Fed Move Doesn't Allay Wall Street Fears

Fed Works With Other Central Banks to Deal With Credit Crunch, but Wall Street Still Concerned.

The Federal Reserve on Wednesday announced a novel approach to injecting money into the banking system as it struggles to combat a severe credit crunch that threatens to drag the country into a recession.

The Fed said it would conduct two auctions next week where banks can bid for up to $40 billion in loans, money that they will have to bolster their own reserves. It marked the Fed's biggest concentrated effort to inject liquidity into the banking system since the Sept. 11, 2001, terrorist attacks.

The hope is that the extra funds will spur increased lending on the part of the banks and combat a serious credit crunch that has made loans harder to obtain for many businesses and consumers. The announcement initially lifted spirits on Wall Street, with the Dow Jones industrial average up as much as 272 points in early trading.

However, stocks could not hold on to most of those gains as investors began to worry that the Fed's new auction plan wouldn't be enough to deal with the worsening credit crunch. The Dow finished the day up only 41.13 points at 13,473.90.

That performance followed a huge 294-point drop in the Dow on Tuesday as investors expressed disappointment at what they viewed as a timid interest rate cut by the Fed. The central bank trimmed its federal funds rate, the interest that banks charge each other, by a quarter-point. It was the third cut since September, but many investors had been hoping for a bolder move on the part of the Fed.

The Fed linked the new auction process to an announcement that it was extending a line of credit in dollars to the European Central Bank and the national bank of Switzerland so that those institutions could better deal with credit problems in Europe. The Fed said it was also coordinating with the central banks of England and Canada.

The efforts are seeking to restore confidence that Federal Reserve Chairman Ben Bernanke and his colleagues at the Fed and the monetary authorities in other countries are doing enough to deal with the spreading global credit crisis.

"They are trying to help hard-pressed banks raise much-needed cash. The banking system is under severe pressure because the banks don't want to lend to each other," said Mark Zandi, chief economist at Moody's Economy.com.

The Fed's new program will begin with two auctions next week and another two in January. The first auction for up to $20 billion will occur on Dec. 17, followed by a Dec. 20 auction for another $20 billion.

The Fed is trying the auction program as an experiment to provide another avenue for providing loans to banks because banks have shied away from borrowing from the Fed's discount window because of the stigma that can be linked to banks who make frequent use of it. "This is a creative way to try to get more cash into the system without marking anyone as being in trouble," Zandi said.

In a statement timed before the start of trading on Wall Street, the Fed said it would hold two more auctions on Jan. 14 and Jan. 28. The size of the January auctions will be determined later. "This is not about particular financial institutions with particular problems. It is about market functioning," said a senior Federal Reserve official who briefed reporters on condition of anonymity because of the sensitive nature of the actions.

This Fed official, who spoke to reporters on a conference call, said that the adverse reaction of Wall Street on Tuesday had nothing to do with the timing of the announcement. This official said discussions with other central banks about an enhanced action plan had been ongoing for some time.

Wall Street investors and private economists generally applauded the Fed's latest effort to combat the country's worst credit crisis in nearly a decade. But private economists said it still was unclear just how successful the auctions would be in overcoming banks' concerns about getting direct loans from the Fed. "Clearly, the Fed is feeling its way in the dark here," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The Fed said commercial banks would be able to bid at auction for funds that would be drawn from the newly created Temporary Auction Facility. The Fed said all banks judged to be in generally sound financial condition by their Fed regional bank would be eligible to participate in the auctions for funds. The Fed said the new auction process should help supply needed cash to financial instititutions when other lines of credit were "under stress."

The experience gained from the four scheduled auctions would be "helpful in assessing the potential usefulness" of this new process to provide funds to U.S. banks, the central bank said. Fed officials indicated more auctions would be scheduled if the first four were successful.

The Fed statement said the temporary swap arrangements being set up would provide up to $20 billion in reserves for the European Central Bank and up to $4 billion for the Swiss National Bank. The reserves would be available for up to six months.

Indonesia's Richest Nearly Double Wealth

Indonesia's Richest Nearly Double Wealth in 2007; Dictator's Son on Forbes List.

Indonesian business tycoons nearly doubled their net worth to $40 billion in 2007, Forbes business magazine said Thursday, helped by soaring profits from coal, palm oil and paper.

Government Welfare Minister Aburizal Bakrie -- whose net worth surged more than fourfold to $5.4 billion on a stake in coal company PT Bumi Resources -- topped the Forbes list of the 40 richest Indonesians.

The Bakrie family owns considerable infrastructure, property and telecommunications interests, but the largest contributor to its wealth in 2007 was a 600 percent rise in coal stocks, Forbes said.

The second son of former dictator Suharto, Bambang Trihatmodjo, entered the list for the first time at No. 33 with $200 million from his stake in conglomerate Mediacom. Bambang's 86-year-old father, who Transparency International says amassed upward of $15 billion during 32 years in power, was not listed.

Last year's richest Indonesian, Sukanto Tanoto, who owns one of Asia's largest pulp and paper companies and a leading palm oil producer, slipped to second place with a net of $4.7 billion, up from $2.8 billion last year.

Indonesia now has 11 billionaires, four more than in 2006, according to Forbes. The magazine only considered individuals with at least $120 million in assets for the ranking.

Asia-Pacific Economy Likely to Slow

Asia-Pacific's 2008 Economic Growth Likely Constrained by US Subprime Crisis, Think Tank Says.

Asia's economic growth is likely to be constrained by an expected slowdown in the U.S. economy and potential spillover from the subprime mortgage crisis, two economic forecasts released Thursday said.

Emerging East Asian economies, which includes China, will likely grow a collective 8 percent next year, down from the 8.5 percent rate forecast for this year, the Asian Development Bank said in a twice-yearly report. "If the U.S. economy enters a recession and the global economy substantially slows in tandem, the impact on emerging East Asian economies will be potent," the report said.

The U.S. economy -- a major export market for Asia -- has been buffeted by a slowdown in its housing market and a credit crisis after a spike in defaults on mortgages to borrowers with poor credit histories, which has led to losses at major banks and global market turmoil.

Even if the U.S. economy avoids a recession, the ADB predicted financial markets will remain volatile for some time. Other risks include further tightening of global credit, abrupt changes in exchange rates and a continued rise in oil and commodity prices, the Manila-based bank said.

Similarly, the Pacific Economic Cooperation Council said in a separate report that because of possible fallout from the subprime crisis, the outlook for the broader Pacific Rim region is the most uncertain it has been since the 1997-98 Asian financial crisis. Still, Singapore-based PECC predicted that the U.S. economy would not enter a recession and that the troubled American housing market will recover by the second-half of 2008.

The think tank, which comprises business executives, government officials and academics from more than 20 economies stretching across the Pacific from Australia and China to Chile and Canada, was "cautiously optimistic" about the region's outlook. It projected member economies' collective growth to remain at 4.9 percent next year, about the same as this year. "The risks come principally from the United States," said Woo Yuen Pau, the report's coordinator.

While the U.S. economy barreled ahead at a 4.9 percent rate in the third quarter, many economists expect it to slow to a barely discernible 1.5 percent or even less in the current quarter. Strong demand from within Asia, particularly China, may be able offset some drag from a likely U.S. slowdown, the report said.

"We think we will be able to dodge the bullet, and that is in part due to very robust domestic demand in Asia, principally from China where import growth is still very strong and domestic demand growth is also very robust," Woo said.

The PECC also cited high energy prices, water pollution and global warming as the top three risks to economic growth in the region. China's booming growth will slow slightly to 10.5 percent next year from an estimated 11.4 percent this year if government measures to cool the economy begin to take hold, the ADB forecast said.

Economic expansion in the 10-member Association of Southeast Asian Nations will likely slightly moderate to 6.1 percent in 2008, from 6.3 percent this year, the bank said. But even as growth slows a bit in emerging East Asia, inflation is rearing its head in many economies, it said.

"Slower growth but rising inflationary pressures despite appreciating currencies pose major challenges for the region's policy makers," said Jong-Wha Lee, head of ADB's Office of Regional Economic Integration.

Greater flexibility in exchange rates, a better investment climate and management of capital inflows will help the region support growth, the report said. Emerging East Asian economies include China, South Korea, Hong Kong, Taiwan plus the 10 ASEAN countries -- Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Fed to Overhaul Provision of Market Liquidity

The Federal Reserve is set to announce as early as on Wednesday a fundamental overhaul of the way it provides liquidity in financial markets in a bid to tackle head-on severe strains in the interbank money market.

The US central bank is expected to unveil a new liquidity facility through which it will auction loans to a large number of financial institutions, accepting a broad range of securities as collateral in return.

The move reflects a realisation among top Fed officials that their existing tools - open market operations and direct discount window loans - are having little effect on painfully high rates in the market for term interbank loans.

These are loans made by one bank to another for periods of up to a few months. The Fed is able to control the overnight federal funds rate by pumping in liquidity through open market operations.

However, the money is not flowing from the overnight market into the term interbank markets. Only a small number of primary dealers can access money directly from the Fed through open market operations. These financial institutions appear reluctant to lend the money on to other banks, in part because they do not want to expand their own balance sheets, and in part because they are worried about the creditworthiness of their counterparties.

Moreover, the open market desk is prohibited from accepting most mortgage securities as collateral. A large number of banks can in principle borrow directly from the Fed through the discount window against a wider range of collateral. But in a recent speech Don Kohn, vice-chairman, said the market "stigma" of borrowing from the Fed was preventing the discount window from serving its proper function as a backstop to market liquidity.

As a result, most mortgage lenders are turning to the Federal Home Loan Banks rather than the Federal Reserve as a lender of last resort. The new Fed plan aims to change that. The precise details of the new facility are not known. But it is loosely modelled on a 2000 Fed working paper that proposed creating a facility that would auction credit to banks.

This came at the time when the US central bank worried that the US government might repay all its debt, eliminating the market for Treasury securities through which the Fed conducts open market operations.

Fed officials have dusted down this proposal and adapted it to address the current credit market crisis. Vincent Reinhart, a fellow at the American Enterprise Institute and former chief monetary economist at the Fed, says this kind of auction facility would allow the Fed to provide funds directly to a much larger group of banks than the limited number of primary dealers who participate in open market operations, against a wide range of collateral, without the stigma of the discount window.

"I think it would be very positive," he says. Banks in need of liquidity could acquire funds relatively anonymously, while the large number of participants with direct access to Fed money would encourage arbitrage to exploit the gap between cheap Fed money and high interbank rates.

Moreover, the Fed could auction funds at whatever term it wanted to in order to target liquidity at particular term markets - for instance, the market for one-month loans. It would have the option of either auctioning a fixed amount of funds, or offering to supply whatever funds were needed at a target rate.

The intended interest rate spread over the Fed funds rate is not known. If the Fed decided to auction loans at or only slightly above the Federal funds rate, it would risk subsidising weaker banks, which normally pay a premium to borrow in the interbank market. However, Mr Reinhart says this could be dealt with by varying the amount of collateral required in return for loans based on the creditworthiness of the bank seeking funds.

Fed Lowers Rates by 0.25%

Fed Drops Key Rate for Third Time This Year; a Disappointed Wall Street Tumbles.

The Federal Reserve dropped its most important interest rate to a nearly two-year low on Tuesday and left the door open to additional cuts to prevent a housing and credit meltdown from pushing the economy into a recession.

Fed Chairman Ben Bernanke and all but one of his colleagues agreed to trim the federal funds rate by one-quarter percentage point to 4.25 percent. The rate reduction, the third this year, was needed to energize national economic growth, Fed officials said. The deepening housing slump is affecting the behavior of consumers and businesses alike, the Fed said.

"Economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks," the Fed said in a statement explaining its decision to cut rates again. The three rate cuts ordered thus far "should help promote moderate growth over time," the Fed added.

On Wall Street, stocks tumbled, reflecting disappointment among some investors who were hoping for a larger rate cut. The Dow Jones industrial plunged more than 200 points. The funds rate affects many other interest rates charged to individuals and businesses and is the Fed's most potent tool for influencing economic activity.

In response, commercial banks, including Wachovia and Wells Fargo, lowered their prime lending rate by a corresponding amount, to 7.25 percent. The prime rate applies to certain credit cards, home equity lines of credit and other loans.

The fact that the Fed's key rate was lowered again marked an about-face for the central bank. At its previous meeting in October, Fed officials hinted that their two rate cuts probably would be sufficient to help the economy survive the housing and credit stresses. Since then, however, financial conditions have deteriorated, prompting Bernanke to signal before Tuesday's meeting that another rate cut may be needed after all as an insurance policy against undue economic weakness.

As another bolstering move, the Fed on Tuesday also lowered its lending rates to banks by one-quarter percentage point. That was the fourth cut to the discount rate since mid-August. "Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation," the Fed said in its statement.

Banks, financial companies and other investors who made loans to people with spotty credit or put money into securities backed by those subprime mortgages have lost billions of dollars. Investors in the U.S. and abroad have grown more wary of buying new debt, thereby aggravating the credit crunch.

Harder-to-get credit has thwarted would-be home buyers, intensifying the housing collapse. Foreclosures have soared to record highs. The number of unsold homes have piled up. Problems are expected to persist well into next year.

The 9-1 decision for a quarter-point reduction to the funds rate was opposed by Eric Rosengren, president of the Federal Reserve Bank of Boston. He preferred a bolder, half-percentage point cut.

"Fed's language clearly reflects a heightened degree of concern about the economic outlook," said Carl Tannenbaum, chief economist at LaSalle Bank. "They left open the possibility of additional rate reductions," he added. If the economy were to take a turn for the worse, another rate cut could come before the Fed's next scheduled meeting on Jan. 29-30, Tannbenbaum said.

The situation poses the biggest challenge yet to Bernanke, who took over the Fed in February 2006. Some analysts have questioned whether he waited too long to cut the Fed's key rate and whether he has acted aggressively enough to the nation's economic woes. In September, the central bank dropped the funds rate for the first time in four years. Then it was a half-point drop; on Oct. 31 came a quarter-point cut.

The rationale behind the lower rates is that they will induce consumers and businesses to boost spending, invigorating economic activity. With Tuesday's reductions, both the funds rate and the prime rate are now at their lowest levels in nearly two years.

From July through September, the economy logged its best growth in four years. But it is expected to slow to a pace of just 1.5 percent or less over the final three months of the year as the housing collapse and credit crunch chill consumers, sapping overall economic growth. The odds of a recession have grown. With growth cooling, the unemployment rate, now at a relatively low 4.7 percent, is expected to rise. Analysts expect the jobless rate to climb to 5 percent by early next year.

High oil prices could complicate the Fed's job of trying to keep the economy expanding and inflation low. Oil prices, which had neared $100 a barrel, have moderated. But they are still high. High energy prices are a double-edged sword. They can slow economic activity and spread inflation if they cause the prices of lots of other goods and services to rise.

"Elevated energy and commodity prices, among other factors, may put upward pressure on inflation," the Fed said. "Inflation risks remain," the Fed said, adding that it "will continue to monitor inflation developments carefully." Some economists believed the Fed's decision to go with a moderate quarter-point cut was a nod to those inflation concerns.

US and China Sign Deals to Safeguard Food

US, China Sign Deals on Safeguarding the Quality of Food and Drug Exports to the United States.

The United States and China sparred over intellectual property protections and signed agreements on safeguarding the quality of food and drugs exports to the U.S. Tuesday at the start of a series of contentious economic meetings.

Other agreements included one to boost the number of Chinese tourists going to the United States and several geared toward expanding U.S. access to Chinese markets, from agriculture to telecommunications.

China's exports have come under intense scrutiny this year because a number of potentially deadly chemicals have been found in goods including toothpaste, toys and seafood. In March, tainted pet food made in China was blamed for the deaths of cats and dogs in North America.

The agreements on food and feed product safety and on drugs and medical devices were signed at the end of a meeting of the China-U.S. Joint Commission on Commerce and Trade by U.S. Health Secretary Mike Leavitt. The agreements require "require specific steps and set clear deadlines," Leavitt said. "Taken together, these agreements will enhance the safety of scores of household items the American people consume on a daily basis," he said.

A Health Department statement said the agreements will establish bilateral mechanisms to provide more information on the goods imported into the United States. Exporters will have to register with Chinese authorities.

The agreements also call for more U.S. access to Chinese production facilities. "To keep up with the pace of global commerce, we need a fundamental shift from trying to catch unsafe products as they come in, to building quality and safety into products before they reach our borders," Leavitt said.

Vice Premier Wu Yi said Tuesday that big steps had been taken in the last few months in improving China's product safety, but added there were gaps between developing and developed countries in standards and supervision. "This means we need to expand our common ground and jointly strengthen our supervision and control efforts to improve product quality," she said in a commentary published in the Asian Wall Street Journal on Tuesday.

China's global trade surplus totaled $26.28 billion in November, the government announced Tuesday, showing that foreign demand for low-cost Chinese goods has stayed strong despite a string recalls.

U.S. Commerce Secretary Carlos Gutierrez praised a tourism accord that allows Chinese group travel to the United States, saying it will "open a large and growing market for the U.S. travel and tourism industry."

There were also agreements on developing and producing biofuels and opening China's second-tier cities to U.S. exports. Talks on the thriving but contentious trade relationship began with China strongly objecting to U.S. action on intellectual property rights, Gutierrez said.

He said Wu, China's top negotiator, communicated "very strongly and very directly that she felt very uncomfortable" with a recent case on intellectual property rights the U.S. took to the World Trade Organization. Wu did not mention the dispute in opening remarks to the joint commission, but alluded to what she called "unharmonious noises" in trade relations.

She singled out a rising number of bills in the U.S. Congress targeting Chinese imports as well as media reports questioning the safety of Chinese products that she said "seriously harmed the reputation of Chinese exports and the nation's image."

Chinese and American officials have pledged to fend off what they said were rising protectionist sentiments in both countries. "If there were to be limits on or protectionist measures taken against normal trade, that would only harm our mutual interests and would not help solve the problem," Wu said.

The WTO opened an investigation last month into Chinese restrictions on the sale of American movies, music and books following Washington's fourth commercial complaint against Beijing in a little over a year. The United States said that "less favorable distribution opportunities" in China for foreign-made CDs, DVDs and computer software have cost American companies millions.

The commission on commerce and trade looks at near-term regulatory and legal issues, and will be followed Wednesday and Thursday by the Strategic Economic Dialogue that grapples with longer-term economic plans. U.S. Treasury Secretary Henry Paulson will participate in those talks.

The talks come amid rising anger in the U.S. Congress over China's massive trade surplus and demands that Washington act forcefully halt what some members see as currency manipulation by Beijing and other unfair trade practices. The U.S. trade deficit with China appears set to surpass last year's record $233 billion, according to U.S. Commerce Department figures.

China's Inflation Rate Soars in November

China's Inflation Rate Jumps in November, Trade Surplus Stays High.

China's inflation surged to its highest rate in 11 years last month while its trade surplus swelled, the government said Tuesday, adding to pressure for the central bank to raise interest rates and loosen currency controls.

Rising food and oil prices lifted November's consumer price index 6.9 percent from the same period last year, the National Bureau of Statistics said. That is well above the government's inflation target of 3 percent and was the biggest increase since 1996, according to Xinhua News Agency.

The recent price rises are politically sensitive for China's communist leaders because the country's vast, poor majority spend a big share of their incomes on food and fuel. To control what appears to be an overheating economy, authorities look likely to move more aggressively in tightening credit and curbing inflation, economists said. "This will give a significant warning signal and the government will tighten measures further," said Hong Liang, a senior economist with Goldman Sachs in Hong Kong.

Meanwhile, the General Administration of Customs reported that China's global trade surplus totaled $26.28 billion in November. While that was down slightly from the previous month's record of $27.05 billion, so far this year China's trade gap has reached $238.9 billion, 53 percent larger than during the first 11 months of 2006.

Exports rose 22.8 percent to $117.62 billion, while imports rose at a faster rate, up 25.3 percent, to $91.34 billion. The figures show that foreign demand for low-cost Chinese goods remains strong despite a slew of consumer safety recalls and the weakening economic outlook in the U.S.

Top American officials are in Beijing this week for talks on Chinese product safety as well as trade, currency and intellectual property issues. The two countries signed agreements Tuesday on safeguarding the quality of food and drugs imported into the U.S. from China.

The meetings are likely to be overshadowed by protests from U.S. lawmakers over China's massive trade surplus and its currency controls, which critic say keeps the Chinese yuan undervalued, giving Chinese exports an unfair advantage. The U.S. Congress is considering several proposals to impose punitive tariffs on imports from China if Beijing fails to loosen its currency regime.

Since revaluing the yuan in July 2005, Beijing has let the yuan appreciate 8.9 percent against the dollar in tightly controlled trading. Economists argue that letting the yuan rise faster would help trim China's trade surplus while also aiding the central bank's efforts to cool inflation.

"While triggered by the food prices, the inflation issue has evolved into more of a macroeconomic problem," Citigroup Global Markets economist Yiping Huang said in a report released Tuesday. "We expect the government to let the currency rise more quickly in the coming year, alongside measures directly managing" money supply, Huang said.

Food prices, which account for one-third of the consumer price index, jumped 18.2 percent in November, compared with an increase of 17.6 percent in October, the statistics bureau said. Prices for pork, a Chinese mainstay, drove the increase. Pork prices have surged recently due to an outbreak of blue ear disease, which killed 70,000 animals and prompted the government to destroy thousands more. Beijing is pressing farmers to raise more pigs, promising free vaccinations and other aid. Price pressures should ease when a new grain crop is harvested and more pigs come to market.

But food, while important, is not the sole factor driving inflation. State-controlled prices for diesel and gasoline were raised 10 percent on Nov. 1 in an effort to curb demand amid a fuel shortage.

The government has raised interest rates and boosted bank reserve requirements repeatedly this year, seeking to curb a boom in construction and investment that regulators worry could trigger a financial crisis.

"China's tightening to-date has not amounted to much in real terms," Michael Kurtz, an economist at Bear Stearns Asia, said in a report released Monday. "China's senior leaders are growing singularly alarmed over inflation heading into 2008."

UBS Forced to Write Down $10B from Subprime

UBS Writes Down $10B From Subprime Losses; Singapore and Middle East Investors Take Stakes.

Swiss banking giant UBS AG said Monday it will write off a further $10 billion on losses in the U.S. subprime lending market and will raise capital by selling substantial stakes to Singapore and an unnamed investor in the Middle East. UBS will now record a loss for the fourth quarter and said "it is now possible that UBS will record a net loss attributable to shareholders for the full year 2007."

UBS said that the government of Singapore Investment Corp., or GIC, is investing 11 billion francs ($9.75 billion), while an undisclosed strategic investor in the Middle East is contributing the other 2 billion francs ($1.77 billion).

As recently as the middle of November, UBS had predicted a profit for the fourth quarter despite ongoing speculation about its subprime holdings. "Conditions in the U.S mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities," the company's chief executive, Marcel Rohner, said in a statement.

"In our judgment these writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation," he added. "UBS revises its outlook for its fourth quarter 2007 from an overall Group profit, as anticipated in its announcement of 30 October 2007, to a loss. It is now possible that UBS will record a net loss attributable to shareholders for the full year 2007."

In October the bank downgraded the value of some assets by over 4 billion francs ($3.4 billion) because of losses linked to the U.S. mortgage crisis. The writedown meant UBS posted a net loss of 830 million francs ($712 million) in the period ending Sept. 30, the first quarter in nine years in which it suffered an operating loss.

Tony Tan, deputy chairman of GIC, said the 9 percent stake does not mean Singapore is seeking control of the Swiss bank. "GIC is now the single largest investor in UBS and this is the largest investment GIC has made in any company," Tan said during news conference in Singapore. "We did not make it a condition that our investment should have a representation (on UBS's board.) We have no desire to control the business of the bank." It was the first time that the publicity-shy GIC, which manages Singapore's foreign reserves, has revealed a major investment.

Western banks have lost billions of dollars from their exposure to U.S. subprime loans, and cash-rich sovereign wealth funds have been stepping in to help them boost their capital. Last month the Abu Dhabi Investment Authority, the sovereign investment fund of the Gulf Arab state, acquired a 4.9 percent stake in Citigroup Inc., the nation's largest bank, for $7.5 billion.

UBS said it attracted about 30 billion francs in new money from clients in October and November. Ensuring a strong capital base will allow the bank to continue to make acquisitions to further expand its wealth management business, when such opportunities arise, UBS Chairman Marcel Ospel told a conference call. "Our losses in the U.S. mortgage securities market are substantial, but could have been absorbed by our earnings and capital base," Ospel said in a statement.

"The write-downs and capital raising represent a dramatic U-turn from guidance given by Chief Financial Officer Marco Suter just three weeks ago," said analysts Matthew Clark and Vasco Moreono of Keefe, Bruyette & Woods Ltd. The fact that the capital-raising outweighs the write-down makes it appear that UBS is trying to draw a line under its subprime woes, Clark and Moreono said.

Wealthy's Desire for Luxury Rises Unabated

Wealthy people's taste for luxury has been untarnished by the recent economic slowdown according to new research, which found more people were willing to splash money on private jets, concierge services and personal shoppers.

The latest survey from Barclays Wealth says that rich people increasingly want to buy luxury services to save them time and stress. Barclays said the use of private jets was set to increase significantly. More than half of the survey respondents in the US and Canada, Italy, Singapore and Portugal said they planned to fly privately rather than first class on airlines.

Gerard Aquilina, head of international private banking at Barclays Wealth, said the use of private jets had increased in popularity as they enabled people to bypass airport and security delays. "The idea of wealth goes further than the ability to buy goods and services. It also provides a sense of empowerment and control," he said.

The survey shows that more wealthy individuals plan to take advantage of personal shoppers, fitness trainers and concierge services. Barclays said for many wealthy people the biggest luxury was having more time. Two-thirds of respondents believed their wealth had brought them more leisure time, mainly because they enlisted the help of a number of people to run their day-to-day lives.

Mr Aquilina said there had been a "dramatic" rise in the number of wealthy individuals using family offices to manage everything from their investment portfolios to travel arrangements. "There is a growing desire among the wealthy to have something unique and something that to some extent allows them the freedom to control time," he said.

Of the respondents with assets of at least $3m (£1.47m), almost 80 per cent employed a butler and a chef, more than three-quarters used a personal stylist and more than half consulted a personal shopper, personal trainer, dietician and travel consultant.

The survey showed there was a rapidly rising demand for bodyguards around the world, particularly in some parts of continental Europe, Asia, South Africa and the Middle East. Barclays found that people's perception of wealth had changed. More than a third of the respondents thought people needed liquid assets of at least $10m before they were considered rich.

Barclays said the rising cost of luxury goods and services meant people needed this much wealth to feel secure and able to enjoy their money.* Storm clouds may be looming over the rest of the property market, but wealthy buyers are queuing up for rural estates in Scotland, Andrew Bolger reports. CKD Galbraith, the property consultant, estimates the overall estates market in Scotland has about 100 potential buyers on a "waiting list" who are ready to spend collectively about £300m. Most of the interest came from continental Europe.

US, China Say Must Work Together

US, Chinese Officials Say Must Work Together to Fight Protectionist Sentiment.

The United States and China, with increasingly dependent economies, have to work together to fight protectionist sentiment in both countries, officials from the countries said Monday.

The comments came on the eve of high-level meetings this week between U.S. Treasury Secretary Henry Paulson and Chinese officials at which China's massive trade surplus with the U.S. and its product safety record are expected to be key issues.

"We have to continue opening global markets. America and China must work together to stem the tide of projectionist sentiment in out nations," said U.S. Secretary of Commerce Carlos Gutierrez. "It is ironic that we have found that protectionism does not protect. The only thing that does protect is innovation and engaging with the world, competing, being more productive," Gutierrez told a seminar on innovation in Beijing.

Gutierrez also pointed to China's reputation for lax enforcement of intellectual property rights, calling for "consistent, transparent and equitable" rules to guarantee that innovation will not be stifled.

Congress has been demanding the U.S. administration act more forcefully to get China to halt what critics see as unfair trade practices. They contend China is manipulating its currency to keep the value low to boost Chinese imports into the United States while making U.S. goods more expensive in China, inflating the U.S. trade deficit with China, which last year reached a record $233 billion.

U.S. Health Secretary Mike Leavitt said China and Western countries needed to cooperate because the global market had changed so much that governments had lagged behind in regulation their booming trade. "Our systems our different and yet we need to achieve a common result ... it's a question of building bridges," Leavitt said in a separate speech to the American Chamber of Commerce in Beijing.

Leavitt, who will sign an agreement Tuesday on food and feed product safety, and a second on drugs and medical devices, quoted a Chinese proverb in saying the bridge-building would take time. "The man who removes a mountain begins by carrying away small stones. This is not about the U.S. and China, this is about the world," Leavitt said.

Their comments were echoed by published remarks from Chinese officials. Finance Minister Xie Xuren said in an interview with the official Xinhua News Agency that the protectionist sentiment in the U.S. Congress was alarming. "At present, the tendency within Congress toward protectionism is in fact rather worrying," Xie said. He added the passage of such legislation would "seriously harm China-U.S. trade cooperation, and in the end, harm America's own interests."

Vice Commerce Minister Chen Deming was also quoted Monday in the official China Daily as saying the trade disputes with the United States should be resolved through talks. He said a narrow focus on the value of the yuan and intellectual property rights risked "hindering the normal development" of trade links.

Paulson said last week in Washington that U.S. worries about Chinese product safety will be a major topic at the Strategic Economic Dialogue meeting to be held just outside Beijing starting Wednesday. China's ability to manage the safety of its goods will be an important part of Beijing's future growth and its trade relations with the United States, he said.

Paulson and other senior Bush administration officials in China for the third round of the talks. Paulson launched the effort a year ago, but so far it has produced few results. Vice Premier Wu Yi leads the Chinese side.

Gutierrez later attended a ceremony where Wal-Mart China announced it had received approval to open its 100th store in China. It will open in Loudi, Hunan province. About 80 Wal-Mart employees wearing red shirts were on hand in a Beijing hotel. American products sold in Wal-Mart stores in China, such as Hunt's barbecue sauce and apples from Washington state, were on display.

At the same time, Timken Co., a Canton, Ohio-based specialty steel company, announced it had signed a $110 million deal with Xiangtan Electric Manufacturing Company of Hunan province to form a joint venture to make bearings for wind turbines.

China Says West Should Deal With Warming

China Says West Responsible for Curbing Global Warming; Blames Lavish Lifestyle for Problem.

Developing countries led by China squabbled with the West over mandatory emission cuts at the Bali climate change conference, as activists accused Canada on Saturday of undermining the negotiations by insisting on targets for poor nations.

China, which some believe has surpassed the U.S. as the world's top emitter of carbon dioxide and other heat-trapping gases, questioned the fairness of binding cuts when its per capita emissions are about one-sixth of America's. It said, too, that it has only been pumping pollutants into the atmosphere for a few decades, whereas the West has done so for hundreds of years.

"China is in the process of industrialization and there is a need for economic growth to meet the basic needs of the people and fight against poverty," said Su Wei, a top climate expert for the government and member of its delegation at the U.N. Climate Change Conference in Bali.

"I just wonder whether it's fair to ask developing countries like China to take on binding targets," Su said Friday. "I think there is much room for the United States to think whether it's possible to change (its) lifestyle and consumption patterns in order to contribute to the protection of the global climate."

Delegates from nearly 190 nations are attending the Dec. 3-14 meeting in Bali and are likely to agree to launch negotiations that will lead to an international accord to succeed the 1997 Kyoto Protocol on global warming. They also are expected to set a deadline for completing negotiations and agree on some of the issues to be discussed.

The protocol, which was rejected by the United States, commits three dozen industrialized countries to cut their greenhouse gases an average of 5 percent below 1990 levels between next year and 2012, when it expires.

Indonesian Environment Minister Rachmat Witoelar, who is president of the conference, said discussions on starting post-Kyoto negotiations were on track and that "God willing" an agreement would be reached by next weekend. "There is no deadlock," he said. "I would think about 85 percent of those in the room have the same direction."

However, Climate Action Network Canada, a coalition of Canadian environmental groups, said Canadian negotiators in Bali have been told to "demand that poorer nations accept the same binding absolute emission reduction targets as developed nations."

"The Kyoto Protocol is built on the recognition that industrialized countries are largely responsible for the problem of climate change, and must take the lead in tackling it," said Steven Guilbeault of the environmental group Equiterre. "Canada is trying to rewrite history by putting the burden of emissions reductions on poorer countries."

Climate Action Network Canada provided reporters a one-page document that it described as a leaked copy of Canada's negotiating stance. It was impossible to verify the authenticity of the document, and a spokesman for the Canadian delegation did not respond to a request for comment.

The chief U.N. climate scientist, Rajendra Pachauri, said it was next to impossible to expect the developing world to agree to cuts when their per capita emissions are so much less than the West. "What is absolutely essential is to see that the developed countries establish a record of action and commitment, which I think will induce and provide a moral basis for developing countries to assume the burden," Pachauri said. "In the absence of that, I don't think anything is going to happen. With per capita levels being so different, it's not likely that anybody in the developing world would accept commitments."

Angus Friday, chairman of the Alliance of Small Island States, many of which are threatened by sea level rises, said developed countries had a "moral responsibility" to show leadership on the issue and act first to tackle global warming since they have contributed far more to the problem than poor countries. "The danger in the developed world is that the culture of entitlement is not being matched by the culture of responsibility," he said.

Fed Poised to Lower Interest Rates

Fed Seems Poised to Lower Interest Rates Again at Its Meeting Tuesday.

A lot has changed since the Federal Reserve hinted two months ago that it might be finished cutting interest rates for a while. Credit has become harder to obtain, Wall Street has convulsed again and the housing slump has intensified. As a result, policymakers at the central bank now appear to have changed their minds about the need to drop interest rates again.

The Fed had cut rates twice this year and officials suggested in October that might be enough to help the economy survive the credit and housing stress. Then the problems snowballed, leading Fed Chairman Ben Bernanke to signal that one more cut might be needed.

Analysts expect the Fed to trim its key rate, now at 4.5 percent, by one-quarter of a percentage point at the meeting Tuesday. Some even speculate about the possibility of a half-point cut.

Banks, financial companies and other investors who made loans to people with spotty credit or put money into securities backed by those subprime mortgages have lost billions of dollars. Investors in the U.S. and abroad have grown more wary of buying new debt, thereby aggravating the credit crunch.

All this has added to the turmoil on Wall Street, and Bernanke and other Fed officials say they must take it into account when deciding their next move. But does lowering rates mean the Fed essentially is bailing out investors or encouraging more sloppy decision-making? In other words, what exactly is the Fed's job?

Bernanke and other Fed officials say it is to make policy that keeps the economy growing and inflation low, a stable climate that benefits individuals, businesses and investors. The Fed also has a responsibility to ensure the banking system is sound and financial markets run smoothly.

"There is a link between Wall Street and Main Street. The Fed is taking the right actions, but they should be careful," said Victor Li, an economics professor at the Villanova School of Business.

Nations Divided at Climate Conference

Australian Prime Minister Kevin Rudd urged the United States to follow his country's lead and ratify the Kyoto Protocol, while rich and poor nations appeared divided Wednesday over what a future climate change pact should look like.

Rudd signed documents this week to formally adopt the accord that caps greenhouse gas emissions, reversing a decade of Australian resistance and leaving the United States as the only industrialized country to refuse to sign on.

"Our position vis-a-vis Kyoto is clear cut, and that is that all developed and developing countries need to be part of the global solution," the newly elected prime minister told the Southern Cross Broadcasting radio network in Australia. "And therefore we do need to see the United States as a full ratification state," he said.

His comments put further pressure on the United States at the U.N. Climate Change conference in Bali, where nearly 190 nations hope to launch a two-year negotiating process that will result in a pact to replace the Kyoto Protocol, which expires in 2012. Failure to continue reducing emissions, experts warn, will almost certainly lead to catastrophic droughts and floods, and deaths linked to heat waves and disease.

The 175-nation Kyoto agreement of 1997 requires 36 industrialized nations to reduce their emissions of heat-trapping "greenhouse gases" — carbon dioxide and some other industrial, agricultural and transportation byproducts — by an average 5 percent below 1990 levels by 2012.

The United States says it wants to be part of the negotiations on a follow-up accord, but refuses to endorse mandatory cuts in emissions favored by the European Union, choosing instead to focus on funding renewable energy projects and improving energy efficiency.

While the conference is in its early days, differences already were emerging, mostly over what should go into the "Bali roadmap," which will lay out the subjects for discussions in the years to come.

Japan, for example, offered up a proposal that doesn't include targets, while the EU has come out with a detailed wish list that includes demands for industrialized countries to take the lead in approving mandatory cuts, strengthening the carbon market and boosting funding to help poor countries adapt.

Meanwhile, delegates and activists say poor countries led by the Group of 77, which represents 132 mainly developing countries and China, have demanded that rich countries speed up the process of providing them with technologies that would help reduce pollution or improve energy efficiency. They also want funds to adapt to the impact of global warming.

Meena Raman, chairman of Friends of the Earth International, said marathon debates over the issue, some running late into the night, indicated that the West wasn't taking their concerns seriously. "How on earth can you talk about targets if you don't want to engage on the scope, the depth and need of technology?" she asked reporters. "In the last two days, the sincerity and urgency that is needed and goodwill from the (West) is not happening."

Few had criticism for Australia, however. Rudd's Labor Party swept to power last month, ending more than 11 years of conservative rule under former Prime Minister John Howard, a staunch ally of President Bush. Rudd has said he wants Australia to become a broker through "creative middle-power diplomacy." Though small by population, it is wealthy, developed, and has influence among its allies like the United States and Britain, as well as trade partners such as China.

"We've had a bad record on climate change," said Rudd, who is due to arrive in Bali next week. "It's time to put that behind us. I believe that we now need to do whatever we can to bridge the gap between the developed and developing worlds, because right now the gap is huge." In addition to the United States, he said, China and India, which refuse to sign any deal that would slow their own pace of development, must be prepared to make commitments in the fight.

Bank of England Pressure to Cut Rates Intensifies

Pressure mounted on the Monetary Policy Committee to deliver a cut in UK interest rates on Thursday, after a clutch of weak data suggested the economy was slowing more abruptly than the Bank of England had hoped.

The purchasing managers' index of services activity, which the Bank of England relies on to improve its estimates of economic growth, fell from 53.1 to 51.9 in November. This is its lowest level since May 2003, when interest rates were only 3.75 per cent. In the housing sector, the Halifax index showed a fall for the third month in a row.

By Wednesday evening, money markets were betting on an 80 per cent probability of a cut - up from little more than a 50-50 chance at the start of the day. The pound had fallen 0.9 per cent against the currencies of Britain's main trading partners and many City economists fretted they had made a mistake in predicting rates would remain on hold at 5.75 per cent.

Investors warned of a turbulent reaction if rates were not cut. "The market seems hell bent on a base rate cut tomorrow," said David Buik of Cantor Index. "If they don't get one, hold your breath for a roller coaster ride."

Several analysts, including those at Barclays Capital, ING and Global Insight, changed their rate call from hold to cut and others said the decision was simply too close to call. Analysts said the purchasing managers' survey showed credit market worries were acting as a brake on the wider economy and could give the Bank the evidence it would need to justify cutting rates from their current level of 5.75 per cent.

"Demand for services has eased over the past three months with signs that firms serving the consumer are finding life increasingly difficult," said Ian McCafferty, the CBI's chief economic advisor.

The MPC has already signalled in its November inflation report that rate cuts were needed to stop inflation falling too far in the medium term, but said the outlook was highly uncertain. It faces a current problem in balancing the risks of slowing activity with those of rising inflationary pressures. The British Retail Consortium on Wednesday said higher food prices had fuelled the highest rate of shop price inflation so far this year.

Evidence of slowing service sector output was coupled with growing gloom over house prices. The Halifax said house prices fell 1.1 per cent last month, much weaker than expected, bringing the annual rate of house price inflation down from 8.9 per cent in October to 6.3 per cent.

While monthly changes in house prices are often volatile, the Halifax index has now fallen 2.4 per cent over the past three months. Michael Saunders, economist at Citigroup, said the fall was "the greatest for any three-month period since the dark days of 1992" and could be a prelude to sharp falls in consumer demand.

Brazil Leaves Interest Rate Unchanged, Agrees to Help El Salvador Produce Biofuels

Brazil Leaves Prime Interest Rate Unchanged Amid Inflation Concerns.

Brazil's central bank left the country's benchmark lending rate unchanged Wednesday, opting not to renew its rate cutting amid strong economic growth and inflation concerns. The bank's monetary policy committee, known as Copom, voted to hold the rate at 11.25 percent after a similar move to keep rates in check in October.

Prior to that, the central bank had a run of 26 months of rate cuts that slashed the benchmark rate by a combined 8.5 percentage points. "Evaluating the macroeconomic outlook and the prospective scenario for inflation, Copom unanimously decided to maintain the Selic rate at 11.25 percent a year, with no bias," the committee said in a statement.

The decision didn't surprise market analysts. "We expected this decision, given the conservative character the Central Bank always has," analyst Miguel Jose Ribeiro de Oliveira told the government news agency Agencia Brasil. "It's the end of the year, and they surely opted to wait for the New Year and see how things go."

Brazil's economy grew robustly in the second quarter, and some analysts have suggested the central bank wants to gauge the effects that past rate cuts have had on South America's largest economy.

But Oliveira said that indicators showed the rate had room to fall. "Inflation is within the target, the exchange rate is back at its normal level, so there's no concern of a wholesale price hike because of a currency devaluation," he said. Brazil's annual inflation rate is running at about 4 percent

Brazil Agrees to Help El Salvador Produce Biofuels

Biofuel powerhouse Brazil signed an agreement on Wednesday to help El Salvador produce biodiesel and improve production of ethanol in the small Central American nation.

Salvadoran President Tony Saca thanked Brazil and the U.S., the world's top producers of ethanol, for choosing El Salvador earlier this year as the site of a biofuels feasibility study. "Brazil and the United States ... responded to the call of El Salvador and chose our country to support the construction of ethanol plants," Saca said during a visit to Brasilia, the capital.

Brazil will help train Salvadoran technicians to produce biodiesel from mamona seeds, the government news agency Agencia Brasil said. Brazil also will help El Salvador modernize and improve production of sugar cane, one raw material used to make ethanol. In March, the United States and Brazil announced plans to bring Haiti, the Dominican Republic, St. Kitts and Nevis, and El Salvador into the biofuels program.

China to Tighten Monetary Policy in 2008

China Says It Will Tighten Monetary Policy in 2008, Exert Greater Control Over Lending.

China will shift its monetary policy "from prudent to tight" in 2008, state media said Wednesday, to prevent its already hot economy from overheating and to try to contain accelerating inflation that threatens social stability.

Xinhua News Agency said the decision was made at a closed-door economic conference, which the country's Communist Party leaders hold every December to draft policy for the coming year. It said the conference decided to "strictly control the volume and granting pace of loans so as to better regulate domestic demand and balance international payments."

Chinese authorities have raised interest rates and taken other measures to try to curb lending and slow investment in shopping malls, factories and office buildings. Beijing worries that a glut of unneeded projects could lead to defaults on bank loans, causing a debt crisis.

The meeting of the Central Economic Work Conference also highlights the balancing act that Chinese leaders need to perform as they seek to cool inflation and excess investment without stifling the growth needed to lift millions from poverty.

China's sizzling economy is expected to grow by 11.5 percent this year, with a government think tank recently predicting just a marginal slowing next year to about 10.8 percent. The consumer price index, meanwhile, hit 6.5 percent in October, tying the highest rate in a decade, and well above the government's target of 3 percent. Real estate and stock prices have also soared. The Shanghai stock market's main index, which has fallen back some this month, is still up 88.5 percent this year.

Xinhua said with prudent fiscal policy and tight monetary policy, China aimed to accomplish "two prevents" next year: "To prevent economic growth evolving from rapid to overheating, and prevent price hikes shifting from a structural one to evident inflation." President Hu Jintao and Premier Wen Jiabao both delivered speeches at the three-day conference that ended Wednesday.

To cool lending, the central bank has hiked interest rates five times this year, bringing the benchmark rate on one-year loans to the current 7.29 percent. It has also raised banks' reserve requirements -- reducing the amount available for lending -- eight times this year.

The central bank issued a statement Wednesday saying it would "continue to strengthen and improve the economic control, further implement tight monetary policy, (and) take forceable measures to strengthen the management of liquidity."

The State Information Center, a research institute under China's economic planning agency, the National Development and Reform Commission, forecast an inflation rate for 2008 of 4.5 percent, just slightly below its 4.7 percent estimate for 2007.

It also said China's global overall trade surplus would continue to grow, hitting US$328.4 billion (euro223 billion) in 2008, up 22.5 percent from its forecast for this year's trade gap of US$268 billion (euro182 billion), which would be 51 percent higher than the gap last year.

OPEC to Keep Production Steady

OPEC to Keep Production Steady, Says Libya's Chief Oil Official.

OPEC has decided to keep output ceilings steady, Libya's chief oil official said Wednesday. Other delegates said the 13-nation group will meet again in January to review of winter demand and the world economy, which seemed to indicate that OPEC was prepared to increase quotas should prices go much higher.

The announcement by Shokri Ghanem appeared to reflect OPEC concerns that it would be counterproductive to raise production ceilings at a time when prices have retreated about 10 percent from recent record highs.

There was no immediate formal confirmation. But just hours before Ghanem's comments, a three-nation OPEC advisory panel foreshadowed such a decision by recommending maintaining the status quo.

Reduced demand growth forecasts from both OPEC and the International Energy Agency have pushed prices down recently, along with the extra oil reaching markets from the last OPEC production increase and expectations of increased output from the United Arab Emirates.

A new U.S. intelligence report concluding that Iran halted its nuclear weapons development program in 2003 is also helping to keep a lid on the market. While oil prices are still up nearly $40 from the start of the year, they are down about 10 percent from the record near $100-a-barrel levels established last month.

Oil Prices Rise Back Near $90 a Barrel

Oil prices rose sharply to around US$90 a barrel Wednesday as OPEC members said they would keep output ceilings steady. Expectations that a weekly U.S. petroleum supply report due later Wednesday would show a small decrease in crude inventories also supported prices.

Light, sweet crude for January delivery added US$1.34 to US$89.66 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. In London, January Brent crude futures rose US$1.71 to US$91.24 a barrel on the ICE Futures exchange. It also seemed to suggest that OPEC now viewed prices near or above US$90 -- an increase of about US$40 since the start of the year -- as acceptable.

A number of reports have suggested that several OPEC countries are already exceeding their output quotas. With the OPEC decision "putting a floor on the price decline," analysts said other issues would determine the chances of a new rally in the coming days. "The focus will now shift back to the weekly statistics and the Fed meeting next week and its repercussion for the dollar index," said Olivier Jakob at Petromatrix in Switzerland.

Traders are also waiting for the U.S. Department of Energy's weekly petroleum inventory report, which is closely watched in the energy markets as a guidepost for demand. U.S. crude stockpiles are likely to fall by 800,000 barrels and gasoline stocks to grow by 900,000 barrels, according to an average estimate of analysts surveyed by Dow Jones Newswires.

Refinery use is expected to rise 0.2 percentage point to 89.6 percent of capacity, according to the survey. Distillate stocks, which include heating oil and diesel fuel, are expected to drop by 300,000 barrels, analysts predict.

Heating oil futures added 4.21 cents to US$2.5539 a gallon (3.8 liters) on the Nymex, while gasoline prices rose 3.17 cents to US$2.2834 a gallon. Natural gas futures fell 0.8 cents to US$7.147 per 1,000 cubic feet.

China's Draft Energy Law to Up Reserves

China's Draft Energy Law to Up Reserves, Boost Controls; Scant Mention of Climate Change.

China has released a draft of a long-awaited energy law that calls for the country to keep larger reserves of oil, uranium and other key resources and to set up a new government department. But the draft law makes scant mention of measures needed to counter soaring emissions of greenhouse gases linked to global climate change.

Beijing has no separate energy ministry of its own, and the lack of unified policies for the industry viewed as one factor behind recent fuel shortages, price gouging and other problems.

The new law is intended to help the country better develop the strategically vital energy sector. The government will collect opinions on the draft until Feb. 2 and later is expected to present it to the National People's Congress for approval. The draft law calls for setting up an energy department directly controlled by the State Council, or Cabinet, to oversee related industries.

According to state media reports on the law, the department would exercise stronger control over market entry and pricing than the energy division that's part of China's main planning agency, the National Development and Reform Commission, or NDRC.

China, the world's second largest consumer and importer of oil after the United States, has made improved management of its energy sector a strategic priority. "China definitely needs a unified, agreed-upon energy department. Otherwise everyone will carry on according to his own agenda and that doesn't benefit the country's energy strategy," the state-run newspaper Shanghai Securities News quoted Yan Luguang, a scholar at the China Academy of Science, as saying.

Article V of the proposed law calls for China to adjust its energy use to help protect the environment. The government would support recycling, emissions reductions and development of "clean" energy resources such as solar, wind and tidal power and other changes "effective against climate change," according to a copy of the draft distributed online by the Shanghai Securities News.

The law takes the form of broad guidelines that would be later implemented through more detailed administrative regulations and does not specify any detailed measures for emissions reductions and other environmental issues.

One major focus of the new law is energy security -- an obsession for a country growing increasingly dependent on imports of oil, coal and other key commodities. Major investments in energy industries must be controlled by the state, the draft says. The draft law requires Chinese oil companies to build up their own government-managed reserves to supplement government stockpiles that began filling last year.

Such a plan would add to pressures on China's oil and refining companies, whose profits already have been squeezed because government price controls prevent them from passing surging costs for crude oil on to consumers.

World Food Prices to Rise

Report: World Food Prices to Rise, Limiting Access for Poorest.

Food prices are set to rise around the globe after years of decline, with climate change making it harder for the world's poorest to get adequate food, according to a report released Tuesday.

Rising global temperatures as well as growing food consumption in rapidly developing countries such as China and India are pressuring the world food system, meaning that food prices will rise for the foreseeable future, according to the International Food Policy Research Institute.

Joachim von Braun, the director of the Washington-based research group, said food prices have been in a declining trend since scientists began developing high-yield plant varieties decades ago, "but the days of falling food prices may be over." "The last time the world experienced such food price increases was in 1973 to 1974 ... but today the situation is completely different. For one, the climate risk and climate change situation has increased, the climate vulnerability has increased," von Braun told reporters in Beijing.

The institute said in a report that hunger and malnutrition could rise as poor agricultural communities most sensitive to the environment, such as in Africa, are hurt. Dependency on food imports will also increase as cereal yields decline in those countries.

The world's agricultural production is projected to decrease by 16 percent by 2020 due to global warming, the report said, with land used for certain crops shrinking. For example, it said land to grow wheat could almost disappear in Africa.

It said growing demand in rapidly developing countries such as China and India for processed food and expensive meat and dairy products is driving up prices for those goods, as well as for staple grains used to feed cattle. In addition, switching to crops used for biofuels will also reduce the amount of available food and increase prices, it said.

Trade barriers for food should be eliminated, especially in developed nations, the report recommended, so small farmers can earn more money. "A world facing increased food scarcity needs to trade more, not less," the report said.

The European Union and the United States have been reluctant to cut support for their own farmers and reduce trade barriers in world trade talks.

China and Japan Pledge Economic Cooperation

China and Japan Wrap Up Trade and Economic Talks by Pledging Greater Overall Cooperation.

China and Japan amicably wrapped up their first high-level trade and economic talks on Sunday by pledging greater overall cooperation -- but left the touchy issue of gas exploration in the East China Sea unresolved.

Chinese Premier Wen Jiabao hailed the two-day meeting as "successful," and the two sides issued a joint statement promising to strengthen efforts to form a regional free-trade zone, promote energy efficiency and improve protection of intellectual property rights.

They also agreed to participate in an anti-global warming framework to replace the Kyoto Protocol, and cooperate on measures to combat money laundering, terrorism financing and smuggling.

"It's clear China and Japanese relations have taken another step forward, especially in the areas of trade and commerce," Wen told Japanese Foreign Minister Masahiko Komura and four other Cabinet officials at the Zhongnanhai compound, where Chinese leaders live and work.

Komura, who also met with State Councilor Tang Jiaxuan on Sunday, was scheduled to meet Chinese President Hu Jintao on Monday. The discussions, modeled after similar dialogues China holds with the United States and the European Union, were aimed at strengthening ties between the two longtime rivals for regional influence. They bring together the largest number of Cabinet officials from the two countries since they opened diplomatic ties 35 years ago.

Although the meetings mark a new willingness to move beyond divisive disputes that have chilled relations over the past decade, there were still no breakthroughs in Japan's chief issue -- China's exploitation of a gas field that straddles a contested part of the East China Sea. So far, they have held 11 unsuccessful rounds of talks on the dispute.

Claims to the gas deposits came to the fore in 2005 after Chinese crews began drilling at a field known in Chinese as Chunxiao. Though the drill site is not in a disputed area, the field straddles the contested demarcation line and Japan worries that oil reserves in the area might be sucked dry. China has rejected Japan's proposal to jointly develop the fields, which both nations hope to exploit in their drive to feed their fuel-hungry economies.

No significant progress was made in talks between foreign ministers on Saturday, so Komura mentioned the issue again in his meeting with Wen, Japanese Foreign Ministry spokesman Mitsuo Sakaba said. "Strong political leadership from the Chinese side is needed to make a breakthrough," Sakaba said. "Without concrete instructions from the top leaders ... we cannot make a breakthrough."

The joint statement also urged a faster appreciation of China's currency, the yuan or renminbi, a move that many of Beijing's trading partners would like to see. "While Japan welcomes measures regarding the more flexible appreciation of the rembinbi, it calls on China to make efforts toward allowing a faster rise," the statement said.

Two modest agreements were struck during the talks. One was a $420 million Japanese loan to China to fund six environmental projects, and the other a treaty to allow the countries' police and prosecutors to work directly on criminal extradition.

Economic ties have begun to sour as Japanese companies complain that China is blocking acquisitions of Chinese firms. While China, including Hong Kong is Japan's No. 1 trade partner, Japanese investment in China fell 30 percent last year, to $4.6 billion, from the year previous, according to the Japanese Foreign Ministry.

Economists Say Bailout Not Complete Solution

Treasury Plan to Rescue Home Loan Borrowers Not a Solution for All, Experts Say.

If lenders temporarily freeze low introductory interest rates on home loans made to risky borrowers before they soar, it would be a modest fix for the country's fractured housing market. The problems are so far-reaching, analysts say, that an emerging Bush administration-backed plan -- nicknamed "teaser-freezer" by one economist -- won't spare many borrowers, or bankers, from the pain of escalating foreclosures and defaults.

Edward Yardeni, an economist who runs Yardeni Research in Great Neck, N.Y., called the plan "better than doing nothing," but added that it is "not necessarily going to make a big dent in the foreclosure problem that's facing us" because thousands of borrowers still might not be able to make their monthly payments. As a result, the plan, which could be announced as soon as this week, is unlikely to quell worries that the housing market's ongoing problems will drag the economy into a recession.

Treasury Secretary Henry Paulson has been hashing out the plan's details with other top regulators, loan servicing companies and banks, including JPMorgan Chase & Co. and Wells Fargo & Co. Some indications of the outlines of the proposal may come Monday morning, when Paulson is scheduled to speak at a housing forum in Washington.

As it stands, loan servicers are being asked -- but not mandated -- to give extensions of two to five years for subprime mortgages made to borrowers with weak credit that are due to reset at higher rates in the coming years.

The freezes would apply only for borrowers who are current on mortgage payments but unable to afford loans when they adjust to higher interest rates -- and sometimes dramatically higher monthly payments. The Federal Deposit Insurance Corp. estimates that 1.1 million borrowers are in that situation.

But for an estimated 400,000 borrowers already late on payments before loans reset at higher rates, "there may be no alternative except for foreclosure," Michael Krimminger, an FDIC special policy adviser, said last week at a congressional hearing. Nevertheless, Krimminger said, borrowers who are current on their loan payments after two years are likely to be able to repay at that rate over the long run.

It isn't just the resetting of rates that's problematic. FDIC officials note that many subprime borrowers received starter rates that were not especially low at the time: typically around 7 percent to 9 percent, when rates as low as 5 percent were common for borrowers with strong credit.

The plan hatched by government and industry is also intended to benefit investors who purchased these risky mortgages. Agency officials counter criticism from investors concerned the plan will deny them potential profits by arguing they will be better off in the long run through the loan modifications. It spares them the cost of a foreclosure, which can run around $50,000, and decreases the likelihood of default.

"Lenders and investors will ultimately benefit," Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in an October speech in which she unveiled the idea to investors. "You'll come out ahead of the game with a performing mortgage that's being paid versus having a loan that's in foreclosure."

Initially, investors gave a chilly reception to Bair's proposal. But since then, Democrats have been moving forward legislation -- ardently opposed by lenders -- to allow home mortgages on primary residences to be modified in bankruptcy court.

Worries that the bankruptcy proposal would gain further steam has made widespread loan modifications began to look more appealing to the mortgage industry, said Jaret Seiberg, a financial services policy analyst with Stanford Group. Plus, "the industry realized how time-consuming and expensive it was to restructure these loans on a borrower-by-borrower basis," he said.

While the Treasury Department-organized effort won praise from Democrats last week, some experts said it would still face resistance from investors in complex securities backed by mortgage loans. If the Treasury Department pushes modifications that are against the interest of investors, "there will definitely be lawsuits," said Mark Adelson, a mortgage securitization consultant.

During the sunny days of the housing boom, many buyers were banking on the prospect that they could refinance into more affordable loans as the value of their homes soared. Now that home prices are dropping in large parts of the country, and broader economic conditions are worsening, those borrowers are likely to face trouble even with their introductory loan rates extended for a few years.

"It's not the mortgage that's the problem" said Christopher Thornberg, a principal with Beacon Economics in Los Angeles. While the market was soaring, he said, homebuyers simply paid far too much for their homes and are now facing the consequences.

Weekend's Business Holiday: Alaskan Travels and Adventures

Alaska's interior is a vast region which contains some of the state's most impressive natural wonders. The mighty Yukon, Alaska's longest river, flows 1,875 miles from the historic Klondike to the Bering Sea and courses through the middle of the region.

Located in Denali National Park and Preserve, majestic Mount McKinley's 20,320-foot peak dominates the region's southern landscape. The 6-million-acre national park contains North America's largest mountain, along witn 37 species of animals and 155 species of birds. The George Parks Highway and the Alaska Railroad link Fairbanks with Denali National Park and Anchorage.

The aurora borealis or "northern lights" may be seen from late August through April. Alaska natives believed they saw the souls of their ancestors in these shimmering bands of lights. Turn of the century gold rush prospectors believed the colors were rising fro the Mother Lode.

Mystical and unpredictable, these sheets of light inspire lasting Alaska memories. Along with the aurora borealis, the nearby bubbling mineral waters at Manley, Circle, and Chena hot springs are enjoyed by visitors year round. Winter brings many visitors to these locations where they can enjoy the springs, the aurora borealis, as well as x-c skiing, snowmachining, dog sledding and a host of other adventures. Where else could one find such a wonderful combination of wintertime activities.

Sea Kayaking

Sea-kayaking is an excellent way to travel in Alaska.

Visitors use top-quality fiberglass boats that are beginner-friendly. No experience is needed for our kayak trips although experienced paddlers will also enjoy logistical support and "local knowledge".

Most of the trips get on the water in Whittier, about 45 miles south of Anchorage. From here they explore the relatively protected waters of western Prince William Sound; rainforests, waterfalls, glaciers, ice bergs and a huge variety of marine life.

Some trips involve use of a "water taxi" to greatly extend the range and get them to some of the most spectacular areas.

Each night they camp either in the rainforest or on a beach. Since kayaks are so good at carrying big loads, they enjoy a comfortable camp and great meals.

While Prince William Sound is somewhat protected from huge ocean storms, seas can sometimes be quite rough. Kayaking is a very weather-dependent sport. They minimize risks by planning to paddle when seas and winds are favorable...the key to kayaking is knowing when to stay on the beach!

Glacier Trekking

Walk on a glacier!

Here's your chance to get out and actually walk on the blue ice of a spectacular Alaska glacier. You'll use mountaineering crampons to explore the stunning ice formations, get some great photos and learn about the natural history of the area carved by glaciers.

The Matanuska Glacier is perhaps the most accessible in Alaska, in fact we can drive right up to it and be on the blue ice in about 15 minutes of easy hiking. This 26-mile long river of ice provides you the opportunity to really see a glacier up close, as opposed to just viewing it from a boat, plane or highway!

Ice Climbing

Learn the art and skill of ice climbing on a glacier in Alaska.

The spectacular Matanuska Glacier is a perfect place for an introduction to this fun and challenging sport, in the warm comfort of summer!

You'll start out learning the basics and by the end of the day will be climbing towering walls of ice. One of the most popular activities and a truly unique Alaskan summer adventure. No experience is needed; step-by-step approach by the guides will have you climbing in no time.

They provide mountaineering boots, crampons and all the technical gear required. On the glacier, they have a variety of routes with a level of challenge and difficulty for just about everyone.

In addition to learning climbing skills, you'll also have plenty of time to explore the glacier and it's amazing ice formations. Great photo opportunities!

Backpacking and Hiking

Hiking into the remote, mountainous areas of Alaska for several days with everything you need in your backpack can be the most rewarding, and most challenging part of an Exposure trip.

With stunning scenery far from roads and the crowds of people in buses and RVs, packing in is an excellent opportunity to enjoy some of the "real" Alaska. Wake up to a spectacular view enjoyed over a steaming cup of coffee. Look for wildlife out in their neighborhood. Cross glaciers and rivers. Climb mountains.

The rewards are many but must be earned. Even if you're in pretty good shape, carrying a 40-60 pound pack uphill uses muscles in ways they may not be used much back home. Most people feel it at the end of the day.

Since most of the areas you go are mountainous, backpacking in Alaska very often involves some mountaineering skills, you could be trekking across glaciers or camping in the snow at any time of year! Trails vary from well-maintained to non-existent, often established but in very poor condition in some places. You can almost always expect wet feet; from muddy trails, snowfields, or river crossings.

Campsites are usually undeveloped with no facilities. You carry everything you need in, and carry almost everything out when you leave.

Rafting

From mild to wild, there’s an Alaska river for just about everyone.

Enjoy a float trip looking for wildlife and enjoying the spectacular scenery, rivers are a great way to travel.

Or gear up in a dry suit and get ready for a wet and thrilling ride through some of the most exciting whitewater in the country. Rafting is included in many of the scheduled trips on the Matanuska River, the Nenana near Denali National Park or exciting Six Mile Creek on the Kenai Peninsula.

You can also include a half day or several days on a river as part of your custom adventure. A “fish and float” trip is great for families or anyone wanting to do some fishing and get away from it all.

The Matanuska and Nenana are great introductions to whitewater rafting; fast, cold, splashy and a lot of fun.

Six Mile Creek is one of the most exciting rivers around and not for the faint of heart. A practice swim is required before taking on this adventure and you should be ready to paddle hard.

Fishing

Sure you've heard about the great fishing up here..

And it’s an excellent option to add to your exclusive custom trip. Fly in to a local hot spot with a professional fishing guide for your best chances of catching those trophy salmon you’ve seen only in photos.

Spend a day on a charter boat trying your luck against huge Halibut, some weighing hundreds of pounds. You take a jet boat upstream with a professional guide, spending a day fishing for salmon. Camp for a couple of nights at a beautiful spot on the river then enjoy a raft trip back to town.

If you just want to casually try your luck during your custom trip, the guides can probably “hook you up” with some gear but if you really want to have the best chance of success, they should plan some time with a professional fishing guide or charter service that specializes in the sport.

Weekend's Featured: Mega-Casinos Will Change Atlantic City

Five years from now, you might not even recognize this place. A burst of new, luxurious mega-casino projects to be built by 2012 will transform the face of Atlantic City into a more futuristic — and crowded — gambling resort.

At least four companies are betting a combined $9 billion that the makeover will help Atlantic City catch up with Las Vegas as a place to come — and stay — for more than just gambling. In early November, Revel Entertainment Group unveiled drawings of its new $2 billion casino-resort, to be called simply "Revel." Due to open in the second half of 2010, at 710 feet, it will be the tallest building in Atlantic City — at least for a while.

It will feature two thin towers standing perpendicular to the ocean, with as many as 3,900 rooms, and even Atlantic City's first casino wedding chapel. The interior complex, between the towers, is curved and rounded so that it looks as if it has been shaped by gentle ocean waves.

Revel is partnering with investment firm Morgan Stanley on the project. It will become Atlantic City's 12th casino, and the first new one to open since the Borgata Hotel Casino & Spa debuted in 2003 and redefined the public's image of what the Las Vegas experience should look and feel like in New Jersey.

Hot on the heels of "Revel" will be other mega-casinos to be built by Pinnacle Entertainment on the site of the former Sands Hotel Casino, opening in late 2011 or early 2012. The granddaddy of them all, a $5 billion casino resort planned by MGM Mirage in the marina district next to the Borgata, will be the largest project Atlantic City has ever seen when the first dice start tumbling in 2012.

The burst of new investment is the largest in Atlantic City since the start of casino gambling in 1978. "Since the inception of New Jersey's gaming industry, there has been approximately $12 billion of capital investment to date," said Joseph Corbo, president of the Casino Association of New Jersey. "While that is significant by any standard, what is very encouraging is that about $4 billion of that investment was made in the past four years or so."

Pinnacle has been tight-lipped about its Atlantic City project, other than to estimate its price at between $1.5 and $2 billion. It won't say what it will look like or even what it will be called. But the company's chairman and CEO, Daniel Lee, said that in addition to its Boardwalk project, Pinnacle might consider joining the scrum of casino operators vying to build on the former Bader Field airport property, a 150-acre tract whose land alone could fetch $1 billion on the open market. "We have two in St. Louis; we could have two in Atlantic City," Lee said.

It marked a turnaround for Pinnacle, which had threatened for months to scrap its Boardwalk project if the city and state permitted someone else to build a casino on Bader Field. The company maintained it would be at a competitive disadvantage because the newcomer would not have to buy multiple parcels, knock down buildings and clean up the site — as Pinnacle is doing on the Sands property. Corbo estimated as many as three new casinos could be built at Bader Field if a city panel determines casino development is right for the area.

Saving the biggest for last, "MGM Atlantic City" will wrest the title from Revel as Atlantic City's tallest building when it opens in 2012. It will have three hotel towers with a combined total of more than 3,000 rooms, the largest casino floor in Atlantic City with 5,000 slot machines, 200 table games and 500,000 square feet of retail space, among other attractions. MGM is a partner in The Borgata with Boyd Gaming.

A possible fourth new casino to be built on land near the Atlantic City Hilton Casino Resort by Curtis Bashaw, the former Casino Reinvestment chairman, and Wally Barr, the former chief executive officer of Caesar's Entertainment, is also on the drawing board. The new casinos will join an already-expanding skyline: The Borgata, Trump Taj Mahal Casino resort, and Harrah's Atlantic City are all building second hotel towers. Earlier this year, the Hilton floated the idea of a $1 billion expansion, but company officials won't say if that's still on the table.

The new investment is not only attracting others interested in entering the Atlantic City market, but also forcing those already here to spend more to keep up or risk becoming irrelevant. "This is exactly the development cycle that Las Vegas has experienced over the past 15 to 20 years, and is what Atlantic City is poised to achieve as well," Corbo said.

IMF: 2008 Global Growth Forecast to be Revised

The International Monetary Fund said Thursday it would likely revise lower its 2008 estimate of world economic growth due to financial market turmoil and surging oil prices.

"Global growth in 2008 will likely be lower than we anticipated in the World Economic Outlook," IMF spokesman Masood Ahmed said at a news conference. In its twice-yearly World Economic Outlook (WEO), published in October, the IMF predicted the world economy would grow by 4.8 percent next year.

"Recent developments in both oil and financial markets have further dampened the global outlook since the release of the World Economic Outlook in October because some of the downside risks that we had identified then have materialized," he said. The revisions will be made in December and announced in early January, he said.

The forecasts for 2007 will likely be revised upward, he suggested, citing strong performances in several emerging-market countries in the third quarter. The latest WEO forecast global growth at a robust 5.2 percent pace.

Asked about the US Federal Reserve's monetary policy and the possibility of a new interest rate reduction at the next meeting of Fed policymakers, on December 11, the IMF spokesman hinted that such a move was unnecessary. "The Fed's cumulative 75 basis-point easing so far has been well-timed and we think should support growth while maintaining low inflation," he said.

U.S. Plans New Spy Satellite Program

U.S. Plans New Multibillion-Dollar Spy Satellite Program.

The U.S. is pursuing a multibillion-dollar program to develop the next generation of spy satellites, the first major effort of its kind since the Pentagon canceled the ambitious and costly Future Imagery Architecture system two years ago, The Associated Press has learned.

The new system, known as BASIC, would be launched by 2011 and is expected to cost $2 billion to $4 billion, according to U.S. officials familiar with the program. They discussed details on condition of anonymity because the information is classified.

Photo reconnaissance satellites are used to gather visual information from space about adversarial governments and terror groups, such as construction at suspected nuclear sites or militant training camps. Satellites also can be used to survey damage from hurricanes, fires and other natural disasters.

The new start comes as many U.S. officials, lawmakers and defense experts question the high costs of satellite programs, particularly after the demise of the previous program that wasted time and money.

The National Reconnaissance Office spent six years and billions of dollars on Future Imagery Architecture, or FIA, before deciding in September 2005 to scrap a major component of the program. Boeing, the primary contractor, had run into technical problems in the development of the electro-optical satellite and blew its budget by as much as $3 billion before the Pentagon pulled the plug, according to industry experts and government reports.

"They grossly underestimated the cost of the program," as well as the technological feasibility of FIA, said John Pike, a space expert who heads GlobalSecurity.org. FIA "was a hallucination," he said.

The Defense Department is in the initial stages of preparing the new program for bidders. The Pentagon's classified "request for information" on the technology was issued this fall to industry. Comments were due two weeks ago. A solicitation for proposals is expected next spring.

Meanwhile, the Pentagon is conducting an analysis of the system's potential capabilities that is to be completed this month. Officials said the Pentagon is considering a range of options, but the new program is expected to be significantly less ambitious than the one it is meant to replace. Options include developing an entirely new photo imagery satellite or a derivative of a commercial imagery satellite, buying a commercial satellite or leasing existing satellite capacity.

U.S. commercial satellites currently can make out the outline of 2-foot-long object from space. In April, a satellite will be launched with the ability to see a 16-inch object. By 2011, that capability is expected to narrow to nearly 10 inches.

Industry officials said the contract probably will be for a commercial or commercially derived spacecraft because of the time and budget constraints and the government's apparent desire to maintain control of the satellite.

The U.S. military has a $1 billion contract with two commercial satellite companies to buy space imagery. Each $500 million contract pays for a satellite, its launch and insurance and roughly $200 million in photo imagery.

"We would look forward to reviewing any new government acquisition request since we give the government more eyes in the sky and high quality imagery at a fraction of the cost," said Mark Brender, vice president for communications at GEOEYE, one of the imagery companies under contract with the Pentagon.

The canceled Boeing satellite under FIA was supposed to provide both broad area views of the Earth and the ability to home in on a single target with a high-powered telescope on a single satellite. Those capabilities currently are provided by different satellites, according to an industry official.

When the Pentagon canceled the program in 2005, it hired Lockheed Martin to cobble together a space craft from spare parts from the current generation of secret electro-optical reconnaissance satellites to cover a potential gap in coverage.

The nation's classified network of satellites represent some of the most expensive government programs and receive almost no public oversight. Because of their multibillion-dollar price tags, sensitive missions and lengthy development schedules, spy agencies go to great pains to keep details from becoming public.

The House and Senate intelligence committees have criticized the Pentagon and intelligence agencies' management of space programs. Half the programs have experienced cost growth of 50 percent or more. The Defense Department spends about $20 billion annually on space programs.