5 June 2010 - Global Markets Review

Good Morning Ladies & Gentlemen,

I keep saying it - "it's all about jobs" and this week has once again, proven that it is impossible to get out of the mire, until the jobs situation starts to show core improvement.

Overnight, the US jobs situation proved to be far worse (or not as good by far) than 'expected' (expectations across the pond have been a little 'wild' to say the least of late; by 'of late', I mean the past 5 years at least!).

Spain and Italy, their unemployment both up once again this week with Spain setting new records!

But enough of this, you all know my views on unemployment - let me get straight into the interesting stuff ..... the US economy.

I have been put to the sword this week by a European chap that asked me "how on earth can you be so bearish about the US? They are in far better shape than Europe and there is much more chance of the whole European economy collapsing through contagion, than there is the US".

Good point?

Sorry, I think not and to spell out the extent perhaps of the US's problems - and without ranting too much - here are my reasons why I think the US economy is up a creek without a paddle - no matter how many figures they fudge.

So just how bad is the US economy? Well, the truth is that sometimes it is hard even for me to put into words.

They have squandered the great wealth left to them by their forefathers; they have almost totally dismantled the world's greatest manufacturing base; they have shipped millions of good jobs overseas and they have piled up the biggest mountain of debt in the history of mankind.

That's for starters - bear with me, I'm on a roll here!

They have taken the greatest free enterprise economy that was ever created and have turned it into a gigantic house of cards delicately balanced on a never-ending spiral of paper money and debt.

For decades, all of this paper money and debt has enabled the US to enjoy the greatest party in the history of the world, but now the bills are coming due and the party is nearly over.

In fact, things are already so bad that you can pick almost every number and find a corresponding statistic that shows just how bad the economy in the US has become.

You doubt it?

Well, I've done just that:

* - Gallup's measure of underemployment (not unemployment, but underemployment) hit 20.0% on March 15th. That was up from 19.7% two weeks earlier and 19.5% at the start of the year.

* - According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19% from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005.

* - According to the Bureau of Labour Statistics, in March the national rate of unemployment in the United States was 9.7%, but for Americans younger than 25 it was well above 18%.

* - The FDIC's list of problem banks recently hit a 17-year high.

* - During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

* - The Spanish government has just approved a 15 billion Euro austerity plan.

* - The US Congress recently approved an increase in the debt cap of the US government to over 14 trillion Dollars.

* - The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke. In fact, the FDIC's deposit insurance fund now has negative 20.7 billion Dollars in it, which actually represents a slight improvement from the end of 2009.

* - The US national debt soared from the $12 trillion mark to the $13 trillion mark in a frighteningly short period of time.

* - It is being reported that a massive network of big banks and financial institutions have been involved in blatant bid-rigging fraud that cost taxpayers across the US billions of Dollars. The US Justice Department is charging that financial advisers to municipalities colluded with Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Wachovia and 11 other banks in a conspiracy to rig bids on municipal financial instruments.

* - The Mortgage Bankers Association recently announced that more than 10% of all US homeowners with a mortgage had missed at least one payment during the January-March time period. That was a record high and up from 9.1% a year ago.

* - The official US unemployment (as opposed to underemployment) number is 9.9%, although the truth is that many economists consider the true unemployment rate to be much, much higher than that.

* - The French government says that its deficit will increase to 8% of GDP in 2010, but by implementing substantial budget cuts they hope that they can get it to within the European Union's 3% limit by the year 2013.

* - The biggest banks in the US cut their collective small business lending balance by another $1 billion in November. That drop was the seventh monthly decline in a row.

* - The six biggest banks in the United States now possess assets equivalent to 60% of America's gross national product.

* - That is the number of US banks that federal regulators closed on Friday May 28th. That brings that total number of banks that have been shut down this year in the United States to a total of 78.

* - According to a study published by Texas A&M University Press, the four biggest industries in the Gulf of Mexico region are oil, tourism, fishing and shipping. Together, those four industries account for approximately $234 billion in economic activity each year. Now those four industries have been absolutely decimated by the Gulf of Mexico oil spill and will probably not fully recover for years, if not decades.

* - Decent three bedroom homes in the city of Detroit can be bought for $10,000, but no one wants to buy them.

* - A massive "second wave" of adjustable rate mortgages is scheduled to reset over the next two to three years. If this second wave is anything like the first wave, the US housing market is about to be absolutely crushed.

* - The bottom 40% of all income earners in the United States now collectively own less than 1% of the nation's wealth. But of course many on Wall Street and in the government would argue that there is nothing wrong with an economy where nearly half the people are dividing up 1% of the benefits.

Let me take one of my pet favourites of the above figures - the US National Debt.

So just how big is the US national debt in 2010? Well, according to the US Treasury Department, on June 1st the US National Debt was $13,050,826,460,886.97. For those not used to seeing such big numbers, that is over 13 trillion Dollars.

To give you an idea of just how much a trillion Dollars is, if you had started spending one million Dollars every single day when Christ was born, you still would not have spent one trillion Dollars by now.

And yet somehow the US government has accumulated a debt of over 13 trillion Dollars. This is a debt that they have callously placed on the backs of future generations of Americans. Somehow they have the gall to expect their progeny to pay off the biggest mountain of debt in the history of the world.

But hey, if you are feeling especially generous today, the federal government is actually taking online donations that will go towards paying off the national debt.

Yes, it is true; but please try to resist the urge to laugh.

This request comes from the same government that spent $2.6 million tax Dollars to study the drinking habits of Chinese prostitutes and $400,000 tax Dollars to pay researchers to cruise six bars in Buenos Aires Argentina to find out why gay men engage in risky sexual behavior when drunk.

Perhaps they should not hold their breath while waiting for our donations to show up.

Or perhaps they should get their own house in order before expecting donations - more to the point I feel. But the truth is that they continue to recklessly spend money as if they have not learned anything.

This year, it is projected that the US government will issue nearly as much new debt as the rest of the governments of the world combined.

Yes, getting into debt is another thing that Americans dominate the rest of the world in.

It is estimated that the US government will have a budget deficit of approximately 1.6 trillion Dollars in 2010.

Now remember, when Ronald Reagan took office, the US national debt was only about 1 trillion Dollars.

So, from the founding of the United States until Reagan took office the US accumulated a total of about 1 trillion Dollars in debt.

In just the last 30 years they have accumulated 12 trillion Dollars more.

You know, the truth is that it is really, really hard to even spend one trillion Dollars.

If right this moment you went out and started spending one Dollar every single second, it would take you more than 31,000 years to spend one trillion Dollars.

Hopefully that gives you an idea just how fast the US government is getting further into debt.

And now they are officially in the danger zone.

According to a senior economist, the US national debt is now equal to 90% of gross domestic product. Most economists consider a level of 100% debt to GDP to be an absolute nightmare scenario.

But things look even worse when you total up all forms of debt in the United States.

The total of all government, corporate and consumer debt in the United States is now equal to 360% of GDP. That is far greater than at any point during the Great Depression.

Yes, the US economy is in a LOT of trouble.

So can they just raise taxes on everybody just a little bit and get rid of this budget deficit?

Well, unfortunately no. According to the Tax Foundation's Microsimulation Model, to erase the US budget deficit for 2010, the US Congress would have to multiply the tax rate for every American by 2.4.

That would mean that the 10% tax rate would become 24%, the 15% tax rate would become 36%, and the 35% tax rate would have to be 85%.

Would they like to pay 85% of their income in taxes?

And that would not reduce the national debt one penny - all that would do is eliminate the US budget deficit for this year.

The truth is that it is simply not possible to pay off the national debt. Most economists realize this and speak of more realistic goals such as getting the debt growth down to a level that is "sustainable".

But the reality is that they are way beyond being able to get this debt under control. If the US government cut spending enough to make a real difference it would crush the economy and tax revenue would take a sharp nosedive.

If the US government borrows even more money and increases government spending even more it will help the economy in the short-term, but it will make the long-term problems even worse.

No, the truth is that they have created an economic nightmare from which there simply is no escape under the current system. The national debt will never be repaid and the never-ending spiral of debt and paper money that they have created is doomed to failure.

So what will happen someday when the current economic system does collapse?

That will be for the American people to decide - and good luck to them on that one!

So hopefully the thoughts above give justification to my 'anti-the-US-economy-being-better-than-Europe's 'thought process of the past 2 years ..... at least!

On to the numbers on the boards for the week that was:

US Markets

How the US did this week .....

US Summary US stocks sank, with the Standard & Poor's 500 Index falling to its lowest level in four months, as slower-than-estimated jobs growth spurred concern the economic recovery may not be as robust as forecast.

Caterpillar Inc. and American Express Co. tumbled at least 5% after a government report showed employers in the US hired fewer workers in May than forecast and Americans dropped out of the labor force. Chevron Corp. and Alcoa Inc. dropped more than 3.5% to lead commodities producers lower as oil fell to $71.40 a barrel and industrial metal prices plunged. Wal-Mart Stores Inc. fell 2.6% after saying gasoline prices and unemployment hurt traffic at US stores.

The S&P 500 Index declined 3.4% to 1,064.88 at 4 p.m. in New York, as 497 of its 500 stocks slid. It was the biggest drop on the day of the US Labor Department's monthly jobs report since at least 1998, according to data compiled by Bespoke Investment Group LLC. The Dow Jones Industrial Average sank 324.06 points, or 3.2%, to 9,931.22. All 30 of its components retreated.

The S&P 500 erased its weekly advance after the Labor Department said Friday that payrolls increased by 431,000 in May, trailing the median economist forecast in a Bloomberg News survey that called for a gain of 536,000. Private employers added 41,000 positions, 139,000 less than estimated.

US stocks advanced Thursday, giving the S&P 500 its first back-to-back gains since April, amid speculation the employment figures will bolster investor optimism in the economic recovery. The S&P 500 has slumped 12% from this year's high on April 23 as the sovereign-debt crisis in Europe and slowing growth in China threatened to derail the global economic recovery.

Gauges of energy and raw-materials companies in the S&P 500 sank at least 3.4%. Crude oil for July delivery declined 4.3% to $71.40 on the New York Mercantile Exchange. Copper and silver also tumbled.

Chevron fell 3.6% to $71.28, while Alcoa declined 4.7% to $10.84.

Industrial shares had the biggest decline among 10 S&P 500 industries, slumping 4.6%.

Caterpillar declined 5.5% to $57.76, for the biggest drop in the Dow. American Express tumbled 5.5% to $57.76.

US Steel Corp. lost 7.3% to $41.99. The nation's second-largest domestic steelmaker was cut from the "conviction buy" list at Goldman Sachs Group Inc. on concerns over European credit, Chinese demand and the Gulf of Mexico oil spill.

Wal-Mart slid 2.6% to $50.40. Eduardo Castro-Wright, vice chairman and US stores chief at the world's largest retailer, told shareholders that competition in the industry "is stiffer than ever." The stock fell even after the company said it will buy back as much as $15 billion of its shares.

Bank of New York Mellon Corp. sank 4.7% to $26. The world's biggest custody bank will offer $700 million of common stock to the public to help fund its previously announced purchase of a unit of PNC Financial Services Group Inc. BNY Mellon agreed in February to pay $2.31 billion for Pittsburgh- based PNC's global investment-servicing business, a move aimed at adding hedge-fund and mutual-fund clients. Tellabs Inc. fell 11% to $6.98. Barclays Plc cut its share-price estimate to $7 from $9.50 on concern the maker of telecommunications equipment may not be picked by AT&T Inc. as a supplier for a high-speed wireless Internet network known as long-term evolution.

Jacobs Engineering Group Inc. slid 8.2% to $40.14. The second-largest publicly traded US engineering company agreed to buy TechTeam Government Solutions Inc. for $59 million.

European Markets

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

Europe Summary European stocks dropped as US payrolls data missed economists' forecasts and Hungary said its economy is in a "very grave" situation, reigniting concern the region's debt crisis is spreading.

Societe Generale SA and Raiffeisen International Bank Holding AG tumbled more than 7%, leading a gauge of banks to the biggest decline in three weeks. BHP Billiton Ltd. paced a retreated in mining shares as base metals fell. Opap SA plummeted 9.1% as Alpha Finance SA downgraded Europe's largest publicly traded gambling company.

The Stoxx Europe 600 Index sank 1.8% to 244.53, trimming this week's advance to 0.2%. The gauge has retreated 10% from this year's high on April 15 amid concern a European sovereign-debt crisis that started in Greece may hamper growth. The VStoxx Index, which gauges the cost of protecting against declines in the Euro Stoxx 50 Index, soared 13% to 37.69, the biggest gain in more than two weeks.

National benchmark indexes declined in all 18 western European markets, except Iceland. The UK's FTSE 100 sank 1.6, Germany's DAX fell 1.9% and France's CAC 40 tumbled 2.9%. Austria's ATX plunged 4.1% to the lowest close since July last year.

GERMANY

German stocks retreated, sending the the benchmark DAX Index to a weekly decline.

Deutsche Bank AG and Commerzbank AG followed European banking shares lower, falling more than 2%, while carmakers also dropped. ThyssenKrupp AG and Salzgitter AG fell with metal prices. The Euro dropped below $1.20 for the first time since March 2006 amid speculation the region's fiscal crisis is spreading.

The DAX dropped 1.9% to 5,938.88 in Frankfurt, ending the week down 0.1%. The gauge is 6.2% below its April 26 high on concern the sovereign-debt crisis in Europe will hold back economic growth. The broader HDAX Index tumbled 1.9% Friday, ending the longest winning streak since July 2009.

Deutsche Bank, Germany's biggest bank, dropped 2.9% to 47.03 Euros, while Commerzbank, the second-biggest, plunged 2.5% to 5.55 Euros. European banking shares lost 3.8% Friday, the worst performance among 19 industry groups in the Stoxx Europe 600 Index.

Volkswagen AG, Europe's largest carmaker, declined 3.1% to 70.03 Euros, while Bayerische Motoren Werke AG retreated for the first time this week, losing 2.8% to 38.11 Euros.

ThyssenKrupp and Salzgitter, Germany's biggest steelmakers, lost 2.1% to 21.40 Euros and 2.7% to 49.86 Euros, respectively. Aluminum, copper, lead, nickel, tin and zinc all fell on the London Metal Exchange.

Air Berlin Plc lost 1.3% to 3.55 Euros as Germany's second-largest airline was downgraded to "sell" from "hold" at Royal Bank of Scotland Group Plc.

The German cabinet on Wednesday approved the ban on naked short-selling of all stocks of German companies in an effort to control speculation, media reports said citing the draft of a bill.

Earlier, the German government shocked markets in May by banning naked short-selling of specific financial stocks and sovereign bonds and Credit Default Swaps. Naked Short Selling involves selling securities without owning the securities or not having an unconditional claim to get the securities.

The draft reportedly gives power to financial regulator BaFin to temporarily ban the Euro currency derivatives under special circumstances. Previously, the government planned a outright ban on Euro currency derivatives.

The draft legislation will require the approval of both houses of parliament. The bill reportedly says that the financial crisis has unsettled the confidence in financial markets and has underlined the need for substantial improvement of supervision. The crisis has reached a new dimension with turbulence in the sovereign debt market and volatility of the Euro.

Germany's service sector activity growth showed a slight slowdown in May, a survey conducted by Markit Economics showed Thursday.

The final seasonally adjusted Purchasing Managers' Index fell to 54.8 in May from thirty-two month high of 55.2 in April. The index has now posted above the 50.0 no-change mark for ten consecutive months. The flash estimate for May was 53.7. The service sector showed only a moderate rise in new business.

The final Composite Output Index, at the same time, slipped to 56.4 from 59.3 in April. The combined output of the manufacturing and service sectors rose at the slowest rate since February. But the composite index stayed above the 50.0 no-change mark for the tenth consecutive month and higher than the earlier 'flash' reading of 55.5 in May.

FRANCE

France's CAC 40 Index plunged 101.73, or 2.9%, to 3,455.61 in Paris, for a 1.7% loss this week. The SBF 120 Index decreased 2.7% Friday.

Financial shares led declines.

Societe Generale SA, France's second-largest bank by market value, tumbled 7.6% to 31.59 Euros. Credit Agricole SA, France's biggest bank by branches, lost 5.1% to 8.35 Euros. Axa SA, Europe's second-largest insurer, plunged 5% to 12.54 Euros. BNP Paribas SA, France's biggest bank by assets, decreased 6% to 43.13 Euros.

Societe Generale is telling analysts that it didn't suffer losses on derivatives, said two people familiar with the matter who declined to be identified.

Societe Generale declined to comment on Reuters and CNBC reports Friday that cited speculation the bank may face derivatives losses. "If we had something to say, we would have already communicated," said Laura Schalk, a spokeswoman for the Paris-based bank.

Valeo SA rose 3.5% to 24.34 Euros, extending Thursday's 7.5% increase. France's second-largest auto- parts supplier said it's working with financial advisers to evaluate options to yield the "highest possible value."

French ILO mainland unemployment rate stood at 9.5% in the first quarter, unchanged from the revised rate of the fourth quarter, figures released by the statistical office Insee showed Thursday. Economists had forecast a rate of 9.7%.

The jobless rate for men was stable at 9.4% and that for women eased to 9.6% from 9.7%. The number of unemployed totaled 2.7 million, a stable figure compared to the revised number of the fourth quarter of 2009. Moreover, the number stayed around the level of 1999.

The average ILO unemployment rate in metropolitan France and overseas departments stood at 9.9% of the active population, also unchanged from the revised rate of the fourth quarter.

Further, the statistical agency said the employment rate of the population aged 15-64 years increased in the first quarter of 2010, due to the temporary contract employment. The employment rate stood at 63.8%, slightly up from 63.5% in the fourth quarter.

At the same time, the permanent contract employment rate continued to decrease. In the first quarter, 6.1% of the persons employed were underemployed, the statistical office said.

Growth momentum in the French service sector continued to build in May, data from Markit Economics showed Thursday.

The services activity index stood at a 44-month high in May. The index came in at 61.4, up from 59.2 in April. The current sequence of rising service sector output now extends to nine months. The flash reading for May was 61.9.

At 60.1, the Markit Composite Output Index reached a 6-month high in May. The reading for April was 59.2 and the flash composite PMI for May was 60.5. Although output growth in the manufacturing sector eased to a nine-month low, overall activity across the French private sector rose at a stronger rate during May.

BELGIUM

The Bel 20 in Brussels ended the week at 2,429.67, down 2.20% for the Friday session.

Belgian bank KBC Group and the European Investment Bank signed an agreement to help Belgian companies with a Eur300 million loan, they said Monday.

The Belgian lender will use its "close-knit network of bank branches to make the EIB funds available to small and medium-sized enterprises in Belgium as early as this summer," they said in a joint statement.

The funding will be made available to companies with less than 250 employees in a wide range of economic activity, they explained.

Belgian consumer price inflation continued to rise in May.

The consumer price index (CPI) rose 2.27% year-on-year in May, faster than 1.80% in the previous month, the National Institute of Statistics said Monday.

On a monthly basis, the CPI grew 0.40% in May, following a 0.35% rise in April. The increase was mainly driven by the higher prices of fruits, cut flowers, gasoline, diesel, travel abroad, potatoes, electricity and diesel fuel, the statistical office said.

Belgium's economy improved in the first quarter. The GDP grew 1% on an annual basis, compared to 0.8% fall in the fourth quarter.

Belgian chemicals company Solvay is said to be considering a takeover offer for German fragrance and flavours producer Symrise.

Incofin's Belgian fund is looking to invest in MFIs operating in less penetrated areas of north and central India.

Belgium-based Incofin Investment Management has invested Rs 4.5 crore in Fusion Microfinance, a Delhi based microfinance startup operating in the north-central states of India. The company, founded by Devesh Sachdev, Ashish Tewari and Ankur Singhal, started its operations in January 2010. The microfinance institution also recently acquired the microfinance division of Aajeevika (a not for profit body operating in Delhi).

Fusion has a base of 2,600 clients in three states, covered by four branches, and a loan book of Rs 22.6 million. Fusion Microfinance has localised team experience in the rural geographies of Uttar Pradesh, Uttranchal, Delhi and Madhya Pradesh.

THE NETHERLANDS

In Amsterdam the AEX finished the Trading Session on Friday and the week on 321.22, a drop of 1.78% on the day.

Supermarket group Ahold has increased its market share in both the Dutch and US markets, according to the company's first quarter earnings report.

Ahold booked a 1% increase in turnover over the first three months of the year, with sales reaching €8.7bn. The company books 60% of sales in the US. In the Netherlands, where Ahold operates the Albert Heijn market leader, sales rose 3.7% to €3.1bn.

Net profit rose nearly 46% to €274m due to changes Ahold has made in the provision for losses on two former American investments. Operating profit rose 3.3% to €409m.

"Our repositioning actions in recent years and our customer focus have enabled us to increase volumes and improve market share in the Netherlands and the United States and deliver another quarter of solid performance,' CEO John Rishton said in a statement.

'The market continues to be challenging with customers focused on value and high levels of promotional activity.'

According to the Financial Times, Ahold continues to work on plans to enter the Belgian market.

Rishton declined to give a time-frame but said Ahold was looking into real estate, permits and franchise partners, the paper said. ' We are going to move into Belgium, it's just a question of how long it takes us to get there,' he told the FT.

Bank of Scotland has become the first foreign bank to try to attract savers without a Dutch central bank guarantee since the collapse of Icesave, the Volkskrant reports on Thursday.

This means that if Bank of Scotland fails, savers will have to try to recover their money from the British authorities.

Bank of Scotland says it has not applied for Dutch central bank approval to operate because it is a very lengthy and expensive process. 'We would have to pass those costs on to customers,' spokesman Michiel van der Linde told the paper.

The British guarantee covers savings of up to €50,000, the Dutch €100,000. The European Commission hopes to introduce standard coverage throughout the EU this year.

Netherlands' manufacturing economy expanded at a slower pace in May, a report by Markit Economics showed on Tuesday.

The NEVI Purchasing Managers Index (PMI) for manufacturing slightly dropped to 56.5 in May from 56.9 in the previous month. A reading above 50 indicates expansion, while one below suggests contraction.

New orders from abroad increased at the weakest pace in five months, while production expanded strongly, but at a milder rate than over the previous four months. Outstanding business accumulated at manufacturing firms rose at the fastest pace since March 2007. The total employment level expanded moderately in May from the previous month. Input price inflation was strong in May, showing further increases in both fuel and raw material costs.

Gemma Wallace, economist at Markit said, "PMI data signaled that May was still a good month, not only for Dutch manufacturers but also for the job market. Companies responded to further new order gains and an accelerated rise in backlogs by expanding capacity and building buffer stocks.

"However, price pressures remain a concern. Although charge inflation eased fractionally, it was still considerable and well above trend, while input cost inflation accelerated to a rapid pace."

SWITZERLAND

The SMI in Zurich headed into the weekend at 6,298.97, a drop of 1.87% on the day.

Switzerland's SVME Purchasing Managers' Index unexpectedly rose to an all time high level in May, a joint report from the SVME Association of Purchasing and Materials Management and Credit Suisse showed Tuesday.

The index stood at 66.4 in May, up from 65.9 in April. The expected reading was 64.7. The seasonally-adjusted PMI has now remained above the 50-point growth threshold for nine successive months. The industry momentum that is being reflected in the current PMI originated from a low level.

The survey found that all five of the sub-components that feed into of the PMI calculation closed the month in the growth zone. But the only noteworthy increases came from the output and stocks of purchases elements. Output and stocks of purchases rose 1.1 points and 7.2, respectively.

The suppliers' delivery component climbed only 0.6 points in May. Meanwhile, backlog of orders dipped 1.4 points and employment by 0.4 points. The decline in purchase prices component was 5 and that in quantity of purchases was 4.3.

The Swiss economy continued to expand in the first quarter driven by trade and private consumption. However, the growth was slower than the previous two quarters, on a fall in government expenditure and investment, the State Secretariat for Economic Affairs, or SECO, said Tuesday.

Gross domestic product, or GDP, rose 0.4% sequentially in the first quarter. Economists had forecast 0.7% growth. Meanwhile, SECO revised up fourth quarter GDP figure to 0.9% from 0.7% reported earlier. On an annual basis, GDP growth accelerated to 2.2% from 0.6% in fourth quarter.

A breakdown of data showed that final consumption expenditure rose at a slower pace of 0.2% compared with the fourth quarter's 0.6% growth, of which expenditure by households and non-profit institutions increased 0.5%, while general government expenditure dropped 1.4%, the first fall in four quarters. SECO said food and beverages, telecommunications, housing services and energy consumption, in particular, as well as expenditures for hotels and restaurants contributed to the growth in private consumption expenditure.

Gross fixed capital formation declined 0.8% following 1.4% growth in the fourth quarter. Investment in fixed assets and software and construction fell 0.8% each.

Final domestic demand, which do not include changes in inventories and net-imports of valuables such as precious metals, jewellery, objects of art and antiquities, was flat after 0.8% growth in the final quarter of last year. Domestic demand fell at a faster pace of 1.2% compared with 0.2% decline in the fourth quarter.

Foreign trade gave significant boost to the Swiss economy in the first quarter. Exports of goods and services grew 4.8%, faster than the 2.2% rise in the fourth quarter. Overseas sale of goods climbed 5.6% and those of services grew 2.9%. Similarly, growth in imports of goods and services accelerated to 2.5% from 0.4%, of which imports of goods were up 3.1% and that of services grew 0.1%.

Compared to the corresponding quarter last year, the GDP deflator dropped 0.2%. After three negative quarters in a row, the consumption deflator was able to move upward again by 0.4%. While prices for plant and equipment spending declined once again by 2.4%, those for building investments rose slightly by 0.1%. Export prices were 3% below the respective figure of the previous year, and import prices dropped by 1.5%.

The Swiss economic recovery is likely to continue in the coming months. The KOF Economic Institute said Friday that its economic barometer for the country touched highest level since August 2006. The Swiss National Bank foresees GDP growth of around 1% this year. The economy contracted 1.5% in 2009, the sharpest decline since 1975.

Switzerland's retail turnover recorded a monthly growth of 1.2% in April in real terms, following a 1.3% fall in March, provisional results published by the Federal Statistical Office showed Wednesday. In nominal terms, sales grew 1.4%, reversing 0.7% decline last month.

Excluding fuel, the retail sector showed a seasonally adjusted increase in real turnover of 0.6% compared with March. Retail sales of food, drinks and tobacco were up 1.9% and the non-food sector showed positive growth of 1.3%.

Year-on-year, retail sales growth slowed to real 1.3% from 4% in March. Growth in nominal terms also eased in April, to 1.2% from 3.6%. Retail sale of food, beverages and tobacco dipped 0.5%, while non-food excluding fuel rose by real 2.9%. Excluding fuel, the retail sector showed an increase in real turnover of 1.2%.

AUSTRIA

In Vienna, the ATX rounded off the week on 2,267.36, a whopping Friday drop of 4.12%.

Social Democratic (SPÖ) Labour Minister Rudolf Hundstorfer said he was "cautiously optimistic" about the situation on the labour market as the number of young people out of work declined last month.

Official figures presented by the ministry Friday (Tues) showed that the number of unemployed under-25s dropped by 10.7% compared to May 2009.

Hundstorfer appealed to wait for autumn to analyse whether the situation is sustainably improving as 1.5% more people older than 50 were out of work last month.

The overall jobless rate declined in six of Austria's nine provinces in May to 6.3% after 6.9% in April 2010.

Statistics reveal that 227,089 people living in Austria had no work last month, 22,590 less than in May 2009. The jobless rate however soared if the 78,178 unemployed people sitting re-education courses provided by the Labour Market Service (AMS) last month are considered in statistics.

The government has been harshly attacked by the opposition for refusing to include the number of people in these courses in the federal unemployment figure. Freedom Party (FPÖ) head Heinz-Christian Strache branded some of the courses "pointless", while the Greens agreed with the FPÖ that the government tried to "hide" jobless figures by letting the unemployed sit lessons at the AMS.

Hundstorfer revealed last week he planned to spend less on the offered courses.

Asked to give an example of what had gone wrong in helping those out of work, the minister said it must not happen that people sit a course teaching how to apply for a job best three times.

Hundstorfer explained the plan was to cut the AMS courses' budget by around 100 million Euros less per year from 2011.

This announcement comes after People's Party (ÖVP) Finance Minister Josef Pröll called on all ministries to reduce their investments in the coalition's bid to lower the state debt until 2013.

Upper Austrian firm Christ Water Technology (CWT) bosses claimed they were unable to give a forecast on future developments due to the "volatile market situation" as losses soar.

Upper Austrian steel producer voestalpine suffered dramatic losses in what bosses labelled the "hardest difficult business year since World War Two".

Wolfgang Eder, CEO of the Upper Austrian company, announced Tuesday turnover shrank by 27.1% year on year to 8.55 billion Euros in the 2009/2010 business year.

"We didn't do badly in international comparison. But the past business year was the most difficult one since World War Two," Eder said.

Eder said he expected his company's current upwards trend to continue over the next 24 months "despite the (bad) development of the Euro and the (soaring) state debt (of Austria)."

The Linz-based company reduced its number of staff by six% to 39,406 in the past business year.

Eder explained the firm had been forced to halve its investments after the outbreak of the global economic crisis in autumn 2008 to 542.5 million Euros.

Peter Schiefer, a spokesman for voestalpine, announced a few weeks ago that the firm will manage to keep the number of dismissals at its Böhler steel plant in Kapfenberg, Styria, as low as 10.

Firm bosses initially announced around 120 workers would most likely be sacked throughout this year due to a massive decrease in assignments.

Schiefer explained voestalpine was able to change its plans as order volumes had risen strongly so far this year.

CWT officials said Wednesday that net losses rose from 27.5 million Euros in 2008 to 33.7 million Euros last year. They also said turnover shrank by 23% to 165.7 million Euros.

Canadian GLV holds a 92.6% interest in the Mondsee-based water-processing firm via subsidiary Eimco since February and is expected to consider a full takeover.

CWT bosses explained it was impossible to give an outlook on 2010 business figures because of volatile markets, but added they would focus on "core activities" and introduce a "strict costs management".

It was also announced Friday that the number of staff at the firm - which is listed on the Vienna Stock Exchange (WBAG) - dropped from 1,147 in 2008 to 914 in 2009.

SWEDEN

Stockholm's OMX completed a busy week on 988.46, a Friday dip of 1.74%.

Swedish banks are well-equipped to meet unexpected and negative events in the period ahead as the country's major banks are well-capitalized compared to their international counterparts, the Riksbank said Tuesday.

Moreover, loan losses during the period 2010-2012 are expected to be lower due to the improvement in the real economy, the central bank said in its financial stability report.

"The Swedish banks are also well-capitalized, seen from an international perspective and have since the winter been able to return to normal funding without state support," central bank Governor Stefan Ingves said.

However, the bank noted that there are a number of risks that could worsen banks' situation. One such risk is that the fiscal consolidation in countries with public finance problems may suffer setbacks. Another risk is that the fragile recovery in the Baltic countries will come to a halt, probably leading to increased loan losses for the banks.

Ingves insisted that countries with problems in their public finances need to correct their situation immediately to contribute to greater stability in the financial markets.

Sweden's central bank on Thursday said it is removing the tolerance interval from the specification of the monetary policy target, saying that the removal has no practical significance for the inflation target or for the monetary policy decisions.

Previously, the central bank had an inflation target of 2% with a tolerance interval of plus/minus 1 percentage point. The bank now removed the tolerance interval of plus/minus 1 percentage point. Consequently, the inflation target is at 2%.

"Removing the tolerance interval has no practical significance for the inflation target as such, or for the monetary policy decisions," Riksbank Governor Stefan Ingves said. "Friday there is considerable understanding for the fact that monetary policy is conducted under uncertainty and that inflation can from time to time undershoot or overshoot the target."

According to information from the central bank, the tolerance interval was part of a decision on guidelines for monetary policy made by the then Governing Council on 14 January 1993.

Sweden's current account surplus expanded in the first quarter due to an increase in investment income and reduced transfers.

The current account surplus rose to SEK 63.6 billion in the first quarter from a revised SEK 45.7 billion in the December quarter. The reading for the fourth quarter was revised from SEK 40.8 billion. Net inflow of the investment income more than doubled to SEK 24.6 billion from SEK 12.2 billion in the previous quarter.

Income of direct investment accounted for a net inflow of SEK 22.8 billion while income on portfolio investment weakened, having a net inflow of SEK 0.3 billion. Total investment income from investments abroad amounted to SEK 95.3 billion, higher by SEK 20.5 billion from the previous quarter.

The deficit in current transfers amounted to SEK 6.5 billion, down from SEK 14.2 billion, mainly because EU subsidies increased during the quarter. EU transfers resulted in a weak net outflow of SEK 0.8 billion and foreign aid posted a net outflow of SEK 2.2 billion.

Foreign trade in goods and services amounted to SEK 46 billion. A strong recovery of imports of goods contributed to the lower net trade, while exports of goods rebounded moderately. The global downturn had affected trade in goods with a reduced demand during 2008 and 2009, while its impact on trade in services was comparatively milder.

The capital account balance showed flat reading in the first quarter as the SEK 0.1 billion EU subsidies and SEK 0.2 billion outflow of foreign aid for investment canceled each other out on a net basis. In the December quarter, the capital account deficit amounted to SEK 0.5 billion.

Financial account surplus grew to SEK 140.3 billion from SEK 13.1 billion in the fourth quarter last year, influenced by significant net flows in other investments and portfolio investments.

DENMARK

Copenhagen's OMX limped into the weekend on 397.20, a drop of 1.01% for the session.

The nation's largest bank says newly released figures show public spending is out of control

After the latest public expenditure figures for 2009 were published by Statistics Denmark Friday, Steen Bocian, the chief economist at Danske Bank, Denmark's largest financial institution, says that public sector costs are unsustainable.

In a statement made to national broadcaster DR, Bocian said the growth in public consumption was about one percentage point higher than it appeared in the national audit, which he added, was a very significant difference.

'All the discussions about whether to make cutbacks during the last few years has to stop,' Bocian said. 'Public expenditure has never been higher whether we measure it in absolute terms or as a share of the economy.'

According to Statistics Denmark, the national deficit was 47 billion kroner last year - which was expected. However, public spending reached an unprecedented 496 billion kroner in 2009.

'The level of public spending has reached an unsustainable level,' Bocian said. 'This means that there is a need for adjustments which will be regarded as cutbacks. But this has to be seen in the light of an excessive increase in public sector costs during the last few years.'

Bocian added that the growth in public spending underlined the need for economic reforms.

Denmark's economic growth accelerated in the first quarter, a report by the Statistics Denmark showed on Monday.

The gross domestic product (GDP) grew 0.6% on a sequential basis in the first quarter, faster than a revised 0.1% growth in the previous quarter. Economists had expected an increase of 0.3%. The fourth quarter growth was revised from the 0.2% increase reported initially.

Private consumption expenditure rose 1.1% sequentially in the first quarter, larger than 0.6% growth in the previous quarter. Similarly, government spending increased 0.5%, faster than 0.2% in the previous three months. On the other hand, the gross fixed investment slipped 3.3% in the first quarter, following a 2.7% fall in the previous quarter.

Exports of goods and services increased 3.6% in the first quarter, faster than 0.8% in the previous quarter. At the same time, imports of goods and services rose 1.6%, after falling 0.3% in the fourth quarter. Total employment rose 0.2%, compared to the 1.3% fall in the previous quarter.

Year-on-year, the GDP decreased 0.4% in the first quarter. The private and government consumption expenditure increased by 2.3% and 2.1%, respectively.

Denmark's retail sales volume dropped more than expected in April, following a strong recovery in March, partly due to early Easter holidays. Meanwhile, the industrial sales recorded a notable increase in the first quarter compared to the previous quarter.

Retail sales volume decreased a seasonally adjusted 4.2% month-on-month in April, following a 2.4% increase in March, Statistics Denmark said Tuesday. Economists were looking for a 1% decline.

Sales in textiles were down 7.2% month-on-month and sales in other consumer goods dropped 6.5%. Trade in food and other groceries was down 0.8%.

On an annual basis, total retail sales declined 7.1%. Sales of food and other groceries fell 7.9% and textiles sales recorded a steep decline of 9.3%. Trade in other consumer goods fell 5.8%.

Separately, the agency reported that the country's industrial sales rose a seasonally adjusted 1.8% quarter-on-quarter between January and March. Excluding sales in mining and quarrying industry, trade rose 0.9%, whereas in mining and quarrying alone, sales increased 11.2%.

Sales in food beverages and tobacco industry was up 4.2% on a quarterly basis. The biggest increase in sales was recorded by the pharmaceuticals industry, up 33.4%. Meanwhile, trade in textile and leather industry dropped 0.1%.

Annually, total industrial sales was down 3.2%, while trade decreased 4.9%, excluding mining and quarrying. However, in mining and quarrying industry, sales increased 18.4% year-on-year in April.

The former head of EBH Bank has apparently disappeared from the small town where the bank was headquartered

Finn Strier Poulsen, the former chief executive of bankrupt EBH Bank, has put his home up for sale and apparently cleared out of Fjerritslev, the small town where the bank was headquartered.

According to business website epn.dk, the former director has been preliminarily charged with manipulating share prices and transferring large amounts of money to the private accounts of bank associates. Others charged in connection with the case include the bank's former board chairman Egon Korsbæk and former deputy director Finn Jensen.

During its heyday, the 110-year old bank owned nine branches in northwest Denmark, in addition to leasing, real-estate and investment branches located in Copenhagen and in Germany. EBH Bank boasted around 350 employees.

At the end of March, the Financial Supervisory Authority (FSA), a state-run agency which investigates collapsed banks, said that EBH had been reported to police for manipulation of its stock values in the period up to the bank's collapse in autumn of 2008. A total of around 300 million kroner was allegedly made through the illegal purchase of EBH Bank shares, according to the FSA.

'At the end of 2007, EBH Group had recorded its assets to be 10.4 billion kroner with an equity of 1.1 billion kroner,' stated FSA director, Jørn Astrup Hansen in his report.

'Yet at the end of 2009 - just 2 years later - losses were assessed at 4.6 billion kroner. Additional losses of 1.5 billion were also forecast for loan providers in the EBH Fund. Total losses can therefore be estimated at around 6 billion kroner,' concluded Hansen.

According to Danish News, a man who was interested in purchasing Poulsen's house could not reach him, finding that his office, home and mobile telephone numbers had been discontinued.

More people are saving more money but analysts say the high average for residents' bank account balances is somewhat misleading

Since September 2008 when the financial crisis began in earnest, savings account deposits have increased by 11.9 billion kroner to 773.5 billion kroner, according to figures from the Central Bank.

That figure corresponds to each of the 4.3 million adults in the country having an average of 179,000 kroner in their accounts.

Economist Las Olsen of Danske Bank admitted that the nation's wealthiest have pulled the overall average up considerably, and that deposits tend to rise in line with the combination of lower consumption and higher income.

'The only explanation is that we're saving more. We have more and more money to spend but are actually spending less and less,' Olsen told financial daily Børsen.

But he also added that those who are not fortunate enough to have a six-digit account balance are not necessarily poor.

Olsen's conservative estimate is that Danish accounts are currently around 60 billion kroner higher than normal. He said he did not expect the surge in bank deposits to continue to rise, partly because income growth has levelled out.

Another explanation for soaring bank deposits is also scepticism about traditional investments, said Olsen, who believes that right now more people are opting for cash in hand rather than investing their money in riskier ventures.

One example is that far fewer people are putting money into their pension plans because of the ongoing debate over the tax aimed at compensating for ceiling retirement contributions.

FINLAND

The OMX in Helsinki ended the trading day Friday at 6,470.45, a drop of 2.1% for the day.

Finnish lifting equipment maker Kone Corporation said Thursday that it has acquired Oregon-based Reliant Elevator Company, without disclosing financial details.

Reliant specialises in elevator maintenance, repairs and modernisation. IT has 1,400 elevators in its maintenance base and an 18-strong workforce.

Reliant and Kone will combine their elevator service operations under the Kone brand in the coming months.

Finnish industrial machinery company Metso Oyj said Friday it won an order worth Eur180m to provide the main technology for a new kraft pulp mill of Russian pulp and paper maker Ilim Group, or Gruppa Ilim.

The mill, to be located in Bratsk, in Irkutsk Oblast, is expected to be operational in 2012 and to have an annual production of 720,000 tonnes of bleached softwood market pulp.

A total 30% of the order value was booked in the fourth quarter of 2009 and the remainder will be booked in the second quarter of 2010.

Ilim Group's investments in the project total Eur570m.

Metso will deliver a complete fibre line, comprising a digester, a screen room, an oxygen delignification system, brown stock washing and bleaching plants with wash presses, as well as a drying line with a Fourdrinier wet end and two baling lines.

In addition, the company will supply an automation system for all process areas, as well as necessary analysers and special equipment for quality and runnability management.

Nominal earnings of the Finnish wage and salary earners grew 3.3% year-on-year in the January to March period, the statistical office said on Friday. Meanwhile, real earnings, adjusted for the change in consumer prices, rose 3.1%.

Nominal earnings of wage and salary earners increased 4.1% in the local government sector, while earnings in the central government sector grew 3.6%. Earnings in the private sector climbed 3%.

Meanwhile, wage and salary earners' regular earnings increased 3.3% in the January to March period from the year before. Regular earnings refer to earnings for regular working hours exclusive of performance-based bonuses and other irregularly paid one-off items.

According to revised data, average earnings grew 3.9% in 2009 and real earnings rose 3.9%.

NORWAY

Oslo's OBX concluded the week standing at 317.23, down 1.93%.

Norwegian energy producer Scatec Solar and the Chinese Sanhe Group have agreed to establish a joint venture company with the aim to build 2.5 GW solar power parks in China.

SanSca, a joint venture company between the Norwegian developer and supplier of PV solar parks and the Chinese renewable energy company Sanhe Group, Friday signed a historic agreement with Datang Renewable Energy Corporation. The partners will build a Green Energy Farm in Taonan, in the province of Jilin, consisting of 100 MW of Wind Power and 5 MW Solar Photovoltaic (PV) Power, the latter as a part of China's National Golden Sun Program. The agreement was signed at a ceremony at the EXPO 2010 in Shanghai with the Governor of Jilin and the Norwegian Minister of Trade and Industry present.

Further to the Jilin-project, SanSca and Datang Renewable Corp, part of China Datang Corporation, China's second-largest power producer, signed an agreement covering the realization of 2500 MW of PV plants in the provinces of Gansu, Inner Mongolia, Jilin, Ningxia and Sichuan in the period 2011-2016.

Under the agreement Sanhe Group and Scatec Solar will jointly develop the PV projects, while Scatec Solar will be the EPCI partner to design and build the PV plants. The purpose of the first 5 MW State-of-the-Art PV power generation plant in the Green Energy Farm which will be built and put in production this year, is to demonstrate cost-efficiency, high performance and optimal land use, and to serve as a benchmark for China's plan to build more than 25 GW solar power before 2020.

As part of the cooperation between Chinese and Norwegian renewable energy companies, SanSca entered into an agreement with Norwegian Eltek Valere where Eltek will be the preferred supplier of inverters to these and other PV projects realized by SanSca.

Norway's current account surplus narrowed in the first quarter, the latest report by the Statistics Norway showed on Wednesday.

The current account surplus dropped to NOK 98 billion in the first quarter from NOK 102 billion in the fourth quarter of 2009. A year earlier, the current account surplus stood at NOK 72.85 billion. The goods and services balance stood at NOK 99.36 billion, larger than the NOK 97.87 billion in the previous month.

Compared to the previous year, the total export value slipped 3% in the first quarter, while the total import value climbed 1%. Export value of goods stood at NOK 201 billion, which was NOK 8 billion lower than the previous year. Similarly, the mercantile imports value decreased NOK 7 billion from the previous quarter to NOK 107 billion. The balance of services stood at NOK 6 billion.

Income and current transfers balance showed a shortfall of NOK 2 billion in the first quarter, in contrast to the NOK 4 billion surplus in the previous quarter. Net lending dropped to NOK 97 billion in the first quarter from NOK 102 billion, while direct investment fell to NOK 35 billion from NOK 46 billion.

Norway's manufacturing activity grew at a slower pace in May, a survey conducted by the logistics association NIMA and Fokus Bank showed on Tuesday.

The seasonally adjusted purchasing managers index (PMI) for manufacturing decreased to 50.1 in May from a revised 51.6 in the previous month. The PMI reading in April was revised from 51.9 reported initially.

A reading above 50 indicates expansion, while one below 50 suggests contraction. Economists had expected a reading of 52.3. Manufacturing sector expanded for the second straight month.

The manufacturing output index dropped to 50.1 in May from 51.7 in the previous month, revised from 52.1 estimated initially. This was the lowest value since December last year.

At the same time, new orders index slid to 47.2 from a revised 50.6 in April. The employment index dropped to 45.5 in May from 48.9 in the previous month. However, inventories index increased to 55.2 in May from 50 in April.

Norwegian house prices increased in May, with the real estate industry associations reporting an annual price increase of 9.1%.

House prices increased a seasonally-adjusted 0.3% month-on-month, indicating a positive trend in underlying price development, the Association of Real Estate Agents (NEF) and the Association of Real Estate Undertakings (EFF) said Tuesday.

House prices are 5.1% higher than in the previous peak month of August 2007. Adjusted for inflation, prices dropped 4.5% compared to August 2007.

The average sales price of a dwelling so far in 2010 is NOK 2.55 million and the sale of a house now takes on average three days less time than in April, the survey showed.

SPAIN

In Madrid the IBEX closed out the day and the week at 8,923.40, down 3.80%.

The number of people seeking unemployment benefits in Spain fell sharply in May, official figures have shown, giving some much needed respite for the Eurozone's worst-hit Labour market. The large decrease coincides with the start of the summer tourist season and offers some relief to Prime Minister Jose Luis Rodriguez Zapatero, who has seen his popularity wane in recent weeks.

The number of unemployment benefit claimants decreased by 76,200 in May from April, the country's Labour ministry said. That is considerably higher than the 45,000 decrease anticipated by economists. Jobless claims slid by 24,200 in April.

The figures will be welcomed by the government after enduring a torrid few days on the economic front. Last week, the Spanish parliament scraped through its latest round of austerity cuts through just a single vote, as Zapatero's Socialist government has seen public support dwindle. That was followed by a ratings downgrade by credit agency Fitch, which said the government's austerity drive will hamper the nation's growth prospects.

Deputy Labour minister Maravillas Rojo said the decline in jobless claims during May was the largest recorded in five years, and excluding May 2005, the largest monthly drop since July 1998. "This is, without a doubt, a good figure considering the situation facing the economy," she said. But despite the fall, more than four million Spaniards were officially registered unemployed at the end of May.

The Spanish economy emerged from recession after growing 0.1% between January and March. It came after six successive quarters of negative growth and followed a 0.1% contraction in the final three months of 2009.

Last month, the International Monetary Fund called on Spain to urgently make a "radical overhaul" of its rigid Labour market. E.U. statistics estimate Spain's unemployment rate at 19.7% - the highest in the Eurozone and the second-highest in the whole of the European Union.

Spanish consumer confidence diminished sharply in May, as households' expectations regarding the economic as well as the employment situation weakened and as their assessment of the current situation turned more negative.

The consumer confidence indicator fell by 13.1 points to 65.1 in May from 78.2 in April, logging the steepest decline on record, the state-run Official Credit Institute said Wednesday.

Consumers' perspective on the current situation deteriorated as the corresponding indicator dropped to 40 during the month from 50.6 in the previous month. Similarly, households' faith in the future economic situation also weakened with index falling to 90.2 from 105.8 in the previous month.

The deterioration in confidence is seen mostly in expectations about the Labour market and in the component that relates to the outlook for the Spanish economy.

Consumers' expectations were negatively impacted by the recent economic developments in the country, which echoed the ongoing turmoil in the European markets.

The Spanish government on May 20th approved a 15 billion Euro austerity plan aimed at reducing the country's large fiscal deficit of more than 11% of the gross domestic product to 6% of GDP by 2011 and to 3% by 2013.

The plan calls for slashing salaries of Cabinet ministers and other senior officials by 15% and also includes an average 5% pay cut for public sector workers beginning in June and a pay freeze beginning in 2011.

While Spain managed to squeeze out of a recession, posting 0.1% GDP growth in the first quarter, the country's unemployment rate remains at 20%, almost twice the Euro zone average.

Spain's services activity improved for the third consecutive month in May, Markit Economics said in a report on Thursday.

The headline seasonally adjusted Business Activity Index rose to 52.3 in May, from 50.9 in the preceding month. Although the rate of growth quickened to the fastest since October 2007, it remained only modest, the report showed.

Moderate increases in both business activity and new orders were recorded in May amid uncertainty surrounding the wider economy. Employment fell again in May, extending the current sequence of job shedding to twenty-seven months.

Further, the rate of input price inflation was marked in May, mainly due to higher salary payments. However, Spanish service providers continued to lower their charges. Although companies were optimistic that activity will be higher in twelve months' time, the level of sentiment reduced considerably since the previous month.

PORTUGAL

Lisbon's PSI General headed into the weekend at 2,476.44, a dip Friday of 2.15%.

Portugal's new austerity plan cleared its first parliamentary hurdle Wednesday when the assembly voted to send the proposal to be studied and voted on by committees, a spokesman at the parliament's press office said.

Following the committee votes, the plan will be voted on again by the full parliament for final approval. The date of the final vote hasn't been set yet.

Portugal had a budget deficit equal to 9.4% of gross domestic product last year, and in March announced a plan to reduce that to 8.3% of GDP this year and to 6.6% of GDP next year. The plan failed to satisfy international financial markets, which continued to punish Portuguese debt.

Prime Minister Jose Socrates last month unveiled this plan to speed the deficit reduction, to 7.3% of GDP this year and to 4.6% of GDP next year.

The plan voted on raises the value-added tax and includes a temporary, additional tax on personal income above a certain level and on company profits. Government ministers and other top state employees will have their salaries reduced by 5%.

All the measures are set to expire by the end of 2011, although both Socrates and Finance Minister Fernando Teixeira dos Santos have said they could be extended if necessary to meet the deficit reduction targets.

Portugal's industrial production increased at a slower pace in April, a report from Statistics Portugal showed on Monday.

Industrial production rose 1.1% year-on-year in April, slower than 5.5% in the previous month. Output increased for the fourth consecutive month. A year earlier, industrial output decreased 9%. On a monthly basis, industrial output fell 4.4% in April, in contrast to the 7.4% increase in the preceding month.

Production of intermediate goods grew 5.7% year-on-year in April, faster than 3.1% in the previous month. But, energy production fell 1%, following the 11.6% growth in March.

Meanwhile, manufacturing output grew 1.1% on an annual basis in April, slower than 8.1% in the previous month. Month-on-month, manufacturing output was down 6.1%, after an 8.8% increase in March.

Separately, the statistical office said retail sales turnover rose a seasonally adjusted 0.8% in April, slower than 1.9% in the previous month. Retail sales increased for the fifth straight month. A year earlier, retail sales fell 1.6%. Month-on-month, retail sales rose 0.4% in April, after falling 1.3% in March.

ITALY

Italy's FTSE MIB Index dropped 738.62, or 3.8%, to 18,734.73 in Milan. The following stocks were among the most active on the Italian market Friday.

Banca Monte dei Paschi di Siena retreated 4.7% to 84 cents as bank stocks declined across Europe. "Bank stocks are still affected by too many question marks," said Alberto Magnani, a fund manager at Abbacus Sim SpA in Genoa, Italy. "Visibility on earnings is too low and the market remains nervous." Intesa Sanpaolo SpA (ISP IM) dropped 6% to 1.99 Euros. UniCredit SpA (UCG IM) lost 5.7% to 1.56 Euros. Unione di Banche Italiane ScpA (UBI IM) declined 5.7% to 6.76 Euros.

Indesit Company gained 14.5 cents, or 1.6%, to 9.30 Euros, a fourth gain this week. Cheuvreux reiterated an "outperform" rating on Italy's biggest home- appliance maker, saying in a note that "Russia showed good recovery signals in April and May." The brokerage also noted that "acquisitions are easily financially sustainable," and "Indesit could be interested in a high-end brand or market shares." The company attended Cheuvreux's small-caps conference.

Pirelli & C. Real Estate fell 0.9% to 34.65 cents, after gaining as much as 8.7%. Morgan Stanley, the world's largest brokerage, and investors including Carlo Puri Negri and Matteo Arpe are considering a purchase of the real estate company, according to Italian magazine Il Mondo.

Morgan Stanley may invest as much as 200 million Euros ($244 million) in an offer, while a group of investors, led by Banca Profilo SpA Chairman Arpe and former Pirelli RE executive Puri Negri, may contribute another 200 million Euros, the magazine reported, without saying where it got the information.

A spokesman for Sator SpA and Profilo denied the report.

"We believe that Pirelli & C., which controls 58% of Pirelli RE, would prefer the tender to be launched after the spinoff to give fresh money to Camfin SpA," Centrobanca said in a note. Pirelli shares 0.8% to 45.05 cents.

STMicroelectronics NV (STM IM) rose 0.5% to 6.61 Euros, a third straight gain. UBS AG upgraded Europe's largest chipmaker to "neutral" from "sell." The brokerage said that "while structural concerns remain, STMicro is a strong beneficiary of the recent currency moves."

STMicro also had its recommendation lifted to "buy" from "accumulate" at Banca Akros, while Piper Jaffray increased its price estimate to 7.6 Euros from 7 Euros.

Italy's unemployment rate rose slightly to 8.9% in April, data released by statistical agency ISTAT showed on Tuesday. The unemployment rate stood at 8.8% in March. Unemployment has been steadily on the rise since April last year, when the jobless rate stood at 7.4%.

A total of 22.8 million persons were unemployed in April. Some 2.2 million Italians were unemployed while 14.8 million were not in the Labour forece.

Italy's service sector expanded at a slower pace in May, results of a survey by Markit Economics showed on Thursday.

The Markit/ADACI Purchasing Managers Index (PMI) for services dropped to 53.7 in May from 54.5 in the previous month. This was the second straight month of decrease in growth after a two-and-a-half year peak recorded in March. Economists had expected a reading of 54.8 for May. A reading above 50 indicates expansion, while one below 50 suggests contraction.

New business growth slowed to the weakest level since February, while service sector companies showed a general improvement in demand and winning high value of orders. However, the ongoing Eurozone debt crisis had apparently undermined market confidence.

Payroll employment dropped as companies chose not to replace staff and instead meet higher workloads with fewer employees. Staffing levels fell for the 20th month. Input price inflation climbed for the tenth consecutive month in May, mainly due to higher petrol prices.

Markit Economics said on Tuesday that the Markit / ADACI Italy manufacturing purchasing managers' index stood at a seasonally adjusted 54.0 in May, down from 54.3 in April. A reading above 50 indicates expansion, while one below suggests contraction. Despite the fall, the PMI still points to a solid expansion in manufacturing activity.

Manufacturing output rose for the eighth straight month in May, albeit at its weakest pace in three months. New orders were also up for the eighth consecutive month, although at a slower pace than in the previous month. New orders received from abroad rose at the fastest pace since June 2006.

Employment in the sector continued to fall, although at the weakest pace since August 2008. Firms cited restructuring as the primary driver for the latest round of job cuts.

GREECE

The Athex Composite in ... you guessed it, Athens closed out the week at 1,484.90, the worst performance on the day for a European bourse, down 5.03%.

Greece's cash-strapped government will sell off stakes in a string of state-owned companies in a bid to raise 1 billion Euros annually over the next three years that will go toward paying down debt, officials said Thursday.

"The government's decision is to step up privatization procedures... in order to extract value from major state assets," Finance Minister Giorgos Papaconstantinou told a press conference.

Under the planned sell-off, Greece will sell a 49% stake in TRAINOSE, a subsidiary of railway company OSE, and concede management control. It will also reform OSE, which has accumulated debts of some 10 billion Euros and is running up daily losses of close to 3 million Euros, by scrapping routes causing the greatest financial harm.

"Clearly this situation with the railways cannot be allowed to continue," Infrastructure Minister Dimitris Reppas said.

He said the government would re-evaluate railway workers' skills, keep those who are needed and transfer others to different public sector jobs - as Greek law forbids the sacking of civil servants.

The government will also sell a 10% stake in Athens water utility (EYDAP) and a 23% stake in the Thessaloniki water company (EYATH).

Papaconstantinou said the state would sell 39% of loss-making Hellenic Post. The government also intends to catalog and evaluate its extensive real estate assets, with a view to development.

"The Greek state owns huge real estate assets, whose precise value has never been calculated," Papaconstantinou said.

Additionally, the state will extend the concession of Athens International Airport, the country's biggest airport which is managed by German construction company Hochtief AG. Companies will be created to manage ports, shares in which may be made available to the public. The Greek state would retain a stake of at least 51% in such companies.

Papaconstantinou added that Greece will maintain its holdings in Public Power Corporation and OTE telecom, holding onto stakes of 51% and 20% respectively.

Markit Economics said on Tuesday that the Greece manufacturing purchasing managers' index stood at a seasonally adjusted 41.8 in May, down from 43.6 in the previous month. A reading above 50 indicates expansion, while one below suggests contraction. This marks the lowest reading in the headline PMI in over a year.

Manufacturing output was cut sharply in May as new business volumes shrank further. Total new business decreased for the ninth straight month. Data indicated that total new business fell more steeply than new export orders. Respondents linked weak demand for their goods to difficult economic conditions and customers' financial difficulties.