European Central Bank President Jean-Claude Trichet

BRUSSELS, Belgium, Jan. 6--European Central Bank President Jean-Claude Trichet said financial-market tensions are receding and the bank remains committed to fighting inflation.
“Tensions have receded while remaining significant,“ Trichet said on Saturday in a speech at a convention of Germany’s Christian Democratic Union party in Wiesbaden, near Frankfurt. “The ECB’s Governing Council stands ready to counter upside risks to price stability, in line with its mandate.“
The ECB shelved a planned rate increase in September to assess the economic impact of the US housing slump, which made banks reluctant to lend and pushed up credit costs, Bloomberg wrote.
Since then, euro-region inflation has accelerated to the fastest pace in more than six years, prompting some ECB council members to call for a rate increase.
Inflation, which the ECB aims to keep just below 2 percent, held at 3.1 percent in December, the European Union’s statistics office in Luxembourg said on Friday.
ECB policy makers convene in Frankfurt on Jan. 10 to decide again on interest rates. All 43 economists in a Bloomberg News survey expect the bank to keep its benchmark rate at 4 percent. Trichet said that his comments should not be “interpreted in terms of our future decision next Thursday.“
Policy makers have to consider whether faster inflation, spurred by oil prices around $100 a barrel, or slowing economic growth pose the greater risk.
Trichet said risks to the outlook for economic growth in Europe “lie on the downside,“ with financial-market volatility causing a “high level of uncertainty.“
The three-month euro rate is still 63 basis points above the ECB’s benchmark interest rate of 4 percent, up from an average of 25 basis points in the first half of 2007.
ECB Vice-President Lucas Papademos said in a speech in New Orleans on Saturday that the bank’s provision of additional liquidity to reduce market volatility did “not undermine the price-stability objective.“
Trichet said that while “uncertainty surrounding the financial-stability outlook for the euro area has heightened and may persist,“ there are “mitigating factors, including a broadly favorable economic outlook.“

MADRID, Spain, Jan. 6--Spain’s Socialist government is on the defensive just two months ahead of a general election that polls show will be closely fought following the publication last week of weak economic data, AFP wrote on Sunday.
Spanish inflation accelerated to the fastest pace in more than a decade in December while the number of jobless workers rose for its third consecutive month, official figures published Thursday showed.
The number of unemployed rose 5.2 percent in 2007 over the previous year to 2,129,547 people, with the slowdown in the building sector leading to a sharp rise in benefit claims by construction workers, the labor ministry said.
The annual inflation rate, led by higher food and energy costs, meanwhile hit 4.3 percent in December, its highest yearly reading since 1997, according to the national statistics institute.
“The economic crisis has broken out,“ right-wing daily newspaper ABC said Friday on its front page.
The leader of the opposition conservative Popular Party, Mariano Rajoy, vowed Friday to quickly unveil a package of economic reforms aimed at “reviving the economy“ if he is elected on March 9. “The government has stood still for more than three years and unfortunately now we are suffering the consequences,“ he told reporters during a visit to the central city of Guadalajara.
A poll published Friday in right-leaning daily newspaper El Mundo found that Spaniards are evenly split on the question of which party is better equipped to handle the economy.
One in two people in Spain, or 49.7 percent, believe the economy will be worse in 2008 than last year, the Sigma Dos poll found.
The Socialists remain upbeat about the state of the Spanish economy, predicting it will still grow next year at a faster rate than the European Union average.
“We can face with optimism the future of the Spanish economy, which is not at all in a phantasmagoric crisis as announced by the bad omens and prophets of doom of the Popular Party,“ said the Socialist parliamentary spokesman, Diego Lopez Garrido.
Others are not as optimistic. The Washington-based International Monetary Fund lowered its growth projection for Spain for 2008 to 2.7 percent, the slowest pace since 2002, from 3.4 percent. It estimates the economy expanded by 3.7 percent in 2007.

Workers on a production line at a toy factory in Shantou, eastern Guangdong province in China

BEIJING, Jan. 6--Exports of Chinese toys rocketed in the first 10 months of last year despite a wave of high-profile recalls of products made by the Asian nation, state media said Sunday.
In the period from January to October, China shipped $7.1 billion worth of toys abroad, an increase of 20.1 percent from the same period a year earlier, the Xinhua news agency reported.
It compares to a growth rate of just over six percent in the corresponding period of 2006 from the preceding year, according to Xinhua.
Even exports to the United States, which has been rattled by a series of widely publicized exporter, selling 22 billion toys overseas in 2006, or 60 percent of the globe’s total.
However, it came under embarrassing international pressure last year after millions of toys exported to the United States and Europe were found to have dangerous defects.
In one of the most high-profile cases, the US toy giant Mattel recalled 18 million toys amid concern over items made with toxic lead paints and magnets that posed a choking risk to children.

The fever sending raw material prices ever higher seems sure to spread to agricultural commodities, where markets are already feeling the effects of increased export taxes on cereals in China and Russia, strong global demand, a grim harvest in Australia and stepped-up speculation.
China has just announced the imposition, effective Jan. 1, of export duty on cereals, rice and soya of between 5.0 and 25 percent, AFP wrote.
Simultaneously, Russia reported a near five-fold increase on cereals export duties for the next three months from 22 to 105 euros per ton, a move that effectively removes Moscow from the international market.
Those developments came as Argentina suspended wheat exports until further notice and amid reports of a major reduction in Australian grain output due to drought.
Under such circumstances, only big exporters such as the United States, Canada and Kazakhstan are left to fill the gap. France, the European Union’s largest cereals producer, has also endured a nasty harvest, analysts noted.
And with crude oil futures crossing the 100-dollar-a-barrel threshold, pressure is building for the promotion of alternative energies, thereby sparking demand for wheat and corn, the raw materials for bioethanol, or soya, which furnishes biodiesel.
Repercussions on the Chicago market were clearly evident last week. Soya futures closed Wednesday at $12.3250 (8.35 euros), just 60 cents short of their 1973 historic high of $12.90.
Wheat commodity prices for March delivery were up 30 cents, the maximum daily growth rate authorized by the Chicago Board of Trade. March corn prices also closed with a gain of 7.50 cents). “The markets are tense,“ stated Joe Victor, Allendale analyst. “Stocks are sitting at historic floor levels, and any further restrictions on exports can only lead to higher prices,“ added Abdolreza Abbassian, cereals market analyst at the Food and Agriculture Organization of the United Nations (FAO). He said the impact on the market was primarily psychological, as the “the vast majority of exportable Russian cereals had already moved.“
But if China and Russia have enough grain reserves for their domestic markets, authorities there are concerned about resurgence in inflation and rising prices for basic foodstuffs.
They are trying to send out the message, sometimes election-driven as in Russia, that “as long as prices (keep) rising, they won’t allow cereal resources to leave the country,“ said Victor.
Given that the FAO world food price index jumped almost 40 percent in 2007, Victor expects the trend to continue “until early April,“ when estimated yields for the 2008 harvest will become a little clearer.
Demand from emerging nations continues to grow sharply. “On Dec. 31, we were still receiving inquiries from Pakistan for 610,000 tons of wheat and another 50,000 from Bangladesh,“ Victor added.
Analysts from merchant bankers Goldman Sachs expect the sharp upturn in raw materials values to continue this year, particularly in agricultural commodities, where they have raised their price outlook in the last three weeks, including a projected 60 percent increase in soya.

LONDON, Jan. 6--The future of ailing British bank Northern Rock--including possible nationalization--is to be decided in the next six weeks, finance minister Alistair Darling said in an interview out Saturday, AFP wrote.
“We want the bank to come back before the middle of February,“ the Chancellor of the Exchequer told the Financial Times amid growing speculation that no private bidder will be able to raise the capital to buy out the bank.
Northern Rock, hit by the squeeze on the global credit markets after the US subprime mortgage sector crisis, was forced to apply for emergency funding from Britain’s central bank, the Bank of England, in September.
That prompted thousands of worried investors to queue at branches of the mortgage lender to withdraw their savings, with a subsequent knock-on effect on consumer confidence in the banking sector.
Northern Rock--propped up by at least 25 billion pounds (33 billion euros, $49 billion) of taxpayers’ money--is talking to two potential bidders: Richard Branson’s Virgin Group and the private equity firm Olivant. But the process is dragging on, as the bidders struggle to find financial backing to reimburse part of the money borrowed from the Bank of England.
Prime Minister Gordon Brown told his monthly news conference in December that the government’s preferred option was a private sale but did not rule out nationalization, saying “all options were on the table“.
In a sign Darling wants to force the pace, he said a decision would be made soon after US investment bank Goldman Sachs, which was brought in by the government to see if a private purchase was viable, reports in mid-January.
The chancellor unveiled proposals Friday to give Britain’s financial watchdog more powers to intervene in failing banks to avoid a repeat of the crisis, after accusations that intervention was not swift enough.