World financial news

International Monetary Fund Managing Director Dominique Strauss-Kahn’s arrest is an embarrassment that won’t derail attempts to bolster aid for Greece as officials head to Brussels for crisis talks, economists said.

Strauss-Kahn, 62, had been scheduled to meet German Chancellor Angela Merkel today and then attend discussions with euro-area finance ministers in Brussels tomorrow as officials consider further support to stave off a Greek default. He has been charged with attempted rape and a criminal sex act on a woman in a New York hotel. Strauss-Kahn denies the charges.

“Its incredibly embarrassing, and not the IMF’s or Dominique Strauss-Kahn’s finest hour, but I don’t think this ought to undermine what’s going on,” Peter Westaway, chief European economist at Nomura International Plc in London, said in an interview. “I don’t think it will affect negotiations on Greece. In the end, issues for Greece and policy making are more important than that and they’ll carry on.”

European officials are working to prevent the region’s first default as Greek ministers plead for terms to be relaxed on 110 billion-euros ($155 billion) of aid from the IMF and European Union in a debt crisis that has also engulfed Ireland and Portugal. Economists said that talks to reconsider Greece’s aid terms are taking place between institutions rather than individuals and so can endure such turmoil.

“It’s not a fatal blow to the Greek situation,” James Nixon, chief European economist at Societe Generale in London, said in an interview. “Any of these negotiations are larger than a single person.”

EU-Led Aid

The Greek government said in a statement that it “operates institutionally and continues without interruption implementing the program for the country to exit the crisis.” The EU has led efforts to aid Greece and has contributed two-thirds of the funds committed to the rescue of the nation’s economy.

The IMF will be represented at Monday’s euro-area finance ministers’ meeting by Deputy Managing Director Nemat Shafik, who oversees the organization’s work in a number of EU nations, IMF spokesman Bill Murray said in an e-mailed statement today.

Seventeen nations use the euro.

Greece is seeking an extension to the loans and has argued Europe should issue common bonds to stem the region’s fiscal crisis. Eighty-five percent of those surveyed last week in a Bloomberg Global Poll said the country won’t honor its debts, with majorities predicting the same fate for Portugal and Ireland.

Greek Position

Greek Prime Minister George Papandreou on May 13 opposed a debt restructuring, appealing to claims made by the IMF that the country’s debt “is sustainable.” Germany opposes a common-bond issue, saying such a move would weaken member states’ incentives to cut their deficits.

It’s too early to say whether Greece needs more help with its debt crisis, though “extra measures” may be needed if the country can’t return to financial markets next year as planned under the European-led aid program agreed last year, German Finance Minister Wolfgang Schaeuble said in an interview with ARD television in Berlin.

It’s “disappointing” that Strauss-Kahn’s meeting with Merkel is cancelled because the IMF had been pressing for stronger measures that may involve the possibility of a restructuring of Greek debt, Societe General’s Nixon said.

“The meeting could have been quite important in injecting some realism in the discussions and presumably now that voice won’t be heard,” he said. “The IMF have been pushing for a more realistic position, and presumably the gravity of that voice has been lost.”

‘Leadership Vacuum’

Eswar Prasad, a senior fellow at the Brookings Institution in Washington, said that Strauss-Kahn’s arrest may still unsettle investors at a time of tension because of the region’s debt crisis.

“Just the perception that DSK’s departure could create a leadership vacuum at the IMF and shift the institution’s attitude towards Greece and other weak European countries may be enough to roil markets and raise uncertainty at a vulnerable time for the euro zone,” he said.

Hotel Incident

The charges against Strauss-Kahn stem from an incident that allegedly occurred yesterday against a 32-year-old female at a Sofitel hotel in midtown Manhattan, the New York Police Department said in an e-mailed statement early today. He will appear in a Manhattan court later today, police Deputy Commissioner Paul Browne told BBC television in an interview.

Strauss-Kahn played a key role in efforts to stem the European debt crisis which started last year in Greece, with a pledge to contribute about a third of future bailouts in the region by the EU. His term at the IMF is scheduled to expire next year. Speculation in France had mounted that he would leave early to stand for president.

The charges against him won’t affect moves to extend aid to Portugal, which is implementing austerity measures to qualify for an international aid package of as much as 78 billion euros from the EU and IMF, said Gilles Moec, European economist at Deutsche Bank AG.

“The progress can continue and there should not be a change in its dynamics,” he said in an interview.

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Modest gains on Wall Street, stabilizing oil prices and improving economic data from France helped lift world markets higher Friday.

Oil prices rose to near $100 a barrel as the U.S. dollar weakened, making commodities such as crude less expensive for investors with other currencies.

Shares in Europe turned higher as France reported its economic growth accelerated in the first quarter thanks to higher consumer spending and corporate investment. Britain’s FTSE 100 rose 0.8 percent to 5,989.78 and Germany’s DAX added 0.8 percent to 7,500.77. France’s CAC-40 rose 0.9 percent to 4,059.29.

Wall Street was also poised to go higher, with Dow Jones industrial futures up 24 points to 12,696 and S&P 500 futures nearly three points higher to 1,350.40.

Trading in Asia was lackluster, however. Japan’s Nikkei 225 slipped 0.7 percent to close at 9,648.77 as the country’s currency posted midday gains against the dollar before dropping, posing yet another concern to earthquake-embattled exporters. Toshiba Corp. lost 2 percent, while Sony Corp. and Hitachi Ltd. both lost 1 percent.

Elpida Memory Inc., a major maker of microchips, tumbled 3.6 percent a day after reports said the company’s net profit plummeted 32 percent in fiscal 2010.

Nissan Motor Co. was up 3.5 percent after announcing it had returned to profit in the fourth quarter, although uncertainties remain due to the damage from the mammoth March 11 earthquake and tsunami that have disrupted production for Japanese automakers.

Hong Kong’s Hang Seng reversed course and closed with a 0.9 percent gain to 23,276.27. Energy companies enjoyed a boost as oil prices began to rise. PetroChina Co. Ltd., the publicly traded unit of China’s biggest oil and gas company, rose 0.4 percent after slipping earlier in the day.

Australia’s S&P/ASX 200 gained 0.3 percent to 4,711.40, while South Korea’s Kospi lost 0.1 percent to 2,120.08. Benchmarks in Taiwan, New Zealand and the Philippines were also lower.

“There’s really no good news out there that is a catalyst for buying,” said Tom Kaan, head of equity sales for Louis Capital Markets in Hong Kong. Thursday’s turnaround on Wall Street represented bargain-hunting and people “trying to buy on the bottom side.”

Mainland Chinese shares advanced, shrugging off yet another central bank increase in the reserve requirement for banks _ the fifth such increase in 2011. That move came after the government announced inflation was at 5.3 percent in April, with food prices surging 11.5 percent.

The benchmark Shanghai Composite Index rose 1 percent to 2,871.03, while the Shenzhen Composite Index of China’s smaller, second exchange added 0.5 percent to 1,201.37.

“The reserve ratio requirement increases have not had much impact,” said Peng Yunliang, a Shanghai-based analyst.

On Wall Street on Thursday, a small recovery in commodities and safe-haven buying of companies that make consumer staples like toilet paper and pasta helped reverse a decline to end the day with modest gains.

Consumer staples and health care led the market due in part to concerns that high gas prices will erode consumer spending and cut into corporate earnings. Companies that sell everyday items or provide health-related products and services are less dependent on economic growth for their profits since people typically spend money on such items even if they cut back elsewhere.

On the down side, the Labor Department said applications for unemployment benefits fell last week to 434,000, slightly less than what economists expected. That report contributed to early losses in the market.

The Dow Jones industrial average gained 0.5 percent to close at 12,695.92. The S&P 500 added 0.5 percent to 1,348.65. The Nasdaq composite rose 0.6 percent to 2,863.04.

Benchmark crude for June delivery was up $1.01 to $99.98 a barrel in electronic trading on the New York Mercantile Exchange. The contract gained 76 cents to settle at $98.97 on Thursday.

In currencies, the euro strengthened to $1.4325 from $1.4231 late Thursday. The dollar slipped to 80.47 yen. The greenback fetched 80.91 yen in New York on Thursday.

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Cigarette maker Lorillard says its net income increased 7 percent in the first quarter as it sold more Newport and Maverick cigarettes at higher prices.

Lorillard says it earned $248 million, or $1.71 per share, for the period ended March 31. That’s up from $232 million, or $1.50 per share, a year ago. The per-share figure was boosted by a lower number of shares outstanding.

The nation’s third-biggest tobacco company says revenue excluding excises taxes increased 14 percent to $1 payday loans.06 billion.

Analysts expected earnings of $1.57 per share on revenue of $955 million.

Lorillard, based in Greensboro, N.C., sold 9.5 percent more cigarettes on gains from Newport and lower-priced brands like Maverick. Rivals Reynolds American and Altria Group both reported selling fewer cigarettes during the quarter.

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UnitedHealth Group says its first-quarter net income rose 13 percent, led by revenue gains in commercial health insurance. The managed care company also raised its full-year earnings forecast.

The Minnetonka, Minn., insurer says it earned $1.34 billion, or $1.22 per share, in the three months that ended March 31. That’s up from the $1.19 billion, or $1.03 per share, in the same quarter last year. Revenue rose 10 percent to $25.43 billion.

Analysts expected 89 cents per share on $24.97 billion in revenue.

UnitedHealth is the largest health insurer based on revenue and the first to report quarterly earnings.

The company now expects 2011 earnings per share to range between $3.95 and $4.05. That’s up from $3.50 to $3.70. Analysts have said the old outlook was conservative.

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For the second time in five years, public health advocates are calling on the Food and Drug Administration to ban a fat-blocking drug sold over-the counter and via prescription, pointing to new reports of kidney stones and pancreatic damage.

Public Citizen filed a petition with the FDA Thursday calling on the agency to remove GlaxoSmithKline’s Alli and Roche’s Xenical from the market. Alli is sold over-the-counter while Xenical, a higher dose of the drug, is only available with a doctor’s prescription.

Public Citizen says it identified 47 cases of acute pancreatitis and 73 kidney stones among patients taking the drugs. The reports were culled from the FDA’s public database of negative drug reactions.

Known chemically as orlistat, the drug works by blocking the absorption of about one-quarter of any fat consumed.

The drug has never been popular, in part due to for their unpleasant side effects, including oily, loose stools. Marketing materials for Alli stress the importance of keeping meals under 15 grams of fat to avoid oily stools. Educational pamphlets even recommend people start the program when they have a few days off work, or to bring an extra pair of pants to the office.

Annual sales of Alli have declined 42 percent to $84 million in 2010 since its initial launch in 2007 best payday advance. Prescriptions of Xenical have fallen to 110,000 last year from 2.6 million in fiscal year 2000, according to data from the FDA and IMS Health.

Last year the FDA added warnings to Xenical and Alli about rare reports of liver damage.

In light of the drug’s side effects and meager health benefit _ patients typically lose about 3 percent of their weight after a year _ Public Citizen says the drug should be removed from the market.

“Orlistat is a drug used to treat people who are either overweight or obese,” states the petition. “Unfortunately, it has little clinical effectiveness and has the potential to damage a number of organs, including the liver, pancreas, and kidneys.”

Public Citizen filed a similar petition to ban the drug in 2006, based on scientific studies linking it to precancerous lesions in rats. That petition only applied to the prescription version Xenical, which has been available in the U.S. since 1999.

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Spain’s efforts to reduce its budget deficit and rebuild investor confidence may suffer a setback as Prime Minister Jose Luis Rodriguez Zapatero bows out of next year’s election.

Zapatero, 50, said on April 2 he won’t seek a third four- year term, forcing his party to select a new candidate a year before March 2012 elections. The Socialists, which are trailing the opposition in opinion polls, will hold primaries after regional and local elections on May 22, Zapatero told party members in the capital Madrid.

“It means he’s no longer a relevant figure, so I think this may be really problematic from a policy-making perspective over the coming year,” said Ken Dubin, a political science professor at Carlos III University in Madrid.

Investors had rewarded Zapatero’s austerity package, Spain’s toughest in three decades, sending the country’s borrowing costs lower even as bond yields in neighboring Portugal soared to euro-era records. The currency bloc’s fourth- largest economy now faces a period of political uncertainty that may disrupt measures crucial to Spain’s fiscal survival.

“The politics are turning more difficult,” said Stuart Thomson, a Glasgow-based fund manager at Ignis Asset Management, which oversees about $120 billion. “There has been a lot of money coming into Spain; it started to underperform on Thursday and Friday and I suspect that underperformance will continue as a result of this.”

Santander Plea

The gap between Spanish and German 10-year bonds narrowed to 191 basis points today from 194.1 basis points on April 1, compared with a euro-era record of 298 basis points on Nov. 30. The extra yield on Spanish bonds over Italian debt widened to 51.6 basis points, compared with 51 basis points on April 1 and 40 basis points at the start of last week.

Banco Santander SA Chairman Emilio Botin had asked Zapatero to wait until 2012 to announce his plans to avoid damaging market sentiment, according to an El Pais March 26 report.

Spain is the latest in a list of euro-area countries facing political upheaval after voters in Ireland ejected the Fianna Fail government from office in the wake of a bank crisis that left it in need of an 85 billion-euro ($121 billion) bailout. In Germany, Chancellor Angela Merkel’s Christian Democrats have been punished in local elections as voters balk at the prospect of funding bailouts elsewhere in Europe.

Bank Overhaul

Portuguese Prime Minister Jose Socrates resigned on March 23 after failing to win support for austerity measures. Fitch Ratings Ltd. last week cut Portugal’s credit grade to BBB-, one level above junk. The company, which warned more downgrades may follow, said Portugal needs “external support.” Fitch rates Spain AA+, its second-highest grade.

Spain is trying to restructure its savings banks after a property-market slump left many with surging bad loans. Twelve lenders need to raise as much as 15.2 billion euros to meet new minimum capital standards set by the government.

The planned bank overhaul suffered a blow on March 30 when a merger with Caja de Ahorros del Mediterraneo (CAM) fell apart, pushing the lender to seek a 2.8 billion-euro state bailout.

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On an early morning in December 1811, Eliza Bryan of New Madrid was jolted awake by a terrifying shaking and saw chaos Internet Payday loans.

“The screams of the affrighted inhabitants running to and fro, not knowing where to go, or what to do

Grzegorz Bielajew, a 22-year-old bricklayer, may help push the Polish central bank to raise borrowing costs to the highest in more than two years before the end of 2011.

Bielajew is one of 400,000 Poles gearing up for the opening of the German labor market, which will give the workers unlimited access to Europe’s largest economy almost a quarter of a century after the fall of the Berlin wall, advancing Poland’s economic integration into the European Union.

The risk for policy makers in Warsaw is that an exodus of workers will make it harder for employers to find staff, pushing up wages for those who stay behind, fueling inflation, according to policy makers and economists.

“We are going to see the first impact on unit labor costs, wages and inflation from the latter part of this year or the beginning of next year,” said Michal Dybula, an economist at BNP Paribas SA in Warsaw who expects the benchmark rate to rise to 4.25 percent by the end of 2011 from 3.75 percent. “That is essentially the moment when policy makers should be factoring this into monetary policy.”

The Narodowy Bank Polski yesterday left borrowing costs unchanged following an increase in January, the first since 2008. Investors expect the benchmark rate to rise 0.75 basis points to 4.5 percent by the end of the year, forward-rate agreements show. Labor-market developments are “an area of special concern” for policy makers, central bank Governor Marek Belka told reporters after the rate decision.

Increased Hiring

Rising demand in Germany, fueled by sales to faster-growing economies including China, boosts orders for Polish companies, which supply components to German exporters. Employers increased hiring by 3.8 percent in January from a year earlier, the fastest annual growth since September 2008.

Germany and Austria open their labor markets for workers from 10 eastern European countries on May 1, when their seven- year permission to restrict jobseekers expires. German unemployment fell to an 18-year low of 7.4 percent in January as companies stepped up hiring to meet foreign demand for goods including cars and machinery.

“We must anticipate some shrinking of the workforce when Germany and Austria open their labor markets in May 2011,” rate setter Jerzy Hausner said on Nov. 23, confirming the comment in an Feb. 25 e-mail. “Capacity utilization in industry is already high and we appear to be on the verge of an investment boom. All these are threats that we must react to preemptively.”

No ‘Clear Signals’

Governor Belka said last week that there is no need for immediate reaction to accelerating inflation as long as there are no “clear signals” of wage pressure.

The average corporate wage in Poland, a country of 38 million people, has risen by 45 percent since its membership in the EU to 3,391 zloty ($1,177), or about a third of Germany’s average monthly salary totally free credit score. The government estimates 3.7 percent wage growth this year.

The decision to refrain from raising borrowing costs yesterday may signal a lack of concern in the central bank that the labor-market opening will stoke inflation, said Kieran Curtis, who helps manage about $2 billion in emerging-market debt at Aviva Investors in London.

“The central bank hasn’t been very proactive,” he said by phone. “If they were going to be very proactive, they might have raised rates” yesterday.

After 2004, when most EU countries opened their labor markets for the citizens of the former communist countries that joined the bloc, as many as 2 million Polish workers migrated west according to the Labor Ministry.

400,000 Poles

The number of Poles now seeking work west of the border may reach 400,000, the authorities in Warsaw estimate. The number may be as high as half a million by 2015, according to BNP Paribas SA.

“The wave of migration from Poland will be weaker this time but unfortunately the effects for the economy will be worse,” said Krystyna Iglicka, a demographer at the International Relations Centre in Warsaw. “Today, the unemployment rate is much lower than six years ago, so people who are now working in Poland will simply leave their jobs.”

Bielajew, who currently makes 20 zloty ($6.75) per hour in the border town of Zgorzelec, decided to take advantage of the opening labor market after he found out that the minimum wage for identical job in eastern Germany is 9.25 euros ($12.75) in adjoining Goerlitz.

“It takes me only 20 minutes to cross the border on foot so I’m not going to waste this opportunity to finance Polish costs of living with a German salary,” he said.

Labor Shortage

Companies in Germany plan to hire as many as 300,000 workers this year, according to a survey of 28,000 firms by the DIHK industry and trade chambers group last month. Machine and electrical companies may add 80,000 jobs, the DIHK said.

About 40 percent of Polish companies expect hiring to become more difficult after May 1, when Germany and Austria lift restrictions on immigrant employment, according to a survey by online job center Pracuj.pl.

“The opening of this job market and the absence of two million Poles who left the country after 2004 may have disastrous impact on economic growth,” Association of Polish Employers, which represents more than 7,000 companies employing about 3 million workers, said on its website.

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World stock markets were mixed Friday, as benchmarks in Asia followed Wall Street’s upward lead but shares in Europe stalled.

Oil prices hovered above $86 a barrel as violent protests in the Middle East kept investors on edge about possible crude supply disruptions. In currencies, the dollar rose against the yen and the euro.

European bourses were mixed in early trading. Britain’s FTSE 100 was down 1.3 percent to 6,085.86, while Germany’s DAX was flat at 7,400.64. France’s CAC-40 rose 0.2 percent to 4,158.40.

In New York, Dow Jones industrial futures were up 7 points to 12,295 and S&P 500 futures rose marginally to 1,338.30 ahead of the opening bell.

Japan’s Nikkei 225 stock average rose 6.16 points to close at 10,842.80 _ ending at a 10-month high for the fifth session in a row, thanks in part to a growing appetite among foreign investors for Japanese shares. But a reinvigorated yen dragged down some exporters _ notably Toyota Motor Corp., down 0.6 percent; Hitachi Corp., down 0.4 percent; and Sony, lower by 0.7 percent.

South Korea’s Kospi jumped 1.8 percent to 2,013.32 with tech shares among the day’s best performers, including Samsung Electronics, up 0.6 percent and Hynix Semiconductor Inc. up 1 percent.

Benchmarks in Taiwan, Singapore and New Zealand also advanced.

“I think the lead overnight from the U.S. was pretty positive,” said Tey Tze Ming, a trader at Saxo Capital Markets in Singapore. “There’s more of a feel-good factor than anything else today” moving the markets.

While anti-government strife across the Middle East was having an impact on oil prices and currencies, Ming said equities were “a little slower to respond” to immediate news; the most recent developments _ including a violent crackdown on demonstrators in Bahrain on Thursday _ were not enough to fluster stock investors.

Meanwhile, China shares struggled amid the release of newly calculated data that showed property prices rose in most cities in January despite renewed efforts to cool the overheated market. Major developer China Vanke Co. Ltd. dropped 1.7 percent.

The National Statistics Bureau figures for 70 of the country’s largest cities showed prices declining from a year earlier in only two cities and unchanged in five. Compared with December, 10 cities saw increases of 10 percent or more. The benchmark Shanghai Composite Index dropped 0.9 percent to 2,899.79 while the Shenzhen Composite Index for China’s smaller, second market was down 1 percent at 1,273.42.

India’s benchmark Sensex index was also down.

Australia’s S&P/ASX 200 was flat at 4,936.70. Shares of ANZ Banking Group Ltd., one of Australia’s biggest banks, tumbled 3 percent despite reporting a 27 percent rise in first quarter profits. Investors reacted negatively to lackluster lending figures. In all, three of Australia’s four major banks saw stock prices drop.

In New York on Thursday, stocks finished higher after a strong manufacturing report overshadowed a bigger-than-expected rise in the number of people applying for unemployment benefits. Two stocks rose for every one that fell on the New York Stock Exchange.

The Dow Jones industrial average rose 29.97 points, or 0.3 percent, to 12,318.14. The Dow has been rising steadily and is up 3.6 percent for the month. One big gainer was Coca-Cola Co. _ up 1.8 percent after it announced that it increased its dividend.

The broader Standard & Poor’s 500 index rose 4.11, or 0.3 percent, to 1,340.43. The Nasdaq composite rose 6, or 0.2 percent, to 2,831.58.

Benchmark crude for March delivery was down 23 cents at $86.13 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.37 to settle at $86.36 on Thursday.

In currencies, the dollar fetched 83.36 yen, up from 83.33 yen late Thursday. The euro fell to $1.3584 from $1.3604.

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Home construction rose at the fastest rate in 20 months, pushed up by a spike in apartment building. But construction of single-family homes declined, a sign that demand for housing remains weak.

Builders broke ground on new homes and apartments at a seasonally adjusted annual rate of 596,000 units, a 14.6 percent jump from December.

Single-family homes, which make up nearly 70 percent of new construction, fell 1 percent to an annual rate of 417,000 units. Multifamily construction, a more volatile category, skyrocketed 80 percent to an annual rate of 171,000 units.

Last year, builders worked on 587,600 new homes, just barely better than the 554,000 started in 2009. In a healthy economy, builders start about 1 million homes a year. The housing industry is coming off the worst two years for home construction dating back to 1959.

Snowstorms that fell in most parts of the country likely slowed some construction last month. But Michael Gapen, senior U.S. economist with Barclays Capital, said home building is unlikely to see a turnaround until builders can sell off most of the homes sitting idle on the market and there are fewer foreclosures to compete with.

Economists are watching the pace of multifamily construction, which includes housing with five or more units, to see if it continues to rise throughout 2011.

“If the home ownership rate is falling back to normal levels, it’s fair to say we’d see an increase in rentals,” Gapen said. “That’s something we’re all watching but multifamily is very volatile and we will want to wait a few months to see where it goes.”

Millions of foreclosures have forced home prices down and more are expected this year. Tight credit has made mortgage loans tough to come by. And some potential buyers who could qualify for loans are hesitant to enter the market, worried that prices will fall further.

Building permits, an indicator of future construction, fell more than 10 percent in January. Code changes in California, Pennsylvania and New York caused an artificial spike the month before. Builders in those states rushed to file new permits before those changes went into effect in the new year.

The flat-lined housing market is weighing on the overall economic recovery. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Single-family home construction was uneven across the country, falling 12.8 percent in the Northeast and 7.7 percent in the South. It jumped 5.4 percent in the West and 25.5 percent in the Midwest.

The trade association reported Tuesday that its index of builder confidence remained stuck at 16 in February, where it has been for four straight months. A reading of 50 signifies a positive outlook about the future.

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