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South Korea’s exports are likely to return to growth from October as the won’s drop helps companies win market share and global demand recovers, a government official said.

“Exports will narrow their declines in July to September, and post positive growth in October,” Lee Dong Geun, deputy minister for trade and investment policy at the Ministry of Knowledge Economy, said in an interview yesterday in Gwacheon. “A weaker won benefited us, and we tried to diversify our markets as well as our export products.”

A pickup in overseas shipments, which are equivalent to about half of gross domestic product, will revive an economy that has been supported by government spending and record interest-rate cuts. LG Display Co., the world’s second-biggest maker of liquid-crystal displays, said last week it can’t keep up with demand for its screens as orders surge.

“Our export outlook looks bright,” Lee, 52, said from his sixth-floor office at the ministry on the outskirts of Seoul.

Overseas shipments probably fell 18.7 percent in June from a year earlier, easing from May’s 28.5 percent drop, according to the median estimate in a Bloomberg News survey of eight economists. Export declined a record 34.5 percent in January.

The Ministry of Knowledge Economy is scheduled to release the June trade report at 10 a.m. local time tomorrow.

Shares Rise

The Kospi stock index is headed for its best quarter since the three months ended June 2007 amid optimism of a global recovery. The index has risen 16 percent this quarter, extending this year’s gain to 24 percent after tumbling 41 percent in 2008.

South Korea’s trade surplus may exceed the government’s forecast this year as export declines moderate and cheaper oil costs reduce the nation’s import bill, Lee also said. In its semiannual outlook last week, the finance ministry predicted a 2009 trade surplus of $26 billion.

“There’s a possibility the trade surplus may top $30 billion,” Lee said. “It may be more than that if oil prices stabilize at below $70 per barrel.”

South Korea buys almost all its fuel overseas, making it the world’s fifth-biggest importer personal loans. The price of Dubai crude, a regional benchmark, has fallen by half in the past 12 months to about $69 a barrel.

The currency’s declines helped boost price competitiveness for Korean-made goods, Lee said. “A weaker currency helped, while our companies have strengthened technology and competitiveness.”

The won has drop 27 percent against the dollar since the beginning of 2008.

Developing Nations

South Korea sells about 69 percent of its exports developing nations, more than twice the amount destined for developed countries. That has cushioned the nation against fallout from the global financial crisis which has been more severe on industrialized economies, the deputy minister said.

China buys about 22 percent of South Korea’s exports, while the U.S. takes about 11 percent, Japan receives 6.7 percent of shipments and the Middle East 6.3 percent, according to government data.

Industrial output advanced a more-than-expected 1.6 percent in May from April, the fifth straight gain, as exporters ramped up production to meet increased orders, the government reported today.

Export Demand

Hyundai Heavy Industries Co., the world’s largest shipbuilder, said last week that sales climbed about 9 percent in May as it built vessels at higher prices. Samsung Electronics Co., the world’s second-largest maker of mobile phones, said today the global handset market in the second half of 2009 should be better than in the first six months.

South Korea’s government last week raised its GDP forecast for 2009, saying the economy will shrink 1.5 percent this year, less than a previous prediction of a 2 percent decline. It expects growth of 4 percent next year.

Overseas shipments will fall 18 percent in the three months ending Sept. 30, moderating from a 25 percent drop in the first quarter and an estimated 22 percent fall in the second quarter, the state-run Export-Import Bank of Korea said in a report today.

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U.K. houses held their value for a second month in June as increased demand and a lack of supply supported residential prices, Hometrack Ltd. said.

The average cost of a home in England and Wales was 155,600 pounds ($257,000), the London-based property researcher said in an e-mailed statement today. They stopped falling in May on Hometrack’s measure for the first time in 20 months. From a year earlier, values fell 8.7 percent in June.

“A lack of supply and rising demand have combined to prop up house prices in the last two months,” Richard Donnell, director of research at Hometrack, said in the statement. “It is the demand side where the greatest risk lies as many would-be buyers continue to remain cautious or are unable to obtain sufficient equity or finance to access the market.”

Bank of England policy maker Kate Barker said last week the housing market is still “some way away from normal” and the central bank said banks have curbed mortgage lending to all but the safest borrowers. That may hamper a recovery in the economy from its worst recession in a generation.

The number of new buyers has risen by 36 percent in the past six months, outpacing a 6 cheap car insurance.4 percent gain in the number of properties for sale, Hometrack said. It based its survey on 6,160 responses from real-estate agents and property surveyors.

In London, demand for housing has exceeded the increase in the number of homes on the market tenfold, Donnell said. The increase in buyer registrations across the U.K. was 4.6 percent in June, compared with 6 percent in May, today’s report showed. The number of agreed sales rose 6.4 percent, compared with 9.4 percent the previous month.

Barker, speaking in testimony to Parliament’s Treasury Committee on June 24, said she would “be cautious about the scale of activity in the next year to 18 months.” The central bank said in a report last week that mortgage lending is now “focused almost entirely” on borrowers with clean credit histories.

U.K. banks probably approved 46,000 mortgages in May, the most since April 2008, according to a survey of 22 economists by Bloomberg News. The Bank of England will release those figures at 9:30 a.m. today in London.

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Smartphone maker Palm Inc posted a narrower-than-expected quarterly loss Thursday, sending its shares up more than 14%.

The results come as the company’s turnaround effort, led by the just-unveiled Pre handset, picks up steam. The device, which was launched at the beginning of June, has been well- received by reviewers and saw strong demand in the weeks following the release.

The Pre’s impact will be more fully reflected in the current quarter, because of its June launch date. Analysts estimate around 150,000 units have shipped so far.

"Such significant growth means there is room for three to five players to win in this space. We don’t have to beat each other to prosper," Jon Rubinstein, the company’s new chief executive, said on a conference call with analysts.

Palm posted a net loss applicable to common shareholders of $105 million, or 78 cents a share, in the fiscal fourth-quarter ended May 29, compared with a loss of $43 payday advance lenders.4 million, or 40 cents a share, in the year-ago period.

Excluding items, Palm’s loss was 40 cents a share, compared with an average analyst estimate of 65 cents a share, according to Reuters Estimates.

Revenue fell more than 70% to $86.8 million, compared with a Wall Street estimate of $80.3 million.

The company’s shares closed at $14.02 on the Nasdaq and were up to $16.07 in extended trading. Palm’s (PALM) shares have more than quadrupled this year. 

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New Zealand’s economy shrank for a fifth straight quarter as consumers and businesses cut spending, extending the worst recession in more than three decades.

Gross domestic product fell 1 percent in the three months to March 31, matching the revised fourth-quarter decline, Statistics New Zealand said in Wellington today. The drop exceeds the 0.7 percent median estimate in a Bloomberg survey of 11 economists.

New Zealand’s economy began contracting in the first quarter of last year and is unlikely to grow until the final three months of 2009 as the worst global slump since the Great Depression curbs exports and damps investment, Reserve Bank Governor Alan Bollard said June 11. Interest rates may stay at record lows until late next year to kick-start spending, he said.

“The world was a hostile environment for growth,” said Bernard Doyle, economist at Goldman Sachs JBWere Ltd. in Auckland. “We doubt today’s print will markedly change the Reserve Bank’s view of where the economy sits.”

New Zealand’s dollar traded at 64.44 U.S. cents at 12.35 p.m. in Wellington from 64.55 cents before the report was released.

The currency has gained 12 percent in the past three months, which “risks derailing” the economy’s recovery because it is cutting export income, Prime Minister John Key said this week.

The 1 percent contractions in the past two quarters are the largest in 18 years, the statistics agency said.

‘Multiple Blows’

The economy shrank 2.7 percent from a year earlier. In the year ended March 31, gross domestic product declined 1 percent, the first annual-average contraction since 1992.

New Zealand’s economy began shrinking last year as Bollard raised interest rates to counter a housing boom and consumer spending that was being fanned by excessive borrowing.

The economy then faced “multiple blows” from collapsing world trade and tight credit conditions, the Organization for Economic Cooperation and Development said in a report this week.

Business investment slumped, companies began firing workers, exports slowed and tourist arrivals declined. Exports make up about 30 percent of the economy and the tourism industry contributes another 10 percent.

New Zealand’s economy will probably contract 2.9 percent this year before growing 0.6 percent in 2010, the OECD said. The jobless rate, which was 5 percent in the first quarter, may surge beyond 8 percent by next year, it said.

Household Spending

Households are constrained by high debt and workers are worried they may lose their jobs payday loans. A net 28 percent of consumers expect the economy will worsen this year, according to a Westpac Banking Corp./McDermott Miller survey published on June 24. The net figure subtracts optimists from pessimists and has fallen from 57 percent in the first quarter.

Household spending, which makes up 60 percent of the economy, fell 1.4 percent in the first quarter, the most in 18 years, today’s report showed. Purchases of durable items such as cars, furniture and home appliances dropped 2.5 percent while spending on services also decreased. Sales of food and other so- called non-durable goods gained.

Retailer Smiths City Group yesterday said net income fell 72 percent profit in the year ended April 30 as demand dropped at its appliance and furniture stores. Furniture and carpet sales have declined every month since January 2008, Chairman Craig Boyce said in a statement sent to the stock exchange.

Warehouse Group Ltd., New Zealand’s biggest discount retailer, said last month sales in the three months to April 26 dropped 2.8 percent as the recession slashed demand for office goods and the company shut liquor and food outlets.

Business Investment

Business investment plunged 7.3 percent as companies purchased fewer vehicles, plant and machinery, the statistics agency said today. Commercial construction fell.

Business confidence slumped to a record low in the first quarter, according to a survey by the New Zealand Institute of Economic Research Inc. Investment intentions fell to the lowest on record, the Wellington-based institute said.

Contact Energy Ltd., the nation’s biggest publicly traded electricity company, last month said it will delay a new geothermal power station investment amid declining demand and increased funding costs.

Total investment fell 6.1 percent led by business spending. Investment in new housing, dropped 0.3 percent in the first quarter, the seventh straight decline. Inventories decreased.

Exports of goods and services increased 0.6 percent in the quarter amid rising shipments of dairy products. Import volumes slumped 8.6 percent led by machinery and passenger cars.

Output from goods-producing industries slipped, led by a 7.2 percent drop in manufacturing. Primary production was unchanged as increased output from mining offset declines by logging and fishing. Service industries output fell 0.1 percent led by transport, while real estate activity increased.

The GDP deflator, a measure of prices, rose 2.6 percent in the year ended March 31.

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Oil prices fell sharply Monday as investors looked past tense geopolitical situations to focus on the weak outlook for the global economy.

Light, sweet crude for July delivery fell $2.62, or 3.8%, to settle at $66.93 a barrel in New York. It was the lowest closing price since June 3, when crude settled at $66.12 a barrel.

Oil for August delivery, which replaces July as the active contract Monday, fell $2.52 to $67.50 a barrel.

The retreat comes despite ongoing political unrest in Iran, militant attacks on oil installations in Nigeria and escalating tensions with North Korea.

Geopolitics: Demonstrations continued in Iran Monday after at least 19 people were killed Saturday during street protests over the results of the country’s June 12 presidential election.

Such unrest in the world’s No. 4 oil producer would normally raise concerns about possible supply disruptions and drive oil prices higher. However, the market is looking past the volatile geopolitical backdrop because the world’s supplies of oil are already brimming, said Phil Flynn, an energy analyst at Alaron Trading in Chicago.

"We have a world with a lot of spare production capacity," Flynn said. "Geopolitical threats don’t rattle the market as much as they did last year."

In Nigeria, Africa’s largest oil exporter, militants attacked an oil and gas pipeline operated by Italian oil company Agip on Friday, Reuters reported. The attack widened a campaign which has so far targeted Chevron (CVX, Fortune 500) and Shell, halting a further 33,000 barrels per day of oil production.

Meanwhile, North Korea is reportedly preparing to test-fire another missile after conducting a nuclear test and launching missiles into the sea last month.

Economy: Crude prices had nearly doubled from the lows of late last year as investors bet the world’s demand for energy was poised to rebound as the global economy showed signs of stabilization affordable group health insurance.

However, recent U.S. government data have shown that demand for oil and gasoline remains weak, said Andrew Lebow, an energy trader at MF Global in New York.

"The rally was based on improving economic conditions in the second half of the year," he said. "But current demand numbers were disappointing."

Highlighting the dour outlook for the global economy: The World Bank said Monday that global trade will plummet by nearly 10% this year, and output will fall by 2.9%.

The report cast a pall over Wall Street, with stock prices falling sharply in afternoon trading. Many oil traders view the stock market as a leading economic indicator. As a result, oil prices often rise and fall in tandem with the major stock indexes.

At the same time, the U.S. dollar regained ground against rival currencies as investors looked to preserve capital in cash. A stronger greenback often pushes oil prices lower since crude is priced in dollars.

"We’re entering a multi-day correction with some geopolitical worry in the background," Lebow said.

Gasoline: Meanwhile, retail gas prices eased Monday, halting a 54 day surge.

Nationwide, the average price for a gallon of regular unleaded gasoline edged down to $2.69, shaving just three-tenths of a cent from the previous day’s average of $2.693, according to motorist group AAA. 

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Federal Reserve Chairman Ben S. Bernanke will defend his unprecedented actions to prevent a financial collapse as debate on whether he should be reappointed begins.

Bernanke, whose term expires Jan. 31, faces lawmakers at a hearing this week on steps to aid Bank of America Corp.’s takeover of Merrill Lynch & Co. as Congress increasingly questions the Fed’s interventions. The session comes after a two-day meeting on monetary policy that starts today.

President Barack Obama has said the Fed chief has done an “extraordinary job” without committing to reappoint him. Treasury Secretary Timothy Geithner, in reference to a possible candidacy for Obama economic official Lawrence Summers, told a lawmaker last week it wasn’t “appropriate” to pledge that top advisers weren’t in the running for the job.

“The vultures are circling,” said David M. Jones, a former Fed economist who is president of DMJ Advisors LLC in Denver. Bernanke is “going to be on the defensive,” even after “turning confidence around” since the depths of the crisis, he predicted.

At stake is whether Bernanke, 55, pilots the Fed into an expanded financial-supervision role after overseeing the most aggressive use of the Fed’s powers since the Great Depression.

Odds for Bernanke

Through doubling the central bank’s balance sheet to $2.1 trillion, Bernanke has helped thaw credit markets and put the economy on a path toward recovery. Odds favor the former Princeton University economist, a Republican: Reappointment may be less disruptive to investors, and no first-term president has replaced a sitting chairman in 30 years. Many on Wall Street and in Washington view it as likely Bernanke will be reappointed.

“There’s a very strong case for reappointment,” said Douglas Lee, who runs Economics from Washington in Potomac, Maryland, and worked on Capitol Hill in the 1970s. “Removing a Fed chairman who is generally perceived to have done an outstanding job would be an enormous problem.”

Traders on online exchange Intrade place 65 percent odds on Bernanke’s renomination.

Still, any Obama decision may be half a year away, and the economy and financial markets could shift again. The jobless rate is still rising, and economists anticipate it will reach a quarter-century high of 10 percent at year-end. The Fed is mandated by Congress to achieve maximum employment as well as stable prices.

Summers, Yellen

Besides keeping Bernanke, Obama’s options include appointing Summers or Janet Yellen, both among the most prominent Democratic economists and veterans of the Clinton administration, Jones said. Bill Burton, a White House spokesman, declined to comment.

Summers, 54, a former Treasury secretary who heads Obama’s National Economic Council, is considered the front-runner should the president want a change. San Francisco Fed President Yellen, 62, was previously a Fed governor and chairman of the Council of Economic Advisers and would be the first female Fed chief.

Summers wants the job, Senator Robert Bennett of Utah, the No. 2 Republican on the Banking Committee, said in an interview. Asked if he would support Summers for Fed chairman, Bennett said: “I am told that Larry would very much like me to cashadvance. I would have no objection to Larry.”

Bernanke has “done a good job under very difficult conditions,” Bennett also said. “Whether the president feels that way or not is another question.”

Frank Won’t Commit

House Financial Services Committee Chairman Barney Frank said he’s “very pleased” with Bernanke. “Beyond that I wouldn’t say” anything about a renomination, the Massachusetts Democrat said in an interview.

Bernanke took office in February 2006 with an agenda to make the Fed more transparent in setting monetary policy and to depersonalize the institution from its chairman, conferring weight to the views of other top officials. In 2007, his term became engulfed by the biggest financial crisis since the 1930s.

His record includes preventing the collapse of Bear Stearns Cos., extending emergency loans to investment banks, financing purchases of corporate debt, bailing out American International Group Inc. and shoring up consumer-credit markets.

Some signs have emerged that the crisis is waning. U.S. companies have sold at least $698 billion of debt this year, 24 percent more than the same period of 2008, Bloomberg data show. The Libor-OIS spread, which measures banks’ willingness to lend, has narrowed to 0.37 percentage point, from a record 3.64 points in October.

FOMC Meeting

The policy-setting Federal Open Market Committee gathers today in Washington to consider any change to its pledges to purchase as much as $300 billion of Treasuries and $1.45 trillion of housing debt and keep its benchmark interest rate near zero. The FOMC statement is expected about 2:15 p.m. tomorrow.

Among Bernanke’s most controversial steps have been allowing Lehman Brothers Holdings Inc. to fail and his discussions regarding Bank of America’s acquisition of Merrill Lynch.

His role in that takeover will be examined in a House Oversight Committee hearing June 25, when lawmakers plan to question whether he applied inappropriate pressure to Bank of America to complete the purchase of Merrill Lynch after the company discovered mounting losses.

At a June 11 hearing with Bank of America Chief Executive Officer Kenneth Lewis, the committee released internal Fed e- mails, some from Bernanke, obtained by subpoena. One missive from the Fed chairman indicated he saw Lewis’s threat to scuttle the deal as a “bargaining chip.”

House Subpoena

Republicans on the committee used the e-mails to argue the government overstepped its authority. Last week, the panel issued another subpoena for more Fed documents.

Bernanke has recent history on his side: Presidents Ronald Reagan, George H.W. Bush, Clinton and George W. Bush all reappointed Fed chairmen in their first terms. “He’s still got at least a decent chance,” said Jones, putting the odds at about 60-40 in Bernanke’s favor.

“His record has not been perfect, but it’s been pretty good,” said Senator Sherrod Brown, an Ohio Democrat on the Banking Committee, which will vet the nomination. On whether to keep Bernanke, “I leave that to the president,” he said.

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Mexico will probably boost debt sales 46 percent in the third quarter to finance a budget deficit that is widening as the U.S. recession throttles exports and oil production slumps, according to Metanalisis SA.

The Finance Ministry will issue 455 billion pesos ($34 billion) of bills and bonds in the quarter, up from 312 billion pesos a year earlier, said Manuel Galvan, a fixed-income strategist at the Mexico City-based firm that provides economic analysis to the government. The jump in issuance follows a 30 percent increase in the first half.

Mexico’s peso bond yields are rising even as the central bank reduces the benchmark overnight lending rate to a five-year low amid speculation Standard & Poor’s may cut the country’s credit rating after changing the outlook to negative in May. The budget deficit may grow to 4 percent of gross domestic product this year from 2.1 percent in 2008, S&P says.

“There is this looming threat that rating agencies may cut the credit rating,” Galvan said in a telephone interview. “This concern has prevented a decline in long-term bond yields.”

The Finance Ministry is scheduled to publish its third- quarter debt sale plan on June 25.

The deficit in Mexico, while less than half the gap in neighboring U.S. as a percentage of GDP, is more of a concern because 37 percent of the budget is funded by oil, a revenue source that “is very volatile,” Galvan said.

‘Binding’ Problems

Crude, Mexico’s biggest export, has tumbled over the past year while output at Petroleos Mexicanos, the state-owned oil monopoly, has declined. The price of oil is down 52 percent from a record high in July. Production dropped 6.5 percent in May from a year earlier after falling 9.2 percent in 2008, the fastest drop since World War II.

Mexican exports to the U.S. fell 9.8 percent to $211 billion in the 12 months through April, according to the nation’s statistics agency. The U.S. buys 80 percent of Mexico’s exports and is the biggest source of foreign direct investment, migrant worker remittances and tourism revenue.

Mexico’s “structural vulnerabilities are not new, but they are more binding now than they were before,” Lisa Schineller, an analyst in New York at S&P, said in a telephone interview.

S&P rates Mexico BBB+, the third-lowest investment grade rating and seven levels below the U.S.’s AAA rating. The U.S. budget gap is projected to swell to $1.85 trillion in the year ending Sept. 30, equal to 13 percent of GDP, according to the nonpartisan Congressional Budget Office. The deficit equaled 3 business cards sale.2 percent of GDP in the 12 months through September.

‘Huge Differential’

Mexico forecasts its public sector deficit, which includes debt from a 1990s bank bailout, will reach 3 percent of GDP this year.

“There is a huge differential with the U.S. deficit,” Galvan said. “But we have to remember that Mexico is a small country in a global context. It’s a developing country with elements of risk.”

While Mexico collected 5.7 percent of its revenue from income taxes in 2007, the second-lowest rate among members of the Organization for Economic Cooperation and Development after Turkey, the U.S. took in 13.9 percent, an October report shows.

Mexican Finance Minister Agustin Carstens said last week that the country needs a “sense of urgency” to approve legislation that will shore up the government’s finances.

“Mexico has never considered, and will never consider, exceeding the prudent limits of a temporary fiscal deficit,” Carstens said at a Mexico City conference.

Recession

Yields on Mexico’s peso bonds due in 2024, the country’s benchmark securities, have risen 0.71 percentage point in the past nine weeks, staunching a rally that had sent them to a two- month low in April. Banco de Mexico cut its key lending rate half a percentage point on June 19 to 4.75 percent, bringing it down 3.5 points this year.

Latin America’s second-biggest economy will shrink 5.5 percent in 2009, according to the government, the first decline since 2001 and the biggest since 1995, following a peso devaluation that sparked capital outflows throughout the region.

Galvan said the rise in Mexican bond yields may be overdone and that the securities are “attractive” because slowing inflation will preserve the value of their fixed payments. He predicts yields on Mexican bonds maturing in more than 10 years will fall by 1 percentage point by September.

Markets Last Week

Mexico’s Bolsa index fell 4.7 percent last week, its first decline in five weeks. Cemex SAB led declines, dropping 17 percent. Bank of America Corp. last week cut its rating on the stock of the largest cement maker in the Americas to “underperform” from “neutral.”

The peso gained 0.3 percent to 13.3604 per U.S. dollar, from 13.4037 percent on June 12. Yields on the government’s bonds due in 2024 rose 11 basis points, or 0.11 percentage point, to 8.5 percent, according to Banco Santander SA.

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Bank of England Governor Mervyn King said Britain’s banking system may need to raise more capital to finance the economic recovery as officials keep printing money.

“It may take further additions to equity capital before the banking system will be able to supply credit at a price and on a scale to finance a sustained recovery,” King said in a speech at the Mansion House in London yesterday. “It is too soon to reverse the extraordinary policy stimulus that has been injected into the U.K. economy through monetary policy.”

The Bank of England plans to spend 125 billion pounds ($204 billion) of new money on assets to kick-start economic growth, and Gordon Brown’s government has propped up some of the nation’s biggest banks with taxpayer funds. King, speaking alongside finance minister Alistair Darling, said both monetary and fiscal policy will have to change as the economy stabilizes.

“When appropriate the Monetary Policy Committee will raise bank rate” from the current 0.5 percent “and gradually run down its portfolio of assets in a manner consistent with maintaining orderly markets,” King said. “It is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament.”

Dividing lines for the next election, which must be held within a year, sharpened this month. The opposition Conservatives have accused Brown of misleading voters after the prime minister denied most ministries face deep spending cuts. A mix of spending restraint and tax increases is inevitable, whichever party takes office, economists say.

‘Tough Choices’

“Support for the economy now must be matched by action to ensure we live within our means,” Darling said in his speech. “There are tough choices ahead. I will continue to do whatever is necessary to ensure sustainable public finances.”

The government has nationalized banks and invested billions of pounds in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. U.K. banks have already raised $158 billion in capital to shore up their balance sheets, Bloomberg data show.

While the current crisis still has “some way to run” and banks have more work to do in reducing leverage, investors have continued to perceive greater risk in the industry, King said paydayloans.

“Put bluntly, market data on credit spreads imply that some banks are viewed as a worse credit risk than some of their customers,” he said. “Companies that can bypass the banks to access capital markets directly are doing so.”

Investors are demanding extra returns to hold bonds issued by banks. The spread between the yields of sterling-denominated bonds issued by financial companies and benchmark government debt averages 619 basis points, according to Merrill Lynch & Co. data. That compares to an average spread of 289 basis points for non-financial companies. A basis point is 0.01 percentage point.

Money Supply

King said there are “tentative signs” the central bank’s asset purchase program is starting to work as money supply is “picking up.” Policy makers this month reiterated their plan to keep buying government and corporate bonds.

While full economic recovery may be “protracted,” King said “there are some signs that the British economy is beginning to stabilize, and financial markets have improved markedly.”

The British Chambers of Commerce today cut its forecast for U.K. economic growth, saying the outlook “remains very precarious.” Gross domestic product will shrink 3.8 percent this year, compared with a forecast in March for a contraction of 2.8 percent, the BCC said. Unemployment will rise to a peak of 3.2 million in the second half of next year, the group said.

King said new regulation on the banking sector should eliminate an implicit state guarantee for firms that combine household services with risky investment banking or funding strategies. He suggested banks which pose greater risks to taxpayers should face higher capital requirements or be prevented from offering services to consumers.

Any regulated bank should also be required to produce a plan for it to be wound down in the event of failure.

“Making a will should be as much a part of good housekeeping for banks as it is for the rest of us,” he said.

Source

Bank of England Governor Mervyn King said Britain’s banking system may need to raise more capital to finance the economic recovery as officials keep printing money.

“It may take further additions to equity capital before the banking system will be able to supply credit at a price and on a scale to finance a sustained recovery,” King said in a speech at the Mansion House in London yesterday. “It is too soon to reverse the extraordinary policy stimulus that has been injected into the U.K. economy through monetary policy.”

The Bank of England plans to spend 125 billion pounds ($204 billion) of new money on assets to kick-start economic growth, and Gordon Brown’s government has propped up some of the nation’s biggest banks with taxpayer funds. King, speaking alongside finance minister Alistair Darling, said both monetary and fiscal policy will have to change as the economy stabilizes.

“When appropriate the Monetary Policy Committee will raise bank rate” from the current 0.5 percent “and gradually run down its portfolio of assets in a manner consistent with maintaining orderly markets,” King said. “It is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament.”

Dividing lines for the next election, which must be held within a year, sharpened this month. The opposition Conservatives have accused Brown of misleading voters after the prime minister denied most ministries face deep spending cuts. A mix of spending restraint and tax increases is inevitable, whichever party takes office, economists say.

‘Tough Choices’

“Support for the economy now must be matched by action to ensure we live within our means,” Darling said in his speech. “There are tough choices ahead. I will continue to do whatever is necessary to ensure sustainable public finances.”

The government has nationalized banks and invested billions of pounds in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. U.K. banks have already raised $158 billion in capital to shore up their balance sheets, Bloomberg data show.

While the current crisis still has “some way to run” and banks have more work to do in reducing leverage, investors have continued to perceive greater risk in the industry, King said cash advance no fax.

“Put bluntly, market data on credit spreads imply that some banks are viewed as a worse credit risk than some of their customers,” he said. “Companies that can bypass the banks to access capital markets directly are doing so.”

Investors are demanding extra returns to hold bonds issued by banks. The spread between the yields of sterling-denominated bonds issued by financial companies and benchmark government debt averages 619 basis points, according to Merrill Lynch & Co. data. That compares to an average spread of 289 basis points for non-financial companies. A basis point is 0.01 percentage point.

Money Supply

King said there are “tentative signs” the central bank’s asset purchase program is starting to work as money supply is “picking up.” Policy makers this month reiterated their plan to keep buying government and corporate bonds.

While full economic recovery may be “protracted,” King said “there are some signs that the British economy is beginning to stabilize, and financial markets have improved markedly.”

The British Chambers of Commerce today cut its forecast for U.K. economic growth, saying the outlook “remains very precarious.” Gross domestic product will shrink 3.8 percent this year, compared with a forecast in March for a contraction of 2.8 percent, the BCC said. Unemployment will rise to a peak of 3.2 million in the second half of next year, the group said.

King said new regulation on the banking sector should eliminate an implicit state guarantee for firms that combine household services with risky investment banking or funding strategies. He suggested banks which pose greater risks to taxpayers should face higher capital requirements or be prevented from offering services to consumers.

Any regulated bank should also be required to produce a plan for it to be wound down in the event of failure.

“Making a will should be as much a part of good housekeeping for banks as it is for the rest of us,” he said.

Source

The good news — that some workers at Granite City Works would return this week — came swiftly and unexpectedly. Almost as suddenly as news of the steel mill’s idling did six months ago.

An improvement in demand, only in recent weeks, indicates the worst may be over for the domestic steel industry, which has undergone plant idlings, mass layoffs and dramatic uncertainty since late last year. But analysts say it will take years to rebound to last year’s production levels.

"This is not going to be a rapid start-up" for the industry, said John Anton, a Washington-based steel analyst for IHS Global Insight.

That also means no rapid start-up at United States Steel Corp., one of the country’s largest steelmakers and the owner of Granite City Works.

On Friday, U.S. Steel told local union officials that orders looked strong enough to restart an iron-making furnace and some coil-making operations.

About 100 steelworkers will return to the plant this week, according to Dave Dowling, a local subdistrict director for the United Steelworkers. More are expected to return in following weeks.

But the good news was tempered by the fact that U.S. Steel temporarily idled most of its Fairfield Works steel mill in Birmingham, Ala., last month. Analysts didn’t know why U.S. Steel chose to restart operations at Granite City versus Fairfield or other idled mills, though one suggested product mix as a possible reason.

Despite the recent bout of uncertainty, the steel industry will soon need to make more steel, analysts say.

Steelmakers cut production when manufacturers cut orders and instead relied on pent-up inventory to meet demand. Now that inventory has dwindled to the point where it "can’t go down any more," Anton said.

"Part of what you’re having is a recovery toward equilibrium," he said.

CUTS AND COMEBACKS

Granite City Works, one of Granite City’s largest employers, makes steel used in construction, automobiles and other industries. When the recession and tough credit conditions hurt those industries, demand for steel plummeted.

U.S. Steel and other steel companies idled plants, laid off workers and slashed production. At Granite City Works, U.S. Steel halted its steel-making operations in December and laid off about 1,600 workers.

An additional 390 union and nonunion workers were laid off in February. That’s when U.S. Steel temporarily stopped production of coke, a key steel-making ingredient that it had been stockpiling.

In recent months, a crew of fewer than 200 workers has worked at the plant.

Other plants — not only those owned by U.S. Steel but also its competitors — have been idled, too. Capacity utilization, or how much the industry actually produces versus what it has the ability to produce, has been around 48 percent in recent weeks, according to data from the American Iron and Steel Institute in Washington.

It hovered around 90 percent in June 2008.

U.S. Steel now is taking the first steps toward restarting the local mill.

At Granite City Works this week, workers will prepare a blast furnace to go back online.

The blast furnace is an important part of the steel-making process. Huge ovens heat coal to make coke, which is then fed into the furnace to extract iron, the basic ingredient for steel, from iron ore free credit score.

The restart of the furnace indicates other production preparations will follow, said Michael Locker, president of Locker Associates, a New York-based consulting firm that specializes in steel.

"It’s expensive and it’s hard to take down (the furnace) once you put it back up," he said. "You don’t start a blast furnace up unless you’re going to start the whole thing up."

Some electrical and mechanical workers will return to work throughout the next two weeks in the "hot strip mill," where coil is made, union officials said. In following weeks, even more steelworkers are expected to be recalled.

But union officials, analysts and U.S. Steel declined to speculate on when the entire mill will operate normally and the bulk of the work force will return.

Meanwhile, U.S. Steel has not yet recalled coke-making workers at the Granite City Works. Instead, the coke might be shipped from a U.S. Steel mill in the Hamilton, Ontario.

Rolf Gerstenberger — president of USW Local 1005, which represents Hamilton’s hourly workers — said the steelmaker told him last week that some of his laid-off members will be recalled to make the coke and ship it to Granite City.

However, a local union official disputed that assertion, saying that wasn’t the case. He didn’t know when coke-making workers might be recalled.

U.S. Steel spokeswoman Erin DiPietro declined to comment, saying the company does not provide details on its operations.

Meanwhile, Sunoco Inc. continues construction of a new coke-making facility in Granite City that will start supplying the steel mill in the fourth quarter. A Sunoco spokesman said U.S. Steel has informed the company that it will be ready to accept coke upon start-up.

WORRIED FUTURE

On Tuesday, several USW officials — including Local 1899 President Dan Simmons, who represents most of the Granite City Works workers — testified at a congressional steel caucus hearing in Washington.

The officials lobbied for, among several points, the reformation of health care and the enforcement of trade laws to protect U.S. companies against foreign steel imports.

"Although it’s great news for us in Granite City to be pouring steel again, the problems facing steel manufacturing in the U.S. remain," Simmons said, according to his written testimony.

Analysts say the industry has likely hit the bottom, but recovery will take time. IHS Global Insight predicts steel production this year is expected to be nearly half of the 100.7 million short tons produced in 2008.

Getting financing will continue to be difficult, Anton said. Because of the oversupply of housing, residential construction will continue to be slow. And automakers won’t make as many vehicles in the next few years.

Analysts, including Anton, estimated a recovery to 2008 levels won’t come until at least 2012.

"When you fall in the Grand Canyon, it takes a lot to get out of it," Anton said.

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