Stocks, Commodities Drop on Fed Minutes, Spanish Auction

By Michael Shanahan and Lu Wang - Apr 4, 2012 9:45 PM GMT+0700

Stocks and commodities slid after Spain sold less debt than targeted at an auction and the Federal Reserve signaled it may refrain from more monetary stimulus. The euro weakened and Spanish five-year yields climbed to an almost three-month high.

The Standard & Poor’s 500 Index lost 1.1 percent, its second-biggest drop of the year, and the Stoxx Europe 600 Index declined 1.8 percent as of 10:45 a.m. in New York. The euro depreciated to a three-week low against the yen, while 10-year Treasury yields fell six basis points to 2.24 percent. Spanish five-year yields surged 19 basis points to 4.45 percent, the highest since January. The S&P GSCI gauge of commodities retreated 1.3 percent as silver and gold led losses and oil extended losses after U.S. supplies grew .

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Traders on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

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April 4 (Bloomberg) -- Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp., talks about the minutes of the Federal Reserve's last meeting and the outlook for Asia equities. Menon speaks from Singapore with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 4 (Bloomberg) -- George Boubouras, head of investment strategy at UBS AG's Australian wealth-management unit, talks about global financial markets and economies following the release of U.S. Federal Reserve minutes. The Fed is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. Boubouras speaks from Melbourne with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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April 4 (Bloomberg) -- Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., talks about the nation's opening of its capital markets, the country's banking industry and his investment strategy. Wan speaks with Susan Li, Rishaad Salamat, Mia Saini and Zeb Eckert on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

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Passersby stand in front of the Australia Securities Exchange (ASX Ltd.) electronic stock board in Melbourne, Australia. Photographer: Luis Enrique Ascui/Bloomberg

Spain sold 2.59 billion euros ($3.41 billion) of bonds due between January 2015 and October 2020, compared with a planned maximum of 3.5 billion euros. The Fed will refrain from increasing monetary accommodation unless the economic expansion falters or prices rise at a rate slower than its 2 percent target, according to minutes of its March 13 policy meeting released yesterday.

“The perception is that you’re taking away the safety net of excess liquidity that lifted asset prices,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “Given the exceptionally good run we’ve had year- to-date, people are reassessing their risk-reward scenarios.”

‘Downside Risks’

European Central Bank officials meeting in Frankfurt today kept the benchmark interest rate at a record low of 1 percent, as predicted by all 57 economists in a Bloomberg News survey. ECB President Mario Draghi said while a “moderate” economic recovery is expected this year, the outlook is subject to “downside risks” as the debt crisis dampens momentum. Draghi also said any talk of an exit strategy from stimulus measures is premature for now.

The S&P 500 retreated for a second day even after an industry report showed companies in the U.S. expanded payrolls in March. Employment increased by 209,000 for the month after a revised 230,000 gain in February, figures from ADP Employer Services showed today. The median estimate in the Bloomberg News survey called for a 206,000 increase.

Service industries in the U.S. expanded less than forecast in March as orders grew at the slowest pace in three months. The Institute for Supply Management’s non-manufacturing index dropped to 56 from a one-year high of 57.3 in February. Readings above 50 signal expansion, and economists surveyed by Bloomberg News projected 56.8 for the gauge, according to the median estimate.

SanDisk Tumbles

SanDisk Corp. slid 9 percent after the biggest maker of flash-memory cards cut its forecast for first-quarter sales and profitability, citing weaker-than-expected pricing and demand for components that store data in mobile phones.

General Electric Co. fell 1.5 percent after its debt rating was cut by Moody’s Investors Service because of “heightened risk” from its finance unit, whose own grade was cut below the parent company’s for the first time in two decades.

U.S. equities fell yesterday as the Fed minutes showed less urgency to add stimulus. Policy makers last month affirmed the plan, first announced in January, to hold interest rates near zero through late 2014 on concern the economy may fail to grow fast enough to continue bringing down unemployment.

‘Welcome Change’

“There’s no justification for the Fed to ease monetary policy further,” Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp., said in a Bloomberg Television interview from Singapore. “The market has run up at a very heavy pace, so I think a breather or a correction would be a welcome change for now.”

Almost 50 shares fell for each that advanced in the Stoxx 600. Automakers led declines as U.S. sales of cars and light trucks in March missed the average estimate in a Bloomberg survey of analysts. PSA Peugeot Citroen (UG) slid 6.3 percent and Volkswagen AG fell 2.9 percent. Petropavlovsk Plc, a producer of gold in Russia, sank 6.6 percent as the precious metal retreated for a second day.

Germany’s DAX Index slumped 2.6 percent and Sweden’s OMX Stockholm 30 Index tumbled 3.6 percent to lead losses among European national benchmark indexes. German factory orders increased in February less than economists had forecast. Orders, adjusted for seasonal swings and inflation, increased 0.3 percent from January, the Economy Ministry in Berlin said. Economists had predicted a gain of 1.5 percent, according to the median of 35 estimates in a Bloomberg News survey.

The cost of insuring sovereign debt rose, with the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments climbing 5.4 basis points to 270. Swaps on Spain jumped 21 basis points to 460, the highest since November, according to CMA.

Brent Crude

Oil tumbled 1.8 percent to $102.19 a barrel, extending losses after the U.S. Energy Department said stockpiles rose 9.01 barrels to 362.4 million. Copper dropped 2.4 percent to $3.8255 a pound.

Markets in China and Taiwan were shut for holidays. The MSCI Emerging Markets Index (MXEF) fell 1.6 percent, halting a three- day, 2.2 percent climb. The Micex Index (MICEX) fell 2.6 percent in Moscow and the FTSE/JSE Africa All Shares Index (JALSH) slid 1.9 percent in Johannesburg as the prices of oil and metals fell. Turkey’s ISE National 100 Index (XU100) retreated 1.3 percent. South Korea’s Kospi Index (HSCEI) slid 1.5 percent, the biggest loss since Dec. 19.

China Investment

China accelerated the opening of its capital markets by more than doubling the amount foreigners can invest in stocks, bonds and bank deposits. The China Securities Regulatory Commission increased quotas for qualified investors to $80 billion from $30 billion, according to a statement yesterday. Offshore investors will also be allowed to pump an extra 50 billion yuan ($7.95 billion) of local currency into the country, up from 20 billion yuan.

Australia’s dollar sank to an 11-week low as data showed the nation had an unexpected trade deficit. The so-called Aussie slid 0.7 percent to $1.0264 and touched $1.0244 after Australia posted a trade deficit for a second month in February, completing the first consecutive shortfalls in two years.

To contact the reporters on this story: Michael Shanahan in London at mshanahan3@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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

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Nike Unveils New NFL Uniforms to Boost U.S. Sales

By Matt Townsend and Eben Novy-Williams - Apr 4, 2012 3:29 AM GMT+0700

Nike Inc. (NKE) unveiled its new National Football League uniforms today, skipping the duck-wing and lizard-skin prints that it put on some college teams.

The world’s largest sporting-goods provider stuck mainly to the 92-year-old NFL’s traditional look as it begins a five-year licensing deal that may add $500 million in annual revenue, according to Chris Svezia, an analyst for Susquehanna Financial Group in New York.

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Nike Inc. unveiled its new National Football League uniforms today as it begins a five-year licensing deal. Source: Nike via Bloomberg

Nike took over the NFL clothing license on April 1 after Adidas AG (ADS)’s Reebok unit had it for more than a decade. The switch to Nike has generated more interest in NFL apparel from fans, and has retailers raising sales expectations as the maker of Air Jordan basketball shoes puts more marketing behind the license than Reebok, Svezia said yesterday in an interview.

“The bottom line is it’s a freshening of the uniforms that’s going to drive interest,” he said. While the NFL license won’t have a major effect for a company of Nike’s size, it gives the brand more exposure to a large and passionate group of consumers, he said. Nike generated $23.4 billion in sales in the 12 months through February.

The Super Bowl-champion New York Giants’ mostly red, white and blue uniforms were unchanged as Nike showed its apparel for the NFL’s 32 teams at a studio in Brooklyn made to look like a football field. The New York Jets’ green and white uniforms also will stay the same.

Seahawks’ Changes

The Seattle Seahawks, owned by Microsoft Corp. co-founder Paul Allen, were the only team that asked for a redesign, according to Erin Patterson, a Nike spokeswoman. The team will wear deep blue, and have silver numbers and wide silver shoulder stripes, both with lime-green piping. The pants also will have a stripe of stylized wings down the side of the leg.

The Denver Broncos will switch to an orange jersey from navy. Nike expects more teams to revamp their uniforms in the coming years, said Charlie Denson, president of the Nike brand.

The addition of the NFL license will add to sales in North America, where Nike increased revenue 17 percent in its largest market to $2.15 billion in the quarter ended Feb. 29. The company doesn’t break out sales of football products. Orders for NFL apparel have exceeded the company’s expectations, Denson said.

The uniforms are lighter and have more stretch that will improve a player’s mobility, according to the company.

Michael Vick

“The difference is in the feel, and it’s lighter,” said Philadelphia Eagles quarterback Michael Vick, one of 32 players on hand to represent each team and wearing his new uniform for the first time. “I don’t know if it will make me faster, but I hope so.”

Nike was more unconventional with its college uniforms, putting a feather print on the shoulders of University of Oregon’s Ducks and a lizard-skin print on the pants of Texas Christian University’s Horned Frogs.

Nike’s popularity in the college game should immediately translate into NFL sales, according to Brian Swallow, senior vice president of strategy and business development for Fanatics LLC. Fanatics, a Jacksonville, Florida-based company that is the largest retailer of licensed team sports merchandise in the U.S., runs the official online store of the NFL.

“A lot of fans, at least in the college side of our business, have passion for Nike,” Swallow said. “They say they’ll only buy Nike, so the brand itself already commands a large following.”

Higher Price

Reebok had to adjust its buying strategy last year to reflect the final year of its NFL deal, company spokesman Dan Sarro said last week in an e-mailed statement. Swallow said that Reebok’s conservative approach to 2011, the new tailored fit of the Nike jerseys, and their higher prices -- Reebok’s base replica cost $85; the Nike equivalent will be $100 -- may result in jersey sales doubling this season as opposed to 2011.

“A lot of fans have been holding off on buying a brand that was going to be on the outs, so we’re going to see a very frenetic pace in Nike sales as soon as we roll them out,” he said. “When you blend all the Nike products together, I think we would be disappointed with anything less than a 30 to 40 percent increase in overall sales.”

Nike rose less than 1 percent to $109.87 at the close of New York trading.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Eben Novy-Williams in New York at enovywilliam@bloomberg.net

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

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Letterman’s New CBS Contract Sets Late-Night Hosting Record

By Edmund Lee and Andy Fixmer - Apr 4, 2012 3:48 AM GMT+0700

David Letterman, the late-night star of CBS Corp. (CBS)’s television network, agreed to host his program through 2014, setting the stage to break Johnny Carson’s record of 30 years.

As part of the accord, CBS also re-signed Craig Ferguson, who hosts the talk show that follows Letterman’s weeknight program, the network said today in an e-mailed statement.

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President Bill Clinton and Late Show host David Letterman taping of the Late SHow with David Letterman. Photographer: John Paul Filo/CBS via Getty Images

Late night television host David Letterman. Photographer: Chris Graythen/Getty Images

Letterman, who turns 65 on April 12, will become the longest-serving host on late-night TV, beating Carson’s 1962- 1992 run on NBC’s “The Tonight Show,” CBS said. “The Late Show With David Letterman” began airing in August 1993. He previously hosted “Late Night with David Letterman” on NBC starting in February 1982.

“David Letterman is a late night legend with an iconic show and Craig Ferguson continues to evolve the genre in exciting and innovative ways,” Nina Tassler, president of CBS Entertainment, said in a statement.

Letterman’s company, Worldwide Pants Inc., produces “The Late Show,” as well as the “The Late Late Show With Craig Ferguson.” Under the new agreement, Ferguson’s show will move to a larger stage at CBS studios in Los Angeles and the network will become co-producer, according to the statement.

Audience Ratings

Today’s announcement completes negotiations with both late- night hosts. Letterman was close to an agreement with the network in January, a person with knowledge of the situation said at the time.

Letterman’s “The Late Show” has averaged 3.3 million total nightly viewers each week this season, according to Nielsen data made available by Comcast Corp. (CMCSA)’s NBCUniversal. That compares with 3.8 million for Jay Leno’s “The Tonight Show,” broadcast by NBCUniversal.

CBS, the most-watched television network, announced last month it renewed 18 programs for next season, more than three- fourths of its prime-time schedule, including “The Big Bang Theory.” Four comedies, nine dramas, three reality series and two news-magazine shows will return for the 2012-2013 television season, which starts in September.

The network, which will pitch the schedule to big advertisers next month, expects to obtain “double-digit” increases in ad rates to lead its competitors, CBS Chief Executive Officer Leslie Moonves said on March 10 at a conference at the University of California, Los Angeles.

CBS is averaging 12 million prime-time viewers in the season that began in September, a 1.4 percent gain from last season and more than any of its competitors, according to data from Nielsen. The broadcaster ranks second to News Corp. (NWSA)’s Fox in viewers ages 18 to 49, a group targeted by advertisers, according to audience data from Nielsen.

CBS, controlled by Chairman Sumner Redstone, rose 0.4 percent to $33.88 at the close in New York. The stock has gained 25 percent this year.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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Fed Signals No Need for More Easing Unless Growth Falters

By Joshua Zumbrun and Jeff Kearns - Apr 4, 2012 3:28 AM GMT+0700

The Federal Reserve is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target.

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of their March 13 meeting released today in Washington. That contrasts with the assessment at the FOMC’s January meeting in which some Fed officials saw current conditions warranting additional action “before long.”

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Federal Reserve Board Chairman Ben Bernanke before the Senate Banking, Housing and Urban Affairs Committee hearing on 'the Semiannual Monetary Policy Report to the Congress', on Capitol Hill ion March 1, 2012. Photographer: Michael Reynolds/EPA/Corbis

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April 3 (Bloomberg) -- Allen Sinai, chief global economist at Decision Economics Inc., talks about the minutes of the Federal Reserve's March 13 meeting released today and the outlook for monetary policy. Sinai speaks with Mark Crumpton and Michael McKee on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Stocks slumped while the dollar and Treasury yields rose. The Standard & Poor’s 500 Index lost 0.4 percent to 1,413.31 as of 4:12 p.m. in New York, retreating from yesterday’s highest close since May 2008. Yields on 10-year Treasury notes increased 11 basis points to 2.3 percent. The Dollar Index, a gauge of the currency against six major peers, rallied 0.7 percent.

The March minutes show decreased urgency to add stimulus with no sentiment expressed for additional easing without a deterioration in economic conditions. The central bank also affirmed its plan, first announced in January, to hold interest rates near zero through late 2014 as the economy’s improvement may not be sufficient to lower the outlook for coming years.

‘Positive Enough’

“I would have to see some pretty severe circumstances before I endorse for another round of quantitative easing,” Atlanta Fed President Dennis Lockhart said today on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “The outlook is positive enough that I am not sure I see the need for it.”

Lockhart, a voting member on monetary policy this year, has never dissented from a decision of the FOMC since becoming president of the Atlanta Fed in March 2007.

Markets reacted sharply because investors expected a signal for new rounds of quantitative easing, said Michael Gapen, a former Fed economist who is a senior U.S. economist at Barclays Capital Inc. in New York.

“There were others who were convinced the Fed was going to have to do it and some QE was still priced in,” Gapen said. Today’s minutes don’t “rule out QE3 - the Fed still thinks there are downside risks to remain concerned about -- but the trends right now don’t suggest they need to do more,” he said.

Affirmed Plan

The central bank first said in January that it may hold interest rates near zero through at least late 2014 as the economy may fail to grow fast enough to continue bringing down the unemployment rate. Fed Chairman Ben S. Bernanke has defended the pledge as appropriate since the meeting, saying that despite some improvement in the economy it’s “far too early to declare victory.”

The FOMC said in March that unemployment is still “elevated” even after recent improvements in the job market. Richmond Fed President Jeffrey Lacker dissented because he doesn’t anticipate that economic conditions will warrant exceptionally low rates for so long.

Fed policy makers also discussed the conditions under which they’d alter their 2014 interest rate plan. That commitment is conditional on the performance of the economy “and members concurred that the date given in the statement would be subject to revision in response to significant changes in the economic outlook,” the minutes said.

Employment

“A number” of policy makers did not see that threshold being met and said that “while recent employment data had been encouraging” there was a “nonnegligible risk that improvements in employment could diminish as the year progressed,” the minutes said.

Bernanke highlighted those risks in a March 27 television interview with ABC News.

“We need to be cautious and make sure this is sustainable,” he said in the interview. “We haven’t quite yet got to the point where we can be completely confident that we’re on a track to full recovery.”

Asked if another round of quantitative easing, or large- scale bond purchases, remains “on the table,” the 58-year-old Fed chief said, “we don’t take any options off the table.”

“We have to be prepared to respond to however the economy evolves,” he said.

Those remarks expanded on a speech by Bernanke on March 26 in Arlington, Virginia, in which he said the fall in the jobless rate may reflect “a reversal of the unusually large layoffs that occurred during late 2008 and over 2009.” Significant improvement in reducing unemployment will probably require faster growth, he said.

Raise Forecasts

In their March discussion policy makers did not see the economy growing so strongly that they would have to raise their forecasts in coming years.

“Most participants did not interpret the recent economic and financial information as pointing to a material revision to the outlook for 2013 and 2014,” the minutes said.

FOMC participants also discussed additional steps they could take to better explain to the public how changes in the economic outlook affect monetary policy decisions, such as what qualitative or quantitative data would prompt which actions, according to the minutes.

“Several participants suggested that it could be helpful to discuss at a future meeting some alternative economic scenarios and the monetary policy responses that might be seen as appropriate under each one,” according to the minutes, which noted no decision was made on future steps on the Fed’s communication strategy.

Higher Gas Price

The best six months of job growth since 2006, unemployment at a three-year low, and stock-market gains are giving Americans the means to withstand a higher gasoline price. A March 30 report from the Commerce Department said Americans increased their spending by the most in seven months, with purchases climbing 0.8 percent in February.

“Consumers are becoming a little bit more resilient to fuel prices,” Don Johnson, U.S. sales chief for General Motors Co., said yesterday on Bloomberg Television’s “In The Loop With Betty Liu.” More consumers will be spurred to replace old cars, he said, “as the economy continues to strengthen, which it has been recently, more and more of that pent-up demand will be released into the market.”

To contact the reporter 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: Christopher Wellisz at cwellisz@bloomberg.net

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U.S. Stocks Fall as Fed Minutes Damp Stimulus Expectation

By Lu Wang and Inyoung Hwang - Apr 4, 2012 3:42 AM GMT+0700

U.S. stocks fell, a day after the Standard & Poor’s 500 Index rose to the highest level since 2008, as minutes from the Federal Reserve’s latest policy meeting damped expectations for more monetary stimulus.

Companies whose earnings are most tied to economic swings led the retreat, with S&P 500 indexes tracking energy, financial and raw-materials stocks falling at least 0.7 percent. Transocean Ltd. and Newmont Mining Corp. (NEM) declined more than 2.8 percent as oil and gold prices slid. General Motors Co. sank 4.6 percent after posting vehicle sales that trailed estimates. Apple (AAPL) Inc. advanced 1.7 percent to a record after two analysts said the stock could surge to $1,000.

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April 3 (Bloomberg) -- Bloomberg's Pimm Fox and Deborah Kostroun report on the performance of the U.S. equity market today. U.S. stocks fell, a day after the Standard & Poor’s 500 Index rose to the highest level since 2008, as minutes from the Federal Reserve’s latest policy meeting damped expectations for more monetary stimulus. (Source: Bloomberg)

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April 3 (Bloomberg) -- Joseph McAlinden, chief investment officer at Catalpa Capital Management, talks about the outlook for U.S. corporate earnings and equities. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." Anthony Dwyer, chief equity strategist at Canaccord Genuity Securities LLC, also speaks. (Source: Bloomberg)

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April 3 (Bloomberg) -- Howard Ward, a portfolio manager at Gamco Investors Inc., and John Miller, co-head of fixed income at Nuveen Asset Management, talk about investing in dividend-paying stocks versus bonds. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." Anthony Dwyer, chief equity strategist at Canaccord Genuity Securities LLC also speaks. (Source: Bloomberg)

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April 3 (Bloomberg) -- Anthony Dwyer, chief equity strategist at Canaccord Genuity Securities LLC, talks about the outlook for Federal Reserve policy and the U.S. stock market. He speaks with Adam Johnson, Trish Regan and Michael McKee on Bloomberg Television's "Street Smart." (Source: Bloomberg)

The S&P 500 dropped 0.4 percent to 1,413.38 today. The Dow Jones Industrial Average lost 64.94 points, or 0.5 percent, to 13,199.55 after reaching the highest level since December 2007 yesterday. About 6.8 billion shares changed hands on U.S. exchanges, compared to the one-year average of 7.5 billion.

“Everybody would like a little more stimulus,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “It reiterates what the chairman’s been saying that they saw continuously moderate economic growth and they stand ready to do something but at the moment, there’s no immediate need to do any additional stimulus.”

Equities extended losses as the minutes of the March 13 meeting showed a decreased urgency to add monetary stimulus. The Fed indicated that it is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. The central bank last month affirmed its plan, first announced in January, to hold interest rates near zero through late 2014.

Factory Orders

Stocks fell earlier as figures from the Commerce Department showed factory bookings in February rose 1.3 percent after a revised 1.1 percent decline in January. The median of 60 economists’ projections in a Bloomberg News survey called for a 1.5 percent advance. Orders excluding transportation equipment increased by the most in five months.

The S&P 500 climbed to the highest level since May 2008 yesterday after a report showed stronger-than-forecast growth in U.S. manufacturing. The index rose 12 percent from January through March for the best first-quarter rally since 1998 as economic data surpassed estimates and investors speculated that the euro area would contain its sovereign-debt crisis.

‘Over-Optimistic’

“The market is over-optimistic about corporate profit and GDP growth for the rest of the year,” David Pearl, who oversees $21 billion in assets as co-chief investment officer at New York-based Epoch Investment Partners, said in a telephone interview. “We’re in a recovery, but the market has pretty much discounted that.”

Investors sold shares of companies tied to the economy. The Morgan Stanley (MS) Cyclical Index lost 0.8 percent. The Dow Jones Transportation Average, a proxy for economic growth, erased 0.2 percent.

S&P 500 indexes tracking energy and raw-materials producers dropped 1 percent and 0.9 percent, respectively. Transocean fell 2.8 percent to $53.64. Newmont Mining slipped 3.4 percent to $50.34. Valero Energy Corp. (VLO) slumped 3.5 percent to $25.40.

The KBW Bank Index (BKX) retreated 0.3 percent. JPMorgan Chase & Co. (JPM) declined 1.5 percent to $45.42 while Goldman Sachs Group Inc. (GS) fell 1.8 percent to $122.71. Morgan Stanley dropped 2.2 percent to $19.37.

General Motors sank 4.6 percent to $25.54 after posting gains in U.S. vehicle sales that trailed analysts’ estimates. GM sales of cars and light trucks rose 12 percent, according to company statements. The average of 10 analysts’ estimates was for gains of 19 percent at GM.

Beer Brands

Molson Coors Brewing Co. (TAP) fell 5.4 percent to $43.18. The U.S. maker of Carling lager agreed to buy StarBev LP for 2.65 billion euros ($3.54 billion) to add beer brands such as Staropramen and provide a route into central and eastern Europe.

Apple advanced 1.7 percent to $629.32. The world’s most valuable company could surge to $1,000 by 2014, Gene Munster, an analyst at Piper Jaffray Cos., said in a note to clients today. He raised his 12-month price target to $910 from $718. Brian White, an analyst at Topeka Capital Markets, yesterday set an estimate of $1,001.

Wall Street strategists cut their recommended holdings in U.S. equities to almost the lowest level since 1998, a sign that the six-month stock rally may have more room to go, according to Bank of America Corp.

Strategists’ Advice

Strategists advised investors to reduce equity allocations in six out of the past eight months, with money earmarked to stocks falling to 55.8 percent in March. The level was the lowest since January 1998, except for the seven months ended July 2009, and compared with a 15-year average of 60.7 percent, according to data compiled by Bloomberg and Bank of America.

Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said the decline in recommended stock holdings signaled rising pessimism that she considers as a contrarian indicator because investors who have sold shares now have more money to purchase stocks.

“We take some comfort in Wall Street’s lack of optimism,” Subramanian wrote in a note yesterday. “It has historically been a bullish signal when Wall Street was extremely bearish.”

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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Home Prices Seen Dropping 10% in U.S. on Foreclosures: Mortgages

By Kathleen M. Howley - Apr 4, 2012 4:27 AM GMT+0700

As many as 1.25 million of America’s least cared for homes are headed for auction after a year-long probe into foreclosure practices kept them off the market.

Sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody’s Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. That month, 43 percent of foreclosures were delinquent for two or more years, from a 21 percent share in 2010, according to Lender Processing Services Inc. in Jacksonville, Florida.

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A dispossessory (eviction) notice after the Gwinnett County Sheriff's Office civil court division carried out a foreclosure eviction in Bethlehem, Georgia. Photographer: Erik S. Lesser/EPA/Landov

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April 3 (Bloomberg) -- Thomas Shapiro, founder, president and chief investment officer of GTIS Partners, talks about the firm's strategy and the U.S. housing market. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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April 2 (Bloomberg) -- Christopher Whalen, a senior managing director at Tangent Capital Partners LLC and author of "Inflated: How Money and Debt Built the American Dream," talks about the U.S. housing market. Whalen speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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Keith Ritter, left, moves belongings from a home he once owned. Photographer: Michael S.Williamson/The Washington Post/Getty Images

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Prices for repossessed properties could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. Photographer: Victor J. Blue/Bloomberg

“The longer a foreclosed home is in the mill, the bigger the losses,” said Todd Sherer, who manages distressed mortgage investments for Dalton Investments LLC, a Los Angeles-based hedge fund that oversees $1.5 billion. “We have a bulge of these properties coming through the system.”

Homes stockpiled less than a year sell for about 35 percent below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60 percent. A surge of cheap foreclosures may erode prices in the broader real estate market, even as the economy expands and residential building increases, said Karl Case, one of the creators of the S&P/Case-Shiller home-price index.

‘Complete Losses’

“The question on these aging foreclosures is how many are going to be sold and affect prices and how many will be complete losses,” said Case, professor emeritus at Wellesley College in Wellesley, Massachusetts. “Depending on their condition, they could have a big impact on home prices.”

The best measure of the influence foreclosures have on the broader market is the 20-city S&P/Case-Shiller home-price index that tracks deeds, including homes sold directly by banks and deals that don’t use mortgages, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. The index probably will fall 5 percent to 10 percent this year, a range that depends on the condition of the mothballed homes, he said.

That compares with a forecast for a 2.9 percent decline by Celia Chen, a housing economist at Moody’s Analytics in West Chester, Pennsylvania, and a prediction of a 3.9 percent decline by Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago.

Building Permits

While foreclosures slowed, the wider real estate market improved. As banks held onto properties, the supply of homes for sale dropped to 2.3 million in December, the lowest since 2005, before rising 4.7 percent the following two months, according to the National Association of Realtors. Spurred by low inventory, building permits that signal future housing demand rose 4.8 percent in February, from the prior month, to the highest level since 2008, according to the Commerce Department.

The Standard & Poor’s 1500 Homebuilding Index rose 0.4 percent today and has gained 23 percent this year.

The S&P/Case-Shiller index fell 3.8 percent in January from a year earlier, slowing from December’s decline of 4.1 percent, a sign of stabilization. The measure has dropped 34 percent from its 2006 peak to the lowest level in almost a decade.

“A lot of people look at bumps in the monthly data and say we’re reaching a bottom,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “We won’t be there until this supply of foreclosures clears.”

The National Association of Realtors predicts a 0.01 percent gain in prices for homes sold through multiple listing services, which includes some though not all foreclosures.

Need to be Bulldozed

The Federal Housing Finance Agency’s price index measures sales of homes with loans backed by Fannie Mae or Freddie Mac. That gauge likely will rise 0.7 percent, according to a forecast by the Mortgage Bankers Association in Washington.

A quarter of homes in long-term foreclosure may need to be bulldozed, according to the Cleveland Fed’s report. About 500,000 foreclosures in the U.S. are vacant, according to a housing study Fed Chairman Ben Bernanke sent to Congress in January. Many of them are “badly damaged,” he said.

Gloria Washington, 80, knows about dilapidated foreclosures first-hand. There are four of them on her block on the south side of Chicago. When she applied for a home equity loan last year to fix up her front walkway, she was turned down because her home’s value had plummeted.

“This used to be a good neighborhood, but now all our homes are almost worthless,” she said.

‘They Lack Money’

Whether a foreclosed property is occupied or not, its value is deteriorating, said Tom Popik, research director for Campbell Surveys, a real estate data firm in Washington. The mortgage servicers that oversee the homes aren’t likely to do major repairs, he said. Residents probably would solve a problem like a leaky roof by nailing a sheet of plywood over it, Popik said.

“They lack money -- that’s why they’re in foreclosure --so maintenance isn’t going to get done, and that’s going to hurt the value of the house,” Popik said. “Some of them feel abused by the system and are going to strip the fixtures, the hot water heater and even the kitchen cabinets when they go.”

Aging foreclosures also erode values in higher-priced neighborhoods, such as a community in Tampa, Florida, where properties sell for up to $500,000. A three-bedroom house with a double garage and a pool came on the market in January for $139,900 after being in foreclosure for almost three years, according to court records. When the case was finalized in December, the unpaid amount owed on the mortgage was $403,000, the records show.

Preserving Value

In 2008 the same owner, a real estate investor, went through a foreclosure on a similar home located less than a mile away. In that situation, the foreclosure lasted six months, helping to preserve the value of the property. The house sold for $305,000 that same year and now is worth about $429,000, according to an estimate by Zillow Inc. (Z), a real estate data company in Seattle.

“You can easily strip $100,000 or more off the value of a property by letting it sit in foreclosure for an extended period of time,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “You’ve got to fill that home as quickly as possible.”

In Ohio, $75 million of an estimated $335 million it received from the Feb. 9 settlement between state attorneys general and servicers will be used to tear down vacant foreclosures, the state’s Attorney General Mike DeWine announced the same day. Banks held back on processing home seizures during the probe to avoid potential liabilities. U.S. Representatives Marcia Fudge and Steve LaTourette, both from Ohio, last month said they would introduce a bill to provide $4 billion to issue 30-year bonds to demolish foreclosures.

‘Have to be Dumped’

“Any homeowner knows that housing depreciates pretty rapidly if you don’t take care of it,” said Case, who created the index with Yale University professor Robert Shiller. “Some of the supply in the bin is going to have to be dumped.”

The average price of a repossessed property has dropped 22 percent to $146,285 since 2008, according to RealtyTrac, a foreclosure data firm in Irvine, California.

The age of the foreclosure backlog complicates 2012 price- forecasting, said Newport at IHS Global. The share of homes in the legal process of being seized was 3.5 percent in 2011 compared with 3.2 percent in 2010, according to CoreLogic Inc. in Santa Ana, California. Completed foreclosures fell to 870,000 in 2011 from 1.1 million a year earlier, the firm’s data shows.

“We don’t know how much damage has happened to these homes,” Newport said. The properties “are going to have a lot of wear and tear in an already weak housing market.”

Even if the sale prices of long-term foreclosures affect the value of homes in the wider market, it’s still better to get rid of the properties as quickly as possible, said Stan Humphries, Zillow’s chief economist.

“We deferred a lot of the pain of foreclosure during the post-robo-signing period,” Humphries said, referring to the fraudulent signing of affidavits that sparked the servicer probe. “Getting those homes onto the market and getting them sold is the only way through it.”

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

To contact the editor responsible for this story: Rob Urban at robprag@bloomberg.net.

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‘Apple Fever’ to Push Stock to $1,001, Topeka Capital Says

By Adam Satariano - Apr 3, 2012 2:53 PM GMT+0700

Apple Inc. (AAPL), already the world’s most valuable company, will see its stock price reach $1,001 within 12 months, lifted by growth in China and the debut of a new television product, according to Topeka Capital Markets.

The new target, issued yesterday by Topeka’s Brian White, is the highest among the 45 analysts tracked by Bloomberg and represents a 62 percent increase over the current price. The gains will be fueled by demand for the next iPhone, in addition to the expansion into China and the TV market, he said.

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Charging cables for Apple iPads at Grant Beacon Middle School in Grant, Colorado, on Jan. 17, 2012. Photographer: Andy Cross/The Denver Post/AP Photo

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April 3 (Bloomberg) -- Guy Phillipson, chief executive officer of Internet Advertising Bureau U.K., talks about the outlook for online advertising revenue. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

Apple products on sale at a store in Orem, Utah. Photographer: George Frey/Bloomberg

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Traders work at the New York Stock Exchange (NYSE) in New York, U.S. Technology companies helped lead the advance as Apple , the most-valuable company, climbed 1.4 percent after authorizing a $10 billion stock-repurchase plan and a quarterly dividend of $2.65 a share. Photographer: Scott Eells/Bloomberg

“Apple fever is spreading like a wildfire around the world,” White said in a report, which initiated coverage of the company with a buy recommendation.

Apple will get to $1,001 by introducing a TV within a year, as well as an upgraded iPhone that works with speedier wireless networks, he said. China Mobile Ltd. (941), the Asian country’s largest wireless network, will start carrying the iPhone within a year, White said, adding millions of new potential customers.

Apple’s stock also is getting a boost because of a relatively seamless transition since the death of co-founder Steve Jobs, he said. The stock has risen more than 60 percent since he died in October. Tim Cook had assumed the role of chief executive officer from Jobs the previous August.

“Steve Jobs’s health was such a fear that was hanging over the stock,” White said in an interview. “Now you’ve seen that Tim Cook is doing a good job.”

Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment on the report.

A Trillion?

Apple’s management should aim to become the first company to generate $1 trillion in revenue, a goal that’s achievable in the next decade, he said. Apple had sales of $108.2 billion in its last fiscal year, which ended in September.

A risk for Apple is the uncertainty over who will make critical decisions about future products, White said. Cook’s experience is with Apple’s supply chain and operations, and less with product development, the area where Jobs excelled.

The stock has already risen 53 percent this year, spurred by soaring iPhone revenue and the debut of a higher-resolution iPad last month. The shares climbed 3.2 percent to $618.63 yesterday in U.S. trading. Apple’s market value is $576.8 billion, far above the previous leader, Exxon Mobil Corp. (XOM) That company is valued at $410.4 billion.

In German trading, the stock today gained 0.7 percent to the equivalent of $620.67 as of 9:46 a.m. in Frankfurt.

Apple investors also are benefiting from a $2.65-a-share dividend, starting in July, and a $10 billion stock buyback plan. The company announced both initiatives last month.

Top of the Heap

White previously covered Apple for Ticonderoga Securities LLC, where his last price target was $666. The next closest prediction to his new $1,001 target is the $800 target of Morgan Keegan’s Tavis McCourt.

White said Apple can hit his target because its iPhone and Mac computers still have relatively low market share, giving them room to grow. He also foresees Apple introducing iPads with a smaller screen size, letting them compete more directly with tablet computers from Amazon.com Inc. (AMZN) and other rivals.

The much-anticipated television set, which Apple may introduce within a year, would create a new $100 billion market opportunity for the company, White said. China, meanwhile, offers some of the best growth prospects. Mobile-phone subscribers in the country with access to 3G wireless networks could reach 230 million by the end of this year, adding millions of new potential iPhone buyers, White said.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Groupon Revisions Highlight New Model’s Risks

By Douglas MacMillan - Apr 3, 2012 4:21 AM GMT+0700

Groupon Inc. (GRPN)’s latest restatement, following accounting missteps last year, heightens concern about the reliability of the company’s financial reporting and raises questions whether auditors gave enough oversight to the coupon provider’s novel business model.

The Chicago-based company reported a “material weakness” in financial controls on March 30 and said fourth-quarter sales were lower than previously stated because of higher refunds to merchants. That cut revenue in the period -- Groupon’s first as a public company -- by $14.3 million to $492.2 million.

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Groupon Inc's initial public offering and listing on the NASDAQ in New York. Photographer: Zef Nikolla/NASDAQ/Corbis

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Groupon headquarters in Chicago. Photographer: Scott Olson/Getty Images

The announcement added to setbacks for Groupon, which has struggled to get its financial statements in order since filing for an initial public offering in June. The company abandoned an accounting method for operating income after a review by regulators and later restated 2010 results. The moves raise questions about why Groupon’s auditor, Ernst & Young LLP, didn’t point out concerns sooner, said Herman Leung, an analyst at Susquehanna Financial Group in San Francisco.

“This should have been highlighted by the auditors,” said Leung, who has a neutral rating on shares of Groupon and doesn’t own the stock. “The business is growing so fast that it sounds like they don’t have the proper financial controls to deal with the growth.”

Shares Fall

Groupon’s stock had its biggest one-day decline today, dropping 17 percent to $15.28 at the close in New York. The shares have dropped 24 percent since the IPO in November.

Groupon has been working with KPMG LLP to address the causes of the material weakness, said Paul Taaffe, a company spokesman. PricewaterhouseCoopers LLP and Deloitte & Touche LLP have also worked with Groupon, Taaffe said.

Charlie Perkins, a spokesman for New York-based Ernst & Young, declined to comment on the earnings restatement.

To address the concerns, Groupon also is bringing in more finance personnel.

“Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in remediating this material weakness,” Groupon said in the regulatory filing. Still, the company plans to report on the effectiveness of its internal controls by the end of this year.

‘Extremely Unusual’

Restatements and disclosures of material weaknesses are rare this soon after an IPO because the Securities and Exchange Commission requires detailed checks on financial controls before a debut, said Lise Buyer, principal at Class V Group.

“It’s extremely unusual, as companies generally go through very thorough audits before filing and so should have their policies and procedures fairly well ironed out,” said Buyer, whose firm is based in Portola Valley, California. She advises startups on public offerings.

Just 12 percent of companies reported having ineffective financial-reporting controls within their first year of trading, according to data provider Audit Analytics. The Sutton, Massachusetts-based research firm looked at 1,848 companies that held IPOs since January 2004.

Groupon said it failed to account for an increase in higher-priced deals, which are more likely to be refunded by customers. The company started selling discounts on plane tickets in partnership with Expedia Inc. (EXPE) last year and began offering Groupon Reserve, a service for upscale deals such as a five-course meal at Santa Monica, California-based restaurant Whist for $99.

Groupon said the latest changes “are primarily related to an increase to the company’s refund reserve accrual,” leading to higher reimbursement rates.

Refunds, Reimbursements

The company says it will refund the purchase price of coupons, known as Groupons, in cases where a customer isn’t satisfied. Still, Groupon has a limited period during which it can seek reimbursement from a merchant for a refund, and its customers may try to get refunds in cases where the company can’t get reimbursed from partners.

“Our inability to seek reimbursement from our merchant partners for refund claims could have an adverse effect on our liquidity and profitability,” Groupon said in its filing.

The higher refunds boosted operating expenses that in turn widened Groupon’s net loss by $22.6 million, or 4 cents a share. The company held to a forecast for first-quarter sales of $510 million to $550 million and income from operations of $15 million to $35 million.

Accountants may have had difficulty tracking changes in refunds because Groupon’s business model is relatively new, said Tom Taulli, an IPO consultant in Newport Beach, California.

‘Little History’

Groupon pioneered the market for daily deals, which offer discounts on restaurant meals, nail-salon packages and other services. Groupon splits the revenue from the offers with merchants.

“There is very little history on return rates,” Taulli said. “Groupon hasn’t been around for a long time and has been expanding so quickly, it’s got to be a nightmare for an auditing firm.”

Groupon also stumbled ahead of its IPO when Chairman Eric Lefkofsky said the company is “going to be wildly profitable” in an interview with Bloomberg News. In July, the company updated its IPO filing, asking investors to disregard those comments because they didn’t accurately or completely reflect his views.

To contact the reporter on this story: Douglas Macmillan in New York at dmacmillan3@bloomberg.net

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

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Apple’s IPad Is No. 1, Even With Heat, Consumer Reports Says

By Sarah Frier and Scott Moritz - Apr 3, 2012 3:45 AM GMT+0700

Apple Inc. (AAPL)’s new iPad was named the best tablet computer in a ranking by Consumer Reports, two weeks after the magazine said the device runs “significantly hotter” than previous models.

The new iPad’s high-resolution screen provides the best detail and color accuracy of all tablets Consumer Reports has seen, the publication said today on its website. Consumer Reports also commended the device’s camera and faster connectivity. The new iPad costs $500 to $830.

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A new Apple Inc. iPad in New York on March 16, 2012. Photographer: Scott Eells/Bloomberg

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March 15 (Bloomberg) -- Bloomberg's Rich Jaroslovsky reviews Apple Inc.'s new iPad. Jaroslovsky says the new iPad has a vastly improved display and offers an ultra-fast Internet connection -- but otherwise seems more likely to maintain Apple's huge lead in the tablet market than to extend it. (Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own. Source: Bloomberg)

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March 7 (Bloomberg) -- Tim Cook, chief executive officer of Apple Inc., Walter Piecyk, an analyst at BTIG LLC, and Eric Jackson, president and founder of Ironfire Capital LLC, offer their views on Apple's new iPad and the outlook for the company. The device will be called iPad, carry a price tag of $499 to $829 and include an A5X chip that enables better graphics, Apple said today at an event in San Francisco. Kevin Dede, technology analyst at Auriga USA, and Michael Holland, chairman of Holland & Co., also speak. (Source: Bloomberg)

Last month, Consumer Reports said the new iPad reached temperatures of 116 degrees (47 degrees Celsius) when handling processor-intensive tasks such as playing graphics-heavy games. While the iPad can reach 122 degrees in 90-degree weather, when playing a game at maximum brightness, the temperatures don’t pose a health hazard, the reviewers said.

The device’s temperature is close to the 121 degrees that a Samsung Electronics Co. (005930) Galaxy Tab 10.1 can reach in the same conditions, Consumer Reports said. An Asustek Computer Inc. Asus Transformer Prime can reach 117 degrees.

“With use of a laptop, evidence suggests that temperature on the bottom of its case of 120 degrees risks damage to bare skin with prolonged contact,” Consumer Reports said in a statement today. “But we think the same temperature on a tablet is more a potential inconvenience than a concern.”

Satisfaction Ratings

Many customers didn’t wait for the reviews before buying the new tablet. Apple sold more than 3 million iPads during the product’s debut weekend.

The sales enthusiasm carried through to satisfaction ratings, according to survey results released today by ChangeWave Research, a unit of 451 Research LLC. Of the new iPad owners surveyed, 82 percent said they were very satisfied with the device, compared to the 74 percent approval rating of the previous iPad.

The high-resolution “retina” display was ranked the best feature on the iPad by new owners. The biggest dislike of the iPad was the cost, according to the ChangeWave survey.

Consumer Reports ranked the new iPad above other new tablets including the Toshiba Corp. (6502) Excite 10LE, the Pantech Co. Element, the Sony Corp. (SNE) Tablet P, and Samsung’s Galaxy Tab 7.7.

The magazine suggested that gamers turn down the brightness of the tablets if the heat bothers them.

When Cupertino, California-based Apple released the iPhone 4, Consumer Reports declined to recommend it, saying it dropped calls when gripped a certain way. After initially playing down the matter, which became known as “Antennagate,” Apple gave out free cases and issued a software update aimed at addressing the glitch.

Apple rose 3.2 percent to $618.63 at the close in New York. The shares have gained 53 percent this year.

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

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Ville Heiskanen at vheiskanen@bloomberg.net

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Dow Rises to Highest Level Since 2007 on Manufacturing

By Lu Wang and Inyoung Hwang - Apr 3, 2012 4:09 AM GMT+0700

U.S. stocks rose, sending the Dow Jones Industrial Average to its highest level since December 2007, on stronger-than-forecast growth in manufacturing.

All 10 groups in the Standard & Poor’s 500 Index advanced. Freeport-McMoRan Copper & Gold Inc. (FCX) and Alpha Natural Resources Inc. (ANR) added more than 1.7 percent, pacing gains among commodity shares. Financial companies rose as Bank of America Corp. (BAC) and Morgan Stanley (MS) climbed at least 0.9 percent. Avon Products Inc. (AVP) jumped 17 percent after Coty Inc. sought to acquire the door-to- door cosmetics seller.

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April 2 (Bloomberg) -- U.S. stocks gained, with the Standard & Poor’s 500 Index returning to an almost four-year high, and commodities reversed early losses following a report showing stronger-than-forecast growth in American manufacturing. Bloomberg's Adam Johnson reports on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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April 2 (Bloomberg) -- Bloomberg’s Trish Regan, Adam Johnson and Matt Miller report on today’s ten most important stocks including Abercrombie & Fitch, Amazon and Avon. (Source: Bloomberg)

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April 2 (Bloomberg) -- Jim Bianco, president of Bianco Research LLC, Joseph Tanious, market strategist at JPMorgan Funds, and Lincoln Ellis, managing director at Linn Group, talk about the U.S. stock market and investment strategy. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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April 2 (Bloomberg) -- Kyle Harrington, founder and managing partner of Harrington Capital Management, Robert Gelfond, chairman and founder of MQS Asset Management, and Robert Brusca, president of Fact & Opinion Economics, talk about the outlook for U.S. stocks, Federal Reserve monetary policy and their investment strategies. They speak with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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April 2 (Bloomberg) -- Michael Holland, chairman of Holland & Co., talks about the U.S. stock and bond markets. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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April 2 (Bloomberg) -- David Kelly, chief market strategist at JPMorgan Funds, talks about investment strategy, the outlook for financial markets and the U.S. economy. Kelly, speaking with Betty Liu, Dominic Chu, Sheila Dharmarajan and Josh Lipton on Bloomberg Television’s “In the Loop,” also discusses Federal Reserve policy. Todd Horwitz, chief strategist at Adam Mesh Trading Group, also speaks. (Source: Bloomberg)

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April 2 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for stocks and investment strategy. Faber, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses Federal Reserve policy and the gold market. (Source: Bloomberg)

The S&P 500 rose 0.8 percent to 1,419.04 at 4 p.m. New York time. The index on March 30 completed its biggest first-quarter rally since 1998. The Dow gained 52.45 points, or 0.4 percent, to 13,264.49 today. About 6.6 billion shares changed hands on U.S. exchanges, 3.6 percent below the three-month average.

“We have solid gains that are likely to be sustained, maybe with some slight pullbacks over coming months,” Eric Teal, Raleigh, North Carolina-based chief investment officer at First Citizens Bancshares Inc., which oversees $4.5 billion, said in a telephone interview. “The manufacturing data continue to show signs of improvement. It supports our modest pro- cyclical position.”

Equities gained as manufacturing in the U.S. expanded at a faster pace than forecast in March, a sign that the industry is weathering slower global growth. The Institute for Supply Management’s factory index rose to 53.4 from 52.4 a month earlier, the Tempe, Arizona-based group’s data showed. Fifty is the dividing line between growth and contraction. Economists surveyed by Bloomberg News projected the gauge would climb to 53.

Construction Spending

A separate report showed construction spending decreased 1.1 percent in February, compared with the median economist forecast for growth of 0.6 percent.

The S&P 500 rose 12 percent in the first quarter as economic data surpassed estimates and investors speculated that the euro area would contain its sovereign-debt crisis. The benchmark measure advanced 3.1 percent in March, its fourth- straight monthly increase for the gauge’s longest streak of monthly gains since 2009, as Federal Reserve Chairman Ben S. Bernanke said he will keep stimulating the economy and Europe agreed to increase rescue funds.

“We don’t see any big negatives that would cause people to run for the hills,” Joseph Keating, who helps oversee $1 billion as chief investment officer at CenterState Wealth Management in Birmingham, Alabama, said in a telephone interview. “Easy monetary policies are in place around the globe. Investor sentiment has picked up.”

Commodity Producers, Banks

Commodity shares rose the most among 10 groups in the S&P 500 after a gauge of manufacturing in China signaled stronger demand. A Purchasing Managers’ Index touched a one-year high of 53.1 last month, China’s logistics federation and the National Bureau of Statistics said. Readings above 50 signal growth.

Freeport-McMoRan jumped 2.8 percent to $39.11. Alpha Natural, a coal producer, rallied 1.7 percent to $15.47. Alcoa Inc. (AA) added 1.5 percent, the most in the Dow, to $10.17, while Chevron Corp. (CVX) increased 1 percent to $108.30.

Investors snapped up shares of companies most tied to the economy. The Morgan Stanley Cyclical Index (CYC) rallied 0.8 percent. The Dow Jones Transportation Average, a proxy for economic growth, climbed 1 percent.

Financial shares advanced 0.8 percent as a group in the S&P 500. Bank of America added 1.2 percent to $9.68, while Morgan Stanley increased 0.9 percent to $19.81.

Non-Binding Proposal

Avon surged 17 percent, the most since July 2008, to $22.70. Coty said it has submitted a non-binding proposal to acquire the door-to-door cosmetics seller for $23.25 a share in cash. The purchase price represents a premium of about 27 percent over the three-month average weighted price for Avon shares, Coty said.

Apple Inc. (AAPL) advanced 3.2 percent to $618.63 after its new iPad was named the best tablet computer in a ranking. Consumer Reports said on its website that the new iPad’s high-resolution screen provides the best detail and color accuracy of all tablets it has seen, two weeks after the magazine said the device runs “significantly hotter” than previous models.

Hartford Financial Services Group Inc. (HIG) rose 4.1 percent, the third-biggest gain in the S&P 500, to $21.95. The insurer being pressured by investor John Paulson to break up said it will pay about $2.43 billion to buy back debt and warrants issued to Allianz SE.

Abercrombie & Fitch Co. (ANF) climbed 4.1 percent to $51.62, the most since Feb. 15. The teen-clothing retailer was raised to buy from hold at Brean Murray Carret & Co.

‘Material Weakness’

Groupon Inc. tumbled 17 percent to $15.28 after the largest provider of daily deals online reported a “material weakness” in its financial controls and said fourth-quarter revenue was lower than it had stated because of higher refunds to merchants.

The S&P’s first-quarter rally sent U.S. stocks above gold by the most in more than a decade, a sign of growing investor confidence in corporate profits as analysts raise earnings estimates for the first time this year.

The S&P 500’s rise of 12 percent was 5.3 percentage points more than gold for the widest gap to start a year since 1999, according to data compiled by Bloomberg. The S&P GSCI Total Return Index (SPGSCITR) of 24 commodities gained 5.9 percent over the three months, while Treasuries slipped 1.3 percent, trailing equities by the most since 2009. Corporate bonds increased 2.4 percent and the dollar fell 1.6 percent.

Gaining Traction

Stocks are diverging from defensive investments such as gold as appetite for risk increases. While bulls see it as a sign profits and the economy are gaining traction, bears point to Federal Reserve Chairman Ben S. Bernanke’s warnings that more stimulus may be needed as evidence that the rally has gone too far. To money manager Laszlo Birinyi, slower gains in precious metals signal pessimism is starting to fade.

“The problem with gold now is that people are starting to accept the economy recovery,” Birinyi, president of Westport, Connecticut-based Birinyi Associates Inc., said in a March 29 phone interview. Even as confidence builds, “people are still too focused on the concerns and the fact that this looks similar to last year, where everyone said sell in May and go away,” he said. “That’s exactly the kind of thing we look for.”

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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Egypt’s Secularists Criticize Brotherhood Presidency Run

By Tarek El-Tablawy - Apr 3, 2012 12:34 AM GMT+0700

Egyptian secular groups and politicians accused the Muslim Brotherhood of seeking to monopolize power after the Islamist group reversed course and nominated a candidate for the presidential vote.

The nomination of Khairat el-Shater, a millionaire businessman who supports free-market policies, comes at a time when disputes between the ruling military, the Brotherhood and other groups vying to shape the country’s future are stymieing efforts to revive the economy.

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Khairat el-Shater of the Muslim Brotherhood waves as he arrives to al-Galaa court in Cairo on Dec. 10, 2007. El-Shater is a leader in the Brotherhood’s Guidance Council, its main decision-making body. Photographer: Khaled Desouki/AFP/Getty Images

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Khairat el-Shater of the Muslim Brotherhood waves as he arrives to al-Galaa court in Cairo on Dec. 10, 2007. El-Shater is a leader in the Brotherhood’s Guidance Council, its main decision-making body. Photographer: Khaled Desouki/AFP/Getty Images

Net international reserves fell to $15.1 billion at the end of March, down over 50 percent since the start of the uprising that toppled Hosni Mubarak, according to central bank data released today. A $3.2 billion International Monetary Fund loan is also still pending amid criticism from the Brotherhood and others over the government’s economic program.

The presidential race in May will be the first since Mubarak’s ouster from power last year, and the entry of el- Shater makes him a frontrunner among a wide group of candidates, including two other Islamist candidates.

El-Shater’s nomination, announced on March 31, “was not surprising” after the Brotherhood indicated it would “follow in the footsteps” of the former ruling National Democratic Party in seeking to control decision-making, Ahmed Saeed, the head of the secular Free Egyptians Party, said in an e-mailed statement today.

“Who will truly govern Egypt if el-Shater takes on the post of head of state? Would he govern in the name of the people or under orders from the Muslim Brotherhood,” Saeed said.

The Wafd Party said the Egyptian people “would pay a hefty price” for the decision, the official Middle East News Agency reported, citing the party’s head.

‘Threats to the Revolution’

The Brotherhood, whose Freedom and Justice political party holds 47 percent of the seats in the parliament’s lower house, said it was putting forward a candidate because of “threats to the revolution.”

Group officials said nominating a candidate was a step taken to preserve the momentum of the uprising after the government failed to address the needs of Egyptians, including the economy.

The Freedom and Justice party head, Mohamed Morsi, said concerns that the group was trying “to control all leadership positions in the state” were unfounded, according to a statement e-mailed late yesterday. The group, along with the Salafist Al-Nour Party, commands a majority in both houses of parliament.

‘Never Happened’

A Facebook page opposing el-Shater’s candidacy, created after the decision was announced, has garnered over 89,000 “likes,” while his official Facebook campaign page, has received a 10th of the interest.

Presidential contender Amre Moussa, a former foreign minister and Arab League head under Mubarak, said a win by el- Shater, coupled with the Brotherhood’s dominance in parliament and on the committee charged with drafting the country’s new constitution, would make it seem as though “the revolution had never happened,” MENA quoted him as saying.

If el-Shater, who served as the deputy to the Brotherhood’s leader Mohamed Badie were elected, would Badie then “be the president of the president of Egypt?” MENA quoted Moussa as asking.

El-Shater spent years in and out of Mubarak’s jails amid a crackdown on the group. He was released early in March 2011 following his latest conviction, less than a month after Mubarak’s ouster. To run for office, he would need a pardon from the military.

Brotherhood lawyer Abdel Monem Abdel Maqsoud said in a phone interview yesterday that the military judiciary had expunged the candidate’s convictions and that el-Shater now “has the right to fully exercise all his political rights.”

The nomination marked a clear determination by the Brotherhood that it is “ready to assume sole responsibility for governing Egypt, and that in its power struggle with SCAF, it enjoys a slight edge,” said Hani Sabra, Mideast analyst with the New York-based Eurasia Group, in an e-mailed note that referred to the ruling military council by its acronym.

To contact the reporter on this story: Digby Lidstone in Cairo at dlidstone@bloomberg.net

To contact the editor responsible for this story: Louis Meixler at lmeixler@bloomberg.net

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