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Obama says rescue working but data weak

  President Barack Obama said on Tuesday his economic measures were starting to work but government data showed an unexpected drop in US retail sales in March and US stocks retreated sharply.

Goldman Sachs sold $5 billion of stock, a day after the bank sparked confidence by beating forecasts with its first-quarter profit, saying it wanted to pay back $10 billion in government bailout money it does not need. But a source said the US Treasury was worried Goldman’s repayment could make other banks appear weak.

In Europe, disappointing earnings for Dutch electronics giant Philips added to evidence the recession was still taking its toll, while Swiss bank UBS was set to cut thousands more jobs.

Obama said moves to recapitalize banks, strengthen the housing market and rescue the auto sector were “necessary pieces of the recovery puzzle.” “And taken together, these actions are starting to generate signs of economic progress,” he said in a speech on his team’s rescue efforts since he took office in January. “There is no doubt that times are still tough. By no means are we out of the woods yet.”

Federal Reserve Chairman Ben Bernanke said there were hopeful signs despite the 16-month US recession, including the latest data on home sales, homebuilding and consumer spending, as well as sales of new cars. “A leveling out of economic activity is the first step towards recovery,” Bernanke said in remarks prepared for a speech on Tuesday.

But both Bernanke and White House economic adviser Christina Romer said the economy was still contracting. “We know the economy’s still sick,” Romer told NBC television. “We know we’ve got several more months of job loss, for example. We know that the numbers on GDP are almost surely going to be very bad for this quarter and next.”


US stocks were around 2% lower as the poor numbers for retail sales and producer prices offset better-than-expected quarterly results from healthcare group Johnson & Johnson. Outside the United States, shares rose on the Goldman Sachs results, with European banks especially getting a boost despite the weak US data.

“People have been seeing some green shoots,” said Georgina Taylor, equity strategist at Legal & General Investment Management in London. “But there’s absolutely no evidence that final demand is recovering. Equity markets are doing what they typically do -- trying to pre-empt the recovery a couple of quarters ahead.”

The dollar and yen rose as the US data and caution before a string of corporate earnings boosted safe-haven flows into the two currencies. US Treasury debt prices climbed as investors moved out of riskier investments. Oil was little changed around $50 a barrel.

Philips Electronics posted a core first-quarter loss and said it did not see its markets improving in the April to June quarter. Analysts said other company results in Europe were likely to be poor. General Motors shares were up 6% in New York but growing concerns that it might file for bankruptcy weighed on auto stocks in Europe, as competitor Chrysler pinned its hopes on a tie-up with Fiat.

GM, operating with $13.4 billion in emergency federal loans, has until June 1 to win sweeping concessions from bondholders and the United Auto Workers union.

Goldman Sachs, by paying back the taxpayer funds, would free itself from many government restrictions, including caps on executive pay. Compensation for the bank’s chief executive, Lloyd Blankfein, fell to $1.1 million last year from $70.3 million in 2007, its proxy filing showed.

AFL-CIO, the largest US labor federation, added fuel to the debate over top-level pay with a survey showing more chief executives got raises than cuts last year as companies struggled and millions of Americans lost jobs. “When it comes to CEO pay, many companies continue to hew to the fiction of pay for performance,” said Daniel Pedrotty, director of the AFL-CIO’s Office of Investment.


Governments also weighed action to boost their economies. Russian Finance Minister Alexei Kudrin said Moscow may borrow abroad next year for the first time in a decade. That could make borrowing easier for Russian firms as the crisis eats into state reserves and weakens the once buoyant economy. “For us, it will take several years to exit the crisis,” Kudrin told a ministry meeting.

Spanish Prime Minister Jose Luis Rodriguez Zapatero, who last week fired his economy minister, said Madrid was ready to implement more economic stimulus measures if necessary. Denmark’s new prime minister, Lars Lokke Rasmussen, said his government could do more to cushion the downturn’s blow.

In trade-dependent Singapore, gross domestic product fell at a seasonally adjusted annualized pace of 19.7% in the first three months of the year, the trade ministry said. The city-state’s central bank responded to the weak GDP data and soft export figures by easing monetary policy and effectively devaluing the Singapore dollar.

But there were some hints of improvement within the weak Singapore data. The rate of decline in non-oil exports slowed from January and February and shipments to China rose for the second straight month.

This offered signs that China, the world’s third-largest economy and a major holder of US government debt, may be headed for a recovery. “It seems that the first quarter will be the worst and things will start to get better,” said David Cohen at Action Economics in Singapore. (Reuters)