China’s central bank will expand the daily yuan trading band against the U.S. dollar to 1% in either direction from 0.5% starting on Monday in a bid to support the economy and ward off a precipitous slowdown.
The announcement follows on the heels of data on Friday which showed that China’s first-quarter gross domestic product growth slowed to 8.1% from 8.9% in the previous quarter.
The pace was the slowest in 11 quarters as weak exports and sluggish construction activity took a toll on the world’s second largest economy.
New U.S. jobless claims fell last week, according to a government report, but still came in below forecasts.
After a period of improvement, some analysts said the jobs numbers showed signs of stalling, a worry for investors.
S&P 500 futures fell 7 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures lost 35 points, and Nasdaq 100 futures were off 12 points.
Initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 359,000, the lowest level since April 2008, the Labor Department said on Thursday.
The report included revisions for claims data from 2007 based on updated seasonal adjustment calculations. New seasonal adjustment factors were also introduced for 2012.
The prior week’s figure was revised up to 364,000 from the previously reported 348,000. Economists polled by Reuters had forecast a claims reading of 350,000 for last week.
The four-week moving average for new claims, a measure of labor market trends, declined 3,500 to 365,000.
Employers added 227,000 jobs to their payrolls in February, taking the tally for the past three months to 734,000. A report on jobs growth during March is due on April 6.
A Labor Department official said there was nothing unusual in the state-level data and only two states – Alaska and Hawaii – had been estimated.
The number of people still receiving benefits under regular state programs after an initial week of aid fell 41,000 to 3.34 million in the week ended March 17, the lowest since August 2008.
A total of 7.153 million people were claiming unemployment benefits during the week ended March 10 under all programs, down 131,488 from the prior week.
The members of the Bank of Korea monetary policy board on Friday kept interest rates unchanged at the current level of 3.25 percent for the seventh straight month, in line with expectations.
The central bank had unexpectedly hiked interest rates by 25 basis points at its June meeting. Before that, it had refrained from any action at the previous two meetings in April and May. It had hiked rates by 25 basis points from 2.75 percent in March.
"The committee considers major advanced economies to have remained sluggish, and growth in emerging market economies to have also slowed somewhat," the bank said in a statement accompanying the decision. "Going forward the Committee expects the pace of global economic recovery to be very moderate, and judges that the downside risks to growth are becoming larger, due mostly to the sovereign debt crisis in Europe and to the possibilities of the slumps in major country economies and the unrest in international financial markets continuing."
Analysts had widely expected no change even though consumer prices in December remained at 4.2 percent for the second straight month – keeping overall inflation above the central bank’s target range of 2 to 4 percent. November had marked the first time this year that CPI had fallen within the range.
On a monthly basis, CPI was up 0.4 percent. Core CPI, that excludes prices movements in food and energy, rose 3.6 percent year-on-year compared to a 3.5 percent gain in November.
However, producer price inflation in South Korea eased to 4.3 percent in December from 5.1 percent in November. On a monthly basis, the producer price index was up 0.2 percent compared to 0.2 percent fall in November. The index rose 6.1 percent for the year 2011 as a whole.
"Consumer price inflation continued to exceed 4 percent in December last year, driven by the prices of petroleum products and processed food, and core inflation also came in at a level similar to that of the previous month," the bank said. "In the coming months, factors including the base effect from the previous year and the easing of demand-side pressures will work in favor of price stability, but the Committee expects the pace of decline in the inflation rate to be moderate given factors such as ongoing high inflation expectations."
Before raising rates by 25 basis points last November to 2.50 percent, the bank had left rates unchanged since it unexpectedly raised rates by 25 basis points from the record low of 2.00 percent last July.
Before that, the rate had held steady for 16 straight months, after the bank had trimmed rates six times in the previous four months.
The dollar surged to a fresh 16-month high versus the euro on Friday, amid numerous reports suggesting that S&P will downgrade 15 euro zone nations due to exposure to Italian, Greek, and Spanish debt.
France’s finance minister just confirmed that the ratings agency is lowering the French credit rating by one notch.
In December, S&P put most of the single currency bloc on negative creditwatch, citing concerns about "deepening political, financial and monetary problems with the European economic and monetary union."
"There is talk now that Italy, Spain and Portugal will get a 2 notch downgrade. If so, Italy’s credit rating will be BBB+, two notches below Moody’s and 3 below Fitch. Spain’s would be A, one notch below Moody’s and two below Fitch," said Peter Boockvar, Managing Direct at Miller Tabak. "Portugal’s rating would go to BB, junk and that would put them in line with Moody’s and one notch below Fitch."
The news overshadowed a slew of economic data from the U.S., including a strong reading on consumer sentiment.
The dollar rose two cents to $1.2625 versus the euro, its highest since September 2010. A successful Italian debt auction gave the euro an early boost.
The buck hit an 18-month peak of $1.5232 versus the sterling, and edged up to C$1.0240 versus Canada’s loonie.
Consumer sentiment in the U.S. has seen a significant improvement in the month of January, according to a report released by Reuters and the University of Michigan on Friday, with the consumer sentiment index rising by much more than anticipated.
The report showed that the consumer sentiment index jumped to 74.0 in January from the final December reading of 69.9. Economists had been expecting the index to edge up to a reading of 71.5.
With prices for U.S. fuel imports pulling back in December after showing a sharp increase in the previous month, the Labor Department released a report on Friday showing a modest drop in overall import prices.
Export prices also fell during the month due in part to a notable decrease in prices for agricultural exports. The Labor Department said imports prices edged down by 0.1 percent in December after rising by an upwardly revised 0.8 percent in November.
Reversing a drop in October, the U.S. trade deficit saw a notable increase in November, according to figures released Friday by the Commerce Department. U.S. exports fell by 0.9 percent to a level of $177.8 billion, while imports rose by 1.3 percent to a level of $225.6 billion, according to the report.
That put the trade deficit at $47.8 billion, a 10.4 percent increase from October’s revised level of $43.3 billion.
France’s finance ministry says Standard & Poor’s has cut the country’s credit rating by one notch to AA.
France’s loss of its AAA-rating deals a heavy blow to the eurozone’s ability to fight off its debt crisis. The country is the second-largest contributor to the currency union’s bailout fund.
S&P in December put 15 eurozone countries on creditwatch and other downgrades were expected later Friday.
The cut in France’s creditworthiness could also hurt President Nicolas Sarkozy’s re-election chances.
Europe’s ability to fight off its debt crisis was again thrown into doubt Friday when the euro hit its lowest level in over a year and borrowing costs rose on expectations that the debt of several countries would be downgraded by rating agency Standard & Poor’s.
Stock markets in Europe and the U.S. plunged late Friday when reports of an imminent downgrade first appeared and the euro fell to a 17-month low.
The fears of a downgrade brought a sour end to a mildly encouraging week for Europe’s heavily indebted nations and were a stark reminder that the 17-country eurozone’s debt crisis is far from over.
Earlier Friday, Italy had capped a strong week for government debt auctions, seeing its borrowing costs drop for a second day in a row as it successfully raised as much as euro4.75 billion ($6.05 billion). Spain and Italy completed successful bond auctions on Thursday, and European Central Bank president Mario Draghi noted "tentative signs of stabilization" in the region’s economy.
A credit downgrade would escalate the threats to Europe’s fragile financial system, as the costs at which the affected countries — some of which are already struggling with heavy debt loads and low growth — could borrow money would be driven even higher.
The downgrade could drive up the cost of European government debt as investors demand more compensation for holding bonds deemed to be riskier than they had been. Higher borrowing costs would put more financial pressure on countries already contending with heavy debt burdens.