Business Blog Posts

* 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.