In a surprise move before the market's open last Friday, the Fed cut the discount rate on its loans to banks to 5.75 percent from 6.25 percent. The fed funds rate on interbank loans was left at 5.25 percent. Stocks, which erased nearly all of a 300-point decline in the Dow industrials in the final hour of last Thursday's trading, rocketed higher on Friday after the Fed's move. But the rally on Friday was not enough to prevent the major indexes from finishing with losses for the week. The Dow Jones industrial average ended the week down 1.2 percent, the Standard & Poor's 500 index fell 0.5 percent and the Nasdaq composite index declined 1.6 percent. For the year, though, all three U.S. stock indexes are still higher. The Dow is up 4.9 percent, the S&P is up almost 2 percent and the Nasdaq is up 3.7 percent. Friday's surge helped the S&P recover from the previous two days, when the broad index had given up all its gains for the year.

China's Inflation Rate Jumps to Highest in 10 Years

Inflation in China, the world's fastest-growing major economy, accelerated to the highest level in more than 10 years, fueling speculation that the government may raise interest rates for a fourth time in 2007. Consumer prices jumped 5.6% YoY in July after gaining 4.4% YoY in June. The result was above consensus estimate of +4.6% YoY. The spike in inflationary pressures was led by a jump in food costs, which climbed 15.4% YoY.

Japan's GDP Growth Slows to 0.5%

Japan's economic growth slowed more than expected at 0.5% in the second quarter. This comes after a revised 3.2% gain the prior quarter and was lower than consensus estimate of +0.9%. The GDP deflator, a broad measure of price changes, fell 0.3% from the same period a year earlier, less than analysts' predictions of a 0.4% decline.

U.S. Economy: Retail Sales Rose More Than Forecast

US retail sales rose more than forecast at 0.3% in July. This follows a 0.7% decline in June and was above consensus estimate 0.2%. Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales climbed 0.6% after rising 0.3% the month before.

U.S. June Business Inventories Rise 0.4%, Sales Drop

The US Census Bureau announced that the combined value of distributive trade sales and manufacturers' shipments for June contracted by 0.3% in June after rising 1.3% in May. Business inventories, meanwhile, rose 0.4%, matching consensus estimate and following May's +0.5%. As growth in inventories outpaced sales, the total business inventories/sales ratio ticked up slightly to 1.27 from 1.26 registered in the previous month.