Finance news. My opinion.

The number of Americans filing for initial unemployment insurance rose unexpectedly last week, to the highest level in more than a month, according to government data released Thursday.

There were 627,000 initial jobless claims filed in the week ended June 20, up 15,000 from a revised 612,000 the previous week, the Labor Department said.

The number was above the consensus estimate of 600,000 from economists surveyed by Briefing.com.That’s the highest level of initial claims since the week ended May 16, when 636,000 were filed.

Despite the increase, economist Ian Shepherdson of High Frequency Economics said he still believes "the underlying trend in claims is downwards, but it is slow and uneven."

The 4-week moving average of initial claims was 617,250, up 500 from the previous week’s revised average of 616,750.

Continuing claims: The government said 6,738,000 people continued to file unemployment claims in the week ended June 13, the most recent data available.

That’s up 29,000 from the preceding week’s revised 6,709,000 ongoing claims payday advance lenders.

The 4-week moving average of continuing claims fell to 6,759,750, down 3,250 from the prior week’s revised average of 6,763,000.

State-by-state data: In the week ended June 13, the most recent data available, 14 states reported that initial claims decreased by more than 1,000.

Michigan had 5,414 fewer initial claims, which a state-issued comment attributed to fewer layoffs in the automobile industry.

A total of 6 states reported new claims increased by more than 1,000. Florida reported the most new claims, at 8,383, which a state-supplied comment attributed to layoffs in the construction, trade, service and manufacturing industries.

Have you exhausted your unemployment benefits? We want to hear about your experiences. E-mail your story to realstories@cnnmoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here. 

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Bank of America CEO Ken Lewis heads to Capitol Hill on Thursday, and he’s likely to be grilled by lawmakers about the government’s role in ensuring that the bank complete its controversial merger with Merrill Lynch.

According to e-mails released Wednesday that pull back the curtain on heated negotiations, Federal Reserve Chairman Ben Bernanke had suggested to another Fed official that "management is gone," if BofA managers tried to flee the deal and later on needed further government assistance.

The revelations come thanks to congressional subpoenas demanding that the Fed disclose e-mails related to Bank of America’s purchase of Merrill. CNNMoney.com acquired copies of some of the e-mails circulated among House Republicans late Wednesday.

Lewis is the sole witness of a House Committee on Oversight and Government Reform hearing Thursday about the BofA-Merrill deal titled "Bank of America and Merrill Lynch: How Did a Private Deal Turn into a Federal Bailout?"

He is expected to be asked specifically about whether the Federal Reserve and other government officials pressured Bank of America (BAC, Fortune 500) into completing the merger even after BofA realized how badly Merrill Lynch’s fourth-quarter losses would be.

The BofA-Merrill Lynch deal was valued at $50 billion when it was announced in mid-September — the same day that Lehman Brothers declared bankruptcy. But the deal’s worth dropped to $19 billion after Bank of America’s shares plunged in following months.

Regulators eventually agreed to give BofA $20 billion in new capital and $118 billion in asset guarantees to cover possible losses tied to the transaction.

Lewis told investigators in the New York Attorney General’s office earlier this year that he felt his job was on the line if he didn’t go through with the deal. Once Lewis learned last December of Merrill Lynch’s deterioration, he told then Treasury Secretary Henry Paulson that BofA was considering backing out of the deal, according to his testimony to investigators.

Paulson said that Lewis and the BofA board would be replaced if they sought to end the merger, which Paulson viewed as integral to the health of the U.S. financial system. Paulson told New York investigators that he threatened Lewis’ job at the behest of Fed chief Ben Bernanke absolutely free credit report.

According to a Dec. 21 e-mail released Wednesday, Bernanke called BofA’s threat to pull out of the deal a "bargaining chip," saying "we do not see it as a very likely scenario."

In another e-mail, Federal Reserve Bank of Richmond President Jeffrey Lacker said that Bernanke considered Bank of America’s threat to pull out "irrelevant" and "not credible."

Lacker added that Bernanke "also intends to make clear that if they play that card and they need assistance, management is gone," Lacker wrote. BofA is based in Charlotte, N.C., which is in Lacker’s district.

The series of e-mails and other documents released Wednesday also called into question the notion that Merrill Lynch’s last hope laid with the BofA deal. It appeared that the Fed was willing to provide support to Merrill in order to avoid another collapse like Lehman Brothers.

In one document that listed contingency plans for Merrill if BofA decided to abandon the merger, the Fed said that there were "emergency liquidity provision actions that could be taken to provide some time for the sale/disposition of [Merrill Lynch] businesses and assets."

A Federal Reserve spokeswoman declined to comment on the e-mails.

Bank of America spokesman Lawrence Di Rita said that while he wouldn’t comment on internal documents he hasn’t seen, he pointed out the unusually tense and crisis-mode environment that overshadowed the negotiations.

"Stepping back, though, it is important to remember the circumstances in which these discussions were taking place: a crisis in financial markets and in the economy generally," Di Rita said. "Serious people were working hard to make decisions to stabilize and improve the situation. In hindsight, it’s interesting to look at all of that, but we’re looking forward."

CNN Congressional correspondent Brianna Keilar contributed to this report. 

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China’s consumer prices fell for a fourth month, making it easier for the government to keep interest rates low and boost spending to revive the world’s third-largest economy.

Prices dropped 1.4 percent in May from a year earlier, after falling 1.5 percent in April, the statistics bureau said today. The median estimate in a Bloomberg News survey of 16 economists was for a 1.3 percent decline. Producer prices fell 7.2 percent, the most on record.

Inflation may return as the economy recovers and commodity prices climb from last year’s lows. The central bank triggered an explosion in credit this year by scrapping restrictions on growth in new loans and keeping the one-year lending rate at a four-year low of 5.31 percent.

“China’s economy is already rebounding and as soon as it regains momentum, prices will return to positive territory,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney.

The Shanghai Composite Index of stocks rose 0.5 percent as of the 11:30 a.m. local time break in trading. The yuan traded at 6.8330 against the dollar at 12:05 p.m., from 6.8333 before the data was released. Yuan forwards rose on speculation that currency gains will resume as the economy recovers.

Declines in prices in China span consumer goods, food and housing. Producer prices are constrained by industrial overcapacity, the statistics bureau said in a statement.

Deflation Threat ‘Receding’

While falling prices may help the economy by lowering costs for businesses and encouraging consumers to spend, entrenched deflation can choke off demand, as people delay purchases, hoping for better deals in the future.

Energy-price increases may help to end deflation by year’s end, said economist Chan. The National Development and Reform Commission announced on May 31 increases of as much as 8 percent in gasoline and diesel prices after crude oil costs climbed cheap payday advance.

Concerns that deflation may be a threat “are receding as global commodity prices rise and economic indicators generally point to improving fundamentals,” said Jing Ulrich, Hong Kong- based chairwoman of China equities at JPMorgan Chase & Co.

While food fell 0.6 percent from a year earlier as pork plummeted 32 percent, the government is concerned about rising grain prices, the statistics bureau said. Grain climbed 5 percent from a year earlier and has gained month-on-month since January.

Home prices fell 0.6 percent in May from a year earlier, the government said in a separate report today.

Inflation Risk

Consumer prices are falling in countries including the U.S., Japan, Spain, Singapore and Thailand. In Japan, producer prices fell in May by the most since 1987, the government said today, adding to signs that deflation may take root.

China should prepare for the risk that inflation may bounce back faster than economic growth, researchers from the State Information Center wrote in a report in the official China Securities Journal today. The central bank should adjust monetary policy if inflation rises above 3 percent and economic growth remains below 9 percent, they said.

The researchers forecast a return to inflation in the third quarter.

While the Reuters/Jefferies CRB Index of 19 raw materials, including oil and copper, is down about 39 percent from a year ago, it has climbed about 14 percent in 2009.

“I think that we may have seen the bottom of China’s inflation cycle,” said Tao Dong, Hong Kong-based chief Asia economist at Credit Suisse Group AG. “A year from now, people will be worried about inflation instead of deflation.”

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Japan’s ruling Liberal Democratic Party may abandon a bill that would set aside 50 trillion yen ($520 billion) to buy shares from the market because stocks have rebounded from a 26-year low, lawmakers said.

“A system of buying stocks directly may provide a sense of relief when shares plunge,” Naokazu Takemoto, chief director of the LDP’s lower house finance committee, said in an interview in Tokyo on May 26. “But stocks have been stable, so the measures aren’t necessarily that essential.”

Investor optimism that the worst of Japan’s deepest postwar recession is over has led the recovery in the Nikkei 225 Stock Average, which tumbled a record 42 percent last year. Direct purchases would be the first among the Group of Seven industrialized nations and would affect prices more than the Bank of Japan’s program of buying shares from lenders to cushion their balance sheets.

“I don’t think there’s really a crisis in Japanese stocks to begin with,” said Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “It might even undermine Japanese equities because foreigners are going to say ‘wow, the government is propping up prices and how do we know whether it actually reflects the value of the firms or not?’”

The bill was submitted to parliament on April 27 as part of Prime Minister Taro Aso’s record 15.4 trillion yen stimulus package. Under the plan, the government would set up a state- owned entity to buy exchange-traded funds, which are instruments that track stock indexes, as well as equities listed in the indexes and related derivatives for three years.

Raise Money

The body would raise money by borrowing from the Bank of Japan or commercial lenders as well as issuing bonds, and the government would set aside 50 trillion yen to guarantee the investments.

Deliberations on the law haven’t taken place because the opposition Democratic Party of Japan, which controls the upper house, is against the measure easy payday loans. While the ruling coalition can use its two-thirds majority in the lower house to pass the bill if it’s rejected, Takemoto, 68, signaled the LDP may not force the bill through parliament.

“Whether we need to revote and pass the bill even after it’s defeated in the upper house depends on economic conditions,” Takemoto said. “People were split about the bill to begin with and even a majority of lawmakers regarded as economic experts in our party are opposed to the idea.”

Finance Minister Kaoru Yosano said on May 22 that “the argument is losing force” given that stock prices are recovering. The Nikkei has risen 34 percent since March 10, when it fell to 7,054.98, the lowest since October 1982.

Distort Prices

Masaharu Nakagawa, the DPJ’s shadow finance minister, said the party opposes the measure because it may distort stock prices. He said the government should consider buying stakes in financial institutions should plunging equities erode their capital.

“It goes against the market’s mechanisms to begin with,” Nakagawa, 58, said in an interview on May 26. “We’re absolutely against it. Even discussing it would look bad.”

As a separate measure, the government has already set aside 20 trillion yen to purchase stocks owned by banks to bolster their capital. The Bank of Japan has decided to buy 1 trillion yen of shares held by lenders to ease a credit squeeze.

The government last bought stocks owned by financial institutions from 2002 to 2006.

Yoshinori Ohno, an LDP lawmaker who compiled the bill, said even though equities have recovered, it’s important to show the government is committed to preventing a plunge of stock prices given the severity of the current financial crisis.

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The Federal Reserve considers the recent jump in Treasury yields more as a reflection of a better economic outlook than a signal it needs to step up purchases of U.S. government debt, according to central bank officials who declined to be identified.

It’s too early to judge the effectiveness of the Fed’s $300 billion plan to buy Treasuries even after 10-year yields climbed 0.65 percentage point since the initiative began in March, the officials said. They added that the goal is to stimulate private lending, rather than to target government- bond rates.

The Fed officials’ stance contradicts the view of firms including BlackRock Inc. that have predicted the rise in yields will prompt the central bank to announce an increase in the size of the program as soon as next month.

“It would be very different if the economy still appeared to be in freefall and yields were backing up, but it’s not,” said John Ryding, founder of RDQ Economics LLC in New York and a former Fed researcher. Increasing Treasury purchases would “fight against what is in my opinion a recovery signal, or a signal that the recession is drawing to a close.”

Chairman Ben S. Bernanke said May 11 that the danger of deflation, or prolonged declines in consumer prices, is “receding” and earlier this month cited evidence the economy’s contraction is easing. The Treasuries market, along with stocks and some commodities, have reflected those shifts.

Inflation Expectations

Ten-year note yields closed at 3.18 percent late yesterday, up from as low as 2.46 percent after the March 18 announcement of the plan to buy long-term government debt. The gap in yields between the notes and 10-year Treasury Inflation Protected Securities, a gauge of the inflation rate expected by investors, hit a seven-month high of 1.64 percentage points last week.

The Standard & Poor’s 500 Stock Index closed at 908.35 yesterday in New York, up 21 percent from two months before. Crude-oil futures reached $60.08 yesterday, the highest level since November.

Fed policy makers committed to buy as much as $300 billion of Treasuries over a six-month period in their March 18 Open Market Committee statement. The aim was “to help improve conditions in private credit markets,” the FOMC said.

“The statement is pretty clear,” Richmond Fed President Jeffrey Lacker, who was the first FOMC member to vote for buying Treasuries this year, told reporters May 8. “It doesn’t say anything about a U.S. Treasury yield” as a target, he said after a Washington speech. “I would urge people to take it at face value.”

Fed’s Campaign

The Fed has bought $101.7 billion under the initiative so far, part of its campaign to cut borrowing costs by purchasing assets with the benchmark interest rate near zero. Policy makers in March also decided to boost purchases of mortgage securities this year to $1.25 trillion from $500 billion and buy $200 billion, double the previous amount, of federal agency debt faxless payday loan guaranteed.

Stuart Spodek, BlackRock’s co-head of U.S. bonds in New York, said in an interview last week the Fed “needs to consider increasing its purchases of Treasuries” to “stabilize” long-term yields. He told Bloomberg Television May 11 officials may announce an increase as soon as the June 23-24 meeting. Spokeswoman Melissa Garville declined to comment further.

Another fund manager, James Platz of Mountain View, California-based American Century Investments, expects the Fed to announce further purchases “at some point.”

Mortgage Impact

Should the rise in yields cause mortgage rates to surge, that may prove to be a trigger for a stronger Fed response, said Richard Clarida, a strategic adviser at Pacific Investment Management Co., the world’s biggest bond-fund manager. “That’s going to really, really, really hurt the economy,” Clarida said in a Bloomberg Television interview this week.

Last week, fixed mortgage rates rose for the first time in four weeks, with the average cost of a 30-year home loan climbing to 4.84 percent from 4.78 percent, which was the lowest level in Freddie Mac data going back to 1970.

The increase in Treasury yields, coupled with a drop in consumer prices, is increasing real interest rates for companies. Real investment-grade corporate borrowing costs climbed to 8.34 percent in March, the highest level since 1985, according to data compiled by Bloomberg and Merrill Lynch & Co.

Rising real yields may deter companies from borrowing to invest in new products or factories, delaying an economic recovery, said John Lonski, chief economist at Moody’s Capital Markets Group in New York.

No Specific Target

Bernanke and other Fed officials have said they’re trying to lower mortgage rates and other private borrowing costs without aiming for any specific levels.

“We’re not trying to target a particular interest rate,” Bernanke said in May 5 congressional testimony. “Our objective is to provide more liquidity to the system and to help private credit markets, and I think that it has had some benefit.”

Janet Yellen, president of the San Francisco Fed, said May 5 that higher yields are related to the “bit of optimistic news, good signs in the last several weeks that are reflected in the stock market.”

The situation poses a “dilemma” for the Fed, because if the rise in yields reflects “erroneous market views” about the economy, it will hold back growth, said former Fed Governor Lyle Gramley.

“The Fed is probably scratching its head at the moment and will wait and not react until the smoke clears,” said Gramley, who is now a senior economic adviser with New York- based Soleil Securities Corp.

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None of the customers who come into Dublin’s Kingsbury Furniture these days expect to pay full price.

“When people buy something, they say, ‘This isn’t going to be cheaper in a couple of weeks, is it?’” said Jimmy Owens, manager of the store in the Irish capital’s Tallaght district.

Ireland, struggling with a ballooning budget deficit and record unemployment, has been at the vanguard of Europe’s economic collapse. Now deflation threatens to push the country deeper into its worst recession in eight decades.

With inflation grinding to a halt across the rest of the euro region, Ireland may serve as a test case for policy makers, forcing the European Central Bank to accept falling prices as a serious problem.

“The scale of the shock hitting the Irish economy is massive, but it gives the heads-up for the dynamics we should expect to see for other euro-zone countries,” said Ken Wattret, chief euro-region economist at BNP Paribas in London. There’s a “significant risk of a prolonged deflation.”

Ireland’s consumer prices fell 0.7 percent in March, the first drop since the country joined Europe’s monetary union in 1999. Households are cutting spending at a record pace, and banks are choking off lending.

In Spain, prices fell 0.1 percent in March from a year ago, and German wholesale prices plunged 8 percent, the most in 22 years. Across the euro region as a whole, consumer prices rose 0.6 percent, the least since records started in 1996.

‘Lost Decade’

The risk is that consumers will start to anticipate a prolonged period of declines and retrench, pushing Europe into a crisis similar to the one that paralyzed Japan in the 1990s during its “lost decade.”

As central banks including the Federal Reserve and Bank of England pump money into their economies through purchases of government securities such as bonds to stave off deflation, ECB policy makers are split on how to respond.

Governing Council member Axel Weber, president of Germany’s Bundesbank, has said he doesn’t favor such purchases or cuts in the benchmark interest rate much below the current 1.25 percent. His colleague, Athanasios Orphanides, head of the Cypriot central bank, supports a debate on both options. On April 14, he said the “risk of deflation has increased somewhat.”

On April 3, President Jean-Claude Trichet said consumer price indexes “could be negative in the months to come before going up again” in the second half of the year.

‘Too Sanguine’

“The ECB is still too sanguine about deflation risks,” said James Nixon, an economist at Societe Generale SA in London paydayloan. By the second half, “council members are going to face quite significant problems and will have to start contemplating purchases of assets to boost money supply.”

At its April 2 meeting, the central bank delayed a decision on new measures until its next meeting, on May 7.

“You just wonder whether the ECB has been on top of the game,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “Deflation is certainly a bigger headache than inflation, and that’s the last thing the Irish economy needs right now.”

Ireland may be particularly vulnerable after its “Celtic Tiger” economy collapsed in 2008 following the credit crisis. Gross domestic product will probably shrink almost 8 percent this year, the government forecast, more than twice the pace projected for the entire euro region.

Retail sales dropped 20 percent in January, the most since the data were first published in 1974, and unemployment claims surged to a record 372,800 last month, as companies including Dublin-based Ryanair Holdings Plc, Europe’s largest discount airline, and Round Rock, Texas-based Dell Inc., the world’s second-largest personal-computer maker, cut jobs.

Positive Impact

Karsten Junius, a senior economist at Dekabank in Frankfurt, said a temporary bout of deflation may have a positive impact after the soaring prices — particularly for property — during the country’s 14-year economic boom.

“Ireland is already halfway into deflation and facing the biggest economic shock” in the euro area, he said. “But the economy also needs to lower prices in order to regain some competitiveness.”

On Grafton Street, Dublin’s main shopping thoroughfare, luxury department store Brown Thomas is offering shoppers 20 percent off on goods ranging from handbags to kitchen supplies in a ‘Blow the Budget’ sale.

“It’s not enough; it would have to be 50 percent off,” said Veronica Kavanagh, a housewife from Dublin, as she walked out of the store empty-handed. The 56-year-old said she isn’t spending money on anything “unless I need it.”

Kingsbury Furniture’s Jimmy Owens said he’s cutting prices more now than in almost two decades.

“If I was giving it away for free, they would ask me for money,” he said. “People already know that it is great value, but they still haggle.”

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The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe.

The gap narrowed to $26 billion, less than anticipated, from a revised $36.2 billion in January, the Commerce Department said today in Washington. Imports plunged for a seventh consecutive month, leading to declines in the deficits with Japan and China, while exports climbed from a two-year low.

The shrinking deficit is another piece of evidence that the U.S. economic slide eased in the first quarter; Morgan Stanley economists now project gross domestic product dropped at a 5 percent annual pace, less than their previous forecast of 5.9 percent. At the same time, dwindling demand for imports may be bad news for nations that depend on American consumers for their own growth.

“It’s an indication of the extent to which we’ve been passing on some of our demand decline to the rest of the world,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “That is why we’ve seen such disastrous declines in growth numbers in Asia. They have been relying on U.S. spending, and U.S. spending just isn’t there any more.”

Separate figures from the Labor Department today showed the cost of goods imported into the U.S. in March rose less than forecast as companies in China and Japan cut prices to stem the slump in overseas sales. Other figures from Labor showed the number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th consecutive week.

Stocks Jump

Stocks rallied, propelled by better-than-estimated earnings at Wells Fargo & Co. The Standard & Poor’s 500 index rose 3.8 percent to close at 856.56. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.92 percent at 4:18 p.m. in New York from 2.86 percent late yesterday.

The trade gap was smaller than the lowest estimate of economists surveyed by Bloomberg News. The median of 70 projections called for an unchanged reading at $36 billion. Forecasts ranged from deficits of $30 billion to $38.9 billion.

February’s gap was the smallest since November 1999.

Imports fell 5.1 percent to $152.7 billion, the lowest since September 2004. Demand for foreign-made cars slumped to the lowest level since October 1996, as purchases of Japanese autos were cut almost in half. The trade gap with Japan was the smallest since 1984.

American demand for imported consumer goods other than automobiles fell by $1 cheap credit report.4 billion in February as purchases of toys, furniture, clothing, appliances and televisions all declined.

Gap With China

The trade gap with China decreased to $14.2 billion, the smallest in three years.

The cost of goods imported into the U.S. climbed 0.5 percent in March, reflecting an 11 percent jump in petroleum, the report from Labor showed. Excluding oil, prices fell 0.7 percent for a third consecutive month as goods from China cost 0.6 percent less and those from Japan fell 0.1 percent.

“What’s bad news for Asia is good news for the American economy,” said David Sloan, a senior economist at 4Cast Inc. in New York. “We are seeing Asian exports fall off a cliff.”

U.S. exports climbed 1.6 percent to $126.8 billion as sales of pharmaceutical supplies, autos and telecommunications equipment improved, today’s trade report showed.

Waning Support

Federal Reserve officials last month said, “it was widely agreed that exports were not likely to be a source of support for U.S. economic activity in the near term,” according to minutes of the March 17-18 meeting released yesterday. “Several participants said that the degree and pervasiveness of the decline in foreign economic activity was one of the most notable developments since the January meeting,” the minutes showed.

Forecasts are calling for a decline in global trade, sapping overseas demand for American-made goods. The World Bank last month projected trade will fall 6.1 percent worldwide. Earlier in March the World Trade Organization predicted a 9 percent drop.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit dropped to $35.6 billion, the lowest level since May 2001. The economy shrank at a 6.3 percent rate in the last three months of 2008, the most since 1982.

Weak sales are contributing to job cuts as firms rein in labor costs to weather the recession, now in its second year. 3M Co., the maker of more than 55,000 products from Post-it Notes to electronic road signs, said it cut 1,200 workers, or about 1.5 percent of its workforce, from its payrolls in the first quarter.

Employers cut 663,000 workers from payrolls in March, and the jobless rate surged to 8.5 percent, the highest level in more than a quarter century, the Labor Department reported last week.

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U.S. builders probably broke ground in February on the fewest houses on record as the worst real- estate slump in 70 years deepened, economists said before a government report today.

Housing starts dropped 3.4 percent to an annual rate of 450,000, according to the median forecast of 71 economists in a Bloomberg News survey. A separate report may show wholesale prices rose in February for a second month on higher fuel costs.

Record foreclosures are flooding already glutted markets, lowering home prices and battering builders including Hovnanian Enterprises Inc. and Toll Brothers Inc. The Federal Reserve, which meets today and tomorrow, and the Obama administration are under mounting pressure to promptly thaw credit markets and prevent the economy from sinking even more.

“The impediment of tighter credit and the lack of consumer confidence because of higher unemployment are working against builders,” said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York. “There’s no quick fix. Residential investment will keep declining through this year.”

The Commerce Department’s report on housing starts is due at 8:30 a.m. in Washington. Estimates in the survey ranged from 400,000 to 500,000, following a January pace of 466,000.

Building permits, a sign of future construction, likely fell to a record-low 500,000 annual pace, according to the median forecast.

Wholesale Prices

Also at 8:30 a.m., the Labor Department may report the producer price index climbed 0.4 percent in February after a 0.8 percent increase the prior month, the survey showed. Prices excluding food and fuel probably rose 0.1 percent, the smallest gain since November, indicating inflation is a distant concern for the central bank.

Fed policy makers will keep the benchmark interest rate close to zero following their two-day meeting and discuss additional measures to calm the credit crisis, economists said.

Fed Chairman Ben S. Bernanke and his colleagues are examining whether to expand existing asset-purchase and lending programs or initiate fresh measures, such as buying Treasuries free credit report and score. The central bank also is purchasing Fannie Mae, Freddie Mac and Federal Home Loan Bank debt under a program aimed to reduce mortgage costs.

Reflecting the dismal outlook for homebuilding, the National Association of Home Builders/Wells Fargo’s index of confidence held near a record-low in March, the group reported yesterday.

Unclog Credit

Banks need to “go the extra mile” and keep credit flowing to businesses to prevent the economy from worsening, Treasury Secretary Timothy Geithner said in remarks at the White House yesterday. The economy has lost 4.4 million jobs since the recession began in December 2007.

President Barack Obama has pledged a $275 billion rescue to help keep as many as 9 million borrowers in their homes and reduce foreclosures. His efforts also include a tax break of up to $8,000 for first-time homebuyers that wouldn’t require repayment.

For now, mortgage borrowers are hard-pressed. Foreclosure filings climbed 30 percent in February from a year earlier, and a total of 290,631 homes received a default or auction notice or were seized by the lender, according to RealtyTrac Inc., an Irvine, California-based seller of default data.

The competition from foreclosed houses is hurting developers. Toll, the largest U.S. builder of luxury homes, this month reported its sixth consecutive quarterly loss while Hovnanian, New Jersey’s largest homebuilder, had a 10th straight loss.

“We expect demand for all homes, both new and existing, to remain far below normalized levels,” Chief Executive Officer Ara Hovnanian said in a March 10 statement. He urged for more government help for homebuyers, citing a “difficult economic backdrop.”

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European economic confidence fell to a record low in February, banks tightened access to credit and German unemployment rose, putting pressure on the European Central Bank to step up its response to the crisis.

An index of euro-region executive and consumer sentiment dropped to 65.4 from 67.2, the European Commission in Brussels said today. Lending to euro area households and companies slowed the most in more than five years, European retail sales declined and German unemployment rose for a fourth month.

“Today’s data has dashed any hope of a tentative stabilization” in the economy, said Jacques Cailloux, chief euro area economist at Royal Bank of Scotland Group Plc in London. “Any sense that the ECB may pause after a March rate cut can be thrown out the window. They will go very low and they will have to start embarking on additional measures.”

Europe’s deepening recession may prompt a rethink at the ECB, which has so far shown reluctance to follow the Federal Reserve and Bank of England and deploy new monetary policy measures. The downturn is also sparking concern about the fiscal health of some nations and the gap between German and Italy bond yields today widened to the most since 1997.

The International Monetary Fund already predicts the euro- region economy will contract 2 percent this year and IMF Managing Director Dominique Strauss-Kahn said Feb 19 that the forecast may need to be cut.

The ECB argues that it needs to be careful not to cut rates too low and officials have struggled to agree on the best approach once conventional measures are run their course.

‘Lowest Limit?’

While the ECB has cut its benchmark rate by 225 basis points since October to 2 percent and President Jean-Claude Trichet has signaled it may reduce again next week, Germany’s Axel Weber says 1 percent is probably the “lowest limit.”

Trichet says no decision has yet been taken on whether the ECB will take steps such as creating money or buying government bonds. The Fed and Bank of England by contrast are already buying securities as part of measures to ease credit markets. The ECB next decides on rates on March 5 payday loans online.

Some ECB policy makers, including Austria’s Ewald Nowotny, are still counting on an economic recovery. He expects a revival “in the last quarter of 2009” and “positive if low” growth the following year. Executive Board member Juergen Stark forecasts a “stabilization” towards the end of this year as stimulus packages take effect.

Bank Aid

Europe’s governments have so far committed 1.2 trillion ($1.5 billion) in bank aid and about 200 billion euros in economic-stimulus packages, swelling budget deficits in some countries.

That in turn has stoked angst about some countries’ ability to meet their debt obligations as their fiscal situations deteriorate. Former Bundesbank President Karl Otto Poehl told Sky News in an interview broadcast today that smaller members of the euro region could default on their debt obligations.

The difference between German and Italian 10-year government bond yields widened to the most in almost 12 years today, with the spread increasing as much as four basis points to 161 basis points.

The euro-region economy contracted the most in at least 13 years in the fourth quarter, shrinking 1.5 percent, as companies scale back output and shed jobs.

German business confidence fell to the lowest in 26 years this month and BASF SE, the world’s largest chemical company, said today it will accelerate plant closures and eliminate at least 1,500 jobs. The number of Germans out of work rose 40,000 this month to 3.31 million, the Federal Labor Agency said today, pushing the jobless rate to 7.9 percent.

Concern about unemployment is in turn prompting consumers across Europe to keep their purses shut. European retail sales fell for a ninth month in February, the Bloomberg Retail PMI showed today.

Today’s data suggests that the first quarter “might not be that much better than the breathtaking deterioration that we saw in the fourth quarter,” said Nick Kounis, chief euro area economist at Fortis Bank NKL in Amsterdam.

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Bank of America is replacing some customers’ credit cards because of a data theft at a New Jersey card processing company. The bank won’t say how many cards it is replacing.

Last week, Heartland Bank in St. Louis also said it was replacing customer cards.

The data theft occurred at Heartland Payment Systems in New Jersey low fee payday loans. Heartland Bank says it is not affiliated with Heartland Payment Systems.

jgallagher@post-dispatch.com | 314-340-8390

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