Finance news. My opinion.

Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signaling concern about the direction of the economy over the next six months.

Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed. More than 3 in 4 said they reduced spending in the past year.

Respondents were divided over whether the economy will get better or stay the same in the next six months; only 1 in 6 said things will get worse. More than 40 percent of those surveyed said they feel less financially secure than they did when President Barack Obama took office in January, outnumbering 35 percent who said they feel more secure.

“People I never thought would lose their jobs have lost their jobs,” said Angela Payton, 42, a university publications editor in Florence, South Carolina. She kept her children out of summer camp, stopped buying organic milk and plans to curtail the party for her daughter’s 6th birthday in November.

In the poll, conducted Sept. 10-14, 40 percent of those questioned said they have experienced one or more problems from the banking crisis. In the most-often cited repercussions, 27 percent said their credit-card interest rates have risen dramatically and 15 percent report that they couldn’t get a home-equity, car, or other kind of consumer loan.

View on Obama

Americans are divided about Obama’s handling of the financial industry’s crisis — 45 percent approve of the president’s performance and 44 percent disapprove.

Wall Street faces a more hostile public as Obama presses for new financial regulations. Half of the Americans surveyed have an unfavorable view of Wall Street, versus 31 percent with favorable views.

“Everybody is angry. We all know if we screwed up as badly as the Wall Street managers, we would not be paid, we would be fired and we would not get bonuses,” said Virginia Clifford, 54, a lawyer in Olympia, Washington. “A lot of people are waiting to see if Obama has the guts to reform Wall Street.”

Three out of four Americans support government-imposed limits on executive pay at companies that haven’t repaid government bailout money, the poll shows.

Backing Regulation

While banks and financial companies are lobbying to kill Obama’s proposal to establish a Consumer Financial Protection Agency, 56 percent of Americans support the idea, with 31 percent of the poll respondents opposed.

“If somebody is not looking out for consumers, who cares whether something is unhealthy or unwise?” said Tony Dumas, 39, a graduate student at the University of California in Davis. “Capitalism run amok is why we’re in the mess we’re in.”

Underscoring consumers’ austere attitudes, 77 percent of respondents said they have cut back on spending during the past year, 59 percent said they have made a bigger effort to pay off debts and 48 percent have put more money aside as savings free credit report instantly.

Consumer spending dropped in four of the past six quarters, and is down 1.9 percent from its peak in July-to-September 2007, the biggest retrenchment since 1980.

A separate survey of Bloomberg users showed little change in confidence in September from last month. The Bloomberg Professional Global Confidence Index was at 58.54 this month, remaining above 50, which means optimists outnumbered pessimists.

Stock Investors

Investors remain encouraged at signs that the global recession, the deepest since the Great Depression, has ended. Stocks in Asia gained today with the MSCI Asia Pacific Index up 1.3 percent as of 12:14 p.m. in Tokyo.

Because consumer spending accounted for 70 percent of the American economy since 2001, the speed and strength of a recovery may depend on how quickly Americans loosen their purse strings.

Retail sales in August surged 2.7 percent, the largest monthly jump in three years, fueled in part by the government’s “cash-for-clunkers” auto-purchase program. August sales also probably benefited from sales-tax holidays that some areas offered back-to-school shoppers and may not signal a turning point, said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm.

“There are lots of reasons to expect consumer spending to remain soft,” Crandall said, citing rising unemployment and drops in home values and household wealth.

Savings Suffer

More than 4 of 10 Americans surveyed said their retirement savings have suffered in the past year, 40 percent said home values have dropped, and 27 percent said workers in their households have less job security.

By 62-34 percent, Americans said high unemployment is a greater danger than inflation over the next two years.

The Federal Reserve, which Obama would like to give preeminent regulatory authority over the financial system, is viewed favorably by 44 percent of respondents against 33 percent with unfavorable opinions.

Democrats including House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd have questioned Obama’s plan to give the Fed the primary authority to regulate systemic risks. They have backed Federal Deposit Insurance Corp. chief Sheila Bair’s preference for a council of regulators to monitor risks.

Americans are skeptical about the prospects for two industries that have received large-scale government support. Fifty-three percent said they’re pessimistic about the banking industry, versus 41 percent who are optimistic. When asked about the automobile industry, 53 percent are pessimistic versus 42 percent who are optimistic.

The poll is based on interviews with 1,004 U.S. adults 18 and older. Interviewers contacted households with randomly selected landline and cell-phone numbers. Percentages based on the full sample may have a maximum margin of error of plus-or- minus 3 percentage points.

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Hirohisa Fujii, Japan’s next finance chief, will draw on his two decades at the Finance Ministry to try to wrest budgetary control from bureaucrats and fund his party’s promises without swelling the public debt.

Fujii, 77, told reporters in Tokyo that Democratic Party of Japan leader Yukio Hatoyama offered him the post. Hatoyama will announce his Cabinet after parliament approves him as prime minister today.

The DPJ, which unseated the Liberal Democratic Party that held power for all but 10 months since 1955, has pledged to support households battered by two decades of economic stagnation. If confirmed, Fujii’s biggest challenge will be convincing investors he can uphold pledges from providing childcare handouts to abolishing highway tolls without blowing out the largest debt burden in the industrialized world.

“Japan’s fiscal conditions are worsening considerably and there are concerns over what’s going to happen to the nation’s public debt, depending on who will be the new finance minister,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo.　“In that sense, Fujii is a good choice as he gives an impression that he will manage debt properly.”

Fujii said he was also asked to head a government tax panel. Unlike his predecessor, Kaoru Yosano, he won’t hold a second portfolio as minister for banking regulation. Shizuka Kamei, leader of DPJ coalition partner the People’s New Party, said yesterday he accepted an offer to become financial services minister.

Served Before

Fujii was an LDP lawmaker from 1977 until he left the party in 1993 to participate in a coalition that toppled the ruling party. He served as finance minister in that government, which lasted only 10 months, and worked with Treasury officials including current Secretary Timothy Geithner and former head Lawrence Summers during his term.

Before entering politics, Fujii spent 21 years at the Finance Ministry, where he rose to the position of budget examiner. Hatoyama asked Fujii not to retire from politics before the Aug. 30 election, sparking speculation he will take the finance portfolio.

His most immediate issue will be compiling next year’s budget, a process that has been delayed because the DPJ has vowed to take control over the process from bureaucrats to prevent spending it calls wasteful.

Budget Test

“Budget compilation will be the first real test for the DPJ,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “If they can wrest control of the budget from bureaucrats as they have promised, they’ll be able to cut wasteful spending. If not, they’ll need to rely on bond sales.”

The DPJ wants to reduce the bureaucracy’s role in setting policy. Economists say Fujii’s background will help the party come good on that promise without turning the ministry against the government.

“He may be able to control bureaucrats well and probably won’t hurt the market by doing anything extreme,” said Nobuto Yamazaki, executive fund manager at DIAM Asset Management Co. in Tokyo.

Japanese government bonds have remained little changed since the election, with 10-year notes yielding 1.32 percent at 11:53 a.m. in Tokyo from 1.315 percent before the Aug. 30 vote. The yen traded at 90.98 per dollar, close to a seven-month high of 90.21 reached two days ago.

Yen Intervention

Fujii indicated this month that he is opposed to buying or selling the yen to influence currency levels, saying the government should only step into the foreign-exchange market “when speculative funds cause abnormal movements.”

Any currency intervention should be done in concert with other governments, he said in a Sept. 3 interview. Japan hasn’t entered the foreign-exchange market since it sold yen in 2004.

The new ruling party must also deal with record unemployment and deflation that threaten to derail a recovery from the nation’s worst postwar recession. The jobless rate rose to 5.7 percent in July and consumer prices plunged an unprecedented 2.2 percent.

Streamlining spending and finding money for all of Hatoyama’s election promises won’t be easy. The party plans to increase spending on child care and tuition aid, lower gasoline taxes and eliminate highway tolls. To support workers, it promises to provide 100,000 yen ($1,100) a month for job seekers enrolled in training, raise the minimum wage and expand employment insurance.

Won’t Be Easy

Hatoyama wants to do those things while keeping new bond sales within the 44.1 trillion yen, almost a tenth of gross domestic product, allocated for the year ending March 2010. The DPJ plans to tap unused money from outgoing Prime Minister Taro Aso’s 13.9 trillion yen extra budget instead of selling debt.

Fujii said on Sept. 3 that the incoming government may redeploy as much as 5 trillion yen in stimulus spending currently slated for “wasteful” programs, including scrapping plans for a “manga” comic-book museum.

Even if the DPJ is able to pull together enough money this year, the magnitude of its programs will make it hard to compile subsequent budgets, economists say.

The party says it needs to find 7.1 trillion yen to fund its election pledges for the year starting April 1. That number would swell to 16.8 trillion yen by fiscal 2013, according to its campaign manifesto.

Japan’s public debt is already approaching 200 percent of GDP and finances are being squeezing by falling tax receipts. The DPJ has also pledged not to raise the consumption tax from the current 5 percent, limiting its funding options.

“No matter who is finance minister, the party will manage in the first year, but it’s going to be impossible not to increase new bond sales beyond 2011,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Ultimately they’ll be forced to choose between raising the sales tax or seeing public finances collapse.”

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Bank of Japan policy makers will probably keep their benchmark interest rate near zero this week and maintain emergency lending programs as the economic recovery shows signs of losing momentum.

While some officials are probably open to taking additional steps to strengthen the expansion, they would prefer to have additional economic figures, including the central bank’s quarterly Tankan business survey due Oct. 1, before making any decisions, central bank watchers said.

Governor Masaaki Shirakawa said Aug. 31 that he can’t be confident about the strength of the economy after global stimulus spending runs out and companies finish restocking inventories. Investors may also be growing skeptical: the Nikkei 225 Stock Average has lost about 4 percent since reaching an 11-month high on Aug. 26 as reports showed unemployment rose to a record and deflation deepened.

“The economy is still at a low level and some data show that it’s losing steam and consumer prices will keep falling,” said Naka Matsuzawa, chief investment strategist at Nomura Securities Co. in Tokyo. “So far the solid stock market has provided a buffer for the BOJ, but if stocks start to slump, the bank will consider further easing measures.”

The Nikkei gained 0.1 percent at the lunch break in Tokyo. The yield on Japan’s 10-year bond rose 1.5 basis points to 1.305 percent. The yen traded at 91.14 per dollar, a day after climbing as high as 90.21, the strongest in seven months.

Return to Growth

Shirakawa and his board will hold the overnight lending rate at 0.1 percent at the meeting ending Sept. 17, according to all 23 economists surveyed by Bloomberg News. The bank will refrain from unveiling any new steps, having already extended credit-easing programs until the end of the year, they said.

The world’s second-largest economy grew at an annual 2.3 percent pace last quarter, the first expansion in more than a year, fueled by government spending at home and abroad. Figures have since shown the revival may be in jeopardy: the jobless rate rose to an unprecedented 5.7 percent in July, machinery orders fell and household spending slumped.

“Given that it’s hard to anticipate a sustainable rebound in domestic demand, exports are crucial,” said Teizo Taya, a former Bank of Japan policy maker who now advises the Daiwa Institute of Research in Tokyo. “Even so, we can’t expect much from that front for the time being.”

Premature to Unwind

Policy makers globally remain cautious about the world economy, too. Finance chiefs of the Group of 20 nations said this month it’s premature to start unwinding record-low interest rates and more than $2 trillion in fiscal stimulus.

Central banks around the world have slashed borrowing costs since the collapse of Lehman Brothers Holdings Inc. exactly a year ago led to the worst global recession in postwar history. The Federal Reserve’s target rate for overnight bank loans is a range of zero to 0.25 percent. The European Central Bank’s key rate is 1 percent.

The Bank of Japan may at least acknowledge the return to growth by upgrading its economic assessment for the fourth time in five months.

The board may use words like “picking up” to describe the economy, after last month saying it had “stopped worsening,” said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. She said policy makers will avoid saying Japan is in a recovery because “the unemployment rate continues to set records and a bottom has yet to be confirmed in domestic private demand.”

Deflation Obstacle

Deflation may provide an obstacle to raising interest rates even if the economy keeps growing. Consumer prices fell a record 2.2 percent in July, and policy makers are likely to forecast the slide will extend into 2011, a third year of declines, in their twice-annual outlook next month.

“The key question is when central banks start to hike interest rates, a traditional policy tool,” said Taya at Daiwa Research. “A rate increase will be a difficult option for a country like Japan, where prices will keep falling.”

Japanese authorities will hold the key rate at 0.1 percent at least through the end of 2010, according to 14 of 16 economists surveyed.

Since its most recent rate cut in December, the central bank started buying corporate debt from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The board extended the programs until Dec. 31 at its July meeting, and one option for policy makers in coming months is to stretch them into 2010.

Preconditions for Change

Board members Tadao Noda and Atsushi Mizuno have said other possible steps for the bank include outlining preconditions for changing policy, as it has done in the past. When introducing zero rates in 1999, the bank promised to keep the stance until concern about deflation diminished.

The bank may also face pressure from the new government led by Yukio Hatoyama to buy more government bonds from lenders to help yields down, analysts said. It currently buys 1.8 trillion yen ($20 billion) of the securities each month.

“There is a possibility that the government will launch new stimulus plans in a few months should the economic outlook darken,” said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo. “If so, there is a risk that the government will seek cooperation from the central bank.”

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New Zealand’s retail sales unexpectedly fell for a second month in July, adding to signs the economy faces a slow recovery from the worst recession in three decades.

Sales dropped 0.5 percent from June when they declined a revised 0.1 percent, seasonally adjusted, Statistics New Zealand said in Wellington today. Core retail sales, which exclude car yards, fuel outlets and workshops, fell 0.5 percent.

Reserve Bank Governor Alan Bollard last week said the economy faces a “patchy” recovery after contracting for six straight quarters as the jobless rate rises and a stronger currency curbs exports. He kept the benchmark interest rate unchanged at record-low 2.5 percent on Sept. 10 and said he doesn’t plan to raise borrowing costs until late 2010.

“The recovery in demand is likely to be muted,” said Jane Turner, economist at ASB Bank Ltd. in Auckland. “The Reserve Bank may be relieved too see consumer spending remaining soft.”

New Zealand’s dollar fell to 70.42 U.S. cents at 11:40 a.m. a.m. in Wellington from 70.56 cents immediately before the report was released.

Sales were expected to rise 0.4 percent, according to the median estimate in a Bloomberg News survey of 12 economists. June sales were revised from a 0.1 percent gain reported last month.

Job Losses

Bollard said last week the economy may grow just 0.1 percent in the three months ending Sept. 30. He expects consumer spending will contract in the year ending March 31.

Curbing spending, the jobless rate rose to a nine-year high of 6 percent in the second quarter. The Reserve Bank forecasts it will increase to 6.9 percent by mid-2010. The Treasury Department last week forecast a peak of 7 credit reports free.5 percent.

Retail sales fell in 15 of the 24 store categories measured in today’s report, led by fuel outlets and department stores.

The monthly sales series isn’t adjusted to exclude price movements and sales. Fuel costs fell 3.5 percent in July, according to government figures.

Supermarket and grocery store sales, which make up a fifth of the total, fell 0.3 percent. Department store sales declined 2.2 percent following a 2.8 percent drop in June.

Vehicle dealer sales increased 2.1 percent. Purchases from fuel outlets fell 2.9 percent.

House Sales

The core retail trend series, which excludes irregular movements as well as seasonality, rose 0.1 percent from June. The monthly pace of decline has slowed from about 0.3 percent in the three months through May, the statistics bureau said.

Economists expected an increase in consumer confidence, fanned by a recovering property market, would bolster spending.

House prices rose 1.2 percent in August, according to a Real Estate Institute of New Zealand Inc. index published earlier today. House sales fell from July, though rose 39 percent from a year earlier. The number of days it took to sell a property was the lowest since December 2007, the institute said.

“The recent pickup in housing demand comes when listings have been very low, causing the market to become slightly heated” said ASB’s Turner. “Recent stabilization in the market is likely to tempt sellers back into the market, restoring the balance between supply and demand.”

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Prices of goods imported into the U.S. rose in August for the fifth time in six months, led by an increase in petroleum costs.

The 2 percent gain in the import price index followed a 0.7 percent decrease the prior month, Labor Department data showed today in Washington. Prices excluding fuels rose 0.4 percent, as the cost of industrial supplies and materials rose.

Resurgent energy costs will keep pressure on profits as the worst recession since the Great Depression makes it harder for companies to pass on higher expenses to consumers. Economists predict a recovery will be slow to take hold, keeping inflation tame and giving Federal Reserve policy makers leeway to keep interest rates near zero for longer to spur growth.

“The Fed will remain on hold for the foreseeable future,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report. “It’s very unlikely that firms have significant pricing power” in the current environment, he said.

Economists forecast prices would rise 1 percent, according to the median of 56 responses in a Bloomberg News survey, after a previously reported 0.7 percent drop in July. Estimates ranged from a drop of 0.5 percent to a gain of 3.2 percent.

Today’s report showed that compared with a year earlier, prices of imported goods fell 15 percent, after a record 19.2 percent year-on-year decline in July. Excluding petroleum, prices were 5.1 percent lower than in August 2008.

Import prices were forecast to drop 16 percent from a year earlier, according to the survey.

Inflation Gauges

The import-price index is the first of three monthly price gauges from the Labor Department. The government is scheduled to release the wholesale price report Sept. 15, followed by consumer prices the following day.

Fed policy makers on Aug. 12 committed to keeping the key interest rate between zero and 0.25 percentage point “for an extended period” to promote economic recovery. They said they expected “inflation will remain subdued for some time.”

The price of imported petroleum and petroleum products increased 10.5 percent in August, the sixth gain in seven months. Prices were 38 percent lower than a year earlier.

A slumping dollar may also boost import prices in coming months. The greenback was down about 10 percent through last week against a trade-weighted basket of currencies of major U.S. trading partners since reaching a five-year high in March.

Capital Goods

Today’s report showed the cost of imported capital goods, such as generators and trucks, increased 0.1 percent last month, after remaining unchanged the prior month. The cost of industrial supplies including fuels and building materials rose 6.1 percent.

Consumer goods excluding automobiles fell 0.2 percent for a second straight month and were down 1.2 percent over the last 12 months.

Prices of imported automobiles, parts and engines rose 0.2 percent after increasing 0.1 percent the prior month.

Toyota Motor Corp. is among carmakers raising prices. The Japanese auto manufacturer on Aug. 14 announced new prices for selected 2010 Lexus brand models, including its Avalon sedan and Highlander mid-size SUV, amounting to about 1 percent on average.

Competition from herbicide producers in China is forcing St. Louis, Missouri-based Monsanto Co., the world’s largest seed producer, to forecast a decline in earnings in fiscal 2010. Chinese competitors introduced generic herbicides that forced the company to cut its own prices, Chief Executive Officer Hugh Grant told investors yesterday in London.

China, Japan

Prices of goods from China rose 0.2 percent, those from Japan rose 0.1 percent and those from the European Union gained 0.2 percent. Products from Latin America rose 3.4 percent, led by oil, and those from Canada rose 2.7 percent, also on energy.

U.S. export prices increased 0.7 percent after decreasing 0.3 percent the prior month. Prices of farm exports rose 0.2 percent, while those of non-farm exports rose 0.8 percent.

The Commerce Department said yesterday that the U.S. trade deficit widened in July and imports gained by a record 4.7 percent. The gap between imports and exports grew 16 percent, the most in more than a decade, to $32 billion from a revised $27.5 billion in June.

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Japan’s economy unexpectedly grew less than initially estimated in the second quarter as companies cut spending and stockpiles fell.

Gross domestic product expanded at an annual 2.3 percent pace in the three months ended June 30, slower than the 3.7 percent reported last month, the Cabinet Office said today in Tokyo. Economists surveyed by Bloomberg News forecast the figure to be unchanged from the preliminary estimate.

Today’s report shows Japan’s recovery from its deepest postwar recession is even weaker than previously thought, and intensifies pressure on the incoming government, led by Yukio Hatoyama, to resuscitate household demand. With unemployment at a record high and one-third of factory capacity idle, Japanese growth may depend on overseas demand.

“It’s hard to say when the economy will return to where it was before the unprecedented contractions in previous quarters,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The DPJ will be forced to come up with more specific growth strategies to help the economy.”

The Nikkei 225 Stock Average fell 0.4 percent at the lunch break in Tokyo. The yen traded at 91.41 per dollar from 91.65 before the report was published.

From the previous quarter, the world’s second-largest economy grew 0.6 percent, less than the 0.9 percent the Cabinet Office estimated last month. That compares with a 0.1 percent contraction in Europe and a 0.3 percent drop in the U.S.

In a sign that overseas demand is holding up, reports from China today showed industrial production rose the most since August 2008 and new lending unexpectedly accelerated.

Stockpiles Decline

Net exports — the difference between exports and imports — contributed 1.6 percentage points to Japan’s expansion, unchanged from the first reading. That was offset by the deeper- than-expected decline in stockpiles, which subtracted 0.8 percentage point from quarterly output, more than the 0.5 percentage point first reported.

The inventory figures suggest manufacturers have more room to increase output to replace stockpiles they ran down when global trade seized up in the wake of the global financial crisis, said Shinke at Dai-Ichi Life. Companies increased production at the fastest pace in half a century last quarter.

“The negative contribution from inventories isn’t necessarily bad news,” Shinke said. “It’s likely to be a plus for growth this quarter.”

Reports since the second quarter suggest the economy is slowing free copy of my credit report. Gains in industrial production decelerated for a fourth month in July, the jobless rate jumped to an unprecedented 5.7 percent, and machinery orders, an indicator of capital spending, tumbled 9.3 percent.

‘Weak Recovery’

“This is a weak recovery,” said Tetsuro Sugiura, chief economist at Mizuho Research Institute in Tokyo. “Consumers and business are anxious about the outlook.”

Toyota Motor Corp., which estimates it will make about a third fewer cars this year than it has the capacity to build, said last month it will close an assembly line at its Takaoka plant in central Japan. The carmaker plans to cut capital spending by 36 percent in the year ending March 31.

Japan Airlines Corp. posted a 99 billion-yen ($1.1 billion) loss in the first quarter, the most in at least six years, as business and leisure travel plummeted. The airline plans to cut 1,400 administrative jobs domestically, starting next month.

Economic and Fiscal Policy Minister Yoshimasa Hayashi said spending cuts by companies “indicate the outlook for the economy is still murky.”

Cash Handouts

Capital spending declined 4.8 percent last quarter, more than the 4.3 percent initially reported, today’s report showed. Consumption rose 0.7 percent, spurred by cash handouts and incentives introduced by the outgoing Liberal Democratic Party- led government to buy cars and electronics.

Finance Minister Kaoru Yosano said the GDP report shows “Japan’s economy isn’t experiencing a full-fledged recovery” and he urged the new government to “make its utmost efforts to put Japan’s economy on a sustainable growth path.”

The Democratic Party of Japan will take power for the first time on Sept. 16 after last month’s landslide election victory.

Declining corporate profits and falling tax revenues may make it difficult for the party to fund its promises to encourage more consumer spending through childcare handouts and abolishing highway tolls. The DPJ pledged not to increase new bond sales to avoid expanding a debt burden that’s the largest in the industrialized world.

“They’re saying they’ll finance their projects by reshuffling the budget,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “Under the best of circumstances that wouldn’t be easy.”

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The Bank of England plans to keep buying as much as 175 billion pounds ($290 billion) of assets to cement the economy’s recovery from the worst recession in a generation.

The decision by the nine-member Monetary Policy Committee, led by Governor Mervyn King, was forecast by all 35 economists in a Bloomberg News survey. The central bank also kept the benchmark interest rate at 0.5 percent, as predicted in a separate survey of 60 forecasts.

Signs that the economy is returning to growth helped push the U.K.’s benchmark FTSE-100 index above 5,000 for the first time in almost a year yesterday. While King last month argued for even more bond purchases by the central bank, today’s decision suggests most officials are convinced the recovery is on track for now.

“Just because they’ve done nothing today doesn’t mean they won’t do anything in the future,” said Brian Hilliard, chief economist at Societe Generale SA and a former Bank of England official. “The economy is turning round but we are underperforming continental Europe. The third-quarter growth outlook is miserable. We’re out of recession probably but in an anemic way.”

The pound rose as much as 0.4 percent after the decision to $1.6580 and was at $1.6557 as of 12:15 p.m. in London. Some investors had speculated the Bank of England may cut the interest it pays commercial banks on deposits today in an effort to encourage lending.

The bank has kept its rate at a record low since March to fight the economic and financial crisis unleashed by the collapse of Lehman Brothers Holdings Inc. a year ago. The European Central Bank kept its benchmark interest rate at 1 percent for a fourth month on Sept. 3. The U.S. Federal Reserve’s target range is zero to 0.25 percent.

Brown’s View

Prime Minister Gordon Brown, who faces a general election in less than a year, wants to avoid complacency and keep up stimulus measures as the economy shows “interesting and encouraging” signs, his spokesman said yesterday.

The recession probably ended in May, the National Institute of Economic and Social Research, whose clients include the central bank and the Treasury, said this week. House prices rose 0.8 percent in August, Lloyds Banking Group’s Halifax division said today, while a survey of services companies showed the fastest pace of expansion in almost two years.

Redrow Plc, the U.K. homebuilder that saw founder Steve Morgan rejoin management in March, said today that reservations for new homes in the first 10 weeks of its financial year rose 72 percent from a year earlier amid “strong buyer demand” after the housing market stabilized.

Stocks Fall

The FTSE-100 was at 4968.13 as of 12:15 p.m. in London. The benchmark stock index rose above 5,000 yesterday for the first time since October and has increased 34 percent in the past six months.

“Things are looking up in the economy,” said Neville Hill, an economist at Credit Suisse Group in London and a former U.K. Treasury official. “The flow of the data in the past month does not press them urgently into doing more.”

The global recovery is prompting some officials to discuss withdrawing stimulus. The U.S. Federal Reserve signaled in minutes published Sept. 2 that it’s already trying to prepare investors for an end to some of its asset purchases. ECB President Jean-Claude Trichet last week outlined how his central bank will withdraw stimulus, though he stressed it’s “premature” to say the crisis is over.

Lending Concerns

King is nevertheless concerned that banks aren’t lending enough and he said last month they have “a very long way to go” before capital is rebuilt. Royal Bank of Scotland Group Plc and Barclays Plc, two of Britain’s biggest banks, have cut lending even after promising the government to make more credit available.

Manufacturing activity still showed contraction in August after growth the previous month, a survey of factories showed. Mortgage approvals, which rose above 50,000 in July, still remain half the total in the same month two years ago.

King sought 200 billion pounds in asset purchases last month in a minority vote backed by David Miles and Timothy Besley, who left the panel on Aug. 31. In June 2007, when King last dissented from the majority because he wanted an interest- rate increase, the panel supported it at the next month’s decision.

Deputy Governor Charles Bean said last month that the effects of the purchases so far have been “moderately encouraging” and that gilt yields are as much as 75 basis points lower than they would otherwise be. He said that it is still “very early to draw conclusions” on the plan’s efficacy. The bank has bought about 140 billion pounds in assets so far.

The yield on the 10-year gilt was at 3.75 percent today, up from 3.02 percent at the start of the year. The yield fell as low as 2.933 percent on March 13, two days after the central bank said it would start its asset purchase program.

“While it’s still a pretty uncertain recovery story at the moment, they’ve still got plenty to go through,” said James Knightley, an economist at ING Financial Markets in London. “It’s all looking a lot healthier so for the moment they don’t need to do anything else.”

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The U.S. was displaced by Switzerland as the world’s most-competitive economy after its financial markets were roiled by the worst crises since the Great Depression, the World Economic Forum said today.

The U.S. fell to second position for the first time since the Geneva-based organization began its current index in 2004 as it lost marks for the sophistication of its markets and rising budget deficits. Switzerland was credited for its stability and ability to innovate.

“A number of escalating weaknesses have taken their toll on the U.S. ranking this year,” the study of 133 countries ny the Geneva-based organization said. “Switzerland’s performance has remained relatively stable.”

The loss of efficiency by the world’s largest economy is another obstacle to a fast recovery even as it begins to show signs of emerging from its deepest recession since World War II.

Reduced confidence in its banking system after the collapse a year ago of Lehman Brothers Holdings Inc. meant the U.S. slid to ninth from 20th when ranked for the attributes of its markets. A measure of how easy access to finance is fell to 106th this year, close to Albania and Mali, from 40th last year, while a budget deficit now above $1 trillion pushed its grade for economic stability to 93rd from 66th.

U.S. Faces Obstacles

The U.S. economy still won marks for its flexible product and labor markets, research and development and technological advances. ‘These factors remain a driving force behind U.S. productivity and will support recovery from the current recession,” the forum said.

The U.S. economy may be slow to pull out of its slump as data suggest obstacles to expansion remain. While the economy lost the fewest jobs this year in August, unemployment climbed to a 26-year high, a U.S. Labor Department report showed Sept. 5.

Switzerland took the top spot after being ranked third in the world for business sophistication and second for its capacity to innovate. Its economy was ranked 17th for stability.

Recent indicators show the Swiss economy is emerging from its worst recession in three decades quick cash. Gross domestic product contracted 0.3 percent in the second quarter from the previous three months, less than economists expected. Exports rose in July after falling for two months and investor confidence jumped to a three-year high in August.

Returning to Growth

“Some months ago, uncertainty was much higher and I expected worse” said Ursina Kubli, an economist at Bank Sarasin in Zurich. “But given these latest data, it looks as if the economy is stabilizing on a solid level. I expect the economy to expand again in the third quarter.”

Singapore, Sweden and Denmark rounded out the top five, followed by Finland, Germany, Japan, Canada and the Netherlands. Among the other Group of Seven nations, the U.K. slipped one slot to 13th, France held at 16th and Italy rose a place to 48th, although remained below Barbados in 44th.

China climbed one place to 29th, while India and Brazil also gained to 49th and 56th respectively. Russia fell 12 places to 63th because of concern about the government’s growing role in its economy and the independence of its justice system. In Latin America, Chile was the highest placed ranking 30th and Qatar outpaced its Middle East counterparts coming in at 22nd.

Governments should be wary of not taking steps to fortify their economies even once the crisis passes, said Xavier Sala-i- Martin, an economics professor at Columbia University in New York, who helped write the report. The International Monetary Fund now expects the world economy to grow 2.9 percent next year rather than 2.5 percent it predicted in July.

“It is critical that policy makers not lose sight of long- term competitiveness fundamentals amid short-term urgencies,” said Sala-i-Martin. “A competitiveness-supporting economic environment can help national economies to weather business cycle downturns.”

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Former Federal Reserve Chairman Alan Greenspan said banks should be forced to hold more capital on their balance sheets, reinforcing a weekend push by finance chiefs from the Group of 20 nations.

“Capital requirements even during non-crisis periods have to have a larger buffer,” the 83-year-old former policy maker said today via teleconference to the Antique India Markets Conference in Mumbai. “We do need significant changes.”

Noting the world economy was emerging from of the financial crisis “fairly quickly,” Greenspan made his call for tighter capital requirements two days after a G-20 meeting in London proposed having banks increase the quantity and quality of assets they keep in reserve for when economies stumble. The drive to revamp regulation comes after excessive risk-taking by the world’s banks led to $1.61 trillion in losses and writedowns, taxpayer-funded bailouts and a global recession.

“Financial intermediaries allowed institutions to go into default by taking this kind of risk,” Greenspan said. “There’s no substitute for capital. Don’t think the crisis could have been prevented unless we can change human nature.”

Once regarded by some observers as the greatest central banker, Greenspan has seen his legacy criticized since the U.S. subprime-mortgage market collapsed in 2007. Having run the Fed from 1987 to 2006, he said last in October that a “flaw” in the ideology of free-market risk management he had espoused contributed to the “once-in-a-century” credit crisis.

‘Euphoria’

Greenspan today repeated how rare the turmoil was and blamed it on an under-pricing of risk or “building of euphoria” that emerged at the start of the century as interest rates and inflation ran into single-digits.

His hands-off approach to asset bubbles has been challenged by some Fed district-bank presidents, such as Janet Yellen. Former Fed Vice-Chairman Alan Blinder and Stanford University professor John Taylor are among the economists who say Greenspan also left interest rates too low for too long earlier this decade, encouraging the easy credit that fostered the housing bubble.

Speaking a week before the first anniversary of the collapse of Lehman Brothers Holdings Inc., he said that event had led to a “massive contraction” in trade financing and surge in inventories. He predicted some exotic financial instruments, such as collateralized debt obligations, won’t return even after the crisis passes.

He predicted that China will witness a “diffusion of power” and that global demand for oil won’t be “radically changed.” In the U.S., the phenomenon of mortgages exceeding the value of homes appears to be peaking, he said.

The former Fed chairman has returned to his role as a private economic forecaster, speaking at conferences and to groups of bankers and investors, while consulting for clients such as Deutsche Bank AG.

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Xstrata has asked its bankers to study the viability of a new 3 billion pounds ($4.90 billion) bid for platinum producer Lonmin, according to the Observer newspaper.

The report, which did not cite any sources, said that the mining giant, which has been restricted from making a new bid lower than the 3,300 pence it proposed for 12 months because of takeover rules, would move for Lonmin again next month after instructing JP Morgan and Deutsche Bank to conduct a feasibility study ahead of a possible bid.

Xstrata bought a 24.9 percent stake in Lonmin last year cash advance to savings account.

Lonmin’s shares rose last week on speculation that a bid was imminent.

However, analysts at Liberum Capital said they thought Xstrata was unlikely to move for Lonmin because a cash purchase of a 75 percent stake would take its net debt to around $16.8 billion or 50 percent gearing.

Xstrata declined to comment when contacted by Reuters.

($1=.6123 Pound)

(Reporting by Rhys Jones; editing by Karen Foster)

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