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The Federal Reserve is ordering Peoples Bank and Trust Co. to add capital and sort out its troubled commercial real estate loans.

In a written agreement with the bank, revealed Monday, the Fed also told the bank not to pay dividends without Fed permission or interest on its trust preferred securities, a form of long-term debt that allows temporary lapses in interest payments.

Peoples Bank and Trust is based in Troy, Mo., and has seven branches in Lincoln, St. Charles and Pike counties. It has $415 million in assets and lost $2.3 million in the first three months of the year. It holds less than half of one percent of the St. Louis region’s bank deposits. Peoples deposits are protected by the Federal Deposit Insurance Corp.

In the March quarter, the bank dropped slightly below the level that regulators consider "well capitalized," a red flag in banking. The bank still meets the "adequately capitalized" standard.

Peoples Bank ran into problems with commercial real estate lending. About 4 percent of all the bank’s loans were "non-performing," generally meaning that payments are far past due.

A written agreement with the Fed is considered a serious enforcement action indicating problems at the bank. The Fed told the bank to reduce concentrations in commercial real estate lending and write off loans that federal bank examiners believe can’t be rescued.

"The economic conditions have caused a challenge for many and we are no exception," the bank said in a written statement. "Loan defaults and past due loans have mounted and the bank is moving forward to meet those challenges. The bank believes that it is well on its way to correcting regulatory concerns and returning to its usual profitable position."

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It looks like ice — but this ice could one day be used to heat your home.

It’s actually not ice at all, but crystallized natural gas, and if scientists can figure out how to harvest it cheaply enough, it could become a vast new source of energy available in just about every country in the world.

The big advantage to these crystals, known as methane hydrates, are their abundance. They are found beneath the sea floor off every continent, and under the arctic tundra.

Plus, they’re estimated to hold twice as much carbon as all the known reserves of oil, coal and natural gas combined.

"The potential is enough to power humanity from now until the asteroid hits," said Peter Tertzakian, chief energy economist at ARC Financial, a Calgary-based private equity firm.

But citing cost and the abundance of conventional natural gas, Tertzakian said this resource will likely "remain on the margins" for two or three decades.

Origins

The crystals are formed when methane gas, which results from the natural decomposition of animals and plants, comes into contact with water at just the right temperature and pressure.

Finding that sweet spot is actually much much more common than finding the conditions needed for the formation of conventional gas and oil, which require very specific geology. This is why oil is found in some places but not others.

Crystal gas forms almost any place there’s low temperature, high pressure and water, making the organism-rich continental slopes ideal spots.

The gas crystals are usually found between a few hundred feet to several thousand feet below the ocean floor and require deep drilling to bring them to the surface. They’re most prevalent in water over 1,000 feet deep, and up to about 200 miles offshore.

Although they’ve been known about since the early 1980s, only in the last 10 years has significant work gone into studying them and figuring out how to extract them.

The U.S. government currently runs a multi-agency research project with scientists from the Department of Energy, the U.S. Geological Survey and the Minerals Management Service, among others instant credit report. They’ve partnered with a few corporations, including BP (BP) at a site in Alaska’s North Slope and Chevron (CVX, Fortune 500) in the Gulf of Mexico.

Harvesting

Just because a huge amount of the gas exists doesn’t mean it all can be collected.

No one has figured out how much gas can be recovered using current technology, said Timothy Collett, a research geologist at the USGS.

But at the BP site in Alaska, Collett said using current technology to go after crystal gas would effectively double the known gas reserves there.

"We’re chipping away at the technical issue," he said. "We just have to get at the economics."

And it’s the economics that really hold this up.

There are several ways to bring crystal gas to the surface. But the most efficient seems to be to drill a well, like a conventional oil or natural gas well, then decrease the pressure inside. The decreased pressure will cause the crystals to revert to gas and flow out of the well.

But depressurizing a well requires creating a vacuum by continuously pumping the water out of it. That’s an expensive proposition.

Collett said in the Arctic, the cheapest place to extract this gas, costs vary. It can be just as expensive as it is now to produce conventional natural gas, to twice that amount. Going offshore gets even more expensive.

Furthermore, with all the gas currently coming online in the United States from the vast shale reserves, it’s doubtful crystal gas is going to see much investment in the near term.

"Why would anybody allocate money to gas hydrates, when there’s almost a gas glut emerging," said Tertzakian, the economist at ARC.

Yet once the shale gas begins to run out, or if there’s a significant increase in demand for cleaner burning natural gas plants, it may be nice to know this resource is available.  

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The U.S. Treasury Department said Thursday that it will remove the caps on assistance to Fannie Mae and Freddie Mac for the next three years to alleviate market concern about the effect of limited government assistance.

The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each in backstop capital from the Treasury. Under the new deal, these caps can rise as needed to cover net losses over the next three years.

Fannie Mae and Freddie Mac now are using a combined $111 billion of the total $400 billion in available assistance. Treasury Department officials said they did not expect the companies to need assistance beyond what is available under the current caps, barring significant deterioration in the economic outlook.

Thursday’s announcement "should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis," the Treasury said in a statement in Washington.

The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their portfolio of retained mortgages. Previously, the companies were instructed to shrink their portfolios at a rate of 10 percent a year. Now, they will be required to keep their portfolios below a maximum limit, currently $900 billion, that will fall by 10 percent a year.

This means they will not need to take immediate action to reduce their holdings and could allow them to rise payday loans for bad credit. Fannie Mae’s portfolio ended October at $771.5 billion and Freddie Mac’s holdings at the end of November were $761.8 billion, according to the latest figures released by the companies.

The Treasury said Thursday that it is ending its mortgage- backed security purchase program as of Dec. 31, after $220 billion in purchases. The government also is eliminating a short-term credit facility for the two companies and the Federal Home Loan Banks that was never used.

EXECUTIVE PAY

The two chief executives of Fannie Mae and Freddie Mac could get paid as much as $6 million for 2009, despite the companies’ dismal performances this year, which cost taxpayers more than $100 billion.

Fannie’s CEO, Michael Williams, and Freddie CEO Charles "Ed" Haldeman Jr. each will receive $900,000 in salary, $3.1 million in deferred payments next year and another $2 million if they meet performance goals, according to filings with the SEC on Thursday.

The packages were approved by the Treasury and the Federal Housing Finance Agency, which regulates Fannie and Freddie.

The Associated Press contributed to this report.

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The economic recovery gained traction in late fall as shoppers spent a bit more and factories bumped up production. That assessment Wednesday by the Federal Reserve marked its most upbeat view since the economy tumbled into recession two years ago.

The Fed’s new snapshot of business barometers found that conditions generally have improved since the last report in late October.

Eight of the Fed’s 12 regions surveyed reported some pickup in activity or improved conditions, the Fed said. Those regions were: Boston, New York, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco payday loans. The new report adds to evidence that the economy is rebounding after the worst recession since the 1930s.

The main challenge for Fed Chairman Ben Bernanke, who will be on Capitol Hill today seeking a second term, is to sustain the fledgling rebound, especially after benefits of government support fade next year. To that end, the Fed is expected to hold a key bank lending rate at a record low near zero when its meets on Dec. 15-16.

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With sales slow and credit tight, small merchants are scrambling to stock their shelves for the year’s biggest shopping season.

Retailers traditionally borrow money to buy holiday inventory. But credit for small businesses has dried up this year, and with the recession slowing sales, few merchants have cash on hand. The crunch is forcing business owners to find new ways to keep running.

For a handful of New York City retailers in one hard-hit stretch of Brooklyn, a small community lender is playing the role of Santa Claus. Lesia Bates Moss, president of Seedco Financial Services, noticed an ever-increasing number of vacant storefronts along Atlantic Avenue. In response, she hosted a meeting with a dozen area retailers to find out how her organization could help.

One common problem the merchants cited was getting enough credit to buy sufficient holiday inventory. So Seedco Financial, a nonprofit that specializes in financing for underserved communities, launched a streamlined holiday program: Retailers who could provide a marketing plan for spending the money and driving foot traffic would get fast loans.

On Monday, Seedco staffers started delivering checks. A typical loan request is for around $20,000, to be repaid over the next year at interest rates of 6% to 10%.

"It doesn’t take a lot in the way of capital access to help these businesses," Moss said. "We really needed to get money into the hands of these merchants before Black Friday, so they could stock their stores."

Toys and beer glasses: Karen Zebulon, the owner of toy and clothing retailer Gumbo on Atlantic Ave., is one of Seedco Financial’s borrowers.

"Especially this year, because we have had such hard times, we really need a boost," she said. "If I can really strategize and plan and buy the right merchandise, I think it can be a turning point for me."

Zebulon plans to ramp up her inventory of toys, because even in tight times, customers continue to spend on kids. She’s impressed at how quickly Seedco Financial got cash into her hands.

"This was — you could say — a godsend," she said. "It is saving me and saving a lot of other merchants that are receiving the loans." Without the financing, she would have been pulling a string of all-nighters trying to handcraft toys to stock her shelves.

Artez’n Gift and Gallery, which sells products made by local Brooklyn artisans, also got a loan from Seedco. Owner Jessica Furst got her check on Monday and "ran to the bank." She plans to use the cash to stock up on one of her best-selling items: pint glasses with illustrations of Brooklyn landmarks on them. They’re a proven customer lure, drawing in tourists and others who make a special trip to Artez’n for the glasses.

With sales slow this year, Furst wouldn’t have been able to afford to produce the Brooklyn beer glasses without the last-minute loan. "I would have been without them again, which would have been a loss of income for me, and possibly a loss of customer base," she said.

She will also use some of the loan money to fix the high-end printer she uses for her graphic design business. The small loan will make a big difference for Furst: "It will enable me to get back on my feet."

The big challenge for merchants will come over the next month. The National Retail Federation forecasts that this year’s holiday sales will decline 1%, to $437.6 billion.

"The real concern is, can you sell stuff?" said Bill Dunkelberg, chief economist of the National Federation of Independent Businesses. "I am sure inventory accumulation has been cautious. It doesn’t look like it is going to be much better than last year, which was terrible."

Squeezing by: Not every retailer is lucky enough to have a community lending program to turn to.

Clark Kepler’s dad opened Kepler’s Books in 1955. Like so many other independent bookstores, Kepler’s Books is fighting for sales in an industry now dominated by Big Box discount retailers and Internet book sellers. Four years ago, with the shop on the brink of closure, 25 members of the Silicon Valley community voluntarily donated $1 million to save the neighborhood bookstore.

The recession has further ravaged the business, which saw a double-digit sales decline. "We had the most difficult time this last several months with the cash-flow issues," Kepler said. "We managed to get through it, but we were robbing Peter to pay Paul every step of the way."

One way the shop is coping is by churning inventory faster than it typically would. Bookstores can return unsold goods to publishers, and Kepler is shuffling fast to fine-tune his holiday lineup.

"It is a mad scramble much of the time," he said. "We have needed to scrutinize our inventory more and more to be sure that we have books that are selling." A book that languishes is "like money sitting on the shelf that we are not utilizing."

Kepler could use additional financing to give his bookstore more breathing room, but he’s had little luck with the banks. He talked with one lender about a Small Business Administration-backed loan, but pulled out after deciding that the loan available for his shop wouldn’t be big enough to justify all the effort involved in the application process.

Kevin Stein, co-owner of the Montana Fish Company in Bozeman, Mont., is also frustrated with the banks. "We have been to every bank in town," he said. "If we could expand into a bigger facility, we could take on more business, we could hire more people — it is a win-win."

But so far, with no expansion loan yet available, Stein’s seafood and wine market isn’t doing its usual seasonal hiring. "We didn’t lay anyone off, but it was a combination of not rehiring and not hiring for the holiday season," Stein said. To make up for the staffing decrease, Stein and his co-owner have upped their own hours.

"As employees filtered out, we just simply didn’t rehire, which means I spent a lot less time at home," he said.

Like the merchants that borrowed from Seedco Financial, Stein is now looking outside the banking industry for help. He’s trying to get a loan directly from the Small Business Administration, through its disaster lending program. A natural glass explosion one block away from Montana Fish may make the company eligible.

Stein and his business partner, Travis Byerly, have been pulling together mountains of documentation.

"It is a little mind-boggling," Stein said of application process. "But it is a great loan if we can get it. It could be a game changer." 

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The International Monetary Fund said it will have access to a credit line of up to $600 billion to make loans during financial crises after contributing countries agreed to fold commitments into one pool.

The agreement, yet to be approved by the IMF board, adds as many as 13 members from the current 26 to the so-called New Arrangements to Borrow, including emerging nations China, Russia, Brazil and India, the IMF said in an e-mailed statement.

The decision “marks an important moment for multilateralism and the fund, which will help the IMF’s effectiveness in its response to crises,” Managing Director Dominique Strauss-Kahn said in yesterday’s statement.

The deal goes beyond a pledge by leaders of the Group of 20 nations to contribute up to $500 billion to a credit arrangement that’s currently worth $54 billion, the IMF said. The worst financial crisis since the Great Depression prompted more nations to seek aid from the fund, created after World War II to help ensure the stability of the global monetary system.

The agreement, which merges existing commitments into one facility, makes it easier for the IMF to tap into its supplemental resources. The credit line will be “an effective tool of crisis management as a backstop for the international monetary system,” the IMF statement said cash advance loans.

While a general agreement on the NAB was reached at the G- 20 meeting in Pittsburgh in September, talks on the specifics stalled over divisions between some emerging and developed nations over voting rights relating to the credit facility.

Borrowed From Members

The IMF has estimated that its current credit line was insufficient when the financial crisis boosted demand for loans. It then started to borrow from individual members, such as Japan, to continue lending to countries in difficulty.

To ensure the institution would continue shoring up economies around the world, G-20 leaders in April pledged to add $500 billion to the IMF’s resources.

Some of these contributions were bilateral loans, while China agreed to participate by buying the first IMF notes. Some countries, like the U.S., made theirs directly to the NAB.

When the new credit-line agreement is activated, all the bilateral loans will fall into it, Andrew Tweedie, who heads the IMF Finance Department, said in a Nov. 20 interview. It won’t come into effect before next year, he said.

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Japanese government ministers increased pressure on the central bank to tackle falling prices in the world’s second-largest economy.

“My understanding is that Japan is in a deflationary state,” Deputy Prime Minister Naoto Kan told reporters today in Tokyo. The government will tell the central bank that “monetary policy plays a significant role” in fighting deflation, he said.

Kan’s comments, echoed by other ministers after a Cabinet meeting today, underscore the government’s growing rift with the central bank, which is concluding a two-day monetary policy meeting today. Finance Minister Hirohisa Fujii, who said today deflation is a critical factor when setting economic policy, and Prime Minister Yukio Hatoyama have said the central bank is too optimistic about the outlook for the economy.

“There’s a sense of crisis” regarding deflation, Fujii said today, calling on the central bank to respond to the threat while adding that rates are already “very low” limiting room for further monetary policy action.

The world’s second-largest economy grew an annualized 4.8 percent last quarter, the fastest pace in more than two years, while a gauge of prices excluding imports fell the most in 51 years, a Cabinet Office report showed this week cash advance in one hour. Consumer prices excluding fresh food dropped for a seventh month in September and the central bank said last month it expects them to keep sliding through fiscal 2011.

Independence

The central bank, whose independence is guaranteed by law, is accustomed to such comments by government officials. Lawmakers from the previous ruling Liberal Democratic Party would call on the policy board to keep rates low, with some politicians such as Hideyuki Aizawa going as far as suggesting the governor’s job was on the line if he didn’t yield to government requests.

Kan, who is also the nation’s economic and fiscal policy minister, didn’t elaborate on what steps the Bank of Japan should take. Economists expect central bank Governor Masaaki Shirakawa and his policy board to keep interest rates at 0.1 percent today.

Financial Services Minister Shizuka Kamei said the bank should be more aware of aligning its policies with the government when prices are falling.

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European Union nations should begin cutting budget deficits swollen by emergency government spending by 2011 “at the latest,” according to a draft of a statement to be issued after next week’s summit in Brussels.

“The bold policy response to the economic and financial crisis is now starting to bear fruit,” according to the draft, prepared by the Swedish government, which will chair the Oct. 29-30 meeting. “To anchor expectations and reinforce confidence, it is necessary to prepare a coordinated strategy for exiting” stimulus policies so that budget deficits are cut “beyond the benchmark 0.5 percent” of output, it said.

At least 20 EU governments, including those of Germany and the U.K., will breach the 27-nation bloc’s deficit ceiling of 3 percent of gross domestic product this year and next, the European Commission estimates. The EU’s average budget shortfall is forecast to be twice the limit both years.

The statement would be the first time EU leaders set a deadline to begin budget restraint since the region entered the recession last year. By doing so, the region’s governments are signaling their seriousness about trimming borrowing over time without choking off the nascent recovery next year, said Stephane Deo, chief European economist at UBS in London.

“A lot of people were worried that there would be tightening next year; now we know that that’s not going to happen,” he said. “Yet the current situation is totally unsustainable. You have to do fiscal tightening at some point” and 2011 is an “appropriate” time to do so, he said.

Deficit Spending

Deficit spending can only be successful in stabilizing the economy as long as financial markets and the public view it as temporary, the European Commission, the EU’s Brussels-based executive, said on Oct. 14. The commission forecasts that debt among the 16 nations using the euro will rise to 77.7 percent this year and 83.8 percent in 2010 from 69.3 percent last year.

“The new and main challenge is to get public finances in order as soon as possible after the crisis, and to prepare the social-security system for an aging population,” Alexander Kockerbeck, a senior European analyst at Moody’s Investors Service, said today in an interview.

At the same time, the EU is being careful not to stifle growth. The euro-area economy will shrink 4 percent this year, the commission estimated on Sept. 14. The latest forecast for 2010, issued in May, projects a 0.1 percent contraction.

Central Banks

“Support by governments and central banks should not be withdrawn until the recovery is fully secured,” according to the draft summit statement.

Even 2011 will be more of a turning point on deficits rather than a sudden about face on taxes or spending, Deo said.

“The next debate will be about whether this will cause a double dip in 2011,” he said. “I don’t think so because I don’t think politicians will all of a sudden jump on the breaks and kill the recovery. It’s more about smoothing this out over a number of years, about entering a phase of consolidation.”

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Some Federal Reserve policy makers were open last month to boosting the central bank’s $1.25 trillion mortgage-backed securities purchase program to stimulate the economy amid concerns the recovery may fade.

“Some members thought that an increase in the maximum amount of the committee’s purchases of agency MBS could help to reduce economic slack more quickly,” according to minutes of the Federal Open Market Committee’s Sept. 22-23 meeting released today in Washington. One member said the improvement in the outlook could warrant a reduction in purchases, the minutes said, without identifying the policy maker.

Chairman Ben S. Bernanke said last week the Fed will be prepared to tighten credit when the economic outlook “has improved sufficiently.” Fed officials in last month’s meeting considered the risks of an anemic recovery with unused capacity leading to “subdued and potentially declining wage and price inflation.”

“Members discussed the importance of maintaining flexibility to expand the asset purchase programs should the economic outlook deteriorate or to scale back the programs should economic and financial conditions improve more than anticipated,” the minutes said.

The Standard & Poor’s 500 Index was up 1.4 percent to 1,088.10 at 2:10 p.m. in New York. Yields on two-year Treasury notes were unchanged at 0.9 percent.

Revised Up

Policy makers raised their economic projections based on improved housing markets, stabilizing consumer spending and a recovery in growth outside the U.S., the minutes said.

“Despite these positive factors, many participants noted that the economic recovery was likely to be quite restrained,” the minutes said. “Credit from banks remained difficult to obtain and costly for many borrowers; these conditions were expected to improve only gradually.”

Consumers were likely to be cautious in spending and businesses were likely to be careful in hiring and investing even if demand for products and services increased, the minutes said.

Vice Chairman Donald Kohn said yesterday inflation and growth will probably stay below the central bank’s objectives for some time, warranting low interest rates for an “extended period.”

Slowing Inflation

The risk of slowing inflation will exceed the chance of accelerating prices “for a while,” and there will be a gradual recovery that helps curtail joblessness, Kohn said in a speech to economists in St. Louis.

Policy makers are debating the timing for a withdrawal of the central bank’s record monetary stimulus, including an increase in the benchmark interest rate from close to zero.

Kansas City Fed President Thomas Hoenig said last week the central bank should start raising interest rates “sooner rather than later,” and Fed Governor Kevin Warsh said on Sept. 25 the Fed may need to tighten “with greater force than is customary.”

Fed officials unanimously decided at their Sept. 22-23 meeting to keep the benchmark interest rate near zero and repeated their pledge to keep rates low for an “extended period.” The Fed also committed to complete its $1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December.

The U.S. economy probably expanded at a 3.2 percent annual pace in the three months ended Sept. 30, according to the median estimate in a Bloomberg News survey of 64 analysts earlier this month. That would mark the first quarter of growth after declines over four consecutive quarters.

Sales Fell

Economists predicted 2.4 percent growth in the fourth quarter and the same pace for all of 2010, the Bloomberg survey showed. Sales at U.S. retailers fell less than anticipated in September. The 1.5 decrease in purchases followed a 2.2 percent gain the prior month, figures from the Commerce Department showed today in Washington.

Economists forecast the unemployment rate to peak at 10.1 percent in the first quarter. The jobless rate will average 9.9 percent through next year and decline to 9.1 percent in 2011, according to the median estimates from the Bloomberg survey.

In a departure from previous releases of meeting minutes, the Fed released numbers of a staff economic projection, instead of only describing the direction of the forecast.

“The staff still projected only a slow improvement in labor markets, with the unemployment rate moving down to about 9.25 percent by the end of 2010 and then falling to about 8 percent by the end of 2011,” the minutes said.

Jobs Cut

Employers cut 263,000 jobs in September after a 201,000 drop in August, while unemployment climbed to 9.8 percent, the highest level since 1983. The U.S. has lost 7.2 million jobs since the recession started.

The core consumer-price index, which excludes food and energy, rose 1.4 percent in August from a year earlier, down from a 2.5 percent increase in September 2008.

The volume of delinquent commercial mortgages jumped sevenfold last month, Credit Suisse Group AG analysts said in a report Oct. 9. Data from Moody’s Investors Service show prices have plummeted 38.7 percent from October 2007 peaks.

U.S. consumer credit in August fell for a seventh straight month as banks maintained restrictive terms and households were reluctant to borrow.

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The U.S. trade deficit unexpectedly narrowed in August as exports climbed to the highest level of the year and oil imports plunged.

The gap fell 3.6 percent to $30.7 billion from a revised $31.9 billion in July, the Commerce Department said today in Washington. The 0.2 percent increase in demand for American- made goods abroad would have been larger excluding a drop in aircraft shipments, which tend to be volatile.

More than $2 trillion in government stimulus programs are reviving demand from Asia to Europe, ensuring American factories benefit from growing sales overseas as the dollar weakens. Gains in production and the need to replenish depleted inventories mean imports will probably also grow in coming months, preventing the deficit from narrowing further.

“Exports continue to hold up pretty well, as a recovery is occurring in many parts of the world, especially in Asia,” said Jay Bryson, global economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The weakness of the dollar will improve the competitiveness of our products,” he said, and “imports will reflect the stabilization in the U.S.”

The trade gap was projected to widen to $33 billion from an initially reported $32 billion in July, according to the median forecast in a Bloomberg News survey of 76 economists. Deficit projections ranged from $29 billion to $35.3 billion.

Bernanke Comments

The dollar held earlier gains following the report, propelled by comments from Federal Reserve Chairman Ben S. Bernanke yesterday that the central bank is ready to raise interest rates once the economy improves.

The dollar rose the most against the Japanese yen since August, bringing it to 89.80 yen as of 4:37 p.m. in New York. Stocks rose, with the Standard & Poor’s 500 Index closing up 0.6 percent at 1,071.49 in New York. The dollar yesterday fell toward its lowest level since August 2008 against the currencies of six major U.S. trading partners.

A weaker dollar is likely to stimulate foreign demand in coming months as U.S.-made goods become cheaper for overseas buyers. Manufacturing expanded over the last two months, the first back-to-back gain since before the recession began in December 2007, according to the Institute for Supply Management. The Tempe, Arizona-based group’s export gauge in August reached the highest level in a year.

Exports increased to $128.2 billion, led by a $496 million gain in sales of cars and parts, today’s report showed. Exports to Canada reached the highest level since November, in part reflecting the cross-border trade in autos.

GDP Calculation

Imports fell 0.6 percent to $158 cheap pay day loans.9 billion in August after jumping the prior month by the most in 16 years. Purchases of crude oil from overseas dropped as the U.S. imported 8.66 million barrels a day on average, down from 9.56 million in July. The average price per barrel rose to $64.75 from $62.48.

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit narrowed to $37.7 billion from $38.8 billion. Excluding petroleum, the trade deficit widened to $14.2 billion from $14 billion the prior month.

The trade gap with China was little changed in August as both exports and imports climbed. Group of Seven officials, in a statement this month, welcomed China’s “continued commitment” to a more flexible currency, which they said would promote balanced international expansion.

‘Good Sign’

“It’s very much in China’s interests, as its economy grows, to be less dependent on exports as the principal engine of economic growth,” White House economic adviser Lawrence Summers said in an interview yesterday.

Treasury Secretary Timothy Geithner, in a press conference during the Group of 20 summit in Pittsburgh last month, praised steps China already has taken to strengthen its economy.

“If you look at the composition of growth so far, their current-account surplus, their trade surplus is coming down, and domestic demand is getting stronger, and that’s a good sign of the shift,” Geithner said.

The U.S. economy likely saw a return to growth in the third quarter after contracting in the prior six months, according to economists surveyed by Bloomberg, as the Obama administration’s $787 billion stimulus package started to have some effect.

The euro area is stabilizing after governments injected billions in the 16-nation region’s economy through tax cuts and spending incentives. China is spending 4 trillion yuan ($590 billion) to stimulate the world’s third-largest economy.

Companies seeing a turnaround include Alcoa Inc., the largest U.S. aluminum producer. New York-based Alcoa reported an unexpected third-quarter profit, helped by improving metal prices, job cuts and lower raw-material costs. Chief Executive Officer Klaus Kleinfeld said the second half of the year is better in many industries and regions.

“We do clearly see growth, substantial growth, I might add, in China,” Kleinfeld said on an Oct. 7 conference call, adding that there also is “stabilization in North America.”

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