The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%.

The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending.

GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007.

The Federal Reserve has warned the economy will remain weak this year.

“While we’re not out of the woods yet, maybe we’re beginning to see some sunlight,” said John Wilson, equity strategist at Morgan Keegan.

“At some point, the market will begin to look through the trough and gauge the strength of the coming upturn.”

‘No recession’

The data showed that exports grew at an annualised rate of 13.2%, higher than the government’s initial estimate of 9.2%.

Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas.

The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980.

The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending.

Consumer spending, boosted by the government’s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter’s 1.5%.

Some observers said that the figures lent support to the argument that the US was not heading for a recession.

“For a recession the economy is certainly growing very quickly,” said Avery Shenfeld, senior economist at CIBC World Markets.

“A lot of that growth is driven off exports and pessimists might say that can’t continue during slowing growth overseas.

“But I would say this happened precisely during the period of slowing growth overseas … this is still an economy that faces slow times but not a recession.”

16-year low

However recent data on the US housing market suggests a grim outlook for the sector.

US house prices were down a record 15.4% in the April to June quarter compared with a year ago, according to a closely-watched report released earlier this week.

The decline was recorded by the latest S&P/Case-Shiller survey of US national home prices.

The report said the fact that the falls were nationwide was the latest sign the US housing downturn is continuing.

Separate government data said sales of new homes were at an annual rate of 515,000 units in July, up slightly from June, but still near a 16-year low, and half the rate of new home sales one year ago.

News reported by The BBC

The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%.

The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending.

GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007.

The Federal Reserve has warned the economy will remain weak this year.

“While we’re not out of the woods yet, maybe we’re beginning to see some sunlight,” said John Wilson, equity strategist at Morgan Keegan.

“At some point, the market will begin to look through the trough and gauge the strength of the coming upturn.”

‘No recession’

The data showed that exports grew at an annualised rate of 13.2%, higher than the government’s initial estimate of 9.2%.

Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas.

The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980.

The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending.

Consumer spending, boosted by the government’s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter’s 1.5%.

Some observers said that the figures lent support to the argument that the US was not heading for a recession.

“For a recession the economy is certainly growing very quickly,” said Avery Shenfeld, senior economist at CIBC World Markets.

“A lot of that growth is driven off exports and pessimists might say that can’t continue during slowing growth overseas.

“But I would say this happened precisely during the period of slowing growth overseas … this is still an economy that faces slow times but not a recession.”

16-year low

However recent data on the US housing market suggests a grim outlook for the sector.

US house prices were down a record 15.4% in the April to June quarter compared with a year ago, according to a closely-watched report released earlier this week.

The decline was recorded by the latest S&P/Case-Shiller survey of US national home prices.

The report said the fact that the falls were nationwide was the latest sign the US housing downturn is continuing.

Separate government data said sales of new homes were at an annual rate of 515,000 units in July, up slightly from June, but still near a 16-year low, and half the rate of new home sales one year ago.

News reported by The BBC

The dollar has lost some ground against the euro, a day after hitting a six-month high against the single currency.

The euro has been rattled by growing fears of a European recession. Sterling has also been falling against the dollar, hitting two-year lows.

But the dollar slipped on fears about the US economy as the Federal Reserve signalled that weak financial conditions and growth would continue.

Currency traders were also taking profits on recent gains, analysts said.

The euro was trading at $1.4730, above Tuesday’s six-month low of $1.4570.

The pound stood at $1.8463, after falling to a two-year low of $1.8330 a day earlier.

Geoffrey Yu, a currency strategist at UBS in London, said that the dollar weakness was likely to be temporary.

“Investors are finding it hard to find reasons to get into the dollar and chase this move further (right now),” he said.

“We are still positive in general on the dollar – we see the euro at $1.40 by year end – but it’s probably wise to exercise some caution.”

News reported by The BBC

The credit crisis has created the most challenging economic and monetary policy environment in recent memory, the chairman of the US Federal Reserve has admitted.

Ben Bernanke presented a downbeat assessment of the economic effects of the unfolding crisis when he addressed the US central bank’s annual symposium in Jackson Hole, Wyoming, yesterday.

And he warned Wall Street not to expect the Fed to continually come to its rescue, as it had to when the investment bank Bear Stearns teetered on the brink of collapse in March. Mr Bernanke called for sweeping new powers for the Fed to counter risks to the financial system, plus new regulations to tame the world of derivatives trading, whose opacity has contributed to a climate of fear and uncertainty since the credit crisis exploded a little over a year ago.

At the 2007 symposium, the Fed had still to respond to the crisis by cutting interest rates, much to Wall Street’s chagrin, and Mr Bernanke said then that the US economy was still growing strongly, even if the risks were rising.

Yesterday, after a year in which the markets failed to stabilise, he took a markedly different tone. “Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment. Add to this mix a jump in inflation, in part the product of a global commodity boom, and the result has been one of the most challenging economic and policy environments in memory.”

The Fed chairman’s speech was interpreted as showing that its Federal Open Market Committee has little inclination to raise interest rates any time soon. Mr Bernanke sounded more confident than ever that current high rates of inflation will subside, thanks to recent falls in commodities prices and a rebound by the dollar. “If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next,” he said.

The speech on reducing system risks to global finance tackled the legacy of the Bear Stearns bail-out, when the Fed engineered its firesale to JPMorgan Chase, but only by promising it would act as a lender of last resort to investment banks for the foreseeable future. Mr Bernanke added his weight to calls for a “liquidator of last resort”, a body which would be able to organise an orderly wind-up of financial firms so enmeshed in the global markets that they must not be allowed to go suddenly bankrupt.

Bear Stearns shareholders lost most of their investment in the bail-out, but bondholders survived intact, a situation Mr Bernanke suggested could lead to “moral hazard”, if bondholders become cavalier with regards to risk, believing the Fed will rescue them.

News reported by The Independent

Gold fell to below $800 an ounce for the first time since December 2007 while aluminium prices hit their lowest in some six months. Copper also fell.

The price of commodities has fallen on speculation that demand will slow amid a global slowdown.

Another factor has been the stronger dollar, which has reached a half-year high against the euro.

As economists see improved prospects for the US economy, the dollar becomes more attractive as an investment.

And as the dollar becomes more attractive, particularly in times of crisis, gold has lost its lustre, as have other precious metals.

And industrial metals have been hit even harder.

Three-month copper dropped to an intra-day low $7,185 per tonne.

The metal, which is largely used in the building sector, had fallen to its lowest in six months earlier in the week at $7,120.

“There is still cope for copper prices to fall another 10%, or so, part of that is function of China’s growth slowing,” said Daniel Brebner, of UBS.

Oil was also down, after oil producer group Opec forecast lower demand for the fuel.

Crude oil slipped $1.61 to below $114 a barrel while Brent oil slipped $1.69 $111.99 a barrel.

“Worries about an economic slowdown in the US and Europe, and even Japan, are weighing on the oil market,” said Victor Shum, an analyst with consultancy Purvin & Gertz.

News reported by The BBC

Shares in US mortgage firms Freddie Mac and Fannie Mae dropped by as much as 50% in rollercoaster trading on Friday amid concerns for their future.

Investors are concerned that the government may have to step in to rescue the two firms.

But the US Treasury said it would back them in their current form, helping their shares to recover some ground.

The companies are behind half of all US mortgages and have been hard hit by the slowdown in the US housing market.

The two companies play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.

As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.

Both firms defended their finances, saying they had enough capital to weather the housing slump.

‘Important mission’

Shares in the two firms trimmed losses after US Treasury Secretary Henry Paulson signalled he was not on the verge of taking Fannie Mae and Freddie Mac into public hands.

President Bush reflects on tough times for the US economy - “Our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” he said.

President George W Bush was briefed on Fannie Mae and Freddie Mac earlier on Friday.

Mr Bush said Mr Paulson assured him that he and Federal Reserve Chairman Ben Bernanke “will be working this issue very hard”.

After a volatile trading session, Freddie Mac shares closed down 3.1% at $7.75.

The stock had plunged as much as 51% shortly after the market opened and briefly vaulted into positive territory at one point.

Shares of Fannie Mae ended the day down 22.4% at $10.25 after sliding as much as 49% to a 19-year low of $6.68.

US Senator Christopher Dodd said the Federal Reserve was considering allowing Fannie Mae and Freddie Mac to borrow directly from the central bank, which also helped the shares to recover.

Lenders falter

Meanwhile, a California-based mortgage lender IndyMac was taken over by US regulators on Friday.

Earlier this week, the bank said that it would stop most lending, leading depositors to withdraw cash.

The US Office of Thrift Supervision said it had transferred IndyMac’s operations to the Federal Deposit Insurance Corporation after determining that is unlikely to meet its depositors demands.

IndyMac had been struggling to raise funds and stay in business in one of the states worst hit by the US housing market slump.

‘Unthinkable’

There has been a sense of unfolding crisis surrounding the companies this week according to the BBC’s New York business correspondent, Greg Wood.

“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission” Treasury Secretary Henry Paulson

He added that it would be unthinkable that they could be allowed to fail.

While no longer government owned, Fannie Mae and Freddie Mac are government chartered, leading many to suggest that the Bush administration will be forced to step in.

‘Important mission’

Mr Paulson responded to media reports that the Treasury was planning some kind of government-led rescue.

He said the Treasury was “maintaining a dialogue with regulators and with the companies”.

He stressed that their regulator continued to work with them “as they take the steps necessary to allow them to continue to perform their important public mission”.

Analysts said his comments suggested that there would be no sweeping bail-out of the two firms.

“While Mr Paulson is making supportive comments… there was no suggestion of any imminent bail-out – nor enough specifics to the support they would give,” said Bret Barker, portfolio manager at Metropolitan West Asset Management in Los Angeles.

“The markets were looking for more from Mr Paulson.”

Earlier this week, Freddie Mac and Fannie Mae’s regulator stressed that the firms were “adequately capitalised”.

This sentiment was also echoed by Mr Paulson and Mr Bernanke in testimony to the US Congress on Thursday.

The Office of Federal Housing Enterprise Oversight said they had large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets.

News reported by BBC