While you were sleeping US economy shows strength

Thursday 30th August 2012

Wall Street advanced as better-than-expected reports on the US economy kept alive optimism on the recovery without erasing hopes that US policy makers will still lend a helping hand to accelerate the pace of expansion.

"Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand gradually in July and early August across most regions and sectors," the Fed said in its Beige Book regional business survey.

The US economy grew at a 1.7 percent annualised pace in the second quarter, according to Commerce Department data. That was better than the government's initial 1.5 percent estimate a month ago. All eyes - however - are on Fed Chairman Ben Bernanke's speech at a gathering of central bankers in Jackson Hole, Wyoming, Friday.

"I don't think this really changes the dovish sentiment of the Fed," Michael Hanson, a senior economist at Bank of America Merrill Lynch in New York, told Reuters. "They are going to look at this and say 1.7 percent is below trend, that's not where we want to be and the risks going forward are still material."

A separate report showed that pending home sales in the US rose 2.4 percent in July, comfortably surpassing expectations. In late afternoon trading in New York, the Dow Jones Industrial Average rose 0.23 percent, while the Standard & Poor's 500 Index and the Nasdaq Composite Index each advanced 0.26 percent.

The better-than-expected economic data curbed demand for the US Treasury's auction. It sold US$35 billion of five-year notes at a yield that fell short of expectations, 0.708 percent, compared with a forecast of 0.716 percent in a Bloomberg News survey of seven of the Fed's 21 primary dealers. The government is set to auction US$29 billion in seven-year securities tomorrow.

In Europe, the Stoxx 600 Index ended the session with a 0.1 percent decline from the previous close. Some investors are becoming increasingly impatient with the delay between talk and action by European Union policy makers including ECB President Mario Draghi who promised last month that the central bank would do whatever it took, within its mandate, to preserve the euro. "

Investors want Draghi to put the money where his mouth is," Witold Bahrke, a senior strategist at PFA Pension in Copenhagen, told Bloomberg News. "The European Central Bank seems to have developed a strategy of issuing a policy statement and letting it linger for a long time before backing it up by action.

People in the market are getting annoyed with that." Germany is not enamoured by Draghi's plans for additional ECB bond-buying to ease the borrowing costs on struggling euro-zone nations, in particular Spain and Italy.

BusinessDesk.co.nz

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