Financial Watch

The Federal Reserve has a more optimistic outlook for the U.S. economy, according to meeting minutes released Wednesday, but the central bank is still debating how to shrink its massive balance sheet.

The Fed now expects U.S. gross domestic product, the broadest measure of economic activity, to increase at an annual rate of between 3.2% and 3.7% in 2010. That’s up from the Fed’s previous estimate of between 2.8% and 3.5% in January.

GDP rose at a 3.2% annual rate in the first three months of this year, the government said last month.

The European Central Bank Wednesday declined to comment on financial market speculation that the ECB and other major central banks are preparing to intervene in the foreign-exchange markets to prop up the flagging euro.

The talk comes as traders circulate a report from a U.S. think-tank reportedly noting that the Group of Seven leading industrial nations are concerned about the speed of the euro’s decline. The report is also said to note that major central banks may be preparing verbal intervention to support the currency “if the rout continues.”

Emerging-market stocks headed for their worst week in 14 months and currencies slumped on concern Europe’s debt crisis will slow the global economic recovery and push up borrowing costs for governments worldwide.

The MSCI Emerging Markets Index dropped 1.8 percent to 935.17 by 10:40 a.m. in Hong Kong, extending this week’s retreat to 8.3 percent, the biggest decline since Feb. 20, 2009. The index has swung to a 6 percent loss for the year from a 5 percent gain over nine days. The Korean won declined 1.3 percent to 1,156.85 per dollar.

Gold futures stayed lower early on Thursday after the government reported a drop in U.S. jobless claims in the latest week. Gold for June delivery was recently down $5.40, or 0.4%, to $1,166.40 an ounce.

The International Monetary Fund supports the adoption of a tax on capital inflows to stem the excessive appreciation of currencies in some Latin American economies, said Nicolas Eyzaguirre, the director of the fund’s Western Hemisphere department.

Latin American economies should consider “carefully designed” taxes to avoid volatility in their currency markets, he said. The taxes would be appropriate where fiscal policy “discipline” is in place, he said.

“In the cyclically more advanced economies in the region, the immediate task is to begin to withdraw stimulus policies,” Eyzaguirre said.

Washington – In an effort to make it more difficult to counterfeit money, the US government has redesigned the $100 bill, adding new security features.

The blue 3-D Security Ribbon on the front of the new $100 note contains images of bells and 100s that move and change from one to the other as you tilt the note. The Bell in the Inkwell on the front of the note is another new security feature. The bell changes color from copper to green when the note is tilted, an effect that makes it seem to appear and disappear within the copper inkwell.