President Barack Obama welcomed China's announcement Saturday that it will allow a more flexible exchange rate for its currency

BEIJING  President Barack Obama welcomed China’s announcement Saturday that it will allow a more flexible exchange rate for its currency, saying it would help protect the economic recovery.The announcement by China’s central bank suggested a possible break from the yuan’s two-year peg to the U.S. dollar – a source of friction between the two countries – but ruled out any large-scale appreciation.The People’s Bank of China mentioned no specific policy changes, though markets will be watched closely Monday for the announcement’s effects. Chinese officials have said all along that reforms of the yuan, also known as the renminbi, or “people’s money,” will be gradual.”It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility,” the central bank said in a statement posted on its website.

The announcement, timed just before President Hu Jintao’s trip to the G-20 summit in Toronto, Canada, follows warnings from Beijing earlier this week against making its currency policies a main focus of the meeting.Beijing kept the yuan frozen against the dollar to help Chinese manufacturers compete amid weak global demand. It faces pressure from the United States and other trading partners who contend the yuan is undervalued.

“China’s decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy,” Obama said in a statement.U.S. Treasury Secretary Timothy Geithner called the move an “important step.””But the test will be how far and how fast they let the currency appreciate,” he said.The European Commission also welcomed the decision, saying it would help achieve more sustainable global economic growth, reduce trade imbalances and strengthen the stability of the international financial system.

But the announcement is unlikely to satisfy critics in the U.S. Congress, who argue that an undervalued Chinese currency gives China’s exporters an unfair advantage, costing millions of American jobs.”This vague and limited statement of intentions is China’s typical response to pressure,” Sen. Charles Schumer, a New York Democrat, said in a statement. “Until there is more specific information about how quickly it will let its currency appreciate and by how much, we can have no good feeling that the Chinese will start playing by the rules.”

Signs that a global economic recovery has taken hold have prompted speculation that China would begin letting the yuan resume a gradual appreciation against the U.S. dollar that began in 2005 but was halted abruptly in 2008 as the global financial crisis took effect.Since then, the yuan’s value has remained at roughly 6.83 to $1, although it is formally pegged to a basket of currencies that includes the U.S. dollar.

“It definitely sounds significant. They’re saying they’re going to press forward,” Stephen Green, an economist at Standard Chartered Bank in Shanghai, said of Saturday’s statement.”We didn’t ever think they were going to do a big one-off, so it looks like that’s not going to happen,” he said. “We’re going to see more movement around a basically stable exchange rate until the global economy is basically healthier. The proof will be in the pudding on Monday.”

Chinese officials have warned that any adjustment to the exchange rate is not other countries’ concern.The director of the international department of the People’s Bank of China, Zhang Tao, told a news conference Friday that Chinese leaders will not discuss the yuan at the G-20 summit.

Saturday’s statement pointed to economic growth both inside and outside China as a reason for the increase in exchange rate flexibility.”The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability,” the central bank said.However, it indicated no major policy changes, adding: “The exchange rate floating bands will remain the same as previously announced in the interbank foreign exchange market.”(AP)

World markets fell Friday after the U.S. Federal Reserve unexpectedly raised interest rates for emergency bank loans

LONDON  World markets fell Friday after the U.S. Federal Reserve unexpectedly raised interest rates for emergency bank loans, triggering fears that regular borrowing costs could also move higher soon, slowing the recovery in the world’s largest economy.The central bank said Thursday it will bump up the “discount” lending rate by one-quarter point to 0.75 percent effective Friday, part of a pullback of the extraordinary aid it provided to fight the financial crisis.Although the Fed said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses, markets were spooked.After sharp drops in Asia, Germany’s DAX stock index was down 0.2 percent at 5,671.28 and Britain’s FTSE 100 was flat at 5,326.84. France’s CAC-40 fell 0.2 percent to 3,742.09.Wall Street was also expected to fall on the open. Dow Jones industrials futures were down 50 points at 10,325.00 and Standard & Poor’s 500 futures were 8.2 points lower at 1,097.40.

Growing optimism about the strength of the U.S. economy had helped boost the Dow Jones industrial average rise by 3 percent over the past three days. But the surprise Fed announcement after Wall Street trading closed left traders wondering whether the so-called “exit strategy” from a loose monetary policy could come faster than expected and stifle U.S. consumer demand.”It begs the questions of why this was not done, or at least signaled at a regular Federal Open Market Committee meeting,” said Marc Ostwald, strategist at Monument Securities in London.”It certainly is the case that the Fed wants to see how money markets function without so much of the liquidity life support that the Fed has been providing, and as such one can term this a form of ‘kite flying’,” said Ostwald.The Fed move, which doesn’t change consumer borrowing rates, also helped boost the U.S. dollar and push the euro below nine-month lows – a sign traders may be turning away from higher-risk investments, analysts said.The euro fell to $1.3504 from $1.3529 late Thursday after trading at nine-month lows below $1.3400. After rising against the Japanese yen, the dollar was flat at 91.75 yen.

The euro has been under pressure in recent months over worries about the debt problems of Greece and other countries in Europe, such as Portugal and Spain. Although the EU said it was committed to helping Greece in case of a default, it did not provide any concrete plans for a bailout but limited itself to demand more spending cuts.Economic data in Europe, meanwhile, failed to shore up investor sentiment. The purchasing managers’ survey of the eurozone, an economic indicator published by Markit research group, was stable in February, suggesting the recovery from recession has stagnated somewhat.A rise in the manufacturing reading offset a drop in the services sector, providing “little hope that the much-needed domestic recovery is beginning to materialize,” said Ben May, European economist at Capital Economics in London.Markets in China and Taiwan are closed this week for the Lunar New Year holiday.Earlier in Asia, Hong Kong’s Hang Seng stock index led decliners, diving 528.13, or 2.6 percent, to 19,894.02 while Japan’s Nikkei 225 stock average dropped 212.11, or 2.1 percent, to 10,123.58.”As the dollar strengthens, we see less appetite for riskier assets such as Asian stocks.” said Jit Soon Lim, head of equity research for Southeast Asia for Nomura in Singapore. “We’re bullish on the region’s economic growth, but bearish on risk.”

South Korea’s Kospi declined 27.29, or 1.7 percent, to 1,593.90. India fell 1 percent and Indonesia dropped 0.5 percent.Singapore’s stock measure retreated 0.9 percent despite an increase of the government’s 2010 economic growth forecast to between 4.5 percent and 6.5 percent from 3 percent to 5 percent.In the U.S. on Thursday, the Dow rose 83.66, or 0.8 percent, to 10,392.90 while the broader Standard & Poor’s 500 index rose 7.24, or 0.7 percent, to 1,106.75. The Nasdaq composite index rose 15.42, or 0.7 percent, to 2,241.71, its fifth straight advance.Oil prices slid to near $78 a barrel after the Fed’s rate hike sent the U.S. dollar higher.Benchmark crude for March delivery was down 90 cents at $78.16 in electronic trading on the New York Mercantile Exchange. The contract added $1.73 to settle at $79.06 on Thursday.(AP)

California proposes trading program to cut emissions

California officials on Tuesday issued the nation’s first blueprint for a broad-based cap-and-trade plan, an innovative and controversial effort to use market forces to control global warming.The ambitious program would cap most of the state’s greenhouse gases, including those from more than 600 power plants, refineries, cement plants and other big factories. It would allow companies to buy and sell emission allowances among themselves to reach an overall goal of cutting planet-warming pollutants 15% below today’s levels by 2020.

The state’s action comes as Congress wrestles with a cap-and-trade bill for planet-heating emissions. Legislation passed by the House is stalled in the Senate.”California is first out of the box,” California Air Resources Board Chairman Mary Nichols said.Regulators estimated that California’s program could cost industry as much as $8 billion a year by 2020 if carbon trades at its current price on the European market of $20 per ton. European nations have operated a cap-and-trade program for the last five years.

But industry groups warned that the state’s push to control greenhouse gases could cost more than twice as much, and burden consumers with more expensive electricity, gas, housing and consumer goods.The measure is a signature issue for Gov. Arnold Schwarzenegger, who has pushed for flexible market-based solutions to environmental problems. He praised the proposal as a way to “drive innovation and generate green jobs.”The 135-page rule, designed with input from national academic, industry and environmental experts at 21 public workshops this year, is likely to influence the shape of eventual federal regulations.But the current draft leaves several controversial elements unresolved: how many emission allowances to auction off, rather than give away for free, and how to spend the revenue.

Those issues are being debated by a committee of experts headed by Stanford economist Lawrence Goulder, which is to report to the air board early next year.Environmental groups are divided over the virtues of carbon trading, with groups such as the Environmental Defense Fund and the Natural Resources Defense Council supporting a market approach and others charging that it lets industries off the hook, especially in highly polluted areas such as Los Angeles.Greg Karras, senior scientist for Communities for a Better Environment, which has filed a suit to block the cap-and-trade option, called it “institutionalized environmental justice,” adding that it would encourage “the most entrenched polluters, including oil,” to continue emitting toxics and smog-forming pollutants, which are associated with carbon emissions.

California’s push comes amid growing alarm over the likely effects of global warming on the state, the nation and the planet. Sierra Nevada snowpacks are diminishing, sparking drought and water shortages. Central Valley orchards are suffering declines, and the habitats of local animals and birds are changing.In a report last April, “Indicators of Climate Change in California,” the Office of Environmental Health Hazard Assessment found that the state’s higher temperatures, rising sea levels and increasing wildfires are consistent with climate changes occurring globally.The state’s proposed cap-and-trade program would take effect beginning in 2012, complementing other rules adopted under AB32, the state’s , to limit carbon dioxide from automobile tailpipes and the carbon content of fuels. The law requires greenhouse gases to drop to 1990 levels by 2020.

Nichols called the cap-and-trade draft a “milestone . . . to address our state’s contributions to climate change, as the eighth-largest economy in the world.” And she pointedly contrasted it with the upcoming gathering of 190 nations in Copenhagen next month “for another conference at which no international treaty will be signed.”But the plan could face further court challenges. “Serious legal questions about the Air Resources Board’s right to conduct an auction and spend the revenue have not been settled,” warned the AB32 Implementation Group, an industry coalition.Environmentalists want all permits to be auctioned, with the money spent on clean energy projects and on communities heavily affected by air pollution. Industry prefers that most allowances be given out for free. And the California Legislature, short on funds, may weigh in.

One controversial provision would allow industries to purchase “offsets,” such as contributing to the http:// preservation of a forest or the capture of methane from a landfill, to meet 49% of their obligations to reduce carbon dioxide emissions.Companies prize offsets as an alternative to installing often-expensive pollution controls, or, in the case of utilities, to building solar and wind farms to replace fossil fuel plants.

But Bill Magavern, California director for the Sierra Club, warned that the draft rule “allows polluters far too liberal use of offsets to buy their way out of reducing their emissions.”Six other Western states and four Canadian provinces have joined with California in a http:// Western Climate Initiative with an eye toward linking in a regional cap-and-trade program.Meanwhile, if a federal bill passes, California’s program, along with a cap-and-trade program in the northeastern U.S. that covers only power plants, would probably merge with a national program. But Nichols said the state could be free to require more emissions cuts in some cases.