Finance news. My opinion.

World stock markets fell Wednesday as Europe’s festering debt crisis overshadowed figures showing that Americans increased their retail spending for a fifth straight month.

Benchmark oil slipped below $99 per barrel while the dollar rose against the euro and was little changed against the yen.

European shares fell in early trading. Britain’s FTSE 100 slipped marginally to 5,517.44. Germany’s DAX shed 0.9 percent to 5,878.33 and France’s CAC-40 lost 0.4 percent to 3,036.76.

Wall Street also braced for a lower opening, with Dow Jones industrial futures falling 0.7 percent to 11,957 while S&P 500 futures lost 0.8 percent at 1,244.50.

The retreat in Europe followed losses in Asia, where Japan’s Nikkei 225 index lost 0.9 percent to close at 8,463.16, a six-week closing low. Hong Kong’s Hang Seng dropped 2 percent to 18,960.90 and South Korea’s Kospi shed 1.6 percent to 1,856.07. Benchmarks in Singapore, Taiwan, and Australia also fell.

Mainland China’s benchmark Shanghai Composite Index lost 2.5 percent to 2,466.96, its lowest closing this month. The smaller Shenzhen Composite Index dropped 2.6 percent to 1,059.24.

Data on retail sales showed Americans spending more on autos, electronics and building supplies in October _ and at a faster rate than expected. Many saw the result as a sign that the U.S. economy may well avoid another recession as consumer spending is the biggest component of the country’s GDP.

Still, investors could not get past the mammoth debt loads carried by Greece and Italy, which are threatening to trigger an all-out financial crisis on the continent.

“The world does not believe the crisis is solved,” said Francis Lun, managing director of Lyncean Holdings in Hong Kong. “The market is still very jittery and still worried about possible effect of economic slowdown and recession in Europe. I think this will depress the market for a quite a long period.”

And the problem isn’t just isolated to Greece or Italy, he said.

“It’s the problem of the entire Western world,” Lun said. “For Europe, it overborrowed for 12 years and for the U.S., it probably overspent for 30 years _ so 30 years of mismanagement cannot be corrected in one day.”

On Tuesday, higher interest rates on government debt issued by Italy, Spain and other countries rattled European stock markets. The interest rate on Italy’s 10-year bond jumped back above 7 percent, a dangerously high level.

Higher borrowing costs _ in the form of extra yields that must be paid for bonds regarded as riskier _ are a sign that investors are worried that those countries may have trouble paying their debts.

The debt crisis among the 17 nations that use the euro currency “appears to be deteriorating by the day,” analysts at Credit Agricole CIB said in a report. “Contagion has spread across eurozone bond markets like wildfire and the lack of action to create a firewall means that that there is little to extinguish it.”

Italy’s borrowing rate first crossed the 7 percent threshold last week, raising worries about Rome’s ability to manage its debts. Greece, Ireland and Portugal had to get rescued by international lenders when their borrowing rates crossed the same level.

Meanwhile, Chinese property shares were sharply lower amid falling housing prices as government efforts to cool the overheated housing industry take effect. Hong Kong-listed blue chip China Overseas Land & Investment fell 4.6 percent, while Poly Real Estate Group lost 4.8 percent.

Japan’s Olympus Corp. soared 15.6 percent amid easing worries that the company _ embroiled in a scandal over the concealment of huge investment losses _ will be delisted by the Tokyo Stock Exchange.

Shares of Tiger Airways jumped 6.1 percent in Singapore trade after the carrier was cleared to increase its number of flights in Australia ahead of the busy Christmas travel period.

Mainland Chinese shares in real estate, cement, media and financial companies weakened following a report from the International Monetary Fund that warned China’s banks could face risks if real estate prices fall sharply or unpaid loans increase. The IMF also said other dangers could arise from growing imbalances in a Chinese economy that relies heavily on exports and investment to drive growth.

Shanghai-listed Ping An Insurance lost 4.6 percent while China Nonferrous Metal Industry lost 4.7 percent.

On Wall Street on Tuesday, the Dow rose 0.1 percent to 12,096.16. The S&P 500 gained 0.5 percent to 1,257.81, and the Nasdaq added 1.1 percent to 2,686.20.

Benchmark crude for December delivery was down 43 cents at $98.94 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.23 to settle at $99.37 in New York on Tuesday.

The euro fell to $1.3532 from $1.3543 late Tuesday in New York. The dollar fell to 76.94 yen from 77.04 yen.

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China’s high-flying economy is starting to lose altitude. The big question is whether the world’s economic superstar will descend gradually _ or so fast that it harms a fragile global economy.

China’s comedown is being engineered by its policymakers. They want to slow its growth rate just enough to cool inflation without sapping job growth.

It’s a delicate task.

“Nobody can say with any confidence” if they’ll succeed, says Barry Eichengreen, an economics professor at the University of California, Berkeley.

China’s explosive growth remains the envy of developed nations like the United States. It grew faster than any other major economy in the April-June quarter, according to The Associated Press’ latest quarterly Global Economy Tracker. Only Argentina’s much smaller economy matched China’s 9.5 percent annual growth rate.

By contrast, the U.S. economy grew at a 1.3 percent rate in the April-June quarter, before expanding 2.5 percent in the July-September period.

The AP’s Global Economy Tracker monitors economic and financial data in 30 countries representing more than 80 percent of global output.

Economists worry that China’s economy could suffer what they call a “hard landing.” A sudden plunge in China’s growth would harm the economies of the United States, Europe and small countries that need China to buy their coal, copper and other raw materials.

On Tuesday, a Chinese government group said manufacturing grew in October at the slowest pace in nearly three years, partly due to weak export orders. It forecast that the economy would slow further the rest of the year.

The threat from a slower-growing Chinese economy comes as the United States is still struggling to recover from the Great Recession of 2007-2009. And an agreement last week to ease Europe’s debt crisis might not prevent the continent from sliding back into a recession that would ripple through the United States and other countries.

When surveyed this year by the Society of Actuaries, corporate risk managers in the United States, Canada and elsewhere said a slowdown in China posed the greatest threat to their business.

A hard landing wouldn’t just squeeze U.S. and European exporters. It could also destabilize Chinese society. And it could escalate global trade tensions.

Hampered by inflation above 6 percent and slowing exports, China’s growth is expected to decelerate from 10.3 percent last year to 9.5 percent in 2011 and 9 percent in 2012, according to the International Monetary Fund. The IMF expects the global economy to grow 4 percent this year.

Developing countries emerged faster than other nations from the Great Recession. They’re now growing much faster than rich countries. According to the AP’s global tracker:

_The three fastest in the April-June quarter were China (a 9.5 percent annual growth rate), Argentina (9.5 percent) and Indonesia (6.5 percent).

_The laggards are from the industrialized world _ Japan (down 1.1 percent), Norway (up 0.3 percent) and Britain (up 0.6 percent).

_Growth is slowing worldwide. It weakened from a year earlier in 19 of 26 countries that reported April-June data.

China’s gaudy growth doesn’t mean much to Xie Jun, who runs a factory in the southern Chinese boomtown of Dongguan. He’s enduring a tough year.

His company makes and exports headphones, cell phones and computer accessories. It’s paying 30 percent to 50 percent more this year for chemicals, fuel and other raw materials. Labor costs have nearly doubled.

Xie’s customers are reducing orders, forcing him to lay off more than 10 percent of his staff at Dongguan Jincai Real Co. and leaving him with about 100 workers.

“I just feel hopeless,” Xie, 45, says. “It’s hard to say if it will get any better next year.”

China will likely account for nearly a third of global growth this year.

Exporting countries depend on China’s demand for raw materials and consumer goods. Mines in Australia and Chile supply coal, copper and iron ore. General Motors sells more vehicles in China than anywhere else, including the United States. China was the No. 3 destination for U.S. merchandise exports last year, behind Canada and Mexico.

China’s trading partners are watching warily to see whether it can avoid a hard landing. Economist Nouriel Roubini has defined a hard landing as a drop in annual growth to 5 percent or less. He says China must expand 8 percent a year just to keep enough people employed to “maintain its social and political stability cash advances pay day loan.”

Eswar Prasad, professor of global trade at Cornell University, puts the odds of a hard landing in China at 50-50.

Other analysts say they’re confident China’s policymakers will manage to reduce inflation gently without stifling growth too much.

The authorities “are well-aware of the risks,” says Bob Mark, who runs Black Diamond Risk Enterprises and has advised Chinese banks. “It’s not like they’re going to be blindsided.”

China’s central bank has raised interest rates five times since mid-2010 to try to shrink inflation. Even so, consumer prices jumped 6.2 percent from August 2010 to August 2011. That was fifth-fastest among the 30 countries in the AP’s global tracker. In the United States, by contrast, prices rose 3.8 percent in the 12 months ending in August.

News that China’s growth dipped to 9.1 percent in the July-September quarter from 9.5 in the April-June period was met with relief by some economists. Rajat Nag, managing director of the Asian Development Bank, says it suggests a soft landing ahead.

Eichengreen notes that Beijing’s communist authorities “have lots of levers they can pull, unlike U.S. authorities.”

Senior bureaucrats in effect run the economy. The government owns most of the biggest companies and banks. It controls the currency.

Officials can, for example, suppress the value of China’s currency, the yuan. A lower yuan makes Chinese goods cheaper overseas. The United States has long accused China of keeping its currency artificially low to give its exporters an unfair edge.

Chinese policymakers can also order state-owned banks to lend if the economy slows much. They can command local governments to keep workers busy building roads and bridges.

Roubini, a New York University economist who runs a research firm, thinks China’s authorities will use all those tools to keep the economy growing briskly through 2012. They’ll want to ensure a smooth transition next year, when a new president and premier will come to power.

But Roubini and others worry that the outlook after that is bleaker. He thinks China’s growth could sink to 5 percent or less in 2013 or 2014.

At the heart of the problem is how China has stoked its expansion. It hasn’t encouraged its consumers to drive the economy with their spending, as Americans do. Instead, it’s juiced growth by pushing exports and investing in factories, roads, railways and real estate.

Such investments account for about half of China’s gross domestic product, a broad gauge of economic activity. That is a wildly lopsided share that suggests China is investing in far more construction than it needs.

In most major countries, consumer spending, not investment, drives the economy. Last year, for example, consumers accounted for more than 70 percent of GDP in the United States, 63 percent in Britain, 58 percent in Germany and 57 percent in Japan. In China, consumer spending represented just 39 percent of GDP.

Behind China’s investment boom are bank loans that might never be repaid, because the projects aren’t expected to throw off enough revenue.

Roubini’s research firm estimates that China has wasted $1.4 trillion since 2008 on investments that will likely end up as bad debts.

Optimists say China is merely planning for the future. A growing middle class will eventually occupy the new houses, ride the new trains, fly from the new airports and drive new cars on the new highways. The new factories will make goods to meet rising demand at home and abroad.

But demographics pose another problem. China is aging fast. Largely, that’s because of population control policies that limit most families to one child. This year, 8.9 percent of Chinese were 65 or older. By 2021, 12.9 percent will be.

“A significant slowdown is coming because their labor force is aging,” Eichengreen says. By 2015 or 2016, he says, China’s growth could slow to 5 percent or 6 percent.

Economists have urged China to rely more on its consumers and less on exports and dubious investments. In Dongguan, factory owner Xie would agree.

“I am thinking about focusing more on the domestic market next year,” he says. “At least we have 1.3 billion people. It is a big market.”

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The nation’s two largest hot dog makers are taking their legal beefs Monday to federal court in Chicago, where a judge will determine whether Oscar Mayer or Ball Park franks broke false-advertising laws in their efforts to become top dog.

Legal arguments in the long-ranging wiener war between Chicago companies pit Sara Lee Corp, which makes Ball Park franks, against Kraft Foods Inc., which makes Oscar Mayer. The case could clarify how far companies nationwide can go when boasting that their product is better than a competitor’s.

Thousands of pages of filings in three years of pretrial litigation by both food-industry giants demonstrate that the stakes are high.

Sara Lee fired the first volley in a 2009 lawsuit singling out Oscar Mayer ads that brag its dogs beat out Ball Park franks in a national taste test. Those tests, Sara Lee argued, stacked the deck against Ball Park in part by altering the way the hot dogs were cooked and served.

The lawsuit also contends that Oscar Mayer touts its Jumbo Beef Franks as “100 percent pure beef,” arguing that the claim is untrue, cast aspersions on Ball Park franks and damaged their sales.

Kraft defends the “100 percent pure beef” tag, saying its intent was to state that the only meat used is beef no fax payday loan. Some industry hot dogs include a mix of turkey, pork, chicken or other meats. Kraft further argues that the “pure beef” label is justified because surveys show a perception among some consumers that hot dogs contain “mystery meats.”

Kraft filed its own lawsuit in 2009, alleging Sara Lee ran false and deceptive ads including a campaign where Ball Parks are heralded as “America’s Best Franks.” The ad further asserts that other hot dogs “aren’t even in the same league.”

While implications of the case are serious, even litigants have injected humor into the debate.

In a ruling this spring denying a Sara Lee motion for Kraft to disclose its consumer surveys, Judge Morton Denlow noted the issue arose “on opening day of baseball season in Chicago” and that Sara Lee “strikes out” in justifying its motion.

And in first announcing the lawsuit, Ball Park brand director Chuck Hemmingway said in a press statement: “Simply put, we believe that these untrue statements are all a bunch of bologna.”

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Egyptian security officials say a militant Islamist group has blown up a terminal along the Egyptian natural gas pipeline to Israel in the northern Sinai Peninsula.

Officials say Saturday’s attack on the terminal in al-Shulaq destroyed the last terminal before the line enters the sea on its way to Israel.

It is the third attack on the pipeline this month and the fifth since the 18-day uprising toppled President Hosni Mubarak in February.

While no one claimed responsibility, officials accused a militant Bedouin group for the attack.

Clashes between the group and security forces killed 5 people Friday.

The officials spoke on condition of anonymity because they were not authorized to brief the media.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

CAIRO (AP) _ Tens of thousands of ultraconservative Muslims in long beards, robes and prayer caps thronged Cairo’s central Tahrir Square in a massive show of force Friday, calling for the implementation of strict Islamic laws and sparring with liberal activists over their visions for a post-revolution Egypt.

It was the first rally with religious overtones in Egypt, and one of the largest, since the uprising that forced President Hosni Mubarak to step down in mid-February. The strong showing by the Islamists demonstrated their powerful organizational abilities, which will likely help them in parliamentary elections later this year.

“Islamic. Islamic. Not Western or Eastern. No liberal or secular,” chants of Salafis, who follow a strict form of Islam, echoed through the square. Others shouted: “With our soul and blood we defend you Islam.”

They unfurled an Egyptian flag, removing the central emblem of an eagle and replacing the Islamic slogan: “There is no god but God and Muhammad is his prophet,” similar to the insignia on the Saudi flag.

The youth activists who have been at the helm of mass protests calling for faster change from the country’s interim military rulers withdrew from the rally soon after Friday prayers, accusing the Islamists of violating an agreement to avoid divisive issues.

“While the civil organizations are trying to respect the effort to complete the revolution by unifying the ranks, the Islamic groups insisted on breaking the unity and assisting the military council in a deal that I think will divide this country in two,” said liberal activist Mustafa Shawki. “This is what we were afraid of.”

Several hundred protesters, mainly liberal and leftist groups, have camped out at the square for more than three weeks, demanding swifter justice for those blamed in the killing of nearly 900 protesters during the 18-day uprising and more measures to ensure Mubarak loyalists are purged from the government. It was a crowd vocally critical of the military council, which they accused of protecting Mubarak’s regime.

Most of the Islamic groups, however, say the military needs time to break with the past.

The decision by the Salafis and the Muslim Brotherhood, Egypt’s best organized political force, to participate significantly boosted the turnout. But instead of a day of unity as had been advertised, the Islamists decided to flex their muscle, using the epicenter of the protests to press demands for a strict version of Islamic law.

Some Salafi Islamist groups mobilized their members to the square to oppose the adoption of a set of guidelines for drafting a new constitution after parliamentary elections later this year. Buses from a number of cities transported followers, many who were in the square for the first time.

Liberal parties are worried religious groups will win a large share of parliament and force an Islamic influence on the constitution. The Islamists say nothing should restrict the newly elected parliament’s right to oversee the process of drafting the document.

“The liberals are talking about a civil state. This won’t work in Egypt,” said Tarek Shaheen, a 31-year-old resident of Ismailiya. “We want to prove to the outside world even before domestically that Egypt is Islamic, that it has a large Islamic trend and that we are not terrorists.”

While opposing the measure, Muslim Brotherhood members did not press the issue Friday sticking to the agreement.

Salafis are ultraconservatives, close to Saudi Arabia’s Wahhabi interpretation of Islam and more radical than the Brotherhood. They seek to emulate the austerity of Islam’s early days and oppose a wide range of practices like intermingling of the sexes that they view as “un-Islamic.” Many also reject all forms of Western cultural influence, and preach that authorities must be respected.

Mubarak’s regime cracked down heavily on Islamic groups, specifically the politicized Brotherhood, arrested thousands of its members. Salafi groups are new to the political scene in Egypt.

Many like Shaheen felt that Egypt’s Islamic identity is threatened, reflecting the growing mistrust between the different groups only months before the first parliamentary elections, the first after Mubarak’s ouster.

Egypt’s constitution, which has been suspended by the military rulers, set Islamic law as the basis for legislation and nobody has proposed changing that clause. But some Islamic groups believe the liberal groups will use the guidelines to introduce what they perceive as Western values.

“Our religion is the constitution,” said Saber Mohammed, a 27-year-old Cairene wearing a short white robe and head cap, sporting the traditional bushy beard of a Salafi.

Nourhan Zamzam, a 29-year-old banker who supports the call for a civil state, said the ultraconservative Islamist groups are vying for influence but have little experience.

For her, the Salafi stance only undermines pressure on the military by dividing the efforts of the protesters.

“This is actually a message to us, the revolutionaries, who are critical of the military council,” she said. “This is a message to scar us: look infighting between groups is coming.”

By sundown, a large number of Islamists began leaving the square peacefully and the sit-in continued.

It was more tense in other cities.

In the southern city of Assiut, Salafist protesters beat up a group of protesters from the Communist party trying to join their demonstration, deputy police chief Yosri el-Gammasi said. At one point, some in the crowd yelled back at a speaker who criticized the idea of constitutional guidelines.

In the Sinai city of el-Arish, government troops clashed with Islamic militants firing rocket-propelled grenades and other heavy weapons outside a police station. Four people were killed, including a military officer and three civilians, and 18 people injured.

South of the capital in Minya province, gunmen fired on a car carrying Christians, killing two and injuring two, a military official said. It was the second killing in two weeks in the predominantly Christian village of Roman. While the motive was unknown, similar events have sparked religious violence in the past.

Officials spoke on condition of anonymity because they weren’t authorized to brief the media.

Friday’s rally came a day after Egypt’s Justice Ministry said Mubarak, along with his two sons, his former security chief and seven others, will be tried Wednesday at a Cairo convention center. Mubarak, 83, faces charges of corruption and ordering the deadly use of force against protesters.

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Starbucks Corp. says stronger sales helped drive its third-quarter net income up 34 percent to beat expectations.

The coffee giant said Thursday after the markets closed that it drew more customers around the globe and those customers spent more, despite the continued difficult economy.

“The third quarter really continues the trends we’ve seen for some time,” said Troy Alstead, chief financial officer at Starbucks. “It’s even more remarkable in what is a fragile consumer environment.”

Starbucks, based in Seattle, said it earned $279.1 million, or 36 cents per share, for the quarter that ended July 3. That’s up from $207.9 million, or 27 cents per share, earned in the same quarter last year.

Revenue rose 12 percent to $2.93 billion.

Analysts on average were expecting earnings of 34 cents per share on revenue of $2.83 billion, according to FactSet.

Starbucks said it expects to earn $1.50 to $1.51 per share for the full year, which is in line with analyst expectations of $1.50. It’s an increase from the company’s earlier forecast for earnings of $1.46 to $1.48 per share.

The news sent shares of Starbucks up about 2 percent in after-hours trading to $40.80.

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The first week of July is off to a much slower start than the last week of June, when stocks had their biggest gains in two years.

Major indexes were mixed for much of the day Tuesday but dipped in afternoon trading after Moody’s downgraded Portugal’s debt to “junk.” The credit ratings agency cited concerns that Portugal will not be able to meet targets to reduce its deficit due to the “formidable challenges” the country is facing in cutting spending.

Investors have been worried that Europe’s debt problems could slow the global economy and cause a crisis for European banks. “The European debt crisis is going to be with us for a while,” said David Kelly, chief market strategist at J.P. Morgan Funds. “There still is a very big issue out there.”

Trading volume was light as many traders took vacations. U.S. markets were closed Monday for the July Fourth holiday. Many investors are looking ahead to next week, when aluminum maker Alcoa Inc. becomes the first major U.S. company to report quarterly financial results.

Last week, the Dow rose 648 points, its best week in two years, after Nike reported strong earnings and Greece cleared its final hurdle before receiving another round of loans. Automakers also reported that their sales rose 7 percent in June compared with the same month a year ago.

The gains erased nearly six weeks of losses. Prior to last week, stocks had been falling since late April because of concerns about the debt crisis in Europe, weak home sales in the U.S. and slowing manufacturing. By mid-June, stocks had given up most of their gains for the year.

With last week’s rally, the Dow is now down just 1.8 percent from April 29, when it reached a three-year high. The Dow is up 8.6 percent for the year. The S&P 500 index is up 6.4 percent and the Nasdaq composite is up 6.5 percent.

Analysts are optimistic about the corporate earnings reports that will start to come in next week. Earnings from companies in the S&P 500 index are expected to rise 14 percent from the same period a year ago, according to FactSet. Revenue is expected to rise 11 percent.

“There hasn’t yet really been a reason to get concerned about corporate America,” said Randy Warren, chief investment officer of Warren Financial Service. “It’s the rest of the America that’s struggling.”

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Christine Lagarde’s bid to head the International Monetary Fund could face new scrutiny now that Greece’s worsening debt storm risks toppling one of her candidacy’s key pillars _ her track record shepherding the eurozone through the worst crisis of its 12-year existence.

With Greece coming close to a default, which would spark a chain reaction that some fear could break up the eurozone, the crisis management strategy of Lagarde and her European colleagues will come in for renewed criticism, analysts say.

Lagarde, France’s finance minister, heads to Washington D.C. next week to try to drum up critical U.S. support for her bid. Her distant lead over the rival candidate, Mexican central banker Agustin Carstens, means a Greek default now is unlikely to derail her campaign.

But it will come back to haunt her _ should she be chosen _ because Europe’s indecisive and disjointed handling of the crisis has caused the total size of the final bill to balloon, experts say.

Ever since Greece began its death spiral early last year, Lagarde has been one of the highest profile architects of the European response. She once threatened to pull the plug on Europe’s financial lifeline to Greece if the country didn’t honor its terms.

But a year on from its bailout, Lagarde and her European cohorts are again preparing yet another rescue package for Greece, despite its failure to meet promised deficit cuts.

“She’ll argue that she’s well placed, with political skills and managerial skills to broker compromises,” said Simon Tilford, chief economist at the Center for European Reform, a London-based think tank. “But the problem is that in many people’s eyes the eurozone leadership is discredited” by its failure to get a handle on its Greek problem once and for all.

“I think she’d make a brilliant president of the EU Commission, but I’m not entirely convinced she’s the right person for this job,” Tilford said.

Many investors and economists say Greece’s debt problems will eventually end in default and that European leaders are guilty of misdiagnosing the crisis from the beginning.

One indication of that strategy’s cost was given Thursday by a top official at the European Central Bank. Nout Wellink, a member of the ECB’s rate-setting council, said European governments need to be ready to increase the size of their bailout fund to euro1.5 trillion _ double the size of the package that Lagarde and other officials said only months ago would be enough to stave off disaster.

“For the sake of argument, a year’s delay has cost at least euro750 billion,” Neil MacKinnon, an analyst at VTB Capital in London. And that excludes indirect costs such as higher interest rates and bond yields, particularly in countries on Europe’s troubled periphery such as Greece, Portugal and Ireland loans for people with bad credit.

Europe’s leaders have been “kicking the can down the road, and now we’re running out of road,” he added.

In launching her candidacy, Lagarde said she’d “bring all my expertise as a lawyer, a minister, a manager and a woman” to the job.

Her popularity is based in part on her reputation for deftness in international negotiations to stabilize the world economy during the world financial crisis. She also was seen as instrumental in getting the IMF and European Union to agree on rescue plans for Greece, Ireland and Portugal when their debt crises threatened the entire shared euro currency.

The 55-year-old headed the law firm Baker & McKenzie in Chicago before joining French politics in 2005. With excellent English, a direct manner and relatively pristine image, she is seen by many as a good candidate to quickly step into the job vacated by Dominique Strauss-Kahn and manage Europe’s continuing debt difficulties as well as the myriad other challenges to the world economy.

Carstens, Lagarde’s rival, has won the support of 12 Latin American countries, but not those with the most voting power _ Argentina and Brazil.

The United States has continued to stay on the sidelines with the Obama administration not announcing its support for a candidate yet. Treasury Secretary Timothy Geithner met with Carstens on June 13 and is expected to confer with Lagarde when she is in Washington next week.

The top position became vacant after Dominique Strauss-Kahn resigned last month following his arrest on sexual assault charges, allegations that he denies.

The IMF’s 24-member executive board is expected to interview both Lagarde and Carstens next week and aims to make a decision by June 30.

Lagarde was unavailable for an interview. Her spokesman Bruno Silvestre said that the potential worsening of the European financial crisis would have no bearing on Lagarde’s candidacy. “She’s ridden the wave, she knows how to handle a crisis,” Silvestre said. Without Lagarde’s input, the crisis “could have been a lot more severe for a lot more people,” he added.

That argument holds little water with Tilford, however.

Europe’s ineffective and divisive handling of the Greek debt crisis “has caused a lot of damage to political relations between member states,” Tilford said. “That’s going to make it difficult to bring about what’s needed, which is closer political integration,” Tilford said.

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Two workers at Japan’s crippled nuclear plant might have exceeded a radiation exposure limit amid concerns about the risks faced by the workers struggling to contain the crisis.

Tokyo Electric Power Co. said Monday the two control room operators are being tested further and don’t have immediate health problems.

If exposures beyond the limit are confirmed, they would be the first men to reach the government-set limit.

The government had eased its previous limit for men soon after the earthquake and tsunami set off the crisis at the tsunami-hit Fukushima Dai-ichi plant on March 11.

The two men were responsible for Unit 3 and 4 central control rooms when the quake and tsunami knocked out the plant’s power and cooling functions.

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Italy’s Mario Draghi may reach for the German policy manual when he takes the helm of the European Central Bank.

Draghi, 63, will on Nov. 1 inherit an ECB that’s almost unrecognizable from the one Jean-Claude Trichet took charge of eight years ago. The bank’s balance sheet has more than doubled to 1.9 trillion euros ($2.7 trillion), mostly as a result of the extraordinary measures it used to battle the global financial crisis and now Europe’s sovereign debt woes.

German Chancellor Angela Merkel’s endorsement of Draghi yesterday means it will fall to an Italian to steer the ECB out of a crisis triggered by southern European fiscal profligacy. Merkel made clear she’s backing the Bank of Italy governor in the expectation he will subscribe to the tight-money tradition of the Bundesbank, which provided the blueprint for the ECB when it was created 1998.

“Draghi will have to make a huge effort to assert his hawkish credentials,” said James Nixon, an economist at Societe Generale in London and a former ECB forecaster. “He may have to contend with the very real threat of a sovereign restructuring. Persuading the Germans that an Italian is the best man for that particular task is going to be difficult.”

Under Trichet, the ECB flooded markets with cheap cash and bought government bonds to prop up banks from Greece to Ireland and prevent a sovereign default. Draghi must eventually withdraw those measures to assuage fears of inflation, even as Greece struggles to repair its finances.

‘I Know Mario’

“I know Mario Draghi,” Merkel told Die Zeit newspaper in an interview published yesterday. “He’s very close to our ideas of the stability culture and solid economic policy.”

That may mean further interest-rate increases to tame inflation, which at 2.8 percent is above the ECB’s 2 percent limit. The ECB raised its benchmark rate by a quarter point to 1.25 percent in April, the first move in almost three years. Economists forecast it to tighten policy every three months.

“If, as the markets expect, Trichet raises rates in October, Draghi may find himself in the position that he’s expected to raise rates in January,” said Julian Callow, an economist at Barclays Capital in London. At the same time, economic growth may slow later this year, “so Draghi may be faced with questions about why unemployment is increasing,” Callow said. The euro area’s jobless rate stayed at 9.9 percent in March, compared with 9 percent in the U.S. last month.

‘Double-Act’

Economic pain is already acute in Greece, prompting strikes and protests against the government’s austerity drive. Ireland and Portugal — home to ECB Vice President Vitor Constancio — are also struggling to grow.

By contrast, Germany’s economy, Europe’s largest, is booming and unemployment is at a two-decade low, threatening to fuel wage and price pressures.

“If there has been some unease at a southern European double-act running the ECB, then the first priority for Draghi is to signal that he’s committed to delivering the ECB’s mandate,” said Ken Wattret, an economist at BNP Paribas in London.

Draghi’s candidacy has attracted criticism in Germany, and in that context, Bild, the nation’s biggest-selling newspaper, wrote on Feb. 11 that “inflation is as much a part of Italian life as tomato sauce and pasta.”

Sensibilities

Recent comments suggest Draghi is willing to placate German sensibilities. He said April 13 that monetary policy is still “accommodative” even after the ECB raised its benchmark rate that month. In February, he told Frankfurter Allgemeine Zeitung that Germany is an example for other nations, calling for tougher sanctions for budget-rule breaches and vowing to ensure price stability.

Determining withdrawal of crisis measures will test Draghi’s resolve. While the bank refrained from buying bonds for the past six weeks, its purchase program remains in place. It extended unlimited liquidity provision through the second quarter and conceded that some banks are addicted to funds. The risk for Draghi is that the longer the ECB leaves the cash tap on, the greater the threat of inflation.

Greece may be an obstacle to an exit. ECB officials have publicly opposed debt restructuring as the nation struggles to pay its creditors. Executive Board member Lorenzo Bini Smaghi warned as early as October last year that it would mean a “total collapse” of the Greek economy, while his colleague Juergen Stark told the Financial Times yesterday that a restructuring “will not resolve the Greek problems.”

Restructuring

Restructuring is “very likely” said David Owen, Managing Director of Jefferies International in London. “That restructuring event would happen on Draghi’s watch.”

Germany lost its ECB presidency candidate when Axel Weber, one of the central bank’s toughest hawks, unexpectedly announced in February he would resign as Bundesbank president. German memories of hyperinflation after World War I forged the Bundesbank’s resolve for stable prices and made it a role model for central banks across Europe, including the ECB.

Draghi “will be an orthodox, single-minded inflation fighter,” said Nick Kounis, an economist at ABN Amro NV in Amsterdam. “He will be in the Bundesbank mould as ECB president. It’s the heart and soul of the institution.”

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The yen and dollar fell versus most of their major peers on speculation the central banks in Japan and the U.S. will this week keep interest rates near zero, while policy is being tightened elsewhere.

The euro rose toward a 16-month high versus the dollar on prospects European Central Bank officials will signal that further rate increases will be necessary to contain inflation. Australia’s dollar climbed to a record as rising gold prices boosted the outlook for the nation’s resource exports, spurring demand for higher-yielding assets.

“Japan and the U.S. are the countries that can’t steer toward monetary tightening, so the yen and dollar will be weak,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The yen will continue to depreciate as long as the global economy is recovering gradually.”

The yen dropped to 119.75 per euro as of 9:08 a.m. in Tokyo from 119.24 in New York last week, while declining to 82.08 per dollar from 81.88. The euro bought $1.4593 from $1.4561 after reaching $1.4649 on April 21, the highest level since December 2009. The Australian dollar, known as the Aussie, touched $1.0776, the strongest since it was freely floated in 1983.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus the currencies of six major U.S. trading partners, slid 0.2 percent to 73.972 after touching 73.735 on April 21, the lowest since August 2008.

The Federal Open Market Committee announces its policy decision on April 27 and will hold the benchmark rate in a range of zero to 0.25 percent, according to all 80 economists surveyed by Bloomberg. Most of the 50 analysts in a Bloomberg survey last month said they expect the Fed will keep its bond portfolio stable for some time after its $600 billion purchase program ends in June.

“What’s behind the dollar’s weakness is the difference in monetary policy in the U.S. from other major economies excluding Japan,” Gaitame.com’s Ueno said.

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