Economic News Online

Intel® Core™2 Quad Processors

2009-10-02T03:51:00.000-07:00

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Clinton breaks her elbow, to undergo surgery

2009-06-18T07:49:00.000-07:00

U.S. Secretary of State Hillary Clinton fell and broke her elbow on Wednesday while en route to the White House but will resume her full duties soon as the top U.S. diplomat, the State Department said.

Clinton will have surgery to repair her elbow in the next week, her chief of staff Cheryl Mills said in a statement released overnight.

"On the way to the White House late this afternoon, Secretary Clinton fell and suffered a right elbow fracture. She was treated at The George Washington University Hospital before heading home," Mills said.

A State Department official said all of Clinton's meetings had been canceled on Thursday. She had been due to join film star Angelina Jolie at an event for World Refugee Day and present awards at the American Foreign Service Association.

Clinton is set to go next week to Trieste, Italy, for a meeting of Group of Eight foreign ministers and attend a conference on Afghanistan to which Iran has been invited.

On the same trip, Clinton is due to go to Corfu, Greece, for a meeting of the Organization for Security and Cooperation in Europe on June 27-28.

The State Department had no immediate information about whether Clinton still planned to attend those meetings. In mid-July, Clinton is scheduled to make her first trip to India as the Obama administration's top diplomat.

Suicide bomber kills Somali security minister

2009-06-18T07:47:00.000-07:00

Hardline Islamist insurgents killed Somalia's security minister and at least 24 other people on Thursday in the deadliest suicide bomb attack yet in the Horn of Africa nation, officials said.

Security Minister Omar Hashi Aden was a key player in the government offensive against Islamist rebels who control much of southern Somalia and want to impose a strict version of Islamic law in the Horn of Africa nation.

Insurgent group al Shabaab, which has links to al Qaeda, stepped up their attacks in early May to try to oust President Sheikh Sharif Ahmed, but neither side has delivered a knockout blow and clashes have killed about 300 people since then.

Western nations, some of Somalia's neighbors and the government fear that if the chaos persists, more foreign fighters coming to wage holy war will be sucked into the Horn of Africa nation, increasing risks to the region.

"Al Qaeda considers Somalia a strategic place. They want to make it a safe haven for criminals," President Ahmed told a news conference. "This is an international war against Somalis. We ask the world to help us fight the international terrorists."

A suicide car bomber targeted Aden and other officials at a hotel in Baladwayne, a central town where the minister was helping direct operations against al Shabaab, which officials say has hundreds of foreign fighters in its ranks.

A senior official in the prime minister's office said Somalia's former ambassador to Ethiopia, Abdkarin Farah Laqanyo, was also killed in the explosion.

SUICIDE ATTACKS

Mohamed Abdi, a shopkeeper near the hotel, said smoke was rising from the building, government forces started shooting after the blast and body parts were scattered in the street.

Officials and hospital sources said the bomb killed at least 25 people and wounded 38.

A suicide car bomber killed seven people outside a police headquarters in the capital in May. A twin suicide attack on a base for African Union peacekeepers in Mogadishu killed 11 soldiers from Burundi in February. Thirteen civilians and a policeman died in a suicide attack in January in the capital.

Aden moved to Baladwayne at the start of June with heavily armed troops in a bid to recapture more territory from hardline Islamist insurgents outside Mogadishu.

Al Shabaab claimed responsibility for the blast.

"One of our Mujahideen has carried out that holy attack and the so-called security minister and his men were killed," Sheikh Ali Mohamud Rage, told local media.

The insurgent group has so far resisted government attempts to drive its fighters from the capital. The rebels, along with allied group Hizbul Islam, control most of southern Somalia bordering Kenya and parts of the central region.

Analysts say the fighting in Mogadishu is the worst for years and the chances of any negotiated peace are waning.

Young Iraqi gays find safe haven in Turkey

2009-06-18T07:46:00.001-07:00

Iraqi militants warned Ameer they would kill him for working with the U.S. military. Then he received a more chilling death threat -- for being gay -- so he sold his home in Baghdad and fled to Turkey.

Now the 28-year-old from a middle class family shares a small apartment in Istanbul with five other gay Iraqi men, exiles from a wave of intolerance, and says for the first time in his life he can express his sexual orientation in public.

Homosexuality is banned almost everywhere in the Middle East, but conditions for gays and lesbians in Iraq have become particularly dangerous since the rise of religious militias after U.S.-led forces removed Saddam Hussein six years ago.

"I could be tracked down and killed if I would say I am gay," Ameer told Reuters. "But here in Turkey we are treated as humans and we have rights, which is not the case in my country."

In Baghdad, he led his life in secret, without the knowledge of his family. In a country where homosexual acts are punished with up to seven years in prison, only his closest friends knew he was gay.

Ameer had stayed on after relatives fled Iraq's sectarian violence, living in a Shi'ite Muslim district and working for the Americans in the capital's heavily-fortified Green Zone.

Then the death threats started.

Sermons condemning homosexuality were given by clerics at Friday prayers in Sadr City, a sprawling Shi'ite slum, where six gay men were found murdered in March and April, four of them with Arabic signs reading "pervert" on their chests.

One local official, who declined to be identified, described the other two as "sexual deviants" and told Reuters the men had been killed by their tribes to restore their families' honor.

"NO MORE FEARS"

Sadr City is a bastion of support for fiery anti-American Shi'ite cleric Moqtada al-Sadr and his Mehdi Army militia. The Mehdi Army has frozen its activities in the past year and Iraqi government forces have retaken control.

Many young men who might have cut their hair short and grown beards when religious gangs controlled much of Iraq now dress in a more Western style as government forces patrol the streets.

As a result, some are accused of being homosexual.

Ameer, who left Baghdad in June 2007, had an asylum request approved after three interviews at the U.N. headquarters in Ankara. He hopes one day to join relatives in the United States.

"Friends and cousins in the United States have told me I will enjoy the gay life there, and that I won't be embarrassed by this issue any more," he said.

For now, he is enjoying living in a secular Muslim country where he does not feel his life is at risk every day. He survives on the little money family members send him, while his flatmates earn about $500 a month washing cars.

"We have no more fears of Islamist threats here," said one of Ameer's friends, Safwan. "I would think 100 times before ever returning to Iraq."

Somalia’s Security Minister Is Killed by Suicide Bomb

2009-06-18T07:43:00.001-07:00

Somali Security Minister Omar Hashi Aden was among at least 50 people killed in a suicide-bombing that the al-Shabaab Islamist group, accused by the U.S. of backing al-Qaeda, said it carried out.

The attack happened at the Medina Hotel in central Somalia ahead of a wedding ceremony, Haji Mohamed Ibrahim, a clan elder in Beledweyne, said in a phone interview from the city. The blast killed 50 people and injured 100, al-Jazeera reported, without citing anyone.

“We killed many so-called government officers, including the so-called security minister,” Ali Mohamoud Rage, a spokesman for al-Shabaab, said in a teleconference today in the capital, Mogadishu. “As they were meeting in one of the hotels in Beledweyne, one of our holy martyrs exploded inside.”

Al-Qaeda has sent as many as 300 fighters to Somalia to support Islamists and warlords seeking to topple the government of President Sheikh Sharif Sheikh Ahmed, United Nations Secretary-General Ban Ki-moon’s top political aide, Lynn Pascoe, told the Security Council last month. The foreigners are training the al-Shabaab rebels and helping them mobilize funds and weapons, Nicolas Bwakira, the head of the African Union peacekeeping mission in Somalia, said on May 22.

Al-Shabaab has been accused by the U.S. of providing safe- haven and logistical support to al-Qaeda, which aims to establish a caliphate, or Islamic government, in Somalia.

Ambassador Killed

Among other people killed in today’s attack was Abdikarin Hussein Farah Laqanyo, the former ambassador to neighboring Ethiopia, said Abdulkadir Mohamed Osman, director of information in the Somali presidency.

“We believe the attack was carried out by al-Qaeda and al- Shabaab,” Osman said by phone from the capital, Mogadishu.

Ibrahim, the clan elder who visited the hotel after the incident, said at least 17 people had been reported killed, without saying where he got the information from.

“It was a horrific incident because they were gathering at Medina Hotel for a wedding ceremony,” he said. “Many people died on the scene.”

Somalia is in its 18th year of civil war and hasn’t had a functioning central administration since the ouster of Mohamed Siad Barre, the former dictator, in 1991.

Last night, at least 13 people were killed in northern Mogadishu when a stray mortar shell hit a mosque during evening prayers amid clashes between Islamist fighters and government forces. Earlier in the day, at least 15 people died in fighting between the two sides in the south of the city.

Iran’s Opposition Stages Day of Mourning for Protest Victims

2009-06-18T07:41:00.002-07:00

Supporters of the leading challenger to Iranian President Mahmoud Ahmadinejad embarked on a day of mourning for those killed in protests over the nation’s disputed election. A rally in Tehran began at about 5 p.m. local time, Agence France-Presse reported, citing a witness.

The killings were “savage,” defeated candidate Mir Hossein Mousavi, 67, said on his Web site. “The people know who attacked the university dormitories, beat boys and girls, and who killed people in Azadi Square,” where opposition supporters rallied three days ago.

At least 15 people have died in protests over the result of the June 12 election, seven in attacks on university dormitories in Tehran and Shiraz, south of the capital, and eight in the Azadi Square march on June 15 when security forces fired on protesters, the British Broadcasting Corp.’s Persian service reported.

Demonstrations, triggered by opposition accusations of vote-rigging, are entering a sixth day as the authorities struggle to contain popular anger at the election result. The June 15 rally, held in defiance of a government ban, was the largest anti-government demonstration since the Islamic revolution ousted the shah in 1979. Tens of thousands of Mousavi’s supporters marched again yesterday in Tehran.

Mousavi and former president Mohammad Khatami sent a letter to the head of the judiciary, Ayatollah Mahmoud Hashemi- Shahrudi, late yesterday calling on him to free the hundreds of people arrested since the election.

Sympathy for Victims’ Families

Grand Ayatollah Yosuf Sanei, an elder dating from the rule of Supreme Leader Ruhollah Khomeini, expressed sympathy for the families of the victims. In a letter published on the Iranian Labor News Agency, he said he hoped concern about election “irregularities” would be addressed by the administration. There were 646 election irregularities, Agence France-Presse cited the three defeated candidates as saying.

The protests are “a true outcry” Hooman Majd, the author of “The Ayatollah Begs to Differ: The Paradox of Modern Iran,” said in a column in the Financial Times today. They are supported by “some clerics, and even the old guard of the Islamic leadership, such as Ayatollah Hashemi Rafsanjani, who protest that the one democratic aspect of the political system, the people’s voice, is in danger of being snuffed out.”

Rafsanjani heads the Assembly of Experts, a group of clerics that can choose or dismiss Iran’s supreme leader. Faezeh Hashemi, Rafsanjani’s daughter, has addressed hundreds of Mousavi supporters.

The Iranian rial strengthened to 9,888 per dollar from 9,897 yesterday on a day when the dollar was weaker against other major currencies. The currency’s rate is managed by Bank Markazi, the central bank. Iran’s benchmark index, the TEPIX, closed at 9,247 yesterday, a loss of 0.26 percent, according to data published on the Web site of the Tehran Stock Exchange.

Election Turmoil

The election turmoil is pitting the Islamic republic’s ruling clergy against young Iranians and more educated voters who want social freedom and better ties with the West.

Ahmadinejad’s opponents accuse the 52-year-old of wrecking the economy, which suffers from 10.5 percent unemployment and almost 24 percent inflation, and driving Iran into international isolation over the country’s nuclear program.

The head of the United Nations nuclear watchdog, Mohammed ElBaradei, told the BBC for the first time yesterday he believed Iran wanted the option of an atomic bomb.

Mousavi, while backing Iran’s “right” to nuclear technology, has said the president brought shame on the country with a management style “based on adventurism, instability, unlawfulness and radicalism.” Ahmadinejad has called the Holocaust a “myth,” while Mousavi has condemned violence against Jews.

Vote Count

According to election officials, Ahmadinejad won about 63 percent of the June 12 vote, to about 34 percent for Mousavi. The remainder was divided between two other candidates.

Mehdi Karrubi, 71, another defeated candidate, has called for people to wear black tomorrow in mourning for those killed as Friday prayers are led by Supreme Leader Ayatollah Ali Khamenei to seal his appeal for unity.

Khamenei’s prayers will be held in the presence of the Basij, the voluntary militia of the Revolutionary Guards, the group said in a statement on state-run Mehr news agency. The militia warned the defeated candidates to “explicitly dissociate themselves from the rioters.”

The Basij, famed for walking over minefields during the 1980-88 Iran-Iraq War to open up routes of attack for the army, are estimated to be hundreds of thousands strong.

In recent days, Mousavi has criticized the role of “plain- clothes” police in attacks on students.

Cabinet Meeting

Ahmadinejad said in a Cabinet meeting yesterday the poll was a “referendum” in which “25 million people confirmed this way of management in the country.” About 39 million voted, a record turnout of 85 percent.

A major political party controlled by clerics has requested the Interior Ministry’s permission to hold another rally June 20. Khatami is planning to attend that march and Mousavi will address the crowd, the state-run Mehr news agency reported.

Khamenei appealed for unity June 16 following a meeting with representatives of candidates in the presidential vote. He has also said he would back a recount in some areas if an examination proves it necessary. The clergy-led Guardian Council overseeing elections said a partial recount may be authorized.

The council invited the defeated candidates to a meeting from June 20 onward to consider candidates’ complaints with more care, council spokesman Abbas Ali Kadhodaei said on state television today.

Partial Recount

Mousavi, who accuses the authorities of vote fraud, and Karrubi, a former Parliament speaker, rejected a partial recount, the Iranian Labor News Agency said.

The Iranian regime “is going through its biggest crisis in 30 years,” said Mohammad-Reza Djalili, an Iranian analyst at the Graduate Institute of International and Development Studies in Geneva. “The structure of the system has been shaken, and now it has cracks.”

The shah, Mohammed Reza Pahlavi, was ousted in 1979 after months of anti-monarchy demonstrations. He had ascended the Peacock Throne after his father was forced out by allied forces in World War II. The shah developed closer ties to the West and promoted economic development, angering many Shiite Muslims who favored adherence to religious tradition, during a reign that became increasingly autocratic.

Crude oil for July delivery climbed as much as 70 cents, or 1 percent, to $71.73 a barrel in electronic trading on the New York Mercantile Exchange as investors bought commodities. Iran is the second biggest oil producer in the Organization of Oil Exporting Countries.

WebMD to Buy Hlth for $1.29 Billion in All-Stock Deal

2009-06-18T07:41:00.001-07:00

WebMD Health Corp., a provider of online health information, agreed to buy parent Hlth Corp. in an all-stock deal valued at $1.29 billion. It’s the second time the interlocked companies have tried to merge in 16 months.

Holders of each Hlth share will receive 0.4444 share of WebMD. The deal values Hlth 5.7 percent higher than its $1.22 billion market capitalization at yesterday’s $11.76 a share closing price on the Nasdaq Stock Market. Hlth, of Elmwood Park, New Jersey, owns about 80 percent of New York-based WebMD, the companies said today in a statement.

WebMD’s previous attempt to acquire Hlth failed in October over trouble finding a buyer for Porex, a second unit of Hlth that makes plastics used in health and consumer products. Hlth “will be continuing its sales process for Porex with potential buyers and is aiming to conclude that process as quickly as possible,” the companies said today.

The deal will simplify the companies’ corporate structure and increase the ability of shareholders to trade WebMD, the companies said. The tax-free transaction will close in the third or fourth quarter, the companies said. WebMD will assume Hlth’s debt.

Hlth rose 89 cents, or 7.6 percent, to $12.65, the most since May 6. WebMD rose 82 cents, or 3 percent, to $29.03, in Nasdaq Stock Market composite trading at 10:03 a.m. New York time and fell 18 percent in the 12 months before today.

Financial advisers were Raymond James Financial Inc. for Hlth and Morgan Joseph & Co. for WebMD. Legal advisers were Shearman & Sterling LLP for Hlth and Cahill Gordon & Reindel LLP for WebMD.

Colonial Seeks Hedge Fund to Join Gore, 452 in Alliance Stable

2009-06-18T07:40:00.000-07:00

Colonial First State, Australia’s biggest asset manager, may seek an alliance with a hedge fund to offer customers a strategy capable of profiting in rising or falling markets.

The manager of about A$130 billion ($103 billion) has A$4 billion of client money in five boutique funds. Sydney-based Colonial started the alliance business in 2002 to broaden the range of strategies offered and has tie-ups with firms such as the Al Gore-backed Generation Investment Management LLP.

“We don’t have anyone who specializes in absolute returns,” Graham Hand, Colonial’s general manager of funding and alliances, said in an interview in Sydney. “If we can get the right idea working, that would compliment what we’re doing. So we’re looking at a few possible deals in that space.”

Hedge funds are looking for partners to provide capital after they fell a record 18 percent on average last year. At the same time, asset managers are looking to broaden the range of investment offerings after global equities slumped 42 percent.

Hand said Colonial is “reasonably advanced” on discussions for a couple of new alliances, though no transactions are imminent. He declined to name the firms or strategies.

Local money managers typically haven’t invested in domestic hedge funds, a process known as seeding, though that may change, said Chris Gosselin, chief executive officer of Australian Fund Monitors. AFM tracks the performance of more than 200 hedge funds managed in Australia.

“There are opportunities now for both the seeder and the fund manager, but there are also greater risks,” Gosselin added. “I think the opportunities outweigh the risks.”

Challenger

Michael Lovett, the general manager of boutique partnerships at Challenger Financial Services Group Ltd., said he’s getting more calls from small managers who are now looking for a “big brother.”

Challenger, the Australian fund manager backed by billionaire James Packer, has about A$1.5 billion invested in six boutique funds, including an Australian small-cap equities fund managed by Kinetic Investment Partners, and Five Oceans Asset Management’s international equity long-short fund.

While Challenger is in “no rush” to do another deal and is focusing on its existing tie-ups, “in the medium term, the area we’d like to get more in is the alternative space,” Lovett said in an interview in Sydney.

A record 180 funds closed in Asia during last year’s global market rout, according to Singapore-based Eurekahedge Pte.

Donald Bradman

Colonial has affiliations with 452 Capital, set up by ex- Perpetual Ltd. portfolio manager Peter Morgan in 2002 and named after the number of runs Donald Bradman scored in a 1930 cricket match. Colonial owns a 30 percent stake, and has distributed a co-branded Australian equities fund since December 2002.

It also offers a co-branded Australian share fund with PM Capital Ltd., founded in 1998 by Paul Moore, a former Bankers Trust Australia investor. It doesn’t own a stake in the company.

Unlike some seed investors who give capital for hedge funds to invest without taking an active role in promotion and distribution, “we don’t work like that,” Hand said.

“We throw the entire resources of Colonial First State behind helping you,” he said. “That means the hurdle of who we are prepared to work with is much higher. It’s not just, ‘there’s the money, go and make it happen.’”

Gore’s Fund

Colonial distributes the Generation Wholesale Global Sustainability Fund, managed by the firm chaired by Gore, the former U.S. vice president and climate campaigner. Generation IM invests in companies that follow socially responsible guidelines in the expectation that they will report better returns.

“What we’re looking for in the next transaction is not just, ‘Oh that looks good, let’s do it,’ but how it compliments what we do,” Hand said.

The fund manager owns 50 percent of Acadian Australia, a local joint venture with Boston-based Acadian Asset Management LLC. Colonial wholly owns Realindex Investments, which offers funds that use analysis of companies rather than their market- size to compile a portfolio of shares in benchmark indexes.

“The other attraction of this is that you actually get to own another business,” Hand said. “You’re not just selling somebody’s funds, you actually own a business which in time could become a very valuable business.”

Fidelity Breaks With Money Funds on Plan Limit to Debt Holdings

2009-06-18T07:37:00.000-07:00

Fidelity Investments, the largest manager of U.S. money-market mutual funds, has split with rivals over the industry’s proposal to limit approved holdings to top- rated debt securities.

Fidelity is pressing the U.S. Securities and Exchange Commission to allow funds to continue buying debt that doesn’t carry the highest rating, said a person familiar with the matter, who asked not to be identified because the Boston-based company’s lobbying efforts are private.

Ten fund managers including Fidelity helped draft proposals in March aimed at strengthening money funds, after the September collapse of the $62.5 billion Reserve Primary Fund sparked a run by investors. The report included a call to ban securities rated below A1 by Standard & Poor’s or P1 by Moody’s Investors Service. The Investment Company Institute, a Washington-based trade group that coordinated the effort, said the firms would adopt the recommendations.

“Fidelity has always had a maverick streak in them,” Peter Crane, president of Crane Data LLC, an industry research firm in Westborough, Massachusetts, said in an interview. “Being privately held, they tend to do things their own way.”

Vincent Loporchio, a Fidelity spokesman, said the firm opposes the ban on tier 2 holdings “for a number of reasons,” including their limited impact on portfolios. Tier 2 securities are those with the second-highest credit rating for short-term debt. Money funds can hold as much as 5 percent of their assets in tier 2 debt.

Loporchio declined to comment on whether Fidelity has discussed the possible ban with the SEC. The SEC is set to propose rule changes for money funds on June 24 that mirror those in the ICI report. Kevin Callahan, a spokesman for the SEC, declined to comment.

Fund Collapse

Ianthe Zabel, a spokeswoman for the Investment Company Institute, declined to comment on Fidelity’s position. She said the decision by fund executives to propose a tier 2 ban wasn’t unanimous.

The collapse of Reserve Primary, whose losses on debt issued by Lehman Brothers Holdings Inc. sent its share price below the $1 standard, spurred a wave of investor redemptions. Corporation couldn’t sell short-term debt as prime funds, which can invest in commercial paper, rushed to sell holdings to meet client redemptions.

The ICI, in its report, also recommended increasing the proportion of assets a fund must hold in cash or securities that can easily be liquidated, and reducing the average maturity of a fund’s securities.

‘Source of Diversity’

Fidelity’s Loporchio said tier 2 securities weren’t a source of problems for money funds and were often issued by “strong, creditworthy” companies that “provide an important source of diversity for money-market funds.”

The company supports shortening the allowable maturity for tier 2 securities in money funds from the current 397 days, he said. Fidelity managed $506 billion in money fund assets as of May 31.

J.T. Tuskan, a spokesman for Pittsburgh-based Federated Investors Inc., the third-largest money-fund manager with $313 billion in assets, said the company will adopt all the ICI recommendations by September.

Rebecca Cohen, a spokeswoman at Vanguard Group Inc. in Valley Forge, Pennsylvania, said the company has adopted the recommendations. Vanguard manages about $203 billion in money funds.

Treasuries Decline as Total Benefit Rolls Plunge, Supply Looms

2009-06-18T07:23:00.002-07:00

Treasuries fell for a second day as the total number of people collecting unemployment insurance dropped for the first time since January and the U.S. announces the amount of 2-, 5- and 7-year notes it will sell next week.

Ten-year yields climbed from a two-week low amid concern President Barack Obama’s record borrowing will overwhelm demand as the deepest recession in 50 years shows signs of easing. The Labor Department said the number of people collecting unemployment insurance fell by 148,000 in the week ended June 2, the most since November 2001, to 6.69 million.

“Continuing claims were not as weak as they have been, so people are selling securities to set up for next week’s auction process,” said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets in New York, the investment- banking arm of Canada’s biggest lender.

The 10-year note yield rose six basis points, or 0.06 percentage point, to 3.75 percent as of 9:06 a.m. in New York, according to BGCantor Market Data. The 3.125 percent security maturing in May 2019 fell 15/32, or $4.69 per $1,000 face amount, to 94 25/32. The yield touched 3.58 percent yesterday, the lowest level since June 4.

The Treasury Department will probably auction $40 billion in two-year notes, $35 billion of five-year debt and $26 billion of seven-year securities, according to Wrightson ICAP LLC, a Jersey City, New Jersey-based research company.

Record Sales

“We have another situation in the dealer community where they are anticipating supply and would like to see a concession develop before the auctions,” said David Coard, head of fixed- income trading in New York at Williams Capital Group, a brokerage for institutional investors.

Initial jobless claims rose by 3,000 to 608,000 in the week ended June 13, in line with forecasts, from a revised 605,000 the prior week, the Labor Department said today in Washington.

U.S. government debt has handed investors a loss of 3.8 percent since March, according to Merrill Lynch & Co. indexes. U.S. securities are set for the worst quarter since losing 5.9 percent in the first three months of 1980, the data show.

Obama has pushed the nation’s marketable debt to an unprecedented $6.45 trillion. The Congressional Budget Office projects the federal budget shortfall will reach a record $1.85 trillion this year, with the gap exceeding $600 billion through the year 2019.

Need Some Time

The U.S. may sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, almost four times 2008’s $892 billion, according to Goldman Sachs Group Inc., one of the 17 primary dealers that are required to bid at government debt auctions.

China may increase its holdings of U.S. Treasuries in the “near” term should the dollar remain stable, China Finance magazine reported in an article written by Dai Xianglong, chairman of China’s national pension fund. China is the largest U.S. creditor, holding $763.5 billion of U.S. debt as of April, according to Treasury Department figures.

The nation will need some time to diversify its foreign- exchange reserve holdings and the U.S. government should take “substantial” measures to honor its promise of ensuring the safety of foreign investments, Dai, who is a former central bank governor, wrote in an article in the Chinese-language publication. China Finance is affiliated with the People’s Bank of China.

The U.S. government must rely on foreign investors to sustain record borrowing.

‘Not Yet Concrete’

An index of U.S. leading economic indicators probably rose in May for a second straight month, reinforcing speculation the recession may end this year. The Conference Board’s gauge of the economic outlook for the next three to six months climbed 1 percent, according to the median forecast in a Bloomberg News survey. That would match April’s gain and mark the first back- to-back increase since September-October 2006.

The economic recovery is “not yet concrete” and yields may remain stable at current levels until September, said Giuseppe Maraffino, a fixed-income strategist in Milan at UniCredit Markets & Investment Banking.

“There are still problems and the jobs market remains weak, so the recovery is not yet concrete,” Maraffino said. “In the short term, Treasuries will remain well bid.”

The cost of living increased 0.1 percent last month after no change in April, the Labor Department said yesterday. On an annual basis, prices fell 1.3 percent. That means 10-year notes yield 5 percent after accounting for costs in the economy. The so-called real yield last rose above 5 percent in 1994.

Lending Rate

The less-than-anticipated increase in consumer prices may allow Fed policy makers to keep the benchmark lending rate between banks at a low level for longer. The Fed’s target rate is at a record low range of zero to 0.25 percent.

Futures trading on the Chicago Board of Trade indicate a 45 percent chance the central bank will raise interest rates by the end of the year, down from more than 60 percent a week ago. The Federal Open Market Committee meets on monetary policy June 24 and 25.

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, fell to 1.76 percentage points today, from 2.02 percentage points a week ago. The figure has averaged 2.23 percentage points for the past five years.

U.S. Stocks Gain as Leading Indicators, Philly Fed Top Estimates

2009-06-18T07:23:00.001-07:00

U.S. stocks extended gains after reports on leading indicators and manufacturing in the Philadelphia region topped economists’ estimates, adding to evidence that the recession is easing.

The Standard & Poor’s 500 Index climbed 0.7 percent to 917.2 at 10:02 a.m. in New York.

U.S. Leading Economic Indicators Index Increased 1.2% in May

2009-06-18T07:22:00.000-07:00

The index of U.S. leading economic indicators rose more than forecast in May for the second straight month, reinforcing signs that the worst recession in five decades may end this year.

The Conference Board’s gauge increased 1.2 percent after a revised 1.1 percent in April, the biggest back-to-back gain since November-December 2001, according to data the New York- based group released today. The index points to the direction of the economy over the next three to six months.

The gains in stock prices, consumer confidence and building permits that are propelling the leading index higher bolster forecasts the economy will start growing again in the second half of 2009. Still, mounting unemployment and tight credit mean the recovery will be slow.

“The economy is working through the crisis, laying the groundwork for recovery,” John Herrmann, president of Herrmann Forecasting in Summit, New Jersey, said before the report.

The index was forecast to rise 1 percent, according to the median of 55 economists in a Bloomberg News survey, after an originally reported increase of 1 percent in April. Estimates ranged from a decline of 0.5 percent to a gain of 1.8 percent.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, fell 0.2 percent, the smallest drop since October, after decreasing 0.3 percent the prior month. The index tracks payrolls, incomes, sales and production.

Lagging Indicators

The gauge of lagging indicators fell 0.2 percent following a 0.8 percent decline in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Seven of the 10 indicators in today’s report added to the index, led by a measure of supplier delivery times which indicates orders are picking up. That added 0.33 percentage point.

Another 0.24 point boost was provided by the Standard & Poor’s 500 Stock Index, which gained 6.4 percent in May from the prior month’s average.

A 0.18 point contribution came from a jump in the Reuters/University of Michigan index of consumer expectations, a proxy for future spending. A preliminary report for June, meanwhile, showed that gauge fell this month.

Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.

Money Supply

Money supply adjusted for inflation, which has the biggest weighting in the index, added 0.24 point, and interest-rate spreads added 0.31 point.

Building permits, a sign of future construction, added 0.11 point. Permits rose 4 percent to a higher-than-forecast 518,000 pace in May from a 498,000 rate in April, government figures showed this week.

A shorter factory workweek, new orders for consumer goods and jobless claims subtracted from the index.

A Labor Department report today showed initial jobless claims rose by 3,000 to 608,000 last week. The number of people on benefit rolls dropped for the first time since January, adding to evidence the job market is starting to thaw.

The bankruptcies of automakers General Motors Corp. and Chrysler LLC, as well as parts-makers Visteon Corp. and Metaldyne Inc., may cause more job losses and prolong the downturn in manufacturing. The unemployment rate will touch 10 percent by year-end, according to a Bloomberg survey this month.

Still, some manufacturers are seeing a turnaround.

While the outlook for business jets remains weak amid the slump, officials at Honeywell International Inc., the world’s largest maker of airplane controls, detect signs of a recovery in some aerospace markets.

“If we’re looking for ‘green shoots,’ there are some out there,” Chief Executive Officer David Cote said this week in a Bloomberg Television interview from Paris.

Philadelphia Area Factory Index Rose to -2.2 in June, Fed Says

2009-06-18T07:21:00.000-07:00

Manufacturing in the Philadelphia region contracted in June at the slowest pace in nine months as measures of orders and sales improved.

The Federal Reserve Bank of Philadelphia’s general economic index climbed to minus 2.2 from minus 22.6 in May, the bank said today. Negative numbers signal contraction.

The slump in manufacturing may abate after companies reduced inventories in the first quarter at the fastest pace on record. Still, production cutbacks and plant closures at carmakers General Motors Corp. and Chrysler Group LLC are likely to depress factory production in coming months.

“The bulk of the downturn is behind us but we still haven’t crossed that threshold toward expanding the industrial sector,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “It looks like most of the inventory liquidation is over and that means we’ll see manufacturers boost production in the second half of the year.”

Economists forecast the index would improve to minus 17, according to the median of 50 projections in a Bloomberg News survey. Estimates ranged from minus 9 to minus 24.

The index of leading economic indicators climbed 1.2 percent in May, more than forecast, following a 1.1 increase in April, the New York-based Conference Board reported today. It was the biggest back-to-back gain since November-December 2001, at the end of the last recession.

A report from the Labor Department showed the number of Americans receiving claims for unemployment benefits plunged by 148,000 in the week to June 6, the most since November 2001, to 6.69 million. The average number of claims over the last four weeks fell to the lowest level in four months, dding to evidence the job market is starting to thaw.

Obama cites decades of mistakes behind recession

2009-06-17T08:58:00.001-07:00

President Barack Obama is offering a broad-scale overhaul of the financial system, saying hard times struck largely because a post-Depression era business regulatory scheme couldn't keep up with an increasingly global economy.

In remarks readied for the unveiling of new rules to govern business, Obama attributed much of the country's current problem to "a cascade of mistakes and missed opportunities" which happened over several decades.

His plan would bestow vast new powers on the Federal Reserve, authorizing it to oversee the entire financial system. It also would create a new consumer protection agency to guard against the types of abuses that played a big role in the current crisis.

The president said in his prepared remarks that "a culture of irresponsibility took root from Wall Street to Washington to Main Street."

Biggest Shift in U.S. Health Care May Emerge in 45-Day Sprint

2009-06-17T08:54:00.000-07:00

The largest expansion of U.S. health care since the creation of Medicare in 1965 may emerge from legislation designed to reshape the medical industry and change how Americans receive and pay for care.

Congress today begins crafting legislation that Democratic leaders plan to push through both chambers by their August recess. The measure may require all Americans to get medical insurance, force insurers to accept all patients and end the tax break for employer-paid health benefits. These changes may be hammered out with unprecedented speed at the urging of President Barack Obama, who four days ago said “this is the moment.”

Obama has made a health-care overhaul his top domestic priority, using his February budget proposal to call it a “moral” imperative to extend coverage to the country’s 46 million uninsured. Obama also tied the long-term fiscal soundness of the U.S. to controlling medical costs. Health care consumes 18 percent of the U.S. economy and may rise to 34 percent by 2040, the White House Council of Economic Advisers reported June 2.

“I don’t think we’ve ever had anything this large in American history aimed to go this quickly that touches everybody’s lives,” said Robert J. Blendon, a professor of health policy and political analysis at Harvard University in Cambridge, Massachusetts, in a telephone interview. “They’re moving at a pace we’ve never seen before.”

‘Moment is Right’

The U.S. will spend more than $2 trillion this year on health care, the Health and Human Services department reported in February. Today, the Senate Health committee will begin debating a bill that includes “gateways” where consumers may compare coverage plans. The Senate Finance Committee later this week will unveil a bill that among its provisions will call for taxes on health benefits, and House committees will release a draft of their own comprehensive measure that would create a government-backed plan to compete with private insurance.

“We know the moment is right for health care reform,” Obama told the American Medical Association in Chicago in a speech June 15. “We know this is a historic opportunity we’ve never seen before and may not see again.”

The coming weeks will be pivotal if the House and Senate are to meet their goal to send Obama a single bill in October, said Drew Altman, president of the Henry J. Kaiser Family Foundation, based in Menlo Park, California, one of the nation’s largest private foundations devoted to health.

‘Planets Are Aligned’

“We have these big debates about comprehensive health reform every 19 or 20 years in our country, and we’ve failed every time,” Altman said by telephone. “This time, the planets are aligned as they’ve never been aligned before, but there still are a lot of obstacles before we’ll know whether they’ve pulled it off or we’ve failed again.”

The timetable may be slowed as Democrats on the Finance Committee seek a bipartisan compromise. Republicans in the Senate have been pushing for more time to assess the costs of the various proposals.

A portion of the health committee bill, proposed by its chairman, Democrat Edward Kennedy of Massachusetts, and fellow Democrat Christopher Dodd of Connecticut, may cost as much as $1 trillion over 10 years while covering just 16 million more people, the Congressional Budget Office said June 15.

Senator Mitch McConnell, a Kentucky Republican and minority leader, says he is skeptical of the “chaotic” legislative process. He complained that the bills haven’t been seen by Republicans or “scored” -- assessed to see how much they will cost to implement.

“We don’t have bills,” he told reporters yesterday. “We don’t have scores. And at the same time the majority is saying we need to act quickly. I think it would be highly irresponsible in the extreme.”

Reid’s Response

The Senate Democratic Leader, Harry Reid of Nevada, scoffed at McConnell’s complaint, saying: “We are moving too fast on health care, we’re moving far too fast, in their mind, on energy, and certainly we’re moving too fast” on Supreme Court nominee Sonia Sotomayor. “Is there anything that we’re moving just right?”

Presidents from Harry Truman to Bill Clinton have tried and failed to reshape the health-care system, running into opposition from industry and doctors. Truman’s efforts to provide insurance for all Americans in the 1940s were criticized by the U.S. Chamber of Commerce as a step toward “socialized medicine.” The American Medical Association shared that assessment.

President Lyndon Johnson defeated similar opposition in 1965 when he pushed Medicare, the government’s health program for the elderly and disabled, through Congress. Johnson benefited from a landslide victory for Democrats in the 1964 elections and U.S. attention to widespread poverty.

Positions Will Emerge

Unlike Clinton’s 1993 attempt to change medical care, when industry opposed attempts to rework the system, insurers, drug- and device-makers, doctors and hospitals have committed to cut costs over a decade in support of Obama’s agenda.

As details of the bills emerge, the health-care groups will take positions, said Altman, of the Kaiser Family Foundation.

“The real debate will only begin when we have legislation on the table,” he said in the interview. “Then we learn which interest groups are at the table and which ones aren’t. As hot as this has gotten, we haven’t seen real opposition yet.”

In the House and Senate, Democratic leaders are trying to push proposals through on a six-week timetable more often seen with bills dealing with a national crisis rather than broad- based social policy.

Two Weeks of Deliberations

In the Senate, the health committee today will start what it expected to be at least two weeks of deliberations on the Kennedy-Dodd plan. Senate Finance Committee Chairman Max Baucus, of Montana, said yesterday he hopes his plan draws support from the top Republican on his panel, Senator Charles Grassley of Iowa. The Finance Committee is scheduled on June 23 to begin work on its bill. Baucus said yesterday he will release his proposal this week.

The Senate committees’ schedules call for finishing their separate bills before the week-long Independence Day recess begins June 29, and merging the proposals upon their return. Democratic leaders plan for the Senate to take up a measure sometime soon after the recess, although debate hasn’t been set.

The packed schedule will be a particular challenge for the slower, more deliberate Senate. Democrats, who control 59 votes, must be able to secure the backing of 60 senators to overcome the possibility of a filibuster. The fast pace also may be an asset, said Senate historian Donald Ritchie.

“Sometimes there’s an advantage in setting a short schedule,” Ritchie said. “That gets people responding to the bill, it’s easier to schedule votes, people are more willing to cut a deal and compromise. Leadership around here often gets their best work done here before a recess when everyone has a plane ticket in their pocket.”

House Action

In the Democratic-controlled House, three committees working on the same legislation plan to release a detailed draft outline later this week. Representative Charles Rangel of New York, chairman of the House Ways and Means Committee, said his panel may release an outline of health policy changes first, followed days later with the details of the necessary tax increases and spending cuts.

Rangel said he wants the more popular aspects of the health-care overhaul, such as expanding coverage to the uninsured, before spelling out the way to pay for the changes that will cause “heartburn” for many lawmakers.

Employer Benefits

One issue is taxing employer-provided health benefits, which Obama opposed during his presidential campaign. In an interview yesterday with Bloomberg News, Obama said he wouldn’t rule out such a proposal.

“I don’t want to predetermine the best way to do this,” he said. “I’ve already put forward what I think is the best way. Let me see what comes out of the Hill and we’ll have that debate then.”

Rangel’s panel and the other two House committees - Energy and Commerce and Education and Labor -- may hold hearings next week before the July break, said Nadeam Elshami, a spokesman for House Speaker Nancy Pelosi.

All three panels would then work to approve the legislation in July and the full House would take it up by month’s end.

The Democratic leadership in both chambers plan to use the summer recess and early fall to put together one package that can pass the Senate and House and go to the president.

“The president wants a bill by Oct. 15,” Baucus said in an interview yesterday. “He’ll get it.”

Iranian Opposition Stages Rally in Central Tehran

2009-06-17T08:53:00.000-07:00

Tens of thousands of supporters of Mir Hossein Mousavi, the defeated main challenger in the disputed Iranian presidential election, rallied in central Tehran, Sky News said, after the biggest protest in 30 years led to as many as 15 deaths.

Two prominent Mousavi backers were detained earlier today, AFP reported after Iran’s supreme leader yesterday appealed for unity following a meeting with representatives of candidates in June 12 presidential voting.

Video of today’s gathering in Haft Tir Square was posted on Facebook and follows a June 15 rally that was the largest anti- government demonstration since the Islamic revolution ousted Iran’s shah in 1979, triggered by opposition accusations of vote-rigging to re-elect President Mahmoud Ahmadinejad. Several people were reported killed. Mousavi has called a mass demonstration tomorrow to mourn the deaths. Tehran’s bazaar merchants, a group that backed the 1979 revolution, may strike to protest the election, the BBC said.

Election turmoil is pitting young Iranians and more educated voters who want social freedom and better ties with the West against the Islamic republic’s ruling clergy. Ahmadinejad’s opponents accuse him of wrecking the economy, which suffers from high unemployment and inflation, and driving Iran into international isolation through his confrontation over the country’s nuclear program. The head of the UN nuclear agency said he believed Iran wanted the option of an atomic bomb.

Biggest Crisis

The Iranian regime “is going through its biggest crisis in 30 years,” said Mohammad-Reza Djalili, an Iranian analyst at the Graduate Institute of International and Development Studies in Geneva. “The structure of the system has been shaken, and now it has cracks.”

State television’s news channel showed interviews with people on the streets calling the protesters enemies of the state and quoting officials as saying protests at the vote should be made through proper legal channels.

Mousavi said the same people who committed fraud in the June 12 ballot were responsible for damaging public buildings during the protests. “It’s the companions of lies and fraud that attack banks and public buildings to complete their scheme,” he said in comments on his Web site.

“Use of plain-clothed forces that are used by the security bodies, only shows that the police are aware of the contradiction of what they are doing with what is their duty,” Mousavi said in an open letter to the Iranian National Security Council.

Mousavi Letter

In the letter published on Ghalam News Web site, Mousavi warned against the involvement of plain-clothed militia in protest rallies. He said they use guns, attack people, destroy public buildings, and provoke the crowds.

Five players of Iran’s national soccer team wore green wristbands during the first half of a World Cup qualifying match against South Korea, the Associated Press reported. The bands were removed in the second half. Green is the color that Mousavi supporters have used throughout their election campaign, and later in protest rallies, AP said.

Supreme Leader Ayatollah Ali Khamenei, speaking on state television late yesterday, appealed for unity. He also said he would back a recount in some areas if an examination proves it necessary, Agence France-Presse reported. The clergy-led council overseeing elections said a partial recount may be authorized.

Rial, Stocks

The Iranian rial strengthened to 9,897 per dollar from 9,915 the day before. The currency’s rate is managed by Bank Markazi, the central bank. Iran’s benchmark index, the TEPIX, closed at 9,247 today, a loss of 0.26 percent, according to data published on the Web site of the Tehran Stock Exchange.

Seven people were killed in attacks on university dormitories in Tehran and Shiraz, south of the capital, the British Broadcasting Corp.’s Persian service reported. As many as eight people were killed and 25 injured in the June 15 protest march when security forces fired on protesters, the BBC said, citing state radio.

Mousavi called for a national day of mourning tomorrow, according to his Web site. He called the killings “savage,” adding “the people know who attacked the university dormitories, beat boys and girls, and who killed people in Azadi Square” where the June 15 protest was held.

One person was killed and at least 45 injured in recent protests in Esfahan, 300 miles south of the capital, an employee of Shariati Hospital told Yaari News Web site. Some of the injured were below voting age, meaning that allegations that protesters were all Mousavi supporters weren’t borne out, according to the hospital employee. Yaari also reported that reformists in Esfahan were arrested.

Investigate Attacks

Iranian Interior Minister Sadegh Mahsouli wrote to Tehran’s governor general, Morteza Tamaddon, asking for an investigation into “ill-intentioned” recent attacks on students at the city’s university, the state-run Islamic Republic News Agency reported.

In what may be a sign of tension within the ruling elite, Parliament Speaker Ali Larijani held Interior Minister Mahsouli accountable for attacks on civilians and university students in Tehran in recent days, the Iranian Labor News Agency reported.

Mohammad Reza Jalaeipour, a Mousavi spokesman for young supporters, was arrested today at Tehran’s airport, while attempting to return to Britain, his wife, Fatemeh Shams, told the Mowj-e Sevvom or Third Wave Web site, which confirmed that reformists applied for permission to hold a rally today to the Interior Ministry.

Mousavi Supporters

Iranian authorities, meanwhile, arrested two prominent Mousavi supporters, AFP said. Hamid Reza Jalaipour and Saeed Laylaz were detained at their homes, the news wire said, citing colleagues and family.

The violence “raises deeper suspicions about the real message of these elections,” said Claire Spencer, head the Chatham House foreign policy consultant’s Middle East department in London. “Repression of public dissent” may eventually “undermine the unity of the state.”

Crude oil for July delivery fell $1.09, or 1.6 percent, to $69.38 a barrel at 10:35 a.m. on the New York Mercantile Exchange. Iran is the second biggest oil producer in the Organization of Oil Exporting Countries.

The nation’s Guardian Council, made up of 12 clerics and lawyers, may authorize a second vote count in areas where Ahmadinejad’s victory was questioned, state television said.

Opposition Seeks Annulment

The regime is “saying that some votes can be recounted to see if there were irregularities,” Djalili said. “But the opposition isn’t asking for this, they are seeking the annulment of the vote.”

Elections officials said Ahmadinejad won about 63 percent of the vote, to about 34 percent for former Prime Minister Mir Hossein Mousavi.

Ahmadinejad said in a cabinet meeting today the poll was a “referendum” in which “25 million people confirmed this way of management in the country.” About 39 million voted in a record turnout of 85 percent.

Mousavi, a former premier who accuses the authorities of vote-rigging, and another candidate, former Parliament Speaker Mehdi Karrubi, rejected a partial recount, the Iranian Labor News Agency said yesterday.

The council ruled out scrapping the election result, Sky News reported, citing state television.

Media Curbs

Iranian authorities ordered restrictions yesterday on the activities of foreign media organizations in the country. Reporters should avoid being present at or covering protests without the permission of the Interior Ministry, the Culture Ministry said in a faxed statement.

The Iranian Foreign Ministry said some foreign media outlets have become the “mouthpiece of rioters” who besmirched the country’s reputation after the election, AFP reported.

The U.S. and several major allies, including Israel, say Iran’s nuclear program is cover for the development of a weapon, a charge denied by the government in Tehran, which says the work is peaceful and intended to generate electricity.

The head of the United Nations nuclear watchdog, Mohammed ElBaradei, told the BBC for the first time he believed Iran wants the option of developing a nuclear weapon. Israeli Defense Minister Ehud Barak said the world “does not have a lot of time” to deal with Iran’s program.

President Barack Obama said yesterday at a White House news conference that the U.S. “won’t meddle” in the election, although he has “deep concerns” about the violence.

Toyota-GM U.S. Plant Said to Be Considered for Prius

2009-06-17T08:52:00.002-07:00

Toyota Motor Corp., after shelving plans to build Prius hatchbacks at a factory in Mississippi, is considering making the hybrid at a California plant shared with General Motors Corp., two people familiar with the plan said.

Toyota expects strong demand in the U.S., where the new model went on sale this month and is raising output in Japan. Given the time and cost to finish the half-built Mississippi facility, it may be easier to make the car at New United Motor Manufacturing Inc., known as Nummi, said the people who asked not to be identified because the discussions aren’t public.

“Toyota put Mississippi in mothballs and as they look around at capacity already in place, Nummi might make sense,” said Jim Womack, chairman and founder of Lean Enterprise Institute in Brookline, Massachusetts. “Nummi builds Corollas, and now that Prius comes off the same underbody pan, it wouldn’t be much of a stretch to build it on the same line.”

Toyota’s outgoing President Katsuaki Watanabe called Prius a “savior” for the world’s largest automaker after it drew more than 80,000 consumer orders before going on sale, a rare bright spot as the company reels from its worst earnings slump in six decades. Prius was Japan’s top-selling model in May.

“The plan is still to build Prius in Mississippi as soon as demand and this economy turn around,” said Jim Wiseman, vice president of external affairs for Toyota’s North American manufacturing unit. Wiseman said he’s unaware of discussion within Toyota to build Prius in California.

Toyota shares gained 0.5 percent to 3,720 yen at the close of trading in Tokyo today.

GM’s Bankruptcy

Toyota and GM have shared the Fremont, California, plant since 1984, running it as a joint-venture equally owned by the two largest carmakers. On June 1, the day GM filed for bankruptcy, Chief Executive Fritz Henderson said his company had no plan yet to get vehicles from Nummi after the Pontiac Vibe goes out of production there next year.

“We’ve talked to them about what we might do and whether or not we have any interest in going forward in even being part of it,” said Henderson.

The factory’s future was called into question by GM’s bankruptcy, which includes closing 12 more plants by the end of 2011 under an accelerated plan to shutter 30 percent of its U.S. assembly sites. Along with the Vibe, derived from Toyota’s Matrix model, Nummi builds Toyota’s Tacoma pickups and Corolla small cars.

Blue Springs

While Detroit-based GM owns half of the plant, Toyota models accounted for 76 percent of output through June 13, according to trade publication Automotive News. GM is dropping Pontiac as part of its plan to shed four of eight U.S. brands.

The factory is California’s only large auto-assembly plant and the only such facility on North America’s West Coast. It has the capacity to make 420,000 cars and trucks a year and employs about 5,400 people, according to the plant’s Web site.

Toyota on Dec. 15 halted work on the $1.3 billion Blue Springs, Mississippi factory after plunging U.S. sales created excess capacity at its North American plants. The company early this year said it would pay the interest on bonds issued by Mississippi for plant-related infrastructure.

The Mississippi facility was to produce Highlander SUVs before Toyota said in July 2008 the factory would make Prius hatchbacks by 2010. In March, Jim Lentz, Toyota’s U.S. sales chief, said “it’s conceivable” that another model could be built there.

California is a costly place to make cars and auto parts, limiting Toyota’s ability to set up a North American supply base for batteries, electric motors and other components needed for gasoline-electric models, said economist Kim Hill, with the Center for Automotive Research in Ann Arbor, Michigan.

Still, Nummi is already supplied with parts shipped across the Pacific from Japan, so it wouldn’t be difficult to keep the factory stocked with the batteries, motors and other components needed for Prius, said John Shook, a University of Michigan management instructor and former Toyota engineer.

“Given how popular Prius is in California, and the push there for plug-in and electric vehicles, there’d certainly seem to be local support to build it there,” Shook said.

Russia, China to Promote Ruble, Yuan Use in Trade

2009-06-17T08:52:00.001-07:00

The leaders of Russia and China agreed to expand use of the ruble and yuan in bilateral trade to lessen dependence on the U.S. dollar a day after they took part in the first summit of the so-called BRIC countries.

“We agreed to take further steps in this direction, including, perhaps, by adjusting contracts and laws that already exist,” Russian President Dmitry Medvedev told reporters in the Kremlin today after talks with his Chinese counterpart Hu Jintao.

Russia, the world’s biggest energy supplier, wants to start selling oil to China in rubles, said Deputy Prime Minister Igor Sechin, who is also chairman of OAO Rosneft, Russia’s biggest oil company. Energy sales in rubles are a “strategic” issue for Russia, he said, adding that oil exports to China over the next 20 years will surpass $100 billion.

Brazil, Russia, India and China agreed yesterday to push for more clout in global financial institutions during what Medvedev called BRIC’s “historic” first summit in the Ural Mountains city of Yekaterinburg. China and Russia have called for a more diversified financial system to give emerging economies a bigger say in economic affairs, including the creation of alternatives to the U.S. dollar as a reserve currency.

‘Symbolic Value’

“Expanding the use of national currencies in mutual settlements is a separate, important task,” Medvedev said. China has the world’s biggest foreign-currency reserves, almost $2 trillion, while Russia is third with more than $400 billion.

The ruble weakened 0.1 percent to 31.2396 against the dollar in Moscow today after earlier strengthening as much as 0.4 percent. The yuan was little changed against the dollar on speculation China will prevent appreciation to avoid a prolonged slump in the nation’s exports.

It will take “at least a couple of years” to start converting the first contracts into domestic currencies, said Elina Ribakova, Citigroup Inc.’s chief economist in Moscow.

Today’s announcement has “important symbolic value,” she said. “If you take a 10- or 20-year perspective, trade between Russia and China will increase significantly.”

Total trade between the neighboring countries reached a record $56.8 billion last year, according to the Kremlin.

After today’s Moscow meeting, Russia and China signed an agreement worth $3 billion to cooperate in trade and investment in areas including light industries, high technology and energy.

U.S. Deficit

The dollar’s status has come into question as leaders of the BRIC nations consider substituting other assets for their dollar holdings amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. China alone owns about $744 billion of U.S. Treasury bonds among its $2 trillion of foreign- exchange reserves.

Russian central bank First Deputy Chairman Alexei Ulyukayev’s comment on June 10 that Russia may sell some of its U.S. bonds to buy International Monetary Fund notes helped push 10-year yields on Treasuries to the highest level since October.

Brazilian President Luiz Inacio Lula da Silva today denied that BRIC leaders discussed buying each other’s bonds at the Yekaterinburg summit, after Medvedev’s top economic adviser said the matter might be discussed.

Dollar bonds sold by China earned 11.4 percent in the past year, more than double the 4.6 percent for debt in yuan, JPMorgan Chase & Co. indexes show. Brazil’s U.S. currency bonds returned 3.6 percent as real-based notes lost 4.9 percent, and Russia’s dollar bonds outperformed with a 1.9 percent loss compared with a 7 percent drop in ruble debt. India doesn’t have dollar-denominated debt.

Cantillon Said to Exit Hedge Funds, Expand Long-Only Business

2009-06-17T08:51:00.000-07:00

Cantillon Capital Management LLC, the $4.5 billion asset-management firm run by William von Mueffling, is closing its two hedge funds to focus on long-only investing, according to people familiar with the matter.

Cantillon plans to return money to clients of its $2.7 billion Cantillon World fund and $800 million Cantillon European fund by the end of September, said the people, who asked not to be identified because the information is private. Rupert Tyer, a spokesman for the New York-based firm, declined to comment.

The firm is offering clients the option of moving into its long-only strategies, which buy securities on the expectation they will rise in value. Von Mueffling, who started the firm in 2003, oversees more than $1 billion in long-only assets, said the people.

Fed Weighs Using FOMC Statement to Damp Rate-Rise Speculation

2009-06-17T08:50:00.000-07:00

Federal Reserve officials are considering whether to use next week’s policy statement to suppress any speculation they’re prepared to raise interest rates as soon as this year.

While policy makers have signaled they accept an increase in longer-term Treasury yields as the economy improves, some are concerned at any premature anticipation of rate rises. Fed staff have examined the Bank of Canada’s public intention of foregoing an increase until 2010, according to a person familiar with the matter, without concluding the statement has proven effective.

One option would be to emphasize in the June 24 statement that increasing slack in the job market and U.S. manufacturing will keep inflation low and a recovery muted, said Michael Feroli, an economist at JPMorgan Chase & Co. in New York and former member of the Fed Board staff. At stake: keeping borrowing costs low enough to foster a sustained recovery, without binding the central bank to a single course of action.

“There are ways of highlighting their low rate expectations without over-committing,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

Chairman Ben S. Bernanke and his fellow Federal Open Market Committee members gather in Washington June 23-24. Economists forecast they will keep their target for the benchmark federal funds rate at zero to 0.25 percent. Policy makers will also discuss any changes to their commitment to purchase as much as $300 billion of Treasuries and $1.45 trillion of housing debt.

‘Extended Period’

In its past two statements, the FOMC has said “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Markets have signaled they’re no longer heeding that language. Two-year Treasuries have slid since a June 5 government report showed the smallest decline in payrolls in eight months, with the notes yielding 1.18 percent late yesterday, up from 0.91 percent at the start of the month.

Federal funds futures contracts for March carry a yield of 0.765 percent, indicating some probability of a rate boost by the first quarter of 2010.

While job losses are slowing, Fed officials have repeatedly warned that the unemployment rate is likely to climb for months to come. President Barack Obama said yesterday in a Bloomberg Television interview he anticipates the rate will reach 10 percent this year, from 9.4 percent in May.

New Forecasts

Fed governors and district-bank presidents will bring a fresh round of economic forecasts to the central bank’s boardroom next week. They are likely to raise their unemployment forecast from a previous projection of 9 percent to 9.5 percent for the fourth quarter of next year, analysts said.

Enhancing the statement with details on their latest views on inflation and joblessness might be the best way to back markets down from expected rate hikes. JPMorgan Chase estimates that labor-market slack won’t disappear until the unemployment rate drops to around 6 percent.

“How do you get people to believe what you have been saying?” Feroli said. “You say you are going to have a very large output gap for an extended period,” and even if the economy picks up “you still have a massive resource gap in the labor market.”

An output gap is an estimate of the difference between the economy’s potential to grow given resources such as labor and manufacturing capacity and its actual growth rate. The estimate figures into Fed calculations about future inflation.

Increasing Slack

Underscoring the still-increasing slack in the economy, the Fed yesterday reported that the share of the nation’s industrial capacity in use dropped to a record low of 68.3 percent in May.

“They need to put something in writing in the statement related to the way they see the economic outlook,” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut. “The level of activity is still very low, and inflation will be benign for the foreseeable future.”

Longer-term Treasury yields have risen even more than those on short-term securities, an indication some investors are anticipating faster gains in consumer prices. Fed officials have signaled they’re comfortable with the increase so far.

“The economy is doing better and less worse than it was before; I am not surprised to see rates back up,” Dallas Fed President Richard Fisher said in a June 15 interview with Bloomberg Television. “There is so much slack in the system,” he also said. “The idea of tightening from where we are -- I don’t see it in the immediate future.”

Bernanke History

Bernanke was a proponent of using statement language to tether short-term rate expectations when he was a Fed governor in 2003. Then-Chairman Alan Greenspan introduced the phrase “considerable period” in August of that year to put a time commitment on the existing 1 percent rate target.

Bernanke supported Greenspan in a debate over the phrase at the August meeting: “The addition of the sentence will go some way to bringing policy expectations in the market toward what I heard around the table during the entire meeting today,” he said, according to an FOMC transcript.

The Bank of Canada recently took time commitment a step further. On April 21, the Canadian central bank reduced its key rate to 0.25 percent, the lowest in its history, and said that “conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010.”

A calendar commitment isn’t likely to prove popular with all Fed officials, because some want to maintain flexibility to reverse the central bank’s record balance-sheet expansion in excess of $1 trillion over the past year.

“Part of rightsizing will be to decide where boldness ends,” Charles Evans, president of the Chicago Fed and voting member of the FOMC, said June 15.

Treasuries Post Longest Rally Since January After CPI Report

2009-06-17T08:49:00.000-07:00

Treasuries rose for a fifth day, the longest rally in five months, after a government report showed consumer prices rose less than forecast in May, easing concern inflation will accelerate as the economy strengthens.

Longer-maturity debt, more sensitive to inflation expectations, rallied, with the yield on the 30-year bond dropping to the lowest in over two weeks. The Federal Reserve bought $7 billion of debt maturing between 2016 and 2019 today, less than its last purchase in that range. Central bank officials are considering whether to use next week’s policy statement to suppress any speculation they’re prepared to raise interest rates as soon as this year.

“It’s a good time for the market to trade better,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 16 primary dealers that trade with the Fed. “Inflation is not a huge problem yet.”

The yield on the benchmark 10-year note fell three basis points, or 0.03 percentage point, to 3.63 percent at 11:06 a.m. in New York, according to BGCantor Market Data. The yield has fallen for five consecutive days, the longest rally since Jan. 14. The 3.125 percent security due May 2019 rose 1/4, or $2.50 per $1,000 face amount, to 95 27/32.

The 30-year bond yield touched 4.4308 percent, the lowest since June 1.

The Fed bought $7.5 billion of the securities offered at its last purchase of debt with maturities around today’s range. The average size of the five Fed purchases before today in this range is $7.6 billion.

The Treasury resumes note sales next week, with auctions over the three days starting June 23.

Borrowing Costs

The consumer price index rose 0.1 percent after being unchanged a month earlier, the Labor Department said today in Washington. Economists expected an increase of 0.3 percent, according to the median of 75 estimates in a Bloomberg News survey. In the 12 months ended in May, costs dropped 1.3 percent, the biggest decline since 1950.

Prices paid to U.S. producers rose 0.2 percent in May, less than forecast, the Labor Department said yesterday.

“The number confirms the weakness we saw at the wholesale level yesterday,” said Martin Mitchell, head of government-bond trading at the Baltimore unit of Stifel Nicolaus & Co. “The pressures have to be deflationary and not inflationary.”

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, has fallen about 35 basis points to 1.78 percentage points over the past week. The figure has averaged 2.23 percentage points for the past five years.

Rate Cuts

The less-than-anticipated rise in consumer prices will allow Fed policy makers to keep the benchmark lending rate between banks at a low level for longer. The Fed’s target rate is at a record low range of zero to 0.25 percent.

Traders expect a 48 percent chance the central bank will raise interest rates by the end of the year, based on futures on the Chicago Board of Trade. Expectations were over 60 percent a week ago. The Federal Open Market Committee meets on monetary policy June 24 and 25.

Fed officials are considering whether to use next week’s statement to suppress any speculation they’re prepared to raise interest rates as soon as this year. While policy makers have signaled they accept an increase in longer-term Treasury yields as the economy improves, some are concerned at any premature anticipation of rate rises.

Ten-year note yields have risen about 110 basis points since the Fed announced on March 18 it would seek to cap borrowing costs by purchasing as much as $300 billion in Treasuries over six months. The 10-year note touched 4 percent June 11.

Purchases, Sales

The central bank’s debt purchase today follows yesterday’s acquisition of $6.45 billion of three-year securities.

The U.S. may sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, according to primary dealer Goldman Sachs Group Inc. The Treasury sold $65 billion in coupon securities last week and will auction two-, five-and seven-year securities next week.

“There is a large feeling that we hit the highs in yield last week because of supply,” said Adam Brown, managing director and Treasury trader at primary dealer Barclays Capital Inc. in New York. “The absence of supply has allowed the market to rally back to what people think are fair levels.”

U.S. debt has handed investors a loss of 4 percent since March 31 amid the increase in supply, heading for the worst quarter since the securities lost 5.9 percent in the first three months of 1980, according to Merrill Lynch & Co.’s U.S. Treasury Master Index.

‘I Am Concerned’

President Barack Obama said yesterday that the rise in the nation’s debt burden is cause for concern. The Congressional Budget Office projects the federal budget shortfall will reach a record $1.85 trillion this year, with the gap exceeding $600 billion through the year 2019.

“I am concerned about the long-term issue of our structural deficit and our long-term debt,” Obama said in an interview with Bloomberg Television at the White House. “If we don’t get a handle on that, then there’s no doubt that, at some point, you know, whether it’s the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries, are going to decide that this is too much of a risk.”

Rising Treasury yields have also pushed up mortgage rates, threatening the economic recovery. Thirty-year fixed-rate mortgages jumped to 5.53 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan dropped 16 percent to 514.4 in the week ended June 12, from 611 the prior week. The group’s refinancing gauge declined 23 percent, while the purchase index fell 3.5 percent.

U.S. Consumer Prices Rose Less Than Forecast in May

2009-06-17T08:48:00.000-07:00

The cost of living in the U.S. rose less than forecast in May, culminating in the biggest 12-month drop in prices in almost 60 years.

The consumer price index increased 0.1 percent after no change a month earlier, the Labor Department said today in Washington. In the 12 months ended in May, costs dropped 1.3 percent, the biggest decline since 1950.

Higher commodity prices, including gasoline, will probably restrain Americans’ discretionary spending at a time when the economy is showing signs of stabilizing. The lack of sustained gains in sales is one reason companies are finding it difficult to pass increasing costs on to customers.

“There’s not pricing power in this otherwise very weak economy,” said Richard DeKaser, chief economist at Woodley Park Research in Washington. “Inflation is going to remain very weak and over the next year will continue to weaken given the tremendous amount of slack in the economy.”

Economists forecast consumer prices rose 0.3 percent, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from a 0.1 percent decrease to a gain of 0.6 percent.

Excluding food and fuel, costs also climbed 0.1 percent, matching the median forecast. Compared with a year earlier, the so-called core rate increased 1.8 percent, down from a 1.9 percent 12-month gain in April.

Market Reaction

Treasury securities rose, erasing earlier losses, after the report showed inflation wasn’t accelerating. The yield on the benchmark 10-year note fell to 3.62 percent at 9:49 a.m. in New York from 3.66 percent yesterday.

Energy costs increased 0.2 percent in May, as a 3.1 percent rise in the cost of gasoline was partly offset by declines in fuel oil and natural gas.

A separate Commerce Department report showed the U.S. current-account deficit narrowed in the first quarter to $101.5 billion, the least since 2001, reflecting a smaller shortfall in trade of goods.

These prices may continue to rise in coming months. The average price of a gallon of regular gasoline at the pump is up 65 percent this year, reaching an almost eight-month high of $2.68 yesterday, according to data from AAA.

Gasoline Prices

Should retail gasoline prices peak at $2.75 a gallon, the increase since the start of the year will deduct $50 billion at an annual rate from household cash flows, according to a forecast by Richard Berner, co-head of global economics at Morgan Stanley in New York. The loss would offset almost all the benefit of the tax cuts from the Obama administration’s stimulus plan, he said in a June 8 report.

Food prices, which account for about a seventh of the CPI, decreased 0.2 percent in April, reflecting lower costs for all major categories including fruits and vegetables, meats and dairy products.

The core index was constrained by falling prices for public transportation, apparel and tobacco. Rents which, make up almost 40 percent of the core CPI, were also subdued. A category designed to track rental prices rose 0.1 percent.

New vehicle prices climbed 0.5 percent. Car costs may decline in coming months as automobile makers slash prices or increase incentives to revive demand and lighten bloated inventories.

Auto Incentives

Chrysler, seeking to restructure under bankruptcy, began offering five-year, no-interest loans on some models this month. The financing, announced June 3, runs through July 1 and is an alternative to rebates of as much as $6,000 for consumers who buy through certain credit unions and already own a Chrysler vehicle. The cash option was put in place last month.

Macy’s Inc. was among retailers cutting prices to clear stockpiles. Aeropostale Inc. earlier this month was offering 20 percent off women’s dresses. American Eagle Outfitters Inc. was giving 50 percent off the purchase of a second graphic t-shirt.

The CPI is the broadest of the three monthly price gauges from Labor because it includes goods and services. The cost of goods imported into the U.S. rose 1.3 percent in May, the government reported last week. Wholesale prices increased a smaller-than-anticipated 0.2 percent, the department said yesterday.

Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Fed President

Richard Fisher, president of the Federal Reserve Bank of Dallas, this week dismissed concern that the central bank’s record purchases of assets will cause inflation to soar. Fisher, who describes himself as among the most aggressive inflation fighters on the Federal Open Market Committee, said it’s inappropriate to be overly concerned on price pressures now because of the amount of “slack” in the economy.

Fed policy makers meet to discuss the direction of interest rates next week. Concern over the amount of money the Fed has pumped into financial markets and the size of upcoming government securities auctions to pay for stimulus efforts has caused interest rates on Treasuries to shoot higher in recent weeks.

S&P Cuts U.S. Banks, Citing Regulation, Volatility

2009-06-17T08:47:00.000-07:00

Standard & Poor’s reduced its credit ratings on 18 U.S. banks, including Wells Fargo & Co., Capital One Financial Corp. and KeyCorp, citing tighter regulation and increased market volatility.

Five of the lenders, Carolina First Bank, Citizens Republic Bancorp Inc., Huntington Bancshares Inc., Synovus Financial Corp. and Whitney Holding Corp., were cut to “junk” status. High-yield, high-risk, or junk, debt is rated below BBB- by S&P.

“Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality,” S&P credit analyst Rodrigo Quintanilla said in a statement today. “Such a transition period justifies lower ratings as industry players implement changes.”

Banks and financial firms worldwide have recorded more than $1.4 trillion in writedowns and credit losses since 2007 as the U.S. housing market collapsed and the economy sank into recession. President Barack Obama is expected today to announce a proposal, crafted by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, to revamp financial regulation.

“The broad sense is we have not seen the bottom there yet,” said Bert Ely, a banking consultant in Alexandria, Virginia. “For later this year, and into next year, there are just big question marks out there.”

BB&T, Regions

BB&T Corp., Regions Financial Corp. and U.S. Bancorp were also among the lenders downgraded today. S&P said it plans to hold a conference call tomorrow to discuss the decision, which came after S&P placed 23 financial companies on watch last month for possible downgrades.

S&P today affirmed PNC Financial Services Group’s A credit rating and moved its outlook on the lender to stable from negative.

The 24-company KBW Bank Index fell 4 percent as of 11:05 a.m., extending its drop so far this year to 20 percent.

Credit-default swaps of Wells Fargo rose 10 basis points to 155 basis points, the highest since May 7, at 10:07 a.m. in New York, according to CMA DataVision. Contracts on Capital One Financial Corp. jumped 23 basis points to a one-month high of 204 basis points, the biggest gain since April 21.

BB&T’s 6.85 percent notes due in 2019 fell 0.45 cent to 102.1 cents on the dollar to yield 6.6 percent, according to Trace, the bond-pricing system of the Financial Industry Regulatory Authority.

Bonds of banks and insurers have rallied 17 percent since March 10 through yesterday as investors gained confidence the worst of the financial crisis has passed, according to Merrill Lynch & Co. index data.

Iran May Recount Some Votes After Protesters Killed

2009-06-16T09:23:00.000-07:00

Iran’s Guardian Council, which supervises elections, may order a recount of some votes in the disputed presidential ballot after the biggest anti-government demonstrations since the shah was deposed in 1979.

The council of 12 clerics and lawyers may authorize a second count in areas where President Mahmoud Ahmadinejad’s victory was questioned, state television quoted Abbas Ali Kadkhodaei, the body’s spokesman, as saying today. He said all three challengers in the June 12 election had made “vague” complaints and were asked to elaborate. Kadkhodaei didn’t say what proportion of the 39 million votes cast may be reviewed.

Supporters of former premier Mir Hossein Mousavi, who accuse the authorities of vote-rigging, planned a fourth day of rallies, including a gathering in central Tehran. Tens of thousands of Ahmadinejad’s supporters took part in a demonstration in the city ahead of the opposition rally, state television said.

As many as eight people were killed and 25 injured yesterday when security forces fired on protesters, the British Broadcasting Corp. reported, citing state radio.

The possibility of invalidating votes “is not far from the imagination,” Kadkhodaei said today in response to a question at a news conference in Tehran. “But how accurate are the claims? That must be studied.” The Council ruled out a demand by opposition leaders to scrap the election result, Sky News reported, citing state television.

Rial Falls

The Iranian rial fell for a second day, declining 0.8 percent to 9,915 against the dollar. The currency’s rate is managed by Bank Markazi, the central bank. Iran’s benchmark index, the TEPIX, dropped 0.3 percent to 9,271, trimming the advance for 2009 to 7 percent, according to data published on the Web site of the Tehran Stock Exchange.

Mousavi and another candidate, former Parliament Speaker Mehdi Karrubi, 71, rejected a partial recount, the Iranian Labor News Agency said.

“As the representative of Mousavi and Karrubi, I asked for the election to be annulled and fresh elections to be held,” ILNA cited Ali Akbar Mohtashamipour, the head of a joint committee set up by Mousavi and Karrubi, as saying.

The unidentified representative of a third unsuccessful candidate, Mohsen Rezai, 54, a former Revolutionary Guards commander, asked for a partial recount, Mohtashamipour said at a news conference following a meeting with the Guardian Council. Mohtashamipour said he had rejected that idea.

Unemployment, Inflation

The protests are pitting young Iranians and more educated voters who want social freedoms and better ties with the West against the Islamic republic’s ruling clergy. Ahmadinejad is accused by his opponents of wrecking the economy, which suffers from high unemployment and inflation, and driving Iran into international isolation through his confrontation over the country’s nuclear program.

The U.S. and several major allies including Israel say the nuclear program is cover for the development of a weapon, a charge denied by the government in Tehran, which says the work is peaceful and intended to generate electricity.

Iranian authorities ordered restrictions today on the activities of foreign media organizations in the country.

“No reporting activities should take place without coordination and permission of this office,” the Culture Ministry in Tehran said in a faxed statement. Reporters should avoid being present at or covering illegal protests without the permission of the Interior Ministry, it added.

Results Tentative

Mousavi, 67, has called for the election result to be scrapped after the official tally gave him about 34 percent of the vote and the incumbent almost 63 percent.

The results announced by the Interior Ministry are tentative and must be verified by the Guardian Council, Kadkhodaei said. The opposition candidates’ complaints will be discussed in the next 10 days, he added.

Human rights groups have accused state security forces of using excessive violence to quell the protests and said live ammunition was used on demonstrators in several Iranian cities.

Mousavi called today for calm at demonstrations in Tehran. He said he won’t attend the event in the city, according to a statement on his Web site.

Supreme Leader Ayatollah Ali Khamenei has told Mousavi to pursue his complaint through legal channels and asked the Guardian Council to carefully consider the allegations, state television reported.

‘Gesture’

While such an investigation is little more than a “gesture,” the decision to examine the fairness of the election shows that the Iranian leadership feels it is under pressure, said Professor Anoush Ehteshami, a lecturer at the Centre for Iranian Studies at Durham University in northeastern England.

Ahmadinejad, 52, who has insisted the election was fair, was today attending a meeting in Yekaterinburg, Russia, with the leaders of Russia, China, India and Central Asian nations. At the event, the president said the U.S. and its allies are incapable of solving the global financial crisis, declaring, “The end of the era of empires is near.”

In what may be a sign of tensions within the ruling elite, Parliament Speaker Ali Larijani held accountable Interior Minister Sadegh Mahsouli for attacks on civilians and university students in Tehran in recent days, ILNA reported.

Speaker’s Comments

“What’s the meaning of attacking university students at midnight in their dormitory,” Larijani said at the start of a Parliamentary session today, the news agency reported. “The interior minister is responsible for this and should answer.”

Mohammad Ali Abtahi, a former vice president who was an adviser to ex-Parliament Speaker Karrubi, was arrested overnight, Karrubi’s office said. Another prominent activist, Saeed Hajjarian, was also held, according to Karrubi’s office.

Security forces arrested the “main agents” behind post- election unrest and found them armed with guns and explosives, Sky News reported, citing Iran’s state television.

Iranian leaders will probably take decisive action to quell the protests, said Richard Bulliet, an Iran specialist at Columbia University.

“It will be dampened down and the U.S. and foreign governments will have to resign themselves to dealing with the Ahmadinejad regime,” Bulliet, a professor of history at Columbia’s Middle East Institute, said by phone yesterday from New York.

Nuclear Weapons

Ahmadinejad may see success at the ballot box as a vindication of his policies. That could be a setback for the Obama administration’s policy of engaging Iran in dialogue, rather than ostracizing it, as a means to ensure the Islamic republic doesn’t acquire nuclear weapons.

President Barack Obama said the “world is watching” the demonstrations. “We do believe the Iranian people and their voices should be heard,” Obama said yesterday in Washington, adding he is “deeply troubled” by the situation in the country.

It is “extremely unlikely that there will be any significant adjustment in the election outcome,” Alastair Newton, a senior political analyst at Nomura International Plc in London wrote in a market commentary yesterday.

Markets in general and the oil market in particular will follow political developments in the region increasingly closely after the election, Newton said. Further United Nations sanctions remain more likely than military intervention if Iran fails to respond substantively to international pressure on its nuclear program.

‘Diplomatic Efforts’

“But, absent of evidence of real progress with diplomatic efforts by the year-end, we continue to judge that the likelihood of Israeli military intervention could start to increase sharply,” Newton said.

Crude oil rose for the first time in three days as the dollar weakened against the euro and before a report forecast to show a drop in U.S. inventories. Crude for July delivery rose $1.79, or 2.5 percent, to $72.41 a barrel at 9:05 a.m. on the New York Mercantile Exchange.

“For the time being, the Iranian situation seems to be neutral,” said Edward Meir, analyst with MF Global Ltd. in Connecticut. “Although the oil markets were unimpressed by the frenzied weekend developments,” events seem “to have picked up a gear over the past 24 hours, in that the size of the opposition protests have become significantly larger.”

Shah Ousted

The shah, Mohammed Reza Pahlavi, was ousted in 1979 after months of anti-monarchy demonstrations. He had ascended the Peacock Throne after his father was forced out by allied forces in World War II. The shah developed closer ties to the West and promoted economic development, angering many Shiite Muslims who favored adherence to religious tradition, during a reign that became increasingly autocratic.

By the mid-1970s, the shah’s links to the U.S. and the suppression of dissent were fueling anger among university students, the poor and the Shiite Muslim clergy. Anti-shah riots spread throughout 1978 and his opponents united behind Shiite leader Ayatollah Ruhollah Khomeini.

From exile in Paris, Khomeini declared the civilian government illegal on Jan. 13, 1979, and announced the establishment of an Islamic council to replace it. Three days later, the shah left the country. Khomeini returned to a hero’s welcome on Feb. 1, 1979, and became the theocracy’s highest authority. The shah died in 1980 in Egypt.

Zicam Cold-Remedy Maker Matrixx Dives, After U.S Warns of Risk

2009-06-16T09:22:00.001-07:00

Matrixx Initiatives Inc., maker of Zicam Cold Remedy products sold in drugstores, lost more than half its value in Nasdaq trading after U.S. regulators warned its products may cause users to lose their sense of smell.

Matrixx, based in Scottsdale, Arizona, fell $10.68, or 56 percent, to $8.56 before Nasdaq Stock Market trading was halted. That’s the biggest intraday decline since its 1996 initial public offering.

The Food and Drug Administration warned the company today its homeopathic Zicam Cold Remedy Nasal Gel, Gel Swabs and Kids Size swabs have been linked to more than 130 reports of people losing their sense of smell. The FDA letter says many homeopathic products can be sold without U.S. approval. Because of “a significant and growing body of evidence” that the Zicam products “may pose a serious risk to consumers,” the agency said Matrixx must get FDA approval for its remedies.

Boeing May Rely on 777 to Beat Airbus on Jets, Tanker

2009-06-16T09:21:00.000-07:00

Boeing Co. surprised the crowd at the Paris Air Show with the new plane it says can outdo the next Airbus SAS jet and win back a $35 billion military tanker deal: the 14-year-old 777.

The Chicago-based manufacturer, battling to overcome setbacks to its 787 Dreamliner, said it may build a new wing for the 777, improving fuel efficiency and allowing the plane to compete better with the A350 that Airbus will deliver in 2013. Boeing also will offer a 777 tanker design to the Pentagon in an effort to beat Airbus parent European Aeronautic, Defence & Space Co. for an aerial-refueling contract.

“When your new flagship is delayed two years, you have to rely on your current bread-and-butter programs for profits and headlines,” said Richard Aboulafia, a vice president of Teal Group, a Fairfax, Virginia-based consultant.

Boeing’s announcements were a highlight on the first day of the industry’s largest aerospace gathering, where both of the world’s biggest commercial planemakers say they are concentrating on keeping customers committed to previous orders. At past shows, Boeing and Toulouse, France-based Airbus won tens of billions of dollars in plane orders.

The U.S. manufacturer was unable to finish its 787 Dreamliner to wow the crowds in Paris, and must compete with the larger A350 that will be available to airlines not long after the Dreamliner is flying. At the same time, Boeing is trying to win back a U.S. tanker order initially lost to a Northrop Grumman Corp. design that uses Airbus aircraft.

Size Gap

The 787’s engines limit the jet to 290 seats, while the A350 will have 350. That’s where the 777 may be called upon again. With a redesigned wing, the aircraft could fill the spot left between the 787 and the Airbus offering with improved fuel efficiency on a 370-seat model.

“It depends a lot on what the A350 really produces,” Scott Carson, Boeing commercial planes chief, said today in an interview. The next airplane “could be a re-winged 777, it could be an all-new airplane, and it could be the 777 is fine the way it is.”

The company also may develop a 310-seat version of the Dreamliner, Carson said. That model, called the 787-10, and a re-winged 777 would offer more alternatives to airlines than A350 variations from Airbus, he added.

“I’m not surprised he’s talking about that,” Airbus Chief Operating Officer John Leahy said in a Bloomberg Television interview. “He’s going to lose the market if he doesn’t do something.”

U.S. Military Tanker

Boeing also said it will pitch a refueling tanker based on the 777 to the U.S. Air Force, after a smaller design based on its 767 lost out to the modified Airbus A330 offered by Northrop Grumman. The bidding was reopened after Boeing appealed to the U.S. Government Accountability Office, and the Pentagon is due to announce a winner by March 31.

“The 777 solves the technology and additional cargo capability questions, but it increases cost and it might be too much plane for the requirement,” Aboulafia said.

Randy Belote, a Northrop spokesman, said he couldn’t comment on “what Boeing may or may not offer.” The Los Angeles-based company’s KC-45 “is ready now” and has the right combination of fuel capacity, range and cost, he added.

Profit Concern

Boeing’s idea to offer a revamped 777 to fill a void in its commercial airliner stable may not be the most profitable approach, analysts say.

Doug Runte, a New York-based analyst with Piper Jaffray & Co., said that developing a new aircraft may make more sense. While less expensive than a fresh airplane, the cost of a new wing may still be “too high versus incremental performance gains,” he said.

Emirates, the airline that will be the biggest user of the 777 by the end of this year, has lukewarm interest in a larger- winged version, Chief Executive Officer Tim Clark said today. The Dubai-based carrier, which has ordered 70 A350s and has signed a letter of intent for another 30, wants Boeing to design a completely new plane, he said.

The largest A350 can’t meet all of Emirates’ needs, Clark said, so the largest 777 and a potential replacement would do the trick.

Aluminum Fuselage

“The problem with re-winging the 777 is that you still have an aluminum fuselage,” said Nick Cunningham, an analyst at Evolution Securities in London. “Upgrading existing airframes doesn’t really work -- particularly when you’ve just had a technology change such as a shift to composites.”

Even so, the 777 may be a good base to build upon.

The airliner, Boeing’s newest widebody aircraft, set a record for the longest commercial jetliner flight in 2005 when it flew from Hong Kong to London. It’s also one of Boeing’s most profitable planes.

The 777 program was initiated in October 1990 following an order from UAL Corp.’s United Airlines, with the aircraft entering service with the U.S. carrier in June 1995. While the plane is Boeing’s newest widebody model, the most recent passenger variant, the 200LR -- the world’s longest-range commercial aircraft -- was delivered almost 3 1/2 years ago.

China Southern

A new freighter version was introduced this year, but at least two planes ordered by China Southern Airlines Co. were placed in storage in April as global trade slumped. Boeing said April 9 it would slash 777 production to five planes a month from seven starting in June next year.

As of June 9, 784 of the planes had been delivered, with 323 still on order, representing a backlog of more than five years at the new build rate. The 777 has an average list price of $246 million before discounting.

“A new wing could possibly extend performance by offering enhanced aerodynamic efficiency, weight savings and perhaps greater fuel savings,” said John Dern, a Boeing spokesman.

Boeing said at the Paris show, which began yesterday and runs through June 21, that it’s making other advances in its commercial jet program.

A prototype of the Dreamliner will fly for the first time within two weeks, the manufacturer pledged. Boeing also announced that the second of six 787s in the flight-test program was readied for fuel testing.

Aquiline Buys $70 Billion Asset Manager Conning From Swiss Re

2009-06-16T09:20:00.000-07:00

Aquiline Capital Partners LLC, the private equity firm run by Jeffrey Greenberg, acquired Conning & Co. from Swiss Reinsurance Co., taking on $70 billion in assets under management.

Swiss Re, the world’s second-biggest reinsurer, is selling Hartford, Connecticut-based Conning for undisclosed terms and will remain a client of the firm, Aquiline said in a statement today. Conning, with about 240 employees, manages assets for insurance companies and provides consulting services and research on the industry.

Conning is seeking to add clients after the credit crunch hurt results at insurers that manage their own funds. North American insurers have posted more than $205 billion of writedowns and unrealized losses tied to the collapse of the housing market since the beginning of 2007.

“The environment has been tumultuous over the last year or so, some insurance companies have performed well in their asset management activities while other have not,” Greenberg said. “It has called into question whether different companies are pursuing their activities with the right strategy and executing the right way.”

Aquiline, founded by Greenberg in 2005, closed its first fund with $1.1 billion in 2006, and invests in financial services. Greenberg is the former CEO of insurance broker Marsh & McLennan Cos. and son of Maurice “Hank” Greenberg, previously the CEO of insurer American International Group Inc.

Swiss Re purchased Conning in 2001 from New York-based MetLife Inc., the largest U.S. life insurer.

U.K. Sells 7 Billion Pounds of Gilts, Exceeding Planned Amount

2009-06-16T09:19:00.001-07:00

Britain sold 7 billion pounds ($11.5 billion) of 25-year gilts, more than the amount planned, offering investors a yield almost as high as longer-maturity debt.

The 4.50 percent 2034 gilts, the first sold through underwriters in almost four years, yielded 4.646 percent, or 11 basis points more than the bond maturing in 2032, after attracting over 15 billion pounds of bids, according to bankers managing the deal. That compares with a yield of 4.659 percent on the gilt due 2036 as of 4 p.m. in London.

“The bond is very cheap compared to its nearby securities,” said John Stopford, who oversees about $12 billion as head of fixed income at Investec Asset Management Ltd. in London. “It’s not such a surprise that it went really well. You should not judge the market or its sentiment on just one sale. But overall, we are less negative about this market.”

Britain plans to sell a record 220 billion pounds of debt in the fiscal year ending March 2010 as Prime Minister Gordon Brown’s government seeks to shore up the banking industry and revive an economy in its deepest recession in at least 30 years. Standard & Poor’s lowered the outlook on the U.K.’s AAA credit rating last month, citing the country’s rising debt burden.

The yield on the bonds sold today was cut from the earlier range of 12 basis points to 15 basis points bankers initially indicated because of the increased demand, sale managers said.

‘Healthy Success’

Investors bid for almost 15.3 billion pounds of the bonds, the bankers said. The Debt Management Office estimated yesterday it would raise between 3 billion pounds and 5 billion pounds. Ninety-four percent of the securities were bought by domestic investors, the debt office said.

“The sale seems to have been a healthy success,” said Philip Laing, director for government bonds in Edinburgh at Standard Life Investments, which bought some of the securities. “The bond was priced cheaply on the gilt curve. Going forward, the underlying question remains: what price do you put on supply? This is the same for all bond markets.”

The U.K. economy is likely to contract 4.1 percent this year and the government should reduce borrowing and keep a lid on spending, the International Monetary Fund said May 20 in its annual health check on the British economy. Chancellor of the Exchequer Alistair Darling forecast the economy will shrink by as much as 3.5 percent in his budget on April 22.

Barclays Plc, Goldman Sachs Group Inc., HSBC Holdings Plc and Royal Bank of Scotland Group Plc arranged today’s sale, earning a combined fee of 14 million pounds, according to two bankers. The last and only other occasion that the U.K. sold bonds through banks was in 2005, when it offered 50-year inflation-protected securities for the first time.

Asset-Purchase Plan

Using financial institutions to sell debt rather than issuing securities at auctions reduces the risk of failure because underwriters offer the securities directly to investors such as pension funds and insurance companies after determining demand and prices. Britain couldn’t find enough buyers at a sale of bonds in March, the first so-called uncovered transaction since 2002, fueling concern the nation’s rising debt load was overwhelming demand.

The sale was the first of as many as eight so-called syndicated offerings by the U.K. this fiscal year, which may raise as much as 25 billion pounds.

Speculation that the Bank of England will extend its quantitative-easing program, in which it’s buying assets with newly printed money, may have bolstered demand for the bonds, according to Stopford.

Central bank policy makers voted in March to buy government bonds with maturities of between five and 25 years in an effort to drive down borrowing costs. The bank said May 7 it may spend 125 billion pounds on the program by August. The government authorized as much as 150 billion pounds of purchases.

“I guess the market is running on an assumption that the quantitative-easing program will continue” and the bonds sold today will be eligible for purchases, Stopford said.

U.S. Stocks Fluctuate as Telephone Companies, Retailers Retreat

2009-06-16T09:18:00.000-07:00

U.S. stocks fluctuated as an analyst downgrade dragged telephone shares lower and disappointing sales at Best Buy Co. triggered a sell-off in retailers, offsetting gains in homebuilders and health-care companies.

Best Buy, the world’s largest electronics retailer, tumbled 6.2 percent after profit slumped 15 percent amid slowing demand. AT&T fell 1.5 percent after the largest U.S. phone company was cut to “equal-weight” at Barclays Plc. Lennar Corp. and Standard Pacific Corp. climbed at least 4 percent to builders higher after housing starts jumped 17 percent. Amgen Inc., the world’s largest biotechnology company, gained as Sanford C. Bernstein & Co. upgraded the shares and said earnings growth may accelerate.

The S&P 500, which surged 40 percent from a 12-year low in March through last week, slipped 0.1 percent to 923 at 11:57 a.m. New York time after gaining as much as 0.5 percent. The index slid 2.4 percent yesterday, the biggest slump since May 13. The Dow Jones Industrial Average slipped 21.16 points, or 0.3 percent, to 8,590.97.

U.S. stocks extended a global slide yesterday as falling oil and metal prices weighed on commodity producers and a weaker-than-expected report on New York manufacturing dragged down industrial shares. The S&P 500’s 40 percent rebound from a 12-year low on March 9 through last week left the index valued at 14.9 times its companies’ earnings, near the highest level since October.

Morgan Stanley said the rally in U.S. stocks may be finished after the brokerage raised its end-of-year target for the S&P 500 to 900 from 825, still 2.6 percent below yesterday’s close. “Having breached the 950 level, the rally may now be over,” Morgan Stanley strategists including New York-based Jason Todd wrote in a note to clients.

Goldman Sachs Group Inc. chief economist Jim O’Neill said financial markets may weaken in coming weeks amid concern about governments’ intentions on rolling backing stimulus packages.

“I wouldn’t be surprised if what started yesterday is the beginning of a correction that goes on a few weeks,” O’Neill said in an interview today in Monaco.

Morgan Stanley Says It Won’t Issue More FDIC-Guaranteed Debt

2009-06-16T09:17:00.001-07:00

Morgan Stanley, which won clearance to repay $10 billion to the U.S. Treasury last week, said today it will also cease issuing new debt that carries a guarantee from the Federal Deposit Insurance Corp.

“Morgan Stanley does not plan nor expect to issue any more debt under the FDIC guaranteed debt program,” said Mark Lake, a spokesman for the New York-based bank.

The FDIC guarantees, which became available in November as part of the U.S. government’s effort to prop up the financial system, enabled banks such as Morgan Stanley to sell AAA-rated bonds at a lower interest rate than investors would have demanded otherwise. Morgan Stanley has issued about $24 billion of debt under the so-called Temporary Liquidity Guarantee Program since Nov. 26, according to data compiled by Bloomberg.

JPMorgan Chase & Co., another bank that won clearance last week to repay the U.S. Treasury, will also stop issuing new FDIC-guaranteed debt, Chief Financial Officer Michael Cavanagh said in an interview on CNBC on June 9.

All of the debt issued under the FDIC’s program matures by the end of 2012, according to Bloomberg data.

U.S. Economy: Housing Starts Climb, Industrial Output Sinks

2009-06-16T09:16:00.000-07:00

Housing starts jumped more than forecast in May while industrial production tumbled, offering a picture of an American economy still struggling to emerge from the deepest recession in half a century.

Builders broke ground on 532,000 dwellings at an annual rate, with single-family starts posting a third straight gain, Commerce Department figures showed today in Washington. Output at factories, mines and utilities dropped 1.1 percent, and the share of industrial capacity in use slid to a record low, the Federal Reserve said.

“The paralysis and the panic phase of this downturn is behind us” and “the rate of decline has slowed, but there are lots of problems that have yet to be cleaned up,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

Homebuilders’ shares advanced for the first time in five days after the housing report reinforced evidence that the industry’s decline, now in its fourth year, will end in the second half. At the same time, rising unemployment may prevent any boom after the bust, and stunt a manufacturing recovery.

Wholesale prices dropped 5 percent in the 12 months to May, the biggest slump in half a century, the Labor Department also reported today. On a monthly basis, the producer-price index rose 0.2 percent, less than forecast.

Steel Industry

The recession, which began in December 2007 and spread across the globe, has pulled down industrial commodity prices, with steel costs dropping more than half from July to last month. Nucor Corp., the second-largest U.S. steel producer by sales, said in May it was running its mills at 45 percent capacity.

Nucor, based in Charlotte, North Carolina, today forecast a second-quarter loss that’s narrower than analysts’ estimates and said it has seen orders increase. “Order entry has improved in recent weeks,” Nucor Chief Executive Officer Dan DiMicco said.

The Standard & Poor’s 500 Stock Index climbed after today’s figures, rising 0.3 percent to 926.65 as of 10:46 a.m. in New York. The S&P homebuilder supercomposite index was up 3 percent.

Yields on benchmark 10-year notes rose for the first time in four days, to 3.75 percent, from 3.71 percent late yesterday.

Exceeds Forecast

Housing starts were projected to rise to a 485,000 annual pace, according to the median forecast of 71 economists surveyed by Bloomberg News. Estimates ranged from 450,000 to 600,000.

Permits rose 4 percent to a 518,000 pace from a 498,000 rate the previous month. They were forecast to increase to a 508,000 annual rate.

Construction of single-family homes rose 7.5 percent to a 401,000 rate. Work on multifamily homes, such as townhouses and apartment buildings, jumped 62 percent to an annual rate of 131,000.

The increase in starts was led by a 29 percent jump in the West and a 17 percent increase in the South. They rose 11 percent in the Midwest and 2 percent in the Northeast.

Toll Brothers Inc., the largest luxury homebuilder, and Hovnanian Enterprises Inc., New Jersey’s biggest builder, this month reported quarterly losses as revenue plunged. Still, the companies narrowed their losses from a year earlier.

Slump Abating

“Although we are still at very low levels we are seeing signs it looks like that maybe we are at a bottom,” Joel Rassman, Toll Brothers’ chief financial officer, said in an interview on Bloomberg Television yesterday. “The programs that have been put in are maybe working for the economy.” Rassman said Toll has seen increases in deposits, buyer traffic and sales agreements over the last two months.

The Fed’s production report showed manufacturing, which accounts for about fourth-fifths of the total, dropped 1 percent after a 0.6 percent decrease in April. Factory production was down 15 percent since May 2008, the biggest 12-month drop since 1946.

The fallout from bankruptcies at Chrysler LLC and General Motors Corp. may ripple beyond auto-related industries in coming months. Motor vehicle and parts production slumped 7.9 percent in May after falling 1.2 percent the prior month, today’s report showed.

Auto Shutdowns

Chrysler shut all its plants on May 1 to clear as many unsold vehicles as possible from dealer lots while it restructures. The sale of most of Chrysler’s assets to a group led by Italian automaker Fiat SpA was completed last week.

GM, the biggest U.S. automaker, said June 1 it is stopping work at 14 plants as it restructures.

Excluding automobiles, factory output dropped 0.6 percent for a second month. In addition to cars, other consumer goods retreating last month included home electronics, clothing and furniture and appliances.

The amount of industrial capacity in use dropped to 68.3 percent, the lowest level since records began in 1967.

One positive aspect of spare capacity is that it will help control inflation should raw-material costs keep rising, economists say.

Producer prices excluding food and energy, known as the core rate, dropped 0.1 percent in May, the first decrease in more than two years, Labor’s report showed.

“The slack in resource utilization remains sizable, and, notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued,” Fed Chairman Ben S. Bernanke told Congress on June 3. “We anticipate that inflation will remain low.”

Netanyahu Agrees to Palestinian State With Conditions

2009-06-15T10:05:00.001-07:00

Israeli Prime Minister Benjamin Netanyahu said he would accept a Palestinian state under certain conditions, a move welcomed by the U.S. and rejected by Palestinians and Arab leaders.

A Palestinian state would have to be demilitarized and its establishment contingent on recognition of Israel as a Jewish homeland and international security guarantees, Netanyahu said.

Then “we will be ready in a future peace agreement to reach a solution where a demilitarized Palestinian state exists alongside the Jewish state,” the Israeli leader said in a speech yesterday at Bar Ilan University outside Tel Aviv.

Netanyahu had previously refrained from explicitly endorsing a Palestinian state. His address came 10 days after President Barack Obama said the creation of a Palestinian state was the “only resolution” for the Arab-Israeli conflict and that he would become personally involved in peacemaking.

“Netanyahu is certainly responding to Obama’s insistence on a two-state solution and has now given the president something to work with,” Martin Indyk, U.S. ambassador to Israel under President Bill Clinton, said in an e-mail.

Obama called the speech “an important step” and European Union foreign policy chief Javier Solana said it paved the way for a rapid restart of peace talks.

Egyptian President Hosni Mubarak, Lebanese President Michel Sleiman and Palestinian leaders said the conditions Netanyahu put on his acceptance were not conducive to peace.

Recognize Israel

“The call to recognize Israel as a Jewish state makes the situation more complicated and aborts the chances of peace,” Mubarak said today.

Netanyahu’s “intransigence on both the peace process and Palestinian refugees” requires “greater unity from Arab leaders,” Sleiman said in a statement today carried by Lebanon’s National News Agency.

Nabil Abu Rudeina, a spokesman for Palestinian Authority President Mahmoud Abbas, said Netanyahu’s conditional acceptance of a state will “not lead to a just and comprehensive peace.”

The U.S. needs to put pressure on Netanyahu to be more flexible, Hani Habib, a political scientist at Al-Aqsa University in the Gaza Strip, said in a phone interview. “If the U.S. doesn’t carry out real actions on the ground, the whole region will deteriorate,” he said.

‘Normal Life’

Obama has called for an end to all Jewish settlement building in the occupied West Bank. While Netanyahu pledges no new settlements will be built, he said that Jewish settlers have the right to a “normal life.” Netanyahu has supported construction within settlements to accommodate natural population growth.

This position “is not likely to be acceptable to President Obama because it undermines the negotiations” Indyk said.

Tel Aviv’s benchmark TA-25 index was down 3.3 percent to 851.49 at the close. The shekel weakened 0.5 percent to 3.9478.

“I don’t see any reaction to Netanyahu’s speech,” said Avi Weinreb, a trader at Clal Finance Brokerage in Tel Aviv. “In any case the Palestinians have said it is a non-starter and we aren’t getting much interest in the speech from overseas investors.”

The fate of east Jerusalem, which the Palestinians seek as the capital of their state and over which Israel has imposed its rule in a move never internationally recognized, isn’t up for negotiation, Netanyahu said.

Palestinian refugees, who fled their homes in the 1948 and 1967 Middle East wars, won’t be resettled inside Israel’s borders, he added.

‘Fundamental Prerequisite’

“A fundamental prerequisite for ending the conflict is a public, binding and unequivocal Palestinian recognition of Israel as the nation state of the Jewish people,” Netanyahu said. “To vest this declaration with practical meaning there must also be a clear understanding that the Palestinian refugee problem will be resolved outside Israel’s borders.”

Demilitarization of the Palestinian state Netanyahu envisions as part of a final peace settlement must be guaranteed by the international community.

“To achieve peace we must ensure that Palestinians can’t bring in rockets and missiles, control air space or forge alliances with Iran or Hezbollah,” Netanyahu said.

Saeb Erakat, a senior Palestinian negotiator, said the speech fell short “in every single one of the benchmarks required of Israel in line with international law and existing agreements.”

Right Direction

Tzipi Livni, leader of the Israeli opposition Kadima party that supports a two-state solution, called Netanyahu’s speech “a step in the right direction, a step forward.”

Netanyahu’s address comes a day after Iran’s Mahmoud Ahmadinejad won a second presidential term, an electoral victory that Israeli Defense Minister Ehud Barak today said was “not a good sign.”

“The Iranian threat looms large before us, as was further demonstrated yesterday,” Netanyahu said. “The great danger confronting Israel, the Middle East, the entire world and the human race, is the nexus between radical Islam and nuclear weapons.”

Iran, which has defied three rounds of United Nations Security Council sanctions demanding that it bring a halt to uranium enrichment, denies claims its program is aimed at building a nuclear weapon.

Yossi Alpher, who advised Barak, the Labor Party leader, when he was premier, said it was surprising that Netanyahu “didn’t dwell much on Iran despite the events of the last two days.”

That “was smart because he knows the U.S. doesn’t want him to appear to be hiding behind the Iranian threat in order to avoid dealing forthrightly with the Palestinian issue,” Alpher said.

Tehran Rally Has Thousands Protesting Ahmadinejad Win

2009-06-15T10:04:00.001-07:00

Hundreds of thousands of protesters defied an Iranian government ban on a rally in Tehran to protest President Mahmoud Ahmadinejad’s re-election, as the supreme leader said allegations of vote-rigging should be investigated.

Former premier Mir Hossein Mousavi, Ahmadinejad’s main challenger in the June 12 ballot, attended the gathering to urge the crowd to stay “calm.” The demonstration was prohibited by the Interior Ministry. Video distributed by the Associated Press showed crowds crammed into Azadi Street, a main route linking the University of Tehran and Azadi Square. A policeman told Agence France-Presse 1.5 million to 2 million people attended.

Mousavi, 67, said there were “obvious violations” and called for the election result to be scrapped after the official tally gave Ahmadinejad, the incumbent, almost 63 percent of the vote. The former prime minister took about 34 percent. Mousavi told the crowd he is ready to take part in any election rerun, AFP reported.

Ahmadinejad, 52, who has insisted the vote was fair, delayed a planned trip to Russia today. Mousavi met yesterday with Supreme Leader Ayatollah Ali Khamenei, who told him to pursue his complaint through legal channels, after the former premier asked the election’s supervisory body, the Guardian Council, to set aside the outcome.

Khamenei told Mousavi that he had asked the Guardian Council to carefully consider his allegations, state television reported.

The decision to examine the fairness of the election shows that the Iranian leadership feels that it is under pressure, said Professor Anoush Ehteshami, a lecturer at the Centre for Iranian Studies at Durham University in northeastern England.

‘Unchartered Territory’

While Khamenei and other leaders remain determined to uphold Ahmadinejad’s victory and the investigation is little more than a “gesture,” the protests may gather pace, he said.

“Everything is going into unchartered territory,” Ehteshami said today in a telephone interview. “That makes it volatile.” A violent crackdown would be “a very dangerous step to take” for the authorities because such an action may incite huge unrest, he added.

The numbers of demonstrators would need to reach at least the tens of thousands and spread to a number of cities to really pose a threat, said Richard Dalton, a former U.K. ambassador to Iran who is now an analyst at Chatham House, a London-based research group.

“One thing can lead to another, but given the means at their disposal, the security forces are able to disperse the demonstrations,” Dalton said today in a telephone interview.

Police fired tear gas at protesters in Tehran yesterday, in the second day of clashes since authorities declared Ahmadinejad the winner. More than 100 people in Tehran were arrested, including political leaders.

‘Rallies Illegal’

“The Interior Ministry has granted no permit to the headquarters of Mousavi for staging rallies of his supporters in different cities of the country on Monday,” the state-run Fars news agency cited Governor General of Tehran Morteza Tamaddon as saying. “The rallies are and remain illegal. The police will stop any unauthorized rallies or gatherings.”

Security was tight around the University of Tehran, where the rally was held. Mousavi was due to be joined at the event by another defeated candidate, former Parliament Speaker Mehdi Karrubi, 71, Mousavi’s campaign said.

Former President Mohammad Khatami said on his Web site that he would join Mousavi and Karrubi at the gathering. Khatami wants the election re-run, AFP said, citing his brother, Mohammad Reza Khatami.

‘Retrieve Our Votes’

Protesters shouted “Mousavi we support you! We will die but retrieve our votes!” AFP reported, as riot police stood guard. Supporters of Ahmadinejad and Mousavi clashed in the city, Sky News reported, citing Reuters.

Sky broadcast pictures of thousands of people taking part in the demonstration.

Iran “is not afraid of threats,” Ahmadinejad told a news conference in Tehran yesterday, rejecting international concern about the allegations of voting irregularities. “It will stand up to those who want to prevent its progress.”

Ahmadinejad delayed talks with his Russian counterpart, Dmitry Medvedev, Sahera Rahmani, a spokeswoman for the Iranian Embassy in Moscow, said by telephone. Rahmani declined to say when Ahmadinejad would travel to Russia.

Ahmadinejad, accused by rival candidates of unnecessarily stoking tensions with the West, may see success at the ballot box as a vindication of his policies. That could be a setback for President Barack Obama’s policy of engaging Iran in dialogue, rather than ostracizing it, as a means to ensure the Islamic republic doesn’t acquire nuclear weapons.

Arms Race

The U.S. has fundamental interests in the region, including preventing a Middle East arms race, which requires pressing Iran to abandon any pursuit of atomic weapons, said an administration official, speaking on condition of anonymity.

Vice President Joe Biden said yesterday “there is some real doubt” about the election results. Still, he said the Obama administration will proceed with the plan to engage with Iran. “The decision has been made to talk,” irrespective of the election’s outcome, Biden said on NBC’s “Meet the Press” program.

“I’m not sure if the results reflect the real will of the Iranian people,” Israeli Defense Minister Ehud Barak told journalists today at the Paris Air Show, AFP reported. Iran’s hardliners will nevertheless “control the country. And that’s bad news because they will continue the effort toward a nuclear, military Iran,” Barak said.

A spokesman for French President Nicolas Sarkozy’s party said the United Nations should condemn the election. The vote was “rigged in an obvious way,” Frederic Lefebvre, a spokesman for the UMP, told reporters today in Paris.

‘Hear Our Concerns’

French Foreign Minister Bernard Kouchner summoned the Iranian ambassador “to provide explanations about the events and to hear our concerns,” ministry spokesman Eric Chevallier said in an e-mailed response to questions. “France along with its EU partners awaits clear responses to the doubts raised about the regularity of the vote,” said Chevallier, adding that France condemns the police crackdown on protesters.

“The very serious doubts that are being raised about the free and fair nature of the election counting process are obviously of very major concern to many people in Iran,” U.K. Foreign Secretary David Miliband told reporters before a meeting of European Union foreign ministers in Luxembourg today.

The EU ministers called on Iran to probe charges that Ahmadinejad’s re-election was rigged, and to allow peaceful protests.

‘Charges of Manipulation’

The EU intends to engage with Iran’s government “on the basis of mutual respect but it requires Iran to recognize and act urgently on its responsibilities and obligations,” the foreign ministers said in a statement.

Iran needs to “clarify quickly and comprehensively, through the responsible authorities, the charges that were raised, the criticism of the course of the election and the vote count, the charges of manipulation,” Thomas Steg, spokesman for Germany Chancellor Angela Merkel, said at a regular government press conference in Berlin.

Mousavi urged supporters yesterday to continue “civil and legal opposition throughout the country peacefully.”

Mousavi, who called during the campaign for a more conciliatory approach to the West and acknowledged the shift in U.S. policy under Obama, claimed victory after polls closed on June 12, shortly before state-run media said Ahmadinejad had won.

Police, Protesters Clash

During the weekend demonstrations in Tehran, protesters set fire to buses, and motorbikes belonging to police, who used tear gas and batons to disperse a crowd of several thousand chanting “fraud” and “Mousavi, Mousavi, get my vote back.”

Mobile telephones were functioning sporadically yesterday. The Internet was either down or working slowly in Tehran. Social networking sites such as Facebook and Twitter were no longer operational in the country and Mousavi-supporting Web sites didn’t respond. It wasn’t clear whether government agencies were involved in blocking the services.

Ahmadinejad’s victory limits the prospect of European investment in Iranian oil and gas projects, the Centre for Global Energy Studies said.

The election outcome damages the hope of a moderation in Iran’s relations with Europe and the U.S., according to Julian Lee, senior energy analyst at the center in London. Oil companies have pulled back from investment in the world’s fourth-largest crude producer as its nuclear research program brought economic sanctions.

“Things are very unlikely to change” after Ahmadinejad’s re-election, Lee said in a phone interview today. “Any hopes that this might suddenly become unlocked by a new government in Tehran have been quashed.”

BP Chairman Search May Target Former BHP Billiton CEO Anderson

2009-06-15T10:03:00.001-07:00

BP Plc, Europe’s second-biggest oil company, is considering former BHP Billiton Ltd. Chief Executive Officer Paul Anderson as a candidate to take over as its next chairman, according to a person familiar with the matter.

Anderson is a contender to replace Peter Sutherland, who was originally due to step down in April, the person said, declining to be identified because the appointment hasn’t been agreed yet. BP has been hunting for a successor to Sutherland, who was appointed chairman in 1997, for almost two years.

Anderson slashed $4.8 billion of debt at BHP and cut 20,000 jobs to restore it to profit, and was one of the architects of the merger in 2001 that created the world’s largest mining company.

Anderson is now one of two leading candidates for the BP post, the Sunday Telegraph reported yesterday, saying the identity of the other is unclear. Toby Odone, a spokesman at London-based BP, declined to comment today on the report.

Sutherland said in March he had agreed to stay on as the “turbulent business environment” was hampering the search for a replacement. BP suffered a setback in February after Paul Skinner, then-chairman of Rio Tinto Group who was cited by The Times as a candidate, became embroiled in a shareholder dispute. Skinner stepped down at Rio Tinto in April.

BP CEO Tony Hayward said last week his company’s search was “proceeding very well” and it expected to make an announcement by August.

Anderson, a 64-year-old mining and energy executive, is also the former president of Duke Energy Corp., the owner of utilities in the U.S. Southeast and Midwest, and still sits on the board of BHP Billiton as a non-executive director.

Asset Sales

Previously the chairman of Spectra Energy Corp., Anderson currently sits on the board of directors of the third-biggest U.S. pipeline operator by market value.

He set the stage for the January 2007 spinoff of Spectra, a former Duke subsidiary, by selling more than $6 billion of assets and exiting unprofitable energy-trading and power- generation operations.

Duke’s $9.15 billion acquisition of utility owner Cinergy Corp. made the electricity business large enough to stand alone, Anderson said at the time. He concluded that investors would pay more for shares of separate companies.

If appointed, one of Anderson’s first tasks at BP would be to win back investor confidence following a shareholder revolt over executive pay. In April, 34 percent of BP investors opposed its remuneration proposal for senior management, with a further 9 percent abstaining.

When Anderson took over as CEO of Duke Energy in 2003, he agreed to forgo a salary for incentives based on stock and options.

Toni Beck, a spokeswoman for Houston-based Spectra, declined to forward questions to Anderson or provide a way to contact him.

Geithner Says U.S. Goal Will Be ‘More Boring’ Financial System

2009-06-15T10:01:00.000-07:00

Treasury Secretary Timothy Geithner said the Obama administration’s overhaul of U.S. financial regulation will be aimed at preventing future crises by filling in oversight “gaps” that allowed too much systemic risk.

President Barack Obama on June 17 will unveil a set of proposals to prevent a repeat of the credit system freeze that followed the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc. last year. The Federal Reserve will be given broader authority to supervise large, interconnected firms whose failure could destabilize the financial system.

Geithner today told an economic forum sponsored by Time Warner Inc. in New York that a major goal of the plan is fixing “an accountability problem” among regulators to create a “more stable” financial system.

“We’re going to try to eliminate gaps in the basic structure,” Geithner said. “We want to have a more boring system, a little less exciting, a little less drama.”

Geithner and Lawrence Summers, director of the White House’s National Economic Council, wrote in the Washington Post today the plan will also create a “council of regulators” to coordinate supervision across the financial system, and raise capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most- interconnected companies.

There will be more “robust reporting requirements” for issuers of asset-backed securities, a need for issuers to retain a financial interest in their product and a reduction in the reliance on credit rating firms. Regulation of futures and securities will be “harmonized,” derivatives will be regulated and their dealers subject to supervision, and consumer and investor protections will be increased.

Resolution Authority

The administration will also propose a resolution mechanism to allow the unwinding of troubled non-bank financial institutions. The failure of Bear Stearns and Lehman Brothers created a crisis of confidence among investors that led to the credit market freeze.

“We had a system that proved too unstable, too fragile, undermined what was a great strength in this country, which was a financial system that was the best in the world,” Geithner said at the Time Warner forum. “And those are things we have to change.”

Lenders are currently regulated by five separate federal agencies: the Fed, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and the National Credit Union Administration. None of them will be eliminated under the administration’s plan.

‘Streamline’ Oversight

While it’s not an ideal system, “we’re trying to focus on the practical issues that were at the core of this problem,” Geithner said. “We can help streamline the oversight structure too, but we’re trying to focus on those things that are at the core of the problem.”

The administration has proposed rules to reduce incentives that lead executives to take excessive risks, and appointed Kenneth Feinberg as a “special master” to review executive pay at companies that get U.S. aid.

While Geithner declined to say whether he thinks bankers are interested only in their pay, he said compensation plans were designed to “overwhelm” the “checks and balances” that are supposed to protect the financial system from excessive risk.

“The incentives were just too powerful,” he said. “And that’s something we have to fix.”

Congressional Action

Congress will have to authorize many of the changes in the plan, Geithner said. It is imperative lawmakers act “while the memory of the crisis is still acute in peoples’ minds, because we don’t want complacency to set back in.”

Risks of a deeper global recession have “dramatically diminished and that has helped provide some stability in economic activity,” Geithner said. “But again, it’s very early still and we’ve got a ways to go.”

The U.S. unemployment rate will continue to rise even after growth resumes, he said.

Geithner said he expects the administration’s health-care plan to pass with “broad support.” That will be critical for dealing with the nation’s “very daunting long-term fiscal challenges,” he said. The Congressional Budget Office projects this year’s federal budget deficit will reach a record $1.85 trillion this year.

“The path to fixing the economy does go through health care,” he said.

Dismissing reports he and Summers are feuding over territory, Geithner called the NEC director “one of the most talented people in the world,” and said they have a “terrific, excellent, productive relationship.”

Lincoln Accepts U.S. Rescue Funds, Plans Share Sale

2009-06-15T10:00:00.000-07:00

Lincoln National Corp., the insurer that announced two rounds of job cuts this year, plans to raise $2.05 billion by accepting U.S. rescue funds and selling shares and debt to private investors. The stock dropped 8.6 percent.

Lincoln expects to issue about $950 million of preferred stock to the government through the Treasury’s Troubled Asset Relief Program, the Philadelphia-based life insurer said today in a statement. It also announced plans to offer $600 million of common shares on the market, and $500 million in senior debt.

Lincoln and Hartford Financial Services Group Inc. are tapping taxpayers after investment losses and costs to protect savers from declines in the equity markets drained capital. Lincoln has slashed the dividend, purchased reinsurance and scaled back on money-losing retirement products called variable annuities. The insurer announced plans today to divert capital to U.S. operations by selling a U.K. unit at a loss.

“Taking aid reiterates to us how quickly Lincoln’s financial condition has deteriorated,” Colin Devine, an analyst with Citigroup Inc., said today in a research note. “Lincoln’s long-term growth outlook remains a question mark. It remains to be seen how much it has suffered from client concerns about the company’s financial heath.”

Lincoln declined $1.52 to $16.23 at 12:04 p.m. in New York Stock Exchange composite trading. The stock fell about 68 percent in the last 12 months, worse than 51 percent slide in the 11-company Standard and Poor’s Supercomposite Life & Health Insurance Index.

Rating Changes

The additional capital may help Lincoln avert further ratings downgrades, Standard & Poor’s said today in a statement, raising the insurer’s outlook to “stable” from “negative.” Lincoln was cut two levels by S&P in February and was downgraded three times this year by Moody’s Investors Service.

The insurer, led by Chief Executive Officer Dennis Glass, said the sale of the U.K. subsidiary to Toronto-based Sun Life Financial Inc. for 195 million pounds ($319 million) will generate a loss of $250 million to $275 million, according to a regulatory filing. The transaction is expected to be completed around the end of September, Lincoln said.

Lincoln, which has posted two straight quarterly losses, follows Hartford and Genworth Financial Inc. in pulling back from international markets. Hartford, which lost $2.7 billion in 2008, announced plans this year to halt sales in Japan and end all business in the U.K.

Writedown

Lincoln was hurt in the first quarter by a $600 million writedown to its variable annuities business, following Prudential Financial Inc., the second-biggest U.S. life insurer, in lowering the value of operations selling the savings vehicles. Lincoln expanded through its $8.2 billion Jefferson- Pilot Corp. acquisition in 2006.

Life insurers were left vulnerable to the financial crisis after taking “an ungodly amount of risk” on variable annuities, billionaire investor Warren Buffett said on May 3.

Lincoln and Hartford, based in the Connecticut city of the same name, are the only two life insurers to accept an investment from TARP after carriers applied for bailouts in the fourth quarter. While six were approved by Treasury last month, Prudential, Ameriprise Financial Inc. and Principal Financial Group Inc. rejected TARP and raised capital from private investors. Allstate Corp. also refused aid.

Bailout

Lincoln positioned itself to tap federal bailout funds by agreeing in November to buy a Goodland, Indiana savings and loan with three employees and $7.3 million of assets. The deal for Newton County Loan & Savings entitled the insurer to apply for status as a federally regulated lender, a prerequisite for government aid.

TARP “provides additional capital flexibility,” Lincoln said in the statement. “The company expects to repay this financing as soon as practicable.”

Lincoln said it was approved by Treasury for as much as $2.5 billion in aid and would announce the final amount of its participation in the program by the end of June.

American International Group Inc., which sells property- casualty coverage and life insurance, was saved by four U.S. bailouts starting in September.

Lincoln said in March it would free up $240 million in capital reserves by entering into a reinsurance agreement with Goldman Sachs Group Inc. The accord transfers risk to a subsidiary of the bank and will reduce Lincoln’s yearly net income by $20 million, Lincoln said.

JPMorgan Chase & Co. and Bank of America Corp.’s Merrill Lynch are leading the share sale to private investors. Goldman Sachs and Morgan Stanley are helping on the offering.

Huntsman Seeks Billions From Banks in Trial Over Failed Buyout

2009-06-15T09:58:00.002-07:00

Credit Suisse Group AG and Deutsche Bank AG should pay Huntsman Corp. more than $13 billion in damages for interfering with an acquisition of the company and then refusing to fund another buyout bid, lawyers for the chemical maker said.

Attorneys for Salt Lake City-based Huntsman told jurors in state court in Conroe, Texas, today that the company turned down a $25.25-a-share offer from a unit of Access Industries Holdings LLC in 2007 to accept a bid of $28 a share from a unit of Apollo Management LLP. Credit Suisse and Deutsche Bank agreed to fund Apollo’s acquisition of Huntsman, the world’s biggest maker of epoxy adhesives.

Apollo’s buyout was scuttled last year when the banks backed out of funding the deal amid concern that the U.S. economic slump would leave the resulting company insolvent.

“This case is about whether people should be held to what they promise,’’ Huntsman’s lead lawyer, Kathy Patrick, said in an interview before the trial.

The trial in Conroe, north of Houston, may last as long as six weeks, lawyers said. It comes more than a month after Huntsman posted a first-quarter loss of $290 million as the recession cut demand for chemicals used in paints, textiles and building products.

Huntsman already has recovered $1 billion from Apollo. The New York-based private-equity firm made the payment to settle a Huntsman lawsuit after a Delaware judge ruled in September that Apollo must honor the acquisition agreement. Huntsman agreed in December to cancel the buyout as part of the accord.

Delaware Argument

In the Delaware case, Apollo unsuccessfully sought to convince Delaware Chancery Court Judge Stephen Lamb that the recession had so weakened world chemical demand that the combined firm wouldn’t be solvent. Lamb didn’t rule on the solvency issue.

Instead, he found that officials of Apollo’s Hexion Specialty Chemicals Inc. unit couldn’t prove a slowdown in Huntsman’s production or its failure to reach earnings targets caused a “material adverse effect” on the company’s businesses that justified canceling the deal.

In the Texas case, Huntsman seeks as much as $4.6 billion in economic damages if jurors find Credit Suisse and Deutsche Bank interfered with Access’s bid or defrauded Huntsman in connection with Hexion’s offer, Patrick said.

If Huntsman wins, Patrick said she will ask for punitive damages amounting to twice any economic damages the panel awards. That means Credit Suisse and Deutsche Bank may face total damages of as much as $13.8 billion.

‘Doing Our Jobs’

Frankfurt-based Deutsche Bank is Germany’s biggest bank while Zurich-based Credit Suisse is the biggest Swiss bank by market value. The banks will try to convince jurors that the chemical company emerging from the planned combination of Huntsman and Hexion wouldn’t have been solvent.

“We were doing our job as banks by not loaning money to people who can’t pay it back,’’ Irvin Terrell, a lawyer representing both banks in the Texas suit, said in an interview before the trial began.

Terrell said he will ask Judge Fred Edwards to reduce any damage award in the Texas case by $1 billion in light of the Delaware accord.

The case is Huntsman Corp. v. Credit Suisse Securities (USA) LLC, 08-06-09258, 9th Judicial District Court of Montgomery County, Texas (Conroe).

Mortgage-Bond Yields Fall for Third Day, Pointing to Rate Drop

2009-06-15T09:58:00.001-07:00

Yields on Fannie Mae and Freddie Mac mortgage securities fell for a third day from the highest level since the Federal Reserve said it would buy home-loan bonds, suggesting a further decline in home-loan interest rates.

Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds dropped 0.17 percentage point to 4.75 percent as of 11:35 a.m. in New York, the low since June 3, data compiled by Bloomberg show. While that’s down from a six- month high of 5.07 percent on June 10, it’s still up from 3.94 percent on May 20.

Investors such as mutual funds have been buying in response to a June 10 decision by Barclays Capital to allow mortgage bonds held by the Fed to remain in its benchmark fixed-income indexes, said Art Frank, the head of mortgage-bond research at Deutsche Bank AG in New York. Some investors thought the Fed’s holdings, which may reach as high as $1.25 trillion, might be excluded.

“We’ve got a scramble for 4s and 4.5” percent coupon agency mortgage bonds, which are scarce in the market after being the biggest focus of the Fed’s buying so far, Frank said today in a telephone interview. “Those are all still in the index so managers still need to own them.”

The difference between yields on the Fannie Mae bonds and 10-year Treasuries narrowed 0.12 percentage point today to 1 percentage point, Bloomberg data show. The gap, which grew to as much as 2.38 percentage points last year, contracted to 0.7 percentage point on May 22, the lowest since 1992.

Mortgage Rates

Bloomberg current-coupon indexes represent the yields for hypothetical mortgage bonds trading at about face value. The levels are typically based on calculations derived from yields on the two groups trading just above and below par because of the size of their coupons, into which lenders typically package new loans. Those coupons are now 4.5 percent and 5 percent.

The average rate on a typical 30-year loan rose to 5.59 percent in the week ended June 11, up from 4.82 percent four weeks earlier and a record low of 4.78 percent in April, according to McLean, Virginia-based Freddie Mac. The rate fell to 5.67 percent early June 12, from 5.74 percent on June 10, according to Bankrate.com.

Yields on agency mortgage bonds are guiding rates on almost all new U.S. home lending following the collapse of the non- agency market in 2007 and a retreat by banks. The almost $5 trillion market includes securities guaranteed by government- controlled Fannie Mae and Freddie Mac and bonds of U.S.-insured, low-down-payment loans backed by federal agency Ginnie Mae.

International Demand for U.S. Assets Slowed in April

2009-06-15T09:56:00.000-07:00

International purchases of American financial assets grew more slowly in April as China, Japan and Russia pared demand for Treasuries, underscoring the danger of U.S. reliance on foreigners to finance its fiscal deficit.

Total net purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington. International holdings of Treasuries increased a net $41.9 billion, compared with the $55.3 billion gain in March. Including bills, the holdings fell a net $2.6 billion.

Benchmark 10-year Treasuries, which rose after Russian Finance Minister Alexei Kudrin said it’s “too early to speak of an alternative” to the dollar, remained higher after today’s report. That indicates investors have yet to see evidence that international money managers are losing confidence in the currency that has proved a haven during the credit crisis.

“Talk that foreign central banks will diversify out of their dollar and Treasury holdings is so far just talk,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “The worst financial crisis since the Great Depression is still ongoing and foreign investors and central banks still have a safe haven demand for U.S. Treasuries.”

Including short-term securities such as stock swaps, foreigners sold a net $53.2 billion of U.S. financial assets, compared with net buying of $25 billion the previous month.

Economists’ Forecasts

Analysts had anticipated international net purchases of long-term U.S. assets of $60 billion, according to the median of nine estimates in a Bloomberg News survey.

Ten-year U.S. notes advanced for a third day, sending their yields to 3.74 percent at 11:08 a.m. in New York. The yields surged as high as 4 percent last week, part of a sell-off since March that Federal Reserve Chairman Ben S. Bernanke has partly attributed to worries about ballooning federal deficits.

Chinese, Brazilian and Russian officials have expressed an interest in developing an alternative to the dollar as the world’s main reserve currency, in part citing the record American budget gap.

The Congressional Budget Office projects the federal budget shortfall will reach a record $1.85 trillion this year, with the gap exceeding $600 billion through the year 2019.

Holdings by Nation

China, the biggest foreign holder of U.S. Treasuries, trimmed its holdings of government notes and bonds by $4.4 billion to $763.5 billion. Russia’s holdings slipped by $1.4 billion to $137 billion and Brazil’s by $600 million to $126 billion. Japan, the second-biggest international investor, saw its total drop by $800 million to $685.9 billion.

“China and Russia both indicated a desire to diversify out of dollar denominated instruments, and April seems to have emphasized their current position,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp. in New York.

The Treasury’s reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.

Foreign investments in U.S. agency debt slumped for the eighth time in 10 months, by $2.5 billion in April. Net purchases of American equities slowed to $4.6 billion in April from $13.2 billion the prior month. Holdings of corporate bonds tumbled a net $9.7 billion, the biggest decline since November.

Borrowing Costs

Waning demand for Treasuries may exacerbate a jump in yields that threatens to make it harder for the U.S. to pull out of its deepest recession in at least half a century. Yields on benchmark 10-year notes have climbed more than 1 percentage point since mid-March, contributing to an increase in mortgage rates that’s counteracting Fed efforts to aid the housing market.

“Should this continue on a steeper pace, Treasuries could take a big beating,” said Richard Yamarone, director of economic research at Argus Research Corp. in New York. “It’s something investors should watch with great interest.”

On a visit to Beijing on June 2, U.S. Treasury Secretary Timothy Geithner said there will be enough demand for record sales of U.S. debt. In March, Chinese Premier Wen Jiabao called on the U.S. “to guarantee the safety of China’s assets.” China’s central bank governor, Zhou Xiaochuan, has proposed the eventual creation of a new, supranational currency.

Russia’s Warning

Russian President Dmitry Medvedev questioned the dollar’s future earlier this month, saying it isn’t “in a spectacular position, let’s be frank, and its prospects cause various questions.” Alexei Ulyukayev, first deputy chairman of the bank, said June 10 that some reserves may be moved into bonds issued by the International Monetary Fund.

Still, Russian Finance Minister Alexei Kudrin said in an interview two days ago that the dollar is in “good shape,” and that “it’s too early to speak of an alternative” to the U.S. currency.

“There is kind of a political dimension and an economic dimension,” Axel Merk, president and portfolio manager at Merk Investments LLC in Palo Alto, California, said on Bloomberg Radio. “The folks who are actually on the line making the decisions, they are fully aware we are dependent on the dollar. It’s not going to change any time soon.”

U.S., Global Stocks Drop as MSCI World Falls Most in 2 Months

2009-06-15T09:54:00.000-07:00

U.S. stocks extended a global slide, sending the MSCI World Index down the most in two months, as falling oil and metal prices weighed on commodity producers. Treasuries rose and the dollar strengthened.

Alcoa Inc., Caterpillar Inc. and DuPont Co. lost at least 4.2 percent to help spur the broadest slump since January on the New York Stock Exchange as a weaker-than-estimated report on manufacturing also dragged stocks lower. Freeport-McMoRan Copper & Gold Inc. slid 4.1 percent as copper sank by the daily limit in Shanghai on speculation supply may outpace demand in China, the largest consumer of the metal. Benchmark indexes for Europe and Asia sank as BP Plc and BHP Billiton Ltd. tumbled.

“There’s no clear trajectory for moving us out of a recessionary environment,” said Wayne Wicker, who oversees $33 billion as chief investment officer at Vantagepoint Funds in Washington. “Given the shellshock of the last year and a half, you have a lot of people who don’t think this market is sustainable.”

The S&P 500, which had climbed 40 percent from a 12-year low on March 9, decreased 2.6 percent to 921.02 at 11:29 a.m. New York time. The Dow Jones Industrial Average, which last week erased its 2009 loss, tumbled 207.76, or 2.4 percent, to 8,591.5 as all 30 companies in the gauge declined. Twenty-five stocks fell for each that rose on the NYSE. The MSCI World Index of developed nations plunged 2.8 percent, the most since April 20.

Europe’s Dow Jones Stoxx 600 Index lost 2.4 percent after Group of Eight finance ministers, who met in Italy over the weekend, began drawing up contingency plans for rolling back budget deficits and bank bailouts as the economy shows signs of recovery and investors start worrying about inflation.

Empire Manufacturing

The VIX, the benchmark gauge for U.S. stock volatility, jumped the most since May 21 as the Federal Reserve Bank of New York’s general economic index fell to minus 9.4 from in June from minus 4.6. Readings below zero signal manufacturing is shrinking. Economists in a survey predicted minus 4.6. U.S. stocks fell even as the International Monetary Fund raised its outlook for the U.S. economy.

The S&P 500’s rally since March left the index valued at 14.9 times its companies’ earnings, near the highest level since October. Last week, the Dow average became the latest major U.S. stock gauge to give investors a profit for the year amid growing optimism the worst recession since World War II is ending after the government and Federal Reserve pledged $12.8 trillion to revive economic growth.

‘Wariness’

“We’re starting to see wariness in the markets about where we go from here,” said James Gaul, who helps oversee $1.5 billion at Boston Advisors LLC in Boston. “We’re still in a recession and we’re still losing jobs. The economy’s struggling.”

The MSCI World Index has rebounded from a 13-year low in March. The rally pushed the index’s value to 18.2 times the earnings of its 1,655 companies, the most expensive level since December 2004, weekly data compiled by Bloomberg show. The Stoxx 600 Index trades at 25.4 times the earnings of its companies, the most in five years.

Russian Finance Minister Alexei Kudrin said the dollar is in “good shape,” further affirming that there’s no substitute for the world’s reserve currency.

“It’s too early to speak of an alternative,” Kudrin said in an interview two days ago in Italy after meeting officials from the G-8 nations.

Treasuries Gain

Kudrin’s comments helped U.S. Treasuries climb for a third day, the longest streak in a month, even after international holdings of long-term U.S. financial assets rose at a slower pace in April as China, Japan and Russia trimmed holdings of Treasuries. Purchases of long-term equities, notes and bonds rose a net $11.2 billion, compared with buying of $55.4 billion in March, the Treasury said today in Washington.

Exxon Mobil Corp., the biggest U.S. oil company, lost 1.8 percent to $72.42, while rival ConocoPhillips retreated 3.6 percent to $42.78.

Crude oil for July delivery dropped as much as 3.1 percent to $69.83 a barrel in New York Mercantile Exchange trading as the dollar rose the most in a week against the euro, limiting investors’ need to use commodities as a hedge against inflation.

Freeport-McMoRan, the world’s biggest publicly traded copper producer, slid 4.1 percent to $56.11 as gold declined to a three-week low.

Inventories of copper in Shanghai warehouses grew for a second week to 60,647 metric tons last week, the highest since the week of March 20, 2008, the exchange said after the market closed June 12. China’s imports of the metal and its products increased 6 percent in May from April to 422,666 tons.

Wal-Mart Stores Inc. lost 2.4 percent to $48.63 after Goldman Sachs Group Inc. cut the largest retailer to “neutral” from “buy,” saying it sees “little near-term positive catalysts to drive shares higher.”

‘Golden Cross’

The S&P 500 may struggle to reach a so-called golden cross as trading volume decreases, according to a technical analyst at RBC Capital Markets.

A golden cross, considered a buy signal by analysts who make predictions based on patterns in price charts, occurs when the 50-day moving average, which is currently at 889.24 for the S&P 500, rises above the 200-day moving average, which is at 911.65, according to Bloomberg data. The U.S. benchmark index ended last week at 946.21.

The major stock indexes “are back above their 200-day averages, and it’s increasingly tempting to conclude that a new bull market is under way,” Toronto-based Ray Hanson wrote in a report dated June 12. However, the S&P 500 “has not yet achieved a golden cross” and “the steadily declining volume since early May suggests caution,” he said.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, added 8.8 percent to 30.63. The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from a record 80.86 in November yet above its 20 average over its 19-year history.

Obama pledges to quickly sign anti-smoking bill

2009-06-14T02:40:00.000-07:00

President Barack Obama is lauding the passage of historic anti-smoking legislation that gives the government sweeping authority to regulate tobacco products, pledging to quickly sign the measure into law.

"For over a decade, leaders of both parties have fought to prevent tobacco companies from marketing their products to children and provide the public with the information they need to understand what a dangerous habit this is," said Obama, who has struggled for years to kick his own nicotine habit.

The House on Friday gave final approval to the bill after a bitter fight lasting nearly a half-century. The measure for the first time will give the Food and Drug Administration authority to regulate what goes into tobacco products, demand changes or elimination of toxic substances and block the introduction of new products.

Lawmakers and the White House quickly declared it would save the lives of thousands of smokers of all ages. Even more important, they said, the measure could keep countless young people from starting in the first place.

The thousand health and consumer groups that endorsed the bill say that, combined with other anti-smoking efforts, it can significantly reduce the 400,000 deaths and $100 billion in health care costs attributed every year to smoking in the U.S.

Under the legislation:

• Cigarette packages will have warning labels that cover 50 percent of the front and rear. The word "warning" must be included in capital letters.

• Any remaining tobacco-related sponsorships of sports and entertainment events will be banned, as will giveaways of non-tobacco items with the purchase of a tobacco product. A federal ban will be imposed on all outdoor tobacco advertising within 1,000 feet of schools and playgrounds.

• Point-of-sale advertising will be limited to adults-only facilities, and remaining vending machines will disappear except in places restricted to adults. Retailers who sell to minors will be subject to federal enforcement and penalties.

• Smokers, particularly the younger crowd, will find they can no longer buy cigarettes sweetened by candy flavors or any herb or spices such as strawberry, grape, orange, clove, cinnamon or vanilla. Cigarettes advertised as "light" or "mild," giving the impression that they aren't as harmful to health, will no longer be found on store shelves.

With an estimated 3,500 young people smoking their first cigarette each day, the ban on flavorings alone could have significant health benefits, said Dr. Adam Goldstein, director of the University of North Carolina Tobacco Prevention and Evaluation Program.

He said it was not inconceivable that adult smokers, now more than 20 percent of the population, could be reduced to less than 5 percent in 20 years.

Other factors that could cut into tobacco use include the sharp rise in prices — Congress earlier this year approved a 62-cent a pack increase in the federal cigarette tax to pay for a children's health program — and measures by the states to ban smoking in public places.

New FDA Commissioner Dr. Margaret Hamburg said the agency was ready to "roll up our sleeves" to meet the new obligations.

The Senate passed the FDA bill on Thursday by a 79-17 vote and the House followed suit on Friday, with a 307-97 vote.

Marlboro maker Philip Morris USA, the nation's largest tobacco company, came out in support of the bill, saying it was behind tough but fair regulation. Its chief rivals were opposed, saying that FDA restrictions on new products would lock in Philip Morris' share of the market.

Costs of the new program will be paid for by a new user fee imposed on the industry. The Congressional Budget Office estimated that assessments could rise from $235 million in 2010 to $712 million in 2019.

Drugmakers rush to produce a swine flu vaccine

2009-06-14T02:38:00.000-07:00

With swine flu now an official pandemic, the race is on among drugmakers to produce a vaccine.

GlaxoSmithKline said Thursday after the World Health Organization declared a global flu epidemic that it would be ready within weeks to begin large-scale vaccine production. Sanofi-Aventis also said it had started working on its own version. On Friday, Swiss pharma giant Novartis announced it had created an experimental vaccine that has not been tested in people. Novartis' vaccine was made via a cell-based technology that may prove faster than the traditional way of making vaccines, which relies on chicken eggs.

Many rich countries like Britain, Canada and France signed contracts with pharmaceuticals long ago, guaranteeing them access to pandemic vaccine. WHO and others estimate that about 2.4 billion doses of pandemic vaccine could be available in about a year.

The likely scramble for vaccines will leave many people in poorer countries empty-handed.

So far, swine flu has been mostly detected in developed countries like the United States, Europe, Japan and Australia.

"We do not know how this virus will behave under conditions typically found in the developing world," WHO chief Dr. Margaret Chan said Thursday. She said the agency expects to see a "bleaker" picture as the virus makes its way to Africa and Asia.

WHO spokesman Gregory Hartl said officials were concerned people in poorer countries and those fighting other health problems like malaria, tuberculosis, malnutrition and pneumonia might be more susceptible to swine flu.

On Friday, WHO said that 74 countries had reported nearly 30,000 cases including 145 deaths. But so far, the virus appears to be mild. Most people don't need medical treatment to get better.

But the virus might have a more devastating effect in people with underlying health problems. About half of the people who have died from swine flu have had complications like asthma, diabetes, and obesity.

"Any population that has health challenges is potentially going to be at higher risk with H1N1 (swine flu)," Hartl said.

In May, officials led by Chan and U.N. Secretary General Ban Ki-moon asked vaccine makers to save a portion of their production for poor countries. Chan was aiming to get 10 percent of the global pandemic vaccine supply reserved for poor nations.

Some companies have agreed to help. GlaxoSmithKline PLC offered to donate 50 million doses of pandemic vaccine to WHO for distribution to developing countries.

During the bird flu crisis, Sanofi-Aventis promised WHO about 60 million doses based on the H5N1 strain. WHO is now talking with Sanofi to switch some or all of those vaccines over to swine flu doses.

Because more than 95 percent of flu vaccines are still made in eggs, experts say the Novartis announcement is unlikely to significantly boost the world's pandemic vaccine supply.

But the news pushed up Novartis shares by 4.4 percent to close at 45 Swiss francs ($41.84) on the Zurich exchange Friday.

WHO and nongovernment organizations like Oxfam are continuing to ask drugmakers to make some of their pandemic vaccines available for poorer countries at a cheaper price, as well as asking donor countries and organizations to pay for the doses.

But in a pandemic situation, WHO's attempts to secure vaccine for the poor and even the contracts countries have signed with drugmakers may make little difference to who actually gets the vaccine, some experts say.

In previous pandemics, vaccines have never left the country where they are made before all of that country's own needs have been met.

"WHO can say whatever it wishes, but pharmaceutical companies will take their marching orders from the politicians," said David Fedson, a vaccines expert and former professor of medicine at the University of Virginia.

"Do you think any doses of vaccine made in France, Germany, the Czech Republic or anywhere will be allowed out to go to other countries just because there's a contract?" Fedson said.

Ultimately, Fedson said health officials and politicians will have to deal with a limited amount of vaccine for the billions worldwide who want it. "There's a lot of dirtiness in vaccine politics," he said. "We may try our best, but we won't succeed in doing what's necessary."

Cornflakes, White Bread Could Boost Heart Risk

2009-06-14T02:37:00.000-07:00

Eating a diet rich in carbohydrates that boost blood sugar levels -- foods such as cornflakes or white bread -- may hamper the functioning of your blood vessels and raise your risk of developing cardiovascular disease, a new study suggests.

And another study, released Thursday at the Endocrine Society's annual meeting in Washington, D.C., found that people might actually feel fuller -- and might therefore eat less -- if they cut back a bit on carbohydrates in their diet.

In the first study, researchers from Israel's Chaim Sheba Medical Center and elsewhere evaluated 56 healthy but overweight or obese men and women, aged 35 to 60. None had diabetes or a history of hospitalizations for cardiovascular disease.

The researchers fed the men and women on four different mornings, following overnight fasts. They were served either glucose, cornflakes, high-fiber cereal or water, in descending order of glycemic index.

Low-glycemic index foods include oatmeal, most fruits and vegetables, legumes and nuts. White bread, cornflakes and instant potatoes are high-glycemic indexes. The higher the glycemic index, the more that food raises blood sugar levels.

Before and after the meals or the water, the team of researchers measured the functioning of the endothelium, the layer of cells that line the inside of blood vessels. If the endothelial function is poor, it is thought to increase the risk of cardiovascular disease.

The measurement used is called brachial artery flow-mediated dilation (FMD), which measures how well the endothelium is functioning. Researchers also measured the participants' blood sugar levels.

The blood sugar levels before and two hours after the meals were similar, but they were higher at 30 to 90 minutes after the high-glycemic meals.

The FMD was reduced two hours after eating for all groups, but the reduction was more marked after the high-glycemic meals.

The high-glycemic meals, the authors conclude, appeared to impair the endothelial function.

"Based on our study, we do urge consumers to have low-glycemic index carbohydrates instead of high-glycemic carbohydrates for better health and less potential hazards for the vascular endothelial function," said Dr. Michael Shechter, senior cardiologist at The Sackler Faculty of Medicine at Tel Aviv University in Israel.

"The main take-home message is that high-glycemic index carbs are dangerous since they reduce or inhibit endothelial function, which is the 'risk of the risk factors,' leading to atherosclerosis and potentially leading to heart disease," Shechter said.

Previous research has found that high blood sugar levels after meals is a risk factor for cardiovascular disease, not only in patients with diabetes but in the general population. Declining endothelial function is considered a key variable in the development of hardening of the arteries and heart disease.

The study is published in the June 16 issue of the Journal of the American College of Cardiology.

Another expert called the study "interesting" but added a caveat that more research is needed to confirm the findings. "The cross-over design is a real strength," said Barry Braun, director of the Energy Metabolism Laboratory at the University of Massachusetts, in Amherst. But he said some "dots" still need to be connected.

In the second study, researchers at the University of Alabama at Birmingham investigated whether a small cutback in dietary carbohydrates would actually boost that sense of satiety you get after eating.

Led by professor of nutritional sciences Barbara Gower, the team noted that Americans typically get 55 percent of their daily calories from carbs such as sugars, starches and fiber. This was the "control" diet used in the study. The team had other adult participants go on a moderate carb diet where 43 percent of calories came from carbohydrates. Protein intake (a major influence on satiety) was the same for both diets, but people on the moderate-carb diet took in a bit more fat to make up the difference.

The results: after a month, the 16 participants on the moderate carb diet had lowered blood insulin levels, more stable blood sugar, and a longer duration of a sense of fullness after a meal than did the 14 people on the control diet.

A longer time feeling full might translate into less snacking or eating and perhaps fewer added pounds, the team said. So, "over the long run a sustained modest reduction in carbohydrate intake may help to reduce energy consumption and facilitate weight loss," Gower said in a meeting news release.

UConn coach collapses after charity bike ride

2009-06-14T02:34:00.000-07:00

Connecticut basketball coach Jim Calhoun was hospitalized Saturday after he collapsed following a 50-mile charity bicycle ride during which he fell and broke five ribs.

Calhoun, 67, was taken to the UConn Health Center in Farmington, where he was listed in good condition. He was to be held overnight for observation and released Sunday, said Maureen McGuire, a hospital spokeswoman.

McGuire said Calhoun told her he hit a pothole and fell with about 16 miles to go in the ride, which began and ended in Simsbury, winding its way through northwestern Connecticut and part of southwest Massachusetts.

"He got back on the bike and finished the ride," she said. "Obviously, he's in extremely good physical shape. It was after he finished the ride, he was talking to some people and he did faint."

At the hospital, the Hall-of-Famer was told he had broken ribs during the fall.

Team spokesman Kyle Muncy said heat and dehydration contributed to the collapse, but said there were no other health concerns.

The Hartford Courant reported online that Calhoun was leaning against a car parked near the finish line at the Simsbury Performing Arts Center, when he slumped and fell to the ground as two friends reached for him.

The newspaper reported that Calhoun lay motionless and expressionless as his son Jeff and daughter-in-law Amy took off his shoes and socks and poured water on his forehead. By the time an ambulance arrived a few minutes later, he was conscious and sitting up, the newspaper reported.

He had to be talked out of driving by family and friends, including Boston Celtics star Ray Allen, who played under Calhoun at Connecticut.

"He's so stubborn, so stubborn," Allen told the Courant. "He doesn't want people to help him out. He's always been the type who feels he's invincible. I think we've all been there."

The annual Jim Calhoun Cancer Challenge Ride includes rides of 10, 25 and 50 miles. Organizers say it has raised almost $500,000 to benefit the Carole and Ray Neag Comprehensive Cancer Center at the University of Connecticut Health Center and Coaches vs. Cancer, a program established in 1993 by the American Cancer Society.

Calhoun is a three-time cancer survivor. A year ago, he underwent surgery and radiation treatments for squamous cell cancer, a type of skin cancer.

Calhoun, who has led Connecticut to three Final Fours and national titles in 1999 and 2004, missed the Huskies' first NCAA tournament game in March after being hospitalized for dehydration. Connecticut lost to Michigan State in the national semifinals.

Calhoun, who was inducted into the Basketball Hall of Fame in 2005, has a career record of 805-342, good enough for sixth place on the NCAA Division I career wins list. He is 557-205 at Connecticut.

Cotto retains WBO title with win over Clottey

2009-06-14T02:33:00.000-07:00

Under normal circumstances, the brutal fight that Miguel Cotto and Josh Clottey waged on the eve of the national Puerto Rican Day parade might have left fans clamoring for a rematch. Then again, with Manny Pacquiao sitting ringside, economics might prevail.

Overcoming a grisly early cut from an accidental headbutt and several ferocious rounds from Clottey, the gutsy Cotto fought to a narrow split decision Saturday night. He not only retained his WBO title inside a packed Madison Square Garden, he may have earned a big-money shot at Pacquiao, the reigning pound-for-pound king.

"The people have to wait until I rest a little bit," Cotto said, smiling through a face that was little more than a swollen mess.

"I think it's just rest now," Cotto said, "and after that I'll talk to the company."

With blood pouring down it from the fourth round on, the pride of Caguas and the roughly 800,000 New Yorkers who trace their roots to his island nation threw his arms up at the end of a close and exhilarating bout that left both fighters battered.

Referee Don Trella scored the fight 116-111 and John McKaie 115-112, both for Cotto, while Tom Miller had it 114-113 for Clottey. The Associated Press scored it 116-112 for Cotto.

"You have to use your skills and you have to use your mind," Cotto said. "I understood if I'm moving the last four or five rounds, I'm going to get the victory, because I'm in front of the fight. If I keep working I'm going to get the win."

Clottey was so devastated by the narrow loss that he screamed after the decision, "Oh no! This can't happen." Then he went to Top Rank promoter Bob Arum and said, "That's it, I quit, I'm done with boxing. I can't take it anymore."

Arum told Clottey that he fought "a magnificent fight and you have to continue."

Cotto doesn't exude the same kind of charisma of the great Puerto Rican fighters who came before him, champions such as Wilfredo Gomez and Felix Trinidad. But the soft-spoken Cotto still has a certain charm that seems to endear him to the 17,734 who poured out Saturday night in support.

The Garden was filled more than two hours before his fight went off, the red, white and blue flags flying above the multicolored seats of this mecca of boxing.

Cotto (34-1) got the fight going at his pace early, keeping his distance and trying to stay away from Clottey's signature body shots. Near the end of the first round, the champion landed a quick right hook that sent Clottey to the floor — a rare occurrence, if it's ever happened at all.

The Ghana native never appeared hurt, and the two spent most of the next two rounds jabbing at each other. With seconds to go in the third, though, Clottey trapped Cotto against the ropes and they clashed heads, opening a deep gash along the champion's left brow line. Referee Arthur Mercante Jr. gave the ringside physician extra time to examine it between rounds before allowing Cotto to continue.

"It got worse in the ninth and 10th rounds," physician Anthony Curreri said. "It started bleeding a lot more, but at the beginning of the round he'd go out every time and it'd be dry. But I'd tell him, 'We'll see how it goes.'"

With chants of "Cotto, Cotto" reverberating through the Garden, the gritty Puerto Rican wiped the blood from his eye and summoned the courage to keep on the attack.

"Guts, just guts" Arum said. "He could have taken the easy way out, because early on he was clearly ahead on points."

Cotto came out strong in the fifth round, and the two wound up boxing into the corner. When Cotto dove in to wrap his arms around Clottey (35-3), he spun him around and Clottey ended up falling face-first on the canvas, where he lay for several moments as Cotto stood calmly in a neutral corner.

The ringside doctor said Clottey hurt his right knee, and he seemed to be favoring it as he walked around. But after jogging and bouncing in place, Clottey elected to continue.

Turned out to be a poor choice.

Cotto had a big sixth round, trapping the challenger in the corner and forcing Mercante to yell "Josh, defend yourself!" And although Clottey had a few good moments, especially in the ninth round, Cotto asserted his immeasurable will during the championship rounds to seal the victory.

"They robbed me," Clottey said. "The winner of the fight is the one who's supposed to be fighting hardest. He was running and I was chasing. I threw the hardest punches. People said I'd lose the decision if it went to a decision, and it did. They robbed me.

'Lone wolf' terrorists elusive target for police

2009-06-14T02:32:00.000-07:00

An elderly man enters a crowded museum carrying a rifle and begins shooting. A young man in Arkansas pulls the trigger outside a military recruiting office. Another man opens fire in a Kansas church.

Three chilling, unconnected slayings in less than two weeks. One gunman was a white supremacist, one a militant Muslim, one a fervent foe of abortion.

Each suspect had a history that suggested trouble. Each apparently was driven to act by beliefs considered by some as extreme. Each shooter fits the description of a "lone wolf" terrorist, a killer whose attack, authorities say, is harder to head off than if planned by a trained terrorist network.

"It could be anyone. It could be the guy next door, living in the basement of his mother's place, on the Internet just building himself up with hate, building himself up to a boiling point and finally using what he's learned," said John Perren, head of the counterterrorism branch at the FBI's Washington field office.

Perren described the difficulty of hunting a lone wolf suspect in an interview with The Associated Press just two days before white supremacist James von Brunn allegedly shot and killed a guard at the U.S. Holocaust Memorial Museum.

"The lone wolf is what concerns the Washington field office, what concerns the FBI the most," he said.

Von Brunn had a criminal record and a Web site preaching virulent racism. Yet authorities say it is difficult to predict when someone will put down a laptop and pick up a gun.

When investigating a terrorist network, FBI agents can often access e-mails, phone records and documents to build a case. In some cases, they can develop informants to penetrate the group and provide intelligence.

But a killer acting alone rarely tells anyone what he's planning, let alone when or how. That makes it hard for authorities to determine who is prepared to commit a criminal act in furtherance of a perceived cause.

Trying to counter that threat, the FBI has created what it calls "tripwires." These are programs that seek tips from businesses whenever someone buys significant amounts of materials that can be used to make explosives, or large amounts of weapons or ammunition.

Such precautions seem to have worked in the case of a man who cleaned out his savings account in Utah and told the bank teller he was on a mission to kill President Barack Obama. The man, who relatives said suffers from mental illness, triggered a criminal investigation and he was eventually arrested.

In Washington, the white supremacist von Brunn apparently skirted such tripwires by using a vintage rifle from the early 20th century. With that single, small-caliber gun, a museum security guard was killed before other guards opened fire and disabled von Brunn.

The Southern Poverty Law Center, which tracks white supremacists, says the number of hate groups in the United States has risen 54 percent since 2000, fueled by opposition to Hispanic immigration and, more recently, by the election of the nation's first black president and the economic downturn.

"Today the vast majority of domestic terrorist attacks are in fact lone wolf or so-called leaderless resistance attacks," said the center's Mark Potok. "There are very few ways to prevent them ... short of assigning a police officer to every person in America."

The number of angry white men in America is getting larger, said Chip Berlet, senior analyst with Political Research Associates in Somerville, Mass., a think tank that studies right-wing extremists.

In particular, the heterosexual, white, Christian men in America feel they've been pushed out of the way, Berlet said. Attacking the Holocaust Museum is a no-brainer, he said, because white supremacists blame Jews for the advancement of black people.

"The idea that blacks are put in positions of power by crafty Jews is central to their conspiracy theory," Berlet said.

Other experts contend the white supremacist climate has not changed much over the years.

Charlie Allen, the former top intelligence officer at the Department of Homeland Security, said such hatred has been embedded in small parts of American communities. Under Allen's leadership, the department created an analysis branch that looked at extremist groups across the country.

A department assessment of domestic extremism found about 2,400 white supremacist Web sites; 72 blogs; 30 mailing lists; 213 user groups and clubs; and 25 online racist video games.

The agency says white supremacist organizations rarely publicly call for attacks.

Hundreds honor David Carradine at funeral

2009-06-14T02:31:00.001-07:00

Hundreds gathered to honor David Carradine at a sprawling hillside cemetery on Saturday during a funeral that was attended by family, former co-stars and other Hollywood friends.

The invitation-only services were held indoors at the Hall of Liberty at Forest Lawn-Hollywood Hills, a 400-acre cemetery laid out adjacent to Los Angeles' Griffith Park.

Mostly gloomy skies prevailed outside, with cold blasts of wind sweeping across the cemetery. The funeral lasted more than two hours and as more than 400 mourners left, clouds parted in the west offering a magnificent sunset.

Guests gathered and hugged outside the hall, where security ensured only invited guests gained entry.

They gathered more than a week after Carradine, 72, was found hanging in a Bangkok hotel room on June 4. Thai authorities continue to investigate his death. A statement released Thursday by a private pathologist said suicide had been ruled out as a cause of death.

Carradine's family stayed out of sight from a small group of reporters and cameras. His burial was private. Brothers Keith and Robert Carradine asked for privacy and understanding while the family mourned in a statement released on Thursday.

Keith Carradine briefly appeared outside before the service and greeted some people before heading back inside.

Among the hundreds of guests were numerous actors, including Michael Madsen, Jane Seymour, Tom Selleck, Frances Fisher, Daryl Hannah, Lucy Liu, Edward James Olmos, Ali Larter, and James Cromwell. Rob Schneider also attended, carrying a basket of flowers.

Madsen and Liu both starred alongside Carradine in Quentin Tarantino's two-part "Kill Bill" saga. Carradine married his fifth wife, Annie Bierman, at Madsen's home in 2004.

Carradine is perhaps best known for his role as Kwai Chang Caine on three seasons of the 1970s hit show "Kung Fu." His role in popular culture was cemented by the time he left the show after three seasons in 1975.

He later went on to star in the cult flick "Death Race 2000" and in Ingmar Bergman's "The Serpent's Egg" in 1977, but by the 1980s his career arc had moved to lower-budget fare.

He continued to foster interests in Asian herbs, exercise and philosophy, and made instructional videos on tai chi and other martial arts.

Tarantino's "Kill Bill" films offered Carradine a career resurgence. His role as the titular character earned Carradine a Golden Globe nomination for best supporting actor for his role in "Kill Bill — Vol. 2."

Carradine's father, John, was a character actor whose 50-year stage and screen career began during Hollywood's early years.

Some mourners on Saturday opted for bits of Western flair, with some sporting cowboy boots and hats and turquoise jewelry. Keith Carradine wore a bolo tie.

Programs handed out to guests included a photo of a smiling Carradine in a tuxedo on the cover and sketch of the actor on the back, above lyrics to "Midnight Rider" by The Allman Brothers Band.

The program indicated several remembrances by Carradine's family and song selections that included The Beatles' "Let It Be" and Ludwig von Beethoven's "Requiem for a Fallen Hero.

Springsteen's set for 'hard times' wows Bonnaroo

2009-06-14T02:30:00.001-07:00

Bruce Springsteen astonished the Bonnaroo crowd with a passionate three-hour performance, offering sweat and rock 'n' roll to inspire, he said, in "hard times."

Springsteen was the Saturday night headliner at the Tennessee music festival, where Phish was headlining both Friday and Sunday. It was a rare festival performance for Springsteen, who said it was only the second for him and the E Street Band.

His inexperience didn't show. After all, headlining Bonnaroo is only the third biggest concert Springsteen has played this year after the Super Bowl halftime show and President Barack Obama's inauguration.

Springsteen was running into the crowd — no easy feat on Bonnaroo's massive main stage — before the first song, "Badlands," was through. Throughout the evening, Springsteen would frequently leap into the crowd, whom he asked: "Is there anybody alive at Bonnaroo?"

"We didn't come all the way down to the beautiful Tennessee hills just to rock the house," said Springsteen early in the performance. "We came down here tonight because we want to build a house. That's right. Right here in this field. ... A house of love. A house of hope."

With his full band backing him — including both Max Weinberg and his 18-year-old son, Jay, switching off on drums — Springsteen launched into a performance that he pledged would show "the power of music."

The recession was never far from his mind.

Springsteen's songs of down-and-out characters and blue collar life had particular resonance. With songs like "Jersey Girl," "Johnny 99" and "Youngstown," Springsteen painted the current economic landscape. On "Youngstown" — off his 1995 album "Ghost of Tom Joad" — he sang from the perspective of a coal mine worker: "Once I made you rich/ Rich enough to forget my name."

For the first of several encores, he sang Stephen Foster's Civil War-era "Hard Times Come Again No More," introducing it as a song that has "stayed written" for more than 150 years because of its timelessness.

"You pick up the newspaper and you look out and you seen millions of jobs here in the country lost. Hundreds of thousands of jobs every month," said Springsteen. "If anybody ever told me I'd be part owner of General Motors, I wouldn't believe it.

"But you see things that I never thought I'd see. There's many, many folks struggling out there."

Springsteen brought the show to a climactic finish, playing crowd favorites "Tenth Avenue Freeze-Out," "Rosalita (Come out Tonight)" "Glory Days" and "Dancing in the Dark."

Bonnaroo and other mega-festivals today aren't known for political discourse. But Springsteen wasn't the only one with the economy on his mind Saturday.

Jenny Lewis, the singer-songwriter who sometimes fronts the band Rilo Kiley, performed earlier in the day, introduced a new song titled "Big Way," noting that she comes from "a state that's totally bankrupt": California. Lewis sang, "They're gonna get you in a big way."

Lewis was joined on stage for one number ("Carpetbaggers") by Elvis Costello, who also performed solo Saturday.

Other acts Saturday included the Decemberists, Nine Inch Nails, the Mars Volta, Of Montreal, Raphael Saadiq, Booker T, Bon Iver, Robyn Hitchcock and Allen Toussaint. One stage — dubbed "Tennessee Shines" — hosted bluegrass all day with acts such as the David Grisman Quintet and the Del McCoury Band.

After torrential lightning storms Thursday and humidity Friday, Saturday was the sunniest day yet at the eighth annual Bonnaroo, which concludes Sunday night with Phish's second performance.

None got the benefit of the good weather more than Wilco, who played a scintillating sunset performance, running the gamut of their earlier material as well as songs off their upcoming disc, "Wilco (The Album)."

The band played on the main stage before Springsteen, and Wilco frontman Jeff Tweedy could already feel the Boss's presence.

"If anybody boos us tonight, we have a built in excuse," said Tweedy. "They're just yelling 'Bruuuuuce.'"

Blago guest stars in 'Rod Blagojevich Superstar'

2009-06-14T02:29:00.001-07:00

Standing on a chair with his arms raised as if he were being crucified, ousted Illinois Gov. Rod Blagojevich opened a comedy show Saturday evening lampooning the rise and fall of his own political career.

Blagojevich, who has pleaded not guilty to wide-ranging federal corruption charges, made what one cast member described as a "surreal" guest appearance on The Second City's "Rod Blagojevich Superstar."

The show, a takeoff of the rock opera "Jesus Christ Superstar," was supposed to end June 14. But production officials extended the show — which portrays Blagojevich as greedy, tactless and hair-obsessed — to Aug. 9 because performances kept selling out.

A full house cheered as Blagojevich, who was removed from office in January, appeared on stage.

"Where were you when I was impeached?" he asked the audience.

Blagojevich is accused of scheming to sell or trade President Barack Obama's former U.S. Senate seat and using the muscle of the governor's office to get campaign donations. He has denied any wrongdoing.

Before the nearly hourlong show — which includes duets with an actor portraying U.S. Sen. Roland Burris — the ex-governor told the audience he hadn't seen the production before, but assured them it was "fictitious account" of his life.

Blagojevich, who was wearing a suit and tie, also worked in an endorsement of his wife, Patti, a contestant on NBC's reality show "I'm a Celebrity ... Get Me Out of Here!"

He asked people to vote for her to remain on the show, which asks viewers to decide which quasi-celebrity should leave a Costa Rican jungle.

NBC had wanted the former governor on the show. But U.S. District Judge James B. Zagel, who is presiding over Blagojevich's corruption case, refused to let him leave the country, so his wife joined the cast instead.

"In the tradition of Chicago politics, you can vote ten times," Blagojevich joked. "Vote early and often."

As soon as Blagojevich left the stage, cast members launched into a song that asks, "What kind of idiot sells a Senate seat?"

In the show, Patti Blagojevich was portrayed as cutthroat and foul-mouthed. One of the songs was an expletive-laden version of "I Don't Know How to Love Him."

The former Illinois first lady, who has not been charged with wrongdoing, was famously labeled a "potty mouth" after the FBI said it recorded profanity-laced rants against critics of her husband.

When Blagojevich returned to the stage for the improv portion of the show, he was asked what he thought of the rock opera.

A grinning Blagojevich had two words.

"It's b-------," he said.

Blagojevich told stories of his time in office. In one, he claimed that while he was governor, he liked to call the Chicago Cubs coaching staff to offer pitching advice.

Actors then used the stories as prompts for skits while Blagojevich watched them unfold.

Blagojevich spokesman Glenn Selig has declined to say how much Blagojevich would be paid for the Saturday appearance, but said the former governor will make a donation to Gilda's Club, a cancer support organization founded by Gilda Radner, a comedian and Second City alumna.

Actor Joey Bland, who portrayed Blagojevich by wearing a black turtleneck and helmet-like black wig, called it "the most surreal day of my life."

A few audience members guffawed as Blagojevich earnestly thanked the cast for making people laugh, but he assured them he was being serious.

Christian Albin, 'culinary Rip van Winkle,' dies

2009-06-14T02:27:00.000-07:00

Christian "Hitsch" Albin, who fed the world's luminaries for decades as executive chef of The Four Seasons — a restaurant that invented the "power lunch" — has died. He was 62.

Albin died at New York University Medical Center on Saturday, five days after being diagnosed with cancer, the restaurant's owners said in a statement.

The Swiss-born chef's hearty laughter filled the ritzy Manhattan restaurant's kitchen for 36 years, serving guests from Jacqueline Onassis and Elton John to President Clinton, Princess Diana and Martha Stewart.

"He was our hero: the man we always turned to when we knew we had to achieve the impossible," said the statement released by 50-year-old restaurant's managing partners, Julian Niccolini and Alex von Bidder.

The "impossible" at times meant wealthy, demanding guests "who would ask for everything you can possibly imagine!" Albin joked recently. "Like, an English muffin with an egg on top, for dinner."

He sent a waiter out to buy muffins — and the special request was served alongside fancier fare like filet of buffalo with truffle sauce.

A bigger-than-life man, he put in 14-hour days at the restaurant off Park Avenue. With him in the kitchen, The Four Seasons won a James Beard Award, equivalent to a culinary Oscar.

The chef had not been feeling right lately. He finally went to the doctor on Monday, when he was given his diagnosis.

He lived in Palisades, north of New York City in Rockland County.

Raised in a Swiss village near the town of Flims, he trained in Switzerland before moving to the United States in the early 1970s.

The whole world entered Albin's Four Seasons kitchen, where the best raw materials arrived daily from faraway lands and seas.

"Look at this salmon from Scotland!" he said with gusto one day just weeks ago, opening a refrigerator and pulling out the huge, gleaming fish that would be accompanied by a fine white wine — which he sipped from a glass before returning to the stoves.

Albin "has been our friend and our brother since we were all kids, three European immigrants who came to the U.S. at a very different time in the history of American restaurants," said Niccolini and von Bidder, natives of Italy and Switzerland, respectively.

Like them, Albin arrived when New York was expanding the concept of fine dining from standard steak-and-lobster restaurants to food created by "a culinary Rip van Winkle, reawakening what was once too-familiar fare with subtle but surprisingly adventurous new flavors," New York Magazine once said of him.

But fame never interested Albin. Instead, he enjoyed feeding hungry deliverymen and workers who came his way.

"He was always an old-school chef — a strong, compassionate manager who treated everyone fairly while demanding the best from his cooks," said Niccolini and von Bidder.

In addition to his Four Seasons colleagues, Albin is survived by his wife Hani Albin, daughter Stephanie, son Christopher and granddaughters Nicole and Claudia.

Funeral arrangements were pending.

Air France Plane Part Is Recovered by Merchant Ship in Atlantic

2009-06-14T02:25:00.000-07:00

A merchant ship traveling between Uruguay and the United Kingdom found a “medium size” piece of debris from the Air France plane crash site in the Atlantic Ocean, the Brazilian military said yesterday.

The Gammagas, a ship sailing under the flag of Antigua and Barbuda, recovered the debris, which will be transferred to the Brazilian Navy, Vice Admiral Edison Lawrence told reporters in Recife, northeast Brazil. Lawrence didn’t say from which part of the plane the piece came.

No more bodies or debris were recovered yesterday by the Brazilians, and an air search was called off for most of the day because of bad weather, said Ramon Borges Cardoso, an Air Force brigadier.

Air France Flight 447, en route to Paris from Rio de Janeiro with 228 passengers and crew, went down in the ocean on June 1. A Brazilian Navy ship carrying parts of the plane and personal belongings of the passengers will arrive today in the port of Recife, where they will be handed over to BEA, the French agency in charge of the investigation, Cardoso said.

For the first time, Brazil’s military used the expression “human remains” rather than bodies in yesterday’s briefing.

“The conditions in which the last ones were found do not allow us to say body,” Cardoso said.

Identifying the Bodies

Fifty bodies have been recovered and 37 of them are in Recife for identification by authorities, the military said yesterday. Another seven are on the Brazilian island of Fernando de Noronha island, nearer the crash site, for “pre- identification” procedures.

Cardoso said he will meet today in Recife with French ambassador Pierre-Jean Vandoorne, a diplomat named by the French government to follow the case and serve as a go-between with the families and authorities.

Vandoorne told relatives of passengers in Rio de Janeiro yesterday that they will be given “certificates of presence” on Flight 447, Brazilian state news service Agencia Brasil reported.

The papers, to be issued by Air France, are equivalent to death certificates, Agencia Brasil cited Vandoorne as saying. An official at the French Consulate in Rio de Janeiro said he couldn’t confirm this when contacted by Bloomberg News.

Black Boxes

Investigators are examining whether ice damage or an obstruction of the plane’s airspeed sensors caused unreliable readings that may have contributed to the crash.

Accurate airspeed readings are crucial because flying too quickly can damage a plane’s airframe, while traveling too slowly produces a stall and loss of control.

The French navy’s nuclear attack submarine Emeraude, equipped with advanced listening equipment, has joined the hunt for the flight recorders, known as black boxes. The devices may provide clues to what caused the crash.

Cardoso said on June 12 the authorities will review on June 19 how long the search will continue.

“Technically, there are possibilities of recovering bodies up to 20 days after the accident,” he said.

North Korea Says Any U.S.-Led Blockade Would Be an Act of War

2009-06-14T02:23:00.000-07:00

North Korea said any U.S. effort to enforce international sanctions over the communist nation’s nuclear program would be considered an act of war and be met with military force.

North Korea “strongly condemns and rejects” the United Nations Security Council’s Resolution 1874, the foreign ministry of the Democratic People’s Republic of Korea, or DPRK, said in a statement yesterday on the official Korean Central News Agency.

“No matter how hard the U.S.-led hostile forces may try all sorts of isolation and blockade, the DPRK, a proud nuclear power, will not flinch from them,” the statement said.

The Security Council two days ago unanimously approved a U.S.-backed resolution to punish North Korea for its May nuclear-bomb test and missile launches. The resolution authorizes stepped-up inspection of air or sea cargoes suspected of containing material usable in the development of nuclear weapons or ballistic missiles. The measure also calls for new restrictions on loans and money transfers to North Korea.

The vote followed almost three weeks of negotiations that began after North Korea detonated a suspected nuclear device on May 25, voided the 1953 armistice ending the Korean War and tested several missiles. Agreement on the text by China and Russia, two nations that previously resisted sanctions on North Korea, led to the Security Council consensus.

The UN resolution gives “the world community the tools we need to take action against appropriate action against the North Korean regime,” Secretary of State Hillary Clinton told reporters at a joint appearance with Canadian Foreign Minister Lawrence Cannon at Niagara Falls, New York. “The North Koreans’ continuing provocative actions are deeply regrettable.”

Uranium Enrichment

“We will weaponize all newly extracted plutonium and begin enriching uranium,” the official North Korean statement said. North Korea will also not give up its nuclear program, it said.

North Korea, which in 2002 denied U.S. allegations it had a highly enriched uranium program, has had success in developing enrichment technology, according to the statement. More than a third of spent fuel rods have been reprocessed for weapons-grade plutonium, it said.

North Korea has repeatedly warned that any move to seize its ships would be met with military retaliation. Kim Jong Il’s regime said it would no longer abide by the 1953 armistice after South Korea joined a U.S.-led initiative to curb weapons of mass destruction by seizing shipments.

Japanese Export Ban

Japan plans to ban all exports to North Korea in addition to sanctions agreed by the UN Security Council, the Nikkei newspaper reported yesterday, without saying where it got the information.

China warned of dangers involved in inspecting North Korean cargo under the Security Council sanctions, saying countries intercepting vessels should avoid armed action.

South Korea said it supports the Security Council resolution and urged the communist nation to return to the six- party disarmament talks.

Both Koreas have deployed military resources to their maritime border, the site of naval clashes in 1999 and 2002. South Korea dispatched a naval vessel equipped with anti-ship missiles and said it’s prepared to send fighter jets.

North Korea, which tested its first nuclear device in 2006, in April withdrew from six-party talks aimed at dismantling the nation’s nuclear-weapons program and expelled UN weapons inspectors. It fired short-range rockets after its May 25 nuclear detonation, and has warned of a third ballistic missile launch and a further nuclear test.

Clinton joined China and Russia in urging the government in Pyongyang to return to the nuclear disarmament talks.

‘Open Opportunity’

“The six-party framework, which the North Koreans left, turning their back on their obligations for denuclearization, is still an open opportunity,” Clinton said.

North Korea pulled out of six-nation disarmament talks with China, Russia, Japan, South Korea and the U.S in April after the UN censured its launch of a ballistic missile. The impoverished communist state last week also launched six short-range missiles and may be readying more missile tests.

Ahmadinejad Victory Sparks Clashes, Heralds Tension

2009-06-14T02:21:00.002-07:00

Iran’s Mahmoud Ahmadinejad won a second presidential term, heralding new tensions with the U.S. over the country’s nuclear program, as his opponents charged fraud and clashed with police on the streets of Tehran.

Ahmadinejad took almost 63 percent of the June 12 vote, according to official results announced yesterday, with his main rival, former Prime Minister Mir Hossein Mousavi, winning around 34 percent. Mousavi vowed he “won’t surrender” in the face of “numerous” irregularities.

The Iranian president, accused by rival candidates of unnecessarily stoking tensions with the West, may see success at the ballot box as a vindication of his stance. That could be a setback for President Barack Obama’s policy of engaging Iran in dialogue, rather than ostracizing it, as a means to ensure the Islamic republic doesn’t acquire nuclear weapons.

“It will be tougher under a resurgent Ahmadinejad, who strongly believes that his toughness and defiance in foreign policy have brought dividends,” said Richard Dalton, a former U.K. ambassador to Iran who is now an analyst at Chatham House, a research institute in London.

He said electoral fraud is “the best working hypothesis” to explain Ahmadinejad’s landslide win, though sustained protest against the result is unlikely because it would be viewed as “a coup attempt” and suppressed. “People will think twice before going up against the security forces,” he said.

Opposition Leaders Arrested

At least 10 leaders of two groups that backed Mousavi were arrested, Agence France-Presse reported, citing Rajab Ali Mazroei, an official of the Islamic Iran Participation Front. The Front and the Islamic Revolution Mujahedeen Organization were the groups targeted.

Former parliamentarian Mohsen Mirdamadi and Behzad Nabavi, a former deputy parliament speaker, were among those held, AFP said, and Mohammad-Reza Khatami, a brother of former President Mohammad Khatami, was probably detained also.

Secretary of State Hillary Clinton said the U.S. is “waiting and watching to see what the Iranian people decide.” White House Press Secretary Robert Gibbs said the administration is watching developments “including reports of irregularities.”

Arms Race

The Obama administration has concluded that it will have to continue its efforts to engage Iran and will have to deal with Ahmadinejad, an administration official said, speaking on condition of anonymity. The U.S. has fundamental interests at stake, including preventing a Middle East arms race, which requires pressing for Iran to abandon any pursuit of nuclear weapons, said the official.

Mousavi, 67, who called during the campaign for a more conciliatory approach to the West and acknowledged the shift in U.S. policy under Obama, claimed victory after polls closed on June 12, shortly before state-run media said Ahmadinejad had won.

Ahmadinejad, 52, had the backing of Ayatollah Ali Khamenei, Iran’s supreme leader who has the final say on all affairs of state. Khamenei moved to endorse the incumbent’s victory and discourage protests yesterday, describing the election as a “glittering event” and called for a day of “kindness and patience,” in comments read out on state television.

Claiming an electoral fix, Mousavi’s supporters yesterday clashed with ranks of anti-riot police guarding the Interior Ministry in Tehran, which served as the election headquarters.

Tear Gas, Batons

Protesters set fire to motorbikes belonging to police, who used tear gas and batons to disperse a crowd of several thousand chanting “fraud last night” and “Mousavi, Mousavi, get my vote back.”

“Iran belongs to its people and not to fraudsters,” Mousavi said in a statement on his Web site.

In a televised address last night, Ahmadinejad said he’d won a “great victory” in elections that were entirely “free.” He pledged to combat corruption and said the government must also tackle inflation and unemployment.

The official results “raise questions about the legitimacy of Ahmadinejad’s victory,” said Professor Anoush Ehteshami, a lecturer at the Centre for Iranian Studies at Durham University in northeastern England.

According to the official results, Ahmadinejad won 80 percent of the vote in Mousavi’s home town and former parliamentary Speaker Mehdi Karrubi, another candidate, got a “miniscule” proportion of votes in Lorestan, from where he comes, Ehteshami said.

Rural Support

About 39 million of the 46.2 million eligible voters cast their ballots in the election, the Interior Ministry said. Turnout was a record 85 percent, Interior Minister Sadegh Mahsouli said. There were no international monitors.

Ahmadinejad’s campaign targeted voters in the more religiously inclined countryside, where about a third of Iran’s 70 million people live. Since taking office in 2005, he has visited each of the country’s 30 provinces twice.

Press coverage of the campaign may have underestimated Ahmadinejad’s support in the countryside because “there was a concentration of reporters in Tehran,” said Ilan Berman, vice- president of the American Foreign Policy Council.

Rural voters helped Ahmadinejad win a surprise victory four years ago on a promise to redistribute oil wealth. During the campaign, Karrubi and Mousavi accused him of squandering windfall gains from higher oil prices. They argued that the government’s handouts and subsidies fuelled inflation that reached 24 percent in January, and helped push the unemployment rate to 10.5 percent.

Subsidy Spending

Spending on subsidies for goods such as sugar, wheat and cooking oils rose more than 50 percent from 2005 to 2007. With crude prices down about half from last year’s peak of $147 a barrel, Iran -- holder of the second-largest oil reserves in the world after Saudi Arabia -- faces widening budget deficits, the International Monetary Fund has warned.

Most of the region’s financial markets were closed yesterday as the election results emerged. The benchmark Tadawul stock index in Saudi Arabia, one of the few Middle Eastern markets open for trading, rose 2.6 percent as investors focused on expectations the global recession may be easing.

Israel said the re-election of Ahmadinejad showed the “enhanced” threat posed by Iran. The Islamic Hamas group, which rules the Gaza Strip and is supported by Iran, welcomed the outcome, saying it was a sign of “wide support” for Ahmadinejad’s policies.

‘Nuclear Proliferation’

British Foreign Secretary David Miliband noted in a statement “the concerns about the counting of ballots expressed by two of the candidates” and said the priority was “that Iran engages with the concerns of the world community, above all on the issues of nuclear proliferation.”

The French foreign ministry also released a statement saying it had taken note of the protestations over electoral fraud. The EU Presidency said it was “concerned about alleged irregularities during the election process.”

While key policy issues including Iran’s nuclear plans are ultimately decided by Khamenei, Mousavi said he was open to talks with the U.S. that would ease three decades of hostility between the countries, and promised unspecified confidence- building measures to allay international concerns about the atomic program, though the nuclear effort would be continued.

Iran is under three sets of United Nations sanctions over its refusal to halt uranium enrichment, a process that can generate fuel for a nuclear power reactor or a weapon. The country increased uranium production during the last three months and continued to stonewall inspectors investigating whether it is concealing a weapons program, the United Nation’s nuclear agency said on June 5.

‘Reverse Gear’

The U.S. and major allies including Israel say the nuclear program is a cover for the development of a weapon. The government in Tehran denies the charge, insisting the program is peaceful and designed to generate electricity.

Ahmadinejad has called the nuclear program a “train” in which Iran has “thrown away the reverse gear and brakes.” He further worsened Iran’s relations with the West by questioning Israel’s right to exist and the extent of the Holocaust.

The government in Tehran has supported militant Islamist movements such as Hamas and Lebanon’s Hezbollah. The U.S. also accused Iran of arming militant groups in neighboring Iraq that have killed American soldiers.

Now that Ahmadinejad has been re-elected, it will be “even harder for those who are skeptical in the U.S. Congress about Iran to suspend their disbelief, to agree to make concessions,” Dalton said. “But at the end of the day, it’s the only game in town.”

Six Flags Seeks Bankruptcy to Cut Debt $1.8 Billion

2009-06-14T02:21:00.001-07:00

Six Flags Inc., the owner of 20 theme parks, sought bankruptcy protection 3 1/2 years after Washington Redskins owner Daniel Snyder become chairman and hired new managers in an attempt to return it to profitability.

The Chapter 11 petition filed in U.S. Bankruptcy Court in Wilmington, Delaware, listed assets of $3 billion and debt of $2.4 billion as of Dec. 31. Thirty-six affiliates also sought protection.

Snyder began a shakeup of Six Flags in late 2005 after winning three seats on the board. The 48-year-old company hasn’t posted an annual profit since 1998 and had losses of $558.8 million in the two years after Snyder became chairman.

Six Flags shares have fallen 86 percent in the past 12 months as investors have grown skeptical about the company’s ability to refinance preferred income equity redeemable shares, or PIERS, before their August redemption date. On Aug. 15, $287.5 million in preferred stock matures and $131 million of 8.875 percent senior notes come due next year.

The company said in today’s statement it’s seeking court approval of a prearranged reorganization plan that will cut its debt by about $1.8 billion and eliminate more than $300 million worth of preferred stock obligations. The reorganization plan has yet to be filed with the court.

$1.3 Billion

The 20 largest creditors without collateral backing their claims are owed about $1.3 billion, according to court papers. HSBC Bank USA, National Association as Trustee for holders of the company’s 12.25 percent notes due 2016, is listed as the largest unsecured creditor. The principal amount due under the bonds is $400 million.

Any debt-for-equity exchange offers by the company have ended due to the bankruptcy filing, Six Flags said in the statement.

Six Flags, which has theme parks in the U.S., Canada and Mexico, had $79.4 million in cash and $2.31 billion in long-term debt as of March 31, according to its first-quarter financial statement.

Spokeswoman Sandra Daniels didn’t respond to a voice mail left by Bloomberg News seeking comment.

The lead case is: Premier International Holdings Inc., 09- 12019, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Pakistan Seeks $4 Billion IMF ‘Insurance’ to Cover Budget Gap

2009-06-14T02:20:00.000-07:00

Pakistan has asked the International Monetary Fund for a $4 billion stand-by loan to be used if foreign donors fail to deliver aid needed to fund a widening budget deficit.

The IMF facility is “insurance” if pledged assistance is delayed or does not arrive, Shaukat Tarin, finance adviser to the prime minister, told reporters in Islamabad today. The budget gap for the year starting July 1 is estimated at 4.9 percent of gross domestic product, higher than the 4.6 percent goal set by the Washington-based lender as part of its $7.6 billion bailout of South Asia’s second-biggest economy.

International donors meeting in Tokyo in April pledged to provide Pakistan with $5 billion to shore up the country’s ailing finances and fight terrorism. The government’s seven-week campaign against Taliban insurgents in the northwest Swat Valley has had an “extremely high cost” on the economy, Tarin said.

President Asif Ali Zardari moved troops into the North West Frontier Province in late April, aiming to purge the region of Islamic militants threatening the nation’s political stability. The offensive has created more than 2 million war refugees and has had what Standard Chartered described as a “devastating impact” on the resource-rich region.

“Terrorist attacks have undermined Pakistan’s macroeconomic stability and dampened growth prospects,” Junior Economics Minister Hina Rabbani Khar told parliament in Islamabad yesterday. “The global financial crisis seeped into the economy causing substantial decline in exports and a visible decline in foreign direct investment.”

War Refugees

The government plans to double relief spending for people displaced by the recent military operations and to rebuild damaged roads, buildings and bridges, Khar said as she unveiled the government’s 2009-2010 budget. Defense spending was higher than budgeted this fiscal year, Tarin said today.

The nation’s defense forces will be allocated 343 billion rupees ($4.2 billion) next year, a 16 percent increase on the estimated 296 billion rupees provided in the previous 12 months, according to budget documents. Military personnel will also receive a pay bonus.

“Defense and debt servicing costs may exceed estimates, resulting in a cut in development spending,” said Asif Qureshi, head of research at Invisor Securities in Karachi. “A lot of this budget will depend on external assistance being received in time because there are no real measures which will increase the tax base.”

Suicide Bombings

Pakistan’s economy has deteriorated over recent years as terrorist attacks in the major cities of Karachi, Lahore and Islamabad deter foreign investors and erode business confidence. Overseas direct investment plunged 14 percent in the 10 months ended April 30, to $3.2 billion.

Anti-Taliban cleric Sarfaraz Naeemi, along with six other people, was killed in a suicide bombing at a mosque and religious school in Lahore on June 12. That came three days after an attack on the five-star Pearl Continental hotel in Peshawar left 16 dead, including two United Nations officials.

The government hopes its latest offensive in the Swat Valley will help to restore stability in the North West Frontier Province, which accounts for about 10 percent of national GDP and 21 percent of Pakistan’s mining output.

Pakistan’s GDP growth slumped to 2 percent this year, down from an average annual 6.8 percent over the past five years.

Economic growth is estimated to accelerate to 3.3 percent in the year starting July 1, Khar said yesterday. The pace of expansion is forecast to quicken to 4 percent and 4.5 percent in the subsequent two years, she added.

‘Foremost Challenge’

“Our first and foremost challenge is to maintain macroeconomic stability,” said the junior minister, who was presenting the budget on behalf of Finance Adviser Tarin. Pakistan needs to “arrest as best we can the economic crisis and terrorism that threatens the very fabric of our economy, polity and society,” she said.

Pakistan was forced to turn to the IMF for a rescue package in November 2008 to help prop up its crumbling economy, after the nation’s foreign reserves plunged 75 percent in a year and the current-account deficit widened to a record.

Initial conditions for the IMF loan included a commitment by Pakistan to reduce its budget deficit to 3.4 percent of GDP next year, though the Washington-based lender last month agreed to relax that target to 4.6 percent to help “boost growth.”

Pakistan’s central bank also agreed to raise borrowing costs in order to secure the IMF bailout, increasing its benchmark rate by the most in a decade to 15 percent.

IMF Conditions

The measures adopted to get the IMF loan “underestimated” the impact of higher borrowing costs on the banking system and resulted in a “sharper-than-anticipated” slowdown in growth, according to Sayem Ali, an economist at Standard Chartered Plc in Karachi.

Government workers and retirees will receive a 15 percent pay rise amid higher living costs. Inflation peaked at a 30-year high of 25.3 percent in August 2008 and the government is targeting consumer price gains of 9.5 percent next year.

Weaker economic growth has prompted the government to look for new areas of revenue to prevent a fiscal blowout. Tax will be imposed on services and real estate next year and a 30 percent levy will be applied to corporate bonuses above 1 million rupees, Khar said in yesterday’s budget speech.

The government aims to collect a record 1.5 trillion rupees in taxes this year. Last year’s tax revenue is estimated at 1.18 trillion rupees, less than a targeted 1.25 trillion rupees.

Cement makers like Lucky Cement. Ltd., the nation’s biggest, and D.G. Khan Cement Co., the second-largest, will benefit from a reduction in duty and because of higher infrastructure spending, according to Imran Khan, research head at First Capital Equities in Karachi.

Car makers like Pak Suzuki Co., the biggest, and Indus Motor Co., which makes Toyota Motor Corp. cars, will also benefit due to a 5 percent reduction of import duties on assembly kits, Khan said.

Dow Industrial Average Erases 2009 Decline on Economic Recovery

2009-06-14T02:18:00.002-07:00

The Dow Jones Industrial Average erased its 2009 loss, becoming the last major U.S. stock gauge to give investors a profit for the year, as confidence increased that the worst recession since World War II is ending.

The Dow, down 25 percent on March 9 after its worst start to a year, completed the recovery yesterday after rising four straight weeks. American Express Co., the biggest U.S. credit- card company by purchases, and International Business Machines Corp., the largest computer-services provider, are up the most in 2009 among the average’s 30 companies.

Speculation that $12.8 trillion in government spending will revive growth helped push the Dow above breakeven after the bankruptcy of General Motors Corp. and more than $100 billion of losses at Citigroup Inc. led the gauge lower. The 113-year-old average wiped out its 2009 loss two weeks after the S&P 500 and nine weeks after the Nasdaq Composite Index.

“We’re reaching a bottom in the economy and looking forward to the climb out,” said Hans Olsen, who helps oversee $120 billion as chief investment officer of JPMorgan Private Wealth Management in New York. “The Dow erasing its losses is clearly good news. The Dow holds a special place in investor psyche.”

U.S. stocks rose this week, pushing the S&P 500 to the highest level since November, after oil’s climb above $72 a barrel drove energy stocks to a seven-month high.

Schlumberger Ltd. and Halliburton Co. gained more than 5 percent since June 5 as oil rallied. Bank of America Corp. soared 16 percent after analysts at Morgan Stanley and Stifel Financial Corp. raised their profit estimates for the lender.

Higher Yields

A measure of utilities jumped 3.8 percent, the most among the S&P 500’s 10 industries this week. Goldman Sachs Group Inc. said in a June 11 report that it’s becoming bullish on the group because of its higher dividend yield compared with the payout on 10-year Treasuries. The S&P 500 Utilities Index has a yield of 4.66 percent, compared with 3.79 percent on the 10-year note.

The Dow climbed for a fourth week, increasing 36.13 points, or 0.4 percent, to 8,799.26. It ended 2008 at 8,776.39. The S&P 500 added 0.7 percent to 946.21.

“We’re still relatively optimistic toward the equity market,” said Marc Harris, co-head of global research at RBC Capital Markets in New York. “In the short term, we may be stalled out, but we’re starting to see the right kind of recovery.”

266% Surge

The Dow, now up 0.3 percent in 2009, has risen 34 percent from a 12-year low on March 9 in the steepest 68-day rally since November 1982, the start of a bull market that lasted five years. Bank of America, based in Charlotte, North Carolina, and American Express of New York increased the most during the surge, jumping 266 percent and 136 percent, respectively.

American Express is up 36 percent in 2009. It reported more first-quarter profit than analysts estimated and won approval to repay the government’s Troubled Asset Relief Program.

IBM has gained 29 percent this year as the world’s biggest computer-services provider increased its dividend by 10 percent to expand shareholder returns after scrapping a bid to buy Sun Microsystems Inc.

Sixteen of the 30 companies that began the year in the Dow remain lower for 2009. Last week, Wall Street Journal editors who oversee the gauge kicked out the two worst-performing companies, Citigroup and GM, and replaced them with New York- based insurer Travelers Cos. and San Jose, California-based Cisco Systems Inc., the biggest maker of network equipment.

Pfizer, GE Drop

Pfizer Inc., the New York-based drugmaker, and General Electric Co., the Fairfield, Connecticut, maker of power-plant turbines that got 33 percent of its operating profit last year from lending, have both slumped 17 percent since Dec. 31.

New York-based Citigroup, once the world’s biggest financial company by assets, and Detroit-based GM, formerly the largest automaker, have plunged 48 percent and 63 percent this year, respectively. The first global recession in seven decades crippled their earnings.

The Dow turned positive in 2009 for the first time since Jan. 6 as better-than-estimated data on jobless claims and retail sales bolstered confidence the economy is recovering. The Conference Board’s measure of leading economic indicators, including stock prices and manufacturing, increased in April for the first time since June 2008.

“If you’re a long-term investor, this is a great time to buy,” said Frank Ingarra, the Stamford, Connecticut-based manager of the $167 million Hennessy Focus 30 Fund that beat 98 percent of its peers in the past five years. “People are starting to get the feeling that they’re missing out on something big.”

Kudrin Says Russia Has Full Confidence in Dollar

2009-06-14T02:18:00.001-07:00

Russia has full confidence in the dollar and there are no immediate plans to switch to a new reserve currency, Finance Minister Alexei Kudrin said.

“It’s too early to speak of an alternative” to the dollar, Kudrin said in Lecce, Italy, in a television interview today after meeting with finance chiefs from the Group of Eight nations. The fundamentals of the dollar are still in “good shape.”

Russia’s central bank said on June 10 some reserves may be moved from U.S. Treasuries into International Monetary Fund debt, reiterating comments made last month by Kudrin. That drove Treasuries and the dollar lower. Kudrin said yesterday that Russia’s announcement on May 26 to buy $10 billion of IMF bonds did not represent “a significant change” in his country’s stance on the dollar.

The dollar declined against a majority of the most-traded currencies as Brazil and Russia joined China in saying they would shift some $70 billion of reserves from U.S. Treasuries into multicurrency bonds. The dollar’s drop also reflected concern that record debt sales and deficits will erode the value of the U.S. currency.

The dollar dropped 0.4 percent to $1.4016 per euro yesterday, from $1.3968 on June 5. The U.S. currency fell 0.2 percent to 98.43 yen, from 98.64 yen a week earlier. The euro was little changed at 137.89 yen, from 137.81 yen.

BRIC Summit

Leaders of Brazil, Russia, India and China, the so-called BRIC countries, are scheduled to meet on June 16 in Russia to discuss their economies.

Asked about the global economic outlook, Kudrin said “uncertainties are still there” and any change in the future stance on the dollar “will depend on the state” of the global economy. It was too early to talk about stability in oil prices, he said.

Crude for July delivery tumbled as much as 2.6 percent to $70.80 a barrel on the New York Mercantile Exchange.

Obama Outlines $313 Billion in Health-Care Savings

2009-06-14T02:17:00.001-07:00

President Barack Obama said the government can save $313 billion over the next 10 years by forcing greater efficiency in Medicare, demanding better prices from drugmakers and cutting the number of uninsured Americans.

Obama, in his weekly address on the radio and Internet, outlined the projected savings to help demonstrate that his plan to revamp the U.S. health-care system won’t add to a deficit that’s projected to swell to a record $1.8 trillion this year.

“These savings underscore the fact that securing quality, affordable health care for the American people is tied directly to insisting upon fiscal responsibility,” Obama said.

How to pay for the overhaul has emerged as one of the key points of debate as the administration and Congress work to meet the October deadline Obama set for final passage of legislation. The $313 billion would be in addition to the $635 billion “down payment” the president put into his fiscal 2010 budget for the health-care proposal. The earlier figure includes a combination of tax increases for wealthier Americans and other savings in the federal Medicare and Medicaid programs.

White House Budget Director Peter Orszag said the additional revenue along with cuts and projected savings will cover the estimated $1 trillion cost of a health-care overhaul even if the final, total figures “are still undetermined.”

“We are making good on this promise of fully financing health care reform over the next decade,” Orszag said in a conference call with reporters yesterday.

Higher Estimates

The administration’s cost estimates are lower than those of private analysts. Gail Wilensky, a former administrator at the Centers for Medicare and Medicaid Services, has said the cost may approach $1.5 trillion and other projections are as high as $2 trillion.

In a fact sheet released with the president’s address, the administration projects that “productivity adjustments” to Medicare payments tied to productivity gains in the broader economy would save $110 billion over a decade. It would “encourage greater efficiency” while “more accurately aligning Medicare payments with provider costs,” the fact sheet says.

A further $106 billion would be saved by expanding the number of people with insurance coverage. That would cut payments the government makes to hospitals for treating uninsured patients, according to the administration.

Pledge to Industry

Citing a May pledge by industry groups, including the Pharmaceutical Research and Manufacturers of America, to reign in the growth of medical costs, Obama is projecting $75 billion in savings through “better prices” for drugs paid for in the Medicare prescription program. They way to do that would be part of negotiations with Congress, the fact sheet says.

The administration estimates $22 billion would be saved through such steps as adjusting payment rates for magnetic resonance imaging and similar procedures, as well as for skilled nursing and rehabilitation services and cutting waste and abuse.

“These savings are rooted in the same principle that must guide our broader approach to reform: we will fix what’s broken, while building upon what works,” Obama said.

The president’s address today expands on measures he outlined earlier this week at an event in Green Bay, Wisconsin. As he continues to lobby the public and the health-care industry, he will travel to Chicago June 15 to give a speech to the annual meeting of the American Medical Association, the nation’s largest doctors’ group.

Economic Link

“This is the moment when we must reform health care so that we can build a new foundation for our economy to grow,” Obama said in his radio address today.

In Congress, lawmakers are working on health-care legislation that will include tax increases and spending cuts.

The Senate Finance Committee may unveil a draft bill by the middle of next week. Yesterday, members of the House Ways and Means Committee met to confront what Chairman Charles Rangel, a New York Democrat, called the “heartburn” of trying to find a way to pay for it.

The Republicans in their weekly address turned to another subject, energy.

Representative Mike Pence said Democratic legislation to curb emissions of greenhouse gases through a so-called cap-and- trade system would cost American families $4,300 per year in higher energy costs and lead to the loss of U.S. jobs.

“This national energy tax amounts to an economic declaration of war,” Pence, of Indiana, said in the radio and Internet address. “That’s a heavy price to pay for a plan that will do very little to clean up our environment.”

Domestic Exploration

As an alternative, Pence said Republicans are offering an “all-of-the-above” energy plan. It calls for greater domestic oil and gas exploration, expanded use of nuclear power, investments in alternative and renewable energy sources and incentives for conservation, he said.

Pence said it is “the comprehensive energy solution this country desperately needs to achieve energy independence, create good jobs and help our environment.”

Obama’s address and details of the cost savings were released to reporters last night with the understanding that they wouldn’t be published until 6 a.m. today. The Wall Street Journal published a story on its Web site reporting the speech and the savings early this morning.

G-8 Starts Planning Stimulus Exit Strategies on Recovery Signs

2009-06-14T02:16:00.000-07:00

The Group of Eight nations began considering how to reverse the emergency steps they took to rescue the world economy as it shows signs of recovery.

As they delivered their most upbeat outlook since Lehman Brothers Holdings Inc. collapsed, G-8 finance ministers said they will start planning exit strategies for when sustainable growth returns. It’s still too soon to roll back budget deficits and bank bailouts, they said after a meeting in Lecce, Italy.

“We discussed the need to prepare appropriate strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured,” the ministers said in a statement yesterday after two days of talks. There are “signs of stabilization,” though “the situation remains uncertain.”

Governments are under pressure to turn their attention from fighting recession to smoothing a recovery as investors worry more than $2 trillion in stimulus programs will spark inflation if left unchecked. The officials bickered over whether Europe is endangering a rebound by refusing to impose stricter health checks on individual banks.

“Early signs of improvement are encouraging, but the global economy is still operating well below potential and we still face acute challenges,” U.S. Treasury Secretary Timothy Geithner told reporters. Central bankers didn’t attend this meeting and neither interest rates nor foreign exchange were mentioned in the statement.

Inflation

Signs the worst slump since World War II is moderating are prompting central bankers and investors to warn that inflation will accelerate if governments don’t cut back. U.S. Treasury 10- year note yields last week reached 4 percent for the first time since October.

“There is a distinct shift in tone” from the G-8, said Eswar Prasad, an economist at the Brookings Institution in Washington. Still, “rising interest rates due to concerns about fiscal deficits and prospects of inflation could choke off a nascent recovery.”

The governments didn’t outline how they will tighten policy once they deem their economies to be strong enough to take it and tasked the International Monetary Fund with studying ways to do so. They pledged to coordinate so as not to distort markets and economies as happened during the rush to save banks.

While German Finance Minister Peer Steinbrueck sought a “credible exit strategy” to avoid inflation, Geithner and U.K. Chancellor of the Exchequer Alistair Darling warned against hurting the global economy by acting prematurely.

Policy Restraint

“It is too early to shift toward policy restraint,” Geithner said. Darling said “no one is talking about exiting yet.”

The G-8 met a day after data showed consumer confidence rose for a fourth month in the U.S. in June, and climbed to a 14-month high in May in Japan. U.S. stocks advanced last week, erasing the Dow Jones Industrial Average’s 2009 loss.

Home Depot Inc., the world’s largest home-improvement chain, said June 10 that fiscal 2009 profit may decline less than it had projected, or not at all. Virgin America Inc., an airline partly owned by U.K. billionaire Richard Branson, said June 12 that its first-quarter net loss narrowed to $40.3 million as the carrier filled more seats on its planes.

“There are increased signs of stabilization in our economies,” the G-8 said. Still, it cited rising unemployment as a challenge and pledged to keep taking “all necessary steps to put the global economy on a strong, stable and sustainable growth path.”

Stress Tests

Stress tests were debated at the meeting, with euro-area governments reluctant to follow the U.S. by examining the capital needs of particular banks. They argue that the region’s institutions are too diverse to evaluate by a single standard and that publishing results could rekindle the crisis. They have instead conducted a test of their whole financial system, although still refuse to reveal the details.

By contrast, U.S. financial firms unveiled plans to raise more than $100 billion since government tests of the 19 largest banks found that 10 needed $74.6 billion of additional capital to weather a more severe recession.

Concern Europe isn’t doing enough is starting to undermine the euro and the IMF predicts the region’s banks will need to write down $750 billion through next year. The euro has fallen 11 percent against the pound since the start of the year.

“We want stress tests, but stress tests of the system not related to individual banks,” Steinbrueck told reporters in Lecce. “The European banking sector, and the German one in particular, is a lot more heterogeneous than the North American one.”

French Finance Minister Christine Lagarde said European leaders are not yet ready to commit to deeper probes of their banks though she backs greater transparency. The Financial Stability Board was charged with comparing the various tests, she said.

Resistance

European resistance drew criticism ahead of the talks from Canadian Finance Minister Jim Flaherty, who said it could impede a revival of the world’s financial markets and economy. The G- 8’s statement made no mention of the topic.

“There is more work to be done in some other European countries with respect to their banking systems,” Flaherty said in Lecce. “Around the world one needs that assurance between economies that the system is reliable and trustworthy.”

Flaherty said after the meeting that he was “much less frustrated” by Europe’s position after all G-8 officials agreed the importance of studying the banks.

Dollar Support

The dollar got some support from Russian Finance Minister Alexei Kudrin, whose central bank on June 10 sparked a drop in Treasuries after saying some of its reserves may be shifted out of U.S. bonds. Kudrin said in an interview with Bloomberg Television in Lecce that he has confidence in the dollar and there are no immediate plans to switch to a new reserve currency.

While the absence of central bankers limited discussion of exchange rates, Steinbrueck said he wasn’t concerned by the euro’s value against the dollar. IMF Managing Director Dominique Strauss-Kahn said he didn’t see a “weak dollar.”

The G-8 is composed of the U.S., Japan, Germany, France, U.K., Canada, Italy and Russia. Its ministers met to shape an agenda for when their leaders convene July 8-10 in L’Acquila, Italy.

Production Probably Fell, Housing Gained: U.S. Economy Preview

2009-06-14T02:10:00.000-07:00

Reports on manufacturing and housing this week will probably offer evidence that the recession- stricken U.S. economy is within months of hitting bottom, economists said.

A 1 percent drop in industrial production in May, based on the median of 68 estimates in a Bloomberg News survey, was due mainly to auto-industry shutdowns that swamped gains elsewhere, analysts said. Other reports may show builders began work on more houses as sales steadied and consumer prices rose.

The fallout from bankruptcies at Chrysler LLC and General Motors Corp. is likely to reverberate through the industry and the economy in coming months, even as other areas stabilize. Plunging home prices, near-record low mortgage rates and tax credits for first-time buyers may help bring an end to the worst residential construction slump in seven decades.

“With Chrysler closing and GM downsizing, it’s going to be pretty ugly,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. Still, “we’re in the process of hitting the trough of the recession, which we’ll probably see within the next few months.”

A decrease in the Federal Reserve’s production figures, due June 16, would be the 16th in the last 17 months. The report is also projected to show the proportion of plant capacity in use probably dropped to 68.4 percent, the lowest since records began in 1967, according to the survey median.

Plant Shutdowns

Chrysler shut all its plants on May 1 to clear as many unsold vehicles as possible from dealer lots while it restructures. The sale of most of Chrysler’s assets to a group led by Italian automaker Fiat SpA was completed last week.

GM, the biggest U.S. automaker, said June 1 it is stopping work at 14 plants as it restructures under Chapter 11.

General Electric Co. is among companies starting to see some improvement in economic conditions. Chief Executive Officer Jeffrey Immelt said at a conference last week that government efforts to thaw credit are starting to pay off, making it easier for companies to borrow.

“Capital markets have largely healed,” Immelt said. “As a company you have to invest now. You have to invest when things are darkest.” Immelt predicted the economic recovery will be slower than that following the 1982 recession, the last slump that approached the severity of the current downturn.

One positive aspect of the excess in capacity is that it will help control inflation should raw-material costs keep rising, economists say. Consumer prices probably rose 0.3 percent in May as gasoline prices climbed, according to the survey median before a Labor Department report on June 17.

Less Inflation

Core consumer prices, which exclude food and energy, rose 0.1 percent in May after a 0.3 percent gain the prior month, according to the survey.

“The slack in resource utilization remains sizable, and, notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued,” Fed Chairman Ben S. Bernanke told Congress on June 3. “We anticipate that inflation will remain low.”

Concern over the amount of money the Fed has pumped into financial markets and the size of upcoming government security auctions to pay for stimulus efforts has caused interest rates on Treasuries to shoot higher in recent weeks.

The yield on the benchmark 10-year note reached 3.95 percent at the close on June 10, after being as low as 2.54 percent on March 18, the day the Fed announced it would buy Treasury securities in a bid to push borrowing costs down.

Housing Steadies

The housing recession that triggered the credit crisis and global slump is showing signs of bottoming as sales and construction have stabilized near historically low levels.

A Commerce Department report on June 16 may show housing starts last month rose 5.9 percent to a 485,000 annual pace from the prior month’s five-decade low, while permits rose to 509,000 from the prior month’s record low of 498,000.

Builders are still hurting after having to mark down prices in an effort to spur demand. Toll Brothers Inc. and Hovnanian Enterprises Inc. last week both reported their second-quarter losses exceeded analysts’ estimates.

“There is no question we’ve come down a pretty steep hill,” Michael Feder, chief executive officer of Radar Logic Inc., a research and analytics company that tracks home prices, said in a Bloomberg Television interview on June 10. Still, stabilization in home values in recent months is “in great contrast to last year,” he said.

Figures from the Conference Board may point to recovery later in the year. The New York-based private research group’s index of leading economic indicators, due June 18, probably rose for a second month in May, according to the survey median. It would be the first back-to-back increase since September-October 2006. The gauge signals the direction of the economy over the next three to six months.

Hormone pills may make lung cancer more deadly

2009-05-30T10:11:00.000-07:00

There's more troubling news about hormone therapy for menopause symptoms: Lung cancer seems more likely to prove fatal in women who are taking estrogen-progestin pills, a study suggests.

Hormone users who developed lung cancer were more than twice as likely to die from the disease as women who weren't taking hormones, according to results reported Saturday.

The new findings mean that smokers should stop taking hormones, and those who have not yet started hormones should give it careful thought, said Dr. Rowan Chlebowski of Harbor-UCLA Medical Center in Los Angeles. He led the analysis and presented results at a meeting of the oncology society in Florida.

It's the latest finding from the Women's Health Initiative, a federal study that gave 16,608 women either Prempro or dummy pills. The study was stopped in 2002 when researchers saw more breast cancers in those on Prempro, the estrogen-progestin pill made by Wyeth Pharmaceuticals. They continue to follow what happens to women in the study.

The new analysis looked at non-small-cell lung cancer, by far the most common type. It found no big difference in the number of lung cancers that developed in hormone users after five years on the pills and more than two years of followup.

However lung cancer proved fatal in 46 percent of hormone users who developed it versus 27 percent of those given dummy pills.

"It's another piece of evidence to suggest that hormone replacement therapy should be used with great caution," said Dr. Richard Schilsky, a cancer specialist at the University of Chicago and president of the American Society of Clinical Oncology.

Women who take hormones already are advised to use the lowest dose for the shortest time possible, doctors said. "Women almost certainly shouldn't be using combined hormone therapy and tobacco at the same time," Chlebowski said.

Still, there have been only 106 lung cancer deaths in the study so far — too few to make sweeping conclusions about risk, said Dr. Len Lichtenfeld of the American Cancer Society.

And most women no longer use hormones the way they used to, said Wyeth's Dr. Joseph Camardo. In the federal study, women started on them at an average age of 63 and took them for more than five years. Now, the typical age of starting is 51 to 54, and average use is two years, Camardo said. The same risks may not apply with the new patterns of use, he said.

Researchers have not yet analyzed lung cancer risk in another part of the federal study that tested estrogen alone without progestin.

Lung cancer is the world's top cancer killer. In the United States, there were more than 215,000 new cases and nearly 162,000 deaths from it last year.

Oklahoma druggist arrested for killing holdup man

2009-05-30T10:09:00.000-07:00

Confronted by two holdup men, pharmacist Jerome Ersland pulled a gun, shot one of them in the head and chased the other away. Then, in a scene recorded by the drugstore's security camera, he went behind the counter, got another gun, and pumped five more bullets into the wounded teenager as he lay on the floor.

Now Ersland has been charged with first-degree murder in a case that has stirred a furious debate over vigilante justice and self-defense and turned the pharmacist into something of a folk hero.

Ersland, 57, is free on $100,000 bail, courtesy of an anonymous donor. He has won praise from the pharmacy's owner, received an outpouring of cards, letters and checks from supporters, and become the darling of conservative talk radio.

"His adrenaline was going. You're just thinking of survival," said John Paul Hernandez, 60, a retired Defense Department employee who grew up in the neighborhood. "All it was is defending your employee, business and livelihood. If I was in that position and that was me, I probably would have done the same thing."

District Attorney David Prater said Ersland was justified in shooting 16-year-old Antwun Parker once in the head, but not in firing the additional shots into his belly. The prosecutor said the teenager was unconscious, unarmed, lying on his back and posing no threat when Ersland fired what the medical examiner said were the fatal shots.

Anthony Douglas, president of the Oklahoma chapter of the National Association for the Advancement of Colored People, called it an "execution-style murder" and praised the district attorney for bringing charges. Ersland is white; the two suspects were black.

Parker's parents also expressed relief that Ersland faces a criminal charge.

"He didn't have to shoot my baby like that," Parker's mother, Cleta Jennings, told TV station KOCO.

But many of those who have seen the video of the May 19 robbery attempt at Reliable Discount Pharmacy have concluded the teenager in the ski mask got what he deserved.

Mark Shannon, who runs a conservative talk show on Oklahoma City's KTOK, said callers have jammed his lines this week in support of Ersland, a former Air Force lieutenant colonel who wears a back brace on the job and told reporters he is a disabled veteran of the Gulf War.

"There is no gray area," Shannon said. One caller "said he should have put all the shots in the head."

Don Spencer, a 49-year-old National Rifle Association member who lives in the small town of Meridian, 40 miles north of Oklahoma City, said the pharmacist did the right thing: "You shoot more than enough to make sure the threat has been removed."

Barbara Bergman, past president of the National Association of Criminal Defense Lawyers and a professor at the University of New Mexico School of Law, likened the public reaction to that of the case of Bernard Goetz, the New Yorker who shot four teenagers he said were trying to rob him when they asked for $5 on a subway in 1984.

Goetz was cleared of attempted murder and assault but convicted of illegal gun possession and served 8 1/2 months in jail.

Bergman said those who claim they used deadly force in self-defense have to show they were "in reasonable fear of serious bodily injury."

The pharmacy is in a crime-ridden section of south Oklahoma City and had been robbed before.

The video shows two men bursting in, one of them pointing a gun at Ersland and two women working with the druggist behind the counter. Ersland fires a pistol, driving the gunman from the store and hitting Parker in the head as he puts on a ski mask.

Ersland chases the second man outside, then goes back inside, walks behind the counter with his back to Parker, gets a second handgun and opens fire.

Irven Box, Ersland's attorney, noted the outpouring of support for the pharmacist, including $2,000 in donations, and said: "I feel very good 12 people would not determine he committed murder in the first degree."

Under Oklahoma's "Make My Day Law" — passed in the late 1980s and named for one of Clint Eastwood's most famous movie lines — people can use deadly force when they feel threatened by an intruder inside their homes. In 2006, Oklahoma's "Stand Your Ground Law" extended that to anywhere a citizen has the right to be, such as a car or office.

"It's a 'Make-My-Day' case," Box said. "This guy came in, your money or your life. Mr. Ersland said, `You're not taking my life.'" The gunman "forfeited his life."

Box said that another person might have reacted differently, but he asked: "When do you turn off that adrenaline switch? When do you think you're safe? I think that's going to be the ultimate issue."

If convicted, Ersland could be sentenced to life in prison with or without parole, or receive the death penalty.

Jevontia Ingram, the 14-year-old boy accused of wielding the gun in the robbery, was arrested Thursday. The district attorney on Friday filed a first-degree murder charge against him, as well as against a man accused of being the getaway driver, and another man suspected of helping talk the teens into the crime.

The charges accuse all three of sharing responsibility for Parker's shooting death.

Quick-thinking pizza man leads cops to rape victim

2009-05-30T10:08:00.000-07:00

Chris Turner normally wouldn't drive into the remote Tennessee mountains just to deliver a pizza. The one time he did, he came upon a scene that drained the color from his face and made him "numb from head to toe" — a woman with her hands tied, silently begging him to call 911.

It was no joke, and Turner, 32, rushed to a nearby house and made the call. Police say the woman was jogging in her Atlanta neighborhood when she was whisked away by a man who frequented her business. Authorities say he drove her off, raped her and held her captive inside a cabin. The 24-year-old woman was rescued by Sevier County deputies on Tuesday evening because of Turner's quick thinking.

Turner told The Associated Press on Friday that he noticed the woman pop up from a couch while the suspect signed the credit card slip.

"While I was standing in the door all you could see was the back of the couch," Turner said. "And then she popped over the back of the couch and showed me that her hands were bound. And she was just mouthing, 'Please call 911.'"

Turner at first thought it was a joke.

"When I realized what was going on, I went numb from head to toe and turned pale white," he said.

Turner tried to look calm. "Have a nice day. Enjoy your food," he told the suspect, who tipped him $5 on a $37.69 bill. Then he rushed back to his van, where his wife, Nease, was waiting behind the wheel.

"Go, go, go!" he told her.

The cabin location was out of cell phone range. So they drove to a nearby house and called police. They waited to make sure the suspect didn't flee. Then Turner stayed to see the man arrested and the victim taken away in an ambulance. "I wanted to make sure she was OK," he said.

The woman told authorities she was jogging near her home about 11:50 a.m. Tuesday when a frequent customer at a restaurant and bar owned by the woman and her husband asked her to see his new car. She got into the vehicle, which turned out to be a rental, and was immediately tied up.

She told police the suspect drove her more than 200 miles to the cabin in Tennessee and raped her. The Associated Press does not identify alleged sexual assault victims.

Police arrested David J. Jansen, 46, of Snellville, Ga., without a struggle on charges of aggravated kidnapping and rape, Sheriff Ron Seals said in a statement. He was released on $800,000 bond late Thursday. His attorney, Donald Bosch of Knoxville, had no comment Friday.

Capt. Jeff McCarter refused to discuss the case Friday. But he earlier told The Mountain Press newspaper that officials believe the woman was in imminent danger.

The victim and her husband visited Turner at Capelli's Pizza and Subs in Gatlinburg before heading home Wednesday. "She was just thanking me ... for trusting her," Turner said. "She said he was going to kill her ... after he got done with her."

Turner's boss, John Henry, said the cabin was about 30 miles from his pizza shop.

"We usually don't go out that far," he said. "But he said, 'Yeah, I will take it.' It was just luck. For her, it was."

Border calm as tensions rise on Korean peninsula

2009-05-30T09:55:00.000-07:00

The thin North Korean guard shuffles around in his dull green uniform, a pair of binoculars fixed to his eyes, while a squad of South Koreans in black helmets glare back silently from their positions across the border.

For more than a half century, this divided hamlet has been the front-line of a fragile truce that ended the three-year Korean War. Intimidation has been honed to a fine art here. But while tensions this week rose to their highest level in years, there was an odd sense of calm in the Demilitarized Zone.

Skirmishes have a tendency to escalate quickly in Panmunjom.

An effort by American soldiers to trim a poplar tree led to an ax fight with North Koreans in 1976 that left two dead. An attempt by a Russian to defect across the demarkation line in the 1980s sparked an extended shootout.

But no incidents have been reported here recently, despite North Korea's nuclear test, a week of missile launchings and repeated tirades from Pyongyang that it will no longer abide by the 1953 accord that ended the war.

"We are always at a high level of readiness, but nothing has changed recently," said U.S. Army Sgt. Brant Walker, part of the small contingent of U.S. troops that are based along the heavily fortified border. "You wouldn't think it would be, with North Korea right there, but it's very relaxed."

Outside of the Demilitarized Zone, however, concerns swirled around the North as spy satellites spotted signs that it may be preparing to transport a long-range missile to a test launch site, South Korean officials said Saturday.

U.S. Defense Secretary Robert Gates issued his harshest warning to the North since it carried out an underground nuclear test on Monday.

"We will not stand idly by as North Korea builds the capability to wreak destruction on any target in Asia — or on us," he told a regional defense meeting in Singapore. He said the North's nuclear program was a "harbinger of a dark future," but wasn't yet a direct threat.

North Korea's neighbors have reason to be anxious.

North Korea has 1.2 million troops, and as many as 80,000 commandos trained to infiltrate the South. In April, it launched a rocket that experts say indicates it has the capability of hitting Japan or possibly the United States with conventional warheads. And it has now demonstrated twice that it can detonate a nuclear device.

Memories of the Korean War are also frightening.

At the outset of the war, which began 59 years ago next month, North Korean armor rolled across the border, catching the South by surprise. An emergency U.S. defense effort initially crumbled, and the North's forces almost succeeded in pushing the Americans off the tip of the peninsula.

This time, concerns are focused on a clash at sea.

The North has threatened to retaliate with its military if any of its ships are stopped and searched for banned weapons. Deadly naval skirmishes occurred in 1999 and 2002 off disputed shores along Korea's western coast.

But despite all of its bluster, some experts say Pyongyang is playing a calculated game and is aware of the danger to the survival of its own leadership if it goes too far and provokes a full-on response from the much-stronger militaries that surround it.

"The North won't start a game that it knows it will lose," said Baek Seung-joo, a North Korea expert at Seoul's state-run Korea Institute for Defense Analyses.

He and other experts said North Korea is using the nuclear test to get the international community's attention and to milk for its domestic propaganda value, instilling its populace with pride in their country's military might.

North Korea has said it does not fear sanctions, which are being mulled by the U.N. Security Council, and is so isolated already that it is used to fending for itself, although the cost has been deep poverty.

Provoking a war, however, would involve a different calculus.

"North Korea is so impoverished it has not been able to renew arms that are outdated and degraded," said Atsuhito Isozaki, a North Korean expert at Japan's private Keio University. "Its conventional military is no match for those of Japan, South Korea or the U.S."

Isozaki said the North's shortage of oil has largely incapacitated its conventional military, which he said poses "virtually no threat" to neighboring countries although it is the world's fourth-largest.

If the North were to unleash its military, it would face a much stronger set of opponents than it did in 1950.

South Korea, where military service is mandatory, has roughly 670,000 in its armed forces. The United States has 28,000 troops in Korea, and another 50,000 in Japan.

U.S. fighters can reach North Korean airspace from their Japanese bases in about 30 minutes, and two U.S. navy destroyers are "tethered" to the North, meaning they are either in the Sea of Japan or on call to be there quickly if needed.

The United States also now has a nuclear-powered aircraft carrier permanently based in Japan, and has a squadron of F-22 stealth jets — the most advanced in the Air Force — deployed to the southern island of Okinawa.

Still, North Korea continues to pour what little resources it has on its own troops, described by the authoritative Web site GlobalSecurity.org as "North Korea's largest employer, purchaser, and consumer, the central unifying structure in the country, and the source of power for the regime."

Analysts trying to read Pyongyang's motives believe leader Kim Jong Il may be using the recent show of military brinksmanship as a means of asserting his strength and smoothing the way for a transfer of power to one of his sons, continuing the dynasty that he inherited from his father.

If that is the case, he does not want too much upheaval.

"Going to a war is a political decision," said Cha Du-hyeogn, another researcher at the Korea Institute for Defense Analyses. "In my opinion, the North may only stage limited provocation. It's very difficult for the country to choose to go to war in the current situation."

Cha noted that Kim also is aware that China and Russia — crucial backers in the Korean War — would not assist his army in the event of a new war on the peninsula.

Iran executes trio for mosque bombing

2009-05-30T09:53:00.000-07:00

Three men convicted of bombing an Iranian mosque two days ago have been publicly executed, state media says.

The bombing killed at least 19 people during evening prayers in the south-east city of Zahedan on Thursday.

The three men, who were hanged on Saturday morning near the mosque, were already in custody before the attack.

One Iranian official had earlier accused the US of hiring mercenaries to carry out the bombing - a claim dismissed by Washington.

The men were arrested before Thursday's bombing in connection with other attacks, including a 2007 attack on Iran's Revolutionary Guard in which 11 people died.

Authorities said they were tried and had legal representation.

A spokesman for the Sistan-Baluchestan province's judiciary said the three people "confessed to illegally bringing explosives into Iran and giving them to the main person behind the bombing."

Spokesman Hojatoeslam Ebrahim Hamidi added: "They were convicted of being 'mohareb' (enemies of God) and 'corrupt on the earth' and acting against national security," Irna reported.

Part of a Shia mosque, Amir al-Mohini, was destroyed in Zahedan, a mainly Sunni Muslim city.

A Sunni militant group had claimed responsibility, with Abdel Raouf Rigi, described as a spokesman for the Jundallah group, telling Saudi-owned TV channel Al-Arabiya that a suicide bomber had targeted a secret meeting of Iran's elite Revolutionary Guards inside the mosque.

When an Iranian official accused the US of being behind the bombing, a US state department spokesman denied any involvement.

The bombing, described by the Iranian media as a suicide attack, came at a time of heightened tension ahead of upcoming presidential elections .

A day after the bombing, the president's Zahedan campaign office was attacked by gunmen.

Obama 'helped' Opel rescue deal

2009-05-30T09:50:00.000-07:00

German Chancellor Angela Merkel has revealed the US president helped swing a deal to save carmaker Opel from the imminent bankruptcy of its parent firm.

She said Barack Obama helped clear some hurdles threatening the transaction during a phone conversation.

Earlier, Germany agreed the deal with Magna International, a Canadian car parts maker, to take over Opel, part of the European wing of US carmaker GM.

It should protect Opel if GM files for bankruptcy protection in the US.

GM is expected to do this as early as Monday.

Marathon talks

"I spoke on the phone with the American president yesterday [Friday] and we were in agreement that we had to do everything possible to come up with a good results for this complicated task," Mrs Merkel told reporters in Berlin.

"That conversation clearly influenced the negotiations last night," she said, adding that Mr Obama helped clear some hurdles over the financing of the rescue deal.

The deal was announced early on Saturday by German Finance Minister Peer Steinbrueck, following marathon talks between German politicians, US government officials and executives from General Motors and Magna.

"A solution has been found to keep Opel running," Mr Steinbrueck said.

He said that although it was impossible to exclude all risk, the deal agreed would safeguard Opel's sites in Germany and preserve "the highest possible numbers of jobs" there.

Berlin is expected to provide an immediate loan facility of 1.5bn euros ($2.1bn, £1.3bn).

The Canadian company has said it will put more than 500m euros ($700m; £435m) into Opel, which employs more than 25,000 people in Germany.

Significant numbers of workers are also spread around Spain, Belgium, Poland and the UK, where Opel cars are branded as Vauxhall for British customers.

Magna's bid was backed by Russia's state-run bank Sberbank and Russian magnate Oleg Deripaska's truck firm Gaz. The consortium hopes to see GM expand its reach into the Russian market.

Before the announcement of the deal, Magna said it planned to cut 2,500 jobs in Germany, about 10% of Opel's workforce in that country. Italy's Fiat, a former potential bidder, had said it would cut 10,000 jobs.

GM operations in Europe will now be placed under the care of a trustee to shield them from the parent company's filing for bankruptcy protection in the US.

Magna's plans

Details of the final deal with Magna have not yet been released, but the terms of the agreement are thought to involve GM keeping a 35% stake in the company, while 10% would be owned by Opel employees.

UK Business Secretary Lord Mandelson said Magna had given a "clear commitment" to continuing production of cars in the UK.

But, he said, it was likely that change lay ahead, as there was "excess capacity" in GM's operations in Europe.

On Friday, a court in Sweden granted Saab, GM's other European business, an extension to its protection from creditors.

The Swedish carmaker first sought protection in February. It now has until 20 August to line up a new owner and to restructure its business.

Saab is being sold off by GM separately.

GM 'lifeline'

In the US, General Motors executives on Friday successfully agreed a major cost-saving deal with workers in an effort to pave the way for a major restructuring of its US-based business.

Three-quarters of all United Auto Workers (UAW) union members voted to accept a freeze on pay and an end to bonuses - cutting labour costs by up to $2bn a year, the union said.

It also agreed to cut health benefits to retired employees.

Instead of the company funding health care costs for former workers, the union health trust will do so. The union will take an ownership stake in return for absolving GM of its responsibilities.

The UAW also agreed not to strike until 2015 in a bid to shore up the company and save jobs.

Despite the concessions, 21,000 jobs are expected to be lost and several plants will be closed in the US.

"We've given a lifeline to GM until they can rebound," said Ron Gettelfinger, UAW president.

By 1 June, ownership of the US based business is expected to be shared between the US government (72.5%), the union's health trust (17.5%) and GM's former creditors.

Do you work at any of GM's plants in Europe? What are your hopes for the future of the company. Send us your comments using the form below.

Elite jeweller's robbed in Paris

2009-05-30T09:48:00.000-07:00

Thieves in Paris have escaped with jewels worth more than 6m euros (£5m, $8m) after robbing a store in broad daylight on the elite Place Vendome.

The Chopard store was robbed just before 1500 (1300 GMT), police told the French news agency AFP without giving other details.

The Swiss firm Chopard is famous for supplying jewellery to stars at the Oscars and the Cannes film festival.

Place Vendome is an elegant old square known for its luxury hotels.

In December, armed robbers stole jewels worth at least 80m euros ($102m) from a store near the French capital's famous Champs-Elysees avenue.

As many as four robbers, two disguised as women, raided the Harry Winston's store and stole nearly all its valuables.

Late on Saturday afternoon, the store at No 1 Place Vendome stood closed behind iron shutters, an AFP correspondent reports.

Only some leather handbags could be seen in the window, and no trace of a robbery could be seen from the outside.

A sales assistant working in an adjacent jeweller's store said she had heard and seen nothing. "We were working," she added.

Among Chopard's commissions is the Golden Palm awarded at the Cannes festival.

Founded in 1860, the firm has branches in major cities across the world.

Calls mount for Sri Lanka probe

2009-05-30T09:46:00.000-07:00

Leading human rights group Amnesty International has called for an urgent inquiry into claims of civilian deaths in the last days of the Sri Lankan war.

Responding to a Times newspaper report that more than 20,000 were killed, it also urged the UN to publicise its estimate of the death toll.

UN human rights chief John Holmes said an investigation would be a good idea.

The Sri Lankan government has strongly denied the claims surrounding its recent onslaught against Tamil rebels.

The figures published on Friday in the Times newspaper in the UK - quoting official documents and witness accounts - is far higher than previously thought.

The UN says that there are no confirmed estimates of civilian casualties, and its last estimate two weeks before the end of the war said 6,500 people had died.

Claims of war crimes by both sides have arisen, including from Amnesty's Asia Pacific director Sam Zarifi.

"The Times report underscores the need for this investigation and the UN should do everything it can to determine the truth about the bloodbath that occurred in northeast Sri Lanka," he said.

Mr Holmes, the UN's senior humanitarian affairs co-ordinator, queried the figures but said the claims needed to be examined.

"I think a lot of the figures which are floating around don't have much justification behind them.

"But nevertheless, there have been serious charges against the [Tamil Tiger rebels]... for holding civilians as civilian shields for such a long time, and thereby being indirectly responsible for their deaths.

"And against the government for using heavy weapons in an area where there are so many civilians and thereby, not deliberately, but again causing many civilian deaths."

He added: "No-one was there, no-one knows and we may never know. And that's why an investigation would be a good idea."

British human rights lawyer Geoffrey Robertson said it would take time for the true story to emerge.

Foreign journalists and humanitarian groups were barred from the conflict zone and although the Red Cross entered, it does not give evidence in international courts, he said.

"In the fullness of time, of course, you do have witnesses, you do have thousands of people who were on that dreadful strip of beach [designated as a safe zone by the government]."

He said as well as priests and doctors talking about what happened, there were also graves.

"This is the way, unfortunately, war crimes are now dealt with, through forensic investigators finding out the story by investigating mass graves.

"And there do seem, from aerial photographs, to be some."

False claims

A senior official from Sri Lanka's Centre for National Security told the BBC the accusations were totally false.

Video evidence published by The Times suggests that the Tamil Tigers established mortar positions and military encampments within camps for displaced people, which were then shelled by the military.

The paper says that it compiled its evidence using aerial photographs, official documents, witness accounts and expert testimony.

Former Sudan leader Nimeiri dies

2009-05-30T09:40:00.000-07:00

Former Sudanese President Jaafar Nimeiri, who brought Islamic law to the country, has died at the age of 79, government officials say.

Mr Nimeiri died after developing "an illness", presidential assistant Magdi Abdel Aziz said. He did not provide any further details.

Mr Nimeiri came to power in a 1969 coup that ended years of civilian rule in Africa's biggest nation.

He later became a close US ally before being ousted, also in a coup, in 1985.

"He was too ill to be taken out of the country for treatment," Mr Nimeiri's secretary Makkawi Ahmed was quoted as saying by Reuters.

The funeral would be held on Sunday in Omdurman, near the capital Khartoum, officials said.

Mr Nimeiri returned to Sudan in 1999 after spending 14 years in exile in Cairo, Egypt.

Pakistan army 'regains' Swat city

2009-05-30T09:34:00.000-07:00

Pakistan's army says it has regained control of the Swat valley's main town, Mingora, after Taliban rebels decided not to put up a pitched battle.

Army spokesman Maj Gen Athar Abbas told the BBC that the centre of Mingora was under military control, although there were still skirmishes on the outskirts.

Fighting intensified a week ago as troops moved in, advancing house by house against the rebels.

Journalists are banned from the area so it is hard to verify army reports.

Hundreds of people have been killed and more than two million have fled the Swat valley since the operation against the Taliban was launched after a peace deal broke down earlier this month.

The army's latest declaration comes days after a lethal bombing in Lahore, which was later claimed by Taliban as revenge for the Swat operations.

Although the military has always had bases in Mingora, the city was in effect under Taliban control in recent weeks.

The army reported taking key intersections a week ago and fighting is said to have been fierce in the city which was only recently home to more than 300,000 people.

'More fight'

"They [the Taliban] had prepared Mingora city... with bunkers but when they realised that they were being encircled and the noose was tightening, they decided not to give a pitched battle," said Gen Abbas.

But he emphasised he was only talking about Mingora and said there was "much more fight[ing]" to be done in the valley.

Work, he added, was already beginning to restore essential services to Mingora.

The city hospital was being re-opened, he said, with a team of 21 doctors and adequate medical supplies.

Gas had also been restored and some mobile generators had been provided for the water system.

It would take at least two weeks to restore the electricity network, the general said.

As the army aims to clear Taliban strongholds and supply depots in Swat's mountains, soldiers are battling militants in towns where many thousands of civilians are believed to be hiding.

The government has also advised residents to leave the town of Charbagh, a Taliban stronghold 20 miles (32km) north of Swat, in advance of an attempt by the military to move in there, AFP reported, quoting unnamed military sources.

Following the attack in Lahore, and in Peshawar a day later, Pakistan increased its reward for a Taliban chief to 50m rupees ($600,000, £372,000).

The figure is more than 10 times the original bounty for radical cleric Maulana Fazlullah - believed to be the architect of a two-year uprising in the Swat valley intended to enforce Sharia law.

Kirk votes to back gay minister

2009-05-24T02:21:00.000-07:00

Church of Scotland leaders have voted to uphold the decision to appoint a gay minister to a church in Aberdeen.

The General Assembly of the Church of Scotland voted by 326 to 267 in support of the Rev Scott Rennie, 37, after more than four hours of debate.

Mr Rennie was backed by the majority of his congregation at Aberdeen's Queen's Cross Church and the local presbytery.

However, about 20 people protested against the appointment at the meeting of Church leaders in Edinburgh.

Divide church

Mr Rennie, a divorced father-of-one, was previously a minister at Brechin Cathedral and said he was open with the congregation at Queen's Cross about being gay and living with his male partner.

Arriving at the assembly earlier, he said: "There are many gay ministers in the Church of Scotland and I hope that justice is done for them tonight."

He also dismissed claims the issue would divide the Church.

"The same talk was about when women were ordained and I think that argument suits those that don't want any change," he said.

He added: "We don't stone women, we don't stone adulterers, we've moved on from that."

However, more than 400 Kirk ministers and almost 5,000 Church of Scotland members are said to have signed an online petition opposing the appointment.

'Acknowledge diversity'

One of those ministers, the Rev David Randall, said he believed that "a minister is somebody who ought to live by the Bible".

He said: "We believe that the Bible's teaching is quite clear in this matter - that marriage is the right and only context for sexual relationships."

The demonstration at The Mound in Edinburgh on Saturday was led by Pastor Jack Bell of the Zion Baptist Church in Glasgow.

"We are absolutely opposed to that on the basis of what God has to say about homosexuality in the Bible," he said.

But earlier, the Rev Ewen Gilchrist, caretaker minister at Queen's Cross, said there should be more acceptance.

"Sexuality is something that the church doesn't have a good track record about", he said.

"We constantly lock it up and frown about it. Here's an opportunity to welcome it, to acknowledge the diversity of human sexuality and to bring that richness into our life and worship."

'Record' Afghanistan drugs bust

2009-05-24T02:20:00.000-07:00

International and Afghan troops have killed 60 militants and made a record drugs haul in an operation in southern Afghanistan, the US military has said.

Its statement said the four-day attack targeted the town of Marja in Helmand province - a Taliban stronghold.

The troops seized 92 tonnes of opium poppy seeds and other drugs, "severely disrupting" a key narcotics centre and command hub of the insurgency.

The US denied reports that civilians were killed during the operation.

However, a spokesman for the Afghan defence ministry told the BBC that it was investigating the reports.

Taliban militants have so far not commented on the US statement.

Weapons seized

On Saturday, the US military said the joint operation focussed on Marja, south-west of the provincial capital of Lashkar Gah.

It said the troops targeted the town's bazaar, describing it as a key hub for militant and criminal operations.

The area was emptied of civilians overnight on Friday, before precision airstrikes were launched, the statement said.

The international and Afghan forces then seized the poppy seeds, along with tar opium, processed morphine, heroin and hashish.

Helmand is the main producer of Afghan opium, which accounts for more than 90% of the global supply.

The US military also said that a large amount of weapons and bomb-making equipment was seized during the operation.

Mongolians vote for new president

2009-05-24T02:19:00.000-07:00

Voters in Mongolia are electing a new president, a year after vote-rigging claims in parliamentary polls triggered deadly riots in the country.

Current President Nambaryn Enkhbayar of the former Communist party is being challenged by Tsakhiagiin Elbegdorj of the main opposition Democratic Party.

Polls opened at 2300 GMT on Saturday are due to close at 1400 GMT on Sunday.

One of the main election issues has been the distribution of income from Mongolia's vast mineral resources.

Last year, five people died and hundreds were hurt in protests over alleged fraud in the general elections.

In 1990, Mongolia abandoned its 70-year-old Soviet-style one-party state and embraced political and economic reforms.

Democracy and privatisation were enshrined in a new constitution, but the collapse of the economy after the withdrawal of Soviet support triggered widespread poverty and unemployment in the sparsely populated landlocked country.

Iran 'blocks access to Facebook'

2009-05-24T02:18:00.000-07:00

Iran's government has blocked access to social networking site Facebook ahead of June's presidential elections, according to Iran's ILNA news agency.

ILNA suggested the move was aimed at stopping supporters of reformist candidate Mir Hossein Mousavi from using the site for his campaign.

Facebook, which claims to have 175m users worldwide, expressed its disappointment over the reported ban.

So far there has been no comment from the authorities in Tehran.

'Access not possible'

"Access to the Facebook site was prohibited several days ahead of the presidential elections," ILNA reported.

It said that "according to certain Internet surfers, the site was banned because supporters of Mir Hossein Mousavi were using Facebook to better disseminate the candidate's positions".

CNN staff in Tehran reported that people attempting to visit the site received a message in Farsi that said: "Access to this site is not possible."

Facebook expressed disappointment that its site was apparently blocked in Iran "at a time when voters are turning to the Internet as a source of information about election candidates and their positions".

Mir Hossein Mousavi, a former prime minister, is seen as one of the leading challengers to incumbent President Mahmoud Ahmadinejad in the 12 June elections.

His page on Facebook has more than 5,000 supporters.

UN Urges Sri Lanka Reconciliation Talks After Victory

2009-05-24T02:17:00.001-07:00

United Nations Secretary-General Ban Ki-moon called on Sri Lanka to start a process of reconciliation and dialogue after a military offensive ended with the defeat of the Tamil Tigers in the South Asian nation.

Sri Lanka should undertake confidence-building measures to “clearly and unmistakably” signal its intentions in addressing the root causes of Tamil grievances, Ban said after his two-day visit to the country ended yesterday, in a statement on the UN Web site.

“The long conflict is over,” Ban said. “Now is the time to heal -- for all Sri Lankans to unite for a just and lasting peace. We must seize this opportunity.” History could repeat itself if issues of “reconciliation and social inclusion” aren’t dealt with, Ban said.

President Mahinda Rajapaksa said his government will implement a power-sharing plan for the north based on a 1987 constitutional amendment that arose from a peace accord with India. The plan will establish a provincial council to assume some of the central government’s role.

The UN says Sri Lanka’s government lacks resources to look after some 300,000 people displaced by the conflict.

“There is a wide gap between what is needed and what is available,” Ban said. “The UN and other international humanitarian agencies need immediate and unimpeded access to the camps” to help Sri Lanka meet urgent needs, Ban said in the statement.

Security

Sri Lanka will allow access to aid agencies once “some aspects of security” have been completed, Rajapaksa said in a statement on the Defense Ministry’s Web site. The government has to be assured there are no “infiltrators” from the Liberation Tigers of Tamil Eelam among the refugees, he said.

Ban urged the government to expedite screening and registration of the refugees, make it easier for families to reunite and to allow people more freedom of movement.

Rajapaksa last week declared victory in Sri Lanka’s 26- year-old battle with the LTTE after the army defeated the last of the rebels, who had been confined to a sliver of territory in the northeast. The Tigers fought for a separate Tamil homeland in the country’s north and east and at their peak controlled a quarter of the nation’s territory.

OZ Minerals Boosting Exploration Amid Prominent Hill Mine Study

2009-05-24T02:16:00.000-07:00

OZ Minerals Ltd., the debt-laden Australian zinc mining company selling $1.2 billion of assets, is boosting exploration work to speed expansion plans at its only remaining mine.

“We will recommence our exploration that we have had to defer and we will complete our studies into future underground and expanded pit production,” Chairman Barry Cusack said today at the official opening of OZ Minerals’ A$1.2 billion ($939 million) Prominent Hill mine in South Australia state.

China Minmetals Group, the nation’s biggest metals trader, is seeking to complete the acquisition of OZ Minerals assets next month, giving it control of the world’s second-biggest zinc mine and supplies of copper, gold and nickel. Prominent Hill, the company’s only source of revenue should the Minmetals sale be approved, will be profitable “within days” once it receives payment for the first shipment of copper concentrate to India, Chief Executive Officer Andrew Michelmore told reporters today.

The company is drilling mineral targets as it seeks to discover sufficient resources to allow for an underground expansion of the mine, Michelmore said. “We have to do a lot more drilling to be able to come to that assessment, so that will take some time and is why the cash we will have on hand will be very important,” he said, referring to the company’s cash balance of about A$700 million after the Minmetals sale.

Melbourne-based OZ Minerals fell 4.3 percent to close at 78.5 Australian cents on May 22. The stock has risen 43 percent this year and has a market value of A$2.5 billion.

Prominent Output

Output from Prominent Hill started in February and the company has forecast production of as much as 100,000 metric tons of copper and 70,000 ounces of gold this year. The open-pit mine is estimated to operate for 10 years, OZ Minerals has said.

“I’m looking forward to phase two of Prominent Hill and phase three, which will I’m sure include a major underground mine as well as more open-cut,” South Australia state Premier Mike Rann told reporters at the mine today. “What we are seeing here is the start of a series of developments.”

BHP Billiton Ltd., the world’s largest mining company, may be prepared to pay A$2.75 billion to buy Prominent Hill, located 650 kilometers (404 miles) from the state capital Adelaide, to secure copper and uranium for its adjacent Olympic Dam operation, JPMorgan Chase & Co. said in an April 28 report.

The Olympic Dam plant, about 130 kilometers from Prominent Hill, has excess annual capacity equivalent to about 50 percent of Prominent Hill’s copper concentrate output, JPMorgan said. BHP has previously bought concentrate from the mine to treat at Olympic Dam.

After Completion

Michelmore, 56, and other senior executives will join Minmetals once the sale is completed. Michelmore, who will be CEO of the Chinese company’s Australian unit, declined to comment on the role or Minmetals future strategy in Australia.

Michelmore last month agreed to sell almost all of OZ Minerals’ assets to Minmetals to repay A$1.1 billion in debt after a rout in commodity prices. OZ Minerals is seeking to complete the sale by June 18, leaving Prominent Hill as its main asset.

State-owned Minmetals was blocked from buying Prominent Hill by Australian Treasurer Wayne in March because of its proximity to the Woomera weapons testing range. Woomera, about the size of England, is the largest land-locked missile-testing range in the world and previously included testing for nuclear weapons, according to its Web site.

Australia, South Korea, Japan Get New Swine Flu Cases

2009-05-24T02:15:00.000-07:00

Australia’s swine flu cases increased to 16 after new infections were confirmed in its southern Victorian state, while South Korea, Japan and Hong Kong also added to their tolls.

Two more people were diagnosed with the virus in Victoria, Australia, the Herald Sun newspaper reported, citing state Health Minister Daniel Andrews. South Korea confirmed four more swine flu cases, increasing its total to 10; Hong Kong’s government confirmed two more cases, bringing the total number of infections in the city to six, and Japan confirmed a new case in the city of Osaka.

Confirmed swine flu cases globally total 12,022 in 43 countries, with 86 people killed by the virus, according to the World Health Organization’s latest tally. Still, the WHO said on May 22 the virus would need to be global and show significant harm to people before declaring a pandemic.

Australia’s government on May 22 updated its pandemic alert to “contain,” the third-highest level. The next level, “sustain,” means the virus is established and spreading.

An order for vaccines to protect the nation of 21 million people from the virus is “under active consideration,” the country’s health department said.

“We expect to have a number further confirmed later today,” Australian Health Minister Nicola Roxon said on Channel 9 before the new cases were announced. “It’s serious, but it’s not yet widespread.”

Confirmed Cases

A 15-year-old schoolboy and a 27-year-old man have been diagnosed with the virus in Melbourne, the Herald Sun newspaper reported. There are 11 confirmed human swine flu cases in Victoria state, the Herald Sun reported, with the other cases elsewhere in Australia.

Meanwhile a 12-year-old boy from Adelaide, South Australia state, whose sister and mother tested positive and whose own result was inconclusive, is to be treated as “clinically positive,” Australian Associated Press reported in an article carried on the Sydney Morning Herald’s Web site, citing the state’s chief medical officer.

Japan today confirmed the virus in a 19-year-old male in Osaka whose family member also has swine flu. That brings the total number of confirmed cases in that city to 112, and 334 nationwide, according to a statement from the Ministry of Health, Labor and Welfare today.

Returned From U.S.

The Philippines today reported the nation’s second confirmed case of swine flu in a 50-year-old woman who arrived in the country on May 20 from the U.S., Health Secretary Francisco Duque said in a statement on the ministry’s Web site.

Five U.S. citizens and a Vietnamese are among the confirmed cases in South Korea, with the others being South Korean, the nation’s health ministry said. There are three probable cases among passengers who arrived in Incheoen International Airport today via an Asian Airlines Inc. flight, it said.

A 30-year-old Taiwanese woman and her five-year-old daughter who traveled in the Philippines for five days have tested positive for the virus in Taiwan, ABS-CBN news said on its Web site yesterday, citing Taiwan’s Center for Disease Control. The two are among four new cases of swine flu, which brings Taiwan’s total to six, it said.

Singapore had two additional swine flu cases for investigation, the city-state’s health ministry said on its Web site yesterday. Of the 42 cases investigated so far, 34 cases have tested negative for swine flu and 8 tested positive for the typical seasonal flu strains, according to the health ministry.

China had eight confirmed cases of the H1N1 flu virus as of 1:19 p.m., according to a statement on the health ministry Web site.

South Korean Ex-President Roh Jumps to Death Amid Bribery Probe

2009-05-24T02:14:00.000-07:00

Former South Korean President Roh Moo Hyun, grilled by prosecutors last month in a bribery investigation, died after leaping from a mountaintop, leaving what appeared to be a suicide note to his family.

Roh, 62, jumped from the 30-meter (100-foot) Owl Rock atop Mount Bonghwa during an early morning hike yesterday, and was pronounced dead at Pusan National University Hospital, Lee Woon Woo, chief of South Gyeongsang Police, said at a televised briefing.

Roh, who boasted his 2003-2008 administration was South Korea’s cleanest, last month became the third president to be questioned in bribery probes, after writing on a Web site that his wife, Kwon Yang Suk, received money to pay family debts from a businessman later charged with tax evasion and insider trading.

“This is an overwhelming shock for the public,” said Kim Meen Geon, professor of politics at Kyunghee University. “It could lead to criticism that the current administration let prosecutors proceed unchecked in their investigation.”

President Lee Myung Bak of the conservative Grand National Party, who succeeded Roh in February 2008, never commented officially on the investigation of Roh and has been adamant about upholding principles of law and order

“This is hard to believe,” Lee said in a statement on his official Web site. “It’s very sad and lamentable.” Prime Minister Han Seung Soo expressed shock and sadness at the start of an emergency Cabinet meeting today.

Lee will need to consider how to deal with the shock and public reaction, Kyunghee University’s Kim said.

‘Ultimate Protest’

“Suicide in Korea is sometimes regarded as the ultimate protest of innocence,” said Hwang Sang Min, professor of psychology at Yonsei University in Seoul. “This probe would have been a tremendous psychological burden for a president whose legacy was based on a ‘clean administration.’”

Former Presidents Chun Doo Hwan and Roh Tae Woo received presidential pardons in 1997 after they were found guilty of creating slush funds and inciting a coup.

Japanese Prime Minister Taro Aso said he was taken aback at the news of Roh’s death, offering “my sincere condolences and prayers,” according to a Jiji Press report.

Roh’s attorney, Moon Jae In, said earlier today the former president left a note to his family.

‘Greater Burden’

“I have caused so much pain to so many people,” Roh said in a note saved on his computer before he left home, KBS Television reported. “My remaining life could only become a greater burden for others.”

Roh “was unconscious and not breathing when he arrived,” hospital chief Park Seung Wan said. “Skull fracture and cerebral contusion appear to be the immediate cause of death.”

Roh’s wife Kwon fainted when relatives who identified Roh told her he was dead. She was admitted to the same hospital where her husband’s body is being kept, MBC Television reported.

Prosecutors had been discussing the possibility of summoning Kwon for a second time next week.

Kwon took money from Park Yeon Cha, 63, chairman of Taekwang Industrial Co., a shoe manufacturer with plants in South Korea, China and Vietnam. Park was indicted last year on charges of evading 24 billion won ($18 million) in taxes and insider trading. Prosecutors expanded the probe after he named lawmakers he said he had bribed.

“I understand the ongoing investigation on Roh will be terminated,” Justice Minister Kim Kyung Han said in an e-mailed statement immediately after the news of Roh’s death. Prosecutors declined to comment on whether the probe would end.

Self Educated

Roh, born to a farming family in a small village near Busan, was the rare politician in South Korea to have never attended university. He studied on his own to become a judge and then a lawyer, opening his own firm in 1978 to specialize in human-rights cases. That often led to clashes with the military regime at the time, and Roh was jailed for three weeks in 1987.

Elected to the National Assembly in 1988, Roh garnered a reputation for aggressive questioning of senior government officials involved in corruption cases. He also served as minister for maritime affairs in 2000-2001.

The outspoken lawmaker won the presidential election in 2003, riding a wave of popularity partly generated by an active Internet campaign.

Roh’s approval rating plummeted as economic policies including a crackdown on real-estate speculation failed to win public support. He also waged a war of words with domestic newspapers, which daily criticized the president’s actions, policies, and even a plastic surgery procedure on his eyelids.

Roh continued the policy of engagement with North Korea, initiated by his predecessor, Nobel laureate Kim Dae Jung, and met Kim Jong Il in 2007 in South Korea’s second summit with the North Korean leader.

Obama Says Dangerous Guantanamo Prisoners May Be Big Problem

2009-05-24T02:13:00.000-07:00

President Barack Obama said one of the “biggest problems” in shutting down the U.S. prison at Guantanamo Bay, Cuba, may be how to deal with terror suspects who pose too great a threat to be released.

“It’s a messy situation. It’s not easy,” Obama told C- SPAN in an interview. “We’ve got a lot of people there who we should have tried early, but we didn’t. In some cases, evidence against them has been compromised. They may be dangerous, in which case we can’t release them, so finding how to deal with that I think is going to be one of our biggest problems.”

Obama, who called the Bush administration’s policy of indefinitely holding prisoners in Guantanamo a “mistake,” said he’s spoken to former President George W. Bush since taking office in January. He didn’t elaborate on the conversations, saying, “I think the general policy of keeping confidence with the predecessors is important.”

The Democratic president defended his decision to close the prison camp at Guantanamo Bay by early next year in a speech two days ago in Washington. He said some choices made by Bush and his advisers in pursuing the war on terrorism were “ad hoc” and “hasty” and left behind a “mess.” He repeated the criticism in the C-SPAN interview, which will air in full today at 10 a.m., Washington time.

Corners Cut

“There was a period of time after 9/11, understandably because people were fearful, where I think we cut too many corners and made some decisions that were contrary to who we are as a people,” Obama told the cable-television network.

Former Vice President Dick Cheney defended the Bush’s administration’s actions in a May 21 speech in Washington.

Cheney said the Bush administration employed tactics after the Sept. 11, 2001 terrorist attacks that saved lives, including using harsh interrogation techniques. He said he would support those decisions again “without hesitation.”

Obama has banned the interrogation techniques in question, including simulated drowning, or waterboarding. He contends the measures betray the country’s “ideals” and aren’t necessary to “wage an aggressive battle against organizations like al-Qaeda that want to do us harm.”

“I’m confident that we are stronger when we uphold our principles, that we are weaker when we start pushing them aside,” he told C-SPAN.

General Motors

Obama also discussed his administration’s effort to revive the U.S. automobile industry by trying to save financially troubled General Motors Corp. and Chrysler Corp.

GM, surviving on $19.4 billion in U.S. loans and facing a probable bankruptcy by June 1, will reemerge a “strong company,” Obama said.

Allowing either GM or Chrysler to liquidate would have been a “huge anti-stimulus on the economy as a whole and could have dragged us deeper into recession or even depression,” Obama said in defending the government’s intervention.

“Ultimately, I think GM is going to be a strong company and we are going to be pulling out as soon as the economy recovers and they’ve completed their restructuring,” the president said.

Obama said he’s also confident that Chrysler, which already is reorganizing in a Chapter 11 bankruptcy, will emerge stronger. For both automakers, “it means going through some pain now,” he said.

California

When it comes to struggling states, Obama said a federal bailout of California and others won’t be necessary. The administration is in talks with state treasurers nationwide to find “creative” ways they can deal with frozen credit markets.

Many states will end up having to make some “very difficult choices” as demands on services rise while tax revenue falls, Obama said.

The biggest area in which states need help probably is in rolling over debt, according to the president. Obama said he’s trying to find “creative ways that we can help them get through these difficult times.”

“They are still being affected by some of the freezing in the credit markets,” Obama said in the interview, according to a transcript released by the C-SPAN.

California’s top finance officials told lawmakers yesterday that they must slash spending and shore up the budget by the end of next month to prevent the most-populous U.S. state from running out of cash as soon as July.

Fiscal Crisis

Bill Lockyer, the Democratic treasurer who handles the state’s bond sales, said short-term securities can’t be sold without a plan to eliminate a deficit that the Legislative Analyst’s Office says may total $24 billion in the next 13 months. Such borrowing allows the state to meet its obligations until the bulk of tax receipts are collected later in the year. Controller John Chiang, who pays the state’s bills, echoed that sentiment.

“We are experiencing the greatest fiscal crisis since the Great Depression,” Chiang, a Democrat, said during a Sacramento legislative budget hearing.

Separately, Obama, in response to a question on when he finds time in his schedule to sit and reflect, said he tends to be a “night-owl” and typically stays up until midnight after having dinner with his family.

He said sometimes he isn’t dealing with current matters, yet rather, mulling issues “coming down the pike.”

An example, he said, is cyber security.

“There is not a cyber attack right now,” he said. “But that’s a big critical system that is vital to our economy. It’s vital to our public health infrastructure.”

Obama said he is working to “get the wheels turning now” on how to set up systems to protect data while also allowing the government to work with the private sector and not stifle innovation.

Saudi Arabian Oil Minister Naimi Says Oil to Reach $75 a Barrel

2009-05-24T02:12:00.000-07:00

Saudi Arabian oil minister Ali al- Naimi said the price of oil will climb to $75 a barrel when demand picks up.

“We’ll get there eventually,” al-Naimi told reporters in Rome today where he will attend meetings with energy ministers from the Group of Eight industrialized nations. “The trick is keeping it between $70 and $80. It will be achieved as demand rises and the fundamentals are better than they are now.”

To reach that goal, Naimi said he will recommend OPEC members “stay the course” at their meeting in Vienna on May 28. Saudi Arabia is the biggest and most influential member of the Organization of Petroleum Exporting Countries, which produces about 40 percent of the world’s oil.

The group is likely to keep daily output quotas unchanged at 24.845 million barrels at the Vienna gathering, according to a Bloomberg survey.

Crude oil for July delivery rose 62 cents to settle at $61.67 a barrel at 2:45 p.m. on the New York Mercantile Exchange yesterday. The July contract increased 8.2 percent this past week. Oil is up 38 percent this year.

Naimi said oil should keep at about $75 a barrel “because that is what is desired for the world economy.”

Saudi Arabia produced less than its quota of 8 million barrels a day last month, according to a May 13 OPEC report. The Saudis produced 7.9 million barrels of OPEC’s 25.3 million- barrel daily output.

Naimi said last month that helping to keep oil prices at $50 a barrel was his country’s contribution to the world economy, which is fighting the worst recession in six decades. Since he made those comments in Tokyo on April 25, crude prices have climbed more than 20 percent to above $60 a barrel.

Exceed Ceiling

The 12 members of OPEC, which overshot their ceiling by 410,000 barrels last month, will update their policy on oil output at this month’s meeting. At the last summit on March 15, the group decided to leave quotas unchanged and adhere to its earlier commitment to restrict supply by a total of 4.2 million barrels a day from levels in September 2008.

Naimi said his country “very recently” started production at the Nuayyim oil field and it pumping 100,000 barrels a day. He added that even though Saudi Arabia has opened new production global markets don’t need the product.

“The problem is the market, that the demand is only in one place -- Asia and that’s all.”

The group’s production rate rose during April, and most members are still producing more than their quota, a report from the OPEC Secretariat in Vienna showed earlier this month.

OPEC cut its 2009 forecast on May 13 and now estimates daily oil demand will fall by 1.57 million barrels, or 1.8 percent, to 84.03 million barrels of oil a day this year.

Opel Bids Prompt Concern Aid Sinking in ‘Black Hole’

2009-05-24T02:11:00.000-07:00

German Economy Minister Karl-Theodor zu Guttenberg said he remains unpersuaded by any of the three bids for General Motors Corp.’s Opel unit even after Fiat SpA sweetened its offer aimed at winning state aid.

Guttenberg, who is leading efforts to find a “viable” bid for GM’s European operations, said today Fiat’s new offer was being reviewed to see “if they can stand up everything they say.” Questions also remain over bids by Canadian car-parts maker Magna International Inc. and RHJ International SA, a fund that has some former holdings of private-equity firm Ripplewood Holdings LLC, he said in an interview in Berlin.

“We still cannot be sure whether Magna, or Fiat, or Ripplewood will ensure that bridge loans won’t disappear into a black hole; that any further guarantees will be effective; and that they’re really offering something more than high-minded romantic ideas,” Guttenberg said.

Fiat, which is in talks to form an alliance with Chrysler LLC in North America, raised its offer for Opel after Magna emerged yesterday as the leading bidder, according to state leaders including Roland Koch. Russelsheim-based Opel has said it needs 3.3 billion euros ($4.6 billion) in state aid to survive as GM struggles to avoid a June 1 bankruptcy.

A meeting hosted by Chancellor Angela Merkel yesterday agreed to focus on Aurora, Ontario-based Magna, Canada’s largest car-parts maker, for “concrete talks” because it offers the prospect of developing new markets and avoiding “dependence on Fiat-Chrysler technology,” Koch, the prime minister of Hesse state, where Opel is based, said today in an interview.

He didn’t specify how Fiat’s new bid changed.
‘Incoming Mail’

“At the same time, we’re still reading our incoming mail,” Koch said.

All bidders, including Magna, must make it clear how much they’re prepared to invest in Opel.

“If an investor believes in his investment, they also have to put something on the table” and not just collect state loan guarantees, Koch said.

Gualberto Ranieri, a spokesman for Turin, Italy-based Fiat, declined to comment when contacted by Bloomberg News today.

While German lawmakers from both main parties in Merkel’s coalition want to save Opel jobs before elections on Sept. 27, bidders must secure the backing of Europe’s biggest economy for their plans for Opel and the U.K.-based Vauxhall brand. Magna is also preparing to improve its offer, Welt am Sonntag newspaper reported in an advance copy of an article in tomorrow’s edition.

Phone calls by Bloomberg News to the office of Magna Chief Financial Officer Vincent Galifi were not immediately returned.

Delayed Solution

“Fiat has improved its offer because it needs Opel’s technology,” Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen, said in an interview. At the same time, new offers “will unfortunately delay the process to find a solution for Opel when time is getting short because GM’s insolvency is looming on the horizon.”

The bids from Magna and RHJ include cash, while Fiat’s offer requires 7 billion euros of financing to reorganize Opel, according to people familiar with the matter. Fiat’s bid has two parts: an offer for the Opel and U.K.-based Vauxhall units, and an alternative plan to also buy GM’s operations in Brazil and Argentina, one of the people said.

Magna, which aims to join Russian partner OAO Sberbank in investing as much as 700 million euros in the deal, would be able to boost Opel’s presence in Russia, a market that is expected to grow to 5 million cars in 2015, Dudenhoeffer said.

“Magna would also be able to preserve more jobs at Opel than Fiat, which already has overcapacity problems itself,” he added.

Yale’s Swensen Recommends TIPS to Hedge ‘Substantial Inflation’

2009-05-24T02:10:00.000-07:00

David Swensen, the top-ranked college endowment manager in the past decade, said individual investors should own inflation-protected Treasuries because U.S. economic recovery efforts may lead to an increase in consumer prices.

“We’ve had this massive fiscal stimulus, massive monetary stimulus, and it’s hard to see how that doesn’t translate into pretty substantial inflation, or at least pretty substantial risk of inflation,” Swensen, Yale University’s investment chief, said in an interview on the “Consuelo Mack WealthTrack” television show that aired yesterday. Treasury Inflation- Protected Securities “should be in every investor’s portfolio," he said.

President Barack Obama’s administration on May 11 raised its estimate for this year’s federal deficit by 5 percent to a record $1.84 trillion as the recession reduces tax receipts and increases the costs of propping up the economy. U.S. consumer prices may rise 1.6 percent in 2010, according to the median forecast of 57 economists in a Bloomberg News survey.

That compares with a median decline of 0.7 percent forecast for this year. Inflation averaged 2.9 percent in the past three years.

‘‘The stimulus, the significant government actions in the last six months have focused the heads of a lot of investors on potential inflation,” James Platz, a fund manager at American Century Investments in Mountain View, California, said in an interview. The firm oversees $24 billion in fixed-income assets, including TIPS.

Treasury Inflation-Protected Securities, known as TIPS, pay a lower coupon than nominal Treasuries because investors receive an inflation adjustment to the principal to reflect the change in consumer prices. Regular Treasuries have lost 3.9 percent including interest payments this year, while TIPS have returned 3.6 percent, according to Merrill Lynch & Co. bond indexes.

Harvard vs. Yale

Swensen, 55, has managed the New Haven, Connecticut, school’s investments since April 1985. The endowment was valued at $17 billion in December, a decline of 25 percent since June 30. It’s the second-largest U.S. college fund after Harvard University’s, which stood at $28.8 billion in December after losing 22 percent since June.

Yale’s endowment produced an average annual return of 16.3 percent in the 10 years ended June 30, compared with 13.8 percent for Harvard, which is in Cambridge, Massachusetts. The average for U.S. and Canadian schools was 6.5 percent, according to the Washington-based National Association of College and University Business Officers.

Tom Conway, a spokesman for Yale, said Swensen declined to be interviewed by Bloomberg News.

Guiding Principle

Swensen boosted returns by cutting the fund’s holdings of stocks and bonds and buying more real estate, private equity and hedge funds, a strategy that has been copied by endowment managers across the nation. His guiding principle, outlined in his 2000 book “Pioneering Portfolio Management: A Unconventional Approach to Institutional Investment,” is that the best stock and bond pickers don’t outperform bottom-rated managers by much.

The biggest performance gap comes in “less efficient” markets such as private equity and natural resources, he wrote.

What’s more, he wrote, those assets aren’t highly correlated, meaning they don’t move lock-step with stock and bond markets. That provides diversification and protects against loss when public markets decline.

Swensen, in the television interview, said his approach to diversification can’t prevent losses during market declines such as the one that slashed the value of the Standard & Poor’s 500 Index by 54 percent from start of 2008 through the market nadir on March 9, 2009.

Illiquidity Pays

“I’m not sure that the crisis has caused us to conclude that we would do things differently, but it certainly highlighted the importance of liquidity,” Swensen said, according to a transcript of the interview provided by the show.

“One of the things that I’ve said consistently, and I still continue to believe to be true, is that investors get paid unreasonable amounts for accepting illiquidity in their portfolios,” he said.

Individuals, who can’t invest with the best managers available to Yale, need to take a different approach, Swensen wrote in his second book, “Unconventional Success: A Fundamental Approach to Personal Investment” (2005). Instead, he recommends passive index funds because they provide diversification at a relative low cost.

Swenson told Mack that equity-oriented investors should allocate 30 percent of their money to U.S. stocks, 15 percent to Treasury bonds and 15 percent to TIPS. He recommended putting 15 percent into real-estate investment trusts, 15 percent into equities in non-U.S. developed markets and 10 percent into emerging markets.

Stocks More Attractive

“It’s certainly a better time to put money in the stock market than a year ago, or three years ago or five years ago,” Swensen said. “You’ve got a much more attractive entry point.”

Yale had 10 percent of its assets allocated to U.S. stocks, bonds and cash as of June, compared with 75 percent in 1988, according to the school’s annual report. Real assets such as oil, gas, timber and real estate, seen as a hedge against inflation, made up 29 percent of the portfolio. Twenty-five percent was devoted to absolute-return strategies such as hedge funds, with 20 percent in private equity. The remainder of the portfolio was held in stocks outside the U.S.

Endowment income is one of the main revenue sources for colleges and universities, along with tuition, public financing and gifts. In the year starting in July, Yale plans to cut endowment spending by 6 percent, while Cornell University will scale back by 15 percent and Harvard by 8 percent.

Yale’s endowment supports 44 percent of the university budget this fiscal year, up from 18 percent in 1998. The school plans to cut salaries and benefits for non-faculty staff by 7.5 percent in fiscal 2010, deeper than the 5 percent the school had planned in December.

Crisis Thinking

Swensen, who updated his first book in January, said the collapse of the real estate markets and ensuing financial market losses has required him to broaden his investment analysis.

“The crisis forces you to think top-down in ways that would, I think, be unproductive in normal circumstances, or absolutely necessary in the midst of a crisis,” Swensen said. “You have to think about the functioning of the credit system. You have to think about the potential impact of monetary policy on markets over the next five or 10 or 15 years.”

Morgan Stanley to Boost Executive Salaries as Bonuses Decline

2009-05-24T02:09:00.001-07:00

Morgan Stanley, the sixth-biggest U.S. bank by assets, will increase some executive salaries and double Chief Financial Officer Colm Kelleher’s pay as bonuses come under scrutiny from the Obama administration and lawmakers.

The majority of executives will get raises, according to a person briefed on the decision. Chief Executive Officer John Mack’s base salary is unchanged this year, according to a regulatory filing yesterday.

UBS AG raised banker base pay 50 percent and Bank of America Corp., which bought Merrill Lynch & Co., said in March it might boost salaries as a proportion of total compensation. Treasury Secretary Timothy Geithner is urging an overhaul of compensation practices at financial companies and said the Obama administration’s plan to realign pay with performance will be introduced by mid-June.

“I don’t think we can go back to the way it was,” Geithner said on Bloomberg Television’s “Political Capital with Al Hunt,” to be broadcast during the weekend. “We’re going to need to see very, very substantial change.”

Co-presidents James Gorman, 50, and Walid Chammah, 55, will be paid $800,000 and $750,000 respectively, New York-based Morgan Stanley said in the regulatory filing. Kelleher, 51, will make a base of $750,000, more than double his 2008 base salary of $322,903, Bloomberg data show. Mack, 64, will make $800,000 this year, unchanged from 2008. The changes became effective May 1 and don’t include bonus or catch-up payments.

Lynch, Nides

Chief Legal Officer Gary Lynch and Chief Administrative Officer Thomas Nides will each be paid a base of $750,000, the filing shows. Each received a salary of $300,000 in 2008, Bloomberg data show.

CEO Mack didn’t take a bonus for the second year in a row in 2008 and co-presidents Gorman and Chammah didn’t take one.

Morgan Stanley and UBS also have added so-called clawback provisions that set aside portions of workers’ bonuses that can be recouped in later years if an employee leaves or is found to have behaved in ways that are harmful to the company.

A new performance-based stock plan will “focus a greater portion of total compensation on long-term results rather than a one-year performance period,” according to the filing.

Morgan Stanley spokesman Mark Lake declined to comment beyond the filing.

UBS cut its bonus pool by 78 percent in January after amassing the biggest loss in Swiss corporate history in 2008. The bank came under pressure from government officials to slash variable pay after the Swiss state provided capital to UBS and helped shift hard-to-trade assets off its books.

Geithner Adopts Part of Wall Street Derivatives Plan

2009-05-24T02:08:00.000-07:00

The U.S. Treasury’s plan to regulate the over-the-counter derivatives market outlined by Secretary Timothy Geithner on May 13 contains recommendations similar to those made by Goldman Sachs Group Inc., JPMorgan Chase & Co., Credit Suisse Group AG and Barclays Plc three months earlier.

The banks sent the Treasury a plan written in February titled “Outline of Potential OTC Derivatives Legislative Proposal,” saying the Federal Reserve should extend capital and margin requirements to companies and hedge funds that trade in the $592 trillion unregulated market, according to a document obtained by Bloomberg News and confirmed by the Treasury. Energy companies, corporations and hedge funds don’t face such requirements now, while banks do under central bank oversight.

“The banks appear to wish to maintain the intra-dealer market and raise barriers to new entrants to keep the OTC business as compartmentalized as possible and to protect their profitable market conditions,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. “The Street’s lobbyists appear to be asking for a ‘club’ structure in OTC trading.”

On May 13, U.S. officials called for increased oversight of over-the-counter derivatives to reduce risk to the financial system. Derivatives contributed to the failures last year of Lehman Brothers Holdings Inc. and American International Group Inc., leading to the seizure of credit markets and causing more than $1.4 trillion in writedowns and losses amid the worst financial crisis since the Great Depression.

‘Little Impact’

The Treasury hears from many interested participants while crafting policy, said spokesman Andrew Williams. Derivatives are contracts whose values are tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.

“This proposal had little impact on our final result,” he said. “Our proposal calls for dramatically increased transparency and the enhancement of regulatory powers to prevent market manipulation that go well beyond anything in that draft.”

Bruce Corwin, a spokesman for Zurich-based Credit Suisse, and Goldman Sachs spokesman Michael DuVally and JPMorgan spokesman Brian Marchiony declined to comment on the bank draft. Representatives from New York-based Goldman Sachs and London- based Barclays didn’t immediately return calls and messages for comment left after normal business hours.

‘Robust Regime’

Geithner sent a proposal to Congressional leaders on May 13 laying out his plan to police the unregulated market where swaps based on interest rates, currencies, commodities and a company’s ability to repay debt are traded.

“All OTC dealers and other firms who create large exposures to counterparties should be subject to a robust regime of prudential supervision and regulation,” the proposal said. These included “conservative capital requirements,” “reporting requirements,” and “initial margin requirements.”

The bank-written plan, dated Feb. 13, said the systemic regulator “shall promulgate rules” requiring “capital adequacy,” “regulatory and market transparency” and “counterparty collateral requirements.”

“Better the devil you know than the devil you don’t,” said Robert Webb, a finance professor at the University of Virginia in Charlottesville, describing the bank’s preference for their current regulator.

Shifting Views

The banks sought sole authority for the Fed over the market and limited the role of the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, according to the document. The three agencies currently share information in the $28 trillion credit-default swap market.

Geithner’s proposal didn’t specify what agency or combination of agencies should oversee the market.

The Obama administration favors the Fed becoming the new systemic risk regulator to oversee financial companies that could pose a danger to the banking system, according to participants in a May 8 White House meeting.

While the central bank has been favored to take the job since a proposal by former Treasury Secretary Henry Paulson last year, lawmakers and some regulators have shifted away from that view. Federal Deposit Insurance Corp. Chairman Sheila Bair and SEC Chairman Mary Schapiro earlier this month recommended that a council of regulators assume the role.

Geithner’s plan goes further in many aspects than what the banks laid out in their draft.

No Clearing Requirement

The Treasury Secretary is proposing mandatory guaranteeing of private contracts with clearinghouses for standardized OTC contracts such as interest-rate swaps or indexes of credit- default swaps and increased electronic trading to improve price transparency for customers. He also wants required reporting of positions and trades.

The bank proposal doesn’t endorse clearing of OTC derivatives. In annotations to the draft it states “Note that the proposed outline does not propose any specific OTC derivatives clearing requirement.” It also says reporting requirements on trade data should be made to regulators “upon request.”

Webb said any regulation over the market should be applied evenly. “It’s not clear requiring everyone to have the same capital requirements is necessary,” he said. He added that banks have worked closely with the Fed for many years.

“You’re going to see some close ties between the industry and the regulator,” he said.

Kohn Says Fed Asset Purchases May Boost Economy by $1 Trillion

2009-05-24T02:06:00.000-07:00

Federal Reserve Board Vice Chairman Donald Kohn said the U.S. economy may get a $1 trillion boost in coming years from the central bank’s purchases of government and mortgage debt, along with $175 billion in extra tax revenue.

Kohn defended the central bank’s response to the financial crisis and worst recession in 50 years while saying the central bank “needs a framework” for tightening credit when the economy rebounds. Some economists and Fed officials, including Philadelphia Fed President Charles Plosser, say adding the assets to the balance sheet risks spurring inflation.

“The preliminary evidence suggests that our program so far has worked,” Kohn, 66, said yesterday in a speech during a panel discussion at a conference on monetary and fiscal policy at Princeton University in New Jersey. He cited reductions in longer-term interest rates.

The Fed is in the process of buying $300 billion of long- term Treasuries through September, as authorized at the March meeting of the Federal Open Market Committee. Policy makers also at the time more than doubled planned purchases of mortgage- backed securities to $1.25 trillion this year and boosted federal agency debt purchases to $200 billion from $100 billion.

The comments make it more likely that Fed officials will “extend or expand” programs to purchase the assets, Michael Feroli, a JPMorgan Chase & Co. economist and former Fed researcher, said in a note yesterday.

Purchases may increase nominal gross domestic product as much as $1 trillion “over the next several years,” Kohn said in a footnote to his remarks.

Fire Sales

Other Fed interventions to aid bond dealers, mutual funds and credit markets also “have been successful in supporting economic growth” by lowering rates and “preventing fire sales of assets,” Kohn said.

Kohn, in his speech, said he’s “very much looking forward to” having the central bank “return to more normal modes of operation” as the economy rebounds.

While the purchases expose the Fed and taxpayers to potential losses, Kohn said several considerations make such an outcome unlikely. The Fed won’t need to sell some of the Treasury and agency debt because it will mature, and the central bank can fund the purchases at low cost. Also, the purchases boost the economy and tax receipts, he said.

Still, Kohn said “any calculation of the effect of our asset purchases on the economy is highly uncertain.”

U.S. nominal GDP fell to $14.1 trillion on an annual basis in the first quarter from $14.2 trillion in the prior three months and $14.4 trillion in the third quarter of 2008. It was the first back-to-back decline since 1958.
‘Believable’ Impact

Alan Blinder, a former Fed vice chairman who is a Princeton economics professor, said Kohn’s estimate of the effect on GDP from the mortgage-bond purchases is “believable.”

“It was supposed to reduce the risk spread between mortgage rates and other rates, and I think it has,” Blinder said in an interview. “You get these multiplier effects” on the economy from spending on housing, said Blinder, a panelist with Kohn at the conference.

Blinder said he’s “more dubious” about the Treasury purchases themselves. Any reduction in long-term rates makes it more difficult for U.S. banks to generate earnings to make up for what the Fed estimated earlier this month would be $600 billion in losses under adverse economic conditions. “It makes it harder for them to earn their way out,” he said.

Kohn reiterated his view that the U.S. economy “is only now beginning to show signs that it might be stabilizing, and the upturn, when it begins, is likely to be gradual amid the balance sheet repair of financial intermediaries and households.”

More Power

Kohn said closer cooperation between the Fed and “fiscal authorities” is an “inevitable aspect of effective policy initiatives to meet our macroeconomic objectives in the current financial and economic crises.” He reiterated that the central bank is working with the Obama administration to seek additional powers for the Fed to tighten credit.

Plosser, by contrast, said in a May 21 speech that “when a nation’s treasury or finance ministry and its central bank work too closely together, there is a clear risk that the government’s spending will end up being financed by the central bank’s power to create money and that the public will become confused as to their respective roles.”

“History shows us that you can get very bad economic outcomes with rapidly rising inflation,” said Plosser, 60, the Philadelphia Fed’s president since 2006.

Political Pressures

Central banks do “need a degree of insulation from short- term political pressures” to do their job of keeping prices stable and employment high, Kohn said.

Speaking during an audience discussion before his speech, Kohn said the central bank’s power to pay interest on banks’ deposits will do a better job of keeping the benchmark rate at the desired level as financial markets improve.

“It hasn’t been a totally effective floor,” he said. “As the balance sheet shrinks and as banks become better capitalized, that will become an effective floor.”