Masaaki Shirakawa Appointed Bank of Japan Chief

Japanese Lawmakers Approve Acting Governor As Bank of Japan Chief; Key Rate Unchanged.

Japanese lawmakers endorsed acting Bank of Japan chief Masaaki Shirakawa as its new governor Wednesday, ending a power vacuum at the central bank's helm by approving the government's third candidate for the job.

But the opposition-controlled upper house of parliament rejected a former Finance Ministry bureaucrat as one of the central bank's deputy governors, prolonging a dispute that has turned into a major embarrassment for the scandal-battered administration of Prime Minister Yasuo Fukuda.

The struggle over the bank's leadership could turn into a liability amid the growing worries over a global economic slowdown, soaring fuel and commodity prices, volatile stock markets and the credit crisis in the U.S., Japan's major export partner.

The stalemate over who should head the Bank of Japan festered for weeks as the opposition turned the decision into a political issue. The five-year term of former Bank of Japan chief Toshihiko Fukui expired March 19.

The opposition, led by the Democratic Party of Japan, said former bureaucrats at the powerful Finance Ministry were too politically connected and could endanger the independence of the central bank of the world's second-largest economy. The Democrats led the upper house to vote down two previous candidates for the top job for that reason.

In the latest balloting, shown live on the Internet, the upper house approved Shirakawa to take the bank governorship 231-7. It voted down nominee Hiroshi Watanabe 121-115 as one of two deputy governors.

Fukuda pleaded with the opposition in a parliamentary session to drop its objection to Watanabe. He denied his appointment was "amakudari," or "descent from heaven," referring to the doling out of plum jobs to former government employees, especially after retirement.

"We made a proposal which I thought was the best choice," he told lawmakers. "Is it so bad for a former bureaucrat to win a post, if that person happens to be best suited for the job? Are we going to become a nation that can't use its talent?"

Nominations for bank posts need approval from both houses of parliament. Watanabe, former vice finance minister for international affairs, was knocked out of the running by his rejection in the upper house.

Ichiro Ozawa, who leads the Democrats, said the opposition is against the status-quo system that gives privileges to such bureaucrats. "That is the biggest cause of corruption in bureaucracy," he said in the parliamentary session, broadcast live on national television.

The ruling coalition controls the lower house. Shirakawa, appointed by the prime minister, easily gained approval there. The vacancies at the central bank are the latest troubles for Fukuda, who has seen his approval ratings sag over a number of scandals, including millions of missing pension records and a criminal investigation of several defense officials.

The government had been eager to resolve the bank dispute before a Group of Seven financial chiefs' meeting Friday in Washington, D.C., so Japan will have a governor to send to the meeting. The top government spokesman said he was unhappy with the battle over the deputy. "We can't come up with an alternative so quickly, so it's inevitable the deputy's post will be vacant for a while," Chief Cabinet Secretary Nobutaka Machimura said on nationally televised news.

Separately, the Bank of Japan kept its key interest rate steady at 0.5 percent at a monthly policy board meeting. It was the first such meeting in modern Japanese history without a full-time bank governor. The board voted unanimously to keep the rate unchanged.

The bank sent a cautionary note in a monthly report, saying that soaring energy and material costs were hurting the economy, which was slowing down. In earlier reports, the Bank of Japan had said that the economy was expanding at a moderate pace. The wording was changed in the just-issued report to say the bank now expected the economy to grow at a slower pace, and grow moderately after that.

In a lower house hearing Tuesday, Shirakawa said he would maintain the bank's independence and transparency. "The vacancy of the governor post is clearly an abnormal situation that must be resolved urgently," said Shirakawa, whose nomination as a deputy governor was approved by lawmakers last month. "I'm determined to devote my heart and soul to fulfill the duty as governor if I can only get your approval," he said.

High Food Prices Likely to Persist

World Bank Leader Says High Food Prices Likely to Persist for Several Years.

Rising food prices, which have caused social unrest in several countries, are not a temporary phenomenon, but are likely to persist for several years, World Bank President Robert Zoellick says. Strong demand, change in diet and the use of biofuels as an alternative source of energy have reduced world food stocks to a level bordering on an emergency, he says.

Speaking to reporters Monday before the bank's spring meeting this coming weekend, Zoellick said the 185-member World Bank would work with other organizations to deal with the crisis by seeking ways to help farmers, especially in Africa, to increase productivity and improve access to food through schools or workplaces. "This is not a this-year phenomenon," he said, referring to the price spike. "I think it is going to continue for some time."

Zoellick said bank forecasters looking at food prices have concluded that a serious risk exists of a significant increase in poverty, which for some countries will reverse gains made over the past five to 10 years.

"A recent assessment in Indonesia shows that over three quarters of the poor import more rice than they sell, and an increase in the relative rice price by 10 percent would result in an additional 2 million poor people, about one percent of the population," he said. In some developing countries the new face of hunger and malnutrition can be found in urban areas, where food is available but people cannot afford it, Zoellick said.

In a speech last week Zoellick called for a "New Deal for Global Food Policy" that would aim to boost agricultural productivity in poor nations. He said the bank would lend almost twice as much money for agriculture in Africa from $450 million to $850 million. He also would like to see major government-owned sovereign wealth funds of Asia and the Middle East to join with the bank and invest in Africa.

Zoellick said the bank could help African countries set up an institutional and regulatory systems that would make investors comfortable putting their money to work in these nations.

Bank of Japan Nominee Vows Independent Policy

Nominee for Bank of Japan Says There Will Be No Political Influence on Policy.

The nominee to head the Bank of Japan told lawmakers Tuesday he would preserve the central bank's independence as he tried to avoid the political sparring that has thwarted two previous candidates.

Both houses of parliament held confirmation hearings for Masaaki Shirakawa, a former Bank of Japan executive director who was nominated Monday. The political opposition rejected the previous candidates because they said they were too closely tied to the Finance Ministry.

In the lower house hearing, Shirakawa said as governor he would maintain the BOJ's independence and transparency, taking into account the mid- and long-term economic outlook, which he said was steady despite harsh conditions in the United States.

"The vacancy of the governor post is clearly an abnormal situation that must be resolved urgently," Shirakawa told the lower house hearing. "I'm determined to devote my heart and soul to fulfill the duty as governor if I can only get your approval."

Japan appeared closer to filling the nearly three-week leadership vacuum at the top of the world's second-largest economy. Prime Minister Yasuo Fukuda's government, which is seeing its approval ratings sag amid a power struggle in parliament, hopes to resolve the central bank dispute ahead of a Group of Seven financial chiefs' meeting this week.

Opposition leaders have indicated their support for Shirakawa. Recently confirmed as one of the bank's deputy governors, he has served as the interim bank chief since Gov. Toshihiko Fukui retired on March 19.

Shirakawa warned that Japan's economy likely will slow for now before resuming a mild expansion. He called the ongoing "confusion" in international financial markets "the biggest risk factor as well as the most serious (financial crisis) since the U.S. Great Depression in the 1930s."

The central bank began its two-day policy meeting for April on Tuesday. It is widely expected to maintain a key interest rate of 0.5 percent after a survey showed business confidence at major manufacturers has sunk to its lowest point in more than four years.

The nomination for BOJ governor needs approval from both chambers of parliament. The opposition-controlled upper house is scheduled to vote in the morning, with the lower house following suit in the afternoon. The timeline is in part driven by the G-7 gathering Friday in Washington. Another failure to select a central bank chief would be a major embarrassment for Japan.

Yahoo Wants Better Deal with Microsoft

Yahoo Says Current Microsoft Bid Undervalues Yahoo, but Not Opposed to Better Deal.

Internet icon Yahoo, under pressure of a three-week deadline from Microsoft to accept its $41 billion buyout bid, said Monday it doesn't oppose a deal with the huge software maker but wants a better offer.

The statement comes after Microsoft warned Saturday that if a deal isn't reached by April 26 the software company will launch a hostile takeover at a less attractive price. In premarket trading Monday, Yahooo shares fell 61 cents, or 2.2 percent, to $27.75.

Microsoft made its offer for Yahoo in late January. The deal would create a stronger rival to Google Inc. At the time, the cash-and-stock bid was valued at $44.6 billion, or 62 percent above Yahoo's market value. As of Friday, the deal was worth just under $41 billion.

Yahoo's board formally rejected Microsoft Corp.'s bid in February, saying it undervalues the company. Jerry Yang, chief executive of Sunnyvale, Calif.-based Yahoo Inc., and Chairman Roy Bostock sent a letter Monday to Microsoft CEO Steve Ballmer, reiterating that the current offer is "not in the best interests of shareholders" of Yahoo.

"We are open to all alternatives that maximize stockholder value," Yang and Bostock said in the letter. "To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing." In the letter, Yang and Bostock assert that Microsoft has mischaracterized the companies' discussions, and say the company's threat to begin a hostile takeover is "counterproductive."

Over the weekend, Balmer gave Yahoo a deadline to accept the offer. "If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board," Ballmer wrote.

"If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal," he wrote.

Since initially rejecting Microsoft's bid, Yahoo has explored alliances with Google Inc., News Corp.'s MySpace.com and Time Warner Inc.'s AOL, but no alternative to Microsoft's offer has surfaced.

Ballmer acknowledged the alternative negotiations and questioned why, in the absence of another offer, Yahoo was still dragging its heels. "This is despite the fact that our proposal is the only alternative put forward that offers your shareholders full and fair value for their shares," Ballmer wrote in the letter. Ballmer said the Microsoft offer has grown stronger as the economic climate has weakened.

"We believe that the majority of your shareholders share this assessment," despite a forecast recently released by Yahoo that calls for the company's revenue to rise more than 70 percent during the next three years, he wrote.

Microsoft has said from the start that it would consider all possible ways of getting the deal done, including taking its offer directly to Yahoo's shareholders, as well as working to elect its own candidates to fill Yahoo's board at the company's annual annual shareholder meeting, and thus the deadline for Microsoft to nominate its slate.

Earlier Monday, Yahoo released more details about its effort to become a one-stop shop for selling and distributing online display ads -- the Internet's equivalent of billboards. The upgrade, called "Amp," won't be available until this summer, and then only on a limited basis among more than 600 newspaper publishers trying recover some of the revenue that the Internet has siphoned from their print editions.

Yahoo siad Amp will make it easier for advertisers to aim their messages at specific demographic groups across scores of Web sites. Amp will rely heavily on data that Yahoo collects about people's preferences at its own Web site as well as other online destinations.

Yahoo's new platform will be competing against similar technology recently acquired by Google and Microsoft. Google bought DoubleClick Inc. for $3.2 billion primarily so it would have a better vehicle for selling display ads. The same objective drove Microsoft's $6 billion purchase of aQuantive.

OECD Forecasts 1.5-2% Growth for Japan, Reserves Hit Another Record

OECD Projects 1.5-2.0 Pct Growth for Japan; Urges Tax Reforms, Cut in Public Debt.

Japan's economy will grow at a pace of 1.5-2.0 percent over the next two years, although the nation faces challenges to sustainable expansion, a Paris-based think tank said Monday.

The Organization for Economic Cooperation and Development said in its annual economic survey of Japan that the nation's expansion has been largely driven by business investment and strong export to other Asian countries. "Growth is projected to continue at a 1.5 to 2 percent rate over the next two years," it said.

But the world's No. 2 economy faces challenges, "most notably persistent deflation, a large and growing public debt and widening disparities between different segments of the economy," the OECD survey said.

The OECD kept unchanged its projection that Japan's gross domestic product will grow by 1.6 percent in 2008 and by 1.8 percent in 2009. The OECD estimates Japan's potential annual growth rate at 1.5 percent over the next five years. The survey urged Japan's central bank to avoid further interest rate hikes until the nation is out of deflation.

The OECD said the Japanese government should reduce public debt by cutting spending and introducing measures to raise revenue. It noted that Japan's government debt reached 180 percent of GDP last year.

The survey also urged Japan's government to reform the nation's tax system to ensure growth and to improve its fiscal health. There is significant scope for broadening the tax base, the OECD said, noting that only a third of companies pay taxes and more than half of wage income is exempt from taxes. Broadening the base could help push down the corporate tax rate, currently at 40 percent, to a level closer to the OECD average of 29 percent, the survey said.

The OECD also said a hike in the consumption tax rate from its current level of 5 percent is "required" and would likely only cause limited economic damage.

Foreign Reserves Rise to Record US$1.02 Trillion

Japan's foreign reserves rose in March to a record US$1.016 trillion (euro650 billion), boosted by the euro's appreciation and interest earned on foreign bonds, the Finance Ministry said Monday.

The reserves -- the world's second-largest foreign-exchange stockpile -- include convertible foreign currencies, gold and International Monetary Fund special drawing rights. Their value rose US$7.61 billion (euro4.84 billion) in March from a month earlier, data from the ministry showed, registering the tenth straight month of increase.

The further increase in Japan's reserves, which topped US$1 trillion for the first time in February, may bring more debate over whether they should be invested more actively for better returns or should continue to be kept mostly in U.S. Treasury bonds and dollar deposits.

Some ruling-party politicians are in favor of investing interest income from the reserves in a wider range of assets to get higher returns, which they say could aid Japan's fiscal rehabilitation. The Finance Ministry, which virtually controls the reserves, is opposed to the idea, saying the reserves aren't suited for risky investments.

In March, rises in the euro-dollar exchange rate hoisted the dollar-value of European bonds held in the reserves, the ministry said. Another boost came from interest paid on dollar deposits, U.S. and European bonds and other assets.

Weekend's Special: Angkor Wat Complex in Cambodia

There are two great complexes of ancient temples in Southeast Asia, one at Bagan in Burma, the other at Angkor in Cambodia. The temples of Angkor, built by the Khmer civilization between 802 and 1220 AD, represent one of humankind's most astonishing and enduring architectural achievements. From Angkor the Khmer kings ruled over a vast domain that reached from Vietnam to China to the Bay of Bengal. The structures one sees at Angkor today, more than 100 stone temples in all, are the surviving remains of a grand religious, social and administrative metropolis whose other buildings - palaces, public buildings, and houses - were built of wood and are long since decayed and gone.

Conventional theories presume the lands where Angkor stands were chosen as a settlement site because of their strategic military position and agricultural potential. Alternative scholars, however, believe the geographical location of the Angkor complex and the arrangement of its temples was based on a planet-spanning sacred geography from archaic times. Using computer simulations it has been shown that the ground plan of the Angkor complex – the terrestrial placement of its principal temples - mirrors the stars in the constellation of Draco at the time of spring equinox in 10,500 BC. While the date of this astronomical alignment is far earlier than any known construction at Angkor, it appears that its purpose was to architecturally mirror the heavens in order to assist in the harmonization of the earth and the stars. Both the layout of the Angkor temples and iconographic nature of much its sculpture, particularly the asuras (‘demons’) and devas (‘deities’) are also intended to indicate the celestial phenomenon of the precession of the equinoxes and the slow transition from one astrological age to another.

At the temple of Phnom Bakheng there are 108 surrounding towers. The number 108, considered sacred in both Hindu and Buddhist cosmologies, is the sum of 72 plus 36 (36 being ½ of 72). The number 72 is a primary number in the sequence of numbers linked to the earth’s axial precession, which causes the apparent alteration in the position of the constellations over the period of 25,920 years, or one degree every 72 years. Another mysterious fact about the Angkor complex is its location 72 degrees of longitude east of the Pyramids of Giza. The temples of Bakong, Prah Ko and Prei Monli at Roluos, south of the main Angkor complex, are situated in relation to each other in such a way that they mirror the three stars in the Corona Borealis as they appeared at dawn on the spring equinox in 10,500 BC. It is interesting to note that the Corona Borealis would not have been visible from these temples during the 10th and 11th centuries when they were constructed.

Angkor Wat, built during the early years of the 12th century by Suryavaram II, honors the Hindu god Vishnu and is a symbolic representation of Hindu cosmology. Consisting of an enormous temple symbolizing the mythic Mt. Meru, its five inter-nested rectangular walls and moats represent chains of mountains and the cosmic ocean. The short dimensions of the vast compound are precisely aligned along a north-south axis, while the east-west axis has been deliberately diverted 0.75 degrees south of east and north of west, seemingly in order to give observers a three day anticipation of the spring equinox.

Unlike other temples at Angkor, Ta Prohm has been left as it was found, preserved as an example of what a tropical forest will do to an architectural monument when the protective hands of humans are withdrawn. Ta Prohm's walls, roofs, chambers and courtyards have been sufficiently repaired to stop further deterioration, and the inner sanctuary has been cleared of bushes and thick undergrowth, but the temple has been left in the stranglehold of trees. Having planted themselves centuries ago, the tree's serpentine roots pry apart the ancient stones and their immense trunks straddle the once bustling Buddhist temple. Built in the later part of the 12th century by Jayavarman VII, Ta Prohm is the terrestrial counterpart of the star Eta Draconis the Draco constellation.

During half-millennia of Khmer occupation, the city of Angkor became a pilgrimage destination of importance throughout Southeastern Asia. Sacked by the Thais in 1431 and abandoned in 1432, Angkor was forgotten for a few centuries. Wandering Buddhist monks, passing through the dense jungles, occasionally came upon the awesome ruins. Recognizing the sacred nature of the temples but ignorant of their origins, they invented fables about the mysterious sanctuaries, saying they had been built by the gods in a far ancient time. Centuries passed, these fables became legends, and pilgrims from the distant reaches of Asia sought out the mystic city of the gods. A few adventurous European travelers knew of the ruins and stories circulated in antiquarian circles of a strange city lost in the jungles. Most people believed the stories to be nothing more than legend however, until the French explorer Henri Mouhot brought Angkor to the world's attention in 1860. The French people were enchanted with the ancient city and beginning in 1908 funded and superbly managed an extensive restoration project. The restoration has continued to the present day, excepting periods in the 70's and 80's when military fighting prevented archaeologists from living near the ruins.

Orthodox archaeologists sometimes interpret the temples of the Angkor complex as tombs of megalomaniacal kings yet in reality those kings designed and constructed the temples as a form of service to both god and their own subjects. The temples were places not for the worship of the kings but rather for the worship of god. Precisely aligned with the stars, constructed as vast three dimensional yantras and adorned with stunningly beautiful religious art, the Angkor temples were instruments for assisting humans in their realization of the divine.

Style

Angkor Wat is the prime example of the classical style of Khmer architecture—the Angkor Wat style—to which it has given its name. By the 12th century, Khmer architects had become more skilled and confident than before in the use of sandstone (rather than brick or laterite) as the main building material. The Angkor Wat style was followed by that of the Bayon period, in which quality was often sacrificed to quantity. Other temples in the style are Banteay Samré, Thommanon, Chao Say Tevoda and the early temples of Preah Pithu at Angkor; outside Angkor, Beng Mealea and parts of Phanom Rung and Phimai.

Angkor Wat has drawn praise above all for the harmony of its design, which has been compared to the architecture of ancient Greece or Rome. According to Maurice Glaize, a mid-20th-century conservator of Angkor, the temple, "attains a classic perfection by the restrained monumentality of its finely balanced elements and the precise arrangement of its proportions. It is a work of power, unity and style."

Architecturally, the elements characteristic of the style include: the ogival, redented towers shaped like lotus buds; half-galleries to broaden passageways; axial galleries connecting enclosures; and the cruciform terraces that appear along the main axis of the temple. Most of the visible areas are of sandstone blocks, while laterite was used for the outer wall and for hidden structural parts. The binding agent used to join the blocks is yet to be identified, although natural resins or slaked lime have been suggested. Other elements of the design have been destroyed by looting and the passage of time, including gilded stucco on the towers, gilding on some figures on the bas-reliefs, and wooden ceiling panels and doors. Typical decorative elements are devatas (or apsaras), bas-reliefs, and on pediments extensive garlands and narrative scenes. Statuary is conservative, being more static and less graceful than earlier work.

The Site

Angkor Wat, located at 13°24′40″N, 103°52′9″E, is a unique combination of the temple mountain, the standard design for the empire's state temples, and the later plan of concentric galleries. The temple is a representation of Mount Meru, the home of the gods: the central quincunx of towers symbolizes the five peaks of the mountain, and the walls and moat represent the surrounding mountain ranges and ocean. Access to the upper areas of the temple was progressively more exclusive, with the laity being admitted only to the lowest level.

Unlike most Khmer temples, Angkor Wat is orientated to the west rather than the east. This has led many (including Glaize and George Coedès) to conclude that Suryavarman intended it to serve as his funerary temple. Further evidence for this view is provided by the bas-reliefs, which proceed in an anti-clockwise direction—prasavya in Hindu terminology—as this is the reverse of the normal order. Rituals take place in reverse order during Brahminic funeral services. The archaeologist Charles Higham also describes a container that may have been a funerary jar, which was recovered from the central tower. Freeman and Jacques, however, note that several other temples of Angkor depart from the typical eastern orientation, and suggest that Angkor Wat's alignment was due to its dedication to Vishnu, who was associated with the west.

Eleanor Mannikka has proposed a further interpretation of Angkor Wat. Drawing on the temple's alignment and dimensions, and on the content and arrangement of the bas-reliefs, she argues that these indicate a claimed new era of peace under King Suryavarman II: "as the measurements of solar and lunar time cycles were built into the sacred space of Angkor Wat, this divine mandate to rule was anchored to consecrated chambers and corridors meant to perpetuate the king's power and to honor and placate the deities manifest in the heavens above.” Mannikka's suggestions have been received with a mixture of interest and skepticism in academic circles. She distances herself from the speculations of others, such as Graham Hancock, that Angkor Wat is part of a representation of the constellation Draco.

Outer Enclosure

The outer wall, 1025 by 802 m and 4.5 m high, is surrounded by a 30 m apron of open ground and a moat 190 m wide. Access to the temple is by an earth bank to the east and a sandstone causeway to the west; the latter, the main entrance, is a later addition, possibly replacing a wooden bridge. There are gopuras at each of the cardinal points; the western is much the largest and has three ruined towers. Glaize notes that this gopura both hides and echoes the form of the temple proper. Under the southern tower is a statue of Vishnu, known as Ta Reach, which may originally have occupied the temple's central shrine. Galleries run between the towers and as far as two further entrances on either side of the gopura often referred to as "elephant gates", as they are large enough to admit those animals. These galleries have square pillars on the outer (west) side and a closed wall on the inner (east) side. The ceiling between the pillars is decorated with lotus rosettes; the west face of the wall with dancing figures; and the east face of the wall with balustered windows, dancing male figures on prancing animals, and devatas, including (south of the entrance) the only one in the temple to be showing her teeth.

The outer wall encloses a space of 820,000 square metres (203 acres), which besides the temple proper was originally occupied by the city and, to the north of the temple, the royal palace. Like all secular buildings of Angkor, these were built of perishable materials rather than of stone, so nothing remains of them except the outlines of some of the streets. Most of the area is now covered by forest. A 350 m causeway connects the western gopura to the temple proper, with naga balustrades and six sets of steps leading down to the city on either side. Each side also features a library with entrances at each cardinal point, in front of the third set of stairs from the entrance, and a pond between the library and the temple itself. The ponds are later additions to the design, as is the cruciform terrace guarded by lions connecting the causeway to the central structure.

Central Structure

The temple proper stands on a terrace raised above the level of the city. It consists essentially of three rectangular galleries rising to a central tower; with each level higher than the last. Mannikka interprets these galleries as being dedicated to the king, Brahma and the moon, and Vishnu, respectively. Each gallery has a gopura at each of the cardinal points, and the two inner galleries each have towers at their corners, forming a quincunx with the central tower. Because of the temple's westward orientation, the features are all set back towards the east, leaving more space to be filled in each enclosure and gallery on the west side; for the same reason the west-facing steps are shallower than those on the other sides.

The outer gallery measures 187 by 215 m, with pavilions rather than towers at the corners. The gallery is open to the outside of the temple, with columned half-galleries extending and buttressing the structure. The inner walls bear a series of bas-reliefs, depicting large-scale scenes mainly from the Ramayana and the Mahabharata. Higham has called these, "the greatest known linear arrangement of stone carving". From the north-west corner anti-clockwise, the western gallery shows the Battle of Lanka (from the Ramayana, in which Rama defeats Ravana) and the Battle of Kurukshetra (from the Mahabharata, showing the mutual annihilation of the Kaurava and Pandava clans). On the southern gallery follow the only historical scene, a procession of Suryavarman II, then the 32 hells and 37 heavens of Hindu mythology.

Glaize writes that those unfortunate souls who are to be thrown down to hell to suffer a refined cruelty which, at times, seems to be a little disproportionate to the severity of the crimes committed. So it is that people who have damaged others' property have their bones broken, that the glutton is cleaved in two, that rice thieves are afflicted with enormous bellies of hot iron, that those who picked the flowers in the garden of Shiva have their heads pierced with nails, and thieves are exposed to cold discomfort.

On the eastern gallery is one of the most celebrated scenes, the Churning of the Sea of Milk, showing 92 asuras and 88 devas using the serpent Vasuki to churn the sea under Vishnu's direction (Mannikka counts only 91 asuras, and explains the asymmetrical numbers as representing the number of days from the winter solstice to the spring equinox, and from the equinox to the summer solstice). It is followed by Vishnu defeating asuras (a 16th-century addition). The northern gallery shows Krishna's victory over Bana (where according to Glaize, "The workmanship is at its worst") and a battle between the Hindu gods and asuras. The north-west and south-west corner pavilions both feature much smaller-scale scenes, some unidentified but most from the Ramayana or the life of Krishna.

Connecting the outer gallery to the second enclosure on the west side is a cruciform cloister, known by the modern name of Preah Poan (the "Hall of a Thousand Buddhas"). Buddha images were left in the cloister by pilgrims over the centuries, although most have now been removed. This area has many inscriptions relating the good deeds of pilgrims, most written in Khmer but others in Burmese and Japanese. The four small courtyards marked out by the cloister may originally have been filled with water. North and south of the cloister are libraries.

Beyond, the second and inner galleries are connected to each other and to two flanking libraries by another cruciform terrace, again a later addition. From the second level upwards, devatas abound on the walls, singly or in groups of up to four. The second-level enclosure is 100 by 115 m, and may originally have been flooded to represent the ocean around Mount Meru. Three sets of steps on each side lead up to the corner towers and gopuras of the inner gallery. The very steep stairways represent the difficulty of ascending to the kingdom of the gods. This inner gallery, called the Bakan, is a 60 m square with axial galleries connecting each gopura with the central shrine, and subsidiary shrines located below the corner towers. The roofings of the galleries are decorated with the motif of the body of a snake ending in the heads of lions or garudas. Carved lintels and pediments decorate the entrances to the galleries and to the shrines. The tower above the central shrine rises 43 m to a height of 65 m above the ground; unlike those of previous temple mountains, the central tower is raised above the surrounding four. The shrine itself, originally occupied by a statue of Vishnu and open on each side, was walled in when the temple was converted to Theravada Buddhism, the new walls featuring standing Buddhas. In 1934 the conservator George Trouvé excavated the pit beneath the central shrine: filled with sand and water it had already been robbed of its treasure, but he did find a sacred foundation deposit of gold leaf two metres above ground level.

Weekend's Featured: Financial Risk or Gamble and Sex Linked in Brain

See Erotic Picture, Make Financial Gamble: Scientists Find Sex and Money Risk Link in Brain.

A new brain-scan study may help explain what's going on in the minds of financial titans when they take risky monetary gambles... sex.

When young men were shown erotic pictures, they were more likely to make a larger financial gamble than if they were shown a picture of something scary, such a snake, or something neutral, such as a stapler, university researchers reported.

The arousing pictures lit up the same part of the brain that lights up when financial risks are taken. "You have a need in an evolutionary sense for both money and women. They trigger the same brain area," said Camelia Kuhnen, a Northwestern University finance professor who conducted the study with a Stanford University psychologist.

Their research appears in the current edition of the peer-reviewed journal NeuroReport. The study only involved 15 heterosexual young men at Stanford University. It focused on the sex and money hub, the V-shaped nucleus accumbens, which sits near the base of the brain and plays a central role in what you experience as pleasure.

When that hub was activated by the erotic images, the men were far more likely to bet high on a random chance game that would earn them either a dollar or a dime. Each man made more than 50 gambles under brain scans.

Stanford psychologist Brian Knutson, a lead author of the study, says it's all about the power of emotion and arousal and our financial decisions. The trigger doesn't have to be sex -- it could be chocolate or a winning lottery ticket.

"It didn't matter if the sexy woman didn't tell you anything about the odds of winning a roulette game," Knutson said. "What really matters is that the sexy woman is having an emotional impact. That bleeds over into your financial decisions."

Kuhnen said the same link could hold true for women, but they didn't test it because it is more difficult to find an erotic image that would appeal to many different heterosexual women compared to heterosexual men.

The link between sex and greed goes back hundreds of thousands of years, to men's evolutionary role as provider or resource gatherer to attract women, said Kevin McCabe, professor of economics, law and neuroscience at George Mason University, who wasn't part of the study. "Risk-taking is a natural way of increasing your relative success, but, of course, there's a downside to it, what we're seeing right now in the economy," McCabe said.

The results of the study jibe with the real life on the trading floor, said Phil Flynn, a former Chicago commodities floor trader and current analyst at Alaron Trading Corp. "I'm not shocked that it may be part of the deal," Flynn said Friday. "When you talk about all the euphemisms for trading (on the floor), they can be used for sex as well."

The study conforms with recent research that indicates men shown a pornographic movie were more likely to make riskier sexual decisions. Another suggests straight men think less about their financial future after being shown pictures of pretty women. One still-to-be-published study at Harvard University found a link between higher testosterone levels and financial risk-taking.

But the study conducted at Stanford, funded by the National Institutes of Health, went deeper, using functional magnetic resonance imaging machines. It's part of a new but growing field called neuroeconomics that attempts to take the hard-wired science of brain biology and mix it with the softer sciences of psychology and economics to figure out why we make the financial decisions we do.

An earlier study by the same team found that the brain's reward area lit up at about the same time as risky decision-making. The erotic pictures experiment was designed to find which was the cause and which was the effect. The answer: Lighting up the reward area, in this case with soft-core pictures, caused the risk-taking, Kuhnen said. "The more activation there you have, the more prone you are to taking more risk," Kuhnen said. "It could be a feedback loop."

The flip side was that the photos of snakes and spiders activated the portion of the brain often associated with pain, fear and anger. And those people were more likely to bet low. This all makes sense to Harvard economist Terry Burnham, author of the book "Mean Genes." Burnham said it could be all summed up in a famous line from the movie "Scarface." "In this country, you gotta make the money first. Then when you get the money, you get the power. Then when you get the power, then you get the women."

Good Shift in Sentiment Helps Wall Street

Clear Shift in Sentiment Helps Wall Street Get Past Dour Economic News, but Will It Hold?

With the start of a new quarter, Wall Street seems to have found something it badly needed: a major shift in sentiment. Stocks punished during months of sharp losses were scooped up this past week as big investors like hedge funds returned to the market. And there's a sense that individual investors -- who yanked their money from the stock market out of fear -- might be on the verge of a comeback as well.

Certainly, worries about the economy and further calamities striking the world's investment banks haven't evaporated. What has changed is the way investors are looking at the market -- simply, that stocks are more likely to go up than continue their precipitous declines -- and that allowed the stocks to hold on to most of their gains this past week. After the Dow Jones industrials rose 391 points on Tuesday alone, the stock market's best-known indicator ended the week up 393 points.

"Sentiment is the whole story, and what we're seeing is an improvement in sentiment," said Alfred Goldman, chief market strategist at Wachovia Securities. "I believe the market has bottomed, and eventually all the problems are baked into stocks and we can start looking beyond the valley to the peaks ahead."

He believes the best example of this was seen in the just the past five trading days. Tuesday's big rally came on the first day of the second quarter. Then came three days of disappointing economic readings that stoked more fears of a recession, including a surge in jobless benefits claims and Friday's news that employers slashed 80,000 positions in March.

The data are clear signs that the economy is shrinking, and may well be in a recession. But, unlike previous weeks when the news would have sent the major stock averages skidding, investors barely flinched. "The selling has been overdone," Goldman said.

Billionaire investor Warren Buffett might have had it right when he told shareholders a few years ago: "If they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

Another sign of the shift in sentiment: the Chicago Board Option Exchange's volatility index, often referred to as the "fear index," which fell to 23 on Friday. The lower the index, the less anxiety there is on the Street, and Friday made it four straight days in which the reading was below 24, a feat not seen since the end of February.

The index reached its highest point in a year on March 17, when it crossed 35. That was the day after news that JPMorgan Chase & Co. was buying Bear Stearns Cos. to save the investment bank from collapse.

What has brought the index down, and helped lift the market's spirits, is a growing sense that the Federal Reserve is managing the credit crisis, using more than just interest rate cuts. Investment banks are using a new program to borrow money from the central bank to boost liquidity, and Fed Chairman Ben Bernanke said he doesn't expect a repeat of what happened to Bear Stearns.

Analysts believe the performance of financial companies -- widely believed to be the group that leads markets higher -- will be a key to whether investors can hold on to their optimism. Their billions of dollars in write-downs from failed mortgages fed Wall Street's decline.

"I think the market is still very fragile, especially because people feel there are hidden depth charges on the books of financials," said Stephen Massocca, co-Chief Executive of Pacific Growth Equities, a San Francisco-based investment bank. "Right now, people are relieved that the crisis appears to be over, and at the minimum, we stopped draining."

He and others might get an answer once some of the nation's biggest financial companies begin to report earnings later this month -- and, more important, provide outlooks for the rest of the year. That starts April 16, when JPMorgan reports first-quarter results, followed by Merrill Lynch & Co. the following day and Citigroup Inc. the next. "Further collapse of the market could depend on them," Massocca said.

Large US Job Losses Spark Deeper Recession

Biggest Job Loss in 5 Years Sets Off Recession Alarms; Nearly Quarter-Million Gone in 3 Months.

It's no longer a question of recession or not. Now it's how deep and how long. Workers' pink slips stacked ever higher in March as jittery employers slashed 80,000 jobs, the most in five years, and the national unemployment rate climbed to 5.1 percent. Job losses are nearing the staggering level of a quarter-million this year in just three months.

For the third month in a row total U.S. employment rolls shrank -- often a telltale sign that the economy has jolted dangerously into reverse. At the same time, the jobless rate rose three-tenths of a percentage point, a sharp increase usually associated with times of deep economic stress.

The grim picture described by the Labor Department on Friday provided stark evidence of just how much the jobs market has buckled under the weight of the housing, credit and financial crises. Businesses and jobseekers alike are feeling the pain.

"It is now very clear that the fat lady has sung for the economic expansion. The country has slipped into a recession," said Stuart Hoffman, chief economist at PNC Financial Services Group. Indeed, there is widening agreement that the first recession since 2001 has arrived. Even Ben Bernanke, in a rare public utterance for a Federal Reserve chairman, used the "r" word, acknowledging for the first time this week that a recession was possible.

Job losses were widespread last month, hitting workers at factories, construction companies, retailers, banks, real-estate firms and even temporary-help agencies. Also mortgage brokers, hotels, computer design shops, accounting firms, architecture and engineering companies, legal services, airlines and other transportation as well as telecommunications companies.

Those cuts swamped employment gains elsewhere, including at hospitals and other heath-care sites, educational services, child day-care providers, bars and restaurants, insurance companies, museums, zoos and parks. And the government, which is almost always up. In fact, private employers have shed jobs for four straight months, though December showed an overall gain for the economy because the government increase outweighed the private loss.

March's losses were the most since the same month in 2003, when companies were still struggling to recover from the last recession. Adding to the angst: Revised figures showed losses were actually deeper than first reported for both January and February. All told, the economy now has lost 232,000 jobs in the first three months of this year.

On Wall Street, investors took the weak employment figures in stride. The Dow Jones industrials lost just 16.61 points, while other indexes edged higher. All the economy's problems are forcing people and businesses to hunker down, crimping spending and hiring, a vicious cycle.

"Across the board, businesses have become very, very conservative," said Joel Naroff, president of Naroff Economic Advisors. More downbeat about their own sales prospects because of cautious consumers, employers are cutting back. "It only makes sense for them to run leaner if we are going into a recession or already in one" as Naroff now believes.

The new employment figures were much weaker than economists were expecting. They were anticipating a drop of 50,000 payroll jobs. Michael Gregory, senior economist at BMO Capital Markets Economics, said the employment report was "emitting recession signals." The national unemployment rate of 5.1 percent, relatively modest by historical standards, is nonetheless the highest since September 2005, following the devastating blows of the Gulf Coast hurricanes.

Some groups are feeling more of the strains from the economy's current woes. The unemployment rate for Hispanics, for instance, jumped to 6.9 percent in March, the highest in over four years. The rate for blacks climbed to 9 percent, a two-month high.

With the public on edge, Congress, the White House and presidential contenders are scrambling to come up with their own relief plans to stem record-high home foreclosures and stabilize housing -- even as they engage in a political blame game.

Democrats want more economic assistance, including extending unemployment benefits. The Bush administration has resisted, saying the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses will be sufficient once it kicks in.

"We don't like to see one job lost, let alone 80,000," Commerce Secretary Carlos Gutierrez said in an interview with The Associated Press. "These are challenging times," he said. Gutierrez was hopeful the economy would turn around in the second half of this year, given the relief efforts by the government and the Federal Reserve. "We'll get through this."

Democrats were skeptical of the administration's efforts. "Our economy is spiraling downward," said presidential contender Hillary Rodham Clinton. "It is time for this administration to put ideology aside and get serious about stemming this crisis."

Barack Obama said, "Instead of doing nothing for out-of-work Americans, we need a second stimulus that extends unemployment insurance and helps communities that have been hit hard by this recession."

Republican John McCain said the unemployment news "underlines the need to focus on innovation, which grows the economy and creates an urgent need for effective worker retraining."

Given the worsening employment situation, the Federal Reserve probably will lower a key interest rate, now at 2.25 percent, later this month. The Fed has taken a number of extraordinary actions recently -- slashing interest rates, providing financial backing to JP Morgan's takeover of troubled Bear Stearns and opening an emergency lending program for big investment houses. All the actions were aimed at limiting damage to the national economy.

With the pace of hiring slowing, the number of unemployed people increased to 7.8 million in March. Workers with jobs saw modest wage gains. Average hourly earnings for jobholders rose to $17.86 in March and are up 3.6 percent over the past 12 months. With lofty energy and food prices, workers may feel like their paychecks are shrinking. If the job market continues to falter, wage growth probably will slow, too, making consumers even less inclined to spend, which would further hurt the economy.

Many analysts believe the economy shrank in the first three months of this year and could still be ebbing now. The government will release its estimate of first-quarter economic growth later this month. Under one rough rule, if the economy contracts for six straight months it is considered in a recession. When a determination is made by a panel of experts about when a recession has started and ended -- it is usually done well after the fact.

Bernanke and the Bush administration are hopeful the economy will improve in the second half of this year. Even so, Bernanke predicted this week that the unemployment rate would rise further. Some analysts say it could climb to 5.75 percent or higher this year. Advises Hoffman: "If you've got a job, hang on to it the best you can."

Fed With Bush and Congress Blamed for Crisis

Some Blame Fed, With Help From Bush and Congress, for Mortgage and Credit Crunch.

While Treasury Secretary Henry Paulson and some lawmakers want to give the Federal Reserve broader powers to head off financial disasters, the Fed's easy-money policies earlier this decade and years of homeownership incentives dangled by the White House and Congress helped set the stage for today's housing and credit crises.

Housing markets might not have gotten so overheated if the central bank under Alan Greenspan hadn't kept interest rates so low for so long. And Congress -- aided by both Democratic and Republicans administrations -- helped to inflate the housing bubble by loosening financial regulation and enacting policies to promote and reward home ownership.

Fed Chairman Ben Bernanke got mostly praise on Capitol Hill this week for his bold and unorthodox steps last month: engineering the takeover of Wall Street's Bear Stearns by J.P. Morgan Chase, offering to lend hundreds of billions of dollars to investment banks and an aggressive three-quarter percentage point interest rate cut.

But in two days of questioning by congressional panels, Bernanke and other financial regulators drew pointed questions about the Fed's putting U.S. taxpayers at risk for up to $29 billion in the Bear Stearns loan.

"Was this a justified response to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout, as some have called it, while people on Main Street struggle to pay their mortgages?" Senate Banking Committee Chairman Christopher Dodd, D-Conn., said Thursday.

That question still lingers, despite Bernanke's answer that it helped avert a looming financial catastrophe, that the Fed doesn't directly oversee home ownership issues -- a problem he suggested Congress tackle -- and that he did not anticipate losing any taxpayer money on the Bear Stearns deal. Still, he conceded the Fed's actions raised "difficult questions of public policy."

Panels in both the House and the Senate are taking an election-year look at revamping that policy, including the administration's restructuring plan outlined earlier this week by Paulson to give the Fed more authority to protect the stability of the entire financial system. The Fed itself, at least in part, may have to shoulder some of the blame for the fact that so many Americans can no longer afford their homes.

Criticism of Greenspan centers on his endorsement of adjustable-rate mortgages, his resisting calls from some colleagues -- notably fellow Fed member Edward M. Gramlich -- to crack down on subprime home-loan practices and for maintaining low interest rates in the first half of the decade. That included keeping the key federal funds rate at 1 percent for a full year from June 2003 to June 2004, the lowest level since 1958.

It helped make homeownership a tempting prospect for many. As Greenspan began raising rates again in 2004, followed by more increases after Bernanke took over in early 2006, many homeowners found themselves suddenly caught in the closing jaws of tumbling home prices and increasing mortgage payments.

But the White House and Congress also had a hand -- long promoting the glories of home ownership and encouraging more and more Americans to become homeowners. Remember President Bush's "ownership society?" that put heavy emphasis on wider home ownership?

In the 1990s, Congress passed and Democratic President Clinton signed legislation that repealed the Depression-era Glass-Steagall Act. It meant that investment banks, brokerages and insurance companies could compete with traditional banks -- but without facing the same regulations.

Then there is the cherished income-tax exemption that homeowners receive for interest paid on mortgages, whether for a primary residence or a vacation home. As an added incentive, Congress in 1997 expanded the tax break that homeowners can get when they sell their homes, allowing the first $500,000 of a house's appreciation to be exempt from capital-gains taxes. Much earlier, Congress set up government sponsored enterprises -- mortgage-finance giants Fannie Mae and Freddie Mac -- to help funnel money into mortgage markets.

Still, "You have to put the onus to some extent on the Fed in the first place," said economist Lawrence Chimerine, president of Radnor Consulting in Philadelphia. "They raised short-term interest rates far too much a year or two ago, then were too slow in starting to reduce them. Secondly, they were out to lunch on their responsibility for overseeing mortgage markets, particularly for single-family mortgages."

The nation's central bank only started slashing interest rates late last summer, a few months after the economy began to wobble. Since then it has dropped the key rate that it controls a full 3 percentage points from 5.25 percent to 2.25 percent.

David Jones, chief economist at DMJ Advisors and a longtime Fed watcher, agreed that Bernanke "tended to lag behind in dealing with the crisis. But in January, he began to recognize how serious it was. And in his remarks to Congress this week, he minced no words. He has to be given credit for being a fast learner on the job and taking the action that kept us from falling into the abyss in a total credit-market meltdown."

Policy makers may debate how we got into the current financial bind but seem to agree that getting out of it will be take a combined effort "How did we go so wrong?" Greenspan asked in an essay in the Financial Times last month in which he predicted that the financial crisis would be the "most wrenching" in the United States since World War II.

He wrote that it was hard to burst economic bubbles because "Periods of euphoria are very difficult to suppress as they build (and) they will not collapse until the speculative fever breaks on its own."

Carbon Trading Stirs Debate on Global Warming

Carbon Emissions Trading Stirs Debate As World Tackles Global Warming.

Back in the late 1990s, Henry Derwent had the unenviable job of selling a British government proposal that markets be used to reduce greenhouse gas emissions. The idea was to create a system in which energy-intensive companies would buy and sell pollution permits, giving them a financial incentive to cut their carbon dioxide emissions.

It was a tough sell. Environmentalists condemned it as morally reprehensible and business leaders said it was bad economics. Even an investment bank refused to take part because it would sully its reputation. But these days, Derwent is feeling vindicated.

The British set up a carbon trading market in 2002, followed by the European Union in 2005. New Zealand's system is expected later this year. The United States plans a regional greenhouse gas initiative in the nine Northeast states by 2009, and Australia wants a national system by 2010. All global warming bills in the U.S. Congress include an emissions trading mechanism.

While many people still oppose emissions trading over concerns that it would allow companies to keep polluting, most environmentalists and European governments now view the practice as the easiest and most comprehensive way to regulate industrial emissions.

"You are using profit motive to achieve a public good, and this is just brilliant," Derwent, now head of the International Emissions Trading Association, said on the sidelines of this week's U.N. climate change conference in Thailand.

The carbon market is getting a boost in negotiations this week in Bangkok to piece together a new global warming pact aimed at keeping temperatures from rising so high they trigger an environmental disaster. Negotiators have until late 2009 to complete work on an agreement to take effect when the Kyoto Protocol runs out at the end of 2012.

Emissions trading is seen by many as the glue that will hold the system together by reducing greenhouse gas production while generating funds to develop clean technology and help poor countries adapt to environmental changes such as rising sea-levels. "A functioning carbon market will be critical to a successful agreement," U.N. climate chief Yvo de Boer told The Associated Press ahead of the Bangkok meeting.

A carbon trading market -- or "cap-and-trade" system -- works much like any commodities market except that traders make their fees selling a ton of carbon dioxide instead of corn or copper.

Countries that agree to reduction targets are given permits for an amount of allowable carbon dioxide emissions, and the permits are passed onto businesses. Companies can choose to cut their emissions by retrofitting a factory and selling their permits for a profit -- or continuing to pollute and buy additional units of carbon dioxide on the open market.

Under the 1997 Kyoto pact, countries also can earn credits by investing in environmentally friendly projects in developing countries. A major attraction of carbon markets is their ability to generate money to be put toward cutting emissions and helping countries adapt to the effects of climate change.

The World Bank predicts that by 2030, it will cost between $28 billion and $67 billion annually to relocate villages, build sea walls and help farmers adapt to the worsening weather. But carbon trading has plenty of critics, many of whom argue that it does little or nothing to actually cut greenhouse gases. The EU system, for example, has had a minimal impact on emissions in its first two years.

The system has also been criticized for leaving out sectors like transport and focusing on less profitable companies like cement or chemical producers that must cut output or make major investments to reduce emissions.

Other critics, like research fellows Benjamin Sovacool and Toby Carroll at the Lee Kuan Yew School of Public Policy in Singapore, say market solutions increase poor nations' dependence on the industrialized world for such things as clean technology, allow industries to keep polluting, and fail to change consumer consumption patterns.

"Until people consciously realize the situation that the world is in and change their own patterns of behavior, you can't change anything," Carroll said. "One of the reason carbon trading is so acceptable to the powers-that-be is that it doesn't substantially impact on existing operations." Carroll and others argue that a more effective way to cut emissions would be a pollution tax.

While supporters agree that carbon markets alone cannot reduce emissions, they insist they can change behavior. They noted that the European system has resulted in a number of coal plants being mothballed and they predict they will spur investment in expensive but clean technologies like solar energy and carbon sequestration and storage in which carbon dioxide is stored underground.

"The point of the market is to find the most efficient way to reduce emissions," said Greenpeace's Bill Hare, who supports the market but admits he has concerns about the lack of regulations. "The tighter the cap, the higher you will see carbon prices and the more incentive to switch to investments to lower emitting technology and practices," he said.

Also, carbon trading will generate money to meet funding needs of developing nations, proponents say. "There is certainly reason to be optimistic," said Miles Austin, head of European regulatory affairs for the carbon trading firm EcoSecurities. But he also said much of the future growth depends on a new climate pact that includes binding emissions reduction targets. "The growth will begin to tail off by the end of the year if there isn't increased clarity about what will happen post-2012," when the Kyoto protocol expires, he said.

EU Finance Talks to Solve Banking Crisis

EU Finance Chiefs to Tackle Banking Crisis and Slowing Growth at 2-Day Talks.

European Union finance ministers hold two-day talks in Slovenia starting Friday to address the growing economic troubles amid record-high inflation, a soaring currency and a souring U.S. economy.

Finance ministers and central bankers from the EU's 27 nations will spend Friday and Saturday in Brdo pri Kranju, Slovenia, trying to forge a joint response to the sudden clouds that have dampened the recent European growth spurt.

The smaller group of 15 countries that share the euro will meet separately on Friday to discuss the strength of their currency -- hovering near an all-time high against the U.S. dollar that damages euro exports to the U.S. such as German cars and French luxury goods.

Late last year, French politicians were urging the fiercely independent European Central Bank to cut interest rates to cool the euro's surge but high oil and food prices pushing inflation to record levels -- estimated at 3.5 percent in March, well above the ECB's 2 percent guideline -- have forced them to back off.

Euro governments do not have their hands on borrowing costs, the main lever for officials to moderate economic growth which is controlled by the ECB. The bank has urged them and employers to play their part in avoiding a price spiral by keeping clear of large wage increases.

This has infuriated trade unions, who say they deserve some of the rewards that companies have reaped from an export boom and Europe's recovery in the last two years. Some 35,000 workers are expected to protest in the Slovenian capital Ljubljana on Saturday, calling on European officials to back off their demand to cool wages and give them a pay increase in line with growth.

EU nations will also look at ways to fireproof their own financial system in the wake of a lending crisis that saw banks shy away from risky investments for fear of adding to huge losses made on complex products based on U.S. subprime housing loans to people with poor credit. Last month, they asked banks to come clean on how much they were likely to lose. On Tuesday, two of Europe's largest banks, UBS and Deutsche Bank, did so, writing down billions more in bad investments.

EU nations will examine how the financial industry ran into trouble and what they can do to prevent future problems. EU leaders have already warned that they stand ready to introduce stricter rules if the finance sector doesn't put its own house in order.

They want to see more transparency for all market players and full information on the opaque structured investments out there, better ways of valuing investments and action to tackle possible conflict of interests that saw rating agencies give a good rating to debt resold by the banks that pay them.

The European Commission also plans to reform rules on how much money banks must put by to cover potential losses. It also wants EU nations to choose this week how financial supervisors should work together to prevent on policing the financial industry and decide how much responsibility they should pool -- a tricky issue for countries that fear losing power over their own financial sector.

US and China to Cooperate on Energy and Environmental

Paulson Calls for US-China Energy Cooperation, Lower Tariffs on Environmental Technology.

Treasury Secretary Henry Paulson called Thursday for closer U.S.-Chinese cooperation on energy conservation and for Beijing to cut import duties on environmental technology.

Speaking at a government think tank in the midst of a trip to discuss trade and other contentious issues, Paulson lauded China's recent steps to tighten environmental rules and said it could become a leader in deploying advanced technology for conservation.

"Technology must be developed and adopted at a faster pace," Paulson said, according to a text of his speech distributed by the Treasury Department. "U.S. and Chinese institutions need to manage the new demands of energy and environmental issues in innovative ways."

Washington and Beijing agreed in December to cooperate over the next 10 years on climate change, energy security, promoting sustainable use of natural resources and other environmental issues.

The United States and China are the world's top two oil consumers. "Only through greater cooperation will we be able to better organize our efforts and target some of the most pressing issues that the United States and China will face in the coming decade," Paulson said.

Paulson met Thursday with Premier Wen Jiabao, who affirmed Beijing's commitment to the U.S.-Chinese Strategic Economic dialogue, which was launched in 2006 to address strains over China's soaring trade surplus and defuse demands by American critics for punitive action. The next full meeting of the dialogue is in June.

"It can not only enhance out mutual trust but solve problems and difficulties in our economic and trade ties," Wen said as reporters were allowed to watch the beginning of their meeting. "The mechanism can also set the long-term direction for our economic cooperation and design the details, and therefore it's of great importance." No details of their talks were immediately released.

On Wednesday, Paulson met Chinese President Hu Jintao and Wang Qishan, Beijing's new point man on trade ties with Washington. Paulson calls Wang, a former star Chinese banker, a friend and says their relationship should help to produce a smooth transition in the economic dialogue following the retirement of his predecessor, Vice Premier Wu Yi.

In the speech Thursday, Paulson repeated a key theme of his trip -- the need for Beijing to push ahead with liberalizing its state-dominated financial industries. He said Wednesday that the U.S. credit crisis might be making Chinese leaders hesitant. "A deep and more efficient financial sector will help Chinese households earn a higher return on their investments and thus achieve their financial goals," he said.

Referring to China's efforts to curb inflation by freezing retail prices of gasoline and diesel, Paulson warned that the United States ran into problems in the 1970s with price caps that led to heating oil shortages and rationing.

"China, by setting price controls on fuel, is facing similar consequences today" with widespread shortages, he said. "And because market forces can never be completely eliminated, price controls often lead to smuggling and corruption."

Paulson said China could benefit from importing technology to improve energy efficiency, reduce greenhouse gas emissions and supply cleaner water. But he said that is hindered by high tariffs and other import barriers. "A high priority should be given to eliminating tariffs and non-tariff barriers on products, goods and services that can improve the health and welfare of the Chinese people," he said.

ASEAN Talks Over US and Inflation Worries

US Credit Crisis, Rising Inflation Hang Over ASEAN Finance Ministers' Meeting.

Confronted with global inflation and a slowdown in the U.S., financial leaders from Southeast Asia gathered Thursday to discuss the implications for their nations and ways to limit the fallout.

Regional economic growth is likely to remain strong but slow a bit as a result of the subprime mortgage crisis in the U.S. and resulting market turmoil, said delegates to the annual meeting of finance officials from the Association of Southeast Asian Nations, or ASEAN.

The finance ministers from ASEAN's 10 member countries were to kick off their meeting on the central Vietnamese coast Thursday afternoon. They have few concrete proposals on their agenda, but will discuss ongoing efforts to integrate the region's economies.

During lower-ranking officials' meetings this week ahead of the finance ministers' gathering, the hot topic has been the possible impact from the U.S. credit crisis, sparked by a surge in defaults on risky mortgages. That has dramatically slowed growth in the American economy, a key export market for Southeast Asia. "Everyone's talking about the problems in the United States with the subprime mortgages," said Kwihwan Jun, senior economist at the Bank of Korea in Seoul. "There's concern about that."

But rising prices pose a greater challenge to the region, said Haruhiko Kuroda, president of the Asian Development Bank, who was attending the meeting. "The No. 1 challenge is inflation rather than the global slowdown," said Kuroda in an interview. "It has serious implications for poor people, who spend a larger portion of their income on food."

The World Bank has predicted that growth in developing Asian nations will slow by 1 or 2 points in 2008, to around 8.5 percent. ASEAN has not released any regional economic forecasts at the meeting, citing only a forecast that global economic growth was expected to slow to 3.8 percent this year from 4.9 percent last year. Asian stock markets have been hit hard by the credit crisis and countries across the region have been revising down their economic growth forecasts.

While the economic fundamentals in most countries across the region remain sound, it is not possible to completely insulate Asia from financial crises roiling other parts of the world, said Daniel Citrin, deputy director of the IMF's Asia and Pacific Department. "There will be some impact, but the underlying growth momentum in Asia remains strong," he said. "There is very little exposure to the subprime mortgage problems among Asian banks."

Citrin and others said the current global economic turmoil is unlikely to unleash anything like the Asian financial crisis of 1997-98, which battered economies from Thailand to South Korea. "The situation is completely different from 1997," Citrin said, stressing that the fiscal position of the region's banks is much stronger today than it was just before that crisis, which brought growth across Asia to a grinding halt.

ASEAN's members are Vietnam, Cambodia, Singapore, Indonesia, the Philippines, Thailand, Malaysia, Brunei, Laos and Myanmar. Delegates from China, South Korea and Japan are also attending the meetings, the 12th annual gathering of ASEAN finance ministers.

Bernanke Signals Possible Recession

Bernanke Warns of Possible Recession Without Using the Word.

Federal Reserve Chairman Ben Bernanke warned Congress on Wednesday that the economy may shrink over the first half of this year, which would signal the start of a recession. Yet, he didn't offer assurances of further interest rate cuts.

In prepared testimony to Congress' Joint Economic Committee, Bernanke didn't use the word recession. But it's the closest he has come to date to suggesting that possibility, given a trio of crises -- housing, credit and financial -- that has pummeled the country.

"It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States's economic health. Under one rule, six straight months of declining GDP, would constitute a recession.

Still, Bernanke said that he expects more economic growth in the second half of this year and into 2009, helped by the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive reductions to a key interest rate. Nevertheless, the chairman acknowledged uncertainty about the Fed's next steps, notwithstanding the mounting economic woes.

"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," Bernanke said.

To try to limit the damage, the Federal Reserve has aggressively cut a key interest rate, now at 2.25 percent, to spur buying and investing by individuals and businesses. At the Fed's last meeting in March, however, two members dissented from the Fed's decision to sharply cut rates, showing a rare division in the often unified front the Fed shows the public. The dissenting officials favored a smaller reduction.

Nonetheless, many economists had predicted the Fed might drop it key that rate again when it next meets April 29-30. Housing, credit and financial woes are threatening to push the country into a deep recession. The situation has emerged as a top concern for presidential contenders and a hot-button issue for Congress. It has thrust the White House and the Fed in crisis-management mode.

Faced with mounting home foreclosures and job losses, Bernanke has been under immense political and public pressure to provide relief and help turn around a faltering economy. "Clearly, the U.S. economy is going through a very difficult period," he told lawmakers, adding that all the problems have weighed heavily on consumers whose spending is indispensable to economic vitality.

Many private analysts believe the economy contracted in the first three months of this year, signaling the start of a recession. The government releases first-quarter results later this month. The economy lost jobs in January and February, with many economists bracing for more losses when the report for March is released on Friday.

Bernanke said he expected unemployment to move "somewhat higher in coming months." The Fed also has taken a series of extraordinary steps in recent weeks and months to prop up the nation's financial system, which has been in state of high jeopardy.

In a controversial move, the Fed backed a $29 billion lifeline as part of JP Morgan's deal to take over the troubled Bear Stearns, the nation's fifth largest investment house, which was on the brink of bankruptcy. Bear Stearns had invested heavily in risky mortgage-backed securities that eventually soured with the collapse of the housing market.

Bernanke defended the move. "With finanical conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence," he said. "The damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."

In addition, the Fed -- in the broadest use of its credit authority since the 1930s -- agreed to temporarily let big investment firms obtain emergency financing from the Fed, a privilege that previously had been granted only to commercial banks.

Those actions have prompted criticism from Democrats and others who contend that the Fed is bailing out Wall Street and putting billions of taxpayers' dollars at potential risk. Fed officials and the Bush administration say the actions were warranted to avert a potential meltdown in the entire financial system, something that would have devastating consequences for the overall economy.

Asian Markets Charge Following Wall Street

Asian Markets Surge on Wall Street Rally; Optimism That the Worst Is in the Past.

Asian stocks surged Wednesday amid a growing belief that the worst of the credit crisis is over, following a similar rally on Wall Street. The Nikkei 225 index rose 4.2 percent to 13,189.4 in Tokyo. Hong Kong's Hang Seng Index climbed 3.2 percent to 23,872.4.

Benchmark indices in Australia, Singapore, South Korea, Taiwan and the Philippines all gained more than 2 percent. And in mainland China, the Shanghai Composite Index finished 0.6 percent higher after having gained as much as 4.1 percent. "Investors believe the credit crisis in the U.S. is over," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "They think the worst has gone."

Wall Street began the second quarter with a big rally Tuesday with many investors sensing a respite from the credit crisis that has battered many major banks, and optimism that the U.S. economy is faring better than expected.

Financial stocks were among the big winners in U.S. and Asian trading after Lehman Brothers Holdings Inc. and Switzerland's UBS AG issued new shares to help bolster their balance sheets. The news offset even an announcement that UBS will write down a fresh $19 billion (12 billion euros) due to additional declines in the value of its mortgage assets and other credit instruments. In New York Tuesday, the Dow Jones industrials climbed nearly 400 points, around 3.2 percent, to 12,654.4, and all the major U.S. stock indexes were up more than 3 percent.

In Tokyo trading, megabank Mitsubishi UFJ Financial Group soared 9.8 percent, Mizuho Financial Group gained 10 percent and Sumitomo Mitsui Financial Group jumped 9 percent. Property company Mitsui Fudosan climbed 12 percent and Sumitomo Realty & Development gained 12 percent.

Easing concerns about the credit crisis also prompted the dollar to rise against the yen, boosting the buying of exporter issues such as automakers and electronics companies, traders said. Honda Motor Co. rose 7.4 percent, and Canon gained 6 percent.

Chinese financial firms led the blue chip gains in Hong Kong. Industrial & Commercial Bank of China, the nation's biggest lender by assets, soared 4.9 percent, China Construction Bank added 4.8 percent and Bank of Communications increased 6.5 percent. Oil companies also climbed higher, with Sinopec rising 6.3 percent and CNOOC adding 3.5 percent.

Some analysts warned, though, that the rebound could be precarious. Asian markets are still "hinged to the credit crunch problem in the U.S. and Europe," said Castor Pang, a strategist at Sun Hung Kai Financial in Hong Kong. "If the problem turns worse again, the money will leave Asia."

UBS Reports $19 Billion Write-Downs

UBS Unveils $12B Loss, Write-Downs of $19 Billion; Chairman Marcel Ospel Steps Down.

Swiss bank UBS AG on Tuesday reported more serious damage from exposure to the U.S. subprime crisis, saying it would post first-quarter losses of $12.1 billion and that it would seek $15.1 billion in new capital.

Switzerland's largest bank said it expects write-downs of approximately $19 billion and announced the resignation of Chairman Marcel Ospel, just as Deutsche Bank AG, Germany's largest bank, announced similar write-downs of about $4 billion. It was the latest indication of how far the severe plunge in U.S. housing prices and a credit crisis triggered by rising mortgage defaults has reached.

UBS write-downs have reached a staggering $40 billion in the past nine months, the largest reported by any bank to date. Standard & Poor's cut the bank's credit rating one notch to AA-, citing "risk management lapses, earnings volatility and need for new capital."

UBS said that after it raises new capital, its Tier 1 capital ratio, a key indicator of a bank's ability to absorb losses, would be about 10.6 percent. That is well above minimum European requirements of 4 percent and bank shares rose 8.66 percent to 31.36 francs ($31.53).

Ospel said he was ultimately responsible for the bank's health as he stepped down. "My willingness to stand for re-election for a further one-year term was based on my desire to lead UBS out of its current difficult situation," Ospel said. "We have worked very hard and have been able to address the firm's most pressing problems, thereby laying the foundation for the long-term success of the bank."

The bank said its move to raise capital through a rights issue that would be fully underwritten by four leading international banks and would enable it to remain "one of the world's strongest and best capitalized banks." "In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals," the bank said.

It said it would create a new unit to "hold certain currently illiquid U.S. real estate assets." "UBS is confident that these measures will deal effectively with the firm's real estate exposures and allow the bank to focus on strengthening its core operations," the statement said.

Chief Executive Marcel Rohner said, "We believe this capital increase and the creation of a vehicle to separate problem assets from the remainder of our businesses will allow us to return to sustainable value creation over time." He said profits from most of the bank's businesses "remained acceptable in challenging conditions" during the first quarter.

"We have made further prompt writedowns and sales of our impaired U.S. real estate-related positions," Rohner said. "We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm."

However, he said, UBS wants to avoid selling at "severely distressed levels." "With these measures we have created the basis to weather one of the most difficult periods in the history of the industry," Rohner said.

The measures show the bank continues to trim risky assets. The bank said its exposure to U.S. subprime mortgage related positions declined to approximately $15 billion from $27.6 billion on Dec. 31. The exposure to Alt-A positions -- which are less risky than subprime loans -- was reduced to $16 billion (10.1 billion euros) from $26.6 billion, it said.

The efforts at minimizing exposure will be accompanied by an undisclosed number of job cuts and a further tightening of risk. The measures mean that UBS is now a restructuring stock, analysts at JP Morgan wrote in a note to investors. "We conclude UBS is aiming to put a line below its risk-exposure problem and refocus on operational business," JP Morgan's Kian Abouhossein said.

But Octavio Marenzi, head of financial consultancy Celent, said the UBS disclosures were "a clear indication that we are not out of the woods yet in terms of the credit crisis." "Indeed, the storm clouds are gathering ever more rapidly over the banking industry and, in particular, the U.S. banking industry, where most of UBS's losses originated from," Marenzi said.

He predicted the U.S. banking industry is set to see its first contraction in overall revenues in more than forty years. "This will inevitably lead to staff reductions, and we expect to see the U.S. banking industry shed about 200,000 jobs in the coming 12 to 18 months," Marenzi said.

Earlier this year UBS posted a 12.45-billion franc loss for the fourth quarter of 2007, after writing down 15.6 billion francs tied to U.S. subprime mortgages, and said it expected another difficult year ahead. The bank posted a net loss of 4.38 billion francs for 2007, its first annual loss.

Inflation, Not Market Turmoil Presses East Asia

World Bank: Rising Prices More Pressing Problem for East Asia Than Financial Turmoil.

East Asian nations must act promptly to ease the burden of mounting food and fuel prices on the region's poor, the World Bank said Tuesday. Inflation poses a greater challenge to the region's economies than the current financial turmoil, it said.

In its half-yearly update on the region's outlook, the bank said growth in developing East Asian economies could slip by 1 to 2 percentage points this year to 8.5 percent as the U.S. credit crisis unfolds, damping demand for exports.

But it warned that food and fuel prices that have soared in recent years are a more pressing problem for governments to tackle. Since 2003, oil and many other commodity prices have more than tripled and doubled, respectively.

"While the subprime crisis will have its impacts -- possibly on some countries more than others -- the more immediate concern is that in virtually every East Asian country, inflation is climbing to uncomfortable levels," Jim Adams, vice president of the World Bank's East Asia and the Pacific region, was quoted as saying in a release.

The urban poor and landless rural workers who devote between a third and two thirds of their expenditures on food are seeing their real incomes decline substantially, the report said. Similarly, "while higher fuel prices hurt everyone, the poor are hurt disproportionately," it said.

The region could suffer an aggregate income loss of about 1 percent of gross domestic product in 2008 from the effect of higher food prices and additional increases in oil and metals prices, the bank said.

The report noted that some economies that are net exporters of commodities are enjoying gains in overall national income and that higher food prices do help some farmers -- although small farmers are usually hurt because they tend to be net consumers of food.

The bank warned that controlling prices to temporarily curb inflation distorts market signals and encourages black markets over the long term. East Asian governments have dealt with such challenges in the past with a variety of solutions that include targeted subsidies, conditional cash handouts or school lunch programs, the report said. "These programs now need to be considered again and reintroduced before the problem becomes too acute," it said.

Growth of 8.5 percent would be the lowest for developing East Asia since 2002, and down from 10.2 percent last year. "East Asian economies will face testing times in 2008," said the bank, which based its forecast on expected U.S. growth of between 0.5-1.4 percent in 2008, down from 2.2 percent last year, and to be followed by a recovery in the 1-2 percent range next year.

China's growth is expected to dip to 9.4 percent after five years at rates of above 10 percent, mainly due to lower export growth. In Indonesia, Malaysia, Thailand and the Philippines, economic growth is expected to ease more modestly to the 5-6 percent range. Growth in the economies of Hong Kong, Singapore, Taiwan and South Korea is forecast to slow slightly to around 4.6 percent, as a group.

Still, despite the U.S. credit crisis, the region's economies are likely to stay buoyant as investments in sound macroeconomic policy and structural reforms over the past decade have brought greater resilience and flexibility, the bank said.

The region's high levels of foreign exchange reserves, economic momentum and diversification of trade and financial flows afford it some room to maneuver in adjusting to the impending global slowdown, the report said. East Asian exporters have benefited in recent times from trade both within the region and beyond to markets other than the U.S., the report said.

The World Bank defines East Asia as comprising China, Indonesia, Japan, Malaysia, the Philippines, Thailand, Vietnam, Hong Kong, South Korea, Singapore, Taiwan, and some smaller economies such as Cambodia, Laos and those of the Pacific islands.

Poor Nations Want Global Warming Money

Poor Nations at Climate Conference Demand More Money to Cope With Global Warming.

Poor countries at a U.N. conference said Tuesday they won't sign a global warming pact unless industrialized nations guarantee them billions of dollars needed to adapt to the impact of climate change.

Island nations in the Caribbean and South Pacific recounted how they are being hit by worsening floods, rising seas and cyclones linked to climate change and don't have the money to build sea walls or relocate threatened villagers.

"Adaptation is critical to our very survival," said Selwin Hart, a delegate from Barbados who was speaking for the Alliance of Small Island States. "If a deal on adaptation is not part of this agreement, we have no incentive to be part of it."

Rich countries insist they are willing to help but disagree over how to provide assistance -- whether it should be voluntary aid favored by the United States or a European proposal to use the trading of pollution permits to generate funds.

The weeklong conference of representatives from 163 countries launched a 21-month process Monday aimed at concluding a new climate change agreement to replace the Kyoto Protocol, which expires in 2012, to rein in carbon dioxide and other "greenhouse" gases blamed for the rise in world temperatures. Along with financing, countries are expected to wrangle over how best to reduce emissions in a new agreement.

The EU has proposed that industrialized countries slash emissions by 25 percent to 40 percent below 1990 levels by 2020. The U.S., which is one of the world's top polluters, has repeatedly rejected mandatory national reduction targets of the kind agreed to under the Kyoto Protocol a decade ago.

Japan, which is struggling to meet its emissions-cutting commitment under the Kyoto pact, is backing industry-based emission caps which are seen as a bid to reduce its obligations in a future agreement.

Assistance to impoverished countries almost derailed December talks in Bali at which world governments agreed to launch the current negotiations. Many poor nations argued that industrialized countries should take the first step in both reducing emissions and helping developing countries cope with rising temperatures.

Once that occurs, the developing countries agreed for the first time to take verifiable actions on their own to control greenhouse gases. Financing dominated the climate talks in the first two days. John Ashe, chairman of the Group of 77 and China, a coalition of developing countries, said members of the group complained they cannot use their scarce resources to reduce greenhouse gases if their most urgent needs in adapting to global warming aren't met.

Yvo de Boer, executive secretary of the U.N. Framework Convention on Climate Change, which is hosting the Thailand meeting, said it is essential to figure out what the industrialized world is willing to pay to help out poorer countries. "There is not going to be an international agreement ... without clarity on what resources will be on the table to help developing countries to limit their emissions and adapt to the impacts of climate change," he said.

Only up to $300 million annually will be available through a U.N. adaptation fund created in Bali, with a maximum of $1.5 billion a year projected if a climate agreement to succeed the Kyoto Protocol is approved. That is much less than the nearly $86 billion the U.N. Development Program estimates is needed annually by 2015.

China called in Bangkok for developed countries to provide at least 0.5 percent of their gross domestic product annually to help poorer nations adapt. In the United States, that would exceed $60 billion.

Many European nations led by Germany have suggested closing the funding gap by using a percentage of money generated from the trading of carbon credits -- permits for companies to emit carbon pollutants. Others have suggested a tax on aviation or maritime fuels could be used to finance adaptation measures.

World Bank Cuts China Growth Forecast Slightly

World Bank Trims China 2008 Growth Outlook but Says Forecast Still Robust.

The World Bank on Tuesday trimmed its 2008 growth forecast for China to 9.4 percent from 9.6 percent but said it should be robust enough to help drive the global economy as the United States and other industrialized countries slow.

Export growth weakened in late 2007 due to lower global demand but Chinese consumer spending rose, the bank said in a half-yearly report on Asian economies. "While the uncertain global outlook may slow Chinas exports, the country's growth is expected to remain robust," the bank said. It said China could "continue to emerge as a growth pole in the world economy, providing a possible counterweight to the slowing industrial economies."

Beijing has set a growth target this year of 8 percent following last year's 11.4 percent expansion. The government often sets a low target for budget purposes and raises it as the year progresses. Other forecasters also expect growing Chinese imports and consumer sales to help drive the global economy as U.S. demand slows, though they warn that China alone cannot fill the gap.

The World Bank's lower China growth forecast was a minor adjustment following its decision in February to slash its outlook to 9.6 percent from 10.8 percent previously due to the global slowdown. China also will face continued pressure this year for prices to rise, the bank said.

Consumer prices in February rose 8.7 percent compared with the same month last year, driven by a 23.3 percent jump in food costs. The sharp price rises began in mid-2007 and are blamed on shortages of pork and some other food. But economists warn that inflation pressures are spreading to other sectors of the economy. "Prices of energy, industrial materials, and agricultural products continue to rise and will gradually exert their influence on domestic prices," the report said.

It said there also were signs that Chinese wages are rising, especially in manufacturing, an unwelcome development for exporters that already are struggling with a rise in China's currency, the yuan, against the dollar. That has raised the prices of Chinese goods abroad and prompted some factories to close.

Beijing is trying to boost food production and cool inflation by promising farmers more subsidies and higher payments for grain. It has frozen retail prices of grain and cooking oil, as well as gasoline, electric power and other basics.

But analysts warn that an extended price freeze could make the problem worse by discouraging farmers and others from increasing production. "Ultimately, these price freezes will need to be replaced by targeted subsidies" to help the poor cope with higher prices, the Washington-based World Bank said.