Disaster aid account faces shortfall (AP)

WASHINGTON – The government's main disaster aid account is running woefully short of money as the Obama administration confronts damages from Hurricane Irene that could run into billions of dollars.

With less than $800 million in its disaster aid coffers, the Federal Emergency Management Agency has been forced to freeze rebuilding projects from disasters dating to Hurricane Katrina to conserve money for emergency needs in the wake of Irene. Lawmakers from states ravaged by tornadoes this spring, like Missouri and Alabama, are especially furious.

The shortfalls in FEMA's disaster aid account have been obvious to lawmakers on Capitol Hill for months — and privately acknowledged to them by FEMA — but the White House has opted against asking for more money, riling many lawmakers.

"Despite the fact that the need ... is well known," Reps. Robert Aderholt, R-Ala., and David Price, D-N.C., wrote the administration last month, "it unfortunately appears that no action is being taken by the administration." The lawmakers chair the panel responsible for FEMA's budget.

FEMA now admits the disaster aid shortfall could approach $5 billion for the upcoming budget year, and that's before accounting for Irene.

As a result, funds to help states and local governments rebuild from this year's tornadoes, as well as past disasters like hurricanes Katrina and Rita and the massive Tennessee floods of last spring, have been frozen. Instead, FEMA is only paying for the "immediate needs" of disaster-stricken communities, which include debris removal, food, water and emergency shelter.

"Going into September being the peak part of hurricane season, and with Irene, we didn't want to get to the point where we would not have the funds to continue to support the previous impacted survivors as well as respond to the next disaster," FEMA Administrator Craig Fugate told reporters at the White House on Monday.

Republicans controlling the House and the Democratic-controlled Senate may be headed toward a battle over whether to cut spending elsewhere in the budget to pay for tornado and hurricane aid.

A top leader in the tea party-driven House says that chamber will find those offsetting spending cuts. The Senate, however, is likely to take advantage of a little-noticed provision in the recently passed debt limit and budget deal that permits Congress to pass several billion dollars in additional FEMA disaster aid without budget cuts elsewhere.

"We will find the money if there is a need for additional money," House Majority Leader Eric Cantor, R-Va., told Fox News on Monday. "But those monies are not unlimited, and we have said we have to offset that."

But Sen. Dick Durbin, D-Ill., who presided over a recent hearing on disaster costs, says the number and cost of disasters have grown dramatically over the past few years.

"If (Cantor) believes that we can nip and tuck at the rest of the federal budget and somehow take care of disasters, he's totally out of touch with reality," the No. 2 Senate Democrat said Tuesday.

Earlier this year, the administration requested $1.8 billion for FEMA's disaster relief fund, despite pent-up demands for much more. Appropriations for last year totaled four times that amount.

FEMA estimates that the request still left the disaster fund short by $2 billion to $4.8 billion for the upcoming fiscal year. Those are figures the agency provided to Congress this spring — before Irene or the tornadoes that destroyed huge swaths of Joplin, Mo., or beat up the South.

With recovery operations from Irene still in the early stages, FEMA spokesman Rachel Racusen said it is too early to know whether that projected shortfall has increased or by how much.

"It's just too soon to know what any uninsured losses will be," Racusen said.

"Even though the president himself said that we are going to do everything we can to help these communities rebuild, the rhetoric has not matched reality, and the Disaster Relief Fund is running out of money," Aderholt said.

The likely vehicle for replenishing the disaster account is the homeland security spending bill for the budget year beginning Oct. 1. The House passed the measure in early June, but the Senate has yet to act.

A House-Senate collision over disaster aid would risk further delays in replenishing dangerously low FEMA disaster accounts.

"It's too early to tell what the damage assessment will be and what next steps may need to be taken," said Meg Reilly, a spokeswoman for the White House budget office.

It's hardly the first time that longer-term rebuilding projects like schools and sewer systems have been frozen out to make sure there's money to provide disaster victims with immediate help with food, water and shelter. But it's frustrating to communities like Nashville, Tenn., which is rebuilding from last year's historic floods.

The Obama White House is just the latest administration to lowball disaster relief requests. Over the past two decades, Congress has approved $130 billion for FEMA's disaster account. But the bulk of that money, $110 billion, has been provided as emergency funding in addition to the annual budget.

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Associated Press writer Alicia Caldwell contributed to this story.

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Bank of America to sell China bank stake for $8.3 billion (Reuters)

CHARLOTTE, N.C./HONG KONG (Reuters) – Bank of America Corp is selling about half its stake in China Construction Bank for $8.3 billion, in its latest effort to shed assets and boost capital.

A group of investors is buying 13.1 billion CCB shares from Bank of America, with the deal expected to close in the third quarter. The U.S. bank declined to name the investors but two sources said Singapore state fund Temasek was among the buyers.

Bank of America needs to boost capital by some $50 billion in the coming years to meet new global rules, according to multiple analyst estimates.

CCB is the second-largest bank by market value in the world, and Bank of America's ties with the Chinese bank are seen as an important source of future growth. Bank of America's willingness to sell part of its CCB investment shows how far it must go to meet new capital requirements, analysts said.

"Bank of America's decision to sell that stake is wrong strategically in the long run, but they need money," said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster.

The bank has said it can raise the money through earnings and selling off assets, but a number of investors have expressed concern that the bank will need to issue more common shares.

Those dilution concerns helped push the bank's shares this month to their lowest level in two-and-a-half years. Investors are also concerned about the bank's potential losses from mortgages and related litigation. A $5 billion investment from Warren Buffett's Berkshire Hathaway stopped that fall last week.

In the CCB, deal, Bank of America sold each share for HK$4.93, an 11 percent discount to the Chinese bank's most recent closing price of HK$5.55.

Bank of America's shares were up 6.1 percent at $8.23 on news of the sale on Monday afternoon.

A START

Bank of America will record a $3.3 billion gain in the third quarter as a result of the sale, and a $3.5 billion increase to its core capital under current rules, a spokesman said.

Under proposed Basel III rules, the sale will generate an $8.3 billion gain for Bank of America. The bank will also be required to hold less capital against the CCB shares, because it will now own about 5 percent of the holdings, less than the 10 percent level that triggers higher capital requirements under Basel III.

The CCB stock sale is the latest in a series of moves by the largest U.S. bank to increase capital before Basel III takes effect.

"It really doesn't move the needle under current rules," said Jefferson Harralson, bank analyst with Keefe, Bruyette & Woods Inc. "But this starts to move them to where they need to be."

Bank of America in recent weeks has agreed to sell an $8.6 billion Canadian credit card portfolio to TD Bank Group and is in talks to sell $1 billion of real estate assets to Blackstone Group.

In the last six quarters, Bank of America has generated some $30 billion of proceeds from asset sales, as it has sold a range of assets from a foreclosure insurance unit, investments in Latin and South American banks, and U.S. mortgage-servicing rights.

Fears about the bank's ability to meet its capital requirement have cut the bank's stock price by a third since the beginning of August, including a 20 pct plunge on August 8.

Bank of America paid $3 billion for a 9.9 percent stake in CCB, the world's No. 2 bank by market value, before the Chinese lender's IPO in 2005.

The U.S. bank increased its holdings in following years to 25.6 billion shares, including 23.6 billion that came out of lock-up on August 29.

It is free to sell the remaining shares in 2013.

(Reporting by Joe Rauch, additional reporting by Saeed Azhar in Singapore; Lauren Tara LaCapra in New York and Elzio Barreto in Hong Kong; Editing by Derek Caney and Matthew Lewis)

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Exclusive: Finland wants Luxembourg agency to hold Greek assets (Reuters)

BRUSSELS (Reuters) – Finland has proposed that Greek state assets be transferred to a Luxembourg-based holding company and held as security for new loans to Athens, according to an internal document obtained by Reuters.

The proposal, drafted in June, remains a central plank of Finnish demands for collateral in return for providing more aid to Greece. Senior euro zone officials held another conference call on Monday to try to resolve the collateral issue.

If Finland does not get its way, it may pull out of the Greek bailout, unleashing renewed trouble in financial markets.

Although small at around 1.4 billion euros, Finland's share of the new support for Greece is important because its triple-A credit rating adds weight to the 109 billion euro rescue agreed on July 21, the second bailout package Athens has received.

Demands from Helsinki for collateral have sparked requests from countries including Austria, the Netherlands, Slovenia and Slovakia for similar treatment, and threaten to spoil the euro zone's attempt to save Athens from default.

In the document, Finnish officials set out how the Greek government and its privatization agency would authorize the transfer of assets to a holding company based in Luxembourg that would be used as security for states providing assistance.

The privatization agency would own all the shares in the asset holding company, although the shares would be held in custody by a third party. Since the holding company would be based in Luxembourg, it would operate under Luxembourg law.

Such a move would prove controversial in Greece, where the government has strongly rejected suggestions of offering land or company shares as collateral for future loans. It would in effect mean Greece, which plans to raise 50 billion euros from privatization by 2015, losing sovereignty over its assets.

"The Privatisation Agency is managing the AHC (Asset Holding Company) and can use AHC in a flexible way as one vehicle to securitize, manage, develop and privatize assets," reads the Finnish plan, dated June 23 and obtained exclusively by Reuters.

Greece, which passed a law in June to set up a privatization agency to handle the sale of state-owned companies, has so far taken few steps to implement the law, meaning it may miss a target agreed with the EU and IMF of raising 1.7 billion euros from privatizations by the end of September.

MULTIPLE USE ASSETS

As well as acting as a warehouse for Greek property, such a stake in a national phone company or port, the Luxembourg vehicle would ringfence assets so they are not used for other borrowing but instead kept as security for countries offering aid. The Finnish document explains:

"If the market value of the assets of AHC does not meet the collateral requirements or the Hellenic Republic defaults on its loan obligations to the EFSF, the ownership of the shares in custody immediately transfers to the relevant member states," it says, referring to the European Financial Stability Facility, the 440 billion euro bailout fund drawn up last year.

The Finnish plan also flags a possible securitization of the assets held in Luxembourg, using cash flow generated from an airport, for example, as security for loans.

"The asset securitization would make both the valuation and the liquidation of the assets much easier," write the authors of the confidential document, which has been circulated to euro zone finance ministries in the form of a "non-paper."

The proposal is among those being discussed by euro zone officials in conference calls in recent days to try to reach agreement on how collateral can be provided to Finland, and potentially other member states, in exchange for new loans.

Earlier this year, ECB board member Juergen Stark put a value on the country's assets, which include stakes in Athens' airport, a bank, two ports, and the country's main telephone company, of 300 billion euros ($423 billion).

Tapping this wealth will be difficult politically. Talk of selling state companies prompted protests by workers worried they could lose their jobs in any privatization. Militant union members at the country's main electricity producer have warned the government not to pursue a sale.

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New England flooded, New York spared Irene's fury (Reuters)

NEW YORK (Reuters) – Vermont struggled with its worst flooding in 80 years and reconnaissance teams scoured Massachusetts to assess the devastation on Monday after a weakened Hurricane Irene slammed an already soaked New England with torrential rain.

Spared from Irene's worst fury, New York City went back to work on Monday despite a partially crippled mass transit system and power outages that left 100,000 customers in the metropolitan area without electricity.

Overall some 5.5 million homes and business were still without power from North Carolina to Maine, and utilities said it could take days to restore electricity in more accessible areas, or up to weeks in the hardest-hit regions.

"It's going to take time to recover from a storm of this magnitude," President Barack Obama told reporters. "The effects are still being felt across much of the country, including in New England and states like Vermont where there's been an enormous amount of flooding. ... I'm going to make sure that FEMA (federal emergency management) and other agencies are doing everything in their power to help people on the ground."

Air travel at New York City's three major area airports slowly resumed service, and financial markets operated normally, although volumes were low.

New York City subways returned to service, though many commuter lines to the city and national carrier Amtrak were disrupted due to tracks that were flooded or blocked with fallen trees and debris.

At least 21 people died in the United States in addition to three who died in the Dominican Republic and one in Puerto Rico when the storm was still in the Caribbean.

While Irene failed to produce the devastation many had expected when New York City preemptively ordered unprecedented evacuations and a shutdown of its mass transit system on Saturday, it still left hundreds of thousands of homeowners with flood damage, especially in New Jersey.

Many northeastern rivers, already swollen from an unusually wet summer, were still cresting.

Irene is expected to have caused substantial property losses, though figures are still hard to come by because of uncertainty about wind damage, catastrophe modeling company Eqecat said on Monday.

The costly cleanup will also further strain budgets of state and local governments where economies have not recovered from the recession.

"It's a hit but not a fatal hit," said Joseph Seneca, a professor at Rutgers University's Edward J. Bloustein School of Planning and Public Policy.

"The ability of states to respond (to the hurricane) is more constrained," Seneca said.

NEW ENGLAND FLOODING

Vermont was battling the state's worst flooding since 1927 after Irene swept through as a tropical storm late on Sunday. It dumped huge amounts of rain in New Jersey and other states on its way up to Canada, where it was downgraded to post-tropical status over sparsely populated land.

"Things are bad throughout the state and we are just starting the recovery process in the light of day," said Robert Stirewalt, a spokesman for the Vermont Emergency Management Agency. "It is too early to say what the damage will be as we assess it and we hope it won't be more extensive than last night indicated."

One person was killed after being swept into a river in mountainous, landlocked Vermont, which rarely sees tropical storms.

At least one of Vermont's historic covered bridges was washed away as Irene's rains sent rivers spilling over their banks, and 50,000 people were without power, officials said on Monday. Governor Peter Shumlin called the flooding catastrophic and several people had to be rescued.

While the sun was out on Monday, officials worried that more damage could still be done.

"The bigger rivers haven't crested yet because the smaller brooks feed into them," Shumlin told with Democracy Now, a daily TV/radio news program. "It means more flooding. We continue to be challenged here."

In Massachusetts, reconnaissance teams including national guard members and emergency officials will be scouring the state on Monday to assess the flooding and other damage from Irene's blow.

Business returned to normal for Boston's commuters, but some Amtrak train service to points south was canceled for Monday.

In Southbridge, Massachusetts, a town employee was electrocuted from a downed power line while leaving the house, marking the first storm-related death in the state.

"It's a tragic reminder that folks beginning the clean-up process need to do so safely," said Scott MacLeod, spokesman for the state emergency management agency.

(Reporting by Scott Malone in Brattleboro, Vermont; Karen Pierog in Chicago; Svea Herbst-Bayliss and Lauren Keiper in Boston; Ben Berkowitz, Josh Schneyer and Edith Honan in New York; Jeff Mason in Washington; Editing by Jackie Frank)

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U.S. to shed light on Guatemala syphilis experiment (Reuters)

WASHINGTON (Reuters) – A U.S. presidential commission will release on Monday its key findings on a government research project that deliberately infected Guatemalan prison inmates and mental patients with syphilis in the 1940s.

The conclusions have consequences for U.S. diplomacy and will impact the ethical discussion surrounding how new drugs are tested on patients, as manufacturers increasingly conduct clinical trials abroad.

The United States formally apologized last year for the experiment, which was meant to test the drug penicillin, after it was uncovered decades later by a college professor.

Guatemala condemned it as a crime against humanity and said last year it would consider taking the case to an international court. Victims of the study are suing the U.S. government.

President Barack Obama's Commission for the Study of Bioethical Issues has conducted its own investigation and will discuss its key findings at 1 p.m. (1700 GMT) in Washington on Monday, followed by recommendations on Tuesday on protecting research participants from unethical treatment. More detailed findings will be presented to Obama in September, with a final report due in December.

"They will have a chance to do a richer investigation and we'll have a richer picture of what happened," said Wellesley College professor Susan Reverby, whose research revealed the previously unpublished records of the Guatemalan experiment.

"It's too easy to say, 'Oh, we'd never do anything like that,'" she told Reuters. "(At the time,) they thought they were doing good science, these were decent people, not monsters, and therefore we really need to think about what we're doing now that's going to look horrible in 20 years."

In a November 2010 article in the Journal of the American Medical Association, the directors of the National Institutes of Health and the Centers for Disease Control and Prevention rejected the possibility that such unethical practices could happen now, at least for government-affiliated studies.

But the bioethics community is less convinced.

"Too often people become absorbed with the merit of a scientific question and can lose sight of the ethics in answering it," said Mary Faith Marshall, a professor at the University of Minnesota's Center for Bioethics.

"Possibly, if you broaden the scope ... to private industry, you'll see things that are even worse," she said.

INFORMED CONSENT

Protections for research participants may not work in some foreign countries where subjects are poor and illiterate, making their informed consent hard to trust, said Arthur Caplan, director of the Center for Bioethics at the University of Pennsylvania.

"Peer review in corrupt countries doesn't mean very much," he added.

In a more recent incident, Pfizer Inc's 200-patient trial of antibiotic Trovan during a 1996 meningitis outbreak in Kano, Nigeria, triggered a decade-long legal battle after 11 children died and the company was accused of not obtaining adequate prior consent. Pfizer settled all outstanding lawsuits from the case in February.

Even before Reverby's discovery, the U.S. Department of Health and Human Services was working on proposed changes, released in July, to its 1991 rules protecting human research subjects, which have been criticized for being too stifling for low-risk studies and too loose for high-risk research.

Reverby uncovered the Guatemala experiment after years of research into a medical study in Tuskegee, Alabama, where hundreds of black American men were deliberately left untreated for syphilis. The experiment lasted 40 years until 1972.

While studying the archives of Dr. John Cutler, a Public Health Service officer and a Tuskegee researcher, Reverby found boxes of medical records and notes from another, previously unknown study conducted between 1946 and 1948 in Guatemala.

Later confirmed by federal health agencies, her findings showed that the PHS, under a grant from the NIH to the Pan American Sanitary Bureau and in collaboration with several Guatemalan agencies, deliberately infected hundreds of people with the sexually transmitted diseases syphilis, gonorrhea and chancroid.

The patients were given antibiotic penicillin to determine its effectiveness in curing or preventing syphilis, an infection that can cause genital sores and rashes and, if left untreated, damage internal organs and cause paralysis, blindness or even death.

"They thought, 'we're in a war against disease and in war soldiers die,'" Reverby said. "Those who are on the cutting edge of the science are the ones that can easily fall."

Some 700 people were infected with syphilis. These included inmates exposed to infected prostitutes brought into prisons and male and female patients in a mental hospital. Some subjects had bacteria poured on scrapes made on their genitals, arms or faces.

Records show no documentation that syphilis study subjects gave informed consent or understood they were participating in research, according to a September 2010 report by the CDC.

Until his death in 2003, Cutler remained unapologetic about his research. The bioethics commission's findings are expected to put his work in historical context.

Guatemalan Vice President Dr. Rafael Espada planned to speak at Monday's event, but canceled those plans because of Hurricane Irene that hit the U.S. East Coast over the weekend.

"There is a great deal of skepticism and cynicism with which the U.S. is greeted in (Latin America)," said Larry Birns, director of the non-profit Council on Hemispheric Affairs. "This will reaffirm in the minds of average Latin Americans how dirty and loathe the United States is."

(Editing by Michele Gershberg and Eric Beech)

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Colts activate QB Peyton Manning (AP)

INDIANAPOLIS – Peyton Manning is ready to practice with his teammates. He's still not sure when he'll dress for a game.

On Monday, less than two hours after being activated from the physically unable to perform list, Manning told reporters it was the next step in his recovery from neck surgery in May. He would not provide details about what issues must be resolved before the Sept. 11 season-opener at Houston.

"I don't know what HIPAA stands for, but I believe in it and I practice it," Manning joked, referring to the federal law protecting medical privacy. "So, uh, I'll leave it at that."

The team said Manning will practice on a "scripted" and controlled basis with teammates this week. He is not expected to play in Thursday night's preseason finale at Cincinnati and he reiterated that point Monday.

And it's unclear the extent of what Manning's new workout regimen will be.

"He's been throwing," coach Jim Caldwell said. "It's going to be a bigger amount, and I don't think it needs a whole lot of explanation. The statement speaks for itself."

Team officials have said Manning would practice only when he was cleared by the doctors and when Manning felt comfortable working out. The four-time MVP missed all of training camp at Anderson University, the second time in four seasons that's happened.

When Manning sat out in 2008 after having two surgeries to remove an infected bursa sac in his left knee, was not seen by reporters. This time, after his second surgery in 15 months, he was seen running and throwing passes.

Manning remembered returning to practice just before the final 2008 preseason game, though he did not play against the Bengals that year.

"This was one of my goals all along, to be back before the last preseason game," Manning said. "That gives you two weeks on the field to answer the questions coach Caldwell has and I have."

Manning has started 227 consecutive games, including the playoffs, the second-longest streak in NFL history for quarterbacks behind Brett Favre. He said Monday he was healthy enough to take a snap or play a series or two to keep the streak alive, but that's not what he intends to do.

"I have to be able to play competitively to play because I have too much respect for this game," he said. "I have to do what's fair for the team."

Three years ago, Manning returned from the knee injury and struggled during the first half of the season. By midseason, Manning was back to his regular form and went on to win his third MVP award.

Indy's franchise quarterback had been on PUP since practice began Aug. 1. League rules require players on the physically unable to perform list to be activated by the team's final cuts, on Sept. 3, or sit out an additional six weeks. That wasn't something the Colts were going to do.

The surgery was expected to keep Manning off the field for six to eight weeks. But the recovery has gone slower than expected, and Manning in part blamed the 4 1/2-month lockout that kept him away from the team's trainers.

With Manning ailing, the Colts have been refining backup plans. They signed veteran backup Kerry Collins to go along with Curtis Painter, Dan Orlovsky and rookie Mike Hartline. Five-time Pro Bowl receiver Reggie Wayne said he believes Painter gives Indy the best chance at winning if Manning is not ready to start the season.

Painter made his statement Friday by going 11 of 21 for 171 yards with two TD passes, and nearly led the Colts to their first preseason win in more than two years.

All three backups could be vying for snaps at practice, and the Colts may have to play their starters longer than usual against the Bengals to get Collins and Painter in sync with their teammates.

"It's an important week because it's one thing to know it in the classroom, and it's another thing to go out and know it on the field," Collins said.

Manning has thrown for 54,828 yards, third all-time behind Favre and Dan Marino. He's also third all-time in career TD passes (399), trailing only Marino (420) and Favre (508) and has led Indianapolis to a record-tying nine consecutive playoff appearances.

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Consumer spending data allays recession worries (Reuters)

WASHINGTON (Reuters) – Consumer spending rose at its fastest pace in five months in July, a further sign the economy is not falling back into recession, although manufacturing activity in Texas almost stalled this month.

Consumer spending increased 0.8 percent on strong demand for motor vehicles as Japan-related supply restraints faded, a Commerce Department report showed on Monday. Spending had slipped 0.1 percent in June

The size of the bounceback in spending, which accounts for about 70 percent of U.S. economic activity, beat economists' forecasts for a 0.5 percent advance. When adjusted for inflation, spending was up 0.5 percent last month, the largest gain in 1-1/2 years and the first increase since April.

"It's a little far-fetched to truly believe that we are headed into another recession. This data doesn't support that view at all," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The spending data was the latest to suggest the economy started the third quarter with some strength after growth slowed to a near halt in the first half of the year.

But the risks of a new recession have risen this month as stock prices plunged and consumer sentiment eroded.

The spending report showed inflation-adjusted after-tax incomes fell in July, while data from the Dallas Federal Reserve Bank indicated factory output in Texas ground to a near halt this month.

The Texas factory index dropped to 1.1 from 10.8 in July, while a business confidence gauge slid to -11.4 from -2.0. The decline in sentiment was in line with other recent regional manufacturing surveys. In these indexes, zero is the dividing line between growth and contraction.

Separately, the number of contracts signed for purchases of previously owned homes fell 1.3 percent last month. The housing market is being choked by an oversupply of properties.

Pending home sales usually lead existing home sales by a month or two and the decline in contracts signed pointed to a fall in August sales.

Investors focused on the spending data and bought U.S. stocks. Prices for U.S. government debt fell, while the dollar eased against a basket of currencies.

ECONOMY NOT FALLING APART

So far data from industrial production to retail sales and employment have been consistent with a slow-growth scenario rather than an outright contraction in economic output. Data for August will give an idea of how much damage the stock market turmoil inflicted on the already wounded economy.

The economy grew at a tepid 1 percent annual rate in the second quarter, with consumer spending rising at its weakest pace since the fourth quarter of 2009. The economy only expanded 0.4 percent in the first three months of the year

Some economists were skeptical the rise spending last month would be sustained, given the 0.1 percent decline in real disposable income, weak consumer confidence and still-sluggish job growth.

"My expectation is that August spending number retreats and income likewise will be flat due to very weak job creation," said Robert Dye, chief economist at Comerica in Dallas, Texas.

U.S. nonfarm payrolls likely increased 75,000 in August after rising 117,000 in July, according to a Reuters survey. The unemployment rate is seen unchanged at 9.1 percent.

Fed Chairman Ben Bernanke left the door open for further monetary stimulus in a speech on Friday in which he said bringing down the high level of joblessness was crucial to ensuring the economy's long-term health.

Although the spending report showed core inflation moving higher, analysts did not think this would tie the U.S. central bank's hands.

The core personal consumption expenditures price index, which strips out food and energy costs -- rose 0.2 percent for a second straight month, taking the year-on-year reading to 1.6 percent, the highest since May 2010, from 1.4 percent in June.

Overall inflation jumped 0.4 percent in July after dropping 0.1 percent in June.

"This does not rule out additional Fed stimulus when policymakers meet in September. But it doesn't exactly rule it in," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

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