Obama seeks to snag U.S. economy to Asian growth

With Europe slowed down in crisis, President Barack Obama is launching a charm offensive this week to hitch the U.S. economy to growth opportunities in Asia that he hopes can help power the recovery he needs for re-election.

Obama, who was born in Hawaii and spent part of his childhood in Indonesia, will host Asian leaders including Chinese President Hu Jintao and Japanese Prime Minister Yoshihiko Noda in Honolulu this weekend to seek to developed trade ties across the Pacific.

He will then travel to Australia to announce plans to boost the U.S. military presence in the region and will be the first American president to attend the East Asia Summit in Bali. There, he will heap attention on the Philippines, Thailand, Malaysia and Indonesia as well as India.

The campaign to cozy up to Asian powers large and small comes at a critical moment for the U.S. economy, whose recovery is at risk because of a spiraling debt crisis in Europe that dominated a G-20 leaders' summit in France last week.

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U.S. economy continues to be at risk

Stocks around the globe returned to positive territory Thursday, a day after European fear sparked steep losses. Europe's woes, however, remain a clear and present danger to the fragile U.S. economic recovery.

U.S. blue chips had fallen almost 400 points Wednesday on fears that soaring borrowing costs for Italy could push it into a crippling debt default. Those fears waned a bit Thursday as a new coalition government seemed to be taking form and there was more clarity from Italian lawmakers over promised economic reforms.

Borrowing costs remain elevated for Italy, a nation with a $2.6 trillion deficit and about $300 billion in borrowing needs over the next year or so. On Wednesday, Italy was forced to pay investors a 7.6 percent rate of return on its 10-year bonds, well above the 7 percent threshold at which other European nations were forced to seek rescue packages.

Investors eased up on Italy on Thursday, and the rate of return on the benchmark 10-year bond fell to 6.873 percent, slightly below the danger zone.
With Italy calming, U.S. stocks recovered some lost ground. The Dow Jones industrial average closed up 112.92 points to 11,893.86, while the S&P 500 rose by 10.60 points to 1,239.70. The NASDAQ gained 3.50 points to end at 2,625.15.

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Asian stocks falls down | Europe debt crisis

On Thursday the Asian shares fell after Italy's record-high cost of borrowing renewed fears over the euro zone debt crisis. Analysts said some actions needed to be taken in Italy in order to calm markets.

Frederic Neumann from HSBC in Hong Kong said, “Europe has moved from a manageable crisis in Greece to a much bigger challenge in Italy and we need radical solutions at this point to backstop the markets."

Hong Kong shares slumped 4.48 per cent by the break on Thursday amid growing concerns over the euro zone’s future after Italy's bond yields soared to levels considered unsustainable. The benchmark Hang Seng Index dived 896.92 points to 19,117.51 on turnover of HK$38.93 billion ($5.01 billion).

Italy's borrowing rates soared above 7.0 per cent on Wednesday, rattling financial markets around the world as the level could make it impossible for Rome to keep servicing its 1.9-trillion euro ($2.6 trillion) debt.

Rome is due to pass key reforms by Sunday in a bid to halt the turmoil, after which Prime Minister Silvio Berlusconi will step down and talks on a new government will start, officials said.

The Hong Kong losses were in line with a regional sell-off, with Tokyo shedding 2.70 per cent in the afternoon, Sydney off 2.77 per cent and Seoul down 3.89 per cent.

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Risk of a recession in European Economies

Asian markets placed the modest gains after Italian Prime Minister Silvio Berlusconi said he would step down, boosting optimism that problems in the euro zone may ease.

Japan's main index rose 1%, South Korea was up 1% and Australia gained 1.5%. US markets had gained earlier on the news.

Investors have been worried that Italy's high debt levels and low growth rate could see it struggle to pay back its government bonds.

However, analysts said the limited reaction in the equity markets showed that concerns over Italy and the health of euro zone economies persist.

"The gravitational force is pulling the European area down into a recession, this is why Asian markets are so sceptical," said Arjuna Mahendran from HSBC Private Bank.

Further evidence of the lukewarm reaction came from the euro, which was little changed in Asian trade againt the US dollar.

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