Bank of England funds Northern Rock By TARIQ PANJA, Associated Press Writer

Bank of England funds Northern Rock By TARIQ PANJA, Associated Press Writer
47 minutes ago



LONDON - Britain's fifth largest mortgage lender recieved emergency funding from the Bank of England in an attempt to head of a liquidity crisis.

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Northern Rock PLC warned Friday that market turmoil sparked by a mortgage crisis in the U.S. would cut profits to between 500 and 540 million pounds ($1 billion and $1.1 billion) — which is as much as 147 million pounds ($298 million) lower than expected.

Northern Rock shares plunged 25 percent to 476.75 pence ($9.60) on the London Stock Exchange.

Chief executive Adam Applegarth said Northern Rock expected to borrow substantial amounts of money from the Bank of England at a penalty rate, but did not specify how much. The bank said it was having trouble borrowing from other banks, and that the liquidity problem was likely to continue for the rest of the year.

Applegarth said the bank had billions of pounds in cash, but that it had approached the Bank of England early to head off a possible liquidity crisis.

"We can't tell when the global (credit) freeze is going to unwind. On that basis it made sense to get this facility now," Applegarth told Sky News.

He said the banks' customers would be unaffected, and that business at the bank's branches was going on as usual.

"All this stems from the problems in the American housing market," British Treasury Secretary Alastair Darling told Sky News. "There's plenty of money in the system; all the banks have money, but at the moment they're not lending to each other in the way they usually do."

Darling said the Bank of England had approved the funds in the interest of keeping the British banking system stable and told customers there was no reason to panic.

The chief executive of the British Bankers' Association, Angela Knight attempted to sturdy the nerves of Northern Rock customers.

"I think that anybody who is waking up this morning who is either a saver with Northern Rock or has got a mortgage ... can be absolutely confident that they have got their money with or they have borrowed from a very sound financial institution," she told British Broadcasting Corp. radio.

"This isn't about solvency, this is about a short-term problem that the Northern Rock has in getting liquidity — that is, getting some cash from the normal interbank lending market."

Bankers warned against making parallels between Northern Rock and troubled Countrywide Financial Corp. in the United States_ which is releasing 13,000 employees and has been forced to borrow billions of dollars as it struggles to weather a wicked downturn in the U.S. housing market.

The British bank is more diligent in its lending policy, no longer has a subprime book, and has a repossession rate of less than one percent, said Eric Leenders an executive director of the British Bankers Association.

"It's a very healthy business which has run into a simple liquidity issue owing to the market jitters around the U.S. subprime mortgage market," Leenders said.

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On the Net:

Northern Rock PLC: http://www.northernrock.co.uk

Car-buying spurs retail sales rebound By MARTIN CRUTSINGER, AP Economics Writer

Car-buying spurs retail sales rebound By MARTIN CRUTSINGER, AP Economics Writer
20 minutes ago



WASHINGTON - Retail sales posted a modest gain in August, helped by the biggest jump in auto sales in more than a year. But there are concerns that spending could falter as the steep slump in housing and financial market turbulence weigh on consumer confidence.

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The Commerce Department reported Friday that retail sales increased 0.3 percent in August, compared to July, when sales had been up by 0.5 percent. The strength last month was led by a 2.8 percent jump in auto sales, the biggest increase since July 2006.

The increase in retail sales was just about half what had been expected. In another sign of weakness, industrial production in August edged up by just 0.2 percent. It was the poorest performance in three months and reflected a 0.3 percent drop in output at U.S. factories, the first decline in manufacturing after five straight increases.

The gain in industrial otuput followed much stronger increases of 0.5 percent in July and 0.6 percent in June. The drop in manufacturing output was accompanied by a decline of 0.6 percent in mining, the category that includes oil production. These declines were offset by a 5.3 percent surge in output at the nation's utilities, reflecting a hotter-than-usual August.

A separate report Friday showed that consumer confidence, as measured by the RBC Cash Index, fell to 71.1 in early September, a sharp drop from an August reading of 89.3. It was the worst showing for the survey, done by polling firm Ipsos, since May 2006.

Meanwhile, the government said that the current account, the broadest measure of trade, totaled $190.8 billion in the second quarter, down 3.1 percent from a $197.1 billion in the first three months of the year.

The trade improvement supported the view of economists that America's trade deficit, after setting records for five consecutive years, should show finally begin to decline in 2007, helped by stronger overseas growth and a weaker dollar, which boosts the competitiveness of American products.

The weaker-than-expected 0.3 percent rise in retail sales did not dispel worries that consumer spending, which accounts for two-thirds of total economic activity, could falter in coming months under the impact of a serious credit crunch and rising gasoline prices.

"We expect a clearly slowing trend," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Lower confidence and the accelerating housing collapse will hurt."

The Federal Reserve is scheduled to meet next Tuesday and there is a widespread belief that the central bank will cut a key interest rate for the first time in four years, hoping that cheaper credit will give the economy a boost.

Financial markets have been roiled since early August by rising worries that loans to consumers and businesses are becoming harder to obtain as banks and other lenders tighten standards. The credit crunch began with rising defaults on subprime mortgages, home loans provided to borrowers with weak credit. But those problems have since spread to other lending areas and have also roiled global financial markets.

The retail sales performance would have been much weaker without the big gain in auto sales in August. Excluding autos, retail sales would have fallen by 0.4 percent, the poorest showing in nearly a year.

Part of the weakness in August came from a 2.4 percent drop in sales at gasoline stations, reflecting declining prices. However, with oil rising to new records above $80 per barrel, analysts predicted that gasoline prices will start rising again, a factor that will mean consumers will have less to spend on other items.

Sales at department and general merchandise stores edged up 0.3 percent in August, reflecting strong back-to-school sales. Sales at furniture stores were up 0.5 percent but hardware stores saw sales decline by 1 percent. Sales at specialty clothing stores dropped by 0.1 percent.

Stock futures fall as retail sales drop By LAUREN VILLAGRAN, AP Business Writer

Stock futures fall as retail sales drop By LAUREN VILLAGRAN, AP Business Writer
32 minutes ago



NEW YORK - U.S. stock futures extended their declines Friday after the government reported August retail sales excluding autos fell sharply, suggesting that consumers held off spending in the face of turmoil in the financial markets.

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Weaker retail sales were expected after the chain stores reported disappointing results earlier this month. Still, the report was worse than economists predicted. The Commerce Department said retail sales fell 0.4 percent in August excluding vehicle sales, compared with a 0.7 percent rise in July and economists' consensus forecast for a 0.1 percent increase.

Investors have been on edge over whether tight credit, a housing slump and volatility on Wall Street have hurt the consumer, whose willingness to spend is critical to economic growth. The feeble retail sales figure makes it more likely that the Federal Reserve will cut its benchmark federal funds rate on Tuesday. But while investors have been clamoring for such a cut to stimulate business activity, Friday's report raised concerns about a slowdown in economic growth.

Dow Jones industrial futures, already down before the retail sales report, slid 86, or 0.64 percent, at 13,450. Standard & Poor's 500 index futures lost 10.50, or 0.70 percent, to 1,487.50, and Nasdaq 100 index futures shed 17.25, or 0.85 percent, to 2,007.25.

Merrill Lynch downgraded shares of chip maker Intel Corp. and credit card company American Express Corp., Dow Jones Newswires reported, sending both stocks lower in premarket activity.

A separate report Friday showed that consumer confidence, as measured by the RBC Cash Index, fell to 71.1 in early September, a sharp drop from an August's level of 89.3. It was the worst showing since May 2006.

Investors are also awaiting a report on August industrial production and a preliminary reading on September consumer sentiment. Economists polled by IFRMarkets.com expect the University of Michigan's preliminary reading on September consumer sentiment to have weakened slightly. Industrial production is forecast to have risen 0.3 percent in August, on pace with July.

Also pressuring stock futures was news that the Bank of England approved emergency funding for lender Northern Rock PLC to head off a possible liquidity crisis. Northern Rock issued a profit warning and blamed the shortfall on credit market turmoil.

Investors in London reacted badly to that news, which heightened concerns about the viral nature of problems in the U.S. subprime mortgage market. Adding to the disappointment, a key house price index in Britain showed a 2.6 percent decline in September. The index is considered an indicator of future prices. Britain's FTSE 100 fell 2.00 percent.

Other European stock markets also slumped. Germany's DAX index fell 1.01 percent, while France's CAC-40 fell 1.20 percent.

Bond prices rose, as the 10-year Treasury note yield fell to 4.45 percent from 4.48 percent.

The Dow rose more than 130 points on Thursday, helped by strong gains in shares of McDonald's Corp., which raised its dividend, and General Motors Corp. on reports of progress with labor negotiations.

As talks with the United Auto Workers continued overnight, the union was expected to choose GM as the lead company in contract negotiations with the Detroit Three. Contracts between the UAW and GM expire Friday at midnight.

In Asia, Japan's Nikkei stock average rose 1.94 percent at the close, while Hong Kong's Hang Seng Index gained 1.47 percent.

Oil fell below the $80 a barrel mark in electronic trading before the opening of the New York Mercantile Exchange. Gold prices also weakened, as the U.S. dollar traded mixed against other major currencies.