Dow Hits 2009 Closing High

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The House of Representatives narrowly approved healthcare reform legislation over the weekend, putting that sector back in the spotlight. However, the Obama plan faces an uphill climb, as the government health insurance plan included in the House bill is unacceptable to a few Democratic moderates who hold the balance of power in the Senate.

If a government plan is part of the deal, "as a matter of conscience, I will not allow this bill to come to a final vote," said Sen. Joe Lieberman, the Connecticut independent whose vote Democrats need to overcome GOP filibusters.

G-20 leaders agreed at a meeting in St. Andrews, Scotland over the weekend to maintain policy stimulus as "the recovery is uneven and remains dependent on policy support, and high unemployment is a major concern." The G-20 also launched a framework to reach the goal of a more balanced and sustainable global growth and laid out a timetable on policy initiatives. The UK gave support to a tax on financial transactions - the so-called Tobin tax -- but the US made clear it would not support the idea. Foreign exchange policies will likely be part of the new rebalancing framework and pressure will mount for a Yuan appreciation.

The G-20 governments also said banks will be forced to cover a greater cost of future bailouts even as they split over whether that should be achieved by taxing financial trading. G-20 officials are narrowing their focus on reining in excessive risk-taking after uniting earlier this year to fight the worst financial crisis since the Great Depression. While the U.S. pushback on the Tobin tax means a transaction tax is unlikely to occur, the mere discussion of it may be enough to unsettle markets.

The International Monetary Fund said record low U.S. interest rates are funding global "carry trades" and the dollar is still overvalued as concerns mount that new financial imbalances are forming. "There are indications that the U.S. dollar is now serving as the funding currency for carry trades," the IMF said. "these trades may be contributing to upward pressure on the euro and some emerging-economy currencies." While the dollar "has moved closer to medium-run equilibrium," it is still "on the strong side." In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets.

The Fed says many banks expect to tighten terms on credit cards in response to a new law that aims to protect consumers from sudden rate hikes. A quarterly survey by the Fed found that many banks expect to increase rates, reduce credit limits and raise annual fees for both prime borrowers -- those with sound credit histories -- as well as more risky "non-prime" borrowers, who have tarnished credit. Banks already have been pushing through rate increases in anticipation of the new rules. Because of that, the House recently approved legislation to speed up the law's effective date and have the provisions take effect immediately, although prospects are dim for Senate passage. Most of the new credit card provisions are slated to take effect on Feb. 22.

Andrews is managing editor of the Investing Channel for BusinessWeek.com .

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