China's Wen says jobs a priority despite economic headwinds (Reuters)

BEIJING (Reuters) – China will make job creation a more urgent priority in the face of slowed economic growth and weakened exports, Premier Wen Jibao said in comments published on Sunday, also warning that efforts to tame housing prices were at a critical point.

While visiting the southern region of Guangxi, Wen took on the issues that have raised worries about the direction of the world's second biggest economy: inflation, housing costs, weakened demand from rich economies, and the pressure to secure jobs for millions of university students and rural migrants.

"Currently, economic growth is slowing and external demand is falling, and we should make employment even more of a priority in economic and social development, doing our utmost to expand employment," Wen told officials in Guangxi, a poorer region next to export-driven Guangdong province, the official People's Daily reported.

Those efforts would include "ensuring an appropriate rate of economic growth" and supporting labor-intensive industries, small businesses and private firms, he said.

Wen's published comments did not mention the yuan exchange rate, which Beijing policymakers fear could stifle export-dependent jobs if they succumb to U.S. pressure to let the currency appreciate much more quickly.

But the Chinese premier made clear that jobs and social stability are dominant concerns.

People's livelihoods should assume a more important role in setting macroeconomic policy because such needs affect "social harmony and stability," said Wen, who visited Guangxi on Friday and Saturday.

RIGHT BALANCE

Wen's government faces a tricky test in striking the right balance between maintaining growth and containing inflation.

China's economic expansion slowed to 9.1 percent from a year earlier in the third quarter, its weakest pace in more than two years as euro-debt strains and a sluggish U.S. economy took a toll.

In September, consumer inflation dipped to 6.1 percent, retreating from three-year highs, but stubborn food price pressures remain a worry for policymakers.

"To rein in prices, we must first properly deal with food prices," Wen told officials.

The price of pork, a key meat for many Chinese people, was leveling off, but winter could add new pressures, he added.

"With the arrival of winter, consumption (of pork) will increase," he said. He urged officials to boost production by ensuring that incentives reach pig breeders and feed prices are kept stable. Corn processing projects should also be restricted to counter rising prices for that grain, Wen said.

His government must also deal with relentless pressure to find jobs.

China has 242 million rural residents who work off the farm, and 153 million of them are migrants working outside their home towns. They are joined by millions more migrants every year, hunting for work in factories and on building sites. As well, more than six million college and university graduates entered the workforce this year.

Wen also said another plank of the government's efforts to contain price rises -- containing housing costs -- was at a crucial stage.

Housing prices in China have climbed to record highs, although annual property inflation eased to a low of 3.5 percent in September as Beijing's campaign to cool the market made inroads.

"All levels of government must take effective measures to consolidate the fruits of (housing price) controls," he said. Those efforts should include ensuring the government's goals to expand affordable, state-backed housing are met, Wen said.

As of August, China had built 8.68 million units of homes for rental or sale to poorer families this year, putting it on track to fulfill its full-year goal of 10 million homes.

But echoing a widespread complaint among officials, one Guangxi official told Wen of a shortfall in financing for the affordable homes, according to the media accounts.

The premier did not hint at any backing down from affordable home targets, but indicated that commercial developers might get easier access to land for cheaper projects.

"On the one hand, we must get a grip on affordable housing construction," he said. "On the other hand, we must also increase land provision for ordinary commercial housing."

(Editing by Yoko Nishikawa)

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Mortgage insurer subsidiary seized by regulators (AP)

PHOENIX – Insurance regulators in Arizona have seized the main subsidiary of private mortgage insurer PMI Group Inc., which will begin paying claims at just 50 percent.

The seizure follows heavy losses at PMI since the housing market bubble burst. Two months ago, state regulators ordered the Arizona-based subsidiary, PMI Mortgage Insurance Co., to stop selling new policies after it came under scrutiny because it didn't have enough money on hand to meet the requirements of regulations in that state.

A statement on PMI's website says a court order, signed by an Arizona Superior Court judge on Thursday, gives Arizona's Department of Insurance full possession and control of the subsidiary. Beginning Monday, PMI says claims will be paid at just 50 percent, in lieu of a moratorium on claim payments. Meanwhile, PMI said it will "continue to support our customers' ongoing policy servicing needs, and loss mitigation programs."

Private mortgage insurance protects lenders from losses if a homeowner defaults and the lender doesn't recoup costs through foreclosure. The insurance costs the borrower a monthly fee, typically a set percentage of the total mortgage loan. Like other mortgage insurers, PMI has been able to sell profitable policies in recent years, but the gains from those sales hasn't outpaced losses from policies sold before the housing market collapsed. As flagging home prices have strapped borrowers, the company has had to pay more claims.

The company's shares have traded below $1 apiece since late July, closing on Friday at 31 cents apiece. PMI shares topped $50 in 2007. Since then, the Walnut Creek, Calif. company has posted more than $3.5 billion in losses due to claims paid out on foreclosed homes. That includes a loss of nearly $135 million for the second quarter. PMI hasn't yet reported third-quarter results.

PMI's CEO, L. Stephen Smith, told analysts in early August that that company has seen a sharp rise in the number of previously denied claims that banks appealed and were able to get reinstated by producing better documents to back up them up.

Smith said then that his company was working with a financial adviser to search for ways to raise capital.

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EU leaders press Italy for reform at crisis summit (Reuters)

BRUSSELS (Reuters) – European Union leaders piled pressure on Italy on Sunday to speed up economic reforms to avoid a Greece-style meltdown as they began a crucial two-leg summit called to rescue the euro zone from a deepening sovereign debt crisis.

The aim is to agree by Wednesday on reducing Greece's debt burden, strengthening European banks, improving economic governance in the euro area and maximizing the firepower of the EFSF rescue fund to prevent contagion engulfing bigger states.

Before the 27 leaders began talks on a comprehensive plan to stem the crisis, German Chancellor Angela Merkel and French President Nicolas Sarkozy held a private meeting with Italian Prime Minister Silvio Berlusconi, officials said.

Diplomats said they wanted to maximize pressure on Rome to implement structural labor market and pension reforms to boost Italy's economic growth potential and reassure investors worried about its huge debt ratio, second only to Greece's.

A German government source said Merkel and Sarkozy underlined "the urgent necessity of credible and concrete reform steps in euro area states," without which any collective EU measures would be insufficient.

Merkel warned in a speech on Saturday that if Italy's debt remained at 120 percent of gross domestic product "then it won't matter how high the protective wall is because it won't help win back the markets' confidence.

Arriving for Sunday's sessions of the full EU and the 17-nation euro zone, the leader of Europe's most powerful economy played down expectations of a breakthrough, telling reporters decisions would only be taken on Wednesday.

Before then, Merkel must secure parliamentary support from her fractious center-right coalition in Berlin for unpopular steps to try to save the euro zone.

European Council President Herman Van Rompuy, chairing the summit, painted a somber picture of the economic challenges facing Europe in his opening remarks, citing "slowing growth, rising unemployment, pressure on the banks and risks on the sovereign bonds."

"Our meetings of today and Wednesday are important steps, perhaps the most important ones in the series to overcome the financial crisis, even if further steps will be needed," he said.

LIFELINE

Finance ministers made progress at preparatory sessions on Friday and Saturday, agreeing to release an 8 billion euro lifeline loan for Greece and to seek a far bigger write-down on Greek debt by private bondholders.

They also agreed in principle on a framework for recapitalizing European banks, which banking regulators said would cost just over 100 billion euros, to help them withstand losses on sovereign bonds, although some details remain in dispute.

Sarkozy, who disagreed sharply with Merkel over strategy last week, pressing to put the European Central Bank in the front line of crisis-fighting, said after meeting her again on Saturday he hoped for a breakthrough in the middle of the week.

"Between now and Wednesday a solution must be found, a structural solution, an ambitious solution, a definitive solution," Sarkozy said. "There's no other choice."

Asked whether he was confident of a deal, he replied: "Yes, otherwise I wouldn't be here."

The key outstanding issues were how to make Greece's debt burden manageable and scale up the euro zone rescue fund to shield Italy and Spain, the euro area's third and fourth largest economies, from bond market turmoil that forced Greece, Ireland and Portugal into EU-IMF bailouts.

Markets are concerned that Greek debt, forecast to reach 160 percent of GDP this year, will have to be restructured, but investors do not know what kind of damage they will have to take on their Greek portfolios.

The size of the losses private bond holders would have to suffer was the first issue that will be discussed on Sunday.

A debt sustainability study by international lenders showed that only losses of 50-60 percent for the private sector would make Greek debt sustainable in the long term.

This is much more than a 21 percent net present value loss agreed with investors on July 21 and some officials question whether it can be achieved voluntarily, or only through a forced default that would trigger wider market ructions.

Euro zone officials now argue the recession in Greece is much deeper than expected, the country is behind on privatization and fiscal targets and market conditions have deteriorated in the past three months.

To have enough money to support Italy and Spain, if needed, the euro zone wants to boost the firepower of its bailout fund, the 440 billion-euro European Financial Stability Facility.

But public opinion in many countries is strongly against more bailouts, and further commitments to the EFSF could drag down some countries' credit ratings, worsening the crisis.

How to raise the potential of the fund without new cash was probably the most contentious point to be discussed on Sunday, but not expected to be resolved until Wednesday.

France and several other countries would like the bailout fund to be turned into a bank so that it can get access to limitless financing from the European Central Bank. But Germany and the ECB itself are adamantly against that.

The most likely solution seems to be that the EFSF would guarantee a percentage of new borrowing of Spain and Italy in a bid to improve market sentiment toward those countries.

Such a solution might help ring-fence Greece, Ireland and Portugal, but some analysts say it could have perverse effects, creating a two-tier bond market in which secondary bond prices would be depressed, and removing the incentive for Italy to take politically unpopular action to cut its debt.

Another possibility under discussion is to create a special purpose vehicle that would enable non-euro zone countries and sovereign wealth funds to invest in government bonds, but EU officials are reluctant to give countries like China a seat at the euro zone table.

Unless European banks get more capital to cover potential losses on these bonds, other banks will be reluctant to lend to them on the interbank market, triggering a liquidity crunch, now prevented only by stepped-up ECB liquidity provisions.

The European Banking Authority told European Union finance ministers on Saturday that if all such bank assets were valued at market prices, EU banks would need 100-110 billion euros of new capital to have a 9 percent core tier 1 capital ratio, an EU source familiar with the discussions said.

Ministers agreed to give banks until June 2012 to achieve this capital ratio, first using their own funds or from private investors, and if that fails, by using public money from governments or as a last resort the EFSF.

With Italy, Spain and Portugal unhappy about the burden being placed on their banks, EU leaders were to discuss the issue on Sunday, but the source said it was unlikely an overall sum for recapitalization would be explicitly mentioned.

(Additional reporting by Andreas Rinke, John O'Donnell, Harry Papachristou, Illona Wissenbach; Writing by Paul Taylor)

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Big banks under pressure in Europe crisis (AP)

BRUSSELS – Big banks found themselves under pressure in Europe's debt crisis Saturday, with finance chiefs pushing them to raise billions of euros in capital and accept huge losses on Greek bonds they hold.

The continent's biggest financial institutions were at the center of talks as leaders entered marathon negotiations in Brussels, at the end of which they have promised to present a comprehensive plan to take Europe out of its crippling debt crisis.

"Between now and Wednesday we have to find a solution, a structural solution, an ambitious solution and a definitive solution," French President Nicolas Sarkozy said as he arrived in Brussels. "There's no other choice."

In addition to new financing for Greece, leaders want to make the banking sector fit to sustain worsening market turmoil and turn their bailout fund into a strong safety net that will stop big economies like Italy and Spain from falling into the same debt trap that has already snapped Greece, Ireland and Portugal.

But before the final deadline on Wednesday, they have to overcome many obstacles.

On Saturday, the finance ministers of the 27-country European Union decided to force the bloc's biggest banks to substantially increase their capital buffers — an important move to ensure that they are strong enough to withstand the panic that a steep cut to Greece's debt could trigger on financial markets.

A European official said the new capital rules would force banks to raise just over euro100 billion ($140 billion), but finance ministers did not provide details on their decision. The official was speaking on condition of anonymity because it had been agreed to let leaders unveil the deal at their first summit Sunday.

"We have made real progress and have come to important decisions on strengthening European banks," George Osborne, the U.K.'s chancellor of the exchequer, said as he left Saturday's meeting.

The deal on banks was likely to be the only major breakthrough ready to announce on Sunday, leaving many important decisions and negotiations to be completed by Wednesday night.

On Friday, the first day of the marathon talks, the finance ministers of the 17 countries that use the euro — and which have found themselves at the center of the crisis because of the currency they share — agreed to demand Greece's private creditors take big losses on their bondholdings.

But they still have get the banks to come along and convince them that the cuts are the best way to ensure that Athens can eventually repay its remaining debts.

The picture in Greece, whose troubles kicked off the crisis almost two years ago, is bleaker than ever. A new report from Athens' international debt inspectors — the European Commission, the European Central Bank and the International Monetary Fund — proved that a preliminary deal for a second package of rescue loans reached in July is already obsolete.

That plan would have seen banks and other private investors take losses of some 21 percent on their Greek bond holdings, while the eurozone and the IMF were to provide an extra euro109 billion ($150 billion) in bailout loans.

But the report showed that in the past three months Greece's economic situation has deteriorated so dramatically that for the bank deal to remain in place, the official sector would have to provide some euro252 billion ($347 billion) in loans. Alternatively, to keep official loans at euro109 billion ($150 billion), banks would have to accept cuts of about 60 percent to the value of their Greek bonds.

"I believe we are now arriving at a more realistic view of the situation in Greece," said German Chancellor Angela Merkel, the country that has long been advocating a more radical solution to Athens' problems.

But Merkel and her eurozone counterpart were on for tough negotiations with the banks.

Charles Dallara, who has been representing private investors in the talks with the eurozone, said Saturday that negotiations that carried on sporadically throughout Saturday were making only slow progress.

"We're nowhere near a deal," he told The Associated Press in an interview.

Dallara, the managing director of the Institute of International Finance — the world's biggest bank lobbying group — said current plans to cut Greece's debt would leave the country as "a ward of Europe" for years.

He declined to say how much in losses banks would be willing to accept, saying only "we would be open to an approach that involves additional efforts from everyone."

The eurozone has been working hard to reach a voluntary agreement with banks, rather than forcing losses onto the lenders, because that could avoid triggering billions of euros on payout for bond insurance and could destabilize markets even further.

However, in recent weeks some officials have no longer insisted that the deal remain voluntary.

Agreement on arguably the most important measure in the crisis plan remained even more elusive Saturday: boosting the firepower of the currency union's euro440 billion ($600 billion) bailout.

Increasing the effectiveness of the fund — called the European Financial Stability Facility — is meant to help prevent larger economies like Italy and Spain from being dragged into the crisis. At the same time, the EFSF may be asked to help governments shore up their banks if they can't raise the necessary funds on financial markets.

But Germany and France still disagree over how to give the EFSF more firepower. France wants the fund to be allowed to tap the ECB's massive cash reserves — an option that Germany rejects. Weaker economies, meanwhile, are wary of signing up to the other two parts of the grand plan — bigger bank capital and cuts to Greece's debt — without assurance that sufficient buffers are in place.

___

Sarah DiLorenzo, Elena Becatoros, Raf Casert and Slobodan Lekic in Brussels contributed to this story.

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PMI unit seized by Arizona insurance regulators (Reuters)

(Reuters) – The main subsidiary of mortgage insurer PMI Group Inc (PMI.N) has been seized by Arizona insurance regulators, and will begin paying only 50 percent of claims starting on Monday, PMI Group said on Saturday.

The remaining amount of each claim will be deferred, the company said on its website.

Under a court order obtained by Arizona regulators, "the Arizona Department of Insurance now has full possession, management and control of PMI," the company said in a brief statement.

The seizure of Arizona-based PMI Mortgage Insurance Co comes two months after two PMI units were ordered to stop writing new business due to their failure to meet capital requirements.

PMI, like other U.S. mortgage insurers, has suffered throughout the housing downturn and has extremely high risk-to-capital ratios, causing many to question its survival.

PMI stock, which had traded at nearly $50 a share before the housing meltdown in 2007, closed at 31 cents a share on Friday.

PMI rivals include MGIC Investment Corp (MTG.N), Genworth Financial (GNW.N) and Radian Group. (RDN.N)

MGIC, which is close to breaching its risk limit, said on Friday it would pump about $200 million into its loss-laden units to allow it to continue writing new insurance.

Most U.S. states allow a maximum risk-to-capital ratio of 25 to 1. At the end of September, MGIC Investment's combined insurance operations' risk-to-capital ratio rose to 24 to 1.

MGIC Investment said the $200 million infusion would lower its consolidated risk ratio to 21.3 to 1.

(Reporting by Matthew Lewis in Chicago; Editing by Vicki Allen)

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Panasonic to slash domestic chip output: Nikkei (Reuters)

TOKYO (Reuters) – Japanese electronics maker Panasonic Corp will scale back domestic semiconductor output by the end of March 2012 and cut about 1,000 jobs, reflecting its recent move to reduce TV panel production, the Nikkei business daily said on Sunday.

All of the firm's five domestic chip-manufacturing facilities, including the state-of-the-art Uozu plant in Toyama prefecture, will cut output, the report said.

The company is likely to outsource more semiconductors from such firms as Taiwan Semiconductor Manufacturing Co and boost its outsourcing ratio from the current 10 percent to around 30-40 percent within a few years, the report said.

Officials with the company were not immediately available for comment.

Panasonic will reduce plasma TV panel production and lay off about 1,000 people, a source told Reuters on Thursday, as its loss-making television unit struggles to compete with Asian rivals like Samsung Electronics.

(Reporting by Osamu Tsukimori; Editing by Matt Driskill)

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S&P upgrades Ford debt 2 notches after labor deal (AP)

NEW YORK – Ford's credit rating was lifted to within one level of investment grade Friday, making it cheaper for the automaker to borrow, after it secured a new contract with workers.

Standard & Poor's Ratings Services raised Ford two levels to "BB+" from "BB-," saying the agreement will allow its North American operations to remain profitable.

Ford Motor Co. shares rose 48 cents, or 4 percent, to $12.19 in early afternoon trading.

The agency said strong performance in North America has helped Ford generate global profits in the past two years. The new 4-year contract with the United Auto Workers "will allow for continued profitability and cash generation in North America," it said.

The union, which represents 41,000 Ford employees, approved the contract Wednesday. It includes signing bonuses but no annual pay increases, and it will let Ford hire more workers at lower wages.

Ford executives said it will raise labor costs by less than 1 percent each year — $280 million this year and $80 million a year after that. Fitch Ratings upgraded Ford on Thursday, also to within one level of investment-grade status.

Moody's Investor Service has also said it's reviewing its below-investment grade ratings for the automaker.

Ford's credit sank to so-called junk status in 2005, when it was deeply in debt. It borrowed $23 billion in 2006 to get through the recession and fund a huge restructuring. The company had $14 billion in debt as of June 30.

Higher ratings allow companies to pay lower interest rates to borrow and refinance debt.

S&P said Friday that Ford's auto operations should generate at least mid-single-digit profit margins this year.

It also raised Ford Credit's European bank to "BBB-" from "BB" and assigned a "Stable" outlook to the parent company.

S&P said it was assuming "some improvement" in North American light-vehicle sales into next year but believed the company's North American operations would remain profitable even with flat or slightly lower sales.

It added that as Japanese auto makers rebuild inventories hurt by this spring's earthquake in Japan, it could lead to "modest market share losses" by many non-Japanese companies in the U.S.

Ford is scheduled to report third-quarter results next Wednesday.

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