PARIS — A slew of bad news on European banks has fueled fears about their ability to survive the debt crisis, highlighting their central role in the region’s financial mess and raising the prospect of a new global credit crunch.

Five large lenders saw their credit ratings downgraded this week, and a sixth, Commerzbank, saw its stock plunge on speculation it might need more government support. As uncertainty grows that a fellow lender might collapse, banks are cutting back on lending to each other for fear of not getting their money back.

When that credit between banks dries up, loans soon stop flowing to businesses and households, stunting economic growth. On Thursday, the rates banks charge to lend dollar to one another remained at their highest level since September.

The heart of Europe’s problem is bad government debt — a phrase that until recently was nearly an oxymoron. Government bonds of wealthy countries were long considered the safest of safe assets.

But as the debt loads of European countries soared, investors began to wonder if their governments could pay back the loans, so they began charging more to extend those loans. That only fed a vicious circle: The more governments had to pay to borrow money, the more trouble they had paying it back. Eventually, Greece had to admit it wouldn’t repay all of its loans — and that shattered confidence in other eurozone countries. Would Italy renege? Would Spain? France?

European leaders have been struggling to reassure investors that they will pay back their debts and to work out a way to make sure they never again grow so large. But in the meantime, the bonds are all still out there, their value has plunged, and much of them sit in Europe’s banks.

In addition, banks are struggling to raise more cash for their rainy-day funds, their stocks are plunging and they’re facing higher borrowing rates.

“European banks remain the nexus of most European problems,” analyst Huw Van Steenis wrote in a Morgan Stanley research note.

It’s the banks that “transmit” the debt crisis to businesses and consumers, he argues. Because what were traditionally their safest assets — government bonds — are now among some of their most suspect, banks are struggling to secure the loans they need to fund their day-to-day operations. Until the debt crisis erupted, those government bonds typically served as collateral for loans from other banks.

When banks stop lending to one another, they also stop lending to the “real economy”: homeowners, consumers, businesses. The European Central Bank’s lending survey in October, the latest available, showed that standards for lending to businesses tightened significantly, and that banks expected them to tighten even further through the end of the year.

The banks also told the ECB that they were finding it increasingly hard to get their hands on loans. The percentage of banks saying their access to markets was tightening skyrocketed in the October report. They expected that situation to improve a bit toward the end of the year but to remain difficult.

Even that grim assessment may have been overly rosy: The rates banks charge each other to borrow dollars overnight has been steadily increasing in recent weeks. On Thursday, the rate known as LIBOR was 0.1505 percent — a high matched once last week but not surpassed since late September.

The ECB has stepped in to lend to banks when no one else will. As a measure of how bad things have gotten, the ECB supplied banks with a total average of €615.3 billion ($801 billion) in ready money to operate their businesses over the three months to Nov. 8. In the previous three months, the banks had needed only €99.1 billion ($129 billion).

David McHugh in Frankfurt and Pallavi Gogoi in New York contributed to this report.

Copyright 2011 The Associated Press.

Forbes – The current bond market havoc in Mediterranean countries is only compatible with S&P at 1,250 if you believe that the European debt market is simply wrong about Italy and Spain. Either the US equity market or the European debt market is making a profound miscalculation here. The key question is whether Germany will bend to accept a titanic new sovereign debt purchasing program.

Yesterday resembled curiously an October Monday one month ago. Both days followed a week of increasing speculation about a massive new European bail-out package involving at least a trillion euros for buying bonds of troubled countries like Italy and Spain. And both days were characterized by seemingly coordinated German efforts to clearly reject such a package.

We have now seen the same pattern repeat several times – yesterday, public German resistance towards increased buying of sovereign debt involved the power trio of Angela Merkel, Jens Weidmann and Klaas Knot. No wonder the Spanish and Italian debt markets are again showing signs of real distress. Knot stated very pointedly that the support for Italian debt market has to be temporary. The Bundesbank power Weidmann was just as clear in his opposition towards easy money policy.

Yet S&P still sailed above 1,250 at the Monday close

- far above the sub-1,100 levels of early October. The last time German bankers and politicians attacked the concept of bigger sovereign debt buying, the Spanish 10-year bond yields were below 5.40%. Today, they spiked above 6.30%. Italian debt probed 7.00% again today. The European support buying of distressed sovereign debt this autumn has not prevented the key yields from spiking. The only medicine that might work is notably higher levels of debt purchases – something Germans keep opposing.

Even as determined German resistance towards extended and expanded sovereign debt buying in Europe is growing, American investors are effectively betting that Germany is bluffing – that the radically expanded European debt purchase package will indeed be put together very soon.

So is Germany bluffing or not? Is Germany in reality prepping for a huge debt purchase binge even as its leading politicians and bankers oppose the concept sharply and publicly? The problem with this scenario is that it does not make any sense. If Germany is planning to support Italian and Spanish debt markets in a big way, badmouthing this project in public is extremely counterproductive.

German comments in both October and November have created a real sense of fear in the European bond markets, driving up yields and making the eventual price of a possible rescue operation higher. Why would Germany do this if it plans to eventually rescue the debt markets of Italy and Spain?

The seemingly coordinated, public German opposition to a notably larger sovereign debt purchase program in Europe only makes sense if Germans are actually trying to signal their true intentions – resolute opposition to such a plan. The fact that German comments seem to often come on Mondays following weekend media speculation about a major debt purchase plans seems to imply that Germany wants to deliberately bring down market expectations.

It’s not clear why investors should believe Germany is just bluffing. Could it be that American investors are so used to a central bank opting for easy money that they cannot conceive a truly hawkish Bundesbank? Or that since US politicians are so supportive of major banks the possibility of German politicians actually making a decision that could hurt the banking sector grievously seems impossible?

CANNES (Dow Jones)–Greece is under intense pressure to call a controversial referendum on its bailout package as soon as possible and possible dates include Dec. 4 and Dec. 11, senior G-20 and International Monetary Fund officials said Wednesday.

“Original thoughts that the vote will be held in January are out of the question,” an IMF official told Dow Jones Newswires. The IMF board was supposed to vote on the next tranche of its joint bailout program with Europe in mid-to-late November, but now will most likely wait until after the referendum, the official said.

Papandreou, who faces a confidence vote in Greece’s parliament Friday, will be meeting later Wednesday with French President Nicolas Sarkozy, German Chancellor Angela Merkel, euro-zone President Jean-Claude Juncker, EU Commission President Jose Manuel Barroso, EU Council President Herman Van Rompuy and IMF Head Christine Lagarde.

The leaders will press Papandreou to either drop the referendum, or hold it as soon as possible. “The latest it can be done is December 11th … without that decision, we can’t agree on the next tranche of the program,” the IMF official said.

A negative outcome from the referendum such as a rejection of the deal reached in late October by Papandreou, the IMF and euro leaders would likely derail the IMF’s program, the IMF official said. A report to the IMF executive board argued that Greece’s debt could become sustainable under the October deal that included a 50% writedown of privately-held Greek debt. A negative referendum would mean “there is no debt sustainability.”

Another IMF official noted, however, that the IMF has had to deal with political risk in other programs. In the middle of negotiations with Ireland, for example, a government was ousted and replaced by the opposition. The IMF successfully negotiated a new agreement.

Greece needs the cash to pay off upcoming debts. It is unclear when, exactly, Athens will run out of money, with officials predicting any time in the next month, depending on the success of collecting new tax revenues. Without the EU and IMF loan, Athens will likely be forced to default on its debt, fueling the spread of the debt crisis into other euro zone countries.

The Group of 20 industrial and developing nations is exasperated that yet another of its meetings will be dominated by Greece. Prime Minister George Papandreou, who has been summoned to the summit, will come under intense criticism for his decision to put a bailout package to a referendum vote, the officials said Wednesday.

“Another of our meetings has been hijacked by Greece because of Papandreou’s move to call a referendum,” a senior G-20 official said. “Everyone here agrees that Greece’s irresponsible decisions are causing a lot of turmoil around the world.”

Papandreou stunned markets Monday when he said that a bailout package agreed to last month by the creditors will be put to a referendum. The vote throws into doubt the euro zone’s efforts to resolve the area’s debt crisis, which includes a 50% ‘haircut’ for private creditors holding Greek debt and moves to boost the firepower of its emergency bailout fund.

The G-20 official said the Greeks must approve the bailout package in the referendum “to avert disaster not only for them but the entire euro zone.”

-By Costas Paris and Ian Talley, Dow Jones Newswires, + 44 207842 9364; costas.paris@dowjones.com

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/b0b02300-e531-11e0-bdb8-00144feabdc0.html#ixzz1YhlUFaH6

The limits to the economic stimulus from ”Operation Twist” were on display on Thursday as the stock market fell and the dollar rose in response to the new $400bn programme from the US Federal Reserve.
The market response is probably not what the Fed wanted or expected in response to its larger-than-expected twist to the yield curve. The Fed will sell $400bn of Treasuries that mature in less than three years and buy the same amount with more than six years to run in an effort to drive down long-term interest rates.
More

The market moves reflect a crucial problem with all monetary stimulus at the moment: the channels for transmitting lower long-term rates into the economy are not working very well. The ultimate success of the twist depends on whether the financial system can turn it into more and cheaper lending to buy houses and build up businesses.
The biggest beneficiaries of twist will be households with plenty of equity in their home that can refinance their mortgage at a lower rate. Doing so will leave extra cash in their pockets and provide some stimulus to the economy.
The Fed’s decision to start buying some mortgage-backed securities again has led to a sharp fall in interest rates on bonds issued by federal housing agencies such as Fannie Mae. That should spur refinancing because, at today’s low interest rates, banks are reluctant to hold new mortgage loans on their balance sheets, and almost all new lending is going through the agencies.
“The overall debt servicing cost for households is falling because of what the Fed is doing,” says Paul Ashworth, chief US economist at Capital Economics in Toronto. The problem, he points out, is that many households are not in a position to refinance no matter the interest rate.
Data suggest that about a quarter of borrowers have a mortgage worth more than their home and a half do not have the 20 per cent of home equity needed to refinance at a lower rate.
Nor will banks be in any hurry to facilitate refinancing because the twist towards a flatter yield curve with lower long-term interest rates hurts their profits. Banks make most money when there is a big gap between the rate they pay on short-term deposits and the rate they earn on long-term loans.
“It could trigger refinancing of mortgages and lead to companies investing and borrowing,” said Brad Hintz, analyst at Alliance Bernstein, but he noted that “the Fed does not have a long history of successfully managing the shape of yield curve” and profits would be hit because “the best environment for the banks is a steep yield curve”.
Mike Mayo, analyst at CLSA, said: “The Fed’s twist only reinforces the notion that US banks reflect at least a lighter form of what has taken place in Japan. The twist makes a flat yield curve more so and does not necessarily improve confidence since, as we’ve seen, the Fed can increase the supply of money but not the demand for money.”
Christopher Whalen, analyst at Institutional Risk Analytics, noted that the impact on profits was muted because banks’ loan assets had a shorter maturity, a weighted average of three to four years.
But he noted the difficulty there will be in passing low rates through to consumers. “We’re all fixated on the Fed because, in normal times, when they moved this flowed through the housing complex automatically,” he said. But with banks mired in problems “they don’t want to see [borrowers] prepay” existing loans.
For business, while twist may be a boon for large corporations that can lock in cheap funding from capital markets, James Chessen, chief economist of the American Bankers’ Association, said that it may not make much difference for small companies, where the main issue is credit risk.
“A small decrease in interest rates is not going to motivate banks to make small business loans,” he said.

Bloomberg – Asian stocks advanced for a third day after Federal Reserve Chairman Ben S. Bernanke said the U.S. economic recovery will accelerate and the central bank has more means to prop up growth if appropriate.
James Hardie Industries SE (JHX), a building materials supplier which gets about 68 percent of sales from the U.S., gained 2.6 percent in Sydney. BHP Billiton Ltd. (BHP), the world’s largest mining company, rose 1.4 percent after a gauge of metal prices in London increase. Elpida Memory Inc. (6665), a maker of computer-memory chips, jumped 6.7 percent in Tokyo after after the price of dynamic-random-access-memory chips gained.
The MSCI Asia Pacific Index advanced 1.7 percent to 122.3 as of 12:39 p.m. in Tokyo, heading for its highest close since Aug. 18. About six stocks rose for each that fell in the gauge. The measure snapped four weeks of losses last week on speculation Bernanke would foreshadow measures to shore up the U.S. recovery. The Fed chief didn’t announce a third round of quantitative easing, known as QE3, and instead decided to extend next month’s policy meeting to a second day.
“Markets that have been very oversold on the idea that the global economy is sinking into another recession will get some relief,” Arnout van Rijn, chief investment officer for Asia at Robeco Hong Kong Ltd. said on Bloomberg Television. Investors think “if things go wrong with the economy, there will be another round of stimulus for the economy.”
Japan’s Nikkei 225 (NKY) Stock Average added 0.9, having earlier fallen 0.5 percent. Australia’s S&P/ASX 200 Index gained 1.6 percent and South Korea’s Kospi Index climbed 2.8 percent.
Hong Kong’s Hang Seng Index increased 1.3 percent, while China’s Shanghai Composite Index slipped 1.1 percent. Markets in the Philippines and Indonesia are shut for a holiday.
‘More Optimistic’
Futures on the Standard & Poor’s 500 Index rose 0.7 percent today. The index gained 1.5 percent in New York on Aug. 26 after Bernanke said he is “more optimistic” about the long-term prospects of the U.S. economy even amid challenges from the slumping housing market and financial-market volatility. The extended Federal Open Market Committee meeting in September will “allow a fuller discussion” of the economy and the central bank’s possible response, he said.
Exporters advanced on speculation the extended policy meeting will allow Bernanke to forge a stronger consensus on monetary easing amid growing dissent among members of the FOMC. James Hardie gained 2.6 percent to A$5.90 in Sydney. Li & Fung Ltd. (494), a supplier of toys and clothes to U.S. retailers including Wal-Mart Stores Inc., rose 0.2 percent to HK$13.04 in Hong Kong. Sony Corp. (6758), Japan’s biggest exporter of consumer electronics, climbed 2.9 percent to 1,638 yen in Tokyo.
The world’s biggest economy expanded less than previously estimated in the second quarter and consumer sentiment this month fell to the lowest level since November, government reports on Aug. 26 showed. Hiring probably slowed in August and U.S. manufacturing contracted for the first time in two years as Americans lost confidence that the recovery will be sustained, economists said before reports this week.
‘Depressed Valuations’
“The data has been mixed,” Ng Soo Nam, the Singapore- based chief investment officer at Nikko Asset Management Co., said on Aug. 27. His firm oversees about $154 billion. “Bernanke hasn’t announced QE3 because there is no need for it at the moment. The situation isn’t as bad as the stock market has factored in. There is scope for a rebound given such depressed valuations.”
The MSCI Asia Pacific Index slumped 15 percent from this year’s peak on May 2 through the low on Aug. 22 when valuations on the gauge fell to an average 11.8 times estimated earnings. That’s the lowest since December 2008 when equity markets tumbled as the global recession deepened amid a credit crunch that followed the collapse of Lehman Brothers Holdings Ltd. in September 2008.
A gauge of raw-material producers and energy companies led the advance among 10 industry groups in the Asia-Pacific gauge after the London Metals Index, which tracks the prices of six primary metals from copper to zinc, extended gains for a fourth- day on Aug. 26 and crude oil futures traded near a three-day high. All of the sub-indexes rose.
BHP Billiton added 1.5 percent to A$39.21 in Sydney. Rio Tinto Group, the world’s second-biggest mining company by sales, increased 1.8 percent to A$70.37. Glencore International Plc, the world’s largest publicly traded commodity trader, advanced 2.5 percent HK$48.70 in Hong Kong. Cnooc Ltd., China’s No. 1 offshore oil producer, climbed 2.8 percent to HK$14.80.
The MSCI Asia Pacific Index declined 13 percent this year through Aug. 26, compared with a 6.4 percent drop by the S&P 500 and an 18 percent loss by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 11.9 times estimated earnings on average, compared with 11.9 times for the S&P 500 and 9.4 times for the Stoxx 600.
Chip Stocks Rally
Chip makers rallied after price of the benchmark DDR3 2- gigabit DRAM rose 3.1 percent Friday, according to data from Taipei-based Dramexchange Technology Inc., operator of Asia’s largest spot market for semiconductors. DRAM chips are mostly used in personal computers to store data temporarily to help devices run multiple programs at the same time.
Elpida jumped 7.3 percent to 574 yen in Tokyo. Samsung Electronics Co., the world’s biggest maker of computer-memory chips by sales, added 1.7 percent to 738,000 won in Seoul. Smaller rival Hynix Semiconductor Inc., surged 6.4 percent to 19,100 won.
To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

CNN Money – Economists aren’t looking for Federal Reserve Chairman Ben Bernanke to announce some new plan to rescue the struggling U.S. economy in a much-anticipated speech this Friday.

In fact, most will be happy if Bernanke and the Fed decide to stand pat, despite growing fears about the risks of a double dip recession.

According to a survey of 16 leading economists by CNNMoney, 12 said they believe Bernanke is not about to signal some change in monetary policy, despite some market expectations that he will do so.

And a similar majority believes the Fed should not take any immediate steps to try to jumpstart the economy, even though it is dogged by sluggish hiring, weak spending and a falling stock market.

Economists are generally unified in their opposition to additional asset purchases by the central bank, a controversial strategy known as quantitative easing or QE for short.

Bernanke is speaking at the Kansas City Fed’s annual economics confab in Jackson Hole, Wyo. Last year Bernanke used his speech there to lay the groundwork for a second round of purchases of Treasuries, or QE2.

Since stocks enjoyed a strong and extended rally after that speech, many investors are hoping he’ll signal QE3 is on the way this Friday. But that enthusiasm isn’t shared by economists.

“It’s premature, and the potential costs exceed by a wide margin the possible benefits,” said Patrick O’Keefe, director of economic research for accounting firm J.H. Cohn.

O’Keefe said with interest rates already near record lows and the Fed’s balance sheet bloated by previous efforts to help the economy, “further action would be equivalent to serving ice cream cake as the main entree at a weight loss clinic.”

There are a few ideas floated by economists for other steps the Fed could take. One is to lower the interest rates that the central bank pays on excess bank reserves, which would give bankers more incentive to lend out money rather than collect the low but safe returns guaranteed by the Fed.

Several others voiced support for the Fed rotating out of short-term Treasuries and into long-term government debt, a policy known as “Operation Twist” in economic circles.

But some economists said sparking growth is a job for Congress, not the Fed. Those in favor of fiscal stimulus from lawmakers said Bernanke should continue to voice support for such action in his remarks Friday.

However, efforts by the Fed to buy additional Treasuries in order to further cut the cost of borrowing doesn’t get much support from economists.

“Fiscal imbalances in the U.S. and Europe need to be addressed, while consumer and business confidence needs to be restored,” said Lynn Reaser, chief economist at the Fermanian Business & Economic Institute.

Economists said there are plenty of risks if the Fed goes on another asset buying binge. It would force more money into the global economy, which some believe would drive up the costs of commodities such as oil and food, increasing costs for consumers and greatly limiting any benefits to the economy.

But Bernanke and other defenders of QE2 deny inflation earlier this year was a result of the $600 billion in Treasury purchases.

Beyond the economic risks, others are worried about the costs to the Fed’s reputation if it decided to pump more money into economy, especially since three district bank presidents already voted against the Fed specifically saying it wants to keep rates low until mid-2013.

Politicians, most notably Republican Presidential Rick Perry, are taking shots at Bernanke as well.

“More asset purchases equals more dissent, more political heat, more criticism from other economists, but not much real economic impact,” said Robert Brusca of FAO Economics.

Still, some economists would like to see Bernanke risk that political backlash and signal that the Fed is ready to start buying assets again.

“Additional asset purchases will lower long-term interest rates, support stock prices, and buoy confidence,” said Mark Zandi, chief economist of Moody’s Analytics. “Asset purchases aren’t a slam dunk positive for the economy, but they are still very much a net positive.”

CNN – A recent Treasury report noted that national debt will exceed the size of the economy this year — a first since World War II. A year ago, the Treasury had estimated that notorious record wouldn’t be hit until 2014.

Now the expectation is that total debt to GDP will top 102 percet this year, up from the earlier estimate of 96.4 percent.

Why the change?

Two factors are likely the biggest cause.

First, the White House’s 2011 GDP estimate is $219 billion lower today than it was a year ago. So debt as percentage of a lower number will always look higher.

Second, the debt grew larger because of a tax cut deal brokered by President Obama and Republicans last December. That deal will add an estimated $858 billion to the deficits over a decade — $410 billion of it in 2011 alone, according to the Congressional Budget Office.

The tax cut package extended all the 2001 and 2003 tax cuts for another two years, enacted a one-year Social Security tax holiday and reduced the estate tax.

Democrats and Republicans disagree on a lot, but both sides have indicated a desire to make the 2001 and 2003 tax cuts permanent for at least the majority of Americans — a costly proposition.

And the GOP publicly says it will not consider tax increases as part of any deal to raise the debt ceiling.

Republican Dave Camp, the lead tax writer in the House, said Monday that the latest Treasury numbers are a clear indication “why any increase in the debt limit must be paired with significant spending reductions and real entitlement reforms.“

But while Republicans criticize Obama for spending too much, in fact tax cuts would drive most of the debt under Obama’s 2012 budget proposal, according to CBO.

That’s why deficit hawks on the left and the right advocate letting the tax cuts expire or paying for any further extension. Better yet, replace them with something superior, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, who noted that this month marks the 10-year anniversary of the 2001 cuts.

“Given that our current tax code is so crummy and our fiscal situation so dire, on this 10-year anniversary, a perfect gift would be a plan to reform the tax code and bring down our debt,“ MacGuineas said.

At this point, the debt is so big, whether it is just below or just above GDP isn’t really a huge distinction.

After examining data from dozens of countries over two centuries, economists Ken Rogoff and Carmen Reinhart found that when a nation’s gross debt reaches 90 percent of its economy, it often loses about one percentage point of growth a year.

Bloomberg – Companies in the U.S. added fewer workers than forecast in May, a sign that job growth is struggling to gain momentum, data from a private report based on payrolls showed today.
More On This Story

Put together, it adds up to a U.S. economy losing momentum. While indicators point to continued expansion, it appears to be a very weak pace of expansion, indeed, and several analysts who had been relatively optimistic about growth this year have cut back their estimates in recent weeks.

The worsening outlook was reflected in financial markets Wednesday. The interest rate the U.S. government must pay to borrow money for 10 years fell to 2.98 percent Wednesday, from 3.06 percent Tuesday and 3.74 percent in February, as investors favored the safety of government bonds and anticipated that low-interest-rate policies from the Federal Reserve will stay in place even longer than earlier thought.

The stock market, while down 1 percent Wednesday morning as measured by the Standard & Poor’s 500, has been more stable in recent weeks despite the softening growth picture.

The Institute for Supply Management said Wednesday that its index of manufacturing activity fell to 53.5 in May, from 60.4 in April. Numbers above 50 indicate expansion, and analysts had expected a more modest pullback to 57.1.

The components of the index that fell most were for new orders and production, and the results were likely impacted by disruptions to auto and other production caused by the March earthquake-tsunami in Japan, which has disrupted supply chains around the world. Temporary disruptions notwithstanding, the May number showed the slowest rate of expansion in the nation’s factories since September 2009.

“Earlier in its recovery, manufacturing had the wind at its back from a very pronounced rebuilding of inventories, said Cliff Waldman, economist at the Manufacturers Alliance/MAPI, a trade group. “At this point, however, elevated commodity prices, slowing global growth and an increasingly questionable outlook for the U.S. economy are creating head winds for the factory sector, which thus far has been the one strong element in an otherwise sluggish U.S. economic rebound.”

Also Wednesday, ADP, the payroll processing company, said that the rate of job creation at private businesses slowed sharply in May. Firms added only 38,000 jobs, ADP estimated, compared with 179,000 jobs added in April. While the ADP survey is inconsistent in predicting overall job growth according to official government numbers, it is worrisome in light of other negative signs about the job market. The number of people filing new claims for unemployment insurance benefits has drifted up in recent weeks.

Friday, the Labor Department will report on May job growth and the unemployment rate. Economists expect it to show about 180,000 new jobs created last month, from 244,000 in April, and that the unemployment rate will edge down to 8.9 percent, from 9 percent.

AP – LONDON — European authorities conceded they may need to do more to help Greece with its massive debts more than a year after it was first bailed out, but robustly denied the country wanted to leave the common currency.
Experts from the European Union and the International Monetary Fund are in Greece to check up on economic reforms promised in return for 110 billion euros ($160 billion) in rescue loans last year. They will also examine whether the current program will be enough to allow Athens to stand on its own feet again when the loans run out in 2013 — a scenario most investors think unlikely.
Credit rating agency Standard & Poor’s cut Greece’s bond grade further into junk status. It said it was increasingly likely that Greece would be given more time to repay its bailout loans and that it would negotiate a similar deal on bonds held by commercial investors.
S&P said Greece might eventually have to resort to a partial default, reneging on as much as 50 percent of its debt.
___
BASEL, Switzerland — Rich countries like the U.S., Japan and Britain need to move quickly to get their deficits under control, the head of the European Central Bank said.
Debts and deficits of rich countries have risen because of the financial crisis, recessions and bank bailouts. In Europe, Greece, Ireland and Portugal have needed international rescue loans to deal with their debt crises.
___
LONDON — Swooning bank shares contributed to a drop in European stock markets as investors fretted over whether Greece will need a second financial bailout in just over a year.
Though reports from Friday that Greece was considering leaving the euro have been flatly denied, investors still think Greece will need more assistance from the eurozone and the International Monetary Fund as it remains unable to tap bond markets.
The resurfacing of Greece’s debt woes weighed on stocks in particular and kept the euro under pressure.
The FTSE 100 index of leading British shares closed down 0.6 percent, Germany’s DAX fell 1.1 percent and the CAC-40 in France ended 1.3 percent lower.
___
TOKYO — Earlier in Asia, Japan’s Nikkei 225 stock average closed down 0.7 percent. Elsewhere, Hong Kong’s Hang Seng rose 0.8 percent, Australia’s S&P/ASX 200 added 0.3 percent and China’s Shanghai Composite Index gained 0.3 percent.
___
LONDON — British banks gave up the fight against compensating customers who were missold payment protection insurance on mortgages and other loans, and now face a compensation bill estimated at 4.5 billion pounds ($7.4 billion).
___
BERLIN — German exports surged 7.3 during March to their highest value since records started being kept in 1950, rounding off another strong quarter for Europe’s biggest economy.
___
MUMBAI, India — India’s car sales grew 13.2 percent in April from a year earlier, the slowest expansion in nearly two years. Inflation and higher interest rates discouraged buyers in the world’s second fastest-growing major auto market.
___
ABIDJAN, Ivory Coast — A port official in Ivory Coast said the world’s largest cocoa producer is resuming exportation after a months-long political standoff.
Ivory Coast was thrown into political chaos late last year when the president refused to cede power after losing the election. The democratically elected leader Alassane Ouattara called for a cocoa ban to step up the pressure on Laurent Gbagbo to leave power. Ouattara has finally taken the oath of office.
___
LONDON — Britain’s biggest mortgage lender says average house prices fell 1.4 percent in April to their lowest level since July 2009.
___
ISTANBUL — Speakers at a United Nations forum urged the world’s poorest nations to help their vulnerable citizens by pursuing good governance, while some leaders said rich countries had not done enough to help developing regions.
___
LONDON — Banking group HSBC reported a 58 percent jump in first-quarter profit thanks to a drop in provisions for bad loans and a lower tax bill.
___
BUCHAREST, Romania — An IMF official said Romania will shut, restructure or privatize some state-owned energy and transport companies to keep their losses from weighing on public finances.
SINGAPORE — Singapore’s authoritarian ruling party is under renewed pressure to cut immigration and boost social spending after the opposition made record parliamentary gains by campaigning for fewer foreign workers and higher wages.
Copyright © 2011 The Associated Press. All rights reserved.

SMH.com.au – European stock markets gained some of the ground lost a day earlier after Standard & Poor’s shocked investors with an US debt outlook downgrade some dealers saw as a needed reality check.
They said the markets on Tuesday staged a strong technical rebound in early trade but then slipped back when Wall Street opened with only modest gains despite a series of strong first quarter corporate results.
The S&P action, its first ever downgrade of US debt, and the warning it could actually cut the rating if Washington does not stabilise the US public finances was a rude wake up call for those who thought the problem was confined to weaker eurozone countries, they added.

In London, the FTSE 100 index of leading shares closed up 0.46 per cent at 5,896.87 points. In Paris, the CAC 40 gained 0.70 per cent to 3,908.58 points and in Frankfurt the DAX edged up 0.18 per cent to 7,039.31 points.
Other European markets showed similar gains.
Despite the early gains made on bargain hunting, “investor sentiment remains overshadowed” the S&P action, IG Index trader Ben Critchley said in London.
The S&P downgrade on the US debt outlook to ‘negative’ from ’stable’ set off a chain reaction across all markets, giving safe-haven gold another boost to fresh record highs just short of $1,500 an ounce.
In Paris, Arnaud de Champvallier at Turgot Asset Management said he was astonished that the markets had held up so well to the S&P downgrade.
“The US hardly fell, nothing seems able to dent the confidence of the Americans,” he said.
Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight, said setting the US public finances straight was essential for Asia and the global system as a whole.
“Given the importance of the US as the world’s largest economy, this is … essential for underpinning the stability of the global financial system,” he said.
In New York, stocks were little changed despite the strong results and better-than expected data on the key housing sector.
The blue-chip Dow Jones Industrial Average was up 0.13 per cent at around 1600 GMT while the tech-heavy Nasdaq Composite was off 0.15 per cent.
Dealers there said early gains were “fuelled by a plethora of favourable data from the earnings and economic fronts,” Charles Schwab analysts said in a note.
“Goldman Sachs Group Inc. easily exceeded analysts’ earnings and revenue projections, along with Dow member Johnson & Johnson,” they noted.
Meanwhile, construction of new homes rebounded in March, with gains in both starts and permits in data welcomed as at least positive even though the industry remains firmly in the doldrums.
In Asian trade earlier Tuesday, markets were playing catch up on the S&P lead, posting substantial losses as a result. Tokyo fell 1.21 per cent, Hong Kong shed 1.30 per cent and Shanghai lost 1.91 per cent. Sydney was down 1.41 per cent.

Read more: http://www.smh.com.au/business/markets/european-markets-reclaim-some-lost-ground-20110420-1dnqx.html#ixzz1K0Wa8mWo