The FTSE 100 index of leading British shares was up 18.60 points, or 0.3 percent, at 5,635.86 while Germany’s DAX rose by 35.62 points, or 0.6 percent, to 5,964.25. The CAC-40 in France was 23.81 points, or 0.6 percent, higher at 3,952.76.

The euro was equally buoyant, spiking to a one-month high against the dollar after official figures showed that industrial production in the eurozone soared by a record 1.7 percent in January from the previous month.

With December now showing a 0.6 percent increase instead of a 1.7 percent fall, the annual rate turned positive for the first time since April 2008.

By late morning London time, the euro was 0.8 percent higher at $1.3786.

The attention in the markets later will center on key U.S. retail sales and consumer sentiment figures.

These should shine a light on the state of consumption in the U.S. The U.S. consumer is particularly important for the U.S. economy as retail spending accounts for around 70 percent of the world’s largest economy.

“We will get a closer look in to how the U.S. consumer is behaving as talk of economic recovery continues to gather pace,” said James Hughes, market analyst at CMC Markets.

However, with heavy snow during February, particularly on the North East coast, the consensus in the markets is for a modest monthly decline in retail sales.

Wall Street was set to open modestly higher at the open following a late advance on Thursday — however, the actual open may well hinge on how the retail sales figures turn out.

For now, Dow futures were up 22 points, or 0.2 percent, at 10,570 while the broader Standard & Poor’s 500 futures rose 2.6 points, or 0.2 percent, at 1,148.50.

On Thursday, the S&P 500 advanced 0.4 percent, to 1,150.24, above its Jan. 19 close of 1,150.23 — many analysts think the index’s break above the 1,150 mark could augur further gains. The S&P now stands at its highest level since Oct. 1, 2008.

David Jones, chief market strategist at IG Index, thinks that next week’s trading could well depend on whether the Dow Jones industrial average sustains its break above 10,600.

“This had proved quite a barrier to progress over recent days and a finish above here today could position global stock markets for more growth next week,” said Jones.

Earlier, there was no clear direction in Asia, though Japan’s Nikkei 225 stock average advanced 86.31 points, or 0.8 percent, to close at a seven-week high of 10,751.26.

The lackluster performance elsewhere was largely due to concerns that China may start raising interest rates and take other cooling measures to keep a lid on mounting inflationary pressures. The source of concern was a government report showing inflation in the fast-growing economy jumped to 2.7 percent last month.

Chinese shares led the declines in Asia, with Shanghai’s index falling 1.2 percent. Investors there sold property shares on concerns higher-than-expected inflation might lead the government to hike in interest rates.

“Overheated industries, such as the real estate sector and some heavy industries, will be cooled as the government adjusts its macroeconomic policies, so those shares dropped heavily today,” said Peng Yunliang, an analyst at Shanghai Securities in Shanghai.

Hong Kong’s Hang Seng fell 0.1 percent at 21,209.74 and South Korea’s benchmark gained 0.4 percent at 1,656.74.

Oil prices pushed higher as investors mulled whether extending a monthlong rally is justified amid evidence of weak U.S. crude demand. Benchmark crude for April delivery added 57 cents to $82.68. Commercial Loan Workout.

“We are facing a major problem,” said Farooq, a senior executive at Marvel Gloves Industries, which produces 3 million pairs of gloves a month, most used in industrial production in India. “Despite importing gloves we are not able to meet demand.”

The run on gloves began five months ago, said Farooq, whose customers include Ford and Nissan.

It’s been driven by a record rebound in manufacturing, spurred in part by government stimulus, which has led India out of the Great Recession faster than many imagined possible.

So abundant is the optimism that India’s Finance Ministry, led by Pranab Mukherjee — not a man given to hyperbole — has made a bold assertion: India could soon overtake China’s growth rates.

“It is possible for India to move into double-digit growth and even become the fastest growing economy in the world within next four years,” the Ministry said as part of an economic survey released in February.

The catch: bridging the chasm between the possible and the probable.

Given the growing productivity of Indian workers and large working age population, it’s certainly possible for India’s economy to speed up, say economists and businesspeople.

But in practice, overtaking China would require fundamental changes in the way India does business. Creaking or nonexistent infrastructure and cumbersome government bureaucracy are drags on businesses large and small. And few think the bureaucratic and political hindrances that make it hard to execute even the best-laid plans will be removed anytime soon.

Also in doubt is how much faster growth will benefit the mass of Indians who’ve seen little or no gain from the country’s much lauded economic rise since liberalization began in the early 1990s.

So far, the economic makeover has worsened income inequality in India, and despite five years of near nine percent growth, over 450 million people struggle by on less than $1.25 a day. A similar problem of widening inequality also blights China, which has grown an average of 9.7 percent a year over the past three decades.

But higher levels of business investment in the past decade have raised profits and wages and in turn produced a large pool of corporate and household savings that was unimaginable in India 10 years ago.

“The productive capacity of the economy has gone up,” said former International Monetary Fund economist Renu Kohli. “My only caveat is that as far as implementation and execution of projects and policies is, India is a slow mover. It doesn’t move at the speed China does.”

Financing isn’t the problem, nor lack of good ideas, she said.

“The constraint lies in procedural issues, land acquisition and the capacity of even private participants to execute those projects without delays,” she said. “For that to change, it’s not entirely clear what a budget or change in policies can bring about.”

India’s top spending priorities in its new budget, released Feb. 26, are social programs and infrastructure. Next fiscal year, the government plans to spend 1.37 trillion rupees ($30 billion) on social programs and 1.7 trillion rupees ($37.9 billion) on infrastructure.

The mix reflects the ruling Congress party’s general approach — ramp up economic growth with pro-market policies and then redistribute the spoils through a massive hodgepodge of social spending, subsidies and employment guarantee programs.

Many say that to sustain growth in the long-run, the nation must do a better job of enriching millions of people at bottom of the heap.

India’s fortunes are less coupled to global markets than export-dependent China’s, but they are linked to the rural economy. Putting more money in the hands of the poor and near-poor has helped bolster domestic demand.

The programs that helped most — farmer loan waivers worth over $15 billion, a massive rural job guarantee program, and higher minimum prices for rice and wheat — were implemented in the run up to last year’s national elections. But they ended up shielding a large part of the economy from the global meltdown, said Himanshu, a professor of economics at Jawaharlal Nehru University in New Delhi, who goes by one name.

Unless rural incomes rise, India could face a bottleneck in domestic demand, said Himanshu.

“Sixty percent of our population is still working in agriculture,” he said. “Even the corporate sector is now saying that for growth what you require is growth at the bottom because that’s your market.”

Giving farmers a more certain future as India’s economy industrializes could also speed progress. Farmers concerned about losing their land in exchange for promises of jobs and one-time cash payments, which quickly get spent, have stopped or slowed the development of mines, power plants, factories and special economic zones.

Naushad Forbes who directs Forbes Marshall Pvt. Ltd., a large Indian manufacturing company, wishes the government would take a more encompassing approach to helping “Bharat,” or the rural poor.

“India’s economy is coupled to ‘Bharat’,” he said. “We have to as a country, as we mature, move away from the budget being a list of giveaways to something more holistic,” he added.

Fixing India’s clogged ports, sweeping power blackouts, inadequate roads and overstretched airports would also be a huge boost to productivity.

Goldman Sachs has estimated that India may need $1.7 trillion over the next decade to double its electricity capacity, increase the length of paved roads by half and substantially expand railway, port, airport and irrigation networks.

Spending that money well could prove challenging. The Delhi School of Economics surveyed 894 infrastructure projects between 1992 and 2009 and found that time overruns ranged from 61 percent of projects in the power sector to nearly 100 percent of railway, health and family welfare projects. Most were caused by government administrative delays.

India’s new budget did please some circles — analysts and investors, who praised Mukherjee for his fiscal discipline and productive spending priorities.

Given the manufacturing boom, the enlightened policymaking and all the road-building that’s going on, why doesn’t Farooq, the glove maker, just ramp up production in India instead of relying on imports to meet rising demand?

“There are certain constraints,” he said. “We need to take a lot of procedures and approvals. We need to take the right land, import the machines, train the people. It will take a long time.”

Besides, he said he’s getting fed up with the number of public holidays in India.

“By the time you start production, you have some festival for a particular religion or caste.”

“Last week only, there were three holidays.”

So where does Farooq get those 1.5 million pairs of imported gloves each month? Commercial Loan Workout.

Rules set by the Federal Reserve that will ban banks from charging such fees, without first getting permission from the customer, are set to take effect July 1.

But Bank of America is going a step further than the regulations require. It will simply no longer allow debit card purchases to go through if there isn’t enough money in the account.

For ATM transactions, customers who try to withdraw more than their balance will have to agree to pay a $35 overdraft fee before they can get the money.

“The majority of our customers who overdraw their account do so with everyday debit purchases,” said Susan Faulkner, senior vice president of consumer banking for Charlotte, N.C.-based Bank of America. “They’re doing this unknowingly, because they aren’t aware that they are about to overdraft.”

Since the bank doesn’t have the ability to notify the customer when they’re at the register and give them the chance to agree to a fee, it will simply reject such transactions.

Consumers have demonstrated a willingness to pay overdrafts for covering the mortgage and the car payment, said Greg McBride, who follows the banking industry for Bankrate. “But not if it’s things like covering a latte and a scone.”

The bank’s new policy will kick in on June 19 for new accounts, and in early August for existing accounts. It will replace the bank’s current terms, which allow overdrafts to go through but only charge a fee if the deficit is greater than $10.

Bank of America is the first big bank to announce such a change, but it likely won’t be the last. That’s because while the new rules will save consumers from surprising dings on their accounts, they will also cut deeply into the more than $1.77 billion annual revenue overdraft fees generate for the banking industry.

Faulkner would not estimate how much such fees pulled in for Bank of America in the past.

The Federal Deposit Insurance Corp. estimates about 41 percent of that total is from point-of-sale debit transactions. About 8 percent was from ATM transactions. The rest were from bad checks and online bill payments, which are not addressed in the regulation.

What’s more, 93 percent of overdraft fees are generated by just 14 percent of customers.

Because most of the fees were paid by what Robert Meara, a banking analyst with the consultant Celent, called “serial overdrafters,” the rules may not save the average consumer much money. In fact, because banks will look to make up that lost revenue, it may actually cost most individuals more.

“What this may do really is produce the unintended consequence of creating the demise of free checking,” said Meara. Banks jumped into free checking in the last decade because of competition, but at the same time started allowing overdrafts that generated huge sums. If they can’t charge those fees, it’s likely they won’t offer the free products anymore either.

Or, he suggested, consumers might start seeing deals advertised where free checking kicks in after a certain number of transactions, or if a customer has several accounts linked together.

“I think banks will use this as an opportunity to be creative and differentiate themselves in ways that was really hard to do when everybody had a free checking account,” Meara said. “There’s a way this can be a win-win for everybody, but in the short term I think it’s going to be challenging for banks to make up for that lost revenue.” Commercial Loan Workout.

Jobs in Washington are growing quickly, and in 2008 the city produced more in goods and services than almost anywhere in the country.

D.C. and nine other cities (among them: Boston, Los Angeles and a host of metros in Texas) are best surviving the downturn in part because they specialize in industries that are relatively insulated from economic volatility. Federal and state jobs all but guarantee the health of a local economy, and nowhere is there more government-related work than in Washington. The city has one of the lowest unemployment rates in the country, at 6.2 percent, and its output amounts to $362.3 billion, more than three times the average for the country’s largest cities.

It also saw a more modest slide in home sale prices than many other metros in late 2009. Cities where the recession’s effects are lessening either never felt the full brunt of the housing crisis, or have proven resilient enough that demand is returning sooner than elsewhere in the country. These strong housing markets further enrich the local economy by feeding a host of secondary industries, like construction, lending and household services.

Government spending hasn’t hurt Austin, Texas, either. It’s the seat of state government and tied for No. 1 on our list of 10 cities best surviving the recession. Jobs have been lost nearly everywhere in the last three years, but between December 2007 and December 2009 the number of jobs in Austin rose by 0.98 percent; more than any of the other major cities we looked at. And by three years from now, jobs are expected to grow by 8.09 percent, the second-best job outlook on our list. Third on the list is Dallas, home to a thriving technology and energy sector, where jobs are projected to jump 7.19 percent in three years.

To find the cities where the recession was easing, Forbes looked for a relatively low unemployment rate, using December 2009 figures, the most recent available, and the rate of job growth between December 2007 and December 2009, both from the Bureau of Labor statistics. We sought cities where economists expected that jobs would keep growing, based on the three-year job-growth forecast from Moody’s Economy.com; we also looked for metros with the highest positive change in median sale price for single-family homes between the third and fourth quarter of 2009, according to the National Association of Realtors. Finally, we factored in Metropolitan Gross Domestic Product — the dollar amount of goods and services produced within a metro area — provided for 2008, the most recent available, by Moody’s.

Forbes ranked the 40 largest Metropolitan Statistical Areas for which it had comprehensive data (that excludes Nashville, Tennn. and Detroit, Mich.) on all these measures, then averaged the rankings for a final score.

If one state is a poster child for economic recovery, it’s Texas, home to four of the 10 cities on our list. There’s more to why Austin, Dallas, San Antonio and Houston are faring well than just the state’s energy industry. The tech, government and education industries supplement the oil state’s riches. As for housing, cities in Texas didn’t see the same run-up in home prices and rampant speculation that led to the spectacular bubble burst elsewhere in the country. Commercial Loan Workout.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.

One owner’s case
The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

‘Tailor-made for fraud’
If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.

The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”

Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.

Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.

Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.

‘In a perfect world …’
Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”

There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.

“You have one loan, it’s no sweat to get a short sale,” said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. “But the second mortgage often is the obstacle.” Commercial Loan Workout.

Despite the consequences of rejecting the standing deal, Icelanders are set to do just that, angry about what they see as harsh repayment terms from Britain and the Netherlands and they are now certain they can get a much better deal.

Voting began at 0900 GMT and first partial results are expected shortly after polls close at 2200 GMT.

“We want to pay our debts, but we want to do it without going bankrupt,” said Steinunn Ragnarsdottir, a pianist who voted in Reykjavik City Hall with her two-year-old daughter.

Albert Olafsson, an auditor, said: “It is not fair that Icelandic taxpayers take all the blame for private bankers. This deal is simply not realistic and we can get a better one.”

No political parties are backing the “Icesave” accord agreed in late 2009, not even Prime Minister Johanna Sigurdardottir who brokered the deal. She has vowed to stay on after the referendum and said she would not cast a vote in the ballot.

The Icesave debt amounts to more than $15,000 for every one of Iceland’s 320,000 people, though most of the money is likely to be raised eventually by the sale of assets of Landsbanki, which operated “Icesave” accounts before folding late in 2008.

Britain and the Netherlands have offered easier terms, so there is no reason for voters to back the old deal.

But the Netherlands linked the negotiations on repayment with Iceland’s hopes to join the European Union.

“We have been negotiating with Iceland about the Icesave matter. I assume it will be resolved. This issue will be part of our considerations when deciding about the opening of accession negotiations with Iceland,” Foreign Minister Maxime Verhagen said on the sidelines of EU foreign ministers’ talks in Spain.

He declined to say whether the Netherlands would block Iceland’s EU accession talks or not.

NEW DEAL?

Iceland’s Finance Minister Steingrimur Sigfusson said the expected results of the referendum should not be interpreted as Iceland refusing to pay its “Icesave” obligations.

“We will honor our obligations. To maintain anything else is highly dangerous for the economy of this country,” he said.

The foreign minister told Reuters on Friday that he expected a new deal “in the next weeks, perhaps sooner,” which would limit the economic impact of the ballot.

The economy minister said a several month delay would shave 2-3 points off GDP in 2010, while a deputy central bank chief said the foreign aid was needed by late 2011, when Iceland refinances $1.8 billion in debt.

The ballot gives Icelanders, who have lost 30 percent of their disposable income since 2007, an opportunity to vent anger at Reykjavik bankers and politicians blamed for the meltdown.

In the referendum, Iceland’s 230,000 voters will be asked whether to approve a deal on paying money back to Britain and the Netherlands, after they compensated savers in their countries who had lost money in “Icesave” accounts.

Sigurdardottir said Britain and the Netherlands were holding Iceland “hostage” by linking the Icesave issue to Reykjavik receiving the next tranche of aid from the International Monetary Fund. With the cash in its coffers, Iceland would be able to open its borders to capital flows that feed investments.

The Icesave row with the two European Union countries has also rekindled anti-EU sentiment at a time when Brussels has invited Reykjavik to accession talks. Support for membership has been falling and is now opposed by more than half of Icelanders. Commercial Loan Workout.

Yet loopholes in the Federal Reserve’s latest proposal could let banks avoid rolling back rates in most cases.

To start, the proposal issued Wednesday wouldn’t require banks to use the same factors for raising a rate when reviewing whether to lower it.

That means a bank could cite a new set of criteria when evaluating rate hikes every six months. And the measures banks use could be very broadly defined. For example, banks often cite deteriorating market conditions when hiking interest rates. Yet market conditions could be based on unemployment rates, consumer confidence, or any number of yardsticks.

“The Fed left a lot of leeway for issuers to determine on their own what to do,” said Nick Bourke, manager of the Safe Credit Cards Project at The Pew Charitable Trusts.

Even if banks determine that a lower rate is warranted, the Fed’s proposal doesn’t call for a reduction of a specific amount. So banks wouldn’t need to return the interest rate to its original level.

Instead, banks could opt for a minimal reduction, said Bill Hardekopf, CEO of LowCards.com.

The latest proposal by the Fed is part of the broader credit card reforms that went into effect last month. After a public comment period of one month, if approved, the rules outlined in the proposal would take effect Aug. 22.

To address the tougher terms banks rushed to cram in before they faced restrictions, the proposal would also apply retroactively to Jan. 1, 2009. That means banks would need to review the spate of rate hikes they implemented in the past year.

But all the gray areas in the proposal could mean there are no meaningful reviews of those hikes — many of which may not have been fair, Bourke notes.

The Fed could of course still tighten its rule that applies to interest rates charged for new purchases. For existing balances, the law already prevents banks from raising rates unless consumers are at 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored.

Meanwhile, another rule outlined in the proposal is much tougher. Namely, penalty fees would be capped to no more than the dollar amount of the violation. So is you went $5 over your credit limit, you couldn’t be charged a flat $39 penalty.

The American Bankers Association said in a release that it’s still reviewing the possible impact of the Fed’s proposal, but noted that the restrictions could result in higher prices for credit card customers.

That’s a reality consumers are already dealing with. Banks have already introduced new fees and tougher terms in the past year. And despite the breadth of the new regulations, there’s still no cap on interest rates. Commercial Loan Workout.

These three fault lines are structural problems that require structural solutions. The banking system won’t mend without structural change in the financial services industry. A significant portion of the tax revenues won’t come back, without finding new sources of economic growth. And the fiscal consequences of ageing cannot be sustained without reforming labour markets and pension systems.

In the euro area, you might also argue that the sovereign debt problem in the ‘Med’ countries cannot be resolved without addressing the structural integrity of the euro. This agenda goes much further than the provision of temporary financial assistance to Greece, and embraces both the lack of fiscal transfer mechanisms, and the willingness of Germany, as Europe’s major creditor, to keep writing cheques to sovereign invalids in the euro family. A mooted financial aid programme for Greece has sidelined perceived default risks for now, but the bigger agenda won’t go away.

Financial markets don’t articulate clearly to the public why they ‘pick on’ Greece, or the UK, or others. They are astute, though, in highlighting clearly a discomfort when policy inertia takes precedence over policy imagination and commitment. Accordingly, it was no surprise that sterling and the Gilt market recently wobbled, especially in the wake of opinion polls pointing to the possibility of a hung parliament. There is no public debt crisis, per se, at this time but market angst is likely to linger until either the polls shift again to indicate a greater chance of one party emerging with a clear majority in the House of Commons, or indeed until the outcome of the election itself. Markets cannot know for sure, but they could be forgiven for assuming that an indecisive result could lead to a fractious and protracted period of uncertainty, just when clear and assertive leadership is required.

The clear and detailed programme for restoring fiscal stability that everyone seems to believe is necessary wouldn’t happen. The credit rating agencies would take a dim view, and investors might not wait for sterling to fall, or have their hands forced about whether they could hold downgraded securities. The decline in sterling and Gilt prices might then become more turbulent, in the end forcing the authorities into a fiscal retrenchment at a time and on a scale that was of no one’s choosing.

The hung parliament angst has displaced, for now, another contentious economic policy issue that is steaming in the UK. The argument has become heavily politicised, but the economics is about when and how to proceed with fiscal retrenchment, specifically in a debt and deleveraging crisis. It is due to start in the fiscal year starting in April, but the question is how to embrace public frugality without succumbing to private economic anorexia? Financial markets, investors and the rating agencies could hardly hold their fire if they expected a new cycle of recession and higher public borrowing. But the chances are that markets would welcome a clear and detailed programme that indicated how fiscal austerity would be phased, and two ways in which the economy’s structural settings would be re-booted: one to substitute employment-generative capital spending programmes for some current public spending, and the other, to boost employment rates and working lives for older workers, and skill formation for younger ones.

With just over two months to go to the election, then, have we just witnessed the start of the countdown to sterling parity against both the US dollar and the debt-compromised euro, along with adverse effects on gilt yields, and a contagion to US dollar markets? I would guess probably not but the relative tolerance in financial markets has limits. The acid test for financial stability in the UK, as elsewhere, is whether the political system can deliver economic leadership and imagination, and social and political institutions are up to the task of following. Brits can take some comfort in the latter, but the former will remain a known unknown for a while yet.

George Magnus is Senior Economic Adviser at UBS Investment Bank and author of The Age of Aging. Commercial Loan Workout.

Japan’s unemployment rate dropped for the second straight month in January and household spending grew — hopeful signs for recovery in the world’s second-largest economy. Australia’s central bank continues to reduce stimulus measures as the nation’s economy rebounds. It increased a key interest rate to 4 percent.

Greece’s debt problems have added volatility to markets around the world for more than a month. Investors are worried that the country’s mounting debt problems will spread throughout Europe and upend a global recovery. Traders have welcomed any signs of a resolution by bidding shares higher, though nothing official has been hammered out between Greece’s government and other European leaders.

In the U.S., investors could get details on potential new banking regulations. Senate negotiators are closing in on a deal that would create a new consumer protection agency within the Federal Reserve. The House has passed a bill that would create a separate entity to regulate everything from credit cards to mortgages.

Uncertainty surrounding potential changes to bank regulations have dogged the market in recent months.

In early morning trading, the Dow Jones industrial average rose 34.31, or 0.33 percent, to 10,438.10. The Standard & Poor’s 500 index rose 3.39, or 0.3 percent, to 1,119.10, while the Nasdaq composite index rose 7.65, or 0.34 percent, to 2,281.22.

There is little in the way of economic reports due out Tuesday. Automakers will report monthly sales throughout the day.

One of the biggest reports of the month, the Labor Department’s employment report, is scheduled for release Friday. It is expected to show the unemployment rate inched higher to 9.8 percent last month from 9.7 percent in January.

High unemployment remains a major obstacle for sustained growth.

Stocks are looking to build on Monday’s gains. Major indexes rose to their highest levels in more than a month after corporate dealmaking raised hopes for a global economic recovery. The Dow rose 0.8 percent to its highest level Jan. 20. The S&P 500 rose 1 percent and is now positive for the year.

American International Group’s sale of its Asian life insurance business for $35.5 billion was the biggest deal on a busy day. The bailed-out insurer is selling off divisions to help repay government loans.

Corporate takeovers are considered a positive sign for the economy because they typically only happen when companies are confident of future growth.

Acquisition talk continued into Tuesday. CF Industries made another offer for fertilizer maker Terra Industries. It offered to pay cash and stock equivalent to $47.40 per Terra share.

Terra shareholders have repeatedly rejected CF offers. The company said last month it will be bought by Norway’s Yara for $4.1 billion, or about $41.10 per share.

Meanwhile, bond prices dipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.65 percent from 3.61 percent late Monday.

The dollar was mixed against other major currencies. Gold prices rose.

Overseas, Japan’s Nikkei stock average rose 0.5 percent. Britain’s FTSE 100 gained 1 percent, Germany’s DAX index rose 1 percent, and France’s CAC-40 fell less than 0.1 percent. Hard money training.

EU Economic and Monetary Affairs Commissioner Olli Rehn made the call after a first round of talks with Greek officials amid growing market expectations of a trade-off between new deficit cutting steps and practical EU support for Greek borrowing.

“I’m sure that together we shall overcome these formidable economic and fiscal challenges,” Rehn said after meeting Finance Minister George Papaconstantinou.

A German government spokeswoman, however, maintained that it was up to Greece to pursue budget consolidation to win the confidence of markets and said that Berlin had nothing new to report on the issue of Greek debt.

Prime Minister George Papandreou appeared to be preparing the nation for more sacrifices in broadcast remarks to a cabinet meeting dramatizing the crisis and appealing for public support.

“Today we ask Greek men and women to enlist in our common cause to save our country and the overwhelming majority of our citizens are willing to do it despite the price and despite the burden … Everybody says yes,” Papandreou said.

Greece’s borrowing costs tumbled to their lowest level since mid-February on expectations that the government will agree to new tax increases and spending cuts to plug a budget gap which EU experts say has widened due to a lingering recession.

That in turn could trigger practical EU support for Greece’s effort to borrow or refinance about 25 billion euros ($33.97 billion) by late May, possibly through public guarantees of banks’ purchases of Greek sovereign bonds, EU officials and German lawmakers said.

“We seem to be getting closer to a deal on Greece in some shape or form,” said Nomura rate strategist Sean Maloney.

Greek bank shares rose by 4 percent on hopes of a deal. Fellow euro zone southern rim countries Portugal, Spain and Italy also saw their debt spreads over benchmark German bonds narrow on Monday.

EXTRA MEASURES

Rehn and European Central Bank chief economist Juergen Stark planned a day of talks with Greek leaders on additional steps demanded by the EU to slash Greece’s deficit by 4 percent of gross domestic product this year to 8.7 percent.

The Socialist government has already announced two waves of deficit-cutting measures this year, including a public sector pay freeze and cuts in top-up pay, tax increases, a crackdown on tax evasion, higher fuel duty and public spending cuts.

But Papandreou, whose approval ratings remain high despite a 24-hour general strike against his austerity plan last week, has promised additional measures if necessary to meet the ambitious deficit reduction target.

Among measures under consideration are an increase in Value Added Tax, a luxury goods tax, a further fuel duty hike and possible further cuts in public spending, Greek officials said.

Greece’s public debt is forecast to hit 120 percent of GDP this year, the highest ratio in the euro zone.

The executive European Commission is due to give a first interim report on implementation of the Greek consolidation plan to EU finance ministers on March 16.

In parallel, discreet talks are going on among euro zone governments on possible mechanisms to support Greece if necessary on the international bond markets, EU sources say.

German Chancellor Angela Merkel, whose country would bear the brunt of any joint action as Europe’s largest economy, stressed in a TV interview on Sunday that no decision had been taken and that Greece must put its own house in order.

Merkel said the euro was in the most difficult phase since the single currency’s creation. She referred to the so-called “no bailout” clause in the EU treaty did not explicitly rule out the possibility of guaranteeing Greek debt through state-owned financial institutions.

Greek bonds have been under attack since the new government revealed in October that the 2009 budget deficit would hit 12.7 percent of GDP, more than twice its predecessor’s forecast and four times the EU ceiling.

Some of those attacks have involved hedge funds and investment banks using the volatile and unregulated credit default swaps (CDS) market to buy insurance against the risk of a default or debt restructuring, traders say.

Euro zone officials stepped up threats to crack down on speculation against European sovereign borrowers.

“If the Greeks hold on to the strict parameters and the markets continue to speculate against Greece, we will not let them just march through,” the head of the Eurogroup of finance ministers said in an interview published on Monday.

Luxembourg Prime Minister Jean-Claude Juncker would not say exactly how the EU might combat speculators but told the German business daily Handelsblatt: “We have the torture equipment in the cellar, and we will show them if needed.” Hard money training.