The adjustment in the deficit would 'need to induce a sharp slowdown in US domestic demand and that this would have adverse spill-over effects on other economies both through the trade and asset revaluation channels,' it said.

The rebalancing may be accompanied by an increase in risk premiums and a reversal of private capital flows, it added.

Countries with current account surpluses have been accumulating dollar reserves and 'their willingness to hold dollar assets on their balance sheets may diminish,' the OECD warned.

It also cautioned that a protectionist response from the US may accelerate the dollar's falls.

'The US deficit is becoming a pretext for protectionist pressures. If this were to prompt surplus countries to reduce their official US dollar reserves or raise expectations thereof, support for the US dollar could wane.'

Already, the widening of current account imbalances has been sustained far longer and with much smaller exchange rate responses than would have been judged plausible even a decade ago, it said.

So far the United States has attracted the capital needed to finance its current account deficit with relative ease. But it has also moved from being a major international creditor to a net external liability position amounting to slightly over 20 pct of GDP, and the current US external deficit is approximately twice the level that would be consistent with a stable net foreign liability position.

To facilitate the inevitable adjustment in the current account that the US is likely to face, the OECD advocates changes in the US tax system to shore up the domestic savings rate.

'Removing some well-known anti-savings biases in the tax code. Decisions to maintain the tax cuts and to reduce the incidence -- such as the income tax-deductibility of mortgage interest payments -- and moving more generally towards a consumption tax would be particularly helpful,' said.

However, the OECD said that it is not immediately obvious what would trigger a rebalancing and when it would occur.

And, a case can be made that a correction of the US current account deficit, once it occurs, could be 'orderly and gradual',it added.

Firstly, as the bulk of US international financial liabilities are denominated in dollars, their burden to the US economy does not rise with a depreciation in the currency. At the same time, US external assets are largely denominated in foreign currency, which means that they benefit from positive valuation adjustments if the dollar depreciates.

Additionally, the central banks which have piled on dollar reserves may prove to be reluctant sellers.

And, the US currency does not appear to be overvalued in purchasing power parity terms. Its position as an international reserve currency as well as the attractiveness of the comparatively liquid US asset markets also make it less vulnerable to confidence crises.

Despite these factors, however, the risk of a 'costly unwinding remains,' the OECD cautioned.

Of that amount, the $350 million assessed by the SEC - one of the largest penalties ever in an accounting fraud case - will go to compensate Fannie Mae investors damaged by the alleged violations.

The company also agreed to limit the growth of its multibillion-dollar mortgage holdings, capping them at $727 billion, and to make top-to bottom changes in its corporate culture, accounting procedures and ways of managing risk. Thirty executives and employees at the company as well as others who have left - including Daniel Mudd, the current president and CEO - will be reviewed for possible disciplinary action or termination.

Washington-based Fannie Mae neither admitted nor denied wrongdoing under the settlement but did agree to refrain from future violations of securities laws.

"The image of Fannie Mae as one of the lowest-risk and 'best in class' institutions was a facade," James B. Lockhart, the acting director of OFHEO, said in a statement as the report was released. "Our examination found an environment where the ends justified the means. Senior management manipulated accounting, reaped maximum, undeserved bonuses, and prevented the rest of the world from knowing."

The report also faulted Fannie Mae's board of directors for failing to discover "a wide variety of unsafe and unsound practices" at the largest buyer and guarantor of home mortgages in the country.

The OFHEO review, involving nearly 8 million pages of documents, details what the agency calls an arrogant and unethical corporate culture. From 1998 to mid-2004, the smooth growth in profits and precisely-hit earnings targets each quarter reported by Fannie Mae were "illusions" deliberately created by senior management using faulty accounting, the report says.

The Bush administration has been pushing for legislation to reduce the massive mortgage portfolios of Fannie Mae and its smaller government-sponsored sibling, Freddie Mac.

The report "shows that Fannie Mae's faults were not limited to violating accounting and corporate governance standards, but included excessive risk-taking and poor risk management as well," Randal Quarles, Treasury undersecretary for domestic finance, said in a statement. "OFHEO's findings are a clear warning about the very real risk the improperly-managed investment portfolios of (Fannie Mae and Freddie Mac) pose to the greater financial system."

Fannie Mae said its board has read the report and is committed to making the changes required under the deal with the regulators.

"We are glad to resolve these matters. We have all learned some powerful lessons here about getting things right and about hubris and humility," Mudd said in a statement. "We are a much different company than before. But we also recognize that we have a long road ahead of us."

The accounting manipulation tied to executives' bonuses occurred from 1998 to 2004, according to the report, a much longer period than was previously known.

Regulators had earlier said that Fannie Mae in 1998 improperly put off accounting for $200 million in expenses to future periods so executives could collect $27 million in bonuses.

The manipulation "made a significant contribution" to the compensation of former chairman and chief executive Franklin Raines, which totaled more than $90 million from 1998 to 2003, the report says, including some $52 million directly tied to the company hitting earnings targets.

The agency first discovered in 2004 the accounting-rule violations and alleged earnings manipulation to meet Wall Street targets - disclosures that stunned the financial markets.

In December 2004, the SEC ordered Fannie Mae to restate its earnings back to 2001 - a correction expected to reach an estimated $11 billion. The Justice Department has been pursuing a criminal investigation.

Raines and former chief financial officer Timothy Howard were swept out of office by Fannie Mae's board in December 2004.

OFHEO levied a record $125 million fine in 2003 against Freddie Mac, Fannie Mae's smaller rival in the multitrillion-dollar home mortgage market, for misstating earnings - mostly underreporting them - by $5 billion for 2000-2002.

On Friday, Fannie Mae said it was replacing the chairman of its board's audit committee, a key position as the second-largest U.S. financial institution reworks its accounting and struggles to emerge from the scandal. The company said the board had named accounting professor Dennis Beresford to replace audit committee chairman Thomas Gerrity.

"Having been blacklisted from working in television during the McCarthy era, I know the harm of government using private corporations to intrude into the lives of innocent Americans," says author Studs Terkel, a Windy City icon and a plaintiff in the ACLU suit.

Despite this rush to the courthouse, it isn't yet clear which phone firms handed over what records to whom. Some companies have denied involvement - while critics note that those denials are carefully worded.

Further scrutiny by Congress or the Federal Communications Commission (FCC) is needed to resolve this issue for the public, say some.

"The accounts that have been provided by some of the phone companies regarding their involvement in the NSA program have hardly resolved the matter," wrote Marc Rotenberg, executive director of the Electronic Privacy Information Center (EPIC), in a letter to the FCC requesting an investigation.

Earlier this month, USA Today reported that AT&T, Verizon, and BellSouth had turned over the call records of millions of Americans to the US government in the wake of the Sept. 11 attacks.

These records didn't include names or the contents of calls, according to the newspaper. But they did list which numbers called which other numbers, both internationally and domestically, and how those calls were routed.

This information was then sifted by powerful computers in an attempt to discover a pattern that might reveal the presence of terrorists in the US. On Tuesday, USA Today reported that the NSA had used the phone records of the known 9/11 conspirators to try to establish a model of how terrorists communicate.

The companies named in the USA Today stories have all, to varying degrees, disputed the newspaper's account.

AT&T hasn't denied it - but it hasn't confirmed it, either. And it has said that no information was released illegally.

Verizon has flatly denied involvement in the NSA program. But it has left open the issue of whether MCI, the long-distance subsidiary it acquired in January, has turned over records to the government.

BellSouth, for its part, issued a statement earlier this month that said "based on our review to date, we have confirmed no such contract exists and we have not provided bulk customer calling records to the NSA."

The use of the word "contract" in this denial appears to be a hedge, noted the EPIC in its letter to the FCC.

"With more questions being raised each day about the scope of participation by the telephone companies in the NSA's domestic surveillance program, the need for the FCC to undertake a comprehensive investigation has become clear," wrote Mr. Rotenberg.

USA Today has said it stands by its reporting on this issue, but it will review its actions in light of a call by BellSouth for a retraction.

For the phone companies, the stakes in this dispute could be enormous. If the legal claims gain traction, the case might equal in scope such past actions as litigation against the major tobacco companies.

A successful series of suits could cost the phone companies billions of dollars.

But the cases might be difficult for plaintiffs to win. Given the scope of the government's regulatory power over phone companies, the communications behemoths might be able to argue that they were coerced to turn over phone records - if, in fact, that is what they did.

Meanwhile, Qwest, another of the so-called Baby Bell phone companies, has emerged as an unlikely hero in the case given that its former chief executive has said he rebuffed the NSA's request for call records.

Emerging markets, soaring for several years as they lured a torrent of global cash, have reversed course the past two weeks. In the US, the Dow Jones Industrial Average began the week down 4 percent from its six-year high of 11,642.65, which the index reached on May 10. European exchanges have also fallen in the past two weeks.

"The markets have woken up to the fact that interest rates are going to go up more than they were expecting - especially in the US," says Nariman Behravesh, chief economist at Global Insight, an economic consulting firm in Lexington, Mass. That, in turn, could mean slower economic growth from Hamburg to Hong Kong.

Although the impact is global, he says, it is magnified in emerging markets such as those in Asia and Latin America. Because they had been the locus of investor enthusiasm, they face the prospect of the sharpest pullback. "It's the emerging markets that are a little dicey."

That pattern was evident Tuesday. Many Asian markets fell further, extending a string of recent losses, while investors found firmer footing in the US and Europe. Exchanges in France, Germany, and Britain all rebounded with gains of more than 2 percent, and shares rose in New York during morning trading.

Commodity prices have joined interest rates as a driving force in recent days. Declines in the price of metals and other raw materials - a possible harbinger of slowing economic growth - pose a particu- lar threat to the resource-based economies of many developing nations.

Tuesday, firmer prices for commodities including oil helped some emerging markets stem their losses.

Although the mood on world markets is more sober, analysts say it's still a long way from a bear market, typically defined as a 20 percent loss of value that can last for a long or short time.

"Emerging markets and the commodities markets will continue to be very volatile" for several months, predicts Michael Cosgrove, who publishes a capital-markets newsletter, The Econoclast, in Dallas. But for long-term investors, he says, the best strategy may be simply to ride out the storm.

"You're probably better off just sticking it out," rather than selling on the hunch that deeper declines may be coming.

That's because, in the long run, the so-called emerging markets still promise strong growth, based on rapid development and globalization. And in the short run, they are financially much more stable than they were in 1997, when a Russian debt default triggered a severe sell-off in developing nations.

Today those nations have less debt owed to foreigners, a greater cushion of currency reserves such as US dollars, and better exchange-rate policies.

But the recent turmoil is putting these new realities to a severe test nonetheless. India is a case in point, where Finance Minister P. Chidambaram fended off calls for his resignation and appealed for calm.

"Ordinary investors need not worry as fundamentals of the economy are strong," Mr. Chidambaram told lawmakers.

In both emerging markets and in the world's major economies, what's happened in the past two weeks is a reappraisal of risk. That reappraisal, naturally, is most punishing in the places where euphoria had most abounded.

India's boom, for example, began to resemble America's dotcom bubble of the late 1990s, with a construction boom in India's high-tech hubs.

"It was like a casino market. I've felt for a while that the market was overstretched," says Ramesh Damani, a stock broker in India.

For several years, low interest rates globally have provided cheap credit and spurred a quest for higher-yielding investments. From hedge funds to shares of Brazilian banks, investors have taken on more risks in the hopes of higher returns. And often they have borrowed in places such as Japan to do it.

The cycle has turned toward tighter monetary policies in Japan, Europe, and the US. It's unclear how far the tightening will go, but as long as it persists it will exert a slowing force on the global economy. World output could grow by nearly 4 percent this year, forecasters predict.

In the US, the Federal Reserve under new Chairman Ben Bernanke is feeling pressed to show it is squelching inflationary pressures. Some fear that could mean more interest-rate hikes than are really needed.

"We may be nearer the point where the Fed might induce a significant slowdown," says Dr. Cosgrove. He sees global stock markets entering an uncertain "sideways" phase for several months.

The preliminary check was made according to GDP accounting and releasing process of the NBS, said the circular.

Of the total, primary industries scored 324.2 billion yuan in value added, 4.2 billion yuan more than the earlier data with year-on-year growth dropping by 0.1 percentage point to 4.5 percent.

Secondary industries reaped 2.1614 trillion yuan, 0.1 billion yuan less previously reported with the growth unchanced at 12.5 percent; while tertiary industries reported 1.8534 trillion yuan in value added, 3.6 billion yuan more than earlier data revealed with the growth rate increasing by 0.2 percentage points to 8.9 percent.