Friday, June 12, 2009

Techs fall, but defensive plays curb Wall Street's drop

Techs fall, but defensive plays curb Wall Street's drop
Cautious consumers
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By Rodrigo Campos
NEW YORK (Reuters) - Technology shares led Wall Street's drop on Friday after National Semiconductor's (NSM.N) disappointing results, but a rise in defensive sectors like healthcare limited losses in the Dow and S&P 500.
The energy and materials sectors also fell, with a stronger dollar and profit-taking supporting declines in oil and commodity prices, which have recently jumped.
Among the tech bellwethers, iPod and iPhone maker Apple Inc (AAPL.O) was down 2.7 percent at $136.16 and BlackBerry maker Research in Motion (RIMM.O) was down 2.9 percent at $82.96. They were the top two drags on the Nasdaq.
Chipmaker National Semiconductor Corp (NSM.N) reported a quarterly loss late Thursday, but offered a sales forecast that beat expectations. Its shares sank 7.5 percent to $13.40 on the New York Stock Exchange and weighed on the PHLX semiconductor index .SOXX, which was down nearly 3 percent.
"We've got a bit of a sell-off in technology across the board. That has been the driving force in the market so far," said Tim Smalls, head of U.S. stock trading at Execution LLC in Greenwich, Connecticut.
"Economic activity is picking up a little bit, but we're nowhere close to being out of the woods. If we're getting out of the woods based on better-than-expected economic reports, it is going to take a long time."
The Reuters/University of Michigan Surveys of Consumers showed consumers' mood in June stood at its highest in nine months, but worries about inflation and labor market uncertainty persisted.
The Dow Jones industrial average .DJI shed 2.20 points, or 0.03 percent, to 8,768.72. The Standard & Poor's 500 Index .SPX fell 3.19 points, or 0.34 percent, to 941.70. The Nasdaq Composite Index .IXIC dropped 18.98 points, or 1.02 percent, to 1,843.39.
In the materials sector, AK Steel (AKS.N) fell 7.7 percent to $19.51, hurt by Goldman Sachs' downgrade of its stock. Shares of U.S. Steel (X.N) tumbled 6 percent to $39.31.
But the healthcare sector rose as investors rotated money into defensive plays. Drugmaker Merck (MRK.N) was up 3.1 percent at $27.00, while Pfizer Inc (PFE.N) rose 2.1 percent to $14.94. Defensive plays are stocks of companies that tend to weather the recession better than others because their products -- such as food or toothpaste or drugs -- are things that people buy, even if they cut spending, in leaner times.
Shortly before midday the New York Stock Exchange was hit by a technical glitch that temporarily halted trading in about 240 stocks, including blue-chips General Electric (GE.N), Exxon Mobil (XOM.N) and Bank of America (BAC.N). Server connectivity was restored around 12:10 p.m.
(Editing by Jan Paschal)

Source: Reuters

Bailout cops to police valuations as banks exit

Bailout cops to police valuations as banks exit
By Karey Wutkowski and Patrick Rucker
WASHINGTON (Reuters) - The two primary watchdogs of the U.S. financial bailout program are studying whether taxpayers will get a fair return on banks' warrants as the largest firms repay government investments, according to a letter sent to lawmakers this week.
A Congressional oversight panel has begun a project to "estimate a reasonable range of values" for the controversial warrants the big banks are likely to repurchase as they start to repay Troubled Asset Relief Program (TARP) funds next week.
Some big banks, including JPMorgan Chase & Co, are wrangling with the Treasury Department over the billions of dollars of warrants they want to buy back, which the government owns in addition to the banks' preferred stock.
The banks argue they should get a discount on the warrants because they did not want the money in the first place, while some lawmakers say Treasury should give taxpayers their fair share of the gains in the banks' stock prices.
In a letter dated Wednesday to the leading lawmakers on the House and Senate financial committees, Neil Barofsky, the TARP special inspector general, and Elizabeth Warren, the chairwoman of the Congressional oversight panel for TARP, said they will work together on the warrant project. It will also include an audit of the warrant repurchase process, they said.
Barofsky and Warren said they "believe that the pricing of the warrants held by Treasury ... will be critical to ensuring an appropriate return on investment for the government and, consequently, American taxpayers."
Ten of the largest banks are set to pay back in the coming days almost $70 billion of TARP funds, which many of the banks have called onerous due to the public stigma of the program and restrictions on executive pay and dividend payments.
Treasury has made it clear that the banks can exit TARP by buying back the preferred shares without necessarily redeeming the warrants, said Wayne Abernathy, executive director for financial institutions policy at American Bankers Association.
But the banks would risk diluting their current shareholders if they did not buy the warrants back. Abernathy said they would also be stuck with "a lingering reminder that they were under a government program."
Treasury has said it will sell back the warrants at "fair market value," but experts say the pricing could be difficult because there are not directly comparable market instruments. That means banks could negotiate on buyback prices.
A Treasury spokesman did not respond to a request for comment about the department's policy on valuations.
Treasury is facing pressure from lawmakers, who want to make sure taxpayers see the upside promised to them when the government announced in October that it was making investments in the biggest banks.
On Tuesday, Jack Reed, a leading Democrat on the Senate Banking Committee, discussed the warrants issue with Treasury Secretary Timothy Geithner and urged him to make sure taxpayers are paid their due.
(Reporting by Karey Wutkowski and Patrick Rucker, editing by Gerald E. McCormick)

Source: Reuters

BlackRock lands BGI funds, Barclays boosts capital

BlackRock lands BGI funds, Barclays boosts capital
By Svea Herbst-Bayliss and Steve Slater
BOSTON/LONDON (Reuters) - BlackRock Inc, the fund manager famed for buying assets on the cheap, has snapped up Barclays Global Investors for $13.5 billion in a deal creating the world's largest money manager.
The combined company, to be called BlackRock Global Investors, will have roughly $2.8 trillion of assets under management, more than double BlackRock's current size.
Barclays, Britain's second-biggest bank, will gain much-needed capital from the cash-and-stock deal.
BlackRock, founded 20 years ago as a bond investment firm, has managed to sidestep the worst of the credit crunch, giving Chief Executive Laurence Fink a reputation as one of the shrewdest asset managers on Wall Street. The U.S. government selected BlackRock to manage troubled assets from Bear Stearns and American International Group Inc.
The deal gives BlackRock exposure to exchange-traded funds, a product that has grown fast because it allows investors to buy assets easily which otherwise might be difficult to acquire, such as precious metals or foreign stocks.
"Exchange-traded funds have been a growth area in an industry that's struggling for growth opportunities," said Ralph Cole, who helps manage $2.2 billion at Ferguson Wellman Capital Management in Portland, Oregon.
New York-based BlackRock grew from a one-room investment firm to the largest publicly traded asset manager in the United States, and now the world, through a series of acquisitions. In 2006, it bought Merrill Lynch & Co's asset management business in a deal valued around $8.6 billion.
BlackRock is paying $6.6 billion in cash and the rest in stock. It is raising $2.8 billion from the sale of 19.9 million shares to a group of institutional investors. BlackRock did not identify them, but people familiar with the matter expected Middle East sovereign wealth funds to be among them.
The new share issuance helped push BlackRock's existing shares down $10.76, or 5.9 percent, to $171.84.
CAPITAL FOR BARCLAYS
Barclays shares fell 4.1 percent to close at 292 pence, on concerns that the deal will leave the company more reliant on investment banking, which generates less-stable earnings.
"This (BGI) was always a core part of the business until recently but the reality is they need as much capital as possible for the core banking and investment banking business, and they've been able to get a very good price for the asset," said Colin Morton at Rensburg Fund Management, which owns Barclays shares.
But the deal also helps Barclays by shoring up its capital base. The bank said on Friday that it was recording a net gain of $8.8 billion on the assets, which should lift its core Tier 1 capital adequacy ratio by 1.5 percentage points to around 8 percent.
Barclays refused aid from the British government last year as the financial crisis engulfed the industry, and sold shares to Abu Dhabi and Qatar instead.
Banks are under increasing pressure from regulators to keep asset management and investment banking businesses separate, while clients are keen to work with independent fund managers. That means other banks are likely to split off their fund arms, and the asset management industry should consolidate. Continued...
Source: Reuters

Summers: market interventions only temporary

By Glenn Somerville
WASHINGTON (Reuters) - Chief White House economic adviser Lawrence Summers on Friday vigorously defended the administration's aid for banks and carmakers as necessary, temporary measures rather than lasting market intrusions.
"Our objective is not to supplant or replace markets," Summers told the Council on Foreign Relations in New York. "Rather, our objective is to save them from their own excesses and improve our market-based system going forward."
His speech, monitored in Washington via audio feed, was clearly intended to take on criticisms that the Obama administration was taking on too much of an ownership role in industry rather than relying on free-market forces that have driven the American capitalist system.
"The actions we take are those of necessity, not choice," he insisted, adding that President Barack Obama had no desire to "manage banks, insurance companies or car manufacturers."
NO SOCIALISTS HERE
Summers said critics claim the administration was engaging in "backdoor socialism" and flatly denied it. "Where our focus has been as we have intervened when necessary is on the intervention being temporary, based on market principles and minimally intrusive," he said.
Summers offered a philosophical analysis of the financial system's woes, noting that history shows that every two or three years some dire situation arises like the Latin American debt crisis, the 1987 stock market crash or the Asian financial troubles of the late 1990s.
In the current crisis, a reliance on excessive financial leverage and inadequate regulation was largely to blame and that needs to be addressed through regulatory reform that is at the center of the administration's agenda, Summers said.
CAPITAL LEVELS KEY
The administration is expected to unveil proposals for wide-ranging overhaul of the regulatory system on Wednesday.
Summers said a central element of any reform will be to ensure financial firms have and maintain adequate levels of capital so that they are less vulnerable to over-reliance on debt and borrowing in future.
But he warned that the nation's financial system is not going to be "fail safe" until it is able to handle a failure.
That means some type of resolution authority must be in place to deal with failing firms rather than continue the current system in which some firms are deemed too-big-to-fail so that the government is forced to step in to help them.
Summers said there were some signs the economic system was stabilizing, including the fact that some major banks that got government help have been able to raise capital on their own and to repay the government.
But he added that the key to recovery will be to rebuild confidence that the nation's financial system in future will be less prone to stumbling because of excessive leverage that contributes to asset "bubbles" developing.
(Additional reporting by Mark Felsenthal and Patrick Rucker, Editing by Andrea Ricci)

Source: Reuters

Oil falls below $72 as dollar rebounds

Oil falls below $72 as dollar rebounds
By Alex Lawler
LONDON (Reuters) - Oil fell below $72 a barrel on Friday, a day after reaching a near eight-month high, pressured by a firmer dollar and views that prices have risen too far despite improving economic sentiment.
The market on Thursday settled at $72.68, the highest since October 20 after a three-day rally, making it look overvalued to some analysts. The dollar gained, reducing the investment appeal of oil and commodities.
"Most commodity markets are still quite overbought and could be subject to a modest sell-off next week," said Edward Meir, analyst at MF Global. "We are getting to a stage where the steep run-up in prices has arguably over-discounted the modest brightening we are seeing in the U.S. macro picture."
U.S. crude fell 88 cents to $71.80 a barrel by 1615 GMT (12:15 p.m. EDT). London Brent crude fell $1.06 to $70.73.
The U.S. dollar rebounded against the euro. A stronger dollar pressures commodity markets by weakening the purchasing power of buyers using other currencies.
The Organization of the Petroleum Exporting Countries, meanwhile, further reduced its forecast for world oil consumption this year, but said the worst appeared to be over for the oil market.
"As the world economy stabilizes, the world oil demand appears to be settling down," OPEC said in its Monthly Oil Market Report. "There are no significant downward revisions to our previous oil demand forecasts."
Two other closely watched forecasters, the U.S. Energy Information Administration and the International Energy Agency, slightly raised their demand estimates this week, after months of downward revisions.
Stronger-than-expected Chinese economic data helped limit oil's losses.
Official figures showed a rebound in China's industrial growth and retail sales in May, after U.S. data on Thursday showed an increase in retail sales and a slowdown in weekly jobless claims.
Data from China also showed refinery output in the world's No. 2 energy user rose 10.7 percent in May versus a year earlier. It was the third monthly rise in seven months to a record high.
Concerns over tightening gasoline supplies have given oil an extra boost this week.
U.S. energy company Valero (VLO.N) said on Thursday it will shut its refinery on the Caribbean island of Aruba for the summer due to weak profit margins. The United States has been hit by a spate of refinery outages in recent weeks.
(Reporting by Alex Lawler in London, Chua Baizhen in Singapore, and Richard Valdmanis in New York; Editing by David Gregorio)

Source: Reuters

Nasdaq lower as techs sell off

Nasdaq lower as techs sell off
By Edward Krudy
NEW YORK (Reuters) - Technology shares fell on Friday after disappointing results from National Semiconductor, but a rise in defensive stocks, like healthcare, cushioned losses in the Dow and S&P 500.
The Nasdaq took the brunt of the selling, led by bellwethers such as Qualcomm Inc (QCOM.O), which was down 1 percent to $45.50, and Apple Inc (AAPL.O), off 2.3 percent to $136.67.
Chipmaker National Semiconductor Corp (NSM.N) reported a quarterly loss late Thursday, but offered a sales forecast that beat expectations. Shares slid 7.3 percent to $13.41. The PHLX semiconductor index .SOXX fell 3.2 percent.
The Dow Jones industrial average .DJI dropped 23.36 points, or 0.27 percent, to 8,747.92. The Standard & Poor's 500 Index .SPX fell 4.92 points, or 0.52 percent, to 939.97. The Nasdaq Composite Index .IXIC lost 23.06 points, or 1.24 percent, to 1,839.31.
"Defensives appear to be doing a little bit better today ... and the stock sectors performing especially well since the March 9 bottoms are the ones underperforming. So you are just seeing an intraday move in sector rotation," said Michael Koskuba, portfolio manager and analyst at Victory Capital Management in New York.
"Stocks are trading on what the underlying commodities are doing, so it stands to reason that energy and materials stocks would sell off a little bit."
Stocks tumbled early after a sharp retreat in commodity prices, but buying in shares of companies seen as better able to withstand an uncertain economy helped trim losses.
The Reuters/University of Michigan Surveys of Consumers showing consumers were worried about inflation and labor market uncertainty added to the early stumble.
Stocks such as Merck & Co Inc (MRK.N) and Pfizer Inc (PFE.N) rose as investors rotated money out the recent market winners, including healthcare, energy and technology. Merck was up 2.3 percent to $26.80, while Pfizer Inc (PFE.N) rose 2 percent to $14.92.
(Reporting by Edward Krudy; additional reporting by Rodrigo Campos; editing by Jeffrey Benkoe)

Source: Reuters

U.S. consumer mood improves, but price worries emerge

U.S. consumer mood improves, but price worries emerge
By Burton Frierson
NEW YORK (Reuters) - U.S. consumer confidence rose to a nine-month high in June, a survey showed on Friday, but inflation gauges showed worrisome signs of price increases that could slow any recovery from the longest recession since the Great Depression.
June's consumer confidence reading failed to surpass the level reached last September, when the spectacular failure of Lehman Brothers sent the world economy into a tailspin.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence for June rose to 69.0 from May's 68.7. That was slightly below economists' expectations of a 69.5 reading, according to a Reuters poll.
For the third straight month, the overall consumer sentiment reading was at its highest since last September's 70.3.
"It's good news but not great news," Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, New York, said of the June confidence data.
"So the basic message is that sentiment is improving and that's good news. We'd like it to have been better but it wasn't, so be it."
On Wall Street, stocks extended their losses after the slightly weaker-than-expected reading on consumer confidence.
U.S. government bonds, which perform better during periods of economic weakness, extended their gains, as did the dollar, while the euro hit session lows.
In a worrying development, inflation readings in the consumer sentiment data and a separate report on import prices revealed potential price pressures at a time when the economy appears to be on track for recovery from the worst recession in decades.
U.S. import prices rose 1.3 percent in May, the Labor Department said, but the gain was powered by petroleum prices and underlying import price pressures were more muted.
Analysts had forecast import prices would rise 1.3 percent after a revised 1.1 percent rise in April, previously reported as a 1.6 percent increase. May's gain was the largest since a 1.4 percent advance in July 2008.
Rising prices, particularly for necessities such as fuel, are unlikely to inspire spending by consumers, who were the key drivers of growth in recent decades but are now saddled with debt and facing the highest unemployment rate in nearly 26 years.
EXPECTING INFLATION?
Gauges of inflation expectations in the Surveys of Consumers report rose to their highest in months, creating concern for the Federal Reserve, which has pumped vast amounts of money into the financial system to spur economic recovery.
Historically speaking, loose monetary policy is generally the opposite of an inflation-fighting strategy, while battling a surge in prices usually slows the economy. Continued...
Source: Reuters

BlackRock lands BGI, Barclays boosts capital

BlackRock lands BGI, Barclays boosts capital
By Steve Slater and Svea Herbst-Bayliss
LONDON/BOSTON (Reuters) - BlackRock has agreed to buy Barclays Global Investors to create the world's biggest asset manager in a $13.5 billion deal that British bank Barclays hopes will put to rest concerns about its capital.
The cash and shares deal, unveiled in the United States late on Thursday, will see Barclays take a 19.9 percent stake and two seats on the board of the enlarged group, to be called BlackRock Global Investors.
Britain's second biggest bank said on Friday a net gain of $8.8 billion would be used to bolster its capital and lift its core Tier 1 capital adequacy ratio by 1.5 percentage points to around 8 percent.
Shares in Barclays were down 4.2 percent at 292 pence by 1405 GMT (10:05 a.m. EDT) on concern the deal raises dependence on volatile investment banking and after a 7 percent rise this week ahead of the widely anticipated deal.
The share price has soared more than five-fold in the last three months, after crashing to a 24-year low on fears that it might need taxpayer funds.
"This (BGI) was always a core part of the business until recently but the reality is they need as much capital as possible for the core banking and investment banking business, and they've been able to get a very good price for the asset," said Colin Morton at Rensburg Fund Management, which owns Barclays shares.
New York-based BlackRock is paying $6.6 billion in cash and the rest in stock. It is raising $2.8 billion from the sale of 19.9 million shares to a group of unnamed institutional investors, which people familiar with the matter had expected to include Middle East sovereign wealth funds.
The other new investors would get a stake of about 10.5 percent in BlackRock and the deal will dilute the stakes of Bank of America to 34 percent from 49 percent and cut PNC Financial Services' holding to 23 percent from 33 percent, according to Reuters estimates.
Shares in BlackRock rose 2.3 percent in New York on Thursday to close at $182.60 but fell 5.7 percent in morning trading on Friday.
San Francisco-based BGI's $1.5 trillion in funds will give BlackRock $2.8 trillion in assets under management, catapulting it to a dominant position with twice the assets of nearest rival State Street.
ALL CHANGE
The sale strengthens Barclays' balance sheet after the bank refused aid from the British government that some of its rivals accepted as the global financial crisis engulfed the industry.
Chief Executive John Varley said that it will make Barclays one of the best capitalised banks in the world and he had "no worries" about the bank's capital position.
Rising regulatory pressure to keep asset management and investment banking businesses separate and client preferences for independent fund managers also meant other banks were likely to split off fund arms, and the industry would consolidate.
"There are a number of pieces of empirical evidence saying this is the way the industry is trending, that's partly a consequence of client preference and partly a consequence of regulation," Varley said. "It's amplified in our case by the fact that the Lehman transaction has changed the scale of Barclays Capital." Continued...
Source: Reuters

Three suitors emerge for Boston Globe: report

Three suitors emerge for Boston Globe: report
NEW YORK (Reuters) - Three Boston businessmen, including a member of the family that used to own The Boston Globe, have emerged as suitors for the 137-year-old daily newspaper that The New York Times Co is trying to sell, the Globe reported on Friday.
The three are Stephen Pagliuca, a managing director at Boston private equity company Bain Capital and co-owner of the Boston Celtics basketball team; former advertising executive Jack Connors, and Stephen Taylor, a former Globe executive and member of the family that sold the Globe to the Times Co for $1.1 billion in 1993.
The Boston Globe's story comes a day after it reported that the Times Co hired Goldman Sachs to try to sell the money-losing paper.
The Times Co also is trying to sell its interest in the holding company that owns the Boston Red Sox baseball team and, according to the Globe, is willing to part with all of its assets in Massachusetts -- a state that has proven to be a financial quagmire for the Times.
Taylor, who lectures about the economics of media and financing at Yale University and runs a small private investment firm called Densefog Group LLC, declined to comment.
Pagliuca and Connors did not immediately respond to requests for comment.
Pagliuca, Connors and Taylor are in various stages of reviewing the Globe's finances and getting investors to join their groups, the Globe reported, but added that it does not know if they formally will bid for the paper.
Connors in particular has not decided if he will proceed, the Globe said, citing a source familiar with his thinking.
A grinding slow-moving dispute between the Times and its largest union might delay the Globe sale because some potential bidders do not want to inherit a fight, the paper reported.
The Globe is set to record an $85 million operating loss this year and the Times Co has pressed its unions to come up with $20 million in cost cuts.
The Globe's biggest union, the Boston Newspaper Guild, rejected the paper's plan for pay cuts and other concessions to save $10 million. The Times responded by cutting Guild members' pay by 23 percent.
The union has appealed this decision to the National Labor Relations Board, a federal government body that plans to hold a hearing on the situation next week.
(Reporting by Robert MacMillan; Editing by Brian Moss)

Source: Reuters

Oil falls below $72 as dollar gains

Oil falls below $72 as dollar gains
By Alex Lawler
LONDON (Reuters) - Oil fell below $72 a barrel on Friday, a day after reaching a near eight-month high, pressured by a firmer dollar and views that prices have risen too far despite improving economic sentiment.
The market on Thursday settled at $72.68, the highest since October 20 after a three-day rally, making it look overvalued to some analysts. The dollar gained, reducing the investment appeal of oil and commodities.
"Most commodity markets are still quite overbought and could be subject to a modest sell-off next week," said Edward Meir, analyst at MF Global. "We are getting to a stage where the steep run-up in prices has arguably over discounted the modest brightening we are seeing in the U.S. macro picture."
U.S. crude fell 74 cents to $71.94 a barrel by 1515 GMT (11:15 a.m. EDT). London Brent crude fell 94 cents to $70.85.
The losses came as the U.S. dollar rebounded against the euro. A stronger dollar tends to pressure commodity markets by weakening the purchasing power of buyers using other currencies.
The Organization of the Petroleum Exporting Countries, meanwhile, further reduced its forecast for world oil consumption this year, but said the worst appears to be over for the oil market.
"As the world economy stabilizes, the world oil demand appears to be settling down," OPEC said in its Monthly Oil Market Report. "There are no significant downward revisions to our previous oil demand forecasts."
Two other closely watched forecasters, the U.S. Energy Information Administration and the International Energy Agency, slightly raised their demand estimates this week, after months of downward revisions.
Stronger-than-expected Chinese economic data helped support prices.
Official figures showed a rebound in China's industrial growth and retail sales in May, following on from U.S. data on Thursday showing an increase in retail sales and a slowdown in weekly jobless claims.
Data also showed refinery output in the world's number two energy user rose 10.7 percent in May versus a year earlier, in its third monthly rise in seven months to a fresh record high.
Concerns over tightening gasoline supplies have given oil an extra boost this week.
U.S. energy firm Valero (VLO.N) said on Thursday it will shut its refinery on the Caribbean island of Aruba for the summer due to weak profit margins. The U.S. has already been hit by a spate of refinery outages in recent weeks.
(Reporting by Alex Lawler in London, Chua Baizhen in Singapore, and Richard Valdmanis in New York; editing by Jim Marshall)

Source: Reuters

U.S. consumers' mood strongest in 9 months

U.S. consumers' mood strongest in 9 months
NEW YORK (Reuters) - U.S. consumer confidence rose to a nine-month high in June but failed again to surpass its level of September 2008, when the spectacular failure of Lehman Brothers sent the world economy into a tailspin, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence for June rose to 69.0 from May's 68.7. That was slightly below economists' expectations of 69.5, according to a Reuters poll.
Worryingly, the report's gauges of inflation expectations rose to their highest in months, creating concern for the Federal Reserve, which has pumped money into the financial system to spur recovery from the worst recession in decades.
For the third month now the overall consumer sentiment reading was at its highest since the Lehman debacle last September, which caused severe strains in financial markets, while not breaking through that month's level of 70.3.
Indeed, the economic damage done by that episode is still being felt and may linger for a long time to come, consumers worry, overshadowing perceptions of economic recovery.
"Job and income uncertainty, however, remained high and constitute a significant barrier for completing planned purchases," the Surveys of Consumers said in its report.
"The economic recovery was thought to be weaker than originally anticipated, leading consumers to expect a longer period of time before the recovery gets underway."
Reflecting ongoing worries, consumers' assessment of the 12-month economic outlook fell, with that gauge declining to 61 in June from 75 in May.
Their one-year inflation expectations rose to 3.1 percent in June -- the highest since October 2008 -- from May's 2.8 percent.
The five-year inflation outlook rose to 3.1 percent in June from May's 2.9 percent. That was the highest in the long-term inflation expectations since February this year.
(Reporting by Burton Frierson, Editing by Chizu Nomiyama)

Source: Reuters

GM sale of Saab looms as Koenigsegg steps up

GM sale of Saab looms as Koenigsegg steps up
Opel's suitors
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STOCKHOLM (Reuters) - General Motors is close to selling loss-making Swedish unit Saab after tiny supercar maker Koenigsegg agreed to ride to the rescue, a source familiar with the talks told Reuters.
A deal would put a company of less than 50 employees turning out a handful of $1 million supercars in charge of Saab, which produces that many family cars every hour.
Sweden would also likely join other governments backing swift rescues of their biggest car companies with state guarantees to help save jobs and one of the country's biggest brand names.
Koenigsegg, whose slinky supercars can top 400 km/h (240 mph) and rank in Forbes magazine's list of the world's 10 most beautiful cars, is backed by Norwegian investors, a source told Reuters on Thursday.
The two sides have signed a letter of intent and financing has been agreed, leaving only minor issues to be resolved, the source said.
Saab said on its website on Friday that new ownership would be finalized in the early summer and Swedish television reported that a preliminary deal was now with the U.S. Treasury Department with further information expected to be released next week.
SURPRISING PARTNERS
Tough times are producing some surprising partnerships, including GM's tentative deal this month to sell Hummer, the expensive, gas-guzzling vehicle of choice for musicians and movie stars, to Sichuan Tengzhong, a Chinese company that makes cement mixers.
Italian maker Fiat, which quit the U.S. market in 1983, is set to return under a new partnership with Chrysler while parts maker Magna International is in talks to buy GM's European operations centred on Germany's Opel.
"I'm concerned it doesn't have the scale or expertise to exist as a standalone business," said Nomura analyst Michael Tyndall regarding Koenigsegg.
Saab has not posted a profit in a decade.
"I struggle to see how smaller brands can exist as standalone operations -- the industry doesn't have a great track record on this," said Tyndall.
The global recession has slashed demand for cars and sent U.S. giants GM and Chrysler into bankruptcy, leaving Ford as the only one of the so-called Big Three not needing government aid.
Koenigsegg hails from the other end of the automotive spectrum, a tiny firm operating out of an aircraft hangar set up in 1994 by young entrepreneur Christian von Koenigsegg who pocketed some of his fortune selling frozen chickens.
Saab's future could see it turn into a much smaller, niche player, according to Mikael Wickelgren, a vehicle expert lecturer at the University of Skovde, Sweden..
"Saab probably would move toward more specialised, niche cars for a smaller customer base," said Wickelgren. Continued...
Source: Reuters

U.S. import prices rise on petroleum

By Alister Bull
WASHINGTON (Reuters) - U.S. import prices rose 1.3 percent in May, the Labor Department said on Friday, but the gain was powered by petroleum prices and underlying import price pressures were more muted.
Analysts had forecast import prices would rise 1.3 percent after a revised 1.1 percent rise in April, previously reported as a 1.6 percent increase. May's gain was the largest since a 1.4 percent advance in July 2008.
Recent declines in the dollar might press import prices higher and contribute to inflation, but year-over-year, import prices declined by a record 17.6 percent, indicating little threat of this at the moment.
"The data still suggest a lurking inflation threat, but that's not likely to perturb the markets just yet given ongoing weakness in economic growth," said Action Economics in a note to clients.
On the other hand, there were signs that prices had arrested their prolonged slide in the face of the most severe worldwide economic slowdown in a generation, chiming with other evidence that a recovery may be drawing near.
Non-petroleum import prices rose 0.2 percent in May, the first increase since July 2008, although they were down a record 5.8 percent over the year.
The Labor Department said the increase in non-petroleum prices was driven primarily by a 0.6 percent increase in prices for non-petroleum industrial supplies and materials, also the first rise for that index since last July.
Higher prices for automobiles and for foods, feeds and beverages also contributed to May's overall increase in non-petroleum prices, the Labor Department said.
Export prices rose 0.6 percent in May compared with forecasts for a 0.4 percent gain. They rose 0.4 percent in April and are down 6.5 percent over the year.
Imported petroleum prices were up 8.3 percent in May, the fourth consecutive gain after bottoming in January, but are 51.4 percent lower over the year.
(Editing by Andrea Ricci)

Source: Reuters

Wall Street set to fall as oil slides; data eyed

Wall Street set to fall as oil slides; data eyed
By Edward Krudy
NEW YORK (Reuters) - Wall Street was set to open lower on Friday as commodity prices eased and investors looked ahead to key consumer confidence data for insight into prospects for the recession easing.
U.S. crude oil futures fell nearly 2 percent, helped by a stronger U.S. dollar, after a three-day rally lifted the price over $72 per barrel. Gold prices edged lower in Europe.
Shares in natural resource companies headed lower, with Freeport-McMoRan Copper & Gold Inc (FCX.N) down 1.4 percent to $59.67 before the bell, and Exxon Mobil Corp (XOM.N) down 1 percent to $73.40.
A rally this week in commodity prices helped underpin stock prices, but some investors say much higher prices could hurt an economic recovery by increasing costs to consumers and businesses.
"Commodity prices coming off here will certainly impact the market as it's been commodity prices that have basically helped pushed the market toward these new 12-month highs," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. "So weakness there would be a potential problem."
S&P 500 futures fell 2.90 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones Industrial Average futures dropped 15 points, while Nasdaq 100 futures were off 1.75 points.
U.S. Treasuries rose Friday, extending the previous session's gains after a solid auction of 30-year bonds on Thursday soothed worries about demand for massive government debt.
The prospect of rising interest rates has worried stocks investors concerned about the effect of increased borrowing costs on an economic recovery. Yields on the 10-year treasury note briefly passed 4 percent earlier in the week but by Friday yields had fallen back toward 3.8 percent.
The Reuters/University of Michigan index of consumer sentiment, due at 9:55 a.m. EDT, will be closely watched as consumers account for two-thirds of economic activity.
June's reading is forecast to rise to 69.5 from 68.7 in May, a Reuters poll showed, indicating growing consumer confidence.
In one bright economic spot, Chinese factory output surged in May and improved Japanese output in April fueled hopes on Friday that Asia can lead a global recovery, though a record drop in euro zone industrial production showed much of Europe lagging.
In a further sign the battered financial system is returning to health, BlackRock Inc (BLK.N) agreed to buy Barclays Global Investors to create the world's biggest asset manager in a $13.5 billion deal that British bank Barclays Plc (BARC.L) hoped will ease concerns about its capital. BlackRock's shares rose 1.9 percent to $186 before the bell.
Chip designer Rambus Inc (RMBS.O) agreed to cut royalties to settle charges brought by the European Commission, according to Friday's edition of the European Union Official Journal. Its shares rose 8 percent to $16.30 before the bell.
U.S. stocks racked up gains across a wide array of sectors on Thursday, aided by rising commodity prices and jobless data that showed improving labor market conditions.
(Writing by Edward Krudy; editing by Jeffrey Benkoe)

Source: Reuters

Oil falls below $72 after three-day rally

Oil falls below $72 after three-day rally
By Alex Lawler
LONDON (Reuters) - Oil dropped below $72 a barrel on Friday, a day after reaching a near eight-month high, pressured by a firmer dollar and views that prices have risen too far despite improving sentiment about the economy.
The market on Thursday settled at $72.68, the highest since October 20 after a three-day rally, making it look overvalued to some analysts. The dollar gained, reducing the investment appeal of oil and commodities.
"Most commodity markets are still quite overbought and could be subject to a modest sell-off next week," said Edward Meir, analyst at MF Global.
"We are getting to a stage where the steep run-up in prices has arguably over-discounted the modest brightening we are seeing in the U.S. macro picture."
U.S. crude fell $1.05 to $71.63 a barrel by 1110 GMT (7:11 a.m. EDT), after reaching a 2009 intra-day high of $73.23 on Thursday. London Brent crude fell 96 cents to $70.83.
The Organization of the Petroleum Exporting Countries on Friday further reduced its forecast for world oil consumption this year, but said the worst appears to be over for the oil market.
"As the world economy stabilizes, the world oil demand appears to be settling down," OPEC said in its Monthly Oil Market Report. "There are no significant downward revisions to our previous oil demand forecasts."
Two other closely watched forecasters, the U.S. Energy Information Administration and the International Energy Agency, slightly raised their demand estimates this week, after months of downward revisions.
Stronger-than-expected Chinese economic data helped support prices.
Official figures showed a rebound in China's industrial growth and retail sales in May, following on from U.S. data on Thursday showing an increase in retail sales and a slowdown in weekly jobless claims.
Data also showed refinery output in the world's number two energy user rose 10.7 percent in May versus a year earlier, in its third monthly rise in seven months to a fresh record high.
Concerns over tightening gasoline supplies have given oil an extra boost this week.
U.S. energy firm Valero said on Thursday it will shut its refinery on the Caribbean island of Aruba for the summer due to weak profit margins. The U.S. has already been hit by a spate of refinery outages in recent weeks.
(Reporting by Alex Lawler in London and Chua Baizhen in Singapore; editing by James Jukwey)

Source: Reuters

OPEC says worst appears to be over for oil market

LONDON (Reuters) - Oil demand is still shrinking as the world economy contracts, OPEC said on Friday, but the worst appears to be over for the oil market and stocks should be moving back toward more normal levels by the end of the year.
The Organization of the Petroleum Exporting Countries cut again its forecast for world oil consumption this year, seeing a year-on-year fall of 1.62 million barrels per day (bpd) to 83.8 million bpd, and it said its own output rose slightly in May.
"The worst appears to be behind us," OPEC said in its Monthly Oil Market Report. "Inventories appear to have peaked," it said, adding that seasonal demand should support a gradual decline in oil stocks, which have been near record levels.
OPEC said its oil output, excluding Iraq, rose to 25.90 million bpd in May, up from 25.78 million bpd in April.
Oil prices have had a turbulent year, hitting an all-time high of over $147 per barrel in July 2008 before plunging toward $32 in December but then more than doubling.
Benchmark U.S. light crude oil futures were trading around $71.50 per barrel at 1045 GMT Friday.
OPEC agreed last year to cut 4.2 million bpd, equal to about 5 percent of daily world demand, from its output levels in September in an attempt to support prices.
OPEC said its efforts to curb excess supply had helped turn the market around and would reduce global oil inventories.
Although OPEC reduced its forecast for global oil demand this year, it expected higher consumption than the International Energy Agency, adviser to 28 industrialized countries, which on Thursday forecast use this year at 83.3 million bpd, down 2.47 million bpd from 2008.
Demand has been falling quickly in the developed nations of the Organization for Economic Co-operation and Development, but there are increasing signs that the downturn is moderating.
OPEC said its own oil output increased in May by 0.12 million bpd to 25.90 million bpd.
The rise in OPEC output meant the group moved further away from its goal of reducing output, complying with 75 percent of its pledged supply cuts in May, versus 78 percent in April, according to Reuters calculations based on OPEC data.
The producer group, which pumps more than a third of the world's oil, held its output quotas steady when it met in Vienna on May 28.
It saw demand for OPEC oil this year falling by 2.19 million bpd from 2008 to around 28.60 million bpd, with the biggest decline in the second quarter of the year and a slow recovery toward the end of the year.
(Reporting by Christopher Johnson; editing by William Hardy)

Source: Reuters

Barclays lands capital-boosting BlackRock deal

Barclays lands capital-boosting BlackRock deal
By Steve Slater and Svea Herbst-Bayliss
LONDON/BOSTON (Reuters) - BlackRock has agreed to buy Barclays Global Investors to create the world's biggest asset manager, in a $13.5 billion deal that British bank Barclays hopes will put to rest concerns about its capital.
The cash and shares deal, unveiled in the United States late on Thursday, will see Barclays take a 19.9 percent stake and two seats on the board of the enlarged group, to be called BlackRock Global Investors.
Britain's second biggest bank said on Friday a net gain of $8.8 billion would be used to bolster its capital strength, lifting its core Tier 1 capital adequacy ratio by 1.5 percentage points to around 8 percent.
Shares in Barclays were down 1.2 percent at 301 pence by 0845 GMT, having risen earlier this week ahead of confirmation of the widely anticipated deal. The share price has soared more than five-fold in the last three months, after crashing to a 24-year low on fears that it might need taxpayer funds.
"This (BGI) was always a core part of the business until recently but the reality is they need as much capital as possible for the core banking and investment banking business, and they've been able to get a very good price for the asset," said Colin Morton at Rensburg Fund Management, which owns Barclays shares.
BlackRock is paying $6.6 billion in cash and the rest in stock. To help fund the cash payment it is raising $2.8 billion from the sale of 19.9 million shares to a group of unnamed institutional investors, which people familiar with the matter had expected to include Middle East sovereign wealth funds.
Shares in BlackRock rose 2.3 percent in New York on Thursday to close at $182.60.
San Francisco-based BGI's $1.5 trillion in funds will give BlackRock $2.8 trillion in assets under management, catapulting it to a dominant industry position with twice the assets of nearest rival State Street.
INDUSTRY CHANGE
The sale strengthens Barclays' balance sheet after the bank refused aid from the British government that some of its rivals accepted as the global financial crisis engulfed the industry.
Chief Executive John Varley said that it will make Barclays one of the best capitalized banks in the world and he had "no worries" about the bank's capital position.
Greater regulatory pressure to keep asset management and investment banking businesses separate and client preferences for independent fund managers also meant other banks were likely to split off fund arms, and the industry would consolidate.
"There are a number of pieces of empirical evidence saying this is the way the industry is trending, that's partly a consequence of client preference and partly a consequence of regulation," Varley said. "It's amplified in our case by the fact that the Lehman transaction has changed the scale of Barclays Capital."
Barclays, which bought the U.S. investment banking business of Lehman Brothers in September, said its trading performance up to the end of May had been "generally consistent" with trends reported at the time of its interim statement on May 7.
Barclays has agreed not to sell any of its BlackRock shares in the first year without the asset manager's consent, and no more than half its holding in the second year. Continued...
Source: Reuters

Shares flat ahead of G8 as data digested

By Sebastian Tong
LONDON (Reuters) - World stocks were flat on Friday ahead of a G8 meeting as investors paused for breath to discern further signs of economic recovery while euro zone government bond prices rose after a successful 30-year U.S. bond auction soothed worries over the rising U.S. budget deficit.
Better-than-expected Chinese factory output in May and an upwards revision for Japan's industrial output in April added to a deepening conviction that the global downturn has seen its worst but the momentum that pushed world shares to eight-month highs continued to slow.
Investors are cautious ahead of the meeting later in the day of the Group of Eight (G8) finance ministers but are also likely to require signs of improvement in corporate earnings and progress in the cleaning up of financial-sector toxic assets before pushing prices higher.
"We've been swinging back and forth quite a bit this week. With the G8 in front of us, It may offer a good excuse not to engage too heavily in the market at the moment," said Dag Muller, technical analyst for currencies at SEB in Stockholm.
Shares in the Asian session touched eight-month highs .MIAPJ0000PUS before easing while the MSCI world equity index .MIWD00000PUS and the pan-European FTSEurofirst 300 index .FTEU3 of leading stocks were both flat after three successive sessions of gains.
Emerging stocks .MSCIEF, which have outperformed their global counterparts to rise nearly 40 percent this year, sagged 0.2 percent.
DEBT RELIEF
Bunds regained some lost ground as yields on benchmark 10-year U.S. Treasuries backed down further from eight-month highs hit earlier this week.
A solid auction of 30-year U.S. debt eased oversupply fears and helped the September Bund futures rise 72 ticks.
The Wall Street Journal reported that U.S. Federal Reserve officials are not likely to considerably increase purchases of U.S. Treasuries and mortgage-backed securities when they meet in late June.
"Risk aversion seems to be abating but people are still sitting on their hands. We have had better data and the U.S. Treasury auction was well received so that's given a bit of relief ... but people are still a bit uncertain about putting on too much risk," said a Nordic trader.
Emerging market spreads were 7 basis points wider to trade at 417 bps above Treasuries.
The dollar .DXY recovered from losses earlier in the week to advance against a basket of major currencies but is still expected to end the week 1.3 percent lower.
The dollar's recovery put pressure on oil which slid toward $72 a barrel as investors locked in gains from a near eight-month settlement high a day ago.
(Additional reporting by Naomi Tajitsu and Sujata Rao; editing by Stephen Nisbeth)

Source: Reuters

BlackRock to buy BGI, becomes top asset manager

BlackRock to buy BGI, becomes top asset manager
By Svea Herbst-Bayliss
BOSTON (Reuters) - BlackRock Inc. said on Thursday it will buy British bank Barclays Plc's investment arm BGI for $13.5 billion in a blockbuster deal that will create the world's biggest asset manager.
For BlackRock, a 21-year old company which relied heavily on acquisitions to grow from a one-room bond investment firm into the largest publicly traded U.S. money manager, the deal will more than double assets to roughly $2.7 trillion.
It will also give New York-based BlackRock, well-known for working with governments and institutional clients, access to retail investors and the hugely popular exchange traded funds San Francisco-based Barclays Global Investors offers.
BGI, which has operations in 15 countries and ranks as Europe's largest hedge fund manager, will help expand BlackRock's reach around the world and into new products spanning actively and passively managed portfolios.
"This gives BlackRock a global footprint which is a substantial thing to have in these markets," said Geoff Bobroff, who advises mutual fund companies as president of Bobroff Consulting Inc.
For Barclays the deal will strengthen its balance sheet after the bank refused aid from the British government that some of its rivals accepted as the global financial crisis engulfed the industry.
BlackRock will pay $6.6 billion in cash and the rest in stock to acquire BGI and Barclays' iShares unit, which had been promised to private equity firm CVC Capital Partners for $4.4 billion in April.
Barclays was allowed to keep shopping for a better deal until the middle of June and will owe CVC a $175 million break-up fee if it sells iShares to another bidder. CVC has until next week to come up with a counter offer.
TRANSFORMATIONAL DEAL
"This is a transformational transaction" for the investment management industry Laurence Fink, BlackRock's chief executive officer, said on a hastily arranged conference call late on Thursday.
Fink said BlackRock has received commitments from a global network of institutional investors and clients to purchase 19.9 million shares at the closing of the transaction for a total of $2.8 billion. He would not disclose the investors.
The combined companies' market capitalization will be roughly $34 billion, Fink said.
BlackRock's share price, which has climbed 36 percent since January, shot up 11.5 percent this week to close at $182.60 on Thursday as speculation about a possible deal heated up. Bank of New York Mellon was also said to have been interested in buying BGI, but several people briefed on the deal said the company's more tepid stock price rise hurt its chances.
Together BlackRock and BGI -- or BlackRock Global Investors as the new company will be called -- will be the industry's single biggest player, zooming past rivals State Street Corp, which manages $1.4 trillion, and Fidelity Investments, which oversees $1.25 trillion. The company will also outpace PIMCO, its chief fixed-income rival, which is building up a presence in exchange traded funds.
The deal also further shakes up an already battered money management industry where firms lost billions in assets and thousands of jobs during the financial crisis by eliminating a possible bidder for other firms that are up for sale. Continued...
Source: Reuters

Oil falls towards $72 after three-day rally

Oil falls towards $72 after three-day rally
By Chua Baizhen
SINGAPORE (Reuters) - Oil prices slid toward $72 a barrel on Friday, as investors locked in gains from a near eight-month high settlement a day ago, but stronger-than-expected China factory output and retail sales data lent support.
Hopes of an economic recovery had boosted oil to its high on Thursday, and official data showing a rebound in China's industrial growth and retail sales in May added to the positive economic picture.
Data also showed refinery output in the world's number two energy user rose 10.7 percent in May versus a year earlier, in its third monthly rise in seven months to a fresh record high.
U.S. crude fell 23 cents to $72.45 a barrel by 0540 GMT, after peaking on Thursday at $73.23. London Brent crude fell 29 cents to $71.50.
"The downward movement is the usual two steps forward, one step back. Some market players may be a bit cautious about oil prices being a little overvalued," Ben Westmore, a commodities analyst at National Australia Bank, said.
Oil on Thursday settled at its highest since October 20 after a three-day rally, as the International Energy Agency revised upwards its outlook for global oil demand, and U.S. data showed a pick-up in retail sales and slowdown in jobless claims.
The Organization of Petroleum Exporting Countries (OPEC) will issue its monthly report later on Friday.
Amid growing hopes for the economy, Bank of Canada Governor Mark Carney warned against excess optimism over "green shoots," saying there was no evidence yet of a sustainable global recovery.
"Economies are going to grow initially because of the scale of monetary and fiscal stimulus, not in spite of it ... and self-sustained private demand is not yet there," he said.
Asian Development Bank President Haruhiko Kuroda said the U.S. economy is showing signs of recovery but a reduction of household debt will take a long time.
Kuroda said Japan, the United States and European Union will likely see a rebound in second-half 2010.
Hopes of an economic recovery have seen crude prices more than double from the lows near $30 a barrel plumbed late last year, and worries over tightening gasoline supplies ahead of the U.S. driving season gave an extra boost this week, bringing oil up nearly 6 percent from last week's close.
Valero (VLO.N) said on Thursday it will shut its refinery on the Caribbean island of Aruba for the summer due to weak profit margins.
The U.S. has already been hit by a spate of refinery outages in recent weeks, including fires at Sunoco's (SUN.N) plant in Marcus Hook, Pennsylvania, and Flint Hills' plant in Corpus Christi, Texas.
(Editing by Ben Tan)

Source: Reuters

Asian shares advance; momentum seen waning

By Rafael Nam
HONG KONG (Reuters) - Asian shares marched toward new highs for the year on Friday as stronger-than-expected Chinese industrial output data and a rise in U.S. retail sales fueled hopes that the worst was over for the global economy.
The safe-haven dollar was largely unchanged after Thursday's falls, but oil prices slipped below $73 following a three-day rally that brought levels to their highest since mid-October.
The strong shift toward riskier assets over the past few months has been anchored by the improving global economic prospects, especially in the United States and China.
The momentum of that shift is slowing though, and wary investors will need more evidence of an actual recovery in the global economy, analysts said.
"The market probably ran a bit too hard over the past two weeks. Consumer sentiment has improved but some of the economic challenges still remain," said Lucinda Chan, division director with Macquarie Equities in Australia.
The MSCI index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS rose 0.6 percent as of 0240 GMT, just under a 2009 high hit last week that was its best level since late September.
The index has surged some 66 percent from its March bear market low, but struggled over the last two weeks as investors worried demand was still too weak and feared higher borrowing costs for consumers and businesses may hold back a U.S. recovery.
Japan's Nikkei average .N225 rose 1 percent after powering to its highest level since Oct 7, taking its gains to more than 40 percent since early March.
The levels indicate in part a return to normalcy nine months after the collapse of Lehman Brothers in mid-September sent global financial markets into a nosedive.
Data on Friday showed China's annual industrial output growth rebounded by a stronger-than-expected 8.9 percent in May, in line with Chinese media articles on Wednesday that had reported the data ahead of the official release.
The improving prospects for China comes as reports on Thursday showed U.S. retail sales rose in May for the first time in three months, while the number of workers filing new claims for jobless benefits last week fell to the lowest level since January.
A fall in benchmark U.S. Treasury yields following a well-received auction of 30-year notes also helped support broader sentiment, easing concerns about rising borrowing costs. Interest rates on many loans and mortgages are benchmarked to government bond yields.
Hong Kong's main index .HSI advanced more than 1 percent, but gains were smaller in Shanghai .SSEC, as well as in South Korea and Australia .AXJO.
Among individual gainers, OZ Minerals (OZL.AX) surged 13.5 percent in its resumption of trade after shareholders of the debt-laden miner on Thursday approved a sale of most of the company's assets to China's state-owned MinMetals for about $1.4 billion.
But some of the gains in resources shares over the past couple of sessions that had fueled gains in Asian shares faltered along with the decline in oil prices. Continued...
Source: Reuters

Oil falls toward $72/bbl after three-day rally

Oil falls toward $72/bbl after three-day rally
SINGAPORE (Reuters) - Oil prices fell toward $72 a barrel on Friday, as investors locked in gains from a near eight-month high settlement a day ago, but stronger-than-expected China factory output and retail sales data lent support.
Hopes of an economic recovery had boosted oil to its high on Thursday, and official data showing a rebound in China's industrial growth and retail sales in May added to the positive economic picture.
By 0224 GMT, U.S. crude fell 26 cents to $72.42 a barrel, after peaking on Thursday at $73.23. London Brent crude fell 44 cents to $71.35.
"The worst is over for the Chinese economy. However, industrial output growth will remain low until the end of the third quarter relative to the levels a year earlier, due partly to weak exports," Hao Daming, senior analyst at Galaxy Securities in Beijing, said.
Crude on Thursday settled at its highest since October 20 after a three-day rally, as the International Energy Agency revised upwards its outlook for global oil demand, and U.S. data showed a pick-up in retail sales and slowdown in jobless claims.
The Organization of Petroleum Exporting Countries (OPEC) will issue its monthly report later on Friday.
Amid growing hopes for the economy, Bank of Canada Governor Mark Carney warned against excess optimism over "green shoots," saying there was no evidence yet of a sustainable global recovery.
"Economies are going to grow initially because of the scale of monetary and fiscal stimulus, not in spite of it... and self-sustained private demand is not yet there," he said.
Hopes of an economic recovery have seen crude prices more than double from the lows near $30 a barrel plumbed late last year, and worries over tightening gasoline supplies ahead of the U.S. driving season gave an extra boost this week, bringing oil up nearly 6 percent from last week's close.
Valero (VLO.N) said on Thursday it will shut its refinery on the Caribbean island of Aruba for the summer due to weak profit margins.
The U.S. has already been hit by a spate of refinery outages in recent weeks, including fires at Sunoco's (SUN.N) plant in Marcus Hook, Pennsylvania, and Flint Hills' plant in Corpus Christi, Texas.
(Reporting by Chua Baizhen, Editing by Michael Urquhart)

Source: Reuters

BlackRock to buy BGI

BlackRock to buy BGI
BOSTON (Reuters) - BlackRock Inc., the giant U.S. money manager, said on Thursday it will buy Barclays Global Investors for $13.5 billion in a deal that will make it the world's biggest asset manager.
The sale, which also includes the iShares business, will more than double BlackRock's assets to roughly $2.7 trillion and give the company, well-known for working with institutions and governments, access to fast-growing Exchange Traded Funds and retail investors.
BlackRock will pay $6.6 billion in cash and the rest in stock to acquire the unit.
"This is a transformational transaction" in the investment management industry, Laurence Fink, BlackRock's chief executive officer, said on a hastily arranged conference call. He said the deal will allow BlackRock to offer both active and passively managed investment portfolios.
Fink said the combined companies' market capitalization will be roughly $34 billion.
BGI, which ranks as Europe's largest hedge fund manager and operates in 15 countries, was long considered a top prize in the industry, and BlackRock beat out rivals including Bank of New York Mellon to win it.
In buying BGI, BlackRock will be able to acquire Barclays' iShares business, which Barclays had previously agreed to sell to CVC Capital Partners. But that deal, agreed to in the spring, allowed Barclays until the middle of June to try to find a better deal.
BlackRock, a 21-year-old firm with deep roots in the mortgage market, has grown into a powerhouse through acquisitions including its 2006 deal to buy Merrill Lynch's asset management operations for $8.6 billion.
Barclays will own a stake of roughly 20 percent in BlackRock, and the two firms will seek to expand their relationships in investment banking and wealth management.
Fink said BlackRock has received commitments from a global network of institutional investors and clients to purchase 19.9 million shares at the closing of the transaction for a total of $2.8 billion.
(Reporting by Svea Herbst-Bayliss; Editing by Gary Hill)

Source: Reuters

AIG to use any winnings in trial to repay taxpayers

AIG to use any winnings in trial to repay taxpayers
By Lilla Zuill
NEW YORK (Reuters) - AIG, days before a high-profile legal fight with a company controlled by former CEO Maurice Greenberg heads to court, promised to use any funds won at trial to repay U.S. taxpayers.
"While any relief granted for AIG's equitable and legal claims will be subject to the findings and judgment of the court, AIG intends to use any monetary damages, including $4.3 billion of illicit stock sales, to repay the company's debt to the U.S. government," said AIG spokesman Mark Herr.
The case, scheduled to begin on Monday in U.S. District Court in Manhattan, relates to a long-contested block of American International Group (AIG.N) stock held by Starr International Co, a company controlled by Greenberg.
A lawyer for Starr International was not immediately available for comment.
AIG, claiming breach of fiduciary duty, is seeking to wrest back shares held by Starr, and the proceeds of any sales, at the same time as it tries to repay about $85 billion in taxpayer loans.
The U.S. government stepped in to save AIG from collapse under bad mortgage bets last September, and has put up to $180 billion at the company's disposal since.
Starr's ownership of AIG stock has been in contention since 2005 when Greenberg left AIG. It held about 290 million shares at the time, then worth some $20 billion.
Some stock has been sold since, and the value of the remaining shares has fallen dramatically over the past year as AIG posted more than $100 billion in losses.
The trial is going ahead after an informal discussion between the parties about settlement last year failed, and after AIG more recently rejected having the matter decided by arbitration.
The case, at AIG's request, will be heard by a jury.
STAR WITNESS
Starr International had held a sizable stake in AIG since 1970 when Greenberg structured the firm as a vehicle to protect the insurer from hostile takeover.
Ted Wells, of law firm Paul, Weiss, Rifkind, is to argue on AIG's behalf that Starr International had a long-standing, irrevocable obligation to fund deferred compensation for AIG employees, something AIG says is even more important now given its precarious financial state.
David Boies, of Boies, Schiller & Flexner, is expected to argue on Starr International's behalf that Greenberg used the block of stock to fund deferred compensation for AIG employees on a voluntary basis, and never expressly committed to continue the program indefinitely.
Starr International ceased to be a compensation vehicle for AIG executives in 2005. It is now run by Greenberg as a private investment vehicle and for charity. Continued...
Source: Reuters

Oil's spike, retail and jobless data lift Wall Street

Oil's spike, retail and jobless data lift Wall Street
By Chuck Mikolajczak
NEW YORK (Reuters) - U.S. stocks racked up gains across a wide array of sectors on Thursday, aided by rising commodity prices and improving labor market conditions, along with a sharp drop in interest rates.
But stocks faded late in the session as analysts said the recent pattern of light volume has made it difficult for the S&P 500 to close above the psychologically important 950 level.
Energy shares helped lead the advance after the International Energy Agency raised its demand forecast for the first time in 10 months. Crude oil surged briefly to more than $73 a barrel and lifted shares of resource companies, such as Chevron (CVX.N), up 2.4 percent at $71.90 and Alcoa (AA.N), up 6.4 percent at $12.22. An S&P index of energy stocks gained 1.8 percent.
But energy shares weren't Wall Street's only climbers. An
upgrade of some regional banks by analysts at Goldman Sachs and a separate upgrade of Bank of America (BAC.N) lit a fire under banking shares. The KBW bank index .BKX shot up 2.6 percent.
The stock market has rallied since hitting 12-year lows in early March, with the S&P rising 39.7 percent. However, stocks have failed to substantially build on those gains since mid-May, while an expected correction has yet to materialize.
Rising energy costs are now being viewed in a positive light by investors as a signal of renewed demand. Recent concerns about large debt auctions have been shrugged off, with a big rally in the bond market on Thursday as the Treasury sold $11 billion of 30-year bonds.
"Isn't that typical? The more you look for something, the less likely it is going to appear, at least as far as the market is concerned," said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.
"That's why it keeps going up. There's a lot of worry. The market climbs a wall of worry, right?"
The Dow Jones industrial average .DJI gained 31.90 points, or 0.37 percent, to 8,770.92. The Standard & Poor's 500 Index .SPX rose 5.74 points, or 0.61 percent, to 944.89. The Nasdaq Composite Index .IXIC added 9.29 points, or 0.50 percent, to 1,862.37.
DOW FLIRTS WITH BEING POSITIVE FOR YEAR
Earlier, the major stock indexes had gained more than 1 percent, with the Dow briefly turning positive for the year when it rose as high as 8,877.93 intraday.
Bank of America Corp (BAC.N) shares jumped 8.3 percent to $12.97 after Keefe, Bruyette & Woods analysts raised their rating on the stock to "outperform" from "market perform" and increased their price target to $16.50 from $12.
Further bolstering bank shares, Goldman Sachs boosted its ratings on regional banks Regions Financial Corp (RF.N), up 9.3 percent at $4.37 on the New York Stock Exchange, and Fifth Third Bancorp (FITB.O), up 5.9 percent at $7.77 on Nasdaq, although Goldman said it favored large banks overall.
Demand was well above average for an auction of $11 billion of 30-year U.S. Treasury bonds, resulting in a sharp rally in the bond market. Stocks have tracked bonds of late, with higher rates causing concern among investors, but the fall-off in bond prices, which move inversely to their yields, makes stocks more attractive. Continued...
Source: Reuters

Lawmakers blast Fed, Treasury, BofA over Merrill

Lawmakers blast Fed, Treasury, BofA over Merrill
By Kim Dixon and John Whitesides
WASHINGTON (Reuters) - U.S. lawmakers accused the Treasury and Federal Reserve on Thursday of using threats to force Bank of America to take over Merrill Lynch while criticizing Bank of America boss Ken Lewis for keeping shareholders in the dark about rising losses at Merrill.
At a hearing into the deal, brokered hastily during the worsening U.S. banking crisis in late 2008, lawmakers were torn over whether regulators exceeded their authority to enforce the marriage or had been browbeaten by Lewis into providing government aid to support the acquisition.
"The Treasury Department had provided a $20 billion dowry for a shotgun wedding," said House Oversight and Government Reform Committee Chairman Adolphus Towns, a Democrat. "But the question may be, 'Who was holding the shotgun?'"
Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Henry Paulson effectively put "a gun to the head" of Lewis to close the deal quickly, according to Republicans on the panel.
"This transaction took place in a climate of fear and intimidation by government officials," said Republican Jim Jordan of Ohio.
Lewis told his board the Fed and Treasury would remove the board and bank management if it did not complete the purchase of Merrill Lynch despite growing financial losses there, according to board minutes cited at Thursday's hearing.
"If that isn't a threat, I don't know what is," Democrat Elijah Cummings agreed.
Towns said Bernanke and Paulson would be asked to testify at a later date before the committee.
But Lewis was also hammered by lawmakers who said he must have known earlier than he claimed about heavy losses at Merrill, which lost $15.84 billion in the 2008 fourth quarter.
Lawmakers argued that if Bank of America went so far as to consider using a material adverse change (MAC) clause to scuttle the deal then it was important enough to inform shareholders.
"I'd leave that decision to our securities lawyer and our outside counsel," responded Lewis, the sole witness at the hearing, who generally kept his answers brief and even smiled and laughed at times during a three-hour of grilling.
Shares of Bank of America rose 8.3 percent to $12.97 on Thursday, aided by analysts at Keefe, Bruyette & Woods raising their rating to "outperform" from "market perform."
DEEPER MALAISE
Towns said the deal, pushed behind closed doors through "coded messages and private e-mails", was evidence of a deeper malaise in financial supervision.
"Basically, the regulators and the financial institutions seemed to be making up the rules as they went along," Towns said, adding that the incident should help shape financial regulatory reforms that Congress is exploring. Continued...
Source: Reuters

Retail sales, drop in jobless claims fuel hope

Retail sales, drop in jobless claims fuel hope
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. retail sales rose in May for the first time in three months and the number of workers filing new claims for jobless benefits last week hit a January low, fostering hope the recession was abating.
The Commerce Department said on Thursday that sales at U.S. retailers rose 0.5 percent last month, lifted by strong gasoline and building material receipts, after falling by 0.2 percent in April.
A separate report from the Labor Department showed the number of U.S. workers filing new claims for unemployment benefits fell by 24,000 to 601,000 last week, the lowest since the week of January 24.
"The data are less bad. We are on track for growth in the third quarter," said Stephen Gallagher, chief U.S. economist at Societe Generale in New York.
U.S. stocks rose, cheered by the data and a solid auction of longer-dated government bonds, which allayed fears over the country's ballooning budget deficit. The Dow Jones industrial average ended 0.4 percent higher at 8,770.92, after rising as high as 8,877.93.
Treasury debt prices rose strongly, pulling benchmark yields back from eight-month highs above 4 percent, while the U.S. dollar fell broadly as the economy's improving prospects eroded some of the currency's safe-haven appeal.
The data were the latest in a series to bolster the argument that the economy's severe recession was close to hitting a bottom, with the sales report raising optimism that consumer spending would probably be flat to only modestly lower in the second quarter.
But there are worries that higher gasoline prices, which boosted retail sales in May, could hurt the economy. Gasoline prices rose every week in May, according to government data, increasing from $2.13 a gallon at the beginning of the month to $2.57 by June 1.
Excluding sales at gasoline stations, retail sales rose just 0.2 percent, after declining by 0.2 percent in April, the Commerce Department said.
"The (economy's) tender green shoots could be snuffed out by the frost of higher mortgage rates and gasoline prices," said T.J. Marta, chief market strategist at Marta on the Markets in Scotch Plains, New Jersey.
Growing hope that the 18-month-old recession will soon be over and worries about surging U.S. government debt issuance have boosted yields on U.S. Treasuries in recent weeks.
WHITHER THE U.S. CONSUMER
The yield on the 10-year Treasury note, a benchmark for many mortgages, hit 4 percent on Wednesday for the first time since October and revisited that level briefly on Thursday in a potential challenge to the hoped-for economic recovery.
Consumer spending, which accounts for about 70 percent of U.S. economic activity, rose at a 1.5 percent annual rate in the January-March period after a 4.3 percent dive in the fourth quarter of last year.
Consumers, buffeted by lost income from rising unemployment and falling home prices, have largely refrained from splurging and prefer to either save or pay off debt with the extra cash from tax cuts and government transfers. Continued...
Source: Reuters

U.S. airlines plan further capacity cuts

U.S. airlines plan further capacity cuts
By Karen Jacobs and Deepa Seetharaman
ATLANTA/NEW YORK (Reuters) - Two major U.S. airlines, Delta Air Lines Inc and American Airlines, will slash capacity this year as the recession erodes travel demand, the carriers said on Thursday.
The cuts, which were broadly expected, are likely to be matched by rivals. US Airways Group and Continental Airlines also signaled plans to cut the number of seats available for sale.
The airline industry has barely digested last year's deep capacity cuts. But experts say more are needed to bolster fares and help compensate for rising oil prices and weak demand.
"We think fourth-quarter (capacity) will be down at least 12 percent over last year. Maybe even 15," said airline consultant Michael Boyd.
"Right now, capacity has not fallen to match decline in demand," he said.
Delta said it plans to trim system capacity by 10 percent this year, with reductions beginning in September. Previously, it said its system capacity would be down 6 percent to 8 percent.
Delta also said it plans to cut international capacity an additional 5 percent on top previously announced cuts, for a total reduction of 15 percent.
"If you can't recover the cost of oil, it's going to necessitate more dramatic capacity reductions as we get to the end of the year," Delta President Ed Bastian told a Bank of America-Merrill Lynch conference.
AMR Corp, parent of American Airlines, said it would cut available seat miles by 7.5 percent this year, compared with a previous forecast of a 6.5 percent decline.
MURKY OUTLOOK
US Airways said it expects further capacity cuts in its TransAtlantic flying but could announce "marginal reductions" in domestic routes, too.
"The truth is, we don't have a very reliable outlook beyond 30 days," US Airways President Scott Kirby told the Merrill Lynch conference.
Continental Airlines Inc said on Thursday it would outline further capacity moves in July, when it has a clearer picture of the status of business traffic.
Carriers have been hit hard as the weak economy has caused consumers and businesses to curtail spending on travel. Demand has also been hurt by this year's outbreak of the H1N1 virus, and rising fuel prices are now also pressuring costs.
Delta told investors that second-quarter revenue could drop by $150 million to $200 million because of reduced travel due to the virus. Continued...
Source: Reuters

Yahoo hires CFO from Altera

Yahoo hires CFO from Altera
SAN FRANCISCO (Reuters) - Yahoo Inc on Thursday named Altera Corp's chief financial officer as its finance chief, the latest move by the Internet company to rebuild itself in the image of its new chief executive.
Tim Morse -- who also worked at General Electric Co for 15 years -- will succeed Blake Jorgensen as CFO, reporting to CEO Carol Bartz, who has been reshuffling management and streamlining operations since she took over the helm of the company in January.
Bernstein Research analyst Jeffrey Lindsay said the hiring of Morse suggested that Bartz wanted someone to focus on "no-frills financial management," run a tight ship and get into the nuts and bolts of reducing operating expenses.
"The difference was, I think, Blake Jorgensen had come from the investment banking side. He was much more of the strategy and the big picture," said Lindsay.
"This guy is going to bring a whole bunch of big mature company processes and procedures with him, and likely to sort a lot of stuff out at Yahoo that's been a bit loose and lackadaisical if you will," he said.
Since replacing Jerry Yang as CEO, Bartz has moved quickly to replace executives and cut costs -- including 675 jobs or 5 percent of the workforce -- in a bid to turn around Yahoo, whose growth has lagged Google Inc in recent years.
Jorgensen's departure was announced in February, as Bartz unveiled a broad reorganization plan designed to dismantle what she called the "silos" that had slowed down the Internet company.
Morse will start work on June 17 and assume the responsibilities of CFO on July 1, Yahoo said.
He will receive a base salary of $500,000, subject to annual review, and a sign-on bonus of $500,000. He has a target bonus of 100 percent of his base salary, of which 70 percent will be based on company performance and 30 percent on individual performance, according to a regulatory filing.
Altera -- which specializes in programmable chips for communications, industrial, and consumer applications -- appointed James Callas, currently vice president of finance and corporate controller, as acting CFO.
Shares of Yahoo edged higher to $16.26 in extended trading, from their close of $16.19.
(Reporting by Alexei Oreskovic and Tiffany Wu; Editing by Richard Chang)

Source: Reuters

U.S. kills Northrop Grumman missile-defense program

By Jim Wolf
WASHINGTON (Reuters) - The Pentagon's Missile Defense Agency has formally ended Northrop Grumman Corp's (NOC.N) Kinetic Energy Interceptor program, once valued at $6.3 billion, despite the company's push to carry out what would have been a key test in September of the missile-defense technology.
Northrop was notified on Wednesday of the termination, which was "for the convenience of the government," not because of any company performance shortfall, according to a copy of the notice obtained by Reuters.
Northrop had carried out about $1.2 billion of work under its contract for the kinetic energy interceptor, or KEI, which was designed to shoot down missiles soon after their launch.
There is an established process for the resolution of termination costs when the government cancels a contract for its convenience.
"This process is currently under way," said Chris Taylor, a Missile Defense Agency spokesman.
The termination was part of a strategy to "refocus the Ballistic Missile Defense System on a course of overall mission readiness," the agency said in a statement.
Northrop Grumman had no immediate comment.
Defense Secretary Robert Gates had announced plans to cancel the KEI as part of a restructuring of U.S. missile-defense efforts under the proposed fiscal 2010 budget.
Gates and the Missile Defense Agency said the system had limited capability, would have been difficult to fire from ships because of its large size, cost too much and would have to have been launched from close to the target.
After a stop work order was issued last month, Northrop had called on the Pentagon to go ahead with a "booster flight test" to help it reap knowledge that could be put to use on other systems.
Northrop argued it had completed 90 percent of everything needed to do the test when the Pentagon stopped work on May 11.
In its June 10 notification, the government directed Northrop, in an exception to the termination, to present an overview of its progress on the program to Army Lt. Gen. Patrick O'Reilly, who heads the Missile Defense Agency.
Specifically, Northrop was told to report by June 30 on systems engineering, fire control and communications architecture and algorithm development.
"The purpose of this presentation is to support an MDA assessment and determination of how MDA can maximize leveraging of the work conducted to date in these areas for application to future (ballistic missile defense system) work," it said.
The Pentagon also has announced plans to kill Lockheed Martin Corp's (LMT.N) Multiple Kill Vehicle, or MKV, which was intended to destroy not only an enemy warhead but any decoys or other countermeasures deployed to spoof U.S. defenses. Continued...
Source: Reuters
 

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