n">(Reuters) - Model year 2012 passenger vehicles sold in the United States had an average fuel economy rating of 23.8 miles per gallon, the highest on record, the U.S. Environmental Protection Agency said on Friday.

Last year's models showed a 1.4 mpg improvement over 2011, the biggest annual improvement since the EPA began keeping records on fuel economy.

Improving fuel economy is a key component of the Obama administration's effort to cut U.S. oil consumption and polluting greenhouse gases, which cause global warming.

Model year 2012 cars and light-duty trucks sold in the United States average emissions of 374 grams of carbon dioxide, down from 398 grams per mile in the previous model year, the EPA report said.

Carbon dioxide accounts for the lion's share of greenhouse gas emissions globally.

The EPA said the figures released in its report, which can be seen at 1.usa.gov/XcUqqj are preliminary.

Among major manufacturers, Honda Motor Co showed the highest average fuel economy of 26.4 mpg, followed by Volkswagen AG at 26.2 mpg, Mazda Motor Corp and at 25.9 mpg.

Among U.S. automakers, Ford Motor Co vehicles reported the best average fuel economy at 23.2 mpg, up from 21.1 mpg for its 2011 models, the EPA said.

Hyundai Motor Co would have the highest for 2012 vehicles, at 28.8 mpg, but its figures are under investigation by the EPA. In November, the EPA announced that it was investigating Hyundai and its corporate sister Kia Motors Corp after its own tests showed less performance than what the automakers claimed.

U.S. automakers have more pickup trucks and large sport utility vehicles in their lineups, which increases their corporate average fuel economy (CAFE) ratings.

Auto manufacturers have increased the number of hybrid gasoline-electric vehicles, plug-in vehicles as well as increased fuel economy for internal combustion gasoline engines in recent years, largely spurred on fuel economy targets set by the Obama administration.

In 2011, Obama reached a deal with major automakers that fuel economy for each manufacturer will rise to an average of 54.5 mpg by 2025. By model year 2016, U.S. cars and light-duty trucks by each manufacturer are to average 35.5 mpg.

The EPA said the longer term trend of improving fuel economy ratings began with the 2005 model year, during the Bush administration.

Since the 2007 model year, U.S. passenger vehicles have shown a 13-percent increase in fuel economy ratings and a 16 percent reduction in carbon dioxide emissions.

(Reporting by Bernie Woodall; editing by Sofina Mirza-Reid)

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Job seekers stand in line to meet with prospective employers at a career fair in New York City, October 24, 2012.

WASHINGTON | Thu Jan 17, 2013 4:58pm EST

WASHINGTON (Reuters) - The number of Americans filing new claims for unemployment aid hit a five-year low last week and residential construction surged in December, the latest signs that the U.S. economic recovery remains on track.

The reports on Thursday showed the economy was weathering an uncertain fiscal environment surprisingly well. Still, growth in the fourth quarter was likely subdued with only a modest pick-up expected in the first three months of this year.

"While growth has been slow, the damage done from the uncertainty surrounding the fiscal cliff was not sufficient to topple the recovery," said Millan Mulraine, a senior economist at TD Securities in New York.

The fiscal cliff refers to a wave of deep government spending cuts and tax increases, part of which was avoided after a last-minute agreement by U.S. lawmakers. A fight over raising the government's borrowing limit looms.

Initial claims for state unemployment benefits fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008, the Labor Department said. It was the largest weekly drop since February 2010 and ended four straight weeks of increases.

While problems adjusting the data for seasonal fluctuations might have exaggerated the decline, economists said the report still suggested an improvement in sluggish labor market conditions and the economy as a whole.

"Having taken a pinch of salt, however, we would suggest that the trend in claims generally show no pickup in layoff activity around the turn of the year," said John Ryding, chief economist at RDQ Economics in New York.

A separate report from the Commerce Department showed housing starts jumped 12.1 percent last month to their highest level since June 2008. Permits for future home construction were also the highest in about 4-1/2 years.

Stocks on Wall Street ended higher on the fairly upbeat jobs and housing data, with the broad Standard & Poor's 500 index hitting a five-year high. Commodity prices also firmed, but U.S. government bond prices slumped.

The dollar rallied to a 2-1/2-year high against the yen.

HOUSING GAINING TRACTION

Though warm weather likely helped, the data was confirmation of the improving housing market tone, and home building made gains across all four regions. Groundbreaking also increased for both single-family homes and multi-family units.

Builders started 780,000 houses in 2012. While still low by historical standards, it was the third straight year of gains in home construction. Housing is no longer a drag on the economy and residential construction is expected to have contributed to growth last year for the first time since 2005.

"The housing recovery has steam. Interest rates are rock-bottom low, inventories of new and existing homes are lean, and the economy is creating jobs," said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.

Newport said they expected starts to rise to 970,000 this year. The reports came on the heels of data this week showing solid retail sales and manufacturing growth in December.

But weak exports, a slow pace of inventory accumulation and the reversal of a surge in defense spending probably slowed growth to below a 2 percent annual pace in the fourth quarter.

In a reminder that the outlook for the economy remained shaky, a third report showed factory activity in the U.S. mid-Atlantic region contracted this month as new orders tumbled.

The Philadelphia Federal Reserve Bank said its business activity index fell to -5.8 from 4.6 in December. A reading below zero indicates contraction in manufacturing in eastern Pennsylvania, southern New Jersey and Delaware.

"Manufacturing has slowed but it's still growing. I'm not going to read too much into this until I see other regional surveys," said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh.

The claims data covered the survey week for the January data for the closely watched nonfarm payrolls report. The four-week moving average of new jobless claims, a better measure of labor market trends, fell 6,750 to 359,250, suggesting some improvement in labor market conditions.

Job growth has been gradual, with employers adding 155,000 new positions in December. The unemployment rate held steady at 7.8 percent last month. High jobless is likely to keep the Federal Reserve on an expansionary monetary policy path.

Atlanta Fed President Dennis Lockhart said on Thursday the Federal Reserve will very likely need to continue its large-scale asset purchases into the second half of this year.

(Additional reporting by Jason Lange in Washington and Richard Leong in New York, editing by Chizu Nomiyama)

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A man walks past the U.S. Capitol Building in Washington December 17, 2012.

WASHINGTON | Wed Jan 2, 2013 4:52pm EST

WASHINGTON (Reuters) - Washington has steered clear of severe austerity measures for now, reducing the risk of recession, but a clutch of U.S. tax hikes will nevertheless be a drag on economic growth this year.

The U.S. Congress approved a deal late on Tuesday to scale back some $600 billion in scheduled tax hikes and government spending cuts known as the "fiscal cliff."

Analysts said the package at least marked a temporary reprieve for the economy, and investors charged into U.S. stocks, pushing the Standard & Poor's 500 up 2.5 percent on Wednesday.

However, the legislation, which is expected to be signed into law soon by President Barack Obama, will raise taxes on most Americans through a hike in the payroll tax used to fund Social Security pensions for the elderly.

Economists say the U.S. economy would likely grow much more quickly if the government was not raising taxes.

The payroll tax hike alone - which comes from the expiration of stimulus measures enacted to fight the 2007-09 recession - could push the average household tax bill up by about $700 this year, according to estimates from the Tax Policy Center, a Washington think tank.

That will likely reduce consumer spending and subtract about three quarters of a percentage point from economic growth, said Joseph LaVorgna, an economist at Deutsche Bank in New York.

The package will also raise income tax rates for households making over $450,000 a year, although rates will remain at 2012 levels for everyone else.

The other modest tax hikes, including a tax on wealthy households to help pay for Obama's 2010 healthcare reform law, could shave another quarter of a point from growth.

"We are still getting some fiscal drag this year," LaVorgna said.

Even so, the tenor of the deal was widely anticipated by economists in financial centers like Wall Street, and appears to support forecasts for economic growth of around 2 percent this year.

Barclays Capital said it was holding its growth forecast for this year at 2.1 percent.

A Reuters poll of analysts in December produced a median forecast for 1.9 percent U.S. economic growth in 2013.

"There seems to be a collective sigh of relief," strategists at Brown Brothers Harriman wrote in a note to clients. "The full force of the U.S. fiscal cliff - (which) could have dragged the world's largest economy into a recession - has been averted."

The Congressional Budget Office had estimated that completely running over the fiscal cliff would have caused the economy to contract 0.5 percent this year. The full brunt of the cliff would have hit the average U.S. household with about an additional $3,500 in taxes this year, according to the Tax Policy Center.

Still, U.S. lawmakers only agreed to delay scheduled cuts on government spending on the military, education and other areas for another two months.

Many economists think ongoing talks in Congress will eventually lead these spending cuts to be put off until next year, presumably once lawmakers reach a deal to reduce spending over the longer term while granting the government authority to increase the national debt.

Then again, they might not reach a deal, and the planned spending cuts would then cut deeply into economic growth in the second half of the year.

"While we retain our 2013 GDP forecast, we also retain the view that fiscal policy presents downside risks to growth," analysts at Barclays said in a research note.

Some economists noted that tax policy now looks more stable for the majority of Americans, removing some of the uncertainty that may have held back spending by consumers and business in recent months.

At the same time, with an axe still hanging above billions of dollars in government spending, many businesses are likely to remain cautious.

Analysts say financial markets are likely to remain on tenterhooks until Congress raises the nation's $16.4 trillion debt ceiling, which the U.S. Treasury confirmed had been reached on Monday.

The government likely will need to raise the debt ceiling by February or March to remove the risk albeit remote, of the country defaulting on its debt. Such an extreme scenario would likely make it more expensive for governments and companies alike to borrow money, hurting the economy.

"We have some more certainty, but there are still quite a few questions left to be resolved," said Dana Saporta, an economist at Credit Suisse.

(Additional reporting by Jonathan Spicer in New York; Editing by Leslie Adler)

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A man walks past the U.S. Capitol Building in Washington December 17, 2012.

WASHINGTON | Wed Jan 2, 2013 4:52pm EST

WASHINGTON (Reuters) - Washington has steered clear of severe austerity measures for now, reducing the risk of recession, but a clutch of U.S. tax hikes will nevertheless be a drag on economic growth this year.

The U.S. Congress approved a deal late on Tuesday to scale back some $600 billion in scheduled tax hikes and government spending cuts known as the "fiscal cliff."

Analysts said the package at least marked a temporary reprieve for the economy, and investors charged into U.S. stocks, pushing the Standard & Poor's 500 up 2.5 percent on Wednesday.

However, the legislation, which is expected to be signed into law soon by President Barack Obama, will raise taxes on most Americans through a hike in the payroll tax used to fund Social Security pensions for the elderly.

Economists say the U.S. economy would likely grow much more quickly if the government was not raising taxes.

The payroll tax hike alone - which comes from the expiration of stimulus measures enacted to fight the 2007-09 recession - could push the average household tax bill up by about $700 this year, according to estimates from the Tax Policy Center, a Washington think tank.

That will likely reduce consumer spending and subtract about three quarters of a percentage point from economic growth, said Joseph LaVorgna, an economist at Deutsche Bank in New York.

The package will also raise income tax rates for households making over $450,000 a year, although rates will remain at 2012 levels for everyone else.

The other modest tax hikes, including a tax on wealthy households to help pay for Obama's 2010 healthcare reform law, could shave another quarter of a point from growth.

"We are still getting some fiscal drag this year," LaVorgna said.

Even so, the tenor of the deal was widely anticipated by economists in financial centers like Wall Street, and appears to support forecasts for economic growth of around 2 percent this year.

Barclays Capital said it was holding its growth forecast for this year at 2.1 percent.

A Reuters poll of analysts in December produced a median forecast for 1.9 percent U.S. economic growth in 2013.

"There seems to be a collective sigh of relief," strategists at Brown Brothers Harriman wrote in a note to clients. "The full force of the U.S. fiscal cliff - (which) could have dragged the world's largest economy into a recession - has been averted."

The Congressional Budget Office had estimated that completely running over the fiscal cliff would have caused the economy to contract 0.5 percent this year. The full brunt of the cliff would have hit the average U.S. household with about an additional $3,500 in taxes this year, according to the Tax Policy Center.

Still, U.S. lawmakers only agreed to delay scheduled cuts on government spending on the military, education and other areas for another two months.

Many economists think ongoing talks in Congress will eventually lead these spending cuts to be put off until next year, presumably once lawmakers reach a deal to reduce spending over the longer term while granting the government authority to increase the national debt.

Then again, they might not reach a deal, and the planned spending cuts would then cut deeply into economic growth in the second half of the year.

"While we retain our 2013 GDP forecast, we also retain the view that fiscal policy presents downside risks to growth," analysts at Barclays said in a research note.

Some economists noted that tax policy now looks more stable for the majority of Americans, removing some of the uncertainty that may have held back spending by consumers and business in recent months.

At the same time, with an axe still hanging above billions of dollars in government spending, many businesses are likely to remain cautious.

Analysts say financial markets are likely to remain on tenterhooks until Congress raises the nation's $16.4 trillion debt ceiling, which the U.S. Treasury confirmed had been reached on Monday.

The government likely will need to raise the debt ceiling by February or March to remove the risk albeit remote, of the country defaulting on its debt. Such an extreme scenario would likely make it more expensive for governments and companies alike to borrow money, hurting the economy.

"We have some more certainty, but there are still quite a few questions left to be resolved," said Dana Saporta, an economist at Credit Suisse.

(Additional reporting by Jonathan Spicer in New York; Editing by Leslie Adler)

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Women carry shopping bags through Times Square in New York, July 27, 2012.

WASHINGTON | Fri Dec 21, 2012 12:47pm EST

WASHINGTON (Reuters) - The U.S. economy showed surprising signs of resilience in November despite the approach of the so-called fiscal cliff as consumer spending rose by the most in three years and a gauge of business investment jumped.

Consumer spending rose 0.6 percent when adjusted for inflation, while new factory orders for capital goods outside the defense and aerospace sectors - a proxy for business spending plans - jumped 2.7 percent, the Commerce Department said on Friday.

Economists had pinned earlier weakness in investment plans on worries lawmakers and the White House might fail to strike a deal to avoid the brunt of tax hikes and government spending cuts scheduled to begin in January.

They also worried consumers would hold back as the end-of-the-year deadline approached with both parties far apart on how to avoid the potential hit to the economy. But Friday's data suggested both consumers and businesses had mostly shrugged off the cliff, at least in November.

"It appears that the looming fiscal cliff hasn't been nearly as disruptive as we had feared," said Paul Ashworth, an economist at Capital Economics in Toronto.

Still, another report provided ample reason for caution as U.S. consumer sentiment slumped in December, with households apparently rattled by on-going negotiations to lessen the fiscal tightening that could easily trigger a recession next year.

The Thomson Reuters/University of Michigan's final index of consumer sentiment in December tumbled more than expected to 72.9 from 82.7 a month before.

U.S. stocks fell sharply after a Republican proposal for averting the fiscal cliff was abandoned late on Thursday, eroding optimism that a deal could be reached quickly. At the same time, U.S. government debt prices rallied and the dollar gained ground as investors sought a safe haven.

Economists still expect economic growth to cool in the fourth quarter as companies slow the pace at which they have been re-stocking their shelves, but the data on Friday suggested consumers are offsetting some of that drag.

Consumer spending is on track to grow at a 2.2 percent annual rate in the fourth quarter, faster than during the prior three months, said Michael Feroli, an economist at JPMorgan in New York.

Forecasting firm Macroeconomic Advisers raised its forecast for fourth-quarter economic growth by four tenths of a point to a 1.4 percent annual rate. In the third quarter, the economy expanded at a 3.1 percent rate.

"The economy is holding in here at the end of the year despite the concerns about the fiscal cliff," said Gary Thayer, an economic strategist at Wells Fargo Advisors in St. Louis.

WORRIES AHEAD

Those concerns are not going away.

In November, many analysts on Wall Street said they expected Washington would largely avert the fiscal cliff, and optimism had grown over the last week that a deal was within reach. Since Wednesday, however, negotiations have fallen into disarray.

If Congress and the White House do not reach a deal in time, taxes will go up for all Americans beginning in January and the government will cut spending on a host of programs. Running off the fiscal cliff would slash the nation's trillion-dollar budget deficit nearly in half in just one year.

The impact would only come gradually, but economists expect it would be enough to knock the country into recession in the first half of the year.

So far, uncertainty over the talks appears to have had only a limited impact on the economy.

New orders for durable goods, items meant to last three years or more, rose a greater-than-expected 0.7 percent in November due to gains in machinery, fabricated metal products, and computer and electronic products. Those increases were offset by a decline in volatile aircraft orders.

The report also showed a rise in shipments, brightening the prospects for fourth-quarter economic growth.

Shipments of non-defense capital goods orders excluding aircraft, used to calculate equipment and software spending in the government's measures of gross domestic product, gained 1.8 percent, after rising by a softer 0.6 percent in October.

(Additional reporting by Ellen Freilich and Leah Schnurr in New York; Editing by Andrea Ricci and Tim Ahmann)

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Policemen stand guard near a banner outside the constitutional court put up by supporters of Egyptian President Mohamed Mursi as they stage a sit-in, in Cairo December 23, 2012. Mursi will have little time to savour victory in pushing through a new constitution as it may have cost the Islamist leader broader support for urgent austerity measures needed to fix the creaking economy. The banner reads, ''We support you against corruption!''

CAIRO | Mon Dec 24, 2012 2:12am EST

CAIRO (Reuters) - Egyptian President Mohamed Mursi will have little time to savor victory in pushing through a new constitution as it may have cost the Islamist leader broader support for urgent austerity measures needed to fix the creaking economy.

By fast-tracking the constitution through to a referendum that the opposition said was divisive, he may have squandered any chance of building a consensus on tax rises and spending cuts that are essential to rein in a crushing budget deficit.

Unofficial tallies from Mursi's Muslim Brotherhood showed the charter was approved by a 64 percent majority. But opponents said he lost the vote in much of the capital, while across the nation he alienated liberals, Christians and others worried by the text that was drafted by an Islamist-dominated assembly.

Opponents say such divisions will fuel more unrest in a nation whose economy has been pummeled by turbulence since Hosni Mubarak was overthrown almost two years ago, scaring off investors and tourists that are both vital sources of capital.

Without broad support, Mursi's government will find it harder to implement reforms needed to secure a $4.8 billion loan from the International Monetary Fund. The Muslim Brotherhood's party, which propelled Mursi to office, may also face a tougher fight in a parliamentary election expected in about two months.

"For austerity measures to be made at a time when the political system is being opened and millions of people are being enfranchised, you need political consensus within the political class," said Amr Adly, an expert on the economy.

Yet, even though there is broad acceptance of the urgency of fixing the battered economy, Adly said Mursi's approach in pushing through a constitution that angered opponents would encourage his rivals to capitalize on any public backlash against austerity rather than help sell reforms to the nation.

"His political rivals are already dealing with these problems on a very opportunistic basis," said Adly, head of the social and economic justice unit at the Egyptian Initiative for Personal Rights. "There won't be any prospect of ending ... violence in the streets or very deep political divisions."

UNITED

Egypt's fractured opposition, defeated at the ballot box by Islamists in each poll since Mubarak was overthrown in February 2011, unified their ranks after Mursi expanded his powers in a decree on November 22 to push through the constitution.

"What Mursi did has united us," said Ahmed Said, head of the liberal Free Egyptians Party and a leading member of the National Salvation Front coalition, adding he expected a unified approach to the upcoming parliamentary election.

That would give the opposition a much better chance in parliamentary polls against disciplined Islamists, who have built a broad grass-roots network across the nation over decades that liberals and other non-Islamists cannot yet match.

Though Said agreed steps were needed to fix Egypt's economy, he said Mursi had made no effort to discuss it with his rivals although they were a national concern. The IMF has long said a broad political consensus to reforms was needed for a loan.

"Who wouldn't agree with economic reforms?" Said asked, but added: "We have not been consulted at all with regard to supporting such policies or not, we are not sure what is going on in the country."

Mursi now faces the prospect of having an opposition seeking to score political points from any tax rises and measures to reduce spending, particularly steps to rein in fuel subsidies in a nation where rich and poor have become used to cheap energy.

That could make it more of a challenge for Islamists to win votes in the parliamentary election.

Though the opposition have drawn tens of thousands of Egyptians to the streets on occasion, Islamists have done so with greater regularity and also have a strong record of getting out the vote in the more local politics of a parliamentary poll.

But nation's political divisions have already taken their toll on the president's initial economic reforms.

Shortly before the referendum, Mursi introduced increases on the sales tax on goods and services that ranged from alcoholic beverages, cigarettes and mobile phone calls to automobile licenses and quarrying permits. He withdrew them within hours under criticism from his opponents and the media.

An immediate result of Mursi's policy U-turn was a delay in approving the IMF loan. The IMF said it would postpone its meeting in mid-December to approve the loan. Egypt's government said it might now be approved in January.

Farid Ismail, a senior official in the Brotherhood's Freedom and Justice Party, said Egypt could not be described as divided when two-thirds of those who voted backed the constitution but said all sides needed to discuss the economic issues ahead.

"We have an economic and social challenge and this is the time for people to present initiatives and engage in a national dialogue," he said, adding that passing the constitution meant one major hurdle to stabilizing the nation had been overcome.

EXPECTATIONS

Yet expectations run high in a nation where demands for social justice and a better standard of living helped drive the 2011 uprising as much as calls for political freedoms.

"We had a revolution to make life easier and prices lower, not higher," said 19-year-old student Sally Ahmed Kotb referring to Mursi's tax plans as she went to the polls on Saturday to vote "no". "This will lead to a hunger revolution."

Once a darling of emerging market investors, Egypt's economy has taken a hammering. The budget deficit surged to a crippling 11 percent of gross domestic product in the financial year that ended in June 2012 and is forecast to exceed 10 percent this year.

Without swift action, it could hit 13 percent, said Adly.

Among belt-tightening measures in the pipeline are steps to reduce how much subsidized gasoline drivers can buy, which is bound to be unpopular.

In the meantime, Egypt has been bleeding foreign reserves at a rate of about $600 million a month, cutting them to about $15 billion, less than half their level before Mubarak's fall.

Some Egyptians are still ready to give Mursi a chance. Many of those who voted "yes" in the referendum backed the charter as a vote for "stability", even if they had some reservations. But, even from supporters, Mursi may have limited leeway.

"Just as people rose against Mubarak, they can rise against Mursi," said Mohamed Mohsen, a civil servant and Islamist backer who voted "yes" in the referendum. "Let's give him two, three, four or five months to solve our problems then we can see."

The government says it is already engaged in a "national dialogue" with political forces, unions and others to win public support for an economic plan it insists will not hurt the poor.

"Passage of the new constitution is unlikely to ease recent discord, but it nevertheless marks a significant step forward in Egypt's labored political transition," Simon Williams, HSBC economist in Dubai, wrote in a note after the constitution was approved in the first of the two-stage referendum.

He said progress on the IMF program could now resume swiftly, but added: "The temptation to avoid pressing ahead with unpopular policy measures may also prove ever harder to resist, particularly ahead of the parliamentary polls."

(Additional reporting by Shaimaa Fayed and Tamim Elyan; writing by Edmund Blair; editing by Giles Elgood)

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Two men chat in front of a polka dot covered Sotheby's signage, part of an installation by Japanese artist Yayoi Kusama, at Sotheby's newly opened gallery in Hong Kong May 18, 2012.

HONG KONG | Tue Oct 9, 2012 12:12pm EDT

HONG KONG (Reuters) - Sotheby's sold HK$2 billion ($258 million) worth of Asian and Chinese artwork and luxury goods in its autumn sales in Hong Kong on Tuesday, a 37 percent decline from the same period last year as the market consolidates on a weaker China economy.

The tally was also some 18 percent less than the $316 million Sotheby's sold in its Hong Kong spring sales.

The modest showing comes as two major Chinese auction houses muscle into the Hong Kong market for the first time, posing a fresh competitive threat for Sotheby's and rival Christie's whose revenues in Hong Kong have soared on the Chinese art boom in recent years, but which may now be difficult to sustain.

Anchoring the five-day auction series was again Chinese imperial ceramics with a pair of yellow ground famille-rose double-gourd Qianlong vases fetching HK$107 million ($13.7 million) while a pair of turquoise-glazed "pomegranate" vases from the Qianlong period that sold for HK$23 million from the prominent J.M. Hu collection of Qing monochrome wares.

Faring less well, however, were pieces of lesser quality and minor flaws amid more discriminating bidding, with buyers indifferent to some porcelain pieces from even great old European collections such as the Meiyintang.

"It's still quite strong, but more selective," said John Berwald, a London dealer in the room. "It's not so crazy and I think it's better like this. It has just lost some of its exuberance," added Berwald who bid for several Qing wares.

China last year accounted for nearly 44 percent of global auction revenue, according to the French government's Conseil des Ventes art market report, and is a vital driver for the global art market now, making Sotheby's results a stress test of sorts with broader art sector repercussions.

But the market has been dogged by a proliferation of issues including a large-scale Chinese customs probe into tax evasion on art imports that has cooled recent sentiment, while high art taxes, complex regulations, widespread fakes and market manipulation remain tangible risks.

China's annual economic growth is expected to slow for a seventh straight quarter to the weakest level since the global financial crisis, with luxury demand having waned substantially.

"To cool down a bit is a good thing," said Zheng Hong, a mainland Chinese buyer at the ceramics sale. "Last year, it was too high ... China's economy is weakening, property and other sectors are not booming as before, so this is a natural result."

In Sotheby's contemporary Asian art sales, demand was again patchy, even for blue chip artists with 27 percent of lots going unsold, though master works like a 1992 painting by Liu Wei, "Revolutionary Family Series - Invitation to Dinner," made an artist record of $2.24 million, while Indonesian modern artist Lee Man Fong's "Fortune and Longevity" also fetched a record $4.4 million after competitive bidding.

Sotheby's fine Chinese paintings sale was strong with 97 percent of works sold by lot, including auction favourite, Chinese ink master Zhang Daqian's "Swiss Peaks; calligraphy in Xingshu", and Fu Baoshi's "Lady at the Pavilion" that each sold for HK$23 million.

New Hong Kong auction debutante China Guardian, now ranked among the world's top four auction firms is shaking up the landscape in older Chinese paintings, having sold some of the most expensive ink brush paintings in the world in recent years including Qi Baishi's "Eagle Standing on Pine, 1946" that fetched 425 million yuan ($57.2 million) in a Beijing sale.

At Guardian's debut Hong Kong auction on Sunday, a landscape series by Chinese ink painting master Qi Baishi, "Album of Mountains and Rivers, 1922" sold for HK$46 million, helping the Chinese house notch up an eye-catching HK$455 million sales total, nearly a quarter that of Sotheby's overall autumn tally.

Sotheby's, however, recently forged a breakthrough partnership with a Chinese art firm to enter the mainland Chinese market in Beijing for the first time, which could lead to fully fledged sales early next year and let them take on Guardian in their home base.

Chinese authorities have long refused to grant licenses to Sotheby's and Christie's for the lucrative mainland market, with Beijing topping even New York and London for art and collectibles revenues last year with sales of 6.4 billion euros ($8.30 billion) according to the Conseil des Ventes French government annual art market report.

(Reporting by James Pomfret, editing by Paul Casciato)

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LONDON | Thu Aug 2, 2012 11:24am EDT

LONDON (Reuters) - The Bank of England decided it was too soon on Thursday to step up efforts to bolster Britain's recession-hit economy, although future action looks increasingly likely as growth shows little sign of rebounding after a dismal few months.

Britain's economy tipped into its second recession in four years at the end of 2011, and a multi-year austerity program to close the country's vast budget deficit is weighing both on consumer morale and the government's popularity.

The BoE restarted its asset purchase program, which aims to lower big companies' capital costs, last month, and Wednesday marked the start of a joint scheme with the finance ministry to reduce the cost of bank loans for home-buyers and businesses.

As a result, almost all economists polled by Reuters had expected the BoE to make no change on Thursday to its plan to buy 50 billion pounds of British government bonds, which will take total purchases to 375 billion pounds by early November.

Interest rates likewise stayed at a record low 0.5 percent.

But if economic data continues to disappoint in the way it has in recent weeks, the central bank may not have the luxury of waiting long before deciding on its next policy move.

"While the unchanged decision isn't a surprise there is a question mark as to whether current policy settings are appropriate," said David Tinsley, UK economist at BNP Paribas.

"It is probably not the sort of macroeconomic environment where policymakers want to be doing too little."

European Central Bank President Mario Draghi discovered the danger of disappointing market expectations on Thursday when he said the ECB was merely considering - rather than immediately implementing - a new program to buy euro zone debt.

Stocks and the euro fell and Spanish and Italian bond yields rose after the ECB's monthly meeting brought no bold new moves, partially reversing a rally in riskier assets since Draghi surprised markets last week with a pledge to save the euro.

British economic output shrank by 0.7 percent in the second quarter, a much bigger fall than economists had expected, even taking into account the effect of an extra public holiday and months of unusually wet weather.

Both the BoE and Britain's coalition government blame the euro zone crisis for the fact that Britain has been in recession since late 2011. But Germany and France, which are at least as heavily exposed to the debt troubles on the euro currency bloc's periphery, have seen stronger growth over the same period.

Moreover, there is little sign so far of a hoped-for rebound in the third quarter from London's hosting of the Olympics.

Manufacturing activity fell at its fastest pace in more than three years in July, according to a survey of purchasing managers, and while construction improved, builders warned of disruption to deliveries from the Games.

The one bright spot is strong job creation since the start of the year, which has pushed unemployment down to 8.1 percent.

FURTHER STIMULUS SEEN

Most economists polled by Reuters before Thursday's decision expect further asset purchases with freshly created money, also known as quantitative easing, later this year.

The BoE might even lower interest rates again - something it has steadfastly resisted since its last rate cut in March 2009.

At July's meeting, MPC members said they may reconsider a rate cut in a few months time, once they have assessed the impact of the new Funding for Lending Scheme that offers cheap financing to banks which lend to businesses and home-buyers.

A clearer insight into the central bank's outlook will come on August 8, when BoE Governor Mervyn King presents the central bank's quarterly forecast update.

"King will stress - as he has for the past year - the damage from the euro zone crisis and the impact of that on the growth and inflation forecasts," said Brian Hilliard, an economist at Societe Generale.

As well as weak growth, inflation has fallen much faster than the BoE predicted in May to hit a 2-1/2 year low of 2.4 percent in June - close to the central bank's 2 percent target - and some economists now fear it may substantially undershoot.

"It would be a surprise if the (BoE) were expecting an inflation rate in two years time that was close to their target. More likely it will fall short by some margin. That would imply there was 'room' for more monetary easing," said BNP's Tinsley.

Further easing would be welcomed by finance minister George Osborne, who lost a reputation for political sure-footedness after a Budget that seemed to fund tax cuts for the very rich with higher taxes for pensioners and poorer Britons.

Last month the International Monetary Fund said Osborne may need to reconsider how to reduce Britain's budget deficit - the centerpiece of the coalition government's policy program - if BoE and other measures do not boost growth by early next year.

But for now, the focus remains on the central bank.

(Additional reporting by Sven Egenter and Olesya Dmitracova; Editing by Catherine Evans)

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