Financial thoughts

China may cut interest rates again, ease limits on bank lending and boost spending to spur economic growth after lowering borrowing costs for the first time in six years.

“Policy makers will consider further interest-rate cuts in the coming month, in conjunction with a more proactive fiscal policy,'' said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong. The central bank yesterday reduced the one-year lending rate and lowered the proportion of deposits that the nation's smaller banks must set aside.

The slowest inflation in 14 months gave China room to lower borrowing costs and protect jobs as the outlook for exports dims and the credit crisis deepens. China's stocks tumbled today after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. agreed to buy Merrill Lynch & Co.

“A gradual easing cycle has probably begun,'' said Alec Young, an international equity strategist at Standard & Poor's in New York. “The focus is no longer on inflation and is more on China's growth. The rest of the world is flirting with a recession and China's growth is slowing too.''

The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective today. It lowered the reserve-requirement ratio for smaller banks to 16.5 percent from 17.5 percent.

`Important Problems'

The CSI 300 Index of stocks fell 2.6 percent as of the 11:30 a.m. trading break in Shanghai today as banks declined. The yuan climbed 0.2 percent to 6.8324 against the dollar as of 12:02 p.m., the biggest gain in six weeks, as the U.S. currency slumped.

The rate cut is “to help solve important problems in our economy for its continued stable and fast development,'' the central bank said in a statement on its Web site yesterday, when markets were closed for a holiday.

In July, the central bank reduced restrictions on how much banks can lend by raising 2008 loan quotas for national banks by 5 percent and regional lenders by 10 percent, according to reports by Goldman Sachs Group Inc., BNP Paribas SA, and China Merchants Bank Co.

It's likely those quotas, the main constraint on borrowers, will be eased again, said Mark Williams, a London-based economist with Capital Economics Ltd. The rate cut will have a limited impact on the economy because bank lending financed just 15 percent of fixed investment last year, Williams said.

Shanghai Stocks Fall

The Shanghai Composite Index of stocks fell 3.2 percent to 2,013.91 as of 11:30 a.m. after earlier dropping below 2,000.

It was “suspicious'' that the central bank acted when the index was near 2,000, Williams said, adding that some people thought that level “was a floor at which the government would intervene to shore up the market.''

China last week released data indicating the economy slowed payday loans in one hour.

Inflation cooled to 4.9 percent in August, export growth slowed and industrial production expanded by the least in six years. China's economy expanded 10.1 percent in the three months to June 30 from a year earlier, the fourth straight quarter of slower growth.

Asset-market weakness is not limited to stocks. Property could be headed for a “meltdown'' as home prices and sales decline, Morgan Stanley said Sept. 12. In August, prices rose at the slowest pace in 18 months, the government said today.

Property companies' shares rose today on the cut to borrowing costs.

`Easing Cycle'

“This is the beginning of an easing cycle in China,'' said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong.

China has already slowed gains by the yuan against the dollar to protect jobs at exporters of shoes, toys and clothes and raised export-tax rebates for garments and textiles.

Infrastructure spending is a possible tool for stimulating economic growth. Officials are working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts, according to economists and reports in domestic news media.

China is probably the only Asian country “that has leeway for expansionary fiscal and monetary policies in the second half'' because of slowing inflation, said Ifzal Ali, chief economist at the Asian Development Bank.

The ADB today forecast China's economy will expand 10 percent this year, unchanged from an estimate in April. It cut its prediction for next year to 9.5 percent from 9.8 percent.

China's central bank pushed the reserve requirement for lenders to a record 17.5 percent in June.

Biggest Banks

Now that it's falling, the biggest banks are excluded from the reduction. Those exempted are: Bank of China Ltd., Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank Corp., Bank of Communications Co. and Postal Savings Bank of China.

The requirement for smaller banks drops by 1 percentage point from Sept. 25. In areas affected by the Sichuan earthquake, the reduction is 2 percentage points.

The central bank left the key deposit rate unchanged at 4.14 percent, narrowing banks' margins on loans.

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The high price of gasoline is voters’ top economic concern, according to a poll released Friday.

A CNN/Opinion Research Corp. poll found that 35% said price of gasoline was their highest concern. That was followed by availability of good jobs (28%), high taxes (18%) and mortgages or home values (18%).

The poll was taken on Sept. 5-7 and surveyed 1,022 adults. It has a margin of error of three percentage points.

The high price of fuel has sparked a debate in Washington over domestic crude production. A proposal to allow more offshore drilling has drawn fierce opposition in Congress.

House Speaker Nancy Pelosi, D-Calif., said Tuesday that congressional Democrats would be willing to compromise and allow limited drilling. After months of debate, neither the House nor the Senate has yet produced a comprehensive energy bill.

Gas prices have been taking the top spot in the presidential race as well.

Republican candidate John McCain supports lifting the congressional ban on offshore drilling, as well as further development of nuclear power and development of electric vehicles.

McCain’s running mate, Gov. Sarah Palin of Alaska, supports drilling, and gained a reputation for taking a hardline stance against energy company interests after renegotiating a natural gas pipeline deal.

Democratic candidate Barack Obama said last month that he would support an energy policy that includes some offshore drilling.

Obama also supports a windfall profits tax on oil companies in order to provide a $1,000 rebate to U.S payday loans in 1 hour. households, development of gas-electric hybrid vehicles, and a ‘use it or lose’ it policy on existing oil and natural gas leases that would require oil companies to develop in government land land they’ve already borrowed.

While energy concerns led the list of economic concerns, the percentage of poll respondents who said that high gas prices were causing them "financial hardship" fell to 63% from 75% in July.

Indeed, gas was selling at $3.67 on Friday - more than 80 cents higher than it was a year ago - but 40 cents below its high point in July.

Commodity investors have been worried that the high price of gasoline and other petroleum-derived fuels have been cutting into demand.

Volatile gas prices ticked upward Friday as Hurricane Ike threatened the north Texas coast. 

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Credit markets are poised to weaken on concern the collapse of Lehman Brothers Holdings Inc. will trigger losses across derivatives markets.

A benchmark gauge of corporate credit risk in North America traded at a record during an emergency session yesterday as investment banks sought to minimize losses from Lehman's bankruptcy. U.S. Treasuries rose the most since January as investors sought the relative safety of government debt.

Lehman today said it intends to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the crippled company. The fourth-largest securities firm until the past week, Lehman has thousands of trades in the $454 trillion market for over-the-counter derivatives. Its announcement came as Bank of America said it agreed to buy Merrill Lynch & Co. amid concern over the health of U.S. financial companies.

“The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co., said in an interview with Bloomberg Radio yesterday. “It induces a tremendous amount of volatility and uncertainty in terms of Monday morning trading.''

The Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, was trading at 200 basis points, according to Phoenix Partners Group in New York. It closed at 152.5 basis points Sept. 12, according to CMA Datavision in London. The index, which rises as investor confidence falls, reached 197.5 basis points in March.

Leveraged Loans

A gauge of risk in the U.S. leveraged-loan market that falls as credit risk increases was being quoted 1.25 percentage points lower, contingent on a Lehman bankruptcy, according to Goldman Sachs Group Inc. The Markit LCDX index was being quoted at a mid-price of 95.75. The index is tied to high-yield, high- risk loans.

Corporate bond yields may increase by as much as 40 basis points more than Treasuries, said Gross, who is also co-chief investment officer at Newport Beach, California-based Pimco. Investment-grade bonds traded at 344 basis points more than U.S. Treasuries on Sept. 12, according to Merrill Lynch's U.S. Corporate Master index, after climbing 22 basis points. A basis point is 0.01 percentage point.

Lack of Regulation

New York-based Lehman has been among the top 10 counterparties in the $62 trillion market for credit-default swaps, according to a report last year from Fitch Ratings.

Credit-default swaps alone have grown 100-fold in the past seven years, and the emergency trading session held yesterday highlights the market's lack of regulation and absence of a central clearinghouse designed to help absorb losses from a bank collapse.

Barclays Capital analysts in February estimated that if a financial institution that had $2 trillion in credit-default swap trades outstanding were to fail, it might trigger between $36 billion and $47 billion in losses for those that traded with the firm. That doesn't include “large, potentially concentrated'' market value losses others would face, the analysts, led by Arup Ghosh in London, wrote on Feb. 20.

Derivatives markets may lose several hundred million dollars on trades if a major dealer were to default, and would have trouble replacing those trades, causing risk premiums to widen, Moody's Investors Service said in May.

Derivatives such as credit-default swaps are traded in bilateral agreements between banks, hedge funds, insurance companies and other institutional investors, and the collapse of a market-maker has the potential to wipe out profits made on those contracts that aren't backed by collateral.

A Lehman bankruptcy “obviously puts a lot more risk in the market, so it's definitely going to be wider,'' said Brian Yelvington, a strategist at CreditSights Inc. in New York.

Fed Widens Acceptance

In an effort to mitigate market risks, the Federal Reserve yesterday widened the collateral it accepts for loans to Wall Street bond dealers.

The Fed will accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment-grade debt cash advance loan. Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment-grade debt securities. The size of the TSLF will also increase to $200 billion from $175 billion, the Fed said.

Merrill Lynch, JPMorgan Chase & Co., Bank of America and seven other firms said in a joint statement yesterday that they will provide a total of $70 billion to a borrowing facility aimed at providing liquidity to financial institutions.

`Ample Warning'

The cost of protecting Australian and Asian corporate bonds from default jumped. The Markit iTraxx Australia index rose 26 basis points to 180 as of 11:04 a.m. in Sydney, Citigroup Inc. prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan, including the Thai government and Hong Kong's Hutchison Whampoa Ltd., advanced 20 basis points to trade at 185, according to JPMorgan data.

The yield on two-year notes dropped 33 basis points, or 0.33 percentage point, to 1.88 percent as of 12:55 p.m. in Singapore, according to bond broker BGCantor Market Data. The price of the 2.375 percent security due in August 2010 rose 20/32, or $6.25 per $1,000 face amount, to 100 30/32.

Investors may have had enough warning to limit their losses, said Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York.

“Market participants have had ample warning on Lehman and have likely already taken the precautions they felt were necessary to guard against risks Lehman's potential failure might pose,'' Crescenzi said in a note to clients yesterday.

Emergency Session

Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather.

Banks and brokers yesterday opened trading desks to enter into derivatives transactions that would offset trades with Lehman in case the firm filed for bankruptcy before midnight. The International Swaps and Derivatives Association said the “netting trading session'' began at 2 p.m. and continued until at least 6 p.m. New York time. The trades would have been canceled had Lehman not filed for bankruptcy.

“Some people say that `yes, when you net up all the Lehman trades it will be less than the gross amount', but we have no idea because we've never attempted anything like this before,'' said Jim Bianco, president of Bianco Research LLC in Chicago. Dealers also face losses from the government takeover of Fannie Mae and Freddie Mac on Sept. 7, which caused a technical default on the contracts.

“We've fallen so far off the edge of the earth right now that we can't even begin to describe what we are seeing,'' Bianco said. “Nobody begins to know what will happen because we've never come to anything remotely close to this before.''

Behind Schedule

Banks are behind schedule on plans for a clearinghouse that would absorb the failure of a market-maker such as Lehman. The Clearing Corp., the Chicago clearinghouse, isn't set to be completed until at least the end of this year, or early 2009, because it was told by regulators it needed a banking license, according to a person familiar with the process who asked not to be named because the discussions are private. The clearinghouse previously said it would guarantee trades in the third quarter.

The Federal Reserve Bank of New York has pushed Clearing Corp. to obtain the banking license as the regulator oversees a transition to a central processing system for CDS trades. The license would place the company's CDS clearing operation under the Fed's watch, according to the person.

“What we've seen this year is regardless of the fundamentals, regardless of efforts made by the Fed and the Treasury to restore confidence, you can't order that up,'' said Martin Fridson, chief executive officer of Fridson Investment Advisors, said in New York.

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Yahoo Inc. is preparing to tweak several popular sections of its Web site, including its home page, during the next few months to accommodate more material from rival services, as the Internet company tries to polish its tarnished franchise.

The makeover outlined for reporters Thursday represents another a key step in Yahoo’s (YHOO, Fortune 500) push to regain the momentum that it lost while being outmaneuvered by Internet-search rival Google Inc. (GOOG, Fortune 500) and more recent upstarts like the rapidly growing online hangouts MySpace and Facebook.

Yahoo’s previous dawdling crimped its profits during the past two years, leading to a dramatic downturn in its market value that triggered an unsolicited takeover bid from Microsoft Corp. (MSFT, Fortune 500) this year.

Since Microsoft withdrew its $47.5 billion bid in May, Yahoo has been battling to boost its stock price, which recently sunk to its lowest level in nearly five years. Yahoo shares climbed 85 cents Thursday to close at $18.55 — well below Microsoft’s last offer of $33.

Boasting 500 million users worldwide, Yahoo is hoping to bounce back by becoming an even more indispensable vehicle for Web surfers and advertisers. As part of that process, the Sunnyvale-based company has been spotlighting more content from other Web sites and extending its advertising network so it can run ads on more Internet properties.

Yahoo plans to open up more with the first major redesign of its home page since May 2006. The changes will enable Yahoo users to plant more mini-applications known as "widgets" on personalized versions of the home page, said Ash Patel, executive vice president of the company’s audience product division.

In a demonstration, Patel showed how Yahoo users subscribing to the online DVD rental service Netflix (NFLX) will soon be able to review their latest movie requests and ratings without leaving Yahoo’s main page. Yahoo is hosting a conference for outside developers Friday in hopes of cultivating more applications for its new home page.

Patel declined to specify when the redesigned page will be unveiled, saying only that it will begin gradually within the next few months easy payday loans. "You will see a rolling-thunder kind of thing," Patel said.

Yahoo also plans to open up its music section to rival services like Apple Inc.’s (AAPL, Fortune 500) iTunes and Amazon.com Inc. (AMZN, Fortune 500) during the next few weeks, said Scott Moore, who runs Yahoo’s media operations. Moore said Yahoo’s news section also will start to feature more local content from newspapers around the nation.

Another one-time Internet darling, Time Warner Inc.’s (TWX, Fortune 500) AOL, announced a similar redesign this week, opening its home page to content from rival companies in a bid to broaden its appeal to users who have endless choices online.

On the marketing front, Yahoo still plans to begin an advertising partnership with Google next month despite an intensifying antitrust investigation by the U.S. Justice Department.

Yahoo thinks it can boost its annual revenue by $800 million by relying on Google’s technology to sell some of the ads on its Web site, but the partnership has raised concerns about diminished competition because the two companies, combined, control more than 80% of the U.S. search-advertising market.

In a move that could foreshadow a formal legal challenge, the Justice Department has hired an antitrust lawyer to review the evidence collected in an inquiry that began even before Yahoo announced its partnership plans with Google in June.

Because they aren’t exchanging stock or cash, Yahoo and Google could have launched their alliance months ago but voluntarily waited until October to allow antitrust regulators to assess the situation.

Yahoo plans to start posting some ads from Google at an unspecified date next month, even if the Justice Department hasn’t completed its review, said Hilary Schneider, who oversees Yahoo’s U.S. operations. Google Chief Executive Eric Schmidt has expressed the same intention.

"We are confident we can get [regulators] comfortable" with the partnership, Schneider said Thursday. 

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Prime Minister Gordon Brown may have to ignore the advice of his own central bank if he wants to kickstart an economy that's headed for a recession.

Bank of England Governor Mervyn King, 60, told lawmakers in London yesterday it's an “illusion'' that the government could rescue the housing market without jeopardizing taxpayers' money and warned that increases in government spending risk fuelling inflation expectations.

His comments come as Brown, 57, considers proposals to revive a mortgage market that's almost ground to a halt and exacerbated the worst property downturn since the early 1990s. A Treasury- commissioned report in July said the government could guarantee all securities backed by home loans or encourage the Bank of England to extend emergency lending.

“The governor seemed to be firing some warning shots,'' said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “It was interesting the amount of emphasis he put on the implications of the taxpayer underwriting the mortgage-lending process.''

Brown faces pressure from his own ruling Labour Party to revive the economy and its popularity, which has slumped to the lowest in more than a decade. While he announced plans to help first-time buyers and cut taxes on property purchases last week, the yearlong credit-market rout is making banks reluctant to hand out mortgages to potential homebuyers.

Chancellor of the Exchequer Alistair Darling will receive final proposals in coming weeks on how to fix the logjam and still has an “open mind'' on the issue, said King. Neither Darling nor Brown have yet expressed their preferences on the matter.

Liquidity Measures

“If the government wants to do something, it will,'' said Peter Dixon, an economist at Commerzbank AG in London. “The Bank of England is providing liquidity. A guarantee is a whole different ball game.''

King, who claimed that he doesn't want to “take a position'' on what the government should do, still spent much of his testimony outlining the risks of guaranteeing mortgages.

“It may seem at the first round that it's attractive,'' said King. `The difficulty is, you throw out the baby with the bathwater, and this is what's happened over years in North America where the private-sector mortgage market has been squeezed out.''

U.S creditreport. Treasury Secretary Henry Paulson was forced on Sept. 7 to seize control of Fannie Mae and Freddie Mac after the U.S. housing slump threatened to topple the companies making up almost half of its home-loan market.

Lending Plan

King also indicated the central bank won't extend its “exceptionally generous'' emergency lending program. He instead plans to introduce a regime that only provides an emergency credit line to banks facing temporary liquidity problems.

“The bank is saying it can help with short-term liquidity issues but it is not its job to fund long-term lending and a recovery of the mortgage market,'' said Leigh Goodwin, a London- based analyst at Fox-Pitt Kelton Ltd.

King also expressed skepticism about the government's own revenue forecasts and said its fiscal framework risks losing credibility, which could fuel inflation expectations and “make our lives more difficult.'' Inflation is already more than double the Bank of England's 2 percent target.

Questioning the government's projections is “new territory'' for King, said Nick Kounis, an economist at Fortis Bank NV in Amsterdam and a former U.K. Treasury official. “Usually what he says is: `What the government presents to us is what we'll use in our forecasts.' They take it as a given.''

King's performance was so striking that Labour Party lawmaker George Mudie asked whether the governor had overstepped his remit.

“Attached to the guarantee proposals is a view implicit in it that, in some ill-defined sense, the Bank of England can fund and finance these things,'' said King. “I am not giving the chancellor a public lecture. It is perfectly reasonable to explain what central banks can and can't do and that is what I am doing.''

Some of the governor's exchanges with lawmakers “seemed more animated than usual,'' RBS's Walker said.

“I thoroughly enjoyed it,'' said Philip Shaw, chief economist at Investec Securities in London. “King was on great form. It's the best performance I've seen in a long time.''

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Lehman Brothers Holdings Inc. shares plunged to their lowest level in more than a decade Tuesday amid investor concerns that the battered investment bank is running out of options to raise capital.

Investors, anxious about the possibility of a bank failure after the near-collapse of Bear Stearns in March, punished the stock in early afternoon trading. The stock plunged $6.36, or 45%, to $7.79 - the lowest level Lehman’s stock has hit since the financial meltdown of 1998. That low was triggered by the collapse of hedge fund Long-Term Capital Management.

The nation’s fourth-largest securities firm has been seeking to boost liquidity after suffering $8.2 billion in write-downs and credit losses since the financial crisis began last year. Lehman (LEH, Fortune 500) had hoped to find a major investor before announcing third-quarter results Sept. 18, when it is widely expected to take another round of steep losses.

Early earnings: Uncertainty about Lehman’s financial position has prompted speculation that the investment bank might announce quarterly results early, a move that could also stem the stock’s slide. Prashant Bhatia, an analyst with Citigroup, said Lehman could release details about the third quarter in the next day or so.

"At that point, we expect more clarity around where they are in terms of both earnings for the quarter and any strategic initiatives," Bhatia said. "A pre-announcement will likely be a catalyst to stabilize the stock."

Lehman could report a loss of between $2 billion and $4 billion, according to analysts. That would be on top of a $2.8 billion second-quarter loss, which was the first since Lehman spun off from American Express Co (AXP, Fortune 500). in 1994.

Credit rating: In addition, Lehman Brothers is working to quell criticism from major credit-rating agencies. On Tuesday, Standard & Poor’s put Lehman’s debt on CreditWatch Negative because of the steep stock decline, which means the agency may lower the company’s ratings within months. Such a move would increase the amount of money Lehman pays to issue debt.

"The CreditWatch listing stems from heightened uncertainty about Lehman’s ability to raise additional capital, based on the precipitous decline in its share price in recent days," said Standard & Poor’s credit analyst Scott Sprinzen.

Korean rumors: The steep decline in Lehman’s shares began shortly after Dow Jones Newswires reported that the head of South Korea’s financial regulator said talks about a possible investment had ended. Lehman Chief Executive Richard Fuld had been in negotiations with state-owned Korea Development Bank for several weeks about a capital infusion.

However, it appears that report itself is being disputed. Yoo Jae-hoon, a spokesman for South Korea’s Financial Services Commission, flatly denied any such statement was made free credit report online. He said the regulator was "not in a position" to "broadcast how the deal is going."

Mark Lane, a spokesman for Lehman Brothers, declined to comment. A spokesman for KDB could not immediately be reached for comment.

Looking under the cushions: Like other investment banks, Lehman has been hit hard by deterioration in the credit and mortgage markets since the middle of 2007. Global banks during the past year have lost more than $300 billion from mortgage-backed securities and other risky investments.

In addition to securing an investment from KDB, speculation has also centered on Lehman selling its asset management division Neuberger Berman, and spinning off a portion of the company - such as its troubled mortgage-assets. Analysts have said Neuberger could fetch $7 billion to $8 billion in a sale.

Ladenburg Thalmann analyst Richard Bove wrote in a research note that the company might be asking too high a price for an investment or asset sales. The stock is down more than 80% so far this year, and traded at $67.72 one year ago.

"Buyers seem to believe that Lehman is overvaluing its assets and refuse to hit the bid," Bove wrote in a research note. "The net result is no action."

Fuld, whose own job is said to be on the line, is trying to avoid the same circumstances that caused the near collapse of Bear Stearns. Bear Stearns’ share price plunged in March amid rumors that it did not have enough liquidity to stay in business, and that led to its acquisition by JPMorgan Chase & Co. (JPM, Fortune 500)

However, in this case, Lehman Brothers is said to be having no credit or counterparty risks. A Sanford C. Bernstein analyst, Brad Hintz, said in a note to clients that anxiety about Lehman might be driving the stock lower, but that the government would not let the company simply fail.

"Let’s recognize that the Federal Reserve is supporting the funding of four surviving large capitalization brokers, so the sharp decline in Lehman stock today is an equity issue, not a credit or counterparty issue," said Hintz, a former chief financial officer for Lehman before he became an analyst.

In Washington, Treasury officials refused to answer specific questions about Lehman Brothers but said Treasury Secretary Henry Paulson and other officers were closely following market developments. "We are monitoring markets and are in regular contact with market participants," said Treasury spokeswoman Brookly McLaughlin. 

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OPEC’s president says oil ministers will likely decide to maintain crude output at present levels.

OPEC President Chakib Khelil’s statement reflects the feeling among the majority of members that the 13-nation producing group should not cut back production despite concern about rapidly falling prices cash advance usa.

A formal decision by OPEC is expected to be announced following consultations that will begin later Tuesday.

OPEC is holding its meeting in Vienna, Austria. 

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Research In Motion Ltd is launching a flip version of its popular BlackBerry Pearl smartphone, a move that reasserts its push into the retail consumer market.

Like RIM’s original Pearl model, the first-ever flip BlackBerry comes loaded with multimedia features such as a video and music player and a 2-megapixel camera with flash, as well as a Web browser and an abridged keyboard.

“Seventy percent of the mobile phone users in the United States use a flip,” RIM co-CEO Jim Balsillie said in an interview. “There’s never been a smartphone or a BlackBerry option for that.”

He added the new device is “extremely important” to capturing more retail users.

The new clamshell flip BlackBerry will be available around the world starting this autumn. In the United States, T-Mobile will be the exclusive launch carrier payday advance lenders. No pricing details were immediately available.

RIM’s volatile shares jumped early on Wednesday, rising $3.37, or 3.4 percent, to $102.67 on the Nasdaq market. In Toronto, they rose C$4.20 to C$110.23.

The first, candy-bar-shaped version of the Pearl was launched in September 2006 to rave reviews and strong sales. Its success was a key factor behind the Waterloo, Ontario-based company’s ability to deliver banner results throughout the rest of that year and in 2007.

The Pearl also allowed RIM to broaden its market beyond its mainstay of executives, lawyers, politicians and other professionals who use the BlackBerry to send work e-mail securely. 

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Pssst. The secret’s out at KFC. Well, sort of. Colonel Harland Sanders’ handwritten recipe of 11 herbs and spices was to be removed Tuesday from safekeeping at KFC’s corporate offices for the first time in decades. The temporary relocation is allowing KFC to revamp security around a yellowing sheet of paper that contains one of the country’s most famous corporate secrets.

The brand’s top executive admitted his nerves were aflutter despite the tight security he lined up for the operation.

"I don’t want to be the president who loses the recipe," KFC President Roger Eaton said. "Imagine how terrifying that would be."

So important is the 68-year-old concoction that coats the chain’s Original Recipe chicken that only two company executives at any time have access to it. The company refuses to release their name or title, and it uses multiple suppliers who produce and blend the ingredients but know only a part of the entire contents.

Louisville-based KFC, part of the fast-food company Yum Brands Inc. (YUM, Fortune 500), hired off-duty police officers and private security guards to whisk the document away to an undisclosed location in an armored car. The recipe will be slid into a briefcase and handcuffed to security expert Bo Dietl for the ride.

"There’s no way anybody could get this recipe," said Dietl, a former New York City police detective. His security firm is also handling the security improvements for the recipe at headquarters, but he wouldn’t say what changes they’re making.

For more than 20 years, the recipe has been tucked away in a filing cabinet equipped with two combination locks in company headquarters. To reach the cabinet, the keepers of the recipe would first open up a vault and unlock three locks on a door that stood in front of the cabinet.

Vials of the herbs and spices are also stored in the secret filing cabinet.

"The smell is overwhelming when you open it," said one of two keepers of the recipe in an interview at company headquarters.

The biggest prize, though, is a single sheet of notebook paper, yellowed by age, that lays out the entire formula - including exact amounts for each ingredient - written in pencil and signed by Sanders.

Others have tried to replicate the recipe, and occasionally someone claims to have found a copy of Sanders’ creation cash advance. The executive said none have come close, adding the actual recipe would include some surprises.

Sanders developed the formula in 1940 at his tiny restaurant in southeastern Kentucky and used it to launch the KFC chain in the early 1950s.

Sanders died in 1980, but his likeness is still central to KFC’s marketing.

"The recipe to him, in later years, was everything he stood for," said Shirley Topmiller, his personal secretary for about 12 years.

Larry Miller, a restaurant analyst with RBC Capital Markets, said the recipe’s value is "almost an immeasurable thing. It’s part of that important brand image that helps differentiate the KFC product."

KFC had a total of 14,892 locations worldwide at the end of 2007. The chain has had strong sales overseas, especially in its fast-growing China market, but has struggled in the U.S. amid a more health-conscious public. KFC posted U.S. sales of $5.3 billion at company-owned and franchised stores in 2007. 

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The European Union will cut its economic-growth forecast this week as confidence wanes and inflation expectations increase, EU Commissioner Joaquin Almunia said, calling the outlook “unusually uncertain.''

“The prospects for the second half of 2008 and the beginning of 2009 are not very good,'' Almunia, who is in charge of economic and monetary affairs, said in a speech in Frankfurt today, citing forecasts by the European Central Bank and the Organization for Economic Cooperation and Development. “Tomorrow I will present our updated forecasts for this year and unfortunately I don't expect to convey a different message.''

The ECB last week lowered its 2008 euro-region growth forecast to 1.4 percent from 1.8 percent and its 2009 prediction to 1.2 percent from 1.5 percent. The OECD also cut its forecast for the region. The euro-area economy contracted in the second quarter for the first time in almost a decade and Europeans' confidence fell to the lowest in more than five years in August.

Exports from Germany, Europe's largest economy, declined more than economists forecast in July as cooling global growth curbed demand, according to figures published today. Spanish Finance Minister Pedro Solbes said his nation's economy is at risk of entering a recession because of a construction slump and tight credit conditions.

Luxembourg Finance Minister Jean-Claude Juncker, who leads a group of counterparts from the euro region, last week said the EU may cut its 2008 growth forecast to as low as 1 percent payday loans. It forecast growth of 1.7 percent in April.

Seven-Year High

The ECB, which raised its key interest rate to a seven-year high of 4.25 percent in July to combat inflation, is showing little inclination to cut borrowing costs even as expansion cools. At the same time it cut its growth forecasts, the central bank raised its inflation prediction for 2008 and 2009.

While inflation eased in August to 3.8 percent from 4 percent, the highest in 16 years, “this does not mean we should underestimate the risks of second-round effects,'' Almunia said today. Inflation expectations are “moving to the upside.''

Almunia also said he expects losses related to the collapse of the U.S. subprime-mortgage market, which have already reached $500 billion, to increase.

“Hopes that we had come through the worst of the turbulence before the summer have proved unfounded,'' he said. “Few predicted the scale of losses and writedowns we are seeing in the banking sector'' and “there is undoubtedly more to come.''

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