By Lucia Mutikani Lucia Mutikani   – Mon Aug 30, 4:30 pm ET

WASHINGTON (Reuters) – Consumer spending rose in July at the strongest pace in four months, supported by a small gain in incomes that offered hope that consumers will be able to keep contributing to a modest economic recovery.

Analysts said the 0.4 percent increase in spending reported by the Commerce Department on Monday was a relief after a raft of weak data for July and helped ease fears the economy was sliding back into recession.

“We are still of the opinion that there is a 30 percent chance of a double-dip (recession) but it’s definitely not our baseline forecast,” said Scott Hoyt, director of consumer economics at Moody’s Economy.com in West Chester, Pennsylvania. “When consumer spending is growing it’s hard to get a double dip.”

The increase in spending was a touch above expectations in financial markets for a 0.3 percent rise. Spending, which was flat in June, was supported by a 0.2 percent gain in incomes and households’ dipping into their savings.

Investors worried, however, that stubbornly high unemployment would continue to crimp spending and sold U.S. stocks, driving the Dow Jones industrial average (.DJI) down to just a couple of points away from the psychologically significant 10,000 mark.

Prices for safe-haven government bonds rose, recouping some of Friday’s steep losses, while the U.S. dollar fell against the yen as investors saw as inadequate steps by authorities in Tokyo to curb the Japanese currency’s recent strong rise.

Data so far has suggested the U.S. economy’s recovery from the longest and deepest recession since the 1930s probably slowed further in the third quarter of the year.

The government on Friday lowered its estimate of second-quarter growth to a 1.6 percent annual rate from 2.4 percent, although the figure on consumer spending was revised higher.

A closely watched employment report for August due on Friday is expected to paint yet another grim picture of the labor market, the Achilles heel of the recovery. According to a Reuters survey, nonfarm payrolls fell 100,000 this month after shrinking 131,000 in July.

JOBS KEY

The deluge of weak data led Federal Reserve Chairman Ben Bernanke to reiterate on Friday the U.S. central bank’s commitment to spur the recovery should the outlook deteriorate.

The sickly economy is damaging President Barack Obama’s popularity among Americans unhappy with a 9.5 percent jobless rate. It could see the Democratic Party lose control of Congress to the Republicans in November’s mid-term elections.

Obama on Monday said he and his economic team had discussed additional steps to promote economic growth, including looking at tax cuts for businesses and the middle class. He implored lawmakers to pass a stalled bill to help small businesses.

“I ask senate Republicans to drop the blockade. I know we are entering election season but the people who sent us here expect us to work together to get things done and improve this economy,” Obama said at the White House.

Republicans argue the Democrats’ policies have failed to fix the economy and the focus should be on cutting public spending. Job creation is critical for the recovery as consumer spending accounts for 70 percent of economic activity.

Last month, consumer spending adjusted for inflation increased 0.2 percent after edging up 0.1 percent in June, the Commerce Department said. Real spending on goods rebounded 0.4 percent, while expenditure on services increased 0.2 percent.

Wages and salaries rose at a $22 billion annual rate last month, helping fuel the rise in incomes, after shrinking at an $8 billion rate in June. But real disposable income fell 0.1 percent, the first decline since January.

Although the saving rate slipped to 5.9 percent from 6.2 percent the previous month, analysts said the level still indicated that consumers remained wary of spending.

“Households are intent on paying down debt and putting their finances on a firmer footing,” said Paul Dales, a U.S. economist at Capital Economics in Toronto.

“This is good for the economy in the medium term but it’s bad for near-term growth. Overall the U.S. economy cannot rely on households to lift it out of its current funk.”

The report showed the personal consumption expenditures price index, excluding food and energy, was up 1.4 percent in the 12 months to July, unchanged from June. The index is a key inflation measure monitored by the Fed.

“The sluggish economy and high unemployment should nudge it modestly lower in coming months,” said Sal Guatieri, a senior economist with BMO Capital Markets in Toronto. “We see it moving further below the Fed’s longer-range forecast of 1.7 percent to 2.0 percent, thus paving the way for renewed quantitative easing (of monetary policy) by year-end.”

(Editing by James Dalgleish)

by Ron Bousso Ron Bousso   – Sat Aug 28, 12:00 pm ET

NEW YORK (AFP) – Wall Street may be in for another rocky week, as traders brace for negative data topped by an expected rise in the US unemployment rate that could dampen economic recovery prospects.

All eyes will turn to the release of the monthly employment data next Friday, with most analysts forecasting non-farm payrolls to fall by 118,000 in August and unemployment to edge up to 9.6 percent from the current 9.5 percent rate.

“The most important number by far is going to be the job numbers on Friday. It is key to the entire economy and we haven’t had very good news lately about that,” said analyst Nicholas Colas of ConvergEx Group.

Unemployment remains the biggest concern of President Barack Obama, who is facing an uphill battle to lift the fortunes of his Democratic Party in November’s mid-term elections.

On Wednesday, analysts expect to see the monthly Institute of Supply Management (ISM) manufacturing index decline to 53.3 percent from 55.5 percent, signaling a further slowdown in manufacturing, a key pillar of the US economy.

Wall Street shares ended the week on a positive note on Friday after Federal Reserve chairman Ben Bernanke vowed to take aggressive steps to boost the US economy if its outlook worsened.

“Bernanke was the big mover of the market, coming out and saying ‘we’re ready to help the economy’ if needed, but he was a bit more optimistic about the outlook for the economy, boosting stocks,” FTN Financial analyst Lindsey Piegza said.

For the week, however, the Dow Jones Industrial Average lost 0.62 percent to 10,150.65 and the broader S&P 500 index dropped 0.66 percent to 1,064.59 as both indexes extended a third consecutive week of losses.

The technology-rich Nasdaq composite index slumped 1.2 percent to 2,153.63 despite a growing bidding war between computer-maker giants Hewlett-Packard and Dell to buy data storage firm 3PAR.

The Fed chief also said prospects for US growth to pick up in 2011 appeared to remain despite the government revising downward its gross domestic product estimate for the April-June period, saying the GDP grew at 1.6 percent, less than half the first quarter’s 3.7 percent growth.

The growth plunge was on the back of a massive trade deficit and weak private inventory investment, signaling a more pronounced slowdown in recovery from recession.

Most recent economic data fell below already modest expectations and economists are reducing their growth forecast for the third quarter with some warning of a “double-dip” recession, when GDP growth falls back to negative after a quarter or two of positive growth.

New home sales plunged this week to their lowest levels in half a century and the pace of orders for goods indicated the manufacturing sector slowed markedly, with business capital spending contracting massively.

Thursday’s report showing a drop in the number of Americans filing for new jobless benefits claims failed to impress traders.

“The market is very uncertain about the trajectory of the economy going into the last half of the year. The data early in the week was very unsettling as far as hoping for further growth,” Colas told AFP.

Despite next week’s expected negative data, analysts do not predict a sharp drop in stock prices, even as Wall Street enters what is traditionally seen as a difficult month for shares.

“The bar is set pretty low given that the data has been weakening for sometime now… It would take some pretty significant disappointment to drive us lower,” said Economy.com analyst Aaron Smith.

By CARLO PIOVANO, AP Business Writer Carlo Piovano, Ap Business Writer   – Fri Aug 27, 10:03 am ET

LONDON – Stocks edged higher in Europe and on Wall Street Friday after a key U.S. economic growth figure was not as bad as feared, and as investors looked ahead to a speech by Federal Reserve Chairman Ben Bernanke.

Global markets have been rattled in recent weeks by signs that growth is losing momentum, particularly in the world’s largest economy. On Friday, official data showed U.S. gross domestic product grew by 1.6 percent during the April-June period. That’s way down from the government’s earlier estimate of 2.4 percent but not as bad as the 1.4 percent expected by economists.

After trading lower all day, Britain’s FTSE 100 stock index was up 0.5 percent at 5,180.34, France’s CAC-40 rose 0.4 percent to 3,490.16 and Germany’s DAX increased 0.3 percent to 5,931.52.

Asian indexes mostly closed lower but Wall Street picked up on the open — the Dow industrial average was up 0.6 percent at 10,041.51 and the Standard & Poor’s 500 was 0.5 percent higher at 1,052.58.

Because investor confidence has been hit by a run of bad U.S. economic data, there was some apprehension over the revised GDP data being published. While the data still portrays a slowing recovery, it also calmed the markets’ darker fears.

“There are a couple of encouraging signs in this second report,” said Paul Ashworth, analyst at Capital Economics.

He noted corporate profits were up and that the downward GDP revision was mostly due to lower inventory rebuilding and higher imports. Still, the outlook remains challenging.

“The second quarter wasn’t as bad as the headline GDP figure looks, but, unfortunately, that doesn’t mean the third quarter is going to be any better,” Ashworth said.

Against that backdrop, Bernanke is speaking at a symposium of global policymakers at Jackson Hole, Wyoming, later Friday, and investors will be looking for clues about whether his central bank intends to provide any additional support.

Analysts, however, caution that the Fed is reluctant to loosen its monetary policy significantly.

“Bernanke is likely to keep the door open to such a move, but he will also stress that this is conditional on the data getting sufficiently worse to warrant this,” said Daragh Maher, foreign exchange analyst at Credit Agricole. “The hawkish mood of many Fed members suggests the bar will be pretty high on this front.”

In Asia, Japan’s benchmark Nikkei 225 stock average recovered from early losses to close 1 percent higher at 8,991.06 on news that Prime Minister Naoto Kan was meeting reporters to discuss how the government will handle the yen’s surge.

A pledge by Japan’s finance minister to work more closely with the central bank to curb the yen’s rise helped boost exporters. Sentiment was buoyed, also, by the government’s report Friday that the jobless rate in July fell to 5.2 percent from 5.3 percent in June — the first decline in six months.

Chinese investors resumed buying to boost the benchmark Shanghai Composite Index by 0.3 percent to 2,610.74. But the gains were capped by mixed earnings from major companies and uncertainty over whether the government will loosen tight credit policies as the economy slows.

Hong Kong’s Hang Seng fell 0.1 percent to 20,597.35 while South Korea’s Kospi dropped less than 0.1 percent. But shares in most other markets were higher, with Australia’s S&P/ASX 200 up 0.3 percent and Taiwan’s benchmark adding 0.4 percent.

In New York on Thursday, the Dow Jones industrial average fell 0.7 percent to 9,985.81. The Dow had traded below 10,000 several times this week, but hadn’t closed below that level since July 6.

In currencies, the dollar rose to 84.93 yen Friday from 84.28 yen in New York late Thursday. The euro rose to $1.2716 from $1.2702.

Benchmark crude for October delivery was up 7 cents at $73.43 a barrel in electronic trading on the New York Mercantile Exchange. The contract settled at $73.36 on Thursday.

___

Associated Press writers Elaine Kurtenback in Shanghai, Shino Yuasa in Tokyo and researchers Bonnie Cao and Ji Chen in Beijing and Shanghai contributed to this report.

By Tetsushi Kajimoto Tetsushi Kajimoto   – Sat Aug 28, 10:45 am ET

BEIJING (Reuters) – Japanese Finance Minister Yoshihiko Noda said on Saturday he was ready to employ “all possible measures” to tackle the soaring yen, which was having a big impact on the country’s export-led economy.

Speaking in China’s capital, Noda told reporters he wanted the Bank of Japan to guide policy while sharing its views on the economy with the government.

He also said there was room for Japan’s central bank to improve the monetary situation, but it was up to the bank to consider specific policy steps.

The yen hit a 15-year high against the dollar this week, and Tokyo is scrambling to craft a package of steps to prop up its stuttering economy while keeping up pressure on the BOJ to do more to pull the country out of deflation.

The yen, which surged to 83.58 per dollar on Tuesday, was hovering just above 85 on Saturday.

“Many people are worried and the government is taking a serious view, and we must adopt all possible measures,” Noda said, after meeting Chinese Finance Minister Xie Xuren on the sidelines of a Japan-China economic dialogue.

Noda urged China to make its yuan currency more flexible and said Japan would announce its basic policy on an economic package next week.

“We will take decisive measures when necessary while watching market trends with great interest,” Noda said, echoing comments the previous day from Prime Minister Naoto Kan that signaled possible currency intervention.

Noda also said he expected Kan to meet BOJ Governor Masaaki Shirakawa as soon as possible after the central bank chief returns from the United States on Monday.

The BOJ may hold an emergency meeting early next week to ease monetary policy, a source familiar with the matter said [ID:nSGE67Q0J1]

China, meanwhile, should continue making “steady efforts” to make its currency more flexible, Noda told reporters. The yuan has appreciated about 0.4 percent against the dollar since it was lifted from a nearly two-year peg on June 19.

Japan has not intervened in the currency market since March 2004, when a 15-month yen-selling spree came to an end. During that period, they sold 35 trillion yen ($410 billion), the equivalent of more than one-third of the annual budget.

Despite the risk of possible action by Japanese authorities to curb yen strength, such as currency intervention or monetary easing, some traders and investors say the yen could still test a record high of 79.75 yen to the dollar, hit in April 1995.

($1=85.37 Yen)

(Reporting by Tetsushi Kajimoto; Editing by Nick Macfie, Ken Wills, John Stonestreet)

By Edward Krudy Edward Krudy   – Sat Aug 28, 9:22 am ET

NEW YORK (Reuters) – Beaten-up investors go into September, historically a weak month for stocks, facing key reports on jobs, manufacturing and services. If those disappoint, the S&P 500 could breach technical support levels, pushing stocks yet lower.

The S&P 500 index has fallen nearly 13 percent since April as investors fret about the chance of a double-dip recession. But the index has found solid support around the 1,040 level, with a sustained move below that proving tough.

Federal Reserve Chairman Ben Bernanke boosted stocks on Friday by signaling the Fed is ready to act if the economy worsens. But more weakness in upcoming indicators like non-farm payrolls and Institute for Supply Management surveys would intensify fears the economy is sliding back into recession.

“There is this continual trend toward numbers falling short of expectations,” said Nick Kalivas, equity analyst at MF Global in Chicago. “My guess is you’ll see some selling come in again next week on these numbers.”

The non-farm payroll report on Friday is expected to show 99,000 jobs were lost in August, swollen by redundancies among temporary census workers, while private sector hires grew by only 42,000.

Both the manufacturing and services sectors are expected to have experienced another slowdown in growth in August. The ISM manufacturing report is released on Wednesday, followed by the services sector report on Friday.

ATTRACTING BUYERS

The S&P 500 tested the 1,040 level twice during the week, both times ending the day with gains. The level has consistently attracted buyers over the past 10 months and was significantly breached only once during a brief stint in July.

“Here we are sitting at this important support level, having pulled back 8 percent (on an intraday basis) in three weeks, you potentially set up for a reversal,” said Richard Ross, global technical strategist at Auerbach Grayson in New York.

The benchmark Standard & Poor’s 500 index finished this week at 1,064 on Friday. If the 1,040 level is breached, the S&P 500 could fall into a lower range around 1,020 to 1,010. However, the index runs into resistance at its 14-day moving average at 1,076.65, providing only limited scope on the upside.

Investor sentiment remains negative. In the options market, investors bought S&P 500 puts, giving them the right to sell S&P futures at a fixed price, although the most actively traded option on the S&P 500 (SPY.P) ETF was the $107 call, suggesting some bullish trades ahead of next week.

“Overall investor sentiment in the option market has become very skeptical, with put buying widely exceeding call purchases,” said Ryan Detrick, technical senior analyst at Schaeffer’s Investment Research in Cincinnati.

The put-to-call ratio, a measure of investor sentiment, was at 0.61 as of Thursday’s close compared to a 21-day ratio of 0.59.

Investors will be closely following comments from executives at big industrial companies like General Electric (GE.N) and Boeing (BA.N) at Morgan Stanley’s Global Industrials Unplugged Conference next week.

MAJOR REVENUE ESTIMATES

Intel Corp (INTC.O) cut its third-quarter revenue estimates in a surprise on Friday. Although investors shook off the news after an initial fall, bleak outlooks from large corporation at the heart of the economy could rattle investors.

As usual there will be a series of secondary labor market data playing second fiddle ahead of the Friday’s jobs number. ADP’s jobs report on Wednesday is expected to show the private sector added 18,000 jobs in August, down from 42,000 in July.

Weekly claims for jobless benefits are tipped to remain solidly elevated on Thursday, edging up to 475,000 compared to 473,000 the week before.

With significant risks on the horizon, many investors may think twice about getting into the market at the start of September, historically the worst performing month for all three major indexes.

That may be especially true given the three day break the following week when U.S. markets shut to observe Labor Day on Monday, September 6.

Scott Marcouiller, chief technical market strategist at Wells Fargo Advisors in St. Louis, said he found it hard to envision a rally in the current environment.

“Right now the market is locked into short-term thinking,” he said.

(Reporting by Edward Krudy; Additional reporting by Rodrigo Campos and Leah Schnurr; Editing by Kenneth Barry)