That stock News

A look at economic developments and activity in major stock markets around the world Friday:

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BRUSSELS — EU officials hope a second round of stress tests, planned for February, will do what the earlier ones couldn't: restore confidence in the region's banks by checking whether they have the financial cushion to withstand unexpected shocks.

European regulators first tested their banks in Sept. 2009, but the results were never published. Another round of tests, carried out this July, was made public but widely criticized for not being stringent enough. Only 7 of 19 European banks failed; and they were asked to raise a total of euro3.5 billion.

The EU has now decided to give it another go. The stakes are high. European banks have an exposure of euro1.9 trillion ($2.5 trillion) to the government debt of other European countries, according to an analysis by economists at the Organization for Economic Cooperation and Development published in September.

The EU has said that regulators this time will look at banks' so called liquidity positions, that is, how quickly they can turn their assets into cash and not just how much those assets are worth. That's important because for banks, which rely heavily on short-term capital, funds can dry up overnight when there's a crisis.

But experts say the new tests also need to include the possibility of a sovereign default — a government actually failing to pay off bonds as they come due. And regulators have to be more realistic about unemployment rates.

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DUBLIN — Irish lawmakers vote to cut the salaries of their own leaders and the nation's minimum wage in the latest stage of a new deficit-slashing program.

An emergency cost-cutting bill approved Friday on a 79-74 vote cuts the salary of Prime Minister Brian Cowen 6 percent to euro214,000 ($282,500) and his Cabinet ministers 5 percent to euro181,000 ($239,000).

Ireland's minimum wage is being slashed 12 percent to euro7.65 ($10.10) per hour — still third-highest in the 27-nation European Union below France and Luxembourg.

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FREIBURG, Germany — The leaders of Germany and France vow to defend the euro with "total" determination from the turmoil of Europe's government debt crisis — but stand by their rejection of raising money through pan-European bonds or expanding a euro750 billion ($1 trillion) rescue fund.

The two countries, the eurozone's largest economies and its bankrollers, are at odds with many other governments on how best to keep the crisis from spreading and forcing more expensive bailouts, following financial rescues for euro members Ireland and Greece.

The two leaders met ahead of an important European Union summit in Brussels next week. A key issue at the summit will be the establishment of a permanent crisis mechanism for the 16-nation eurozone starting in 2013 that will require amending current EU treaties — usually a lengthy and complicated procedure.

Merkel has pressed hard for such a mechanism, which would include a set of new bailout rules that would force losses on private investors in some cases. The current euro750 billion rescue fund — now being tapped to rescue Ireland — expires in 2013, and Merkel opposes extending it without changes.

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LISBON, Portugal — Moody's Investors Service says it is reviewing the financial strength of 10 Portuguese banks and may downgrade their credit ratings. The ratings agency says the banks are having trouble accessing international credit markets and have relied heavily on help from the European Central Bank.

Fears Portugal won't be able to manage its debt load and will require a foreign bailout have spooked markets. Standard & Poors also issued a warning about Portuguese banks last week, while Fitch has already downgraded their ratings.

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BRUSSELS — The European Union and India are nearing a wide-ranging free trade deal and hope to sign an agreement next year. The breakthrough was announced during a visit of Indian Prime Minister Manmohan Singh to EU headquarters in Brussels.

The deal has been four years in the making and could boost trade between the two by almost 30 percent. The deal would slash tariffs on products by 90 percent and make it easier for trade and investments to grow on both sides.

EU trade and investment with India reached some euro39 billion ($52 billion) last year.

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BEIJING — China has ordered its banks to increase their reserves in a move to curb surging lending as financial markets watched for a widely anticipated interest rate hike amid efforts to cool inflation.

The central bank's order was the third reserve increase in five weeks and came as Beijing tries to rein in a flood of money flowing through the economy from stimulus spending and bank lending that helped China rebound from the global crisis.

Analysts and traders expect a rate hike soon to bring lending and deposit rates, which were slashed during the crisis, back to more normal levels.

The move weighed on world markets. Gains in European shares were tempered and Asian stock benchmarks mostly closed lower ahead of the news in anticipation of an interest rate hike or other credit tightening measure.

On Friday, regulators announced Chinese banks lent a total of 564 billion yuan ($82 billion) in October. That would push total lending so far this year to 7.45 trillion yuan and mean they would likely overshoot Beijing's official 2010 lending target of 7.5 trillion yuan.

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SEOUL, South Korea — South Korea's economic growth is set to slow to a more normal level of 4.5 percent next year, the central bank said in a report that warns of significant uncertainties for the outlook including tensions with North Korea.

The slowdown next year will be from forecast growth of 6.1 percent for 2010, a year in which South Korea's recovery from the global financial crisis and subsequent worldwide slowdown accelerated.

South Korea is the world's 15th-largest economy and an export powerhouse home to major global manufacturers including Samsung Electronics Co. and Hyundai Motor Co.

The Bank of Korea injected a note of caution into its outlook for next year, citing "geopolitical risks" in the aftermath of a deadly North Korean attack on a South Korean island last month that sent tensions on their divided peninsula soaring. It also highlighted the "unknowns" of European debt problems, rising Chinese inflation and how monetary policy at the U.S. Federal Reserve will develop following its move to purchase $600 billion of government bonds.

South Korea's economy rebounded strongly this year after sputtering to a meager 0.2 percent expansion in 2009 following the crisis and slump.

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Most Asian indexes closed slightly lower after the announcement that the People's Bank of China raised its required reserve ratio — the amount of capital banks need to keep with the central bank — by half a percentage point. Markets had been bracing for an interest rate hike, which could have a more direct impact on the economy, but analysts say that may yet be delivered soon.

Japan's Nikkei 225 stock average closed down 0.7 percent to 10,211.95. South Korea's Kospi slipped 0.1 percent to 1,986.14 after jumping 1.7 percent the previous day.

The Shanghai Composite index, which closed before the announced tightening in lending, ended 1.1 percent higher at 2,841.04 in anticipation of a national economic planning meeting during the weekend.

Hong Kong's Hang Seng index dropped less than 0.1 percent to 23,162.91 and benchmarks in Singapore, Taiwan and Indonesia also fell. Australia's S&P/ASX 200 fluctuated in and out of negative territory before closing up 0.1 percent at 4,745.90. India's benchmark also rose.

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ATHENS, Greece — Strikes in Greece are set to disrupt flights and public transport next week, as unions rally against a shakeup of labor rules that will cap public sector salaries and further loosen job safeguards.

An air traffic controllers' association says flights will be halted for 24 hours on Dec. 15 after it decided to join a broader strike. Public transport services in greater Athens will also be stopped by separate 24-hour strikes on Tuesday and Thursday, Dec. 14 and Dec. 16.

And bank workers' unions are planning a 48-hour strike starting Tuesday.

Under the latest changes, due to be voted next week as emergency legislation, gross monthly salaries at state firms will be capped at euro4,000, while salaraies over euro1,800 will be slashed by 10 percent. The government argues the measures are intended to curb common abuses in the public sector, with questionable bonuses frequently added to workers' monthly pay.

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