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Consumers nervous about the weak economy abandoned higher-end clothing store chains for discount retail giants such as Wal-Mart, Costco and BJ’s, which reaped back-to-school sales in August.

"Americans haven’t slowed their spending," said Ken Brown, president and retail analyst with ResearchConnect.com. "They just moved their spending, from some of the retailers with bigger-ticket items to the discounters."

That was why the August same-store sales for Wal-Mart, BJ’s and Costco increased and trounced analysts expectations, while sales plunged for Abercrombie & Fitch and The Gap, experts said.

"This is Wal-Mart’s year to eat share," said Dean Hillier, retail expert with management consultant firm A.T. Kearney.

Discount stores tend to thrive in a weak economy, because many consumers perceive low-cost retailers as the best places to stretch their dollars in purchasing necessities. Some analysts had expected - incorrectly, it turned out - that discount retailers would experience a softening in sales as the government-issued stimulus payments that came out in the spring and summer dried up.

Wal-Mart (WMT, Fortune 500), the leading retailer in the world in terms of annual sales, said Thursday that sales at stores open at least one year increased 3% during the four weeks ended Aug. 29, compared to the same period last year. The figure didnot include fuel sales.

A consensus of analysts interviewed by Thomson Reuters had expected a gain of 1.6%.

"Quite honestly, I think their brand is a comfort zone for consumers during bad economic times," said Hillier. "They’re the trusted brand in uncertain times."

Wal-Mart, the biggest food retailer in the world, attributed the gain to strong sales in groceries and "health and wellness" products. The company also was lifted by back-to-school sales, and said that sales in certain electronics - such as flatscreen TVs, cell phones and GPS units - continued to do well.

Wal-Mart’s U.S. sales, not counting its Sam’s Club division and fuel sales, rose 2.8% in August, compared to the same period last year. Analyst consensus from Thomson Reuters had expected a gain of 1.4%.

BJ’s Wholesale Club (BJ, Fortune 500) said Thursday that same-store sales jumped 15.4% in August, lifted largely by rising gas sales from inflation. BJ’s beat analyst expectations of a 14.1% gain, according to a consensus of projections compiled by Thomson Reuters.

But even without gas, BJ’s outperformed higher-end retailers with a same-store sales gain of 8%, matching the consensus projection from analysts. The company said that food was among its biggest sellers, with an 11% gain in sales of perishable foods.

Costco Wholesale (COST, Fortune 500), another top low-income merchant, reported Wednesday that same-store sales jumped 9% in August, compared to the same period last year. But the company still fell short of a consensus of analysts pooled by Thomson Reuters, who had expected a gain of 9.9%.

Costco said that its sales gain was bolstered by the 40% surge in the price of gasoline. Without gas, Costco said same-store sales rose 6%.

August is generally a good month for retail sales, as parents and college students stock up on clothing and supplies before the start of the school year. But these shoppers stayed away from retailers of higher-end clothes, according to analysts, who noted that many consumers are simply continuing to wear the clothes that they own.

The Gap (GPS, Fortune 500), which owns Old Navy and Banana Republic, said that same-store sales fell 8% in August. This was much worse than the 1% decline experienced in August 2007, but it wasn’t quite as bad as the 9.7% decline expected by a consensus of analysts surveyed by Thomson Reuters.

The worst-performing part of its business with Banana Republic North America, with a 14% plunge.

"I don’t see those guys coming back any time soon," said Brown of ResearchConnect.com, referring to The Gap and other clothing retailers.

Abercrombie & Fitch (ANF) said same-store sales fell 11% in August, which wasn’t as bad as the 7.9% projected by analyst consensus from Thomson Reuters. Limited Brands (LTD, Fortune 500), owner of Victoria’s Secret and Bath & Body Works, reported that same-store sales fell 7% in August, slightly worse than the 6.9% decline projected by analysts. 

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Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., expects third quarter financial reports for the banking industry in the United States to worsen.

“We haven’t seen the bottom of the credit cycle yet,” Bair said at a press event in Sarasota prior to a speech before 550 members of the Florida Bankers Association.

Her address to the bankers’ group was closed to the press, but in the text of her comments, Bair said second quarter industry results were “pretty dismal.”

The industry earned $5 billion in the second quarter, well below the $30 billion-plus record earnings of the past few years. Bair said declining non-interest income, rising non-interest expense, decreases in gains on securities sales and mounting loss provisions were the main reasons for the drop off in earnings.

She also said the number of banks on the FDIC’s “problem list” will continue to rise from the 117 that were on the list at the end of June. A turnaround is tied to improvements in the housing market, and she said she’s not sure when that will occur.

“We strongly urge institutions, especially here in Florida, to have enough reserves to cover your credit losses,” the text of her speech said.

Still, Bair told reporters that 98 percent of banks in the United States are well capitalized and Florida banks overall are “in pretty good shape.”

Shifting risk

Florida has had one bank fail this year, First Priority Bank in Bradenton, which was closed by the Florida Office of Financial Regulation on Aug. 1. The FDIC was named receiver and sold First Priority’s insured deposits to SunTrust Bank (NYSE: STI). SunTrust and LNV Corp. of Plano, Texas, also bought some of First Priority’s assets.

So far this year, 10 banks have failed. Because recent bank failures pushed the FDIC’s deposit insurance fund below the 1.15 percent statutory minimum, Bair said the FDIC board would be asked in early October to increase premium rates charged to banks.

She also said the board will consider changes to the current system that shift a greater share of any increase onto riskier institutions. “We hope to provide economic incentives for safer behaviors,” Bair said.

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At a dinner with Korea Development Bank (KDB) staff last month, CEO Min Euoo-sung sang his favorite song, “Leopard in Mt. Kilimanjaro”, a reflection of his desire to be a hunter in the volatile financial world.

And after taking over the staid, state-run bank this summer, he began stalking his previous employer — the beleaguered U.S. investment bank Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz).

When the 54-year old was appointed in June, he became the bank’s first chief executive to come from outside the ranks of government.

KDB, dubbed by the local media as “God’s workplace” for its high salaries and low workload, has long been seen as a secure place to work.

Min’s arrival was not immediately welcomed at the bank, which has played a critical role in South Korea’s dramatic economic rise since it was founded in 1954 as a policy bank, a year after the end of the Korean War.

The bank’s union members protested, preventing Min from going to work for three days because they argued his last job running Lehman’s South Korean operations did not qualify him to run the far bigger KDB.

It was no coincidence that his rise came under new President Lee Myung-bak, who wants to reshape the financial sector to help shift to a more service-driven economy now that a once-dominant manufacturing sector faces tough competition from China.

President Lee wants to make South Korea’s underdeveloped and rule-bound banks as powerful and international as the country’s technology companies, shipbuilders and steelmakers. 

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Despite customers lining up for back-to-school buys, Target Corp. said its same-store sales fell 2.1 percent in August.

Minneapolis-based retailer Target (NYSE: TGT), which has four Wichita locations, said its results were within its planned range; analysts had expected a drop of 2.6 percent.

In a recorded call, the company said that a decline in the number of same-store transactions was offset by an increase in average transaction size, adding that items such as health care and food were its biggest sellers.

It saw weak sales in apparel, accessories and home products, but added that sales of back-to-school items ramped up late in the month.

The Northeast was its strongest performing geographic region, while the West and the South were the weakest.

Target expects September same-store sales to be within the range of down 1 percent to up 1 percent, but added that current and expected tropical storms may negatively impact results.

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Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), the world’s top retailer, is considering its first stores in Southeast Asia and expects to approach 10 percent growth in international sales to $100 billion this fiscal year despite a global economic slowdown.

The retailer, a perennial runner-up to Carrefour (CARR.PA: Quote, Profile, Research, Stock Buzz) in China in terms of sales and stores, is enjoying a huge leap in market share as it advances with a $1 billion acquisition of local chain Trust-Mart, expected to be fully completed by 2010.

The U.S. household name — which has roughly 2.1 million employees worldwide — is now looking to expand into Southeast Asia as U.S. consumers are squeezed by a soft housing market and tighter access to credit.

“I foresee international will outpace the U.S. in terms of percentage of growth. We should be approaching the $100 billion mark this year for international,” Asia CEO Vicente Trius, told Reuters.

Last month, Wal-Mart posted a 17 percent jump in second-quarter profit to $3.45 billion, on the back of a 17 percent increase in international sales to $25.26 billion.

But the discount retailer forecast current quarter results could miss Wall Street estimates as consumers worldwide deal with tough economic times. Analysts said Wal-Mart’s third-quarter outlook was lower than some expected, and warned that tougher times could be ahead.

“Although the international business continues to expand its presence within Wal-Mart’s operations, a drop in inflation rates or a strengthening dollar coupled with more difficult comparisons in the second half of FY09 could start to hold down the accelerated pace in sales growth Wal-Mart has experienced during the 1st half of this year,” Credit Suisse analysts said in a research note.

On Wednesday, the U.S. behemoth opened its Asian regional headquarters in Hong Kong, which will oversee its business in Japan, India, and China. 

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European producer prices increased the most in at least 18 years in July as crude oil reached a record before easing last month.

The 9 percent increase from a year earlier in the 15 euro countries was the biggest since the series began in 1990 and followed an 8 percent gain in June, the European Union statistics office in Luxembourg said today. Core prices, which exclude energy, accelerated to 4.3 percent from 4 percent.

Crude oil, which reached a record $147.27 a barrel on July 11, has fallen almost 28 percent since then to a five-month low, easing inflation pressures. Still, the European Central Bank will probably keep interest rates at a seven-year high this week even after the economy contracted in second quarter as it seeks to prevent a wage-price spiral.

“The core measure has also shown some signs of pass- through as it has climbed up over the last twelve months,'' said Carsten Brzeski, an economist at ING Group in Brussels. While retailers may find it hard to pass on price increases as consumer demand weakens, “today's numbers are new evidence that it is far too early for the ECB to give the all-clear on the inflation front.''

Interest Rates

The ECB raised the benchmark interest rate to 4.25 percent in July on concerns that consumer-price gains at twice the bank's 2 percent limit will become embedded in the economy even as growth cools. While it left rates unchanged last month, policy makers Axel Weber and Lucas Papademos last week said the ECB remains focused on inflation risks and may need to lift rates again if they intensify.

All but one of 53 economists surveyed by Bloomberg News predict the bank will leave the benchmark rate at 4.25 percent on Sept. 4 and only five expect a cut this year.

Annual energy-price inflation accelerated to 29.4 percent in July from 27.6 percent in June, today's report showed. Crude oil fell as low as $105.46 a barrel today, the lowest since April 4, and was at $108.39 as of 12:15 p.m. in London.

“The data reflect the pressure from oil we saw until last month, but this may be the peak,'' said Aurelio Maccario, chief euro area economist at Unicredit MIB in Milan. After Hurricane Gustav passed the U.S. Gulf Coast without causing major damage to offshore platforms, “it seems the downward trend we've seen in oil has become a little bit more entrenched.''

Economists expected overall producer price inflation of 9.1 percent in July, according to the median of 24 forecasts in a Bloomberg News survey. From a month earlier, producer prices rose 1.1 percent in the euro area in July.

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U.K. mortgage approvals dropped to the lowest since at least 1999 and manufacturing contracted for a fourth month as the economy staggered toward a recession.

Banks granted 33,000 loans for house purchases in July, the fewest since comparable data began nine years ago, the Bank of England said in London today. An index based on a survey of factories by the Chartered Institute of Purchasing and Supply stayed below 50 in August, indicating contraction.

Prime Minister Gordon Brown will announce measures this week to shore up the economy as the Bank of England battles the fastest inflation in more than a decade, which may prevent it from cutting the main interest rate on Sept. 4. The squeeze on lending stalled economic growth in the second quarter and damaged the housing market, where prices are falling by the most since at least 2001.

“We're in for a prolonged period of weak growth that will likely go into a recession,'' said Amit Kara, an economist at UBS AG in London who formerly worked at the central bank. “There's an argument for cutting rates this week but I don't think they will because of increasing inflation pressures.''

The pound fell to the lowest level since April 2006 against the dollar today and traded at $1.8033 as of 11:48 a.m. in London. The currency dropped to a record low against the euro and traded at 81.19 pence per euro. U.K. stocks declined for the first time in four days.

The Bank of England reported that the value of home loans rose to 3.23 billion pounds ($5.83 billion) in July from 3.14 billion pounds in June. The figure is down from 9.35 billion pounds in July 2007.

Housing Decline

Hometrack Ltd. said today the average cost of a residential property in England and Wales slipped 5.3 percent from a year earlier in August. A recovery in prices is “still some way off,'' said Richard Donnell, director of research.

The slump has led to a collapse in support for Brown since he took over from Tony Blair 15 months ago and reduced the popularity of the ruling Labour Party to the lowest since it took office. Labour trailed behind the opposition Conservative Party, led by David Cameron, by 20 percentage points in recent opinion polls.

Brown will hand U.K. local government authorities money to buy homes, a person familiar with the plan said last week, as part of a package to prevent the economy entering its first recession since 1991. Chancellor of the Exchequer Alistair Darling said in a Guardian newspaper interview Aug. 30 that the U.K. is facing “arguably the worst'' economic crisis for the last 60 years.

Darling's comments contrast with those of Prime Minister Gordon Brown, who said Britain is better placed to weather global economic storms now than in the late 1970s and in the early 1990s.

Credit Squeeze

“After a massive debt-fuelled boom in asset prices and spending over recent years, the hangover of high debt levels among households and companies are now likely to trigger an extended period of falling asset prices,'' Michael Saunders, chief western European economist at Citigroup Inc. in London, wrote in a note today. “The erosion of real incomes and profits from high commodity prices just adds to the pain.''

Financial institutions are reluctant to lend to one another almost a year after a freeze in interbank lending. Bank losses from the collapse of the U.S. subprime mortgage market now exceed $500 billion.

Oil prices, which surged to a record in July, are damping demand for manufactured goods and squeezing factories' margins. The euro area, Britain's biggest export market, contracted 0.2 percent in the second quarter. The U.K. failed to grow for the first time since 1992.

The Chartered Institute of Purchasing and Supply's index of manufacturing stood at 45.9 after 44.1 in July, the lowest since December 1998. Economists predicted 44, the median of 31 forecasts in a Bloomberg News survey showed. Readings below 50 signal contraction.

All 61 economists in a Bloomberg News survey predict the central bank will leave the key rate at 5 percent for a fifth month on Sept. 4.

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Hundreds of Zoom Airlines passengers were stranded Thursday in Canada and the UK after the cash-strapped Canadian airline suddenly canceled all of its flights after creditors took action to get money owed them.

Zoom said the economic downturn and the unprecedented rise in the price of aviation fuel made it impossible for the privately owned company to continue operations.

"We have done everything we can to support the airline and left no stone unturned to secure a refinancing package that would have kept our aircraft flying," company founders Hugh and John Boyle said in a statement.

"Even as late as lunchtime today [Thursday] we believed we had secured a new investment package to ensure future operations but the actions of creditors meant we could not continue flying."

Boyle said the company was unable to complete the investment package, leaving the directors of Zoom with no option but to start insolvency and administration proceedings.

Zoom’s founders apologized to passenger several hours after their flights were canceled, explaining that the airline had to be suspended after the company failed to pay bills to government, airport, supplier and aircraft creditors.

Rising fuel costs added 50 million Canadian dollars ($47.5 million) in operating costs for the airline in the last year, said Boyle.

The effects of rising fuel costs have been evident for several airlines. AMR Corp.’s (AMR, Fortune 500) American Airlines, UAL Corp.’s (UAUA, Fortune 500) United Airlines, Continental Airlines Inc (CAL, Fortune 500)., Delta Air Lines Inc (DAL, Fortune 500). and Northwest Airlines Corp (NWA, Fortune 500). have all announced capacity cuts, most of which take effect next month.

Baggage handlers refused to load Zoom planes.

Halifax airport spokesman Peter Spurway said airport volunteers are attempting to help 213 passengers reach their destinations with other airlines after a plane destined for Ottawa, Ontario, was grounded following a flight from London’s Gatwick Airport. Spurway said baggage handlers with Servisair refused to load Zoom’s aircraft because their company has not been paid. Servisair officials could not be immediately reached for comment.

The Halifax airport is owed more than 200,000 Canadian dollars ($190,000) but has not put a claim on the aircraft because it is a common occurrence for airlines, according to Spurway.

In Calgary, dozens of passengers were transported to Vancouver, British Columbia, by WestJet, Canada’s second-largest airline, on Wednesday afternoon after Zoom’s Boeing 767 was grounded by a court order.

The Ottawa-based airline owes more than 400,000 Canadian dollars ($380,000) to the authority that runs the Calgary airport, along with money to the airplane’s owner, ground support and refuelers.

The owner of the Boeing 767 terminated Zoom’s lease on the aircraft, a Calgary airport spokesman said Thursday.

"The aircraft is on the ground in Calgary pending resolution with Zoom and the leaseholder as well as the creditors," said Wayne Reimer, Calgary airport’s duty manager.

In Scotland, the Civil Aviation Authority instructed the Glasgow airport authority to detain a Boeing 757 for nonpayment of charges from Eurocontrol, the European organization for the Safety of Air Navigation, and NATS (the air traffic services provider).

That aircraft had been scheduled to travel Thursday morning to Halifax, Nova Scotia, and Ottawa.

The Glasgow airport is also owed money but its detention order has been lifted, officials said in an e-mail Thursday. 

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The U.S. is facing the worst financial crisis since the Depression. You would never know that from the Democrats' platform in Denver or its Republican counterpart, or from listening to Barack Obama or John McCain.

While both candidates have bemoaned the ravages of the subprime crisis, they have yet to spell out steps for tackling it, such as using taxpayer money to shore up banks and housing.

“They fail to come to grips with the biggest danger that is going to hit the next president in his first few months in office: the crisis in the capital markets,'' said David Smick, a Washington-based consultant to hedge funds and author of “The World is Curved: Hidden Dangers to the Global Economy.''

The Democrats' platform, adopted at their Denver convention this week, labels the crisis a “debacle'' and promises to jump-start the economy with a $50 billion stimulus package. It says nothing about helping banks or bailing out the mortgage-finance firms Fannie Mae and Freddie Mac.

The draft of the Republicans' plank, to be adopted next week at their convention in St. Paul, Minnesota, supports “timely and carefully targeted aid to those hurt by the housing crisis'' and opposes bailouts of private financial institutions. It doesn't mention Fannie and Freddie.

Fannie, Freddie

Many Democrats shy away from tackling the credit crisis because of the party's historical support for Fannie and Freddie. The Republicans, for their part, are reluctant to draw attention to a crisis that occurred on their watch. The subprime meltdown isn't the only item missing from the parties' agendas. The list also includes the Democrats' failure to set out a strategy for countering Russia's assertiveness and the Republicans' silence on income inequality.

Senator Charles Schumer, a New York Democrat, said conventions aren't the place to discuss detailed plans for dealing with the markets.

“The conventions are aimed at the average voter,'' he said Aug. 25 in Denver. “You don't go into Quinlan's bar and ask them what to do about the'' Securities and Exchange Commission.

Democratic lawmakers also said Congress defused the issue by passing legislation last month to help homeowners refinance their mortgages and provide a financial lifeline for Fannie and Freddie.

`Big Step'

“We feel like we've taken a big step to stabilize the situation,'' said Senator Tom Carper of Delaware, a Democrat on the Banking Committee.

The situation is reminiscent of the 1988 presidential campaign between George H. Bush and Michael Dukakis, when there was little mention of the savings and loan bailout that the Bush administration later put in place. The Federal Deposit Insurance Corp. has estimated the cost of that rescue at about $125 billion, though former Treasury Secretary Lawrence Summers said the bill would have been about $300 billion in today's dollars.

The cost of the current crisis may be larger. Banks and securities companies have recorded $504 billion in losses related to the turmoil and the International Monetary Fund forecasts the bill will eventually be double that.

“We are in the midst of the worst financial crisis since World War II,'' Stanley Fisher, governor of the Bank of Israel and a former IMF official, told central bankers in Jackson Hole, Wyoming, on Aug. 23.

Bank Failure

Harvard University professor Kenneth Rogoff, another former IMF official, predicted that a big U.S. financial institution would go bust. Neither Senator Obama of Illinois, 47, nor Senator McCain of Arizona, 71, has addressed such an eventuality, which would likely entail the use of taxpayer money.

Carly Fiorina, a top economic adviser to McCain, said the candidate views the economy as “the most important domestic issue'' and has offered solutions to the housing crisis.

“He would not allow Fannie and Freddie to fail,'' she said in an interview yesterday on Bloomberg Television. “He would reform them fundamentally.''

To help plug their losses, banks and brokers have raised more than $350 billion in capital from investors. That is becoming increasingly difficult, said Mohamed El-Erian, co- chief executive officer of Newport Beach, California-based Pacific Investment Management Co.

The government may have to step in to keep credit flowing to the economy, according to El-Erian, who managed the endowment of Cambridge, Massachusetts-based Harvard University until 2007.

Keeping Mum

Tom Gallagher, senior managing director at ISI Group in Washington, said it isn't surprising that Obama and McCain are keeping mum about the possibility of increased government money for the banks and housing market, given the uncertain outlook and the potential costs involved.

With the government unlikely to take many further steps to ease the crisis before the November election and the end of President George W. Bush's administration, Gallagher said the next president may be compelled to act soon after taking office in January.

Gallagher, who worked as an aide to former Democratic Senator George Mitchell, likened the situation to the early 1930s. President Franklin Delano Roosevelt talked little during the campaign about the bold steps he took after the election to try to turn the economy around.

The crisis “will confront us from day one,'' said Jason Furman, an Obama economic adviser. “It will be an issue that will require presidential attention.''

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Zhang Guoqing says the air quality in Beijing is better since the government clamped down on tailpipes, smokestacks and construction cranes for the Olympics.

“The traffic condition became less crowded and the air quality also improved,'' Zhang, 58, said while watching ice skaters at the China World Trade Center. “I don't want the government to stop those measures.''

Beijing officials say the city experienced its best air quality in 10 years this month after authorities implemented odd- even driving days and shut down factories and building sites before the Aug. 8-24 games. More than half of 2,000 Beijingers surveyed said traffic control measures should continue after the games, state-run China Daily reported.

Yet they won't get their wish. The world's most populous nation needs to create 10 million new jobs a year to maintain economic growth and social stability, so business will return closer to usual once the upcoming Paralympics end Sept. 17.

“These temporary measures are meant to address the issue temporarily,'' said Tao Dong, chief Asia economist at Credit Suisse Group AG in Hong Kong. “You can't prohibit people from driving their cars. You're going to have a riot.''

Slow Growth

China, the world's No. 4 economy, may have lost as much as 3 percent of its estimated 4 trillion-yuan ($585.3 billion) gross domestic product by shutting down factories in Beijing and surrounding areas for two months, Tao said. Some factories, including Beijing Shougang Co., the nation's fourth-biggest steelmaker, were evicted from the capital.

The affected regions generate about 26 percent of China's economic output, so the world's fastest-growing major economy will slow during the next two months, Goldman Sachs Group Inc. said in an Aug. 8 report.

GDP growth has slowed for four straight quarters, prompting President Hu Jintao to say Aug. 1 that his priorities were maintaining steady, fast growth and controlling inflation.

There was such concern about Beijing's air quality that International Olympic Committee President Jacques Rogge said some outdoor events could be postponed if necessary. World-record holder Haile Gebrselassie, an asthmatic, pulled out of the marathon because of the pollution and heat.

The city spent about $70 billion to improve air quality and build subways, sports stadiums and an airport terminal for the games. Chinese officials say the measures worked.

`Itchy Palms'

The average daily pollution index this month was about 31 percent lower than August 2007, the city's environmental protection bureau said Saturday. Major air pollutants were an average 40 percent lower, with nitrogen oxide emissions from automobiles down 61 percent, the bureau said.

Even Gebrselassie said he noticed the change.

“I was here in February, I don't see no blue sky,'' he said. “To keep such clear air, that's fantastic.''

Still, levels of particulates known as PM10 were up to double the World Health Organization's recommended levels on some days. China's pollution index doesn't measure smaller particles called PM2.5, which can penetrate deeper into lungs and create greater risk for developing asthma and bronchitis.

Several riders in the 245-kilometer (152.2-mile) bicycle road race on Aug. 9 said they were affected by poor air quality.

“First few days when we went out, I was coughing a lot after,'' said American George Hincapie, who finished 40th.

Even the archers suffered.

“I didn't like the pollution,'' bronze medalist Yun Ok-Hee of South Korea said. “My palms and hands were itchy.''

More Emissions

China's release of greenhouse gases blamed for global warming is increasing more than previously forecast and will swamp pollution cuts planned by the U.K., Germany and other industrialized nations, the United Nations Intergovernmental Panel on Climate Change said in May. It surpassed the U.S. as the world's largest emitter.

Air pollution-related illnesses and deaths may cost China an additional 3.8 percent of GDP, a World Bank report said. Beijing's 15 million residents face higher incidences of asthma, respiratory infections and lung cancer, said Hans Troedsson, WHO's representative in China.

“The government is taking measures in the right direction, but it needs to be scaled up,'' Troedsson said.

For the games, the government said cars with license plates ending in odd numbers could drive only on odd-numbered days, and vice versa for even numbers. Beijing has about 3.3 million cars and adds about 300,000 a year.

Controls Continue

City officials said Saturday that normal traffic patterns would return next month.

“They should at least try to continue some of these measures,'' said Ricardo Browne, 41, a Brazilian pilot working for Shenzhen Airlines Co. “It's hard to see the sun.''

Steps are being taken. China will restrict factory discharges and may not let some polluters reopen, and last month it imposed cleaner fuel standards to reduce auto emissions. The government will double the tax on large vehicles to spur demand for more fuel-efficient cars.

“They are meaning business in terms of structural changes that will positively influence the climate and the environment,'' Rogge said yesterday.

Beijing editor Zhou Min, 27, said she, like Zhang, wanted the driving restrictions to continue, even though it meant more crowded buses and subways.

“I fully support the environment-friendly measures since the air quality has been improved, which puts me in a good mood,'' she said.

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