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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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Carla Eng, president of Abstract Displays Inc., is one of 11 Ohio businesswomen named Ohio Keys to Success award winners for 2009, the Ohio Department of Development said Monday.

Eng was named a winner in the Marketing/Advertising/Public Relations category – the only winner from Southwest Ohio. She and other winners will be honored Thursday, at an afternoon ceremony at the Vern Riffe Center's Capital Theater in downtown Columbus.

“The department is proud to recognize Ohio’s businesswomen who play a key role in the economic growth and future of our state,” said Lisa Patt-McDaniel, director of the Ohio Department of Development, in a news release.

Abstract Displays, headquartered in Blue Ash, provides exhibits and displays for trade shows and other events low cost payday loans. The company, this year, was named to the Northern Kentucky Chamber of Commerce’s “Emerging 30” list of small businesses with outstanding revenue growth, and was also named a “Torch Award” winner by the Cincinnati Better Business Bureau for marketplace ethics.

The Keys to Success awards are sponsored by the ODD’s Division of Entrepreneurship and Small Business; Ohio Small Business Development Centers; U.S. Small Business Administration; Central Ohio Women’s Business Center; Key4Women/KeyBank; Kroger Co. and the ODD’s Minority Contractors Business Assistance Program.

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The Walt Disney Co’s breakthrough deal to build one of its signature theme parks in Shanghai marks a major advance for Western media and entertainment firms trying to crack a tough China market.

Wednesday’s government approval for the theme park caps years of on-off talks between Disney and Chinese authorities, who are wary of too much foreign influence in the highly sensitive sectors of media and popular culture.

The new park planned for the Pudong new district of China’s financial capital will take years to contribute to a company that rakes in more than $30 billion in annual revenue.

But analysts see the move as an important step forward for Disney and other Western media firms to make inroads into the vast and untapped Chinese media and entertainment market.

“They’ve been laying the groundwork for a park for many years by exposing the population to Disney properties, film, TV and merchandising,” said Christopher Marangi, senior analyst with Gabelli and Co in New York.

“Adding a physical presence in the form of a park would really complete and add to the value chain in China.”

The breakthrough comes just two weeks ahead of a scheduled trip to China by U.S. President Barack Obama, a visit analysts had expected to help spur a decision on the park.

The deal has been seen by some as a feel-good bilateral story, highlighting U.S. cultural influence and an investment that does not entail U.S. manufacturing job losses, while China gets a boost to its leisure sector and to domestic demand as it tries to trim its dependence on exports.

For Shanghai, China’s financial hub, Disneyland could keep tourists coming after the curtain falls on the 2010 World Expo.

And Disney will hope the park, with an estimated price tag of $3.6 billion, will fare better than its Hong Kong property, which has struggled with lower-than-expected attendance and financial losses since it opened in 2005.

SMALL STEP FORWARD

Disney, Time Warner and News Corp have surprisingly little to show for their years of effort and extensive investments in China.

“I wouldn’t say this is a one-off gain,” said Vivek Couto, executive director of Media Partners Asia, on the deal’s broader significance for foreign media’s drive for a foothold in China.

“But it’s in a non-sensitive space. It’s a theme park. It’s got nothing to do with television content that can be politically sensitive or competitive with other major Chinese companies in the space.”

Even privately held domestic media can find the going tough, as leading Internet portal Sina found recently when it scrapped a merger with Focus Media due to government stonewalling over a deal that would have created a major new domestic media player. 

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Washington’s so-called "pay czar" Kenneth Feinberg cautioned lawmakers against extending his authority to the hundreds of other companies that accepted government bailout money.

Speaking before the House Committee on Oversight and Government Reform Wednesday, Feinberg said his recent review of executive pay packages at the seven biggest bailout firms was "justified" given the government’s massive stake in these companies.

Appointed by President Obama in June, Feinberg has spent the past five months carefully reviewing pay practices at those companies in order to both protect American taxpayers’ investment and position the firms to pay back bailout money as soon as possible.

Still, he indicated that intervening in how banks and other companies that accepted money under the Treasury Department’s Troubled Asset Relief Program, or TARP, would amount to nothing more than "micromanaging."

"That is where my authority should end," Feinberg said, according a copy of his prepared remarks before lawmakers. "I do not believe it necessary or wise to broaden my jurisdiction or make my legal authority more pervasive."

That sentiment was echoed by some lawmakers Wednesday who expressed concerns by the government’s unprecedented level of oversight into how workers in the private sector are paid.

"The successes of the past in America should not, in fact, be wiped away because of the sins of a few on Wall Street who perhaps, realizing that bulls and bears were both making money, decided to become pigs," said Rep. Darrell Issa, R-Calif., the ranking member for the committee.

Last week, the pay czar issued his first in what will be a series of rulings on compensation, ordering 50% pay cuts, on average, for 136 executives at AIG (AIG, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), General Motors, its former finance arm GMAC, as well as Chrysler and Chrysler Financial.

Feinberg now turns to the pay plans for the next 75 most-highly paid employees at each firm . He also will need to review pay plans for 2010 for all seven companies.

Last week’s ruling only applies to compensation during the months of November and December but will serve as a base for determining how these executive are paid next year.

Feinberg warned Wednesday that issues like "grandfathered" retention contracts and other guaranteed forms of compensation could be particularly thorny issue in the months ahead.

"There will undoubtedly be new compensation issues which will confront us in 2010," he said.

He also faces the tough task of sorting through some $198 million in retention payments owed to workers in AIG’s Financial Products division, the unit that led to that company’s near collapse.

Feinberg said Wednesday that this issue remained a "top priority" for him and that he hoped to resolve it through negotiations with AIG in the coming months.

More pay changes to come?

There are also signs that Feinberg’s ruling is reviving the debate over whether lawmakers need to implement their own legislative constraints on pay.

One key proposal, which has the support of President Obama, would give shareholders at public companies a so-called "say on pay" for senior management by providing them a non-binding vote on executive pay packages.

Feinberg, a long-time Washington attorney who was thrust into the public spotlight earlier this decade after overseeing compensation payments to September 11 victims, said Wednesday the issue was "worthy of consideration" by lawmakers.

One key hope, however, was that other companies on Wall Street and across corporate America, would use his pay ruling as a model for how they reward employees going forward.

"Hopefully the model that is created in my report will trickle and expand beyond these seven companies," he said. 

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Sales of new U.S. homes unexpectedly fell in September as the end of a tax credit for first-time homebuyers approached, highlighting the importance of government aid to the emerging economic recovery.

Purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s forecast, according to Commerce Department figures issued today in Washington. Other data showed orders for durable goods climbed 1 percent in September, the fourth gain in the last six months.

Stocks fell as the home-sales report reinforced concerns a recovery from the worst recession since the 1930s may cool after programs such as the $8,000 tax credit and Federal Reserve purchases of mortgage-backed securities expire. Economists say a recovery in housing is a key to rebuilding the confidence and finances of American consumers, whose spending makes up 70 percent of the world’s largest economy.

The drop in sales “does raise some questions about where the housing market is going to be in six months, arguably without any more support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Whatever you think about the economy, it’s not going to be a straight line” toward recovery.

The Standard & Poor’s 500 Index declined 1.1 percent to 1,051.86 at 11:57 a.m. in New York, extending a global slump. The S&P Homebuilder Supercomposite Index, which includes companies such as Lennar Corp. and KB Home, dropped 4.2 percent to 243.63.

New-home sales were forecast to rise to a 440,000 annual rate, according to the median forecast of 75 economists in the Bloomberg survey. Estimates ranged from 412,000 to 460,000 after an initially reported 429,000 rate the prior month.

Possible Extension

Sales of new homes, which make up less than 10 percent of the market, are tabulated when a contract is signed. Purchases of existing homes, which account for the remainder, are counted when transactions close and thus reflect contracts signed a month or two earlier.

Contracts signed last month to buy a new house may not be able to close before the tax credit expires at the end of November. A proposal to extend the credit as part of an unemployment-benefits measure has significant support, Senate Majority Leader Harry Reid said today.

Previously owned homes in September sold at a 5.57 million pace, up a record 9.4 percent from the prior month, the National Association of Realtors reported last week. The level of sales was the highest in more than two years.

Lower Prices

The median price of a new house fell to $204,800, compared with $225,200 at the same time last year. The value was up 2.5 percent from the prior month, reflecting a plunge in the share of houses selling for less than $150,000, a category that often includes first-time buyers payday advance lender.

Sales fell 11 percent in the West and 10 percent in the South. Purchases in the Midwest jumped 34 percent and were unchanged in the Northeast.

Builders had 251,000 houses on the market last month, the fewest since November 1982. It would take 7.5 months to sell all homes at the current sales pace, the same as in August.

A report from the Commerce Department tomorrow may show the economy grew at a 3.2 percent annual pace last quarter, according to the median estimate of economists surveyed. It would be the first positive reading in more than a year and the strongest performance since the third quarter of 2007. Growth is forecast to slow to a 2.4 percent pace in the fourth quarter.

‘Temporary Factors’

“Much of the strength in the economy is due to temporary factors such as fiscal stimulus initiatives like the home- buyers credit,” said Dana Saporta, an economist at Stone & McCarthy Research in Skillman, New Jersey.

Fed policy makers meeting next week are likely to repeat their commitment to keeping interest rates low for an “extended period.” The Fed last month decided to slow purchases of $1.25 trillion in mortgage-backed securities while extending the end-date of the program by three months, to March 31.

The gain in durable goods orders illustrates how manufacturers such as Caterpillar Inc. are benefiting from $2 trillion in global stimulus spending.

The 1 percent increase in bookings for goods meant to last several years matched the median estimate of economists surveyed by Bloomberg News and followed a 2.6 percent drop the prior month.

Better Forecast

Caterpillar, the world’s largest maker of bulldozers and excavators, issued a full-year profit forecast exceeding the highest prediction from analysts. Peoria, Illinois-based Caterpillar is considered a bellwether for its ties to construction and mining and its overseas presence.

“We are seeing encouraging signs that indicate a recovery may be under way,” Chief Executive Officer Jim Owens said in a statement on Oct. 20. “We’ve already started planning for an upturn.”

Shipments for non-defense capital goods excluding aircraft, used in calculating gross domestic product, fell 0.2 percent in September. For the quarter, such shipments dropped at a 1.9 percent annual pace compared with a 14 percent plunge in the prior three months, indicating business investment stabilized after plunging over the past four quarters.

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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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U.S. service industries expanded in September for the first time in a year as the emerging recovery spread from housing and factories to the broader economy.

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 50.9, higher than forecast, from 48.4 in August, according to the Tempe, Arizona-based group. Fifty is the dividing line between expansion and contraction.

Federal Reserve efforts to unlock credit and government measures such as “cash-for-clunkers” and a tax credit for first-time homebuyers are reviving demand and likely helped the economy grow last quarter. Nonetheless, last week’s report showing job cuts accelerated in September is a reminder that gains in purchases may not be sustained as incentives expire.

“We should continue to see broad improvement in the economy,” said Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Even so, she said, “hurdles remain within the side of the economy that creates jobs. It’s going to be growth, but weak growth.”

The index was projected to increase to 50, according to the median forecast in a Bloomberg News survey of 70 economists. Estimates ranged from 45 to 52.1. Before today’s report, the gauge had shown contraction in every month since October 2008, just after Lehman Brothers Holdings Inc. filed for bankruptcy.

Stocks Higher

Stocks rose after the report, rebounding from the first two-week decline since July and led by financial shares as Goldman Sachs Group Inc. said big banks will outperform regional lenders. The Standard & Poor’s 500 Index closed up 1.5 percent at 1,040.46 in New York. Treasury securities were little changed from Oct. 2.

The ISM non-manufacturing gauge of new orders rose to the highest since October 2007, and the index of employment gained to 44.3, the highest since August 2008 and signaling job cuts were decelerating.

Employers unexpectedly cut more jobs last month than in August and unemployment climbed to the highest level since 1983, Labor Department data showed on Oct. 2. Payrolls fell by 263,000 following a 201,000 drop the prior month, while the jobless rate rose to 9.8 percent from 9.7 percent. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

Job losses are a “concern,” Anthony Nieves, chairman of the ISM’s non-manufacturing survey, said on a conference call. “Until we see employment come back, we are not going to see dramatic growth in the economy.”

Employment Trends

A measure of U.S. job prospects improved in September for the first time in more than a year, a sign job losses may not keep accelerating, a private survey showed. The Conference Board’s Employment Trends Index rose 0.3 to 88.5, the first increase since January 2008 and the highest level since April, the New York-based private research group said today.

Economic growth next year probably won’t be strong enough to “substantially” bring down unemployment, which may remain above 9 percent at the end of 2010, Fed Chairman Ben S. Bernanke told lawmakers on Oct. 1.

Five of 18 industries in the ISM services survey including utilities, health care, housing, retailing and construction, expanded last month, today’s report showed.

ISM’s factory index on Oct. 1 showed manufacturing, which accounts for about 12 percent of the economy, expanded less than economists anticipated in September. The measure slipped to 52.6, the first drop this year, from 52.9 in August.

Economy Growing

Recent data signal growth resumed in the third quarter after the economy shrank in the first half of 2009. Consumer spending, about 70 percent of the economy, jumped in August by the most since October 2001, led by the government’s $3 billion incentive program to trade in older, less fuel-efficient cars.

Homebuilding, which is included in ISM’s services index, may no longer be a drag on growth as steadier demand trims the property glut. The number of contracts to buy previously owned homes rose in August for a seventh month, lifted by the first- time buyer credits, data from the National Association of Realtors showed last week.

Macy’s Inc., the second-largest U.S. department store chain, is among retailers that are seeing more stable sales and planning to hire staff for the holiday season.

“We are seeing some stabilization ourselves,” Chairman and Chief Executive Officer Terry Lundgren said in a Sept. 8 interview on Bloomberg Television. “We have a much better handle now on where we are headed.”

Frits van Paasschen, chief executive officer of Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, said last week that higher demand for hotel rooms in New York City may signal the U.S. is beginning to emerge from the recession.

“Occupancy is starting to come back, yes, at low rates, but if this recovery looks like a normal recovery we would see in a couple of quarters rates come back as well,” Van Paasschen said in an Oct. 1 interview. “I am just not sure if this is a normal recovery.”

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Group of 20 leaders built on the common front they forged in fighting the financial crisis to chart a shared path toward a more stable banking system and a stronger global economy.

President Barack Obama and his counterparts ended their Pittsburgh meeting yesterday promising to “raise standards together” to ensure banks restrain pay and build up capital buffers. They also established a peer-review process to monitor individual efforts to rebalance economies and to hand emerging nations a greater say in managing world growth.

“There is much more work to be done, but we leave here today more confident and more united in the common effort of advancing security and prosperity for all of our people,” Obama told reporters after hosting his first summit.

Enacting the proposals may prove difficult. Banks buoyed by rising stock prices may resist or find a way around the new regulations; countries may ignore policy advice from others and the G-20 itself may be too unwieldy to deliver on its goals.

“The G-20 has to prove itself,” said Simon Johnson, a former chief economist of the International Monetary Fund. “They need to establish legitimacy and get things done.”

A lot is at stake. While the international economy is showing signs of recovering from its worst recession since World War II, pockets of weakness remain, especially in the U.S. and other industrial countries. Demand for U.S. durable goods unexpectedly fell in August and loans to households and companies in Europe grew at the slowest pace on record, data showed yesterday. European and U.S. stocks posted their biggest weekly declines since July.

‘Slow Going’

The Standard & Poor’s 500 Index has dropped 2 percent since Sept. 18 and Europe’s Dow Jones Stoxx 600 Index has slipped 2.4 percent in the same period.

“It’s going to be slow going,” said former U.S. Treasury Secretary Paul O’Neill, who once ran Alcoa Inc., the largest U.S. producer of aluminum, from Pittsburgh and still lives in the city. “We’re getting a recovery but it won’t be fast.”

The third summit of G-20 leaders in the past year plotted a roadmap for revamping the banking industry after the two previous meetings, in Washington and London, focused on fighting market turmoil and reversing the spiral into recession.

“Given this is the third meeting of these people in 10 months, the fact that they’ve gotten as much substantively done as they have is quite impressive,” said Edwin Truman, a former adviser to Obama’s Treasury and a senior fellow at the Peterson Institute for International Economics in Washington.

Bonus Rules

After recording $1.6 trillion in losses and writedowns, banks were told to avoid “multi-year guaranteed bonuses” and a “significant portion of variable compensation” must be deferred, paid in stock, tied to performance and subjected to clawbacks if earnings flop. The G-20 stopped short of endorsing a French proposal to introduce specific caps on pay.

Awards must also be curbed if they are “inconsistent with the maintenance of a sound capital base.” Regulators should be allowed to modify the compensation practices of key firms. Banks will also have to increase the quality and quantity of capital they hold by the end of 2012.

“There is no going back to systems of bonuses that were based simply on short-term speculation and not on the long-term success of companies,” U.K. Prime Minister Gordon Brown said.

The growing influence of emerging economies such as China and Brazil was marked by the agreement that the G-20 would supplant the G-8 as the guardian of the world economy.

G-20’s Rise

The G-20’s new-found status reflects how the recent slump was sparked by the developed economies and the rebound is being powered outside their ranks. That’s a reversal from previous international crises when the G-8, whose genesis lies in the oil shock of the early 1970s, drove the recovery no fax cash advance.

The smaller group will continue to play a role in security and foreign-policy issues. China and other “underrepresented” economies will also gain greater sway at the IMF and World Bank through higher voting rights.

As the G-20 becomes the primary arena for politicians to forge pacts on the economy, officials agreed to establish a “framework for strong sustainable and balanced growth.”

Countries with significant deficits in their trade accounts promised to save more, while those with surpluses will strengthen domestic demand. The IMF will help them assess each others’ attempts to meet those objectives.

China-U.S.

The initiative could see China relying less on exports and more on its own spending, the U.S. cutting back expenditure and Europe increasing investment to even out lopsided flows of trade and investment that contributed to the credit boom and subsequent bust.

Some economists cast doubt on the pledges given no sanctions will be levied to enforce them and a similar push in 2006 by the IMF petered out.

“The jury is still out on the implementation side of this framework,” said Stephen Roach, chairman of Morgan Stanley Asia. “It boils down to whether sovereign nations are willing to abdicate national policy to the world’s collective interests.”

Another test for the G-20’s credibility may be whether regulators can enforce the new rules as the rebound in growth and stock markets since March helps banks regain lobbying strength.

If they can, the profits and share price of banks from Goldman Sachs Group Inc. to Barclays Plc will fall with their scope to invest and trade, said former Bank of England policy maker Charles Goodhart.

Declining Returns

“Regulation almost certainly means the size of the banking industry will contract and its rates of return will go down,” said Goodhart, professor emeritus of banking and finance at the London School of Economics.

The regulatory overhaul is “for real, but there will be plenty of argument over the detail of how it’s done,” Leon Brittan, vice chairman of UBS Investment Bank and former European Union trade commissioner, told Bloomberg Television.

The mixed economic environment and rising unemployment are leaving governments with no option but to keep up their support of banks and fiscal stimulus, which totals more than $2 trillion, even as their debt mounts. They promised to develop a plan for withdrawing the aid when expansion is secured.

Research In Motion Ltd., the Canadian BlackBerry maker, yesterday forecast third-quarter sales that fell short of analysts’ projections, while UBS AG’s Chief Executive Officer Oswald Gruebel said it will take “some time” for Switzerland’s biggest bank by assets to return to profitability.

Canada, Korea

Originally established in the 1990s as a forum for finance chiefs, the G-20’s leaders met for the first time in Washington last November and then in April in London. Canada will hold the next summit in June followed by South Korea in November and France in 2011.

The leaders agreed to phase out subsidies for fossil fuels in the “medium term,” without setting a deadline. They also plan to intensify their monitoring of tax havens from next month to ensure economies follow through on promises to comply with global standards.

The G-20 accounts for about 85 percent of global gross domestic product. Its members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union.

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Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended, while warning that growth may not be strong enough to quickly reduce the unemployment rate.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said today at the Brookings Institution in Washington, responding to questions after a speech.

The remarks are Bernanke’s most explicit statement that the contraction that began in December 2007 is over. They echoed comments yesterday by San Francisco Fed President Janet Yellen and followed a report today showing retail sales rose last month by the most in three years, adding to evidence of a recovery.

“Unemployment will be slow to come down” if growth turns out to be “moderate” and not much more than the economy’s underlying potential, Bernanke said.

Stocks rallied after a report showing U.S. retail sales rose more than forecast reinforced evidence the recession is over. The Standard & Poor’s 500 Index rose 0.3 percent to 1,052.63. Asian shares also gained, with the MSCI Asia Pacific Index up 1.1 percent at 9:50 a.m. in Tokyo. Treasuries were little changed, with 10-year yields at 3.45 percent.

‘Exceptionally Low’

The central bank has kept the benchmark lending rate as low as zero since December and in August said “exceptionally low” rates are likely warranted for “an extended period.”

The policy-setting Federal Open Market Committee also said in its Aug. 12 statement that there were signs that “economic activity is leveling out.” The Fed’s Beige Book report last week said that 11 of its 12 regional banks reported signs of a stable or improving economy in July and August.

Yellen said in a speech yesterday that the U.S. summer “likely marked the end of the recession, and the economy should expand in the second half of this year. A wide array of data supports this view.”

The unemployment rate reached 9.7 percent in August, a quarter-century high, and employers have eliminated almost 7 million jobs since the recession started, the biggest drop in any post-World War II economic downturn. Banks worldwide have recorded more than $1.6 trillion of losses and writedowns since the start of 2007, data compiled by Bloomberg show.

Mortgage Purchases

The central bank in March authorized $1.45 trillion in purchases of mortgage-backed securities and other housing debt this year. Policy makers decided last month to taper off a $300 billion program buying U.S. Treasuries through October, while debating a similar move for MBS purchases. Bernanke convenes the next meeting of Fed policy makers Sept. 22-23 in Washington.

The economy will rebound at a 2.3 percent pace next year, according to the median estimate in a Bloomberg News survey of economists. The growth rate won’t be fast enough to lower the unemployment rate below 9 percent, the economists predict.

“The chairman got it about right,” Glenn Hutchins, co- founder and co-chief executive of Silver Lake, a private investment firm with $13 billion under management, said on a panel following Bernanke’s speech.

“We are experiencing stability both in financial markets and underlying corporate performance,” he said. “But the overwhelming sense of market participants right now is that we are at a very low level of activity.”

NBER Role

Before becoming a central banker, Bernanke, a former Princeton University economics professor, served on the National Bureau of Economic Research’s business-cycle dating committee, the group that determines the dates of U.S. recessions.

Stanford University Professor Robert Hall, the panel’s current chairman, said in August that declaring the recession over may take more than a year because of the risk that recent signs of stabilization will prove short-lived.

Sales at U.S. retailers rose 2.7 percent last month, led by a jump in auto purchases as consumers took advantage of the government’s “cash-for-clunkers” program. The increase exceeded the median forecast of economists surveyed by Bloomberg News and followed a 0.2 percent drop in July, Commerce Department figures showed today in Washington.

Responding to a separate question, Bernanke said he’s “pretty optimistic” on chances for an overhaul of financial regulations given a crisis that was “too big a calamity” to ignore. “I feel quite confident that a comprehensive reform will be forthcoming,” Bernanke said.

Congress is preparing the biggest overhaul of U.S. financial regulations since the 1930s, when the Fed was reorganized. The U.S. Treasury proposes to give the Fed greater authority over the capital, liquidity, and risk-management standards at the largest financial firms. Congressional leaders haven’t supported that proposal and are considering giving broader authority to a council of regulators.

“The problem we had in part was the lack of systemic oversight,” President Barack Obama said in an interview with Bloomberg News yesterday. “We want to have a systemic-risk regulator,” he said, adding that “the Fed is best equipped to do this.”

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The U.S. trade deficit was probably little changed in July as imports and exports both grew, signaling a revival of commerce as the global slump eased, economists said before reports this week.

The gap between imports and exports increased 1.5 percent to $27.4 billion from $27 billion the prior month, according to the median of 63 estimates in a Bloomberg News survey ahead of the Commerce Department’s Sept. 10 report. Labor Department data released the next day may show the cost of imports rose in August for the fifth time in six months on higher fuel prices.

Rising demand for U.S.-made goods from trading partners such as China, Mexico and the European Union is combining with domestic stimulus measures to help to pull the economy out of a recession. Finance chiefs from the Group of 20 nations meeting in London last week vowed to sustain efforts to boost the global economy.

“Importers and exporters alike had the wind taken out of their sails last year and are only just now starting to pick up the breeze of recovery,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. In New York.

The U.S. trade gap may have widened again last month as the “cash-for-clunkers” program sparked a surge in purchases of vehicles made overseas. Rising oil prices probably also added to the cost of imports. With economists predicting the U.S. economy will grow at an average 2.1 percent rate in the second half of this year, imports will probably climb further.

The $26 billion trade deficit in May was the smallest since November 1999.

Import Prices

Import prices probably rose 1 percent in August from the prior month, led by oil and other commodities, economists surveyed by Bloomberg forecast a Labor Department will report on Sept. 11. From a year earlier, import prices probably fell 16 percent, according to the survey.

With demand picking up, crude oil on the New York Mercantile Exchange averaged $71.14 a barrel in August, up from $64.29 in July and an average $69.70 in June.

Alcoa Inc., the largest U.S. aluminum producer, is among companies profiting from rising demand for commodities. Alcoa last week raised its 2009 forecast for global aluminum consumption because of demand triggered by China’s 4 trillion yuan ($590 billion) in stimulus spending cash advance america.

Chief Executive Officer Klaus Kleinfeld said he expects China’s consumption of the metal to rise 4 percent this year, compared with an earlier prediction of zero growth.

China ‘Back’

“China is back,” Kleinfeld said in an interview. “They had a lot of shovel-ready projects” planned for 2011 that are being started now in response to the global economic slowdown. “Also, the perceived deficiencies in the social network have been improved with the stimulus program, and that directly leads to people looking to upgrade from motorcycles to cars.” shocks.”

The Paris-based Organization for Economic Cooperation and Development cut its estimate for contraction this year in the world’s leading industrialized countries to 3.7 percent from 4.1 percent, while predicting a “modest” return to growth.

U.K. Prime Minister Gordon Brown yesterday warned against a premature end of emergency spending and rescue programs aimed at pulling the global economy out of its worst slump since the Great Depression.

“It would be an error of historic proportions if we were to repeat the errors of the 1930s,” Brown told Group of 20 finance ministers at the opening of their meeting in London. “The risks still very much remain. To start now reversing the extraordinary measures would be a serious mistake.”

Consumer Confidence

Economists say a gauge of U.S. consumer sentiment is likely to show an increase on prospects for renewed growth. The Reuters/University of Michigan preliminary survey of consumer confidence for this month, to be released on Sept. 11, will rise to 67.5 from 65.7 at the end of August, according to the Bloomberg survey.

U.S. stocks have surged since March on signs the recession is easing. The Standard and Poor’s 500 Index has gained 50 percent from a 12-year low reached on March 9, and the Dow Jones Industrial Average has gained 44 percent. The S&P 500 closed at 1,016.40 Sept. 4 in New York; the Dow closed at 9,441.27

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