Bush to host world finance summit

President George W Bush will host the world's first global financial summit in the US on 15 November, a White House official has said.

The meeting - the first in a series - will discuss the financial crisis and ways to prevent it recurring.

Leaders from the G20 group of nations - the world's leading industrialised countries and major developing nations - will attend.

The winner of the US presidential election will also attend the summit.

The meeting, to be held in the Washington DC area, will consider the reforms needed to avoid another financial crisis and look at the progress being made so far.

"The leaders will review progress being made to address the current financial crisis," said White House spokeswoman Dana Perino.

In order to avoid a repetition of the crisis, she said they would "agree on a common set of principles for reform of the regulatory and institutional regimes for the world's financial sectors".

Worldwide crisis

Later summits will focus on working out the details of the reforms needed.

Some European leaders had pushed for a summit before the end of the year, and French President Nicolas Sarkozy had said it should take place in New York.

Among those expected to attend the summit will be leaders from the G20 group of nations, which includes the G7 group of major industrial economies, as well as key emerging-market countries such as China, India and Brazil.

The head of the International Monetary Fund, the president of the World Bank, the United Nations secretary general and the chairman of the Financial Stability Forum have also been invited to participate

Pound tumbles to a five-year low

The pound has tumbled almost 3% against the US dollar - falling to its lowest level in five years on recession fears.

Sterling's fall came after the Bank of England governor, Mervyn King, warned that Britain was probably entering its first recession in 16 years.

The pound dropped as low as $1.620 overnight, its lowest since September 2003. It later recovered to $1.6398.

The euro fell as low as $1.2736 against the dollar before rising to $1.2895 later in the day.

The dollar has also been rising against other currencies. It has jumped to a two-year high against a basket of currencies as investors have bet that interest rates outside the US will be cut sharply to try to bolster global growth.

In the UK both Prime Minister Gordon Brown and Bank of England governor, Mervyn King, have warned of the danger of recession, boosting expectations of lower interest rates.

Referring to the pound and the dollar, Simon Derrick, head of currency research at the Bank of New York Mellon, said: "I think it is a combination of both strength in the dollar and weakness in sterling.

"I certainly believe this was a very direct reaction to Mr King's comments overnight.

"The recession talk is clearly undermining investors in the equity markets and therefore people are bringing their money home."

Meanwhile, concerns there may be a deep slowdown in the world economy have prompted investors to cash in more of their bets against the US dollar which had built up in recent years.

"Investors continue to flock to the dollar as speculation mounts that central banks elsewhere will continue with aggressive rate cuts in an attempt to stimulate growth in the near term," said James Hughes, an analyst at CMC Markets in London.

"The pound has to be the stand-out, with losses here being compounded by unprecedented comments from Mervyn King last night, essentially confirming the fact that the British economy is now in a recession and any recovery will be far from swift," he added

UK borrowing hits a 60-year high

The UK government borrowed a record amount last month, Office for National Statistics (ONS) data shows.

Public sector net borrowing hit £8.092bn in September, up from £4.775bn in the same period a year earlier, marking a record for the month.

The amount borrowed so far this financial year stands at £37.6bn - the highest since records began in 1946.

The government has said it will keep investing money into public works to prevent a recession

Record borrowing

Prime Minister Gordon Brown insisted Britain's economy remained in a strong position to weather the downturn.

The United Kingdom cannot insulate itself from this global downturn," he said.

"But with interest rates low and falling, inflation expected to come down over the next year, these underlying economic indicators - particularly interest rates - make us stronger than at any other previous downturn, " he added.

Conservative leader David Cameron said the government had to take responsibility for the country's economic woes.

"The government keeps saying - and the Prime Minister I think said it at least three times in his statement - this is a crisis from America, as if no-one in Britain has any responsibility for anything that went wrong," said Mr Cameron.

Liberal Democrat leader Nick Clegg said the government should over tax cuts for people on low and middle incomes.

Slowdown

On a net cash requirement basis the government borrowed £12.65bn last month, compared with a deficit of £8.72bn in the same period a year ago.

This was also more than expected; analysts had forecast that public borrowing would reach around £10.1bn in September.

The cumulative borrowing for the period from April to September of £37.59bn is up from the £21.46bn borrowed in the same period a year earlier, and represents the largest total for a six month period since records began in 1946.

The figures come a day after Ernst & Young Item's Club said the UK economy was already in a recession and would see the economy shrink by 1% next year, before growing by 1% in 2010.

In response to the latest figures the Item Club said: "The UK's public finances are in a complete state and in much worse shape than a year ago".

Figures later this week are expected to show that the UK economy shrank in the third quarter - the first contraction since 1992.


Chancellor Alistair Darling had forecast in his Budget statement in March that public sector public borrowing for the full financial year - up to April 2009 - would reach £43bn.

But the Item Club believes borrowing will reach £60bn in the financial year 2008-09, with a current budget deficit of £27 billion, "much higher than the government's own projection".

In light of this, the club said it was clear "substantial revisions will be necessary in the Pre-Budget Report".

Unemployment is already rising and forecast to continue doing so, which will will add further pressure on the government's finances.

And recent data has underlined the weakness in the housing sector; mortgage lending fell to its lowest level for more than three and a half years in September, according to the Council of Mortgage Lenders.

The UK and other governments recently took emergency steps to shore up the banking system in a bid to increase liquidity and stabilise the markets.

Oil prices fall to 16-month lows

Oil prices have fallen to 16-month lows on growing signs that a global economic slowdown is reducing demand.

The declines came as official US data showed that US crude stocks rose by 3.2 million barrels in the week to 17 October, higher than expectations.

Highlighting a fall in sales of petrol and other refined fuels, US light crude fell as low as $66.73 a barrel, its lowest point since June 2007.

Oil producers group Opec is due to cut output on Friday to help lift prices.

US light crude finished the day's trading down $5.43 to $66.75.

Brent crude fell $5.20 to $64.52 a barrel, after earlier touching $64.59, also a 16-month low.

Steadily fallen

Despite Opec's expected reduction in production, oil analysts said crude prices could fall as low at $60 as signs that the world is heading for recession continue to grow.

Opec's meeting as been brought forward by three weeks, reflecting the 12-nation group's concern at falling prices.

Oil hit an all-time high of $147 a barrel back in July, but has since fallen back steadily.

Opec members include Saudi Arabia, Iran, Iraq and Venezuela.

Recession fears drag shares lower

US stocks fell in morning trading in New York, echoing declines in Europe and Asia as fears of a global recession continued to hit investor confidence.

Wall Street's main Dow Jones index was down 2.9%, while in Europe, the UK's FTSE 100 lost 4.5%, Germany's Dax fell 5%, and France's Cac gave up 5.1%.

had lost 4.5% in late trading, and Germany's Dax ended down 5%.

Job cuts at Yahoo and drugs firm Merck have increased economic concerns.

The falls came as the White House said a global summit to tackle the financial crisis will be held next month.

The meeting will debate the reforms needed to avoid another financial crisis and look at the progress currently being made.

Leaders from the G20 group of nations - the world's leading industrialised countries and major developing nations - will attend

'Rapid deterioration'

Investor sentiment was also hit on Wednesday by warnings from both UK Prime Minister Gordon Brown and Bank of England Governor Mervyn King that Britain was most likely now entering its first recession in 16 years.

In the short term, the comments made by Mervyn King highlighting the fact that the economic environment has deteriorated quite rapidly over the past year have sent a shudder through the foreign exchange and equity markets," said Henk Potts, an equity strategist at Barclays Wealth.

"There's been a housing slump, the labour market has been suffering and business confidence has been hammered - it's no surprise that investors are spooked," he added.

Stocks were also dragged down by commodity stocks tracking weaker oil and copper prices.

Parmalat shares hit by US ruling

Shares in Italian dairy group Parmalat have dived after the firm was ordered to pay Citigroup $364m in damages.

Parmalat had accused Citigroup of actions that contributed to its collapse in 2003, but a New Jersey court found in favour of Citigroup.

Parmalat had been seeking about $2bn in damages from Citigroup, but the US bank had countersued.

Parmalat's shares were suspended early on Tuesday morning, and when trading resumed they fell almost 19%.

Hiding losses

Parmalat collapsed in December 2003 after uncovering a 4bn-euro hole in its accounts. It sued Citigroup, accusing the bank of helping to cover up the corrupt activities of Parmalat officials.

Specifically, it accused the US bank of ignoring warning signs at the Italian company in order to secure high advisory fees and bonuses for its bankers, and of helping the company to hide its losses by providing loans that did not appear as debt on Parmalat's balance sheet.

Citigroup argued that it believed Parmalat was financially healthy and that it was deceived by the diary giant.

It claimed to have lost $699m at the time of Parmalat's bankruptcy filing.

Legal battle

Following the ruling by the New Jersey court, Parmalat said it planned to "continue to pursue all legal remedies at its disposal to hold Citigroup accountable for its role".

Parmalat also said the damages award was subject to review by a bankruptcy court in Parma, Italy.

Andrea Hurst, spokeswoman for Citigroup, said: "Citi is pleased with the verdict. We have said from the beginning that we have done nothing wrong."

Parmalat emerged from bankruptcy in 2005. Chief executive Enrico Bondi has filed many lawsuits against former Parmalat bankers and auditors, including Bank of America and auditor Grant Thornton International.

Growth worries force euro lower

The euro fell to a 19-month low against the dollar in early Tuesday trading on growing concerns among investors about faltering European economic growth.

The single European currency dropped to a low of 1.3237 dollars before rallying slightly to 1.3243 near mid-afternoon.

The US dollar gained strength after US Federal Reserve boss Ben Bernanke signalled on Monday there could be new plans to stimulate the US economy.

The news calmed investors, with the Dow Jones index closing up 4.7%.

There are growing fears that the world's largest economy is heading towards recession and although Mr Bernanke stopped short of saying the US was in recession, he said the American economy was now in a "very serious slowdown".

Speaking to the US House of Representatives' budget committee on Monday, he said consideration of a fiscal package by the Congress now seemed "appropriate".

On 15 July, the dollar hit $1.6038 to the euro - a record low in value for the greenback against the single European currency.

But since then, the dollar has gained 20%, fuelled by speculation it will take advantage of a slowing European economy.

'More inequality' in rich nations

The gap between rich and poor in most wealthy nations has widened, the Organisation for Economic Co-operation and Development (OECD) has said.

Across the 24 OECD countries where data was available, the cumulative rise in inequality was 7% over the past 20 years, the Paris-based group said.

But this was not as large a rise as had been expected, it said.

Since 2000, income inequality had risen sharply in the US and Germany and declined in the UK, Mexico and Greece.

But the OECD report, which covers a period of two decades between 1985 and 2005, said the UK still had one of the highest levels of income inequality in the developed world.

The 'Hello' effect

The report found that the income of the richest 10% of people was, on average, nearly nine times that of the poorest 10%.

But the size of the income differentials varies, with the greatest disparity in Mexico, which has a ratio of 25 to one, followed by Turkey and the US.

The most equal distribution of wealth is in the Nordic countries, including Denmark, Sweden and Finland.

"The increase in inequality, though widespread and significant, has not been as spectacular as most people probably think it has been," the report said.

It added that the difference between what the data indicated and what people thought was likely to reflect the "Hello magazine effect", meaning that people read widely about the super-rich and imagined many people lived the life of luxury.

Children and low-skilled workers were more likely to be poor than the population in general, said the OECD, which represents the world's richest countries.

Meanwhile, pensioner poverty has fallen in many countries, with those around retirement age seeing the biggest increases in incomes over the past 20 years.

Labour market changes

Launching the report in Paris, OECD Secretary-General Angel Gurría warned of the dangers posed by inequality and the need for governments to tackle it.

"Growing inequality is divisive. It polarises societies, it divides regions within countries, and it carves up the world between rich and poor," he added.

In developed countries, governments had been taxing more and spending more on social benefits to offset the trend towards more inequality, but the effectiveness of these policies had declined, the OECD said.

As an example, OECD countries spend three times more on family policies than they did 20 years ago and yet single-parent households are three times as likely to be poor.

Poverty is defined as applying to households with less than half the median income.

"Trying to patch the gaps in income distribution solely through more social spending is like treating the symptoms instead of the disease," said Mr Gurría.

He urged governments to act to increase education opportunities and job prospects for blue collar workers and to offer welfare-in-work to working-class families to boost income.

Bernanke supports higher spending

US Federal Reserve chief Ben Bernanke has said more government spending may be needed to combat economic weakness.

A fresh round of stimulus would be a good idea, he told the US House of Representatives budget committee.

Although Mr Bernanke stopped short of saying the US was in recession, he said the American economy was now in a "very serious slowdown".

Hopes of a fresh economic stimulus package pleased investors, with the main Dow Jones index ending up 4.7%.

"Consideration of a fiscal package by the Congress at this juncture seems appropriate," said Mr Bernanke.

His comments were welcomed by Democratic leaders in Congress, who called on Republicans and the White House to work together to formulate a plan.

A White House spokesman said it would have to wait and see what Democrats, who control both halves of Congress, put forward.

'Serious consequences'

A series of crises in the housing, credit and financial sectors have badly hit the US economy.

Many analysts are forecasting the US economy will shrink later this year and early next year. This would meet the classic definition of a recession - which is two quarters of negative growth.

However, some economists believe the economy is already in a recession, something that Mr Bernanke more than hinted at.

"We are in a very serious slowdown in the economy which has very serious consequences for the public," he said.

"Whether it's called a recession or not is of no consequence."

'Promoting growth'

In his speech before the committee, Mr Bernanke suggested that Congress should design a stimulus package so that it would be "timely and well-targeted".

He said it should limit the longer-term impact on the government's budget deficit, which hit a record high in the last financial year.

Any government spending would need to kick in quickly to encourage people and businesses to boost spending and help the economy during the period in which economic activity would be otherwise weak, he said.

The Federal Reserve chairman also said the package should include provisions that would aid the jammed credit markets, which has been a major factor in the economy's slowdown.

"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers," he said.

"Such actions might be particularly effective at promoting economic growth and job creation," he added.

Tech firms warn of lower profits

Texas Instruments (TI) and computer hardware maker Sun Microsystems have both warned of lower future profits.

Based on recent weak order trends, TI said it now expected earnings per share of 30-36 cents in the last three months of 2008, below forecasts.

The warning came as the chip firm reported quarterly net income of $563m, down from $776m last year.

Sun Microsystems warned it would report a wider-than-expected loss in the final quarter of the year.

As most industries suffer from the global squeeze on credit and a consumer slowdown, so many technology firms are feeling the effects from a drop in demand.

Streamlining

"Our outlook for the fourth quarter is for revenue to decline substantially based on weak order trends over the past few months," said Rich Templeton, TI chairman, president and chief executive.

As a result, the Dallas-based firm said it had aggressively reduced inventory and would continue to do so until the end of the year.

TI also said it was in talks to sell part of its business of making wireless chips - the division that makes off-the-shelf chips for mobile phone handsets.

It said the move would help it cut costs by more than $200m a year.

The Dallas-based firm said it would focus on investing in custom-design chips, which are used in many smartphones.

Separately, Sun said it expected to report a net loss for the final three months of 2008 of 25-35 cents a share, surprising analysts who had expected the firm to post a net loss of 16 cents a share.

"Sun and its customers are seeing the impact of a slowing economy," said chief executive Jonathan Schwartz in a prepared statement.

Chinese economy growth rate slows

China's economic growth rate has fallen for the third quarter in succession, amid fears that the economy could be heading for a severe downturn.

The National Bureau of Statistics said the economy had grown at a rate of 9% in the three months to September - down from 10.1% over the previous quarter.

Spokesman Li Xiaochao said the impact of the global financial crisis had far exceeded the government's expectations.

Meanwhile shares rose in Asia. Japan's Nikkei index ended the day up 3.59%.

Share values also rose in Hong Kong, Australia, and South Korea.

No signs of recovery'

The third quarter growth rate announced on Monday marked a significant fall from the 10.4% growth of the first half of 2008, and the 12.2% growth seen in the first three quarters of 2007.

"There are no signs of a definite recovery from the financial crisis," statistics bureau spokesman Li Xiaochao told a news conference.

"The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate," he said. "All these factors have started to release their negative impact on China's economy."

Correspondents say indicators from steel prices to housing sales suggest a severe economic slowdown could be in prospect.

Chinese factories are reporting that export orders are down sharply. Last week, the government said that half the country's toymakers had gone out of business.

Mr Li said the government had initiated timely measures to deal with the economic slowdown and cushion the impact from the global credit crisis, including falling exports and a restricted credit supply.

These included changing its focus from preventing the overheating of the economy and preventing structural inflation to the "preserving growth" and "controlling" inflation, he added.

Officials said over the weekend that the government was preparing to announce tax cuts and increased infrastructure investment. Curbs on the housing market in certain areas may also be relaxed.

The People's Bank of China has cut interest rates twice and reduced banks' required reserves since mid-September. A third interest rate cut is expected later this year.

The BBC's Quentin Sommerville in Shanghai says that although the government it is doing what it can to boost demand at home, China's new middle class is already feeling the pinch.

The stock market is sharply down, so too are house prices, while car sales have slowed dramatically. Consumers are cutting down on spending as they believe there are tougher times ahead, he says.

The National Bureau of Statistics also announced on Monday that consumer price inflation had cooled to a 15-month low of 4.6% in September. In February, inflation had hit a 12-year-peak of 8.7%.

Mr Li said the slowdown in inflation showed that the policies initiated by regulators to control it had been effective.