Houston Chronicle
by R.G. Ratcliffe and Jeannie Kever
Web Posted on www.MySanAntonio.com/Education: 07/15/2010 12:18 CDT

AUSTIN — Fearing unstable international financial markets and the possibility of high inflation, Texas’ higher education investment managers have bought more than $500 million in gold.

The purchases represent only 3 percent of the University of Texas Investment Management Co.’s $22.3 billion in investment funds, but it indicates how deeply the fund managers are concerned about the global financial future.

With the state’s endowment funds designed to generate a 5.1 percent distribution each year to the University of Texas and Texas A&M University, it’s rare for the investment managers to put large sums of money into a commodity whose value usually grows only through inflation.

“If there’s no inflation, that dollar today in gold a year from now should be worth a dollar, UTIMCO CEO Bruce Zimmerman told the University of Texas board of regents Wednesday. “If there is inflation, then a dollar of gold should be worth a dollar plus inflation,” he said.

“Recently we’ve added 3 percent ... of our portfolio, into gold as a protection against inflation, but even more as a lack of confidence in financial markets due to extraordinary government fiscal and monetary stimulus,” Zimmerman said.

“I wish I could tell you the future looked rosy. Unfortunately, that’s not our view. At best, we believe the future is uncertain.”

Two of Texas’ other large state investment funds, the Teacher Retirement System of Texas and the Permanent School Fund for the public schools, haven’t bought gold recently, according to spokesmen.

Other UTIMCO executives suggested the endowments have begun to recover from the staggering losses of 2008 and early 2009.

UTIMCO manages investments for all UT system schools and for the Permanent University Fund, which provides money to both UT and A&M. Its assets dropped by almost $3 billion, to $20.5 billion, in 2009.

It’s now back up to $22.3 billion.

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According to the FDIC website, 103 banks have failed thus far in 2010.  In addition to the 140 that failed in 2009, the total is 236 - and counting.   In May, CNN reported that the problem bank list had reached 775.

Problem bank list hits 775

By David Ellis, staff writer, May 20, 2010: 12:51 PM ET

NEW YORK (CNNMoney.com) -- The government's list of troubled banks climbed to its highest level since 1992 in the first quarter, although the pace of growth moderated, according to a government report published Thursday.

The numbers, published as part of a broader survey on the nation's banking system by the Federal Deposit Insurance Corporation, revealed that the number of banks at risk of failing climbed to 775 during the first quarter.

That figure stood at 702 in the fourth quarter of 2009. A year ago, the number of banks on the FDIC's watch list was 305. Loan losses, particularly in areas like commercial real estate, have hit many lenders hard.

Still, the fact that the number of problem banks rose by just 10% from the end of the year may suggesting that some of the festering troubles in the industry are starting to subside.

That figure stood at 702 in the fourth quarter of 2009. A year ago, the number of banks on the FDIC's watch list was 305. Loan losses, particularly in areas like commercial real estate, have hit many lenders hard.

Still, the fact that the number of problem banks rose by just 10% from the end of the year may suggesting that some of the festering troubles in the industry are starting to subside.

"You can clearly see the rise in problem institutions moderated in the first quarter," said FDIC Chairman Sheila Bair.

Banks that end up on the problem list are considered the most likely to fail. But few of the lenders on the list actually reach the point of failure. On average, just 13% of banks on the FDIC's problem list have been seized and shuttered by regulators.

The names of the banks on the list are never made available to the general public by regulators out of fear that depositors at those institutions may prompt a so-called "run on the bank.

Problems peaking? The FDIC also reported a much-needed increase in its deposit insurance fund, which covers customer deposits when a bank fails.

The fund grew by $145 million during the quarter -- the first increase in two years. It still continues to operate in the red however, reporting a deficit of $20.7 billion. That number also takes into account money the agency set aside in anticipation of future bank failures.

So far this year, 72 banks have failed. Bair said Thursday she expected that number to continue to climb, with smaller institutions among the most likely victims.

She noted however, that the agency was expecting the number of failures to peak at some point this year given that there are signs of improvement in some loan categories. She added that many troubled firms have been helped after locating new sources of capital.

Overall, the report painted a more healthy picture of the banking industry than a year ago.

Banks and other institutions insured by the FDIC collectively earned approximately $18 billion during the quarter. That's the highest profit since the first quarter of 2008 and was a more than three-fold increase from a year ago.

Much of that jump was attributed to big banks like Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500), who returned to profitability in the latest quarter.

Another notable aspect of the latest quarterly report was a decline in the number of institutions insured by the FDIC to below 8,000. That's the first time that's happened in the agency's 76-year history. Two decades ago, the FDIC insured more than 16,000 institutions nationwide.

The latest reading on the health of the industry provided little boost to bank stocks Thursday, however.

The KBW Banking index fell more than 3% respectively in midday trading on broader fears about the European debt crisis and uncertainty regarding Wall Street reform efforts in Washington.

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By Louis Charbonneau

UNITED NATIONS | Tue Jun 29, 2010 4:56pm EDT

UNITED NATIONS (Reuters) - A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

But several European officials attending a high-level meeting of the U.N. Economic and Social Council countered by saying that the market, not politicians, would determine what currencies countries would keep on hand for reserves.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.

The report says that developing countries have been hit by the U.S. dollar's loss of value in recent years.

"Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s," it said.

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.

The report said a new reserve system "must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity -- such as SDRs -- to create a more stable global financial system."

"Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development," it said.

MARKETS DECIDE

Jomo Kwame Sundaram, a Malaysian economist and the U.N. assistant secretary general for economic development, told a news conference that "there's going to be resistance" to the idea.

"In the whole post-war period, we've essentially had a dollar-based system," he said, adding that the gradual emission of SDRs could help countries phase out the dollar.

Nobel Prize-winning economist Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, has advocated the creation of a new reserve currency system, possibly based on SDRs.

Russia and China have also supported the idea.

But Paavo Vayrynen, Finland's Foreign Trade and Development Minister, told reporters that he doubted it was possible "to make any political or administrative decisions how to formulate the currency system in the world."

"It is based on the markets," he said. "I believe that the economic players in the market are going to have the decisive influence on that issue."

European Union development commissioner Andris Piebalgs said it would be a bad idea to dictate what the reserve currency should be.

"It is markets that decide," he said. "Any intervention would just create additional challenges and make things even less predictable."

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By Rodrigo Campos

On Wednesday July 21, 2010, 5:35 pm EDT

NEW YORK (Reuters) - Federal Reserve Chairman Ben Bernanke's dour assessment of the U.S. recovery hit stocks on Wednesday, as his comment that the economy faced "unusually uncertain" prospects rattled investors.

Stocks tumbled after Bernanke acknowledged the labor market's continued weakness while offering few specific options to stimulate lending and investment.

"The market sold off because unfortunately there is no remedy provided in Bernanke's commentary to the rising threat of deflation, the excess capacity in the economy and the malfunctioning of the credit system," said Joe Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania.

"We are now giving up on the notion of a standard recovery in the U.S. economy."

The Dow Jones industrial average (DJI:^DJI - News) lost 109.51 points, or 1.07 percent, to 10,120.45. The Standard & Poor's 500 (^SPX - News) fell 13.91 points, or 1.28 percent, to 1,069.57. The Nasdaq Composite (Nasdaq:^IXIC - News) dropped 35.16 points, or 1.58 percent, to 2,187.33.

Bernanke spoke to the Senate Banking Committee in the first of two days of his semiannual testimony to Congress.

His downbeat remarks sapped most of the buying interest even after a spate of strong earnings reports prior to the market's open. Morgan Stanley (NYSE:MS - News) was one of the day's few big winners after it reported stronger-than-expected profit, lifted by new business. Its stock shot up 6.3 percent to $26.80.

Apple Inc (NasdaqGS:AAPL - News) rose 0.9 percent to $254.24 after it posted robust quarterly results, but the company's conservative margin forecast limited gains.

Another financial stock showing strength was Wells Fargo & Co (NYSE:WFC - News), which rose 0.6 percent to $26.06 after rising loan demand helped lift its earnings more than analysts had expected.

After the closing bell, cellphone chip supplier Qualcomm Inc (NasdaqGS:QCOM - News) rose 4 percent to $37.59 on news its quarterly earnings and revenue beat Wall Street's estimates on strong smartphone demand.

Online marketplace eBay Inc (NasdaqGS:EBAY - News) added 4.1 percent to $20.99 in extended-hours trading as it beat Wall Street's quarterly profit estimates, helped by a record performance at its PayPal service.

The benchmark S&P 500 found support during the regular session at its 14-day moving average and held above 1,060, a critical level according to some technical analysts.

Investors have been reluctant to make big commitments in equities due to growing worry about the economic outlook, sparked by disappointing economic data.

"Considering everything the (Fed has) done already, it will be alarming when the time comes that they feel they need to do more," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

Weighing on the Nasdaq were shares of Internet company Yahoo (NasdaqGS:YHOO - News), down 8.5 percent to $13.91 a day after it posted revenue that missed Wall Street's estimates.

About 8.68 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 2 to 1, while for every stock that rose on the Nasdaq, about three fell.

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By: Daryl Guppy
CNBC Contributor
Published: Thursday, 15 Jul 2010 | 1:29 AM ET

Seeing there's been quite a bit of interest in my recent comments on CNBC about the historical parallels between the Great Depression and the recent financial crisis, I thought it may be appropriate to elaborate further on the chart technicals behind the observation.

The causes may have been different, but the collapse of the U.S. markets in early 2008 followed the same behavioral patterns as the collapse in 1929. The recovery pattern seen in 2010, is also very similar to that developed in 1930.

Dow Monthly 1929-1930

The crash of the Dow Jones Industrials in 1929 was signaled by the development of a well defined head and shoulder pattern, seen most clearly in its monthly chart. It is a reliable pattern that captures the behavior of investors who are becoming increasingly disillusioned about the future prospects for economic growth.

The downside pattern targets in the 1929 Dow were exceeded with a fall of around 49% before the market recovered in 1930. The 2008 dow pattern targets were also exceeded with a market fall of around 52%.

In 1930, the market developed an inverted head and shoulder rebound pattern recovery that led to a 46% rise in the market.  The Dow rebound in 2009 also developed from an inverted head and shoulder pattern. This was a powerful rise of around 69%.

The historical development of the recovery in the DOW in 1930 ended with a new head and shoulder pattern. This was followed by a rapid market decline that created the first part of a long term double dip pattern. This retreat also exceeded the pattern projection targets with a fall of 28%.

Fast forward to today, we're seeing the Dow is developing a new head and shoulder pattern which indicates a beginning of a bear market. The rally peaks in the Dow appear in January and May and June. The downside projection taken from the neckline of the pattern sets a target at 8,400, or a 25% decline.

A very bearish analysis using the pattern of retreat behavior in 1930 suggests the Dow could retreat to around 7,500 in 2010.

The head and shoulder pattern in the Dow and its downside targets, are invalidated with a sustainable rise above 10,600.  A move above this level does not signal a resumption of the uptrend, but it does reduce the probability of a double dip.

It must be noted that while the behavioral patterns in 1930 and 2010 are similar, they don't necessary point to the same result. But it does sound a warning that markets could continue to stand on the edge of a precipice. 

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

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The number of N.C. state-chartered banks in trouble increased 74 percent since October, as delinquent loans and declining real estate values took a toll.

Nearly half of North Carolina's 86 state-chartered banks are on N.C. regulators' list of troubled institutions, up 74 percent in less than a year and a grim record that underscores the strain of the multiyear downturn.

The tally of 40 troubled banks compares with 23 in October 2009. Typically, there are only two or three on the list.

Regulators are legally barred from disclosing individual bank names or ratings. Doing so could risk a "run" on deposits, which could prevent banks from working through problems.

However, banks where conditions have deteriorated significantly are made public. In North Carolina, there are seven of those, according to state and federal regulators' records.

"We work hard every day to try to resolve those situations without failure," said N.C. banking commissioner Joseph Smith. "I can't promise you they're all going to work out."

However, he expects the number of failures to come will "be low, if we have any."

Mergers are one way to avert failure. On Friday, a Virginia bank announced plans to buy one of the seven most distressed N.C. banks, The Bank of Currituck. The bank has six branches in the state's northeastern area, including three on the Outer Banks. The deal is expected to close this fall.

Banks, struggling through the national economic crisis, are plagued by plunging real estate values, delinquent loans and weak loan demand. Locally and nationwide, job losses, weak consumer spending and struggling businesses have made it harder for people to repay mortgages, credit cards and other debt.

Harry Davis, an economist for the N.C. Bankers Association, was surprised by the growth in the number of troubled banks. However, like Smith, he doesn't anticipate a large number of failures.

"The reason there are so many problem banks right now isn't because they were poorly managed," said Davis, who is also an Appalachian State University banking professor. "It's because the absolute bottom has fallen out of the economy."

So far, North Carolina has had only two bank failures, both last year in Wilmington. Some states have lost many more banks. Georgia has accounted for 41 of the 288 failures nationwide since Jan. 1, 2008, according to the Federal Deposit Insurance Corp.

On Friday, two S.C. lenders failed, bringing the state's loss tally to three. All have been federally chartered firms, including the Myrtle Beach bank that failed in April. Friday's casualties were First National Bank of The South in Spartanburg and a coastal S.C. thrift, Woodlands Bank, near Hilton Head.

South Carolina, with 49 state-chartered banks, doesn't maintain "a bank watchlist or a list of banks we're concerned about," said Scott Malyerck, the deputy state treasurer. An Observer review of federal regulatory websites found five state-chartered banks identified as operating under greater regulatory scrutiny.

State-chartered banks are typically community, midsize and regional banks. North Carolina's largest is BB&T, based in Winston-Salem, which passed the federal government's worst-case scenario stress test last year and repaid federal bailout dollars.

National firms, such as Bank of America, are not regulated by the state and so could not be on its troubled list.

The most troubled Carolinas banks - those publicly disclosed - are all smaller banks, which are most likely to lend in their immediate area. That means local woes can quickly yield losses. They also are less likely than large banks to have other revenue, such as investment banking fees, to make up for consumer and small business slumps.

Bank of Granite, for example, is heavily concentrated in Caldwell and Catawba counties, which have been hurt by job losses in the furniture and textile industries. The bank, once lauded by Warren Buffett as one of the nation's best-run community banks, has been operating under a so-called "cease-and-desist" order since August 2009. Those regulatory orders typically direct banks to take specific steps to improve their financial health.

Adding to the pressure, new overdraft fee regulations are expected to reduce what can be an important income stream for small banks.

The last time North Carolina had a lot of troubled banks was about 1990, when 18 of 44 were on the state regulators' watch list. That was 41 percent of the state-chartered tally, compared with 47 percent now. Back then, only one bank failed.

What's next for the industry?

UNC Chapel Hill banking professor Lissa Broome has heard bankers and bank directors talking about declining scores this year.

"We've been relatively blessed," Broome said, noting there have been only two failures. "We're going to have to figure out how to fix the troubled banks."

That's a tough assignment because real estate lending, a key income source for smaller banks, isn't likely to bounce back for a year, maybe several. Commissioner Smith's agenda for getting banks back to health includes helping them generate loan demand, raise capital and pursue mergers.

He faces a delicate balance of not overstepping his role as regulator and becoming a consultant.

"We're not in the business of telling people exactly what to do," he said. However, "we want to encourage banks to keep them healthy."

Smith is working with bankers and the state's small business task force to encourage greater use of government-guaranteed loans, such as U.S. Small Business Administration offerings. Those loans, largely backed by the government, can enable banks to spread around scarce dollars.

Smith, like other experts, also says there are deep-pocketed investors seeking bargains.

"Without apology, I've been working with our banks to attract capital into North Carolina," he said.

Those efforts could lead to consolidation, which Smith views with mixed feelings. He wants to maintain a diversity of banking statewide, including community banks, but smaller banks may be more likely investor targets. Smith says the current investment discussions could be "laying the foundations for some regional banks" that would serve the Carolinas and Virginia.

Smith, a lawyer who has been the state's banking commissioner since 2002, empathizes with the plight of bankers today but calls the problems "resolvable." He sees banks strengthening over the next three to four years.

"I persist in the belief that our system has integrity, and people should trust the banks," he said. "We're trying like heck to help them restructure their business plans."

He also cautions bank customers not to panic. N.C. regulators have said no customers lost money in the state's two failures of this downturn, although investor stakes were wiped out.

Depositors are insured up to $250,000, with higher limits for certain business accounts. There's no similar protection for investors.

"If you're over the insurance deposit limits, get under them," Smith said. "If you're under, you're safe."

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by Matt Day of Dow Jones Newswires, July 15, 2010

NEW YORK (Dow Jones)--Gold futures ended with small gains, but were largely unchanged as a set of mixed U.S. and Chinese indicators clouded an already hazy economic picture.

The most actively traded contract, for August delivery, settled up $1.30, at $1,208.30 an ounce on the Comex division of the New York Mercantile Exchange.

Futures closed within $15 of the $1,200 an ounce mark for the tenth consecutive day Thursday, as the uncertain economic outlook has provided little direction for precious metals prices.

"We're in a sort of holding pattern," said Caesar Bryan, portfolio manager of GAMCO's Gold Fund. "The commentators seem to be somewhat cautious about gold, but the price doesn't seem to want to go down."

Futures were supported Thursday by a falling dollar, as the greenback fell to two-month lows against the euro following successful European debt auctions. Gold prices have historically moved inversely to the dollar. Some invest in the metal as an alternative currency or as a hedge against inflation.

Gold prices rose to record highs in May and June as the euro-zone sovereign debt crisis and sluggish U.S. economic recovery sent investors rushing to buy the precious metal, which is thought by some to hold its value better than other assets during economic turmoil. But gold has struggled to find direction as Europe's fiscal situation has shown signs of stabilizing and the U.S. has entered corporate earnings season.

There is "a lack of clarity about what direction the economy is going," said Bart Melek, global commodity strategist with BMO Capital Markets. He said markets didn't find any clarity Thursday, as investors weighed largely disappointing economic data from the U.S. and China against some strong earnings reports.

The most-active silver contract settled higher for a third consecutive day. Comex September silver settled up 7.2 cents, or 0.4%, at $18.362 an ounce.

Nymex October platinum settled up $13.10, or 0.9%, at $1,533.70 an ounce. September palladium rose $1.40, or 0.3%, to $467.20 an ounce. 

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July 14, 2010, 8:13 a.m. EDT

LOS ANGELES, July 14, 2010 /PRNewswire via COMTEX/ -- Capital Gold Group, Inc. has earned a Distinguished Honoree medal in the Websites & Blogs Category in The 2010 International Business Awards for its new website, "www.StartWithGold.com." The International Business Awards is the only global, all-encompassing business awards program honoring great performances in business.

Capital Gold Group CEO, Jonathan Rose, RFC, announced the achievement at their headquarters in Woodland Hills, California, USA, and congratulated the members of the collaborative team responsible for the design and content. "We know that owning real gold is essential to a balanced portfolio, but it is a new concept to most investors. Our goal was to create a website that would help the beginner gain an immediate understanding of real gold and how it can help them protect and preserve their long-term wealth. I believe we have achieved that, and the judges apparently agreed," said Mr. Rose.

Honorees were selected from more than 1,700 entries received from organizations and individuals in more than 40 countries.

Nicknamed the "Stevie(R)" for the Greek word "crowned," the awards will be presented to honorees at a gala dinner on Monday, September 27, 2010, at the Ritz-Carlton Hotel in Istanbul, Turkey.

Organizations all over the world are eligible to compete in The International Business Awards and can enter in any of more than 40 categories from Multinational Company of the Year and Best New Product of the Year to Corporate Social Responsibility Program of the Year and Executive of the Year.

Honorees were determined through two rounds of judging by professionals worldwide. Capital Gold Group's new website, www.StartWithGold.com, was named a Stevie Distinguished Honoree after receiving high scores in the pre-judging and final judging rounds.

"It is obviously a huge honor to have your work recognized by the judges of The International Business Awards," said Brenda Whitman, creator of CGG's marketing communications and member of the collaborative team at Capital Gold Group along with CEO Jonathan Rose. "We are very grateful to the judges for recognizing our joint effort, and I want to acknowledge Mr. Rose for his clear vision and guidance, as well as our partners at Adaptium, a Technology and Branding Company, for their invaluable contribution in design and functionality."

Complete lists of honorees and other details are available at www.stevieawards.com/iba.

Capital Gold Group, Inc. is one of America's leading providers of physical gold and other precious metals for direct delivery and in Precious Metals IRAs. CGG helps individual investors, financial advisors, broker-dealers and institutions across the United States protect the value of their long-term savings and reserve assets by transferring value out of declining or volatile assets into the safety of physical gold.

Capital Gold Group, Inc. is headquartered in Woodland Hills, California, USA, a suburb of Los Angeles, and can be reached at 800-510-9594 or through www.StartWithGold.com.

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US trade deficit widens to $42.3 billion in May, largest gap in 18 months, as imports rise

WASHINGTON (AP) -- The U.S. posted solid gains in exports in May, a positive sign for the economy. And while imports grew even faster, some economists saw that as a hopeful sign because it suggests companies are betting that consumers will spend more in coming months.

The surging value of imports caused the trade deficit to reach an 18-month peak. It rose 4.8 percent to $42.3 billion, the largest deficit since November 2008, the Commerce Department said Tuesday.

U.S. exports of goods and services rose 2.4 percent to $152.3 billion. It was the largest monthly total since September 2008, the month the financial crisis struck with force. Leading the strength in exports were heavy machinery, medical equipment, power generators and commercial planes.

Imports grew even faster. They rose 2.9 percent to $194.5 billion. That gain reflected higher demand for foreign-made cars and consumer goods such as clothing, furniture and electronic appliances. The surge came even though the value of oil imports sank 9.1 percent to $27.6 billion as both the price and the volume of oil shipments declined.

Economists said the widening trade deficit would likely reduce overall growth, as measured by the gross domestic product, in the April-June quarter. But in the long run, analysts hold out hope that the gains in both exports and imports point to higher business investment and consumer spending.

"This will certainly prove supportive to economic growth in the months to come," Martin Schwerdtfeger, an economist at TD Economics, wrote in a research note.

Through May, the U.S. trade deficit is running at an annual rate of about $475 billion, up more than 25 percent from a $374.9 billion deficit for all of 2009. That had been the lowest annual trade gap since 2001, another year when the country was in recession.

The wider May deficit was a surprise to analysts, who had expected the gap to decline slightly because of the fall in oil imports. The larger trade gap caused some economists to trim their forecasts for overall growth in the April-June quarter, though many said they expected less of a drag in coming quarters.

GDP is the value of all goods and services produced in the United States. U.S. exports add to GDP because the products are made in the United States and shipped abroad. By contrast, imports reduce GDP because the government considers imports a substitute for what could have been produced in the United States.

Mike England, an economist at Action Economics, said he believed a widening trade deficit would trim nearly 2 percentage points off GDP in the second quarter. He put second-quarter growth at around 2.2 percent and projected a GDP growth rate of around 2.8 percent in the current July-September quarter. Other private economists are forecasting a smaller reduction from the higher trade deficit: Around 1 percentage point off second quarter GDP.

But many economists saw the rise in imports as a sign of increased business optimism about the future. They said U.S. companies were importing more goods in anticipation of higher consumer spending later in the year.

"The strong increases in both export and import volumes are far more important as a sign of continued growth at home and abroad than the widening trade gap," economists at forecasting firm RDQ Economics wrote in a research note. "It seems to us that the expansion of world trade has a robust momentum."

American manufacturing has been a standout performer during the recovery, benefiting from a global rebound. Those gains risk being diminished by the European debt crisis, which has slowed growth in Europe and raised the value of the dollar 14 percent this year versus the euro. A stronger dollar against the euro makes U.S. goods costlier and less competitive in Europe.

The deficit with the European Union rose 7.5 percent to $6.2 billion as imports rose 3.2 percent, outpacing a 1.9 percent rise in U.S. exports to that region.

The deficit with China rose to $22.3 billion. It was the largest imbalance since last October and a 15.4 percent jump from the April deficit. So far this year, the U.S. deficit with China, the largest with any individual country, is up 10.2 percent from the same period a year ago. That deficit is putting pressure on the Obama administration and Congress to adopt a tougher stance in trade disputes with China.

"The widening trade deficit is not only an alarming trend, but also represents wealth and jobs heading overseas," said Scott Paul, executive director of the Alliance for American Manufacturing, who called on Congress to pass legislation to impose trade sanctions on China for its currency policies.

Last week, the Obama administration declined to cite China in a report to Congress as a country that was unfairly manipulating its currency to gain trade advantages. That disappointed American manufacturers who say the Chinese yuan is undervalued by as much as 40 percent.

On June 19, just before leaders of the Group of 20 major industrial countries met in Toronto, China announced it would allow more flexibility in its currency. But critics note that the yuan has risen in value only slightly since then.

Sen. Charles Schumer, D-N.Y., has vowed to push for an early Senate vote on legislation that would impose sanctions on Chinese imports to the United States if Beijing doesn't accelerate its currency reforms.

Some analysts warned that the widening trade deficit, and its impact on GDP, come at a bad time for the economy, which has been losing momentum.

"The widening trade gap is putting downward pressure on U.S. GDP when it is most vulnerable," said Stuart Hoffman, chief economist at PNC Financial.

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