Wall Street climbs, led by tech and biotech

By Rodrigo Campos
NEW YORK (Reuters) - Stocks climbed on Wednesday, led by technology and biotech stocks, while declining financial shares reined in the Dow's and S&P's gains after a broad debt ratings downgrade on banks.
Cisco Systems (CSCO.O) gave support to tech shares after its influential CEO John Chambers said to CNBC television he has seen business level out in the last few months, and its shares jumped almost 2 percent to $19.45.
Qualcomm (QCOM.O) topped the Nasdaq's major advancers, rising 4.2 percent to $45.26 after Goldman Sachs added the wireless technology supplier's stock to its "conviction buy" list.
Among biotechs, Celgene Corp (CELG.O) also helped buoy the Nasdaq a day after news that its experimental anti-inflammatory drug was effective in a mid-stage study of patients with psoriatic arthritis. Celgene's stock jumped 5.4 percent to $45.44.
But gains in the Dow and the S&P 500 were kept in check after 22 U.S. banks were downgraded by Standard & Poor's.
"People are seeing some good values. For today people seem to be selling financials and getting into tech and biotech," said Neil Massa, senior U.S. trader at MFC Global Investment Management in Boston.
"Banks are down on the S&P downgrade, but also people are taking profits because (banks) have had such a great run."
Massa said the healthcare sector was lifted as investors saw headwinds in Obama's aggressive healthcare reform, which could hurt drugmakers' earnings.
The Dow Jones industrial average .DJI gained 46.10 points, or 0.54 percent, to 8,550.77. The Standard & Poor's 500 Index .SPX added 4.96 points, or 0.54 percent, to 916.93. The Nasdaq Composite Index .IXIC rose 24.70 points, or 1.38 percent, to 1,820.88.
The S&P 500 is up almost 36 percent from its 12-year closing low of March 9, although on Wednesday it fell below its 200-day moving average -- a crucial technical gauge for market strength -- after closing above it for 12 straight sessions.
In its downgrade of banks, ratings agency Standard & Poor's cited expectations of more difficult operating conditions because of volatile financial markets and tighter regulation.
Financial stocks fell, with the KBW Bank index .BKX down 1.2 percent and the S&P financial sector .GSPF down 0.6 percent.
Investors also mulled details of U.S. President Barack Obama's financial reform package, which he called the biggest overhaul of the financial regulatory system since the Great Depression.
Among decliners outside the banking sector, shares of FedEx (FDX.N), whose delivery services make it a yardstick for economic activity, fell 0.9 percent to $50.94 after the company reported a larger quarterly loss and gave an outlook well below Wall Street's estimates for the current period.
"FedEx definitely caused the market to sell off this morning," said MFC Global's Massa. Continued...
Source: Reuters

Obama urges biggest financial reforms since 1930s

Banks face tightest regulations ever
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By Kevin Drawbaugh
WASHINGTON (Reuters) - President Barack Obama laid out his vision for reshaping U.S. financial regulation on Wednesday, aiming to tighten oversight of large firms whose excessive risk-taking triggered a global economic slump.
The proposals, under development over the past six months are headed next for debate in the U.S. Congress and include closing one bank regulator and creating government watchdogs for big-picture economic risk and financial product safety.
The administration takes on tough jobs, such as forcing large firms to boost their capital cushions and regulating over-the-counter derivatives and securitized instruments.
But it only partially tackles a task once seen as vital -- a top-to-bottom revamp of financial regulatory agencies.
No merger of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) is being proposed, for instance, due largely to political obstacles.
"With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse," Obama said in a White House speech.
"We seek to create a framework in which markets can function freely and fairly, without the fragility which in normal business cycles bring the risk of financial collapse, a system that works for businesses and consumers," he said.
EMPOWERING THE FED
Obama called for putting the Federal Reserve in charge of monitoring "systemic risk" to the economy posed by the largest financial firms, with the aim of preventing a repeat of the banking and capital markets crisis of the past year.
He also appealed for the creation of an agency that would seek to protect consumers of financial products, ranging from home loans to credit cards.
"My administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression," he said.
Months of congressional debate loom. Senate and House of Representatives committees will hold more than a dozen hearings on regulatory reform between now and mid-July, and conservative House Republicans have already offered a rival plan.
"There are clearly some ideas that we agree with," House Republican leader John Boehner told reporters. "But I do think that this idea of having this consumer board is very cumbersome, will limit the number of new financial products that come to the market and will give the government an awfully strong presence in an industry that's been very creative."
Obama defended the plan as a balanced approach that restrains excessive risk, but doesn't clamp down so hard that firms would be prevented from helping drive economic growth.
The president and his top economic advisers see the current financial upheaval as the latest in a series of crises going back decades, so their regulatory reform intends to correct problems beyond just those blamed for the latest episode. Continued...
Source: Reuters

FedEx sees short-term hard times, worst may be over

DETROIT (Reuters) - Package delivery giant and U.S. economic bellwether FedEx Corp said the next two quarters will be "extremely difficult" as the recession and higher fuel prices bite into its bottom line, but said the pace of economic decline appears to be slowing.
"There are signs that the worst of the recession is behind us," Chief Executive Fred Smith said in a statement, "and we remain optimistic that we will see quarter-over-quarter economic improvement later this calendar year."
The package delivery company reported a larger quarterly loss on Wednesday and gave an outlook well below Wall Street estimates for the current period, sending its shares down 2 percent.
FedEx forecast earnings per share of 30 cents to 45 cents for the current quarter. Analysts were expecting 70 cents.
The company said its loss had widened to $876 million, or $2.82 a share, in its fiscal fourth quarter ended May 31 from $241 million, or 78 cents a share, a year earlier.
Excluding previously announced charges of $1.2 billion from two units, the company reported a profit of 64 cents a share.
Wall Street analysts on average had expected 51 cents per share on that basis, according to Reuters Estimates.
The charges stem from a decline in the fair value of home office supply chain Kinko's Inc, which FedEx bought in 2004 and is now called FedEx Office, and Watkins Motor Lines, a trucking company acquired in 2006 and now known as FedEx National LTL. Both units have been hit by the recession.
NO FULL-YEAR PROFIT OUTLOOK
Like its main rival, United Parcel Service Inc, Memphis, Tennessee-based FedEx is considered a bellwether of U.S. economic activity.
As the U.S. recession has dragged on, package volumes at both companies have suffered.
FedEx said stringent cost-cutting had mitigated the impact of the recession on its results.
But UBS analyst Rick Paterson said "cost control will only take FedEx so far" with stagnant pricing, limited remaining productivity opportunities and market share initiatives unable to materially offset the brutal business cycle.
"While cost control came in stronger than expected," Patterson wrote in a note for clients, "the fact remains FedEx has more operating leverage than the vast majority of freight companies, so (there is) nowhere to hide in the current perfect economic storm."
FedEx reported quarterly revenue of $7.85 billion, down more than 20 percent from $9.87 billion a year earlier.
"At this time we do not have enough visibility into the economic recovery and jet fuel prices to provide a meaningful annual earnings forecast," said Chief Financial Officer Alan Graf. "However, we believe that FedEx will be poised for growth in our fiscal second half, as our many cost-saving initiatives gain traction and the economy begins to improve." Continued...
Source: Reuters

U.S. consumer prices confirm inflation in check

By Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer prices rose slightly in May, but over the past 12 months prices registered the biggest drop in nearly 60 years, allaying fears that inflation threatens an economic recovery.
The Labor Department said on Wednesday higher gasoline prices contributed to the smaller-than-expected 0.1 percent rise in its Consumer Price Index from April when the CPI was unchanged from the previous month. Financial markets had expected a 0.3 percent increase in May.
Compared to the same period last year, the CPI fell 1.3 percent, the largest decline since April 1950. The pace of the price decline also accelerated -- the CPI dropped 0.7 percent year-on-year in April.
The data soothed worries that massive spending by the U.S. government and the Federal Reserve to pull the economy out of an 18-month-long recession -- the longest since the Great Depression -- may end up fueling inflation.
"There is no sign that there has been widespread inflation because of the Fed's quantitative easing regime. In fact, long-term inflation expectations haven't budged and the Fed is still ahead of curve on inflation," said John Canally, an economist and investment strategist at LPL Financial in Boston.
U.S. stocks rose modestly, with the benign inflation report overshadowed by a gloomy forecast from package delivery company FedEx Corp, which some view as a bellwether for the broader economy.
U.S. government bond prices rose on the data as traders scaled back bets the Fed could be forced to bump up interest rates by year end. Fed officials, who have held overnight rates near zero since December, will meet on Tuesday and Wednesday to debate their next move.
A separate report from the Commerce Department showed the deficit in the U.S. current account, the broadest measure of the United States' international trade, shrank in the first quarter to $101.5 billion, the smallest gap since the fourth quarter of 2001..
CORE PRICES SLOWER
The Labor Department said core prices, excluding food and energy, also rose only 0.1 percent in May, slower than April's 0.3 percent monthly gain, as prices for tobacco and smoking products fell after surging the last two months on the back of a federal excise tax increase.
It was the smallest monthly rise in the core CPI since December. The gain reflected a fifth straight monthly increase in new vehicle prices. Shelter and medical costs also rose.
Over the past 12 months, core prices have increased 1.8 percent, a bit slower than the 1.9 percent rise seen in the period ended in April.
Some analysts said core inflation could still be considered uncomfortably high, given that the economy has been in recession for a year-and-a-half.
"We could have an inflation problem going forward, but it's going to have to wait until we get a resuscitation of the banking system," said Howard Simons, a strategist at Bianco Research in Chicago. "Once that happens, we could get an inflation shock."
Gasoline prices rose 3.1 percent in May versus a 2.8 percent drop in April, but the increase was mitigated by a 0.2 percent fall in food prices. Continued...
Source: Reuters

JPMorgan's Lee sees S&P 500 retest of '07 record

JP Morgan sees global recovery
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By Ellis Mnyandu
NEW YORK (Reuters) - The benchmark S&P 500 index .SPX should surge back to its October 2007 record above 1,500 by the end of 2012, provided the U.S. economy sees a V-shaped recovery, JPMorgan Chase Chief U.S. Equity Strategist Thomas Lee said on Wednesday.
"The global economy is in the midst of a synchronized recovery," Lee said at the Reuters Investment Outlook Summit. "If we end up with a V-shaped recovery, we could go back to our record high of 1,500 in 2011-2012," he added, referring to the S&P 500.
The S&P 500 fell 0.4 percent to 908 on Wednesday.
Lee also reiterated his year-end 2009 target of 1,100 for the S&P 500, saying the United States will likely come out of its recession some time this summer, followed by the rest of the developed world.
In October 2007, the S&P 500 hit a record closing high of 1,565.15, before falling back. In March of this year, it slumped to a 12-year closing low, but has since rebounded by about 40 percent on hopes the recession that begun in December 2007 was moderating.
Lee added that a market correction in the wake of the recent run-up would be "healthy," and could lure back investors who opted to sit out the recent rally.
"This rally has left many investors uninvested or underinvested. The pullback is the entry point to really see more meaningful money put to work," said Lee, who has been named a top analyst in Institutional Investor magazine's annual all-star poll.
He favors the financials, industrials, technology and consumer discretionaries sectors, in that order, saying the sectors would be the biggest beneficiaries of an economic recovery.
Within financials, he favors asset managers.
The S&P financial index .GSPF is up 84 percent since the broader market's 12-year low on March 9.
"We are still favoring cyclicals over defensives," said Lee. Even so, he was mindful of potential risks to the recovery.
"The biggest risk is that we're implicitly assuming the consumer is stabilizing. There's a lot of potential shocks. If oil goes to $100 a barrel, you can't have a recovery," said Lee, adding the other risk would be if savings rates somehow overshoot.
(Reporting by Ellis Mnyandu; additional reporting by Jennifer Ablan; editing by Jeffrey Benkoe)

Source: Reuters

Big banks repay government bailout funds

By Elinor Comlay
NEW YORK (Reuters) - Five of the largest U.S. banks, including Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley, repaid billions of dollars in taxpayer bailout funds on Wednesday, getting out from under the government's thumb.
Banks have been anxious to return funds taken from the $700 billion Troubled Asset Relief Program to escape the strings attached, including restrictions on executive compensation.
JPMorgan said it repaid $25 billion, Goldman and Morgan Stanley $10 billion each, U.S. Bancorp $6.6 billion, and BB&T Corp $3.1 billion.
In connection with announcing the repayment, Goldman also said it paid a dividend of $425 million, which will reduce second-quarter profit by about 77 cents per share.
BB&T, JPMorgan, U.S. Bancorp and BB&T also intend to buy back warrants for their common stock from the U.S. Treasury, which they awarded when they took the bailout money.
The warrants give the Treasury the right for up to 10 years to buy common stock in the banks at a set price. Banks can buy back the warrants at "fair market value," the Treasury said.
BB&T is negotiating a buyback, a spokesman said. The other banks did not comment on the status of buybacks or potential terms.
BANKS LINE UP
Other big banks are also lining up to return bailout funds. American Express Co, which took $3.4 billion, was expected to follow suit.
Other big banks that won permission from the government to repay TARP funds are Bank of New York Mellon Corp, Capital One Financial Corp, Northern Trust Corp and State Street Corp.
As a condition of being allowed to repay, banks had to show they could raise money from the private sector by selling stock and issuing debt without the help of government guarantees.
The Federal Reserve also had to agree that their capital levels were adequate to allow them to continue lending.
At least 22 smaller banks have been allowed to repay some or all of their TARP money, although most must still negotiate terms to buy back or extinguish their associated warrants.
Bank shares were mostly lower on Wednesday, with the KBW Banks Index down 1.3 percent in afternoon trading.
(Reporting by Elinor Comlay, additional reporting by Steve Eder; editing by John Wallace and Andre Grenon)

Source: Reuters

Watson to go global with $1.75 billion Arrow buy

By Lewis Krauskopf
NEW YORK (Reuters) - Watson Pharmaceuticals Inc (WPI.N) said on Wednesday that it would buy privately held Arrow Group for $1.75 billion, clinching a long-expected deal by the U.S. generic drugmaker to expand internationally.
In acquiring Arrow, Watson will gain a generic drugmaker with $647 million in revenue last year, selling drugs in more than 20 countries, including Canada, France and Britain.
The combined company will have revenue of more than $3 billion. Watson, whose shares rose nearly 5 percent, expects the cash-and-stock deal to close the second half of 2009 and boost earnings next year before any cost savings.
Under Chief Executive Paul Bisaro, Watson has made no secret of its desire to make an acquisition that would allow it to sell its products internationally and better compete in the increasingly global generic drug industry.
"This deal is in line with the expectations that the company has set for investors," Collins Stewart analyst Louise Chen said. "They said they would do an international deal and that it would be accretive quickly."
Over the long term, Chen said the deal could position Watson -- which said it would become the No. 4 global generic player -- as an acquisition target in its own right.
Watson's main rivals in the U.S. market -- Teva Pharmaceutical Industries (TEVA.TA), Mylan Inc (MYL.O) and the Sandoz unit of Novartis (NOVN.VX) -- have been more substantial global players, due to their own acquisitions.
"(Arrow) is a company that is well-run and is on the upswing so it enhances our long-term growth profile," Bisaro said in an interview. "They have a nice solid commercial footprint across key markets for us, and they're at the size where we can help them grow in all of those markets by providing our products to them."
The deal also may provide Watson a foundation in the burgeoning market for generic biotechnology drugs, as Arrow owns 36 percent of Eden Biodesign, which provides services to early-stage biotechnology companies.
Arrow, which sells more than 100 products, expects approval of 40 more over the next three years. One of its opportunities includes exclusive U.S. rights to sell an authorized generic version in November 2011 of Pfizer Inc's (PFE.N) Lipitor, the mammoth-selling cholesterol fighter.
Watson also gains exclusive rights to launch a generic version of Sepracor's (SEPR.O) Xopenex asthma drug in 2012, and assumes a patent challenge of AstraZeneca Plc's (AZN.L) Pulmicort asthma medicine, Bisaro said. Overall, he said, the two companies have limited overlap with their product lines.
Arrow, which has about 1,000 employees worldwide, operates in the United States and Canada as Cobalt Pharmaceuticals, which recently has had a big product launch with a generic version of King Pharmaceuticals' (KG.N) Altace blood pressure drug.
At 2.7 times 2008 sales, the price for Arrow is "not overly rich" in comparison to Mylan's deal for the generics business of Germany's Merck KGaA (MRCG.DE) (2.7 times sales) or Barr's deal for Pliva (2 times), said Needham & Co analyst Elliot Wilbur.
Morningstar analyst Brian Laegler said: "After adjusting for generic Lipitor, which is huge, they paid a fair price for it.
"I'm neutral on the deal, but it's a step in the right direction," Laegler said. Continued...
Source: Reuters

Oil falls as U.S. summer gasoline fears ease

NEW YORK (Reuters) - Oil prices fell on Wednesday after a U.S. government report showed a surprise increase in gasoline supplies in the world's top consumer heading into summer driving season.
U.S. gasoline stocks rose by 3.4 million barrels last week, according to data from the U.S. Energy Information Administration, defying expectations for a decline and easing worries about supplies as Americans gear up for summer holiday road trips.
"The number was large enough to allay supply concerns for now," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.
U.S. crude for July traded down 38 cents to $70.09 a barrel by 1:16 p.m. EDT, having earlier fallen as low as $69.00 a barrel. Brent crude for August fell 26 cents to $69.98 a barrel.
U.S. gasoline futures fell 6 cents to $2.0111 a gallon after the EIA report.
Oil's losses were tempered by a steep 3.9 million barrels decline in crude inventories, according to the EIA report.
"There was a larger-than-expected draw in crude inventories, but the market is headed lower, and I think that's a result of product inventories building, especially gasoline," said Amanda Kurzendoerfer, commodities analyst at Summit Energy in Louisville, Kentucky.
U.S. crude oil inventories remained about 19 percent higher than a year ago, with demand weak during the recession.
Oil last week hit a 2009 high above $73, lifted by hopes for an economic recovery that could boost fuel demand.
Slumping consumption sent oil off record peaks over $147 a barrel hit last July, prompting the Organization of the Petroleum Exporting Countries last year to agree to a series of production cuts to prop up prices.
Qatari Oil Minister Abdullah al-Attiyah said price gains in recent months were due to speculators more than fundamentals, and the producer group was unlikely to increase output soon.
"We believe that there is not fundamentals in the price. We believe (those) who move the market today, (are) merely speculators. We see their strong influence in the commodities market," he said.
U.S. President Barack Obama on Wednesday laid out his vision for reshaping U.S. financial regulation, including imposing regulation on over-the-counter derivatives.
The dollar weakened against the euro and yen as an unexpectedly small rise in U.S. inflation strengthened expectations that the Federal Reserve will keep interest rates low for some time.
The Nasdaq rose more than 1 percent as investors snapped up technology shares after a two-day sell-off, while both the Dow and the S&P 500 clung to modest gains as healthcare shares advanced. .N
(Reporting by Richard Valdmanis, Matthew Robinson, Gene Ramos and Robert Gibbons in New York; Joe Brock and Alex Lawler in London; Editing by David Gregorio)

Source: Reuters

Inflation worries ease as consumer prices up less than expected

By Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer prices edged up in May on higher gasoline prices, but fell over the past 12 months by the most since 1950, in a sign that inflation was no threat for now as the country fights a brutal recession.
The Labor Department said on Wednesday its Consumer Price Index edged up 0.1 percent month on month, after being flat in April, below market expectations for a 0.3 percent increase.
Compared to the same period last year, however, consumer prices fell 1.3 percent, the largest decline since April 1950.
Concerns have grown in recent weeks that inflation could resurface this year, given massive efforts by the U.S. government and the Federal Reserve to pull the economy out of the longest recession since the Great Depression of the 1930s.
"These numbers today and yesterday clearly show that at least for now the immediate concerns over inflation are not justified," said Marc Pado, market strategist at Cantor Fitzgerald & Co in San Francisco.
U.S. stock index futures were barely higher, while Treasury debt prices trimmed losses on the data.
A separate report from the Commerce Department showed the U.S. current account deficit shrank in the first quarter to $101.5 billion, the lowest since the fourth quarter of 2001.
The CPI data showed that core prices, excluding food and energy, also rose only 0.1 percent, slower than April's 0.3 percent monthly increase, as prices for tobacco and smoking products fell after surging the last two months on the back of a federal excise tax increase.
SMALLEST ADVANCE IN CORE PRICES
The rise in the monthly core CPI was the smallest advance since December 2008. The increase came as new vehicle prices rose for a fifth straight month. Shelter and medical costs also contributed to the gain in the core index.
Core prices increased 1.8 percent year-over-year after a 1.9 percent 12-month rise in April.
Gasoline prices rose 3.1 percent from April versus a 2.8 percent drop a month earlier.
The food index fell 0.2 percent in the month, declining by the same margin for two straight months.
Data released on Tuesday showed producer inflation was muted in May, despite higher gasoline prices. Compared to the same period last year, prices paid at the farm and factory gate experienced their steepest fall since 1949.
Investors have been pricing in rising inflation risks in the bond market. Benchmark Treasury debt yields spiked to an eight-month high last week. The yield difference between Treasury Inflation-Protected Securities and Treasuries has grown since the beginning of the year. Continued...
Source: Reuters

Rise in rates hammers mortgage applications

By Julie Haviv
NEW YORK (Reuters) - U.S. mortgage applications fell for a fourth consecutive week, with overall demand plunging to its lowest level in nearly seven months, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 12 decreased 15.8 percent to 514.4, the lowest since the week ended November 21, 2008.
A rise in mortgage rates in recent weeks had sapped demand, particularly for home loan refinancing, but the direction of rates reversed course last week.
Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said borrowers who are considering refinancing their current mortgage are now reevaluating their decision, given the swift and sharp rise in mortgage rates over the past few weeks.
"When rates move in volatile swings like this, it is critical (that) borrowers look for competitive rates -- competition in this environment keeps mortgage companies honest," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.50 percent, down 0.07 percentage point from the previous week, but significantly higher than the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.
Interest rates, however, were well below year-ago levels of 6.57 percent.
Thirty-year mortgage rates had mostly been on a downward trend since the Fed unveiled its plan to buy mortgage-backed debt in late November. But the Fed has recently met resistance in the bond market.
Treasury yields, which are linked to mortgage rates, rose sharply earlier this month, with mortgage rates responding in kind. Treasury yields have come down recently, allowing rates to fall.
The plunge in demand for home loans may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.
The MBA's seasonally adjusted purchase index fell 3.5 percent to 261.2.
The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was down 13.5 percent.
WEEKLY REFINANCING ACTIVITY PLUNGES
The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.
The Mortgage Bankers seasonally adjusted index of refinancing applications decreased 23.3 percent to 1,998.1, also the lowest since the week ended November 21, 2008. Continued...
Source: Reuters

Watson goes global with $1.75 billion Arrow deal

By Lewis Krauskopf
NEW YORK (Reuters) - Watson Pharmaceuticals Inc (WPI.N) said on Wednesday it will buy privately held Arrow Group for $1.75 billion, clinching a long-expected deal by the U.S. generic drugmaker to expand internationally.
In acquiring Arrow, Watson will gain a generic drugmaker with $647 million in revenue last year, selling drugs in more than 20 countries, including Canada, France and Britain.
The combined company will have revenue of more than $3 billion. Watson, whose shares fell 4.6 percent, expects the cash and stock deal to close the second half of 2009 and boost earnings next year before any cost savings.
Under CEO Paul Bisaro, Watson has made no secret of its desire to make an acquisition that would allow it to sell its products internationally and better compete in the increasingly global generic drug industry.
Watson's main rivals in the U.S. market -- Teva Pharmaceutical Industries (TEVA.TA), Mylan Inc (MYL.O) and the Sandoz unit of Novartis (NOVN.VX) -- have been more substantial global players, due to their own deals.
The Arrow deal also may better position Watson in the burgeoning market for generic biotechnology drugs, as Arrow owns 36 percent of Eden Biodesign, which provides services to early stage biotechnology companies.
Arrow, which sells more than 100 products now, expects approval of 40 more over the next three years. One of its opportunities includes exclusive U.S. rights to sell an authorized generic version in November 2011 of Pfizer Inc's (PFE.N) Lipitor, the mammoth-selling cholesterol fighter.
Arrow, which has about 1,000 employees worldwide, operates in the United States and Canada as Cobalt Pharmaceuticals.
Watson will pay $1.05 billion in cash and issue about 16.9 million shares, worth $500 million. It will pay the remaining $200 million in the form of zero-coupon preferred stock redeemable three years after the deal's closing.
Watson plans to fund the cash portion through available funds and additional borrowings and is evaluating options for longer-term debt financing.
But Watson, which also sells branded drugs in specialty areas such as urology, said the additional debt need for the transaction would be "modest," allowing it continued flexibility for more deals.
Arrow shareholders will also receive additional contingent payments based on sales of the authorized generic version of Lipitor.
Watson shares fell 4.6 percent to $27.50 in premarket trading from Tuesday's close of $28.84 on the New York Stock Exchange.
(Reporting by Lewis Krauskopf; Editing by Derek Caney and Maureen Bavdek)

Source: Reuters

GM's Saab Auto secures debt writedown

Saab sale underway
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By Johan Ahlander
VANERSBORG, Sweden (Reuters) - Swedish carmaker Saab secured a key court ruling on Wednesday to cut billions of crowns in debt, paving the way for its proposed takeover by local sportscar maker Koenigsegg.
The ruling came after owner General Motors, Saab's biggest creditor, said on Tuesday it had struck a preliminary deal to sell Saab Automobile to Koenigsegg.
The court in Vanersborg, close to Saab's headquarters in southwest Sweden, approved the 75 percent writedown of Saab's more than 10 billion Swedish crowns ($1.28 billion) of debt after a vast majority of creditors gave the green light to the proposal earlier on Wednesday.
Saab filed for protection from creditors in February after its now bankrupt U.S. parent, to whom Saab owes most of its debt, said it would cut ties to the brand by the year-end.
Saab's chief executive Jan Ake Jonsson told a news conference after the court hearing the company had sufficient funds for it to complete the restructuring of its business and praised its much smaller prospective new owner.
The deal between the two carmakers, which is expected to close in the third quarter, is one of the most unlikely in automotive history -- Koenigsegg made 18 cars last year, Saab more than 93,000.
"Koenigsegg has an incredible cutting edge know-how in several areas while Saab has a lot of cutting edge know-how in other areas," Jonsson said.
While Saab has made a name building safe and sturdy saloons, Koenigsegg appeals to customers who are willing to spend around $1 million on a car that is capable of speeds of more than 395 kilometers (245 miles) an hour.
BUSINESS PLANS STAND
Saab hopes a concentration of production and the launch of new models will boost capacity utilization at the carmaker, while cost cuts are seen lowering its breakeven level to an annual production rate of 130,000 vehicles.
But the company has forecast volumes will fall both this year and the next from the 93,000 units manufactured in 2008, though it has said it sees a positive cash flow in 2011.
"The new group that we have written an MOU (memorandum of understanding) with intends to carry out the business plan we have been working on for quite some time," Jansson said.
"It is based on continuing along the road we've taken by readying the new models we pretty much have completed. We'll continue strengthening our brand and continue efforts to boost efficiency in order to reach a positive cash flow in the future," he added.
General Motors said the deal included an expected $600 million of loans from the European Investment Bank, guaranteed by the Swedish government. Other terms were not disclosed.
Jonsson said he was optimistic about securing the loan guarantees. "Since the government has given the debt office the authorization, I assume that all the work we've done ... will generate a positive result in terms of loans and loan guarantees," he said. Koenigsegg was founded in 1994 by Christian von Koenigsegg. A new company called Koenigsegg Group -- with backing from other investors including Norwegian entrepreneur Bard Eker and U.S. investor Mark Bishop -- has been formed for the takeover. Continued...
Source: Reuters

U.S. mortgage applications plunge to near seven-month low

By Julie Haviv
NEW YORK (Reuters) - U.S. mortgage applications fell for a fourth consecutive week, with overall demand plunging to its lowest level in nearly seven months, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 12 decreased 15.8 percent to 514.4, the lowest since the week ended November 21, 2008.
A rise in mortgage rates in recent weeks had sapped demand, particularly for home loan refinancing, but the direction of rates reversed course last week.
Cameron Findlay, chief economist at LendingTree.com based in Charlotte, North Carolina, said borrowers who are considering refinancing their current mortgage are now reevaluating their decision, given the swift and sharp rise in mortgage rates over the past few weeks.
"When rates move in volatile swings like this, it is critical (that) borrowers look for competitive rates -- competition in this environment keeps mortgage companies honest," he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.50 percent, down 0.07 percentage point from the previous week, but significantly higher than the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.
Interest rates, however, were well below year-ago levels of 6.57 percent.
Thirty-year mortgage rates had mostly been on a downward trend since the Fed unveiled its plan to buy mortgage-backed debt in late November. But the Fed has recently met resistance in the bond market.
Treasury yields, which are linked to mortgage rates, rose sharply earlier this month, with mortgage rates responding in kind. Treasury yields have come down recently, allowing rates to fall.
The plunge in demand for home loans may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.
The MBA's seasonally adjusted purchase index fell 3.5 percent to 261.2.
The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was down 13.5 percent.
WEEKLY REFINANCING ACTIVITY PLUNGES
The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.
The Mortgage Bankers seasonally adjusted index of refinancing applications decreased 23.3 percent to 1,998.1, also the lowest since the week ended November 21, 2008. Continued...
Source: Reuters

Boston Globe, union to meet next week on pay cuts

By Robert MacMillan
NEW YORK (Reuters) - The Boston Globe and its largest union ended this week's second marathon round of talks early Wednesday morning without a deal on pay and benefit cuts, and plans to meet again next week.
Nearly 700 Globe employees face a 23 percent wage cut that goes into effect this month after they rejected a smaller pay cut and benefits cut package.
Boston Newspaper Guild and Globe negotiators met for more than 12 hours at the union's offices in Weymouth, Massachusetts, and ended the meeting before dawn on Wednesday.
"We have not reached an agreement with the Guild and are tentatively scheduled to meet again for discussions on Monday, June 22," Globe spokesman Robert Powers said. "The wage reduction of 23 percent remains in effect."
Guild President Dan Totten said the union is "optimistic about the prospects for reaching an agreement," adding that discussions would occur before next Monday.
The two sides are trying to agree on concessions that the Globe's owner, The New York Times Co, says are crucial for the survival of the 137-year-old, money-losing newspaper.
The Times imposed a 23 percent wage cut on union members after they voted against an 8.4 percent pay cut, furloughs and a scaled-back retirement package. The union says the 23-percent cut is illegal and is challenging it before the National Labor Relations Board.
The Times said the union must come up with $10 million in savings, half of $20 million that the company insists that the Globe must cut from its budget. It said the paper could report an operating loss of $85 million this year absent those cuts.
The Times Co had declared talks at an impasse, but subsequently backed off its refusal to discuss a new concessions package.
The union in turn postponed its first meeting with the National Labor Relations Board, a government body that investigates unfair labor practices.
An accord between the Globe and the union would be an important step for the Times Co, which plans to try to sell the paper that it bought for $1.1 billion in 1993.
The Times has hired Goldman Sachs to field interested parties. But it is unlikely to start shopping the paper until it resolves the labor dispute, a source with knowledge of the situation told Reuters on Tuesday.
The paper's value has been estimated from as high as $250 million down to as little as nothing, according to media and analyst reports.
(Reporting by Robert MacMillan; Editing by Derek Caney)

Source: Reuters

Qatar PM sees Porsche talks outcome in 2-3 weeks

By Dania Saadi and Christiaan Hetzner
DUBAI/FRANKFURT (Reuters) - Qatar expects to reveal the outcome of talks on buying a stake in ailing German sportscar maker Porsche SE (PSHG_p.DE) in two to three weeks, the country's prime minister said, according to media reports.
"We are still discussing the stake. According to the legal agreement between the two parties, neither of them is allowed to disclose any information about it before it is sealed," the Gulf Times quoted Sheikh Hamad bin Jassem al-Thani as saying.
The talks are centered around the size of the stake, Sheikh Hamad said in remarks carried by the Qatar News Agency.
Porsche SE amassed a 9 billion euro ($12.5 billion) net debt pile in its aborted attempt to acquire 75 percent of Volkswagen AG (VOWG.DE) votes and had looked to rescue itself by uniting with its cash-rich subsidiary, which is Europe's largest carmaker.
VW has rejected the overtures as long as Porsche's finances are in a shambles.
Most of the family members which own Porsche SE were hoping Qatar could inject billions in fresh capital to bolster their negotiating position with VW, in which Porsche owns just over half the votes.
The families have been examining the sale of a 25 percent stake that would grant the Gulf state a blocking minority.
Ferdinand Piech, a Porsche scion and chairman of Volkswagen who is known to be skeptical about the deal, reportedly prevented a quick preliminary agreement in favor of Qatar during a meeting of Porsche SE's owners on Monday in Austria.
But a Financial Times Deutschland story to this effect was denied by Porsche SE, which called the report a "transparent diversion."
LACKING BASIS
"The family stands united behind talks with an investor. There was no such family meeting at which Ferdinand Piech had prevented an agreement with Qatar to quickly buy a stake in Porsche," it said.
"There is also a consensus within the family that the demand from Wolfsburg (where VW is headquartered) that Qatar must first hold talks with Volkswagen management and labor before buying a stake wholly lacks any basis. Qatar is purely an issue for the controlling families and will only be dealt with by Porsche."
A source close to the clans confirmed the families had met on Monday but declined further comment.
Porsche shares fell as much as 5 percent before paring losses to trade down 1 percent at 45.30 euros by 0922 GMT. VW shares slipped 1.6 percent.
Qatar's interest in Porsche highlights the increasing role of Arab states in German carmakers after Abu Dhabi's state-owned IPIC bought a 9.1 percent stake in Daimler AG (DAIGn.DE) in March, making it the largest shareholder after Kuwait. Continued...
Source: Reuters

Asia ex-Japan shares down 4th day; outlook foggy

Asia stocks down
Play Video
By Kevin Plumberg
HONG KONG (Reuters) - Asian stocks outside Japan fell for a fourth day on Wednesday, weighed by resource-related shares and doubts about a global economic recovery, while U.S. Treasuries eased on profit taking after a surge overnight.
Japan's Nikkei share average outperformed the region, rising 0.9 percent on bargain hunting after a sharp drop on Tuesday and a shift into defensive sectors.
Major European stock market opened slightly weaker, with the pan-European FTSEurofirst 300 dipping 0.5 percent, although Wall Street futures were actually up 0.4 percent.
Oil prices advanced after bouncing off $70 a barrel for a third day, convincing dealers that crude would have difficulty falling much below $70 if the dollar continued to weaken.
Several U.S. economic indicators this week have come in below expectations, raising fears that investors may have pushed up equity and commodity prices too far, too quickly. However, the corrective move lower in equity and commodity prices has been tame, so far.
"The market seems to be bewildered, facing lots of different factors," said Kazuyuki Kato, treasury department manager at Mizuho Trust and Banking in Tokyo. "And investors are shying away from taking risks after stocks entered a correction phase as optimism for the economy had gone too far," he said.
The MSCI index of Asia Pacific shares outside Japan fell 0.8 percent and looked set for its fourth consecutive day of losses. The index has now fallen 5.6 percent from an eight-month high reached two weeks ago.
The materials sector had continued to climb after the broad market began to drift lower after June 3, but along with the energy sector this week has been leading the region lower.
Australian shares fell 1.5 percent to the lowest close since June 1, led by miner BHP Billiton and bank stocks.
U.S. markets fell more than 1 percent overnight as mixed economic data and disappointing sales by top U.S. consumer electronic retailer Best Buy spurred worries about an anemic recovery.
The uncertain global economic outlook has made some investors convictionless, as they dance through trendless markets, but other investors are sticking to their guns.
"We'll have corrections along the way, but it's not a situation in which we have nothing to buy," said Mark Mobius, who manages around $24 billion in emerging market assets with Templeton Asset Management.
"Given the quantity of money being printed all over the world with the stimulus packages, equities are definitely going to be moving up," he said in an interview in Vienna.
Mobius said he was finding value in Russian and eastern European shares.
BRIC MUM ON DOLLAR Continued...
Source: Reuters

Obama to unveil plans for financial rules overhaul

By Kevin Drawbaugh
WASHINGTON (Reuters) - President Barack Obama will unveil on Wednesday his plans for reshaping U.S. financial regulation, with proposals to close one bank regulator and create new overseers for big-picture economic risk and consumer financial product safety.
In a package of reforms that takes on many tough jobs while avoiding at least one, the administration will call for tighter oversight aimed at preventing a repeat of the severe banking and capital markets crisis that has shaken economies around the world.
Months of debate in the U.S. Congress lie ahead. Committees of both the Senate and the House of Representatives have scheduled more than a dozen hearings on regulatory reform between now and mid-July. Conservative House Republicans have already offered their own rival plan.
Obama will present his proposals at 12:50 p.m. EDT on Wednesday, the White House said.
Treasury Secretary Timothy Geithner, members of Congress, regulators and representatives from the financial industry and consumer groups will join Obama at the event "to lay out a comprehensive regulatory reform plan to modernize and protect the integrity of our financial system," the White House said.
A senior administration official said on Tuesday that the Obama plan will call for closing the Office of Thrift Supervision, a Treasury Department unit, and eliminating the federal charter under which savings and loans operate, with the objective of streamlining bank supervision.
In addition, the Federal Reserve would be assigned new duties to monitor risks that could threaten the entire financial system, working in conjunction with a council of other regulators to be chaired by Treasury.
The goal is to make sure a failure of one large company -- like bailed-out mega-insurer American International Group, for instance -- does not destabilize the broader economy.
The administration has been discussing for six months how best to tighten bank and market regulation in response to the crisis, with the European Union moving on a similar track, and more quickly than the United States in some areas.
As the Obama plan has evolved, the administration has backed away from some proposals as politically unachievable, such as a thorough structural revamp of financial oversight. No merger of the Securities and Exchange Commission and Commodity Futures Trading Commission will be proposed, for example.
Obama will call for establishment of an independent consumer financial products watchdog agency, and for requiring financial firms to hold more capital so they can better survive tough times.
More transparency and accountability would be mandated for exotic financial markets that in recent years expanded far beyond the government's ability to keep track of them.
Under the plan, the government would be empowered to seize and unwind large, troubled companies that are not banks, modeling the process on the Federal Deposit Insurance Corp's existing power to unwind failing banks.
The administration will also urge reining in markets for securitized debt and over-the-counter derivatives, as well as more regulation of money market mutual funds, credit rating agencies and hedge funds.
It will push for changes in corporate governance that could give shareholders more power to restrain executive compensation. Continued...
Source: Reuters

Oil slides 4th day; resource shares fall in Asia

Asia stocks down
Play Video
By Kevin Plumberg
HONG KONG (Reuters) - Most stocks in Asia edged lower on Wednesday, weighed down by resource-related shares and doubts about a global economic recovery, while oil slipped below $70 a barrel ahead of U.S. inventory data that could reflect slowing energy demand.
U.S. Treasuries eased on profit taking after a surge overnight, but may not stay down for long, especially after the Federal Reserve bought $6.45 billion in Treasury debt on Tuesday and a report showed industrial capacity use at a record low.
Several U.S. economic indicators this week have come in below expectations, raising fears that investors may have pushed up equity and commodity prices too far, too quickly.
"The market does need to come off because lot of cyclicals have become very expensive very quickly," said Damien Boey, equity strategist at Credit Suisse in Australia.
"There is still economic recovery in the wings and we are still yet to see it in the data and the financials have not actually gone up in full measure."
The MSCI index of Asia Pacific shares outside Japan .MIAPJ0000PUS fell 1 percent and looked set for its fourth consecutive day of losses. The index has now fallen 5.6 percent from an eight-month high reached two weeks ago.
The materials sector had continued to climb after the broad market began to drift lower after June 3, but along with the energy sector this week has been leading the region lower.
Japan's Nikkei share average .N225 eked out small gains, rising 0.4 percent in listless trade. Defensive sectors, such as pharmaceutical and food-related stocks, were among the main supports to the index.
U.S. markets fell more than 1 percent overnight as mixed economic data and disappointing sales by top U.S. consumer electronic retailer Best Buy spurred worries about an anemic recovery. .N
The U.S. dollar was largely unchanged on the day against the euro and yen, after Brazil, Russia, India and China after a first summit together issued a joint statement that did not mention any doubts about the dollar's role as the primary reserve currency.
The dollar had been under some pressure heading into the summit on fears that Russia, which has publicly made clear it wants to have new world reserve currencies, would coax China into bashing the dollar together.
The euro was at $1.3825, down 5 cents since hitting a 2009 high around $1.4337 on June 3.
The dollar was trading at 96.41 yen after earlier taking a brief dive below 96.00 yen to a two-week low.
Besides headlines about the U.S. dollar's global reserve role, perceptions on risk expressed through equity markets have also been a driver. Fears that price increases have run ahead of fundamentals, particularly with earnings estimates for 2010 in the double digits, have weighed on global stocks.
"That is a similar picture of markets around the globe and quite appropriately so, given we are in the midst of a reassessment of expectations for the global economy - about which there is little more agreement than that challenges lie ahead," said Patrick Bennett, Asia foreign exchange and rates strategist with Societe Generale in Hong Kong in a note. Continued...
Source: Reuters

Obama to axe bank agency in financial overhaul

By Kevin Drawbaugh
WASHINGTON (Reuters) - President Barack Obama will unveil on Wednesday his plans for reshaping U.S. financial regulation, with proposals to close one bank regulator and create new overseers for big-picture economic risk and consumer financial product safety.
In a package of reforms that takes on many tough jobs while avoiding at least one, the administration will call for tighter oversight aimed at preventing a repeat of the severe banking and capital markets crisis that has shaken economies around the world.
Months of debate in the U.S. Congress lie ahead. Committees of both the Senate and the House of Representatives have scheduled more than a dozen hearings on regulatory reform between now and mid-July. Conservative House Republicans have already offered their own rival plan.
Obama will present his proposals at 12:50 p.m. EDT on Wednesday, the White House said.
Treasury Secretary Timothy Geithner, members of Congress, regulators and representatives from the financial industry and consumer groups will join Obama at the event "to lay out a comprehensive regulatory reform plan to modernize and protect the integrity of our financial system," the White House said.
A senior administration official said on Tuesday that the Obama plan will call for closing the Office of Thrift Supervision, a Treasury Department unit, and eliminating the federal charter under which savings and loans operate, with the objective of streamlining bank supervision.
In addition, the Federal Reserve would be assigned new duties to monitor risks that could threaten the entire financial system, working in conjunction with a council of other regulators to be chaired by Treasury.
The goal is to make sure a failure of one large company -- like bailed-out mega-insurer American International Group, for instance -- does not destabilize the broader economy.
The administration has been discussing for six months how best to tighten bank and market regulation in response to the crisis, with the European Union moving on a similar track, and more quickly than the United States in some areas.
As the Obama plan has evolved, the administration has backed away from some proposals as politically unachievable, such as a thorough structural revamp of financial oversight. No merger of the Securities and Exchange Commission and Commodity Futures Trading Commission will be proposed, for example.
Obama will call for establishment of an independent consumer financial products watchdog agency, and for requiring financial firms to hold more capital so they can better survive tough times.
More transparency and accountability would be mandated for exotic financial markets that in recent years expanded far beyond the government's ability to keep track of them.
Under the plan, the government would be empowered to seize and unwind large, troubled companies that are not banks, modeling the process on the Federal Deposit Insurance Corp's existing power to unwind failing banks.
The administration will also urge reining in markets for securitized debt and over-the-counter derivatives, as well as more regulation of money market mutual funds, credit rating agencies and hedge funds.
It will push for changes in corporate governance that could give shareholders more power to restrain executive compensation. Continued...
Source: Reuters

Ex-CEO Greenberg denies fiduciary duty in AIG trial

By Lilla Zuill
NEW YORK (Reuters) - Maurice "Hank" Greenberg, former chief executive of insurer AIG, testified before a federal jury on Tuesday that he did not have a fiduciary duty to fund an AIG compensation plan.
"I did not view myself as a fiduciary," Greenberg, 84, said in a firm voice as he smiled at the nine jurors assembled in U.S. District Judge Jed Rakoff's Manhattan courtroom.
A key witness in the dispute between Starr International and American International Group (AIG.N), Greenberg appeared at times evasive and often testy under questioning by the lawyer for his former company.
AIG is suing Starr International for $4.3 billion in damages representing the sale of millions of AIG shares since Greenberg left the insurer and the return of more than 185 million AIG shares that Starr International controls.
AIG accuses Greenberg, chairman of Starr, of illegally taking the stock, worth at one point at least $20 billion, in 2005, the year he was forced out as AIG CEO after a 38-year reign.
AIG contends the shares were pledged to fund a deferred compensation plan for selected employees. Starr disputes that saying the beneficiary of the shares was always a charitable trust.
Judge Rakoff ruled earlier that the circumstances of Greenberg's ouster from AIG, the U.S. government's $180 billion in bailouts to AIG and the controversial bonuses paid to AIG executives could not be brought up at the trial, calling those matters irrelevant to the matter at hand.
During the four hours of questioning by AIG's lawyer Ted Wells, Greenberg was repeatedly confronted with letters and videotapes in which he said he had a fiduciary duty to AIG and would use the stock held by Starr International for the insurer's deferred compensation plan.
Asked about his unpublished letter to Forbes magazine that read in part the shares "should not be used to enrich the then shareholders of Starr International (SICo) but should instead be held by them as fiduciaries for future generations of AIG," Greenberg said that it was "probably not the best use of language."
Looking small in the witness box, he blamed others for the decision to suspend the compensation plan.
"I was one of 11 people" he said, referring to shareholders that controlled Starr International at the time.
"They decided the plan should not be continued," Greenberg said. "The voting shareholders had confidence in me. The record speaks for itself."
During his nearly four decades at the helm, Greenberg built AIG into what was once the world's largest insurer.
Greenberg also suggested that AIG had not wished for Starr to continue the compensation plan after he left, since tensions developed between the two sides.
The matter has come to court because there appears to be no written documentation of a trust to benefit the employees. Continued...
Source: Reuters

Wall Street hit by economic, consumer jitters

By Leah Schnurr
NEW YORK (Reuters) - U.S. stocks slipped on Tuesday as mixed economic data and Best Buy's (BBY.N) disappointing sales spurred worries about an anemic recovery.
After a three-month run that lifted the S&P 500 as much as 40 percent from 12-year lows, analysts said the economy needs to start showing real improvement to support optimism about a budding recovery.
A rebound in May housing starts pointed to some stabilization in that sector, but another government report showed industrial production had a steeper-than-expected slide last month.
Industrial production fell 1.1 percent in May, while capacity utilization, a measure of slack in the U.S. economy, slumped to its lowest level on records dating back to 1967.
"It indicates that at a minimum, the market's taking a breather and may be starting a meaningful correction," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York, concerning the market's losses.
"The worry is we've gone too far too fast and that we've overstated the strength of a recovery in the economy and earnings."
Best Buy Co Inc (BBY.N), the largest U.S. consumer electronics retailer, posted weaker-than-expected sales in its first quarter and suggested earnings for the rest of the year would be worse than forecast. Its shares dropped 7.3 percent to $35.84. The S&P retail index .RLX tumbled 3.1 percent.
Indexes ended at session lows. The Dow Jones industrial average .DJI fell 107.46 points, or 1.25 percent, to 8,504.67. The Standard & Poor's 500 Index .SPX lost 11.75 points, or 1.27 percent, to 911.97. The Nasdaq Composite Index .IXIC was off 20.20 points, or 1.11 percent, to 1,796.18.
The S&P 500 is still up 34.8 percent from March's 12-year closing low. Declines have been shallow and short-lived, but analysts are increasingly looking for a larger pullback.
Johnson said he expects a correction of around 10 percent.
Consumer discretionary and resource stocks were among the
day's biggest losers. After earlier boosting the market, materials and energy shares fell as the U.S. dollar strengthened. Chevron (CVX.N) was down 1.7 percent at $69.88.
Single-family housing starts rose 7.5 percent in May, the largest gain since January 2006, but analysts said that rising mortgage rates and high inventory are still headwinds for the sector at the heart of the financial crisis.
In other economic data, a smaller-than-expected rise in May's overall Producer Price Index suggested inflation pressures were muted.
Shares of big industrial manufacturers, whose fortunes are closely tied to a growing economy, fell, with blue-chip 3M Co (MMM.N) down 1.5 percent at $58.41. Continued...
Source: Reuters

Obama to merge bank agencies in reform plan: source

By Kevin Drawbaugh
WASHINGTON (Reuters) - The Obama administration plans to merge two banking regulators and create a federal watchdog on consumer financial products as part of a sweeping reform plan to be formally unveiled on Wednesday.
The U.S. Office of Thrift Supervision will merge with the Office of the Comptroller of the Currency, both bank overseers, a congressional aide said, citing a briefing given by Treasury Department officials.
The administration has been discussing for six months how best to tighten bank and market regulation in response to the worst global financial crisis in generations. An OTS-OCC merger had been seen as likely to be included in its plan.
President Barack Obama will formally unveil the proposals on Wednesday. Treasury officials were giving briefings in both the Senate and the House of Representatives on Tuesday evening.
Obama pledged earlier on Tuesday in remarks at the White House that he would pursue major changes in financial oversight, but warned it will be a "heavy lift" politically with special interests already offering opposition.
A key element in the plan will be creating an independent Consumer Financial Protection Agency to write and enforce rules on fair lending and other matters.
The administration wants to accomplish a wide range of changes in regulation to try to prevent a recurrence of the crisis that has been hammering economies around the world.
Goals include closing gaps in regulation without shackling firms so tightly that they cannot support economic growth; forcing banks to hold more capital so they can better survive tough times, and bringing more transparency and accountability to financial markets that in recent years expanded far beyond the government's ability to keep track of them.
FED TO POLICE SYSTEMIC RISK
The administration wants to give the Federal Reserve new powers to police "systemic risk," in conjunction with a council of regulators, as a way to make sure that the failure of one important company does not destabilize the broader economy.
It also will propose empowering the government to seize and unwind large, troubled companies, and will seek to rein in markets for securitized debt and over-the-counter derivatives.
"There is going to be streamlining, consolidation ... so that you don't find people falling through the gaps," the president told reporters.
"Whether it's on the consumer protection side, the investor protection side, the systemic risks ... It's going to be a much more effectively integrated system than previously," he said.
Months of debate lie ahead. Congress has set more than a dozen hearings on financial reform between now and mid-July.
"We are going to put forward a very strong set of regulatory measures ... We expect that Congress will work swiftly to get these laws in place," Obama said. Continued...
Source: Reuters

Adobe profit margin narrows, stock falls

BOSTON (Reuters) - Adobe Systems Inc, the maker of Photoshop and Acrobat software, posted the narrowest profit margin in more than 3 years, disappointing investors even though its revenue fell less than analysts had feared.
The company's profit margin, excluding special items, dropped to 33.7 percent from 39.4 percent a year earlier.
Adobe's stock fell 2.4 percent in extended trading.
"People were a little disappointed. Usually when they surprise on the top line, you see that trickle down the bottom line," said Janney Montgomery Scott analyst Sasa Zorovic, who has a "neutral" recommendation on Adobe's stock.
Like many technology companies, Adobe's business fluctuates with the economy. Its revenue has been declining as creative professionals who use its design programs cut back on software purchases.
Sales of those programs, which so far this year have accounted for 59 percent of Adobe's revenue, are also suffering because customers have not embraced the latest version, which Adobe put out late last year.
"It didn't have the must-have features that would compel an upgrade in a challenging economic climate," said Edward Jones analyst Andy Miedler.
Analysts are betting that customers will skip buying the current set of programs for creative professionals, dubbed CS4, and wait for the next version, which they expect to come out in the middle of next year.
Adobe reported second-quarter profit, excluding items, for the period ended May 29 of 35 cents, in line with analysts' average forecast, according to Reuters Estimates.
Revenue at the company, whose chief rivals are Microsoft Corp and Apple Inc, fell 21 percent to $705 million, beating the average forecast of $695 million.
Net income fell to $126 million, or 24 cents, from $215 million, or 40 cents, a year earlier.
It forecast third-quarter profit, excluding items, of 30 cents to 37 cents, on revenue of $665 million to $715 million. Analysts expect a profit, excluding items, of 33 cents on revenue of $677 million.
Adobe's stock fell to $27.50 in extended trading after closing 2.3 percent lower at $28.17 on Nasdaq.
(Reporting by Jim Finkle; Editing by Richard Chang)

Source: Reuters

Obama to call for U.S. financial product watchdog

By Kevin Drawbaugh
WASHINGTON (Reuters) - President Barack Obama pledged on Tuesday to pursue major changes in U.S. financial regulation, but warned it will be a "heavy lift" politically with special interests already offering opposition.
The president is expected to formally unveil a set of proposals for tightening oversight of banks and markets on Wednesday, after six months of debate over strategies and with the economy still hurting from a severe financial crisis.
One key element in the administration's plan will be the creation of an independent Consumer Financial Protection Agency that will write and enforce rules on fair lending and other matters, according to a document obtained by Reuters that was later confirmed by an administration official.
To prevent future crises, the administration wants to give the Federal Reserve new powers to police "systemic risk" in the economy, in conjunction with a council of regulators.
They will also propose empowering the government to seize and unwind large, troubled companies; boosting bank capital and liquidity standards; and reining in markets for securitized debt and over-the-counter derivatives.
"There is going to be streamlining, consolidation ... so that you don't find people falling through the gaps," the president told reporters.
"Whether it's on the consumer protection side, the investor protection side, the systemic risks ... It's going to be a much more effectively integrated system than previously," he said.
Months of debate lie ahead. Congress has set more than a dozen hearings on financial reform between now and mid-July.
"We are going to put forward a very strong set of regulatory measures ... We expect that Congress will work swiftly to get these laws in place," Obama said.
"But it is going to be as usual, a heavy lift ... You'll hear a lot of chatter about 'We don't need more regulation' and 'government needs to get off our backs,'" he added.
"There is a short memory unfortunately and I think that's what some of the special interests and lobbyists are going to be counting on, that somehow we've forgotten the disaster that arose out of their reckless behavior. And I'm going to keep on reminding them so we make sure that we get something in place that prevents this kind of situation from happening again."
HOYER ON TIMING
U.S. House of Representatives Democratic Leader Steny Hoyer said on Tuesday that the House will deal with financial regulation reform in late July or soon after Congress's August recess. The outlook in the slower-moving Senate was unclear.
The president's remarks came shortly after the U.S. Chamber of Commerce, the nation's largest business lobbying group, told reporters it opposes parts of the Obama plan.
The chamber said it opposes new government powers to seize and unwind large, troubled firms; creating a financial products safety watchdog; and a regulatory proposal to give shareholders more say in nominating directors to public companies. Continued...
Source: Reuters

Best Buy sales, forecast disappoint, shares fall

By Jessica Wohl
CHICAGO (Reuters) - Best Buy Co Inc posted lower first-quarter earnings and weaker-than-expected sales on Tuesday and implied earnings for the rest of the year would be worse than forecast, dragging its shares down more than 7 percent.
The top U.S. specialty consumer electronics retailer said it gained market share after main rival Circuit City closed its doors. Still, fewer customers visited its U.S. stores in the quarter as consumers continue to cut back on discretionary purchases.
"I think consumers are careful. They're being very, very careful," President and CEO-designate Brian Dunn said in an interview.
Best Buy saw demand rise when Circuit City shut down but has also faced increased pressure from Wal-Mart Stores Inc and others adding laptop computers, flat-screen televisions and other products to their stores.
The company's lower profit still topped analysts' expectations. Analysts said they were pleased to see improvements in gross margin and the market share gains, while the sales weakness was a concern, especially since most of the quarter fell after Circuit City's liquidation sales.
Best Buy estimated that as of April 30 its U.S. market share grew by nearly 2 percentage points from a year earlier.
Dunn, who is set to become CEO on June 24, said items such as notebook computers and mobile phones are selling well as consumers look for more ways to stay connected.
Sales of gaming items, digital cameras, appliances and movies fell, however.
"They're definitely sort of playing defense right now, but when the consumer starts to come back they're going to be in a great position," said FTN Equity Capital Markets analyst Anthony Chukumba, who rates the shares "buy."
He said if and when consumers start shopping again, Best Buy could surpass its profit forecast for the year.
PROFIT FALLS
Best Buy said it earned $153 million, or 36 cents per share, in the fiscal first quarter ended on May 30, down from $179 million, or 43 cents per share, a year earlier.
Excluding restructuring charges, Best Buy said adjusted earnings fell to 42 cents per share from 43 cents per share. Analysts had expected Best Buy to earn 34 cents per share on that basis, according to Reuters Estimates.
Despite interest in new products such as Palm Inc's Pre phone, Apple Inc's latest iPhones and the debut of Microsoft Corp's Windows 7 later this year, Best Buy maintained the expectations it issued in March.
"I am pleased with the start we have but we're not going to get the cart ahead of the horse here," Dunn said. Continued...
Source: Reuters