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Oil falls more than $2 on demand concerns. Prices were also pressured by news Oman's only oil terminal resumed operations Friday after a three-day closure caused by Cyclone Gonu, and after U.S. government data earlier in the week showed an unexpected increase in gasoline stockpiles. London Brent crude, seen as more representative of the global market, settled down $2.62 at $68.60 a barrel at 1815 GMT. U.S. crude fell $2.17 to $64.76 a barrel. "This appears to be part of a wider sell-off across the commodities," said Kyle Cooper of IAF Investors. "We're seeing a liquidation in gold and silver as well. People are choosing to move from assets into the safe harbor of cash." Prices for gold slumped to a three-month low Friday, while silver and platinum also fell. Stocks, which had been hard hit by concerns over interest rates in Europe and uncertainty over the cost of lending in the United States earlier in the week, recovered Friday. "Both these groups (metals and equities) have sold off sharply of late, unnerved by prospects of rising interest rates and the implications that this could have on economic growth," Edward Meir wrote in his Man Energy Daily Report. Oil began to slide early on Friday after Cyclone Gonu lost strength after slamming into Oman and Iran. Oman's Mina al-Fahal, the country's only terminal for its 650,000 barrels per day (bpd) of crude exports, resumed operations on Friday, a shipping source said. Dealers added that rising gasoline stockpiles in the United States were also pushing down prices. The U.S. Energy Information Administration said on Wednesday gasoline supplies rose last week by 3.5 million barrels, the fifth consecutive weekly build. "Clearly the refinery issue was not encouraging to the bears, but if you're still building gasoline stockpiles when refineries are struggling, there's not much of a supply problem," said IAF's Cooper. Prices have been underpinned by OPEC's reluctance to increase output. Brent crude almost matched the $71.80 high hit in late May after the president of the Organization of the Petroleum Exporting Countries said on Thursday there was no need for an emergency meeting. Consumers have been urging the group to reconsider its current production ceiling. The market was also briefly ruffled on Thursday by a report Turkey was launching a major incursion into oil-producing northern Iraq. A military source said troops had conducted a limited raid, but Turkey denied it was on a major scale. (Additional reporting by Peg Mackey and Janet Merriman in London)

Costly corn cuts hog producer profits: economist. "The cost of corn comes in as the number one concern among big producers," said University of Missouri agricultural economist Glenn Grimes, who was on the sidelines at the World Pork Expo industry gathering this week. "The odds are about 90 percent that we will see some red ink for at least one or two or three months this fall." Surging demand for corn from ethanol producers helped drive corn prices to the highest level in a decade in February. The cost of producing hogs was currently about $7 to $9 per hundredweight higher than a year ago, Grimes said. Strong export demand has helped soften the blow for hog producers since the spike in corn prices, but export growth appears to have flattened out in recent months, he said. The decline is partly due to much lower sales to Mexico, Grimes said. Consumers in Mexico may be buying less pork and beef due to high corn prices driving up the cost of tortillas, a regional staple, and squeezing consumers' budgets. Pending free trade agreements with South Korea and some Central and South American countries could build up export markets in the future. "We've had 15 consecutive years of record exports, but this may be the year that we break that. In practically any trend, you have to pause and take a breath occasionally so I don't see this as too serious at this point in time," Grimes said. "But with these trade agreements we have, I think we can get a new wind and start that trend again," he said. The average live hog price in Iowa and southern Minnesota was forecast to be between $48 and $51 per cwt in the second quarter of 2007, then slip to $44 to $47 in the third quarter before recovering slightly in the last three months of the year to $46 to $48 on average, Grimes said. Hog slaughter weights typically rise year over year due to increased production efficiency, but weights this spring were close to year ago levels because producers have been marketing hogs at lighter weights due to high feed costs. That has kept a lid on pork supplies and helped prop up prices. In the week ended June 2, the average weight of barrows and gilts in Iowa and southern Minnesota was 266.8 lbs, compared with 265.8 lbs the previous week and 266.5 in the same week a year ago, according to U.S. Agriculture Department data. Circovirus disease likely tightened the hog supply somewhat over the past year, although exact figures were not available. Some producers have lost up to 30 percent of their herds due to the disease, but industry-wide losses likely total between 1 and 3 percent, Grimes said. "All we have there is trade rumors. We don't have any trade statistics of what circovirus is really doing to our supply, but we know that it's reducing the supply some. It's going to keep on reducing our supply for some time," he said. However, increasing availability and effectiveness of vaccines could soften the impact in the future, he added. U.S. meat company Smithfield Foods Inc. SFD.N said this week that its hog unit was hurt by high feed costs and reduced hog numbers due to circovirus, which caused a 6 percent drop in the number of hogs marketed in the latest quarter.

Data shows economy poised for better growth. Fewer U.S. workers signed up for unemployment aid last week, according to the Labor Department. The number of U.S. workers filing initial claims for jobless benefits slipped by 1,000 to 309,000, the department said on Thursday. Other data showed wholesalers boosted inventories in April, and retail chain stores saw moderate sales gains in May. "We're not quite out of the woods yet, but the numbers are pretty consistent in showing that we're on track for an improved second half," said Kurt Karl, chief economist at Swiss Re in New York. For several weeks now the number of workers seeking an initial week of jobless aid has held steady around 300,000, a level economists say indicates a stable labor market. "Jobless claims continue to hold at relatively low levels, which we judge to be consistent with solid job creation," economists at Bear Stearns wrote in a research note after the release of the latest data on Thursday. The report added to the evidence of labor-market health presented by a government report on employment last week that showed an increase of 157,000 jobs in May and a steady unemployment rate of 4.5 percent. A separate report from the Commerce Department on Thursday showed inventories at U.S. wholesalers rose 0.3 percent in April as stocks of nondurable goods saw the biggest percentage increase in five months. After working hard to whittle down bloated inventories, economists said U.S. businesses now appeared to be restocking. A report last week from the Institute for Supply Management showed factory activity picked up last month as a result. RETAIL SALES WARM, BUT NOT HOT Financial markets showed little reaction to the data on Thursday as they focused on the U.S. Treasury bond market, where prices plunged, leading to the biggest one-day spike in yields in about three years. The dollar gained support from the rising market interest rates, but the specter of higher borrowing costs hurt stocks, which fell for a third straight day. The Dow Jones industrial average .DJI closed down 199 points, or nearly 1.5 percent. A slew of strong data has led to a reassessment of the prospects for interest-rate cuts from the Federal Reserve. A growing minority of Wall Street firms think the central bank's next move may be a rate hike at some point down the road. Many economists had expected a slumping housing market and rising gasoline prices to dampen consumer spending and cut into economic growth. But, so far, consumers appear to be holding steady. U.S. retail chains on Thursday reported moderate May sales increases as warmer weather fueled demand for seasonal items, like gardening and other outdoor goods, helping retailers rebound from a dismal April. But several specialty apparel chains posted disappointing results, due in part to weak sales of women's clothes and increased competition from department stores trying to lure fashionable shoppers. Among retailers reporting May sales at stores open at least a year, 57 percent exceeded Wall Street expectations while 41 percent fell short, according to research firm Retail Metrics. The performance was better than the firm's long-term average. Toting up the results, the International Council of Shopping Centers said chain store sales rose 2.5 percent from a year earlier. Wal-Mart Stores Inc. ( WMT.N ), the world's largest retailer, said sales at stores open at least a year rose 1.1 percent in May, excluding fuel sales. Including fuel, sales rose 1.3 percent as weakness in apparel and home goods was offset by strength in lawn and garden goods, live plants and groceries. The report on inventories showed wholesalers were having a hard time keeping pace with a pickup in their sales in April. The inventories-to-sales ratio, a measure of how quickly stocks would be depleted at the current sales pace, fell for the fourth straight month, dropping to 1.12 months from 1.13 months in March. "The decline in the wholesale inventory-sales ratio to a record low level supports our view that inventory levels are inadequate and inventory accumulation going forward is likely to support growth," economists at Bear Stearns wrote. (Additional reporting by Nancy Waitz in Washington and Martinne Geller in New York)

Children's Place, Disney unit settle store dispute. As part of the deal, Children's Place said it is developing a new prototype for the Disney stores and will obtain Disney's approval of the prototype this month. The retailer said it will remodel 234 existing stores into the new store prototype by January 31, 2012. It will also open at least 18 new Disney stores using the new store prototype by early 2009. In addition, Children's Place will complete a "maintenance refresh" program in about 165 Disney stores, including the flagship store on Michigan Avenue in Chicago, no later than June 30, 2008. In the dispute, Disney had alleged that Children's Place committed 120 "uncured material breaches" of its license agreement to operate the stores, meaning Disney could have terminated the agreement. The alleged breaches mainly related to store remodeling and maintenance. Children's Place said its board has approved spending $175 million between now and January 31, 2012 for the store maintenance and renovation program. The companies also agreed to reduce the restrictions on Disney to grant direct merchandising licenses to other specialty retail store chains. Children's Place did not return phone calls seeking comment.

AIG to take steps to assist nonprime borrowers. Most of the money will be used to provide affordable loans to these borrowers, who face a high risk of foreclosure. Subprime borrowers are facing defaults because they generally have weaker credit, and rates on their adjustable mortgages are climbing. AIG's agreement with the Office of Thrift Supervision covers mortgages made by one of its units -- Wilmington Finance Inc. -- between July 2003 and May 2006. The OTS said the AIG unit responsible for Wilmington Finance "failed to manage and control the mortgage lending activities outsourced to WFI in a safe and sound manner," but had taken steps to improve. OTS officials were not immediately available for comment. In total, AIG has a portfolio of more than $24 billion in loans, mostly subprime, but it represents only a small part of the insurer's nearly $1 trillion in assets. The agreement with the OTS did not take the market by surprise. AIG took a reserve of $128 million in the first quarter to pay for the cost of implementing this program. In its latest statement, the company said it would take an additional reserve of up to $50 million, including a $15 million donation to educate and counsel borrowers. AIG shares were down 32 cents at $71.06 in midday New York Stock Exchange trade. AIG is not the only lender to agree to help subprime borrowers in trouble. Washington Mutual Inc. ( WM.N ), the largest U.S. savings and loan, has said it would refinance up to $2 billion of subprime loans at below-market rates.

Stocks still have room to extend rally. Major stock market gauges recovered on Friday after a bond sell-off pushed the benchmark 10-year U.S. Treasury note's yield up to 5.25 percent -- matching the fed funds rate target at one point -- from levels below 5 percent a week ago. That jump in government bond yields rattled investors who, skittish about a bull market that has lasted longer than most, worry that rising capital costs will cut corporate profits. Around midday on Friday, stocks began rallying as the 10-year note's yield retreated to around 5.11 percent. Friday's recovery after a three-day slide is a good indication of where the market is headed as investors realized they overreacted to a spike in market interest rates, said David Joy, market strategist at RiverSource Investments. "Interest rates are where they should be, and we haven't had any inflation. This a little adjustment to a new level of rates, a level that the stock market doesn't have a problem with," Joy said. The blue-chip Dow Jones industrial average .DJI climbed 157.66 points, or 1.19 percent, to end Friday's session at 13,424.39. The broad Standard & Poor's 500 index .SPX gained 16.95 points, or 1.14 percent, to finish at 1,507.67. The Nasdaq Composite Index .IXIC advanced 32.16 points, or 1.27 percent, to close at 2,573.54. Falling oil prices on Friday also helped the major U.S. stock indexes rebound. U.S. crude oil for July CLN7 slid $2.17 to settle at $64.76 a barrel on the New York Mercantile Exchange. For the week, NYMEX July crude fell 32 cents. For the week, though, the effects of the pullback were visible, with the Dow average ending down 1.78 percent, the S&P 500 falling 1.87 percent and the Nasdaq losing 1.54 percent. For the year so far, however, the Dow is still up 7.71 percent, while the S&P 500 is up 6.30 percent and the Nasdaq is up 6.55 percent. With memories of the dot-com bust still fresh, many investors are cautious and trying to identify an inflection point, Joy said. But stronger growth, absent inflationary pressures, is good for stocks, he said. "The bond market has realized rates should be a little higher, given how strong the economy is," he said. Investors will look for any change in language about interest rates when the Federal Reserve releases its Beige Book summary of regional economic conditions on Wednesday. Joy said he didn't expect to see the Fed change its interest-rate stance. Since last June, the Fed has held its fed funds rate for overnight bank loans steady at 5.25 percent. CPI ON THE BRAIN The headline to watch for next week is inflation data that comes out on Friday, and possible inflationary signs in an industrial output and capacity utilization report later that day, Joy said. Investors will be a little bit wary of Friday's inflation data, leading to a drop in trading the day before, he said. But inflationary pressures are unlikely to appear for another six months or more, he said. A Labor Department report is expected to show that the overall U.S. Consumer Price Index rose 0.6 percent in May from 0.4 percent a month earlier. Stripping out food and energy, the core CPI likely rose 0.2 percent in May, the same as in April, according to economists polled by Reuters. U.S. industrial production probably increased in May, up 0.2 percent after April's rise of 0.7 percent, according to the Reuters poll. Capacity utilization at factories likely stayed the same at 81.6 percent in May. Friday's CPI data will be preceded on Thursday by a look at prices at the wholesale level. The forecast for the overall U.S. Producer Price Index calls for a gain of 0.6 percent in May, following an increase of 0.4 percent in April, according to the Reuters poll. Core PPI, excluding volatile food and energy prices, probably rose 0.2 percent in May, in comparison with no change in April. Among other data expected on Friday will be a preliminary reading on U.S. consumer sentiment in June from the Reuters/University of Michigan Surveys of Consumers. The June consumer sentiment index is forecast at 88.0, down from 88.3 in May. Manufacturing activity in New York state, as seen by the New York Fed's "Empire State" general business conditions index, likely rose to 10.8 in June from 8.03 in May. WHAT THE BANKERS SEE Investors will get a taste of second-quarter earnings next week when chip maker Texas Instruments TN.N provides a mid-quarter financial update on Monday, and three of Wall Street's largest investment banks release fiscal quarter results. Lehman Brothers LEH.N reports on Tuesday, while Bear Stearns BSC.N and Goldman Sachs ( GS.N ) report on Thursday. All three investment banks will release their quarterly scorecards before the opening bell on those respective days. "People will look to the brokerage comments about the markets in general and their outlook for their own companies," said Mark Bronzo, managing director at Gartmore Separate Accounts in Irvington, New York. (Wall St Week Ahead runs weekly. Questions or comments on this column can be e-mailed to: herbert.lash(at)reuters.com)

SEC to fine Nortel over accounting fraud: report. The Securities and Exchange Commission fine is the first test of a policy that gives the agency's commissioners more say in corporate penalties, according to the report, which cited people with direct knowledge of the matter. SEC attorneys received the commissioners' approval last month to seek a fine of less than $100 million from Nortel, the report said. The case may provide a sign of what penalties to expect from the SEC amid concerns that Chairman Christopher Cox is favoring companies at the expense of investors. Neither Nortel nor the SEC immediately returned calls seeking comment. In March, the SEC filed civil charges against four former Nortel executives, accusing them of an accounting fraud that helped the company meet Wall Street expectations. The SEC charged the misconduct occurred at Nortel, a Canadian manufacturer of telecommunications equipment, between September 2000 and January 2004. Nortel said in March that it would be restating its results for the fourth time in four years, corrections that first began in November 2003. Earlier restatements came as a result of accounting scandals. Later errors surfaced as management tried to tighten internal controls over financial reporting.

Norilsk profit up 154 percent. Norilsk, owned by Russian billionaires Vladimir Potanin and Mikhail Prokhorov, said net profit rose 154 percent last year to $5.965 billion, beating analysts' forecasts. Analysts said they expected the Russian miner to post strong results in 2007, despite a possible decline in nickel prices, as its newly acquired refinery in Finland will add to production. "Nickel prices have started declining, which may have a negative effect on the company's results, but 2007 will be a good year for Norilsk after it consolidates its Finnish assets," Metropol Group metals analyst Denis Nushtayev said. Norilsk earned $993 million from the sale of its stake in Gold Fields, the world's fourth-largest gold miner, last year. Excluding this gain, net profit was $4.972 billion -- still more than double the previous year's $2.352 billion. Eleven analysts polled by Reuters had forecast net profit of $5.118 billion. The three who excluded the Gold Fields sale forecast an average $4.815 billion, still below actual results. Revenues rose 61 percent to $11.550 billion in 2006, above the $11.048 billion forecast in the analyst poll. Norilsk, which mines a fifth of the world's nickel, said its sales of the metal yielded an average $24,081 per tonne in 2006, up 65 percent from 2005. Nickel, used to make stainless steel, has been the best performer on the London Metal Exchange this year due to a China-led boom in global demand. It hit a record $51,800 a tonne on May 9 but has retreated to close on Thursday at $42,900. COPPER, PGMS Norilsk, Russia's biggest copper and platinum producer, also profited from an 83 percent rose in its average copper price to $6,689 per tonne. The price of palladium, used in jewelry and car exhausts, rose 57 percent and platinum 26 percent. Norilsk's physical sales of nickel rose 5 percent last year to 257,000 tonnes. Palladium sales were practically unchanged at 3.22 million ounces, while sales of copper declined by 6 percent to 424,000 tonnes and platinum by 1 percent to 750,000 ounces. Norilsk sold slightly more nickel and palladium than it produced last year and all of its copper and platinum. It also kept operating expenses low compared with those of domestic and international peers. Cash operating costs in 2006 rose 5 percent to $2.538 billion, production costs 7 percent to $3.106 billion and sales costs 5 percent to $3.158 billion. "The company continues to show convincing control of expenses, which separates it from other producers both in Russia and abroad, where operating expenses are rising substantially," said Sergei Donskoy, metals analyst with Troika Dialog. Norilsk produced 244,000 tonnes of nickel in 2006. Its purchase this year of the nickel assets of U.S.-based OM Group, including the Harjavalta refinery in Finland, is expected to boost 2007 output to 270,000-275,000 tonnes. Norilsk did not publish its earnings before interest, taxation, depreciation and amortization (EBITDA) but analysts said it slightly exceeded the consensus of $7.499 billion. EDITDA margin was slightly lower than the 69.2 percent forecast. Norilsk is also expected to gain control of LionOre Mining International Ltd., the world's 10th-largest nickel producer, after the Canadian miner advised shareholders to accept the Russian firm's $6.4 billion bid. Potanin, president of industrial and banking group Interros, and Prokhorov -- the company's chief executive until earlier this year -- together own more than half of Norilsk's stock. Prokhorov is expected this year to sell his stake to Potanin. (Additional reporting by Anastasia Teterevleva)

McDonald's May sales jump. The world's largest restaurant chain said sales rose 8.7 percent in May at restaurants open at least 13 months, beating analysts expectations and the largest increase since April 2004. Wall Street analysts had been expecting a rise of 5 percent, according to research notes. Same-store sales, a key retail measure, rose 7.4 percent in the United States, helped by a promotional tie in with the DreamWorks DWA.N movie "Shrek the Third" and continued strength in its breakfast business. Same-store sales rose 8.9 percent in Europe, boosted by chicken snack wraps and other items in Germany and P'tit Plaisir sandwiches in France -- a line of smaller beef and chicken sandwiches. Same-store sales rose 10.2 percent in the company's Asia/Middle East and Africa unit, helped by western-style breakfast items in China and deli chicken sandwiches and extended hours in Australia. Systemwide total sales rose 11.9 percent in May, but were up 10 percent on a constant currency basis. McDonald's shares traded at $50.75 on Friday in premarket activity, up from Thursday's New York Stock Exchange close of $50.21.

Heirs get millions in exec death benefits: report. For instance, Nabors Industries ( NBR.N ) would owe the estate of CEO Eugene Isenberg a "severance" payment of at least $263.6 million, which is more than the first-quarter earnings at the Houston oil-service company, the Journal said. According to the paper, many companies accelerate unvested stock awards after a death and some promise severance payouts, supercharged pensions or a continuation of executives' salaries or bonuses for years after they are dead. Compensation critics call the practice the ultimate in pay that is not based on performance. Death benefits are not a new feature of executive contracts, but a federal rule change 18 months ago that forced companies to provide more detail on severance arrangements has exposed just how lavish some of these arrangements are, the Journal said. It said the CEO of Shaw Group Inc SGR.N is in line to be paid $17 million for not competing with the engineering and construction company after he dies. Companies contend they are taking care of an executive's family after an unexpected death, and they note that the benefits often are negotiated as part of a pay package that has many components, the report says. In many cases, compensation attorneys tell the Journal, death benefits are really a form of deferred compensation, structured partly for estate-planning or tax reasons, and that the packages help to keep executives from leaving. But "if the executive is dead, you're certainly not retaining them," Steven Hall, an executive-pay consultant in New York, tells the Journal. (Reporting by Christopher Kaufman, editing by Elizabeth Fullerton)

GM raises incentives on some large SUVs, trucks. The increased incentives of as much as $4,000 cash back were being offered to current GM vehicle owners on models such as the Chevrolet Tahoe and Suburban SUVs, and up to $3,000 on pickup trucks such as the Chevrolet Silverado pickup. The owner loyalty incentives also cover hybrid versions of the Tahoe and the GMC Yukon, the first time GM has offered any incentives on those large hybrid SUVs, it said. The program, which is in addition to existing incentives of as much as $2,000 cash back, started on June 7 and runs to the end of the month, the company said. GM's incentives follow Ford Motor Co's announcement this month that it would offer employee pricing rebates on full-size F-Series trucks to reduce inventories. Overall, demand for vehicles has declined this year and the U.S. auto market is headed for its worst year in a decade amid high oil prices, weak consumer confidence and tighter credit. The U.S. consumers' shift toward more fuel-efficient cars and crossovers has hit Detroit-based automakers and their truck-heavy line-ups particularly hard. (Reporting by Poornima Gupta and David Bailey ; Editing by Braden Reddall )

Ford says Mercury brand important part of line-up. "It is an important part of the stable of brands," Fields told reporters at an event promoting the new Lincoln MKS sedan in Garden City, Michigan. Fields comments follow recent analyst questions on whether Ford would continue to invest in its Mercury brand, whose sales fell nearly 7 percent in 2007. Jerry York, adviser to billionaire investor Kirk Kerkorian, who holds a nearly 5 percent stake in the company, had said in a media interview that he expected Ford to sell its Volvo and Mercury brands. He later apologized for what he termed "off the cuff" remarks. Ford, which last month abandoned its long-standing goal to be profitable in 2009, has been hurt by the shift in U.S. consumer demand toward smaller, fuel-efficient vehicles and away from large trucks and SUVs. Ford relies heavily on sales of its SUVs and full-size pickup trucks in the U.S. market, but the U.S. demand for the large vehicles has been shrinking for several years and the declines accelerated in the last couple of months as gas prices rose above $3.50 per gallon. Fields said the automaker may introduce some incentives to move some of the larger SUVs from dealer lots. Ford earlier this month said it would offer its employee pricing incentive on full-size F-Series trucks to reduce inventories ahead of its planned launch of a redesigned vehicle in the fall. The F-Series trucks were outsold in May for the first time since 1991 as consumers flocked to cars, but Fields said the truck market is "one of the biggest segments in the industry." Overall, the truck and SUV market remains one of the larger segments in North America, Fields said. Fields also said that while the F-Series trucks are more regional due to their large design, the Ranger compact pickup truck platform could "potentially" be global for the automaker. Ford introduced a global small car platform earlier this year, the Fiesta, that will be offered in Europe, Asia and North America and has been exploring other potential global platforms. (Reporting by Poornima Gupta and David Bailey; editing by Carol Bishopric, Gary Hill )

XTO Energy to buy Hunt Petroleum for $4.2 billion. The acquisition of Hunt, which was founded by the late oil tycoon Haroldson Lafayette Hunt Jr., would add 1.052 trillion cubic feet of natural gas equivalent in proved reserves to XTO's portfolio, the Fort Worth, Texas, company said. "In aggregate, this is a growth machine," Bob Simpson, XTO's chief executive officer, told analysts on a conference call. XTO said the addition of the Hunt assets, plus the planned $1.85 billion purchase of assets from Headington Oil announced in May, prompted it to increase its 2008 production growth target to between 28 percent and 30 percent. It had previously forecast production growth of 20 percent to 23 percent for the year. XTO said it would pay $2.6 billion in cash plus 23.5 million shares of common stock valued at about $1.6 billion, or $67.50 per share, for Hunt. Upon closing of the deal, which is expected by September 3, XTO would add to its output the current Hunt daily production of 197 million cubic feet of natural gas and 2,300 barrels of natural gas liquids. It has hedged 100 million cubic feet of natural gas per day for 28 months at a price of $11.08 per thousand cubic feet. "The assets align nicely with XTO's Eastern Region and include prime positions" in the Haynesville and Cotton Valley Lime fields near the Texas-Louisiana border, Simmons & Co International told clients in a note. Advances in drilling and high oil and natural gas prices have triggered a frenzy of exploration activity among energy companies in shale plays like the Haynesville. Those resources were once considered too costly and too complex to develop. The Hunt Petroleum acquisition would bring XTO's total interest in the Haynesville shale formation to 100,000 net acres, the company told analysts. XTO said that its expertise working in tight gas sands and other features in the region should allow it to expand recovery at hundreds of the Hunt sites. The company is paying about $3.98 per thousand cubic feet of natural gas equivalent, which is high compared with year-to-date deal metrics of $2.95 per thousand cubic feet of natural gas equivalent, Simmons & Co said. XTO also said it expected 2009 production growth of about 20 percent, while spending $4 billion to $4.5 billion and using 110 to 120 drilling rigs. The company also said it plans to spend at least $1 billion to $1.5 billion on additional acquisitions in 2008, the CEO said. "That is sort of a minimum I see us doing for the rest of the year," Simpson said on the conference call. "It's just midyear, and lots of deals are coming." XTO shares were off $1.63 or 2.4 percent at $66.09 on the New York Stock Exchange in afternoon trading. Standard & Poor's Energy company index .GSPE was down 3 percent. (Reporting by Matt Daily and Michael Erman , additional reporting by Anna Driver in Houston, editing by Gerald E. McCormick)

ESPN president Bodenheimer "bullish" on ad growth. "Ratings are up ... and I am bullish on our continued advertising (growth)," Bodenheimer, co-chairman of Disney's Media Networks and president of ESPN, said at a Deutsche Bank media conference in New York that was accessed via webcast. "We're bullish on continued growth of the company ... we're peddling as fast as we can on every business that serves sports fans," he said. Bodenheimer declined to give growth targets but said strong upfront advertising sales for Disney's ABC broadcast network last week "bodes success for us." "The entire pie to sports consumption is growing ... and ESPN is continuing to ride that wave," he said. "Ratings on ESPN are up significantly this year." Bodenheimer gave no indication of current advertising sales -- something investors would be keen to hear, said David Bank, managing director of equity research at RBC Capital Markets. "What everybody really wants to know is what's going on with the advertising environment," Bank said. "People want to know what is going on with budgets and the tone of the advertising markets." ESPN has all of its 96 million subscribers under contract through 2010, and 80 percent through 2012. Bodenheimer said the network has been "extremely successful in locking up sports rights ... long term," which helps maintain stable distribution rates. The network's key growth driver, its television business, "continues to be very strong and continues to grow at the same time we are expanding rapidly in digital media," he said. Disney said in its most recent earnings conference call that it expected ESPN to defer $120 million more in revenue from television affiliates in the fiscal third quarter than it did a year earlier. But on Tuesday, Bodenheimer said this was no longer the case because ESPN had met its performance targets earlier than expected. ESPN's international business also was "growing nicely" and actively looking for new broadcasting rights, including for the upcoming Olympics and English Premier League soccer, Bodenheimer said. "I am bullish on international growth." The network was especially looking to expand offerings for its Spanish-speaking fans, he said. The network is working to bring some of its TV franchises online through paying distributors, and Bodenheimer said he also sees growth online in fantasy sports and Web video. Through the recent purchase of a high school sports publication dubbed ESPN Rise, the network hopes to capture a new generation of fans. Disney shares were up 80 cents, or 2.4 percent, to $33.98 in afternoon trade on the New York Stock Exchange. (Editing by Brian Moss and John Wallace)

Global forecasters cut non-OPEC oil supply growth. The dimming outlook for world production will keep the market on edge even as high prices hit consumers and cut into the pace of global demand growth. The International Energy Agency, adviser to 27 industrial economies, cut its expectations for supply growth from countries outside OPEC to 460,000 barrels per day above 2007 levels, down from 680,000 bpd a month ago. The U.S Energy Information Administration, the statistical arm of the Energy Department, cut its forecast for non-OPEC output growth nearly in half to 310,000 bpd from 600,000 bpd. Both groups have consistently over-shot on non-OPEC supply growth in recent years, as soaring field costs and geopolitical constraints have wreaked havoc on official timelines. Partly due to the dearth of supplies outside the Organization of Petroleum Exporting Countries, the EIA raised its projections for 2008 oil prices by nearly 12 percent. Benchmark West Texas Intermediate oil prices will average $122.15 a barrel, up from its previous forecast of $109.53 a barrel, the EIA predicted. Oil prices hit a record near $140 a barrel last week, a seven-fold increase since 2002 that has been driven by surging demand from China and other developing countries. The EIA said it was still accounting for a planned non-OPEC supply increase of 820,000 bpd later this year as big fields in Brazil and Azerbaijan come online. But, given recent delays, the EIA hedged its bets on the probability of such supplies materializing as planned. BACK TO THE DRAWING BOARD "Given recent history, EIA believes that the pace and timing of non-OPEC supply growth will continue to be subject to possible delays in key projects and accelerating production declines in some older fields," the agency said. The EIA has sifted through new data that paints a less rosy picture for supplies from three key producers -- Russia, Mexico and Brazil -- said Matt Cline, an economist at the agency. In Russia, the world's No. 2 oil exporter behind Saudi Arabia, a venture with LUKOIL ( LKOH.MM ) and U.S.-based ConocoPhillips ( COP.N ) to produce 160,000 bpd in Russia's north has been repeatedly delayed. In Mexico, production from the huge Cantarell offshore field plummeted by more than 30 percent in the first four months of 2008, versus a year ago, Cline said. "Like everyone else, we had been expecting Cantarell to decline this year," Cline said. "But no one had been expecting it to decline by that much." In Brazil, the EIA has dramatically increased its baseline for decline rates in some larger, more mature fields, especially in its offshore areas. Cline said, "based on some new data and some new analysis, we reevaluated what we saw as the underlying decline rate and we increased it" to about 13 percent for some fields, versus about 10 percent previously. EIA head Guy Caruso said the downward revisions would put more pressure on OPEC suppliers like Saudi Arabia to fill the gap, and will lead to tighter global spare capacity. "Tight spare capacity means upward pressure on oil prices," Caruso told Reuters. IT'S TRICKY The slower growth in supply from non-OPEC countries will keep supplies tight, despite weakening growth in demand, as high prices hit consumers, the EIA said. And analysts must balance predictions for supply decreases with similar predictions for falling oil demand, both in the United States and globally. "It's a tricky situation, because supply is falling as fast as demand is," said Francisco Blanch of Merrill Lynch. The IEA said global oil demand will rise by 800,000 bpd this year, 230,000 bpd less than its previous forecast, in part because developing Asian economies are moving to roll back fuel subsidies that sheltered consumers. The EIA, meanwhile, cut its forecasts for U.S. demand by 100,000 bpd and global oil demand by 210,000 bpd in 2008. (Editing by Walter Bagley )

iPhone to cut into AT&T earnings until 2010. While some analysts applauded the plan, saying it would broaden the market for the high-speed version of the most talked about cell phone in history, others questioned whether AT&T was sacrificing too much for one product. AT&T, the largest U.S. mobile phone service provider, said iPhone subsidies would cut its earnings per share by 10 cents to 12 cents in 2008 and 2009 and Chief Financial Officer Rick Lindner said the move would put pressure on AT&T's forecast for double-digit earnings growth this year. AT&T, the exclusive U.S. service provider for the iPhone, said it was subsidizing the latest device to make it affordable. The new iPhone will cost $199, half the previous entry-level price. Under the new pact, AT&T will not give Apple part of its monthly service fees, unlike their first iPhone agreement. But investors focused on the hit to earnings and pushed AT&T's shares down 1.7 percent. Crowell, Weedon & Co analyst Douglas Christopher said AT&T's profit should not have to suffer for an agreement to sell a hot new phone. "I think that in this type of market asking shareholders to deal with more dilution for the sake of iPhone is a lot," said Christopher, who has a buy rating on AT&T shares. Gartner analyst Kenneth Dulaney said the plan to stop paying a portion of revenue to Apple made the hit to earnings all the more surprising. "This says that the product is so hot the carriers have lost all their power to negotiate," he said. IPHONE ADVANTAGE AT&T said the new iPhone initiative would start adding to earnings in 2010. It did not detail the subsidy arrangement nor how much in service fees Apple was forsaking under the pact. Executives of AT&T, which competes against Verizon Wireless and Sprint Nextel Corp, said iPhone would help it win customers who can afford to pay monthly fees for wireless data services, such as businesses giving employees e-mail on-the-go. "We expect this will spur demand, boost adoption of data services, and attract high-value customers," AT&T CFO Lindner told analysts on a conference call. Some analysts said the move should boost average revenue per subscriber and help AT&T win customers from its biggest rival, Verizon Wireless, which is aiming to overtake AT&T as No. 1 later this year by buying rural provider Alltel. "The initial hit is not good but they don't have that ongoing license fee," said Joseph Bonner, an analyst at Argus Research. "Long term it might actually wash out. The point is to acquire the subscriber and keep them." AT&T said the new phones would go on sale beginning July 11 to customers who sign up for a two-year contract. There would be penalties for users who do not activate the iPhone in the first 30 days, AT&T said, in a move aimed at reducing the number of customers who buy an iPhone and tweak it so that they can use it on another network. The $199 version of the new iPhone will have 8 gigabytes of storage and a $299 model will have 16 gigabytes compared with the existing iPhone, which runs on a slower data network but costs $399 or $499. AT&T said the subsidy would boost sales. "If you loved the first iPhone you're going to be blown away by this version," Ralph de la Vega, the head of AT&T's wireless business, told analysts on the same call. AT&T also said it was increasing its data service charge for subscribers with the new iPhone to $30 a month from $20 for the existing iPhone. Business customers will have to pay $45 a month for data services. This is on top of voice service plans, of which AT&T's cheapest is $39.99 a month, it said. AT&T forecast a 2008 adjusted consolidated operating income margin of 24 percent and forecast a full-year wireless operating profit margin of 39 percent to 40 percent. Verizon Wireless is owned by Verizon Communications Inc and Vodafone Group Plc. Shares of AT&T fell 65 cents to close at $37.56 on the New York Stock Exchange. Apple shares fell 2.2 percent to $181.61. (Editing by Richard Chang and Braden Reddall )

Market ends mostly lower on rate-hike concern; Dow up. Energy stocks were a drag on the S&P 500 as U.S. crude oil futures fell $3 a barrel. The S&P index of energy shares .GSPE was down 2.2 percent. Growth-sensitive sectors such as chip makers and software developers were trading lower after Federal Reserve Chairman Ben Bernanke said on Monday evening that he would strongly resist rising inflation expectations, which investors took to mean policy makers would lift rates. Higher borrowing costs are seen as negative for stocks since they impede business investments. "Bernanke is closing the door to more rate cuts," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut. The Dow Jones industrial average .DJI was up 9.44 points, or 0.08 percent, at 12,289.76. But the Standard & Poor's 500 Index .SPX was down 3.32 points, or 0.24 percent, at 1,358.44. The Nasdaq Composite Index .IXIC was down 10.52 points, or 0.43 percent, at 2,448.94. The Philadelphia Stock Exchange index of semiconductors .SOXX fell 1.7 percent as all but two of its 18 components traded lower. Marvell Technology Group ( MRVL.O ) was the sharpest decliner, falling 5.2 percent to $16.10 on the Nasdaq. Design software maker Adobe Systems Inc ( ADBE.O ) fell 1.7 percent to $41.74 on the Nasdaq. But Apple Inc ( AAPL.O ) helped stem declines in the tech-centric Nasdaq. The computer maker's stock gained 2.2 percent to $185.64 a day after the introduction of a faster iPhone. Earlier Tuesday, Lehman Brothers and Citigroup raised their price targets on the stock. Coca-Cola shares rose 3.9 percent to $58.01 after a brokerage upgraded the stock, saying the company will benefit from international sales even as the domestic market weakens. Shares of rival Pepsico Inc ( PEP.N ) gained 3.4 percent to $67.58 after it said it will affirm its 2008 profit outlook. Among energy stocks, Exxon Mobil Corp ( XOM.N ) shares were the top-weighed drag on the S&P, slumping 1.3 percent to $87.89, and Chevron Corp ( CVX.N ) lost 2.4 percent to $98.78. Occidental Petroleum Corp ( OXY.N ) fell 3.9 percent to $89.87. Shares of investment bank Lehman Brothers LEH.N continued their sharp descent on Tuesday, falling 6.7 percent to $27.50. The shares are down 20 percent from Thursday. On Monday, the investment bank raised dilutive capital and warned of a $2.8 billion quarterly loss. Volume was moderate on the New York Stock Exchange, where about 1.39 billion shares changed hands, below last year's estimated daily average of 1.90 billion shares. On the Nasdaq, about 2.08 billion shares traded, below last year's average of 2.17 billion. Decliners outnumbered advancers by about 2 to 1 on the NSYE and about 4 to 3 on the Nasdaq. (Reporting by Jennifer Coogan; Editing by Jan Paschal )

Shareholders seek prompt trial in Yahoo lawsuit. Lawyers for two Detroit pension funds suing Yahoo over its rebuff of a $47.5 billion buyout offer from software company Microsoft contend in court papers that their litigation "is the only vehicle" for challenging the severance plan. The plaintiffs contend that the severance arrangement is nothing more than a maneuver to make any takeover of Yahoo prohibitively expensive. If billionaire Carl Icahn, who is waging a battle for control of the Yahoo board, prevails in his proxy fight, Yahoo could be faced with up to $2.4 billion in potential severance payouts to workers, they argue. Yahoo responded on Tuesday in a U.S. regulatory filing denying assertions made in the lawsuit and which activist investor Icahn has relied upon in his campaign to dislodge Yahoo's existing board. In particular, the company said the $2.4 billion figure vastly overstates any conceivable lay-off that might occur and that the likely cost of the program -- if as many as 15-30 percent of employees were laid off -- was $514 million and $845 million. Yahoo's severance plan offers enhanced benefits, cash and accelerated vesting of stock options to any employees who are fired or leave because their roles are diminished after a merger or change in control of the company, the plaintiffs say. Yahoo has defended the plan as a way of ensuring that its pool of talented employees, a key asset to any deal, isn't drained by rivals ahead of an agreement. The company is still engaged in talks with Microsoft but Yahoo executives have described the contacts as focusing on an alternate deal or partnership. "A July trial on the validity of the severance plans is imperative for Yahoo shareholders," lawyers for the funds said in a filing on Monday with the Delaware Court of Chancery. "The court should decide plaintiffs' challenges to the severance plans before the next director election takes place, and before further harm becomes irreparable," wrote the attorneys from law firms Bernstein Litowitz Berger & Grossmann LLP and Bouchard Margules & Friedlander. The Delaware Court of Chancery holds trials without juries. Many corporate disputes and merger battles are fought there. The court's chief judge, Chancellor William Chandler III, is presiding over the Yahoo litigation. The plaintiffs contend that the company's sitting board is free to reorganize Yahoo's work force as it sees fit without fear of triggering the severance benefits. But if Icahn's board slate prevails, the plaintiffs say, Yahoo shareholders will be forced to fund the costly severance payouts to departing workers. The Sunnyvale, California-based company has said previously that it believes the lawsuit is without merit. In its filing on Tuesday, Yahoo said many companies have severance plans that cover some or all of their employees, while others have no such protections: "Regardless of what other companies do, our senior leaders felt it is important to adopt a plan that is appropriate for all levels of Yahoos." The lawsuit, filed by the City of Detroit's Police and Fire Retirement System and General Retirement System, was originally filed in February. It contends that Yahoo CEO Jerry Yang conspired with co-founder David Filo on how to maintain Yahoo's independence in the face of Microsoft's buyout bid because they had a personal interest in keeping Yahoo a stand-alone company. Yahoo stock closed down 18 cents at $26.40 in Nasdaq trade on Tuesday, amid weak trading across the Internet sector. (Additional reporting by Michele Gershberg in New York and Eric Auchard in San Francisco, editing by Mark Porter, Leslie Gevirtz )

Oil falls after CNBC says Saudis hike output. (Reporting by Matthew Robinson ; Editing by John Picinich)

Baptists reluctantly embrace "liberal" McCain. "It's basically a choice between a liberal and an ultra-liberal," Jodie Sanders, a Southern Baptist church-goer from Fairfield, Texas, said about the choice between McCain and his Democratic rival Barack Obama. Sanders' pastor, Benny Mize, agreed but said he would ultimately if reluctantly vote for McCain, the Arizona senator who must woo conservative Christians like these men to his candidacy. Several members of the Southern Baptist Convention (SBC), who are meeting in Indianapolis, Indiana, on Tuesday and Wednesday in the annual assembly of America's largest evangelical denomination, expressed similar views. Evangelical Protestants, who account for one in four U.S. adults, are a key base of support for the Republican Party and few analysts see McCain winning the White House without them. But McCain is regarded with suspicion in conservative evangelical circles because of his past support for stem cell research, his failure to support a federal ban on gay marriage, and his support for immigration reform, among other things. "I think most Southern Baptists will support McCain though I know there are some issues with McCain among more conservative evangelicals," outgoing SBC president Frank Page told Reuters in an interview ahead of the conference. McCain attends a church affiliated with the SBC in Phoenix but that has not helped him "connect" with the flock on the issues they find important. "I think most Baptists would want him to speak out more on evangelical issues than what he has but we are cautiously accepting him," said John Mann, a pastor from Springtown, Texas, west of Fort Worth. Mann did note with approval McCain's consistent opposition to abortion rights and his pledge to appoint conservative judges and justices to the bench. 'HOLD MY NOSE' Dan Yoder, the pastor of a small country church in Springfield, Tennessee, said, "I'm going to have to hold my nose while I vote for McCain ... but Obama's a die-hard socialist." Obama, a senator from Illinois who would be America's first black president, is right off the scale for many conservative evangelicals because of his liberal voting record, his opposition to the Iraq war and his support for abortion rights. They are also mistrustful of him because of the controversial sermons by his ex-pastor Jeremiah Wright, who called the Sept 11. attacks retribution for U.S. foreign policy. Obama has severed ties with Wright. But Obama, whose own faith and positions may appeal to more moderate and younger evangelicals, does not need conservative Christian voters who would probably not be swayed to vote Democratic anyway. McCain does need them. Yoder said he hoped McCain would pick former Massachusetts Governor Mitt Romney as his running mate. Romney was the favorite of some social conservatives during his failed bid for the Republican nomination but many evangelicals also regard him warily because of his Mormon faith and past support for abortion rights. Gary Ledbetter, the spokesman for the Southern Baptists of Texas Convention, said McCain did seem the strongest of the two candidates on "family issues" such as abortion. "We can debate the war and the economy but there are some things we feel God has spoken about and it's not up for debate," he said. (Editing by Eric Walsh ) (To read more about the U.S. political campaign, visit Reuters "Tales from the Trail: 2008" online at blogs.reuters.com/trail08/ )

Fed's Rosengren says higher costs still trickling. The central bank still expects prices to trend down as the economy softens, but it is less confident in this outlook because of simmering commodity costs, Rosengren said in a speech in Cape Cod. "The effects of significant increases in food and energy prices are still feeding through the economy, as are the impacts of appropriately aggressive monetary and fiscal policy responses to the recent financial turmoil," he said. The United States has been struggling with twin crises in the housing and financial sectors, developments that have forced the Fed to cut interest rates sharply since September. Investors now believe the central bank will leave benchmark rates on hold at their current 2 percent level. Tough talk on inflation from a string of Fed officials have also prompted the markets to begin pricing in an eventual rate hike, as early as October. The economy has barely sputtered forward in the last two quarters. Last week, the government reported a jump in the unemployment rate from 5.1 percent to 5.5 percent, the biggest one-month rise in 22 years. At the same time, oil prices have reached a record high near $139 a barrel and the average cost of gasoline nationally has surpassed $4 a gallon for the first time. These trends should slow growth, but also put upward pressure on prices. DON'T BLAME THE BUCK Many analysts have linked soaring oil prices to the fall in the dollar. Since oil is priced in the U.S. currency, the theory goes, it automatically adjusts higher as the greenback plummets. Rosengren downplayed this view, saying the relationship was not so crystal clear. "The strength of the statistical correlation between the exchange rate and oil prices is modest at best," he said. Rosengren argued that total inflation, not the so-called core rate, is really what monetary policy should target over the long-run. He noted core is often employed as a decent approximation, but conceded that it has had its problems as an adequate indicator of the future. Still, Rosengren appeared confident that inflation would eventually respond to a weaker economy, reiterating the Fed's forecast for both headline and core personal expenditure costs to come down to or below 2 percent over the next two years. "That said, it seems to be taking quite a long time to date for long-run supply and demand influences to rein in oil price increases," he said. (Reporting by Pedro Nicolaci da Costa; Editing by Tom Hals)

Lehman keeps most derivatives clients, loses a few. Traders and managers at more than a dozen banks, brokers and hedge funds that spoke to Reuters in the past week said nothing has changed in their dealings with Lehman, and the investment bank's chief financial officer said on Monday there was "no material loss" of clients during the quarter. Lehman declined to comment for this report. But one portfolio manager at a large hedge fund said his firm had reduced its new trades with Lehman in recent months, and another trader at a significant U.S. institutional fund manager said he now wasn't trading with the bank at all. Both declined to be named because they are not authorized by their firms to speak for attribution. To be sure, investment banks are always losing and gaining customers. And while concerns about Bear Stearns' future triggered a run on it in March, Lehman is unlikely to suffer a similar fate any time soon. That's because the Federal Reserve is willing to lend billions of dollars to investment banks to prevent another collapse like that of Bear Stearns, which was acquired by JPMorgan Chase ( JPM.N ) last month. Lehman Brothers has about $100 billion of assets at its holding company that are either cash or could be easily sold or financed. Lehman has also just raised $6 billion of capital. Still, Lehman could find that companies, banks and hedge funds are less willing to trade with some of its subsidiaries, which could cut into the profitability of its derivatives franchise, said Brad Hintz, analyst at Sanford C. Bernstein. "You would much prefer to do a trade with a higher-rated bank," said Hintz, a former Lehman chief financial officer. LONG-TERM TRADES Customers buying securities aren't usually choosy about the credit quality of the bank selling them. But derivatives, or contracts whose value is derived from a security or index, are long-term trades. Clients are typically more careful about entering into a derivatives contract that may require collecting money from a bank in five or more years. Hintz said Lehman's derivatives businesses in areas like fixed income, equities, and commodities could face earnings pressure as customers become more selective about their trading partners, known as counterparties. Given the choice of trading with a commercial bank or Lehman for the same product at the same price, the commercial bank might be a more attractive counterparty now, Hintz said. Hintz reduced his third- and fourth-quarter estimates for Lehman last week because of these concerns, but said on Tuesday that Lehman's balance sheet is "bulletproof." Lehman Brothers raised $6 billion of convertible preferred securities and common stock on Monday, and said it expects to post a $2.8 billion quarterly loss next week. After closing at a five-month low on Monday, its shares closed down another 6.7 percent at $27.50 on Tuesday on the New York Stock Exchange. They are down more than 60 percent over the last 12 months. Amid these difficulties, ratings agencies are cutting Lehman's credit ratings. Standard & Poor's downgraded Lehman to "A" from "A-plus" last week, and Moody's Investors Service on Monday changed Lehman's outlook to "negative" from "stable." S&P downgraded Merrill Lynch MER.N and Morgan Stanley ( MS.N ) last week as well, and U.S. investment banks in general could lose derivatives business over time to commercial banks. Clients, on the whole, are staying loyal to Lehman. Chief Financial Officer Erin Callan said on Monday, "(W)e are not having any conversations with counterparties or lenders about whether they feel confident extending funds and credit to us." WATCHFUL WAITING But not every client that reduces its new trading volume with Lehman will have a conversation with the bank about it, Hintz said. And even if few clients are scaling back their exposure to Lehman, some are monitoring the bank increasingly closely. Aneet Deshpande, head of trading at Allegiant Asset Management, has exposure to Lehman Brothers through some over-the-counter derivatives and Allegiant has been reviewing these positions. "They have the capital," he said. "We are not worried but we will still be watching." Allegiant had more than $30 billion of assets under management as of March 31. Leslie Rahl, president of risk management advisory firm Capital Market Risk Advisors, said all institutions should plan what to do in the event of a counterparty default, but she added, "I do not think that's what we have here." Dan Fuss, vice chairman at investment manager Loomis Sayles, which oversees more than $100 billion in fixed-income securities, said last week, "We have no hesitation whatsoever at all in dealing with Lehman." "They are a fine firm and financially strong," he added. But not all were persuaded by the argument that Federal Reserve support eliminates concerns about counterparties. Adam Compton, co-head of global financial stock research at RCM Global Investors, said, "Even banks that have been backed by the Fed for a long time fail. It just takes more time. Fed backing does not make you financially invincible." (Reporting by Elinor Comlay; Editing by Brian Moss )

Spitzer looking at distressed real estate: source. Spitzer met with several former colleagues last month where they spoke about his interest in participating in his father's real estate business and in distressed assets created by the subprime crisis, among other things, the source said. An earlier report in The New York Sun on Tuesday cited a source claiming Spitzer had approached Washington, D.C.-based labor union officials to pitch his idea for a vulture fund and that he was looking to pursue distressed real estate projects valued between $100 million and $500 million. Vulture funds invest in distressed assets. A spokeswoman for Spitzer said the former governor's future plans are not yet clear. "Mr. Spitzer is currently evaluating several longer term business ideas," his spokeswoman Brandy Bergman said. Spitzer's father, real estate developer Bernard Spitzer, is a self-made multimillionaire known for building one of New York City's largest real estate firms. The younger Spitzer resigned as governor in March after he was caught on a federal wiretap arranging to meet a prostitute in a Washington hotel room. Two people who managed the prostitution ring already have pleaded guilty in the case. Spitzer has not been charged in the case and prosecutors refuse to say whether he will face criminal charges. (Additional reporting by Paritosh Bansal ; editing by Carol Bishopric)

U.S. trade gaps widens in April to $60.9 billion. The monthly trade gap grew nearly 7.8 percent to $60.9 billion from a downwardly revised $56.5 billion in March. The gain was the biggest since September 2005. Wall Street analysts had forecast a smaller rise in the trade gap to $59.9 billion, from the previous March figure of $58.2 billion. Average prices for imported oil rose $6.96 per barrel in April, the second highest increase on record. Imports from Saudi Arabia, Venezuela and other members of the Organization of Petroleum Exporting Countries totaled a record $20.9 billion. Overall U.S. imports of goods and services were a record $216.4 billion, and showed their biggest one-month gain since November 2002. Although oil accounted for much of the increase, imports of autos and capital goods bounced back from a drop in March. U.S. exports also rebounded to a record $155.5 billion in April after retreating slightly in March. The month-to-month rise was the biggest in more than four years. The weak dollar has helped push U.S. exports higher over the last several years, keeping the U.S. economy afloat during a severe housing market downturn and liquidity crisis. This week, China's ambassador to the World Trade Organization said the weak U.S. dollar was hurting developing countries by fueling increases in oil and food prices and he called on Washington to take quick action to stabilize its currency. That criticism follows years of U.S. complaints that China maintains an artificially low currency exchange rate, giving Chinese companies a big price advantage in international trade. Top level U.S. and Chinese economic officials will discuss currency, trade and other bilateral economic issues in talks outside Washington next week. The U.S. trade gap with China increased nearly 26 percent in April to $20.2 billion, as imports from that country surged and U.S. exports to China slumped. (Reporting by Doug Palmer, editing by Joanne Morrison)

Merrill CEO wants ongoing Fed access, rules reform. "I think it should stay available to the banks and investment banks -- the primary dealers. It's important that it does stay available," Thain said at a Wall Street Journal dealmakers conference in New York. Thain said his company has not borrowed money from the discount window. The central bank historically lends money to commercial banks at extremely low rates to fund operations but expanded access to large broker-dealers as Bear Stearns collapsed. Currently the special program is scheduled to expire in September. Thain said he was open to new rules in exchange for that access, such as capping leverage ratios, but added that they can't be the same rules used for big commercial banks. "You can't take rules created for one type of financial institution and apply them to another. There have to be rules appropriate for the type of business," he said. A long time critic of current regulation of U.S. markets, Thain said there was too much duplication among government agencies. Investment banks, he said, must answer to the Fed, the Securities and Exchange Commission and others. LESS LEVERAGE Thain, who kicked off a two day session about mergers and finance, observed that Merrill suffered $25 billion of losses in recent quarters and most of those losses were generated by a thin slice of a sprawling 60,000-person firm. Thain, who formerly ran the New York Stock Exchange and was a president at Goldman Sachs, has been trying since November to turn things around at Merrill. "Everyone is shrinking their balance sheet. There was too much leverage in the system, too much credit, for too long. It was not just the investment banks: the hedge funds were being levered. The private equity firms can't get leverage either," Thain said. The renewed focus on capital and leverage ratios won't necessarily solve every problem. The collateralized debt obligations (CDOs) that generated heavy losses for firms were not even on the balance sheet, he said. Looking down the road, Thain said investment banks "absolutely" can generate "mid-teen" percentage returns on equity. That's highly profitable, he said, though not at the same levels seen during Wall Street's recent boom years. Thain said in the quarter ended in March Merrill sold down $5 billion of leveraged loans and then made $1 billion more in new loans. "Deals can be done, they just have to be less expensive and less levered," said Thain. Thain also said he believes the commercial mortgage markets are "fine." Many analysts have predicted this sector would generate new rounds of losses for lenders. One solution to better risk management is to revamp payment schemes, so that traders are paid well only if the whole firm does well and their division does well, and not just themselves, Thain said. (Additional reporting by Megan Davies , editing by Mark Porter and Carol Bishopric)

IEA trims world oil demand, cuts supply forecast. But the adviser to 27 industrialized economies also sharply lowered its projection for supply outside the Organization of the Petroleum Exporting Countries, increasing consumers' reliance on the exporter group. In its monthly Oil Market Report, the IEA said global oil demand will rise by 800,000 barrels per day (bpd) this year, 230,000 bpd less than its previous forecast. The head of the IEA's oil industry and markets division, Lawrence Eagles, told Reuters this year's demand growth will be the slowest since 2002, when consumption grew by 735,000 bpd and crude averaged just over $26 a barrel. "It's two things. The easing of subsidies is one of the main factors and historical growth in Asia is stronger than we previously estimated," Eagles said. The report adds to evidence that high oil prices, which hit a record $139.12 on Friday, are slowing oil use. The IEA has more than halved its estimate for demand growth this year from 2.2 million bpd in July 2007. Rising prices have forced several Asian economies to trim subsidies on domestic fuel in recent weeks. India, Indonesia, Malaysia, Sri Lanka and Taiwan have all revised their administered prices of fuel, which the IEA said would tame oil demand growth in the region slightly. SUPPLY WORRY Analysts said concern about supply growth overshadowed the cut in demand and oil pared an earlier loss after the report. U.S. crude was up 40 cents at $134.75 a barrel by 6:22 a.m. EDT. "I think the report is more on the bullish side," said Merrill Lynch's head of global commodity research, Francisco Blanch. The IEA cut its forecast for non-OPEC supply growth to 460,000 bpd, against 680,000 bpd in its previous report. As a result, it raised its expected demand for OPEC oil for the year by 300,000 bpd to 31.6 million bpd. The IEA said oil stocks in OECD countries fell 8.1 million barrels in April, in contrast to a typical build at that time of year, and voiced concern about lean inventories. "Although the numbers look relatively balanced, we're now into the last month of the second quarter when typically you see a crude stockbuild and there is still no sign of a significant increase," Eagles said. "That is a concern." The IEA report said high oil prices were forcing airlines to cut flights and consumers to drive less and buy more efficient vehicles. "The lull in oil demand growth, however, may only be temporary as strong economic growth remains the key driving force," the IEA said. It added that prospects of a substantial cut in subsidies in China and the Middle East were remote. (Reporting by Santosh Menon, editing by Alex Lawler and William Hardy)

BlackRock's Doll says Fed on hold for now. "We don't think the Fed will be raising interest rates anytime soon," said Bob Doll, chief investment officer for equities and also vice chairman of BlackRock ( BLK.N ), which managed $1.36 trillion in assets at the end of March. "The Fed is on hold for the indefinite future," Doll said during a Hong Kong news conference. He added that recent comments from Fed Chairman Ben Bernanke were meant to signal to investors the U.S. central bank is well aware of the inflationary effects of the weak dollar, not to flag an imminent increase in its benchmark interest rate. Candid comments about the risk of higher inflation from the weak dollar and high oil prices last week and on Tuesday from Bernanke have roiled financial markets, particularly since they came amid data showing the biggest jump in U.S. unemployment in 22 years. The Fed has cut its fed funds rate seven times since mid-September 2007 for a cumulative 325 basis points. Doll said the U.S. economy will likely skirt a recession but will remain in a "profits recession" in which both the financial and consumer goods sectors will post losses for the year. The European Central Bank could lower interest rates because of lingering credit-related problems and difficulty in spurring growth, Doll said. "If we are right about growth remaining slow in Europe and some credit problems remaining, it's not out of the question that the ECB could lower rates," he said. ECB President Jean-Claude Trichet said last week that it was "possible" that interest rates could rise as early as July, causing many economists to rejig their forecasts. Doll said it was concerning that some emerging economies are tightening monetary policy at a time when global growth is below its long-term trend. However, he said that equity valuations in China had returned to more reasonable levels and deserved more attention. (Reporting by Kevin Plumberg ; editing by Anne Marie Roantree)

U.S. slowdown to be long, but no recession: survey. Blue Chip Economic Indicators, a monthly newsletter, said 53.5 percent of the 48 private economists surveyed for its June issue do not believe the U.S. economy is in or will enter a recession in 2008, up from 40 percent in the May survey. "The consensus now suggests the downturn in economic growth will be less steep than earlier feared, but the subsequent recovery in growth to its trend rate will take longer than hoped a few months ago," the newsletter said. The economists polled on June 2 and 3 projected third-quarter growth at a 1.5 percent annual rate, down from the 1.7 percent pace forecast a month ago. For the fourth quarter, they said the economy would likely expand by 1.2 percent, down from the 1.5 percent projected a month ago. Despite the downgraded expectations for the second half of 2008, the consensus forecast for the year as a whole moved up to 1.5 percent from 1.4 percent as economists took into account an upward revision to first-quarter growth and bumped up their expectations for the second quarter to a still-anemic 0.4 percent from 0.2 percent. The consensus projection for 2009, however, slipped for a sixth straight month, dropping to 1.9 percent from 2 percent. Most analysts surveyed assumed below-trend economic growth will eventually free up enough spare economic capacity to begin exerting downward pressure on prices, the newsletter said. "As a result, inflation is expected to increase much less in 2009 than in 2008," it said. The economists forecast that consumer prices would advance 3.9 percent this year, but just 2.6 percent in 2009. The Federal Reserve has cut benchmark interest rates by 3.25 percentage points since mid-September to help buffer the impact of a deep housing downturn and tight credit, but policy-makers have signaled growing concerns on inflation. The Blue Chip survey found the consensus of economists was that the Fed was finished lowering interest rates. However, the newsletter said the U.S. central bank was not expected to start raising rates until the second quarter of next year. (Reporting by Nancy Waitz ; Editing by Jonathan Oatis )

Paulson says stands by intervention comment. "I'll let my comments stand," Paulson said in an interview with Bloomberg Television. "I never like to say never, but my focus is on long-term fundamentals." He repeated that the long-term fundamentals of the U.S. economy were strong, compared favorably to other major industrial economies and would show through to the dollar's value. "I believe that those long-term fundamentals will be reflected in our currency value." Paulson said that was the same message that he would deliver to other finance ministers from the Group of Eight nations meeting in Osaka this coming weekend, although he declined to comment directly on whether the dollar's weakness and potential intervention would be a subject of discussion. "I don't think you should expect to see us break a lot of new ground here, because the messages are absolutely correct and I'm going to continue speaking the way I have been speaking," he said. Asked whether Chinese officials may raise the topic of the dollar's weakness at a meeting with U.S. officials next week in Washington, Paulson said: "I get a lot of questions but we again compliment them on the progress they've ... made in moving their currency." "It has appreciated almost 20 percent now and the pace of appreciation has accelerated but it still doesn't represent fundamental economics, so they've got farther to go," he said. Paulson said a stronger yuan was in China's interest. "Right now, when they're fighting inflation, having a currency that reflects market values will be a valuable tool and I think they're beginning to see that." The Treasury chief said the U.S. economy had performed "better than many people had feared" but that the run-up in oil prices to fresh highs has presented a challenge. "When I look at these rising energy prices, they are a strong headwind, they are a real burden on Americans and a burden on our economy and they risk prolonging or lengthening this economic slowdown," he said. (Reporting by Tim Ahmann ; Editing by Andrea Ricci )

Tribune, Illinois swing and miss on Wrigley sale. The Illinois Sports Facilities Authority (ISFA) said Tribune believes the acquisition would require the transfer of sales and amusement tax revenue from Wrigley Field for the next 30 years. The authority also said that Tribune thinks the deal would require new taxes or transferring funds the authority has already pledged to projects at another baseball stadium on Chicago's South Side. "ISFA cannot agree to this," said the group's chairman, former Illinois Gov. James Thompson. Tribune said in a statement the authority's plan to buy and restore the field would violate the rules of Major League Baseball, and would not be in the interests of its employees. Wrigley is home to the Chicago Cubs baseball team, which Tribune is trying to sell. U.S. Cellular Field, owned by the state authority, is home to the Chicago White Sox. Thompson said the authority was ready to resume negotiations with Tribune or whomever buys the Cubs. Tribune is planning to release financial data to potential bidders for the Cubs, at least some of whom also want to buy Wrigley Field. The state authority proposed buying Wrigley by issuing taxable bonds that would be paid for by lease revenue from the Cubs and the naming rights to the field. It also said it could restore the ballpark by selling equity rights to seats at the stadium. "This would be done within the policies and rules of Major League Baseball," Thompson said in the statement. "This would cost Illinois taxpayers nothing." Tribune aims to sell the field, team, as well as a stake in Comcast SportsNet, and bring in as much as $1 billion. The newspaper publisher and broadcaster would use this to pay back some of the billions of dollars in debt it took on when it went private in a deal led by Chicago real estate tycoon Sam Zell. Without selling the team, the ballpark and more properties, the Chicago-based company risks defaulting on its debt. Tribune already agreed to sell some of its property, including Long Island, New York's Newsday daily newspaper, to Cablevision Systems Corp for $650 million. The company, which publishes the Chicago Tribune and Los Angeles Times, last week unveiled a plan to producer thinner papers and reallocate the ratio of advertising and editorial content in each of its papers. It is changing the papers to make them less expensive to produce, and also altering their physical look in a bid to make them more attractive to readers. Job cuts among news and business staff are likely. (Editing by Braden Reddall )

Merrill CEO sees Wall St firms less lucrative. Thain, speaking on the sidelines of a Wall Street Journal conference in New York, said the use of lower leverage and more cautious markets will squeeze the eye-popping returns generated by investment banks during the boom period. "The returns will be lower, but they can still be good returns. People just won't make mid-20 to 30 percent returns on their equity. If they make mid-teens (percent) returns on their equity, that's OK," Thain said in a brief interview. Investment banks, including Merrill, have been shedding assets and bolstering balance sheets hammered by losses on subprime mortgages, leveraged deal loans and an array of risky debt instruments. These businesses helped fuel record profit on Wall Street in recent years, but have dwindled since the credit crunch hit last summer, slashing profits. Thain reiterated that Merrill raised more than it needed when it sold more than $12 billion of stock and convertible debt. He declined to comment on Merrill's second-quarter results so far. Thain also said that as of Tuesday Merrill has about $44 billion of equity capital. Looking ahead, Thain expressed optimism that many fixed-income businesses that froze up last summer will recover -- if at a smaller scale. "I think there still will be leveraged lending. I think there will not be the same kind of structured transactions, such as CDOs. There's still going to be a mortgage business. People still need mortgages, they're just not going to have these highly complicated derivative structures," he said. Thain said Merrill is completing some asset-backed securities deals now. "We and others are still doing CMBS (commercial mortgage backed securities), and so people will still be able to do securitized deals," Thain said. "You just have to do simpler, more rational ones." (Editing by Gary Hill )

Bernanke watchful of inflation risks from energy. Bernanke also played down a May surge in the unemployment rate from 5.1 percent to 5.5 percent, the biggest jump in 22 years, saying the risks of a substantial downturn in the U.S. economy had receded. His remarks suggest inflation is featuring more prominently on the Fed's radar screen, indicating policy-makers have little intention to cut interest rates further. Average gasoline prices in the United States have just surpassed $4 a gallon for the first time. "The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations," Bernanke said at a conference organized by the Boston Federal Reserve. "The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation," Bernanke said. The dollar jumped to a three-month high against the yen and U.S. Treasuries tumbled after Bernanke's remarks. LEANING TOWARD THE HAWKS Bernanke's inflation warning, the third in just one week, seemed to bring him closer to the more inflation-leery faction of the policy-setting Federal Open Market Committee, led by the presidents of the Dallas and Philadelphia Federal Reserve Banks, Richard Fisher and Charles Plosser. Fisher told CNBC on Monday that a weak dollar could lead to a vicious cycle of higher inflation and weaker growth. Still, analysts have been skeptical that tough talk on price growth would be followed up with real action in the form of higher interest rates. Rate futures have begun pricing in the prospect of a rate hike as early as October, but some are skeptical as to whether the Fed's warnings on the dollar and inflation have any teeth, particularly at time when banks continue to reel from bad investments in the mortgage sector. ROSIER ON GROWTH For his part, Bernanke appeared relatively sanguine about the economic outlook, more so than he had been just a couple of months back. "Although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so," he said The speech also pointed to rising nervousness at the Fed over recent surges in oil prices, which have pushed crude oil reached a record over $139 a barrel last week. U.S. inflation rose 3.2 percent in the 12 months to April, and by 2.1 percent over the same period when volatile food and energy costs were excluded, according to the Fed's preferred inflation report, the government's personal income data. The Federal Open Market Committee next meets on June 24-25. Financial markets largely expect the Fed will not begin to raise interest rates until its October meeting. Bernanke said inflation remains high, reflecting commodities price rises. At the same time, he said, higher raw materials costs have yet to translate to higher prices for products or the need to raise worker pay in response. But the Fed chairman cautioned there is no guarantee this will remain the case. "The continuation of this pattern is not guaranteed, and future developments in this regard will bear close watching," he said. Bernanke sounded a softer tone on worries about weak growth, saying that recent data had "only modestly" affected the Fed's view that the economy will regain strength later this year after a weak start. U.S. gross domestic product expanded at a weak 0.9 percent annual rate in the first three months of the year, after a sluggish 0.6 percent annual rate in the final quarter of last year, the effects of the bursting of the U.S. housing bubble and a credit crunch triggered by a spike in mortgage delinquencies. The economy still faces difficulties from the housing downturn and escalating energy costs, Bernanke said. At the same time, the Fed's rate cuts, which have taken benchmark borrowing costs down to 2 percent from 5.25 percent in September, government rebate checks sent to taxpayers, and signs of healing in battered financial markets provide "some offset" to headwinds still facing the economy, the Fed chairman said. The central bank also plans to continue measures aimed at helping financial markets recover. "We have taken a number of actions to promote financial stability and remain strongly committed to that objective," he said. DISCARDING THE FUTURE Bernanke's renewed focus on inflation was accompanied by an attempt to distance the central bank from the use of futures markets to predict the direction of commodity prices. "Futures markets have often underpredicted commodity price increases in recent years, leading to corresponding underpredictions of overall inflation," he said. "The poor recent record of commodity futures markets in forecasting the course of price raises the question of whether policy-makers should continue to use this source of information." The central bank had continuously forecast a stabilization in rising energy costs that never materialized. (Reporting by Mark Felsenthal and Pedro Nicolaci da Costa; Editing by Leslie Adler)

Consumer confidence hits record low: IBD survey. Investor's Business Daily and TechnoMetrica Market Intelligence said their IBD/TIPP Economic Optimism Index fell to 37.4 in June from 40.3 in May. A reading below 50 indicates pessimism among survey respondents. "Without a doubt, the relentless increase in gasoline prices has Americans spooked about the health of the economy," said Raghavan Mayur, president of TIPP. The survey organizers also cited as negative factors the biggest jump in the U.S. unemployment rate in 22 years in May, to 5.5 percent from 5 percent, and the ongoing housing slump. None of the 21 demographic groups polled had an optimistic outlook for the economy, the report said. It was just the second reading ever below 40 in the 89 months since the survey's inception. June's reading puts the index 28 percent below its lifetime average of 52.1, IBD/TIPP said in a statement. The IBD/TIPP surveyed more than 900 adults in early June. (Editing by James Dalgleish )

Government steps up review of oil, commods price surge. The Commodity Futures Trading Commission announced that an interagency panel, including the Federal Reserve, Treasury Department and others, will assess price increases and trading in a range of commodities. "High commodity prices are posing a significant strain on U.S. households," the CFTC said. Other regulators on the new panel include the Securities and Exchange Commission and officials from the Energy and Agriculture Departments. At a meeting with top Wall Street energy market players, a CFTC official said the government must investigate the run-up in oil prices, which topped a record $139 a barrel last week. "The bottom line is, we need to investigate, in a comprehensive and probing manner, what is happening in these markets before making a rush to judgment about what is or what is not causing these unusual price movements," said Bart Chilton, a member of the Commodity Futures Trading Commission, at a meeting of the agency's energy markets advisory panel. Chilton, a Democrat, spoke after Treasury Secretary Henry Paulson asserted that speculators were not causing the run-up in oil prices. "Perhaps the Secretary has a crystal ball, but I don't, and given what I'm seeing and hearing in the markets and from market users, that seems to me to be a premature determination, at best," Chilton said. One member of the energy industry panel, John Heimlich of the Air Transport Association, questioned whether the trading arms of big Wall Street firms were benefiting from oil price forecasts from their firms' research divisions. Heimlich noted that recent forecasts calling for higher oil prices have been followed by a spike in such investments. "We have absolutely no connection with our research department," said Donald Casturo of Goldman Sachs. The CFTC launched a nationwide investigation last December into possible manipulation of the U.S. oil market. "The CFTC is committed to ensuring that our nation's futures markets operate fairly and efficiently, and that commodity prices are determined by the fundamental forces of supply and demand, rather than by abusive or manipulative practices," CFTC Chairman Walter Lukken said in remarks before the panel. Bush Administration officials blame surging oil prices on limited supply and growing demand, not heightened speculation. One member of the panel warned that oil prices will eventually fall and could wreak havoc in the markets. "This bubble when it bursts is going to do so in a very disorderly way," warned Sean Cota of Cota & Cota Oil & Propane. The newly formed regulator panel will examine investor practices and fundamental supply and demand factors, and will study the role of speculators and index traders in the commodity markets, the CFTC said in a statement. High prices for commodities such as wheat, corn and rice, along with oil, have roiled U.S. and world markets. The U.S. Department of Agriculture is forecasting sharp increases this year in U.S. food prices, expected to rise by 5 percent in the largest increase since 1990. (Reporting by Joanne Morrison; Editing by David Gregorio )

Retailers, brand owners seek fortunes at Licensing Show. A giant Pokemon character hung from the ceiling and others like Felix the Cat trotted down the aisles at New York's Jacob Javits Center, where the show goes on from June 10-12. At the event, being attended by about 25,000 people, owners of brands -- from toys like Barbie and G.I. Joe to beverages like Dr. Pepper -- meet manufacturers who seek the rights to use the brands on their products. "This is the place where everything's on display and may solidify a licensee's decision," said Bryony Bouyer, senior vice president of marketing at No. 2 U.S. toymaker Hasbro Inc HAS.N. "It is certainly great for attracting new licensees." In 2007, U.S. retail licensing revenue was $107.8 billion, down slightly from $108 billion in 2006, while it was estimated at $195.7 billion globally, according to LIMA (International Licensing Industry Merchandisers' Association) A ground-to-ceiling-sized G.I. Joe presentation flanked one wall of Hasbro's booth, which had pink-lit My Little Pony and neon orange-and-yellow dotted Nerf displays inside. The first interactive Nerf "N-Strike" video game for the Nintendo Wii is set to launch this holiday season, through Hasbro's licensing program with Electronic Arts ERTS.O. At rival and top U.S. toymaker Mattel Inc MAT.N, Barbie T-shirts, bags, and golf clubs, and similar Hot Wheels products were on display prominently. Mattel's senior vice president of marketing, media and entertainment worldwide, Richard Dickson, said the licensing show was "a melting pot of opportunities." Through a licensing deal this year, Mattel will sell Hot Wheels T-shirts for women for the first time this fall. A good number of deals are struck at the show every year. This time, about 80 percent of attendees are expected to kick off or finalize deals at the show, as per data from the Expo. CEREAL BOXES AND SPARE DOLLARS For manufacturers and retailers, picking a hit brand is a big deal. Their hope is that shoppers will choose Barbie shoes or Hannah Montana sneakers, over generic items. That edge could prove vital, given how picky consumers have become with their spare dollars, as they face sharply higher costs for essentials like food and fuel in a weak economy. Weak brands are ones that "get punished in a recession," Disney Consumer Products chairman Andy Mooney said. "My experience has been that if you have a strong brand, a strong product offering, those brands emerge from the cycle stronger," Mooney said at the event. On Tuesday, companies pulled all stops to steal the show. At Warner Bros, a gigantic "Eating Right Kids" cereal box with Looney Tunes characters caught peoples' eye. This summer, about 100 Eating Right Kids-branded food and drink products will be launched exclusively at Safeway Inc ( SWY.N ) stores. Crowds buzzed around lavish booths set up by movie studios, which are in the market for licensing support for future films. People cooled off with hand fans, as temperatures flew past 90 degrees Fahrenheit in New York City. To cap the event, LIMA is handing out "excellence awards." Among the nominees -- Strawberry Shortcake for best character brand program, Coca-Cola for overall best licensed program and Wal-Mart Stores Inc ( WMT.N ), for best retailer of the year for Spider-Man 3 and High School Musical 2.

Verizon says FiOS buildout may exceed plans. Verizon President and Chief Operating Officer Denny Strigl said the company could expand FiOS, delivered over an advanced network that will cost more than $20 billion to build, at a faster pace than the original plan without a big hike in spending. "We think we can take our target up. But we're looking at that right now, in terms of the overall economics of doing that," he told a Deutsche Bank conference in New York. "We'll pass 12 million by the end of this year, 15 million the next, 18 million the next. I think even within that same time period, there may be some upside for us in number of homes passed without significantly changing the capital requirements." FiOS competes with cable service providers' bundles of phone, video and Internet. Analysts say FiOS generally offers faster Internet service than cable. In addition to the time it takes to connect the fiber network through communities and individual households, the FiOS build-out has been reined in by the slow pace of gaining regulatory approval to sell video services. In areas where it has connected the FiOS network but does not yet have a video license, Verizon offers high-speed Internet and phone services, as well as a bundle including satellite video services through a partnership with DIRECTV Group Inc ( DTV.O ). SHRUGS OFF WIRELESS WORRIES Strigl also said the weaker U.S. economy was not hurting Verizon's wireless business, and shrugged off concerns of the competitive threat of Apple Inc's ( AAPL.O ) new iPhone. Verizon, together with Vodafone Group Plc ( VOD.L ), owns Verizon Wireless. The unit is currently the No. 2 U.S. wireless carrier but is set to overtake AT&T Inc ( T.N ) for the top spot if its acquisition of rural wireless carrier Alltel goes through. AT&T is the sole carrier for the iPhone, but Strigl said sales of Verizon's high-end phones have risen since the iPhone's introduction as customers looked for smarter handsets. "Of course, we continue to be very alert to what Apple does. They certainly are a trend setter in the industry. But I think overall we benefit from that," he said. AT&T has said it plans to subsidize the price of the latest iPhone, betting that it would help boost its data services and win customers from rivals like Verizon Wireless. Asked about such competition and pricing pressure, Strigl said he was not seeing a price war yet, but that there could be more "skirmishes" such as the recent flurry of unlimited pricing plans. Verizon Wireless' offer earlier this year of unlimited calls for $99.99 a month was followed by a similar move by AT&T. "I can tell you today that at the high end we are experiencing a quadrupling of the gross adds that we have seen, and a reduction in the churn rate at the high end. So we don't think that plan was at all a price war," he said. Verizon shares were down 1.2 percent at $37.47 in afternoon trade, while AT&T shares were down 1.0 percent at $37.18 (Editing by Leslie Gevirtz )

Consumer confidence flat, near record low: report. The ABC News Consumer Comfort Index held at -45 in the week to June 8, not far from its record low if -51 reached two weeks earlier. The index ranges from -100 to +100 and its 2008 average is -36. "Consumers have plenty of reasons to worry," the news outlet said in a statement. "(Average national) gasoline prices jumped 6 cents to a record $4.04 a gallon, stocks plunged Friday as (light crude futures) skyrocketed by more than $10 a barrel and the biggest monthly surge in unemployment in 22 years underscored the economy's weakness." The index's three components were mixed in the latest week, as positive views of the national economy were unchanged at 12 percent, views on personal finances gained 1 percentage point to 48 percent and those on the buying climate shed 1 percentage point to 22 percent. Earlier on Tuesday, Investor's Business Daily and TechnoMetrica Market Intelligence said their IBD/TIPP Economic Optimism Index hit a record low 37.4 in June from 40.3 in May. Confidence measures are generally viewed as a barometer of consumer spending, which accounts for two-thirds of the U.S. economy. However, economists note that consumers do not always act in accordance with their statements to surveys. The ABC News consumer confidence survey was based on a sample of about 1,000 interviews conducted in the four weeks to June 8 and has a margin of error of plus or minus 3 percentage points. (Reporting by Rodrigo Campos ; Editing by Dan Grebler)

Gap looks at shrinking some stores to save money. Gap is looking at the 40 million square feet of store space it leases more as an asset than as a cost, CEO Glenn Murphy said, according to a transcript of his comments at a Piper Jaffray investor conference in New York City. "How are we going to monetize it and maximize it to make sure we can get the P&L (profit and loss) benefit by doing the work that needs to be done on this 40 million square feet?," Murphy said. One way is to cut the size of some of its stores thereby saving on rent, Murphy said. Gap should be able to do that in some malls because the stores are in good locations, he said. Gap will look to combine smaller stores for kids and babies into its larger namesake stores, Murphy said. A company spokeswoman said Gap would also reassess how much space is devoted to various types of merchandise in some stores. "We got carried away because we were doing so well and confidence sometimes turns into another word and the next thing you know you have larger stores than you need," Murphy said. Most of the benefits from the real estate overhaul will not be seen until 2009, Murphy said. Gap shares closed up 70 cents at $17.69 on Tuesday on the New York Stock Exchange. (Reporting by Brad Dorfman ; Editing by Toni Reinhold )

Gasoline to peak at $4.15/gallon in August. Last month, the EIA projected gasoline prices would peak in June at $3.73 per gallon of regular grade fuel. EIA also projected that gasoline, which averaged $2.81 per gallon last year, will average $3.78 per gallon in 2008, up more than 25 cents from last month's outlook. "This forecast reflects a sizable narrowing of refiner gasoline margins from those of last year because of weakness in gasoline demand and growth in ethanol supply," the EIA said. In 2009, gasoline prices were projected to average $3.92 per gallon, up 48 cents from the previous outlook. Diesel prices were projected to average $4.32 per gallon this year and next, an increase of $1.44 per gallon over the 2007 average. (Reporting by Russell Blinch ; Editing by Walter Bagley )

Internet companies to block child porn sites. The ISPs also agreed with New York Attorney General Andrew Cuomo to contribute more than $1.1 million to help the state combat the spread of child pornography. The news was first reported in the New York Times late on Monday. The companies have agreed to block access to newsgroups that traffic such images on one of the oldest online outposts, known as Usenet, as well as sites that host child pornography. The agreements will affect customers not just in New York but throughout the country. "The pervasiveness of child pornography on the Internet is horrific and it needs to be stopped," Cuomo said in a statement. "We are attacking this problem by working with Internet Service Providers to ensure they do not play host to this immoral business." His office said its undercover investigation uncovered a major source of online child pornography known as "Newsgroups" -- an online service not associated with websites. Users can use Newsgroups as online bulletin boards where users can upload and download illicit files. The investigation uncovered 88 different Newsgroups that contained a total of 11,390 sexually lewd photos featuring prepubescent children. After ISPs initially ignored the investigators' complaints, the attorney general's office threatened charges of fraud and deceptive business practices and the companies agreed to cooperate and began weeks of negotiations. (Reporting by Christopher Kaufman and Yinka Adegoke ; Editing by Louise Heavens and Braden Reddall )

Trade gap widens in April as oil prices surge. The monthly trade gap grew 7.8 percent to $60.9 billion, its biggest one-month gain since September 2005, despite a healthy rise in exports to a record $155.5 billion. The wider deficit was due mostly to higher average prices for imported oil, which rose $6.96 per barrel in April to a record $96.81. Imports from Saudi Arabia, Venezuela and other members of the Organization of Petroleum Exporting Countries hit a record $20.9 billion. Oil prices hit a record high near $140 per barrel on Friday, suggesting imported oil costs will continue to climb. Even so, trade is expected to remain a source of strength for the economy, which has been buffeted by a severe housing downturn and a credit crisis. "We expect foreign trade to add more than 1 percentage point to GDP growth in the second quarter, a crucial contribution that helps keep overall growth just above zero," said Nigel Gault, chief economist at Global Insight. Overall U.S. imports of goods and services reached a record $216.4 billion in April as they showed their biggest one-month gain since November 2002. Although oil accounted for much of the increase, imports of autos and capital goods bounced back after dropping in March. Even with the run-up in oil prices, the U.S. trade deficit is $4 billion lower than it was in the first four months of 2007, U.S. Commerce Secretary Carlos Gutierrez noted in an interview. "Without the impact of petroleum, the year-to-date deficit would have improved by over $50 billion. We're talking about one of the best eras we've ever had in our history for exports," Gutierrez said. "Our net exports are actually adding more to our economy in the second quarter than in the first quarter," he said. EXPORT STRENGTH U.S. exports rebounded to a record $155.5 billion in April after retreating slightly in March. The month-to-month rise was the biggest in more than four years. Exports of civilian aircraft, farm machinery and other capital goods "performed particularly well, up 15 percent from the comparable period of 2007," said Frank Vargo, vice president at the National Association of Manufacturers. A weak dollar has helped push U.S. exports higher over the last several years, and has played a big role in keeping the U.S. economy afloat in recent months. This week, China's ambassador to the World Trade Organization said the weak U.S. dollar was hurting developing countries by fueling increases in oil and food prices and he called on Washington to take quick action to stabilize its currency. That criticism follows years of U.S. complaints that China maintains an artificially low currency exchange rate, giving Chinese companies a big price advantage in international trade. Top level U.S. and Chinese economic officials will discuss currency, trade and other bilateral economic issues in talks outside Washington next week. The U.S. trade gap with China increased nearly 26 percent in April to $20.2 billion, as imports from that country surged and U.S. exports to China slumped. "China's undervalued currency continues to put American workers and manufacturers at a disadvantage," said Sen. Sherrod Brown, an Ohio Democrat. "The U.S. trade deficit is simply too large to be sustainable." Two other reports released on Tuesday suggested U.S. retail sales picked up a bit in early June, but remained sluggish. Redbook Research said its index of chain store sales for the week ending June 7 was up 2.1 percent over its year-ago level, a touch higher than in the prior week. Separately, the International Council of Shopping Centers and UBS Securities said their index moved rose 1.8 percent year-on-year. "Retailers said business picked up as widespread warmer temperatures appeared finally to shift consumers toward long-awaited seasonal purchasing," Redbook Research said. (Reporting by Doug Palmer; Editing by Tom Hals)

McCain wants low corporate taxes, regulated CEO pay. The Arizona senator, who has wrapped up his party's presidential nomination, also would propose a simpler, alternative tax system and insist that chief executives' pay and severance packages have shareholder approval. "No matter which of us wins in November, there will be change in Washington. The question is what kind of change?" McCain will tell a conference for small businesses, referring to his Democratic opponent, Sen. Barack Obama of Illinois. "Will we enact the single largest tax increase since the Second World War as my opponent proposes, or will we keep taxes low for families and employers?" he will say, according to excerpts released before his speech. McCain will pledge to act quickly to lower corporate taxes from "the second highest in the world to one on par with our trading partners to keep businesses and jobs in this country." He will propose a law to allow companies to expense new equipment and technology in their first year. He supports keeping capital gains taxes low, doubling a tax exemption for children, and phasing out the "alternative minimum tax" which he said would save some 25 million middle-class families up to $2,000 in a year. On Monday Obama drew a sharp contrast with McCain, his opponent in the November election, accusing him of wanting to widen President George W. Bush's tax cuts and plunge the United States deeper into debt. He charged that McCain's support for extending Bush's tax cuts would allow $2 trillion in corporate tax breaks. U.S. taxes were too complicated overhaul, McCain will say in his speech, in which he will argue for an alternative system. "As president, I will propose an alternative tax system. When this reform is enacted, all who wish to file under the current system could still do so," he will say. "Everyone else could choose a vastly less complicated system with two tax rates and a generous standard deduction." McCain criticizes Obama for wanting to increase dividend and capital gains taxes and aiming to raise the minimum wage and link it to an index. But he also takes aim at top corporate executives with big salaries and excessive severance packages. "Americans are right to be offended when the extravagant salaries and severance deals of CEOs ... bear no relation to the success of the company or the wishes of shareholders," he will say, adding that some of those chief executives helped bring on the country's housing crisis and market troubles. "If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors. And under my reforms, all aspects of a CEO's pay, including any severance arrangements, must be approved by shareholders," he will say. (Editing by Chris Wilson)

Red tape, bribes greet small business in Russia. In two years, entrepreneur Peter Bohn has opened 36 small stores in shopping centers across Russia selling inexpensive jewelry to fashion-conscious young Russian women. The problem is, the original schedule to hit 200 stores had to be put back, and Bohn currently estimates the start-up costs for the chain will top $4 million, against an initial estimate of about $1.5 to $2 million. "I've got a signing period from 10 to 10.30 am per day and every one in the office knows it," Bohn told Reuters. "On one extreme it could be ridiculously mundane paperwork, on the other hand, I could be signing my life away." The walls of his outlets are covered in display cabinets of bangles, hair slides, chunky necklaces, and fake diamond rings that cost a fraction of the real thing. Bohn's eye is on the oil-fuelled boom which is gradually turning a section of Russia's 142 million population into a middle class with disposable incomes. Standing in his way is an incessant series of headaches. In one recent incident, a shipment was impounded because a single document was missing. Customs froze the delivery and charged rental fees and fines that, three months later, left Diva with a bill five times higher than the cargo's value. "There was no flexibility at all," said Bohn, shaking his head, still frustrated by the episode. "And all because we missed out on one little document." Russia's new president, Dmitry Medvedev, has said cleaning up graft and boosting small business are among his top ambitions. Small firms make up 15 percent of gross domestic product, but the president wants their share to reach 50 percent. SCANT PROGRESS Transparency International ranked Russian corruption on a par with Indonesia, Gambia and Togo at 143rd place in its index of 180 countries for 2007 -- Vladimir Putin's final full year as president. His eight years in power produced mixed results when it comes to easing the overall burden of starting up a business, said Elena Anankina, a credit analyst with Standard & Poor's in Moscow. "We haven't seen as much improvement as we could have hoped," she said. "There was some improvement, but then new procedures made it more difficult. "It's very difficult to run a small business ... but we do see that retail and consumer goods sectors are developing, so despite all these obstacles, people are doing business and making profits," she said. Medvedev has promised to root out both blatant bribes and less overt forms of corruption, such as dubious contracts and consultancies given to officials so businesses can operate. At St Petersburg economic forum last weekend, he said tackling corruption was a first step: "We are talking about the fight against corruption, the strengthening of the judiciary in our country to ensure the supremacy of the law." Big business is also concerned about legal standards. At the same forum, the chairman and CEO of ExxonMobil Corp., Rex Tillerson, said Russia must improve its judicial system to attract large-scale investors. "There is no confidence in the rule of law in Russia today," said Tillerson. BP's Russian joint venture TNK-BP has become the latest foreign firm to suffer Russia's rulebook as tax queries and visa controls have been deployed against staff in recent weeks. If Bohn's experience is typical, there's a long way to go. The World Bank's site doingbusiness.org calculated it takes 54 procedures and over 704 days to get the licenses, paperwork and utility connections to build a warehouse in Russia. "This place is in the dark ages with most of its structures," Bohn said. INVESTMENT SLOWED Westerners say Russia needs to improve its business environment because it wants to diversify the economy away from energy. Foreign direct investment into Russia doubled in 2007 to nearly $28 billion, but slowed sharply in the first quarter of 2008, falling 43 percent to $5.6 billion. "They're keenly aware that they don't want to be slaves to the natural resources," Andrew Somers, the president of the American Chamber of Commerce in Russia, told Reuters. Oil and natural gas tax revenues will account for 41 percent of government revenues in 2008, the Russian Finance Ministry forecasts. This leaves Russia vulnerable to world market swings. But with oil prices unlikely to fall back to $20 per barrel from their current highs of over $130 this threat is not imminent, said Anankina. "Despite the credit crunch on capital markets, people continue to invest in Russia," she said: "Russia remains a growth story especially for retail and consumer goods following the natural resources boom. It's probably a good place to be for small business. "But the business environment remains challenging -- this includes bureaucracy, corruption and weak institutions, so a lot depends on personal connections," she said. Bohn is attempting to go it alone -- without a local business partner and the connections that might bring. "My job is to get this business to 200 stores within three years and sell it for the best price I can, and give the money back to the venture capital firm and hopefully make my life a bit more reasonable," said Bohn, who is backed by Australian venture capitalists, BB Retail Capital. He says Diva does not pay bribes, but there have been attempts to extort cash from the firm. Diva only operates in shopping centers, to minimize its exposure to local crime gangs or zealous officials seeking to find excuses to shut down a shop -- a typical threat unless operators pay out a few thousand dollars. Already, local oligarchs have muscled in and forced Diva to quit two shops in Russian regions, despite having the law -- at least in theory -- on its side. That experience left Bohn with an uneasy fear someone may come along and try to wrest the firm from him. "It's structured so if someone wants to make a mess they can't take everything," he said. Diva should turn the corner by the year's end, said Bohn, who now hopes to open up to three new shops per month. "It's been tough but I'm an optimist, so it will work out. Still, it is virtually impossible for a small business to start up here." (Editing by Sara Ledwith )

XTO Energy CEO sees more acquisitions this year. "That is sort of a minimum I see us doing for the rest of the year," Bob Simpson, the Fort Worth, Texas, company's CEO, told analysts on a conference call. "It's just midyear, and lots of deals are coming." Earlier on Tuesday, XTO said it would buy privately held Hunt Petroleum Corp for $4.2 billion in cash and stock. (Reporting by Anna Driver ; editing by John Wallace)

Chrysler boss says Cerberus not second guessing deal. Nardelli said at a Wall Street Journal conference on Tuesday that Chrysler LLC finished April with more liquidity than planned, and was ahead of overall financial performance and liquidity targets in May. Asked at the conference if the private equity buyers of Chrysler would have bought the company if they had known what would happen to oil prices, Nardelli said it was "hard to say, but no one is second guessing the decision, no one is looking back". "We are guarded but optimistic," Nardelli added. "We are very encouraged in what we have accomplished." Asked at the conference if he expected the business to still be independent three years from now, he said that he did. He said there were clear advantages to running Chrysler under private equity ownership rather than as a public company. Former Home Depot Inc ( HD.N ) chief Nardelli was installed to run the automaker after Cerberus Capital Management LP CBS.UL last August bought an 80.1 percent stake in Chrysler from former parent Daimler DCXGn.DE in a $7.4 billion deal. When asked what the endgame was for Chrysler under private equity ownership, he said that was Cerberus' decision, while he was entrusted to run the company. Private equity investors typically invest for about three to five years and then look to cash out by selling or floating their investments. Chrysler closed last year with $9 billion in cash, Nardelli told CNBC in an interview after the conference on Tuesday, adding that the company was "still in very good shape." He also said Chrysler will "absolutely not" sell its Jeep brand to raise cash. "Jeep is a crown jewel in our company," he said. Commenting on the high gas prices, he said the "speed with which it happened" created a challenge. (Additional reporting by Poornima Gupta in Detroit) (Reporting by Megan Davies ; editing by Carol Bishopric)

U.S. hiring seen weaker in third quarter: Manpower. The staffing services company said its seasonally adjusted net employment outlook fell for the third consecutive quarter, to a level of 12, compared with 14 last quarter and 18 a year ago. The index measures the difference between employers saying they plan to add jobs and those planning to cut them. Of 10 sectors tracked by Manpower, only one -- mining -- has a stable outlook for job seekers compared with the previous quarter. Prospects in the other nine sectors have weakened. "It is saying (the outlook is) softer, with some real trouble spots in construction and finance and real estate, and the rest is holding its own, but tenuous," Manpower Chief Executive Jeff Joerres said. "It's clearly a time that's a bit spooky and not clear what's coming next." The outlook for the construction, finance, insurance and real estate sectors is the weakest since the 1991 recession. Hiring intentions in education, manufacturing, and wholesale and retail trade are also at multi-year lows when adjusted for seasonal factors, Manpower said. NO 'RECESSIONARY SIGNALS' Weaker hiring is expected in the West, South and Northeast, while Midwest employers are slightly more optimistic. The index's gradual decline contrasts with the past. It fell sharply ahead of recessions in 1991 and 2001, but is not sending "recessionary signals" at the moment, Joerres said. Manpower's outlook comes a few days after the government reported the fifth consecutive monthly drop in U.S. non-farm payrolls and said unemployment spiked to 5.5 percent. A housing downturn has erased thousands of building jobs and a credit crunch and mortgage trouble hit financial services employment. For investors looking to make educated guesses about future government data, the survey suggests last month's jump in the unemployment rate was an anomaly. The rate is likely to tick down to about 5.3 percent in upcoming reports, Joerres said. Manpower's survey, based on interviews with about 14,000 employers, dates back to 1962. MOROSE IN MADRID, BULLISH IN BANGALORE A global Manpower survey found less optimistic hiring intentions in 18 countries and territories, seven reporting improved prospects, and seven where the outlook was unchanged. In Asia, the most optimistic hiring expectations were in India, Singapore and Hong Kong, though the latter two dipped from the previous quarter. The survey in Japan showed little change in hiring intentions. In Europe, forecasts were stable in eight of 17 countries surveyed. Hiring intentions were strongest in Poland and Romania, and weakest in Spain, Italy and Ireland. "Spain is in the same kind of housing crisis that basically California is in, showing all signs of either being in a recession or going into recession," Joerres said. Mexico reported the strongest hiring intentions in five years, while employment indexes dipped in Costa Rica, Peru and Argentina, Manpower said. In many countries, employers have limited scope for job cuts in a softer economy, Joerres said. Labor laws in many international markets make it hard to cut workers, so companies were less likely to ramp up during economic expansions. He said U.S. companies learned a lesson from the 2001 slump and avoided overinvestment, so now have less need for layoffs. "We're not seeing massive layoffs because companies are too lean to have lots of people to get rid of," Joerres said. (Editing by Braden Reddall )

Lehman raises $6 bln, expects big 2nd-quarter loss. Lehman's expected $2.77 billion quarterly loss -- the first in its history as a public company -- also knocked rival investment bank stocks lower, as confidence faded in a quick end to credit crunch-related pain. Lehman, which blamed the projected loss on $3.7 billion of write-downs from trades and hedges gone sour, said it is now hoping to put investors' questions about its capital to rest and focus on the future. "We raised a boatload of capital today. We've got to get down to performing now ... That's where our emphasis is going to be," CFO Erin Callan told Reuters. Callan said on a conference call that the bank's share offerings on Monday were "substantially oversubscribed." But critics said the bank had been inconsistent with its message and still had more work to do. "They raised billions of dollars they said they didn't need to replace losses they said they didn't have," said David Einhorn of hedge fund Greenlight Capital, who is shorting Lehman shares in a bet they will decline. Einhorn told Reuters Lehman is still carrying too much risk on its balance sheet. Investors have become increasingly skittish about Lehman's health in recent months after the global credit crisis triggered a run on the bank at Bear Stearns Cos in March. Bear Stearns sold itself at a fire sale price to JPMorgan Chase & Co last month. With Lehman having access to short-term funding at the Federal Reserve and having billions of dollars of assets at its disposal, a run on the bank is seen as unlikely. But market difficulty and maintaining higher capital levels will likely constrain Lehman's profitability, particularly given the cloudy outlook for many financial markets, analysts said. Matt McCormick, an analyst at Bahl & Gaynor Investment Counsel in Cincinnati, said, "They're going to have to find ways to assuage concerns there aren't more write-downs coming." The fourth-largest U.S. investment bank has taken steps to shore up its capital base this year. The $6 billion of capital raised Monday follows a $4 billion convertible preferred share offering in the beginning of April and a $1.9 billion preferred share offering in February. Both the New Jersey Division of Investment and former American International Group Chief Executive Maurice "Hank" Greenberg said they bought shares. Chief Executive Richard Fuld said in a statement that he was "very disappointed" in the quarter's results, which are set to be reported on June 16 and are still subject to adjustment. FULD STILL STANDING And although big losses have cost many bank chief executives their jobs, few have called for the ejection of Lehman CEO Dick Fuld, who has been with Lehman since 1969 and who told investors in April that "the worst is behind us" in financial markets. Adam Compton, co-head of global financial stock research at RCM in San Francisco, said "up to now, Fuld hasn't reported a big loss, which has kept the pressure off him." Lehman's shares closed down 8.7 percent at $29.48, and fell as low as $28.01 during the session, reaching their lowest closing level since the collapse of Bear Stearns in mid-March. The stock ended 2007 at $65.44, according to Reuters data. Its nearly 55 percent decline this year is more than double the decline in the overall investment bank and brokerage sector as measured by the Amex Securities Broker Dealer index. Lehman's difficulties contributed to a broad drop in financial stocks on Monday. The Amex Securities Broker Dealer index fell 2.3 percent, and Merrill Lynch & Co's shares fell 3.2 percent. Lehman sold 143 million shares, or $4 billion worth, at $28 a share on Monday. The bank also sold $2 billion of preferred stock that automatically converts to common shares in three years. The convertibles have an annual dividend of 8.75 percent, and each $1,000 security will convert to up to 35.7142 shares. Lehman is not actively looking for more capital now, CFO Callan said. And although some analysts have speculated the investment bank would look to sell itself, many bankers and investors dismiss that as unlikely, in part because of the lack of obvious buyers. CUTTING ASSETS, BOOSTING EQUITY Investors and regulators are skittish about write-downs, and are forcing banks and brokers to boost their capital levels relative to their assets. In the case of Lehman, it had about 25 times as many gross assets as equity at the end of the second quarter, compared to more than 30 times at the end of the first quarter. As equity rises, the relative amount of debt declines. Lehman projected a second-quarter loss attributable to common shareholders of $2.87 billion, or $5.14 per share, for the quarter that ended May 31. That compared with the average analyst forecast for a loss of 38 cents, according to Reuters Estimates. Net revenue is expected to be negative $668 million, compared with positive $5.51 billion a year earlier, Lehman said. Moody's Investors Service lowered its outlook on Lehman's "A1" senior debt rating to "negative" from "stable." (Additional reporting by Joseph A. Giannone and Kristina Cooke in New York, Jonathan Stempel in Bangalore, and Atul Prakash in London; Editing by Brian Moss , Maureen Bavdek, Gary Hill )

Lehman stock slumps again on loss warning. Lehman shares slipped as much as 9.2 percent, before closing down $1.98, or 6.7 percent, at $27.50 on the New York Stock Exchange. On Monday, the stock fell 8.7 percent after Lehman estimated a much steeper-than-expected loss of $2.8 billion for its fiscal second quarter, due to losses from trading and hedging. The Wall Street firm also raised $6 billion through an offering of common and convertible preferred stock to shore up capital. Several brokers, including Credit Suisse, Deutsche Bank, Goldman Sachs, Merrill Lynch, UBS and Wachovia, slashed their 2008 earnings estimates for the firm on Tuesday. Oppenheimer & Co analyst Meredith Whitney said in a research note the capital raised is 30 percent dilutive to existing shareholders. "The sheer size of such a dilutive capital raise will put serious pressure on the bank's ability to deliver on meaningful earnings-per-share growth over the near to medium term," Whitney wrote. (Reporting by Muralikumar Anantharaman in Boston, editing by Richard Chang)

Softbank to sell new iPhone from July; shares up. Softbank' shares rose 2 percent on the announcement, combined with news that Apple would be cutting the price of its entry-level model in many countries. "It's coming earlier than I thought...and it's positive that it overlaps with bonus season," said Deutsche Securities analyst Kenji Nishiyama. The Japan launch of the next-generation iPhone with faster Internet access is part of a rollout in 22 countries and regions next month. Softbank had previously only said that it would sell the iPhone sometime this year. Its landing of the iPhone contract was a coup for the aggressive operator that has grabbed market share from more established rivals NTT DoCoMo Inc and KDDI Corp Analysts expect the iPhone to boost Softbank's brand recognition further. The new phone also marks a dramatic departure for how Apple will make money in its third major business alongside Macintosh computers and iPod media players. Most wireless network companies will no longer pay Apple part of the subscription fees they get from iPhone users, but instead will subsidize the devices up front to make them cheaper. In the United States for example, an entry-level version of the new iPhone, with 8 gigabytes of memory, will cost $199, versus $399 for an older iPhone with similar memory. Softbank said it would start selling the iPhone from July 11. Spokesmen for both Softbank and Apple Japan said they did not know the details of the Japanese contract. Shares in Softbank were up 2.6 percent at 1,905 yen as of the midday break while the overall market was flat. (Reporting by Edwina Gibbs and Sachi Izumi; editing by Sophie Hardach )

HP aims to transform market with touchy-feely PCs. The TouchSmart All-in-One is designed around music, photos and video but has a full set of PC functions, and is the most persuasive product yet in HP's turnaround of a PC business that was once defined by run-of-the-mill products and low margins. The starting price of $1,299 for the TouchSmart, which will go on sale in 17 countries in July, is comparable with that of other premium models that are less distinctive and easy to use. The way icons or documents on the screen can be enlarged, diminished or scrolled through by a fingertip brush of the screen is reminiscent of Apple's iPhone, although HP has been developing touch technology for a quarter of a century. "No new product has been more significant as this new TouchSmart PC we just showed you," said David Roman, head of marketing communications for HP's Personal Systems Group, at HP's main annual product launch held this year in Berlin. Todd Bradley, the group's executive vice president, told Reuters: "We don't think about this as a niche. We think about it as a global product that will inspire demand and drive desirability," he said, but declined to speculate on what size the market for such PCs might reach. Crawford Del Prete, executive vice president of global research at IDC, said: "I think the price point is getting compelling for a premium PC. I think it would be even more attractive if they could get it under a thousand." He pointed out, however, the risks HP was taking by making large investments in an unproven market. "It requires a set of marketing expertise and it requires a significant amount of investment," he added. "An Apple or someone else could do this but it's not for the faint of heart, it's not for people who don't want to invest in the product." HP's touchscreen technology works on top of Microsoft's Vista operating system, and product managers said there were no current plans to develop versions for other operating systems, such as open-source Linux. HP's launch came a day after Apple announced a new version of its ground-breaking iPhone, the original version of which sparked intense interest in touchscreens and a host of imitators. IDC's del Prete said: "I don't think Apple's impact can be underestimated." Rob Enderle, chief analyst with technology research firm the Enderle Group, said HP's products launched on Tuesday, which include 17 new notebooks and a professional display monitor that can show a billion colors, could put it out of rivals' reach. "Todd Bradley took a unit that many thought was a liability to HP and turned it into one of HP's top performers and into segment leadership ... to a point where it may not be possible for a competitor to catch it," he said. The new TouchSmart PCs will launch in countries including the United States, Japan, China, India and Britain on July 13. The models sold in Europe will be about half as expensive again as their U.S counterparts, partly due to extra features. Del Prete said the HP TouchSmart could appeal to social groups such as families or students sharing an apartment who wanted a PC that could also double as a group messageboard or second television set. When invited to compare the touchscreen interface with the early days of PCs, when users unfamiliar with using a computer mouse would commonly jab at the monitor with a fingertip, del Prete said: "Now you point at the screen and something happens." (editing by Elizabeth Fullerton)

China stocks slide 7.7 pct on monetary tightening. Banks and property shares led the declines as buyers fled the market, fearing more action by the central bank in coming months. Weakness in global equities markets, which are being hit hard by high oil prices, also dragged down Chinese stocks. The Shanghai Composite Index .SSEC closed at 3,072.333 points, not far from the day's low of 3,045.058, leaving it 50 percent below last October's record peak. Tuesday's slide in the Shanghai and Shenzhen markets erased about $240 billion of value. Losing Shanghai stocks overwhelmed gainers by 891 to 20, while more than 530 shares plunged their 10 percent daily limits. Turnover in Shanghai A shares was very thin at 60.3 billion yuan ($8.7 billion). "Nobody dares to buy in a market like this -- confidence is gone," said Chen Jinren, analyst at Huatai Securities, adding that the index had a good chance in coming days or weeks of testing its 13-month low of 2,990 points, hit on April 22. The government intervened to support the market in April by cutting the stock trading tax, and many investors see a good chance of another rescue attempt -- perhaps the long-delayed introduction of margin trade and securities lending, which would benefit brokerages and could draw some buyers back to the market. But many analysts think high inflation, the prospect of more monetary tightening and poor supply/demand conditions for shares could continue to weigh on the market for months. "Official steps to help the market may not work," said Chen. GLOBAL CYCLE Cao Xuefeng, analyst at Western Securities, said he believed authorities would do what was necessary to prevent financial market instability in the run-up to the Beijing Olympic games in August, a politically sensitive time. But he and others said investors worried China could get caught up in a regional or global cycle of high inflation, tightening monetary policy and sliding equities prices. The stock market crash in Vietnam, where inflation has been in the double digits, is receiving heavy Chinese media coverage and while the two economies are very different, investors are starting to draw parallels between the markets, Cao said. Sources familiar with the data told Reuters on Tuesday that China's May consumer price inflation, to be officially announced on Thursday, was 7.7 percent, down sharply from April's 8.5 percent. But Zhang Qi, analyst at Haitong Securities, said this figure would not be low enough to reassure investors, especially as the central bank's aggressive monetary tightening suggested it was worried about a possible resurgence of inflation later this year. The central bank said it would raise commercial banks' reserve ratios by a full percentage point in June, twice the hike which the market had expected. It is the first time since December that reserve ratios are being raised a full point within a single month. Even before the monetary tightening announcement, stocks had been under pressure from plans for a huge initial public offer by China State Construction Engineering Corp. The IPO could raise some $6 billion in Shanghai this month, making it China's largest IPO so far this year, and investors fear the market may have trouble absorbing the fresh equity. ICBC, VANKE PLUNGE Industrial and Commercial Bank of China ( 601398.SS ), the biggest bank, tumbled 8.35 percent to 5.38 yuan on Tuesday while the largest listed property developer, Vanke ( 000002.SZ ), plunged its 10 percent limit to 17.70 yuan. Top oil refiner Sinopec ( 600028.SS ) sank 8.39 percent to 12.34 yuan after the head of the State Energy Bureau said the government had postponed plans for energy price reform. This was taken as a sign that due to the inflation threat, the government would not permit Sinopec to raise domestic fuel prices any time soon, and that its refining margins would therefore stay under pressure. (for story, click on China United Telecommunications ( 600050.SS ), the most active stock, dropped 8.46 percent to 7.57 yuan after falling 15.81 percent over the previous four sessions in the wake of a restructuring announcement by Hong Kong-listed affiliate China Unicom ( 0762.HK ). Among gainers, FangDa Carbon New Material ( 600516.SS ) rose 1.86 percent to 17.49 yuan after forecasting net profit in the first half of 2008 would soar over 500 percent. ($1 = 6.92 yuan) (Editing by Andrew Torchia )

Apple takes wraps off "zippy" iPhone. Shares of Apple, after strong gains in recent months partly driven by anticipation of the new device, fell 2.2 percent after Chief Executive Steve Jobs indicated the company was going after the mass market with the new model. "It changes the game for all smart-phone makers," Tim Bajarin, head of consultancy Creative Strategies, said of the price and new features. The new phone also marks a dramatic departure for how Apple will make money in its third major business alongside Macintosh computers and iPod media players. Wireless network companies will no longer pay Apple part of the subscription fees they get from iPhone users, but instead will subsidize the devices up front to make them cheaper. "The vast majority of agreements we have reached do not have those follow-on payments, so you can conclude that the vast majority of carriers do provide subsidies for the phone," Tim Cook, Apple's chief operating officer, told Reuters. Cook declined to comment on how the new arrangement would affect Apple's profit margins, but AT&T Inc, the exclusive U.S. carrier for the iPhone, said the subsidy would hurt its earnings and margins through next year. "It is still a very profitable business. Now the negative is they announced the elimination of some of the monthly fees," said Shaw Wu, an analyst with American Technology Research. "But I can't really imagine the economics really being too much different." Improved e-mail features for the iPhone are intended to woo business people, while its ability to run on faster networks is key to Apple's push to gain market share in Europe and Asia. "It's amazingly zippy," Jobs said, showing off the encore to a device that melds a mobile phone, iPod media player and Web browser, nearly a year after the original went on sale. The new one, which looks similar to the old one but with glossy black or white plastic in place of a metal back cover, loads Internet pages 2.8 times faster than the original, he said. EYES ON NOKIA, RIM, PALM An entry-level version of the new iPhone, with 8 gigabytes of memory, will cost $199, versus $399 for an older iPhone with similar memory. A version of the new one with twice the memory will cost $299. "These lower price points seem somewhat designed to cope with the economy, the softer environment," Wu said. "They definitely make this product more resilient." The new phones will go on sale on July 11 in 22 countries and regions, expanding to 70 by the end of the year. As for China, the biggest cell phone market in the world and one where Apple does not have a deal to sell iPhones, Cook told Reuters the company would get there "over time," and CNBC quoted Jobs as saying Apple hoped to be there later this year. The new iPhone will run on third-generation (3G) wireless networks and includes satellite navigation capability, Jobs told developers at a conference in San Francisco. "This positions Apple well vis a vis other smart-phone competitors such as Nokia and RIM," said Shannon Cross of Cross Research. "IPhone is no longer an expensive device. It's now priced at the mass market." Shares of Palm Inc, maker of the rival Treo smart-phone, fell 4 percent, but those in Research in Motion, maker of BlackBerry devices, rose 2 percent. A new service, "MobileMe," will automatically send e-mail and other information to iPhones, similar to Microsoft Corp's Exchange e-mail server product. The pay service will replace Apple's .Mac service and offer Web applications intended to make the phone work more like a desktop computer. "It clearly puts them in a competitive position on the services side against Google, Microsoft and most importantly Nokia," Ben Wood, research director of UK-based CCS Insight, said of MobileMe. Jobs said Apple has sold 6 million iPhones so far, and Cook said he was "still very comfortable" that the company would hit its goal of selling 10 million units by the end of 2008. Apple shares closed at $181.61. The stock had risen more than 50 percent in just three months, primarily on good demand for Macs and iPods, as well as anticipation of the new iPhone. (Additional reporting by Sinead Carew in New York and Georgina Prodhan in Berlin; Editing by Braden Reddall )

London tops list of global financial centers. European and Asian cities dominated the list as U.S. cities hit by the weak dollar tumbled in the rankings released on Sunday. Shanghai, the world's most populous and fastest-growing urban centre, shot up eight spots to No. 24, given its growing importance in China's booming economy, while Los Angeles fell out of the top 10, to 17, as financial-services companies left. "With a strong and secure economy, vibrant financial markets and a legal and political framework that supports high levels of International trade, London again secures the top spot in the Centers of Commerce Index in 2008," the report says. "London towers over other cities not only in narrow financial terms but in a broader sense as well," said Michael Goldberg, Program Director, MasterCard Worldwide Centers of Commerce Program. The index covers 75 cities, ranking them according to their legal and political frameworks, economic stability, ease of doing business, volume of financial activities, presence of financial institutions, reputations as business Centers, contributions toward knowledge creation, and livability. "The European and Asian cities came out very strong," Goldberg said. "They became strong against the weak dollar." New York, No. 2, and Chicago, No. 5, were the only two North American cities to make the top 10 global commercial Centers. Tokyo was third and Singapore fourth. Hong Kong was sixth followed by Paris, Frankfurt, Seoul and Amsterdam. Moscow improved its financial clout the most, placing 51st due to its key role for commodities in Eastern Europe. Regionally, Western Europe dominated with 10 of the top 25 cities, while Asia strengthened its reputation as an economic hub with seven of its cities in the top 25. The highest-ranked Indian city was Mumbai at No. 48. (Reporting by Syantani Chatterjee; Editing Peter Henderson)

Special Report: China's shortcut to Wall Street. Articles in this series are exploring the extent and impact of corporate secrecy in the United States. By Nanette Byrnes and Lynnley Browning NEW YORK - A spate of spectacular collapses of Chinese stocks listed on American exchanges has cost U.S. investors billions of dollars. The fiasco has sparked multiple investigations. Accusations are swirling in Washington and Beijing. It all began with an email sent out of the blue a decade ago to a Texas businessman named Timothy Halter. The email came from Shanghai native Zhihao "John" Zhang. The former medical student introduced himself and asked: Was Halter interested in helping bring Chinese companies to the U.S. stock market? Zhang proposed using a backdoor method that the Texan had mastered for American firms: buying dormant shell companies listed on U.S. exchanges. Soon, Halter and Zhang brought two Chinese firms to market in America: a manufacturer of power-steering systems and a maker of vitamins, weight-loss supplements and household cleaners. The email led to a boom for a niche industry of advisers who specialize in a brand of deals, called the "reverse merger," that use shell companies to give clients easy entry into U.S. capital markets. More than 400 Chinese companies seized the chance. Leading the way was Halter, a slim, salt-and-pepper-haired man who played a direct or indirect part in 23 deals; staked his name on at least 20 other deals done by his Shanghai partner, Zhang; and paved the way, through conferences in China, for dozens of other deals. It was a lucrative gambit: Halter lives with his family on a 50-acre ranch in Texas, where he breeds bass. His firm, Halter Financial Group, threw splashy "summits" to promote the industry, including a gathering headlined by former President George W. Bush in 2010. Its website boasts: "Reverse Merger Experts!" But deals birthed by Halter and his imitators are now blowing up. Investors have alleged widespread accounting irregularities and other problems at dozens of the Chinese companies that reverse-listed in the U.S., causing share prices to nosedive. Since March, some 30 Chinese firms have seen their auditors resign and at least 25 have been delisted from U.S. exchanges. $18 BILLION GONE A Reuters examination of a cross-section of 122 Chinese reverse mergers on U.S. markets found that between each stock's peak trading price and July 10, 2011, those companies saw a total of $18 billion of their market capitalization vanish. Reuters interviewed nearly 100 industry participants and examined financial records of dozens of Chinese companies to paint the most detailed picture yet of the network of dozens of players involved in the reverse-mergers boom. That industry hinges on a handful of leading "shell brokers" such as Halter who purvey paper companies; investment banks who specialize in financing a firm after a reverse merger; and auditors, usually small shops, who are lightly regulated in the U.S.--and not at all in China and Hong Kong. The controversy has stirred up new tensions between Washington and Beijing, which held talks on the matter in July. The Public Company Accounting Oversight Board, the U.S. auditing watchdog, issued a report in March about potential problems with the audits of Chinese companies formed through reverse mergers. The Securities and Exchange Commission has set up a working group to examine Chinese reverse mergers, and the Federal Bureau of Investigation has opened its own broad investigation, say people familiar with the situation. The Chinese reverse-merger boom and bust offer insight into a little-understood corner of American business: the widespread use of shell companies, which can offer their owners a way to minimize regulatory scrutiny. The U.S. in recent years has called for much greater transparency in global business transactions. But on American shores, opaque shell companies are rife. "It appears that some Chinese firms have seen a way to access the strongest public markets in the world, but through the weakest area of enforcement," says Republican Rep. Patrick McHenry, a member of the House Committee on Oversight and Government Reform. REVERSE GEAR A reverse merger hinges on a shell company-a firm without meaningful assets or operations, used as a vehicle for transactions-that's already listed on a stock exchange. A deal typically starts with a so-called shell broker, anyone from a small shop to a larger firm such as Halter's. Brokers acquire shells, often domiciled in a secrecy-friendly state such as Delaware, Utah or Nevada. The broker then sells the U.S. shell to an operating company seeking to trade on a U.S. exchange-a transaction which, unlike an initial public offering, isn't overseen by regulators. The acquiring firm thus becomes a publicly-traded company, with access to U.S. investors - but without the time, expense and scrutiny of a traditional initial public offering. Companies are incorporated under state rather than federal law, and so the federal overseer of stock flotations, the Securities and Exchange Commission, doesn't as a matter of course review reverse mergers until after the deal is done. In Chinese deals, the buyer is often a holding company based in Delaware, the British Virgin Islands or other tax haven, which in turn controls the actual operations on mainland China. This structure complicates the ability of U.S. regulators to dig into the accounts of the resulting firms. In recent years, one in three U.S. reverse mergers involved a Chinese operating company. In 2010, 260 reverse mergers were completed, according to deal tracker PrivateRaise. Of those, 83 deals involved operating companies in mainland China. There are more than 1,200 dormant public companies in the U.S., PrivateRaise says. They can be purchased for as little as $30,000, then sold by shell brokers for as much as 10 times that amount or more. Brokers say that in 2007 and 2008, the peak of the market, Chinese firms would pay up to $800,000 for a high-quality shell, one with no lingering liabilities. Reverse mergers, to be sure, are a legitimate way to gain access to capital for smaller companies that can't afford a full-fledged initial public offering or don't need to raise large sums. The problem isn't the technique, defenders argue, but rather people who misuse it. David N. Feldman, a New York lawyer and author of a book about reverse mergers, notes that the large majority of Chinese deals are good ones, and that IPOs are also subject to abuses. Chinese software maker Longtop Financial Technologies Ltd. achieved a peak market value of $2.3 billion on the New York Stock Exchange after its IPO, but came under regulatory scrutiny this spring and is now being de-listed from the Big Board. COLORADO ROOTS The industry has roots in the Colorado mining boom and bust of the 1950s, when entrepreneurs bought up failed listed companies. Timothy Halter's breakthrough was to spread the tactic to China. Halter, the founder and president of boutique firm Halter Financial Group in Argyle, an affluent suburb northwest of Dallas, did a handful of reverse mergers, all for American companies, in the seven years after opening his company in 1995. Zhang, who lived in Toronto, found Halter by Googling "reverse mergers," according to people who know both men. China was the world's hottest economy, and Halter was intrigued by Zhang's email and subsequent calls, these people say. Their first Chinese reverse mergers-involving household cleaning-goods maker Tiens Biotech in 2002 and China Automotive in 2003--caused a sensation. "These were the two deals that really got everybody's attention," said Beau Johnson, managing director of Chinamerica Holdings, a financial advisory and investment fund in Richardson, Texas, which owns shells and has done several Chinese reverse mergers. "The industry just snowballed from there." After the first two deals, the Texan sent Zhang back to Shanghai to open an outpost and scout Chinese firms ripe for an American listing. Zhang, who once aspired to be a doctor and graduated from Fudan University Medical School in 1990, began scouring China for businessmen who dreamed of ringing the opening bell on Nasdaq. He set up New Fortress Group Ltd., a British Virgin Islands entity, to take stakes in deals. Zhang declined to comment for this article. 'PRESTIGE AND CREDIBILITY' Halter gained note as a guru on the nascent market for Chinese mergers-and touted his new Halter USX China Index, the first to track Chinese companies trading on U.S. exchanges. In 2004, he told a Congressional panel on China that "there is prestige and credibility in a US listing. It is also understood by Chinese companies that our standards are high and it is not an easy task to comply with the requirements to be a public company in the U.S." In 2008, Halter trademarked in the U.S. his secret sauce: a transaction he dubbed the APO, or Alternative Public Offering. It combined a reverse merger and a financing arrangement called a private investment in public equity, or Pipe, that allowed firms to go public and raise money in one fell swoop. Halter's trademark application said he had "instructed hundreds of attorneys, CPAs and professionals about the reverse merger process." Reuters identified 17 deals arranged by Halter Financial Group, and six in which Halter brokered the shells used in transactions orchestrated by others. The firm consulted dozens more Chinese companies on preparing to go public, introducing them to auditors and lawyers needed for the deals. People in the industry estimate Halter has had a hand, direct or indirect, in one in eight Chinese deals listed on American exchanges. Halter's deals sometimes use a dizzying array of shells. His firm arranged a reverse merger in 2010 for Long Fortune Valley Tourism, a Chinese company that describes itself as focused on "cave tourism." The merger involved shell companies in Texas, Delaware, Hong Kong, the Cayman Islands and the British Virgin Islands. The original shell used in the deal was created years earlier by Halter to buy up a bankrupt chain of nursing homes. In addition to taking stock in the shells used in his transactions, Halter also earned "finder's fees" through his affiliated broker-dealer firm, Halter Financial Securities. HFS referred Chinese companies to investment banks, which then raised money for them. 'MIAMI GLAM' One of the leading banks in the game was Roth Capital Partners of Newport Beach, California. Led by Chairman Byron Roth, its specialty is to provide financing to Chinese clients after a reverse merger. Roth says it has raised more than $3 billion for U.S.-listed Chinese companies. Such deals accounted for nearly half of the $1.9 billion in capital Roth raised for clients in 2009. Roth's heady success was reflected in the glitzy conferences it threw for the industry. In March, more than 3,000 hedge-fund managers, accountants, lawyers, bankers and financial advisers flocked to the Ritz Carlton Hotel in Dana Point, southern California. Just hours after the Public Company Accounting Oversight Board issued its warning about Chinese reverse mergers, Roth threw a wear-only-white "Miami Glam" party in an elegant tent. Guests stood surrounded by rhinestone-encrusted sculptures of leopards. Bikini-clad hostesses served cotton candy as rapper Pitbull put on a concert. For the more conservative Chinese guests, Roth organized a lavish banquet nearby at the posh Resort at Pelican Hill. "They don't like our food. And they don't like rap," explained one organizer. Not all of Roth's deals have stood the test of time. One client, China Biotics, a maker of so-called pro-biotic food products, delisted from NASDAQ in June, 19 months after Roth helped it raise more than $79 million from investors. China Biotics' auditor resigned amid accusations that the company forged documents and created a fake website that overstated its cash holdings. Byron Roth, Roth's chief executive, declined to comment. THE ACCOUNTING TRAIL Just as crucial to the industry were the accountants. To do a reverse merger, the acquiring company needs to hire an auditor registered with the PCAOB. It became common for small audit firms far from China, often with no affiliates in the country, to sign off on books and records kept halfway around the world. In the U.S., the PCAOB reviews small auditing firms only once every three years. In Bountiful, Utah, the small firm of Chisholm, Bierwolf and Nilson used its experience with U.S. shell companies to win referrals to a global client base. From a suburb of Salt Lake City, the firm audited clients in China-and South Korea, Bolivia, El Salvador and Kazakhstan as well. CBN was a deal, charging about half the going rate for a comparable sized firm in New York or California. "We didn't ever have to do any advertising," said Todd Chisholm, a former managing partner at CBN. Todd Chisholm prospered. An avid golfer, he and his then-wife built a $1 million home on a golf course not far from his Bountiful office. In 2006, Chisholm got a referral to a company called Hendrx, formed in 2004 through a reverse merger with a U.S. shell, with primary operations in China, according to Chisholm and two others directly involved. Hendrx described itself as a manufacturer and distributor of devices that purify, filter and generate water from moisture in the air. But the business wasn't making money, executive turnover was high, and Hendrx had been sued for alleged contractual fraud and patent infringement, SEC filings show. Over the next four years, Todd Chisholm audited Hendrx's books, giving a clean bill of health, though noting questions about the company's ability to continue as a going concern. Once a year, he visited the Chinese operations for week-long reviews. The PCAOB later found these audits to be grossly inadequate. According to an April 8 PCAOB disciplinary order, Chisholm and his partner, Troy F. Nilson, were each auditing on average 25 companies in 2006 and 2007. About half of those were shell companies, Chisholm says. Neither Chisholm nor Nilson spoke Chinese, the PCAOB noted, and they relied on less-experienced native-speaking staff in the audit process. In January 2009, Hendrx lost its final appeal of the patent infringement case and, unable to pay a $1.2 million judgment, turned over ownership of all its operations to its creditors. Worth $37 million at its peak, Hendrx has lost nearly all its value, its thinly traded shares now fetching less than a penny apiece on the Over the Counter market. The PCAOB found the audits at Hendrx and three other clients so troubled that it barred Todd Chisholm and his namesake firm from auditing U.S.-traded companies for life. His partner, Nilson, was banned for at least five years. Chisholm acknowledges that his staff was stretched thin, but stands by the effectiveness of the audits. Nilson didn't reply to requests for comment. Despite his ban by the PCAOB, Chisholm is working on four or five planned Chinese reverse mergers through a new consulting firm, Fairway Mergers Inc. He says he is no longer acting as auditor of their financial statements, but is advising the companies and their investors on their numbers and how to prepare for a U.S. audit. "I'm very much enjoying not being an auditor. I don't see myself ever going back there," Chisholm says. In the new venture, "I've got talent and expertise that I can use." HALTER'S REVERSAL Last year in Shanghai, where he had built up a staff of 40, Halter staged his own answer to rival Roth Capital's gatherings. His firm brought in former President George W. Bush and former Bush Treasury secretary John Snow as featured speakers on the global economy. Spokespeople for Bush and Snow declined to comment. This year, the boom turned bust. Last summer, short sellers, who bet that a share will decline in price, began targeting Chinese reverse merger stocks. Those stocks started crumbling, regulators began opening probes, and a host of auditors resigned, often citing concerns about cash balances and management integrity. Three companies Halter has worked with are among those that hit the rocks. ShengdaTech, a KPMG-audited chemicals maker in which Goldman Sachs took a 7.6 percent stake, saw auditor KPMG resign in April, citing "serious discrepancies" in its bank statements and representations of customers. ChinaAgritech, a fertilizer maker that garnered investments from private-equity giant Carlyle Group, was delisted from Nasdaq in May for not filing its annual report on time, three months after a short seller said a visit had shown the company's factories idle and suppliers non-existent. Also in trouble is China Automotive, one of the two Halter deals that set off the boom. In April 2007, the PCAOB issued a report faulting China Automotive's Toronto-based auditor, Schwartz Levitsky Feldman, for "deficiencies of such significance that it appeared to the inspection team that the firm did not obtain sufficient competent evidential matter to support its opinion on the issuer's financial statements." The agency did not identify the audit clients in question, but last April it reported finding the same problems in a new inspection. In December, Schwartz Levitsky Feldman resigned as China Automotive's auditor. In March, the company said it would restate earnings for 2009 and the first three quarters of 2010. That drew a warning from Nasdaq that it was in danger of not being compliant with SEC requirements on timely filing of financial reports. China Automotive did manage to submit its filings, but has seen its stock fall by two-thirds since January 2010, wiping out $471 million in market value. Halter has not been accused by the SEC or PCAOB of any wrongdoing. "Our business model is to work with the companies that seek to access the US capital markets and that represent to us that they meet certain financial requirements," Halter said in an email in response to queries. "We then introduce these companies to PCAOB-registered accounting firms and multinational law firms." A NEW WORLD The world that Timothy Halter helped create may be in for serious change. In recent months, the SEC has begun taking a much closer look at the filings that follow a reverse merger, according to investment bankers and lawyers whose clients are being reviewed. The agency has suspended trading in at least three stocks. Representatives from the SEC and the PCAOB recently visited China to discuss better cooperation on the auditing side. John Zhang, still in Shanghai, is focusing on getting Chinese firms listed in Germany and Hong Kong. A spokesman declined to provide further details about his work or his early career. Timothy Halter, for his part, is distancing himself from the industry. "Our model has not changed," he told Reuters in an email exchange. But he did "not anticipate doing any Chinese APOs in the near future." Last month, Tiens Biotech, one of Halter's two breakthrough Chinese clients, said it was changing course. It's now de-listing and taking itself private. The method? A series of mergers--with shell companies registered in Delaware and the British Virgin Islands. (Editing by Howard Goller , Martin Howell and Michael Williams; additional reporting by Mary Slosson and Clare Baldwin in Los Angeles, Brian Grow in Atlanta, Dena Aubin in New York, Sarah Lynch in Washington, Michael Flaherty in Hong Kong and Kazunori K. Takada in Shanghai)

ECB's Mersch says euro zone growth above potential: report. "We are for the moment having an economic performance for this and next year which is above the growth potential," Mersch told South Korean newspaper Korea Herald in an interview conducted last Wednesday and published on Monday. "That unemployment is falling, that inflationary exceptions are well anchored; that the institutions which are in charge of the euro on the monetary side can concentrate fully on their objective of delivering price stability over the medium term." (Reporting by Sakari Suoninen ; editing by Patrick Graham )

HSBC sheds U.S. branches in $1 billion First Niagara pact. The all-cash sale to First Niagara covers more than 40 percent of HSBC's roughly 470 U.S. branches, including 183 in upstate New York, six in New York City suburbs and six in Connecticut. It also includes $15 billion of deposits, $2.8 billion of loans and $4.3 billion of assets under management. Following the transaction, Buffalo, New York-based First Niagara expects to be significantly larger, with about 450 branches, $38 billion of assets and $30 billion of deposits. It expects to divest some branches to meet antitrust concerns. An early 2012 closing is expected, pending regulatory approvals. HSBC Chief Executive Stuart Gulliver in May set plans for Europe's largest bank to slash $3.5 billion of costs by cutting back in retail banking and selling its U.S. credit card unit, which has more than $30 billion of assets. The bank has been criticized for spreading itself too widely, with roughly 95 million customers and 300,000 employees in 87 markets, without sufficient regard for profitability. Forty-two percent of HSBC businesses are returning less than its 11 percent cost of capital, and the bank has said it will exit Russia and Poland. HSBC is due to report first-half results on Monday. Analysts on average expect a pretax profit of $10.9 billion, compared with $11.1 billion a year earlier. The bank is also expected to say it will cut thousands of jobs on Monday, several media outlets reported, citing sources. The cuts, first reported by Sky News last week, could amount to about 10,000, the reports said. "RECORD OF UNDERPERFORMANCE" In May, HSBC said its U.S. banking unit HSBC Bank USA had a "record of underperformance," and that it would focus its operations on U.S. clients with international business and non-U.S. clients with business in the United States. "HSBC is committed to the U.S. and leveraging our international network and skill-set, which are our competitive advantages," Niall Booker, chief executive of HSBC North America, said in a statement on Sunday. The 13 branches that HSBC plans to close are located in Connecticut and New Jersey, and are near other HSBC branches. HSBC has about 370 branches in New York. The bank did not immediately return requests on Sunday for further comment. Other bidders for the branches included KeyCorp and M&T Bank Corp, while bidders for the credit card unit have included Capital One Financial Corp and Wells Fargo & Co, people familiar with the matter said earlier in July. "HORRIBLE" TIME TO DO ACQUISITIONS, OR NOT? First Niagara Chief Executive John Koelmel in an interview said his bank expects to divest 20 percent to 25 percent of the 195 HSBC branches to satisfy regulators and reduce overlap. "We have staked out a footprint that runs from Buffalo to Boston to Philly and back to Pittsburgh," he said. "It is all about having meaningful presence in the markets we choose to serve." Koelmel also said he was "sensitive" to valuations, especially given that the transaction is all cash, at a time of uncertainty about the economy and market environment. "You can argue that this is a horrible time to do anything: Washington can't do anything, and markets are in a state of high alert," he said. "It's somewhere between a mess and an embarrassing train wreck. I'm always one who believes that in the private sector we have to have the courage to lead in spite of that. We can't be unduly deterred by what the markets in general are doing." First Niagara expects the transaction to boost operating earnings, after merger costs, by 10 percent to 11 percent in 2012. It plans to issue $750 million to $800 million of stock and $350 million to $400 million of debt before the closing. Most of the 1,900 workers at the 195 HSBC branches are expected to keep their jobs, including at branches that are sold, First Niagara said. First Niagara said it was advised by Goldman Sachs & Co, Sandler O'Neill & Partners LP and the law firm Pepper Hamilton, while HSBC was advised by its own investment bankers, JPMorgan and the law firm Sullivan & Cromwell. Shares of First Niagara closed Friday at $12.25 on the Nasdaq. (Additional reporting by Megan Davies ; editing by Maureen Bavdek, Bernard Orr )

Validus urges takeover target Transatlantic to talk. Validus offered to buy Transatlantic earlier in July in a cash-and-stock deal worth about $3.5 billion at the time, trumping an all-stock bid by Allied World. While both bids are at a discount to Transatlantic's stock price, the Validus discount is smaller. At one point, Transatlantic said Validus's offer could lead to a superior proposal, but the sides were unable to come to terms on a confidentiality agreement and Validus took its offer to shareholders. "Ultimately there will be a vote on the Allied World deal and it seems pretty clear at this point that the Transatlantic shareholders - at least in my view - are going to vote that down," Validus chairman and chief executive Ed Noonan told Reuters. "The Transatlantic shareholders don't like the idea that the board is throwing up obstacles." Transatlantic was not immediately available for comment. Validus said on Sunday it delivered a letter to Transatlantic's board "to reiterate the superiority of its proposal." MONDAY CONFERENCE CALL It urged Transatlantic's directors to enter into discussions with Validus and said it would hold a conference call for stockholders and directors on Monday. "We feel very good with the feedback we've got from Transatlantic's major shareholders," said Noonan. "There's a general view that: 'The company is being sold, there was never a sales process, why wouldn't we want to talk to Validus if they have a superior offer.'" Transatlantic said last week that it had sued Validus in federal court in Delaware, alleging that it made "false and misleading statements" to shareholders. Validus at the time called the lawsuit meritless, saying the action was expected and that it would pursue its tender offer. Validus offered 1.5564 shares and a special dividend of $8 in cash for every Transatlantic share. Allied World offered 0.88 share of Allied World for each Transatlantic share. Transatlantic's shares closed at $51.21 on Friday, Validus ended at $26.59 and Allied World finished at $54.45. At those prices, Validus' offer is about $3.1 billion and Allied World's is roughly $3 billion, according to Reuters calculations. Noonan said Validus' deal was at a higher price to Allied World's and would also be a non-taxable transaction with the exception of the $8 a share dividend. "The bigger picture is that... merging with Transatlantic would create one of the dominant reinsurers in the world," said Noonan. "We're a leader in the catastrophe business, in the energy reinsurance business, in the terrorism reinsurance business. The scale that the combined company would have in that business would be considerable." (Editing by Dale Hudson and Muralikumar Anantharaman)

Analysis: Debt deal unlikely to boost investor confidence. Rather than a relief rally, U.S. stocks ended modestly lower on Monday as ugly economic data and some lingering concerns about whether the deal would get through Congress dominated trading. But even when the House of Representatives voted to pass the plan late in the day there was little reaction from U.S. stock index futures. The deal agreed to by Republican and Democratic leaders will raise the government's borrowing ceiling while cutting spending by at least $2.1 trillion over 10 years. All of the burden could fall on spending cuts with no guarantee of steps to lift tax revenues. Rather than perceiving it as a meaningful effort at tackling the United States' huge debt problem, investors worried about the impact of austerity on an economy already hit by souring business and consumer confidence. Plans for such a significant fiscal retrenchment, even though most of the impact will be in the latter years of the program, come at a vulnerable time for the world economy. Recession risks are rising in the United States, the European economy remains entwined in its own debt crisis, and China's supercharged economy could slow. "Risk markets may rally temporarily, but until economic growth and job creation is addressed, there can be no sustained rally," Bill Gross, the co-chief investment officer of PIMCO, which manages more than $1.2 trillion, said in an interview. Eight months ago, economists and investors were expecting a strong rebound in global growth, given the massive liquidity flooding world financial systems, partly thanks to a bond buying program by the U.S. Federal Reserve. But economic headwinds have made a recovery elusive -- with the U.S. economy growing at an anemic rate in the first half of the year. Data on second-quarter gross domestic product published on Friday showed the world's largest economy expanded at just a 1.3 percent annual rate in the April to June period. More worrying, revisions to the first quarter left annualized GDP growth at just a 0.4 percent pace -- perilously close to a contraction. JOB CUTS And on Monday, figures from the U.S. Institute of Supply Management showed that the U.S. manufacturing sector grew at the slowest pace in two years in July. [nN1E7700HA] The figures prompted some analysts to wonder whether market forecasts for an unspectacular gain of 90,000 jobs in July may be overly optimistic, following truly dismal readings for May and June. The jobs report is due on Friday. Corporate America's recent announcements haven't helped the outlook. Europe's biggest bank, HSBC, announced Monday it will cut as many as 30,000 jobs worldwide by 2013. And on Friday, Merck & Co. Inc., the second largest U.S. pharmaceutical company, announced it was cutting 13,000 jobs. There are many signs of a profit slowdown, said Thomas Doerflinger, strategist at UBS. In contrast to the first quarter earnings season, company commentary from such firms as 3M Co, United Parcel Service Inc, Illinois Tool Works and Emerson Electric Co. suggests business activity slowed in June and July, he said. "Budgetary wrangling in Washington could exacerbate this trend," he added. On Monday, the Dow Jones industrial average declined more than 145 points during the day before recouping most of those losses to end the day down only 10.75 points. The more notable movement, however, is in the benchmark 10-year U.S. Treasury note. Reflecting the lack of risk appetite in global markets, the T-note was yielding 2.75 percent and is now down more than 80 basis points since early spring when it was yielding 3.58 percent. EUROPEAN RISK It isn't as if China and Europe are providing much comfort. China's manufacturing sector slowed further in July as Beijing cooled an overheated economy and demand for exports weakened amid Europe's debt crisis and sluggish U.S. growth, two surveys showed Monday. China has been the engine of growth throughout the year and a slowdown could have repercussions for other countries that are looking to rapid Chinese expansion to drive demand for everything from iron ore to factory machinery and consumer goods. In Europe, concern is growing that Spain, the euro zone's fourth-largest economy, will fail to put its finances in order and need a Greek-style bailout. "I see more risk from the European Union than the U.S. right now," said Aray Gustavo Feldens, a financial consultant in Porto Alegre, Brazil. It all provides U.S. Federal Reserve Chairman Ben Bernanke with plenty of reasons for anxiety. "In a remarkable parallel to last year, Fed officials head into their August meeting amidst weak growth and questions about the possibility of further monetary easing," economists at Goldman Sachs wrote last week. Gross said Bernanke will likely hint at a third round of bond purchases, which inject money into the economy and are known by the term quantitative easing, at its annual retreat at Jackson Hole in Wyoming later this month. If that happens it could give stocks a fillip, as it did last year, though Bernanke may run into major opposition from within the Fed if he wants to embark on a QE3 program close to the $600 billion in QE2. A sustained rally, though, may be too much of a stretch, investors say. (Reporting by Jennifer Ablan; Editing by Martin Howell )

China central bank says inflation fight a policy priority. In the latest sign that Beijing is taking a gentle easing in China's economy well in stride, the central bank reiterated that fighting inflation remains its policy priority. "Domestic inflation expectations remain on the high side," the People's Bank of China said in comments published on its website. "The foundation work for stabilizing prices is not solid, and there is a chance of prices rebounding once policy is relaxed." The hawkish remarks, released after a regular meeting of the heads of the central bank's branch offices across China, affirmed market expectations for Beijing to raise interest rates once more this year to quell inflation. The comments offered few clues, however, on when the central bank would make its next move. "Stabilizing prices will remain a policy priority," the central bank said. "We will continue to implement prudent monetary policy and keep the needed intensity in policies." "We will use interest rates, foreign exchange rates, open market operations, reserve requirements and a mix of policy tools to maintain a reasonable rhythm and scale in total financing." Since October, Beijing has raised interest rates five times and banks' required reserve ratio nine times to prevent rising prices from fuelling social unrest. But even with the steady tightening, China's consumer price index hit a three-year peak of 6.4 percent in June as a spike in pork prices kept inflation elevated. But with the Chinese economy easing slightly, many analysts think Beijing may delay its next policy move in a nod to softer growth, even though it is still firmly in tightening mode. Such talk was reignited on Monday after a pair of manufacturing surveys showed Chinese factories struggling with their weakest activities in 28 months in July as tight policy at home and weak demand abroad hurt production. The central bank did not address such speculation, and kept the thrust of its statement on the need to keep China's economy and financial system growing in a stable manner. Below are a list of policy reforms or plans that the central bank promised to undertake: -- Press ahead with liberalizing the interest rate market -- Expand a nationwide yuan trade settlement scheme -- Allow domestic firms to raise capital in yuan to support their overseas projects on a pilot basis -- Allow foreign firms to make direct investment in yuan -- Answer the government's call to not relax policy tightening in the property market -- To further implement a policy of differentiated mortgage rates -- To urge financial institutions to extend loans to eligible affordable housing projects -- To reform the yuan exchange rate in a long-standing pledge "We will further improve the yuan exchange rate mechanism and let market forces, as well as a basket of currencies, play a bigger role in deciding the yuan's value," the central bank said. Despite years of promising to free up its currency regime, Beijing retains tight control over the yuan by deciding the yuan's daily value. Also, many analysts think the yuan remains in a crawling peg to the dollar even though Beijing says the yuan's value is derived from a basket of currencies. (Reporting by Aileen Wang and Koh Gui Qing; Editing by Jacqueline Wong)

Europe, Asian factory growth stalls in July. While stock markets rose on signs of a last minute solution that would avoid a U.S. debt default, manufacturing purchasing managers indexes (PMIs) provided the latest evidence of a slowing global economy. The euro zone manufacturing PMI, which gauges the activities of thousands of businesses, fell to 50.4 in July from 52.0 in June -- its worst showing since September 2009 and barely above the 50 mark dividing growth and contraction. Perhaps more worryingly, China's official government PMI dropped to 50.7 from 50.9 in June, its weakest in more than two years, while the HSBC PMI fell below the 50 mark for the first time in a year -- to 49.3 in July from 51.6. China was the main engine of growth as the developed world sank into recession after the 2008 financial crisis and signs of a slowdown there would worsen the global outlook at a time when both the U.S. and European economies are struggling with debt crises. All eyes will be on the United States' ISM manufacturing survey, due at 1400 GMT, which is expected to dip as well but still show a more positive reading of 54.9 points. In Germany, the euro zone's key growth engine in the recovery thus far, manufacturing growth fell to a 21-month low after new orders contracted for the first time in more than two years. "At the global level, the manufacturing cycle is taking a turn for the worse," said Silvio Peruzzo, economist at RBS in London. "It's not a euro area story, it's a broad-based story. Look at China, look at other advanced economies -- clearly the manufacturing cycle has taken a turn which was more pronounced that was probably anticipated." Peruzzo said for the euro zone at least, it might take a couple more months to draw conclusions about whether the slowdown is of a transitory nature, or whether another recession was on the way. In some cases, like Greece, economies are already contracting. Even in the UK, which so far has been shielded from the crisis gripping the euro zone, the manufacturing PMI fell to 49.1 from 51.4 in June -- the first time below the 50 mark since the country was in recession two years ago. "The UK is going through more than just a little local difficulty," said Peter Dixon, economist at Commerzbank. "You've got a slowdown in global economy and a fall-off in domestic demand, and that's a pretty toxic combination." While the decline in the UK PMI was worrying, the likes of Spain and Ireland saw contraction among factories only deepening in July. EMERGING PROSPECTS Emerging market are also taking a hit. Indian manufacturing growth slowed in July for the third month in a row. The HSBC PMI dropped to 53.6, from 55.3 in June, the lowest level since November 2009. New export order growth in China, the world's biggest exporter, hit its lowest level in 17 months, the official survey showed. But HSBC said new export orders in India fell in July at their fastest pace in 29 months and in Taiwan, home to the world's two biggest contract computer chip makers, they fell markedly and for the first time in nine months. "There is still a lot of uncertainty about how global demand will hold up," said Vishnu Varathan, economist at Capital Economics in Singapore. Many economists prefer to describe China's economic growth as a slowdown rather than slump. But some say Beijing is treading an increasingly fine balance between fostering growth and fighting inflation, especially as its monetary policy tightening campaign runs into its 10th month. Bucking the trend, South Korean manufacturing growth accelerated for the first time in seven months in July and new export orders also picked up. (Writing by Andy Bruce and Swati Bhat, Editing by Ross Finley and Patrick Graham )

Europe factory sector almost stalls, Asia slows. Shrinking order books sent the euro zone's manufacturing sector into effective stagnation in July, purchasing managers' indexes showed. The sector in the euro currency zone grew at its weakest pace since the region emerged from recession. Manufacturers in the euro zone's Franco-German core expanded at a slower pace last month, having long propped up growth among euro zone factories at large, while the sharp declines seen in Spain during May and June deepened in July. The Markit Eurozone Manufacturing PMI, which measures changes in the activities of thousands of euro zone manufacturers, fell to 50.4 in July from 52.0 in June -- unrevised from the preliminary reading of 50.4. PMIs from HSBC showed manufacturing sectors in China, Taiwan and Russia contracted. Factories expanded in India, but at their slowest pace in 20 months. The PMI in debt-laden Ireland pointed to the second month of contraction in the manufacturing sector, while South Korea headed in the opposite direction by showing growth picked up for the first time in seven months. In China, the HSBC PMI fell to 49.3 points in July from 51.6 in June, falling below the 50 mark that divides growth from contraction for the first time in a year as tight monetary policy and weak global demand weighed. However, a Chinese government PMI showed that the country's vast manufacturing sector expanded in July, but at its slowest pace in more than two years. The index fell to 50.7 from 50.9 in June. The HSBC PMI is tilted toward the private sector, which has been hit harder by tightening monetary conditions in China, while the official PMI leans toward measuring large state-owned firms that have better access to bank loans. Beijing has instigated a series of interest rate increases and rises in bank reserves to try to combat inflation that rose in June to a three-year high. India's factory sector growth slowed down in July for the third month in a row. The HSBC PMI dropped to 53.6, from 55.3 in June, the lowest level since November 2009. The indexes added though to worries that sovereign debt in major demand centers such as Europe and the United States is weighing on their economic recoveries from the global financial crisis. New export order growth in China, the world's biggest exporter, hit its lowest level in 17 months, the official survey showed. But HSBC said new export orders in India fell in July at their fastest pace in 29 months and in Taiwan, home to the world's two biggest contract chip makers, they fell markedly and for the first time in nine months. "There is still a lot of uncertainty about how global demand will hold up," said Vishnu Varathan, economist at Capital Economics in Singapore. But he suggested demand growth was moderating rather than heading into a slump. "So overall the picture for Asia suggests the need for very cautious optimism," he added. CHINA Many economists say China's economic growth is slowing down, rather than slumping. But some say Beijing is treading an increasingly fine balance between fostering growth and fighting inflation, especially as its monetary policy tightening campaign runs into its 10th month. Investors are far more sensitive to any wobble in China amid the debt crises in the United States and Europe. U.S. lawmakers are expected to vote on Monday on a White-House backed deal to raise the country's $14.3 trillion borrowing limit, to resolve a crisis that had weighed on economies globally. In a sign of strength in the Chinese economy, overall new orders grew in July and at a faster pace than in June. Asia ex-Japan currencies received a boost from the China and Korea PMI data as the market perceived the economies were no where close to a hard-landing. The Malaysian ringgit rose while the South Korean won and the Philippine peso raced to three-year peaks. Hedge funds have been buyers of emerging Asian currencies on hopes for a U.S. debt deal and data showing strong economic growth in the region. Taiwan's July PMI signaled a second consecutive month-on-month reduction in manufacturing sector output and the steepest contraction since January 2009, as new orders continued to decline. South Korea's manufacturing sector growth accelerated for the first time in seven months in July and new export orders also picked up, the HSBC survey showed. "Taiwan appears more susceptible to a global slowdown compared with Korea. Given the recent moderation in activity in the U.S. and China, it is quite likely that Taiwan is getting more impacted than Korea," said Devika Mehndiratta, vice president at Credit Suisse, referring to Taiwan's much deeper trade links with China and the United States. (Reporting by London, Beijing, Taipei, Seoul and Bangalore bureaus; Writing by Swati Bhat; Editing by Neil Fullick)

Wall St. cuts losses, ends down as debt vote looms. The market pared losses late in the day before Congress was expected to vote on Monday on a debt deal backed by the White House, which includes spending cuts of $2.4 trillion over 10 years. The deadline for a deal, which includes raising the U.S. borrowing limit, is Tuesday at midnight. "It's an on-again, off-again market, and it reflects the on-again, off-again nature of these debt ceiling deliberations," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York. "Investors now believe that the debt limit will be raised, that the vote will be positive in the Senate and positive in the House, but there's still a bit of skepticism or caution." Stocks fell after the Institute for Supply Management said the U.S. manufacturing sector grew at the slowest pace in two years in July. The ISM report followed similarly weak reports from much of Asia and Europe. The defense and health care sectors, which would be subject to U.S. budget cuts if a deal is not reached, were among the hardest hit. The iShares Dow Jones US aerospace and defense exchange traded fund fell 1.1 percent while S&P's healthcare index lost 1.7 percent. Healthcare stocks also fell after the Centers for Medicare & Medicaid Services said Friday that it will cut payments to skilled nursing facilities by 11 percent. Kindred Healthcare fell 30 percent and Skilled Healthcare lost more than 43 percent. The Dow Jones industrial average dropped 10.75 points, or 0.09 percent, to 12,132.49. The Standard & Poor's 500 Index fell 5.34 points, or 0.41 percent, to 1,286.94. The Nasdaq Composite Index lost 11.77 points, or 0.43 percent, to 2,744.61. "Today's trading has exposed the market. It apparently was hiding behind the 'debt ceiling' curtain, but now that that has been pulled back, we find that there are other problems -- namely, the economy," said Larry McMillan, president of McMillan Analysis Corp. The S&P 500 rallied back above its 200-day after dipping sharply below that. The level has acted as strong support over the last two months and the fact that S&P 500 was able to rally back above it was a comfort to investors. "The S&P which sliced through the 200-day moving average at 1,285, has taken that back in the last half hour (of trading)," said Elliot Spar, market strategist at Stifel, Nicolaus & Co in Shrewsbury, New Jersey, noting that as a sign of underlying resilience. Stocks traded in a wide range. A rally in equity markets that began in Asia last night on optimism over a debt agreement eroded as the outcome seemed to struggle throughout Monday to bring the deal to a close. If lawmakers approve the debt deal before the Tuesday deadline, it may end months of debate over whether the United States can avoid a debt default. Even though a default was considered unlikely by many investors, the threat of a credit rating downgrade continued to weigh on sentiment after Wall Street marked its worst week in a year last week. Shares of United Health slid 3.2 percent to $48.02 while Humana Inc dropped 3 percent to $72.36, despite Humana reporting a higher-than-expected second-quarter profit. Among other health-care stocks, shares of Pfizer shed 1.2 percent at $19.01. Some 8.3 billion shares changed hands on the New York Stock Exchange, NYSE Amex and Nasdaq, above the daily average of around 7.48 billion. Advancers outweighed decliners on the NYSE by about 9 to 8, while on Nasdaq losers outpaced winners by about 5 to 4. (Reporting by Edward Krudy; Additional reporting by Caroline Valetkevitch ; Editing by Kenneth Barry)

Japan keeps verbal warnings, dollar up on debt deal. Yoshihiko Noda said he continued to watch markets closely even though he welcomed the news from Washington, Jiji news agency reported. The government's chief spokesman also expressed relief over the agreement and hope that it would help stabilize markets. Republican and Democrat leaders agreed to reduce the deficit and prevent a default, U.S. President Barack Obama said on Sunday, and now both houses of Congress must approve the plan before the August 2 deadline. Worries that the two parties could clash over fiscal policy again mean the United States is still vulnerable to a ratings downgrade, but the chance Japan will intervene to weaken the yen has receded as the dollar may have passed the worst phase of its recent decline, traders said. "There is still some chance of intervention, but the most Japan could do is jawbone the market or spend a small amount on solo intervention," said Tetsu Aikawa, deputy general manager of capital markets at Shinsei Bank. "The dollar could bottom out against the yen for the time being, because Treasury yields are likely to rise and spreads could widen." Traders have virtually ruled out a repeat of the co-ordinated yen-selling intervention that the Group of Seven carried out in the aftermath of the devastating earthquake in March. Against the yen, the dollar climbed to as high as 78.05 yen on Monday, up 1.8 percent from Friday's four-month low of 76.70 yen. It later gave up some of the gains to trade around 77.65 yen, but was still near levels that make policymakers worry about maintaining export competitiveness. "I feel it's necessary to continue to closely monitor market moves," Noda told reporters before Obama's announcement. Japanese officials had become increasingly alarmed that U.S. lawmakers would miss the deadline due to wrangling over spending and tax cuts, sources told Reuters on Sunday. They also voiced concern that anything short of a convincing and lasting solution to the U.S. debt debacle could still lead to market turmoil. Japanese monetary authorities have indicated that they are prepared to step into the currency market to stem yen rises if they see the moves as driven by speculators and damaging enough to the economy. (Editing by Tomasz Janowski )

U.S. business hopes debt deal clears way for trade. "It would be good if we can start those wheels turning before (lawmakers) go away" for their month-long August recess, said Bill Reinsch, president of the National Foreign Trade Council, whose members include major exporters such as Boeing and Caterpillar. The ugly negotiations over raising the debt ceiling and cutting the huge budget deficit occupied most of the White House and congressional leaders' time in July, blocking work on a deal to move the trade pacts with South Korea, Colombia and Panama to Congress for votes. But now that it looks like Congress will approve a debt agreement, "I think there's a very strong desire to come together and work out something" on the trade accords, said Bill Morley, president of Altrius Group, which lobbies on behalf of the American Chamber of Commerce in Colombia. Morley said he hoped Senate Majority Leader Harry Reid and Senate Republican leader Mitch McConnell would "lay out a framework" for action in September on the pacts and a worker retraining program known as Trade Adjustment Assistance (TAA). That would give South Korea, Colombia and Panama some reassurance that years of U.S. delay in passing the agreement are nearly over, he said. However, congressional aides said it was unclear whether such an announcement would come. There have been "productive" talks with leaders in the House of Representatives and the Senate, but "there is not an agreement on a path forward," a Senate Democratic aide said. The administration expects the three pacts to boost exports by about $13 billion, helping to create or support about 70,000 jobs and giving the U.S. economy a much-needed lift. The deals were all signed during the administration of former President George W. Bush. However, they languished because of strong opposition from Democrats, who controlled the House of Representative from 2006 through 2010. Frank Vargo, vice president at the National Association of Manufacturers, said his group estimates American workers would have earned $12 billion more in wages and benefits over the past several years had the pacts not been delayed. Unless the debt deal falls apart and "turns everything upside down ... I am optimistic for the trade agreements in September," Vargo said. TAA STUMBLING BLOCK President Barack Obama's administration has negotiated a number of side agreements to address Democratic Party concerns about the pacts and had hoped to win congressional approval of the deals before the August break. But Republicans strongly objected to a White House plan to include an extension of TAA in the implementing agreement for the South Korean pact. Many party members question the value of the nearly 50-year-old retraining program for workers who have lost their jobs because of foreign competition. Last week, U.S. Trade Representative Ron Kirk said the administration was open to a separate vote on TAA and hoped a deal could be reached soon to clear the way for it and the trade deals to be approved in September. Timothy Keeler, a lawyer at Mayer Brown and former U.S. trade official, said that target was more likely now that the administration has reconsidered its plan to include TAA in the legislation for the Korea pact. The most likely way forward is for the Senate to start by debating and approving TAA, as House Ways and Means Committee Chairman Dave Camp outlined last week, Keeler said. Once that has been done, Obama would submit the free trade agreements to Congress and the House would begin action on the pacts along with TAA, he said. But many Democrats want both the House and the Senate to approve TAA before Obama sends up the agreements. (Editing by Mohammad Zargham )

Honda raises profit, sales forecast on speedy recovery. Honda reported a 90 percent fall in quarterly operating profit on Monday, versus expectations of a loss, after it suffered the biggest production drop by any car maker from the March disaster, due mainly to bad timing for the scheduled delivery of parts. The supply shortage coincided with the full remodeling this spring of its Civic model in the key U.S. market, where sales of the popular car fell by a third in June. While its recovery schedule still lags that of rivals, Honda now expects to produce more in July-September than it had outlined in June as the supply bottleneck eased. It raised its annual sales forecast by 135,000 vehicles to 3.435 million vehicles. "I think Honda deserves some credit for the first quarter, which some expected to be in the red," said Naoki Fujiwara, a fund manager at Shinkin Asset Management. In April-June, Honda made an operating profit of 22.58 billion yen ($292.5 million), better than the average estimate of a loss of 67 billion yen according to seven analysts polled by Thomson Reuters I/B/E/S. The results were boosted by a 43 percent jump in profits from its motorcycle operations and stronger-than-expected earnings at its finance business, the maker of Civic and Accord cars said. First-quarter net profit, which includes earnings from China, was 31.8 billion yen, down 88 percent, while revenue fell 27 percent to 1.715 trillion yen. Honda's Japanese car production halved in June from the previous year, even as Nissan Motor Co ( 7201.T ) eked out a rise and the decline at Toyota Motor Corp ( 7203.T ) shrank to 16 percent from 78 percent in April. Top automaker Toyota reports quarterly earnings on Tuesday, with consensus estimates calling for a 190 billion yen loss. For the full year to March 2012, Honda expects an operating profit of 270 billion yen, or 35 percent more than the previous forecast of 200 billion. A poll of 21 analysts produced a forecast of 407.7 billion yen. The automaker raised its annual net profit forecast to 230 billion yen from 195 billion yen. The results came as vehicle sales in Japan fell by a record in July, battered by production disruptions from the March earthquake, while South Korean rivals extended their winning streak to report strong global sales. TOUGH U.S. MARKET With full restoration of the supply chain only a matter of time, Honda Chief Financial Officer Fumihiko Ike expects sales to improve as production ramps up. He cautioned however, that a U.S. economy plagued by weak housing starts, a high jobless rate and the debt crisis would make for a tough sales environment. "I think car makers will start offering bigger incentives once supply is available and consumers seem to know this and are waiting for them," he told a news conference. "It will be a very competitive market then." A stronger yen also hangs over Honda, while surging raw materials prices and escalating fears over the health of the global economy weigh on the overall industry. Honda kept its dollar assumption for the year at 80 yen, while changing its euro assumption to a more favorable 112 yen, from 110 yen. The dollar was trading around 77.5 yen on Monday, while the euro was fetching 111.6 yen. Separately, Mitsubishi Motors Corp ( 7211.T ) reported first-quarter operating profit of 12.23 billion yen, against a loss of 4.5 billion yen last year as it sold more cars and cut costs. Mitsubishi Motors raised its six-month operating profit forecast to 18 billion yen from 5 billion yen but retained its full-year outlook, citing uncertainties including the strong yen and a shaky global economy. Honda's shares have fallen 4.2 percent so far this year, underperforming a 1.7 percent drop in Tokyo's transport sector subindex .ITEQP.T. Before the results were announced, Honda shares closed up 1.5 percent at 3,125 yen, outperforming the benchmark Nikkei average .N225. and a rise in most other auto stocks. ($1 = 77.190 Japanese yen) (Additional reporting by Taiga Uranaka ; Editing by Matt Driskill and Anshuman Daga )

S&P affirms ratings on First Niagara. -- First Niagara plans to buy 195 branches, including $15 billion of deposits and $2.8 billion in loans, from HSBC Bank USA NA. -- We are affirming our ratings on First Niagara and its subsidiary, First Niagara Bank N.A. -- The ratings reflect our expectation that the enhanced market position and earnings capacity FNFG gains as a result of the transaction will mitigate the weakening of its currently robust capital position. Rating Action Standard & Poor's Ratings Services affirmed its 'BBB' long-term counterparty credit rating on First Niagara Financial Group and its 'BBB+' rating on subsidiary First Niagara Bank N.A. The outlook is stable. August 1 - Standard & Poor's Ratings Services said today that it affirmed its ratings on First Niagara Financial Group Inc. (FNFG; BBB/Stable/--) and its subsidiary First Niagara Bank (BBB+/Stable/--) following its announcement it would acquire 195 branches, including $15 billion in deposits and $2.8 billion in loans, from HSBC Bank USA NA. The transaction will result in a $38 billion organization with a 22% market share in upstate New York and a 450-branch franchise ranging from western Pennsylvania through Connecticut. FNFG will fund the $1.0 billion acquisition cost with a combination of approximately 75% common stock issuance and 25% new debt. This would be FNFG's fourth major acquisition since 2009, essentially quadrupling its size in three years. We continue to view FNFG's rapid growth and the integration challenges posed by this and other recent acquisitions as potential vulnerabilities for the ratings. Nevertheless, FNFG has a track record of successfully integrating acquisitions while maintaining a strong balance sheet and good performance measures. The company ended the second quarter of 2011 with solid earnings, supported by good loan and core deposit growth and low credit costs. FNFG has also augmented its risk management and underwriting processes to support a broader, more diversified footprint. "Following the HSBC transaction, which we expect to close in the second quarter of 2012, FNFG's balance sheet will be highly liquid, with pro forma loans to deposits of 61%, deposits at 91% of total liabilities, and investment securities about 37% of total assets," said Standard & Poor's credit analyst Catherine Mattson. However, tangible common equity will fall to 6% of tangible assets, from 7.4% currently and 10.5% at March 31, 2010, before the acquisition of Harleysville. Our ratings already incorporated our expectation that FNFG would be unlikely to maintain its tangible capital at those superior levels. Also, given the low risk nature of the assets acquired, we recognize that capital remains adequate on a risk-adjusted basis. However, we view the pro forma tangible ratios as being at the lower end of its peer group, and we would look at further reduction in the tangible capital position negatively. Related Research "Bank Rating Analysis Methodology Profile," March 18, 2004 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. (New York Ratings Team)

Bank of Korea buys gold, first time since '97-'98. A brittle global economic recovery and precarious debt situations in the United States and Europe have boosted the safe-haven appeal of gold, lifting bullion to a series of record highs in July, as investors and central banks chased prices higher. The central bank of Asia's fourth-largest economy said that, with prices hovering near historic highs, gold looked less lucrative as an investment but it was the right time to buy gold because its foreign reserves had risen above $300 billion. News of the Bank of Korea's purchase barely moved spot gold which was steady at $1,617.89 an ounce by 2236 GMT, but analysts said it was supportive of prices. Gold hit a record high of $1,632.30 on Friday. "Any news about central banks buying gold reassures consumers and other major players who are already looking at gold as an investment," said Jeffrey Pritchard, analyst at California-based commodities futures and options brokerage Altavest Worldwide Trading. The Bank of Korea said in a statement its latest gold purchase was valued at $1.24 billion. It did not say whether it had bought gold bullion or funds. At 25 tonnes of gold, equivalent to 803,769 ounces, the average price paid comes to $1,543 an ounce, based on Reuters calculations. A Bank of Korea official said it was the bank's first gold purchase since at least the 1997-1998 Asian financial crisis. "South Korea's central bank seems a little late to the party, but gold investors should continue to expect price support as central bankers around the world are underinvested in the yellow stuff," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management. "Government austerity and a return to normalized monetary policy will be the game changer for the gold bull market. Investors and central bankers are looking to protect purchasing power, but diversifying into the currency of last resort, gold." The latest purchase lifted the central bank's gold holding to 39.4 tonnes. The BoK said the increased gold holding would put it in 45th position in the World Gold Council's list of central banks holding gold, up from 56th previously. The United States has the biggest gold holding in its foreign reserves, at 8,133.5 tonnes, with China at No. 6 with 1,054.1 tonnes. The BoK declined to disclose the purchase price but said it had entrusted all of its gold holding to the Bank of England for possible use in gold lending and other related transactions in future. CONDITIONS RIPE FOR GOLD PURCHASE During the 1997-98 Asian financial crisis, patriotic Koreans collected the precious metal as part of a campaign to boost the country's foreign reserves, when it was on the verge of a sovereign default. "The country had too small an amount of foreign reserves to diversify into gold before 2004 and was not able to buy gold between 2005 and 2007 due to concerns about the central bank's annual losses," the Bank of Korea said. "Now that our total reserves topped $300 billion and foreign exchange markets stabilised, we judged that conditions were ripe for us to increase gold holding," it said. The Bank of Korea would not say whether it plans to buy more gold, adding that any comments could have an impact on global markets. Valued in U.S. dollars, the new purchase increased its gold holding to $1.32 billion from a mere $0.08 billion previously, the bank said. Still, this represents only 0.4 percent of the country's total foreign reserves. Including the gold, South Korea's foreign reserves rose by $6.55 billion in July to $311.03 billion, equivalent to about 30 percent of the country's annual gross domestic product of just more than $1 trillion in 2010. Of the total reserves, 88.5 percent were invested in securities, followed by 9.2 percent deposited at financial institutions and 1.2 percent held as special drawing rights, the Bank of Korea said. South Korean foreign reserves ranked seventh in the world as of the end of June, it added. (Additional reporting by Manolo Serapio Jr. and Rujun Shen in Singapore and Frank Tang in New York; Editing by Clarence Fernandez)

Analysis: Asia dodges one debt bullet, plenty more in chamber. The U.S. sovereign debt path remains unsustainable. Investors are growing reluctant to lend cheap money to a handful of European countries. Either of those could erupt into another bout of market-bruising uncertainty. A Reuters examination of Asia's finances shows the region as a whole boasts healthy government balance sheets, with vast amounts of reserves on hand to counter any sudden reversal of investment flows. Some countries such as Singapore and China are already taking steps to cut their exposure to the U.S. dollar, and Washington's brush with default may hasten the shift. But there are a few vulnerable spots. In Taiwan, for example, foreigners hold $480 billion worth of stocks and bonds, eclipsing the country's $400 billion in reserves. In South Korea, foreigners hold almost $450 billion in stocks and bonds, well above its $304 billion in reserves. New Zealand and Malaysia also have foreign stock and bond ownership that outstrip reserves. A sovereign debt crisis in the West could spark a sudden withdrawal of that foreign money, much like it did after the Lehman Brothers bankruptcy in 2008. The debt deal that President Barack Obama announced in Washington on Sunday appeared to neutralize the immediate U.S. default threat. Next on the worry list -- at least chronologically -- is the growing number of European economies struggling to borrow at affordable interest rates. Spain and Italy have paid much higher rates to sell their debt in recent weeks, feeding worries that the euro zone's debt troubles won't stop with Greece, Ireland and Portugal. Although Asia is more exposed to U.S. government debt than European, it is more reliant on European banks than American ones for private financing. European banks' total claims on Asia, excluding Japan, were $1.3 trillion as of the end of 2010, more than three times that of U.S. banks, brokerage Nomura estimated. Should the situation in Europe worsen, banks might pull funding with little warning. Robert Prior-Wandesforde, a Credit Suisse economist based in Singapore, said another banking crisis in the Western world was "highly likely" and it was easy to envisage this leading to a credit crunch in Asia. He listed Hong Kong, Singapore, Taiwan and South Korea as the region's four most at risk to a sudden flight from a banking crisis, but all of Asia would suffer from the accompanying drop in global confidence and demand. "In short, the region would do very well to avoid a credit crunch," he said. LINKING TO A SINKING DOLLAR As long as the West avoids a fresh crisis, Asia could see more foreign investment money pour in, drawn by its strong growth rates and healthy public finances. "There is evidence that investors all over the world are looking at emerging markets as safe havens rather than the U.S. dollar or U.S. Treasuries," said Mark Mobius, Singapore-based executive chairman of Templeton Asset Management's emerging markets group. Some government officials in the region concur, and are directing more of their holdings toward emerging markets. Singapore's $300 billion state-run investment fund, GIC, said last week it had cut its investment in developed markets to 34 percent of its portfolio in the fiscal year that ended in March, down from 41 percent. It increased its investment in emerging market equities to 15 percent from 10 percent. Not surprisingly, China stands out in Asia as the most exposed to the U.S. dollar but also the most prepared to withstand a financial blow. With $3.2 trillion in reserves, it is hard to imagine any scenario where an overseas crisis wipes out that cushion. China's problem is that an estimated two-thirds of that pot is invested in dollar-denominated assets, and economists widely expect the greenback to weaken in the next few years. China's foreign exchange regulator made it crystal clear last week that it intends to shrink the dollar exposure. In an announcement on Thursday which was overshadowed by the U.S. debt drama, the State Administration of Foreign Exchange said it would press ahead with diversifying reserves. One sentence in SAFE's comments stands out: "We will take comprehensive measures to promote economic restructuring and transform economic development, to fundamentally slow down the foreign exchange inflow, and to promote a better balance of international payments." In other words, China's reserves growth will slow, and so will its need to buy U.S. Treasury debt. That is a worrisome development for Washington, which will need to entice other investors to pick up the slack. The debt deal that Obama outlined was short on details of how the United States would cap rising healthcare costs, the largest single threat to fiscal stability as its population ages. Beijing's latest five-year economic plan calls for enhancing the social safety net and raising the minimum wage by 84 percent, which should spur higher consumption. Consumer spending accounts for roughly a third of China's economy, less than half the share in the United States. Morgan Stanley Asia's non-executive chairman, Stephen Roach, said China was "moving now to embrace a new model which will stimulate internal private consumption." "They are moving away from the dollar whether we like it or not," Roach said in an interview with Reuters Insider. (Additional reporting by Saeed Azhar in Singapore; Editing by Mathew Veedon)

Auto industry could lead U.S. economic recovery: survey. Auto executives plan to do more hiring and more capital spending than executives in any other sector in the next year, according to the survey. Sixty-two percent of auto executives said they expect to hire people in the coming year, compared with an average of only 52 percent of executives across all sectors. Similarly, 71 percent of autos executives said they expect to increase their capital spending in the coming year compared with an average of 59 percent of all executives. Two years after the end of the U.S. recession, unemployment remains above 9 percent, U.S. consumer confidence hit a near two and a half-year low earlier this month and the U.S. government reached a last-minute deal late Sunday to avoid a U.S. debt crisis. All this has raised questions about the speed and strength of a U.S. recovery. The U.S. auto industry was hit hard during the financial crisis, which saw both General Motors Co ( GM.N ) and Chrysler seek bankruptcy protection and government bailouts. It was hit again in March when an earthquake, tsunami and nuclear crisis in Japan disrupted the supply chain. While the sector is improving -- U.S. July auto sales are expected to hit an annual rate of around 12 million vehicles, an improvement over May and June -- that figure still lags the 17 million-plus number sold in 2000. A full recovery could take years, but the next 12 months could see an improvement, according to the survey. Seventy-two percent of the autos executives surveyed said they expect their revenue to increase in the coming year. North America is still seen as the most important market, but more revenue is expected to come from other markets including China and South America. New models and products, acquisitions and joint ventures are also expected to add to revenue. Fifty-five percent of those surveyed expect to make an acquisition in the coming year; 5 percent expect to sell. Access to new markets, technologies and products is expected to drive the M&A activity. The auto sector survey, which included the responses of 100 autos executives, was conducted in June. KPMG is releasing the results of its other sector surveys separately. (Reporting by Clare Baldwin; Editing by Matt Driskill)

Wall St. slips for 6th day; debt deadline near. Based on the latest available data, the Dow Jones industrial average shed 10.75 points, or 0.09 percent, to end unofficially at 12,132.49. The Standard & Poor's 500 Index declined 5.34 points, or 0.41 percent, to finish unofficially at 1,286.94. The Nasdaq Composite Index fell 11.77 points, or 0.43 percent, to close unofficially at 2,744.61. (Reporting by Caroline Valetkevitch ; Editing by Jan Paschal )

Sohu Q2 net up 37 percent, sees Q3 revenue above Street view. For the second quarter, Sohu's GAAP net income was $42.7 million, or $1.10 per share, compared with $31.3 million, or 82 cents a share in the year-ago period. Sohu reported a non-GAAP net income of $47.4 million, or $1.21 per share, compared with $37.5 million, or 96 cents per share a year ago. Total revenue for the company, which competes with Sina Corp ( SINA.O ), NetEase.com ( NTES.O ) and Tencent Holdings ( 0700.HK ), rose 36 percent to $198.7 million. Analysts, on average, were expecting second quarter earnings of $1.06 a share, excluding items, on revenue of $190.8 million, according to Thomson Reuters I/B/E/S. "Second quarter revenue in our online brand advertising business hit a new high as we saw strong advertising demand from the Internet sector, including e-commerce companies," Belinda Wang, chief operating officer, said in a statement. Online game revenues for the second quarter were $101.5 million, up 31 percent from the year-ago quarter. Sohu said it expected third-quarter total revenue to be between $225 million and $230 million, above market estimates of $207.9 million. (Reporting by Sakthi Prasad in Bangalore; Editing by Will Waterman)

BOJ easing likely if Tokyo intervenes in FX market. Even if Tokyo refrains from intervening, the central bank will consider easing if further yen rises or heightening uncertainty over the U.S. economy hamper Japan's recovery from the slump after the March 11 earthquake, one of the sources said on Monday. The yen's overnight ascent near record highs against the dollar has heightened the possibility of Japanese currency intervention to weaken the yen, and for the central bank to follow suit with additional monetary easing. The currency was trading at around 77.55 to the dollar on Tuesday morning, off Monday's peaks near its all-time high of 76.25. "If there is intervention, there is a strong chance the BOJ will ease policy," said another source, who spoke on condition of anonymity due to the sensitivity of the mater. Some central bank officials are increasingly worried that the global slowdown and persistent yen gains are already hurting business sentiment and clouding the outlook for Japan's economy that largely relies on exports as an engine of growth. But some in the BOJ are wary of acting just yet, given that Tokyo stock market is holding up relatively well and there is no hard evidence yet that the yen's climb is hurting corporate morale or capital spending plans. Whether or not the BOJ will ease depends much on how sharp the yen rises, and whether the currency move triggers falls in Tokyo share prices big enough to hurt business sentiment. BOJ Governor Masaaki Shirakawa and his deputy, Hirohide Yamaguchi, have both signaled that yen moves would be key in determining whether the economy needs more support from monetary stimulus. Monetary easing becomes a near certainty if Japan's finance ministry, which has jurisdiction over currency policy, steps into the market to weaken the yen. If yen rises are sharp enough, the BOJ may consider pushing forward its two-day rate review from the current Thursday to Friday, to ease policy, although the chance of this is small. While the central bank maintains its view that solid global growth will help Japan's economy resume a moderate recovery in autumn, some board members believe the yen's climb poses a risk to such a scenario. At least two of the nine board members had already signaled the potential need for further easing in recent rate reviews, according to minutes of the meetings. If the yen climbs further this week it may sway more policymakers in favor of policy easing. If the BOJ were to ease policy, it would probably boost its 10-trillion-yen asset buying fund by 5 trillion yen to purchase more government bonds and private debt. The BOJ would have to justify further policy loosening by altering its baseline scenario that Japan's economy is on course for a moderate recovery. But some board members are not convinced yet it is necessary, given economic data have shown exports and factory output are rebounding and consumer sentiment is improving. One concern is that if the BOJ eases policy to tame the yen it may soon face market pressure to do more -- something the central bank wants to avoid given its dwindling policy options. (Additional reporting by Tokyo policy team; Editing by Tomasz Janowski )

EU/IMF start Portugal bailout review, focus on slippage. The verdict on Lisbon's efforts to meet the terms of the 78-billion euro rescue package agreed in May will help determine whether the lenders release a second tranche of funds or set additional conditions for doing so. "The next review mission has started today... We are aware that the government has said there was some deviation from the original agreed program and has also announced it will take measures to counter this deviation," European Commission spokeswoman Chantal Hughes said. She said the mission on the ground will look at all the details with the authorities. They will also serve as a litmus test to show markets whether Portugal can avoid following Greece in requesting a second bailout. Analysts say, however that Portugal has some room for maneuver and that talk of a second bailout is still premature. "Portugal only has to come back to the market in 2013, which means there is a bit more breathing space," said Giada Giani, an economist at Citi in London. "In the short term, there is no need for a second bailout, I don't think it's going to be an issue at least for the next two to three quarters." The quarterly review, set to last around two weeks, will assess the government's progress on measures including tax hikes, spending cuts and structural reforms. Last week, Fitch Ratings postponed its decision on Portugal's credit standing to the fourth quarter from the end of July, saying its review will take into account the results of the first EU/IMF evaluation. But fellow agency Moody's had cut Portugal's rating to junk status, citing concerns that the country may follow Greece in needing a second bailout from the international bodies. AHEAD OF THE CURVE Portugal's bond yields have fallen somewhat since European leaders agreed a new rescue package for Greece and eased the terms on existing loans for all three of the euro zone countries bailed out in the debt crisis to date. A new government has also sought to get ahead of the curve on reforms and improvement of public finances since taking office in June, ending the state's golden share in companies and changing the labor law to cut severance costs. Prime Minister Pedro Passos Coelho's Social Democrats, who rule in a coalition with the rightist CDS-PP, met another deadline on Sunday by selecting a buyer for failed bank BPN. Still, the government is under pressure to demonstrate how it plans to correct a budget slippage of around 2 billion euros it says it inherited from the previous Socialist government. Under the bailout terms, Portugal has to cut the budget deficit this year to 5.9 percent of gross domestic product from 2010's 9.2 percent at a time when the economy is expected to contract around 2 percent this year. Finance Minister Vitor Gaspar has said the slippage relates to late payment of salaries and unpaid debts at ministries, an inventory of which is due to be provided to the troika. "The troika will certainly want to know if the slippage really exists, where it comes from, and what impact it will have," said Filipe Garcia, head of Informacao de Mercados Financeiros economic consultants in Porto. "We don't expect anything spectacular from this first review though," he added. The government last month announced an extraordinary 50 percent levy on year-end bonuses, set to raise around 1.25 billion euros in tax revenues, but has yet to detail spending cuts to cover the remainder of the slippage. Garcia added that another topic on the troika's agenda will be a reported extra burden from public-private partnerships on state coffers. Citi's Giani said, however, that any such revision of the public sector's obligations would be done with the lenders' blessing and should not penalize the government's record. "If they don't meet the fiscal target this year it will be not be good... but if this comes from revising the starting point rather than poor austerity performance, the EU-IMF funds will keep flowing, so it's no catastrophe," she said. (Additional reporting by Andrei Khalip; editing by Patrick Graham )

Chinese retailers hijack the Ikea experience. 11 Furniture, as the store is known, copies Ikea's blue and yellow color scheme, mock-up rooms, miniature pencils, signage and even its rocking chair designs. Its cafeteria-style restaurant, complete with minimalist wooden tables, has a familiar look, although the menu features Chinese-style braised minced pork and eggs instead of Ikea's Swedish meatballs and salmon. This knock-off Ikea store is emblematic of a new wave of piracy sweeping through China. Increasingly sophisticated counterfeiters no longer just pump out fake luxury handbags, DVDs and sports shoes but replicate the look, feel and service of successful Western retail concepts -- in essence, pirating the entire brand experience. "This is a new phenomenon," said Adam Xu, retail analyst with Booz&Co. "Typically there are a lot of fake products, now we see more fakes in the service aspect in terms of (faking) the retail formats." Brands are much more than a logo on a handbag or some half-eaten pipfruit on a computer. Many of the most successful consumer companies have invested millions in promoting and building brands which encapsulate ideals, values and aspirations, creating valuable and loyal customer bases that sometimes border on cults. Last month, an American blogger set off a media storm after she posted pictures of an elaborate fake Apple Store in Kunming, selling genuine if unauthorized iPhones, Macbooks and other widely popular Apple products. DESIRABLE BRANDS The presence of the fake stores in Kunming highlights China's seemingly insatiable appetite for western brands in some consumer segments that have not been tapped, particularly in smaller cities far from the affluent eastern seaboard. "What these fake stores indicate is that there is demand for the types of products and concepts that these brands sell," said Hong Kong-based Torsten Stocker, a China retail analyst with Monitor Group. The problem for companies that have been faked is that even if the fake stores sell genuine products, the brands have no control over how customers experience their brands. Zhang Yunping, 22, a customer service representative at 11 Furniture, is used to the questions about Ikea. "If two people are wearing the same clothes, you are bound to say that one copied the other," Zhang said, shrugging her shoulders. "Customers have told me we look like Ikea. But for me that's not my problem. I just look after customers' welfare. Things like copyrights, that is for the big bosses to manage," she said. 11 Furniture's owner could not be reached for comment. Ikea said it has teams working at both the country and global level to handle intellectual property protection issues. "Ikea as one of the biggest home furnishing companies in the world, protecting Ikea's intellectual property rights is crucial," Ikea China said in a statement to Reuters. At 11 Furniture -- its Chinese name "Shi Yi Jia Ju" sounds very much like Ikea's Chinese name "Yi Jia Jia Ju" -- furniture is made to order, not flat-packed as it is at Ikea. Customers also notice other differences. Ikea has nine stores in China, most of them in the wealthier coastal and southern cities. Xiao Lee, a Kunming resident who was shopping at 11 Furniture for a bedroom wardrobe with her husband, had visited Ikea stores in Beijing and Shanghai. "I thought of shipping their products from the real Ikea store by cargo, but I thought that would be too troublesome so I came here," Lee said. "At the real Ikea, the layout is much neater and the decorations are laid out properly, you really can't compare them," she said. LOVING MICKEY, COURTING NIKE Sometimes telling the difference between fake and real is not so easy. "My favorite character is Mickey Mouse," said Ling Xiao, a six year-old girl walking out of a Disney Store along Kunming's popular pedestrian-only shopping street Zhengyi Road. Ling Xiao and her mother shop at the Disney store about once a month and they have been going there for the past few years to browse for Mickey Mouse handbags and accessories. "It should be real; it has been here a long time. I prefer coming to this store because it sells a big variety of toys," said Ling Xiao's mother, who declined to be named. Apart from Disney products, the store sells poorly made Angry Bird soft toys of dubious origin. A Walt Disney spokeswoman said there are over 6,000 points of sale for Disney branded goods in China. Disney confirmed the store is legitimate, declining to elaborate further. Outside a Nike store on the same retail strip, Han Zhimei, a 17 year-old student, looks longingly at a "Help Wanted" sign posted in the store's window. "I feel their stores have a spirit of teamwork and I really like the Nike brand," said Han, who sports a trendy asymmetrical haircut. Han stopped by to apply for a job at Nike. When asked how she knows the store is a legitimate reseller and that the goods are real, she pauses before answering. "Well, it's a Nike store, so the things in there should be real. I think people will be honest about these things and we should have brand loyalty," Han said. On Zhengyi Road alone, there are four Nike stores, all claiming to be legitimate. A check with Nike's store locator brought up three stores in that street, meaning at least one is fake. A Nike NIKE.N spokesman said the issue of unlicensed stores was part of the broader challenge of combating counterfeiting in China. "We take the protection of our brand very seriously and have a variety of protocols in place," a Nike spokesman said. The jumble of real and fake stores in lower tier cities across China makes it hard for companies such as Apple, Disney, Nike and more so Ikea, which are closely identified with their outlets, to exert control over their brand image. Companies such as Starbucks Corp ( SBUX.O ) have long battled copycats in China, but the shift to imitations of the likes of Ikea presents a new set of challenges. "The store is a key element of the brand, so faking it, in particular in a way that consumers don't recognize as a fake, is impacting the brand image and reputation," said Stocker. Apple, which had its brand valued at more than $150 billion earlier this year, declined to comment. WHO PROTECTS YOUR IPR? For those setting up the fake, unauthorized or pirated goods stores, the attraction is obvious. "We don't need to advertise, everyone has heard of Disney," said Dong, a 23-year-old store supervisor at a Walt Disney retail store a stone's throw from where Ling Xiao and her mother were shopping. That brand recognition has far outstripped the ability of companies to expand fast enough to tap demand exploding in inland China. Sportswear brands such as Nike, Adidas and Li Ning, which have been in China for many years, are the leading fashion choice for those residing in less wealthy cities like Kunming, said a Boston Consulting Group report last month. As the world's second-largest economy races forward, the number of middle-class affluent households is expected to hit 130 million by 2020 from 50 million in 2010, BCG said. These factors are fueling the race for brands like Nike and Adidas to open stores in less wealthy Chinese cities. Ikea has said it will open an average of one to two stores a year in China. "Many foreign brands are already aware of the importance of lower tier cities but they are trying to figure out a way to go to market in these cities," said Xu of Booz&Co. In some cases, beating them to the punch are the Chinese pirates who, once established, may be hard for foreign companies to get shut. Chinese law prohibits firms from copying the "look and feel" of other companies' stores, but foreign companies must register their trademarks with China and enforcement is often spotty. The United States and other Western countries have often complained China is woefully behind in its effort to stamp out intellectual property (IP) theft. "Foreign companies often expect the Chinese government to handle their enforcement for them and though they sometimes will, they also sometimes will not," said Dan Harris, a lawyer with Harris & Moure and co-author of China Law Blog. "The problems often arise from the fact that the damages are often quite low and the Chinese courts do not have a lot of power to make sure their own judgments are enforced," Harris said. Back at 11 Furniture, it is apparent that copying Ikea's ideas may not be enough to win over all consumers. Examining cushion covers at 11 Furniture, Ms. Zhang, a woman in her fifties, sniffs derisively. "The designs don't look like typical Chinese designs. It's not what everyday Chinese people would use," Zhang said, pointing to a checkered cushion cover. "It looks too fancy." (Additional reporting by Jane Lee in SHANGHAI and Alistair Barr in SAN FRANCISCO; Editing by Lincoln Feast )

HSBC sheds 30,000 jobs, posts surprise profit rise. Shares in HSBC rose over 4 percent after it unveiled first-half pretax profits of $11.5 billion, up from $11.1 billion a year ago and better than the $10.8 billion average in a Reuters poll of analysts. The bank also said it had cut 5,000 jobs following restructuring of operations in Latin America, the United States, Britain, France and the Middle East and that it would cut another 25,000 between now and 2013. "There will be further job cuts," Chief Executive Stuart Gulliver told reporters on a conference call. "There will be something like 25,000 roles eliminated between now and the end of 2013." The cuts equate to roughly 10 percent of HSBC's total workforce. They come on top of planned reductions in overall headcount in a program of disposals that also forms part of a plan to focus on HSBC's Asian operations. The bank is reversing a strategy that had been criticized for "planting flags" around the world. Gulliver's far-reaching plan unveiled three months ago aims to slash costs and he intends to sell, shut or slim down retail banking in 39 countries. HSBC said on Sunday it would sell 195 U.S. branches to First Niagara Financial for about $1 billion in cash, and close another 13 of the 470 sites it had. The bank also intends to sell HSBC's U.S. credit card portfolio, which has more than $30 billion in assets, a move which would free up capital. Capital One Financial Corp and Wells Fargo are among the bidders, sources have said. Another suitor could be Barclays. HSBC is the first of Britain's big banks to report for the quarter. Rivals are also cutting jobs and shaking up their business model as the euro zone debt crisis has hit fixed income trading revenues hard and tougher regulations are hurting returns for investors. The bank on Monday highlighted risks to global economic recovery from increased regulation, particularly as governments grapple with sovereign debt crises and try to plug holes in their budgets. "The pace and quantum of regulatory reform continues to increase at the same time as the global economy appears to be losing momentum in its recovery," HSBC said. Shares in HSBC were up 4.3 percent at 620 pence in London at 1001 GMT, making them the second strongest performer on the blue-chip FTSE 100 index and valuing the group at around 110 billion pounds ($180.6 billion). (Additional reporting by Tricia Wright and Blaise Robinson ; Writing by Paul Hoskins ; Editing by Myles Neligan and Andrew Callus )

Kodak adopts plan to protect tax benefits. A poison pill, or shareholder rights plan, is also used to protect the company from an unwanted takeover. Under the poison pill, if any person or group tried to acquire 4.9 percent or more of Kodak's outstanding shares, Kodak could issue more shares to dilute its ownership. The American icon, which coined the once-ubiquitous "it's a Kodak moment" catchphrase, has labored for years to convince Wall Street it can turn a profit as it shifts toward digital technology and away from its ailing film business. Many investors now see Kodak's value in its lucrative portfolio of intellectual property. Kodak stock, which hovered in the $90 range in 1997, currently trades at about $2.42, a 40 percent drop over the past 12 months. Kodak shares were down 0.8 percent at $2.38 on Monday, after rising as much as 3.8 percent earlier in the session. A poison pill also discourages unwanted takeover activity. The company said its tax assets were valued at about $2.9 billion as of December 31, 2010. Kodak's ability to pay lower taxes would be "substantially limited if there were an ownership change," Kodak said in a statement. An ownership change would occur if a Kodak shareholder who owns 5 percent of shares collectively increased ownership in Kodak by more than 50 percentage points over a three-year period. The announcement comes about two weeks after Kodak said it was shopping around its patents for digital imaging, which represents about 10 percent of its U.S. patent portfolio. Analysts have estimated the entire value of its portfolio at $2 billion. A Kodak spokesman on Monday said the company has not made any progress with a patent sale yet. "As for the patents, we are early on in the process and there is nothing new to report at this time. When there is something to report we will update the market accordingly," Kodak spokesman Gerard Meuchner said. Any money Kodak makes from the sale of its patents could be taxed if Kodak did not preserve its net operating loss through this plan, said Rafferty Capital analyst Mark Kaufman. "There's a big tax burden on the sale of these patents. One of the values of Kodak is that you can sell these assets and not have to pay taxes on gains," Kaufman said. Kaufman added that the plan could be used as a poison pill against a hostile takeover or a party taking a large stake in the company becoming an activist investor. An ownership change would limit Kodak's ability to be taxed less. "What this does is deter activist shareholders from gaining a large stake in the company and it discourages a potential hostile takeover," Kaufman said. Meuchner, the Kodak spokesman, told Reuters that "we are not aware of any interest to acquire the company at this time." Private equity firm Kohlberg Kravis Roberts has a $400 million investment in the company as well as two seats on Kodak's board. Wachtell, Lipton, Rosen & Katz is acting as Kodak's legal counsel while Lazard Ltd ( LAZ.N ), its adviser on its patent sale, will be its financial adviser, Kodak said. (Reporting by Liana B. Baker, editing by Dave Zimmerman)

Stocks, commodities off after data, rate threat. The Swiss franc soared and the U.S. dollar rallied against the euro, with demand for safe-haven currencies set to continue on concerns about a slowing economy and a possible cut of the United States' triple-A credit rating. U.S. stocks swung from a 1 percent gain at the open to a 1 percent slide after the Institute for Supply Management's July manufacturing index hit its lowest in two years. Reflecting the market's uncertainty, the blue-chip Dow index ended almost flat. U.S. oil prices fell 0.5 percent while copper dropped 1.5 percent on the weak ISM data and a firmer dollar. Congressional leaders scrambled for enough support from skeptical lawmakers to push through a last-minute deal to raise the U.S. borrowing limit and avert a debt default. Voting was expected later on Monday or Tuesday morning, and Vice President Joe Biden predicted passage. "There is more confidence that the bill will get through (Congress) tonight," said Elliot Spar, market strategist at Stifel, Nicolaus & Co in Shrewsbury, New Jersey. The non-partisan Congressional Budget Office confirmed that the debt deal would reduce budget deficits by at least $2.1 trillion over 10 years. The deal "doesn't help the economy, and if we have a continued slowdown the deficit will be larger," said Carl Kaufman, who helps manage nearly $2 billion at the Osterweis Strategic Income fund in San Francisco. "Add to that the fact that it isn't a certainty this goes through, and it's not a certainty we won't get downgraded." The Dow Jones industrial average .DJI dipped 10.75 points, or 0.09 percent, to 12,132.49. The Standard & Poor's 500 Index .SPX fell 5.34 points, or 0.41 percent, to 1,286.94. The Nasdaq Composite Index .IXIC lost 11.77 points, or 0.43 percent, to 2,744.61. World stocks as measured by MSCI .MIWD00000PUS fell 0.45 percent with emerging market shares .MSCIEF up 0.8 percent. U.S. dollar-denominated Nikkei futures were little changed. The plan to avert a U.S. default must be passed by both houses of Congress and will still face some opposition. The Treasury faces a Tuesday deadline after which it would have to stop paying some of its bills. There remained widespread assumption that ratings agencies could downgrade U.S. Treasuries from their vaunted triple-A status, a move that would impact the valuation of numerous other assets. "The risk of a possible credit downgrade remains on the table as the spending cuts may not go far enough to convince rating agencies that Washington is serious about getting its fiscal house in order," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Still, the cost of insuring U.S. debt with credit default swaps fell. SWISS FRANC RALLIES, EURO SLIDES The dollar and euro hit record lows against the Swiss franc, while the single currency lost 0.7 percent versus the greenback. Against the yen, the U.S. currency was last down 0.25 percent at 77.19 after earlier hitting a more-than-4-month low that heightened fears of intervention from Tokyo. "The markets are unsure about how this will play out and it is down to the wire, so the market is cautious right now," said Jessica Hoversen, FX analyst at MF Global in New York. Gold futures edged 0.6 percent lower to $1,619.10 an ounce. In bond markets, benchmark U.S. Treasuries rose 12/32 in price to yield 2.75 percent after the weak data, down from 2.82 percent earlier Monday and 2.80 percent late on Friday. (Reporting by Rodrigo Campos; additional reporting by Karen Brettell, Lucia Mutikani, Wanfeng Zhou and Julie Haviv; Editing by Dan Grebler)

NYSE-Deutsche Boerse to jump to top options spot. Overall, the nine U.S. options exchanges handled an average of 17.4 million contracts each day last month, up 32 percent from last year. Deutsche Boerse's International Securities Exchange and NYSE's Amex and NYSE Arca venues together handled 40.3 percent of that trade, according to figures on the OCC website. Last month NYSE and Deutsche Boerse shareholders approved the transatlantic merger, and the combination will overshadow all other options exchange operators. Bragging rights for the No. 1 spot have in recent months gone to either CBOE Holdings Inc, which owns the oldest U.S. options exchange, or Nasdaq OMX Group, which operates two venues, PHLX and NOM. CBOE, which also owns the electronic C2 market, handled 26.2 percent of all options contracts traded in July; Nasdaq handled 25.9 percent. Traders say they expect NYSE and Deutsche Boerse to lose some of their collective volume once they complete the merger, as market participants spread their business among competitors. But the large lead the three exchanges have over their nearest rivals suggests they will keep their collective top spot for some time to come, analysts have said. The merger still needs the approval of regulators, which in Europe may require a review lasting through the end of the year. Deutsche Boerse is buying NYSE Euronext for about $9 billion. A specialized trading strategy linked to bets on stock dividends made up 4.2 percent of U.S. volume in July, ISE said in a separate report. A great deal of the volume in Nasdaq's PHLX venue comes from dividend trades. ISE and CBOE say these dividend trades as a trading practice that distorts real market trends, and say their true shares of the market are higher if the trades are excluded. (Reporting by Ann Saphir and Doris Frankel; Editing by Lisa Von Ahn, Bernard Orr )

Wall St. pares losses; Dow turns positive. The Dow Jones industrial average was down just 0.80 of a point, or 0.01 percent, at 12,142.44. The Standard & Poor's 500 Index was down 4.08 points, or 0.32 percent, at 1,288.20. The Nasdaq Composite Index was down 9.82 points, or 0.36 percent, at 2,746.56. (Reporting by Angela Moon ; Editing by Jan Paschal )

Juncker says a U.S. downgrade would hit whole world. In an interview with France's Le Figaro newspaper, Juncker also said there would be "no blank cheque" for struggling euro zone peripherals as they would be obliged to stick to the conditions of their bailout programs. Juncker, the prime minister of Luxembourg, said a wide-ranging bailout deal for Greece hammered out at a heads of government meeting last month in Brussels was on track, though these decisions could have been taken sooner. "If any holes are discovered, they can be repaired," he told the newspaper. Referring to French President Nicolas Sarkozy's proposal to overhaul the governance of the euro zone, introducing a greater role for national governments in steering economic coordination, Juncker said European Council President Herman Van Rompuy would be a "logical and natural candidate" to head a "council of the euro," the paper said. (Reporting by Daniel Flynn ; Editing by Catherine Bremer )

Factory growth slows, casts shadow on economy. The Institute for Supply Management said on Monday its index of national factory activity fell to 50.9, the lowest level since July 2009, from 55.3 in June. Economists had expected a reading of 54.9. A reading below 50 indicates a contraction in manufacturing. The economy almost ground to a halt in the first half of the year, data showed on Friday, with output rising at a tepid 1.3 percent annual pace in the second quarter after expanding at just a 0.4 percent rate in the first three months. Analysts had pinned the slowdown on temporary factors, but signs of a pickup are proving elusive and the factory data led some economists to revisit their forecasts. "The recent easing in economic growth is increasingly looking more like a sustained slowdown than a short-lived soft patch," said Paul Dales, an economist for Capital Economics in Toronto. U.S. stocks, which opened higher on relief lawmakers in Washington had struck a deal to ward off a national default, turned negative on the weak factory data. The Standard & Poor's 500 Index closed slightly lower on the day. Prices for U.S. government bonds rose, while economic worries lifted the dollar against the euro as investors exited riskier bets. The slowdown in the U.S. factory sector was part of a world-wide trend, with global manufacturing activity expanding at the weakest rate since just after the 2009 recession. Economists have said the prospect the United States could default on its obligations had cast a chill over the economy in July. The deal to lift the nation's $14.3 trillion debt limit reached on Sunday offered hope of better times ahead. TRIMMING GDP FORECASTS Manufacturing, which accounts for about 12 percent of U.S. gross domestic product, has carried the weak recovery from the recession. However, activity slowed sharply in May as supply chain disruptions from Japan's earthquake-related disasters curbed production. Analysts had expected activity to accelerate as those disruptions eased. Last month, factories were held back by weak orders, which hit their lowest level since June 2009. An index measuring prices paid also fell, as did a gauge of employment. "Since orders are a leading indicator, the drop in this index suggests the second half pickup in growth will be far less than some had estimated," economists at Wells Fargo Securities wrote in a research note. A Reuters poll of economists released on July 14 showed forecasters expected growth over the second half of the year to come in at around a 3 percent pace. An increasing number are now warning that that could be hard to achieve. A report on Friday is expected to show nonfarm employment rose by 85,000 in July, an improvement from June's paltry 18,000 gain but disappointing nonetheless. Some economists said the drop in the ISM employment gauge suggested forecasts for payrolls might be on the high side. Separate data from the Commerce Department on Monday showed construction spending advanced 0.2 percent in June, with private construction spending rising 0.8 percent to a seven-month high but public projects dropping 0.7 percent. Spending for both April and May was revised higher, suggesting the economy may have had a touch more vigor in the second quarter than the figures released on Friday showed. (Reporting by Lucia Mutikani and Mark Felsenthal ; Editing by Andrea Ricci and Andrew Hay)

Discounts, warm weather seen helping July sales. July sales figures will give investors an early read on demand in the consumer-driven U.S. economy at the start of the back-to-school season, the second-biggest selling period of the year after Christmas. Retail chains ranging from Target Corp ( TGT.N ) to Saks Inc SKS.N will report closely watched sales at stores open at least year on Wednesday and Thursday. (For a related graphic, click r.reuters.com/ryz82s ) Analysts are expecting same-store sales to show a 4.1 percent rise for July, compared with a year-earlier increase of 2.8 percent, according to Thomson Reuters data. "The hot weather has certainly helped drive people into malls and helped clear out summer seasonal merchandise," said Ken Perkins, president of research firm Retail Metrics Inc. At issue, he added, is whether retailers will be able to sell their wares at full price in the back-to-school season. It is not uncommon for retailers to offer discounts in July as they try to clear store shelves for back-to-school merchandise. Some investors worry that the discounting may have been deeper than usual and could weigh on margins. "There was a lot of clearance merchandise," said Trutina Financial Chief Investment Officer Patricia Edwards. "While the sales may be there, the margins may not." The back-to-school selling season has important implications as consumer spending accounts for about 70 percent of the U.S. economy, which barely grew in the first half of 2011. Retail stocks have fallen in the past month. The Standard & Poor's Retail Index .RLX is down 4.2 percent since retailers reported June sales, although the broad Standard & Poor's 500 Index .SPX fell more steeply at 5 percent. NO STOMACH FOR FULL-PRICE GOODS Analysts expect warehouse club operators such as Costco Wholesale Corp ( COST.O ) and BJ's Wholesale Club Inc BJ.N to post some of the largest sales gains in July. Warehouse clubs, which charge customers an annual fee to shop in their stores, have won shoppers seeking low prices on necessities such as groceries or toiletries. Analysts also expect healthy sales gains at dollar stores and off-price retailers TJX Cos Inc ( TJX.N ) and Ross Stores Inc ( ROST.O ). Off-price chains sell sharply discounted designer merchandise often returned to vendors by department stores. "I just don't think that the consumer has the stomach right now to really pay full price, even for new ... back-to-school merchandise," Perkins said. "Consumer confidence is not particularly strong right now." U.S. consumer sentiment fell in July to its lowest point in more than two years as anxieties over stagnant wages and unemployment deepened, a survey showed. Rhonda Douma, who was shopping for her 3-year-old daughter at American Girl in a mall in Hollywood, California, said she planned to spend the same amount this back-to-school season as she did last year. Her top destinations for the season highlight the price sensitivity of the post-recession American shopper. "Usually it's Walmart ( WMT.N ) and Target and Marshalls," said Douma, 42. "We just found out about this store, and they have a lot of cute, fun stuff -- and brand names for cheaper prices. Analysts also expect a strong July for luxury chains such as Saks and Nordstrom Inc ( JWN.N ) because of the purchasing power of higher-income shoppers. One underperformer of the month could be clothing retailer Gap Inc ( GPS.N ). Same-store sales at the parent of the Gap, Old Navy and Banana Republic chains are expected to fall 0.7 percent, according to Thomson Reuters data. Same-store sales reports capture only part of the retail economy. Industry leader Wal-Mart Stores Inc and other major retailers such as Best Buy Co Inc ( BBY.N ) and Amazon.com ( AMZN.O ) do not report monthly sales. (Additional reporting by Alexandra Alper in New York and Mary Slosson in Los Angeles; Editing by Lisa Von Ahn)

Instant view: Manufacturing sector slows in July: ISM. COMMENTS: GENE MCGILLIAN, ANALYST, TRADITION ENERGY, CONNECTICUT "The oil market is really flailing around this morning and the initial euphoria of the debt deal seems to be waning. There's still plenty of uncertainty surrounding the debt deal ahead of Congressional votes, and a disappointing ISM number has now taken some of the bidding out of the market." KEITH HEMBRE, CHIEF ECONOMIST, NUVEEN ASSET MANAGEMENT, MINNEAPOLIS "It's a pretty good miss on the downside. My trend analysis suggests that we are going to see another move to the downside to high 40s. These are the types of numbers that are consistent with what we saw with the GDP numbers. Absent a governmental shock, we would dredge forward with this stagnant economic performance. We'll be mired in this 1 to 2 percent (growth) environment we have been in." SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK "It is pretty terrible, very disappointing. That really just nails home the snail's-pace GDP number that we got on Friday. This shows that there is some underlying softness that is really coming through. New orders dropping below 50 doesn't suggest that there is going to be much momentum going forward either." JOE SALUZZI, CO-MANAGER OF TRADING AT THEMIS TRADING IN CHATHAM, NEW JERSEY "The drop of the last 50 points or so was certainly the ISM numbers. It's a really bad one, and this is closely related to the GDP forecast. Before that (ISM data), it was a bit of sell on the news. "When you get a reversal like this, it's certainly not a good thing. We were getting some bad news but starting July, things started pointing to growth. And then we get a number like this. We will see growth revisions, and that tops any news that comes of Washington." TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK "I think what makes this report -- what gives it sort of nasty undertones, is this new orders index slipping below 50. For an economy that's struggling here, this just adds credence to that notion. "ISM is a sentiment indicator; it's not based on real activity. From that perspective you could maybe make an argument that a lot of the uncertainty that has been put forward by the debt debate may have found its way in there. That may be a bit of a stretch but I wouldn't dismiss it outright."

FACTBOX: Global financial job cuts - many more to come. Many other financial companies have reduced headcount since the U.S. housing crisis escalated in August. Following is a summary of some of the deepest job losses at major banks: * BANK OF AMERICA CORP ( BAC.N ) The second-largest U.S. bank by assets said on January 15 it would eliminate 650 corporate and investment banking jobs, in addition to 500 cuts late in 2006 as part of an overall reduction of 3,000 jobs. * BEAR STEARNS CO INC BSC.N Since mid-August, the Wall Street bank has announced the elimination of about 1,500 jobs, and further cuts are expected after JPMorgan Chase & Co ( JPM.N ) agreed to buy it last month. Layoffs will also take place at JPMorgan, the bank's chief executive, Jamie Dimon, said on April 16. * CITIGROUP INC ( C.N ) The largest U.S. bank said on April 18 it will cut another 9,000 jobs. These are in addition to 4,200 announced in January. Citi ended March with 6,000 fewer staff than it had at the end of 2007. A person briefed on the matter said on March 20 that the bank is cutting about 2,000 investment banking and trading jobs on top of the 4,200. * CREDIT SUISSE GROUP ( CSGN.VX ) The bank has cut around 1,000 investment banking jobs this year, after shedding last year 170 jobs in the same division and 150 jobs in its residential mortgage-backed securities business. * DEUTSCHE BANK AG ( DBKGn.DE ) The biggest German bank has laid off about 150 people in corporate finance since January in addition to worldwide cuts of less than 300 made earlier, a source close to the bank said on April 11. A spokesman for the bank said on January 16 it would cut up to 300 jobs worldwide in investment banking, or 2 percent of its workforce in that business. * GOLDMAN SACHS GROUP INC ( GS.N ) The U.S. bank has slashed 1,500 jobs, or 5 percent of its workforce, since December because they were deemed the poorest performers. It is also cutting an undisclosed number of positions in mortgage and investment banking in April. * HSBC HOLDINGS PLC ( HSBA.L ) Europe's biggest bank said on September 21 it would close its U.S. subprime mortgage unit, laying off 750 employees. * JPMORGAN CHASE & CO ( JPM.N ) People familiar with the situation said in October the bank was cutting 100 jobs across its global credit markets. The bank has also axed about 100 subprime mortgage jobs in California. * LEHMAN BROTHERS HOLDINGS INC LEH.N The Wall Street investment bank is laying off 5 percent of its global workforce, or about 1,430 people, due to tough market conditions, a person briefed on the matter said on March 10. * MERRILL LYNCH & CO INC MER.N The U.S. investment bank said on April 17 it would cut headcount by 4,000 from year-end 2007 levels, with about 1,100 of the jobs already gone in the first quarter. Job cuts will focus on the global markets and investment banking business and support areas, and will not affect retail brokers. * MORGAN STANLEY ( MS.N ) The second-largest U.S. investment bank announced 1,000 more job cuts on February 13 in its U.S. and British mortgage lending business. In January, Morgan Stanley announced 1,000 cuts in wealth management, asset management back-office and technology jobs. In October, it cut about 300 jobs in its institutional securities division, on top of previous plans to cut 600 mortgage jobs. * NATIONAL CITY CORP NCC.N National City, one of the top 10 U.S. banks, said on January 2 it would cut 900 jobs, bringing total job losses to 3,400 since mid-2007. * UBS AG ( UBSN.VX ) The world's hardest-hit bank from the subprime crisis may cut up to 10 percent of jobs in its investment banking and trading division, people familiar with the situation said on April 15. With about 22,000 employees worldwide at UBS Investment Bank, the cuts could affect as many as 2,200 people. In October, UBS disclosed third-quarter mortgage losses and said it would axe 1,500 fixed-income jobs by the end of 2007. * WACHOVIA CORP WB.N The fourth-largest U.S. bank plans to cut 12 percent of jobs in its markets and investment banking operations in the second quarter, Chief Financial Officer Tom Wurtz said on April 14. The job cuts are on top of previous cuts and would result in the elimination of 24 percent of jobs in the unit since the start of 2007, Wurtz said. (Compiled by Olesya Dmitracova)

Asian markets hunker down, fear more bank pain. Major European markets also fell in early trading. London's FTSE 100 .FTSE dropped 0.2 percent, the German DAX .GDAXI slipped 0.4 percent and the French CAC 40 .FCHI was off 0.3 percent. "Wall Street has been surprisingly resilient, but we don't know if it will last, and we have a lot of U.S. and Japanese earnings to get through," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. "There are still a lot of question marks left." Investors hoping that an end to the credit crisis might be in sight were brought back to earth on Monday when Bank of America Corp ( BAC.N ), the top U.S. retail bank, showed a 77 percent drop in quarterly profit and regional bank National City Corp NCC.N said it was raising $7 billion in capital. More bad news from banks could be on the way after Britain's Royal Bank of Scotland ( RBS.L ) announced a 12 billion pound ($24 billion) rights issue to cover a potential 5.9 billion pound writedown. Other British banks could follow suit. "The whole stock market is twitchy, the financials in particular," said Peter Vann, head of investment research at Constellation Capital Management. "Some of the U.S. banks are definitely going to have some large losses or a considerable reduction in profits because of all the riskier activities." Although the latest bank woes unsettled investors, the CBOE Volatility Index .VIX, a barometer of jitters on the U.S. equity market, showed no new signs of panic. It barely rose, ending Monday with a reading of 20.5, its second lowest close this year. Japan's Nikkei stock average .N225 closed down 1.1 percent, led lower by blue chip exporters such as Honda Motor Co Ltd ( 7267.T ) as a stronger yen prompted investors to lock in profits after the market climbed for five days. Stocks across the rest of Asia, measured by MSCI's index, fell 0.65 percent. China's benchmark Shanghai Composite Index .SSEC touched a 13-month low, led by steel and metal-related stocks, as investors were disappointed by weak government measures to bolster the slumping market. The index has fallen by half since last October. In Seoul, shares in some Samsung Group units fell after chairman Lee Kun-hee, indicted last week for tax evasion, said he was quitting his post at South Korea's largest conglomerate. DOLLAR STRUGGLES The continued worries about the U.S. economy and fears of another salvo of bank woes kept the dollar under pressure against the yen and the euro. The slide in Asian stocks prompted investors to trim risky yen carry trades, in which players use the low-yielding Japanese currency to finance purchases of assets offering higher returns elsewhere. "Weaker share prices sparked yen buy-backs, while some investors also booked profits on the dollar's recent rise against the yen," said a trader at a Japanese trust bank. The euro also gained after European Central Bank Governing Council member Klaus Liebscher said there was no reason for pessimism on eurozone growth, suggesting the ECB would keep rates at a six-year high of 4 percent for a while. "It's only a matter of time before the euro hits the key $1.6 level as investors believe there are fewer risks in buying the euro," said Hiroshi Yoshida, a trader at Shinkin Central Bank. The euro was trading at $1.5875, not far from last week's record high of $1.5985, while the dollar was at 103.06 yen, having hit a seven-week peak of 104.66 yen last week. The weak dollar has helped prices for commodities such as oil hit record highs this year. But U.S. crude oil prices needed little currency support on Tuesday, remaining close to a record high of $117.83 a barrel, hit on Monday after rebel attacks cut Nigerian supplies and a Scottish refinery strike threatened North Sea production. On the demand side, crude imports to China, the No. 2 oil user, surged a quarter from a year ago to 4.07 million barrels per day in March, far above previous records, customs data showed. U.S. light crude was 0.2 percent lower at $117.25 a barrel. (Additional reporting by Geraldine Chua in SYDNEY, Rika Otsuka in SYDNEY, Editing by Sonya Hepinstall)

Samurai bonds flourish in global funding shortage. The Royal Bank of Canada ( RY.TO ) ( RY.N ) made its first ever sale of Samurai bonds on Tuesday, raising more than 146 billion yen in three tranches. The Canadian bank is the latest foreign entity to issue yen bonds in Japan -- or Samurai bonds -- following in the foot steps of firms from South Korea and Australia, among other countries. But U.S. banks have been noticeably absent, bankers said, partly because investors have been wary of the exposure of U.S. banks to the mortgage-backed securities market which sparked the global credit crisis. "To overseas issuers, Japanese financial markets are more stable and less affected by the subprime mortgage woes," said Katsuhide Takahashi, senior credit analyst at Nikko Citigroup. "With the interests of issuers and investors coming together, this trend of new issuers should continue." The issuance of Samurai bonds has shown little change despite the onslaught of the global credit crisis, which blew up last August. Issuance has totaled nearly 320 billion yen ($3.1 billion) since the new business year started this month, including Royal Bank of Canada's offering. That's on top of a record 2.6 trillion yen in the last business year as Japanese investors, frustrated by falling interest rates at home, snapped up the higher yields offered by foreign financial firms that have emerged relatively unscathed from the mushrooming U.S. mortgage crisis. Royal Bank of Canada was among many first-time Samurai issuers this year. South Korea's Kookmin Bank 060000.KS also sold its first yen bonds in Japan last week after postponing a deal earlier in the year due to volatile market conditions. Typically the Samurai market had been dominated by big name U.S. companies like Citigroup ( C.N ) and Merrill Lynch MER.N because of their high credit ratings and efforts to establish a strong presence in the Japanese market. But Japanese investors have become skittish about investing in banks hard hit by the credit crunch. With Japanese official interest rates at just 0.5 percent and little prospect of moving higher owing to the expected slowdown in the world economy, Japanese investors are looking for higher returns. These include many of Japan's top nine life insurers, who said in a series of Reuters interviews that they wanted to invest more cash in Samurai bonds. Royal Bank of Canada's five-year, fixed-rate Samurai bond was sold with a coupon of 2.02 percent, well above a domestic five-year offering earlier this week from Mizuho Corporate Bank that offered a coupon of 1.295 percent. While the cost of raising funds in Samurai bonds has spiked along with tighter conditions in global credit markets, it is still lower than issuers would have to pay elsewhere due to Japan's low interest rates. MORE NEW NAMES Australia's top banks, Australia & New Zealand Banking Group ( ANZ.AX ) and Westpac Banking Corp ( WBC.AX ) were also first-timers in the Samurai bond market this year. "Japanese investors like to buy Australian and Canadian Samurai bonds as their issuers generally have an image of being less saddled with losses linked to bad mortgage investments," said a syndicated loan official at a major Japanese brokerage. More entities from developed countries and with strong name recognition are expected to start issuing Samurai bonds. Japan's Nikkei financial daily reported on Friday that Abu Dhabi Commercial Bank ADCB.AD was considering the sale of Samurai bonds this year. Such a deal would be the first by a Middle Eastern firm. Since Goldman Sachs ( GS.N ) issued 148.5 billion yen of bonds in late January, there have been no U.S. Samurai bonds offered as credit losses among U.S. banks escalated. However, Goldman Sachs had to pay a high price for its deal. It sold five-year floating-rate Samurai bonds at a spread of 110 basis points over three-month yen money market rates, about double that of Australia's Westpac, which sold at a spread of 53 basis points in a floating-rate deal with a similar maturity. Many bankers said there was no clear sign when U.S. banks might try to tap the market. However, Yutaka Ban, chief credit analyst at Shinko Securities, said that U.S. financial companies might try to drum up some deals soon as some investors have begun to believe the worst of the U.S. credit crisis has passed. "U.S. banks are likely to try to sell floating-rate Samurai bonds, whose credit spreads will narrow when credit jitters ease further," Ban said. ($1=103.06 Yen) (Additional reporting by Takefumi Ito and Naoyuki Katayama; Editing by Neil Fullick)

INSTANT VIEW: Key points and reaction to home sales data. U.S. home prices rose about 0.6 percent between February 2008 and January while prices fell 2.4 percent during the 12-month period ended in February, a federal housing regulator said on Tuesday. KEY POINTS: * Economists polled by Reuters were expecting home resales to fall to a 4.92 million-unit pace, off from the February rate of 5.03 million that was left unchanged. * The inventory of homes for sale swelled by 40,000 to 4.06 million homes or a 9.9 months' supply at the current sales pace. * The median national home price declined 7.7 percent from a year ago to $200,700. COMMENTS: BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY: "The existing home sales were weaker, but not disastrous, so we saw a little bit of a rebound there in dollar/yen. But I would point out that the inventory of unsold homes rose again, so the housing situation is not improving. At the moment, it's not showing signs of rapidly deteriorating further. The market is in a sort of holding pattern where risk has been put back on to a limited extent. The market is still very sensitive and uncertain whether this rebound in stock markets can continue. Despite the optimism that emerged from earnings last week, it feels like it's already fading." SCOTT BROWN, CHIEF ECONOMIST, RAYMOND JAMES & ASSOCIATES, ST PETERSBURG, FLORIDA: "No surprises -- existing home sales were right in line with expectations and I don't think the market's paying much attention to the Richmond Fed data." JIM PAULSEN, CHIEF INVESTMENT OFFICER, WELLS CAPITAL MANAGEMENT, MINNESOTA: "Ultimately the way that this crisis ends is that people decide the economy has bottomed. The key thing there is not that housing recovers, it's that housing activity bottoms. You're starting to see that. Existing home sales have been flat since about September. There's a definitive change from the free-fall we saw in February '07 to September '07. Housing doesn't have to recover, it can stay miserable and stop collapsing." BOB MOULTON, PRESIDENT, AMERICANA MORTGAGE GROUP, MANHASSET, NEW YORK: "Existing home sales are down, the median home price is down. Getting money is a little harder than it was even three or four months ago, and as long as it continues to be difficult to get financing I don't think that these numbers are going to be getting better any time soon." GIRI CHERUKURI, HEAD TRADER, OAKBROOK INVESTMENTS LLC, LISLE, ILLINOIS: "It looks like it's pretty much in line, and the price number was good. I think that gives some encouragement for the state of the economy. Not too much of a reaction (in stocks), but I think it'll provide some support today." CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK: "The most remarkable thing is how close it was to consensus. A little more strength than I would have expected in condos and coops, but I wouldn't read too much into it because we're still down 25 percent year-on-year. January and February seasonally is the slowest time of the year. Because of that it's difficult to seasonally adjust, and as we get into March and April, the numbers are more meaningful. The fact that sales are not even holding up there, that's disappointing. And there's still deterioration in prices." ADAM YORK, ECONOMIC ANALYST, WACHOVIA SECURITIES, CHARLOTTE, NORTH CAROLINA: "It declined basically in line with what we were looking for -- we think sales still have a couple more months of declines left. We are not really looking for a bottom until maybe the summer. Existing home sales is a very lagging indicator and there was not a lot of surprise in the data. "I don't think anything here will change the Fed's view of the housing landscape or the economy in general, and I don't think it will change economists' views either as this was a largely expected number." KEITH HEMBRE, CHIEF ECONOMIST, FAF ADVISORS, MINNEAPOLIS: EXISTING HOME SALES: "The month's supply is up. Inventory is high and is staying too high. Condo supply seems to be at record at 12.8 months. We are going to see more downward pressure on prices given the supply overhang." OFHEO PRICE INDEX: "We had a bigger-than-expected drop in January so we average it with February so we are down 0.2 percent. I wouldn't put a lot weight on this number. I think Case-Shiller is a better number." MARKET REACTION: * BONDS: U.S. Treasury debt prices fall. * CURRENCIES: U.S. dollar extends gains versus the yen. * STOCKS: U.S. stock indexes hold losses on the session. EARLIER DATA FROM APRIL 22: Redbook Research on Tuesday released seasonally adjusted weekly data on U.S. chain store sales. The International Council of Shopping Centers and UBS Securities on Tuesday released the following seasonally adjusted weekly data on U.S. chain store retail sales.

Airbus ups aircraft prices, buys U.S. company. The price hikes, which will apply from May 1, and the acquisition of California's PlantCML for about $350 million, announced earlier in the day, come as part of EADS's efforts to reduce the impact of unfavorable exchange rates on its results. "On top of the 2.74 percent normal escalation for the year 2007, the price increase comprises an additional $2 million per single-aisle aircraft and $4 million per wide-body long-range and A380 Family aircraft," Airbus said in a statement. The dollar has shed 17 percent of its value against the euro in the past 12 months as the single currency rose to 1.5920 on Tuesday from 1.3606 at the same time last year. Metals prices have also gone up by at least 6.5 per cent, said Airbus, which uses titanium, steel, aluminum, and aluminum-lithium to build its aircraft. "We have to keep pace with the world market price developments and secure profitable deals," John Leahy, Chief Operating Officer Customers, at Airbus, said in the statement. Earlier on Tuesday, EADS said it had bought PlantCML, a California-based provider of emergency response solutions, from U.S. private equity firm Golden Gate Capital. EADS said in a statement the acquisition would increase earnings per share in the first year, and PlantCML would become part of EADS North America's business portfolio. The European planemaker has plans to shift production to dollar-zone countries to help combat the currency headwinds. EADS strategy chief Marwan Lahoud confirmed the group's ambitions in the United States in an interview with French daily newspaper La Tribune due for publication on Wednesday. "There are several deals in the pipeline that we are following. Our target remains defense, security and services that are countercyclical activities in relation to our commercial aviation activity," Lahoud said when asked about EADS's U.S. projects. "We target to go from $1 billion non-Airbus sales today to $10 billion in 2020. We aim for a first stage of around $5 billion in the next three years." (Reporting by Marie Maitre and Gilbert Kreijger , editing by Will Waterman/Elaine Hardcastle)

Yahoo CEO open to "any and all" deal alternatives. "Our board and management team continue to be open to any and all alternatives, including a Microsoft deal," Yang told investors on a conference call to discuss the company's first-quarter results, released earlier in the day. Yang said the company's recent efforts to remake its business strategy related to technology, audiences and advertising customers were "starting to pay off." Yahoo's top executive said that while the company remains active in the Web search advertising market, its emphasis is on display advertising, which corporate marketers rely on for online brand ads. "While we see opportunities in Web search, our largest opportunity is in display advertising," he said. (Reporting by Eric Auchard ; Editing by Braden Reddall )

Soaring fuel costs hurt UAL profit. UAL said it lost $537 million, or $4.45 per share in the first quarter, compared with $152 million, or $1.32 per share, a year earlier. It was by far the biggest net loss reported by a major airline for the first quarter. The company reported operating revenue of $4.71 billion, up from $4.37 billion a year earlier. The U.S. airline industry has been grappling with soaring fuel prices and a softening economy. UAL, which completed a massive bankruptcy restructuring in 2006, said its consolidated fuel bill rose $618 million in the quarter. The company ended the quarter with an unrestricted cash and short-term investment balance of $2.9 billion. UAL said it is targeting $200 million in non-fuel cost savings in addition to the $200 million announced earlier in the year. The cost cuts will require reducing UAL's salaried and management work force by 500 employees and its unionized work force by about 600 employees by the end of 2008. The 1,100 job cuts represent about 2 percent of the companies total work force of 55,221 as reported on the UAL Web site. UAL also is reducing capital expenditures by about $200 million from $650 million as previously planned and cutting capacity. (Reporting by Kyle Peterson, editing by Dave Zimmerman) h

Yahoo adjusted profit tops Wall St. average. Buoyed by a large gain on a stake in China's Alibaba.com Ltd 1688.HK, Yahoo's first-quarter net income rose to $542.2 million, or 37 cents per diluted share, compared with the year-ago quarter's $142.4 million, or 10 cents per diluted share. Excluding one-time items and stock compensation costs, the beleaguered Internet company reported a profit of $150 million, or 11 cents per share. On that basis, Wall Street on average was looking for a profit of 9 cents per share, compared with 11 cents a share a year earlier, according to Reuters Estimates. (Reporting by Eric Auchard ; Editing by Braden Reddall )

Bakers feeling pinch of short supplies. Rye flour stocks have been depleted in the United States, and by June or July there will be no more U.S. rye flour to purchase, said Lee Sanders, senior vice president for government relations and public affairs at the American Bakers Association. "Those that are purchasing it now are having to purchase it from Germany and the Netherlands, and that's very concerning," Sanders said. She attributed the shortage to high demand for rye flour, which is used to make rye bread, and less acreage devoted to rye grain than in the past. Grain prices have been soaring worldwide while stocks have been dwindling, causing riots in some poor countries. In the United States concern is also growing over food costs. The chief executive of Costco Wholesale Corp ( COST.O ), James Sinegal, told Reuters that the company is seeing some unusual buying with consumers stocking up as they fret shortages. For bakers, rye grain is not the only supply stock that is declining. In the past the market has typically had a three-month surplus of wheat stocks to serve as a cushion against supply interruptions, but now the surplus is down to less than 27 days worth of wheat, Sanders said. The American Bakers Association has been lobbying Congress to open up "non-environmentally sensitive" land in the Conservation Reserve Program for production to help increase supply. The group is also advocating elimination of the ethanol import tariff and temporarily waiving ethanol production limits. "We need to make sure there is good balance between traditional agriculture and ethanol policies," Sanders said. With the supply issue looming, commodity prices are still hitting U.S. bakers hard. "These are the worst price increases we've seen," said Lynn Schurman, owner of a Cold Spring Bakery in Minnesota and president of Retail Bakers of America. Schurman, who's been in the bakery business since 1975, said the prices of all her ingredients have increased 5 to 25 percent. Flour has jumped 100 to 200 percent and continues to rise, she said. Although Schurman said she has not experienced any supply shortages, she and her members are closely monitoring the supply situation. "Right now products are out there, it's a tight supply, but it's there if you have money to get it," Schurman said. (Editing by Russell Blinch and Jim Marshall )

Merrill, other banks tap debt markets after losses. Financial firms "posted losses which eroded their capital base," said Manny Labrinos, fixed-income portfolio manager at Nuveen Investments in Los Angeles. "That's the reason for having to raise this capital." Banks have been raising capital through sales of debt and preferred shares after writing down the value of securities held on their balance sheets, which includes mortgage-backed debt and corporate loans. Merrill Lynch on Tuesday sold $7 billion in debt, the second largest investment-grade sale this year, according to Dealogic. General Electric Capital Corp, a unit of General Electric Co ( GE.N ), last week sold $8.5 billion of debt in the year's biggest sale to date. The bank was also in the market with a $2.55 billion sale of preferred shares, according to International Financing Review, a Thomson Reuters publication. Merrill last week recorded its third straight quarterly loss and said it planned to cut 2,900 more jobs after taking more than $6.5 billion in write-downs on subprime mortgages and other risky assets. For details, see <ID:nN17461640> The bond sale included $1.5 billion of five-year notes priced at 3.25 percentage points over U.S. Treasuries, and $5.5 billion in 10-year notes priced at 3.20 percentage points over Treasuries, said market sources. Wachovia also sold $3.5 billion on Tuesday, while UBS sold $2.5 billion and Goldman Sachs ( GS.N ) sold $1.5 billion. Citigroup ( C.N ) on Monday sold $6 billion in preferred shares, following a similar $6 billion sale by JPMorgan Chase & Co ( JPM.N ) last week. Banks globally have raised more than $200 billion of capital to offset massive credit losses amid a global credit squeeze. SPREADS WIDEN Financial company bonds widened in secondary trading on the new sales, while the cost to insure the banks' debt with credit default swaps also rose. Spreads of Merrill Lynch's 6.4 percent bond due 2017 widened 16 basis points to 286 basis points over Treasuries, according to MarketAxess. The cost to insure Merrill's debt with credit default swaps rose 12 basis points to 165 basis points, or $165,000 per year for five years to insure $10 million in debt, according to broker Phoenix Partners Group. Goldman's 6.15 percent bond due 2018 also widened 21 basis points to 235 basis points over Treasuries, while its credit default swaps widened 5 basis points to 97 basis points. (Reporting by Walden Siew , Karen Brettell , Dena Aubin , Anastasija Johnson and Dan Wilchins ; Editing by Diane Craft )

Warburg Pincus says raises $15 billion global fund. The buyout firm said it plans to invest cash from the fund in Europe, the United States and Asia, adding that such a worldwide strategy allows it to find opportunities despite the credit crunch, which has slowed down activity in western Europe and the U.S. "We have a time-tested approach -- growth investing in growth-oriented regions," said Joseph Landy, Co-President of Warburg Pincus, in a statement. "This is a particularly attractive investment strategy in the current environment." (Reporting by Mathieu Robbins , editing by Elizabeth Fullerton)

Kimberly-Clark net down. But the weak dollar helped boost overseas sales, and price increases helped mitigate rising costs, the company said. The maker of Huggies diapers and Kleenex tissues said first-quarter profit was $440.9 million, down from $452 million a year earlier. Earnings per share rose to $1.04 from 98 cents because of a decline in the number of shares outstanding. Sales rose 9.7 percent to $4.81 billion. Like many consumer products companies, Kimberly-Clark has raised prices to help offset rising commodity costs. (Reporting by Brad Dorfman ; editing by John Wallace)

EBay sues Craigslist over alleged stake dilution. EBay alleged in the lawsuit that the board of directors of Craigslist, the Web's dominant classifieds listing service, took "unilateral actions" to dilute eBay's 28.4 percent stake by more than 10 percent, eBay said in a statement. The suit, filed on Tuesday under seal, asked a Delaware Chancery Court to rescind the unspecified actions to protect eBay's stockholders and preserve its stake in Craigslist. The suit names as defendants Craigslist founder, Craig Newmark, who runs the company in a famously open-minded style, and Chief Executive Jim Buckmaster. Newmark and Buckmaster are the only members of Craigslist's board of directors. EBay bought a minority ownership stake in 2004, and launched its own free online classifieds site, called Kijiji, three years later in the United States. The two services directly compete in the United States and about a dozen countries, with Kijiji tailoring its ads to young families rather than maintaining a Craigslist-style open marketplace. In an email, Newmark had no comment on the lawsuit, or on whether the dispute involved the companies' business rivalry, saying Craigslist needed "a little time to figure it all out." An eBay spokeswoman said the disputed board actions concerned "corporate governance issues" and did not involve Kijiji. She said eBay could reveal no more about its complaint without Craigslist's permission to protect information about privately held Craigslist governed by confidentiality restrictions. Shares of eBay closed up 26 cents at $30.89 Tuesday on Nasdaq. (Reporting by Gina Keating; editing by Braden Reddall/Jeffrey Benkoe)

Samsung chief stands down; sorry for tax scandal. The televised announcement by Lee Kun-hee, 66, who has achieved almost heroic status in South Korea for his role in the fortunes of Samsung, came as a shock even in a society long used to its top businessmen being hauled into court. But analysts pointed out Lee and his family still control the country's largest conglomerate, sometimes dubbed the "Republic of Samsung" and whose dozens of affiliates account for around a fifth of South Korea's exports. Its products and services range from computer chips and hospitals to handphones and supertankers. "(I) deeply apologise for causing concern to the nation and will take full responsibility for that," an expressionless Lee said in a brief statement while dozens of senior group executives standing behind him watched on. The group will dismantle its powerful strategic planning office, which critics say is an opaque organization able to wield influence across some 60 affiliates, including flagship company Samsung Electronics, a world leader in computer memory chips and flat display screens. "I don't see anything more than a change of people in charge. There's no change at all in the fact that (the Lee family) will remain the owner," said Citibank economist Oh Suk-tae. A Samsung spokesman told reporters the reshuffle was the start of a process that would give its companies more transparency, its management more autonomy and end a complicated cross-shareholding arrangement that gives Lee enormous power despite holding a tiny stake in group companies. Lee's son, Lee Jae-yong, seen as being groomed to take over, will step down from his executive post and work abroad for the group in another, unspecified role. Four other top executives also quit, including the head of the group's strategic division and the CEOs of Samsung Fire & Marine Insurance Co Ltd and Samsung Securities Co Ltd Shares in affiliates such as Samsung Securities and Samsung Construction & Trading fell 4-8 percent on the news. Samsung group firms account for 20 percent of total market capitalization on the main board of the South Korean bourse The group has more than 250,000 employees and its annual revenues of $160 billion are around the size of Singapore's GDP. NO BANKING Addressing two key issues, Samsung said it would not move into the banking sector, nor would it set up a holding company. There has been widespread speculation that once the government eases restrictions, the major family-run "chaebol", or conglomerates, would snap up local banks. "Expectations about a holding company transformation vanished, which sent shares (at some Samsung units) lower," said Chang In-whan, CEO of KTB Asset Management. Analysts have long said Samsung would eventually have to adopt a holding company structure to give it more transparency and raise its value. A special prosecutor in January launched a probe into corruption allegations after a former top legal executive at the group said some of its top management hid money and kept a slush fund to bribe politicians, prosecutors and officials. The prosecutor indicted nine other top executives, but found no evidence to support the bribery allegation. If found guilty of tax evasion Lee could serve from five years to life in jail. South Korean conglomerates powered South Korea from the ashes of the 1950-53 Korean War to become Asia's fourth-largest economy, but have been accused for years of creating impenetrable management structures. Critics say few changes have been made over the years at the family-run business groups, despite a number of high-profile convictions of their leaders. "This cannot be considered a major reform measure even with Lee stepping down, because the management structure of Samsung is built up so that he can influence it as he wishes anyway," said Park Won-suk, a senior official with the People's Solidarity for Participatory Democracy, a leading shareholders' activist group. In contrast, pro-business groups have said the current management structure allows the group's leaders to develop long-term strategies largely free of the pressure from shareholders looking for big quarterly gains. (Additional reporting by Kim Yeon-hee, Marie-France Han, Yoo Choonsik , Lee Jiyeon and Rhee So-eui, editing by Jonathan Thatcher, Keiron Henderson & Ian Geoghegan)

WSJ editor quits as Murdoch puts stamp on paper. "I am proud to have been part of this exceptionally talented team," Marcus Brauchli said in a letter to staff on Tuesday. "But now that the ownership transition has taken place, I have come to believe the new owners should have a managing editor of their choosing." Brauchli, 46, will stay at News Corp as a consultant. While it was not clear if Brauchli resigned of his own accord, his departure is one of a series of events at the world-renowned paper that are allowing Murdoch to redesign the business as he looks to expand his media empire. On Tuesday, Murdoch was close to an agreement with Tribune Co to buy the daily newspaper Newsday for $580 million and run it as a joint venture with the New York Post, a source familiar with the matter told Reuters. Murdoch also has made several changes to the makeup of The Wall Street Journal, including giving political and general news more prominent placement in the paper as he remakes it into a direct competitor of The New York Times ( NYT.N ). Brauchli was named to the top editorial position at the paper a year ago, but his role was expected to be short-lived after Murdoch bought parent company Dow Jones & Co in December. Brauchli's announcement came after the 20-year veteran of The Wall Street Journal met with a committee designed to protect editorial integrity at the newspaper. The committee was created as a condition of News Corp's $5.6 billion purchase of Dow Jones. The committee said in a statement late on Tuesday that it had been told earlier in the week about Brauchli's decision to resign. "I am pleased he has accepted this new role in News Corporation and believe his experience will be a great asset, especially in Asia, a region where we see significant growth potential and where he has particular expertise," Murdoch said in a statement. Brauchli will advise the newspaper on the possibility of a business news channel for News Corp's STAR-TV in Asia, among other things, according to the statement. He previously worked as a foreign correspondent for the paper, based in places such as Hong Kong, Shanghai, Tokyo and Stockholm. He also served as deputy managing editor, global news editor and national editor. EDITORIAL INTEGRITY Time magazine first reported Brauchli's imminent resignation on its Web site late on Monday. The newspaper's editorial integrity committee, charged with approving the hiring and firing of top editors, met on Tuesday. A resignation as opposed to a firing would not require committee approval. "I don't think anybody when this all began doubted that the man who owns the place makes the decisions, and regardless of what kind of side agreements you might have," said independent newspaper analyst John Morton. Committee members contacted by Reuters either declined to comment or did not return calls seeking comment. Dow Jones said it was searching for a successor to Brauchli. Media consultant and Buzzmachine.com blogger Jeff Jarvis said Murdoch likely would not choose a replacement who would be rejected by the committee. "The check and balance on Murdoch is money," Jarvis said. "He's not going to ruin that franchise. It would be foolish." Since News Corp took over, Murdoch has changed the newspaper's format, expanding commentary, sports and lifestyle stories in addition to political and general news stories. He installed former Times of London editor Robert Thomson as publisher, a job that some current and former employees said obviated Brauchli's position. "The writing was on the wall nine months ago," one staffer said, referring to Thomson's appointment. Still, his leaving is unsettling for some staff. "Everyone loves Marcus and everyone is hypersensitive to Rupert encroaching on us," a second staffer said. Brauchli said News Corp management "scrupulously has avoided imposing any political or business viewpoints" on the paper's coverage and has enforced the code of conduct. "I am confident that our journalistic integrity remains intact and that News Corp is committed to a Journal that is vibrant, vital and preeminent in American journalism," his letter to the newspaper's staff said. News Corp shares fell 50 cents to close at $17.96 on the New York Stock Exchange. (Additional reporting by Kenneth Li , editing by Dave Zimmerman and Braden Reddall )

TI view disappoints, cites caution across markets. TI shares fell 2.5 percent in extended trade after the company also said on Monday its second quarter would be weaker than expected due to an uncertain economic situation. Analysts believed the order weakness was mainly in wireless even though TI did not say how much was in the rest of its business, which includes analog chips used in various markets including consumer electronics and industrial products. "We're just responding to our customers' conservatism. They're managing their inventory very tight," Chief Financial Officer Kevin March said in an interview with Reuters. TI cited inventory levels that would take about two weeks longer to clear than in the same quarter a year ago. While March said guidance was conservative across the board, he said demand for third-generation phones with fast Web links in particular would grow more slowly than anticipated. "Demand will probably increase over time, but at a more delayed pace than customers might have previously expected," March said, referring to the advanced 3G phones, which include as many as four times more TI chips than more basic phones. Qualcomm Inc, TI's main rival in wireless chips and a big player in 3G, is set to post results on Wednesday, a day after smaller rival Broadcom Corp reports. "I would attribute it to wireless despite the company's talk of a conservative outlook for the broad market," said Charter Equity Research analyst John Dryden, who estimated that about half of TI's analog business relates to cell phones. TI forecast second-quarter earnings per share of 42 to 48 cents on revenue of $3.24 billion to $3.5 billion. Analysts, on average, had expected 48 cents on revenue of $3.45 billion. Its first-quarter profit rose to $662 million, or 49 cents a share, from $516 million, or 35 cents a share, a year ago. Excluding a 6 cent-per-share tax benefit, the latest number met analyst expectations, according to Reuters Estimates. Revenue rose to $3.27 billion from $3.19 billion. Stifel Nicolaus analyst Cody Acree said it was not surprising that TI saw weak 3G demand after a disappointing view from its biggest customer, Nokia, last week, but that TI's broader caution beyond this was a new concern. "That's the biggest concern right now," said Acree, adding that wireless was likely the biggest factor in the disappointing second-quarter outlook. In March, TI forecast earnings per share of 41 to 45 cents on revenue $3.21 billion to $3.35 billion, warning at the time that wireless demand was weaker than expected, particularly from one customer. "It's disappointing that the visibility has not improved," Acree said. TI's March said chip demand for computer hard disk drives was weaker than expected in the first quarter. TI shares fell to $29.80 in extended trading from its close of $30.59 on the New York Stock Exchange. (Additional reporting by Michele Gershberg ; Editing by Andre Grenon and Braden Reddall )

Nomura: Fired employee at centre of insider probe. Nomura said earlier that it faced a probe that sources said involved leaked merger deal information. (Reporting by Junko Fujita )