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A residential area is seen in Pudong district in Shanghai October 26, 2011
A residential area is seen in Pudong district in Shanghai October 26, 2011

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Signs of trouble in China's real estate market? Add to ...

These are stories Report on Business is following Tuesday, Jan. 17, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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China buoys markets Better-than-expected economic signals from China, with some good news from Europe thrown in, are boosting global stock markets this morning.

Tokyo's Nikkei climbed 1.1 per cent, and Hong Kong's Hang Seng 3.2 per cent. In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 0.8 per cent and 1.8 per cent by about 8:45 a.m. ET.

Dow Jones industrial average and S&P 500 futures also climbed.

"The market’s complete indifference to last week’s S&P downgrade of France and others was further confirmed today as the FTSE 100 briefly set a fresh high for the month so far," said sales trader Yusuf Heusen of IG Index. "Although the economic data from China has showed a slowdown, it was not as much as investors were fearing. U.K. inflation also saw the biggest fall since April 2009, putting the monthly CPI rate at 4.2 per cent."

Borrowing costs in the euro zone were also something of a relief.

"With Chinese growth numbers somewhat reassuring overnight and the ECB’s printing machine seemingly effective, sovereign yields from Belgium, to Spain, Ireland and Italy are converging at an accelerated pace towards core Europe," said Sebastien Galy of Société Générale.

"Safe haven such as bunds are suffering as a consequence. Bond auctions are the place where large amounts of monies can be parked and it seems increasingly unsurprising that bills are very much in demand, likely from real money, central banks and banks given their low usage of market and credit risk."

China's growth slows Economic growth in China is slowing, but it's still the big engine that could.

Numbers from Beijing this morning further eased fears of a hard landing in the midst of heightened uncertainty elsewhere in the world, notably Europe, which is believed headed for a recession.

China's economy expanded in the fourth quarter by 8.9 per cent, year over year, a slower pace that the 9.1 per cent registered in the third quarter but still better than expected. Over the course of 2011 as a whole, the economy grew by 9.2 per cent. Other data also buoyed markets, including industrial production, which increased at a year-over-year pace of 12.8 per cent in December, and retail sales, which climbed 18.1 per cent.

Beijing has already turned its attention to growth, having made huge inroads in its fight against inflation, and observers believe the People's Bank of China will ease policy further by again cutting the reserve requirements for the country's banks.

"Over all, the Chinese data are very encouraging, and should help boost expectations of a soft landing," said Benjamin Reitzes of BMO Nesbitt Burns. "Indeed, the mostly firm monthly figures suggest growth isn’t decelerating sharply. Even so, the slowing profile for growth points to further policy easing from officials. More reserve requirement rate cuts are just a matter of time."

There was a warning sign, however, in the real estate sector, as holdings of unsold properties increased.

"Last year, investment in real estate accounted for 25 per cent of total investment," said Mark Williams and Qinwei Wang of Capital Economics in London.

"The sector’s overall importance to the economy is much greater if we consider how much other industries such as steel and cement rely on real estate demand," they said in a research report today.

"But sales have stalled. Today’s figures show that residential sales increased only 3.9 per cent in 2011. Property sales in the east of the country were flat. In the meantime, developers have continued to build. The result is that developers’ inventories of unsold property at the end of 2011 were 26 per cent larger than a year before and equivalent to 30 per cent of total property completions in 2011 ... Much weaker construction activity is likely in 2012."

Bank of Canada warns The Bank of Canada held its key rate steady at 1 per cent today, pointing to heightened global risks since last fall, though noting a stronger-than-expected economic performance in the second half of last year.

The central bank also unveiled fresh estimates that indicated Canada's economy expanded by 2.4 per cent last year, and will grow by 2 per cent this year and 2.8 per cent in 2013, The Globe and Mail's Jeremy Torobin reports.

"While the economy had more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisaged, largely due to the external environment," the central bank said in its statement.

"Prolonged uncertainty about the global economic and financial environment is likely to dampen the rate of growth of business investment, albeit to a still-solid pace. Net exports are expected to contribute little to growth, reflecting moderate foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar. In contrast, very favourable financing conditions are expected to buttress consumer spending and housing activity. Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further."

It's the forecast for other countries that has eroded.

"The outlook for the global economy has deteriorated and uncertainty has increased since the Bank released its October Monetary Policy Report (MPR)," the Bank of Canada said.

"The sovereign debt crisis in Europe has intensified, conditions in international financial markets have tightened and risk aversion has risen. The recession in Europe is now expected to be deeper and longer than the bank had anticipated in October. The bank continues to assume that European authorities will implement sufficient measures to contain the crisis, although this assumption is clearly subject to downside risks. In the United States, while the rebound in real GDP during the second half of 2011 was stronger than anticipated, the bank expects the U.S. recovery will proceed at a more modest pace going forward, owing to ongoing household deleveraging, fiscal consolidation and the spillovers from Europe. Chinese growth is decelerating as expected towards a more sustainable pace. Commodity prices – with the exception of oil – are expected to be below the levels anticipated in the October MPR through 2013."

Bank of Canada Governor Mark Carney and his colleagues also gave no signs of moving from their cautious approach, noting there is still "considerable monetary policy stimulus" in the economy, which suggests no rate cut in the pipeline.

"There is no indication that the bank is seriously thinking about shifting away from the current 'wait and see' stance anytime soon," said Peter Buchanan of CIBC World Markets. "Although we expect the next move in rates to be up rather than down, we continue to look for the bank to remain on the sidelines until at least early 2014."

Inflation eases in Europe Europe's monetary chiefs are getting a bit of help on the inflation front.

December's annual inflation rate in the euro zone was revised down to 2.7 per cent today, a tiny move from the original estimate by the Eurostat agency, but welcome nonetheless. The revision added to speculation that the European Central Bank could cut interest rates again soon, possibly in February.

The central bank has already cut rates twice, but the group is headed toward another recession, and the easing in inflation at least gives the ECB some more flexibility.

Inflation also eased in Britain, to 4.2 per cent in December, from 4.8 per cent a month earlier, according to the Office for National Statistics.

TD said to stalk BankUnited Reports today suggest Canada's Toronto-Dominion Bank is among a handful of bidders for Florida's BankUnited Inc. .

BB&T Corp. and, possibly, PNC Financial Services may also be stalking the lender, Bloomberg News said.

TD bid once before for BankUnited, when it was in trouble and was acquired by private equity companies.

Citigroup profit slips The chief executive officer of Citigroup Inc. pledged today to "right-size our businesses" after the bank posted a drop in fourth-quarter profit, hurt by bond and equities trading.

Citigroup earned $1.2-billion (U.S.) or 38 cents a share in the quarter down from $1.3-billion or 43 cents a year earlier. Revenue slipped to $17.2-billion from $18.4-billion.

"Overall, we made solid progress in 2011," said CEO Vikram Pandit.

"We increased our net income to $11.3-billion, up 6 per cent from the previous year, and reached key benchmarks in our consumer businesses, showing our strategy is achieving results," he said in a statement.

"Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment."

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