Leaders meet on European banking

French and German officials were scrambling to put together a compromise agreement on recapitalizing major European ahead of Sunday's meeting between the two countries' leaders.

German Chancellor Angela Merkel speeks at the party congress of the German Christian Social Union Party (CSU) in Nuremberg, southern Germany, on October 7. French and German officials were scrambling to put together a compromise agreement on recapitalizing major European ahead of Sunday's meeting between the two countries' leaders.

French President Nicolas Sarkozy meets German Chancellor Angela Merkel in Berlin on Sunday to discuss how best to recapitalise banks overexposed to risky sovereign debt.

But even as he packed his bags Saturday, one senior German minister was suggesting that Greece might have to be given more breathing space to beat its debt crisis.

"We have to manage things so that the banks have enough capital" to deal with any further negotiated reduction of the Greek debt, Finance Minister Wolfgang Schaeuble told Germany's Frankfurter Allgemeine Sonntagzeitung, out Sunday.

Already in July, eurozone leaders agreed a 21-percent debt "haircut" for Greece. But Schaeuble suggested that this might not be sufficient.

Germany's Welt Am Sonntag meanwhile, will on Sunday report that France and Germany are close to a compromise on how to approach the crisis.

Merkel, whose country is Europe's strongest economy and effectively the eurozone's paymaster, has argued that under-pressure banks should turn to investors for funds before appealing for national or European cash.

France, the eurozone's next biggest player, is reportedly more ready to turn to public funds to shore up its at-risk lenders.

A state investment fund has already drawn up plans to rescue Franco-Belgian bank Dexia and a source close to the dossier in Belgium said the French and Belgian prime ministers would meet to discuss it on Sunday.

According to Welt Am Sonntag, the compromise deal will involve France getting the public refinancing for the European rescue fund it has been seeking.

In return, Germany will get the second "haircut" on the Greek debt it has been seeking -- and which Schaeuble's press comments hinted at.

There is a growing sense of urgency to resolve the crisis.

On Friday the European Commission gave member states 10 days to agree a plan to shore up their lenders to cover potential losses.

The International Monetary Fund thinks that will take between 100 and 200 billion euros ($135 billion and $270 billion).

The same day, ratings agency Moody's downgraded a dozen British banks over concerns that government support for lenders could be withdrawn. Also Friday the Fitch agency meanwhile downgraded Italy's and Spain's credit ratings.

On Saturday, IMF managing director Christine Lagarde had talks in Paris with Sarkozy. She made no comment to press either before or after their meeting.

But French banks in particular are seen as overexposed to Greek, Italian and Spanish debts. European leaders fear that a default in a weaker Mediterranean economy could trigger a financial crisis across the continent.

The recent moves by the ratings agency have concentrated minds in France, where top officials fear the country could lose its top notch AAA credit rating.

The debt crisis, which began in Greece, last year forced Ireland and Portugal to seek international bail-outs. Now Italy and Spain are in the firing line, threatening to sink the entire euro project as banks scramble to raise funding.

Fears of a "credit crunch" have raised the spectre of 2008, when US giant investment bank Lehman Brothers collapsed and could have taken the global financial system with it but for massive government support.

The French, German and Italian employers' federations meanwhile appealed Saturday for greater European integration.

"So that the foundations can be laid for a prosperous and politically strong 21st century Europe, we call on the European Union to start work on a new treaty, which would be a new step towards closer political and economic union," France's Medef, Germany's BDI and Italy's Confindustria said.

Sufficient capitalisation for banks was essential to resolve the current crisis, they stressed.

World Bank President Robert Zoellick agreed. In an interview with economic weekly WirtschaftsWoche, he accused Merkel's Germany of lacking vision.

Germany, while it is more cautious than France about using the already stretched 440-billion-euro European Financial Stability Facility (EFSF) to recapitalise banks, did eventually agreed to expand it.

Of the 17 eurozone members, only Malta and Slovakia have yet to approve the expansion of the EFSF.

Malta is expected to give the go-ahead on Monday and Slovakia's deadlocked coalition will meet on the same day, one day before Tuesday's unpredictable parliamentary vote that could save or sink the rescue fund.

Merkel-Sarkozy summit to focus on shoring up banks

The leaders of France and Germany hold a summit on Sunday aimed at finding common ground on a plan to recapitalise banks, crucial for digging the eurozone out of crisis.

German Chancellor Angela Merkel and French President Nicolas Sarkozy, pictured earlier, are to hold a summit on Sunday aimed at finding common ground on a plan to recapitalise banks, crucial for digging the eurozone out of crisis.

German Chancellor Angela Merkel will meet French President Nicolas Sarkozy amid signs that some European banks are feeling the strain of the lingering debt crisis which has pushed Greece to the brink of bankruptcy.

The woes of Franco-Belgian bank Dexia have already brought Belgium into the line of fire with a warning by credit ratings agency Moody's, while Fitch has downgraded Italy's and Spain's credit ratings.

On the eve of the Berlin summit, International Monetary Fund chief Christine Lagarde, who was the first to call for banks to be urgently recapitalised, met the French leader in Paris.

French banks in particular are seen as overexposed to Greek, Italian and Spanish debts, and leaders want to prevent any new bigger reduction in Greece's debt triggering a banking crisis across the continent.

"We must ensure that the banks have sufficient capital" to face any possible increase in the reduction of Greece's debt, Sunday's Frankfurter Allgemeine Zeitung quoted German Finance Minister Wolfgang Schaeuble as saying.

The current planned 21-percent cut agreed in July could "perhaps" be insufficient, he added.

Germany, Europe's strongest economy and effective eurozone paymaster, wants under-pressure banks to first turn to investors for funds before appealing for national or European cash.

The EU's 440-billion-euro European Financial Stability Facility (EFSF) bailout fund could intervene as a last resort "only if a country cannot do this with its own means", Merkel said.

France, fearful of losing its top notch AAA credit rating, would rather dip into European funds than its own coffers, German press reports say.

The French government has denied differences with Germany, calling for a coordinated bid by European countries to recapitalise banks, while the European Commission has given member states 10 days to agree a plan.

A report in Sunday's Welt am Sonntag said a compromise was being worked out between the French and German positions. In exchange for Berlin's demand for a bigger cut in Greek debt, France would obtain agreement that the EFSF could be refinanced by the European Central Bank, it said.

Poland's centrists target new term in crunch ballot

Poles vote Sunday in a general election, with Prime Minister Donald Tusk aiming for a landmark second term and pushing a message of prudent economic stewardship which kept the nation out of recession.

Poland's Prime Minister Donald Tusk addresses a meeting of teachers in Warsaw. Poles vote Sunday in a general election, with Tusk aiming for a landmark second term and pushing a message of prudent economic stewardship which kept the nation out of recession.

Pro-European centrist Tusk, whose Civic Platform (PO) won a snap vote in 2007, has warned against a return of the conservative Law and Justice (PiS) party which clashed regularly with EU allies when it was in power.

Pre-election surveys gave Tusk cause for concern, showing that despite a percentage point lead on PiS, PO could fall a hair's breadth short of a majority.

Tusk says the nation of 38 million needs "cooperation, understanding and unity".

"In these turbulent times Poland can't afford any radical moves," he insisted, before campaigning ended Friday.

If PO keeps the helm, it would be a first for an incumbent party since the 1989 demise of Warsaw's communist regime.

To marshal its electorate, PO's last-minute broadcasts used footage of aggressive, supposed PiS supporters under the slogan "They are going to vote. And you?"

Poland, which joined the European Union in 2004 and currently holds the 27-nation bloc's presidency, has weathered the global crisis well.

Its economy expanded 1.7 percent in 2009. While a shadow of previous years, it made Poland the only EU member to maintain growth.

The 2010 rate was 3.8 percent. This year's forecast is 4.0 percent, and 2012's, 2.7 percent.

Poland is not in the eurozone -- Tusk says it could by 2015 meet economic criteria for euro adoption, but has not set a target.

With Poland's main trade partners in the debt-struck eurozone, jitters remain. Tusk pledges to keep cutting the budget deficit to offset risks.

PiS and the opposition Democratic Left Alliance (SLD) have focused on inflation, pensions and healthcare, saying ordinary Poles deserve better.

PiS ruled in 2005-2007, with Jaroslaw Kaczynski premier in 2006-2007 until his coalition with the far-right and populists unravelled.

His record of falling out with governing allies means PiS would be unlikely to find coalition partners even if it leapfrogged PO, leaving the road open for Tusk, analysts say.

Kaczynski was the identical twin of conservative president Lech Kaczynski, elected in 2005 and killed in a plane crash in Russia in April 2010. Tusk ally Bronislaw Komorowski beat Jaroslaw Kaczynski in snap presidential polls that July.

Having tempered his tone earlier in the campaign, Kaczynski returned to familiar ground this week, accusing Germany of seeking to subjugate Poland hand in hand with Russia -- he was rebuked sharply by Tusk.

Melding domestic and foreign issues, Kaczynski also slammed the government, which has mended fences abroad since 2007.

"Poles are fed up with the arrogance towards the weak of those who bow to the powerful at home and abroad," he said.

Pollsters TNS OBOP -- accurate in past ballots -- tip PO to take almost 40 percent of Sunday's vote to PiS's 29 percent.

But they gave PO 202 seats, down from 208 in the outgoing chamber, and said Tusk's coalition ally the Polish People's Party (PSL) could drop to 27 from 31.

With 229 seats in the 460-member parliament, PO and PSL could count on an ethnic German minority party to hit a majority of 231, TNS OBOP said.

The wildcard is the new Palikot Movement of flamboyant former vodka tycoon and ex-PO member Janusz Palikot.

With a forecast 43 seats, it is seen as a potential coalition ally -- though Tusk dismissed such talk.

It is unusual in deeply Catholic Poland for anti-clericalism and for backing gay partnerships and legalised marijuana.

TNS OBOP tipped PiS to obtain 149 seats, up from 146.

It said SLD -- in power in 2001-2005 -- could fall to 37 from 43, while no other party would win seats.

Polling stations open at 7:00 am (0500 GMT) and close at 9:00 pm (1900 GMT).

Wall Street posts worst close in over a year; Dow down 2.36%

NEW YORK: Wall Street suffered another slump on Monday as concerns about the economy, contagion from the European debt crisis and rumours of an American Airlines bankruptcy dragged down markets.

Despite a brief rally on news that a key indicator of the health of the US manufacturing sector was better than expected, the main indexes ended the day firmly in the red.

The Dow Jones Industrial Average was down 258.08 points (2.36 percent) at 10,655.30 at the close, its lowest level since September 2010.

The S&P 500 fell 32.19 (2.85 percent) to 1,099.23, and the tech-heavy Nasdaq fell 79.57 points (3.29 percent) to 2,335.83.

"A new quarter brought more of the same on Wall Street," said Sameer Samana of Wells Fargo. "Worries about Europe drove the Dow sharply lower after Greece said it will miss its deficit targets for 2011 and 2012."

Banking stocks took much of the brunt.

Bank of America traded down 9.6 percent, Citigroup was down 9.8 percent, JPMorgan Chase was down 4.9 percent and Morgan Stanley was down 7.6 percent.

Also in the spotlight was American Airlines. Its shares ended the day down a whopping 33.1 percent, amid rumours that parent company AMR Corp would file for bankruptcy protection.

Morningstar analyst Basili Alukos said the selling comes after an "abnormal" number of pilot retirements in the past two months, with the pilots seeking to sell off their own stocks in the company out of fears it would fail.

That view was rejected by other analysts.

"While we view AMR as the financially weakest US airline, it had $5.0 billion in cash/investments at the end of Q2. Our Q3 forecast is for a loss of about $110 million, and we do not think the company has been burning through an unreasonable amount of cash," said Jim Corridore of Standard & Poor's Equity Research.

"For this reason, we would be surprised by a bankruptcy filing in the next 12 months."

The broader market had kicked-off the day amid a now-familiar sea of red - on news that Greece will not meet deficit-cutting targets - the focus on Wall Street turned to the domestic.

The Institute of Supply Management's purchasing managers index (PMI), a closely watched indicator of sentiment in the manufacturing sector, showed a surprise rise.

"The PMI registered 51.6 percent, an increase of one percentage point from August, indicating expansion in the manufacturing sector for the 26th consecutive month, at a slightly higher rate," said ISM's Bradley Holcomb.

Economists had expected the index to grow at a slower rate to 50.5 points.

The figure pushed the Dow to a modest rise of around 0.2 percent over the start of the day.

But news from Europe continued to weigh on US markets.

Bond prices rose significantly. The 10-year Treasury bond yield dropped to 1.75 percent from 1.92 percent on Friday, while the 30-year yield fell to 2.72 percent from 2.92 percent.

Bond prices and yields move in opposite directions.

Eurozone mulls Greece aid

Eurozone ministers on Monday debate whether to unlock vital aid for Greece and sharply increase the firepower of their rescue chest as markets tumbled on news Athens will miss budget deficit targets.

Greek police stand guard during a student demonstration opposing educational reform and the austerity measures in central Athens in September 2011. The Athens government did nothing to improve the mood of investors when it announced Sunday that the budget deficit should drop to 8.5 percent of GDP in 2011 from 10.5 percent last year, short of an earlier target.

The 17 countries sharing the single currency gather from 1500 GMT to reach an understanding on whether Greece should get an eight-billion-euro loan, needed to pay next month's bills but blocked by the IMF for the past month.

They will also look at ways of boosting the euro's rescue fund, the EFSF, to help immunize Europe and the global economy from financial contagion.

British finance minister George Osborne urged the eurozone to strengthen its banks, take clear decisions on Greece "and stick to it".

"The eurozone's financial fund needs maximum firepower, the eurozone needs to strengthen its banks, and the eurozone needs to end all the speculation (and) decide what they are going to do with Greece and stick to it," he said.

Arriving in Luxembourg for the two-day talks, the EU's economic commissioner Olli Rehn said the ministers will review "the options to optimising the use of the EFSF in order to get more out of it amd make it more effective as a financial firewall."

In Athens, international auditors spent the weekend assessing Greek finances and forecasts following continuing protests over austerity cuts.

The mood darkened after Athens announced Sunday that its public deficit will come in at 8.5 percent of gross domestic product (GDP) this year, higher than the 7.4 percent agreed in June, as its economy is battered by recession.

The figure is still better than the 10.5 percent public deficit Greece recorded last year.

For next year the Greek government now forecasts it will be able to squeeze the public deficit down to 6.8 percent of GDP instead of 6.5 percent.

The bad news from Athens sent Asian markets into a tailspin amid concerns over eurozone policymakers' ability to surmount the debt crisis.

"It is far from a given that policymakers will succeed in turning the tide in markets in the final quarter of the year," Sharon Zollner, senior economist at ANZ Bank in Wellington, told Dow Jones Newswires.

Japanese stocks fell 1.78 percent, Hong Kong shares shed 4.38 percent, while Sydney was off 2.78 percent at the close.

In Europe, the increased expectations of a Greek default sent the euro tumbling to $1.3314, its lowest point since January, and stock markets slumped.

In afternoon trade, Frankfurt's DAX 30 was down 2.33 percent, the Paris CAC 40 dropped 2.03 percent and in London the FTSE 100 slid 1.55 percent to 5,048.80.

In Luxembourg, Rehn will give the eurozone finance ministers the inside track on what the Washington-based IMF wants to do.

Athens is labouring under a crushing 350 billion euros of debt, with its economy contracting under the austerity measures imposed by the EU and IMF.

The United States and other major economies are increasingly concerned Europe is too divided to solve the Greek crisis or deal with problems in the much bigger Italian economy, notably by adequately re-capitalising banks that would lose heavily in the event of default, especially in France.

Many are clamouring for a major boost in the 440-billion-euro ($590 billion) European Financial Stability Facility (EFSF).

One way would be to change the fund's rules, enabling it to morph into a bank able to leverage funds from the European Central Bank (ECB) in the event of a crisis.

Another possibility is to insure bondholders up to 20 to 25 percent of losses should a nation default.

Global pressure is on to resolve the problems before G20 leaders meet in Cannes on November 3-4.

US Treasury Secretary Timothy Geithner has already urged German Finance Minister Wolfgang Schaeuble to put more of Berlin's financial heft at the eurozone's disposal if things worsen.

But Schaeuble said at the weekend that the 211-billion-euro limit set for its exposure will not rise.

An immediate obstacle to overcome is final ratification of an agreement reached by eurozone leaders in July giving the EFSF the scope to intervene when sovereign governments get into cashflow difficulties.

As of Friday, 14 of the 17 eurozone countries had passed legislation the EU wants to be able to trumpet at a G20 finance ministers meeting in Paris on October 14-15.

The EU-IMF auditors returned to Athens on Thursday, four weeks after they abruptly left disappointed at Greece's lack of progress in implementing promised structural reform measures.

Athens unveiled late on Sunday a plan to shrink its bulging civil service by 30,000 people by the end of the year.

Sarkozy to meet Germany on eurozone bail-out

PARIS: France's President Nicolas Sarkozy promised on Friday to push Germany over his plan to more closely integrate eurozone economies after meeting Greek Prime Minister George Papandreou in Paris.

Sarkozy said he had been convinced by Papandreou's promise to cut Greece's debts and deficit, and said he would himself travel to Germany next week and push Europe's plan to reassure markets.

"It's not possible to let Greece fall, for moral and economic reasons," Sarkozy said, adding that he believes Athens to be "totally determined" to live up to promises to slash its deficit.

Sarkozy said he would meet in the coming days with Germany's Chancellor Angela Merkel "to discuss ways and means to accelerate the economic integration of the eurozone economy."

He also said he would push for Greece to receive a previously agreed EU bail-out more quickly, despite concerns in some eurozone member states that Athens is dragging its feet over austerity measures.

For his part, Papandreou repeated his determination "to make the necessary changes, we are making the sacrifices and we will live up to our part of the decisions we have taken."

"We want to change Greece and make Greece a competitive and socially just and transparent country," he told journalists.

The Greek premier meeting with Sarkozy at the Elysee Palace came a day after German lawmakers threw the ailing eurozone a lifeline by agreeing to boost the bloc's 440-billion-euro ($590-billion) bail-out fund.

The plan received fresh impetus from Austria, which Friday became the 14th of 17 eurozone members to approve the funds and the European Commission, which urged possible hold-out Slovakia to move quickly to add its name to the deal.

France will be one of the key contributors to the expanded fund while its own banks are critically exposed to sovereign debt from Greece and other weak links in the eurozone chain -- Italy, Spain and Portugal.

France's concern is not just to maintain the stability of the eurozone but also to protect its own banks, which are seen as overexposed to risky debt from Mediterranean countries and short of liquidity.

Meanwhile, in Athens, officials from the European Union, European Central Bank and International Monetary Fund were conducting an audit to decide whether to disburse eight billion euros ($11 billion) of crucial aid for Greece.

While three smaller eurozone members have yet to approve the expansion of the broader bail-out fund, Greece is waiting on this instalment of a first bailout accord in May 2010 to pay its bills next month and so avoid default.

Payments depend on whether the EU-ECB-IMF troika of creditors, who got to work on Thursday studying Greek government accounts, agree that Papandreou's harsh austerity plans go far enough to clean up Greece's books.

The Greek press agency Ana said the auditors met Transport Minister Yannis Ragoussis to discuss restructuring public transport, including the part privatisation of the national rail service.

After the closed door meeting, Ragoussis said he understood the need to not give in to mass protests by interest groups, such as those by taxi drivers opposed to the deregulation of their industry.

Friday's meeting was delayed and held in a secret location after civil servants protesting cuts in public services occupied several ministries.

The audit is open-ended but the experts are expected to report before G20 finance ministers meet in Paris on October 14 and 15. France holds the G20 rotating presidency and will want a plan in place to reassure the markets.

A spokesman for the German finance ministry said negotiators were close to agreeing a deal to assuage Finnish concerns about Greece's reforms.

Under pressure from eurosceptic voters, Finland's government has demanded Greece put up collateral for further bailout aid.

European stock markets -- and French banking shares in particular -- have been extremely volatile in recent weeks, riding a roller-coaster of rumour about liquidity crunches, possible defaults and new rescue plans.

They climbed strongly after the German vote to back the expansion of the European Financial Stability Facility but fell back Friday following bad inflation data from the eurozone economies.

Eurozone inflation soared to 3.0 per cent in September, up from 2.5 per cent in August, according to figures announced Friday, just days before European Central Bank chief Jean-Claude Trichet chairs his last policy meeting.

There had been hopes in the markets that lower inflation would allow the ECB to cut interest rates and give a shot in the arm to slowing eurozone economies.

Bitter labour dispute ends at India's Maruti

NEW DELHI : India's leading carmaker Maruti Suzuki ended a bitter month-long labour dispute with workers on Saturday that cost the company millions of dollars in lost output.

The Japanese-controlled company and the workers at a Maruti plant in northern India had been at loggerheads since late August when the company locked out employees, accusing them of sabotaging cars on the production line.

"We are happy, everyone is happy that the strike is now over," Maruti chairman R.C. Bhargava told AFP.

"We have reached a settlement and (full) production will resume on Monday," Bhargava said after the two sides clinched an agreement following several hours of gruelling negotiations.

Maruti sells nearly half of all new cars in India.

Bhargava declined to put a figure on production losses due to the strike.

But a company executive told AFP it had lost production worth around US$120 million as a result of the dispute. This came after nearly two weeks' worth of production was lost in a labour row in June, costing Maruti close to US$93 million.

The South Asian nation is critical to Suzuki's fortunes as it is the Japanese company's biggest overseas market.

The dispute erupted as Maruti has been battling to boost its market share, which has shrunk to 45 percent from 55 percent in the past four years with global auto giants aggressively seeking to penetrate India's fast-growing vehicle market.

The company produces the Swift and A-Star hatchbacks, and the SX4 sedan at the Manesar factory, which employs 2,000 workers.

The company continued to make some cars at the Manesar plant in Haryana state with the help of a few employees who had returned to work, supervisors, engineers and other trained people brought in by the company.

The company had asked all workers to sign what it called a "good conduct" bond, promising they would not sabotage production, before going back to work.

"Everybody will sign a good conduct undertaking and 18 apprentices who were dismissed will be taken back," the company chairman said.

World markets stumble to end of brutal quarter

NEW YORK: World stock markets ended one of the most brutal quarters in years Friday, with bourses in New York and Europe seeing sell-offs to match the 2008 crisis and the dot.com bubble.

The New York Stock Exchange stumbled to the end of its worst three-months since the depths of the financial crisis exactly three years ago, while markets in Italy, Germany and France lost a quarter of their value.

The Dow Jones Industrial Average closed the quarter down 12 percent from the start of July as fears of another global slowdown dogged markets.

Compared with sister markets, traders in New York got off lightly.

In Europe where debt worries have plagued several countries and called the future of the eurozone into question, the sell-off was even more pronounced.

In the last three months Italy's main stock exchange has lost 27 percent of its value, while Frankfurt's DAX and Paris' CAC-40 have each lost 25 percent.

In Madrid losses were limited to 18 percent and on London's FTSE to just under 14 percent.

"We're closing the week, the month and the quarter on a very, very negative note and on heightened volatility," said Peter Cardillo of Rockwell Global Capital.

"It's been an ugly quarter. We had some good economic news but nevertheless it's still a continuing fear factor."

The final downward push on Friday came from news of rising inflation in Europe and declining purchasing power for Americans.

The US Commerce Department data that pointed to weakening consumer power as incomes fell by 0.1 percent in August, the first decline in nearly two years, even as prices for goods picked up.

"It seems very unlikely that consumers can lead the economy to a faster recovery pace," economists John Ryding and Conrad DeQuadros of RDQ Economics told clients in a briefing note.

Meanwhile there was unexpected news of sharply rising inflation across the eurozone, creating a dilemma for European Central Bank chief Jean-Claude Trichet who chairs his final policy meeting next week.

Trichet must now make a difficult call on whether to reduce interest rates to face a weak economy despite rising prices.

With firm hopes by investors that major central banks ease monetary policy in an effort to rekindle growth, inflation creeping up in the eurozone is sure to disappoint as it probably makes a rate cut from the ECB less likely.

In Asia, the Hong Sen Index plummeted 21.5 percent in the quarter, while key Shanghai, Bombay, Australia and Japanese indices all slid in the 11-14.5 percent range.

Throughout the last quarter Europe's sovereign debt crisis loomed over investors, and Friday was no different.

In Athens EU-IMF auditors played cat-and-mouse with protesters just as Greek Prime Minister George Papandreou in Paris gained assurances from President Nicolas Sarkozy of France's commitment to Greece, one day after German deputies agreed to boost the bloc's bailout fund.

France's own banks are critically exposed to sovereign debt from Greece and other weak links in the eurozone chain -- Italy, Spain and Portugal.

Fears on French and European banks have underscored major market falls.

"It's been one hell of a third quarter and the excitement of recent weeks is likely to continue over the next three months," said Kathleen Brooks, analyst at trading group Forex.com.

"We end the quarter no closer to a long-term solution to the European sovereign debt crisis ... and the global economic outlook is still a confusing picture.

"The euro is looking weak ... and stocks, which have had their worst quarter since 2008, look fragile. Will there be another leg lower for risk, or will Germany save the eurozone and cause a huge relief rally?" she said.

"These are the questions we grapple with as we enter the last three months of the year."

S. Korea warns of slowing export growth

SEOUL: South Korea's government warned Saturday that export growth will slow in the fourth quarter due to worsening overseas conditions, after reporting a smaller than expected September trade surplus.

The Ministry of Knowledge Economy reported a US$1.44 billion trade surplus compared to the US$2.1 billion tipped in a Dow Jones Newswires poll of seven economists.

Exports grew 19.6 per cent from September 2010, slower than the poll had predicted, while imports grew by 30.5 per cent.

"Export growth in the fourth quarter will slow because of deterioration in external conditions and high base effect," the ministry said in a statement.

"The trade surplus is unlikely to widen as export conditions weaken from a global economic slowdown, while imports are expected to continue growing due to high oil prices."

The figure is the latest sign that South Korea's export-dependent economy is feeling the pinch because of the eurozone debt crisis and the sluggish US economy.

But economic officials point out that emerging economies now account for much of the country's exports.

Exports to China were up 20.5 per cent year-on-year in September, as measured over the first 20 days, while exports to members of the Association of Southeast Asian Nations rose by 43.2 per cent.

The finance ministry expects 4.5 per cent economic growth this year while the International Monetary Fund last month cut its forecast to 4.0 per cent.

GE, Nissan join hands on electric cars

DETROIT: General Electric and Nissan, maker of the all-electric Nissan Leaf, said Friday they will team up over the next two years to explore ways to promote the use of electric vehicles.

"We don't want to build cars," Mark Little, director of GE Global Research, said Friday.

"However, GE can help Nissan make EVs easier to use and more consumer friendly... We want to get into this space in a big way."

Little said that GE brings its considerable expertise in the world's power infrastructure to help address the global challenge of integrating millions of electric cars onto the grid.

"As the US and world move toward electric vehicles, the automotive sector is forming new industry connections that extend well beyond the traditional (parts maker) space," he said.

"One of the biggest connections being made is with companies that generate and provide electricity.

"As a major provider of power generation equipment and energy services, GE is in a great position to help the automotive industry bring millions of electric vehicles onto the grid," Little said.

Bob Sump, vice president of vehicle engineering for Nissan Americas, said GE's broad expertise with energy networks will help Nissan create better conditions in the market for cars like the Leaf.

"Connections like this research partnership with GE reinforce Nissan's commitment to bring zero emission mobility to the mass market," said Carla Bailo, senior vice president of research and development for Nissan Americas.

In one project underway, researchers from the two companies are studying how electric cars like the Leaf can be incorporated into GE's overall concept for a Smart Home, so consumers manage the energy flows in their home and car.

Nissan engineers are developing methods to make the car a more integrated part of the home's energy equipment through a two-way power flow between the vehicle and the house.

Asian shares mixed despite Europe relief

HONG KONG: Asian stock markets were mixed on Friday despite strong US growth data and rare positive news out of the eurozone after the German parliament approved a crucial EU bailout package.

Tokyo stocks edged higher in morning trade while Hong Kong, Australia and South Korea pared back slightly, after German backing of an enlarged rescue fund for debt-mired eurozone countries failed to soothe fears over the region.

Tokyo rose 0.25 per cent by noon in directionless trade as investors digested the news out of Germany. The benchmark Nikkei 225 index at the Tokyo Stock Exchange rose 21.89 points at 8,723.12.

In mixed trade, the broader Topix index of all first-section issues declined 1.15 points, or 0.15 per cent, to 761.15.

Standard & Poor's and Fitch Ratings meanwhile both downgraded New Zealand's sovereign rating, citing the cost of earthquake recovery and the country's worsening external debt position. The New Zealand dollar fell sharply.

Yutaka Miura, senior technical analyst at Japan's Mizuho Securities, said the Nikkei may struggle to find direction because Germany's vote to expand the eurozone's bailout fund had already been priced in.

He also noted US stocks had shown mixed performances despite positive economic data overnight.

"Short-covering at the September month-end, which also coincides with the quarter's end, has been the main driver for the market's rebound in recent days," he told Dow Jones Newswires, adding that selling pressure may increase going into next week.

In Hong Kong, the Hang Seng Index dipped 1.67 per cent to 17,710.44 in early trade, while Australia's S&P/ASX 200 fell 0.49 per cent to 3,987.7.

Korea's KOSPI Composite Index lost 1.21 per cent to reach 1,748.01 while the Shanghai Stock Exchange dropped slightly to 2,356.48 by mid-morning.

The markets still harboured grave doubts about the eurozone, said analysts.

"There's a relief I guess that the German vote went through but it's not the last piece of the puzzle," James Rosenberg, private client adviser at Macquarie Private Wealth, told Dow Jones Newswires.

Credit Agricole strategist Mitul Kotecha added that there is still "a huge degree of skepticism" over the potential for policymakers "to resolve the crisis".

There was some good news out of the United States, where the economy grew at 1.3 percent in the second quarter, according to latest figures from the Commerce Department, a faster-than-expected clip.

The rate was revised up by 0.3 of a percentage point as investment, spending and exports all helped boost the growth rate.

In currency markets, the euro softened in Asian trade.

The euro stood at $1.3572 in Tokyo trade, down marginally from $1.3586, while fetching 103.71 yen against 104.33 yen in New York.

The New Zealand dollar was down sharply at US$0.7659 after the downgrades, from $0.7782 late Thursday.

The US dollar slipped against the yen as investors widely ignored a US government announcement that it would continue stronger market oversight and expand its intervention war chest in a third extra budget, dealers said.

The dollar traded at 76.60 yen in Tokyo, down from 76.79 in New York.

Oil prices rose in Asia. New York's main contract, West Texas Intermediate (WTI) for delivery in November, gained 53 cents to $82.67.

Brent North Sea crude for November delivery was up 28 cents to $104.23.

Prices were boosted by traders buying cheaper oil following recent falls.

Gold was at $1626.00 an ounce at 0330 GMT in Hong Kong, up slightly from its Thursday close of $1,623.

Euro inflation jumps sharply to 3.0%

BRUSSELS - Eurozone inflation soared to 3.0 percent in September, official figures showed Friday, just days before outgoing European Central Bank chief Jean-Claude Trichet chairs his last policy meeting.

The EU said the annual rate of price rises across the 17-nation currency area in September was 3.0 percent, a dramatic rise from 2.5 percent in August after Brussels said it had peaked, and well above the ECB's target of below but close to 2.0 percent.

An increase was expected after major economy Germany announced a spike to 2.8 percent but the figure was still a surprise just two weeks after the European Commission said inflation "seems to have peaked in the second quarter of 2011."

Inflation in the non-euro area is also running high. In neighbouring Britain, the Bank of England, expected to launch a new round of stimulus under "quantative easing," or printing money to bolster a slowing economy, has forecast inflation will hit 5.0 percent this year.

Separately, the rate of eurozone unemployment was steady at 10 percent in August, official figures showed, but the actual numbers of people out of work fell across the single currency area.

Eurostat, the European Union's statistics agency, said seasonally-adjusted unemployment across the 17 nations sharing the euro remained at 10 percent, for a fourth month running.

Eurostat estimated that just over 15.7 million people were looking for jobs in the eurozone in August, down 38,000 from the previous month.

In the wider 27-nation EU, which includes non-euro members Britain and Poland, the unemployment rate was also steady at 9.5 percent.

Nearly 22.8 million people were unemployed across the EU, 62,000 less than in July.

Japan boosts intervention war chest

TOKYO : Japan's Finance Minister said that Japan will secure an additional 15 trillion yen in funds it can use to intervene in currency markets, warning it will act against speculative moves on the yen.

Jun Azumi on Friday added that the finance ministry will require currency traders to report daily their trading positions for another three months beyond the end of September in a bid to deter speculative moves.

Japan will boost the size of its intervention funds by 15 trillion yen ($195.79 billion) to "flexibly" respond to the yen's upward trend, Azumi said.

Azumi said the government will make necessary arrangement to raise intervention funds under the planned third extra budget for fiscal 2011.

The move would lift the accumulated total amount the government is allowed to borrow from the market to finance intervention to 165 trillion yen.

This means it would be able to raise an additional 46 trillion yen in the future if necessary because it has already used up 119 trillion of the total.

In August, the ministry and the Bank of Japan intervened in the market, selling 4.51 trillion yen for dollars in a bid to weaken the Japanese unit.

But the move, as with previous interventions in September 2010 and in March with the support of the Group of Seven nations, failed to deter the yen's rise to a postwar high of 75.95 against the US dollar and a ten-year high versus the euro.

The strength of the unit has raised fears of a "hollowing out" of Japanese industry as manufacturers, seeing repatriated profits eroded, shift more production overseas in search of cheaper labour costs.

But the yen's strength also makes foreign purchases more attractive for companies wishing to expand overseas.

The safe-haven unit has surged as investors move into the currency to escape global market turmoil due to eurozone debt worries and a slowdown in the US economy.

Its strength however threatens to impede Japan's recovery from the impact of the March 11 earthquake and tsunami, which devastated the northeast of the country and left 20,000 dead or missing.

Demand for the yen from Japanese exporters at the end of the first fiscal half pushed the unit higher against the dollar on Friday, with the greenback retreating to 76.54 yen from 76.79 yen in New York late Thursday.

Americans see income fall as prices rise

WASHINGTON - Americans earned less and goods cost more in August, figures from the Commerce Department showed Friday, as incomes dropped for the first time in close to two years.

In another sign of the storm that continues to buffet the US consumer -- long the keystone of the world's largest economy -- personal income decreased by $7.3 billion, around 0.1 percent, for the first drop since October 2009.

Meanwhile spending increased by $22.7 billion as goods increased moderately in price.

"It seems very unlikely that consumers can lead the economy to a faster recovery pace," economists John Ryding and Conrad DeQuadros of RDQ Economics told clients in a briefing note.

The figures ran against the expectations of most economists, who had expected spending, wages and prices to rise moderately.

Amid the higher prices and lower wages, the Commerce Department also reported signs that Americans are eating into their savings to get by.

"The decline in the savings rate to the lowest level since the end of 2009 underscores the strain on households given the current jobs environment," said Ryding and DeQuadros.

JPMorgan, Bank of America hit by new legal suits

NEW YORK: JP Morgan Chase and Bank of America were hit with new suits over subprime mortgage securities purchased by a German bank which nearly collapsed from losses on the investments, court documents showed Friday.

Sealink Funding, which manages assets once held by Germany's Landesbank Sachsen, filed suit in a New York court over losses on $4 billion on packaged mortgage investments -- $2.4 billion from JP Morgan and $1.6 billion from Bank of America's Countrywide unit.

The residential mortgage-backed securities (RMBS) were fraudulently marketed as low-risk, Sealink said in the court filings.

In fact, many of the underlying mortgages have proven poorly documented with an "astounding" rate of default, it said in the suit against Bank of America.

"The vast majority" of the RMBS "are now considered 'junk'," it said.

"The originators whose loans collateralised the defendants' RMBS purchased by Sealink did not employ rigid underwriting processes and were among the worst culprits in the subprime lending industry," it said.

Sealink asked the court for both compensation for the losses and punitive damages against the banks.

It was the latest of a number of investor lawsuits against big US banks over losses on mortgage-backed securities that sank in value in the collapse of the US property bubble in 2007.

Bank of America is the biggest target of the lawsuits for its 2008 purchase of Countrywide Financial, once one of the country's biggest mortgage lenders and since shown to have issued hundreds of thousands of sub-par and poorly documented home loans that were packaged into RMBS.

Sarkozy to meet Germany on eurozone bail-out

PARIS: France's President Nicolas Sarkozy promised on Friday to push Germany over his plan to more closely integrate eurozone economies after meeting Greek Prime Minister George Papandreou in Paris.

Sarkozy said he had been convinced by Papandreou's promise to cut Greece's debts and deficit, and said he would himself travel to Germany next week and push Europe's plan to reassure markets.

"It's not possible to let Greece fall, for moral and economic reasons," Sarkozy said, adding that he believes Athens to be "totally determined" to live up to promises to slash its deficit.

Sarkozy said he would meet in the coming days with Germany's Chancellor Angela Merkel "to discuss ways and means to accelerate the economic integration of the eurozone economy."

He also said he would push for Greece to receive a previously agreed EU bail-out more quickly, despite concerns in some eurozone member states that Athens is dragging its feet over austerity measures.

For his part, Papandreou repeated his determination "to make the necessary changes, we are making the sacrifices and we will live up to our part of the decisions we have taken."

"We want to change Greece and make Greece a competitive and socially just and transparent country," he told journalists.

The Greek premier meeting with Sarkozy at the Elysee Palace came a day after German lawmakers threw the ailing eurozone a lifeline by agreeing to boost the bloc's 440-billion-euro ($590-billion) bail-out fund.

The plan received fresh impetus from Austria, which Friday became the 14th of 17 eurozone members to approve the funds and the European Commission, which urged possible hold-out Slovakia to move quickly to add its name to the deal.

France will be one of the key contributors to the expanded fund while its own banks are critically exposed to sovereign debt from Greece and other weak links in the eurozone chain -- Italy, Spain and Portugal.

France's concern is not just to maintain the stability of the eurozone but also to protect its own banks, which are seen as overexposed to risky debt from Mediterranean countries and short of liquidity.

Meanwhile, in Athens, officials from the European Union, European Central Bank and International Monetary Fund were conducting an audit to decide whether to disburse eight billion euros ($11 billion) of crucial aid for Greece.

While three smaller eurozone members have yet to approve the expansion of the broader bail-out fund, Greece is waiting on this instalment of a first bailout accord in May 2010 to pay its bills next month and so avoid default.

Payments depend on whether the EU-ECB-IMF troika of creditors, who got to work on Thursday studying Greek government accounts, agree that Papandreou's harsh austerity plans go far enough to clean up Greece's books.

The Greek press agency Ana said the auditors met Transport Minister Yannis Ragoussis to discuss restructuring public transport, including the part privatisation of the national rail service.

After the closed door meeting, Ragoussis said he understood the need to not give in to mass protests by interest groups, such as those by taxi drivers opposed to the deregulation of their industry.

Friday's meeting was delayed and held in a secret location after civil servants protesting cuts in public services occupied several ministries.

The audit is open-ended but the experts are expected to report before G20 finance ministers meet in Paris on October 14 and 15. France holds the G20 rotating presidency and will want a plan in place to reassure the markets.

A spokesman for the German finance ministry said negotiators were close to agreeing a deal to assuage Finnish concerns about Greece's reforms.

Under pressure from eurosceptic voters, Finland's government has demanded Greece put up collateral for further bailout aid.

European stock markets -- and French banking shares in particular -- have been extremely volatile in recent weeks, riding a roller-coaster of rumour about liquidity crunches, possible defaults and new rescue plans.

They climbed strongly after the German vote to back the expansion of the European Financial Stability Facility but fell back Friday following bad inflation data from the eurozone economies.

Eurozone inflation soared to 3.0 per cent in September, up from 2.5 per cent in August, according to figures announced Friday, just days before European Central Bank chief Jean-Claude Trichet chairs his last policy meeting.

There had been hopes in the markets that lower inflation would allow the ECB to cut interest rates and give a shot in the arm to slowing eurozone economies.

World markets stumble to end of brutal quarter

NEW YORK: World stock markets ended one of the most brutal quarters in years Friday, with bourses in New York and Europe seeing sell-offs to match the 2008 crisis and the dot.com bubble.

The New York Stock Exchange stumbled to the end of its worst three-months since the depths of the financial crisis exactly three years ago, while markets in Italy, Germany and France lost a quarter of their value.

The Dow Jones Industrial Average closed the quarter down 12 percent from the start of July as fears of another global slowdown dogged markets.

Compared with sister markets, traders in New York got off lightly.

In Europe where debt worries have plagued several countries and called the future of the eurozone into question, the sell-off was even more pronounced.

In the last three months Italy's main stock exchange has lost 27 percent of its value, while Frankfurt's DAX and Paris' CAC-40 have each lost 25 percent.

In Madrid losses were limited to 18 percent and on London's FTSE to just under 14 percent.

"We're closing the week, the month and the quarter on a very, very negative note and on heightened volatility," said Peter Cardillo of Rockwell Global Capital.

"It's been an ugly quarter. We had some good economic news but nevertheless it's still a continuing fear factor."

The final downward push on Friday came from news of rising inflation in Europe and declining purchasing power for Americans.

The US Commerce Department data that pointed to weakening consumer power as incomes fell by 0.1 percent in August, the first decline in nearly two years, even as prices for goods picked up.

"It seems very unlikely that consumers can lead the economy to a faster recovery pace," economists John Ryding and Conrad DeQuadros of RDQ Economics told clients in a briefing note.

Meanwhile there was unexpected news of sharply rising inflation across the eurozone, creating a dilemma for European Central Bank chief Jean-Claude Trichet who chairs his final policy meeting next week.

Trichet must now make a difficult call on whether to reduce interest rates to face a weak economy despite rising prices.

With firm hopes by investors that major central banks ease monetary policy in an effort to rekindle growth, inflation creeping up in the eurozone is sure to disappoint as it probably makes a rate cut from the ECB less likely.

In Asia, the Hong Sen Index plummeted 21.5 percent in the quarter, while key Shanghai, Bombay, Australia and Japanese indices all slid in the 11-14.5 percent range.

Throughout the last quarter Europe's sovereign debt crisis loomed over investors, and Friday was no different.

In Athens EU-IMF auditors played cat-and-mouse with protesters just as Greek Prime Minister George Papandreou in Paris gained assurances from President Nicolas Sarkozy of France's commitment to Greece, one day after German deputies agreed to boost the bloc's bailout fund.

France's own banks are critically exposed to sovereign debt from Greece and other weak links in the eurozone chain -- Italy, Spain and Portugal.

Fears on French and European banks have underscored major market falls.

"It's been one hell of a third quarter and the excitement of recent weeks is likely to continue over the next three months," said Kathleen Brooks, analyst at trading group Forex.com.

"We end the quarter no closer to a long-term solution to the European sovereign debt crisis ... and the global economic outlook is still a confusing picture.

"The euro is looking weak ... and stocks, which have had their worst quarter since 2008, look fragile. Will there be another leg lower for risk, or will Germany save the eurozone and cause a huge relief rally?" she said.

"These are the questions we grapple with as we enter the last three months of the year."