Stock markets around the world slumped Friday after President Barack Obama unveiled plans to limit the size and scope of US banks and financial firms in a fresh offensive against Wall Street excesses.

Markets from New York to Tokyo reacted with barely-restrained panic to Obama’s drive to limit the size of the largest banks and introduce measures to curb “excessive” risk taking.

“Never again will the American taxpayer be held hostage by a bank that is too big to fail,” vowed Obama, flanked by former Federal Reserve chief Paul Volcker who advised the president on the rules.

He promised to “protect” taxpayers by preventing banks or financial institutions from owning, investing in or sponsoring hedge fund or private equity funds.

Wall Street gave an immediate thumbs down to the plans as US stocks plunged, with the blue-chip Dow Jones Industrial Average down more than 200 points or two percent in Thursday trading.

The news then sent shockwaves though Asian stock markets with the region’s financial centers suffering heavy losses in Friday trading. European exchanges later opened under pressure.

Obama’s measures would effectively force financial firms to choose between lucrative proprietary activities — trading in stocks and sometimes risky financial instruments for their own benefit — and traditional activities, like making loans and collecting deposits.

The initiative, which must be approved by Congress, includes a new proposal to limit the consolidation of the finance sector, placing broader limits on “excessive growth of the market share of liabilities” at the largest financial firms.

Obama blamed banks for sparking the worst economic crisis since the Great Depression with “huge reckless risks in pursuit of quick profits and massive bonuses” in a “binge of irresponsibility.”

“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout,” the president said.

He vowed to enact the reforms in Congress, even if Wall Street deployed an army of lobbyists to kill them.

“If these folks want a fight, it’s a fight I’m ready to have,” he vowed defiantly.

The announcement was the latest attempt by the White House to harness public rage at Wall Street bonuses and the financial crisis.

David Easthope, analyst with Celent, a research and consulting firm, said the effort could hit the banks in one of their most profitable areas.

Proprietary trading “has been the sweet spot for leading investment banks over the last few years, and executives will be concerned that Washington will be taking away the frosting,” he said.

The Financial Services Roundtable, which represents 100 of the largest integrated financial firms, said the proposal would do little to improve risk management or protect consumers from irresponsible loans and trades.

“The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs,” said Steve Bartlett, president and chief executive for the Roundtable.

The group represents 100 top financial services firms providing banking, insurance, and investment products and services.

Obama’s first year in office was dominated by efforts to rescue a handful of banks that threatened to topple the US economy after being exposed to massive losses on the subprime mortgage market.

According to Treasury officials, about 205 billion dollars was pumped into 707 banks under the government rescue plans.

Obama has sounded a tougher tone towards banks in recent weeks as he faced widespread voter anger at the massive government bailout, which came as Americans faced surging unemployment, home foreclosures and national debt.

Top Obama economic aide Austan Goolsbee sought to counter criticism that the plan is returning to the Depression-era law creating a wall between investment and commercial banks.

“It’s not returning to Glass-Steagall,” Goolsbee said.

While the act repealed in 1999 forbid underwriting securities or investing in securities by any commercial bank, Goolsbee said, “This is not that. This says a bank cannot own a hedge fund, cannot own a private equity fund or do trading for its own account that is not related to its client business.”

He added that the goal is “to get back to the fundamental nature of the bank, which is serving its clients, rather than investing for its own profit.”

Global Investor: Earnings Falsely
Discount a Strong Recovery in 2010

Thus far into the corporate earnings season, the results have best unimpressive. And U.S. Treasuries have noticed, as the benchmark yield on ten-year paper declines from 3.84% on December 31 to 3.70% this morning.

For the most part, revenues are flat to slightly higher while net income has indeed increased – but compared to 12 months ago that comparison is pretty easy. Combined with fudged accounting rules in the United States since May and creative accounting elsewhere, it’s no wonder banks have recovered sharply. Plus, let’s not forget the Fed’s greatest gift of all – providing a remarkably profitable spread trade where banks received near-zero percent money and thereafter reinvest in longer dated paper or make loans at a sharply higher rate of return.

With the exception of China, India and several other advanced emerging markets like Chile and Brazil, the global economy is not booming any time soon.

The West remains stuck in a debt-infested rut and the markets have begun to protest the mountains of money created since late 2008 to arrest falling prices; government bond yields are now rising over the last six weeks as the risk of a sovereign default grows. Dubai, Iceland and Greece are just the tip of the iceberg or the hors d’oeuvre before the main course.

In the United States, still nursing deep wounds inflicted by the credit crash, consumption is still largely impaired. Consumers have boosted spending compared to 12 months ago and that’s normally a good sign. However, the big gains in retail are coming from the likes of discount stores, not high-end retailing or even Wal-Mart Stores. Consumers are frugal. I suppose the “feel good” factor is long gone and won’t make a comeback until real estate recovers combined with jobs growth.

Finally, it’s noteworthy to point out again that following big declines in U.S. economic output over the past 100 years, the economy has always recovered sharply. Actually, a boom is more accurate…

The bigger the drop in GDP, the bigger the bounce. Indeed, as outlined here recently, courtesy of Grant’s Interest Rate Observer, the U.S. economy went through the roof starting in 1934 following a massive 27% crash in output from 1929 to 1933. The same story, though not as sexy, occurred in prior booms and busts.

If the above historical association is true then what can we expect in 2010? Will the United States post a significant economic recovery?

Increasingly, even amid a wall of government stimulus spending, the economy is not bouncing back vigorously. You have to wonder what lies ahead once Washington starts pulling back on spending or if the Fed is forced by the markets to start raising interest rates. There’s not much juice left here unless business spending really takes off.

Santa came early for Wall Street this year by giving the S&P 500 a 22 percent gain for 2009, and with just eight trading days left in the year, stock investors are not expecting to find much more under the tree.

The Grinch showed up early, too, with a heavy winter snowstorm on the East Coast forcing some stores and malls to close on “Super Saturday” — on the last holiday shopping weekend before Christmas.

Investors will be anxious to find out if consumers stepped up their online shopping to get all those stockings filled before Christmas morning, which falls on Friday this year.

With consumers in focus in the countdown to Christmas, this week’s major U.S. economic indicators will include the Reuters/University of Michigan consumer sentiment index, personal income and spending data, and the latest weekly jobless claims. On Thursday, the New York Stock Exchange trading floor will close early in observance of Christmas Eve.

Financial markets will be closed on Friday for Christmas Day.

Investors will also pay attention this week to a final reading on third-quarter gross domestic product. But with the market already factoring in an economic recovery, the GDP data could evoke a muted response. Existing home sales and new home sales also will be worth noting, due to the central role the housing sector’s collapse played in last year’s financial crisis.

Tensions between Iraq and Iran over a disputed oilfield will also be on the radar and could hurt stocks if the situation escalates.

Markets historically enjoy a short, sweet “Santa Claus rally” in December’s final days and early January.

But with the S&P 500 (.SPX) climbing 63 percent from March’s 12-year closing low, investors question what catalyst could drive the market significantly higher.

“I thought there might be one more push higher, but it now looks like investors are willing to let the market consolidate its gains this year, and are happy to lock in the profits that they’ve established,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

The Standard & Poor’s 500 Index has drifted in a range between 1,085 and 1,119 since the start of November as market players became more concerned with preserving 2009’s gains rather than taking risky bets. The S&P 500 is up 22.1 percent for the year.

This month, the U.S. dollar’s rebound has limited the stock market’s gains as the inverse correlation between the greenback and equities deteriorated.

On the plus side, though, is the ritual of year-end window dressing, when fund managers sell underperformers and buy some gainers to spruce up portfolios, which could lift stocks that have done well this year.

Volatility may increase this week as fewer participants make it easier to push the market around. Indeed, the market has generally climbed on light volume this year, but most analysts expect stocks to grind sideways in the days ahead.

“You will probably see some modest window dressing going on, so in my opinion, you could see higher-quality stocks do a bit better,” said Haag Sherman, co-founder and chief investment officer of Salient Partners, an investment firm in Houston. “But I don’t think there’s going to be any material movements between now and year-end.”

RETAIL’S “ARCTIC WINTER”

Most importantly for the market’s outlook, investors will assess the holiday shopping season after “Super Saturday” weekend. Retailers had hoped to see a surge of shoppers over the last weekend before Christmas. But that was before Mother Nature played her wild card with a huge East Coast snowstorm that made driving and even walking dangerous in many areas.

Even before the storm, experts doubted whether “Super Saturday” shopping would be enough to push holiday sales much above last year ’s dismal tally.

Last year was the first time that holiday sales fell during this decade, according to the International Council of Shopping Centers, as shoppers fretted about the financial crisis and growing unemployment.

Spending has remained anemic this year. Consumers’ reluctance to spend remains one of the biggest headwinds to the U.S. economic recovery.

“Last year was a train wreck. It was the arctic winter of retail,” said Lawrence Creatura, equity market strategist and portfolio manager at Federated Clover Capital Advisors in Rochester, New York. “Surpassing that is not a high hurdle.”

A snapshot of how retailers fared over the weekend will come from anecdotal evidence about how busy - or not — stores were, as well as sales and traffic data from ShopperTrak, a private firm that monitors such statistics.

Further insight into consumers’ purchasing power and their inclination to spend will come on Wednesday from a final reading of December consumer sentiment from the Reuters/University of Michigan data. Economists expect an index reading of 73.5, compared with a previous reading of 67.4, according to a Reuters poll.

The struggling job market’s pulse will be taken on Thursday, with the release of initial claims for jobless benefits, expected to fall to 470,000 from 480,000 the week before. For details on economic indicators, see

Only a few major earnings reports are on tap, including results from Walgreen Co (WAG.N), ConAgra Foods Inc (CAG.N) and Micron Technology Inc (MU.N).

MODEST GROWTH IN GDP AND HOME SALES

The government’s final look at third-quarter gross domestic product, due on Tuesday, is expected to show the U.S. economy grew at an annual rate of 2.8 percent in the stretch from July through September, in line with the previous reading.

Existing home sales for November also will be released on Tuesday; economists forecast sales will rise to a seasonally adjusted annual pace of 6.25 million units from 6.10 million in October.

On Wednesday, new home sales for November are expected to edge up to a seasonally adjusted annual rate of 440,000 units from 430,000 in October.

EYES ON IRAQ AND IRAN

A potential headwind for markets could be any increase in tensions between Iraq and Iran. On Friday, Iraq demanded that Iran immediately withdraw its soldiers from a disputed oilfield on the two countries’ border, but Iran denied any incursion.

But on Sunday, officials from both countries said Iranian troops have withdrawn partly from a disputed oil area claimed by both Tehran and Baghdad, possibly defusing a border feud straining the two nations’ delicate ties.

While the stock market showed no reaction on Friday, an escalation in hostility between Iraq and Iran could push investors out of stocks and into safe-haven assets such as the dollar or U.S. Treasury bonds.

“Any acceleration of aggression, or potential disruption in the supply of oil would have a more meaningful impact on investor sentiment,” Creatura said.

U.S. crude oil futures settled on Friday at $73.36 a barrel, up 71 cents, or almost 1 percent, with Middle Eastern tensions supporting oil prices.

CIT files for Chapter 11 bankruptcy protection

world stock market ,world stock market  news, singapore stock market , singapore stock market news

After struggling for months to avert bankruptcy, lender CIT Group has filed for Chapter 11 protection in an attempt to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses.

CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.

The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT’s bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.

A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT’s debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.

“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.

CIT’s move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.

Treasury Department spokesman Andrew Williams said the government will be closely monitoring the bankruptcy proceedings, but acknowledged that “recovery to preferred and common equityholders will be minimal.”

Common stockholders set to lose their investment include FMR LLC of Boston with a 9.9 percent stake in CIT and San Diego-based Brandes Investment Partners LP with a 9.7 percent equity position, according to CIT’s filing.

CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.

The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.

Analysts warned that the bankruptcy could add to the uncertainty around loans for the nation’s small businesses, especially retailers, which make up a significant portion of CIT’s clients and are already struggling with tight credit markets.

CIT is the financier for about 2,000 vendors that supply merchandise to more than 300,000 stores, many of which are gearing up for the critical holiday shopping season. They rely on the lender to cover costs ranging from paying for orders to making payroll. Any disruption caused by bankruptcy could wreak havoc on their operations, Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.

“CIT is the 600-pound gorilla in the industry,” Alouf said.

But CIT has already pulled back sharply on its lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009 compared to $11.3 billion in the first half of 2008.

CIT said Sunday the bankruptcy filing is only for the holding company, and won’t affect its operating subsidiaries, such as Utah-based CIT Bank. CIT has filed a number of first-day motions to allow it to continue operations, including requests to keep paying wages and other employee benefits and to pay its vendors and certain other creditors in full.

The company has retained Evercore Partners and FTI Consulting as its financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel in connection with the restructuring plan and Chapter 11 cases.

Houlihan Lokey Howard & Zukin Capital Inc. serves as financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison LLP serves as legal counsel to the bondholders’ committee.

LOS ANGELES - U.S. Bancorp on Friday acquired nine banks held by FBOP Corp, picking up $18.4 billion in assets after regulators seized a major Los Angeles lender and eight other banks in the latest failures to emerge from the financial crisis.

Among the banks Minneapolis-based U.S. Bancorp acquired was Los Angeles-based California National Bank, taken over by regulators on Friday in what the Los Angeles Times called the fourth-largest U.S. bank failure this year.

Bank failures in 2009 hit 106 last week, their highest annual level since 1992, with more expected to come. The largest institution to fail in the current financial crisis was Washington Mutual, which boasted $307 billion in assets when it was shuttered in September 2008.

Visibly worried employees lined up to file into Cal National’s head offices in the heart of a deserted downtown Los Angeles on a chilly Friday evening, where they had their employers’ fate explained to them, regulators said.

“We’re getting ready to turn everything over to U.S. Bank,” said Roberta Valdez, a spokeswoman for the Federal Deposit Insurance Corp, which helped supervise the transfer of FBOP’s assets. “They will continue to operate as normal in the interim,” she added, referring to lenders acquired from FBOP.

U.S. Bancorp — which has been buying up distressed assets this year — is picking up eight other lenders once owned by FBOP, a private Illinois group with over $18 billion in assets that owns banks in Texas, Illinois, Arizona and California.

Cal National is FBOP’s largest bank by branches. Others that will now go under the U.S. Bancorp umbrella included BankUSA, Citizens National Bank, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and the Community Bank of Lemont.

“This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions,” said Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp.

“This transaction adds scale to our current California, Illinois and Arizona footprints.”

NEXT BIG HEADACHE

In the “near future,” all nine lenders’ branches will be re-branded U.S. Bank, which is the California-focused unit of U.S. Bancorp’s that operates a network of more than 770 branches across Illinois, Arizona and California.

U.S. Bancorp did not specify what would happen to the new employees it inherits.

Cal National operates 68 branches across Southern California with more than $7 billion in assets. As of June 30, the lender maintained five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier, according to the Los Angeles Times, which first reported news of its evening takeover on Friday.

Cal National lost about $500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, the newspaper added, referring to securities rendered nearly worthless by the government takeover of the mortgage firms last year.

A bank official who answered the main number at Cal National’s headquarters said they could not talk at the time.

More lenders are expected to go under this year as the industry tries to get a handle on commercial real estate loans that will continue to worsen, as more strip malls go vacant and residential developments stall.

Banks held about $1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 percent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks were better diversified.

Banks that analysts say could risk big losses include Salt Lake City’s Zions Bancorp, Columbus, Georgia’s Synovus Financial Corp and Dallas-based Comerica Inc.

The Wall Street Journal had reported earlier this month that U.S. Bancorp was conducting due diligence on FBOP.

Before FBOP, U.S. Bancorp bought Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those thrifts failed last November, the newspaper said. Just this month, U.S. Bancorp bought 20 Nevada branches from BB&T Corp., which had acquired them as part of its deal to buy Colonial BancGroup Inc, it added.

WASHINGTON (AFP) - – The United States rebounded from recession in the third quarter, posting its strongest economic growth in two years as government stimulus spurred consumer spending, official data showed Thursday.

After four negative quarters, the world’s largest economy grew at a seasonally adjusted 3.5 percent annual rate in the July-September period from the second quarter, the Commerce Department said.

The increase was the first since the second quarter of 2008 and the strongest expansion since the 2007 third quarter, when a US subprime mortgage crisis triggered a global financial crisis that hammered the world economy.

The expansion followed an unrevised 0.7 percent decline in the second quarter.

The department’s first estimate of third-quarter gross domestic product (GDP), a broad measure of the country’s output of goods and services, was slightly higher than the 3.2 percent reading expected by most analysts.

President Barack Obama welcomed the data as “an affirmation that this recession is abating and the steps weve taken have made a difference.”

But, he warned: “We have a long way to go to fully restore our economy, and recover from what has been the longest and deepest downturn since the Great Depression.”

“The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well.”

While a recession is widely regarded as ended by one quarter of economic growth, in the United States the economy will not be officially out of recession until it has been declared by the National Bureau of Economic Research.

Unemployment remains a key hurdle to sustained recovery. The jobless rate rose to a new 26-year high of 9.8 percent in September and is expected to hit double digits. Since the official start of recession in December 2007, the number of unemployed has climbed by 7.6 million to 15.1 million.

The Labor Department reported Thursday that new weekly claims for unemployment benefits fell slightly.

“The recession is over, but don’t be fooled by today’s number — the underlying rate of recovery is weaker,” said Nariman Behravesh, chief economist at IHS Global Insight.

Behravesh said that underlying growth was closer to 2.0 percent and predicted momentum would only pick up in the second half of next year as consumers and businesses grow more confident.

After shrinking a sharp 6.4 percent in the first quarter, the world’s largest economy has been on life support from the federal 787-billion-dollar emergency stimulus and other support measures.

The third-quarter rebound was led by consumer spending, which accounts for two-thirds of US economic activity and added 2.36 percentage points to GDP growth.

Consumer spending surged 3.4 percent after a 0.9 percent drop in the second quarter, a rise the department said “largely reflected” auto purchases under the government’s popular “cash-for-clunkers” program in July and August.

Dean Baker, co-director of the Center for Economic and Policy Research, noted that, excluding the auto sector, consumption grew at a 1.0 percent annual rate.

“With disposable income falling due to continued job losses and declining hourly wages, and the reversal of the surge in car sales, consumption growth will almost certainly be negative in the fourth quarter,” Baker said.

Other leading drivers of third-quarter growth were business inventories and home building.

The core inflation rate — which strips out volatile food and energy prices — fell to 1.4 percent from 2.0 percent, indicating inflationary pressures remain tame amid economic weakness.

The Federal Reserve, which keeps a close eye on the reading, is widely expected to leave its key interest rate unchanged at nearly zero when policymakers meet on November 3-4.

“If we do indeed get a second consecutive quarter of good growth, there will be a lot of pressure on the Fed to start raising rates,” said Joel Naroff of Naroff Economic Advisors.

“Indeed, I wouldnt be surprised if the markets start pricing that into bond yields during the rest of the year.”

HONG KONG (Dow Jones)–Interest in Asian markets revived in September, with some attention shifting to the region’s bonds from stocks, according to results of Dow Jones’ monthly survey of fund managers.

Fund managers moved to an “overweight” position on Asian ex-Japan bonds during the month, up from “slightly overweight” in August. Managers maintained a “slightly overweight” stance on Asia ex-Japan stocks. Weightings reflect managers’ portfolio composition compared with benchmark indexes.

Fund flows in September echoed the enthusiasm for Asian markets. Asian funds, particularly bond funds, saw very strong inflows during the month. Global and emerging markets bond funds as well as global equity funds posted their biggest inflows year-to-date in the week ending Sept. 17, according to fund flow tracker EPFR Global.

Funds with Asian mandates were hit by some redemptions this past week amid new US-Chinese trade tensions, EPFR said. With the U.S. imposing fresh levies on Chinese tire exports and China threatening to retaliate, China equity funds saw US$477 million in redemptions last week as investors rotated Asian exposure to India and Korea.

The big run-up in Asian stock markets in recent months also gave investors some pause and made bonds look more attractive by comparison. Invesco, which has US$413.9 billion in assets under management worldwide, noted that stock valuations globally have returned to long-term average “not expensive but no longer cheap.”

A big question for fund managers is whether or not earnings at Asian companies will continue to rise. Those that are optimistic about global recovery or the ability for Asian economies to “decouple” from the U.S. or Europe see room for more earnings growth.

“Valuations have risen, but we are expecting earnings to see further upwards revisions,” said Simon Godfrey, investment specialist at Fortis Investments in Hong Kong, who projects better year-on-year comparisons starting in the fourth quarter.

But others, such as Standard Life Investments, are taking a more cautious approach, saying that “long-term valuations remain a concern.”

Within the region, Indonesian stocks become the top favorite during the month. Fund managers became more “overweight” position on Indonesian stocks in August.

“The economic environment and corporate earnings in Indonesia remained strong and we think it can weather the economic downturn fairly well,” said Invesco, which remains comfortable with the country’s banking sector.

Indonesia’s Jakarta Composite Index, or JCIindex, is up 4.3% in the last month and up more than 82% year to date.

“We like Indonesia very much - especially the financial sector as the banks are slow to cut lending rates despite the strong monetary easing,” Godfrey said, adding that the firm likes materials companies which are benefitting from growing demand China and India.

In other parts of Asia, Chinese and Indian stocks continued to be favorites.

Chinese authorities sparked some alarm by announcing plans to curb overcapacity and redundant construction in major industrial sectors, But Invesco said it was not alarmed by the plans, seeing them as “supply side adjustments” rather than a move to tighten policies.

Encouraged, the firm said it selectively increased exposure in retail clothing and goods, technology as well as other consumer plays.

India has been favored for being relatively insulated from the global economic downturn and for its strong domestic growth story.

Each month, Dow Jones Newswires surveys fund managers on portfolio weighting recommendations for the succeeding months, with most looking at a 12-month horizon. This latest survey was taken over the past week. The respondents for this month’s survey were Aberdeen Asset Management, Credit Agricole Asset Management, Fortis Investments, Invesco, J.P. Morgan Asset Management, Prudential Asset Management, Schroder Investment Management and Standard Life Investments.

For the survey, each participant was asked to assign recommendations to each asset class. The weightings from each fund manager were then averaged: 0 is neutral, up to +0.5 is slightly overweight, above +0.5 to +1 is overweight, above +1 is very overweight. Meanwhile, 0 to -0.5 is slightly underweight, below -0.5 to -1 is underweight, below -1 is very underweight.

 OVERALL GLOBAL WEIGHTINGS
               Sept09  Aug     July    June   May    April
Cash           -0.50   -0.50    -0.50   -0.25   0     +0.25
Bonds          +0.25   +0.50    +0.25   +0.50  +0.50  +0.50
Equities       +0.50   +0.50    +0.50    0      0      0
Commodities    +0.50   +0.25    +0.25   +0.25  +0.25  -0.50 

GLOBAL BONDS    Sept09  Aug     July   June   May    April
Asia ex-Japan   +0.50  +0.25    +0.25  +0.50  +0.50  +0.50
Japan           -0.25  -0.25     0     -0.25  -0.25  -0.50
North America    0     +0.25     0     +0.25   0     -0.50
Europe           0     +0.25    +0.25  +0.25   0     -0.25
Non-Asian       +0.50  +0.50    +0.75  +0.50  +0.50  +0.25
emerging mkts 

GLOBAL EQUITIES   Sept09  Aug     July   June   May   April
Asia ex-Japan     +0.25  +0.25   +0.50   0     +0.25  +0.50
Japan             -0.25  -0.25    0     -0.50  -0.25  -0.25
North America     -0.25   0      -0.25   0     -0.25   0
Europe             0      0      -0.25  +0.25   0     -0.25
Non-Asian         +0.50  +0.50   +0.50  +0.25  +0.25  +0.25
emerging mkts 

ASIAN EQUITIES    Sept09   Aug    July   June   May   April
Japan              0       0     -0.25  -0.50  -0.25  -0.25
China             +0.50   +0.50  +0.75  +0.50  +0.50  +0.50
Hong Kong         +0.25   +0.25  +0.50   0     +0.25  +0.50
Taiwan            +0.25   -0.25  -0.25  -0.50  -0.25  -0.25
South Korea        0      -0.25   0     -0.25   0     -0.25
Singapore         -0.25   -0.25   0      0     -0.25   0
Indonesia         +0.75   +0.50  +0.50  +0.50  +0.50  +0.25
Philippines       -0.25    0      0      0     -0.25   0
Thailand          +0.25   +0.25   0      0      0      0
Malaysia          -0.25   -0.50  -0.75  -0.50  -0.50  -0.50
Australia         +0.50   -0.75  -0.75  -0.25  -0.25  -0.25
New Zealand       -0.50   -0.50  -0.50  -0.75  -0.75  -0.50
India             +0.50   +0.25  +0.50  +0.75  +0.75  +0.25

These are the securities directly issued by the US Government which have the longest maturity (30years). The contracts are not quoted with decimals but with fractions. For instance, the prices soared during 2 months last year (November and December 2008, between points A and B on the chart) from 112 20/32 to 141 28/32.

Click to enlarge

As you know, bond prices move on the opposite direction of interest rates. In the real economy, there are of course other factors such as relative risk, expectations on degree of confidence that impact bond prices. But the surge in November and December last year corresponds to the time where the Fed smashed the interest rates to attempt boosting the economy.

In just 2 months, bond prices rose by 26%, an unusual volatility for those contracts. However they have corrected back to the initial point of this surge (point C). This new low just below 112 posted in June has created a “double bottom” pattern that is considered as a strong support zone. That’s why a new rebound was generated from point C. Currently the bonds are traded around above 119. This medium-term bullish trend is backed by an ascending support line that goes through higher lows posted during the last three months. This is the immediate support.

On the upside, the objective is the level of 123 16/32, which is “only” less than 4% higher than the current levels. This potential resistance (blue horizontal line) is a key support that has been successfully a high and a low level. It corresponds firstly to a peak posted one year ago in September 2008 (point D), then a new low (point E in late February 2009). It became a new high once again (point F) while prices were correcting strongly a few months ago.

Many indicators have recently turned bearish. Therefore a test of the current support is likely to last more. If this level holds, then a quick spike to 123 16/32 is probable. If it is cleared, the intermediary support around 115 would become the new target for the bears.

US recession over, but economy still weak: Bernanke

WASHINGTON (AFP) - - Federal Reserve chairman Ben Bernanke said Tuesday the US recession “is very likely over” technically but that the economy remains weak due to difficult credit conditions and high unemployment.

Bernanke, speaking at a Washington forum, said the economy is likely to show growth in the third quarter after a slump that began in late 2007 in his clearest comments to date indicating the economy has turned a corner.

“Even though from a technical perspective, the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was,” he said in response to a question.

“So that’s a challenge for us and policymakers going forward.”

Bernanke was speaking at a Brookings Institution economic forum a year after the collapse of Lehman Brothers triggered a financial panic and deepened the recession.

A year later, Bernanke said that there is “agreement among the forecasting community at this point that we are in a recovery,” and that growth is occurring in the third quarter and will continue into 2010.

“But the general view of most forecasters is that the pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession because of ongoing headwinds,” he said.

Bernanke said that activity outside the regulated banking system — the so-called shadow banking system — appeared to be reviving even though that sector may be less important than before the recession.

He said he saw “encouraging” signs in securitization — the repackaging of loans that are sold to investors — even in areas not supported by the Fed.

“I imagine that the shadow banking system, at least in the medium term, will not return to the size it was before,” he said.

“On the other hand, there are a lot of securitizations that have proved their viability — mostly plain-vanilla securitizations of various types, in consumer products, consumer lending, student loans, a variety of other things.

“We are seeing now — very encouraging, we’re seeing more activity taking place completely outside of the Fed’s program.”

Still, Bernanke noted that the tighter credit conditions will hurt growth and hurt job creation, thus impacting the overall economy for a time.

“The arithmetic is that unless the economy grows significantly faster than its longer-term growth rate, it’ll be relatively slow in creating jobs over and above those needed to employ people coming into the labor force, and therefore the unemployment rate would tend to come down quite slowly,” he said.

The US economy contracted at a pace of 1.0 percent in the second quarter after a hefty 6.4 percent decline in the first quarter.

But the unemployment rate rose in August to a 26-year high of 9.7 percent as 216,000 jobs were lost. Although the pace of job losses has slowed, many analysts say unemployment could top 10 percent even with a rebounding economy.

Separately, Treasury Secretary Timothy Geithner said that US economic recovery has not yet arrived but is on that way thanks to a range of government actions including some that were “offensive.”

“I would say there’s no recovery yet,” Geithner said in an interview with ABC television.

“We don’t have in place yet a real recovery. We define recovery, and the president will define recovery, as people back to work, people able to get a job again, businesses investing again. And we are not at the point where we can say that yet.”

Geithner said the crisis forced the government into a series of bailouts and other actions to limit the damage, which he said would help foster recovery.

“We got into this because we borrowed too much,” he said.

“We lived beyond our means both as a country — many businesses did it, many families did it, obviously the financial sector did that. But in a crisis, in a fire that was that powerful, the government had to do some deeply offensive things to help contain the damage.”

NEW YORK - Stocks rose on Monday as reports of more merger activity added to a string of recent deals, suggesting investors still see value in the market after its run-up of more than 50 percent since March.

Optimism about potential deals overshadowed concerns about trade friction between the United States and China after Washington imposed special duties on Chinese tire imports.

Shares of power company AES Corp <AES.N> rose 4.5 percent after a Wall Street Journal report that China’s sovereign wealth fund was in talks to take a stake in AES.

Sprint Nextel Corp <S.N> jumped 10.1 percent after a British newspaper reported Germany’s Deutsche Telekom AG <DTEGn.DE> was considering a bid for its U.S. rival.

“The M&A activity is definitely starting to heat up. sparked interest across the whole utility sector,” said Owen Fitzpatrick, head of U.S. Equity Group at Deutsche Bank Private Wealth Management, in New York.

Analysts say M&A activity could help the market stay on its recent uptrend. The benchmark Standard & Poor’s 500 index has gained 55 percent since hitting 12-year lows in early March.

U.S. President Barack Obama, speaking in New York one year after Lehman Brothers’ collapse sent world markets into a tailspin, called on financial firms not to fight regulatory reform, but there was little market reaction.

The Dow Jones industrial average <.DJI> ended up 21.39 points, or 0.22 percent, at 9,626.80. The Standard & Poor’s 500 Index <.SPX> was up 6.61 points, or 0.63 percent, at 1,049.34. The Nasdaq Composite Index <.IXIC> finished 10.88 points higher, or 0.52 percent, at 2,091.78.

Banks, which benefit from M&A activity, were among top gainers as well, with shares of JPMorgan Chase & Co <JPM.N> up 2.9 percent at $43.75 and leading gains on the Dow.

In other merger news, Cadbury Plc <CBRY.L> reiterated its stance on a takeover bid from Kraft Foods Inc <KFT.N> over the weekend as Cadbury’s chairman, Roger Carr, said it was an “unappealing prospect” being absorbed into Kraft’s low-growth, conglomerate business model.

Kraft, which went public last week with a bid for the British confectioner, rose 0.04 percent to $26.11.

Shares of U.S. tire makers also rose, including Goodyear Tire & Rubber Co <GT.N> up 3 percent to $17.78 and Cooper Tire & Rubber Co <CTB.N> up 7.1 percent to $15.60.

But analysts said the trade decision by Obama could open the door to a host of trade complaints against Chinese products, creating tensions as Western nations seek support from the world’s third-largest economy at G20 meetings later this month.

China’s commerce ministry said Sunday it launched an anti-dumping investigation into imports of U.S. chicken products and automotive exporters.

“Although on the surface it could lead to something serious, I think both sides, and certainly China, realize that it not in their best interest to really escalate this,” said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

Shares of AES ended at $14.79 while shares of Sprint closed at $4.15.

On the Nasdaq, shares of Dendreon Corp <DNDN.O> rose 15.1 percent to $27.43 after analysts said there was renewed speculation the company, which is developing a vaccine for prostate cancer, is a takeover target.

Other acquisitions or bids were announced last week in the communications and biotech sectors.

Volume was below average on the New York Stock Exchange, with 1.21 billion shares changing hands, below last year’s estimated daily average of 1.49 billion, while on the Nasdaq, about 2.17 billion shares traded, down from last year’s daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 2 to 1, while advancers beat decliners on the Nasdaq by about 8 to 5.

US stocks climb on jobs, retail sales data

Wall Street stocks opened with small gains on Thursday after new data showed a modest improvement in the US job situation and mostly positive retail sales.

The Dow Jones Industrial Average climbed 38.16 points (0.41 per cent) to 9,318.83 in opening trades after the blue chip index closed in the red for the fourth consecutive day on Wednesday.

The tech-heavy Nasdaq composite added 6.99 points (0.36 per cent) to 1,974.06 and the broad-market Standard & Poor’s 500 index was up 5.03 points (0.51 per cent) to 998.78.

‘The bulls look to post the first positive session of the month,’ analysts at Charles Schwab & Co said in a report. ‘A plethora of reports on same-store sales in August for the nation’s retailers are mostly positive.’

Retailers continued to report weak same-store sales but results at key outlets in August topped analysts’ expectations, according to new sales figures.

Weak consumer sentiment and unemployment are key factors threatening to hurt any signs of recovery from prolonged recession, analysts have warned.

The Labour Department also reported on Thursday that new claims for US unemployment benefits fell to 570,000 in the week ending August 29 from the previous week’s revised figure of 574,000.

Most analysts had expected the claims to drop to 565,000.

The four-week moving average, which smooths out week-to-week volatility, was 571,250, an increase of 4,000 from the previous week’s revised average of 567,250.

The total number of Americans receiving unemployment benefits rose.

According to the department, the number for seasonally adjusted insured unemployment or continuing claims during the week ending August 22 was 6.234 million, an increase of 92,000 from the preceding week’s revised level of 6.142 million.

The market was less impressed with the job figures.

‘The level of initial claims and continuing claims is awful, as the four-week average for both measures remains well above the peak of the last recession,’ said Patrick O’Hare of Briefing.com.

‘The data are a sobering reminder that the labour market, and consumer spending, will be a drag on growth prospects,’ he said.

AIG pauses auction of aircraft leasing firm

Insurance giant American International Group (AIG) has paused the auction of its aircraft leasing firm, International Lease Finance Corp (ILFC), as its new CEO reviews the divestiture process, a source familiar with the situation said on Friday.

The new CEO, Robert Benmosche, is responsible for leading AIG in repaying more than US$80 billion in US bailout loans while keeping the insurance company stable. Part of that repayment is to come from cash raised from asset sales.

However, the sale of ILFC, which is run by Steven Udvar-Hazy and one of the biggest customers of Boeing Co and Airbus, has proved to be a challenge due to its mountain of debt and funding needs.

Mr Benmosche told Reuters this week that the fate of the airplane leasing company was under review. ‘I am looking at ways we can structure this so we can get more value for what that business is today. Remember that we own more than 1,000 commercial aircraft,’ he said.

‘We have to look at ways of financing the debt on those planes as we continue to take very good, healthy lease income,’ he told Reuters.

AIG declined to comment. The source declined to be identified because the talks are private.

The pause in sale of the aircraft leasing arm was earlier reported by the Wall Street Journal on Friday, citing people familiar with the situation.

Fed weighing delayed exit from mortgage purchases

US Federal Reserve officials are thinking carefully about tapering off their purchases of mortgage debt to push the US$1.45 trillion program into next year rather than end it on Dec 31 as planned.

They have not made up their minds, and some worry that the US central bank’s intervention in the housing market may be crowding out private lenders.

Another concern is that prolonging asset-buying that expands the Fed’s balance sheet may hinder its eventual exit from aggressive expansive monetary policies.

But the US housing market has recently shown signs of stabilising, and other policymakers feel that their massive purchases of mortgage-backed securities (MBS) have helped keep home loans flowing while private credit was very scarce.

In addition, the Fed opted at a meeting on August 12 to extend by one month a similar, although much smaller, buying program of longer-dated US government bonds in order to minimise disruption as it steps back from this market.

‘I think something similar might be possible for MBS, but no decision has been made,’ St Louis Federal Reserve Bank president James Bullard told reporters in Little Rock, Arkansas, on Thursday.

‘I think we agreed that on the Treasuries we’d do the tapering thing and see how it works. We can decide some time during the fall how we want to do the MBS,’ he said.

The Fed has so far bought more than US$792 billion of securities issued by government-backed mortgage agencies Fannie Mae, Freddie Mac and Ginnie Mae, at a pace of up to US$25 billion a week. In all, it has planned to purchase a total of US$1.25 trillion in MBS.

It has also bought US$118 billion of mortgage agency debt out of a total US$200 billion earmarked.

The current pace of MBS purchases is several times larger than the total weekly level of new issuances in the agency MBS market, indicating the scale of Fed involvement and hinting at the potential for disruption when it pulls out.

Seeking an exit that does not damage a still-fragile market will weigh in favour of slowing the pace of purchases into next year.

‘The central issue is what we call the cliff effect, the cliff effect being stopping a program abruptly without signalling to markets a tapering off,’ Atlanta Federal Reserve Bank chief Dennis Lockhart said on Wednesday.

‘I am personally aware of and concerned that market distortions could ensue from a poorly communicated exit from the MBS program, so I think it is very important that we condition the markets for whatever policy we choose to follow,’ he told reporters in Chattanooga, Tennessee.

Fed officials say the real advantage of the tapering strategy is that it allows markets the time to adjust to the exit, hopefully opening the door for private players to step back in.

The larger the Fed’s share of the market in which it is intervening, the more compelling the case to glide its way out with the minimum of disruption.

Fed officials are open-minded about how best to engineer a gradual withdrawal from the mortgage market. They hope private lending will advance as the Fed retreats and that an apparent stabilisation in housing is not undermined by a fresh shortage of mortgage credit.

However, there does not seem to be much appetite for expanding the size of the program at this stage.

Mr Lockhart said he was not leaning in that direction, while Richmond Federal Reserve Bank president Jeffrey Lacker said on Thursday that ending the purchases early may even be warranted to avoid over-stimulating the economy.

‘I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorised under our agency mortgage-backed securities purchase program would provide,’ Mr Lacker, a voting member of the Fed’s policy-setting committee, told reporters in Danville, Virginia.

US: Dow, S&P dip; Nasdaq ekes out gain on Dell, Intel

US stocks mostly slipped on Friday after a weak consumer sentiment report offset positive news from bellwethers Dell Inc and Intel Corp.

Support from the two companies, however, let the Nasdaq eke out a tiny gain.

All three major indexes still posted their second weekly advance, although the gains were relatively modest.

With US stocks up about 50 per cent from multi-year lows in March, investors are concerned that the rally may have run its course, and that with many market players taking last-minute vacations, there aren’t enough buyers to push stocks up further.

Consumer sentiment in August slid to a four-month low on worries about high unemployment and personal finances, a Reuters/University of Michigan survey showed, also curbing the market’s appetite for risk.

‘Expectations are higher and any kind of data that doesn’t exceed forecasts with rosy numbers can’t move the market,’ said Alan Lancz, president of Alan B Lancz & Associates in Toledo, Ohio.

‘I think the absence of buyers is triggering traders to sell into the weekend. Next week is basically the last week of the summer, and with more buyers away, there would be fewer catalysts of bull momentum.’

Intel led the Nasdaq’s major gainers and helped the index nudge back into positive territory in late afternoon trading.

Intel’s stock climbed 4 per cent to US$20.25 after the chip maker raised its third-quarter revenue outlook on stronger-than-expected demand for its microprocessors and chipsets.

Dell rose 1.8 per cent to US$15.93 and Marvell Technology gained 5 per cent to US$15.36, after both companies reported second-quarter earnings late on Thursday that beat expectations.

The Dow Jones industrial average declined 36.43 points, or 0.38 per cent, to end at 9,544.20. The Standard & Poor’s 500 Index lost only 2.05 points, or 0.20 per cent, to 1,028.93.

But the Nasdaq Composite Index inched up 1.04 points, or 0.05 per cent, to close at 2,028.77.

For the week, the Dow advanced 0.4 percent, while the S&P 500 gained 0.3 percent and the Nasdaq rose 0.4 percent.

The losses were broad-based, with health-care stocks helping to lead the declines. Merck & Co Inc was down 1.7 per cent at US$32.32. The S&P health care index was off 0.9 per cent.

Among the blue-chip Dow industrials, McDonald’s Corp ranked among the top losers, falling 1 per cent to US$56.07.

A bright spot was provided by Tiffany & Co, which surged 11.3 per cent to US$37.57 in New York Stock Exchange (NYSE) trading after it reported strong second-quarter results and lifted its outlook.

Citigroup rose 3.6 per cent to US$5.23 and the S&P financial index, one of the few sectors among Friday’s advancers, edged up 0.2 per cent.

Troubled financials continued to dominate trading. Shares of the two largest US home funding companies, Fannie Mae and Freddie Mac, gained sharply, extending a trend seen earlier this week. Freddie Mac was up 7.1 per cent at US$2.40 and Fannie Mae gained 6.3 per cent to US$2.04.

The bailed-out insurer American International Group Inc rose 5 per cent to US$50.23, up 53 per cent for the week.

Earlier in the day, the S&P 500 climbed to 1,039.47, its highest intraday level since Oct 14, 2008, before turning negative after the consumer sentiment data.

In other data released on Friday, a report from the Commerce Department showed consumer spending edged up 0.2 per cent in July, largely driven by the government’s ‘cash-for-clunkers’ program, while personal incomes were flat in June.

Volume was light on the NYSE, with 1.19 billion shares changing hands, below last year’s estimated daily average of 1.49 billion.

On the Nasdaq, about 2.36 billion shares traded, slightly above last year’s daily average of 2.28 billion.

Advancing stocks slightly outnumbered declining ones on the NYSE by 1,507 to 1,490.

On the Nasdaq, though, the opposite trend held sway: About 17 stocks fell for every nine that rose. — REUTERS

NEW YORK (AP) — Investors balked at extending the market’s recent rally Friday despite an improved outlook from Intel Corp.

Stocks closed mostly lower, as losses among health care stocks offset small gains in technology companies. The Dow Jones industrials lost about 36 points, breaking an eight-day winning streak.

Trading was quiet, as it has been all week, as summer vacations kept many traders out of the market. With fewer participants, the market lost some of its recent momentum that had sent the major indexes up about 5 percent in less than two weeks.

Stocks managed to carve out their sixth weekly advance in seven weeks, but the gains were minimal.

Wall Street turned cautious this week as investors worried that the market’s rally, now closing in on six months, may have run its course.

Investors are especially nervous as they head into September, historically the stock market’s worst month. Last September, which saw the collapse of Lehman Brothers and the kickoff of the worst financial crisis in decades, is still fresh in investors’ minds.

“Tuesday begins one of the most feared months of the calendar,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.

The first week of September 2009 will bring a key report on manufacturing activity, which has been improving, as well as the Labor Department’s tally of job losses in August — the month’s most telling piece of economic data. Last month, news that employers cut fewer jobs in July and the unemployment rate fell sent stocks soaring.

On Friday, the Dow fell 36.43, or 0.4 percent, to 9,544.20. The Standard & Poor’s 500 index fell 2.05, or 0.3 percent, to 1,027.76, while Nasdaq composite index fell 1.47, or 0.1 percent, to 2,026.26.

The market got an initial boost after Intel, the world’s largest maker of computer chips, raised the top end of its sales forecast for the current quarter from $8.9 billion to $9.2 billion.

Intel’s upbeat report came after computer maker Dell Inc. posted better-than-expected results for its May-July quarter late Thursday. While sales continued to fall because of reduced spending by consumers and businesses, Dell said it has seen signs of improvement.

Investors also got more data Friday on the consumer, a focal point for investors in recent weeks worried that sluggish spending will hinder the economy’s recovery.

The Commerce Department said consumer spending rose 0.2 percent in July, which was in line with economists’ expectations. The latest report also said personal income was flat in July. Economists had expected a 0.2 percent increase.

Growth in spending and consumer confidence has been hampered by rising unemployment. Investors are hoping next week’s jobs report will provide more evidence that job losses are slowing.

As of Friday, both the Dow and the S&P 500 are on track to have their best Augusts since 2000, each up just over 4 percent for the month. That’s well above the S&P 500’s 20-year average of a negative return of 0.5 percent in August.

Most of the gains were made last week, after Federal Reserve Chairman Ben Bernanke’s upbeat assessment of the economy sent investors clamoring for stocks. This week, the Dow and the Nasdaq gained just 0.4 percent, while the S&P 500 rose 0.3 percent.

Bond prices edged higher. The yield on the 10-year Treasury note fell to 3.45 percent from 3.46 percent late Thursday.

Oil rose 25 cents to settle at $72.74 on the New York Mercantile Exchange. Oil hit $75 during the week, a high for the year.

The dollar fell against other major currencies, while gold prices rose.

Advancing issues narrowly outpaced decliners on the New York Stock Exchange, where volume came to a relatively low 5.81 billion shares, down from 5.82 billion on Thursday.

The Dow Jones industrial average closed the week up 38.24, or 0.4 percent, at 9,544.20. The Standard & Poor’s 500 index rose 2.80, or 0.3 percent, to 1,028.93. The Nasdaq composite index rose 7.87, or 0.4 percent, to 2,028.77.

The Russell 2000 index, which tracks the performance of small company stocks, fell 1.65, or 0.3 percent, for the week to 581.51.

The Dow Jones U.S. Total Stock Market Index — which measures nearly all U.S.-based companies — ended at 10,579.61, up 27.35, or 0.3 percent, for the week. A year ago, the index was at 13,288.52.

US industrial output rebounds, consumer prices flat

WASHINGTON (AFP) - - US industrial production rose in July for the first time in nine months while consumer prices held steady, official data showed Friday, suggesting economic recovery stirrings are not inspiring demand.

US industries boosted output by 0.5 percent in July, the Federal Reserve said, in a sign of the manufacturing sector emerging from recession.

The increase was a tick higher than the consensus forecast of 0.4 percent and followed eight consecutive months of declines.

The Fed noted that “aside from a hurricane-related rebound in October 2008, the gain in July marked the first monthly increase since December 2007,” when the world’s largest economy entered recession.

Manufacturing output advanced 1.0 percent in July, driven largely by the auto sector — which built cars at an annual rate of 5.9 million units in the month, compared with 4.1 million units in June.

Excluding motor vehicles and parts, manufacturing production edged up 0.2 percent.

“What we are seeing here is the initial fragile blossoms of the recovery,” said Brian Bethune, chief US financial economist at IHS Global Insight.

“However, the auto industry will burn through the remaining funding of the ‘cash for clunkers’ program very quickly, and other fiscal stimulus measures — the first-time homebuyers credit in particular, will expire before the end of the year,” he said.

Separately, the Labor Department reported consumer prices held unchanged in July from June, in line with expectations, leaving a year-over-year 2.1 percent drop that was the steepest since 1950 due to an unfavorable comparison with pre-global meltdown conditions.

Core CPI, which excludes volatile food and energy prices, rose 0.1 percent, slowing from a 0.2 percent rise in June. The core rate was up 1.5 percent from July 2008, a two-tenths point gain from June.

Those inflation levels are considered to be within the comfort zone for the Federal Reserve in setting monetary policy.

The Fed this week maintained its exceptionally low key interest rate near zero, as expected, to support the recession-mired economy and reiterated its outlook for subdued inflation.

“There is still no sign of any resurgence in core inflation, which means the Fed should be safe in maintaining low rates and quantitative easing for at least another month as recovery continues,” said Andres Carbacho-Burgos of Moody’s Economy.com.

A grim consumer confidence report Friday lent support to a weak outlook for consumer spending, which drives two-thirds of US economic activity and is key to recovery.

The University of Michigan consumer sentiment index dipped to 63.2 from 66.0 in August, below the consensus forecast of 69.0.

Bethune said the report was “a sober reminder of how much pressure households are under in terms of the huge cumulative declines in household wealth over the recession, trend increases in unemployment and underemployment, and downward pressure on wages, salaries and benefits as companies have clamped down on costs.”

Ian Shepherdson, economist at High Frequency Economics, noted persistently tight credit conditions, despite the authorities’ massive efforts to kick-start lending.

“The credit constraint on consumers is so great that we have to wonder whether spending will fall short of the pace implied by its historical link with the confidence numbers,” he said.

“The numbers for recent months do suggest this is a potentially serious problem.”

Andrew Busch of BMO Capital Markets agreed, saying the report offered a “soft outlook for back-to-school sales.”