Business Blog Posts

The trade deficit totaled $50.2 billion, the highest since October 2008, and well above the consensus estimate of $44.0 billion from Wall Street analysts surveyed before the report.

Imports rose 2.6 percent to $225.1 billion, the highest since the record of $231.6 billion set in July 2008 just before the global financial crisis took a huge toll on global trade.

The increase reflected record imports of capital goods and food, feeds and beverages in a sign of resurgent U.S. demand, but a jump in oil prices to $108.70 per barrel -- the highest since August 2008 -- also accounted for a large part of the gain.

The oil price jump helped push the U.S. petroleum trade deficit to the highest since October 2008. Imports from the Organization of the Petroleum Exporting Countries were also the highest since October 2008.

The wider-than-expected trade gap will likely prompt analysts to scale back their estimates of second-quarter economic growth, as imports captured more of stronger U.S. demand.

Exports put in another strong showing, but slipped 0.5 percent from the April record to $174.9 billion as shipments to the European Union, China and Newly Industrialized Countries all fell. Exports of capital goods were the highest on record.

President Barack Obama in 2010 set a goal of doubling exports in five years to help fuel economic growth and bring down the U.S. unemployment rate, which remains above 9 percent.

The politically sensitive trade gap with China jumped more than 15 percent to $25 billion. U.S. companies imported $32.8 billion of goods and services from the Asian powerhouse during May, but exported just $7.8 billion worth to that country.

In worrisome sign for U.S. exports to China in June, recent data out of Beijing shows the country's imports that month were the weakest in 20 months.

The wider trade gap with China could propel efforts in Congress to pass legislation aimed at pressuring Beijing to raise the value of its yuan currency, which critics charge is artificially weak against the dollar and gives Chinese exporters an unfair advantage.

(Reporting by Doug Palmer, Editing by Andrea Ricci)

* Futures for the S&P 500, for the Dow Jones and for the Nasdaq 100 were down 1.1 to 1.2 percent.

* Peabody Energy (BTU.N) and ArcelorMittal (ISPA.AS) are likely to succeed with their $5 billion takeover offer for Macarthur Coal (MCC.AX), investors bet on Tuesday, driving up shares in the world's biggest producer of pulverized coal by 37 percent.

* Euro zone finance ministers on Monday promised cheaper loans, longer maturities and a more flexible rescue fund to help Greece and other EU debtors in a bid to stop financial contagion engulfing Italy and Spain, but there are fears the rescue effort is unraveling. They will continue their meeting on Tuesday.

* As many as six Spanish banks have failed the European stress tests, including five savings banks and one medium-sized bank, ABC newspaper reported on Tuesday, citing unnamed sources.

* President Barack Obama and congressional leaders, struggling to break an impasse over taxes and spending cuts, will regroup on Tuesday to seek common ground for a deal to avoid a looming U.S. debt default.

Obama and top lawmakers from both political parties will hold their third meeting in as many days at the White House at 3:45 p.m. (1945 GMT) to hammer out elements of legislation to reduce the U.S. deficit and raise the debt ceiling by August 2.

* ICSC/Goldman Sachs will release at 1145 GMT chain store sales for the week ended July 9 versus the prior week. In the previous week, sales rose 1.5 percent.

* Alcoa Inc (AA.N) shares were up 1 percent after the bell on Monday as America's biggest aluminum producer posted a big jump in second-quarter profit, matching Wall Street estimates, partly due to soaring prices for the metal and alumina, its raw material.

* The Commerce Department releases May international trade figures at 1230 GMT. Economists forecast a $44.0 billion deficit compared with a $43.7 billion deficit in April.

* Allegations that former British prime minister Gordon Brown was a target of illegal data gathering by Rupert Murdoch's newspapers piled pressure on the media baron as he tried to prevent investors pulling out of his News Corp (NWSA.O) empire.

* At 1255 GMT, Redbook releases its Retail Sales Index of department and chain store sales for July versus June. In the prior period, sales were up 0.9 percent.

* The Federal Open Market Committee releases minutes from its June 21-22 meeting.

* Resource-related stocks will be in focus as crude oil fell for a third day on concerns about energy demand growth. Key base metals prices also dropped.

* The FTSEurofirst 300 .FTEU3 index of top European shares is down 2 percent after falling 1.5 percent in the previous session on renewed worries about the euro zone peripheral debt crisis. Japan's Nikkei average .N225 lost 1.4 percent in its biggest fall in a month.

* On Monday, the Dow Jones industrial average .DJI was down 151.44 points, or 1.20 percent, at 12,505.76 at the close. The Standard & Poor's 500 Index .SPX was down 24.31 points, or 1.81 percent, at 1,319.49. The Nasdaq Composite Index .IXIC was down 57.19 points, or 2.00 percent, at 2,802.62.

(Reporting by Atul Prakash; Editing by Erica Billingham)

Coming days after news that China's inflation hit a three-year peak in June, Tuesday's data also showed the country's foreign exchange reserves soaring to a record $3.2 trillion at the end of the second quarter.

The build-up in reserves, which threatens to worsen China's inflation headache, argued for Beijing to leave its foot on credit brakes and further raise interest rates, some analysts said.

"Loan demand from the economy is still strong, which could reduce some worries about a hard landing," said Du Zhengzheng, an analyst at Bohai Securities in Beijing.

"We expect the central bank to raise interest rates once or twice more this year."

Worried that rising prices could trigger social unrest, China has declared that fighting inflation is its top policy priority.

It has for months restricted bank lending to slow it from the extraordinary pace seen in 2009, when a surge in government spending fueled a borrowing binge.

But the latest data showed loan demand has defied Beijing's clampdown by staying resilient. Banks lent close to 634 billion yuan ($98 billion) in new yuan loans in June, the central bank said, beating the forecast for 590 billion yuan and above May's 552 billion yuan.

Annual growth in China's broad M2 measure of money supply also quickened to 15.9 percent in June from May's 15.1 percent, and above forecasts for 15.2 percent.

Only annual growth in outstanding yuan loans met expectations at 16.9 percent.

For a graphic on China's bank lending, please click on link.reuters.com/vec62s

"New loan growth continues to register a strong increase," said Paul Tang, chief economist at Bank of East Asia in Hong Kong.

"The People's Bank of China will continue to keep a close watch on credit growth. The government will need to keep up its tightening stance in the second-half of the year."

SLOWER OFFICIAL LENDING

Bank lending is a focal point in China's monetary policy as it is controlled by Beijing through loan quotas to manage economic growth and control inflation.

Under the weight of tighter policy, Chinese banks have lent 4.1 trillion yuan worth of new yuan loans since January, about 11 percent lower than that seen in the first half of 2010.

That compares with an informal lending target of between 7-7.5 trillion yuan that many believe Beijing has set for banks this year.

To be sure, the pull-back in official bank loans belies buoyant lending that banks are hiding outside their balance sheets.

But the modest slowdown in official bank lending has already fueled complaints of a credit squeeze among smaller firms, leading some analysts to predict China may selectively ease credit restrictions in coming months.

"The credit quota restrictions will be loosened a little in the second-half of the year, particularly for small- and medium-sized enterprises," said Ren Xianfeng, an economist with IHS Global Insight in Beijing.

TOO MUCH LIQUIDITY

To cool prices, Beijing has pulled a range of levers to tighten policy in the past year: it has ordered banks to lend less; let the yuan rise on the dollar, and raised interest rates and banks' required reserve ratio.

But inflation is still proving stubbornly high. It hit 6.4 percent in the year to June as food, consumer goods and property prices jumped.

While some analysts believe China's inflation could start to cool in coming months when global commodity prices fall, critics argue Beijing's inflation battle is far from over since the country is still awash in liquidity.

Some analysts say China's ballooning reserves, far from being a symbol of growing wealth, underscore its problem of excess cash, which they believe is the root cause of its inflation woes.

"The increase in foreign exchange reserves does complicate the monetary policy," said David Cohen, an economist at Action Economics in Singapore. "That's why we've seen the repeated raising in the reserve retirements as a way to absorb the increased liquidity."

Cohen said he expects Beijing to raise interest rates once more alongside further increases in banks' required reserves.

In the second quarter, China's foreign exchange reserves added another $153 billion, helped by a gaping trade surplus and Beijing's buying of dollars to hold down the yuan.

Although the rise in reserves was smaller than forecasts for $175 billion gain, it was still a sizable addition to the world's largest stash of foreign exchange reserves.

(Additional reporting by Aileen Wang and Beijing Newsroom; Editing by Ken Wills and Richard Borsuk)