Financial thoughts

The Federal Reserve, which is urging Congress to let it keep its bank supervising role, may lose oversight of smaller state banks to the Federal Deposit Insurance Corp., Democratic Senator Jack Reed said.

“What seems to be emerging is the consolidation” of two Treasury bank agencies “with FDIC having some responsibility for state banks as regulator in lieu of the Fed,” Reed, a Rhode Island Democrat and a member of the Senate Banking Committee, said yesterday in a Washington interview.

Senate negotiators are working through proposals to put in place the financial rules proposed by President Barack Obama more than eight months ago, a process stalled by disagreements over the Fed’s role and consumer protection.

Lawmakers are negotiating language that may give the Fed oversight of the largest U.S. financial companies along with a new consumer unit, two Democratic congressional aides with knowledge of the talks said yesterday. The consumer proposal from Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Republican Bob Corker of Tennessee has so far failed to win lawmaker support.

Republicans and the financial-services industry oppose Obama’s Consumer Financial Protection Agency, and Dodd and Corker have scrapped the plan. Banks lobbied against the proposal, with JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon calling the agency “just a whole new bureaucracy” on a December conference call with analysts.

The Senate plan under consideration would put the Fed in charge of about 20 or 30 bank holding companies, said one Democratic congressional aide who declined to be identified because the talks are private. The Treasury’s Office of the Comptroller of the Currency, which oversees national banks, and Office of Thrift Supervision would merge, Reed said.

Bernanke Setback

A loss of oversight would be a setback for Fed Chairman Ben S. Bernanke, who told the Banking Committee on Feb. 26 it would be a “grave mistake” to remove authority to regulate banks. Giving another agency the power would make it tougher for the Fed to act as the lender of last resort, he said free credit report online.

The Fed won endorsement yesterday from six Washington-based trade groups, led by the American Bankers Association. A letter to the banking committee said “it would be a mistake to limit the Federal Reserve to supervision of only larger, complex institutions headquartered in major financial centers.”

Treasury Secretary Timothy Geithner had asked the leaders to back the administration’s rules overhaul at a Feb. 25 Washington meeting. Later, groups including the Financial Services Roundtable and Securities Industry and Financial Markets Association agreed to write a letter, according to two people with knowledge of the matter, who declined to be identified because the meeting was private.

Small Bankers

The leaders then recruited the Consumer Bankers Association and Independent Community Bankers of America, which represent small banks, the people said. Both support the Fed as overseer of some state-chartered banks. The Senate legislation may give such power to the FDIC, which regulates some state-chartered banks.

A copy of the letter was sent March 2 to Michelle Smith, the Fed spokeswoman and adviser to Bernanke, the people said.

The Fed’s role emerged yesterday as senators negotiated the powers of a consumer unit at the Fed.

“Each of these pieces affects another piece in the bill,” Corker said in an interview. “Today has been by far the very best day we’ve had in the process.”

The plan for the Fed, still under discussion and may change, would abandon the single bank regulator Dodd proposed in his November draft legislation.

Dodd wanted to eliminate the OCC, which regulates national banks, and the OTS, the regulator of savings and loans, and merge their authority into a new Financial Institutions Regulatory Administration that would gain oversight powers of the FDIC and the Fed. The House passed a bill in December that merged OCC and OTS, leaving the Fed’s bank oversight powers intact.

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The nation’s two largest hospital chains signaled today that they are actively seeking acquisitions in the year ahead. Prime targets: Nonprofit hospitals whose investments were hit hard by the sour economy.

In back-to-back earnings calls with analysts, Nashville-based HCA Inc. and Franklin-based Community Health Systems Inc. both said they are well-positioned to take advantage of favorable pricing in the U.S. hospital market.

CHS, which operates 122 hospitals in 29 states, said it plans to make at least two acquisitions in 2010. In December, CHS closed on a deal to purchase Rockwood Clinic, P.S., a multi-speciality clinic with 32 locations in Washington State and Idaho. The buy helped lift CHS’ fourth-quarter profits 8.7 percent to $65.1 million for the fourth quarter that ended Dec. 31.

“There are a number of opportunities out there. We always like to keep our pipeline relatively full,” CHS Chairman Wayne Smith said during the call. “I think two in 2010 is a good number, but as usual it could be more than that.”

Smith said pricing for hospitals has been “very good,” at 50 to 60 cents on the dollar of net revenues compared to 80 cents to 100 cents on the dollar a few years ago.

Such low pricing will likely drive up the competition for hospitals, creating what CHS Chief Financial Officer Larry Cash called a “competitive window over the next 12 to 18 months.”

The window is open. In one of the first deals of 2010, HCA announced on Wednesday an agreement to acquire the Heart Hospital of Austin through its existing joint venture with Texas-based St. David’s HealthCare. According to a filing with the Securities and Exchange Commission, the deal is valued at $83.6 million.

“We needed additional cardiac capacity, and it made more sense than building a heart tower at one of our other facilities,” HCA Chairman and CEO Richard Bracken said when asked by an analyst about the acquisition. “There’s a lot of synergies there, and we’re excited about it.”

HCA’s fourth-quarter earnings results released today confirmed preliminary results announced three weeks ago that showed revenue of $7.61 billion, a 4.7 percent increase over the same period a year earlier.

The privately held operator of 163 hospitals and 105 freestanding surgery centers said today its same-facility admissions increased 2.6 percent on an adjusted basis during the fourth-quarter, boosted by a 9.1 percent increase in emergency-room visits.

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Google moved quickly over the weekend to try to contain mounting criticism of Buzz, its social network, apologizing to users for features widely seen as endangering privacy while announcing product changes to address those concerns.

Todd Jackson, product manager for Gmail and Google Buzz, wrote in a blog post on Saturday that Google had decided to alter one of the most-criticized features in Buzz: the ready-made circle of friends the service provided to new users based on their most frequent e-mail and chat contacts in Gmail. Instead of automatically connecting people, Buzz will in the future merely suggest to new users a group of people they may want to follow or be followed by, he said.

Jackson, who said that the auto-follow feature had been designed to make it easy for people to get started on Buzz, acknowledged the criticism that was heaped on Google in the last few days.

“We’re very sorry for the concern we’ve caused and have been working hard ever since to improve things based on your feedback,” Jackson wrote. “We’ll continue to do so.”

The startup for Buzz, which Google introduced Tuesday as its answer to Facebook and Twitter, drew angry responses on technology blogs and beyond, as users feared that the names of their e-mail correspondents would be publicly exposed. A set of changes that Google announced Thursday failed to quell the uproar.

Some critics said the latest modifications to Buzz, which is tightly coupled with Gmail, appeared to have addressed the most serious privacy concern.

“Turning off the auto-follow was a huge improvement,” Danny Sullivan, a longtime Google analyst and the editor of SearchEngineLand, said in an e-mail message.

Marc Rotenberg, executive director of the Electronic Privacy Information Center, said his organization was still intending to file a complaint with the Federal Trade Commission this week pending its review of Google’s changes.

“Even with these changes, there is still the concern that Gmail users are being driven into a social networking service that they didn’t sign up for,” Rotenberg said in an interview on Sunday.

The privacy concerns about Buzz, and Google’s rapid efforts to address its critics, echo incidents that have bedeviled other social networks, most notably Facebook personal business card. None of those incidents have slowed the growth of Facebook, which recently said it had reached more than 400 million users. Gmail has 176 million users, according to the research firm comScore.

“I think the privacy issues earlier this week with Buzz will blow over and not harm the product in the long term,” Sullivan said. But privacy will continue to haunt Google, he said, and many people will point to the release of Buzz as an attempt by Google to overreach and a reason that the company could not be trusted.

The change in the enrollment of new users of Buzz was the most significant of a series of modifications that Jackson announced on Saturday.

Google also said that it would create a new Buzz tab in Gmail’s settings page to allow users to hide Buzz from Gmail completely. The page gives users the option to disable Buzz, deleting their posts and removing their Google profile, which in many cases listed publicly their circle of contacts in Buzz.

The new feature could address concerns that disabling Buzz and removing a public profile was a multistep process that confused many users and that some described as a game of whack-a-mole.

Google also will no longer automatically connect public Picasa albums and items shared on Google Reader, another feature that had been widely criticized by some users and privacy advocates.

In the next two weeks, Buzz users will be directed to the new start-up to give them a “second chance to review and confirm” the people they are following, Jackson said.

The changes Google announced Saturday will be imposed in the next few days. While it is too early to gauge Buzz’s success, Google said tens of millions of people had tried the service in its first 48 hours.

Sullivan of SearchEngineLand said that the level of activity on Buzz appeared to be significant. “I suspect Google might have a minor hit on its hands already,” he said.

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Think recessions spur laid-off workers to launch new ventures? Think again.

A study released this week by the Kauffmann Foundation found that the number of new businesses incorporated annually in the U.S. has remained remarkably consistent over the years.

"We have a surprisingly steady supply of new firms, despite frequent and sometimes sharp changes in economic conditions," the study’s authors concluded. "No matter which data set one examines, any given year’s total of new companies is consistent with other years, with annual numbers fluctuating only mildly."

Researchers Dane Stangler and Paul Kedrosky crunched data from the U.S. Census Bureau, the Small Business Administration and the Bureau of Labor Statistics, covering 1977 through March 2009. About 600,000 new businesses were formed each year during that 30-year period. The data includes formally established new enterprises as well as new franchise locations and other outposts of existing companies.

For more than a year, the potential for startup growth has been promoted as the silver lining of the recession.

The conventional wisdom goes that as people lose their jobs, they are inspired to launch that innovative little company that’s been percolating in the back of their minds for years.

Recessions also lower the cost of entry for new companies and make customers more willing to explore less-expensive alternatives to current products or services they’re using, said Rhonda Abrams, founder of entrepreneurial consulting firm The Planning Shop.

"I liken a recession to a forest fire — it can be devastating, but can clear out weak and old growth," Abrams said. "Small upstart companies have a chance to get a hold better when their competitors are weakened."

But Kaufmann researcher Stangler said there just isn’t data to back up that kind of ‘hopeful thinking."

"It’s not that the reasons behind that thinking are bad, it’s just that from the evidence, we don’t expect there to be a huge increase in the amount of startups or a decrease during this recession," he said. The Kaufmann Foundation, based in Kansas City, Mo., is a nonprofit organization focused on entrepreneurship research and advancement.

To check their findings from the last three decades, Stangler and Kedrosky went back even further, to census reports from the 1940s and 1950s. There, they found remarkably similar results. Only one year — 1946 — had a noticeable startup spike, a result the researchers attribute to the effects of the end of World War II and a flood of returning war veterans.

What’s behind the consistency in startup launches? Stangler said two findings stood out: Even in down times, the U.S. has a fairly stable and consistent economy. Also, the number of working-age adults in the workforce fluctuates little.

But just because there’s no data to prove that economic turmoil spurs business growth doesn’t mean recession-era entrepreneurs should be disheartened, Abrams said. Citing her own research, she notes that the majority of current Fortune 500 companies were started during tough economic times.

The Kauffman Foundation has similar findings: More than half of 2009’s Fortune 500 companies launched in bear markets, it reported in June.

"Even if the numbers of new companies are consistent, you have a better chance at being a big success if you form during a recession or a depression than in good times," Abrams said.

She also believes that when the dust has cleared, this recession will have spurred more new businesses than past downturns because the percentage of those who are unemployed will remain persistently high.

"More people will turn to consulting and other kinds of low-cost-of-entry businesses to tide them over," Abrams said. 

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Information Technology Services Qualifications Center is spinning off from Carnegie Mellon University to become ITSqc LLC in order to extend research started at the university.

ITSqc started in 2000 as a consortium of information technology companies and university researchers to study best-practices within the information technology service provider industry. Since then, the organization has developed models and a certification process that can be used by clients and providers to ensure that the right expertise is brought on board and services meet client needs.

“The research was done and the models were created and focus shifted from creating and gathering, which universities are great at, we produced the models and now it’s a more commercial adoption issue,” said company director Jeff Perdue of the decision to spin-off.

The intellectual property was licensed in October and the new company started Jan. 1, Perdue said. The company has three employees: Perdue, an associate professor in the Institute for Software Research within the CMU School of Computer Science; Jane Siegel, senior systems scientist in the Institute for Software Research and the Human-Computer Interaction Institute at CMU; and Bill Hefley, faculty at the Katz School of Business at the University of Pittsburgh business card design.

Hefley was previously with the Institute for Software Research.

Some of the companies involved in the consortium include IBM and Accenture, Perdue said. ITSqc already has six organizations that have licensed the models and are working with clients, he said.

“The evolution of the Internet and the growth of the world’s telecommunications infrastructure now enables companies to seek out IT expertise from providers anywhere on the globe,” said Raj Reddy, chairman of the ITSqc Advisory Board in a written statement. “But without a set of commonly accepted best practices, many providers will routinely fail to deliver on their promises and potential clients will have no basis for comparing prospective providers. By establishing these best practices, the ITSqc has helped to bring order to the outsourcing marketplace.”

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Roshni Sircar racked up nearly $20,000 in credit card debt after using a number of special purpose cheques that came with her credit card.

The 75-year-old had never used her American Express card before. But when faced with a family emergency, she began using the special offers to help her grandchildren.

She didn’t know the introductory 2 per cent interest rate was just that – a short-term "teaser" rate. "We were really in a tight spot and we used the money," Sircar said.

As her interest rate began to rise, she missed some payments. Her rate eventually jumped to 25.99 per cent. At that point, Sircar realized she couldn’t pay off her bill.

After writing to the head of Amex Canada, Finance Minister Jim Flaherty and the Star, her rate was lowered to a more manageable level. But she still feels "entrapped" by the special offer.

Banks and credit card companies often argue the popularity of credit cards represents a "democratization of credit." Yet, some experts suggest the current system is fundamentally rigged against the consumer and the merchant.

"In consumer contracts highly sophisticated corporations will often exploit consumers’ behavioural biases," Oren Bar-Gill of Harvard Law School wrote in a paper entitled Seduction by Plastic. "Competition cannot cure such exploitation. On the contrary, competitive forces compel sellers to take advantage of consumers’ weaknesses."

The federal government is facing increased pressure to regulate Canada’s credit card market and has taken steps to respond to consumers’ and retailers’ complaints. Within days, the Competition Bureau is expected to rule on two key issues that could fundamentally alter the payments-industry landscape.

The first deals with a request from the Interac Association, Canada’s non-profit debit network operator, to become a for-profit company better able to compete with Visa and MasterCard as those two multinational giants enter Canada’s $168-billion a year debit market.

The second has to do with allegations that Visa and MasterCard have abused their market dominance in the credit card market, where they hold 94 per cent of market share.

And by Jan. 18, industry members are to issue comments on Flaherty’s proposed voluntary code of conduct for the credit and debit sector. The code contains provisions that would help retailers, especially smaller ones, gain some clarity and clout in dealing with their payment processing fees.

Earlier this year, Flaherty announced new regulations aimed at protecting consumers from some of the problems that may have contributed to Sircar’s situation.

Among other things, these new rules require a "summary box" on all credit-card contracts and applications clearly outlining information about interest rates, minimum payments, annual fees and other applicable costs, including penalty charges for bounced cheques.

But while initiatives like these are helpful, experts say more could be done to help low-income Canadians. They cite innovative new card products that give consumers the power to set their own spending limits, or require Ottawa to be the guarantor on the kind of secured card offered to people consider poor credit risks.

The Canadian Bankers Association says "income is not a factor on who pays off their credit cards" in Canada.

But research by the Bank of Canada this year shows the bottom 20 per cent of earners carry a larger share of credit card debt in percentage terms than other income groups. Additionally, the lowest-income earners have the largest share of "unsecured" debt, which includes credit cards.

Canada’s banks say a multitude of cheaper options, such as low-rate credit cards and personal lines of credit, are available to those consumers who carry a balance.

Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association, estimates more than 60 low-interest-rate credit cards are available in Canada. The Financial Consumer Agency of Canada, however, recently told the Senate banking committee that some low-interest credit cards have disappeared.

And critics say low-income Canadians are often denied access to those low-rate cards because they lack sufficient assets. "They don’t have low-cost options at all," said Armine Yalnizyan, senior economist with the Canadian Centre for Policy Alternatives payday loans.

Banks do not release data about the number of low-rate cards they issue compared with the number of applications they receive, and the bankers association has no statistics on the number of Canadians with low-rate cards.

When asked about consumer eligibility earlier this year, Hughes Anthony said acceptance is "determined on a case-by-case basis."

Other alternatives, such as secured credit cards or prepaid credit cards, disadvantage consumers with unfavourable terms or high service charges, experts say.

"For low-income consumers who don’t have access to a conventional credit card, the costs go up much higher," said Michael De Santis, a researcher at the Public Interest Advocacy Centre.

Low-income consumers, those with spotty credit scores and new immigrants are often encouraged to get secured credit cards to build or repair their credit histories.

But many consumers lack sufficient funds to pay the required lump sum. That upfront cost is usually equivalent to or higher than the card’s credit limit. The bank collects that money as security but the funds do not earn the customer any interest, even if the sum remains tied up for years.

In addition, prepaid cards are more costly to use than regular credit cards. Not only must users load their own money on the card, but they are also on the hook for "significant fees," De Santis said.

Those can include upfront fees for the card to be issued, monthly maintenance fees, invoice charges, customer service fees, transaction fees, ATM fees, reloading fees and even cancellation fees.

"It is very expensive to have one of these prepaid cards in your pocket and they don’t offer any advantages over a conventional card other than the fact that they are more available to people who might not otherwise qualify," De Santis said, adding the product does not help build a credit history. "The less fortunate classes actually end up having to pay the greater amount than the more fortunate ones, which I think is a terrible irony."

The advocacy centre is urging the federal government to collaborate with the banking industry on creating a new financial product that could help low-income Canadians, new immigrants and aboriginals build financial credibility and make payments in an increasingly "digital marketplace."

It argues that eligibility "could be proportional to income level, so as to avoid a lower income becoming a barrier to build a level of creditworthiness."

That may involve a new type of secured card, where the federal government provides some security to the lender so the entire burden does not fall on cash-strapped consumers, De Santis said.

Others champion the idea of "self-directed" credit cards. Angela Littwin, an assistant professor at Harvard Law School, says such cards would allow consumers to cap their credit limits and even block the card’s acceptance at certain stores.

Merchants are also lobbying for change. Retailers want Ottawa to quickly set new ground rules for the debit market as Visa and MasterCard prepare to take on the non-profit Interac Association, whose low-cost flat fee model is the envy of the world.

Flaherty’s proposed voluntary code of conduct won praise from merchants when it was announced Nov. 18. But retailers and small businesses fear credit card firms will be pushing Ottawa during the current 60-day consultation period to water down certain key provisions.

One proposal, designed to give merchants more power in dealing with Visa and MasterCard debit, is at greatest risk, the retailers fear.

During the period when Visa and MasterCard are building their debit networks, the credit card companies plan to issue co-badged cards that also run on the more ubiquitous Interac system.

MasterCard says its new debit product will automatically run on its Maestro network, wherever it is present. Visa says it’s giving consumers the choice but merchants says Visa’s network will show up first on the PIN pad and then Interac.

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The United Arab Emirates’ central bank set up a facility on Sunday to support liquidity in the banking system Dubai’s government sought to delay debt payments from two of its flagship firms, sending global markets lower.

Dubai rocked the financial world on November 25 when it said it would ask creditors of Dubai World DBWLD.UL, the conglomerate behind its rapid expansion, and Nakheel NAKHD.UL, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring. “(The) central bank has issued a notice to UAE banks and branches of foreign banks operating in the UAE, making available to them a special additional liquidity facility linked to their current accounts at the central bank, at the rate of 50 basis points above the 3 months EIBOR (Emirates interbank offered rate),” it said in a statement.

The bank did not give more details, only saying that it stood behind UAE banks and branches of foreign banks operating in the UAE, adding the Gulf Arab country’s banking system was more sound and liquid than a year ago.

“It is important because the main concern is that there might be some panic behavior by depositors in Dubai and by bankers who want to take deposits out of the banking system,” said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.

“This will support the liquidity and the overall soundness of the banking system in the UAE and especially in Dubai. The central bank is sending a strong message to everyone that they are providing ample liquidity and the guarantee to banks in the UAE,” he said.

State-run Dubai World had $59 billion of liabilities as of August, a large proportion of Dubai’s total debt of $80 billion and repayment of Nakheel’s $3.5 billion worth of Islamic bonds, which were originally due to mature on December 14, was widely expected by the market to be met.

Last year, the UAE finance ministry poured $6.8 billion into bank deposits, the first tranche of a $19.1 billion rescue facility it set up to help lenders weather the onslaught of the global credit crisis.

It deposited another $6.8 billion into banks in November 2008, but has not made any statements since regarding the remainder of those funds. This came after the central bank set up a $13.6 billion emergency bank lending facility to combat the crisis.

(Reporting by Martin Dokoupil and Raissa Kasolowsky; editing by John Irish)

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WaterStone Bank said it has agreed to a consent order with federal and state banking regulators to maintain minimum capital ratios that are higher than regulators typically require as a safeguard to cover the bank’s problem real estate loans.

Wauwatosa-based WaterStone (NASDAQ: WSBF) said Friday that on Wednesday it agreed to the consent order with the Federal Deposit Insurance Corporation and the Wisconsin Department of Financial Institutions. WaterStone said it also signed a stipulation and consent to a cease-and-desist order for its holding company, WaterStone Financial Inc., with the federal Office of Thrift Supervision.

WaterStone said the orders formalize a prior informal agreement the bank, its holding company and the FDIC entered in 2008. The bank and regulators have been working for the past two years to minimize the effects that the economic recession is having on the bank and its borrowers, WaterStone said.

The orders require, among other things, that the bank maintain minimum Tier 1 capital of 8 easy payday loans.5 percent of total average assets and minimum total risk-based capital of 12 percent of risk-weighted assets.

As of Sept. 30, WaterStone exceeded those levels with a Tier 1 capital ratio of 12.64 percent compared with 10.76 percent a year earlier, and a total risk-based capital ratio of 13.86 percent, compared with 12.01 percent a year ago.

Through the first nine months of 2009, WaterStone recorded a net loss of $6.24 million compared with a net loss of $27.3 million for the same period of 2008. The bank’s level of noncurrent loans to total loans increased to 6.24 percent as of Sept. 30 compared with 5.78 percent a year earlier.

WaterStone stock was down 1 cent, to $1.86, on Friday.

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OTTAWA – After hunkering down throughout most of the recession, Canadian businesses began lining up with consumers at the bankruptcy office in September, according to government data released Friday.

The Office of the Superintendent of Bankruptcy reported that 489 businesses had filed for insolvency during the month, a 31.6 per cent increase from August.

The increase from September 2008 was only 1.6 per cent, but Scotiabank economist Derek Holt said the jump between August and September of this year was worrying.

"What concerns me is that it cut across so many different sectors of the economy,“ Holt said.

"Part of it was the elevated Canadian dollar and what it’s doing to export competitiveness, but the other part is just the catch-up from weak domestic fundamentals."

The export-oriented manufacturing sector saw a 71-per-cent increase in bankruptcies from August, but retail business insolvencies were up 69 per cent, and insolvencies in the high-tech sector increased 119 per cent.

Still, Holt said Canadian businesses did better than households.

The September story for consumers built on a weakening trend that began with the recession last fall, with personal bankruptcies spiking to 15,465 in September, an increase of 45.5 per cent from last year.

On a monthly basis, household bankruptcies and proposals for settlement with lenders were 28.4-per-cent higher than in August.

The bankruptcy office suggested seasonal variations may have accounted for a portion of the increase, noting there were more insolvencies in September than in August in seven of the last 10 years.

Regionally, consumer bankruptcies rose highest in the western provinces, although Ontario and Quebec were not far behind.

While bankruptcies are considered a lagging indicator that reflects weak labour markets, the continued hard times by Canadian households bodes ill for retailers during the holiday shopping season.

As well, the bankruptcy numbers also provide more evidence that the economy is not rebounding strongly from the recession.

Bank of Canada governor Mark Carney warned Thursday night after a speech in New York that he now expects the quarter – the July-September period – to fall short of his forecast of a two-per-cent bounce.

"Recent indicators suggest somewhat softer growth relative to that two-per-cent projection but the expectation is that the overall profile of the growth in that projection – so accelerating growth in the fourth quarter and into 2010 for Canada – remains valid," he told reporters.

Some economists have warned that the third quarter could be negative, meaning that the recession hadn’t ended as of September. Although most agree with Carney that last three months of 2009 will see improvement.

BMO economist Robert Kavcic said while the odds favour positive growth in the third quarter, it will be weak at less than one per cent.

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Gold fell Thursday, after climbing to a record high overnight, as the dollar rose against rival currencies and stock prices fell.

December gold slipped $8.00 and settled at $1,106.60 an ounce after climbing to a record $1,123.40 overnight. Gold closed at an all-time high of $1,114.60 an ounce Wednesday.

The retreat came as the dollar recovered from earlier losses amid ongoing concerns about the U.S. economy and speculation that overseas central banks could move to prop-up the beleaguered greenback.

The dollar index, which gauges the currency’s value against a basket of rivals, was up 0.6% to 75.60. Despite the recovery, however, the index remains near a 15-month low.

Gold, which has gained about 6% this month, has been supported recently by concerns about the weak dollar.

A softer greenback makes gold, which is priced in dollars around the world, cheaper for buyers using stronger currencies. The weak dollar has also raised expectations that overseas central banks will move to increase their gold holdings as an alternative to the U payday loan.S. currency.

But the dollar’s strength on Thursday, along with a selloff in the stock market, weighed on the precious metal, said Adam Klopfenstein, senior market strategist at commodities brokerage firm Lind-Waldock.

"The market is failing to find a bullish theme for the day," he said. "I expect gold to maintain negative posture for the rest of the afternoon, but I don’t expect a major selloff given the magnitude of this week’s move."

Gold has been on a tear since prices rose firmly above $1,000.00 an ounce last month. Analysts say the metal’s recent strength has attracted many short-term market participants who trade largely based on momentum.

Given the bleak outlook for the U.S. dollar, however, many analysts say gold will continue to rise into next year.  

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