Reuters News - China January - July FDI falls for first time in 17 months

A man casts a net by the side of a river next to a construction site of new residential buildings in Wuhan, Hubei province, July 31, 2014

(Reuters) - China's foreign direct investment inflows in January-July fell for the first time in 17 months compared with the same period a year earlier, as firms from Japan, Europe and the United States cut spending in the manufacturing sector.

The weak investment data came as China's economic growth appeared to be softening again after a hopeful bounce in June, with indicators ranging from lending to output and investment all pointing to more sluggish activity.

But officials described the sudden drop as an anomaly, and stressed the decline was not due to a spate of recent Chinese probes into foreign firms for alleged monopolistic behavior.

China attracted $71.1 billion in foreign direct investment (FDI) between January and July, down 0.4 percent from a year ago and its first decline since February 2013, the commerce ministry said.

For July alone, the world's second-biggest economy drew $7.8 billion worth of FDI, the least in two years.

"While we are pushing structural reforms in the economy, it is quite normal for FDI flows to fluctuate between months," Shen Danyang, the spokesman at the commerce ministry, told reporters at a monthly media briefing.

"We expect foreign investment to keep a steady growth (pace) in the coming years and total FDI in 2014 to remain at the similar level with last year," he added.

Shen said recent investigations into foreign firms, such as a widening probe into foreign automakers, would not dent the appetite of global investors to tap China's vast market.

"Such thing will never happen that foreign investors are to be scared away by only a few anti-trust investigations," Shen said.

He stressed that China's anti-trust law has been treating all market players equally, as past cases involved both domestic and foreign firms.

In assuring foreign investors, Shen also pledged that China's government will continue to protect legitimate interests of foreign firms and will create transparent and efficient market environment to facilitate foreign investment.

FDI is an important gauge of the health of the external economy, to which China's vast factory sector is oriented, but it is a small contributor to overall capital flows compared with exports - which were worth about $2 trillion in 2013.

Despite recent increases in wages and other operating costs, FDI inflows in China have maintained steady growth every year since the country joined the World Trade Organisation in 2001. Inflows reached a record high of $118 billion in 2013.

And as China's economy matures, more Chinese companies are looking abroad for growth.

Non-financial direct outbound investment by Chinese firms rose 4 percent to $52.6 billion in the first seven months.

CUT-BACKS FROM JAPAN

Data showed that the top 10 foreign investors in the first 7 months were Hong Kong, Taiwan, Singapore, South Korea, Japan, Germany, the UK, France, Netherlands and the United States.

Their combined investment hit $66.8 billion, accounting for 94 pct of total FDI.

Investment from the UK and South Korea grew at the fastest pace in the first seven months, rising 61 percent and 32 percent respectively to $730 million and $2.9 billion.

In contrast, investment from Japan slumped 45 percent to $2.83 billion in the same period, the biggest decline among countries whose FDI into China was reported.

Tensions between China and Japan have increased in the last year due in part to a series of territorial disputes.

FDI from the United States fell 17.4 percent to $1.8 billion, while investment from Europe dropped 17.5 pct to $3.8 billion in the first seven months.

Spending by Southeast Asian countries also declined 12.7 percent to $4.2 billion between January and July compared with the year ago period.

On the whole, the services sector fared better than the manufacturing industry.

FDI into the services industry jumped 11.4 percent to $39.7 billion, while investment in the manufacturing industry fell 14.3 percent to $25.2 billion.

On the trade front, the Commerce Ministry said the export rebound in July signaled a recovery in external demand, though other factors, such as rising input costs for enterprises and intensifying trade disputes could continue to weigh on export growth in the longer term.

"We are still facing relatively great pressure to achieve the annual trade growth target for this year and we definitely need to spend more efforts in the coming months," Shen added.

(Reporting by Aileen Wang; Editing by Kim Coghill)

BBC News - ECB under pressure to boost growth, analysts say

Stagnation in eurozone growth has put pressure on the European Central Bank (ECB) to take measures to stimulate the European economy, analysts say.

A mild winter in Germany had a knock-on effect on construction growth

Growth in the eurozone flatlined in the second quarter, and inflation also dropped, according to official figures.

The eurozone saw 0.0% growth compared with the first quarter, according to Eurostat figures.

Economists said that the figures would add to calls for the ECB to take action to boost growth and avoid deflation.

"Disappointing euro area growth and intensifying disinflation pressures increase the pressure on the ECB for further action in coming months," said Nick Stamenkovic, a strategist at RIA Capital Markets in Edinburgh.

"If the economy disappoints in the second half then the pressure on the ECB to start money-printing in early 2015 will intensify."

Schroders European economist Azad Zangana said: "There will undoubtedly be more pressure on the ECB to do more to boost growth.

"However, ECB president Mario Draghi is likely to argue that stimulus measures announced earlier this summer have yet to feed into financial markets or the real economy."

On Thursday official figures showed that the economic bloc's two largest economies, France and Germany, had both performed worse than expected.

Germany's Federal Statistics Office said the economy was "losing momentum".

German GDP contracted by 0.2% in the three months to the end of June, figures show, after growing by 0.7% in the first quarter.

And official figures show the French economy saw no growth in the quarter.

Italy, the eurozone's third largest economy, fell back into recession.

However, Portugal jumped from a 0.6% contraction in the first quarter to a 0.6% expansion in the second.

And Spain continued to recover, with 0.6% growth.

Meanwhile, annual inflation in the eurozone fell to 0.4% in July, its lowest rate since 2009.

BBC Europe editor Gavin Hewitt said the figures raise the risk of a contraction in general prices in the eurozone.

"The risk of deflation is growing," he said. "French consumer prices fell 0.4% month on month. Portugal's price index slumped 0.7% in July. Spain saw the steepest slide in consumer prices in five years."

Analysis

BBC Business reporter, Theo Leggett:

Last week, the president of the European Central Bank (ECB), Mario Draghi, described Europe's recovery as "weak, fragile and uneven". These figures certainly bear that out.

While the fall in output in Germany is likely to produce the bigger headlines, the most serious problems lie elsewhere.

That isn't to say Germany doesn't face challenges; its exports have already been affected by a slowdown in Russia, for example, while the crisis in Ukraine appears to be weighing down on business confidence.

There is also the question of how much impact sanctions will have.

However, economists believe Germany's economy remains structurally sound - and many of the factors currently limiting growth are short term.

Much greater concerns hang over France, the region's second biggest economy, which has recorded zero growth for the second quarter in succession, and Italy, which has fallen into recession again.

The evidence suggests that the eurozone recovery is faltering, or even going into reverse.

That is likely to increase the pressure on the ECB to follow other central banks by introducing a programme of quantitative easing.

'Significant setback'

The German Federal Statistics Office said that extremely mild weather at the beginning of the year had an effect on growth.

Christian Schulz, senior economist at Berenberg bank, said the contraction in the German economy was a "significant setback".

"It seems to be caused largely by weather," he said. "The mild winter this year means the usual spring recovery in construction didn't happen."

French manufacturing output decreased after midweek public holidays increased potential days off

The crisis in Ukraine may also have had an impact on economic confidence in the country, he said.

"Putin has an impact on confidence, and thus, investment, and also a little bit on exports," Mr Schulz said.

While it is unlikely that economic sanctions on agricultural imports by Russia will have a direct effect on Germany in the third quarter, confidence may be knocked by instability in the region, he said.

German 10-year bond yields, the benchmark for euro zone borrowing costs, were 1 basis point down at 1.022% on Thursday morning, an all-time low.

France was suffering from a "long-term weakness" of lack of reform and underinvestment by business, he added.

French deficit

France has now seen two quarters of zero growth. The lack of growth was weaker than many economists had expected.

France's statistics agency, INSEE, said that GDP had "remained steady" in the second quarter.

It said that manufacturing output decreased again after a "high number of potential extra days off this quarter due to midweek public holidays."

French finance minister Michel Sapin said that France was unlikely to meet its deficit target for this year.

"The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year despite a complete control of spending," Sapin wrote in newspaper Le Monde.

Mr Sapin said that France had revised its annual growth forecast for 2014 down to 0.5% from a previous 1.0% estimate.

Bloomberg News - China’s Savers Put Record $2.1 Trillion in Wealth Products

Photographer: Imaginechina via AP Images

A Chinese clerk counts RMB (renminbi) yuan banknotes at a branch of Agricultural Bank of China (ABC) in Qionghai city, south China's Hainan province.

Chinese households increased the amount of savings diverted into wealth-management products to a record 12.7 trillion yuan ($2.1 trillion) as the government tries to manage risks from an explosion in shadow banking.

The outstanding value rose 24 percent in the first half from the end of last year, theChina Banking Wealth Management Registration System said on its website today. The average annualized return was 5.2 percent, compared with 3 percent for benchmark one-year deposits.

As signs emerge of weakening demand and rising default risks for higher-yield trust products, sales of the wealth products may keep surging. For banks, a more than 12-fold increase in the value of the products since 2009 is pushing up funding costs, threatening to weigh on profits.

“Compared with trust products, wealth-management products are less risky,” Cao Yang, an analyst at Shanghai Pudong Development Bank Co., said by phone.

China’s government is trying to contain risks outside the formal banking system while sustaining growth as the property market slumps and the economy heads for the slowest expansion since 1990.

Trust companies’ assets under management fell in June, the China Trustee Association said Aug. 11. Investors have protested outside some banks this year after delays in trust-product payments.

Minimum Investment

Wealth-management products typically require a minimum investment of 50,000 yuan, while trusts target wealthy clients with a minimum investment of 1 million yuan.

Today’s number compares with a 44 percent gain in the value of the wealth products in 2013, according to the China Banking Regulatory Commission. Almost 70 percent of the outstanding value of the wealth funds was invested in bonds, the money market and bank deposits as of the end of June, according to today’s report. About 23 percent were in so-called non-standard credit assets, such as loans.

Premier Li Keqiang is trying to give markets a bigger role in the world’s second-biggest economy. In a report in January, Standard Chartered Plc economist Stephen Green said that wealth-management products are “where China’s new middle class is meeting interest-rate deliberalization, and so far, households like what they see.”

While the products are not “a financial black hole,” they expose investors and banks to “ill-defined risks” and lack transparency, Green said.

Shadow Assets

China’s shadow banking, including wealth products, trusts, money-market funds and some interbank lending is estimated at 27 trillion yuan, or about 19 percent of the nation’s total banking assets, researchers of the Chinese Academy of Social Sciences said in May.

Almost 60 percent of outstanding wealth-management products by value were bought by retail customers, with institutional investors, private-banking clients and interbank funds accounting for the rest, today’s report said.

Bank of China Ltd. is set to be the first of China’s big banks to report second-quarter earnings, on Aug. 19. Lenders are facing growing competition from Internet funds, trusts and brokerages for the nation’s 49.6 trillion yuan of household savings.

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net

BBC News - German and French economies stumble in second quarter

German GDP contracted by 0.2% in the three months to the end of June, figures show, after growing by 0.7% in the first quarter.

Germany's Federal Statistics Office said the economy was "losing momentum" after its trade balance had a negative effect on economic development.

And official figures show the French economy saw no growth in the quarter.

France has now seen two quarters of zero growth. The lack of growth was weaker than many economists had expected.

France's statistics agency, INSEE, said that GDP had "remained steady" in the second quarter.

It said that manufacturing output decreased again after a "high number of potential extra days off this quarter due to midweek public holidays."

French finance minister Michel Sapin said that France was unlikely to meet its deficit target for this year.

"The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year despite a complete control of spending," Sapin wrote in newspaper Le Monde.

'Significant setback'

The German Federal Statistics Office said that extremely mild weather at the beginning of the year had an effect on growth.

Christian Schulz, senior economist at Berenberg bank, said the contraction in the German economy was a "significant setback".

"It seems to be caused largely by weather," he said. "The mild winter this year means the usual spring recovery in construction didn't happen."

The crisis in Ukraine may also have had an impact on economic confidence in the country, he said.

"Putin has an impact on confidence, and thus, investment, and also a little bit on exports," Mr Schulz said.

While it is unlikely that economic sanctions on agricultural imports by Russia will have a direct effect on Germany in the third quarter, confidence may be knocked by instability in the region, he said.

France was suffering from a "long-term weakness" of lack of reform and underinvestment by business, he added.

Bloomberg News - Mighty Franc Spells Headwinds for Made-in-Switzerland Label

Photographer: Gianluca Colla/Bloomberg

Sirius Retrograde Day watches on display during the Baselworld luxury watch and jewelry fair in Basel, Switzerland

The mighty franc is undermining the “Made in Switzerland” label.

For exporters, it’s a double whammy. The depreciation of emerging-marketscurrencies against the franc is making Swiss products less attractive. At the same time, operating factories in the Alpine nation is becoming increasingly expensive.

“The way the franc is now is not acceptable in the mid-term or long-term,” said Nick Hayek, chief executive officer ofSwatch Group AG (UHR), the Swiss watchmaker that exports 90 percent of its goods. “We have to fight against it, not say ‘Well, we can’t do anything about it.’”

As Europe’s slumping economy pushed the franc near parity with the euro in 2011, Swiss companies ramped up exports to faster-growing countries like China. The Swiss National Bank’s effort to protect industrial exports by enforcing a cap of 1.20 francs per euro for the last three years has failed to halt gains against other currencies.

The value of exports to emerging markets such as Indonesia and Turkey has been dented as investors pulled cash out of developing economies, weakening their currencies. Over the last 12 months the rupiah and lira have lost 14.2 percent and 13 percent respectively against the franc.

“If it carries on like this, we’re worried,” said Rudolf Minsch, chief economist of business lobby Economiesuisse. “The strong franc compared with emerging nation currencies, the yen and the dollar, once more burdens the margins of Swiss companies.”

FX Fluctuations

The franc traded at 1.2134 against the euro an at 90.79 centimes against the dollar at 8:10 a.m. in Zurich today, little changed from yesterday.

The foreign-exchange fluctuations have reduced the value of sales from abroad for multinational companies such as Holcim Ltd. (HOLN), Roche Holding AG (ROG) and Nestle SA (NESN) when they’re converted back into francs.

The gain of the Swiss currency wiped $1 billion off sales in the six months through June for Holcim, the Jona-based maker of cement.

“The Swiss franc clearly has strengthened considerably more than other currencies,” Thomas Aebischer, Holcim’s finance chief, said on July 30. As a general rule, companies that report in francs feel a bigger impact than competitors reporting in euros, he said.

The strong franc is a more serious challenge for exporters like Swatch and small- and mid-size companies with factories in Switzerland, where shop-floor workers earn some of the highest wages in Europe.

Wage Costs

Freitag, a Zurich-based maker of designer bags, said it feels the effect of the strong franc since most of its production and wage costs are Swiss. For now, Freitag isn’t considering moving production abroad, Chief Executive Officer Hans Haefliger said by e-mail.

“Such considerations shouldn’t be taboo, if they make financial sense and also fit from an environmental point of view,” he said.

Landlocked Switzerland, which has a population about three times smaller than Texas, created some of the world’s first multinationals, as industrialists took their drugs and machinery abroad.

Mikron Holding AG (MIKN) started in 1908 and helped industrialize the watchmaking industry with its metal-cutting tools. With a majority of its 1,100 employees spread across production sites in Agno and Boudry, Switzerland, Mikron is vulnerable to the ebbs and flows of international currency movements.

The company has countered fierce competition from European and U.S. rivals in recent years by ramping up production in Germany as well as buying from countries that use the euro, Chief Finance Officer Martin Blom said by e-mail.

‘Swissness’ Rules

The government is making it harder to enjoy the price premium and reputational privileges of being “Made in Switzerland.”

A bundle of “Swissness” laws will come into force in 2017 to guard the authenticity of the marketing tag. Industrial products such as watches will have to prove that at least 60 percent of manufacturing costs are Swiss.

VIU Ventures, a Zurich-based start-up, which makes spectacle frames, has Swiss designers and outsources manufacturing to Italy.

“Honestly, it would take 3D printing to manufacture our glasses in Switzerland,” VIU’s co-founder Kilian Wagner said in an interview. “The manufacturing expertise for making frames is in Italy, and the personnel costs in Switzerland are extremely high.”

‘Painful’ Franc

The SNB should be more unpredictable to drive down the franc’s value and keep industry in Switzerland, said Swatch’s Hayek, adding that he’s competing with Japanese, Chinese and Indian companies that have lower cost bases.

“The SNB is giving the impression that it’s happy with 1.20 francs per euro, and it’s not going to move anymore, and that’s bad,” Hayek said. The SNB should create the impression it’s possible it might let the franc weaken more, he said. “The uncertainty that maybe the SNB still would go up to 1.25, if it’s at 1.23, would help.”

One franc was worth 25 cents in the early 1970’s, today it’s worth more than a dollar, which shows how exporters have had to adapt to the currency to thrive.

Hariolf Kottmann, CEO of Basel-based chemicals maker Clariant AG (CLN), began a restructuring of the company five years ago that included closing or selling some Swiss operations and shifting production and employees to emerging markets where revenue is growing. In the end, strong currencies make companies more efficient, he said.

“It’s more painful, but in the long term more rewarding to have a strong currency.”

To contact the reporters on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net; Jan Schwalbe in Zurich at jschwalbe6@bloomberg.net

Reuters News - Japan firms finally get pricing power just as economic growth sputters

Japan's Prime Minister Shinzo Abe speaks during a news conference at his official residence in Tokyo July 1, 2014.

CREDIT: REUTERS/YUYA SHINO

(Reuters) - Japanese companies, long bedevilled by deflation, are finally starting to pass on higher costs to their customers just as the economy stumbles, potentially complicating decisions for Prime Minister Shinzo Abe and the central bank.

Early signs indicate that price rises and expectations of further inflation are building as a labor shortage and Abe's stimulus policies allow companies to charge customers more.

Electronics makers are selling pricier TVs and PCs, a railway has jacked up some luxury fares by 20 percent, corporate sponsors are chipping in more prize money at sumo bouts and resorts in Hokkaido have stopped years of discounting.

But even as the psychology of 15 years of deflation appears to be changing, the economylikely contracted sharply in the three months after a sales tax hike on April 1, and it might slip into recession this summer as output and exports sink and consumption remains sluggish.

"What could happen in Japan is a situation where low economic growth and higher inflation coexist," said Hideo Hayakawa, a former top economist at the Bank of Japan. "That could happen due to capacity constraints that will put upward pressure on wages and prices, even when the economy is weak."

The promise of "Abenomics" has been that ultra-loose monetary policy and government spending would push up prices and company profits, in turn boosting wages and spending in a virtuous circle of sustained growth. An export rebound spurred by a weaker yen was supposed to cushion the blow from a drop in consumption after the tax increase, but that has not happened.

If Japan gets only the inflation without the growth, pressure will grow on the BOJ to add to its enormous asset purchases that sparked the rebound, while Abe will find it more difficult to sign off on a planned further increase in the sales tax, seen as key to curbing Japan's huge public debt.

"The BOJ argues that as inflation expectations heighten, it will boost household spending, but we haven't seen that fall in place yet," said Masamichi Adachi, senior economist at JPMorgan Securities Japan. "What's important is for expectations of wage growth to heighten, but we're not sure that is happening yet."

HIGH-END PRICING POWER

Data on Wednesday is expected to show the economy shrank at a 7.1 percent annualized rate in the second quarter as the tax hike hit consumption, according to a Reuters poll. The biggest drop since the global financial crisis would more than reverse the first quarter's surge ahead of the tax rise.

Recent data showing the weakest factory output since 2011 and a second surprise monthly drop in exports forced economists to cut GDP forecasts and raised the possibility that the economy might not rebound much, if at all, this quarter.

Under pressure from Abe, companies have raised wages and bonuses but not enough to offset the tax increase and higher prices. Wages fell 3.8 percent in real terms in June from a year earlier, the 12th fall in a row.

Inflation, after stripping out the tax hike, is running at about 1.3 percent, though the BOJ has stuck to its target of getting that to 2 percent sometime next year.

Economists have consistently said the BOJ will not achieve its price goal in that timeframe, but they have begun nudging their inflation forecasts higher as the tight labor market and weaker yen push up costs, even as they slash growth prospects.

Deflation-era icon Bic Camera Inc (3048.T), a leading electronics retailer, sees the tide shifting from heavy discounting toward selling high-end products like ultra-high definition 4K TVs that sell for some 300,000 yen ($2,900) – a third more than conventional high-definition models.

"We get the sense prices are rising a bit," said spokesman Masanari Matsumoto. "Overall, high-end products are selling well. We hear customers saying that while prices are still important, they care more about extra features and quality."

Sony Corp (6758.T) expects 4K and other models with screens larger than 46 inches to account for half of Japan's TV sales this year, up from 40 percent last year and 30 percent in 2012.

"We're clearly seeing a shift in trend where companies, instead of cutting prices, are trying to heighten the quality of their goods to sell them at higher prices," BOJ Governor Haruhiko Kuroda told a recent news conference. "I think fewer companies will continue to resort to the type of price competition they deployed in times of deflation."

SIGNS OF WEAKNESS AHEAD

Nearly 90 percent of the items in the core consumer price index rose in June from a year earlier, including some that were emblems of deflationary price-cutting: TVs were up 8 percent, desktop PCs 22 percent and air conditioners 15 percent.

Even small and mid-size service companies, especially sensitive to consumer trends, are gaining some pricing power. More of these firms raised prices than cut them in the second quarter, for the first time since 1991.

Companies also are charging each other more for services such as transport and advertisement.

Still, the bullish trend may not be sustainable, as household spending fails to bounce back strongly and income growth remains weak.

"The economy needs to stay firm for companies to remain active in passing on costs," BOJ board member Koji Ishida said recently.

Sales at family restaurant chain Royal Holdings Co (8179.T) rose for two months after the tax hike, but fell in June and July. "There has been a shift in consumer sentiment from around late June," said company President Tadao Kikuchi.

Light vehicle sales fell in July for the first time in 13 months.

"It's hard to predict the outlook for July-September onward," said Masahiko Nagao, a senior executive of Suzuki Motor Corp (7269.T).

(Additional reporting by Teppei Kasai and Ritsuko Shimizu; Editing by William Mallard & Kim Coghill)

Reuters News - Europe's fragile economy put to test as Ukraine, Iraq sour mood

A worker is seen behind scaffoldings at a construction site near the Fernsehturm television tower in Berlin July 7, 2014.

CREDIT: REUTERS/THOMAS PETER

(Reuters) - Investors will gauge the strength of the euro zone's fragile economy this week as escalating conflicts in Ukraine and Iraq darken the mood globally.
In stark contrast to the United States and Britain, which are growing strongly, economic output in the euro bloc is likely to have all but ground to a halt in the three months to June. Its star economy, Germany, is losing momentum and Italy is sliding back into recession.

"The United States and the United Kingdom are going to be among the fastest-growing economies both this year and next," said James Knightley, an economist with ING. "In Europe, the situation seems to be going into reverse."

The growing sanctions fight between Russia and the West over Moscow's backing of rebels in Ukraine and U.S. air strikes to block Islamist militants in Iraq are also upsetting themarkets.

On Thursday, the European Union announces economic output data for the 18 countries in the euro zone for the April-June quarter, and Germany will reveal its own gross domestic product for the same period.

By these yardsticks, neither Germany nor the wider euro zone are expected to see much, if any, improvement on the first three months of the year.

To compound matters, tit-for-tat sanctions between Moscow and the European Union and fears that Russia could even invade eastern Ukraine are already sapping business confidence and will eat into paltry economic growth later this year.

Not only does Moscow supply about a third of the European Union's gas needs, trade ties in other areas between Russia and Europe run deep.

German energy giant E.ON, for instance, has invested 6 billion euros ($8 billion) since 2007 in Russia, while chemicals firm BASF has a joint venture with Gazprom.

"For a long time, the market has been ignoring the geopolitical risks," said Gregor Eder, an economist with Allianz, one of the globe's largest fund investors.

"The escalation in Ukraine and a spiral of sanctions could be a turning point for that. Exports to Russia were already falling even before Ukraine and could fall further. The Iraq crisis increases nervousness further."

PAY CHECK

With Europe looking gloomy and the days of mega-growth in China over, the United States has offered some hope for the world economy.

Investors will seek to gauge the strength of the U.S. rebound by examining the latest figures for retail sales and producer prices there.

Many are looking for reassurance, as they are in Britain, that economic growth is trickling down to workers' pay - important proof that the recovery will stick when central banks make it more expensive to borrow.

But the Bank of England is set to acknowledge surprisingly weak pay growth on Wednesday when it publishes economic projections, raising questions about Britain's readiness for its first interest rate hike since the financial crisis.

Although unemployment is set to fall, earnings are also forecast to be lower than a year earlier. There is a similar gap in the United States between rising numbers of people in work and lagging pay.

"To have confidence in the recovery in the United States and United Kingdom, wages need to rise in line with credit," said ING's Knightley.

"The cost of living continues to exceed wage growth. People need to see that they have more cash at the end of the month so that they are not borrowing out of necessity."

In China, industrial output readings will give investors a glimpse of the country's performance in the third quarter of the year after government moves to boost lending to business, such as shrinking the amount of cash that banks must hold in reserve.

China's economy gathered pace slightly to grow by 7.5 percent in the second quarter as the government stepped up construction of railways and public housing.

But a downturn in property prices, despite efforts to make it easier to buy, as well as high local government debts, are holding up the economy.

Analysts believe that deeper reforms, such as overhauling giant state companies, will be needed in the long term to keep the economy growing at the pace the authorities want.

In the meantime, the euro zone remains the globe's problem child.

Last week, the European Central Bank signaled that it stood ready to print money and buy bonds if the euro zone deteriorated, a pledge to act that the Frankfurt-based bank has made many times in the past.

ECB President Mario Draghi underscored that he would not be discouraged from taking such action by the fact that the United States was plotting a different course.

His words alone, however, may not be sufficient to reassure investors unnerved at the prospect of the U.S. Federal Reserve drawing the purse strings ever tighter.

"There has been this fantastic monetary policy experiment where policy has never been looser," said Paul Dales of Capital Economics, which advises companies and others.

"You have to get things back to normal. But no-one really knows how it's going to play out because no-one has been through it before."

(1 US dollar = 0.7470 euro)

(Additional reporting by Kevin Yao in Beijing, Martin Santa in Brussels, William Schombergin London and Jason Lange in Washington; Editing by Hugh Lawson)