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All eyes on G20 for debt crisis response

By Vision Reporter

Added 2nd April 2009 03:00 AM

LONDON

The European Central Bank was expected to cut rates one more time on Thursday as world leaders met against a background of rising share markets, which were responding to hope that the giant US economy was reaching a bottom.

LONDON

The European Central Bank was expected to cut rates one more time on Thursday as world leaders met against a background of rising share markets, which were responding to hope that the giant US economy was reaching a bottom.

LONDON

The European Central Bank was expected to cut rates one more time on Thursday as world leaders met against a background of rising share markets, which were responding to hope that the giant US economy was reaching a bottom.

But the mood everywhere fell short of outright optimism, especially in Europe where the leaders of the world’s richest nations and biggest developing economies were meeting in London to address the financial crisis amid signs of division between the US and a French and German bloc.

The immediate focus was on the European Central Bank’s (ECB) meeting, and particularly on whether its policymakers would give a nod to quantitative easing, effectively printing more money to spur growth, as espoused by US and British counterparts.

A poll of analysts saw the ECB cutting its key interest rate by another 50 basis points to a record low of 1%, hoping to draw funding into banks, and trimming its overnight deposit rate by 25 basis points to just 0.25%.

The quantitative easing argument was harder to pin down, with a vast expansion of its balance sheet to buy government bonds much harder to do in the 16-country euro zone than in a single national context.

The euro jumped to session highs against the Swiss franc after SNB vice-president Philipp Hildebrand said the bank would use all means to prevent a further appreciation of the currency.

World leaders are set to impose new financial rules and come up with more funds for the IMF after France and Germany demanded they make good on promises to temper the worst economic crisis since the 1930s.

A communique drafted for the G20 summit said leaders would submit large hedge funds to supervision for the first time and enhance regulation through a new agency and a beefed-up International Monetary Fund.

As world leaders gathered, there were plenty of signs of how bad the global crisis had become, and growing debate over whether the worst of the downturn has passed.

US private sector job losses also accelerated more than expected in March, while in Japan a key survey on Wednesday showed business confidence had hit an all-time low in the world’s second-largest economy.

In Spain on Thursday data showed the number of people claiming jobless benefit continued to climb steeply in March and at a much higher rate than larger European economies during a fierce recession.

Data on Wednesday showed US, euro zone and British manufacturing had inched away from February’s lows, even though they remained negative.

A US index of pending home sales rose more than expected, and auto sales, while weak, were not as bad as expected, all of which hinted at improvement.

“There are a few spots where we can have hope,” said Juergen Michels, an economist at Citigroup in London.

In Britain, where the property market is key to consumer confidence, data from home loan company Nationwide showed house prices rose in March for the first time since October 2007, although the lender cautioned about jumping to conclusions about a housing market rebound.

Asian stocks climbed on hopes the US economy had bottomed out. If recession-weary US consumers and companies do not start spending again, a global recovery is unlikely.

In Europe shares rose on the tentative view that the economic downturn was moderating.

The FTSEurofirst 300 index of top European shares was up 3% to 767.77 points, on track for its third straight day of gains. But there remain plenty of concerns in the corporate sector with Swedish-Swiss engineering group ABB warning that base orders were deteriorating and that it expected volatility in commodities and currencies to hurt its profits this quarter.

ABB, which competes with peers like Germany's Siemens and Rockwell in America, said the environment remained challenging despite three large orders won in the first quarter.

In Japan the Nikkei share average rose 4.4% to its highest close in three months as carmakers pushed up on hopes for the US economy on better than expected data. Asian stocks outside Japan were up for a third straight day, rising 3.6%.

While the news about GM and smaller rival Chrysler has been almost universally bleak since US President Barack Obama rejected their restructuring plans on Monday, US auto sales in March also contained a glimmer of hope.

Although down 37% in March, their 17th straight month of declines, sales in the world’s largest car market had at least not been as bad as expected.
Reuters

All eyes on G20 for debt crisis response

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