European Stocks Pare Advance as Rio Tinto, ThyssenKrupp Drop; Shell Rises

By Peter Levring - Feb 14, 2012 8:00 PM GMT+0700

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Feb. 14 (Bloomberg) -- Julian Jessop, chief global economist at Capital Economics Ltd., talks about Greece's membership of the euro and the outlook for gold and other commodities. He speaks with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

European (SXXP) stocks pared gains, after the Stoxx Europe 600 Index yesterday rallied the most in a week, as Rio Tinto Group slipped, offsetting a report showing that German investor confidence rose to a 10-month high. U.S. index futures were little changed, while Asian shares slid.

Royal Dutch Shell Plc (RDSA) gained 1 percent, dragging the Stoxx 600 higher. ThyssenKrupp AG (TKA), Germany’s biggest steelmaker, fell 2.5 percent after posting a first-quarter loss following project delays. TDC A/S (TDC) slipped 4.7 percent after private-equity investors sold shares in Denmark’s biggest phone company.

The Stoxx 600 gained 0.1 percent to 263.3 at 12:59 p.m. in London, extending yesterday’s 0.7 percent rally. The benchmark measure has advanced 7.7 percent this year amid optimism that the euro area will contain its crisis and as U.S. economic reports beat forecasts. S&P 500 futures expiring in March slipped less than 0.1 percent today, while the MSCI Asia Pacific Index dropped 0.4 percent.

“It’s good for Europe that its biggest economy is improving as German exporters are benefiting from the cheaper euro,” said Henrik Drusebjerg, a Copenhagen-based senior strategist at Nordea Bank AB, which helps oversee $230 billion. “Many European (SXXP) businesses are suppliers to German exporters and will benefit from an uptick in the German economy.”

German Investor Confidence

German investor confidence increased in February more than economists had forecast, rising to a 10-month high. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 5.4 from minus 21.6 in January. Economists had predicted a gain to minus 11.8, according to the median of 40 estimates in a Bloomberg News survey.

Italy sold 6 billion euros ($7.9 billion) of bonds at an auction, meeting its target. The country’s borrowing costs fell to the lowest since March even after Moody’s Investors Service lowered its rating for the nation. Italy’s Treasury sold 4 billion euros of benchmark securities due in November 2014 to yield 3.41 percent, down from 4.83 percent at the last auction of similar-maturity bonds on Jan. 13. The Rome-based Treasury also sold a total of 2 billion euros of bonds due in 2015 and 2017 to yield 3.77 percent and 4.26 percent respectively.

Italy, Spain Downgraded

Stocks declined earlier today as Moody’s said it may strip the U.K. and France of their top Aaa ratings, citing the euro area’s debt crisis. Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered.

“Policy makers have made steps forward, but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.”

In the U.S., retail sales probably rose in January by the most in four months, led by growing demand for autos, economists said before a report today. A Commerce Department report published at 8:30 a.m. in Washington will show a 0.8 percent increase, exceeding a 0.1 percent advance in December, according to the median forecast of economists surveyed by Bloomberg News.

Shell climbed 1 percent to 2,318.5 pence as Europe’s largest oil company limited losses on the Stoxx 600.

L’Oreal Shares Advance

L’Oreal SA (OR) gained 3 percent to 84.12 euros after the world’s largest cosmetics maker said it’s confident of achieving sales and earnings growth this year after reporting a 7.7 percent increase in 2011 operating profit, beating analysts’ estimates.

L’Oreal also said that Liliane Bettencourt will leave the company’s board and be replaced by her grandson Jean-Victor Meyers. Meyers, 25, studied economics and management and is a director of Tethys, the Bettencourt family holding company.

Deutsche Boerse AG (DB1) jumped 3.2 percent to 50.32 euros after the German bourse operator posted a fourth-quarter profit amid lower costs and higher sales while announcing a stock buyback and dividend.

Rio Tinto Group decreased 2 percent to 3,768 pence as the world’s third-biggest mining company approved a $4.5 billion expansion of its Chilean Escondida copper mine with BHP Billiton Ltd. (BHP) The mine accounts for about a fifth of all copper produced in Chile, the world’s top supplier of the metal. BHP Billiton slipped 0.6 percent to 2,071 pence.

ThyssenKrupp Slides

ThyssenKrupp dropped 2.5 percent to 21.36 euros after reporting a loss before interest and taxes of 33 million euros, compared with a profit of 261 million euros a year earlier.

TDC slid 4.7 percent to 43.09 euros as its private-equity investors sold 750 million euros of stock in a sale arranged by Morgan Stanley. Investors in NTC Holding GP & Cie. SCA, the consortium of buyout firms, sold about 128 million shares, raising 5.6 billion Danish kroner ($99 million).

Raiffeisen Bank International AG (RBI), the biggest Eastern European lender, retreated 2.8 percent to 27.11 euros as Moody’s cut the rating outlook of Austria to “negative” from “stable.”

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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Stocks Fall as Moody’s Cuts Europe Ratings; Default Swaps Rise a Fifth Day

By Stephen Kirkland and Lynn Thomasson - Feb 14, 2012 7:30 PM GMT+0700

Stocks (SXXP) and the euro rebounded as German investor confidence jumped to a 10-month high and borrowing costs fell at Italian and Spanish auctions, even after Moody’s Investors Service downgraded the debt ratings of six European countries.

The Stoxx Europe 600 Index gained 0.2 percent at 7:25 a.m. in New York, after dropping 0.4 percent. Standard & Poor’s 500 Index futures added 0.1 percent. The euro appreciated less than 0.1 percent to $1.3195. The yield on Italy’s 10-year bond fell two basis points, sending the spread with benchmark German bunds three basis points lower. Oil climbed 0.5 percent, reversing earlier declines.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to 5.4 this month from minus 21.6 in January, compared with a median forecast of minus 11.8, according to a Bloomberg survey of economists. The U.K. and France may be stripped of their top Aaa ratings, Moody’s said as it reduced the debt rankings of countries including Italy, Spain and Portugal. Italy sold 6 billion euros ($7.9 billion) of bonds, meeting its target.

“Signs that the European Monetary Union economy is stabilizing, rather than collapsing as some have feared, and hopes of a resolution of the EMU debt crisis seem to have supported the economic sentiment,” Annalisa Piazza, a fixed- income analyst at Newedge Group in London, said in e-mails. Italy’s debt offerings “were well absorbed, despite last night’s downgrade by Moody’s that, in our view, was somehow expected.”

Profit Drops

Two shares gained for every one that fell in the Stoxx 600. Royal Dutch Shell Plc gained 1.1 percent. Storebrand ASA, Norway’s largest publicly traded insurer, plunged 12 percent after fourth-quarter profit dropped and the company said no dividend would be paid for 2011. TDC A/S slid 4.4 percent as the Danish phone company’s private-equity owners offered about 750 million euros of stock for sale.

The S&P 500 advanced 0.7 percent yesterday. Data today may show U.S. retail sales rose in January by the most in four months, gaining 0.8 percent after a 0.1 percent increase in December, according to the median forecast of economists surveyed by Bloomberg News.

Eleven companies in the S&P 500 are due to release results today, including Goodyear Tire & Rubber Co. and Avon Products Inc. Of the 333 companies in the index that have reported earnings since Jan. 9, 70 percent had per-share profit that exceeded estimates, according to data compiled by Bloomberg.

Yields on Italy’s two-year bonds fell five basis points. The yield on Spain’s 10-year bond rose two basis point, paring an increase of as much as five basis points, after the government sold 5.45 billion euros of bills. The Greek two-year yield jumped to 197 percent from 183 percent yesterday. Greece, Belgium and the Netherlands also auction government debt today.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net;

To contact the editor responsible for this story: Stuart Wallace at Swallace6@bloomberg.net

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Italy, Spain Cut by Moody’s; U.K. Rank at Risk

By Ben Livesey and Cordell Eddings - Feb 14, 2012 6:02 PM GMT+0700
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Tourists refresh themselves at the fountain in front of the Pantheon in Rome. Photographer: Filippo Monteforte/AFP/Getty Images

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Feb. 14 (Bloomberg) -- Moody's Investors Service cut the debt ratings of six European countries including Italy, Spain, Portugal, Slovakia, Slovenia and Malta, and said it may strip France and the U.K. of their top Aaa ratings, citing Europe's debt crisis. Caroline Hyde and Mark Barton report on Bloomberg Television's "First Look." (Source: Bloomberg)

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Feb. 14 (Bloomberg) -- Simon Derrick, chief currency strategist at Bank of New York Mellon Corp., discusses the threat to the U.K.'s top Aaa rating by Moody's Investors Service and the outlook for the euro and pound. He speaks with Caroline Hyde on Bloomberg Television's "First Look." (Source: Bloomberg)

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Feb. 14 (Bloomberg) -- Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and revised its outlook on the U.K.’s and France’s top Aaa rating to "negative." John Dawson and Susan Li report on Bloomberg Television's "First Up." (Source: Bloomberg)

Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis.

Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered.

“Policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.”

The euro reversed losses after a report showed German investor confidence rose more than economists forecast in February. Moody’s decision highlighted the risk that the European debt crisis will deepen even as the region’s finance ministers prepare to meet tomorrow to discuss a second aid package for Greece, following the country’s approval of austerity measures.

AAA Ratings

Still, recent rating reductions have done little to deter investors, who poured money into the government bonds of nations such as France and Austria even after the countries lost their AAA ratings at Standard & Poor’s last month. U.S. Treasuries returned three times as much as AAA corporate bonds since the world’s biggest economy was cut by one rank in August.

“The ratings agencies are kind of behind the curve,” said Shen Jianguang, chief economist for Greater China at Mizuho Securities Asia Ltd., who previously worked for the International Monetary Fund. “The risks have actually been falling in Europe. There may be worries that countries cutting fiscal spending may drag on their economic growth, but the concerns aren’t new and the downgrade should have minimal impact on market sentiment.”

The Stoxx Europe 600 Index rose 0.3 percent at 12 p.m. in Frankfurt, reversing earlier losses. The euro appreciated 0.2 percent, trading at $1.3205.

“The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework,” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said.

‘Weak Prospects’

Moody’s yesterday also lowered its outlook on Austria’s Aaa rating to negative. Malta’s rating was downgraded to A3 from A2, and Slovakia and Slovenia were both downgraded to A2 from A1. All three were given negative outlooks. In a statement earlier today, the ratings company affirmed its top Aaa rating for the European Financial Stability Facility.

Moody’s said Europe’s “increasingly weak macroeconomic prospects” threaten the “implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness.” It said market confidence “is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”

ECB Injection

Investors have ignored credit rating companies’ concerns about Europe and focused instead on steps taken by policy makers to end the crisis. While Standard & Poor’s on Jan. 13 cut the credit rating of nine euro-region states, yields on most governments bonds continued to edge lower since the European Central Bank on Dec. 21 allotted a record 489 billion euros ($643 billion) in three-year loans to banks.

Yields on Italian 10-year bonds have dropped more than 1 percentage point since ECB’s injection, while French 10-year yields have declined 20 basis points in that period.

In the U.K., Chancellor of the Exchequer George Osborne said his fiscal consolidation program is the only thing stopping Britain from an immediate downgrade.

“This is proof that, in the current global situation, Britain cannot waver from dealing with its debts,” Osborne said in an e-mailed statement released by the Treasury in London yesterday.

The spending cuts that helped the U.K. preserve its AAA credit rating at Standard & Poor’s last year and bolstered the pound have weighed on the currency this year as investors lose confidence that Prime Minister David Cameron will revive economic growth. Sterling had its worst January since 2008 against a basket of nine developed-market peers, falling 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to data compiled by Bloomberg.

‘Relatively Weak’

The National Institute for Economic and Social Research forecasts the U.K. economy will shrink 0.1 percent this year and grow 2.3 percent in 2013, compared with previous projections in October for growth of 0.8 percent and 2.6 percent.

“The U.K.’s fiscal trends are relatively weak among top- rated countries, mainly because of the U.K.’s relatively high pre-crisis structural deficit and recent prolonged economic weakness,” Michael Saunders, chief European economist at Citigroup Inc. in London, wrote in an e-mailed note. “A negative outlook statement typically indicates there is about a one in three chance of a ratings downgrade in the next 18 months.”

Brussels Meeting

French Finance Minister Francois Baroin said the country’s AAA rating was maintained by Moody’s because of “the size of its economy” and its “increased productivity.”

Baroin’s comments were included in an e-mailed statement from the Finance Ministry after Moody’s downgraded the rating outlook to negative.

Germany and the European Commission yesterday welcomed Greek approval of the austerity steps demanded for a financial lifeline, suggesting euro finance chiefs will pull Greece back from the brink when they meet tomorrow.

The Greek parliament’s backing “is a crucial step forward toward the adoption of the second program,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels. “I’m confident that the other conditions, including for instance the identification of the concrete measures of 325 million euros, will be completed by the next meeting” of finance ministers.

Euro-area finance chiefs will convene in Brussels for their second extraordinary meeting on Greece in a week. Frustrated after two years of missed budget targets, ministers declined to ratify the 130 billion-euro package in a special session on Feb. 9, demanding that Greek officials put their verbal commitments into law.

“It’s important for now to complete this program,” German Chancellor Angela Merkel said in Berlin. “The finance ministers will meet again on Wednesday to undertake the work on this, but there can’t and there won’t be any changes to the program.”

To contact the reporters on this story: Ben Livesey in London at blivesey@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Ben Livesey at blivesey@bloomberg.net

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Romney, Santorum Lag Obama in National Poll

By Kristin Jensen and Stephanie Armour - Feb 14, 2012 5:53 AM GMT+0700

Republican presidential contender Rick Santorum has vaulted into a front-runner’s position with Mitt Romney in a Pew Research Center poll that also shows both losing to President Barack Obama in hypothetical matchups.

Santorum drew the backing of 30 percent of Republican and Republican-leaning registered voters in the Feb. 8-12 poll, while Romney got 28 percent, Pew said on its website. Obama held a 10-percentage-point lead over Santorum and an edge of 8 points over Romney among a survey of all registered voters, Washington- based Pew said.

Romney’s status in the race was shaken when Santorum won all three contests on Feb. 7 -- in Colorado, Minnesota and Missouri. Santorum charged yesterday that Romney has responded by making “desperate” attacks on his conservative credentials to regain his footing.

“Another candidate has come up to challenge him, and this time he’s having trouble finding out how to go after someone who is a solid conservative, who’s got a great track record of attracting independents and Democrats and winning states as a conservative,” Santorum said in an interview on ABC Television’s “This Week.”

‘Desperate Things’

Romney’s attacks show “you reach a point where desperate people do desperate things,” Santorum said.

Santorum, a former U.S. senator from Pennsylvania, is campaigning today in the state of Washington, where he has a rally scheduled in Tacoma. Before the appearance, the Romney campaign organized supporters in the state to tout their candidate and his Feb. 11 win in Maine’s caucuses.

“There’s a lot of campaign momentum,” said Cathy McMorris Rodgers, a U.S. representative who is Romney’s campaign chairwoman in Washington, during a conference call for reporters today. “There’s no question in my mind that he’s the most electable of the Republican candidates.”

Romney, a former Massachusetts governor, is campaigning in Arizona today, with a rally scheduled in Mesa. The state holds its primary on Feb. 28, along with Michigan.

Santorum and onetime U.S. House Speaker Newt Gingrich have been vying for weeks to become the chief alternative to Romney and unite the conservative Republican activists who haven’t warmed to Romney’s candidacy. Today, National Review Online suggested Gingrich should step aside.

‘Proper Course’

“When he led Santorum in the polls, he urged the Pennsylvanian to leave the race,” the publication said in an editorial on its website. “On his own arguments, the proper course for him now is to endorse Santorum and exit.”

The National Review in December warned Republicans against nominating Gingrich, saying he might ruin the opportunity to win the White House. Today, the publication said “it would be a grave mistake for the party to make someone with such poor judgment and persistent unpopularity its presidential nominee.”

Gingrich will be campaigning in California later today, holding a “Hispanic Leadership Event” in South El Monte and a reception in Pasadena.

In the Pew Poll, Gingrich drew the support of 17 percent of Republican and Republican-leaning voters, while U.S. Representative Ron Paul of Texas got the backing of 12 percent.

Support for Romney and Gingrich in the Republican race is virtually the same as recorded in a Jan. 4-8 national Pew poll. The backing for Santorum has almost doubled.

Obama Matchups

In the matchups with Obama, the president led Romney, 52 percent to 44 percent, among all registered voters and ran ahead of Santorum, 53 percent to 43 percent. Obama topped Gingrich 57 percent to 39 percent.

The poll’s margin of error in its survey of Republican and Republican-leaning voters is plus-or-minus 5 percentage points; for all registered voters, it is 3.5 points.

While Romney has struggled to unite the party behind his candidacy, he scored a victory this weekend in a straw poll at the Conservative Political Action Conference, a group of activists who oppose government spending, abortion rights and gay marriage.

Santorum, who has a record of working against abortion rights, yesterday downplayed the CPAC straw poll’s importance, saying Paul had won it in the past by paying for participants’ tickets. He declined to say whether the Romney campaign had rigged this year’s contest when asked on CNN’s “State of the Union” program.

Ticket Question

“You have to talk to the Romney campaign and how many tickets they bought,” he said. “We’ve heard all sorts of things.”

Santorum has “a history of making statements that aren’t grounded in the truth,” Andrea Saul, a spokeswoman for Romney, said in an e-mail. “Mitt Romney won the CPAC straw poll.”

In a Feb. 10 speech at the CPAC gathering, Romney termed himself “severely conservative” during his governorship as he sought support from his audience.

The Pew poll shows that among his party’s electorate, those viewing him as a “strong conservative” has dipped to 42 percent from 53 percent in a November survey.

Saying the Republican nomination contest is now a “two- person race,” Santorum said on NBC’s “Meet the Press” yesterday that he had “raised over $3 million this week alone and money continues to pour in.”

Santorum said he’s in a strong position heading into the primaries in Arizona and Michigan, where Romney’s father, George Romney, was governor. Santorum’s wins last week underscore his potential strength in the Midwest and Mountain West, particularly in areas with large blue-collar populations.

Ad Dollars

Romney didn’t devote many resources to the Missouri, Minnesota and Colorado contests, none of which allotted any national convention delegates. He has millions of dollars available for television advertising in the coming weeks from his campaign and a super-PAC that supports his candidacy.

Former Alaska Governor Sarah Palin, a favorite of the Tea Party movement within the Republican Party, said on “Fox News Sunday” that Republican chances of defeating Obama won’t be hurt by an extended campaign for the party’s nomination as long as the candidates don’t spend the time attacking one another.

“They need to quit beating each other up,” said Palin, the 2008 Republican vice presidential nominee. “We need to hear from our candidates the solutions, what is their plan to get us back on the right road in America? We haven’t heard that yet.”

To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net; Stephanie Armour in Washington at sarmour@bloomberg.net

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

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McDonald’s to Phase Out Pens Deemed Cruel to Pigs 11 Years After Chipotle

By Leslie Patton - Feb 14, 2012 4:46 AM GMT+0700

McDonald’s Corp. (MCD), the world’s largest restaurant chain, will require its pork suppliers to get rid of gestation pens that animal-rights groups have long deemed cruel to pigs.

“There are alternatives that we think are better for the welfare of sows,” Dan Gorsky, McDonald’s senior vice president of North America supply-chain management, said in a statement today, released with the Humane Society of the United States.

The company, which uses pork in sausage McMuffins, breakfast platters and McRib sandwiches, will require its suppliers to submit plans by May to phase out the metal cages.

McDonald’s is “one of the largest purchasers of pork -- bacon and sausage, in particular,” David Warner, a spokesman for the National Pork Producers Council, said in an e-mail. The Oak Brook, Illinois-based fast-food chain buys about 1 percent of the U.S. pork supply, according to Lisa McComb, a McDonald’s spokeswoman.

The move comes 11 years after Chipotle Mexican Grill Inc. (CMG) began requiring its pork suppliers to raise pigs outside or in large cages and use antibiotic-free and vegetarian food. McDonald’s spun off Chipotle in 2006.

Gestation cages are typically about 2 feet by 7 feet, too small for a full-sized sow to turn around.

Pigs kept in these pens are more susceptible to disease and illnesses such as urinary tract infections, said Paul Shapiro, a spokesman for the Washington-based Humane Society. They also suffer psychologically because pigs are “very social, intelligent animals,” he said.

Cargill, Smithfield

Cargill Inc., the commodity trader that’s the largest closely held U.S. company, and Smithfield, Virginia-based Smithfield Foods Inc. (SFD) are leading the way in getting rid of the animal enclosures, McDonald’s said in the statement. Cargill is based in Minneapolis.

“It’s just wrong to immobilize animals for their whole lives in crates barely larger than their bodies,” Wayne Pacelle, president of the Humane Society, said in the statement.

McDonald’s, which has about 33,500 locations worldwide, rose 0.2 percent to $99.65 at the close in New York. The shares gained 31 percent last year.

“McDonald’s isn’t going to say this, but we’re throwing away a lot of good things about gestation stalls,” Steve Meyer, the president of livestock and grain marketing consulting firm Paragon Economics in Adel, Iowa, said in an interview. The separate pens keep hogs from fighting with each other, he said.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Apple Tops Google for No. 1 Image

By Alex Nussbaum - Feb 14, 2012 4:37 AM GMT+0700

Apple Inc. (AAPL), burnished by the iPhone’s success and memorials to Steve Jobs, displaced Google Inc. (GOOG) as top company in Harris Interactive (HPOL)’s poll of corporate images. Berkshire Hathaway Inc. (BRK/A) and Johnson & Johnson dropped.

Apple earned the highest score in the 13-year history of Harris’ survey of U.S. consumers, buoyed by the Cupertino, California-based company’s financial success and products like last year’s iPhone 4S, said Robert Fronk, the pollster’s executive vice president. The rise came even as corporate America’s reputation sank, hurt by sagging views of the financial industry, Harris said today in a statement.

“After a little positive momentum last year, across the board, we saw the tarnish come back,” Fronk said in a telephone interview. “Whether it’s due to Occupy Wall Street or the bad news in general, the negatives of the banking and financial- services industries are spreading.”

J&J (JNJ), the world’s second-biggest seller of health-care products, fell to seventh after three years of product recalls, the first time the reputation of the New Brunswick, New Jersey- based company has ranked below the top two in Harris’ annual poll. Berkshire, based in Omaha, Nebraska, plunged from fourth place to 24th, after an executive resigned in March and was accused by Chairman Warren Buffett of violating the firm’s insider trading rules.

Only eight companies were rated as “excellent” in Harris’ poll of 17,000 people, half the number in 2011.

Google, Coke

Google, the Mountain View, California-based owner of the world’s most-popular search engine, slipped to second place from first last year. Rounding out the top five were Coca-Cola Co. (KO), based in Atlanta, followed by Amazon.com Inc. (AMZN) of Seattle, and Kraft Foods Inc. (KFT), based in Northfield, Illinois.

Apple topped the public’s ratings for vision and leadership, products and services, financial performance and workplace environment, four of the six categories that Harris tracked. The company’s shares topped the $500 mark at the close today and advanced 41 percent in the past 12 months.

Along with the glow of products like the iPhone and iPad, Apple benefited from the praise aimed at co-founder Jobs, said Harris’ Fronk. The former chief executive officer, who rescued Apple from the brink of bankruptcy when he returned to the company in 1997, died on Oct. 5. The poll’s online surveys were conducted from Dec. 2 to Dec. 19.

“The outpouring around him as a visionary leader probably played a strong role in where they ended up,” Fronk said.

Steve Dowling, an Apple spokesman, didn’t immediately return a message seeking comment on the Harris poll.

Berkshire Revelations

Berkshire’s slide followed the March resignation of executive David Sokol, amid revelations that he had bought shares of a Buffett takeover target. In interviews, respondents also cited the company’s ties to Goldman Sachs Group Inc. (GS), the New York-based bank in which Buffett invested $5 billion in 2008. Goldman ranked 59th, second to last, in this year’s poll. Financial firms suffered four of the five biggest drops in reputation from last year.

Buffett may also have suffered from his endorsement of President Barack Obama’s so-called “Buffett rule,” Fronk said. Democrats said the proposal would ensure the wealthy don’t pay lower tax rates than other Americans. U.S. Representative Michele Bachmann, a Republican candidate for president last year, dismissed the idea as a “sound bite” and suggested Buffett donate his fortune to the government if he felt he wasn’t paying enough.

Buffett didn’t respond to a request for comment about the poll e-mailed to his assistant.

View of J&J

While J&J, which sells products as varied as cancer drugs, Band-Aids and artificial hips, remained among the most reputable companies, there were worrisome signs that it no longer commanded respect on vision, leadership and emotional appeal, Fronk said. Consumers questioned one of J&J’s “bedrock strengths,” the idea that it can be counted on to “do the right thing,” Fronk said.

“They’ve got a window here where, if they can prove to the general public and their customers that this was a blip, then they can bring some of those not-sure or neutral people back,” he said. “If there’s a belief that it’s a long-term erosion, they’re going to take a hit” to sales as well as their image.

J&J was pleased to again rank “among the most reputable companies among U.S. consumers,” William Price, a company spokesman, said in an e-mail. “We remain in a category of companies with an excellent reputation, reflecting the unrelenting commitment our employees have for the needs of patients and customers.”

American International Group Inc. (AIG), the New York-based insurer rescued in a $182.3 billion U.S. bailout, took last place, just as it did the previous year.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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Apple Shares Climb Above $500 After Earnings Surprise Ignites 17% Surge

By Nikolaj Gammeltoft - Feb 14, 2012 4:23 AM GMT+0700

Shares of Apple Inc. (AAPL) rallied above $500 for the first time after a two-week gain spurred by the iPhone maker’s first-quarter earnings report approached 20 percent.

Apple increased 1.9 percent to $502.60 today. In the Standard & Poor’s 500 Index, Google Inc. (GOOG), Priceline.com Inc. (PCLN) and Intuitive Surgical Inc. (ISRG) cost more per share, at $612.20, $571.15 and $503.07, respectively.

“It reminds us all of the amazing transformation of Apple over the past eight years,” Timothy Ghriskey, who owns Apple and oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview today. “We think the stock has higher to go, $600 is next,” he said. “It’s still an inexpensive stock for a company that is executing at the very highest level and continues to innovate.”

Apple has climbed 11 of the 14 days since reporting quarterly results. Its earnings are expanding so fast that even with the rally, the shares are trading at less than half their median valuation since 1990, data compiled by Bloomberg show. The gain since Apple reported results is almost four times as large as the advance in the Nasdaq-100 Index.

The world’s largest company by market capitalization said on Jan. 24 that profit in the quarter ended Dec. 31 was $13.1 billion, 36 percent more than the average analyst projection, while revenue beat forecasts by $7.3 billion, the most ever. The Cupertino, California-based company single-handedly erased a drop in S&P 500 earnings for the October-to-December period, turning a 4.2 percent decline into a 4.4 percent gain.

Shares of the maker of the iPod, iPhone and iPad have risen 17 percent over the past month, the biggest gain since August 2009 rolling back as of Feb. 10. The stock rose 22 percent this year through the end of last week, compared with a increase of 12 percent for technology companies in the S&P 500.

Analysts see the stock climbing to $575.56, according to the average of price estimates in a Bloomberg survey.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

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

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Gunfights in Saudi Arabia Show Spread of Tensions

By Glen Carey - Feb 14, 2012 3:00 AM GMT+0700

Armored anti-riot vehicles cluster outside the police station in Awwamiya in Saudi Arabia’s oil- producing eastern region, where unrest is turning violent.

“We have enough police force to deal with any criminal or prohibited situation,” says Brigadier-General Yousef al-Qahtani as he drives through the town. In nearby al-Qatif, graffiti scrawled on a cemetery wall criticizes the Al Saud family, founders of the kingdom eight decades ago, and calls for the removal of their fellow Sunni Muslim monarchs in Bahrain. Black Shiite flags adorn religious centers in the back-alleys.

Clashes between police and armed Shiite protesters in the two towns have intensified since October, when 11 police were injured in an attack. Since then, seven Shiites have been killed by security forces, according to figures provided by Saudi Arabia’s Human Rights First Society.

It’s in such places that tensions between the Gulf’s Sunni nations and Shiite-led Iran may spark violence inside Saudi Arabia, the world’s biggest oil exporter. Shiites here have cultural and family ties with Iran, and also with Bahrain, where Saudi troops helped crush Shiite-led protests that broke out a year ago today. Saudi authorities accuse Iran, which is under growing western pressure to back down over its nuclear program, of stirring up unrest in both cases.

‘Much Bigger Fire’

“This is another one of those possible flashpoints in the region that could become a much bigger fire if it is not contained early on,” Paul Sullivan, a political scientist specializing in Middle East security at Georgetown University in Washington, said in an e-mail.

After two Shiites were shot dead in gun battles in Awwamiya and al-Qatif last week, the cost of Saudi Arabia’s credit default swaps jumped 2 percent to 131.8, before retreating to 129.2 yesterday. They reached a two-and-a-half- year high last month as Iranian threats to block the Strait of Hormuz, in response to a planned western oil embargo, stoked concerns of conflict in a region that supplies a fifth of the world’s crude.

Most of that comes from Saudi Arabia, and the biggest Saudi oil fields are in the Eastern Province, home to most of the Saudi Shiite population. It’s the second-largest Shiite community in the Gulf after Iraq’s, comprising between 10 and 15 percent of the total of 19 million Saudi nationals, according to the U.S. State Department.

Iran denies charges of interference by Saudi Arabia and other Gulf nations, and accuses their Sunni rulers of discriminating against Shiites.

Holy Sites

In Bahrain, linked to eastern Saudi Arabia’s Shiite regions by a 16-mile (26-kilometer) causeway, protests have also been escalating, in the run-up to today’s anniversary. Yesterday, Shiite-led opposition groups accused the security forces of attacking peaceful demonstrations with teargas and stun grenades, while the Interior Ministry said protesters hurled rocks and set fire to private property.

Saudi Arabia largely escaped the unrest that spread across the Arab world last year, though there were protests in Awwamiya, al-Qatif and other eastern towns. Shiite cleric Tawfiq al-Amir was arrested after he called for a constitutional monarchy and equal rights.

Tensions between Saudi Arabia and Iran date back to Iran’s Islamic Revolution in 1979. Ayatollah Ruhollah Khomeini accused Saudi rulers of corruption and argued that the holy sites of Mecca and Medina in Saudi Arabia shouldn’t be under a single country’s guardianship. In December, the U.S. agreed to sell Saudi Arabia 84 F-15 fighter jets in a $29.4 billion deal seen as bolstering defenses against Iran.

‘Card They Can Use’

“To ask if Iran has an interest in destabilizing Saudi Arabia, yes they do,” said Khalid al-Dakhil, a political science professor at King Saud University in Riyadh, in a phone interview. “It is a card they can use to pressure the Saudis.”

In al-Qatif, the graffiti shows Shiite resentment at their perceived exclusion from the country’s wealth. “Where is the oil money?” one slogan asks. Smashed street lights and road signs attest to recent violence in the Gulf city, where wooden dhow boats anchor and families picnic as vehicles carrying riot police speed along the coast road.

The U.S. State Department noted in a human-rights report on Saudi Arabia published in 2009 that Shiites in the kingdom face “significant political, economic, legal, social and religious discrimination condoned by the government.”

Saudi Grand Mufti Sheikh Abdulaziz al-Sheikh described practices during the Ashoura festival, a day of mourning for Shiite Muslims, as “against Islamic law” in an article published in Al-Watan newspaper on Dec. 3.

Job Discrimination

Seventy-four students, mainly Shiites, from the Jubail Industrial College north of al-Qatif called on the government to penalize companies that discriminate in hiring, Safwa News reported on Feb. 3. Their petition criticized Saudi Arabian Mining Co., the kingdom’s largest miner, for excluding 60 Shiite students from an employment program. Calls to the company’s communications office weren’t answered yesterday.

Shiite leaders held meetings with the late King Fahd in 1993 and were promised measures to address the region’s grievances. The Eastern Province is benefitting from King Abdullah’s $130 billion spending pledges last year, including a new stadium and roads in Awwamiya.

“The majority of people in Qatif, while they do have grievances and quite legitimate demands, they don’t believe it is the right way to alleviate their grievances through violence,” al-Dakhil said.

First Shootings

Violence, though, has been increasing since October when security forces were fired upon from side streets of Awwamiya. Gun battles between police and demonstrators broke out there and in Qatif on Feb. 9 and 10.

“We never experienced shooting at the police before,” Colonel Abdullah Aseeri, the police chief of al-Qatif, said in an interview. Brigadier General Yousef, an almost 30-year veteran with the Interior Ministry, said the use of weapons and “endangering the lives and safety of citizens is a red line.”

Security forces are displaying more restraint than they have in the past in their response to protests, said Ibrahim al- Mugaiteeb, president of the Human Rights First Society. “A lot of demonstrations happen without a police crackdown,” he said.

A delegation of Shiite Muslim scholars and clerics from al- Qatif condemned clashes in November that left four people dead and nine injured, Al-Yaum newspaper reported. They also pledged loyalty to the Al Saud leadership.

Such community elders, seeking to soothe tensions, don’t have the traction they used to have, said Tawfiq al-Saif, a prominent Shiite cleric. Young Saudi Shiites, like their contemporaries elsewhere in the Arab world, are demanding change, he said.

“There is the sense of being marginalized in the country among the Shiite young,” al-Saif said. “The younger generation feels that it is no longer the role of the leaders or elders to solve their problems. People want promises fulfilled.”

To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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Pentagon May Oust Troops Involuntarily to Meet Reductions in Budget Plan

By Viola Gienger and Roxana Tiron - Feb 14, 2012 4:51 AM GMT+0700

The Defense Department may have to force soldiers, Marines or other members of the military out of the services for the first time since the aftermath of the Cold War to achieve the spending reductions in its budget proposal.

The Pentagon plans to cut 67,100 soldiers from active and reserve Army units and the Army National Guard in the five years starting Oct. 1, as well as 15,200 from the active and reserve ranks of the Marine Corps as part of an effort to save $487 billion over a decade, according to the budget sent to Congress today. The Navy and Air Force would lose fewer people -- 8,600 and 1,700 respectively -- because of their role in a strategic shift toward the Asia-Pacific region and the Middle East.

The military will first try buying out contracts or offering bonuses for people to leave, while working to keep those with valuable specialties such as cyber warfare and acquisitions, according to Travis Sharp, a fellow at the Center for a New American Security, a Washington policy group, who attended a Pentagon briefing for analysts last month.

“I was surprised that they were going to complete the reductions to the Army and the Marine Corps in just five years,” Sharp said in an interview before the budget was released. “What they told us is that they will try to use those types of positive incentives to the greatest extent possible, but that involuntary separations would probably still be necessary.”

The Pentagon has said it is aiming to a create a smaller, more agile military. Special operations forces, whose commandos killed Osama bin Laden last year, would be expanded.

Republican Opposition

Republicans in Congress already have signaled they will challenge the Pentagon reductions when lawmakers take up the proposed fiscal 2013 budget that President Barack Obama sent to Congress today.

Representative Howard “Buck” McKeon, the Republican chairman of the House Armed Services Committee, cited a comment by White House Chief of Staff Jack Lew in an interview on NBC’s “Meet the Press” that “the time for austerity is not today.”

“They’ll have a tough time explaining that to the 100,000 troops who will be forced from service under the president’s new budget plan,” McKeon of California said today in a statement.

The cuts, spurred in part by plans to wind down the war in Afghanistan in the next three years, would mark the first time the U.S. military has forced personnel out of the services since the larger troop reduction after the end of the Cold War with the Soviet Union.

Service Options

The military services, which decide how to achieve the cuts, may be able to tighten re-enlistment standards and offer incentives to leave, Defense Department Comptroller Robert Hale said.

“I don’t think we can stand here and say there won’t be any involuntary separation,” Hale told reporters at the Pentagon today. “We have very high retention right now with the economy still fairly weak. If that changes, it will be easier. If it doesn’t, it will be harder.”

The department will seek to “do this in as humane a way as we can,” Hale said.

The prospect of cutting the U.S. military to about 2.15 million people by October 2017, a reduction of 92,600 starting next year, creates political risks for Obama in an election year, and economic risks as military personnel enter the civilian workforce in coming years, Sharp said. Including reductions in the current year, the plan would eliminate 123,900 positions from all the branches.

‘Kicking People Out’

“You are kicking people out of the military at a time when unemployment is not only a major challenge, it is also a primary factor in the upcoming presidential election,” Sharp said. “They will have to start the machinery and the process of implementing these drawdowns this year.”

The reductions would start with 31,300 uniformed positions, or 1.4 percent, eliminated in the 12 months starting Oct. 1, cutting the force size to 2,238,400 from 2,269,700 this year, according to the proposal.

After the Cold War, the military pared its active-duty ranks by 494,000 from 1991 to 1995, according to the Defense Department comptroller’s office. That included 216,000 from the Army and 21,000 from the Marine Corps. Further cuts followed in the next few years, ending just before the Sept. 11 terror attacks by al-Qaeda.

Junior Officers

The Army forced more than 5,300 out of its officer ranks alone in the five years ended Sept. 30, 1997, according to a report published in October 2000 by a researcher at the U.S. Army War College’s Strategic Studies Institute. The study found forced exits also contributed to attrition in the ranks of younger officers.

“With junior officers witnessing such an array of policies designed to entice or force over 23,000 of their peers and role models to leave, it is not surprising that their loyalty to the military has been redefined with a healthy dose of skepticism,” the researcher, Leonard Wong, wrote in the report.

The Army’s budget director, Major General Phillip McGhee, told reporters at the Pentagon today that his service will rely first on on-time and early retirements, reducing recruitment and other steps before resorting to involuntary measures.

“We really want to put minimum stress on the force as we do the rampdown,” McGhee said.

Protracted Conflicts

In addition to focusing more national security attention on Asia and the Middle East, the Pentagon’s revised strategy outlined last month sets aside previous assumptions that the military plan for large and protracted conflicts such as Iraq and Afghanistan.

The cuts in uniformed personnel are in keeping with proposed steps such as eliminating eight Army brigades, five Marine infantry battalions and four of the Corps’s tactical air squadrons. The Air Force would lose 303 aircraft and six fighter squadrons, while the Navy jettisons seven cruisers and 2 dock landing ships.

“In preparing this budget, we endeavored to avoid the mistakes of previous drawdowns that attempted to maintain more force structure than the budget could afford,” the department wrote in a Jan. 26 summary of its five-year priorities.

Cuts by Service

Today’s budget proposal fleshes out the cuts for each of the military branches.

Army forces would be reduced by less than 1 percent to 1,115,300 in 2013 and then drop to 1,048,200 in 2017. That’s still far greater troop strength than in February 2002, a year before the U.S. invasion of Iraq, when the Army numbered about 480,000 on active duty.

The Navy would have 1.7 percent fewer personnel, or 385,200 in 2013, and faces a reduction of 3.9 percent to a total of 376,600 people in 2017.

The Marines would be down to 236,900 in 2013, or 2 percent fewer than this year. By the end of 2017, the Marines face a reduction of 8.3 percent from this year to 221,700.

The Air Force will have 501,000 personnel in 2013, or 1.9 percent fewer than this year. In 2017, Air Force personnel will decline to 499,300.

To contact the reporters on this story: Viola Gienger in Washington at vgienger@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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Obama Proposes Higher Dividend Taxes on Wealthiest

By Richard Rubin and Steven Sloan - Feb 14, 2012 2:59 AM GMT+0700
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Republican senators, lfet to right, David Vitter from Louisiana, Jeff Sessions from Alabama, Jerry Moran from Kansas, and John Barrasso from Wyoming prepare a response to the President Obama's 2013 budget proposal in Washington on Feb. 13, 2012. Photographer: Jim LoScalzo/EPA/LANDOV

President Barack Obama’s budget plan calls for taxing dividends received by high-income taxpayers as ordinary income, raising the top rate to 39.6 percent from 15 percent as part of a $1.4 trillion tax increase on top earners over the next decade.

The proposal, in the president’s fiscal 2013 budget released today, would reverse his previous policy that called for taxing dividends more lightly than wage income. The plan would treat dividends as ordinary income for married couples making more than $250,000 a year and individuals making more than $200,000. The dividend tax proposal would raise $206.4 billion over 10 years.

“We simply can’t afford to devote $206 billion for lower tax rates for the highest-income Americans,” Gene Sperling, White House director of the National Economic Council, told reporters today. “Our system for taxing investment income for the most well-off Americans is clearly broken.”

Obama is proposing a top individual income tax rate of 39.6 percent in 2013, up from 35 percent. His budget would tax capital gains at a top rate of 20 percent, up from 15 percent. The top dividend tax rate is now 15 percent.

An additional 3.8 percent tax on the unearned income of couples earning $250,000 and individuals making at least $200,000 will take effect in 2013 as part of the 2010 health- care law. As a result, some taxpayers would pay 43.4 percent in federal taxes on their dividends next year, almost triple what they now pay.

Pre-2003 Taxation

The proposal reverses the administration’s policy and would return dividend taxation to its pre-2003 status. The administration’s fiscal 2012 budget had justified setting the top capital gains and dividend tax rates at 20 percent because it “reduces the tax bias against equity investment and promotes a more efficient allocation of capital.”

The proposal is part of Obama’s attempt to tap the wealthiest Americans to reduce the federal budget deficit.

“We don’t need to be providing additional tax cuts for folks who are doing really, really, really well,” Obama said in a speech at Northern Virginia Community College in the Washington suburbs today.

Along with the rest of the administration’s proposed tax increases, the change in the dividend tax will probably run into resistance from Republicans and business groups. A coalition of companies, including AT&T Inc. and United Parcel Service Inc. (UPS), has been lobbying to maintain the rates on capital gains and dividends.

Policy Difference

Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington, said the administration’s proposal to tax dividends at higher rates than capital gains is surprising, because capital gains tend to go to people with the highest incomes.

“What is the policy difference that the administration has suddenly found between qualified dividends and capital gains?” he said. “Why do they get different rates now?”

The administration also wants to impose a 30 percent minimum tax for individuals with annual incomes of at least $1 million, known as the “Buffett rule” after billionaire investor Warren Buffett, who originated the idea last year.

That would replace the alternative minimum tax, “which now burdens middle-class Americans rather than stopping the richest Americans from paying too little as was originally intended,” the administration said.

Tax Code Rewrite

Sperling said the AMT would be eliminated as part of a broader rewrite of the U.S. tax code. The administration hasn’t made such a proposal, and the budget released today didn’t include repealing the AMT or imposing the Buffett rule.

Buffett, in a New York Times opinion article in August, said that in 2010 he paid a lower tax rate -- 17.4 percent -- than “any of the other 20 people in our office.”

The budget proposal doesn’t say how much revenue the Buffett rule would generate and it doesn’t provide details on how the rule would affect individuals’ tax calculations. The U.S. collected $39.1 billion from the alternative minimum tax in 2011, according to projections from the Tax Policy Center, a nonpartisan research organization in Washington.

The AMT, in its current form since 1986, requires taxpayers to compare their tax liability under the regular code with their liability under the alternative minimum regime. Because the AMT doesn’t allow the full benefits of state and local tax deductions or personal exemptions, people with large families or who live in high-tax states tend to be disproportionately affected.

Millions of Taxpayers

The exemption levels aren’t permanently indexed for inflation. Unless Congress acts to blunt its spread, millions more taxpayers will pay the alternative tax next year. If Congress doesn’t act, the number of people paying the AMT will jump from 4.3 million to 31.2 million, according to the Tax Policy Center.

Obama’s budget revives calls to allow the 2001 and 2003 tax cuts on income and capital gains to expire at the end of 2012 for families earning more than $250,000 a year and cap itemized deductions and other tax benefits for these families at 28 percent.

The list of capped tax breaks includes municipal bond interest and employer-sponsored health insurance. In the budget, the administration expanded the proposal to include contributions to tax-advantaged retirement accounts such as 401(k) plans.

“The recycled and rejected tax hikes on the top two brackets would come at the expense of small businesses,” Senator Orrin Hatch of Utah, the top Republican on the Finance Committee, said in a press release. “If the president is committed to reforming our tax code, why in the world would he discuss putting in place a new version of the failed alternative minimum tax?”

Private Equity Managers

The president’s plan would tax the profits-based compensation paid to private equity managers at ordinary income rates instead of a preferred 15 percent rate. It also would curtail tax breaks for corporate jets and oil and gas companies.

Obama reintroduced previous years’ proposals to limit companies’ ability to defer taxation on income earned overseas. He proposed new breaks for businesses that hire more workers, manufacturers and companies that bring jobs into the U.S.

Separately from the budget, Obama is proposing an overhaul of the corporate tax system that would eliminate tax benefits to lower the top corporate rate from 35 percent. The administration plans to release more details on its corporate tax framework by the end of the month.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Steven Sloan in Washington at ssloan7@bloomberg.net

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

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Moody’s Cuts European Sovereigns Including Italy, Spain

By Ben Livesey and Cordell Eddings - Feb 14, 2012 6:55 AM GMT+0700
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The Portuguese national flag flies during a demonstration against austerity measures in Lisbon, Portugal. Portugal was downgraded to Ba3 from Ba2 with a negative outlook. Photographer: Mario Proenca/Bloomberg

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Feb. 14 (Bloomberg) -- Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and revised its outlook on the U.K.’s and France’s top Aaa rating to "negative." John Dawson and Susan Li report on Bloomberg Television's "First Up." (Source: Bloomberg)

Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and revised its outlook on the U.K.’s and France’s top Aaa ratings to “negative,” citing Europe’s debt crisis.

Spain was downgraded to A3 from A1 with a negative outlook, Italy was downgraded to A3 from A2 with a negative outlook and Portugal was downgraded to Ba3 from Ba2 with a negative outlook, Moody’s said. It also reduced the ratings of Slovakia, Slovenia and Malta.

“The uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework” and the resources that will be made available to deal with the crisis, are among the main drivers of Moody’s action, the ratings company said.

The euro slipped 0.2 percent to $1.3154, and the pound weakened 0.3 percent to $1.5723.

Standard & Poor’s took away France’s and Austria’s top credit ratings last month in a string of downgrades. Investors poured money into the government bonds of nations such as France and Austria even after the countries lost their AAA ratings at Standard & Poor’s last month.

Moody’s also lowered its outlook on Austria’s Aaa rating today to negative outlook. Malta’s rating was downgraded to A3 from A2 and given a negative outlook, and Slovakia and Slovenia were both downgraded to A2 from A1 and given negative outlooks.

‘Weak’ Prospects

“Europe’s increasingly weak macroeconomic prospects, which threaten the implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness,” are also factors, Moody’s said in a statement. These factors will continue to affect market confidence, “which is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”

French and Austrian securities beat AAA rated company debt since the two nations were deprived of the highest ranking at S&P on Jan. 13. U.S. Treasuries returned three times as much as AAA corporate bonds since the world’s biggest economy was cut by one rank in August.

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

To contact the editor responsible for this story: Ben Livesey at blivesey@bloomberg.net

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Euro, U.S. Futures Climb on Greek Deal

By Lynn Thomasson - Feb 13, 2012 7:36 AM GMT+0700

The euro, U.S. equity index futures and oil advanced after Greek Prime Minister Lucas Papademos won parliamentary approval for austerity measures to secure funds.

The euro rose 0.3 percent to $1.3236 as of 9:25 a.m. in Tokyo. Standard & Poor’s 500 Index futures added 0.4 percent, while the MSCI Asia Pacific Index climbed 0.2 percent. Oil climbed 0.7 percent to $99.31 a barrel. The Australian dollar strengthened 0.3 percent, while the U.S. currency slid versus 13 of its 16 most-traded counterparts.

At least 151 members of Greece’s parliament voted for the austerity plan, according to a tally that is being televised live on state-run Vouli TV. Police battled rioters in Athens protesting the measures. Euro-area finance ministers had refused to approve a 130 billion-euro ($173 billion) rescue package until Greece approved the measures, such as a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts for as many as 15,000 state workers.

The Nikkei 225 Stock Average increased 0.5 percent. Japan’s gross domestic product shrank an annualized 2.3 percent in the three months ended Dec. 31, following a revised 7 percent expansion in the previous quarter. The median forecast of 26 economists surveyed by Bloomberg News was for a 1.3 percent decline.

‘Fine Tuning’

Chinese shares may be active after Premier Wen Jiabao said the nation should start “fine-tuning” economic policies as early as the first quarter, according to Xinhua News Agency. Economic conditions in January and the first quarter deserve attention, Wen told business executives last week in Beijing, the official news agency reported yesterday.

More than 50 companies in the S&P 500 are scheduled to report results this week, data compiled by Bloomberg show, including Deere & Co. and Comcast Corp. Per-share profits have topped analyst estimates at 70 percent of the 331 companies that released results since Jan. 9, data compiled by Bloomberg show. Earnings-per-share have increased 3.9 percent for the group on 7 percent sales growth.

The S&P 500 ended last week down 0.2 percent at 1,342.64. The index is still up 6.8 percent this year, the best annual start since 1991.

To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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U.S. Would Block Iran From Mining Hormuz Strait, Commander Says

By Tony Capaccio - Feb 13, 2012 2:28 AM GMT+0700

The U.S. Navy would move to stop any Iranian attempt to lay mines in the Strait of Hormuz or Persian Gulf as an “act of war” the international community wouldn’t tolerate, the U.S. Navy’s top Gulf commander said.

Iran’s inventory of thousands of mines “represents an indiscriminate and very difficult maritime problem,” comparable to the improvised roadside bombs used in Iraq and Afghanistan to kill U.S. troops, Vice Admiral Mark Fox, commander of the U.S. 5th Fleet, told reporters at his Bahrain headquarters and on a conference call today.

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

“The laying of mines in international waters is an act of war,” Fox said today. “We would, under the direction of the national leadership, prevent that from happening. We always have the right and obligation of self-defense and this falls in ‘self-defense.’

‘‘If we did nothing and allowed some’’ mining, ‘‘it would be a long and difficult process to clear them,’’ Fox said.

While Iran says its nuclear program is for civilian use, the U.S. and allies say the country may move to develop nuclear weapons.

Iranian’s Vow

Iran’s Foreign Minister Ali Akbar Salehi told reporters in Tehran yesterday that his country won’t ever cede to international pressure. President Mahmoud Ahmadinejad said he will disclose ‘‘major nuclear accomplishments” in coming days, according to the state-run Press TV news channel.

“The Iranians have every bit as much right to operate in international waters as we do,” Fox said, and “we are very keen on not trying to over-pressurize the situation.”

The Iranian Revolutionary Guard Corps that controls Persian Gulf operations is “capable of striking a blow, I don’t deny that,” Fox said. “The guidance I give the commanding officers of my ships is that ‘you have a right and obligation of self- defense.’ ”

Still, “the oil always flowed,” even in periods of instability such as the “Tanker War” in the 1980s, when ships were attacked and damaged, he said.

Mine-Sweeping Ships

The U.S. has four Avenger-class mine-sweeping ships in the Gulf -- the USS Ardent, USS Dextrous, USS Gladiator and USS Scout. The U.K.’s Royal Navy has another four vessels -- the HMS Pembroke, HMS Middleton, HMS Quorn and HMS Ramsey, according to the U.S. 5th Fleet in Bahrain.

Mines in the Strait could prompt insurance companies to raise rates on tankers utilizing the waterway, which in turn could lead at least temporarily to higher oil prices.

U.S. officials who follow Iran for the U.S. Central Command estimated in 2008 that Iran possessed as many as 5,000 mines. That compares with 1,000 mines in the 1980s during its conflict with Iraq and the Tanker War.

These include moored mines such as a variant that damaged a frigate, the USS Samuel Roberts, in April 1988 during the Operation Earnest Will escort of Kuwaiti and Saudi tankers.

The inventory also includes as many as 600 advanced mines bought from Russia, such as the MDM-3, which can be dropped from an aircraft. These “influence mines” can be programmed to detonate based on a ship’s acoustic signature.

Caught ‘Red-Handed’

The Navy would detect signs of Iranian mine-laying through surveillance aircraft and sensors, Fox said.

During the Tanker War “we caught some guys red-handed and we stopped them,” he said.

Iran was assessed by U.S. officials in 2008 as having a substantial inventory of mines that could be laid by three Russian-built Kilo-class diesel submarines it bought in the 1990s. In the past 18 months, Iran also increased its inventory of smaller, domestically made Yono-class submarines to more than 10 from 5 previously, Fox said.

The subs are similar to the vessel the U.S. assessed as having sunk the South Korean corvette Cheonan in March 2010, Fox said.

The Yono class is a “lethal but not very capable submarine, he said. ‘‘It doesn’t go very far. It can’t stay submerged very long, but the geography of the Strait of Hormuz is certainly in their favor,” Fox said of the narrow waterway.

The Office of Naval Intelligence also says the Yono-class subs may be used to deploy scuba divers.

Iran has increased the number of small, fast patrol aircraft, some of which have been outfitted with a large warhead for a suicide run at U.S. vessels, Fox said.

It also has boosted the number of coastal-defense cruise missiles along the Strait and invested to make them mobile.

“They have a capability, and we take that capability very seriously and are prepared for it,” Fox said.

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

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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Greek Parliament Backs Austerity as Riots Continue

By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Feb 13, 2012 7:31 AM GMT+0700

Greek Prime Minister Lucas Papademos won parliamentary approval for austerity measures to secure an international bailout after rioters protesting the measures battled police and set fire to buildings in downtown Athens.

A total of 199 lawmakers voted in favor and 74 against, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV. When, on Nov. 16, Papademos won a mandate from the Parliament to implement budget measures and secure the bailout of 130 billion euros ($172 billion) he received the support of 255 lawmakers in the 300-strong chamber.

“It is up to us, our vote, whether the country will remain in the euro or be led to a disorderly default,” Papademos told parliament. “Voting for the economic program and opening the road for a loan accord sets the basis for the modernization and recovery of the economy.”

Passage of the austerity bill puts the spotlight on a meeting of euro-region finance ministers on Feb. 15 that must decide whether to approve the second aid package. Resolution of the negotiations, which started in July, would help contain the threat that speculators will target debt-saddled nations, including Italy and Portugal.

Emergency euro-region talks on Greece broke up on Feb. 9, with Luxembourg Prime Minister Jean-Claude Juncker saying the Greek government must turn budget cuts into law, flesh out 325 million euros in reductions and have major party leaders sign up to the program so they don’t retreat after Greek elections, probably in April.

Euro, Stocks Rise

The euro rose 0.3 percent to $1.3239 as of 7:58 a.m. in Tokyo from last week in New York. Australia’s S&P/ASX 200 Index rose as much as 0.4 percent in early Sydney trading today, climbing for the first time in three sessions, while futures on the Standard & Poor’s 500 Index advanced 0.4 percent, rebounding from a 0.6 percent selloff on Feb. 10.

European finance ministers and private creditors this week will decide on a plan to shepherd Greece through a 14.5 billion- euro bond payment bond payment next month. Still, German Finance Minister Wolfgang Schaeuble told German lawmakers on Feb. 10 that Greece was set to miss deficit goals, suggesting that the measures may fall short.

Erik F. Nielsen, UniCredit’s chief global economist, said in a note yesterday that he keeps hearing investors say a Greek exit from the euro would be “better for all parties.”

“I am very confident that a Greek exit would be a disaster for Greek society,” Nielsen said. “For the rest of Europe I don’t think it’ll matter much (if at all) in the longer term, but I fear that a lot of people may be underestimating the short term risks to Europe of a Greek collapse.”

Arson Attacks

Ten buildings were set ablaze in central Athens by anti- austerity protesters including a Starbucks Corp. (SBUX) cafe and a bank, a fire department spokesman said, speaking on the condition of anonymity in line with official policy. The fires were near a bank that was set on fire in May 2010, killing three employees during a general strike against Greece’s first bailout package.

Demonstrators tore up marble in front of parliament that they hurled with fire-bombs at police guarding the chamber. Officers in riot gear responded with tear-gas and flash grenades. Fifty officers were injured in the violence, police spokesman Takis Papapetropoulos said by telephone. The Greek Health Ministry said in an e-mailed statement that 70 people had been taken to local hospitals. Police said 45 rioters had been arrested.

“Vandalism, violence and repression have no place in democracy and won’t be tolerated,” Papademos told lawmakers before the vote. “In such critical times we have no luxuries for such conflict.”

The measures equal about 7 percent of gross domestic product over three years and include a debt swap that would shave 100 billion euros off more than 200 billion euros of privately held debt.

Greece was granted its first aid package of 110 billion euros in May 2010.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net.

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

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Euro Gains After Greek Parliament Approves Austerity Measures for Bailout

By Candice Zachariahs and Kristine Aquino - Feb 13, 2012 7:44 AM GMT+0700

The euro strengthened after Greek Prime Minister Lucas Papademos won approval from parliament for austerity measures to secure a second package of aid from the European Union and International Monetary Fund.

The 17-nation currency rose against most major peers after Parliament Speaker Filippos Petsalnikos said in remarks carried on state-run Vouli TV that a total of 199 lawmakers voted in favor of the measure. The dollar slid versus 12 of its 16 most- traded counterparts before data tomorrow forecast to show U.S. retail sales rose in January by the most in four months. The yen fell against the greenback after a report showed Japan’s economy contracted last quarter by more than economists had predicted.

The Greek vote “takes some of the downside out of euro for the short-term,” said Sacha Tihanyi, Hong Kong-based senior currency strategist at Scotiabank, a unit of Bank of Nova Scotia. “It certainly was helpful and positive for the currency. It probably induced some short-covering.” A short position is a bet that an asset will decline in value.

The euro rose 0.4 percent to $1.3247 as of 9:07 a.m. in Tokyo from last week in New York. The common currency gained 0.5 percent to 102.92 yen. The yen fell 0.1 percent to 77.70 per dollar.

Greece’s Finance Minister Evangelos Venizelos told lawmakers before the vote to secure a 130 billion-euro ($172 billion) second aid package that “we must show that Greeks, when they are called on to choose between the bad and the worst, choose the bad to avoid the worst.”

U.S. Retail Sales

With only weeks remaining before the country faces a 14.5 billion-euro bond payment, George Papandreou and Antonis Samaras, the leaders of the two largest parliamentary parties, urged support for the bill. Lawmakers, with an eye on elections as early as April, bristled at measures such as a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts. Seventy-four lawmakers voted against the measure.

Greece was granted its first aid package of 110 billion euros in May 2010.

The euro has gained 0.6 percent over the past week, the third best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen dropped 2 percent, the worst return, while the dollar has lost 0.3 percent over the same period.

The U.S. currency extended declines against its major peers before Commerce Department figures projected to show a 0.8 percent gain in retail receipts, following a 0.1 percent advance in December, according to the median forecast of 65 economists surveyed by Bloomberg News.

“Economists have underestimated the upside to the U.S. retail report,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. “It’s probably likely to weaken the U.S. dollar.”

Japan’s economy contracted at an annual 2.3 percent pace in the three months ended Dec. 31, the Cabinet Office said today. The median forecast of economists surveyed by Bloomberg was for a 1.3 percent decline.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net Kristine Aquino in Singapore at kaquino1@bloomberg.net

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

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German Leaders Maintain Pressure as Greek Parliament Debates Budget Cuts

By Patrick Donahue and Rainer Buergin - Feb 13, 2012 12:39 AM GMT+0700

German leaders kept up pressure on Greece as the struggling euro member moved closer to approving an austerity package designed to stave off economic collapse.

German Economy Minister Philipp Roesler said the lower house of parliament in Berlin could put off a vote for Greek financing this month if the government in Athens and opposition parties fail to approve measures today. Greece has to show that “it’s worth it” to call a meeting, Roesler told ARD public television. Finance Minister Wolfgang Schaeuble told newspaper Welt am Sonntag that Greece “will be saved in one way or another,” though the government has to do its “homework.”

As Greek lawmakers are today debating austerity measures to win approval for a loan, European finance ministers and private creditors this week will decide on a plan to shepherd Greece through a bond sale next month. Still, Schaeuble told German lawmakers on Feb. 10 that Greece was missing deficit goals, suggesting that the measures may fall short in rescuing Greece.

“I’m really wondering now whether so much damage has been done that this marriage no longer can be rescued,” Erik Nielsen, chief global economist at UniCredit SpA in London, wrote today in a note to clients. He predicted that the measures would be approved and that Greece will be able to make a 14.5 billion-euro ($19 billion) bond payment on March 20.

Budget Into Law

European finance ministers ended a meeting last week with Luxembourg’s Jean-Claude Juncker saying Greece must turn budget cuts into law, flesh out 325 million euros in reductions and have major party leaders sign up to the program so they don’t retreat after elections. Another extraordinary meeting is set for Feb. 15, where ministers must approve the Greek accord.

Chancellor Angela Merkel plans to ask lawmakers to vote on the next bailout on Feb. 27 if Greece approves the measures. Schaeuble told legislators that current plans would leave Greece’s debt as high as 136 percent of GDP by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout, down from about 160 percent of GDP last year.

Schaeuble was briefing on estimates from the European Commission, European Central Bank and International Monetary Fund -- known as the troika.

Send a Message

Greek Finance Minister Evangelos Venizelos today clashed with lawmakers, saying that “today at midnight, before the markets open, the Greek Parliament must send a message,” after Greek party leaders yesterday urged lawmakers to back the measure to secure the 130 billion-euro package and avoid a disorderly default. Venizelos has said the vote is tantamount to a decision on whether to remain in the euro area.

Before the final debate started, Prime Minister Lucas Papademos appealed to Greeks last night to support new measures, which include a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts for as many as 15,000 state workers.

“We are looking the Greek people straight in the eye with full knowledge of our historical responsibility,” he said in a televised address. “The social costs that come with these measures are contained in comparison to the economic and social catastrophe that will follow if we don’t adopt them.”

Bad Scenario

Greece has stumbled over the last two years in meeting reform targets in return for aid, citing a deepening recession now set to worsen. Unemployment climbed to 20.9 percent in November, as industrial production falls.

Joachim Fels, chief economist at Morgan Stanley, in a note to clients today repeated his assessment that policy makers shouldn’t rule out the “really, really bad scenario” of Greece leaving the monetary union.

Bondholders met separately in Paris on Feb. 9 to discuss accepting a debt swap for new 30-year bonds with an average coupon of as low as 3.6 percent. An agreement would slice 100 billion euros off more than 200 billion euros of privately held debt. Venizelos said the country needs to make a formal offer to private bondholders for a debt swap by Feb. 17.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net, and Rainer Buergin in Berlin at at rbuergin1@bloomberg.net.

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German Leaders Maintain Pressure as Greek Parliament Debates Budget Cuts

By Patrick Donahue and Rainer Buergin - Feb 13, 2012 12:39 AM GMT+0700

German leaders kept up pressure on Greece as the struggling euro member moved closer to approving an austerity package designed to stave off economic collapse.

German Economy Minister Philipp Roesler said the lower house of parliament in Berlin could put off a vote for Greek financing this month if the government in Athens and opposition parties fail to approve measures today. Greece has to show that “it’s worth it” to call a meeting, Roesler told ARD public television. Finance Minister Wolfgang Schaeuble told newspaper Welt am Sonntag that Greece “will be saved in one way or another,” though the government has to do its “homework.”

As Greek lawmakers are today debating austerity measures to win approval for a loan, European finance ministers and private creditors this week will decide on a plan to shepherd Greece through a bond sale next month. Still, Schaeuble told German lawmakers on Feb. 10 that Greece was missing deficit goals, suggesting that the measures may fall short in rescuing Greece.

“I’m really wondering now whether so much damage has been done that this marriage no longer can be rescued,” Erik Nielsen, chief global economist at UniCredit SpA in London, wrote today in a note to clients. He predicted that the measures would be approved and that Greece will be able to make a 14.5 billion-euro ($19 billion) bond payment on March 20.

Budget Into Law

European finance ministers ended a meeting last week with Luxembourg’s Jean-Claude Juncker saying Greece must turn budget cuts into law, flesh out 325 million euros in reductions and have major party leaders sign up to the program so they don’t retreat after elections. Another extraordinary meeting is set for Feb. 15, where ministers must approve the Greek accord.

Chancellor Angela Merkel plans to ask lawmakers to vote on the next bailout on Feb. 27 if Greece approves the measures. Schaeuble told legislators that current plans would leave Greece’s debt as high as 136 percent of GDP by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout, down from about 160 percent of GDP last year.

Schaeuble was briefing on estimates from the European Commission, European Central Bank and International Monetary Fund -- known as the troika.

Send a Message

Greek Finance Minister Evangelos Venizelos today clashed with lawmakers, saying that “today at midnight, before the markets open, the Greek Parliament must send a message,” after Greek party leaders yesterday urged lawmakers to back the measure to secure the 130 billion-euro package and avoid a disorderly default. Venizelos has said the vote is tantamount to a decision on whether to remain in the euro area.

Before the final debate started, Prime Minister Lucas Papademos appealed to Greeks last night to support new measures, which include a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts for as many as 15,000 state workers.

“We are looking the Greek people straight in the eye with full knowledge of our historical responsibility,” he said in a televised address. “The social costs that come with these measures are contained in comparison to the economic and social catastrophe that will follow if we don’t adopt them.”

Bad Scenario

Greece has stumbled over the last two years in meeting reform targets in return for aid, citing a deepening recession now set to worsen. Unemployment climbed to 20.9 percent in November, as industrial production falls.

Joachim Fels, chief economist at Morgan Stanley, in a note to clients today repeated his assessment that policy makers shouldn’t rule out the “really, really bad scenario” of Greece leaving the monetary union.

Bondholders met separately in Paris on Feb. 9 to discuss accepting a debt swap for new 30-year bonds with an average coupon of as low as 3.6 percent. An agreement would slice 100 billion euros off more than 200 billion euros of privately held debt. Venizelos said the country needs to make a formal offer to private bondholders for a debt swap by Feb. 17.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net, and Rainer Buergin in Berlin at at rbuergin1@bloomberg.net.

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