Monday July 20, 11:25 AM
TOPWRAP 3-CIT rescue deal seen; US survey warns on recovery
By Paritosh Bansal
NEW YORK, July 20 (Reuters) - U.S. lender CIT Group Inc has agreed $3 billion in rescue financing from bondholders, sources say, aiming to avoid becoming the latest victim of a recession which a survey on Monday said the United States has yet to shake off.
The CIT news helped boost European shares and Asian stocks outside Japan, which was closed, hit their highest level since around the time Wall St investment bank Lehman Brothers (NYSE: LEH - news) collapsed last September. Hopes of a recovery in corporate earnings in the months ahead also helped.
Record (LSE: REC.L - news) low global interest rates and trillions of dollars in stimulus spending appear to be helping the world recover from the worst recession in 80 years.
Second-quarter U.S. gross domestic product figures are likely to be better than the first quarter, showing some signs of improvements in the economy, White House Budget Director Peter Orszag said on Sunday.
Yet a survey of economists released on Monday suggested the U.S. recession was easing but had probably not yet ended.
'Industry demand was still declining in the second quarter of 2009, but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilisation in the second half,' said Sara Johnson, managing director of global macroeconomics for IHS Global Insight, who helped analyse the report for the National Association for Business Economics (NABE).
More state money may yet be needed to get the global economy back on its feet and the German government is considering a U.S. style bank rescue plan that would use public funds to recapitalise banks, a German newspaper reported on Sunday.
Germany, Europe's largest economy, recorded its biggest annual decline for more than 40 years in producer prices. Prices fell by 4.6 percent year on year in June, the steepest since December 1968, the Federal Statistics Office said. Month-on-month prices dropped by 0.1 percent.
The decline was most strongly impacted by energy prices which fell by 8.4 percent compared with June 2008 and 0.3 percent month on month, the office said.
Germany's economy likely contracted only slightly in the second quarter of this year, and the fall in gross domestic product (GDP) was probably smaller than the first quarter, its central bank said on Monday.
Australia also needs another round of economic stimulus spending to stave off a predicted surge in joblessness, its trade union movement said on Monday.
CHINA WARNING
China has committed to spend around $585 billion in stimulus spending and has encouraged its banks to lend more freely to support the economic growth it needs to create jobs and ensure stability.
However, the country's top banking regulator on Sunday warned of the risks from surging bank lending, singling out the dangers of unhealthy growth in the property market.
Liu Mingkang, the head of the China Banking Regulatory Commission, said bank lending had helped stabilise the economy so far but made one of his strongest calls yet to banks to guard against taking excessive risks.
'In the first half of the year, our country's banking loans expanded rapidly and helped play an important role in stabilising the economy, but the loans growth has led to accumulated risks also increasing,' he was quoted as saying in a statement on the China Banking Regulatory Commission website (www.cbrc.gov.cn).
CIT
The U.S. government has also committed to spending hundreds of billions in stimulus and has bailed out financial institutions including insurance giant AIG, but talks over a Washington rescue of CIT collapsed last week, leaving it to strike a rescue deal with its bondholders.
The board of CIT, which lends to nearly one million small and mid-sized businesses, approved a $3 billion deal with bondholders late on Sunday, a source close to the matter said.
An announcement was expected before U.S. markets open on Monday.
The dollar hit a six-week low and the yen fell as risk appetite rose.
The pan-European FTSEurofirst 300 index of top shares was up 1.5 percent and the MSCI's measure of Asia-Pacific (002790.KS - news) stocks outside Japan rose almost 3 percent.
Japan's markets were shut for a public holiday, keeping trading volumes relatively low.
Investors are also watching U.S. second-quarter earnings season, which powers up this week with more than a quarter of the companies in the Standard & Poor's 500 Index reporting earnings, including Texas Instruments (NYSE: TXN - news) on Tuesday.
Others pending are American Express Co, Apple Inc (NASDAQ: AAPL - news) , Boeing Co (NYSE: BA - news) , Coca-Cola Co, McDonald's Corp and Microsoft Corp (NASDAQ: MSFT - news) .
(Writing by Lincoln Feast and Jason Neely; Editing by Alex Richardson and Mike Nesbit)
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