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Confidence among U.S. consumers increased more than forecast in April, signaling the improving labor market is helping Americans weather rising fuel costs.

The Conference Board’s confidence index rose to 65.4 from a revised 63.8 reading in March, figures from the New York-based private research group showed today. The median forecast of economists surveyed by Bloomberg News called projected an advance to 64.5.

Six straight months of job growth along with joblessness at a two-year low in March are helping sustain consumer purchases, which account for about 70 percent of the economy. At the same time, bigger gains in sentiment may be difficult as households spend more for food and gasoline, which is at the highest level in almost three years.

“Confidence is picking up on the back of an improving labor market and rising stock prices, which are offsetting higher gasoline costs,” said Sal Guatieri, a senior economist at BMO Capital Markets Inc. in Toronto. “Consumers will have both the confidence and the income to keep spending.”

Stocks held earlier gains after the report on optimism over improving corporate earnings. The Standard & Poor’s 500 Index rose 0.4 percent to 1,340.8 at 10:17 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.34 percent from 3.37 percent late yesterday.

Home Prices

Another report today showed residential real estate prices dropped in February by the most in more than a year, a sign the housing market is struggling to stabilize.

The S&P/Case-Shiller index of property values in 20 cities fell 3.3 percent from February 2010, the biggest year-over-year decrease since November 2009.

Estimates for consumer confidence ranged from 57 to 68 in the Bloomberg survey of 69 economists. The measure averaged 97 during the expansion that ended in December 2007.

The group’s measure of present conditions increased to 39.6, the highest since November 2008, from 37.5 a month earlier. The gauge of expectations for the next six months rose to 82.6 from 81.3.

The share of consumers who said jobs are currently plentiful rose to 5.2 percent from 4.6 percent. Those who said jobs are hard to get decreased to 41.8 percent, the fewest since January 2009, from 44.4 percent.

Jobs Outlook

The outlook was less rosy. The percent of respondents expecting more jobs to become available in the next six months decreased to 17.5 from 19.6 the previous month. The share expecting incomes to rise over the next six months improved to 16.7 percent from 15.2 percent.

The report contained one positive bit of news for the housing market, which has lagged behind other parts of the economy since the recession ended in June 2009. The share of Americans planning to buy a house over the next six months increased to 5.5 percent, matching the record high reached in January 1978. Data go back to 1964.

Intentions to purchase automobiles and appliances also improved.

Fuel costs may be preventing bigger gains in confidence. The average price of regular fuel climbed to $3.87 a gallon yesterday, the highest level since August 2008, according to AAA, the nation’s biggest motoring organization.

Confidence ‘Fragile’

“The economic climate is still less than ideal, from a slow and uneven recovery to significantly rising commodity costs and fragile consumer confidence,” Jim Skinner, chief executive officer of McDonald’s Corp. (MCD), said on a conference call with analysts on April 21.

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The Italian foreign minister says Italy has recognized the opposition Libyan National Transitional Council as the only legitimate voice in Libya.

Foreign Minister Franco Frattini also said Monday that the departure of Libyan leader Moammar Gadhafi is a precondition to any solution to the conflict in the north African country and former Italian colony.

Frattini spoke after talks in Rome with the interim council’s foreign envoy.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

ROME (AP) _ Italy’s foreign minister says proposals by a Libyan envoy to end the crisis in the north African country are “not credible” because nothing was said about the departure of Moammar Gadhafi.

An envoy of Gadhafi told Greece’s prime minister Sunday that the Libyan leader was seeking a way out of the crisis.

But Foreign Minister Franco Frattini said Monday that the proposals were not credible because the departure of Gadhafi is a “pre-condition” to any settlement.

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In approving local drug maker KV Pharmaceutical Co.’s new prenatal drug, Makena, the Food and Drug Administration took a calculated risk

Investors are becoming more discriminating about European creditworthiness, increasing bets that Greece, Ireland and Portugal may restructure their debts while Spain and Italy survive the euro region’s deficit crisis.

The average annual cost of protecting of Greek, Irish and Portuguese bonds in the credit-default swaps market for five years exceeded the average of Spanish and Italian contracts by a record $496,000 this week. That’s up from $384,000 on Feb. 2 and $77,000 a year ago. Swaps on Greece signal a 60 percent probability of default in five years.

The division between peripheral nations widened this week after Greece was downgraded deeper into junk by Moody’s Investors Service and speculation increased that the European Union will fail to agree on a comprehensive package to end the crisis. Traders are betting Spain will avert an EU bailout as budget cuts and growth help repair its balance sheet.

“Spain has skillfully managed to navigate itself away from the sick list,” said Georg Grodzki, London-based head of credit research at Legal & General Investment Management, which oversees more than $500 billion. “If Spain continues structural reforms, especially in the labor market, it could start moving towards the core.”

Economic Overhaul

Spanish companies led by Banco Santander SA and Telefonica SA are reaping rewards from Prime Minister Jose Luis Rodriguez Zapatero’s economic overhaul, delivering the best bond returns among nations with the most corporate debt. Spanish company notes returned 1.4 percent this year, compared with 0.2 percent for the Bank of America Merrill Lynch Global Broad Market Corporate Index. The securities are the top performing of the dozen nations with the most debt in the index.

Credit-default swaps on Spain have tumbled to 250 basis points from 350 at the start of the year, while Italy has dropped to 179 from 240, according to CMA. Germany trades at 48 basis points. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

An overhaul of labor laws and pensions, increased job creation and the introduction of core-capital requirements for savings banks are among the reasons for Spain to outperform the region’s smaller economies, Morgan Stanley economist Daniele Antonucci and analysts Owen Roberts and Leef Dierks wrote in a note to investors published on March 7.

‘Growth Trajectory’

“Spain’s growth trajectory looks more reassuring than that of Greece and Portugal,” they wrote totally free credit score. “We think that Portugal is likely to double-dip, while growth in Greece should remain in negative territory.”

Spain this week raised 4 billion euros ($5.6 billion) in the first syndicated sale of bonds due in 15 or more years from a peripheral European nation since Italy issued 6 billion euros of notes due 2026 in September.

Credit swaps on Greece closed at a record 1,035 basis points yesterday from 800 basis points in February after Moody’s lowered its rating three steps to B1. The risk of default is rising because of lagging tax collection and “implementation risks” in the budget cuts demanded as a condition for a 110 billion-euro bailout last year, Moody’s said.

Greece will inflict losses of about 50 percent on investors and extend bond maturities by five to 10 years in a series of moves to reduce its debt, according to investors. Almost all the 400 people at this week’s Euromoney Bond Investor Congress in London expect a European nation to restructure in the “next couple of years,” according to a show of hands.

Irish Swaps

Swaps on Ireland, which became the second nation to request an EU bailout after the government was nearly sunk by the weight of guaranteeing its banking system’s debt in November, now cost 587.5 basis points and imply an almost 40 percent likelihood of default within five years, according to CMA.

Investors are betting Portugal will have to follow Greece and Ireland in asking for international aid as the cost of issuing debt becomes unsustainable. EU finance ministers are meeting tomorrow in Brussels to debate how to construct a comprehensive debt-support package ahead of a summit scheduled for March 24-25.

Portugal sold 1 billion euros of bonds due in 2013 at an average yield of 5.993 percent yesterday, compared with 4.086 percent at a Sept. 8 auction. The sale attracted bids for 1.6 times the amount offered, compared with a so-called bid-to-cover ratio of 1.9 six months ago.

Default swaps on Portugal soared to 497 basis points from 387 in February, suggesting about a 34 percent chance of default, according to CMA.

“The market is starting to price in that Portugal may have to come to the table,” said Brian Yelvington, head of fixed- income strategy at Knight Capital Americas LP in Greenwich, Connecticut. “Portugal and Ireland will be very, very political in the short run and force an eventual solution.”

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Nearly everything is going according to the plan Federal Reserve Chairman Ben Bernanke hatched six months ago.

During a speech in Jackson Hole, Wyo., on Aug. 27, Bernanke outlined an effort to spur economic growth, prevent prices from falling and push markets higher through the purchase of government bonds. Since then stocks have soared, the unemployment rate has dropped and Americans have started to spend more.

“It’s been a success,” says Bill Gross, who manages the world’s largest mutual fund at Pimco. Gross had skewered Bernanke’s attempt to boost the economy, comparing it to a Ponzi scheme. “It’s hard to dispute that since Jackson Hole the market is up around 25 percent.”

But the Fed’s $600 billion program to buy Treasurys ends in June. And investors like Gross are worried the stock and bond markets will fall without the Fed’s $75 billion monthly injection. “At the end of June, the biggest bond buyer steps away,” he says. “The markets could have a shock in store.”

And now there’s a different economic issue. Higher prices for food and energy have replaced a double-dip recession as the major concern for economists and investors. Bernanke begins two days of Congressional testimony Tuesday and is sure to face criticism that the bond-buying program known as quantitative easing is to blame.

On the surface, Bernanke’s speech in Jackson Hole was full of Fed-speak. But the language was clear to those in the audience at the Fed’s annual Board of Governors meeting in the Wyoming resort. “He was saying, ‘Whatever it takes we’re going to do,’” says Richard Hoey, chief economist at BNY Mellon. “It was a Rambo message.”

The move, which began in November, was unorthodox, but the logic was simple: Buying $600 billion in Treasurys would make borrowing cheaper and move investors out of low-yielding bonds into riskier investments like stocks. A rising stock market could then give Americans confidence in the economy and spur consumer spending, which leads to higher corporate profits.

A lot has happened in the markets and the economy since then _ most of it good.

_The unemployment rate dropped to 9 percent in January, the most recent month for which data is available. It was 9.6 percent in August.

_The Consumer Price Index rose 0.4 percent in January and 1.6 percent over the previous year. Prices rose 0.2 percent last August from the month before and just 1.1 percent over the previous year.

_The Standard & Poor’s 500 stock index is up 27 percent since Aug. 26, the day before Bernanke’s speech, powered by stronger corporate profits and people moving their savings into stock funds.

_Consumer spending has climbed seven months in a row. In the last quarter of 2010, it grew at the fastest pace in three years. Spending rose 0.2 percent in January, according to data released Monday.

“Measured in the fairest possible way, and by just about every measure, QE2 has succeeded so far,” says Anthony Chan, chief economist at JPMorgan’s wealth management unit no credit check payday loans. QE2 is market slang for the Fed’s quantitative easing program.

Long-term interest rates are the exception. They’ve been on a steady climb, until the recent turmoil in Egypt and Libya pulled them lower. The benchmark 10-year Treasury rate recently hit 3.50 percent. That’s up from 2.49 percent on Aug. 26. But rates fell after the Jackson Hole speech and then began rising on each bit of good news about the economy. Economists say that’s how it’s supposed to work. Interest rates typically rise during an economic recovery to compensate bond holders for the negative hit from inflation.

“When this stuff starts to work, interest rates go up,” Chan says. “Otherwise, it’s just not working.”

It’s another story if rates jump too quickly. “Obviously, higher rates can stop an economy dead in its tracks,” he says.

How could rising rates derail the Fed’s efforts? A common worry among investors is that the Fed proves too successful in pushing up prices and inflation gets out of control, leading to a spike in rates.

A similar but separate concern, Hoey says, is that people come to expect rampant inflation and begin preparing for it. Companies raise prices in anticipation. Investors ditch bonds en masse, interest rates jump and borrowing turns suddenly expensive.

“It has brought us closer to an unstable rise of inflation expectations,” he says. “There’s a risk of exceptional instability.”

Another danger: There will be nobody to replace the Fed when the program ends in June. “Who will buy when the fed stops buying?” Gross asks, rhetorically. “Who will take their place? Mutual funds like Pimco?”

That’s unlikely, he says, because investors have been pulling money out of bond funds. Other institutional investors, like insurances companies and banks, are beginning to put their money elsewhere. And even bond managers like Gross have been warning investors away from Treasurys for months. If rates rise too high and too quickly, they squelch the economic recovery and drive down stocks.

Jack Albin, chief investment officer at Harris Private Bank, worries that the U.S. could wind up with a similar experience to Japan’s. The Japanese central bank also managed to boost prices and spur economic growth through pushing money into financial markets starting in 2001. Bond yields began rising. But the benefits evaporated when the central bank pulled back.

“Maybe it was a problem of timing,” he says. “But once they took the quantitative easing programs off, the economy just sagged back to where it was before.”

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America’s chief tax man was in nice-guy mode today, promising to loosen the screws on delinguent taxpayers.

IRS Commissioner Doug Shulman said the IRS will let taxpayers run up bigger tax bills before filing tax liens against their property.  More taxpayers will also be eligible for a the IRS “offers in compromise” program, in which the IRS sometimes settles for less than the taxpayer owes.

“I always encourage employees of the IRS to try to walk in the taxpayers’ shoes,” Schulman told reporters in a teleconference today.  He said the changes will help taxpayers get a “fresh start.”

Under the new guidelines, the IRS will usually not file tax liens until delinquent debt tops $10,000, up from $5,000 presently.

The tax collectors will also generally withdraw liens when taxpayers agree to a direct-debit intallment agreement with debts of $25,000 or less.  

A tax lien is a government claim against the taxpayer’s property.  It can effect credit reports, hurting a taxpayer’s ability to obtain loans and find jobs.

Taxpayers with incomes up to $100,000 will be allowed to submit offers in compromise.  The program will admit people who owe up to $50,000, up from the current $25,000 limit.

The IRS sometimes agrees to settle for lesser payments “once we determine that you can’t pay now and there is no prospect of you paying it in the future,” Shulman said.

Small businesses owing $25,000 or less can enter into installment payment agreements, up from the previous $10,000 limit.

Shulman said the changes will probably make no difference in the amount of taxes the government collects but might increase collections.

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Hong Kong’s economy bounced back strongly last year thanks to strong growth in mainland China and the rest of Asia, the city’s finance chief said Wednesday while warning that rising inflation and property prices could undermine the recovery.

Financial Secretary John Tsang also said the government would release more land for development in a bid to keep a lid on surging property prices that risk stirring widespread anger.

The compact city’s government is also looking at other measures including reclaiming land from the sea and using rock caverns to house sewage treatment works and other services in order to free up land for housing.

“Today, our economy has fully recovered,” Tsang said in his annual budget speech.

However, “the risk of rising inflation is mounting in Asia” and efforts to tamp down prices are the government’s “major task this year,” he said.

Tsang said the strong economic recovery, as well as a weak U.S. dollar and rising global food and commodity prices would add to pressure for living costs to rise. Rising prices for food from mainland China as well as local rents are expected to have a “more noticeable effect” on inflation this year.

Tsang forecast inflation of 4.5 percent in 2011 while economic growth would ease to between 4 percent and 5 percent _ down from 6.8 percent last year.

In the following four years, GDP is forecast to expand 4 percent annually while inflation will average 3.5 per cent.

A property bubble poses a particular risk to the economy in 2011, Tsang said.

Hong Kong property prices have surged over the past year, driven by wealthy Chinese investors snapping up a limited supply of units and fueling fears of a bubble.

Low interest rates on plentiful mortgages have also helped fuel the boom. Because Hong Kong’s currency, the Hong Kong dollar, is pegged to the U.S. dollar, the southern Chinese financial center is also forced to adopt the same ultra-low interest rates the U.S. has been using to kickstart its economy.

And because the currency is pegged, it isn’t able to strengthen or weaken according to economic performance. Instead, prices of assets such as houses and apartments swing widely instead.

Tsang warned that the factors fueling the property boom could change.

“I have repeatedly reminded the public that an environment with abundant liquidity and ultra-low interest rates will not last forever. “

Tsang announced that 52 sites will be put up for sale in the year starting April 1 that will provide about 16,000 apartments, 70 percent more than the previous financial year.

Virtually all land in Hong Kong is owned by the government, which auctions it off to property developers.

Tsang said government engineers are examining the possibility of using of underground rock caverns for government facilities. Sewage treatment plants and service reservoirs could be relocated there so land could be used for housing.

The government will also examine locations outside of Hong Kong’s famed Victoria Harbor that could be used for land reclamation as it explores “new ways to increase the supply of land,” Tsang said.

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U.K. consumer confidence fell in January as rising taxes and soaring inflation put pressure on household budgets, Nationwide Building Society said.

An index of sentiment dropped 7 points to 47, almost erasing the 8-point gain in December, the customer-owned lender said in a report issued in London today. A measure of whether now is a good time to spend dropped 20 points to 70, the lowest since November 2008.

Prime Minister David Cameron’s government raised value- added tax last month as part of the biggest fiscal squeeze since World War II. Meanwhile, economic growth shrank in the fourth quarter as bad weather hampered activity, and inflation soared to a 26-month high of 4 percent last month.

“Consumer perceptions are likely to have been dented by the rise in VAT and the upward pressure on inflation,” Robert Gardner, chief economist at Swindon, England-based Nationwide, said in the report. “This will have put further pressure on household budgets.”

A gauge of consumers’ future expectations fell 10 points to 63 and an index of their view of the present situation slipped 2 points to 23, according to the report. TNS-RI interviewed 1,000 people for Nationwide between Dec. 20 and Jan. 23.

The decline in the confidence gauge “shows an understanding by households that the U.K.’s economic recovery is likely to remain choppy,” Gardner said. “It may be some months before we see significant positive movements.”

Consumers remained pessimistic about the U.K. housing market in January, expecting the value of their home to fall by 1.1 percent over the next six months, compared with a prediction of 0.9 percent in December, Nationwide said.

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The head of Japan’s central bank said the country lacks a sense of urgency to tackle the reforms needed to improve government finances that are in “very bad shape.”

Japan needs to raise its growth potential and improve its fiscal health, Bank of Japan Gov. Masaaki Shirakawa said Monday at the Foreign Correspondents’ Club of Japan.

“The country cannot continue to run deficits forever,” he said. “Therefore, society needs a credible commitment to fiscal reform.”

His comments come less than two weeks after Standard & Poor’s cut Japan’s credit rating for the first time in almost nine years. The move reminded the world of the country’s ballooning debt, now twice the size of gross domestic product, and highlighted questions about Prime Minister Naoto Kan’s ability to stem fiscal deterioration.

Kan has proposed a record 92.4 trillion yen ($1.1 trillion) budget for the next fiscal year starting April 1. He came under fire for his initial response to the S&P downgrade, which suggested that he did not understand what the move meant.

Shirakawa declined to comment on Kan’s words. But he blamed the country’s general complacency on the fact that right now, Japan overall stands on relatively sound financial footing.

Japanese companies are still profitable, and long-term interest rates are not rising, he said. The yen, a key international currency, has not depreciated, and the country has not seen any capital flight.

Recent signs suggest Japan is emerging from a temporary “pause” and performing at par with other advanced economies, Shirakawa said.

The country, however, faces looming issues that weigh on its future, such as a rapidly aging population, lackluster productivity and growing public debt. Japanese society, he said, is “losing a healthy sense of optimism.”

“Just as excessive optimism can generate an asset bubble, excessive pessimism can depress the economy,” Shirakawa said. “What is necessary is a strong will for reform and overcoming excessive pessimism.”

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India’s food inflation accelerated to a one-month high and services growth quickened, bolstering the case for more interest-rate increases.

An index measuring wholesale prices of agricultural products rose 17.05 percent in the week ended Jan. 22, the commerce ministry said in a statement in New Delhi today. The Purchasing Managers’ Index rose to 58.1 in January from 57.7 in December, according to HSBC Holdings Plc and Markit Economics. A reading above 50 indicates an expansion.

Asian economies from South Korea to China and India are facing inflation pressures, prompting the International Monetary Fund Managing Director Dominique Strauss-Kahn to say this week that central banks in the region need to raise borrowing costs further. The Reserve Bank of India on Jan. 25 boosted rates for the seventh time in a year and signaled more increases.

“Demand pressures are growing in India,” Jay Shankar, chief economist at Religare Capital Markets Ltd. in Mumbai, said before the release. “Food costs are also feeding into inflation.” He expects the central bank to increase rates by at least 100 basis points by December.

Eleven-year government bonds in January posted their first monthly loss since October on investor concern inflation in India will erode returns on the securities. The yield on the 8.13 percent bond due in September 2022 gained two basis points to 8.19 percent at 12:01 p.m. in Mumbai, after increasing 14 basis points in January.

The Bombay Stock Exchange’s Sensitive Index jumped 1.5 percent as of 12:01 p.m.

Onion Prices

India’s benchmark wholesale-price inflation index advanced 8.43 percent in December, led by higher food costs.

Onion prices, a staple in the local cuisine, surged 130 percent in the week ended Jan. 22, while eggs and meat rose 15 percent, today’s statement showed.

The government on Jan. 13 blamed the late arrival of rains for disrupting supplies of fruits and vegetables including onions. It said prices of milk, eggs, meat and fish have gained because of consumer demand, strengthened by rising incomes generated by economic expansion.

Prime Minister Manmohan Singh’s government is importing onions from Pakistan and has banned exports of lentils and edible oils.

Growth in India’s $1.3 trillion economy is being spurred by services such as telecommunications and banking, which make up almost three-fifths of the nation’s gross domestic product.

Phone Customers

Indian mobile-phone operators including Bharti Airtel Ltd. added 22.88 million new customers in November, a 3.24 percent increase from a month earlier. That’s the biggest gain since June and signals strong consumer demand in Asia’s third-largest economy.

Reserve Bank Governor Duvvuri Subbarao last month increased the key repurchase rate by a quarter of a percentage point to 6.5 percent and raised the inflation forecast to 7 percent by March 31 from the earlier prediction of 5.5 percent.

In South Korea, consumer-price gains breached the central bank’s 4 percent ceiling in January, the government said Feb. 1. Indonesian inflation quickened and input prices rose in China, separate reports showed this week.

Thailand and South Korea increased rates last month and China’s central bank has moved twice since mid-October and also pushed banks’ reserve requirements to the highest in more than two decades. Bank Indonesia has kept its policy rate at 6.5 percent since August 2009, delaying an increase to avoid attracting more capital inflows. Indonesia is scheduled to announce its next rate decision tomorrow.

Asian economies led a global recovery last year that’s been restrained by Europe’s sovereign-debt crisis and a U.S. job market where unemployment has exceeded 9 percent since May 2009.

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