21 August 2010 - Global Markets Review

Good Morning Ladies & Gentlemen,

I have tried to steer clear of the US and its economic problems; believe me, I would rather discuss anything in the markets, other than the US.

However, whichever way we look at market positioning right now, it is impossible not to look at the US and the effect the economy over there is having on global finance.

Let's face it, global markets are an absolute follower of the US in both negative news and news that is positive - and we have seen plenty of 'positive news' since the 2007-2009 crash.

China can and does move global markets, but the swings are pretty marginal in comparison to how the mighty US can move markets from Rio to Sydney in the blink of a computer screen.

So it was no surprise this week that we saw further negative employment and manufacturing figures come out of the US; in fact, I have been expecting it for weeks and have even gone as far as to say, with confidence, that we are going to see a 'double-dip'.

As we stand today, markets are not just waving a few negative indicators around, they are actually waving a massive 'red flag' to show that not only will growth slow for the remainder of this year, but yes Ladies and Gentlemen, there is 'danger' ahead.

Rhetorical question; arrive in Bali with the family and go down to the beach to cool off. There is a 'red flag' being flown at the water's edge. Would you go into the water then?

So why is it that so many people listen to these so-called 'experts' and keep throwing their money at the markets when the red flag is fluttering heavily in the wind?

I'm not going to go on a Saturday morning rant, but I just want to say that those 'thrill seekers' that go against red flags, will be the ones eagerly searching for the lifeguards in the not-too-distant future.

10 more days and we see the majority of people back from their summer sojourns and as I mentioned last week, that when I think markets are going to move in a much larger trading range and from where I am sat today, that only looks like going one way - down!

Let's face it, major US companies such as 3M, General Electric and Boeing would all be hurt by a slowdown in the recovery from the worst recession since the 1930s (and the most naive 'bounce-back' I believe on record).

A lack of jobs raises the risk that consumer spending will weaken further, just as manufacturing, which led the rebound, shows signs of stumbling.

Jobless claims exceeded estimates of all economists surveyed and compared with the median forecast of 478,000. Estimates ranged from 460,000 to 495,000. The government revised the prior week's claims figure to 488,000 from a previously reported 484,000.

The claims figures correspond with the week the Labour Department surveys companies to compile the monthly employment data. The four-week moving average of claims increased to 482,500 last week, the highest level since the week ended Dec. 5, 2009, from 474,500.

Up to their old 'tricks' again it seems - revising figures to the negative - that is always a worrying sign!

Then you have the fact that this week's reports may feed voter discontent with the state of the economy heading into the November elections that will determine which party controls congress. President Barack Obama today said the jump in unemployment claims shows the urgent need for congressional action on legislation to cut taxes and ease credit for small businesses. Obama once again called on Republicans to stop blocking the measure and said lawmakers should take up the bill when they reconvene in September.

Republican lawmakers are critical of the president's efforts to overhaul health-care policy and financial regulations, as well as the $862 billion stimulus measure, as economic growth and hiring have fallen short of some administration projections.

The Fed Bank of Philadelphia's factory index fell to minus 7.7 this month, the lowest reading since July 2009, from 5.1 in July. Economists surveyed projected it would increase to 7. The area covers eastern Pennsylvania, southern New Jersey and Delaware.

The bank's measures of orders and shipments dropped, mimicking the results of a Fed Bank of New York report earlier this week that showed bookings and sales also decreased in its region. The bank's so-called Empire State Index increased less than forecast as a result.

Manufacturing jumped in July as American factories churned out more cars, computers, appliances and machinery, a report from the Fed in Washington showed this week. A slowdown in consumer spending will reduce the need to rebuild inventories, while cooling growth overseas may limit exports, meaning the pace of industrial expansion may moderate.

Carmakers aren't going to charge ahead in coming months. Ford alone has no plans to increase production of any of its current models because demand is fragile in the weak economic recovery.

While companies have boosted payrolls seven straight months, firings have remained hugely elevated. Private firms added 71,000 jobs in July, fewer than economists had forecast, according to government figures released 6 August. Unemployment held at 9.5%, near a 26-year high of 10.1%.

I'll say it again just for those of you that have summer sand in your ears - you cannot fix global economies until the unemployment is under control!

I read a great article this week that pretty much sums up how I feel. I'm going to take the meat off of the bone and give you the main focus.

The global economy is like fried ice cream: If you don't act fast, it turns into a mess.

American pundits, Nobel laureates included, are predicting Japan-style deflation for the US and Europe. They are urging the Federal Reserve to pursue another round of quantitative easing to stop the onset of an Ice Age for Western economies. The Fed didn't oblige at its last meeting, but it threw a bone to the deflation crowd by promising not to pull money out of its previous round of asset purchases to stimulate a recovery.

On the other side of the world, consumer prices are surging. Emerging markets as a whole now have an inflation rate of more than 5%. India is registering price increases of more than 13%. China's are more than 3%. But it surely feels a lot higher for average Chinese.

Much of the "heat" comes from the property market in emerging markets. Million-Dollar flats in Mumbai have panoramic views of the city's slums. Hong Kong's real-estate prices have almost reclaimed their 1997 peak, though the economy has barely grown since then in per-capita terms. Overpaid bankers who pay 15% income tax in Hong Kong are stretched to buy Beijing or Shanghai properties. Moscow is somehow always near the top of the list of the world's most expensive cities.

Deflation prophets in the West are in for a rude awakening. Eastern fire will turn Western ice into a mess, and 2012 looks like it will be the year of melting. The fuel for the fire is coming from deflation-fighting stimulus programs, such as that of US President Barack Obama.

Stimulus is prescribed as a panacea for recession. In today's global economy, it isn't effective in the best of circumstances and is outright wrong for what ails the West now.

Trade and foreign direct investment total half of global gross domestic product. Multinational corporations drive both. They shop around the world for the lowest-cost production centers and ship goods to wherever the demand is. Demand and supply are dislocated. So when a government introduces stimulus, the initial increase in demand doesn't necessarily boost local supply. More importantly, if multinationals decide to invest somewhere else, there wouldn't be an increase in jobs to sustain the growth in demand beyond the stimulus.

Just as water flows down, stimulus affects low-cost economies more, wherever it is initiated. As the West pours money into the global economy through large fiscal deficits or central banks expanding balance sheets, the emerging economies are drowning in excess liquidity. Everything is turning red-hot.

How will this all end? Ideally, before inflation takes hold in the US and Europe, the costs in emerging economies will rise high enough for multinationals to invest and hire in the West again. I wouldn't count on that. The average wage in the developed economies is 10 times that in emerging markets. There are five people in the latter for one in the former.

A more likely scenario is that the West will have to stop stimulus programs when inflation spreads to it from the emerging economies. The most immediate channel is through rising commodity prices. It's a tax on the West to benefit emerging economies that produce raw materials. That's the irony: The stimulus in the West can immediately bring harm to itself. It's also the magic of globalization.

The prices of imported consumer goods will rise with increasing Labour costs in emerging economies. China's nominal GDP is growing at about 20% per year. The odds are that its Labour costs will surge as its worker shortage bites.

Lastly, Labour in the West will demand wage increases to compensate for current and future inflation. One may argue that high unemployment rates will keep wages in check. Think again. In the 1970s, the US suffered a wage-price surge even with high unemployment because workers saw through the Fed's "growth first and inflation be damned" intention.

In 2012, the Fed will run out of excuses not to raise interest rates. As the excess liquidity in the global economy will be gigantic by then, the tightening will probably trigger a global crisis as asset bubbles burst.

What really ails the West is declining competitiveness. Globalization is pitting the Wangs in China or Gandhis in India against the Smiths in the US or Gonzalezes in Spain.

Multinationals such as General Electric or Siemens decide on whom to hire. The Wangs and the Gandhis offer productivity but have little money. So they are willing to accept low wages to accumulate wealth. The Smiths and the Gonzalezes have wealth and won't accept Third World wages. When their governments give them money to spend, their demand just makes the Wangs and the Gandhis richer and themselves poorer with rising national debt.

The West must wait for the Wangs and the Gandhis to become rich enough so that they demand Western wages and spend like the Smiths and Gonzalezes.

It is a long and painful process for the West. And there is no way around it, whichever way you look!

Food for thought on this sunny Saturday morning.

On to those numbers for the week that was:

US Markets

How the US did this week .....

US Summary Stocks on Wall Street fell for a second day, ending lower for the second consecutive week as concerns about the US economy continued to weigh on investor sentiment.

The Dow Jones Industrial Average lost 57.59 points, or 0.56%, to finish at 10213.62, leaving it in negative territory for the week, month and year. The Dow remains down 2.1% for the year.

Leading the its decline, Hewlett-Packard dropped 2.2%. The technology giant's profit climbed 6.1% on higher worldwide sales in its fiscal third quarter, its final quarter with Mark Hurd at its helm.

The Nasdaq Composite rose less than one point to 2179.76 while the S&P 500 index slipped 3.94 points to 1071.69.

A release by Department of labour on Thursday showed that number of Americans filing first- time claims for unemployment benefits jumped 12,000 to 500,000 in the week ending August 14. Economists expected jobless claims to decline to 475,000. The four-week average of seasonally adjusted initial jobless claims, a less volatile gauge, increased 8,000 to 482,500. Continuing claims for the week ending August 7 dropped 13,000 to 4.48 million.

Shares of AT&T declined 52 cents, or 1.93%, to $26.45.

3M lost $1.15, or 1.41%, to close at $80.66.

Shares of General Electric slumped 22 cents, or 1.44%, to $15.03.

Bank of America fell 15 cents, or 1.15%, to $12.87. Citigroup slid 4 cents, or 1.06%, to $3.75.

Among energy stocks, Chevron dropped 79 cents, or 1.04%, to 75.05. Exxon Mobil slipped 40 cents, or 0.67%, to $58.89.

AnnTaylor Stores said Friday that it swung to a second-quarter profit of $18.6 million, or 31 cents a share, from a loss of $18 million, or 32 cents a share, in the year-ago period. Revenue increased to $485.3 million from $470.2 million in the same quarter last year. Shares of the company rallied 43 cents or 2.78% to $15.90.

Hewlett-Packard reported Thursday that its fiscal third-quarter profit rose 6% to $1.8 billion, or 75 cents a share, from $1.7 billion, or 69 cents a share, in the year-ago quarter. On an adjusted basis, the company earned $1.08 a share in the latest quarter. Revenue increased $30.7 billion from $27.6 billion in the same quarter last year. Shares of the pc maker declined 91 cents, or 2.23%, to $39.85.

Dell said that its second-quarter net income climbed to $545 million, or 28 cents a share, from $472 million, or 24 cents a share, in the prior-year quarter. On an adjusted basis, the company earned $629 million or 32 cents a share in the latest quarter. Revenue jumped to $15.5 billion from $12.8 billion. Dell shares rose 3 cents, or 0.25%, to $12.07.

Salesforce.com reported Thursday that its second-quarter net income dropped to $14.7 million, or 11 cents a share, from $21.2 million, or 17 cents per share, in the year-earlier quarter. Adjusted earnings stayed flat at 29 cents a share. Revenue rose 25% to $394.4 million. For fiscal 2011, the company expects earnings per share in the range of 43 cents to 45 cents per share, and adjusted earnings per share of $1.15 to $1.17. The company also boosted its revenue forecast for fiscal 2011 to a range of $1.595 billion to $1.6 billion. Shares of the business software provider soared $16.34, or 16.95%, to $112.75.

Gap said that its second-quarter net income rose to $234 million, or 36 cents a share, from $228 million, or 33 cents a share, in the comparable quarter last year. Revenue increased 2% to $3.32 billion in the period to from $3.25 billion. Shares of the casual-apparel retailer slumped 39 cents, or 2.20%, to $17.32.

Lorillard, the third largest manufacturer of cigarettes in the United States, announced Friday that its Board of Directors approved a 12.5% increase in the quarterly dividend on its common stock from $1.00 per share to $1.125 per share. The dividend is payable on September 10, 2010 to stockholders of record as of September 1, 2010. The company's Board of Directors also approved a share repurchase program, authorizing the Company to repurchase in the aggregate up to $1.0 billion of its outstanding common stock. Shares of the company fell 54 cents, or 0.72%, to $74.74.

European Markets

What has been happening in Europe this week .....

Europe Summary European equities hit their lowest level in a month as confidence waned in the wake of tumbling global markets and a series of disappointing economic data from the US.

The FTSE Eurofirst 300 sank 0.7% to 1,029.59 and lost 1.5% over the week as three consecutive sessions of losses at the end of the week reversed early gains.

The financial and construction sectors were hit the hardest in the sell-off.

In Frankfurt, Commerzbank declined 0.8% to €6.73, losing 1.4% for the week. Rival Deutsche Bank lost 3.9% to €50.84 over the five days.

The Xetra Dax was down 1.2% to 6,005.16 Thursday, a loss over the week of 1.7%.

In Paris, Credit Agricole declined 1.9% to €10.03 , down 2.5% for the week. Societe Generale lost 1.4% to €41.10 for a 5.2% five-day fall.

The CAC 40 declined 1.3% to 3,526.12, its lowest close for a month. It fell 2.3% for the week.

Construction stocks were hit towards the end of the week after Zurich-listed Holcim, the second-biggest cement maker in the world, dropped when its first-half earnings failed to impress investors on Thursday. It ended the week down 5.1% to SFr62.15.

In Frankfurt, HeidelbergCement fell 2.6% to €33.53 Thursday, losing 3.1% for the week.

In Paris, materials company Saint-Gobain was down 2.4% to €30.15 Thursday while conglomerate Lagardere dropped 2.1% to €27.40.

Dutch recruiter Brunel dropped 3.3% to €20.30 after its first-half earnings missed forecasts. That sent rivals down across the region.

In Zurich, Adecco slumped 4.7% to €48.70, down 7.5% for the week.

In other sectors, Frankfurt-listed salt and potash miner K+S fell 2.2% to €42.63 but managed to rise 0.8% for the week after making big gains on the back of takeover talk in the sector following BHP Billiton's $39m bid for Canada's PotashCorp.

Dutch insurer Aegon fell 3.2% to €4.33 but finished flat for the week after making big gains when the European Commission approved its recapitalisation under European Union state aid rules.

GERMANY

German stocks fell, with the benchmark DAX Index registering its second consecutive weekly loss, led by drops in HeidelbergCement and carmakers.

HeidelbergCement and Bayerische Motoren Werke both retreated more than 1.5%, as companies considered sensitive to economic growth led declines on European equity markets. Merck KGaA, the world's largest maker of liquid crystals used in flat-panel displays, decreased after a report said that Sharp Corp., Japan's largest maker of liquid-crystal display panels, will cut production.

The DAX Index slid 1.15% to 6,005.16, a weekly drop of 1.8%. The gauge has fallen 5.5% from this year's high on 9 August, as the Federal Reserve said the pace of recovery in the U.S. economy will probably be "more modest" than forecast. The broader HDAX Index also slipped 1% Friday.

HeidelbergCement, the world's largest maker of aggregates used to produce concrete and asphalt, retreated 2.5% to 33.59 Euros.

BMW and Daimler AG, the world's biggest makers of luxury cars, respectively declined 1.6% to 42.17 Euros and 1.1% to 39.46 Euros.

Merck fell 0.9% to 67.43 Euros. Sharp will reduce its output this month of components that it sells to other companies, such as Sony Corp., because of higher television inventories in the U.S. and China, Nikkei English News reported, without saying where it obtained the information. The lower level of production may last as long as two months, Nikkei said.

European Aeronautic, Defence & Space slipped 1.6% to 17.93 Euros in Frankfurt. Nomura Holdings Inc. cut its recommendation to "neutral" from "buy" on the shares.

German retail sales turnover decreased by a real 0.3% month-on-month in June after seasonal and calendar adjustments, the Federal Statistical Office reported Wednesday. Methodological improvements led to a revision in retail sales turnover data released on July 30. The initial estimate for June was a 0.9% fall.

Annually, turnover in retail trade grew 4.7% in real terms and 5.3% in nominal terms in June. The provisional results had indicated an increase of 3.1% in real terms and 3.8% in nominal terms on the same month of the previous year.

Further, new results showed that retail turnover in the first half of 2010 was up a nominal 1.8% and a real 0.9% on the first half of 2009.

German annual producer price inflation continued to increase in July, a report by the Federal Statistical Office showed on Thursday.

The producer price index, or PPI, rose 3.7% year-on-year in July, faster than a 1.7% growth in the previous month. Producer prices increased for the fourth consecutive month. Economists were looking for an increase of 3.3%.

The price index for intermediate goods grew 5.5% annually in July, accelerating from 5% in June. Prices of metals climbed 19.2% and rolled steel increased 25.3%. Raw material prices rose 7.1%, while price index of fertilizers and nitrogen compounds grew 6.8%. Energy prices were up 6.7%.

On a monthly basis, the PPI rose 0.5% in July, slower than a 0.6% growth in the previous month. However, the monthly producer price inflation rose for sixth straight month. Economists had expected an increase of 0.1%.

Excluding energy, producer prices increased 2.4% on an annual basis in July and was up 0.1% compared to the preceding month.

FRANCE

France's CAC 40 Index declined 1.3% to 3,526.12 at the 5:30 p.m. close in Paris, extending this week's loss to 2.4%. The SBF 120 Index also fell 1.3% to 2,616.17 Friday.

EADS NV, the parent company of Airbus, dropped 1.8% to 17.90 Euros after Nomura Holdings Inc. lowered its recommendation on the shares to "neutral" from "buy."

Separately, Thai Airways International PCL denied a report in Les Echos that it's in talks with Airbus for a $9 billion- plus contract, French daily La Tribune reported on its website, without citing anyone.

Hi-Media rallied 2.3% to 3.13 Euros after the maker of pop-up screens for Internet advertising said German companies Bigpoint and Turtle Entertainment have placed orders for its micropayment product Allopass.

Total lost 0.8% to 37.77 Euros. Crude oil dropped for a third day, falling as much as 1.6%.

France's government cut its forecast for economic growth next year as President Nicolas Sarkozy prepares for the biggest budget squeeze in at least two decades.

The Euro area's second-largest economy will expand 2% in 2011, instead of the 2.5% previously predicted, Sarkozy's office said Friday in an emailed statement. The target of a deficit of 6% of GDP next year doesn't depend on the level of economic growth, the statement said.

The reduction, flagged by ministers since early July, brings the government's growth outlook into line with that of major international forecasters and is intended to reassure the nation's European partners that France is serious about meeting its deficit-reduction commitments.

The Paris-based Organization for Economic Cooperation and Development predicts French gross domestic product will expand 2.1% next year, while the International Monetary Fund expects growth of 1.6%.

This year's target of growth of 1.4% will be met or exceeded, the statement said.

The government's earlier forecast implied a faster improvement in tax receipts and therefore a less urgent need to slash spending and raise taxes as part of Sarkozy's effort to reduce the budget deficit.

France has pledged to cut the shortfall to 6% of GDP next year and to 3% by 2013 from about 8% in 2010.

That's the biggest deficit reduction since at least 1991. The next-biggest cut came in 1996, when the deficit was slashed to 4% from 5.5% in a move that helped spark a month-long public-sector strike in November and December 1995.

A leading indicator of the French economy fell for the first time in over a year in June, dampening the prospects for Europe's second largest economy.

The Conference Board leading index declined 0.3% in June from May, reversing the 0.2% increase in the previous month. Six of the seven components of the index declined in June, led by production expectations, building permits, and industrial new orders.

Meanwhile, the coincident index, which is a measure of current economic activity, fell 0.1% in June as a result of decreasing industrial production and personal consumption of manufactured goods. This follows a 0.3% increase in May.

Positive contributions to the index came from wages & salaries, and employment.

BELGIUM

The Bel 20 in Brussels ended the week at 2,452.32, down 0.88%.

Belgium's trade balance showed a deficit of Eur 0.3 billion in May, widening from a Eur 0.1 billion deficit recorded a year ago, the National Bank of Belgium said on Monday.

Exports increased 23.4% year-on-year to Eur 17 billion in May, while imports grew 24.9% to Eur 17.3 billion. For the average three months ended in May, the volume of exports and imports rose by 13.6% and 13.5%, respectively compared to the same period of the previous year.

Belgium's economy expanded in the second quarter from the previous quarter. The gross domestic product, or GDP, increased 0.7% sequentially in the second quarter, following a flat reading in the previous quarter. Consumer prices in Belgium increased for the eighth consecutive month in July, driven by higher energy prices. Annual inflation accelerated slightly to 2.57% in July, the highest rate since December 2008, from 2.46% in June.

Financing for the next phase of the Thornton Bank wind farm is now complete, announced C-Power, the Belgian company developing the North Sea project.

The total cost of this phase is estimated at 1.25 billion Euros, of which 950 million has been financed by the European Investment Bank, Denmark's Eksport Kredit Fonden and Germany's Euler Hermes. Commercial banks - including Société Générale, KBC, Rabobank, Commerzbank, Dexia and ASN Bank - are providing the rest.

It is the largest funding ever made in the offshore sector, according to C-Power. It is also, according to the company, the first transaction in which banks have financed the construction of 6-megawatt turbines.

The Thornton Bank Wind Farm (sometimes also spelled Thorntonbank) is situated approximately 30 km (18.6 miles) off the Belgian coast.

The first phase of the project, which went online in 2009, put into service five REpower turbines with a combined capacity of 30 megawatts (MW).

The second phase's 48 new turbines will be installed between 2011 and 2013.

When the three-phase project is completed, C-Power says the 300-MW farm will generate 1000 gigawatt hours of electricity per year, enough for 600,000 inhabitants.

THE NETHERLANDS

In Amsterdam the AEX headed into the weekend on 318.02, down 1.35%.

Financial services group Aegon announced on Wednesday it will pay back the state loan it received in 2008 within a year.

Aegon received €3 bn from the government's rescue fund and has already paid back €1 bn.

The company will pay off €500 mln this month and the remaining €1.5 bn before the end of June 2011.

Fourteen Dutch pension funds will have to cut their pay-outs to pensioners within a few months, it is widely reported on Wednesday. The cuts will affect around 700,000 people, of whom 150,000 will feel the direct effect because they are already retired.

The reduction in pensions was announced on Tuesday evening by acting social affairs minister Piet Hein Donner and the central bank. Because of its duty of confidentiality, the bank cannot say which pension funds are affected.

The pension funds have been hard hit by the economic crisis and several have seen their coverage ratio fall below the required 105%.

Reductions in pension pay-outs will vary from 1% to 14% and will be introduced on January 1. The hardest hit will be those who have already retired. The under-65s still have time to make other savings or may see the financial situation improve.

The cuts are a direct result of Donner's decision to terminate an exemption measure for weak pension funds. He made the decision on the advice of the central bank because members of the 14 pension funds involved are receiving a pension that is not fully covered.

In 2009 it emerged that 340 of the 600 pension funds are short on coverage. Most of them think this can be solved by increasing premiums, no longer correcting for inflation or through financial help from employers.

Dutch consumer confidence indicator improved in August from the preceding month.

The consumer confidence index increased to minus 11 in August from minus 14 in the previous month, a report the Central Bureau of Statistics showed on Thursday. A year earlier, the indicator was at minus 16.

The economic climate indicator rose to minus 14 in August from minus 19 in the previous month. The index measuring the economic situation in the last twelve months increased to minus 25 from minus 31 in July. Similarly, consumer's assessments on economic situation in the next year rose to minus 4 from minus 8.

Meanwhile, indicator for consumer's willingness to buy, was at minus 8 in August, up from minus 10 in July. The index measuring consumer's financial situation in the last year decreased to minus 15 from minus 12 in July, while the index for financial situation in the next twelve months rose to minus 4 from minus 6.

SWITZERLAND

Zurich's SMI drew a line under the trading week at 6,185.82, a drop for the session of 1.52%.

Switzerland's trade surplus increased in July as exports rebounded from a plunge in June, while imports dropped for a second month.

The trade balance showed a surplus of CHF 2.88 billion in July compared to CHF 1.77 billion in June, the Federal Customs Administration said on Thursday. The expected surplus was CHF 1.82 billion.

Reversing last month's 5.5% decrease, exports grew by a real 1.9% on a monthly basis in July. Meanwhile, imports dipped 4%, smaller than the 10.2% contraction seen in June.

Annually, growth in exports as well as imports eased sharply in July. Exports showed an annual growth of 2.2% in real terms after rising 14.7% in June. At the same time, imports rose 0.3%, much smaller than the 13.2% increase seen in June.

From January to July, strong exports boosted the foreign trade surplus. Exports grew 7.5% in nominal terms to CHF 112.8 billion and imports were up 6.4% to CHF 99.9 billion, resulting in a surplus of CHF 12.88 billion.

Elsewhere, data from the Federation of the Swiss Watch Industry FH showed an increase in export value of watch. The value advanced 19.9% in July from the previous year, to attain a level of CHF 1.4 billion. The cumulative result since the beginning of the year totaled CHF 8.7 billion, up 19.6% from the same time last year.

Developments among the Swiss watch industry's main markets were varied. While, Hong Kong recorded another very strong performance, the US showed that its situation was still not completely clear with a sluggish result in July, the report showed.

Switzerland-based Holcim has posted a net profit of SFr611 million ($586.5 million) for the first half of 2010, down 22.4% against the same period last year.

The world's second-largest cement maker said in a report published on Thursday that a slow recovery in European construction had eaten into second-quarter profits, which slumped 12% to SFr399 million.

Net sales for the first six months of 2010 had topped SFr10.9 billion, up 8.1%. The figures beat analysts' expectations of SFr469 million in profit on sales of SFr10.7 billion.

Holcim says it has seen some signs of improvement, particularly in the United States where cement consumption is up for the first time in years. However, it cautioned that the recovery is still uncertain but that demand is expected to grow in Latin America, Africa, the Middle East and Asia Pacific.

The company employs around 80,000 people with production sites in about 70 countries. In 2009, Holcim recorded sales of over SFr21 billion Swiss francs.

Net profit for Switzerland's largest insurer rose by 94% in the first half of 2010 to SFr269 million ($258 million), up from SFr139 million a year earlier.

Zurich-based Swiss Life announced on Wednesday that group premium income increased 20% to SFr12.2 billion, as economic recovery persuaded customers to invest again in life insurance policies in Germany and France.

Operating profit for the first six months of the year was SFr415 million, up from SFr251 million for the same period in 2009.

AWD, a German group of independent financial advisers bought for €1.2 billion (SFr1.6 billion) in 2008, reported an operating profit of €20.4 million, putting it on course for the full-year operating profit target of €40-50 million.

Swiss Life has said the costly investment is crucial to growing sales of its products, particularly in the strategically important German market.

AUSTRIA

The ATX in Vienna rounded out the Friday session and the week at 2,442.14, a Friday decline of 0.42%.

Austria's consumer price inflation edged down in July, latest report from Statistics Austria showed Monday.

The consumer price index, or CPI, rose 1.9% annually compared to June's 2% increase. The CPI growth slowed as clothing prices and charges at restaurants and hotels rose at a slower annual pace than in June. On a monthly basis, the CPI fell 0.4%.

The harmonized index of consumer prices, or HICP, rose 1.7% annually in July following a 1.8% increase in June. Compared to June, the HICP was down 0.5%.

Producer price inflation in Austria accelerated to 3.5% year-on-year in June from 2.9% in May, Statistics Austria said Thursday.

The increase of the Price Index in June mainly reflected the price rises in intermediate goods.Producer prices in intermediate goods industries recorded an annual increase of 5.8%.

Also, there was a 5.8% year-on-year increase in energy prices, contributing positively to the overall index. In May, energy prices were up 7.7%.

Excluding energy prices, the producer price index would have risen 3% annually. Factory prices of consumer goods rose 0.1% annually in June.

Month-on-month, producer prices rose 0.5% in June, mainly due to increase in production costs of basic metals and fabricated products and energy supply.

On a quarterly basis, producer prices rose 2% in the second quarter. In the first half, prices registered an increase of 1.4% over the first half of 2009.

Austrian economy expanded faster than expected in the second quarter, according to Austrian Institute of Economic Research, or Wifo. The gross domestic product grew 1.9% year-on-year in the second quarter, after the economy stagnated in the second quarter.

Upper Austrian notebook producer Quanmax suffered a drop in profit while managing to raise its equity in the first half of this year.

The Linz-headquartered company - which is listed on the Frankfurt Stock Exchange (FWB) - said Friday (Weds) net profit had declined from 1.99 million Euros to 1.7 million year on year during the first six months of 2010.

Quanmax, formerly named Gericom, announced that turnover had soared by 17% to 32.7 million Euros. The firm added its equity had strongly increased from 18.1 million Euros last December to 31.1 million Euros last month.

The company said its earnings might decline temporarily in the near future due to planned acquisitions in the appliances sector. Quanmax, however, stressed that it expected its turnover to surpass the 100-million-Euro hurdle by 2012.

Telekom Austria (TA), Austria's leading mobile services provider, suffered a significant year on year decline in earnings in the first half of 2010, it has emerged.

The Vienna-based firm - which is party state-owned - said Friday earnings before interest and taxes (Ebit) dropped by 14.2% to 300.5 million Euros, while earnings before interest, taxes, depreciation and amortisation (Ebitda) shrank by 10.3% to 403.8 million Euros.

Turnover edged down by 1.9% to 1.169 billion Euros in the first six months of this year compared to the same time span in 2009, the firm headed by Hannes Ametsreiter added.

TA workers' union leaders have expressed fears the company will make dozens of landline specialists redundant later this year due to a massive decline in interest in those products. TA said Friday the "competitive field remains challenging", adding that it had managed to reduce losses in both the mobile communication and landline sectors in the first half of this year.

TA said it expected its 2010 Ebitda to amount to 1.6 to 1.65 billion Euros.

The company has around 16,000 employees and more than 21 million customers in Austria and eight other Central and Eastern European (CEE) countries. It dominates the mobile communications, internet and landline market in Austria.

SWEDEN

The OMX in Stockholm completed a hectic trading week on 1,020.63. a heavy 1.90% off the pace Friday.

Fitch Ratings affirmed Sweden's sovereign credit ratings and retained its outlook on Friday. The long-term foreign and local currency Issuer Default Ratings were affirmed at 'AAA', respectively. The outlook on ratings remained stable. The rating agency simultaneously affirmed short-term foreign currency IDR at 'F1+' and country ceiling at 'AAA'.

"Sweden's public finances have been resilient in the face of a 5% real contraction of the economy in 2009, and together with the high savings rate, reflected in the large current account surplus, are key strengths underpinning the sovereign ratings," said Eral Yilmaz, director in Fitch's Sovereign group.

For 2010, the Swedish government has adopted a budget with additional stimulus measures and Fitch is forecasting a widening of the budget deficit to 2% of GDP. The agency expects Sweden's general government debt burden to remain below the 'AAA' median in the medium-term. Debt was 42% of GDP at end-2009, below the 'AAA' range median of 52%.

"Furthermore, Sweden's banking sector, which is large relative to the country's GDP, has not had to turn to the sovereign for any notable capital support despite its significant exposure to the Baltic countries," Yilmaz added.

Swedish industries' capacity utilization rate fell 0.5 percentage points to 84.2% in the second quarter from the first quarter, Statistics Sweden said Wednesday.

Compared to the second quarter last year, capacity utilization increased 7.6 percentage points. The manufacturing sector's capacity utilization rate dropped to 84.2% from 84.8%, while in the mining sector, it improved to 88.6% from 88.5%.

Meanwhile, total stocks or inventories in industry increased by SEK 3.8 billion in the June quarter, rising 2.2% from the March quarter. Compared to the second quarter of 2009, total stocks in industry went up 5.3%.

As political parties battle it out for grey vote ahead of the upcoming elections by promising the largest tax cuts, a report by finance firm AMF shows that Swedish pensioners enjoy the best financial situation in Europe.

Even without the tax cuts, the situation for pensioner groups is improving with them suffering lower rates of financial deprivation than other groups in society.

The proportion of pensioners with low economic standards has fallen steadily since 2000, when it was about 7%. By 2007, the figure had fallen sharply to only 2%.

In the same time period, among the general population, the figure increased over the years from 8% to just under 15%, according to the Ministry of Health and Social Affairs.

The increase in Swedish housing prices has ceased with prices in greater Stockholm falling by 4% over the past month, according to new figures from Mäklarstatistik which attributes the impact of the pending general election.

The house price climb which has begun to raise the concern of the Riksbank, which raised interest rates in July for the first time since 2008, appears to have eased with average apartment prices down 6% in July and houses falling 1% nationwide.

But in the central areas of Sweden's major cities the prices remained stable. In Gothenburg apartment prices in fact climbed by 5%, the new market report from Mäklarstatistik shows.

DENMARK

Copenhagen's OMX closed out the Friday trading session on 398.29, down 1.51% for the Friday session.

Windmill firm Vestas has announced disappointing half year figures, which have surprised the financial world and led to the company decreasing expectations for the year as a whole.

A second quarter negative EBITDA of 148 million Euros, or 1.1 billion kroner, has led to the company adjusting its 2010 revenue expectations to 6 billion kroner, down from 7 billion kroner.

The company's chief executive Ditlev Engel revealed that although orders have picked up again during 2010, it was the number of orders in 2009 that caused the loss. Vestas, who also announced it will be making 300 employees redundant in Denmark, has had a particularly good summer, receiving orders worth10 billion kroner, but these won't impact until 2011.

Shares in the company fell by 18% in Wednesday morning trading.

Pan-Scandinavian airline SAS has lost close to a billion kroner during the first six months of the year, after tax.

However, the post-tax loss of 958 million over the first half of the year is an improvement on the same period last year, when the airline lost an additional half a billion kroner. And it is believed that if the airline had not been hit by the effects of the Icelandic ash cloud that grounded flight traffic in April, it would have posted a positive figure for the second quarter of 2010. The ash cloud cost the firm an estimated 550 million kroner.

CEO Mats Jansson announced last week that he is stepping down later this year after four years at the helm of the airline.

Shipping giant Mærsk has used the financial crisis to trim the company and has Friday released impressive figures for the first half of 2010, posting a profit of 14.2 billion kroner after tax.

During the first six months of the year, Mærsk made a pre-tax profit of 27 billion kroner, an increase of 332% compared to the same period in 2009.

The impressive profits have led to the firm increasing their year-end profit prediction by a further 3 billion kroner - the third time during 2010 that Mærsk has upgraded its expectation.

Mærsk attributed the impressive results to the recent increases in oil prices and activity in the shipping container market.

Danish producer prices increased in July, a report by the Statistics Denmark showed on Monday.

The producer price index rose 5.7% year-on-year in July, Meanwhile, the domestic produced goods prices increased 4.7% and imported goods prices grew 6.4%.

On a monthly basis, the overall price index for domestic supply of goods rose 0.3% in July. At the same time, the domestic produced goods prices grew 1% and imported goods prices slipped 0.3%. Prices increased mostly on fish and fish products by 2.9% and raw materials for agriculture, by 1.3%.

Meanwhile, industrial price index increased 4.6% on an annual basis in July and was up 0.7% compared to the preceding month.

Danish consumer price inflation increased in July. Annual inflation was 2.3% in July, up from 1.7% in June. The economy expanded at a faster pace in the first quarter. The gross domestic product grew 0.5% sequentially in the first quarter, faster than a 0.2% growth in the previous quarter.

FINLAND

In Helsinki the OMX finished the week at 6,619.18, down 1.18%.

Finnish wages and salaries sum of the whole economy increased at a faster pace in June, a report by the Statistics Finland showed on Monday.

The wages and salaries sum of the whole economy grew 2.8% year-on-year in June, faster than a 1.5% growth in the previous month. Wages and salaries increased for the fourth consecutive month. A year earlier, wages and salaries decreased 0.8%.

In the April to June period, the wages and salaries sum of the whole economy climbed 1.8% compared to the corresponding period of the previous year. In the same period last year, wages and salaries slipped 0.8%.

During the period, the wages and salaries sum grew in all main industries with the exception of manufacturing, where it contracted by 2.3%, the statistical office said. Wages and salaries in financial inter-mediation grew 3.4% and construction increased 0.9%. Wages and salaries in trade and other services grew by 1.1% and 2.1% respectively.

Finnish producer price inflation increased in July, a report by the Statistics Finland showed on Tuesday.

The producer price index, or PPI, rose 6.7% year-on-year in July, faster than a 5.2% growth in the previous month. Producer prices increased for the sixth month in a raw. A year earlier, the PPI decreased 9.6%.

The rise in producer prices for manufactured products was mainly due to increase in prices of metals, pulp and oil products from the previous year and the growth was curbed by fall in electronic products prices, the statistical office said.

On a monthly basis, the PPI for manufactured products grew 0.3% in July, but slower than a 0.5% growth in the previous month. The rise was mainly due to increase in prices of metals. Producer prices increased for the tenth consecutive month since October 2009, when it rose 0.1%.

Import price index increased 8.1% on an annual basis in July, slower than the 8.2% growth in the previous month. A year earlier, import prices slipped 12.6%. At the same time, export price index grew 6.6%, rising from 4.9% in June. Import prices climbed for the fifth straight month.

Month-on-month, import prices slipped 0.6% in July, and export prices grew 0.1%.

Meanwhile, the wholesale price index, or WPI, rose 7.3% on an annual basis in July, faster than 5.7% growth in the previous month. Wholesale prices inflation rose for the fifth straight month. A year earlier, the WPI slipped 10.7%. On a monthly basis, the WPI rose 0.9%.

Finnish overnight stays increased in July from the previous year, a report by the Statistics Finland showed on Thursday.

The number of nights spent by foreign tourists at Finnish accommodation establishments totaled 480,000 in July, which was 3% higher than the previous year. By contrast, the number of nights spent by domestic tourists decreased 5.5% from a year earlier. Thus, the total number of overnight stays fell by 4% to 1.9 million nights.

Germans were the largest group of foreign visitors with 65,000 nights spent in June, but it was 7% lower than the previous year. Overnights stays made by the Russian tourists dropped 12% to 60,000.

On the other hand, overnight stays by the Swedish tourists increased 3% annually to 55,000 in June. At the same time, nights spent by French visitors increased by 17% and overnight stays by visitors from the United States climbed 11%.

NORWAY

Oslo's OBX pulled the curtains on the trading session Friday at 323.77, down 1.06%.

In July, Norwegian exports came to NOK 61.7 billion, while imports reached NOK 33.3 billion. This gave a trade surplus of NOK 28.4 billion, NOK 2.9 bill higher than in June, but NOK 1.6 bill lower than July last year.

The increase in trade surplus from June to July this year is explained by higher import figures in the first month. The decline in trade surplus compared with July last year is explained by both higher imports and reduced exports in July this year.

The export value of crude oil in July came to NOK 23.2 billion; only a marginal decline from July last year. However, there was a major difference in the distribution between price and volume. The number of crude oil barrels exported was 48.0 million, compared to 56.5 million in July last year. The price per barrel was on the other hand much higher: NOK 485 in July this year and only NOK 412 in July last year. Compared with June this year, both the price per barrel and the number of barrels exported were somewhat down. Looking at the first seven months this year, there was a fall in the number of barrels exported of 8% compared to January to July last year. A similar comparison for the price per barrel showed an increase of 35%.

The exported value of natural gas in July came to NOK 11.4 billion. This is a 6.5% fall from July last year, due to lower export volume. The exported volume in July also fell compared with June this year.

The export value in July excluding ships, oil platforms, crude oil, condensates and natural gas ended at NOK 26.2 billion. This was only a marginal decrease from July last year.

Exports of chemicals and related products amounted to NOK 3.5 billion. This is an increase of NOK 760 million or 27.5% from July last year.

The value of exported seafood from Norway in July reached NOK 3.8 billion. This is an increase by 15% compared with July last year. The growth has been continous over the past 9 months.

For the seven first months of this year the value of exported seafood was NOK 27.9 billion. This is four billion higher than for the same period last year, according to the Export Council for Fish.

The export of Norwegian salmon increased by NOK 565 million, or 26% in July.

So far this year Norway has exported salmon worth NOK 16.6 billion, an increase by nearly 30% compared with the same period in 2009.

Norwegian total gross debt amounted to NOK 4.3 trillion at the end of May, data from Statistics Norway said Monday. Gross debt increased at a pace of 2.3% in May after recording 1.7% rise in April. About 89% of the gross debt came from mainland Norway.

The general public gross foreign debt, which mainly relates to non-financial enterprises, amounted to NOK 802 billion in May. External loan debt eased 5.2% compared to 7.5% drop in the previous month.

At the same time, domestic gross debt, or C2 showed an annual rise of 4.1%, slightly faster than the 4% growth seen in April. The credit indicator C2 amounted to NOK 3.5 trillion at end-May.

Norwegian exports dipped 1.2% in July from the previous year to NOK 61.7 billion, Statistics Norway reported Monday. The export value in July excluding ships, oil platforms, crude oil, condensates and natural gas totaled NOK 26.2 billion. This was only a marginal 0.1% decrease from July last year.

At the same time, the import value of goods excluding ships and oil platforms amounted to NOK 33.3 billion, up 2.6% from the previous year. The trade surplus fell to NOK 28.37 billion from NOK 29.94 billion last year.

SPAIN

The IBEX in Madrid drew to a close Friday on 10,094.30, dropping 1.40% on the day.

Spanish industrial turnover and new orders increased at a slower pace in June, a report by the National Institute of Statistics showed on Tuesday.

Industrial Turnover index increased 9% year-on-year in June, slower than a 9.9% growth in the previous month. However, the turnover increased for the sixth straight month. A year earlier, industrial turnover slipped 20.9%.

Industrial turnover in consumer goods grew 4% annually in June, faster than 2% in the previous month. Turnover of durable consumer goods climbed 12.4% and non-durable goods increased 3.2%. Capital goods turnover increased 4.7% and intermediate goods turnover rose 12.3%.

For the first six months of the year, industrial turnover increased 7.6% compared to the same period of the previous year.

Meanwhile, industrial new orders rose 10.7% on an annual basis in June, slower than a 12.4% growth in the previous month. New orders increased for the seventh month in a raw. A year earlier, new orders slipped 22.6%. In the January to June period, industrial new orders climbed 8.4% over a year ago.

Separately, the statistical office said, the service sector turnover increased 7.1% year-on-year in June, faster than a 4.8% growth in the previous month. Turnover increased for the fourth straight month. Turnover in trade grew 9.4% and other services rose 2.8%. In transport and storage, turnover climbed 7.5%.

Spanish merchandise export growth weakened in June, while the trade deficit swelled, official data showed Tuesday.

Exports of goods increased 16.6% annually in June, slower than the 25.7% growth in May, the Ministry of Industry, Tourism and Commerce said. Imports rose 22.1% year-on-year compared to 26.1% in the previous month.

The trade deficit widened to Eur 4.71 billion, which was 45.6% higher than June last year. In May, the trade balance recorded a deficit of Eur 4.17 billion. Energy deficit increased 59.5% from the same month last year, while the non-energy shortfall grew 23.6%.

In June, the biggest growth in exports was posted by capital goods industry, with an export share of 20.5%. Automobile sector had a 17.8% export share. Exports of capital goods increased 20.5% annually, while exports of automotive sector advanced 7.9%.

Meanwhile, imports of energy products grew 48.5% year-on-year. There was a 49.7% increase on purchases of oil and derivatives and 55.4% for gas. Purchases of equipment grew 15.1% annually, while purchases of chemical products showed a slight increase of 0.8%.

During the first half of the year, Spanish goods exports increased 16.3% year-on-year and imports grew 14.5%. As a result, the trade deficit increased 8.6% year-on-year to Eur 26.2 billion during the period.

Data from the National Institute of Statistics showed that both industrial turnover and new orders increased at a slower pace in June. Industrial Turnover index rose 9% annually in June, slower than a 9.9% growth in May. Meanwhile, industrial new orders rose 10.7% annually, slower than a 12.4% growth in the previous month.

The Spanish economy grew 0.2% in the June quarter, a modest pick-up from the 0.1% expansion in the first three months of the year. Prior to the first quarter, the economy had contracted for six straight quarters as it endured its worst downturn in decades. Still, the gross domestic product was down 0.2% on an annual basis.

PORTUGAL

Lisbon's PSI General concluded the week Friday at 2,624.80, absolutely a flat 0% gain or loss for the session.

Portuguese labour cost growth slowed in the second quarter from the previous year, a report by the Statistics Portugal showed on Friday.

The labour cost index, excluding public administration, rose 1.2% year-on-year in the second quarter, but slower than a 4.2% growth in the previous year. The average costs of labour increased 1.6% and number of hours worked grew 0.3%.

labour costs in construction rose 4.6% annually in the second quarter, while labour costs in hotels and restaurants grew 7.5%. labour costs in human health activities and social support rose 3.8% and financial and insurance rose 3.1%.

Portugal's producer price inflation increased in July from the pervious year.

The producer price index, or PPI, rose 4.2% year-on-year in July, faster than a 3.7% growth in the previuos month, a report by the Statistics Portugal showed on Wednesday. Producer prices incresed for the eighth consecutive month. A year earlier, the PPI slipped 6.7%.

On a monthly basis, the PPI rose 0.2% In July, after a flat reading in the preceding month. In the second quarter, producer prices grew 4% on an annual basis, faster than a 2.2% rise in the previous quarter.

Meanwhile, producer prices in manufacturing industry increased 3.7% annually in July and was down 0.1% compared to the preceding month.

ITALY

Italy's benchmark FTSE MIB Index dropped for a third day, losing 301.81, or 1.5%, to 19,813.88 as of 12:57 p.m. in Milan. The gauge has fallen 3.2% this week.

Assicurazioni Generali fell 1.7% to 14.33 Euros, the lowest in more than six weeks. Daiwa Securities Group reiterated an "underperform" rating on Europe's third-biggest insurer. The brokerage lowered its 2010 net profit estimate by 14% to take into account "a higher combined ratio forecast, a lower Life operating profit, lower non-operating investment income, and higher non-operating expenses." Daiwa also cut its 2010 dividend estimate to 50 Euro cents a share from 56 cents.

Buzzi Unicem, Italy's second-biggest cement maker, lost 1.9% to 7.52 Euros, a third straight decline as construction stocks were the worst performers in Europe Friday. Italcementi SpA (IT IM), Italy's biggest cement maker, retreated 1.9% to 5.77 Euros.

Finmeccanica retreated for a third day, losing 2.6% to 8.07 Euros. Nomura International Plc trimmed its price estimate on Italy's biggest defense company to 10 Euros from 13.3 Euros. The brokerage kept a "buy" rating.

Impregilo advanced 1.2% to 2.04 Euros, ending a two-day loss. UBS AG upgraded Italy's biggest builder to "buy" from "neutral."

"While we acknowledge some of Impregilo's issues are indeed difficult to value, we argue that the valuation case is simply too compelling," the brokerage wrote in a note.

Saipem, Europe's largest oilfield-services provider, dropped 2.3% to 26.39 Euros, the lowest in a month. Crude oil declined for a third day as rising U.S. jobless claims and a contraction in manufacturing added to concern growth in the world's biggest oil-consuming nation is slowing. Tenaris SA (TEN IM), the world's largest maker of seamless pipes, fell 1.8% to 13.83 Euros.

STMicroelectronics, Europe's largest semiconductor maker, sank 2.3% to 5.77 Euros as the Philadelphia Semiconductor Index ended a three-day increase.

Separately, Dell, the world's third-largest personal- computer maker, reported second-quarter gross margin that fell short of analysts' projections.

Italy recorded a current account deficit of Eur 2.7 billion in June, down from the Eur 4.9 billion deficit in the same month the previous year, the Bank of Italy said on Monday.

The goods account deficit rose to Eur 1.1 billion from Eur 0.1 billion in the previous year. At the same time, the services account turned to a surplus of Eur 1.2 billion from a Eur 0.2 billion deficit in the preceding year.

The income account deficit narrowed to Eur 2.2 billion from Eur 3 billion in the prior year, while the transfers account recorded a smaller deficit of Eur 0.6 billion.

Meanwhile, the capital account recorded a deficit of Eur 47 million in June. The financial account surplus rose to Eur 22.6 billion.

GREECE

In Athens, the Athex Composite ended both the session and the week Friday on 1,589.74, down a huge 3.53% for the trading session.

Greece's Athens Generale had a volatile week, rising substantially early on before dropping on Friday. It finished down 1% for the week.

Greek financial stocks were buffeted but stayed generally flat for the week because of early gains. Bank of Piraeus fell 5.4% to €4.39 while Alpha Bank declined 4.7% to €5.43. EFG Eurobank was down 5.9% to €5.25 while bellwether National Bank of Greece lost 3.6% to €10.15.

Greece's current account deficit narrowed from a year ago, official data showed Wednesday.

The current account deficit for June was Eur 1.94 billion, smaller than Eur 2.31 billion last year, the central bank reported. The improvement was mainly attributable to a decrease in the trade deficit and, secondarily, to a rise in the surplus of the services balance and a drop in the deficit of the current transfers balance, the bank said. These developments were partly offset by an increase in the income account deficit.

The merchandise trade deficit for June was Eur 2.27 billion, smaller than Eur 2.55 billion last year. Excluding oil and ships, the shortfall was Eur 1.27 billion versus Eur 1.70 billion last year. The net payments for purchases of ships and the net oil import bill rose by Eur 113 million and Eur 38 million, respectively.

The surplus in the services account rose to Eur 1.71 billion in June from Eur 1.56 billion a year ago. The increase was due to a Eur 291 million hike in net transport receipts, while net travel receipts dropped Eur 210 million year-on-year.

The deficit of the current transfers balance almost halved year-on-year, mainly due to lower general government payments to the community budget, the central bank said. The deficit figure was Eur 70.1 million, down from Eur 144.5 million last year.

The income account had a shortfall of Eur 1.32 billion, larger than Eur 1.181 billion in June 2009. The widening was almost exclusively due to higher net interest, dividend and profit payments, the bank said.

In June, the combined current account and capital transfers balance, which represents the economy's external financing requirements, had a deficit of Eur 2 billion, compared with a deficit of Eur 2.2 billion last year.

During the first half of the year, the current account deficit was Eur 14.52 billion versus Eur 14.49 billion in the same period last year. For the first half of 2010, the deficit of the combined current account and capital transfers balance was Eur 14.4 billion, up 5.9% from Eur 13.6 billion in the same period of last year.

Greek shipowners have continued to order new vessels despite the economic downturn, awaiting better days in global trade but experts warn against the risk of overcapacity, which could weigh on the freight rate down the line.

With Greece in the midst of a severe recession, two of the country's most crucial sectors, shipping and tourism, are telling two different stories.

Data from Bank of Greece (BoG) released Thursday showed that the global environment had a different impact on the two industries in the first half of the year, creating opposing outlooks for the remainder of 2010.

Greek shipowners, who possess about 20% of the world's fleet, raised 7.7 billion Euros in income between January and June, up from 6.7 billion in the first half of 2009. The figure stood at 9.4 billion midway through 2008.

"We have covered half of the ground lost last year," Yiannis Cotzias, the CEO of shipbroker Cotzias said Friday.

Solid demand from China is helping support freight rates, while improved investor sentiment has increased risk appetite in a sector that is starting to see more finance available for operations.

"Credit has started to flow. There is heavy scrutiny but the banks are offering credit, in conditions similiar to those seen in the 1970s and 80s," Cotzias said.

Greek shippers got a further boost recently from Russia's decision to ban grain exports. Grain products will have to be transported from markets other than the Baltic region, such as South America, creating more demand for sea transport services, according to a shipping industry source.

Risks, however, linger in the form of a potential oversupply of ships and market volatility, after recent figures on the US and Chinese economies suggest global growth is facing headwinds.

Data in Greece's other key industry, tourism, has painted a very different picture.

BoG numbers showed that spending on travel by nonresidents dropped in the first half of the year to 2.7 billion Euros, from 3.1 billion in the same period last year.

Experts believe that the number of visitors to reach Greek shores this year will remain at last year's levels, at nearly 15 million people.

However, the money these individuals spend will be less due to the special deals used to attract visitors and the fact that travelers are spending less due to the downturn.

Deputy Tourism Minister Giorgos Nikitiadis admitted to Kathimerini recently that tourism revenues will be between 7 and 9% lower than in 2009 and attributed the drop-off to continued strike action harming the country's image as a holiday destination.

This means that sector revenues could be up to 1 billion Euros less than last year, when they reached 10.3 billion Euros for the 12-month period, down from 11.6 billion Euros in 2008.