New Zealand economy posts surprise growth spurt

New Zealand's economy grew at its fastest rate in five years in the March quarter, boosted by strong performances in the farming and manufacturing sectors, according to the latest data.

The 1.1 increase in GDP, more than double analyst forecasts of 0.5 percent, meant the economy expanded 1.7 percent in the year to March, compared with 1.5 percent in the previous 12 months, Statistics New Zealand (SNZ) said.

It was New Zealand's strongest quarterly performance since March 2007 and sparked a sharp rise in the New Zealand dollar, up 0.47 US cents to 80.06 US cents.

'On the face of it, it was a blistering good number,' HiFX senior trader Stuart Ive told Dow Jones Newswires.

'It is obviously good news for the Kiwi. The economy is perhaps a little bit more robust than those in the northern hemisphere at the moment.'

New Zealand's economy has struggled to gain momentum following a recession in 2009 and last year's devastating Christchurch earthquake, which claimed 185 lives.

A huge rebuilding programme in Christchurch is expected to eventually drive growth but most analysts had tipped a subdued economic performance in the short term, particularly with eurozone woes weighing on sentiment.

Manufacturing -- blamed for disappointing growth of 0.3 percent in the December quarter -- bounced back to post a 1.8 percent increase, largely due to a lift in primary food manufacturing.

SNZ national accounts manager Rachael Milicich said there was consistent growth across most of the economy.

'This quarter we saw growth spread across a number of industries, while in previous quarters the industry picture had been more mixed with growth in some industries offset by falls in others,' she said.

Agriculture was up 2.3 percent as milk production lifted in New Zealand, the world's largest dairy exporter.

'Continued good growing conditions have been a major factor in the growth this quarter and is reflected in both the milk production in agriculture and in meat and dairy manufacturing,' Milicich said.

Finance Minister Bill English was not immediately available for comment. He has previously warned against reading much into quarterly figures, saying they are prone to fluctuations.



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C$ slips on Fed disappointment

TORONTO (Reuters) - The Canadian dollar ended lower against its U.S. counterpart on Wednesday following a volatile reaction to the U.S. Federal Reserve after the central bank voted to extend a program to stimulate the economy but offered no clues on further easing.

The Fed expanded its 'Operation Twist' by $267 billion, meaning it will sell short-term securities and buy long-term debt in an effort to keep long-term borrowing costs down. The program, which was due to expire this month, will now run through the end of the year.

Still, many market players were let down that the Fed did not launch a third round of outright bond purchases, or quantitative easing, which would expand the Fed's holdings of assets.

Shortly after the Fed's announcement, the Canadian dollar weakened as far as C$1.0232 versus the greenback, or 97.72 U.S. cents, from around C$1.0203, or 98.01 U.S. cents heading into the Fed's statement.

'I think (investors) were hoping for more QE3, which would have been positive for the equity market I think, so it would have been positive for the euro, positive for the Canadian dollar and just U.S.-dollar negative in general,' said David Bradley, director of foreign exchange trading at Scotiabank.

'The market was a little disappointed that didn't happen.'

The announcement met with a mixed reaction in financial markets as prices for stocks, bonds, commodities currencies see-sawed.

'There's volatility around any Fed decision and today's is no different ... equity markets were clearly too bullish and expectations had been raised too much and now we're seeing negativity, but it could be short-lived,' said Jack Spitz, managing director of foreign exchange at National Bank Financial.

'(The Canadian dollar) is following what it normally follows, which is the tenor of risk and the move lower in equities has created a better bid for the (U.S.) dollar and by extension a better bid for dollar/Canada as well.'

Earlier in the session, the currency hit a four-week high against the greenback in anticipation of such a move by the Fed. But it unwound those gains heading into the announcement.

The Canadian dollar ended the North American session at C$1.0192 versus the U.S. dollar, or 98.12 U.S. cents, off slightly from Tuesday's finish at C$1.0182, or 98.21 U.S. cents, against the U.S. dollar.

Scotiabank's Bradley said he expected the Canadian dollar to trade between C$1.0150-C$1.0250 near term.

Canadian bond prices extended losses across the curve, except for the very long end of the curve, mimicking U.S. Treasuries.

Canada's two-year bond fell 10 Canadian cents to yield 1.092 percent, while the benchmark 10-year bond dropped 14 Canadian cents to yield 1.774 percent. The 30-year bond rose 22 Canadian cents to yield 2.354 percent.

(Reporting by Claire Sibonney; Editing by Dan Grebler)



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Fed extends 'Twist' program to drive rates lower

WASHINGTON (AP) - The Federal Reserve is trying again to jolt the American economy out of its stalled recovery. It's extending a program that aims to encourage borrowing and spending by reducing long-term interest rates.

Wednesday's decision followed months of concern that the economy is being held back by a weakened job market.

At the end of a two-day policy meeting, the Fed also sharply reduced its forecast for U.S. growth and said it's prepared to take more action if necessary. It reiterated plans to keep short-term interest rates at record lows until at least late 2014.

'If we're not seeing a sustained improvement in the labor market, that would require additional action,' Fed Chairman Ben Bernanke said later in the day.

Wall Street wasn't impressed by the Fed's limited response. Stock prices barely budged. And analysts questioned how much benefit the Fed's latest economy-boosting effort would have, in part because interest rates are already near record lows.

If the Fed's more pessimistic outlook proves accurate, President Barack Obama's chances in an election that will turn on the economy would also likely suffer.

Bernanke noted that the economy is under threat from Europe's debt crisis and the prospect of sharp spending cuts and tax increases that would take effect at the end of the year unless Congress acts.

European leaders will be seeking a breakthrough at a summit next week in Brussels. Bernanke said he's in regular touch with the head of the European Central Bank.

The Fed said it will continue a program called Operation Twist through year's end. Under the program, the Fed has been selling $400 billion in short-term Treasurys since September and buying longer-term Treasurys. Operation Twist was to expire at the end of June. The Fed said it will extend it using $267 billion in securities.

But extending Operation Twist might not provide much benefit. Businesses and consumers who aren't borrowing now aren't that likely to change their minds just because rates dropped a little more.

'This move is largely symbolic,' said David Jones, chief economist at DMJ Advisors.

Jones estimates Operation Twist will lower long-term rates by only about one-tenth of a percentage point.

At his quarterly news conference later Wednesday, Bernanke said the Fed would consider more aggressive action, such as another bond-buying program. The Fed has completed two such programs. It bought more than $2 trillion in Treasurys and mortgage-backed securities, expanding its portfolio above $2.8 trillion.

The yields on Treasury bonds finished the day slightly below where they were before the announcement. The Dow Jones industrial average finished down about 13 points.

John Canally, investment strategist at LPL Financial, says the Fed delivered just what investors expected and offered a hint at further easing.

'If there's another misstep somewhere - in Europe ... more weak data - the Fed's going to do more,' Canally said.

For now, he said, the Fed wants to keep 'some powder dry' in case there's a meltdown in Europe. Canally also suggested that the Fed may be reluctant to be aggressive in an election year out of concern it could be seen as affecting the election.

But in a comment on Twitter, Justin Wolfers, an economics professor at the University of Pennsylvania's Wharton Business School, suggested that the Fed might be on the cusp of going further.

Wolfers characterized their view as: 'One more bad jobs report and we'll do more.'

The Fed now thinks the economy will grow no more than 2.4 percent this year. That compares with its forecast in April that the economy could grow up to 2.9 percent. And the central bank now thinks the unemployment rate, currently at 8.2 percent, won't fall much further in 2012.

In its statement, the Fed noted that oil and gas prices have fallen. Lower prices give the Fed room to take further action without igniting inflation.

The Fed's statement was approved on an 11-1 vote. Jeffery Lacker, president of the Richmond Regional Fed Bank, dissented for the fourth straight meeting. The statement said he opposed the continuation of Operation Twist.

Josh Feinman, global chief economist at DB Advisors, said the extension of Operation Twist allows the Fed to do something without expanding its portfolio of securities. Launching a new bond-buying program would have likely incited criticism that the Fed was escalating the long-term risks to the economy.

In part, that's because the Fed would eventually find it harder to shrink its portfolio without driving interest rates back up and possibly threatening the economy.

'The downside risks have increased enough that they felt they needed to do something,' Feinman said. 'Extending Operation Twist was the path of least resistance.'

The U.S. economy looks weaker than it did when the Fed last met in April. Growth was more sluggish in the first three months of the year than first estimated.

Job growth averaged only 73,000 in April and May, after average gains of 226,000 a month in the first three months of the year.

The number of people seeking unemployment benefits has risen about 5 percent in the past six weeks. And employers posted sharply fewer job openings in April compared with the previous month.

Economists also worry the debt crisis in Europe is worsening, even after Greek election results increased the likelihood that Greece will stay in the euro currency alliance.

One positive trend is that U.S. inflation is low. Core consumer prices, which exclude volatile food and energy costs, have risen just 2.3 percent over the past 12 months. That's near the Fed's 2 percent target for inflation.

Critics have complained about the Fed's efforts to boost growth over the past three years by purchasing more than $2 trillion in bonds. They say the extra money added to the banking system could ignite inflation once the economy rebounds.

This week's Fed meeting was the first time that the Fed board has been at full strength in six years. Jeremy Stein, a Harvard economics professor, and Jerome Powell, a former private equity executive, attended their first policy meeting since being confirmed by the Senate last month.

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AP Economics Writers Paul Wiseman and Christopher S. Rugaber contributed to this report.



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Obama: Euro crisis could affect my re-election

WASHINGTON (AP) - President Barack Obama is acknowledging that Europe's economic situation could have a spillover effect on his own re-election prospects.

As he wrapped up the Group of 20 economic summit of world leaders, Obama expressed confidence in Europe's ability to right its own financial ship. He said he was hopeful that voters would validate his own efforts come November if he stayed focused on strengthening both the U.S. and world economies and creating more jobs at home.

'I've consistently believed that if we take the right policy steps, if we're doing the right thing, then the politics will follow, and my mind hasn't changed on that,' the president said a news conference in this Mexican resort Tuesday at the close of what is expected to be his last foreign trip before the November election.

The president returned early Wednesday to Washington, where a tough re-election fight and a shaky economy awaited him.

Obama said he was encouraged that European leaders understood the depth of their continent's economic problems and were working in unison to address it.

'Even if they cannot achieve all of it in one fell swoop, I think if people have a sense of where they are going, that can provide confidence and break the fever,' Obama said.

Locked in a difficult campaign, Obama acknowledged he couldn't control the pace of action in Europe despite the repercussions the continent's debt crisis could have on the U.S. economy and his own re-election prospects. The U.S. economy is undergoing a slow recovery amid a slump in hiring and indications that the housing market is healing. Those mixed signals have muddled Obama's prospects for a second term as GOP challenger Mitt Romney mounts a campaign singularly focused on the state of the U.S. economy.

Obama also was frank in laying out the disagreement among the United States, Russia and China over whether Syrian President Bashar Assad can remain as leader of Russia's main Mideast ally. He blamed wholesale slaughter of civilians squarely on Assad's government and said while the U.S. and Russia, in particular, both fear all-out civil war in Syria, they remain divided about exactly what to do next.

Obama met with Russian President Vladimir Putin and Chinese President Hu Jintao on the sidelines of meetings at the posh seaside resort. China and Russia have close ties to Syria and have vetoed two U.N. resolutions that mentioned the threat of sanctions against Assad's regime.

The bloodshed in Syria and the economic crisis in Europe dominated the discussions at the gathering of the world's leading and developing nations.

Obama told reporters that in two days of intensive meetings, Europe's leaders showed a 'heightened sense of urgency.'

The president maintained that Europe had the capacity to solve the crisis on its own, indicating the U.S., still battling its own economic woes, would not be offering any financial pledges to help its international partners.

Still, Obama recognized the challenge European nations faced because each country has to separately approve any action to stabilize the fiscal union.

Mindful of his audience of voters in the U.S., Obama said, 'The best thing the United States can do is to create jobs and growth in the short term even as we continue to put our fiscal house in order over the long term.'

Obama urged Congress to focus on steps it could take to boost job creation and economic growth, pitching legislation he proposed months ago that has little chance of garnering Republican support in an election year.

All sides at the G-20 summit seemed intent on sending confident signals to jittery markets and unhappy electorates.

Underscoring the stakes, Obama broke from the main summit Tuesday for a brief meeting with leaders from Britain, Germany, Italy, France, Spain and the European Union.

Despite the words of unity, European leaders showed signs that they have heard enough about their troubles, particularly from Americans. Memories linger of the 2008 financial crash that was born in the United States and destroyed jobs and wealth.

'The eurozone has a serious problem, but it is certainly not the only imbalance in the world economy,' Italian Prime Minster Mario Monti said. He said the United States' own financial problems were mentioned in G-20 talks 'by almost everybody, including President Obama.'

European Commission President Jose Manuel Barroso took an aggressive tone with reporters Monday, also pointing some blame at North America and saying, 'Frankly, we are not coming here to receive lessons in terms of democracy.'



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Bank of England split on stimulus this month

LONDON (AP) - The Bank of England's Monetary Policy Committee came within one vote of backing more monetary stimulus for the economy at its meeting earlier this month.

Minutes of the MPC's June meeting released Wednesday showed that Governor Mervyn King joined with two other members in favor of an injection of 50 billion pounds ($78.6 billion), and a fourth member voted for a smaller shot of 25 billion pounds. Five members opposed additional stimulus.

The Bank of England has pumped 325 billion pounds ($509 billion) into the economy since March 2009 through quantitative easing, the purchases of high-quality assets including government securities from banks.

With worries about inflation easing, many analysts believe the committee will approve more stimulus in July.



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Britain's FTSE eases back, Fed decision eyed

LONDON (Reuters) - Britain's top share index slipped back in early deals on Wednesday, retreating after strong gains in the previous session as investors looked to the Federal Reserve to deliver on hopes for further economic stimulus measures.

The latest two-day monetary policy-setting Federal Reserve Open Market Committee meeting concludes on Wednesday, with a decision on interest rates and any possible further capital injections for the ailing U.S. economy due after the London markets close at 1630 GMT.

'With such strong expectations that the Fed will announce a measure of stimulation, the market may find itself caught 'Long and Wrong' should Chairman Bernanke decide not to live up to the markets wishes. The door is definitely open for the Disappointment Trade,' said Andrew Taylor, market strategist at GFT Global in a note.

At 0704 GMT, the FTSE 100 index was down 9.81 points, or 0.2 percent, at 5,576.50. The UK blue-chip index closed up 1.7 percent on Tuesday, ending just below the 5,600 level, which it breached briefly in late afternoon trade for the first time since the start of May.

Oil hovers near $84 ahead of Fed policy meeting

SINGAPORE (AP) - Oil hovered near $84 a barrel Wednesday in Asia as investors looked to the U.S. Federal Reserve for signs of stimulus measures to boost weak economic growth.

Benchmark oil for July delivery was down 5 cents to $83.98 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 76 cents to settle at $84.03 in New York on Tuesday.

In London, Brent crude for August delivery was up 10 cents at $95.86 per barrel on the ICE Futures exchange.

A two-day Fed meeting ends later Wednesday amid speculation the central bank may announce monetary measures to increase money in circulation and spur lending. Crude has risen from $81 last week and global stock markets have jumped this week on optimism global policymakers will soon implement fiscal and monetary stimulus to revive waning economic growth and oil demand.

'Sustaining a rally in oil will likely require some bullish surprises out of the Fed announcement,' energy trader and consultant Ritterbusch and Associates said in a report.

The failure of high-level nuclear talks between Iran and six world powers this week in Moscow also boosted crude.

On Tuesday, European Union foreign policy chief Catherine Ashton said negotiations have been paused indefinitely and will resume only if a low-level July 3 meeting of technical experts in Istanbul finds enough common ground to warrant such a step.

Western nations acknowledged huge differences between the two sides but insisted the diplomatic track had not been derailed. However, the lack of progress in Moscow is sure to be seen by critics as a sign that talks are ineffective at persuading Tehran to curb the uranium enrichment that could be used to develop nuclear weapons.

A military attack by the U.S. or Israel on Iran's nuclear facilities could disrupt global oil supplies.

A U.S. crude supply report showed demand was mixed last week. The American Petroleum Institute said late Tuesday that crude inventories fell 550,000 barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a decrease of 600,000 barrels.

Inventories of gasoline rose 1.1 million barrels last week while distillates tumbled 269,000 barrels, the API said.

The Energy Department's Energy Information Administration reports its weekly supply data - the market benchmark - later Wednesday.

In other energy trading, heating oil was up 0.5 cent at $2.64 per gallon while gasoline futures rose 0.2 cent at $2.57 per gallon. Natural gas gained 3.5 cents at $2.58 per 1,000 cubic feet.

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Follow Alex Kennedy on Twitter at http://twitter.com/alexkennedy_ap



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