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July 28 (Bloomberg) -- U.S. and Chinese economic leaders pledged to keep up stimulus efforts and to rein in trade and investment imbalances that contributed to the global crisis.

“It is vitally important for China and the United States to see through their commitments to repair the financial system and lay the foundation for recovery,” Treasury Secretary Timothy Geithner said at the end of the first Strategic and Economic Dialogue talks under the Obama administration in Washington. China’s Vice Premier Wang Qishan said the two will press for an “expansion” of the recovery.

The U.S. pledged to curb the budget deficit and boost household savings, and China committed to rely less on overseas demand for its goods. There were few signs of the disputes over the yuan and market access that characterized talks in the Bush administration. Analysts expressed skepticism whether the two governments can secure “balanced” growth.

“These statements are made in good faith, but the issue is that you can’t just wave a magic wand and get there overnight,” said Huw McKay, senior international economist at Westpac Banking Corp. in Sydney. “These things take long periods of time.”

The two sides indicated that while economic data improved in recent months, a self-sustaining rebound has yet to emerge. In the U.S., President Barack Obama is implementing a $787 billion fiscal stimulus and Federal Reserve Chairman Ben S. Bernanke doubled the central bank’s balance sheet to about $2 trillion. China has a 4 trillion yuan ($585 billion) stimulus.

‘Strong’ Responses

“Both countries pledged to maintain their strong policy responses until recovery is secured,” the U.S. Treasury said in a statement.

Zhou Xiaochuan, the Chinese central bank governor, said China will wait for the U.S. to begin to pull back on its stimulus measures before deciding whether it will do the same.

“If we see that the U.S. starts to exit its expansionary fiscal and monetary policies, then China will see what it will do at that time,” Zhou said at a press briefing today.

The People’s Bank of China governor also said that “I believe that the Federal Reserve of the U.S. will make appropriate arrangements to prevent high inflation.”

The U.S. Treasury highlighted China’s commitments to liberalize business and investment rules, including letting international banks underwrite Chinese bonds, raising the threshold for foreign direct investments that need government approval, and loosening limits on interest rates.

‘Sustainable’ Deficit

China’s officials reiterated their concern at the record American budget deficit, and were told by Obama’s aides that there’s a plan to achieve a “sustainable” deficit by 2013. Their comments today indicated they accepted the U.S. presentation.

“Credible steps will be taken by the U.S. to control the deficit,” China’s Finance Minister Xie Xuren said at a press briefing today. “The Treasury secretary stated clearly that they are placing a lot of importance on this issue.”

At stake is sustaining demand for U.S. debt from China, the largest foreign holder of Treasuries. The federal deficit is on course to reach $1.8 trillion this year; China’s investments in Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

“We are joined at the hip with China and that means both countries need to be sensitive to each other’s needs, each other’s problems,” Mickey Kantor, a former U.S. Trade Representative, said in an interview from Los Angeles.

Yuan Policy

China’s Treasuries holdings also are the result of holding down the value of the yuan, a policy that U.S. lawmakers have charged is designed to provide a subsidy for its exports. The yuan has hovered around 6.83 per dollar since July last year after gaining about 21 percent since China lifted a strict peg to the dollar in July 2005.

Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, told reporters yesterday that “compared with previous meetings” between Chinese and U.S. officials, “the U.S. side doesn’t lay as much emphasis on renminbi exchange-rate reform and opening of capital markets.” The yuan is a denomination of the renminbi.

The effort to produce more “balanced” growth comes after Bernanke and other officials blamed imbalances in trade, spending and investment for helping spark the crisis.

Trade, Investment

U.S. consumers relied on borrowing to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought bonds and depressed global yields. Lower borrowing costs helped stoke the housing and credit booms that turned to bust in 2007.

China and the U.S. will aim to “bring about more balanced and sustainable global economic growth after a global recovery is firmly established,” the two sides said in a fact sheet on the economic side of the talks.

“Building a consumption-based economy is overdone and overhyped” with regard to China, Donald Straszheim, who heads Straszheim Global Advisors Inc. in Los Angeles. “It will take a generation, not just a few years, for China’s consumer sector to really develop.”

In the U.S., officials will take steps to reduce its current-account deficit, boost private savings and cut its budget deficit once a recovery is “firmly established,” Geithner said.

The U.S. savings rate reached 6.9 percent in May, the highest level since 1993, as Americans consumers curtailed spending. Geithner said he expects those gains to be part of a more permanent shift.

“We’re more likely to decide that these changes we’ve seen in private savings already are durable,” Geithner said. “We’ve learned some tough lessons as a country. I think the basic lesson, the importance of living within our means, is best for the country, and at the household level, is an important, necessary lesson.”

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July 30 (Bloomberg) -- The number of Americans filing claims for jobless benefits last week held below levels seen in late June, before auto-related distortions set in, indicating firings are slowing as the economy stabilizes.

Applications rose by 25,000 to 584,000 in the week ended July 25, higher than forecast, figures from the Labor Department showed today in Washington. More than 600,000 claims were filed every week last month. The number of people collecting unemployment insurance decreased for a third week.

An analyst at Labor said distortions from the timing of auto-plant shutdowns “worked themselves out” of the data last week, returning claims to “trend.” While a resumption in hiring will be slow to materialize, payroll reductions are likely to slow as housing and manufacturing, the areas that led the economy into the worst recession in five decades, steady.

“Initial claims are still trending lower, which does suggest some improvement in conditions,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York, which had forecast claims would increase to 585,000. “What we are seeing is less firing.”

The Standard & Poor’s 500 index rose 1.2 percent to close at 986.75. Stocks also increased as companies from Motorola Inc. to MasterCard Inc. posted better-than-anticipated results.

Economists’ Forecasts

Economists forecast claims would increase to 575,000 from a previously estimated 554,000, according to the median of 40 projections in a Bloomberg News survey. Estimates ranged from 539,000 to 630,000.

The four-week moving average, a less-volatile measure than weekly initial claims, fell to 559,000 from 567,250 the prior week. The average at the end of June, before the auto distortions set in, was 616,000, higher than last week’s reading.

Claims tend to be volatile in late June and July when automakers typically halt production and idle workers to re- equip factories to build new models. General Motors Co. and Chrysler Group LLC halted production earlier than usual as they worked through bankruptcy proceedings.

GM emerged from bankruptcy this month and Chrysler did the same in June.

Continuing Claims

The level of continuing claims decreased by 54,000 to 6.197 million in the week ended July 18, the lowest level since April. Because they come out with a one-week lag, these figures are still being distorted by the plant closings.

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 4.7 percent in the week ended July 18. Eight states and territories reported an increase in new claims, while 45 reported a decrease. These data are also reported with a one-week lag.

Figures for the week ended July 18 coincide with the week the Labor Department conducts its survey for the monthly payrolls report. U.S. employers have eliminated 6.5 million positions since the recession began in December 2007, the most of any downturn since the Great Depression.

Economists have forecast that the worst of the job cuts may have past. Even so, hiring is limited and economists surveyed by Bloomberg earlier this month project the jobless rate will exceed 10 percent by early 2010.

‘Plodding’ Rebound Seen

The U.S. economy is nearing its low point and will begin a “gradual, slow, plodding,” rebound next year, Southern Co. Chief Executive Officer David Ratcliffe said yesterday in an interview. “For the most part we believe that this has stabilized and is poised for a recovery.”

Southern, the biggest U.S. power producer, said second- quarter earnings rose 15 percent as lower costs cushioned the impact of declining electricity demand.

Verizon Communications Inc. is among companies still paring staff. It said July 27 it plans to eliminate more than 8,000 jobs in the second half.

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July 28 (Bloomberg) -- The dollar fell to the lowest level this year against the currencies of six major U.S. trading partners as speculation the global economy is emerging from the recession reduced demand for a refuge.

The Australian dollar advanced to the highest level since September against the U.S. currency after the Reserve Bank said the economy may rebound faster than forecast six months ago. The euro climbed to a seven-week high against the dollar after Deutsche Bank AG said second-quarter profit rose 68 percent, beating analysts’ estimates.

“Riskier currencies are trying to break higher,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA, France’s largest bank. “Upside potential is limited as euro-dollar has been quite disappointing in recent weeks, given that we’ve had near-perfect conditions for a rally to develop.”

The Dollar Index, which the ICE uses to track the dollar against currencies including the yen, pound and Swedish krona, fell as much as 0.4 percent to 78.315, the lowest level since Dec. 18, and was at 78.509 at 7:30 a.m. in New York, compared with 78.626 yesterday. The euro advanced 0.2 percent to $1.4256 per euro, from $1.4232. The 16-nation currency traded in a range of $1.3833 to today’s high of $1.4304 in July.

Gains for the euro may be limited after the European currency met resistance at about $1.4300 today, according to Jane Foley, research director in London at Forex.com, an online currency trader. Resistance is a level where orders to sell the euro are clustered.

‘Softer Tone’

“So far the euro has failed to hold above this level with the slightly softer tone of stock markets in Europe draining some of the enthusiasm for risk and pushing euro-dollar back down,” Foley wrote in a research report today.

Europe’s Dow Jones Stoxx 600 Index was little changed after better-than-estimated earnings offset a forecast by BP Plc Chief Executive Officer Tony Hayward that any recovery from the first global recession since World War II will be “long and drawn out.” Standard & Poor’s 500 Index futures decreased 0.4 percent.

U.S. home prices probably fell at a slower pace in May, indicating the U.S. economy is recovering. The S&P/Case Shiller index of 20 major metropolitan areas, due for release today, will show property values fell 17.9 percent in May from a year earlier, according to the median forecast of 32 economists surveyed by Bloomberg News. The measure was down 18.1 percent in the 12 months ended in April.

Australian Dollar

The Australian dollar climbed versus the greenback and yen after Reserve Bank Governor Glenn Stevens said it appears “that the downturn we are having may turn out not to be one of the more serious ones of the postwar era, in contrast to the experiences of so many other countries.”

Stevens left the benchmark lending rate at 3 percent on July 7 for a third month amid signs the lowest borrowing costs in half a century and government spending helped the nation skirt a recession. The target lending rate is 0.1 percent in Japan and as low as zero in the U.S.

The Australian dollar added 1.1 percent to 83.17 U.S. cents and increased 0.6 percent to 78.77 yen, while the New Zealand dollar appreciated 0.9 percent to 66.28 U.S. cents and 0.3 percent to 62.65 yen.

A pickup in the 25-day rolling correlation between Aussie- dollar and the two-year swap rate differential “suggests further Australian dollar gains,” Steven Pearson, head of Group of 10 foreign-exchange strategy in London, wrote in a research report today.

‘Jammed On’

“With the risk appetite switch jammed on pressure on the dollar and the yen continues to mount,” Pearson wrote.

The euro gained for a fourth day against the yen after Deutsche Bank, Germany’s largest lender, said in a statement net income rose to 1.09 billion euros ($1.55 billion), from 649 million euros a year earlier. The median estimate of 13 analysts surveyed by Bloomberg was for 944 millions euros.

“The bank’s results were better than expected,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The latest upmove in the euro could be due to this.”

Deutsche Bank’s Chief Executive Officer Josef Ackermann said the banking industry and financial markets stabilized in the quarter, propelling a fourfold gain in income from debt sales and an improvement in equity trading.

The U.S. currency fell 0.5 percent to 94.73 yen, extending its drop this month to 1.7 percent.

Japanese exporters are taking advantage of the currency’s drop in the past week to repatriate earnings from overseas assets before the month-end.

‘Buy the Yen’

“Exporters are prone to buy the yen, given that the end of the month is near,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale, France’s third- largest bank.

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

Adding to pressure on the dollar, China’s Assistant Finance Minister Zhu Guangyao said on the first day of bilateral talks with U.S. officials that his government remains “concerned” about the value of its U.S. assets.

Zhu’s remarks come after repeated public assurances by Treasury Secretary Timothy Geithner that the U.S. is committed to reining in a record budget deficit once an economic recovery is secured. China is the biggest foreign investor in U.S. government debt, and any decline in demand could push up borrowing costs.

“China has massive holdings of Treasuries, so it is obviously worried,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Any diversification away from the dollar could be gradual, and the greenback may weaken a bit.”

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July 28 (Bloomberg) -- Treasury Secretary Timothy Geithner pledged to rein in the U.S. deficit as China underscored concern about preserving the value of its $801.5 billion of Treasury holdings.

The U.S. will ensure a “sustainable” deficit by 2013, Geithner said at the beginning of the first round of Strategic and Economic Dialogue talks under President Barack Obama in Washington. China is “concerned about the security of our financial assets,” Assistant Finance Minister Zhu Guangyao said.

In a shift from meetings under the Bush administration, officials indicated there were few signs of tension over the value of China’s yuan, which U.S. lawmakers have labeled as artificially cheap and an aid to Chinese exports. That may be because the “best idea is just to keep the yuan-dollar rate stable” given U.S. need for Chinese demand for Treasuries, said Ronald McKinnon, a professor of economics at Stanford University.

“The Chinese are trapped with supporting the value of the dollar,” McKinnon said in a telephone interview from Stanford, California. “If they withdrew from the market, there’s a big appreciation” of the yuan as a result that would send China’s exports down, he said.

Record Holdings

The new focus on the deficit and Treasuries reflects the legacy of China’s record trade surpluses and its accumulation of dollars as a result of holding down the yuan. Chinese foreign- exchange reserves surpassed $2 trillion for the first time in the second quarter, and its holdings of Treasuries reached $801.5 billion in May, about 100 percent more than at the start of 2007.

Geithner is co-hosting the SED talks with Secretary of State Hillary Clinton. Vice Premier Wang Qishan and Dai Bingguo, a state councilor, are attending for China.

Obama said in a speech opening the meetings he wants to engage China in cooperation on a range of issues, beyond acting together to stimulate a global economic recovery.

“We must also be united in preventing Iran from acquiring a nuclear weapon,” Obama said. He cited nuclear proliferation, terrorism, piracy, global pandemics, climate change and civil war as other common threats facing the two countries. In her sessions, Clinton addressed both the Iranian and North Korean nuclear programs.

Talks Expanded

The Obama administration has expanded the talks that began under President George W. Bush, chaired by then Treasury Secretary Henry Paulson. Paulson, a former Goldman Sachs Group Inc. chief executive officer, pressed for a more market-set exchange rate and greater access for international financial firms to the country.

The two sides agreed yesterday that each nation shouldn’t withdraw economic stimulus measures “too soon because the recoveries are still very fragile,” David Loevinger, the U.S. Treasury’s senior coordinator for China affairs, said on a conference call with reporters.

“We talked about China’s exchange-rate policy” and Chinese officials “talked about their desire to reform the international monetary system,” Loevinger said, without offering specifics. Chinese policy makers have said they favor an eventual shift in the global currency reserve system away from the dollar, suggesting wider use of an International Monetary Fund unit of account.

Yuan Discussion

Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, told reporters yesterday that “compared with previous meetings” between Chinese and U.S. officials, “the U.S. side doesn’t lay as much emphasis on renminbi exchange-rate reform and opening of capital markets.” The yuan is a denomination of the renminbi.

The yuan has hovered around 6.83 per dollar so far this year after advancing for four straight years in the aftermath of China lifting a strict peg to the U.S. currency in July 2005.

Zhu, the assistant finance minister, also said China favors a “stable” dollar, indicating one source of concern is any collapse in the value of the U.S. currency. The dollar has dropped about 3.5 percent against the currencies of major trading partners this year, according to a Federal Reserve index, and has depreciated about 18 percent in the past eight years.

‘Stable’ Dollar

“We hope that the economy and financial markets remain stable and that the exchange rate of the U.S. dollar, which is a major international currency, remains stable,” Zhu said yesterday. “That’s why we’re focusing on the security of China’s investment in the U.S.”

The U.S. delegation included Fed Chairman Ben S. Bernanke, White House National Economic Council Director Lawrence Summers and Peter Orszag, Obama’s budget director.

Obama’s advisers told Chinese officials that the administration’s record $787 billion fiscal stimulus was necessary to get the economy out of its worst recession in half a century. Loevinger added that the deficit, which is on course to reach $1.8 trillion this year, will be made “sustainable” in part through future spending cuts and an overhaul of health care.

Geithner, in his opening remarks, reiterated the U.S. call for China to shift toward relying on domestic demand for growth rather than exports.

“They have to build more of a domestic spending society,” U.S. Trade Representative Ron Kirk said in an interview with Bloomberg Television. If they do, “software, movies and the creative arts will be a great market for the United States.”

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