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BEIJING–China unveiled a $586 billion (U.S.) stimulus package yesterday in its biggest move to inoculate the world’s fourth-largest economy against the global financial crisis.

The cabinet approved a plan to invest the money in infrastructure and social welfare by the end of 2010, a statement on the government’s website said.

Some of the money will come from the private sector. The statement did not say how much of the spending is on new projects and how much is for ventures already in the pipeline that will be speeded up.

China’s export-driven economy is starting to feel the pinch of weakening United States and European economies, and the government has already cut key interest rates three times in less than two months in a bid to spur economic expansion.

Economic growth slowed to 9 per cent in the third quarter, the lowest level in five years and a sharp decline from last year’s 11.9 per cent.

That is considered dangerously slow for a government that needs to create jobs for millions of new workers who enter the economy every year and to satisfy a public that has come to expect steadily rising incomes.

Exports have been growing at an annual rate of more than 20 per cent but analysts expect that may fall as low as zero in coming months as global demand weakens.

The International Monetary Fund has urged governments to adopt economic stimulus packages and, in some cases, to cut interest rates further, to counteract the slowdown.

China joins other major economies such as the U.S., Japan and Germany which have already introduced their own stimulus plans.

The U.S. allocated $168 billion earlier this year for tax rebates to individuals and tax breaks for businesses. Germany set aside $29 billion for tax breaks on new cars and credit assistance for companies. Japan allotted $275 billion for loans to small- and mid-sized businesses and discounts on highway tolls among other measures.

China’s statement said the cabinet, at a meeting chaired by Prime Minister Wen Jiabao, had "decided to adopt active fiscal policy and moderately easy monetary policies Faxless pay advance."

The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing as well as increased spending on rural infrastructure.

Money will also be poured into railways, roads and airports. Spending on health and education will rise, as will environmental protection and technology spending.

Efforts to rebuild disaster areas, such as Sichuan province where 70,000 people were killed and millions left homeless by a massive earthquake in May, will also be accelerated. That includes $2.93 billion planned for next year that will be moved up to the fourth quarter of this year.

The statement said rural and urban incomes would be increased.

Credit limits for commercial banks will also be removed to channel more lending to priority projects and rural development, it said.

Reform of the value-added tax will cut taxes by $17.5 billion for enterprises, the statement said.

The stimulus plan should give a lift to China’s shares, said Ben Simpfendorfer, an economist at Royal Bank of Scotland PLC in Hong Kong. The CSI 300 Index has tumbled 69 per cent this year, the biggest drop among stock benchmarks in the Asia-Pacific region.

"We view this as a positive step," the U.S. Treasury’s Undersecretary for International Affairs David McCormick said. "This stimulus should help encourage domestic consumption" in China, he said.

"The golden years have shuddered to a dramatic halt," said Stephen Green, head of China research at Standard Chartered Bank PLC in Shanghai.

- With files from the Star’s wire services

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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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Australia will give pensioners, home buyers and families A$10.4 billion ($7.3 billion) in a spending package to boost the economy as the global financial crisis freezes credit and slows growth.

Prime Minister Kevin Rudd will use half the government's estimated budget surplus to encourage consumer spending and bolster the economy, which grew at the slowest pace in more than three years in the second quarter as the housing market slumped, retail sales dropped and stock markets tumbled.

“This strategy will strengthen the national economy and support Australian households, given the risk of a deep and prolonged global economic slowdown,'' Rudd told reporters in Canberra today.

The spending package follows moves this week by Rudd and his Treasurer Wayne Swan to guarantee all deposits and “term wholesale funding'' among the nation's banks. They also doubled the government's investment in residential mortgage securities to A$8 billion in a bid to unlock credit. Australia's central bank pre-empted global interest-rate cuts last week.

“This package could boost economic growth by 0.9 percentage point in the fourth quarter of this year and the first quarter of 2009,'' said Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

Stocks Surge

The Reserve Bank of Australia in August said the economy would expand 2 percent in 2008, slowing from 4.3 percent in the previous calendar year.

Australian stocks surged for a second day, led by banks, energy and resources companies, on speculation U.S. measures to rescue the financial system will help revive the global economy. The benchmark S&P/ASX 200 Index has gained 10 percent this week, rebounding from its worst week since 1987.

The government will spend A$4.8 billion on cash payments to the elderly, A$3.9 billion on one-off handouts to families and A$1.5 billion on increased grants to first-home buyers, Rudd said. It aims to boost consumption and investment as financial turmoil slows job growth and the A$1 trillion economy.

Rudd will fund the spending from the 2008-09 budget surplus, forecast in May at A$21.7 billion. Today's measures will leave a “comfortable'' surplus, he said.

In December, single pensioners will get a A$1,400 payment and couples a A$2,100 bonus under today's package. That will flow to 4 million pensioners, Rudd said.

Home-Buyer Grants

A first-home-buyer's grant will double to A$14,000 for existing houses and triple to A$21,000 for newly built dwellings, a benefit to go to some 150,000 people.

About two million low-income families will receive a A$1,000 payment for each child under their care. The government also will fund an extra 56,000 training places in the workforce to boost employment.

European nations have committed 1.3 trillion euros ($1 guaranteed approval cash advance loans.8 trillion) to guarantee bank loans and take stakes in lenders amid the global credit crisis. Britain took majority stakes in Bank of Scotland Group Plc and HBOS Plc as a global lending freeze threatens to push the world into recession.

The U.S. will spend $700 billion buying toxic bank debt and possibly recapitalize banks. Federal Reserve Chairman Ben S. Bernanke led co-ordinated interest-rate cuts around the world last week. The Reserve Bank of Australia earlier cut its benchmark rate by 1 percentage-point to 6 percent, the biggest reduction since a recession in 1992.

Spending Contracts

The RBA will cut its overnight cash rate target by 50 basis points at its next meeting on Nov. 4, according to a Credit Suisse index based on overnight swaps trading.

Australian home-loan approvals dropped in August to a seven-year low, cited as one of the reasons Reserve Bank Governor Glenn Stevens reduced rates to the lowest in almost two years. The rate cut reduced monthly payments on an average A$250,000 mortgage by almost A$140.

The construction industry contracted at a record pace in September as work was cut on commercial and apartment buildings. Building work has been shrinking for seven months.

Spending by households contracted by 0.1 percent in the second quarter, the first decrease since 1993, slowing gross domestic product to 0.3 percent from the previous three months.

“This is a significant fiscal stimulus,'' opposition Liberal-National coalition leader Malcolm Turnbull told reporters in Canberra after today's package was announced. “It will provide stimulus to the economy, that's for certain.''

Stocks surged across Asia today on more expected action by the U.S. to help credit markets.

`Dramatic Change'

The U.S. government will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, people briefed on the matter said.

The S&P/ASX 200 Index of Australian stocks rose 3.7 percent as of 2:38 p.m. in Sydney. Australia & New Zealand Banking Group Ltd. led financial stocks higher, surging 6.1 percent. BHP Billiton Ltd., the world's largest mining company, gained 3.8 percent.

“Things have changed dramatically in the past couple of weeks,'' Treasurer Wayne Swan, who today returned to Canberra from the U.S., told reporters in Canberra.

Slower global growth has slashed prices for commodity exports that have fueled Australia's 17-year economic boom.

The International Monetary Fund's World Economic Outlook last week forecast global economic growth will slow to 3 percent in 2009, a world recession under the fund's informal definition.

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Japan and Australia's central banks pumped more than $11 billion into money markets, seeking to ease near-record borrowing costs that threaten to tip regional economies into recession.

The Bank of Japan injected 1 trillion yen ($9.8 billion) and the Reserve Bank of Australia added A$1.815 billion ($1.3 billion). The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans stayed near a nine-month high and the Tokyo interbank rate was unchanged at the steepest this year. The Japan Libor-OIS spread, a gauge of cash scarcity among foreign banks seeking yen, rose to a record.

Interbank rates have jumped as lenders hoard cash, sheltering from bank failures and plunges in stock and commodities markets. The Nikkei 225 Stock Average dipped below 10,000 for the first time since December 2003 as Asian shares slumped for a fourth day, extending an equities rout that erased more than $2 trillion from global equities yesterday.

“There's a massive asset bubble deflating and it just encompasses everything,'' said Adam Carr, senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. “We've been living in a dreamland and that dream has ended.''

Banks increased deposits held at the Reserve Bank of Australia by A$92 million to A$9.493 billion yesterday, after those holdings reached a record A$11.04 billion on Sept. 30, the RBA said today on its Web site. Those deposits averaged A$1.7 billion last year.

Money held at the BOJ by banks and other financial institutions rose 1.23 trillion yen to 7.22 trillion yen yesterday.

`Hoarding Cash'

The BOJ has pumped about 23 trillion yen into the system over the past three weeks, the most in at least six years, and Australia's central bank is adding twice the daily average injected last year as banks store cash after governments in Europe and the U.S. acted to prevent the collapse of six financial institutions in the past two weeks.

“Despite central banks pumping liquidity into the system, banks are either hoarding cash or putting it into treasury bills,'' said Ong Hock Ann, a money-market dealer at ING Asia Private Bank Ltd. in Singapore. “It's a question of confidence and trust. There is money, but money is not flowing to the right channels.''

The world economy is sliding into its first recession since 2001 as the credit crisis hammers consumers and companies, economists at JPMorgan Chase & Co. and UBS AG said yesterday.

Rate Cuts

Economists predict central banks will cut interest rates as growth concerns outweigh inflation worries. Those at UBS predict the Fed will halve its benchmark rate to 1 percent by April and the European Central Bank will cut its main rate to 3 percent from 4.25 percent by the end of next year.

Australia's central bank today slashed its cash target rate to 6 percent from 7 percent, the biggest reduction since 1992 and double the half-point cut forecast by economists in a Bloomberg News survey (500 fast cash).

Australian banks' borrowing costs were little changed after today's cash injection, according to a gauge that measures the availability of funds in the market. The difference between the rate banks charge each other for three-month loans and the overnight indexed swap rate stood at 86 basis points, or 0.86 percentage point, from 88.3 before the RBA operation. The gap has averaged 45 points this year.

Banks hold cash in RBA exchange settlement accounts, on- call deposits at the central bank that receive interest at 0.25 percentage point below the central bank's benchmark rate.

Default Risk

The cost of protecting investors from Australian corporate bond defaults increased to a record.

The Markit iTraxx Australia index rose 34 basis points to 245, according to prices from Citigroup Inc. The price of the contracts, tied to the debt of 25 companies including Qantas Airways Ltd. and BHP Billiton Ltd., is the highest since the iTraxx benchmarks started in 2004. Sydney trading desks were closed yesterday for a holiday.

The Markit iTraxx Japan index rose 9 basis points to 207, Morgan Stanley prices show.

“Credit markets remain extremely weak and fragile,'' Gus Medeiros, a credit analyst at Deutsche Bank AG in Sydney, wrote in a research note today. “We expect the market to remain very volatile and thin in the next few days.''

Damage from the credit crunch accelerated over the past month as Lehman Brothers Holdings Inc. and Washington Mutual Inc. collapsed, the U.S. government took control of Fannie Mae, Freddie Mac and American International Group Inc., and Merrill Lynch & Co. and Wachovia Corp. were purchased by rivals.

Cash Auctions

The U.S. dollar Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, stood at 287 basis points today, after touching 298 points yesterday. It was at 129 basis points two weeks ago and 81 basis points a month ago. The Japanese Libor-OIS spread widened to a record 61.05 basis points.

Japan's central bank today said it offered $20 billion in three-month loans to 40 financial institutions as part of a currency swap agreement with the Federal Reserve. The operation was held for firms including Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. and Goldman Sachs Japan Co.

The Federal Reserve will double its auctions of cash to banks to as much as $900 billion and is considering further steps, the central bank said today in a statement. The Fed will increase its auctions under the 28-day and 84-day Term Auction Facility operations to $150 billion each. The two forward TAF auctions in November will be increased to $150 billion each. The central bank will also begin paying interest on bank reserves.

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Japan's wages dropped for the first time this year in August, indicating that households will keep cutting spending.

Monthly wages, including overtime and bonuses, fell 0.3 percent to 283,473 yen ($2,699) from a year earlier, after a 0.3 percent gain in July, the Labor Ministry said in Tokyo today.

Sentiment among large manufacturers fell to a five-year low last month, a central bank survey showed today, worsening prospects for wages and hiring. Factory output fell, export growth slowed and household spending dropped in August, signs the world's second-largest economy may already be in a recession.

“Given that the economy is in a recession, the priority for companies is to save costs, not to hire workers or increase wages,'' said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “I don't see any drivers of growth for Japan's economy at least until next year.''

The slump in production prompted manufacturers to reduce overtime working hours by 6.9 percent from a year earlier, the steepest decline since March 2002, today's report showed paydayloans.com. Households are the most pessimistic they've ever been and are cutting spending as falling wages and a rising jobless rate dims their prospects.

Wages fell in the month because summer bonuses declined 9.8 percent and overtime hours were reduced, said Akira Motokawa, head of the Labor Ministry's statistics division.

Consumer wealth is being also being eroded by the declining stock market. Japan's shares plunged to the lowest in almost four years yesterday, cutting into the value of assets of households who are already trying to cope with the fastest inflation in a decade. The Nikkei 225 Stock Average has lost 26 percent this year.

“Households are under siege,'' said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. “It's only natural that consumer spending will stall.''

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European inflation slowed for a second month in September, easing to the lowest rate since April as oil prices extended declines from a record.

The inflation rate in the euro area fell to 3.6 percent from 3.8 percent in August, the European Union statistics office in Luxembourg said today. That matched the median estimate of 39 economists in a Bloomberg News survey.

Oil prices have dropped by more than one-third from their all-time high in the last three months, cutting the cost of gasoline and heating oil. At the same time, stagnating economic growth is reducing the capacity of companies to increase prices. The European Central Bank will probably keep its key interest rate at 4.25 percent on Oct. 2 as it remains “uneasy about inflation,'' according to governing council member Axel Weber.

“The fall in consumer-price inflation shows that price pressures in the region are finally receding,'' said Jennifer McKeown, an economist at Capital Economics in London. “But the ECB has been concerned that core inflation might pick up sharply if wage growth reacts to the still high level of inflation and the previous strength of the labor market.''

Crude oil extended declines today after falling the most in almost seven years yesterday as U.S. lawmakers rejected a $700 billion financial rescue plan. Crude was at $98.34 a barrel at 12:15 p.m. in London, compared with it July 11 record of $147.27.

Wheat, Cotton

In addition to oil, commodities including wheat, cotton and corn have fallen in recent months, dragging the Reuters/Jefferies CRB Index of 19 commodities around 28 percent from its record in July.

The euro fell for a second day against the dollar today, dropping 0.6 percent to $1.4345 as France and Belgium led a state-backed rescue of Dexia SA, the world's biggest lender to local governments.

Companies and consumers have scaled back their predictions for price growth in the euro area as oil prices have declined. A gauge of company selling-price expectations fell to 12 in September from 17 in August, reaching the lowest in 10 months, according to a monthly European Commission survey cash advance. Consumers' outlook for prices dropped to 17 from 22.

A decline in headline inflation next year “is likely to be partly offset by rising core inflation, but this should no longer be an issue from 2010,'' said Nick Kounis, an economist at Fortis Bank in Amsterdam. “Indeed, downside risks to the growth outlook and the implications of weaker growth for the medium-term inflation outlook is likely to increasingly be the focus of the ECB's attention in the coming months.''

`Magic Away'

The ECB aims to keep inflation close to but below 2 percent. In Germany, Europe's largest economy, inflation slowed less than economists forecast this month, according to national data published Sept. 26. Prices rose 3 percent from a year earlier, compared with economists' forecasts for 2.9 percent.

While the ECB is “aware'' that the economy is in a “phase of weakening,'' the economic slowdown “won't magic away the inflation problem,'' Weber said on Sept. 23.

Still, as consumer-price growth eases and growth cools, economists at banks including Societe Generale and BNP have revised their predictions for ECB interest rates.

James Nixon, an economist at Societe Generale in London, on Sept. 26 forecast three quarter-percentage-point cuts in 2009, revising a previous forecast for rates to remain unchanged throughout next year.

Wattret at BNP also forecast three rate cuts next year in a note this month, having earlier predicted no change. Both see the benchmark rate being lowered to 3.5 percent in 2009.

The figures published today are an estimate. The statistics office will publish a detailed breakdown of the data and the core rate on Oct. 15.

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Gas prices fell another 2 cents, marking the fourth straight decline after rising more than 18 cents in 8 days following Hurricane Ike, according to a nationwide survey of credit card swipes at gasoline stations.

The average price of unleaded regular dropped 2 cents to $3.757 a gallon, from $3.777 a gallon, according to the survey released by motorist group AAA.

While prices have remained under $4 for some time, they are still much higher from a year ago, when gas was selling for less than $3 a gallon.

Current prices are about 34% higher from a year earlier at this time. Still, prices are 54 cents, or 13%, down from the record high price of $4.114 a gallon set on July 17

Gas prices had been moving higher following the devastation left behind by hurricanes Ike and Gustav.

More than 30 refineries, which convert crude oil into usable gasoline, had shut down or were operating with reduced capacity in the Gulf region after the storms hit. The number has since fallen by more than half, restoring gasoline supply to retailers and easing consumer prices cash advance loans.

Many crude pipelines in Texas and Louisiana had also shuttered ahead of the hurricanes. Those are slowly coming back on line.

Lower oil prices have also helped lower the cost of retail gas. Crude has been moving lower since mid-July amid weakening demand, losing more than a third of its value since it reached a record of near $150 just two months ago.

But oil prices rallied back above $104 a barrel Friday amid growing optimism that the government’s various rescue plans will help ease the credit crisis currently stifling the U.S. economy.

Meanwhile, only three states now continue to report gas prices above $4 a gallon: Alaska, Hawaii and Illinois. Alaska continues to be the state with the most expensive gas prices, at $4.339 a gallon. The cheapest gas can be found in New Jersey, where gas cost $3.468 a gallon, according to AAA’s Web site. 

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Lehman Brothers staff in Asia remain in the dark about the fate of their business, with the clock ticking on any deal with a potential buyer.

The more time that goes by, the more likely Lehman is to lose bankers and advisory mandates to rivals.

But rival investment bankers in Hong Kong on Thursday said they expected British bank Barclays to buy all or part of Lehman’s Asia business, after it agreed on Wednesday to pay $1.75 billion to rescue Lehman’s core U.S. business.

Lehman is hoping to sell its Asian operations as one entity to maximize value and secure as many jobs as possible, but it may have to divide the business up into different geographic groups, said a source with direct knowledge of the sale, who asked not to be identified because the information is not public.

The source said Lehman was interviewing four candidates to advise it on the sale, including Goldman Sachs, Rothschild and Lazard Ltd.

“Interest for Lehman is very high,” said the source.

In terms of mergers and acquisition advisory and equity capital markets, Barclays is not a major player in Asia, while Lehman has aggressively built its investment banking presence in the region.

“I would be surprised if Barclays did not buy the Asia business,” said an investment banker at a competing bank who did not want to be identified pay day loans. “It’s not going to cost them much.” 

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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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