Business Blog Posts

European and U.S. stocks were primed for gains, with futures on the Dow Jones Eurostoxxe 50 flat in early trade and S&P e-mini futures rising 0.2 percent.

Short-term speculators took aim at the dollar after Obama delivered a prime-time address to Americans, warning that a default on U.S. bond obligations would be a "reckless and irresponsible outcome". But he gave no indication a compromise was imminent.

So far investors have shown few signs of panic even as Republicans and Democrats have failed to bridge their differences with just a week to go to the August 2 deadline that the U.S. Treasury has set for when it may fail to pay out on Treasuries.

The market reaction to a sudden breakdown in talks over the weekend was limited given the threat of a technical default and a potential cut in the United States' top-notch AAA credit rating.

But some market players were taking no chances, shifting funds into safe-haven gold and the Swiss franc, driving both to record highs in U.S. dollar terms. Gold was steady in early trade at $1,614.60 an ounce.

Portfolio managers and traders have said they believe an agreement will be reached in Washington at the last minute, and that even a technical default or rating downgrade may only cause short-term market volatility rather than a full-fledged crisis.

"There's obviously political points to be made, who is going to blink first, but in the final analysis we're confident that there will be a compromise and that they will raise the debt ceiling," said Malcom Wood, head of Asia Pacific strategy at Morgan Stanley Smith Barney in Hong Kong.

Asian bonds, currencies and even shares have been one of the beneficiaries from all the debt trouble in Europe and the political gridlock in the United States, with investors viewing the region's stronger growth and fundamentals as a relative safe-haven.

The MSCI index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1 percent and has squeezed out a 1.6 percent gain on the month and year, withstanding the occasional bouts of volatility from the U.S. deficit debate and euro zone debt crisis.

Southeast Asian markets have fared the best. Indonesia's Jakarta Composite .JKSE extended its winning streak, vaulting to an all-time high and taking this year's rise to 11.3 percent. Currencies have also been on a tear, with the Singapore dollar hitting a record high.

Gains were fairly broad but on very light trade as summer holidays took a toll on trading activity. By sector, energy, financial, resource and technology shares were the main drivers.

The improved appetite for risk spread to commodities. U.S. crude oil prices were up 40 cents a barrel at $99.60.

JAPAN RECOVERS

Japanese shares also rose as its big automakers and manufacturers have recovered more quickly than expected from the March 11 earthquake and tsunami.

Japan's Nikkei average .N225 climbed 0.6 percent, thanks in part to solid earnings from blue-chip companies such as Canon (7751.T) despite the yen's persistent strength.

In currencies, the dollar erased gains scored against the euro the previous day on widening Spanish and Italian bond yield spreads and hit a six-week low against a basket of currencies.

The euro rose 0.7 percent to $1.4485, bursting through chart resistance. The dollar hit an all-time low of 0.8005 Swiss francs. The dollar hovered near 78.00 yen after briefly falling below that level.

High-yielding currencies were among the biggest winners. The New Zealand dollar jumped 0.7 percent and hit a high of $0.8708 -- the highest since being allowed to trade freely in the early 1980s.

Option markets -- where investors typically hedge themselves against potential risks -- were also showing no signs of panic across the dollar, S&P futures and Treasury futures.

While the closely watched VIX index .VIX of S&P implied volatility ticked up on Monday to 19.35, it remains well off peaks earlier this year.

Implied volatility on Treasury futures was also higher this month but historically subdued. For a chart see: r.reuters.com/paz72s

Analysts said that macro hedge funds and others were reluctant to trade, having struggled with choppy markets all years and cut back on positions heading into the European summit on Greece last week.

"It has been a tough year for macro funds, and many do not want to trade Washington headlines," said Alan Ruskin, macro strategist at Deustche Bank in New York.

U.S. Treasuries slipped for a second day, with long-term Treasuries under the most pressure from the worries about a rating downgrade.

Ten-year notes were down 6/32 in price to yield 3.017 percent, up one basis point. Thirty-year bonds fell 5/32 to yield 4.328 percent, also up a basis point.

(Editing by Kim Coghill)

President Barack Obama, in a televised address aimed at rallying public support for a package proposed by Democrats, warned that failure to increase the U.S. borrowing limit would severely hurt the nation.

"For the first time in history, our country's triple-A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet," he said in remarks in the East Room on Monday night.

Republican and Democratic lawmakers, despite weeks of intense talks, have been unable to agree on how to lift the $14.3 trillion debt limit by an August 2 deadline, when the country runs out of cash to pays its bills.

Markets have been rattled by the descent of negotiations into an acrimonious stalemate, with both sides offering competing plans that are unlikely to win bipartisan support.

Gold has been pushed to an all-time high and the dollar has softened as investors weigh the harm a default could do to U.S. and world growth if it pushed up borrowing costs as expected.

"Every day that goes by without a deal will see investors become a bit more defensive," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Obama warned a default would inflict a tax hike on all Americans by pushing up borrowing costs on things like credit card loans and mortgages, but sought to assure markets a deal could still be reached.

"I have told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress - a compromise I can sign. And I am confident we can reach this compromise," he said.

Rating agency S&P warns it could downgrade the United States unless lawmakers agree on steps to reduce the deficit by $4 trillion over 10 years.

A credit rating cut would be felt around the world. Investors will likely demand a higher return for holding U.S. government debt, a benchmark for almost all other financial markets, forcing up interest rates and sapping asset prices.

Republicans and Democrats both insist they will not allow the United States to default.

This commitment has not yielded a plan to lift the debt ceiling, which Republicans say must be accompanied by even larger reductions in spending.

Democrats want to shield Medicare and Medicaid and say any cuts in these cherished healthcare programs for older or poor Americans must be balanced by changes in the U.S. tax code that generate more revenue in the future.

But Republican lawmakers in the House of Representatives are adamant they will not vote for a deal that includes tax increases, reflecting the determination of Tea Party conservatives elected last year to shrink government. They control the House while Democrats hold sway in the Senate.

House Speaker John Boehner, the top Republican in Congress, must placate these demands and on Monday advanced a two-stage deficit reduction plan that would start with an initial $1.2 trillion in savings over 10 years.

It is sure to be rejected by Obama because it would raise the debt limit for only a few months, meaning the issue would have to be revisited in early 2012, making the politics even harder for lawmakers with an eye on the November election.

"A six-month extension of the debt ceiling might not be enough to avoid a credit downgrade," he warned.

Democrats formally presented their competing plan for $2.7 trillion in deficit reduction over the next decade with a debt limit increase to carry through the November 2012 election, when Obama and many lawmakers are up for re-election.

Boehner dismissed the Democratic plan as "full of gimmicks." Senate Democratic Leader Harry Reid insisted "extremists" within the Republican Party must not be allowed to dictate the outcome of the debt debate.

The Obama administration has not ruled out invoking the 14th Amendment of the U.S. Constitution to sell debt, even if Congress fails to raise the borrowing ceiling.

(Editing by John Crawley)

The announcement of 2,000 job cuts on Monday came a month after the Canadian company revealed that it would reduce headcount for the first time in a decade.

One analyst said the job cuts were slightly deeper than expected but were key to RIM's recovery from a slump triggered by product delays and intense competition from Apple's iPad and iPhone as well as devices powered by Google's Android software.

RIM's U.S.-listed stock, already near multi-year lows, was down as much as 2 percent before the market opened. It was trading down 1.8 percent at $27.40 on the Nasdaq just before the open.

"This is not totally unexpected. I think the size of (the cuts) is a little bit bigger than what they were intimating before," said Jefferies & Co analyst Peter Misek. "I think this is obviously realigning the cost structure to a new growth, or sales, reality."

RIM said one-time charges from the job cuts were not included in its outlook for the second quarter or for the full year, and it would explain the financial impact of the cuts when it reports second quarter results on September 15.

RIM said the job cuts are "a prudent and necessary step" for its long-term success.

"Cost-cutting is unlikely to change the competitive position for the company" or accelerate RIM's revenue growth, BGC Partners analyst Colin Gillis said.

Job cuts would help if the company were moving downstream toward entry and mid-market phones, but in such a case even 11 percent job cuts wouldn't be enough, he said.

If RIM was still chasing the high-end market for smartphones, it shouldn't be focused on trimming expenses, but on executing more effectively, Gillis said.

The BlackBerry maker also announced a string of changes to executive responsibilities and, in the latest departure, said Chief Operating Officer Don Morrison would retire.

Morrison, currently on temporary medical leave, was departing after more than 10 years at the company.

A stream of senior RIM executives have defected lately, including two who left for rival Samsung Electronics in a month.

RIM said when it reported fiscal first-quarter results last month that it would cut jobs to stay competitive, but it gave no details at the time. The job cuts bring RIM's headcount to about 17,000 people.

Misek, who has an 'underperform' rating on RIM's stock, said one to watch was when RIM would adopt its new QNX operating system on its smartphones.

"I think the key here, more than ever, is when do their products launch and what kind of reception will they have and most importantly, when will QNX come in. We don't think those answers are here yet," he said.

(Reporting by S. John Tilak, Euan Rocha in Toronto, Aftab Ahmed in Bangalore; editing by Janet Guttsman and Frank McGurty)

At 0813 GMT, futures for the S&P 500 were down 0.81 percent, Dow Jones futures down 0.79 percent and Nasdaq 100 futures down 0.59 percent.

Tokyo's Nikkei average .N225 fell 0.8 percent, while European shares lost ground in early trade, halting a one-week rally, driven lower by banking stocks such as Barclays (BARC.L), BNP Paribas (BNPP.PA) and UniCredit (CRDI.MI), down 2.4-2.7 percent. .EU

A divided U.S. Congress pursued rival budget plans on Sunday that appeared unlikely to win broad support, pushing the country closer to a debt default.

Analysts still expect a last-minute deal to raise the U.S. debt ceiling and avoid a default next week. But the impasse pushes the United States a step closer to losing its coveted triple-A credit rating as it seems unlikely that Democrats and Republicans will agree before the next election in November 2012 on how to find $4 trillion through government spending cuts and revenue increases.

White House Chief of Staff Bill Daley warned over the weekend there would be a "few stressful days" ahead for financial markets, with the deadline to lift the $14.3 trillion U.S. borrowing limit only nine days away.

DEBT DEAL

However, Treasury Secretary Timothy Geithner said on Sunday it was unthinkable for the United States not to meet its debt obligations and was confident a debt deal would be reached.

Concerns that a deal would not be forthcoming have weighed on equity markets, though some positive earnings news helped offset the issue. Major indexes notched solid gains last week, with the S&P and Nasdaq rising more than 2 percent.

"The longer we go without a deal, the more you're going to see concerns on the negative side," said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm based in Toledo, Ohio.

"I don't think the initial reaction was overdone at all. This has to get behind us before the market can trend higher."

Also rattling investors on Monday, credit ratings agency Moody's cut Greece's sovereign debt by three notches on Monday to 'Ca', just one notch above default. The agency said the new bailout package set a negative precedent for creditors of other debt-burdened countries. The downgrade means Greece now has the lowest rating of any country in the world covered by Moody's.

Investors awaited earnings from a raft of companies on Monday, including Texas Instruments (TXN.N), Radioshack Corp (RSH.N), Kimberly-Clark (KMB.N), Broadcom (BRCM.O) and Anadarko Petroleum (APC.N).

On Friday, promising chipmaker earnings and optimism that a solution was on the horizon for the U.S. debt stalemate triggered a move into growth-oriented shares such as techs.

The Dow Jones industrial average .DJI dipped 43.25 points, or 0.34 percent, to 12,681.16. The Standard & Poor's 500 Index .SPX added 1.22 points, or 0.09 percent, to 1,345.02. The Nasdaq Composite Index .IXIC gained 24.40 points, or 0.86 percent, to 2,858.83.

(Editing by Jane Merriman)