Finance news

Growth in European service industries from airlines to financial services unexpectedly accelerated in April, lending weight to the European Central Bank's threat to raise interest rates.

Royal Bank of Scotland Group Plc said a preliminary estimate of its services index rose to 51.8 from 51.6 in March. Economists expected a decline to 51.4, according to the median of 38 forecasts in a Bloomberg News survey. A reading above 50 indicates expansion.

Europe's economy is holding up even as the U.S. teeters on the brink of a recession, forcing the Federal Reserve to cut borrowing costs. ECB policy makers including Axel Weber and Juergen Stark have suggested the central bank may have to raise interest rates to curb inflation, which accelerated to 3.6 percent last month, the fastest pace in almost 16 years.

“On the consumer side we are still seeing quite strong employment growth and wage growth is accelerating quite strongly,'' said Nick Kounis, an economist at Fortis Bank in Amsterdam.

The euro has gained 9 percent against the dollar this year as the rate gap between the U.S. and Europe widens. The currency reached a record $1.60 yesterday. It initially rose on the PMI report before settling at $1.5966 at 12:30 a.m. in Frankfurt.

Export Growth

Exports from Germany, Europe's largest economy, will grow 5 percent this year, the BGA industry group said today, maintained its sales forecast in spite of the euro's gains. Over 80 percent of German exports are priced in euros, BGA President Anton Boerner said in an e-mailed statement.

Euro-region industrial orders rose 0.6 percent in February from the previous month, boosted by aircraft and other transport equipment, the European Union's statistics office said today. Economists expected a 0.4 percent decline, according to the median of 17 forecasts in a Bloomberg survey. From a year earlier, orders grew 9.9 percent.

“We have no indications for an economic slowdown, particularly when we look at our global business,'' Hannes Schwaderer, head of Intel Corp.'s German division, said April 16. “Especially small- and medium-sized companies invest very strongly in their IT infrastructure.''

That may change as the rising currency increases pressure on exporters' margins and soaring energy prices weigh on domestic demand payday loans in 1 hour. Crude oil rose to a record $119.90 a barrel yesterday.

Manufacturing Slows

Royal Philips Electronics NV, Europe's largest consumer electronics maker, saw first-quarter profit fall and said it will sell its loss-making North American TV division. Heidelberger Druckmaschinen AG, the world's largest maker of printing machines, missed its annual profit and sales targets.

RBS's gauge of manufacturing activity fell more than economists forecast to 50.8 from March's 52. The composite index of services and manufacturing rose to 51.9 from 51.8.

“There is some lag in transmission of the exchange-rate shock to euro-area exporters,'' said Laurent Bilke, an economist at Lehman Brothers in London. “They are just about to start to feel it.''

The credit squeeze may also curb investment. The U.S. housing slump has resulted in losses and writedowns at the world's biggest financial institutions of about $290 billion so far. That's made banks reluctant to lend, pushing up the cost of credit and threatening to slow global economic growth.

`Weathered the Worst'

UBS AG, the world's largest money manager, has “weathered the worst'' of the credit crisis, outgoing chairman Marcel Ospel said today. “The financial markets are also still far from normal, although the evidence suggests that we are gradually re- approaching normality,'' he said.

The ECB says Europe's fundamentals are “sound'' and predicts “moderate'' economic growth this year. Business confidence in Germany, Europe's largest economy, unexpectedly rose for a third month in March.

“Both investment and consumption should continue to contribute to economic expansion as profitability has been sustained, credit growth remains robust and employment conditions have improved,'' ECB Vice President Lucas Papademos said this week.

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