OUTLOOK Highlights of US economic data to be released this week

WASHINGTON (Thomson Financial) - A synopsis of US economic indicators to be released this week, with forecasts provided by Thomson's IFR Markets.
MONDAY DECEMBER 17
The US current account deficit is expected to decrease to 184.4 bln usd in quarter three from 190.8 in quarter four. Economists from Bank of America said, "The decline in the trade value of the dollar, slowing domestic demand and forward economic momentum among our major trading partners continues to bring about an improvement in the current account balance."
The December Empire State manufacturing survey, which measures industrial conditions in the New York region, is expected to drop to 22.6 from 27.4 in November. Joseph Brusuelas from IDEAglobal said, "The sharp increase in the cost of energy and commodities should weigh heavily on the outlook of firms heading into the final month of the year."
The December NAHB Homebuilders sentiment survey is expected to be 19, the same as in November when it was a record low.
TUESDAY DECEMBER 18
The November US Housing starts are expected to drop to annual rate of 1.178 mln from 1.229 mln in October. "Unlike September and October, which were driven largely by volatility in multi-family starts, we think the bulk of the decline should come from single family starts," said economists from Credit Suisse. They noted that single family permits, a leading indicator for single family starts, had plummeted in October to their lowest level since November 1991. US building permits overall are expected to drop in November to an annual rate of 1.145 mln from 1.178 mln in October.
THURSDAY DECEMBER 20
The final GDP in the third quarter is projected to be unrevised from its previous estimate of 4.9 pct. Brusuelas said the projected Q3 growth is likely "inventory inspired." In the preliminary estimate of third quarter GDP, released November 29, inventories contributed nearly 1 percentage point to the 4.9 pct growth.
Brusuelas added: "Under normal circumstances, market players would be rejoicing with holiday cheer about possible momentum going into the New Year. However, the impending inventory correction and credit inspired reduction in fixed business investment will make the release of this market data an event that is decisively in the market's rearview mirror."
The final GDP Price index in the third quarter is also projected to be unrevised at 0.9 pct.
The number of people filing first time claims for unemployment insurance in the week ending December 15 is expected to increase to 335,000 from 333,000 in the previous week. The number of individuals who continued to receive unemployment insurance in the week ending December 8 is expected to drop to 2.60 mln from 2.64 mln in the previous week.
The Philadelphia Fed's index of manufacturing conditions in the district is projected to be 6.4 in December, following an 8.2 level in November.
FRIDAY DECEMBER 21
Personal income in November is expected to increase by 0.5 pct after increasing 0.2 pct in October. Personal consumption in November is also expected to increase by 0.6 pct, three times the rate it rose in October.
However, economists from BNP Paribas said the projected increase is "illusory as nearly all of the gain in the goods portion is due to the sharp increase in gasoline prices and therefore gasoline sales. Excluding gasoline sales, total goods sales are seen as lacklustre in November as they were in October."
The core PCE price index in November is expected to increase by an annual rate of 2.0 pct, slightly above the 1.9 pct increase in October. Robert Brusca from FAO Economics said that given the Core CPI figure released December 14 by the Labor Department, "you have to figure that pressure passes on to the PCE core." Core CPI, which rose in November by 0.3 pct, was moderate in comparison to the 0.8 pct increase in headline CPI but still out of the comfort zone of many economists.
Given risks to inflation, the Federal Reserve is "probably fairly content" with their lower than expected quarter point cut to the discount rate earlier this week.
The University of Michigan consumer sentiment index in December is projected at a level of 74.8, slightly above November's 74.5 level. "Outside of energy, consumers have been struggling with continued housing weakness, financial market uncertainty and tighter credit, which should keep confidence low," said economists from Lehman Brothers.

Singapore non-oil exports fall for first time in 7 months in November - UPDATE

SINGAPORE (Thomson Financial) - Singapore's non-oil domestic exports fell for the first time in seven months in November as
shipments of both electronics and pharmaceuticals dropped, the government said Monday.
Non-oil domestic exports dropped 3.4 percent to 14.6 billion Singapore dollars last month from a
year earlier. International Enterprise Singapore said.
The decline was unexpected. Economists polled by Thomson Financial were looking at growth of between 1.6 and 4.5 percent. The last time exports dropped was in April when they were down 0.4 percent.
The poor data for November may mean that full-year growth may come in below the
government's forecast range of 4-6 percent, said Song Seng Wun, regional economist at CIMB-GK.
For the 11 months to November, exports have grown by an average 2.9 percent.
But the overall economy is still on track to grow by a strong 8 percent, said Song.
"The 8 percent is still intact mainly because of contribution from services and domestically oriented economic activities," he said.
Exports of electronics, which made up nearly 41 percent of the total, dropped for the tenth consecutive month. Shipments fell 8.2 percent to 5.96 billion dollars as exports of integrated
circuits, telecommunications equipment, and PC parts remained slow.
Non-electronics shipments inched up a marginal 0.2 percent to 8.66 billion dollars. A 21 percent decline in pharmaceutical exports offset an increase in shipments of specialized machinery, nonmonetary gold, electrical machinery and primary chemicals.
Seasonally adjusted, non-oil domestic exports were down 6.0 percent in November from the
previous month compared to a 0.5 percent decline in October.
Shipments to EU countries and Indonesia fell during the month, while those bound for the US, China, Malaysia and Hong Kong grew.
Exports to the EU fell 32 percent and those bound for Indonesia, were down 6.8 percent, falling for the seventh straight month.
Shipments to the US rose 0.5 percent, those to China increased 0.6 percent, those to Malaysia expanded 1.2 percent, and those to Hong Kong grew 11 percent.

Qatar To Shun Dollar Delink Amid IMF Inflation Concerns - QNA

DUBAI (Zawya Dow Jones)--Qatar will keep its peg to the U.S. dollar, the Gulf state's central bank governor Sheikh Abdullah bin Saud Al Thani said in a statement to the official Qatar News Agency. The comment came after the International Monetary Fund said a delink from the weakening dollar would be one way for the Persian Gulf emirate to fight inflation. "The peg to the U.S. dollar would be kept to serve the interest of the Qatari economy and to maintain financial and monetary stability," Al Thani said Sunday. In November, the Qatar's riyal hit a five-year high as investors bet that Gulf Cooperation Council central banks would delink or revalue against the greenback. "The dollar's decline in the past two years compared to other major currencies does not change the fundamentals that support the riyal's peg to the dollar," Sheikh Abdullah said. He added Qatar's annual inflation rose to between 12-13% in the past two years mainly due to "local considerations resulting from economic growth and it does not justify a change of exchange rate strategy." The IMF said Friday although its economic outlook for Qatar was bright due to high oil prices, the Persian Gulf state was at risk from inflation. "A few directors suggested that consideration be given to moving to a more flexible exchange rate regime to help curb inflationary pressures," the IMF said in a statement. Inflation levels in the Persian Gulf state are nearing a record high of 15%.

Malaysia sees 2007 budget deficit narrowing to 3.2 percent of GDP - UPDATE

KUALA LUMPUR (Thomson Financial) - Malaysia's budget deficit will narrow to 3.2 percent of gross domestic product this year from 3.3 percent in 2006, Second Finance Minister Nor Mohamed Yakcop said Monday.
The deficit is expected to fall even though the government has stepped up development spending before the next general election, which is widely expected to be held early next year.
The government has pledged to spend up to 200 billion ringgit under the Ninth Malaysia Plan, its five-year development blueprint which runs through 2010.
Nor Mohamed said the budget deficit will narrow further to 3.1 percent of GDP in 2008.
"We have given a commitment to reduce the budget deficit since the deficit hit a high of 5.5 percent in 2000 due to the extra spending following the Asian financial crisis," Nor Mohamed said.
The economy is expected to remain resilient despite volatile external conditions such as high oil prices because the domestic economy has diversified, the minister said.
"Even in terms of exports, we have diversified away from reliance on one or two countries by increasing our exports to other countries," Nor Mohamed said.
"We are quite resilient in meeting the challenges of the international economy."
The US is Malaysia's largest trading partner.
On the inflation outlook, Nor Mohamed said government will continue to contain inflation and ensure that the inflation rate remains benign.
The inflation rate will stay between 2.0 percent and 2.5 percent next year, the minister said recently.
(1 US dollar = 3.32 ringgit)

Japan October leading index revised down to 18.2 from initial estimate of 20.0

TOKYO (Thomson Financial) - Japan's index of leading economic indicators for October has been revised down to 18.2 from the initial estimate of 20.0, according to government data released Monday.
In September, the index hit zero for the first time since December 1997.
The index of leading economic indicators stayed below the boom-and-bust line of 50 for the second straight month because of unstable financial markets, worry about profit margins and a decline in consumer confidence.
In June and July, the index was above 50 for the first time since June 2006.
A reading above 50 indicates economic expansion over the next 3-6 months, while a reading below 50 suggests contraction.
The leading index is based on 12 indicators, of which data for 11 were available for the revision, with two pointing to expansion and nine pointing to contraction.
The coincident index, which measures the current state of the economy, was revised up to 70.0 from the initial estimate of 66.7.
The coincident index is composed of 11 indicators, of which 10 were available for the revision, with seven pointing to expansion and three pointing to contraction.
The lagging index was revised down to 60.0 from the preliminary reading of 75.0.
This index is made up of six indicators, of which data for five were used in the latest figure, with three pointing to expansion and two to contraction.
(1 US dollar = 113.15 yen)

Forex - Dollar dips vs euro, yen on view appreciation may have been too quick

HONG KONG (Thomson Financial) - The US dollar slipped against the euro and the yen in afternoon trade in Asia on Monday as
investors deemed the greenback's appreciation last week as excessive, prompting them to take
profit.
"While I have expected the dollar to appreciate, I was a bit surprised that it moved too quickly,"
said Mark Wan, chief analyst at Hang Seng Investment Services Ltd. "The dollar's weakness is just a technical correction."
At 1.00 pm (0500 GMT), the euro was trading at 1.4440 dollars, up from 1.4413 in Sydney this morning and from 1.4430 in late New York trade Friday. The dollar extended its gains versus the euro this morning after rising 1.5 percent on Friday.
The dollar was quoted at 113.03 yen, down from 113.275 this morning and from 113.28 on Friday. The dollar rose nearly 1 percent versus the Japanese currency on Friday.
But the dollar's decline should be short-lived and will probably edge higher against major
currencies towards the end of the year, Wan said.
"By the end of this month, the dollar can get stronger against the euro and will move past the 1.43 level because the US economy is not as bad as it seems. The decision of the US, Europe and other central banks to infuse liquidity into the system will support the dollar," Wan said.
The Federal Reserve last week joined the European Central Bank, the Bank of England, Swiss National Bank and Bank of Canada in easing the global credit crunch by engaging in currency swaps and expanding the range of collaterals they would accept to back up loans.
The dollar rose against major currencies Friday after the inflation rate in the US accelerated in November to the highest in more than two years, raising speculation that the Federal Reserve may no longer reduce its key interest rates as earlier anticipated.
"The dollar is benefiting from the paring back of expectations of a more aggressive Fed rate cuts," said David Mann, currency strategist at Standard Chartered Bank. "But it was just a temporary bounce, as the Fed will continue cutting interest rates."
Standard Chartered predicts the Fed will lower rates further by 50 basis points in the first half of 2008. And unlike Hang Seng, StanChart is betting on a weaker dollar at least until the end of this
month.
"This is not yet the beginning of the dollar's recovery that we are anticipating. Overall, the trend is for a weaker dollar over the short term," Mann said.
Consumer price data released Friday showed US inflation rose to a two-year high of 0.8 percent in November, an ominous reading at a time when the economy is slowing.
The Asian Development Bank is forecasting US growth of 2.2 percent this year and 1.9 percent in 2008, less than the 2.9 percent expansion posted in 2006.
The Fed has lowered its federal funds rate target by one percentage point this year, including the quarter-point reduction announced last week.
Hong Kong 1.00 pm (0500 GMT)
US dollar
113.03 yen
1.1518 sfr
Euro
1.4440 usd
163.23 yen
1.6636 sfr
0.7150 stg
Sterling
2.0192 usd
228.23 yen
2.3259 sfr
Australian dollar
0.8618 usd
0.4268 stg
97.44 yen
New Zealand dollar
0.7615 usd

OPEC MEETING Qatar does not see any need for more OPEC oil UPDATE

ABU DHABI (Thomson Financial) - Qatar's oil minister Abdullah Hamad al-Attiyah said he does not see any need for more OPEC oil as he arrived in Abu Dhabi for the cartel's meeting tomorrow.
Asked by reporters if OPEC will increase production, he said: "If there is a need (to increase production), but I don't see that there is any need."
Al-Attiyah also said: "The International Energy Agency (is) forecasting that there will be lower demand so we have to believe that," adding that he was not "feeling there is panic for extra supply."
Qatar oil production currently stands at 803,000 bpd, according to the OPEC website.
"I think now we are thinking about the number (quota) we agreed last Vienna meeting. So far this is what we believe should be the level."
He also affirmed that he is happy with current output levels, saying, "this is my opinion."
At the Vienna OPEC meeting, the cartel agreed to raise output by 500,000 bpd, beginning Nov 1.
Asked by reporters about the current price of oil, he said" "I never comment about oil prices, this is a market force."
"I talk about demand and supply. This is the most important thing we are thinking about," he added.

Italy 2008 advertising spending seen up 2.9 pct vs 2.8 pct in 2007 UPDATE

MILAN (Thomson Financial) - Nielsen Media Research said it expects Italian advertising spending to rise 2.9 pct in 2008 compared to an estimated rise of 2.8 pct in 2007.
The research company said it expects advertising revenue for daily newspapers to rise 0.1 pct in 2008, to rise 1.4 pct for magazines, 2.4 pct for television, 3.8 pct for radio, 0.3 pct for billboards, 0.7 pct for cinemas, and 33.1 pct for internet.
The data for dailies and internet do not include local advertising. Including local advertising, the increase is 0.7 pct for newspapers and 33.6 pct for internet, Nielsen said.
The research group calculated that by extending the panel to advertising on satellite television, digital television, free newspapers and research engines, the Italian advertising market will rise an estimated 3.9 pct next year.
In 2007, advertising revenue for daily newspapers is expected to rise 3.5 pct, to rise 2.7 pct for magazines, to increase 0.9 pct for television, to grow 6.2 pct for radio, to increase 0.5 pct for billboards, to drop 9.7 pct for cinemas, and to jump 40.6 pct for internet.
Advertising spending is expected to reach about 8.8 bln eur in 2007.

Lithuania PM: Aiming For Euro By 2010-2011 - AFP

VILNIUS (AFP)--Lithuania could join the euro zone by 2010 or 2011 after reining in inflation, which has proven the key hurdle to entry, Prime Minister Gediminas Kirkilas said Tuesday. "If we apply our fiscal discipline plan scrupulously, we will meet the convergence criteria and I think Lithuania will be able to join the euro zone in the time frame of 2010 to 2011," Kirkilas said in an interview with Lithuanian radio. "Inflation should fall to 6.5% in the middle of next year, and the falling trend should then continue," he said. Lithuania's 12-month inflation rate jumped to 7.6% in October from 7.1% in September and 5.5% in August. Average annual inflation, one of the key indicators for countries wishing to join the euro zone, also continued its steady climb, rising to 5.1% in October from 4.8% the previous month. Lithuania joined the E.U. in 2004, 13 years after winning back its independence from the crumbling Soviet Union. It had planned to switch from its national currency, the litas, to the euro from the beginning of this year. But the bloc's executive body, the European Commission, barred the Baltic state after it failed to meet E.U.-set inflation criteria by one-tenth of a percentage point. Curbing inflation is a key plank of the E.U.'s "convergence" criteria for would-be members of the euro zone, which currently comprises 13 countries. Lithuania's Baltic neighbors Latvia and Estonia have also had to put their euro-zone plans on hold after failing to dampen inflation.

ICSC-UBS Chain Store Sales Down 2.0% In Dec 1 Week

NEW YORK (Dow Jones)--The International Council of Shopping Centers-UBS Retail Chain Store Sales Index fell by 2.0% in the week to Dec. 1 from its level a week before, on a seasonally-adjusted, comparable store basis. This result Tuesday followed a 0.1% decline in the prior week. "With the first full week of holiday shopping completed, retailers once again are seeing mixed results," the ICSC said in a statement. Retailers saw sales increase by 3.1% year-on-year, compared with a rise of 2.5% the prior week, but saw a "hefty" sales decline on a weekly basis, the Council said.

Foreign Exchanges - Continental Forward Rates

LONDON (Thomson Financial) -
Foreign Exchanges - Continental Forward Rates
Euro
1 Month 10.00 - 13.00 dis
2 Months 19.00 - 23.00 dis
3 Months 27.00 - 31.00 dis
6 Months 51.00 - 56.00 dis
12 Months 86.00 - 95.00 dis
Denmark
1 Month 23.00 - 9.00 prm
3 Months 53.00 - 29.00 prm
Norway
1 Month 15.00 - 2.00 prm
3 Months 26.00 - 4.00 prm
Sweden
1 Month 26.00 - 14.00 prm
3 Months 64.00 - 45.00 prm
Japan
1 Month 116.00 - 102.00 prm
3 Months 313.00 - 292.00 prm
Switzerland
1 Month 87.00 - 73.00 prm
3 Months 229.00 - 202.00 prm
Canada
1 Month 34.00 - 24.00 prm
3 Months 83.00 - 63.00 prm

A 25 basis point rate cut a certainty again after release of FOMC minutes

NEW YORK (Thomson Financial) - A 25 basis point rate cut in December was a certainty again after the release of the minutes from the Federal Reserve's last policy setting meeting, which indicated that nearly all of the voting members saw "substantial downside risks to the economic outlook."
December fed funds futures were down 0.01 at 95.675, which implied a 109% chance of that the Fed would lower its target for overnight rates by 25 basis points to 4.25%, and a 54% chance they would cut it to 4%.
Prior to the release of the minutes of the Federal Open Market Committee meeting, the December contract had hit an intraday low of 95.635, which implied only an 84% chance of a 25 basis point rate cut. Futures fell after the Financial Times reported that the Fed would indicate that it expected the U.S. economy to pull through the current economic rough patch and regain strength in 2008.
Late Monday, the odds of a 25 basis point cut was 115%.
The Fed's minutes said that "nearly all" of the voting members thought that monetary policy was "somewhat restrictive" partly because of tighter credit conditions, but indicated that the rate cut was a close call. The minutes suggested that the Fed was less concerned about inflation than about growth.

WASHINGTON (Dow Jones)--U.S. Federal Reserve officials generally expect a soft-landing scenario with moderate economic growth, stable inflation and lo

WASHINGTON (Thomson Financial) - The ongoing credit crunch has forced Federal Reserve governors and reserve bank presidents to drastically cut their real GDP growth projections for the US economy in 2008, although they still expect growth to rebound by 2010 to roughly the same level as 2007.
In its first three-year economic forecast released today, the Fed slashed its forecast for real GDP growth in 2008 to 1.80-2.50 pct, down from its June estimate of 2.50-2.75 pct.
"These revisions to the 2008 outlook since June stemmed from a number of factors, including the tightened terms and reduced availability of sub-prime and jumbo mortgages, weaker-than-expected housing data, and rising oil prices," the Fed said.
At the same time, the Fed cut its core inflation expectation for 2008 to 1.70-1.90 pct, down from 1.75-2.00 pct.
For the first time, the Fed made an estimate for headline inflation, which includes volatile food and energy prices that are removed from the core number. The Fed sees 2008 headline inflation at 1.80-2.10 pct.
Several economists and some Fed governors -- including Chairman Ben Bernanke himself -- have noted the increased risks that rising oil prices might pose to overall inflation, and some have said the Fed needs to add headline inflation to the data it monitors for this reason.
The Fed's specific expectations for GDP and inflation in 2008 are new, but largely in line with its more general pronouncements earlier this year that 2008 growth would be slower than 2007.
Despite the lower GDP predictions for 2008, the Fed made a slight upward revision to its GDP predictions for this year, to 2.40-2.50 pct from its earlier forecast of 2.25-2.50 pct.
The report also cut 2007 core inflation expectations to 1.80-1.90 from 2.00-2.25 pct. The Fed sees headline inflation this year in the range of 2.90-3.00 pct.
Looking beyond next year, the Fed says it sees both core and headline inflation in the range of 1.60-1.90 pct in 2010. Some economists have said the Fed's three-year inflation expectations could be seen as the Fed's target for inflation.
For growth, the Fed expects real GDP to rebound in 2009 to 2.30-2.70 pct, and then 2.50-2.60 pct in 2010. The Fed said it expects this growth to return as the housing market rebounds.
The forecast sees unemployment holding steady between 4.70 and 4.90 pct from 2007 to 2010. That's higher than the 4.25-4.75 pct range the Fed originally forecasted for 2007, and the 4.75 pct forecast for 2008.
The Fed earlier this month said its economic forecasts would extend to three years ahead, rather than the traditional two-year forecast.
The Fed's first three-year economic forecast included a new section outlining the perceived risks to the economic outlook, which said most Fed participants believe there are downside risks to the GDP outlook, mostly due to ongoing problems in the credit markets.
"The possibilities that markets could relapse or that current tighter credit conditions could exert unexpectedly large restraint on household and business spending were viewed as downside risks to economic activity," the report said.
It added that many are worried further economic weakness would lead to even tighter credit conditions and "slow the economy further."
The report said participants noted the risk of a "severe contraction" in the housing sector, but said the US economy "had proved quite resilient to episodes of financial distress," which suggests only a modest decline.
Elsewhere, the report said most participants believe there has been a modest decline in inflation this year, although they noted rising energy and commodity costs are a risk to this expectation.
Fed participants also said that the uncertainty surrounding their GDP forecast is "above typical levels in the past," although it said the uncertainty related to the inflation forecast was "broadly in line with past experience."
The Fed last week said it would provide an analysis on the level of uncertainty associated with these predictions, as part of its effort to bring transparency to its forecasts. In a separate paper released today, the Fed said "uncertainty about the economic outlook is considerable," but said that using a wide range of data allows predictions to be made with some certainty.
For example, it noted that about 70 pct of all historical outcomes have fallen within a one percentage point range of the predicted outcomes, and said looking at a wide range of forecasts therefore allows some certainty.
"Average differences in predictive performance across the forecasters in our sample are small, suggesting that we can use information gathered from a range of sources to help gauge the average magnitude of past uncertainty," the paper said.
The Fed noted that the uncertainty about real GDP growth in particular led to more diverse views among participants than there was in June. Differing views "seemed largely to reflect differing assessments of the likely depth and duration of the correction in the housing market," and other factors like whether the housing turmoil would spread to other sectors of the economy.
The Fed also noted differing views on where inflation is headed, in particular the question of whether inflation expectations are well-anchored in the US.

UPDATE: Fed Sees Moderate Growth, Low Inflation Through '10

WASHINGTON (Dow Jones)--U.S. Federal Reserve officials generally expect a soft-landing scenario with moderate economic growth, stable inflation and low unemployment through 2010, though they acknowledged that greater uncertainty surrounds their growth forecasts. The forecasts, released for the first time Tuesday under the Fed's new quarterly release schedule and three-year forecast horizon, also suggest that officials have grown more pessimistic about the economy's ability to achieve the type of rapid, noninflationary growth that it did in the late 1990s and early this decade. They also signal that officials have an informal inflation goal of a little less than 2% over the medium term. Federal Open Market Committee members lowered their 2008 gross domestic product growth forecast to between 1.8% and 2.5% from their previous forecast in June of 2.5% to 2.75%, the Fed said Tuesday. That downward revision "stemmed from a number of factors, including the tightened terms and reduced availability of subprime and jumbo mortgages, weaker-than- expected housing data, and rising oil prices," the Fed said in a statement accompanying its forecasts. FOMC forecasts used to be released twice a year with a two-year horizon. They are presented as a central tendency, meaning the highest three and lowest three of FOMC members' forecasts were excluded. The range of GDP forecasts for next year varied widely, from 1.6% to 2.6%. "The dispersion of participants' projections for growth next year seemed largely to reflect differing assessments of the likely depth and duration of the correction in the housing market, the effect of financial market disruptions on real activity outside of the housing sector, and the speed with which financial markets will return to more normal functioning," the Fed said. The FOMC sees GDP this year up 2.4% or 2.5%, suggesting that after robust growth in the second and third quarters, officials foresee a marked slowdown this quarter to only around 1.5%. The Fed expects GDP to grow between 2.3% and 2.7% in 2009 and 2.5% to 2.6% in 2010. Wall Street economists are eying the 2010 forecasts as a proxy for how fast the Fed thinks the economy can grow over the long run without boosting inflation. Growth in the 2.5% to 2.6% range is well below previous estimates of the economy's growth potential that once exceeded 3%. Indeed, even growth in the mid-2% range should keep the unemployment rate below 5%, according to the Fed's forecasts, another indication that officials think the growth potential is lower now. Inflation is expected to stay under wraps, with the Fed's preferred inflation gauge - the price index for personal consumption expenditures excluding food and energy - rising between 1.8% and 1.9% this year and 1.7% to 1.9% in 2008. Both of those forecasts were lower than in June. Officials expect core inflation to hover between 1.7% and 1.9% in 2009 and 1.6% to 1.9% in 2010. As is the case with GDP, the Fed's 2010 inflation forecasts will be viewed by Wall Street as an unofficial inflation target. "Participants' projections further out were also influenced by their views about the rate of inflation consistent with the Federal Reserve's dual mandate," the Fed stated. Annual core PCE growth is currently within that 1.6% to 1.9% range, at 1.8% through September. Officials also expect headline PCE to be between 1.6% and 1.9% in 2010, though headline PCE is expected to top the core this year and next as energy prices remain elevated. The range of forecasts for core PCE was much narrower than the variance in GDP forecasts. "The uncertainty attached to participants' inflation projections was generally viewed as being broadly in line with past experience," the Fed stated, while uncertainty was greater than usual for GDP. Officials also advised that their economic and inflation forecasts not be taken too literally. "Considerable uncertainty attends these projections," the Fed said, while "the future path of the economy can be affected by myriad unforeseen developments and events."

Fed cuts 2008 GDP growth forecast to 1.80-2.50 pct from 2.25-2.75 pct

WASHINGTON (Thomson Financial) - The ongoing credit crunch has forced Federal Reserve governors and reserve bank presidents to drastically cut their real GDP growth projections for the US economy in 2008, although they still expect growth to rebound by 2010 to roughly the same level as 2007.
In its first three-year economic forecast released today, the Fed slashed its forecast for real GDP growth in 2008 to 1.80-2.50 pct, down from its June estimate of 2.50-2.75 pct.
"These revisions to the 2008 outlook since June stemmed from a number of factors, including the tightened terms and reduced availability of sub-prime and jumbo mortgages, weaker-than-expected housing data, and rising oil prices," the Fed said.
At the same time, the Fed cut its core inflation expectation for 2008 to 1.70-1.90 pct, down from 1.75-2.00 pct.
For the first time, the Fed made an estimate for headline inflation, which includes volatile food and energy prices that are removed from the core number. The Fed sees 2008 headline inflation at 1.80-2.10 pct.
Several economists and some Fed governors -- including Chairman Ben Bernanke himself -- have noted the increased risks that rising oil prices might pose to overall inflation, and some have said the Fed needs to add headline inflation to the data it monitors for this reason.
The Fed's specific expectations for GDP and inflation in 2008 are new, but largely in line with its more general pronouncements earlier this year that 2008 growth would be slower than 2007.

Fed saw economy slowing even with 'close call' October 31 rate cut

WASHINGTON (Thomson Financial) - The decision for a quarter-point interest rate cut was a "close call" for many members of the Federal Open Market Committee on October 31, but even with that "further easing," they still expected economic growth to slow over the next few quarters.
The FOMC debated the "relative merits" of a quarter-point reduction in the Fed funds target rate to 4.5 pct versus "awaiting additional information on prospects for economic activity and inflation" before making a decision, according to the meeting minutes released today.
"On balance, nearly all" of the FOMC members decided the current stance of monetary policy was "somewhat restrictive," partly because of tighter credit conditions.
Most of them also saw "substantial downside risks to the economic outlook" and thought a second rate cut--after the half-point in September -- "would provide valuable additional insurance against an unexpectedly severe weakening in economic activity."
The one exception to that "nearly all" was Kansas City Federal Reserve Bank President Thomas Hoenig who voted for no change. He believed "inflation risks appeared elevated," felt that the Fed funds rate, then at 4.75 pct, was "close to neutral." The minutes said Hoenig thought monetary policy should be "slightly firm to better hold inflation in check."
Despite the FOMC's description of the risks to growth and inflation as balanced in its post-meeting statement, the minutes show somewhat less concern about inflation than about growth.
Core inflation reports had been "generally favorable," and the FOMC "agreed that the recent moderation in core inflation would likely be sustained." Going forward, they thought inflation would "edge down over the next few years."
Nonetheless, the minutes said, "recent increases in the prices of energy and other commodities, along with the significant decline in the dollar," were clearly factors that could "exert upward pressure on prices of some core goods and services."
Several of the FOMC participants saw "some relapse in financial conditions" leading up to the meeting. The general view was that markets were "fragile" and the FOMC was "concerned that an adverse shock -- such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses -- could further dent investor confidence and significantly increase the downside risks to the economy."
Hoenig pointed out, according to the minutes, that the Fed could act as needed if new liquidity problems appeared in the financial markets, and "preferred to wait, watch and be ready to act depending on how events developed."
Though there was "scant evidence" of spillover effects from housing into the rest of the economy, Fed members were also worried about "notable declines" in consumer confidence.
They worried that falling home prices, rising gasoline prices and tighter credit could further sap consumer confidence and cause a bigger pullback in spending.
The FOMC saw the chance of "significant further weakening in housing activity and home prices." Tighter credit and a rise in foreclosures could intensify the downward pressure on house prices.

Fed Econ Forecasts Suggest Moderate Growth, Low Inflation

WASHINGTON (Dow Jones)--Federal Reserve officials generally expect a soft-landing scenario with moderate economic growth, stable inflation and low unemployment through 2010, though they acknowledged that greater uncertainty surrounds their growth forecasts. The forecasts, released for the first time Tuesday under the Fed's new quarterly release schedule and three-year forecast horizon, also suggest that officials have grown more pessimistic about the economy's ability to achieve the type of rapid, noninflationary growth that it did in the late 1990s and early this decade. They also signal that officials have an informal inflation goal of a little less than 2% over the medium term. Federal Open Market Committee members lowered their 2008 gross domestic product growth forecast to between 1.8% and 2.5% from their previous forecast in June of 2.5% to 2.75%, the Fed said Tuesday. That downward revision "stemmed from a number of factors, including the tightened terms and reduced availability of subprime and jumbo mortgages, weaker-than- expected housing data, and rising oil prices," the Fed said in a statement accompanying its forecasts. FOMC forecasts used to be released twice a year with a two-year horizon. They are presented as a central tendency, meaning the highest three and lowest three of FOMC members' forecasts were excluded. The range of GDP forecasts for next year varied widely, from 1.6% to 2.6%. "The dispersion of participants' projections for growth next year seemed largely to reflect differing assessments of the likely depth and duration of the correction in the housing market, the effect of financial market disruptions on real activity outside of the housing sector, and the speed with which financial markets will return to more normal functioning," the Fed said. The FOMC sees GDP this year up 2.4% or 2.5%, suggesting that after robust growth in the second and third quarters, officials foresee a marked slowdown this quarter to only around 1.5%. The Fed expects GDP to grow between 2.3% and 2.7% in 2009 and 2.5% to 2.6% in 2010. Wall Street economists are eying the 2010 forecasts as a proxy for how fast the Fed thinks the economy can grow over the long run without boosting inflation. Growth in the 2.5% to 2.6% range is well below previous estimates of the economy's growth potential that once exceeded 3%. Indeed, even growth in the mid-2% range should keep the unemployment rate below 5%, according to the Fed's forecasts, another indication that officials think the growth potential is lower now. Inflation is expected to stay under wraps, with the Fed's preferred inflation gauge - the price index for personal consumption expenditures excluding food and energy - rising between 1.8% and 1.9% this year and 1.7% to 1.9% in 2008. Both of those forecasts were lower than in June. Officials expect core inflation to hover between 1.7% and 1.9% in 2009 and 1.6% to 1.9% in 2010. As is the case with GDP, the Fed's 2010 inflation forecasts will be viewed by Wall Street as an unofficial inflation target. "Participants' projections further out were also influenced by their views about the rate of inflation consistent with the Federal Reserve's dual mandate," the Fed stated. Annual core PCE growth is currently within that 1.6% to 1.9% range, at 1.8% through September. Officials also expect headline PCE to be between 1.6% and 1.9% in 2010, though headline PCE is expected to top the core this year and next as energy prices remain elevated.

Dollar gives up previous gains

NEW YORK (AP) - The dollar lost some gains made the previous day as traders tried to figure out Tuesday whether another interest rate cut was in the works.
The dollar resumed its skid against the euro, as the 13-nation currency rose as high as $1.4633 before settling back to $1.4596 in late afternoon trading.
The euro still traded above the $1.4554 it was worth in New York late Monday, when it lost more than a cent as investors, wary of market turmoil, backed away from investing in high-yielding currencies.
The dollar also fell against the pound, as the British currency rose to $2.0674 from $2.0595.
The dollar climbed to 110.69 yen from 110.05 yen, but fell to 1.1265 Swiss francs from 1.1282 Swiss francs Monday.
Meanwhile, the Canadian dollar edged up to $1.0373 Tuesday from $1.0368.
The dollar is suffering from speculation that the U.S. Federal Reserve, which recently cut interest rates twice, may keep doing so even as its major European counterparts and the Bank of Japan have left interest rates unchanged.
Although lower interest rates can jump-start an economy, they can also weaken a currency as investors transfer funds to countries where they can earn higher returns.

Treasurys lower as stocks mend

NEW YORK (AP) - Treasury prices dropped Tuesday as investors sought bargains in a stock market that has been badly bruised in recent weeks by credit and economic worries.
Although stocks have been out of favor of late, better-than-expected earnings news from Wal-Mart Stores Inc. and lower oil prices emboldened investors to venture back into that market. There was mild selling of Treasurys to free up funds for a boisterous stocks rally that at one point sent the Dow Jones industrial average more than 200 points higher.
"This is all just a reaction to the stock market," said Alan Tedford, fixed-income portfolio manager at Stephens Capital.
The benchmark 10-year Treasury note fell 14/32 to 99 30/32 with a yield of 4.26 percent, up from 4.22 percent late Friday. Prices and yields move in opposite directions. The bond market was closed for Veterans Day on Monday.
The 30-year long bond was unchanged at 106 10/32 with a yield of 4.61 percent, also unchanged from late Friday.
The 2-year note lost 8/32 to 100 6/32 with a yield of 3.53 percent, up from 3.42 percent late Friday.
The yield on the 3-month note rose to 3.47 percent from 3.27 percent and the discount rate increased to 3.39 percent from 3.19 percent Friday.
After the close of trade the National Association of Realtors said its pending home sales index, which tracks home sale contracts signed but not completed, rebounded 0.2 percent to 85.7 in September.
The improvement could be seen as an indication that housing sales may be set to rebound.
The Realtors' group, however, also forecast that existing home sales will decline to a five-year low in 2007, and said the outlook for 2008 is worsening. The housing crisis has put pressure on many asset classes, but it has helped build demand for Treasurys and other safer assets.
The corporate bond market recovered Tuesday alongside the stock market. In recent weeks, the two markets have moved in lockstep and both were under severe pressure last week. However, on Tuesday there were a number of new corporate bond offerings for such companies as United Healthcare Inc. FIServe Inc., Potomac Electric and others.
The bond market remains focused on learning the extent of damage to the economy done by weakness in housing and the credit markets. These problems have stirred extremely strong demand for assets like Treasurys, which are perceived as safe because they carry a government guarantee.
Stephens Capital's Tedford said the market's focus could switch to inflation later this week. The Labor Department's October producer and consumer price reports are due Wednesday and Thursday. Both are expected to show large gains in headline inflation due to the soaring oil price.
If the gains in inflation are very large, they will put pressure on the Federal Reserve not to cut interest rates further, following cuts totaling 0.75 percentage point in September and October. Investors are hoping for further rate cuts to stimulate capital markets.
Earlier the Treasury Department said it ran a $55.6 billion deficit in October, the start of the government's fiscal year.

Canada Afternoon: C$ Up Moderately As Risk Aversion Subsides

TORONTO (Dow Jones)--The Canadian dollar ended moderately higher, but well off its earlier highs, Tuesday as investors became less concerned about risk, and the U.S. dollar retreated against several major currencies. The U.S. dollar was trading at C$0.9637 at 3:41 p.m. EST (2041 GMT), from C$0.9540 at 8:00 a.m. EST (1300 GMT), and from C$0.9669 late Monday. The U.S. dollar slumped as low as C$0.9527 in overnight dealings but regained considerable ground in North American activity. Some of the Canadian dollar's recovery Tuesday from lows touched in illiquid trading during the Remembrance Day holiday Monday resulted from a return to more normal trading conditions, market watchers said. "To an extent, it reflects the return of full trading desks and the unwinding of some of the volatility from yesterday," said David Watt, senior currency strategist at RBC Capital Markets. "Yesterday, it was like the yen had its day, and the U.S. dollar had its day. But the fundamentals under the yen remain abysmal, and the fundamentals under the U.S. dollar remain abysmal," Watt said. "It didn't take much to tilt the balance back towards carry trades and the cyclically sensitive currencies." On Tuesday morning, senior Canadian finance official said Canada has borne the brunt of the U.S. dollar's adjustment as the latter weakens against global currencies. Canadian Finance Minister Jim Flaherty will deliver that message to his G-20 counterparts and central bank governors when they meet in Cape Town, South Africa this weekend, the official said at a briefing, speaking on condition of anonymity. Some market watchers said those remarks contributing to selling pressure on the Canadian during in morning trading. RBC's Watt said the Canadian dollar is prone to underperform other currencies in the coming sessions if oil prices continue their retreat. "That's been one of the big things that's supported the Canadian dollar recently is that, no matter what happened, oil seemed to be surging towards $100. That seems to be coming off, to an extent," he said. But underperformance against other non-U.S. dollar currencies could be perfectly acceptable to Canadian authorities in the context of the finance official's comments Tuesday. "Given Canada's newfound concern about China and the Canadian dollar carrying bearing the burden of global imbalances, it's not a thing the Bank of Canada or the Canadian government are going to be terribly upset with, right now," Watt said. The Canadian currency's short term direction closely tied to oil prices, and overall perceptions of risk among global financial markets players, he said. Investors appear to be questioning the extent to which Canada can decouple from the U.S. economy, he added. "To an extent, it's like people don't have their blinders are now. They are exposed to both sides of the argument about the Canadian dollar," Watt said. "We could still do better over the next few days, but I don't think we're going to shoot the lights out," he said. There were no significant data releases Tuesday. On Wednesday, the leading indicator for October and new motor vehicle sales for September will be released. These are the exchange rates at 3:41 p.m. EST (2041 GMT), 8:00 a.m. EST (1300 GMT), and late Monday.

USD/CAD 0.9637 0.9540 0.9669
EUR/CAD 1.4054 1.3931 1.4068
CAD/JPY 115.14 115.39 113.80

Mexico's Peso Closes Stronger At MXN10.8640/Dlr; IPC Rallies

MEXICO CITY (Dow Jones)--Mexico's peso closed sharply stronger Tuesday as the local IPC stock index rallied. The peso was quoted in Mexico City as closing at MXN10.8640 to the U.S. dollar, compared with MXN10.9010 at the open and MXN10.9125 at Monday's close. The peso rallied as investors bought local currency to go bargain hunting in the local stock market. The IPC was trading 4.1% higher Tuesday after four consecutive days of losses. Expectations of weaker economic growth in the U.S. during the fourth quarter and 2008 have weighed on Mexico's financial markets in recent weeks. But Tuesday the Dow Jones Industrial Average also was trading higher, helping the local currency and stock market. The U.S. is Mexico's largest trade partner, and local financial markets often track sentiment in the U.S. There was also demand for government debt in the local bond market, pushing yields lower. The yield on 10-year bonds due in 2016 fell three basis points to 7.95%. The yield on 20-year government bonds due 2024 fell three basis points to 8%. The results of the Bank of Mexico's weekly debt auction were mixed. The yield on one-month Treasury bills, or Cetes, dropped to 7.41%, after falling 0.02 percentage point last week. The yield on 91-day Cetes rose 0.04 percentage point to 7.61%, while the yield on 175-day Cetes rose 0.03 percentage point to 7.71%.

UPDATE: Lagarde: G7 View On Yuan To Allay Tension On Euro

WASHINGTON -(Dow Jones)- French Finance Minister Christine Lagarde Friday expressed confidence that the Group of Seven nations' forceful language on the Chinese yuan would help relieve some of the upward pressure on the European currency, despite the strong euro getting no direct mention in the G7's final communique. "The Chinese president has said during the Communist Party Congress that he wishes to increase the convertibility and the flexibility of the yuan," Lagarde said during a press conference after the G7 leading industrial nations released their statement. "This is good news. I am happy that in this G7 communique there is a specific paragraph about the yuan, calling for an accelerated appreciation of the effective exchange rate of the yuan against other currencies, and notably the euro." The G7 communique calls on China to allow "an accelerated appreciation of its effective exchange rate," in view of this country's "rising current account surplus and domestic inflation." French officials Friday said this marks a significant shift of language compared with previous G7 communiques. The last G7 statement, following its meeting in April, called for the yuan to actually "move" instead of just for greater flexibility. "The whole part on China in the statement is new," Xavier Musca, the head of the French treasury said. "It praises China's recent initiatives to let its currency rise against the dollar, but it also underlines new tensions in the country. This means Chinese authorities have to use all the tools at their disposal to unwind imbalances by letting the yuan appreciate against all currencies, not just the dollar." China is the only country to be singled out for its currency policy by the G7 communique, which doesn't mention the Japanese yen or the euro, despite the European currency trading close to record highs against the dollar. French President Nicolas Sarkozy has repeatedly bemoaned the strong euro, which he says is hurting French exports. France has tried to promote this view among other euro-zone countries, but with limited success. German Finance Minister Peer Steinbrueck recently says he favors a strong euro over a weak euro. Asked whether she would have liked the euro and the dollar to get a direct mention in the G7 statement, Lagarde said: "[U.S. Treasury Secretary] Henry Paulson and [Federal Reserve Chairman] Ben Bernanke made a reassuring assessment of the U.S economy, which is solid apart from the current weakness in the housing sector. They repeated that a strong dollar is in the interest of the U.S. I hope financial markets will recognize this, even if it hasn't been the case so far." The French finance minister also welcomed the G7 initiative to ask for more transparency on securitization transactions and on hedge funds in the wake of the liquidity crisis that roiled credit markets this summer, as well as the G7's call for better transparency and governance from sovereign wealth funds. "There is a growing consensus on these issues among G7 members," she said.

G7 Wants Faster Yuan Rise, Pledges To Stay Open To Trade

WASHINGTON -(Dow Jones)- Group of Seven nation finance ministers and central bankers Friday expressed their dissatisfaction with the pace of currency appreciation in China, but said remaining open to foreign trade and investment is essential to supporting economic growth. G7 ministers, meeting ahead of the International Monetary Fund and World Bank annual meetings, said recent financial market turbulence, high oil prices and weakness in the U.S. housing sector would probably moderate global economic growth. Ministers pledged to resist protectionism, keep inflation under control, and as in years past, promised to pursue economic reforms and budget discipline to make global economic growth more sustainable. "We welcome China's decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we stress its need to allow an accelerated appreciation of its effective exchange rate," the G7 ministers said in a statement following their meeting. The G7 also reiterated its standard position that currency values should reflect economic fundamentals and that excess volatility is undesirable. "We continue to monitor exchange markets closely, and cooperate as appropriate," the G7 said, a repeat from its statement in April. Since the fall of 2003, G7 finance ministers have called on China, with increasingly sharper language, to allow market forces greater influence on the value of its currency, the yuan. Friday's statement marks a shift from calls for more yuan flexibility, to a plainer demand for more appreciation. The yuan has been appreciating steadily. It is up a little over 10% against the dollar since China abandoned its currency peg in July 2005. But China's trade surpluses have continued to mount while foreign exchange reserves, accumulated through foreign exchange market intervention, are soaring. Frustration with the slow pace of reform is growing in the U.S. and in Europe, where euro appreciation is making exporters less competitive. Canada, too, is feeling the pinch from a stronger currency on its exports. "We face challenges adjusting to the rise of the Canadian dollar, which has borne the brunt of the U.S. dollar adjustment," Finance Minister Jim Flaherty said in a press conference. He figures Canada has taken about a third of the burden as the U.S. trade deficits have moderated, while the euro area has taken another third. Canada and European governments want China and the rest of Asia to absorb more of the hit to exports as U.S. demand slows. However, Chinese central bank officials, speaking at a conference on the sidelines of the meetings, said they believe structural economic reforms will have a greater impact on Chinese trade surpluses than currency appreciation. "China's trade surplus was mainly a result of imbalanced domestic economic structure, as well as international labor allocation and the international monetary system," People's Bank of China Deputy Governor Wu Xiaoling said. Tight credit and financial market turmoil is compounding the slowdown in growth in the U.S. and Europe, creating still more pressure by domestic industries for protection from imports. The G7 ministers said trade and cross-border investment promote economic prosperity. They said the global economy can benefit from growing investment by sovereign wealth funds - government-owned pools of capital, some of which have swelled with proceeds of foreign currency market intervention. And the ministers again called for rapid completion of the long-stalled Doha Round of trade negotiations. Later Friday, G7 ministers planned a dinner with representatives of countries holding the largest sovereign wealth funds, several of which have assets worth more than $100 billion. Participants invited to the dinner included China, South Korea, Kuwait, Norway, Russia, Saudi Arabia, Singapore and the United Arab Emirates. The G7 is worried the growing clout of these investment funds could distort financial markets, should fund managers make investment decisions for political or strategic reasons rather than to maximize profits. U.K. Chancellor of the Exchequer Alistair Darling said that sovereign fund investment "needs to be a two-way process and crucially, companies and sovereign wealth funds have to act on a commercial basis not on any other basis." Ministers are also concerned the prospect of foreign funds making more equity investments in companies could spark protectionism. "We see merit in identifying best practices for sovereign wealth funds in such areas as institutional structure, risk management, transparency, and accountability," the G7 said. The G7 said it was examining the causes of the credit market crisis of late August and September, and that it discussed a report from the Financial Stability Forum. Ministers also discussed reform of the IMF and the World Bank, saying the G7 would continue to work toward a package of reforms to increase representation for developing countries to better reflect changes in the global economy. That goal is a ways off since outgoing IMF Managing Director Rodrigo Rato failed to secure agreement on key elements of a deal before stepping down at the end of the month. G7 aides said that incoming managing director Dominique Strauss-Kahn will essentially have to start from scratch in developing an agreement to overhaul IMF voting shares. The G7 also talked about the need for a coordinated approach to energy security and climate change and discussed ways to increase investments in clean-energy technology. However, ministers made only passing reference in their communique to oil prices, despite crude oil futures price tiptoeing above $90 per barrel this week. Speaking to reporters, European Central Bank governing board member Axel Weber said Friday high oil prices are "an upside risk for inflation development and it is a downward risk for economic development." G7 officials noted that global growth has held up through steady increases in crude oil prices through the last several years.

UPDATE: Trichet: Important US Says Strong Dlr In US Interest

UPDATE: Trichet: Important US Says Strong Dlr In US Interest (Updates with more details) WASHINGTON (Dow Jones)--European Central Bank President Jean-Claude Trichet said Friday it was "very important" to hear the U.S. saying a strong dollar is in the country's interest, and he said that the ECB's monetary policy stance has remained unchanged since its last interest rate setting meeting. "We have said that monetary policy must remain vigilant in maintaining price stability," he said at a briefing following the meeting of finance ministers and central bank chiefs of the Group of Seven leading industrial nations, regarding the G7's communique. He said that "there was nothing new" in the ECB remarks at the G7 meeting and "we confirm fully our monetary policy." The ECB left its key policy rate unchanged at 4.0% on Oct. 4; it's likely to stay there through November, analysts say. Speaking at the same press conference, Luxembourg's Prime Minister and Finance Minister Jean-Claude Juncker, who heads the so-called Eurogroup of 13 countries using the euro, said he noted with greatest attention the U.S. strong dollar policy stance. U.S. Treasury Secretary Henry Paulson told reporters following the G7 meeting Friday that "I believe in a strong dollar." Overnight Thursday, the euro hit a fresh all-time high of $1.4320, in part a reflection of the narrowing interest rate differential between the two currencies since the U.S. Federal Reserve cut its key interest rate last month. Trichet also noted that the G7's communique changed its language on China and its currency, the yuan. In the statement, the G7 praises China's decision to increase the flexibility of its currency. But the communique adds that "in view of its rising current account surplus and domestic inflation, we stress (China's) need to allow an accelerated appreciation of its effective exchange rate." Juncker said that he, Trichet and European Commissioner for Economic and Monetary Affairs Joaquin Almunia will visit China Nov. 27-28. Asked about the spike in oil prices, after oil futures set a new record overnight of over $90 a barrel amid tensions in the Middle East, Trichet said that both oil prices and commodity prices pose an upside risk to inflation and a downward risk to economic growth. Juncker said that uncertainty and downside risks to the economy have increased. And while global economic growth should remain robust, the 13 countries sharing the euro will see growth slowing in 2008. He forecasts euro-zone growth of 2.5% for this year and 2.1% for 2008. Juncker added that Japan's finance minister and central bank governor said at the G7 that they believe the Japanese economy is on a sustainable recovery and that exchange rates "should reflect these economic fundamentals." "We are confident that growth developments will be recognized by market participants and will be incorporated in their assessment of risks," Juncker said. "We want the markets to be aware that the risk of one-way bets, and particular on the foreign exchange markets." He was referring to the popular carry trade, in which investors borrow the low-yielding yen and invest in higher-yielding currencies. "We do think that the reduction of the imbalances should be a cooperative process," Juncker said, adding that Europe has played its part by implementing structural reforms. Several euro-zone politicians have said they are worried the strong euro could hurt exports, with some even calling for the ECB to do something to halt the euro's rise. They believe the euro zone is bearing the brunt of the dollar's decline. Turning to recent financial market turmoil caused by defaults on U.S. subprime mortgages, Trichet said there are still lessons to be drawn from this turbulence. The G7 comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada.

Dollar Supported By Last Week's US Data; Quiet Trading

NEW YORK (Dow Jones)--The dollar is firming Monday morning in New York as a lack of fresh data or news during a holiday lull allows last week's positive economic report to continue support the greenback in quiet trading. The release of stronger-than-expected employment data Friday, which signaled that the U.S. economy is likely to skirt an outright recession, is keeping market confidence in the greenback inflated Monday - a reaction that was unable to gain momentum Friday when a massive purchase of euros reversed dollar gains versus the single currency. Now, the dollar has reached its highest levels against the yen since mid-August, just before the Federal Reserve cut its benchmark interest rate target. So far, it reached an intraday high of Y117.51. The dollar is likely to remain in current ranges ahead of the release of September inflation data in the producer prices report and September retail sales data, both out Friday. A holiday in Japan, Columbus Day in the U.S., Thanksgiving Day in Canada will keep consistency the theme Monday, as bonds markets remain closed. Early in New York, the euro was at $1.4090, from $1.4139 late Friday, while the dollar was at Y117.49, from Y116.90. The euro was at Y165.54, from Y165.31. The U.K. pound was at $2.0400, from $2.0415, according to EBS. The dollar was quoted at CHF1.1834, from CHF1.1778. The payrolls report Friday "raised concerns about whether the Fed had needed to cut rates (50 basis points) and helped to reduce expectations of another rate cut at the end of this month to 50% from 70%," said analysts at Brown Brothers Harriman & Co. "With sentiment likely to swing further away from a Fed cut in (October), the euro risks a break of the 1.4030 area tested late last week. That would open up a bigger move to 1.3930 support," according to BBH. Europe's response to the rising euro could dominate a meeting of euro zone finance ministers later Monday in Luxembourg. The ministers' main task will be forging a common European stance before the meeting of the Group of Seven leading industrial nations in Washington later this month, said analysts. Markets will look for signs that the finance chiefs want strong medicine, an ECB rate cut or even a coordinated effort to prop up the U.S. dollar. The finance ministers could suggest a G7 statement urging the U.S. to pursue a stronger dollar and calling for China to let the yuan float more freely. Previous G7 statements have stressed only that volatile currency swings and global imbalances are bad for economic growth. However, economists suspect the finance ministers aren't betting the farm on any particular wording and will instead look for a solution closer to home, pressuring the ECB to help ease the euro's rise. European Central Bank President Jean-Claude Trichet, a champion of the central bank's independence, will attend Monday's meeting. In Asia, four monetary policy meetings are scheduled this week: Monetary Authority of Singapore, likely to maintain a tightening bias; Bank Indonesia, likely to maintain rates; Bank of Korea, which could pause after a surprise hike on Aug. 9; and Bank of Thailand, which might cut rates by 25 basis points, analysts suggest. Currency analysts also note the top performance of the Australian dollar, which captured the limelight Monday by rising to a 23-year high of $0.9022 from $0.8973 late in New York closing Friday. Expectations for a further rate hike by the Reserve Bank of Australia, coupled with belief the worst of the sub-prime mortgage credit crisis has eased, has some analysts expecting the Australian dollar to climb even further. Australian Treasurer Peter Costello noted its high levels on Monday, saying they will create a difficult trading environment for the country's exporters. "This really represents a record level for the Australian currency, particularly when you take it into account against other currencies as well in what we call the trade-weighted index. It is at a very high level," Costello told ABC radio in Melbourne. "All things considered, a strong currency - whilst tourists like it - is not all that good for your economy and it is not particularly good for your exports," he added. Nonetheless, much like the European finance ministers, Costello ultimately has limited authority in doing much about currency levels. "Intervention is unlikely to limit longer term investment and with a strong economy, the (Reserve Bank of Australia) is likely to remain hawkish," said Brown Brothers Harriman analysts.