Economic News Online

Intel® Core™2 Quad Processors

2009-10-02T03:51:00.000-07:00

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Clinton breaks her elbow, to undergo surgery

2009-06-18T07:49:00.000-07:00

U.S. Secretary of State Hillary Clinton fell and broke her elbow on Wednesday while en route to the White House but will resume her full duties soon as the top U.S. diplomat, the State Department said.

Clinton will have surgery to repair her elbow in the next week, her chief of staff Cheryl Mills said in a statement released overnight.

"On the way to the White House late this afternoon, Secretary Clinton fell and suffered a right elbow fracture. She was treated at The George Washington University Hospital before heading home," Mills said.

A State Department official said all of Clinton's meetings had been canceled on Thursday. She had been due to join film star Angelina Jolie at an event for World Refugee Day and present awards at the American Foreign Service Association.

Clinton is set to go next week to Trieste, Italy, for a meeting of Group of Eight foreign ministers and attend a conference on Afghanistan to which Iran has been invited.

On the same trip, Clinton is due to go to Corfu, Greece, for a meeting of the Organization for Security and Cooperation in Europe on June 27-28.

The State Department had no immediate information about whether Clinton still planned to attend those meetings. In mid-July, Clinton is scheduled to make her first trip to India as the Obama administration's top diplomat.

Suicide bomber kills Somali security minister

2009-06-18T07:47:00.000-07:00

Hardline Islamist insurgents killed Somalia's security minister and at least 24 other people on Thursday in the deadliest suicide bomb attack yet in the Horn of Africa nation, officials said.

Security Minister Omar Hashi Aden was a key player in the government offensive against Islamist rebels who control much of southern Somalia and want to impose a strict version of Islamic law in the Horn of Africa nation.

Insurgent group al Shabaab, which has links to al Qaeda, stepped up their attacks in early May to try to oust President Sheikh Sharif Ahmed, but neither side has delivered a knockout blow and clashes have killed about 300 people since then.

Western nations, some of Somalia's neighbors and the government fear that if the chaos persists, more foreign fighters coming to wage holy war will be sucked into the Horn of Africa nation, increasing risks to the region.

"Al Qaeda considers Somalia a strategic place. They want to make it a safe haven for criminals," President Ahmed told a news conference. "This is an international war against Somalis. We ask the world to help us fight the international terrorists."

A suicide car bomber targeted Aden and other officials at a hotel in Baladwayne, a central town where the minister was helping direct operations against al Shabaab, which officials say has hundreds of foreign fighters in its ranks.

A senior official in the prime minister's office said Somalia's former ambassador to Ethiopia, Abdkarin Farah Laqanyo, was also killed in the explosion.

SUICIDE ATTACKS

Mohamed Abdi, a shopkeeper near the hotel, said smoke was rising from the building, government forces started shooting after the blast and body parts were scattered in the street.

Officials and hospital sources said the bomb killed at least 25 people and wounded 38.

A suicide car bomber killed seven people outside a police headquarters in the capital in May. A twin suicide attack on a base for African Union peacekeepers in Mogadishu killed 11 soldiers from Burundi in February. Thirteen civilians and a policeman died in a suicide attack in January in the capital.

Aden moved to Baladwayne at the start of June with heavily armed troops in a bid to recapture more territory from hardline Islamist insurgents outside Mogadishu.

Al Shabaab claimed responsibility for the blast.

"One of our Mujahideen has carried out that holy attack and the so-called security minister and his men were killed," Sheikh Ali Mohamud Rage, told local media.

The insurgent group has so far resisted government attempts to drive its fighters from the capital. The rebels, along with allied group Hizbul Islam, control most of southern Somalia bordering Kenya and parts of the central region.

Analysts say the fighting in Mogadishu is the worst for years and the chances of any negotiated peace are waning.

Young Iraqi gays find safe haven in Turkey

2009-06-18T07:46:00.001-07:00

Iraqi militants warned Ameer they would kill him for working with the U.S. military. Then he received a more chilling death threat -- for being gay -- so he sold his home in Baghdad and fled to Turkey.

Now the 28-year-old from a middle class family shares a small apartment in Istanbul with five other gay Iraqi men, exiles from a wave of intolerance, and says for the first time in his life he can express his sexual orientation in public.

Homosexuality is banned almost everywhere in the Middle East, but conditions for gays and lesbians in Iraq have become particularly dangerous since the rise of religious militias after U.S.-led forces removed Saddam Hussein six years ago.

"I could be tracked down and killed if I would say I am gay," Ameer told Reuters. "But here in Turkey we are treated as humans and we have rights, which is not the case in my country."

In Baghdad, he led his life in secret, without the knowledge of his family. In a country where homosexual acts are punished with up to seven years in prison, only his closest friends knew he was gay.

Ameer had stayed on after relatives fled Iraq's sectarian violence, living in a Shi'ite Muslim district and working for the Americans in the capital's heavily-fortified Green Zone.

Then the death threats started.

Sermons condemning homosexuality were given by clerics at Friday prayers in Sadr City, a sprawling Shi'ite slum, where six gay men were found murdered in March and April, four of them with Arabic signs reading "pervert" on their chests.

One local official, who declined to be identified, described the other two as "sexual deviants" and told Reuters the men had been killed by their tribes to restore their families' honor.

"NO MORE FEARS"

Sadr City is a bastion of support for fiery anti-American Shi'ite cleric Moqtada al-Sadr and his Mehdi Army militia. The Mehdi Army has frozen its activities in the past year and Iraqi government forces have retaken control.

Many young men who might have cut their hair short and grown beards when religious gangs controlled much of Iraq now dress in a more Western style as government forces patrol the streets.

As a result, some are accused of being homosexual.

Ameer, who left Baghdad in June 2007, had an asylum request approved after three interviews at the U.N. headquarters in Ankara. He hopes one day to join relatives in the United States.

"Friends and cousins in the United States have told me I will enjoy the gay life there, and that I won't be embarrassed by this issue any more," he said.

For now, he is enjoying living in a secular Muslim country where he does not feel his life is at risk every day. He survives on the little money family members send him, while his flatmates earn about $500 a month washing cars.

"We have no more fears of Islamist threats here," said one of Ameer's friends, Safwan. "I would think 100 times before ever returning to Iraq."

Somalia’s Security Minister Is Killed by Suicide Bomb

2009-06-18T07:43:00.001-07:00

Somali Security Minister Omar Hashi Aden was among at least 50 people killed in a suicide-bombing that the al-Shabaab Islamist group, accused by the U.S. of backing al-Qaeda, said it carried out.

The attack happened at the Medina Hotel in central Somalia ahead of a wedding ceremony, Haji Mohamed Ibrahim, a clan elder in Beledweyne, said in a phone interview from the city. The blast killed 50 people and injured 100, al-Jazeera reported, without citing anyone.

“We killed many so-called government officers, including the so-called security minister,” Ali Mohamoud Rage, a spokesman for al-Shabaab, said in a teleconference today in the capital, Mogadishu. “As they were meeting in one of the hotels in Beledweyne, one of our holy martyrs exploded inside.”

Al-Qaeda has sent as many as 300 fighters to Somalia to support Islamists and warlords seeking to topple the government of President Sheikh Sharif Sheikh Ahmed, United Nations Secretary-General Ban Ki-moon’s top political aide, Lynn Pascoe, told the Security Council last month. The foreigners are training the al-Shabaab rebels and helping them mobilize funds and weapons, Nicolas Bwakira, the head of the African Union peacekeeping mission in Somalia, said on May 22.

Al-Shabaab has been accused by the U.S. of providing safe- haven and logistical support to al-Qaeda, which aims to establish a caliphate, or Islamic government, in Somalia.

Ambassador Killed

Among other people killed in today’s attack was Abdikarin Hussein Farah Laqanyo, the former ambassador to neighboring Ethiopia, said Abdulkadir Mohamed Osman, director of information in the Somali presidency.

“We believe the attack was carried out by al-Qaeda and al- Shabaab,” Osman said by phone from the capital, Mogadishu.

Ibrahim, the clan elder who visited the hotel after the incident, said at least 17 people had been reported killed, without saying where he got the information from.

“It was a horrific incident because they were gathering at Medina Hotel for a wedding ceremony,” he said. “Many people died on the scene.”

Somalia is in its 18th year of civil war and hasn’t had a functioning central administration since the ouster of Mohamed Siad Barre, the former dictator, in 1991.

Last night, at least 13 people were killed in northern Mogadishu when a stray mortar shell hit a mosque during evening prayers amid clashes between Islamist fighters and government forces. Earlier in the day, at least 15 people died in fighting between the two sides in the south of the city.

Iran’s Opposition Stages Day of Mourning for Protest Victims

2009-06-18T07:41:00.002-07:00

Supporters of the leading challenger to Iranian President Mahmoud Ahmadinejad embarked on a day of mourning for those killed in protests over the nation’s disputed election. A rally in Tehran began at about 5 p.m. local time, Agence France-Presse reported, citing a witness.

The killings were “savage,” defeated candidate Mir Hossein Mousavi, 67, said on his Web site. “The people know who attacked the university dormitories, beat boys and girls, and who killed people in Azadi Square,” where opposition supporters rallied three days ago.

At least 15 people have died in protests over the result of the June 12 election, seven in attacks on university dormitories in Tehran and Shiraz, south of the capital, and eight in the Azadi Square march on June 15 when security forces fired on protesters, the British Broadcasting Corp.’s Persian service reported.

Demonstrations, triggered by opposition accusations of vote-rigging, are entering a sixth day as the authorities struggle to contain popular anger at the election result. The June 15 rally, held in defiance of a government ban, was the largest anti-government demonstration since the Islamic revolution ousted the shah in 1979. Tens of thousands of Mousavi’s supporters marched again yesterday in Tehran.

Mousavi and former president Mohammad Khatami sent a letter to the head of the judiciary, Ayatollah Mahmoud Hashemi- Shahrudi, late yesterday calling on him to free the hundreds of people arrested since the election.

Sympathy for Victims’ Families

Grand Ayatollah Yosuf Sanei, an elder dating from the rule of Supreme Leader Ruhollah Khomeini, expressed sympathy for the families of the victims. In a letter published on the Iranian Labor News Agency, he said he hoped concern about election “irregularities” would be addressed by the administration. There were 646 election irregularities, Agence France-Presse cited the three defeated candidates as saying.

The protests are “a true outcry” Hooman Majd, the author of “The Ayatollah Begs to Differ: The Paradox of Modern Iran,” said in a column in the Financial Times today. They are supported by “some clerics, and even the old guard of the Islamic leadership, such as Ayatollah Hashemi Rafsanjani, who protest that the one democratic aspect of the political system, the people’s voice, is in danger of being snuffed out.”

Rafsanjani heads the Assembly of Experts, a group of clerics that can choose or dismiss Iran’s supreme leader. Faezeh Hashemi, Rafsanjani’s daughter, has addressed hundreds of Mousavi supporters.

The Iranian rial strengthened to 9,888 per dollar from 9,897 yesterday on a day when the dollar was weaker against other major currencies. The currency’s rate is managed by Bank Markazi, the central bank. Iran’s benchmark index, the TEPIX, closed at 9,247 yesterday, a loss of 0.26 percent, according to data published on the Web site of the Tehran Stock Exchange.

Election Turmoil

The election turmoil is pitting the Islamic republic’s ruling clergy against young Iranians and more educated voters who want social freedom and better ties with the West.

Ahmadinejad’s opponents accuse the 52-year-old of wrecking the economy, which suffers from 10.5 percent unemployment and almost 24 percent inflation, and driving Iran into international isolation over the country’s nuclear program.

The head of the United Nations nuclear watchdog, Mohammed ElBaradei, told the BBC for the first time yesterday he believed Iran wanted the option of an atomic bomb.

Mousavi, while backing Iran’s “right” to nuclear technology, has said the president brought shame on the country with a management style “based on adventurism, instability, unlawfulness and radicalism.” Ahmadinejad has called the Holocaust a “myth,” while Mousavi has condemned violence against Jews.

Vote Count

According to election officials, Ahmadinejad won about 63 percent of the June 12 vote, to about 34 percent for Mousavi. The remainder was divided between two other candidates.

Mehdi Karrubi, 71, another defeated candidate, has called for people to wear black tomorrow in mourning for those killed as Friday prayers are led by Supreme Leader Ayatollah Ali Khamenei to seal his appeal for unity.

Khamenei’s prayers will be held in the presence of the Basij, the voluntary militia of the Revolutionary Guards, the group said in a statement on state-run Mehr news agency. The militia warned the defeated candidates to “explicitly dissociate themselves from the rioters.”

The Basij, famed for walking over minefields during the 1980-88 Iran-Iraq War to open up routes of attack for the army, are estimated to be hundreds of thousands strong.

In recent days, Mousavi has criticized the role of “plain- clothes” police in attacks on students.

Cabinet Meeting

Ahmadinejad said in a Cabinet meeting yesterday the poll was a “referendum” in which “25 million people confirmed this way of management in the country.” About 39 million voted, a record turnout of 85 percent.

A major political party controlled by clerics has requested the Interior Ministry’s permission to hold another rally June 20. Khatami is planning to attend that march and Mousavi will address the crowd, the state-run Mehr news agency reported.

Khamenei appealed for unity June 16 following a meeting with representatives of candidates in the presidential vote. He has also said he would back a recount in some areas if an examination proves it necessary. The clergy-led Guardian Council overseeing elections said a partial recount may be authorized.

The council invited the defeated candidates to a meeting from June 20 onward to consider candidates’ complaints with more care, council spokesman Abbas Ali Kadhodaei said on state television today.

Partial Recount

Mousavi, who accuses the authorities of vote fraud, and Karrubi, a former Parliament speaker, rejected a partial recount, the Iranian Labor News Agency said.

The Iranian regime “is going through its biggest crisis in 30 years,” said Mohammad-Reza Djalili, an Iranian analyst at the Graduate Institute of International and Development Studies in Geneva. “The structure of the system has been shaken, and now it has cracks.”

The shah, Mohammed Reza Pahlavi, was ousted in 1979 after months of anti-monarchy demonstrations. He had ascended the Peacock Throne after his father was forced out by allied forces in World War II. The shah developed closer ties to the West and promoted economic development, angering many Shiite Muslims who favored adherence to religious tradition, during a reign that became increasingly autocratic.

Crude oil for July delivery climbed as much as 70 cents, or 1 percent, to $71.73 a barrel in electronic trading on the New York Mercantile Exchange as investors bought commodities. Iran is the second biggest oil producer in the Organization of Oil Exporting Countries.

WebMD to Buy Hlth for $1.29 Billion in All-Stock Deal

2009-06-18T07:41:00.001-07:00

WebMD Health Corp., a provider of online health information, agreed to buy parent Hlth Corp. in an all-stock deal valued at $1.29 billion. It’s the second time the interlocked companies have tried to merge in 16 months.

Holders of each Hlth share will receive 0.4444 share of WebMD. The deal values Hlth 5.7 percent higher than its $1.22 billion market capitalization at yesterday’s $11.76 a share closing price on the Nasdaq Stock Market. Hlth, of Elmwood Park, New Jersey, owns about 80 percent of New York-based WebMD, the companies said today in a statement.

WebMD’s previous attempt to acquire Hlth failed in October over trouble finding a buyer for Porex, a second unit of Hlth that makes plastics used in health and consumer products. Hlth “will be continuing its sales process for Porex with potential buyers and is aiming to conclude that process as quickly as possible,” the companies said today.

The deal will simplify the companies’ corporate structure and increase the ability of shareholders to trade WebMD, the companies said. The tax-free transaction will close in the third or fourth quarter, the companies said. WebMD will assume Hlth’s debt.

Hlth rose 89 cents, or 7.6 percent, to $12.65, the most since May 6. WebMD rose 82 cents, or 3 percent, to $29.03, in Nasdaq Stock Market composite trading at 10:03 a.m. New York time and fell 18 percent in the 12 months before today.

Financial advisers were Raymond James Financial Inc. for Hlth and Morgan Joseph & Co. for WebMD. Legal advisers were Shearman & Sterling LLP for Hlth and Cahill Gordon & Reindel LLP for WebMD.

Colonial Seeks Hedge Fund to Join Gore, 452 in Alliance Stable

2009-06-18T07:40:00.000-07:00

Colonial First State, Australia’s biggest asset manager, may seek an alliance with a hedge fund to offer customers a strategy capable of profiting in rising or falling markets.

The manager of about A$130 billion ($103 billion) has A$4 billion of client money in five boutique funds. Sydney-based Colonial started the alliance business in 2002 to broaden the range of strategies offered and has tie-ups with firms such as the Al Gore-backed Generation Investment Management LLP.

“We don’t have anyone who specializes in absolute returns,” Graham Hand, Colonial’s general manager of funding and alliances, said in an interview in Sydney. “If we can get the right idea working, that would compliment what we’re doing. So we’re looking at a few possible deals in that space.”

Hedge funds are looking for partners to provide capital after they fell a record 18 percent on average last year. At the same time, asset managers are looking to broaden the range of investment offerings after global equities slumped 42 percent.

Hand said Colonial is “reasonably advanced” on discussions for a couple of new alliances, though no transactions are imminent. He declined to name the firms or strategies.

Local money managers typically haven’t invested in domestic hedge funds, a process known as seeding, though that may change, said Chris Gosselin, chief executive officer of Australian Fund Monitors. AFM tracks the performance of more than 200 hedge funds managed in Australia.

“There are opportunities now for both the seeder and the fund manager, but there are also greater risks,” Gosselin added. “I think the opportunities outweigh the risks.”

Challenger

Michael Lovett, the general manager of boutique partnerships at Challenger Financial Services Group Ltd., said he’s getting more calls from small managers who are now looking for a “big brother.”

Challenger, the Australian fund manager backed by billionaire James Packer, has about A$1.5 billion invested in six boutique funds, including an Australian small-cap equities fund managed by Kinetic Investment Partners, and Five Oceans Asset Management’s international equity long-short fund.

While Challenger is in “no rush” to do another deal and is focusing on its existing tie-ups, “in the medium term, the area we’d like to get more in is the alternative space,” Lovett said in an interview in Sydney.

A record 180 funds closed in Asia during last year’s global market rout, according to Singapore-based Eurekahedge Pte.

Donald Bradman

Colonial has affiliations with 452 Capital, set up by ex- Perpetual Ltd. portfolio manager Peter Morgan in 2002 and named after the number of runs Donald Bradman scored in a 1930 cricket match. Colonial owns a 30 percent stake, and has distributed a co-branded Australian equities fund since December 2002.

It also offers a co-branded Australian share fund with PM Capital Ltd., founded in 1998 by Paul Moore, a former Bankers Trust Australia investor. It doesn’t own a stake in the company.

Unlike some seed investors who give capital for hedge funds to invest without taking an active role in promotion and distribution, “we don’t work like that,” Hand said.

“We throw the entire resources of Colonial First State behind helping you,” he said. “That means the hurdle of who we are prepared to work with is much higher. It’s not just, ‘there’s the money, go and make it happen.’”

Gore’s Fund

Colonial distributes the Generation Wholesale Global Sustainability Fund, managed by the firm chaired by Gore, the former U.S. vice president and climate campaigner. Generation IM invests in companies that follow socially responsible guidelines in the expectation that they will report better returns.

“What we’re looking for in the next transaction is not just, ‘Oh that looks good, let’s do it,’ but how it compliments what we do,” Hand said.

The fund manager owns 50 percent of Acadian Australia, a local joint venture with Boston-based Acadian Asset Management LLC. Colonial wholly owns Realindex Investments, which offers funds that use analysis of companies rather than their market- size to compile a portfolio of shares in benchmark indexes.

“The other attraction of this is that you actually get to own another business,” Hand said. “You’re not just selling somebody’s funds, you actually own a business which in time could become a very valuable business.”

Fidelity Breaks With Money Funds on Plan Limit to Debt Holdings

2009-06-18T07:37:00.000-07:00

Fidelity Investments, the largest manager of U.S. money-market mutual funds, has split with rivals over the industry’s proposal to limit approved holdings to top- rated debt securities.

Fidelity is pressing the U.S. Securities and Exchange Commission to allow funds to continue buying debt that doesn’t carry the highest rating, said a person familiar with the matter, who asked not to be identified because the Boston-based company’s lobbying efforts are private.

Ten fund managers including Fidelity helped draft proposals in March aimed at strengthening money funds, after the September collapse of the $62.5 billion Reserve Primary Fund sparked a run by investors. The report included a call to ban securities rated below A1 by Standard & Poor’s or P1 by Moody’s Investors Service. The Investment Company Institute, a Washington-based trade group that coordinated the effort, said the firms would adopt the recommendations.

“Fidelity has always had a maverick streak in them,” Peter Crane, president of Crane Data LLC, an industry research firm in Westborough, Massachusetts, said in an interview. “Being privately held, they tend to do things their own way.”

Vincent Loporchio, a Fidelity spokesman, said the firm opposes the ban on tier 2 holdings “for a number of reasons,” including their limited impact on portfolios. Tier 2 securities are those with the second-highest credit rating for short-term debt. Money funds can hold as much as 5 percent of their assets in tier 2 debt.

Loporchio declined to comment on whether Fidelity has discussed the possible ban with the SEC. The SEC is set to propose rule changes for money funds on June 24 that mirror those in the ICI report. Kevin Callahan, a spokesman for the SEC, declined to comment.

Fund Collapse

Ianthe Zabel, a spokeswoman for the Investment Company Institute, declined to comment on Fidelity’s position. She said the decision by fund executives to propose a tier 2 ban wasn’t unanimous.

The collapse of Reserve Primary, whose losses on debt issued by Lehman Brothers Holdings Inc. sent its share price below the $1 standard, spurred a wave of investor redemptions. Corporation couldn’t sell short-term debt as prime funds, which can invest in commercial paper, rushed to sell holdings to meet client redemptions.

The ICI, in its report, also recommended increasing the proportion of assets a fund must hold in cash or securities that can easily be liquidated, and reducing the average maturity of a fund’s securities.

‘Source of Diversity’

Fidelity’s Loporchio said tier 2 securities weren’t a source of problems for money funds and were often issued by “strong, creditworthy” companies that “provide an important source of diversity for money-market funds.”

The company supports shortening the allowable maturity for tier 2 securities in money funds from the current 397 days, he said. Fidelity managed $506 billion in money fund assets as of May 31.

J.T. Tuskan, a spokesman for Pittsburgh-based Federated Investors Inc., the third-largest money-fund manager with $313 billion in assets, said the company will adopt all the ICI recommendations by September.

Rebecca Cohen, a spokeswoman at Vanguard Group Inc. in Valley Forge, Pennsylvania, said the company has adopted the recommendations. Vanguard manages about $203 billion in money funds.

Treasuries Decline as Total Benefit Rolls Plunge, Supply Looms

2009-06-18T07:23:00.002-07:00

Treasuries fell for a second day as the total number of people collecting unemployment insurance dropped for the first time since January and the U.S. announces the amount of 2-, 5- and 7-year notes it will sell next week.

Ten-year yields climbed from a two-week low amid concern President Barack Obama’s record borrowing will overwhelm demand as the deepest recession in 50 years shows signs of easing. The Labor Department said the number of people collecting unemployment insurance fell by 148,000 in the week ended June 2, the most since November 2001, to 6.69 million.

“Continuing claims were not as weak as they have been, so people are selling securities to set up for next week’s auction process,” said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets in New York, the investment- banking arm of Canada’s biggest lender.

The 10-year note yield rose six basis points, or 0.06 percentage point, to 3.75 percent as of 9:06 a.m. in New York, according to BGCantor Market Data. The 3.125 percent security maturing in May 2019 fell 15/32, or $4.69 per $1,000 face amount, to 94 25/32. The yield touched 3.58 percent yesterday, the lowest level since June 4.

The Treasury Department will probably auction $40 billion in two-year notes, $35 billion of five-year debt and $26 billion of seven-year securities, according to Wrightson ICAP LLC, a Jersey City, New Jersey-based research company.

Record Sales

“We have another situation in the dealer community where they are anticipating supply and would like to see a concession develop before the auctions,” said David Coard, head of fixed- income trading in New York at Williams Capital Group, a brokerage for institutional investors.

Initial jobless claims rose by 3,000 to 608,000 in the week ended June 13, in line with forecasts, from a revised 605,000 the prior week, the Labor Department said today in Washington.

U.S. government debt has handed investors a loss of 3.8 percent since March, according to Merrill Lynch & Co. indexes. U.S. securities are set for the worst quarter since losing 5.9 percent in the first three months of 1980, the data show.

Obama has pushed the nation’s marketable debt to an unprecedented $6.45 trillion. The Congressional Budget Office projects the federal budget shortfall will reach a record $1.85 trillion this year, with the gap exceeding $600 billion through the year 2019.

Need Some Time

The U.S. may sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, almost four times 2008’s $892 billion, according to Goldman Sachs Group Inc., one of the 17 primary dealers that are required to bid at government debt auctions.

China may increase its holdings of U.S. Treasuries in the “near” term should the dollar remain stable, China Finance magazine reported in an article written by Dai Xianglong, chairman of China’s national pension fund. China is the largest U.S. creditor, holding $763.5 billion of U.S. debt as of April, according to Treasury Department figures.

The nation will need some time to diversify its foreign- exchange reserve holdings and the U.S. government should take “substantial” measures to honor its promise of ensuring the safety of foreign investments, Dai, who is a former central bank governor, wrote in an article in the Chinese-language publication. China Finance is affiliated with the People’s Bank of China.

The U.S. government must rely on foreign investors to sustain record borrowing.

‘Not Yet Concrete’

An index of U.S. leading economic indicators probably rose in May for a second straight month, reinforcing speculation the recession may end this year. The Conference Board’s gauge of the economic outlook for the next three to six months climbed 1 percent, according to the median forecast in a Bloomberg News survey. That would match April’s gain and mark the first back- to-back increase since September-October 2006.

The economic recovery is “not yet concrete” and yields may remain stable at current levels until September, said Giuseppe Maraffino, a fixed-income strategist in Milan at UniCredit Markets & Investment Banking.

“There are still problems and the jobs market remains weak, so the recovery is not yet concrete,” Maraffino said. “In the short term, Treasuries will remain well bid.”

The cost of living increased 0.1 percent last month after no change in April, the Labor Department said yesterday. On an annual basis, prices fell 1.3 percent. That means 10-year notes yield 5 percent after accounting for costs in the economy. The so-called real yield last rose above 5 percent in 1994.

Lending Rate

The less-than-anticipated increase in consumer prices may allow Fed policy makers to keep the benchmark lending rate between banks at a low level for longer. The Fed’s target rate is at a record low range of zero to 0.25 percent.

Futures trading on the Chicago Board of Trade indicate a 45 percent chance the central bank will raise interest rates by the end of the year, down from more than 60 percent a week ago. The Federal Open Market Committee meets on monetary policy June 24 and 25.

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, fell to 1.76 percentage points today, from 2.02 percentage points a week ago. The figure has averaged 2.23 percentage points for the past five years.

U.S. Stocks Gain as Leading Indicators, Philly Fed Top Estimates

2009-06-18T07:23:00.001-07:00

U.S. stocks extended gains after reports on leading indicators and manufacturing in the Philadelphia region topped economists’ estimates, adding to evidence that the recession is easing.

The Standard & Poor’s 500 Index climbed 0.7 percent to 917.2 at 10:02 a.m. in New York.

U.S. Leading Economic Indicators Index Increased 1.2% in May

2009-06-18T07:22:00.000-07:00

The index of U.S. leading economic indicators rose more than forecast in May for the second straight month, reinforcing signs that the worst recession in five decades may end this year.

The Conference Board’s gauge increased 1.2 percent after a revised 1.1 percent in April, the biggest back-to-back gain since November-December 2001, according to data the New York- based group released today. The index points to the direction of the economy over the next three to six months.

The gains in stock prices, consumer confidence and building permits that are propelling the leading index higher bolster forecasts the economy will start growing again in the second half of 2009. Still, mounting unemployment and tight credit mean the recovery will be slow.

“The economy is working through the crisis, laying the groundwork for recovery,” John Herrmann, president of Herrmann Forecasting in Summit, New Jersey, said before the report.

The index was forecast to rise 1 percent, according to the median of 55 economists in a Bloomberg News survey, after an originally reported increase of 1 percent in April. Estimates ranged from a decline of 0.5 percent to a gain of 1.8 percent.

The Conference Board’s index of coincident indicators, a gauge of current economic activity, fell 0.2 percent, the smallest drop since October, after decreasing 0.3 percent the prior month. The index tracks payrolls, incomes, sales and production.

Lagging Indicators

The gauge of lagging indicators fell 0.2 percent following a 0.8 percent decline in the prior month. The index measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.

Seven of the 10 indicators in today’s report added to the index, led by a measure of supplier delivery times which indicates orders are picking up. That added 0.33 percentage point.

Another 0.24 point boost was provided by the Standard & Poor’s 500 Stock Index, which gained 6.4 percent in May from the prior month’s average.

A 0.18 point contribution came from a jump in the Reuters/University of Michigan index of consumer expectations, a proxy for future spending. A preliminary report for June, meanwhile, showed that gauge fell this month.

Seven of the 10 indicators for the leading index are known ahead of time: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

The Conference Board estimates new orders for consumer goods, bookings for capital goods, and the money supply adjusted for inflation.

Money Supply

Money supply adjusted for inflation, which has the biggest weighting in the index, added 0.24 point, and interest-rate spreads added 0.31 point.

Building permits, a sign of future construction, added 0.11 point. Permits rose 4 percent to a higher-than-forecast 518,000 pace in May from a 498,000 rate in April, government figures showed this week.

A shorter factory workweek, new orders for consumer goods and jobless claims subtracted from the index.

A Labor Department report today showed initial jobless claims rose by 3,000 to 608,000 last week. The number of people on benefit rolls dropped for the first time since January, adding to evidence the job market is starting to thaw.

The bankruptcies of automakers General Motors Corp. and Chrysler LLC, as well as parts-makers Visteon Corp. and Metaldyne Inc., may cause more job losses and prolong the downturn in manufacturing. The unemployment rate will touch 10 percent by year-end, according to a Bloomberg survey this month.

Still, some manufacturers are seeing a turnaround.

While the outlook for business jets remains weak amid the slump, officials at Honeywell International Inc., the world’s largest maker of airplane controls, detect signs of a recovery in some aerospace markets.

“If we’re looking for ‘green shoots,’ there are some out there,” Chief Executive Officer David Cote said this week in a Bloomberg Television interview from Paris.

Philadelphia Area Factory Index Rose to -2.2 in June, Fed Says

2009-06-18T07:21:00.000-07:00

Manufacturing in the Philadelphia region contracted in June at the slowest pace in nine months as measures of orders and sales improved.

The Federal Reserve Bank of Philadelphia’s general economic index climbed to minus 2.2 from minus 22.6 in May, the bank said today. Negative numbers signal contraction.

The slump in manufacturing may abate after companies reduced inventories in the first quarter at the fastest pace on record. Still, production cutbacks and plant closures at carmakers General Motors Corp. and Chrysler Group LLC are likely to depress factory production in coming months.

“The bulk of the downturn is behind us but we still haven’t crossed that threshold toward expanding the industrial sector,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “It looks like most of the inventory liquidation is over and that means we’ll see manufacturers boost production in the second half of the year.”

Economists forecast the index would improve to minus 17, according to the median of 50 projections in a Bloomberg News survey. Estimates ranged from minus 9 to minus 24.

The index of leading economic indicators climbed 1.2 percent in May, more than forecast, following a 1.1 increase in April, the New York-based Conference Board reported today. It was the biggest back-to-back gain since November-December 2001, at the end of the last recession.

A report from the Labor Department showed the number of Americans receiving claims for unemployment benefits plunged by 148,000 in the week to June 6, the most since November 2001, to 6.69 million. The average number of claims over the last four weeks fell to the lowest level in four months, dding to evidence the job market is starting to thaw.

Obama cites decades of mistakes behind recession

2009-06-17T08:58:00.001-07:00

President Barack Obama is offering a broad-scale overhaul of the financial system, saying hard times struck largely because a post-Depression era business regulatory scheme couldn't keep up with an increasingly global economy.

In remarks readied for the unveiling of new rules to govern business, Obama attributed much of the country's current problem to "a cascade of mistakes and missed opportunities" which happened over several decades.

His plan would bestow vast new powers on the Federal Reserve, authorizing it to oversee the entire financial system. It also would create a new consumer protection agency to guard against the types of abuses that played a big role in the current crisis.

The president said in his prepared remarks that "a culture of irresponsibility took root from Wall Street to Washington to Main Street."

Biggest Shift in U.S. Health Care May Emerge in 45-Day Sprint

2009-06-17T08:54:00.000-07:00

The largest expansion of U.S. health care since the creation of Medicare in 1965 may emerge from legislation designed to reshape the medical industry and change how Americans receive and pay for care.

Congress today begins crafting legislation that Democratic leaders plan to push through both chambers by their August recess. The measure may require all Americans to get medical insurance, force insurers to accept all patients and end the tax break for employer-paid health benefits. These changes may be hammered out with unprecedented speed at the urging of President Barack Obama, who four days ago said “this is the moment.”

Obama has made a health-care overhaul his top domestic priority, using his February budget proposal to call it a “moral” imperative to extend coverage to the country’s 46 million uninsured. Obama also tied the long-term fiscal soundness of the U.S. to controlling medical costs. Health care consumes 18 percent of the U.S. economy and may rise to 34 percent by 2040, the White House Council of Economic Advisers reported June 2.

“I don’t think we’ve ever had anything this large in American history aimed to go this quickly that touches everybody’s lives,” said Robert J. Blendon, a professor of health policy and political analysis at Harvard University in Cambridge, Massachusetts, in a telephone interview. “They’re moving at a pace we’ve never seen before.”

‘Moment is Right’

The U.S. will spend more than $2 trillion this year on health care, the Health and Human Services department reported in February. Today, the Senate Health committee will begin debating a bill that includes “gateways” where consumers may compare coverage plans. The Senate Finance Committee later this week will unveil a bill that among its provisions will call for taxes on health benefits, and House committees will release a draft of their own comprehensive measure that would create a government-backed plan to compete with private insurance.

“We know the moment is right for health care reform,” Obama told the American Medical Association in Chicago in a speech June 15. “We know this is a historic opportunity we’ve never seen before and may not see again.”

The coming weeks will be pivotal if the House and Senate are to meet their goal to send Obama a single bill in October, said Drew Altman, president of the Henry J. Kaiser Family Foundation, based in Menlo Park, California, one of the nation’s largest private foundations devoted to health.

‘Planets Are Aligned’

“We have these big debates about comprehensive health reform every 19 or 20 years in our country, and we’ve failed every time,” Altman said by telephone. “This time, the planets are aligned as they’ve never been aligned before, but there still are a lot of obstacles before we’ll know whether they’ve pulled it off or we’ve failed again.”

The timetable may be slowed as Democrats on the Finance Committee seek a bipartisan compromise. Republicans in the Senate have been pushing for more time to assess the costs of the various proposals.

A portion of the health committee bill, proposed by its chairman, Democrat Edward Kennedy of Massachusetts, and fellow Democrat Christopher Dodd of Connecticut, may cost as much as $1 trillion over 10 years while covering just 16 million more people, the Congressional Budget Office said June 15.

Senator Mitch McConnell, a Kentucky Republican and minority leader, says he is skeptical of the “chaotic” legislative process. He complained that the bills haven’t been seen by Republicans or “scored” -- assessed to see how much they will cost to implement.

“We don’t have bills,” he told reporters yesterday. “We don’t have scores. And at the same time the majority is saying we need to act quickly. I think it would be highly irresponsible in the extreme.”

Reid’s Response

The Senate Democratic Leader, Harry Reid of Nevada, scoffed at McConnell’s complaint, saying: “We are moving too fast on health care, we’re moving far too fast, in their mind, on energy, and certainly we’re moving too fast” on Supreme Court nominee Sonia Sotomayor. “Is there anything that we’re moving just right?”

Presidents from Harry Truman to Bill Clinton have tried and failed to reshape the health-care system, running into opposition from industry and doctors. Truman’s efforts to provide insurance for all Americans in the 1940s were criticized by the U.S. Chamber of Commerce as a step toward “socialized medicine.” The American Medical Association shared that assessment.

President Lyndon Johnson defeated similar opposition in 1965 when he pushed Medicare, the government’s health program for the elderly and disabled, through Congress. Johnson benefited from a landslide victory for Democrats in the 1964 elections and U.S. attention to widespread poverty.

Positions Will Emerge

Unlike Clinton’s 1993 attempt to change medical care, when industry opposed attempts to rework the system, insurers, drug- and device-makers, doctors and hospitals have committed to cut costs over a decade in support of Obama’s agenda.

As details of the bills emerge, the health-care groups will take positions, said Altman, of the Kaiser Family Foundation.

“The real debate will only begin when we have legislation on the table,” he said in the interview. “Then we learn which interest groups are at the table and which ones aren’t. As hot as this has gotten, we haven’t seen real opposition yet.”

In the House and Senate, Democratic leaders are trying to push proposals through on a six-week timetable more often seen with bills dealing with a national crisis rather than broad- based social policy.

Two Weeks of Deliberations

In the Senate, the health committee today will start what it expected to be at least two weeks of deliberations on the Kennedy-Dodd plan. Senate Finance Committee Chairman Max Baucus, of Montana, said yesterday he hopes his plan draws support from the top Republican on his panel, Senator Charles Grassley of Iowa. The Finance Committee is scheduled on June 23 to begin work on its bill. Baucus said yesterday he will release his proposal this week.

The Senate committees’ schedules call for finishing their separate bills before the week-long Independence Day recess begins June 29, and merging the proposals upon their return. Democratic leaders plan for the Senate to take up a measure sometime soon after the recess, although debate hasn’t been set.

The packed schedule will be a particular challenge for the slower, more deliberate Senate. Democrats, who control 59 votes, must be able to secure the backing of 60 senators to overcome the possibility of a filibuster. The fast pace also may be an asset, said Senate historian Donald Ritchie.

“Sometimes there’s an advantage in setting a short schedule,” Ritchie said. “That gets people responding to the bill, it’s easier to schedule votes, people are more willing to cut a deal and compromise. Leadership around here often gets their best work done here before a recess when everyone has a plane ticket in their pocket.”

House Action

In the Democratic-controlled House, three committees working on the same legislation plan to release a detailed draft outline later this week. Representative Charles Rangel of New York, chairman of the House Ways and Means Committee, said his panel may release an outline of health policy changes first, followed days later with the details of the necessary tax increases and spending cuts.

Rangel said he wants the more popular aspects of the health-care overhaul, such as expanding coverage to the uninsured, before spelling out the way to pay for the changes that will cause “heartburn” for many lawmakers.

Employer Benefits

One issue is taxing employer-provided health benefits, which Obama opposed during his presidential campaign. In an interview yesterday with Bloomberg News, Obama said he wouldn’t rule out such a proposal.

“I don’t want to predetermine the best way to do this,” he said. “I’ve already put forward what I think is the best way. Let me see what comes out of the Hill and we’ll have that debate then.”

Rangel’s panel and the other two House committees - Energy and Commerce and Education and Labor -- may hold hearings next week before the July break, said Nadeam Elshami, a spokesman for House Speaker Nancy Pelosi.

All three panels would then work to approve the legislation in July and the full House would take it up by month’s end.

The Democratic leadership in both chambers plan to use the summer recess and early fall to put together one package that can pass the Senate and House and go to the president.

“The president wants a bill by Oct. 15,” Baucus said in an interview yesterday. “He’ll get it.”

Iranian Opposition Stages Rally in Central Tehran

2009-06-17T08:53:00.000-07:00

Tens of thousands of supporters of Mir Hossein Mousavi, the defeated main challenger in the disputed Iranian presidential election, rallied in central Tehran, Sky News said, after the biggest protest in 30 years led to as many as 15 deaths.

Two prominent Mousavi backers were detained earlier today, AFP reported after Iran’s supreme leader yesterday appealed for unity following a meeting with representatives of candidates in June 12 presidential voting.

Video of today’s gathering in Haft Tir Square was posted on Facebook and follows a June 15 rally that was the largest anti- government demonstration since the Islamic revolution ousted Iran’s shah in 1979, triggered by opposition accusations of vote-rigging to re-elect President Mahmoud Ahmadinejad. Several people were reported killed. Mousavi has called a mass demonstration tomorrow to mourn the deaths. Tehran’s bazaar merchants, a group that backed the 1979 revolution, may strike to protest the election, the BBC said.

Election turmoil is pitting young Iranians and more educated voters who want social freedom and better ties with the West against the Islamic republic’s ruling clergy. Ahmadinejad’s opponents accuse him of wrecking the economy, which suffers from high unemployment and inflation, and driving Iran into international isolation through his confrontation over the country’s nuclear program. The head of the UN nuclear agency said he believed Iran wanted the option of an atomic bomb.

Biggest Crisis

The Iranian regime “is going through its biggest crisis in 30 years,” said Mohammad-Reza Djalili, an Iranian analyst at the Graduate Institute of International and Development Studies in Geneva. “The structure of the system has been shaken, and now it has cracks.”

State television’s news channel showed interviews with people on the streets calling the protesters enemies of the state and quoting officials as saying protests at the vote should be made through proper legal channels.

Mousavi said the same people who committed fraud in the June 12 ballot were responsible for damaging public buildings during the protests. “It’s the companions of lies and fraud that attack banks and public buildings to complete their scheme,” he said in comments on his Web site.

“Use of plain-clothed forces that are used by the security bodies, only shows that the police are aware of the contradiction of what they are doing with what is their duty,” Mousavi said in an open letter to the Iranian National Security Council.

Mousavi Letter

In the letter published on Ghalam News Web site, Mousavi warned against the involvement of plain-clothed militia in protest rallies. He said they use guns, attack people, destroy public buildings, and provoke the crowds.

Five players of Iran’s national soccer team wore green wristbands during the first half of a World Cup qualifying match against South Korea, the Associated Press reported. The bands were removed in the second half. Green is the color that Mousavi supporters have used throughout their election campaign, and later in protest rallies, AP said.

Supreme Leader Ayatollah Ali Khamenei, speaking on state television late yesterday, appealed for unity. He also said he would back a recount in some areas if an examination proves it necessary, Agence France-Presse reported. The clergy-led council overseeing elections said a partial recount may be authorized.

Rial, Stocks

The Iranian rial strengthened to 9,897 per dollar from 9,915 the day before. The currency’s rate is managed by Bank Markazi, the central bank. Iran’s benchmark index, the TEPIX, closed at 9,247 today, a loss of 0.26 percent, according to data published on the Web site of the Tehran Stock Exchange.

Seven people were killed in attacks on university dormitories in Tehran and Shiraz, south of the capital, the British Broadcasting Corp.’s Persian service reported. As many as eight people were killed and 25 injured in the June 15 protest march when security forces fired on protesters, the BBC said, citing state radio.

Mousavi called for a national day of mourning tomorrow, according to his Web site. He called the killings “savage,” adding “the people know who attacked the university dormitories, beat boys and girls, and who killed people in Azadi Square” where the June 15 protest was held.

One person was killed and at least 45 injured in recent protests in Esfahan, 300 miles south of the capital, an employee of Shariati Hospital told Yaari News Web site. Some of the injured were below voting age, meaning that allegations that protesters were all Mousavi supporters weren’t borne out, according to the hospital employee. Yaari also reported that reformists in Esfahan were arrested.

Investigate Attacks

Iranian Interior Minister Sadegh Mahsouli wrote to Tehran’s governor general, Morteza Tamaddon, asking for an investigation into “ill-intentioned” recent attacks on students at the city’s university, the state-run Islamic Republic News Agency reported.

In what may be a sign of tension within the ruling elite, Parliament Speaker Ali Larijani held Interior Minister Mahsouli accountable for attacks on civilians and university students in Tehran in recent days, the Iranian Labor News Agency reported.

Mohammad Reza Jalaeipour, a Mousavi spokesman for young supporters, was arrested today at Tehran’s airport, while attempting to return to Britain, his wife, Fatemeh Shams, told the Mowj-e Sevvom or Third Wave Web site, which confirmed that reformists applied for permission to hold a rally today to the Interior Ministry.

Mousavi Supporters

Iranian authorities, meanwhile, arrested two prominent Mousavi supporters, AFP said. Hamid Reza Jalaipour and Saeed Laylaz were detained at their homes, the news wire said, citing colleagues and family.

The violence “raises deeper suspicions about the real message of these elections,” said Claire Spencer, head the Chatham House foreign policy consultant’s Middle East department in London. “Repression of public dissent” may eventually “undermine the unity of the state.”

Crude oil for July delivery fell $1.09, or 1.6 percent, to $69.38 a barrel at 10:35 a.m. on the New York Mercantile Exchange. Iran is the second biggest oil producer in the Organization of Oil Exporting Countries.

The nation’s Guardian Council, made up of 12 clerics and lawyers, may authorize a second vote count in areas where Ahmadinejad’s victory was questioned, state television said.

Opposition Seeks Annulment

The regime is “saying that some votes can be recounted to see if there were irregularities,” Djalili said. “But the opposition isn’t asking for this, they are seeking the annulment of the vote.”

Elections officials said Ahmadinejad won about 63 percent of the vote, to about 34 percent for former Prime Minister Mir Hossein Mousavi.

Ahmadinejad said in a cabinet meeting today the poll was a “referendum” in which “25 million people confirmed this way of management in the country.” About 39 million voted in a record turnout of 85 percent.

Mousavi, a former premier who accuses the authorities of vote-rigging, and another candidate, former Parliament Speaker Mehdi Karrubi, rejected a partial recount, the Iranian Labor News Agency said yesterday.

The council ruled out scrapping the election result, Sky News reported, citing state television.

Media Curbs

Iranian authorities ordered restrictions yesterday on the activities of foreign media organizations in the country. Reporters should avoid being present at or covering protests without the permission of the Interior Ministry, the Culture Ministry said in a faxed statement.

The Iranian Foreign Ministry said some foreign media outlets have become the “mouthpiece of rioters” who besmirched the country’s reputation after the election, AFP reported.

The U.S. and several major allies, including Israel, say Iran’s nuclear program is cover for the development of a weapon, a charge denied by the government in Tehran, which says the work is peaceful and intended to generate electricity.

The head of the United Nations nuclear watchdog, Mohammed ElBaradei, told the BBC for the first time he believed Iran wants the option of developing a nuclear weapon. Israeli Defense Minister Ehud Barak said the world “does not have a lot of time” to deal with Iran’s program.

President Barack Obama said yesterday at a White House news conference that the U.S. “won’t meddle” in the election, although he has “deep concerns” about the violence.

Toyota-GM U.S. Plant Said to Be Considered for Prius

2009-06-17T08:52:00.002-07:00

Toyota Motor Corp., after shelving plans to build Prius hatchbacks at a factory in Mississippi, is considering making the hybrid at a California plant shared with General Motors Corp., two people familiar with the plan said.

Toyota expects strong demand in the U.S., where the new model went on sale this month and is raising output in Japan. Given the time and cost to finish the half-built Mississippi facility, it may be easier to make the car at New United Motor Manufacturing Inc., known as Nummi, said the people who asked not to be identified because the discussions aren’t public.

“Toyota put Mississippi in mothballs and as they look around at capacity already in place, Nummi might make sense,” said Jim Womack, chairman and founder of Lean Enterprise Institute in Brookline, Massachusetts. “Nummi builds Corollas, and now that Prius comes off the same underbody pan, it wouldn’t be much of a stretch to build it on the same line.”

Toyota’s outgoing President Katsuaki Watanabe called Prius a “savior” for the world’s largest automaker after it drew more than 80,000 consumer orders before going on sale, a rare bright spot as the company reels from its worst earnings slump in six decades. Prius was Japan’s top-selling model in May.

“The plan is still to build Prius in Mississippi as soon as demand and this economy turn around,” said Jim Wiseman, vice president of external affairs for Toyota’s North American manufacturing unit. Wiseman said he’s unaware of discussion within Toyota to build Prius in California.

Toyota shares gained 0.5 percent to 3,720 yen at the close of trading in Tokyo today.

GM’s Bankruptcy

Toyota and GM have shared the Fremont, California, plant since 1984, running it as a joint-venture equally owned by the two largest carmakers. On June 1, the day GM filed for bankruptcy, Chief Executive Fritz Henderson said his company had no plan yet to get vehicles from Nummi after the Pontiac Vibe goes out of production there next year.

“We’ve talked to them about what we might do and whether or not we have any interest in going forward in even being part of it,” said Henderson.

The factory’s future was called into question by GM’s bankruptcy, which includes closing 12 more plants by the end of 2011 under an accelerated plan to shutter 30 percent of its U.S. assembly sites. Along with the Vibe, derived from Toyota’s Matrix model, Nummi builds Toyota’s Tacoma pickups and Corolla small cars.

Blue Springs

While Detroit-based GM owns half of the plant, Toyota models accounted for 76 percent of output through June 13, according to trade publication Automotive News. GM is dropping Pontiac as part of its plan to shed four of eight U.S. brands.

The factory is California’s only large auto-assembly plant and the only such facility on North America’s West Coast. It has the capacity to make 420,000 cars and trucks a year and employs about 5,400 people, according to the plant’s Web site.

Toyota on Dec. 15 halted work on the $1.3 billion Blue Springs, Mississippi factory after plunging U.S. sales created excess capacity at its North American plants. The company early this year said it would pay the interest on bonds issued by Mississippi for plant-related infrastructure.

The Mississippi facility was to produce Highlander SUVs before Toyota said in July 2008 the factory would make Prius hatchbacks by 2010. In March, Jim Lentz, Toyota’s U.S. sales chief, said “it’s conceivable” that another model could be built there.

California is a costly place to make cars and auto parts, limiting Toyota’s ability to set up a North American supply base for batteries, electric motors and other components needed for gasoline-electric models, said economist Kim Hill, with the Center for Automotive Research in Ann Arbor, Michigan.

Still, Nummi is already supplied with parts shipped across the Pacific from Japan, so it wouldn’t be difficult to keep the factory stocked with the batteries, motors and other components needed for Prius, said John Shook, a University of Michigan management instructor and former Toyota engineer.

“Given how popular Prius is in California, and the push there for plug-in and electric vehicles, there’d certainly seem to be local support to build it there,” Shook said.

Russia, China to Promote Ruble, Yuan Use in Trade

2009-06-17T08:52:00.001-07:00

The leaders of Russia and China agreed to expand use of the ruble and yuan in bilateral trade to lessen dependence on the U.S. dollar a day after they took part in the first summit of the so-called BRIC countries.

“We agreed to take further steps in this direction, including, perhaps, by adjusting contracts and laws that already exist,” Russian President Dmitry Medvedev told reporters in the Kremlin today after talks with his Chinese counterpart Hu Jintao.

Russia, the world’s biggest energy supplier, wants to start selling oil to China in rubles, said Deputy Prime Minister Igor Sechin, who is also chairman of OAO Rosneft, Russia’s biggest oil company. Energy sales in rubles are a “strategic” issue for Russia, he said, adding that oil exports to China over the next 20 years will surpass $100 billion.

Brazil, Russia, India and China agreed yesterday to push for more clout in global financial institutions during what Medvedev called BRIC’s “historic” first summit in the Ural Mountains city of Yekaterinburg. China and Russia have called for a more diversified financial system to give emerging economies a bigger say in economic affairs, including the creation of alternatives to the U.S. dollar as a reserve currency.

‘Symbolic Value’

“Expanding the use of national currencies in mutual settlements is a separate, important task,” Medvedev said. China has the world’s biggest foreign-currency reserves, almost $2 trillion, while Russia is third with more than $400 billion.

The ruble weakened 0.1 percent to 31.2396 against the dollar in Moscow today after earlier strengthening as much as 0.4 percent. The yuan was little changed against the dollar on speculation China will prevent appreciation to avoid a prolonged slump in the nation’s exports.

It will take “at least a couple of years” to start converting the first contracts into domestic currencies, said Elina Ribakova, Citigroup Inc.’s chief economist in Moscow.

Today’s announcement has “important symbolic value,” she said. “If you take a 10- or 20-year perspective, trade between Russia and China will increase significantly.”

Total trade between the neighboring countries reached a record $56.8 billion last year, according to the Kremlin.

After today’s Moscow meeting, Russia and China signed an agreement worth $3 billion to cooperate in trade and investment in areas including light industries, high technology and energy.

U.S. Deficit

The dollar’s status has come into question as leaders of the BRIC nations consider substituting other assets for their dollar holdings amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. China alone owns about $744 billion of U.S. Treasury bonds among its $2 trillion of foreign- exchange reserves.

Russian central bank First Deputy Chairman Alexei Ulyukayev’s comment on June 10 that Russia may sell some of its U.S. bonds to buy International Monetary Fund notes helped push 10-year yields on Treasuries to the highest level since October.

Brazilian President Luiz Inacio Lula da Silva today denied that BRIC leaders discussed buying each other’s bonds at the Yekaterinburg summit, after Medvedev’s top economic adviser said the matter might be discussed.

Dollar bonds sold by China earned 11.4 percent in the past year, more than double the 4.6 percent for debt in yuan, JPMorgan Chase & Co. indexes show. Brazil’s U.S. currency bonds returned 3.6 percent as real-based notes lost 4.9 percent, and Russia’s dollar bonds outperformed with a 1.9 percent loss compared with a 7 percent drop in ruble debt. India doesn’t have dollar-denominated debt.

Cantillon Said to Exit Hedge Funds, Expand Long-Only Business

2009-06-17T08:51:00.000-07:00

Cantillon Capital Management LLC, the $4.5 billion asset-management firm run by William von Mueffling, is closing its two hedge funds to focus on long-only investing, according to people familiar with the matter.

Cantillon plans to return money to clients of its $2.7 billion Cantillon World fund and $800 million Cantillon European fund by the end of September, said the people, who asked not to be identified because the information is private. Rupert Tyer, a spokesman for the New York-based firm, declined to comment.

The firm is offering clients the option of moving into its long-only strategies, which buy securities on the expectation they will rise in value. Von Mueffling, who started the firm in 2003, oversees more than $1 billion in long-only assets, said the people.

Fed Weighs Using FOMC Statement to Damp Rate-Rise Speculation

2009-06-17T08:50:00.000-07:00

Federal Reserve officials are considering whether to use next week’s policy statement to suppress any speculation they’re prepared to raise interest rates as soon as this year.

While policy makers have signaled they accept an increase in longer-term Treasury yields as the economy improves, some are concerned at any premature anticipation of rate rises. Fed staff have examined the Bank of Canada’s public intention of foregoing an increase until 2010, according to a person familiar with the matter, without concluding the statement has proven effective.

One option would be to emphasize in the June 24 statement that increasing slack in the job market and U.S. manufacturing will keep inflation low and a recovery muted, said Michael Feroli, an economist at JPMorgan Chase & Co. in New York and former member of the Fed Board staff. At stake: keeping borrowing costs low enough to foster a sustained recovery, without binding the central bank to a single course of action.

“There are ways of highlighting their low rate expectations without over-committing,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

Chairman Ben S. Bernanke and his fellow Federal Open Market Committee members gather in Washington June 23-24. Economists forecast they will keep their target for the benchmark federal funds rate at zero to 0.25 percent. Policy makers will also discuss any changes to their commitment to purchase as much as $300 billion of Treasuries and $1.45 trillion of housing debt.

‘Extended Period’

In its past two statements, the FOMC has said “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Markets have signaled they’re no longer heeding that language. Two-year Treasuries have slid since a June 5 government report showed the smallest decline in payrolls in eight months, with the notes yielding 1.18 percent late yesterday, up from 0.91 percent at the start of the month.

Federal funds futures contracts for March carry a yield of 0.765 percent, indicating some probability of a rate boost by the first quarter of 2010.

While job losses are slowing, Fed officials have repeatedly warned that the unemployment rate is likely to climb for months to come. President Barack Obama said yesterday in a Bloomberg Television interview he anticipates the rate will reach 10 percent this year, from 9.4 percent in May.

New Forecasts

Fed governors and district-bank presidents will bring a fresh round of economic forecasts to the central bank’s boardroom next week. They are likely to raise their unemployment forecast from a previous projection of 9 percent to 9.5 percent for the fourth quarter of next year, analysts said.

Enhancing the statement with details on their latest views on inflation and joblessness might be the best way to back markets down from expected rate hikes. JPMorgan Chase estimates that labor-market slack won’t disappear until the unemployment rate drops to around 6 percent.

“How do you get people to believe what you have been saying?” Feroli said. “You say you are going to have a very large output gap for an extended period,” and even if the economy picks up “you still have a massive resource gap in the labor market.”

An output gap is an estimate of the difference between the economy’s potential to grow given resources such as labor and manufacturing capacity and its actual growth rate. The estimate figures into Fed calculations about future inflation.

Increasing Slack

Underscoring the still-increasing slack in the economy, the Fed yesterday reported that the share of the nation’s industrial capacity in use dropped to a record low of 68.3 percent in May.

“They need to put something in writing in the statement related to the way they see the economic outlook,” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut. “The level of activity is still very low, and inflation will be benign for the foreseeable future.”

Longer-term Treasury yields have risen even more than those on short-term securities, an indication some investors are anticipating faster gains in consumer prices. Fed officials have signaled they’re comfortable with the increase so far.

“The economy is doing better and less worse than it was before; I am not surprised to see rates back up,” Dallas Fed President Richard Fisher said in a June 15 interview with Bloomberg Television. “There is so much slack in the system,” he also said. “The idea of tightening from where we are -- I don’t see it in the immediate future.”

Bernanke History

Bernanke was a proponent of using statement language to tether short-term rate expectations when he was a Fed governor in 2003. Then-Chairman Alan Greenspan introduced the phrase “considerable period” in August of that year to put a time commitment on the existing 1 percent rate target.

Bernanke supported Greenspan in a debate over the phrase at the August meeting: “The addition of the sentence will go some way to bringing policy expectations in the market toward what I heard around the table during the entire meeting today,” he said, according to an FOMC transcript.

The Bank of Canada recently took time commitment a step further. On April 21, the Canadian central bank reduced its key rate to 0.25 percent, the lowest in its history, and said that “conditional on the outlook for inflation, the target overnight rate can be expected to remain at its current level until the end of the second quarter of 2010.”

A calendar commitment isn’t likely to prove popular with all Fed officials, because some want to maintain flexibility to reverse the central bank’s record balance-sheet expansion in excess of $1 trillion over the past year.

“Part of rightsizing will be to decide where boldness ends,” Charles Evans, president of the Chicago Fed and voting member of the FOMC, said June 15.

Treasuries Post Longest Rally Since January After CPI Report

2009-06-17T08:49:00.000-07:00

Treasuries rose for a fifth day, the longest rally in five months, after a government report showed consumer prices rose less than forecast in May, easing concern inflation will accelerate as the economy strengthens.

Longer-maturity debt, more sensitive to inflation expectations, rallied, with the yield on the 30-year bond dropping to the lowest in over two weeks. The Federal Reserve bought $7 billion of debt maturing between 2016 and 2019 today, less than its last purchase in that range. Central bank officials are considering whether to use next week’s policy statement to suppress any speculation they’re prepared to raise interest rates as soon as this year.

“It’s a good time for the market to trade better,” said Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in New York, one of 16 primary dealers that trade with the Fed. “Inflation is not a huge problem yet.”

The yield on the benchmark 10-year note fell three basis points, or 0.03 percentage point, to 3.63 percent at 11:06 a.m. in New York, according to BGCantor Market Data. The yield has fallen for five consecutive days, the longest rally since Jan. 14. The 3.125 percent security due May 2019 rose 1/4, or $2.50 per $1,000 face amount, to 95 27/32.

The 30-year bond yield touched 4.4308 percent, the lowest since June 1.

The Fed bought $7.5 billion of the securities offered at its last purchase of debt with maturities around today’s range. The average size of the five Fed purchases before today in this range is $7.6 billion.

The Treasury resumes note sales next week, with auctions over the three days starting June 23.

Borrowing Costs

The consumer price index rose 0.1 percent after being unchanged a month earlier, the Labor Department said today in Washington. Economists expected an increase of 0.3 percent, according to the median of 75 estimates in a Bloomberg News survey. In the 12 months ended in May, costs dropped 1.3 percent, the biggest decline since 1950.

Prices paid to U.S. producers rose 0.2 percent in May, less than forecast, the Labor Department said yesterday.

“The number confirms the weakness we saw at the wholesale level yesterday,” said Martin Mitchell, head of government-bond trading at the Baltimore unit of Stifel Nicolaus & Co. “The pressures have to be deflationary and not inflationary.”

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, has fallen about 35 basis points to 1.78 percentage points over the past week. The figure has averaged 2.23 percentage points for the past five years.

Rate Cuts

The less-than-anticipated rise in consumer prices will allow Fed policy makers to keep the benchmark lending rate between banks at a low level for longer. The Fed’s target rate is at a record low range of zero to 0.25 percent.

Traders expect a 48 percent chance the central bank will raise interest rates by the end of the year, based on futures on the Chicago Board of Trade. Expectations were over 60 percent a week ago. The Federal Open Market Committee meets on monetary policy June 24 and 25.

Fed officials are considering whether to use next week’s statement to suppress any speculation they’re prepared to raise interest rates as soon as this year. While policy makers have signaled they accept an increase in longer-term Treasury yields as the economy improves, some are concerned at any premature anticipation of rate rises.

Ten-year note yields have risen about 110 basis points since the Fed announced on March 18 it would seek to cap borrowing costs by purchasing as much as $300 billion in Treasuries over six months. The 10-year note touched 4 percent June 11.

Purchases, Sales

The central bank’s debt purchase today follows yesterday’s acquisition of $6.45 billion of three-year securities.

The U.S. may sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, according to primary dealer Goldman Sachs Group Inc. The Treasury sold $65 billion in coupon securities last week and will auction two-, five-and seven-year securities next week.

“There is a large feeling that we hit the highs in yield last week because of supply,” said Adam Brown, managing director and Treasury trader at primary dealer Barclays Capital Inc. in New York. “The absence of supply has allowed the market to rally back to what people think are fair levels.”

U.S. debt has handed investors a loss of 4 percent since March 31 amid the increase in supply, heading for the worst quarter since the securities lost 5.9 percent in the first three months of 1980, according to Merrill Lynch & Co.’s U.S. Treasury Master Index.

‘I Am Concerned’

President Barack Obama said yesterday that the rise in the nation’s debt burden is cause for concern. The Congressional Budget Office projects the federal budget shortfall will reach a record $1.85 trillion this year, with the gap exceeding $600 billion through the year 2019.

“I am concerned about the long-term issue of our structural deficit and our long-term debt,” Obama said in an interview with Bloomberg Television at the White House. “If we don’t get a handle on that, then there’s no doubt that, at some point, you know, whether it’s the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries, are going to decide that this is too much of a risk.”

Rising Treasury yields have also pushed up mortgage rates, threatening the economic recovery. Thirty-year fixed-rate mortgages jumped to 5.53 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan dropped 16 percent to 514.4 in the week ended June 12, from 611 the prior week. The group’s refinancing gauge declined 23 percent, while the purchase index fell 3.5 percent.

U.S. Consumer Prices Rose Less Than Forecast in May

2009-06-17T08:48:00.000-07:00

The cost of living in the U.S. rose less than forecast in May, culminating in the biggest 12-month drop in prices in almost 60 years.

The consumer price index increased 0.1 percent after no change a month earlier, the Labor Department said today in Washington. In the 12 months ended in May, costs dropped 1.3 percent, the biggest decline since 1950.

Higher commodity prices, including gasoline, will probably restrain Americans’ discretionary spending at a time when the economy is showing signs of stabilizing. The lack of sustained gains in sales is one reason companies are finding it difficult to pass increasing costs on to customers.

“There’s not pricing power in this otherwise very weak economy,” said Richard DeKaser, chief economist at Woodley Park Research in Washington. “Inflation is going to remain very weak and over the next year will continue to weaken given the tremendous amount of slack in the economy.”

Economists forecast consumer prices rose 0.3 percent, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from a 0.1 percent decrease to a gain of 0.6 percent.

Excluding food and fuel, costs also climbed 0.1 percent, matching the median forecast. Compared with a year earlier, the so-called core rate increased 1.8 percent, down from a 1.9 percent 12-month gain in April.

Market Reaction

Treasury securities rose, erasing earlier losses, after the report showed inflation wasn’t accelerating. The yield on the benchmark 10-year note fell to 3.62 percent at 9:49 a.m. in New York from 3.66 percent yesterday.

Energy costs increased 0.2 percent in May, as a 3.1 percent rise in the cost of gasoline was partly offset by declines in fuel oil and natural gas.

A separate Commerce Department report showed the U.S. current-account deficit narrowed in the first quarter to $101.5 billion, the least since 2001, reflecting a smaller shortfall in trade of goods.

These prices may continue to rise in coming months. The average price of a gallon of regular gasoline at the pump is up 65 percent this year, reaching an almost eight-month high of $2.68 yesterday, according to data from AAA.

Gasoline Prices

Should retail gasoline prices peak at $2.75 a gallon, the increase since the start of the year will deduct $50 billion at an annual rate from household cash flows, according to a forecast by Richard Berner, co-head of global economics at Morgan Stanley in New York. The loss would offset almost all the benefit of the tax cuts from the Obama administration’s stimulus plan, he said in a June 8 report.

Food prices, which account for about a seventh of the CPI, decreased 0.2 percent in April, reflecting lower costs for all major categories including fruits and vegetables, meats and dairy products.

The core index was constrained by falling prices for public transportation, apparel and tobacco. Rents which, make up almost 40 percent of the core CPI, were also subdued. A category designed to track rental prices rose 0.1 percent.

New vehicle prices climbed 0.5 percent. Car costs may decline in coming months as automobile makers slash prices or increase incentives to revive demand and lighten bloated inventories.

Auto Incentives

Chrysler, seeking to restructure under bankruptcy, began offering five-year, no-interest loans on some models this month. The financing, announced June 3, runs through July 1 and is an alternative to rebates of as much as $6,000 for consumers who buy through certain credit unions and already own a Chrysler vehicle. The cash option was put in place last month.

Macy’s Inc. was among retailers cutting prices to clear stockpiles. Aeropostale Inc. earlier this month was offering 20 percent off women’s dresses. American Eagle Outfitters Inc. was giving 50 percent off the purchase of a second graphic t-shirt.

The CPI is the broadest of the three monthly price gauges from Labor because it includes goods and services. The cost of goods imported into the U.S. rose 1.3 percent in May, the government reported last week. Wholesale prices increased a smaller-than-anticipated 0.2 percent, the department said yesterday.

Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.

Fed President

Richard Fisher, president of the Federal Reserve Bank of Dallas, this week dismissed concern that the central bank’s record purchases of assets will cause inflation to soar. Fisher, who describes himself as among the most aggressive inflation fighters on the Federal Open Market Committee, said it’s inappropriate to be overly concerned on price pressures now because of the amount of “slack” in the economy.

Fed policy makers meet to discuss the direction of interest rates next week. Concern over the amount of money the Fed has pumped into financial markets and the size of upcoming government securities auctions to pay for stimulus efforts has caused interest rates on Treasuries to shoot higher in recent weeks.

S&P Cuts U.S. Banks, Citing Regulation, Volatility

2009-06-17T08:47:00.000-07:00

Standard & Poor’s reduced its credit ratings on 18 U.S. banks, including Wells Fargo & Co., Capital One Financial Corp. and KeyCorp, citing tighter regulation and increased market volatility.

Five of the lenders, Carolina First Bank, Citizens Republic Bancorp Inc., Huntington Bancshares Inc., Synovus Financial Corp. and Whitney Holding Corp., were cut to “junk” status. High-yield, high-risk, or junk, debt is rated below BBB- by S&P.

“Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality,” S&P credit analyst Rodrigo Quintanilla said in a statement today. “Such a transition period justifies lower ratings as industry players implement changes.”

Banks and financial firms worldwide have recorded more than $1.4 trillion in writedowns and credit losses since 2007 as the U.S. housing market collapsed and the economy sank into recession. President Barack Obama is expected today to announce a proposal, crafted by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, to revamp financial regulation.

“The broad sense is we have not seen the bottom there yet,” said Bert Ely, a banking consultant in Alexandria, Virginia. “For later this year, and into next year, there are just big question marks out there.”

BB&T, Regions

BB&T Corp., Regions Financial Corp. and U.S. Bancorp were also among the lenders downgraded today. S&P said it plans to hold a conference call tomorrow to discuss the decision, which came after S&P placed 23 financial companies on watch last month for possible downgrades.

S&P today affirmed PNC Financial Services Group’s A credit rating and moved its outlook on the lender to stable from negative.

The 24-company KBW Bank Index fell 4 percent as of 11:05 a.m., extending its drop so far this year to 20 percent.

Credit-default swaps of Wells Fargo rose 10 basis points to 155 basis points, the highest since May 7, at 10:07 a.m. in New York, according to CMA DataVision. Contracts on Capital One Financial Corp. jumped 23 basis points to a one-month high of 204 basis points, the biggest gain since April 21.

BB&T’s 6.85 percent notes due in 2019 fell 0.45 cent to 102.1 cents on the dollar to yield 6.6 percent, according to Trace, the bond-pricing system of the Financial Industry Regulatory Authority.

Bonds of banks and insurers have rallied 17 percent since March 10 through yesterday as investors gained confidence the worst of the financial crisis has passed, according to Merrill Lynch & Co. index data.

Iran May Recount Some Votes After Protesters Killed

2009-06-16T09:23:00.000-07:00

Iran’s Guardian Council, which supervises elections, may order a recount of some votes in the disputed presidential ballot after the biggest anti-government demonstrations since the shah was deposed in 1979.

The council of 12 clerics and lawyers may authorize a second count in areas where President Mahmoud Ahmadinejad’s victory was questioned, state television quoted Abbas Ali Kadkhodaei, the body’s spokesman, as saying today. He said all three challengers in the June 12 election had made “vague” complaints and were asked to elaborate. Kadkhodaei didn’t say what proportion of the 39 million votes cast may be reviewed.

Supporters of former premier Mir Hossein Mousavi, who accuse the authorities of vote-rigging, planned a fourth day of rallies, including a gathering in central Tehran. Tens of thousands of Ahmadinejad’s supporters took part in a demonstration in the city ahead of the opposition rally, state television said.

As many as eight people were killed and 25 injured yesterday when security forces fired on protesters, the British Broadcasting Corp. reported, citing state radio.

The possibility of invalidating votes “is not far from the imagination,” Kadkhodaei said today in response to a question at a news conference in Tehran. “But how accurate are the claims? That must be studied.” The Council ruled out a demand by opposition leaders to scrap the election result, Sky News reported, citing state television.

Rial Falls

The Iranian rial fell for a second day, declining 0.8 percent to 9,915 against the dollar. The currency’s rate is managed by Bank Markazi, the central bank. Iran’s benchmark index, the TEPIX, dropped 0.3 percent to 9,271, trimming the advance for 2009 to 7 percent, according to data published on the Web site of the Tehran Stock Exchange.

Mousavi and another candidate, former Parliament Speaker Mehdi Karrubi, 71, rejected a partial recount, the Iranian Labor News Agency said.

“As the representative of Mousavi and Karrubi, I asked for the election to be annulled and fresh elections to be held,” ILNA cited Ali Akbar Mohtashamipour, the head of a joint committee set up by Mousavi and Karrubi, as saying.

The unidentified representative of a third unsuccessful candidate, Mohsen Rezai, 54, a former Revolutionary Guards commander, asked for a partial recount, Mohtashamipour said at a news conference following a meeting with the Guardian Council. Mohtashamipour said he had rejected that idea.

Unemployment, Inflation

The protests are pitting young Iranians and more educated voters who want social freedoms and better ties with the West against the Islamic republic’s ruling clergy. Ahmadinejad is accused by his opponents of wrecking the economy, which suffers from high unemployment and inflation, and driving Iran into international isolation through his confrontation over the country’s nuclear program.

The U.S. and several major allies including Israel say the nuclear program is cover for the development of a weapon, a charge denied by the government in Tehran, which says the work is peaceful and intended to generate electricity.

Iranian authorities ordered restrictions today on the activities of foreign media organizations in the country.

“No reporting activities should take place without coordination and permission of this office,” the Culture Ministry in Tehran said in a faxed statement. Reporters should avoid being present at or covering illegal protests without the permission of the Interior Ministry, it added.

Results Tentative

Mousavi, 67, has called for the election result to be scrapped after the official tally gave him about 34 percent of the vote and the incumbent almost 63 percent.

The results announced by the Interior Ministry are tentative and must be verified by the Guardian Council, Kadkhodaei said. The opposition candidates’ complaints will be discussed in the next 10 days, he added.

Human rights groups have accused state security forces of using excessive violence to quell the protests and said live ammunition was used on demonstrators in several Iranian cities.

Mousavi called today for calm at demonstrations in Tehran. He said he won’t attend the event in the city, according to a statement on his Web site.

Supreme Leader Ayatollah Ali Khamenei has told Mousavi to pursue his complaint through legal channels and asked the Guardian Council to carefully consider the allegations, state television reported.

‘Gesture’

While such an investigation is little more than a “gesture,” the decision to examine the fairness of the election shows that the Iranian leadership feels it is under pressure, said Professor Anoush Ehteshami, a lecturer at the Centre for Iranian Studies at Durham University in northeastern England.

Ahmadinejad, 52, who has insisted the election was fair, was today attending a meeting in Yekaterinburg, Russia, with the leaders of Russia, China, India and Central Asian nations. At the event, the president said the U.S. and its allies are incapable of solving the global financial crisis, declaring, “The end of the era of empires is near.”

In what may be a sign of tensions within the ruling elite, Parliament Speaker Ali Larijani held accountable Interior Minister Sadegh Mahsouli for attacks on civilians and university students in Tehran in recent days, ILNA reported.

Speaker’s Comments

“What’s the meaning of attacking university students at midnight in their dormitory,” Larijani said at the start of a Parliamentary session today, the news agency reported. “The interior minister is responsible for this and should answer.”

Mohammad Ali Abtahi, a former vice president who was an adviser to ex-Parliament Speaker Karrubi, was arrested overnight, Karrubi’s office said. Another prominent activist, Saeed Hajjarian, was also held, according to Karrubi’s office.

Security forces arrested the “main agents” behind post- election unrest and found them armed with guns and explosives, Sky News reported, citing Iran’s state television.

Iranian leaders will probably take decisive action to quell the protests, said Richard Bulliet, an Iran specialist at Columbia University.

“It will be dampened down and the U.S. and foreign governments will have to resign themselves to dealing with the Ahmadinejad regime,” Bulliet, a professor of history at Columbia’s Middle East Institute, said by phone yesterday from New York.

Nuclear Weapons

Ahmadinejad may see success at the ballot box as a vindication of his policies. That could be a setback for the Obama administration’s policy of engaging Iran in dialogue, rather than ostracizing it, as a means to ensure the Islamic republic doesn’t acquire nuclear weapons.

President Barack Obama said the “world is watching” the demonstrations. “We do believe the Iranian people and their voices should be heard,” Obama said yesterday in Washington, adding he is “deeply troubled” by the situation in the country.

It is “extremely unlikely that there will be any significant adjustment in the election outcome,” Alastair Newton, a senior political analyst at Nomura International Plc in London wrote in a market commentary yesterday.

Markets in general and the oil market in particular will follow political developments in the region increasingly closely after the election, Newton said. Further United Nations sanctions remain more likely than military intervention if Iran fails to respond substantively to international pressure on its nuclear program.

‘Diplomatic Efforts’

“But, absent of evidence of real progress with diplomatic efforts by the year-end, we continue to judge that the likelihood of Israeli military intervention could start to increase sharply,” Newton said.

Crude oil rose for the first time in three days as the dollar weakened against the euro and before a report forecast to show a drop in U.S. inventories. Crude for July delivery rose $1.79, or 2.5 percent, to $72.41 a barrel at 9:05 a.m. on the New York Mercantile Exchange.

“For the time being, the Iranian situation seems to be neutral,” said Edward Meir, analyst with MF Global Ltd. in Connecticut. “Although the oil markets were unimpressed by the frenzied weekend developments,” events seem “to have picked up a gear over the past 24 hours, in that the size of the opposition protests have become significantly larger.”

Shah Ousted

The shah, Mohammed Reza Pahlavi, was ousted in 1979 after months of anti-monarchy demonstrations. He had ascended the Peacock Throne after his father was forced out by allied forces in World War II. The shah developed closer ties to the West and promoted economic development, angering many Shiite Muslims who favored adherence to religious tradition, during a reign that became increasingly autocratic.

By the mid-1970s, the shah’s links to the U.S. and the suppression of dissent were fueling anger among university students, the poor and the Shiite Muslim clergy. Anti-shah riots spread throughout 1978 and his opponents united behind Shiite leader Ayatollah Ruhollah Khomeini.

From exile in Paris, Khomeini declared the civilian government illegal on Jan. 13, 1979, and announced the establishment of an Islamic council to replace it. Three days later, the shah left the country. Khomeini returned to a hero’s welcome on Feb. 1, 1979, and became the theocracy’s highest authority. The shah died in 1980 in Egypt.

Zicam Cold-Remedy Maker Matrixx Dives, After U.S Warns of Risk

2009-06-16T09:22:00.001-07:00

Matrixx Initiatives Inc., maker of Zicam Cold Remedy products sold in drugstores, lost more than half its value in Nasdaq trading after U.S. regulators warned its products may cause users to lose their sense of smell.

Matrixx, based in Scottsdale, Arizona, fell $10.68, or 56 percent, to $8.56 before Nasdaq Stock Market trading was halted. That’s the biggest intraday decline since its 1996 initial public offering.

The Food and Drug Administration warned the company today its homeopathic Zicam Cold Remedy Nasal Gel, Gel Swabs and Kids Size swabs have been linked to more than 130 reports of people losing their sense of smell. The FDA letter says many homeopathic products can be sold without U.S. approval. Because of “a significant and growing body of evidence” that the Zicam products “may pose a serious risk to consumers,” the agency said Matrixx must get FDA approval for its remedies.