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Time Warner Inc posted a higher-than-expected third-quarter profit, helped by strong advertising sales at its cable networks including CNN, and the summer blockbuster movie “The Dark Knight.”

But the media conglomerate, which also owns HBO and the Warner Bros movie studios, on Wednesday lowered its full-year outlook due to severance charges at its Time Inc publishing unit and restructuring charges at New Line Cinema.

Shares of Time Warner have fallen around 40 percent this year, hurt by the turbulent financial markets and by concerns that the weakening global economy would cut advertising revenue for media companies.

Even though the company reduced its full-year forecasts, the new estimates roughly matched Wall Street expectations, which reassured some analysts who had feared a bigger cut.

“Their outlook was OK to leaning positive,” said David Joyce analyst at Miller Tabak.

Shares of Time Warner rose 1.6 percent to $11.00 in pre-market trading.

Third-quarter net income from continuing operations rose to $1.1 billion, or 30 cents per share, from $900 million, or 24 cents per share, a year earlier. Excluding items, profit was 31 cents per share, beating the average Wall Street forecast of 27 cents, according to Reuters Estimates.

Revenue was essentially flat at $11.7 billion, compared to analyst expectations of $11.86 billion.

Results were boosted by Time Warner’s cable networks including CNN, which has benefited from high viewership ratings for its coverage of the U pay day loan lenders.S. presidential elections. Cable advertising and subscriber revenues grew by 9 percent and 10 percent respectively, the company said.

At the Warner Bros film studios, “The Dark Knight” Batman movie was one of the highest grossing films of all time and has to date taken in nearly $1 billion in worldwide theater sales. It helped to increase the division’s income by 6 percent.

Time Warner Cable, which is 84 percent-owned by the media conglomerate, added more Internet, phone and digital video subscribers and reported a better-than-expected profit.

“Time Warner Cable was the standout for us with more cable services sold during the quarter than expected. It looks like the newer cable systems in Dallas and Los Angeles are becoming more of a factor,” said Tuna Amobi, equity analyst at Standard & Poor’s.

AOL, TIME INC WEIGH ON RESULTS

Investors have been disappointed by the performance of Time Warmer’s AOL Internet division, which has lagged far behind competitors like Google Inc and Yahoo Inc. Time Warner has been in talks to combine AOL with Yahoo, sources familiar with the situation have said.

Profit was also dragged down by weak advertising at Time Inc magazines. The unit plans to cut as many as 600 jobs, or about 6 percent of its workforce. 

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Iceland's government is “very close'' to a rescue deal with the International Monetary Fund that may also include financial help from Nordic neighbors and Japan, Industry Minister Oessur Skarphedinsson said.

The fund is preparing a plan to present to the government, which is also seeking a loan from Russia, Skarphedinsson said in a telephone interview from Reykjavik yesterday. The Financial Times and New York Times reported that the rescue will amount to $6 billion.

Iceland needs aid from the IMF and Nordic countries after the collapse of its banking system froze its foreign-exchange market, making it hard for importers to finance purchases. Glitnir Bank hf, Landsbanki Islands hf and Kaupthing Bank hf imploded with debts of $61 billion, or as much as 12 times the size of the economy.

“It's clear from our diplomatic contacts that if and when an agreement is made between the IMF and Iceland, then our neighbors would be quite willing to sail in their wake,'' Skarphedinsson said. “We in fact have confirmation of what I would label quite generous lending facilities.''

Norway, Sweden and Denmark would probably follow any accord with the IMF, with Japan also a candidate to provide the Atlantic island with aid, he said.

“We are part of the Nordic family,'' Skarphedinsson said. “It's really stating the obvious to say that definitely the Nordic countries would be among those that would seek to assist us through this crisis, when and if we go to the IMF.''

Nordic Family

The central banks of Denmark, Norway and Sweden in May provided Iceland with a euro swap facility worth a total of 1.5 billion euros ($2 billion). The central bank of Iceland has so far drawn on 400 million euros of that.

Skarphedinsson declined to comment on the Financial Times report that said $1 billion will come from the IMF and the remainder from Nordic governments and Japan. The New York Times said Russia will make a contribution.

The chief press officer at Sweden's central bank, Britta von Schoultz, declined to comment. Norges Bank head of communications said she wasn't “aware of'' any agreement with Iceland linked to a possible IMF deal. Calls made to Danish central bank spokeswoman Louise Buchter weren't immediately returned.

`Good Neighbor'

Swedish Finance Minister Anders Borg said his government was in discussions with Iceland.

“We will try to be a good neighbor,'' he told reporters in Berlin yesterday. “But eventually this is up to Iceland because they have to get into an IMF program, and that is an essential part of them re-establishing themselves.''

Japanese Finance Minister Shoichi Nakagawa said at a news conference today that he hadn't heard whether the IMF or Iceland asked his government for aid no fax payday advances. Nakagawa told his Group of Seven counterparts in Washington this month that Japan is ready to contribute to the IMF's emergency lending program.

“Japan wants to show its initiative in the global response to growing financial risks,'' said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.

Iceland's opposition leader Steingrimur Sigfusson criticized the government's handling of the crisis, calling for better economic management.

“We know what to do if we have an earthquake or a natural catastrophe, we put up a control center, much the same as a country does if it has a war on its hands,'' Sigfusson said. “But the government hasn't done this so the management has been too weak.''

3 Cents

Bonds of Iceland's three biggest banks are on sale for as little as 3 cents on the dollar after the government began a restructuring that may leave debt investors with nothing, according to broker KNG Securities LLP.

The three lenders have together amassed debt equivalent to about 12 times the size of the economy, according to Bloomberg data. The government has yet to provide a clear plan on how that debt will be repaid since taking control of the banks. Glitnir and Kaupthing have already missed making bond payments.

The failure of banks on the island, with a population of only 320,000, is affecting investors and depositors across the globe. Kaupthing is poised to become the first European bank to default in Japan's samurai bond market after investors said the Icelandic lender missed a coupon payment. Kaupthing now has a seven-day grace period to honor the obligations.

“The samurai bond default is raising concerns among Japanese banks about whether more will arise and where they might arise,'' said Dai-Ichi Life's Kumano. That said, he added, “I'm not sure how much this funding to Iceland would reduce the chances of more defaults.''

Shrinking Economy

Iceland's economy may contract as much as 10 percent, according to Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. The central bank on Oct. 15 cut the benchmark interest rate by an unprecedented 3.5 percentage points to 12 percent, indicating policy makers have given up trying to control inflation. Prices may surge as much as 75 percent in coming months, Christensen estimates.

A nation that was ranked the fifth-richest in the world per capita in the United Nations 2007/2008 Human Development Index is now facing shortages of imports including food and clothing. The central bank on Oct. 10 called on commercial lenders to prioritize foreign-currency transactions to cover payment for essential imports such as food, fuel and medicine.

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The New York Federal Reserve is lending up to $37.8 billion to American International Group to give the troubled insurer access to much-needed cash.

In exchange, AIG is giving the New York Fed investment-grade, fixed-income securities that it had previously lent out to other institutions for a fee. Those institutions are now returning these securities and want their money back.

The new program, announced Wednesday, is on top of the $85 billion the federal government agreed to lend to AIG last month to prevent the global company from collapsing. AIG said last Friday it had drawn down $61 billion.

The lending program is a way for AIG to get funding for its businesses, said a New York Fed spokesman. The system is similar to lending facilities the Fed provides to banks, which can also exchange collateral for cash.

The latest announcement does not jeopardize the government’s ability to recoup its loan to AIG, experts said.

"AIG will repay the loan," said Stewart Johnson, portfolio manager at Philo Smith, an investment bank specializing in insurance. "It’s just a matter of how much of themselves they will have to sell."

On Sept. 16, the Federal Reserve Board agreed to lend AIG $85 billion, using the company’s assets as collateral. The loan is expected to be repaid from the proceeds of the asset sales. Interest on the line of credit is steep, and the government took a 79.9% stake in the company.

Last week, AIG said it planned to hold onto its property-and-casualty insurance businesses, while selling off the rest of the company to pay the massive debt quick faxless payday loan.

Those other business lines include its aircraft leasing unit; asset-management division; retirement services; and U.S. life insurance operations.

AIG chief executive Edward Liddy, who was installed by the Federal Reserve last month after the bailout, on a conference call last Friday was optimistic about the potential for the asset sales.

"We fully expect to emerge from this with a capital structure that’s fit to fight," he said. "Our insurance businesses…are strong and well-capitalized."

But some analysts are more skeptical. "The current disruption in the credit markets could make it difficult to sell businesses at attractive valuations," ratings agency Standard and Poor’s said.

CreditSights valued the units AIG planned to sell at $32.9 billion and the divisions it will keep at $86 billion. These figures do not include the sale of a minority stake in its foreign life insurance operations, valued at $133.1 billion.

First to hit the market will likely be units tied to airline leasing and consumer lending, both of which require funding from the debt markets, which is hard to come by these days. International Lease Finance Corp. could command more than $7 billion and American General Finance Corp. will likely bring in about $2 billion, according to CreditSights.

Once AIG sells its assets, it faces many hurdles in stabilizing its property and casualty insurance divisions, experts said.  

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European officials squabbled over how to respond to the global credit crunch, with Germany opposing a coordinated approach and the Netherlands calling on states to set aside funds to help troubled banks.

French President Nicolas Sarkozy distanced himself from comments by his finance minister Christine Lagarde over the need to set up a “rescue fund.'' Luxembourg Prime Minister Jean- Claude Juncker told DeutschlandRadio today he didn't “see the need'' for an effort to emulate the $700 billion rescue package that U.S. senators passed yesterday.

The conflict undermined efforts to build a consensus European strategy to counter the financial crisis as a recession looms. Other fissures emerged, as Ireland's decision to guarantee bank deposits and debts prompted criticism by British bankers yesterday that it “distorted competition.''

“I cannot see a common response,'' Jean Peyrelevade, former chief executive officer of French bank Credit Lyonnais SA, now owned by Credit Agricole SA, said in an interview. “For this crisis it's too late to build a common response.''

Fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy hit Europe this week, with Germany, France, Belgium, Luxembourg, Iceland and the U.K. rescuing five lenders and Italian Prime Minister Silvio Berlusconi pledging to prevent losses for depositors.

Euro Weakens

The euro tumbled against the dollar amid the infighting among European leaders. The Senate's vote in favor of the rescue plan for financial companies today also gave the dollar a boost. The euro fell to $1.3884 per euro at 13:05 p.m. in Frankfurt, near a one-year low, from $1.4009 yesterday in New York.

Dutch Prime Minister Jan Peter Balkenende will discuss his plan for European Union nations to create accounts to support their finance industry when he meets Sarkozy in Paris today, Dutch Finance Ministry spokeswoman Hendrieneke Bolhaar said.

“If all European countries reserve funds, it will add up to hundreds of billions of euros and that provides trust to Europeans,'' Dutch Finance Minister Wouter Bos told parliament today. “The funds will be strictly national, although we need to reach consensus over when to use them.''

In the U.S., Treasury Secretary Henry Paulson proposed a $700 billion bailout on Sept. 20 that lawmakers are struggling to pass. The House of Representatives rejected a version of the plan three days ago. Senators who approved the package urged opponents in the House to drop their objections.

`Non-Starter'

A European version of the Paulson plan is a “non-starter'' because of competing agendas and coordination difficulties, Klaus Baader, chief European economist at Merrill Lynch and Co. in London, said in a Sept. 29 report. Still, he expects increased cooperation among governments confronting the crisis.

The disagreements will be aired at an Oct. 4 meeting called by Sarkozy in Paris with Juncker, leaders of Great Britain, Italy and Germany, as well as European Central Bank President Jean-Claude Trichet.

Lagarde told the German newspaper Handelsblatt in an interview today that a “rescue package'' was needed to help “smaller'' European states “threatened with a banking failure.'' Germany opposes the proposal “based on its current assessment of risk,'' said Finance Ministry spokesman Stefan Olbermann (no fax cash advance) http://paydayloans-on.com.

“We see no need for a fund,'' Olbermann said today.

Reuters reported that the fund would total 300 billion euros ($420 billion), citing an unnamed European government official.

Sarkozy Denial

Speaking to reporters today in Paris, Sarkozy said he “denied the amount and the principle'' of such a fund.

“Everyone is working very well together,'' Lagarde told reporters in Paris today.

The specifics of a coordinated plan notwithstanding, Germany rejects a Europe-wide approach to bank rescues, said Torsten Albig, another finance ministry spokesman.

“The idea of applying one solution, one big bang'' should the banking crisis spread “is not practicable and would create new, enormous problems,'' he told reporters yesterday in Berlin. “The tailor-made solution is the right way.''

That contrasts with pleas from European Union officials for less unilateral action. Charlie McCreevy, EU financial-services commissioner, yesterday proposed more coordinated oversight and rules that banks hold additional capital for asset-backed bonds.

“Capital and strong financial institutions are the lifeblood of an economy,'' McCreevy said in a Bloomberg Television interview in Brussels.

Money Markets

As banks hoarded cash, the Libor-OIS spread, a gauge of cash scarcity, widened for an eighth day. The difference between the three-month London interbank offered rate for dollars and the overnight indexed swap rate widened 7 basis points to 254 basis points as of 8:44 a.m. in London. It averaged 8 basis points in the 12 months to July 31, 2007, before the credit squeeze spurred by the U.S. subprime- mortgage crisis began.

The credit-market turmoil may require a more comprehensive approach in Europe, the Organization for Economic Cooperation and Development said yesterday.

“Considering the exposure of European financial institutions, we might have to start thinking of a systemic plan for Europe if things don't improve on the other side of the Atlantic,'' OECD Secretary General Angel Gurria said in Paris. “The piecemeal approach may not work in Europe either.''

A group of economists including Alberto Alesina of Harvard University and Klaus Zimmerman of Berlin's DIW economic institute appealed for an EU initiative to recapitalize banks.

`Once-in-a-Lifetime'

“This is a once-in-a-lifetime crisis,'' the 10 academics said in an emailed statement. European leaders need to tackle the bank industry's crisis “head on before it spirals out of control.''

One proposal is for European countries to follow Ireland, either as a bloc or individually, in guaranteeing banks' deposits and debts. Spain's Finance Ministry today said it supports strengthening EU protections of deposits. Berlusconi and Sarkozy have already pledged to prevent losses for depositors.

The advantage of such a program would be that it would boost confidence among banks and give them time to resolve their problems, although it would also put taxpayer funds at greater risk, economists at Royal Bank of Scotland Group Plc. said in a report today.

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Bail out the financial industry, but don’t send me the bill.

That’s what a majority of Americans are saying, according to a CNN poll released Monday. The poll showed that people are concerned about the economy, and a majority favor government action to help bail out the struggling financial institutions. But people are concerned that the proposed industry-wide bailout will burden taxpayers.

Of the more than 1,000 Americans surveyed in a national CNN/Opinion Research Corp. poll, 62% said they think in general the government should step in to try to address the problems facing struggling financial institutions. The margin of error was plus or minus 3 percentage points.

But the poll, conducted Sept. 19-21, showed that Americans think the cost of the $700 billion plan being debated in Congress is too high.

Though 55% said they favor the proposed bailout, 65% said it would probably treat taxpayers unfairly.

The drop off in support for the government’s actions could stem from the fact that taxpayers may have to foot the bill for all these bailouts. The majority of CNNMoney.com readers voiced similar concerns in a Talkback blog over the weekend.

Still, 88% of 518 respondents said they are concerned or even scared by the tumult in the financial markets.

And 55% supported the government’s actions taken so far - such as the $85 billion loan to insurer American International Group (AIG, Fortune 500) and hundreds of billions in backing for mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and Wall Street brokerage Bear Stearns.

Economists say that the cost to the taxpayer is not yet known - and probably won’t be close to the headline number.

"For the average person, $700 billion sounds like a whole heck of a lot of money," said John Silvia, chief economist for Wachovia guaranteed payday loans. "It’s reasonable to look at that number and be scared about it, but in the end, the Treasury may actually make money from the deal."

That’s because the government is proposing to buy up troubled assets that banks don’t want, with the intention of selling them later when the market is better.

"There’s a chance they could sell them at a decent price," Silvia said.

Furthermore, the cost of doing nothing may be much more severe.

"Because of the hit that capital took, there wasn’t any lending going on, which created a lot of complications with people getting mortgages," said Silvia. "If these companies have to write down loans, they’re going to make even fewer loans in the future."

Since the markets are all circular and related, failing companies can negatively impact people’s ability to get a mortgage, finance a car or even save for retirement.

"A lot of people’s IRAs, 401(k)s and pension plans had Fannie and Freddie in it," Silvia added. "And anyone with an S&P 500 index fund has a huge weighting on the financial sector." 

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Central banks in Japan and Australia pumped some $113 billion into money markets this week, holding down borrowing costs to revive confidence among banks.

The Bank of Japan pumped 2 trillion yen ($19 billion) today, for a total of 10 trillion yen this week, the biggest since at least the start of 2007. The Reserve Bank of Australia added A$1 billion ($824 million) and has injected more than A$12 billion this week, the most in almost 13 months.

“Funding pressures globally have intensified following the turmoil and fear that we could be in for another bout of asset price depreciations,'' said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. “Financial institutions are hoarding cash and shoring up their balance sheets.''

Central banks injected more than $220 billion globally this week as credit markets seized up after the failure of Lehman Brothers Holdings Inc. and the U.S. government takeover of American International Group. The cost to protect against defaults on Asia-Pacific bonds fell by the most in more than five months and Japanese and Australian funding costs were unchanged.

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke said they are working on a plan requiring legislation aimed at alleviating market turmoil.

The two regulators are seeking support for a plan to help financial institutions remove from their balance sheets illiquid mortgage-related assets at the root of the credit crisis.

Borrowing Costs Drop

Hong Kong's interbank loan rates declined from the highest in 11 months after the Hong Kong Monetary Authority injected HK$1.556 billion ($200 million) yesterday. The one-month Hong Kong interbank offered rate fell to 3.69 percent from 4.83 percent yesterday when it more than doubled.

The Fed yesterday agreed swap facilities with five other central banks that will increase the amount of U.S. currency available overseas by $180 billion to $247 billion. It doubled the limit of dollars it will provide the European Central Bank and Swiss National Bank to $137 billion, and authorized $110 billion of swap facilities with Japan, the U.K. and Canada.

The cost of borrowing in dollars overnight tumbled after the coordinated action was announced. The London interbank offered rate, or Libor, for overnight loans fell 1.19 percentage points to 3.84 percent yesterday.

Swap Dollars

The Bank of Japan said it will use its $60 billion swap arrangement to supply dollars to local and foreign financial institutions as required by market conditions. It will choose participants tomorrow.

“They will keep liquidity in the system because their goal is to revive the short-term liquidity in the dollar, which is the oil in the global financial system,'' said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France's Credit Agricole SA free credit report instantly.

Japan's overnight loan rate fell to 0.4 percent after the BOJ's second injection today at 12:50 p.m. in Tokyo added another 1 trillion yen. The rate was as high as 0.585 percent before today's first injection of 2 trillion yen. The central bank's target overnight lending rate is 0.5 percent.

BOJ Governor Masaaki Shirakawa yesterday said the agreement with the Fed is aimed at providing dollars to foreign banks and brokerages. The Bank of Japan “doesn't have any particular concern'' about Japanese financial institutions' borrowing of dollars, Shirakawa said.

Foreign banks are paying more than Japanese banks to borrow cash because counterparties are less willing to lend to them. Japanese banks borrowed overnight funds at interest rates between 0.4 percent and 0.5 percent today, while foreign banks had to pay between 0.6 percent and 0.7 percent, according to Tokyo Tanshi, a Japanese money market brokerage.

Australia Banks

Australian banks' borrowing costs were stable today, according to a gauge that measures the availability of funds in the market. The difference between the rate banks charge each other for one-month loans and the overnight indexed swap rate was unchanged at 50.5 basis points at 2:12 p.m. in Sydney, after widening 13.5 points yesterday in the biggest jump since July 24, Bloomberg data show. The average spread for the past year was 23 basis points.

New Zealand's central bank will accept bank bills in its daily market operations to ease pressure on liquidity in the financial system.

The difference between the rate New Zealand banks charge each other for one-month loans and the overnight indexed swap rate widened to 59 basis points at 4:21 p.m. in Wellington, from 53.5 points yesterday, Bloomberg data show.

Default protection costs for bonds from Australia and Asia outside Japan declined, according to traders of credit-default swaps.

The Markit iTraxx Australia index fell 34 basis points to 171 as of 1:11 p.m. in Sydney, Citigroup Inc. prices show. The benchmark, tied to the debt of 25 companies including Qantas Airways Ltd. and BHP Billiton Ltd., declines as perceptions of credit quality improve. Japan's benchmark of credit risk stood at 150, down from 175, according to Credit Suisse Group data.

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Prices surged by as much as 20 cents a gallon at some Houston-area gas stations as Hurricane Ike bore down on the Gulf coast.

"There are clearly some service stations in the Houston area that have hiked prices by 15 to 20 cents a gallon, there’s no question about that," said AAA spokesman Dan Ronan. "But I think there are a lot of service stations that are being very responsible."

The majority of gas stations in Texas showed only moderate increases, or even decreases, according to the AAA fuel gauge, which bases its data on credit card swipes at some 100,000 gas stations nationwide.

Gasoline prices rose Friday for the third straight day, according to the nationwide survey, as Hurricane Ike’s approach to the Texas Gulf Coast shut oil drilling and refining in the region. The average price of regular unleaded gasoline edged up 0.4 cent to $3.675 a gallon from $3.671 a day earlier, AAA said.

In Texas, where the storm is expected to make landfall late Friday or early Saturday, the average price rose 0.9 cent to $3.546 a gallon.

In three coastal areas that could be affected by the storm, the average price rose 4.4 cents in the Houston area, but was only up 0.2 cent in Galveston and down 0.5 cent in Corpus Christi.

Ronan, who is based in Irving near Dallas, said that Houston-based AAA staffers have reported the 20 cent increases at some gas stations, but they’re in the minority. Likewise, he said the reports of stations running low on gas in coastal Texas are scattered and isolated.

"There have been anecdotal reports about service stations running low on fuel and that’s to be expected," said Ronan guaranteed approval cash advance loans. "The good thing is that it seems as though the state and delivery systems have gotten a lot better since Katrina."

Prices have trended higher in the Midwest and Southeast partly due to production delays caused by Hurricane Gustav, said Tom Kloza from Oil Price Information Service, which provides the data for AAA. He noted that prices are expected to continue rising as Hurricane Ike churns through the Gulf of Mexico.

Nationwide, Alaska and Hawaii remained the two states with gas prices still tracking above $4 a gallon; Alaska at $4.393 and Hawaii at $4.336, AAA said. The cheapest gas continues to be found in New Jersey, where prices averaged $3.40 a gallon.

Gas remains about 10.7%, or 43.9 cents, below the record high average of $4.114 that AAA reported July 17. It’s down 11.2 cents in the past month, but up 86.7 cents from a year ago.

Going forward, Kloza said Friday would be a "wild day" for gas prices, since some refineries - not just in coastal Texas but also inland Louisiana - have shut down in preparation for Hurricane Ike.

He said the nationwide average for gas prices could break the July 17 record as a result of the hurricane, but even if that happens, they would stabilize by October.

Oil prices rose Friday on concern about the storm. Thursday’s $100.87 settlement was the lowest since March 24. 

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New orders at U.S. factories jumped more than expected in July, helped by a rise in transportation orders, a government report showed on Wednesday, as exports buoyed an economy hit by a deep housing downturn and tight credit.

Factory orders rose 1.3 percent in the month after an upwardly revised 2.1 percent gain in June, the Commerce Department said.

Economists polled by Reuters were expecting factory orders to gain 1 percent in the month. Factory orders have risen for five months in a row.

Stocks rose and the dollar extended gains on the data, which pointed to resilience in manufacturing, where strong export demand has kept the broader economy from slipping into recession. However, U.S. Treasury prices fell. Analysts expect the surge in exports to tail off in the latter part of the year as the dollar strengthens and global demand weakens.

“It fills in the picture of a moderately recovering U.S pay day loans. economy,” said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

LABOR MARKET CHALLENGES

However, the labor market showed persistent softness. U.S. companies’ announced layoffs in August fell from July, but were still much higher than a year ago, a report on Wednesday showed.

Downsizing at U.S. companies last month totaled 88,736, 14 percent below June but 12 percent higher than August 2007, employment consulting firm Challenger, Gray & Christmas Inc. said. 

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Russia could cut poultry and pork import quotas by hundreds of thousands of tons, the country’s agriculture minister said Wednesday. The move could hit American producers hard and comes amid heightened tensions between Moscow and Washington over the war in ex-Soviet Georgia.

"It is time to change the quota regime and reduce imports, which have unfortunately built up in recent years," Alexei Gordeyev told reporters, according to the ITAR-Tass news agency.

He said domestic producers could make up the shortfall if imports were reduced.

Any substantial cuts would likely have a significant impact on U.S. poultry producers, for whom Russia is the biggest market. Russians sometimes refer to U.S. poultry imports as "Bush’s legs," a reference to the frozen chicken shipped to Russia amid economic troubles following the 1991 Soviet collapse, when the current U.S. president’s father was in office.

Earlier this week, Prime Minister Vladimir Putin backed proposals to freeze some of the agreements - particularly in agriculture - relating to its efforts to join the 153-member World Trade Organization. Officials claim Moscow agreed to certain conditions with member countries in return for their help in fast-tracking Russia’s entry.

"Agreements signed more than three years ago as part of the negotiations on WTO accession are unfortunately no longer in Russia’s interests," said Gordeyev. "To put it mildly, we’ve been deceived."

Last month, Russian and U.S. lobbyists agreed in principle to cutting poultry imports to Russia starting in 2009.

U.S. producers supply nearly 75% of the total poultry import quota set by Russia, which stands at 1.2 million tons.

An analyst said Russia’s timing was no coincidence.

"It has been on the agenda for some time," said Chris Weafer, chief strategist at UralSib bank in Moscow. "But the fact that it has been mentioned now is almost certainly linked with the rhetoric that we’ve had from Georgia, and from Prime Minister Vladimir Putin. …It has just been accelerated as a result of current events."

Russian forces drove deep into U.S. ally Georgia earlier this month. Moscow has kept troops in the Caucaus nations despite Western protests and on Tuesday ignored President Bush’s exhortation against recognizing the independence of two Georgian separatist regions.

American meat producers are increasingly looking to international markets as a way to offset domestic sluggishness, so any cuts could hurt them pay day loan. They’re grappling with high production costs and an oversupply of meat on the U.S. market, which is keeping prices down.

Analysts say that American meat producers have to grow overseas - where a weak U.S. dollar has made their products more attractive - to stay profitable. For many, Russia is key.

Russian cuts could greatly affect Tyson Foods Inc (TSN, Fortune 500)., the world’s largest meat company. Russia represented 17% of the $1.4 billion worth of chicken sales made internationally last year by the Springdale, Ark.-based company. Russia ranked second only behind Mexico in Tyson’s top international markets for its poultry.

Tyson did not immediately return a call for comment.

Jim Sumner, president of the USA Poultry & Egg Export Council said that a decline in Russian imports of U.S. poultry has been expected for a while, since Russian’s own poultry production has increased dramatically in recent years, while the country’s consumption has remained stable.

When asked if decreased exports to Russia would hurt U.S. poultry producers, Sumner pointed out that the industry is opening new markets that could fill a potential void, including China and Ukraine.

"I don’t think we’re anticipating it’s going to be at a level that’s going to be a big problem," he said.

Overall, poultry imports account for nearly 40% of Russia’s total consumption, and pork around 30%. The government has pursued a policy to prop up its agriculture industry in recent years, making efforts to attract domestic and foreign investment into a sector which has suffered from massive lack of investment in past decades.

Russian President Dmitry Medvedev told the Group of Eight nations earlier this year that Russia had a key part to play in addressing the global food crisis. He said that in the long term, Russia would significantly increase its agricultural production and supplies to the domestic and foreign markets.

But analysts say it will take Russian producers time to plug the gap left by foreign producers. It could take up to two years for domestic supply to match demand, pushing up prices in the process, said Natalia Zagvozdina, an analyst at Renaissance Capital investment bank. 

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The European Central Bank will announce changes to the rules governing its money-market auctions in coming weeks to head off the risk of abuse by financial institutions, council member Yves Mersch said.

“At the margins there can still be cases where you see dangers of gaming the system,'' Mersch said in an interview on Aug. 23 in Jackson Hole, Wyoming. “The Governing Council has been discussing the whole issue'' and has agreed on a “certain amount'' of refinement to the existing rules, he said.

ECB officials have become increasingly concerned that banks are taking advantage of collateral rules that are broader than those used by the Federal Reserve and the Bank of England. The danger is that banks struggling to sell securities damaged by the credit-market turmoil will dump them on the ECB and become overly reliant on central-bank funds.

Dutch policy maker Nout Wellink said in an interview with the Het Financieele Dagblad newspaper published Aug. 21 that banks shouldn't become too dependent on the ECB for funding.

“It's not a broad-based revolution,'' said Mersch, who is attending a meeting of central bankers and financial officials organized by the Fed. “We are satisfied with our framework. But since there are always on the margins evolutions, we have to adjust our framework regularly to market practices.''

“The precisions'' planned by the ECB “concern some instruments,'' Mersch said, declining to elaborate. Unlike the Fed and the Bank of England, the ECB hasn't had to change its operation rules since the credit crisis began.

Lender of Last Resort

“The ECB is in an unenviable situation,'' said Paul McCulley, a fund manager at Pacific Investment Management Co, in an interview at Jackson Hole. “The lender of last resort should be just that, a last resort, and not a permanent provider of funds to the private sector.''

Central bankers including Federal Reserve Chairman Ben S. Bernanke met in the Teton Mountain retreat at the weekend to discuss ways to address the past year's credit rout. ECB President Jean-Claude Trichet said “we are still in a market correction'' and Bank of Israel Governor Stanley Fischer said the crisis has yet to run its course.

Spain's banks in particular are struggling to attract investors as a decade-long property boom ends and mortgage delinquencies soar to the highest in at least six years. Investors demand higher rewards to buy bonds backed by Spanish mortgages than any other home loans in Europe. The ECB lent Spanish banks a record 49.4 billion euros ($73.1 billion) in July.

Demand From Outside

The ECB's money-market system is also attracting demand from outside the euro region. The Frankfurt-based central bank said in June it will accept asset-backed bonds sold by Macquarie Group Ltd., Australia's biggest securities firm, and backed by Australian consumer loans as collateral bad credit payday loans.

U.K. mortgage lender Nationwide Building Society said Aug. 18 it's planning to expand into Ireland, a member of the euro region, to take advantage of “funding opportunities.''

Banks with operations in the countries sharing the euro can raise funding from the ECB by pledging certain types of collateral including asset-backed securities. Bonds backed by mortgages and other assets accounted for 18 percent of the ECB's loan collateral at the end of 2007, up from 4 percent in 2004, Fitch Ratings data show.

Taking Advantage?

“It has been suspected for some time that banks could be taking advantage of the broad collateral framework since they no longer publicly place asset-backed securities and these securities now only serve as collateral in central bank funding,'' Michael Schubert, an economist at Commerzbank AG in Frankfurt, wrote in a note to investors today. “This means that a necessary market correction in the ABS segment is being put off.''

The ECB lends to banks mostly through the main refinancing operations maturing in one week. Longer-term auctions provide financing to banks during three- and six-month periods.

Mersch said the central bank prefers to tackle any individual instances of abuse with “moral suasion.''

“Our framework is complex, and if we can warn people that this is not acceptable beforehand, and they adjust in due time, we would be satisfied,'' Mersch said. While the ECB hasn't yet taken “specific action,'' the central bank plans to strengthen its powers. He didn't say what that action might be.

Mersch said the ECB's response to any abuse case “would not necessarily be a question to be discussed publicly.''

The financial crisis is taking its toll on Europe's economy, which contracted in the second quarter.

Mersch said “the question is whether the slowdown will last a little bit longer'' and Bundesbank President Axel Weber, who was also in Jackson Hole, said Aug. 22 the current quarter may show “some weakness.'' The economy may expand below its potential rate of 2 percent “into next year,'' he said.

At the same time, “you shouldn't be getting too hung up about the volatility in quarter-to-quarter GDP readings,'' Weber said. Weber and Mersch both said inflation will exceed the ECB's 2 percent limit next year, with Weber saying there's a “substantial risk' that price pressures will persist. The ECB will publish revised projections next month.

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