Consumer borrowing dropped $9.5 billion in August (AP)

WASHINGTON – Consumers slashed their borrowing in August by the most in 16 months. The drop suggests many worried about taking on new debt while the economy slumped and the stock market fluctuated wildly.

Fewer people used their credit cards. And a measure of demand for auto and student loans fell.

Total borrowing dropped $9.5 billion in August, the Federal Reserve said Friday. In July, borrowing increase $11.9 billion.

Americans have been struggling all year with high unemployment, meager pay raises and pricier goods and gas. That has depressed consumer spending, which fuels 70 percent of economic growth.

In August, consumer confidence tumbled to a two-year low, and retail sales were flat. The weak economy, along with gridlock in Washington and heightened concerns over Europe's debt crisis, rattled financial markets.

The August drop in borrowing was the largest since April 2010. Prior to that, consumers had increased their borrowing for 10 straight months.

Borrowing for auto and student loans plunged $7.2 billion in August. A category that includes credit cards fell $2.3 billion.

The overall decline lowered total borrowing to a seasonally adjusted $2.44 trillion. Borrowing is just 2.1 percent higher than the recent low hit in September of last year.

The August decline came as a surprise to economists who had been expecting a solid increase for the month. Some analysts said they believed the figure overstated the weakness in borrowing and reflected trouble the government has with seasonally adjusting the borrowing figures.

Troy Davig, an economist at Barclays Capital, said he expected borrowing to continue rising at a modest pace in coming months, reflecting his expectation that consumers will keep borrowing cautiously.

"We are looking for consumer borrowing to keep rising slowly at a pace that will not get ahead of income growth," Davig said.

Households began borrowing less and saving more when the country fell into recession and unemployment surged.

While economists believe borrowing will gradually increase in coming months, they don't expect consumers to load up on debt the way they did during the housing boom. Americans felt wealthier then and were more willing to take on added debt because of the soaring value of their homes.

The Federal Reserve's borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

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European bank bill well over $133.8 billion: Ireland (Reuters)

DUBLIN (Reuters) – There is general agreement that European banks will need fresh capital well in excess of 100 billion euros ($133.8 billion) and it will likely come from a variety of sources, including the euro zone rescue fund, Ireland's finance minister said on Saturday.

Germany and France are split ahead of key talks on Sunday over how to strengthen shaky European banks. Paris is keen to tap the euro zone's 400 billion rescue fund, the EFSF, to recapitalize its own banks and Berlin is insisting the fund should be used as a last resort.

The International Monetary Fund (IMF) has said European banks need 200 billion euros in additional funds.

"I think there is general agreement that it will be significantly in excess of 100 billion (euros)," Michael Noonan told reporters on the sidelines of an economic forum in Dublin.

"I know that some of the big German banks that I was talking to personally intend raising money on the market so it will be private funding. Other banks would like to avail of the EFSF fund. Other banks will rely on their sovereign governments to provide the capital so there is going to be a range of ways of doing it."

"I think the principle should be that sovereign governments are responsible for their banking system on the advice of the European Central Bank."

"If banks can't capitalize themselves, either by issuing equity to the market or by getting exchequer funds then obviously they would have the option of requesting EFSF funding. When we recapitalized our banks here we went the EFSF option."

Noonan said recent credit rating downgrades of Spain and Italy reflected frustration at Europe's failure to solve a long-running sovereign debt crisis.

"There is certainly an impatience that Europe should resolve the problems of the euro zone and do it pretty quickly," he said.

Ireland's banks were at the heart of its financial crisis and subsequent EU-IMF bailout and earlier this year Dublin put a 70 billion euros bill on recapitalizing its lenders.

Noonan is currently looking at ways to try and restructure nearly 31 billion euros worth of promissory notes, a form of IOU, used to recapitalize shuttered lenders Anglo Irish Bank and Irish Nationwide Building Society.

The notes carry an interest bill of 17 billion euros, spread out over 20 years and Noonan would like to tap the EFSF to pay off the remaining amount outstanding, nearly 44 billion euros, and then repay that money to the EFSF over a longer timeframe and at a lower interest rate.

"We are moving on it with colleagues in Europe and they have given no commitment but they are prepared to proceed on the basis of joint policy papers, which we have just commenced to draft now."

"I want to position ourselves in a changing European situation so that Ireland's interests are studied carefully and taken into account in any wider solution that goes forward in the next month."

(Reporting by Carmel Crimmins; Editing by Alison Birrane)

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BNP, Socgen deny reported plan to raise $9.4 billion (Reuters)

PARIS (Reuters) – Top French banks BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) denied a report that they could seek to raise a combined 11 billion euros ($14.8 billion) as part of a broader European bank recapitalization plan.

Le Journal du Dimanche newspaper had reported that France's first and second largest banks by market cap would seek about 7 billion euros and 3-4 billion euros, respectively.

A BNP spokeswoman denied the report, reiterating that it planned to reach Basel III capital targets without a capital increase. SocGen also denied the report and also said it would reach Basel III targets without a capital increase.

The Journal du Dimanche report, which did not cite sources, follows one in German daily Frankfurter Allgemeine Zeitung saying that the top five French banks had agreed to receive 10 to 15 billion euros in fresh capital from the French state as long as Deutsche Bank (DBKGn.DE) agreed to a government capital injection as well.

The Journal du Dimanche report said most European banking groups would prefer a European recapitalization mechanism "so as not to be stigmatized," adding that the European Banking Authority could be in charge of such a plan.

A French finance ministry source told Reuters on Friday there was common agreement between Paris and Berlin on the need to recapitalize European banks, adding that injections of public capital would be a "last resort."

(Corrects headline)

($1 = 0.741 Euros)

(Reporting By Christian Plumb and Lionel Laurent; Editing by Hans-Juergen Peters)

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Consumer credit falls $9.5 billion in August (Reuters)

WASHINGTON (Reuters) – U.S. consumer credit posted its largest decline in more than a year in August, according to a Federal Reserve report on Friday that suggested consumers were reluctant to hold more debt amid a shaky economic recovery.

Consumer credit fell a surprising $9.50 billion in August after rising $11.92 billion in July, the report said. That was well below economists' expectations of a $7.75 billion increase.

"Consumers are extraordinarily sensitive to economic conditions and as things started to look a bit more sour, they stopped using their credit card," said Steve Blitz, a senior economist with ITG Investment Research in New York.

The U.S. credit rating downgrade and Europe's debt problems triggered wild swings in global equity markets in August. That combined with higher unemployment to hold consumers back, economists suggested.

Revolving credit, which mostly measures credit card use, dropped $2.27 billion in August after falling $3.56 billion in July.

Non-revolving credit, which includes mostly auto loans, fell $7.23 billion, the largest decline since August 2008, after rising $15.48 billion in July.

(Reporting by Rachelle Younglai, editing by Andrea Ricci and Dan Grebler)

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