U.S. cuts jobs but at slower pace; Russia downgraded
NEW YORK |
NEW YORK (Reuters) - Employers cut fewer U.S. jobs than expected last month while data on Wednesday suggested China's manufacturing slump may be near a bottom, but a cut of Russia's debt rating stoked fears about Europe's economy.
President Barack Obama, meanwhile, said the United States would cap at $500,000 annual compensation for executives whose firms receive taxpayer bailouts, calling lavish pay packages in an economic crisis "the height of irresponsibility."
The United States absorbed more steep job losses in January as private firms cut 522,000 positions, ADP Employer Services said. But that was below December's 659,000 tally and marked the first time since September the rate of layoffs slowed.
The data "may be showing some signs of stability, but it's too early to say," said Win Thin, currency strategist at Brown Brothers Harriman in New York.
Hopes for a recovery in China improved after its official purchasing managers index rose in January, lifting Asian shares. Parallel reports showed the pace of decline in both the European and U.S. service sectors also slowed.
But ratings agency Fitch's downgrade to Russia's sovereign debt rating sent the euro tumbling against the dollar and yen as investors feared eastern Europe was now on the front line of the global financial crisis.
Fitch said the downgrade reflects falling commodity prices and Russian firms' struggle to refinance external debt. It added that it was concerned about the depletion of Russia's foreign exchange reserves, which since August have shrunk by about a third, or some $200 billion, as the country tried to defend the rouble amid an exodus of foreign capital.
Western European banks lent heavily to Russia and other eastern European countries, and Russia had been a big buyer of euro-zone exports when oil prices were high.
Increasing concerns over Russia and central Europe must be watched very closely. A slowdown in that region has negative implications for European banks," said Ian Stannard, currency strategist at BNP Paribas in London.
In Washington, Obama said massive Wall Street compensation packages at a time of economic crisis "is not only bad taste, it's bad strategy, and I will not tolerate it as president."
Treasury Secretary Timothy Geithner added, "We will have to do more, substantially more, to fix this crisis" and promised to reveal plans next week to get credit flowing again.
U.S. stocks fell, partly on uncertainty about the Obama administration's plans to boost the banking sector, while a hefty U.S. government debt sale and the better-than-expected economic data weighed on Treasury prices.
HOPES RISE BUT FEARS REMAIN
While the global outlook remained gloomy, investors tried to focus on the silver lining in Wednesday's data, with some taking heart from a report showing the pace of deterioration in the U.S. services sector slowed last month. [nN04279497].
Euro-zone service sector data improved, and while the euro-zone economy is likely to contract in the first three months of 2009, Fortis economist Nick Kounis said "the pace of contraction should slow relative to the fourth quarter, which we think will prove to be the deepest point of the recession."
But analysts remained cautious about the future. Joel Prakken, chairman of Macroeconomic Advisers, joint developer of Wednesday's U.S. jobs data, said he expects to see 3 million U.S. job losses over the next 12 months.
"We have to have at least three months of increases in nonfarm payrolls to be able to say that we have the economy bottoming," said Sung Won Sohn, professor of economics at California State University.
Indeed, global sentiment remained far from buoyant. Around the world, policymakers fear the crisis will provoke protectionist policies. Countries across Europe have already suffered strikes and social unrest.
China, too, fears mass unrest if it cannot generate the 8 percent economic growth rate thought necessary to create jobs. An official said on Monday that about 20 million rural migrants had already lost their jobs.
China announced a $585 billion spending plan in November and central bank governor Zhou Xiaochuan said the pump-priming was working.
(Reporting by Reuters reporters worldwide; Editing by Kenneth Barry)
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