Treasuries Head for Weekly Loss on Speculation U.S. Job Growth Accelerated

By Monami Yui and Wes Goodman - Dec 2, 2011 1:58 PM GMT+0700

Treasuries headed for their steepest weekly loss since October before a government report today that economists said will show U.S. jobs growth quickened last month, confirming a pickup in the world’s largest economy.

The difference between rates on 10-year notes and inflation-indexed securities, a gauge of expectations for consumer prices over the life of the debt, widened to 2.11 percentage points yesterday, the most in two weeks. The five- year average is 2.04 percentage points. James Bullard, president of the Federal Reserve Bank of St. Louis, said recent reports point to stronger growth and the central bank shouldn’t rush to ease monetary policy further.

“The current yield level is too low given the growth outlook,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “Yields are likely to rise gradually as we continue to see good numbers in the U.S. economy.”

Benchmark 10-year yields were little changed at 2.09 percent as of 6:52 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 changed hands at 99 6/32. The rate reached 2.14 percent yesterday, the highest since Nov. 14, and it has advanced 12 basis points this week, the most since the five-day period ended Oct. 14.

The yield will advance to 2.18 percent by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. SMBC Nikko’s Shimazu predicts 2.3 percent.

Japan’s 10-year bonds yielded 1.065 percent, versus an average of 1.085 percent when the securities were sold yesterday. Ten-year rates climbed to 1.09 percent yesterday, the most since July.

Jobs Data

The U.S. added 125,000 jobs in November, compared with 80,000 in October, the Labor Department will say today, according to the median estimate in a Bloomberg News survey of economists. The jobless rate probably held at 9 percent, based on the responses.

U.S. manufacturing expanded in November at the fastest pace in five months, the Institute for Supply Management in Tempe, Arizona, reported yesterday. The New York-based Conference Board said last month that its index (MXWD) of consumer confidence rose in November by the most since April 2003.

Returns in 2011

This week’s decline wasn’t enough to knock Treasuries from their place as one of the best-performing bond markets this year, with the gain driven by demand for the relative safety of American securities during Europe’s debt crisis.

Treasuries due in 10 years and more have returned 18 percent in the past six months, the most among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies after accounting for currency changes. Benchmark 10-year yields are about 42 basis points above the record low of 1.67 percent set Sept. 23.

The MSCI All Country World Index of stocks has handed investors a 6.3 percent loss this year.

“Money is flowing from the euro to Treasuries,” said Yoshiyuki Suzuki, who helps oversee the equivalent of $70.7 billion as the Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co. “The upside in yields will be limited.”

Germany and France are pushing for closer economic ties among euro nations and tougher enforcement of budget rules to counter the region’s debt crisis, snubbing investor pleas to back an expanded European Central Bank role.

Fed Action

This week’s drop in Treasuries was driven by a Fed announcement on Nov. 30 that that the premium banks pay to borrow dollars overnight from central banks will decline by half a percentage point to 50 basis points.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, rose by 36 basis points in two days. It was 1.21 percentage points below the euro interbank offered rate as of yesterday. The two-day increase was the most since December 2008 when credit markets were starting to thaw after seizing up earlier in the year.

Fed officials are debating whether the central bank should resume large-scale purchases of securities to push down an unemployment rate that has been stuck at 9 percent or higher since April.

The Fed is scheduled to sell as much as $8.75 billion of Treasuries due in 2013 today as part of a plan announced in September to replace $400 billion of shorter maturities in its holdings with longer-term debt to cap borrowing costs. It also plans to buy as much as $2.75 billion of securities due from 2036 to 2041 today.

“The data have come in stronger than expected, so I think the logical thing now is to wait and see,” the Fed’s Bullard said in an interview in New York yesterday at the Bloomberg Hedge Fund Conference hosted by Bloomberg Link. “See if we continue to get a good read on the holiday season and start out the New Year stronger or weaker, and also assess the situation in Europe and see how that feeds back to the United States.”

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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Copper Traders Turn Bullish For the First Time Since October: Commodities

By Nicholas Larkin - Dec 2, 2011 1:11 PM GMT+0700

Copper traders are bullish for the first time in six weeks on signs that demand is still expanding as global inventories decline to an 11-month low and central banks cut funding costs to shore up growth.

Twelve of 24 surveyed by Bloomberg expect the metal to advance next week and two were neutral. The last time they were bullish overall, in the week ended Oct. 21, prices surged more than 14 percent in the following five days. Global stockpiles monitored by exchanges in London, New York and Shanghai fell 23 percent since March, data compiled by Bloomberg show.

Copper rallied the most in a month on Nov. 30 as China, the biggest consumer of the metal, cut the reserve requirement ratio for banks for the first time since 2008. More than $1.2 trillion was added to value of global equities that day as the central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed to cut the cost of providing dollar funding, to ease strains from Europe’s debt crisis.

“Consumption growth will be positive,” said Angus Staines, an analyst at UBS AG in London. “Credit in China will become easier to acquire and that will allow businesses to build their inventories. It will tighten the global traded copper market significantly, and that should support the price.”

Copper dropped 18 percent to $7,831.50 a metric ton on the London Metal Exchange this year, heading for the first annual decline since 2008. The Standard & Poor’s GSCI Index (MXWD) of 24 commodities advanced 4 percent as the MSCI All-Country World Index of equities retreated 8.8 percent. Treasuries returned 8.8 percent, a Bank of America Corp. index shows.

Asian Warehouses

The traders surveyed by Bloomberg anticipate gains next week in gold, sugar, corn and soybeans. It’s the first time respondents were positive on all the commodities since Oct. 14.

Asian buying is driving the decline in copper stockpiles. Inventories in Asian warehouses monitored by the LME plunged 68 percent since June. Metal tracked by the Shanghai Futures Exchange is now at the lowest level since August 2009. China accounts for 38 percent of global consumption, according to Barclays Capital.

The bank is forecasting a 5 percent gain in the nation’s demand next year, more than compensating for an anticipated 1.6 percent contraction in Europe. Global consumption growing at 2.5 percent will mean a 234,000-ton shortage next year, Barclays predicts. That’s equal to about 44 percent of all the metal held in bourse-monitored stockpiles.

Hedge Funds

While traders are turning bullish, hedge funds and other money managers remain bearish. They are a holding a net-short position, or bets on lower prices, of 7,731 U.S. futures and options, according to the Commodity Futures Trading Commission. Speculators have held a net-short position since mid-September, the longest stretch since July 2009, a month after the last U.S. recession ended.

European lawmakers have failed to contain the region’s debt crisis and the cost of insuring European sovereign debt against default rose to a record on Nov. 25, according to the Markit iTraxx SovX Western Europe Index of credit-default swaps. Germany failed to get bids for 35 percent of the 10-year bonds offered for sale on Nov. 23.

Europe accounts for 19 percent of global copper demand and manufacturing in the euro region of 17 nations contracted to the lowest since July 2009, London-based Markit Economics said yesterday. European industrial orders declined the most in almost three years in September, the European Union’s statistics office in Luxembourg reported Nov. 23.

‘Provide Liquidity’

“Central banks intervening to provide liquidity to banks is not the same thing as fixing the underlying problems with sovereign debt in Europe,” said Mark Lewon, the president of Utah Metal Works Inc., a Salt Lake City-based company recycling industrial scrap. The rally in copper on Nov. 30 means, “I am even more bearish for next week,” he said.

Goldman Sachs Group Inc. reiterated yesterday that it expected commodities to return 15 percent in the next 12 months because global economic growth of 3.2 percent in 2012 would be enough to sustain demand. The bank’s team of commodity analysts, led by Jeffrey Currie, expects copper to trade at $9,500 in 12 months, or 22 percent more than now.

Twenty of 28 traders and analysts surveyed by Bloomberg expect gold to climb next week. Futures on the Comex in New York rose 23 percent to $1,749 an ounce this year. Holdings in exchange-traded products backed by the metal reached a record 2,356 tons on Nov. 30 and advanced 84.8 tons last month, the most since July, data compiled by Bloomberg show.

Gold Council

Gold investment jumped 33 percent to 468.1 tons in the third quarter from a year earlier as bar and coin demand in Europe more than doubled to the most since the fourth quarter of 2008, according to the London-based World Gold Council.

Six of 11 people surveyed expect raw-sugar prices to gain next week. The commodity retreated 27 percent this year to 23.60 cents a pound on ICE Futures U.S. in New York.

Nineteen of 28 anticipate higher corn prices, while 20 of 29 said soybeans will advance. Corn slipped 4.1 percent to $6.0325 a bushel in Chicago this year, and soybeans slid 19 percent to $11.3375 a bushel.

“Next year, it’s pretty much dependant on how the global economy will develop,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “If we see a recovery, which we expect in the second half, then commodity prices can go up even more pronounced.”

Gold survey results: Bullish: 20 Bearish: 6 Hold: 2
Copper survey results:  Bullish: 12 Bearish: 10 Hold: 2
Corn survey results: Bullish: 19 Bearish: 7 Hold: 2
Soybean survey results: Bullish: 20 Bearish: 7 Hold: 2
Raw sugar survey results: Bullish: 6 Bearish: 3 Hold: 2
White sugar survey results: Bullish: 5 Bearish: 3 Hold: 3
White sugar premium results: Widen: 3 Narrow: 4 Neutral: 4 

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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Asia Stocks Outside Japan Fall After Surge on China Easing; Nikkei Climbs

By Kana Nishizawa - Dec 2, 2011 12:23 PM GMT+0700

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Dec. 2 (Bloomberg) -- Hao Hong, global equity strategist at China International Capital Corp., talks about China stocks and central bank monetary policy. He speaks from Beijing with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks (MXAPJ) outside Japan fell after surging yesterday as China cut reserve requirements for major lenders. Equities in Japan rose as Goldman Sachs Group Inc., Deutsche Bank AG and UBS AG said they’ll rebound.

Jiangxi Copper Co. (358), which surged 13 percent yesterday and is the biggest Chinese producer of the metal, slid 1.1 percent in Hong Kong after metal prices slid. Belle International Holdings Ltd. (1880), a Chinese retailer of women’s shoes, sank 7.5 percent after an investor was said to have sold HK$1 billion ($129 million) of shares. DeNA Co., a social-network website operator, jumped 8 percent in Tokyo after Credit Suisse Group AG rated the shares “outperform” in new coverage.

The MSCI Asia Pacific Index was little changed at 117.21 as of 2:14 p.m. in Tokyo, after rising as much as 0.3 percent and falling as much as 0.4 percent. Benchmark indexes in Hong Kong, China, Singapore and Korea retreated.

“The jump in shares yesterday was something that’s a short-term thing, it was too much,” said Tomomi Yamashita, a senior fund manager in Tokyo at Shinkin Asset Management Co., which oversees $6 billion. “China’s reserve-requirement cut means there’s a risk of slowdown in the economy. It’s too early to be at ease about Europe’s debt crisis. Investors are like kids playing by the seashore, running towards the water when the tide recedes and rushing back when it comes back.”

The Asia-Pacific gauge is headed for a 7.6 percent gain for the week. Four of the 10 industry groups on the measure fell, with about as many shares retreating as advancing. The MSCI AC Asia Pacific excluding Japan Index was little changed after rising 4.1 percent yesterday, the most since Sept. 27.

April 2009

Hong Kong’s Hang Seng Index (HSI) retreated 0.5 percent after yesterday posting its second-biggest gain since April 2009 after China cut its reserve requirement for lenders. China’s Shanghai Stock Exchange Composite Index slid 1.6 percent, while South Korea’s Kospi Index slid 0.2 percent.

Japan’s Nikkei 225 Stock Average (NKY) rose 0.3 percent, and the broader Topix Index gained 0.3 percent to 742.37. Goldman Sachs said the Topix is likely to rise to 800 by the end of 2012 as corporate profits rebound, while UBS said the gauge may rise to about 930 in the year ending March 2013.

Australia’s S&P/ASX 200 index advanced 1.4 percent even after the credit ratings of the nation’s four largest banks were downgraded by Standard & Poor’s.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

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

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Franco-German Push for Budget Policing Meets Resistance

By Tony Czuczka and Helene Fouquet - Dec 2, 2011 6:01 AM GMT+0700

Germany and France are pushing for closer economic ties among euro nations and tougher enforcement of budget rules to counter the debt crisis, snubbing investor pleas to back an expanded European Central Bank role.

German Chancellor Angela Merkel, who will use a speech to lawmakers in Berlin today to outline her stance before a Dec. 9 European Union summit, has repeated her push to rework EU rules to lock in budget monitoring and seal off the ECB from political pressure. French President Nicolas Sarkozy late yesterday called for “more discipline” and automatic penalties for nations that break fiscal rules.

Merkel’s refusal to deploy the ECB is a rebuff to President Barack Obama after he exhorted Europe’s leaders to take more action to combat the crisis. The chancellor is loath to agree to follow the Federal Reserve and the Bank of England in policies she views as akin to fighting debt with more debt. Enlisting the ECB in battling the crisis would violate the central bank’s independence and set it on a course of action that might not work, destroying its credibility.

“The market is questioning Merkel’s tough approach,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in a telephone interview. Investors want “clarity on what the framework will look like and what the financial bridge will look like” to fund euro-area governments and banks that need aid while fiscal ties are negotiated, he said.

‘A Lot of Time’

EU President Herman Van Rompuy has questioned imposing policy through a treaty, saying the process doesn’t move quickly enough to satisfy markets. “It can take a lot of time,” he said late yesterday in Brussels. “We are looking for something that can be handled much quicker” to restore investor confidence.

Throughout almost two years of market turbulence and conflict with allies, Merkel hasn’t budged, rejecting joint euro bonds and a greater ECB role, at times clashing with Sarkozy.

Merkel will travel to Paris on Dec. 5 as the two leaders prepare the proposed overhaul of European institutions. It’s a required step before considering more aggressive measures, she says. “You can’t put the cart before the horse,” Merkel said on Nov. 23.

In his last night speech in Toulon, France, Sarkozy said the 17-nation euro area, bound by a currency introduced a decade ago and intended to be permanent, risks “exploding” if members fail to converge economically.

Sarkozy’s Convergence

The countries sharing the currency must prepare their budgets in common, narrow competitiveness gaps and face tougher automatic penalties for fiscal rule-breaking, Sarkozy said.

“There can’t be a single currency without economies heading toward more convergence,” Sarkozy told 5,000 supporters in a 50-minute speech in the Mediterranean port. “If living standards, productivity, and competitiveness gaps widen among euro-zone countries, the euro will sooner rather than later be too strong for some and too weak for others, and the euro zone will explode.”

ECB President Mario Draghi signaled yesterday that the central bank could do more to fight the crisis in return for closer fiscal union.

“The sequencing matters,” Draghi told the European Parliament in Brussels. “It is first and foremost important to get a commonly shared fiscal compact right.”

‘More Strictly’

Germany is seeking changes to the EU’s rulebook to allow closer monitoring of euro countries’ budgets, with sanctions against persistent offenders and potential veto power over national spending plans wielded by the EU Commission, the EU’s Brussels-based executive. Van Rompuy is due to present proposals for treaty change at the Dec. 9 summit.

Merkel, who has signaled she doesn’t want financial markets or even her own economic advisers imposing solutions for the debt crisis, is sticking to the crisis-fighting arsenal built up since Greece, the euro area’s most-indebted country, was bailed out in May 2010. Six months later, as Ireland prepared to join Greece in requesting a rescue, Merkel said policy makers have to assert “primacy” over the markets in “a kind of battle.”

Germany and Europe don’t have “unlimited financial strength” to counter the crisis, Merkel’s chief spokesman, Steffen Seibert, told reporters Nov. 28. That’s “why the German government reacts so skeptically to the many calls for Europe to finally free up the really big, final financial reserves, which the Anglo-Saxon world likes to call showing the bazooka.”

IMF Role

In the latest bid to tame the crisis, European finance ministers said this week they would seek a greater role for the International Monetary Fund alongside their own bailout fund, the European Financial Stability Facility.

German Finance Minister Wolfgang Schaeuble said the IMF option, along with the EFSF’s ability to buy sovereign bonds and guarantee as much as 30 percent of bond issues by troubled governments, guarantees that all euro-area members will meet their financing needs well beyond the first quarter of 2012.

The EFSF looks like “yesterday’s story” as German policy makers play a “huge game of chicken” over future economic and monetary union to achieve their budget-tightening aims, said Jim O’Neill, chairman of Goldman Sachs Asset Management.

“How close to the edge do you want to take this?” O’Neill said in a Bloomberg Television interview with Francine Lacqua. “It needs Germany and the ECB to decide whether they want EMU to exist or not, because that’s how it’s going.”

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net

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

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Asian Stocks Fluctuate Before U.S. Jobs Data

By Lynn Thomasson and Weiyi Lim - Dec 2, 2011 12:40 PM GMT+0700

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Dec. 2 (Bloomberg) -- Mikio Kumada, a global strategist at LGT Capital Management in Singapore, talks about the global economy and stock markets. Kumada also discusses Europe's sovereign debt crisis, China's economy and central bank monetary policy. He speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Asian stocks (MXAP) swung between gains and losses, while Australia’s dollar weakened, amid concern China’s economy is slowing and before a report that may show the U.S. unemployment rate stayed at 9 percent last month.

The MSCI Asia Pacific Index rose less than 0.1 percent as of 1:51 p.m. in Tokyo, after earlier falling as much as 0.4 percent. The Shanghai Composite Index lost 1.5 percent. Australia’s currency retreated 0.2 percent to $1.0226 and the Dollar Index (DXY) tracking the greenback halted a four-day slide. Futures on the Standard & Poor’s 500 Index gained 0.4 percent.

About $3 trillion was added to the value of global stocks this week after central banks took steps to ease Europe’s debt crisis and support economic growth. European Central Bank President Mario Draghi signaled yesterday that the ECB could do more to fight the debt crisis as long as governments push the euro area toward a fiscal union. U.S. data today may show payrolls climbed by 125,000 in November after rising 80,000 in October, according to economists surveyed by Bloomberg.

“Investors remain concerned about the weak economy again after yesterday’s one-day rally,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “There’s nothing spectacular that will really push stocks up.”

The MSCI Asia Pacific Index has climbed 7.6 percent in the past five days, its second-best weekly performance since May 2009. South Korea’s Kospi index was little changed and Hong Kong’s Hang Seng Index retreated 0.5 percent. The Nikkei 225 Stock Average gained 0.3 percent.

China Economy

The Shanghai Composite (SHCOMP) rose 2.3 percent yesterday after the central bank cut lenders’ reserve requirements for the first time since 2008. Manufacturing contracted last month for the first time in two years, a purchasing managers’ index showed yesterday. Shanghai home transactions slumped 53 percent last month from a year earlier, Shanghai Securities News reported, citing data from Shanghai Deovolente Realty.

Pacific Investment Management Co. has been buying shares of raw-materials producers and Chinese industrial companies as policy makers in Asia’s biggest economy take steps to bolster growth, said Masha Gordon, the head of emerging markets equity portfolio management. The People’s Bank of China said Nov. 30 it would lower banks’ reserve-requirement ratios by half a percentage point and Masha said she expects cuts totaling as much as three percentage points in the next 12 months. Pimco oversees about $1.35 trillion.

Samsung Electronics Co. slumped 1.6 percent in Seoul. Apple Inc. won an extension of a ban on Samsung’s sales of its latest tablet computer in Australia, delaying pre-Christmas sales.

Fuji Heavy Industries Ltd., maker of Subaru-branded cars, retreated 1.4 percent in Japan. Subaru halted sales of three of its four 2012 models in the U.S. as it recalls the cars for a brake defect.

U.S. Optimism

S&P 500 futures expiring in December rose to 1,248.9. The U.S. equity benchmark has jumped 7.4 percent in the last four sessions. The Institute for Supply Management’s factory index increased to 52.7 last month from 50.8 in October, the Tempe, Arizona-based group said yesterday.

“The focus has shifted temporarily away from Europe and toward the U.S., while investors wait for Europe to come up with policies,” said Kenji Sekiguchi, general manager at Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $75 billion. “The U.S. isn’t as weak as investors feared it was.”

Benchmark 10-year Treasury yields were little changed at 2.08 percent. The yield reached 2.14 percent yesterday, the highest since Nov. 14.

Copper in London was poised for a 7.7 percent gain this week, the first advance since October, on signs that demand is still strong amid falling global inventories. Three-month delivery copper on the London Metal Exchange was little changed at $7,787.50 a metric ton.

Palladium Jumps

Palladium for immediate delivery was set for an 11 percent gain this week, the most in a year. The metal rose 0.3 percent to $632.75 an ounce today, the fifth day of gains.

The euro was little changed at $1.3455. European Central Bank policy makers will meet on Dec. 8 to review borrowing costs. All but one of the 33 economists in a Bloomberg survey predict the ECB will cut its benchmark interest rate by at least 25 basis points from the current 1.25 percent. The monetary authority unexpectedly lowered the rate at its November meeting.

The cost of insuring corporate bonds in Japan and Australia against non-payment declined. The Markit iTraxx Japan index dropped three basis points to 197 basis points, Deutsche Bank AG prices show. The benchmark is on course for its lowest close since Nov. 21, according to data provider CMA, which is owned by CME Group Inc., and compiles prices quoted by dealers in the privately negotiated market.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: James Regan in Hong Kong at jregan19@bloomberg.net.

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Boehner Predicts Extension of Payroll-Tax Cut

By Richard Rubin and James Rowley - Dec 2, 2011 12:01 PM GMT+0700

The first attempts to prevent a payroll tax cut from expiring Dec. 31 fell short in the U.S. Senate, even as House Speaker John Boehner expressed confidence that Congress would extend the tax break and unemployment benefits.

“There is enough common ground between where the White House and Democrats are and where Republicans are for us to move this legislation and to do so quickly,” Boehner told reporters yesterday.

Many lawmakers from both parties agree that Congress should extend the 2 percentage point cut in the payroll tax and expanded unemployment insurance into 2012 to prevent workers from getting smaller paychecks. They disagree on how to cover the cost. The payroll tax cut extension would prevent the government from collecting $119.6 billion.

The Senate votes yesterday demonstrated partisan divisions, though even most Republicans opposed a plan proposed by their leaders.

Senators rejected a Democratic proposal to impose a 3.25 percent surtax on income over $1 million, expand the cut to 3.1 percentage points and extend it, in part, to the employer portion of the payroll tax. The counter-proposal by Republican leaders would have recouped the forgone revenue by freezing the pay of federal civilian workers and shrinking the federal workforce by 10 percent through attrition.

The vote on the Democratic proposal was 51-49, nine shy of the 60 needed to advance it. The Republican version got just 20 votes, with no support from Democrats.

Democratic Defectors

Democrats Joe Manchin of West Virginia and Jon Tester of Montana and independent Bernard Sanders of Vermont, who usually votes with the Democrats, opposed the Democratic plan. Senator Susan Collins of Maine was the lone Republican to vote for the Democratic plan.

More than half of Senate Republicans opposed the plan proposed by Minority Leader Mitch McConnell of Kentucky. Opponents included Senator John Thune of South Dakota, who had argued for the proposal on the floor moments before the vote.

“We were putting up a proposal that a majority of our conference wanted us to put up, so we did that, and I helped to craft it,” said Senator Jon Kyl of Arizona, the second-ranking Republican. “But I didn’t want to support it because -- as a matter of policy -- I think we are making a mistake taking money out of the Social Security trust fund for an extension of this so-called holiday. I don’t think that it achieves the purpose of creating jobs.”

Money Transfer

The legislation would transfer money from general Treasury funds to Social Security to cover the cost of the payroll tax cut.

The rejection of those proposals clears the way for further negotiations, and top lawmakers and Obama administration officials said yesterday that they saw possibilities for an agreement.

House Minority Leader Nancy Pelosi told reporters in Washington that Democrats would consider “reasonable” spending cuts to pay for extending the payroll tax reduction.

Jay Carney, the White House spokesman, said, “We will move forward and try to find a way to reach an agreement.” President Barack Obama, who has been urging Congress to extend and expand the payroll tax cut, may talk to lawmakers personally “in the coming days and weeks,” the spokesman said.

In a statement issued after the vote, Obama called Republican objections unacceptable.

Taxing Middle Class

“It makes absolutely no sense to raise taxes on the middle class at a time when so many are still trying to get back on their feet,” he said.

An administration official familiar with the discussions said talks would begin in earnest over the weekend.

Senator Dan Coats, an Indiana Republican, said the chamber will “eventually pass” an extension.

“Both sides are committed to passing this, so in the end there will be some different mix of cost offsets agreed to,” he said.

Figuring out the details won’t be easy, said Senator Mike Crapo, an Idaho Republican.

“I’m not sure,” he said yesterday when asked about the prospects for compromise. “I don’t think that a huge tax increase will fly.”

Seeking Big Cut

Senator Charles Schumer, a New York Democrat, told reporters that his party will continue to press the tax increase and as large a payroll tax cut as possible.

“We have a lot of leverage in the negotiations that are coming ahead,” he said. “And this isn’t the only tax issue where Republicans are on the defensive. On the millionaire’s tax, the Republican wall against taxing incomes over a million dollars is beginning to crack.”

He said he would be willing to work with Senator Collins, who has suggested exempting income earned from active businesses from the surtax.

The extended jobless benefits and payroll tax cut for workers are among the items that Congress must consider by year’s end. Lawmakers also are discussing how to avoid a 27 percent cut in physician reimbursements by Medicare, scheduled to begin Jan. 1. It would cost about $21 billion over a decade to keep payments to doctors at the current level.

Miscellaneous Breaks

Miscellaneous tax breaks, including the research and development tax credit, also expire. That group of provisions has a history of being extended retroactively.

At a minimum, Obama wants to see the current 2 percentage point payroll tax cut for employees extended for 2012. Senate Democrats are seeking to reduce the payroll levy to 3.1 percent for workers. They also would lower the employer rate to 3.1 percent from 6.2 percent on the first $5 million in payroll and eliminate the levy for each company’s first $50 million in wage growth.

Boehner said yesterday that extending the payroll tax cut would help the economy because it keeps money in people’s pockets. The tax benefit must be financed by spending cuts because “any drop in revenue resulting from a temporary reduction of the payroll tax that is not paid for” hurts Social Security and would “accelerate the program’s looming bankruptcy,” Boehner said.

House Republicans haven’t said yet how they plan to offset the costs of the payroll tax cut and unemployment insurance.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; James Rowley in Washington at jarowley@bloomberg.net

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

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AOL CEO Armstrong Aims to Lift Mobile-Advertising Revenue to More Than 10%

By Danielle Kucera - Dec 2, 2011 6:38 AM GMT+0700

AOL Inc. (AOL) aims to boost its mobile- advertising revenue into double digits as a percentage of the Internet company’s total ad sales in the next 18 months, Chief Executive Officer Tim Armstrong said.

Advertising on mobile devices now makes up a “tiny” percentage of sales, Armstrong said in an interview today. In a note to company executives on Monday, Armstrong said, he outlined a goal to increase ad revenue for AOL’s mobile segment to 10 percent or more of overall ad sales.

Armstrong needs to bolster earnings in online advertising as AOL’s profitable Internet-access business declines. The New York-based company posted a net loss of $782.5 million last year as it struggled to compete against Google Inc. and Facebook Inc. To woo advertisers, AOL is seeking to offer new ways to target consumers, Armstrong said.

“We’re very, very small right now in mobile,” said Armstrong, who took the helm in 2009. “The opportunity is there, and we’ve got to get really organized around it.”

AOL fell 2.9 percent to $13.92 at the close in New York. The shares have declined 41 percent this year.

Advertising increased to 60 percent of revenue in the third quarter, compared with 52 percent of sales the previous year. All AOL products and services will eventually have a goal in mobile, some in consumer usage and some in revenue growth, Armstrong said.

Mobile advertising is likely to be a “heavy M&A” space as companies work to make money on customers that switch to smartphones, Armstrong said. AOL is also seeking to get business from video advertisers, he said.

“Video looks like a faster total revenue opportunity,” he said. “Mobile is a faster opportunity to grow, percentage-wise. We’re doing it ourselves right now, but I wouldn’t rule out that we’re going to be aggressive” in acquiring companies, he said.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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

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Clearwire Surges After Payment, Sprint Deal

By Sarah Frier and Scott Moritz - Dec 2, 2011 4:15 AM GMT+0700

Clearwire Corp. (CLWR), the money-losing wireless carrier, gained 14 percent after making a $237 million interest payment to creditors and striking a new network-sharing agreement with partner Sprint Nextel Corp. (S)

Clearwire, based in Bellevue, Washington, rose to $2.03 at the close in New York. It has declined 61 percent this year.

The companies said Clearwire will get as much as $1.6 billion over the next four years, helping address its cash needs as it shifts to higher-speed wireless technology. Founded by wireless pioneer Craig McCaw in 2003, Clearwire has posted widening losses for years amid competition from larger rivals.

“This is a significantly positive development for Clearwire,” said Michael Nelson, a Mizuho Securities USA Inc. analyst in New York. “One could argue whether it spared them from bankruptcy, but it certainly extended the runway.”

The companies will extend an agreement under which Sprint buys wholesale WiMax wireless capacity from Clearwire and then resells the 4G services to its own customers.

The deal comes after a standoff over how the two would work together when their current network deal ends at the end of 2012. Sprint, which is Clearwire’s largest shareholder and wholesale customer, had said it would stop selling devices that use WiMax, Clearwire’s existing technology, after next year.

‘Important Piece’

Clearwire has said needs about $1 billion to roll out a long-term evolution, or LTE, wireless network and fund operations. And while the Sprint deal is significant, Clearwire said it plans to raise additional funding, too.

“This is an important piece in the mix of capital we need,” Clearwire Chief Executive Officer Erik Prusch said in a phone interview today. “This piece was critical.”

Clearwire will get $926 million for WiMax services in 2012 and 2013 and up to $350 million in prepayments for LTE services from Sprint under the agreement, the companies said. Sprint also agreed to provide up to $347 million in equity funding if Clearwire sells new shares.

Clearwire will sell equity “sooner rather than later,” Joe Euteneuer, Sprint’s finance chief, said today at a conference in Orlando, Florida.

As part of its fundraising plans, Clearwire has also considered options like selling wireless spectrum and loans from equipment suppliers to pay for gear purchases.

“We are considering a complement of approaches,” Prusch said. He declined to comment on what option the company will take next.

‘Increased Challenges’

Prusch also said Clearwire is committed to building its LTE network on time. One of the conditions of the agreement with Sprint is that Clearwire achieves certain buildout targets and network specifications by June 2013.

“Without this deal, there would have been increased challenges for them to raise additional funding,” said Nelson, who rates Clearwire shares “buy” and Sprint “neutral.”

Without the new agreement, Clearwire would have had only $350 million to $400 million left for next year’s operations after paying creditors, according to Standard & Poor’s. S&P downgraded Clearwire’s debt to CCC last week, which means Clearwire is dependent on economic conditions if it needs to access debt markets.

Today, Moody’s Investors Service raised the outlook for Clearwire’s credit rating to “stable” from “negative.”

‘Competitive Spirit’

“Right now, Sprint needs Clearwire and Clearwire needs Sprint,” David Novosel, an analyst at Gimme Credit in Chicago, said before the agreement.

Sprint couldn’t afford to lose access to Clearwire’s spectrum, Novosel said. If Clearwire had failed to pay creditors and needed to restructure its debt, the spectrum Sprint uses might have been auctioned off to the highest bidder.

The peace between the two partners came at a cost as the companies compete against larger rivals AT&T Inc. (T) and Verizon Wireless, said Ned Zachar, a portfolio manager at KLS Diversified Asset Management in New York.

“It would have been better if they had gotten to this deal six months or nine months ago,” Zachar said. “The uncertainty and the very mixed signals obviously hurt both companies. Sprint’s competitive spirit should have been directed at AT&T or Verizon rather than at Clearwire.”

Sprint, based in Overland Park, Kansas, was unchanged at $2.70 at the close in New York and has lost 36 percent this year.

To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net

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

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Zynga to Seek Up to $1B IPO Selling Shares for $8.50-$10

By Lee Spears and Douglas Macmillan - Dec 2, 2011 8:09 AM GMT+0700

Zynga Inc. will sell about 15 percent of its common stock in an initial public offering, said a person with knowledge of the matter, breaking with a practice among Internet companies this year of using a lower free float to boost demand.

Zynga, the biggest maker of games on Facebook, plans to sell shares for $8.50 to $10 apiece in its initial public offering to raise as much as $1 billion, said the person, who declined to be identified because the terms are private. That would value Zynga at as high as $7 billion, less than it previously had targeted, the person said.

The game developer decided against a low float for its stock as companies such as Groupon Inc. and Pandora Media Inc. tumbled following their IPOs, the person said. While selling fewer than 10 percent of their shares helped those companies boost early demand for their offerings, the stocks have more recently dropped below their initial prices.

“It’s a reflection of what we’ve seen in Groupon,” said David Dillon, a San Francisco-based portfolio manager at HighMark Capital Management, which oversees about $17 billion. “If you price yourself too high, you do yourself a disservice in the long term.”

Zynga, whose shares will trade on the Nasdaq Stock Market under the symbol ZNGA, plans to disclose IPO terms tomorrow, the person said. Morgan Stanley and Goldman Sachs Group Inc. (GS) are managing the IPO.

Dani Dudeck, a spokeswoman for San Francisco-based Zynga, declined to comment.

Pricier Than EA

Led by Chief Executive Officer Mark Pincus, Zynga is seeking to capitalize on the popularity of social networks and virtual goods. The company lets users play games for free and then makes money by selling items -- say, a townhouse in “CityVille” or a shipyard in “Empires & Allies.”

A $7 billion market value would price Zynga at 6.8 times trailing 12-month sales of $1.02 billion, according to financial results disclosed in the company’s IPO filing. Electronic Arts Inc. (ERTS), the game maker that bought Zynga rival PopCap Games in August, at today’s close was valued at $7.73 billion, or 2 times sales in the last 12 months, Bloomberg data show.

Zynga’s targeted valuation is also less than half the $14.05 billion that the company said in a September regulatory filing represented its fair value in August.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Douglas Macmillan in New York at dmacmillan3@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

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GM’s Chevrolet Volt Will Miss 2011 Sales Target

By David Welch - Dec 2, 2011 4:44 AM GMT+0700

General Motors Co. (GM)’s Chevrolet Volt will miss its sales target of 10,000 cars this year, the company said. While dealers sold 1,139 of the plug-in hybrids last month, the company is more than 3,800 shy of its 2011 goal.

“It appears we will deliver the 10,000th Volt in early 2012,” GM Vice President of U.S. Sales Don Johnson said today in a conference call with reporters. “We’re not at all disappointed. You have to continue to build awareness.”

While GM is expanding annual production to 60,000 units starting in January, the Volt is being investigated by the National Highway Traffic Safety Administration because its batteries caught on fire in the weeks following three government crash tests. NHTSA announced a safety probe of the Volt Nov. 25.

Chevrolet has been making a marketing push as dealers begin the third month of selling the Volt in all 50 states. GM last month allowed dealers to sell as many as 2,300 demonstration models to retail buyers, helping spur a 2.8 percent increase from October and the model’s best month yet. Volt sales through November totaled 6,142, the company said.

“That’s not as much as I would have expected,” said Alan Baum, principal of Baum & Associates, a research firm in West Bloomfield, Michigan. “I would think that they would have been able to work down their waiting list. That’s not a good result.”

More Inventory

Baum said he didn’t think the safety probe hurt Volt sales because NHTSA’s official investigation was announced late in the month.

GM aims to sell 45,000 Volts in the U.S. next year and export the remaining 15,000.

At the end of November, Chevy had 4,000 Volts in inventory, said Alan Batey, vice president for Chevrolet U.S. sales. The demonstration cars built up inventory later in the month and will have a bigger impact on December sales, Batey said.

Chevy sold 600 Volts to fleet customers this year, Johnson said.

The Volt investigation has the potential to harm the reputation of electrified vehicles. Lithium-ion batteries, such as those used in the Volt, are also installed in all-electric cars, such as Nissan (7201) Motor Co.’s Leaf and models made by Tesla Motors Inc. (TSLA)

Automakers and U.S. and California regulators are looking to increased use of electric power to meet tightening U.S. fuel- efficiency standards.

A Volt caught fire three weeks after a May 12 side-impact crash test while parked at a NHTSA testing center in Wisconsin, leading regulators to conduct more tests.

Nissan, Tesla

Nissan has said that it has had no reports of fires in its Leaf electric car. Tesla also said it hasn’t had a fire in its Roadster electric car.

The Volt can go about 40 miles on electricity before its gasoline engine kicks in and powers a generator, which recharges the battery. It has a range of 379 miles with electric and gasoline power combined. The Volt’s battery can also be recharged at an electrical outlet.

The U.S. Environmental Protection Agency last year estimated the Volt would average 60 miles per gallon in combined gasoline-electric driving, compared with 50 mpg for Toyota Motor Corp. (7203)’s Prius. Volt’s range is about four times what Nissan’s Leaf travels on a single charge.

Loaner Cars

GM is trying to reassure customers. North America President Mark Reuss sent a letter to Volt owners on Nov. 28 saying that if they have concerns about their safety, the Detroit-based company will provide them with another model as a loaner until the U.S. investigation concludes.

So far, 33 Volt owners have asked for a loaner, Batey said.

GM also is willing to buy back Volts from any owners who are concerned for their safety, said Greg Martin, a spokesman. The Associated Press reported the development earlier, citing an interview with Chief Executive Officer Dan Akerson.

The automaker has engineers working with NHTSA to establish the cause of the fires and no conclusions have been reached, the company said this week.

The Volt was the highest-ranked car in Consumer Reports’ owner-satisfaction survey, taken before the U.S. probe was announced. The magazine said 93 percent of Volt owners who responded said they would buy the car again. The plug-in hybrid finished ahead of the Dodge Challenger and Porsche 911 sports cars, each of which had 91 percent owner-satisfaction scores.

The Volt’s technology and its recent accolade from Consumer Reports make the Volt a marketing tool for Chevy, Batey said.

“This vehicle is about more than how many we sell,” Batey said. “This vehicle is a magnet around everything we are trying to do to showcase our brand.”

To contact the reporter on this story: David Welch in Southfield, Michigan, at dwelch12@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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Sarkozy: Euro Risks Breakup Without Policy Fix

By Helene Fouquet - Dec 2, 2011 2:23 AM GMT+0700

French President Nicolas Sarkozy said the 17-nation euro area would risk “exploding” if members fail to converge on fiscal policies.

The countries sharing the currency must prepare their budgets in common, narrow competitiveness gaps and face tougher automatic penalties for rule breaking, Sarkozy said today in Toulon, France, outlining proposals to overhaul Europe’s governing treaties.

“There can’t be a single currency without economies heading toward more convergence,” Sarkozy told 5,000 supporters in 50-minute speech in the Mediterranean port. “If living standards, productivity, and competitiveness gaps widen among euro-zone countries, the euro will sooner rather than later be too strong for some and too weak for others, and the euro zone will explode.”

German Chancellor Angela Merkel, who is due to speak to lawmakers in Berlin tomorrow, will come to Paris on Dec. 5 as the two nations prepare rule changes to stem the debt crisis. Sarkozy promised “more discipline” in Europe, responding to Merkel’s calls for more rigorous economic policies.

“More solidarity means more discipline,” Sarkozy said. “It’s the first principle of a reshaping of Europe.”

“France and Germany are fighting for a new treaty,” he added, without giving details on the agenda to start discussion on such a pact. He said the Maastricht Treaty that founded the euro was incomplete and had failed. Among governance changes, he said European decision making should move toward qualified majority voting to speed decision making.

No More Writedowns

Sarkozy said also that there must be no more euro-region debt writedowns beyond Greece. “It must be made clear that a debt of a euro member will be repaid,” adding that it was “a question of confidence.”

Discussion on treaty changes started between France and Germany after Sarkozy yielded to Merkel on Nov. 24 to stop pressuring the European Central Bank to step up its response to the region’s debt crisis.

Today in Toulon, the French leader said he has “no doubt that with the deflationary risk facing Europe, the European Central Bank will act,” while reiterating that the ECB is independent.

Sarkozy and Merkel will seek to rally their counterparts behind debt and deficit reduction at a Brussels summit next week. Changes may include greater control of euro nations’ budgets by European authorities and common fiscal policies.

To contact the reporter on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net

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

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Lagarde: G-20 May Boost IMF for Europe Crisis

By Sandrine Rastello and Raymond Colitt - Dec 2, 2011 3:58 AM GMT+0700

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Dec. 1 (Bloomberg) -- Bradley Rogoff, head of U.S. credit strategy at Barclays Capital Inc., talks about yesterday's move by the Federal Reserve and five other central banks to cut the cost of emergency funding for banks outside the U.S. in a bid to ease Europe's sovereign debt crisis. He speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

The head of the International Monetary Fund (IMF) Christine Lagarde gestures at a press conference in Beijing. Photographer: Peter Parks/AFP/Getty Images

International Monetary Fund chief Christine Lagarde said Group of 20 nations are prepared to boost the fund’s resources as the European debt crisis threatens the global recovery.

“If circumstances require, the G-20 will commit the resources that are necessary for the IMF to play its systemic role,” she said during a joint press conference with Brazilian Finance Minister Guido Mantega in Brasilia today. “That gives you a range that is almost without a cap, without a limitation.”

Lagarde has indicated that the $390 billion the IMF currently has available for lending may not suffice should the global outlook worsen. The Washington-based lender to nations will probably cut its global growth forecast next month as the European crisis roils financial markets and slows output, spokesman Gerry Rice said.

European finance ministers said this week they would seek a greater role for the IMF alongside their own bailout fund in their bid to tame the euro region’s sovereign debt turmoil. G-20 leaders last month balked at writing new checks before Europe did more to fix the two-year old crisis.

Mantega reiterated his country’s willingness to make a contribution to boost the IMF’s war chest, depending on continuing changes to give emerging markets more say at the institution. An amount hasn’t been decided, he said.

Mexico’s Stance

Mexico yesterday also indicated it may contribute. Agustin Carstens, the central bank governor and Lagarde’s rival in getting the IMF top job earlier this year, told reporters his country would be “more than willing to collaborate and offer resources to support a greater range of action” by the fund.

Brazil, Russia, India, China and South Africa, the so- called BRICS nations, may gain a “big role” in the IMF if they provide aid to the euro region, said Thomas Mirow, who heads the European Bank for Reconstruction and Development.

“This is an ongoing trend, that the emerging economies and countries need to get a big role at the IMF, and of course if there would be a necessity to get additional funding for the IMF for Europe, that would probably accelerate this process,” Mirow said in a phone interview yesterday from London.

IMF members a year ago approved a plan to make China the third-strongest voice in the organization while weakening Europe’s influence. Emerging markets, including Brazil, have been asking for a change to the formula the IMF uses to calculate voting rights.

Lagarde repeated the IMF will make sure it can help countries outside of Europe, even as it co-finances bailouts in Greece, Portugal and Greece and prepares to send a team to Italy for an unprecedented audit of the country’s efforts to cut its debt.

On her first trip to Latin America since she took the IMF helm in July, which included visits to Peru and Mexico, Lagarde discussed the risks for the region of the European crisis as well as potential member support to help contain Europe’s mounting debt problems.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Raymond Colitt in Brasilia newsroom at Or rcolitt@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Joshua Goodman at jgoodman19@bloomberg.net

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JPMorgan, BofA Among Five Banks Sued by Massachusetts Over Foreclosures

By David McLaughlin - Dec 2, 2011 5:15 AM GMT+0700

JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) were among five banks sued by Massachusetts for allegedly conducting unlawful foreclosures and deceiving homeowners.

Massachusetts Attorney General Martha Coakley filed the lawsuit today against the three banks, as well as Wells Fargo & Co. (WFC) and Ally Financial Inc., in state court in Boston. She accused the banks of engaging in unfair and deceptive trade practices in violation of state law.

“The stakes could not be higher at this stage of the game,” Coakley said at a press conference in Boston. “The foreclosure crisis continues to be at the root of the economic mess that we find ourselves in and our inability to turn it around.”

State attorneys general across the U.S. have been negotiating a possible settlement with the five banks that would resolve a probe into foreclosure practices that began more than a year ago following disclosures that faulty documents were being used to seize homes.

State and federal officials are aiming to reach a deal that would provide mortgage relief to homeowners and set requirements for the ways mortgage servicers conduct home foreclosures and interact with borrowers.

‘Enforceable Relief’

Coakley today blamed the banks for failure to reach a deal, saying they hadn’t offered “meaningful and enforceable relief” to homeowners for harm they have caused. With a settlement still out of reach more than a year after all 50 states announced their investigation into bank practices, Coakley said, she decided to file her lawsuit.

“They have had more than a year to show they’ve understood their role and the need to show their accountability for this economic mess, and they failed to do so,” she said.

In September, California Attorney General Kamala Harris said she was withdrawing from the talks, saying a proposed settlement was “inadequate” and would allow too few California homeowners to stay in their homes.

John Stumpf, chairman and chief executive officer of San Francisco-based Wells Fargo, said in a CNBC interview today that he’s disappointed the lawsuit was filed.

“We’ve worked hard to come to an agreement that I think would be good for the country and good for housing,” he said. “We can work through that better together than working it out in court.”

‘In Good Faith’

Gina Proia, a spokeswoman for Detroit-based Ally, said its GMAC Mortgage unit, which was named as a defendant, will fight the lawsuit and has worked “in good faith” with Coakley’s office during the past year to discuss mortgage servicing and ways to assist borrowers.

Iowa Attorney General Tom Miller, who is leading negotiations with the banks for the states, said today in a statement from his office that he’s optimistic a settlement will be reached “on terms that will be in the interests of Massachusetts.”

Coakley said the banks moved to seize Massachusetts homes when they had no legal authority do so because they didn’t hold the mortgage on the properties. Failure to obtain valid mortgage assignments before foreclosure has affected titles to “hundreds, if not thousands, of properties” in the state, she said.

‘Strung Along’

The banks also deceived and misled homeowners about loan modifications, the attorney general said in a statement. The servicers “often strung along borrowers for months” in trial modifications before rejecting their attempts to modify loans, according to Coakley.

Banks are also accused of engaging in “robosigning,” in which foreclosure paperwork is signed without verification of the information in the documents. The practice was also used in the transfer of mortgages, Coakley said.

“If we do not do this, we are stuck in this downward spiral of more foreclosures in a way that is totally counterproductive to the economy,” she said at the press conference.

The lawsuit also names Merscorp Inc., which runs a mortgage registry used by banks, as a defendant. According Coakley, the banks undermined the public land record system through the use of the registry, which tracks servicing rights and ownership interests in mortgage loans. Merscorp spokeswoman Karmela Lejarde said in an e-mail that the system complies with Massachusetts law.

JPMorgan Disappointed

Tom Kelly, a spokesman for New York-based JPMorgan, said the bank is disappointed Massachusetts sued while settlement negotiations with state and federal officials continue.

“We continue to believe that collaborative resolution rather than continued litigation will most quickly heal the housing market and help drive economic recovery,” Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in a statement.

Citigroup hasn’t had time to review the lawsuit, Mark Rodgers, a spokesman for the New York-based bank, said in an e- mail. The company has been cooperating with the attorney general, he said.

The case is Commonwealth of Massachusetts v. Bank of America N.A., 11-4363, Suffolk County Superior Court (Boston).

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

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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AT&T: FCC Misinterprets Merger Market Analysis

By Eric Engleman and Todd Shields - Dec 2, 2011 4:16 AM GMT+0700

AT&T Inc. (T) said the Federal Communications Commission misinterprets market analysis and “cherry-picks facts” in concluding that the company’s bid for T-Mobile USA Inc. fails to serve the public interest.

The agency erroneously determined in a Nov. 29 report that the $39 billion purchase of T-Mobile would cause significant job losses and that AT&T would probably build high-speed wireless Internet connections without the merger, Jim Cicconi, AT&T’s senior executive vice president-external and legislative affairs, said in a statement today.

“The report raises questions as to whether its authors were predisposed,” Cicconi said. “The document is so obviously one-sided that any fair-minded person reading it is left with the clear impression that it is an advocacy piece and not a considered analysis.”

The FCC let Dallas-based AT&T on Nov. 29 rescind its application to buy T-Mobile, a deal to join the second-and fourth-largest U.S. wireless carriers. The Justice Department sued in August to block the merger as anti-competitive, and a court date is set for February. The FCC moved last week to send the deal to a hearing that would have taken much of next year, an outcome the application withdrawal avoided.

AT&T’s response “represents a very visceral reaction to the release of the FCC report,” Jeff Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors LLC in Washington, said in an interview. “The trial is perhaps their last best chance to salvage the transaction, and the release of the report is potentially damaging to that objective of winning at trial.”

‘Massive Job Losses’

The FCC said in its report that “the applicants have failed to meet their burden of demonstrating that the competitive harms that would result from the proposed transaction are outweighed by the claimed benefits.” T-Mobile offers low prices and innovation, and its potential loss as a competitive force causes “serious concern,” the FCC found.

Neil Grace, an FCC spokesman, said today in an e-mail that “the FCC’s expert staff dispassionately analyzed all of the facts, including the arguments AT&T rehashes today.” The agency concluded that “the transaction would decrease competition, innovation and investment and harm consumers,” Grace said, adding that “AT&T’s own filings, many of which they have kept confidential, show that the deal would lead to massive job losses.”

Cicconi said that the agency’s analysis of the deal’s effect on competition “willfully ignores critical facts about the wireless market.” The FCC report cites Bellevue, Washington-based T-Mobile as a “disruptive force” in the wireless industry, yet fails to mention that “for the past two years T-Mobile has been losing customers despite growing demand across the industry,” he said.

‘Makes No Sense’

AT&T also challenged the agency’s conclusion that the deal would eliminate jobs, pointing to the FCC’s plans for a $4.5 billion fund to support high-speed Internet expansion aimed at spurring employment growth.

“This notion -- that government spending on broadband deployment creates jobs and economic growth, but private investment does not -- makes no sense,” Cicconi said. The company has said in ads aired on Washington-area television stations that the deal would create as many as 96,000 jobs.

AT&T fell 0.1 percent to $28.84 at 4 p.m. in New York Stock Exchange composite trading.

‘Fairly Serious Hit’

FCC Chairman Julius Genachowski said in a Nov. 29 statement that “our review of this merger has had a clear focus: fostering a competitive market that drives innovation, promotes investment, encourages job creation and protects consumers.”

AT&T and T-Mobile parent Deutsche Telekom AG (DTE) plan to focus on objections from antitrust authorities and to return to the FCC at some point, AT&T said in a statement last week.

“That was a fairly serious hit that AT&T took at the FCC, but their response today makes it clear that the battle definitely isn’t over,” Paul Gallant, an analyst with Guggenheim Securities LLC, said in an interview. “A settlement with the Justice Department isn’t likely but the company still has a decent chance in court.”

To contact the reporters on this story: Eric Engleman in Washington at eengleman1@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

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U.S. Stocks Decline After Three-Day Rally

By Rita Nazareth - Dec 2, 2011 4:37 AM GMT+0700

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Dec. 1 (Bloomberg) -- Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, discusses the potential impact of the European debt crisis on financial markets and investment strategy. He speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

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Dec. 1 (Bloomberg) -- Troy Gayeski, senior portfolio manager at SkyBridge Capital LLC, talks about the outlook for global markets and investment strategy. He speaks with Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

U.S. stocks declined as better-than- forecast manufacturing growth and a rally in French and Spanish bonds were not enough to extend the biggest three-day gain in the Standard & Poor’s 500 Index since March 2009.

Financial stocks (S5FINL) fell the most in the S&P 500 among 10 industries, dropping 1 percent, as Massachusetts sued some of the largest lenders over foreclosure practices. Alcoa (AA) Inc. lost 2.1 percent as commodities retreated. Kohl’s Corp. slumped 6.4 percent after November sales missed estimates. Yahoo! Inc. advanced 3.3 percent as a group including Alibaba Group Holding Ltd. was said to prepare a bid for the company.

The S&P 500 slid 0.2 percent to 1,244.58 at 4 p.m. New York time. The index rallied 4.3 percent yesterday as six central banks took action on Europe’s debt crisis by making it cheaper for lenders to borrow in dollars. The Dow Jones Industrial Average decreased 25.65 points, or 0.2 percent, to 12,020.03. Trading volume on U.S. exchanges dropped to about 6.8 billion shares, or 16 percent below the three-month average.

“Pressures on the financials are still out there,” Timothy Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “The economic data was positive, but Europe is still a concern. The coordinated central bank action is not a solution. It buys them some time.”

Stocks rose earlier today as Spain and France sold 8.1 billion euros ($10.9 billion) of bonds, sending yields lower across Europe. In the U.S., manufacturing expanded in November at the fastest pace in five months.

Financial Shares

Equities reversed gains as JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) were among five banks sued by Massachusetts for allegedly conducting unlawful foreclosures and deceiving homeowners.

The KBW Bank Index (BKX) lost 0.8 percent after yesterday’s 7.2 percent jump. JPMorgan decreased 1.7 percent to $30.46. Citigroup slipped 1.8 percent to $26.99. Bank of America added 1.7 percent to $5.53, reversing an earlier decline.

Gauges of commodity shares in the S&P 500 fell at least 0.6 percent after a contraction in China’s manufacturing fueled concern Europe’s crisis is damaging the global economy as yesterday’s moves by central banks were viewed as only a temporary fix. Alcoa, the largest U.S. aluminum producer, dropped 2.1 percent to $9.81.

Kohl’s (KSS) fell the most in the S&P 500, erasing 6.4 percent to $50.37. The department-store chain said sales at stores open at least one year decreased 6.2 percent in November. Analysts on average estimated an increase of 2.1 percent.

Most Since August

Barnes & Noble Inc. (BKS) plunged 16 percent, the most since Aug. 19, to $14.59. The largest U.S. bookstore chain reported second- quarter sales that missed the average analyst estimate by 4.3 percent, according to Bloomberg data.

Stocks pared declines in the afternoon as investors awaited tomorrow’s jobs report. Payrolls may have climbed by 125,000 workers in November, after rising 80,000 the prior month, economists surveyed by Bloomberg projected ahead of the Labor Department report.

“People are looking for catalysts,” Peter Jankovskis, who helps manage about $2.4 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. “One catalyst may be additional signs of strength in the U.S. You may have some people wanting to make sure that they are in because they are expecting a big number on the jobs front.”

Yahoo rallied 3.3 percent to $16.23. Alibaba Group and Softbank Corp. (9984) are in advanced talks with Blackstone Group LP (BX) and Bain Capital LLC about making a bid for all of Yahoo, said three people with knowledge of the matter.

Above $20

A bid may value Yahoo at more than $20 a share because of tax savings tied to the Internet company’s stakes in Alibaba and Yahoo Japan, said two of the people, who declined to be identified.

Clearwire Corp. (CLWR) rallied 14 percent to $2.03. The money- losing wireless carrier paid creditors $237 million in interest after striking a new network-sharing agreement with partner Sprint Nextel Corp. (S)

The S&P 500 will end next year at 1,250 as a stagnating U.S. economy damps valuation increases for equities, Goldman Sachs Group Inc.’s David Kostin said.

The strategist lifted his estimate for earnings by companies in the benchmark measure to $100 a share in 2012 from $98, according to a note dated yesterday. He boosted his projection for combined profit this year by $1 to $97.

Price-Earnings

The S&P 500 (SPX) declined 0.9 percent this year through yesterday amid concern European officials will fail to tame the region’s debt crisis, triggering a global recession. The gauge’s price-earnings multiple based on estimated profit for the next year has averaged 12.9 times this year and fell as low as 11 times on Oct. 3, according to data compiled by Bloomberg.

“The U.S. economy remains in stagnation,” Kostin said. “This fact will limit any significant rally or sustained P/E expansion in the S&P 500 in 2012. The high degree of political uncertainty coupled with downside policy tail risk drives our view that equity investors should focus on the underlying fundamentals and position portfolios for the worst while hoping for the best.”

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

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

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Merkel Shuns ECB Role in Favor of Budget Limits

By Tony Czuczka - Dec 2, 2011 12:19 AM GMT+0700
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German Chancellor Angela Merkel addresses a press conference after her meeting with British Prime Minister David Cameron on Nov. 18, 2011 at the chancellery in Berlin. Photographer: Ma Ning/Xinhua

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Dec. 1 (Bloomberg) -- Bradley Rogoff, head of U.S. credit strategy at Barclays Capital Inc., talks about yesterday's move by the Federal Reserve and five other central banks to cut the cost of emergency funding for banks outside the U.S. in a bid to ease Europe's sovereign debt crisis. He speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

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Dec. 1 (Bloomberg) -- Former Federal Reserve governor Wayne Angell talks about Europe's sovereign-debt crisis and European Central Bank policy. Angell also discusses Switzerland's statement that it may consider negative interest rates. He speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)

German Chancellor Angela Merkel is set to snub investor pleas to back an expanded European Central Bank role in solving the debt crisis, as she pushes her demand for tighter economic ties in Europe as the only way forward.

In the days before a speech to German lawmakers tomorrow outlining her stance for a Dec. 9 European summit, Merkel has repeated her push to rework European Union rules to lock in budget monitoring and enforcement and seal off the ECB from political pressure. That risks a showdown with fellow EU leaders and extends her conflict with financial markets looking for immediate measures to end the contagion.

“The market is questioning Merkel’s tough approach,” Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said by phone today. Investors want “clarity on what the framework will look like and what the financial bridge will look like” to fund euro-area governments and banks that need aid while fiscal ties are negotiated.

Merkel’s refusal to deploy the ECB is a rebuff to President Barack Obama after he exhorted Europe’s leaders to take more action to combat the crisis. The chancellor is loath to agree to follow the Federal Reserve and the Bank of England in policies she views as akin to fighting debt with more debt. Enlisting the ECB in battling the crisis would violate the central bank’s independence and set it on a course of action that might not work, destroying its credibility.

‘Damaging’ Solution

The ECB is independent and must choose its own method of ensuring the euro’s stability “without being praised or criticized” and states must protect that independence by improving their finances, the Westdeutsche Zeitung quoted Merkel as saying in an interview released today. The government sees joint euro bonds as “the wrong remedy in this phase of European development and even damaging,” she told the newspaper.

Underscoring the focus on debt cutting, Germany will propose that each euro country set up a national debt-reduction fund as one way to boost market confidence, Finance Minister Wolfgang Schaeuble said in Berlin today. Each country could pay into the fund every year until its debt level returns to the euro-area limit of 60 percent of gross domestic product, he told reporters.

Merkel’s drive to pursue economic and political convergence may still not be the final word. “You can’t put the cart before the horse,” she said in a Nov. 23 speech to parliament.

Draghi Signals

ECB President Mario Draghi signaled today that the central bank could do more to fight the crisis in return for fiscal union, one day after the ECB joined the Fed and four other central banks to lower financing costs for banks. Michael Meister, the parliamentary finance spokesman for Merkel’s party, has said that greater integration is a precondition for any German rethink of its opposition to “joint liability.”

“If the euro zone succeeds in agreeing on more political integration with clear consequences for breaching fiscal and economic rules, the German government should eventually give up its resistance to euro bonds,” Carsten Brzeski, an economist at ING Group in Brussels, said in a commentary for Bloomberg Brief.

Throughout the market turbulence and conflict with allies, Merkel hasn’t budged, saying that euro bonds aren’t the answer for now. Her refusal to sanction using the ECB clashes with French President Nicolas Sarkozy’s government, while her focus on changing Europe’s rules irks countries such as the U.K. and Ireland, where voters twice rejected EU treaties in referendums.

‘More Strictly’

“Not everyone is enthusiastic about treaty change because that requires a difficult process of consensus in individual governments, parliaments and populations for some,” Merkel told reporters on Nov. 29. “Still, I believe that those who give us money for government bonds in Europe expect that we have to ensure enforcement of the Stability and Growth Pact more strictly than in the past.”

Germany is seeking changes to the EU’s rulebook to allow closer monitoring of euro countries’ budgets, with sanctions against persistent offenders and potential veto power over national spending plans wielded by the EU Commission, the EU’s Brussels-based executive. EU President Herman van Rompuy is due to present proposals for treaty change at the Dec. 9 summit.

Merkel, who has signaled she doesn’t want financial markets or even her own economic advisers imposing solutions for the debt crisis, is sticking to the crisis-fighting arsenal built up since Greece, the euro area’s most indebted country, was bailed out in May 2010. Six months later, as Ireland prepared to join Greece in requesting a bailout, Merkel said policy makers have to assert “primacy” over the markets in “a kind of battle.”

No Bazooka

Germany and Europe don’t have “unlimited financial strength” to counter the crisis, Merkel’s chief spokesman, Steffen Seibert, told reporters Nov. 28. That’s “why the German government reacts so skeptically to the many calls for Europe to finally free up the really big, final financial reserves, which the Anglo-Saxon world likes to call showing the bazooka.”

In the latest bid to tame the crisis, European finance ministers said yesterday they would seek a greater role for the International Monetary Fund alongside their own bailout fund, the European Financial Stability Facility.

Schaeuble said the IMF option, along with the EFSF’s ability to buy sovereign bonds and guarantee as much as 30 percent of bond issues by troubled governments, guarantees that all euro-area members will meet their financing needs well beyond the first quarter of 2012.

‘Game of Chicken’

The EFSF looks like “yesterday’s story” as German policy makers play a “huge game of chicken” over future economic and monetary union to achieve their budget-tightening aims, said Jim O’Neill, chairman of Goldman Sachs Asset Management.

“How close to the edge do you want to take this?” O’Neill said yesterday in a Bloomberg Television interview with Francine Lacqua. “It needs Germany and the ECB to decide whether they want EMU to exist or not, because that’s how it’s going.”

Merkel and Sarkozy, at a Nov. 24 meeting in Strasbourg with Italian Prime Minister Mario Monti, agreed to stop discussing the ECB’s role in the debt crisis. Three days later, French Budget Minister Valerie Pecresse, who is also the government’s spokeswoman, suggested that more help from the ECB may be forthcoming if euro states implement tougher budget rules.

“A new fiscal compact” is “definitely the most important element to start restoring credibility,” Draghi told European lawmakers in Brussels today. “Other elements might follow, but the sequencing matters.”

Merkel’s insistence on debt and deficit reduction is yielding results. Crisis-driven government changes in Italy and Spain ushered in leaders who pledge budget cuts, while EU states including France agreed to look at locking debt reduction into its constitution. Forecast growth in Germany, Europe’s biggest economy, of 2.9 percent compares with a euro-region average of 1.6 percent this year, according to the Paris-based Organization for Economic Cooperation and Development.

Merkel’s refusal to put more German wealth on the line to save the euro area “is not a categorical rejection,” said Brzeski of ING Group. “It is all about the sequence of events and decisions.”

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net

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

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