U.S. economic news for the week ended September 23, 2011

Global stocks tumbled this week in response to evidence that global growth is decelerating and increasing fears of a Greek debt default. As investors dumped all things considered risky, the yield on the 10-year U.S. Treasury note fell to a record low, and oil dipped below $80 per barrel. Fresh data, showing a decline in manufacturing activity in both China and Europe, added to the worries, and World Bank President Robert Zoellick warned that the global economy is in a "danger zone." Vows by G20 officials to preserve banking stability and markets and new efforts by the U.S. Federal Reserve Board to reduce borrowing costs failed to significantly buoy sentiment as banks across the eurozone and the United States were downgraded and data everywhere showed a downturn.

U.S. and global economic news

IMF cuts global growth forecast
The International Monetary Fund cut its forecast for global growth to 4% and warned that severe repercussions to the global economy can be avoided only if eurozone nations strengthen their banking system and the United States gets its fiscal house in order. The IMF said the U.S. and European economies face recession and a lost decade of growth similar to what happened in Japan if they fail to take concerted action to revamp their economic policies.

Fed debuts "Operation Twist" to push interest rates lower
The U.S. Fed said on Wednesday that in a move to further reduce borrowing costs to keep the economy from falling into recession, it will replace much of the short-term debt in its portfolio with longer-term Treasuries. In what economists have dubbed "Operation Twist," the Fed will actively sell Treasuries with maturities of three years and less and buy Treasuries with maturities of six- to 30-years.The Fed will spend $400 billion on the program that is intended to put downward pressure on longer-term interest rates to make it cheaper for consumers to finance long-term purchases.

S&P cuts debt rating of Italy and some of its banks
Standard & Poor's Ratings Services cut Italy's sovereign debt rating one notch, saying the nation's weak economic growth and fragile government coalition will make it harder to head off the crisis sweeping the eurozone. The agency went so far as to say that paralysis in Prime Minister Silvio Berlusconi's governing coalition has become an obstacle to overhauling the country's stagnant economy. In the wake of the sovereign downgrade, S&P also cut the ratings of several Italian lenders. The ratings agency cut the long-term ratings of Italian banking giant Intesa Sanpaolo SpA and investment bank Mediobanca SpA to single-A from A-plus to bring the lenders' credit rating in line with the host country. S&P also cut its rating of the Italian subsidiaries of French bank BNP Paribas. The long-term rating of BNP's Findomestic Banca was cut to A from A+, while the long- and short-term rating on the French lender's Banca Nazionale del Lavoro subsidiary was lowered to A+/A-1 from AA-/A-1+.

Eurozone data shows slowdown
Business activity in the eurozone contracted in September for the first time in more than two years. The contraction is seen as the strongest evidence to date that the global slowdown and European debt crisis are pushing the eurozone to the brink of recession. The eurozone PMI (Purchasing Managers' Index) for September dropped 1.5 points to 49.2, according to data provider Markit. A drop below 50 signals contraction.

German investor confidence drops to lowest level in two-and-a-half years
German investor confidence fell to the lowest level in more than two-and-a-half years in September as Europe's debt crisis and global slowdown damped the outlook for growth. The ZEW Centre for European Economic Research said its index of investor and analyst expectations, which aims to predict developments six months in advance, fell to minus 43.3 from minus 37.6 in August.

U.S. housing starts fall to three-month low
U.S. housing starts dropped 5% to a 571,000 annual rate, a three-month low. Residential construction has been constrained by foreclosures, declining prices, and a lack of employment. Still building permits, which are proxies for future construction, climbed 3.2% to a 620,000 annual rate in August. That was the highest level this year.

U.S. and global corporate news

Moody's downgrades U.S. and Greek banks
Moody's Investor's Service cut the long-term credit ratings of Bank of America and Wells Fargo. Moody's cited a decreasing possibility that the United States would support the lenders in an emergency. Citigroup's short-term rating was also cut. Bank of America's ratings were cut to Baa1 from A2 for long-term debt and to Prime 2 from Prime 1 for short-term debt. The outlook on long-term senior ratings remains negative. Wells Fargo's senior debt was downgraded to A2 from A1; the outlook remains negative on the senior long-term ratings. The ratings agency also downgraded eight Greek banks by two notches Friday, citing expected losses from the banks' holdings of Greek government bonds. National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Agricultural Bank of Greece, and Attica Bank were downgraded by Moody's to Caa2 from B3. Emporiki Bank of Greece and General Bank of Greece were downgraded to B3 from B1.

Tyco to break up
Tyco International said it will break up into three companies, another sign that the era of the conglomerate is drawing to a close.

Oracle's profit jumps 36%
Oracle's first-quarter profit climbed 36% on strong sales in its core software business. Sales of the company's hardware systems dropped, however.