World financial news

German consumer confidence unexpectedly rose for a second month as a drop in oil prices left households with more money to spend.

GfK AG's index for November, based on a survey of about 2,000 people, increased to 1.9 from 1.8 in October, the Nuremberg-based market-research company said in a statement today. Economists expected the gauge to drop to 1.5, according to the median of 16 estimates in a Bloomberg News survey.

Inflation slowed in September and the price of oil has more than halved since a July peak of $147.11, boosting households' disposable income. At the same time, a deepening crisis on global financial markets has sparked fears of a recession, curbing consumers' willingness to spend, GfK said.

“Many Germans are playing a waiting game as far as their purchases are concerned,'' GfK said in the statement. While oil- price declines have “supported income expectations,'' the “panic on the international stock exchanges has shaken consumer confidence in the future economic outlook.''

A gauge measuring economic expectations plunged to minus 27.5 from minus 15.7 and a measure of consumers' propensity to buy dropped to minus 18.2 from minus 12.8. Income expectations rose to minus 12.9 from minus 14.1.

The worst U.S. housing slump since the Great Depression has pushed up the cost of credit globally and caused stock markets to tumble. The world's biggest financial companies have posted more than $670 billion in writedowns and credit losses since the start of last year after the subprime mortgage market collapsed http://paydayintime.com.

`Extreme Turbulence'

“Up to now, consumers have reacted extremely calmly to the extreme turbulence on the international financial markets'' due to low share ownership and a stable labor market, GfK said. “It is very much hoped that consumers regain their confidence in the financial markets and that a recession can be avoided.''

Private consumption will stabilize through year's end or even rise slightly as falling oil prices push down inflation, the Economy Ministry said after GfK published its report. The impact of the financial crisis and of economic cooling on consumer confidence has been only slight, it added.

Still, consumption will no longer get a boost from the growth in employment, the Berlin-based ministry said.

German business confidence declined to the lowest level in more than five years in October as the financial crisis dimmed the outlook for economic growth, the Munich-based Ifo institute said yesterday.

German Chancellor Angela Merkel's government has slashed its growth forecast for Europe's biggest economy next year to just 0.2 percent.

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WASHINGTON — The federal government is working on a plan that could help many distressed homeowners escape foreclosure.

The plan may follow a method already in use by the Federal Deposit Insurance Corp. that is helping some mortgage borrowers save money and their houses.

Officials from the FDIC and the Treasury Department told Congress Thursday that both agencies are working to prevent foreclosures.

"We are passionate about doing everything we can to avoid preventable foreclosures," Neel Kashkari, the assistant secretary of the Treasury who is overseeing the government’s $700 billion financial rescue effort, told the Senate Banking Committee.

Sheila Bair, chairwoman of the FDIC, told the same Senate panel that the government needs to do more to help tens of thousands of borrowers avert foreclosure, including setting standards for modifying mortgages into more affordable loans and providing loan guarantees to banks and other mortgage services that meet them.

"Loan guarantees could be used as an incentive for servicers to modify loans," Bair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."

The homeowner assistance plan could follow a model being used by California’s IndyMac Federal Bank, which is operating under FDIC receivership.

About 4,000 IndyMac borrowers have had their mortgage loan terms modified, lowering their monthly payments. By this weekend, the bank expected to have sent out more than 15,000 additional modification offers to borrowers that are expected to lower the monthly mortgage payments by $430 a month on average.

IndyMac’s efforts, which also are designed to save the FDIC money by curbing losses on foreclosed houses, are being closely watched nevada payday loans. Bank of America Corp. is taking a similar approach with newly acquired Countrywide Financial Corp. as part of an $8.4 billion, 12-state legal settlement reached this month.

With house prices off 18 percent nationally from their peak in mid-2006, aggressive loan modifications now make more financial sense for lenders, said Steve Bailey, a former Countrywide executive who heads Bank of America’s loan administration division.

Some in Congress say the FDIC’s approach should be replicated as the Treasury Department buys billions in troubled mortgage debt as part of a $700 billion financial industry bailout.

Reps. Barney Frank, D.-Mass., the chairman of the House Financial Services Committee, and Maxine Waters, D-Calif., both have urged President George W. Bush to appoint Bair to lead a government-wide effort to assist homeowners.

Doing so, they wrote, would "improve the effectiveness of the efforts of the federal government at a time when prompt and efficient action is most urgently needed."

The FDIC says modifying many of those loans — which include lowering interest rates to as little as 3 percent for the initial five-year period — must make economic sense, especially because the agency is soliciting offers from other banks to purchase all or part of IndyMac.

"This is not a social program," said Michael Krimminger, a senior FDIC adviser to Bair. "It’s designed to recover the maximum amount of money."

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Speculation the Bank of Japan will cut interest rates is growing on concern that the world's second-largest economy will suffer a prolonged recession.

There is a 36 percent chance the central bank will lower the key rate to 0.25 percent from 0.5 percent by year-end, up from 3 percent a month ago, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.

The bank didn't take part in this month's joint rate cut by counterparts from North America and Europe, saying Japan's borrowing costs are already “very low.'' Analysts say it may have little choice in coming months as plunging stocks and a surging yen take their toll on an already weakening economy.

“With the yen advancing and stocks falling, concerns about Japan's financial system and economy are mounting,'' said Jun Fukashiro, senior fund manager at Toyota Asset Management Co. in Tokyo. “A rate cut by the Bank of Japan seems to be unavoidable and markets are asking for it.''

The Nikkei 225 Stock Average tumbled 9.6 percent to a five- year low today. The yen climbed as high as 92.80 against the dollar, the strongest in 13 years, compounding exporters' woes.

Fallout from the financial turmoil will prompt Governor Masaaki Shirakawa and his colleagues to cut their growth forecasts in a twice-yearly outlook on Oct. 31, economists say. Shirakawa in a speech on Oct. 20 excluded reference to an eventual recovery for Japan, and analysts say a similar omission in next week's report may point to a rate reduction.

Message Sent

“Some people argue that by not using that phrase the BOJ officially sent out the message that they're not in a normalization phase anymore,'' said Hitomi Kimura, a bond strategist at JPMorgan in Tokyo. “There is a higher possibility of a rate cut in Japan.''

The government this week acknowledged Japan has probably entered its first recession in six years after the economy shrank in the second quarter and factory output, machine orders and household spending fell in August.

The central bank has left its benchmark rate at 0.5 percent since raising it in February 2007. In April, Shirakawa and his board ended a bias toward increasing borrowing costs, though they have since maintained that keeping rates low for too long may overstimulate the economy and make growth unsustainable.

“The chance that the Bank of Japan will cut rates is still slim, given that there is little room for policy maneuvering,'' said Akio Makabe, a professor of economics at Shinshu University in Nagano, central Japan free credit report.com. “But we can't rule out the possibility the bank will be forced to cut jointly with other central banks should global market turbulence intensify.''

Still Minority

Economists predicting a rate cut are still in the minority. Of 16 surveyed by Bloomberg News, three said they expect a reduction in the year ending March 31, and one predicted a cut early in 2010. They all said the board will leave rates unchanged on Oct. 31 before releasing the outlook at 3 p.m. in Tokyo.

So far the Bank of Japan's efforts toward stemming the market turmoil have focused on unlocking credit markets after banks in the U.S. and Europe stopped lending to each other following last month's collapse of Lehman Brothers Holdings Inc.

Shirakawa told lawmakers today that said providing liquidity is the most essential contribution central banks can make to weather the turbulence. Some economists say the bank will stick to that approach because next week's report will show the policy board forecasts a recovery in the year after next.

“The Bank of Japan will maintain the status quo for the time being and will keep focusing on providing liquidity as part of international coordination,'' said Teizo Taya, a former central bank board member who now advises the Daiwa Institute of Research. “I don't expect the bank to cut rates.''

Barely Growing

The world's second-largest economy will probably expand 0.1 percent this fiscal year and 0.5 percent in the next, according to the median estimate of 16 economists surveyed. Growth will pick up to 1.5 percent in the year starting April 2010, according to 14 economists who gave predictions.

“The Bank of Japan will probably highlight that the economy will pick up in fiscal 2010 and say borrowing costs are low enough to stimulate growth,'' said Masaaki Kanno, chief economist at JPMorgan in Tokyo and a former central bank official. “But if the yen keeps rising, stocks keep falling and the economy deteriorates further, a cut will become more likely.''

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The number of Americans filing first- time claims for unemployment benefits rose last week, a sign the deepening credit crisis is hurting employment.

Initial jobless claims increased by 15,000 to a larger-than- forecast 478,000 in the week ended Oct. 18, from a revised 463,000 the prior week, the Labor Department said today in Washington. The number of people staying on benefit rolls was little changed, holding near the highest level in five years.

The combination of tight credit and waning demand will cause more companies to retrench by trimming payrolls and investment. Mounting job losses may further restrict consumer spending, which accounts for more than two-thirds of the economy, and reinforce the risk of a protracted recession.

“The labor market remains weak,'' said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, who had forecast claims would rise. “Consumer spending will drag down third- quarter growth, and we expect it to weaken further.''

Treasuries rose, pushing down yields. The benchmark 10-year note yielded 3.54 percent as of 8:44 a.m. in New York, down 5 basis points from yesterday. Stock futures were lower.

Initial claims were estimated to rise to 468,000 from 461,000 initially reported for the prior week, according to the median projection of 39 economists in a Bloomberg News survey. Estimates ranged from 431,000 to 490,000.

Hurricane Ike

Firings related to Hurricane Ike in Texas accounted for about 12,000 of last week's claims, a Labor spokesman said.

The four-week moving average of initial claims, a less volatile measure, fell to 480,250 from 484,750, today's report showed. So far this year, weekly claims have averaged 388,000, compared with an average 321,000 for all of 2007.

The number of people continuing to collect jobless benefits decreased to 3.72 million in the week ended Oct http://payday-loans-application.com. 11, from 3.726 million the prior week that was the highest since mid 2003. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, was unchanged at 2.8 percent. These data are reported with a one-week lag.

Thirty-nine states and territories reported an increase in new claims, while 13 reported a decrease.

Initial jobless claims reflect weekly firings and tend to rise as job growth — measured by the monthly non-farm payrolls report — slows.

Today's figures represent claims from the survey week for nonfarm payrolls, and will be closely watched by economists for signals on the job market in October. The number of applications were up by 20,000 compared with the September survey week. The total drop in payrolls this year reached 760,000 in September, according to the Labor Department.

The economy probably lost jobs for another month in October, according to some economists. The Labor Department will report the figures on Nov. 7.

More Firings

Yahoo! Inc. said it plans to cut at least 10 percent of its staff, or about 1,500 jobs, after online advertising spending slowed. The Sunnyvale, California-based Internet company will also trim the number of contractors and cut real-estate costs.

“The focus is to make sure we are better positioned to handle a long-term, protracted recession if that does occur,'' Chief Financial Officer Blake Jorgensen said in an interview on Oct. 21. “We're also making sure those costs get out of the system for good.''

Also this week, National City Corp., Ohio's largest lender, announced plans to eliminate 4,000 jobs while Merck & Co., the third-largest U.S. drugmaker, said it will cut 7,200 jobs.

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The Bank of Canada reduced its main interest rate by a quarter of a point, less than economists predicted, saying it will probably need to act again to fend off the effects of a credit crisis and global recession.

Governor Mark Carney and his five deputies trimmed the target rate for overnight loans between commercial banks to 2.25 percent, the lowest since October 2004. Seven of 24 economists surveyed by Bloomberg predicted the move, with 13 calling for a cut twice as deep and four expecting no change.

“Surprisingly they didn't cut by more, but the statement itself is awfully gloomy, leading me to believe there is an awful lot more to come,'' said Eric Lascelles, chief economics and rates strategist at TD Securities Inc. in Toronto.

The credit squeeze spurred by the subprime mortgage meltdown is sapping demand for Canadian shipments of automobiles and lumber to the U.S., Canada's main export market. The global financial crisis also may crimp the domestic spending that's propped up Canada's economy, policy makers said. Today marked the first scheduled decision by a central bank within the Group of Seven major economies since a coordinated rate cut on Oct. 8.

The central bank may have been reluctant to ease by half a point after already doing so this month, Lascelles said.

“These actions provide timely and significant support to the Canadian economy,'' policy makers said in a statement from Ottawa, referring to their own rate cuts and the joint move. “Some further monetary stimulus will likely be required.''

Currency Fell

The Canadian dollar weakened 1.6 percent to C$1.2105 per U.S. dollar at 11:06 a.m. in Toronto from C$1.1909 yesterday. The currency's drop from a record 90.58 Canadian cents per U.S. dollar set last Nov. 7 will help exporters, the bank said.

Policy makers cut their forecast for economic growth this year to 0.6 percent from a July prediction of 1 percent. Next year's gross domestic product will also grow 0.6 percent, compared with a July forecast of 2.3 percent.

Canadian exporters will be hobbled by a U.S. recession, a world economy that “appears to be heading into a mild recession,'' and lower prices for the country's exported commodities, the Bank of Canada said. Domestic spending will also be curbed by tougher lending conditions, the bank said.

Policy makers didn't say Canada's economy is headed for a recession, unlike assessments by BMO Capital Markets, Bank of Nova Scotia, Credit Suisse Holdings Inc. and UBS AG.

`Not Done'

“They firmly signaled they are not done,'' said Derek Holt, an economist at Scotia Capital in Toronto, adding the rate will be lowered to 1.75 percent at the next meeting http://payday-4all.com. “You could have taken that statement today and easily changed the headline to have a 50- or 75-basis point cut.''

Canada's key rate hasn't been below 2 percent since 1960, and its record low was 1.12 percent in 1958, a time when it was based on treasury yields rather than actions by policy makers.

Canadian banks, rated the soundest in the world this month by the World Economic Forum, are still reluctant to lend after the worst financial malaise since the Great Depression toppled institutions such as Lehman Brothers Holdings Inc. in the U.S. and Fortis in Europe.

The biggest commercial banks in Canada failed to quickly match the central bank's Oct. 8 move, the first time that's happened since 1997. Some matched the full 50-basis point cut only after the government created a program to purchase up to C$25 billion of their mortgages.

`Longer Downturn'

Prime Minister Stephen Harper, who won re-election on Oct. 14 by arguing he was a better economic manager than his rivals, has said he'll meet with provincial leaders in the coming months to discuss the economy. Harper last week also backed French President Nicolas Sarkozy's call for international meetings on restoring confidence in financial markets.

“We're looking at a much longer downturn in the American economy than anyone was thinking a year ago,'' British Columbia Premier Gordon Campbell said after a meeting of provincial leaders in Montreal yesterday to discuss the economy. British Columbia is Canada's top lumber-exporting province.

Canfor Paper Corp., Canada's second-largest lumber producer by market value, said Oct. 8 it will close a plywood plant in Fort Nelson, British Columbia. The 290-worker factory was shut because of “unprecedented and challenging market conditions,'' Chief Executive Officer Jim Shepard said in a statement.

Commodity Prices

Carney, 43, has room to cut rates further because the economic slowdown is pushing commodity prices down from record highs set earlier this year. Those higher prices drove inflation above the central bank's 2 percent target and boosted business profits and consumer incomes in provinces such as British Columbia and Alberta, which is home to the world's second-largest crude oil deposits.

Inflation peaked in the third quarter of this year and will fall below 1 percent in the middle of next year, the central bank said today. In July, policy makers said prices would accelerate to 4.1 percent between October and December.

The bank will provide a new detailed economic forecast paper in two days, and its next scheduled decision is Dec. 9.

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The price of oil fell Thursday, shedding more than half its value since the summer’s highs, after a government supply report signaled weak demand for petroleum products.

Light, sweet crude for November delivery fell $4.69 to $69.85 a barrel on the New York Mercantile Exchange. Oil is now down 52% from July’s all-time high above $147 a barrel.

Thursday’s closing price was the lowest since Aug. 23, 2007 when oil settled at $69.83 a barrel.

At one point during Thursday’s session, the contract fell to $68.57 a barrel. That was the lowest intra-day level since June 27, 2007, when oil slid to $67.07 in New York floor trading.

Thursday’s inventory report was "very bearish," said Phil Flynn, senior market analyst at Alaron Trading in Chicago. "There’s a lot of supply hitting the market at a time when demand is questionable."

The oil market has been pressured recently by fears that a global economic recession will drive down the once-robust demand for energy.

Global stock markets have been volatile as governments worldwide have taken steps to restore confidence in the financial system. But investors appear focused on signs that the economy will remain weak even after the markets have stabilized.

Supplies. In its weekly inventory report, the Energy Information Administration said the nation’s stockpiles of crude oil grew 5.6 million barrels in the week that ended Oct. 10. Analysts surveyed by energy research firm Platts were expecting the government to report an increase of 3.1 million barrels.

Gasoline stocks increased 7 million barrels, while supplies of distillates, used to make diesel fuel and heating oil, fell 500,000 barrels last week. The nation’s supply of gas was expected to have grown by 3.1 million barrels and distillate stocks were forecast to decline 850,000 barrels.

Demand for gas averaged nearly 8 cash advance loan.8 million barrels per day, over the last four weeks, according to the EIA. That’s down by 5.2% from the same period last year.

The report also showed that total products supplied over the last four-week period has averaged 18.6 million barrels per day, down by 8.9% compared to the similar period last year.

The government report is normally released on Wednesday but was delayed due to the Columbus Day holiday on Monday.

OPEC. The Organization of the Petroleum Exporting Countries said Thursday that the "extraordinary meeting" it announced last week would be held nearly a month earlier than originally planned.

The meeting will now take place on Oct. 24. It was first scheduled for Nov. 18.

The change comes after OPEC’s president, Chakib Khelil, reportedly said that the "ideal" price for oil is between $70 and $90 a barrel.

Moving up the meeting’s date reflects the cartel’s desire to put a floor under the rapidly declining price of oil by possibly cutting output, Flynn said. But Thursday’s declines suggest that investors are more focused on demand issues than supply.

"The market is ignoring OPEC," Flynn said. "This is a demand-driven decline - a lack of demand."

Retail gas. Prices at the pump also fell Thursday.

The national average price for a gallon of regular gasoline fell 4.1 cents to $3.084 from $3.125 the day before, according to a daily survey by the American Automobile Association.

Gas prices have fallen 25% since the national average price toped $4.114 on July 17.

The average price of diesel fuel fell 3 cents overnight to $3.764. 

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U.K. home sales fell in September to the lowest level in at least three decades, led by London, as the financial crisis prompted price drops across the nation, the Royal Institution of Chartered Surveyors said.

Estate agents and surveyors sold an average of 11.5 homes in the quarter through last month, the least since the series began in 1978, RICS said in an e-mailed report today. In London, the figure was 8.3. The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 84, compared with 82 in August.

The global crisis sapped confidence among investors and consumers, pushed mortgage lending to the lowest since at least 1999 and sparked the worst weekly drop for the U.K. FTSE 100 benchmark stock index since 1987. Bank of England policy maker Andrew Sentance said yesterday that the economy may already be in a recession.

“London continues to occupy bottom place in the activity league'' for home sales, the report said. “Further price falls in the near term are likely.''

Prices declined further in London, Wales, northern England, northwestern England and the East Midlands, and the price balance fell to the lowest on record in Scotland, RICS said.

Prime Minister Gordon Brown said yesterday that the government will take stakes in Royal Bank of Scotland Group Plc and other banks in exchange for 37 billion pounds ($64 billion) in cash. Financial firms have reported $635 billion in losses and writedowns from U.S. mortgage-related investments since the beginning of last year.

Stock Slump

Banks also will have to resume lending to customers “at 2007 levels'' for at least three years, according to the government agreement low fee payday advance. Banks approved 32,000 new mortgages in August, a third of the 104,000 monthly average during 2007.

Subprime losses froze credit markets and prompted fears of a recession which helped push the FTSE 100 down 21 percent last week. The Bank of England cut the benchmark interest rate by half a point to 4.5 percent on Oct. 8, a day before its scheduled monetary policy decision, the biggest reduction in seven years. It joined other banks including the European Central bank and the U.S. Federal Reserve.

“As expected, the financial crises have had a dire effect on the property market this month,'' said Kim Turner, a real- estate agent at Bective Leslie Marsh in London's exclusive Kensington district. “Buyers are incredibly wary of the market and prices.''

Spending Cut

Consumers have pared spending as weakening house prices and the slowing economy squeezes incomes. Sales in U.K. shops open at least a year fell an annual 1.5 percent in September, the British Retail Consortium, which represents 80 percent of stores, said in a separate report today. Clothing, footwear, furniture and household goods led the drop.

Economic growth stalled in the second quarter, ending the longest stretch of uninterrupted expansion in a century. The International Monetary Fund predicts the U.K. economy will contract 0.1 percent next year after forecasting growth of 1.6 percent six months ago.

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The Dow Jones industrial index this week plunged to its lowest point in more than five years. Joblessness in the St. Louis metro area is at the highest level since President George W. Bush’s father occupied the White House. House foreclosures are rising, and values are falling.

The economic black cloud hanging over St. Louis and the rest of the nation only seems to be getting darker. But if there is a lone bright spot, it’s at the gasoline pump.

The price of regular gasoline in the region has declined for 25 successive days, reaching $3.20 a gallon on Friday, according to AAA Missouri. That’s down from $3.80 in the wake of Hurricane Ike.

The decline in gasoline prices is directly linked to a plunge in the price of crude oil, which accounts for about 70 percent of the cost of gasoline.

Just three months ago, oil shot up to a record $147.27 a barrel, driven by a strong global economy and a lack of spare production capacity.

But uncertainty over the economy, at home and abroad, has let the air out of crude prices.

Friday, oil futures on the New York Mercantile Exchange continued to tumble to $77.70 a barrel.

"In the last 60 days, the wall of worry about supply has crumbled and a wall of worry about demand has replaced it," said Tom Kloza, chief oil analyst at the Oil Price Information Service in Wall, N.J.

The dramatic rise and fall of oil prices this year tops anything ever witnessed, Kloza said. "It took until 2005 to see $60 (a-barrel) crude and here the price has dropped $60 in a matter of weeks."

While the decline in gas prices witnessed the last three weeks might not be much consolation when 401(k) retirement accounts and other investment funds are drying up, it isn’t going unnoticed.

"I notice the difference" said Diana Dye of House Springs, a mother of four teenagers who paid about $40 to fill up her Chevrolet sedan Wednesday morning at the QuickTrip station at Gravois Avenue and Chippewa Street. "I’d rather spend the money somewhere else."

Ditto for Lisa Bailey of East St. Louis, who was buying gas at the Mobil Express station at Vandeventer and Forest Park. She tracks prices closely and makes regular trips across the river to save on gas, which is almost always more expensive in Illinois because of higher fuel taxes.

In fact, Bailey said she makes every effort to avoid driving to keep her gasoline bill low. After all, gasoline is still about 65 cents a gallon more than it was at this time last year.

"If it’s not important, if it’s not school or a job interview, we don’t do it," she said. "Otherwise, this has got to stay parked."

Higher prices in recent years have altered driving habits of millions of Americans.

The Energy Information Administration, the statistical arm of the Department of Energy, slashed its outlook for oil demand again in its most recent forecast to reflect a "deteriorating global economic outlook" and it estimates domestic consumption will fall by 830,000 barrels this year.

Kloza, the oil analyst, expects crude prices to stay in a range of $75 to $100 a barrel for the next 30 to 45 days.

"But at some point, worries about supply will trump worries about demand," he said. "Sometime in the next three years, we’re going to be talking $150 to $200 a barrel of oil again."

jtomich@post-dispatch.com | 314-340-8320

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The governments of France, Belgium and Luxembourg announced Thursday they will give struggling lender Dexia SA a yearlong guarantee on its new loans and deposits, sending the company’s shares soaring.

They announced the decision after Dexia’s shares fell three days in a row - by more than 15% on Wednesday alone — despite getting a €6.4 billion ($8.8 billion) cash injection from the three governments last week.

Brussels traders welcomed the news with shares surging 18% in early Thursday trading.

Belgian Prime Minister Yves Leterme said the guarantee will cover all new agreements with international lenders, new interbank deposits and new institutional loans of up to three years. "This guarantee gives assurance to depositors that Dexia will have enough liquidity to meet its commitments to customers," he said, reading out a statement from the three nations.

French Finance Minister Christine Lagarde said the guarantee showed the governments would not allow the failure of a bank they saw as crucial to the financial system. She said there were no plans to split the bank along national lines — as happened to Belgian-Dutch bank Fortis in a similar government bailout last week.

"I should reiterate our wish to be together (on this), to capitalize together, to guarantee together," she told reporters.

The governments would not say how much the guarantee might cost them. It lasts until Oct. 31, 2009 and can be renewed for one year.

The Belgian-French bank is the biggest lender to French local governments and also lends widely to cities from Spain to the U online instant cash advance.S.

It is the first time three European states have jointly guaranteed a bank and comes a week after they organized a government and shareholder bailout for Dexia.

Britain, Spain and Ireland have moved unilaterally to guarantee their banking sectors to help them survive the current financial storm - but Germany last week shot down a French suggestion for a $412 billion bailout for the entire EU.

Lagarde said a guarantee for the entire French banking sector "was absolutely not necessary."

Under the deal agreed last week, France became the largest Dexia shareholder with a 25-percent stake, most of it held indirectly by the state investment arm CDC.

Unhappy with the previous management, the three governments on Tuesday appointed a new CEO, Pierre Mariani - a close friend of French President Nicolas Sarkozy and a former executive of French bank BNP Paribas. Former Belgian prime minister Jean-Luc Dehaene became Dexia’s chairman.

Dexia ran into trouble with its U.S. bond insurance unit FSA when it was hit hard by the subprime housing crisis, which saw loans made to people with poor credit drop sharply in value on worries that borrowers could not make repayments. Holders of bonds based on those mortgages suffered heavy losses.

Dexia was also hurt by the collapse of U.S. investment bank Lehman Brothers, saying it expects that to cause it $480.6 million in losses. 

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NEW YORK (CNNMoney.com) — How bad is this bear market? Out of thousands of offerings, only one mutual fund focusing on U.S. stocks is up this year. You read that right - one!

The Forester Value fund (FVALX), which invests primarily in large, blue-chip companies, is up 7.4% year-to-date. according to Morningstar. The average U.S. stock mutual fund is down 28.5%.

I spoke with Forester Value manager Tom Forester this morning to find out how’s he been able to avoid the market bloodbath and what he’s doing now.

And guess what? He was buying yesterday while the global markets were in full-blown Armageddon mode.

“I bought a lot yesterday. I’m just about back to being fully invested,” he said. “When you see panic selling, it’s usually a pretty decent time to buy.”

Forester said he had been raising cash throughout August and that he has been using it to take advantage of big market routs in the past few weeks. The fund is still relatively small though, with about $33 million in assets.

“When you have nosedives like this and since our fund is still in positive territory you feel more confident when you’re buying shares,” he said.

Betting on a bank recovery

What has he been buying? Forester said that he’s finally starting to find some values in financials, which he had largely avoided earlier this year.

“I saw this crisis happening a few years ago and it surprised me that it took so long to find its way into stock prices. So I stayed away from many firms with mortgage exposure,” he said.

But with bank and insurance stocks getting crushed in the past month, Forester said that it’s time to sift through the rubble and find quality companies that should emerge from this crisis as survivors.

As such, Forester said he added to positions yesterday in insurers Allstate (ALL, Fortune 500) and Travelers (TRV, Fortune 500) as well as regional bank US Bancorp (USB, Fortune 500).

Tellingly, Allstate and U.S. Bancorp, which is also a top holding of Warren Buffett’s, both fell less than 1% yesterday despite the market’s carnage. And shares of Travelers actually went up.

He said he’s also considering buying shares of beaten-down investment bank Morgan Stanley (MS, Fortune 500) and insurer Hartford Financial Services (HIG, Fortune 500) - but he’s not ready to invest in them just yet.

Stock and bond markets have not fared well since the passage of the $700 billion bailout plan last week. But Forester is optimistic.

“From the sounds of the bailout, this will take care of a lot of the trouble,” Forester said (payday loans). “You never know where the bottom is but I do think this bailout helps tremendously.”

Sticking with ’safe’ consumer companies

Forester concedes that there still are plenty of problems. He said many banks still have troubles, housing prices could fall another 20% and the holiday-shopping season could be a bust as consumers pull back.

But there are ways to stay invested in stocks and make money despite such a gloomy scenario. Many of Forester’s top holdings are so-called consumer-staples firms, food and household products companies that are less likely to suffer big declines in sales and profits in a poor economy.

Two of his largest investments are in H.J. Heinz (HNZ, Fortune 500), whose stock is up 10% year-to-date, and Kraft (KFT, Fortune 500), which is flat this year.

He also said that he bought shares of Wal-Mart (WMT, Fortune 500) and McDonald’s (MCD, Fortune 500) earlier this year because he felt that they could benefit as more cash-strapped consumers look to cut costs.

“If consumers are getting pinched, they’re likely to trade down. Instead of going to Chili’s they may go to McDonald’s and instead of shopping at Nordstrom they may shop at Wal-Mart,” he said.

Those calls have helped his fund’s performance. Shares of McDonald’s are flat this year and Wal-Mart’s stock is up nearly 25%.

Contrarian bets on beaten down stocks

But Forester isn’t just paying defense. He said he’s also been taking a look at three hard-hit sectors for bargains: tech, media and healthcare.

Microsoft is a relatively new position in the fund and Forester said it’s now a top-five holding. He likes the fact that Microsoft (MSFT, Fortune 500) has a lot of cash, recently announced a $40 billion stock buyback program, increased its dividend and trades at a reasonable valuation.

“In times like this, Microsoft should be a really steady stock,” he said.

And even though Forester is aware that many experts are sounding the death knell for the traditional media industry, he recently bought a new position in television and radio broadcaster CBS (CBS, Fortune 500).

Forester said he was attracted to the stock’s 8.4% dividend yield, steady cash flow and bargain-basement valuation of just 7 times 2009 earnings estimates.

He added that he thinks sales and earnings for media companies will eventually bounce back along with the broader economy, despite continued competitive threats from the Web.

“Yes, traditional media has been losing share to the Internet. But a lot of media stocks used to sell at huge premiums to the market,” he said. “Now, even though you could say there’s not much growth, so much bad news is priced in that CBS looks like a pretty safe stock.”

In the healthcare area, Forester said he recently bought managed-care firm UnitedHealth (UNH, Fortune 500). That stock has plunged more than 60% this year but Forester bought it when it was trading in the low $20s. He said he’s actually sitting on a small profit - on paper - in the investment so far.

“I’m trying to find stocks that sell at really good discounts. Some got beat up more than they should have,” he said.

Don’t panic!

At the end of the day, Forester said he thinks the most important thing for any investor to do is to stay calm and be ready for big market swings in either direction.

That’s served him well. Since the fund’s inception in 1999, it’s had an average annualized return of 5.6%, outperforming the S&P 500 as well as other large value funds.

“There are always going to be big rallies and declines in markets. You have to be prepared for them,” he said.

And the key is to take advantage of situations when people’s fear cause them to do illogical things.

In fact, Forester said that despite all the talk about how this market meltdown will cause investors and companies to never make the same mistakes again, history shows that’s just not true. There eventually will be another bubble.

“People are still people. We’re emotional beings. When you get rid of the emotions we’ll get rid of the mistakes. In other words, we’ll never get rid of them,” he said.

“But that’s what makes my investment strategy possible. I buy things when they are beat up due to emotional extremes. I’m glad we’re human.”

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