By Sharon L. Crenson

March 15 (Bloomberg) -- Tighter credit standards among mortgage lenders might lower U.S. home prices by 10 percent this year and push the economy into recession, a Merrill Lynch & Co. analyst said in a report.

New Century Financial Corp., the second-biggest subprime lender and other mortgage companies may fail as the number of customers falling behind on payments rose to a four-year high. More than 20 subprime lenders have closed or sought buyers since the start of 2006 and bank regulators are pushing lenders to raise credit standards.

``Even if the pullback is only aimed at the subprime market, there could well be potentially significant further drags on home prices, construction activity and of course consumer spending growth,'' Merrill's David Rosenberg said in a note to investors.

Declines in home prices would have an effect on everything from furniture and appliance sales to landscaping and the price of copper. That would drive unemployment above 5 percent by the end of the year and the probability of a recession to ``very close to 100 percent'' unless the Federal Reserve cut benchmark interest rates by a full percentage point, Rosenberg said.

``What we are concerned about most are the knock-on effects from the pullback,'' Rosenberg said.

Rosenberg has long had a pessimistic view of the U.S. economy. In May 2005, he predicted the Fed would stop lifting interest rates at 3.25 percent and be forced to reduce them by the end of 2006. The Fed didn't pause until August last year -- at 5.25 percent. In October, Rosenberg forecast the Fed would cut rates by 50 basis points before the end of March.

Housing Inventory

In a March 1 report, CreditSights Inc. said rising mortgage defaults by subprime borrowers may add more than 533,000 homes to the market. That would increase inventory of new and existing of homes by about 13 percent. The National Association of Realtors and the U.S. Commerce Department said 4.09 million homes were for sale in January.

Rosenberg estimated that subprime loans boosted home sales by at least 20 percent annually and the loss of that market might shave half a percentage point from the Gross Domestic Product.

The Fed raised its benchmark rate to 5.25 percent in June, compared with an average target of 3.2 percent in 2005, a year when net new mortgage borrowing soared by a record $1 trillion.

Federal Reserve Chairman Ben Bernanke has identified 1 percent to 2 percent as his preferred range for the inflation gauge most closely monitored by the central bank. The measure, which excludes food and energy costs, rose 2.3 percent in the 12 months to February.

Economists surveyed by Bloomberg News forecast the Fed will hold the rate through the third quarter, according to the median estimate.

`Short-Term Shock'

David Nissen, who as chief executive officer of GE Money oversees WMC Mortgage, the fifth-largest subprime lender in the U.S., said tightening credit solved the structural issues that caused the current mortgage crisis. WMC contributed less than $100 million of the parent company's $20.8 billion in net income last year.

``This is a short-term shock,'' Nissen said. ``By the end of 2007 this will have played out.''

Burbank, California-based WMC Mortgage, General Electric Co.'s U.S. mortgage unit, fired 20 percent of its staff last week and stopped making loans to borrowers with low credit scores.

``Borrowers will feel the pinch over the next couple of years,'' Nissen said. ``There's lots of liquidity in the market and as long as jobs hang in there and there's low unemployment, the economy will be good in the United States, not great.''

Mortgage borrowing rose by $792.5 billion last year, the smallest gain since 2002, according to the Fed's quarterly Flow of Funds report. The increase last quarter was the smallest since 1998, as two years of Fed interest-rate increases depressed loan demand and slowed the housing industry.

``The market is working,'' Doug Duncan, chief economist for the Mortgage Bankers Association, said yesterday as the Washington-based group released is quarterly report on delinquencies and foreclosures.

To contact the reporter on this story: Sharon L. Crenson in New York at screnson@bloomberg.net 

article taken from www.bloomberg.com

BEIJING (AFP) - A Chinese lawmaker has tabled a motion to oust US coffeehouse Starbucks from the Forbidden City, one of Beijing's leading tourist attractions, adding another voice to an ongoing cultural clash.

"Starbucks must move out of the imperial palace immediately, and it can no longer be allowed to taint China's national culture," Xinhua news agency quoted Jiang Hongbin, a delegate to the current National People's Congress, as saying.

"As long as it stays in the imperial palace, it poses a challenge to our traditional culture."

Jiang, who hails from China's northeastern province of Heilongjiang, said that he had tabled a motion to kick Starbucks out of the 587-year old imperial palace, the report said.

However, no record of the motion could be found amid more than 1,000 proposals tabled at this year's 12-day session of the rubber stamp parliament.

Jiang's comments follow a noisy Internet campaign launched earlier this year by television personality Rui Chenggang that garnered up to a half a million supporters in favor of shutting down the Starbucks store.

The coffee shop has been embroiled in controversy since it opened at the site in 2000.

According to Xinhua, up to seven million visitors visit the imperial palace every year.

Rent paid by Starbucks is used for maintenance of the palace, according to museum managers, the report said.

"But we should know not everything can be exchanged for money even in the market economy. The Forbidden City is one of the untradable products as its value cannot be measured with money," Jiang said.

article from www.yahoo7.com.au