Business Blog Posts

J.D. Power, which gathers sales data from almost 9,000 U.S. car dealerships, issued an unusual update to its monthly sales forecast on the eve of the Tuesday sales report, cautioning that consumers had pulled back from purchases ahead of the crucial end of the month.

Both Ford Motor Co (F.N) and Chrysler Group LLC also suggested industry-wide sales could fall short of the most bullish forecasts.

U.S. auto sales represent one of the first snapshots of consumer demand. A result at the low end of expectations could raise new caution at a time when some analysts have tamped down bullish expectations for the speed of the earnings growth for U.S. automakers and suppliers in 2011.

"The strength of retail sales from the beginning of the month has reversed during the past two weeks," said Jeff Schuster, J.D. Power's chief forecaster.

Schuster said the sudden slowdown in sales in January could reflect both the impact in winter storms and the absence of new sales incentives from major automakers. Those kinds of discounts, including cash-back offers, were down 12 percent in January from December, he said.

J.D. Power forecast a January sales rate of between 11.5 million and 12 million vehicles, down sharply from the outlook for 12.2 million it had given just 10 days before.

Automakers are set to report January U.S. auto sales on Tuesday.

Economists surveyed by Reuters had forecast sales for the month of about 12.5 million vehicles on the annualized and seasonally adjusted basis tracked by the industry.

That would be slightly higher than the 12.4 million sales rate that the industry averaged in the fourth quarter. It would also represent the best January sales result since 2008.

Of the 14 analysts surveyed by Reuters, forecasts ranged from a low of 12.1 million to a high of 13 million.

CHRYSLER, FORD CAUTIOUS

But on Monday Chrysler Chief Executive Sergio Marchionne said that industry-wide sales had fallen off in the final weeks of the month, which typically account for the bulk of sales.

"We've seen a softening of the U.S. market in the last couple of weeks," Marchionne told reporters on a conference call to discuss Chrysler's fourth-quarter results.

Marchionne forecast a sales rate of near 12.4 million to 12.5 million vehicles for the month. Chrysler is 25 percent owned by Italy's Fiat SpA. (FIA.MI)

Although the company said on Monday it is fixing the problem, it stopped shipments of the chip, which is used in PCs with its most advanced Sandy Bridge line of chips.

Intel cut its first-revenue forecast by $300 million. It expects the total cost to repair and replace the chip to be about $700 million.

"It was the result of a series of stress tests conducted on the chipset. It didn't show up under normal testing," Intel spokesman Chuck Mulloy told Reuters. "The problem wouldn't happen immediately but after two to four years."

Shares were down about 1.1 percent in midmorning trade.

For Intel, the world's largest chipmaker, the design flaw is another distraction at a time when it faces sluggish personal computer sales and a major challenge from the exploding popularity of mobile devices, a market dominated by Britain's ARM Holdings.

While Intel's processors are the brains in 80 percent of the world's PCs, the company has yet to make its mark in mobile gadgets used surf the Web and update their social networking profiles.

Some worries about Intel were eased earlier this month when it reported better-than expected revenue and margins for the fourth quarter and gave a rosy outlook for early 2011 [ID:nN13239448].

The company does not expect the problem with its so-called Cougar Point chip to hurt its full-year revenue. It will deliver an updated version of the chip in late February.

But since the flaw affected some of the chips shipped in the fourth quarter, Intel plans to take a charge that will reduce its gross margin by roughly 4 percentage points for that period.

It will also take a first-quarter charge that will cut its gross margin by 2 percentage points.

"This is a minor negative and not as big an issue as it seems," said Miller Tabak analyst Brendan Furlong. "It's obviously an embarrassment, rather than a major problem for the company."

Kevin Cassidy, an analyst at Stifel Nicolaus, added, "It's obviously a negative and a surprise. We think they can recover from this very quickly. This product was just being introduced and there's not many in the field."

He said investors should buy shares of Intel if the stock appears under pressure from the Cougar Point problem.

The chip issue, along with the two pending acquisitions, including the purchase of security software firm McAfee, prompted Intel to revise its overall outlook.

Helped by the deals, it expects first-quarter revenue of $11.7 billion, give or take $400 million, compared with its previous expectation of $11.5 billion, give or take $400 million.

Although the company said on Monday it is fixing the problem, it stopped shipments of the chip, which is used in PCs with its most advanced Sandy Bridge line of chips.

Intel cut its first-revenue forecast by $300 million. It expects the total cost to repair and replace the chip to be about $700 million.

"It was the result of a series of stress tests conducted on the chipset. It didn't show up under normal testing," Intel spokesman Chuck Mulloy told Reuters. "The problem wouldn't happen immediately but after two to four years."

Shares were down about 1.1 percent in midmorning trade.

For Intel, the world's largest chipmaker, the design flaw is another distraction at a time when it faces sluggish personal computer sales and a major challenge from the exploding popularity of mobile devices, a market dominated by Britain's ARM Holdings.

While Intel's processors are the brains in 80 percent of the world's PCs, the company has yet to make its mark in mobile gadgets used surf the Web and update their social networking profiles.

Some worries about Intel were eased earlier this month when it reported better-than expected revenue and margins for the fourth quarter and gave a rosy outlook for early 2011 [ID:nN13239448].

The company does not expect the problem with its so-called Cougar Point chip to hurt its full-year revenue. It will deliver an updated version of the chip in late February.

But since the flaw affected some of the chips shipped in the fourth quarter, Intel plans to take a charge that will reduce its gross margin by roughly 4 percentage points for that period.

It will also take a first-quarter charge that will cut its gross margin by 2 percentage points.

"This is a minor negative and not as big an issue as it seems," said Miller Tabak analyst Brendan Furlong. "It's obviously an embarrassment, rather than a major problem for the company."

Kevin Cassidy, an analyst at Stifel Nicolaus, added, "It's obviously a negative and a surprise. We think they can recover from this very quickly. This product was just being introduced and there's not many in the field."

He said investors should buy shares of Intel if the stock appears under pressure from the Cougar Point problem.

The chip issue, along with the two pending acquisitions, including the purchase of security software firm McAfee, prompted Intel to revise its overall outlook.

Helped by the deals, it expects first-quarter revenue of $11.7 billion, give or take $400 million, compared with its previous expectation of $11.5 billion, give or take $400 million.

Alpha Natural Resources said on Saturday it agreed to a $7.1 billion deal to buy Massey Energy Co, which was rocked by a deadly coal mining accident last year.

Massey shares jumped 12.5 percent in premarket trading to $64.40 while Alpha Natural slid 6.2 percent to $54.30.

Warehouse and distribution center owner AMB Property Corp and rival ProLogis said they would merge, one of the biggest real estate deals since the financial crisis.

But fears hung over the markets of political unrest spreading to oil-producing Middle East countries, driving up crude prices and threatening global growth prospects.

Protests to end the 30-year rule of President Hosni Mubarak continued over the weekend, heightening risk aversion for European investors already concerned by their own region's sovereign debt crisis and inflation.

U.S. stocks suffered their biggest one-day loss in nearly six months on Friday, preventing the Dow from notching its longest weekly winning streak since 1995.

"It appears the political situation is going to get worse before it gets better and during that short period of time anything could happen," said Peter Cardillo, chief market economist at Avalon Partners in New York.

"It's a fear factor and until this thing is resolved one way or the other, it is going to cause the markets to be jittery. We could expect a bumpy ride, notwithstanding good economic news and good earnings."

Exxon Mobil Corp is set to release fourth-quarter earnings, with profits expected to rise more than 30 percent. [nN30169616]

Other companies due to report include Anadarko Petroleum Corp., Gannett, Illinois Tool Works Inc and Eastman Chemical Company.

Economic data on tap for Monday includes personal income and spending for December and the Institute for Supply Management-New York release of the January index of regional business activity at 8:30 a.m.. The Chicago PMI for January is due out at 9:45 a.m..

S&P 500 futures rose 4.2 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 22 points, and Nasdaq 100 futures rose 7 points.

In other M&A action, CNOOC Ltd will pay $1.3 billion in its second shale deal with America's Chesapeake Energy Corp, the latest move by China's top offshore oil producer in its aggressive drive for overseas acquisitions. [nN30170001]

* European shares fell in early trade on Monday on concern that unrest in Egypt could spread.

* In Asia, Japan's Nikkei share average finished 1.2 percent lower and at one point hit its lowest since early December over Middle East concerns.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

Alpha Natural Resources said on Saturday it agreed to a $7.1 billion deal to buy Massey Energy Co, which was rocked by a deadly coal mining accident last year.

Massey shares jumped 12.5 percent in premarket trading to $64.40 while Alpha Natural slid 6.2 percent to $54.30.

Warehouse and distribution center owner AMB Property Corp and rival ProLogis said they would merge, one of the biggest real estate deals since the financial crisis.

But fears hung over the markets of political unrest spreading to oil-producing Middle East countries, driving up crude prices and threatening global growth prospects.

Protests to end the 30-year rule of President Hosni Mubarak continued over the weekend, heightening risk aversion for European investors already concerned by their own region's sovereign debt crisis and inflation.

U.S. stocks suffered their biggest one-day loss in nearly six months on Friday, preventing the Dow from notching its longest weekly winning streak since 1995.

"It appears the political situation is going to get worse before it gets better and during that short period of time anything could happen," said Peter Cardillo, chief market economist at Avalon Partners in New York.

"It's a fear factor and until this thing is resolved one way or the other, it is going to cause the markets to be jittery. We could expect a bumpy ride, notwithstanding good economic news and good earnings."

Exxon Mobil Corp is set to release fourth-quarter earnings, with profits expected to rise more than 30 percent. [nN30169616]

Other companies due to report include Anadarko Petroleum Corp., Gannett, Illinois Tool Works Inc and Eastman Chemical Company.

Economic data on tap for Monday includes personal income and spending for December and the Institute for Supply Management-New York release of the January index of regional business activity at 8:30 a.m.. The Chicago PMI for January is due out at 9:45 a.m..

S&P 500 futures rose 4.2 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures rose 22 points, and Nasdaq 100 futures rose 7 points.

In other M&A action, CNOOC Ltd will pay $1.3 billion in its second shale deal with America's Chesapeake Energy Corp, the latest move by China's top offshore oil producer in its aggressive drive for overseas acquisitions. [nN30170001]

* European shares fell in early trade on Monday on concern that unrest in Egypt could spread.

* In Asia, Japan's Nikkei share average finished 1.2 percent lower and at one point hit its lowest since early December over Middle East concerns.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

Monday's move could limit BP's scope to increase its own dividend and overshadow its 2010 results on Tuesday, when the company is expected to reinstate its payout, which it canceled at the height of its Gulf of Mexico oil spill last summer.

The vote against the TNK-BP dividend also comes a day before a London court is due to hear TNK-BP's lawsuit seeking an injunction against the BP-Rosneft deal.

The dispute is with shareholders in the AAR consortium -- which owns the other half of BP's Russian TNK-BP venture -- who have reacted angrily to BP's artic exploration deal with rival Rosneft, unveiled earlier this month.

AAR wants TNK-BP to remain the prime vehicle of BP's operations in Russia and Ukraine. Its case will be heard in London on Tuesday, when Rosneft also reports full-year results.

BP said it needed its Russian TNK partners' approval to form the Rosneft joint venture but added it was still some way off incorporating the unit, suggesting that an injunction might have little practical impact.

BP still hoped to settle the dispute amicably. "We will sort this out between us and them in due course," a spokesman said.

AAR's board voted to withhold the payment of TNK-BP's fourth quarter dividend which had been due in February. But such a cut should not in the short term preclude BP restarting payments, analysts said, as its finances are in robust shape and the dividend is only half the level it paid out pre-disaster.

The company sold off a big chunk of assets after the U.S. spill and its underlying earnings are underpinned by oil prices at around $100/barrel.

However, a long-term cut to the TNK-BP payout could limit BP's scope for raising its own dividend over time. It relies on the Russian joint venture for a quarter of its production, although high Russian taxes mean the company only gets 10 percent of profits from TNK-BP.

Beyond blocking the BP-Rosneft deal, the motives of the AAR partners remain difficult to fathom. They may want a piece of the action in the Arctic or concessions from BP, such as access to upstream ventures outside Russia.

They may also be seeking to maximize the value of their investment if it is ultimately to be folded into the Rosneft-BP partnership, banking and industry sources suggest.

Shares in BP were flat at 487.1 pence at 1134 GMT, broadly in the line with London's blue-chip FTSE index.

ARBITRATION

"It's not surprising the Russian partners are upset, it's going to be an issue for some time and it's not clear how it's going to be resolved," said Dougie Youngson, analyst at Arbuthnot Securities.

Monday's move could limit BP's scope to increase its own dividend and overshadow its 2010 results on Tuesday, when the company is expected to reinstate its payout, which it canceled at the height of its Gulf of Mexico oil spill last summer.

The vote against the TNK-BP dividend also comes a day before a London court is due to hear TNK-BP's lawsuit seeking an injunction against the BP-Rosneft deal.

The dispute is with shareholders in the AAR consortium -- which owns the other half of BP's Russian TNK-BP venture -- who have reacted angrily to BP's artic exploration deal with rival Rosneft, unveiled earlier this month.

AAR wants TNK-BP to remain the prime vehicle of BP's operations in Russia and Ukraine. Its case will be heard in London on Tuesday, when Rosneft also reports full-year results.

BP said it needed its Russian TNK partners' approval to form the Rosneft joint venture but added it was still some way off incorporating the unit, suggesting that an injunction might have little practical impact.

BP still hoped to settle the dispute amicably. "We will sort this out between us and them in due course," a spokesman said.

AAR's board voted to withhold the payment of TNK-BP's fourth quarter dividend which had been due in February. But such a cut should not in the short term preclude BP restarting payments, analysts said, as its finances are in robust shape and the dividend is only half the level it paid out pre-disaster.

The company sold off a big chunk of assets after the U.S. spill and its underlying earnings are underpinned by oil prices at around $100/barrel.

However, a long-term cut to the TNK-BP payout could limit BP's scope for raising its own dividend over time. It relies on the Russian joint venture for a quarter of its production, although high Russian taxes mean the company only gets 10 percent of profits from TNK-BP.

Beyond blocking the BP-Rosneft deal, the motives of the AAR partners remain difficult to fathom. They may want a piece of the action in the Arctic or concessions from BP, such as access to upstream ventures outside Russia.

They may also be seeking to maximize the value of their investment if it is ultimately to be folded into the Rosneft-BP partnership, banking and industry sources suggest.

Shares in BP were flat at 487.1 pence at 1134 GMT, broadly in the line with London's blue-chip FTSE index.

ARBITRATION

"It's not surprising the Russian partners are upset, it's going to be an issue for some time and it's not clear how it's going to be resolved," said Dougie Youngson, analyst at Arbuthnot Securities.

More than 100 people have been killed during six days of protests in Egypt aimed at toppling President Hosni Mubarak.

A wider conflagration in the region could threaten the flow of oil at a time when policymakers in emerging markets are already bedeviled by high food and fuel prices and some developed economies are gaining momentum.

"To the extent that the instability continues, investor reaction will most likely push oil and Treasury bond prices higher, and global equities lower." Mohamed El-Erian, co-chief investment officer at bond giant PIMCO, told Reuters.

"The situation in Egypt is very fluid."

For now, investors watched closely for any sign of growing instability in the Middle East. U.S. S&P 500 futures were up 0.2 percent after Wall Street closed down 1.8 percent on Friday, while U.S. Treasury futures were flat on the day.

The U.S. dollar, yen and Swiss franc, which all gained on Friday in reaction to the escalating Egyptian situation were largely stable, with protesters in Cairo camped out and calling for Mubarak to step down after 30 years of rule.

The prospect of more expensive energy bills in high growth emerging markets added to unease about rising inflation among investors, who had last week pulled money out of developing equity markets for the first time in more than a month.

Emerging Asian currencies, down broadly on Monday, will be tested this week ahead of Lunar New Year holidays, with focus on inflation data from Indonesia, South Korea and Thailand due on Tuesday.

Japan's Nikkei share average .N225 was down 1.2 percent, at one point hitting its lowest since early December 2010.

Japan's biggest gas and oil developer Inpex Corp (1605.T) gained 2.7 percent in heavy trade, becoming the second biggest gainer on the Nikkei.

The MSCI Asia Pacific ex-Japan stock index .MIAPJ0000PUS fell 1 percent, with selling scattered across the consumer discretionary, industrial and materials sectors.

Stocks in Indonesia and the Philippines were the hardest hit, with benchmark indexes falling 2.1 and 2.6 percent, respectively. These markets were among last year's biggest gainers in Asia and the latest bout of risk reduction has made investors more willing to take profits.

Egyptian markets and bankers were shuttered on Monday.

OIL HEADS TO $100

More than 100 people have been killed during six days of protests in Egypt aimed at toppling President Hosni Mubarak.

A wider conflagration in the region could threaten the flow of oil at a time when policymakers in emerging markets are already bedeviled by high food and fuel prices and some developed economies are gaining momentum.

"To the extent that the instability continues, investor reaction will most likely push oil and Treasury bond prices higher, and global equities lower." Mohamed El-Erian, co-chief investment officer at bond giant PIMCO, told Reuters.

"The situation in Egypt is very fluid."

For now, investors watched closely for any sign of growing instability in the Middle East. U.S. S&P 500 futures were up 0.2 percent after Wall Street closed down 1.8 percent on Friday, while U.S. Treasury futures were flat on the day.

The U.S. dollar, yen and Swiss franc, which all gained on Friday in reaction to the escalating Egyptian situation were largely stable, with protesters in Cairo camped out and calling for Mubarak to step down after 30 years of rule.

The prospect of more expensive energy bills in high growth emerging markets added to unease about rising inflation among investors, who had last week pulled money out of developing equity markets for the first time in more than a month.

Emerging Asian currencies, down broadly on Monday, will be tested this week ahead of Lunar New Year holidays, with focus on inflation data from Indonesia, South Korea and Thailand due on Tuesday.

Japan's Nikkei share average .N225 was down 1.2 percent, at one point hitting its lowest since early December 2010.

Japan's biggest gas and oil developer Inpex Corp (1605.T) gained 2.7 percent in heavy trade, becoming the second biggest gainer on the Nikkei.

The MSCI Asia Pacific ex-Japan stock index .MIAPJ0000PUS fell 1 percent, with selling scattered across the consumer discretionary, industrial and materials sectors.

Stocks in Indonesia and the Philippines were the hardest hit, with benchmark indexes falling 2.1 and 2.6 percent, respectively. These markets were among last year's biggest gainers in Asia and the latest bout of risk reduction has made investors more willing to take profits.

Egyptian markets and bankers were shuttered on Monday.

OIL HEADS TO $100

Cautious trading could also come if earnings don't outperform and erode optimism about profits.

The government's January jobs report on Friday will highlight the week's economic data, as investors look to see if the unemployment rate continues to fall as it did in December.

Market volatility skyrocketed on Friday as indexes tumbled, with the VIX index .VIX, the market's fear gauge, up 24 percent, its biggest daily percentage jump since May 20.

Worries that Egypt's unrest could spread to other countries in the Middle East, home to the world's top oil exporters, caused investors on Friday to pull out of stocks and into bonds and other safer assets. U.S. crude futures settled more than 4 percent higher on Friday.

"As long as people are worried about political unrest in the Middle East, it will be weighing on the market," said David Kelly, chief market strategist for JPMorgan Funds in New York. "This story isn't just going to end overnight."

But "it could well turn out to be a short-lived correction, and it would be dangerous to try and time this thing," Kelly said, noting that his longer-term outlook for stocks remains bullish.

Analysts had been forecasting a pullback in the market for weeks, given the recent sharp gains, and said the Egypt news could be an excuse for some investors to sell.

The Standard & Poor's 500 index .SPX is still up 18 percent since the start of September, roughly when the current rally began.

The Dow Jones industrial average .DJI snapped an eight-week streak of gains with Friday's close, and the S&P 500 and Nasdaq also ended with losses for the week.

The Nasdaq fell more than 2 percent on Friday while the S&P and Dow both were down more than 1 percent.

SCOUTING BLUE CHIPS

Monday could see a bounce-back after Friday's losses, followed by more consolidation, said Matt McCormick, portfolio manager at Cincinnati-based Bahl & Gaynor Inc, which has $3.2 billion in assets.

"My recommendation for clients is that if you have profits, especially in lower-quality names that have benefited from QE2 (quantitative easing), now is the time to take profits and look at blue chip names that haven't gained as much," he said.

Among key support levels traders are eyeing are 1,271 and 1,263 on the S&P 500, according to Craig Peskin, co-head of technical analysis research at MF Global in New York.

The deal -- the latest in a wave of consolidation sweeping the industry -- creates the second largest U.S. coal miner by market value, holding 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.

Alpha Chief Executive Kevin Crutchfield said in an interview the deal would create a global player in metallurgical coal -- a commodity the company believes should continue to generate profits for some time.

"In terms of the next decade, the world is going to remain structurally undersupplied in high-quality metallurgical coal. There's just not going to be any massive new supply coming on," Crutchfield said.

That, coupled with expectations of continued growth out of economies like India and China, should keep the market for the fuel strong, he said.

Massey, based in Richmond, Virginia, put itself on the block in November after posting a wider-than-expected third-quarter loss as a result of the explosion that killed 29 miners at its Upper Big Branch mine in West Virginia in April.

The company has been under scrutiny since the accident, which was the deadliest U.S. coal mining disaster in 40 years. The U.S. Justice Department and the state of West Virginia are investigating the blast and the company could face litigation from the families of the 29 miners.

In the months following the accident, Massey shares lost more than half their value, hitting a low of $25.87 in July. They have since bounced back above pre-explosion levels, helped by reports the company would likely be acquired.

COMFORTABLE WITH RISK

Crutchfield said that during the run-up to the deal, Alpha was able to gain access to Massey records and executives to study the risk involved in the purchase.

"At the end of the day, we were actually able to get comfortable with the exposed risk," he said, noting he believed Massey's estimate of up to $150 million in losses related to the blast was "appropriate."

Massey took a charge of $128.9 million last year in order to cover costs from the explosion, including workers' compensation and other compensation for the families of the miners and expected costs from litigation.

Massey has disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.

The deal -- the latest in a wave of consolidation sweeping the industry -- creates the second largest U.S. coal miner by market value, holding 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year. After the acquisition, Alpha will be the largest supplier of metallurgical coal, which is used in steel making, in the United States.

Alpha Chief Executive Kevin Crutchfield said in an interview the deal would create a global player in metallurgical coal -- a commodity the company believes should continue to generate profits for some time.

"In terms of the next decade, the world is going to remain structurally undersupplied in high-quality metallurgical coal. There's just not going to be any massive new supply coming on," Crutchfield said.

That, coupled with expectations of continued growth out of economies like India and China, should keep the market for the fuel strong, he said.

Massey, based in Richmond, Virginia, put itself on the block in November after posting a wider-than-expected third-quarter loss as a result of the explosion that killed 29 miners at its Upper Big Branch mine in West Virginia in April.

The company has been under scrutiny since the accident, which was the deadliest U.S. coal mining disaster in 40 years. The U.S. Justice Department and the state of West Virginia are investigating the blast and the company could face litigation from the families of the 29 miners.

In the months following the accident, Massey shares lost more than half their value, hitting a low of $25.87 in July. They have since bounced back above pre-explosion levels, helped by reports the company would likely be acquired.

COMFORTABLE WITH RISK

Crutchfield said that during the run-up to the deal, Alpha was able to gain access to Massey records and executives to study the risk involved in the purchase.

"At the end of the day, we were actually able to get comfortable with the exposed risk," he said, noting he believed Massey's estimate of up to $150 million in losses related to the blast was "appropriate."

Massey took a charge of $128.9 million last year in order to cover costs from the explosion, including workers' compensation and other compensation for the families of the miners and expected costs from litigation.

Massey has disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.

Massey shareholders will receive 1.025 Alpha share for each Massey share in addition to $10 a share in cash, for a value of about $69.33 a share, the companies said. That represents a 21 percent premium over Massey's closing share price of $57.23 on Friday.

The deal -- the latest in a wave of consolidation sweeping the industry -- combines two of the biggest companies in the Appalachian coal business, creating a company with 110 mines and combined coal reserves of 5 billion tons. The deal is expected to be completed in mid-2011.

Surging Asian demand for coal to fuel steel mills and power plants has made the sector one of the hottest for dealmaking over the past year.

Alpha's acquisition of Massey is "truly transformational," Kevin Crutchfield, Alpha's CEO, said in a statement. "Together, we are committed to creating a stronger company that has the scale to capitalize on further growth opportunities, succeed in a changing regulatory landscape and maintain the absolute highest standards in safety and environmental excellence."

Massey, based in Richmond, Virginia, has been under scrutiny by federal mine safety regulators since an explosion last April 5 in one of its West Virginia mines that killed 29 workers, the deadliest U.S. coal mining disaster in 40 years.

Massey disputed claims by federal investigators that excessive coal dust fueled the deadly explosion and has said a natural gas leak caused the accident.

Massey's former chief executive, Don Blankenship, who had been seen as opposed to selling the company, left at the end of last year.

Blankenship led Massey for 20 years and had been a lightning rod for criticism from environmentalists for championing surface mining, and from unions for the company's use of non-union labor.

The merger with Alpha will create annual cost savings of $150 million by the second year of operations, the companies said.

Morgan Stanley was lead adviser on the deal. Citigroup was also an adviser, the companies said. Alpha obtained $3.3 billion in committed financing from the two banks, which along with existing cash balances is enough to cover the cash payment for Massey shares, the statement said.

Alpha said the deal valued Massey at $8.5 billion, a figure that includes debt.

Recent deal activity in the sector includes Walter Energy's more than $3 billion deal to buy Canadian rival Western Coal Crop, and Rio Tinto's$3.9 billion bid for Africa-focused coal miner Riversdale Mining Ltd.

(Reporting by Ann Saphir; Editing by Peter Cooney)

In a statement on Saturday, Comcast said the transaction closed the previous day. To close the deal, Comcast, the No. 1 provider of video and residential Internet service in the United States, acquired a 51 percent stake in NBC Universal from General Electric Co.

Executives at Comcast spent more than 13 months working on getting the deal through a rigorous U.S. regulatory review process with the Federal Communications Commission and Justice Department.

Regulators, who approved the deal on January 18 with conditions, were concerned that an all powerful Comcast might stifle competition from new online video competitors including Hulu, in which it now owns a stake.

Among the conditions to which Comcast agreed: relinquishing management rights of its minority stake in Hulu. Hulu is co-owned by News Corp, Walt Disney Co and NBC Universal.

The newly created joint venture is called NBCUniversal LLC and its assets include NBC broadcast stations, cable channels like Bravo, USA and E!, the Universal movie studio as well as theme parks among other assets.

Comcast chief executive Brian Roberts said on Saturday that the transaction creates "the ideal entertainment and distribution company."

Comcast sees it as a potent combination alongside its 23 million video subscribers and nearly 17 million Internet subscribers.

The Philadelphia-based company hopes to take advantage of an evolving media world as viewing habits change and audiences expect to find their favorite entertainment on the TV set as well as the PC, tablet and smartphone.

(Reporting by Yinka Adegoke and Dan Levine; Editing by Eric Beech)

In a statement on Saturday, Comcast said the transaction closed the previous day. To close the deal, Comcast, the No. 1 provider of video and residential Internet service in the United States, acquired a 51 percent stake in NBC Universal from General Electric Co.

Executives at Comcast spent more than 13 months working on getting the deal through a rigorous U.S. regulatory review process with the Federal Communications Commission and Justice Department.

Regulators, who approved the deal on January 18 with conditions, were concerned that an all powerful Comcast might stifle competition from new online video competitors including Hulu, in which it now owns a stake.

Among the conditions to which Comcast agreed: relinquishing management rights of its minority stake in Hulu. Hulu is co-owned by News Corp, Walt Disney Co and NBC Universal.

The newly created joint venture is called NBCUniversal LLC and its assets include NBC broadcast stations, cable channels like Bravo, USA and E!, the Universal movie studio as well as theme parks among other assets.

Comcast chief executive Brian Roberts said on Saturday that the transaction creates "the ideal entertainment and distribution company."

Comcast sees it as a potent combination alongside its 23 million video subscribers and nearly 17 million Internet subscribers.

The Philadelphia-based company hopes to take advantage of an evolving media world as viewing habits change and audiences expect to find their favorite entertainment on the TV set as well as the PC, tablet and smartphone.

(Reporting by Yinka Adegoke and Dan Levine; Editing by Eric Beech)

Increased instability in the Middle East drove up the CBOE Volatility Index .VIX, the stock market's fear gauge, as investors scrambled for protective positions.

"The market hates uncertainties, especially geopolitical ones, and based on how that shapes up throughout the weekend (in Egypt), next week's trading will be impacted," said Thomas Nyheim, portfolio manager for Christiana Bank & Trust Co in Greenville, Delaware.

Trading volume was the highest of the year at 9.97 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq, compared to last year's estimated daily average of 8.47 billion shares.

The market drop ended the Dow's eight-week winning streak and pushed the S&P 500 below its 14-day moving average for the first time in two months. Disappointing results from Amazon.com

(AMZN.O) and Ford (F.N) further added to the gloom.

Developments in the Middle East could be a trigger for investors to sell at a time when many expected a correction after a market rally of about 18 percent since September.

"I think the next two to three weeks, the crisis in Egypt and potentially across the Middle East, might be an excuse for a big selloff of 5 to 10 percent," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati, Ohio.

Nasdaq quotations for its main stock indexes suffered an outage of nearly one hour at the open, causing confusion among traders. Nasdaq OMX Group (NDAQ.O) blamed a glitch with its global index data service.

The Dow Jones industrial average .DJI ended down 166.13 points, or 1.39 percent, at 11,823.70. The Standard & Poor's 500 Index .SPX was down 23.20 points, or 1.79 percent, at 1,276.34. The Nasdaq Composite Index .IXIC fell 68.39 points, or 2.48 percent, at 2,686.89.

For the week, the Dow fell 0.4 percent, the S&P lost 0.5 percent and the Nasdaq dipped 0.1 percent.

Amazon.com (AMZN.O) shares slipped 7.2 percent to $171.14, a day after the online retailer recorded revenue below the consensus view.

Ford Motor Co (F.N) slumped 13.4 percent to $16.27 after a steep drop in quarterly profit. Rival automaker General Motors Co (GM.N) also lost 5.4 percent to $36.60.

Dow component Microsoft Corp (MSFT.O) also fell 3.9 percent to $27.75 a day after its profit dipped.

In Egypt, President Hosni Mubarak sent troops and armored

Increased instability in the Middle East drove up the CBOE Volatility Index .VIX, the stock market's fear gauge, as investors scrambled for protective positions.

"The market hates uncertainties, especially geopolitical ones, and based on how that shapes up throughout the weekend (in Egypt), next week's trading will be impacted," said Thomas Nyheim, portfolio manager for Christiana Bank & Trust Co in Greenville, Delaware.

Trading volume was the highest of the year at 9.97 billion shares on the New York Stock Exchange, the American Stock Exchange and Nasdaq, compared to last year's estimated daily average of 8.47 billion shares.

The market drop ended the Dow's eight-week winning streak and pushed the S&P 500 below its 14-day moving average for the first time in two months. Disappointing results from Amazon.com

(AMZN.O) and Ford (F.N) further added to the gloom.

Developments in the Middle East could be a trigger for investors to sell at a time when many expected a correction after a market rally of about 18 percent since September.

"I think the next two to three weeks, the crisis in Egypt and potentially across the Middle East, might be an excuse for a big selloff of 5 to 10 percent," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati, Ohio.

Nasdaq quotations for its main stock indexes suffered an outage of nearly one hour at the open, causing confusion among traders. Nasdaq OMX Group (NDAQ.O) blamed a glitch with its global index data service.

The Dow Jones industrial average .DJI ended down 166.13 points, or 1.39 percent, at 11,823.70. The Standard & Poor's 500 Index .SPX was down 23.20 points, or 1.79 percent, at 1,276.34. The Nasdaq Composite Index .IXIC fell 68.39 points, or 2.48 percent, at 2,686.89.

For the week, the Dow fell 0.4 percent, the S&P lost 0.5 percent and the Nasdaq dipped 0.1 percent.

Amazon.com (AMZN.O) shares slipped 7.2 percent to $171.14, a day after the online retailer recorded revenue below the consensus view.

Ford Motor Co (F.N) slumped 13.4 percent to $16.27 after a steep drop in quarterly profit. Rival automaker General Motors Co (GM.N) also lost 5.4 percent to $36.60.

Dow component Microsoft Corp (MSFT.O) also fell 3.9 percent to $27.75 a day after its profit dipped.

In Egypt, President Hosni Mubarak sent troops and armored

* U.S. gross domestic product (GDP) figures, due at 8:30 a.m. ET, will be closely watched for evidence of the pace of economic recovery, a day after mixed U.S. data showed strength in the housing sector though unemployment benefit claims rose more than expected.

* Economists expected fourth-quarter GDP numbers to show growth picking up speed by an annual rate of 3.5 percent, though short of the pace needed to lower unemployment significantly.

* Strong corporate earnings led Wall Street to a 29-month closing high for a second day on Thursday, though another run of big gains may be harder to achieve.

* Microsoft Corp (MSFT.O) surprised Wall Street with a better-than-expected profit, but its shares stayed flat as investors expressed concern about the weakness of computer sales.

* Shares in Amazon.com (AMZN.O) fell 9.8 percent in extended trading after the world's biggest online retailer said its profit margins were sliding as it spends money on massive new distribution centers and acquisitions.

* Among companies to report earnings on Friday include Ford Motor Company (F.N), Honeywell (HON.N) and Chevron (CVX.N).

* Thomson Reuters data showed 71 percent of the S&P 500 .SPX companies that have reported earnings so far have beaten estimates.

* LinkedIn Corp announced plans to go public this year in what could be a test of investor appetite for social networking websites ahead of a highly anticipated Facebook offering.

* North American smartphone vendors Apple (AAPL.O) and RIM (RIM.TO), along with low-cost Chinese producer ZTE (000063.SZ), emerged as the biggest winners on the booming cellphone market in final quarter of 2010.

* Sara Lee Corp (SLE.N) plans to split up rather than sell itself, a source familiar with the situation said on Thursday after the company failed to win lucrative enough bids from potential buyers.

* In the wake of a credit rating downgrade for Japan by Standard & Poor's on Thursday, the International Monetary Fund said Japan and the United States needed to spell out credible deficit-cutting plans before the markets lose patience and dump their bonds.

* U.S. investors seeking higher returns plowed cash into riskier domestic equity and taxable fixed-income mutual funds in the week ended January 26, while municipal bond funds suffered an eleventh week of outflows, data from Lipper showed on Thursday.

* In Europe, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was down 0.3 percent in early trade as heavyweight mining shares slipped.

(Reporting by Harpreet Bhal; Editing by Erica Billingham)

Even with growth quickening, however, progress reducing unemployment has been painfully slow, and the report on U.S. gross domestic product due on Friday will likely be little comfort for millions of unemployed Americans or the Federal Reserve officials on a jobs-creation vigil.

The economy grew at a solid 3.5 percent annual rate in the final three months of 2010, according to a Reuters survey, after expanding at a 2.6 percent pace in the third quarter.

The Commerce Department will release the advance GDP data at 8:30 a.m..

"It will likely show that the recovery has accelerated," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

"Unfortunately we still need to see much stronger growth to begin to really make a dent in the unemployment rate. Right now we are just barely creating enough jobs to stabilize the unemployment rate."

On Wednesday, Fed officials voiced concern that the pace of the recovery was still not strong enough to significantly lower unemployment and reiterated a commitment to a $600 billion stimulus effort through the purchase of government bonds.

The jobless rate has been stuck above 9 percent since May 2009. With the economy's growth potential between 2.5 percent and 2.7 percent, analysts say an expansion rate of at least 3 percent over several quarters is needed to cope with new entrants into the labor market and those who have given up the search for work.

The unemployment rate fell to 9.4 percent in December from 9.8 percent in November.

CONSUMERS STEPPING UP TO THE PLATE

Details of the GDP report are expected to show the economy moving in the right direction. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is expected to have grown at a rate perhaps as high as 4 percent.

"The handoff from temporary factors to domestic demand is under way. This is what we need for the recovery to be self-sustaining," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

Support to growth during the fourth quarter is also expected to have come from business spending on equipment and software, which should notch its seventh straight quarter of growth.

Although businesses have been hesitant to hire, they have used their vast cash reserves to buy new equipment and upgrade their technology. But the pace of investment in equipment and software probably slowed in the fourth quarter.

Government spending is expected to have made a modest contribution to growth.

The Nikkei average .N225 fell by nearly 1 percent, weighed down by financial stocks, as investors worried about higher borrowing costs after Standard & Poor's cut Japan's credit rating by a notch for the first time since 2002.

While the MSCI index of Asian stocks outside Japan .MIAPJ00000PUS was poised to eke out meager gains for the week, thanks to a mild recovery in risk-appetite, Asian stocks have underperformed the MSCI world index .MIWD00000PUS, which has risen by 2.5 percent since the beginning of the year.

A combination of worries of frothy valuations and a steady drip of positive data out of Europe and the United States have encouraged investors to take profits in some Asian markets, particularly in those that are seen as slow in tackling inflation.

Barclays strategists said Asian authorities are not countering price pressures with sufficient tightening and inflation risks would continue to have a bearing on these markets.

Malaysia held off from raising interest rates on Thursday while the Philippines said this week the U.S. Federal Reserve's dovish stance vindicated its low rates policy.

But some other central banks in the region are stepping on the policy brakes after heavy offshore selling.

India raised interest rates by a quarter point this week, its seventh such increase in less than a year, and Indonesia signaled an aggressive approach to tackling inflation.

Both markets have borne the brunt of the recent selloff.

India's stock index .BSESN is poised to register its worst monthly performance since October 2008 and 10-year Indonesian bond yields have risen by the most since early 2009.

Corporate earnings were robust, with Samsung (005930.KS), the world's top memory chipmaker, set to show improved results, sending its shares to a record.

LIMITED IMPACT

Japanese government bonds advanced, taking the ratings cut in stride, as investors focused more on the country's ample savings and largely domestically held debt.

March 10-year futures opened lower, but quickly reversed losses to be up 0.20 points at 139.98 as the downgrade had largely been seen as a matter of time. On Thursday evening, it fell to as low as 139.48 immediately after the downgrade.

Ten-year yields edged lower to 1.215 percent and credit default swaps widened slightly to around 83 bps, but well below peaks of near 100 bps hit in 2010.

* The MSCI index of Asian stocks outside Japan .MIAPJ00000PUS fell 0.3 percent in early deals despite an overnight rally on Wall Street. The Nikkei .N225 fell by more than 1 percent, weighed down by financial stocks.

* Since the start of 2011, Asian stocks have underperformed the MSCI world index .MIWD00000PUS, which has risen by 2.5 percent, as investors have booked profits, particularly in markets, which are seen vulnerable to inflationary pressures.

* On Thursday, Standard & Poor's cut Japan's credit rating by a notch for the first time since 2002 and Moody's warned that it might turn negative on the U.S. rating outlook if the deficit continued to swell.

* March 10-year futures opened lower, but quickly reversed losses to be up 0.17 points at 139.95 as the downgrade had largely been seen as a matter of time. On Thursday evening, it fell to as low as 139.48 immediately after the downgrade.

* Ten-year yields edged lower to 1.215 percent, moving further away from this month's peak of 1.260 percent hit last week.

* Citigroup analysts said the downgrade might dissuade regional reserve managers from investing in Japanese assets on the margin but won't trigger a large scale dumping of bonds.

* The euro held most of its 1 percent gain at 113.71 after hitting a two-month peak around 114.00. In contrast, the dollar, after rallying by a big figure to as high as 83.22 yen, it lapsed to 82.87 in early Asian trade.

* Gold held near four-month lows, after falling more than two percent in the previous session, as safe-haven demand was depressed by a steady drip of positive data from Europe and the United States.

(Additional reporting by Ayai Tomisawa and Shinichi Saoshiro in TOKYO)

Microsoft surprised Wall Street with a better-than-expected profit, helped by resurgent corporate spending after the belt-tightening of past years. But its shares stayed flat as investors expressed concern about the weakness of overall computer sales amid a faltering U.S. recovery.

The world's largest software maker, whose Windows operating system runs on 90 percent of the world's computers, is heavily dependent on PC sales, which grew only 3 percent in the quarter. Now it is starting to feel the heat from investors eyeing the phenomenal take-up of Apple Inc's iPad.

"Outstanding numbers when you take a first look at it, but when you delve into them, Windows missed expectations by $300 million," said Brendan Barnicle, analyst at Pacific Crest Securities.

Sales of smartphones and tablets are expected to grow much more quickly than PCs over the next few years, posing a threat to Microsoft's key market.

With the migration to mobile devices from desktop computers expected to accelerate, Apple overtook Microsoft to become the largest U.S. technology company by market value last May.

But some analysts argued that fears of tablets and other hot-selling gadgets replacing PCs were overblown -- at least for now.

"We've gotten over 300 million Windows 7 licenses sold. I mean, PCs are not disappearing. Put that into perspective with 7 million tablets sold last quarter from Apple," said BGC Financial's Colin Gillis.

"Clearly there are disruptions in the landscape, but some of the negative viewpoints are overblown."

Microsoft stock is down about 3 percent over the past 12 months, compared with a 24 percent gain for the tech-heavy Nasdaq. Apple shares are up 65 percent over the same period.

EARLY RELEASE

The results surprised the market after being discovered online by data search firm Selerity, which posted profit and revenue numbers on Twitter at 2:50 p.m. EST.

Trading in Microsoft's shares spiked just under an hour later, after blogs and news agencies started reporting the earnings from the web page discovered by Selerity, sending the shares up as much as 2 percent to $29.46. They ebbed back to $28.87 at the close, a 0.3 percent gain for the day. They drifted slightly lower in after-hours trading.

"A preproduction draft of our earnings release was discovered by one or more media sources who then published our results to the web before market close," said a Microsoft spokesman, who apologized for any confusion and said the company was reviewing procedures to make sure it does not happen again.

WINDOWS FALLS SHORT

The National Association of Realtors' Pending Home Sales Index, based on contracts signed in December, rose 2 percent to 93.7, above economists' expectations for a 1.0 percent gain. The increase pointed to another rise in sales of previously owned homes.

A separate report from the Commerce Department on Thursday showed orders for a range of domestically manufactured goods increased 0.5 percent last month. But a nearly 100 percent drop in civilian aircraft pulled overall orders down 2.5 percent.

Economists -- who had expected orders to rise 1.5 percent -- were puzzled by the drop, given that Boeing reported an increase in aircraft bookings from November.

"This doesn't change our estimate that fourth-quarter GDP increased by 4.0 percent," said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

Supporting views of a pick-up in the growth pace, a proxy for business spending increased 1.4 percent, though smaller than the 3.1 percent increase in November.

But the outlook was clouded somewhat by a spike last week in applications for state unemployment benefits, which the government blamed on snow storms in some parts of the country that kept workers at home and delayed the processing of claims.

The blizzards occurred the prior week, when claims posted their biggest drop in nearly a year. Another snow storm this week could affect claims data in the coming weeks.

Initial claims jumped 51,000 to a seasonally adjusted 454,000, the highest since late October, the Labor Department said on Thursday. That was the largest weekly increase since September 2005. The rise exceeded economists' expectations for a slight gain to 405,000.

A Labor Department official said four states had reported an increase in claims that was due to snow. In addition, he said, seasonal volatility also affected the data.

Still, the four-week moving average of unemployment claims -- a better measure of underlying trends, rose 15,750 to 428,750 last week, implying a gradual labor market recovery.

"At first glance, it's certainly disheartening coming a day after the Fed meeting, at which the Fed maintained its asset purchase plan," said Joe Manimbo, a currency trader at Travelex Global Business Payments in Washington.

The Fed on Wednesday repeated its plan to purchase $600 billion in longer-term Treasury debt by the middle of this year to keep interest rates low and support the economy.

Labor market recovery remains painfully slow, despite signs elsewhere of a pick-up in economic activity, keeping the unemployment rate at an elevated 9.4 percent.

Fed officials acknowledged the improvement in the economic picture, but said the pace of the recovery remained "insufficient to bring about a significant improvement in labor market conditions."

The number of people still receiving benefits under regular state programs after an initial week of aid increased 94,000 to 3.99 million in the week ended Jan 15. The numbers were above market expectations for a dip to 3.85 million and included the week for the household survey from which the unemployment rate is derived.

It reduced the rating by one notch to AA minus, three levels below the highest possible rating and providing a sharp reminder to other developed nations, such as those in Europe and the United States, of the growing concerns about the debt built up during the global financial crisis.

Politicians and credit ratings agencies have been warning for years that Japan needs to lower its public debt pile, by far the worst among rich nations at double the size of its $5 trillion economy, but progress has proved elusive.

Julian Jessop, chief international economist at Capital Economics in London, warned of the consequences if Tokyo failed to get its fiscal house in order.

"If it looks like making a mess of this, further downgrades will surely follow. Given the size of Japan's economy and the current sensitivity of global financial markets to sovereign debt concerns, the impact would be felt worldwide."

The yen fell broadly and credit default swaps on Japan widened after the announcement, but markets in the past have not worried too much about the country's high debt because, for now, it is well serviced by ample domestic savings and few foreign investors hold Japanese government bonds (JGBs).

However, Japan's society is aging quickly, so social welfare costs will take up an increasing proportion of the budget in the absence of reforms, which S&P said reduces Japan's already weak fiscal flexibility.

S&P's downgrade leaves its credit rating on Japan one notch below both Fitch and Moody's.

"The downgrade reflects our appraisal that Japan's government debt ratios -- already among the highest for rated sovereigns -- will continue to rise further than we envisaged before the global economic recession hit the country and will peak only in the mid-2020s," S&P said in a statement.

"In our opinion, the Democratic Party of Japan-led government lacks a coherent strategy to address these negative aspects of the country's debt dynamics, in part due to the coalition having lost its majority in the upper house of parliament last summer."

Japan's government is well aware of its debt problem but, like governments before it, has struggled to tackle it head on. Just this month, Economics Minister Kaoru Yosano warned that the country faced a fiscal dead end. He said on Thursday the S&P move was regrettable.

DIVIDED PARLIAMENT

Prime Minister Naoto Kan is pushing for a debate on increasing the national sales tax, which at 5 percent is among the lowest among major economies, that he says is vital to pay for huge welfare costs.

Kan's key economic ministers have promised to impose fiscal discipline, something Finance Minister Yoshihiko Noda reiterated in reaction to the S&P downgrade.

Still, the government is pressing ahead with a proposed budget from April with record spending of 92.4 trillion yen ($1 trillion) and new debt issuance that will exceed tax revenues for a second year in a row.

The world's largest software maker, which powers more than 90 percent of the world's computers, is still a money-making machine, but its fortunes are tied to vulnerable PC sales and investors have doubts it can replicate its dominance in the fast-growing mobile and tablet markets.

Its stock is down 2.4 percent in the last 12 months, compared with a 24 percent rise in the tech-heavy Nasdaq.

"Microsoft is still a juggernaut in the PC business, Windows-based machines are still selling over 300 million a year," Tim Bajarin, president of tech research firm Creative Strategies, said earlier this week.

"But they missed the smartphone revolution, and even though they were the first to really push the tablet, Apple basically redesigned it and left Microsoft in the dust."

Sales of Windows 7 are still going strong, but likely won't match the year-ago figure, which was boosted by a one-time deferral of revenue from pre-sales of the operating system, which was launched in October 2009.

Microsoft is expected to report second-quarter profit of 68 cents per share, according to Thomson Reuters I/B/E/S, lower than the 74 cents it reported a year ago.

Overall sales are expected to inch up to $19.15 billion from $19 billion a year ago, helped by the unexpectedly strong sales of the Kinect hands-free gaming system, which sold 8 million units over the holiday shopping season, above Microsoft's own target of 5 million.

PC sales, the surest guide to Microsoft's overall health, rose only 3.1 percent in the last three months of last year, according to research firm Gartner, well below earlier estimates.

The good news for Microsoft is that business customers -- the core market for its software -- are buying new computers more readily than cash-strapped consumers, who are holding off on purchases or buying iPads instead.

That resilience of business customers helped tech bellwethers IBM and Intel Corp post positive results and outlooks over the past two weeks, helping their stocks higher.

(For a comparison of estimates and valuations with other technology companies, click: link.reuters.com/sys67r)

APPLE CRUISING PAST

One uncomfortable fact for Microsoft: unless it posts blowout numbers, it will have a lower quarterly profit than Apple for the first time in recent memory. The last time Apple produced more profit in a year than Microsoft was 1990.

Last week, Apple announced a record $6 billion quarterly profit on strong-selling iPhones and iPads over the holiday shopping season.