Bristol-Myers to buy Amylin for about $5.3 billion

Fri Jun 29, 2012 11:57pm EDT

NEW YORK (Reuters) – Bristol-Myers Squibb Co will buy biotechnology company Amylin Pharmaceuticals Inc for about $5.3 billion in cash, helping Bristol-Myers extend its portfolio of diabetes treatments with the addition of drugs Byetta and Bydureon.

Bristol-Myers said late on Friday it had also reached a follow-on deal with UK-based AstraZeneca Plc to collaborate on developing Amylin’s products once the buyout is completed, expanding upon an existing partnership between the two pharmaceutical makers in diabetes treatments. AstraZeneca will pay $3.4 billion in cash for these rights.

Bristol-Myers and AstraZeneca already collaborate on several diabetes treatments including Onglyza, and aim to strengthen their position in a growing, multibillion-dollar market. More than 360 million people worldwide have diabetes, with the overwhelming majority suffering from type 2 diabetes, a condition partly attributable to the rise in obesity in many countries.

In a statement, Bristol-Myers Chief Executive Lamberto Andreotti described the deals as a unique way to build on its relationship with AstraZeneca, which “demonstrates Bristol-Myers Squibb’s innovative and targeted approach to partnerships and business development.”

The boards of directors at Amylin, Bristol and AstraZeneca have approved the two transactions, the companies said.

Amylin began approaching potential buyers in April after rejecting a previous $3.5 billion takeover bid from Bristol-Myers, and facing pressure from activist investor Carl Icahn.

In all, five pharmaceutical giants including AstraZeneca, Novartis AG and Sanofi SA were in the running for Amylin, sources familiar with the matter told Reuters this week.


Bristol-Myers will pay $31 per share for Amylin, a premium of 10 percent to the company’s closing price on Friday. Amylin’s shares had already tripled in value from a low of nearly $8 last October.

Amylin and Eli Lilly Co introduced Byetta for type 2 diabetes in 2005, and the longer-acting version Bydureon, which can be taken once a week, was approved by U.S. regulators earlier this year. Both contain the active ingredient exenatide.

Amylin scrapped its partnership with Lilly in November last year after the two became embroiled in a legal dispute. Bristol-Myers has agreed to pay an additional $1.7 billion to cover Amylin’s debt and its obligations to Lilly from ending their collaboration.

Bristol-Myers will finance the purchase from its existing cash resources and credit facilities. Amylin has agreed not to solicit competing offers. The transactions are expected to be dilutive to Bristol-Myers’ adjusted earnings in 2012 and 2013 by about 3 cents per share, and become slightly accretive in 2014.

Citi and Evercore are serving as financial advisers to Bristol-Myers and Kirkland Ellis LLP is its legal adviser. AstraZeneca’s financial adviser on the deal is Bank of America Merrill Lynch, while Davis Polk Wardwell LLP and Covington Burling LLP are its legal advisers.

Credit Suisse and Goldman Sachs Co. are acting as financial advisers to Amylin Skadden, Arps, Slate, Meagher Flom LLP is its legal adviser.

(Additional reporting by Chandni Doulatramani in Bangalore; Editing by Daniel Magnowski)

UK orders bank review, calls Diamond to panel

Sat Jun 30, 2012 9:04am EDT

LONDON (Reuters) – The British government has ordered an independent review into the workings of key lending rates between banks, after Barclays (BARC.L) was found guilty of rigging them, a spokeswoman for Britain’s Prime Minister said on Saturday.

The decision follows news that U.S. and British authorities fined Barclays $450 million for manipulating the London Interbank Offer Rate (Libor), the interest rate on loans that banks make to each other.

More banks are expected to be drawn into the scandal, which has fuelled public outrage at the culture and practices of the banking industry and prompted calls from lawmakers across the political spectrum for an inquiry.

The government plans a short, urgent review that would allow it to amend the Financial Services Bill currently going through parliament, the Prime Minister’s spokeswoman said. The review will examine Libor and the possibility of criminal sanctions.

When asked about a full public inquiry, Prime Minister David Cameron referred to a series of inquiries that had already taken place.

“Let’s take our time, think this through carefully…Let’s get this right,” he told BBC television.

A public inquiry would be a risky step for a government already under fire after a string of embarrassing revelations in a year of public hearings following last year’s phone-hacking scandal.

The American boss of Barclays, Bob Diamond, has been summoned to appear before British lawmakers on Wednesday July 4 to answer questions about the scandal.

On his last appearance before a parliamentary committee last year Diamond said it was time for bankers to stop apologizing. He is now under intense pressure to quit the bank, where he ran the investment banking arm Barclays Capital when the interest rate rigging occurred in 2005-2009.

“Parliament and the public need to know what went wrong and whether the perpetrators have been rooted out,” said Andrew Tyrie, head of Parliament’s Treasury Select Committee, which will be questioning Diamond.

“We also need to be given confidence that this has been put right.”

Barclays was the first bank to settle in an investigation that is looking at other large financial institutions in Europe, Japan and North America, including Citigroup (C.N), HSBC (HSBA.L) and UBS (UBSN.VX). No criminal charges have been filed but Britain has called in the fraud squad to investigate possible crimes.

Bank of England Governor Mervyn King launched an angry attack on British banking culture on Friday, saying something had gone very wrong with an industry which he derided for resorting to “deceitful” methods to make money.

The country’s most powerful monetary official, he said a fundamental overhaul was needed for a sector that is reeling from a string of financial scandals.

Britain’s banking industry, one of the largest cogs in Britain’s economy and important for tax revenue, has been knocked by a series of damaging headlines.

In the same week as the LIBOR scandal erupted, Britain’s Financial Services Authority said it had settled with four banks – Barclays, RBS, HSBC (HSBA.L) and Lloyds (LLOY.L) – after finding evidence they mis-sold products to protect small businesses against a rise in interest rates.

Justice Secretary Ken Clarke said that if any of the ongoing investigations revealed suspected criminal offences “they should be brought to trial”.

“We are very bad at prosecuting financial crime in this country,” he told BBC radio on Saturday.

“That is why when we’re setting up the National Crime Agency we should look at the record of the Serious Fraud Office. I suspect financial crime is easier to get away with in this country than practically any other sort of crime.” (editing by Sophie Walker)

BMW to hire thousands of permanent staff: report

Sat Jun 30, 2012 8:13am EDT

FRANKFURT (Reuters) – BMW (BMWG.DE) plans to hire thousands of permanent staff after cutting the number of its temporary workers by half, a German magazine reported on Saturday.

BMW’s management has struck an agreement with the company’s works council that will see the number of temporary workers fall to around 6,000 from about 12,000 currently, Wirtschaftswoche magazine reported in an article released ahead of publication on Monday.

At the same time, BMW would offer permanent positions to thousands of workers, many of whom are expected to come from the current pool of temporary staff, the magazine added.

The share of temporary workers in BMW’s labor force would therefore fall to around 8-10 percent from 17 percent, the magazine said, citing sources involved in the talks.

“The negotiations over a new employment contract have not yet ended but have progressed very far,” the magazine quoted a BMW spokesman as saying.

“An agreement in the coming weeks is very likely,” he added.

Car makers and other manufacturers in Germany have relied heavily on temporary and short-term contract workers in recent years to balance out swings in production and demand. (Reporting by Jonathan Gould; Editing by Sophie Walker)

Wall Street Week Ahead: Can EU deal lift stocks for more than a day?

Fri Jun 29, 2012 7:47pm EDT

NEW YORK (Reuters) – Stocks finished the first half of the year with a bang as investors welcomed news that the euro zone is a step closer to solving its 30-month-long debt crisis. Now for the question: Is this rally strong enough to last for more than a day?

The SP 500 and the Nasdaq posted their best daily percentage gains since December on Friday after an agreement by European leaders to stabilize the region’s troubled banks, a pact that helped remove some of the uncertainty that has plagued markets.

“That is the major question. Can this fuel a longer-term rally? It can, but only to some degree if, over the weekend and the course of next week, we don’t see any major push back or headlines that suggest that this deal is not going to happen,” said Quincy Krosby, a market strategist at Prudential Financial.

“But I don’t think this is a major game changer. I do, however, think that this is really the first time we got a relatively immediate answer to what they (the euro-zone leaders) are going to do about the issue.”

Under pressure to prevent a catastrophic breakup of their single currency, euro-zone leaders agreed on Friday to let their rescue fund inject aid directly into stricken banks starting next year and intervene in bond markets to support troubled member-states.

They also pledged to create a single banking supervisor for euro-zone banks based around the European Central Bank in a landmark first step toward a European banking union that could help shore up struggling member Spain.


Wall Street’s previous reaction to euro-zone bailout packages or other rescue plans had been somewhat muted. Initial gains would quickly disappear by the day’s end as investors realized that there isn’t a quick fix to the region’s problems.

On Friday, it was a different story. The three major U.S. stock indexes jumped 1.5 percent to 2 percent shortly after the opening bell on news of the euro-zone agreement.

By the close, stocks ended at session highs with the major indexes up between 2 percent and 3 percent. The Dow Jones industrial average .DJI surged 277.83 points, or 2.20 percent, to end at 12,880.09. The Standard Poor’s 500 Index .SPX jumped 33.12 points, or 2.49 percent, to finish at 1,362.16. And the Nasdaq Composite Index .IXIC shot up 85.56 points, or 3.00 percent, to close at 2,935.05.

For the week, the Dow rose 1.9 percent, the SP 500 advanced 2 percent and the Nasdaq gained 1.5 percent.

For the month, the Dow added 3.9 percent, the SP 500 rose 4 percent and the Nasdaq climbed 3.8 percent.

But for the second quarter, the Dow dropped 2.5 percent, the SP 500 slid 3.3 percent and the Nasdaq lost 5.1 percent.

Despite the weak second quarter, the three major U.S. stock indexes wrapped up the first half of the year with decent gains: The Dow was up 5.4 percent, the SP 500 was up 8.3 percent and the Nasdaq was up 12.7 percent.

“The next question is whether the ESM/EFSF will have enough capital and assuming they don’t, will the ECB chip in by giving it a bank license, thus leveraging its size. That is yet to be determined,” said Peter Boockvar, equity strategist at Miller Tabak Co in New York.

“For now, party on and turn that hourglass over as more time has been bought. But only the symptoms are being fought as the underlying disease of excessive debt and lack of growth still remains.”

The leaders of the 17 European Union countries agreed on a series of short-term steps to shore up their monetary union and bring down the borrowing costs of Spain and Italy, seen as too big to bail out.

To that end, the euro zone’s temporary European Financial Stability Facility (EFSF) and permanent European Stability Mechanism (ESM) rescue funds will be used “in a flexible and efficient manner in order to stabilize markets” to support countries that comply with EU budget policy recommendations, a joint statement said.

Any market reaction to further developments next week could be exaggerated by lighter-than-usual volume. Wall Street trading desks may be more sparsely populated because it will be a short week. The U.S. stock market will be closed on Wednesday, the Fourth of July, in observance of Independence Day. That could break any weekly momentum when Wall Street resumes trading on Thursday.


The market’s focus shifts to the European Central Bank next week as investors wait to see whether it cuts interest rates to complement the measures taken by EU leaders to shore up banks and bring down borrowing costs for Spain and Italy.

Most economists polled by Reuters expect the ECB to cut borrowing costs on Thursday, July 5, at its meeting, which takes place against a darkening economic backdrop.

But internal resistance to the central bank reviving its bond-buying program remains high. The ECB has already loosened its collateral rules to make it easier for banks in Spain to access its funds.

“Investors have to be cautious because the market may be getting ahead of itself. We really don’t have any details. The big question is still what direction the ECB takes next week,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

“It’s (the EU deal) certainly not a silver bullet for the debt crisis, but the market is kind of acting like it is. It may set us up for another push down in the weeks ahead.”

Stocks had enjoyed a run earlier this month on hopes that global central banks would announce additional measures to stimulate economic growth, which has been tepid.

On June 20, the Federal Reserve extended its “Operation Twist” program to sell short-term securities and buy longer-term ones to keep long-term borrowing costs down. But investors were disappointed when U.S. Federal Reserve Chairman Ben Bernanke, who spoke at a news conference after the Fed’s two-day policy meeting, gave few hints that further monetary stimulus was imminent, denting hopes of cheap money in the equities market.

European bond yields will be closely watched next week. Madrid will auction three-year, four-year and 10-year bonds at a primary auction on Thursday in another big test for Spanish yields that are still not far below 7 percent.

France will sell between 7 billion and 8 billion euros in long-term bonds on Thursday.

Next week’s data includes the Institute for Supply Management’s U.S. manufacturing index and construction spending on Monday, followed by factory orders and June car sales on Tuesday.

After the holiday on Wednesday, investors will face a blitz of economic indicators. On Thursday, weekly jobless claims and mortgage data, ADP’s private-sector payrolls report and the ISM’s U.S. services-sector index will be released.

On Friday, the government’s June nonfarm payrolls report will come out. Economists polled by Reuters have forecast a gain of 90,000 jobs, with the U.S. unemployment rate holding steady at 8.2 percent.

(Reporting by Angela Moon; Additional reporting by Steven C. Johnson; Editing by Jan Paschal)

GSK again extends its $2.6 billion Human Genome offer

Fri Jun 29, 2012 8:26am EDT

LONDON (Reuters) – GlaxoSmithKline (GSK.L) has again extended its $2.6 billion offer to buy long-time partner Human Genome Sciences (HGSI.O), until July 20, in a hostile stand-off with the U.S. biotech company.

The offer price remains unchanged at $13 per share.

The decision to push back the closing date for the bid comes as no great surprise since Human Genome effectively extended the war two weeks ago by setting a July 16 deadline for definitive takeover offers.

Buying Human Genome would give Britain’s biggest drugmaker the full rights to drugs on which the two companies collaborate.

GSK said on Friday it remained willing to talk to Human Genome, adding: “Extension of the tender offer to 20 July will provide HGS shareholders the opportunity to evaluate the outcome of the HGS board’s process relative to GSK’s offer.

“Based on circumstances at that time, GSK will consider all available options regarding its offer but can make no assurance that the tender offer will be further extended.”

GSK – the only company to have made an offer – has consistently refused to participate in the auction process being run by Human Genome’s advisers Goldman Sachs (GS.N) and Credit Suisse (CSGN.VX).

Human Genome says it has had contacts with other companies, but bankers say GSK has a big advantage over rivals because of its partnerships around key drugs.

The two companies together sell Benlysta, a new drug for the autoimmune condition lupus, and they also collaborate on two other experimental drugs for diabetes and heart disease that could become significant sellers.

GSK and Human Genome share rights to Benlysta, while GSK owns the majority of the commercial upside to the other products.

GSK’s tender had been due to expire at 1700 EDT on June 29. It was extended a first time on June 8 after GSK secured less than 1 percent of the biotech group’s stock in an initial tender round. The latest extension expires on July 20 at 1700 EDT.

(Additional reporting by Ben Hirschler; Editing by Matthew Tostevin)

EU deal for Spain, Italy buoys markets but details sketchy

Fri Jun 29, 2012 9:48am EDT

BRUSSELS (Reuters) – Under pressure to prevent a catastrophic breakup of their single currency, euro zone leaders agreed on Friday to let their rescue fund inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states.

They also pledged to create a single banking supervisor for euro zone banks based around the European Central Bank in a landmark first step towards a European banking union that could help shore up struggling member Spain.

“It is a first step to break the vicious circle between banks and sovereigns,” European Council President Herman Van Rompuy told a final news conference after talks which stretched right through the night.

The deal was widely seen as a political victory for embattled Italian Prime Minister Mario Monti and his Spanish counterpart, Mariano Rajoy, over German Chancellor Angela Merkel, who had brushed aside any need for such emergency measures earlier this week.

European Central Bank President Mario Draghi endorsed the “tangible results”, which sent the euro sharply higher and cut Spanish and Italian bond yields. European shares rose, led by banking stocks buoyed by the prospect of moves to backstop the financial system.

“I am actually quite pleased with the outcome of the European Council. It showed the long-term commitment to the euro by all member states of the euro area,” Draghi told reporters.

Most economists polled by Reuters expect the ECB to cut borrowing costs at its July 5 meeting, which takes place against a darkening economic backdrop. But internal resistance to the central bank reviving its bond-buying program remains high.

After 14 hours of intense talks that ended at 4.30 a.m. (2230 EDT), the 17 leaders agreed on a series of short-term steps to shore up their monetary union and bring down the borrowing costs of Spain and Italy, seen as too big to bail out.

To that end the euro zone’s temporary EFSF and permanent ESM rescue funds will be used “in a flexible and efficient manner in order to stabilize markets” to support countries that comply with EU budget policy recommendations, a joint statement said.

It gave few specifics, but euro zone officials said the funds could buy bonds on both the primary and secondary markets on the basis of a memorandum of understanding signed with the requesting state and up to a funding limit to be agreed.

Both Italy and Spain said they did not intend to call on that mechanism to stabilize markets for now, hoping the Brussels agreement will serve as a sufficient deterrent.


In a key concession by EU paymaster Germany, the leaders agreed to waive the ESM’s preferred creditor status on lending for Spanish banks, removing a key deterrent to investors buying Spanish government bonds, who feared having to take the first losses in any debt restructuring.

“We have taken decisions that were unthinkable just some months ago,” European Commission President Jose Manuel Barroso said.

Despite the concessions by Berlin allowing euro zone rescue funds to be used more flexibly, questions remained about the conditions, size and supervision of any future aid for Spain and Italy.

Monti, determined to avoid the political stigma of the bailout terms imposed on Greece, Ireland and Portugal, said countries that complied with EU budget recommendations would not receive extra austerity conditions or be subject to intrusive inspections by a “troika” of international lenders.

Merkel, eager to minimize any concessions to avoid giving the impression back home that she had blinked first, said strict conditionality would still apply to the use of rescue funds and countries would face stringent monitoring by the EU Commission and the ECB.

“There was pressure here to find a solution and I saw my role as ensuring that these solutions should respect the procedures that we already know and have, and the guidelines given by the Bundestag,” she said.

The Spanish and Italian leaders threatened to block a package of measures to promote growth to pressure Merkel to accept measures to ease their borrowing costs, delaying the talks for hours.

New French President Francois Hollande has backed the need for bold steps to help the bloc’s third and fourth biggest economies, adding to the pressure on Merkel, who earlier in the evening had to watch Germany lose to Italy 2-1 in the Euro 2012 soccer semi-final.

Hours before the lower house of the German parliament was due to approve the euro zone’s permanent rescue fund and a fiscal compact treaty to enforce budget discipline more strictly, she reaffirmed her firm opposition to common euro zone bonds.

But Merkel failed to achieve any immediate progress on her demands for EU authorities to be given the power to override national budgets and economic policies. The issue was kicked down the road to October, when top EU officials led by Van Rompuy will deliver a more detailed report.


The leaders also postponed a decision on the future heads of the Euro group of euro zone finance ministers and the ESM rescue fund and an ECB executive board position because Merkel left early to attend the parliament debate in Berlin.

That avoided another setback for Germany, since veteran Euro group chairman Jean-Claude Juncker of Luxembourg was set to be reappointed for a limited period because other countries including France did not want German Finance Minister Wolfgang Schaeuble to get the job, to avoid the impression that Berlin is calling all the shots in the euro zone.

Market economists applauded both the short-term measures to steady markets and the longer-term direction, saying that for once, after 20 summits since the crisis began in early 2010, euro zone leaders had exceeded admittedly low expectations.

“I think the ECB being made the banking supervisor is actually the biggest long-term step because it points the way to banking union,” said Megan Greene, analyst at Roubini Global Economics, which is often deeply pessimistic about the euro zone’s future.

“The EU summit surpassed expectations by taking a significant step towards banking union,” Commerzbank economist Nick Kounis said in a note.

“The move to recapitalize banks directly is a big deal and will help to break the ‘vicious circle’ between banks and sovereigns that has been at the very heart of this crisis.”

While the ESM’s ability to inject capital directly into banks will come too late to help Spain recapitalize its debt-laden lenders immediately this year, Madrid should benefit next year when the banks should be able to repay the state money borrowed from the ESM, euro zone officials said.

The ESM will be empowered to make such direct loans to banks once a single European banking supervisory body is set up. Merkel said finance ministers would have to work out whether the state or the banks would be legally responsible for repayment of the loans thereafter.

Some analysts were more skeptical about the benefits of the deal, given the level of detail left open.

“It is one step on a very long road,” said Charles Diebel, head of market strategy at Lloyds Bank, adding that Germany’s acquiescence suggested leaders were increasingly adopting a “whatever it takes” approach.

“But we don’t have any details and arguably the detail is where the risk lies because the market will start to pick holes in it, as we’ve seen previously.”

Ireland, which had to take an EU/IMF bailout in 2010 after suffering a similar bank meltdown and property bust to Spain, hailed the decisions as a “game changer”, saying it would seek similarly favorable conditions for its own taxpayers.

(Additional reporting by Jan Strupczewski, Julien Toyer, John O’Donnell, Catherine Bremer and Francesco Guarascio in Brussels; Writing by Noah Barkin and Paul Taylor, editing by Mike Peacock)

May consumer spending weakest in six months

Fri Jun 29, 2012 9:22am EDT

WASHINGTON (Reuters) – Consumer spending was flat in May for the first time in six months as demand for motor vehicles waned, but weak inflation pressures should ease the burden on cash-strapped households.

The Commerce Department said on Friday April’s consumer spending was revised down to show only a 0.1 percent rise instead of the previously reported 0.3 percent gain.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was also held back by weak sales at service stations as the pump price of gasoline fell from lofty levels early in the year.

“We’re seeing consumer spending come off the boil a bit over the last few months. That’s to be expected, given uncertainty across the board and the troubling headlines we’ve seen,” said Omer Esiner, chief analyst at Commonwealth Foreign Exchange in Washington.

U.S. stock index futures held onto sharp gains after the data, while Treasury debt prices maintained earlier losses. The dollar held onto losses versus the euro.

Spending rose 0.1 percent after adjustment for inflation. The small rise could cause economists to tweak their second-quarter forecasts for real consumer spending – currently in a range of 2 percent to 2.3 percent.

Spending grew at a 2.5 percent annual rate in the first quarter, with the overall economy expanding at a modest 1.9 percent rate.

Weak gasoline prices put downward pressure on inflation last month. A price index for personal spending fell 0.2 percent in May, the first decline in a year. The index was flat in April.

In the 12 months through May, the PCE index was up 1.5 percent, the smallest increase since January last year. It increased 1.9 percent in April.

A core measure that strips out food and energy costs advanced 0.1 percent last month after rising by the same margin in April. In the 12 months through May, the core PCE rose 1.8 percent, slowing from 2.0 percent the prior month.

Last month, spending on long lasting goods, like autos, fell 0.4 percent after dipping 0.2 percent in April. Auto sales had been boosted by pent-up demand after last year’s earthquake and tsunami in Japan left showrooms bereft of popular models.

Automakers reported unit sales declined in May.

Spending on nondurable goods fell 0.8 percent, with services advancing 0.3 percent.

Weak income growth as the economy struggles to generate enough jobs to cut into high unemployment is also curbing spending. Income rose 0.2 percent after a similar gain in April. The increase was in line with economists’ expectations.

The amount of income available to households after accounting for taxes and inflation, rose 0.3 percent. That followed a 0.1 percent gain in April.

With spending less than income, the saving rate rose to 3.9 percent from 3.7 percent the prior month.

(Reporting By Lucia Mutikani; Editing by Neil Stempleman)

Fed’s Dudley eyeing U.S. jobs, Europe

Fri Jun 29, 2012 9:35am EDT

NEW YORK (Reuters) – An influential Federal Reserve official said he modestly lowered his expectations for inflation in coming months, but added greater clarity on the U.S. jobs market and the European crisis was required before taking a firmer stance on the health of the U.S. economy.

New York Fed President William Dudley, a close ally of Chairman Ben Bernanke and a key barometer of the thinking inside the U.S. central bank, said on Friday employment growth has “slowed considerably of late” as the economy has lost momentum.

Dudley, a policy dove, referenced the Fed’s decision last week to boost monetary stimulus to the stalled U.S. recovery, but offered no fresh insight on what spurred policymakers to take that particular step, nor whether more easing might be needed.

“Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further,” Dudley said in prepared remarks to the Puerto Rico Chamber of Commerce.

“I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further,” he was to say via video link.

Three consecutive months of disappointing U.S. jobs growth and the simmering euro zone debt crisis led the Fed to extend by six months and $267 billion a bond maturity-extension program called Operation Twist.

Also last week, the Fed slashed its expectations for GDP growth over the next two years and trimmed an inflation prediction, while raising expectations for the unemployment rate, which in May stood at 8.2 percent.

But it decided not to take the more aggressive step of launching another bond-buying program, known as QE3.

Dudley voted for the Operation Twist extension despite having said on May 30 that, for now, additional Fed stimulus was not warranted. As head of the important New York regional Fed bank, he has a permanent vote on Fed policy.

Giving more detail than in a speech a month ago, and citing falling gasoline prices, Dudley on Friday said he expects inflation to decline “a bit in coming months, falling somewhat further below our 2-percent objective.”

The recovery has been disappointing, he added. “Despite a monetary policy that has been extraordinarily accommodative by historical standards, the economy has grown only about 2 percent over the past year. After a brighter start to the year, economic momentum has slowed in the last few months,” Dudley said.

(Reporting by Jonathan Spicer; Editing by Theodore d’Afflisio)

Wall Street set to rally on EU agreement

Fri Jun 29, 2012 9:37am EDT

NEW YORK (Reuters) – Stocks soared at the open on Friday after euro zone leaders agreed to allow rescue funds to be used to stabilize the region’s banks.

The Dow Jones industrial average .DJI was up 188.68 points, or 1.50 percent, at 12,790.94. The Standard Poor’s 500 Index .SPX was up 20.30 points, or 1.53 percent, at 1,349.34. The Nasdaq Composite Index .IXIC was up 53.61 points, or 1.88 percent, at 2,903.10.

(Reporting by Ryan Vlastelica; Editing by Dave Zimmerman)

Jobless claims fall last week, but still high

Thu Jun 28, 2012 8:46am EDT

WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits fell last week, government data showed on Thursday, but remained too high to signal any major improvement in the labor market.

Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 386,000, the Labor Department said. The prior week’s figure was revised up to 392,000 from the previously reported 387,000.

Economists polled by Reuters had forecast claims easing to 385,000 last week. The four-week moving average for new claims, considered a better measure of labor market trends, slipped 750 to 386,750.

The labor market has lost a step in recent months as uncertainty spawned by the debt crisis in Europe and an unclear fiscal policy path at home has made businesses reluctant to hire. However, there are no signs in the claims data that companies are responding to that uncertainty by laying off workers.

Jobless claims have barely moved since April and the lack of improvement suggests a fundamental weakness in the labor market.

Concerns about the jobs market prompted the Federal Reserve last week to ease monetary policy further by extending a program to re-weight bonds it already holds toward longer maturities to hold down borrowing costs.

A Labor Department official said there was nothing unusual in the state-level data and no state had been estimated.

The number of people still receiving benefits under regular state programs after an initial week of aid fell 15,000 to 3.3 million in the week ended June 16.

That covered the survey period for June’s unemployment rate. The jobless rate rose in May for the first time since last August and could remain elevated as most states stop offering extended benefits to the long-term unemployed.

Only six states and the District of Columbia were offering extended benefits in the week ended June 9. A total of 5.9 million people were claiming unemployment benefits under all programs during that period, up 71,724 from the previous week.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)