U.S. President George W. Bush will outline reforms on Friday to help struggling subprime mortgage borrowers and his central bank chief will deliver a speech which will be pored over for hints of a looming rate cut.
Federal Reserve Chairman Ben Bernanke speaks on Housing and Monetary Policy at around 10:00 a.m. EDT.
Bush, who will make a statement at the White House an hour later, will announce assistance for homeowners with subprime mortgages to avoid default via changes to the tax code.
He will also discuss reform efforts to prevent these kinds of problems from arising in the future, a senior U.S. administration official said.
Massive problems with U.S. home loans, stemming from aggressive lending to mainly poor people who have been squeezed as interest rates climbed, have fostered a liquidity crisis around the globe as banks have scrambled to calculate their exposure to the sector.
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The risk of a credit squeeze arising from mass mortgage defaults has also raised the prospect of U.S. consumers trimming spending at a rate that could tip the world's largest economy into recession.
Investors have been pinning their hopes on an interest rate cut by the Fed, at its next meeting on September 18, to shore up the U.S. economy and stop the sickness spreading.
Bernanke reiterated on Wednesday the Fed was prepared to act as needed to ensure credit market problems do not adversely affect the economy, fuelling speculation the central bank will lower its benchmark federal funds rate from 5.25 percent.
But experts have said the Fed is in no rush to act as it wants to disabuse investors of the idea that it is there to bail out their poor decisions.
The market is betting on Ben Bernanke coming up with clear-cut statements that if the crisis intensifies he will reduce base rates, said Heino Ruland, a strategist with German brokerage Steubing.
But with the Bush administration stepping in, he will be less forced to do so. If it's a combined effort, then that's a reason to be bullish, he said.
European shares rose early on Friday, mirroring a broad rally in Asia as investor hopes mounted for dual action from the Federal Reserve and the U.S. government.
Bush will press for legislation giving the Federal Housing Administration flexibility to help subprime borrowers, including the power to guarantee loans for people at least 90 days behind in mortgage payments to help them avoid foreclosure, the Wall Street Journal reported.
The agency was founded in the 1930s Depression to tackle mass homelessness. Now its mission is to foster home ownership by insuring mortgage loans, especially for poorer Americans.
JAPANESE JOINT EFFORT
Japanese market turmoil sparked by the subprime crisis should be addressed by a joint effort by the Bank of Japan, the Ministry of Finance and the Financial Services Agency, Tokyo's new financial services minister said.
Yoshimi Watanabe, who took over as head of financial services earlier this week, also said he was not yet worried the problems would directly hamper Japan's financial system.
Japanese Finance Minister Fukushiro Nukaga said he had been told by U.S. Treasury Secretary Henry Paulson global economic fundamentals were strong, but that it may take some time for adjustments in markets to take place.
International Monetary Fund First Deputy Managing Director John Lipsky highlighted ongoing risks, saying market turmoil would dent but not derail world growth, but that it was too soon to declare the troubles over.
Central bank action so far has been appropriate but market turbulence has not fully receded, Lipsky told Reuters in an interview on the sidelines of a gathering of top international central bankers and economists in Jackson Hole, Wyoming.
It is there that Bernanke will speak later.
There were fresh signs around the world that the liquidity crisis was far from over.
Australia's central bank struggled to ease upward pressure on some market interest rates as renewed trouble in the global commercial paper market has made institutions reluctant to lend.
Publisher McGraw-Hill Cos Inc said it was replacing the president of Standard & Poor's, the company's financial services division, amid questions about the role of credit-rating agencies in the mortgage crisis.
And Britain's Barclays Plc turned to the Bank of England as the lender of last resort for the second time this month after at technical breakdown in the British clearing system, a source close to the matter said.
The BoE supplied almost 1.6 billion pounds ($3.2 billion) this week in its third largest loan this year as lender of last resort, but did not name the borrower or borrowers.
Barclays declined to confirm it had used the borrowing facility but said in a statement it was flush with liquidity. Its shares rose 1.2 percent early on Friday.