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U.S. economic growth revised higher, boosted by consumer spending

U.S. economic growth slowed less than previously reported in the fourth quarter as robust consumer spending provided a boost that was partially offset by the largest gain in imports in two years. Gross domestic product increased at a 2.1 percent annualized rate instead of the previously reported 1.9 percent pace, the Commerce Department said on Thursday in its third GDP estimate for the period. The economy grew at a 3.5 percent rate in the third quarter. Despite the upward revision to the fourth quarter, the economy grew only 1.6 percent for all of 2016, its worst performance since 2011, after expanding 2.6 percent in 2015. There are signs that economic activity slowed further in the first quarter, with the trade deficit widening in January and both consumer and construction spending weakening. With the labor market near full employment, the data likely understate the health of the economy - GDP also tends to be weaker in the first quarter because of calculation issues the government has acknowledged and is trying to resolve."Some of this softness is due to seasonal adjustment issues that will reverse later in the year," said Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh. "Consumer spending will lead growth thanks to higher incomes from more jobs and rising wages."The Atlanta Federal Reserve is forecasting GDP rising at a rate of 1.0 percent in the first quarter. Though the moderate growth pace has been sufficient to lower unemployment, it is a challenge to President Donald Trump's goal of boosting annual growth to 4 percent by slashing taxes, increasing infrastructure spending and cutting regulations.

The Trump administration has offered few details on its economic policies, but both business and consumer confidence have surged following the businessman-turned-politician's electoral victory last November. After last week's failed attempt by Republicans in the U.S. House of Representatives to repeal the Obama administration's 2010 healthcare law, economists say Trump faces a tough road ahead implementing his pro-growth agenda."The primary question is whether the next few years will resemble the last several years with growth of around 2 percent or whether better days lie ahead," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. The dollar . DXY was slightly stronger against a basket of currencies, while prices for U.S. Treasuries fell. U.S. stocks were trading higher. Economists polled by Reuters had expected fourth-quarter GDP would be revised up to a 2.0 percent rate.

TIGHTENING LABOR MARKET The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments increased at an annual rate of 2.3 percent in the fourth quarter after rising at a 6.7 percent pace in the previous three months. Profits were held back by a $4.95 billion settlement between the U.S. subsidiary of Volkswagen AG (VOWG_p. DE) and the U.S. federal and state governments for violation of environmental regulations. As a result, the economy grew at only a 1.0 percent rate when measured from the income side, braking sharply from the 5.0 percent pace of growth in the third quarter. Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up to a 3.5 percent rate in the fourth quarter. It was previously reported to have risen at a 3.0 percent rate.

Consumer spending is being supported by a tightening labor market. A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 3,000 to a seasonally adjusted 258,000 for the week ended March 25. Claims have now been below 300,000, a threshold associated with a healthy labor market for 108 straight weeks. That is the longest stretch since 1970, when the labor market was smaller. Domestic demand increased at a robust 3.4 percent rate in the fourth quarter, the fastest pace in two years. Some of the increase in demand was satiated with imports, which increased at a 9.0 percent rate. That was the biggest rise since the fourth quarter of 2014 and was an upward revision from the 8.5 percent growth pace reported last month. Exports fell more than previously estimated, leaving a trade deficit that subtracted 1.82 percentage point from GDP growth instead of the previously reported 1.70 percentage points. Robust domestic demand and import growth meant stronger inventory investment than previously estimated. Businesses accumulated inventories at a rate of $49.6 billion in the last quarter, instead of the $46.2 billion reported last month. Business investment was revised lower to reflect a more modest pace of spending on intellectual property, which increased at a 1.3 percent rate instead of the previously estimated 4.5 percent pace.

Vale megadeal puts Morgan Stanley, Bradesco at the top of Brazil M&A

Morgan Stanley (MS. N) and Banco Bradesco BBI SA topped Brazil's mergers and acquisitions rankings in the first quarter, buoyed by advisory roles in the $21 billion corporate reorganization of Vale SA (VALE5. SA), the world's No.1 iron ore producer. New York-based Morgan Stanley and Bradesco BBI, the investment-banking arm of Brazil's No. 3 listed lender Banco Bradesco SA (BBDC4. SA), surpassed rivals in last quarter's rankings by almost 10 times in terms of announced M&A volumes, Thomson Reuters deals intelligence data showed on Tuesday. Both banks advised two of Vale's main shareholders on the deal. Under the terms of the reorganization, Vale will become a company with no defined controlling shareholder within three years, a landmark step to help stifle state interference in the company. The deal represents a milestone in a country long hobbled by corporate governance scandals and reorganizations that hurt minority investors. It comes as Brazil's government is selling dozens of power and sanitation utilities, as well as assets of state-controlled oil company Petróleo Brasileiro SA (PETR4. SA). Companies announced $27.121 billion worth of Brazil-related mergers from January to March, up six-fold from a year earlier, the data showed. Excluding Vale, the value of M&A deals reached $6.195 billion, less than half the amount seen in the same period four years ago, before the recession struck. The number of deals in the first quarter fell 35 percent to 108 from a year earlier, the data showed. Stricter legal and regulatory scrutiny has continued to put the brakes on M&A announcements this year, compounding the impact of the recession and political turmoil that has kept keeping buyers and sellers at odds over valuations. According to Alessandro Zema and Eduardo Miras, co-heads of Brazil investment banking for Morgan Stanley, M&A deals should accelerate this year, even if increased debt and equity capital markets activity posed some competition for the segment. Declining borrowing costs and a stable currency could spur Brazil's recovery and the pace of takeovers through year-end, they said. More consolidation efforts could take place, as companies try to cut debt, improve their capital and tax structures, and become more efficient."It's very hard for a strategic player or a financial sponsor to ignore Brazil because of the cycle," Zema said. "The country's economy offers relevant opportunities for global players in almost every segment of activity."According to Alessandro Farkuh, Bradesco BBI's head of M&A, more strategic players will seek to enter Brazil as President Michel Temer's administration passes pension, labor market and tax reforms aimed at restoring confidence in the economy."Activity will grow in a more robust manner once the macroeconomic uncertainties dissipate and players feel the outlook has turned much more predictable," Farkuh said. A challenge for buyers and sellers alike remains a lengthening M&A execution cycle. Still, growing interest from multinational companies and buyout firms in potential targets "is leading to a more adequate pricing of assets," Bradesco BBI's Farkuh said. Even as the list of delayed deals kept growing last quarter, advisory work remains intense, forcing banks to shuffle staff from areas with lighter workloads to handle more M&A and debt restructuring transactions. Morgan Stanley topped value rankings after working on four transactions worth $21.663 billion, followed by Bradesco BBI's seven deals valued at $21.424 billion. Morgan Stanley last topped Brazil's first-quarter M&A league tables in 2000.

Itaú Unibanco Holding SA's (ITUB4. SA) investment bank led the number of deal rankings after working on 10 transactions. Following is a table with Brazil M&A ranking for the first quarter. Numbers are expressed in U.S. dollars, unless specified.RANKING FINANCIAL ADVISORY VALUE OF NUMBER RANKINGFIRST-Q FIRM DEALS (Jan. OF DEALS FIRST-QUARTER1-March 31) (Jan. UARTER2017

1-March 2016


1 Morgan Stanley & $21.663 bln 4 14


2 Banco Bradesco BBI $21.424 bln 7 6


3 Banco BTG Pactual $1.875 bln 4 1


4 Citigroup Inc $1.656 bln 1 n.a.

5 Goldman Sachs $1.656 bln 2 n.a.

Group Inc

6 Itaú BBA SA $919.4 mln 10 2

7 Credit Suisse $706.4 mln 1 14

Group AG

8 JPMorgan Chase & $608.4 mln 2 14


9 Bank of America $517.9 mln 2 4

Merrill Lynch

10 PriceWaterhouseCoo $296.4 mln 2 14


SUBTOTAL WITH $26.123 bln 39 -


INDUSTRY TOTAL $27.121 bln 108 -