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Financial Focus

Federal Reserve chairman Ben Bernanke warned US lawmakers yesterday that using the country’s national debt limit as a political tool risks a fresh financial crisis. Republicans have threatened to oppose lifting the $14.3 trillion ceiling on US sovereign debt. “It is a risky approach. The worst outcome would be one in which the financial system was destabilised as we saw following Lehman,” he said.

DESPITE bailouts for Greece, Ireland and Portugal, Europe’s debt crisis may yet spread to core Eurozone countries and emerging Eastern Europe, the IMF said yesterday. “Contagion to the core euro area, and then onwards to emerging Europe, remains a tangible downside risk,” the IMF’s latest economic report said.

CHINA’s central bank yesterday said that it would raise lenders’ required reserves by 0.5%, the fifth rise this year and the eighth since October. The move increases the required reserve ratio for the country’s biggest banks to a record 21% in the government’s campaign to control inflation. Wednesday’s high inflation figure stoked expectations of further monetary tightening.

US UNEMPLOYMENT benefit claims fell sharply last week after a big rise the prior week, a government report showed. Initial jobless claims fell 44,000 to a seasonally adjusted 434,000 in the week ended 7 May, the Labour Department said.

MARKETS:

THE FTSE lost more ground yesterday as its dependency on raw materials is making for a volatile market this week. Investors are being forced into either staying involved in these riskier assets, or selling in the face of the exchange margin hikes. The outlook remains volatile, with bear traders looking to for a much bigger correction.

THE MSCI Asia Pacific Index fell sharply overnight and is set for its lowest close since April 19, as the effects of China’s money tightening and concerns over the slowdown in global economic growth hit investor sentiment.

EUROPEAN stocks are set to inch higher on Friday, mirroring gains on Wall Street, while commodities halted their sharp sell-off. Lingering concerns over Greece’s debt burden could limit equities’ gains before the weekend.

CURRENCIES:

STERLING fell to three-week low against the dollar and slipped against the euro yesterday after UK industrial output rose much less than expected in March, reducing the chance of an upward revision to UK growth. The euro rose to a session high of 87.28 pence, moving further away from an earlier seven-week low of 86.73.

ENERGY:

WORLD demand for oil is flattening for the first time since 2009 as high prices hit American consumers, the International Energy Agency has said. The IEA predicts total oil consumption in North America will fall by 194,000 barrels per day in 2011. The IEA believes world oil prices will probably stay high, at about $110 this year, compared with $80 in 2010.

COMMODITIES:

GOLD surrendered early gains to trade nearly flat overnight as expectations mounted that US inflationary pressures eased in April. Silver was also stationary after bouncing off a sharp fall overnight that shaved nearly 3% off the price at one point.

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