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Walgreen Co. announced Wednesday it is buying New York-based rival drugstore chain Duane Reade Holdings Inc. to expand its reach in the metropolitan area.

The $1.1 billion cash transaction, which includes some debt and is pending regulatory approval, is Walgreen’s largest retail acquisition to date and is expected to close in the current fiscal year ended Aug. 31.

Through the deal, Deerfield, Ill.-based Walgreens (WAG, Fortune 500) drugstore, which currently operates 70 stores in New York City out of 7,100 nationwide, will acquire all 257 Duane Reade locations in New York City, as well as its corporate office and two distribution centers.

"Duane Reade is a compelling strategic acquisition that will immediately provide Walgreens with a leading position in the largest drugstore market in the United States," said Walgreens chief executive and president Greg Wasson in a statement. "The transaction is consistent with the capital allocation objectives we outlined last fall, which included investing in strategic opportunities that reinforce the company’s core strategies and meet return requirements."

The deal will also give Walgreens an edge over its national rival CVS Caremark (CVS, Fortune 500), which operates just over 7,000 drugstores across the nation.

"Walgreens lags its rival CVS in the New York metro area," said Craig Johnson, retail industry expert and president of retail consultancy Customer Growth Partners. "So this deal now allows Walgreens to leapfrog over its competitor and give it the kind of dominance in New York City that it has in Chicago, where it is headquartered."

Duane Reade, owned by private equity firm Oak Hill Capital Partners, boasts the highest sales per square foot in the retail drugstore industry in the nation, and its sales reached an unaudited $1.8 billion in 2009.

"We are very pleased that this national leader has recognized the successful transformation under way at Duane Reade," said Duane Reade chief executive and chairman John Lederer in the statement.

Customer Growth Partners’ Johnson said the deal will also benefit shoppers.

"This is also a win-win for consumers. Walgreens is bringing the skill, capital and management strength of one of the top two pharmacies operating in the country to Duane Reade," he said. "This will certainly enhance the merchandise and shopping experience for Duane Reade consumers."

Duane Reade, which opened its first location on Broadway between Duane and Reade streets in Manhattan in 1960, will continue to operate under its name after the transaction closes. About 60% of Duane Reade stores are located in Manhattan, while 30% are in outer boroughs and 10% are outside the city.

Though Walgreens expects acquisition charges will lower its earnings per share during the first 12 months after the deal closes, the drugstore projects it will help cut costs by between $120 million and $130 million by the third year.

Shares of Walgreens fell 1% in early trading.  

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MONTREAL–Bombardier Aerospace says a lack of new orders will force it to lay off an additional 715 workers at its Montreal-area facilities next year as it reduces production of its CRJ regional jets.

Thursday’s announcement came two weeks after Bombardier president, Pierre Beaudoin, warned of impending job losses. The cuts are in addition to 4,360 layoffs previously announced this fiscal year for the firm’s worldwide operations.

"The economic circumstances and the situation with the airline industry continue to make it difficult to get new CRJ orders," spokesman Marc Duchesne said.

The 715 layoffs include about 40 employees affected by the reduced output rate for its Bombardier 415 amphibious aircraft.

About 200 of the affected workers are administrative. The remaining 515 are unionized employees who can now exercise their rights to bump workers with less seniority.

The move doesn’t reduce production of business jets, which decreased earlier this year as the company forecast deliveries would fall by 25 per cent this year.

Any additional cuts to business jet production, should they be required, could be announced Dec. 3 when the company discloses its third-quarter results immediate payday loans online. There were 116 regional jets in Bombardier’s backlog of orders as of July 31.

A campaign to increase that total attracted just one letter of interest for 22 CRJ700s from American Airlines. But Duchesne said the layoffs don’t mark the death of the CRJ. Bombardier’s latest market forecast calls for 5,800 planes over the next 20 years.

Benoit Poirier of Desjardins Securities said the reduced production rate was widely expected. Bombardier doesn’t disclose daily production rates or aircraft production forecasts. But Poirier said in a note on Thursday that he expects Bombardier will deliver 52 regional jets this fiscal year, ending Jan. 31, and 45 in fiscal 2011. It has delivered 37 so far this year.

The latest layoffs will begin in January and will last through the first two quarters of the next fiscal year.

Bombardier said costs associated with the layoffs will be about $10 million (U.S.). On the TSX, Bombardier shares fell 18 cents to $4.60.

The Canadian Press

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Porsche SE is headed for a second consecutive annual loss in the billions of euros, as the hangover lingers from ex-Chief Executive Wendelin Wiedeking’s failed takeover of Volkswagen AG.

The indebted automotive holding company created as a vehicle for the acquisition will stay deeply in the red as it is forced to deconsolidate its Volkswagen stake and much of its Porsche AG sports car business, officials said on Wednesday.

The complex untangling at Porsche — now set to merge in 2011 with its 51-percent owned Volkswagen unit — cemented its reputation as a financial black box that scarcely resembles its roots as a maker of sports cars such as the 911 Turbo.

As its debt mounted just as car markets collapsed, Porsche was forced to drop its takeover and agree a merger with Volkswagen. The first step is selling to VW a 49.9 percent stake in the Porsche AG sports car business by the end of this year.

“To take into account the rather unlikely possibility that the merger does not take place after all, the parties concerned have incorporated a put/call structure into the transaction concept,” said Hans Dieter Poetsch, finance chief of both Porsche SE and Volkswagen.

This includes transferring the remaining 50.1 percent of Porsche AG to Volkswagen by no later than 2014, he added fast cash advance loan.

Poetsch warned on Wednesday that the deconsolidation loss in the fiscal year to July would be triggered if VW’s home state of Lower Saxony once again gets the right to appoint two members to VW’s supervisory board at the next annual meeting.

According to International Financial Reporting Standards, this would mean Porsche would have to book its VW stake at market value, he told Porsche’s annual news conference.

“This would give rise to a considerable loss based on the current market price,” Poetsch said.

Including the sale of the minority stake in the sports car business, the structural changes in its consolidated statements would lead to a loss “in the low single-digit billion euro range.”

Porsche SE posted a group net loss of about 3.6 billion euros ($5.37 billion) for the fiscal 2008/09 year. Net debt at the end of its fiscal year on July 31 was 11.4 billion euros.

Porsche shares were barely changed by 1306 GMT while the DJ Stoxx European car sector index dipped 0.2 percent.

(Editing by David Holmes)

($1=.6708 Euro)

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Russia is unlikely to change the structure of its reserves from dollars and euros even as currencies including the yuan gain more importance in regional trade, VTB Group Chief Executive Officer Andrei Kostin said.

“Inevitably with the growth and importance of other economies like China or other BRIC countries’ economies, the role of their currencies should be more important,” said Kostin, who heads Russia’s second-biggest bank, in an interview yesterday in Singapore. “We think that the yuan and the ruble can be currencies in which we conduct bilateral trade. But as a reserve currency, I think the central bank is still dividing mainly between the dollar and the euro.”

The ruble gained 0.2 percent against the euro to 42.8600, the strongest level in almost ten months, at 1:12 p.m. in Moscow. The Russian currency was little changed against the dollar.

Russia has sought to promote regional currencies in trade and finance to reduce the risks posed by the dominance of the dollar. Medvedev has blamed the global financial crisis on an over-reliance on the U.S. currency and the U.S. role in the financial system.

“Things are changing for sure and I think the crisis showed the weaknesses of being dependent on only one currency,” said, Kostin who was accompanying President Dmitry Medvedev at the Asia-Pacific Economic Cooperation forum. ‘There is more concern among many investors, even in Russia, that America is printing too much money and that could devalue it.”

State-run VTB is Russia’s second-biggest bank after OAO Sberbank.

Border Arrangements

Prime Minister Vladimir Putin traveled to China last month to strengthen a relationship forged by Russian oil exports to Asia’s largest energy consumer. The total value of oil deals signed with Chinese companies this year is about $100 billion, according to the Russian government.

China, the world’s fastest-growing major economy, has signed 650 billion yuan ($95 billion) in currency-swap agreements since December with Argentina, Belarus Hong Kong, Indonesia, Malaysia and South Korea, encouraging greater use of its currency guaranteed online payday loans.

Russia already has agreements that allow the use of the ruble and yuan in cross-border trade, First Deputy Central Bank Chairman Alexei Ulyukayev said on Oct. 23. Russia is also in talks with India and Brazil to use their currencies in trade.

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said today that the yuan may in future be added to the basket of currencies that set the value of IMF monetary units, called special drawing rights.

Reserve Currency

The yuan may be added in a “while,” Strauss-Kahn said at a press briefing in Beijing today. The move would require the currency to be market-based, he said.

While Chinese officials, including central bank Governor Zhou Xiaochuan, have called this year for an alternative to the dollar as the main reserve currency, they maintain controls on the yuan that prevent it for now from becoming a competitor.

Leaders from the APRC, who met in Singapore over the weekend, declined to back U.S. calls for a stronger yuan.

It’s “not easy” to say when the yuan could become convertible, Kostin said.

The currency could become a global reserve currency in about 10 years should the country make it convertible, Russian Finance Minister Alexei Kudrin said on Oct. 24.

While the yuan cannot be freely exchanged, making it impossible to use it for reserves at present, a change in policy would make the currency a “notable and weighty” global reserve currency given China’s trade volumes with others, Kudrin said.

Russia’s reserves, the world’s third largest holdings, are made up of 47 percent dollars, 41 percent euros, 10 percent pounds and 2 percent yen, Ulyukayev said on Nov. 2.

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General Motors expects to announce a market share gain for the third month in a row in October, GM executive director of corporate planning Mike DiGiovanni told reporters on Wednesday.

October will also mark the first year-over-year sales gain GM has managed in 21 months, DiGiovanni said. In September, GM’s sales were down 47% compared to a year earlier.

"When you look at GM’s performance, we’re having a really good October," he said.

The automaker expects its vehicle sales will amount to 20% to 21% of all vehicles sold that month, he said. He expects those numbers to be about 3% higher than Toyota’s and 4% higher than Ford’s, he said.

DiGiovanni credited strong product introductions for the market share rise. Over the past few months, GM has started production on six new or redesigned models: the Chevrolet Camaro performance coupe, Chevrolet Equinox, GMC Terrain and Cadillac SRX small crossover SUVs, Buick LaCrosse luxury sedan and the Cadillac CTS Sportwagon.

Sales of the new 2010 Chevrolet Equinox crossover SUV are strong enough that the automaker is adding a third shift to the Ontario, Canada factory that builds the Equinox and its sister-vehicle the Terrain easy online payday loans.

"We’ve got enough data now that we feel very confident that adding this third shift is the right ting to do, said Susan Docherty, who was recently appointed to head GM’s sales efforts.

An overall improvement in auto sales will also help GM’s bottom line, DiGiovanni predicted.

The market share rise comes despite the fact that GM has shed four of its former eight brands, DiGiovanni said. Only 5% of GM’s October sales came from the four brands that are being shut down, he said, compared to 10% a year ago.

Besides new model introductions, the automaker’s "Truck Month" promotion program has also helped boost sales, Docherty said.

GM still has a much larger percentage of 2009 models on its dealer lots, Docherty said, but part of that is a deliberate strategic decision. The automaker wanted to have more 2009 truck to sell as part of its "Truck Month sales drive. 

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Ford Motor Co. tapped Chinese automaker Geely as its preferred bidder for its Volvo unit, the company announced Wednesday.

Ford has been looking for a buyer for Volvo since December 2008, after a plunge in industry sales forced it to retrench to focus on its core U.S. brands of Ford, Mercury and Lincoln.

Ford (F, Fortune 500) has already sold the Land Rover, Jaguar and Aston Martin brands, as well as its controlling stake in Japanese automaker Mazda.

But the premium Swedish brand Volvo was by far the strongest of the non-core Ford brands, with a well-established reputation for quality and safety and a solid dealership network. Even with doubts about its future, Volvo’s U.S. market share stayed essentially unchanged this year at 0.6%, according to sales tracker Autodata.

Ford cautioned in its statement that there was still much work needed to be done in sales negotiations with Geely and that there was no timeline to close the deal. No terms were announced.

"Ford believes Geely has the potential to be a responsible future owner of Volvo and to take the business forward while preserving its core values and the independence of the Swedish brand," said Ford chief financial officer Lewis Booth in a statement bad credit payday advance.

China’s auto market now rivals the U.S. in terms of size. But even though sales are growing fast in China, the Chinese auto industry has relatively few exports.

Geely’s interest in breaking into the U.S. market is well documented. It was one of the first Chinese automakers to display its vehicles at the North American International Auto Show in Detroit.

In late 2006, Chrysler Group and Geely announced an agreement to have the Chinese automaker develop a subcompact car that Chrysler could sell in the U.S. market. But that deal ended in 2008 without a vehicle being produced. A Chrysler spokesman said the discussions never progressed very far.

Geely is not the only Chinese company looking to snap up a U.S. brand. Sichuan Tengzhong Heavy Industrial Machinery Co. has reached a definitive agreement to buy the Hummer brand from General Motors. 

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The Bank of Japan may decide tomorrow to start withdrawing its emergency credit-easing programs because businesses have regained access to private funding.

Governor Masaaki Shirakawa and his colleagues may say it will allow their corporate debt purchase programs to expire on Dec. 31 as scheduled. The central bank will also hold the benchmark interest rate at 0.1 percent, according to all of the 20 economists surveyed by Bloomberg News.

Shirakawa said on Oct. 3 the need for the bank’s purchases of commercial paper and corporate bonds has diminished, indicating the bank is preparing to terminate the operations. Companies surveyed in the central bank’s Tankan survey released Oct. 1 said it is becoming easier to borrow from banks as the global credit crisis eases.

“The Bank of Japan has explicitly indicated it wants to end the programs,” said Izuru Kato, chief market economist at Totan Research Co. in Tokyo. “Discontinuing them would have little impact on the economy.”

Government bonds fell, sending 10-year yields one basis point higher to 1.29 percent at 12:20 p.m. in Tokyo. The yen traded at 89.82, unchanged from late yesterday and weaker than the eight-month high of 88.01 reached on Oct. 7.

Emergency Programs

Since lowering rates to 0.1 percent in December, the bank started buying commercial paper and corporate bonds from lenders and offering them unlimited loans backed by collateral to channel funds to companies. The policy board extended the three plans to Dec. 31 when it met in July.

People with direct knowledge of the bank’s discussions said in September the bank may make a decision as soon as this month because officials are concerned that continuing the programs for too long would distort capital markets. Economists expect the bank to keep the limitless lending program.

Major companies said their access to funding improved compared with three months ago, the bank’s Tankan survey showed. Large firms said their access to credit has recovered to last year’s levels while small companies said their funding conditions were still tighter than December, the survey said.

Central banks around the world are moving to pare back unprecedented measures to unfreeze credit as the financial industry stabilizes. The Federal Reserve last month said it would shrink programs that auction loans to banks and Treasuries to bond dealers. The European Central Bank said Sept. 24 it will stop its longer-dated dollar liquidity operations because of limited demand.

Bank of England

Meanwhile the British Chambers of Commerce urged the Bank of England to expand its bond-purchase program to as much as 200 billion pounds ($315 billion). “This fragile recovery we’ve started to see really needs to be nurtured,” BCC Director General David Frost said in an interview no fax pay day loan.

The strengthening yen may dissuade the Bank of Japan from deciding tomorrow to let the programs expire, some economists say. Japan’s currency has risen more than 3 percent against the dollar in the past three months, squeezing profits of exporters and threatening the economy’s recovery from its worst postwar recession. The Nikkei 225 Stock Average has fallen 4.2 percent since Aug. 31. It rose 0.4 percent in morning trading.

“It may be difficult for the bank to make a decision this week, given that the stability in the yen and stocks is crucial for ending the corporate programs,” said Naka Matsuzawa, chief investment strategist at Nomura Securities Co. in Tokyo.

Thrown Punches

Government officials have acknowledged the lack of demand for some of the BOJ’s programs, while also calling on policy makers to mind that smaller companies still have difficulty raising funds. Deputy Prime Minister Naoto Kan said last week he hopes the bank will take into account the “severe” state of funding for smaller firms when it debates ending the programs.

“The government has already thrown preemptive punches to the Bank of Japan, but the bank should end buying commercial paper and corporate bonds as planned because the facilities aren’t really being used,” said Teizo Taya, a former BOJ board member and now adviser of the Daiwa Institute Research.

The bank will probably maintain the limitless lending program because there is demand for it, analysts say. It has lent 7.3 trillion yen ($82 billion) under the facility as of Aug. 31. In contrast, it had 100 billion yen of commercial paper on its balance sheet, about 3 percent of the amount it’s allowed itself to hold. The bank held 200 billion yen of corporate bonds, only one-fifth of the limit set by officials.

‘Big Presence’

“The lending facility has a big presence in Japan’s money market, and its end would create a rift between the central bank and the government,” said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. “The bank will probably extend the program through March 31.”

Scaling back its stimulus doesn’t mean the bank is preparing to raise interest rates, analysts surveyed said. The bank will probably keep the key rate around 0.1 percent at least through the end of 2010, 16 of 17 economists who gave forecasts through the period said.

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Group of Seven finance officials meet this weekend in Istanbul debating whether to surrender the weapon that helped shape currency markets for three decades.

One week after the G-20 anointed itself the world economy’s main policy forum, G-7 finance ministers and central bankers may break with tradition and choose not to release a statement on the global economy and currencies, said officials who declined to be identified. That would deprive traders of the commentary that policy makers frequently use to influence exchange rates.

The debate over the G-7’s role comes as European Central Bank President Jean-Claude Trichet and Bank of Canada Governor Mark Carney signal concern about the U.S. dollar’s slide over the past seven months and Japan’s new government struggles to find a clear line on the yen. The diversity of the G-20, which includes China and India, means investors may have to deal with conflicting signals as its members seek common ground.

“There may be communication difficulties as policy makers misspeak and inject volatility into markets,” said Stephen Jen, a managing director at BlueGold Capital Management LLP in London. “It will take a few rounds of G-7 and G-20 meetings to form a collective opinion on currencies.”

The euro fell against the dollar yesterday after Trichet said “disorderly movements” in exchange rates have “adverse implicate ons” for economies. The euro fell as much as 0.9 percent to $1.3148. It has gained 16 percent since March.

Officials gather tomorrow, one week after President Barack Obama and other G-20 leaders left Pittsburgh pledging to work together to narrow so-called imbalances such as the U.S. trade deficit and China’s current account surplus.

New Arena

“They clearly believe the G-20 will be the appropriate place to discuss currency,” said Simon Derrick, chief currency strategist at BNY Mellon Corp.

The embrace of the G-20 reflects China’s increased role in the global economy and the view that its policy of managing the yuan’s value against a basket of currencies means its opinions cannot be ignored

“Only the G-20 can say anything meaningful about currencies because the big policy issue is the dollar-China peg,” said Bilal Hafeez, Deutsche Bank AG’s London-based head of foreign-exchange strategy. China has kept the yuan little changed against the dollar for more than a year.

The biggest industrial nations first started to meet regularly in the 1970s after the Bretton Woods currency framework that had governed the global economy since World War II collapsed.

Their power to steer currencies reached its pinnacle in the 1980s when five of its members signed the Plaza Accord to weaken the dollar. The Louvre Accord was introduced two years later to buoy it. In September 2000, the G-7 rescued the euro — the last time it intervened.

Currency Study

Three years later in Dubai it started to lobby China to allow the yuan to appreciate with a call for “more flexibility in exchange rates.”

A study last year by ECB economist Marcel Fratzcher found the G-7 was successful in moving currencies on 80 percent of the 29 occasions it tried to do so since 1975 within a year.

“G-7 currency statements were not always effective straight away, but there have been times when they have signalled clear preferences,” said Thomas Stolper, a currency strategist at Goldman Sachs Group Inc. in London.

This time, balancing the world economy will likely weaken currencies such as the dollar and sterling, while boosting the euro and yuan, whose economies are export-led, said Marco Annunziata, chief economist at UniCredit Group in London.

That may concern some in the G-7 as the dollar’s 13 percent slide against a basket of seven currencies since the start of March impedes their recovery by making exports more expensive.

‘Major Risk’

Carney said Sept. 28 that the Canadian dollar’s gain was a “major risk” and Trichet said the same day that a strong dollar is “extremely important” for the world economy. Japanese Finance Minister Hirohisa Fujii said Sept. 29 the government may act to stabilize the foreign-exchange market and denied that he supported a stronger yen.

“There is definitely rising concern about currencies as we’re at a delicate moment for economies,” said Annunziata.

While the dollar’s slide may buoy the U.S. economy by easing lopsided flows in trade and investment, World Bank President Robert Zoellick this week became the latest official to question its role as the world’s only reserve currency. Such speculation could undermine the U.S.’s ability to draw the foreign finance it needs to fund its $11.8 trillion debt.

Federal Reserve Chairman Ben S. Bernanke yesterday countered that there’s “no immediate risk” to the dollar.

The trend away from the G-7 has been building since it stopped backing up its talk with money, said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Connecticut. It took almost two years for China to heed the request for more currency flexibility.

“I have a G-7 bias, I was weaned on currency accords,” said Gilmore. “On G-7 weekends now I go fishing.”

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The U.K. economy shrank less than previously estimated in the second quarter and mortgage approvals stayed near the highest in more than a year last month, a sign Britain is emerging from recession.

Gross domestic product fell 0.6 percent from the first quarter, compared with a prior measurement of a 0.7 percent drop, the Office for National Statistics said today in London. Banks granted 52,317 loans to buy homes in August, close to the highest level since April 2008, a separate report by the Bank of England showed.

Britain’s worst recession in a generation is easing after five consecutive quarters of contraction. Chancellor of the Exchequer Alistair Darling said yesterday that the recovery may be under way by the end of the year, supported by the government’s stimulus measures and Bank of England asset purchases.

“We should be looking forward to a decent positive number in the third quarter and an even better one in the fourth quarter,” said Alan Clarke, an economist at BNP Paribas SA in London in a Bloomberg Television interview. “But my view is: enjoy it while it lasts. We could see a soft patch in 2010.”

GDP slumped 2.5 percent in the first quarter, the most since 1958 and revised down from a 2.4 percent decline. The recession has now shaved 5.6 percent off gross domestic product. From a year earlier, the economy contracted 5.5 percent, the most since records began in 1956, the statistics office said.

Brown’s Promise

Prime Minister Gordon Brown promised last week to maintain stimulus spending until the recovery is secure. The Treasury plans to sell an extra 220 billion pounds ($349 billion) in debt this year and next year expects a deficit of 12 percent of GDP.

Brown’s ruling Labour Party fell to third place for the first time since 1982 in an opinion poll published today. Both Conservatives and Liberal Democrats led Labour in the Ipsos-Mori Ltd. survey finished Sept. 27.

“Many independent forecasters now believe the U.K. too is coming out of recession. I think it is too early to say so with total confidence,” Darling told the Labour Party annual conference in Brighton, England yesterday. “As long as we continue to support the economy, recovery will be under way in the U.K. by the turn of the year.”

A report by Hometrack Ltd. showed yesterday that U.K. house prices increased the most in two years in September as confidence in the property market improved. Services expanded at the fastest pace in almost two years in August.

GDP Breakdown

In the second quarter, manufacturing fell 0.1 percent, half the amount previously estimated, while construction declined 0.8 percent instead of 2.2 percent, the statistics office said. Services dropped 0.6 percent, unchanged from the prior assessment.

Wolseley Plc, the world’s largest supplier of heating and plumbing gear, said yesterday a decline in profits will slow next year while fund raising from investors along with cuts in working capital helped it pare debt. The Reading, England-based company has shed a total of 30,000 jobs as the recession hammered profit.

Bank of England Chief Economist Spencer Dale said last week that while the economy has “turned a corner,” the U.K. faces a “slow and protracted” climb out of the recession as unemployment continues to rise. The number of people seeking jobs rose in the three months through July to 2.47 million, the highest level since 1995.

Growth ‘Uncertainty’

“The fiscal stimulus is likely to subside from the middle of next year and it leaves a lot of uncertainty about the sustainability of growth momentum,” said Lena Komileva, an economist at Tullett Prebon in London. “The Bank of England may look to counterbalance the draconian tightening that’s in store from the next parliament.”

The household savings ratio, which measures the proportion of post-tax income saved, increased to 5.6 percent in the second quarter, the most since 2003, the statistics office said. Household disposable incomes adjusted for inflation rose 0.9 percent in the second quarter and were 0.7 percent higher than a year earlier.

Consumer spending, which accounts for two thirds of the economy, fell 0.6 percent in the quarter, revised up from a 0.7 percent drop, the report showed.

Gross domestic product will rise 0.3 percent in the third quarter and 0.4 percent in the last three months of the year, the Confederation of British Industry, the nation’s biggest business lobby, said last week. The central bank will start raising the benchmark interest rate from the current record low of 0.5 percent in the first half of 2010, the CBI says.

BOE Decision

Policy makers unanimously decided this month to maintain their plan to buy bonds with newly created money at 175 billion pounds, minutes of the Sept. 10 decision showed last week.

The current account gap widened to 11.4 billion pounds in the second quarter from 4.1 billion pounds in the previous three months, the statistics office said in a separate report today. That’s the most since 2007 and amounts to 3.3 percent of GDP.

“The stimulus is going to start to disappear and there’s going to be a severe and sustained fiscal squeeze that will keep growth relatively sluggish,” said Jonathan Loynes, an economist at Capital Economics Ltd. in London.

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U.S. home prices rose 0.3 percent in July from the previous month, less than analysts’ estimates, in a sign that the housing recovery is tenuous.

The house price index fell 4.2 percent for the 12 months ended in July, the smallest decline this year, the Federal Housing Finance Agency in Washington said today. The monthly gain was lower than the 0.5 percent increase forecast by 12 analysts in a Bloomberg survey.

“The general economic recovery is weak for one reason: because the housing recovery is weak,” said David Crowe, chief economist of the National Association of Home Builders in Washington.

The U.S. housing market is struggling to stabilize after a three-year slump slashed values 28 percent and led to record foreclosures. While a federal tax credit for first-time buyers and lower prices are bolstering demand, the unemployment rate at a 26-year high has kept many buyers out of the market.

Employers have eliminated almost 7 million jobs since the recession started, the biggest drop of any post-World War II economic downturn. U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke are considering whether to end support for the housing market that has been the source of the global financial crisis.

‘Encouraging’ Recovery Signs

Treasury Secretary Timothy Geithner on Sept. 17 called signs of stabilization in the housing market “very encouraging” and said the Obama administration is studying whether to let the tax credit expire at the end of November.

“If we start to see a major fallback in housing they’re going to have to bring back more federal support,” said Brian Bethune, chief financial economist of IHS Global Insight, a forecasting company in Lexington, Massachusetts. ‘

Eight out of nine areas saw prices decline from a year earlier, FHFA said. The biggest drop was 9.8 percent in the region that includes Nevada and Arizona. California and other Pacific coast states declined 9 percent, and the area that includes Florida was down 5.6 percent, according to the report.

Five out of nine U.S. regions had price increases July from June, led by a 1.6 percent gain in the area that includes California, the FHFA said. New York, New Jersey and Pennsylvania had the second-largest advance with a 1 percent increase.

Homebuilding companies are seeing some signs that demand is improving. Lennar Corp., the third-largest U.S. builder, said yesterday it has started buying finished home sites in anticipation that buyers will return.

Price Forecast

The Standard & Poor’s Supercomposite Homebuilding Index of 12 companies has rallied 38 percent this year through yesterday on the prospect of a recovering market.

U.S. home prices probably will fall 13 percent this year to a median of $172,600, larger than the 9.5 percent decline in 2008, according to a National Association of Realtors’ forecast. Home resales probably will rise 1.1 percent to 4.97 million after a 13 percent drop last year, the group said.

The U.S. median home price tumbled 28 percent over three years to $164,800 in January, the month before Congress passed the American Recovery and Reinvestment Act of 2009 granting the tax credit for first-time buyers, according NAR. It had reached a record high of $230,300 in July 2006. January’s median home price was the lowest in more than seven years.

Lawrence Yun, chief economist of the realtors’ group, estimates that about 350,000 home sales through August were directly attributable to the tax credit. First-time buyers have accounted for 43 percent of home sales since the credit became law, up from 32 percent in the six weeks prior to its passage, according to Washington-based Campbell Communications Inc.

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