Tuesday, August 12, 2008

US central bank auctions funds

The US's trade gap with China rose by
1.8 per cent in June [EPA]

The Federal Reserve, the US central bank, has auctioned $25 billion of loans to US banks in the latest bid to improve poor credit conditions in the US.

The bank said on Tuesday the money would be lent at a rate of 2.754 per cent and for an extended period of 84 days, rather than the 28-day period for the previous loans.

The move marks the Reserve's latest attempt to shore up the nation's struggling banking system, as the fallout from the US's mortgage crisis continues.

The central bank had already auctioned $25 billion for the same rate and period on Monday, and has been conducting such auctions every two weeks to relieve financial pressure in US markets.

The auctions have been held since December and will continue until credit conditions improve, the Reserve said.

Trade deficit shrinks

The news comes as US trade deficit shrank for the month of June to $56.8 billion, as the weak US dollar offset high oil prices and pushed exports higher, the US commerce department has said.

The trade gap marked the smallest since March and surprised analysts who had
predicted it would rise to $61.9 billion.

Exports and imports of goods and services set records in June, with exports rising by four per cent compared to 1.8 per cent for imports.

Meanwhile the politically charged trade gap with China rose by 1.8 per cent to a seasonally adjusted $21.4 billion.

Last year, the Chinese sent $321 billion of goods to the US, doubling its export total just four years ago.

The US, in contrast, sold just one-fifth of that figure to China in the same period.

Al Jazeera's Tom Ackerman says one major reason for the large trade gap is China's determination to keep its currency relatively weak against the US dollar, which makes its products relatively cheap for American consumers.

Oil imports

Oil imports accounted for a considerable part of the rise in overall imports,
with the oil deficit hitting a new high of $34.6 billion as prices reach record highs of $117.13 a barrel on average.

In contrast, the trade deficit in non-petroleum products was the smallest since February 2003.

The US has reduced imports in almost all categories, except commodities, and exported record amounts of industrial supplies and materials, food and beverage products and consumer goods.

The figures mean the total US deficit for the first six months of the year is now $351.4 billion, down slightly from $358.4 billion for the same period last year.

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