Business Blog Posts

The euro zone's debt crisis and weakness in China have fueled investor concern that the global economy could tip back into recession, possibly dampening U.S. earnings growth at a time when the U.S. economy is still struggling to gain ground.

Overseas sales have helped U.S. companies beat earnings expectations in the last couple of years, with foreign sales totaling 30 percent on average for Standard & Poor's 500 companies.

"If the euro region is crumbling, that's going to have a tremendous negative impact" on companies like McDonald's, said Todd Schoenberger, managing director at LandColt Trading in Wilmington, Delaware.

"I'm not expecting a big earnings quarter," he said. "We've been getting the clues already."

The most recent company to trouble investors about the earnings outlook is Ingersoll Rand Plc, whose shares tumbled 12.1 percent to $28.09 on Friday after the industrial conglomerate cut its third-quarter and full-year earnings forecast to below market estimates.

Investor pessimism is already high.

The S&P 500 finished the quarter with its worst performance since 2008, and many strategists have slashed their forecasts for year-end.

The S&P 500 dropped 14.3 percent in the third quarter, losing about $1.7 trillion in market capitalization.

A disappointing third-quarter earnings period, which begins the second week of October, could only trigger more losses, analysts said. Stronger-than-expected earnings helped stocks claw back fro 12-year lows in 2009.

Next week, investors also will be bracing for data on the U.S. job market, among the weakest parts of the economy. The government's September employment report is due Friday, while U.S. manufacturing data from the Institute for Supply Management is due Monday. The ISM services-sector index is set for release on Wednesday.

CURRENCY CUSHION MAY BE THINNER

Companies reporting earnings have benefited for the last decade from weakness in the dollar, which helped overseas revenue figures.

With the euro down 7.4 percent this quarter, the biggest quarterly loss by percentage since mid-2010, companies could lose some of that currency cushion.

"I think you'll see a lot of companies blaming problems on Europe," said Justin Walters, co-founder of Bespoke Investment Group in Harrison, New York.

Walters said excluding companies that report no international sales, the average percentage of overseas revenue for the S&P 500 is 41 percent.

The euro-zone debt crisis has investors worried about a repeat of the 2008 financial crisis.

In China, which has been a major engine of growth for the global economy, data has shown some weakness. On Friday, figures showed the country's manufacturing shrank for the third month in a row and had the longest contractional streak since 2009.

Analysts have slowly been reducing earnings forecasts for the quarter.

Third-quarter earnings are expected to have risen 13.3 percent from a year ago, according to Thomson Reuters data. The forecast was for 17 percent growth on July 1.

"If there's a very drastic downturn in the European economic zone, that portion of U.S. earnings will be impacted," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

But she and other strategists are optimistic that the earnings period will not disappoint, and could even present a buying opportunity.

"U.S. multinationals don't necessarily derive all of their additional earnings (from Europe), and in China, data seems to be showing a slowdown but not in hard-landing territory," Trunow said.

Other strategists said the dramatic cost-cutting that U.S. companies started in the 2008 financial crisis will help to keep bottom-line earnings numbers relatively healthy.

"In our view, corporate America has learned to make money in this environment," said Hank Smith, chief investment officer at Haverford Trust Co. in Philadelphia.

(Reporting by Caroline Valetkevitch; Editing by Jan Paschal)

The euro and most commodity prices also fell as investors' search for safety drove up U.S. government bonds and the dollar.

Adding to a string of global data that has crushed growth-related assets in the past three months, China's manufacturing sector contracted for a third straight month in September while German retail sales slid at their sharpest pace in more than four years.

An unexpected rise in euro-zone inflation for September also moderated talk that the European Central Bank would cut interest rates. Still, the euro fell sharply to close its worst quarter against the U.S. dollar since mid 2010.

"The combination of sovereign debt crisis, a slowing economy and really what appears to be ineffective leadership in Europe has led to this decline, and we expect that to continue to play out in the fourth quarter," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

U.S. stocks fell, closing their worst quarter since the collapse of Lehman Brothers in late 2008 with sharp declines.

The MSCI All Country World Index slumped 18 percent for the quarter, with a drop of 2.3 percent on Friday. It lost roughly $5.29 trillion in market capitalization in the quarter, according to Thomson Reuters Datastream.

On Friday, the Dow Jones industrial average dropped 240.60 points, or 2.16 percent, to 10,913.38. The S&P 500 fell 28.98 points, or 2.50 percent, to 1,131.42. The Nasdaq Composite slid 65.36 points, or 2.63 percent, to 2,415.40.

U.S. crude oil prices fell 4.1 percent on Friday, down more than 17 percent in the quarter. Copper, a key industrial metal that is a proxy for growth expectations, was down 25.8 percent over the last three months.

"There is a lot of fear that GDP growth is going to slow down, or it's not going to be as fast as consensus estimates assume," said Adam Krejcik, an analyst at Roth Capital in Newport Beach, California. "Generally speaking, there is a lot of fear out there, just a crisis of confidence."

Mining stocks were among the worst performers, hit by the news of slowing growth in China, the world's second-largest economy and an engine of global growth.

EURO OFF, BONDS FLY AMID THE GLOOM

The euro slipped versus the U.S. dollar and posted its biggest monthly drop in nearly a year, weighed down by the lack of a visible solution to the euro zone's deepening debt troubles.

The single currency fell to a low of $1.3384 and was last at $1.3392, down 1.5 percent for the day. For the month of September, the euro lost 6.6 percent, its weakest performance since November 2010.

In contrast, a gauge of the U.S. dollar against major currencies rose 0.9 percent.

A boost to the euro after Germany's parliament approved new powers for the euro-zone bailout fund proved fleeting after the data on the slump in German retail sales in August.

Leaders in Germany's ruling coalition said they opposed moves to increase states' liabilities to the bailout fund, keeping alive concerns that Europe will not be able to do enough to prevent the crisis from spreading.

The deepening economic gloom has prompted investors to slash bets on risky assets for most of the quarter that ended Friday.

The retreat continued to push safe-haven U.S. Treasury debt prices higher on Friday, with longer-maturity bonds posting their best quarter since the final period of 2008.

U.S. Treasuries held steady at higher price levels after the New York Fed announced the initial schedule for its $400 billion bond program, known as Operation Twist.

The benchmark 10-year note was last up 25/32 in price to yield 1.9172 percent, down from 2.00 percent late on Thursday.

The 30-year bond jumped 3-3/32 in price to yield 2.917 percent, down from 3.06 percent.

(Additional reporting by Karen Brettell, Wanfeng Zhou and Edward Krudy; Editing by Leslie Adler, Jan Paschal and Dan Grebler)

A steep slide on Friday closed out a fifth month of losses as weak economic data from China sparked fears of a global economic slowdown while investment bank Morgan Stanley plummeted on concerns about its exposure to European banks.

The S&P 500 index has lost more than 14 percent this quarter and over 7 percent in September alone. As of Thursday, Wall Street's deep downturn in the third quarter wiped out $2.2 trillion of the Wiltshire 5000 index -- the broadest measure of U.S. stocks.

"Why is the market so soft and so weak? Because '08 is still fresh in people's memories," said Joseph Mazzella, a senior trader at Knight Capital in Jersey City, New Jersey.

Stocks have been battered by the threat of a slowdown and fears that a Greek debt default could spark a credit shock similar to that caused by Lehman Brothers in September 2008, sending markets into a tailspin.

Fears of a hard landing in the world's second largest economy joined the potent mix troubling investors after China's manufacturing sector shrank for the third month in a row.

HSBC's China flash purchasing managers index showed the longest contractional streak since 2009 in a worrying sign for the world economy, which has looked to China as a rare source of expansion.

"The economic engine that has been driving growth has been China and if that comes undone, it gets scary again," said Mazzella.

Investors will be eyeing China's official PMI, due out on Saturday, which may have edged up again in September. Any disappointment there will be a blow for markets.

Financial shares stumbled with Morgan Stanley, which fell 10.5 percent to $13.51 as investors appeared to react to fear signals in credit markets.

The cost of insuring Morgan Stanley's five-year bonds spiked in recent days to almost three times what it was on June 30. It shares have erased all their gains of the last three year.

The Dow Jones industrial average dropped 240.60 points, or 2.16 percent, to 10,913.38. The Standard & Poor's 500 Index fell 28.98 points, or 2.50 percent, to 1,131.42. The Nasdaq Composite Index lost 65.36 points, or 2.63 percent, to 2,415.40.

Wall Street's "fear gauge," the CBOE volatility index, or VIX, rose more than 10 percent to 42.96, its highest close since mid-August and indicating investors expect more volatility ahead.

"There is a lot of fear that GDP growth is going to slow down, or it's not going to be as fast as consensus estimates assume," said Adam Krejcik, an analyst at Roth Capital in Newport Beach, California. "Generally speaking there is a lot of fear out there, just a crisis of confidence."

Through Thursday, the MSCI All Country World Index had lost about $4.7 trillion in market capitalization. The U.S. benchmark S&P 500 has lost about $1.7 trillion in market cap during the quarter.

Euro zone annual consumer prices unexpectedly rose in September 3.0 percent and followed surprisingly higher inflation in Germany.

In what may be a precursor to the quarterly earnings season, Ingersoll Rand Plc tumbled 12.1 percent to $28.09 after the industrial conglomerate cut its third-quarter and full-year earnings forecast to below market estimates. The Morgan Stanley cyclical index dropped 3.6 percent.

Markets showed little reaction two U.S. economic reports that were stronger than analysts expected.

Business activity in the U.S. Midwest grew more than expected in September, buoyed by new orders and a jump in employment.

The Institute for Supply Management-Chicago business barometer surprisingly rose in September more than economists had forecast.

U.S. consumer sentiment improved in late September but worries persisted about jobs and finances, which could curb household spending in the coming months, the Thomson Reuters/University of Michigan final September reading of the overall index on consumer sentiment showed.

About four stocks fell for every one that rose on the New York Stock Exchange. On the Nasdaq, about 7 stocks fell for every two that rose.

About 8.58 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, above this year's daily average of 7.96 billion.

(Additional reporting by Himank Sharma; Editing by Kenneth Barry)

Kodak, which delivered the first consumer camera in 1888, denied it had a bankruptcy plan, saying it was committed to meeting its obligations and is still looking for ways to "monetize" its patent portfolio.

Once synonymous with photography, Kodak has struggled with the move to digital cameras and failed to turn a profit since 2007. It has been exploring a sale of its digital imaging patents, worth an estimated $2 billion, and hired investment bank Lazard in July to explore options.

Rochester, New York-based Kodak said it has "no intention of filing for bankruptcy," after its shares plunged as much as 68 percent to 54 cents before recovering slightly to close down 53.8 percent at 78 cents on the New York Stock Exchange.

The company's market value plummeted to roughly $210 million on Friday, down from a lofty height of $31 billion in February 1997, as shown by regulatory filings. The cost to insure Kodak's debt with credit default swaps (CDS) surged on Friday as investors priced in greater bankruptcy risk.

Kodak had already scared markets on Monday when it tapped a credit line but refused to divulge its cash position. The stock dived to a 38-year low that day.

Then investors took fright again Friday after Bloomberg reported that potential buyers for its patent portfolio were cautious about going ahead with a bid as they could risk having Kodak creditors sue them after a bankruptcy filing.

Mark Kaufman, an analyst at Rafferty Capital Markets, said that Kodak urgently needed to seal a patent deal.

"I don't believe bankruptcy is inevitable. This is a pretty valuable portfolio, they should get a good price," he said. "They need to get this (sale) out of the way. They need to sell this portfolio, raise some type of cash."

The company said in July that it hired Lazard to advise on strategic options for its patents -- increasingly seen as lucrative assets. Bankrupt Canadian company Nortel fetched $4.5 billion in a patent sale in June, also run by Lazard. Google Inc agreed in August to buy Motorola Mobility for $12.5 billion primarily for its patent portfolio.

One expert -- Robert Miller, a professor at Villanova University School of Law -- said filing for bankruptcy may actually end up boosting the value of a patent sale.

Even if the company holds a robust, public auction outside of bankruptcy, the headache of litigation still looms if Kodak goes bankrupt later, said Miller.

Selling the assets as part of a bankruptcy court-supervised auction would solve that concern, Miller said.

Kodak confirmed that it has hired Jones Day but did not explain why, beyond saying it was "not unusual for a company in transformation to explore all options."

Investors for the company have been up in arms about everything from its share price decline to its management.

One shareholder had asked the company's board on Thursday to start a sales process while others sharply criticized Chief Executive Antonio Perez.

The company's board is not considering replacing Perez at this time, according to a story in the Wall Street Journal, which cited two people familiar with the matter.

Kodak CDS costs rose to 70 percent Friday from 61 percent Thursday, data provider Markit said. That means it would cost $7.0 million in upfront payments, plus $500,000 a year to insure $10 million debt if Kodak debt for five years.

"This is pretty expensive insurance at this point and the reason it's so expensive is that people believe there's a high likelihood of default," said Markit analyst Otis Casey.

(Additional reporting by Paul Thomasch, Nicholas Brown, Dena Aubin, Caroline Humer, Nadia Damouni, Phil Wahba and Jonathan Stempel; editing by Gerald E. McCormick, Matthew Lewis, Gary Hill)

The SEC staff said concerns include failures to follow ratings methodologies, failures in making timely and accurate disclosures and failures to manage conflicts of interest.

The SEC's annual report was required by last year's Dodd-Frank financial oversight law.

The staff report did not single out by name any credit-rating agency for questionable actions.

It also said the SEC has not determined that any of the report's findings constituted a "material regulatory deficiency" but said it might do so in the future.

"We expect the credit rating agencies to address the concerns we have raised in a timely and effective way, and we will be monitoring their progress as part of our ongoing annual examinations," said Norm Champ, deputy director of the SEC's Office of Compliance Inspections and Examinations.

The SEC's report covers 10 credit-rating firms including Moody's Corp, McGraw-Hill Cos Inc's Standard & Poor's and Fimalac SA's Fitch Ratings.

Congress first empowered the SEC to closely regulate the firms in 2006, and Dodd-Frank gave the agency even greater powers over the industry.

Credit raters have been widely criticized for fueling the financial crisis by giving inflated ratings to toxic subprime mortgage securities.

On Monday McGraw-Hill disclosed that the agency might charge its Standard & Poor's unit with breaking securities laws.

SEC Enforcement Director Robert Khuzami told Reuters this week that the agency faces hurdles proving wrongdoing at credit-rating agencies, pointing to the complexity of the cases and the industry's strong legal defenses.

(Reporting by Andrea Shalal-Esa, Aruna Viswanatha, Karey Wutkowski, editing by Gerald E. McCormick)

The Commerce Department said on Friday spending rose 0.2 percent, in line with economists' expectations, after increasing 0.7 percent in July. When adjusted for inflation, however, spending was unchanged after rising 0.4 percent in July.

Consumer spending accounts for about 70 percent of U.S. economic activity.

Income slipped 0.1 percent, the first decline since October 2009, with private wages and salaries dropping $12.2 billion after increasing $23.8 billion in July.

Economists had expected income to edge up 0.1 percent.

"What you're basically getting is a scene where consumers are losing momentum, they're losing momentum on income and as a result of that they're slowing down on spending," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities in New York.

Employment growth ground to a halt in August, and the jobless rate remains at a lofty 9.1 percent.

U.S. stock index futures held losses after the data, while bonds slightly extended gains.

Consumer spending growth slowed sharply to a 0.7 percent annual pace in the second quarter after advancing 2.1 percent in the first three months of the year.

Overall economic growth rose at a 1.3 percent rate in the second quarter after expanding only 0.4 percent in the January-March period.

Last month, real spending on goods fell 0.2 percent, while services ticked up 0.1 percent.

Disposable income was unchanged for the first time since September, but when adjusted for inflation fell 0.3 percent, the largest drop since October 2009.

With real disposable income weak, savings fell to an annual rate of $519.3 billion, the smallest since December 2009, from $550.5 billion in July. The savings rate dropped to 4.5 percent, also the lowest since December 2009.

The report showed a moderation in inflation pressures on a monthly basis. The personal consumption expenditures price (PCE) index rose 0.2 percent after increasing 0.4 percent in July.

Compared to August last year, the index was up 2.9 percent, the largest increase since October 2008, after advancing 2.8 percent in July.

The core PCE index -- excluding food and energy - rose 0.1 percent after gaining 0.2 percent the prior month.

The core index, which is closely watched by Federal Reserve officials, increased 1.6 percent in the 12 months through August after rising by the same margin in July.

The Federal Reserve would like to see it close to 2 percent.

(Reporting by Lucia Mutikani; Additional reporting by Emily Flitter in New York; Editing by Andrea Ricci)

* Swiss drugs industry supplier Lonza (LONN.VX) has extended its offer for U.S. group Arch Chemicals (ARJ.N) as it seeks to close a $1.2 billion deal that would make it the world's largest player in the microbial control market.

* At 1230 GMT, the Institute for Supply Management-New York releases September index of regional business activity. In August, the index read 537.6.

* The Institute of Supply Management Chicago releases at 1345 GMT September index of manufacturing activity. Economists predict a reading of 55.5 compared with 56.5 in August.

* McGraw-Hill Companies Inc (MHP.N) is in advanced talks to merge its S&P Indices business with CME Group Inc's (CME.O) Dow Jones Indexes, a source familiar with the situation said on Thursday.

* Thomson Reuters/University of Michigan Surveys of Consumers release final September consumer sentiment index at 1355 GMT. Economists expect a reading of 57.8, a repeat of the preliminary September figure.

* The rock-bottom price of the new Kindle Fire tablet computer is raising questions about Amazon.com Inc's (AMZN.O) ability to keep up with demand and the device's effect on the company's already razor-thin profit margins.

* The Commerce Department releases at 1230 GMT August personal income and consumption data. Economists expect a 0.1 percent rise in income and a 0.2 percent increase in spending. In July, income rose 0.3 percent and spending was up 0.8 percent.

* Economic Cycle Research Institute releases at 1430 GMT its weekly index of economic activity for September 23. In the prior week, the index read 122.2.

* China's manufacturing sector contracted for a third consecutive month in September, suggesting that the world's second-largest economy is not immune to global headwinds, while factory inflation quickened.

* Oil and gas company Apache Corp (APA.N) said its subsidiary will proceed with the development of the Balnaves oil field in offshore Western Australia, with gross peak production of about 30,000 barrels per day.

* The U.S. Justice Department is investigating accounting irregularities at Chinese companies listed on U.S. stock exchanges, said an official with the U.S. Securities and Exchange Commission, suggesting criminal charges may be brought in addition to civil proceedings.

* Japan's Toshiba Corp (6502.T), the world's No.3 chipmaker, said on Friday that it will sell its Malaysia chip assembly unit to Amkor Technology Inc (AMKR.O) as part of its push to consolidate chip operations.

* European shares .FTEU3 fell 1.1 percent on Friday, on track to record their worst quarterly performance since late 2008, as markets grapple with slowing global growth and a long-running euro zone sovereign debt crisis.

* The Dow Jones industrial average .DJI gained 143.08 points, or 1.30 percent, to 11,153.98 on Thursday. The Standard & Poor's 500 Index .SPX gained 9.34 points, or 0.81 percent, to 1,160.40. But the Nasdaq Composite Index .IXIC dropped 10.82 points, or 0.43 percent, to 2,480.76.

(Reporting by Atul Prakash; Editing by Mike Nesbit)

U.S. banks have been looking for ways to increase revenue as regulations introduced since the financial crisis limited the use of overdraft and other fees.

The Dodd-Frank Act's Durbin amendment, due to go into effect on October 1, caps fees banks can charge merchants for processing debit card transactions at 21 cents per transaction from an average of 44 cents, potentially costing banks billions of dollars.

Banks also face broader operational challenges as low interest rates and higher capital requirements hit profitability, and the sluggish economy depresses loan demand.

Other large U.S. banks including Wells Fargo & Co, JPMorgan Chase & Co and SunTrust Banks Inc are testing or planning monthly debit card fees.

"The economics of offering a debit card have changed," Bank of America spokeswoman Anne Pace said on Thursday. Bank of America is the largest U.S. bank by assets.

Senator Richard Durbin, architect of debit card interchange fee reform, bashed the proposed monthly fee. "Bank of America is trying to find new ways to pad their profits by sticking it to its customers," he said in a statement. It's overt, unfair, and I hope their customers have the final say."

A FEE TOO FAR?

Even before introduction of the Durbin amendment's rules on debit fees, Bank of America's fee income was dropping at its deposits and card services units. The bank's deposits unit reported fee income of $1 billion in the second quarter of 2011, down 34 percent from $1.5 billion a year before.

Card services, which includes the bank's credit and debit card operations, reported fee income of $1.9 billion, down 23 percent from $2.5 billion in second quarter 2010.

"This might be a fee too far," said Ed Mierzwinski, director of the consumer program for the U.S. PIRG, a federation of state public interest research groups.

Mierzwinski said such fees could push customers to smaller banks that have not introduced checking and debit-related fees.

Pace said customers expect certain features for their accounts, like overdraft and fraud protection, and the fee would offset some of those costs.

The fee will be waived for the bank's premium or platinum privileges accounts tied to its Merrill Lynch brokerage. It will also not be charged for using the card to access the bank's ATMs, Pace said.

She declined to say how much the bank expects to earn through these fees or how many customers would be affected.

Some banks have pushed back against debit fees.

Citigroup Inc said earlier this month that it would not impose debit card usage fees as part of a broader account restructuring.

The head of banking products for Citi's U.S. consumer bank said customers had told the bank that a debit card fee would be "a huge source of irritation."

(Reporting by Joe Rauch in Charlotte, North Carolina, editing by Gerald E. McCormick)

As the curtains come down on the September quarter, the worst for equities since the final quarter of 2008, investors are nursing their losses across all asset classes with traders eager to take profits to spruce up battered portfolios.

In early Asian trade, stocks in Japan and Australia edged higher while Seoul was broadly unchanged.

MSCI's broadest index of Asia Pacific shares outside Japan was flat after rising for three consecutive days. For the month, it is down around 13 percent, its biggest monthly drop since October 2008.

Even a rare batch of strong economic data from the U.S. failed to cheer sentiment in Asia with traders focusing on China's September PMI data to gauge how the world's export powerhouse is holding up in the face of a slowing global economy.

Key indices in the U.S. closed between 0.8 to 1.3 percent higher with U.S. stock futures in Asia holding on to overnight gains.

In currencies, the euro hovered above a eight-month low versus the dollar after German Chancellor Angela Merkel's coalition party voted on Thursday to enhance the European Financial Stability Facility's powers.

Having worked through to $1.3679 at one stage, the single currency settled back at $1.3585 with investors worried about the many problems ahead for the euro zone.

"There is still a lot of uncertainty... Economic growth in Europe and the U.S. is not that good and that will put pressure on the euro and give a bid to the dollar," said Joseph Capurso, strategist at Commonwealth Bank of Australia.

Worried investors gave the thumbs up to safe-haven bets like gold and Treasuries with the former extending gains slightly to hold $1,622 per ounce.

U.S. crude futures rose more than $1 to as high as $83.17 a barrel in electronic trade on Friday, extending Thursday's gains.

(Additional reporting by Cecile Lefort in Sydney; Editing by Daniel Magnowski)

Bond investors are taking the Fed chairman at his word. If things get worse, some predict the central bank will go beyond targeting interest rates and move straight to outright buying of mortgage securities, municipal debt and even stocks.

"When I think of the Fed I think everything is on the table until it isn't," said Eric Green, chief economist and head of interest rate strategy at TD Securities in New York.

If the economy appears on the verge of deflation, the Fed will "have to go very big and be very creative, and that means munis are on the table, mortgage-backed securities, corporate (bonds), equities," he said. "Everything is possible because the Fed has broken new ground and they will continue to do so if they feel they have to, exit strategy be damned."

The Fed has pushed short-term interest rates to record lows and last week announced it would attempt to push down long-term rates by selling $400 billion of short-dated Treasuries to buy an equal amount of debt with maturities of seven years and up, in a policy dubbed "Operation Twist."

This was designed to help the housing market by lowering long-term borrowing costs. It would also encourage investors to sell Treasuries for higher-yielding assets, which should boost stocks and corporate profits, encourage hiring and investment and provide a jolt to consumer sentiment and prices.

THEORY AND REALITY

That, at least, is the theory.

But fear that the economy may already be in recession has been pushing down stocks, commodities and Treasury yields for several months. U.S. stocks .SPX are more than 10 percent weaker since the start of August.

As a result, market expectations for U.S. inflation have retreated to levels last seen in September 2010, shortly before the Fed began a $600 billion bond buying program, the second installment of a policy known as quantitative easing, or QE.

When asked about this after a speech on Thursday, Bernanke said, "if inflation falls too low or inflation expectations fall too low, that would be something we would have to respond to because we do not want deflation.

The expected rate of inflation over the next 10 years as measured by the gap between Treasury inflation-protected securities (TIPS) and cash government bonds fell as low as 1.70 percent last week. At 1.83 percent on Thursday, it was still below the Fed's unofficial inflation target around 2 percent.

St. Louis Fed President James Bullard chimed in on Thursday, saying he was troubled by the decline in market inflation expectations. But he added that deflation was not yet a risk and that the bar to more Fed easing remained high.

That could change, though.

"If inflation stays very low, that's going to create a clear path for more forms of unconventional easing," said Jim Caron, head of interest rate strategy at Morgan Stanley. "I don't know how much the market is paying attention to that. But I wouldn't count anything out."

TREASURY ALTERNATIVES

With interest rates already at record lows, Caron said a QE3 would likely target assets other than Treasuries.

Mortgage debt is one candidate, and because the market is not as liquid as the government bond market, the Fed might have more success pushing investors into riskier assets.

During QE2, households, one of the largest groups of Treasuries buyers, simply increased investments in other low-risk debt such as agencies, municipal and corporate bonds when the Fed started buying Treasuries.

"The point would be to force (investors) into other risk assets knowing that the Bernanke put is no longer imagined, it's actually in place," Green said. "If the Fed is buying equities, it wants to create more favorable conditions, which means stronger risk assets, tighter credit spreads and lower rates."

MISLEADING SIGNALS?

Even as the risks rise, the Fed will have to tread carefully. Data showed core consumer prices, which remove energy and food costs, rose at a 2 percent rate in the 12 months to September, near the top of the Fed's comfort zone.

That seems to clash with signals from the TIPS market, but some say those signals may be misleading.

Philadelphia Fed President Charles Plosser, one of three central bank officials to vote against Operation Twist, said Thursday that Europe's debt crisis has increased the safe-haven appeal of U.S. government debt, with falling yields narrowing the spread between cash bonds and TIPS.

"One of the driving factors that led the Fed to embark on QE2 was indeed concern about deflation risk," said Michael Pond, Treasury and inflation-linked strategist at Barclay's Capital.

But this time, he added, "if the Fed only looks (at TIPS), they would likely be misguided here in thinking the market is pricing in disinflation."

(Editing by Burton Frierson and Dan Grebler)

"There are some statutory challenges in the law, and some disclosure-related challenges that are unique to credit-rating agencies that can make the cases more challenging," SEC Enforcement Director Robert Khuzami told Reuters in an interview on Tuesday.

"But, we don't let that stop us from investigating possible misconduct," Khuzami added. "We are looking hard at them."

Khuzami declined to comment specifically on S&P. S&P's parent, the McGraw-Hill Cos Inc, disclosed on Monday that it may become the first major credit-rating company to be sued by the SEC for its grading of complex structured products during the financial crisis.

Khuzami's descriptions of the challenges he faces come as financial and legal experts puzzle over why the SEC has taken a step against only S&P when Moody's Investors Service and Fimalac SA's Fitch Ratings also gave the same bonds their highest grades just months before they were marked down to junk.

"I just don't get why S&P is being singled out here," said Janet Tavakoli, a structured finance consultant. "I don't see much difference between the ratings from the three agencies."

Khuzami said there can be many reasons why law enforcers go after one firm and not another.

Without commenting specifically on the S&P matter, he said that "different actors might analyze a product in different ways, or one may know things that another does not."

It can also just be a simple issue of timing, he said, noting that cases against "similarly-situated parties" do not always move at the same pace.

"It is the painstaking job to build cases involving complex transactions or products," he said. "You look at individual emails, individual pieces of testimony, and piece together a circumstantial case, arguing that the most reasonable inference from the evidence is that the defendant knew X and said Y, and did it with wrongful intent."

In fact, some legal experts believe that the SEC may be singling out S&P over other raters specifically because of an email trail that it left behind in the crisis, even though other ratings firms may have behaved similarly.

Some emails, which were unearthed by U.S. Senate investigators, reveal that analysts at S&P had doubts about the agency's ratings for bonds issued by a collateralized debt obligation known as Delphinus CDO 2007-1. That CDO is now at the center of the SEC probe of S&P.

Some of the contents of the CDO, a portfolio of mortgage securities that were bundled into bonds, were swapped at the eleventh hour, meaning that analysts weren't ultimately rating the bonds they thought they were.

"You can take a look and see if it is different from the closing date portfolio you received from the banker," S&P's Lois Cheng wrote to colleague Lauren Sprinkle in the first of a series of exchanges made public at an April 23, 2010, hearing by an investigative panel headed by U.S. Senator Carl Levin.

In the eighth email in the set, Sprinkle copied in more senior members of the team and said it appeared that about 25 assets in the portfolio "were dummies" which had been replaced at the last minute with assets that would have "made the portfolio worse... and they would have not been able to close."

The emails were dated August 20, 2007 - just 18 days after S&P had published its ratings on the deal. After that, S&P did not downgrade any of its Delphinus ratings for four months, according to an exhibit at Levin's hearing.

A McGraw-Hill spokeswoman declined to comment.

Levin's committee introduced no Moody's emails mentioning the Delphinus CDO, except for one from an investment banker to Moody's requesting that the agency assign a more experienced analyst to his next deal. Fitch Ratings was not examined by the committee.

Levin's panel ultimately issued a scathing report in April this year that condemned S&P and Moody's for helping trigger the financial crisis. The report was referred for review to the SEC and Department of Justice.

LEGAL SHIELDS

For the past several years, the SEC has faced pressure to find a way to bring charges against the credit-rating agencies for their role in the crisis.

The task has proved exceedingly difficult.

For example, Khuzami said, certain kinds of conduct by the raters could only be addressed starting in September 2007. That was the effective date of a 2006 law that formally granted the SEC full-scale regulatory authority over raters.

In addition, the 2006 law expressly prohibits the SEC from regulating the substance of ratings. Some have asserted that this provision helped shield credit-rating agencies from enforcement actions involving how ratings are determined.

It was not until last year when the Dodd-Frank law was enacted that Congress strengthened the SEC's authority by clarifying that raters cannot assert that excuse as a defense in civil fraud actions, Khuzami said.

Even with the Dodd-Frank changes, however, credit raters have long maintained that that their ratings constitute opinions which are protected as free speech under the First Amendment to the U.S. Constitution. That defense has historically shielded the agencies from lawsuits by investors who challenged their ratings, saying they lost money by relying on them.

Although Moody's and Fitch have yet to indicate they may face any charges in connection with the financial crisis, experts say it is possible SEC enforcers could still go after them.

"It may be a case where they are staging their approach and they intend to go after the other two as well," said Daniel Drosman, a law partner at Robbins Geller Rudman & Dowd, which is suing S&P and Moody's to recover money investors lost buying top-rated bonds.

For his part, Khuzami said the SEC will continue to vigorously pursue any wrongdoing among credit rating agencies. He also said the SEC is moving forward on cases related to other financial firms who played a role in the recent credit crisis.

"It is clear that credit crisis cases remain a priority," he said. "There are others that will be coming."

(Reporting by Sarah N. Lynch and Andrea Shalal-Esa in Washington and David Henry and Jonathan Stempel in New York; Editing by Tim Dobbyn)

Darkening economic prospects and fears the euro zone debt crisis will unravel into financial catastrophe sent global stocks plummeting around 14 percent since the last quarterly poll of equity strategists in June.

Only the Dow Jones Industrial Average and South Korea's KOSPI are expected to finish the year with gains compared with 2010's closing levels, among the 19 major stock indexes covered by Reuters polls over the last week.

Still, despite the dire performance of stock markets so far this year, most respondents were stuck in their usual habit of predicting big gains, no matter what real risks face the world economy.

According to the consensus, only one index -- Taiwan's TAIEX -- is expected to finish 2011 at a significantly lower level than its close on Thursday.

The last three months have seen an enormous spike in stock market volatility, to the point that several of the survey's usual sample of around 350 analysts refused to give forecasts this time.

While analysts are waiting for clear signs either way of progress or failure in fixing the euro zone debt crisis, stalling economic growth in major Western economies will restrain share prices in coming months.

"The global slowdown will still drive economic growth and earnings lower," said Philippe Gijsels, head of research at BNP Paribas Fortis in Brussels.

"Obstacles to a new bull market are still formidable... there is a lot of political uncertainty. This will take time to clear."

World equities have already lost around $3.7 trillion dollars in market capitalization since the start of this year -- more than the nominal gross domestic product of Germany.

Even by midway through next year, analysts expect only a handful of stock indexes -- seven out of 18 -- to top their closing 2010 levels. By comparison, world stocks rose around 30 percent in 2009 and around 10 percent last year.

TOP PERFORMERS

There is at least some support for the notion that equity markets should start rising again, other than the perennial bullishness of equity market analysts.

For one thing, global shares look undervalued compared with historical averages. The MSCI World Index is currently trading a little over 10 times 12-month forward earnings, the lowest since December 2008, and considerably below the average of 14.3 over the past decade.

Investors too are entering the fourth quarter with a slightly raised exposure to shares and holding high reserves of cash that could quickly be used to fuel a stock rally, a Reuters poll showed on Thursday.

Russia's RTS index, long the darling of the poll's equity bulls, again topped the chart among indexes expected to yield the biggest returns with a 32 percent gain expected between now and mid-2012.

The Shanghai Stock Exchange should rise smartly next year after a torrid two years of heavy losses, the poll showed, while Brazil's Bovespa is expected to rally about as strongly as Russia.

"Even with the sovereign debt crisis in Europe worsening and discouraging U.S. data, we see the Brazilian economy as plenty resilient," said Paulo Esteves of Gradual Investimentos.

The survey also suggested strong gains lie ahead on some rich-world bourses, with bourses in the United States, Australia, France, Germany and Japan expected to yield double-digit returns from now until mid-2012.

"The recent sell-off in stock markets around the world, especially in Europe, has been the result of a lack of confidence, not growth," Markus Huber, head of German sales trading at ETX Capital, said.

Even so, the near-term outlook is very uncertain. The Dow Jones Industrial Average is the only developed-world index that analysts expect to finish the year in the black, with a modest gain of around 2 percent over the course of 2011.

LAGGARDS

Taiwan's TAIEX is expected to be by far the worst performing market out of the 19 indexes in the Reuters poll.

Having already lost around 20 percent of its value so far this year, analysts see the TAIEX falling a further 5 percent from now until the end of the year and almost 9 percent by mid-2012, as the tech-heavy index suffers badly from slowing exports to struggling Western economies.

The other most notable laggard was Britain's FTSE 100, one of the world's largest by capitalization, which respondents expect will register a full-year loss of around 11 percent.

The poll showed the FTSE gaining marginally between now and the end of the year, and only about 6 percent between now and mid-2012 -- considerably less than forecast for its U.S. and European peers.

"I would say that there is potential for upside on the FTSE, but I think the likelihood of any economic growth has been stunted severely by what's happening in the euro zone," said Martin Dobson, head of trading at Westhouse Securities.

(Additional reporting from reporters in London, Paris, New York, Tokyo, Shanghai, Sydney, Hong Kong, Johannesburg, Frankfurt, Milan, Sao Paulo, Toronto, Seoul, Moscow and Mumbai. Polling by Ruby Cherian and Shaloo Shrivastava in Bangalore, Analysis by Sumanta Dey and Yati Himatsingka. Editing by Ross Finley and Jon Loades-Carter)

Gross domestic product grew at annual rate of 1.3 percent, the Commerce Department said in its third and final estimate for the quarter, up from the previously estimated 1.0 percent.

The revision was a touch above economists' expectations for a 1.2 percent pace and took GDP growth back to the government's original estimate of 1.3 percent. The economy expanded at a 0.4 percent rate in the first three months of the year.

While the expenditure side of the economy showed severe weakness in the first half, economic activity as measured by income fared a little better. Gross domestic income rose at a 1.3 percent rate in the second quarter after increasing 2.4 percent in the first quarter.

The report also showed after-tax corporate profits rising at a 4.3 percent rate in the second quarter, the largest increase in a year, instead of 4.1 percent. Profit ticked up 0.1 percent in the first quarter.

Political haggling in Washington over budget policy and a deepening debt crisis in Europe have eroded confidence, leaving the U.S. economy on the brink of a new recession.

There is cautious optimism the economy will skirt another downturn as factory output continues to expand, although at a slower pace than earlier in the recovery, and businesses maintain their appetite for spending on capital goods.

Details of the GDP revisions also were consistent with an economy that is on a slow growth track rather than sliding back into recession.

Consumer spending growth was revised up to a 0.7 percent rate from 0.4 percent. The increase in spending, which accounts for more than two-thirds of U.S. economic activity, was still the smallest since the fourth quarter of 2009.

Export growth was stronger than previously estimated, rising at a 3.6 percent rate instead of 3.1 percent. Imports increased at a 1.4 percent rate rather than 1.9 percent.

That left a smaller trade deficit, and trade contributed 0.24 percentage point to GDP growth.

Businesses accumulated less stock than previously estimated in the quarter, which should support growth in the July-September quarter. Business inventories increased $39.1 billion instead of $40.6 billion, cutting 0.28 percentage point from GDP growth during the quarter.

Excluding inventories, the economy grew at a 1.6 percent pace instead of 1.2 percent.

Business spending was revised to a 10.3 percent rate from 9.9 percent rate as investment in nonresidential structures offset a slight slowdown in outlays in equipment and software. Spending on nonresidential structures was the fastest since the third quarter of 2007.

The GDP report also showed inflation pressures remaining elevated during the quarter, with the personal consumption expenditures price index rising at a revised 3.3 percent rate. That compared to 3.9 percent in the first quarter.

The core PCE index closely watched by the Federal Reserve advanced at a 2.3 percent rate, the largest increase since the second quarter of 2008. It was revised up from 2.2 percent. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

* The final (third) Q2 estimate for gross domestic product (GDP) will be released at 1230 GMT. Economists forecast a 1.2 percent annualized pace of growth, compared with a 1.0 percent rate in the preliminary (second) estimate.

* First-time claims for jobless benefits for the week ended September 24 are due at 1230 GMT. Economists predict a total of 420,000 new filings, compared with 423,000 in the prior week.

* At 1400 GMT, National Association of Realtors issues Pending Home Sales for August. Economists expect a 1.8 percent drop, compared with a 1.3 percent drop in the previous month.

* The Labor Department issues at 1230 GMT preliminary annual benchmark revision to U.S. nonfarm payrolls for the five years ended March 2011.

* At 1230 GMT, the Commerce Department issues revised Q2 Corporate Profits. In the preliminary Q2 report, profits rose 4.1 percent.

* Hewlett-Packard Co (HPQ.N) has hired Goldman Sachs Group Inc (GS.N) to help the company defend itself against possible activist investors who could push for change, the Wall Street Journal reported.

* Asian technology companies came under pressure on Thursday to slash prices of their tablet computers after Amazon.com (AMZN.O) launched its Kindle Fire at a mass market-friendly $199.

* Workers represented by the United Auto Workers union approved on Wednesday a four-year labor contract with General Motors (GM.N), the first such deal for the top U.S. automaker since its 2009 bankruptcy.

* The FTSEurofirst 300 .FTEU3 index of top European shares was up 0.2 percent in choppy trade, after opening lower, ahead of a German vote to ratify new powers on the euro zone rescue fund.

* International auditors return to Athens on Thursday to deliver a verdict on whether Greece's tougher austerity measures qualify for aid to avert a default that would plunge the country into bankruptcy.

* Japan's Nikkei average .N225 reversed losses to retake the 8,700 level for the first time in over a week, on a rush of buying in the final half-hour of trade as some commodities and U.S. stock futures recovered.

* Commodity-related stocks drove Wall Street lower on Wednesday as stiff declines in energy and metals prices underscored investor concerns about global economic weakness and Europe's debt crisis.

* The Dow Jones industrial average .DJI dropped 179.79 points, or 1.61 percent, to 11,010.90. The Standard & Poor's 500 Index .SPX dropped 24.32 points, or 2.07 percent, to 1,151.06. The Nasdaq Composite Index .IXIC dropped 55.25 points, or 2.17 percent, to 2,491.58.

Support from the center-left opposition will ensure Germany passes the bill on new powers for the European Financial Stability Facility (EFSF), which some countries like Finland have ratified but others, including Slovakia, are disputing.

But if dissent in her coalition forces Merkel to rely on opposition votes to pass the new powers for the 440 billion euro ($600 billion) rescue fund, it would be politically damaging for the conservative chancellor.

Merkel's Christian Democrats (CDU) and their allies were pressuring the handful of dissidents to get in line before the vote at 11 a.m. (4 a.m. EDT). It should be clear about half an hour after that the EFSF has been passed, but word on how many government lawmakers rebelled could take another hour.

"We are working to convince people," CDU second-in-command Hermann Groehe told Reuters. He said "it will be close" but the government would not put itself in the humiliating position of depending on the Social Democrats (SPD) and Greens.

Merkel tried to assure her coalition that German taxpayers' money would not be wasted by voting a new bailout for Athens -- but she could not rule out that the money might be written off if, as financial markets increasingly fear, Greece defaults.

Merkel often is accused in Europe and at home of dithering on the euro crisis and if she does not win the EFSF vote on her own terms, it would damage her hopes of taking the conservative bloc she has led for 11 years into the next elections in 2013.

International auditors return to Athens on Thursday to deliver their verdict on whether Greece's tougher austerity measures quality for further aid.

The chancellor has told Greece she wants to wait for the results of an audit by the "troika" of the European Union, European Central Bank and IMF to see whether its findings "tell us we will have to renegotiate or not."

Such talk by Merkel and other German officials may refer to raising the level of private creditor involvement in the Greek bailout, by getting them to accept bigger potential losses -- or "haircuts" -- on their Greek sovereign bond investments.

Senior coalition figures like Economy Minister Philipp Roesler, head of Merkel's Free Democrat (FDP) partners, have already said an "orderly" Greek default should not be taboo.

With a core of naysayers in the CDU, its Bavarian allies the CSU and the FDP, the vote will be scrutinized to see how close she gets to a convincing 311 'yes' votes from her own bloc in the 620-seat Bundestag.

If there are more than 19 rebels, Merkel will have passed the EFSF thanks to the center-left opposition and may have to rethink how to address growing discontent among her supporters and the population at large about the euro zone debt crisis.

Sentiment remains passionately divided in Germany. Even though labor unions called on MPs to back the measure, the conservatives' "Mittelstands und Wirtschaftsvereinigung" (MIT) (small business alliance) urged MPs to vote 'no' on Thursday.

In a statement, the MIT said: "In respect for the free decision of every MP" it expresses its solidarity for the rebels in Merkel's coalition. "It is personally a difficult decision but politically the correct one," the statement said.

The SPD and Greens have won a run of state elections this year and, with two more votes in coming months on the second Greek bailout and a permanent mechanism to succeed the EFSF, can portray themselves as defenders of the single currency.

($1=0.735 euros)

(Additional reporting by Andreas Rinke; Writing by Stephen Brown; Editing by Michael Roddy)

Copper fell below $7,000 a tonne, gold slipped below $1,600 an ounce to stand more than $300 below its record high earlier this month, and commodities-related stocks were dumped.

The past week has seen a broad selloff of commodities, equities and emerging markets bonds and a rally in the dollar that has been reminiscent of the rout surrounding the collapse of Lehman Brothers investment bank three years ago.

"Due to the high degree of uncertainty about the European situation and its effects on economic growth, there were anxious market moves in the U.S., and we will see similar moves today," said Yutaka Miura, senior technical analyst at Mizuho Securities.

Tokyo's Nikkei share average fell 0.9 percent, while MSCI's broadest index of Asia Pacific shares outside Japan dropped 1 percent, with its materials sub-index shedding more than 2 percent.

S&P 500 index futures were mildly negative, after Wall Street's broad benchmark dropped 2.1 percent on Wednesday.

The latest source of nervousness was a vote in Germany's parliament at 0900 GMT on Thursday to approve new powers for the euro zone's 440 billion euro ($598 billion) rescue fund.

Whilst opposition votes will ensure the bill passes, a big rebellion within Chancellor Angela Merkel's own center-right coalition could weaken her politically and cloud future policy making at a time when financial markets and other nations are urging euro zone leaders to act boldly and decisively.

The euro was little changed around $1.3540, while the dollar rose 0.3 percent against a basket of currencies.

"You would suspect weakness until Germany votes, given that it is the big guy that has to fund it," said Gavin Stacey, head of Australia and New Zealand research at Barclays Capital.

"The euro is most likely to continue its trend deterioration until it gets really bad, forcing a resolution to come."

As the commodities rout continued, gold fell 0.7 percent to around $1,596 an ounce and copper, which is highly sensitive to expectations for global growth, fell 4.9 percent to $6,898 a tonne.

U.S. crude oil futures fell 1.3 percent to $80.17 a barrel and Brent crude lost 0.8 percent to $103. ($1 = 0.735 Euros)

(Editing by Yoko Nishikawa)

In his first public remarks since the Fed launched a fresh measure aimed at keeping down long-term borrowing costs, Bernanke indicated a willingness to push deeper into the realm of unconventional policy if economic growth remains anemic.

"It is something that we're going to be watching very carefully," Bernanke said in response to questions from the audience at a forum sponsored by the Cleveland Fed.

"If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation," Bernanke said.

The comment was made in response to a question about a recent decline in market-based inflation expectations, which policymakers see as a good gauge of future inflation trends.

The gap between yields on 10-year Treasury notes and their inflation-protected counterparts fell to 1.70 percent last week, the lowest since September 2010. It has edged up slightly since then and last stood at 1.86 percent.

In an effort to stanch the deepest recession in generations and help the recovery, the Fed not only slashed benchmark interest rates to effectively zero, but also more than tripled its balance sheet to around $2.9 trillion.

Despite these measures, growth has remained quite soft, averaging less than 1 percent on an annual basis in the first half of the year. Bernanke signaled he remains concerned about risks to the economy, which the Fed described as "significant" in its September policy statement.

"We have a lot of problems both in terms of recovery and in terms of longer-term growth," he said.

A TWIST ON HOUSING

Last week, the Fed said it will sell $400 billion in short-term Treasury securities and invest them into longer-dated ones to try to put downward pressure on borrowing costs over a longer period.

Investors have dubbed the program Operation Twist after a similar measure undertaken by the Fed in the 1960s. The central bank will also renew its help to the housing finance sector by reinvesting maturing mortgage bonds in its portfolio back into that market.

Bernanke called for the U.S. government to beef up its assistance to the ailing housing sector, the epicenter of the 2008 financial meltdown.

"Some strong housing policies to help the housing market recovery would clearly be very useful and would allow the monetary policy actions of the Fed ... to have more effect and to help the economy recovery more strongly," Bernanke said.

Asked about the fate of fallen mortgage giants Fannie Mae and Freddie Mac, Bernanke reiterated his view that the mortgage market remains too weak to allow the government to try to privatize the government-sponsored entities.

The Fed's latest monetary easing did not have unanimous support within the Federal Open Market Committee, which sets monetary policy.

Three regional central bank presidents dissented against the move. Kansas City Fed President Thomas Hoenig, who does not have a vote on the committee this year but has been a vocal opponent of the Fed's unconventional policies, took a parting shot at the central bank's actions on Wednesday.

"When you encourage consumption by inhibiting your interest rates from rising to their equilibrium level, you will in fact buy problems, and we have, in fact, bought problems," said Hoenig, who is due to retire on October 1, in his last speech in office.

(Reporting by Kim Palmer, Pedro da Costa and David Lawder in Washington; Editing by Padraic Cassidy)

Ratification of the GM deal, which covers 48,500 hourly workers, clears the way for the union to complete talks with the automaker's crosstown rival, Ford Motor Co.

The deal adds or saves more than 6,000 U.S. factory jobs, raises wages for entry-level employees and pays each worker at least $11,500 in bonuses over the four years, the union said. The union also estimated the deal would create another 57,600 jobs at suppliers and other auto-related businesses.

"When GM was struggling, UAW members shared deeply in the sacrifice," UAW President Bob King said in a statement. "The UAW has shown that we are totally committed to helping the U.S. auto companies succeed. GM is prosperous today because of its workers."

The UAW and Ford could reach a deal on a proposed contract as soon as this week. Workers at Ford have pressed for a richer deal because of the No. 2 U.S. automaker's faster turnaround and ability to have avoided the bailouts needed at GM and Chrysler.

The UAW said 65 percent of production workers voted in favor of the deal, while 63 percent of skilled trades workers also backed it.

GM executives have set a conference call with Wall Street analysts for Wednesday afternoon to explain the financial implications of the contract for the first time.

The new UAW contract leaves GM's break-even point unchanged and allows the automaker to tackle the risk of its underfunded pension plan, one of the few issues left unaddressed by the restructuring directed by the Obama administration.

"When we went into this labor negotiation, we were very focused on that," GM Chief Executive Officer Dan Akerson told a conference in New York on Tuesday. "We could not do anything to negatively bias our break-even point."

King joined the Ford talks this week, and the focus shifted to the tough issues of compensation and additional jobs.

The union began an intense focus on Ford last week, a day after failing to finalize a deal with Chrysler Group LLC. It has extended its contract with the Fiat SpA-controlled automaker until October 19.

CHRYSLER TALKS

While UAW officials in the Ford talks said on Monday they expected "to have good news for our membership by the end of the week," discussions at Chrysler, the smallest and most fragile of the Detroit automakers, are progressing much more slowly. Those talks continued on Wednesday, a Chrysler spokeswoman said.

Chrysler, which nearly collapsed two years ago, is still executing its own financial turnaround and trying to change public perceptions of its vehicle lineup. The company emerged from bankruptcy protection with a debt load that included $7.6 billion in government loans.

In May, Chrysler repaid those loans through a refinancing that helped cut its interest payments, but effectively swapped government loans with private ones.

As a result, Chrysler is eager to hold down its fixed costs beyond the 2015 expiration of the deal now being negotiated.

Last week, Chrysler CEO Sergio Marchionne told reporters in Italy that workers should not expect the package proposed at GM, calling it a "completely different" entity from his company.

(Reporting by Ben Klayman and Bernie Woodall in Detroit; Editing by Lisa Von Ahn, Phil Berlowitz)

International auditors headed to Greece to scrutinize new austerity measures they must endorse for Athens to get their next tranche of aid.

Also, efforts to solidify a euro zone rescue fund and alleviate the region's sovereign debt crisis lifted stocks on Tuesday for a third consecutive session and came after four straight days of losses for the benchmark S&P 500.

Market volatility could remain as traders react to European headlines and attempt to gauge the commitment of governments and institutions as they work to prevent a Greek default.

S&P 500 futures rose 7.7 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures gained 95 points, and Nasdaq 100 futures added 15.25 points.

Investors will also eye data on August durable goods orders from the Commerce Department, due at 8:30 a.m. EDT. Economists in a Thomson Reuters survey expected orders to be unchanged in August versus a 4.1 percent rise in July.

McCormick & Co Inc and Family Dollar Stores Inc both posted quarterly earnings early Wednesday, with Darden Restaurants Inc also scheduled to report.

Asian shares mostly lost ground and oil and metals fell, with copper down more than 4 percent, as a rebound in riskier assets ran out of steam.

(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)