NEW YORK (Reuters) – While the main gauge of U.S. manufacturing has rebounded from the depressed levels of late 2008, smaller businesses are struggling with lackluster sales and tight credit as the recession wanes.

Since the paralysis of credit markets in last year’s panic, private investors have returned to riskier assets, enabling big corporate bond issuers to borrow.

But the rising credit tide has not lifted all boats.

Many companies are too small to tap corporate bond or commercial paper markets and are unable to take advantage of firming capital markets. Typically, small companies use credit lines from regional or community banks.

But weak sales and wafer thin profits are hampering their ability to pay down debt, raising concerns about credit-worthiness and further contributing to the tightening in bank lending, economists said.

“It is no surprise that credit is more difficult to obtain since sales prospects and profit trends are very weak,” said Bill Dunkelberg, chief economist with the U.S. National Federation of Independent Business.

That’s one reason why NFIB’s Index of Small Business Optimism has recovered only modestly from its lows earlier this year, to a reading of 88.8 in September from 81.0 in March, the lowest level since 1980.

NEW YORK, Oct 21 (Reuters) – Banks across the world have much work to do in improving risk management and internal controls following the financial crisis, global regulators said in a report released on Wednesday.

The report, called “Risk Management Lessons from the Global Banking Crisis of 2008,” was done by regulators from seven countries in the Senior Supervisors Group. Information for the report was gathered between March 2008 and last month, said a source familiar with the report.

The regulators concluded that despite firms’ recent progress in improving risk management practices, substantial work is needed on underlying weaknesses in governance, incentive structures, information technology infrastructure and internal controls, said a release from the Federal Reserve Bank of New York.

In September, the Group of 20 nations endorsed a statement by its coordinating arm, the Financial Stability Board, recommending new rules for bankers’ pay, one of which was that the size of the bonus pool should depend in part on the health of the balance sheet of a bank.

However, the global regulators’ report released on Wednesday said, “supervisors are concerned about the durability of proposed changes,” to compensation practices at financial firms.

Senior Supervisors Group Chairman William Rutledge, presenting the report, wrote in a letter dated Wednesday to Mario Draghi, Chairman of the Financial Stability Board at the Bank for International Settlements.

On practices at some financial institutions that contributed to the crisis, the letter cited “the failure of some boards of directors and senior managers to establish, measure, and adhere to a level of risk acceptable to the firm,” and also “compensation programs that conflicted with the control objectives of the firm.”

NEW YORK (Reuters) – Revitalized credit markets have cast a funding lifeline to U.S. companies and banks, but many companies are still hoarding their cash, a practice that may delay a full-fledged recovery.

Companies today are putting a greater emphasis on rebuilding liquidity, and the return to credit markets has yet to translate into the building blocks of a strong recovery.

For that to happen, businesses need to spend money on equipment, employees and services before a true recovery takes root.

U.S. corporations have sold about $700 billion in bonds so far this year, surpassing the $686 billion for all of 2008 and approaching the $1 trillion mark seen in previous years. Including government-backed debt, total issuance this year has reached $858 billion, according to Thomson Reuters data.

Industry reports suggest that companies are earmarking about a quarter of that capital for debt refinancing and another quarter for mergers and acquisitions.

About half the remaining proceeds from the bond sales are being stockpiled as cash, according to Brown Brothers Harriman & Co, a New York-based private bank.

“Companies, like countries, were thrown off kilter by the lock down of credit in the latter part of 2008,” Brown Brothers Harriman said in a recent report. “Just like many countries have been rebuilding reserve positions, companies seem to have a clear preference for greater liquidity.”

NEW YORK, Oct 15 (Reuters) – The U.S. commercial paper market expanded for a ninth straight week, adding to evidence of an economic rebound, Federal Reserve data showed on Thursday.

As the impact of the global credit crisis fades, the commercial paper market, which the Fed — the U.S. central bank — had to rescue from paralysis last year, is flowing much more smoothly than a few months ago, analysts say.

For the week ended Oct. 14, the size of the U.S. commercial paper market, a vital source of short-term funding for companies’ routine operations such as restocking shelves, rose by $27.1 billion to $1.326 trillion outstanding, from $1.299 trillion outstanding the previous week.

“The message is clear on this. Companies are increasing their output and that requires an increase in working capital which is what commercial paper provides,” said Tony Crescenzi, market strategist and portfolio manager at PIMCO. “This will help economic growth,” he said.

Overall commercial paper has expanded at a rapid rate: by more than $250 billion in nine weeks, Crescenzi said. However, the market’s size is barely more than half its $2.2 trillion peak in summer 2007 when the credit crisis broke out.

The increasingly clear recovery trend in this market is one of many signs that credit markets are healing after the global financial crisis, analysts say.

The market’s nine consecutive weeks of growth are the longest stretch of expansion since a period through July 2007. Then, commercial paper expanded for 14 straight weeks, just before the global credit crisis erupted with the collapse of Bear Stearns’ hedge funds, Crescenzi recalled.

NEW YORK, Oct 8 (Reuters) – The U.S. commercial paper market grew for an eighth straight week, adding to evidence of a likely upturn in economic activity, Federal Reserve data showed on Thursday.

The now clearly defined recovery trend in this market, a vital source of short-term funding for routine operations at many companies, is one of many signs that credit markets are healing after the global financial crisis, analysts said.

For the week ended Oct. 7, the size of the U.S. commercial paper market rose by $67.6 billion to $1.299 trillion outstanding, up from $1.232 trillion outstanding the previous week.

“Continued increases in commercial paper outstanding provide some evidence that this market is weaning itself off the extraordinary measures put in place by the Federal Reserve,” via its Commercial Paper Funding Facility, said Dana Saporta, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.

“To that extent it is a positive sign for those policy-makers looking for signs of normalization of financial market activity,” Saporta said.

Companies use commercial paper to borrow over the short term. The market’s renewed growth is a sign that companies are restocking shelves and even hiring staff in some cases to anticipate an upturn in demand, analysts said.

“Commercial paper would have no reason to increase if companies weren’t seeing a need to invest,” said Dan Greenhaus, chief economic strategist with Miller Tabak + Co in New York.

NEW YORK (Reuters) – So much for conserving cash. After firing staff by the thousands during the global financial crisis, big Wall Street banks are jump-starting hiring in response to a resurgence in bond issuance and trading.

The crisis hit financial companies hard, with New York firms axing around 195,700 jobs since August 2007, according to planned layoff announcements tracked by outplacement firm Challenger, Gray & Christmas Inc.

But financial firms have started re-hiring staff in the first nine months of this year with some 14,000 planned and Citigroup, Wells Fargo and Standard Chartered are among those adding staff selectively, Challenger data indicate.

Big banks are scrambling to beef up bond operations after smaller boutique firms snatched market share in the aftermath of the 2008 market meltdown.

“Wall Street tends to over hire in good times and over fire in bad times. It feels like that has happened once again,” said Kurt Harrison, a senior member in the financial services division of global search firm Russell Reynolds Associates.

The U.S. financial sector is showing hints of recovery faster than the broader U.S. economy, where hundreds of thousands of workers continue to lose jobs each month, pushing unemployment to 9.8 percent in September.

On fixed-income desks, U.S. banks have been adding staff to cater to a rebound in investor interest in corporate and mortgage bonds and a huge increase in government debt issuance, headhunters and analysts say.

NEW YORK (Reuters) – If U.S. stocks were to enter another bear market amid fears of a second recession, this year’s spectacular corporate bond market rally is in danger of reversing.

Yield-seeking investors who have poured money into corporate bonds this year are staying put for now but the market could be bruised if risk aversion rises sharply, analysts expect.

Over the past 10 days, investors have become increasingly jittery about how strong and sustainable the economic recovery will be; a prospect that has pulled U.S. stocks down about 4 percent from 11-month highs, accompanied by a pullback in corporate bond prices.

So far, the sell-offs have been modest, but increasingly economists warn that when the impact of massive government and Federal Reserve stimulus measures starts to fade in 2010, that persistent deflation and even a second recession could ensue.

Should these fears trigger another bear market in stocks, veteran corporate bond watchers warn junk bonds would become vulnerable to a selloff and even higher grade corporate debt may not withstand investors’ rush back to safe-haven assets.

For the moment investors are thinking “high yield might be a good place to park some money while I wait for stock markets to get better,” said longtime junk bond expert Martin Fridson, CEO of Fridson Investment Advisors in New York, at the Reuters Restructuring Summit this week.

Since reaching an 11-month closing high of 1,071 on September 22, the U.S. S&P 500 stock index <.SPX> has fallen some 4.3 percent. The same day, a 10-month rally in corporate bonds stalled, when yield spreads of investment grade corporates had narrowed to 230 basis points over Treasuries from record wides of 656 basis points in December at the height of the global financial market panic. Corporate bonds have since sold off modestly, with spreads widening to 238 basis points by Thursday, according to Bank of America Merrill Lynch data.

NEW YORK, Oct 1 (Reuters) – The U.S. commercial paper market expanded for the seventh straight week as companies raised funds to restock shelves to meet demand in a gathering economic rebound, Federal Reserve data showed on Thursday.

For now, the recovery trend in this market, a vital source of short-term funding for companies’ routine operations, is among many signs that credit markets are healing after the global financial crisis.

But strategists worry the economy could deteriorate again in 2010 and that such areas of short-term lending could run into difficulty again.

“It does show healing in this market,” said Ray Stone, economist with Stone & McCarthy Research Associates in Princeton, New Jersey. “We are seeing increases in outstandings and we are seeing declines in the Fed’s role in the market,” he said. “It is good news for the economy,” Stone added.

For the week ended Sept. 30, the size of the U.S. commercial paper market rose by $19.7 billion to $1.232 trillion outstanding from $1.212 trillion outstanding the previous week.

The overall U.S. commercial paper market is now slightly more than half its size at the peak of about $2.2 trillion outstanding in August 2007 when the credit crisis first erupted.

The market’s slow recovery signals that companies are restocking shelves to meet an upturn in demand and even increasing payroll costs to hire workers in some cases, analysts say, signaling that the economy is likely growing again after the longest U.S. recession in decades.

NEW YORK (Reuters) – U.S. corporate bond sales rose in the third quarter compared with the same period a year ago as the global credit crisis faded and investors’ appetite for risk returned, Thomson Reuters data showed on Wednesday.

Excluding government-backed sales, investment-grade corporate bond sales more than doubled, rising to $161.3 billion in the third quarter from $72.7 billion in the same period a year ago, according to the data.

“The market has just continued to improve and provide issuers with increasingly attractive financing opportunities. Rates have remained low, spreads have continued to tighten and demand has been pretty strong across the curve and across the credit spectrum,” said Jim Merli, head of U.S. fixed-income syndicate at Barclays Capital.

However, the rapid rate of issuance so far this year will likely slow in the fourth quarter, partly because many companies have already rushed to refinance while the going is still good, bankers said.

“Most of the financing that needed to get done this year has been done and there has been a certain amount of prefunding for 2010 that has been done already,” Merli said.

With the market panic of late 2008 still fresh in investors’ mind, companies are worried that although the U.S. economy is seemingly on the mend, it could suffer a second recession and credit markets could clam up again.

Demand for corporate debt started to revive after the Federal Reserve in December cut interest rates to near zero, nudging investors into riskier assets in search of higher yields.