Paulson: U.S. economy is sound

Treasury Sec'y Henry Paulson said the housing market will likely bottom by year-end and the economy will show signs of recovery. "I think it's going to take some time to get out of this, but don't forget that the foundation of the United States economy is very solid," he said on Mexican TV.

Global growth seen stagnating

Slowdowns in Western Europe, the U.S. and China are bringing the global economy to a halt, Germany's Ifo economic research institute said. "In the wake of the U.S. real estate crisis and the turbulence on the international financial markets, the dynamics of world economic activity have weakened," Ifo said. Inflation is also a concern in the U.S., Europe, India and China.

Germany's economy, Europe's largest, may have shrunk in Q2 amid weakening factory output, said Deputy Economy Minister Walther Otremba. ECB likely to raise interest rates

European Central Bank Governing Council member Athanasios Orphanides said expectations of a rate hike from 4% in July were appropriate despite an uncertain economic outlook. He said further increases were possible if inflation failed to moderate. Spain's Miguel Angel Fernandez Ordonez added that the ECB aims to prevent high prices from sparking demands for higher pay. "We have to be on maximum alert," he said.

India's central bank raised interest rates by a half-point 15 8.5% and asked lenders to boost reserves as inflation hit a 13-year high. It was the second rate hike this month. U.K. home-loan approvals dive

Approvals dived to a record-low 27,968 in May from 34,752 in April as banks tightened standards, the British Bankers' Assoc. said. Approvals were down 56% on a year-ago basis, the biggest drop since records began in 1997. Analysts fear falling approvals will cause a U.S.-style housing crash and drag the economy into recession even as inflation roars ahead.

COMING UP WEDNESDAY

Durable goods orders for May, 8:30 a.m. EDT (forecast: flat). New-home sales for May, 10 a.m. EDT (forecast: 510,000). Fed policy statement, about 2:15 p.m. EDT.

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NEW YORK (Reuters) -
Lehman Brothers Holdings Inc (LEH.N),
the investment bank which last week posted its first quarterly
loss as a public company, said it was rehiring two executives
who had left in 2007 for unspecified reasons.

Lehman said it was hiring Michael Gelband, who resigned
last year as global head of fixed income, to the newly created
post of global head of capital markets.

It also rehired Alex Kirk, co-chief operating officer for
the fixed income division until 2007, to the post of global
head of principal investing, succeeding Dave Goldfarb.

Goldfarb, in turn, will take up the newly created post of
chief strategy officer.

A Lehman Brothers spokesman declined to comment on why
Gelband, 49, and Kirk, 48, had left in the first place. At the
time of his resignation in May 2007, Lehman said Gelband was
leaving to "pursue other interests."

Gelband, Kirk and Goldfarb, 51, will report to Herbert
(Bart) McDade, who was named chief operating officer and
president of Lehman in a surprise shake-up last week after it
announced the loss and plans to raise $6 billion in capital.

Lehman also named Gerald Donini, former head of Americas
Equities, as global head of equities, succeeding McDade.
Donini, 44, will report to Gelband.

Shares of Lehman, the smallest remaining Wall Street
independent brokerage, have fallen 62 percent so far this year,
more than double the decline in the Amex Securities Broker
Dealer index (.XBD).

(Reporting by Christian Plumb, editing by Richard Chang)

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ATLANTA (Reuters) -
Retailer Circuit City Stores Inc (CC.N)
has received buyout interest from several strategic and
financial bidders, including movie-rental company Blockbuster
Inc (BBI.N), and a sales agreement could be announced over the
next month, an institutional investor said on Tuesday.

"I am very confident that we will be seeing who the buyer
of Circuit City is in the next three or four weeks and what the
price is," Mark Wattles told Reuters by phone after Circuit
City's annual meeting in Richmond, Virginia. Wattles Capital
Management owns about 6.5 percent of Circuit City stock.

Wattles, the founder of Hollywood Entertainment Corp, said
he obtained confirmation from parties directly involved that
the Circuit City due diligence process "has gone very well and
that they indeed have multiple bidders that are very
interested" in the consumer electronics retailer.

A Circuit City spokesman declined to comment on Tuesday.

Circuit City opened its financial books to Blockbuster last
month and said it was exploring strategic options.

Circuit City shares closed down 2 cents at $3.35 on the New
York Stock Exchange. The stock fell 21 percent Monday on
concerns about prospects for a sale and the company's ability
to turn around its business.

Blockbuster shares ended up 10 cents, or 4 percent, at
$2.62 after earlier rising nearly 13 percent as one analyst
cited investor speculation that the effort to buy Circuit City
was falling apart.

Blockbuster disclosed in April it had offered as much as
$1.3 billion, or $6 to $8 a share, to acquire Circuit City. But
since Circuit City reported a quarterly loss and cut its
dividend last week, analysts have raised the possibility that
Blockbuster might lower its offer or walk away from a potential
deal.

Wattles, whose firm has gained seats on Circuit City's
board, said the retailer's stock has seesawed in recent days on
speculation over whether Blockbuster would complete a deal.

Blockbuster was "just one of the players," said Wattles,
who called on Circuit City to take steps to boost shareholder
value earlier this year.

A Blockbuster spokesman said his company was still
conducting due diligence and would proceed with a transaction
"if it makes sense financially and strategically and also
creates significant value for our shareholders."

(Reporting by Karen Jacobs, additional reporting by Gina
Keating in Los Angeles, editing by Richard Chang)

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