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South Africa’s current account deficit, which the government describes as the Achilles heel of the economy, may have narrowed in the second quarter, prolonging a surge in the rand.

The country’s first recession in 17 years has come to the government’s aid, slashing imports just as exports of platinum and other metals rebound, after years of reliance on volatile foreign investment in stocks and bonds to finance the deficit.

“Imports are very weak because of the general weakness in the economy,” said Elna Moolman, an economist at Barnard Jacobs Mellet Holdings Ltd. in Johannesburg. “The current account deficit should become less of a factor in investors’ decisions in South Africa. That’s positive for the rand.”

The currency has rallied 36 percent against the dollar since March as the first signs of a pick-up in the global economy help restore foreign portfolio investment in emerging markets. With the current account gap now narrowing, the rand is unlikely to lose those gains and may even rise further.

The deficit, the broadest measure of trade in goods and services, shrank to a four-year low of 4.3 percent of gross domestic product in the second quarter, according to the median estimate of 11 economists surveyed by Bloomberg. The central bank will publish the data at 12 p.m. in Pretoria on Sept. 3.

The shortfall compares with 7 percent of GDP in the previous three months and a record 8.8 percent in the first quarter of 2008.

The deficit is the “Achilles heel of the South African economy,” the government said in a report on April 16, adding that the global crisis makes financing the shortfall a “concern” and a hindrance to faster economic growth.

Contraction

Africa’s biggest economy contracted an annualized 3 percent in the three months through June, the third consecutive quarterly decline. That curbed demand for imports, which rose by less than 1 percent in June from the previous month after falling 6.4 percent in May, the South African Revenue Service said on July 31.

“We have to attract foreign investment because savings are low,” Finance Minister Pravin Gordhan said on July 23. South Africa’s savings rate of 17 percent of GDP is “not high enough for the investment needs in South Africa.”

The rand has climbed 21 percent against the dollar this year, the second-best performer of 16 major currencies tracked by Bloomberg, partly because of an improvement in the current account deficit, said Jean-Francois Mercier, an economist at Citigroup Inc. in Johannesburg.

Dependent

“The rand is dependent on strong portfolio inflows” to finance the deficit, Mercier said. “If the projection is that the current account deficit will stay low, then that’s better” for the currency.

The National Treasury forecast on Feb. 11 that the current account shortfall will reach 6.3 percent of GDP this year, down from 7.4 percent in 2008.

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In the largely unregulated world of extended auto-service contracts, there’s one bedrock consumer safeguard: Customers canceling those vehicle-protection plans are refunded for the coverage they don’t use.

In most states, including Missouri and Illinois, it’s the law.

Yet St. Louis area companies have found a way around this rule by selling a different type of vehicle protection — warranties tied to oil additives, transmission fluids and other products that promise to keep cars running longer.

Here’s how the product warranties work: Consumers are sold an automotive additive — a bottle of liquid, or some tablets. Companies selling the additive say that if the product fails to prevent a breakdown, the warranty on the additive will cover repair bills — or at least some portion of them.

With traditional auto service contracts, the consumer is purchasing a promise that the seller will cover repair bills. The difference? First, with the additive, the consumer is buying a product, not a contract. Second, the consumer is entitled to a refund if a service contract is canceled early. That’s not the case with a product warranty.

And many consumers don’t understand that difference.

"I didn’t know I was buying any $2,000 bottle of additive," said Jeanette Franklin, of Houston, Texas, who bought a product warranty from Wentzville-based US Fidelis in November. "If they told me that’s what it was, I never would have bought it."

Franklin’s complaint is consistent with many that the St. Louis Better Business Bureau has received. The BBB has shared more than 80 complaints involving additives with the Post-Dispatch.

But the companies say they’re helping consumers by offering vehicle-protection plans for older, high-mileage vehicles.

US Fidelis Chief Executive Chris Riley said in a statement that the product warranties help consumers keep their vehicles on the road longer: "Customers who have purchased this product have had more than $5 million in product warranty claims paid," he said.

The company would not answer questions about its product warranties that were

e-mailed to a spokesman.

An attorney for St. Louis-based National Dealers Warranty said the company trained sales agents to be honest about some drawbacks of product warranties, including the fact that they can’t be refunded. Other firms did not return calls seeking comment for this story.

Thousands of consumers have complained to the BBB about auto-protection plans sold by St. Louis companies. Its crusade against the service-contract industry has focused on allegations of telemarketing abuses, deceptive direct-mail literature and high-pressure sales tactics. BBB officials said they knew little about the product-warranty side of the industry until asked about it by a reporter.

As a result, the BBB hasn’t specifically tracked whether consumers’ complaints were over a service contract or product warranty.

Critics — including some inside the industry — say the marketing of these product warranties confuses many consumers, leaving them trapped in coverage they no longer want. The warranted additives also allow service-contract brokers to sell in California, where they’re otherwise prohibited from doing business.

Franklin said she believed the two bottles of AutoLifeXtend oil and transmission additive were product samples, or maybe a thank-you gift from US Fidelis for buying a service contract. She said the company told her to activate her coverage by using the products, which she did.

She discovered just how much her protection plan differed from a service contract when she called the company on Aug. 18 to cancel the $2,060 purchase, which was to be financed over 24 months.

Franklin said the company initially wouldn’t refund any of the $800 she had paid because she had used the product as instructed. In other words, US Fidelis couldn’t give her a refund because she couldn’t return the additives. Days later, the company refunded $375 after Franklin threatened to contact the Texas attorney general, she said.

With service contracts, cancellations are common. Sometimes customers are dissatisfied; often they cancel only because they’ve sold their vehicle or the cars have broken beyond repair new car loans. Depending on how much of the service contracts they’ve used, these consumers can qualify for refunds of several hundred dollars.

With the product warranties, they’re generally entitled to nothing.

Mary Lobdell, an assistant attorney general in Washington state, is spearheading a 43-state investigation into the service-contract industry. She wouldn’t say whether product warranties were part of that investigation, but she said many of those protection plans were "grossly misrepresented" to the point that "consumers truly don’t understand what they’re buying."

Larry Hecker heads the Vehicle Protection Association, a trade group for companies that sell auto-service contracts. He said the product warranties were sold primarily to avoid California regulations that allow only auto dealers to sell service contracts.

Hecker acknowledged that the widespread sale of no-refund warranties could be problematic for an industry struggling to get past allegations that it frequently takes advantage of consumers.

"We haven’t addressed (product warranties) yet, but I’m sure we will down the road," he said, adding that it will probably be discussed by industry leaders when they meet for an annual conference next month in Orlando, Fla.

One industry veteran who plans to attend that meeting is Bill Rosenbach, who once ran a subsidiary of Wentzville-based US Fidelis and now works as a consultant for companies that sell both service contracts and product warranties.

Rosenbach said the quality of the additives and the warranties tied to them varied considerably from company to company.

Some of the additives may be beneficial to vehicles, but most don’t have any significant impact on how a car runs, he said.

Michael Carter, the general counsel for St. Peters-based National Dealers Warranty, says the additive that company sells — dubbed "The Choice" — improves auto longevity by lowering vehicles’ operating temperature. Carter said consumers typically needed to use the product only once to be covered by the warranty.

Carter said product warranties could be a good buy for consumers who didn’t qualify for traditional service contracts because their vehicles were too old or their mileage was too high. He defended the non-refundable nature of the coverage, but he said the company could make exceptions. National Dealers Warranty, he said, will "err to the side of good faith and good will" in some cases.

For companies such as US Fidelis and National Dealers Warranty, product warranties offer at least one big advantage over traditional service contracts.

"There’s a lot more profit," said Rosenbach, of Lincoln, Neb. "But the worst part about product warranties is consumers think they’re getting a service contract."

Many consumers have complained to the BBB that they couldn’t get a refund because they used the product. But others complained about the reverse: They didn’t use the product — either because they believed it unnecessary and threw it away, or their mechanics advised against using it — and later found out this was grounds for denying any claims made on the warranties.

The 10 St. Louis area businesses named in those BBB complaints include some of the country’s biggest service-contract brokers, including US Fidelis; National Dealers Warranty; Dealers Warranty, of St. Charles, which does business as Mogi; Carhill Enterprises, of St. Louis, which does business as Consumer Protection Services; and TXEN Partners, of St. Louis, which does business as Protection Direct.

Several of those firms sell product warranties tied to additives made by Dura Lube, which also sells its additive products directly, through its website, for as little as $11.99.

In 2000, the company that made Dura Lube paid $2 million to settle a Federal Trade Commission lawsuit alleging that claims about the product’s effectiveness were misleading and unsubstantiated. Dura Lube did not return calls seeking comment.

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Fewer Americans filed claims for jobless benefits last week, another sign the economy is pulling out of the worst recession since the 1930s.

Applications fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, the Labor Department said Thursday. The total number of people collecting unemployment insurance fell to the lowest level since April.

Job cuts are easing as government stimulus measures help stabilize the housing and manufacturing industries. At the same time, a rebound in hiring will take longer to occur, restraining the consumer spending that accounts for 70 percent of the economy.

"We’re definitely seeing firings slowing as firms are much leaner than they were earlier," said David Semmens, an economist at Standard Chartered Bank. "Any good news in the labor market provides a floor for consumer sentiment."

Economists forecast that claims would fall to 565,000 from a previously reported 576,000.

The report showed the four-week moving average of initial applications, a less volatile measure, dropped to 566,250 last week from 571,000.

Continuing claims plunged by 119,000 in the week ended Aug. 15 to 6.13 million, the least since the week ended April 4.

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Bank of Israel Governor Stanley Fischer will find no company in emerging markets this year as other central bankers seek to hold off on raising interest rates, according to Deutsche Bank AG.

Fischer’s 0.25 percentage-point increase in Israel’s benchmark rate on Aug. 24 to 0.75 percent is fueling speculation as to which developing nations will be next to raise rates amid signs the global recession is easing, said Drausio Giacomelli, head of emerging-market strategy at Deutsche. He predicts none will follow Israel until at least June 2010, when Chile may boost rates.

“If there’s someone like Stanley Fischer who does it, it raises the question of whether we are turning the corner,” Giacomelli said in a telephone interview from New York. “That is the question that everyone asks right now. In most cases, we haven’t seen it.”

Chilean central bank President Jose De Gregorio — who studied economics at Massachusetts Institute of Technology while Fischer taught there — also drove his country’s benchmark lending rate down to 0.5 percent to shore up growth. That “aggressive” tack has made the South American country the likeliest to next raise rates, Giacomelli said.

“Now Chile is the Israel of Latin America because they have some similarities,” Giacomelli said. “Israel was very aggressive. It brought rates close to zero, and it is a small, open economy. So is Chile.”

Five-Year Low

Fischer, who has also served as the deputy managing director of the International Monetary Fund, raised rates after struggling to get inflation within a target range of 1 percent to 3 percent. Israel’s annual inflation was 3.5 percent in July. In Chile, inflation dropped to a five-year low of 0.3 percent in July as the economy remained sluggish.

Chile’s central bank said in an Aug. 13 statement that the benchmark rate will remain at 0.5 percent for a “prolonged period.” The central bank also pledged to keep offering discounted six-month loans to banks.

Giacomelli said other developing-nation central banks may follow Chile in the second half of 2010 in raising rates.

“You need a strong rebound, stronger than we think, to justify otherwise,” he said. “You have to see consumers happy, bullish, and consuming and then you see central banks more concerned.”

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China’s economic growth may exceed 10 percent in the first quarter of next year on a “moderately loose” monetary policy, a government research agency forecast.

The policy will stay in place in the short term to ensure a “stable recovery,” Ba Shusong, deputy director of the Development Research Center, an affiliate of the nation’s State Council, said in an interview with Shanghai Securities News.

China will be the first to recover from the global recession and has already passed its worst, Ba said, citing last quarter’s faster growth. The government will meet its target for an 8 percent expansion this year, Ba said, according to a transcript of the interview posted on the center’s Web site.

The world’s third-biggest economy grew 7.9 percent in the second quarter from a year earlier, rebounding from a 6.1 percent expansion in the first, which was the weakest in almost a decade. The recovery is being fueled by 4 trillion yuan ($585 billion) in stimulus spending, record growth in credit and improving demand for exports.

China’s economy may expand 8.5 percent in the third quarter from a year earlier, the China Securities Journal reported Aug. 21, citing State Information Center forecasts. Industrial output may climb 11.5 percent in the third quarter from a year earlier, Zhu Hongren, spokesman for the Ministry of Industry and Information Technology, said today.

“The next policy focus should shift economic growth from government-motivated demand” to the private sector, Ba said. Consumer and producer prices may resume rising in the fourth quarter, he said.

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The world’s top cellphone maker Nokia said on Monday it would start to make laptops, entering a fiercely competitive but fast-growing market with a netbook running Microsoft’s Windows operating system.

Nokia had earlier this year said it was considering entering the laptop industry, crossing the border between two converging industries in the opposite direction to Apple, which entered the phone industry in 2007 with the iPhone.

Nokia has seen its profit margins drop over the last quarters as handset demand has slumped, and analysts have worried that entering the PC industry, where margins are traditionally razor-thin, could hurt Nokia’s profits further.

“We are fully aware what has the margin level been in the PC world. We have gone into this with our eyes wide open,” Kai Oistamo, the head of Nokia’s phone unit, told Reuters.

“There’s really an opportunity to bring fresh perspective to the PC world,” he said, adding that Nokia would introduce extended battery life and continuous connectivity.

Nokia has produced PCs before, but divested the unit in 1991 when it started to focus on the mobile phone industry.

But Nokia’s first netbook, the Nokia Booklet 3G, will use Microsoft’s Windows software and Intel’s Atom processor to offer up to 12 hours of battery life while weighing 1.25 kilograms. Netbooks are low-cost laptops optimised for surfing the Internet and performing other basic functions. Pioneered by Asustek with the hit Eee PC in 2007, netbooks have since been rolled out by other brands such as HP and Dell.

“The question is: How will Nokia differentiate? This is already a crowded market. If they manage to differentiate it’s going to give them competitive advantage,” said Gartner analyst Carolina Milanesi.

CUT-THROAT SEGMENT

Research firm IDC expects netbook shipments this year to grow more than 127 percent from 2008 to over 26 million units, outperforming the overall PC market that is expected to remain flat and a phone market which is shrinking some 10 percent.

“Nokia will be hoping that its brand and knowledge of cellular channels will play to its strengths as it addresses this crowded, cut-throat segment,” said Ben Wood, director of research at CCS Insight.

“At present we see Nokia’s foray into the netbook market as a niche exercise in the context of its broader business.”

Nokia’s choice of Windows software surprised some analysts who had expected the company to use Linux in its first laptop.

Analyst Neil Mawston from Strategy Analytics said the technology choices were a good win for the U.S. companies.

“We believe ARM and Symbian are among the main losers from the Nokia Booklet announcement,” he said. 

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Mexico’s central bank kept its benchmark interest rate unchanged for the first time in eight months today and said it will “extend the pause” in borrowing costs amid an economic recovery.

The bank’s five-member board, led by Governor Guillermo Ortiz, held the rate at 4.5 percent, matching the forecasts of all 23 economists surveyed by Bloomberg. The bank had cut borrowing costs at seven previous meetings this year, lowering the rate by 3.75 points from 8.25 percent at the end of 2008.

Policy makers voted to pause as Mexico is showing some signs of recovery from its deepest economic slump in at least three decades, said Francisco Diez, director of currency trading at RBC Capital Markets. The language in today’s statement signals the bank will hold rates for the rest of 2009, he said.

“They are optimistic things will improve, but cautious about weakness in the labor market,” Diez said from New York. “By saying they will extend the pause, they’re saying they may hold until next year.”

After last month’s quarter-point cut, Banco de Mexico said it planned to pause amid signs of economic recovery.

“The board has decided to extend the pause announced in the last press release,” the bank said in today’s statement.

Mexico’s peso strengthened 0.45 percent to 12.8280 per U.S. dollar at 3:35 p.m. New York time.

Economy

The bank said in its statement that the economy will improve in the second half of the year after it shrank 10.3 percent in the second quarter. The contraction in the three months through June was the biggest quarterly decline in gross domestic product since at least 1980, according to data compiled by Bloomberg.

Auto production figures showed “an important increase” in July, bank policy makers said. Output of cars and light trucks fell 25 percent in July from a year earlier, compared with a 48 percent decline in June from the same month in 2008.

A recovery in employment will be gradual and will depend on an improvement in the global economy, the statement said.

“The weaknesses in the economy won’t be as severe as they were in April and May, so it’s not necessary to cut rates,” said Luis Flores, senior economist at IXE Grupo Financiero SA in Mexico City.

Retail sales fell 5.1 percent in June from the same month a year earlier, the country’s statistics agency said today how to get a free credit report. Economists expected a 7.2 percent decline, according to the median of 14 forecasts in a Bloomberg survey.

Record Low

At 4.5 percent, the rate is the lowest since Ortiz began targeting the overnight lending rate in 2005. Previously, Banco de Mexico implemented monetary policy by targeting the money supply through a system known as the “corto.”

Lower interest rates can help prompt businesses to invest and consumers to buy on credit. Cheaper loans also can spur inflation by strengthening demand.

Mexico’s economic slump deepened in the second quarter and job losses accelerated as the recession in the U.S., which buys about 80 percent of Mexican exports, sapped demand for its products.

Latin America’s second-biggest economy will contract the most this year among the region’s largest economies, Claudio Loser, former Western Hemisphere director for the International Monetary Fund, said on a conference call yesterday.

The central bank forecasts GDP will shrink as much as 7.5 percent this year, which would be the most since 1932. Brazil’s economy will only contract 0.34 percent this year, according to a survey by that country’s central bank.

Inflation

Inflation has slowed according to forecast and will continue to do so, the bank said today. The annual rate fell to 5.44 percent last month from 5.74 percent in June, the lowest in a year.

The central bank forecasts inflation of no more than 5.25 percent in the third quarter, slowing to as low as 4 percent by the end of the year. The bank’s inflation target is 3 percent by the end of 2010.

A widening fiscal deficit may lead the government to increase costs for public services such as electricity and water, which would fuel inflation, said Alejandro Ascencio, an economist at Bursametrica Management in Mexico City.

Morgan Stanley said in a report this week that the government would have to boost gasoline and diesel prices as much as 15 percent next year to cover an expected revenue shortfall through higher fuel prices, assuming oil prices of $60 a barrel.

That would add 0.6 percentage point to annual inflation, putting the rate at about 4.5 percent by the end of 2010, the report said.

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The Obama administration may elevate Ron Bloom, head of the government’s auto task force, to a job that would set U.S. manufacturing policy more broadly, people familiar with the matter said.

Bloom, a former United Steelworkers union adviser and Lazard Ltd. investment banker, helped guide General Motors Co. and Chrysler Group LLC through bankruptcy as part of the government’s rescue of the auto industry. The task force will continue, and it hasn’t been decided whether Bloom will remain its leader while taking on the new role, the people said.

The move may alleviate criticism from Democratic allies that the administration spent billions of dollars to prop up investment banks and did little to aid average Americans. Manufacturing employment in the U.S. has fallen to 11.8 million workers, the lowest level since 1941. The White House expects the unemployment rate overall to rise above 10 percent.

“A fork in the road was taken that emphasized the resuscitation of Wall Street rather than the resuscitation of Main Street,” said Leo Hindery Jr., an investor in media companies and former chief executive of AT&T Broadband. Jobs “need to be the product of a policy” and Bloom is “very cognizant of these issues,” he said.

Creating such a post may also help ease concern that President Barack Obama’s economic policies haven’t been effective enough. He signed a $787 billion stimulus measure in February, promising that the law would save or create 3.5 million jobs over two years.

Jen Psaki, a White House spokeswoman, declined to comment, as did Treasury spokesman Andrew Williams.

Auto Panel

Some details of Bloom’s position are still being worked out, the people said. The auto panel’s role is diminishing now that the companies have gone through restructuring.

As the chief policy maker on manufacturing, Bloom would be charged with reviewing U.S. competitiveness in the global economy. His job would likely encompass trade, taxes and other economic issues, the people said affordable car insurance.

Bloom, 54, has begun reaching out to some of the nation’s largest manufacturing companies to discuss ideas, one of the people said.

The U.S. is the only major country that doesn’t have a coordinated industrial policy, leaving it at a disadvantage to competitors such as China or Germany, Hindery told the Senate Banking subcommittee on economic policy last month. He is also chairman of the Smart Globalization Initiative at the New America Foundation, a policy research group in Washington.

‘Robust Policy’

The panel’s chairman, Senator Sherrod Brown, has called for a “robust national policy” to strengthen manufacturing.

“The risks associated with allowing U.S. manufacturing to wither on the vine — the risks to our economic security, to our energy future, to our national defense — are too great to sit on our hands and let it happen,” Brown, an Ohio Democrat, said at the hearing.

In the U.S., manufacturing employment is down 40 percent from a record 19.6 million jobs in 1979, according to Labor Department figures. Factory workers as a share of all non-farm payrolls in the U.S. have shrunk to 9 percent, from 22 percent three decades ago.

While the Bush administration created a position at the Commerce Department for a so-called manufacturing czar, Bloom’s job would be higher profile, the people said.

Bloom became head of the Treasury Department’s auto task force in July when Steven Rattner stepped down.

The government controls about 61 percent of Detroit-based GM and 10 percent of Chrysler in exchange for loans that kept the automakers from liquidating.

GM left Chapter 11 protection on July 10 as General Motors Co. Auburn Hills, Michigan-based Chrysler Group LLC was formed from most of the assets of Chrysler LLC on June 10 by a group led by Fiat SpA.

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Last year was a bad one for most chief executives — but not for the top 10 highest paid CEOs.

Seven chief executives took home more than $100 million in 2008, and three others had paydays that topped $70 million, according to a report released Friday by The Corporate Library.

According to the report, Blackstone’s Stephen Schwarzman was the highest paid CEO in 2008, taking home $702,440,573 in salary and stock options. The head of the financial services giant vested nearly $700 million worth, or 25% of the stock options he was granted after taking Blackstone (BX) public in 2007.

Schwarzman will receive the other 75% of his $4.7 billion equity grant from the IPO in equal installments over the next four years, so he will likely remain at the top of this list for at least the next several years.

A Blackstone spokesman stressed that the $702 million for Blackstone is not "compensation," but is mostly the vested portion of his stock from the IPO.

Oracle (ORCL, Fortune 500) Chief Executive Lawrence Ellison, 2007’s highest paid CEO, was second on the list, pocketing nearly $557 million.

Like Schwarzman, most of Ellison’s compensation came from exercised stock options, which totaled $543 million from a whopping 36 million options. That’s despite a 21% drop in Oracle’s share price over 2008. With 33.4 million stock options still outstanding and a 24% rise in Oracle’s stock, Ellison’s likely to keep his top spot on the list in 2009 online payday loans.

The next seven highest paid CEOs all helm energy companies: Ray Irani of Occidental Petroleum (OXY, Fortune 500), John Hess of Hess Corp (HES, Fortune 500)., Michael Watford of Ultra Petroleum (UPL), Aubrey McClendon of Chesapeake Energy (CHK, Fortune 500), Bob Simpson of XTO Energy (XTO, Fortune 500), Mark Papa of EOG Resources (EOG, Fortune 500) and Eugene Isenberg of Nabors Industries (NBR).

Oil prices — and the stock price of most energy companies — rocketed higher in the first half of 2008, before plummeting lower in the end of the year. Despite that roller coaster, these CEOs’ stock options were still worth quite a bit.

And coming in at No. 10 was Michael Jeffries, chief executive of Abercrombie & Fitch (ANF). Despite a tough year for retail, in which Abercrombie’s stock dropped nearly 70%, Jeffries made more than $60 million in stock options.

Jeffries was also awarded a $6 million "stay bonus" after remaining as the company’s chairman and CEO through December 2008, on top of his $1.5 million salary, $1.3 million for personal aircraft usage and $382,687 towards his 401(k).

– CNN’s Christine Romans contributed to this report. 

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The Bank of Japan may extend its emergency credit programs into 2010 should funding conditions fail to improve enough, minutes from last month’s policy meeting show.

The central bank extended the steps for three months until Dec. 31 at the July 14-15 gathering because some companies were still struggling to obtain credit, according to the minutes released today in Tokyo.

“Another extension might become necessary if the bank’s judgment was that the situation had not improved sufficiently,” some members said. At the same time, “further improvement in the situation would justify termination of the measures.”

Governor Masaaki Shirakawa said this week that any recovery in the economy won’t be impressive as demand may not pick up enough to sustain growth. His remarks indicated that the bank won’t hurry to stop buying corporate debt from lenders and raise the key interest rate from 0.1 percent.

“The issue is whether the board can maintain its outlook for a recovery” in the second half of the year ending March 31, said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. “If it can’t, it will probably extend the credit programs again, probably through March.”

Japan’s 10-year bonds rose for a fourth day on concern a global economic recovery may be weak, sending the yield two basis points lower to 1.39 percent at 11:19 a.m. in Tokyo. The yen traded at 95.33 per dollar from 95.48 late yesterday.

Return to Growth

The world’s second-largest economy probably grew last quarter for the first time in more than a year as rebounds in exports and consumer spending helped the country emerge from its worst postwar recession, the government is expected to say next week.

An index measuring demand for services unexpectedly rose in June, the Trade Ministry said today, spurred by Prime Minister Taro Aso’s 25 trillion yen ($262 billion) stimulus.

Since lowering the overnight rate in December, the central bank has been buying commercial paper and corporate bonds from lenders to funnel cash to companies. It has also offered to provide banks with limitless credit in exchange for eligible collateral. Economists surveyed by Bloomberg expect the key rate to stay unchanged at least through 2010 payday advance.

‘Safety Valve’

Some board members said the commercial paper purchases acted as a “safety valve” for corporate funding even though bids by lenders to sell such debt failed to reach the amounts offered by the central bank in recent months. One policy maker said ending the purchases as scheduled in September would have a “considerable negative impact on market sentiment.”

Members agreed they should take into account that funding conditions have improved when they judge whether to extend the credit programs into 2010. Companies with high debt ratings are finding it easier to sell debt, while lower-rated businesses are still struggling to obtain credit, they said.

Federal Reserve policy makers this week extended by a month the scheduled end to a $300 billion program to buy U.S. Treasuries, signaling that they will avoid any rush to end their unprecedented efforts to promote lending and support an economic recovery. The Bank of England this month expanded its asset-purchase plan beyond the previous limit, saying the U.K.’s recession has been deeper than officials anticipated.

GDP Report

Japan’s gross domestic product grew an annualized 3.9 percent in the quarter ended June 30, following a record drop of 14.2 percent in the previous three months, according to the median estimate of 22 analysts surveyed before the report due Aug. 17.

Confidence in the Japanese and global economies climbed to a 22-month high in August, according to a survey of Bloomberg users published this week.

More than $2 trillion in emergency spending by governments worldwide has buoyed sales for Japanese makers of cars and electronics. Even so, economists say any recovery is likely to be weak because deflation will persist and shrinking profits will force companies to cut spending and shed workers.

“Japan’s economy is currently riding on a minor upward trend, but we expect it will start losing momentum later this year,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.

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