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Vatican Bank, Pope's banker in money-laundering probe

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Vatican surprised by probe The Vatican says it is bewildered and surprised by reports that Italian police are probing Vatican Bank officials and have frozen €23-million from one of its accounts in connection to a money laundering investigation. News agencies reported that the money was seized from a Vatican Bank account at a Rome branch of Credito Artigiano Spa. Details were vague but allegedly involved a failure by the bank to say where the money - destined for JPMorgan in Frankfurt and another bank - came from.

"The Holy see is perplexed and surprised by the initiatives of the Rome prosecutors, considering the data necessary is already available at the Bank of Italy," the Vatican said in a statement, expressing its support for Ettore Gotti Tedeschi, chairman of what is officially known as the Institute for Works of Religion.

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The Financial Times, noting that the chairman is the pope's top banker, said Italian police confirmed the reports, adding that the Bank of Italy first raised suspicion over two attempted transfers of Vatican money.

"It is well known that the authorities of the Holy See have frequently manifested a clear desire for full transparency regarding the financial operations of the Institute for Works of Religion," the Vatican said.

The Vatican Bank, founded in the late 1800s, has suffered scandals in the past, and a new investigation would come at a difficult time for the church in general. No allegations have been proven.

Fed downbeat, holds steady

The Federal Reserve held interest rates steady today, as expected, and painted a picture of a sputtering economy. The U.S. central bank also said it expects to hold its benchmark federal funds rate near zero for some time yet. Among the highlights of the Federal Open Market Committee statement: The pace of recovery in output and employment has slowed.Household spending is rising gradually but is held back by "high unemployment, modest income growth, lower housing wealth and tight credit."Business spending on equipment and software is rising, though at a slower pace than earlier.Investment in non-residential real estate is weak.Employers are reluctant to hire.Housing starts are at a depressed level.Bank lending continues to shrink, though at a slower pace.Chairman Ben Bernanke and his colleagues are also antsy because of the low inflation in the United States: "Measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."

Paul Dales, U.S. economist at Capital Economics in Toronto, said investors will no doubt be disappointed that the Fed still may have a ways to go before more stimulus. "For that to happen, conditions would have to deteriorate significantly and deflation would need to be imminent," he said.

Added Toronto-Dominion Bank senior economist James Marple: "By focusing on trends in inflation and recognizing that recent levels have moved below their implicit target, the Fed has signaled that inflation outcomes are likely to be the threshold that would move the Fed towards a second round of quantitative easing." Fed prepared for new relief measures Read the FOMC statement

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Consumer prices tame The overall economic outlook may be a concern for the Bank of Canada, but inflation isn't. Indeed, today's reading on consumer prices from Statistics Canada leaves central bank Governor Mark Carney, who has now raised his benchmark interest rate three times since the recession's end, with his hands free. Consumer prices slipped 0.1 per cent in August from a month earlier, bringing down the annual inflation rate to 1.7 per cent from 1.8 per cent in July. Core inflation, which strips out volatile items and is the Bank of Canada's guide, came in at 1.6 per cent.

"In seasonally adjusted terms, core prices were flat in August, and the six-month trend has ebbed to a mere 0.4-per-cent annual rate, which we judge is the lowest pace in more than 25 years of data," said BMO Nesbitt Burns deputy chief economist Douglas Porter. "... Inflation remains well under wraps in Canada. If anything, the underlying trends in core inflation may be a bit too low for comfort for the Bank of Canada. If growth weakens further, inflation certainly poses no limitation for the bank to stop raising rates. "

Analysts have been divided on Mr. Carney's next move, and economists say today's consumer price report could see him hold rates steady as his next meeting in October, and even longer. "The soft reading on core inflation in August, coupled with a slight upward tick in the unemployment rate since July will likely push the Bank of Canada (BoC) back on to the sidelines come October's meeting after bringing the overnight rate to 1 per cent in September," said Toronto-Dominion Bank economist Diana Petramala. "While further withdrawal of monetary stimulus in the Canadian economy is justified, softer inflation gives the BoC some wiggle room, and we see the bank on hold until March of next year." Inflation rate dips to 1.7%Cat:e528746c-3414-401a-b14b-50247e3bdf01Forum:2d13dc33-9921-4d4a-815f-e809277631e4

U.S. housing starts climb U.S. housing starts surged 10.5 per cent last month, giving some hope to the sector where the crisis began, but economists say the outlook remains weak. Building permits rose 1.8 per cent. "Homebuilding is still being depressed by the high number of vacant homes, mounting expectations of renewed price falls and economic constraints on households," said Paul Dales, U.S. economist at Capital Economics in Toronto. "... The key point is that homebuilding activity will remain weak for the next three or four years, acting as a brake on the overall economic recovery."

BHP sticks to its gunsBHP Billiton Ltd. is sticking to its strategy to some day break up the powerful Canpotex potash marketing arm if it succeeds in its hostile bid for Potash Corp. of Saskatchewan , despite an outcry from the province and its peers, believing such structures will soon be outdated. Australia-based BHP, the world's largest mining company, said market-based pricing has been accepted by the iron ore and coal markets, and is now creeping into the potash business where it will some day become the norm. "Our experience is that it's better to move with the times rather than to try and hold it back," BHP chief executive officer Marius Kloppers told The Globe and Mail's editorial board today. Canpotex breakup will happen eventually, BHP CEO says Saskatchewan questions benefit of Potash Corp. takeover Read our ongoing coverage of the fight for Potash Corp.

Airlines on the rebound The world's airlines have certainly had their share of troubles over the past decade. From the 9/11 terrorist attacks to SARS, the recession and Iceland's volcanic ash, they have had to navigate cloudy skies. Now, though, they appear to be on a rebound. The International Air Transport Association said today airlines around the world are expected to see far higher profits this year than initially expected, though that's weighed down by the economic outlook in the United States and Europe.

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IATA's new forecast calls for combined profits of $8.9-billion (U.S.), well up from its earlier forecast in June of $2.5-billion, though it expects that to slow to $5.3-billion next year. "It is a significant improvement, much stronger than forecast," said IATA chief executive officer Giovanni Bisignani. "But I would say it is not time for big celebration, let's just do a nice party." Airline industry rebounding strongly Return to profit forecast for Canadian airlines

Bedbugs an alarming problem Scientists, experts and exterminators are holding an extraordinary summit in a suburb of Chicago today to deal with the growing problem of bedbugs. While the bloodsucking bugs are a nuisance, they're taking an increasing bite out of retailers, particularly in New York City, where several stores have been forced to shut down temporarily. It's the first North American Bedbug Summit, and comes amid what ABC News says is an alarming increase in complaints, almost 11,000 in New York alone. The problem has affected apartment buildings, university dorms and several retailers, including Nike, which closed its flagship outlet in New York temporarily, Victoria's Secret and Abercrombie and Fitch. Bedbug fear worse than the bite? Bedbug pandemic predicted One family's campaign against bedbugs

From today's Report on Business Rob Carrick: E-mail money transfer is the better way Slow U.S. recovery follows the Great Recession Flush with cash, Fairfax lands royal deal New Cenovus project points to cleaner oil sands productionAnd, read our Streetwise blog and Your Business section

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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