Most U.S. Stocks Fall as Financial Slump Offsets China

By Rita Nazareth - Jun 8, 2012 4:30 AM GMT+0700

Most U.S. stocks declined as a late- day slump in financial and technology shares erased an advance driven by China’s first interest-rate cut since 2008.

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June 7 (Bloomberg) -- Bloomberg's Ellen Braitman reports on the performance of the U.S. equity market today. Most U.S. stocks declined as a late-day slump in financial and technology shares erased an advance driven by China’s first interest-rate cut since 2008. (Source: Bloomberg)

The Standard & Poor’s 500 Index began paring a rally in the morning as Federal Reserve Chairman Ben S. Bernanke said the central bank will assess the economy before deciding if more stimulus is needed. The measure erased gains in the final hour of trading after a report that Greece’s upcoming election could be derailed. Bank of America Corp. (BAC) and Hewlett-Packard Co. (HPQ) dropped at least 1.3 percent. Newmont Mining Corp. (NEM) slumped 2 percent as gold tumbled amid reduced bets on Fed action.

About seven stocks retreated for every five rising on U.S. exchanges at 4 p.m. New York time. More than 7.2 billion shares changed hands, or 6.3 percent above the three-month average. The S&P 500 declined less than 0.1 percent to 1,314.99, after rallying as much as 1.1 percent earlier today. The Dow Jones Industrial Average advanced 46.17 points, or 0.4 percent, at 12,460.96, after gaining as much as 140.47 points.

“It’s disappointing that the markets were not able to sustain the momentum established by the Chinese action,” said Peter Jankovskis, who helps manage about $2.8 billion at Oakbrook Investments in Lisle, Illinois. “Bernanke’s comments weren’t indicative of a Fed that will take aggressive action in the near future. There’s also concern about the upcoming Greek election. We’ll have to wait and see how all that plays out.”

Earlier gains in equities were driven by optimism that the Chinese rate cut could prompt global policy action. Stocks pared gains as Bernanke said further rounds of stimulus could boost the economy, yet may have “diminishing returns.”

‘Christmas Gifts’

“Sometimes investors look for their Christmas gifts in June,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “China’s action helps to calm some of the fears. Yet Bernanke is throwing some cold water on expectations for QE3,” or a third round of asset purchases to stimulate growth. “We’d need to see a lot more deterioration in the economy before that happens.”

The S&P 500 reversed gains as the Associated Press reported that a municipal strike threatens to derail a June 17 Greek election that could determine the nation’s future in the euro.

Concern about a worsening of Europe’s debt crisis and a global slowdown took the S&P 500 down as much as 9.9 percent from this year’s peak in April. The index started the week trading at 12.9 times reported earnings, according to data compiled by Bloomberg, the cheapest valuation in six months. A three day rally through yesterday erased the loss driven by a disappointing jobs report on June 1.

Technology, Financial

Technology and financial shares, the biggest groups in the S&P 500, retreated. Bank of America slumped 2.9 percent, the most in the Dow, to $7.42. Hewlett-Packard, the largest personal-computer maker, dropped 1.3 percent to $22.06. Newmont Mining lost 2 percent to $50.69.

Best Buy Co. (BBY) fell 1 percent to $19.70. Founder and Chairman Richard Schulze resigned from the board sooner than planned and will explore options for his 20.1 percent ownership stake in the electronics retailer.

Facebook Inc. (FB) dropped 1.9 percent to $26.31, after rallying 3.6 percent yesterday. Earlier this week, the largest social- networking company fell to the lowest price since its initial public offering last month.

Nasdaq OMX Group Inc.’s backlog of IPO’s hasn’t suffered as a result of its mishandling of Facebook’s debut, Chief Executive Officer Robert Greifeld said. Nasdaq OMX’s computer systems used to establish the opening price for Facebook were overwhelmed on May 18 by order cancellations and updates for the IPO.

‘Nothing’ Changed

“Our IPO backlog is stable,” he said today during a Bloomberg Television interview. “Since May 18, nothing has changed. We’ve actually added a few companies.”

Pall Corp. (PLL) retreated 4.3 percent to $52.29. The maker of filtration and separation products posted third-quarter earnings that lagged behind analysts’ estimates.

Lululemon Athletica Inc. (LULU) dropped 8.8 percent to $63.84. The Vancouver-based yoga-wear retailer projected full-year earnings and sales that trailed analysts’ estimates.

Navistar International Corp. (NAV) tumbled 14 percent to $24.11. The company reported a surprise loss, lowered its forecast for a second time this year and reassigned top managers as it works to develop an engine that meets 2010 emission standards.

Industrial shares in the S&P 500 gained. United Technologies Corp. (UTX), a jet engine maker, advanced 2.4 percent to $75.40. Boeing Co. (BA), the world’s largest aerospace company, rallied 1.4 percent to $69.95.

Baidu, Apple

Baidu Inc. (BIDU), which handles about 80 percent of China’s Internet search queries, jumped 2.8 percent to $122.46. Apple Inc. plans to add the company’s search engine on iPhones in China, part of a push to broaden its services and user base in the most-populous nation, according to two people with knowledge of the matter.

Regions Financial Corp. (RF) climbed 2.4 percent to $6.09. The Birmingham, Alabama-based bank was raised to outperform at Macquarie Group Ltd. The 12-month share-price estimate is $7.

CACI International Inc. (CACI) surged 10 percent to $49.50 after the government technology contractor forecast 2013 profit that was higher than analysts’ estimates.

A five-month low reached last week by the S&P 500 produced a pattern similar to one at last year’s low, indicating equities may be poised to rebound. While the benchmark measure sank June 1 to the lowest level since January, its 14-day relative strength index, which measures the degree to which gains and losses outpace each other, reached 28.5, staying above a low of 23.2 reached on May 18, according to data compiled by Bloomberg.

Last year, the S&P 500 dipped on Oct. 3 to a level not seen since September 2010, with the RSI holding above its August low. The index then surged by 29 percent over the next six months.

“This divergence highlights that sellers are losing momentum and control,” Joshua Dollinger, chief quantitative and technical strategist at BTIG LLC in New York, wrote in an e- mail. The “signals certainly make a compelling case to be long” over the next six weeks, he said.

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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Group of Senators Work to Avoid Year-End Fiscal Cliff

By Kathleen Hunter and Heidi Przybyla - Jun 8, 2012 2:31 AM GMT+0700

A group of U.S. senators who proposed a $3.7 trillion deficit-reduction plan last year is courting a broader cast of lawmakers to try to avert a fiscal collision at the end of this year.

The lawmakers are seeking to address the expiration of tax cuts enacted under President George W. Bush and agree on spending cuts and changes in entitlement programs to avoid $1 trillion in automatic spending cuts set to begin taking effect in January.

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Sen. Saxby Chambliss, right, and Sen. Mark Warner, leaders of "The Gang of Six" take questions form the media after a discussion on the federal budget, deficit reduction and the debt ceiling during a luncheon of the Economic Club in Washington on June 8, 2011. Photographer: Alex Brandon/AP Photo

Last year the bipartisan “Gang of Six,” led by Senators Mark Warner, a Virginia Democrat, and Saxby Chambliss, a Georgia Republican, agreed on a broad set of principles though the group never offered a full tax-and-spending proposal.

In an interview yesterday, another member of the group of six, Democrat Kent Conrad of North Dakota, said the goal is for at least 12 members to agree to a more detailed plan.

“We have a draft,” he said. “It’s not agreed to. It’s not signed off on, but we have a draft.”

An aide to a member of the group of six senators said the draft mentioned by Conrad is the same set of principles agreed to last year and that no new draft exists.

Bowles-Simpson

Separately, Erskine Bowles, former President Bill Clinton’s chief of staff and co-chairman of President Barack Obama’s debt- reduction commission, has said he is circulating a 700-page legislative proposal on the tax code, deficit and health policy modeled after a 2010 report he issued with Republican Alan Simpson, a former Wyoming Republican senator.

House Minority Whip Steny Hoyer of Maryland has said he’s working on a plan based on the Bowles-Simpson plan, which failed to get enough support to be presented to Congress.

An expanded group of 34 senators met June 5 with economic leaders Bill Dudley, president of the Federal Reserve Bank of New York, and Robert Zoellick, president of the World Bank, according to a Democratic leadership aide. The group of six lawmakers has met regularly since last year’s negotiations over raising the debt limit, though this was the first larger meeting they hosted in a few months.

Later this month, former New Hampshire Republican Senator Judd Gregg and former Democratic White House Chief of Staff Erskine Bowles will brief senators, Conrad said.

Today, Conrad said he doesn’t expect the group to unveil a budget plan until after the November election unless something changes that endangers the economy.

Some Skeptical

About one-third of the Senate attended this week’s session, although some of the participants said they were skeptical the group would succeed in advancing a grand bargain.

Senator Joseph Lieberman, a Connecticut independent, called the efforts “really a roll of the dice.” Lieberman, speaking at a Bloomberg Government breakfast, said there will be significant pressure on lawmakers after the election to do something in a short period.

“The unfortunate most probable scenario is that we just extend everything for six months or a year,” Lieberman said.

Senator John Cornyn, a Texas Republican who also attended the most recent meeting, said that while the talks were “constructive,” the bipartisan effort probably will go nowhere unless Obama urges lawmakers to reach a broad deficit-reduction deal.

“Without presidential leadership, it’s pretty much in vain,” said Cornyn, who leads Senate Republicans’ campaign efforts. “Only the president can provide the political cover and the leadership necessary to get something done.”

Tea Party

Opposition to revenue increases among Republicans, particularly Tea Party lawmakers in the House, also stands in the way of a grand bargain.

Representative Patrick McHenry, a North Carolina Republican, said the “prospects are dim” for the group to produce anything that would gain passage in the House.

“Their focus is still on raising taxes, which will not fly in the House,” McHenry said. “I don’t think there are 218 votes for raising taxes.”

Senator Jim DeMint, a South Carolina Republican and co- founder of the Senate Tea Party Caucus, said today he had been coordinating with Tea Party Republicans in the House and Senate to galvanize opposition to any deficit-reduction plan that raises taxes.

“I just hope that Republicans don’t get in some kind of Gang of Six and announce some tax increase with bogus cuts,” DeMint said. “This is just not the time to do more bipartisan compromises that increase spending and debt -- and that’s what all the compromises have been so far.”

DeMint said he would be “very surprised” if a broad deficit-reduction agreement could be reached before the end of the year.

To contact the reporters on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net; Heidi Przybyla in Washington at hprzybyla@bloomberg.net

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

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China Reduces Interest Rates for First Time Since 2008

By Bloomberg News - Jun 8, 2012 8:28 AM GMT+0700

China cut borrowing costs for the first time since 2008 and loosened controls on banks’ lending and deposit rates, stepping up efforts to combat a deepening slowdown as Europe’s debt crisis threatens global growth.

The one-year lending rate declines by a quarter percentage point today to 6.31 percent, the People’s Bank of China said in a statement yesterday. The one-year deposit rate drops the same amount, to 3.25 percent. The extra leeway banks will get to determine rates at variance from the official setting was called a “milestone” by UBS AG.

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The Chinese flag flies outside the People's Bank of China in Beijing. Photographer: Nelson Ching/Bloomberg

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June 8 (Bloomberg) -- Shen Jianguang, chief Asia economist for Mizuho Securities Asia Ltd., talks about China's economy and central bank monetary policy. China cut borrowing costs for the first time since 2008 and loosened controls on banks’ lending and deposit rates, stepping up efforts to combat a deepening slowdown as Europe’s debt crisis threatens global growth. Shen speaks in Hong Kong with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

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June 7 (Bloomberg) -- Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., talks about China's decision to cut borrowing costs for the first time since 2008, the outlook for Federal Reserve policy and the U.S. economy, and investment strategy. Sonders speaks with Scarlet Fu on Bloomberg Television's "InBusiness.” (Source: Bloomberg)

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June 7 (Bloomberg) -- Timothy Bitsberger, a managing director at BNP Paribas and a former assistant secretary for financial markets at the U.S. Treasury, talks about the cut in interest rates by China's central bank. Bitsberger, speaking with Erik Schatzker, Stephanie Ruhle, Sara Eisen and Scarlet Fu on Bloomberg Television's "InsideTrack," also discusses the outlook for stimulus actions from the Federal Reserve. (Source: Bloomberg)

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June 7 (Bloomberg) -- Graeme Leach, chief economist at the Institute of Directors, and Tom Vosa, director of economic research at National Australia Bank Ltd., talk about China's decision to cut its interest rate for the first time since 2008, Bank of England monetary policy and Spain's bond sale. They speak with Guy Johnson, Francine Lacqua and David Tweed on Bloomberg Television's "City Central." (Source: Bloomberg)

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June 7 (Bloomberg) -- Bloomberg's Mike McKee reports that China cut interest rates for the first time since 2008, stepping up efforts to combat a deepening economic slowdown as Europe’s worsening debt crisis threatens global growth. He speaks on Bloomberg Television's "Inside Track." (Source: Bloomberg)

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June 7 (Bloomberg) -- Stephen Green, head of greater China research at Standard Chartered Bank Plc in Hong Kong, talks about China's decision to cut interest rates for the first time since 2008. He speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Members of China's military police force stand guard outside the People's Bank of China in Beijing. Photographer: Sim Chi Yin/Bloomberg

The move, before China reports inflation, investment and output figures tomorrow, may signal that the economy is weaker than the government anticipated. Policy makers across the globe are also girding for a deeper impact from Europe’s woes, with Australia and Brazil also lowering rates in the past eight days. In South Korea, a pause in raising the benchmark has lasted a year, with the central bank staying on hold today.

“This will be the beginning of a rate cut cycle and there will be at least one more reduction this year,” said Shen Jianguang, a Hong Kong-based economist with Mizuho Securities Asia Ltd. who has worked for the European Central Bank. “The data to be released over the weekend must be very weak and inflation must have eased sharply.”

Asian stocks fell, paring their biggest weekly gain since February, after U.S. Federal Reserve Chairman Ben S. Bernanke said the Fed will need to assess conditions before deciding if more measures are needed to support growth. The MSCI Asia Pacific Index lost 0.7 percent at 10:24 a.m. in Tokyo.

‘Unprecedented’ Change

Banks can offer a 20 percent discount to the key lending rate, up from a previous 10 percent, China’s central bank said yesterday. Lenders will for the first time be able to offer savers deposit rates that are up to 10 percent higher than the benchmark.

The deposit-ceiling move is “unprecedented” and a “milestone for interest-rate liberalization,” said Wang Tao, chief China economist at UBS in Hong Kong, who previously worked at the International Monetary Fund.

U.S. Treasury Secretary Timothy F. Geithner has pressed China on the limit, calling as recently as April 26 for an increase to give savers higher returns and stoke consumer spending. The practice of keeping the deposit rate below the pace of inflation had forced households to “save excessively,” he said in a speech in San Francisco.

Weaker Lending

In China, the rate move signals policy makers’ concern at weakness in demand for loans. Three bank officials told Bloomberg News last month that the nation’s biggest lenders may fall short of loan targets for the first time in at least seven years as demand for credit wanes.

The central bank last reduced interest rates in late 2008, when the government unveiled a 4 trillion yuan ($586 billion at the time) stimulus package. Now, Chinese officials are monitoring the threat to exports from Europe’s crisis as Greece prepares for an election on June 17 that may determine whether it remains in the euro region. A crackdown on property speculation is also cooling the world’s second-biggest economy.

The yuan is down about 1 percent against the dollar this year, closing at 6.3635 yesterday.

In Wenzhou, an eastern Chinese city known as a center of entrepreneurship, “smaller businesses are in a much more dire situation now than during the financial crisis,” Zhou Dewen, head of the small and medium enterprise association, said in an interview in his office this week.

Pace of Change

Loosening restrictions on interest rates shows that the economic slowdown and the turbulence of Bo Xilai’s ouster from the Communist Party leadership aren’t derailing policymaking or efforts to reshape the financial system. The central bank has widened the yuan’s trading band, while Premier Wen Jiabao has called for the “monopoly” of big lenders to be broken.

The government may be “getting ready to step up its pace of financial reforms,” HSBC Holdings Plc said in a note. Policy makers regret “that the 2008 financial crisis was not used to introduce more reforms, so this time they want to take advantage of the window,” said Chen Zhiwu, a finance professor at the New Haven, Connecticut-based Yale School of Management.

Australia’s central bank cut interest rates this week, citing Europe’s crisis and moderating growth in China. The European Central Bank held its key rate at a record low, with President Mario Draghi saying that officials stand ready to act. The Bank of England kept its benchmark at a record low, while refraining from expanding a stimulus program.

Bernanke’s View

In the U.S., Bernanke said policy makers are ready to act, without specifying any possible steps. Vice Chairman Janet Yellen said that the U.S. economy “remains vulnerable to setbacks” and may warrant additional monetary stimulus. Dennis Lockhart, president of the Fed’s Atlanta bank, said extending Operation Twist, a policy of buying longer-term bonds, is an “option on the table.”

Industrial output in China, the world’s biggest producer of steel and cement, probably rose 9.8 percent last month from a year earlier, close to the slowest pace in three years, according to the median estimate in a Bloomberg News survey of 27 economists ahead of a report due June 9.

Fixed-asset investment may have grown at a slower pace in the first five months, with Caterpillar Inc. (CAT), the world’s largest maker of construction and mining equipment, among companies reporting a slowdown.

Weaker Inflation

Inflation may have moderated to 3.2 percent in May from a year earlier after a 3.4 percent rate in April, a separate survey showed, the fourth month consumer prices have climbed by less than the government’s 2012 target of 4 percent.

China’s manufacturing expanded at the slowest pace in six months in May, a government report showed on June 1. A separate purchasing managers’ index from HSBC Holdings Plc and Markit Economics pointed to a seventh straight contraction, the longest stretch since the global financial crisis.

The PBOC cut banks’ reserve requirements in November for the first time in three years, and again in February and May, to spur lending.

Wen and the State Council pledged last month to place greater emphasis on stabilizing growth after April industrial production, new loans and exports were less than economists forecast. Measures so far have included speedier project approvals and incentives for home-appliance purchases.

Cutting Forecasts

Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp. have cut economic-growth estimates for China. Expansion may drop to 7 percent or “slightly below” this quarter from a year earlier, Tao Dong, a Hong Kong-based economist with Credit Suisse Group AG said last month. Ding Shuang, a Hong Kong-based economist at Citigroup Inc., forecast 7.5 percent. That follows an 8.1 percent expansion in the first three months of the year, the fifth quarterly deceleration.

Tao said the government may respond with a stimulus of as much as 2 trillion yuan, half the size of a package announced in late 2008 to cushion the economy from the impact of the global financial crisis.

Even so, the official Xinhua News Agency said in a May 29 article that the government has no intention of rolling out another “massive” stimulus, damping speculation of more aggressive policies to support growth.

--Zhou Xin and Zheng Lifei, with assistance from Kevin Hamlin in Beijing and Jun Luo in Shanghai. Editors: Paul Panckhurst, Nerys Avery

To contact Bloomberg News staff for this story: Bloomberg News in Beijing at xzhou68@bloomberg.net; Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Alibaba Open to Temasek, CIC Investment to Buy Back Yahoo Stake

By Frederik Balfour and Bruce Einhorn - Jun 8, 2012 5:00 AM GMT+0700

Alibaba Group Holding Ltd. founder Jack Ma said China’s biggest e-commerce provider is prepared to sell a stake to sovereign wealth firms to fund its buyback of shares from Yahoo! Inc. (YHOO)

Alibaba is open to investments from firms such as China Investment Corp. and Temasek Holdings Pte as long as the ownership structure isn’t dominated by one or two large shareholders, Ma, 47, said in an interview in Beijing yesterday. Temasek is already an investor in Alibaba, which last month agreed to buy a 20 percent stake in itself from Yahoo for $7.1 billion ahead of an initial public offering.

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The Yahoo! Inc. and Alibaba Group Holding LTD. websites are displayed on computer monitors for a photograph in New York. Photographer: Jin Lee/Bloomberg

“You need to have some guy with deep pockets,” Ma said. “I want to make sure it has healthy corporate governance. I don’t want another big guy coming here. Five years later, 10 years later, the next generation of leadership cannot stand the pressure from shareholders.”

Alibaba, which is also taking a Hong Kong-listed unit private, may sell shares in an IPO within five years, Ma said, adding the company hasn’t decided where to offer it. Alibaba is restructuring as competition increases in China’s e-commerce market with Tencent Holdings Ltd. (700), China’s biggest Internet company, planning to invest $1 billion on its Web-trading unit.

Ma said he wants to ensure a “healthy shareholder structure” that will allow the management sufficient freedom to run the company.

Yahoo, Softbank

Under the Yahoo buyback deal, Yahoo and Softbank Inc. agreed to reduce their voting rights to 49.9 percent while their combined ownership still exceeded half the company.

Alibaba had been trying to buy back the stake from Yahoo for more than a year and stepped up efforts in September because of improving prospects for growth and expansion beyond China. Yahoo acquired about 40 percent of Hangzhou, China-based Alibaba in 2005 in exchange for $1 billion and ownership of Yahoo’s Chinese operations.

In September, DST Global and Temasek were among investors that agreed to buy shares of Alibaba in a transaction valuing the Chinese company at $32 billion, people familiar with the deal said at the time. Silver Lake (SLR) and Ma’s Yunfeng Capital were also part of the group that bought as much as $1.6 billion in stock from Alibaba employees, said the people.

Tokyo-based Softbank owned about 30 percent of Alibaba Group, operator of the Taobao online marketplace for consumers, and the Tmall Internet shopping site.

English Teacher

A phone call to CIC’s Beijing-based press office after normal working hours yesterday went unanswered. Temasek declined to comment on hypothetical situations, said Stephen Forshaw, a spokesman for the company.

A former English teacher, Ma owns about 7.4 percent of Alibaba Group, according to a Hong Kong stock exchange filing in April, putting the value of his stake at $2.6 billion. The company is taking Alibaba.com Ltd. (1688) private after winning approval from the Hong Kong-listed unit’s shareholders for a $2.5 billion buyout.

Alibaba hasn’t decided on a location for the IPO, said Ma.

“Today it’s too early to discuss,” he said. “In China our size now might be too big. I don’t know if the USA will welcome us. It depends on what happens five years later. It’s not like we need to raise money, because this company is very profitable.”

Before Deadline

Dundas Deng, a Shenzhen-based analyst with Guotai Junan International Ltd. (1788), said Alibaba has an incentive to list sooner to take advantage of a provision that requires Yahoo to sell an additional 10 percent stake in the company if an IPO occurs before December 2015.

“I think they will definitely try to do it before that deadline,” said Deng. “If that deadline passes it would be very hard for them to negotiate with Yahoo for the rest of the shares.”

Revenue rose to $2.3 billion in the year ended Sept. 30 from $1.3 billion a year earlier, according to Yahoo’s annual report in February. The Chinese company posted a profit of $268 million, compared with a loss of $10.7 million a year earlier, according to the document.

Ma said he is “pretty confident” Alibaba can withstand new challenges. Most Chinese e-competitors “are copycats of the U.S.,” he said. “Copycats never survive,” he said.

Ali-loans

Alibaba wants to differentiate itself from competition and as part of its diversification strategy, it’s partnering with China’s Haier Group (1169) to offer a new smartphone using an operating system developed by Alibaba, the company said in an e-mailed statement on June 6. The phone will have a selling price of 999 yuan ($157) and go on sale in mid-June, Alibaba said.

Ma said Alibaba is also trying to help small Chinese businesses that have difficulty getting loans from China’s banks, which focus mostly on large, state-owned enterprises.

Over the past two years, the group’s Ali-loan company has made credit of 500,000 yuan or less available to 12,000 small and midsized businesses, he said. The target is to help 1 million companies in three years, Ma said.

“Today people think of Alibaba as an e-commerce company, an Internet empire. We want to build up a company in Chinese history nobody has seen before,” said Ma. “It’s not an empire, it’s an ecosystem.”

While Ma has no plan to step down from Alibaba, he said he is already looking ahead.

“Someday Jack Ma is going to retire,” he said. “I don’t want to be 80 years old and still running this company. When you are over 50 or 60, you are too old for an Internet company.”

To contact the reporters on this story: Frederik Balfour in Hong Kong at fbalfour@bloomberg.net; Bruce Einhorn in Hong Kong at beinhorn1@bloomberg.net

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

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Apple Said to Add Baidu as IPhone Search Engine in China

By Adam Satariano and Mark Lee - Jun 8, 2012 3:05 AM GMT+0700

Apple Inc. (AAPL) plans to add Baidu Inc. (BIDU)’s search engine on iPhones in China, part of a push to broaden its services and user base in the world’s most-populous nation, according to two people with knowledge of the matter.

The agreement to add Baidu, China’s largest search engine, to the lineup of Web tools on the iPhone could be announced as early as next week, said one of the people, who asked not to be identified because the plans are private. Apple is holding its annual developers conference in San Francisco starting June 11.

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Baidu is working to add users who access the Internet on smartphones such as the iPhone, after dominating the search-engine market among users of personal-computers in China. Photographer: Nelson Ching/Bloomberg

A deal with Baidu, which handles about 80 percent of China’s Internet search queries, fits with a plan by Apple Chief Executive Officer Tim Cook to gain a bigger toehold in the largest mobile-phone market. It also gives users an alternative to Google Inc., which competes with Apple in mobile software and advertising.

“This is definitely going to help Baidu,” said Joshua Maa, chief executive officer at Madhouse Inc., an advertising company in Shanghai that specializes in marketing on mobile devices. The deal will boost Baidu’s wireless advertising business, he said.

Baidu rose 8.9 percent to $123 at the close in Singapore trading, the biggest percentage increase Dec. 2. The company’s American depositary receipts climbed 2.8 percent to $122.46 at the close in New York. Apple increased 0.1 percent to $571.72.

The Chinese company is working to add users who access the Internet on smartphones such as the iPhone, after dominating the search-engine market for personal computers in China.

‘Lot More Opportunity’

Baidu accounted for 78.5 percent of China’s search-engine market by revenue in the first quarter, compared with 16.6 percent for Google (GOOG), according to research company Analysys International.

China’s growing middle class has more income to spend on smartphones and is becoming a more alluring audience for advertisers. China accounted for 20 percent of Apple’s sales last quarter and Cook has said there’s “a lot more opportunity” there as the company rolls out new products and adds new distributors of the iPhone.

While customers will have the option to select Baidu as their main vehicle for searching the Web, Google’s product will probably remain the default choice, one person said. At present, users of iPhones and iPads in China can access Baidu search by downloading it separately as an application.

Google Products

Even so, adding Baidu is the latest example of Apple diminishing its dependence on Google’s products. Apple plans to unveil a mapping application next week that will come pre- installed on its iPhones and iPad tablets, replacing Google Maps, said a person with knowledge of the matter who isn’t authorized to speak publicly about it.

Trudy Muller, a spokeswoman for Cupertino, California-based Apple, declined to comment. Kaiser Kuo, a spokesman for Beijing- based Baidu, also declined to comment. Taj Meadows, a Google spokesman in Tokyo, couldn’t immediately comment on the future use of Google search by Apple customers in China.

Baidu, under billionaire Chief Executive Officer Robin Li, has benefited from Google’s decision in 2010 to no longer comply with Chinese regulations to self-censor Web content. Google’s market-share dropped after it shut its Google.cn service and began redirecting Chinese users to its site in Hong Kong.

Apple tripled revenue in China last quarter, making the Asian country its biggest market outside the U.S. In February, Apple added support for Baidu’s search-engine in its latest upgrade for the Mac operating system, along with other new features aimed at users in China.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Anand Krishnamoorthy at anandk@bloomberg.net

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Bernanke Sees Risks to Economy From Europe to U.S. Budget

By Joshua Zumbrun and Jeff Kearns - Jun 7, 2012 9:57 PM GMT+0700

Federal Reserve Chairman Ben S. Bernanke said the economy is at risk from Europe’s debt crisis and the prospect of fiscal tightening in the U.S., while refraining from discussing steps the central bank might take to protect the expansion.

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Ben S. Bernanke, chairman of the Federal Reserve, during a Joint Economic Committee hearing in Washington on June 7, 2012. Photographer: Andrew Harrer/Bloomberg

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Federal Reserve Board Chairman Ben Bernanke before the Joint Economic Committee on June 7, 2012 in Washington. Photographer: Win McNamee/Getty Images

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Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg

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June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the performance of and outlook for the U.S. economy . Bernanke testifies before the Joint Economic Committee in Washington.. (This report contains Bernanke's prepared remarks. Source: Bloomberg)

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June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about "tools" the Fed has to provide further accommodation if necessary. Bernanke speaks during testimony before the Joint Economic Committee in Washington. (Source: Bloomberg)

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June 7 (Bloomberg) -- Federal Reserve Chairman Ben Bernanke speaks about the Federal Reserve still having options available if a need to stimulate the U.S. economy is warranted. He speaks during testimony before the Joint Economic Committee in Washington, D.C. (Source: Bloomberg)

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June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the risks posed to the U.S. economy by the financial crisis in Europe, during testimony before the Joint Economic Committee in Washington. (This is an excerpt of the event. Source: Bloomberg)

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June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke discusses the factors that have "restrained" the U.S. recovery, during testimony before the Joint Economic Committee in Washington. (This is an excerpt. Source: Bloomberg)

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June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke talks about the economy, U.S. housing and jobs. Bernanke speaks during testimony before the Joint Economic Committee in Washington. Peter Cook reports on Bloomberg Television's "Money Moves." (Source: Bloomberg)

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“The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Bernanke said today in testimony to the Joint Economic Committee in Washington. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”

Bernanke also warned lawmakers that “a severe tightening of fiscal policy at the beginning of next year that is built into current law -- the so-called fiscal cliff -- would, if allowed to occur, pose a significant threat to the recovery.”

Bernanke on June 19-20 will lead the Federal Open Market Committee in a policy-setting meeting confronting the slowest employment growth in a year and a worsening debt crisis in Europe. The U.S. added 69,000 jobs last month, the fewest in a year, even as the Fed maintained record stimulus.

In his prepared comments, the 58-year-old Fed chairman didn’t call for consideration of additional stimulus, a contrast with speeches yesterday in which Vice Chairman Janet Yellen said the economy “remains vulnerable to setbacks” and may warrant more accommodation. Two regional Fed bank presidents who vote on policy this year, San Francisco’s John Williams and Atlanta’s Dennis Lockhart, said the Fed should be prepared to take action if the economy deteriorates further.

Stocks Pare Gains

U.S. stocks pared gains after Bernanke’s statement. The Standard & Poor’s 500 Index (SPX) was up 0.3 percent to 1,318.43 at 10:53 a.m. after earlier rising as much as 1.1 percent. The yield on the 10-year Treasury note declined to 1.64 percent from 1.66 percent late yesterday.

Responding to a question, Bernanke outlined the course of discussion he foresees at the next meeting of the FOMC.

“The main question we have to address has to do with the likely strength of the economy going forward,” Bernanke said. “Will there be enough growth going forward to make material progress on the unemployment rate?”

“If we decide that further action is required, then of course we have to decide what action is appropriate or what communications are appropriate,” Bernanke said. “We do have options that we can consider,” he said, without naming them.

Yellen Outlines Steps

Yellen, in her speech yesterday, outlined steps the Fed could take. She said the central bank could try to spur growth by altering its pledge to keep interest rates “exceptionally low” at least through late 2014. The Fed adopted the 2014 time horizon in January, extending an earlier date of mid-2013.

The Fed could also undertake another round of asset purchases or continue its Operation Twist program, set to expire this month, to lengthen the maturities of bonds on its balance sheet, Yellen said. The Fed purchased $2.3 trillion of bonds in two rounds of so-called quantitative easing.

Bernanke’s prepared comments echoed language from recent Fed statements, saying that the central bank “reviews the size and composition of its securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.”

Fisher, Bullard

More easing isn’t necessary, Dallas Fed President Richard Fisher and St. Louis Fed President James Bullard said in separate speeches on June 5. Additional stimulus would be “pushing on a string,” Fisher said, while Bullard said there’s time to assess the economy and no need to change policy now. The two regional bank chiefs don’t vote on policy this year.

The central bank said yesterday in its Beige Book business survey that the U.S. economy maintained a moderate pace of growth from early April to late May as factory output rose and the real-estate market improved.

“Economic growth appears poised to continue at a moderate pace over coming quarters, supported in part by accommodative monetary policy,” Bernanke said today. “In particular, increases in household spending have been relatively well sustained.”

The outlook for inflation is “subdued,” and price increases will probably remain at or slightly below the 2 percent level that’s in line with the FOMC’s goal to meet its dual mandate of stable prices and maximum employment, Bernanke said. Higher unemployment and retreating oil and gas prices “should continue to restrain inflationary pressures,” he said.

Urges ‘Sustainable Path’

Bernanke used his appearance before lawmakers to urge them to put fiscal policy on a “sustainable path” while avoiding a “severe tightening” in spending just now that could hamper the economic recovery.

A smoother transition in government spending would help promote full employment, which would be supportive of fiscal accounts, he said, while a credible long-term budget plan “could help keep longer-term interest rates low and improve household and business confidence.”

Bernanke also elaborated on his views about the crisis in Europe, saying it was “acting as a drag on our exports, weighing on business and consumer confidence, and pressuring U.S. financial markets and institutions.”

European policy makers will likely need to take additional steps to stabilize their banks, calm their markets, and create a “workable” fiscal framework, Bernanke said.

ECB Rates

European Central Bank President Mario Draghi said yesterday that ECB policy makers discussed cutting interest rates to a record low, fueling expectations they’ll act as soon as next month as the intensifying debt crisis curbs growth.

“We monitor all developments closely and we stand ready to act,” Draghi told reporters in Frankfurt after the ECB left its benchmark rate at 1 percent. Risks to the economic outlook have increased and “a few” of the ECB’s Governing Council members called for rate cut at yesterday’s meeting, he said.

Minutes of the FOMC meeting on April 24-25 showed policy makers said a loss of momentum in growth or increased risks to their economic outlook could warrant additional action to preserve the recovery. Members “indicated that additional monetary policy accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough,” the minutes showed.

Less Than Half

The 69,000 jobs added in May was less than half the number forecast by economists and the April total was revised down to 77,000 from 115,000, Labor Department figures showed June 1. The unemployment rate unexpectedly rose to 8.2 percent from 8.1 percent for the first increase since June 2011.

“I am convinced that scope remains for the FOMC to provide further policy accommodation,” Yellen said yesterday. “It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.”

Atlanta’s Lockhart said extending Operation Twist is an “option on the table” and that policy makers can do more, while San Francisco’s Williams said the Fed should be ready to step up stimulus in case economic growth slows and threatens to delay improvement in the job market.

AT&T Inc. Chief Executive Officer Randall Stephenson said on June 1 that smaller companies have reduced hiring as business conditions get “tighter and tighter,” reducing demand for the largest U.S. phone company’s services.

‘Best Case’

Dallas-based AT&T expects the economy to expand by 1 percent in the second half of 2012 in “our best case” scenario, Stephenson said at a conference.

“New business starts down at the bottom end are still in negative territory, and until we see that begin to tick up, we’re not forecasting for ourselves any kind of change in trajectory of the current economic environment,” Stephenson said. We are “seeing no hiring, basically, that would drive our type of business.”

Concern the global economy is slowing drove down the Standard & Poor’s 500 Index 6.3 percent in May for the biggest monthly loss since September. The index rose yesterday by 2.3 percent to 1,315.13 on signs central bankers are prepared to support growth.

Investors seeking safety in U.S. government this month debt have pushed yields on 30-year and 10-year debt to record lows of 2.5089 percent and 1.4387 percent, respectively.

JPMorgan Chase & Co. and Morgan Stanley say Fed policy makers are more likely to buy additional government-backed mortgage securities after the pace of U.S. job creation slowed.

Mortgage Rates

Mortgage rates for 30-year U.S. loans have fallen to record lows for five straight weeks as concern about Europe’s financial crisis attracts investors to U.S. government bonds that guide borrowing costs. The average rate for a 30-year mortgage dropped to 3.75 percent in the week ended May 31 from 3.78 percent, Freddie Mac said. It was the lowest in the mortgage-finance company’s records since 1971.

The S&P/Case-Shiller index of property values in 20 U.S. cities dropped 2.6 percent from a year earlier following a 3.5 percent decline in February, the group reported May 29.

The number of Americans signing contracts to buy previously owned houses fell in April by the most in a year, the National Association of Realtors said May 30. Pending home resales dropped 5.5 percent from March. They rose 15 percent from a year earlier.

-- With assistance from Craig Torres in Washington. Editors: James Tyson, Christopher Wellisz

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Jeff Kearns in Washington at jkearns3@bloomberg.net

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

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