Financial thoughts

World stock markets were mixed Wednesday, as a modest improvement in manufacturing data from China offered reassurance over its economic slowdown, though Asian markets fell back from early gains.

Benchmark oil hovered below $99 per barrel while the dollar rose against the euro but fell against the yen.

In early European trading, Britain’s FTSE 100 advanced 0.8 percent to 5,724.91 and Germany’s DAX both rose 1.1 percent at 6,525.76. France’s CAC-40 jumped 1.3 percent to 3,340.45. Wall Street was set to open higher, with Dow Jones industrial futures rising 0.2 percent at 12,607 and S&P 500 futures gaining 0.2 percent at 1,310.40.

A better-than-expected Chinese manufacturing index for January, issued by a government federation, fueled an early rally in most markets across Asia. But that evaporated after the release later in the morning of a competing, seasonally adjusted survey by HSBC suggesting conditions were still deteriorating.

Tokyo’s Nikkei 225 edged up less than 0.1 percent to close at 8,809.79. Hong Kong’s Hang Seng was down 0.3 percent to 20,333.37 while Seoul’s Kospi added 0.2 percent to 1,959.24.

By afternoon, shares in mainland China had retreated back into negative territory, with the benchmark Shanghai Composite Index shedding 1.2 percent to 2,268.08.

“Rumors that pension funds will not be invested in shares have raised worries over inadequate liquidity,” said Cai Dagui, an analyst at Ping’an Securities, based in Shenzhen.

Shares will likely remain unstable as investors await annual earnings reports, he said.

The mixed signals from China compounded uncertainties over its outlook, showing that despite resilient consumer demand exports remain sluggish payday loans with no fax.

Such concerns are especially acute for Australia, whose economy has thrived on exports of coal, iron ore and other commodities to China.

Australia’s S&P/ASX 200 fell 0.9 percent to 4,225.70, while India’s Sensex edged 0.1 percent higher to 17,208.68.

Taiwan, Indonesia and New Zealand gained ground, though Singapore declined.

Overnight Tuesday, an unexpected drop in U.S. consumer confidence dragged shares down on Wall Street, where the Dow Jones industrial average lost 20.81 points, or 0.2 percent, to 12,632.91. The S&P slipped 0.60 point to 1,312.41 while the Nasdaq composite index rose 1.90 points to close at 2,813.84.

Overall, though, U.S. shares had their best start in 15 years, thanks to a modest improvement in the economy. Sentiment was further buoyed by hopes of progress in Europe after leaders there agreed on the broad outlines of a deal to tie the countries that use the euro closer together and on hopes that Greece is close to a debt-reduction deal with private creditors.

Benchmark oil for March delivery gained 38 cents to $98.85 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 30 cents to end at $98.48 per barrel in New York on Tuesday.

In currencies, the euro fell to $1.3070 from $1.3084 late Tuesday in New York. The dollar fell to 76.16 yen from 76.20 yen.

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Yemen’s opposition on Sunday accused outgoing President Ali Abdullah Saleh of trying to torpedo a power transfer deal by sparking a new crisis, as troops loyal to him clashed with opposition forces, killing three.

The violence was evidence that the president’s signature on a power transfer deal has not ended months of turmoil that have benefited al-Qaida-linked militants.

Sunday’s clashes followed Saleh’s decision not to leave the country, a move likely to embolden his relatives, who control key security posts.

His opponents demand the removal of all of Saleh’s relatives from top security positions. Huge crowds of protesters have called for Saleh himself to be put on trial for the killing of hundreds of protesters, though the power transfer deal gives him immunity from prosecution.

Vice President Abed Rabbo Mansour Hadi told his new national unity government on Sunday, in their first official session, that the power transfer agreement, engineered by Yemen’s powerful Gulf Arab neighbors, must be implemented soon.

“We need to move vigorously and effectively to implement the Gulf initiative and its mechanisms,” he said.

The new government’s first task is to push through the law shielding Saleh from prosecution for alleged corruption and for violence against protesters. Saleh made that a condition for signing the deal to relinquish power after 33 years of rule over the Arab world’s poorest nation.

Yet more than a month after Saleh signed, and after the possibility of his flying to the U.S. was raised, Saleh is still in Yemen, still wielding significant power and showing few, if any, signs of giving in.

Ten months of mass protests and armed clashes between forces loyal to Saleh and his opponents, including army units that followed powerful tribal leaders siding with the opposition, have left a power vacuum. The Yemen branch of al-Qaida, considered one of the world’s most dangerous, has taken advantage of that to dig in to positions in the country’s south, taking over towns and villages.

Yemen’s military fights frequent battles with the Islamist militants but has failed to dislodge them no checking account payday advance.

In the latest skirmish between Saleh backers and opponents, anti-government tribesmen in el-Fardha Nehem region, about 50 miles (80 kilometers) northeast of the capital Sanaa, said two people were killed and two others wounded when Saleh’s Republican Guards, led by his son, shelled their homes.

Opposition spokesman Mohamed Sabri accused Saleh of undercutting security as a way of arguing that he must stay in power.

“This man does not respect his commitments with others,” Sabri said. “Saleh is creating a new crisis.”

In the capital, a civilian bystander was killed when Republican Guard troops clashed with supporters of tribal chief Sadeq al-Ahmar, who was once a regime ally, but defected to the opposition in March, activists said.

Supporters of al-Ahmar and Saleh’s troops exchanged fire in Sanaa’s northern district of Hassaba, according to a security official and witnesses, resulting in the death of the bystander. The official spoke on condition of anonymity because he was not authorized to release the information.

The fighting Sunday ended after the vice president held talks with both sides. He was also able to quell violence in el-Fardha Nehem region.

Large crowds of Yemenis rallied in major cities Sunday, demanding the outgoing president be put on trial for the deaths of protesters.

The U.N. estimates that hundreds of protesters have been killed and thousands wounded since last February, when anti-government protests erupted across major cities.

Tens of thousands marched in the streets of Sanaa, chanting that Saleh “must stand before a judge.” Another large crowd of marchers echoed the chant in Taiz, Yemen’s second largest city.

Activist Fathi al-Hamadi said the “only place for Saleh to go to is the court dock.”

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Going to the coffee shop? Forget your wallet. Just take your mobile phone.

Bank of Montreal customers can now make payments simply by waving their mobile phone in front of a PayPass reader, the bank announced Tuesday.

The bank, which already has 7 million PayPass credit card holders, says the same service is available by simply attaching a PayPass sticker to your mobile phone.

BMO is the first major Canadian bank to offer what amounts to an interim step on the road to fully fledged mobile payment technology.

Since more than 25 million Canadians — or 70 per cent of the population — own mobile phones, the bank said the tag makes purchases easier, especially in fast-food outlets, gas stations and convenience stores.

“Say I’m in line at Tim Hortons. The phone is in my hand. I don’t have to pull my card out of my wallet. There’s a significant convenience factor,” David Heatherly, vice-president, payment products, BMO Bank of Montreal, said in an interview.

The same terms and conditions apply to the phone tag as to the regular PayPass card. For purchases under $50, no PIN, swipe or signature is required.

New with this product, however, is the option of having the details of the transaction recorded in an email.

The tags are a “bridge technology,” Heatherly said, noting that eventually the capability to swipe and pay will be embedded in all mobile phones.

They will work at the 19,000 locations across Canada that have PayPass readers.

PayPass accounts for 10 per cent of all MasterCard transactions in Canada, the credit card company said.

PayPass tag users have the same zero-liability purchase protection and anti-fraud capabilities available on all BMO MasterCard products, the bank also said. And they can collect the same rewards that they earn on their BMO MasterCard credit card.

The service is free, the bank said. Also read: 5 things you should never do with a credit card

5 things your credit card company won’t tell you

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CLAYTON

Stock prices hurtled lower Monday as anxiety overtook investors on the first trading day since Standard & Poor’s downgraded American debt. The Dow Jones industrials were briefly down more than 600 points.

The Dow fell below 11,000 for the first time since November. The sharp drop extended Wall Street’s almost uninterrupted decline since late July, when the Dow was flirting with 13,000.

Investors worried about the slowing U.S. economy, escalating debt problems threatening Europe and the prospect that fear in the markets would reinforce itself, as it did during the financial crisis in the fall of 2008.

They desperately looked for safe places to put their money and settled on U.S. government debt _ even though those were the targets of the downgrade Friday, when S&P removed the United States from its list of the lowest-risk countries.

The price of Treasurys rose, and yields, which move in the opposite direction from price, fell. The yield on the 10-year Treasury note fell to 2.33 percent from 2.57 percent Friday.

“This is largely a flight to safety,” said Thomas Simons, money market economist with Jefferies & Co. “The bond market is really trading off of what’s going on in the stock market.”

Gold set a new record, trading for more than $1,700 an ounce.

The stock market plunged at the opening bell, with the Dow down 250 points in minutes. Stocks steadily fell for most of the rest of the morning and early afternoon, and the Dow was briefly down 600 at about 2:30 p.m.

In afternoon trading, the Dow was down 400 points, or 3.4 percent to 11,079. The S&P 500 was down 51 points, or 4.2 percent, to 1,149. The Nasdaq was down 114 points, or 4.5 percent, to 2,417.

Stock markets in Asia began Monday’s global rout. The main stock index fell almost 4 percent in South Korea and more than 2 percent in Japan. European markets opened later and fell, too, with Germany down 5 percent and France 4.7 percent.

In the U.S., stocks fell even though Moody’s, another major credit rating angecy, stood by its top rating of Aaa for the United States. It said it could downgrade the U.S. if it cut its deficit, “but it is early to conclude that such measures will not be forthcoming.”

Financial markets also did not appear comforted by an afternoon statement by President Barack Obama, who said Washington needs more “common sense and compromise” to tame its debt.

“Markets will rise and fall,” he said. “But this is the United States of America. No matter what some agency may say, we’ve always been and always will be a triple-A country.”

S&P, in its downgrade, criticized dysfunction in the American political system. The downgrade wasn’t a total surprise but came when investors were already feeling nervous about the U.S. economy and European debt, among other problems.

Last week, the Dow Jones industrial average fell almost 700 points. That was its biggest point loss since October 2008, during the financial crisis. Counting Monday, the Dow has dropped in 10 of the last 12 trading days.

Crude oil, natural gas and other commodities fell on worries that a weaker global economy will mean less demand. Oil fell $3.47 to $83.41 per barrel.

S&P on Monday downgraded mortgage lenders Fannie Mae, Freddie Mac and other agencies linked to long-term U.S. debt. Fannie and Freddie own or guarantee about half of all U.S. mortgages. Their downgrade could mean higher mortgage rates.

Worries about weaker profits that could result from a slowing economy have slammed the financial industry since late July. As a group, financial stocks in the S&P 500 index fell 4.9 percent on Monday to their lowest level since July 2009.

Bank of America fell 13.7 percent after AIG filed suit against the bank same day payday loans. The insurer alleged Bank of America sold it overvalued mortgage-backed securities. The bank denied the allegations. Its stock has dropped by nearly 50 percent this year.

Stocks in other industries whose profits are closely tied to the strength of the economy also fell sharply. Energy stocks in the S&P 500 fell 4 percent, for example.

The smallest losses came in safer industries such as consumer staples whose profits tend to be steadier, regardless of the economy. Even in a bad economy people will still buy things like toothpaste and bread.

The Vix index, a measure of fear among investors, shot up 26 percent to its highest level since May 2010. The index shows how worried investors are that the S&P 500 will drop over the next 30 days. It does this by measuring prices for stock options that investors can buy to help protect their portfolios.

Investors are worried that Spain or Italy could become the next European country to be unable to pay its debt. The European Central Bank said it will buy Italian and Spanish bonds in hopes of helping the countries avert a possible default.

Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth.

“We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets,” they said.

Worries about the U.S. economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected.

The economy grew at a 1.3 percent annual rate from April through June, below economists’ expectations. It expanded at just a 0.4 percent rate in the first quarter. The first half of 2011 was the slowest since the end of the recession.

Then reports showed that the manufacturing and services industries barely grew in July. Job growth was better than economists expected last month. But the 117,000 jobs created in July were still well below the 215,000 that employers added between February and April, on average.

The Federal Reserve will meet on Tuesday, but economists don’t expect much to come out of the meeting. The central bank’s key interest rate is already at a record of nearly zero, where it has been since 2008.

The Fed has also already said that it plans to keep rates low for “an extended period.” Chairman Ben Bernanke said last month that the Fed could step in to help the economy if it further weakened.

Fears about a weaker U.S. economy have overshadowed profit growth that companies have reported for the second quarter. For the 441 companies in the S&P 500 that have already reported, earnings rose 12 percent in the second quarter from a year earlier. Revenue growth has also topped 10 percent for the first time in a year.

Tyson Foods rose 0.8 percent after it reported stronger profit than analysts expected. The largest U.S. meat company said its net income fell 21 percent because of higher grain costs, but analysts expected a steeper drop.

Tyson was one of just five stocks in the S&P 500 to rise on Monday. The biggest gain came from Newmont Mining Corp., which benefited from higher prices for the gold that it produces.

Verizon Communications Inc. fell 3.9 percent after it was unable to come to terms with 45,000 workers on health care costs, pensions and other issues.

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Union members broke off negotiations Tuesday at the world’s most productive copper mine, threatening to extend their five-day strike indefinitely and warning that thousands of other Chilean copper workers may soon walk off the job as well.

Union leader Marcelo Tapia told The Associated Press that the Escondida mine’s 2,300 striking workers will be joined Wednesday by 7,000 contractors, and that union workers at Chile’s state-owned Codelco mining company are in consultations about whether to join them on Thursday.

The main issue is a monthly production bonus: The company, majority-owned by Australian mining company BHP Billiton Ltd., is prepared to pay bonuses that would total $6,000 per worker by year’s end, and declined on Tuesday to discuss an increase. The union is holding out for $10,800 per worker, Tapia said.

Shares in BHP Billiton Ltd were trading up about 1 percent at $94.83 after dropping earlier Tuesday on the strike news. Globally, prices for copper and other metals have been buoyed by fears that the dollar and euro will fall due to the U.S. debt crisis and European economic woes. Prices of copper for September delivery rose 1.6 percent Tuesday to $4.48 a pound.

Already, the strike has cost the company 15,000 tons of lost production, at an estimated cost of $150 million, the company has said.

Escondida represents the biggest single foreign investment in Chile, with BHP owning a 57 percent share. Other major investors include Rio Tinto, Mitsubishi Corp. and International Finance Corp. Each day, the mine has produced about 3,000 tons of copper, worth about $30 million. In all, the mine produces 1.1 million tons of refined copper annually. At one point, its production totaled about 8 percent of the world’s copper supply, although that has declined slightly.

The amount the union wants in bonuses represents less than a penny of each dollar in annual earnings, 0.58 percent.

The situation deteriorated Tuesday when 7,000 subcontractors announced they will join the strike, adding their own demands, including a bonus equivalent to 30 percent of the amount regular employees will get, said Jorge Marin, president of Escondida’s Contract Worker Federation.

The union plans to go to court Wednesday, alleging anti-union actions by the company, Tapia said.

The union also wants protections for workers who contract serious illnesses on the job, only to lose their private health care on retirement. They say company surveillance cameras violate their privacy rights, but they want to punch clocks that better control their 12-hour work days. Miners are frequently working up to 14 hours a day but don’t get their overtime, Tapia alleged.

Tapia challenged company claims that bonuses are down due to lowered production, saying that it costs Escondida 90 cents a pound to produce the metal now selling at about $4.40 globally.

Escondida’s last major strike, in 2009, turned out well for the workers, who got bonuses and easy credit worth $37,000 each.

As with other mines in Chile, Escondida’s production has been falling as the best veins in established operations get tapped out. But BHP Billiton recently announced a major new find of 19 million tons of copper reserves. The discovery, which took four years of exploration at a cost of $381 million, means the company will be able to challenge Codelco’s status as the world’s biggest copper producer.

Chile’s copper strikes are helping to keep prices for the commodity near all-time highs, although other factors such as the falling U.S. dollar have done more recently to drive up short-term prices, metals analyst Shayne Heffernan of Heffernan Capital Management. He said this could change should strikes expand in Chile as well as South Africa and Indonesia.

“Given the number of strikes and the speed at which they are spreading, the loss of global production is now starting to mount. Should we see another month of this activity it may raise the annual shortfall this year to over 850,000 tons and copper trading at over $6 a pound,” Heffernan said. “Demand for copper is making it a more attractive inflation hedge than gold.”

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Stocks are headed for a correction. No, stocks are rallying. Wait, stocks are down again. Or up _ a lot.

For investors, June was one long seesaw ride that began with a deep plunge on the first day of the month. Six days of declines were followed by a week of give and take and then four days of gains. The month ended with strong earnings from a consumer bellwether and signs that a European debt crisis could be averted. That led to a 4-day advance in the three major stock indexes.

The Dow Jones industrial average rose 480 points, or 4 percent, the last four days of the month and the Standard & Poor’s 500 index is on track for its best weekly return for since July 2010.

That strong ending didn’t make June a winner. Stocks were down about 2 percent for the month, the second straight month that the market finished lower. Only the Dow Jones industrial average eked out a gain, of 0.8 percent, for the quarter.

All three indexes are still up for the year. The Dow is up the most, 7.2 percent. The S&P 500 and Nasdaq are up 5 percent and 4.6 percent respectively. The Dow was down 6.3 percent at this time last year.

Concerns about the strength of the U.S. economy and a possible debt default by Greece spooked investors much of the month. One the first day of June investors were greeted with reports that American manufacturing output had expanded at the slowest pace in 20 months, that auto sales had tumbled in May, and that private companies added the fewest number of employees since September. By June 15, the S&P had lost nearly all of its gains for the year, before dividends.

Market declines mean different things to different people. Rather than retreat further, some investors came to believe that stocks were relatively cheap. Stocks began to reverse course.

The upward climb continued this week when Nike Inc.’s earnings came in much higher than analysts had been expecting. That indicated that higher gas prices haven’t stopped consumers from splurging on things like pricey sneakers and sportswear. In the last four days of the month, the S&P rose 4.1 percent.

Even so, the S&P 500 lost 1.8 percent for the month, the Dow finished down 1.2 percent for the month. The Nasdaq composite fell 2.2 percent. For the second quarter, the Dow gained 0.7 percent between April and June. The S&P 500 and Nasdaq, however, lost 0.4 percent and 0.3 percent, respectively.

Most economists, analysts and investors agree that, at the very least, the U.S. economy has struggled through a soft patch. The weakness was brought on by gas prices that hit $4 a gallon, problems getting computer chips and auto parts from Japan and severe weather in the South. These factors weighed on consumer spending and confidence and made recession-weary companies reluctant to hire employees or expand domestically.

Whether the late June rally continues into July depends partly on results from upcoming earnings reports and lingering effects of that soft patch.

Most stock analysts think the economy’s troubles are temporary. Few have lowered their estimates over the last month despite a dip in consumer spending and continued high unemployment. One reason: even if U.S. consumers spend less, American companies continue to make a significant portion of their profits overseas. As of 2010, 40 percent of the profits for U.S. companies in the S&P 500 came from overseas.

Alcoa Inc. is the first major U.S. company to report earnings every quarter. Many investors look to those results for indications of how the results of other major corporations might turn out. The aluminum maker, which tends to do well when the global economy is growing, reports its quarterly results on July 11.

Mark Schultz, portfolio manager for the $240 million MTB Mid-Cap Growth fund, believes that the impact of higher gas prices on U.S. corporate profits will be balanced out by growing revenue coming from sales in countries like China and Brazil, where companies are still expanding.

Some market strategists say the stock market is in for another up and down ride in July as earnings reports come out.

“We’re worried that the earnings season will capture the soft patch in the second quarter,” says Ron Florance, the managing director of investing strategy at Wells Fargo Private Bank. “If analysts haven’t factored that into their estimates then we could be set up for disappointments.”

Earnings season also gives investors a glimpse of what’s to come. When companies report for the quarter, their executives often lay out their expectations for revenue and earnings for the next quarter. Gloomy predictions from key companies like JPMorgan Chase & Co, IBM and Caterpillar could make a second-half stock rally difficult.

On the other hand, if those forecasts are more bullish, that will bolster the belief that effects from the Japanese earthquake and tsunami and high oil prices will be short-lived.

“The misses will probably not be repeatable because they could come from weather and commodity price spikes,” says Phil Orlando, the chief market strategist at Federated Investors. “We all know that the third quarter will be better.”

Of course, there’s one unknown looming: Politics. The federal government will reach its debt limit on Aug. 2. If Republicans and Democrats in Congress can’t reach a deal to prevent that from happening, the U.S. could find itself unable to borrow more money to meet all of its financial obligations.

The government would be forced to choose which payments it won’t make. Those could include Social Security checks to more than 52 million recipients or military salaries for the 1.4 million currently in the armed forces. Alarming, yes. But skipping bond interest payments could be even worse. A default would lead to a sharp rise in interest rates and possibly trigger a recession.

As of now, many investors are betting that a deal will be reached. But look for big swings in the market if a deal isn’t reached by mid-July, says Kevin Shacknofsky, co-manager of the $635 million Alpine Dynamic Dividend fund. “If we don’t have signs that there’s a deal by (then), you have to start positioning your portfolio for the worst.”

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European Union leaders appointed Italy’s Mario Draghi as the next president of the European Central Bank on Friday _ a move that gives investors much-needed certainty over who will lead the institution in its pivotal role in the fight against the crippling debt crisis.

The timing of Draghi’s appointment had come under doubt as fellow Italian executive board member Lorenzo Bini Smaghi had until Friday refused to leave his post.

With Bini Smaghi staying on the executive board, France would not have a representative on the six-person board once current ECB chief Jean-Claude Trichet departs on Oct. 31. The French had previously implied they would only support Draghi if a Frenchman or woman takes Bini Smaghi’s spot.

However, a European official said Friday that Bini Smaghi had now agreed to step down by the end of the year. The official was speaking on condition of anonymity because the moved had not officially been announced yet.

The European Parliament and the ECB board had already given their approve to Draghi’s appointment.

Delaying his appointment until their next summit in September would have underlined divisions among EU leaders, who have already struggled to find a common line on debt-stricken Greece and the best way of containing the financial crisis that has also pushed Ireland and Portugal into needing massive bailouts.

The ECB has played a central role during the debt crisis that has afflicted the 17-country eurozone over the past 18 months or so payday loans guaranteed no fax. For example, Trichet overrode criticism from some of the more hawkish officials at the bank when he backed a multibillion euro (dollar) bond-buying program intended to ease the pressure on the more indebted countries.

More recently, the ECB has found itself in the difficult position of raising interest rates to keep a lid on above-target inflation levels even though the weaker eurozone economies remain weak.

The decision on Draghi was expected a day after EU leaders gave their clearest sign yet that Greece will get a second bailout in the coming weeks, on top of last year’s euro110 billion ($156 billion).

“We agreed that there will be a new program for Greece,” said German Chancellor Angela Merkel.

The stronger language on aid for Greece was also made possible after debt inspectors from the EU and the International Monetary Fund reached a final deal Thursday with the government in Athens on euro28 billion worth of new austerity measures.

The measures have to be passed by the Greek Parliament next week for the bailout funds to be released. If lawmakers fail to back the package, then Greece will likely be staring at a default on its debts.

Even if it gets a second bailout, many economists think that Greece will have to restructure its debts in some shape or form in the coming years, especially if the economy shrinks further.

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We may be into the second year of the economic recovery, but Federal Reserve Chairman Ben Bernanke and his colleagues are still facing plenty of challenges as they try to keep a fragile expansion on track.

A host of economic indicators have slowed in recent weeks and a sharp spike in gasoline prices earlier this year has made consumers and businesses more cautious about spending. The central bank, wrapping up a two-day meeting on Wednesday, is expected to acknowledge the recent soft patch but insist that growth should rebound in the second half of the year.

In a speech earlier this month, Bernanke maintained that the slowdown is temporary and said the economy should pick up later this year as the impact of high gas prices and supply disruptions caused by the March earthquake and tsunami in Japan abate. However, the Fed is now confronting renewed jitters that a debt crisis in Greece could spread to other heavily indebted European nations and send shockwaves through U.S. and global financial markets.

On Wednesday the Fed is expected stay the course, keeping interest rates unchanged and declaring that it will end on schedule a $600 billion Treasury bond purchase program at the end of this month. The central bank also is expected to repeat a pledge to maintain its current level of securities holdings, which stand at a record $2.6 trillion. The belief is that this sizable stockpile will keep interest rates from rising even though the Fed is not adding to its holdings.

Many private economists believe it will be another full year before the economy has recovered enough for the Fed to actually start raising interest rates.

The Fed will release an updated economic forecast which analysts believe will trim growth expectations slightly while predicting that inflation outside of volatile food and energy prices will remain under control. Bernanke will explain the new forecast at a news conference following the Fed’s closed-door discussions. The media event _ part of the chairman’s efforts to make the central bank less mysterious _ follows his first regular news conference in April. Bernanke is expected to hold four sessions with reporters each year.

The Fed is winding down its bond buying program, dubbed QE2 not for the Queen Elizabeth ocean liner but as short-hand for “quantitative easing payday loans.” That’s the wonky term that economists use to characterize the Fed’s effort to drive down long-term interest rates by buying up Treasury bonds. QE2 marked the second round of such easing the Fed had taken; the first was in March 2009 at the depths of the recession.

Supporters say the bond purchases have worked, in part by keeping rates low and encouraging spending. Low long-term rates are vital for consumers buying homes and cars and for companies making investments.

They also argue that those lower rates fueled a stock rally. When Bernanke outlined plans for QE2 in late August 2010, the Standard & Poor’s 500 index was down 6 percent for the year. Eight months later, the S&P 500 was up 28 percent. The lower rates made stocks more attractive to investors than bonds, whose yields were falling.

Mark Zandi, chief economist at Moody’s Analytics, said the bond purchases gave a sagging economy a lift by slightly reducing borrowing costs for businesses and consumers and by raising stock prices to make people feel wealthier. Still, it didn’t much energize home buying or other major purchases.

“It wasn’t a slam-dunk success, but it was worthwhile,” Zandi said.

Critics, including some Fed officials, saw things differently. They warned that by pumping so much money into the economy, the Fed increased the risks of high inflation later. They have complained that the Fed’s outpouring of dollars hurt the dollar and contributed to a spike in oil and food prices. They also feared the bond purchases fed speculative buying that could inflate bubbles in prices of stocks or other assets.

Bernanke hit back at those critics in a speech last month. He argued that higher oil prices were due to Middle East turmoil and demand in fast-growing countries like China and blamed food-price inflation mainly on crop shortages caused by bad weather. And he said the falling dollar was largely linked to slower U.S. growth and the U.S. trade deficit.

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Unemployment rates fell in fewer than half of U.S. states, evidence that slower hiring has affected many parts of the country.

The unemployment rates in 24 states dropped, the Labor Department said Friday. Rates rose in 13 states and Washington, D.C, and were flat in 13. That’s a significant decline from April, when 39 states reported falling unemployment rates.

And only 22 states reported a net gain in jobs in May, while 27 states lost jobs. That’s much worse than April, when 42 states gained jobs.

The changing trend in state unemployment rates reflect a weaker economy that has been hampered by high gas prices and lower factory output. Nationally, employers added a net gain of only 54,000 jobs in May, compared to an average of 220,000 per month in the previous three months. The U.S. unemployment rate ticked up to 9.1 percent.

California, New York and Pennsylvania reported large job losses, partly reversing gains earlier this year. California said employers cut 29,200 jobs last month, with big losses in professional and business services, which includes accounting, engineering, and temporary services. The construction sector also lost jobs.

New York said employers cut 24,700 jobs and Pennsylvania reported a drop of 14,200 jobs.

But those drops follow large gains in April and don’t represent a longer-term trend, said Marissa DiNatale, a regional economist at Moody’s Analytics. New York added 53,000 jobs in April, and Pennsylvania added 23,900.

“The actual picture of what’s going on is somewhere in the middle” of the April and May figures, she said.

Florida, meanwhile, reported the biggest job gains. Employers in the Sunshine State added a net total of 28,000 positions. The state’s unemployment rate dropped for the fifth straight month to 10.6 percent. The gains were mostly in education and health services and in leisure and hospitality, which includes amusement parks, hotels and restaurants.

The gains reflect some pickup in tourism that is boosting the state’s theme parks and resorts, said Sean Snaith, an economist at the University of Central Florida.

While the state is adding jobs and unemployment is falling, the improvement is “moving at the speed of a glacier,” Snaith said. He doesn’t expect hiring to really accelerate until next year.

Earlier this year economists had expected much stronger job growth. But a payroll tax cut enacted in December hasn’t spurred the additional consumer spending that many economists expected. Americans have had to spend most of the extra money to pay higher prices for food and gas.

The economy grew by only 1.8 percent in the January-March period, a sharp slowdown from the 3.1 percent annual pace in the October-December quarter.

Nevada had the highest unemployment rate among the states, at 12.1 percent, though that was down sharply from April’s 12.5 percent. California had the second-highest rate, at 11.7 percent, down from 11.8, followed by Rhode Island at 10.9 percent, which was unchanged.

North Dakota reported the lowest unemployment rate, at 3.2 percent, followed by Nebraska at 4.1 percent and New Hampshire and South Dakota at 4.8 percent.

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