Europe and Britain
The FTSE, DAX and CAC, after reaching their best levels in months, paused and gave ground on profit taking and unease over weaker-than-expected U.S. retail sales and consumer confidence. The indexes continue to be clearly affected by an obsessive fixation on U.S. data.

The European finance ministers at their Ecofin meeting took turns bashing the French budget. Smaller EMU members such as the Netherlands were particularly critical of French flaunting of EMU rules. The stability and growth pact, which was originally designed by Germany to keep prolific spenders in line, stipulates that fiscal budgetary deficits cannot be higher than 3 percent of GDP. France, Germany and Italy, pressed by recessions nationally, have scorned the treaty and have violated the ceiling. France has been especially vocal in its condemnation of the treaty and has become the focus of other countries' ire.

Asia
Japan is approaching an important date in its financial calendar - the fiscal half year which ends on September 30th. Investors in Japan's stock market have been cheerful of late. The Topix index has risen by 35 percent since March, driven in part by better macroeconomic news. But weary Japan watchers warn that sustained recoveries have appeared to be on the way three times in the past decade, only to give way to slow, demoralizing slides. Yet optimists do not agree - this time, they sense caution may mean forgoing big gains.

Overseas investors may come to the rescue of Japanese stocks in September, which has been the Nikkei's worst month over the past 54 years. The benchmark has fallen in three out of every five Septembers since the Tokyo Stock Exchange began, losing an average 0.8 percent in the month, according to Nomura Research Institute Ltd.

The end of the first half of the fiscal year presents a deadline for companies to sell their holdings in affiliates. The selling has increased since a change in accounting rules in March 2002 forced companies to value their equity holdings at market price rather than purchase price, which greatly overstates their value. Japan's government has demanded that lenders reduce such holdings to within the level of their tier 1 capital by September 2006. Tier 1 capital is used to meet regulatory requirements that force lenders to set aside capital to cover potential losses on loans.

Overseas investors bought at least ¥1 trillion more shares than they sold for the third month in August. As a group, they have been net buyers since the week ended April 18th, the longest streak since the five days ended May 24, 1996, when they were net buyers for 27 straight weeks.

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