Business Blog Posts

The euro hovered near three-week highs against the dollar, with traders citing solid buying from accounts, including Asian central banks, though year-end trading was thin and choppy.

A warning from Moody's also weighed on the dollar. The credit ratings agency said overnight it could move a step closer to cutting America's triple-A rating if the Obama administration's deal to extend tax cuts wins Congressional approval and pushes up the country's already bloated debt levels.

Metals prices rose after Chinese data released at the weekend showed buoyant industrial production and fixed asset investor, pushing copper to record highs and buoying shares of miners and other resource-related companies.

"Sentiment is decidedly more upbeat now than it was a few weeks ago," said Austock senior client adviser Michael Heffernan. "China didn't increase rates, Ireland has settled down, America has given the tick to the tax bill and there is no major domestic data out."

Many investors had feared China would raise interest rates last week to curb mounting inflationary pressures, but the central bank opted instead to increase the amount of extra capital top banks must hold.

An official newspaper on Tuesday said China would probably target the same level of new loans next year as in 2010, a further indication that policy could be slightly looser than expected.

A Reuters poll released on Monday showed economists still see a rate rise in China in coming months, but expect policymakers to rely more on lending controls in 2011 as its weapon of choice in the fight against inflation.

The MSCI index of Asian stocks outside of Japan .MIAPJ0000PUS rose 0.4 percent, while the Nikkei .N225 was little changed.

Traders said that if the Nikkei can hold on to its recent gains, retail investors are likely to jump on the bandwagon and help it pierce strong technical resistance looming at 10,420.74, the level where futures and options contracts expiring in December settled on Friday.

South Korean stocks hit a fresh 37-month high, breaching the psychologically significant 2,000-point level, fueled by gains in key technology issues and the auto sector such as Hyundai Motors (005380.KS).

Buoyed by optimism about Chinese demand for commodities and resources, Australian shares .AXJO edged up 0.2 percent and stood within 100 points of breaking even for the year, with some traders optimistic that would be achieved.

In New York on Monday, the broad S&P 500 index .SPX closed flat and the Dow .DJI ended just above break-even amid signs U.S. stocks may be nearing overbought levels, and on investor caution about staking out new positions heading into year-end. .N

MOODY'S WARNING WEIGHS ON DOLLAR

The dollar index .DXY was last at 79.357, having plumbed

The Federal Deposit Insurance Corp board will consider a proposal on how to set minimum capital requirements for banks under a provision in the new law that was added by Sen. Susan Collins of Maine with the strong backing of FDIC Chairman Sheila Bair.

Many lawmakers and regulators came out of the 2007-2009 financial crisis arguing banks did not hold enough high quality capital to deal with the shock to financial system and this contributed to the government having to bail them out.

Banks have voluntarily been building capital levels in the aftermath of the crisis so it is unclear how many would have to bolster their capital.

The proposed rules, part of a busy week by regulators toward implementing Dodd-Frank, may serve mostly to stop capital levels getting too low in the future.

Collins' provision would set a "floor" for capital and leverage requirements.

Bank holding companies would have to meet the same minimum requirements that govern their banking units that are insured and regulated by the FDIC. In the past, capital requirements for holding companies have been less stringent than those for insured depositary institutions.

These minimum requirements would also apply to any non-bank institutions that the government deems to be important to the financial system and therefore subject to supervision by the Federal Reserve.

The rule being considered Tuesday will be the first step in putting the Collins amendment into practice and it will be jointly issued by the FDIC, the Office of the Comptroller of the Currency and the Fed.

Bair said earlier this year she was concerned bank holding companies were relying on their insured depository institutions as a source of capital strength when the opposite should have been the case.

"If, in the future, bank holding companies are to become sources of financial stability for insured banks, then they cannot operate under consolidated capital requirements that are numerically lower and qualitatively less stringent than those applying to insured banks," she said in a May 7 letter supporting Collins' proposal.

A question surrounding the Collins amendment is how it will mesh with the new international capital standards, known as Basel III, which were endorsed in November by leaders from the Group of 20 developed and emerging nations.

The details of that agreement are still being hammered out and U.S. regulators have yet to consider how to implement it.

MF Global financial services analyst Jaret Seiberg said the rule being considered by the FDIC on Tuesday will likely seek to establish a standard based on the existing Basel I and Basel II agreements.

"This matters because the proposal may actually require banks to operate separate capital systems indefinitely, which is a compliance cost as well as a distraction," Seiberg wrote in a research note.

The Dow cut its gains and the S&P 500 ended a thinly traded session flat as optimism faded over China's move to tame its growth, and as some technical indicators suggested a near-term pullback could be in the cards.

About 7.32 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, well below the year's daily average of 8.62 billion.

Stocks earlier had risen as optimism China would not aggressively head off growth boosted energy and materials stocks.

Companies that sell oil, like Chevron Corp (CVX.N), and those that make mining equipment, like Caterpillar Inc (CAT.N), drove the Dow higher. At the close, both Caterpillar and Chevron were up 1.5 percent or more. The PHLX oil service index .OSX rose 1.3 percent.

Investors had feared China would raise interest rates to slow growth, but instead it merely increased the amount of extra capital top banks must hold, a less severe move by the world's second-largest economy.

"Even though China isn't fueling us 100 percent, if it was to tighten, that would mean less strength in a weak recovery here," said Jeffrey Friedman, senior market strategist at Lind-Waldock in Chicago.

The Dow Jones industrial average .DJI gained 18.24 points, or 0.16 percent, to end at 11,428.56, well off its intraday high of 11,480.03. The Standard & Poor's 500 Index .SPX inched up a mere 0.06 of a point, or 0.00 percent, to finish at 1,240.46. But the Nasdaq Composite Index .IXIC fell 12.63 points, or 0.48 percent, to close at 2,624.91.

The S&P 500 reached another high for the year on Monday, advancing to an intraday peak at 1,246.73. The index's steady climb since breaching 1,228 -- a key retracement of the 2007-2009 bear market losses -- has been judged a sign of further gains, even as the relative strength index suggests stocks are nearing an overbought condition.

APPLE PARES GAIN, DELl DROPS

The Nasdaq ended the day solidly lower as some tech names, including Apple Inc (AAPL.O) and EMC Corp (EMC.N), traded off highs reached earlier in the session. Apple rose more than 1 percent in afternoon trading, but at the close, it was up just 0.4 percent at $321.67. The stock is up 53 percent so far this year.

"We've definitely seen a lot of strength in large-cap tech recently, and they took a bit of a pause in the afternoon with people winding down at the end of the day," said Timothy Harder, chief investment officer at Peak Capital Investment Services in Denver. "There wasn't much to spur trading, and in the absence of any real news and light volume, there wasn't much to keep us up."

Healthcare stocks had jumped briefly on news that a Virginia judge invalidated a key part of the March healthcare overhaul championed by President Obama, but these shares quickly fell back. After rising as much as 1.6 percent, the Morgan Stanley Healthcare Payor Index .HMO slipped 0.3 percent. Shares of health insurer Aetna (AET.N) rose 1 percent to $30.92.

In deal news, General Electric Co (GE.N) said it would buy British oilfield services company Wellstream Holdings Plc (WSML.L) while Dell Inc (DELL.O) agreed to buy data storage company Compellent Technologies Inc (CML.N).

GE's stock shed 0.6 percent to $17.62 after reaching a deal to buy Wellstream by raising its bid for the British oil drilling pipe maker by 6 percent to $1.3 billion.

Huntington Bancshares (HBAN.O) said it was issuing stock and bonds to help repay $1.4 billion it received under the U.S. Government's Troubled Asset Relief Program in November 2008.

First Horizon National Corp (FHN.N) said it is selling debt and equity to pay off $867 million of TARP aid.

Huntington's shares fell after the news because the bank will sell so much equity to repay the government, analysts said. First Horizon's shares rose as investors cheered its move to shed government support.

Analysts said these repayment plans could be the first of another wave of TARP repayments, and suggest that the U.S. banking system is continuing to heal after the 2008 crisis.

Banks that have yet to repay the government should think about doing it soon, said Jeff Davis, bank analyst at boutique bank Guggenheim Partners.

"If you're a bank that does wait now, the market might be left to assume there are deeper problems," Davis said.

The offerings from Huntington and First Horizon come one year after the largest U.S. banks -- including Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N) -- raised tens of billions of dollars to repay their government bailout aid. The first wave of banks to repay TARP came in the summer of 2009, and included Goldman Sachs Group Inc (GS.N) and JPMorgan Chase & Co (JPM.N).

BIG, BUT NOT TOO BIG

Despite the latest round of offerings from smaller lenders, the largest U.S. regional banks may still be months away from buying back the government's temporary investment.

Regional banks SunTrust Banks Inc (STI.N), Regions Financial Corp (RF.N), Fifth Third Bancorp (FITB.O) and KeyCorp are the four largest U.S. lenders that have yet to repay TARP.

The four banks were part of a larger group of the 19 biggest banks that underwent U.S. government stress testing in Spring 2009.

Huntington, with $53 billion in assets, and First Horizon, with $25 billion, fell well below that threshold.

Now, the Federal Reserve is retesting all of the "stress test" banks before allowing them to repay TARP, raise their dividends or repurchase shares.

Results are not expected until first quarter 2011, leaving a window for smaller banks to repay TARP.

Control of credit issuance is one of the most important monetary policy tools in China and many in the market had assumed that Beijing would lower the new lending objective next year as a way of tamping down on inflationary pressures.

But the report on the front page of the China Securities Journal, citing an unnamed source described as authoritative, suggested otherwise.

"The Chinese economy is very big now and a target of 7.5 trillion yuan in new loans will not trigger all-round inflation," the newspaper quoted the source as saying.

A Reuters poll of 26 economists on Monday forecast that Beijing would aim for 7 trillion yuan in new lending next year.

Chinese leaders gave greater prominence to the fight against inflation in their statement on Sunday at the end of the Central Economic Work Conference, an annual meeting at which they chart policy for the coming year.

But at the same time as vowing to focus on price stability, they also said that they will strike a balance between controlling inflation and maintaining growth.

In its report, the China Securities Journal said the focus would change over the course of the year, with the battle against inflation likely to top the agenda in the first half but supporting growth to remain the overriding objective.

"China's inflation will probably be higher in the first half of next year and then ease in the second half. It may peak in the second quarter. So policies in the next three to six months will mainly to curb inflation," it said.

"But inflation next year will not be as high as expected. So monetary policy will favor quantitative measures. China will be very cautious in raising interest rates. It will only raise interest rates when inflation deteriorates," it added.

The report also said the government would likely aim for 16 percent in the wider M2 measure of money growth, which would mark a slowdown from this year's roughly 20 percent pace.

It added that China's five biggest lenders were aiming to maintain new lending at unchanged levels next year from this year, while smaller banks we're talking about an expansion.

In bankruptcy, the company officially known as The Great Atlantic and Pacific Tea Co GAPTQ.PK will get a chance to perform radical surgery on itself as it faces growing pressure in the low-margin supermarket business.

The company received interim approval from a bankruptcy judge on Monday for an $800 million bankruptcy loan, which analysts said could give it 18 months for an overhaul.

"It's a tough workout," said Joe Stauff, who analyzes distressed companies for Susquehanna International Group.

Stauff said the company could close more than 100 of its 395 stores, which operate under the names of A&P, Waldbaum's, SuperFresh, Pathmark, Food Basics and The Food Emporium in the northeastern United States.

"As we said when we announced our turnaround plan in October, we continue to analyze our store portfolio and will do so in Chapter 11," A&P spokesman Eric Andrus said.

A&P rushed into bankruptcy as its cash was dwindling and a debt payment was looming this week. Unlike most big bankruptcies, the grocery chain does not have a prearranged

plan for coming out of court protection.

The company has been squeezed by cut-rate operators of warehouse stores such as Costco Wholesale Corp (COST.O), as well as Wal-Mart Stores Inc (WMT.N) and Target Corp (TGT.N), which have expanded into groceries. At the same time, wealthier shoppers have been lured away by higher-end stores such as Whole Foods Market Inc (WFMI.O).

Unable to pass along rising wholesale costs at the checkout, supermarkets have been forced to gain scale through size or by tightly controlling costs such as leases.

Several other regional supermarkets have gone through bankruptcy in recent years, including Bruno's, Bi-Lo, Penn Traffic Co and Bashas'.

BLUNDER AFTER BLUNDER?

Analysts expect A&P to take a hard look at its vendor contracts, leases and other operational costs, as well as its balance sheet and finances.

"They tended to overpay for everything. From vendors to landlords they were always an easy mark," said supermarket consultant David Livingston of DJL Research in Waukesha, Wisconsin. "They just made one blunder after another."

The company does have some important backers. Ronald Burkle, of the Yucaipa Companies LLC, invested in the company's preferred stock last year in an attempt to fund a revival.

The plan agreed to by President Barack Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years, the ratings agency said.

A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasuries, which currently rank as among the world's safest investments.

"From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," Moody's analyst Steven Hess said in a report sent late on Sunday.

After Obama announced his plan, Treasury prices fell sharply in volatile trade last week and yields have hit a six-month high, in part due to concerns over the effect the package will have on government debt levels.

If the bill becomes law, it will "adversely affect the federal government budget deficit and debt level," Moody's said.

On Monday, the Democratic-led U.S. Congress moved toward grudging approval of President Obama's deal with Republicans to extend expiring tax cuts, even for the wealthiest Americans.

Last week, Moody's and Fitch Ratings both expressed concerns about the U.S.'s rating longer term, with Moody's fearing the impact if the tax cuts become permanent.

In a market obsessed with the euro sovereign debt crisis, the Moody's note reminded foreign exchange investors about their worries of growing U.S. debt and was a factor pressuring the dollar on Monday.

The cost of insuring U.S. government debt in the credit default swap market was little changed on Monday at around 41 basis points, or $41,000 per year to insure $10 million in debt for five years, according to Markit Intraday.

NEGATIVE IMPACT

A negative outlook would indicate that the rating may be more likely to be cut from the top Aaa rating over the following 12 to 18 months. The United States currently has a stable outlook, indicating a rating change is not anticipated over this time frame.

Moody's estimates the cost of the funding the proposed tax bill, along with unemployment benefits and other policy measures, may be between $700 and $900 billion, which will raise the ratio of government debt to GDP to 72 to 73 percent, depending on the effects on nominal economic growth.

This means that the government's debt relative to revenues will decline much more slowly over the coming two years, to just under 400 percent from 420 percent at the end of fiscal year 2010.

"This is a very high ratio compared with both history and other highly rated sovereigns," Moody's said.

(Reporting by Karen Brettell in New York and Walter Brandimarte in Sao Paulo; Editing by W Simon )

The dollar edged up, supported by higher Treasury yields after improving U.S. data last week.

U.S. Treasuries fell in Asia, with 10-year yields hitting a six-month high as investors kept dumping Treasuries on the back of higher growth and higher deficits in the United States.

European shares extended their two-week rally on Monday, reaching a 26-month high in the wake of upbeat U.S. and Chinese data.

Data published over the weekend showed China's industrial output in November beat expectations with a slight acceleration to 13.3 percent year-on-year growth from 13.1 percent in October, sending copper to a record high.

The data also showed China's headline inflation climbing to a 28-month high of 5.1 percent in the year to November, from 4.4 percent in October.

Worries that China would lift interest rates over the weekend because of rising inflation were not realized. Instead, sources told Reuters on Monday a selective increase in required reserves for Chinese banks that was due to expire this week will be extended for another three months.

Oil prices were higher on Monday after the Organization of the Petroleum Exporting Countries agreed at the weekend to keep crude oil output levels flat.

The Financial Times said on Monday that European officials are considering plans to overhaul the euro zone's 440 billion euro rescue fund and use it to buy bonds of distressed

governments, making it easier to help debt-swamped countries without resorting to fully-fledged bail-outs.

President Barack Obama's tax deal with Republicans will likely win grudging passage in the U.S. Congress, backers and critics agreed on Sunday, after Obama clashed with liberals in his own party who branded it a giveaway to the rich.

Genzyme (GENZ.O) will be in focus after Sanofi-Aventis (SASY.PA) extended its $18.5 billion cash offer for the biotech firm until January 21 and left open the option to prolong it further, a sign the French drugmaker is getting ready for a long battle.

Wal-Mart Stores Inc (WMT.N) is in advanced talks with New York's construction unions to get their backing for its entry into New York City's retail market, The Wall Street Journal reported on Sunday.

Capital Shopping Centres (CSCG.L) has slammed as "incapable of implementation and completely impracticable" an alternative funding offer from its shareholder and would-be bidder Simon Property Group Inc (SPG.N), who quickly responded, urging CSC to postpone a vote on its planned acquisition of Trafford Center mall.

Grocery store chain Great Atlantic & Pacific Tea Co (GAP.N) filed for bankruptcy on Sunday, drained of cash by tough competition and a sluggish economic recovery.

Carlyle Group's CYL.UL Chief Financial Officer Peter Nachtwey has resigned and the move could delay the U.S. private equity firm's planned initial public offering, the Financial Times said, citing people familiar with the matter.

Only 0.9 percent of shares were tendered by a Friday deadline for the $69-a-share bid, which Genzyme has rejected as too low, and Sanofi has said it won't raise unless Genzyme's board is willing to talk.

"This gives time to pursue discussions behind the scenes," Raymond James analyst Eric Le Berrigaud said. "They will try to determine at what price Genzyme will decide to partially open the door."

A spokesman for Sanofi confirmed that the company still wanted to enter talks with Genzyme.

Sanofi could look at including a scheme linking Genzyme's value to future performance of its key experimental multiple sclerosis drug, Campath, people familiar with the situation said last week.

The idea of contingent value rights (CVRs) is favored by the Genzyme camp. Through CVRs, Sanofi could end up paying Genzyme investors more if Campath proves to be the success Genzyme expects.

"I find it surprising that they haven't raised their offer. If they are extending their offer, it's probably to negotiate a CVR," CM-CIC analyst Arsene Guekam said. "I don't expect them to raise the offer very significantly, maybe one or two euros."

Analysts widely expect Sanofi can only win Genzyme if it improves its current offer. A Reuters poll in August suggested $78 a share could succeed.

Genzyme shares have been trading at more than $70 on average since July when news broke of Sanofi's interest.

The stock was little changed at 52.69 euros ($69.51) in Frankfurt trading by 1204 GMT on Monday. Sanofi shares were 0.3 percent softer.

Sanofi's efforts to buy Genzyme could continue until May, when Genzyme holds its annual shareholder meeting, giving Sanofi a chance to try to overturn Genzyme's board.

The company said on Monday its offer would now run until January 21, "unless it is further extended."

Long takeover battles are not uncommon. U.S. industrial gases company Air Products (APD.N) has been trying to buy Airgas (ARG.N) since February, while in the drug sector, it took about eight months before Roche (ROG.VX) could buy the part of Genentech it did not already own.

Genzyme Chief Executive Henri Termeer raised the possibility of negotiating a CVR last month as a way to break the stalemate between him and Sanofi CEO Chris Viehbacher.

Sanofi's finance head, Jerome Contamine, called it "an interesting idea in principle" to resolve value disputes.