Fed set to buy $300B more Treasuries

QE2 is just about done. But the Federal Reserve will still be buying massive amounts of long-term Treasuries.

In fact, the Fed's purchases over the next year will likely be at least $300 billion. That's half the size of QE2 -- even if QE3 never takes place.

While the Fed's efforts to pump about $600 billion of new cash into the economy over the last eight months comes to an end this week, the program, known as quantitative easing or QE2 for short, was not the only way the central bank was an active buyer of Treasuries.

Since last August, the Fed purchased $250 billion in long-term Treasuries in addition to the QE2 purchases. That's because it was reinvesting the principal from other securities that matured.

Assuming the Fed keeps reinvesting, as it said it would earlier this month, it will continue to be a very big buyer of bonds in the months to come.

"We still see the Fed being a major buyer of Treasuries, and giving the market some support," said Kim Rupert, managing director of fixed income for Action Economics.

But those purchases may not push yields, which move in the opposite direction of their price, lower for that much longer.

Rupert said she expects bond yields to rise even with the Fed's continued purchases. She said some investors who bought Treasuries recently in a flight to quality will unwind those positions. If the economic outlook improves later in the year, that could also lift interest rates.

The additional Fed purchases will have an impact though. Rupert said it should "slow the updraft in yields in a measurable way."

The Fed still has more than $1 trillion in mortgage-backed securities, debt issued by government-sponsored firms Fannie Mae and Freddie Mac and other long-term bonds on its balance sheet.

While not all of this debt is set to mature in the next few months, the Fed still has a lot at its disposal to roll over into new bond purchases.

Of course the Fed could decide to stop reinvesting the principal of maturing securities. But that could almost have the same effect of actually raising interest rates. It would take significant amounts of cash out of the economy.

Even though some Fed policymakers are worried about the impact the bond buying has had on the dollar and inflation, the Fed does not seem ready to remove all its stimulus just yet. After all, the central bank did just issue a gloomier forecast for growth and unemployment through the end of 2012.

"Most of us can agree the economy is not going gangbusters and it's not a self-sustaining recovery yet," said David Coard, director of fixed income sales and trading for The Williams Capital Group. "For the foreseeable future, the Fed will have to maintain an accommodative stance. It's the only game in town."

Nifty ends above 5525;Power Grid,BPCL,ONGC up

Indian markets ended on a firm note Monday as buying activity picked up in oil&gas stocks following hike in fuel prices. The Empowered Group of Ministers increased diesel prices by Rs 3 per litre, kerosene by Rs 2 per litre and LPG by Rs 50 per cylinder. The decline in international crude oil prices also boosted investor sentiments.

According to dealers, some short covering was seen in capital goods, banks and auto stocks ahead of June series F&O expiry. The fuel hike is likely to push inflation in double-digits which is above the comfort zone.

"We estimate the direct impact on headline inflation of the June 24 increase to be 0.6 percentage point (ppt), and an overall impact of 0.9 ppt for FY12. We therefore raise our WPI inflation forecast to 8.6%, with most of the increase likely in the near term. We project the July and August headline inflation numbers could be in the double digits, higher than expected, but we continue to expect inflation to peak in September," said Tushar Poddar, Chief India Economist, Goldman Sachs .

There's some concern for the rate-sensitive sectors in near-term as the Reserve Bank of India is expected to continue to hike interest rates.

"We maintain our view of 50bps of cumulative tightening by December-11, although the RBI's anti-inflationary stance could result in a further elongation of the rate tightening cycle," said Rohini Malkani, Economist, Citi India.

National Stock Exchange's Nifty closed at 5526.60, up 55.35 points or 1.01 per cent. The broader index touched a high of 5552.65 and low of 5434.25 in trade today.

Bombay Stock Exchange's Sensex was at 18412.41, up 171.73 points or 0.94 per cent. The 30-share index hit a high of 18494.11 and low of 18132.70 intraday.

BSE Capital Goods Index was up 1.75 per cent, BSE Bankex gained 1.61 per cent, BSE Auto Index moved 1.49 per cent higher and BSE Oil&gas Index advanced 1.40 per cent.

Bank of America Merrill Lynch has raised its target price on state-run oil marketing companies Indian Oil, Hindustan Petroleum and Bharat Petroleum. HPCL target price is increased to Rs 500 from Rs 441 per share, Oil India to Rs 1,756 from Rs 1,583, while BPCL's target price was raised to Rs 739 Rs 650.

Citigroup has said that the price hikes were well ahead of its expectations and upgraded state-run oil marketing companies including Indian Oil Corp , Hindustan Petroleum Corporation , Bharat Petroleum Corporation and Oil India to "buy" citing these companies stand out as clear near-term beneficiaries due to the sharply reduced under-recovery burden.

Power Grid Corporation (5.07%), BPCL (4.71%), ONGC (4.01%), Reliance Capital (3.57%) and Maruti (3.16%) were the major Nifty gainers.

Reliance Infrastructure (-1.13%), Grasim (-1.10%), DLF (-0.99%), Ambuja Cements (-0.75%) and ITC (-0.72%) were the top index losers.

Market breadth was positive on the NSE with 1669 gainers against 1212 losers.

Outspoken Chinese activists silent after release

Chinese authorities released prominent human rights activist Hu Jia Sunday, days after freeing renowned dissident artist Ai Weiwei.

"A sleepless night -- Hu Jia arrived at home at 2:30. He's safe and I'm very happy," Zeng Jinyan, Hu's wife, said in a Twitter post Sunday morning. "He needs to rest for a while."

Hu, 37, denounced China's human rights record in a series of articles ahead of the 2008 Beijing Olympics and was later sentenced to 3.5 years in prison for "inciting to subvert state power." Ai, the conceptual artist turned government critic, was released Wednesday on bail after authorities detained him for nearly three months for tax evasion, the state-run Xinhua news agency reported.

The seemingly positive news, however, has been dampened by the noticeable silence of both once-outspoken activists.

While Ai declined to answer questions from reporters outside his home early this week, police Sunday guarded entrances to Hu's apartment compound and patrolled surrounding streets. Zeng, his wife, appeared unreachable via phone or the internet.

Zeng told CNN Friday that authorities started 24-hour surveillance on her several days before Hu's expected return. In an interview last December, she predicted a virtual prisoner's life for the couple in their housing complex, called Freedom City.

"Hu Jia told me that he won't change, and police told him they may put him under house arrest in that case," she said. "I'm prepared for it."

"As long as there's no democracy or the rule of law in China, our situation won't change at all."

Last year's Nobel peace laureate Liu Xiaobo, also a rights activist, was convicted of the same crime as Hu. Liu is still serving an 11-year jail term.

Activists say the Chinese government, worried about potential uprisings inspired by the Arab Spring, has been increasingly tightening its grip on freedom of expression, targeting not only political dissidents but also intellectuals and artists.

Guo Jian said he has noticed such chilling effects from his studio at the Songzhuang art village, not far from Hu's home.

The veteran artist has been working on a startling installation piece that shows the very symbol of state power being bombed and razed. In the still-untitled diorama, model warplanes hang by thin threads fly over a miniature Tiananmen Square. The heart of Beijing is dotted with bulldozers and tanks, with the iconic Tiananmen Gate and Chairman Mao's mausoleum smashed and half-destroyed.

"The police have sent someone to say, don't show your work or don't let other people know about it," he said. "They're really worried about what I'm doing."

Guo, 48, says for the first time in his 20-year career, police now visit him regularly and plainclothes agents sometimes shadow him on the streets.

Pointing to his unfinished diorama, Guo says the authorities' outdated mentality and methods -- silencing perceived dissent through intimidation and detention -- only reinforce the message in his work: the potentially explosive consequences of suppressing people's voices for too long.

While he feels heartened by the release of fellow-artist Ai and activist Hu, Guo remains concerned about the current crackdown and doesn't see it ending anytime soon.

"Even though we got someone back, the fear is there," he said.

Attorney: China frees 4 detained associates of dissident Ai Weiwei

Four detained associates of China's recently imprisoned dissident artist Ai Weiwei have been released by the Communist government, Ai's lawyer told CNN Saturday.

The attorney, Liu Xiaoyuan, didn't talk with the four associates, but he asserted that his source about their release is reliable, he told CNN.

"Some of them are still keeping their cell phone off. They've just been released, so they might still feel terrified," Liu said.

Ai was released on bail Wednesday -- apparently with conditions -- after he spent nearly three months in prison on charges of tax evasion, according to the state-run Xinhua news agency.

Ai was not available to comment on the release of the four persons connected with his case, his attorney said.

The release of the four associates occurred Thursday and Friday, Liu said.

Wen Tao, a journalist who was taken away on April 3 -- the same day as Ai -- was released Friday night, Liu said.

Hu Mingfen, Ai's accountant, and Liu Zhenggang, the designer in Ai's studio, were released on Thursday, Liu said.

Liu said he didn't know the charges against these three associates of Ai.

The fourth associate, Zhang Jinsong, Ai's driver, was bailed out by Ai's mother on Thursday, Liu said. Zhang faces a charge of "reselling foreign exchange for profiteering," Liu said.

Beijing police have accused Ai of evading a "huge amount" of taxes, Xinhua reported in May, more than a month after he was detained.

Beijing police told state media that Ai was released on bail because of his good attitude in confessing his alleged crimes and also said he was suffering from a chronic disease. Authorities didn't elaborate.

Ai is an uncompromising, outspoken critic of Chinese policies and is renowned as a conceptual artist, particularly for designing the Bird's Nest stadium for the 2008 Beijing Olympics -- against which Ai later urged a boycott because he said China was using it as propaganda.

Ai has said he is willing to pay the taxes he allegedly evaded, police told Xinhua.

Investigators have also accused Ai's company of intentionally destroying accounting documents.

Observers in Beijing say it may not be coincidental that Ai's release on Wednesday took place on the eve of Premier Wen Jiabao's upcoming visit to Hungary, the United Kingdom and Germany, where Ai enjoys wide support among artists and politicians.

Ai also has accused the Chinese government of trying to silence dissidents.

He was seized April 3 while planning to board a plane to Hong Kong and later accused of economic crimes, a move that prompted international condemnation and added to criticism over China's controversial record on human rights.

Some commentators said they believe the arrests of Ai and his associates may have been launched in response to fears over the unrest that has swept the Middle East.

More than 130 activists have been detained in China since February following the government crackdown, according to Amnesty International.

Inflation & possible RBI rate hike

Share investors are likely to cheer the increase in fuel prices that is expected to improve India's deteriorating finances, partly weighed down by fuel subsidies and demonstrate the government's commitment towards reforms. But this optimism is unlikely to translate into gains for stocks as the much-awaited decision on diesel and cooking gas prices will add to inflationary pressures in the short-term and may prompt the central bank to increase rates further.

"It is a bold move by the government after a long time and investors will like it," said Motilal Oswal, chairman & managing director, Motilal Oswal Financial Services . "While the move is inflationary in short term, the market has more or less discounted it, but a lot will depend on the monetary policy reaction," he said.

On June 16, the Reserve Bank of India raised key rates for the tenth time since March 2010 and is widely expected to tighten the screws further in July.

Focus to be on Europe, Crude Oil

Investors fear more rate increases would be excessive and would delay the economy's ability to bounce back once inflation settles around the central bank's comfort level of 6%. India's wholesale price inflation jumped to 9.06% in May. Fund managers expect inflation to accelerate to over 10% over the next few weeks as higher fuel prices would increase transportation costs of food.

In the longer run, most economists say, the higher price of diesel will encourage more rational use of the fuel and benefit the wider economy. "The increase in diesel and LPG prices may have an effect on inflation in the short term and in turn worry the market, but the move is beneficial for the economy and long-term investors will be happy," said Aneesh Srivastava, chief investment officer, IDBI Federal Life Insurance.

Brokers said the focus this week will continue to remain on the debt situation in Europe and the direction of crude oil prices. Benchmark Indian share indices - Sensex and Nifty - rose almost 3% on Friday, as foreign investors bought shares worth Rs 890 crore after global crude oil slid, Europe pledged to rescue Greece, and China hinted that it may be nearing the end of monetary tightening.

In the past few months, the perception of a government in disarray has gained ground as it has increasingly given the impression of being unable to deal with a blizzard of scams and agitations by groups claiming to represent civil society.

A widely-followed CEO poll carried out by industry body Ficci and published by ET in its edition dated June 13 reported that a majority of respondents expected little of the Congress-led UPA government. The price hikes may help reshape the impression of haplessness. Late on Friday, the government raised diesel rates by Rs 3, LPG by Rs 50 per cylinder and kerosene by Rs 2 per litre.

In May, the government had increased petrol prices by Rs 5 per litre. The government last increased prices of diesel and cooking gas on June 26 last year, despite global crude strengthening since then. "If all petro product prices are passed on properly, markets will bottom in the next three months and recover significantly thereafter because growth is still there," said Sankaran Naren, chief investment officer, ICICI Prudential Asset Management.

OMCS TO BENEFIT

Shares of oil marketing companies may surge on Monday as the government's decision to increase petroleum product prices will help trim losses that they incur from subsidised sale of oil and cooking gas. Brokers said the step has brought cheer to investors in these companies as they expected a lesser increase in diesel prices and none in kerosene and cooking gas.

Though the three oil marketing companies - Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) - together will still incur revenue losses from fuel subsidies of Rs 121,000 crore this year, the increase in product prices will reduce their monthly borrowings and improve cash flows.

"Shares of oil marketing companies will rise this week not because the petro price increases will bring these companies back into profits, but that there were very little expectations from the government," said the investment head of a mutual fund owned by a public sector bank. "Also, their valuations are almost at rock bottom because these stocks have hardly seen any movement," he said.

Shares of BPCL and IOC have fallen about 4% so far in 2011 against the 10% fall in the Sensex during the period. HPCL shares, which surged 6% on Friday, have been unchanged since January. BPCL and IOC gained almost 3% each on Friday ahead of the meeting of the government representatives to decide on the prices. Oil marketing companies buy crude at international prices, but sell diesel, kerosene and LPG at subsidised prices fixed by the government.

The government compensates them through a mix of cash subsidies and discounts from oil exploration and production companies, including Oil & Natural Gas Corporation (ONGC) and Oil India. Shares of ONGC and Oil India could also rise on Monday as their share of the overall subsidies will drop after the price increases. "Outlook of upstream companies have been clouded by the ad hoc nature of the subsidy-sharing formula. Lack of concrete subsidy-sharing mechanism has resulted in earnings/valuations of upstream companies being contingent upon government directives," said Enam Securities, in a note prior to the rise in prices.

"Probably inevitable" a country will exit euro: George Soros

Billionaire investor George Soros thinks a country will eventually exit the euro zone and urged policymakers on Sunday to come up with a "plan B" that could rescue the European Union from looming economic collapse.

Soros, famous for making $1 billion by betting against the British pound in 1992, did not name any country he thought might exit the currency, but speculation is mounting about the fate of Greece as its politicians struggle to agree more austerity measures demanded by international lenders as the price for staving off bankruptcy.

Soros reiterated his view in a panel discussion in Vienna that the euro had a basic flaw from the start in that the currency was not backed by political union or a joint treasury.

"The euro had no provision for correction. There was no arrangement for any country leaving the euro, which in the current circumstances is probably inevitable," he said.

While he called survival of the European Union a "vital interest to all," he said the EU needed structural changes to halt a process of disintegration.

"There is no plan B at the moment. That is why the authorities are sticking to the status quo and insisting on preserving the existing arrangements instead of recognizing there are fundamental flaws that need to be corrected."

With a debt crisis in some peripheral members testing the EU's cohesiveness at a time of popular disquiet in wealthier countries over bailouts, he said leaders had to adopt measures now to remedy the situation.

"Let's face it: we are on the verge of an economic collapse which starts, let's say, in Greece but could easily spread. The financial system remains extremely vulnerable...

"We are on the edge of collapse and that is the time to recognize the need for change."

Some steps the EU could adopt included creating a larger central budget; directing some of the income from value-added tax or a levy on financial transactions to Brussels; having a European institution guarantee banks, and tripling the size of its bailout fund by topping it up with tax revenue, he said.

TCS hits back at CLSA for sector downgrade, says no weakness in demand

TCS, India's largest software exporter by sales, has hit back at brokerage house CLSA's IT sector downgrade.

The company's investor relations team sent out a mail to equity analysts stating that it hasn't witnessed any weakening of demand and that visa issues, though an irritant wasn't disruptive enough to justify a sudden sector downgrade. ET NOW has a copy of the mail sent by TCS.

"On the matter of macro worries, we are not seeing any weakening of demand. Clients continue to fund new projects and ramp-ups are proceeding smoothly. The worry of a systemic shock from Greek default remains, but that is no incremental negative either," TCS said in the e-mail.

Pranab to sell India's growth story on US visit

Finance Minister Pranab Mukherjee's two-day visit to Washington beginning Monday will be focused on reassuring foreign investors that India continues to be an attractive investment destination , as its medium and long-term growth story remains intact, officials say.

"The focus is on business. During the two-day stay, the finance minister will hold meetings with business honchos and top US economic policy makers," a finance ministry official, who didn't want to be quoted, told IANS.

Mukherjee is scheduled to hold roundtable meetings with chief executives of top US and Indian companies Tuesday. He will also address a luncheon meeting of the India-US CEO forum.

The finance minister will be accompanied by top officials, including his chief economic advisor Kaushik Basu, economic affairs secretary R. Gopalan and Reserve Bank of India Governor Duvvuri Subbaro.

Mukherjee's visit comes in the backdrop of a series of scams and corruption scandals, stubbornly high inflation, decline in industrial output growth and sharp decline in the flow of foreign direct investment. All these have raised a question mark on India's growth story.

"The current spate of corruption scandals has made a big dent on India's global image. It is negatively affecting the flow of foreign direct investment. Businesses are apprehensive," Rajeev Peshawaria, chief executive officer of Kuala Lumpur-based ICLIF Leadership and Governance Centre, told media.

Peshawaria said cleaning up its image and reassuring foreign investors on the growth story were among the major challenges facing Prime Minister Manmohan Singh's government.

"Definitely, India's time for growth has come. Everybody is looking at India as this is the place to invest in. But there are certain things that are holding them back," he said.

Foreign direct investment ( FDI )) in India declined 25.67 percent to $18.3 billion during the first 11 months of fiscal 2010-11 as compared to $24.62 billion during the corresponding period of the previous year.

Inflation has remained stubbornly high, near double-digit, during the last one and half years despite an aggressive monetary tightening by the Reserve Bank of India.

On the first day of his visit June 27, Mukherjee will address the India-US economic and financial partnership summit in Washington. The event is being organised by the Confederation of Indian Industry (CII) and the US-based Brookings Institution.

Mukherjee will also hold discussions with key US economic policy makers including Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben S. Bernanke and Securities and Exchange Commission Chairman Mary L. Schapiro.

Distrust of Government Impedes Reform in Greece

Demonstrators projected the word across the facade of Parliament last week, and it underscored the hurdle that Prime Minister George Papandreou faces in selling an increasingly resentful electorate on a tough new round of austerity measures: “Thieves.”

Most Greeks say they have little confidence in a political class that they see as corrupt and unaccountable. A recent study by Transparency International in Greece found that 9 out of 10 Greeks believed that their politicians were corrupt, and 80 percent said that Parliament had lost credibility.

“We’re here because we have lost confidence in the present political system, which has brought us to the edge,” Christos Siveris, 35, said last week as he waved a Greek flag outside Parliament during a crucial confidence vote, which Mr. Papandreou won. “This is our Thermopylae,” he added, referring to the ancient battle in which an outnumbered army of Greek warriors held out against a Persian force before ultimately succumbing.

This week Mr. Papandreou will seek parliamentary approval for an austerity package that was agreed on Thursday with European officials and the International Monetary Fund. He is expected to succeed, despite tensions within his Socialist Party and in the face of intransigence from the center-right opposition, which was in power when Greece’s debt soared.

But as the crisis extends into a second year, a growing number of Greeks are turning a critical eye on their own government. They are questioning why members of Parliament have immunity from prosecution unless Parliament votes to lift it, and they want to see more transparency and accountability in party financing.

And having faced across-the-board wage and pension cuts, they have come to question why the lawmakers have benefits that include state cars, generous double pensions (from the government and their own professional guilds), bonuses for attending committee meetings on top of their $8,500-a-month salaries, and personal staff who are widely perceived to attend to a tradition of providing favors in exchange for votes.

In recent years, a number of former officials from both the conservative New Democracy and the Socialist Parties have been implicated in a range of corruption scandals. In one episode, which occurred when New Democracy was in power, the government approved a highly complex land swap in which a Greek Orthodox monastery on Mount Athos received prime, state-owned real estate in exchange for much less valuable land in a rural area. But to date, no officials have been charged with wrongdoing.

Such scandals “add to the frustration and the popular perception that they’re crooks,” said Costas Bakouris, the president of Transparency International’s Greek branch.

Aggravating that perception, the legislators have immunity from prosecution unless the full Parliament votes to lift it, something that has happened only 17 times out of the hundreds of requests since democracy was restored in 1974 after a military dictatorship. Even after they leave office, former lawmakers can be prosecuted only during the parliamentary session in which they are accused of breaking the law and the subsequent session.

In addition to the austerity votes, Parliament is expected to vote this week on whether to broaden an investigation into Akis Tsochatzopoulos, a former defense minister from the Socialist Party who is accused of corruption in the Greek Navy’s procurement of German submarines.

Greece’s Skai television and the related Kathimerini newspaper reported that Mr. Tsochatzopoulos had been living in one of Athens’s most exclusive areas in an apartment purchased from an offshore company. To many here, the case has come to represent everything they consider wrong about the political system, not least because as a former government minister, Mr. Tsochatzopoulos is immune from prosecution. He denies wrongdoing.

In a rare move and an acknowledgment of public sentiment, the two main parties have proposed that his immunity be lifted so that he can be prosecuted.

In another high-profile case, a former Socialist Party transport minister was charged with money-laundering this year after he admitted that he received several hundred thousand dollars from a Greek subsidiary of Siemens.

This month, Kyriakos Mitsotakis, a lawmaker from the New Democracy Party and the son of a former prime minister, caused a stir when he proposed reducing Parliament to 200 members from 300; eliminating double pensions, special payments for serving on committees and immunity for government ministers and lawmakers; and opening up the books on party finances.

“It was received extremely well by the average person on the street, but not so well by my colleagues,” said Mr. Mitsotakis, a Harvard-educated former venture capitalist who is clearly positioning himself as the “new” New Democracy, not least because he has criticized his party’s near total opposition to the austerity measures. (Although he, too, said he planned to vote against them.)

“We have a fundamental trust problem in Greece. We asked people to make huge sacrifices that we’re not willing to make,” he said of his colleagues. “There’s something wrong with that.”

In a nod to the growing popular outrage, Mr. Papandreou said in a speech last week that he would form a committee to look at reducing the number of Parliament members and to abolish the law protecting members from prosecution, although it remains to be seen whether he has the political capital to carry out the constitutional changes those moves would entail.

But other analysts believe that anger at the political class is deeper than the government has acknowledged and will not be easily assuaged. In Syntagma Square each night, Greeks from across the political spectrum have gathered to air their grievances. This collaboration of right and left is new in a country that endured both a civil war after World War II and a military dictatorship from 1967 to 1974.

“That’s unique for Greece,” said Nikos Alivizatos, a constitutional lawyer. “I’m not sure the politicians are conscious of that.”

Chinese premier visits Bard's home

Chinese premier Wen Jiabao kicked off his three-day trip to Britain with a tour of the house where William Shakespeare was born.

Mr Wen, who will meet with Prime Minister David Cameron for talks on Monday, was said to have shown great knowledge of Shakespeare's works during an hour-long visit to Stratford-on-Avon, Warwickshire.

The Chinese leader flew into Birmingham Airport last night for a trip intended to boost China's commercial, economic and political links with Britain.

During his visit to the Shakespeare Birthplace Trust, Mr Wen made a joke about Hamlet and was presented with a sprig of rosemary whilst watching a performance of extracts from the play.

The premier, accompanied by Culture Secretary Jeremy Hunt, was also shown the room where Shakespeare is believed to have been born, and viewed a folio of his plays dating back to 1623.

Speaking after Mr Wen had completed the tour, the director of the Shakespeare Birthplace Trust, Dr Diana Owen, said the charity was greatly honoured to have hosted such an important guest.

Dr Owen told the Press Association: "He said that Shakespeare belonged to the world and not just to Britain, and was the greatest writer of all time. He also hoped that the British people would become interested in studying Chinese literature in the same way that the Chinese people are interested in Shakespeare."

During the "relaxed and informal" tour, Mr Wen was said to have shown a deep interest in Shakespeare's life and ended up staying half an hour longer than planned.

Around 400,000 people tour Shakespeare's birthplace each year and it is hoped that Mr Wen's visit may increase the already keen interest shown by visitors from China.

Eileen Gao, who translated for the Premier during the event, said almost everyone in China had heard of Shakespeare. "The premier was interested in everything to do with Shakespeare's life. He has studied Shakespeare at length," she said.

Air India faces turbulent flight to survival

Air India, a relic of state ownership threatened by losses, bloated costs and more nimble rivals, needs to secure a massive debt and operational overhaul if it is to survive in a market growing at 20 per cent a year.

The airline has not posted a profit since merging with former duopoly partner Indian Airlines in 2007 and relies on handouts from New Delhi to survive. It is behind on its payroll obligations and was forced one day last month to cancel a handful of flights because it had not paid its fuel bills.

Air India and 26 banks are in talks to restructure $4 billion of working capital debt in a deal that would force lenders including State Bank of India to accept equity in the carrier and cut lending rates to about 8 per cent from 11-13 per cent, saving it $133 million in interest costs.

Banks are not happy about the plan but may have no choice.

"There is no other option for banks but to go for it. But what they are asking for is not reasonable," said a banker involved in the ongoing negotiations. "If it is reasonable, we will approve it," he said.

Even if it can persuade banks to revise a payment schedule for $3 billion in local currency debt due on June 30, Air India needs a drastic revamp or privatisation that may require more money and political will than the government can muster.

With New Delhi opposed to privatisation but unwilling to put it out of business and banks poised to agree to a restructuring for lack of a more attractive option, Air India may well limp along in its current zombie state.

"Fundamentally, Air India has reached a dead end," said Kapil Kaul, chief executive for the Indian subcontinent and Middle East at the Centre for Asia Pacific Aviation (CAPA).

"From a business case standpoint it should have ceased to operate a few years back had it been a private company."

LOSING MONEY, MARKET SHARE

Air India lost more than $1 billion in the year that ended in March 2010, the last year for which it posted figures. Its domestic market share has dropped to fourth from third, behind private sector rivals Jet Airways , Kingfisher Airlines and budget carrier IndiGo.

A recent 10-day pilot strike forced it to cancel 90 per cent of domestic flights, costing it nearly $56 million, further denting an already battered image and prompting it to lure back customers with costly discounts.

Air India, which is scheduled to take delivery of the first of its 27 Boeing Dreamliners by the end of the year, may defer some deliveries, according to people familiar with the matter. The carrier itself says the orders are on track.

The government of Prime Minister Manmohan Singh has been pushing for the airline to be restructured, but has otherwise been quiet on its future.

An earlier turnaround plan by the airline was rejected by creditors and the government as unrealistic. Air India then hired consultants Deloitte Touche Tohmatsu to come up with another proposal.

The latest plan would focus on a hub-and-spoke route model, cut costs by redeploying staff and unload non-core real estate. It plans to lease some of the 14 vacant floors in its landmark building in south Mumbai to raise about $1 billion over five years, according to a banker.

"It's a Catch-22 situation for them," said one person familiar with the plan. "On the one hand you require more investments to regain market share, but your financial position does not allow you to invest."

And rivals are investing heavily in an Indian aviation market growing nearly 20 per cent a year.

Last Thursday, budget carrier GoAir said it ordered 72 Airbus planes worth $7.2 billion. Earlier this year, IndiGo placed a $15.6 billion order with Airbus for 180 planes in what it called the biggest-ever commercial jet order.

MANAGING MOUNTING DEBT

Air India has more than $9 billion in debt as well as outstanding dues both to airport developers and state oil firms, which since December have forced it to pay for its fuel as it uses it, not on credit.

Shoplifting on the rise: A sign of recovery?

That latest sign of an economic recovery: shoplifting is back.

Typically, an increase in shoplifting is believed to be an indicator of tough economic times. But a recent study by the National Retail Federation, which found that retail theft by employees is on the rise, says the recent spike in stealing could very well mean the economy is on the upswing.

According to the National Retail Federation's security survey, inventory shrinkage -- which is the retail value of lost merchandise -- cost retailers more than $37 billion in 2010, up from $33.5 billion in 2009.

The losses were largely due to employee theft, the survey said, followed by shoplifting by customers, administrative error and vendor fraud. The survey polls roughly 140 retailers year after year.

"A lot of times shoplifting is an inside job," said Jim Angel, associate professor of finance at the McDonough School of Business at Georgetown University.

When the economy hit its lowest point, employees were primarily consumed with keeping their jobs, said Richard Hollinger, a criminology professor at the University of Florida and author of the security survey.

Workers were deterred from stealing simply because even minimum-wage jobs in retail were scarce. "They were so worried about their future, their families and paying the mortgage, they realized this is what is keeping their family afloat," Hollinger said.

Shoplifting rates fell significantly in 2007. But as the recovery takes hold, shoplifting rates are on the rise again.

As employees feel more secure in their positions, they may be more inclined to take some risks, Angel said.

At the same time, employers drastically reduced head counts during the recession, which left fewer employees on the floor with heavier workloads in the early stages of the recovery. As workers feel more disgruntled, theft becomes "very tempting," Hollinger said, "especially if they feel that the company can afford it and they're being paid minimum wage."

"When those inequities build up, rationalizing theft is fairly common," he said.

"Employee theft is something every retailer faces, and we are no different," said Tina Sellers, the vice president of Loss Prevention at video game retailer GameStop, a company that has been particularly vocal about the problem of shoplifting.

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Inventory losses at retailers reached it's highest point in 1994 when the U.S. economy was growing at a very fast pace and has steadily declined since -- until the uptick last year, according to the National Retail Federation's data.

Other factors contributing to the decline in shoplifting in previous years have been improved security measures and the demise of CDs and DVDs, which once drove stealing to new heights.

Now that most music and movies are primarily downloaded, the resale market for those items has largely dried up, Hollinger said.

Economic growth still weak

The U.S. economy was a little stronger than originally believed but still struggling in the first three months of the year, according to the government's final reading on the first quarter.

Gross domestic product, the broadest measure of the nation's economic activity, grew at an annual rate of 1.9% in the quarter, the Commerce Department reported Friday.

That's up from the previous estimate of 1.8%. Economists surveyed by Briefing.com had forecast no change from the prior reading.

But growth of 1.9% is still disappointingly weak, and there is widespread concern that the economy has slowed even more since the end of March. Hiring ground to a near halt in May and consumer spending and manufacturing slowed.

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Economic growth of 3% or better is generally considered necessary to spur the level of hiring by employers needed to make a big dent in the unemployment rate. The U.S. economy typically grows at a 3.6% rate during an economic expansion.

On Wednesday, the Federal Reserve significantly cut its economic growth forecasts, and raised its unemployment and inflation estimates for the rest of this year as well as for 2012. Fed Chairman Ben Bernanke said he was frustrated by the fact that declines in unemployment will be slow and painful.

Another drag on growth in the first half of the year was a jump in the price of food and energy, which sapped consumers' ability to spend more on other goods.

Since the GDP reading is adjusted for inflation, higher prices means the economy has to grow faster just to keep pace with inflation.

Many economists have been cutting their forecasts for growth in the second quarter and the rest of 2011.

A CNNMoney survey earlier this month found that top economists are forecasting growth of just 2.3% in the second quarter, which is down from estimates of 3% only a month earlier.

Economists also see a greater risk of another recession, although they still believe that's a long-shot.

"Recent data suggests that the economy has slowed further since the first quarter, and some leading indicators are pointing to softness in the latter half of the year as well," said Jim Baird, chief investment strategist for Plante Moran Financial Advisors.

Bernanke said Wednesday he believed that some of the current weakness in the economy is due to temporary factors, such as the spike in oil prices following political turmoil in the Middle East and supply chain disruptions caused by the Japanese earthquake.

But he admitted he couldn't say how much of the weakness is due to those temporary factors and how much are more serious, longer-lasting issues such as consumers still struggling with too much debt and continued weakness in housing.

Economists said Friday's report leaves that key question still unanswered.

"We are not yet prepared to write-off a solid second half economic performance, particularly if the labor market regains momentum next quarter," wrote Carl Riccadonna, senior U.S. economist for Deutsche Bank.

"In the near term, it will be critical to determine if economic output in general and factory output in particular are stabilizing as the supply disruptions ease, and also if households and small businesses respond swiftly to lower gas prices."

John Silvia, chief economist with Wells Fargo Securities, also said he's still hopeful that the economy could rebound in the second half of the year.

But with growth so weak, he's worried that the economy would be vulnerable to any other shocks that might occur, such as a default of Greek sovereign debt, a new oil price spike due to more political turmoil in the Middle East or a U.S. government shutdown due to the debate over raising the debt ceiling.

"You can't get a shock to the system and walk away from that," he said.

A rebound is a best case scenario, Silvia added. But it's been a while since the economy enjoyed a best case scenario

Afghanistan-France follows US in troop withdrawal

President Obama: "America, it is time to focus on nation-building at home"

French President Nicolas Sarkozy has announced the phased withdrawal of its 4,000 soldiers serving in Afghanistan.

A statement said the French would follow the timetable of US withdrawals announced by President Barack Obama.

Mr Obama said 10,000 US troops would pull out this year, with another 23,000 leaving by the end of September 2012.

Afghan President Hamid Karzai welcomed the move, but the Taliban dismissed it as "symbolic" and vowed to continue fighting until all foreign forces left.

At least 68,000 US troops will remain in the country after the 33,000 have been withdrawn, but they are scheduled to leave by 2013, provided that Afghan forces are ready to take over security.

However the US reductions just announced are larger and faster than military commanders had advised.

They told the president that the recent security gains were fragile and reversible, and had urged him to keep troop numbers high until 2013.

Correspondents say the enormous cost of the deployment - currently more than $2bn (£1.25bn) a week - has attracted criticism from Congressional leaders, while the public are weary of a war that seems to have no end and has left at least 1,500 personnel dead and 12,000 wounded.

However the US reductions just announced are larger and faster than military commanders had advised.

They told the president that the recent security gains were fragile and reversible, and had urged him to keep troop numbers high until 2013.

Correspondents say the enormous cost of the deployment - currently more than $2bn (£1.25bn) a week - has attracted criticism from Congressional leaders, while the public are weary of a war that seems to have no end and has left at least 1,500 personnel dead and 12,000 wounded.

There have also been changes on the ground, notably the killing in May of al-Qaeda leader Osama Bin Laden by US forces in Pakistan.

Mission change

Mr Sarkozy's announcement came shortly after Mr Obama's, and followed a telephone discussion between the two leaders on Wednesday, said the Elysee Palace - the presidential office - in a statement.

The withdrawal of the approximately 4,000 serving French troops would be progressive and would take place "in a proportional manner and in a timeframe similar to the pullback of the American reinforcements", it said, beginning in the coming months.

The French president "stressed that France shared the American analysis and objectives and that it was happy with President Obama's decision".

Mr Obama's announcement, after a month-long strategy review, outlined the exit of the forces he sent to the country at the end of 2009 as part of a "surge".

In his speech, he said he had set clear objectives for the surge in December 2009 - to refocus on al-Qaeda, to reverse the Taliban's momentum, and train Afghan security forces to defend their own country.

His administration also stated the commitment would not be open-ended and that the withdrawal would begin in July 2011, he added.

"After this initial reduction our troops will continue coming home at a steady pace as Afghan security forces move into the lead. Our mission will change from combat to support."

The BBC's Paul Adams in Washington says the speech was all about reassuring the American public that the "tide of war" was receding.

Six thousand Americans have died in Iraq and Afghanistan and $1 trillion has been spent.

The initial withdrawal is expected to happen in two phases, with 5,000 troops coming home in coming months and another 5,000 by the end of the year.

The remainder of the surge reinforcements - 20,000 combat troops and an 3,000 deployed to support the operation - will be out by the end of September 2012, in time for the US presidential election.

Our correspondent says this is a quicker pace than most analysts predicted, and suggests the president does not feel he needs to leave the bulk of the surge force in place for another fighting season.

The second largest contributor to the international force in Afghanistan is the UK, which has more than 10,000 soldiers including special forces.

It has pledged to pull back forces by 2015 - and earlier if conditions allow.

US administration officials told the New York Times that the US military commander in Afghanistan, Gen David Petraeus, had not endorsed Mr Obama's decision. He recommended limiting initial withdrawals and leaving in place as many combat forces for as long as possible, they said.

Outgoing Defence Secretary Robert Gates and Secretary of State Hillary Clinton reluctantly accepted the reductions, the officials added.

Serious doubts remain about whether Afghan forces will be up to the task.

But President Karzai welcomed Mr Obama's announcement as "a good step for their benefit and the people of Afghanistan".

"I want the people of Afghanistan to be safe in their country with their own capable means," Mr Karzai said.

Security fears

There was a more ambivalent response from senior Afghan security officials who spoke to the BBC.

They stressed that neither the army nor police were yet capable of handling security alone, citing problems of enemy infiltration, drug addiction, and high desertion rates.

An Afghan official with the country's National Security Council said he hoped the withdrawal would take place progressively, and not in one fell swoop.

We look for a long-term commitment from the United States and the international community, one that will not allow Afghanistan to fall back to the pre-civil war and Taliban days," the official, who did not want to be named, told the BBC.

"We want to remind everyone, history shows that if you turn your [back] on Afghanistan, it will have negative consequences for you."

But a farmer in a volatile district in the north-eastern province of Kundoz told the BBC: "As far as I am concerned, the American forces didn't make a difference to me and my village. So if they leave it won't affect me.

"They supported militias, commanders who kill, rape and loot here. They are hated for that at my village.''