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Spain’s economic slump longer than thought, but easing

These are stories Report on Business is following Thursday, Aug. 29 2013.

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Spanish economy close to stabilizing

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Spain's shrinking economy came close to stabilizing between April and June but its slump started three months earlier than previously thought, data showed on Thursday.

Gross domestic product contracted 0.1 per cent in the first quarter from a quarter earlier, the National Statistics Institute (INE) said, in line with forecasts and a preliminary reading.

Spanish exports are recovering but domestic demand has remained weak, contributing to a slowing of consumer inflation, which separate data showed hit a four-month low of 1.5 per cent in August.

The 0.1-per-cent drop in output was the smallest since the second quarter of 2011 when the economy started to contract, with a rise in exports not strong enough to offset weak domestic demand and inflation easing as the recession dragged on.

INE revised its quarterly growth data back to the beginning of 2009. The earlier figures had pegged the beginning of the slump to the third quarter of 2011.

Spain has been in and out of recession since a decade-long property bubble burst in 2008 and, with unemployment at around 27 per cent, is expected to remain in an economic slump for at least another year.

Although better-than-expected growth figures from its European neighbours, including Germany, Britain and France, which alone account for over a third of Spain's total exports, could help it emerge from recession before the end of the year, recovery is expected to be gradual.

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"Much of what we're seeing in the first and second quarters has been distorted by Easter falling in March this year after April last year. We can see that Spain is slowly on the mend, but it's going to take years and recovery will be very sluggish," said economist at Jefferies David Owen.

On an annual basis, second quarter GDP shrank 1.6 per cent after a drop of 2 per cent January to March, INE said, better than a Reuters forecast and preliminary reading of a 1.7 per cent contraction.

Paul Day/Reuters

Verizon, Vodafone talks over joint wireless venture reopen

In Streetwise, the Globe's Boyd Erman notes that answers seem to be emerging about Verizon Communication Inc.'s sudden pullback from the Canadian market.

He writes that The Wall Street Journal reported Wednesday evening that Verizon and Vodafone Group have reopened previously stalled talks about a buyout by Verizon of their jointly owned Verizon Wireless business in the U.S at a price likely to be more than $100-million.

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Read the Streetwise item here: Chances of Verizon coming north shrink as focus shifts to home market

Wall Street gains on data, but Syria caution lingers

U.S. stocks rose on Thursday on strong economic data and a possible large deal between Vodafone and Verizon, as a possible Western military strike on Syria appeared to be delayed for now.

Data showed the U.S. economy grew more quickly than expected in the second quarter thanks to a surge in exports. The report, alongside data suggesting a strengthening in job numbers in August, could bolster the case for the Federal Reserve to soon wind down a major economic stimulus program that has been a pillar of the rally in equities this year.

The numbers show the economic recovery may have started in the first half of the year and the economy is strong enough to allow for the Fed to scale back its stimulus, said Phil Orlando, chief equity market strategist at Federated Investors in New York.

U.S.-traded shares of Vodafone Group jumped 8.4 per cent to $31.89 after the company said it was in talks with Verizon Communications to sell its 45-per-cent stake in their U.S. joint venture, Verizon Wireless. Verizon shares rose 3.4 percent to $48.15.

Merger and acquisition activity "tells us companies have a lot of firepower, the ability to use cash, a lot of debt they could utilize and currency for stock deals, all that is positive" for the market, Orlando said.

Retaliation over the Syrian government's alleged chemical weapons attack on civilians could be delayed, not only by the U.N. weapons inspectors' continued presence in Syria, but by the Obama administration's efforts to coordinate with international partners and growing demands for consultation with U.S. lawmakers.

"There's a lot of uncertainty as Western powers have taken a step back, so the market is encouraged of some stepping back from the brink," said Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois.

The Dow Jones industrial average rose 28.74 points, or 0.19 per cent, to 14,853.25, the S&P 500 gained 4.43 points, or 0.27 per cent, to 1,639.39 and the Nasdaq Composite added 22.033 points, or 0.61 percent, to 3,615.382.

In Toronto, the TSX/S&P composite index was up 98.87 or 0.78 per cent at 12,706.09 just before noon.

Reuters

For more market coverage: Market Updates

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