Weekend's Special: Hubble Space Telescope, Viewing the Edge of Universe

The Hubble Space Telescope is a cooperative program of the European Space Agency (ESA) and the National Aeronautics and Space Administration (NASA) to operate a long-lived space-based observatory for the benefit of the international astronomical community. HST is an observatory first dreamt of in the 1940s, designed and built in the 1970s and 80s, and operational only in the 1990s. Since its preliminary inception, HST was designed to be a different type of mission for NASA -- a permanent space-based observatory. To accomplish this goal and protect the spacecraft against instrument and equipment failures, NASA had always planned on regular servicing missions.

Hubble has special grapple fixtures, 76 handholds, and stabilized in all three axes. HST is a 2.4-meter reflecting telescope which was deployed in low-Earth orbit (600 kilometers) by the crew of the space shuttle Discovery (STS-31) on 25 April 1990. The telescope is 13.2 meters long (43.5 feet), 4.2 meters (14 feet) in diameter and weighs 24,000 pounds.

Responsibility for conducting and coordinating the science operations of the Hubble Space Telescope rests with the Space Telescope Science Institute (STScI) on the Johns Hopkins University Homewood Campus in Baltimore, Maryland. STScI is operated for NASA by the Association of University for Research in Astronomy, Incorporated (AURA).

The Hubble Telescope is named after Dr. Edwin Hubble, an astronomer who made some of the most important discoveries of modern astronomy. Working at Mt. Wilson in the 1920s, Dr. Hubble showed that the faint clouds of light in the distance were actually other galaxies. In 1929, he determined that the farther a galaxy was away from Earth, the faster it appears to move away. This was the theory of the expanding universe, from whence came the Big Bang theory.

HST was planned for a very long time. In 1946 (before the first satellites), a brilliant theoretical astrophysicist named Lyman Spitzer proposed a space-based telescope that would be free of the distortions of Earth’s atmosphere. Through the 60s and the 70s he lobbied for it and was instrumental in its design and development. Hubble was designed to be upgraded through servicing missions. Each new mission has upgraded Hubble’s scientific power by a factor of 10 or greater and parts with limited life spans are replaced. Each mission has turned Hubble into a new state-of-the-art observatory!

When originally planned in 1979, the Large Space Telescope program called for return to Earth, refurbishment, and relaunch every 5 years, with on-orbit servicing every 2.5 years. Hardware lifetime and reliability requirements were based on that 2.5-year interval between servicing missions. In 1985, contamination and structural loading concerns associated with return to Earth aboard the shuttle eliminated the concept of ground return from the program. NASA decided that on-orbit servicing might be adequate to maintain HST for its 15- year design life. A three year cycle of on-orbit servicing was adopted. The first HST servicing mission in December 1993 was an enormous success. Future servicing missions are tentatively planned for March 1997, mid-1999, and mid-2002. Contingency flights could still be added to the shuttle manifest to perform specific tasks that cannot wait for the next regularly scheduled servicing mission (and/or required tasks that were not completed on a given servicing mission).

The five years since the launch of HST in 1990 have been momentous, with the discovery of spherical aberration and the search for a practical solution. The STS-61 (Endeavour) mission of December 1993 fully obviated the effects of spherical aberration and fully restored the functionality of HST.

Instruments

HST has four instruments. They are the Wide Field/Planetary Camera 2, the Space Telescope Imaging Spectrograph, the Near Infrared Camera and Multi-Object Spectrograph and the newest addition, the Advanced Camera for Surveys.

Wide Field/Planetary Camera 2 (WF/PC)
The WF/PC (wif-pic) is the replacement camera that compensates for Hubble’s flat mirror by its relay mirrors being 2 microns too tall. The “camera” is actually four cameras.

Space Telescope Imaging Spectrograph (STIS)
A spectrograph is a device that spreads out the light gathered by a telescope so it can be analyzed to determine the properties of celestial objects such as chemical composition, temperature, velocity and magnetic fields. The STIS can study objects across a broad spectral range from the UV (115 nanometers) through the visible red and the near-infrared (1000 nanometers). The STIS is two dimensional, which means it can record the spectrum in many locations simultaneously, resulting in greater efficiency.

Near Infrared Camera and Multi-Object Spectrograph (NICMOS)
This device provides infrared imaging and spectroscopic observations of astronomical targets. NICMOS detects light with wavelengths between 0.8 and 2.5 micrometers – longer than the human-eye limit. NICMOS is a cryogenic instrument. The infrared detectors must operate at very cold temperatures and are kept inside a cryogenic “dewar” containing nitrogen ice.

Advanced Camera for Surveys (ACS)
ACS is a camera designed to provide the telescope with a deep, wide-field survey capability from the visible to near infrared, imaging from the near-UV to the near-infrared. The camera is responsible for some of the most incredible images on Phlare.com including the Cone Nebula and the Tadpole Galaxy.

Operation of the Telescope

The Hubble Telescope operates around the clock, but does not spend all of its time observing. It orbits the earth every 95 minutes and must spend time switching antennas, receiving and downloading data, calibrating or turning to acquire a new target. The Space Telescope Science Institute manages the master observation plan, and it is to STScI that astronomers must go to request the telescope’s time. Astronomers may wait years to get an opportunity to utilize Hubble. Only one in ten proposals are accepted. The telescope is available to astronomers worldwide

The master observation plan is then submitted to Goddard’s Space Telescope Operations Control Center (STOCC) where it is merged with its “housekeeping” plan to create a detailed operations schedule. Each event is translated into commands that are uploaded to the telescope several times a day.

Uploaded commands and downloaded data from the telescope are transmitted through the Tracking Data Relay Satellite (TDRS) and its ground station at White Sands, NM. The observer on the ground can examine the raw images and other data within a few minutes for a quick look. Within 24 hours the data is delivered to STScI. STScI is responsible for data processing.

Greatest Discoveries

Hubble has provided a wealth of scientific data that has electrified the astronomical world. Here are some of its key discoveries.

Galaxy Evolution – Peering through time, Hubble has discovered that early galaxies were much smaller and more irregularly shaped than they are now. They may have provided the building blocks for elliptical and spiral galaxies through collisions and mergers.
Age of the Universe – Hubble observations allowed astronomers to determine an age of the universe using two different methods. The universe is 12 to 14 billion years old.
Black Holes - Hubble provided decisive spectroscopic evidence that supermassive black holes exist. Prior to that discovery, black holes were theorized.
Planets – Hubble provided visual proof that raw material for planets, dust disks, are common around young stars. This reinforced the assumption that planetary systems are common in the universe. Hubble also enabled the detection of a planet orbiting a star outside of our solar system and provided the first information about the planet’s chemical composition.

Current Situation

Hubble was to be serviced one last time, Servicing Mission 4, in 2006. The original mission for the telescope was 15 years and then it was stretched to 20, with a projected end date of 2010. Without another servicing mission, the telescope will probably not live that long. What could cause Hubble to fail? The two areas of greatest concern are Hubble's gyroscopes and batteries.

Gyroscopes
Hubble depends on gyroscopes to point the telescope and keep it stable. If too many fail, it will become unusable. Hubble has a total of six gyroscopes, of which two are currently broken and were to have been replaced on Servicing Mission 4. It uses three to point. Scientists are developing software and techniques to allow Hubble to operate with just two gyroscopes and they will test them in the fall. Based on previous history, it is likely that Hubble will be down to two gyroscopes by 2006 and one in 2007.

Batteries
Hubble uses a set of rechargeable nickel-hydrogen batteries that are recharged by Hubble's solar panels. The batteries keep the telescope pointed during the night - if the batteries die it could only stay pointed for a single day. The batteries are original to Hubble (1990) and no one knows how long they will last. They are starting to deteriorate in performance.

Other
Other random parts may break, such as electronics, as the shielding material has been aging. Fortunately, Hubble has redundant systems.

When the telescope stops working, the plan is to build and launch an unmanned robotic device that will rendezvous with Hubble and attach a rocket to it. The rocket will alter Hubble's orbit after firing so that Hubble will crash in the ocean, away from shipping lanes.

Weekend's Featured: Industries Lobbying to Avoid Pollution Cleanup

Big Industries Launch an Intense Lobbying Effort to Block New Limits on Air Pollution.

Big industries are waging an intense lobbying effort to block new, tougher limits on air pollution that is blamed for hundreds of heart attacks, deaths and cases of asthma, bronchitis and other breathing problems.

The Environmental Protection Agency is to decide within weeks whether to reduce the allowable amount of ozone — commonly referred to as smog — in the air. A tougher standard would require hundreds of counties across the country to find new ways to reduce smog-causing emissions of nitrogen oxides and chemical compounds from tailpipes and smokestacks.

Groups representing manufacturers, automakers, electric utilities, grocers and cement makers met with White House officials recently in a last-ditch effort to keep the health standard unchanged. They argued that tightening it would be costly and harm the economy in areas that will have to find additional air pollution controls.

Oil and chemical companies also have pressed their case for leaving the current requirements alone in meetings on Capitol Hill and with the Bush administration. A dozen senators and the Agriculture Department urged EPA not to tamper with the existing standard. On the other side are health experts who conclude that tens of millions of people, particularly the elderly and small children, are still being harmed by poor air quality.

EPA said last summer that the current health standard — no more than 80 parts of ozone for every billion parts of air — does not provide needed protection against asthma, heart attacks and respiratory problems.

EPA has estimated a reduction to 70 parts per billion could result annually in 2,300 fewer nonfatal heart attacks; 48,000 fewer respiratory problems, acute bronchitis and asthma attacks; 7,600 fewer respiratory related hospital visits, and 890,000 fewer days when people miss work or school.

Under court order to review the standard, the EPA must decided by mid-March on what to do. "The less pollution in the air, the fewer people are going to get sick, fewer children will have asthma attacks, fewer people are going to die," says Janice Nolen of the American Lung Association, which has argued along with almost every other health and medical group to tighten the smog standard issued in 1997.

The federal health standards set air quality benchmarks that states and local officials must strive to meet through various pollution reduction measures, or risk federal sanctions such as the loss of federal highway money. The law says the standard must be based on protecting public health and not cost, a position the Supreme Court has reinforced.

EPA Administrator Stephen Johnson has acknowledged the standard should be tightened, but he has been unwilling to go as far as health scientists say is needed to protect older Americans, children and the 20 million people that suffer from asthma. The EPA's independent science advisory panel recommended a standard of between 60 and 70 parts per billion, as did a second EPA advisory board on children's health.

Both industry lobbyists and environmentalists say they believe Johnson has taken the view that the standard should be tightened to 75 parts per billion — an approach that doesn't satisfy either industry or health experts

"It's a political compromise," says Frank O'Donnell, president of Clean Air Watch, an advocacy group. Even so, he adds, "every major industry is ... putting the squeeze on" to get the White House to leave the current standard in place. "The results vary but most studies show a steady reduction in the public health burden as the standard is tightened," said Jonathan Levy of the Harvard Center of Risk Analysis.

Levy co-authored a 2006 study that examined the health benefits of tougher smog restrictions in California. It found that tightening the ozone standard to 70 parts per billion would annually result in 270 fewer premature deaths, 280 fewer emergency room visits for asthma and 1,800 fewer hospital admissions for respiratory disease in the state — a reduction of 75 percent in all three categories. Another study estimated 3,800 premature deaths would be avoided nationwide.

Johnson met shortly before Christmas with representatives from environmental and health groups, including the American Academy of Pediatrics and the American Public Health Association. At the meeting, they echoed the views of 111 health scientists who last year told the EPA the ozone health standards needed to be lowered to between 60 and 70 parts per billion.

Industry groups argue that the science is inconclusive and that the need for a tighter standard has not been shown since 104 counties have yet to meet the current requirements. If the standard is lowered to 75 parts per billion, the number of counties in violation grows to nearly 400, and at 70 parts per billion to 533, according to the EPA.

That means states would be forced to clamp new emission controls on businesses, and motor vehicles to clean up the air. "It could trigger layoffs nationwide, further eroding U.S. economic competitiveness," Sen. George Voinovich of economically stressed Ohio, and six other Republican senators recently wrote the EPA. More than a dozen senators have weighed in against any change, while 22 House members told the EPA it should abide by "overwhelming scientific evidence in favor of stronger smog standards."

EPA has put the annual cost of meeting a 75 parts per billion standard at $9.8 billion. A 70 parts per billion ozone standard would cost $22 billion annually. But the EPA notes that the costs of either could easily be offset or exceeded by reduced health care costs.

Manufacturing groups from Virginia and Wisconsin have asked their senators to intervene. National lobbying powerhouses such as the National Association of Manufacturers, the American Petroleum Institute, the American Chemistry Council and Alliance for Automobile Manufacturers have met with administration officials and lobbied Congress to keep the smog standard unchanged.

NAM Vice President Keith McCoy said his group told the White House Office of Management and Budget that the EPA was not considering the economic impact. "Our position is that the existing standard ... should remain in place," said Daniel Riedinger, a spokesman for the Edison Electric Institute which represents investor-owned power companies and recently also took its case to the White House.

"Urge them to retain the current standard," Harry Berry, the county executive/judge in Hardin County, Ky., wrote to his senator, Republican leader Mitch McConnell. Berry warned tougher smog health requirements would be "another blow to the bottom line" for businesses in his area.

William Becker, executive director of the National Association of Clean Air Agencies representing the state and county officials who would have to enforce new air quality requirements, said his group isn't opposed to a tougher standard. "It's going to make our job that much more daunting," Becker said, "but what trumps that ... is public health."

US Jobs Slashed, Deepening Dangerous Cracks in Market

Employers Slash Jobs, Thousands Drop Out of the Labor Force.

Dangerous cracks in the nation's job market are deepening. Employers slashed jobs by the largest amount in five years and hundreds of thousands of people dropped out of the labor force -- ominous signs that the country is falling toward a recession or has already toppled into one.

For the second straight month, nervous employers got rid of jobs nationwide. In February, they sliced payrolls by 63,000, even deeper than the 22,000 cut in January, the Labor Department reported Friday.

The grim snapshot of the country's employment climate underscored the heavy toll the housing and credit debacles are taking on companies, jobseekers and the economy as a whole. "It sounds like the recession bell is ringing for the U.S. economy, although it is still faint," said Stuart Hoffman, chief economist at PNC Financial Services Group. On Wall Street, stocks tumbled. The Dow Jones lost 146.70 points, a little more than 1 percent to close at 11,893.69. The Dow was down 370 for the last two days of the week.

The worsening situation will prompt the Federal Reserve to cut a key interest rate deeply -- perhaps by as much as three-quarters of a percentage point -- at its next meeting March 18, or possibly sooner, to help brace the teetering economy, analysts predicted.

The shower of pink slips was widespread. Factories, construction companies, mortgage brokers, real-estate firms, retailers, temporary-help firms, child day-care providers, hotels, educational services, accounting firms and computer designers were among those shedding jobs. All those cuts swamped job gains at hospitals and other health care sites, bars and restaurants, legal services and the government.

"Losing a job is painful, and I know Americans are concerned about our economy; so am I," said President Bush. "It's clear our economy has slowed." The big question: Just how much? The weak employment report pushed an increasing number of private economists into believing the economy is probably shrinking now. Under one rough rule, the economy would have to contract for six months for the country to be considered in a recession.

The unemployment rate actually dipped slightly from 4.9 percent to 4.8 percent, as 450,000 people left the labor force for any number of reasons. Economists thought many people probably gave up looking for work. "It stands to reason that a large share of the people left because they didn't feel like anything was there for them -- that the market was too weak to be searching for a job at this point," said Mark Zandi, chief economist at Moody's Economy.com.

To relieve persistent credit problems, the Federal Reserve announced Friday that it will increase the amount of loans it plans to make available to banks this month to $100 billion. The Fed already has provided a total of $160 billion in short-term loans to cash-strapped banks since December. The Fed, in another step, said it will make $100 billion available to a broad range of financial players through a series of separate transactions.

Crumbling employment conditions are feeding fears the economy will fall victim to all the stresses. Until recently, the positive forces of job and wage growth have helped to offset the negative forces hitting people from the housing and credit crises. Now people and businesses alike are more cautious, spelling more trouble for the economy. "The debate should no longer be about whether there is or is not a recession, only about how deep it will be," said Nigel Gault, chief economist at Global Insight.

The elimination of 63,000 jobs in February was the most since March 2003 and marked the second month in a row of job losses. The last time the economy suffered two consecutive months of job losses was in May and June 2003, when the labor market was still struggling to recover from the blows of the 2001 recession. "Businesses got cold feet, and when that happens the easiest thing to do is to put hiring on hold and wait until the dust clears," said Ken Mayland, economist at ClearView Economics.

Economic growth slowed to a near standstill of just a 0.6 percent pace in the final quarter of last year. Before Friday's employment report, many thought growth would weaken further -- around a 0.4 percent pace. Now, however, a growing number think the economy is contracting.

Bush's top economic adviser, Edward Lazear, acknowledged Friday that the economy may dip into negative territory in the current quarter. Lazear's comment was the most pessimistic assessment heard out of the White House. He would not discuss whether the White House believes the economy will actually fall into a recession.

The Bush administration was hoping the government's speedily enacted economic stimulus package -- including tax rebates for people and tax breaks for businesses -- will help bolster the economy in the second half of this year. "I know this is a difficult time for our economy, but we recognized the problem early and provided the economy with a booster shot," Bush said. "We will begin to see the impact over the coming months," the president predicted.

Democrats, however, said more relief is needed now. House Speaker Nancy Pelosi, D-Calif., spoke of charting a "new direction for our economy." Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee, called for action to stem record-high home foreclosures.

The Democratic presidential contenders, Sens. Hillary Rodham Clinton of New York and Barack Obama of Illinois, blamed the job losses on what they believe are failed Bush policies. "The news should put to rest any doubts that our economy is in deep trouble," Clinton said. Obama said the employment news meant "more heartache and struggle" for Americans.

On the employment front, workers with jobs saw modest wage gains. Average hourly earnings for jobholders rose to $17.80 in February, a 0.3 percent increase from the previous month. Over the last 12 months, wages were up 3.7 percent. With lofty energy and food prices, though, workers may feel like their paychecks are shrinking.

Spreading fallout from the housing and credit troubles are the main factors behind the economic slowdown. People and businesses alike are feeling the strains and have turned cautious. Adding to the stresses on pocketbooks, budgets and the economy: skyrocketing energy prices. Oil prices, which have set a string of record highs in recent days, now top $105 a barrel. Gasoline prices have marched higher, too.

All those problems are putting consumers in a gloomy state of mind. Consumer confidence sank to a new low of 33.1 in early March, according to the RBC Cash Index. That was the worst since the index began in 2002.

To help shore up the economy, Federal Reserve Chairman Ben Bernanke signaled last week that the central bank is prepared to lower interest rates again. Economists are now predicting a deep rate reduction by the Fed on or before its regularly scheduled meeting March 18. The Fed, which has been slicing the rate since September, recently turned more forceful. It slashed the rate by 1.25 percentage points during just eight days in January -- the biggest one-month reduction in a quarter-century.

Record Oil and Commodities Signs of Slumping Economy

Record Oil Prices Becoming Hard to Ignore for Investors Preoccupied by Credit Crisis.

Preoccupied the last few months with shrinking credit and a slumping economy, Wall Street has all but ignored the relentless rise in oil prices that has taken a barrel of crude to a once-unthinkable $106.

But the market may not be able to look the other way much longer -- especially when consumers, already hurting from the soaring cost of gasoline, find themselves paying even more to fill their tanks come spring.

"Investors are just getting used to higher oil prices in what has really been a stealth rally," said Peter Dunay, chief investment strategist with Meridian Equity Partners. He said lofty oil prices "should be getting lots of attention" by Wall Street. But, investors have instead been distracted by a nearly endless stream of bad news about the economy -- from banks taking steep write-downs for soured mortgages to the loss of tens of thousands of jobs.

To be sure, there is a lot for Wall Street to worry about these days. Major stock indexes have slid by double digits since the start of the year as economists fear the economy might already be in a recession. And, the summer's subprime mortgage collapse continues to threaten financial institutions around the world.

Although there certainly were many days last year that Wall Street tumbled in response to the punishing march in oil prices, the advance toward $100 a barrel at 2007's end and the surpassing of that milestone this year might actually have been welcomed by some investors. Institutions have been piling into crude -- along with other commodities -- to flee not just sagging stocks but also the flailing U.S. dollar.

The greenback's fall against other major currencies has helped drive buying across commodities as investors overseas view dollar-denominated assets as relatively cheap. Meanwhile, big institutional investors have used hard assets like oil as a hedge against inflation.

On Friday, oil prices jumped to a new record above $106 on the New York Mercantile Exchange. At the pump, gas prices are 68 cents higher than a year ago, and within a nickel of last May's record price of $3.227 a gallon. And they can only go higher as the summer driving season, which always sends gas climbing, arrives.

Those prices, which have sent the cost of almost everything in the economy higher, are expected to translate into a further increase in inflation. A growing number of economists are becoming concerned that the Federal Reserve, which has been cutting rates in hopes of reinvigorating the economy, will be forced to stop because of the overall effect of more expensive energy. Should the central bank cut rates at its March 18 meeting, which is widely expected, that move could also further weaken the dollar -- and possibly keep the cycle of rising oil prices going.

Then there is the problem of an even greater impact on the consumer -- whose growing hesitation about spending has been reflected in weak retail sales, even during the holiday season. What happens as gasoline prices in particular increase? The fear is that Americans, forced to pay more money for gasoline and overwhelmed by other economic issues, will continue to hunker down.

"The U.S. consumer, who has carried the economy for the past half-dozen years, is in full defensive mode, battered by falling housing values, spiking food and energy prices, tightening lending standards, the teetering stock market and hints of weakening in the labor market," said T.J. Marta, economic and fixed income strategist for RBC Capital Markets.

He said the consumer is clearly pulling back, and the retrenchment could dramatically pick up speed as energy prices rise. Losing the consumer -- whose spending accounts for more than two-thirds of the U.S. economy -- would have disastrous effects, analysts said.

Wal-Mart Stores Inc. reported better-than-expected same-store sales for February this past week. However, investors' cheer was short-lived as the gains appeared to come from bargain-seeking consumers who appeared to pare their purchases elsewhere.

Dunay said monitoring earnings and sales reports at the world's largest retailer is a good way to gauge the mood of consumers. And it's not just big-ticket purchases like televisions and computers used to determine if consumers are nervous. "Many Wal-Marts have started to stock more food on their shelves," he said. "And, that's a really telling sign."

Record Grain Commodity Prices Fuel Rural Economy

Record-High Grain Prices Bolstering Rural Economy; Farmers Face Planting Choices.

Record-high grain prices are fueling a rural economic boom in farm states such as Kansas. Farm equipment dealers have a backlog of several months in orders for new machinery. Cropland rents are rising, along with agricultural land prices. And with spring planting just weeks away, farmers are watching the volatile commodities markets as they decide which crops to grow in the coming season.

While their city neighbors are struggling with foreclosures and fears of a recession, a lot more money is circulating in rural Kansas today, said Jere White, executive director of the Kansas Corn Growers Association. "They are kind of riding the wave, running counter to the rest of the economy," Terry Kastens, a part-time agricultural economy professor at Kansas State University, said of his fellow farmers.

White said that after several lean years in Kansas agriculture, many farmers are using money they're making from their grain to upgrade, not just on their farms, but in their homes and elsewhere. "If you can envision tens of thousands of farmers in Kansas receiving a good price for virtually any grain they grow, the impact it has on rural communities has to be substantial," he said. "That filters its way to people who sell cars and tires and shoes and clothing and everything else."

Perhaps one of the most telling barometers of the farm economy is the rising numbers of orders for new farm machinery. Kastens, who farms in northwest Kansas near Atwood, bought a new planter in August so he'd have it for spring planting.

New combine sales were up 15.4 percent nationwide in 2007, sales of four-wheel-drive tractors were up 22.7 percent and sales of large-scale, two-wheel-drive tractors were up 25.7 percent, Kastens said. Although equipment prices haven't increased much more than 10 percent, farmers are buying a lot more "bells and whistles" for their machinery, which is pushing up the cost of equipment as much as 20 percent, Kastens said.

But input costs -- items such as fertilizer, herbicide and seed prices -- are also soaring, something farmers will take into consideration when deciding what and how much to plant. "Corn is very expensive to plant," said Mike Woolverton, grain marketing economist at Kansas State University. "It takes a lot of fertilizer and seed costs are high."

Still, Kastens said, grain prices are "plenty high" to cover the increased costs. "Another big plus for farmers today is that despite the fact there is a lot of borrowing -- all input costs have risen -- interest rates have been pretty low," he said. "Government officials lowered the interest rates, which is another nice, positive thing."

Corn is the first spring crop planted in Kansas. With input costs so high, farmers are now making almost irreversible planting decisions as they buy fertilizer and seed. The Agriculture Department plans to issue on March 31 its report on what farmers are planning to plant. Soybeans and wheat may seem like a better option than corn when looking at relative prices, but the selling price of corn today makes it a profitable crop.

"They have to look ahead at harvest-time prices, and that is where the picture could change," Woolverton said. He said nothing in the past farm economy compares with the volatility of today's commodity markets. One option for farmers may be to lock in prices in the futures market.

"What we are telling people is to forward contract as much of their 2008 and 2009 crops as they are comfortable with, but no more than they can cover with crop insurance," Woolverton said. "We can't tell them any more than that, otherwise they are speculating."

While grain growers are relishing an unprecedented market for their crops, some sectors of the rural economy are hurting from the high prices. Cattle feedyards, particularly in big cattle-feeding states such as Kansas and Texas, have been hard hit. Higher feed costs are also affecting cow-calf producers. "The livestock industry is not doing all that great. They are just kind of plugging along," Kastens said.

Bank of Japan Keeps Rate Unchanged While Foreign Reserves Hit $1 Trillion

Bank of Japan Keeps Key Interest Rate Unchanged As It Awaits Govt Nomination for Next Chief.

The Bank of Japan kept its key interest rate unchanged Friday at the end of a two-day policy board meeting in an unanimous decision that had been widely expected.

The Bank of Japan said in a statement that the overnight call rate will stay at 0.5 percent. Less certain is what will happen when the government faces a divided Parliament when it proposes its pick for Bank of Japan chief. The opposition had been boycotting the legislative sessions and threatening they may block the nomination.

Speculation has been growing for weeks that the ruling party wants Deputy Bank of Japan Gov. Toshiro Muto as the central bank head. Fears have also been growing that a political standoff could delay his confirmation. "We are raising questions about the acceptability of proposing Mr. Muto while knowing full well we have voiced some reservations," Democratic lawmaker Kenji Yamaoka said on nationally televised news.

Failure to have a head for the central bank of the world's second largest economy will be a major international embarrassment for Japan. But Prime Minister Yasuo Fukuda, whose popularity ratings have been dwindling, has been largely powerless to placate the political jockeying from the opposition.

Japan Foreign Reserves Surpass $1 Trillion

Japan's foreign reserves surpassed $1 trillion for the first time in February, the government said Friday, fueled by a stronger euro and gains in the value of U.S. Treasurys. Reserves of convertible foreign currencies, gold and International Monetary Fund special drawing rights rose $11.94 billion from January to $1.01 trillion, the Ministry of Finance said.

February's result marked the ninth straight month of increases and followed a $22.68 billion gain in January. China is the only other country with foreign currency reserves of more than $1 trillion. The strengthening of the euro against the dollar to $1.5179 at the end of February from $1.4861 at the end of January was one of the main reasons for the increase.

The value of Japan's euro-denominated bonds rises as the European currency climbs against its U.S. counterpart because Japan calculates the value of its reserves in dollars. Another contributor to February's gain was a drop in U.S. Treasury yields, which move inversely to prices and in which Japan invests the bulk of its reserves. The 10-year Treasury yield was 3.513 percent at the end of February, down from 3.597 percent at the end of January. Higher gold prices also helped boost the country's foreign reserves in February.

European Central Bank and Bank of England Keep Rates Unchanged

European Central Bank, Bank of England Keep Rates Steady Despite Inflation Pressure.

The European Central Bank and Bank of England took similar paths Thursday by leaving their benchmark interest rates unchanged -- but analysts expect cuts in the coming months. The ECB's refinancing rate remained unchanged at 4 percent while the Bank of England left its key rate at 5.25 percent.

Analysts and traders were awaiting ECB president Jean-Claude Trichet's comments on the bank's reasoning. They will look for clues about the effects of the rising euro, record inflation in the 15-nation euro zone and whether fears of a U.S. recession may cause the bank to lower its rates later this year. Inflation in the countries that use the euro has been at a record of 3.2 percent since the start of the year.

In London, the Bank of England's decision was expected by most economists and followed a cut last month in an attempt to shore up Britain's slowing economy. Economists expect further cuts in the coming months. However, the bank is also responsible for keeping inflation in check and economists said that soaring food costs and energy prices were likely behind this month's decision.

"Current elevated inflation risks meant that it was too soon for the bank to be comfortable about cutting interest rates again despite serious concerns about the growth outlook," said Global Insight Chief U.K. economist Howard Archer.

Inflation is currently at 2.2 percent, already above the British government's 2 percent target, and a rate cut to boost economic growth can also wind up increasing inflation. Most economists expect the Bank of England to hold off until May before easing rates further, although an April move is not ruled out if there are signs of a more serious slowdown.

Ian McCafferty, the chief economic adviser at the Confederation of British Industry, Britain's leading employers' organization, said that holding rates showed the Bank was determined not to compromise on inflation, but added that another cut would be needed "sooner rather than later." "The MPC is well aware of the intensifying short-term inflationary pressure and needs to balance this against the weakening of the economy we are experiencing," he said.

The ECB is in a similar predicament, with record inflation and the rising euro, which hit a new high of $1.5347 on Thursday. Most analysts believe the bank will lower the rate to between 3.5 percent and 3.75 percent by the second quarter of this year, provided Trichet is not too worried by the back-to-back inflation of 3.2 percent in January and February of this year.

"The ECB is edging only very gradually toward a possible rate cut," said Holger Schmieding and Gilles Moec, economists with Bank of America in London in a note to investors. "Following the clear shift from a tightening bias to a neutral stance in February, we do not look for a major further change in the ECB statement this time."

But while the bank will hold steady this month, they expect to see as many as two cuts by the end of the year, bringing the rate to 3.5 percent. That's in contrast to the U.S. Federal Reserve, which has chopped its own rate several times to 3 percent. The Bank of England has cut its key rate twice in three months.

On Tuesday, the Bank of Canada cut its key interest rate by half a percentage point to 3.5 percent on Tuesday and indicated further cuts would be needed as a response to a U.S. economy that will likely experience a deeper and more prolonged slowdown than previously projected. Meanwhile, Australia's central bank raised its key interest rate to 7.25 percent the same day, its highest level in 12 years, to combat inflation.

For Trichet, concerns about inflation are more important than fears about a U.S. recession or even a rising euro. Fighting inflation is Trichet's key role as president of the bank and he has stressed he will not deviate from that. That is a notable contrast to the Fed, which has a broader mandate to not only fight inflation but preserve economic growth.

China Faces Growing Inflation Pressure

China Faces Growing Inflation Pressure, but Can Control Price Rises.

China faces growing pressure for prices to rise due to food shortages and a credit boom but is confident inflation can be held to its 4.8 percent target this year, financial officials said Thursday.

"We will face increasing pressure for price rises and they need to have our full attention, becuse they have a direct bearing on the performance of our economy," the chairman of China's planning agency, Ma Kai, said at a news conference during the annual session of the national legislature. Inflation "will be the No. 1 item on our agenda," Ma said. "We have the means to achieve the targets."

Analysts are skeptical that Beijing can meet the goal announced by Premier Wen Jiabao on Wednesday after inflation soared to 7.1 percent in January, its highest level in 11 years. Communist leaders worry about possible political fallout from rapid price rises, especially for food, that have battered Chinese consumers and threaten to erode rising living standards. Bouts of high inflation in the 1980s and '90s sparked protests.

Beijing will maintain a tight monetary policy while trying to ensure food supplies, said Ma, who appeared with Finance Minister Xie Xuren and the governor of the central bank, Zhou Xiaochuan. "We will use finance and taxation as leverage to vigorously support production of grain, meat, cooking oil and vegetables, ensure the supply of daily necessities and hold down price rises," Ma said.

Snowstorms that battered China's south in January and early February worsened food shortages, adding to price pressure and prompting analysts to raise their inflation forecasts. Beijing has yet to report February's consumer price index. But at a separate event Thursday, the deputy director of China's statistics agency, Lin Xianyu, told Dow Jones Newswires it is likely to match January's rate.

Deutsche Bank's Jun Ma said February's rate should top 8 percent, while full-year inflation should hit 6.4 percent. "We think the government is too optimistic," Ma said in a report to clients. "We believe that the government is still underestimating the risk of inflation, as it did in the past six months." Monetary policy "remains overly relaxed" and the central bank could raise interest rates once February data are reported, Ma said.

Beijing has hiked rates repeatedly over the past two years to cool a boom in bank lending and investment that helped to drive economic growth to 11.4 percent last year. Chinese planners worry that runaway spending could fuel inflation or ignite a debt crisis.

Zhou, the central bank governor, said there is room for more rate hikes, though he gave no sign whether any are planned. "I believe the room is there," he said. Zhou said recent U.S. interest rate cuts in response to the subprime credit crisis have made China's decisions more complicated. But he said they are "not a major concern for China."

"For a long time to come, we will face this issue of excess liquidity and excess enthusiasm in making investment. We need to constantly make adjustments to curb these trends," Zhou said. "But we cannot curb these trends too hard, or it will backfire and hurt enthusiasm for investment."

Zhou said China's decision to let its currency, the yuan, rise in value against the U.S. dollar since mid-2005 has helped to cool inflation slightly. But he said other policy tools were more effective and the exchange rate should not be seen as an anti-inflation measure. "As for controlling inflation, more importantly we need to look more at domestic policy, such as monetary policy," Zhou said.

The flood of money pouring into China's economy from its swollen trade surplus has strained the central bank's ability to contain pressure for prices to rise. A stronger yuan could narrow the trade gap by making Chinese goods more expensive in dollar terms.

The yuan has been allowed to rise by 16.5 percent against the dollar over the past 2 1/2 years. But critics of Beijing's trade record want a faster rise, and some American lawmakers are calling for punitive tariffs on Chinese goods if it fails to respond. Wen, the premier, promised Wednesday that Beijing would pursue a more flexible exchange rate, but Zhou gave no indication how much faster the yuan might be allowed to rise.

Oil Reaches Another Record $105

Oil Prices Spike to Record $105.10 in Wake of Supply Report and OPEC Production Call.

Oil prices hit a record $105.10 a barrel Thursday, a day after a surprise drop in U.S. crude supplies and a decision by OPEC not to boost production. Prices gave up some ground by midday trading in Europe. Light, sweet crude for April delivery was still up 11 cents to $104.63 a barrel in electronic trading on the New York Mercantile Exchange.

On Wednesday, the April contract had jumped $5 to settle at a record $104.52 a barrel and later rose to $104.95 in post-settlement electronic trading. Earlier this week, oil prices broke the previous inflation-adjusted price record of $103.76, set in 1980 during the Iran hostage crisis.

"The primary factor causing the surge in oil prices is the surprising drawdown in crude inventories, which caused traders to really react quite dramatically," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.

Most analysts had expected the U.S. Energy Department's Energy Information Administration to report oil stocks rose last week for the eighth straight time. Instead, the stocks fell 3.1 million barrels.

In Vienna, the Organization of Petroleum Exporting Countries said Wednesday it would hold production levels steady, at least for now. OPEC ministers cited falling demand in announcing their decision to hold production steady.

The EIA report and OPEC announcement fed a new frenzy of investing in oil futures, which have risen to new inflation-adjusted records this week as the falling dollar drew investors to the market.

"Five dollars is an incredible gain," Shum said. "The overall oil market fundamentals are supportive of strong oil prices but not at this level, above $100. I would expect some profit taking to put a temporary halt to this rather large surge in pricing."

The dollar, meanwhile, fell to a new low against the euro, with the EU's shared currency climbing to $1.5329 before dropping back slightly. The euro set its previous high mark of $1.5302 on Wednesday.

Analysts noted that U.S. oil inventories are at historical highs despite last week's decline in crude supplies. Meanwhile, demand for gasoline is falling, and several forecasters have cut their oil demand growth predictions for this year.

Traders also worried about the escalating of tensions between oil producing countries in Latin America. Colombia's weekend attack on leftist rebels hiding in Ecuadorean territory has sparked a growing crisis as Venezuela moved tanks and soldiers to the Colombian border Wednesday. Ecuador said Monday it had sent 3,200 soldiers to its border with Colombia.

Bank of Japan New Chief to be Named

Bank of Japan Begins Policy Meeting, Government to Name Replacement for Bank Chief.

Japan's central bank began a two-day policy board meeting Thursday, the last under Gov. Toshihiko Fukui, whose replacement the government will announce Friday. The government is expected to push a deputy governor at the Bank of Japan, Toshiro Muto, who is also a former bureaucrat at the powerful Ministry of Finance. But opposition parties, eager to wield their influence, may block that nomination.

Meanwhile, the bank is largely expected to keep interest rates unchanged amid worries about the global ripple effects of a U.S. credit crunch and the possibility that Japan could slip into recession as consumer buying slows, wages dwindle and company investments drop. The term of Bank of Japan Gov. Toshihiko Fukui ends March 19.

The opposition parties -- reported to favor Yutaka Yamaguchi, another deputy governor at the bank -- control the upper house of Parliament since a historic electoral victory last year, and they have hinted that they will block the government nomination. The prospect that the central bank's governor seat may go vacant has alarmed some people, including Prime Minister Yasuo Fukuda.

In an apparent effort to quell such worries, the chief government spokesman Nobutaka Machimura told reporters Thursday the government will announce its candidate for central bank chief on Friday.

He did not say who the appointment might be. The dissent voiced by the main opposition Democratic Party of Japan makes it unclear if Muto remains Fukuda's choice. Approval of the appointment must pass through both houses of parliament.

The Bank of Japan will be changing leadership at a critical time for the world's second largest economy. Data released Wednesday show Japan's business investment shrank at its fastest pace in more than five years during the fourth quarter. Capital spending, including investment in plant, equipment and software, declined 7.7 percent in the October-December period from a year earlier, the Ministry of Finance said. That was its biggest fall since the third quarter of 2002, when it dropped 12.2 percent.

The ministry's quarterly economic survey also showed Japanese companies' profit fell for the second straight quarter, declining 4.5 percent from a year earlier, the sharpest drop since April-June 2002. Higher crude oil and other raw material prices pushed up costs for companies, which weighed on their profits.

Analysts expect the government to revise its numbers on gross domestic product for the fourth quarter next week. The preliminary reading for October-December GDP stood at an annual rate of 3.7 percent growth.

OPEC Expected to Hold Oil Output

OPEC Unlikely to Change Crude Output.

OPEC pronounced the global market for crude stable and sound as it opened a meeting Wednesday, signaling that the cartel is unlikely to tamper with current production despite record-high oil prices.

OPEC President Chakib Khelil said crude stocks were well within their five-year average and the 13-nation group was not inclined to either boost or reduce its current output of about 32 million barrels a day. "OPEC is concerned about the volatility of the market," Khelil, who is also Algeria's energy minister, said as the meeting opened. "Many factors are contributing to this volatility, including a weaker dollar, speculation (in crude markets) and the geopolitical situation."

Saudi Arabia, the No. 1 producer and by far the most influential member of the Organization of Petroleum Exporting Countries, also said it saw no reason to change output targets -- despite prices hovering near $100 a barrel and a rebuke by President Bush. "Understand the consequences of high energy prices," Bush said Tuesday after meeting with King Abdullah II of Jordan at the White House. "I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices," he added.

Bush's scolding underscored fears that high oil prices -- which earlier this week hit a new inflation-adjusted all-time record of nearly $104 a barrel -- are slowing global economic growth and risk nudging the shaky U.S. economy into recession.

Japan, the U.S. and other major industrialized nations have urged OPEC, which satisfies about 40 percent of the world's demand for crude, to bring more oil on the market as a means of pulling down prices.

But the group appeared to be resisting such a move, pointing to expectations of slackening demand in the second quarter and suggesting it would hold off to see what happens with supply and prices in coming months.

"Why do we need to take any new measure if the health of the market that we follow for our policies is sound?" the pan-Arab newspaper Al Hayat quoted Saudi Oil Minister Ali Naimi as saying. Naimi told reporters in Vienna that his country is pumping roughly 300,000 barrels a day over its quota and is selling every drop "day in, day out" -- an upbeat assessment. Analysts said they didn't expect any significant action Wednesday.

"In truth, OPEC's decision not to pump more oil is a reflection that supply is relatively good," said Anthony Sabino, a professor of business at St. John's University in New York. "What is driving oil prices up to the stratospheric level of over $100 per barrel is the U.S. economy, now undeniably in recession," he said. "It's not so much the price of oil is going up -- it's that the value of the U.S. dollar, sad to say, is slumping."

The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Iraq is the only member not subject to the cartel's output quotas.

Oil Prices Rise Above $100

Oil prices moved back above $100 a barrel Wednesday after dropping sharply a day earlier on the possibility that OPEC will raise output and on expectations that U.S. crude supplies are continuing to rise. Speculators buying back into the market as prices dipped also were seen as another cause behind the rise.

Chakib Khelil, president of the Organization of Petroleum Exporting Countries, said the cartel is shying away from boosting production at Wednesday's meeting due to expectations that global demand for crude will fall during the second quarter.

Khelil's comment helped to halt the slide driven by investors betting the cartel will boost production to bring prices down on worries that high oil prices will help push the U.S. into a recession that would further cut demand for crude.

Light, sweet crude for April delivery on the New York Mercantile Exchange rose 83 cents to $100.35 a barrel in electronic trading by midday in Europe. The contract fell $2.93 to settle at $99.52 a barrel on Tuesday. It was crude's first move below $100 this week and its lowest settlement price since Feb. 25.

Prices were also pressured by expectations that U.S. crude inventories rose 2.3 million barrels last week, according to analysts surveyed by Dow Jones Newswires. The Energy Department's Energy Information Administration will issue its weekly inventory report on Wednesday.

EIA Administrator Guy Caruso on Tuesday predicted crude prices will fall to $57 a barrel by 2016 as exploration and development expands and brings new supplies to the market. Prices rose as high as $103.95 a barrel Monday, climbing past the $103.76 price many analysts consider to be the true record high for oil after the $38 per barrel price from 1980 is adjusted for inflation.

Analysts attribute much of the recent run-up in oil prices to speculative investors driven to the market by a weak dollar. Crude futures offer a hedge against it, and oil futures bought and sold in the greenback are more attractive to foreign investors when it is falling. This view of oil futures as a safe haven during turbulent times has recently rendered reports on inventories and demand moot.

Analyst Olivier Jakob of Petromatrix in Switzerland brushed off the relative stability of the U.S. dollar and the news from OPEC as the reasons behind the fall of crude oil prices on Tuesday. Rather, Jakob said, the fall had much more to do with speculators liquidating positions that were "pushed outside of stress-test limits by the recent buying frenzy on crude oil" and little connection to the actual availability of oil and oil-derived products.

"New money coming into commodities and into oil on the back of a weak dollar probably does not know what a 'crack' is," Jakob added. Crack spreads indicate the difference between the price of crude oil and the price at which the refined products are sold.

US Banking Remains Strong Despite Crisis

Regulators Say Banking Industry Strong Despite Current Problems.

Banking and savings and loan institution regulators insisted Tuesday that the system remains strong despite precipitous declines in earnings sparked by the mortgage crisis. "The vast majority of institutions remain well-capitalized," Federal Deposit Insurance Corporation Chairman Sheila Bair told a Senate Banking Committee hearing on the state of the banking industry.

Credit losses "are going to continue to tick up," and the FDIC expects some increases in its troubled bank list, she said. Banks do fail, she added, but "I think we'll still be easily within historical norms. I don't think it will be anything we can't handle." She noted that at the end of 2007 there were 76 institutions on the FDIC's "problem list," compared to 1,430 at the end of 1991.

That message was echoed by others on the panel. Donald Kohn, vice chairman of the Board of Governors of the Federal Reserve System, reported that preliminary figures showed bank holding companies losing more than $8 billion in the fourth quarter of last year because of writedowns and loan losses. But they also had net income for the year of $90 billion.

"The U.S. banking system is facing some challenges, but remains in sound overall condition, having entered the period of recent financial turmoil with solid capital and strong earnings," Kohn said.

Federal Reserve Chairman Ben Bernanke sent stocks down last week when he told lawmakers that "I expect there will be some failures" of banks as a result of the housing and mortgage crisis. He said in a speech Tuesday that more aggressive action is needed to reduce the rate of preventable foreclosures.

One action, said Banking Committee Chairman Christopher Dodd, D-Conn., would be for the regulatory agencies to do a better job of oversight to ensure that lending markets are run in a safe and sound manner.

He criticized former Federal Reserve Chairman Alan Greenspan for not stopping, even encouraging, the kinds of adjustable rate and non-traditional mortgages that have contributed to the collapse of the housing market. "Where were the regulators?" as credit markets declined over the past year, Dodd asked. "And when the alarm went off, did they merely hit the snooze button?"

Several lawmakers asked about bank relations with credit rating agencies, such as Standard & Poor's Corp., Moody's Investors Service Inc. and Fitch Ratings, that have been criticized for not properly evaluating the risks of bonds backed by mortgages given to borrowers with weak credit. "We are telling our banks to rely less on the credit rating agencies," Kohn said.

Sen. Bob Corker, R-Tenn., also expressed concern that banks "could end up being the greatest problem we have" by cutting back on lending and thus stunting the economic recovery. Kohn said more caution in lending is a necessary correction for an industry that didn't fully appreciate the risks of some loans, but acknowledged that if lenders become much more cautious "that can have elements of a self-fulfilling prophecy."

Among others testifying, John Reich, director of the Office of Thrift Supervision, said the thrift industry he regulates saw profits drop from $15.8 billion in 2006 to $2.9 billion last year. The industry recorded a loss of $5.2 billion in the fourth quarter of 2007.

He said thrifts, which currently hold about two-thirds of their assets in mortgages and mortgage-related instruments, remain strong in terms of capital. "We are maintaining a watchful eye on credit and interest rate risk."

JoAnn Johnson, chairman of the National Credit Union Administration, said that while the industry was in good shape, the aggregate delinquent loan ratio climbed from 0.68 percent to 0.93 percent last year.

China at Risk of Losing Competitiveness

Survey Finds Risks to China Competitiveness, Potential for Better Profitability.

China is fast losing its manufacturing competitiveness in some industries, and companies need to upgrade their operations there to stay profitable, according to a survey released Tuesday. The study comes amid reports that thousands of manufacturers, both Chinese and foreign, are shifting operations away from coastal regions, where labor and other costs are eroding their profitability, to inland areas or other countries.

The "China Manufacturing Competitiveness" survey by the Shanghai Chamber of Commerce found that more than half of the 66 foreign-invested companies responding believe China is losing its competitive advantage over other "low cost" countries, such as Vietnam and India.

"The days of easy China manufacturing are at an end," said Ted Hornbein, chairman of the American Chamber of Commerce in Shanghai's Manufacturers Business Council. "You can't just view it as a workshop anymore."

The companies surveyed, most of which were based in eastern China near Shanghai, said wages are rising an average 9 percent to 10 percent a year, with costs for raw materials up more than 7 percent, the report said.

But corporations can do more to improve their own operations to counter those trends, said Ronald Haddock, vice president of consulting firm Booz Allen Hamilton, which conducted the study. "China's competitiveness is at risk," Haddock said. "The question is there something we can do about it?"

While many low-cost makers of cheaper products such as shoes, clothing and toys are shifting production to inland regions of China where wages and other costs can be lower, or to other developing countries, Haddock said the survey results showed that many manufacturers could boost profitability by improving how they operate. If companies don't improve their management approach, "we think it is going to get pretty ugly for some of them," he said.

A crucial strategy used by the most profitable companies surveyed was to ensure China operations fit into their global supply chains -- how the companies source, make and distribute products. "Starting with the right mind-set is the beginning," Haddock said.

Australia Hikes Rate Again to 7.25%

Australia's Central Bank Lifts Key Interest Rate to Highest in 12 Years to Fight Inflation.

Australia's central bank on Tuesday raised its key interest rate to the highest level in 12 years to combat inflation. The Reserve Bank of Australia's move to lift the key rate by a quarter point to 7.25 percent bucks the trend among major central banks, which are either making or mulling rate cuts to try to stimulate their economies.

Australia's economy is booming, fueled by high global commodity prices and voracious demand from China, India and elsewhere for coal and other energy resources that Australia exports. The 17-year-old economic expansion has put capacity constraints at the top of the list of economic concerns, with inflation now creeping higher.

The central bank has clearly signaled its concerns about rising inflation and said it expects inflation to hit 4 percent on year in the first quarter, well above the bank's 2 percent-to-3 percent target band. In February, the RBA forecast inflation would remain above its target band until mid-2010.

The rate hike was the 12th straight increase since May 2002, and the first back-to-back monthly increase since the end of 2003. Governor Glenn Stevens said the Reserve Bank's board noted that inflation was high in 2007 and remained a threat for 2008 despite signs the world economy was slowing and recent turmoil in financial markets.

There was also signs that rate hikes were starting to bite. "There is tentative evidence that some moderation in household demand is beginning to occur, with business and consumer sentiment softer recently, and household credit demand slowing somewhat," Stevens said. "The extent of that moderation is uncertain, however."

Prime Minister Kevin Rudd said the rate hike came as a "double blow" for mortgage holders after last month's rise and renewed his vow to make fighting inflation one of his government's top priorities.

"Working families are recovering from the first rate rise, which occurred only a short time ago, and they've already tightened their belts," Rudd told reporters in Canberra. "A second rate hike will mean that the family budget will be even harder to balance."

Lehman Brothers chief economist Stephen Roberts said the statement indicated a recognition by the bank that its three interest rate hikes since last August were starting to have a cooling effect on the economy. "What that suggests to me is they recognize they've done a lot and they're moving towards monitoring the data as it comes to see whether any more is needed," Roberts said. "But there's certainly no urgent indication in here of another rate hike."

Lending some support to the bank's less hawkish assessment of demand pressures were January retail sales figures released Tuesday. The Australian Bureau of Statistics said January retail sales were steady at a seasonally adjusted 20.14 billion Australian dollars (US$18.8 billion; euro12.4 billion) compared to A$20.13 billion in December, and up from A$18.8 billion a year earlier.

Also, Australia's current account deficit widened to a seasonally adjusted A$19.35 billion (US$18 billion; euro11.8 billion) in the fourth quarter of 2007 from a A$16.35 billion deficit in the third quarter.

China to Follow WTO Rules in Dispute with US, EU

China Says It Will Follow WTO Rules in Dispute With US, EU Over Financial Information Controls.

China said Tuesday it will follow WTO rules in settling disputes with the United States and Europe over restraints on access to its booming market for financial information services, but it had no comment on the content of the complaints.

Beijing "respects the choices" of other World Trade Organization members, the Commerce Ministry said in a brief statement. It was China's first comment on the WTO cases filed Monday in Geneva.

The new disputes add to tensions with Beijing over its swelling trade surplus with the United States and Europe. The U.S. and European Union demanded that Beijing ease rules that they say boost its Xinhua News Agency at the expense of rivals such as Reuters Group PLC, Bloomberg LP, and News Corp.'s Dow Jones & Co.

The request triggers a 60-day consultation period. It that fails to resolve the dispute, Washington and Brussels can ask the WTO to launch a formal investigation. The process can take years before the WTO approves retaliatory action.

"The Chinese side will conscientiously study the request for consultations and will deal with this matter according to WTO dispute resolution procedures," the Commerce Ministry said in the four-sentence statement. It did not respond to the content of the U.S. and EU complaints.

The United States and EU say China violated its free-trade pledges by imposing rules 18 months ago that require financial information providers to use a Xinhua-approved distributor. The only such entity currently approved is a Xinhua subsidiary.

Financial information services complain that Beijing is reneging on a 1996 commitment to let them to deal directly with banks and other customers in China. Under terms of its WTO entry, China promised not to close markets that it already had opened.

Demand for such services has grown rapidly as China's securities and other financial industries flourished in recent years. Xinhua launched its own financial information service in June as part of efforts to turn itself into a modern media company, and U.S. and EU officials have questioned how it can act as both regulator and competitor of foreign services.

The EU has become increasingly vocal about China's trade gap, an area where Washington has often taken the lead. China's trade surplus with the EU surged by 42 percent in January over the year-earlier period, according to Chinese government figures.

Last month, in a case brought by the United States, the EU and Canada, a WTO panel ruled that Beijing improperly used tax policy to restrict imports of auto parts. The United States also is pursuing WTO cases over Chinese product piracy and access to China's market for books, CDs and DVDs. An EU panel is examining complaints that Chinese-made screws for furniture and autos are being sold at improperly low prices.

EU and Asian Markets Plunge Following Wall Street

European, Asian Markets Sink After Wall Street's Drop Renews US Recession Worries.

European and Asian stock markets tumbled Monday as investors reacted nervously to a steep decline on Wall Street Friday after disappointing economic and corporate news rekindled worries about a U.S. recession.

The U.K.'s benchmark FTSE 100 fell 1.3 percent to 5,808.1, while Germany's DAX Index declined 1.5 percent to 6,652.08. France's CAC 40 slipped 1.5 percent to 4,717.57. U.S. stock index futures also were down, suggesting Wall Street was poised for another drop Monday.

In Asia, Japan's benchmark Nikkei 225 index plunged 4.5 percent to close at 12,992.18. Markets in Hong Kong, South Korea, India and Australia also fell sharply, but shares in mainland China advanced.

Investors dumped stocks after a series of depressing economic and earnings reports Friday out of the United States -- a vital export market and the world's largest economy -- sent the Dow Jones industrial average down 315.79, or 2.51 percent, to 12,266.39.

"Traders will be looking for figures due out later this afternoon to come in better than expected, which could give the futures a bit of a kick," said Claire Collingwood, a dealer at CMC Markets in London. "However anything weaker could of course send the major indices lower still."

The bad news included poor quarterly results from American International Group Inc. and Dell Inc. and weaker-than-expected results on the Chicago purchasing managers index, which painted a dreary picture of the manufacturing sector. "It's all due to fears of a recession in the U.S.," said CommSec chief equities economist Craig James in Sydney, Australia. "This is a global market sell-off."

The dollar's drop to a three-year low against the yen also weighed on sentiment in Tokyo as dollar weakness erodes overseas earnings at Japan's key exporters. The dollar fell as low as 102.59 yen before recovering some to 103.10 yen, down from 103.96 yen late Friday in New York.

Asian markets, which have fallen much of the year so far, had staged a modest recovery through the middle of last week, with Tokyo's Nikkei climbing to a seven-week high last Wednesday. But pessimism returned Monday, sending Hong Kong's Hang Seng index down 3.1 percent to close at 23,584.97. India's benchmark Sensex tumbled 5.3 percent to a provisional close of 16,639.54.

U.S. economic growth slowed to a 0.6 percent pace in the fourth quarter and some analysts believe the economy is already shrinking. "The biggest economy in the world is mired in recession and everybody suffers," said Francis Lun, a general manager at Fulbright Securities in Hong Kong, summing up regional feelings.

Testifying before Congress last week, Federal Reserve Chairman Ben Bernanke signaled that the central bank sees weak growth as the main threat and is prepared to further cut interest rates. Hours before Wall Street was to resume trading, Dow index futures were down 80 points, or 0.65 percent, to 12,204, while Standard & Poor's 500 futures were down 5.1 points, or 0.4 percent, to 1,326.2.

Global investors are bracing for two key U.S. economic reports due this week: Monday's release of the Institute for Supply Management manufacturing survey report and Friday's jobs numbers. On average, economists are forecasting a slight increase in non-farm payrolls, but many believe they will decline for a second straight month.

In other markets in the region, the Korea Composite Stock Price Index fell 2.3 percent to 1,671.73, while Australia's benchmark S&P/ASX200 index slid 3 percent to 5,405.8. Markets in China, however, defied the trend. The benchmark Shanghai Composite Index rose 2.1 percent to close at 4,438.27, on expectations for possible market-boosting measures from the national legislative session, beginning this week.

Subprime Crisis Viewed as Economic Biggest Threat

Fallout From Subprime Loan Crisis Now Viewed by Experts As the Economy's Gravest Threat.

The cascading fallout from the subprime loan crisis, barely a cloud on the horizon a year ago, is now viewed by experts as the economy's gravest threat. In a survey being released Monday, 34 percent of the members of the National Association for Business Economics ranked the financial market turmoil from those loan defaults as the No. 1 threat to the economy over the next two years.

That compares with 18 percent from an August survey, when the most serious threat was seen by 20 percent of the economists as terrorism and the conflicts in the Middle East. A year ago, the credit crisis did not even register as a chief threat.

The latest survey found that 18 percent of association members listed excessive debt held by households and businesses as the top problem. The questioning of 259 economists took place during the first two weeks of February. Events since then have underscored the credit crisis problems.

On Friday, the Dow Jones industrial average plunged by 315.79 points. The decline resulted from a combination of grim economic news, including a new estimate from UBS Securities analysts that the financial system losses from securities backed by mortgages and other debt would total $600 billion. That far surpassed the $400 billion that many economists projected until recently.

At the heart of financial institutions' problems are securities backed by subprime mortgages. They have gone into default at record rates because of the housing market's steep slump. These loans were extended to borrowers with weak credit histories.

A separate 49-member NABE forecasting panel recently raised its expectations of a recession, with close to half thinking a downturn will start before year's end. But 55 percent of the forecasting panel still thinks a downturn can be avoided with the help of an $168 billion economic aid plan and aggressive interest rate cuts by the Federal Reserve.

But the policy survey highlighted the bind the Fed finds itself in. Some 10 percent of respondents said inflation was the No. 1 economic problem, a rating that put it behind worries about subprime mortgages and debt.

The Fed has taken on the credit crisis and the accompanying weak economic growth by cutting interest rates. But to fight inflation, the Fed would have to raise rates. It cannot battle both threats at the same time. In congressional testimony this past week, Fed Chairman Ben Bernanke signaled that the central bank believes weak growth is the biggest threat at the present, boosting chances of an additional rate cut when the Fed next meets, March 18.

The new NABE policy survey found that only 48 percent of those questioned believed the Fed's policies were "about right." That was the lowest reading in the past two years. It compares with 72 percent who felt the Fed was doing a good job in the August survey, taken before the Fed started cutting interest rates. Of those unhappy with Fed policy, 34 percent felt the central bank was lowering rates too much; some 13 percent felt it was still being too restrictive and not cutting rates fast enough.

The new survey was taken after the Fed's January cuts in the federal funds rate of 1.25 percentage points, the biggest one-month reduction in a quarter-century. Ellen Hughes-Cromwick, the president of NABE and the chief economist for Ford Motor Co., noted that the 34 percent who believe the Fed is being too stimulative and thus raising inflation risks had more than tripled from the past survey.

She said this reflected the concerns many economists have about the threat inflation poses, with crude oil prices hitting records above $102 per barrel and food costs rising. Both consumer prices and wholesale prices jumped sharply in January. In his testimony last week, Bernanke said Fed officials were watching inflation developments closely but still believed that the slowing economy would dampen inflation in the months ahead.

On other topics, the NABE survey found only 35 percent of respondents ranked the government's budget policies as "about right," compared with 45 percent in August. That probably reflects projections that the budget deficit could hit all-time highs this year and next.

Economists retained their support for free trade: 79 percent said they viewed greater flows of goods and capital as having a net positive impact over the next decade. But 62 percent felt that sovereign wealth funds, government-controlled investment vehicles, should be more open about their operations.

EU Inflation Holds at Record of 3.2%

Euro Zone Inflation Holds at Record High of 3.2 Percent in February.

Yearly inflation in the 15 nations that use the euro currency held at a record high of 3.2 percent in February, the EU statistics agency Eurostat said Monday. Prices for transport fuel, heating oil, dairy products and cereals are pushing up the inflation rate at the fastest pace since euro cash was introduced in 2002.

The rate is the same as January and well above the European Central Bank's guideline of just under 2 percent. The bank meets Thursday to decide whether to raise or lower interest rates that it has left unchanged since last June.

The ECB has so far held back from cooling high prices by raising borrowing costs over worries that this might damage a slowing economy -- and hurt banks that are still reluctant to take on risky loans in the wake of last summer's credit crisis.

High inflation and a strong euro may eat into the two main drivers of euro zone growth -- European spending at home and export orders from abroad. Alarmed at paying more at the gas pump and the supermarket, shoppers seem to have halted a spending surge with consumer confidence freezing last month.

At the same time, the euro currency rocketed to a new high against the U.S. dollar on Friday, making exports to the United States -- Europe's main trading partner -- more expensive while cutting its growing bill for dollar-priced oil imports. The euro bought $1.5238 late Friday.

The European Commission expects inflation to stay high until the end of this year, averaging 2.6 percent and warning this could worsen if pay hikes fuel a high price spiral. The EU executive last month cut its growth forecast for the euro currency zone to 1.8 percent for 2008, saying that the global economy looks "unusually uncertain.

Weekend's Special: Green Tea, the Divine Healer

All true teas-as distinct from herbal and flower infusions, which afficiandos call tisanes-are made from the leaves of a magnolia-related evergreen tree with the botanical name of Camellia sinensis. Although reaching a height of 30 feet in the wild, on tea plantations (called gardens or estates), the plant is kept as a shrub, constantly pruned to a height of about 3 feet to encourage new growth and for convenient picking.

Tea plants grow only in warm climates but can flourish at altitudes ranging from sea level to 7,000 feet. The best teas, however, are produced by plants grown at higher altitudes where the leaves mature more slowly and yield a richer flavor. Depending upon the altitude, a new tea plant may take from 2 ½ to 5 years to be ready for commercial picking, but once productive, it can provide tea leaves for close to a century.

Tea plants produce abundant foliage, a camellia-like flower, and a berry, but only the smallest and youngest leaves are picked for tea-the two leaves and bud at the top of each young shoot. The growth of new shoots, called a flush, can occur every week at lower altitudes but takes several weeks at higher ones. The new leaves are picked by hand by "tea pluckers," the best of whom can harvest 40 pounds per day, enough to make 10 pounds of tea.

All tea plants belong to the same species-Camellia sinensis-, but local growing conditions (altitude, climate, soils, etc.) vary, resulting in a multitude of distinctive leaves. The way the leaves are processed, however, is even more important in developing the individual characteristics of the three predominant types of tea: green, black and oolong.

Green tea is the least processed and thus provides the most antioxidant polyphenols, notably a catechin called epigallocatechin-3-gallate (EGCG), which is believed to be responsible for most of the health benefits linked to green tea. Green tea is made by briefly steaming the just harvested leaves, rendering them soft and pliable and preventing them from fermenting or changing color. After steaming, the leaves are rolled, then spread out and "fired" (dried with hot air or pan-fried in a wok) until they are crisp. The resulting greenish-yellow tea has a green, slightly astringent flavor close to the taste of the fresh leaf.

In black tea production, the leaves are first spread on withering racks and air-blown, which removes about one-third of their moisture and renders them soft and pliable. Next, they are rolled to break their cell walls, releasing the juices essential to fermentation. Once again, they are spread out and kept under high humidity to promote fermentation, which turns the leaves a dark coppery color and develops black tea's authoritative flavor. Finally, the leaves are "fired," producing a brownish black tea whose immersion in hot water gives a reddish-brown brew with a stronger flavor than green or oolong teas.

Oolong tea, which is made from leaves that are partially fermented before being fired, falls midway between green and black teas. Oolong is a greenish-brown tea whose flavor, color and aroma are richer than that of green tea, but more delicate than that of black.

Green tea has always been, and remains today, the most popular type of tea from China where most historians and botanists believe the tea plant originated throughout all of Asia. Why is this so? Perhaps because green tea not only captures the taste, aroma and color of spring, but delivers this delightful bouquet along with the highest concentration of beneficial phytonutrients and the least caffeine of all the teas.

History of Green Tea

Tea was discovered in China and is the stuff of myth and legend. The Chinese are credited most for the development and cultivation of tea and the methods of its early preparation and use.

Tea has played a significant role in Asian culture for centuries as a staple beverage, a curative and a symbol of status. It is not surprising its discovery is ascribed to religious or royal origins. According to Chinese legend, the god of agriculture would chew leaves, stems, and roots of various plants to discover medicinal herbs. If he consumed a poisonous plant, he would chew tea leaves to detoxify the poison. Buddhists believe that the Buddha himself discovered tea.

According to another legend, the story of Green Tea began in 2737 BC when Emperor Shen Nung, who was known at that time as the "Divine Healer", always boiled his water before he would drink it. He had noticed that his subjects who boiled their water before drinking it seemed to have longevity and better health. One afternoon, as he knelt before his boiling water, some leaves from a nearby tree blew into the pot. The Emperor noted a delightful aroma and, upon sipping the beverage, proclaimed it as "heaven sent".

The Chinese are credited most for the development and cultivation of tea and the methods of its early preparation and use. The oldest written record regarding tea appeared more than 2000 years ago in China in a labor contract between a master and laborer where tea was already treated as a saleable commodity. There is no clear record regarding when human beings began consuming tea or if people in ancient times ate tea leaves or drank brewed tea. There is some evidence that tea leaves were roasted in the process.

Tea was an expensive beverage in ancient China. Its use was confined to the wealthy segments of the population. Only in Ming dynasty after the fall of the Mongolian empire in 1368 A.D., tea drinking spread from the elite to the populace. When China was the sea power of the world (1405-1433), tea was among the indispensable supplies for the seamen. The amount of vitamin C in the tea drink consumed by the seafarers at that time was enough to prevent scurvy which would kill many European sailors more than 100 years later, but was essentially unknown to the medical officers assigned to the fleet of more than 27,000 men on their round voyage from China to Africa. In a famous painting titled "Drinking Tea" (a poor English translation of the original elegant title in Chinese, meaning "Tea Tending Event"), which is now on display in the Palace Museum, Beijing, the most admired and envied painter of Ming dynasty, Tang Yin (1470-1523), recorded the traditional method for tea preparation at the time when China was the most prosperous nation on earth. As described in the poem written on the painting, an affluent intellect actually plucked fresh leaves from the tea trees growing on the southern hillside below his house to brew tea. This document recorded the fact that fresh or non-oxidized tea leaves, i.e., green tea, were used in the prosperous Chinese society at least until the latter part of Ming dynasty.

The first shipment of tea to Europe in 1606 by the Dutch East India Company was green tea. Even to this date, the words "Orange Pekoe" printed on the tea bags served in many American and European hotels bears evidence to this fact although these same words are now being used for marketing a high-grade black tea produced in Sri Lanka and in India. In truth, the word "Orange" is the name of the Dutch royal family which had the monopoly in tea trading with China in the early 17th century. The word "Pekoe" is a phonetic spelling of the words "white fine hair" in the Amoy dialect that was used and is still used to describe a physical appearance of a high-grade green tea containing many young leaf buds. "Orange Pekoe" literally has nothing to do with black tea. Black tea does not have "white fine hair" appearance at all. Mass production of black tea in Sri Lanka began in 1869. The global black tea traders simply transposed an established designation for a high-grade green tea to their new products being sold to the unquestioning public. Black tea became popular in Europe since the 19th century and now constitutes about 80% of the tea products sold in the Western world.

Tea drinking was introduced into the USA from Europe as part of the global tea trade and via the Chinese restaurants operated by the Chinese American immigrants from southern China before 1945. As a result, most Americans are more familiar with black tea in tea bags for convenience or oolong (half-black) tea commonly served in the Chinese restaurants. The love for green tea is an acquired taste. Based on the 5000 years of tea civilization and the most recent molecular biology research, a health-conscious person should cultivate the taste for green tea in pursuing a healthy diet and life style provided the food calorie intake is more than adequate. A legend tells how a Chinese emperor of a minority origin was converted from a black tea drinker to a green tea drinker to become one of the longest reigning rulers in the history of China.

Weekend's Featured: Speed Investing, Dating Style of Making Deals

Deals Are in the Air for Investors, Companies Looking to Hook Up in Unconventional Way.

The days when investment banks would spend time wooing big investors over a leisurely meal, with booze and cigars afterward, may be on their way out. Now, firms such as Germany's Dresdner Kleinwort can play matchmaker through "speed investing" sessions. It may not be as genteel, but it gives European companies like Lloyds TSB and retailer Burberry a chance to woo deep-pocketed American investors.

Wall Street's twist on speed dating allots companies about 20 minutes to sell themselves before mutual funds and other institutional investors. A buzzer rings, time is up, and they all switch tables. This unconventional form of dealmaking offers a new way portfolio managers might find the next stock for your 401(k).

"This is a clever way of meeting people," said Henry De Vismes, a former Citigroup Inc. executive that now runs his own wealth management shop based in New York. "I try to meet about four companies a week, but here I can see 20 in a day. You have to do your homework because it can be quite intense."

Typically, a company embarks on a formal road show to meet hundreds of investors at once -- limiting the amount of time for any face-to-face meetings. Top corporate executives rarely meet with smaller wealth managers. Instead, they clear the decks for big-name outfits like Merrill Lynch & Co. or Fidelity Investments.

The speed investing events gives would-be investors the basics about a company, often from the head of investor relations. If there's a match, both sides arrange a longer meeting before investing any money.

Like investors that attend, companies say the approach helps them reach out to money managers not normally on their radar. A recent speed investing event, held in a Midtown hotel in New York City, featured companies like Swiss drug maker Novartis AG, food and drinks company Diageo PLC, and pay-TV operator British Sky Broadcasting PLC.

"You have no idea how whites of the eyes contact is important," said Michael Oliver, director of investor relations for London-based retail bank Lloyds. "This is an add-on to what we do, and won't replace road shows we go on. But, so far it's been a great success."

That's exactly what Dresdner's Nick Seaward wants to hear. He came up with the idea a few years ago to cut back the amount it time it takes to court new shareholders -- and help introduce companies to a bigger swath of the investment community.

Speed investing began in 2006 in London, and has now spread to North America with events held in New York, Boston and Toronto this past week. There are also plans to expand them elsewhere in Europe, with Milan and Madrid planned for later this year.

Seaward said participants -- who have grown weary of a traditional, yet more long-winded, approach to dealmaking -- appreciate the informality of speed investing. "I've sat through enough of those meetings in my career, and know perfectly well that the gist of the discussion is going to take place for about 20 minutes of an hour meeting," said Seaward, who is managing director of Dresdner Kleinwort's corporate access team.

"Both sides know it, and go through this charade yet know very well the business of the day can be done in a shorter period of time," he said. "This just dispenses with the formalities and gets on with the business."

So far, the success rate shows that about 25 percent of the companies later arrange for longer meetings. Those are good odds in the world of high finance -- and even staggering for some of the smaller European companies that might have never caught the eye of an American investor.

Marcus Jentsch, head of investor relations for German power supplier MVV Energie AG, said his company already has some international investors but is looking for more. He said the time is right as more American portfolio managers are looking overseas to fill out their portfolios. "Business is becoming more international," he said. "So it is a natural trend that the asset managers in America are looking more and more overseas for new ideas."

Berkshire Hathaway 4Q Profit Falls 18%

Berkshire Profit Falls 18 Pct, Hurt by Construction; Company Well Prepared to Replace Buffett.

Berkshire Hathaway Inc. reported an 18 percent drop in fourth-quarter profit as its divisions linked to construction were hurt by nationwide housing woes, and the company generated smaller insurance underwriting profits and investment gains.

But the full-year picture billionaire CEO Warren Buffett described in his annual letter to shareholders Friday appeared much brighter. The company's net income soared 20 percent as it took on more derivative risk.

Berkshire earned $2.95 billion, or $1,904 per share, in the quarter. That's down from $3.58 billion, or $2,323 per share, in the year-earlier period. For 2007, Berkshire earned $13.2 billion, or $8,548 per share, up 20 percent from $11.02 billion, or $7,144 per share, the prior year. On average, the four analysts surveyed by Thomson Financial had expected fourth-quarter earnings per share of $1,606 and annual earnings per share of $6,321.

Berkshire generated revenue of $118.2 billion in 2007, up from $98.5 billion in the previous year. Buffett said Berkshire gained $12.3 billion in net worth during 2007, which represents an 11 percent increase in the per-share book value of the company. That beat the 5.5 percent gain in the S&P 500's value over the same period.

On succession, Buffett said his company is well prepared to replace him whenever he's no longer able to run Berkshire. But the 77-year-old Buffett did not offer many new details about the company's plan. To replace Buffett, Berkshire plans to split his job into three parts -- chairman, chief investment officer, and chief executive officer.

The only part that has been clearly spelled out before is the job of chairman. Buffett has said that when he dies, his son will take over the job to ensure Berkshire's culture is preserved. Howard Buffett already serves on the board.

Buffett said that over the past year, he has identified four investment managers outside Berkshire who could take over managing the company's $75 billion stock portfolio and investing its $44.3 billion cash. And all four want to work at Berkshire for reasons besides compensation. "I've reluctantly discarded the notion of my continuing to manage the portfolio after my death -- abandoning my hope to give new meaning to the term 'thinking outside the box,'" Buffett said.

Buffett has previously said that Berkshire's board had three outstanding internal candidates for chief executive. And Berkshire's board knows who to choose for CEO and chief investment officer once Buffett can no longer do the job.

Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett," said the fact that Buffett still refuses to name the successor candidates suggests that he has no plans to quit. Kilpatrick used a baseball analogy to sum up Buffett's year. "He's hitting singles and doubles," Kilpatrick said. "But that's a lot better than striking out."

And last year Buffett swung more often at derivative pitches that came his way. Buffett said he had accepted $7.7 billion in premiums on 94 derivative contracts by the end of 2007. That's up from 62 contracts at the end of 2006.

Berkshire recorded a $6.9 billion liability for derivatives at yearend. Buffett predicted the derivatives will ultimately be profitable, but he warned they may make Berkshire's earnings more volatile in the future.

Buffett said the few companies Berkshire owns that had problems last year were ones tied to housing, such as Acme Brick, Shaw carpet and Berkshire's real estate brokerage businesses. "Their setbacks are minor and temporary," he said. "Our competitive position in these businesses remains strong, and we have first-class CEOs who run them right, in good times or bad."

Buffett said Berkshire's insurance group, which includes GEICO, reinsurance giant General Re and several other firms, had an excellent year, partly because of good management and partly because of luck. But Buffett predicts that will change in 2008.

"It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008," he said. "Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by 4 percentage points or so. "If the winds roar or the earth trembles, results could be far worse."

Buffett said Berkshire generated a $3.4 billion underwriting profit on insurance in 2007, which is down from the previous year when it made a $3.8 billion underwriting profit. Buffett's influence has grown along with Berkshire's book value -- assets minus liabilities -- which soared from $19 per share in 1965 to $78,008 at the end of 2007.

Berkshire owns more than 60 companies, including insurance, clothing, furniture, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola Co., Anheuser-Busch Cos. and Wells Fargo & Co.