Dow Rallies to Highest Level Since 2008 on Jobs Report

By Rita Nazareth - Feb 3, 2012 10:24 PM GMT+0700
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Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Jin Lee/Bloomberg

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Feb. 3 (Bloomberg) -- Kate Moore, senior global equity strategist at Bank of America Merrill Lynch, discusses the outlook for global markets and investment strategy. Moore speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

U.S. stocks advanced, sending the Dow Jones Industrial Average toward its highest level since May 2008, after a report showed that employment growth topped estimates and the jobless rate unexpectedly fell to 8.3 percent.

Bank of America Corp. (BAC), Caterpillar Inc. (CAT) and FedEx Corp. (FDX) rallied at least 1.5 percent to pace gains among companies most- dependent on economic growth. Alcoa Inc. (AA) and Occidental Petroleum Corp. (OXY) added more than 1.9 percent as commodity producers advanced. Tyson Foods Inc. (TSN) rose 5.5 percent as profit beat estimates. Gilead Sciences Inc. surged 9.1 percent on positive data from an experimental hepatitis C drug.

The Standard & Poor’s 500 Index rose 1.3 percent to 1,342.27 at 10:22 a.m. New York time. The benchmark gauge has climbed 2 percent since Jan. 27, poised for a fifth straight weekly increase. The Dow Jones Industrial Average added 152.89 points, or 1.2 percent, to 12,858.30 today.

“Spectacular,” Ron Florance, managing director of investment strategy for Wells Fargo Private Bank, said in a telephone interview from Phoenix. His firm manages $169 billion. “It’s a very, very strong jobs number. It shows that companies have confidence that they see global demand growth through their products and services. The numbers indicate continued economic strength. That will support risk assets.”

The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey. The unemployment rate dropped to 8.3 percent, the lowest since February 2009. The median projection in the Bloomberg survey called for an increase of 140,000 payrolls. The Institute for Supply Management’s index of non-manufacturing industries, which account for almost 90 percent of the U.S. economy, rose to 56.8 in January from 53 a month earlier.

Earnings Outlook

Earnings in the S&P 500 are forecast to rise 9 percent this year to $104.68, according to analyst estimates compiled by Bloomberg. At yesterday’s close of $104.68, the index is trading at 12.7 times projected earnings in 2012 and 11.2 times predictions for 2013. The benchmark gauge for American equities has traded at an average price-earnings ratio of 16.4 since 1954, according to data compiled by Bloomberg.

Companies most-tied to economic growth rallied. Bank of America gained 5.1 percent to $7.83. Caterpillar added 2.5 percent to $113.09. FedEx increased 1.5 percent to $94.14.

Energy and raw material producers gained as the S&P GSCI Index of commodities added 1.1 percent. Alcoa rose 2.1 percent to $10.64. Occidental Petroleum jumped 1.9 percent to $100.37.

Tyson Foods rose 5.5 percent to $19.64. The meat processor reported first-quarter earnings of 42 cents a share. On average, the analysts surveyed by Bloomberg estimated profit of 34 cents.

Gilead, Brocade

Gilead Sciences (GILD) rallied 9.1 percent to $53.78. The drugmaker that acquired Pharmasset Inc. last month for its experimental hepatitis C treatments said one of the therapies produced positive clinical trial results.

Brocade Communications Systems Inc. (BRCD) rose 1.7 percent to $5.93. Blackstone Group LP (BX), the world’s largest private-equity firm, is studying a leveraged buyout of the company, said a person with knowledge of the situation. While Blackstone is in talks with Brocade, which has been seeking a buyer since 2009, reaching a deal may be difficult, said the person, who declined to be identified because the matter isn’t public. Brocade, a maker of switches for data-storage networks, has a market value of $2.65 billion.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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

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Libor Manipulation Examined by Swiss Regulator Targets UBS, Credit Suisse

By Elena Logutenkova - Feb 3, 2012 6:29 PM GMT+0700

UBS AG (UBSN) and Credit Suisse Group AG (CSGN) are among 12 banks facing a Swiss inquest into possible manipulation of the London interbank offered rate, the latest probe into how the benchmark for $350 trillion of financial products is set.

“Collusion between derivative traders might have influenced” Libor and its Japanese equivalent, Tibor, the Swiss competition watchdog, Comco, said in an e-mailed statement today. “Market conditions regarding derivative products based on these reference rates might have been manipulated too.”

Comco said it opened the investigation after receiving an application for its “leniency program,” which indicated that traders from various banks might have influenced the rate. Libor is set daily by the British Bankers’ Association based on data from banks, which report how much it would cost them to borrow from each other for various periods of time. Regulators in the U.S., U.K. and European Union have been examining how Libor is set, while Japan’s securities watchdog has probed Tibor.

“We are taking these investigations very seriously and are fully cooperating with the authorities,” said Yves Kaufmann, a spokesman for UBS in Zurich. UBS, the biggest Swiss bank, said in July that it was granted conditional immunity from some agencies, including the U.S. Department of Justice.

A spokesman for Credit Suisse said the bank is “not in the position” to comment at the moment.

‘Influencing Rates’

Other banks under investigation include Bank of Tokyo- Mitsubishi UFJ Ltd., Citigroup Inc. (C), Deutsche Bank AG (DBK), HSBC Holdings Plc (HSBA), JPMorgan Chase & Co., Mizuho Financial Group Inc. (8411), Rabobank International, Royal Bank of Scotland Group Plc (RBS), Societe Generale SA and Sumitomo Mitsui Banking Corp., according to the statement. “Other financial intermediaries” are also subject to the investigation, Comco said.

Press officers for Deutsche Bank, Mizuho, Bank of Tokyo, JPMorgan and HSBC declined to comment. Spokespeople for Sumitomo Mitsui, RBS and Citigroup couldn’t immediately comment. Rabobank spokesman Hendrik Jan Eijpe said he couldn’t comment as the Dutch lender hasn’t yet received any communication from the Swiss competition commission.

“Societe Generale (GLE) is part of a number of panels which determine interbank rates,” the Paris-based bank said in a statement read over the phone by spokeswoman Saphia Gaouaoui. “The bank is prepared to respond to any enquiry from relevant authorities on any information they should wish to obtain.”

Derivative traders working at various financial institutions might have manipulated Libor and Tibor submissions by “coordinating their behavior, thereby influencing these reference rates in their favor,” the watchdog said. “Derivative traders might have colluded to manipulate the difference between the ask price and the bid price of derivatives based on these reference rates to the detriment of their clients.”

Request for Information

The involved banks were sent a letter yesterday with a request for information on the alleged collusion, Thomas Nydegger, an official at Comco dealing with competition in services industries, said by telephone. The banks were given a deadline of the beginning of March, which may be extended if needed, he said.

Comco aims to assess the effects of the alleged practices on Swiss clients and companies, Nydegger said, adding that there is no legal basis for cooperation between authorities in different countries on such investigations. The probe may take more than a year to conclude, he said.

Banks including RBS, Barclays Plc and HSBC were asked last year to supply information to U.S. and European regulators investigating whether Libor was manipulated.

‘Intensifying Scrutiny’

European Commission regulators also raided banks that offer financial derivatives linked to the euro interbank offered rate, or Euribor, over possible collusion. Deutsche Bank and RBS were visited by EU officials, two people said in October.

EU regulators are “intensifying our antitrust scrutiny on wholesale financial markets,” EU Competition Commissioner Joaquin Almunia said last month. “Preserving competition in this domain is of utmost importance and we will live up to our responsibilities in this regard.”

Antoine Colombani, a spokesman for the European Commission in Brussels, declined to comment on the Swiss investigation.

“Last October we carried out unannounced inspections at the premises of a number of undertakings active in the sector of euro interest rate derivatives based on Euribor benchmark rates,” he said in an e-mail. “At this stage no formal investigation has been opened.”

Japan’s banking regulator declines to comment on the actions of foreign authorities, said Toshiharu Mashita, a spokesman for the country’s Financial Services Agency.

To contact the reporter on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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Stocks, Commodities Rally as Treasuries Retreat on U.S. Employment Growth

By Rita Nazareth and Nikolaj Gammeltoft - Feb 3, 2012 10:54 PM GMT+0700

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Feb. 3 (Bloomberg) -- U.S. Secretary of Labor Hilda Solis discusses the January employment report and outlook for an agreement to extend the payroll tax cut. Solis speaks with Betty Liu and Peter Cook on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Feb. 3 (Bloomberg) -- Employment climbed more than forecast in January and the U.S. jobless rate unexpectedly fell to the lowest in three years, casting doubt on whether the Federal Reserve can wait until 2014 before raising interest rates. The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey, Labor Department figures showed in Washington. The unemployment rate dropped to 8.3 percent, the lowest since February 2009. Peter Cook and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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Feb. 2 (Bloomberg) -- Thomas Higgins, global macro strategist at Standish Mellon Asset Management, talks about investment strategy for Europe. Higgins, speaking with Sara Eisen and Scarlet Fu on Bloomberg Television's "InsideTrack," also discusses the outlook for China's economy. (Source: Bloomberg)

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Feb. 3 (Bloomberg) -- John Taylor, founder, chairman and chief executive officer of FX Concepts LLC, talks about the outlook for the U.S. dollar and the euro. Taylor, speaking with Sara Eisen on Bloomberg Television's "InsideTrack," also discusses the European sovereign-debt crisis and investment strategy. (Source: Bloomberg)

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Feb. 3 (Bloomberg) -- Steen Jakobsen, chief economist at Saxo Bank A/S, discusses the outlook for Europe's sovereign debt crisis and the U.S. economy. He speaks with Susan Li on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Stocks surged, extending the best start to a year for the Standard & Poor’s 500 Index since 1989, and Treasuries slid as better-than-forecast growth in U.S. jobs bolstered optimism in the economy. Lead, aluminum and cotton led commodities higher while gold, silver and natural gas fell.

The Standard & Poor’s 500 Index increased 1.3 percent to 1,342.2 at 10:52 a.m. in New York and is up 6.7 percent in 2012. The Stoxx Europe 600 Index extended gains after the jobs report, rising 1.5 percent. Yields on 10-year U.S. Treasury notes climbed nine basis points to 1.92 percent. The Dollar Index (DXY) rose 0.3 percent amid speculation the Federal Reserve has less reason to add another round of asset purchases to bolster growth.

The S&P 500 is poised for a fifth straight weekly gain, its longest streak in a year, and the Dow Jones Industrial Average is trading above its highest closing level since 2008. The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey, Labor Department figures showed. The unemployment rate dropped to 8.3 percent, the lowest since February 2009. Equities extended gains after a gauge of service industries also showed faster-than- forecast growth.

“Wow,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “The jobs report confirms that this recovery is stronger than many people think. It speaks well to what earnings will be going forward and to what the possibilities are for equities. The riskier assets may turn out to be the ones with less risk.”

Cyclicals Lead

Gains in stocks today were led by companies that are most- dependent on economic growth, with gauges of financial, industrial and consumer-discretionary stocks climbing more than 1.3 percent to lead an advance in nine of the 10 main industries in the S&P 500. Bank of America Corp., Caterpillar Inc. (CAT) and Walt Disney Co. jumped more than 2 percent for the biggest gains in the Dow.

The median projection in the Bloomberg survey called for payrolls to rise by 140,000. Revisions added a total of 60,000 jobs to payrolls in November and December. The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 15.1 percent from 15.2 percent.

ISM Beats

Equities extended gains after service industries in the U.S. expanded in January at the fastest pace in almost a year, pointing to strength in the biggest part of the economy. The Institute for Supply Management’s non-manufacturing index rose to 56.8, topping the median forecast of 77 economists surveyed by Bloomberg News for a reading of 53.2.

The S&P 500 has rallied 21 percent since its 2011 low on Oct. 3 as the Federal Reserve pledged to keep interest rates low through 2014, economic data topped estimates and the European Central Bank provided cheaper lending to help banks. Companies added 170,000 workers to their payrolls in January, ADP Employer Services data showed Feb. 1.

Earnings beat projections at about two-thirds of the 264 companies in the S&P 500 that reported results since Jan. 9, according to data compiled by Bloomberg.

Profits in the S&P 500 are forecast to rise 9 percent this year to $104.68, according to analyst estimates compiled by Bloomberg. At yesterday’s close of $104.68, the index is trading at 12.7 times projected earnings in 2012 and 11.2 times predictions for 2013. The benchmark gauge for American equities has traded at an average price-earnings ratio of 16.4 since 1954, according to data compiled by Bloomberg. (SPX)

“If the strong jobs market continues we would be inclined to increase our expectations for earnings,” Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust Co. which manages $6 billion, said in a phone interview. “This jobs report favors cyclical stocks over defensive stocks. It makes you rethink your balance between cyclically sensitive sectors versus the defensive sectors.”

European Shares

The Stoxx 600 has advanced 3.4 percent this week, the sixth gain in seven weeks. A gauge of U.K. services activity based on a survey of purchasing managers rose in January to 56, the highest since March, Markit Economics and the Chartered Institute of Purchasing and Supply said today.

Admiral Plc surged 8.2 percent, the biggest gain in three years, as the U.K. insurer extended its reinsurance partnerships. Temenos Group AG (TEMN) rallied 13 percent after Misys Plc said it’s in talks about merging with the Swiss maker of banking software.

Finance ministers of the AAA-rated countries using the euro -- Germany, Luxembourg, the Netherlands and Finland --meet today in Berlin. The gathering is part of a series of meetings convened by officials from the highest-rated euro states, a German Finance Ministry spokesman said, speaking on the customary condition of anonymity. Ministers will discuss current issues without briefing reporters.

Commodities, Euro

Seventeen of the 24 commodities in the S&P GSCI Index advanced, sending the gauge up 0.6 percent. Cotton rose 3.8 percent to 97.75 cents a pound and aluminum advanced 2.1 percent to $2,240 a metric ton. Crude oil added 1 percent to $97.36 a barrel.

The euro weakened 0.2 percent to $1.3112, extending its decline for the week to 0.8 percent.

The yield on Portuguese 10-year bonds slid 94 basis points to 13.89 percent. Greek 10-year bonds rose, sending the yield down 30 basis points to 34.07 percent. Deutsche Bank AG Chief Executive Officer Josef Ackermann may travel to Athens this weekend for talks over a swap involving Greek debt with a face value of about 200 billion euros ($263 billion).

European Rescue

A new rescue plan, which European officials and Greek creditors say may be wrapped up in coming days, includes a loss of more than 70 percent for bondholders in a voluntary exchange and loans likely to exceed the 130 billion euros now on the table.

The MSCI Emerging Markets Index gained 0.4 percent, for a weekly increase of 3.1 percent.

The Shanghai Composite Index rose 0.8 percent to extend a third straight weekly gain, its longest stretch in seven months amid speculation the central bank may lower reserve-ratio requirements. India’s Sensex increased for a fourth day, advancing 1 percent.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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Malev Shuts as Euro Crisis Claims Second Airline

By Zoltan Simon - Feb 3, 2012 9:42 PM GMT+0700

Malev Zrt. (MALEV), the state-owned Hungarian airline founded in 1946, ceased flying after the government withdrew financing, becoming the second victim of European austerity measures in a week after the collapse of Spanair SA.

Malev, which has debts of 60 billion forint ($270 million), halted flights at 6 a.m. local time, with police guarding its ticket booth at Budapest’s main Liszt Ferenc airport as hundreds of passengers milled around seeking to rebook or get a refund.

“What we fretted about the most and what we’ve done the most to avert has come to pass,” Chief Executive Officer Lorant Limburger said in a statement, adding that Malev’s cash-flow became “untenable” after service providers “lost faith” and a European Commission ruling hindered further state support.

Governments are becoming reluctant to prop up airlines as Europe’s debt crisis forces the region’s deepest cost cuts in a generation. Barcelona-based Spanair ceased flying Jan. 27 after failed bid talks prompted Catalonia to halt funding, and Sweden, Ireland, Portugal, Poland and the Czech Republic are also seeking to reduce state support for carriers.

Ryanair Ramp-up

“Grounding Malev is painful,” Hungarian Prime Minister Viktor Orban said today after the airline’s board ordered it to fold. “We’ve tried to push it along and keep it flying as long as we could, but this is the end. We can’t keep this going on without the risk of losing the aircraft that are abroad.”

While a profitable flag carrier should be part of Hungary’s “national economy,” a replacement will be set up only with the backing of private money, Orban said on MR1 radio, and given the economic crisis, “investors aren’t bustling on the market.”

Chris Tarry, an independent analyst in London, said Hungary needs to decide whether it can count on carriers such as Ryanair Holdings Plc (RYA) to provide transport links vital to the economy.

“There’s a lot of competition in Budapest, but if you rely on a non-local carrier they can always take their aircraft away,” said Tarry, who has covered airlines for almost 30 years.

Ryanair said today it will bring forward plans to serve Budapest from March to Feb. 17 and make the city a base for four Boeing Co. (BA) 737 jets and 2,000 workers, not just a destination, serving 31 routes, versus a prior target of five, to target 2 million people a year. Malev had 3.2 million customers in 2011.

‘Catastrophe’

Passengers and staff at Liszt Ferenc airport, which changed its name from Ferihegy last year to honor composer Franz Liszt, said the collapse of Malev would damage Hungary’s reputation and might affect people’s willingness to visit or do business there.

“This is a catastrophe,” said Hajnalka Gundert, a 37-year- old nurse who had aimed to fly to London, where she’s moving for a better-paid job in a nursing home, one of 7,200 people with a Malev ticket for today. The carrier’s demise is “one more sign that we need to leave to have a better future,” she said.

Spanair became the first scheduled mainline European carrier to collapse since the last recession after Qatar Airways Ltd., the No. 2 Middle Eastern carrier, halted bid talks and the Catalonia government indicated it would no longer supply funds.

The airline, founded in 1986, was Spain’s fourth-biggest by passenger numbers, carrying almost 13 million in 2011. Cirrus Airlines, an operator of regional aircraft based in Saabruecken, Germany, ceased flights on Jan. 23, according to its website.

Commission Blow

Budapest-based Malev, a member of the Oneworld airline alliance that includes British Airways, reported a loss of 24.6 billion forint in 2010, the latest year for which results are available, little changed from its deficit in 2009.

The company’s plight worsened on Jan. 9 when the European Commission ruled that it should return the equivalent of $390 million in “unlawful aid” paid by the government from 2007 to 2010, saying it would have struggled to raise cash from a private investor. Malev borrowed 5 billion forint in December and received 8.5 billion forint in budget funds in August.

The collapse comes as Hungary seeks to revive bailout talks with the International Monetary Fund and European Union to quell investor concern about its ability to service the highest debt level among the trading bloc’s eastern members. Orban, the premier, sought aid in November as the forint fell to a record low and the country’s credit grade was cut to junk at Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.

Forint Impact

Malev was among Hungary’s top 30 earners of export revenue, getting the majority of sales abroad, a white paper from Dec. 5 said. It served 45 cities and contributed 40 percent of revenue at Liszt Ferenc, in which Hochtief AG (HOT) has a 50 percent stake.

The grounding may force the state to pay about 1.5 billion euros ($2 billion) as a one-off obligation to the airport’s operators, according to the paper, which cited a privatization contract. The payment could “add to the overhang coming from EU/IMF talks and may result in short-term weakening of the forint and a decline in share prices,” said Akos Kuti, an analyst at Equilor Befektetesi Zrt. in Budapest.

Malev’s bankruptcy trustee will announce job cuts shortly, the MTI news service said, without citing anyone. The collapse may cut the number of visitors flying to Budapest by 50 percent, threatening tourism jobs, Akos Niklai, vice president of the Hungarian Hotel and Restaurant Association, said by telephone.

Malev was already effectively operating in bankruptcy protection, having been declared a “strategically important company” on Jan. 30, shielding it from creditors.

Wizz Boost

Earnings have been squeezed by rivals including Budapest- based budget operator Wizz Air Ltd., which is offering stranded passengers one-way “discounted” flights for 9,900 forint, or $45, and will invest 25 billion forint to expand capacity. EasyJet Plc (EZJ), Europe’s second-biggest discount carrier, which serves Hungary from London, Paris and Berlin, offered a 60-euro ($79) rescue fee, and Air Berlin Plc (AB1), the No. 3, announced a 49- euro rescue and will commence daily Berlin-Budapest flights.

Today’s grounding ends a two-decade search for a viable partner since Malev was transformed into a joint stock company in 1992 following the collapse of communism.

The last recession led to the failure of a takeover by Russian entrepreneur Boris Abramovich, and Hungary was compelled to renationalize Malev, taking a 95 percent stake in 2010. As recently as this week, Chairman Janos Berenyi said it was “not impossible” that talks with Hainan Airlines Co. parent HNA Group could be revived. The Chinese company said yesterday it was “willing to restart negotiations on a possible bid.”

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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Greece Seeks Second Rescue, Fights for Euro

By Jonathan Stearns - Feb 3, 2012 6:48 PM GMT+0700
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Pedestrians enter a subway pass at the closed Doukisis Plakentias metro station during a 24-hour strike in Athens, Greece, on Tuesday, Jan. 17, 2012. Photographer: Kostas Tsironis/Bloomberg

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Feb. 3 (Bloomberg) -- Bloomberg's Nicole Itano reports on Greece's plight amid austerity measures, economic contraction and unsustainable debt levels. (Source: Bloomberg)

Greece’s fight to win its second international bailout may only open a new chapter in its struggle to remain in the euro area.

The rescue plan, which European officials and Greek creditors say may be wrapped up in coming days, includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and loans likely to exceed the 130 billion euros ($171 billion) now on the table.

That won’t stanch the bleeding, say economists including Holger Schmieding of Berenberg Bank in London. Greece will be saddled with too much debt, too little growth and too large a budget hole to do without even more money that euro nations led by Germany are increasingly reluctant to offer, they say.

“Greece is in deep trouble,” Schmieding said in a Jan. 30 report. “The current Greek adjustment program is failing. Excessive austerity, a lack of supply-side reforms, administrative incompetence and political deadlock have pushed the Greek economy into an apparent death spiral. More of the same will not work.”

As Greek officials negotiate with representatives of the so-called troika -- the European Commission, the European Central Bank and the International Monetary Fund -- Deutsche Bank AG Chief Executive Officer Josef Ackermann may travel to Athens this weekend for talks over a swap involving Greek debt with a face value of about 200 billion euros.

Greek Prime Minister Lucas Papademos said today the country is close to completing the bailout talks.

‘Final Phase’

“We are in the final phase of this very critical process to shape a new financing program for Greece and to complete the loan agreement which will lighten the burden of public debt and ensure funding for years to come,” Papademos said in a statement posted on his website.

The euro is headed for a weekly decline against all of its 16 major peers. It rose 0.2 percent to $1.3169 at 11:45 a.m. in London. The yield on Germany’s benchmark 10-year bond fell 1.5 basis points to 1.84 percent, while the yield on Italian 10-year bonds declined 2 basis points to 5.58 percent.

Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet. The aim is to cut Greece’s debt load to 120 percent of gross domestic product by 2020 from 162 percent in 2011. The alternative is an uncontrolled default that may lead to deeper losses and ripple effects throughout Europe.

Agreement Seen

An agreement could be reached “in the coming weeks, maybe days,” said Ackermann, also chairman of the Institute of International Finance. The group, based in Washington, has more than 450 financial firms as members and is representing private creditors in the talks.

Meantime, the finance ministers of the AAA-rated euro countries -- Germany, Luxembourg, the Netherlands and Finland -- are set to meet today in Berlin to discuss options.

“We can’t pay into a bottomless pit,” German Finance Minister Wolfgang Schaeuble said yesterday. “Greece needs a new program, there’s no question about that, but Greece must create the conditions for it.”

Greece remains in intensive care more than two years after triggering Europe’s debt crisis, testing the patience of other European Union nations. Last November, when discussing the Greek situation, French President Nicolas Sarkozy and German Chancellor Angela Merkel for the first time raised the prospect of a country’s exit from the euro.

Contagion

Failure to control Greece’s troubles helped to push Ireland and Portugal into rescue programs, to raise borrowing costs for Italy and Spain, to embroil the European Central Bank in a controversial program of sovereign-bond purchases and to prompt Standard & Poor’s to strip France of its top credit rating.

Greece has lagged behind budget targets set when it won an initial, taxpayer-funded rescue of 110 billion euros in May 2010, prompting euro-area threats to cut off aid and hastening a German push to make bondholders contribute. The country is in its fifth year of recession, with a budget deficit still close to 10 percent of gross domestic product and unemployment of around 18 percent.

Bond Payment

Facing a 14.5 billion-euro bond payment on March 20 and general elections as soon as April, Papademos’s caretaker government must heed familiar calls by the euro area and the IMF for tighter austerity to complete the talks on a second aid package. The demands are also for lower wage costs and the deregulation of professions including lawyers and truck drivers.

The cuts risk triggering a “social explosion,” Hieronymos II, the head of Greece’s Orthodox Church, said in a statement posted on the website of the Archdiocese of Athens.

“We are being asked to take even larger doses of a medicine that has proven to be deadly and to undertake commitments that do not solve the problem, but only temporarily postpone the foretold death of our economy,” the Archbishop said.

Greece will default on its debt and is likely to leave the euro, Nobel economics laureate Paul Krugman said yesterday at a conference in Moscow.

“The Greek situation is essentially impossible,” Krugman said. “They will default on their debt. In fact they already have. The question is whether they will also leave the euro, which I think at this point is more likely than not.”

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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Unemployment Rate Drops to 8.3%; Payrolls Jump

By Bob Willis - Feb 3, 2012 11:22 PM GMT+0700

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Feb. 3 (Bloomberg) -- John Silvia, chief economist at Wells Fargo Securities LLC, talks about the January U.S. jobs report, Federal Reserve policy and outlook for the U.S. economy. Employment climbed more than forecast in January and the U.S. jobless rate unexpectedly fell to the lowest in three years. He speaks with Betty Liu on Bloomberg Television's "In the Loop." Bloomberg's Peter Cook, Michael McKee and Dominic Chu also speak. (Source: Bloomberg)

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Feb. 3 (Bloomberg) -- Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., talks about the January U.S. jobs report and outlook for the global economy. Employment climbed more than forecast in January and the U.S. jobless rate unexpectedly fell to the lowest in three years. El-Erian, speaking with Betty Liu, Scarlet Fu and Dominic Chu on Bloomberg Television's "In the Loop," also talks about Federal Reserve policy. (Source: Bloomberg)

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Feb. 3 (Bloomberg) -- U.S. Secretary of Labor Hilda Solis discusses the January employment report and outlook for an agreement to extend the payroll tax cut. Solis speaks with Betty Liu and Peter Cook on Bloomberg Television's "In the Loop." (Source: Bloomberg)

The U.S. jobless rate unexpectedly fell in January to the lowest in three years as payrolls climbed more than forecast, casting doubt on the Federal Reserve’s plan to keep interest rates low until late 2014.

The unemployment rate dropped to 8.3 percent, the lowest since February 2009. The 243,000 increase in jobs was the biggest in nine months and exceeded all forecasts in a Bloomberg News survey, Labor Department figures showed today in Washington. Service industries grew by the most in a year, according to a separate report.

Stocks and bond yields jumped on optimism the economy will weather the European debt crisis as an improving labor market fuels household spending. The data, which showed gains from factories to retailers, may boost President Barack Obama’s re- election bid and come a week after Fed Chairman Ben S. Bernanke said unemployment would be slow to decline.

“The payroll gains we’re seeing in this report are consistent with significant improvement in consumer spending,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “If we hold at these levels, it will change a lot of expectations for economic growth, the labor market recovery, inflation and the Fed’s policy response.”

The Standard & Poor’s 500 Index rose 1.2 percent to 1,341.66 at 11:20 a.m. in New York. The yield on the benchmark 10-year Treasury note climbed to 1.93 percent from 1.82 percent late yesterday.

The median projection in the Bloomberg survey called for payrolls to rise by 140,000. Estimates of the 89 economists ranged from increases of 95,000 to 225,000. Revisions added a total of 60,000 jobs to payrolls in November and December.

White House

The White House used the jobs report to bolster its argument for extensions of a payroll tax cut and unemployment benefits.

“It is critical that we continue the economic policies that are helping us to dig our way out of the deep hole that was caused by the recession that began at the end of 2007,” Alan Krueger, chairman of the White House Council of Economic Advisers, said in a statement.

Elsewhere, European retail sales unexpectedly declined in December, led by Germany and France, as unemployment at a 14- year high and government spending cuts sapped consumer demand.

Gains in employment last month were broad-based, including manufacturing, construction, temporary help agencies, accounting firms, restaurants and retailers.

Employment, overtime and hours worked in factories increased as manufacturers, who have been leading the two-year recovery, boosted production to rebuild inventories and meet global demand for their goods.

Longer Workweek

Assembly-line workers put in an average 41.9 hours of work each week, the most since January 1998, while overtime hours climbed to the highest since March 2007. Manufacturing payrolls increased by 50,000 in January, the most in a year.

Peoria, Illinois-based Caterpillar Inc. (CAT), the world’s biggest maker of earthmoving equipment, plans to hire more workers this year as it expands facilities, including in Victoria, Texas, and Winston-Salem, North Carolina, Chief Financial Officer Edward Rapp said yesterday.

“Those are the things that will lead to employment growth here,” Rapp said in an interview with Betty Liu on Bloomberg Television’s “In the Loop.”

The unemployment rate, derived from a separate survey of households, was forecast to hold at 8.5 percent, according to the survey median. The drop in the jobless rate reflected a 381,000 decrease in unemployment at the same time 250,000 Americans entered the labor force.

Private Payrolls

Private payrolls, which exclude government agencies, rose 257,000 in January after a revised gain of 220,000 the prior month, marking the biggest back-to-back gain since March-April. It was projected to climb by 160,000.

Employment at service-providers increased 162,000, the most in four months and reflecting faster job gains in retail, transportation and leisure and hospitality.

Tibco Software Inc. (TIBX) plans to hire 500 people in the U.S. this year as the economy improves and Europe works out its debt crisis, Vivek Ranadive, chief executive officer of the Palo Alto, California-based company said in an interview.

“We are hiring quite rapidly now, all in sales and service,” Ranadive said last week at the World Economic Forum’s annual conference in Davos, Switzerland. “It’s a good time to hire.”

Service Providers

The Institute for Supply Management’s index of non- manufacturing industries, which account for almost 90 percent of the economy, rose to 56.8 in January from 53 a month earlier. The Tempe, Arizona-based group’s measure was projected to climb to 53.2, according to the median forecast in a Bloomberg survey of economists. Readings above 50 signal growth.

Construction companies added 21,000 workers last month. The number of people unable to go to work because of bad weather, a proxy for the climate’s effect on the labor market, was 206,000 last month, less than half the 424,000 average for the month since 1976. The shortfall signals favorable conditions may have played a role in the gain in employment, according to economists like Neil Dutta at Bank of America Corp. in New York.

Government payrolls decreased by 14,000 in January, reflecting cuts at the federal and local levels.

Average hourly earnings rose 0.2 percent to $23.29, today’s report showed. The average work week for all workers held at 34.5 hours.

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 15.1 percent from 15.2 percent.

Fed Meeting

The Fed said on Jan. 25 after a two-day meeting that it would keep its benchmark lending rate low “at least” until late 2014 from a prior target of mid-2013.

Bernanke, speaking at a news conference after the meeting, said that the option of a third round of large-scale bond purchases, known as quantitative easing, is still “on the table.”

“We still have a long way to go before the labor market can be said to be operating normally,” Bernanke told the House Budget Committee in Washington yesterday.

Today’s report may change the Fed’s thinking, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The report definitely scales down the odds for QE3, particularly the drop in the unemployment rate,” Feroli said. “There is strength in the labor market.”

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

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Barclays Plans 25% to 30% Pay Cut for Bankers

By Jeffrey McCracken, Serena Saitto and Howard Mustoe - Feb 3, 2012 1:10 AM GMT+0700

Barclays Plc (BARC), the British lender run by Robert Diamond, plans to cut compensation for the 24,000 employees at its investment banking unit by as much as 30 percent, two people with knowledge of the talks said.

The lender is preparing to tell employees at Barclays Capital next week that overall pay will be down by 25 percent to 30 percent on average from a year earlier, said the people, who declined to be identified because the plans haven’t yet been made public. The bank will also eliminate about 5 percent of its senior bankers, said the people. Those at risk typically hold titles such as executive directors and managing directors.

The world’s biggest lenders are curbing pay as they grapple with declining revenue. Morgan Stanley, Credit Suisse Group AG and Citigroup Inc. (C) have all reduced senior investment bankers’ pay for last year as revenue slows. Deutsche Bank AG (DBK), Germany’s largest, today said it reduced compensation for employees at its corporate and investment bank by 15 percent.

Barclays also plans to cut remuneration for more junior employees such as vice presidents, associates and analysts, the people said. The London-based bank plans to reduce pay for third-year vice presidents, which can be as much as $750,000 a year, by about $100,000, the people said.

The reduction will trigger similar pay cuts for more junior vice presidents, associates and analysts, the people said. In past years, base pay for junior bankers, who typically comprise three-fourths of a Wall Street firm’s employees, would rise by 15 percent to 20 percent annually, even in lean years, the people said.

Shrinking Earnings

Kerrie-Ann Cohen, a Barclays Capital spokeswoman in New York, declined to comment on compensation and firings. The stock, which fell 33 percent in 2011, rose 1.7 percent to 227.9 pence in London today, for a market value of 27.8 billion pounds ($44 billion).

Barclays reports full-year earnings on Feb. 10. Net income for the full year may fall 12 percent to 3.14 billion pounds from 3.56 billion pounds, according to the median estimate of 11 analysts surveyed by Bloomberg.

Investment banking revenue fell 12 percent to 2.25 billion pounds in the third quarter, the lender said in October. The lender said at the time it had eliminated 3,500 jobs in 2011.

Banks, insurers and asset managers in Britain may eliminate 11,000 jobs in the first three months of this year after cutting 9,000 jobs in the fourth quarter, according to estimates by the Confederation of British Industry, Britain’s biggest business lobby group. Financial firms in Britain may have shed almost a tenth of their employees by the end of the first quarter since Lehman Brothers Holdings Inc.’s collapse, the CBI said.

Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, said last month it will cut about 4,800 jobs, including 3,500 at its investment bank over the next three years, as the Edinburgh-based lender jettisons unprofitable cash equities and merger-advisory operations.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net;

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Edward Evans at eevans3@bloomberg.net

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Most U.S. Stocks Advance as Investors Await Tomorrow’s Employment Report

By Rita Nazareth - Feb 3, 2012 4:31 AM GMT+0700

Most U.S. stocks advanced, sending the Standard & Poor’s 500 Index higher for a second straight day, as investors awaited tomorrow’s employment report to gauge the strength of the recovery in the world’s largest economy.

Gap Inc. (GPS), the largest U.S. specialty apparel chain, surged 11 percent after forecasting earnings that beat analysts’ estimates. MasterCard Inc. (MA), the world’s second-biggest payments network, jumped 6.7 percent as profit climbed 24 percent. Citigroup Inc. (C) and Bank of America Corp. (BAC) added at least 1.2 percent. Internet and social media companies rose after Facebook Inc. filed to raise $5 billion in an initial public offering. Zynga Inc. and Groupon Inc. (GRPN) rallied more than 7.3 percent.

About three stocks gained for every two that declined on U.S. exchanges as of 4 p.m. New York time. The S&P 500 advanced 0.1 percent to 1,325.54 today. The Dow Jones Industrial Average dropped 11.05 points, or 0.1 percent, to 12,705.41.

“It’s a great time to be placing your bets, seeding your garden, because we’re fixing the problems,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $211.5 billion. “If you believe the U.S. economy is going to get better, you want to own stocks.”

A report tomorrow may show employers boosted payrolls in January by 140,000 workers and the jobless rate held at an almost three-year low of 8.5 percent, according to median estimates in a Bloomberg survey. Data today showed that claims for U.S. jobless benefits fell last week and productivity cooled in the fourth quarter, signaling hiring may accelerate as companies reach the limits of how much efficiency they can wring from existing work forces.

Earnings Season

Earnings beat projections at 67 percent of the 246 companies in the S&P 500 that reported results since Jan. 9, according to data compiled by Bloomberg. The S&P 500 is trading for about 13.8 times its companies’ earnings and has been stuck below its five-decade average multiple of 16.4 since May 2010, the longest stretch since a 13-year period beginning in 1973.

“If you have earnings growth and valuations that are still reasonable, equities might end up being a good asset class,” Matthew DiFilippo, who helps manage $1 billion as chief portfolio strategist at Stewart Capital in Indiana, Pennsylvania, said in a phone interview. “The earnings season hasn’t been that positive, but it hasn’t been negative either.”

David Kostin, a New York-based strategist at Goldman Sachs Group Inc., raised his three-month estimate for the S&P 500 to 1,275 in a report to clients today, up from a November prediction of 1,150.

Gap Soars

Gap surged 11 percent, the biggest gain in the S&P 500, to $21.52. The San Francisco-based company said it expects fourth- quarter earnings to be as much as 42 cents per share. That beats the 35-cent estimate of 29 analysts surveyed by Bloomberg.

MasterCard advanced 6.7 percent to $381.57. The results cap a year in which the company, led by Chief Executive Officer Ajay Banga, surged 66 percent, the fourth-best performance in the S&P 500. The firm repurchased stock as the global shift from cash and checks to electronic payments continued.

The S&P 500 Diversified Financials Index rose 0.8 percent today for the biggest gain among 24 industries. Citigroup advanced 1.3 percent to $31.99. Bank of America added 1.2 percent to $7.45.

Internet and social media companies rose. Zynga, the largest developer of games for Facebook, rose 17 percent to $12.39. Groupon (GRPN) rallied 7.4 percent to $23.08. Renren Inc. gained 8.2 percent to $5.42.

Diesel Engines

Cummins Inc. (CMI) jumped 7.1 percent to $113.31. The maker of diesel engines reported a sales forecast that topped analysts’ estimates, boosted by growth in the construction, power generation and oil and gas markets.

Green Mountain Coffee Roasters Inc. (GMCR) surged 24 percent, the most since March, to $66.42. The maker of Keurig brand single- cup pods and brewers reported profit that beat analysts’ estimates as sales rose.

Abercrombie & Fitch Co. (ANF) tumbled 14 percent, the biggest decline in the S&P 500, to $40.40. The teen apparel chain reported preliminary fourth-quarter earnings that trailed analysts’ estimates as holiday promotions narrowed profit margins.

Boston Scientific Corp. (BSX), the second-biggest cardiac-device maker, slumped 4.1 percent to $5.84. Fourth-quarter earnings plummeted 55 percent.

“A positive attitude toward equity investing is now in order” because U.S. bank stocks are doing relatively well and volatility is fading, according to Donald Coxe, a strategy adviser to Bank of Montreal.

Lift Holdings

Coxe recommended that U.S. pension funds lift holdings of domestic stocks by 6 percentage points, to 20 percent of assets. The Chicago-based strategist also called for a 2-point increase in dividend-paying shares, to 12 percent.

KBW Inc.’s regional-bank gauge jumped 37 percent from Sept. 21, when its ratio reached last year’s low, through yesterday. The S&P 500 rose 13 percent during the same period. Similarly, the KBW Bank Index (BKX) gained more than twice as much as the S&P 500 during the past two months.

“It is good for the stock market that they are thriving,” Coxe wrote in his report, dated Jan. 27. He added that the VIX (VIX), the Chicago Board Options Exchange Volatility Index, signals the market “isn’t skating on a pond whose ice is about to crack.”

The VIX has closed below 20 for the past 10 trading days, the longest streak since June. When stocks slumped last August, the index rose as high as 48.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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

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MF Global Risk Chief Switch Stalled Euro Debt Cut by Six Months

By Phil Mattingly and Silla Brush - Feb 3, 2012 3:30 AM GMT+0700

U.S. lawmakers questioned whether MF Global Holding Ltd. (MFGLQ)’s decision to replace Michael Roseman as chief risk officer a year ago was driven by his warnings over bets on European debt that helped push the firm to bankruptcy.

Roseman, who said that his concerns were dismissed as “implausible” by then-Chairman and Chief Executive Officer Jon S. Corzine, testified today along with his successor, Michael G. Stockman, at a House Financial Services Investigation subcommittee hearing in Washington.

“It appears Mr. Roseman was the chief risk officer until he stopped telling Mr. Corzine what he wanted to hear,” Representative Michael Capuano of Massachusetts, the panel’s top Democrat, said during a question-and-answer session.

In his first public testimony since MF Global filed for bankruptcy on Oct. 31, Roseman told lawmakers that the futures brokerage “would still be here” if it hadn’t made a $6.3 billion bet on European sovereign debt. The concerns he expressed about the firm’s exposure “certainly played a role” in his removal, he said.

Congress, the Commodity Futures Trading Commission, Securities and Exchange Commission and Justice Department are investigating events surrounding the collapse of MF Global, including the disappearance of $1.2 billion in customer funds.

Stockman, who replaced Roseman in January 2011, said he initially agreed with Corzine’s assessment of the risks, calling them “acceptable” when he joined the firm. That statement drew criticism from lawmakers, who suggested that Stockman was given the job because he would give the answer that Corzine wanted.

‘Yes Man’

“It almost looks like they took Mr. Roseman out and replaced him with a yes man,” said Representative Stephen Fincher, a Tennessee Republican.

Steven Goldberg, a spokesman for Corzine, declined to comment today about Roseman’s testimony.

Stockman told lawmakers that he changed his assessment after credit markets deteriorated later in 2011 and that he told MF Global’s senior management and board in July and August that the European debt bets posed liquidity and default risks.

“To the best of my recollection, following my presentation at the August 2011 board meeting, the board and senior management made an informed business judgment to cease adding to the company’s long position,” he said.

Corzine, a Democrat who served in the Senate and as New Jersey’s governor, testified three times in December before congressional panels looking into the brokerage’s bankruptcy. Today’s hearing focused on the role of risk officers and credit- rating firms in the run-up to the collapse.

Missing Client Funds

In his testimony, Roseman said the company steadily increased its risk limits for bets on Italian, Spanish and other European sovereign debt during 2010. In October of that year, he expressed concerns about the capital and liquidity risk of the trades, he said.

“I discussed my concerns about the positions and the risk scenarios with Mr. Corzine and others,” Roseman said. “The risk scenarios I presented were challenged as being implausible.”

In January 2011, Roseman was told he would be replaced by Stockman. Roseman assisted in the transition until March.

MF Global began cutting European debt exposure in August, around the time regulators including the Financial Industry Regulatory Authority were pressuring the firm to raise capital.

Downgrade

By late October, Moody’s Investors Service downgraded MF Global to one level above junk status, citing its ongoing inability to meet earnings targets and concern that it wasn’t sufficiently managing risk.

MF Global sought bankruptcy protection less than a week after reporting a quarterly loss of $191.6 million for the three months through Sept. 30.

Representative Randy Neugebauer, the Texas Republican who led today’s hearing, said his panel will continue its investigation and will produce a report on the findings.

Investigators have located almost all of the $1.2 billion in client money that went missing as the firm unraveled, a person briefed on the matter said yesterday. The probe has traced 90 percent of the money to other customer or bank accounts, according to the person, who spoke on condition of anonymity because the investigation is private.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net; Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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Bernanke Won’t Trade Inflation Goal for Jobs

By Joshua Zumbrun - Feb 3, 2012 1:44 AM GMT+0700
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Ben S. Bernanke, chairman of the U.S. Federal Reserve, at the House Budget Committee hearing in Washington on Feb. 2, 2012. Photographer: Andrew Harrer/Bloomberg

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Feb. 2 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the U.S. economy, budget deficit and Fed monetary policy. Bernanke, in a testimony before the House Budget Committee, says the economy has shown signs of improvement while remaining vulnerable to shocks. (Excerpts. Source: Bloomberg)

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Feb. 2 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke testifies before the House Budget Committee in Washington about the U.S. economy and fiscal policy challenges. (This is Bernanke's prepared statement. Source: Bloomberg)

Federal Reserve Chairman Ben S. Bernanke said the central bank will seek to keep prices rising at a 2 percent rate and rejected suggestions that it would sacrifice its inflation goal to boost employment.

“Over a period of time we want to move inflation always back toward 2 percent,” Bernanke said today in Washington in response to a question from Republican Representative Paul Ryan of Wisconsin, chairman of the House Budget Committee. “We’re always trying to bring inflation back to the target.”

Bernanke defended the central bank’s newly established inflation goal after Ryan suggested it might be willing to tolerate higher inflation to fulfill the second part of its mandate from Congress, which is to seek maximum employment.

“In looking at the two sides of the mandate, the rate of speed, the aggressiveness, may depend to some extent on the balance between the two objectives,” Bernanke said. “We are always trying to return both objectives back to their mandate.”

Ryan, who has supported legislation to have the Fed focus solely on stable prices, said in opening remarks he was “greatly concerned to hear the Fed recently announce that it would be willing to accept higher-than-desired inflation in order to focus on the other side of its dual mandate.”

Bernanke, 58, also came under fire from Scott Garrett, a New Jersey Republican, who said the Fed chairman overstepped his authority when he submitted a paper to Congress last month that discussed whether mortgage companies Fannie Mae and Freddie Mac should take more losses to support housing markets.

‘Issuing Resolutions’

“Is this an invitation now to Congress that we should be issuing resolutions to what monetary policy the Fed should be doing?” Garrett asked.

“We’ve gotten a lot of requests from individual congressmen for our views and for our analysis,” Bernanke said. “I am sorry if you think we went too far.’

In his prepared remarks, Bernanke acknowledged recent improvement in some economic data while cautioning that the economy still faces risks, including fiscal deficits that in the long-run must be reduced.

“Fortunately, over the past few months, indicators of spending, production, and job-market activity have shown some signs of improvement,” Bernanke said. “The outlook remains uncertain, however, and close monitoring of economic developments will remain necessary.” He also said the Fed expects inflation to “remain subdued.”

Stocks, Treasuries

Stocks rose after Bernanke’s comments before falling back. The Standard & Poor’s 500 Index was up 0.1 percent to 1,324.78 at 1:20 p.m. in New York after climbing as much as 0.4 percent. The yield on the 10-year Treasury note was little changed at 1.82 percent.

Fed policy makers see inflation declining in 2012 to below their 2 percent target, with most expecting prices to rise 1.4 percent to 1.8 percent this year, according to forecasts released last week. That gives them more leeway to take action aimed at lowering unemployment.

“If the situation continues with inflation below target and unemployment declining at a rate which is very, very slow, then the logic of our framework says we should be looking for ways to do more,” Bernanke said at his Jan. 25 press conference, after the Federal Open Market Committee said it would keep its key interest rate near zero until at least late 2014.

The price gauge preferred by the Fed, the personal consumption expenditures index, increased 2.4 percent in December from a year earlier, down from 2.6 percent the previous month. The pace of so-called core inflation, which excludes food and energy, increased to 1.8 percent in December from 1.7 percent the month before.

Economic Reports

Reports indicating strength in the labor market, manufacturing and construction spending helped drive the S&P 500 up 4.4 percent last month for the best January since a 6.1 percent increase in 1997, according to data compiled by Bloomberg.

Applications (INJCJC) for unemployment insurance payments dropped by 12,000 to 367,000 in the week ended Jan. 28, Labor Department figures showed today. Manufacturing in the U.S. grew in January at the fastest pace in seven months, according to a report yesterday from the Institute for Supply Management.

Even so, “the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed,” Bernanke said. “Moreover, the sluggish expansion has left the economy vulnerable to shocks.”

Budget Deficit

Bernanke devoted half of his prepared speech to a discussion of the U.S. budget deficit.

“To achieve economic and financial stability, U.S. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time,” Bernanke said. “Achieving this goal should be a top priority.”

At the same time, Congress should “take care not to unnecessarily impede the current economic recovery,” Bernanke said. Under questioning by lawmakers, he declined to be drawn into specific policy prescriptions, such as proposals to extend the payroll tax cut and unemployment benefits.

The nonpartisan Congressional Budget Office said this week it expects the budget deficit to narrow to $1.1 trillion this fiscal year from $1.3 trillion last year. The deficit would reach $1.5 trillion by 2022, CBO estimated, and the debt would rise to levels unseen since the government was paying off its World War II expenses.

Household Spending

The Fed chairman said progress in payroll growth will be an important determinant to household spending in coming quarters, which in turn will influence the pace of the expansion.

Bernanke noted that the labor market “improved modestly” over the past year. Total non-farm payrolls are forecast to rise by 145,000 jobs tomorrow, when the Labor Department releases its January report. The unemployment rate is likely to remain at 8.5 percent, economists predict, where it was in December, down from 8.7 percent the previous month.

“We still have a long way to go before the labor market can be said to be operating normally,” Bernanke told the committee. “Particularly troubling is the unusually high level of long-term unemployment.”

United Parcel Service Inc., the world’s largest package- delivery company, forecast a 2012 profit that exceeded analysts’ estimates as shipping demand increases.

“We certainly are seeing a better U.S. economy than we would have thought back in probably August, September,” said UPS Chief Executive Officer Scott Davis in a Jan. 31 call with investors and analysts. “Back in that timeframe, people were talking about a chance for a second recession. You don’t hear that anymore.”

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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

taken from : China Daily
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Facebook Board Shows White Male Influence

By Carol Hymowitz - Feb 3, 2012 7:49 AM GMT+0700
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Facebook Inc. employees at the company's new campus in Menlo Park, California, on Dec. 2, 2011. Photographer: David Paul Morris/Bloomberg

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Feb. 2 (Bloomberg) -- Nick Thompson, senior editor at the New Yorker magazine and a Bloomberg Television contributing editor, talks about the outlook for Facebook Inc.'s management and its employees following the company's initial public offering. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Feb. 2 (Bloomberg)-- Most of Facebook Inc. (FB)’s more than 800 million users are women. You wouldn’t know it from looking at the board, whose seven directors are all men.

The disconnect puts the social-media company at odds with others in the industry that have at least one female director, including LinkedIn Corp. and Google Inc., and from most big public companies in the U.S. Just 11.3 percent of the Fortune 500 had male-only boards last year, according to Catalyst, a New York-based nonprofit that researches women and business issues.

“We’re long past having to defend or explain why women should be on boards, given all the data that shows how companies with female as well as male directors perform better,” said Anne Mulcahy, former chairman and chief executive officer of Xerox Corp. and a director at Johnson & Johnson Co., Target Corp. and Washington Post Co. “It’s unfortunate when companies with a large percentage of women constituents don’t reflect that in their boardrooms.”

A Catalyst survey of Fortune 500 companies found that those with three or more female directors outperformed those with fewer between 2005 and 2009, achieving on average 43 percent better return on equity. As Facebook prepares to raise $5 billion in an initial public offering, the composition of its board shows its business strategy is faulty, said Susan Stautberg, co-founder of New York-based Women Corporate Directors, which promotes female board membership.

“It doesn’t make sense for a company that claims to be so forward looking to not have any women directors,” she said. “If they just have an old boy’s network in the boardroom, they won’t have access to diverse ideas and strategies.”

Female Public Face

Facebook, which began eight years ago in a Harvard University dorm room, had sales of $3.7 billion in 2011. Fifty- eight percent of its users are women, according to a 2010 survey by the Pew Internet and American Life Project that found women spend more time than men making status and profile updates and commenting on others’ posts.

The board’s makeup is surprising considering Facebook’s chief operating officer, Sheryl Sandberg, is an outspoken advocate for gender equality, said Malli Gero, executive director of 2020 Women on Boards. The public face of the Menlo Park, California-based company, Sandberg, 42, is Facebook’s best-paid senior executive, receiving $30.9 million in compensation last year. She may own up to 1.7 percent of the company after the IPO, and at the top end of the valuation range expected for the offering, her stake may be worth $1.7 billion.

Social Mission

“It’s surprising and disappointing that Facebook has zero female directors because Sandberg is so powerful at the company and so outspoken in favor of women advancing,” said Gero, whose Boston-based nonprofit is campaigning for 20 percent female representation on U.S. boards by 2020.

Sandberg, a Walt Disney Co. director, is a frequent speaker at conferences and was co-chairman of the World Economic Forum in Davos, Switzerland.

Sarah Feinberg, a spokeswoman for Facebook, declined to comment on the board’s composition.

Its makeup clashes with the networking website’s ambition to be an agent for equality and openness, Stautberg said.

Mark Zuckerberg, the 27-year-old founder, chairman and chief executive officer, wrote in a letter submitted with the IPO filing that Facebook’s “social mission” is “to make the world more open and connected” and “give everyone a voice and to help transform society for the future.”

‘More Diverse Representation’

Zuckerberg has 56.9 percent voting control of Facebook shares, which some corporate-governance experts have said gives one person too much power.

The other directors are Donald E. Graham, chairman and CEO of The Washington Post Co.; venture capitalist Marc Andreesen, co-founder of Netscape Communications Corp., James W. Breyer, CEO of Breyer Capital; Peter A. Thiel, co-founder of Palantir Technologies Inc. and a fund manager at Clarium Capital LLC; Reed Hastings, chairman and CEO of Netflix Inc.; and Erskine B. Bowles, president emeritus of University of North Carolina.

It’s a board drawn largely from the male investor community as is often the case at Silicon Valley start-ups, said Mulcahy, who groomed Ursula Burns to succeed her at Xerox, where four of 11 directors are women.

As Facebook and other young companies mature, “they need to break out of this pattern and have more diverse representation,” said Mulcahy, who is chairman of Save the Children Inc. “And women also need to be better represented in the private equity industry.”

To contact the reporter on this story: Carol Hymowitz in New York at chymowitz1@bloomberg.net

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

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Facebook Punters Put Shares at $35 to $44.99 Each With Bono Ringing Bell

By Zijing Wu - Feb 3, 2012 1:17 AM GMT+0700

The odds are pointing to Facebook Inc. pricing its IPO at between $35 and $44.99 a share in the $5 billion initial public offering it filed for yesterday, according to the Irish bookmaker Paddy Power Plc. (PAP)

Facebook, based in Menlo Park, California, will price the new shares within that range at odds of 10 to 11, according to an e-mailed statement from Paddy Power. The likelihood of the social-networking website selling shares as low as $25 stands at 7 to 2, and at 9 to 2 for prices of more than $65, the gambling company site said.

“With Facebook now a part of most of our day-to-day lives, the IPO was always going to get people talking,” Feilim Mac An Iomaire, a spokesman for Dublin-based Paddy Power, said in the statement. “The odds would suggest that the price will fall between $35 and $44.99, but given Facebook’s history of exceeding expectations, I don’t think we can rule anything out.”

Paddy Power customers are also betting on who will ring the opening bell for Facebook in its debut. While Chief Executive Officer Mark Zuckerberg leads with odds of 1 to 100, betters are also wagering on Facebook’s former president Sean Parker (25 to 1), Microsoft (MSFT) Corp.’s co-founder Bill Gates (50 to 1) and the Irish rock band U2’s lead singer Bono (100 to 1) as candidates.

Bono is a co-founder and managing director of Elevation Partners LP, an investor in Facebook. Microsoft put $240 million into Facebook in 2007. Odds of 100 to 1 mean a gambler betting 1 euro would win 100 euros and their stake back.

Meteoric Rise

Facebook, whose meteoric rise spawned an Oscar-winning film and captivated Wall Street, yesterday named Morgan Stanley (MS) as the lead underwriter on its IPO, while reporting a 24-fold increase in sales over the past four years to $3.71 billion in 2011.

Co-founded in 2004 by Mark Zuckerberg, now 27, Facebook has grown into the world’s dominant social-networking site, squelching competitors such as MySpace Inc. with its more than 800 million users. While Facebook’s sales almost doubled last year, the company faces increasing competition from rivals such as Google Inc., which debuted its own social-networking service last year, and from the microblogging site Twitter Inc., the filing shows.

To contact the reporter on this story: Zijing Wu in London at zwu17@bloomberg.net

To contact the editor responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net

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