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The worst U.S. economic slump since the Great Depression abated in the second quarter as government spending programs started to kick in, while the sharpest pullback by consumers since 1980 augured a muted recovery.

Gross domestic product shrank at a better-than-forecast 1 percent annual pace after a 6.4 percent drop the prior three months, Commerce Department figures showed yesterday in Washington. A survey of purchasing managers showed separately that business contracted less than estimated in July.

Consumer spending, which accounts for about 70 percent of the economy, fell at a 1.2 percent pace following a 0.6 percent increase in the prior quarter. It was forecast to drop 0.5 percent, according to the survey median. Purchases slid 2 percent since the peak at the end of 2007 — the most since a 2.4 percent decline in the 1980 recession.

Source: bloomberg.com

U.S. stocks fell for a second day as plunging Chinese shares and commodities stoked speculation that the surge in equities has outpaced the economy, while the Treasury sold notes at a higher-than-forecast yield.

Stocks in China plunged on speculation the government will curb inflows into a market that had doubled from last year’s low. The benchmark gauge, which has surged 79 percent this year, tumbled 5 percent to end a five-day, 7 percent advance that pushed valuations to the highest since January 2008.

The dollar advanced the most against the currencies of six major U.S. trading partners in almost four weeks as stocks fell and crude oil slumped, bolstering demand for the greenback as a haven.

Crude oil fell the most in three months after a government report showed an unexpected gain in U.S. supplies as imports rose and refiners cut operating rates.

Stockpiles surged 5.15 million barrels to 347.8 million in the week ended July 24, the Energy Department said. It was the biggest weekly increase since April. Supplies were forecast to decline by 1.5 million barrels, according to the median of analyst estimates in a Bloomberg News survey.

Source: Bloombeg.com

U.S. and European stocks fell, extending losses from the first weekly decline for global equities in more than a month, as the World Bank said the recession will be deeper than previously forecast. Treasuries rose, while a drop in commodities sent oil below $68 a barrel.

Equities and commodities retreated after the World Bank forecast today the global economy will contract 2.9 percent this year. That compares with a prior estimate of a 1.7 percent decline. Growth is expected to return next year with a 2 percent expansion, lower than the 2.3 percent prediction about three months ago.

Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago. This is a clue that the stock market is already expensive. Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March. The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects.

More than one-quarter of American states now have unemployment rates higher than 10 percent, and all but two saw a further job-market deterioration in May.

Tennessee and Indiana joined the rank of states, now 13, that have jobless rates exceeding 10 percent, and eight states – - including California, Florida and Georgia — reached their highest level of joblessness in May since records began in 1976, the Labor Department reported today in Washington.

General Motors Corp., the world’s largest carmaker until its 77-year reign ended last year, filed for bankruptcy protection in the U.S. with a plan to create a 21st-century company that can compete in world markets.

GM reported $82.29 billion in assets and $172.81 billion in debt. The U.S. government will bankroll the transformation of the 100-year-old automaker, a victim of tumbling sales and higher gas prices. The U.S. plans to convert much of its $50 billion of loans to a 60 percent stake in the new entity, administration officials said. Today’s filing coincides with a deadline for GM to convince a government auto task force that it could reorganize out of court through debt and cost cutting.

U.S. stocks fell for a third day, extending a global slump, as jobless claims topped forecasts and former Federal Reserve Chairman Alan Greenspan said the financial crisis isn’t over.

Regions Financial Corp. tumbled 19 percent after selling shares at a discount. The U.K.’s FTSE 100 Index plunged 2.5 percent and gilts slid after Standard & Poor’s said Britain may lose its AAA credit rating for the first time.

The S&P 500, which has rebounded 32 percent from its 12- year low on March 9, slid 1.2 percent to 892.24 at 10:05 a.m. in New York. The Dow Jones Industrial Average dropped 117.48 points, or 1.4 percent, to 8,304.56. Europe’s Stoxx 600 Index tumbled 1.6 percent, while the MSCI Asia Pacific Index lost 0.7 percent.

India’s benchmark stock index jumped a record 17 percent, bonds rose and the rupee gained the most in two decades after Prime Minister Manmohan Singh’s Congress Party won nationwide elections.

Share trading was halted for the first time ever because of a surge in the Sensitive Index, or Sensex. The rupee climbed 3.1 percent against the dollar and the benchmark bond yield fell 16 basis points, the biggest decline in a month.

Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating rising unemployment is prompting consumers to boost savings. The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Excluding auto dealers, sales fell 0.5 percent.

Fewer jobs, falling home values and the biggest loss of household wealth on record may limit consumers’ ability to spend for months if not years. As long as the biggest part of the economy is constrained, any recovery from the worst recession in at least half a century is likely to be subdued.