Investors Want More Despite 0.5% Fed Rate Cut

Investors Demand More From Federal Reserve Despite 2 Big Rate Cuts in 8 Days.

Bottom Fed interest rate target area at 2.5 to 3% has been tested. Falling below this area would mean dangerous signs for US economy; recession or even depression might be on the way.

Federal Reserve Chairman Ben Bernanke, criticized last year for being too tentative in cutting interest rates, has shown he can act boldly. But the Fed's two aggressive rate cuts in the past eight days have left investors demanding still more.

That may be a sign of how much trouble the economy is facing, with many analysts contending that the country is flirting with a recession and may, in fact, already be in one.

The Fed announced Wednesday that it was cutting its federal funds rate, the interest that banks charge each other, by a half-point, double the quarter-point cut that many economists had been expecting. That move followed on the heels of a reduction last week in the funds rate of three-quarters of a point, which had been the biggest single rate cut in more than two decades.

Initially, the Dow Jones industrial average was up by more than 200 points after the Fed announcement, but then investors pulled back and the Dow finished the day down 37.47 points, indicating lingering worries about the economy.

All the changes mean that the funds rate, which stood at 5.25 percent in early September before the Fed started cutting rates, now is at 3 percent. The Fed is hoping the lower rates will stimulate the economy through increased borrowing by consumers and businesses.

While Bernanke and his Fed colleagues were criticized last year for giving the appearance that they were cutting rates only grudgingly, the January rate cuts have signaled that the Fed is in full-blown crisis mode.

The 1.25 percentage point reduction in the funds rate in just over a week is unprecedented in recent memory. The Fed hasn't been that aggressive about cutting the funds rate since the early 1980s, when then-Chairman Paul Volcker was reversing a tightening cycle that had driven interest rates to the highest levels since the Civil War in a successful effort to break the back of a decade-long bout of inflation.

In its statement Wednesday, Fed officials said its string of rate cuts "should help to promote moderate growth over time and to mitigate the risks to economic activity."

Analysts saw that language as an effort to tell markets that just because the Fed slashed rates in January, such bold actions should not be expected in the future. But those words could very well fall on deaf ears.

"The markets felt the Fed had fallen behind the curve. That caused a loss of credibility," said David Jones, chief economist at DMJ Advisors. "Once the Fed loses credibility, it can be hard to regain it."

Investors are already betting that there are more rate cuts to come. A futures contract tied to the federal funds rate is projecting that rate could get down as low as 2 percent this summer.

The Fed's next meeting is March 18 and that will be followed by meetings in April and June. Many analysts said the Fed could trim the funds rate by a series of quarter-point moves during that time period, especially if the economic data remains weak.

The government reported Wednesday that the overall economy, as measured by the gross domestic product, grew at a barely discernible 0.6 percent rate in the October-December period. The fear of some economists is that the GDP rate could slip into negative territory in the current quarter. By one definition, a recession occurs when the GDP is negative for two consecutive quarters.

While the Fed is not publicly forecasting a recession, Bernanke and other officials have said they expect to see a period of slow growth, reflecting the impact of the severe housing slump and the credit squeeze which hit last August.

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households," the Fed said in explaining Wednesday's rate cut.

"The Federal Reserve is obviously very nervous about what is going on in the financial system and the housing market," said Mark Zandi, chief economist at Moody's Economy.com.

While Fed officials were widely viewed as being slow to react last fall, analysts said they are now making up lost ground.

"The Fed misjudged the problems in the economy and the financial system through the Fed's December meeting. They just underestimated what was going on," Zandi said. "But I think they caught up in January and now they are fully engaged."

Zandi predicted a series of quarter-point rate cuts at upcoming meetings, but he said if the financial system begins to unravel, the Fed will return to more aggressive half-point rate reductions.

OPEC Likely to Maintain Oil Output

OPEC Oil Ministers Likely to Opt for Maintaining Present Output Levels at Friday Meeting.

The U.S. and other nations facing slower economic growth think OPEC should open the taps wider so cheaper oil helps them avoid a recession. OPEC oil ministers meeting here Friday may think otherwise.

Participants and analysts say that ministers at the Vienna ministerial meeting of the Organization of Petroleum Exporting Countries are likely to keep output at current levels. That, in effect, would lock in prices at where they are now -- a bleak scenario for governments, businesses and consumers worldwide who have seen oil prices rise more than 50 percent from just over a year ago.

But worse can come. With prices at around $90 a barrel, natural catastrophes, a spike in Middle East tensions or other emergencies could drive prices beyond the $100 a barrel mark on worries that supplies may be crimped. The $100 a barrel mark was already slightly surpassed early this year.

Plunging prices could also be bad news -- a sign that failing economies cannot afford present energy costs. But members of the Organization of Petroleum Exporting Countries Nations say opening up the spigots would be counterproductive because there is enough crude to meet global demand. They argue that market speculation and geopolitical factors are the key drivers of oil prices.

"I don't believe there is a need for OPEC to do anything," said Shukri Ghanem, Libya's top oil official, on Wednesday, reflecting the prevailing view among his oil minister colleagues. "The market is well supplied."

Ecuador, Nigeria and Qatar are among other members of the 13-nation organization recently suggesting that they see no need to change production. That's even though Energy Secretary Samuel Bodman, speaking to Dow Jones Newswires on the sidelines of an energy conference in Abu Dhabi, said higher prices are a result of tight oil supplies.

David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney, said "the general expectation ... is that they will probably not change production quotas." And a Vienna-based diplomat tracking OPEC who demanded anonymity because the information was confidential said officials at the organization's headquarters in Vienna were saying privately that sentiment among ministers was strongly against putting more oil on the market.

That suggests that OPEC now views prices near or above $90 as acceptable. "The bottom line is the U.S. thus far has shown a tolerance for $90 plus a barrel, and the OPEC nations are of the mind that as long the U.S. is willing to pay such prices, they say, 'why not?'" said Anthony Sabino, Professor of Law and Business at St. John's University, in New York City.

The wild card, again, is OPEC powerhouse Saudi Arabia, the organization's No. 1 producer. If Saudi Oil Minister Ali Naimi pushes to hike production, the other 12 members might be swayed. But the Saudis have yet to comment either way.

The U.S. economic malaise -- and expectations of resulting reduced oil demand -- supports OPEC sentiment to leave production at present levels instead of upping output. So does the soft dollar. In arguing for more oil Monday, Bodman said U.S. government data showed a predicted decline in inventories held by the world's major industrialized countries this year. Just days before that, President Bush had expressed his concerns about a possible recession in the U.S. in making his case for increasing oil supplies during meetings with members of the Saudi ruling family and leaders of other OPEC countries.

In its weekly report issued Wednesday, the Energy Department's Energy Information Administration said crude-oil inventories rose last week for the third straight period. For the week ended Jan. 25, crude-oil inventories rose by 3.6 million barrels, or 1.2 percent, to 293 million barrels. While the stockpiles were 8.8 percent below year-ago levels, analysts had expected a gain of only 2.3 million barrels, according to a survey by Dow Jones Newswires.

Still -- although crude oil stocks rose 2.3 percent in the two weeks to Jan. 18, they were still 9.1 percent below levels a year ago. While OPEC kept its output on hold at its last meeting in December, it was concerned enough about high prices and potential market volatility to schedule Friday's special gathering.

Total OPEC output is estimated at about 31.5 million barrels a day -- about 40 percent of daily world demand believed to be around 85.5 million barrels, with the 12 OPEC members under quotas pumping nearly 30 million barrels a day.

Fed Expected to Cut Rates Again

Federal Reserve Is Expected to Cut a Key Interest Rate for a Fifth Time.

The Federal Reserve is likely to follow its bold action last week to battle an economic downturn with further interest rate reductions, although analysts are split on just what size the future cuts will be.

Some believe the Fed will settle into a series of quarter-point moves, especially if upcoming economic reports show the economy is slowing but not toppling into an actual recession. That would mean the Fed will cut its federal funds rate, the interest that banks charge each other, by a quarter point at the conclusion of Wednesday's meeting. It would be the fifth rate cut since last September.

Last week, the Fed announced a surprise three-quarter-point cut which drove the funds rate down to 3.5 percent. It was the largest reduction in this rate in more than two decades and the first change in the funds rate between meetings since the immediate aftermath of the September 2001 terrorist attacks.

Federal Reserve Chairman Ben Bernanke and his colleagues held an emergency videoconference call on Jan. 21 after a turbulent day on world markets when investors grew increasingly worried about what a recession in the United States would do to the prospects for global growth.

Many analysts believed the Fed would quickly follow last week's aggressive move with a cut of at least a half-point at its first regular meeting of the new year. While some economists are still looking for a half-point cut, other economists are arguing that the Fed is likely to produce only a quarter-point reduction, especially in light of some better-than-expected recent economic data.

The most surprising report came Tuesday with news that orders to U.S. factories for big-ticket durable goods jumped 5.2 percent in December, the biggest increase in five months, and demand in a key series that tracks business investment shot up at the fastest pace since last March.

That unexpected strength may be a signal that the current slowdown will not be as severe as first believed although analysts cautioned that it would be a mistake to read too much into one report.

Also being closely watched is the broadest measure of economic health, the gross domestic product. Many analysts believe the GDP slowed to an anemic rate of around 1 percent in the October-December quarter and could fall into negative territory in the current January-March period. One definition of a recession is two consecutive quarters of falling GDP. A Commerce Department report on fourth-quarter GDP was due out Wednesday several hours prior to the Fed's expected announcement on its interest rate decision.

Worried about the possibility of a downturn, the House on Tuesday overwhelmingly approved a $146 billion economic stimulus bill. Passage in the Senate could be slowed by an effort to expand the measure.

Whatever the Fed does Thursday, analysts said that further rate cuts are likely until the central bank is sure that the economy is back on sound footing. Bernanke pledged in a speech on Jan. 10 to take decisive action to combat a slowdown. Many economists believe the funds rate could fall to 2.5 percent before the Fed stops easing. "It is clear that the Fed has moved into a crisis-fighting posture," said David Jones, chief economist at DMJ Advisors.

UK Announces Overhaul of Banking Regulations

Government Announces Overhaul of British Banking Regulations.

Britain's Treasury chief on Wednesday announced a plans to overhaul Britain's banking regulations to prevent future runs on banks similar to what mortgage lender Northern Rock experienced last year.

The government also said Bank of England Governor Mervyn King had been reappointed for a second five-year term as Bank of England governor. King is chairman of the Bank's Monetary Policy Committee.

Treasury Chief Alastair Darling said the regulatory changes were aimed at better protecting depositors and ensuring financial stability. The Treasury has been under pressure to come up with new proposals following a run on the Northern Rock bank in September -- Britain's biggest casualty of the global credit crisis.

"Recent months have seen a period of sustained turbulence and instability in global financial markets, with financial firms across the world affected," Darling said in a statement. "A response to these episodes requires action, not only from the U.K. authorities, but also from international firms and institutions."

He proposed five objectives to ensure a more stable financial environment. They included: strengthening the stability of the financial system, both in Britain and globally; reducing the likelihood of banks facing difficulties; reducing the impact if a bank gets into trouble; improving deposit guarantees to boost consumer confidence, and strengthening the Bank of England.

He said the government will spend three months consulting with consumers, British financial institutions, and their counterparts around the world before the government prepares to introduce new legislation in Parliament.

Northern Rock ran into trouble in September because it relied too heavily on short-term money markets instead of deposits for funding. A subsequent profit warning and appeal to the Bank of England for an emergency loan led to the first run on a British bank since 1866.

EU Chiefs to Discuss World Economy

Key European Leaders to Meet to Discuss Ailing World Economy.

European leaders will discuss greater transparency in bank operations and financial markets when they meet here Tuesday to consider a joint response to the global economic slump. British Prime Minister Gordon Brown is hosting French President Nicolas Sarkozy, German Chancellor Angela Merkel, Italian Premier Romano Prodi and European Commission President Jose Manuel Barroso for talks on the international credit crunch.

The meeting of Barroso and the European members of the Group of Eight industrialized nations comes before talks between finance ministers of G-7 countries on Feb. 9 in Tokyo. Leaders want a better international system for sharing information that can be used to help prevent future financial crises. Brown has felt the sting of the late summer credit squeeze that was caused by the collapse of the U.S. subprime mortgage market, with the first run on a British bank since 1866.

In France, authorities have uncovered the alleged largest-ever trading fraud by a single person. Trader Jerome Kerviel is accused of losing French bank Societe Generale around euro4.82 billion (US$7.09 billion). Merkel has said the German government is watching the situation but has cautioned against actions that could threaten jobs.

Brown has long called for greater transparency of bank operations in general. Merkel and Sarkozy want banks to be supervised on a European level. "There is a lack of openness, banks put rather too much off the balance sheet and people depend too much on credit rating agencies," Britain's Treasury Chief Alistair Darling told BBC Radio on Tuesday. "There is a case for proper supervision of banks."

Brown spokesman Michael Ellam said the group would also likely discuss the role of ratings agencies in financial markets. The EU has already asked European market regulators to look at why ratings agencies did not flag problems with subprime mortgages after ample evidence of mounting defaults from the second half of 2006.

In a joint declaration by Britain, France and Germany in October, the nations urged improvements to information available on securitized debt and illiquid assets, such as mortgages. The British leader last week called for reforms of the International Monetary Fund, saying it should be remodeled to act as a key scrutinizer of the world economy.

European Union spokesman Johannes Laitenberger insisted Monday that the work on reform is under way. "There is a road map for meeting the challenges on financial markets, we've been working on that in the autumn months," he said. "The fundamentals of the European economy remain very healthy."

Euro and Asian Markets Rise Following Wall Street

European, Asian Markets Rise As Investors Take Heart From Wall Street Rally.

European and most Asian stock markets rebounded Tuesday as investors cheered an overnight rally on Wall Street and snapped up beaten down shares on expectations of a U.S. interest rate cut later this week. But growing speculation that the Federal Reserve will lower a key rate by a quarter point, instead of the more aggressive half-point, kept gains in check.

European shares rose in early trading and U.S. stock index futures were mixed. The U.K.'s FTSE 100 Index grew 1.5 percent to 5,872.50, while Germany's DAX gained 1.1 percent to 6.893.59. The French CAC rose 1.8 percent to 4,935.50.

"The FTSE rebounded this morning after yesterday's losses, led by the mining sector which is adding 20 points to the index on the back of record precious metals prices," said Nathan Miller, a trader at CMC Markets in London.

In Asia, Japan's benchmark Nikkei 225 index rose 2.9 percent at 13,478.86 while Hong Kong's blue-chip Hang Seng Index gained 1 percent to 24,291.8 after earlier rising as much as 2.8 percent. The markets -- Asia's two biggest -- tumbled at least 4 percent Monday on persistent fears the U.S. economy was entering a recession.

Monday's drop gave investors a chance to re-enter the market, said Francis Lun, a general manager at Fulbright Securities in Hong Kong. In China, the benchmark Shanghai Composite Index rose 0.9 percent after tumbling 7.2 percent Monday. Stocks in South Korea, Thailand and the Philippines also rose.

Australia's benchmark index slid 2.5 percent as traders bet on a smaller-than-hoped-for rate cut when the Fed's policy planners meet Tuesday and Wednesday. Last week, the Fed slashed its key interest rate by three-quarters of a point to 3.5 percent after a plunge in Asian and European markets, which have since bounced back somewhat.

The Fed was likely to cut rates a quarter point "given the deep cut last time and that there are some signs of stabilization in the market," said Malcolm Wood, Asia-Pacific equities strategist at Morgan Stanley in Hong Kong. That would likely disappoint Asian markets where investors banked on a bigger cut, and could trigger more selloffs later in the week, he said.

Global markets have been in turmoil this month as investors reacted to a string of bad economic news out of the United States. Asian markets are especially sensitive as their economies are heavily reliant on American consumers buying their exports. The U.S. economy has been battered by a housing slump and credit crunch triggered by a spike in defaults on risky mortgages that has led to billions of dollars of bad assets at major American and European banks.

Sentiment got a lift from Wall Street's gain on Monday, when investors in the U.S. took a dismal new home sales report as a sign the Federal Reserve will lower interest rates. The Dow Jones industrial average rose 176.72, or 1.45 percent, on Monday to 12,383.89, while the Standard & Poor's 500 index rose 23.36, or 1.76 percent, to 1,353.97.

President Bush tried to calm the markets in his last State of the Union address Monday, stressing the government's determination to reinvigorate the moribund economy with tax rebates.

Bush urged lawmakers to approve a $150 billion (102 billion euros) plan in tax relief for families and incentives for businesses to invest in new plants and equipment. He said the American economy was robust, but warned of a rocky road ahead in the short-term.

In Hong Kong, gainers included export-related stocks such as Li & Fung, which jumped 5.7 percent. Clothing maker Esprit Holdings was up 3.4 percent. China coal stocks listed in Hong Kong also gained on expectations that the prolonged and unexpectedly severe winter across China will drive demand for more coal. China Coal was up 1.4 percent, while China Shenhua was up 1.7 percent. In Tokyo, steel and bank issues were among Tuesday's gainers. Kobe Steel rose 2.3 percent and Shinsei Bank jumped 9.4 percent.

Toyota Defeats General Motors in Global Production

Toyota Beats GM in Global Vehicle Production 2007 Though GM Still No. 1 in Global Sales.

Toyota may have fallen short of General Motors in global vehicle sales last year, but it's beaten its U.S. rival in another measure -- global vehicle production. In the latest neck-and-neck numbers race between the world's top two automakers, Toyota Motor Corp. said Monday it had made a record 9,497,754 vehicles worldwide in 2007, up 5.3 percent from the previous year. That's about 213,000 more automobiles than the 9.284 million that GM made last year.

Honda and other major Japanese automakers also reported strong annual output gains. Only Mazda said its production dropped. Toyota's earlier, less precise production estimate for 2007 was 9.51 million. Toyota spokesman Paul Nolasco in Tokyo said there was no special reason for the change from the estimate.

By sales, however, General Motors Corp. just barely retained its crown over Toyota, selling 9,369,524 vehicles around the world, up 3 percent from the previous year, and about 3,000 vehicles more than Toyota.

Toyota on Friday updated its sales tally for last year with additional three digits at 9,366,418. In number released last week, Toyota said it sold 9.366 million vehicles last year globally, up 6 percent from 2006 -- allowing GM to keep its title of world's No. 1 automaker for the 77th year.

The two big manufacturers are vying for sales in the U.S., Europe and other established markets but also new markets, including India and China. Toyota said production in Japan marked its sixth straight year of gains for a record in 2007. Exports and overseas production also surged, it said.

Toyota has been racking up growth recently, riding on its reputation for quality and good mileage. Soaring gas prices are making smaller cars that are Toyota's forte increasingly in demand. Toyota has enjoyed a green-car image because of the fashionability of its Prius gas-electric hybrid, which cuts down on global warming emissions.

Among other Japanese automakers, Honda Motor Co. said its global production grew 7.7 percent to a record 3.91 million vehicles last year, the 11th straight year of growth. Declines in Japan production were more than offset by growth in North America, Europe and China, the Tokyo manufacturer said.

Nissan Motor Co., which has a partnership with Renault SA of France, chalked up a 6.2 percent jump in global production to 3.43 million vehicles last year on strong demand for the Infiniti G35 and G37 luxury models and Rogue crossover vehicle. Especially solid was Nissan's overseas production, soaring 12.9 percent on year.

Mitsubishi Motors Corp.'s global production totaled 1.41 million last year, up 7.5 percent from the previous year. Mazda Motor Corp., which is 33.4 percent owned by U.S. automaker Ford Motor Co., was an exception with production declining 1.9 percent to 1.29 million vehicles around the world.

Singapore Sovereign Fund Promises Greater Transparency

Singapore Sovereign Fund GIC Promises Greater Disclosure.

A Singapore sovereign wealth fund said it plans to become more transparent amid concerns over its increasing influence following large investments in troubled financial institutions such as UBS and Citigroup, newspapers reported Monday.

The Government of Singapore Investment Corporation, or GIC, is working with the city-state's Finance Ministry on a document that would provide more information on the fund's processes and governance and the purposes of its investments, The Straits Times newspaper said, citing the GIC's deputy chairman, Tony Tan.

The fund would also report the rate of return on its investments more regularly, Tan said. "We believe it is good to have better understanding, some form of code of good practice, so that operations of the (sovereign wealth funds), and the reactions of the recipient countries, will not lead to further problems," Tan was quoted as saying.

Tan was speaking to reporters at the end of high-level discussions on sovereign wealth funds at the World Economic Forum in Davos, Switzerland, the paper said. A GIC corporate communications official confirmed that Tan's reported comments were accurate.

The GIC and Singapore's state-run Temasek Holdings are among the world's biggest sovereign funds, with assets of more than US$100 billion (euro68.6 billion) apiece, according to their Web sites.

They, like funds from the Middle East and China, have been investing in major Western financial institutions that have lost billions of dollars on bad bets in the U.S. mortgage market. Rising delinquencies and defaults among mortgages have forced banks to write down the value of bonds and debt backed by the troubled loans. Hard-hit U.S. banks welcomed the needed capital.

GIC invested US$9.75 billion (euro6.7 billion) in UBS, the Swiss bank said in December. Earlier this month, Citigroup said it would receive US$6.9 billion (euro4.7 billion) from GIC for a 4 percent stake in the U.S. bank.

Tan said the GIC's investments in UBS and Citigroup were an unusual departure from the preferred, low-key approach it had adopted over the past 27 years of taking small stakes in a wide range of companies, over a long term. He also did not see the role of the GIC and other sovereign funds to be white knights "riding to the rescue of financial systems in the U.S. or Europe," the report said.

In the UBS deal, Tan said the fund had decided against taking up an invitation by the lender to have a nominee elected to its board, the report said. Tan said Singapore supports a move to draw up a code of best practices for such funds, although he said that any new code should neither be overly prescriptive nor a one-size-fits-all affair, given the wide diversity of these funds, the report said. He added that the guidelines, should be largely voluntary and be kept general and flexible, while also applied to other investors such as hedge and private equity funds.

Found mostly in the oil-rich Middle East and Asia, but also in Russia and Norway, government-owned sovereign wealth funds control an estimated US$2.5 trillion (euro1.7 trillion) in assets, with analysts predicting the value of their holdings could reach as much as US$12 trillion (euro8.2 trillion) by 2015.

Critics contend that most of the funds offer little transparency and could flex their political power by taking key stakes in foreign defense companies, major banks and other companies.

Weekend's Special: Feng Shui, Balancing Our Energies

Human beings are subject to subtle energies that influence our attitudes, behaviour and health. These energies can be controlled and redirected for our benefit in our environment, whether at home or at work. The study and implementation of this art is called Feng Shui.

What Feng Shui Is

Literally, it means "wind and water". It refers to the Chinese art of balancing subtle energies (chi) in our surrounding environment. Feng Shui seeks to harmonise the elements of nature by establishing a balance of energies in our environment based on directional principles, seasons and colours.

Just as fresh air and clean water nourish our bodies, so does fresh, clean chi nourish our homes and our lives. When the flow of chi through our space is blocked, weak, or misdirected, our relationships, cash flow, creativity, health, and career can suffer. Chi wants to meander gracefully through a space, like a gentle breeze or a winding stream. When it flows too strongly, it becomes like a hurricane or flood. We are likely to feel tossed about by winds of change, unstable, prone to crises, struggling to "keep our heads above water." Where chi is blocked it becomes stale and stagnant, like a pond choked with algae and fallen leaves. We may feel tired, run down, depressed, unable to focus, hampered in our efforts to move forward in our lives.

In a corporate environment, poor feng shui can result in miscommunication between managers and employees, conflicts among team members, and lack of support for key initiatives. Individuals may be overlooked for promotions or deserved raises, suffer damage to their reputation in the company, or even lose their job. The company may have difficulty attracting or keeping key customers.

In a retail store, feng shui problems can block the flow of customers into and through the store, contribute to theft and staffing problems, and have a negative effect on the amount and size of sales.

Feng shui provides tools and guidelines for analyzing and correcting the flow of energy into and through our space. It uses the arrangement of rooms and the placement of furniture to create a smooth pathway for chi through a home, office, or retail location. Blockages and other forms of negative chi are removed or counteracted in order to welcome in opportunities and encourage progress. Colors and shapes associated with the five elements-wood, fire, earth, metal, and water-are used to create movement, balance, or protection, depending on the needs of the client. Imagery and objects such as paintings, photographs, statuary and other accessories are chosen and placed to enhance and reinforce the client's intention.

Feng Shui reminds us that everything is connected, and that our physical surroundings have a significant impact on our mind, body, and spirit. It teaches us to be mindful caretakers of our environments, so that we may be mindful caretakers of our lives.

Yin and Yang

Feng shui considers yin, feminine and passive energy, and yang, which is masculine and hot. It also looks at the five elements - water, fire, wood, metal, and earth, and the external environment.

The points on the compass, with eight separate directions - north, northeast, east, southeast, south, southwest, west, and northwest - are also important.

A feng shui expert, known as a geomancer, will consult an individual's Chinese horoscope to figure out what is best for that person and use complicated mathematical calculations from the ancient I Ching, (Book of Changes), to determine what aspects of the house are out balance.

Bad Luck Features

Certain features in your external environment can adversely effect the feng shui of your building. These "poison arrows" can be responsible for ill-fortune in the form of robbery, legal entanglement or serious ailment. It is, therefore, necessary to identify the not so obvious poison arrows in your environment and to deal with them.

The poison arrow pointing at your main door could be a straight long road forming a T- junction. This brings dangerous chi into your house. Other locations where chi is too strong are houses on the dead end of a street or those on curved roads. The harmful effect of hitting chi can be neutralised by means of feng shui cures. The 'poison arrow' coming from a westerly direction can be set right by placing a spotlight above the door pointing towards the road. Whereas the cure for a south road is to place a large boulder between the door and the road.

An electric pole or a large single tree outside your main gate also acts as a 'poison arrow'. Flyovers and bridges with fast moving traffic can also generate negative energy around your house. Trouble can come in the form of a new building in your neighbourhood.

Deflect "Poison Arrows"

All these 'poison arrows' can be deflected by hanging an octagonal Pa Kua mirror above your front door, though this is not without its risks. This eight sided mirror has a convex or concave mirror in the centre, surrounded by trigrams on eight sides. Never hang this mirror inside the house. The Pa Kua mirror can harm your neighbours if it faces their main door. A better alternative to it is a 5-rod wind chime.

Inside a house, secret poison arrows are present in the form of pillars, overhead beams, open shelves and pointed corners of furniture. A corner can be softened by placing a plant or a sculpture in front of it. You will experience good feng shui (wellbeing from energetic balance) once you have neutralised the exterior and interior features which are responsible for bad luck.

Weekend's Featured: Possible Recession Forces Trade Talks While Stocks End This Week Down

Amid a Possible Recession, Trade Ministers Seek to Advance Talks in Davos.

With fears of a global recession growing, trade ministers met in the Swiss Alps on Saturday to see if they could advance long-stalled global commerce talks and provide a boost to a troubled world economy.

While expectations have been low, the meeting of about 20 countries could provide an indication of whether hopes can be revived for a global trade pact, touted as the best way to lift millions of people out of poverty worldwide.

It comes a day after U2 frontman Bono, Queen Rania of Jordan, Microsoft co-founder Bill Gates and other prominent speakers at the World Economic Forum demanded that people and businesses everywhere help reduce poverty for "the bottom billion" -- who struggle to survive on less than $1 a day.

"We are here to say one thing loud and clear: Not on our watch," said U.N. Secretary-General Ban Ki-moon. "We should be the champions of the weak and disadvantaged, those who suffer the most grinding poverty."

A deal in the so-called Doha round of trade talks could be one way to improve their fortunes. It aims to cut tariffs and slash subsidies in global manufacturing and agriculture, with a particular emphasis on helping poorer countries develop their economies.

Rich countries would also benefit through new export opportunities, according to the blueprint agreed to in 2001. The talks, however, have repeatedly stalled and missed countless deadlines as a result of fierce battles between the United States, the European Union and other rich nations, and emerging powers such as Brazil, China and India.

Japan's leader, meanwhile, met with Bono, Gates, Senegalese President Abdoulaye Wade and others to discuss ways to help sub-Saharan Africa. "They conveyed to me what we should do to address issues of African development," Prime Minister Yasuo Fukuda said.

On Friday, British Prime Minister Gordon Brown said it was imperative that the world step up efforts to reach a series of sweeping U.N. goals to cut extreme poverty by half, give all children an elementary education, improve access to clean water and reverse the AIDS pandemic. "In Davos we tell the truth," he said, "that there is a development and poverty emergency around the world, that if we do not act we have no chance of meeting the Millennium Development Goals by 2015."

Gates, who later this year will be stepping down as Microsoft chairman to concentrate full-time on his massive philanthropic foundation, led by example, announcing a grant of $306 million to help millions of African farmers and others work their way out of poverty.

Wall Street Ends Volatile Week Down

Stocks Cap Volatile Week With Sizable Decline; Microsoft Results Help Tech Index.

Wall Street ended a tumultuous week with a sharp decline Friday, backtracking following two days of stunning gains as investors turned cautious and cashed in some of their winnings. The Dow Jones industrial average still managed to record its first weekly advance of 2008, even as it fell more than 170 points on the day.

The week, which started with a 465-point drop in the Dow soon after the market opened Tuesday, showed that the stock market is still fractious but may be going through healthy process of trying to establish a bottom following weeks of sharp declines.

Investors had an initial burst of enthusiasm Friday, sending each of the major indexes up more than 1 percent, after upbeat profit reports from big names like Microsoft Corp. and word of a possible buyout of a trouble bond insurer. But the advance proved short-lived and the eventual decline wasn't surprising given that investors putting down bets ahead of the weekend were coming off two days of big gains -- including 400 points in the Dow.

"People may be looking to take some profits off the table in this volatile market. And there's a lot of activity that's coming up next week," Scott Fullman, director of investment strategy for I. A. Englander & Co., said during the day's back-and-forth trading.

President Bush is scheduled to deliver his State of the Union address Monday. Meanwhile, the Federal Reserve is expected to hold its first regularly scheduled meeting of the year on Tuesday and Wednesday, and then the Labor Department will weigh in on the state of the job market on Friday.

Despite the pullback, Wall Street's tone Friday stood in sharp contrast to the intensely dour mood that hung over the market when the week began. While U.S. markets were closed Monday for Martin Luther King Jr. Day, stocks in Asia and Europe plunged amid fears of a precipitous slowdown in the U.S. economy. To stave off a similar sell-off in the U.S. over recession fears, the Fed stepped in before the opening bell Tuesday with an emergency interest rate cut.

The central bank's move to lower rates by a big 0.75 percentage point to 3.5 percent helped shore up investors' confidence and led stocks to end the day well off their lows, although they still closed down. A day later, on Tuesday, Wall Street had an astonishing about-face, with the Dow swinging more than 630 points and turning a sharp sell-off into huge gains. Stocks then extended their advance Thursday. The Fed is widely expected to cut rates again at next week's meeting; many analysts expect a half-point cut.

With Friday's decline, the market might well be following the pattern of past corrections, when huge gains were often followed by some retrenchment. Many market watchers consider such backing and filling a sign of health. However, with much economic uncertainty ahead, investors may need months before they can decide whether to take the market solidly higher.

The Dow fell 171.44, or 1.38 percent, to 12,207.17. The Dow had been up more than 100 points in the early going. Broader stock indicators also fell. The Standard & Poor's 500 index fell 21.46, or 1.59 percent, to 1,330.61. The technology-heavy Nasdaq composite index fell 34.72, or 1.47 percent, to 2,326.20.

Despite the huge moves seen during the week, stocks finished not far beyond where they began, with the Dow adding 108 points, or 0.89 percent. The S&P 500 ended the week up 0.41 percent and the Nasdaq lost 0.59 percent. Declining issues outpaced advancers by about 3 to 2 Friday on the New York Stock Exchange. Consolidated volume came to 4.78 billion shares, down from 5.48 billion shares traded Thursday.

Government bond prices jumped as stocks declined. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.56 percent from 3.71 percent late Thursday. The dollar was mixed against other major currencies, while gold prices rose. Light, sweet crude oil advanced $1.30 to settle at $90.71 a barrel on the New York Mercantile Exchange.

Investors are looking for clues about whether the market is due to add to its gains after a brief hiatus or whether another pullback is in the offing. Despite the increases logged this week, stocks are still down sharply in the new year. "The market is extremely sensitive to any news that's out there. A year ago, it brushed off a lot of stuff. Now, it's just the opposite, and we're seeing reactions nearly immediately when things come out," Fullman said.

Despite giving up the early gains, Wall Street still appeared pleased by reports from U.K. newspapers that billionaire Wilbur Ross was in talks to acquire bond insurer Ambac Financial Group Inc. Financial woes at many U.S. bond insurers have caused headaches in recent weeks for investors worldwide who have worried that tightness in the credit markets could worsen should one of the companies buckle under an inability to draw new business. Ambac rose 21 cents to $11.54.

Word of Ross' interest follows comments this week by New York State regulators that indicated they would consider lending support to shore up the struggling bond insurance industry. While uncertainty remains over what role regulators might play, the comments initially helped reassure Wall Street and made room for stocks to rally.

Other corporate news appeared to offer investors mixed readings on the economy. Microsoft finished down 31 cents at $32.94 after spending much of the session higher. The company raised its forecast for the rest of its fiscal year, which ends in June, and said its quarterly earnings jumped 79 percent. Microsoft cited the growing importance of its sales outside the U.S.

Overseas, Britain's FTSE 100 closed down 0.12 percent, Germany's DAX index finished off 0.06 percent, and France's CAC-40 fell 0.76 percent. Japan's Nikkei stock average jumped 4.10 percent after falling sharply earlier in the week. Hong Kong's Hang Seng index likewise surged 6.73 percent by the close.

The Dow Jones industrial average ended the week up 107.87, or 0.89 percent, at 12,207.17. The Standard & Poor's 500 index finished up 5.42, or 0.41 percent, at 1,330.61. The Nasdaq composite index ended down 13.82, or 0.59 percent, at 2,326.20. The Russell 2000 index finished the week up 15.42, or 2.29 percent, at 688.60.

The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended Friday at 13,423.62, up 115.17 points, or 0.87 percent, for the week. A year ago, the index was at 14,358.67.

Societe Generale Trader Bet Tens of Billions

French Bank Trader Was Dealing in Tens of Billions of Euros.

French bank Societe Generale said Friday a rogue trader who cost it more than $7 billion by making bad stock market bets had been gambling on a much larger scale -- tens of billions of dollars of the bank's money.

As the depth of the risk to the bank became clearer, small shareholders questioned controls at Societe Generale and other leading banks, and France's prime minister joined skeptics wondering whether a lone trader could have been fully responsible for such major damage.

The bank, France's second-largest, apologized to shareholders in full-page newspaper ads after announcing the fraud, apparently the biggest ever carried out by one person. The news Thursday rattled an already jittery banking sector.

French police also conducted a search Friday at the home of the trader, 31-year-old Jerome Kerviel, spending more than two hours at his suburban Paris apartment before leaving with two large black leather cases and one briefcase. Prosecutors have already opened a preliminary investigation into the bank's accusation of fraud against Kerviel and into complaints by two small shareholders.

The fraud cost Societe Generale 4.9 billion euros, or more than $7 billion, but a bank official said Friday that Kerviel's positions had reached "several tens of billions of euros." The official spoke on condition of anonymity because of company policy on such matters.

French presidential aide Raymond Soubie said on LCI television that the trader had been dealing with more than 50 billion euros, or more than $73 billion. That figure easily outstrips the bank's market capitalization of 35.9 billion euros ($52.6 billion), and is close to the annual gross domestic product of entire nations such Slovakia, Qatar or Libya.

The debacle generated buzz at the World Economic Forum in Davos, Switzerland, with executives expressing shock that it could have happened to one of Europe's most respected financial institutions. The case also raised questions sector-wide about risk management.

"In a bull market, often the risk management does not cope with the significant growth in volumes, volatility, complexity of instruments," said Kinner Lakhani, an analyst at ABN Amro. "Pretty much every Wall Street management is definitely looking at this issue."

The damage might not have been as bad if it had happened in a less volatile time: The bank said it learned of the fraud last weekend. With stock markets in turmoil, Societe Generale was forced to sell the contracts built up by the rogue trader just as stocks were plunging. It took three days to unload them.

Societe Generale's unwinding of its massive positions over the next three days could even have contributed to the markets' fall, analysts said. "Any dumping will drop the price," said Mark G. Castelino, associate professor for finance and economics at Rutgers Business School in New Jersey.

He stopped short, however, of saying that Kerviel's actions affected the U.S. Federal Reserve's subsequent decision to cut its benchmark interest rate by an extraordinary three-quarters of a percentage point.

Societe Generale insisted it could weather the enormous loss. The bank's shares, which have lost nearly half their value over the past six months, fell 2.5 percent further Friday to 73.87 euros ($108.62) after an up-and-down day, following on a 4 percent drop Thursday. UBS downgraded the shares Friday bank to neutral from buy, while Deutsche Bank cut them to hold from buy.

However, Dresdner Kleinwort analysts Milan Gudka and Arturo De Frias said the bank's announcement "provides us with greater visibility and comfort. Despite our concern as to the adequacy of internal controls, we keep a positive recommendation on the stock."

The company, which also posted another 2.05 billion euro ($2.99 billion) subprime-related loss, planned to raise 5.5 billion euros ($8.02 billion) in new capital. Asian sovereign wealth funds had shown interest in Societe Generale before the fraud was announced, but analysts said the news could make the funds think twice about a quick purchase.

Shareholders and others raised questions about how Kerviel was apparently able to dodge the bank's internal controls for more than a year to make the unauthorized market bets. "One should not be able to take positions worth 40 billion (euros) without being spotted by an audit or a sophisticated computer system," said Didier Cornardeau, president of APPAC, a group representing small Societe Generale shareholders.

French Prime Minister Francois Fillon, meanwhile, said: "It is difficult ... to imagine how one person alone could, in a relatively short period of time, cause such considerable losses." He suggested the French government should have been informed immediately, instead of four days after the fraud was discovered.

Employed by Societe Generale since 2000, Kerviel worked his way up from a supporting role in an office that monitors trades to a job on the more glamorous futures desk where he invested the bank's own money by hedging on European equity market indices. That means he made bets on how the markets would perform at a future date.

Undetected by the bank's multilayered security systems, Kerviel had for over a year been fraudulently using the company's funds to bet on European stock markets, Societe Generale said. Kerviel's motive remains unclear. Three union officials representing Societe Generale employees said managers at the bank told them Kerviel was having "family problems."

Economic Evolution Would Tell Whether Fed Is in Panic

The evolution of economy in the world would determine whether the Federal Reserve overreacted in its decisions.

Monday was a holiday in the US - Martin Luther King day. But Ben Bernanke was in the chairman's office at the Federal Reserve, working through the holiday as he often does.

On his desk his Bloomberg, Reuters and Dow Jones terminals flashed red as selling in global equity markets spread from Asia to Europe. The US markets were closed, but US stock futures were still trading, and they too started to plunge. When US markets reopened on Tuesday it looked as though there would be a bloodbath.

For the chairman it was decision time. Mr Bernanke had already resolved the US central bank needed to make a radical adjustment to monetary policy. Critics were hammering the Fed for being "behind the curve". The Fed chief still believed it had made the right decisions in late 2007 but a sudden spate of negative economic and financial data convinced him that it needed to change course. But when?

Mr Bernanke had pre-announced a big shift in policy in a speech on January 10. He hoped it would be possible to hold on until the scheduled Fed meeting on January 30 before making a dramatic interest rate change. But the slide in world stock markets through January had raised doubts as to whether the Fed could afford to wait.

The Fed chairman contacted his two most senior colleagues, vice-chairman Don Kohn and New York Fed president Tim Geithner, to debate moving forward the rate cut. The top Fed officials knew the cost of being seen to react to market moves. Whatever they said, it would revive the notion of a "Fed put" - a de facto guarantee against a sharp market decline.

But they reasoned that the costs of waiting were higher. A self-feeding market rout could take hold that would damage household wealth, raise the cost of capital for business and risk aggravating negative "feed-back loops" in the economy, with banks in particular pulling back from lending.

At 6pm Mr Bernanke convened the Federal Open Market Committee by videoconference and explained his judgment. There was resistence among the regional Fed presidents - Bill Poole, president of the St Louis Fed formally dissented. But Mr Bernanke carried the day.

At 8.20am on Tuesday the Fed announced it was cutting rates by 75 basis points - the largest single cut since the Fed began basing policy on the Federal Funds rate in 1990 - and promised more to come.

The move helped to arrest the market slide, but opinion among investors was sharply divided. "A 75 basis point cut eight days before the next meeting smacks of a panic," said Max Bublitz, chief strategist at SCM Advisors. Others were more upbeat. "The Fed did not panic, it took a very bold and risky gamble," said Macro Annunziata, chief economist at UniCredit Markets.

Mr Bernanke did not learn until a day after the cut that one reason why markets plunged on Monday was that Société Générale was unwinding billions in index futures trades built up by a rogue trader. For reasons that are unknown to the Fed, the Banque de France, which had known about the SocGen problem since at least Saturday and probably Friday, only briefed the Fed on Wednesday.

Mr Bernanke and his colleagues reasoned that even if they had known this on Monday, they would have acted the same way. But when the SocGen story went public on Thursday, many in the market concluded that the Fed had been bounced into action by a false signal.

Ed Yardeni, president Yardeni Associates, said the statement following the January 30 meeting should read as follows: "The Fed chairman panicked on Monday . . . He convinced all of us to vote for the rate cut except for cranky old Bill Poole. We now realize that the crash was caused by Société Générale which had to cover a massive long position in stock futures attributable to fraud committed by rogue trader Jérôme Kerviel. So we decided not to cut the Federal Funds rate again this time." Alan Rushkin, strategist at RBS Greenwich Capital, said: "The episode will further dent Fed credibility."

Many analysts were horrified at the lack of co-ordination between the Fed, the Banque de France and European Central Bank. "Is the level of communication between central banks as good as it once was?" asked Avinash Persaud, chairman of Intelligence Capital.

However, others were more willing to accept the Fed claim that information about SocGen would not have made any difference. "The idea that all this was caused by one trader's mistake is very convenient but there are worse things out there," said a senior European investment banker.

Richard Berner, chief US economist at Morgan Stanley, said: "There were a number of other market factors that were not related to SocGen and more to the downgrade of the monoline insurers." He added: "I personally believe the Fed thought they had gotten behind the curve, recognised that and wanted to catch up."

John Taylor, a professor at Stanford, said: "This to me was moving forward something that was going to happen anyway. The idea of doing it in the middle of very difficult market times seems to me was a good thing."

However, Alan Blinder, a professor at Princeton, said that while the substance of the Fed move was right, it was paying the price for not having moved on January 10 when Mr Bernanke gave his big speech. "The unfortunate thing was the timing," he said. Because the Fed tried to wait, then reacted to a market rout, it was exposed when it turned out the causes of the rout were not as the Fed believed.

For their part senior Fed officials insist the SocGen news will have no bearing on their decision on January 30 - when they are widely expected to cut interest rates by 50bp. Experts inside and outside the Fed say the evolution of the economy will ultimately show whether Mr Bernanke and his colleagues overreacted to market signals - or did what was necessary, possibly even a bit late in the day.

Bill Gates Gives Optimism in Economic Forum

Bill Gates Gives World Economic Forum Burst of Optimism After Much Somber Talk.

Buoyed by optimism from Bill Gates, business and government leaders at the World Economic Forum on Friday set aside two days of confronting fears and considered the positive things they can do.

Gates, the Microsoft chairman and co-founder, announced that he was setting an example with the foundation set up by him and his wife, Melinda. He said they were giving $306 million to help millions of African farmers feed themselves and others and work their way out of poverty in a new green revolution using targeted technology and training.

The Bill & Melinda Gates Foundation, which has concentrated on improving health in poor parts of the world, has decided it is time to improve agriculture, he told reporters. "Why do we think agriculture is so important?" said Gates. "Of the billion people who live on less than $1 a day, three-quarters are small farmers. And often it is actually the woman who is doing her best to both create crops for eating and earn some cash to buy other things."

Gates on Thursday urged business to work with governments and nonprofit groups in a new kind of capitalism to stem global poverty and spur more technological innovation for those left behind. But despite the optimism, economic turbulence still lingered over the World Economic Forum's annual meeting.

Indian Finance Minister Palaniappan Chidambaram said that the threat of a global slowdown would hurt his country, one of Asia's biggest economies. A "slowdown is a precursor to a recession and I think that is worrying," he said. "It is especially worrying to developing countries like India."

The first two days of discussions in the five-day annual meeting of 2,500 leaders were devoted largely to what might be done to stave off recession and combat terrorism and conflict in global hotspots like Afghanistan, Pakistan and the Middle East.

On Thursday the forum challenged -- and heard challenges from -- leaders from the Middle East and South Asia, with Israel's foreign minister calling directly on global business leaders to pull their money out of Iran, and participants voicing concern that elections under Pakistani President Pervez Musharraf would not be free and fair.

Musharraf, on a European tour to build confidence after months of political turmoil at home, told business and government leaders that the elections would be transparent. He brushed off complaints about human rights, saying that combating illiteracy and poverty and fostering political stability were far more important if his country was to eliminate terrorism.

Israeli Foreign Minister Tzipi Livni urged the leaders to take a personal stand against Iran's leadership by divesting from the country. "Iran exports terrorism, destabilizes the region, denies the Holocaust and threatens to wipe Israel, my home, off the map," said Livni, referring to Iranian President Mahmoud Ahmadinejad's frequent calls for the elimination of Jewish state. "If every company here and every country here would decide to divest from Iran, this would stop Iran," she said. "Iran is a global threat and Iran can be stopped by you."

Largest Rise in Decade for Japan CPI

Japan's CPI Marks Biggest Increase in Nearly a Decade in December on Higher Energy Prices.

Japan's core consumer prices rose their most in nearly a decade in December and the economy minister warned the trend -- fueled by higher energy prices -- could hurt consumption. The core consumer price index rose 0.8 percent in December from a year earlier, according to data released Friday by the Ministry of Internal Affairs and Communications. That's its fastest rise since a 1.8 percent increase in March 1998.

"Rising oil and commodity prices are having an effect," Hiroko Ota, the economy minister, told reporters. "With wages not increasing, increases in prices of products related to people's everyday needs are a negative factor for consumer spending," she said.

Policy makers in resource-poor Japan, which buys most of its oil from the Middle East and imports much of its food, are increasingly concerned about expensive global commodities. Consumer sentiment has been deteriorating amid higher prices of gasoline and heating oil, and weak domestic demand meanwhile prevents small businesses from passing on high material costs to consumers. "Rises in crude oil prices have nothing positive for Japan," Ota said.

Friday's reading was above the 0.6 percent gain forecast by economists polled by Dow Jones Newswires and the Nikkei. The December result for the core index, which excludes volatile fresh food prices, marked the third straight month of increases, and followed a 0.4 percent gain in November.

As well, the core index covering the Tokyo metropolitan area for January, considered a leading indicator for nationwide consumer prices, rose a preliminary 0.4 percent on year, the data showed. The Tokyo CPI figure beat economists' forecasts of a 0.3 percent rise for the third straight month of gains.

Despite accelerating inflation in consumer-product prices, economists say the latest data is unlikely to make the Bank of Japan lean more toward raising interest rates in the near-term amid the current uncertainty over the global economy.

China's Economy Grows 11.2%, Inflation 4.8% in 2007

China's Economy Grows 11 Percent in Quarter; Remains Vibrant Amid Worries About Global Slump.

China's economy grew by a blistering 11.2 percent in the fourth quarter, propelling annual growth to its fastest rate in 13 years, the government said Thursday, showing that China remains vibrant despite worries that a possible U.S. recession will drag on global growth.

Analysts say China -- closing in on Germany as the world's third-largest economy -- could help to drive world growth in the event of a U.S. slowdown, though they say it alone cannot fill the whole gap. China's growth slowed only slightly from the third quarter's 11.5 percent rate. For all of 2007, China grew by a stunning 11.4 percent, the biggest rise since 1994.

A government official warned that China still faces risks of overheating despite efforts to restrain borrowing and investment. Surging inflation eased slightly in December to 6.5 percent but was still near decade-high levels, thanks largely to soaring food prices, the National Bureau of Statistics reported.

"The risk of the economy shifting from rapid growth to overheating still exists," the director of the National Statistics Bureau, Xie Fuzhan, said at a news conference. The rapid growth has been driven by a boom in exports and investment and came despite repeated interest rate hikes and official curbs meant to slow spending on real estate and other assets that regulators worry could ingite a financial crisis.

Xie said Beijing is paying "close attention" to the U.S. credit crisis and a possible U.S. slowdown but did not directly answer a question about what its impact on China was expected to be. He said Beijing would respond by making "timely and proper adjustments" in exchange and interest rate policy but gave no details.

China's total 2007 output was 24.7 trillion yuan, according to Xie, or $3.4 trillion at current exchange rates. Germany has yet to report 2007 economic data, but its government has forecast 2.4 percent growth, which would raise its annual output to 2.4 trillion euros, or $3.5 trillion. That would make China's economy about 5 percent smaller than Germany's.

Xie said he did not know when China might overtake Germany in output and played down the comparison. He said it will depend on exchange rates, not just economic activity, and noted that China is still much poorer per person. "It's not really important to know whether China is the fourth-largest or the third-largest. Even if the total surpasses Germany, China is still a developing country," he said. "In particular, the per-capita GDP of China is really low."

The government has been struggling to contain an inflation surge that began in mid-2007 as food prices rose. Inflation in food costs hits China's poor majority especially hard, and Chinese leaders worry that this could lead to political tension and have imposed a slew of measures to curb increases.

Consumer prices in December rose 6.5 percent compared with the year-earlier period, down from 6.9 percent in November, the fastest rise in 11 years. For all of 2007, prices rose 4.8 percent, well above the official target of 3 percent, according to the bureau. "Consumer prices rose rapidly and housing costs went up by a large margin in 2007," Xie said.

The inflation surge has been confined mostly to food and is blamed on shortages of pork and grain, but Beijing worries that continued high price rises could start to push up costs in other parts of the economy.

The government has tried to increase food supplies by giving pig farmers and others more aid, but double-digit monthly increases have continued. Last week, the cabinet took its most drastic step yet, ordering food producers to get government permission for any new price increases. This week, the government extended the order to fertilizer prices in order to cushion the impact on farmers.

Housing costs also have been rising sharply -- up 10.5 percent in December compared with the year-earlier period -- though they are not included in the government's consumer inflation rate. The government has imposed lending curbs to discourage speculation and tried to cushion the impact on the poor by ordering developers to build more small, inexpensive apartments.

Elsewhere in the economy, industrial output jumped by 18.5 percent last year compared with 2006, a growth rate that was 1.9 percentage points faster than the previous year, according to Xie. Investment in factories and other urban assets rose by 24.8 percent compared with 2006, an increase of 0.9 percentage points from the previous year's growth rate, he said.

Economic Rescue Package Deal Getting Closer

Deal on Emergency Economic Rescue Package Closer As Lawmakers, White House Make Concessions.

House Democratic and Republican leaders are looking for imminent agreement with the White House on an emergency package to jolt the economy out of its slump after negotiators on all sides made significant concessions at a late-night bargaining session.

House Speaker Nancy Pelosi agreed to drop increases in food stamp and unemployment benefits during the Wednesday meeting in exchange for gaining a rebates of at least $300 for each person earning a paycheck, including low-income earners who make too little to pay income taxes.

Families with children would receive an additional $300 per child, subject to an overall cap of perhaps $1,200, according to a senior House aide who outlined the deal on condition of anonymity in advance of formal adoption of the whole package.

Pelosi, D-Calif., and House Minority Leader John Boehner, R-Ohio, had yet to reach agreement on a package of tax breaks for businesses after estimates showed a tentative business tax agreement could exceed $70 billion, far more than had been expected, the aide and a Democratic lobbyist said.

Pelosi and Boehner appeared optimistic as they left their third extended negotiating session of the day with Treasury Secretary Henry Paulson. "We'll have more to say tomorrow," Boehner said. "We're hopeful."

However, Pelosi's spokesman said another negotiating session tentatively scheduled for Thursday morning was postponed because the speaker first needed to brief fellow Democrats on the emerging but plan.

Democratic aides said greater GOP flexibility over giving relief to poor families with children -- who would not have been eligible under President Bush's original tax rebate proposal -- was the catalyst that moved the talks forward. Asked whether agreement was near, Pelosi said, "We're moving toward that, but all the issues are not resolved."

The business tax portion still being negotiated would give businesses incentives to invest in plants and equipment, give small businesses more generous expensing rules and allow businesses suffering losses now to reclaim taxes previously paid. The last item on spreading operating losses was proving to be unexpectedly expensive.

Pelosi pressed to make sure tax relief would find its way into the hands of lower-income earners while Boehner pushed to include upper middle-class couples with incomes of up to $130,000 or so, according to congressional aides.

Bush backs larger rebates of $800-$1,600, but his plan would have left out 30 million working households who earn paychecks but don't make enough to pay income tax, according to calculations by the Urban Institute-Brookings Institution Tax Policy Center. An additional 19 million households would have received only partial rebates under Bush's initial proposal.

Rep. Barney Frank, D-Mass., said negotiators also were near an agreement on an overhaul of the Federal Housing Administration that would make it easier for thousands of homeowners with ballooning interest rates to refinance into federally insured loans. That measure might advance separately of the tax relief package, however.

Both sides agreed to allow Fannie Mae and Freddie Mac -- government-sponsored companies that are the two biggest U.S. financers and guarantors of home loans -- to buy loans much larger than the current $417,000 limit, aides and lobbyists said. Frank said that lending cap might reach as high as $700,000 in areas with the highest home prices.

Pelosi's decision to drop expanding unemployment payments and more money for food stamps -- which many lawmakers had assumed would be included in the package -- could prove very controversial with Democratic constituencies such as unions, who were already stung by a decision to deny states more money for their Medicaid programs. Many Democrats had pressed to extend unemployment benefits for people whose 26 weeks of benefits have run out, but Republicans resisted.

World Economic Forum Opens in Switzerland

Global Leaders Gather in Switzerland Amid Uncertain Economic Future Worldwide.

The outlook for the global economy this year is decidedly dour, but leading economists at the World Economic Forum in Switzerland had mixed views Wednesday about the possibility of a global recession.

Economists from Asia and the United States and government ministers from India and China said the U.S. economy was on a downward course. "If there is a tremendous slowdown in the U.S. economy, then we must be worried about it," said Yu Yongding, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, as concern grew over market turmoil and a possible U.S. recession. He said China's growth could help it weather any slowdown as the nation expands trade with countries outside the United States.

Stephen Roach, chairman of investment bank Morgan Stanley in Asia, said there would be ramifications for world markets should the globe's largest economy falter. Asked by a Mexican businessman if his country would be spared if the U.S. goes into recession, Roach was blunt. "My good friend from Mexico, you're in trouble," Roach said. "Mexican exports to the U.S. account for 25 percent of your GDP. Same number for Canada. How can the U.S. go into recession and Mexico be fine?"

Nouriel Roubini, chairman of New York-based Roubini Global Economics, cited the maxim that if the U.S. economy sneezes, the rest of the world catches a cold, but said this time the diagnosis in the U.S. was worse. "In this case the U.S. is going to have a protracted case of pneumonia," he said.

The impact of the sluggish U.S. economy, and what it may portend for other nations, hung over the event, even after the U.S. Federal Reserve Bank cut its benchmark refinancing rate to 3.5 percent from 4.25 percent in response to the latest worldwide market downturn.

Economists also split over the role of central banks and whether institutions like the Fed were equipped to steer the global economy out of danger. John Snow, the former U.S. Treasury secretary, said central banks have performed remarkably over the last two decades -- better than any time in history, perhaps -- and continue to make the necessary adjustments. "The issue of whether central banks are capable of vigorous action, bold action, was answered yesterday," Snow said, referring to the Fed's interest rate cuts. "They can't see the world ahead perfectly, but who can?"

But Joseph Stiglitz, the 2001 Nobel Prize winner for economics and a critic of free market champions, and billionaire philanthropist George Soros, disagreed. "What we have now are the foreseeable consequences of bad economic management," Stiglitz said.

Lawrence Summers, former Harvard University president and Treasury secretary under U.S. President Bill Clinton, said central banks have lost their way. "I think it's hard to give central banks a very high grade over the last couple of years on recognition of ... bubbles and the ability to address them," he said. "I think it's hard to give a high grade over the last 6 months when the bubbles have been bursting and (the banks) have been behind the grade."

The Forum, now in its 38th year, will touch on other issues affecting the world including terrorism, a workable peace process in the Middle East and how technology is ushering in a new age of social networking without borders.

U.S. Secretary of State Condoleezza Rice and Afghan President Hamid Karzai were scheduled to address the opening reception later Wednesday. Rice is also expected to meet with Pakistan President Pervez Musharraf and Karzai in closed-door sessions. Her meeting with Musharraf will be the first since the assassination in December of opposition leader Benazir Bhutto, an event that pushed the nuclear-armed Pakistan into near chaos.

In a nod to concern about climate change, Rajendra K. Pachauri, chairman of the U.N.'s Intergovernmental Panel on Climate Change is to speak. Al Gore, who shared the 2007 Nobel Peace Prize with the panel, is also participating in the five-day meeting.

A year ago, Davos attendees foresaw a strong economy. The credit crisis brought on by massive exposure to subprime mortgage securities has changed that. "It's not about a soft landing or a hard landing," Roubini said, but "rather how hard a landing it will be." "We're seeing a financial system that is under severe stress," Roubini said. "The Fed cannot prevent this recession from occurring."

Klaus Schwab, founder and executive chairman of the Geneva-based forum, said the meeting's "unique combination of the world's top business and political leaders, together with the heads of the world's most important NGOs, and religious, cultural and media leaders allows us to approach the problems that face the world in a systematic way and with an eye to tackling the major issues that face us all."

The meeting itself will feature participants from 88 countries, including British Prime Minister Gordon Brown and Microsoft Corp. co-founder and chairman Bill Gates.

Fed Cuts Interest Rate by 0.75%

Fed Cuts Interest Rate Amid Global Stock Sell-Off and Fears of Recession.

The rate cut's rock'n'roll hasn't probably finished yet, and previous rate bottom target at 3.25 to 3.5% is bound to be revised lower to about 2.5 to 3%.

The Federal Reserve unexpectedly slashed a key interest rate by a bold three-fourths of a percentage point on Tuesday, responding to a global plunge in stock markets that heightened concerns about a recession. The Fed signaled that further rate cuts were likely.

The reduction in the federal funds rate from 4.25 percent down to 3.5 percent marked the biggest reduction in this target rate for overnight loans on records going back to 1990. It marked the first time that the Fed has changed the funds rate between meetings since 2001, when the central bank was battling the combined impacts of a recession and the terrorist attacks.

Federal Reserve Chairman Ben Bernanke and his colleagues approved the large rate cut after an emergency video conference on Monday night, a day when global markets had been pounded by rising concerns that weakness in the world's largest economy was spreading worldwide.

Despite the Fed's bold move, Wall Street plunged at the opening with the Dow Jones industrial average down 465 points before stocks began to rebound. The Dow finished the day off 128.11 points at 11,971.19. Analysts said the milder decline at the end of the day after such a rough start showed the Fed's effort to reassure Wall Street had an impact.

In a brief statement explaining its move, the Fed said that "appreciable downside risks to growth remain" and officials pledged to "act in a timely manner" to deal with the risks facing the economy. The action was approved on an 8-1 vote.

Analysts said the fact that the Fed did not wait until its meeting next week to cut rates underscored the seriousness of the situation. "The world's stock markets are in meltdown so the Fed came in with an inter-meeting move to try to stop the panic," said Christopher Rupkey, senior economist at Bank of Tokyo-Mitsubishi.

The Bush administration, which had announced on Friday that President Bush supported a $150 billion economic stimulus package, said Tuesday that it was not ruling out doing more than the $150 billion proposal if necessary. Bush and Treasury Secretary Henry Paulson were conferring with congressional leaders at the White House on Tuesday, with all sides saying they want to reach agreement quickly.

The Fed was expected to cut rates further, possibly as soon as their next meeting on Jan. 29-30, if there are continued signs that the economy is weakening. "This move by the Fed was essential," said Lyle Gramley, a former Fed governor who is now a senior analyst with the Stanford Financial Group in Washington. "Bernanke promised in a speech earlier this month to take substantive action in a timely and decisive manner." Gramley said that Bernanke was now exercising the kind of forceful leadership the markets had been hoping to see since the credit crisis hit in August.

David Jones, chief economist at DMJ Advisors, said Fed officials have a range of options available at next week's meeting from a quarter-point move to a half-point move to holding rates steady but indicating the Fed is prepared to move again between meetings should conditions deteriorate further. Jones predicted the Fed would lower the funds rate to 3 percent by the end of March.

In addition to cutting the funds rate, the Fed said it was reducing its discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4 percent.

Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent.

Global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world's largest economy, could be headed into a recession. Many markets suffered their biggest declines since the September 2001 terrorist attacks.

In its statement, the Fed said it had decided to cut the federal funds rate "in view of a weakening of the economic outlook and increasing downside risks to growth." The central bank said that the strains in short-term credit markets have eased a bit, but "broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

Before Tuesday's move, the Fed had cut interest rates three times, beginning in September, the month after a severe credit crunch had roiled Wall Street and global financial markets. The Fed cut the funds rate by a half-point in September and then by smaller quarter-point moves in October and December.

"The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risk," the Fed statement said.

The Fed's action was approved on an 8-1 vote with William Poole, president of the Fed's regional bank, dissenting. The statement said that Poole objected because he did not believe current conditions justified a rate move before the Fed's meeting next week.

EU Economy Chief Blames US Debt for Causing Turmoil

EU Economy Chief Blames Huge U. Debt for Plunging Shares.

The EU's economy chief on Tuesday blamed the United States' overspending for plunging shares on world stock exchanges, saying Europe was in better shape and could weather the storm despite the risk of its economy slowing.

"The main reason why the equity markets have this extreme volatile situation these days is the risk of a recession in the U.S., it's not about a global recession," EU Economic and Monetary Affairs Commissioner Joaquin Almunia. "Big imbalances have been created, have built over the years in the U.S. economy, a big current account deficit, a big fiscal deficit, a lack of savings," he said after he met with EU finance ministers. The current account is the broadest measure of foreign trade.

"This is not at all the situation in our European economies. Our fundamentals are solid," he said. "We have a positive current account position, we have a level of savings in our economies that is the level required to finance our investments. We have a sound fiscal position."

Shares -- that until now largely escaped the subprime fallout -- fell sharply worldwide Monday amid investor skepticism over U.S. President George W. Bush's multibillion-dollar (-euro) tax relief plan, which aims to increase consumer spending and prevent a recession.

Britain's benchmark FTSE-100 slumped 5.5 percent to 5,578.20; France's CAC-40 Index tumbled 6.8 percent to 4,744.15, while Germany's blue chip DAX 30 plunged 7.2 percent to 6,790.19. European stocks fell but recovered on Tuesday and were mixed in morning trading.

Almunia called for "calm and serenity" saying European officials would have to carefully watch markets and stand ready to act if necessary. "We are well prepared to weather this situation even if we cannot ignore the risks of our growth being affected by this turmoil," he said, acknowledging that the European economy will likely grow less than its potential this year.

Both British and German officials chimed in saying their economies were also sound. German deputy finance minister Thomas Mirow told reporters in Brussels that businesses' order books were full and banks were still enjoying strong demand for credit.

In London, British Prime Minister Gordon Brown's spokesman Michael Ellam said current financial turmoil was "clearly a global phenomenon originating in the U.S." He stressed that Britain was still enjoying low inflation and a steady growth trend.

But Almunia said it was obvious that Europe faced an uncertain period sparked by the emergence of huge losses in the U.S. housing market last August. It is still unclear how far tighter credit conditions will affect companies trying to secure loans and homebuyers seeking a mortgage -- factors which could brake the domestic demand that the European economy now largely rests on.

The U.S. Federal Reserve cut rates by three-quarters of a point Tuesday, and central banks in EU states Britain and Sweden have also cut borrowing costs to encourage lending -- a move the European Central Bank has so far avoided as it keeps interest rates on hold for the euro area.

The EU's economy chief insisted that EU nations needed in the meantime to push on with "clear and predictable" policies such as efforts to eliminate budget deficits and a three-year program to boost jobs and growth by reforming their economies and investing more in research and education.

Recession or Not, Investors Still Have Choices

While Wall Street Debates Likelihood of Recession, Investors Shouldn't Wait to Place Bets.

While Wall Street debates whether the U.S. is headed for recession, investors don't have to wait for an answer -- they can take steps to limit their risks beyond simply defensive moves like rushing into bonds or converting investments to cash. A slowing economy requires investors to become more selective and take a long-term view while also looking for stocks and other investments that might fare better in a sputtering economy.

Companies involved in agriculture, fertilizer and commodities are poised to do well because of increasing demand from fast-growing economies including China and India, said Todd Salamone, vice president of research at Schaeffer's Investment Research in Cincinnati. "Despite all the talk about recession, despite all the slow growth -- these are the sectors that have bucked the trend," he said.

Salamone noted that while these stocks already have had a good run, they're still worth betting on because they're less likely to suffer under the vagaries of the U.S. economy than, say, the retail, housing and airline sectors. Although Salamone sees the wisdom in buying when a sector has been beaten down and making contrarian moves to scoop up bargains, he believes that investors should remain cautious about the financial sector. Financial services companies from investment banks to mortgage writers have been hard hit by souring mortgage loans and have seen their stock prices fall sharply. "Over the next three to 12 months, anyway, we'd say it might be too early," he said of financial stocks.

"Five to 10 years out they might be great plays but over the next year or so we just think it's too early. There's too much uncertainty, there's too much bottom-fishing in that area." Hard as it might be, setting aside emotion and looking toward long-term goals can help investors focus on sectors that show solid growth prospects.

Gordon Ceresino, vice chairman of Federated Investors' MDT Advisers, contends that employing an investment strategy that extends over at least seven years can help investors look past the day-to-day swells and swoons of the stock market and help them resist the temptation to sell their holdings when Wall Street gets rocky.

"They get too caught in the emotion and they will tend to zig when they should have zagged," said Ceresino, referring to professionals and everyday investors alike. "I'm not going to make a move because someone scared me this morning and said 'The world is coming to an end,'" said Ceresino. "You need to stay with your fundamentals and not get emotional."

Investors who just can't get past their nervousness about the market can still move into areas of safety like government-backed bonds. Market-watchers urge investors to be mindful, however, of the hazards of reacting too quickly -- someone who pulls too much money out of stocks may miss out on the start of a Wall Street rally. Indeed, investors are still debating whether the economy is already in a recession or only a mild slowdown.

Ceresino said that trying to pick when to exit and re-enter the market is a daunting challenge for any investor, even a professional. "The person that thinks they can lock in their current portfolio returns by going to cash and then time themselves back in -- what you end up doing is you end up destroying your ability to meet your long-term goal."

Bank of Japan Leaves Rate Unchanged

Bank of Japan Holds Key Interest Rate at 0.5 Percent Amid Worries About US, Global Economy.

Japan's central bank voted unanimously to leave its benchmark interest rate unchanged at 0.5 percent Tuesday, amid steep drops in global stocks and jitters about a U.S. economic slowdown. The Bank of Japan's policy-making body voted 9-0 to make no change at the end of a two-day meeting, the bank said in a statement.

The decision was widely expected as share prices plunged across the world and worries deepened over the health of the U.S. economy. Japan's benchmark Nikkei 225 index lost 5.65 percent Tuesday after dropping 3.9 percent Monday. Shares in other Asian nations also extended losses for a second straight day.

BOJ Gov. Toshihiko Fukui said Tuesday that the U.S. subprime-mortgage crisis was having a greater impact than expected on Japan. His remarks were taken as a sign that the central bank's stance on the Japanese economy has grown more bearish.

Later Tuesday, Fukui said he did not expect the problems in the U.S. housing market to end anytime soon, adding that the U.S. economy was likely to slow further through the first two quarters of 2008.

While Japan's economy remains on a path to recovery, the bank must closely watch moves in the U.S. and European financial markets, he said. "The probability that Japan's economy will continue to grow remains high," Fukui told reporters. "As for the financial situation in the background, my understanding is that we are entering a delicate phase that calls for making careful judgements about what lies ahead."

In its monthly economic report, the bank said the nation's economic performance has been weaker than what it forecast in its semiannual report in October, mainly due to a recent drop in housing investment and cautious corporate sentiment. But it left unchanged its view of the state of Japan's economy, saying it was expanding moderately as a trend though slowing due to the housing investment decline.

The bank had downgraded its assessment for the first time in three years in December. It had previously said Japan's economy was expanding moderately, without qualification. BOJ's policy makers left the unsecured overnight call loan rate -- the basic policy interest rate -- unchanged at 0.5 percent, the lowest among Group of Seven industrialized nations.

Many market players believe the BOJ won't be able to raise rates again until at least the middle of the year. It was the second month in a row that the board voted unanimously to leave rates on hold. On Jan. 15, the BOJ cut its core assessment of Japan's regional economies, the first such downgrade since the BOJ began publishing its regional "Sakura Report" in April 2005.

Singapore Sees Good Long-Term Bank Investments

Singapore State Funds See Stakes in Western Banks As 'Good Long-Term Investments'.

Singapore's two state investment agencies rigorously studied the risks involved in investing billions of dollars in troubled Western financial institutions before deciding the deals would be valuable, the government said Monday.

The state-run Temasek Holdings and Government of Singapore Investment Corporation, or GIC, were approached by cash-strapped banks such as UBS AG, Merrill Lynch &Co. and Citigroup Inc. for capital infusions amid large write-downs of their assets, the city-state's Finance Minister Tharman Shanmugaratnam told Parliament.

Temasek and the GIC "assessed the proposals rigorously" before concluding "that these were good, long-term investments and valuable additions to their overall portfolios," Tharman said. "They considered each of the banks as having a strong business franchise, and good long-term growth potential across multiple businesses and multiple locations," he said, responding to a parliamentarian's question on the rationale behind the recent deals.

Temasek and GIC, which each have assets of more than $100 billion according to their Web sites, are among the world's largest so-called sovereign wealth funds. Such funds from the Middle East, Singapore and China have been investing in major Western financial institutions that have lost billions of dollars on bad bets in the U.S. mortgage market. Rising delinquencies and defaults among mortgages have forced banks to write down the value of bonds and debt backed by the troubled loans.

GIC invested $9.75 billion in UBS, the Swiss bank said in December. Later that month, Merrill Lynch said Temasek had bought a stake of less than 10 percent for at least $4.4 billion and up to $5 billion. Last week, Citigroup said it would receive $6.9 billion from GIC for a 4 percent stake in the U.S. bank.

Tharman acknowledged that the investments were large and involved risks, but said it was not the government's position to second-guess the individual deals struck by the two investment agencies.

The government says that the GIC and Temasek make investment decisions independent of the state. The two funds operate on an understanding with the government as to its overall risk tolerance.

"There will be some downside risks. It is up to GIC and Temasek to assess this risk and decide if it's acceptable. Their responsibility is to accept prudent risks in order to earn good returns on their overall portfolio," Tharman said, stressing that the government is keen to avoid influencing the two funds' decisions.

Officials from Temasek Holdings and the GIC could not be reached for comment Monday. Temasek holds stakes in many of the city-state's largest companies including Singapore Airlines and Singapore Telecommunications. Most of its investments are in Asia. The GIC was established in 1981 to manage Singapore's foreign reserves.

Asia Could Be Recession-Proof, or Not?

Asian Economies, Less Dependent on US, Seen Weathering Possible US Recession.

Asia would be able to weather any recession in the United States, analysts say, because rising trade and investment within the region make it less dependent on the U.S. economy than in the past. While a severe downturn in the United States would drag on Asian growth by eroding demand for exports, a rapidly growing middle class is fueling orders for automobiles, electronics and housing -- much of which will be supplied from Asia itself.

Voracious demand for oil, iron ore and other commodities to build roads, sewage systems, and office buildings -- especially in the booming economies of China and India -- will also help sustain the region through any U.S. slowdown. "The U.S. economy is not that important anymore," Hans Timmer, a World Bank economist, said in Singapore earlier this month.

Excluding Japan, 43 percent of Asia's exports go to other nations in the region, Lehman Brothers calculates -- up from 37 percent in 1995. "China and India represent a bigger presence on the world stage than just a half dozen years ago," said David Cohen, director of Asian forecasting at Action Economics in Singapore. China, in particular, has "more it can bring to buffer whatever happens in the U.S."

A drop of 1 percentage point in U.S. economic growth would shave 1.3 percentage points from China's growth rate due to lower exports, Citigroup estimates. Since China is growing so fast, that isn't likely to make much of a dent. China's economy will still expand 11 percent this year, slightly slower than in 2007, Citigroup projects. Lehman Brothers forecasts 2008 growth will drop to 9.8 percent, still remarkably strong.

Most regional projections show some drop-off from 2007 but still reflect healthy expectations. The U.N. Economic and Social Commission for Asia and the Pacific, or ESCAP, said 38 developing economies in the region -- including China and India -- will expand an overall 7.8 percent this year, slightly lower than growth of 8.3 percent in 2007.

Global growth, meanwhile, will moderate to 3.3 percent in 2008 from 3.6 percent last year, with any slowdown in the U.S. largely offset by growth in developing countries, the World Bank projects.

But Rajeev Malik, an economist with JPMorgan Chase in Singapore, cautioned that growth in China and India could not make up all the slack of a U.S. downturn. "Demand in industrial countries is still pretty important for the rest of Asia," Malik said. "While China, and to some extent India, offer some offsetting demand, there will still be some downshifting in activity if the U.S. goes into recession." If the U.S. economy does contract, India's growth will likely slow to 7 percent from the current rate of about 9 percent, he predicted.

Asian stock markets -- many of which had stellar runs last year -- have tumbled in recent weeks amid worries that a slowdown in the U.S. will hurt exporters' profits. Since the start of the year, Japan's Nikkei 225 index has declined more than 12 percent, while Hong Kong's Hang Seng index is down more than 11 percent.

Markets fell again Monday in Asia as investors appeared unimpressed with the stimulus plan President Bush announced Friday. Still, some analysts say some stocks appear oversold and the drop may present a buying opportunity given the region's growth potential.

Japan, the world's second-largest economy, may suffer the most from a U.S. contraction. Ryutaro Kono, chief economist at BNP Paribas in Tokyo, predicts that the nation's economic growth will drop this year to about half of the 2 percent it has marked in recent years. "The damage from the overseas economic problems hasn't really surfaced yet," Kono said. "But it will be coming."

Lower demand for exports could even have a silver lining for China by restraining inflation, which has soared to the highest level in more than a decade. "If China's exports slow down significantly, you definitely will see lower prices rather than inflation," said Minggao Shen, an economist with Citigroup in Beijing. But he did warn that weaker export demand could leave Chinese manufacturers with overcapacity problems.