January 2010 - Business - WebPeller.com

Barack Obama retools tax credit idea for creating jobs

President Barack Obama is taking another swing at offering tax credits to companies that hire new workers, a plan that drew a cool reception from Congress last month despite the nation's high unemployment rate.

With polls showing that jobs are Americans' top priority, Obama cited the retooled plan in his State of the Union address, and he is to detail it Friday when he visits a small business and speaks to House Republicans meeting in Baltimore.

His proposal would give companies a $5,000 tax credit for each net new worker they hire in 2010. Businesses that increase wages or hours for their existing workers in 2010 would be reimbursed for the extra Social Security payroll taxes they would pay.

No company could reap more than $500,000 from the combined benefits, one of several features meant to tailor the program more to small businesses than to large corporations. Startup companies could receive half that amount. Existing companies could not close down and then reopen under a new name and receive any benefits, White House officials said.

The program, which needs congressional approval, would end Dec. 31 and would cost an estimated $33 billion. Administration officials proposed funding it with money repaid to the government from the 2008-09 bank bailout program. The Social Security system would not lose any revenue under the plan, which officials described Thursday ahead of Obama's Baltimore visit.

Obama first promoted the idea of a tax credit for adding workers late last year. But House Democrats omitted it from a jobs bill they passed in December because of doubts about how to make the credit work.

Administration aides say the revised proposal will be less susceptible to abuse from employers trying to game the system. Companies that fire workers and then quickly replace them would not qualify for the tax breaks, officials said.

Wage increases for high-income employees also would not qualify. No one pays Social Security payroll taxes on income above $106,800, so any pay increases above that level would trigger no reimbursement to the employer.

Despite the House's recent rejection of a similar plan, the idea of tax credits for job creation has caught on among Senate Democrats. They plan to include such a credit in a scaled-down jobs bill to be voted on in February.

The nonpartisan Congressional Budget Office recently analyzed several proposals to create jobs and improve the economy and concluded that a payroll tax credit for companies that increase payroll would be among the most effective. However, the analysis cautioned that it could be difficult to administer.

Some tax experts say it is hard to prevent abuse by companies that artificially increase their payrolls. But White House officials said they believed regulators would detect such attempts in the great majority of cases.

Some analysts, however, said safeguards against abuse could make the credit too cumbersome for small businesses to use. "If it's big enough to be effective, then it's big enough for businesses to try to game it," said Ben Harris, a senior research associate at the Brookings Institution, a Washington think tank.

Congress enacted a similar tax credit in the 1970s and few small businesses took advantage, the CBO report said.

Republicans generally embrace almost any tax cut proposal. But Obama might receive a lukewarm reception for his proposal on Friday.

"From a policy perspective, it's very difficult to make it work," said House Minority Leader John Boehner, R-Ohio.

Rep. Mike Pence, R-Ind., said he understands why a tax break for adding jobs would be popular. But, he said, businesses won't hire new employees until there is increased demand for their products.

"These targeted tax cuts, while individually appealing, are no substitute for the kind of broad-based tax relief that will release the entrepreneurial energy of the American people," said Pence, chairman of the House Republican Conference.

Natural gas stocks decline less than expected

Natural gas stockpile levels fell last week less than analysts expected, the government said Thursday.

The Energy Department's Energy Information Administration's weekly report showed that natural gas inventories held in underground storage in the lower 48 states dropped by 86 billion cubic feet to about 2.52 trillion cubic feet for the week ended Jan. 22.

Analysts forecast a draw of between 107 billion and 111 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The inventory level was 3.6 percent above the five-year average of about 2.43 trillion cubic feet, and 5 percent above last year's storage level of about 2.4 trillion cubic feet, according to the government data.

Natural gas fell by 7.4 cents to $5.150 per 1,000 cubic feet on the New York Mercantile Exchange.

World stock markets gain after Obama address

World stock markets recovered their poise Thursday after the U.S. Federal Reserve indicated that interest rates would not rise soon — even though the first cracks appeared on the central bank's rate-setting committee.

President Barack Obama's focus on the economy in his first State of the Union speech and a seemingly less hostile attitude to the banks in the speech also helped stocks to rally in Asia and Europe and lift expectations about the U.S. open.

In Europe, the FTSE 100 index of leading British shares was up 10.02 points, or 0.2 percent, at 5,227.49 while Germany's DAX rose 19.58 points, or 0.4 percent, to 5,662.78. The CAC-40 in France was 16.69 points, or 0.4 percent, higher at 3,776.49.

A modest advance was also expected on Wall Street — Dow futures were up 15 points, or 0.2 percent, at 10,210 while the broader Standard & Poor's 500 futures rose 1.9 point, or 0.2 percent, to 1,096.50.

Stocks around the world had been in retreat for most of the last week in the wake of Obama's announcement that he plans to impose restrictions on banks more risky trading activities as well as mounting speculation that China is looking to rein in bank lending to prevent a nasty inflationary spike.

But the stock market tone has been broadly positive ever since the Fed's policy statement on Wednesday, which was issued towards the end of the trading day on Wall Street.

The Fed said "economic activity has continued to strengthen" since its last meeting in December even though it failed to repeat its previous assertion that the housing market was improving.

Despite that, the majority of the Federal Open Market Committee signed up to retaining the commitment to keep interest rates at "exceptionally low levels...for an extended period."

Nevertheless, the improving economic picture was enough to prompt Kansas City Fed president Thomas Hoenig to argue that the "conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted."

For stock market investors, the prospect of U.S. interest rates staying at between zero and 0.25 percent for a few more months to come was enough to prompt some buying.

Tim Hughes, head of sales trading at IG Index, said the move appears to have "countered recent fears that China is gradually moving in the opposite direction by tightening its purse strings."

Also fueling the modest uptick in optimism was the President's vow to focus political attention on the U.S. economy.

Hughes said this "may have provided a small boost for equities, but the real market-shifter was the gentler tone he took with the banks — a move which has seen investors flood back to the sector today."

Investors are getting increasingly vexed over possible policy changes in China, as the country's growth helped limit the impact of the global recession over the last year — figures last week showed that China's economy grew an eye-catching 10.7 percent in the final three months of the year from the year before.

Concerns about the debt situation in a number of European countries is also at the forefront of investors' concerns, particularly in Europe — that has sent the euro sliding down from its 16-month dollar highs in late November.

Portugal, in particular, is now being viewed with suspicion in the markets, especially after credit ratings agency Moody's said "a credible plan for deficit reduction will be needed to ensure the government's ability to reverse its adverse debt dynamics, and in turn to avoid further downward pressure on its ratings."

Moody's last rating action on Portugal was implemented in October 2009, when the rating agency placed a negative outlook on the government's Aa2 bond ratings.

"Sovereign debt risk in the eurozone area remains a key theme and the focus can shift to Spain and Portugal where there has also been a sharp deterioration in budget deficits and debt levels," said Neil Mackinnon, global macro strategist at VTB Capital.

"All of this is likely to keep weighing on the euro where the trade-weighted exchange rate is now close to virtually giving up most of its 2009 gains," he added.

By late morning London time, the euro was 0.1 percent lower at $1.40 even though figures from the European Commission showed economic sentiment in the 16-country single currency zone up for the ten-month running in January.

Meanwhile, the dollar was 0.4 percent higher at 90.29 yen and benchmark crude oil for March deliver rose 58 cents to $74.25 a barrel.

In Asia Japan's Nikkei 225 stock average jumped 162.21 points, or 1.6 percent, to 10,414.29 and Hong Kong's Hang Seng added 323.30 points, or 1.6 percent, 20,356.37. South Korea's Kospi advanced 1 percent to 1,642.43.

Elsewhere, Shanghai's market was up 0.3 percent, Australia added 0.6 percent and India's index ticked up 0.1 percent. Taiwan's market gained 1.8 percent.

Ford earns $2.7 billion in 2009

Ford Motor Co. says it made $2.7 billion in 2009, its first annual profit in four years.

Ford says it benefited from cost-cutting, debt reduction and popular cars and trucks like the Ford Fusion sedan and Escape SUV. It's enjoying customer goodwill for avoiding bankruptcy and refusing federal aid.

Ford's net income of 86 cents per share rose from the year before, when it lost a record $14.6 billion.

In the fourth quarter, Ford says it earned $868 million, or 25 cents per share. That is up $6.8 billion from a year earlier. Ford earned money in three of the four quarters last year.

Ford says it expects to be profitable next year as well.

Ford gained market share in North and South America and Europe, despite the economic downturn.

Japan's exports grow for first time in 15 months

Japan's exports grew for the first time in 15 months in December as robust Asian demand fueled recovery in the world's second-biggest economy.

Exports jumped 12.1 percent from a year earlier to 5.4 trillion yen ($60 billion) in the month, the finance ministry said Wednesday.

Asia-bound exports, which account for more than 50 percent of Japan's total shipments, surged 31.2 percent to 3.0 trillion yen, the ministry said. Japan's exports to China soared 42.8 percent to 1.1 trillion yen on brisk sales of cars, plastics and organic chemicals.

The results underscore the rising importance of emerging Asian economies in Japan's struggle to sustain growth. The country has emerged from its worst recession since World War II but its prospects are threatened by deflation, a resurgent yen and persistently weak domestic demand.

"Asia is driving this improvement," said Goldman Sachs economist Chiwoong Lee. Goods of all types — from machinery to electronics — are benefiting, he said.

China last year surpassed the U.S. to become Japan's biggest export market for the first time since comparable figures became available in 1979.

The Bank of Japan on Tuesday cited Asia's rapid growth in narrowing its forecast for economic contraction this year. It now projects gross domestic to fall 2.5 percent this fiscal year through March, better than its previous prediction of a 3.2 percent decline.

On the deflation front, however, the central bank expects prices to keep falling for another couple of years. It pledged to maintain an extremely easy monetary policy to help boost prices.

A resurgent yen also poses a vexing problem for the country's exporters. A strong yen reduces their international competitiveness and erodes the value of overseas earnings.

The Japanese currency has gained about 3 percent against the dollar since the beginning of the year.

Exports to the European Union increased 1.4 percent to 641.3 billion yen, up for the first time in 17 months. U.S.-bound shipments, however, continued to decline, down 7.6 percent to 832.7 billion yen.

Imports in December fell 5.5 percent to 4.9 trillion yen, leading to a trade surplus of 545.3 billion yen, the ministry said.

For the 2009 calendar year, exports tumbled 33 percent to 54.18 trillion yen, while imports plunged 35 percent to 51.37 trillion yen, according to the ministry.

UAL 4Q loss shrinks; business travel picking up

United Airlines said business travel is improving, echoing comments from rivals Delta and American, and its fourth-quarter loss was much smaller than a year ago.

UAL Corp., which runs the nation's third-largest airline, lost $240 million during the fourth quarter. That's much smaller than the $1.32 billion loss during the same period last year. Not counting fuel hedges and special items, it lost $1.05 per share. Analysts surveyed by Thomson Reuters expected it to lose $1.47 per share.

"With business and premium traffic strengthening and the benefit of an improved cost structure, we are well on the road to closing the profitability gap," Chief Financial Officer Kathryn Mikells said in a prepared statement.

An improvement in business travel is one of the key things analysts have been watching for as a sign that United's prospects are getting brighter. The layout of its routes means that United suffered more than other airlines when business travel dropped — and it should stand to gain as business travel returns.

Revenue fell 7.8 percent to $4.19 billion.

"On an operating basis, we were break-even, which is a significant accomplishment in what is seasonally one of our weakest quarters," Mikells said.

United said fuel hedges will cap 70 percent of its fuel at the equivalent of $75 per barrel of oil. For the full year, 40 percent of its fuel is capped at $77 per barrel.

United said it will make about $60 million in aircraft deposits during the first quarter for the big jet order it announced late last year.

PROMISES, PROMISES: Barack Obama revives jobs tax credit

President Barack Obama's push to create jobs includes a new tax credit for small businesses that add employees, an idea that has appeal as the nation struggles with an unemployment rate topping 10 percent.

It is an idea, however, that fell flat in Congress when Obama first proposed it last year because lawmakers didn't know how to target the credit effectively. The Obama administration still hasn't provided details on how the tax credit would work, and some tax experts question whether it would.

"It's very hard to know when a company is incrementally adding jobs because of a tax credit, and when they would have done it anyway," said Eugene Steuerle, a Treasury Department official in the Reagan administration who is now co-director of the Tax Policy Center, a Washington think tank. "I'm sympathetic to subsidizing low-wage jobs. It's just a question of how you design it."

Congressional researchers say a tax credit for firms that increase payroll could be a good way to increase employment, if the credit is available to all companies, not just small businesses. They cautioned, however, that it would be difficult to administer.

Among the issues raised by tax experts:

_How would the government prevent abuse by companies that artificially increase payroll?

_How would new companies be treated?

_How would a firm be prevented from disbanding and reopening under another name just to claim the credit?

_How would the government ensure firms add long-term employees when the credit is only for a year or two?

_Would firms be willing to add workers to get a tax credit when consumer demand for their products has not increased?

Clint Stretch, a tax policy expert at Deloitte Tax, said the tax break would help companies that shed jobs last year and were ready to start rehiring this year.

"Guys who were ruthless and threw people out on the street will benefit while those who kept their workers will not," Stretch said.

The Obama administration renewed its focus on job creation last week and the president called on Congress to pass a jobs bill that provides "tax breaks to small businesses for hiring people."

Obama first proposed the tax credit late last year, but House Democrats didn't include it in a jobs bill they passed in December. The bill is awaiting action in the Senate. Aides said Obama will focus on job creation in his State of the Union address Wednesday.

The nonpartisan Congressional Budget Office recently analyzed several proposals to create jobs and improve the economy, and concluded that a payroll tax credit for firms that increase payroll would be among the most effective. However, the analysis said limiting the credit to small businesses would reduce the economic benefits.

Congress enacted a similar tax credit in the 1970s and few small businesses took advantage, the CBO report said.

Two economists have been promoting a job creation tax credit for the past several months: John H. Bishop, a professor at Cornell University, and Timothy J. Bartik, senior economist at the W. E. Upjohn Institute for Employment Research in Michigan.

Under their proposal, businesses that increase their payrolls by more than 3 percent over 2009 levels would get tax credits worth 15 percent of the increase. The tax credit would only apply to the first $50,000 of a worker's salary, capping the amount at $7,500 per worker.

Big and small employers would be eligible, and the credit would be available for existing workers who get raises or more hours, as long as payroll is increased for employees making less than $50,000. The tax credits would be refundable, meaning employers would get them as payments, even if they don't owe any taxes.

Bishop said companies that hire workers, increase hours or increase wages would all be helping the economy.

"We're trying to find a way to lower the cost of adding labor," Bishop said. "The job creation tax credit has the highest bang for buck."

Home sales rose in '09 as prices plunged 12 percent

Sales of previously occupied homes rose in 2009 for the first time in four years, despite a December slump that was due to a tax credit that had caused many buyers to complete sales earlier.

Still, prices plunged more than 12 percent last year — the sharpest fall since the Great Depression. The price drop for 2009 — to a median of $173,500 — showed the housing market remains too weak to help fuel a sustained economic recovery. Total sales for 2009 were nearly 5.2 million, up about 5 percent from 2008.

Concerns remain that the housing market will weaken after March 31, when the Federal Reserve is set to end its program to buy mortgage securities to keep home loan rates low. Once that program ends, mortgage rates could rise. Adding to the worries, a newly extended homebuyer tax credit is scheduled to run out at the end of April.

The numbers "clearly indicate that the rebound in housing demand observed so far has been largely supported by government programs," Anna Piretti, senior economist at BNP Paribas, wrote in a research note Monday.

The poor December showing occurred after Congress extended the tax credit, easing pressure on buyers to act quickly. The credit of up to $8,000 for first-time homeowners had been due to expire Nov. 30. But Congress extended the deadline and expanded it with a new $6,500 credit for existing homeowners who move.

December's sales fell 16.7 percent to a seasonally adjusted annual rate of 5.45 million, from an unchanged pace of 6.54 million in November, the National Association of Realtors said Monday. Sales had been expected to fall by about 10 percent, according to economists surveyed by Thomson Reuters.

The report "places a large question mark over whether the recovery can be sustained when the extended tax credit expires," wrote Paul Dales, U.S. economist with Capital Economics.

The median sales price for December was $178,300, up 1.5 percent from a year earlier and the first yearly gain since August 2007. But some of that increase could be due to a drop-off in purchases from first-time buyers who tend to buy less expensive homes.

Sales are now up 21 percent from the bottom a year ago. But they're down 25 percent from the peak more than four years ago.

A healthy real estate market is needed to help the economy continue recovering from recession.

Last year, first-time buyers were the main driver of the housing market. But their role is shrinking. They accounted for 43 percent of purchases in December, down from about half in November, the Realtors group said.

The inventory of unsold homes on the market fell about 7 percent to 3.3 million. That's a 7.2 month supply at the current sales pace, close to a healthy level of about six months.

Lawrence Yun, the Realtors' chief economist, cautioned that the recovery will depend on whether the economy starts adding jobs in the second half of the year.

Total sales for 2009 closed out the year at 5.16 million, up about 5 percent from a year earlier. And some real estate agents say they feel encouraged. More buyers are shopping around this month than in a typical January, said Kevin O'Shea, an agent with Homes of Westchester Inc. in White Plains, N.Y.

"There are indications that the economy is coming back, and that makes buyers feel more secure to purchase," he said.

But many analysts project that home prices, which started to rise last summer, will fall again over the winter. That's because foreclosures make up a larger proportion of sales during the winter months, when fewer sellers choose to put their homes on the market.

Despite fears that home prices are starting to fall again, some analysts still say the worst is over.

"We do not believe it is fair to consider this a double dip in the housing market," Michelle Meyer, an economist with Barclays Capital, wrote last week. "The recovery is still under way but hitting some bumps in the road."

Home sales likely fell in December

Last month's sales of previously occupied homes are expected to be down sharply from November after prospective buyers were granted more time to take advantage of a tax credit.

Buyers last month were no longer scrambling to qualify for a tax credit for first-time homeowners that was due to expire on Nov. 30. To give the market an added boost, lawmakers extended it until April 30. They also added a new credit of up to $6,500 for existing homeowners who move.

Economists polled by Thomson Reuters forecast that sales completed in December fell 7.3 percent to a seasonally adjusted annual rate of 6.06 million, down from 6.54 million in November. The decline would reverse three straight months of increases.

The National Association of Realtors' report is scheduled for release Monday at 10 a.m. EST.

Earlier this month, the trade group said its index of sales contracts fell 16 percent from October to November, ending nine months of gains. Since it normally takes one to two months to complete a sale, that signals weak sales for December and January.

The big question hanging over the housing market this spring is whether the recovery will stumble after the government pulls back support. The Federal Reserve's $1.25 trillion program to push down mortgage rates is scheduled to expire at the end of March — a month before the newly extended tax credit runs out.

Last year, first-time buyers were the main driver of the housing market, but their presence is on the decline, according to a survey of real estate agents released last week by research firm Campbell Communications.

They accounted for nearly 43 percent of purchases in December, the survey found, down from 47 percent in October.

"The majority of people who are going to use (the tax credit) have used it already," said Thomas Popik, who conducted the survey.

Many experts project home prices, which started to rise last summer, will fall again over the winter. That's because foreclosures make up a larger proportion of sales during the winter months, when fewer sellers choose to put their homes on the market.

Despite fears that home prices are starting to fall again, some analysts still believe the worst is over.

"We do not believe it is fair to consider this a double dip in the housing market," Michelle Meyer, an economist with Barclays Capital, wrote last week. "The recovery is still under way, but hitting some bumps in the road."

Prices fell 0.2 percent from October to November, according to a report released last Thursday by real estate data company First American CoreLogic. The company forecasts prices will hit bottom by spring and remain flat in most markets through the rest of the year.

"We see things wobbling around right now, and actually that's a good thing," said Mark Fleming, First American's chief economist. "It wasn't too long ago that all of the data was pointing to negative trends."

Rates on 30-year home loans fall to 4.99 percent

Rates for 30-year home loans fell to a shade below 5 percent this week but remained above last month's record lows.

The average rate on a 30-year fixed mortgage was 4.99 percent, down from 5.06 percent a week earlier, mortgage company Freddie Mac said Thursday.

It was the third-straight weekly decline. The drop comes after interest rates fell in the bond market this week as concerns about the economy increased demand for the safety of government debt, which is closely tied to mortgage rates.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day, often in line with long-term Treasury bonds.

Rates for 30-year loans had dropped to a record low of 4.71 percent in early December, pushed down by an aggressive government campaign to reduce consumers' borrowing costs.

The Federal Reserve is pumping $1.25 trillion into mortgage-backed securities to try to bring down mortgage rates, but that money is set to run out next spring. The goal of the program is to make home buying more affordable and prop up the housing market.

While it's possible that the program could be extended, analysts believe the Fed is reluctant to do so.

The average rate on 15-year fixed-rate mortgages fell to 4.4 percent, down from 4.45 percent last week, according to Freddie Mac.

Rates on five-year, adjustable-rate mortgages averaged 4.27 percent, down from 4.32 percent a week earlier. Rates on one-year, adjustable-rate mortgages dropped to 4.32 percent from 4.39 percent.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.

The nationwide fee for loans in Freddie Mac's survey averaged 0.7 point for 30-year loans and 0.6 point for 15-year, five-year and one-year loans.

Rise in jobless claims signals bump in recovery

A surprising jump in first-time claims for unemployment aid sent a painful reminder Thursday that jobs remain scarce six months into the economic recovery.

The surge in last week's claims deflated hopes among some analysts that the economy would produce a net gain in jobs in January and help fuel the recovery.

A Labor Department analyst said much of the increase was due to holiday-season-related administrative backlogs at the state agencies that process the claims. Still, economists noted that that would mean claims in previous weeks had been artificially low. Those earlier declines had sparked optimism that layoffs were tapering and that employers would add a modest number of jobs in January.

The January employment report will be issued Feb. 5. But the surveys used to compile that report were done last week, so economists are paying close attention to the jobless claims figures from that week.

"The trend in the data is still discouraging," Diane Swonk, chief economist for Mesirow Financial, wrote in a note to clients. "Hopes for a positive employment number in January ... are rapidly dimming."

The disappointing jobless claims report contributed to a gloom on Wall Street. The Dow Jones industrial average dropped 182 points by late morning, or 1.7 percent, and broader indexes also fell.

A separate report Thursday that seeks to forecast future economic activity offered a more positive outlook. The Conference Board's index of leading economic indicators jumped 1.1 percent in December, suggesting that economic growth could pick up this spring.

In its report on jobless claims, the Labor Department said initial claims for unemployment aid rose by 36,000 to a seasonally adjusted 482,000. Wall Street economists had expected a small drop, according to Thomson Reuters.The four-week average, which smooths fluctuations, rose for the first time since August, to 448,250.

Initial claims had dropped steadily since last fall as companies cut fewer jobs. First-time claims have dropped by 50,000, or nearly 10 percent, since late October.

Still, employers are reluctant to hire. The Labor Department said earlier this month that employers cut 85,000 jobs in December, after adding 4,000 in November. November's increase was the first in nearly two years. The unemployment rate was 10 percent in December, unchanged from November.

Many economists say the four-week average of jobless claims would need to fall consistently below 425,000 to signal that the economy is close to generating net job gains.

The economy is growing, but not fast enough to bring down widespread joblessness. Most economists estimate that the gross domestic product, the broadest measure of the economy's output, grew at about a 4 percent clip in last year's fourth quarter. That followed 2.2 percent growth in the July-September period.

The Labor Department report said the number of people continuing to claim regular benefits dropped slightly to just under 4.6 million. The continuing claims data lags behind initial claims by a week.

But the so-called continuing claims do not include millions of people who have used up the regular 26 weeks of benefits customarily provided by states and are now receiving extended benefits for up to 73 additional weeks, paid for by the federal government.

More than 5.9 million people received extended benefits in the week that ended Jan. 2, the latest period for which data are available. That's an increase of more than 600,000 from the previous week. The data for emergency benefits lags behind initial claims by two weeks.

The rising number of people claiming extended unemployment insurance indicates that even as layoffs are declining, hiring hasn't picked up. That leaves people out of work for longer periods .

Among the states, California saw the largest increase in claims, with 16,160. Texas, Florida, Pennsylvania and Georgia saw the next largest increases. The state data lags the initial claims data by a week.

Oregon saw the biggest drop in claims, of 5,784, followed by Iowa, Kentucky, Michigan and Massachusetts.

General Motor's Opel to cut 8,300 jobs across Europe

General Motor Co.'s Opel unit will cut 8,300 jobs across Europe, including 4,000 in Germany, and close a plant in Antwerp, Belgium — casualties of the "tough reality" of a shrinking European auto market.

Opel head Nick Reilly said Thursday that the Antwerp plant had to go, with the loss of more than 2,300 jobs, because the company needs to shed 20 percent of its manufacturing capacity. That's because far fewer cars are being sold as a result of the recession.

"We have to take a plant out and unfortunately it's Antwerp," Reilly said at a press conference in Brussels. "It is the tough reality of the current business environment."

Reilly said the economic crisis means European car markers will likely sell 1.5 million fewer cars this year than in 2009 and 4 million fewer than in 2007.

The GM cutbacks were a hard blow for the 2,600 Opel workers in Antwerp and the automotive supply companies that employ 10,000 workers.

Werner Dillen, a trade union official, said the future "is not bright (but) we had been expecting that news for 12 months."

When General Motors Co. planned to sell its European car making unit to Canada's Magna and Russia's Sberbank last year, the bidders said they would close Antwerp down. GM later decided not to sell its European business.

German daily Welt reported Thursday that most of Antwerp's Astra production is to be transferred to the plant in Bochum, citing anonymous sources from the workers' council.

Opel said in 2007 that it would stop making the Astra at Antwerp and would possibly replace it with midsize Chevrolet models or sport utility vehicles — heavy vehicles that now find fewer buyers as cash-for-clunkers programs and cash-strapped customers favor more fuel-efficient cars.

The plant, which opened in 1929, has already shrunk from employing 7,000 workers at its peak to around a third of that today.

The Belgian government has tried to stave off the Antwerp plant's closure by earlier this year offering the company up to euro500 million ($707 million) to upgrade the facilities.

Barack Obama cracking down on contractor tax cheats

President Barack Obama is ordering a new crackdown on federal contractors who don't pay their taxes.

He was to sign an executive order Wednesday telling federal agency chiefs to take steps to bar those companies from receiving new government contracts. Obama was also directing the IRS to review contractor filings to ensure the companies are not lying about the taxes they've paid.

A White House fact sheet said the move is part of the president's effort to restructure government contracting to root out waste and abuse.

That effort has included measures to end no-bid contracts and to crack down on what the administration deems improper payments. Administration officials estimate the measures saved as much as $100 billion last year.

The White House said Obama is also urging Congress to give the administration additional tools to ensure tax dollars don't benefit companies that are in arrears to Uncle Sam. Among the powers being sought: allowing the IRS to share tax data with agency contracting chiefs to help officials catch tax scofflaws.

Oil falls to near $78 amid China, inventory fears

Oil prices fell to near $78 a barrel Wednesday in Asia amid expectations of a dismal U.S. crude inventory report and fears of more lending curbs in China.

Benchmark crude for February delivery fell 76 cents to $78.26 a barrel at late afternoon Kuala Lumpur time in electronic trading on the New York Mercantile Exchange. The contract rose $1.02 to settle at $79.02 on Tuesday.

Crude's sharp rise Tuesday was driven by the Dow Jones industrials' 1.1 percent gain but fundamentally, the oil market remains weak and investors are cashing out, said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

"The rise in oil prices was overdone so we are seeing some pullback, primarily also because of expectations that the U.S. government weekly report will show increases in oil inventories," Shum said.

A rise in inventories would suggest demand for oil remains weak. The Energy Department's Energy Information Administration plans to announce its inventory report later Wednesday.

Another negative cue for crude came from Asian stock markets which mostly fell Wednesday amid reports that China had ordered some banks to cease lending for the rest of January after exceeding credit limits. That raised fears China's economic recovery and demand for crude could wane.

Oil prices were also held in check after the Organization of Petroleum Exporting Countries, which supplies roughly 35 percent of the world's crude, kept its 2010 forecast of oil demand steady at 85.15 million barrels a day. OPEC said Tuesday that oil inventories remain at high levels and are enough to handle any unexpected increase in demand.

Shum said oil prices were likely to trade between $77 and $83 a barrel in the near term.

He said uppcoming corporate earnings reports in the U.S. could temper a weak inventory report and steer prices higher if results are stronger-than-expected.

So far, earnings have been mixed, with better-than-expected results from the likes of Intel Corp. offset by disappointments elsewhere most notably Alcoa Inc.

In other Nymex trading in February contracts, heating oil fell 1.8 cent to $2.027 a gallon, while gasoline dropped 1.3 cent to $2.046 a gallon. Natural gas futures rose 4.3 cents to $5.60 per 1,000 cubic feet.

In London, Brent crude for March delivery shed 66 cents to $76.99 a barrel on the ICE Futures exchange.

Bernanke asks GAO to review Fed's AIG bailout

Federal Reserve Chairman Ben Bernanke asked Congress' investigative arm Tuesday to conduct a "full review" of the Fed's publicly derided bailout of insurance giant American International Group.

The move is aimed at tamping down criticism of the $182 billion rescue. It has sparked public outrage and demands in Congress for more information about the lifelines, beginning in 2008, provided to the company. The House Committee on Oversight and Government Reform has a probe under way that seeks to provide a fuller picture of the AIG bailout.

Bernanke made his request in a letter to the Government Accountability Office, the investigative arm of Congress.

Citigroup loses $7.8 billion in 4Q

Citigroup Inc. became the latest bank to take a cautious view of consumers' credit problems, reporting a $7.77 billion fourth-quarter loss due to failed loans and the costs of repaying government bailout money.

The bank said Tuesday it did see some early signs of improvement in its credit business although it still needed to set aside $8.18 billion to cover unpaid loans. That amount was down 10 percent from the third quarter, and 36 percent from a year earlier.

John Gerspach, Citigroup's chief financial officer, reported one of those improving signs during a conference call with the media, noting that the number of mortgage and credit card loans that were newly delinquent, or between one and three months past due, had started to stabilize and even drop in some of its lending portfolios.

However, "the U.S. credit story is still very much developing," Gerspach said.

Gerspach's comments were similar to those made by JPMorgan Chase & Co. when it reported Friday that it earned $3.28 billion during the fourth quarter thanks to its strong investment banking unit. JPMorgan said it set aside $7.28 billion for failed loans during the fourth quarter, nearly identical to the amount it reserved for bad loans during the final quarter in 2008. It also warned that it didn't know when it would be able to stop adding to its loan reserves.

2009 was a year of drastic change at Citigroup, the big bank hit hardest by the credit crisis and recession. It may turn out to have the poorest fourth-quarter showing among the big banks, as it lacks the big investment bank and trading operations that have helped other companies like JPMorgan Chase offset their losses from bad loans.

The bank, which received $45 billion in government bailout money, repaid $20 billion during the fourth quarter and raised an equal amount of capital to fund the repayment. It shed 100,000 jobs during the year and completed 14 asset sales, including the Smith Barney brokerage and Japanese units Nikko Cordial Securities and Nikko Asset Management.

The bank's loss after accounting for payment of preferred dividends came to almost $7.77 billion, or 33 cents per share. That compared with a loss of $18.16 billion, or $3.40 a share, a year earlier. In the third quarter of 2009, it earned $101 million.

The latest results were in line with analysts' expectations, according to Thomson Reuters. Citigroup lost 6 cents per share excluding the charges tied to repaying government bailout money.

Citigroup said it recorded an after-tax loss of $6.2 billion for expenses related to the bailout repayment. The government has converted the remaining $25 billion of the bailout money it gave Citigroup into a 34 percent stake in the bank. The government is planning to sell its stake in the bank during the next year.

The bank's stock rose 9 cents to $3.51 in afternoon trading. The stock price is perhaps the clearest indication of how far Citigroup fell during the banking crisis and recession; at the stock market's peak in October 2007, it traded at $45 a share.

Investors have remained skittish about the health of Citigroup, most notably last month when Citigroup sold new shares to repay the government. Shares were sold at $3.15 during the sale, well below what the bank and government were expecting. That forced the government to hold off on selling the first $5 billion of its stake in the bank until the price rebounded.

Citigroup spent much of 2009 trying to reorganize and streamline its operations to return to consistent profitability. It split its operations into two units, Citicorp and Citigroup Holdings.

Citicorp, which holds the bank's primary businesses such as regional consumer banking, generated net income of $1.7 billion during the quarter. Citigroup Holdings, which is where the bank placed noncore assets that it has been looking to sell or unwind, lost $2.5 billion during the October-December period.

Total assets in Citigroup Holdings fell by $70 billion to $547 billion during the fourth quarter. For the full year, Citigroup lost $1.61 billion, or 80 cents per share. It lost $27.68 billion, or $5.61 per share in 2008.

Kraft Foods, Cadbury agree $19.5 billion deal

British candy maker Cadbury PLC on Tuesday accepted Kraft's improved takeover offer worth $19.5 billion, potentially ending a months-long corporate battle to create the world's largest maker of chocolate and sweets.

The U.S. food conglomerate said the board of Cadbury, maker of Creme Eggs and Dentyne gum, had unanimously endorsed the offer worth 840 pence per share, or 11.9 billion pounds in total. Cadbury shareholders will also get a 10 pence dividend previously promised by Cadbury.

The revised bid is for 500 pence cash and 0.1874 new Kraft shares for each Cadbury share, still somewhat less than some analysts believed the company is worth but 50 percent higher than Cadbury's market value before Kraft went public with its approach.

Kraft Foods Inc.'s previous offer of 10.5 billion pounds ($17.1 billion) valued Cadbury at about 770 pence, but was dismissed by the British company's management as "derisory."

Kraft still has to persuade a majority of Cadbury shareholders to accept the deal, and the door remains open until 7 a.m. (0200 GMT) Monday for The Hershey Co. to jump in with a rival bid.

The combined companies would be the world leader in chocolate and sweets, Kraft said, and No. 2 globally in the high-growth gum market. But some in Britain are disgruntled at the prospect of a historic brand losing its independence.

Cadbury traces its roots to the grocery store opened in 1824 by John Cadbury in Birmingham. A Quaker, Cadbury believed cocoa and drinking chocolate were healthy alternatives to alcohol, considered to add to the miseries of the working class.

Its Dairy Milk chocolate brand was launched in 1905 as a challenge to dominant Swiss chocolate makers.

"We have great respect for Cadbury's brands, heritage and people. We believe they will thrive as part of Kraft Foods," said Kraft's CEO Irene Rosenfield.

"This recommended offer represents a compelling opportunity for Cadbury shareholders, providing both immediate value certainty and upside potential in the combined company."

Cadbury Chairman Roger Carr, who had led a spirited defense against Kraft's previous offer, said he believed the deal "represents good value for Cadbury shareholders."

Cadbury shares were up 3.3 percent at 834 pence following the announcement.

"Although we always considered that 850 pence could be enough to win shareholder support we have to admit surprise at how meekly Cadbury has apparently acquiesced," said Jeremy Batstone-Carr, analyst at Charles Stanley & Co.

Only last week, Batstone-Carr added, the Cadbury chairman "had confidently predicted that the company's share price could be over 10 pounds (1,000 pence) in due course."

Kraft predicted pretax cost savings of at least $675 million a year once the combination has been working for three years.

Tuesday was the deadline for Kraft to raise its offer. Cadbury shares moved above 800 pence on Monday, indicating the market was looking for Kraft to jump to that level or higher.

The British company had fought hard against Kraft's initial offer announced in December, rejecting it as a "derisory" bid from an unfocused, underperforming conglomerate.

The agreed price is 13 times Cadbury's earnings before interest, taxes, depreciation and amortization; Cadbury had argued that similar recent takeovers in the sector had been for 14 times EBITDA or more.

Feb. 2 is the deadline for Kraft to win acceptance from holders of a majority of Cadbury shares.

David Cumming, head of U.K. equities at Cadbury shareholder Standard Life, had said Monday that Kraft needed to aim above 900 pence to secure support from long-term shareholders. But on Tuesday, he signaled the fight was over. "I probably won't go against the view of Cadbury's management," he told the BBC.

Kraft, based in Northfield, Illinois, had raised the cash portion of its offer earlier this month from 300 pence to 360 pence after selling its North America pizza business to Nestle for $3.7 billion.

Billionaire investor Warren Buffet, whose Berkshire Hathaway is Kraft's biggest shareholder, had warned against offer any more shares for Cadbury. Buffett declared last year that he believed Kraft's original offer for Cadbury was "pretty full."

Kraft said the latest offer reduces the share portion, and thus won't need to be approved by its shareholders.

Cadbury has some 45,000 employees in 60 countries, including 5,600 staff in British and Irish plants. The amount of debt being taken on to fund the deal is raising worries about cutbacks.

"This is a very sad day for U.K. manufacturing. A successful, iconic, independent U.K. brand will now be owned by a giant company with massive debt," said Jennie Formby of the Unite union, which had campaigned against Kraft's offer.

"We have very real fears about how Kraft will repay its debt, particularly as it has ratcheted it up still further in order to purchase Cadbury," Formby said.

Prime Minister Gordon Brown told reporters that the government was "determined that the levels of investment that take place in Cadbury's in the United Kingdom are maintained."

"We are determined of course, that, at a time when people are worried about their jobs, jobs in Cadbury can be secured."

The report of a deal drew a sharp response from Felicity Loudon, a great granddaughter of Cadbury's founder Egbert Cadbury.

"I don't know what they're doing," Loudon told Sky News. "Kraft will have to asset strip to afford anything."

Stock futures mixed amid earnings, merger news

Stock futures are mixed Tuesday as uneasy investors focus on the first big week of corporate earnings reports.

Investors are wary about earnings after a disappointing report from JPMorgan Chase & Co. on Friday helped send stocks sharply lower. Another big bank, Citigroup Inc., issues its fourth-quarter results before the market opens. IBM Corp. is expected to release earnings later in the day.

News that Kraft Foods Inc. and Cadbury PLC agreed to a $18.9 billion deal is having little effect on trading. Investors are also showing little reaction to the unsurprising bankruptcy filing by Japan Airlines.

Global markets are down as investors overseas also await earnings reports in the U.S.

Dow Jones industrial average futures fell 12, or less than 0.1 percent, to 10,551. Standard & Poor's 500 index futures declined 1.60, or 0.1 percent, to 1,130.70, while Nasdaq 100 index futures fell 0.75, or less than 0.1 percent, at 1,861.50.

Major stock indexes fell about 1 percent on Friday, giving the Dow Jones industrial average its worst day of the year so far, after JPMorgan Chase provided a cautious guidance about losses from failed loans.

JPMorgan, regarded as one of the strongest U.S. banks, warned investors it was too soon to say those losses have peaked. The weakness in the bank's consumer business hurt other financial stocks.

Citi's loan losses and outlook for future defaults will be closely watched Tuesday, as the bank is expected to report a loss of 33 cents per share, according to analysts polled by Thomson Reuters. Part of the loss would be tied to the issuance of new stock by the bank to help it repay government bailout money.

Later in the week, Bank of America Corp., Wells Fargo & Co., Morgan Stanley and Goldman Sachs Group Inc. will report earnings.

Meanwhile, bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was unchanged from 3.68 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.07 percent from 0.05 percent. The bond market was closed Monday for the Martin Luther King holiday.

The dollar mostly rose against other major currencies, while gold prices also rose.

Overseas, Japan's Nikkei stock average fell 0.8percent. In afternoon trading, Britain's FTSE 100 was down 0.9 percent, Germany's DAX index was down 0.8 percent, and France's CAC-40 was down 0.7 percent.

Japan Airlines files for bankruptcy protection

Japan Airlines filed for bankruptcy Tuesday in one of the nation's biggest corporate failures ever, entering a restructuring that will shrink Asia's top carrier and its presence around the world.

Staggering under a $25.6 billion debt mountain, the carrier applied for protection from creditors under the Corporate Rehabilitation Law — Japan's version of Chapter 11 — with the Tokyo District Court.

Japan's flagship airline will slash nearly 16,000 jobs, reduce pensions for retired staff, cut routes and shift to more fuel-efficient aircraft as part of its restructuring.

Some $10 billion of government cash will keep JAL's planes in the air during the reorganization. Lenders will forgive $8 billion in debt, and JAL shares will be removed from the Tokyo Stock Exchange on Feb. 20, wiping out investors.

There was no word on the outcome of a fierce tug-of-war between Delta Air Lines and American Airlines for a slice of JAL's business. Despite its woes, the airline's access to Asia is a mouthwatering prize for foreign airlines.

A state-backed turnaround agency pledged 900 billion yen ($10 billion) in financial support for JAL — 600 billion yen in credit lines and a 300 billion yen cash infusion. The bankruptcy is the fourth-largest in Japan, according to figures from Teikoku Databank, which tracks corporate failures.

"This is not the end of JAL," transport minister Seiji Maehara told reporters. "Today is the beginning of a process to keep JAL alive."

JAL President Haruka Nishimatsu resigned, bowing deeply as he apologized for the company's troubles. Kazuo Inamori, a Buddhist monk and founder of Kyocera Corp. and Japan's No. 2 mobile carrier KDDI Corp., has been tapped as its next leader.

"This is our last chance," Nishimatsu said. "I believe we can be reborn as an airline that can represent Japan again."

JAL said flights will continue uninterrupted and that frequent fliers would not lose their miles. Tokyo asked foreign governments for cooperation to keep JAL flying around the world.

The day's events culminate a process that began in October when JAL — saddled with debts of 2.32 trillion yen ($25.6 billion) — first turned to the Enterprise Turnaround Initiative Corp. of Japan for help. Under the prepackaged reorganization, it will embark on a massive overhaul to shed the fat and inefficiency that hobbled its finances.

Maehara said the turnaround would involve 15,661 job cuts — a third of JAL's payroll — by March 2013.

The carrier will retire all 37 of its Boeing 747 jumbo aircraft and 16 MD-90s, which will be replaced by 50 small and regional jets. As of March, JAL's fleet consisted of 279 aircraft, mainly from Boeing Co. It served 220 airports in 35 countries and territories, including 59 domestic airports.

JAL shares, which have lost more than 90 percent of their value over the last week, tumbled another 40 percent Tuesday to 3 yen before finishing flat at 5 yen. The company is now essentially worthless, with a market capitalization of about 13.7 billion yen ($150 million) — the price of one Boeing 787 jet.

Nevertheless, American and Delta have continued to battle over JAL.

Delta and its SkyTeam partners have offered $1 billion, including $500 million in cash to lure JAL away from American's oneworld alliance. American Airlines and its partners say they would inject $1.4 billion cash into the Japanese airline.

"Delta and SkyTeam fully support Japan airlines and stand ready to provide assistance and support in any way possible," the Atlanta-based airline said in a statement following JAL's bankruptcy filing.

Maehara declined to comment on which U.S. carrier the government preferred and said it is "not in a position to force any partners on JAL."

The bankruptcy represents a humbling outcome for Japan's once-proud flagship carrier which was founded in 1951 and came to symbolize the country's rapid economic growth. The state-owned airline expanded quickly in the decades after World War II and was privatized in 1987.

But it soon became the victim of its own ambitions.

When Japan's property and stock bubble of the 1980s burst, risky investments in foreign resorts and hotels undermined its bottom line. JAL also shouldered growing pension and payroll costs, as well as a network of unprofitable domestic routes it was politically obligated to maintain.

More recently, JAL's passenger traffic has slowed amid the global economic downturn, swine flu fears, competition from Japanese rival All Nippon Airways Co. and a spate of safety lapses that tarnished its image. It lost 131.2 billion yen ($1.4 billion) in the six months through September.

Geoffrey Tudor, a principal analyst at Japan Aviation Management Research and former JAL employee, said the airline needs to be leaner and meaner.

"It wasn't commercially brutal enough in dealing with the facts of economic life," said Tudor, who spent 38 years at the Japanese carrier and now watches its collapse with a mixture of sadness and frustration.

Its four government bailouts since 2001 only exacerbated JAL's problems, officials now say.

Passengers seemed to agree as much.

"I guess they did not work in earnest and so fell into this situation," said Isao Sasaki, 72, who waited in line Tuesday at a JAL check-in counter at Tokyo's Haneda Airport. "Weren't they spoiled as they always had protection from the government?"

Swiss Reinsurance Co. gets $1.27 billion in Warren Buffett deal

Swiss Reinsurance Co. said Monday it transferred part of its U.S. life insurance business to American investor Warren Buffett's Berkshire Hathaway Inc. for 1.3 billion Swiss francs ($1.27 billion) to free up capital and invest it more profitably.

The deal with Buffett's company, which already has a stake in Swiss Re, takes effect retroactively on Oct. 1, 2009. It has freed up 300 million francs ($292 million) in capital, Swiss Re said.

The transaction known as "retrocession" means that Swiss Re transfers the business to another reinsurer — Berkshire Hathaway.

Reinsurance companies sell backup coverage to other insurers, spreading risk in the event of huge losses.

The life insurance business had failed to meet Swiss Re's hurdle rate of 14 percent returns, the company said.

"This is a significant step forward in Swiss Re's strategy to increase capital efficiency," said Christian Mumenthaler, who heads the company's life and health department. "The transaction puts us in an excellent position to redeploy the capital at more attractive returns."

The business had liabilities of around 1.9 billion francs, said Swiss Re. The total of Swiss Re's life insurance business in the United States amounted to roughly 6 billion francs in gross premiums last year.

Swiss Re said it will continue doing the administration and reporting for the business in question.

The reinsurer said it remains committed to life insurance in the United States.

Shares in Swiss Re were down 1.4 percent at 49.40 francs ($48.14) on the Zurich exchange.

Among previous deals with Buffett, Swiss Re had its property and casualty reserves reinsured with Berkshire last year to cover up to 5 billion Swiss francs in losses.

Buffett's Omaha, Neb.-based company invested 3 billion Swiss francs ($2.6 billion) in Swiss Re last year with the possibility to convert the investment into conventional Swiss Re shares in 2012. This would allow Berkshire to control roughly one-quarter of Swiss Re.

Berkshire owns several major insurance companies, including Geico and reinsurance giant General Re Corp. It owns a diverse mix of more than 60 businesses — including furniture, jewelry, candy, natural gas and corporate jet firms.

Analysts mostly welcomed the deal Monday saying the freed-up capital could be used for more profitable businesses.

Helvea analyst Tim Dawson cautioned that there are limited opportunities to reinvest capital at this point, at least in the property and casualty business.

"Nevertheless, on first review, this transaction should be a modest positive for the group," he said.

Singer Billy Bragg to stop paying taxes over bank bonuses

British singer Billy Bragg has threatened to stop paying taxes, and called on others to follow suit, unless the government acts to limit bonuses paid by the Royal Bank of Scotland (RBS).

The 52-year-old singer, well known for his left-wing views and political activism, aims to tap public anger over "fat cat" bonuses at U.S. and British banks rescued with taxpayers' money during the financial crisis.

The huge bailouts have left the British government holding 84 percent of Royal Bank of Scotland Group Plc and 43 percent of Lloyds Banking Group.

"I understand that the Treasury had little choice but to use taxpayers' money to safeguard savings and stabilize and restore confidence in the financial system," Bragg wrote on his page on the Facebook social networking site.

"What I don't understand is why, now that we taxpayers are the majority shareholders of these banks, we seem totally powerless to curb their excessive bonus culture?"

He quoted reports estimating RBS will pay its investment bankers around 1.5 billion pounds ($2.5 billion) in bonuses next month.

At the same time, he added, Britain's main political parties are warning voters that national debt will mean tough cuts in public spending after the next general election.

"I believe that the government have their priorities wrong.

"I have written to the Chancellor of the Exchequer (finance minister), Alistair Darling, to inform him that I am no longer prepared to fund the excessive bonuses of RBS investment bankers. Unless he acts to limit them to 25,000 pounds, I shall be withholding my tax payment on 31st January." In his Facebook campaign titled "NoBonus4RBS" he invited other British tax payers to do the same to exert pressure on the government to curb bonuses.

RBS has been forced to agree to slash payouts and hand the state a veto on its 2009 bonus pool, but the government has also said that going too far to restrict pay could dent the bank's ability to compete.

When asked about Bragg's initiative, a Treasury spokesman said: "We can reassure people there will not be a significant amount of taxpayers' cash going to bonuses at RBS."

Asian markets lower after Wall Street declines

Asian stock markets slipped Monday as worries about American consumers undermined confidence in the recovery of the world's largest economy.

Most markets were lower by less than 1 percent after a sharp decline on Wall Street Friday. Oil prices extended a losing streak, while the dollar gained against the yen and fell against the euro.

Concerns about the sustainability of the U.S. economic turnaround troubled investors following a worse-than-expected report that showed consumer sentiment was still sluggish amid anemic growth and rising job losses.

Adding to fears about the U.S. economy and financial system was a warning from JPMorgan, contained in its recent quarterly results, that it was too soon to say that losses on home mortgages and other loans have peaked.

Investors have gotten used to stronger quarterly profits of late as the economy bounces back from the recession's bottom, but results from JPMorgan and other companies may spell more disappointment this earnings season, analysts said.

"After two quarters of above-consensus results, market expectations are high and may be difficult to match," said Dariusz Kowalczyk, chief investment strategist for SJS Markets in Hong Kong. "Which is likely to make investors more cautious as the earnings season unfolds."

Japanese shares led Asia's declines, with the Nikkei 225 stock average off 163.12 points, or 1.5 percent, at 10,818.98. Hong Kong's Hang Seng fell 71.72 points, or 0.3 percent, to 21,582.44.

Elsewhere, Shanghai's index was off 0.1 percent and Taiwan's market lost 0.1 percent.

But several markets fared better, with South Korea's Kospi gaining 0.2 percent to 1,705.63 and India's benchmark up 0.7 percent to 17,674.78. Australia's stock measure added 0.2 percent.

Last Friday on Wall Street, the Dow fell 100.90, or 0.9 percent, to 10,609.65, the biggest drop since it lost 120 points on the final day of 2009. The broader Standard & Poor's 500 index fell 12.43, or 1.1 percent, to 1,136.03, and the Nasdaq composite index fell 28.75, or 1.2 percent, to 2,287.99.

Wall Street futures pointed to a higher open in the U.S. Monday.

Oil fell for a sixth day, with benchmark crude for February delivery shedding 24 cents to $77.76. On Friday, the contract slid $1.39 to settle at $78. The price was down $4.75 for the week after declining for five straight days.

The dollar slipped against the 91.02 yen from 90.75 yen. The euro climbed to $1.4384 from $1.4340.

Cadillac unveils plug-in hybrid luxury concept car

They're calling it the luxury car of the future that will serve as a "personal headquarters."

It's the Cadillac XTS Platinum concept car, and General Motors Co. unveiled it Tuesday at the Detroit auto show.

Concept cars are displayed at shows to gauge consumer interest, and they often are the basis for future products.

The XTS, which can run on a rechargeable battery-powered electric motor or a 350-horsepower V-6 engine, has touch-screen entertainment, and navigation and information systems, GM says.

It has light-cream leather seats contrasted with darker elements in the interior.

The car also has magnetic ride control with sensors on all four wheels to read the road and adjust the suspension to movements of the car's body, GM said.

The XTS has two electric motors and a gas engine controlled by a computer that decides the most efficient combination.

KB Home posts $100.7M profit for Q4

KB Home said Tuesday it turned a profit in its fiscal fourth quarter, the first time since early 2007, as the homebuilder benefited from a new tax rule that allowed it to offset past losses.

The company earned $100.7 million, or $1.31 a share, in the three months ended Nov. 30. That included a tax gain of $191.7 million. On a pretax basis, KB Home lost $91 million as it abandoned land contracts and wrote down the value of joint ventures and inventory. In the fourth quarter of 2008, the builder lost $307.3 million, or $3.96 a share.

Revenue dropped to $674.6 million from $919 million in the prior year.

Analysts polled by Thomson Reuters expected a loss of 42 cents a share on revenue of $577.8 million.

"There are indications that housing market conditions may be stabilizing in some regions," said Jeffrey Mezger, KB Home's president and CEO. But high unemployment and weak economic growth could chill the recovery, he cautioned.

The Los Angeles-based company has operations in 10 states and was ranked the nation's fifth-largest homebuilder in 2008 by Builder magazine.

KB said its new home orders increased 12 percent to 1,446 in the quarter compared with the prior year, while the number of buyers canceling contracts fell to 31 percent from 46 percent.

However, those results were worse than in the third quarter, when new orders totaled 2,158 and the cancellation rate was 27 percent.

Homebuilders have seen an increase in demand in recent months due to low interest rates and an $8,000 tax credit for first-time home buyers. Buyers rushed to take advantage of the incentive before the end of November, when it was set to expire. But Congress extended the deadline through April and added a $6,500 tax credit for move-up buyers.

The race to get in before the deadline helped boost new home orders, especially at the end of October, but recent figures raised doubts about how strong demand will be in the coming months.

New homes sales tumbled 11 percent in November from October to the lowest level since last spring. The number of people preparing to buy a home in November also dropped.

For the year, KB Home lost $101.8 million, or $1.33 per share, compared to a 2008 loss of $976.1 million, or $12.59 per share.

Yearly revenue dropped to $1.82 billion from $3.03 billion in 2008.

Fed makes record profit of $46.1 billion last year

The Federal Reserve says it made a record profit of $46.1 billion last year as the central bank made money off its extraordinary efforts to rescue the country from the worst economic and financial crisis since the 1930s.

The windfall gets turned over to the U.S. Treasury.

It marks the biggest profit on records dating back to 1914 when the Fed was created. The previous record profit — of $34.6 billion — was registered in 2007. In 2008, the Fed reported a profit of $31.7 billion.

The Fed says the increase was primarily due to increase earnings on securities it held last year.

Iowa Legislature opens shortened session on budget

The Iowa Legislature convened Monday for a shortened session with legislative leaders promising to make deep cuts needed to balance the budget without raising taxes.

With a big shortfall facing legislators in the upcoming fiscal year, most seemed resigned to a difficult session.

"There is simply no way to avoid the pain of the cutbacks we will make this year," said Senate Majority Leader Michael Gronstal, D-Council Bluffs.

House Speaker Pat Murphy, D-Dubuque, and Senate President Jack Kibbie, D-Emmetsburg, dropped their gavels shortly after 10 a.m., opening a session that top leaders hope to close by March 31.

There is no statutory end to a legislative session, but lawmakers typically receive expense payments for 100 days during an election-year session. Because of the budget crunch, leaders have agreed to shorten that to 80 days.

Leaders of both parties opened the session with speeches promising cooperation across party lines, but even Monday it was clear that partisanship would be part of an election-year session that this November will see all 100 house members, half of the 50-member Senate and Gov. Chet Culver on the ballot.

"While bloated budgets, increased spending and growing debt is now the norm ... House Republicans will not support any budget that spends more money than it takes in," said House Minority Leader Kraig Paulsen, R-Hiawatha.

Republicans have argued repeatedly that the state's budget problems are primarily due to overspending by Democrats in the past several years.

The state's budget shortfall varies according to projections of how the state's economy will perform over the next year. Culver has proposed slashing $341 million from the budget that begins July 1, while some Republicans argue the shortfall is near $1 billion.

Culver ordered a 10 percent cut in state spending for the current year's budget, and more budget cutting is in store this winter.

"To get the job done, we will have to cut almost every service provided by state government," said Gronstal.

Democrats said they will focus squarely on jobs and the budget.

"We will balance the budget without raising taxes, create good-paying jobs and make government more accountable and transparent," said Murphy.

Republicans argued that Democrats have resorted to big borrowing programs, effectively pushing off real solutions to the state's budget problems.

"Now is not the time to kick the can further down the road," said Senate Minority Leader Paul McKinley, R-Chariton.

While the budget will be the main focus for lawmakers, there are certain to be efforts to force debate on volatile social issues, especially gay marriage.

The state's Supreme Court last spring struck down a state law banning same-sex marriage, prompting social and religious conservatives to push for a constitutional amendment overturning that decision.

Labor leaders are also calling for lawmakers to approve a package of measures that favor unions, including allowing union to collect a fee from nonmembers in a bargaining unit and expanding the list of topics that must be on the bargaining table during negotiations. Those measures failed in the last session.

Democrats control the Senate by a 32-18 margin and the House by a 56-44 edge. Democrats clearly hope voters this fall would reward them for dealing with the faltering economy without raising taxes.

"We will not add to the burden of middle-class families by raising taxes during a recession," Gronstal said.

Republicans also see an advantage in questioning how Democrats have managed Iowa's economy.

"When we convened last year, 80,000 Iowans were out of work," said Paulsen. "When we adjourned, that number had jumped to over 100,000. Now it is somewhere around 115,000 Iowans out of work."

New York Attorney General Cuomo asks 8 banks for bonus information

New York Attorney General Andrew Cuomo on Monday pressed the nation's eight biggest banks to reveal how much they plan to pay out in employee bonuses for 2009.

Cuomo told reporters that he also wants to know how the size of the banks' bonus pool would have been affected if the banks hadn't received a taxpayer rescue at the height of the financial crisis in late 2008.

The fact-finding effort comes as Wall Street banks this month prepare to hand out near-record compensation for last year's performance. Several banks earned huge profits in 2009, aided by billions in government bailout funds and a rebounding stock market.

"The banks made a lot of money, in some case only because taxpayers gave them a lot of money," Cuomo said.

Cuomo said he was only asking for information and didn't threaten legal action against the eight banks — Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo.

Cuomo asked the banks to provide bonus information by Feb. 8 in letters sent Monday. He didn't say what actions he would take if the banks don't comply.

The nation's six biggest banks set aside $112 billion for compensation in the first nine months of 2009, according to the New York State Comptroller's Office. At that rate, the banks' total 2009 compensation pool could top $150 billion, slightly less than the record $164 billion they paid out in 2007 before the financial crisis upended the banking industry.

Cuomo said he wants to ensure that banks are compensating employees in a way that doesn't encourage excessive risk-taking or endanger taxpayers.

"Any attempts to better tie compensation to long-term sustainable growth is a good thing in our opinion, as opposed to incentives that promote short-term profits," Cuomo said.

Major banks are expected to disclose their 2009 compensation costs in quarterly earnings reports due in the next two weeks, starting Friday with JPMorgan Chase.

AOL to lay off up to 1,200 workers to reach target

The struggling Internet company AOL was laying off up to 1,200 workers this week because it didn't get enough volunteers to accept buyouts.

AOL spokeswoman Tricia Primrose said Monday that only 1,100 had volunteered to leave. That means AOL would need to shed up to 1,200 positions to reach its previously announced reduction target of up to 2,300, or about a third of its work force.

The cuts, which were on top of thousands of positions shed in recent years, came as AOL separated from Time Warner Inc. last month. AOL acquired Time Warner at the height of the dot-com boom in 2001, but the combination proved disastrous, prompting Time Warner to spin AOL off as a separate company.

In recent years, the company formerly known as America Online has been trying to reinvent itself as a content and advertising company as the legacy dial-up Internet access business that made the company famous steadily declined. But AOL has struggled in that transformation as its advertising revenue has failed to offset the drop in revenue from the dial-up business.

AOL was laying off some employees in the U.S. on Monday, though most will occur on Wednesday, Primrose said. She also said the company started laying off employees in Europe on Monday and planned to close offices in Spain and Sweden, though it will continue to have employees working in Sweden at its ad-serving company, Adtech AG. No further details were immediately available on where the U.S. reductions were occurring.

"We made difficult decisions about products and our profitability profile in different markets and made the decisions we believe will best position AOL to be a long-term, successful company going forward," Primrose said.

The cuts will leave AOL at less than a quarter the size it was at its peak in 2004, when it had more than 20,000 employees. Before the latest layoffs and buyouts, AOL had about 6,900 employees.

AOL said in November it would take $200 million in charges for severance and restructuring-related costs.

AOL shares rose 9 cents to $25.77.

World markets rise amid China export recovery

World stock markets rose Monday as news of a surprisingly strong rebound in China's exports last month offset a dismal U.S. jobs report.

Hong Kong and Shanghai markets led Asia after the Chinese government announced exports jumped nearly 18 percent in December after 13 months of declines, buoying confidence in Asia's prospects as Western economies struggle.

Expectations of greater Chinese demand helped lift commodities. Oil prices neared $84 a barrel while gold topped $1,150 an ounce.

The dollar, meanwhile, weakened against the yen and the euro as investors bet the U.S. government would stick to its looser monetary policies after a bleak employment report showed Friday the world's largest economy shed 85,000 jobs last month, far more than the 8,000 analysts expected. The unemployment rate held at 10 percent.

Early in Europe, Britain's FTSE 100 added 0.6 percent, Germany's DAX gained 0.5 percent and France's CAC-40 was up 1 percent. Wall Street futures pointed to a higher open in the U.S. Monday. S&P futures were up 5.2 points, or 0.4 percent, at 1,146.50.

In Asia, Hong Kong's Hang Seng benchmark climbed 114.77 points, or 0.5 percent, to 22,411.52 and Shanghai's main index added 16.75 points, or 0.5 percent, to 3,212.75. Chinese markets were also supported by news regulators were moving ahead with plans for stock futures and other trading products that could make the market more attractive to investors.

Japan's stock market was closed for a holiday.

Elsewhere, India's index added 0.2 percent, Singapore's market rose 0.3 percent and Australia's index was up 0.8 percent. South Korea's Kospi benchmark gave up early gains to close down 0.1 percent at 1,694.12.

Friday on Wall Street, the Dow rose 11.33, or 0.1 percent, to 10,618.19.

The Standard & Poor's 500 index rose 3.29, or 0.3 percent, to 1,144.98, its fifth straight advance. The Dow and the S&P 500 index ended at their highest levels since Oct. 1, 2008.

The Nasdaq composite index rose 17.12, or 0.7 percent, to 2,317.17.

Oil prices jumped in Asia amid signs of strong Chinese demand for crude and rebel attacks on Nigerian supplies. Benchmark crude for February delivery was up 81 cents to $83.56; the contract rose 9 cents Friday.

The dollar slid to 92.32 yen from 92.54 yen. The euro strengthened to $1.4510 from 1.4430.

Big carmakers report 2009 sales declines

Big automakers are glad to see the end of 2009, the worst year for U.S. sales in nearly 30 years.

Detroit's three automakers and the top Japanese manufacturers — Honda Motor Co. Nissan Motor Co., and Toyota Motor Corp. — all saw sharp declines last year, but saw momentum going into 2010.

Last year was brutal for most of the industry as credit froze, the economy and consumer confidence faltered and unemployment rose. U.S. sales haven't been so bad since 1982.

Sales of smaller, cheaper vehicles, however, helped drive gains. Hyundai continued its surge with an 8-percent yearly gain, while its low-cost Kia brand reported 2009 sales gains of nearly 10 percent and a 44-percent gain in December.

Japanese automaker Subaru, which reported a 15 percent sales gain for the year, called 2009 an unqualified success.

General Motors and Chrysler took the biggest hits after both went through bankruptcy court and stayed alive with government aid.

For the year, GM sales were off 30 percent from 2008, while December sales fell 5.6 percent.

GM said its sales are down for the year because it reduced low-profit sales to rental car companies and other fleet buyers, and because it is phasing out or selling four brands — Saturn, Pontiac, Saab and Hummer.

"The year-over-year comparison reflects a 38 percent reduction in fleet, reduced overall incentive spending and the orderly wind-down of the Pontiac and Saturn brands," Susan Docherty, GM's sales chief, said in a statement.

Mike DiGiovani, GM's top sales analyst, said the company saw its U.S. market share stabilize at 20 percent.

"That's very encouraging given all that we've been through this year," he said.

GM, he said, is optimistic for improved sales in 2010 even with uncertainty over oil prices, employment and consumer confidence. He predicted sales of 11 million to 12 million vehicles, compared with an expected 10.5 million last year.

Chrysler sold only 931,000 vehicles for the year, its worst performance since 1962. The Auburn Hills, Mich., automaker saw sales drop 36 percent for 2009 but down only 4 percent in December, far better than the double-digit drops the company reported earlier in the year. And last month's sales rose 36 percent over November, showing signs of some progress at showrooms but also helped by less-profitable sales to fleets such a rental companies and municipalities.

Honda sales were off 20 percent for the year but up 24.5 percent in December, while Nissan was up 18 percent for the month but down 19 percent for the year. Toyota sales were up a whopping 32 percent in December but down just over 20 percent for the year.

Ford Motor Co. said full-year sales declined 15 percent, but the company said it posted its first full-year gain in U.S. market share since 1995. It also reported a 33-percent increase in December sales thanks to strong demand for midsize cars like the Ford Fusion, whose sales rose 83 percent. The Ford Escape crossover, meanwhile, rose 75 percent.

Ford's restructuring plan and new products helped it finish strong in 2009 despite a difficult business environment, said Ken Czubay, vice president of U.S. marketing, sales and service. He remained cautious that 2010 is likely to see more ups and downs in auto sales.

"I'm leaving my seat belt on, because I think that volatility is still an element of the new norm," he said.

Nissan's increase in December came from higher sales of its Versa compact car. Subaru, famous for small all-wheel-drive cars and sport utility vehicles, said 2009 was its best year ever for sales and market share.

The auto industry underwent a radical transformation in 2009, one of the most turmoil-filled years in its more than 100-year history.

Chrysler and General Motors, which both filed for bankruptcy protection after nearly collapsing, are still suffering as they struggle to revive sales and pay back huge government loans. Ford has been a relative bright spot.

Total U.S. auto sales, reported later Tuesday, are expected to drop to levels not seen for three decades. Joblessness climbed over 10 percent and buyers stayed away from showrooms, worried that automakers like GM and Chrysler might not survive. The last time sales were so low was in 1982, when 10.5 million cars sold during another bad recession.

Last summer, the government's Cash for Clunkers program eased the pain by reviving sales with $2.85 billion in government-backed rebates. Americans responded, buying nearly 700,000 vehicles. But for the most part, 2009 was a dismal year for new vehicles.

Meanwhile, China surpassed the United States as the largest auto market, with sales expected to top 12 million in 2009. Asian manufacturers like Hyundai surged by selling more affordable cars, though stalwart Toyota stumbled on factors like its biggest U.S. recall ever over accelerator problems.

Japan's auto sales were equally poor last year. Sales declined to the lowest level in 38 years, falling to 2.9 million vehicles. But Germany, another major auto producer, said that car exports were up in the quarter and year as the effects of the economic downturn eased.

Buffalo's debt collectors accused of bullying

When Tobias "Bags of Money" Boyland went looking for a new career after serving 13 years in prison for armed robbery and drug dealing, he quickly found something that suited his sensibilities: He opened a collection agency.

It was, in some ways, a natural move for a young man in Buffalo. Desperate for jobs, this chronically depressed Rust Belt city has become home to one of the biggest concentrations of debt collection businesses in the U.S.

"Collections is the Bethlehem Steel of Buffalo," said Boyland, 44, recalling the industrial giant that once employed 20,000 people in the region. "You can make a decent living in a town where there isn't a lot of opportunity."

Between 5,000 and 6,000 people earning $30,000 to $40,000 a year now work at roughly 110 collection agencies in and around Buffalo, an industry created with the help of seed money from the state of New York. The industry has been a rare economic bright spot in Buffalo, the nation's third-poorest city of its size, a place where 30 percent of the people live in poverty.

Yet, law enforcement and consumer groups point to a dark side: Buffalo, they say, has also become a center for some of the worst elements in the business. Debt collectors, some of them convicted felons, have illegally posed as lawyers or unlawfully browbeat people — threatening to have them arrested or stripped of custody of their children — to scare them into making payments.

"Get some clean clothes because you're not coming home any time soon," one debtor was told.

As the sour economy leaves people less and less able to pay their debts, the collection abuses have become so flagrant and numerous that state and federal authorities have moved to shut down several Buffalo-area agencies where the most heartless and bullying telephone calls originated. At least 20 people have been sued or arrested on criminal charges.

Boyland himself was forced out of business and jailed in June after authorities said they caught him carrying a loaded, unlicensed pistol as they investigated more than 1,000 complaints about abusive tactics at his collection business.

The regional Better Business Bureau said that in the past three years, it has gotten 4,562 complaints about debt collection agencies in western New York. Of 213 agencies it has graded in the region, 104 were given an "F." And of all the complaints about debt collection received by the Better Business Bureau nationwide last year, about 1 in 10 involved a company in western New York.

Collection agencies began sprouting in Buffalo in the mid-1990s as a spinoff of the city's then-growing back-office and financial-services sector. Like other businesses operating big customer-service call centers, the collection companies were drawn to Buffalo by its inexpensive office space and its willing and affordable work force.

A state development agency has sweetened the pot since 2001 with $1.2 million in grants to four collection agencies. It gave an additional $400,000 in October to a collection company that plans to double its work force with 50 new hires.

"Almost everyone knows someone whose son or daughter has worked for a collection agency," said David Polino, president of the Better Business Bureau of Upstate New York. "This is one of the industries that used to be Bethlehem Steel, the Chevy plant — all the places where you used to get out of high school and find employment 35 or 40 years ago, it's now call centers."

Industry supporters blame many of the worst complaints on small firms operating on the fringe.

Twenty-eight of the region's collection agencies have a grade of "A" from the BBB for generating few complaints while setting up repayment plans for delinquent credit card accounts, medical bills or loans.

"The vast majority are great businesses that benefit the local economy, do a good job, are respectful, and then you've got a few that are just wacko," said John Nemo, spokesman for the Association of Credit and Collection Professionals, a trade group with 3,500 members.

Boyland blamed the problems at his nine companies on unsupervised employees who abused a chance to make good money. Twelve of his former workers have been arrested and charged with offenses including posing as law enforcement officers to intimidate people into paying debts.

When "Dateline NBC" did a segment on Boyland's business in March, Boyland appeared unrepentant, writing on his Web site that he was "laughing all the way to the bank." But in a recent interview with The Associated Press, he was more contrite, saying he wouldn't have condoned such "ludicrous" tactics.

"Who can build a successful business model from that? It's not possible," he said.

Nationally, the Federal Trade Commission received more than 78,000 complaints about third-party debt collectors in 2008 and announced civil judgments of more than $1 million against agencies. The 2008 complaint total, the most recent complete-year figure available, was more than twice that of 2003. No other industry generated more calls.

For the first half of 2009, the FTC logged 45,050 complaints, an increase of nearly one-third from the same period in 2008.

While the bad economy has been partly responsible for the rise in complaints, another factor has been the emergence of companies that buy portfolios of old debts and make another stab at collecting, often more aggressively. Virtually anyone can buy into the business and get access to the personal information needed to collect a debt — including people with criminal records.

Over the past year, the New York attorney general's office has picked off some of the companies that generated the most outrageous complaints, including threatening debtors with phony lawsuits or trying to embarrass them by phoning employers and neighbors, both illegal under federal law.

"The tactics allegedly used here are some of the worst of the worst in the debt collection business," Attorney General Andrew Cuomo said in announcing a dozen arrests in September. "The defendants' alleged lies, deceit and intimidation caused many innocent people to pay money they didn't owe just to stop the terrifying calls."

Threatening to have people arrested for failing to pay a debt is also illegal, but that has been happening, too.

Michelle Minton of Springville said she was home alone with her two toddlers when someone claiming to be a lawyer for a collection firm phoned her, told her she owed $2,100 and said a warrant had been issued for her arrest. The only way out, he said, was for her to make a payment immediately.

"If your husband can't make it home from work, your children will have to go to Social Services," he told her.

Minton was certain there had been a mistake, but panicked and gave the caller access to her bank account, which was quickly drained of $900. She found out later the debt was owed by someone else.

"Forty-five minutes of bullying and they got $900," she said.

She and her husband tracked the call to a Buffalo company that has been the subject of other complaints. Cuomo's office is suing the business.

Pending home sales tumble 16 percent in November

Pending sales of previously owned U.S. homes fell more than expected in November because of the end of a rush to beat the initial expiration of a popular tax credit, a survey showed on Tuesday.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in November, dropped 16 percent to 96.0, after rising for nine straight months.

Analysts polled by Reuters had forecast pending home sales, which lead existing home sales by one to two months, falling 2 percent in November after rising to 114.3 in October.

Despite the monthly drop, the pending Homes Sales Index was 15.5 percent higher compared to November 2008, the Realtors group said.

Home sales have been boosted by a $8,000 tax credit for first-time home buyers, which has been expanded and extended to mid-2010. The popular tax credit had been scheduled to expire at the end of November.

"The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own," said Lawrence Yun, NAR chief economist.

"We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires."

The pending home sales index in the Northeast dropped 25.7 percent to 74.4 in November, but was 14.7 percent above a year ago. In the Midwest the index fell 25.7 percent to 82.0 and was 9.2 percent higher than November 2008.

Pending home sales activity in the South fell 15.0 percent to an index of 97.8, but was 14.7 percent higher than a year ago. Contract activity in the West declined 2.7 percent to 124.6, but was 21.4 percent above November 2008.

Stocks trade mixed on uneven economic reports

The stock market zigzagged after reports on factory orders and housing gave mixed signals about the economy.

The modest moves Tuesday came a day after the Dow Jones industrials soared more than 150 points on upbeat manufacturing reports in the U.S. and China.

The Commerce Department said Tuesday that factory orders rose by more than twice what had been expected, reflecting demand in the steel, computers and chemical industries. Sales rose by 1.1 percent in November. Economists had forecast an increase of 0.5 percent, according to a Thomson Reuters survey.

Meanwhile, the number of buyers who agreed to purchase previously occupied homes fell sharply in November, an indication that sales will fall this winter. The National Association of Realtors' said its seasonally adjusted index of pending home sales fell 16 percent to a level of 96. It was the first drop after nine months of gains and the lowest reading since June.

Investors reacted coolly to the reports. The Dow industrials fell 28.72, or 0.3 percent, to 10,555.24. The broader Standard & Poor's 500 index rose 0.25, or less than 0.1 percent, to 1,133.24, while the Nasdaq composite index fell 0.89, or less than 0.1 percent, to 2,307.53.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.77 percent from 3.83 percent late Monday.

The dollar mostly fell against other major currencies, while gold prices rose. Crude oil rose 16 cents to $81.67 a barrel on the New York Mercantile Exchange.

Manufacturing report bolsters hopes for recovery

An unexpectedly strong report on manufacturing activity Monday bolstered confidence that the nation's factories will help sustain an economic recovery.

The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index read 55.9 in December after 53.6 in November. A reading above 50 indicates growth.

That is the fifth straight month of expansion and the highest reading for the index since April 2006. Analysts polled by Thomson Reuters had expected a reading of 54.3.

A separate report on construction spending sounded a more cautionary note. Construction activity fell in November for a seventh straight month as spending on both residential and commercial projects declined. The 0.6 percent drop was bigger than the 0.4 percent decline that economists had been expecting.

Still, the ISM report said new orders, a signal of future production, jumped last month to 65.5 from 60.3 in November. Indexes measuring production and employment also rose.

The ISM's manufacturing index first showed growth in August after 18 months of contraction. The index's peak in the last decade was 61.4 in May 2004. It bottomed at 32.9 in the midst of the recession in December 2008.

"Overall, this was a very strong report, and it suggests that the recovery in the U.S. manufacturing sector is gaining further traction," Millan Mulraine, an economist at TD Securities, wrote in a note to clients.

The ISM's report showed that inventories held by manufacturers' customers are still dropping, a sign of future gains as more sales will have to be filled through new production rather than existing stockpiles.

But economists also said that a more sustainable recovery will depend on increasing demand from consumers and businesses, not just replenishing inventories.

"Not until final demand is clearly firming are markets, or the Fed, likely to conclude that the economy is decisively beginning to lift off," Pierre Ellis, an economist at Decision Economics, wrote in a note to clients.

Other measures of manufacturing around the world on Monday also showed growth. China's manufacturing sector expanded at its fastest rate in 20 months in December, according to a purchasing managers' survey. In Europe, a similar survey in the 16 countries that use the euro rose to a 21-month high and a manufacturing index for Britain rose to a 25-month high.

The stock market jumped on the first trading day of the year after the reports of stronger manufacturing activity around the world as well as a rise in oil prices. In midmorning trading, the Dow Jones industrial average rose 132.10, or 1.3 percent, to 10,560.15.

Stocks climb on manufacturing reports, rising oil

The stock market is jumping on the first trading day of the year following reports of stronger manufacturing activity around the world as well as a rise in oil prices.

A U.S. trade group says Monday that manufacturing activity expanded faster than expected in December, while China's manufacturing industry expanded last month at the fastest rate in 20 months.

A weakening dollar is boosting commodities prices. A drop in the dollar makes commodities cheaper for overseas buyers. A gain in oil prices is lifting energy stocks.

At midday, the Dow Jones industrial average is up 166, or 1.6 percent, at 10,594. The broader Standard & Poor's 500 index is up 19 at 1,134, and the Nasdaq composite index is up 41 at 2,310.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

NEW YORK (AP) — The stock market jumped on the first trading day of the year following reports of stronger manufacturing activity around the world as well as a rise in oil prices.

A U.S. trade group said manufacturing activity expanded faster than expected in December. The Institute for Supply Management's index of manufacturing activity rose to 55.9 from 53.6 in November, more than analysts had expected.

Overseas markets were already higher on news that China's manufacturing industry expanded last month at the fastest rate in 20 months.

There were also positive signs on manufacturing activity in Europe. A monthly purchasing managers' index for the 16 countries that use the euro rose to a 21-month high, and a similar survey for Britain rose to a 25-month high.

Meanwhile a weakening dollar boosted commodities prices, lifting materials stocks. An analyst's upgrade of semiconductor maker Intel Corp. sent technology shares higher.

In late morning trading, the Dow Jones industrial average rose 132.10, or 1.3 percent, to 10,560.15. The Standard & Poor's 500 index rose 13.54, or 1.2 percent, to 1,128.64, while the Nasdaq composite index rose 32.03, or 1.4 percent, to 2,301.18.

In economic news, Federal Reserve Chairman Ben Bernanke said Sunday that he wouldn't rule out higher interest rates to stop new speculative investment bubbles from forming. However, he did say stronger regulation is the best way to avoid such bubbles that helped push the economy into recession.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.81 percent from 3.84 percent late Thursday. Markets were closed Friday.

The technology industry was getting a boost after Robert W. Baird & Co. upgraded chipmaker Intel Corp. to "Outperform" and increased its price target on the stock to $26.

The dollar fell against other major currencies, while gold prices rose.

Overseas, Japan's Nikkei stock average rose 1 percent. In afternoon trading, Britain's FTSE 100 gained 0.7 percent, Germany's DAX index rose 0.6 percent, and France's CAC-40 gained 1.1 percent.

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