%.

On an annual basis, prices of gasoline declined 4.4% in August, while prices off diesel remained unchanged. Prices of fuel oil decreased 4.9%, while the level of rents rose 2.1%.

The prices of products of the country grew 0.9% annually in August, while prices of imported products eased 0.7%.

Italian August Consumer Price Inflation In Line With Expectations

Aug 31, 2007 - Italian consumer prices rose 0.2% month-on-month in August, the statistical office ISTAT said Friday in a preliminary report. On a yearly basis, consumer prices grew 1.6% during the month.

Prices of food and non-alcoholic beverages were up 2.4% from the prior year, while clothing and footwear prices climbed 1.3%.

The harmonized consumer price index computed for EU purposes dipped 0.2% monthly, while annually the gauge was up 1.7%.

All the numbers were in line with economists' expectations.

Peru ministry ups 2007 growth view despite quake

Aug 31, 2007 - Peru's finance ministry said on Friday it raised its forecast for economic growth this year to 7.2 percent from 7 percent.

The ministry had said it might have raised the estimate to 7.5 percent but a powerful earthquake on Aug. 15 trimmed the new forecast.

"It is expected that the economy will expand 7.2 percent this year and 6.2 percent in 2008. The most dynamic sectors of the economy will be services like construction and commerce," the ministry said in a statement.

Peru, a minerals exporter, plans to spend millions of dollars to rebuild infrastructure along its central coast that was damaged in the earthquake. Peru's economy has been growing for six years.

Norway Credit Indicator Growth Rate Stable At 14.8%

Aug 31, 2007 - Norway's credit indicator C2 increased 14.8% in the twelve months to end-July, unchanged from end-June, the Statistics Norway said Friday.

Household gross domestic debt grew during the period to touch NOK1,664 billion at end-July. The twelve-month growth rate of household debt rose to 12.3% in end-July, up from the 12.0% witnessed for both May and June.

The statistical office noted that this is the first month that the growth rate has increased since last February. However, the growth in household gross debt is still larger than the growth in household money supply, which is at 8.8%.

Hungarian Q2 Investment Volumes Drop

Aug 31, 2007 - Investments in Hungary slipped 0.4% on a yearly basis, in the second quarter, the Hungarian statistical office, said Friday. Investments edged up a seasonally adjusted 0.1% on a sequential basis. The value of investments in the second quarter came in at 1025.8 billion forints.

In the second quarter, the volume of construction investments fell 8.2% on an annual basis, while investments in machines and equipment climbed 11.6%. Investments in manufacturing soared 26.4%, boosted by investments in manufacture of rubber and rubber products, electrical and optical equipment and transport equipment.

Investment volumes in the real estate, renting and business activities segments grew 6.9%, while investments in wholesale and retail trade advanced 3.3%. In comparison, the volume of investments in compulsory social security plunged 48.1%, owing to high base level in the previous year, the statistics office, observed. Investments in transport, storage and communications segment declined 8.5%, while investments in other community, social and personal service activities slumped 17.7% and electricity, gas and water supply eased 16.7%.

The value of investments in the first half of the year grew 0.2% annually to 1857.0 billion forints.

Hungarian Trade Deficit Narrows To Rev. EUR39.0 Mln In June

Aug 31, 2007 - The Hungarian trade deficit narrowed to 39.0 million euros in June from a shortfall of 51.3 million euros in the prior month, a final report from the statistical office showed Friday. The trade deficit for June was revised from 41 million euros estimated earlier.

The trade deficit totaled 474.1 million euros during January to June, revised down from 507.4 million euros initially estimated. Exports grew 17%, while imports increased 14%.

Hong Kong M1 Money Supply Falls 3.1% On Month In July

Aug 31, 2007 - Hong Kong's money supply as measured by M1 declined in July from June, as some investors in the stock market sold their shares on concerns about the subprime mortgage problem in the US, said Daniel Chan, senior investment strategist at DBS Bank.

"M1 usually reflects the performance of the stock market," Chan said. "If the market is performing well, you will see an increase in M1, which is a measure of short-term liquidity."

M1 refers to total currency in circulation, or those held by the public plus demand deposits.

Hong Kong's M1 money supply dropped by a seasonally adjusted 3.1% in July from the previous month, the Hong Kong Monetary Authority or HKMA said Friday.

Compared to the previous year, M1 money supply increased 12.1% in July.

The official data showed that the unadjusted M2 and M3 in Hong Kong dollar terms both declined by 5.5% on a month-on-month basis.

"If this trend continues, that both M2 and M3 will decline, then we might see a slowdown in the economy," Chan said.

M2 is M1 plus savings and time deposits and negotiable certificates of deposits.

M3, the broadest measure of money supply, includes M2 plus security deposits with authorized banks and negotiable certificates of deposit.

A contraction in M2 and M3 means that companies and individuals are not borrowing to fund investment and consumption, Chan said.

Total deposits with authorized financial institutions slid 2.0% in July.

Hong Kong dollar deposits dropped 5.9%, while foreign currency deposits rose 2.8%, the report said.

On a year-on-year comparison, Hong Kong dollar M2 and M3 grew by 20.2% and 20.1% respectively.

In July, total loans and advances declined 4.8%, triggered by a fall in Hong Kong dollar loans exceeding the increase in foreign currency loans. Domestic loans fell 6.0%, whereas loans outside Hong Kong grew by 2.2%.

India's Quarterly Growth Hits 9.3%

Aug 31, 2007 - India's economy accelerated in the first quarter of the fiscal year, driven by robust manufacturing and services sectors, a government report indicated Friday. The growth also came in above economists' expectation.

The Central Statistical Organization of India said that the gross domestic product- GDP surged 9.3% in the June quarter from last year, on top of a 9.1% increase in the previous quarter. This followed growth of 9.4% recorded in the year ended March 2007, marking the fastest rate of expansion in eighteen years. Analysts were looking for 8.9% growth for the June quarter.

The report said that manufacturing output rose 11.9%, while mining and electricity production expanded 3.2% and 8.3% respectively. This compared to last year's growth of 11.7%, 3.6% and 5.3% respectively.

Construction sector grew 10.7% aided by two of its key segments, cement and finished steel, which registered increases of 6.8% and 7.7% respectively.

Among the services sectors, trade, hotels, transport and communication segment rose 12.0%, while financing, insurance, real estate & business services advanced 11.0%. Railways registered solid gains as the net ton kilometers and passenger kilometers expanded 2.6% and 5.1% respectively.

In the transport and communication sectors, production of commercial vehicles expanded 6.6%, while cargo handled at major ports and at airports showed increases of 14.3% and 11.6% respectively. Passengers handled by the civil aviation increased 21.8% and the total stock of telephone connections including WLL and cellular soared 47.0% in the June quarter.

The report said that the aggregate bank deposits advanced 26.1%, while bank credits went up 25.9% over last year. Meanwhile, India's farm sector grew 3.8% in the June quarter.

Private final consumption expenditure in terms of GDP at constant prices was 58.8% compared to 60.8% a year ago. Government final consumption expenditure was estimated at 12.7%, slightly larger than 12.5% last year.

The gross fixed capital formation increased to 29.6% in the June quarter from 27.9% a year earlier, while net exports were up 18.9% from 17.8%.

The wholesale price index WPI covering all commodities rose 5.4% from last year, while the consumer price index for industrial workers -CPI-IW climbed 6.3% over the same period.

India's wholesale price index rose 3.94% in the 12 months to August 18, lower than the previous week's 4.10% due to a decline in some manufactured product prices, a separate government report said Friday.

A section of the market believe that the strong growth is unlikely to make the Reserve bank lean towards an interest rate increase, as they believe that growth will moderate in the coming quarters.

The Reserve Bank of India said on Thursday that India was on the verge of acceleration in its growth trajectory but only if accompanied by vigilance on price and financial stability. The central bank expects 8.5% growth for the current fiscal.

“For monetary policy purposes, the Reserve Bank, in its Annual Policy Statement (April 2007), placed the real GDP growth for 2007-08 at around 8.5 per cent, assuming no further escalation in international crude prices and barring domestic or external shocks,” the central bank said in a statement on Thursday.

The Reserve bank raised interest rates five times between June 2006 and March this year and has also increased banks' reserve requirements, resulting in moderation in activity of the property market, inflation and loan demand in recent months.

Finance Minister Palaniappan Chidambaram said on Friday that 9.3% GDP growth in the April-June quarter was satisfactory and the government would ensure investment and credit flows remained firm.

"Despite compulsions of a tight monetary policy, we will ensure that credit flow to the productive sectors of the economy remains strong," Chidambaram told reporters.

Philippines M3 Domestic Liquidity Rises In July

Aug 31, 2007 - Philippines M3 or domestic liquidity grew 18.7% year-on-year in July after expanding 19.4% in June, the Bangko Sentral ng Pilipinas said Friday.

On a monthly basis, the seasonally adjusted M3 grew at a slower pace of 0.7% in July after increasing 1.2% in June. In May, M3 rose 20.5 percent. The central bank data showed that the domestic liquidity slowed for the third straight month in July as an impact of monetary measures taken by the bank in May.

The central bank said that the moderate growth in the domestic liquidity in July is due to a fall in net domestic assets due to steady rise in net foreign assets. The year-on-year growth of net domestic assets dropped to 0.4% in July from 3.8% in June, while the growth of net foreign assets increased to 39.6% from 31.1% during the same period.

In July, credit extended to the public sector expanded at a slightly faster pace to 10.7% from 10.5% in June. At the same time, credit to the private sector grew to 7.2% from 6.0%.

Dutch Producer Prices Rises In July

Aug 31, 2007 - Dutch producer prices rose 3.1% on year in July, the Central Bureau of Statistics or CBS said Friday.

The increase was almost equal to the 3.2% logged in June.

Since the beginning of the year, continuous modest price rises have seen in the nation, but the trend reversed in July.

In July, prices in the petroleum processing industry dropped 3.3%.

The CBS report showed that prices in the food and drinks industry rose 10.2% in July following a 7.3% rise in June. Selling Prices rose by more than 8% in the wood industry, but this was lower than the increases recorded in previous months, the CBS said.

Spain 7 months to end-July budget surplus at 8.015 bln eur vs 9.734 bln

Aug 31, 2007 - The Spanish budget surplus narrowed to 8.015 bln eur in the seven months to end-July, or 0.77 pct of GDP, from 9.734 bln a year earlier, the Economy Ministry said in a statement.

Factory Orders Jump 3.7% In July

Aug 31, 2007 - Factory orders showed a notable increase in the month of July, according to a report released by the Department of Commerce on Friday, with a sharp rise in orders for durable goods contributing to the increase.

The report showed that factory orders increased by 3.7 percent in July following a 1.0 percent increase in June. The increase in the previous month was upwardly revised from the 0.6 percent growth originally reported.

The strong growth in factory orders was partly due to a sharp rise in durable goods orders, which rose 6.0 percent in July after rising 1.8 percent in the previous month. The increase was revised up from the 5.9 percent increase reported last week.

Strength in the transportation sector contributed to the jump in durable goods orders, with orders for transportation equipment rising by 11.0 percent in July.

The report also showed that orders for non-durable goods increased by 1.3 percent in July following a 0.2 percent increase in June.

The Commerce Department also said that shipments of manufactured goods rose 2.6 percent in July, while inventories of manufactured goods edged up 0.2 percent. Subsequently, the inventories-to-shipments ratio fell to 1.21 from 1.24 in the previous month.

Slovenian inflation falls to 3.4 pct in August, still highest in eurozone

Aug 31, 2007 - Slovenian inflation fell to an annualised 3.4 pct in August from 4.0 pct in July, but still surpassed that of its eurozone peers, according to figures released by the Slovenian Statistical Office.

Consumer prices increased by 0.2 pct on a monthly basis.

In July, they had fallen by 0.1 pct from the previous month.

The office said that the main price increases in August were seen in the food, municipal services and package holidays sectors.

Slovenia's largest union association expressed concern about inflation earlier this week and pressed the government to quickly determine the causes and take action to counter them.

The government's Institute for Macroeconomic Analysis and Development published Wednesday a study which said strong inflation was caused by higher regional prices for food and fuels.

Slovenia was the first of the former Yugoslav states to join the European Union in 2004 and the first EU newcomer to enter the eurozone in January.

It currently has the highest inflation of the 13 countries that share Europe's single currency.

Finnish Industrial Output Declines In July

Aug 31, 2007 - Finnish industrial production slipped a seasonally adjusted 0.5% on an annual basis, in July, the Statistics Finland said, Friday. Industrial output edged up 0.2% in the previous month. On a monthly basis, industrial production advanced 0.6% in July, a tad higher than the 0.5% growth in June.

In July, manufacturing output expanded 1.4%. Output in the chemical industry grew 3.3% annually, while output in the other manufacturing segment advanced 4.6% and electronic and electrical products output witnessed 3.1% growth. In contrast, energy output slipped 10.3%, pulled by an 80% slump in peat production due to the rainy weather in July, the Statistics Finland said.

The preliminary data are based on a sample comprised of roughly 1,000 of the largest establishments within their respective industries. Revised data for July will be published at 9 am on 28 September 2007 in connection with the release of industrial output data for August.

Australian July Trade Deficit Narrows More-than-expected, Retail Sales Growth Eases

Aug 31, 2007 - The Australian trade deficit narrowed more than expected in July, official data revealed Friday. Meanwhile, a separate report showed that retail sales growth slowed from the prior month.

The Australian Bureau of Statistics-ABS announced that the trade deficit narrowed to an eleven month low in July. The trade deficit declined to a seasonally adjusted 756 million Australian dollars in July from a revised shortfall of 1.73 billion Australian dollars recorded in June. The trade deficit for June was revised down from the 1.75 billion Australian dollars estimated earlier. Economists were looking for a shortfall of 1.0 billion Australian dollars for July.

Exports showed a monthly growth, while imports registered a decline in July. Exports of goods and services grew 2.0% to 18.36 billion Australian dollars. Exports amounted to 17.95 billion Australian dollars in June, revised down from the 17.96 billion Australian dollars initially estimated. Export of services dropped by 1 million Australian dollars.

Meanwhile, imports amounted to 19.11 billion Australian dollars, down 3% month-on-month. Imports declined from the 19.69 billion Australian dollars, revised from the 19.71 billion Australian dollars reported earlier. Imports of capital goods slid 342 million Australian dollars and intermediate goods imports dropped 213 million Australian dollars. Imports of consumption goods fell 22 million Australian dollars from the prior month. Services debits showed a growth of 4 million Australian dollars.

In original terms, the balance on goods and services showed a deficit of 840 million Australian dollars. Goods and services credits rose 793 million Australian dollars, while goods and services debits fell 70 million Australian dollars.

In a separate communiqué, the ABS said that retail sales growth slowed to 0.9% month-on-month in July, following a revised 1.5% growth seen in June. The growth number for June was revised up from the 1.4% initially estimated. The number came in better than the expected growth of 0.6%.

Department store sales growth accelerated to 5.7% from the 1.0% rise seen in June, while food retailing growth eased to 0.9%. On the other hand, household retailing showed a fall of 0.7% and hospitality and services revealed 0.3% decline from the prior month. All states and territories, excluding South Australia and Australian Capital Territory showed growth in retail sales. New South Wales recorded the largest increase of 1.7%.

Elsewhere, the Reserve Bank of Australia indicated that total credit provided to the private sector grew at a slower pace of 0.9% month-over-month in July, following a 1.9% growth in the prior month. The number came in weaker than the expected growth of 1.0%. On an annual basis, total credit jumped 15.4% in July.

The central bank added that M3 money supply and broad money climbed 1.2% each from the prior month. On a yearly basis, broad money surged 15.3%.

A report released on Thursday showed that the current account deficit widened to a seasonally adjusted 15.99 billion Australian dollars in the June quarter from a revised 15.54 billion Australian dollars seen in the prior quarter.

The international investment position rose 15.7 billion Australian dollars to a net liability position of 642.4 billion Australian dollars. Net foreign debt amounted to 544.1 billion Australian dollars, up 8.9 billion Australian dollars. Net foreign equity was up 6.8 billion Australian dollars to a liability of 98.4 billion Australian dollars.

Japan July industrial output -0.4 pct mth/mth

Aug 31, 2007 - Japan's industrial production fell0.4 percent in July from a month earlier, compared with a medianmarket forecast for a 0.5 percent fall.

Manufacturers' output -- the core component of production -- is expected to rise 6.8 percent in August but fall 2.5 percent in September, data from the Ministry of Economy, Trade and Industry showed on Friday.

The ministry said industrial output is in a flat trend, keeping the same assessment for the third straight month.

Japan July nationwide core CPI -0.1 pct yr/yr

Aug 31, 2007 - Japanese core consumer prices fell 0.1 percent in July from a year earlier, in line with economists' consensus forecast, government data showed on Friday.

In the Tokyo area, the core consumer price index (CPI), which excludes volatile fresh food prices, were flat in August compared with a year earlier, against the consensus forecast of a 0.1 percent decline.

Japan July all households spending -0.1 pct yr/yr

Aug 31, 2007 - Overall household spending in Japan fell 0.1 percent in July from a year earlier in price-adjusted real terms, against a median market forecast of a 0.2 percent rise.

Compared with June on a seasonally adjusted basis, spending fell 1.2 percent, government data showed on Friday.

Canada current account surplus rises to C$8.36 bln

Aug 30, 2007 - Canada's current account surplus widened in the second quarter to C$8.36 billion ($7.86 billion) as the trade surplus swelled for a third straight quarter, despite the strong Canadian dollar.

Statistics Canada said on Thursday that was up from C$6.11 billion in the first quarter, revised down from C$6.49 billion. Analysts in a Reuters poll had forecast, on average, a surplus of C$8.5 billion in the second quarter.

The surplus was built partly on the back of lower imports of machinery and equipment, which economists said did not bode well for productivity improvements in the future.

"It's a bit discouraging that Canadian businesses don't seem to be taking advantage of what is arguably almost a perfect opportunity for investing in new machinery and equipment," Toronto-Dominion Bank's deputy chief economist, Craig Alexander, said. He said the strong currency made imports cheaper, and companies could have afforded to invest because of strong profits and low borrowing costs.

"You would have thought that all of these pieces would have fallen together to drive stronger business investment in machinery and equipment," he said, noting that Canada's productivity numbers have disappointed.

The surplus in goods reached its highest level since the fourth quarter of 2005, Statscan said, with a new high in exports of industrial materials combining with shrinking imports of machinery, equipment, automotive products and consumer goods.

However, Statscan said total exports in the second quarter were virtually at the same level as in the first quarter, due to declines in the export of other goods.

The services deficit declined for the second straight quarter as receipts from U.S. travel visitors increased. But the services deficit remained close to the record high registered in the fourth quarter of 2006.

"Overall, the surplus remains at quite healthy levels, despite the lofty loonie (Canadian dollar), as strong commodity prices, especially oil, are compensating for the deterioration in Canada's competitive position," BMO Capital Markets deputy chief economist Douglas Porter said.
The figures, all seasonally adjusted, feed into the quarterly gross domestic data that will be released on Friday at 8:30 a.m. EDT (1230 GMT).

The median forecast by analysts, taken in a Reuters survey last week before the current account data was released, is for annualized growth of 2.8 percent. The 21 projections ranged from 2.4 percent to 3.4 percent.

Canada producer prices sink 0.7 percent

Aug 30, 2007 - The appreciation of the Canadian dollar and falling metals prices knocked down industrial product prices by a bigger-than-expected 0.7 percent in July from June, according to Statistics Canada data on Thursday.

Analysts in a Reuters poll had forecast, on average, a 0.5 percent decline in the price of goods at the factory gate. Prices had fallen 1.2 percent in June, Statscan said after revising that figure from 1.3 percent previously.

A jump in crude oil prices, however, pushed raw materials prices up by 3.9 percent in the same period, outshining forecasts for a modest 0.5 percent gain.

A downturn in prices for primary metals products such as nickel and the rise in the currency, which lowers prices for motor vehicles, were the main factors pushing the producer price index lower.

Year-over-year, producer prices fell 0.3 percent and raw materials prices jumped 3.5 percent.

Strong investment pushes U.S. Q2 growth up

Aug 30, 2007 - Robust business investment helped push U.S. second-quarter growth ahead at an upwardly revised 4 percent annual rate, the government reported on Thursday, the fastest pace since early last year but one that is unlikely to be sustained.

The Commerce Department revised its estimate of gross domestic product -- the measure of total goods and services output within U.S. borders -- up from a 3.4 percent rate that it published a month ago. That was in line with Wall Street economists' forecasts and far outstripped the first quarter's anemic 0.6 percent rate of expansion.

Since then, a credit squeeze that stems from rising default rates for subprime mortgages and that has disrupted financial markets worldwide has caused policy-makers and analysts to scale back estimates for U.S. growth in coming quarters.

There was scant evidence of any inflation problem in the second quarter. So-called core prices that exclude food and energy items rose at a low 1.3 percent rate instead of 1.4 percent as previously thought, down from 2.4 percent in the first quarter and the lowest since a matching 1.3 percent in the second quarter of 2003.

U.S. Treasury prices held steady at higher levels after the GDP data was released, while stock futures cut their losses but remained in the red.

Key sources of the upward revision in second-quarter growth were healthier business investment and a better trade performance than the department estimated a month ago.

Second-quarter growth was the most vigorous since a 4.8 percent rate in the first quarter of 2006.

BOOST FROM BUSINESS SPENDING

Businesses boosted their spending on expanded plant and equipment at an 11.1 percent annual rate instead of 8.1 percent, the strongest since the beginning of last year and far ahead of the first quarter's 2.1 percent rate.

Exports grew at a 7.6 percent rate instead of 6.4 percent previously estimated and compared with a slim 1.1 percent in the first quarter. Imports shrank at a 3.2 percent rate rather than 2.6 percent after growing at a 3.9 percent rate in the first quarter.

Consumer spending that is a mainstay of U.S. economic growth and that is considered threatened by the subprime mortgage crisis, increased at a 1.4 percent rate instead of 1.3 percent as estimated a month ago but that was well below the first quarter's 3.7 percent and was the weakest rate since the final three months of 2005.

The steady decline in the housing sector was evident in the revised GDP figures, which showed spending on housing contracting at an 11.6 percent rate instead of 9.3 percent -- a sixth straight quarter of falling spending.
Treasury Secretary Henry Paulson said last week that turmoil in financial markets stemming from rising defaults in subprime mortgage markets was likely to last for a while.

Paulson said the global growth outlook was strong and said that will buffer the United States from the worst impact of credit problems, even though U.S. economic performance will be affected. "Economic growth will be less than it ordinarily would have," Paulson conceded.
Leman Brothers said this week it was cutting its estimate for GDP growth to a 1.8 percent rate for the next several quarters, citing a faltering housing sector and rising risk that consumers will spend less on cars and other costly goods.

In a letter written on Monday and made public on Wednesday by New York Democratic Sen. Charles Schumer, Federal Reserve Chairman Ben Bernanke repeated the U.S. central bank was "prepared to act as needed to mitigate the adverse effects on the economy arising from the disruption in financial markets."

Polish economic growth beats forecasts in Q2, more rate hikes likely

Aug 30, 2007 - The Polish economy grew 6.7 pct from a year earlier in the second quarter and beat analysts' expectations on the back of booming domestic demand, paving the way for more rate hikes.

The expansion slowed from its fastest rate in a decade of 7.4 pct in the first three months of the year, but still exceeded average forecast of 6.1 pct from economists polled by state news agency PAP.

Growth in the European Union's largest post-communist economy was driven by a 9.3 pct rise in domestic demand.

Falling unemployment and a record rise in wages encouraged consumers to raise their spending by 5.1 pct and companies increased inventories by 34.2 pct to meet growing demand. Investments jumped 22.3 pct.

The data sparked hawkish comments from the central bank's policymakers after they raised borrowing costs for the third time this year to 4.75 pct yesterday.

Marian Noga said the data showed price pressures were on the rise and called for three more rate hikes by the middle of next year, as inflation could rise to 2.9-3.0 pct in December from 2.3 pct last month.

Stanislaw Owsiak, seen as a dove on the 10-strong monetary policy council, chimed in, saying inflation may be on the rise, but stopped short of calling for another rate hike.

"Second-quarter data points towards the possibility of growth in inflation pressure and confirms that this year's decisions to raise rates were right," Owsiak told Thomson Financial News in a telephone interview.

Poland's finance minister Zyta Gilowska took a more benign view of the data, saying the economy should grow by more than 6 percent this year, but the expansion was close to its peak and inflation pressures were easing.

"Second-quarter data are excellent," Gilowska told reporters. "They show pressures in trade are easing, which is particularly evident in the price of building materials, which makes pressure to raise prices weaker."

While analysts agree that the economy could be losing its momentum they expect expansion to continue in the coming quarters. It should be buoyed by strong consumption after the government cut payroll taxes in July, boosting disposable income of consumers as well as double-digit growth in investments.

"In the coming quarters we expect a continuation of some slowdown in economic activity, but its scale may be lower than had been previously expected," BZ WBK analysts said in a comment.

Czech central bank raises key interest rate by 25 basis points to 3.25 pct

Aug 30, 2007 - The Czech central bank (CNB) raised its main interest rate today by 25 basis points to 3.25 pct as it continues a rate tightening campaign aimed at cooling consumer spending and putting the brakes on inflation.

The market was split over whether the central bank would hike the main rate today but a tight majority expected it to take a breather after two rises in interest rates so far this year that had brought the main borrowing rate to 3 pct.

July inflation stood at 2.3 pct, below market forecasts as well as below central bank's projection of 2.5 pct.

The bank targets inflation at 3 pct with a tolerance band of 1 pct either side of the target.

Most analysts had expected borrowing costs in the Czech Republic to rise once more this year but saw the hike between September and November.

Japan July retail sales -2.2 pct yr/yr

Aug 30, 2007 - Japanese retail sales fell 2.2 percent in July from a year earlier, government data showed on Thursday, compared with economists' median forecast for a 0.8 percent decrease.

Compared with June, retail sales were down 2.4 percent on a seasonally adjusted basis, the Ministry of Economy, Trade and Industry said.

Handelsbanken ups Finnish 2007 GDP growth forecast to 3.7 pct from 3.2 pct

Aug 30, 2007 - Finland's economy is on course to expand 3.7 pct this year, Handelsbanken said, revising upwards its previous estimate of 3.2 pct.

The bank is forecasting GDP growth to slow next year to 3.1 pct, before picking up slightly in 2009.

Philippines Q2 GDP up 7.5 pct yr-on-yr,fastest in 20 years

Aug 30, 2007 - The Philippine economy expanded by 7.5 percent in the second quarter from a year earlier, the fastest growth in two decades, President Gloria Arroyo said Thursday.

The growth exceeded consensus estimate of 6.9 percent, based on a poll by Thomson IFR.

"We are confident of achieving our full-year growth target of 6.1-6.7 percent," Arroyo told reporters in a briefing.

The second quarter growth beat forecasts by both government economic managers and the private sector.

Growth for the period was fuelled largely by the services sector which went up 8.4 percent on an annualised basis.

Industrial output grew 8.0 percent from the previous year.

Agriculture output, which makes up a fifth of the country's gross domestic product grew 3.9 percent despite a dry spell.

Given the robust second quarter growth, Economic Planning Secretary Augusto Santos said there is a good chance of exceeding the 2007 full-year growth forecast.

"Hitting 7.0 percent is not impossible. We don't expect any slowdown in the second half, we may even exceed the target." (1 US dollar = 46.63 pesos)

Malaysia's broad money grows 13.4 percent in July vs 12.6 percent in June

Aug 30, 2007 - Malaysia's broad money supply, as measured by M3, grew at an annualized rate of 13.4 percent in July, the central bank said.

In June, M3 expanded by 12.6 percent.

"M3 expanded mainly on account of higher claims on the private sector," Bank Negara said in a statement released late Wednesday.

"Government operations also contributed to the expansion in M3, following larger development expenditure in July coupled with the salary increase for civil servants," the central bank said.

Last month, the government approved wage increases of 7.5-35 percent for the country's one million civil servants.

Narrow money, or M1, rose at an annualized rate of 18.5 percent in July as placements of demand deposits increased. In June, it expanded by 16.2 percent.

(1 US dollar = 3.50 ringgit)

Polish central bank raises rates third time to keep inflation at bay

Aug 29, 2007 - Poland's central bank raised the benchmark interest rate for the third time this year to keep inflation in check after record growth in wages and surging consumer demand.

The reference rate rose 25 basis points to 4.75 pct, the monetary policy council said in a statement released today at the end of its two-day meeting. The rate-setting council lifted borrowing costs in April and June from the record low of 4 pct.

The bank's chief Slawomir Skrzypek will hold a news conference today at 4.00 pm CET to explain the decision.

Asked to comment on today's rate hike, Prime Minister Jaroslaw Kaczynski said "this is not good", adding he couldn't do anything about it because the "council is independent."

The European Union's largest post-communist economy grew 7.4 pct in the first three months of the year, its fastest expansion rate in a decade, on the back of higher investments and rising consumers spending.

The recent data showed wages posted a record rise in the second quarter as unemployment fell from its multi-year highs, helping retail sales grow 17.1 pct year-on-year in July.

While inflation has stayed below the central bank's 2.5 pct target some policymakers said in recent weeks that tightening a job market coupled with growing labour costs could spill over into consumer prices in the coming months.

"Today's decision shows that the council is concerned about the rise in inflation in the near future, in the context of labour market developments," said Ryszard Petru, chief economist at Bank BPH in Warsaw. "Hence, we should expect a hawkish statement and another hike in rates in October."

In separate interviews with Thomson Financial News earlier this month, Dariusz Filar and Halina Wasilewska-Trenkner said the central bank should act now to prevent inflation from spiraling out of control in the future.

Analysts agree that the tightening cycle will not end with an August hike and expect the main rate to peak at 5.5 pct next year. They also say the government's decision to raise the minimum wage by a quarter next year could strengthen the central bank's resolve to fight inflation.

Spain Q2 GDP up 0.9 pct from Q1; up 4.0 pct yr-on-yr

Aug 29, 2007 - Spain's GDP grew 0.9 pct in the second quarter from the first and was up 4.0 pct from a year earlier, the National Statistics Institute (INE) said.

The quarterly figure is slightly above the preliminary figure of 0.8 pct, while the annual figure is in line. Both figures are below the first quarter, when GDP expanded at a quarterly rate of 1.0 pct and an annual rate of 4.1 pct.

In a statement, INE said domestic demand contributed 4.9 percentage points to GDP growth in the second quarter, below the 5.0 pct registered in the first, while the negative contribution from the external sector remained unchanged at 0.9 pct.

Malaysia Q2 GDP up 5.7 pct vs year earlier on private, public spending

Aug 29, 2007 - Malaysia's gross domestic product grew 5.7 percent on an annualized basis in the second quarter, up from a revised 5.5 percent expansion in the first quarter, boosted by private and public sector spending, central bank governor Zeti Akhtar Aziz said Wednesday.

First-quarter GDP was originally estimated at 5.3 percent.

Economists polled by Thomson Financial were forecasting second-quarter GDP growth of 5.2-5.4 percent.

A strong performance in the services sector and increased activity in the mining and construction sectors were the main drivers of second-quarter growth, said Zeti.

"We are on track to achieve a strong performance of our domestic economy in terms of consumption and investment activities," she told reporters.

The inflow of foreign direct investment has also exceeded expectations, she said.

Malaysian economic growth will still depend on how the US economy performs for the rest of the year but at this stage, the central bank is keeping its full-year forecast for growth of 6 percent, she said.

"Even if external factors have an impact, (full-year GDP growth) will be close to that forecast," Zeti said.

For the first half, the economy grew an annualized 5.6 percent against a six percent rise last year.

The central bank said the services sector, which grew by 9.2 percent in the quarter, remains the key growth driver as it continued to benefit from increased finance and business activity as well as favorable stock market performance.

The mining sector swung from a 0.6 percent contraction in the first quarter to a 7.7 percent growth in the second, supported by higher output of both crude oil and natural gas.

The construction sector grew by another 4.8 percent in the second quarter from a rise of 4 percent in the preceding quarter as new projects under the Ninth Malaysia Plan commenced work.

The Ninth Malaysia Plan is the government's 200 billion-ringgit, five-year development blueprint which runs through 2010.

Despite weakness in the electronics and electrical industry, the manufacturing sector still managed to grow by 1.5 percent, though at a slower pace than the 2 percent growth in the first quarter.

The agriculture sector contracted by 0.9 percent after rising 2.2 percent in the previous quarter mainly due to lower production of crude palm oil as a result of unfavorable weather conditions.

Zeti said she does not expect a change in interest rates in Malaysia as current domestic interest rates are already near historical lows and loan growth has been significant in recent months.

"Therefore, we see interest rates at this stage as still very supportive to economic growth," Zeti said.

She said the unwinding of yen carry-trades has also had little impact to Malaysia given the relatively low lending rates here.

(1 US dollar = 3.50 ringgit)

Thailand Central Bank Holds Key Rate After Five Cuts

Aug 29, 2007 - Thailand's central bank unexpectedly kept its benchmark interest rate unchanged for the first time this year after a U.S. housing-loan crisis caused stocks and the baht to slide.

The Bank of Thailand maintained its one-day bond repurchase rate at 3.25 percent, the central bank said in a statement in Bangkok today. The decision was predicted by five of 15 analysts surveyed by Bloomberg. The others expected a reduction.

The central bank said it refrained from cutting interest rates because of turmoil caused by a crisis in the U.S. housing market. Thai stocks have slumped 9 percent in the past month and the baht has retreated from close to a 10-year high against the dollar as foreign investors pared holdings of riskier assets. Policy makers next meet on Oct 10.

Thailand's junta-installed government has lifted spending and the central bank has reduced rates this year to boost economic growth in the second half of 2007. Consumer confidence may also pick up from a five-year low after the government said it would hold an election in December, returning the nation to democracy after September's coup.

Thailand's economy expanded 4.3 percent in the first quarter from a year earlier, matching the pace of the previous three months. The government expects growth of 4 percent this year, the slowest pace since 2001.

Thailand's government has set Dec. 23 for an election. An elected administration will help bring the nation ``back into the international community'' and restore confidence, Prime Minister Surayud Chulanont said Aug. 27.

Italy govt to cut 2007, 2008 GDP growth forecasts; hike deficit targets

Aug 29, 2007 - The Italian government is expected to cut GDP growth forecasts for 2007 and 2008 and review upwards its public deficit targets, the daily Il Sole 24 Ore said, citing preliminary estimates.

Experts of the economy ministry are holding their first meeting today to draft the 2008 budget, but updated figures are only expected in a few weeks' time, it said.

Preliminary estimates indicate that 2007 GDP growth could be 1.8 pct instead of the 2.0 pct forecast released in June, while growth could reach 1.7 pct in 2008 instead of 1.9 pct, it said.

The public deficit would total 2.6 pct of GDP this year against the 2.5 pct target released in June, and reach 2.3-2.4 pct in 2008 compared with the previous estimate of 2.2 pct.

U.S. Federal Reserve Meeting Minutes for August 7

A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday August 7, 2007 at 8:30 a.m.

The Manager of the System Open Market Account reported on recent developments in foreign exchange markets. There were no open market operations in foreign currencies for the System's account in the period since the previous meeting. The Manager also reported on developments in domestic financial markets and on System open market operations in government securities and federal agency obligations during the period since the previous meeting. By unanimous vote, the Committee ratified these transactions.

The information reviewed at the August meeting suggested that economic activity picked up in the second quarter from the slow pace in the first quarter. On average, the economy expanded at a moderate pace during the first half of the year despite the ongoing drag from the housing sector. While the growth of consumer spending slowed in the second quarter from its rapid pace in prior quarters, wages and salaries increased solidly and household sentiment appeared supportive of further gains in spending. Business fixed investment picked up in the second quarter after little net change in the preceding two quarters. Inventories generally appeared to be well aligned with sales at midyear. Overall inflation receded in June because of a decline in energy prices, while the core personal consumption expenditure (PCE) price index rose a bit less than its average pace over the past year.

Private nonfarm payroll employment continued to increase at a healthy pace; the rise in July was about equal to the average increase over the first half of the year. Solid hiring in the service sector was partly offset by declines in construction and manufacturing employment. Most of the drop in construction employment occurred in jobs typically associated with nonresidential construction. Both the average workweek and aggregate hours ticked down in July. The unemployment rate edged up to 4.6 percent; it had remained between 4.4 percent and 4.6 percent since September 2006.

Industrial production picked up in the second quarter after little net change over the preceding two quarters. The increase was largely attributable to a smaller drag from inventory liquidation and a modest improvement in net exports. Manufacturing production rose solidly in the second quarter because of substantial increases in the output of light motor vehicles, other durable consumer goods, business equipment, construction supplies, and materials. Production in high-tech industries rose relatively modestly in comparison to its longer-run growth.

The growth of real consumer spending slowed considerably in the second quarter after substantial increases earlier in the year. The deceleration primarily reflected sharply slower growth in outlays for goods as purchases of motor vehicles decreased noticeably. Although a spike in energy prices eroded real income growth in the second quarter, there were solid gains in wages and salaries. Despite continued softness in house prices, household wealth moved markedly higher in the second quarter, mostly reflecting rising equity prices.

Demand for housing in the second quarter was restrained by higher interest rates and by tightening credit conditions in the subprime mortgage market. Sales of new and existing homes in the second quarter were down substantially from their average levels in the second half of 2006. In June, single-family housing starts held steady at their May rate, although adjusted permit issuance slipped further. The combination of decreased sales and unchanged production left inventories of new homes for sale still elevated. House-price appreciation continued to slow, with some measures again showing declines in home values.

Outlays for nonresidential construction rose rapidly in the second quarter. Business spending on equipment and software, other than transportation equipment, posted a solid increase after being flat, on net, in the preceding two quarters. The rise was led by a rebound in purchases of industrial machinery. Expenditures for computers, software, and communications equipment grew moderately in the second quarter after a brisk first-quarter increase. Spending on transportation equipment again declined sharply. The drop was largely a continuation of the payback from exceptionally strong purchases of heavy trucks in 2005 and 2006 in anticipation of tighter emissions standards on diesel engines. New orders for medium and heavy trucks edged up in the second quarter, though they remained at low levels, suggesting that the downturn in business spending on motor vehicles may be ending.

Real nonfarm inventory investment was a roughly neutral influence on real GDP growth in the second quarter after having held down the growth rate by an average of 1 percentage point in the previous two quarters. Businesses made considerable progress in reducing the apparent inventory overhangs that had emerged at the end of 2006. In the motor vehicle sector, low rates of assemblies in the first half of this year left inventories of domestic light vehicles at the end of the second quarter fairly well aligned with sales; however, inventories rose again in July as production accelerated and sales remained weak. More broadly, the number of purchasing managers who viewed their customers' inventory levels as too high in July only slightly exceeded the number who saw them as too low.

The U.S. international trade deficit widened in May, as a rise in imports more than offset an increase in exports. Within imports, most categories of goods recorded an increase, as did services. The value of oil imports rose sharply, boosted by a jump in the price of imported oil. The increase in exports was largely attributable to capital goods, including aircraft, computers and semiconductors, and industrial supplies.

Economic activity in advanced foreign economies expanded somewhat less rapidly in the second quarter than in the prior quarter, but nonetheless appeared to have grown faster than trend, reflecting upbeat business and consumer confidence as well as favorable labor market conditions. Although many of those economies recently experienced sharp declines in equity prices and widening credit spreads amid deepening concerns about credit quality, these developments occurred too late in the intermeeting period to have any apparent effect on incoming data. In Japan, survey evidence suggested that its economy expanded moderately. Survey evidence indicated high levels of economic sentiment and strong capital spending plans among large manufacturers. In the euro area, survey measures of business and consumer confidence remained near record highs in July, and labor market conditions generally continued to improve in May and June. In the United Kingdom, real GDP growth rose in the second quarter, an increase driven mainly by robust expansion in the service sector. Canada's growth seemed to continue to pick up from its disappointing rate posted in much of last year.

Recent data indicated that economic activity in emerging-market economies remained generally strong. The Chinese economy continued to expand at a rapid pace, and activity elsewhere in emerging Asia appeared to have accelerated. In Latin America, Mexican indicators pointed to a weaker-than-expected rebound in the second quarter, whereas Brazil and Argentina appeared to have experienced solid growth. While equity prices fell and bond spreads widened in several emerging-market economies, particularly in Latin America, there was no evidence that this increased volatility had yet weighed on economic activity.

U.S. headline consumer price inflation slowed in June as energy prices flattened out after a rapid increase over the preceding three months. Core PCE prices rose 0.1 percent in June, as a decline in the price index for core goods nearly offset a rise in the index for core services. The readings on core PCE price inflation in recent months had been held down, in part, by declines in prices of some categories of goods, such as apparel, that tend to be volatile on a monthly basis. Household surveys conducted in early July indicated that the median expectation for inflation over the next year remained unchanged from June's elevated level despite declines in gasoline prices in both months. Median expectations of longer-term inflation ticked up and were near the top of the narrow range that had prevailed over the past few years. The employment cost index rose somewhat faster in the second quarter than over the preceding three months, and the twelve-month change was slightly higher than that of a year ago.

At its June meeting, the Federal Open Market Committee (FOMC) maintained its target for the federal funds rate at 5-1/4 percent. The statement announcing the policy decision noted that economic growth appeared to have been moderate during the first half of the year, despite the ongoing adjustment in the housing sector. The economy seemed likely to continue to expand at a moderate pace over coming quarters. Readings on core inflation had improved modestly in recent months. However, a sustained moderation in inflation pressures had yet to be convincingly demonstrated. Moreover, the high level of resource utilization had the potential to sustain those pressures. The Committee's predominant policy concern remained the risk that inflation would fail to moderate as expected. Future policy adjustments would depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Market participants had largely anticipated the FOMC's decision at its June meeting to leave the target for the federal funds rate unchanged, although the accompanying statement expressed greater concern about inflation than investors reportedly had foreseen and caused the expected path for the federal funds rate to edge higher. Expectations for a policy easing diminished somewhat more in the wake of favorable economic news early in the period. Subsequently, the semiannual Monetary Policy Report to the Congress and the accompanying testimony, which reported lower projections for real GDP growth than investors apparently expected, appeared to prompt a downward shift in investors' expected path for the federal funds rate. Later in the intermeeting period, growing apprehension that turmoil in markets for subprime mortgages and some low-rated corporate debt might have adverse effects on economic growth led investors to mark down their expectations for the future path of policy considerably further. At the same time, measures of long-horizon inflation compensation based on inflation-indexed Treasury securities edged down.

Financial market conditions were volatile during the intermeeting period, particularly over the last few weeks of the interval. Yields on nominal Treasury securities fell on balance, possibly reflecting an increased preference by investors for safe assets as well as revisions in policy expectations. Conditions in markets for subprime mortgages and related instruments, including segments of the asset-backed commercial paper market, deteriorated sharply toward the end of the period. Credit conditions for speculative-grade corporate borrowers tightened substantially, as investors pulled back from higher-risk assets. Spreads on speculative-grade bonds increased to near their highest levels in the past four years. A number of high-yield bond and leveraged loan deals intended to finance leveraged buyouts were delayed or restructured, though other high-yield bonds were issued. In contrast, credit conditions for investment-grade businesses and prime households were relatively little affected by the market turbulence. Issuance of investment-grade bonds continued. Yields on investment-grade corporate issues rose relative to yields on Treasury securities, but because yields on Treasuries declined, yields on investment-grade bonds were about unchanged on net. Nonfinancial commercial paper outstanding posted a modest gain in July, while the pace of bank lending to businesses picked up from an already solid clip. Mortgage loans and consumer credit appeared to remain readily available to households with strong balance sheets, although late in the period some evidence pointed to diminishing availability of jumbo mortgages.

Broad stock price indexes declined substantially, on net, over the intermeeting period despite generally solid second-quarter earnings reports. Share prices of financial firms fell especially sharply, reportedly a reflection, in part, of concerns about exposures to subprime mortgages and about the effect of a potential slowdown in merger activity on operating profits. The foreign exchange value of the dollar against other major currencies fell, on balance.

Growth of home mortgage debt likely slowed again in the second quarter, mainly reflecting the decline in home-price appreciation over the past year and the drop in home sales. Overall consumer credit expanded moderately through the year ending in May. The debt of nonfinancial businesses expanded at a robust pace in the second quarter but slowed in July. After rising at a rapid pace in the first half of the year, M2 grew at a more moderate rate in July.

In preparation for this meeting, the staff lowered somewhat its forecast of real GDP growth in the second half of 2007 and in 2008. The reduction was in part due to the annual revision of national income and product accounts (NIPA), which revealed somewhat less rapid growth in output and productivity during the past three years than previously reported and led the staff to trim its estimates of the growth rates of structural productivity and potential GDP; the reduction also reflected less accommodative financial conditions and the softer tone of some near-term indicators. The near-parallel revisions to the forecasts for potential and actual GDP left the staff's projections for resource utilization about unchanged. Although part of the recent favorable monthly readings on core PCE price changes was expected to be transitory, the staff revised down slightly its forecast for core PCE price inflation in the second half of 2007; however, in light of slower growth in structural productivity and prospects of somewhat greater pressure from import prices, the staff left its projection for core PCE inflation unchanged for 2008. Overall PCE inflation was expected to slow in the second half of 2007 from the elevated pace of the first half, as the effects of the sizable increases in food and energy prices earlier this year abated, and then to move down a bit further in 2008.

In their discussion of the economic situation and outlook, meeting participants indicated that they still saw moderate economic expansion in coming quarters as the most likely outcome but that the downside risks to growth had increased. Participants reported that economic expansion had continued at a moderate pace in many regions of the country despite further weakness in the housing sector. Going forward, most participants anticipated that growth in aggregate demand would be supported by rising employment, incomes, and exports, with the result that growth in actual output probably would remain close to growth of potential GDP despite the ongoing adjustment in the housing sector. Several mentioned that the revisions to the NIPA pointed to a modest downward adjustment in projected growth of actual and potential GDP, but thought that potential output growth was likely to be a bit higher than forecast by the staff. However, recent spending indicators had been mixed, and credit conditions had become tighter, suggesting greater downside risks to growth. Participants generally expected that core inflation would edge lower over the next two years, reflecting a slight easing of pressures on resources, well-anchored inflation expectations, and the waning of temporary factors that had boosted prices last year and early this year. Participants anticipated that total inflation would slow as well, particularly if market expectations of a modest decline in energy prices in coming quarters were to prove correct. But they were concerned that the high level of resource utilization and slower productivity growth could augment inflation pressures. Against this backdrop, the Committee agreed that the risk that inflation would fail to moderate as expected remained its predominant policy concern.

Participants agreed that the housing sector was apt to remain a drag on growth for some time and represented a significant downside risk to the economic outlook. Indeed, developments in mortgage markets during the intermeeting period suggested that the adjustment in the housing sector could well prove to be both deeper and more prolonged than had seemed likely earlier this year. Participants noted that investors had become much more uncertain about the likely future cash flows from subprime and certain other nontraditional mortgages, and thus about the valuation of securities backed by such mortgages. Consequently, the markets for securities backed by subprime and other non-traditional mortgages had become illiquid, and originations of new subprime mortgages had dropped sharply. While these markets were expected to recover over time, it was anticipated that credit standards for these types of mortgages would be tighter, and interest rates higher relative to rates on conforming mortgages, in the future than in recent years. However, participants also observed that mortgage loans remained readily available to most potential borrowers, and that interest rates on conforming, conventional mortgage loans had declined in recent weeks, providing some support to the housing sector.

Participants thought that consumer expenditures likely would expand at a moderate pace in coming quarters, supported by solid gains in employment and real income. Though growth in consumer spending had slowed in the second quarter, the slowing likely reflected temporary factors in part, including some payback from unusually strong growth in prior quarters and the surge in gasoline prices. Several participants noted the risks that house prices could decline significantly and that credit standards for home equity loans could be tightened substantially as factors that could weigh on consumer spending. However, the sizable upward revision--from negative to positive--in estimates of the personal saving rate during the past three years suggested somewhat less need for households to rebuild their savings.

Participants expected that business investment would be supported by solid fundamentals, including high profits, strong business balance sheets, and moderate growth in output. Recent financial market developments were thought unlikely to have an appreciable adverse effect on capital spending. Although lenders recently appeared to be less willing to extend credit for financial restructuring, the supply of credit to finance real investment did not appear significantly diminished. Funding had become more costly and difficult to obtain for riskier corporate borrowers, but there had been little net change in the cost of credit for investment-grade businesses. Also, businesses in the aggregate continued to have sufficient internally generated funds to finance the expected level of real investment. Nonetheless, participants recognized that conditions in corporate credit markets could change rapidly, and that adverse effects on business spending were possible. Moreover, heightened asset market volatility and the associated increase in uncertainty, if they were to persist for long, could lead businesses to pare capital spending plans. Still, participants judged that continued growth of investment outlays going forward was the most likely outcome.

Rapid economic growth abroad and the decline in the foreign exchange value of the dollar in recent quarters were seen as likely to boost U.S. exports and thus support the economic expansion. Some participants also anticipated that growth in government purchases of goods and services would support continued growth in output.

The data on core inflation received during the intermeeting period were favorable, but meeting participants believed that the readings for the past few months likely had been damped by transitory factors and did not provide reliable evidence that the recent level would be sustained. Still, participants thought that a slight decrease in pressures on resources and the stability of inflation expectations likely would foster over time a gradual moderation in core inflation. Participants anticipated that total inflation would slow as well, particularly if market expectations for a modest decline in energy prices in coming quarters were to prove correct. Participants remained concerned about factors that could augment inflation pressures, including the continuing high level of resource utilization and slower trend growth in productivity. Some also pointed to the strength of aggregate demand worldwide and the depreciation of the dollar, and their potential effects on the prices of imports and globally traded commodities, as contributing to upside risks to U.S. inflation. Several participants noted significant increases in wages in their Districts, particularly in the service sector, but it was also observed that that overall gains in labor compensation had remained moderate, suggesting that sustainable rates of resource utilization could be slightly higher than typically estimated. On balance, participants continued to agree that risks to the outlook for sustained moderation in inflation pressures remained tilted to the upside.

In their discussion of monetary policy for the intermeeting period, Committee members again agreed that maintaining the existing stance of policy at this meeting was likely to be consistent with the overall economy expanding at a moderate pace over coming quarters and inflation pressures moderating over time. The expansion would be supported by solid job gains and rising real incomes that would bolster consumption, and by increasing foreign demand for goods and services produced in the United States. The ongoing adjustment in housing markets likely would exert a restraining influence on overall growth for several more quarters and remained a key source of uncertainty about the outlook. The recent strains in financial markets posed additional downside risks to economic growth. Members expected a return to more normal market conditions, but recognized that the process likely would take some time, particularly in markets related to subprime mortgages. However, a further deterioration in financial conditions could not be ruled out and, to the extent such a development could have an adverse effect on growth prospects, might require a policy response. Policymakers would need to watch the situation carefully. For the present, however, given expectations that the most likely outcome for the economy was continued moderate growth, the upside risks to inflation remained the most significant policy concern. In these circumstances, members agreed that maintaining the target federal funds rate at 5-1/4 percent at this meeting was appropriate.

In light of the recent economic data, anecdotal information, and financial market developments, the Committee agreed that the statement to be released after the meeting should indicate that economic growth was moderate during the first half of the year and that the economy seemed likely to continue to expand moderately in coming quarters, supported by solid growth in employment and incomes and by robust economic growth abroad. Members also agreed that the statement should incorporate their view that downside risks to growth had increased somewhat, and should mention volatile financial markets, tighter credit conditions for some households and businesses, and the ongoing correction in the housing market. In addition, the Committee agreed that the statement should again note that readings on core inflation had improved modestly in recent months but did not yet convincingly demonstrate a sustained moderation of inflation pressures, and that the high level of resource utilization had the potential to sustain inflation pressures. Against this backdrop, members judged that the risk that inflation would fail to moderate as expected continued to outweigh other policy concerns.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with maintaining the federal funds rate at an average of around 5-1/4 percent."

The vote encompassed approval of the text below for inclusion in the statement to be released at 2:15 p.m.:

"Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information."

It was agreed that the next meeting of the Committee would be held on Tuesday, September 18, 2007.

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South Africa's Q2 GDP growth slows to 4.5 pct annual rate from 4.7 pct in Q1

Aug 28, 2007 - South Africa's GDP growth slowed in the second quarter of the year to a year-on-year rate of 4.5 pct from 4.7 pct in the previous three months.

In the second quarter the biggest contribution to GDP came from the finance, real estate and business services sector, which rose by 1.5 percentage points.

GDP for the first six months of 2007 rose by 5.2 pct compared with the corresponding period in 2006.

Brazil central gov't primary surplus dips in July

Aug 28, 2007 - Brazil's central government primary budget surplus fell slightly to 5.052 billion reais ($2.52 billion) in July from 5.188 billion reais in June, the National Treasury said on Tuesday.

But the surplus surged 67 percent from July last year, when it reached 3.026 billion reais, as government revenue from tax collection jumped.

The surplus in 2007 through July was equal to 3.35 percent of gross domestic product compared with 3.27 percent of GDP over the same period of last year.

The primary surplus includes spending by the Treasury, central bank and social security system but excludes interest payments on debt and transfers to state and local governments.

It feeds into the consolidated public-sector primary surplus, which is closely tracked by investors as a measure of Brazil's ability to pay its debts. The consolidated primary surplus, due out Wednesday, also excludes interest payments.

($1=2.003 reais)

Mexico's economy expanded 2.5 pct in June

Aug 28, 2007 - Mexico's economy, hobbled in recent months by a U.S. slowdown and less demand for exports, expanded 2.5 percent in June from the same month last year, modestly less than analysts had forecast in a Reuters poll.

Economic activity was up 0.33 percent in June from May, according to the monthly IGAE index, which measures the vast majority of Mexico's economic output.

Analysts in a Reuters poll on average had expected economic activity to grow 2.55 percent in June.

The key industrial sector expanded a scant 0.1 percent in June compared to the same month in 2006, while services grew 3.5 percent and agriculture increased 4.5 percent, the government said on Tuesday.

The Mexican economy grew 4.8 percent in 2006 but is losing steam this year as the United States, the country's main trade partner, suffers from a sluggish economy.

Second-quarter growth in Mexico was 2.8 percent.

A crisis in the U.S. subprime mortgage market that is causing global market volatility and threatening to spread to banks in other countries could further slow the U.S. economy, analysts say.

House prices suffer worst fall in index history

Aug 28, 2007 - An index measuring U.S. house prices suffered its worst decline since its creation 20 years ago, and there is no sign of a bottom for the market, according to a report compiled by Standard and Poor's and economist Robert Shiller.

The S&P/Case-Shiller U.S. National Home Price Index fell 3.2 percent to 183.89 last quarter from the same period in 2006, its sharpest decline in the index's history dating back to 1987, S&P said in a statement. The pace of decline accelerated from 1.6 percent in the first quarter.

"The pullback in the U.S. residential real estate market is showing no signs of slowing down," Shiller, the creator of the index and chief economist at MacroMarkets LLC in Madison, New Jersey, said in the statement.

The report adds to recent indications that the housing slump that began in late 2005 may worsen.

On Monday, the National Association of Realtors said inventories of homes rose 5.1 percent in July, boosting the overhang of supply that tends to put downward pressure on prices. Reports this week on subprime mortgage securities show delinquencies on loans backing the bonds continued to rise in August.

Falling house prices are fueling concern that the economy may head toward recession as homeowners with little equity in their properties are unable to refinance adjustable-rate loans at better terms before monthly payments rise.

At the same time, lending in the past two months has been restricted to even "prime" borrowers, suggesting housing data will soften in the months ahead, economists said. Two-thirds of the nation's home builders said tighter underwriting standards have hurt business in the past month, up from a third in March, according to a National Association of Home Builders poll.

Battellino Says Pressure in Australian Money Market

Aug 28, 2007 - Australia's money market remains "under pressure" and the central bank will intervene if needed to stabilize the cost of credit, Reserve Bank Deputy Governor Ric Battellino said.

Australia's central bank added A$3.87 billion ($3.2 billion) to the financial system on Aug. 17. It has injected more than A$3 billion only three times this year, all since Aug. 10.

Denmark cuts 2007 GDP, jobless rate forecasts

Aug 27, 2007 - Denmark's Finance Ministry cut its forecast for economic growth this year to 2.0 percent from a prediction in May of 2.2 percent, according to a copy of the 2008 draft budget obtained by Reuters on Monday.

According to the draft, the 2008 forecast for gross domestic product growth was raised to 1.3 percent from 1.2 percent.

The government is due to publish the draft budget on Tuesday at 0800 GMT.

Denmark's GDP rose 2.3 percent year-on-year in the first quarter of 2007, according to data from the National Statistic Office published last month. GDP grew 3.5 percent last year.

The Danish economy has been running strongly in the last few years, with red-hot job and housing markets stoking consumption.

But GDP, consumer confidence and housing price data this year have indicated that the economy has shifted to a lower gear and many economists now predict a soft landing and slower growth ahead.

In a comment in the draft, Finance Minister Thor Pedersen said that with high employment, large public budget and current account surpluses, and low inflation, the Danish economy was strong not only historically but relative to that of other countries.

"The current large surpluses will become smaller in the years to come because there will be fewer Danes working and more elderly Danes and tax revenue from the North Sea will fall," he said.

The 2007 public budget surplus was seen at 66.2 billion Danish crowns ($12.15 billion) or 3.9 percent of GDP, down from 71.0 billion forecast in May. The 2008 surplus is estimated at 55.3 billion crowns against 59.3 billion previously.

NORTH SEA OIL

Denmark, a European Union member but euro zone outsider, has had a government budget surplus since 1997, while public debt has declined considerably. This is mainly the result of larger tax revenues from earnings of funded pension schemes and rising North Sea oil and gas revenue.

The unemployment rate, already at more than 30-year lows of 3.5 percent of the work force in June, is seen falling to 3.3 percent on average this year and 3.1 percent next year.

Last week, Denmark's centre-right government unveiled 10 billion crowns of tax cuts for the employed starting next year to capitalise on a strong economy and help set the stage for a possible early election later this year.

In the draft, the Finance Ministry said that public consumption was estimated to rise 1.8 percent this year against the May prediction of 1.3 percent. Public consumption next year is seen rising 1.7 percent compared with 1.1 percent seen in May.

Hungary keeps rates on hold at 7.75%

Aug 27, 2007 - Hungary's central bank kept its benchmark policy rate unchanged at 7.75% Monday, choosing caution in the face of ongoing worries about trouble in global credit markets.

The bank last cut its key policy rate by 25 basis points in June.

"We did not expect the bank to lower the rate at today's meeting, though we do expect at least one further quarter-point cut this year, enabled by slowing consumer-price growth, negative month-ago wage data and very unimpressive second-quarter GDP growth," said Zoltan Pozsar, analyst at Moody's Economy.com, in a research report.

Hungary's central bank revised its GDP growth forecast to 2% year on year in 2007 from 2.5% previously and hiked its inflation forecast to 4.5% year on year in 2007 from 3.6%.

"The greater than expected slowdown in economic growth and the strong disinflationary effect of the fall in demand continue to represent downside risks," the central bank's monetary council said in a statement Monday.

"The financial market turbulence stemming from the problems in the U.S. subprime mortgage market has contributed significantly to uncertainty in the global investment environment, leading to a rise in the required risk premium on forint assets," the statement said.

Many emerging-market assets, including currencies such as the Hungarian forint, tend to suffer in periods of global risk aversion, as investors slash exposure to risky assets to cover losses elsewhere. Hungary is particularly vulnerable to sudden shifts in global risk appetite, since foreigners hold 30% of local government debt.

"It is rather paradoxical that the Hungarian government failed for years to do something about the large imbalances in the economy, and that the markets more less ignored this because of the benign global financial climate, while the forint has recently come under pressure on the back of worsening global credit conditions and despite the Hungarian government tightening fiscal policy last year," wrote Lars Christensen, senior analyst at Denmark's Danske Bank, in a research note.

As a result, monetary policy might now have to remain tighter because fiscal policy was not tightened when global financial conditions were more supportive, Christensen said.

Pozsar of Moody's Economy.com added: "Skittishness in global markets might preclude cuts that are warranted by fundamentals. Lower interest rates, and thus lower borrowing costs, come as a strong relief to the Hungarian economy, which is suffering from very tight fiscal policy."

Brazil Survey: Analysts Again Raise '07, '08 GDP Forecasts

Aug 27, 2007 - Brazilian financial market analysts and economists raised their forecasts for the country's 2007 and 2008 gross-domestic-product growth, according to the central bank's weekly market survey, published Monday.

Analysts raised slightly their 2007 GDP expansion estimate to 4.64% from 4.62% in the previous survey. In 2006, Brazil's GDP grew 3.7%. This week's was the fourth-consecutive increase in GDP forecasts.

In the first quarter, Brazil's GDP grew 4.3% from the year-earlier period, as falling domestic interest rates and expanding credit led to a strong performance in the services sector.

In addition, financial analysts raised their 2008 GDP estimate to 4.40% from 4.35%.

The weekly central bank survey tracks the opinions of 100 analysts and economists from banks and brokerages, reporting the average of their expectations.

In the meantime, experts raised their estimates for 2007 inflation as measured by the official consumer price index, or IPCA, to 3.86% from 3.77%.

Despite the increase, the inflation projection remains below the central bank's inflation target of 4.5% for the year. The IPCA inflation rate reached 3.95% for the 12 months through mid-August, according to data from the Brazilian Census Bureau, or IBGE.

Experts maintained their 2008 year-end IPCA outlook at 4.0%.

In addition, economists kept their 2007 year-end Selic benchmark interest rate forecast at 10.75% and also maintained their outlook for the 2008 year-end Selic rate at 9.75%.

Currently, the base rate stands at 11.50%.

The estimate for the 2007 year-end debt-to-GDP ratio was kept at 43.5%.

Experts reduced their estimate for the 2007 trade surplus to $42.7 billion. In 2006, Brazil posted a record trade surplus of $46.07 billion.

The Brazilian real is expected to end 2007 at BRL1.9 to the dollar, analysts forecast. On Friday, the real closed at BRL1.942 to the dollar.

U.S. existing home sales fell in July

Aug 27, 2007 - The pace of sales of pre-owned U.S homes fell slightly in July to a 5.75 million unit annual rate and the supply of unsold single-family homes hit its highest level since 1991, the National Association of Realtors said in a report on Monday.

Total existing home sales, which include condominiums, fell 0.2 percent in July from an upwardly revised 5.76 million seasonally adjusted annual rate in June, first reported as 5.75 million.

The association's economist Lawrence Yun said the market is holding on despite temporary mortgage disruptions from fallout in the subprime market and rising foreclosures.

"In the aggregate, we don't see the subprime market damaging the economy," Yun said.

But the inventory of homes for sale rose 5.1 percent to 4.59 million, representing 9.6 months worth of supply at the current sales pace. That total, which includes condominiums, is the highest on record since the association began tracking both single-family and condominium sales together in 1999.

The supply of single-family home sales, which accounts for the bulk of existing home sales, was at 9.2 months' worth in July, the highest level since 9.3 months in October of 1991.

"This shows that the housing downturn continues to intensify. It shows no signs of abating," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

"Given the turmoil in the financial market from lending problems, the housing problem will continue in the months ahead," he added.

Last month's decline in existing home sales was smaller than expected. Economists polled ahead of the report forecast home resales to drop to a 5.70 million-unit pace.

Median home prices fell 0.6 percent from a year ago to $228,900.