Saturday, March 28, 2009

Obama tries to save Wall St, Detroit; stocks wane

The United States tried to save its financial and automotive industries on Friday, with President Barack Obama urging bankers to sell their toxic assets and his autos task force finalizing a rescue plan.
Obama met America's leading bankers at the White House and stressed the importance of removing toxic assets from balance sheets so financial institutions could start lending again.
Many bankers came out expressing support for the private/public partnership that could buy up to $1 trillion of underperforming debt from the banks, though the issue of how to price that debt remained unanswered. Some banks may prefer to unload those assets later, once the economy recovers.
"The president opened up by talking about the importance of dealing with toxic assets and getting banks lending again," White House Spokesman Robert Gibbs said. "It's fair to say that they agreed on the need to update the framework of regulations."
Obama, already dealing with two wars, a recession and a complex rescue of the financial system, also seeks to rewrite regulation to curb the type of risk-taking that nearly wrecked the banks.
He will seek common ground in London next week during a Group of 20 meeting of leaders from the world's leading industrial and emerging economies. But first, he will unveil the next phase of a bailout plan for the auto industry on Monday.
General Motors Corp and Chrysler face a March 31 deadline from U.S. officials to act on a request for up to $22 billion more in emergency funding to help them ride out the weakest auto sales in three decades. The U.S. Treasury has already made $17.4 billion available to the automakers.
In a somewhat positive sign for policy-makers and manufacturers, reports on Friday showed U.S. consumer spending rose for a second consecutive month in February and sentiment edged up in March.
"It is too early to bet on a consumer renaissance, because consumers are still facing severe headwinds from declining employment and reduced wealth. But the worst appears to be behind us," said Nigel Gault, chief U.S. economist at IHS Global Insight.
While Japan edged closer to deflation as both domestic and external demand faltered and Europe slid closer to zero inflation, with Germany's consumer price index slowing to its lowest level in nearly a decade, rising prices were a concern in the United States.
"The core price index was on the high end of expectations. This will fan inflation fears. The Fed is sowing the seeds of future inflation," Scott Brown, chief economist at Raymond James & Associates, said of the consumer spending data.
The euro zone reports inflation data on Tuesday, when economists predict the annual rate will fall under 1 percent for March and sink further in the next few months.
That is well below the European Central Bank's 2.0 percent ceiling, opening the door for it to cut interest rates at its monthly policy meeting on Thursday.
The U.S. stock market rally that began on March 10 sputtered on Friday, with the Dow closing down 1.9 percent after it had risen 21 percent over the previous 13 sessions. JPMorgan Chase Chief Executive Jamie Dimon triggered selling when he came out of the meeting with Obama and told CNBC television that "March was a little tough" for the bank.
The S&P 500 lost 2.0 percent and the Nasdaq lost 2.6 percent after it had turned positive for 2009 on Thursday. Earlier in the day, European shares lost 1.1 percent and Tokyo stocks ended flat.
On Tuesday, policy-makers from the G20 will discuss regulations to ensure the mistakes that led to the current banking crisis are not repeated.
But the potential for discord was evident, with Europe resisting U.S. calls for greater stimulus spending.
In the latest salvo, Germany warned that surging debt levels could threaten the stability of the euro currency and lay the groundwork for future crises.
"If it is not taken seriously, I am telling you, the euro will have trouble one day in terms of its own credibility and stability," German Finance Minister Peer Steinbrueck told parliament.

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