US GDP shrinks 1pc, list of problem banks grows

The US economy shrank at a smaller-than-expected 1 per cent annual pace in the second quarter, a recovery from the 6.4 per cent slump three months earlier, suggesting America is climbing out of recession.

Economists had expected a 1.5 per cent contraction in the second quarter. Company profits rose 5.7 per cent, the biggest increase since the first quarter of 2005, according to the Commerce Department. The GDP data is the second of three estimates the department releases.
Consumer spending, which makes up 70 per cent of the US economy, fell 1 per cent, less than the 1.3 per cent expected by economists.

Separate figures showed 570,000 Americans filed claims for unemployment benefits last week, down from 580,000 a week earlier, according to the Labor Department.

Helping stoke spending is the government's `cash-for-clunkers' program, which gives car buyers a discount of as much as US$4,500 to trade in older vehicles for more efficient models.

Stocks on Wall Street edged up after the data and on a late rebound in crude oil. US Treasuries weakened and the greenback fell.

The Dow Jones Industrial Average climbed 0.4 per cent to 9580.63 and the Standard & Poor's 500 rose 0.3 per cent to 1030.98. The Nasdaq Composite gained 0.2 per cent to 2027.73.

Boeing led gainers on the Dow, climbing 8.4 per cent to 51.82 after saying its long-delayed 787 Dreamliner will make its first flight before the end of the year and deliveries would start in the fourth quarter of 2010.

Verizon Communications fell 1.4 per cent to US$31.05 after regulators opened an inquiry into the US wireless industry.

The US dollar weakened against the euro as stocks and crude oil gained, reducing demand for the greenback as a haven.

The euro gained to $1.4356 from $1.4255. The regional currency extended its advance after breaking through a key level of $1.4280,

The European currency's gains versus the dollar accelerated after breaking through a key level of $1.4280, according to BNP Paribas currency strategist Andrew Chaveriat, Bloomberg reported.

The euro was little changed at 134.24 yen. The dollar slipped 0.8 per cent to 93.51 yen.

The Federal Deposit Insurance Corp. added 111 lenders to its list of 'problem banks.' A total of 416 banks with assets of about US$300 billion have failed the FDIC's grading system. That's the most since June 1994 and will add to pressure on the FDIC's shrinking reserve fund after it increased loss provisions by US$11.6 billion. The US has taken over 81 banks this year.

Shares weakened in Europe, where the Dow Jones Stoxx 600 fell 0.5 per cent to 235.24. Among regional benchmarks, the U.K.'s FTSE 100 fell 0.4 per cent to 4869.35, Germany's DAX 30 declined 0.9 per cent to 5470.33 and France's CAC 40 dipped 0.5 per cent to 3648.53.

Crude oil rose above US$72 as stocks advanced in the US and the dollar weakened. US crude for October delivery rose US$1.06 to US$72.49 a barrel.

US December gold futures rose US$1.50 to US$947.30 an ounce in New York.

- BUSINESSWIRE