Stocks Rebound With U.S. Futures; Spanish Yields Drop

By Paul Armstrong and Lynn Thomasson - Apr 11, 2012 6:00 PM GMT+0700

European stocks rebounded from a two-month low and U.S. equity futures gained after Alcoa Inc. opened the earnings season with an unexpected profit. Spanish and Italian bonds climbed as governments sell about $50 billion of debt and the euro strengthened.

The Stoxx Europe 600 Index (SXXP) rose 0.9 percent as of 11:57 a.m. in London, while Standard & Poor’s 500 Index futures advanced 0.8 percent, signaling that stocks may gain for the first time in six days. Alcoa rose 6.3 percent in pre-market New York trading as aluminum climbed 0.9 percent from a three-month low. The euro snapped a five-day drop against the yen to strengthen 0.7 percent and Spanish debt risk neared a record.

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Prime Minister Mariano Rajoy said Spain’s future is at stake in its battle to tame surging bond yields. Photographer: Jock Fistick/Bloomberg

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April 11 (Bloomberg) -- Timothy Moe, a Hong Kong-based strategist at Goldman Sachs Group Inc., talks about the outlook for Asia stocks Stocks in Asia slipped, with the region’s benchmark index falling for a sixth day, as Spanish bond yields surged closer to levels that prompted Greece, Ireland and Portugal to seek European bailouts. Moe speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 11 (Bloomberg) -- Peter Garnry, an equity strategist at Saxo Bank A/S, discusses Alcoa Inc.'s unexpected first-quarter profit reported yesterday, investment strategy for European equities and recommendation of Rolls-Royce Holdings Plc. He speaks from Hellerup, Denmark, with Caroline Hyde on Bloomberg Television's "Countdown." (Source: Bloomberg)

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April 11 (Bloomberg) -- Pelham Smithers, managing director of Pelham Smithers Associates, talks about the outlook for Sony Corp. and Sharp Corp. Sony and Sharp posted losses that together equaled 900 billion-yen ($11 billion) as the first decline in global TV shipments in six years and a stronger yen hurt overseas sales for Japan’s biggest LCD TV makers. Smithers speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Australian one-dollar coins sit with a collection of bank notes arranged for a photograph, in Sydney, Australia. Photographer: Sergio Dionisio/Bloomberg

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Pedestrians are reflected in an electronic stock board outside a securities firm in Tokyo, Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

European Central Bank Executive Board member Benoit Coeure suggested the lender could revive its debt-purchase program to reduce Spain’s borrowing costs after 10-year yields approached 6 percent. Italy and Germany were among six countries in Europe that sold debt today, while in the U.S., the Federal Reserve will release its Beige Book business survey. Alcoa (AA), the country’s largest aluminum producer, reported an unexpected first-quarter profit after orders rose.

“Fundamentally, the equity market offers extreme value and I am very happy to be buying on the dips,” said George Godber, who helps oversee $22 billion as a fund manager at Charles Stanley’s Matterley division in London. His Matterley Undervalued Assets Fund gained 12 percent in 2012. “Equities are the only place to be.”

UniCredit, Sanpaolo

UniCredit SpA (UCG) and Intesa Sanpaolo SpA, Italy’s biggest banks, led a rebound in financial shares, advancing 5.7 percent and 5.6 percent. CGGVeritas SA (GA), the world’s largest seismic surveyor of oil fields, climbed 5.5 percent after saying it boosted vessel production in the first quarter. Givaudan SA, a Swiss maker of flavors and fragrances, gained 3 percent as sales increased.

Germany’s 10-year bund fell, with the yield rising six basis points to 1.79 percent, after an auction of 10-year benchmark notes failed to attract bids for the maximum amount that the nation planned to sell.

The 10-year Italian bond yield fell 15 basis points to 5.54 percent after the government sold debt, while the 10-year Spanish bond yield declined nine basis points to 5.89 percent. The euro strengthened to 106.31 yen and gained 0.5 percent to $1.3150.

The yield on the 10-year U.K. gilt increased five basis points to 2.05 percent after its debt agency sold 4.5 billion pounds ($7.2 billion) of September 2017 securities. The yield on the 10-year U.S. Treasury advanced four basis points to 2.02 percent, snapping five days of declines, before the government auctions $21 billion of the debt.

Spanish Risk

The cost of insuring against a default on Spanish government bonds approached the highest ever, with credit- default swaps on the nation climbing 10.5 basis points to 490.5, compared with a record 493 set on Nov. 23.

European corporate bond risk fell from a 2 1/2-month high, with the Markit iTraxx Crossover Index of default swaps on 50 mostly junk-rated European companies declining 17.5 basis points to 682.5. That’s the index’s first decline since April 2 and signals an improvement in perceptions of creditworthiness.

“Markets do feel primed for a mini-correction,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “There could be an overly great focus on the Italian auction as we search for direction.”

Aluminum Gains

Aluminum gained to $2,082 a metric ton. Brent crude oil added 0.1 percent to $120.04 a barrel after two days of declines. Copper for delivery in three months increased 0.6 percent to $8,078 a ton on the London Metal Exchange and gold dropped 0.3 percent to $1,655.40 an ounce, the first decline in five days.

The MSCI Emerging Markets Index (MXEF) dropped 0.2 percent, heading for its sixth day of declines and its lowest level since Jan. 30.

The Hang Seng China Enterprises Index (HSCEI) fell 1 percent, its third straight decline. The Shanghai Composite Index (SHCOMP) gained 0.1 percent. Chongqing Brewery Co. and Chongqing Road & Bridge Co. (600106) dropped at least 0.4 percent after the official Xinhua News Agency said Bo Xilai was removed from the Politburo.

The ISE National 100 Index (XU100) slid 0.7 percent in Turkey and the FTSE/JSE Africa All Shares Index (JALSH) slipped 0.2 percent in Johannesburg. The Micex Index (MICEX) gained 0.5 percent in Moscow.

To contact the reporters on this story: Paul Armstrong in London at parmstrong10@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Stuart Wallace at swallace6@bloomberg.net

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Bo Suspended After Wife Suspected in British Man’s Murder

By Bloomberg News - Apr 11, 2012 2:19 PM GMT+0700

China’s Communist Party moved to show unity after suspending Bo Xilai from the ruling Politburo and declaring his wife a murder suspect, ordering the nation’s more than 80 million party members to back the decision.

China’s central television station read the charges against Gu Kailai, Bo’s wife, every hour on the hour, detailing how she had been arrested on suspicion of murdering British businessman Neil Heywood in Chongqing. A commentary on the front page of today’s People’s Daily (PEODOZ), the party’s mouthpiece, urged cadres to “firmly support the correct decision” to investigate Bo.

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Bo Xilai attends the opening ceremony of the National People's Congress (NPC) at the Great Hall of the People on March 5, 2012 in Beijing, China. Photographer: Feng Li/Getty Images

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April 11 (Bloomberg) -- Robert Kuhn, chairman of The Kuhn Foundation and author of "How China's Leaders Think," talks about the suspension of Bo Xilai, the former top official in the Chinese municipality of Chongqing, and its implications for Chinese politics. Bo was suspended from his Communist Party posts after an investigation led to his wife being arrested on suspicion of murdering a U.K. citizen. Kuhn speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 11 (Bloomberg) -- Patrick Chovanec, an associate professor at Tsinghua University's School of Economics and Management, discusses Bo Xilai's suspension from his Chinese Communist Party posts after an investigation led to his wife being arrested on suspicion of murdering a U.K. citizen. He speaks from Beijing with Caroline Hyde on Bloomberg Television's "First Look." (Source: Bloomberg)

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Bo Xilai, Chinese Communist Party secretary of Chongqing, attends a plenary session on the work report of the National People's Congress (NPC) as China's NPC takes place in Beijing on March 9, 2012. Photographer: Nelson Ching/Bloomberg

“The death of Neil Heywood is a serious criminal case involving the family and close staff of a Party and state leader,” the commentary said. “Bo has seriously violated the Party discipline, causing damage to the cause and the image of the Party and state.”

Bo’s downfall, which comes as China prepares for a once-in- a-decade leadership change this year, is the biggest political upheaval in the country’s top ranks since Communist Party General Secretary Zhao Ziyang was purged in the wake of the 1989 Tiananmen protests. Removal from the Politburo and Central Committee, which would come at a formal party meeting, is often a precursor to prison or detention. Among four other men removed from the Politburo outside regular Communist Party congresses since 1989, two were imprisoned and a third, Zhao, lived out most of the rest of his life confined to his home.

‘Greatest Fear’

“They’ve struggled with how to portray this,” said Christopher K. Johnson, a senior adviser at the Washington-based Center for Strategic and International Studies and a former China analyst at the Central Intelligence Agency. “Their greatest fear is to show any inkling that the leadership is anything but totally unified.”

The People’s Daily commentary said the decision to suspend Bo “highlights the Party and the government’s apparent attitude of firmly maintaining discipline and laws” that will “certainly get the wholehearted support from the whole party and all of the nation’s people.”

Party newspapers across the country, including Chongqing, where Bo served as the top official until last month, reprinted the commentary.

Contracts to insure China’s sovereign debt against non- payment for five years rose 1.5 basis points to 118.5 as of 2:49 p.m. in Beijing, erasing an earlier increase of as much as 3 basis points on the day, according to Royal Bank of Scotland Group Plc prices.

Political Downfall

Gu and a personal attendant are “highly suspected” of killing British businessman Neil Heywood, who died in Chongqing in November, the official Xinhua News Agency reported late yesterday. The U.K. was originally told that Heywood died of alcohol poisoning.

Bo’s wife and the attendant, Zhang Xiaojun, “have been transferred to judicial authorities on suspected crime of intentional homicide,” Xinhua said yesterday. Bo has been suspended from his party posts and is “suspected of being involved in serious discipline violations,” Xinhua said in a separate report.

Bo’s political downfall comes ahead of a party congress scheduled for later this year that will pick a new generation of Chinese leaders. Before his lieutenant Wang Lijun, who Xinhua said made the murder allegations, spent a night in February at the U.S. consulate in Chengdu, Bo, 62, was seen by many analysts of Chinese politics as being a top contender for membership in the elite Politburo Standing Committee. That panel, now with nine men, exercises supreme authority in China.

Orderly Transition

“It’s another step toward putting him in jail on a very serious charge,” said Li Cheng, an analyst of Chinese politics at Washington’s Brookings Institution. “It reflects the unity of the party leadership and their plan to resolve this problem in a relatively short period of time, and move on to make sure the party congress will be held in an orderly and institutional way.”

The U.K. embassy in Beijing had asked earlier this year for an investigation into Heywood’s death based on increasing rumors and suspicions, spokesman John Gallagher said on March 26. Gu Kailai and her son were on “good terms with Heywood” and then had “a conflict over economic interests, which had been intensified,” Xinhua reported.

U.K. Foreign Secretary William Hague said he welcomed the inquiry into Heywood’s death.

U.K. Response

“We look forward to seeing those investigations take place and in due course hearing the outcome of those investigations,” Hague told Sky News television yesterday. “I don’t really want to say anything more than that because, having asked for the investigations, I don’t want to prejudice their conduct in any way.”

Heywood and the son of Bo and Gu, Bo Guagua, both attended Harrow school in the U.K., with Heywood attending in the 1980s and Bo from 2001 to 2006, Luke Meadows, information officer for the Harrow Association, said in a March 27 e-mail. Heywood, 41, lived in Beijing with his wife and had two children, according to U.K. birth records. Bo Guagua is a student at Harvard University’s John F. Kennedy School of Government in Cambridge, Massachusetts.

Bo’s troubles became public in early February, after his former police chief Wang Lijun spent the night of Feb. 6 at the U.S. Consulate in Chengdu, an event confirmed by both the U.S. and Chinese governments. On Feb. 8, Wang was booked with a first-class seat on an Air China (753) flight from Chengdu to Beijing accompanied by a vice minister for state security, Bloomberg reported on Feb. 10.

Crime Crackdown

Bo won national attention for his success in cracking down on organized crime with Wang as police chief and for his “Chongqing Model” of emphasizing state-led investment to ease wealth gaps between urban and rural residents. Bo also reintroduced songs and slogans from the era of Chairman Mao Zedong to re-instill a socialist spirit.

Meeting with reporters on March 9 in Beijing, Bo revealed China’s wealth gap as measured by the Gini coefficient was at a level that social scientists say sparks unrest. He evoked Mao in vowing to reverse it.

“As Chairman Mao said as he was building the nation, the goal of our building a socialist society is to make sure everyone has a job to do and food to eat, that everybody is wealthy together,” Bo said. “If only a few people are rich, then we’ll slide into capitalism. We’ve failed. If a new capitalist class is created then we’ll really have turned onto a wrong road.”

Cultural Revolution

Chongqing led the other three municipalities directly under the central government -- Beijing, Shanghai and Tianjin -- in growth in per capita economic output after Bo took the helm in 2007.

Bo is the son of Bo Yibo, one of the founders of the People’s Republic of China and one of the eight “immortals” who helped shape Chinese politics after Mao’s death in 1976.

The younger Bo rose from being the mayor of Dalian to become governor of northeastern Liaoning province before becoming commerce minister, where he oversaw trade ties with the U.S. from 2004 through 2007. In 2007, Bo secured a spot on the Politburo and became the top official in Chongqing, according to his official biography.

On March 14, the day before Bo’s firing was announced, Chinese Premier Wen Jiabao told reporters in Beijing’s Great Hall of the People that China in the late 1970s had taken a decisive turn away from the politics of the Cultural Revolution. Wen said China risked a return of the Cultural Revolution -- where millions of people were persecuted by Chairman Mao’s Red Guards -- unless the country continued to pursue political change.

Murder Allegations

Allegations of murder and treason among top officials is reminiscent of Cultural Revolution politics, said Nicholas Howson, a law professor at the University of Michigan in Ann Arbor and a former managing partner at Paul Weiss Rifkind Wharton & Garrison LLP (1178L) in Beijing. Mao’s top lieutenant Lin Biao was killed when his British-made jet crashed in Mongolia in 1971 as he was apparently trying to flee the country after a failed coup attempt against Mao.

Bo’s case goes beyond those of two other Politburo members jailed in the past two decades -- former Beijing party boss Chen Xitong and former Shanghai party boss Chen Liangyu -- whose cases centered around corruption, not murder, Howson said.

“Ironically, given the fact that Bo Xilai is accused of fanning Cultural Revolution-type flames, the case now apparently being made against Bo’s wife is reminiscent of the one made against Chairman Mao’s appointed revolutionary successor Lin Biao and his family after Lin Biao’s political demise and at the height of the same Cultural Revolution,” Howson said in an e- mail. “Complete with tales of moral turpitude, sexual impropriety and murder.”

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Shadow Banks on Trial as China’s Rich Sister Faces Death

By Bloomberg News - Apr 11, 2012 2:24 PM GMT+0700

When a Chinese court sentenced 28- year-old Wu Ying, known as “Rich Sister,” to death for taking $55.7 million from investors without paying them back, it sparked an unexpected firestorm that has drawn in China’s top leadership.

Her crime involved a common, illegal practice in China: raising money from the public with promises to pay back high interest rates. Known as shadow banking, these underground lending and investing networks are estimated to total $1.3 trillion, according to Ren Xianfang, an economist with IHS Global Insight Ltd. (IHS) in Beijing. That’s the size of the 2011 U.S. government deficit.

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Chinese businesswoman Wu Ying who was accused of illegally raising funds and defrauding investors during a trial at the Intermediate Peoples Court of Jinhua in Jinhua city, east Chinas Zhejiang province, 16 April 2009. Photograph: Imaginechina via AP Images

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April 4 (Bloomberg) -- China needs to break a banking "monopoly" of a few big lenders that make easy profits because it’s hard to borrow money elsewhere, Premier Wen Jiabao said. The country can extend nationwide the successful parts of a pilot program in Wenzhou in Zhejiang province that allows private financing, including non-bank lending, Wen said yesterday, as cited by China National Radio. Caroline Hyde reports on Bloomberg Television's "First Look." (Source: Bloomberg)

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Chinese businesswoman Wu Ying who was accused of illegally raising funds and defrauding investors weeps during a trial at the Intermediate Peoples Court of Jinhua in Jinhua city, east Chinas Zhejiang province, 16 April 2009. Photograph: Imaginechina via AP Images

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Wu Ying stands trial in 2009 at the Intermediate People's Court of Jinhua in Zhejiang province. Photograph: Imaginechina via AP Images

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Wen Jiabao, China's premier. Photographer: Nelson Ching/Bloomberg

Operating outside the banking system or government regulation, the informal networks provide an important source of economic growth, capital for private companies and return for investors seeking to beat inflation. Premier Wen Jiabao, in an unusual move, weighed in on the Wu case at a March 14 news conference. His comments highlighted a public debate over the importance of shadow banking to the Chinese economy, government efforts to bring it under control -- and whether capital punishment is an effective means to do so.

“Chinese companies, especially small ones, need access to funds,” Wen said when asked about Wu’s case. “Banks have yet to be able to meet those companies’ needs, and there is a massive amount of idle private capital. We need to bring private finance out into the open.”

Unfairly Singled Out

Wu’s lawyer says his client, now 30, was unfairly singled out and is no different from the estimated 42 million Chinese business owners who rely on the shadow-banking system for financing when they cannot get loans from state-owned banks. The Supreme People’s Court is reviewing the 2009 verdict and will decide as early as this month whether Wu Ying lives or dies.

“Entrepreneurs are paying attention to it because today’s Wu Ying could be any of them tomorrow,” the lawyer, Yang Zhaodong, said in an interview in Beijing last month. “There are so many of them doing the same thing Wu Ying did. This case not only relates to Wu’s life, but to whether China’s legal and judicial system is fair.”

Shadow banking has been fueled by a two-year credit squeeze in China and by large, state-owned banks’ preference for lending to government-run companies rather than small businesses. Private entrepreneurs account for 60 percent of China’s total economic activity and provide jobs for 80 percent of its urban population, according to China’s National Development and Reform Commission.

Meteoric Rise

“Underground banking filled the hole left by China’s state-owned banks, which have this long-term bias toward big enterprises,” said IHS’s Ren. “Even though it is an extremely opaque market and has a lot of hidden problems, the government needs it to meet the basic financing needs of small businesses.”

Wu’s rise and fall have been meteoric. The daughter of a farmer in Zhejiang province, south of Shanghai, Wu dropped out of technical school as a teenager to work at her aunt’s beauty salon and later opened two of her own, according to the state- run Global Times newspaper. She branched out into a foot-massage parlor and bought 10 cars which she rented out. An entertainment center and a boutique featuring Korean clothes followed, as did investments in real estate and copper, the report said.

Wu collected 770 million yuan ($122 million) from private investors between May 2005 and February 2007, according to government prosecutors. She also accumulated more than 100 properties and 40 cars, including a $500,000 Ferrari, the Global Times said.

Knowing the Risks

Wu borrowed money to fund her businesses and didn’t lie to anyone, her lawyer said. She never committed fraud, Yang said, adding that her investors, like anyone who took part in the private-banking business, knew the risks involved.

“Even her biggest creditor who she owed 320 million yuan doesn’t think Wu was lying to her,” said Yang. “These were real projects.”

The court in Wu’s home province of Zhejiang said she “brought huge losses to the nation and people with her severe crimes and should therefore be severely punished” when it upheld her death sentence in January, according to the Xinhua News Agency.

Nicknamed “Fu Jie,” or “Rich Sister,” in the media, Wu and her case were discussed at the annual legislative session in Beijing in March, where delegates debated the larger issues of shadow banking.

“You cannot try to stop this just by killing people,” Wang Yongzheng, a delegate to China’s People’s Political Consultative Conference and owner of a textile company, told a small group session at the meetings.

‘Public Outrage’

In a country where public criticism of government policy is rarely sanctioned, state-run media outlets such as Xinhua and the People’s Daily, both Communist Party mouthpieces, have run stories, editorials and online chat sessions airing public sympathy for Wu.

On Feb. 8, the China Daily newspaper ran an article noting “public outrage” and the “wide sympathy and pleas for the fair-skinned woman with a short haircut.” It quoted a legal expert as saying the government’s seizure and sell-off of her assets was illegal.

On the Defensive

As the public outcry surrounding Wu’s case began to swell, court officials and police took the rare step of publicly defending their verdict. The presiding judge in her case, Shen Xiaoming, appeared in a Feb. 7 Internet chat to explain that Wu Ying was sentenced to death because the court found she intended to defraud investors.

“This was more than just illegal fundraising,” Shen said in the chat.

China’s entire shadow-banking system is bigger than just underground borrowing and lending, totaling about $2.4 trillion, a third the size of China’s official loan market, according to Societe Generale SA economist Yao Wei. In addition to informal lending, it includes the off-balance-sheet activities of banks, trust companies, and businesses lending to each other, Yao said. The amount is almost the size of U.S. consumer debt, which exceeded $2.5 trillion as of January, according to the U.S. Federal Reserve.

Ordinary Chinese savers also fuel the country’s shadow- banking system. They have few legal options if they want to earn a return that beats inflation, which hit 5.4 percent in 2011. The government sets China’s current ceiling for savings account interest rates at 3.5 percent, a figure that has trailed inflation for two straight years as of January. Wu offered interest rates of as much as 0.5 percent a day to attract investors, according to Xinhua.

Bankruptcies and Suicides

Zhejiang province, where Wu’s home village of Dongyang is located, has been at the heart of private lending activity. Between April and September last year, more than 80 indebted businessmen committed suicide or declared bankruptcy in its boomtown manufacturing city of Wenzhou because they couldn’t repay informal lenders, according to Xinhua.

Bankruptcies and arrests continue to be reported almost daily. Today, the China Securities Journal reported that Hangzhou Glory Real Estate Co., also located in Zhejiang, had filed for bankruptcy after borrowing 2.5 billion yuan from individuals.

Pilot Program

The government has stepped in to deal with the troubles and bring some aspects of shadow banking under government control. In October, Premier Wen traveled to Wenzhou, a city of 9.1 million people 230 miles (370 kilometers) south of Shanghai, pledging help for troubled businesses. Then, on March 28, China’s State Council approved a pilot program for Wenzhou that would ease some restrictions on private lending.

Private capital will be encouraged to participate in “innovative financial organizations” such as credit unions, and banks will be encouraged to lend money to small enterprises, the State Council said.

“The Wenzhou trial program has started us on the right track,” Zhou Dewen, president of the Wenzhou Small and Medium Sized Enterprises Development Association, said by phone the day after the announcement. “The trial program is a step forward toward making private lending a practice that’s legal.”

By the time Wu was in her mid-twenties, she had founded the Bense Holding Group -- the name means “original color” -- and established 12 companies, according to a profile in the Guangzhou-based Southern Weekly before her arrest.

Drawing Attention

Wu’s success drew the attention of the Chinese media. In its Feb. 1, 2007 profile, the Southern Weekly said she drove to the interview in a BMW and couldn’t explain where her wealth had come from.

“I don’t launder money,” Wu said, according to the newspaper. “My money is clean.”

According to the article, Wu had a tattoo of a rose on her chest and once donated 6.3 million yuan to charity. Less than two weeks after the article was published, authorities announced that Wu had been arrested on suspicion of illegal fundraising.

Prosecutors later upgraded the charges against her to financial fraud, a crime punishable by death in the most severe cases, for losing 380 million yuan of investors’ money. Two years later, she was sentenced to die.

The court found that Wu raised her money by “fabricating facts, deliberately hiding the truth, and promising high returns as an incentive,” according to Xinhua.

Photographs of Wu in court show her sobbing as she stands at the dock, clad in a yellow prison jacket, her tattoo peeking from the neckline. She has been in prison appealing her conviction since her arrest in 2007. Xinhua reported in April 2011 that Wu was writing a book called “Black Swan,” a fictional account of her life, while in prison.

Not the First

Wu wouldn’t be the first shadow banker to be put to death in China. On Aug. 5, 2009, the Supreme Court approved the execution of two female entrepreneurs in separate cases. Si Chaxian, age unreported, was charged with defrauding 300 people of 167 million yuan over five years and promising returns of as much as 108 percent annually, while Du Yimin -- who was 44 at the time her death sentence was upheld -- was charged with defrauding 709 million yuan by promising to pay as much as 10 percent per month, the official CCTV reported. Both women were from Zhejiang province.

On Death Row

At least 17 people, including Wu, now sit on death row after being sentenced for illegally raising funds from individuals, according to Chinese media reports compiled by Bloomberg since 2009. Seven of them are women.

In the latest case, on April 6, 30-year-old Wang Caiping was sentenced to death for borrowing along with her brother more than 100 million yuan from 15 victims, according to the official Xinhua News Agency. Wang and her brother, who has fled, invested the money in gold and futures speculation and incurred losses, the report said. They had paid out 5.8 million yuan in interest as of the day Wang was arrested, with 94 million yuan unpaid, Xinhua added.

In Zhejiang, sentences handed out for various shadow- banking-related crimes rose to 75 last year, up from eight in 2007, the official Legal Daily reported, citing the provincial high court.

In Shanghai, police said March 29 they had arrested Gu Chunfang, a woman in her early forties who runs a trading company, for racking up 500 million yuan in underground-lending debts, China Daily reported. Her nickname: “Most Beautiful Businesswoman.”

Striking a Chord

Wu’s case, unlike the two executions, 16 other death sentences and numerous arrests, has struck a chord and spurred a broader national debate.

“She’s not some sort of privileged person who just had everything handed to her,” said Sarah Schafer, a Hong Kong- based researcher with Amnesty International. “People see her as someone who is closer to them than they care to admit.”

Amid the demands for change to China’s shadow-banking system, Wu’s case has also been taken up as part of a parallel debate about China’s death penalty.

Groups including Amnesty International that monitor capital punishment say attitudes toward it have begun to change in China -- especially in cases of financial fraud. The government has allowed broader public debate on the death penalty, and government officials have talked more often of pushing China toward abolishing the practice, according to Schafer.

Accepting Abolition

“The argument from the Chinese government has always been that the public wouldn’t accept abolishing the death penalty,” Schafer said. “This case has shown that maybe the public isn’t ready for full abolition but we think they are ready for abolishing it for nonviolent crimes.”

The Chinese government does not release statistics on the number of executions it performs. Groups like Amnesty International, which track the cases in the media, say the reports may underestimate the total number of executions carried out, since the media tend to report only the most sensational crime and corruption cases.

Still, China has cut the number of executions it carries out every year from 8,000 in 2006 to 4,000 per year now, according to the San Francisco-based Dui Hua Foundation. Even so, it executes more people than every other government in the world put together. The next highest is Iran, with more than 360 in 2011, according to Amnesty International.

Starting in 2007, China’s Supreme Court decreed it must approve all the country’s executions. In a 2010 annual report, the court said it should “respect and protect citizens’ right to life, the most basic human right,” according to Xinhua.

Premier Wen’s remarks in March and the changes to the private banking system make Wu’s lawyer hopeful that the Supreme Court will commute her death sentence. On March 30, an editorial in the Financial News, a publication of the People’s Bank of China, said reforms in Wenzhou were a “turning point” for the development of private financing in China.

“Wu Ying’s case happened in a special time during China’s reform, where the financial system is hugely lagging behind economic development,” said Zhou, of the Wenzhou enterprise association. “Wu Ying won’t be executed now that the trial program has been announced. She can’t die before the dawn.”

To contact Bloomberg News staff for this story: Jun Luo in Shanghai at jluo6@bloomberg.net; Yidi Zhao in Beijing at yzhao7@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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N.Y. Renews Opposition to BofA $8.5 Billion Mortgage Accord

By David McLaughlin - Apr 11, 2012 6:40 AM GMT+0700

New York Attorney General Eric Schneiderman renewed his opposition to Bank of America Corp. (BAC)’s proposed $8.5 billion mortgage-bond settlement, saying the deal covers “a small fraction” of investor losses.

Schneiderman’s office asked a New York state judge today to allow it to intervene in the case, saying in a court filing that there are “serious questions about the fairness and adequacy of the proposed settlement.”

“The proposed cash payment represents only a tiny percentage of the losses investors have faced and will continue to face,” the attorney general said.

Schneiderman’s request comes after litigation over the settlement was sent back to state court from federal court for consideration. He previously raised objections to the agreement and won approval from a federal judge to intervene and participate in the case.

The settlement would resolve claims from investors in Countrywide Financial Corp. (CFC) mortgage bonds. Bank of America acquired the mortgage lender in 2008. Bank of New York Mellon Corp., as trustee for investors, is seeking approval of the deal in state court.

Removed Claims

The attorney general’s office said in a letter today to New York State Justice Barbara Kapnick, who is overseeing the case, that it has been unable to reach an agreement on the intervention with other parties in the case.

In its court filing, the attorney general removed claims first filed last year against BNY Mellon over its role as trustee and will no longer pursue them as part of the Countrywide settlement, Danny Kanner, a spokesman for Schneiderman, said.

“We have separated our affirmative claims from our intervention motion, and intend to aggressively pursue the state’s interest through every means available, including further investigation and litigation if necessary,” Kanner said.

Lawrence Grayson, a Bank of America spokesman, declined to comment on the attorney general’s filing. Kevin Heine, a spokesman for BNY Mellon, didn’t respond to an e-mail seeking comment.

The case is In the application of the Bank of New York Mellon, 651786-2011, New York State Supreme Court (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.

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Clinton Joined by Gemba in Warning North Korea on Launch

By Sangwon Yoon and Nicole Gaouette - Apr 11, 2012 6:29 AM GMT+0700

The Group of Eight foreign ministers meeting in Washington this week should deliver “a very strong message” against North Korea’s plans to launch a satellite within days, U.S. Secretary of State Hillary Clinton said.

“We share a strong interest in stability on the Korean peninsula,” Clinton told reporters after meeting in Washington with Japanese Foreign Minister Koichiro Gemba yesterday. “And we believe that strength and security will not come from more provocations but from North Korea living up to its commitments and obligations.”

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A North Korean soldier stands guard in front of the Unha-3 rocket at Tangachai-ri space center, North Korea, on April 8, 2012. China, South Korea and Japan expressed concern over North Korea’s plan to put a satellite into orbit with a long-range rocket between April 12 and 16, which the U.S. says would scuttle a food aid deal. Photographer: Pedro Ugarte/AFP/Getty Images

North Korea has completed assembling a rocket, and officials of the country’s Space Development Department told reporters in Pyongyang that work is on target for a launch between April 12 and April 16, the Associated Press reported. Concern the event is a cover for a missile test drew warnings from the U.S. and allies.

“It’s necessary for us to issue a really strong message,” Gemba said in a press conference with Clinton. A launch by North Korea “would obviously be a violation of United Nations resolutions,” he said.

China and South Korea also have expressed concern over North Korea’s plan to put a satellite into orbit with a long- range rocket. The launch, which will mark the 100th anniversary of the birth of state founder Kim Il Sung, comes less than four months after Kim Jong Un succeeded his father as head of state.

Nuclear Test Prospect

Debate also has centered on the prospect that North Korea may follow any launch with a nuclear test. Activity at North Korea’s Punggye-ri atomic testing site is consistent with preparations for previous detonations in 2006 and 2009, according to a South Korean intelligence report obtained April 9 by Bloomberg News.

Analysts said the totalitarian state may be seeking to sway the outcome of today’s parliamentary elections in South Korea across the demilitarized zone.

“The timing is impeccable,” said Park Young Ho, senior research fellow and director at the Korea Institute for National Unification. “Kim Jong Un is taking advantage of the domestic North Korean celebrations of Kim Il Sung to aggressively influence South Korean elections.”

Polls indicated South Korea President Lee Myung Bak’s party may lose control of parliament to an opposition coalition that has pledged to improve ties with its northern neighbor. Opposition lawmakers accused the government of using the intelligence report to influence the elections.

North Korea’s ruling Workers’ Party meets today and may appoint Kim Jong Un the new party chief in one of the final steps marking his succession after the Dec. 17 death of his father, Kim Jong Il.

Aid Threatened

The Obama administration has said firing the rocket would breach a February agreement with North Korea to halt nuclear and missile tests and end uranium enrichment at its facility in Yongbyon, which was to be followed by 240,000 tons of U.S. food aid.

“It would be impossible to imagine” the U.S. would follow through on the food aid if North Korea proceeds with the launch, Jay Carney, President Barack Obama’s spokesman, told reporters.

Launching the missile “would represent clear and serious violations” of UN resolutions and the U.S. will work with its partners in negotiations with North Korea on a response, Carney told reporters traveling with Obama yesterday to an event in Florida.

North Korea’s government says it is putting a “peaceful” satellite into orbit and that doesn’t violate the deal. Ryu Kum Chol, a North Korean space official, dismissed as “nonsense” assertions that the satellite launch is aimed at developing missile technology, the AP said. Ryu said the communications satellite is fitted with a camera to monitor weather conditions.

Bargaining for Food

Kim’s government may be using the prospect of a follow-up nuclear test as a bargaining chip to keep the food-aid deal from falling apart, analysts including Koh Yu Hwan said.

“The likelihood of a third nuclear test depends on whether the U.S. decides to keep the Feb. 29 food-aid deal following the missile launch,” said Koh, a professor of North Korean Studies at Dongguk University in Seoul. “With the nuclear preparations, North Korea is waving its nuclear card at the U.S. and telling them to make a choice.”

The North Korean rocket is expected to fly south over the Yellow Sea toward the Philippines, South Korea’s transportation ministry said in a March 20 statement on its website. The first stage of the fuselage is expected to fall 180 kilometers (112 miles) away from the South’s western coast and the second stage near the Philippines’ northeastern-most island, the ministry said.

UN Resolution

Following the 2009 test, the UN Security Council passed a resolution condemning the move and strengthening sanctions that include letting cargo suspected of containing weapons be inspected. It also ordered the regime to admit International Atomic Energy Agency inspectors, something North Korea agreed to in February.

In November 2010, North Korea showed its Yongbyon facility to visiting U.S. scientists, including Stanford University’s Siegfried S. Hecker, who said he saw more than 1,000 centrifuges. While North Korea claims its nuclear facility is intended to generate electricity, it can be easily converted to produce highly enriched uranium for bombs, Hecker wrote in a report on the university’s website after his North Korea trip.

South Korea’s main opposition Democratic United Party said intelligence officials may have leaked the information about potential nuclear-test preparations to influence the parliamentary elections.

Timing ‘Questionable’

“It is questionable as to why the intelligence service is pointing this out to the people and the press now,” Park Yong Jin, spokesman of the DUP, said in an e-mailed statement.

The DUP, which calls for greater engagement with the North and has yet to issue its position on the satellite plan, is fatally “weak on national security” at a time when threats of a third nuclear test loom, ruling National Frontier Party spokesman Jeon Kwang Sam said in an e-mailed statement.

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

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Apple, Macmillan Said to Prepare for U.S. Suit Over eBook

By Sara Forden and Andy Fixmer - Apr 11, 2012 6:52 AM GMT+0700

Apple Inc. (AAPL) and the publisher Macmillan are preparing to be sued as soon as tomorrow by the U.S. Justice Department over alleged collusion in the pricing of e-books, according to two people familiar with the matter.

Apple and Macmillan, which have refused to engage in settlement talks with the Justice Department, deny they colluded to raise prices for digital books, the people said. In an antitrust case, they will argue that pricing agreements between Apple and publishers enhanced competition in the e-book industry, which was dominated by Amazon.com Inc. (AMZN)

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iPads at an Apple store in San Francisco on March 16, 2012. Photographer: David Paul Morris/Bloomberg

The Justice Department is probing how Cupertino, California-based Apple changed the way publishers charged for e-books on the iPad, a person familiar with the matter said last month. The Justice Department’s antitrust division told Apple and five publishers that it’s preparing to sue them for allegedly fixing the prices of electronic books, a person familiar with the matter told Bloomberg News March 8.

CBS Corp. (CBS)’s Simon & Schuster, Lagardère SCA’s Hachette Book Group and News Corp. (NWSA)’s HarperCollins are seeking to avoid a costly legal battle and could reach a settlement as soon as tomorrow, two people familiar with the matter said.

Door Open

The U.S. is still leaving the door open for last-minute settlement discussions this week, a person familiar with the situation said. Pearson Plc (PSON)’s Penguin Group (PNGN) was also preparing to fight the U.S. Justice Department in court if necessary, two people familiar with knowledge of the matter told Bloomberg News April 5.

Gina Talamona, a spokeswoman for the Justice Department’s antitrust division, and representatives of Apple, Simon & Schuster, HarperCollins, Hachette, Penguin and Macmillan, which is a unit of Verlagsgruppe Georg von Holtzbrinck GmbH, declined to comment on prospects for lawsuits or settlements.

Apple, Penguin and Macmillan want to protect the so-called agency model that lets publishers -- not vendors -- set e-book prices, said the people on April 5, who declined to be identified because they weren’t authorized to speak publicly.

The government is seeking a settlement that would let Amazon and other retailers return to a wholesale model, where retailers decide what to charge customers, the people said. A settlement could also void so-called most-favored nation clauses in Apple’s contracts that require book sellers to provide the maker of the iPad with the lowest prices they offer competitors, the people said.

Competition Questions

Consumers and competition could be hurt if several companies sign contracts that refer to prices charged to rivals even if those firms aren’t dominant, said Fiona Scott-Morton, a Justice Department economist, in an April 5 speech in Washington, signaling the antitrust division’s thinking on the issue of most-favored-nation clauses.

Upholding the agency model would give publishers more control over pricing and limit discounting, helping the industry avoid sales losses as more consumers buy books online.

Sales of e-books rose 117 percent in 2011, generating $969.9 million, Publishers Weekly reported Feb. 27, citing estimates from the Association of American Publishers. By eliminating printing and shipping costs, digital versions generate higher profit margins than physical copies.

When Apple came out with the iPad in 2010, it let publishers set their own prices for e-books as long as it got a 30 percent cut and the publishers agreed to offer their lowest prices through Apple. This agency model overtook Amazon’s practice of buying books at a discount from publishers and then setting its own price for e-reader devices.

The results of a settlement or lawsuit wouldn’t necessarily kill the agency model or prevent other publishers from continuing to set their own prices for e-books, one of the people said.

Random House Inc., based in New York, has agreements with Apple and Amazon that lets the book publisher set prices for e-books, the essence of the agency model. The company isn’t a part of the U.S. inquiry.

To contact the reporters on this story: Sara Forden in Washington at sforden@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net.

To contact the editors responsible for this story: Fred Strasser at fstrasser@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net.

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Bo Suspended After Wife Suspected in Murder of British Man

By Bloomberg News - Apr 11, 2012 2:17 AM GMT+0700

Bo Xilai, the former top official in the Chinese municipality of Chongqing, was suspended from his Communist Party posts after an investigation led to his wife being arrested on suspicion of murdering a U.K. citizen.

Gu Kailai, Bo’s wife, and a domestic helper are “highly suspected” of killing British businessman Neil Heywood, who died in Chongqing in November, the official Xinhua News Agency reported late yesterday. The U.K. was originally told that Heywood died of alcohol poisoning.

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Bo Xilai attends the opening ceremony of the National People's Congress (NPC) at the Great Hall of the People on March 5, 2012 in Beijing, China. Photographer: Feng Li/Getty Images

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Bo Xilai, Chinese Communist Party secretary of Chongqing, attends a plenary session on the work report of the National People's Congress (NPC) as China's NPC takes place in Beijing on March 9, 2012. Photographer: Nelson Ching/Bloomberg

Bo’s wife and the housekeeper, Zhang Xiaojun, “have been transferred to judicial authorities on suspected crime of intentional homicide,” Xinhua said. Bo has been suspended from his party posts and is “suspected of being involved in serious discipline violations,” Xinhua said in a separate report.

Removal from the Politburo and Central Committee, which would come at a formal party meeting, is often a precursor to prison or detention. Among four other men removed from the Politburo outside regular Communist Party congresses since 1989, two were imprisoned and one, former Communist Party General Secretary Zhao Ziyang, lived out most of the rest of his life confined to his home.

Bo’s political downfall comes ahead of a party congress scheduled for later this year that will pick a new generation of Chinese leaders. Before his lieutenant Wang Lijun, who Xinhua said made the murder allegations, spent a night in February at the U.S. consulate in Chengdu, Bo, 62, was seen by many analysts of Chinese politics as being a top contender for membership in the elite Politburo Standing Committee. That panel, now with nine men, exercises supreme authority in China.

U.K. Request

“It’s another step toward putting him in jail on a very serious charge,” said Li Cheng, an analyst of Chinese politics at Washington’s Brookings Institution. “It reflects the unity of the party leadership and their plan to resolve this problem in a relatively short period of time, and move on to make sure the party congress will be held in an orderly and institutional way.”

An editorial in today’s People’s Daily (PEODOZ), the party’s mouthpiece, urges cadres to “firmly support the correct decision” to investigate Bo.

“The death of Neil Heywood is a serious criminal case involving the family and close staff of a Party and state leader,” the editorial says. “Bo has seriously violated the Party discipline, causing damage to the cause and the image of the Party and state.”

Rumors, Suspicions

The U.K. embassy in Beijing had asked earlier this year for an investigation into Heywood’s death based on increasing rumors and suspicions, spokesman John Gallagher said on March 26. Gu Kailai and her son were on “good terms with Heywood” and then had “a conflict over economic interests, which had been intensified,” Xinhua reported.

U.K. Foreign Secretary William Hague said today he welcomed the inquiry into Heywood’s death.

“We look forward to seeing those investigations take place and in due course hearing the outcome of those investigations,” Hague told Sky News television. “I don’t really want to say anything more than that because, having asked for the investigations, I don’t want to prejudice their conduct in any way.”

Heywood and the son of Bo and Gu, Bo Guagua, were both graduates of Harrow school in the U.K., with Heywood attending in the 1980s and Bo from 2001 to 2006, Luke Meadows, information officer for the Harrow Association, said in a March 27 e-mail. Heywood, 41, lived in Beijing with his wife and two children. Bo Guagua is a student at Harvard University’s John F. Kennedy School of Government in Cambridge, Massachusetts.

Consulate Affair

Bo’s troubles became public in early February, after his former police chief Wang Lijun spent the night of Feb. 6 at the U.S. Consulate in Chengdu, an event confirmed by both the U.S. and Chinese governments. On Feb. 8, Wang was booked with a first-class seat on an Air China (753) flight from Chengdu to Beijing accompanied by a vice minister for state security, Bloomberg reported on Feb. 10.

Bo won national attention for his success in cracking down on organized crime with Wang as police chief and for his “Chongqing Model” of emphasizing state-led investment to ease wealth gaps between urban and rural residents. Bo also reintroduced songs and slogans from the era of Chairman Mao Zedong to re-instill a socialist spirit.

Evoking Mao

Meeting with reporters on March 9 in Beijing, Bo revealed China’s wealth gap as measured by the Gini coefficient was at a level that social scientists say sparks unrest. He evoked Mao in vowing to reverse it.

“As Chairman Mao said as he was building the nation, the goal of our building a socialist society is to make sure everyone has a job to do and food to eat, that everybody is wealthy together,” Bo said. “If only a few people are rich, then we’ll slide into capitalism. We’ve failed. If a new capitalist class is created then we’ll really have turned onto a wrong road.”

Chongqing led the other three municipalities directly under the central government -- Beijing, Shanghai and Tianjin -- in per capita economic output after Bo took the helm in 2007.

Bo is the son of Bo Yibo, one of the founders of the People’s Republic of China and one of the eight “immortals” who helped shape Chinese politics after Mao’s death in 1976.

Cultural Revolution

The younger Bo rose from being the mayor of Dalian to become governor of northeastern Liaoning province before becoming commerce minister, where he oversaw trade ties with the U.S. from 2004 through 2007. In 2007, Bo secured a spot on the Politburo and became the top official in Chongqing, according to his official biography.

On March 14, the day before Bo’s firing was announced, Chinese Premier Wen Jiabao told reporters in Beijing’s Great Hall of the People that China in the late 1970s had taken a decisive turn away from the politics of the Cultural Revolution. Wen said China risked a return of the Cultural Revolution -- where millions of people were persecuted by Chairman Mao’s Red Guards -- unless the country continued to pursue political change.

Allegations of murder and treason in Chongqing are reminiscent of the Cultural Revolution. Mao’s top lieutenant Lin Biao was killed when his British-made jet crashed in Mongolia in 1971 as he was apparently trying to flee the country.

“Ironically, given the fact that Bo Xilai is accused of fanning Cultural Revolution-type flames, the case now apparently being made against Bo’s wife is reminiscent of the one made against Chairman Mao’s appointed revolutionary successor Lin Biao and his family after Lin Biao’s political demise and at the height of the same Cultural Revolution,” Nicholas Howson, a law professor at the University of Michigan in Ann Arbor and a former managing partner at Paul Weiss Rifkind Wharton & Garrison LLP in Beijing, said in an e-mail. “Complete with tales of moral turpitude, sexual impropriety and murder.”

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net; Henry Sanderson in Beijing at hsanderson@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Santorum Suspends Republican Presidential Campaign

By Lisa Lerer - Apr 11, 2012 5:49 AM GMT+0700

Former Senator Rick Santorum of Pennsylvania announced today the suspension of his presidential campaign, removing the last major hurdle for Mitt Romney to claim the Republican Party’s nomination.

“We made the decision to enter this race at our kitchen table against all the odds,” Santorum said from a podium in Gettysburg, Pennsylvania, where he was flanked by family members. “And we made a decision over the weekend that while this presidential race for us is over, for me, -- we will suspend our campaign effective today -- we are not done fighting.”

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Rick Santorum announces he will be suspending his campaign at the Gettysburg Hotel on April 10, 2012 in Pennsylvania. Photographer: Jeff Swensen/Getty Images

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April 10 (Bloomberg) -- Former U.S. Senator Rick Santorum of Pennsylvania talks about his decision to end his campaign for the Republican presidential nomination. Santorum speaks in Gettysburg, Pennsylvania. (This report is an excerpt. Source: Bloomberg)

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April 10 (Bloomberg) -- Former Senator Rick Santorum of Pennsylvania announced today that he is suspending his bid for the Republican Party’s presidential nomination. (Source: Bloomberg)

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April 10 (Bloomberg) -- former U.S. Senator from Pennsylvania Rick Santorum speaks at a news conference about his decision to suspend his campaign for the Republican presidential nomination. Santorum speaks in Gettysburg, Pennsylvania. (Source: Bloomberg)

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Republican presidential hopeful Rick Santorum speaks to supporters in front of the Blair County Courthouse during a campaign rally on April 4, 2012, in Hollidaysburg, Pennsylvania. Photographer: Paul J. Richard /AFP/Getty Images

Santorum called Romney before making his announcement. Viewed as a minor contender when he officially entered the Republican race last June, Santorum emerged as the front- runner’s main rival. Recent primary losses, though, put him far behind in the race for the delegates needed for their party’s nomination.

Santorum’s home state of Pennsylvania will hold a primary on April 24, and polls showed he might suffer a politically embarrassing loss to Romney.

‘Important Voice’

In a statement, Romney said Santorum was “an able and worthy competitor, and I congratulate him on the campaign he ran. He has proven himself to be an important voice in our party and in the nation.”

At a rally later in Wilmington, Delaware, Romney said, “This has been a good day for me.”

He also said Santorum “will continue to have a major role in the Republican Party.”

Jim Messina, manager of President Barack Obama’s re- election campaign, used Santorum’s announcement as an opportunity to take shots at Romney, long regarded by the Democrats as their likely foe in November’s elections.

“It’s no surprise that Mitt Romney finally was able to grind down his opponents under an avalanche of negative ads,” Messina said in a statement, referring to the financial advantage Romney and his allies have had in the Republican race. “But neither he nor his special interest allies will be able to buy the presidency with their negative attacks.”

Health-Care Issue

Santorum, 53, offered himself as the leading voice for voters motivated by their opposition to abortion rights, gay marriage and other social issues. He also said he was better suited to take on Obama because of his longstanding opposition to the health-care law that the president pushed through Congress.

Romney, 65, signed a Massachusetts statute that contained a mandate to purchase health care insurance similar to the one included in Obama’s law, which the Supreme Court now is weighing on constitutional grounds.

Santorum decided to end his candidacy at a time when he had halted campaign activities late last week after the hospitalization of his three-year-old daughter, Bella. She suffers from a rare genetic disorder known as Trisomy 18.

Hogan Gidley, his communications director, released a statement today saying that Santorum’s daughter “has been discharged from the hospital and returned home earlier Monday evening.”

‘Difficult Weekend’

Santorum had been scheduled to resume campaigning today in Pennsylvania. Instead, he said in his suspension announcement that he made his decision after a “difficult weekend” with his ill daughter.

“It did pause us to think of the role we have as parents,” he said of himself and his wife, Karen.

She and some of their other children stood behind Santorum as he made today’s announcement.

Santorum, who had been bolstered in the race by victories in the Iowa caucuses and several primaries, said, “We were winning in a very different way because we were touching hearts.”

Surrounded by supporters, he said, “it really wasn’t my voice that I was out communicating. It was your voice.”

Still, in recent weeks he’d seen influential Republicans coalesce around Romney, including endorsements of the former Massachusetts governor by Wisconsin Representative Paul Ryan, Florida Senator Marco Rubio, who is often mentioned as a vice- presidential prospect, and former President George H.W. Bush.

In an e-mail to supporters today, Santorum asked them “to consider one more contribution.”

“I am planning to do everything in my power to bring a change about in the White House,” he said in the appeal. “But our campaign has debt, and I cannot be free to focus” on that “with this burden.”

Fundraising Figures

Romney took in $75.6 million for his presidential bid through Feb. 29, more than the rest of the Republican field combined, and entered March with $7.3 million to spend. Santorum raised $15.7 million and had $2.6 million in the bank at the end of February. He also reported debts of $922,448.

Santorum, former U.S. House Speaker Newt Gingrich, and Representative Ron Paul of Texas had vowed to stay in the race until Romney secured the 1,144 delegates needed for the nomination.

Gingrich in a statement praised Santorum for running a “remarkable” campaign. Gingrich, 68, said he remains “committed” to continuing his campaign “all the way to Tampa so that the conservative movement has a real choice,” referring to the Florida city hosting the Republican National Convention in late August.

‘Last’ Alternative

Paul, 76, also sought to fill Santorum’s void. His campaign issued a statement saying he “is now the last -- and real -- conservative alternative to Mitt Romney.”

Gingrich has won two nomination contests, including the primary in his home state of Georgia, Paul none.

Romney’s trio of victories on April 3 in Wisconsin, Maryland and the District of Columbia accelerated his path to the nomination and intensified questions about the candidacies of his rivals.

After the latest round of voting, Romney had 655 of the 1,144 delegates needed to capture the nomination, according to an Associated Press tally. Santorum had 278 delegates and would have needed to win about three-quarters of those remaining to become the nominee.

At Romney’s Delaware rally today, women business owners were spotlighted. He spent about 30 minutes meeting with some of them before the event, and they were ushered to seats close to him at the rally.

A Washington Post-ABC News poll shows Obama ahead of Romney among women voters by 19 percentage points. Among all registered voters surveyed April 5 through April 8, Obama leads Romney by 7 points, 51 percent to 44 percent.

To contact the reporter on this story: Lisa Lerer in Washington at llerer@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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Stocks, Spanish Bonds Drop as Treasuries, Yen Strengthen

By Stephen Voss and Rita Nazareth - Apr 11, 2012 3:31 AM GMT+0700

Stocks slid, extending the longest slump for the Standard & Poor’s 500 Index since November, as a surge in Spanish and Italian bond yields fueled concern Europe’s debt crisis is worsening. Treasuries and the dollar advanced.

The S&P 500 fell for a fifth day, losing 1.7 percent to close at 1,358.59 at 4 p.m. in New York, and the Dow Jones Industrial Average lost 213.66 points. The Stoxx Europe 600 Index (SXXP) decreased 2.5 percent as national benchmark indexes tumbled 5 percent in Italy and about 3 percent in Spain and France. Ten-year U.S. Treasury yields slid below 2 percent, while Spanish yields approached 6 percent for the first time this year and Italian yields surged 23 basis points. The yen rose versus all 16 peers and the dollar climbed against 13. Copper led commodities lower and oil sank to an eight-week low.

Spanish bonds tumbled as Economy Minister Luis de Guindos declined to rule out a rescue for the nation as 10 billion euros ($13 billion) of additional budget cuts failed to alleviate investor concerns. Analysts project that profits at non- financial S&P 500 (SPX) companies grew last quarter at the slowest rate since 2009 as companies from McDonald’s Corp. to 3M Co. saw gains in the world’s largest economy eroded by a slump in Europe.

“The surge in Spanish yields puts the European debt crisis back on U.S. investors’ radar screens, front and center,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an e-mail today. Last week’s lower-than-forecast growth in U.S. payrolls “has eroded investor confidence about America’s self-sustaining ability to overcome headwinds from Europe.”

Earnings Season

Consumer-discretionary, financial and industrial companies tumbled more than 2 percent to lead losses among all 10 of the main industry groups in the S&P 500 today as General Electric Co., Walt Disney Co. and Bank of America Corp. slid at least 2.4 percent to pace declines. Best Buy Co., the world’s largest electronics retailer, slumped 5.9 percent as Chief Executive Officer Brian Dunn resigned.

Alcoa Inc. (AA) retreated 2.9 percent before the biggest U.S. aluminum producer became the first company in the Dow to announce first-quarter earnings. The shares surged 5.6 percent in extended trading following the close of exchanges in New York as Alcoa reported an unexpected profit after customers from automakers to beverage-can manufacturers ordered more of the lightweight metal.

Earnings from S&P 500 companies, excluding financials, are seen gaining 0.6 percent in the first and the second quarter from a year earlier, according to analysts’ estimates compiled by Bloomberg, the slowest growth rate since 2009.

Five-Day Slump

The S&P 500 has slumped 4.3 percent in five sessions after closing at an almost four-year high on April 2. All 10 of the main industry groups have retreated during the stretch, led by declines of more than 5.4 percent in industrial, commodity and financial stocks.

The Chicago Board Options Exchange Volatility Index advanced today for a record eighth straight day. The gauge known as the VIX, which measures the cost of options to protect against losses in the S&P 500, rose 8.4 percent to 20.39 and has surged 32 percent since March 28.

“I don’t think there’s any rush to be involved in the stock market here,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “Europe is a temporary concern. The market is signaling they haven’t fixed the whole problem. This will be a soft quarter in earnings. Investors will need more reassurance.”

Economy Concern

Federal Reserve Chairman Ben S. Bernanke said in a speech yesterday that the U.S. was still “far from having fully recovered.” Most European markets were open today for the first time after the U.S. Labor Department’s monthly tally of U.S. hiring missed the median economist projection by 85,000 jobs on April 6.

Copper tumbled 1.9 percent to a 12-week low of $3.65 a pound, while wheat and natural gas also slid to lead declines in 20 of 24 commodities tracked by the S&P GSCI Index, which tumbled 1.5 percent. Oil tumbled 1.4 percent to $101.02 a barrel amid forecasts that U.S. supplies rose to the highest level for this time of year since 1990.

The Stoxx 600 dropped to the lowest level since Jan. 30 as all 19 industry groups retreated, led by banks. Italian lenders UniCredit SpA, Intesa Sanpaolo SpA and Banca Popolare Di Milano Scarl dropped more than 6.5 percent. Vedanta Resources Plc led a retreat in mining companies as copper fell in London and the metal producer reported lower iron-ore sales. SBM Offshore NV (SBMO) lost 12 percent as the world’s biggest supplier of floating oil and gas output platforms said some sales practices “may have been improper.”

German, Spanish Bonds

The yield on the German two-year note fell to 0.091 percent, while the five-year note yield dropped to 0.617 percent, both the lowest on record, according to data compiled by Bloomberg.

The slump in Spanish bonds drove the difference in yield, or spread, with German 10-year bunds, the region’s benchmark government securities, to 4.33 percentage points, the most since November. The Italian 10-year yield rose 23 basis points to 5.69 percent, sending the spread over bunds to 4.04 percentage points, the most since Jan. 31 on a closing basis.

Spain Concerns

Spanish Prime Minister Mariano Rajoy yesterday unexpectedly announced a 10 billion-euro package of budget cuts in education and health, less than two weeks after unveiling the most austere budget in more than three decades. Rajoy is targeting basic public services for the first time since his election in December in a bid to convince investors he can bring order to the nation’s finances.

Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected.

Switzerland sold 182-day bills at an average yield of minus 0.251 percent, according to the nation’s central bank. About 710 million francs were allotted, it said.

“We have a renewed concern in the euro region as the debt problem hasn’t gone away despite the liquidity support from the European Central Bank,” said Vincent Chaigneau, the global head of interest-rate strategy at Societe Generale SA in Paris. “The poor non-farm payroll data out of the U.S. only exacerbated the risk-off sentiment. Peripheral bond yields are likely to continue to rise in the near term.”

Emerging Markets

The MSCI Emerging Markets Index (MXEF) retreated 1 percent to the lowest level since Jan. 30 on a closing basis. The Hang Seng China Enterprises Index (HSCEI) of Chinese stocks listed in Hong Kong lost 1.4 percent. China reported an unexpected trade surplus last month as inbound shipments increased 5.3 percent, below the 9 percent median estimate in a Bloomberg survey. The Shanghai Composite Index (SHCOMP) gained 0.9 percent on speculation the government will take measures to boost the economy.

The yen appreciated 1 percent against the dollar and climbed 1.2 percent versus the euro, rising against both for the fifth consecutive day. The Swiss franc was little changed at 1.20158 against the euro after it strengthened through the 1.20 per euro ceiling during yesterday’s trading day, the second time the cap was breached since being established by the nation’s central bank on Sept. 6.

To contact the reporters on this story: Stephen Voss in London at sev@bloomberg.net; 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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