20100511 1154 Global Economic News.

The U.S. Federal Reserve will restart its emergency currency-swap tool by providing as many dollars as needed to European central banks to keep the continent’s sovereign-debt crisis from spreading. The swaps with the European Central Bank, Bank of England and Swiss central bank will allow them to provide the “full allotment” of U.S. dollars as needed, the Fed said late yesterday in a statement in Washington.

• A separate swap line with the Bank of Canada will support as much as US$30bn, the Fed said, and the Bank of Japan said it approved reactivating its U.S. line. The swaps were authorized through January 2011. (Bloomberg)

The European Union leaders reached agreement Sunday on a massive show of force to support struggling countries in the region. Separately, the U.S. Federal Reserve joined central banks in Canada and Europe in re-establishing a program meant to improve lending conditions.

• The European rescue, valued at more than US$900bn (720bn euros), has three main components: (i) The biggest provision -- at nearly US$570bn (440bn euros) -- takes the form of government-backed loans to shore up confidence in shaky credit markets. The action puts the weight of the economies of Germany and France behind weaker members of the European Union, such as Greece, Portugal and Spain; 
• (ii) A second measure is the expansion of a US$77bn (60bn euros) stabilization fund; and 
• (iii) the International Monetary Fund said it would contribute US$284bn (220bn euros). (CNNMoney)

Euro-area central banks said they are buying government bonds as part of a program to counter a sovereign debt crisis and defend their common currency. The Bank of France and Bank of Italy also said they have started purchasing government bonds. The euro strengthened 2% after European policy makers unveiled a US$960bn loan plan overnight to end a crisis of confidence in the currency that was triggered by Greece’s budget deficit. (Bloomberg)

The Bank of England kept its bond- purchase plan on hold for a fourth month and its interest rate at a record low of 0.5% to nurture the recovery as the post-election power vacuum and the Greek debt crisis overshadowed the economy. The nine-member Monetary Policy Committee, led by Governor Mervvn King, maintained the target for its bond holdings at 200bn pounds (US$300bn), as predicted by all 36 economists in a Bloomberg News survey. (Bloomberg)

China’s trade surplus shrank 87.0% yoy to US$1.68bn in April (-US$7.24bn in Mar) as imports grew faster than exports because of stimulus-driven domestic demand. Imports gained 49.7% (66.0% in Mar). Exports rose 30.5% (24.5% in Mar), topping the 28.9% median estimate. (Bloomberg)

Thai demonstrators may delay ending their two-month campaign on Bangkok’s streets, testing Prime Minister Abhisit Vejjajiva’s patience after he offered a reconciliation plan that included cutting his term by 13 months. The protesters, who largely support exiled former leader Thaksin Shinawatra, are drafting an alternative “road map” to the one outlined by Abhisit a week ago, one of the group’s leaders, Weng Tojirakarn, said. (Bloomberg)

Bank of Japan Deputy Governor Hirohide Yamaguchi said Greece’s deepening fiscal woes aren’t hurting Japan’s economy and that policy measures taken around the world will help contain the European sovereign-debt crisis. Yamaguchi said at a press conference after holding an unscheduled meeting to resume a U.S. currency-swap deal. (Bloomberg)

Japan’s monetary policy board also voted unanimously to keep the key interest rate unchanged at 0.1%. The bank said it would pump 2trn yen (US$21.7bn) into the financial system for a second day, the first back-to- back same-day operations since October 2008, as investor concern about European debt spurred a decline in stocks worldwide. (Bloomberg)

Crude oil surged more than 4.5% in New York, its biggest jump in seven months, on speculation an emergency fund by European policy makers will contain sovereign debt risks and maintain economic growth. Prices may return to US$80 to US$85 a barrel once the debt crisis is resolved, Algerian Energy Minister said today.

• Crude oil for June delivery rose US$1.64 or 2.2% to US$76.75 a barrel at 9:03 a.m. on the New York Mercantile Exchange. Futures rose as much as US$3.40 to US$78.51, the biggest gain since Sept. 30. Crude has increased 31% in the past year. (Bloomberg)

European investor confidence fell the most in almost two years in May as the Greek budget crisis shook markets. An index measuring sentiment in the 16-nation euro region decreased to -6.4 in May (2.5 in Apr), the biggest drop since Jul 08. A gauge of current business conditions rose to -4.75 from -7, while expectations dropped to a 13-month low of -8 from 12.5. (Bloomberg)

Europe’s rescue package will free Chinese officials to focus on containing asset prices and inflation at home rather than worrying about the global recovery, central bank adviser Li Daokui said. “The double-dip risk in the world economy is likely to be reduced to a minimum,” Li said.

• “China’s growth rate is not a problem this year, and the main policy focus should be on preventing excessive gains in asset prices and liquidity.” His comments are a personal view, he said. (Bloomberg)

The Bank of Korea may keep interest rates unchanged for a 15th month as concern at the impact of the European debt crisis adds to government unease that the nation’s recovery isn’t strong enough to withstand higher borrowing costs. Governor Kim Choong Soo and his board will leave the seven-day repurchase rate at a record-low 2% tomorrow, according to all 12 economists surveyed. (Bloomberg)

European Central Bank President Jean-Claude Trichet indicated the bank’s decision to buy government and private bonds wasn’t supported by all 22 Governing Council members. “On some of the decisions there was unanimity, I won’t give details, and on some there was an overwhelming majority,” Trichet said. “On bond purchases we had an overwhelming majority.” (Bloomberg)

Indonesia's gross domestic product (GDP) grew 5.7% yoy in 1Q10 due to strong domestic demand and low inflation. Southeast Asia's biggest economy accelerated in the January-March period at its fastest pace since 3Q08, but was only just better than the 5.4% in 4Q09. Non-seasonally adjusted quarterly growth was 1.9%, a reversal of the previous quarter's 2.4% contraction. (AFP)