Earnings to drive U.S. stocks after ugly data

NEW YORK (Reuters) - After ugly economic data and an unexpected downturn in sentiment on quarterly earnings, Wall Street will face a tough time battling back from the latest sell-off.

Technology and banking results will once again shape investor mindset in the week ahead. But it’ll be a tough job to shift back into a positive mode after stocks dropped nearly 3 percent drop on Friday.

Minutes of the Federal Reserve ’s June meeting got the market seriously worried this week after officials said they were more concerned with the pace of the economic recovery.

A raft of disappointing data didn’t help, prompting questions this week on whether the economy had merely hit a soft patch or was primed for a double-dip recession.

“It doesn’t mean the market can’t rally, but the structural problems are there and there is no doubt about it,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

From a technical perspective, the picture is even less certain. The Standard & Poor’s 500 Index is stuck in a tight range after it failed to hold its 50-day moving average, now near 1,090, after closing above it for two days.

The Nasdaq Composite, meanwhile, failed in its attempt to break its 200-day moving average, but has support around its 14-day moving average at 2,171.

At Friday’s close, the three major U.S. stock indexes were each down about 1 percent for the week: The Dow Jones industrial average lost 1 percent, while the S&P 500 slid 1.2 percent and the Nasdaq shed 0.8 percent.

The coming week’s earnings will include results from 12 Dow components, as well as earnings from financial powerhouses Goldman Sachs Group Inc and Morgan Stanley along with tech bellwethers Apple Inc, Texas Instruments Inc and Qualcomm Inc.

For the second quarter, earnings are expected to increase 28 percent from the year-ago period, according to Thomson Reuters data.

DOUBLE SHOT OF HOUSING DATA

The week’s major economic indicators will zero in on the housing sector, which is still struggling in the wake of the worst recession since the 1930s. In the second quarter, banks repossessed a record number of U.S. homes as U.S. unemployment stayed high, according to RealtyTrac, a real estate data company.

On Tuesday, Wall Street will get data on housing starts for June, which are expected to show a slight decline to a seasonally adjusted annual pace of 580,000 units from 593,000 in May, according to economists polled by Reuters.

Another snapshot of the housing market will be provided on Thursday with existing home sales for June. The forecast calls for a drop of 8.1 percent in June existing home sales versus the 2.2 percent decline in May, the Reuters poll showed.

REVENUES UNDER THE MICROSCOPE

But investors will focus on earnings next week. Close attention will be paid to revenue for signs of improvement, in light of the contrasting results from Intel Corp and Google Inc.

“That’s been the problem. They’ve been meeting or exceeding on cost cutting and not on demand for their products,” said Terry Morris, senior vice president and senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

“That has got to end pretty soon because the market was expecting sales to start improving and it’s not materializing.”

According to Thomson Reuters data through July 16, 48 companies in the S&P 500 Index have reported earnings for the second quarter, with 75 percent having topped analysts estimates, 13 percent in line with expectations and 13 percent below expectations.

On a revenue basis, of the 48 companies in the S&P 500 that have reported results so far, 71 percent have topped analysts’ expectations and 29 percent have fallen below estimates.

TAMER OUTLOOK FOR TECHS

Options investors appear to be expecting less volatility in the technology sector than the broader market next week.

Implied volatility on the at-the-money options for the SPDR S&P 500 ETF, an exchange-traded fund that tracks the benchmark S&P 500 , was slightly higher than on the PowerShares QQQ Trust ETF that tracks the performance of the Nasdaq 100, according to Steve Claussen, chief investment strategist at online brokerage OptionsHouse.com.

Implied volatility, a key component of options prices, measures the expected movement in stocks calculated by options prices. It is also seen as a barometer of anxiety.

“It’s notable that QQQQ is showing less implied volatility, which suggests more movements in the broader market than the straight technology sector. The tech sector will be a less exciting place in terms of movements next week,” he said.

Implied volatility on August options for the S&P 500 ETF was 25.5 percent, slightly higher than 25.25 percent for the Nasdaq ETF. Usually, the Nasdaq ETF has an implied volatility that’s 5 percent to 10 percent above that of the S&P 500 ETF.

The most actively traded options on the S&P 500 ETF were the August $100 and $105 puts, excluding July options that expire at the end of the day. Late Friday, the SPDR S&P 500 ETF was down 2.8 percent at $106.63.

For the QQQQ, the highest volume was on the August $44 put and August $45 call options. On Friday, the ETF was down 2.78 percent at $44.34.

Sometimes it becomes a little too easy to attack the Fed, and we have to hold back, because well, you may get a little sick of hearing our constant ‘ranting’ at their ridiculous policies.

Okay, that one just slipped out.

However, you have to congratulate the Fed for their repeated attempts to kick start the American economy to get things moving along again. They haven’t given up.

That’s because it’s been well documented that they’re desperate to get the recovery ‘happening’, or ‘back on track’. You know, like in the in the good old days.

When credit was easy, debt was not only normal but encouraged and it didn’t matter whether you could pay for the product, as long as you had the ‘assets’ to back up the purchase.

Let’s be honest, where is all the fiddling around with the economy getting the American people small business? Nowhere. Even when the government steps in with tax incentives to buy houses and cars to entice people, it only makes it appear that things are ‘working’.

And then the next batch of economic ‘numbers’ come out and you can see that effects of whatever the stimulus - or bribe - was, were short lived.

But no matter what the Fed does, it just can’t ‘fix’ this. In fact, it was only Wednesday Fed officials admitted that the recovery in the US could take as long as six years.

And yet, just the day before the Fed were blasting the banks for not lending to small businesses. Yep, you have to admire their persistence. They are trying to step in again to fix things again, convinced that one more ‘tweak’ will make everything okay.

However, you must be starting to wonder if the tweaking is being ignored by the very economy the Fed are trying to save.

See right now, banks in the US have returned to one of the more traditional methods of lending. And that is relying on cash flow to determine businesses suitability for a loan, rather than the pre GFC lending practice of using collateral.

So you can imagine how this process is slowing down the recovery that the Fed is desperately seeking. When real estate prices were at an all time high only a few years ago and credit was applied on that basis, cash flow was a second thought.

After all, if you had strong assets - like an overpriced home maybe - the bank didn’t need to worry about your ability to pay back the loan. I’m sure they thought the worst case scenario was ‘Well, if it all goes to pot, we can sell the client’s assets and we still make money.’ This would have been a fine assumption in an every rising property market.

But in a depressed real estate market like the US has now, these methods can’t be relied on anymore.

And quite simply, the lender and private sector businesses have more an idea on what will drive the US recovery. Right now, both of these parties have a very different idea on what the recovery should be instead of what the Fed is hoping for.

It doesn’t matter how many times Dr Ben Bernanke chairmen of Fed, has insisted that banks ought to lend to credit worthy business, the banks are pretty much ignoring him.

Rather than let the Fed determine what a credit worthy business is, the banks taking the actual risk of lending are deciding who, or who isn’t suitable for finance. And that’s how it should be.

Private businesses in America have decided that they don’t want to return to ‘old ways’, or how life was during the credit boom. They have no interest in the recovery the Fed sees. These small businesses are far more wary of protecting their own interests.

It’s a similar story for lenders too. Thanks to the recent crisis, banks and financiers have seen just how a credit binge can completely destroy a company. And if those lending practices are applied in multiple circumstances, it can destroy an economy. You know, like what the US are trying to pull themselves out of right now…

Now, you couldn’t call the US an entirely free market, but this current situation where lenders and business decide what is best for their own interests, is what happens in a free market.

The actual market participants - the banks and the businesses - are choosing how they want to move forward from the recession. Rather than let themselves be led - or dictated - too, they’ve come to realise they way forward isn’t about getting life back to how it was before the crisis.

The market has decided that it doesn’t want to go back to the way it was before. It’s finally worked out that it wasn’t sustainable.

Finally, it may appear that no matter how much tweaking or meddling the Fed try use to get banks lending and private businesses spending again, the market’s decided that this time it’s not going to work.

These market participants will recover when they want too. Not because they’re told too.

Brutal jobs report leaves a worried Wall Street

Wall Street limited its losses over the past week amid worries about economies in Europe and China, but Friday’s weak US job numbers hit home, leaving shaken investors in need of a tonic.

“This is a headline-driven market environment,” said Frederic Dickson, chief market strategist at DA Davidson & Co.

“Positive headline news can drive instant upward market moves just as easily as negative headline news drives sudden market sell-offs.”

All three major indices capped the holiday-shortened week Friday with plunges of more than three percent in response to the worse-than-expected jobs report. The markets were closed Monday.

The Dow Jones Industrial Average closed at 9,931.22, down 2.03 percent from last Friday.

The tech-rich Nasdaq composite fell 1.68 percent over the week, to 2,219.17.

The Standard & Poor’s 500 index, a broad measure of the market, lost 2.25 percent at 1,064.88.

“In the world of risk, it was looking like the US economy was going to turn out to be the more stable, but with a job report that disappoints expectations, it naturally has a pretty profound impact on the market,” said Gina Martin at Wells Fargo Securities.

The market “really was counting on the US to pull through,” she added.

The Labor Department reported 431,000 nonfarm jobs were created in May, well below analyst expectations of 500,000.

Ninety-five percent of the new jobs were due to temporary government hiring for this year’s census, and the private sector created only 41,000 jobs, the majority of them temporary.

Wall Street had spent most of the week with its sights trained abroad, on Europe where fiscal problems are mounting, and on China, whose anti-inflationary moves are stirring fears of slowing growth in the engine driving the global recovery.

Those two sources of risk for the market, as well as the “psychological effect” of BP’s oil spill disaster in the Gulf of Mexico, weighed heavily on investors, said Owen Fitzpatrick at Deutsche Bank.

“The economy is still trending in the right direction but people are generally concerned with measures that have to be taken. We’ll continue to see slower growth in some regions, in particular Europe,” he said.

The euro tumbled along with stock markets Friday, falling below 1.20 dollars for the first time since March 2006.

Investors kept a close eye this week on trading in the currency shared by 16 European nations amid fears of contagion from the Greek debt crisis.

Markets were spooked when a spokesman for the recently elected Hungarian prime minister hinted the country could default.

But the shock US jobs report cast Wall Street’s spotlight on the US recovery from recession, which so far has been supported by massive government stimulus spending.

The May employment report “does not paint a picture of self-sustained growth in the private sector: absent the census hires and private-sector temp worker hires there was essentially no net job creation,” said Heidi Shierholz of the Economic Policy Institute.

The economic calendar next week is relatively light.

Investors will have a chance to digest the Federal Reserve’s latest report on the economy on Wednesday. The Beige Book is published eight times a year and summarizes anecdotal information gathered by the central bank from all 12 Fed districts.

Thursday brings the weekly initial jobless claims and the April trade balance.

On Friday, the government reports May retail sales, an indicator of consumer spending that accounts for about 70 percent of economic activity.

“Retail sales are likely to remain weak for quite a while given the current trends in employment, and the negative wealth impact for depressed prices for homes and stocks,” Briefing.com analysts said in a note to clients.

U.S. stocks tumble after weak May jobs report

U.S. stocks tumbled Friday, with the Dow Jones Industrial Average falling well below the 10,000 level, after a weaker-than-expected jobs report hit investors already on edge over the possibility that a sovereign-debt crisis was spreading across Europe.

Major stock indexes ended the first week of June solidly in the red, despite a big rally on Wednesday and slight gains on Thursday, the first two-day winning streak in more than a month. However, all those gains and then some disappeared on Friday.

The Dow Jones Industrial Average (DJI:^DJI - News) fell 323 points, or 3.2%, to 9,931.97 as the government’s May nonfarm payrolls report showed only a puny rise in private sector jobs, quashing hope that a strong U.S. economy could help counter the pull of negative sentiment from Europe.

The selloff came on strong volume. New York Stock Exchange composite turnover hit 6.3 billion shares, the highest daily tally of the holiday-shortened week but still well below May’s average of nearly 7 billion shares.

Nonfarm payrolls rose by 431,000 last month, short of economists’ expectations for a rise of 515,000 jobs, and only 41,000 private-sector jobs were added. The unemployment rate slipped to 9.7% in May from 9.9% the previous month, in line with expectations.

“This employment number was definitely a disappointment,” said Terry Morris, co-portfolio manager of National Penn Investors Trust. “This really kind of puts the bulls back on their heels.”

The Dow’s move below 10000–its first time below that key number in a little over a week–came after the euro (CUR-EURUSD - News) fell below $1.20 on fresh worries about Hungary’s economy.

A leading official in the ruling Fidesz party said Thursday that Hungary faces a Greek-like sovereign-debt problem. Although Hungary is not part of the euro zone, its travails are fueling the perception of a broadening European banking crisis. Read about worries over Hungary’s sovereign debt.

“Today you got a postcard from Hungary: All is not well, send money. It’s a reminder that the debt issues are still there and they’re serious and significant,” said Karl Mills, manager at Counterpoint Select Fund.

All 30 of the Dow’s components fell, including declines of more than 5% each in economically sensitive stocks Caterpillar (NYSE:CAT - News) and American Express (NYSE:AXP - News) . General Electric (NYSE:GE - News) was close behind, off 5.3%. The blue-chip average suffered its worst one-day drop since May 20 and ended the week down 2%.

The Nasdaq Composite (COMP - News) tumbled 3.6% on Friday to end down 1.7% for the week. The Standard & Poor’s 500-stock index dropped 3.4% to end with a weekly decline of 2.3%. All of its sectors ended lower on Friday, led by a 4.6% slide in industrials as the profitability of many companies in the sector depends on global growth. In addition, the international exposure of many industrials has put them at risk of being hurt by currency translations as the euro continues to weaken against the dollar.

Small-capitalization stocks, which are often perceived as riskier, were hit even harder than their large-cap counterparts. The Russell 2000 index of small-capitalization stocks slid 5%.

The U.S. Dollar Index (DXY - News) , reflecting the U.S. currency against a basket of six others, jumped 1.3%. Other perceived havens also rose, with gold futures and Treasurys climbing, pushing the yield on the 10-year note down to 3.197%. Crude-oil futures slid 4.2%, the worst one-day drop since Feb. 4. The commodity fell $2.46 to end at $71.51 a barrel, off 3.3% for the week.

Stu Schweitzer, a strategist with J.P. Morgan Private Bank, noted that Friday’s jobs report had investors questioning the recovery in the U.S. However, he believes there are still enough economic yardsticks moving in the right direction. He noted that this week’s reports on manufacturing activity, jobless claims and construction spending were all better than expected.

“Even with the disappointing jobs report today, it remains clear that the recovery here is continuing,” Schweitzer said. “There’s a question of sustainability, but for the short term, it’s very much in place.”

The 588 million dollar Indian offering of Standard Chartered Bank was more than twice oversubscribed by its close Friday, as bids from investors came in just hours before the deadline.

The issue, which opened on Tuesday despite volatile global market conditions, is being viewed by bankers as a success, with investors confident of the bank’s growth strategy, which focuses on emerging markets.

Data at the Mumbai and the National stock exchanges showed the London-based lender’s Indian Depository Receipts (IDR) issue had received about 446 million bids out of 204 million on offer — a 2.19 times oversusbcription.

The issue closed Friday but data is still being collated, the bank said, so the final bid figure could be even higher.

The “high-net worth individual” category was oversubscribed 1.7 times; qualified institutional buyers about three times; and retail investors 0.7 times, a source familiar with the matter told AFP on Friday.

“We are very happy. Initially the markets were nervous due to volatile global conditions and a slow start for the offering,” a banker said, also on condition of anonymity.

The late surge came after Standard Chartered received bids covering just 16 percent of the issue between Tuesday and Thursday.

Foreign companies are not allowed to list shares directly in the country and Standard Chartered, which makes most of its profits in Asia, will become the first foreign company to list in India through the IDR route.

IDRs are rupee-denominated certificates similar to US Depository Receipts that show ownership of shares in an overseas firm.

The issue was open to retail, institutional and overseas investors and corporates, with every 10 IDRs representing one share.

Standard Chartered will now seek to list its IDRs on India’s two leading stock exchanges, the Mumbai and the National stock exchange, in June.

The funds raised will be repatriated to the bank’s London headquarters as capital reserve to be used for growth and expansion plans.

India is the bank’s second largest and fastest-growing market after Hong Kong, with profit in excess of one billion dollars in 2009.

The price band for the offering was 100-115 rupees per IDR. The stock exchange data showed that most bids were at the lower end of the bracket.

The bank is aiming to boost its brand and visibility in India, where it opened its first branch more than 150 years ago.

The bank has hired investment banks including Goldman Sachs, UBS Securities and Bank of America-Merrill Lynch to manage the offering.

Stock markets around the world slumped Friday after President Barack Obama unveiled plans to limit the size and scope of US banks and financial firms in a fresh offensive against Wall Street excesses.

Markets from New York to Tokyo reacted with barely-restrained panic to Obama’s drive to limit the size of the largest banks and introduce measures to curb “excessive” risk taking.

“Never again will the American taxpayer be held hostage by a bank that is too big to fail,” vowed Obama, flanked by former Federal Reserve chief Paul Volcker who advised the president on the rules.

He promised to “protect” taxpayers by preventing banks or financial institutions from owning, investing in or sponsoring hedge fund or private equity funds.

Wall Street gave an immediate thumbs down to the plans as US stocks plunged, with the blue-chip Dow Jones Industrial Average down more than 200 points or two percent in Thursday trading.

The news then sent shockwaves though Asian stock markets with the region’s financial centers suffering heavy losses in Friday trading. European exchanges later opened under pressure.

Obama’s measures would effectively force financial firms to choose between lucrative proprietary activities — trading in stocks and sometimes risky financial instruments for their own benefit — and traditional activities, like making loans and collecting deposits.

The initiative, which must be approved by Congress, includes a new proposal to limit the consolidation of the finance sector, placing broader limits on “excessive growth of the market share of liabilities” at the largest financial firms.

Obama blamed banks for sparking the worst economic crisis since the Great Depression with “huge reckless risks in pursuit of quick profits and massive bonuses” in a “binge of irresponsibility.”

“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout,” the president said.

He vowed to enact the reforms in Congress, even if Wall Street deployed an army of lobbyists to kill them.

“If these folks want a fight, it’s a fight I’m ready to have,” he vowed defiantly.

The announcement was the latest attempt by the White House to harness public rage at Wall Street bonuses and the financial crisis.

David Easthope, analyst with Celent, a research and consulting firm, said the effort could hit the banks in one of their most profitable areas.

Proprietary trading “has been the sweet spot for leading investment banks over the last few years, and executives will be concerned that Washington will be taking away the frosting,” he said.

The Financial Services Roundtable, which represents 100 of the largest integrated financial firms, said the proposal would do little to improve risk management or protect consumers from irresponsible loans and trades.

“The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs,” said Steve Bartlett, president and chief executive for the Roundtable.

The group represents 100 top financial services firms providing banking, insurance, and investment products and services.

Obama’s first year in office was dominated by efforts to rescue a handful of banks that threatened to topple the US economy after being exposed to massive losses on the subprime mortgage market.

According to Treasury officials, about 205 billion dollars was pumped into 707 banks under the government rescue plans.

Obama has sounded a tougher tone towards banks in recent weeks as he faced widespread voter anger at the massive government bailout, which came as Americans faced surging unemployment, home foreclosures and national debt.

Top Obama economic aide Austan Goolsbee sought to counter criticism that the plan is returning to the Depression-era law creating a wall between investment and commercial banks.

“It’s not returning to Glass-Steagall,” Goolsbee said.

While the act repealed in 1999 forbid underwriting securities or investing in securities by any commercial bank, Goolsbee said, “This is not that. This says a bank cannot own a hedge fund, cannot own a private equity fund or do trading for its own account that is not related to its client business.”

He added that the goal is “to get back to the fundamental nature of the bank, which is serving its clients, rather than investing for its own profit.”

Global Investor: Earnings Falsely
Discount a Strong Recovery in 2010

Thus far into the corporate earnings season, the results have best unimpressive. And U.S. Treasuries have noticed, as the benchmark yield on ten-year paper declines from 3.84% on December 31 to 3.70% this morning.

For the most part, revenues are flat to slightly higher while net income has indeed increased – but compared to 12 months ago that comparison is pretty easy. Combined with fudged accounting rules in the United States since May and creative accounting elsewhere, it’s no wonder banks have recovered sharply. Plus, let’s not forget the Fed’s greatest gift of all – providing a remarkably profitable spread trade where banks received near-zero percent money and thereafter reinvest in longer dated paper or make loans at a sharply higher rate of return.

With the exception of China, India and several other advanced emerging markets like Chile and Brazil, the global economy is not booming any time soon.

The West remains stuck in a debt-infested rut and the markets have begun to protest the mountains of money created since late 2008 to arrest falling prices; government bond yields are now rising over the last six weeks as the risk of a sovereign default grows. Dubai, Iceland and Greece are just the tip of the iceberg or the hors d’oeuvre before the main course.

In the United States, still nursing deep wounds inflicted by the credit crash, consumption is still largely impaired. Consumers have boosted spending compared to 12 months ago and that’s normally a good sign. However, the big gains in retail are coming from the likes of discount stores, not high-end retailing or even Wal-Mart Stores. Consumers are frugal. I suppose the “feel good” factor is long gone and won’t make a comeback until real estate recovers combined with jobs growth.

Finally, it’s noteworthy to point out again that following big declines in U.S. economic output over the past 100 years, the economy has always recovered sharply. Actually, a boom is more accurate…

The bigger the drop in GDP, the bigger the bounce. Indeed, as outlined here recently, courtesy of Grant’s Interest Rate Observer, the U.S. economy went through the roof starting in 1934 following a massive 27% crash in output from 1929 to 1933. The same story, though not as sexy, occurred in prior booms and busts.

If the above historical association is true then what can we expect in 2010? Will the United States post a significant economic recovery?

Increasingly, even amid a wall of government stimulus spending, the economy is not bouncing back vigorously. You have to wonder what lies ahead once Washington starts pulling back on spending or if the Fed is forced by the markets to start raising interest rates. There’s not much juice left here unless business spending really takes off.

Santa came early for Wall Street this year by giving the S&P 500 a 22 percent gain for 2009, and with just eight trading days left in the year, stock investors are not expecting to find much more under the tree.

The Grinch showed up early, too, with a heavy winter snowstorm on the East Coast forcing some stores and malls to close on “Super Saturday” — on the last holiday shopping weekend before Christmas.

Investors will be anxious to find out if consumers stepped up their online shopping to get all those stockings filled before Christmas morning, which falls on Friday this year.

With consumers in focus in the countdown to Christmas, this week’s major U.S. economic indicators will include the Reuters/University of Michigan consumer sentiment index, personal income and spending data, and the latest weekly jobless claims. On Thursday, the New York Stock Exchange trading floor will close early in observance of Christmas Eve.

Financial markets will be closed on Friday for Christmas Day.

Investors will also pay attention this week to a final reading on third-quarter gross domestic product. But with the market already factoring in an economic recovery, the GDP data could evoke a muted response. Existing home sales and new home sales also will be worth noting, due to the central role the housing sector’s collapse played in last year’s financial crisis.

Tensions between Iraq and Iran over a disputed oilfield will also be on the radar and could hurt stocks if the situation escalates.

Markets historically enjoy a short, sweet “Santa Claus rally” in December’s final days and early January.

But with the S&P 500 (.SPX) climbing 63 percent from March’s 12-year closing low, investors question what catalyst could drive the market significantly higher.

“I thought there might be one more push higher, but it now looks like investors are willing to let the market consolidate its gains this year, and are happy to lock in the profits that they’ve established,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

The Standard & Poor’s 500 Index has drifted in a range between 1,085 and 1,119 since the start of November as market players became more concerned with preserving 2009’s gains rather than taking risky bets. The S&P 500 is up 22.1 percent for the year.

This month, the U.S. dollar’s rebound has limited the stock market’s gains as the inverse correlation between the greenback and equities deteriorated.

On the plus side, though, is the ritual of year-end window dressing, when fund managers sell underperformers and buy some gainers to spruce up portfolios, which could lift stocks that have done well this year.

Volatility may increase this week as fewer participants make it easier to push the market around. Indeed, the market has generally climbed on light volume this year, but most analysts expect stocks to grind sideways in the days ahead.

“You will probably see some modest window dressing going on, so in my opinion, you could see higher-quality stocks do a bit better,” said Haag Sherman, co-founder and chief investment officer of Salient Partners, an investment firm in Houston. “But I don’t think there’s going to be any material movements between now and year-end.”

RETAIL’S “ARCTIC WINTER”

Most importantly for the market’s outlook, investors will assess the holiday shopping season after “Super Saturday” weekend. Retailers had hoped to see a surge of shoppers over the last weekend before Christmas. But that was before Mother Nature played her wild card with a huge East Coast snowstorm that made driving and even walking dangerous in many areas.

Even before the storm, experts doubted whether “Super Saturday” shopping would be enough to push holiday sales much above last year ’s dismal tally.

Last year was the first time that holiday sales fell during this decade, according to the International Council of Shopping Centers, as shoppers fretted about the financial crisis and growing unemployment.

Spending has remained anemic this year. Consumers’ reluctance to spend remains one of the biggest headwinds to the U.S. economic recovery.

“Last year was a train wreck. It was the arctic winter of retail,” said Lawrence Creatura, equity market strategist and portfolio manager at Federated Clover Capital Advisors in Rochester, New York. “Surpassing that is not a high hurdle.”

A snapshot of how retailers fared over the weekend will come from anecdotal evidence about how busy - or not — stores were, as well as sales and traffic data from ShopperTrak, a private firm that monitors such statistics.

Further insight into consumers’ purchasing power and their inclination to spend will come on Wednesday from a final reading of December consumer sentiment from the Reuters/University of Michigan data. Economists expect an index reading of 73.5, compared with a previous reading of 67.4, according to a Reuters poll.

The struggling job market’s pulse will be taken on Thursday, with the release of initial claims for jobless benefits, expected to fall to 470,000 from 480,000 the week before. For details on economic indicators, see

Only a few major earnings reports are on tap, including results from Walgreen Co (WAG.N), ConAgra Foods Inc (CAG.N) and Micron Technology Inc (MU.N).

MODEST GROWTH IN GDP AND HOME SALES

The government’s final look at third-quarter gross domestic product, due on Tuesday, is expected to show the U.S. economy grew at an annual rate of 2.8 percent in the stretch from July through September, in line with the previous reading.

Existing home sales for November also will be released on Tuesday; economists forecast sales will rise to a seasonally adjusted annual pace of 6.25 million units from 6.10 million in October.

On Wednesday, new home sales for November are expected to edge up to a seasonally adjusted annual rate of 440,000 units from 430,000 in October.

EYES ON IRAQ AND IRAN

A potential headwind for markets could be any increase in tensions between Iraq and Iran. On Friday, Iraq demanded that Iran immediately withdraw its soldiers from a disputed oilfield on the two countries’ border, but Iran denied any incursion.

But on Sunday, officials from both countries said Iranian troops have withdrawn partly from a disputed oil area claimed by both Tehran and Baghdad, possibly defusing a border feud straining the two nations’ delicate ties.

While the stock market showed no reaction on Friday, an escalation in hostility between Iraq and Iran could push investors out of stocks and into safe-haven assets such as the dollar or U.S. Treasury bonds.

“Any acceleration of aggression, or potential disruption in the supply of oil would have a more meaningful impact on investor sentiment,” Creatura said.

U.S. crude oil futures settled on Friday at $73.36 a barrel, up 71 cents, or almost 1 percent, with Middle Eastern tensions supporting oil prices.

CIT files for Chapter 11 bankruptcy protection

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After struggling for months to avert bankruptcy, lender CIT Group has filed for Chapter 11 protection in an attempt to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses.

CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.

The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT’s bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.

A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT’s debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.

“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.

CIT’s move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.

Treasury Department spokesman Andrew Williams said the government will be closely monitoring the bankruptcy proceedings, but acknowledged that “recovery to preferred and common equityholders will be minimal.”

Common stockholders set to lose their investment include FMR LLC of Boston with a 9.9 percent stake in CIT and San Diego-based Brandes Investment Partners LP with a 9.7 percent equity position, according to CIT’s filing.

CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.

The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.

Analysts warned that the bankruptcy could add to the uncertainty around loans for the nation’s small businesses, especially retailers, which make up a significant portion of CIT’s clients and are already struggling with tight credit markets.

CIT is the financier for about 2,000 vendors that supply merchandise to more than 300,000 stores, many of which are gearing up for the critical holiday shopping season. They rely on the lender to cover costs ranging from paying for orders to making payroll. Any disruption caused by bankruptcy could wreak havoc on their operations, Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.

“CIT is the 600-pound gorilla in the industry,” Alouf said.

But CIT has already pulled back sharply on its lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009 compared to $11.3 billion in the first half of 2008.

CIT said Sunday the bankruptcy filing is only for the holding company, and won’t affect its operating subsidiaries, such as Utah-based CIT Bank. CIT has filed a number of first-day motions to allow it to continue operations, including requests to keep paying wages and other employee benefits and to pay its vendors and certain other creditors in full.

The company has retained Evercore Partners and FTI Consulting as its financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel in connection with the restructuring plan and Chapter 11 cases.

Houlihan Lokey Howard & Zukin Capital Inc. serves as financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison LLP serves as legal counsel to the bondholders’ committee.

LOS ANGELES - U.S. Bancorp on Friday acquired nine banks held by FBOP Corp, picking up $18.4 billion in assets after regulators seized a major Los Angeles lender and eight other banks in the latest failures to emerge from the financial crisis.

Among the banks Minneapolis-based U.S. Bancorp acquired was Los Angeles-based California National Bank, taken over by regulators on Friday in what the Los Angeles Times called the fourth-largest U.S. bank failure this year.

Bank failures in 2009 hit 106 last week, their highest annual level since 1992, with more expected to come. The largest institution to fail in the current financial crisis was Washington Mutual, which boasted $307 billion in assets when it was shuttered in September 2008.

Visibly worried employees lined up to file into Cal National’s head offices in the heart of a deserted downtown Los Angeles on a chilly Friday evening, where they had their employers’ fate explained to them, regulators said.

“We’re getting ready to turn everything over to U.S. Bank,” said Roberta Valdez, a spokeswoman for the Federal Deposit Insurance Corp, which helped supervise the transfer of FBOP’s assets. “They will continue to operate as normal in the interim,” she added, referring to lenders acquired from FBOP.

U.S. Bancorp — which has been buying up distressed assets this year — is picking up eight other lenders once owned by FBOP, a private Illinois group with over $18 billion in assets that owns banks in Texas, Illinois, Arizona and California.

Cal National is FBOP’s largest bank by branches. Others that will now go under the U.S. Bancorp umbrella included BankUSA, Citizens National Bank, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, San Diego National Bank, and the Community Bank of Lemont.

“This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions,” said Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp.

“This transaction adds scale to our current California, Illinois and Arizona footprints.”

NEXT BIG HEADACHE

In the “near future,” all nine lenders’ branches will be re-branded U.S. Bank, which is the California-focused unit of U.S. Bancorp’s that operates a network of more than 770 branches across Illinois, Arizona and California.

U.S. Bancorp did not specify what would happen to the new employees it inherits.

Cal National operates 68 branches across Southern California with more than $7 billion in assets. As of June 30, the lender maintained five times as much foreclosed property on its books and twice as many non-current loans as it had a year earlier, according to the Los Angeles Times, which first reported news of its evening takeover on Friday.

Cal National lost about $500 million on heavy investments in Fannie Mae and Freddie Mac preferred shares, the newspaper added, referring to securities rendered nearly worthless by the government takeover of the mortgage firms last year.

A bank official who answered the main number at Cal National’s headquarters said they could not talk at the time.

More lenders are expected to go under this year as the industry tries to get a handle on commercial real estate loans that will continue to worsen, as more strip malls go vacant and residential developments stall.

Banks held about $1.7 trillion in commercial real estate loans at the end of September, according to Federal Reserve data, or about 15 percent of their total assets. But to the extent these loans weaken, small banks are likely to be hit the hardest because larger banks were better diversified.

Banks that analysts say could risk big losses include Salt Lake City’s Zions Bancorp, Columbus, Georgia’s Synovus Financial Corp and Dallas-based Comerica Inc.

The Wall Street Journal had reported earlier this month that U.S. Bancorp was conducting due diligence on FBOP.

Before FBOP, U.S. Bancorp bought Downey Savings of Newport Beach and PFF Bank & Trust of Pomona when those thrifts failed last November, the newspaper said. Just this month, U.S. Bancorp bought 20 Nevada branches from BB&T Corp., which had acquired them as part of its deal to buy Colonial BancGroup Inc, it added.

WASHINGTON (AFP) - – The United States rebounded from recession in the third quarter, posting its strongest economic growth in two years as government stimulus spurred consumer spending, official data showed Thursday.

After four negative quarters, the world’s largest economy grew at a seasonally adjusted 3.5 percent annual rate in the July-September period from the second quarter, the Commerce Department said.

The increase was the first since the second quarter of 2008 and the strongest expansion since the 2007 third quarter, when a US subprime mortgage crisis triggered a global financial crisis that hammered the world economy.

The expansion followed an unrevised 0.7 percent decline in the second quarter.

The department’s first estimate of third-quarter gross domestic product (GDP), a broad measure of the country’s output of goods and services, was slightly higher than the 3.2 percent reading expected by most analysts.

President Barack Obama welcomed the data as “an affirmation that this recession is abating and the steps weve taken have made a difference.”

But, he warned: “We have a long way to go to fully restore our economy, and recover from what has been the longest and deepest downturn since the Great Depression.”

“The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well.”

While a recession is widely regarded as ended by one quarter of economic growth, in the United States the economy will not be officially out of recession until it has been declared by the National Bureau of Economic Research.

Unemployment remains a key hurdle to sustained recovery. The jobless rate rose to a new 26-year high of 9.8 percent in September and is expected to hit double digits. Since the official start of recession in December 2007, the number of unemployed has climbed by 7.6 million to 15.1 million.

The Labor Department reported Thursday that new weekly claims for unemployment benefits fell slightly.

“The recession is over, but don’t be fooled by today’s number — the underlying rate of recovery is weaker,” said Nariman Behravesh, chief economist at IHS Global Insight.

Behravesh said that underlying growth was closer to 2.0 percent and predicted momentum would only pick up in the second half of next year as consumers and businesses grow more confident.

After shrinking a sharp 6.4 percent in the first quarter, the world’s largest economy has been on life support from the federal 787-billion-dollar emergency stimulus and other support measures.

The third-quarter rebound was led by consumer spending, which accounts for two-thirds of US economic activity and added 2.36 percentage points to GDP growth.

Consumer spending surged 3.4 percent after a 0.9 percent drop in the second quarter, a rise the department said “largely reflected” auto purchases under the government’s popular “cash-for-clunkers” program in July and August.

Dean Baker, co-director of the Center for Economic and Policy Research, noted that, excluding the auto sector, consumption grew at a 1.0 percent annual rate.

“With disposable income falling due to continued job losses and declining hourly wages, and the reversal of the surge in car sales, consumption growth will almost certainly be negative in the fourth quarter,” Baker said.

Other leading drivers of third-quarter growth were business inventories and home building.

The core inflation rate — which strips out volatile food and energy prices — fell to 1.4 percent from 2.0 percent, indicating inflationary pressures remain tame amid economic weakness.

The Federal Reserve, which keeps a close eye on the reading, is widely expected to leave its key interest rate unchanged at nearly zero when policymakers meet on November 3-4.

“If we do indeed get a second consecutive quarter of good growth, there will be a lot of pressure on the Fed to start raising rates,” said Joel Naroff of Naroff Economic Advisors.

“Indeed, I wouldnt be surprised if the markets start pricing that into bond yields during the rest of the year.”

HONG KONG (Dow Jones)–Interest in Asian markets revived in September, with some attention shifting to the region’s bonds from stocks, according to results of Dow Jones’ monthly survey of fund managers.

Fund managers moved to an “overweight” position on Asian ex-Japan bonds during the month, up from “slightly overweight” in August. Managers maintained a “slightly overweight” stance on Asia ex-Japan stocks. Weightings reflect managers’ portfolio composition compared with benchmark indexes.

Fund flows in September echoed the enthusiasm for Asian markets. Asian funds, particularly bond funds, saw very strong inflows during the month. Global and emerging markets bond funds as well as global equity funds posted their biggest inflows year-to-date in the week ending Sept. 17, according to fund flow tracker EPFR Global.

Funds with Asian mandates were hit by some redemptions this past week amid new US-Chinese trade tensions, EPFR said. With the U.S. imposing fresh levies on Chinese tire exports and China threatening to retaliate, China equity funds saw US$477 million in redemptions last week as investors rotated Asian exposure to India and Korea.

The big run-up in Asian stock markets in recent months also gave investors some pause and made bonds look more attractive by comparison. Invesco, which has US$413.9 billion in assets under management worldwide, noted that stock valuations globally have returned to long-term average “not expensive but no longer cheap.”

A big question for fund managers is whether or not earnings at Asian companies will continue to rise. Those that are optimistic about global recovery or the ability for Asian economies to “decouple” from the U.S. or Europe see room for more earnings growth.

“Valuations have risen, but we are expecting earnings to see further upwards revisions,” said Simon Godfrey, investment specialist at Fortis Investments in Hong Kong, who projects better year-on-year comparisons starting in the fourth quarter.

But others, such as Standard Life Investments, are taking a more cautious approach, saying that “long-term valuations remain a concern.”

Within the region, Indonesian stocks become the top favorite during the month. Fund managers became more “overweight” position on Indonesian stocks in August.

“The economic environment and corporate earnings in Indonesia remained strong and we think it can weather the economic downturn fairly well,” said Invesco, which remains comfortable with the country’s banking sector.

Indonesia’s Jakarta Composite Index, or JCIindex, is up 4.3% in the last month and up more than 82% year to date.

“We like Indonesia very much - especially the financial sector as the banks are slow to cut lending rates despite the strong monetary easing,” Godfrey said, adding that the firm likes materials companies which are benefitting from growing demand China and India.

In other parts of Asia, Chinese and Indian stocks continued to be favorites.

Chinese authorities sparked some alarm by announcing plans to curb overcapacity and redundant construction in major industrial sectors, But Invesco said it was not alarmed by the plans, seeing them as “supply side adjustments” rather than a move to tighten policies.

Encouraged, the firm said it selectively increased exposure in retail clothing and goods, technology as well as other consumer plays.

India has been favored for being relatively insulated from the global economic downturn and for its strong domestic growth story.

Each month, Dow Jones Newswires surveys fund managers on portfolio weighting recommendations for the succeeding months, with most looking at a 12-month horizon. This latest survey was taken over the past week. The respondents for this month’s survey were Aberdeen Asset Management, Credit Agricole Asset Management, Fortis Investments, Invesco, J.P. Morgan Asset Management, Prudential Asset Management, Schroder Investment Management and Standard Life Investments.

For the survey, each participant was asked to assign recommendations to each asset class. The weightings from each fund manager were then averaged: 0 is neutral, up to +0.5 is slightly overweight, above +0.5 to +1 is overweight, above +1 is very overweight. Meanwhile, 0 to -0.5 is slightly underweight, below -0.5 to -1 is underweight, below -1 is very underweight.

 OVERALL GLOBAL WEIGHTINGS
               Sept09  Aug     July    June   May    April
Cash           -0.50   -0.50    -0.50   -0.25   0     +0.25
Bonds          +0.25   +0.50    +0.25   +0.50  +0.50  +0.50
Equities       +0.50   +0.50    +0.50    0      0      0
Commodities    +0.50   +0.25    +0.25   +0.25  +0.25  -0.50 

GLOBAL BONDS    Sept09  Aug     July   June   May    April
Asia ex-Japan   +0.50  +0.25    +0.25  +0.50  +0.50  +0.50
Japan           -0.25  -0.25     0     -0.25  -0.25  -0.50
North America    0     +0.25     0     +0.25   0     -0.50
Europe           0     +0.25    +0.25  +0.25   0     -0.25
Non-Asian       +0.50  +0.50    +0.75  +0.50  +0.50  +0.25
emerging mkts 

GLOBAL EQUITIES   Sept09  Aug     July   June   May   April
Asia ex-Japan     +0.25  +0.25   +0.50   0     +0.25  +0.50
Japan             -0.25  -0.25    0     -0.50  -0.25  -0.25
North America     -0.25   0      -0.25   0     -0.25   0
Europe             0      0      -0.25  +0.25   0     -0.25
Non-Asian         +0.50  +0.50   +0.50  +0.25  +0.25  +0.25
emerging mkts 

ASIAN EQUITIES    Sept09   Aug    July   June   May   April
Japan              0       0     -0.25  -0.50  -0.25  -0.25
China             +0.50   +0.50  +0.75  +0.50  +0.50  +0.50
Hong Kong         +0.25   +0.25  +0.50   0     +0.25  +0.50
Taiwan            +0.25   -0.25  -0.25  -0.50  -0.25  -0.25
South Korea        0      -0.25   0     -0.25   0     -0.25
Singapore         -0.25   -0.25   0      0     -0.25   0
Indonesia         +0.75   +0.50  +0.50  +0.50  +0.50  +0.25
Philippines       -0.25    0      0      0     -0.25   0
Thailand          +0.25   +0.25   0      0      0      0
Malaysia          -0.25   -0.50  -0.75  -0.50  -0.50  -0.50
Australia         +0.50   -0.75  -0.75  -0.25  -0.25  -0.25
New Zealand       -0.50   -0.50  -0.50  -0.75  -0.75  -0.50
India             +0.50   +0.25  +0.50  +0.75  +0.75  +0.25

These are the securities directly issued by the US Government which have the longest maturity (30years). The contracts are not quoted with decimals but with fractions. For instance, the prices soared during 2 months last year (November and December 2008, between points A and B on the chart) from 112 20/32 to 141 28/32.

Click to enlarge

As you know, bond prices move on the opposite direction of interest rates. In the real economy, there are of course other factors such as relative risk, expectations on degree of confidence that impact bond prices. But the surge in November and December last year corresponds to the time where the Fed smashed the interest rates to attempt boosting the economy.

In just 2 months, bond prices rose by 26%, an unusual volatility for those contracts. However they have corrected back to the initial point of this surge (point C). This new low just below 112 posted in June has created a “double bottom” pattern that is considered as a strong support zone. That’s why a new rebound was generated from point C. Currently the bonds are traded around above 119. This medium-term bullish trend is backed by an ascending support line that goes through higher lows posted during the last three months. This is the immediate support.

On the upside, the objective is the level of 123 16/32, which is “only” less than 4% higher than the current levels. This potential resistance (blue horizontal line) is a key support that has been successfully a high and a low level. It corresponds firstly to a peak posted one year ago in September 2008 (point D), then a new low (point E in late February 2009). It became a new high once again (point F) while prices were correcting strongly a few months ago.

Many indicators have recently turned bearish. Therefore a test of the current support is likely to last more. If this level holds, then a quick spike to 123 16/32 is probable. If it is cleared, the intermediary support around 115 would become the new target for the bears.

US recession over, but economy still weak: Bernanke

WASHINGTON (AFP) - - Federal Reserve chairman Ben Bernanke said Tuesday the US recession “is very likely over” technically but that the economy remains weak due to difficult credit conditions and high unemployment.

Bernanke, speaking at a Washington forum, said the economy is likely to show growth in the third quarter after a slump that began in late 2007 in his clearest comments to date indicating the economy has turned a corner.

“Even though from a technical perspective, the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was,” he said in response to a question.

“So that’s a challenge for us and policymakers going forward.”

Bernanke was speaking at a Brookings Institution economic forum a year after the collapse of Lehman Brothers triggered a financial panic and deepened the recession.

A year later, Bernanke said that there is “agreement among the forecasting community at this point that we are in a recovery,” and that growth is occurring in the third quarter and will continue into 2010.

“But the general view of most forecasters is that the pace of growth in 2010 will be moderate, less than you might expect given the depth of the recession because of ongoing headwinds,” he said.

Bernanke said that activity outside the regulated banking system — the so-called shadow banking system — appeared to be reviving even though that sector may be less important than before the recession.

He said he saw “encouraging” signs in securitization — the repackaging of loans that are sold to investors — even in areas not supported by the Fed.

“I imagine that the shadow banking system, at least in the medium term, will not return to the size it was before,” he said.

“On the other hand, there are a lot of securitizations that have proved their viability — mostly plain-vanilla securitizations of various types, in consumer products, consumer lending, student loans, a variety of other things.

“We are seeing now — very encouraging, we’re seeing more activity taking place completely outside of the Fed’s program.”

Still, Bernanke noted that the tighter credit conditions will hurt growth and hurt job creation, thus impacting the overall economy for a time.

“The arithmetic is that unless the economy grows significantly faster than its longer-term growth rate, it’ll be relatively slow in creating jobs over and above those needed to employ people coming into the labor force, and therefore the unemployment rate would tend to come down quite slowly,” he said.

The US economy contracted at a pace of 1.0 percent in the second quarter after a hefty 6.4 percent decline in the first quarter.

But the unemployment rate rose in August to a 26-year high of 9.7 percent as 216,000 jobs were lost. Although the pace of job losses has slowed, many analysts say unemployment could top 10 percent even with a rebounding economy.

Separately, Treasury Secretary Timothy Geithner said that US economic recovery has not yet arrived but is on that way thanks to a range of government actions including some that were “offensive.”

“I would say there’s no recovery yet,” Geithner said in an interview with ABC television.

“We don’t have in place yet a real recovery. We define recovery, and the president will define recovery, as people back to work, people able to get a job again, businesses investing again. And we are not at the point where we can say that yet.”

Geithner said the crisis forced the government into a series of bailouts and other actions to limit the damage, which he said would help foster recovery.

“We got into this because we borrowed too much,” he said.

“We lived beyond our means both as a country — many businesses did it, many families did it, obviously the financial sector did that. But in a crisis, in a fire that was that powerful, the government had to do some deeply offensive things to help contain the damage.”

NEW YORK - Stocks rose on Monday as reports of more merger activity added to a string of recent deals, suggesting investors still see value in the market after its run-up of more than 50 percent since March.

Optimism about potential deals overshadowed concerns about trade friction between the United States and China after Washington imposed special duties on Chinese tire imports.

Shares of power company AES Corp <AES.N> rose 4.5 percent after a Wall Street Journal report that China’s sovereign wealth fund was in talks to take a stake in AES.

Sprint Nextel Corp <S.N> jumped 10.1 percent after a British newspaper reported Germany’s Deutsche Telekom AG <DTEGn.DE> was considering a bid for its U.S. rival.

“The M&A activity is definitely starting to heat up. sparked interest across the whole utility sector,” said Owen Fitzpatrick, head of U.S. Equity Group at Deutsche Bank Private Wealth Management, in New York.

Analysts say M&A activity could help the market stay on its recent uptrend. The benchmark Standard & Poor’s 500 index has gained 55 percent since hitting 12-year lows in early March.

U.S. President Barack Obama, speaking in New York one year after Lehman Brothers’ collapse sent world markets into a tailspin, called on financial firms not to fight regulatory reform, but there was little market reaction.

The Dow Jones industrial average <.DJI> ended up 21.39 points, or 0.22 percent, at 9,626.80. The Standard & Poor’s 500 Index <.SPX> was up 6.61 points, or 0.63 percent, at 1,049.34. The Nasdaq Composite Index <.IXIC> finished 10.88 points higher, or 0.52 percent, at 2,091.78.

Banks, which benefit from M&A activity, were among top gainers as well, with shares of JPMorgan Chase & Co <JPM.N> up 2.9 percent at $43.75 and leading gains on the Dow.

In other merger news, Cadbury Plc <CBRY.L> reiterated its stance on a takeover bid from Kraft Foods Inc <KFT.N> over the weekend as Cadbury’s chairman, Roger Carr, said it was an “unappealing prospect” being absorbed into Kraft’s low-growth, conglomerate business model.

Kraft, which went public last week with a bid for the British confectioner, rose 0.04 percent to $26.11.

Shares of U.S. tire makers also rose, including Goodyear Tire & Rubber Co <GT.N> up 3 percent to $17.78 and Cooper Tire & Rubber Co <CTB.N> up 7.1 percent to $15.60.

But analysts said the trade decision by Obama could open the door to a host of trade complaints against Chinese products, creating tensions as Western nations seek support from the world’s third-largest economy at G20 meetings later this month.

China’s commerce ministry said Sunday it launched an anti-dumping investigation into imports of U.S. chicken products and automotive exporters.

“Although on the surface it could lead to something serious, I think both sides, and certainly China, realize that it not in their best interest to really escalate this,” said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston.

Shares of AES ended at $14.79 while shares of Sprint closed at $4.15.

On the Nasdaq, shares of Dendreon Corp <DNDN.O> rose 15.1 percent to $27.43 after analysts said there was renewed speculation the company, which is developing a vaccine for prostate cancer, is a takeover target.

Other acquisitions or bids were announced last week in the communications and biotech sectors.

Volume was below average on the New York Stock Exchange, with 1.21 billion shares changing hands, below last year’s estimated daily average of 1.49 billion, while on the Nasdaq, about 2.17 billion shares traded, down from last year’s daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 2 to 1, while advancers beat decliners on the Nasdaq by about 8 to 5.

US stocks climb on jobs, retail sales data

Wall Street stocks opened with small gains on Thursday after new data showed a modest improvement in the US job situation and mostly positive retail sales.

The Dow Jones Industrial Average climbed 38.16 points (0.41 per cent) to 9,318.83 in opening trades after the blue chip index closed in the red for the fourth consecutive day on Wednesday.

The tech-heavy Nasdaq composite added 6.99 points (0.36 per cent) to 1,974.06 and the broad-market Standard & Poor’s 500 index was up 5.03 points (0.51 per cent) to 998.78.

‘The bulls look to post the first positive session of the month,’ analysts at Charles Schwab & Co said in a report. ‘A plethora of reports on same-store sales in August for the nation’s retailers are mostly positive.’

Retailers continued to report weak same-store sales but results at key outlets in August topped analysts’ expectations, according to new sales figures.

Weak consumer sentiment and unemployment are key factors threatening to hurt any signs of recovery from prolonged recession, analysts have warned.

The Labour Department also reported on Thursday that new claims for US unemployment benefits fell to 570,000 in the week ending August 29 from the previous week’s revised figure of 574,000.

Most analysts had expected the claims to drop to 565,000.

The four-week moving average, which smooths out week-to-week volatility, was 571,250, an increase of 4,000 from the previous week’s revised average of 567,250.

The total number of Americans receiving unemployment benefits rose.

According to the department, the number for seasonally adjusted insured unemployment or continuing claims during the week ending August 22 was 6.234 million, an increase of 92,000 from the preceding week’s revised level of 6.142 million.

The market was less impressed with the job figures.

‘The level of initial claims and continuing claims is awful, as the four-week average for both measures remains well above the peak of the last recession,’ said Patrick O’Hare of Briefing.com.

‘The data are a sobering reminder that the labour market, and consumer spending, will be a drag on growth prospects,’ he said.