Stocks in U.S. Decline, Leaving S&P 500 Index Virtually Unchanged for Year

By Inyoung Hwang and Katia Porzecanski - Dec 31, 2011 5:56 AM GMT+0700

U.S. stocks fell, leaving the Standard & Poor’s 500 Index virtually unchanged for the year, as concern over Europe’s debt crisis overshadowed optimism that the American economy will expand in 2012.

JPMorgan Chase & Co., the largest U.S. bank by assets, paced declines among financial companies after Spain said its budget deficit will be larger than previously forecast. Sears Holdings Corp. (SHLD) retreated 3.4 percent after Fitch Ratings downgraded its long-term default ratings. Freeport-McMoRan Copper & Gold Inc. (FCX) rose 0.7 percent as the price of gold climbed for the first time in more than a week.

The S&P 500 fell 0.4 percent to 1,257.60 at 4 p.m. New York time. The gauge dropped 0.2 percent in the final 10 minutes of trading, erasing its 2011 advance. The Dow Jones Industrial Average lost 69.48 points, or 0.6 percent, to 12,217.56, trimming its gain for the year to 5.5 percent. About 4.1 billion shares changed hands on all U.S. exchanges, the third-slowest full-day session of the year and 45 percent below the three- month average, according to Bloomberg data.

“Everyone kind of had a negative outlook on the year,” Gerry Milligan, co-head of U.S. program trading at Instinet Inc. in New York, said in a telephone interview. “The fact that the S&P ended slightly negative on the year just put a nice end note to a challenging year.”

The benchmark index for American equities capped its smallest annual change since 1947. The measure was poised to extend its two-year annual advance until a two-point decline completed in the final seconds of trading sent the index down 4/100ths of a point for the year. The S&P 500 (SPX) rallied 23 percent in 2009 and 13 percent in 2010.

Strategists’ Forecast

Wall Street strategists’ average forecast at the beginning of the year that the S&P 500 would rise to 1,371 in 2011 proved 9 percent too high, according to a Bloomberg News survey. Forecasters predict the index will advance to 1,348 next year.

Still, both the S&P 500 and the Dow are among the 10 best performers this year among 91 national indexes tracked by Bloomberg. The S&P 500 started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear-market low to 102 percent.

The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, and sank further amid concern that Europe’s debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19 percent from April to its low for the year on Oct. 3.

Market Rebound

The market rebounded amid tumbling valuations and data signaling that the world’s largest economy was weathering Europe’s crisis. The U.S. unemployment rate fell to 8.6 percent in November, the lowest since March 2009, after lingering at 9 percent or above for seven straight months.

The S&P 500’s price-earnings multiple reached the lowest level in more than two years on Oct. 3, falling to 11.6, a 27 percent decline from its high in February of 15.8. The gauge’s valuation closed at 13.2 for the year. An 11 percent rally since the end of September gave the S&P 500 its best fourth quarter since 2003.

The S&P 500 rose 1.1 percent yesterday amid further signs of strength in the U.S. economy. Stock fell today after Spain said its budget deficit will reach 8 percent of gross domestic product this year, more than the previous forecast of 6 percent. Luxembourg’s Jean-Claude Juncker, who leads the group of euro- area finance ministers, said economic growth in the euro region “isn’t good” and economies are only growing in some Asian and African countries.

‘Downside Pressure’

China’s official Xinhua News Agency reported the world’s second-largest economy may face “downside pressure” next year, even though growth will be more than 9 percent in 2011.

“One of the biggest takeaways is that the U.S. did so much better than everybody else,” Howard Silverblatt, the New York- based senior index analyst at Standard & Poor’s, said in a telephone interview. “There was a big variance in the year. The financials and the materials got hit but there were a lot of winners.”

Financial shares fell (SPXL1) the most among the 10 main industries in the S&P 500 this year, losing 18 percent as a group, followed by a decline of 12 percent in raw-material producers. Utilities, consumer-staples providers and health-care companies, among stocks considered the least sensitive to economic prospects, rose at least 10 percent for the top gains.

JPMorgan Chase erased 0.5 percent to $33.25 today, while Citigroup Inc. lost 1.7 percent to $26.31. Financial stocks tumbled 0.6 percent as a group.

Bank of America

Bank of America Corp. (BAC) rose 1.8 percent to $5.56, after falling as much as 1.7 percent earlier. The bank was the year’s worst performer in the Dow as concern about mounting mortgage losses and a global economic slowdown weighed on the second- biggest U.S. lender.

Sears retreated 3.4 percent to $31.78. Fitch downgraded the long-term default ratings of the retailer to CCC from B, after the company said this week it will close as many as 120 Kmart and Sears full-line stores.

AMR Corp. (AMR) tumbled 32 percent to 35 cents for the biggest retreat in the Russell 1000 Index. NYSE Euronext said shares of the parent of American Airlines will be removed from the New York Stock Exchange before trading begins on Jan. 5, following the Fort Worth, Texas-based company’s bankruptcy filing on Nov.29.

Freeport-McMoRan climbed 0.7 percent to $36.79. Gold added 1.7 percent to $1,566.8 an ounce, capping an 11th straight annual gain.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Flurry of Trades in Final Seconds Snatched Away 2011 Advance in S&P Index

By Nina Mehta - Dec 31, 2011 5:12 AM GMT+0700

A two-point decline (SPX) completed in the last seconds of trading sent the Standard & Poor’s 500 Index to a 2011 loss of 4/100ths of a point, ending a two-year streak of gains for the benchmark gauge of American equities.

The measure traded at an average price (SPX) of 1,261.18 during the day and stood at 1,260 with 10 minutes left, up about 2 points from its Dec. 31, 2010, close of 1,257.64. It remained positive for the year with 15 seconds to go at 1,257.91 before slipping to 1,257.60 on the session’s last trades.

“There was a frenzy,” said Stephen Guilfoyle, who works on the floor of the New York Stock Exchange as U.S. economist for Meridian Equity Partners in New York. “You saw people breaking into a run, the old-school nervousness, some shouting. You see that nervousness when orders are coming in the last minute.”

The volatility (SPX) was characteristic of a year in which stocks swung at a daily rate of twice the 50-year average after the S&P 500 reached a three-year high in April. From its peak of 1,263.61, the index plunged 19 percent through Oct. 3 and then climbed back to where it began the year.

This year’s move was the smallest (SPX) since 1947 when the index closed exactly unchanged. Individual stocks were more volatile than in 2009 and 2010, with 55 losing more than 30 percent this year compared with a total of 13 in the prior two.

‘On a Rollercoaster’

“It’s almost like you’re getting on a rollercoaster (SPX), where you get on and it’s a wild ride, and you get off at the exact same point,” Brian Jacobsen, who helps oversee about $209 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a telephone interview.

About 4.1 billion shares (MVOLUSE) changed hands on all U.S. exchanges today, the third-slowest full-day session of the year and 45 percent below the three-month average, according to data compiled by Bloomberg, as trading slowed before the New Year holiday.

The 2.6-point retreat (SPX) between 3:50 p.m. and 4 p.m. was almost twice as big as the next largest decline for any 10- minute period during the day, data compiled by Bloomberg show. Volume (MVOLUSE) during the period was at least 126 percent greater than in any other comparable interval before the close.

“It looks notable on a chart because the rest of the day was so lame and without any movement whatsoever,” Manoj Narang, founder and chief executive officer of Tradeworx Inc., an automated trading firm in Red Bank, New Jersey, said in a phone interview.

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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U.S. Growth May Accelerate as Europe Shrinks

By Bob Willis and Timothy R. Homan - Dec 31, 2011 4:55 AM GMT+0700

Rising confidence, fewer firings and gains in holiday sales show the U.S. economy is picking up, defying a slowdown in Europe and much of the rest of the world.

The divergence will become even starker in 2012 as the world’s largest economy accelerates, the 17-member euro area sinks into a recession and growth in emerging markets cools, according to economists like Maury Harris of UBS Securities LLC and Barclays Capital Inc.’s Dean Maki.

“There is a sense of decoupling,” said Harris, chief economist at UBS Securities in New York, whose team was the most accurate in forecasting the U.S. economy in the two years through September. “We can still have a decent year here in the U.S. even with the rest of the world slowing down.”

An improving job market and freer credit may underpin American household sentiment and spending just as the debt crisis in Europe prompts additional belt-tightening overseas. Stabilization in housing will erase a source of weakness at the same time vehicle replacement demand benefits companies like General Motors Co. (GM)

Stocks fell on concern over Spain’s budget deficit. The Standard & Poor’s 500 Index dropped 0.4 percent to 1,257.6 at the close in New York. The benchmark equity gauge was little changed this year.

Investors have been less kind to European equities. The Stoxx Europe 600 Index dropped almost 12 percent in 2011 as the debt crisis spread across the major economies of the euro area.

China and U.K.

Among reports today, manufacturing in China contracted in December for a second month as Europe’s debt crisis slowed export demand. The euro area’s crisis is crimping housing and growth in the U.K. as well, with the average cost of a home dropping 0.2 percent in December, the first monthly decline since August, the Swindon, England-based Nationwide Building Society said in an e-mail.

The extension of a tax cut through February is one reason economists are turning more optimistic on U.S. prospects. The economy will grow 2.5 percent in 2012, up from a prior estimate of 1.9 percent, according to a revised forecast issued on Dec. 23 by Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The new estimate was based on the assumption that lawmakers will agree to retain the tax break for all of next year, he said in a research note.

JPMorgan projects the combined economies of the countries in the euro area will shrink 0.7 percent next year.

Fewer Jobless Claims

Another reason for optimism is a decrease in firings by U.S. companies that may portend a pickup in hiring in early 2012. Fewer Americans filed applications for jobless benefits in the four weeks through Dec. 24 than at any time since June 2008, according to figures yesterday from the Labor Department.

Less joblessness, rebounding stocks and falling gasoline prices are helping boost confidence. The Bloomberg Consumer Comfort Index reached a five-month high in December.

“We can tell that something is clicking if jobless claims are down and confidence is up,” said UBS’s Harris, who projects the U.S. economy will grow 2.1 percent in 2012.

Maki, chief U.S. economist at Barclays Capital in New York, forecasts 2.5 percent growth next year, up from 1.7 percent in 2011. The euro region will contract 0.2 percent after expanding 1.5 percent, he said.

Europe a ‘Headwind’

“We are diverging significantly as we move into 2012,” Maki said. “Europe is a headwind for the U.S., but we don’t think a European recession necessarily drags the U.S. into a recession.”

One reason is that consumer spending, which accounts for about 70 percent of the economy, has held up this year even as confidence slumped amid growing concern about Europe, the threat of a government shutdown during the mid-year debate on the U.S. debt limit and the downgrade of U.S. Treasury securities by S&P, Maki said.

Housing and auto sales, two areas which slumped during the recession, will probably improve.

Economists at Toronto-based BMO Capital Markets, led by Sherry Cooper, forecasts U.S. home construction will add to gross domestic product in 2012, led by the building of apartments and townhouses. Residential construction detracted from growth from 2006 through 2010 and was little changed this year.

The auto industry will strengthen as Americans replace aging and scrapped vehicles after delaying purchases since the recession, according to economists at Nomura Securities International Inc. in New York. For the number of cars per adult to hold at current levels, sales will need to climb to about a 16 million annual rate in coming years, the group led by Lewis Alexander wrote in a Dec. 5 report.

Auto Sales

Vehicle sales ran at a seasonally adjusted annual rate of 13.6 million in November, according to Autodata Corp.

“We’re encouraged by the industry’s recent performance and the developments that we’ve seen in the economy,” Don Johnson, GM’s vice president for U.S. sales, said on a conference call this month.

The U.S. economy’s ability to weather the mid-year slump in equities and confidence means it will overcome a European slowdown next year, said Vincent Reinhart, chief U.S. economist at Morgan Stanley in New York.

“The most important source of contagion is through financial markets, and we have already felt that,” said Reinhart. Morgan Stanley projects the U.S. will grow 2.2 percent in 2012 while the euro countries shrink 0.2 percent.

“There is a recession in Europe right now, but we aren’t forecasting a full-blown crisis and the euro hangs together,” Reinhart said. “Conditional on that, then the U.S. gets by.”

To contact the reporters on this story: Bob Willis in Washington at bwillis@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

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U.S Stocks Fall to Trim Yearly Gain

By Inyoung Hwang and Katia Porzecanski - Dec 31, 2011 4:36 AM GMT+0700

U.S. stocks fell, leaving the Standard & Poor’s 500 Index (MXEF) virtually unchanged in 2011 after one of the most volatile years in the market’s history, as concern about Europe’s debt crisis halted a two-year rally in equities. The euro weakened and Treasuries gained.

The S&P 500 fell 0.4 percent today to close at 1,257.60 at 4 p.m. in New York, compared with its 2010 closing level of 1,257.64 and marking the smallest annual change since 1947. The Dow Jones Industrial Average lost 69.48 points, or 0.6 percent, to 12,217.56 to trim its yearly gain to 5.5 percent. The euro slipped 0.1 percent to $1.2944 and slid below 100 yen for the first time in a decade. Ten-year Treasury yields lost two basis points to 1.88 percent. The S&P GSCI Index (SHCOMP) of raw materials retreated 0.1 percent.

Indexes of stocks and commodities had the worst yearly returns since the U.S. financial crisis in 2008, while Treasuries capped their biggest gains since then. The euro had its first back-to-back annual losses versus the dollar in a decade. Spain said today it will cut spending and raise taxes to slash a budget deficit that will exceed its target, highlighting the risks to growth from measures meant to tame Europe’s debt crisis.

“Spain’s numbers show that it’s very difficult to have strong economic performance while you’re trying to deleverage,” Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds in New York, said in a telephone interview. “The U.S. economic data has been experiencing some bounce in the last quarter. The negative is still Europe.”

Global equity markets lost $6.3 trillion in value this year as the debt crisis and slowing global economic expansion weighed on demand for riskier assets.

Volatile Year

The S&P 500 started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear-market low to 102 percent. The index tumbled throughout the summer as Congress and President Barack Obama struggled over U.S. deficit cuts, and sank further amid concern that Europe’s debt crisis was threatening the global economic recovery. The S&P 500 fell as much as 19 percent from April to its low for the year on Oct. 3.

Data signaling that the world’s largest economy was weathering Europe’s crisis helped the market rebound. The U.S. unemployment rate fell to 8.6 percent in November, the lowest since March 2009, after lingering at 9 percent or above for seven straight months.

The Citigroup Economic Surprise Index (CESIUSD) for the U.S., which measures the rate at which data is beating or missing economists’ estimates, reached a record 97.5 in March before slumping to a two-year low of minus 117.2 in June. The index has since rebounded and rose as high as 85.7 this month.

Top 10 Returns

The S&P 500 had fluctuated above and below its 2010 closing level since the end of October. The S&P 500 and Dow were still both among the 10 best yearly returns among 91 national equity indexes tracked by Bloomberg. Benchmark indexes advanced in only one of 24 developed markets this year, with the 0.6 percent advance in Ireland’s ISEQ Overall Index the only gauge topping the S&P 500.

The Dow alternated between gains and losses of more than 400 points on four days for the first time ever in August. Daily share swings in the S&P 500 averaged 2.2 percent that month, the most for any August since 1932, Bloomberg data show. The index moved an average 1.9 percent a day from May through the end of the year, more than triple the 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc. in 2008.

Yearly Losses

The Stoxx Europe 600 Index rose 0.9 percent today to trim its 2011 loss to 11 percent. The MSCI Asia-Pacific Index slid 17 percent this year and the MSCI All-Country World Index fell 9.4 percent. Each gauge dropped on a yearly basis for the first time since 2008.

The European benchmark index’s retreat in 2011 was led by a 32 percent drop in banks, the worst performance among 19 industry groups. Financials also were the worst performers in the S&P 500 this year, down 18 percent as a group, with Bank of America Corp. losing 59 percent to lead declines.

“I think the key to 2012 is what happens with the financials,” Mark Bronzo, who helps manage $23.5 billion at Security Global Investors in Irvington, New York, said in a phone interview. “They’ve been underperforming for so long, does this group finally start to participate in the market, or does it continue to underperform? That’s going to go a long way to determining what kind of year we have because it’s a big sector.”

Treasury Rally

Two-year Treasury yields fell three basis point today to 0.24 percent and 30-year yields decreased one basis point to 2.90 percent. Treasuries rose this year as investors sought the relative safety of U.S. government bonds on concern the euro- region debt crisis will worsen.

U.S. debt has returned 9.6 percent in 2011, according to Bank of America Merrill Lynch data, even after S&P cut the nation’s AAA rating on Aug. 5. German bunds also gained 9.6 percent, Japanese bonds advanced 2.1 percent and U.S. corporate debt rallied 7.3 percent. Treasuries beat stocks, commodities and the dollar for the year, even as reports indicate the U.S. economy is recovering.

Italian 10-year bond yields added eight basis points to 7.11 percent today, holding above the 7 percent level that foreshadowed bailouts of Greece, Ireland and Portugal. The debt had its worst year since at least 1992. French 10-year rates climbed six basis points to 3.15 percent, after the nation said it will sell bonds maturing between 2021 and 2041 on Jan. 5.

‘Dire’ Sentiment

“The risks in Europe will get worse before it gets better,” said Matt Brady, an executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “Risk sentiment is going to be dire as we head into 2012.”

U.K. ten-year gilt yields rose one basis point to 1.98 percent after earlier touching a record low of 1.932 percent. Gilts returned 17 percent on average in 2011, including reinvested interest, the most among 26 government markets tracked by Bloomberg and the European Federation of Financial Analysts Societies.

The S&P GSCI Total Return Index (SPGSCITR)of commodities slipped 0.1 percent today and fell 1.2 percent for the year. Cocoa in New York plunged 31 percent in 2011 on signs of expanding supplies from Ivory Coast, the biggest producer. Cotton lost 37 percent this year amid increasing output and dwindling demand. Copper, often seen as an indicator of economic activity as it is used in construction and automobiles, had its first loss since 2008.

Gold Rebounds

Gold futures rose 1.7 percent to $1,566.80 an ounce today, the first gain in seven days. While bullion gained 10 percent this year, an 11th straight yearly advance, prices have plunged as much as 21 percent since touching a record $1,923.70 on Sept. 6.

Copper climbed 2 percent to $3.436 a pound. Oil today pared a third annual increase, slipping 0.8 percent to settle at $98.83 a barrel, after a second straight month of contraction in Chinese manufacturing spurred concern that demand may slow in the second-largest crude-consuming country.

About two shares advanced for every one that fell in the MSCI Asia Pacific index, which rose 0.5 percent. Japan’s Nikkei 225 Stock Average added 0.7 percent and Hong Kong’s Hang Seng Index gained 0.2 percent.

The Shanghai Composite Index climbed 1.2 percent, its biggest gain in two weeks. The gauge tumbled 22 percent this year, the most since 2008, and extended last year’s 14 percent drop, on concern increases in borrowing costs and Europe’s debt crisis will derail economic growth in the world’s second-largest economy. The index’s 33 percent drop since 2009 makes it the worst performer among the world’s 15 biggest markets.

The MSCI Emerging Markets Index rose 0.1 percent, leaving it down 20 percent for the year.

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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Hurd Pursued Sex With Jodie Fisher While HP CEO, Just-Released Letter Says

By Aaron Ricadela - Dec 30, 2011 12:01 PM GMT+0700

Former Hewlett-Packard Co. (HPQ) Chief Executive Officer Mark Hurd tried to persuade Jodie Fisher to have sex and kissed and touched her inappropriately while she was a company events contractor, according to a much-contested letter that was ordered to be released by a court yesterday.

During dinners, hotel-room visits and other meetings in cities such as Los Angeles, Atlanta, St. Louis and Madrid between 2007 and 2009, Hurd kissed and embraced Fisher, brushed his hand against her breast and attempted to initiate an affair, according to the letter sent to Hurd on June 24, 2010, by Fisher’s lawyer, Gloria Allred. Hurd, who is now a president at Oracle Corp. (ORCL), wasn’t found to have committed sexual harassment by Hewlett-Packard, and Fisher herself later said the document contained inaccuracies.

“You had designs to make her your lover from the onset using your status and authority as CEO of HP,” Allred said in the letter to Hurd, the contents of which were first reported by Bloomberg News. “At times you would behave professionally seemingly ‘getting’ that she was not going to have sex with you. At other times, not, and you would relentlessly attempt to cajole her into having sex with you.”

The letter, which sought a settlement for sexual harassment, was obtained after a ruling by the Delaware Supreme Court that it should be unsealed as part of the evidence in a shareholder lawsuit against the Palo Alto, California-based company. Hurd’s relationship with Fisher led to his resignation as CEO on Aug. 6, 2010, after a company investigation found he had violated its standards of business conduct. Hurd settled with Fisher the week he resigned.

Hurd’s Aftermath

Since Hurd’s departure, Hewlett-Packard has struggled to revive sales and seen its stock tumble 45 percent. He was replaced last year by Leo Apotheker, who himself was ousted on Sept. 22 and replaced by Meg Whitman.

Allred and Michael Thacker, a Hewlett-Packard spokesman, declined to comment.

In settling with Hurd last year, Fisher and Allred said there was no romantic or sexual affair between the two. Hewlett- Packard’s investigation found that he didn’t violate the sexual- harassment policy.

Fisher told Hurd in a 2010 letter, also obtained by Bloomberg News, that the Allred document had “many inaccuracies in the details” and that the CEO’s behavior didn’t hurt Hewlett-Packard or its reputation.

Contrasting Views

The Allred “letter was recanted by Ms. Fisher,” said Ken Glueck, a senior vice president for Redwood City, California- based Oracle. “She admitted it was full of inaccuracies.”

Allred’s letter portrays Fisher as being nervous in Hurd’s presence because of his advances. In contrast, e-mails from Fisher to Hurd show her enthusiastically discussing her job. The messages, also obtained by Bloomberg News, depict her politely inquiring about Hurd’s family and describing him as “fun” to work with.

The eight-page letter from Allred to Hurd portrays a two- year romantic pursuit of Fisher, an actress and former contestant on the reality show “Age of Love.” She worked as a greeter at Hewlett-Packard events around the world. Her job was to introduce key customers to Hurd at the events.

According to Allred’s letter, Hurd, who is married with two daughters, made sexual advances toward Fisher during dinners and other meetings. During an October 2007 visit to her hotel room at the Ritz Carlton in Atlanta, Hurd twice touched Fisher’s breast and asked her to stay in his room for the night, the letter said. Two months later in a hotel room in St. Louis, he embraced her and quickly kissed her on the lips.

‘Major Strings Attached’

At another meeting, Hurd told Fisher he had girlfriends in New York and San Francisco, according to the letter. He also told her that many women were “crazy about” him, including singer Sheryl Crow, the document said. Jay Cooper, a lawyer at Greenberg Traurig LLP who represents Crow, said he’d never heard her name in connection with Hurd.

At a final meeting in Boise, Idaho, in October 2009, Hurd “grabbed and kissed” Fisher, the letter said. The meetings made her nervous and worried about her employment status, according to the document.

“She felt tired, irritated and depressed, sad and mad with the growing unbending realization that her great new job had some major strings attached,” said Allred, who works at Allred Maroko & Goldberg in Los Angeles.

EDS Deal

Hurd also told Fisher of plans to buy technology services company Electronic Data Systems Corp., a deal that was ultimately completed in 2008 for $13.9 billion, according to the letter. During a meeting in Madrid in March 2008, Hurd walked Fisher to an ATM and showed her his checking account balance of more than $1 million to impress her, the document said.

Amy Wintersheimer, an employment attorney for Hurd at the firm Allen Matkins, said in an e-mailed statement that she sought to keep the letter confidential because it is “filled with inaccuracies.”

“The truth is, there never was any sexual harassment, which HP’s investigation confirmed, and there never was any sexual relationship, which Ms. Fisher has confirmed,” Wintersheimer said.

Hewlett-Packard shareholder (HPQ) Ernesto Espinoza sought the letter, along with company books and records, in a suit aimed at investigating possible corporate wrongdoing in conjunction with the payment of Hurd’s severance package of as much as $40 million, according to court papers.

After Hurd received Allred’s letter, he turned it over to Hewlett-Packard’s general counsel. Espinoza’s lawyer has said publicizing the letter would help “air out” details of Hurd’s departure from the company.

This week’s court decision followed Oct. 12 arguments in Dover challenging a ruling in March by Delaware Chancery Court Judge Donald Parsons Jr. that most of the letter should be released.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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North Korea Threatens South, Tells World Expect No Change From Kim Jong Un

By Sangwon Yoon - Dec 31, 2011 8:06 AM GMT+0700

North Korea warned the world not to expect change from the regime under new leader Kim Jong Un and threatened a “roar of revenge” against South Korean President Lee Myung Bak as Kim was appointed head of the army.

Lee had provoked North Korea by raising security alerts and declining to send an official mission to pay condolences after the Dec. 17 death of Kim Jong Il, the National Defense Commission said in a statement carried by the state-run Korean Central News Agency yesterday. The release came a day after North Korea ended a mourning period for Kim’s death.

“The veritable sea of tears shed by the army and people of the DPRK will turn into that of retaliatory fire to burn all the group of traitors to the last one,” the statement said, echoing rhetoric during Kim Jong Il’s rule. “The DPRK will have no dealings with the Lee Myung Bak group of traitors forever.” DPRK refers to the country’s official name, the Democratic People’s Republic of Korea.

Both Kim Jong Un and Lee face leadership tests that could shape their attitude toward engagement. Kim Jong Un needs to cement his grip on power in a country where the United Nations says one-third of the children are physically stunted from a lack of nutrition. Lee and his ruling party, which rolled back the “Sunshine Policy” of engagement with the nuclear-armed North, have dropped in opinion polls ahead of elections next year.

Army Commander

KCNA reported today that Kim Jong Un was appointed supreme commander of the Korean People’s Army, citing a decision taken yesterday at a meeting of the Politburo of the Central Committee of the Workers’ Party of Korea.

“Standing at the helm of the Korean revolution is Kim Jong Un, the only successor Kim Jong Il,” KCNA reported, citing the Politburo’s statement that called on the people to support the new leader.

North Korea must take a “decisive turn in the drive to build the country into an economic giant and improve the people’s standard of living,” the Workers’ Party central committee and Central Military Commission said in a joint statement today, published by KCNA. The power, coal and metal industries must be developed, foreign trade expanded and the capital, Pyongyang, turned into a world class city, they said.

Kim Jong Il made the country into an invincible political and ideological power and a powerful nuclear weapons state, according to the joint statement.

Economic Measures

Kim Jong Un needs to “prove himself in launching his new regime -- and an economic measure would be the most efficient way of doing that,” said Yang Moo Jin, a professor of North Korean politics at the University of North Korean Studies in Seoul yesterday. “What’s more hard-hitting for North Koreans than policies that affect how they’ll be able to put food on the table?”

In his annual address on Jan. 2, Lee will focus on inter- Korean relations, inflation (SKCIYOY) and unemployment, according to a spokesman at Lee’s office who declined to be named, citing government policy.

North Korea’s 2010 gross domestic product was 30 trillion won ($26.5 billion), one-fortieth the size of South Korea’s, according to estimates by the South’s central bank. North Korea’s economy probably shrank in four of the past five years, the Bank of Korea says. Pyongyang doesn’t release GDP data.

Growth to Slow

South Korea’s gross domestic product nearly doubled to 1,173 trillion won ($1 trillion) from 2001 to 2010. The Bank of Korea forecasts that the country’s economic growth will slow to 3.7 percent next year from 3.8 percent this year.

Lee will take advantage of the transition in the North and announce a more conciliatory stance, said Kim Young Yoon of the Seoul-based Korea Institute for National Reunification. The opposition has blamed Lee for escalating tensions, saying his tough stance provoked hostilities that killed 50 South Koreans in 2010.

Lee scaled back the Sunshine Policy implemented by his predecessor, Kim Dae Jung, when he entered office in 2008, saying that Kim Jong Il’s provocative policies shouldn’t be rewarded.

Lee’s approval rating is at 26.9 percent, according to a poll of 3,750 South Koreans conducted Dec. 19-23 by Seoul-based Real Meter. The margin of error was plus or minus 1.6 percentage points.’’

Nuclear Talks

“The current mood in South Korea is to take advantage of the North’s regime change and improve inter-Korean relations,” Kim said. “The easiest way to do that would be to call for high-level meetings to make way for resumed six-party talks,” he said, referring to a dialogue that is aimed at persuading North Korea to relinquish its nuclear-weapons program and includes the U.S., China, Japan and Russia.

South Korea ordered a “low-level” alert after Kim Jong Il’s death was announced and expressed “sympathy” with the North Korean people, while limiting the number of its citizens who could travel to Pyongyang on condolence visits. Lee said the measures were meant to signal that his country wasn’t hostile toward the North, while Pyongyang issued threats of “unpredictable catastrophic consequences” over the South’s restrictions on visits.

Warship Sinking

Tensions on the Korean peninsula erupted into open conflict in March 2010, when 46 South Korean sailors were killed in the sinking of the Cheonan warship. An international panel blamed the attack on North Korea, which has denied the allegations. Eight months later, the North shelled an island in the Yellow Sea, killing four South Koreans.

North Korea, which has twice detonated a nuclear device, has more than 250 long-range artillery installations along the world’s most fortified border in reach of the Seoul area and its 23 million citizens. North Korea and South Korea remain technically at war after their 1950-1953 conflict ended in a cease-fire.

South Korea plans to set up a fund to raise as much as 55 trillion won to pay for the costs of eventual reunification with the North, South Korean Unification Minister Yu Woo Ik said in an October interview. Yu said the cost may be as high as 269 trillion won, or almost a quarter of South Korea’s 2010 gross domestic product.

While North Korea’s statement yesterday was its most belligerent since Kim Jong Il’s death, an attack is unlikely and it is focused mainly on food aid, said Kim Yong Hyun, a professor of North Korean studies at Dongguk University in Seoul.

“They want resumption of six-party talks more than anything because that’s the only way to get aid that is so crucial,” he said.

To contact the reporter on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net

To contact the editors responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net; John Brinsley at jbrinsley@bloomberg.net

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Verizon Cancels $2 ‘Convenience Fee’ After Backlash

By Alex Sherman - Dec 31, 2011 5:20 AM GMT+0700

Verizon Wireless (VZ), the largest U.S. mobile carrier, canceled a planned $2 “convenience fee” for online and phone bill payments after a backlash from consumers and scrutiny from the Federal Communications Commission.

The company reversed its decision after just one day in response to customer feedback, according to a statement on its website today. Basking Ridge, New Jersey-based Verizon Wireless had announced the fee yesterday for users who make single bill payments on a month-to-month basis online or by phone.

Customers began criticizing Verizon Wireless on Twitter and Web forums after the company disclosed the fee, with some setting up online petitions and calling for consumers to boycott the carrier. The FCC today said it was “concerned” about the plan and that it would investigate.

“Companies used to think they could get away with putting out unpopular policies,” said Brianna Cayo Cotter, a spokeswoman for Change.org, a website that lets people start online campaigns. “Today, hundreds of thousands of people can mobilize and change policies in a matter of hours. That’s what we’re seeing with Verizon.”

Verizon Wireless customers started more than 35 petitions on Change.org against the fee, including one that was joined by more than 95,000 people within hours.

Last month, a consumer backlash led to Bank of America Corp. canceling a $5-per-month fee for debit card users. In that case, too, consumers used online campaigns to pressure the company.

‘Predatory Practices’

“When consumers speak against what they see as predatory practices, quite often they can help change them,” said Joe Ridout, consumer services manager at Consumer Action, a consumer-rights group. “Verizon responding as soon as they did is a point in their favor. It prevented people from actually being charged and it showed they were listening.”

Verizon Wireless said yesterday it planned to add the fee to address costs it incurs for processing the single payments. The charge wouldn’t have applied to customers who enroll in automatic payment plans, use electronic checks, pay at a Verizon Wireless store, send in checks or pay through online banking websites.

“The best path forward is to encourage customers to take advantage of the best and most efficient options, eliminating the need to institute the fee at this time,” Dan Mead, Verizon Wireless chief executive officer, said in today’s statement.

Verizon Communications Inc., which co-owns the wireless business with Vodafone Group Plc, rose (VZ) 0.2 percent to $40.12 at the close in New York. The stock advanced 12 percent this year.

Verizon Wireless is driving up profit at parent Verizon Communications as it gains users for Apple Inc.’s iPhone and Google Inc. Android devices, which let users browse the Web, watch video and stream music. Third-quarter net income at New York-based Verizon Communications doubled to $1.38 billion from $659 million a year earlier.

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Sony PlayStation Vita Sales Fall: Report

By Mariko Yasu - Dec 30, 2011 8:12 AM GMT+0700

Sales of Sony Corp. (6758)’s PlayStation Vita, the company’s latest handheld game machine, declined last week after initial demand at the product’s debut, according to a researcher Media Create Co.

Sales totaled 72,479 units during the week ended Dec. 25, down from 324,859 units sold during the two days after the Dec. 17 introduction of the product, the Tokyo-based researcher said on its website, without citing anyone.

The device, with a 5-inch display using OLED, or organic light-emitting diode, technology and touch pads, had sold out in pre-ordering in Japan, Andrew House, chief executive of Sony’s game unit, said earlier this month. Sony introduced Vita, the first major overhaul of the handheld since the PlayStation Portable went on sale in 2004, after its bigger rival Nintendo Co. (7974) cut the price for its flagship 3DS model.

Satoshi Fukuoka, a spokesman for Sony’s game unit in Tokyo, declined to comment on the research report.

3DS was the best-selling game device in Japan during the week with 482,200 units sold, a 31 percent gain from a week earlier, according to Media Create.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net.

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.

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Alibaba Hired Lobbying Firm Duberstein Group to Aid in Possible Yahoo Deal

By Ian King - Dec 30, 2011 4:14 AM GMT+0700

Alibaba Group Holding Ltd (ALIBABZ). hired Washington lobbying firm Duberstein Group Inc. earlier this year as it explored potential transactions involving Yahoo! Inc.

Duberstein, founded by Kenneth Duberstein, a former chief of staff under President Ronald Reagan, disclosed its affiliation with Alibaba’s legal representatives in a filing this month.

Alibaba, China’s largest e-commerce business, has sought to buy back a stake that Yahoo owns in the company. It stepped up efforts to make a deal after the September ouster of Yahoo Chief Executive Officer Carol Bartz, who opposed a sale. Yahoo also is considering proposals by private-equity firms seeking to buy minority stakes, people with knowledge of the talks have said.

Yahoo’s 40 percent stake in Alibaba has given it a piece of the fast-growing Chinese market, helping maintain the U.S. Internet company’s value even as it loses ground to Google Inc. and Facebook Inc. Yahoo acquired the stake in Hangzhou, China- based Alibaba for about $1 billion in 2005.

Yahoo has considered offers for a minority stake from bidders such as TPG Capital and a group led by Silver Lake, people familiar with the matter have said. Silver Lake’s bid valued Yahoo at about $16.60 a share, these people said. TPG Capital’s offer was higher, they said.

Huawei’s Example

Alibaba’s involvement in a deal may draw scrutiny from the U.S. government, especially because Yahoo handles online communications for millions of Americans.

In 2008, China’s Huawei Technologies Co. dropped a bid for Marlborough, Massachusetts-based computer-equipment maker 3Com Corp. after the U.S. government began investigating whether a deal would give China access to technology used by the Defense Department.

John Spelich, an Alibaba spokesman, declined to comment, as did Dana Lengkeek, a spokeswoman for Sunnyvale, California-based Yahoo. The Duberstein Group said it doesn’t comment on its clients.

Yahoo shares (YHOO) rose 2.2 percent to $16.13 at the close in New York. The stock has declined 3 percent this year.

Alibaba hiring Duberstein was previously reported by Reuters.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Google Backing Israel Entrepreneurs

By Jonathan Ferziger and Gwen Ackerman - Dec 30, 2011 5:01 AM GMT+0700

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Dec. 30 (Bloomberg) -- Startup investor and Digital Life Design conference organizer Yossi Vardi discusses the growing interest in Israel's technology industry from large U.S. companies. He spoke Nov. 6 in Tel Aviv with Bloomberg's Gwen Ackerman. (Source: Bloomberg)

The Google Inc. (GOOG) executive with his bright yellow vest was impossible to miss in the middle of the Israeli startup owners seeking cash in a rusty boathouse at Tel Aviv’s Jaffa port.

David Lawee, Google’s mergers and acquisitions chief, used the early November session, called Garage Geeks, to round out his contact list. “I’ve met about 100 Israeli companies in two days and that’s, like, super-efficient,” he said between conversations at the corporate speed-dating-style event arranged by startup promoter Yossi Vardi that introduced local businesses to multinationals.

Google set up a funding program two weeks later for Israeli entrepreneurs, part of an acceleration in U.S. technology companies’ backing in late 2011 that has included Apple Inc. (AAPL) buying a company in the country for the first time, according to business newspaper Calcalist.

The foreign investments are important to Israel, where the high-tech industry accounts for 47 percent of manufactured exports, and could be a new source of innovation for giants like Google because of the Mountain View, California-based company’s strength in technology startups.

Money from Google and others is making up for a decline in local financing that Avi Sasson, Israel’s state research-grant provider, says could hurt industry growth.

Venture Capital Slump

“The minute the Israeli venture-capital funds aren’t helping in the early stage, there won’t be a new generation of companies for the foreign investors to invest in three or four years down the road,” said Koby Simana, head of the Israel Venture Capital Research Center, in an interview. “Israeli startups won’t exist if there is no Israeli venture capital.”

Of the $522 million raised by Israeli technology companies in the third quarter, $96 million came from domestic venture- capital funds, a drop of 40 percent from the second quarter and 12 percent from a year earlier, according to the research center. The proportion coming from Israel, at 18 percent, was the lowest since the center started covering the industry in 1999, Simana said.

Many Israeli venture capital funds, hurt by the global recession, have been unable to raise money, and 2012 will be “crucial” for their recovery, Simana said. “For some, it will be a make or break year because they haven’t raised funds since 2007 or 2006 and if they don’t raise any money this year or next, many will cease to operate,” he said.

State Funding

The Israeli government’s annual research-funding allocation has been cut by 1 billion shekels ($262 million) over the past decade, Sasson, who oversees the Ministry of Industry and Trade’s development financing for local companies, said this month at a conference in Tel Aviv. That represents a decrease of 56 percent to a yearly budget of about 800 million shekels.

Israel, with a population similar to Switzerland’s at 7.7 million people, was dubbed the “startup nation” in a 2009 book of that name by Saul Singer and Dan Senor. It has 64 companies on the Nasdaq (CCMP) Stock Market, the most of any country outside North America after China, with 56 percent focused on technology.

Google’s investments in fledgling Israeli companies in the past two years include takeovers (GOOG) of LabPixies, a developer of game applications, for $25 million, and Quiksee, which makes software for posting three-dimensional video online, for an undisclosed price. Other U.S. investors that have acquired Israeli assets include social-networking site Facebook Inc. and online marketplace EBay Inc. (EBAY)

Netanyahu on Twitter

Apple agreed to buy semiconductor designer Anobit Technologies Ltd., Calcalist reported Dec. 20. On the same day, Prime Minister Benjamin Netanyahu’s office posted on its Twitter account a message congratulating Apple “on your first acquisition here,” without naming the target company. Mark Regev, a spokesman for Netanyahu, declined to elaborate.

Anobit, founded in 2006 and based in Herzliya Pituach, and investor Pitango Venture Capital declined to comment. Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment on “rumor and speculation.”

International investments may not be the answer to the needs of Israel’s startups because the smaller number of local financiers poses a risk to the industry’s independence, said Abraham Peled, executive chairman of Staines, England-based digital-television coding developer NDS Group Plc.

“The minute Israeli high-tech is primarily based on development centers of major companies, their fortune will be tied to that of those companies so that, if they are cutting staff, they will cut in Israel as well,” Peled said.

‘Nimble’ Startups

Israel’s “nimble” startup model can still thrive even as government funds drop because Internet companies only need small amounts of money, Vardi said. The city of Tel Aviv recently opened a working space called the Library for young technology entrepreneurs, he said.

The hour-long Garage Geeks event closed the Tel Aviv part of Digital Life Design, an international technology industry convention held in Munich. The Israeli edition attracted 300 visitors from outside the country, Vardi said.

“Somehow the word is out that this is where everyone has to be,” said Vardi, co-chairman of the global conference and a founding investor in the former Mirabilis Ltd., which developed the ICQ online-chat system.

Top executives from Seattle-based Amazon.com Inc. (AMZN), Paris- based Alcatel-Lucent and Russia’s Yandex NV were among nine potential benefactors at Garage Geeks who donned yellow vests. About 300 startup founders, clustering in groups as large as 30, roamed from suitor to suitor making appeals under loose rules that urged “short” presentations.

“When you make a connection with an entrepreneur who’s really excited, whether you do a deal with him or not, that’s kind of the juice of the job,” Google’s Lawee said.

To contact the reporters on this story: Jonathan Ferziger in Tel Aviv jferziger@bloomberg.net; Gwen Ackerman in Jerusalem at gackerman@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Andrew J. Barden at barden@bloomberg.net.

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Singapore Economy Probably Contracted as Factories Hurt by Global Slowdown

By Shamim Adam and Sarina Yoo - Dec 30, 2011 10:00 AM GMT+0700

Singapore’s economy probably contracted in the fourth quarter as manufacturing slumped, increasing pressure on the island’s policy makers to stimulate growth even as inflation accelerates.

Gross domestic product (SGDYTY) probably dropped an annualized 5 percent in the three months through December from the previous quarter, when it rose 1.9 percent, according to the median (SGAVYOY) of 11 estimates in a Bloomberg News survey. The report is scheduled for release at 8 a.m. on Jan. 3.

Singapore forecasts economic expansion will moderate next year as a faltering global recovery weighs on demand for goods and services. The island’s exports have dropped even after the central bank, which uses the local dollar to manage inflation, moved in October to slow gains in the currency, which has retreated 4.5 percent against the dollar in the past two months.

“Singapore is one of Asia’s most vulnerable economies to a slowdown in global growth,” said Sukhy Ubhi, an economist at Capital Economics Ltd. in London. “The upshot is we think that the Monetary Authority will loosen its policy settings at its next biannual review in April.”

Other Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European debt crisis. Taiwan’s central bank yesterday left borrowing costs unchanged for a second straight quarter after boosting its benchmark earlier in the year to damp inflation.

2012 Outlook

China’s manufacturing contracted for a second month in December as global growth faltered and Premier Wen Jiabao prolonged a crackdown on speculation in the housing market, according to an index released by HSBC Holdings Plc and Markit Economics today.

Still, Asian stocks climbed in the last trading day of 2011 after rising U.S. home sales signaled the world’s largest economy is weathering Europe’s turmoil. The MSCI Asia Pacific Index trimmed its biggest yearly decline since 2008, adding 0.2 percent as of 11:42 a.m. in Tokyo. The measure is set for an 18 percent drop this year.

Prime Minister Lee Hsien Loong may give some economic estimates in his annual New Year message tomorrow. The government expects GDP to expand about 5 percent in 2011 and predicts growth will slow to 1 percent to 3 percent in 2012.

The island’s inflation (SICPIYOY) was 5.7 percent in November, matching the fastest pace since 2008. The Monetary Authority of Singapore has joined most other Asian policy makers who have allowed their currencies to depreciate this year to defend exports even as the step boosts inflation risk by making imported goods more costly.

The Singapore dollar weakened about 5.5 percent in the second half of 2011. The Indian rupee lost about 16 percent in the same period, the biggest decliner in Asia, followed by the South Korean won.

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait, is among the first countries in the region to report fourth-quarter data. GDP advanced 4.3 percent on a year-on-year basis, according to the median estimate of 13 economists surveyed by Bloomberg News.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Stocks Rise as Euro-Yen Nears Decade Low; U.S. Futures Little Are Changed

By Shiyin Chen and Norie Kuboyama - Dec 30, 2011 3:09 PM GMT+0700

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Dec. 29 (Bloomberg) -- Jeff Papp, an analyst at Oberweis Asset Management Inc., talks about the outlook for China's economy and stock markets in 2012, and his investment strategy. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Stocks (MXAP) and commodities rose, paring the first annual loss in three years, as signs the U.S. economic recovery is strengthening countered concern Europe’s debt crisis will worsen. The euro was near a decade-low against the yen.

The MSCI All Country World Index added 0.3 percent as of 8:02 a.m. in London, set for a 9.5 percent decline this year. Standard & Poor’s 500 Index futures were little changed and Treasury 10-year yields rose one basis point to 1.91 percent. The S&P GSCI Total Return Index of raw materials gained 0.3 percent as copper jumped 1.4 percent and gold snapped three days of losses. The euro slid 0.2 percent versus the yen and weakened 0.2 percent against the dollar.

Global equity markets have lost $6.3 trillion in value this year as Europe’s debt crisis and slowing economic expansion worldwide weighed on investor demand for riskier assets. Italy yesterday raised less than its maximum target at a debt auction. Data yesterday showed U.S. home sales rose more than economists forecast and jobless claims dropped over the past month to a three-year low.

“This year, the world was swayed by the European debt crisis,” said Takashi Aoki, who helps manage 120 billion yen ($1.5 billion) at Tokyo-based Mizuho Asset Management Co. “More investors think the U.S. economy is firmer and growing slowly, and this will last for a while. Europe has entered a recession but it’s unlikely to deteriorate badly. Emerging counties are transitioning from economic slowdown to faster growth again.”

Europe’s Declines

The Stoxx Europe 600 Index advanced 0.4 percent, paring its 2011 loss to 12 percent. An index of bank shares on the gauge has dropped 33 percent this year, the worst performance among 19 industry groups. The Stoxx 600’s decline this year compares (MXAP) with an 18 percent drop in the MSCI Asia Pacific Index and a 0.4 percent increase in the S&P 500.

About two shares advanced for every one that fell on MSCI’s Asia Pacific index, which rose 0.4 percent. Japan’s Nikkei 225 Stock Average added 0.7 percent and Hong Kong’s Hang Seng Index gained 0.2 percent. South Korean and Philippine financial markets are closed today.

Gree Inc. (3632), a social-network operator, has rallied 157 percent this year, the best performer on MSCI’s Asia Pacific index. Tokyo Electric Power Co. (9501), whose Fukushima Dai-Ichi nuclear station was wrecked by the March 11 earthquake, is the worst performer, losing 91 percent this year.

The Shanghai Composite Index rose 1.2 percent even after HSBC Holdings Plc and Markit Economic said a purchasing managers’ index was at 48.7 in December. That compares with a preliminary result of 49 reported on Dec. 15 and a final reading of 47.7 for November.

‘Firmer’ U.S. Economy

The S&P 500 erased losses (SPX) for the year after data yesterday showed the National Association of Realtors’ index of pending home sales increased 7.3 percent to the highest level since April 2010. Economists forecast a 1.5 percent gain, according to the median estimate in a Bloomberg News survey.

Other figures showed business activity in the U.S. expanded more than forecast in December, while the four-week moving average for jobless claims, a less volatile measure than the weekly figures, dropped to 375,000 last week, the lowest level since June 2008, Labor Department data showed. Applications rose for the first time in a month in the week ended Dec. 24, climbing by a more-than-forecast 15,000 to 381,000.

“Investors increasingly feel the U.S. economy is firmer than they had expected,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The economic data is looking good and that will boost stock markets, especially when concern about Europe’s debt issues aren’t in the forefront.”

Yearly Gain

Treasuries fell for the first time in four days amid speculation the rally that pushed U.S. government securities to their best yearly gain since 2008 will give way to losses in 2012 as the economy improves. American debt returned 9.6 percent in 2011 as of yesterday, according to Bank of America Merrill Lynch data, even after S&P cut the U.S.’s AAA credit rating on Aug. 5.

The cost of insuring corporate and sovereign bonds against non-payment fell in Asia, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreasing two basis points to 204.5, according to BNP Paribas SA prices. At those levels, the gauge will have climbed 101.5 basis points this year, the biggest gain since 2008 when it advanced 275 basis points, according to data provider CMA.

Europe’s shared currency fell yesterday to 100.06 yen, the weakest level since June 2001, after Italy auctioned 7 billion euros ($9 billion) of debt. That fell short of the 8.5 billion- euro target even as borrowing costs declined from last month. Italian 10-year yields rose three basis points to 7.03 percent after the sale.

‘Dire’ Sentiment

The 17-nation euro has dropped against the dollar and yen this year amid concern the debt crisis will weigh on the region’s economy growth. Data next week may confirm European manufacturing contracted for a fifth straight month.

“The risks in Europe will get worse before it gets better,” said Matt Brady, an executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “Risk sentiment is going to be dire as we head into 2012 and I’m not a believer in being long any risk currencies.”

The Australian dollar rose 0.1 percent to $1.0148, while New Zealand’s currency gained 0.1 percent to 77.24 U.S. cents. The currencies are poised to end the year lower against their U.S. counterpart. China’s yuan climbed to a 17-year high of 6.3070 per dollar. It gained 4.4 percent this year, beating the 3.6 percent advance in 2010.

Copper, Gold

S&P’s GSCI Total Return Index (SPGSCITR) of raw materials has slipped 0.8 percent this year. Three-month copper rallied 1.3 percent to $7,522.75 a metric ton in London, paring a 22 percent annual fall. Oil for February delivery was little changed at $99.66 a barrel in New York after having gained 9.1 percent this year. Crude is headed for a third yearly increase on speculation that escalating tension in the Middle East may disrupt supplies.

Gold rebounded from a drop to the lowest level in six months, as the slump that threatened to tip the metal into a bear market spurred purchases. Immediate-delivery gold climbed 1 percent to $1,561.18 an ounce, up 9.9 percent in 2011. Bullion reached a record $1,921.15 on Sept. 6, and would need to close below $1,536.92 to enter a bear market, typically defined as a drop of more than 20 percent.

To contact the reporters on this story: Shiyin Chen in Singapore at schen37@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net; Darren Boey at dboey@bloomberg.net

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Asian Stocks Edge Higher on Signs U.S. Weathering Europe Crisis

By Yoshiaki Nohara and Norie Kuboyama - Dec 30, 2011 1:20 PM GMT+0700

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Dec. 29 (Bloomberg) -- Jeff Papp, an analyst at Oberweis Asset Management Inc., talks about the outlook for China's economy and stock markets in 2012, and his investment strategy. He speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Asian stocks (MXAP) edged higher on the last trading day of 2011, with the region’s benchmark index set for its first yearly drop since 2008, as rising U.S. home sales signaled the world’s largest economy is weathering Europe’s debt crisis.

Sony Corp. (6758), Japan’s biggest exporter of consumer electronics, gained 2 percent. Techtronic Industries Company Ltd., a maker of industrial products that gets about 73 percent of its revenue in North America, added 1.3 percent in Hong Kong. Cnooc Ltd. (883), China’s largest offshore energy explorer, rose 0.7 percent after oil prices gained. Power Finance Corp. gained 5.5 percent after saying it plans to sell bonds next week.

The MSCI Asia Pacific Index (MXAP) added 0.4 percent to 113.26 as of 3:12 p.m. in Tokyo, with all 10 of its industry groups advancing. The measure has lost 0.3 percent this month and is set for an 18 percent drop this year. For the week, the gauge is down 0.4 percent.

“Investors increasingly feel the U.S. economy is firmer than they had expected,” said Toshiyuki Kanayama, a market analyst at Tokyo-based Monex Inc. “The economic data is looking good and that will boost stock markets, especially when concern about Europe’s debt issues aren’t in the forefront.”

The Asia Pacific gauge has lost about $1.78 trillion this year amid concern Europe’s three-year debt crisis will drag the global economy into recession. Stocks on Asia’s benchmark are valued at 12.6 times estimated earnings on average, compared with 12.6 times for Standard & Poor’s 500 Index (SPXL1) and 10.5 times for the Stoxx Europe 600 Index.

Fukushima Dai-Ichi

Utilities have fallen 26 percent this year, dropping the most among the 10 industry groups on the Asian gauge. Japanese power producers tumbled amid a nuclear crisis at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. The utility has lost 91 percent this year, the biggest drop on the MSCI All Country World Index (MXWD).

Japan’s Nikkei 225 Stock Average (NKY) gained 0.7 percent today. Trading volume was 53 percent below the 100-day average ahead of a four-day weekend. Hong Kong’s Hang Seng Index rose 0.3 percent. Australia’s S&P/ASX 200 lost 0.4 percent. South Korea’s market was closed today for a holiday.

Futures on the S&P 500 Index slid 0.2 percent. The gauge advanced 1.1 percent yesterday in New York after a report showed a jump in pending sales of existing homes that exceeded economist estimates by almost five times.

Sony, James Hardie

Exporters to the U.S rose. Sony added 2 percent to 1,382 yen in Tokyo, while Techtronic Industries rose 1.3 percent to HK$8.02.

Gains in stocks were limited after Italy yesterday fell short of its target in a debt auction. Prime Minister Mario Monti said his government won’t “rule out” more aggressive efforts to reduce debt.

“Markets will continue to be unstable for the first quarter of next year,” said Masaru Hamasaki, Tokyo-based chief strategist at Toyota Asset Management Co., which oversees the equivalent of $24 billion. “European nations will need to unite as they debate how to rehabilitate the region’s finances. The leadership will be tested.”

Cnooc rose 0.7 percent to HK$13.68. West Texas Intermediate crude for February delivery gained as much as 0.5 percent to $100.16 a barrel on the New York Mercantile Exchange.

Power Finance (POWF) rose the most on the Asia Pacific index after R. Nagarajan, executive director for finance said the company plans to sell at least 1.5 billion rupees ($28 million) of bonds next week. The stock gained 5.5 percent to 139.3 rupees.

Among other stocks that advanced, Japanese engineering company Chiyoda Corp. (6366) gained 2.1 percent to 783 yen. The Nikkei newspaper reported the company will likely beat its forecast for operating profit by up to 3 billion yen ($39 million) in the year ending March due to lower-than-expected costs on a liquefied natural gas project in Qatar.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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Asia Crisis Haunts Thailand With Over $35B Debt

By Daniel Ten Kate and Suttinee Yuvejwattana - Dec 30, 2011 10:00 AM GMT+0700

Thailand’s government will today press the central bank chief to take on $35 billion of legacy debt from bank bailouts as Prime Minister Yingluck Shinawatra looks for fiscal scope to finance flood defenses.

Bank of Thailand Governor Prasarn Trairatvorakul meets with cabinet members in Bangkok over the proposal to shift the debt to the BOT’s balance sheet. Deputy Prime Minister Kittiratt Na- Ranong said yesterday the step would save the government as much as 65 billion baht ($2 billion) in annual interest costs that could be used to fund anti-flood measures.

The push risks deepening concern that Yingluck’s administration is infringing on the central bank’s independence, after Kittiratt in October said the BOT should lower interest rates to help businesses cope with the country’s worst flooding since 1942. The government itself lacks unanimity on the move, with Finance Minister Thirachai Phuvanatnaranubala warning it could hurt investor confidence and stoke inflation.

“The weakening of the baht in the last few days may come from this concern about inflation,” said Somprawin Manprasert, an economist at Tisco Securities in Bangkok. “It’s not a good thing to do at all and will hurt both fiscal and monetary discipline. People will start to think that if the government can do it one time, they can do it again when debts pile up.”

The baht yesterday fell the most in two months to 31.75 per dollar, the weakest level since Aug. 16, 2010, according to data compiled by Bloomberg. It was unchanged today as of 8:46 a.m. in Bangkok, set for its biggest annual loss since 2005. The benchmark SET Index (SET) has dropped 1.8 percent over the past six days, the worst performer in Asia after Vietnam in that time.

‘Quite Strange’

Thailand’s Cabinet resolved earlier this week to study moving 1.1 trillion baht in debt incurred bailing out financial institutions 14 years ago onto the central bank’s balance sheet. Prasarn said this week it was “quite strange” that the government didn’t discuss the debt transfer officially with the central bank before bringing the issue to the Cabinet.

“Our losses on the balance sheet will be higher and that may affect confidence,” Prasarn told reporters on Dec. 28.

The Financial Institutions Development Fund racked up a 1.4 trillion baht debt during the 1997 Asian financial crisis on loans aimed at rescuing struggling lenders. The government closed more than 60 non-bank financial companies and seized half of the nation’s 14 commercial banks that received help from the fund.

Under a repayment agreement in 2002, the finance ministry makes interest payments while the central bank pays down the principal whenever it earns a yearly profit. The Bank of Thailand has reported annual net income once since 2004 (BOT) and last year reported a net loss of 117 billion baht, mostly due to losses on foreign exchange.

Proud to Repay

Since 1997, the principal on the debt has fallen by 300 billion baht, or about 21 billion baht per year. During that time the government has paid as much as 65 billion baht in interest annually, according to Kittiratt, who said yesterday the central bank would report a “record high profit” for 2011.

“The central bank should be proud that they can take care of part of the nation’s debts,” he told reporters in Bangkok yesterday. “If we transfer the debt to the Bank of Thailand, it will help reduce the government’s concerns.”

The move would reduce the public debt-to-gross domestic product ratio by 10 percentage points from 40 percent now, providing room for more government borrowing, Kittiratt said. Thailand’s Cabinet this week approved a proposal to borrow 350 billion baht to set up a fund for long-term water-management projects following the floods.

‘Amend the Bible’

The government’s move has more to do with sidestepping restrictions on budget deficits than its ability to borrow, said Sethaput Suthiwart-Narueput, managing partner of Advisor Co., a Bangkok-based corporate advisory, and former executive vice president of Siam Commercial Bank Pcl. Yingluck’s government could spend more by passing a stimulus bill as the previous administration did in 2009, he said.

Thailand’s Budget Procedures Act passed in 1959 prevents the government from borrowing more than 20 percent of approved annual budget expenditures plus 80 percent of expenses allocated to government debt payments.

The government is “trying to get more spending out without having to issue a new law,” he said. “They certainly don’t want to amend the budget law because to do that it would be seen as ‘Oh my God, they are undermining the fiscal discipline our forefathers put in place.’ It’s like trying to amend the Bible.”

Printing Money

Thirachai, the finance minister, suggested allowing the use of interest from the country’s $167 billion in foreign reserves, amounting to 25 billion baht this year, for debt payments. His predecessor under the previous government, Korn Chatikavanij, said such a move would “retain the prudency and accountability and transparency of the current structure.”

The debt “is a burden for sure, but what would be worse is trying to push it off the government balance sheet and pretend it doesn’t exist,” Korn said in a telephone interview. “It would also be detrimental to the central bank, which would have no way to repay the debt except printing fresh money.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Oil Heads for Third Yearly Gain on Iran Tension, U.S. Economy Speculation

By Ann Koh and Ramsey Al-Rikabi - Dec 30, 2011 2:41 PM GMT+0700

Oil rose for a second day, heading for a third yearly increase, on speculation escalating tension in the Middle East may disrupt supplies as a recovery in the U.S. economy bolsters demand.

Futures advanced for the eighth day in nine, extending this year’s gain to 9.3 percent. A U.S. State Department spokeswoman yesterday called Iran’s threats to shut the Straits of Hormuz “irrational behavior.” About one-sixth of global supply travels through the seaway. The country faces sanctions on its crude exports and a possible boycott by European oil buyers over its nuclear program. Prices gained yesterday after U.S. jobless claims fell to a three-year low.

“With both the Brent price and West Texas sitting roughly on $100, these types of prices are related very much to the overall geopolitical risk premium,” said David Land, the head of analysis at CMC Markets Ltd. in Sydney, who expects oil to outperform other commodities next year. “Compared to the wider commodity space, oil is one area that I’d be more bullish on.”

West Texas Intermediate crude for February delivery gained as much as 51 cents, or 0.5 percent, to $100.16 a barrel on the New York Mercantile Exchange. It was at $99.83 at 3:38 p.m. Singapore time, headed for a second weekly increase. Oil climbed 15 percent in 2010.

Brent for February settlement was at $108.14 a barrel, up 13 cents on the London-based ICE Futures Europe Exchange, headed for a 14 percent increase this year. The European contract’s premium to New York crude was $8.31.

Price Fluctuation

Crude surged to the highest in more than two years in May, trading at $114.83 in New York after a popular uprising in Tunisia sparked similar protests across the Middle East and North Africa. Clashes in Libya between rebels and forces loyal to then-leader Muammar Qaddafi cut off more than 1.5 million barrels a day of oil exports from the country.

A meeting of the Organization of Petroleum Exporting Countries broke down June 8 when six members, including Iran and Venezuela, opposed a Saudi Arabian-led push to supply more oil to compensate for lost Libyan output. The International Energy Agency responded with a coordinated release of 60 million barrels of emergency oil stockpiles on June 23.

Prices gave up the year’s gains by August amid concern the U.S. economic recovery was stalling and speculation that Libya would resume oil production faster than expected after Qaddafi’s ouster that month. New York crude slipped to $74.95 on Oct. 4, the lowest in a year, as Europe’s escalating debt crisis sapped confidence in the health of the global economy.

Iran, Confidence

An improving economic outlook in the U.S., combined with the escalation of tension in the Middle East, has taken prices back above $100 a barrel, even as Europe’s debt crisis threatens to plunge the region into recession and China shows signs of weaker growth.

Iranian Vice President Mohammad Reza Rahimi issued a warning to shut the Straits of Hormuz in a Dec. 27 report published by the state-run Islamic Republic News Agency. About 15.5 million barrels of oil a day passes through the waterway between Iran and Oman at the mouth of the Persian Gulf, according to the U.S. Energy Department.

“We’ve seen quite a bit of irrational behavior from Iran recently,” said Victoria Nuland, a State Department spokeswoman, when asked yesterday about Iran’s threats. “One can only guess the sanctions are beginning to pinch.”

A U.S. aircraft carrier was spotted in the area where Iran is conducting naval exercises, state-run Islamic Republic News Agency reported yesterday, citing the navy’s Deputy Commander Mahmoud Mousavi. Iran’s navy started the exercises on Dec. 24 and plans to conclude the drills on Jan. 4, the news agency reported.

‘Geopolitical Premium’

The country pumped 3.56 million barrels a day of crude in November, according to data compiled by Bloomberg, making it the second-largest producer in OPEC after Saudi Arabia.

“For a country that relies so heavily on oil exports like Iran does, it’s obviously not something that they would do lightly,” said Land. “But certainly the threat of it is enough to add back the geopolitical premium we’re seeing.”

Prices may rise next week amid Iran’s threat, a Bloomberg News survey showed. Thirteen of 32 analysts, or 41 percent, forecast oil will increase through Jan. 6. Ten respondents, or 31 percent, predicted prices will decrease and nine estimated there will be little change.

U.S. Economy

Oil also gained today on signs the U.S. economy is weathering Europe’s debt crisis. The four-week moving average for jobless claims dropped to 375,000 last week, the lowest level since June 2008, Labor Department data showed in Washington yesterday.

“At this stage, WTI looks like it’s found a fairly comfortable range at $95 to $100,” Land said. “If the U.S. starts showing better-than-expected improvement, that would go a long way to make the outlook for the global economy more rosy than currently.”

Oil prices in the U.S. and Europe became dislocated in 2011 as the loss of Libyan supplies, used primarily by refiners in Europe, combined with a glut of crude at WTI’s delivery point in Cushing, Oklahoma, to push Brent to a record $28.08 a barrel above New York futures on Oct. 14.

Brent-WTI

The premium has since narrowed more than 70 percent, settling at $7.93 on Dec. 27, the lowest since January, after Enbridge Inc. and Enterprise Products Partners LP said they would reverse the 500-mile (805-kilometer) Seaway pipeline from Cushing to refineries on the Gulf Coast, opening an outlet to clear supplies.

Total U.S. crude inventories (DOESCRUD) rose 3.9 million barrels to 327.5 million in the week ended Dec. 23, the Energy Department reported. Supplies were forecast to drop 2.5 million barrels, based on the median of 10 analyst estimates in a Bloomberg News survey. Stockpiles at Cushing shrank to 29.9 million barrels, the lowest since February 2010.

To contact the reporters on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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