Fed Lowers Rate by a Quarter Point to 4.5 Percent

Oct 31, 2007 - The Federal Reserve cut its benchmark interest rate by a quarter point to 4.5 percent and signaled it's reluctant to lower borrowing costs further.

The second reduction in as many months should help the U.S. economy withstand the fallout from August's credit collapse, the Federal Open Market Committee said in a statement after meeting today in Washington. ``After this action, the upside risks to inflation roughly balance the downside risks to growth.''

The language ``has all the subtlety of a sledgehammer,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``The FOMC has just stated unequivocally that `we think we are done easing.' Whether they are or not remains to be seen, but the message is loud and clear.''

Hours earlier, the Commerce Department said economic growth accelerated to an annual pace of 3.9 percent in the third quarter, the fastest in more than a year. The Fed statement also warned that higher energy and commodity prices may spur faster inflation.

Stocks fell in the minutes after the Fed announcement, before resuming their rally. Treasury notes declined and the dollar weakened.

The Fed acknowledged that ``economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance.'' At the same time, ``the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.''

Hoenig Dissents

Today's decision wasn't unanimous. Kansas City Fed President Thomas Hoenig preferred no change, the first dissent since December.

The Fed also lowered the discount rate, the cost of direct loans to banks, by 25 basis points to 5 percent, from 5.25 percent. A basis point is 0.01 percentage point.

``Unless the incoming data signal a net increase in downside growth risk, they think they are done,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. ``Inflation worries -- oil and commodities -- just won't go away.''

Policy makers have now lowered their target rate for overnight loans between banks by 0.75 percentage point in six weeks, the most aggressive easing since the economy was emerging from its last recession in 2001.

Odds of a quarter-point cut in the benchmark rate at the Dec. 11 meeting receded to 40 percent, from 66 percent yesterday, according to futures contracts quoted on the Chicago Board of Trade.

Economists and former officials said before the meeting that the central bank would want to preserve leeway to take back the rate cuts should the economy weather the risks from credit and housing markets. Vice Chairman Donald Kohn said Oct. 5 the Fed must be ``nimble in adjusting policy to promote'' both growth and price stability.

Insurance

Chairman Ben S. Bernanke, 53, and other officials in speeches this month have described the importance of taking out insurance to protect the economy from risks when the outlook is difficult to judge.

``Intuition suggests that stronger action by the central bank may be warranted to prevent particularly costly outcomes,'' Bernanke said in an Oct. 19 speech on recent economic research. Chicago Fed President Charles Evans said Oct. 22 that ``at times we may need to adopt a risk management approach to policy'' to guard against threats to growth or inflation.

Consumer-price increases have slowed, while a falling dollar and rising oil costs threaten a renewed acceleration. The Fed's preferred gauge, the personal consumption expenditures price index excluding food and energy, probably rose 1.8 percent in September from a year ago, according to the median forecast. The Commerce Department reports the figures tomorrow.

The index remained below 2 percent from June to August. Bernanke, before taking the Fed's helm, said his ``comfort'' range for the measure was 1 percent to 2 percent.

Faster Expansion

The Commerce Department said today that the expansion picked up in the third quarter, though economists surveyed by Bloomberg predict a slowing this quarter. A private report showed companies hired 106,000 this month after creating 61,000 jobs in September.

The economy grew at a 3.9 percent annual rate in July to September, up from 3.8 percent in the previous three months, Commerce figures showed. It will slow to a 1.8 percent pace in the current period, according to the median estimate in a survey published Oct. 10.

Housing Downturn

Housing figures this month showed the industry has yet to find a bottom. A private survey yesterday showed home values in 20 metropolitan areas slid the most in at least six years. Sales of previously owned homes fell to the lowest level since National Association of Realtors began keeping records in 1999, and government figures recorded a 14-year low for housing starts.

Continued stress in credit markets may lengthen the housing recession and temper business investment plans. The world's largest banks and securities firms announced more than $30 billion of third-quarter charges.

Citigroup Inc. the biggest U.S. bank, said Oct. 15 that earnings fell 57 percent as loan losses increased. Merrill Lynch & Co. last week wrote down the value of subprime mortgages, asset-backed debt and leveraged loans by $8.4 billion.

The benchmark rate is now at the lowest level since January 2006. Bernanke took office the following month, and continued a series of rate increases that lifted the federal funds rate to 5.25 percent by June last year.

Mexico Central Bank Unexpectedly Raises Rate to 7.50%

Oct 26, 2007 - Mexico's central bank unexpectedly raised interest rates and said inflation will take longer to retreat than policy makers previously estimated.

The five-member board, led by Governor Guillermo Ortiz, lifted the benchmark rate a quarter percentage point to 7.50 percent, surprising 22 of 29 economists surveyed by Bloomberg. The peso climbed to a three-month high.

Inflation hasn't slowed as quickly as the central bank predicted in May, when it said the rate would fall to 3 percent by the end of next year. Today, the bank revised its outlook to estimate the target won't be reached until the end of 2009 because of rising food prices and higher taxes approved by Congress last month. It also dropped its ``restrictive bias,'' hinting it doesn't intend to follow with more increases.

``They had to show commitment to the target,'' said Alonso Cervera, a Latin America economist at Credit Suisse Group in New York, who predicted the increase correctly. ``It would have been very odd for them to increase their inflation forecast and then not come through with a rate hike.''

The economists who predicted today's increase, such as Cervera, Dresdner Kleinwort's Omar Borla and RBS Greenwich Capital Markets' Benito Berber, said they don't expect the bank to raise interest rates again this year. In today's statement, said the threat to Mexico's economic expansion from a decelerating U.S. economy had increased.

`Preventive'

``Clearly it was a preventive move,'' Borla said.

The decision marks the second time this year the central bank unexpectedly raised borrowing costs in Latin America's second-largest economy. The bank in April also unexpectedly increased its rate by a quarter percentage point.

Mexico's benchmark stock index rose 250.66, or 0.8 percent, to 32,123.6. The peso gained 0.7 percent to 10.7345 per dollar.

A report Oct. 24 showed core inflation rose more than expected in the first half of October because of higher prices for pasteurized milk and tobacco.

Core consumer prices, which exclude fresh food and energy, rose 0.21 percent, more than the median estimate of 0.15 percent in a Bloomberg survey of 18 economists, putting them at 3.87 percent on an annual basis, higher than the 3.5 percent forecast the central bank has for the end of the year.

Core Prices

That report led RBS Greenwich's Berber to change his forecast to predict central bankers would raise to 7.50 percent today. The central bank has missed its 2-to-4 percent inflation target in eight of the past 13 months.

Rising food prices may lead Mexico to suspend import duties on wheat for three months to reduce costs for local food producers, El Milenio newspaper reported Oct. 24, citing Economy Minister Eduardo Sojo.

Rate increases put the central bank at odds with President Felipe Calderon's administration.

Finance Minister Agustin Carstens criticized the bank in April for raising rates, saying it had acted ``prematurely'' at a time of slowing economic growth. In an Oct. 23 interview from Washington, Carstens said Mexico doesn't have an inflation problem and ``there are no underlying inflation pressures.''

Central bankers seemed to disagree with that assessment today in their statement, saying ``greater pressures on food prices and the probable impact of the recently-passed tax reform'' had led to their inflation-outlook change.

Fuel Tax

Congress last month passed tax legislation backed by Calderon that includes a 5.5 percent levy on gasoline that will take effect in January.

Meanwhile, Mexico's economy is expected to slow on falling demand from the U.S. According to the IMF's World Economic Outlook released Oct. 17, Mexico's economic growth will fall to 2.9 percent this year from 4.8 percent in 2007. Growth in 2008 is forecast at 3 percent.

Mexico sold a record $211.9 billion, or about 85 percent of its exports, to the U.S. last year.

Yields on Mexico's 10-year benchmark security have risen 28 basis points since the end of May on concern that U.S. growth will decline as subprime mortgage loan defaults push up borrowing costs.

Today's decision follows months of warnings from policy makers that they were prepared to raise rates should inflation not begin to decelerate fast enough to reach 3 percent by the end of 2008.

`End of the Line'

In May, the same month it introduced its 3 percent forecast, the bank adopted a ``restrictive bias,'' meaning it was more likely to raise rather than cut rates. In subsequent months, central bank surveys showed economists did not believe inflation would decelerate so rapidly.

Inflation will end 2008 at 3.69 percent, according to the average estimate of 33 economists surveyed by the bank between Sept. 24 and Sept. 28.

``In October the Bank of Mexico reached the end of the line,'' said Guillermo Aboumrad, an economist with Banco UBS Pactual in Mexico City, who forecast policy makers would increase borrowing costs today. ``Either they're meeting the inflation targets or they're not.''

U.K. Economy Grows Faster Than Forecast on Services in Q3

Oct 19, 2007 - The U.K. economy grew faster than economists forecast in the third quarter, driven by services from airlines to banks, a sign higher borrowing costs have yet to cool expansion.

Gross domestic product increased 0.8 percent, the same as in the second quarter, the Office for National Statistics said in London today. Economists forecast 0.7 percent, according to the median of 34 predictions in a Bloomberg News survey. The annual growth rate was 3.3 percent, the most since 2004.

Service industries, which make up three-quarters of the economy, expanded as business and finance held at the quickest growth pace since 2003. Investors speculate bank earnings will now weaken after credit costs jumped. Bank stocks comprise 37 percent of the benchmark FTSE-100 index, whose 6 percent gain this year has lagged increases of 11.4 percent on the Dow Jones Industrial Average and 20 percent for Germany's DAX.

``The momentum coming into the U.K. economy in the services sector, particularly in the financial sector, will abate,'' Kenneth Wattret, an economist at BNP Paribas in London, said in an interview. ``That will put Bank of England rate cuts on the agenda for early next year.''

The pound rose 0.4 percent after the report and traded at $2.0493 as of 12:31 p.m. in London. The currency reached a 26- year high of $2.0654 on July 24.

Rate Increases

The Bank of England raised its benchmark rate to 5.75 percent in the year through July, leaving Britons with the highest borrowing costs in the Group of Seven industrialized nations and increasing the repayments on the nation's record 1.4 trillion pounds ($2.8 trillion) of consumer debt.

London, which rivals New York in some markets as the world's largest financial center, has led the U.K.'s economic growth after a banking boom prompted record bonus payouts of 8.8 billion pounds at the start of this year, the Centre for Economics and Business Research Ltd. estimates.

Contagion from the U.S. mortgage market collapse, which prompted a surge in borrowing costs, is spreading to the U.K. and Europe. A worsening U.S. housing slump sent profits lower at Bank of America Corp. and Washington Mutual Inc. yesterday, putting financial company earnings on pace for the worst quarter in at least a decade.

Business Services

Business and financial services, which account for 28 percent of the U.K. economy, expanded 1.7 percent, the statistics office said. Manufacturing growth slowed to 0.2 percent from 0.8 percent in the second quarter.

The International Monetary Fund on Oct. 17 raised its forecast for the U.K. economy this year, predicting growth of 3.1 percent, the fastest pace since 2004. The fund forecast expansion to slow to 2.3 percent in 2008. The group predicts the euro-region's economy will grow 2.5 percent this year and 2.1 percent next year.

The IMF also reduced its global growth forecast for 2008 and warned that it might still be too optimistic, given threats posed by the sell-off in credit markets. The U.K. GDP report is the first for the third quarter from a G-7 economy.

Britain's growth will be among the fastest of the G-7 this year and the economy is well placed to weather a slowdown, Chancellor of the Exchequer Alistair Darling told lawmakers in Parliament yesterday. The Labour government, led by Tony Blair until Gordon Brown replaced him as prime minister in June, has now overseen 41 consecutive quarters of growth.

Northern Rock Panic

The collapse of the U.S. subprime mortgage market led to a jump in credit costs and a panic among savers at Northern Rock, the Newcastle-Upon-Tyne, England-based home-loan lender.

A survey of U.K. banks shows they are now poised to reduce the supply of credit to companies ``significantly,'' the Bank of England said Sept. 26. Services expansion weakened to a 13-month low in September, the Chartered Institute of Purchasing and Supply and Royal Bank of Scotland Group Plc said Oct. 3.

U.K. house prices fell at the fastest pace in two years in September after higher interest rates and concern about the outlook for economic growth sapped homebuyers' confidence, the Royal Institution of Chartered Surveyors said Oct. 11.

Bank of England Governor Mervyn King said in an Oct. 9 speech that policy makers won't reduce the benchmark interest rate to shield banks from the credit slump.

While the bank's Monetary Policy Committee considered a cut at its Oct. 4 meeting, only David Blanchflower sought an immediate move, citing ``downside'' risks to economic growth. The majority of policy makers said that business surveys have ``stayed firm'' and there is little sign of weakening.

Inflation stayed below the bank's 2 percent target for a third month in September, giving policy makers scope to reduce the benchmark if growth slows. Annual gains in consumer prices, at a rate of 1.8 percent, matched the lowest since March 2006.

Of 18 economists surveyed Oct. 12 by Bloomberg News, 12 predict the bank will lower its rate by a quarter-point in February. Four expect a reduction in November.

China Requires Banks to Set Aside Bigger Reserves

Oct 13, 2007 - China ordered banks to set aside more money as reserves for the eighth time this year to cool speculation in stocks and real estate and curb the fastest inflation in 10 years.

Lenders must park 13 percent of deposits as reserves from Oct. 25, up from 12.5 percent, the People's Bank of China said today on its Web site. The required ratio is the highest in almost a decade.

Seven increases in the reserve requirement and five interest-rate rises this year probably failed to stop the economy expanding faster than 11 percent for a third quarter, a government report may show next week. Surging exports have pumped money into the world's fastest-growing major economy, fanning inflation and fueling a boom in shares and real estate.

"They're clearly concerned primarily about inflation, because it did get out of hand over the summer," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. Inflation 'creates asset bubbles because when inflation is high then it doesn't seem meaningful for people to save money -- they would rather invest in real estate or the stock market.'

China's consumer prices surged 6.5 percent in August from a year earlier, the biggest jump since December 1996. The rate breached the government's annual 3 percent target for a fourth consecutive month, as food costs soared. Inflation was a factor in protests that led to the Tiananmen Square crackdown in 1989.

China's trade surplus jumped 56 percent in September, the customs bureau said yesterday, taking it to $185.65 billion for the first nine months of the year, more than the $177.5 billion for all of last year.

Money Supply

Money supply is surging because the government wants to hold down the yuan, forcing the central bank to sell the currency and pump cash into the banking system. Some of that money is finding its way into stocks, pushing the benchmark CSI 300 Index up 181 percent this year. Money supply rose 18.5 percent in September.

The economy, the world's fourth largest, probably grew 11.5 percent in the third quarter, the government may announce next week, according to the median estimate of 14 economists surveyed by Bloomberg News. The date for the release of the gross domestic product report hasn't been set.

Of 20,000 households surveyed in a central bank quarterly report released Sept. 20, a record 61.3 percent said they expect inflation to quicken in the fourth quarter.

Inflation Expectations

"Inflation is a priority for policy makers because in China, it is not just an economic problem, but also a political risk," said Chris Leung, senior economist at DBS Bank Ltd. in Hong Kong. "The Chinese government wants a `harmonious society,' but how can you have one with prices going up?"

Inflation is raising the risk of social unrest as the ruling Communist Party prepares for its 17th National Congress, a five-yearly meeting starting Oct. 15 that will decide leadership changes.

China has taken other action to combat rising prices.

All government-regulated prices have been frozen until the end of the year, and the state has boosted the supply of grains, vegetables and pigs and cracked down on illegal collusive price increases. The central bank has sold bills to soak up cash from the financial system.

Household Savings

Stock and house prices have gained as households shifted money from low-yielding bank deposits. Household savings fell 41.8 billion yuan in August from the previous month. Housing prices jumped 20.8 percent in Shenzhen and 12.1 percent in Beijing in August.

China has resisted calls from the U.S. and Europe to let its currency strengthen at a faster pace, which would make imports less expensive and ease pressure on domestic prices as well as helping to curb the widening trade surplus.

The yuan has gained about 10 percent to 7.51 versus the dollar since the end of a fixed exchange rate in July 2005.

"Unless the Chinese allow the exchange rate to go up, I'm worried about the stability of the economic system," former Federal Reserve Chairman Alan Greenspan said in a speech in London on Oct. 2. "The exchange rate will create more economic problems than they know."

The government will be forced into further reserve ratio increases soon, according to Kowalczyk of CFC Seymour Ltd.

"The impact will be negligible," he said. "When you look at how much in yuan terms is taken away from the money market, it's not enough to neutralize the impact of maintaining the exchange rate."

U.S. Economy: Retail Sales Ease Recession Concerns

Oct 12, 2007 - Retail sales in the U.S. blew past economists' forecasts last month, reducing concerns that a housing-fueled consumer slowdown might drag the economy into recession.

The 0.6 percent increase was double the previous month, the Commerce Department said today in Washington, and three times the size predicted by analysts in a Bloomberg News survey. Separately, the Labor Department said core producer prices, which exclude food and energy, rose less than anticipated.

The retail report spurred investors to pare bets that the Federal Reserve will continue cutting interest rates to keep the economy growing.

"The pessimism that's been so widely spread about collateral damage from housing hasn't been realized," said Richard DeKaser, chief economist at National City Corp. in Cleveland, Ohio. "The downside risks so feared a month ago have diminished."

Bonds recouped some of their losses after the Reuters/University of Michigan preliminary index of consumer sentiment fell to 82.0 from 83.4 in September. The gauge compares with an average 89.6 in the first half of the year.

"It matters more what consumers do than what they say," said Kevin Flanagan, a Purchase, New York-based fixed-income strategist at Morgan Stanley's Global Wealth Management Group. "The decline in confidence is not spilling over into a significant retrenchment in spending."

Purchases excluding automobiles rose 0.4 percent, compared with a decline of 0.4 percent in August.

Wholesale Prices

The 0.1 percent increase in core wholesale prices eased concern that rising fuel and food costs would filter through the economy. Overall prices increased 1.1 percent as oil costs climbed.

The yield on the benchmark 10-year Treasury was 4.68 percent at 4:54 p.m. in New York. Earlier, the yield increased as high as 4.69 percent in the minutes after the retail figures were released. The Dow Jones Industrial Average rose 78 points, or 0.56 percent, to close at 14,093.1.

Inventories at U.S. businesses rose a less-than-forecast 0.1 in August, a separate report from the Commerce Department also showed. Economists said companies are holding back on production and spending as they gauge the effect on demand from the deepening housing slump.

Today's retail sales report showed purchases at automobile dealerships and parts stores rose 1.2 percent after climbing 3.3 percent in August.

Electronics, Groceries

Sales at electronics and appliance stores rose 0.9 percent, and purchases at food and beverage merchants increased 0.8 percent. Americans also spent more to fill up their gasoline tanks. Filling station sales increased 2 percent in September after dropping 2.6 percent in August.

The report also reflected the effects of the decline in the housing market and the weakness reported yesterday in sales at chain stores. Furniture sales dropped 0.6 percent and building materials gained just 0.1 percent. Clothing weakened 0.4 percent and purchases at department stores fell 0.5 percent.

Yesterday's chain-store figures account for about 17 percent of total retail sales, which in turn make up almost half of all consumer spending.

Wal-Mart, the world's largest retailer, posted a 1.4 percent gain in September same-store sales, at the lower end of its forecast. Company officials cited softer demand for home goods and said consumers remained ``concerned with their finances, the cost of living and gas prices.''

Department Stores

Macy's Inc. and J.C. Penney Co. said sales declined. Nordstrom, among the few chains to post a gain, fell short of analysts' estimates.

"Unseasonable weather in large areas of the country and the well-chronicled issues affecting the housing market impacted our sales for the September period," J.C.Penney Chief Executive Officer Myron Ullman said in a statement yesterday.

Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales rose 0.3 percent, following little change the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.

Economists had forecast producer prices would rise 0.5 percent, according to the median of 73 projections. Core prices were forecast to rise 0.2 percent.

Over the past 12 months, producer prices rose 4.4 percent, compared with a 2.2 percent rise in the 12 months through August. Producer prices excluding food and energy rose 2.0 percent in the year through September.

Fed's Preference

Fed policy makers, including Chairman Ben S. Bernanke, have said they prefer to look at core price measures to gauge underlying trends in inflation.

Faced with rising commodity costs, some companies are raising prices to maintain their profit margins.

Kimberly-Clark Corp., the maker of Huggies diapers, said Oct 9 it's raising prices in the U.S. 4 percent to 7 percent on Feb. 3 to counter higher raw material and energy costs. The increases will affect products in the company's consumer tissue and baby and childcare businesses, the Dallas-based company said in a statement.

"The increases are necessary to offset significant inflationary pressure from higher raw material and energy costs," the company said.

Some companies aren't passing on all their cost increases to consumers.

"We pass on a lower rate of price increases to consumers than we are feeling in our input costs," said Stephen Sanger, chairman of food processor General Mills Inc. yesterday at the annual Business Council meeting in Williamsburg, Virginia.

French Annual Inflation Rate Accelerates to 1.6%

Oct 12, 2007 - French annual inflation accelerated in September, spurred by energy costs and tobacco prices.

Consumer prices rose 1.6 percent from a year earlier, higher than the 1.3 percent of the previous month, based on European Union-harmonized methods, Insee, the national statistics bureau, reported today in Paris. From a month earlier, prices rose 0.1 percent. Both figures were below the median expectations of analysts surveyed by Bloomberg News.

Signs of discord are beginning to emerge among European Central Bank monetary-policy makers on the course of interest rates. The ECB's Axel Weber yesterday said the bank may need to raise the key rate to a level that restricts growth in order to control inflation. His colleagues Vitor Constancio and Klaus Liebscher have noted that the stronger euro is helping to contain prices.

"The inflation numbers were very good," said Alexandre Bourgeois, an economist at Natixis in Paris. "Inflation is under control." The ECB aims to keep inflation below 2 percent.

Energy prices increased 1.9 percent in September from a year earlier, while the cost of tobacco rose 6.2 percent, boosted by higher taxes. On the month, fresh food prices jumped 3.2 percent and tobacco rose 1 percent.

The ECB stepped back from plans to raise rates in September, saying it wanted to assess the economic impact of rising credit costs and financial-market turbulence caused by the U.S. housing slump.

"The impact of the financial crisis in the fourth quarter and the first quarter of 2008 should prompt the ECB to reconsider its scenario and progressively consider a monetary response, with two rates cuts in the first half," said David Naude, economist at Deutsche Bank in Paris.

China Trade Surplus Jumps 56 Percent to $23.9 Billion

Oct 12, 2007 - China's trade surplus jumped 56 percent in September to $23.9 billion, adding pressure on the central bank to increase borrowing costs and let the yuan strengthen faster to prevent the economy overheating.

The gap widened from $15.3 billion a year earlier, the customs bureau said on its Web site today, after gaining 33 percent in August. That exceeded the $21.6 billion median estimate of 20 economists surveyed by Bloomberg News.

Export earnings helped push China's foreign-exchange reserves to a record $1.43 trillion at the end of September, a separate report showed. Chinese stocks dropped on speculation the central bank is poised to raise rates for a sixth time this year as cash from overseas sales fuels inflation running at a 10-year high.

"All the money flooding in is a phenomenal problem for policy makers," said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong. "The government may raise rates, but accelerating the pace of yuan appreciation or raising bank reserve requirements are more efficient tools."

The yuan has gained about 10 percent versus the dollar since the end of a fixed exchange rate in July 2005. The currency traded at 7.5080 at 3 p.m. in Shanghai after closing yesterday at 7.5057.

The CSI 300 Index of stocks fell 0.4 percent, after earlier plunging as much as 4.8 percent. It has almost quadrupled in the past year. Inflation reached an annual rate of 6.5 percent in August on food costs and the September figure may be announced as soon as next week.

Borrowing Costs

"Rates are likely to rise again because of the higher inflation rate," said Yao Maogong, head trader at Shanghai Securities Co. in the city.

The one-year lending rate increased to 7.29 percent last month and the central bank told lenders to set aside larger reserves for the seventh time this year.

Speculation an increase is likely comes ahead of the ruling Communist Party's five-yearly congress next week. Central banker Zhou Xiaochuan, who oversaw the revaluation of the yuan and raised borrowing costs for the first time in nine years in 2004, is likely to be moved to a new post after a five-year term, economists predict.

The trade surplus for the first nine months jumped 69 percent to $185.65 billion, topping the $177.5 billion record for all of last year.

M2, the broadest measure of money supply, increased by 18.5 percent in September, according to a report released today -- the eighth straight month that it has exceeded the central bank's 16 percent annual target.

`Anti-China Sentiment'

European finance ministers this week urged China to let the yuan appreciate more quickly against their currency to make its exports more expensive and narrow the gap. Recalls of Chinese- made products such as lead-painted toys have exacerbated trade tensions this year.

"Anti-China sentiment is only going to get worse," said Tim Condon, head of Asia research at ING Groep NV in Singapore, citing U.S. politicians' calls for protectionist legislation in the run-up to next year's presidential election.

Exports rose 22.8 percent in September from a year earlier to $112.48 billion and imports had the smallest gain in three months, climbing 16.1 percent to $88.57 billion.

"Imports are becoming weaker because they are being replaced by domestic production," said Sun Mingchun, an economist at Lehman Brothers Holdings Inc in Hong Kong. "The government should lower tariffs and boost domestic consumption to encourage more imports and the pace of yuan appreciation needs to accelerate too."

Bush: No `Trade War'

U.S. Treasury Undersecretary David McCormick last month said the yuan needs to strengthen faster to boost Chinese consumption and rebalance the world's fourth-largest economy. In the U.S., the Senate Finance Committee in July approved legislation aimed at pressuring China and other countries to allow their currencies to trade more freely.

President George W. Bush said he won't approve any laws that will 'start a trade war or spark protectionist policies,' the Wall Street Journal reported on its Web site today.

Exports to the U.S. rose 15.8 percent in the first nine months from a year earlier and those to Europe jumped 30.8 percent. Shipments to India soared 67.5 percent, the customs bureau said.

Growth in the surplus has slowed from June's 87 percent increase from a year earlier on cuts to export rebates.

The government is concerned that the growth in money supply is helping to fuel increases in property prices. In August, housing prices jumped 20.8 percent in Shenzhen and 12.1 percent in Beijing from a year earlier.

China has the world's fastest-growing major economy. It expanded 11.9 percent in the second quarter from a year earlier, the fastest pace in more than 12 years, on exports and investment.