Kansas City Fed President Thomas Hoenig voted against repeating the statement on Jan. 27 because he wanted to keep “the broadest options possible.” Since then, Dallas Fed President Richard Fisher, James Bullard of St. Louis and the Philadelphia Fed’s Charles Plosser have also expressed reservations.

The Fed presidents have said the phrase, repeated every meeting since March 2009, might reduce the central bank’s flexibility to raise interest rates or mislead investors into believing the Fed has a specific date in mind. Their doubts increase the chances the language will be tweaked when policy makers next meet on March 16, said New York University economist Mark Gertler.

“Some on the committee may be concerned that the ‘extended period’ language creates the perception that the Fed will refrain from raising interest rates well beyond the time that economic conditions begin to justify an increase,” said Gertler, who co-wrote research with Fed Chairman Ben S. Bernanke.

Officials may be “getting ready to take the scissors out,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Evans’ Speech

Chicago Fed President Charles Evans omitted the phrase from a speech yesterday in Arlington, Virginia, instead saying rates would stay low for “some time.” He told reporters afterward that the change didn’t signal doubts about the “extended period” phrase.

Evans said that to him, the “extended period” phrase means three to four FOMC meetings. The FOMC schedules eight meetings a year.

Robert Eisenbeis, former Atlanta Fed research director, said the Fed presidents may not convince the rest of the rate- setting Federal Open Market Committee to alter the wording.

Bernanke has signaled the phrase will be retained in next week’s statement by repeating the pledge Feb. 24-25 in semiannual testimony to Congress, Eisenbeis said.

“The job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” said the 56- year-old Fed chief, a Republican who won Senate approval in January for a second four-year term.

‘Exceptionally Low’

The Fed adopted the wording three months after cutting its benchmark interest rate to a record in December 2008, saying “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

In November, the FOMC added that its commitment depends on when the labor market, inflation and price expectations pick up.

The job market has since shown signs of stabilizing. Payroll declines have slowed to an average 27,000 a month from November through February, compared with an average 252,000 from July through October totally free credit score.

The U.S. may add as many as 300,000 jobs this month, the most in four years, David Greenlaw, chief fixed-income economist at Morgan Stanley in New York, said in an interview yesterday.

The Fed’s preferred price index, which excludes food and energy costs, rose 1.4 percent in January from a year earlier, below the long-run range of 1.7 percent to 2 percent policy makers want for total inflation. “Most indicators suggest that inflation likely will be subdued for some time,” Bernanke said last month.

Market Rates

Two-year Treasury notes yielded 0.87 percent yesterday, compared with 4.67 percent three years ago. The yield on 10-year Treasuries was 3.7 percent, down from 4.59 percent in March 2007.

Bullard, 49, told reporters last week he was “a little less patient” with repeating “extended period,” though he didn’t plan to dissent. He said the phrase may appear to lock in a time frame for action, whereas the FOMC plans to react to economic conditions as they develop.

“I would hope we would get the committee to think about some different language that would convey the state-contingency that I would like to convey, and I think most people on the committee would like to convey,” he said March 4 in St. Cloud, Minnesota.

Plosser, 61, said Feb. 17 that he had “some sympathy” for Hoenig’s dissent. “That forward guidance has gotten us in a box,” he told reporters in Philadelphia.

Fisher, 60, said Feb. 10 in Dallas that “I have never been comfortable with that language.”

Voting Members

Hoenig and Bullard vote on FOMC decisions this year. The other presidents with a 2010 vote are Cleveland’s Sandra Pianalto and Boston’s Eric Rosengren. New York Fed President William Dudley has a permanent vote, as do the Fed’s Washington- based governors.

The debate echoes discussions in 2003 and 2004, when officials cut the benchmark federal funds rate to 1 percent and said low borrowing costs were warranted for a “considerable period.”

An informal tally by then-Chairman Alan Greenspan at the August 2003 meeting showed seven of 18 policy makers objected to the phrase. It was jettisoned the following January, when the FOMC said it “can be patient in removing its policy accommodation.”

The Fed will provide transcripts of the 2004 meetings in coming months, based on historical release dates.

“The longer you use the phrase, the more it hardens and the more drama is associated with changing” it, said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who helped write the FOMC statements as the Fed’s monetary-affairs director from 2001 to 2007.

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The Chinese have kept the yuan pegged to the dollar for almost three years. The currency is now about 20% to 40% below where it would be if it traded as freely as most other currencies, according to most estimates.

This keeps Chinese exports cheap, and has been blamed for the widening trade gap between China and the United States, as well as the loss of manufacturing jobs in the United States. President Obama and members of Congress have called for the Chinese to allow a rise in the yuan’s value.

China did let the currency rise about 20% over three years starting in mid-2005. But it has moved very little since the summer of 2008. And few economists believe that the United States will be able to pressure a change in Chinese policy by itself.

"The Chinese do everything because of what it means to them internally. They don’t respond to outside pressure," said Jay Bryson, international economist with Wells Fargo Securities.

But Bryson is among the growing group of economists who believe the Chinese will allow the yuan to start to rise later this year. He expects it could gain as much as 15% between now and the end of 2011.

"I don’t think growth will be their issue a year from now. I think inflation will be the issue," he said. "One way to offset that is through a stronger exchange rate."

The typical view is that the Chinese government needs the yuan to be cheap to keep factories churning out exports and unemployment low. But a rise in the price of staples such as food can be an even greater problem, said Kurt Karl, an economist with Swiss Re.

"Inflation can be a real social problem," he said.

Other experts don’t agree. They believe that prices are still relatively in check in China and that the global recession hit Chinese exports hard, even with the low value of the yuan.

"This is not 2005 when the world was really a better place," said currency trader Ashraf Laidi, chief market strategist at CMC Markets. He expects the Chinese to allow only a modest rise in the yuan’s value, unlike the move in the middle of the last decade.

Calling China’s bluff? Some argue it will take a coordinated effort by the United States and European governments, using the World Trade Organization, to get the Chinese to change its stance on currency.

"I think significant appreciation is not in the cards if the Chinese are left to their own devices," said Simon Johnson, an economist and professor at the Massachusetts Institute of Technology.

But Johnson isn’t optimistic that the U.S. government will take the steps needed to build that kind of pressure. He said he doubts the Treasury Department will even characterize China as a currency manipulator in its next report to Congress on the topic on April 15, despite the massive intervention by the Chinese government to keep the yuan pegged to the dollar.

"Unless you label them a currency manipulator, you can’t do anything else," he said.

There are risks in pushing China to let the yuan rise, given the massive Chinese purchases of U.S. debt and dollars. If China sold or even stopped those purchases, it could cause Treasurys to fall in price, raising interest rates and possibly choking off the nascent economic recovery in the U.S..

But Johnson argued at a recent congressional hearing that such fears are unfounded. He said low U.S. inflation and only modest growth should keep a lid on rates and that is in China’s best interest not to cause a crash in the value of the Treasurys it holds.

"China’s threat to react by selling Treasurys is at worst a bluff, and at best a way to help the U.S. with a depreciation of the dollar," he testified. "This bluff should be called."

Johnson said this week he believes a stronger yuan would help the U.S. economy, but he doesn’t expect it will lead to a jump in hiring.

"This is not a jobs strategy. This will not make the recovery miraculously faster. You’re not getting those jobs back with very few exceptions," he said.

Not everyone believes the Chinese yuan is grossly undervalued.

Hedge fund manager Jim Chanos argues that estimates of the yuan’s value are based on inflated growth readings for the Chinese economy, and that he thinks China is a bubble that will pop relatively soon. But he admits that’s a minority view.

"If there’s one given out there in the financial markets right now, it’s that the yuan is undervalued," he said. "Anytime everyone in the markets believes something is a given, you might want to test the assumptions." 

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The projected gain in the index of purchase agreements, or pending home sales, is based on the median forecast of 40 economists surveyed by Bloomberg News and follows a record 16 percent drop in November. Other reports may show factory orders climbed and jobless claims fell.

The renewal of a government incentive to first-time buyers, originally due to expire at the end of November, and its expansion to include current owners has yet to lure buyers back into the market after helping boost sales in 2009. A lack of jobs and mounting foreclosures have depressed confidence, indicating housing will take time to rebound.

“The earlier surge in sales last year spurred hope of a quick housing recovery, but it now appears the recovery will be more slowly paced,” said Aaron Smith, an economist at Moody’s Economy.com in West Chester, Pennsylvania.

The National Association of Realtors is scheduled to release the report at 10 a.m. in Washington. Survey estimates ranged from a drop of 4.2 percent to an increase of 4 percent.

A 10 a.m. report from the Commerce Department may show a surge in demand for commercial aircraft fueled a 1.8 percent increase in factory orders in January, the biggest gain in four months. A report on bookings for durable goods last week showed orders for capital equipment may have dropped, signaling business investment paused to start the year.

Fewer Claims

First-time filings for jobless benefits dropped by 26,000 to 470,000 last week, according to the survey median before a Labor Department report due at 8:30 a.m. Claims jumped the prior week partly because government offices processed a backlog of applications in mid-Atlantic states and New England, where snowstorms hit earlier in February, a spokesman said.

Other figures from the Labor Department may show productivity increased at a revised 6 free credit score.3 percent annual pace in the fourth quarter

Improvement in the labor market is needed to propel the economic recovery and stem the surge in home foreclosures that is holding down prices. Foreclosure filings rose 15 percent in January compared with a year earlier and exceeded 300,000 for the 11th straight month, RealtyTrac Inc. said Feb. 11.

Sales Slump

Reports last week showed the housing recovery may be faltering. Sales of previously owned homes unexpectedly dropped 7.2 percent in January after a record decrease a month earlier, according to the Realtors report on Feb. 26. New-home sales fell to the lowest on record, the Commerce Department said Feb. 24.

The housing market will “follow a similar pattern” to recovery as it did in the late 1980s and early 1990s, which both took “several years,” Toll Brothers Inc. Chief Executive Officer Robert Toll said in a statement Feb. 24.

The company, the largest U.S. luxury-home builder, said its orders almost doubled in the first quarter compared with a year earlier. It projected it will sell between 2,100 and 2,750 homes in fiscal 2010 at an average price of $540,000 to $560,000.

Builder shares have beat the broader market so far this year after another provision in the legislation extending the tax credit allowed construction companies to use losses incurred in 2008 and 2009 to recoup taxes on profits going back as many as five years, three more years than usual. Lennar Corp., KB Home and Ryland Group Inc. are among builders that have reported quarterly profits because of the tax refunds.

Builder Shares

The Standard & Poor’s Supercomposite Homebuilding Index has increased 12 percent this year, compared with a 0.3 percent rise in broader S&P 500.

Billionaire Warren Buffett said last week the U.S. residential real estate slump will end by about 2011.

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International ETFs are especially hot in 2010, while those focused on specific industries such as utilities, banking and technology are also gaining assets.

By holding baskets of stocks, bonds or commodities, ETFs replicate indexes or sectors with a goal of low-cost diversification. ETFs are traded on an exchange so you can buy and sell during market hours, unlike a mutual fund in which you trade shares at the end of the day.

"I use ETFs mainly for targeted niche exposure because it is a good way to get at areas where a good mutual fund doesn’t exist," explained Mark Salzinger, editor of The Investor’s ETF Report in Brentwood, Tenn. "In all my client accounts I have both mutual funds and ETFs because I think a combination of the two is optimal."
His international ETF focus is on Chile and Brazil, neither available in its own mutual fund. The iShares MSCI Chile ETF is attractive because that country’s copper exports are in high demand from China and India as they build infrastructure, he said. Though riskier, the small-cap Market Vectors Brazil Small-Cap ETF lets an investor get deep into that burgeoning market, he said.

For those bullish on the U.S. economy, technology offers potential because tech companies have lots of cash, little debt and good product cycles, said Salzinger, who likes Vanguard Information Technology ETF in that industry.

While you must pay to trade ETFs, their annual fees are generally lower than even index mutual funds.

"There are also tax advantages with ETFs for non-tax-deferred accounts since they’re treated like a stock and you don’t have any tax issue until you sell them — unlike a mutual fund," said John Mauldin, president of the Dallas-based Millennium Wave Investments advisory firm.

Despite that advantage, ETFs shouldn’t be considered a "silver bullet" to win big in the current market, Mauldin cautioned. He recommends gradual investment in them rather than tossing a large chunk of money in a specialized niche.

Biotechnology ETFs are high on Mauldin’s list because of strong potential over the coming decade for new discoveries to drive that market. Health Care Select Sector SPDR and iShares Nasdaq Biotechnology Index Fund are the ETFs he recommends.

High-dividend payers such as Utilities Select Sector SPDR and iShares S&P Global Utilities Index Fund also merit consideration, he added. Investors aren’t receiving much in the way of returns and ETFs such as these would also cushion the blow of a bear market, he reasons.

"From a trading perspective, ETFs have the diversification and liquidity that you don’t have with individual stocks, while from an investing perspective you have both liquidity and greater tax efficiency," said Scott Burns, director of ETF Analysis for Morningstar Inc quick cash. in Chicago. "We like to say ETFs brought about the democratization of investing, since they opened up areas to invest previously only for large pension funds and endowments."

He’s a fan of regional banking ETFs. That group has lagged the overall financial sector and an expected period of increased commercial mortgage defaults should provide a buying opportunity when their stocks decline further. SPDR KBW Regional Banking ETF is his choice.

Health care, especially medical devices, gains Burns’ attention, as well. Even if the government changes the health care system, companies such as those included in the iShares Dow Jones U.S. Medical Devices ETF feature necessities such as artificial hips and knee replacements that people won’t skimp on. It is a high-margin business and the regulation risk that’s been factored into the industry’s stock prices is far beyond anything that could actually occur, he reckons.

Burns is not as high on corporate bonds as he once was and doesn’t like Treasuries at all right now. Investors buying iShares Barclays Aggregate Bond Fund ETF should understand fully that about 80 percent of the fund is in Treasuries right now, he cautioned.

The dilemma between choosing ETFs or mutual funds won’t go away. It’s important to know in what ways ETFs are a different animal.

"With ETFs there are transaction costs (through a broker to buy and sell), so if you’re putting in $200 a month the transaction costs will be chewing up your returns in a hurry," warned Burns. "There’s also a misconception that ETFs eliminate risk, which isn’t true, because while it is less risky to own 300 stocks instead of three stocks, there still is some risk involved."

On the other hand, the average cost of an ETF is 55 basis points, which compares to an average cost of 82 basis points for an index mutual fund and 125 basis points for an actively-managed mutual fund, Burns added.

"The vast majority of ETFs are index funds, you can buy an ETF from any discount brokerage for $10 to $15 and they have no investment minimums like mutual funds," Salzinger said in summing up the differences.

"Remember, you can buy or sell at any time during the day and, unlike a mutual fund, you’re not captive to the closing price on the day of the trade."

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Kirkland-based Recon Dynamics said it will use the signaling, tracking and monitoring technology of S5 Wireless to roll out its own tracking and telemetry services.

Recon Dynamics also said it’s appointed Perry Satterlee CEO. Satterlee was previously chief operating officer at Clearwire Corp cash advance to savings account. (NASDAQ: CLWR) in Kirkland.

“I believe Recon Dynamics is well positioned to meet the customer demand for enhanced tracking and monitoring solutions,” Satterlee said in a statement.

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There were 473,000 initial jobless claims filed in the week ended Feb. 13, up 31,000 from the previous week’s upwardly revised 442,000, the Labor Department said on Thursday.

A consensus estimate of economists surveyed by Briefing.com expected claims to slide to 438,000.

The 4-week moving average of initial claims, which levels out volatility, was 467,000, down 1,500 from the previous week’s revised average of 469,000.

"We may have had some weather effects," said Wells Fargo senior economist Mark Vitner, adding that the blizzards that battered the East Coast at the end of the previous week may have led people to delay filing unemployment claims to last week.

The 4-week moving average, he said, is a more accurate measure of where jobless claims currently stand.

"We’re better than we were a few months ago, but I think the labor market is not improving as rapidly as we had hoped," Vitner said.

The Labor Department said employers shed a modest 20,000 jobs in January — an improvement from the 150,000 that were lost in December — and that the unemployment rate fell to 9.7%.

Economists expect businesses to add 10,000 jobs in February, but project the unemployment rate will rise to 9.8%. Vitner, on the other hand, doesn’t expect nonfarm payrolls to move into positive territory until late spring.

Continuing claims: The number of people filing continuing claims in the week ended Feb. 6 was unchanged from the previous week’s revised 4,563,000 claims.

Economists were expecting continuing claims to fall to 4,500,000.

Continuing claims reflect people filing each week after their initial benefit week until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved into state or federal extensions, or people whose benefits have expired.

The 4-week moving average for ongoing claims fell by 24,000 to 4,585,750 from the previous week’s revised 4,609,750.

The slide may be signaling that more filers are dropping off those rolls into extended benefits.

State-by-state: Jobless claims in seven states declined by more than 1,000 in the week ended Feb. 6, the most recent state data available. Claims in California dropped the most, by 13,535, which the state attributed to fewer layoffs in the construction industry.

Claims rose by more than 1,000 in four states, increasing the most in Iowa. Filings rose there by 2,014 due to more layoffs in the construction industry, according to the state.  

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The timing and pace of deficit reduction is at the center of the campaign for the general election that Brown must call within weeks. David Cameron’s Conservative Party seized on a Feb. 14 letter whose signatories included four former Bank of England policy makers supporting the position that cuts are needed this year to keep the confidence of the markets.

Two letters published in the Financial Times disagree. Signatories for the first include Solow, 85, famous for his work on growth theory, and two former Bank of England deputy governors. It warns that “a sharp shock” now “would be positively dangerous.”

The second letter, signed by Stiglitz, 67, and economics professors including Robert Skidelsky, says that those who seek to “reassure the markets” are following the advice of those “whose mistakes precipitated the crisis in the first place.”

The letters offer relief for Brown and his finance minister, Alistair Darling, coming after Britain posted its first budget deficit for January since monthly data began in 1993. The longest recession on record has shriveled the nation’s tax take, and at more than 12 percent of gross domestic product, the U.K. budget deficit is on a par with that of Greece.

The 67 economists also undermine Conservative Treasury spokesman George Osborne’s Feb. 15 argument that there was a “consensus of economic opinion aligned with” his party.

Brown today will say that the opposition party’s “hatred of government action would risk the recovery,” according to extracts of a speech released by his Labour Party.

The Conservatives have led Labour in public opinion polls for two years. Still, Britain’s electoral system means Brown can retain power without winning the popular vote. He must call the election by June.

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Miami-based Premier American Bank won the judgment on Feb. 4 against Westpark Industrial LLC and managing member Bernardo Kopel. The 3.9-acre site, at the southeast corner of Northwest 110th Avenue and Northwest 17th Street, near the Dolphin Mall, is set for public auction on May 10 on the county’s Web site.

The developer started building four buildings with 11 office units and 35 office/warehouse units there. The foreclosure lawsuit was filed in January 2009 business cards.

Premier American Bank failed in January, and most of its loans were assigned to Bond Street Holdings subsidiary Premier American Bank N.A., which has a loss-sharing agreement with the Federal Deposit Insurance Corp.

This was one of 10 foreclosure lawsuits in South Florida against Kopel and his associated commercial and residential development companies.

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Net income for the three months ending Jan. 2 fell less than 1% to $844 million, or 44 cents per share, from a year ago.

Excluding one-time charges, Disney (DIS, Fortune 500) said it earned 47 cents per share. Analysts polled by Thomson Reuters, who typically strip out one-time items from their estimates, were looking for 38 cents per share.

Sales rose 1% to $9.7 billion, which beat analysts’ forecast of $9.66 billion.

"We are pleased with our first-quarter results and are excited about our creative pipeline, from upcoming movies like ‘Alice in Wonderland’ and ‘Toy Story 3′ to new attractions at our parks and resorts," said chief executive Robert Iger in a statement.

Comparing this year’s results to last year’s first quarter is a bit difficult, according to analysts, since this year’s earnings period included almost an extra week.

"I think it was a solid quarter, but there’s a little bit of confusion, because the last weekend of the quarter included New Years Day," said David Bank, an analyst from RBC Capital Markets. "They had a much more profitable last week of the quarter, which makes it a little bit more of apples to oranges."

A mixed bag from Disney units

Disney’s largest division — TV networks including ESPN and ABC — rebounded due to higher ad sales, with revenue rising 7%. Higher broadcast and cable ad sales also helped rivals News Corp (NWSA) and Time Warner Inc (TWX, Fortune 500). beat earnings expectations last week.

Revenue in the company’s movie studio and theme parks, which account for about half of Disney’s total revenue, were nearly flat.

Although the company had success with its first hand-drawn animated flick in years, "The Princess and the Frog," other launches such as "Old Dogs" failed to deliver payday loans in 1 hour. Disney reported a 1% drop in revenue in its studio entertainment division.

Disney shook up its top management during the quarter, swapping chief financial officer Tom Staggs with theme parks head Jay Rasulo.

Theme park and resort revenue was flat, in line with analyst expectations that the current recession would continue to keep attendance down at Disney’s vacation spots.

Hotel bookings are currently down about 10% from last year, but that number is not necessarily indicative of how they will fare for the second quarter, Rasulo said during a conference call with analysts Tuesday. Since the downturn, both consumers and advertisers are waiting until the last minute to make buying decisions, he said.

Rasulo noted that Disney’s goal is to slowly wean guests off major discounts at the theme parks, but at the same time, "we don’t believe we’re dealing with an economy that allows us to cut off the discounting immediately," he said.

During the call, Iger discussed the possibility of entering into a deal with Apple Inc’s (AAPL, Fortune 500) iPad, which he called a potential "game changer." Disney is talking about developing iPad products for ABC, Disney, ESPN’s ScoreCenter app and Marvel, he said.

Disney bought the Marvel Entertainment brand, which includes a catalog of more than 5,000 characters including Spiderman, The Incredible Hulk and X-Men, for about $4 billion in August.

Iger expects the brand to perform well in the video game market, especially for higher-end consoles, and Disney is also looking forward to revenue from toy sales and consumer products tied to the launch of their first Marvel film, "Iron Man 2" in May. 

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Brazilian sovereign bonds and Chinese yuan non-deliverable forwards are attractive, El-Erian, co-chief investment officer at Pacific Investment Management Co., said today in Sydney in a Bloomberg Television interview. Greece needs outside help as it tackles the European Union’s largest budget shortfall, he said.

Pimco portfolio managers are reducing their riskiest positions, said El-Erian, who shares his job title with Bill Gross. Debt strains in Greece, Portugal and Spain, along with the emphasis on non-developed markets, underscore Pimco’s view that 2010 will be a year of slower-than-average growth and a shrinking global role for the U.S. economy.

“We have been moving up in quality, which has meant certain sales of high-yield names,” said El-Erian, 51, who is also author of the book “When Markets Collide.” “We’ve been very selective on which sovereigns we are exposed to.”

The next six months will be healthy for the U.S. economy, though the expansion may slow after that, El-Erian said.

Emerging-market bonds rose today, pushing down the extra yield investors demand to own developing-nation dollar- denominated securities instead of U.S. Treasuries by eight basis points, or 0.08 percentage point, to 3.19 percentage points at 11:37 a.m. in New York, according to JPMorgan Chase & Co.’s EMBI+ Index.

‘Big Difference’

The U.S. will be able to withstand investor aversion to sovereign risk better than other nations, El-Erian said at an earlier press conference today during his trip to Sydney for a Reserve Bank of Australia symposium.

“It makes a big difference if you are the reserve currency,” he told reporters at the press conference. “It makes a big difference if you are the provider of the deepest and most predictable financial markets.”

Gross’s $210 billion Total Return Fund handed investors a 15 percent gain in the past year, beating half of its competitors, according to data compiled by Bloomberg.

$1 Trillion

The company, based in Newport Beach, California, has about $1 trillion in assets under management. It is a unit of Munich- based insurer Allianz SE.

The yield on Brazil’s benchmark zero-coupon bonds due in January 2011 rose four basis points to 10.28 percent, according to Bloomberg data.

The yield to the 2015 call date on Brazil’s 11 percent bond due in 2040, one of the most widely traded emerging-market securities, fell three basis points to 4.36 percent, according to JPMorgan Chase & Co. The bond’s price rose 0.2 cents on the dollar to 132.25 cents.

Brazil is poised to be Latin America’s first major country to raise borrowing costs after leading the region out of the global recession last year, according to Bloomberg News surveys of economists.

Pimco prefers Brazilian debt over that from “much of the G-7” countries in part because of the central bank’s “hawkish” inflation stance, Michael Gomez, a co-head of emerging markets, said in a Feb. 4 interview.

Loosen Controls

China will loosen currency controls in 2010 and allow the yuan to strengthen, Gomez said in a separate interview Dec. 10. International investors use forwards, agreements to buy and sell assets at current prices for delivery at a future specified time and date, to bet on the yuan. Non-deliverable contracts are settled in dollars.

China’s economy will expand 6 percent or more in the coming years, El-Erian said in today’s press conference.

Greece is trying to persuade financial markets it can restrain its budget shortfall without outside assistance, while borrowing costs are also climbing for Portugal and Spain. Credit-default swaps on the debt of all three countries rose to records last week, increasing demand for the relative safety of U.S. government securities.

Credit-default swaps are contracts designed to protect against or speculate on default.

Seven-Week Low

Ten-year Treasury yields fell to 3.53 percent on Feb. 5, the lowest in seven weeks. The 3.375 percent security due November 2019 yielded 3.60 percent as of 8:47 a.m. in London.

“As the sovereign risk moves out, it will have an impact on adjacent products,” El-Erian said at the press conference. “We have been selling certain corporates that we simply believe are too rich for this environment.”

The comments reiterate those from Paul McCulley, a member of the Pimco investment committee, who wrote in a report last month that the company is reducing risk.

Pimco calls its forecast for an extended period of lower- than-average economic growth the “new normal.”

The extra yield investors demand to own corporate debt instead of government bonds widened four basis points last week to 169 basis points, the most since the period ended Nov. 27, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index.

Greece, which had the European Union’s widest budget deficit at 12.7 percent of output last year, has struggled to convince investors it can bring the budget shortfall within the bloc’s limit of 3 percent.

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