Baidu Fourth-Quarter Profit Tops Estimates on Higher Ad Spending in China

By Mark Lee - Feb 17, 2012 7:15 AM GMT+0700

Baidu Inc. (BIDU), owner of China’s dominant search engine, reported fourth-quarter profit that topped analysts’ predictions as companies boosted spending on online advertising to reach users in the top Internet market.

Profit excluding certain items was 95 cents per American depositary receipt, compared with 90 cents, the average estimate of analysts surveyed by Bloomberg. Net income climbed 77 percent to 2.05 billion yuan ($326.3 million), or 5.87 yuan per ADR, from 1.16 billion yuan, or 3.32 yuan, a year earlier, Baidu said today in a statement. That exceeded the 2 billion yuan average of 10 analysts’ estimates compiled by Bloomberg. Revenue jumped 83 percent to 4.47 billion yuan.

Advertisers increased spending to buy keywords as Baidu extended its lead over Google Inc. (GOOG) In China, where Beijing-based Baidu says it handles more than 80 percent of search queries, Chief Executive Officer Robin Li is expanding the company in services aimed at smartphone users and investing in video and music content to compete with Internet rivals including Tencent Holdings Ltd. (700)

“The average spending for advertisers have been growing very quickly,” Dundas Deng, who rates Baidu “accumulate” at Guotai Junan Securities in Shenzhen, said before the earnings were released. The company has been upgrading its advertising system, known as Phoenix Nest, to boost sales of keywords, he said.

Sales Forecast

Baidu rose 2.5 percent in Nasdaq Stock Market trading today before the earnings announcement. The stock has gained 22 percent this year, compared with the 28 percent gain in the Hong Kong-traded shares of Tencent, China’s biggest online-games company, and the 32 percent advance in Sina Corp. (SINA) (SINA), operator of the Twitter-like Weibo microblogging service.

Revenue is expected to rise to within a range of 4.2 billion yuan to 4.33 billion yuan in the first quarter, Baidu said. That compares with the 4.26 billion yuan average of analysts’ estimates compiled by Bloomberg.

The company accounted for 78.3 percent of China’s search- engine market by revenue last quarter, rising from 78.2 percent in the previous three months, according to research company Analysys International. Google’s share dropped to 16.7 percent from 17.2 percent, the researcher said.

Google has been losing ground in China’s search-engine market since January 2010, when the Mountain View, California- based company said it was no longer willing to comply with Chinese regulation to self-censor Web content. Two months later, Google shut its Google.cn service and redirected Chinese users to its site in Hong Kong.

Robin Li is China’s second-richest man.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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Zynga Plans Promotions to Curb Facebook Need

By Douglas MacMillan and Adam Satariano - Feb 17, 2012 4:49 AM GMT+0700

Zynga Inc. (ZNGA), the online game site that sold shares to the public in December, plans to unveil a set of services designed to promote other developers and lessen its dependence on Facebook Inc. (FB), two people with knowledge of the matter said.

Through the publishing program, due to begin in March, other game developers will be able to advertise their wares in Zynga games and on a separate Web portal, said the people, who asked not to be identified because the plan has not been made public. Zynga will keep a portion of the sales generated from the games, the people said.

Zynga, the biggest developer of games played on Facebook, is seeking new sources of revenue after raising $1 billion in its initial public offering. By selling services to other developers, it may reduce its reliance on Facebook, which accounts for more than 90 percent of sales and takes a 30 percent cut of virtual goods sold in Zynga games.

Dani Dudeck, a spokeswoman for Zynga, said the company doesn’t comment on rumors or speculation.

Promoting apps made by other developers is likely to carry fewer risks than Zynga’s main business of developing games. The company’s profitability has been crimped as it spends more to create new blockbuster titles.

The plan for a new publishing platform in March is contingent upon talks with partners as well as internal development, the people said. The release could come later, they said.

Electronic Arts (EA)’ Footsteps

By becoming a publisher, Zynga emulates traditional console game companies such as Electronic Arts Inc (EA)., which distribute and promote games made by independent design studios in exchange for a cut of sales.

Joining Zynga’s network will not exempt developers from giving Facebook a cut of sales, a person with knowledge of the revenue agreement said. Because Facebook Credits are used by all developers selling virtual goods on the social network and games promoted by Zynga, participating developers will still pay Facebook a cut of sales, the person said.

Zynga, with more than 246 million users, operates six of the seven most popular games played on Facebook, according to website AppData.

“Hidden Chronicles,” released last month, has become Zynga’s third most popular game, with 30.7 million monthly users, according to research firm AppData. It ranks behind two more established games, “CityVille” and “Texas HoldEm Poker.”

During an event at the company’s San Francisco headquarters in October, Zynga debuted a new service, called Project Z, geared towards reducing its dependence on Facebook.

Project Z would be part of a larger corporate strategy, dubbed Zynga Direct, that is aimed at building “a direct relationship with consumers whether they are on the Web or mobile,” Chief Executive Officer Mark Pincus said at the event.

Earlier this week, Zynga’s shares had their biggest one-day drop since their Dec. 16 debut after an earnings report showed product-development costs are cutting into profitability.

To contact the reporters on this story: Douglas Macmillan in San Francisco at dmacmillan3@bloomberg.net Adam Satariano in San Francisco at Asatariano1@bloomberg.net

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

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Applied Materials Second-Quarter Profit Forecast Tops Analsyts’ Estimates

By Ian King - Feb 17, 2012 7:36 AM GMT+0700

Applied Materials Inc. (AMAT), the largest producer of chipmaking equipment, predicted higher second- quarter profit than analysts had estimated, signaling that semiconductor makers are pulling out of a spending slump.

Excluding certain costs, profit will be 20 cents to 28 cents in the period, the Santa Clara, California-based company said today in a statement. That compares with an average analyst estimate of 16 cents, according to data compiled by Bloomberg. The shares jumped as much as 6.6 percent in extended trading.

Customers are stepping up equipment spending to ensure they can meet demand for chips used in smartphones, tablets and other mobile devices. Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. are helping fuel the rebound, according to Patrick Ho, an analyst at Stifel Nicolaus & Co.

“TSMC and even Samsung are boosting orders,” Ho said. The Dallas-based analyst recommends buying Applied stock, which he owns himself. “They should benefit from that,” Ho said.

Applied Materials shares rose as high as $14.08 in late trading after the report. The stock, up 23 percent this year, had closed at $13.21.

Sales in the current period will rise between 5 percent and 15 percent from the previous three months, the company predicted, indicating revenue of $2.3 billion to $2.52 billion. That compares with an average analyst estimate of $2.09 billion.

Mobility Growth

“The first half is driven by mobility,” Chief Executive Officer Mike Splinter said in an interview. “We’ve also gotten more positive on the economy. The U.S. is doing better, and Asia is doing better.”

Improving demand for chip machinery is helping make up for a slowdown in orders for equipment that makes flat-panel displays and solar panels. Applied expanded into that market in recent years, seeking to offset the swings in demand in its main business. Those newer businesses won’t recover until closer to end of the year, Splinter said.

While sales of chip equipment jumped 26 percent last quarter from the preceding three months, display machinery dropped 39 percent and solar-related revenue fell 34 percent. Orders, an indicator of future revenue, rose 53 percent for the semiconductor group. Solar orders dropped 62 percent.

Investors and analysts track semiconductor-equipment orders as a harbinger of demand for electronics. Chipmakers such as Intel Corp. (INTC) and Samsung vary spending on new equipment and plants based on their predictions for demand as much as two years in advance. Their factories can cost more than $3 billion to build and run 24 hours a day, which makes the companies careful with equipment purchases.

First-quarter net income decreased to $117 million, or 9 cents a share, from $506 million, or 38 cents, a year earlier. Revenue fell 19 percent to $2.19 billion. Excluding certain costs, profit was 18 cents a share in the period, which ended Jan. 29. Analysts on average had estimated profit of 12 cents and sales of $1.97 billion.

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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Drop in Jobless Claims Points to Spending Gains

By Timothy R. Homan and Bob Willis - Feb 17, 2012 4:08 AM GMT+0700
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Job seekers at a federal government job fair at the National Building Museum in Washington. Photographer: Xinhua/ZUMApress.com

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Feb. 16 (Bloomberg) -- Claims for jobless benefits dropped 13,000 in the week ended Feb. 11 to 348,000, Labor Department figures showed today. The median survey estimate of economists surveyed by Bloomberg News projected an increase to 365,000. The January producer price index rose 0.1 percent following a 0.1 percent decrease the prior month. Housing starts rose 1.5 percent to a 699,000 annual rate from December’s 689,000 pace that was stronger than previously reported. Betty Liu reports on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Americans filed the fewest claims for jobless benefits since 2008, surprising forecasters and signaling that an improving labor market will give the world’s largest economy a boost.

Claims dropped by 13,000 in the week ended Feb. 11 to 348,000, less than the most optimistic estimate of 45 economists surveyed by Bloomberg News. Other reports today showed consumer confidence improved, housing starts climbed and manufacturing in the Philadelphia area accelerated.

Stocks rose on evidence that the U.S. expansion is gaining strength in the face of the European crisis and a slowdown in China. The decline in claims for jobless benefits coincides with a pickup in hiring that pushed the unemployment rate down to a three-year low last month, giving consumers the confidence to increase spending.

“The economy’s wheels just keep spinning faster and faster,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. He also said payrolls are likely to rise by more than 200,000 for a third straight month in February.

The Standard & Poor’s 500 Index advanced 1.1 percent to 1,358.05 at the close in New York. The yield on the benchmark 10-year Treasury note increased to 1.98 percent from 1.93 percent late yesterday.

Builders broke ground on more homes than forecast in January, helped by warmer weather and adding to signs the residential real-estate market is stabilizing, data from the Commerce Department showed today.

Housing Construction

Housing starts rose 1.5 percent to a 699,000 annual rate from a 689,000 pace in December that was stronger than previously reported. The median estimate in a Bloomberg survey called for a rise to 675,000. Building permits, a proxy for future construction, also climbed.

Manufacturing in the Philadelphia region expanded in February at the fastest pace in four months as orders and sales picked up.

The Federal Reserve Bank of Philadelphia’s general economic index increased to 10.2 from 7.3 last month. Economists forecast the gauge would rise to 9. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The report follows figures from the central bank yesterday that showed manufacturers across the country boosted production in January, capping the biggest back-to-back increases in more than two years.

Feeling Good

“For at least the last three weeks, we’ve felt very good about the demand,” Thomas Kadien, senior vice president of consumer packaging at Memphis-based International Paper Co., said on a Feb. 2 conference call. “From a North American perspective, the softness is behind us, and we feel much better about the first quarter.”

An improving job market is boosting consumer confidence, adding an impetus to the household spending that makes up 70 percent of the economy.

The Bloomberg Consumer Comfort Index rose to minus 39.8 in the period ended Feb. 12, the highest in a year, from minus 41.7 the previous week. It marked just the third time since April 2008 that the gauge has climbed above minus 40, a reading consistent with recessions or their aftermath.

Claims for unemployment insurance have fallen for three straight weeks, adding to evidence the labor market is recovering from the 18-month recession that ended in June 2009. The jobless rate in January unexpectedly fell to 8.3 percent, and employers added 243,000 workers to payrolls, the most in nine months.

No Fluke

“Businesses are realizing that in order to compete they need to not just keep their labor force, they need to expand it,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “This shows that the strong job gains we’ve seen in the last few months aren’t a fluke.”

Norfolk Southern Corp. (NSC), the second-biggest railroad company in the eastern U.S., is among employers boosting payrolls as demand grows.

“Employee levels rose 5 percent as we continue to hire trainees to handle our 2012 forecasted volumes,” James Squires, chief financial officer of the Norfolk, Virginia, based company, said on a Feb. 14 conference call.

Estimates for first-time claims ranged from 350,000 to 380,000 in the Bloomberg survey of economists. The Labor Department revised the prior week’s reading up to 361,000 from an initially reported 358,000.

The labor market improvement calls into question Fed forecasts that the jobless rate will end the year at 8.2 percent to 8.5 percent, Rupkey said.

February Forecast

“The unemployment rate is 8.3 percent right now in January and it could fall to 8.1 percent in the February report,” which will be released on March 9, he said.

Wholesale prices rose less than forecast in January as food and energy costs dropped, a sign inflation pressures may remain subdued, another report from the Labor Department showed today.

The producer price index rose 0.1 percent following a 0.1 percent decrease the prior month. Economists projected a 0.4 percent gain, according to the survey median. The core measure excluding volatile food and energy rose 0.4 percent, more than projected, led by a surge in drug prices.

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

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

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Iran Unlikely to Strike First, U.S. Official Says

By Tony Capaccio - Feb 17, 2012 1:33 AM GMT+0700

The Iranian military is unlikely to intentionally provoke a conflict with the West, the top U.S. military intelligence official said today.

Lieutenant General Ronald Burgess, director of the Defense Intelligence Agency, said Iran probably has the ability to “temporarily close the Strait of Hormuz with its naval forces,” as some Iranian officials have threatened to do if attacked or in response to sanctions on its oil exports by the U.S. and European Union.

“Iran has also threatened to launch missiles against the United States and our allies in the region in response to an attack,” Burgess said in testimony at a hearing today of the Senate Armed Services Committee. “It could also employ its terrorist surrogates worldwide. However, it is unlikely to initiate or intentionally provoke a conflict or launch a preemptive attack.”

Iran has the capability to strike regional and European targets with its ballistic missiles and is seeking to improve their accuracy, Burgess said in the latest U.S. public assessment of Iran’s military prowess. Iran’s regional military capability continues to improve, with new ships and submarines and expanded bases in the Gulf of Oman, Persian Gulf and Caspian Sea, he said.

No Israeli Decision

U.S. interests are threatened by Iran through its support of terrorist and militant groups, as shown in “the recent plot to assassinate the Saudi ambassador to the United States,” Burgess said. Burgess said Israel hasn’t made a decision to attack Iran’s nuclear facilities.

Iran’s Vice President Mohammad Reza Rahimi said on Dec. 27 that his nation may close the Strait of Hormuz, the passageway for about one-fifth of globally traded oil, if the U.S. and its allies impose stricter economic sanctions in an effort to halt his country’s nuclear research. U.S. officials such as Pentagon spokesman George Little have said since that threat that they haven’t seen any Iranian moves to close the waterway.

Burgess testified about the annual assessment of global threats by U.S. civilian and military intelligence agencies. Turning to the war in Afghanistan, Burgess told the committee that the country’s national army and police face continued challenges in developing “into an independent, self-sustaining security apparatus.”

‘Pervasive’ Afghan Corruption

The Afghan army and police exceeded their 2011 growth benchmarks, and the army has shown “marked improvements” in some operations when partnered with with U.S. and NATO forces, Burgess said.

Still, the Afghan National Army must depend on U.S.-led forces “for many critical combat-enabling functions,” while the Afghan National Police “suffers from pervasive corruption and popular perceptions that it is unable to extend security in many areas,” Burgess said.

The Army’s reliance on the coalition forces “underscores its inability to operate independently,” Burgess said. “Nevertheless, Afghanistan’s population generally favors the army over the police.”

Senator Carl Levin, the Michigan Democrat who heads the committee, said success in giving Afghan forces the lead role in more operations will depend on their readiness, the insurgency’s strength and the progress of reconciliation talks with the Taliban.

Iran ‘Underground’ Effort

While Iran has said its nuclear program is for civilian purposes, U.S and other Western governments have said Iran is developing a capacity to produce nuclear weapons.

Burgess said Iran is among several nations, including Russia, China and Pakistan, to protect “critical military and civilian assets” with “active underground programs.” He said his agency assessed that Iran was “not close” to abandoning its nuclear program.

Director of National Intelligences James Clapper, who testified alongside Burgess, said it was “technically feasible but probably not likely” that Iran could produce a nuclear device within a year of making a political decision to proceed.

Iranian state-run Press TV said yesterday that 3,000 “new- generation” Iranian-made centrifuges were installed at the main uranium enrichment site at Natanz, and domestically made fuel plates were loaded at a medical research reactor in Tehran.

‘Not Terribly Impressive’

“Our view on this is that it’s not terribly new and it’s not terribly impressive,” U.S. State Department spokeswoman Victoria Nuland told reporters in Washington yesterday. The announcement was “hyped” for a domestic audience, she said.

Iran’s known nuclear activities are monitored by the International Atomic Energy Agency, and there are no reports of enriched uranium being diverted from those facilities for weapons use.

Tensions between Iran and Israel have escalated this week. Iranians arrested after blasts on a Bangkok street aimed to attack Israeli diplomats and the devices used were similar to bombs targeting Israelis in India and Georgia this week, Thailand’s police chief, Priewphan Damaphong, said yesterday. Israel has blamed Iran for the attacks, and Iran has denied involvement.

Iranian Attack Recovery

Asked about how long it would take Iran to recover from an attack on its nuclear facilities, Clapper said he couldn’t corroborate the U.S. military’s view that a strike would deal a setback of one to two years at most.

“I don’t disagree with it, but I think there’s a lot of factors that could play here,” Clapper said.

The uncertainties include “how effective the attack was, what the targets were, what rate of recovery might be,” Clapper said. “There are a lot of imponderables that could affect a guestimate -- and that’s all it is.”

Clapper said he had doubts Iran eventually will make the political decision to move forward with assembling a nuclear device.

“They have put themselves in a position, but there are certain things they have not yet done and have not done for some time,” Clapper said. He declined to say in public testimony what steps Iran hasn’t taken that would be leading indicators of a decision to build a bomb.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Germany Eyes Approval for Greek Rescue

By Brian Parkin and James G. Neuger - Feb 17, 2012 6:00 AM GMT+0700

Germany wants euro-area finance chiefs to avoid splitting consideration of a 130 billion-euro ($171 billion) Greek rescue and a bond swap to cut the nation’s debt load at a meeting next week, coalition lawmakers were told by German government officials in a briefing.

As long as Greece meets conditions for the aid, the finance chiefs will probably approve the package along with the debt exchange, three German officials involved in the telephone briefing yesterday said. A Finance Ministry spokesman declined to comment.

Wrangling among euro-area finance ministers on a Feb. 15 conference call over how to reduce Greece’s debt load and tighten control of the aid raised the prospect of a two-step process, according to two people familiar with the talks. In that scenario, the ministers’ Feb. 20 gathering in Brussels would be limited to kicking off the bond exchange and deferring decision on the rest of the bailout funds.

As recriminations fly between Greece and its northern European creditors, the clock is ticking toward a March 20 bond redemption when Greece must pay 14.5 billion euros or trigger the first sovereign default in the euro’s 13-year history.

“We expect the Greeks to rise to their responsibilities,” German Deputy Finance Minister Steffen Kampeter told a group of lawyers in Hamburg yesterday. “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”

Euro Gains

Investors sent the euro and global stocks higher as they anticipated the culmination of the seven-month effort to complete a second bailout for Greece. The currency rose for the first time in five days, gaining 0.7 percent to $1.3153 at 11 p.m. in Athens.

While Greek lawmakers this month passed austerity measures that were required for the aid, the euro ministers wrestled with the latest setback, hearing on their call that Greece would miss debt-reduction goals. Without further measures to close the funding gap, Greece’s debt would fall to 129 percent of gross domestic product in 2020, missing a target of 120 percent, said three people familiar with the talks who declined to be named because they are still in progress. Last year, the level was about 160 percent.

European authorities are discussing charging it lower rates, the three officials said. Greece obtained its first, 110 billion-euro loan package in May 2010 at rates averaging 5 percent. Euro governments have already cut that figure once, to about 4 percent in March 2011.

ECB Holdings

Central bankers have also indicated that the ECB could funnel future profits from its Greek bond holdings to national governments and on into the crisis program. They have agreed that they “don’t wish to make a profit on Greece,” ECB Governing Council member Luc Coene of Belgium said this week. An ECB spokesman declined to comment.

More controversial is a proposal for national central banks to take part in the private exchange by accepting losses on Greek bonds in their investment portfolios. France is virtually alone in backing that idea, one of the officials said.

The ECB is swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring, three euro-area officials said.

The multiple scenarios led to a possible two-step decision -- authorizing the bond exchange next week and then completing the 130 billion-euro public aid program -- that would raise political risks by requiring two votes in some national parliaments.

Summit Showdown

It would also turn a planned March 1-2 summit of European leaders into a showdown over Greece, after countries including the Netherlands and Finland called for delaying the full package until after Greek elections in April or later.

The bond exchange can only go ahead once governments authorize the European Financial Stability Facility to provide 30 billion euros, to be used in cash or collateral as an incentive to investors.

Euro officials are targeting a window of Feb. 22 to March 9 to complete the transaction, the German lawmakers were told.

Greek leaders have no more “wiggle room” even as they seek to maintain a minimum level of public support going into elections that may take place in April, Deutsche Bank economists Gilles Moec, Marco Stringa and Mark Wall wrote in a note to clients yesterday.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net

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

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Obama’s Election Prospects Rise With Economic Data

By Mike Dorning - Feb 17, 2012 4:09 AM GMT+0700

The economy is looking better to the American public and with it President Barack Obama’s re-election prospects.

Claims for jobless benefits unexpectedly dropped last week to the lowest level in almost four years, providing fresh evidence the job market is on the mend, and reports released today on housing and manufacturing also beat forecasters’ expectations.

The weekly Bloomberg Consumer Comfort Index climbed for a fourth straight week to reach the highest level in a year. The spirits of voters are rising even among those who have yet to benefit from the recovery as payrolls expand and the unemployment rate drops. Optimism among those without a job was the strongest since April 2008.

“Political independents have a markedly better view of the prospects for better times than they did just a few months ago, and Obama is running much more strongly among independents than he was a few months ago,” Andrew Kohut, president of the nonpartisan Pew Research Center in Washington, said. “Reports such as those out today will only reinforce this notion that things are getting better.”

Economic confidence among independents, a voter group targeted by both parties, surged to a four-year high earlier this month, the Bloomberg Consumer Comfort Index showed. Sentiment among Republicans in the period ended Feb. 12 was the highest since July, while Democrats were the most optimistic since mid-December, the gauge showed.

On Rebound

“People are starting to get a sense that the economy is on the rebound,” Obama told campaign donors today in Corona Del Mar, California. Obama is on a three-day West Coast trip during which he’s raising more than $8 million for his re-election bid.

Obama is seeking a second term in the November election and the Republicans vying for their party’s presidential nomination have made the president’s handling of the economy their central issue.

Improving Assessment

A Pew poll released today found public assessments of Obama’s economic policies are improving even as many Americans remain dissatisfied. Asked about the impact of Obama’s policies, 33 percent said they have made the economy better, 35 percent said worse and 25 percent said they had no effect so far, according to the poll of 1,000 adults conducted Feb. 8 to Feb. 12. The margin of error was plus or minus 4 percentage points.

In October, Pew found 20 percent said Obama’s policies had made the economy better, 38 percent said worse and 37 percent no effect so far.

Obama’s approval rating reached 50 percent in a CBS/New York Times poll conducted Feb. 8 to Feb 13. The president also led all four Republican presidential candidates in hypothetical general election match-ups. The poll was based on telephone interviews with 1,197 adults conducted Feb. 8 to Feb. 13. The margin of error is plus or minus 3 percentage points.

The 50 percent approval rating has been a key indicator for re-election. Incumbent presidents Gerald Ford, Jimmy Carter and George H.W. Bush were all below 50 percent in March of the years they lost re-election, according the polling organization Gallup Inc. Incumbent Presidents Richard Nixon, Ronald Reagan and Bill Clinton were above that mark in March. George W. Bush was just short of the threshold at 49 percent in March.

Re-Election Message

The positive economic news helps Obama deliver his re- election message while also giving him a weapon against his eventual Republican opponent in November.

That includes today’s announcement by General Motors Co. (GM), the beneficiary of an Obama-backed 2009 government bailout, that it earned $9.19 billion last year, the largest profit in its 103-year history. The company also has regained its position as the world’s top-selling automaker.

The auto company’s earnings report came just as the focus of the presidential campaign has pivoted to the center of the U.S. auto industry in anticipation of the Michigan Republican primary Feb. 28.

The four main Republican presidential candidates have criticized the rescue of GM and Chrysler Group LLC. Former Massachusetts Governor Mitt Romney, the leading fundraiser among the Republican contenders, wrote an op-ed in the New York Times in 2008 saying that if the government bailed out U.S. automakers “you can kiss the American automotive industry goodbye.”

Messina Message

Obama campaign manager Jim Messina trumpeted the earnings results with a message on Twitter: “Glad we didn’t let Detroit fail as Romney suggested. Never bet against the American worker!”

In speeches, Obama frequently cites the revival of GM and Chrysler to justify his economic policies and project an optimistic view of the future.

“What’s happening in Detroit can happen in other industries,” he said yesterday in Milwaukee. “That’s what we’ve got to be shooting for, is to create opportunities for hardworking Americans to get in there and start making stuff again and sending it all over the world.”

Fresh signs of an improving economy sent the benchmark Standard & Poor’s 500 Index up 1.1 percent to 1,358.09 at 4 p.m. in New York. The index has risen 8 percent this year.

The positive economic news follows four consecutive months of declines in the unemployment rate, the economic indicator that dominates political and media conversation on the economy. The January unemployment rate of 8.3 percent was the lowest in almost three years.

European Debt

Still, the possibility of a worsening of the European debt crisis remains a cloud hanging over the economy. U.S. stocks slid for two days this week amid concern over Greek debt negotiations.

Tensions with Iran over its nuclear program also raise the risk of a conflict in the Middle East that would drive up global oil prices.

A pickup in the recovery at the start of last year was blunted by a surge in gasoline prices, the earthquake and tsunami in Japan, the European debt crisis and market concern over U.S. political gridlock stirred by protracted talks on raising the debt limit.

“We have seen people’s expectations rise several times during the Great Recession only to be dashed,” Kohut said. “Right now it looks like a pretty good run.”

To contact the reporter on this story: Mike Dorning in Washington at mdorning@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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Boehner’s Take-It-to-the-Bank Resolve on U.S. Tax Cut Fizzles in 78 Days

By Steven Sloan - Feb 17, 2012 12:26 AM GMT+0700

U.S. House Speaker John Boehner said 78 days ago that lawmakers could “take to the bank the fact that” a payroll tax cut extension “will be paid for.”

That resolve fizzled yesterday when he agreed to support a deal that would add about $100 billion to the budget deficit.

In the time between those statements, Boehner and Republicans faced repeated attacks from President Barack Obama and congressional Democrats about the impasse over extending the tax break that benefits 160 million Americans. House Republicans were blamed in December for almost allowing the tax cut to lapse after rejecting a deal that had been brokered by their Senate counterparts.

Representative Patrick Tiberi, an Ohio Republican, said his party has been “creamed in the court of public opinion.”

A Gallup poll released last week showed that a record-low 10 percent of Americans approve of the job Congress is doing, down from the previous low of 11 percent in December.

Boehner’s shift on whether the cost of the tax break should be covered is leading some Tea Party-backed Republicans, such as Representative Cory Gardner of Colorado, to say they won’t support the deal. Still, the pivot is necessary so the party can move past the payroll tax debate, said Dean Zerbe, former tax counsel for Republican Senator Charles Grassley of Iowa.

‘Boxed In’

“Republicans are boxed in and I don’t think they want to keep seeing a series of votes on millionaire taxes,” Zerbe said. “Now you can move on to other issues.”

Michael Steel, a spokesman for Boehner, said it would be the speaker’s “preference” to finance the cost of the tax cut.

“Faced with the intransigence of Washington Democrats who refuse to cut spending, he decided we need to stop a tax hike from hitting Americans,” Steel said.

Other Republicans, including Senate Minority Leader Mitch McConnell, also have shifted on the issue of funding the tax break. The Kentucky Republican said Nov. 29 that lawmakers “need to be paying” for an extension. On Feb. 14, he expressed “frustration” that such a goal might be impossible.

Republicans succeeded in pressing Democrats to agree to finance other parts of the payroll tax cut package, including extension of expanded unemployment benefits and Medicare reimbursements to physicians.

That isn’t enough to please some Republicans concerned about the effects on the budget deficit of extending the payroll tax cut, and of going back on earlier pledges.

“I myself went around Colorado talking about how I support the payroll tax holiday but it’s important that we pay for this,” Gardner said.

Undecided on Vote

Republican Representatives Lynn Westmoreland of Georgia and Allen West of Florida said they were undecided on how they would vote in part because the cost of the tax break isn’t covered.

House Ways and Means Chairman Dave Camp, a Michigan Republican, and Senate Finance Chairman Max Baucus, a Montana Democrat, announced early this morning that they had reached a deal on the payroll package that could be supported by a majority of lawmakers on the House-Senate negotiating panel. Their announcement came after some Democrats on the conference committee staged a revolt against provisions of the deal that would require federal workers to pay more into their pensions.

Details of that agreement may be announced later today.

Tea Party

Boehner in December appealed to the Tea Party-backed bloc of his conference in sending a bill to the floor with provisions that wouldn’t advance in the Democratic-controlled Senate. This week, with the Feb. 29 expiration of the two-percentage-point tax cut approaching, he needed to win the support of Democrats to secure the votes needed to win passage.

Democrats are claiming victory on the payroll tax cut deal. Representative Joseph Crowley, a New York Democrat, said the Republicans’ maneuvering on the tax break ultimately will benefit his party.

“When it comes to this issue, the Republicans are playing on our turf at this point,” he said in a telephone interview.

Representative Chris Van Hollen, a Maryland Democrat and a member of the House-Senate panel negotiating the payroll deal, has repeatedly criticized the Republican stance on the tax break. At a Feb. 1 meeting of the panel, he said Republicans set a “different standard” by insisting that the cost of the payroll tax break for workers be covered while not requiring the same of the two-year extension of the 2001 and 2003 income tax cuts, which included provisions for high earners.

Tax Fairness

Though Republicans have ceded Van Hollen’s point, Democrats may still use the payroll debate to bolster the tax fairness theme of their congressional and presidential campaigns, said Arshi Siddiqui, a former policy adviser to House Democratic leader Nancy Pelosi. Democrats can point to ways Republicans would have paid for the tax break, such as by freezing federal workers’ pay and cutting maximum unemployment benefits in states with high jobless rates by as much as 40 weeks.

“One underlying Democratic priority has been targeted tax relief to bolster the economy,” said Siddiqui, now a partner at Akin Gump Strauss Hauer & Feld LLP in Washington. “But those benefits would have been significantly diluted with the inclusion of harmful offsets.”

To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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China Reduces Holdings of U.S. Treasuries to Lowest Level Since June 2010

By Cordell Eddings and Daniel Kruger - Feb 16, 2012 5:28 AM GMT+0700

China, the largest foreign lender to the U.S., reduced its holdings of Treasuries in December to the least since June 2010 amid efforts to assist Europe in addressing its debt crisis.

The world’s second-largest economy decreased its U.S. debt securities by $31.9 billion from November, or 2.8 percent, to $1.11 trillion, according to Treasury Department data released yesterday. Its position in longer-term notes and bonds also fell $32.5 billion, or 2.8 percent, to $1.1 trillion, the least since June 2010. Japan, the second biggest buyer, increased its holding by $3.5 billion to $1.04 trillion.

“We continue to see Chinese Treasury holdings trending lower as they are acting on their desire for diversification and as they may get more involved in the situation in Europe,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut.

China’s policy makers have advocated diversification of the nation’s foreign exchange reserves away from U.S. assets. China may support Europe through channels such as the International Monetary Fund, the European Financial Stability Facility and the European Stability Mechanism, said People’s Bank of China Governor Zhou Xiaochuan.

European Assets

“China will always adhere to the principle of holding assets of EU sovereign debt,” Zhou said in Beijing yesterday. “We would participate in resolving the euro debt crisis,” he said.

Chinese Officials, including central bank adviser Li Daokui, have urged diversification of the nation’s foreign exchange reserves. The Asian nation will “seek diversification in the management of reserve assets, strengthen risk management, and minimize the negative impacts of the fluctuations in the international financial market on the Chinese economy,” Zhou said in August.

Foreign investors held 47.6 percent of outstanding public Treasury debt as of December, the smallest proportion since October 2006, Treasury data show.

Net buying of long-term equities, notes and bonds totaled $17.9 billion during the month compared with net purchases of $61.3 billion the previous month, the Treasury Department said. Including short-term securities such as stock swaps, foreigners bought a net $87.1 billion in December compared with net buying of $42.9 billion the previous month.

China increased its position in shorter-term bills by $600 million to $2.9 billion. The U.S. updated data on Feb. 28, 2011 to show China’s Treasury investments in October 2010 were a record $1.18 trillion, 30 percent more than the initial estimate of $906.8 billion.

“Overall flows were weak for the U.S. and the Chinese tactical selling reflected that as Treasuries were giving back very little,” said Aaron Kohli, an interest-rate strategist BNP Paribas SA in New York, one of 21 primary dealers that trade directly with the Federal Reserve. “As yields rise, look for China to buy Treasuries again.”

Treasuries have lost 0.1 percent this year after returning 9.8 percent last year, according to a Bank of America Merrill Lynch index.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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Europe Said to Weigh ECB Role to Narrow Gap in Financing for Greek Bailout

By James G. Neuger and Brian Parkin - Feb 17, 2012 2:22 AM GMT+0700
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A Greek flag reflected on smashed windows of a bank in Athens on Feb. 16, 2012. Photographer: Dimitri Messinis/AP

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Feb. 16 (Bloomberg) -- European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said. David Tweed reports on Bloomberg Television's "Last Word" with Andrea Catherwood. (Source: Bloomberg)

European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said.

Finance ministers wrangled over how to close the funding hole in a teleconference last night after seeing estimates that Greece’s debt would fall to 129 percent of gross domestic product in 2020, missing a target of 120 percent, said the people, who declined to be named because the talks are still in progress. Last year, the level was about 160 percent.

Overcoming the final obstacles and Greece meeting the conditions set by euro finance chiefs yesterday may enable the ministers’ next meeting on Feb. 20 to approve both the 130 billion-euro ($170 billion) lifeline and a bond exchange with private investors that is critical to staving off a Greek default in March, the German finance ministry told coalition lawmakers in Berlin today, three officials said.

As recriminations fly between Greece and its northern European creditors, the clock is ticking toward a March 20 bond redemption when Greece must pay 14.5 billion euros or trigger the first sovereign default in the euro’s 13-year history.

“We expect the Greeks to rise to their responsibilities,” German Deputy Finance Minister Steffen Kampeter said today to a group of lawyers in Hamburg. “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”

Missing Targets

With Greece failing to meet financial targets, European authorities are discussing charging it lower rates, three officials said. Central bankers have indicated that the ECB could funnel future profits from its Greek bond holdings to national governments and on into the crisis program.

Greece obtained its first, 110 billion-euro loan package in May 2010 at rates averaging 5 percent. Euro governments have already cut that figure once, to about 4 percent in March 2011.

Central bankers have agreed that they “don’t wish to make a profit on Greece,” ECB Governing Council member Luc Coene of Belgium said this week. An ECB spokesman today declined to comment.

French Proposal

More controversial is a proposal for national central banks to take part in the private exchange by accepting losses on Greek bonds in their investment portfolios. France is virtually alone in backing that idea, one of the officials said.

The ECB is swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring, three euro-area officials said today.

The possible scenarios may lead to a possible two-step decision -- authorizing the bond exchange next week and then completing the 130 billion-euro public aid program -- that would raise political risks by requiring two votes in some national parliaments.

It would also turn a planned March 1-2 summit of European leaders into a showdown over Greece, after countries including the Netherlands and Finland called for delaying the full package until after Greek elections in April or later.

The Netherlands is pushing to saddle bondholders with bigger losses by reopening a “private sector involvement” or PSI agreement for investors to write off roughly 100 billion euros of Greek debt. Investors have agreed to terms with a loss of about 70 percent of the net present value of their holdings.

Bigger Writedown

“We don’t rule out a bigger PSI, but we clearly belong to a small minority on that point because the PSI that has been taken is a enormously big step,” Dutch Finance Minister Jan Kees de Jager told parliament in The Hague today.

The bond exchange can only go ahead once governments authorize the European Financial Stability Facility to provide 30 billion euros, to be used in cash or collateral as an incentive to investors.

Euro officials are targeting a window of Feb. 22 to March 9 to complete the transaction, the German lawmakers were told.

Greek leaders have no more “wiggle room” even as they seek to maintain a minimum level of public support going into elections that may take place in April, Deutsche Bank economists Gilles Moec, Marco Stringa and Mark Wall wrote in a note to clients today.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Brian Parkin in Hamburg at bparkin@bloomberg.net

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

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Europe Said to Weigh ECB Role to Narrow Gap in Financing for Greek Bailout

By James G. Neuger and Brian Parkin - Feb 17, 2012 2:22 AM GMT+0700
Enlarge image

A Greek flag reflected on smashed windows of a bank in Athens on Feb. 16, 2012. Photographer: Dimitri Messinis/AP

Play Video

Feb. 16 (Bloomberg) -- European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said. David Tweed reports on Bloomberg Television's "Last Word" with Andrea Catherwood. (Source: Bloomberg)

European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the European Central Bank to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said.

Finance ministers wrangled over how to close the funding hole in a teleconference last night after seeing estimates that Greece’s debt would fall to 129 percent of gross domestic product in 2020, missing a target of 120 percent, said the people, who declined to be named because the talks are still in progress. Last year, the level was about 160 percent.

Overcoming the final obstacles and Greece meeting the conditions set by euro finance chiefs yesterday may enable the ministers’ next meeting on Feb. 20 to approve both the 130 billion-euro ($170 billion) lifeline and a bond exchange with private investors that is critical to staving off a Greek default in March, the German finance ministry told coalition lawmakers in Berlin today, three officials said.

As recriminations fly between Greece and its northern European creditors, the clock is ticking toward a March 20 bond redemption when Greece must pay 14.5 billion euros or trigger the first sovereign default in the euro’s 13-year history.

“We expect the Greeks to rise to their responsibilities,” German Deputy Finance Minister Steffen Kampeter said today to a group of lawyers in Hamburg. “This coming Monday, we will see whether Greece delivers or whether we will be forced to decide on another course of action, one that is not desired.”

Missing Targets

With Greece failing to meet financial targets, European authorities are discussing charging it lower rates, three officials said. Central bankers have indicated that the ECB could funnel future profits from its Greek bond holdings to national governments and on into the crisis program.

Greece obtained its first, 110 billion-euro loan package in May 2010 at rates averaging 5 percent. Euro governments have already cut that figure once, to about 4 percent in March 2011.

Central bankers have agreed that they “don’t wish to make a profit on Greece,” ECB Governing Council member Luc Coene of Belgium said this week. An ECB spokesman today declined to comment.

French Proposal

More controversial is a proposal for national central banks to take part in the private exchange by accepting losses on Greek bonds in their investment portfolios. France is virtually alone in backing that idea, one of the officials said.

The ECB is swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring, three euro-area officials said today.

The possible scenarios may lead to a possible two-step decision -- authorizing the bond exchange next week and then completing the 130 billion-euro public aid program -- that would raise political risks by requiring two votes in some national parliaments.

It would also turn a planned March 1-2 summit of European leaders into a showdown over Greece, after countries including the Netherlands and Finland called for delaying the full package until after Greek elections in April or later.

The Netherlands is pushing to saddle bondholders with bigger losses by reopening a “private sector involvement” or PSI agreement for investors to write off roughly 100 billion euros of Greek debt. Investors have agreed to terms with a loss of about 70 percent of the net present value of their holdings.

Bigger Writedown

“We don’t rule out a bigger PSI, but we clearly belong to a small minority on that point because the PSI that has been taken is a enormously big step,” Dutch Finance Minister Jan Kees de Jager told parliament in The Hague today.

The bond exchange can only go ahead once governments authorize the European Financial Stability Facility to provide 30 billion euros, to be used in cash or collateral as an incentive to investors.

Euro officials are targeting a window of Feb. 22 to March 9 to complete the transaction, the German lawmakers were told.

Greek leaders have no more “wiggle room” even as they seek to maintain a minimum level of public support going into elections that may take place in April, Deutsche Bank economists Gilles Moec, Marco Stringa and Mark Wall wrote in a note to clients today.

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Brian Parkin in Hamburg at bparkin@bloomberg.net

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

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U.S. Stocks Advance on Economic Reports, Optimism Over Greece Bailout

By Rita Nazareth - Feb 17, 2012 4:37 AM GMT+0700
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Traders at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

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Feb. 16 (Bloomberg) -- David Kotok, chief investment officer at Cumberland Advisors Inc., talks about investment strategy and global central bank policy. Kotok also discusses Comcast Corp. authorizing a $6.5 billion stock buyback and increasing its annual dividend 44 percent to 65 cents a share. He speaks with Tom Keene and Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Feb. 16 (Bloomberg) -- Bloomberg's Pimm Fox and Deborah Kostroun report on the performance of the U.S. equity market today. U.S. stocks advanced, sending the Standard & Poor’s 500 Index near the highest level in about three years, amid better-than-estimated economic reports and optimism that Greece will receive a second bailout. (Source: Bloomberg)

U.S. stocks advanced, sending the Standard & Poor’s 500 Index near the highest level in about three years, amid better-than-estimated economic reports and optimism that Greece will receive a second bailout.

Financial (S5FINL) shares rebounded from earlier losses as Bank of America Corp. (BAC) rose 4 percent. Microsoft (MSFT) Corp. climbed 4.1 percent on a report that S&P is likely to increase its weighting in the S&P 500. General Motors Co. (GM) jumped 9 percent after the automaker posted the biggest annual profit in its 103-year- history. NetApp (NTAP) Inc. increased 7.2 percent as the maker of data- storage products reported revenue that beat analysts’ estimates.

The S&P 500 rose 1.1 percent to 1,358.04 at 4 p.m. New York time. The benchmark gauge for American equities is 0.4 percent away from its peak nine months ago of 1,363.61, which was the highest level since June 2008. The Dow (INDU) Jones Industrial Average increased 123.13 points, or 1 percent, to 12,904.08.

“I don’t see what the case is for the market collapsing,” Brian Barish, who helps oversee about $7 billion as Denver-based president of Cambiar Investors LLC., said in a phone interview. “The U.S. economy is doing pretty well. Taking the possibility of a euro-Lehman type of event off the table, that has a big effect on sentiment.”

Stocks rose as Americans filed the fewest claims for jobless benefits since 2008 and builders broke ground on more homes than forecast. Manufacturing (OUTFGAF) in the Philadelphia region expanded in February at the fastest pace in four months as orders and sales picked up.

New Bonds

Benchmark gauges extended gains and banks rallied as three euro-area officials said the European Central Bank is swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring. European governments are considering cutting interest rates on emergency loans to Greece and using contributions from the ECB to plug a new financing gap in the second bailout program for Athens, two people familiar with the discussions said.

“We’re more important to Europe than Europe is to us,” Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp., said in a telephone interview. Her firm has $1.68 trillion in client assets. “U.S. economic numbers have been much better than expected. I’m pretty optimistic, but I don’t think we’re going to boom. The debt overhang puts a lid on how fast the U.S. economy can grow.”

Financial shares underperformed the S&P 500 earlier today as Moody’s Investors Service is reviewing 17 banks and securities firms with global capital markets operations.

Banks Rebound

The KBW Bank Index (BKX) rose 2.2 percent as all of its 24 companies gained. The gauge fell as much as 0.6 percent earlier today. Bank of America added 4 percent to $8.09. Morgan Stanley rose 1.2 percent to $19.19, after tumbling as much as 4 percent.

Twenty-nine out of 30 companies in the Dow gained today. Microsoft jumped 4.1 percent, the most in the Dow, to $31.29. The shares rose to the highest price since April 2010. S&P is likely to increase Microsoft’s weighting in the S&P 500 by about 12 percent later this year because Chairman Bill Gates’s stock sales are increasing the amount of shares available for public trading, Adam Holt, an analyst at Morgan Stanley (MS), wrote in a report today.

GM surged 9 percent to $27.17. North America earnings before interest and taxes more than tripled for the year to $7.19 billion. The automaker’s Europe business, including the Opel brand, lost $747 million for the year.

New Customers

NetApp rallied 7.2 percent, the most in the S&P 500, to $42.74. The maker of data-storage products said revenue in the third quarter was $1.57 billion, above the average analyst estimate of $1.56 billion. The company said it won a record number of new customers and significantly increased the amount of units shipped.

CVR Energy Inc. (CVI) surged 5.8 percent to $29.20. Carl Icahn offered to pay $30 a share in cash and give stockholders the right to collect an additional $7 a share if any other bidder tries to buy the oil-refining company.

Even with the stock’s 24 percent gain since Icahn disclosed an investment in January, a buyer could offer about a 40 percent premium and still purchase CVR at the lowest valuation relative to earnings of any takeover greater than $500 million in the U.S. oil refining and marketing industry, according to data compiled by Bloomberg. Icahn, CVR’s biggest investor, urged the company this week to put itself up for sale.

Amazon.com Inc. (AMZN) sank 2.5 percent to $179.93. The world’s largest Web retailer fell after Morgan Stanley downgraded the stock, citing competition from Apple Inc. and the decline of traditional media such as CDs and video games.

Folgers Coffee

J.M. Smucker Co. (SJM) slumped 8.4 percent to $71.60. The maker of Folgers coffee forecast 2012 earnings excluding some items of $4.65 a share at most. On average, the analysts surveyed by Bloomberg estimated profit of $5.

A gauge of homebuilders in S&P indexes dropped 0.8 percent. PulteGroup Inc., the largest U.S. homebuilder by revenue, declined 1.8 percent to $8.87. The shares retreated after David Goldberg, an analyst at UBS AG, cut the rating to “neutral” from “buy,” citing valuation concern.

Price swings by the S&P 500 have narrowed to a nine-month low following the measure’s biggest rally to start a year since 1997. The distance between its intraday low and high has averaged 0.86 percent since Feb. 2, a 10-day level last seen on May 5, according to data compiled by Bloomberg.

Volatility (SPX) has diminished after the S&P 500 advanced 6.8 percent in 2012. When the 10-day average swing was this low in May, the index had just peaked on April 29 and went on to slump 19 percent through October. The current narrowing signals the rally may be running out of steam, said Katie Stockton, chief market technician at Greenwich, Connecticut-based MKM Partners.

“It reflects a loss of momentum, which had been very strong until last week,” Stockton wrote in an e-mail.

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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