Spain says there must be no limit set on ECB bond buying

Sat Aug 18, 2012 8:45am EDT

MADRID (Reuters) – The European Central Bank must take forceful and unlimited steps to buy sovereign debt to help Spain reduce its refinancing costs and eliminate doubts over the euro zone’s future, Spain’s economy minister said in comments published on Saturday.

“There can be no limit set or at least (the ECB) can’t say how much they will use or for how long,” when it buys bonds in the secondary markets, Luis de Guindos told Spanish news agency EFE.

The Spanish government will study the details of the ECB’s debt-buying program, which are likely to be outlined before the Eurogroup meeting mid-September, before making a decision on applying for more European aid, de Guindos said.

Spain is at the centre of the euro zone debt crisis on concerns it may need a full bailout, which could stretch euro funds to breaking point, on top of up to 100 billion euros ($122.97 billion) it has already requested for its struggling banks.

Prime Minister Mariano Rajoy has said his government would study any measures by the ECB and the potential conditions attached to any EU aid before deciding whether to apply for help.

In response to a renewed intensification of the debt crisis, ECB President Mario Draghi said on August 2 the ECB may buy more government bonds, but only once countries had turned to the bloc’s rescue funds for help and agreed to strict conditions.

“I believe Spain has presented its budget adjustment program and its structural reforms, which from a general point of view, have been accepted as sufficient and appropriate,” de Guindos said.

Rajoy has introduced austerity measures worth around 10 percent of GDP to reduce the public deficit to within EU-guidelines of below 3 percent of GDP by end-2014 as well as reforms to the financial system and labor markets.

The yield on Spain’s benchmark 10-year bond fell to its lowest level since early July on Friday after German Chancellor Angela Merkel voiced support for the ECB’s crisis-fighting strategy, reinforcing expectations of ECB interventions.

The central banks has barely used its existing bond-buy plan this year and has bought no bonds for 22 weeks despite an intensification of the euro zone debt crisis.


Spain’s public deficit leapt to 8.9 percent of gross domestic product in 2011 due, in part, to overspending by its 17 politically autonomous regions and spooking investors which have since virtually priced the regions out of debt markets.

Madrid passed an 18-billion-euro program mid-July to help the regions which, together with the country’s local authorities, account for around half of all public spending and face debt redemptions of some 36 billion euros this year.

The state lottery would raise 6 billion euros via a syndicated loan in the next few days to feed in to the liquidity program, de Guindos said in the interview.

The government of the Mediterranean region of Murcia became the second authority ask Madrid for help on Friday, saying it may need as much as 700 million euros in 2012.

Murcia follows Valencia, which said at the end of July it will need to apply to the fund. Spain’s largest region of Catalonia has also said it was studying whether apply for cash from the fund.

Murcia will soon ask for around 85 million euros to cover debt redemptions and 225 million euros to finance its first-half deficit, though could request another 400 million before the end of the year, they said on Friday.

The aid comes with strict conditions, set by Madrid, to meet deficit targets by reducing spending and raising taxes. ($1 = 0.8132 euros)

(Reporting By Paul Day; editing by Ron Askew)

Automaker Fisker recalls some 2,400 Karmas for cooling fan issue

Sat Aug 18, 2012 4:16pm EDT

DETROIT (Reuters) – Fisker Automotive, a green car company that received funding from the U.S. government, is recalling about 2,400 Karma plug-in hybrids to repair a faulty cooling fan unit that was the cause of a vehicle fire in Woodside, California last week.

The Anaheim, California-based automaker, founded in 2007, said the August 10 fire began in front of the left wheel, where the low temperature cooling fan is located. An “internal fault” caused the sealed unit to fail, starting a slow burning fire, Fisker said in a statement on Saturday.

“The company is working with the responsible supplier and this recall campaign is not expected to have a material financial impact on Fisker,” the company said, adding that it has already contacted its dealers and U.S. safety regulators.

The recall represents another challenge for the automaker, which faced several setbacks with the Karma launch, including a recall of its battery made by A123 Systems Inc. This is the second time this year that a Fisker has caught on fire.

Earlier this year, the U.S. Department of Energy denied Fisker access to more than half of a $529-million government loan awarded in 2009 due to delays in the Karma launch.

Fisker has benefited from its styling and high-profile clientele, including actor Leonardo DiCaprio and pop singer Justin Bieber.

The recall comes after a nearly week-long investigation by Fisker engineers and investigators from the Pacific Rim Investigative Services Group. The group found that the cause of the fire did not stem from the Karma’s lithium-ion battery pack.

Fisker said it will replace the cooling fan unit and add an additional fuse for extra protection.

“This incident resulted from a single, faulty component, not our unique EVer powertrain or the engineering of the Karma,” Henrik Fisker, the company’s executive chairman and co-founder, said in a statement.

“As this situation demonstrates, Fisker Automotive is dedicated to doing whatever is necessary to address safety and quality concerns,” he said.

Fisker is hoping to regain footing with the Atlantic sedan, which will cost about half the price of a Karma, which costs more than $100,000.

But Fisker must find more funding because the bulk of the DOE loan was earmarked for the Atlantic’s development. Bringing the Atlantic to market is the top priority for Fisker’s new chief executive, Tony Posawatz.

Posawatz, the company’s third CEO this year, oversaw development of the Chevy Volt plug-in hybrid for six years before leaving General Motors this summer.

(Reporting By Deepa Seetharaman; Editing by Paul Simao)

UK lawmakers say Libor case shows Barclays flawed

Sat Aug 18, 2012 10:17am EDT

LONDON (Reuters) – Company culture at Barclays (BARC.L) was “deeply flawed” and the Bank of England’s hand in removing its chief executive Bob Diamond was hard to justify, a UK parliamentary report into the “disgraceful” rigging of Libor interest rates said on Saturday.

Few emerge unscathed from the Treasury Select Committee’s 300-page report and annexes, based on a string of high-profile hearings after Barclays was fined a record $453 million on June 27 for manipulating the London Interbank Offered Rate or Libor.

“Such behaviour would only be possible if the management of the bank turned a blind eye to the culture of the trading floor,” the report said.

“The standards and culture of Barclays, and banking more widely, are in a poor state,” it said, adding it was unlikely the bank acted alone.

Barclays is the first of several banks expected to be fined for rigging a rate which forms a reference point for home loans, credit cards and other financial transactions worth over $350 trillion globally.

The report slammed the UK’s Financial Services Authority (FSA) watchdog for being behind the curve, giving ammunition to London’s critics by starting its own formal probe into Libor setting two years after U.S. authorities had kicked off theirs.

It said the delay contributed to the perceived weakness of London in regulating financial markets and recommended many reforms, several of which are already being looked at elsewhere, such as criminal penalties and direct oversight.

The FSA responded that its managing director Martin Wheatley will consider the report’s findings in his government-commissioned review of Libor due to be published in September.

The government also welcomed the report and would consider any necessary legislative changes called for by Wheatley.

Barclays said it does not expect to agree with all the report but “we recognize that change is required, not least to restore stakeholder trust”.


The FSA and U.S. authorities are still probing HSBC (HSBA.L), Royal Bank of Scotland (RBS.L), Lloyds (LLOY.L) and several non-UK banks in connection with possible manipulation.

Diamond, Barclays’ Chairman Marcus Agius and Chief Operating Officer Jerry del Missier all quit in July.

Bank of England Governor Mervyn King and FSA Chairman Adair Turner told lawmakers they did not demand that Diamond step down, but the report concluded that their intervention meant it was a “fait accompli”.

King and Turner stepped in following public outrage over Barclays after the rigging was disclosed in June.

“The Governor’s involvement is difficult to justify,” the report said, dismissing King’s defence the Bank would be regulating lenders anyway from 2013 when the FSA is scrapped.

The central bank must be made accountable to avoid such potential abuses of power, the report said.

The Bank of England said in a statement it did not have any regulatory responsibility for Libor at the time and that King’s meeting with Agius on the day he resigned was “fully justified”

The report criticised Barclays’ board for several failings and Diamond himself, saying his testimony to parliament was unforthcoming and selective in parts, and fell well short of the candour and frankness expected.

Diamond said in a statement he had responded to questions from lawmakers “truthfully, candidly and based on information available to me. I categorically refute any suggestion to the contrary.”

A focus of the hearings was a conversation between Diamond and Bank of England Deputy Governor Paul Tucker in October 2008 when markets were in meltdown after the collapse of U.S. bank Lehman Brothers the previous month.


They agreed that the conversation did not amount to directing Barclays to “low ball” its Libor rate submission in a bid to show it had no problem borrowing from other banks.

The heavy public emphasis by Barclays on this conversation may have been a “smokescreen” to distract from more serious failings at the lender and made no fundamental difference to the bank’s behaviour, the report said.

“Barclays did not need a nod, a wink or any signal from the Bank of England to lower artificially their Libor submissions. The bank was already well practiced in doing this,” it said.

Tucker told the lawmakers that possible clues to dishonesty did not ring alarm bells at the time, suggesting “naivety” on the part of the BoE, the report added.

Tucker has long been seen as a leading candidate to replace BoE Governor Mervyn King, who stands down next year, and while his grilling in the hearings was seen as setting back his chances, he escapes the trenchant criticism levied at other players.

Turner, another candidate for the deputy governorship, also escapes uniformly bad criticism, the report saying the FSA was on the case in questioning Barclays’ culture of risk taking.

But the FSA’s probe left unanswered whether senior figures from Whitehall, a reference to government, instructed Tucker to ask Barclays to low ball its Libor submissions.

Evidence received by lawmakers suggested Whitehall simply wanted to know if government efforts to prop up the financial system were working and Barclays was safe, the report said.

“This was understandable given the fragility of the UK and international financial system in October 2008,” it added.

Libor is overseen by the British Bankers’ Association (BBA), whose review in 2008 appears to have been “an opportunity missed to stop the attempted manipulation that was occurring” and the report questions whether the BBA should keep its role.

(Editing by David Holmes, Ron Askew)

Deutsche Bank investigated in U.S. over Iran: New York Times

Sat Aug 18, 2012 1:52pm EDT

CHICAGO (Reuters) – U.S. prosecutors are investigating Deutsche Bank and several other global banks over business linked to Iran, Sudan and other nations currently under international sanctions, the New York Times reported on Saturday.

The U.S. Justice Department and the Manhattan District Attorney’s office are investigating the banks for allegedly using U.S. branches to move billions of dollars in Iran-linked transactions, according to the report, citing unnamed law enforcement officials.

The investigation into Deutsche Bank is at an early stage and so far there is no suspicion the Germany-based institution moved money on behalf of Iranian clients through American operations after 2008, when a policy loophole allowing such maneuvering closed, the Times reported.

Deutsche Bank decided in 2007 it would “not engage in new business with counterparties in countries such as Iran, Syria, Sudan and North Korea and to exit existing business to the extent legally possible,” a spokesman told Reuters on Saturday. He declined to comment further.

The Manhattan District Attorney’s office and U.S. Justice Department declined to comment. The U.S. Treasury Department did not immediately respond to a request for comment.

The report of the Deutsche Bank (DBKGn.DE) probe came days after a settlement for $340 million with New York’s banking regulator and Britain’s Standard Chartered Plc (STAN.L). The Manhattan District Attorney and federal authorities have not yet settled their probes of the bank.

That deal with New York Superintendent of Financial Services Benjamin Lawsky was done without agreement with the Manhattan District Attorney’s office and federal authorities.

Reuters has learned that Lawsky ignored the entreaties of federal regulators to drop his own action in favor of a single, global settlement. Although winning a larger settlement than many thought possible, others say Lawsky’s tactics have alienated federal officials and could make it tougher for him to partner with them on future cases.

Since 2009 the Manhattan District Attorney, Treasury Department, Justice Department and other agencies have entered into settlements with a handful of foreign banks including Credit Suisse (CSGN.VX), Lloyds (LLOY.L) and most recently ING (ING.AS), totaling roughly $1.8 billion.

Authorities have said in the past other foreign banks are under investigation.

(Reporting by Eric Johnson; Additional reporting by Victoria Bryan, Philipp Halstrick and Karen Freifeld; Editing by Will Dunham)

Heineken lifts Tiger beer bid to $6.35 billion

Fri Aug 17, 2012 7:06pm EDT

SINGAPORE/AMSTERDAM (Reuters) – Heineken NV (HEIN.AS) raised its offer for Fraser and Neave’s (FRNM.SI) stake in the maker of Tiger beer to $6.35 billion on Friday, seeking to fend off a Thai rival for control of a leading brand in the fast-growing Southeast Asian market.

The Dutch brewer confirmed an earlier Reuters report late on Friday night when it made a revised offer for Asia Pacific Breweries (APB) (APBB.SI) of 53 Singapore dollars per share. It had previously bid S$50 per share, while a Thai billionaire’s group made a partial offer of S$55 per APB share.

Heineken, the world’s third-biggest brewer, is seeking control of Asia Pacific Breweries to gain a larger slice of one of the last beer markets that is still growing rapidly.

But Heineken’s efforts have been complicated by Charoen Sirivadhanabhakdi, Thailand’s second-richest man, who wants to expand his Thai Beverage (TBEV.SI) empire in Southeast Asia.

Heineken’s offer for the APB shares owned by drinks and property conglomerate Fraser Neave (FN), its long-time partner, would give it a total 81.6 percent stake and trigger a general offer for the rest of APB.

“I am pleased that FN’s board has agreed that our increased offer, which is now final, represents excellent value for FN and APB shareholders,” Heineken’s chief executive, Jean-Fran├žois van Boxmeer, said in a statement.

“Our Asian headquarters will continue to be based in Singapore, and we remain 100 percent committed to the growth and success of APB and the Tiger brand.”

Heineken said FN’s board had agreed to recommend the deal to its shareholders and not to “solicit, engage in discussions or accept any alternative offer or proposal” for its interests in APB.

ThaiBev recently became FN’s largest shareholder with 26.4 percent. Charoen’s son-in-law, through his group Kindest Place, separately offered to buy FN’s direct 7.3 percent stake in APB at S$55 per share.


“Heineken’s resolve to win APB seems to be very strong,” said Andrew Chow, head of research at UOB Kay Hian in Singapore.

“APB has an extensive distribution network and breweries. Its Tiger brand is also strong in Asia.”

The Thais have said they want to work with Heineken, but sources close to the situation say it would not be keen to cooperate with a competitor.

“Heineken wants full control of Asia Pacific Breweries, while Charoen wants a piece of that growth and is positioning himself to gain handsomely if Heineken wants to buy him out in the future,” said an investment banking source in London.

APB has had nearly 20 percent annual earnings growth over the last decade.

The biggest brand APB brews is Heineken itself, accounting for 30 percent of its volume, but it also makes Tiger, Bintang and Anchor and runs 30 breweries in countries including Singapore, Malaysia, Indonesia, Vietnam, Thailand and Cambodia.

Among Southeast Asian brewers, APB is the sixth-largest in terms of sales across the Asia Pacific region, behind San Miguel Corp (SMC.PS) of the Philippines in number one spot and ThaiBev in fourth, according to Euromonitor’s latest data for 2011.

Heineken had said its final offer of S$53 a share represented a premium of 54 percent over the one-month volume weighted average price per APB share.

Trading of APB and FN shares in Singapore was suspended on Friday pending an announcement.

ABP shares have jumped from under S$35 in mid-July before stake building began to S$50.57 at Thursday’s close. FN shares, meanwhile, have risen from S$7.40 since mid-July to end at S$8.40 on Thursday. Both have hit record highs in recent weeks.

The Heineken deal could prompt a breakup of FN with Coca-Cola (KO.N) keeping an eye on its popular soft-drink 100PLUS, fruit juices, mineral water and dairy products unit, which could be hived off from the Singapore group’s property assets.

Goldman Sachs (GS.N) is advising FN, while Citigroup (C.N) and Credit Suisse (CSGN.VX) are advisers to Heineken. Morgan Stanley (MS.N) and HSBC (HSBA.L) are advising the Thais.

(Writing by Sara Webb and John O’Callaghan; Additional reporting by Denny Thomas in HONG KONG, David Jones in LONDON, and Sara Webb in AMSTERDAM; Editing by Matthew Tostevin, Bernard Orr)

Judge rejects Facebook settlement over ad feature

Fri Aug 17, 2012 9:13pm EDT

SAN FRANCISCO (Reuters) – A U.S. judge rejected Facebook Inc’s proposed legal settlement to resolve allegations that the social networking company violated its members’ rights through the its ‘Sponsored Stories’ advertising feature.

In an order on Friday, U.S. District Judge Richard Seeborg in San Francisco listed several concerns with the proposed settlement, including a request for more information on why the agreement does not award any money to members.

Seeborg said the company and attorneys for the plaintiffs could try to modify their agreement to address his concerns.

“We continue to believe the settlement is fair, reasonable, and adequate,” a Facebook spokesman said in a statement. “We appreciate the court’s guidance and look forward to addressing the questions raised in the order.”

Representatives for the plaintiffs could not immediately be reached for comment.

Five Facebook members filed a lawsuit seeking class-action status against the social networking site, saying its Sponsored Stories feature violated California law by publicizing users’ “likes” of certain advertisers without paying them or giving them a way to opt out. The case involved 100 million potential class members.

As part of the proposed settlement, Facebook agreed to allow members more control over how their personal information is used. In the opinion of one economist hired by the plaintiffs, contained in a court filing, the value to Facebook members resulting from the changes is about $103 million.

Facebook had also agreed to pay $10 million for legal fees, and $10 million to charity, according to court documents.

The case is Angel Fraley et al., individually and on behalf of all others similarly situated vs. Facebook Inc, U.S. District Court, Northern District of California, 11-cv-1726.

(Reporting By Dan Levine; Editing by Gary Hill)

U.S. tightens reins on Fannie Mae, Freddie Mac

Fri Aug 17, 2012 5:17pm EDT

WASHINGTON (Reuters) – The U.S. Treasury on Friday revamped the bailout of Fannie Mae and Freddie Mac to curb chances the giant mortgage finance firms could emerge from government control as the powerful, profit-driven corporations they once were.

The Treasury said it would require the companies, whose massive losses threatened the financial system after the housing bubble burst in 2007, to shrink their investment portfolios more quickly and turn over any profits to taxpayers.

Previously, the companies, which buy mortgages from lenders and repackage them as securities for investors, were required to make a 10 percent dividend payment to the Treasury. At times, they had to borrow from the Treasury just to make the payments. Now, they simply won’t be able to retain any profits.

The new terms mark the latest step in Fannie Mae and Freddie Mac’s fall from grace. The two companies were highly profitable and politically powerful as the U.S. housing bubble built. Now, most officials think they should eventually be dissolved.

Lawrence Yun, chief economist at the National Association of Realtors, said the changes effectively make the two companies government utilities. “That new institution will be such that it’s not going to be a for-profit company. It’s just going to generate enough revenue to operate,” he said.

Fannie Mae and Freddie Mac were seized by the government at the height of the financial crisis in 2008 as mortgage losses threatened their solvency. Since then, they have drawn a total of $188 billion in taxpayer funds to stay afloat, while paying more than $45 billion in dividends.

At the start of next year, the unlimited support the Treasury extended to the two companies will expire. After December 31, Fannie Mae’s bailout will be capped at $125 billion and Freddie Mac will have a limit of $149 billion.

The companies’ corporate debt price rallied as the new policy alleviated the need for Fannie Mae and Freddie Mac to borrow from the government just to make dividend payments, putting them in a better position to service their debt.

“You fixed the major flaw in the initial agreement,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.

However, their preferred shares lost more than half their value in heavy trading as investors saw the plan as undercutting the ability of either company to ever emerge from government conservatorship as profitable entities. Their common shares also fell.

With the U.S. housing market showing signs of improvement and Fannie Mae and Freddie Mac reducing their portfolios of loans with poor credit quality, the government-controlled companies posted strong profits in the second quarter of this year.

The Treasury said the altered bailout terms would ensure that “every dollar of earnings that Fannie Mae and Freddie Mac generate will be used to benefit taxpayers for their investment in those firms.”

The American Bankers Association, which represents all U.S. banks, praised Treasury’s move and said it helps ensure that taxpayers will ultimately be repaid.


Although the Treasury said the changes would accelerate plans to eventually shut the companies down, the announcement did little to address how that might be achieved or how the government’s footprint in the mortgage finance market might shrink. Fannie Mae, Freddie Mac and the Federal Housing Administration finance nine out of every ten new home loans.

Early last year, the administration proposed three options to reshape the housing finance system, ranging from privatizing the market almost entirely to allowing the government to insure certain mortgages. But the administration has never provided detailed plans on how to move forward.

While Democrats and Republicans agree on the need to reduce the government’s role in housing finance, they disagree on how sharply it should be scaled back.

Representative Elijah Cummings, a Democrat heavily involved in housing issues, applauded the new terms, which will also require the companies to annually submit plans to Treasury on how they will protect taxpayers’ interests.

In contrast, Republican Representative Scott Garrett, who chairs a congressional panel that oversees the companies, characterized the changes as the administration kicking the can down the road and avoiding crucial policy decisions.

As part of the new terms, Fannie Mae and Freddie Mac will be required to reduce their investment portfolios at an annual rate of 15 percent instead of the previous 10 percent. That will put each of them on track to cut their portfolios to a targeted $250 billion in 2018, four years earlier than planned.

Fannie Mae’s investment portfolio, valued at $673 billion as of the second quarter, holds distressed loans and mostly mortgages that were originated before 2008. Freddie Mac’s investment portfolio was valued at $581 billion as of June.

During the years of the housing boom, their portfolios generated enormous profits.

(Additional reporting by Richard Leong and David Gaffen in New York and Jason Lange in Washington; Editing by Chizu Nomiyama, Neil Stempleman and Tim Ahmann)

Wall Street Week Ahead: Waiting for technical signals

Fri Aug 17, 2012 7:04pm EDT

NEW YORK (Reuters) – The SP 500 tortoise continues to beat the skeptics.

In the absence of data or policy catalysts and with the SP 500 near four-year highs, market participants are hoping technical indicators hold the clues on whether stocks will sell off into September following a slow-speed rally.

The SP 500 is a scant 0.06 percent away from closing at highs last seen in the pre-crisis days of June 2008, even as an unimpressive earnings season draws to a close. The looming U.S. presidential election adds to the uncertainty, and inconclusive economic data makes any bet on further economic stimulus from the Federal Reserve a risky gamble.

“I’m not laying out any new shorting strategies on fear the Fed could come in,” said Brian Amidei, a managing director at HighTower Advisors based in Palm Desert, California.

True to form, market volumes have dried up in August. To some, the lack of volume is a clear signal of the relative weakness of the recent rally. Wall Street this week posted its two lowest volume days of the year, not counting half-days.

What has some other strategists nervous is what they see as relative complacency among investors. Volatility levels as implied by the CBOE Volatility index .VIX, or VIX, are at their lowest since June 2007.

“We implore you to raise cash into strength ahead of a sharp and swift late summer squall,” Richard Ross, global technical strategist at Auerbach Grayson in New York, said in his latest note. “With both volume and volatility absent from the advance … conditions are ripe for a rapid risk reversion to the mean.”

The VIX closed Friday at its lowest level in more than five years, a time when the SP 500 was hovering near 1,500 – a level it has failed to approach since the 2007-2009 selloff.

The SP 500 chart is slightly more bullish than the VIX. After a steep rise to break through 1,400, the index seesawed around that level for about seven sessions in a pattern known as a flag formation. (Why? It kind of looks like a flag.)

Thursday’s advance to four-month highs and Friday’s confirmation of the new highs indicate 1,400 could become technical support.

Frank Cappelleri, U.S. market technician at Instinet in New York, said the sideways move after the 1,400 break up indicated consolidation and the low volume was typical of such a move in late August.


The minutes of the latest Federal Reserve policy committee meeting, due Wednesday, could be the week’s highlight in terms of calendar events as bets on intervention in support of the economy are partly to blame for the recent melt-up.

But with the Fed’s annual economic symposium starting the following week at Jackson Hole, Wyoming, the Fed minutes could prove to be an insufficient market driver.

“The minutes are useful because they reveal some of the granularity of the discussions,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York.

“If the Fed had some sort of magic elixir to fix our economy woes,” he said, “you would have already seen it.”

The back end of the week is heavy in housing sector data with home resales on Wednesday, new sales on Thursday and building permits on Friday.

Housing data has been a beacon of hope for the recovery, and market participants will focus on any improvement as a sign the economy will continue to grow, albeit slowly.

“There’s been a lot of talk about a turn in real estate and that it has bottomed,” said HighTower’s Amidei. “I don’t know if I see the turn just yet.”

Just over a dozen SP 500 companies report earnings next week, with the highlight Tuesday as Dell (DELL.O) and Best Buy (BBY.N) post their scorecards. Lowe’s (LOW.N) reports on Monday and Hewlett Packard (HPQ.N) on Wednesday.

Of the 475 companies in the SP 500 that have reported earnings this season, 68 percent have beat analyst expectations. That is higher than the long-term average of 62 percent and matches the average over the past four quarters.

(Editing by Leslie Adler)

S&P 500 up for sixth week; fear index hits five-year low

Fri Aug 17, 2012 7:37pm EDT

NEW YORK (Reuters) – The SP 500 held near a four-year high on Friday, and the market’s key gauge of anxiety sank to its lowest since 2007, suggesting a belief that the problems stressing investors might be closer to a resolution.

The Nasdaq outperformed the broader market as Apple shares reached an all-time high. The CBOE VIX volatility index .VIX hit a 5-year low of 13.43 before closing down 5.9 percent at 13.45.

The SP 500 made a solid move above the closely watched 1,400 level in the last session, posting its biggest gain in two weeks. But trading volume remained low.

“From a sentiment point of view, the market has little to inhibit it from proceeding higher,” said Ralph Edwards, director of derivatives strategy at ITG in New York.

“The best rallies are, of course, the broadest, so it makes sense to view, in real-time, the stocks that are propelling the index so as to make sure that the advance is not just being carried on the shoulders of one sector. Here, the news is also good.”

Edwards noted that 47 SP 500 stocks in all industry groups except for utilities have recently hit a 52-week high, among them Home Depot Inc (HD.N), PepsiCo Inc (PEP.N), Chevron Corp (CVX.N), SunTrust Banks Inc (STI.N), Covidien Plc (COV.N), 3M Co (MMM.N), Google Inc (GOOG.O), CF Industries Holdings (CF.N) and Sprint Nextel Corp (S.N).

With few news headlines and light participation during summer holidays, traders are increasingly taking their cues from market technicals. The SP 500 needs to close above 1,419.04, the index’s April high, to make a new four-year high.

Shares in Apple Inc (AAPL.O) jumped to an all-time intraday high of $648.19 earlier in the session. The stock ended up 1.8 percent at $648.11. The Broker Jefferies raised its price target on the stock to $900 from $800 and gave it a ‘buy’ rating.

But Facebook shares continued to slide after the expiration of a lockup period on some of the company’s stock following its initial public offering. The shares fell as low as $19 a share on Friday.

Groupon Inc (GRPN.O) also slumped to a new low on Friday after Evercore Partners analyst Ken Sena downgraded shares of the largest daily deal company and set a $3 price target on the stock. The stock closed down 5 percent at $4.75, after falling as low as $4.51.

The Dow Jones industrial average .DJI was up 25.09 points, or 0.19 percent, at 13,275.20. The Standard Poor’s 500 Index .SPX was up 2.65 points, or 0.19 percent, at 1,418.16. The Nasdaq Composite Index .IXIC was up 14.20 points, or 0.46 percent, at 3,076.59.

For the week, the Dow was up 0.5 percent, the SP 500 was up 0.9 percent and the Nasdaq was up 1.8 percent.

The SP 500 has risen 2.8 percent in August and about 11 percent since a year low in June as traders eye some encouraging U.S. jobs data and highly anticipated policy meetings at the European Central Bank and the Federal Reserve in September.

The economic data on Wednesday was mixed, leaving investors wondering if the recovery was real.

The Thomson Reuters/University of Michigan consumer sentiment survey for August showed the main index rose to its highest since May to 73.6, buoyed by sales at retailers and low mortgage rates.

Separately, the Conference Board said its leading economic index climbed 0.4 percent, reversing a 0.4 percent decline in June and pointing to slow growth through the end of 2012.

“It’s interesting because we’ve had this mixed bag from the economic data. Today’s is a good step and yesterday was a little disappointing, with the housing data, so we are all just kind of wondering, is this recovery real?” said Ryan Detrick, senior technical strategist, Schaeffer’s Investment Research in Cincinnati, Ohio.

Trading volume, which has been meager over the past several sessions during a seasonally slow period, was at 5.3 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq.

This week has seen the lowest and second lowest full-day trading volumes of the year.

The low was hit on Monday with just 4.54 billion shares on the Nasdaq, the NYSE and the Amex, about two thirds of the daily average this year.

The SP rallied for six days through August 10, boosted by the anticipation of more actions from central banks in the United States and euro zone.

The SP 500 rose to a four-month peak on Thursday after comments from German Chancellor Angela Merkel reinforced investor expectations for action to tackle the euro zone debt crisis.

Gap (GPS.N) advanced 4.8 percent to $35.99 after the clothing retailer posted a higher quarterly profit and raised its full-year forecast.

Marvell Technology Group Ltd (MRVL.O) dropped 14.1 percent to $10.54 after the chipmaker posted second-quarter earnings and said current-quarter results may miss expectations.

(Reporting by Angela Moon; Editing by Chizu Nomiyama)

Wal-Mart international growth slows, shares fall

Thu Aug 16, 2012 9:23pm EDT

(Reuters) – Wal-Mart Stores Inc’s (WMT.N) full-year profit may miss analysts’ expectations as growth slows in its international markets, pressuring the company even as its U.S. discount stores continue to prosper.

The world’s largest retailer, viewed as a barometer of economic activity, said on Thursday its cash-strapped customers tend to spend more at the beginning of the month when they get their paychecks. That “paycheck cycle” has extended its reach to the company’s markets beyond the United States.

“It became more pronounced across the globe,” Chief Financial Officer Charles Holley told reporters, without naming any specific markets where he sees the shift.

Wal-Mart’s higher second-quarter profit narrowly beat the average estimate of analysts polled by Reuters. While the company raised its earnings outlook for the full year, that could still miss analysts’ expectations.

Wal-Mart shares were down 3.4 percent at $71.91, erasing recent gains, and were the worst performer in the Dow Jones industrial average .DJI in afternoon trading.

In the United States, Wal-Mart’s largest market, shoppers’ top concerns are employment, gas prices and higher food costs, Holley said.

Other retailers, too, added to concerns about the plight of lower-income U.S. consumers.

Dollar Tree Inc (DLTR.O) forecast quarterly earnings below Wall Street estimates on Thursday. ID:L2E8JF9QZ And Sears Holdings Corp (SHLD.O) said U.S. same-store sales fell 4.7 percent at the Kmart discount chain.

Still, Wal-Mart plans to open more stores and expects growth across its regions, but, as it has said earlier this year, will slow down store openings in Brazil, China and Mexico.

In Brazil and China, where it has hundreds of stores, it wants to “let them catch their breath” and work on moving to everyday low pricing and improving profitability, Holley said.

At the same time, the store approval process in Mexico has slowed and become more complex in the wake of allegations the company had bribed government officials to speed up approvals.


Sales at Walmart U.S. stores open at least a year, or same-store sales, grew 2.2 percent in the second quarter.

While that beat analysts’ average estimate of 2.1 percent, according to Thomson Reuters I/B/E/S, it was just above the midpoint of the company’s 1 percent to 3 percent forecast. The pace of growth at Wal-Mart’s largest unit slowed from a 2.6 percent rise in the first quarter.

“There was not as much momentum as we thought there would be,” said John Tomlinson, senior hardline retail analyst at ITG Investment Research. “People thought that the business was gaining some steam instead of taking maybe a hair of a step back.”

More shoppers are visiting Walmart U.S. stores, where traffic grew 0.4 percent in the second quarter, meaning roughly 80,000 additional customers visited the chain each day.

Wal-Mart said it would bring back holiday layaway in the United States this quarter. Layaway, which allows customers to keep a product on hold at the store and pay for it over time, helped boost holiday sales last year.

Walmart U.S. has been promoting its low prices with a heavy run of commercials in 25 key markets, such as a price challenge versus Supervalu Inc’s (SVU.N) Jewel-Osco stores airing in Chicago.

Such messages are critical as shoppers continue to digest lackluster economic news. The number of Americans filing new claims for jobless benefits edged higher last week, and there is the looming possibility the government will raise taxes and cut spending next year.

The Walmart U.S. discount chain has now posted four consecutive quarters of same-store sales growth after nine straight quarterly declines.

Still, those gains trailed results at some smaller competitors. Target Corp (TGT.N) said second-quarter same-store sales rose 3.1 percent.


Graphic: Wal-Mart vs Target



Chief Executive Mike Duke said international growth has slowed. For example, a key measure of sales at British unit Asda rose less than in the first quarter.

Wal-Mart now plans to scale back the addition of international store space this year to 21 million to 23 million square feet, instead of the 30 million to 33 million square feet it had earlier forecast.

“International has lower levels of profitability than domestic and it does take up a lot of the capital spending budget,” said Edward Jones analyst Matt Arnold. “Any slowdown in spending in international I think will be viewed, long-term, as a positive.”

The company continues to face government probes into allegations of bribery at its Mexican unit.

Wal-Mart said it spent about $34 million on advisers reviewing Foreign Corrupt Practices Act matters during the second quarter. It expects to incur $35 million to $40 million in related costs in both the third and fourth quarters.

Wal-Mart earned $1.18 per share in the second quarter, up from $1.09 a year earlier. Analysts, on average, expected $1.17. Consolidated net sales rose 4.5 percent to $113.53 billion.

The company now expects to earn $4.83 to $4.93 a share this year, higher than its previous target of $4.72 to $4.92. Analysts, on average, expect a profit of $4.93 a share.

Wal-Mart forecasts a third-quarter profit of $1.04 to $1.09 per share, up from 97 cents a year earlier. Analysts’ average target was $1.05. The company forecast a 1 percent to 3 percent rise in Walmart U.S. same-store sales in the third quarter.

(Additional reporting by Brad Dorfman in Chicago, Dhanya Skariachan in New York, Jason Lange in Washington and Paul Sandle in London; Editing by Jeff Benkoe, John Wallace and Bernadette Baum)