China Reduces Interest Rates for First Time Since 2008

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

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

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

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

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

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

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

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

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

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

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

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

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

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

‘Unprecedented’ Change

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

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

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

Weaker Lending

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

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

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

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

Pace of Change

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

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

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

Bernanke’s View

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

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

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

Weaker Inflation

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

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

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

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

Cutting Forecasts

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yahoo, Softbank

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

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

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

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

English Teacher

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

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

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

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

Before Deadline

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

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

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

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

Ali-loans

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

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

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

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

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

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

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

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

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Apple Said to Add Baidu as IPhone Search Engine in China

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

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

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

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

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

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

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

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

‘Lot More Opportunity’

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

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

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

Google Products

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stocks Pare Gains

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

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

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

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

Yellen Outlines Steps

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

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

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

Fisher, Bullard

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

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

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

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

Urges ‘Sustainable Path’

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

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

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

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

ECB Rates

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

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

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

Less Than Half

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

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

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

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

‘Best Case’

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

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

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

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

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

Mortgage Rates

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

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

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

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

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

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

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HTC Said to Be Shut Out of Next Version of Windows

By Ian King, Tim Culpan and Dina Bass - Jun 7, 2012 8:23 AM GMT+0700

HTC Corp. (2498) is being shut out of the introduction of Microsoft Corp. (MSFT)’s next Windows software, people with knowledge of the matter said, cutting off another source of revenue after HTC reduced its second-quarter sales forecast by 13 percent. The shares fell to the lowest in two years.

Microsoft locked out HTC from the development of products using the newest version of its operating system on concern that HTC doesn’t sell enough devices or have ample experience making tablets, said the people, who asked not to be named because negotiations between HTC and other companies are private.

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The HTC J smartphone in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Microsoft’s decision will keep HTC, maker of the first Google Inc.-branded smartphone, from participating in the electronics industry’s latest attempt to erode Apple Inc. (AAPL)’s lead in tablets. The Taiwanese company, whose stock has dropped 68 percent in the past year, is also facing shortages from chipmaker Qualcomm Inc. (QCOM), highlighting the challenge of competing with Apple and Samsung Electronics Co. (005930) -- two companies whose dominance in manufacturing and software are increasingly marginalizing smaller rivals like HTC.

“Every consumer knows about Samsung’s Galaxy platform and the iPhone, and you are starting to see consumers coalesce around them,” said Matthew Thornton, an analyst at Avian Securities LLC, who yesterday cut his rating on HTC to negative. “Things just get worse from here. It’s a very bleak outlook.”

Windows RT

Microsoft plans to release its next Windows operating system, the first to run on chips with technology from ARM Holdings Plc (ARM), in time for the holiday shopping season. The ARM version of the new software, designed for tablets that compete with the iPad, is called Windows RT. Other tablets and computers will be made using chips based on Intel Corp. (INTC)’s technology. The software, also called Windows 8, will appear in devices from companies like Toshiba Corp. (6502) and Asustek Computer Inc. (2357) later this year.

HTC is a strong partner now and for the future, said Frank Shaw, a spokesman for Microsoft, in an e-mailed statement. He declined to discuss specifics. HTC intends to support future versions of Windows and isn’t commenting on the details of its product plans, said Sally Julien, a U.S.-based spokeswoman at HTC, in an e-mailed statement.

HTC has been unable to either develop its own software or hardware or sell enough devices to make it the first in line for its suppliers, said Ramon Llamas, an analyst at IDC.

“Controlling the supply chain or influencing the supply chain is one of the things that takes you to success,” said Llamas. “It can very quickly turn on you if you’re not controlling everything in-house.”

Product Delays

HTC said yesterday that second-quarter sales would be NT$91 billion ($3.05 billion), below a previous forecast of NT$105 billion because of product delays in the U.S. and lower-than- anticipated sales in Europe. Besides smartphones, HTC also makes tablets with Google (GOOG)’s Android operating system.

The company’s shares plunged 6.9 percent to NT$378, the lowest in two years, in Taipei trading today after the guidance.

Microsoft, which has tightly controlled the number of ARM- based devices it is supporting at first to ensure quality, opted not to work with HTC after initial discussions with the company, said the two people familiar with the matter. The world’s largest software maker decided to work with other vendors that had greater sales volume and more tablet experience for the first round of devices, the people said.

HTC engineers wanted to build a Windows device with a customized home screen that would be distinctive to its devices, as manufacturers are allowed to do with Android. Redmond, Washington-based Microsoft refused, said the people, and HTC was left off the list of companies the software maker provided with early versions of the software.

Sales Decline

HTC may release a Windows device later, in a second round of products to come next year, one of the people said.

After surging 90 percent in 2010 and 65 percent last year, HTC’s sales will decline 12 percent this year, according to the average of analysts’ estimates compiled by Bloomberg.

In the first quarter, HTC’s smartphone shipments dropped 23 percent as Samsung’s more than tripled and Apple’s increased 89 percent, according to IDC. Samsung and Apple account for 53 percent of the market. HTC has a 4.8 percent share, according to the market researcher, placing it fifth behind Nokia Oyj (NOK1V) and Research In Motion Ltd. (RIM)

Participating in the introduction of Windows RT tablets would be unlikely to solve all that ails HTC. The machines will be starting from a zero-market-share position, without the advantage of popular, older Windows applications that won’t run on ARM hardware.

Relationship Shift

The situation underlines the shift in the relationship between Microsoft and HTC, which once relied on each other to prop up early efforts in the mobile-phone market. The two companies started working together on Microsoft’s mobile phones early in the last decade and the first Windows-based phone was manufactured by HTC. At the time, Microsoft had virtually no experience in the area, and HTC was a maker of unbranded generic phones for other companies.

HTC recently has placed more emphasis on its better-selling Android phones, and Microsoft has forged a closer relationship with HTC competitor Nokia.

Still, HTC has seven Windows Phone models on sale globally. The operating system has about 2 percent share of the market, according to IDC.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net; Tim Culpan in Taipei at tculpan1@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

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

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House Adopts Measure to Halt Light-Bulb Efficiency Law

By Jim Snyder - Jun 7, 2012 5:32 AM GMT+0700

Republicans in the U.S. House adopted a provision designed to save traditional incandescent light bulbs by blocking what one lawmaker called the “energy police” from enforcing an efficiency standard.

Even if the House language approved last night survives in the Democratic-led Senate, the impact for consumers probably will be limited because manufacturers such as Royal Philips Electronics NV (PHIA) and General Electric Co. (GE) have revamped manufacturing to comply with the law, making bulbs that use less electricity to generate the same amount of light.

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A General Electric Co. 26 watt compact flourescent bulb is displayed for a photograph on a case of 100 watt light bulbs at the Kennedy Webster Electric Co. warehouse in Downers Grove, Illinois, U.S.. Photographer: Daniel Acker/Bloomberg

The first phase of the federal efficiency standard, which was passed in 2007 during President George W. Bush’s administration, went into effect this year. It has become a symbol of government excess to Tea Party-aligned lawmakers, who say consumers should be able to buy the bulbs they want.

“People are sick of the government treading where it just doesn’t belong,” said Representative Michael Burgess, a Texas Republican who sponsored the light-bulb amendment, which was added to a broader energy-spending bill.

Burgess’ provision was adopted last night by voice vote. A similar provision was in the spending bill covering the fiscal year that ends Sept. 30, which was passed in the House in December.

“The law couldn’t be enforced,” Burgess said of his amendment in an interview. “‘We don’t need no stinkin’ badges. We’re the energy police.’”

Measure Passes

The House today passed, 255-165, the energy-spending bill that includes the light-bulb provision.

Democrats, environmental groups and lighting manufacturers such as Fairfield, Connecticut-based GE support the efficiency law.

Blocking the Energy Department from enforcement might let unscrupulous foreign manufacturers push non-compliant products, including to bulk buyers such as builders. Those sales are difficult to track.

“Some in Congress are willing to put U.S. jobs at risk for political positioning,” said Joseph Higbee, a spokesman for the National Electrical Manufacturers Association, a Rosslyn, Virginia-based group. “This is an example of a few politicizing light bulbs at the risk of American workers and the economy.”

Plants Retooled

Companies have retooled plants to make compact fluorescent lights, light-emitting diodes and a halogen version of the pear- shaped incandescent product that meets the efficiency standard. Some of the more efficient bulbs are made in the U.S.

Burgess said consumers should be able to choose for themselves which bulbs they want to buy.

“I’m smart enough to make my own decisions about the purchase of energy, and the government should not feel the need to do that for me,” he said.

The underlying bill would spend $32.1 billion on energy and water-development programs, about $965 million less than what President Barack Obama requested, according to the House Appropriations Committee. It would put more money into fossil- fuel programs than Obama’s budget.

The president’s advisers said May 31 they would recommend the president veto the bill because of cuts to efficiency and clean-energy programs, including to the Advanced Research Projects Agency - Energy that funds innovative technologies, and language intended to keep Yucca Mountain in Nevada viable as a repository for the nation’s nuclear waste.

The House spending bill is H.R. 5325.

To contact the reporter on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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Obama Re-Election Map Shaken After Walker’s Wisconsin Win

By John McCormick - Jun 7, 2012 3:16 AM GMT+0700

Wisconsin Governor Scott Walker said today his victory in yesterday’s recall election sets the stage for Mitt Romney to be competitive in his state in November’s election, while the presumptive Republican presidential nominee saw broader national implications to the result.

“I think he’d acknowledge he’s an underdog, particularly here in Wisconsin,” Walker said of Romney on MSNBC. “But I think anyone looking at the results last night would also acknowledge that it’s now competitive in Wisconsin.”

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Republican Gov. Scott Walker greets supporters at an election night rally on June 5, 2012 in Waukesha, Wisconsin. Photographer: Brian Kersey/UPI/Landov

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June 6 (Bloomberg) -- Alberta Darling, a Republican state senator who survived a recall attempt last year, talks with Bloomberg's Mark Niquette about the outlook for the state after Republican Governor Scott Walker survived a recall election last night. They speak at Walker's victory party in Waukesha. (Source: Bloomberg)

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June 6 (Bloomberg) -- Bloomberg's Al Hunt discusses Wisconsin Republican Governor Scott Walker surviving a recall election, the boost it gives to Republicans across the country and what impact it may have on the presidential election in November. He speaks on Bloomberg Television's "InBusiness." (Source: Bloomberg)

Romney, speaking at a fundraiser today in San Antonio, Texas, said the Wisconsin vote will “echo” throughout U.S.

“Yesterday was won by the people of Wisconsin doing the right thing and voting for conservative principles,” he said. “I think people recognize we just can’t keep going down the same path that we’re on. It ends up in calamity.”

Walker’s win prompted Democratic and Republican strategists to reassess Wisconsin’s political landscape and the role the state will play in the presidential race. Until earlier this week, target states listed by President Barack Obama’s campaign didn’t include the state, which has voted Democratic in the past six presidential elections, albeit narrowly at times.

In a campaign video released June 4 -- the day before the recall -- Obama campaign manager Jim Messina listed Wisconsin as “undecided,” along with Colorado, Florida, Iowa, Ohio, North Carolina, New Hampshire and Virginia.

Downplaying Results

White House press secretary Jay Carney told reporters aboard Air Force One today that he hadn’t yet spoken extensively with Obama about the Wisconsin outcome.

“I certainly wouldn’t read much into yesterday’s results,” he said, adding that Obama’s message about growing the economy and jobs “will resonate in Wisconsin.”

It remains an open question whether Romney can capitalize on Walker’s momentum. So far, his campaign has yet to announce any travel plans to Wisconsin.

“It tends to be a blue state in presidential elections, we don’t win a lot in Wisconsin,” Romney said today.

“The key for Governor Romney to be competitive enough to win is I think he’s got to lay out a clear platform -- something similar to what our friend Paul Ryan has done,” Walker said, pointing to the U.S. House Budget Committee chairman whose proposed overhaul of Medicaid and Medicare and suggested government spending cuts is being used by Democrats to rally support.

Make Compelling Case

Walker said that if Romney “makes a compelling case to the people of Wisconsin that he’s willing to take those kinds of risks to get America back on track for our kids and our grandkids’ kids, he can win.”

Romney said today the Wisconsin results show voters support leaders who seek to curb the government’s size and challenge organized labor, and that those attitudes would surface in November’s vote.

Voters in Wisconsin “said we’ve seen a conservative governor; he cut back on the scale of government and has held down taxes and stood up to the public sector unions and we want more of that, not less of it,” Romney said during a telephone town hall meeting with members of the National Federation of Independent Business. “And I think you’re going to find that in the decisions being made in November.”

Big Names

Three of the biggest names in Republican politics today call Wisconsin home: Walker, Ryan and Republican National Committee Chairman Reince Priebus.

Even before the recall results were in, Democrats and Republicans were working to spin the significance of the outcome for the matchup between Obama and Romney, a former Massachusetts governor.

The organization and mobilization of Wisconsin Republicans to protect Walker could provide Romney a boost, should he decide to compete aggressively in the state.

If Romney were able to make Wisconsin a competitive state, it could make a major difference in this year’s campaign. Winning a Midwest industrial state such as Wisconsin or Michigan, which both backed Obama in 2008, would provide him an easier path to the 270 electoral votes needed to win the White House.

Wisconsin’s History

A victory wouldn’t be an easy task for Romney, 65. The state, which has 10 electoral votes, hasn’t voted for a Republican presidential candidate since President Ronald Reagan carried it in his 1984 re-election against Democrat Walter Mondale, who won just one state, his native Minnesota.

Obama, 50, in the 2008 election beat Republican John McCain in Wisconsin, 56 percent to 42 percent. An exit poll of recall election voters conducted yesterday showed Obama beating Romney, 51 percent to 44 percent.

Still, if this presidential election plays out similar to those held in 2000 and 2004, Romney could have a fighting chance. Former President George W. Bush came within several thousand votes of winning the state in both of those election cycles.

Also boosting Republican confidence in the state are their 2010 victories, when the party won the governor’s office, as well as a U.S. Senate seat held by Democrat Russ Feingold. They also picked up two House seats in the state’s eight-member delegation and gained control of both chambers of the state legislature.

Tea Partiers

Tea Party activists were an important constituency behind Republican Ron Johnson’s 2010 Senate win and the movement, which promotes a smaller role for the federal government, remains a force in the state.

Spending on the recall through May 21 amounted to at least $66 million, according to the Wisconsin Democracy Campaign, a nonpartisan group in Madison that follows election financing. That’s almost double the $37 million spent on the 2010 governor’s race. Walker alone raised more than $30 million, with about two-thirds coming from out of state.

The financial imbalance contributed to Walker’s victory, recall supporters said. Still, as important as money was in the race, its significance may be overplayed by Democrats. The exit polling showed that nearly nine in ten voters made their decision on the recall prior to May, more than a month before the actual vote and an explosion of television advertising.

State In Play

Ed Gillespie, a senior Romney adviser, said today that Wisconsin is in play, though he cautioned not to overestimate the effects of the recall vote.

“I do think it will be competitive in November,” he said of Wisconsin at a Bloomberg Breakfast in Washington today. “But winning in a recall election does not mean you should put it in your ‘leans-Republican’ column today.”

Gillespie, a former chairman of the Republican National Committee, said the vote affirms policies proposed by governors in other states and by Romney that would limit unions as a way of closing budget gaps.

“The election results indicate that there is a receptive message out in the heartland, the country at large, for that center-right approach,” he said.

“The playing field has broadened for Republicans,” Gillespie said. “The fact that Wisconsin is in play is revealing.”

Walker Victory

Walker beat Democratic Milwaukee Mayor Tom Barrett, 53 percent to 46 percent with all of the vote recorded, according to unofficial returns from the Associated Press.

Obama’s Wisconsin win four years ago was boosted by a surge in support among younger voters, a demographic that remains more supportive of him than Romney and yet which polls show is less energetic about his campaign than it was four years ago.

The president declined to get involved in the recall race, with the exception of an Internet post supportive of Barrett on the evening before the vote. He literally flew over the state -- twice -- on June 1 en route to his own campaign events in Minnesota and Illinois.

Besides the potential of an embarrassing loss, Obama traveling to Wisconsin also would have brought with it the risk of turning off some of the independent voters who backed Walker that the president needs to win in November.

Romney, who also didn’t visit the state in the run-up to the recall election, made supportive statements about Walker as he campaigned ahead of Wisconsin’s April 3 primary, a victory that accelerated his path to clinching his party’s presidential nomination.

-- With assistance from Lisa Lerer and Roger Runningen in Washington and Julie Hirschfeld Davis in San Antonio, Texas. Editors: Jeanne Cummings, Don Frederick

To contact the reporter on this story: John McCormick in Chicago at jmccormick16@bloomberg.net

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

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U.S. Stocks Cap Biggest Rally in 2012 on Stimulus Bets

By Rita Nazareth - Jun 7, 2012 3:52 AM GMT+0700

U.S. stocks rallied, giving benchmark indexes their biggest gains in 2012, on speculation global policy makers will take steps to stimulate economic growth.

Bank of America Corp. surged 7.6 percent to pace gains among financial shares. Caterpillar Inc. (CAT) and Exxon Mobil Corp. (XOM) increased at least 3.3 percent. Home Depot Inc. (HD), the largest U.S. home-improvement retailer, climbed 3.4 percent after raising its stock repurchase plan by $500 million for fiscal 2012. Facebook Inc. (FB) added 3.6 percent, following a 32 percent decline since the biggest social-networking company went public.

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All 10 groups in the S&P 500 rose today as commodity, financial and technology shares had the biggest gains. Photograph: Landov

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June 6 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks rallied, giving benchmark indexes their biggest gains in 2012, on speculation global policy makers will take steps to stimulate economic growth. (Source: Bloomberg)

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June 6 (Bloomberg) -- Bloomberg’s Trish Regan, Matt Miller and Alix Steel report on today’s ten most important stocks including Home Depot, Halliburton and Bank of America. (Source: Bloomberg)

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June 6 (Bloomberg) -- Michael Woolfolk, managing director at Bank of New York Mellon Corp., talks about the the impact of the European sovereign-debt crisis on U.S. stocks and bonds, and the outlook for equities. He speaks with Trish Regan and Matt Miller on Bloomberg Television's "Street Smart." Sandy Villere, portfolio manager at Villere & Co., also speaks. (Source: Bloomberg)

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June 6 (Bloomberg) -- Michael Purves, chief global strategist and head of equity derivatives research at Weeden & Co., talks about the U.S. stock market and economy, gold prices and Europe's sovereign debt crisis. He speaks with Pimm Fox and Alix Steel on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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June 6 (Bloomberg) -- Thomas Lee, chief U.S. equity strategist at JPMorgan Chase & Co., talks about the outlook for U.S. stocks and likely fiscal and monetary response to a potential withdrawal by Greece from the euro zone. He speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)

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Traders work on the floor of the New York Stock Exchange. Photographer: Richard Drew/AP Photo

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The Standard & Poor’s 500 Index advanced 2.3 percent to 1,315.13 at 4 p.m. New York time. The Dow Jones Industrial Average increased 286.84 points, or 2.4 percent, to 12,414.79. About 7.3 billion shares changed hands on U.S. exchanges today, or 8.3 percent above the three-month average.

“People are viewing central banks as very aware of the weakness of the global economy and looking for ways to deal with that,” said Michael Holland, chairman of New York-based Holland & Co. His firm oversees more than $4 billion. “In addition to that, we’ve had a major selloff, valuations are low and that certainly helps to lift the market on a day like today.”

The S&P 500 rose 2.9 percent in three days, wiping out the loss driven by a disappointing jobs report on June 1. Earlier this week, the index traded at 12.9 times its companies’ reported earnings, according to data compiled by Bloomberg. That was the cheapest valuation in six months, the data showed. Concern about Europe’s debt crisis and a global slowdown took the S&P 500 down as much as 9.9 percent from this year’s peak.

Stimulus Bets

Equities rallied today as European Central Bank President Mario Draghi said officials stand ready to act as the euro region’s outlook worsens. Federal Reserve Bank of Atlanta PresidentDennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the U.S. central bank’s balance sheet, is an “option on the table.”

The U.S. economy maintained a moderate pace of growth, according to the Fed’s Beige Book survey of business conditions. The policy-setting Federal Open Market Committee meets June 19-20 to consider whether more stimulus is needed.

“I would be surprised if the Federal Reserve isn’t already having a contingency plan if everything unravels in Europe,” said Ron Florance, managing director of investment strategy for Wells Fargo Private Bank. His firm manages $169 billion.

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), said he expects the U.S. economy to avoid another recession as long as Europe can contain its debt crisis. There won’t be a recession “unless events in Europe develop in some way that spills over here big-time,” Buffett said yesterday at the Economic Club of Washington, D.C.

Biggest Gains

All 10 groups in the S&P 500 rose today as energy, financial and industrial shares had the biggest gains. The Dow Jones Transportation Average climbed 3 percent. Bank of America increased 7.6 percent, the most in the Dow, to $7.64. Caterpillar, the largest maker of construction equipment, added 3.6 percent to $86.66. Exxon Mobil jumped 3.3 percent to $80.18.

Home Depot rose 3.4 percent to $50.60. The timing of its share repurchases will not have a material impact on the diluted earnings per share in that period, the retailer said.

Monsanto Co. (MON) added 3 percent to $79.20. The largest seed company will repurchase as much as $1 billion of shares as rising profit boosts the company’s cash hoard to a record.

Facebook rallied 3.6 percent to $26.81. No large U.S. company is attracting more attention from short sellers than Facebook amid bets it will keep falling after losing $29 billion since its initial public offering.

Short Interest

Short interest on the Menlo Park, California-based company reached 5.9 percent of shares outstanding, according to data compiled by Bloomberg and Data Explorers Ltd., a New York-based research firm. None of the S&P 500 companies with at least $50 billion in market capitalization has short interest higher than 3 percent, the data show. Facebook, which has a market value of about $61.6 billion, isn’t in the S&P 500.

“Facebook is one of those companies whose future potential is unknown and unknowable,” said Robert Stimpson, a money manager at Akron, Ohio-based Oak Associates Ltd., which oversees about $900 million and doesn’t own Facebook. “The stock is expensive. The short interest might also reflect a bet that there is more bad news to come and Facebook will be punished.”

Nasdaq OMX Group Inc. (NDAQ)’s board approved a plan to pay brokers whose orders were mishandled in Facebook Inc.’s initial public offering, earmarking about $40 million to cover losses.

Chesapeake Energy Corp. (CHK) jumped 7.1 percent, the most since Aug. 11, to $18.21. The company is in advanced talks to sell pipelines to Global Infrastructure Partners for more than $4 billion, said two people with knowledge of the matter.

Unexpected Profit

A measure of homebuilders in S&P indexes gained 3.7 percent. Hovnanian Enterprises Inc. (HOV) surged 18 percent, the most since Aug. 15, to $2.01. The largest homebuilder in New Jersey reported an unexpected profit for its fiscal second quarter as orders jumped 52 percent amid rising U.S. demand for new houses.

Iron Mountain Inc. (IRM) surged 14 percent, the biggest gain in the S&P 500, to $32.32. The document-storage company approved a plan to convert to a real-estate investment trust and increased its quarterly dividend by 8 percent.

Lee Enterprises Inc. soared 16 percent, the biggest gain since Jan. 24, to $1.33. Buffett’s Berkshire Hathaway disclosed owning a stake in the owner of newspapers in the U.S. Midwest and West Coast.

Ancestry.com Inc. (ACOM) gained 11 percent to $25.06. The family- history research website is weighing a sale and working with Frank Quattrone’s Qatalyst Partners LLC to find buyers, according to a person with knowledge of the situation.

Material Costs

Halliburton Co. (HAL) slumped 3.5 percent to $28.10. The world’s largest provider of hydraulic-fracturing services said North American margins will be 500 to 550 basis points lower this quarter than last because of higher material costs.

Tempur-Pedic International Inc. (TPX) plunged 49 percent, the most ever, to $22.39. The luxury mattress maker cut its full- year profit and revenue forecasts amid lower-than-expected second-quarter sales in North America.

The selloff that erased $1.78 trillion from U.S. equity values has pushed the cost of options to the highest levels of 2012, prompting hedge funds to add to short sales at the fastest rate since October. The Chicago Board Options Exchange Volatility Index surpassed 26 last week, a level not seen since December.

The gain left the gauge near its price just before the S&P 500 slumped 12 percent in August and September 2011, data compiled by Bloomberg show. As the VIX (VIX) has risen, an International Strategy & Investment Group measure of hedge fund bullishness has retreated by 7.4 percent.

Short Selling

While the cost of hedges and the amount of short selling are increasing, they may have further to go before bearishness is exhausted amid Europe’s credit crisis, according to Wayne Lin of Legg Mason Inc. The VIX would have to gain 45 percent to reach its average price in August and September. The ISI gauge bottomed at 42 last year compared with its level of 45.3 now.

“The concerns about Europe combined with questions about the robustness of global growth are filtering into markets,” Lin, who helps oversee $639 billion as a money manager at Baltimore-based Legg Mason, said yesterday in a phone interview. “These risks make people back out of equities, cause the hedge funds to go short and push the VIX up.”

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

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

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