Business Blog Posts

The U.S. dollar slipped and government bond prices pared some losses after the Fed said high unemployment still justified its $600 billion bond-buying program, despite recent signs of a strengthening recovery.

The broad S&P 500 Index closed at a 29-month high, led by gains in commodity and tech shares, as investors largely ignored the Fed's latest assessment of the U.S. economy.

The Fed's outlook after a two-day meeting of policymakers came on the heels of a government report that showed new-home sales rose to an eight-month high in December, just the latest data to signal a pick-up in economic activity.

"The market is not willing to buy into the Fed's vision," said Jim Vogel, interest rate strategist at FTN Financial in Memphis.

Strong corporate earnings continue to support further gains in equity markets, while commodities rebounded from sharp losses the previous session on optimism about demand and supply snags.

MSCI's all-country world stock index .MIWD00000PUS rose 0.6 percent.

The Reuters Jefferies CRB index .CRB, one of the broadest measures of commodity prices, settled up 1.6 percent for its strongest gain since December 31.

"By expressing disappointment about the employment situation, the Federal Reserve is signaling that it will continue to inject liquidity into the economy," said Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co. in Newport Beach, California.

"Only part of this liquidity will be absorbed by the U.S. economy. The rest will leak elsewhere, resulting in large capital flows to emerging economies and pressure on commodity prices," he said.

On Wall Street, the Dow Jones industrial average .DJI closed up 8.25 points, or 0.07 percent, at 11,985.44. The Standard & Poor's 500 Index .SPX gained 5.45 points, or 0.42 percent, at 1,296.63. The Nasdaq Composite Index .IXIC rose 20.25 points, or 0.74 percent, at 2,739.50.

The Dow rose above the 12,000 level intraday for the first time since June 2008 before it pared those gains to close just above break-even.

Stocks in Tokyo were poised to open flat, with the March futures contract that trades in Chicago for the Nikkei 225 at 10,455, or break-even.

Obama's annual State of the Union speech late Tuesday helped bolster sentiment as the president signaled corporate tax cuts, a retooling of the tax code and an end to pet spending projects coveted by many lawmakers.

Investors also ignored a report from the Congressional Budget Office, which said the U.S. budget deficit in 2011 will jump nearly 40 percent over prior forecasts, mostly due to the mammoth tax-cut package brokered by Obama and lawmakers in December.

The Commerce Department said sales jumped 17.5 percent to a seasonally adjusted 329,000 unit annual rate after a downwardly revised 280,000-unit pace in November.

Economists polled by Reuters had forecast new home sales rising to a 300,000-unit pace in December from a previously reported 290,000 unit rate.

Compared to December last year, sales were down 7.6 percent. Overall 2010 sales dropped 14.4 percent to a record 321,000-unit rate.

Data last week showed a surge in sales of previously owned home in December, but progress could be frustrated by a glut of homes from an unrelenting wave of foreclosures. The housing market has remained on the margins even as the broader economy shows signs of gaining strength and broadening out.

At December's home sales pace, the supply of new homes on the market to 6.9 months' worth, the lowest since April, from 8.4 months' worth in November. There were 190,000 new homes available for sale in December, the lowest in 43 years.

The median sales price for a new home increased 12.1 percent last month from November to $241,500, the highest since April 2008. Compared with December last year, the median price 8.5 percent, the biggest increase since August.

(Reporting by Lucia Mutikani, Editing by Neil Stempleman)

Boeing said its fourth-quarter net profit was $1.16 billion, or $1.56 per share, compared with $1.27 billion, or $1.75 per share, a year earlier.

Excluding one-time items, Boeing said it earned $1.11, which is in line with Wall Street expectations, according to Thomson Reuters I/B/E/S.

Items include a favorable non-cash tax settlement of 50 cents a share and a one-time charitable contribution. Excluding these one-time items, the company said it earned $1.11 per share.

The company predicted 2011 earnings between $3.80 and $4.00 per share, which is below the Wall Street forecast of $4.55 per share. Boeing said the results would be affected by "higher pension expense, the revised 787 schedule and the current defense contracting environment."

The company recently delayed first delivery of the Dreamliner to the third quarter from the first.

Boeing said its fourth-quarter revenue fell 8 percent to $16.55 billion. Wall Street had expected revenue of $17.02 billion, according to Thomson Reuters I/B/E/S.

Boeing's commercial airplanes division saw fourth-quarter revenue decrease 11 percent to $8.2 billion on lower-than- expected 777 and 747 airplane deliveries.

Revenue for Boeing's Defense, Space & Security unit slipped 5 percent to $3.63 billion.

Boeing, which competes with EADS subsidiary Airbus, said this month it delivered 116 commercial aircraft in the fourth quarter, down from 122 a year ago. Aircraft manufacturers only get paid on delivery, usually at least 18 months after purchase.

Airbus sold 644 planes in 2010 -- 19 more than Boeing. For the eighth year running, Airbus also delivered more planes than its U.S. rival.

Shares of Boeing, a Dow Jones industrial average component, have risen about 30 percent since the beginning of 2010, compared with a gain of about 14 percent for the index.

(Editing by Steve Orlofsky and Maureen Bavdek)

U.S. stock index futures ticked higher after President Barack Obama delivered the annual State of the Union address, pointing to a modestly firmer opening on Wall Street on Wednesday.

Obama proposed a freeze on domestic spending over the next five years to help reduce the national deficit but analysts said the speech provided no surprises.

"The stock market should be fine with the spending freeze," said Christopher Low, chief economist at FTN Financial in New York. "People don't want additional stimulus here. This will allow investors to focus on the Fed."

Japan's Nikkei average .N225 fell 0.5 percent, giving back some of the previous day's 1 percent rally, though other Asian markets ticked up slightly.

The MSCI index of Asian stocks outside Japan .MIAPJ00000PUS rose 0.1 percent. Since the start of the year, it has underperformed the MSCI world index .MIWD00000PUS, which has risen almost 2 percent.

INFLATION WORRIES

Emerging Asian markets rose powerfully in 2010, but since then some investors have taken profit, and some pulled money out of economies they fear are the most vulnerable to the harmful effects of inflation, a growing global concern.

"Worries over monetary tightening will persist in the long term, weighing especially on shares of producers dependent on raw materials as their prices are still near all-time highs," said Masayuki Otani, chief market analyst at Securities Japan Inc.

The perception that the U.S. Federal Reserve will maintain a much easier policy than the European Central Bank, which is worried about inflation, has helped boost the euro to near a two-month high.

At $1.369, the euro hovered just below Tuesday's two-month high of more than $1.37, which it achieved partly on the strength of Asian buying of the euro zone's debut European Financial Stability Facility bonds.

A pledge by the Fed, which concludes a two-day policy meeting on Wednesday, to continue its $600 billion bond-buying plan could further help the euro versus the dollar, analysts said. A statement will be released at around 1915 GMT on Wednesday.

Shares in LG Electronics (066570.KS), the world's No. 2 TV brand and No. 3 mobile phone maker, fell around 4 percent ahead of its fourth-quarter results statement, although they rebounded after the release on hopes business conditions for the firm may now pick up.

It reported a record quarterly loss on weakness in its main businesses but a one-third increase in its shares since lows in November reflect expectations the worst may be over.

Underlining concerns that the rising cost of food could become a broader inflation problem for many economies, benchmark Chicago wheat prices rose around 1 percent to $8.44- a bushel in electronic trading on Wednesday.

Fed policy makers, wrapping up a two-day meeting, will outline their views of the economy and monetary policy in a statement expected at about 2:15 p.m. (1915 GMT).

They will likely take glancing note of gathering reasons for economic optimism. Consumer spirits are rising, factory activity strengthening and claims for jobless aid are sliding.

Officials could also take some comfort that inflation may have bottomed out, removing some angst about the risks of an outright deflationary spiral.

But with the unemployment rate still at a lofty 9.4 percent, and with gains in corporate profits and stock prices not translating to a stronger job market pulse, the Fed is widely expected to signal its bond-buying plan is on track.

"We ultimately expect any tinkering to be relatively minor," Deutsche Bank Chief U.S. economist Joseph LaVorgna wrote in a note to clients. "A stronger labor market will be an essential catalyst for monetary policymakers' attitudes to shift."

The annual rotation of voters among regional Fed bank presidents brings aboard two who have been outspoken skeptics regarding aggressive Fed easing programs. Even so, many analysts deem it unlikely both will dissent at the central bank's first policy meeting of the year.

Instead, one or both of the hawks, Philadelphia Federal Reserve President Charles Plosser and Dallas Fed leader Richard Fisher, may opt to keep their powder dry until the Fed needs to decide whether to extend the bond purchase program, which is due to run its course by mid-year.

The U.S. economy is expected to have expanded by a reasonably robust 3.5 percent annual rate in the fourth quarter after expanding at a 2.6 percent pace in the July-September period. Similarly vigorous growth at the beginning of 2011 may make the case for an ultra-accommodative monetary policy harder to sustain, even if unemployment remains relatively high.

Worries about rising food and energy prices around the world have stirred inflation fears and may add to pressure on the Fed to back away from its easy policies. European Central Bank President Jean-Claude Trichet warned on Sunday that higher commodity prices could spur rises in underlying inflation, signaling to many the ECB may be moving toward tightening.

With core inflation at 50-year lows in the United States, the Fed had been worried about a vicious cycle of falling prices and declining spending and investment.

But the brighter economic signs have left Fed officials breathing easier. "We're seeing some improvement in the labor market. I think deflation risk has receded considerably. And so we're moving in the right direction," Fed Chairman Ben Bernanke said on January 13.

Although downside risks may be receding, officials realize it will take a long time to fill the hole left by the 2007-2009 recession and they have set a high bar for any changes to their bond buying plan, which markets expect to be complete in full.

A Fed statement that casts doubts on the sustainability of the recovery would lift bond prices, but hit stock markets.

In contrast, if the Fed conveys greater optimism about the outlook than expected, suggesting its extraordinary measures to boost the economy could soon end, the dollar would strengthen and stocks would likely also benefit.