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The dollar resumed its climb against other major currencies for a second day in a row Tuesday as recession fears took center stage.

The U.S. currency also got a boost against the 15-nation euro on bets that the European Central Bank will have to cut rates again before the year ends.

"The markets are actually pricing in a 50 basis point cut in December," said Kathy Lien director of currency research at Global Forex Trading in New York. "The euro-zone economy is still in a lot of trouble," she added.

The ECB, which currently has its key interest rate at 3.25%, is scheduled to meet on Dec. 20 to make a decision on interest rates.

The euro, which initially rallied following some upbeat news about German economic sentiment, fell 2.3 cents to $1.252 by the end of trading in New York Tuesday.

The dollar also rose against the British pound, which fell 2.3 cents to $1.538. But the greenback lost ground against the Japanese yen, falling ¥0.35 to ¥97.65.

"Right now the dollar is not trading on U.S. fundamentals, it’s trading on risk aversion," said Lien.

Over the past several weeks, investors have been looking to the equities markets, which are considered forward-looking indicators, for guidance on the state of the global economy and the possibility of a deep recession.

World markets: Investors sought safety as economic instability continued to rumble through global equities. In the United States, the Dow Jones industrial average fell nearly 3% as U.S. automakers floundered, overshadowed by the possibility of a government intervention short-term cash loans.

Markets in Asia and Europe also weakened, with indexes falling more than 3% in the U.K. and Japan, and more than 4% in France, Germany and Hong Kong.

While an index of German business sentiment showed a modest recovery, the reading is still negative and well below it’s historic norm.

"The oncoming global recession is too large," said John Kicklighter, currency strategist with Forex Capital Markets. "The overall [negative] sentiment is too strong," he added.

Chinese stimulus: Meanwhile enthusiasm over the $586 billion Chinese stimulus package announced Sunday faded as investors began to reassess how quickly the plan will have an impact.

"People are still kind of skeptical over what will happen," said Kicklighter.

Unlike the stimulus plan enacted by the U.S., which focused on tax rebates, the Chinese plan focuses on job creation and building infrastructure such as roads and bridges, which may take longer to implement.

Investors were initially encouraged by the Chinese plan, but then began to re-examine its impact since it will be rolled out gradually till 2010, according to Kicklighter.

"It will have a little effect, but it’s like trying to stop an oncoming train with a car," he said.

The export-driven Chinese economy continued to show weakness as well, as exports slowed, according to a report from Beijing. 

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SAN FRANCISCO — Gasoline prices may be falling fast from record highs, but travelers are still avoiding the highways and jumping on buses and trains at a record pace, according to a report from the U.S. Department of Transportation.

In fact, Americans drove 15 billion fewer miles in August than they did in the same month a year ago, according to federal data.

That represents a 5.6 percent decline from August 2007, marking the biggest year-over-year decline ever recorded, U.S. Secretary of Transportation Mary Peters said in a statement.

At the same time, public transit ridership jumped 6.2 percent across the country this summer compared with a year ago.

Peters pointed out that Texas, where she spoke during a visit to a light-rail station under construction in Dallas, saw an increase of 15 percent in its DART rail system.

All this with gas currently costing a national average $2 http://payday-z.com.78 for a gallon of regular unleaded, according to recent numbers from AAA. That’s down almost a dollar from a month ago and is more or less the same as it cost in October 2007.

The surprising trend, likely exacerbated by the dismal state of the economy, is making it difficult for the government to pick up the tab. Peters warned that the lower income from gas taxes will make it difficult for the federal agency to continue to fund future projects.

"We pay for transit the same way we pay for road and bridge projects — with federal gas taxes," she said. "Relying on the gas tax is like relying on cardboard to keep the rain out — the longer you use it the less it works."

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Yahoo Inc.’s stock price reversed its steep slide Thursday after Microsoft Corp. Chief Executive Steve Ballmer raised the possibility of renewing his attempt to buy the downtrodden Internet company.

In a presentation made at a Florida technology conference, Ballmer said a deal between Microsoft (MSFT, Fortune 500) and Yahoo (YHOO, Fortune 500) could "still make sense economically."

After that remark was reported, Yahoo shares soared by as much as 17%. The stock closed up $1.24, 10.6%, at $12.99.

Earlier in the session, Yahoo’s stock had sunk to $11.37 - its lowest price in more than five years and a fraction of the $33 per share that Ballmer previously offered for the Sunnyvale-based company before withdrawing the bid in a disagreement over price with Yahoo CEO Jerry Yang.

Redmond, Wash.-based Microsoft sought to defuse Ballmer’s comments with a statement that said the software maker "has no interest in acquiring Yahoo no checking account payday advance. There are no discussions between the two companies."

Nevertheless, many investors are still clinging to the hope that Microsoft might make another run at Yahoo as it tries to counter Google Inc.’s (GOOG, Fortune 500) dominance of the Internet search market.

The enthusiastic reaction to Ballmer’s off-the-cuff comment indicates Microsoft has more influence over the direction of Yahoo’s stock price than Yahoo’s own management team.

Yang, Yahoo’s co-founder, so far hasn’t been able to convince Wall Street that he has a plan to snap the company out of a three-year financial funk that could deepen if online advertisers curtail their spending to save money in a weak economy. 

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Japan's government said the world's second-largest economy is “weakening,'' language it introduced last month for the first time since the country was in a recession seven years ago.

“The economy has been weakening recently,'' the Cabinet Office said in a statement in Tokyo today. The government cut its assessment of capital spending and imports and said it's watching how global financial-market turmoil might affect Japan.

The economy's longest postwar expansion may be over as rising commodity costs discourage spending at home and the world slowdown reduces demand for exports. The Bank of Japan and central banks in North America and Europe yesterday agreed to pump $180 billion into the global financial system to revive confidence in markets battered by the U.S. banking crisis.

“This uncertainty in financial markets will naturally have an impact on the Japanese economy, which depends on foreign demand,'' Economic and Fiscal Policy Minister Kaoru Yosano told reporters in Tokyo. “The economy will remain weak for a while.''

The Bank of Japan agreed to swap currencies with the Federal Reserve, supplying dollars for the first time after the cost of borrowing in the currency soared to a seven-year high following Lehman Brothers Holdings Inc.'s bankruptcy and the U.S quick payday loans. government's takeover of American International Group Inc.

Central bank Governor Masaaki Shirakawa today said there's no end in sight to the market tumult, even as global shares rallied after the U.S. government said it's planning new laws to halt the credit-market meltdown. Shirakawa this week said risks for Japan's economy have intensified since the crisis deepened.

“Attention should be given to further downside risks that stem from growing financial uncertainty in the U.S. and movement of the stock and foreign-exchange markets,'' the government said in today's report.

The Cabinet Office removed the word “recovery'' from its evaluation of the global economy for the first time since June 2002 and downgraded its view of Europe.

Last month was the first time since May 2001 that the government described Japan's economy as weakening.

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The subprime mortgage meltdown and resulting rippling repercussions have a brief, but dramatic, history.

Feb. 7, 2007 - HSBC announces it will see larger than anticipated losses from rising defaults of subprime mortgages in the United States, the first major bank to make an announcement about rising losses in the sector. While the announcement gets little attention at the time, subprime mortgages soon become a watch word along Wall Street and in financial news.

April 2, 2007 - New Century Financial, one of the nation’s largest subprime mortgage lenders files for bankruptcy court protections, cutting 3,200 jobs, or 54% of its remaining work force that had already been scaled back in previous weeks as it stopped accepting new loans.

June 2007 - Two hedge funds run by Bear Stearns that had large holdings of subprime mortgages run into large losses and are forced to dump assets, with the trouble spreading with major Wall Street firms such as Merrill Lynch (MER, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) which had loaned the firm money.

Sept. 18, 2007 - The Federal Reserve starts cutting interest rates, citing the credit crunch on Wall Street and in the broad economy. The nation’s central bank will make cuts at seven straight meetings, including one emergency meeting, before it pauses. It also agrees to start loaning money directly to Wall Street firms, rather than only to commercial banks, and to accept troubled mortgage-backed securities as collateral.

July 11, 2008 - The FDIC takes over IndyMac, a California bank that had been one of the leading lenders who made home loans to people who did not provide proof of their income no fax payday advances. The failure may turn out to be the most expensive in U.S. history, but FDIC warns that more bank failures lay ahead.

March 16, 2008 - JPMorgan Chase & Co. acquires troubled Wall Street firm Bear Stearns, in a deal engineered by the Federal Reserve, which agrees to provide up to $29 billion in financing to cover potential Bear Stearns losses that JPMorgan agrees to assume.

Sept. 6, 2008 - Treasury Secretary Henry Paulson announces a takeover of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), putting the government in charge of the twin mortgage giants that own or back more than $5 trillion in mortgages. The Treasury Department agrees to provide up to $200 billion in loans to the cash-starved firms that are crucial sources of mortgage funding for banks and other home lenders.

Sept. 15, 2008 - Bank of America (BAC, Fortune 500) agrees to acquire Merrill Lynch, in a deal joining one of the nation’s largest banks with one of the its largest brokerage firms, for up to $50 billion. Deal comes after talks to have Bank of America buy Lehman Brothers, another money-losing Wall Street firm, fall through. Unable to find a buyer, Lehman Brothers files for bankruptcy court protection. 

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In late 1997, facing the risk of an economic meltdown in South Korea, a young Treasury official named Timothy Geithner pushed a novel idea: cajole banks into keeping credit flowing to the country as part of an overall rescue package. The banks cooperated and the plan worked.

Geithner, now president of the New York Federal Reserve Bank, tried the same strategy — with some of the same banks — this weekend, arguing it was in their interest to band together to contain the impact of the collapse of Lehman Brothers Holdings Inc. The results this time aren't clear. While the banks refused to collaborate on a Lehman bailout, they did put together a $70 billion fund to help each other out in the crisis.

As head of an organization that acts as the Fed's eyes and ears on Wall Street and regularly trades securities with dealers there, the 47-year-old Geithner is at the center of efforts to combat the financial turmoil that began in August 2007. He is in close contact with Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson, often talking to the latter numerous times a day.

“He's been very much in the middle of handling the crisis,'' said Peter Kretzmer, senior economist at Banc of America Securities and a former New York Fed official. “And with his experience, he's been well-suited to the job.''

It isn't only experience that Geithner's admirers tout. They also talk of his ability to handle pressure — a close associate who talked to him yesterday described him as calm and thoughtful — and praise his knack for tackling complex problems.

Different Perspectives

“He doesn't have a closed mind about anything,'' said Edwin Truman, who worked with Geithner on the South Korean rescue and is now at the Peterson Institute for International Economics in Washington. “That allows him to examine issues from a variety of different perspectives.''

Dino Kos, who was at the New York Fed with Geithner from 2003 to 2007, said that the policy maker's background at Treasury helps him in advising Paulson.

“Tim knows better than most people the pressures Paulson will be confronting in Washington and tailors his advice accordingly,'' said Kos, now managing director of Portales Partners in New York. “Tim won't waste his time with an idea — no matter how good — if it's not going to fly politically.''

Such skills have some supporters of presidential candidate Barack Obama talking about political independent Geithner as a potential Treasury secretary should the Democrat win the November election.

Fears About AIG

That may hinge on how the financial crisis pans out. Geithner's efforts over the weekend didn't prevent stocks from plunging yesterday, partly on fears about the future of American International Group Inc. The Standard & Poor's 500 Index suffered its steepest drop since the September 2001 terrorist attacks, falling 59 points, or 4.7 percent bad credit payday advance.

As president of the New York Fed, Geithner enjoys a special status at the central bank. He is vice chairman of the Federal Open Market Committee that convenes regularly to decide on interest rates and holds such a meeting today. He votes at every FOMC meeting, unlike the presidents of the Fed's other 11 member banks, who take turns voting.

The institution he leads makes almost daily transactions with Wall Street securities dealers to keep interest rates in line with the Fed's target and is the conduit for the Treasury's rare interventions in foreign-exchange markets.

When Geithner was first tapped to take over the New York Fed almost five years ago, it was bit of a surprise. The boyish- looking technocrat lacked the stature of some of his predecessors including E. Gerald Corrigan, now with Goldman Sachs Group Inc. and Paul Volcker, who went on to become Fed chairman.

Gravitas

“He was very young and he speaks very softly,'' said Blackstone Group LP co-founder Peter G. Peterson, who headed the search team that chose Geithner. “The question was, `Does he have the gravitas, the strength and the personality to make the tough decisions?'' The answer, he added, has turned out to be yes.

Geithner is neither an economist nor a banker. And his only private sector experience is three years at Kissinger Associates from 1985 to 1988 before joining Treasury.

But he has what his former boss and ex-Treasury Secretary Lawrence Summers called “a doctorate in financial policy'' gained from his 13 years at Treasury and two years subsequently at the International Monetary Fund putting out economic fires.

Government Role

Critics charge that it was Geithner's predilection for government action that led him to put $29 billion of the Fed's balance sheet on the line to back the takeover of Bear Stearns Group by JPMorgan Chase & Co. in March.

The Fed's loans to Bear Stearns were “a rogue operation,'' said Anna Schwartz, who co-wrote “A Monetary History of the United States'' with the late Nobel laureate Milton Friedman. “The Fed had no business intervening there.''

The central bank and Treasury took a different tack when it came to Lehman Brothers, refusing to kick in any government money to help with a rescue.

While Kenneth Rogoff, who worked with Geithner at the IMF and is now a professor at Harvard University, praised the move, he warned that further tough choices lie ahead for the New York Fed chief and his fellow policy makers as other financial firms run into trouble. “This crisis is far from over,'' he said.

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The federal budget fell further into the red in August, pushing the deficit with one month left in the budget year to an all-time high.

The Treasury Department reported Thursday that the deficit through the first 11 months of this budget year totaled $483.4 billion, up 76.2% from the same period a year ago.

While that set an all-time high for a budget deficit through the first 11 months of a budget year, analysts say a surplus in September will push the deficit slightly below the current record-holder for an entire year, a $413 billion deficit set in 2004. 

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Australian employers hired almost three times as many workers in August as economists forecast, adding to evidence a mining boom is helping offset weaker domestic demand.

The number of people employed rose 14,600 last month, the statistics bureau said in Sydney today. The median estimate of 25 economists surveyed by Bloomberg News was for a 5,000 gain. The jobless rate fell to 4.1 percent from 4.3 percent.

Australia's currency rose on speculation the lowest unemployment rate in five months reduces the central bank's scope to cut borrowing costs again this year. Governor Glenn Stevens reduced the benchmark last week for the first time in sevens years and said policy makers were now questioning whether to cut again or hold.

“This reinforces the idea that while the Reserve Bank is looking to make policy less restrictive, they're not about to race to an expansionary footing,'' said Andrew Hanlan, a senior economist at Westpac Banking Corp. in Sydney.

The Australian dollar rose to 80.05 U.S. cents at 12:35 p.m. in Sydney from 79.61 cents before the report was released. The two-year government bond yield climbed 7 basis points, or 0.07 percentage point, to 5.60 percent.

The S&P/ASX 200 Index of stocks narrowed its losses. It was down 1.1 percent to 4,850.10 at 12:36 a.m. in Sydney, up from a low of 4,834.2 before the report.

Full-Time Jobs

The number of full-time positions rose 7,500 in August and part-time jobs increased 7,200. About half of the nation's 21 million people are employed. The August employment gain followed a revised increase of 18,700 jobs in July.

Demand for skilled labor at companies including BHP Billiton Ltd., which is expanding mines to meet Chinese orders for iron ore, is helping generate new jobs in the states of Western Australia and Queensland, where unemployment fell in August to 2.8 percent and 3.3 percent respectively.

By contrast, Australia's most populous state, New South Wales, saw an increase in its jobless rate to 4.9 percent from 4.7 percent. The rate was 4.3 percent in Victoria, 4.4 percent in South Australia and 4 percent in Tasmania.

Concern that demand for skilled labor would stoke wage increases and inflation was a key reason central bank policy makers increased borrowing costs twice this year to a 12-year high. They reduced the benchmark rate by a quarter point to 7 percent on Sept. 2.

Rate Outlook

“In the near term, the question will be do we hold here or go down a bit more'' on interest rates, Stevens told parliament's economics committee in Melbourne this week faxless cash advance.

Investors reduced bets that Stevens will cut the benchmark again on Oct. 7, according to a Credit Suisse Group index based on trading in interest-rate swaps. They forecast an 80 percent chance of a reduction, the index showed at 12:15 p.m. in Sydney, down from 90 percent before the report was released.

There are signs that businesses reliant on household spending are starting to review hiring plans. Fairfax Media Ltd., Boeing Co., Ford Motor Co., Starbucks Corp. and Australia & New Zealand Banking Group Ltd., all announced job cuts in Australia last month. Qantas Airways Ltd., the nation's biggest airline, will fire 1,500 workers.

“Don't get too excited — the unemployment rate has fallen because the participation rate dropped slightly,'' said Katie Dean, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne. “Moreover, the leading indicators of employment suggest that the jobless rate will rise gradually.''

Business Confidence

Job-vacancy advertisements fell 4.9 percent in August, the biggest drop in more than seven years, according to an ANZ Bank report released on Sept. 8. Businesses confidence is also close to the lowest level since the 2001 terrorist attacks in the U.S.

The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.2 percent in August from 65.3 percent in July, today's figures showed.

Gross domestic product rose 0.3 percent in the three months through June 30, the smallest gain since the fourth quarter of 2004, as consumers cut spending by 0.1 percent, a report showed last week.

The jobless rate will rise “a bit'' over the next year to 18 months, Governor Stevens said this week. “The rate of employment growth will slow. It is starting to do that already,'' he said.

Today's unemployment report was compiled by the statistics bureau using a sample of businesses that has been cut by 24 percent. The bureau, which reduced the survey because of budget cuts, has said it will increase the volatility of the figures.

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Shares of Google Inc. fell Monday with analysts citing technical trading patterns, and broader market issues including turmoil in the mortgage market and the impact of a strengthening dollar as possible culprits.

The Internet search company’s stock fell $24.30, or 5.5%, to 419.95 in regular trading and extended losses in after-hours activity, slipping another 14 cents to $419.81.

Stanford Group analyst Clayton Moran pointed to technical trading patterns that in the past kept shares of the Mountain View, Calif, company above a "support level" of $440. But once the stock broke through that barrier on Monday, he said, that support disappeared — triggering more selling and pushing the shares to as low as $417.55 at one point.

"It’s a psychological thing," Moran said.

Sanford Bernstein & Co. analyst Jeffrey Lindsay said Google’s (GOOG, Fortune 500) shares may be a victim of the turmoil shaking the housing and mortgage market, which led the government on Sunday to take over mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), sinking their shares.

Big institutional investors that have sustained major losses could be reacting by cutting their holdings in other high-profile stocks, including Google overnight payday loans. Lindsay added that while Google’s new Android software platform for cell phones and other mobile devices has not officially hit the market, early online reviews in blogs have generally been disappointing.

And in another development, Goldman Sachs analysts wrote in a note to investors that a strengthening dollar could hurt revenue of Internet companies that derive sales overseas in the near-term, including Google.

Longer-term, after hedges — investments used to reduce possible losses — expire, a stronger U.S. currency could have a bigger negative impact, the analysts wrote. 

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Regulators on Friday shut down Silver State Bank, saying the Nevada bank failed because of losses on soured loans, mainly in commercial real estate and land development.

It was the 11th failure this year of a federally insured bank.

Nevada regulators closed Silver State and the Federal Deposit Insurance Corp. was appointed receiver of the bank, based in Henderson, Nev. It had $2 billion in assets and $1.7 billion in deposits as of June 30.

Andrew K. McCain, a son of Republican presidential nominee John McCain, sat on the boards of Silver State Bank and of its parent, Silver State Bancorp, starting in February but resigned in July citing "personal reasons," corporate filings with the Securities and Exchange Commission show. Andrew McCain also was a member of the bank’s audit committee, responsible for oversight of the company’s accounting.

The younger McCain, who is the chief financial officer of Hensley & Co., the beer distributorship of which Cindy McCain is chairwoman, is the Arizona senator’s adopted son from his first marriage.

Andrew McCain’s position on the Silver State board and departure were first reported Friday by The Wall Street Journal online.

Silver State Bank ran into difficulty because of a substantial amount of "poor-quality loans primarily related to real estate development" in southern Nevada and other distressed markets, FDIC spokesman David Barr said.

"When the housing market slowed down, people who bought raw land to build new homes didn’t need that land so they couldn’t do anything with it and repay their loans. So those loans went bad," Barr said.

Silver State Bancorp recently reported a net loss for the second quarter of $73.2 million, or $4.84 a share, compared with net profit of $6.2 million, or 44 cents a share, in the same period last year.

Construction and development loans have been the fastest-growing category of troubled loans for U.S. banks, and many banks have heavy concentrations of them in their lending portfolios, according to the FDIC. Some small banks are considered especially vulnerable. Delinquent loan payments and defaults by commercial and residential developers have surged to the highest levels since the early 1990s - the latter part of the savings and loan crisis.

The FDIC said Silver State Bank’s insured deposits will be assumed by Nevada State Bank of Las Vegas. Its branches will reopen Monday as offices of Nevada State Bank in Nevada and National Bank of Arizona in Arizona.

The agency said depositors of Silver State Bank will continue to have full access to their deposits.

The 11 failures so far this year compare with three for all of 2007, and federal banking officials have said that more banks are in danger of collapse.

Silver State Bank has operated 13 branches in the greater Las Vegas area and four in the greater Phoenix-Scottsdale area of Arizona as well as loan offices in Nevada, Utah, Colorado, Washington, Oregon, California and Florida.

The FDIC estimated its resolution will cost the deposit insurance fund between $450 million and $550 million.

Regular deposit accounts are insured up to $100,000.

There were about $20 million in uninsured deposits held in roughly 500 accounts at Silver State that potentially exceeded the insurance limit, the FDIC said.

Concern has been growing over the solvency of some banks amid the housing slump and the steep slide in the mortgage market cash till payday. The pressures of tighter credit, tumbling home prices and rising foreclosures have been battering many banks, large and small, across the nation.

The largest bank failure by far this year has been that of savings and loan IndyMac Bank, which was seized by regulators on July 11 with about $32 billion in assets and deposits of $19 billion.

The seizure of Pasadena, Calif.-based IndyMac, which was the largest regulated thrift to fail in the United States, prompted hundreds of angry customers to line up for hours in Southern California to demand their money. IndyMac also was the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984.

The FDIC has been operating the bank, now called IndyMac Federal Bank, under a conservatorship.

The FDIC plans to raise insurance premiums paid by banks and thrifts to replenish its reserve fund after paying out billions of dollars to depositors at IndyMac. The fund, currently at $45 billion, is expected to take a hit from IndyMac of $4 billion to $8 billion.

Federal officials expect turbulence in the banking industry to continue well into next year, and more banks to appear on the FDIC’s internal list of troubled institutions.

Of the 8,500 or so FDIC-insured banks in the country, 117 were considered to be in trouble in the second quarter — the highest level in about five years and up from 90 in the first quarter. The agency doesn’t disclose the banks’ names.

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Silver State Bank customers with accounts exceeding $100,000 can contact the FDIC at 1-800-523-8177 to set up an appointment to discuss their deposits. 

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