February 6, 2008

Asian stocks sink after Dow's plunge

BANGKOK, Thailand - Asian markets plunged Wednesday after a steep drop on Wall Street overnight fanned investors' fears the U.S. economy was sliding into a recession that could sap demand for Asian exports.

In Hong Kong, the benchmark Hang Seng index plunged 1,339.24 points, or 5.4 percent, to close the half-day session at 23,469.46. Japan's Nikkei 225 index was down 3.8 percent in afternoon trading.

"It's unbridled pessimism," said Francis Lun, general manager at Fulbright Securities Ltd. in Hong Kong. "Everyone is concentrating on a U.S. recession, but Europe is also looking bad.... We are in for a bear market now."

Investors were unnerved by economic data Tuesday showing the U.S. service sector shrank last month for the first time since March 2003. That seemed to wipe out some nascent optimism about the American economy after the U.S. Federal Reserve's two big rate cuts late last month, which gave many markets a lift.

Pessimism returned when the Institute for Supply Management reported that its December index of activity in the U.S. service sector, which accounts for about two-thirds of the economy, dropped below 50, indicating contraction. That sent the Dow Jones industrial average plunging 2.93 percent, its largest one-day percentage drop since Feb. 27, 2007.

European markets also sank Tuesday in reaction to the news, with the U.K.'s FTSE 100 Index sliding 2.6 percent and France's CAC-40 Index falling 4 percent.

Global financial markets have turbulent since the start of the year, mostly tumbling amid worries about a U.S. — and worldwide — slowdown and massive losses racked up by banks that made bad bets on securities backed by risky mortgages.

Asian investors appeared increasingly anxious about a slump in Europe, another vital export market.

"There's a real probability that both the U.S. and Europe will go into recession at the same time," said Lun. "It's a financial mess on the two continents with the subprime crisis and the SocGen debacle."

The financial industry, already reeling from losses linked to the credit crisis, was dealt another blow last month when major French bank Societe Generale said it had lost about $7.1 billion in cleaning up unauthorized transactions by a rogue trader.

Elsewhere in the Asia-Pacific, Australia's key index fell 3.2 percent, while India's Sensex index was down 2.5 percent. Thailand's market slid 2.4 percent.

Some traders said Wednesday's decline in Hong Kong was overdone and largely driven by investors keen to avoid risky exposure during the long Lunar New Year holidays.

Markets in Hong Kong and Singapore were closed Wednesday afternoon and will remain shut Thursday and Friday. Markets in China, South Korea and Taiwan were closed Wednesday through Friday for the holidays.

U.S. stock index futures were down modestly, suggesting that Wall Street was poised for further declines. Dow futures were down 22 points, or 0.2 percent, to 12,298, while S&P 500 futures were down 1.2 points, or 0.1 percent, to 1,342.

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Stocks plunge on service sector weakness

NEW YORK - Wall Street plunged Tuesday, driving the Dow Jones industrials down 370 points after investors saw an unexpected contraction in the service sector as evidence the economy is sinking into recession. It was the Dow's biggest percentage drop in almost a year.

The volatility that pummeled stocks in January returned with the news that the service sector shrank last month for the first time since March 2003. The report from the Institute for Supply Management wiped out the nascent optimism about the economy that had sent stocks surging higher last week.

"The report drives a nail into the coffin from investors' minds that we're in a recession," said Todd Salamone, director of trading at Schaeffer's Investment Research. "That doesn't mean stock prices in the months ahead will be lower. But when you see headline numbers like this, there tends to be a reactionary sell."

The ISM said its index of service sector activity, which accounts for about two-thirds of the economy, dropped below 50, a level that indicates contraction. The market had expected another month of growth, and the disappointment contributed to Tuesday's $500 billion loss in the Dow Jones Wilshire 5000 Composite Index, an index that measures the movement in 5,000 U.S. stocks.

Alongside the Labor Department's report last week showing the first monthly U.S. jobs decline in more than four years, the data on the service sector — which includes businesses ranging from restaurants to retailers to banks — was particularly worrisome to investors.

Though Wall Street hopes the Federal Reserve will keep slashing interest rates to stoke the economy, some believe the central bank, which lowered rates 1.25 percent in just over a week last month, acted too late. Rate cuts take several months to take effect, and moreover, many analysts are skeptical that rate cuts are the correct remedy for an economy saddled with bad debt in the wake of a housing market implosion.

Fitch Ratings' plans to lower the rating on more than $100 billion wrapped up in bond funds called collateralized debt obligations added to the host of concerns plaguing Wall Street. Downgrades would mean the securities — many of which are backed by mortgages — are worth even less than many investors thought. That could cause more problems for strugging banks, brokerages, and bond insurers hurt by investments in mortgages that went sour.

The Dow fell 370.03, or 2.93 percent, to 12,265.13, after falling 108 points on Monday. Tuesday's slide was the blue chip index's largest one-day percentage drop since it lost 3.3 percent on Feb. 27, 2007, and its largest point drop since it fell 387 points last Aug. 9.

The broader Standard & Poor's 500 index lost 44.18, or 3.20 percent, closing at 1,336.64, while the Nasdaq composite index tumbled 73.28, or 3.08 percent, to 2,309.57.

In Monday and Tuesday's trading, the Dow gave up most of the gains it made last week, when it jumped 536 points, or 4.39 percent, in a burst of optimism about the economy. It's not surprising that the volatile market would pull back on any bad economic news — but some analysts claim stocks should be near their bottom given how low investors sentiment is right now.

According to JPMorgan equities analyst Thomas J. Lee, the three worst readings on record in the ISM's service sector index are associated with stocks rising in the ensuing three months — on average, by 6 percent.

Even if the stock market is near its low point, though, it has a lot of ground to recover. The Dow is down more than 13 percent since its Oct. 9 record settlement of 14,164.53. Meanwhile, the S&P 500 — the measure most watched by market professionals — is down 8.9 percent for the year, the worst year-to-date performance for the index ever. The S&P 500 has fallen 14.6 percent from its Oct. 9 high.

Bond prices jumped as investors sought the safety of government-backed debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.56 percent from 3.64 percent late Monday.

The ISM report is particularly alarming, said Bernard Baumohl, managing director of the Economic Outlook Group LLC. Because Americans will not pare back spending significantly on necessary services like health care and transportation, January's rapid decline in service sector activity suggests that investors may have underestimated how damaged the economy is, he wrote in a research note.

On Tuesday, the biggest losers in the stock market were banks, which have already suffered huge losses in their investment portfolios last year and are now socking billions of dollars away to prepare for debt-burdened consumers to stop making payments.

Dow component Citigroup Inc. fell $2.17, or 7.4 percent, to $27.05, while JPMorgan Chase & Co., another Dow component, fell $2.33, or 5 percent, to $44.28. Washington Mutual Inc. fell $1.08, or 5.6 percent, to $18.08; Bank of America Corp. fell $1.66, or 3.8 percent, to $42.37; and Wachovia Corp. fell $1.35, or 3.8 percent, to $34.18.

"When you have the financials in intensive care such as they are, for any economy like ours, they must heal," said Quincy Krosby, chief investment strategist at the Hartford. "They drew us into this; they must lead us out."

Light, sweet crude oil declined $1.61 to $88.41 a barrel on the New York Mercantile Exchange, as traders bet that a slower economy would dampen energy demand. An extended drop in energy prices could aid businesses that are finding their supply costs are rising, but that their customers are having trouble taking on price increases.

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

Declining issues outnumbers advancers by about 4 to 1 on the New York Stock Exchange. Consolidated volume came to 4.18 billion shares, down from 4.51 billion on Monday.

The Russell 2000 index of smaller companies fell 21.88, or 3.02 percent, to 701.58.

Stocks overseas also retreated. Japan's Nikkei stock average fell 0.82 percent; Hong Kong's Hang Seng index fell 0.89 percent; Britain's FTSE 100 fell 2.63 percent; Germany's DAX index fell 3.36 percent; and France's CAC-40 fell 3.96 percent.

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U.S. has not notified SocGen director about probe

WASHINGTON (Reuters) - U.S. regulators have not notified Societe Generale (SOGN.PA) director Robert Day that they are investigating the stock sales he made before the French bank announced billions of dollars in losses by a single trader, Day's spokesman said on Tuesday.

According to a report by the Wall Street Journal newspaper, the U.S. Securities and Exchange Commission is probing stock sales by Day and by two foundations associated with him.

The Department of Justice is also looking into Day's trading activity, a source close to the investigation told Reuters on Monday.

"We doubt this is coming from either the SEC or DOJ since both have prohibitions against such leaks," said Day's spokesman, Josh Pekarsky. "In any case, we have not been notified by the SEC or the DOJ of any investigation into Mr. Day."

Day and the foundations sold about $140 million of the bank's stock about two weeks before Societe Generale notified its board about the $7.3 billion in trading losses, the Journal said.

The bank publicly revealed on January 24 the losses it blamed on a single rogue trader, Jerome Kerviel.

Societe Generale has already said that Day's sales were during a window of time when such trades were permitted under the bank's trading policies for directors.

The bank has also said it was contacted by the U.S. Attorney's Office for the Eastern District of New York on January 25 about the trading losses announced the day before.

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Overview: Equities tumble as ISM fuels recession fears

US and European stock markets tumbled and government bonds surged on Tuesday as further evidence of economic slowdown emerged on both sides of the Atlantic.

The chief surprise of the day came from the US Institute for Supply Management's non-manufacturing business activity index, which fell to 41.9 per cent in January from 54.4 per cent, the biggest ever monthly decline and its lowest level since October 2001.

It was the first time the index has come in below the 50 level, signifying contraction, since March 2003. "The survey results were downright disastrous," said Stephen Stanley, chief US economist at RBS Greenwich Capital. "These are recessionary readings."

As Wall Street accelerated losses in afternoon trade, credit spreads widened sharply, maintaining support for government bonds. The dollar remained firmer as oil and gold lost ground.

"Stocks were crushed by the ISM weakness, and credit markets also performed poorly," said Ted Wieseman, economist at Morgan Stanley.

Lena Komileva, G7 economist at Tullett Prebon, said the report reinforced the notion that the Federal Reserve had been unable to forestall a recession in spite of aggressive, timely policy easing.

"Fed rate cuts are not the answer to this credit crunch and hence cannot prevent the loss of confidence in the real economy," she said.

Some analysts warned that the ISM report was well out of line with other January indicators. "The ISM indices have only deteriorated this rapidly following a massive shock, such as the 9/11 attacks," said Julian Jessop, at Capital Economics.

"But it may well be significant that after such sharp falls in the past they have typically rebounded in the following month."

US interest rate futures moved to fully price in another half-point cut in US interest rates when the Fed next meets, on March 18.

"We think that the Fed will ease by 50 basis points in March and in April and by another 25bp in June," reducing the Fed funds rate to 1.75 per cent by mid-year said Mr Stanley.

Disappointing services sector and retail sales data in the eurozone prompted similar slowdown fears and raised speculation that the European Central Bank would be forced to soften its hawkish stance on interest rates.

The purchasing managers' services index fell from 52.0 in December to 50.6 in January for the whole of the zone, and dipped below the break-even 50 level in Germany, Italy and Spain. Eurozone retail sales fell 0.1 per cent in December, and were down 2 per cent year on year.

"The sharp deceleration in eurozone services growth coupled with the lacklustre retail sales data suggest market expectations of ECB rate cuts later this year may be more than just wishful thinking," said Martin van Vliet, economist at ING.

The UK's service sector held up better last month, with the business activity index edging up to 52.5 from 52.4.

Analysts said the figures helped reinforce the view that the Bank of England would cut interest rates by 25 basis points to 5.25 per cent tomorrow, rather than by a more aggressive 50bp.

The equity market response to the day's economic news was unequivocal and stocks in New York closed at their lows of the day. Financials led the selling and late in the day Fitch Ratings placed some bond insurers on ratings watch negative.

The S&P 500 fell 3.2 per cent, its worst day in nearly a year and it is down 9 per cent in 2008, its poorest start to a year ever.

The pan-European FTSE Eurofirst 300 index tumbled 3.1 per cent and the FTSE 100 in London shed 2.6 per cent.

Asian markets had staged a broad retreat as investors took profits after the previous session's strong gains and closed positions ahead of the Lunar New Year holiday.

In Tokyo, the Nikkei 225 Average fell 0.8 per cent while Hong Kong lost 0.9 per cent. Australian stocks shed 1.3 per cent as retailers were hit by a 25bp rise in domestic interest rates.

European and US credit spreads widened sharply as stock markets declined. The Markit iTraxx Crossover index, a closely-watched barometer of risk appetite in Europe, widened to 504bp from 471bp late on Monday. The Markit CDX index which references US investment-grade bond risk widened to 117bp from 109bp.

The flight out of equities prompted strong safe-haven buying of government bonds. The yield on the 10-year US Treasury was down 8bp at 3.56 per cent while the two-year yield was 14bp lower at 1.92 per cent.

The Treasury yield curve steepened, with the difference between two-, and 10-year note yields moving to 1.64bp. The curve had steepened from just under 100bp since the start of the year as rate cuts and the prospect of more to come has pulled short-dated yields sharply lower.

"There were good further front-end led gains in late trading as stocks continued hitting new lows that steepened the curve significantly further," said Mr Wieseman.

In Europe, the two-year Schatz yield fell 13bp to 3.26 per cent.

On currency markets, the eurozone data weighed on the euro, sending the single currency down 1.2 per cent against the dollar and 1.1 per cent against the yen.

In commodities, March West Texas Intermediate fell $1.61 to $88.41 a barrel, as the day's economic figures sparked fresh concerns about the impact on demand of a global economic slowdown. Gold consolidated below $900 an ounce.

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US stocks tumble on service report

Wall Street stocks tumbled on Tuesday after an index of service sector activity slumped to its lowest level since the aftermath of the September 11 attacks, accentuating fears for the health of the US economy.

The extremely weak non-manufacturing data caused stocks to record their worst performance in almost a year as traders priced in a greater likelihood of a domestic recession.

All ten of the S&P's leading sectors closed in negative territory with financial, energy and telecoms companies leading the rout.

The S&P 500 closed down 3.2 per cent at 1,336.64, its worst day since February 27 last year when the index fell 3.5 per cent. A broad-based sell-off saw only 16 index members end in positive territory. The S&P has now declined 9 per cent in 2008, its worst start to a year ever.

The Nasdaq Composite fell 3.1 per cent to 2,309.57 while the Dow Jones Industrial Average shed 2.9 per cent - or 370 points - to 12,265.13.

The equities slump was accompanied by a spike in the CBOE Vix index - Wall Street's "fear gauge" - which jumped 9 per cent to 28.33.

The ISM non-manufacturing index recorded its biggest fall in its history, plunging to 41.9 last month from a reading of 54.4 in December. It was the first contraction in service sector business activity since the start of the Iraq war and the lowest reading since October 2001.

"This data release corroborates the notion that the US economy is in recession,"T.J. Marta, fixed income strategist at RBC Capital Markets, said.

Economists were expecting only a small pullback to 53.5, where a reading above 50 indicates expansion.

Some analysts were more sanguine, noting that such a dire reading could be a contrarian indicator and investors should therefore buy into market weakness.

"The three worst readings in non-manufacturing ISM occurred in 2001 [twice] and 2003. In two of three instances, equity markets rose three months later, with an average gain of 6 per cent," Thomas Lee, strategist at JPMorgan Research, said.

Bond prices rose sharply and the yield curve steepened as traders speculated that the Federal Reserve would keep slashing interest rates to head off a severe economic downturn.

Sheryl King, economist at Merrrill Lynch said the dismal data meant there was a strong chance of an inter-meeting rate move before the next Federal Open Market Committee meeting in March. The futures market priced in a 76 per cent likelihood of a 50 basis point cut in March and a 24 per cent chance of 75bp.

Financial stocks came under pressure after Fitch Ratings said it might downgrade some of the safest triple-A rated collateralised debt obligations by as much as five notches.

Meanwhile in a report on bond insurers Standard & Poors said there could be serious ripple effects if monolines lose their triple-A ratings, including possible credit downgrades for US banks. S&P said $125 billion of subprime-related CDOs hedged by bond insurers were concentrated at a small number of banks. "Few banks have disclosed how much that exposure is," the rating agency said.

Among the biggest fallers were Citigroup (NYSE:C), down 7.4 per cent at $27.05 and Merrill Lynch, 5.6 per cent weaker at $54.50. GMAC Financial Services, the finance company owned by Cerberus Capital Management and General Motors, reported a preliminary net loss of $724m for the fourth quarter.

Also retreating sharply was Goldman Sachs (NYSE:GS), down 5.5 per cent to $189.86, after Oppenheimer & Co analyst Meredith Whitney cut her rating from "outperform" to "perform", citing valuation concerns. Ms Whitney said Goldman would "suffer from its own success" as it faced tough earnings comparisons this year.

Homebuilder stocks initially rallied after Banc of America Securities raised its rating on four companies citing expectations that lower house prices would increase demand. That mood had dissipated by the close as the S&P homebuilder index fell 4.9 per cent.

In the technology sector, National Semiconductor (NYSE:NSM), down 7.5 per cent at $17.59, spurred a sell-off in chip stocks after it lowered its third quarter revenue outlook because of expected weakness in mobile electronics sales. The PHLX semiconductor sector index fell 3.7 per cent.

Earnings news was led by NYSE Euronext, whose shares fell 14.1 per cent to $71.03 as concerns about its ability to realise anticipated cost savings worried investors.The exchange operator more than tripled quarterly net income to $156m.

Whirlpool (NYSE:WHR) was a lone bright spot, soaring 10.3 per cent to $90 after the appliance maker increased quarterly earnings by 72 per cent. News Corp, up 0.6 per cent at $20.08, which increased fourth-quarter profit 1.2 per cent to $832m.

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Wall Street skids about 3 percent on recession sign

NEW YORK (Reuters) - Stocks suffered their biggest drop in nearly a year on Tuesday after data showed the worst monthly contraction in the services sector since the last U.S. recession and Standard & Poor's warned it could cut bank credit ratings.

The Dow and S&P 500 had their biggest drops since February 27, 2007. All 30 Dow stocks fell and only 17 of the 500 components on the S&P closed higher.

Recession fears slammed sectors across the board, ranging from telecommunications to energy. Banks and other financial services stocks fell particularly hard after S&P said any loss of a top credit rating by a major bond insurer could force banks to put hobbled bonds back on their balance sheets, curtailing funds available for basic lending.

"This could lead to a further prolonged period of generalized market disruption and a loss of confidence that would not be favorable for any financial institution," the rating agency said.

The tone for the day was set by the January reading of the Institute for Supply Management's non-manufacturing index. The gauge had its biggest drop since the indicator was created in 1997 and fell to the lowest level since October 2001, aggravating fears that a recession is at hand.

"The U.S is no longer a manufacturing economy, it's a service economy, so this number will carry a lot more weight" than last week's surprise rise in ISM's manufacturing index, said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois. He added that the ISM report will make investors more nervous about other upcoming indicators.

The Dow Jones industrial average (.DJI) was down 370.03 points, or 2.93 percent, at 12,265.13. The Standard & Poor's 500 Index (.SPX) was down 44.18 points, or 3.20 percent, at 1,336.64. The Nasdaq Composite Index (.IXIC) was down 73.28 points, or 3.08 percent, at 2,309.57.

Year-to-date, the Dow is down 7.5 percent while the S&P is 9 percent lower. The Nasdaq has fared worse, dropping 12.9 percent so far in 2008.

Stocks took a last-minute leg lower after rating agency Fitch said it may cut the AAA-rating on MBIA Inc (MBI.N), the world's biggest bond insurer.

Insurer American International Group Inc (AIG.N) was one of the worst Dow performers, falling 4.5 percent to $52.93 on fears about credit exposure.

Investment bank Goldman Sachs & Co (GS.N) slid 5.5 percent to $189.86 after a broker downgrade. Citigroup Inc (C.N) shares dropped 7.4 percent to $27.05.

Oil companies such as Exxon Mobil Corp (XOM.N) were under pressure on expectations that an economic downturn will slow transportation and manufacturing, crimping demand for energy.

Exxon was down 3.9 percent at $82.11, making it the top-weighted drag on the S&P.

Technology shares, seen as particularly vulnerable to a downturn in both business and consumer spending, were under pressure.

Shares of business software maker Oracle Corp (ORCL.O) fell 4.7 percent to $19.25, while BlackBerry device maker Research In Motion Ltd's stock (RIM.TO)(RIMM.O) fell 5.2 percent to $88.30.

Verizon shares fell 4.6 percent to $36.83 while stock of rival AT&T Inc (T.N) dropped 3.8 percent to $36.73 on the NYSE.

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Walt Disney shares rise after results

NEW YORK (Reuters) - The Walt Disney Co's (DIS.N) shares rose 2.4 percent to $30.80 in after-hours trade on Tuesday after the company reported quarterly results that topped Wall Street estimates.

Shares had closed at $30.07 on the New York Stock Exchange.

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SEC forms office to pay back wronged investors

WASHINGTON (Reuters) - The Securities and Exchange Commission said on Tuesday it has created a new office in the agency to quickly distribute financial penalties to wronged investors.

The Office of Collections and Distributions will be used to dole out more than $5 billion the SEC has recovered from securities law violators, the agency said.

"The Commission's strong commitment to recovering money from wrongdoers and returning it to investors is amply demonstrated by the more than $2 billion we distributed last year," said Chairman Cox in a statement.

The SEC has the authority to collect and distribute the funds due to the post-Enron Sarbanes-Oxley corporate reform laws of 2002. Before the Fair Funds provision of that act, the SEC sent financial penalties collected from its enforcement actions to the U.S. Treasury.

The SEC said it has used this authority to distribute more than $3.5 billion to investors. It said the new office will help cut red tape and the cost of distributing the money.

Richard D'Anna, who was previously senior vice president at 1st Bridgehouse Securities, has joined the SEC as director of the new office. Lynn Powalski, who has been an assistant director for collections and distributions within the SEC's enforcement division, will serve as the new office's deputy director.

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Wall Street tumbles as recession fears grow

NEW YORK (AFP) - Wall Street shares slid at the open Tuesday after a surprisingly weak reading on US service sector activity intensified fears about a recession in the world's biggest economy.

In the first exchanges, the Dow Jones Industrial Average fell 165.67 points (1.31 percent) to 12,469.49 while the tech-heavy Nasdaq shed 35.54 points (1.49 percent) to 2,347.31.

The broad-market Standard & Poor's 500 index retreated 21.43 points (1.55 percent) to 1,359.3.

Market action came after a report from the Institute of Supply Management showed the vast services sector of the US economy contracted in January for the first time in nearly five years.

The Institute of Supply Management's index on nonmanufacturing activity slumped to 41.9 percent in January from 54.4 percent in December.

The report on services, which makes up the lion's share of US economic activity, is another sign of a sharp slowdown in the US economy that some analysts say means a recession is at hand.

Stephen Gallagher, economist at Societe Generale, said the ISM report "is in recession territory."

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Ping An feels the lash of intervention from Beijing

The Communist party has a long tradition of intervening in Chinese stock markets by publishing bullish or bearish statements in its mouthpiece, the People's Daily. So when an article attacking a giant share placement from Ping An Insurance appeared under the pen name Lily in Monday's edition, the markets paid attention.

Ping An's announcement two weeks earlier that it planned to raise more than $20bn in a domestic secondary share placement and bond sale helped send Chinese stocks into a tailspin just when markets in the rest of the world were collapsing. So an official comment from the government criticising what would be the largest yet share sale by far in mainland China was welcome news to investors and helped push the benchmark index up more than 8 per cent on Monday.

The commentary was scathing in its criticism of companies that act without concern for the investing masses and use the stock market as an automatic teller machine to collect money at will. It also suggested new rules forbidding secondary placements within three years of - or that exceed the amount raised in - an initial public offering. This is a direct attack on Ping An, which raised $5bn in its IPO a year ago.

But it ended on a more harmonious note: "Only when the interests of all sides are protected will the stock market continue to run like a fountain, bringing moisture and nutrition to listed companies and investors."

Artisan's shadow

Warren East, Arm Holdings' chief executive, has fielded investors' brickbats before. He oversaw the British technology group's first profit warning in 2002, then took a beating from shareholders who accused him of overpaying for Artisan of the US in 2004. By mid-afternoon on Tuesday, Arm's shares had fallen to their lowest level since shortly before the completion of that deal.

This ought not to happen. The largest part of Arm's business designs microprocessors for the kinds of small portable devices the digerati and their disciples cannot be without - everything from smartphones to the most sophisticated heating controls. That licensing revenues in this business slipped between the third and fourth quarters of last year is not so surprising - the macroeconomic clouds are gathering and industry conditions, as Arm says, are uncertain. But the group's revenues sit on a solid foundation of royalties. That income would probably continue to grow even if Mr East and his team were to pack up the rest of the company and go home.

Artisan is Mr East's problem child. Now recast as Arm's physical intellectual property division, its aim is to license technology to the world's largest semiconductor companies for packing ever-more information into ever-smaller chips. The plan to develop Artisan was always a slow burner. On Mr East's four- to seven-year timescale, he needn't start worrying until the end of this year. But he is already concerned. Last year, Arm poured more resources into PIPD, rejigging its structure and moving an experienced board member to run it last September. The group says it can now offer technology up to date enough to attract the attention of the likes of Texas Instruments or Qualcomm. But so far, no deal has been forthcoming.

For a division that (including royalties) accounts for only 17 per cent of total group revenue, Artisan is casting a long shadow.

Question of credibility

International investment funds have to rely on a carefully nurtured credibility to challenge successfully entrenched power brokers. Protecting that credibility depends on choosing targets equally carefully. If they get it wrong, the market these funds claim to represent will stop listening.

Take the case of Generali. The Italian insurer has come under attack by a London-based activist fund, Algebris, since October. This week, Algebris seemingly received a boost in its campaign with the publication of a letter from Franklin Mutual, one of the largest US fund managers, which criticised Generali's apparent interest in expanding in the US. It also echoed Algebris's complaints about Generali's governance structure, with its two chief executives and Antoine Bernheim, its 83-year-old chairman,

Franklin's suggestion that the US financial sector is a mature market and thus devoid of opportunity for a company such as Generali is somewhat surprising. In niche areas - such as third-age products - where Generali is looking to go, the US is probably one of the fastest-growing markets in the world.

Perhaps even more surprising is Franklin's decision to question the governance of the only big European insurer to have maintained its stock market value over the past six months.

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London sinks as financials weigh

Financial stocks dragged London's FTSE 100 back below the 6,000 level on Tuesday after US service sector data intensified fears of US recession.

The FTSE 100 closed 158.2 points, or 2.6 per cent at 5,868 while the mid-cap FTSE 250 fell 3 per cent to 9,955.3

Schroders was a leading faller, down 7.1 per cent to £10.25, as Morgan Stanley cut its stance on the fund manager from "equal-weight" to "under-weight".

After an analysis of some of the group's funds, the bank said Schroders was the "most exposed to equity mutual fund redemptions, a trend that we think is underestimated by the market". Morgan Stanley also downgraded Aberdeen Asset Management, which fell 6.8 per cent to 137¼p.

Leading banks were weaker, with Royal Bank of Scotland off 5.6 per cent to 383p and Barclays (NYSE:BCS) down 4.3 per cent to 460¾p.

Northern Rock, however, climbed 2.3 per cent to 90¾p as RAB Capital, the company's second-biggest shareholder, said it backed the management-led proposal to rescue the bank rather than a rival offer from a consortium led by Richard Branson's Virgin Group.

Olivant, another of the potential bidders for Northern Rock, pulled out of the running on Monday.

Housebuilders suffered the day's heaviest losses on fears of a sharp downturn in the UK housing market. Taylor Wimpey shed 8.1 per cent to 185p and Persimmon lost 7.3 per cent to 748.3p.

Hammerson led real estate groups lower after downgrades to the sector from HSBC.

The bank downgraded Hammerson and British Land from "neutral" to "underweight" and Land Securities and Brixton Estates from "overweight" to "underweight".

Hammerson fell 6.8 per cent to £10.67, British Land lost 4.8 per cent to 975.3p, Land Securities dropped 4.2 per cent to £15.92 and Brixton shed 4.4 per cent to 333p.

BP was one of only three risers on the FTSE 100 after its drop in quarterly net profit was offset by news that the group would increase its quarterly dividend by 31 per cent and continue to buy back shares.

The profit fall was due to weak refining margins and higher costs, with outweighed the impact of higher oil prices. BP shares rose 0.2 per cent to 542¾p.

"We believe that the sector bounce in the year to date has exacerbated significant downside opportunities," HSBC said.

In the mid-caps, chip designer ARM Holdings fell 20.1 per cent to 94¼p after missing forecasts with a 6 per cent rise in full-year revenues.

The company, which designs chips for Intel, said it was cautious on the short-term outlook for the industry, but said it had entered the year with its order backlog at its highest level ever.

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Financial Tech in talks on Singapore

Financial Technologies, the group that controls India's top commodities exchange, is considering opening a commodity bourse in Singapore as the country's biggest gold, silver and base metals trader diversifies.

Financial Tech, owner of India's Multi Commodity Exchange, was in talks with the Monetary Authority of Singapore about setting up the Singapore Mercantile Exchange, a person familiar with the plan said.

"Financial Technologies is the only company out of India to have set up exchanges in Dubai in the Middle-East and in Mauritius to serve Africa and to have plans for Europe and now Singapore," the person said.

Started by entrepreneur Jignesh Shah in 2003, MCX turns over $4bn a day, or about 75 per cent of the daily volume by value of India's 24 commodities markets.

While India's commodity business has boomed, analysts warn that the country remains a minefield for traders. India's leftist parties and security hawks have distrusted commodities futures trading amid concerns about abuses by unscrupulous traders or enemy agents.

Driven by political concerns over high inflation early last year, the government without warning banned the trading of futures for wheat and pulses, another important Indian crop.

"There are policy risks involved in the functioning of these exchanges, particularly regarding agricultural commodities," said Seema Desai, analyst at Eurasia Group in London.

Some analysts believe that diversifying this risk has been one reason for Financial Technologies' rapid overseas expansion.

The person familiar with Financial Technologies' proposed Singapore exchange said he expected the project to be ready for launch in "about a month".

MCX, whose shareholders include Fidelity, Merrill Lynch and Citigroup, also specializes in energy and some agriculture in addition to metals.

Singapore's two commodity exchanges - the Joint Asian Derivatives Exchange, run by the Singapore Exchange, and the Singapore Commodity Exchange - mainly trade futures in rubber and crude palm oil.

Financial Technologies declined to comment on the proposal. The Monetary Authority of Singapore also declined to comment.

The plan follows a series of recent regulatory changes in India including new rules allowing 49 per cent foreign ownership of domestic exchanges with no single investor permitted to own more than 5 per cent.

This means Fidelity might have to liquidate part of its 9 per cent stake in MCX and Goldman Sachs might have to sell a portion of its 7 per cent stake in a rival bourse, the National Commodity and Derivatives Exchange.

The government has also amended the law to make the regulator, the Forwards Market Commission, independent in a move the industry hopes will give it the teeth to make important reforms to the market.

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Wall Street slumps on service report

Wall Street stocks slumped on Tuesday after the US service sector contracted last month at the fastest rate since the aftermath of the 9/11 attacks, raising new fears for the health of the economy.

The disappointing non-manufacturing data caused stocks to tumble and pushed bond yields sharply higher as traders positioned themselves for a possible US recession.

Less than an hour after the opening bell, the S&P 500 was down 1.7 per cent at 1,357.09. The Nasdaq Composite fell 1.5 per cent to 2,347.03 while the Dow Jones Industrial Average also shed 1.5 per cent to 12,442.67.

The ISM non-manufacturing index plunged to 41.9 in January, from a reading of 54.4 in December, the largest drop in the history of the index.

It was the first contraction in the business activity index since March 2003 as the index fell to its lowest level since October 2001.

"This data release corroborates the notion that the US economy is in recession," said TJ Marta, fixed income strategist at RBC Capital Markets said.

Economists were expecting only a small pull back to 53.5 with a reading above 50 still indicating expansion.

The non-manufacturing employment index fell to 43.9 last month from 51.8 in December, following on from last week's disappointing jobs report, which also showed a slowdown in service sector employment. Meanwhile, new orders fell by 10.4 percentage points.

The ISM data were released ahead of schedule after a possible breach of information, ISM said. Bond prices had risen sharply ahead of the report's release.

The gloomy outlook for the US economy came as millions of Americans prepared to vote in electoral primaries on Super Tuesday.

"An absolutely stunning ISM non-manufacturing number leaves the chart of the index looking like it has fallen off the edge of a cliff, and is heartwarming only for those who think the economy is already in a recession," Alan Ruskin, strategist at RBS Global Banking & Markets, said.

Bond prices rose sharply as risk aversion increased after the ISM services data. The yield on the two-year Treasury note plunged below 2 per cent, falling 12 basis points to 1.94 per cent while the 10-year Treasury note was yielding 3.54 per cent, a decline of 11bp. A spread of 160bp marked the steepest yield curve since September 2004.

Yields on short-dated treasuries have fallen more rapidly amid expectations that the Federal Reserve will keep slashing interest rates to head off a severe economic downturn. After the ISM data the futures market fully priced in a 50bp cut when the Fed next meets in March, with at least two further cuts to a possible Fed funds rate of 2 per cent seen likely by June.

Financial stocks led Tuesday's sell-off with the S&P investment bank index falling 2.8 per cent, with energy and telecoms companies also coming under pressure.

Oppenheimer & Co analyst Meredith Whitney cut her rating on Goldman Sachs from "outperform" to "perform" on valuation concerns. Ms Whitney said Goldman would "suffer from its own success" as it faces tough earnings comparisons this year after successfully avoiding the worst of the subprime mortgage crisis in 2007. Goldman shares fell 3 per cent to $194.73 in pre-market trading and have fallen 6.6 per cent this year.

Homebuilder stocks were one of the few sectors to rally after Banc of America Securities raised its rating on four companies, citing expectations that lower house prices will increase demand.

Analyst Michael Wood told investors to buy shares in KB Home, Pulte Homes and MDC Holdings and set a neutral rating on Toll Brothers, predicting an average share price rise of 20 per cent over the coming year. ""While we do not expect a spike in demand immediately, we expect that it will gradually improve over 2008," Wood said in a research note," he said.

Homebuilders were one of the worst performing sectors last year as the subprime mortgage crisis caused house prices to fall and led builders to post massive losses.

But, together with fellow laggards like financial companies and retailers, homebuilders have enjoyed a rally in recent weeks. After hitting a low on January 9, the sector index has soared more than 50 per cent, though it remains more than 60 per cent below a high set in July 2005.

Earnings news was led by News Corp which said after the closing bell on Monday that fourth quarter profit increased 1.2 per cent from $822 to $832m as higher advertising sales offset weakness in its film business. The stock was unchanged at $19.98.

Also reporting after the close on Monday, Yum! Brands, owner of the KFC, Taco Bell and Pizza Hut chains, said fourth quarter profit dipped from $234m to $232m causing the shares to drop 4.3 per cent to $34.28.

NYSE Euronext, the exchange operator, more than tripled quarterly net income to $156m on record equity trading and new listings but the shares fell 5 per cent to $78.57. Also reporting quarterly results was CME Group, parent of the world's largest derivatives exchange, which said earnings almost doubled to $201m from $103m the previous year. The stock slipped 0.9 per cent to $613.35.

Boston Scientific, the medical device maker, swung to a $458m loss as costs from an acquisition weighed on its fourth quarter results causing its shares to give up 0.5 per cent to $12.78.

European stocks extended early losses as Wall Street opened. The FTSE Eurofirst 300 index was down 2.3 per cent, with the FTSE 100 down 2.1 per cent and the Ibex 35 down 4.1 per cent in Madrid.

The dollar pared earlier gains against the yen to trade up only 0.2 per cent at 106.8930 having earlier risen 0.6 per cent. Against the euro the US currency rose 1.2 per cent to $1.4650.

Meanwhile, gold retreated back below the $900 mark, falling $15.10 to $894.30 and crude oil prices slipped 1.6 per cent to $88.42 as the outlook for the US economy waned.

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Services data hits US stocks

Wall Street stocks slumped on Tuesday after the US service sector contracted last month at the fastest rate since the aftermath of the 9/11 attacks, raising new fears for the health of the economy.

The disappointing non-manufacturing data caused stocks to tumble and pushed bond yields sharply higher as traders positioned themselves for a possible US recession.

Less than an hour after the opening bell, the S&P 500 was down 1.7 per cent at 1,357.09. The Nasdaq Composite fell 1.5 per cent to 2,347.03 while the Dow Jones Industrial Average also shed 1.5 per cent to 12,442.67.

The ISM non-manufacturing index plunged to 41.9 in January, from a reading of 54.4 in December, the largest drop in the history of the index.

It was the first contraction in the business activity index since March 2003 as the index fell to its lowest level since October 2001.

"This data release corroborates the notion that the US economy is in recession," said TJ Marta, fixed income strategist at RBC Capital Markets said.

Economists were expecting only a small pull back to 53.5 with a reading above 50 still indicating expansion.

The non-manufacturing employment index fell to 43.9 last month from 51.8 in December, following on from last week's disappointing jobs report, which also showed a slowdown in service sector employment. Meanwhile, new orders fell by 10.4 per centage points.

The ISM data were released ahead of schedule after a possible breach of information, ISM said. Bond prices had risen sharply ahead of the report's release.

The gloomy outlook for the US economy came as millions of Americans prepared to vote in electoral primaries on Super Tuesday.

"An absolutely stunning ISM non-manufacturing number leaves the chart of the index looking like it has fallen off the edge of a cliff, and is heartwarming only for those who think the economy is already in a recession," Alan Ruskin, strategist at RBS Global Banking & Markets, said.

Bond prices rose sharply as risk aversion increased after the ISM services data. The yield on the two-year Treasury note plunged below 2 per cent, falling 12 basis points to 1.94 per cent while the 10-year Treasury note was yielding 3.54 per cent, a decline of 11bp. A spread of 160bp marked the steepest yield curve since September 2004.

Yields on short-dated treasuries have fallen more rapidly amid expectations that the Federal Reserve will keep slashing interest rates to head off a severe economic downturn. After the ISM data the futures market fully priced in a 50bp cut when the Fed next meets in March, with at least two further cuts to a possible Fed funds rate of 2 per cent seen likely by June.

European stocks extended early losses as Wall Street opened. The FTSE Eurofirst 300 index was down 2.3 per cent, with the FTSE 100 down 2.1 per cent and the Ibex 35 down 4.1 per cent in Madrid.

The dollar pared earlier gains against the yen to trade up only 0.2 per cent at 106.8930 having earlier risen 0.6 per cent. Against the euro the US currency rose 1.2 per cent to $1.4650.

Meanwhile, gold retreated back below the $900 mark, falling $15.10 to $894.30 and crude oil prices slipped 1.6 per cent to $88.42 as the outlook for the US economy waned.

Financial stocks led Tuesday's sell-off with the S&P investment bank index falling 2.8 per cent, with energy and telecoms companies also coming under pressure.

Oppenheimer & Co analyst Meredith Whitney cut her rating on Goldman Sachs from "outperform" to "perform" on valuation concerns. Ms Whitney said Goldman would "suffer from its own success" as it faces tough earnings comparisons this year after successfully avoiding the worst of the subprime mortgage crisis in 2007. Goldman shares fell 3 per cent to $194.73 in pre-market trading and have fallen 6.6 per cent this year.

Homebuilder stocks were also sold in spite of an upgrades from Banc of America Securities, which raised its rating on four companies because of expectations that lower house prices will increase demand.

Analyst Michael Wood told investors to buy shares in KB Home, Pulte Homes and MDC Holdings and set a neutral rating on Toll Brothers, predicting an average share price rise of 20 per cent over the coming year. ""While we do not expect a spike in demand immediately, we expect that it will gradually improve over 2008," Wood said in a research note," he said.

Homebuilders were one of the worst performing sectors last year as the subprime mortgage crisis caused house prices to fall and led builders to post massive losses.

But, together with fellow laggards like financial companies and retailers, homebuilders have enjoyed a rally in recent weeks. After hitting a low on January 9, the sector index has soared more than 50 per cent, though it remains more than 60 per cent below a high set in July 2005.

Earnings news was led by News Corp which said after the closing bell on Monday that fourth quarter profit increased 1.2 per cent from $822 to $832m as higher advertising sales offset weakness in its film business. The stock was unchanged at $19.98.

Also reporting after the close on Monday, Yum! Brands, owner of the KFC, Taco Bell and Pizza Hut chains, said fourth quarter profit dipped from $234m to $232m causing the shares to drop 4.3 per cent to $34.28.

NYSE Euronext, the exchange operator, more than tripled quarterly net income to $156m on record equity trading and new listings but the shares fell 5 per cent to $78.57. Also reporting quarterly results was CME Group, parent of the world's largest derivatives exchange, which said earnings almost doubled to $201m from $103m the previous year. The stock slipped 0.9 per cent to $613.35.

Boston Scientific, the medical device maker, swung to a $458m loss as costs from an acquisition weighed on its fourth quarter results causing its shares to give up 0.5 per cent to $12.78.

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Services data set to hit US stocks

Wall Street stocks were set to slump on Tuesday after the US services industry contracted last month for the first time in almost five years, raising new fears for the health of the US economy.

The ISM non-manufacturing index plunged to 41.9 in January, from a reading of 54.4 in December, the first contraction since March 2003, as new orders collapsed.

"This data release corroborates the notion that the US economy is in recession," said TJ Marta, fixed income strategist at RBC Capital Markets said.

Economists were expecting only a small pull back to 53.5 with a reading above 50 still indicating expansion.

The non-manufacturing employment index fell to 43.9 last month from 51.8 in December, following on from last week's disappointing jobs report, which also showed a slowdown in service sector employment.

The ISM data were released ahead of schedule after a possible breach of information, ISM said. Bond prices had risen sharply ahead of the report's release.

The gloomy outlook for the US economy came as millions of Americans prepared to vote in electoral primaries on Super Tuesday.

"An absolutely stunning ISM non-manufacturing number leaves the chart of the index looking like it has fallen off the edge of a cliff, and is heartwarming only for those who think the economy is already in a recession," Alan Ruskin, strategist at RBS Global Banking & Market, said.

Less than an hour before the opening bell, S&P 500 futures were down 16.3 points at 1,362.50 and below a fair value of 1381.76.

Nasdaq futures were down 17.5 points at 1809.25, below a fair value reading of 1834.64 while futures for the Dow Jones Industrial Average were down 132 points at 13,100.

Bond prices rose sharply as risk aversion increased after the ISM services index. The yield on the two-year Treasury note dipped below 2 per cent, falling 9 basis points lower to 1.96 per cent while the 10-year Treasury note was yielding 3.56 per cent, a decline of 9bp. A spread of 160bp marked the steepest yield curve since September 2004.

Yields on short-dated treasuries have fallen more rapidly amid expectations that the Federal Reserve will keep slashing interest rates to head off a severe economic downturn.

The dollar pared earlier gains against other major currencies. The US currency was trading only 0.1 per cent higher against the yen to Y106.81 having earlier risen 0.6 per cent.

Gold retreated back below the $900 mark, falling $15.80 to $893.60 while crude oil prices slipped 0.9 per cent to $89.19.

In spite of the gloomy outlook for stocks the homebuilder sector may avoid the worst of the selling pressure on Tuesday after Banc of America upgraded shares of four companies because of expectations that lower house prices will increase demand.

Analyst Michael Wood told investors to buy shares in KB Home, Pulte Homes and MDC Holdings and set a neutral rating on Toll Brothers, predicting an average share price rise of 20 per cent over the coming year. ""While we do not expect a spike in demand immediately, we expect that it will gradually improve over 2008," Wood said in a research note," he said.

Homebuilders were one of the worst performing sectors last year as the subprime mortgage crisis caused house prices to fall and led builders to post massive losses.

But, together with fellow laggards like financial companies and retailers, homebuilders have enjoyed a rally in recent weeks. After hitting a low on January 9, the sector index has soared more than 50 per cent, though it remains more than 60 per cent below a high set in July 2005.

Financial companies may come under pressure today after Oppenheimer & Co analyst Meredith Whitney cut her rating on Goldman Sachs from "outperform" to "perform" on valuation concerns. Ms Whitney said Goldman would "suffer from its own success" as it faces tough earnings comparisons this year after successfully avoiding the worst of the subprime mortgage crisis in 2007. Goldman shares fell 1.4 per cent to $198 in pre-market trading and have fallen 6.6 per cent this year.

Earnings news was led by News Corp which said after the closing bell on Monday that fourth quarter profit increased 1.2 per cent from $822 to $832m as higher advertising sales offset weakness in its film business. The stock rose 5.2 per cent in pre-market trade.

Also reporting after the close on Monday, Yum! Brands, owner of the KFC, Taco Bell and Pizza Hut chains, said fourth quarter profit dipped from $234m to $232m causing the shares to drop 2.3 per cent in the pre-market.

NYSE Euronext, the exchange operator, more than tripled quarterly net income to $156m on record equity trading and new listings but the shares slipped 2.1 per cent in pre-market trading. Also reporting quarterly results was CME Group, parent of the world's largest derivatives exchange, which said earnings almost doubled to $201m from $103m the previous year.

Boston Scientific, the medical device maker, swung to a $458m loss as costs from an acquisition weighed on its fourth quarter results.

European stocks were fell ahead of the open on Wall Street. The FTSE Eurofirst 300 index was down 1.1 per cent, with the FTSE 100 down 1 per cent and the Ibex 35 down 2.5 per cent in Madrid. Asian equity markets closed mainly lower led by a 0.9 per cent fall on the Hang Seng and a 1.6 per cent drop in Shanghai.

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London lower as financials weigh

Financial stocks dragged London's FTSE 100 back below the 6,000 level on Tuesday afternoon after US service sector data pulled Wall Street indices sharply lower.

Shortly after the Wall Street open, the senior UK index was down 113.8 points, or 1.9 per cent at 5,912.4, while the mid-cap FTSE 250 fell 220.7 points, or 2.2 per cent, to 10,042.9.

Schroders was a leading faller, down 6.4 per cent to £10.31, as Morgan Stanley cut its stance on the fund manager from "equal-weight" to "under-weight".

After an analysis of some of the group's funds, the bank said Schroders was the "most exposed to equity mutual fund redemptions, a trend that we think is underestimated by the market". Morgan Stanley also downgraded Aberdeen Asset Management, which fell 4.8 per cent to 140¼p.

Leading banks were weaker, with Royal Bank of Scotland off 5 per cent to 385p and Barclays (NYSE:BCS) down 3.8 per cent to 463p.

Northern Rock, however, climbed 6.5 per cent to 93¾p as RAB Capital, the company's second-biggest shareholder, said it backed the management-led proposal to rescue the bank rather than a rival offer from a consortium led by Richard Branson's Virgin Group.

Olivant, another of the potential bidders for Northern Rock, pulled out of the running on Monday.

BP was one of few risers on the FTSE 100 after its drop in quarterly net profit was offset by news that the group would increase its quarterly dividend by 31 per cent and continue to buy back shares.

The profit fall was due to weak refining margins and higher costs, with outweighed the impact of higher oil prices. BP shares rose 0.7 per cent to 545½p.

Hammerson led real estate groups lower after downgrades to the sector from HSBC.

The bank downgraded Hammerson and British Land from "neutral" to "underweight" and Land Securities and Brixton Estates from "overweight" to "underweight".

"We believe that the sector bounce in the year to date has exacerbated significant downside opportunities," HSBC said.

Hammerson fell 7.2 per cent to £10.63, British Land lost 3.2 per cent to 967p, Land Securities dropped 3.4 per cent to £15.59 and Brixton shed 4 per cent to 334¼p.

Housebuilders joined them on fears of a sharp downturn in the UK housing market. Taylor Wimpey shed 7.1 per cent to 187p and Persimmon lost 6.1 per cent to 742p.

In the mid-caps, chip designer ARM Holdings fell 17.8 per cent to 97p after missing forecasts with a 6 per cent rise in full-year revenues.

The company, which designs chips for Intel, said it was cautious on the short-term outlook for the industry, but said it had entered the year with its order backlog at its highest level ever.

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NYSE-Euronext profit up on volume surge

NEW YORK - NYSE Euronext, formed last year by the combination of NYSE Group Inc. and Euronext NV, said Tuesday that fourth-quarter profit more than tripled as trading volume surged and more companies listed on the exchange.

Net income rose to $156 million, or 59 cents per share, in the three months through Dec. 31, compared with $45 million, or 29 cents per share, in the same period a year earlier, the company said in a statement.

Excluding buyout costs and other one-time charges, net income was $175 million, or 66 cents per share, in line with expectations of analysts polled by Thomson Financial.

Revenue soared to $1.18 billion from $659 million during the same period last year.

NYSE Euronext is benefiting from increased trading volumes as volatility rocks the world's stock markets.

"We reached new levels in trading volume, message traffic and global IPO proceeds," said NYSE Euronext Chief Executive Duncan Niederauer. Niederauer replaced John Thain, who took the top job at Merrill Lynch & Co. at the start of December.

The NYSE Group logged seven of its top 10 daily volume records in 2007 including a record 5.8 billion shares traded on Aug. 16. Overall, the average daily trading volume on the NYSE and the NYSE Arca electronic exchange rose 16 percent in 2007 from 2006.

For the year, NYSE Euronext's earnings rose to $643 million, or $2.70 per share, from $205 million, or $1.36 per share, in 2006.

Last year, the combined company saw $80 million in proceeds from initial public offerings. NYSE Euronext added 428 listings.

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European shares follow Wall Street lower

LONDON (AFP) - Europe's main stock markets fell on Tuesday, retracing some of last week's gains after losses overnight on Wall Street and earlier in Asia, dealers said.

In late morning trade, London's FTSE 100 index of top companies shed 0.36 percent to 6,004.40 points. Meanwhile, the Paris CAC 40 slid 0.87 percent to 4,930.39 points near the half-way stage and Frankfurt's DAX 30 gave back 0.46 percent to 6,968.45.

The Euro Stoxx 50 index of leading eurozone shares lost 0.61 percent to 3,843.52.

The European single currency stood at 1.4688 dollars.

In Wall Street action on Monday, US stocks finished lower amid scant market-moving news as vehicle maker Chrysler announced it was shutting four plants due to a dispute with a parts supplier.

Japanese share prices closed down on Tuesday as investors locked in gains from the previous day's rally amid stubborn concerns about the outlook for the US economy, dealers said.

In London, the property sector was hit by broker downgrades, with British Land and Hammerson downgraded by HSBC to 'underweight' from 'neutral'.

Real estate group British Land shares sank 1.60 percent to 982.50 pence and peer Hammerson tumbled 3.06 percent to 1,110 pence.

HSBC said it believed that Britain's commercial property market was facing a steep correction.

Bucking the trend, shares in energy giant BP jumped 2.77 percent to 557 pence after the group hiked its quarterly shareholder dividend by 25 percent.

BP added Tuesday that net earnings fell 5.25 percent to 20.845 billion dollars (14.15 billion euros) last year, despite soaring oil prices, as it was hit by falling output.

Elsewhere, the European sector drove lower as investors cashed in recent gains.

In Paris, Renault stock dropped 2.85 percent to 75.21 euros, while DaimlerChrysler shed 2.10 percent to stand at 53.04 euros.

In Asia on Tuesday, Tokyo's benchmark Nikkei-225 index lost 0.82 percent to 13,745.50, with investors cautious ahead of another slew of earnings results from Japanese corporate heavyweights including Toyota Motor Corp.

Hong Kong's key Hang Seng index closed down 0.9 percent at 24,808.70 as investors used Wall Street's retreat overnight as an excuse to lock in gains ahead of the Chinese New Year holiday, dealers said.

The Hong Kong bourse will have a half-day session on Wednesday and shut Thursday and Friday for the Chinese New Year.

In US deals on Monday, the leading blue-chip Dow Jones Industrial Average closed down 0.85 percent at 12,634.16 points after languishing in negative territory during the day's trading session.

The tech-heavy Nasdaq composite lost 1.26 percent to 2,382.85 points while the Standard & Poor's 500 index declined 1.05 percent to a close of 1,380.82.

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Disney profit down after 2006 sale gains

LOS ANGELES - The company that Mickey built owes much of its recent success to its slew of cable and television brands, including ESPN and its "High School Musical" and "Hanna Montana" franchises.

The Walt Disney Co. reported Tuesday that its first-quarter profit fell 26 percent from a year earlier, when it benefited from the sale of a magazine and entertainment channel.

The Burbank-based media conglomerate's results beat Wall Street estimates, however, as it posted a 9 percent jump in revenue across nearly all of its business units, led by its media networks division.

Disney shares gained nearly 6 percent in extended trading after the results were released.

Robert Iger, Disney's president and chief executive officer, credited the company's focus on developing brands and producing content across its various media and theme park properties.

"Five years ago we could count upon only two major franchises, and today we have 10 vibrant, creative properties," Iger said in a conference call with Wall Street analysts, noting the success of "Hannah Montana" and its star, Miley Cyrus.

A 3-D Cyrus concert film raked in $31.1 million over the weekend, the most by any film during Super Bowl weekend.

For the fiscal first quarter that ended Dec. 29, Disney reported net income of $1.25 billion, or 63 cents per share, compared with $1.70 billion, or 79 cents per share, in the prior-year period.

Prior-year results included gains from the company's sale of its shares in US Weekly magazine and the E! Entertainment channel and the discontinuation of its ABC Radio business.

Excluding the one-time items, earnings grew 29 percent to 63 cents per share from 49 cents in the prior-year period.

Revenue grew to $10.45 billion compared with $9.58 billion in the same quarter a year earlier.

Analysts surveyed by Thomson Financial had expected earnings of 52 cents per share on revenue of $10.04 billion. Analysts' estimates typically exclude one-time items.

Revenue at the company's media networks unit, which includes the Disney Channel and ESPN, jumped 10 percent to $4.17 billion, while operating income climbed 28 percent to $908 million.

Leading the segment were the ABC Family Channel, which benefited from savings in programming costs and higher advertising and affiliate revenue, and domestic Disney channels, which saw strong DVD sales of "High School Musical 2," the company said.

ESPN saw increases in advertising and affiliate revenues, largely due to NASCAR programming.

Disney's theme parks and resorts generated $2.77 billion in revenue, an 11 percent increase from the prior-year quarter. Operating income for the unit surged 25 percent to $505 million, led by increased guest spending and attendance at Walt Disney World, Disneyland Resort in Paris and Hong Kong Disneyland Resort.

Overall attendance at Disney's domestic parks was up 3 percent compared with the prior-year period, the company said.

Iger noted that the ongoing Hollywood writers strike did not have a significant impact on the first quarter.

"We are hopeful an agreement will be reached soon and the writers will return to work," he said.

Hollywood writers have been on strike for three months, forcing many TV shows to suspend production.

Negotiations between the writers union and studio executives appeared to be making progress in recent days, fueling speculation an agreement could be reached as early as this week.

Management noted that even if there is a settlement soon and writers return to work, the company will be making fewer TV show pilots this year than in previous years. That should lead to some costs savings but also some revenue losses because the company will have fewer shows to sell, the company said.

Shares of Disney gained $1.71, or 5.7 percent, in after-hours trading. Before the results were released, the stock fell 83 cents, or 2.7 percent, to close at $30.07.

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Emerging markets lift Toyota profit

TOKYO - Sales growth in China and other emerging markets offset a decline in North America to help push Toyota's profit up 7.5 percent for its third fiscal quarter.

The maker of Prius gas-electric hybrids, Camry sedans, Corolla subcompacts and Lexus luxury cars has been flourishing as soaring gas prices boost the appeal of the Prius and other smaller models reputed for fuel efficiency.

Toyota Motor Corp., which narrowly trailed U.S. automaker General Motors Corp. for the top spot in 2007 global vehicle sales, said Tuesday it sold 2.281 million vehicles in the October-December quarter, up 5.8 percent from a year ago.

Its sales growth in emerging markets, including China, Africa and South America, as well as in Europe, more than made up for declines in North America, where sales fell 8,000 vehicles from a year earlier to 756,000 vehicles.

"We posted our highest ever quarterly results for the third quarter in both revenues and profits, despite the severe business environment," said Toyota Senior Managing Director Takeshi Suzuki.

Toyota's group profit for the quarter ended Dec. 31 rose to 458.6 billion yen ($4.29 billion) from 426.7 billion yen the same period the previous year. Quarterly sales rose 9.2 percent to 6.710 trillion yen ($62.79 billion).

Robust sales also made up for the 20 billion yen ($187.1 million) the carmaker lost from the effects of an unfavorable exchange rate. Toyota said the dollar cost about 113 yen during the third fiscal quarter, down from 118 yen in the same period a year ago.

A weak dollar erodes the value of overseas earnings for Japanese companies like Toyota, and the dollar's further decline in recent months possibly puts more pressure on Toyota in the year ahead.

But the company reaffirmed its sales forecast for the year ending March 31 unchanged at 8.93 million vehicles, up 4.8 percent from the previous year.

Toyota also kept its profit projection of 1.7 trillion yen ($15.91 billion) for the fiscal year on 25.5 trillion yen ($238.61 billion) in sales.

Worries are growing about U.S. sales amid a credit crunch, volatile stock markets and drooping consumer spending. Like other Japanese automakers, Toyota appears to be making up with robust growth in new markets, including China, Africa and Asia outside Japan.

So far, Japanese automakers have been faring better financially than their American counterparts. Japanese models with their reputation for good mileage have gotten a lift from soaring gas prices.

Profit at Nissan Motor Co. for the fiscal third quarter jumped 26.6 percent jump to 132.22 billion yen ($1.24 billion) as sales surged 18.2 percent.

Honda Motor Co., Japan's second-biggest automaker, reported a 38.1 percent jump in profit for the October-December quarter to 200 billion yen ($1.87 billion).

On Tuesday, Mitsubishi Motors Corp. reported a profit of 21.7 billion yen ($203 million) for the April-December period in contrast to a loss of 11.8 billion yen for the same period the previous year. Nine-month sales rose 26 percent to 1.95 trillion yen ($18.25 billion). It didn't report third-quarter results.

On the other hand, Ford Motor Co. lost $2.8 billion in the October-December quarter, and offered buyouts to its 54,000 U.S. hourly workers, made salary cuts and trimmed production.

General Motors, which reports earnings next week, barely retained its crown as the world's No. 1 automaker last year, selling some 3,000 more vehicles than Toyota did.

Toyota sold 9.366 million vehicles in 2007 globally, while Detroit-based GM sold 9,369,524 vehicles. GM has been the world's top seller for 77 years.

For the first nine months of its fiscal year, Toyota's profit surged 16.4 percent to 1.401 trillion yen ($13.11 billion). Sales for the period climbed 11.9 percent to 19.722 trillion yen ($184.54 billion).

Toyota shares slid 2 percent to 5,780 yen ($54) in Tokyo on Tuesday. Earnings were announced after trading ended.

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Disney profit beats Street, no sign economy hurts

LOS ANGELES (Reuters) - Walt Disney Co's (DIS.N) quarterly profit topped Wall Street targets as Disney World set attendance records and its TV and consumer businesses grew despite a turbulent U.S. economy, while executives said they were "pretty optimistic."

Disney shares rose 5.5 percent in after-hours trade on the first-quarter results and the company's outlook for more growth in parks and media networks -- its top two earners. The stock's rise more than offset a 2.7 percent drop in regular trade.

Nor did the Hollywood writers' strike, which started a month into the quarter and appears to be on the verge of ending, hurt results, Chief Executive Bob Iger said.

Wall Street had been anxiously watching for signs that the slowing U.S. economy had led to weakened advance bookings at Disney's domestic resorts, which some consider a bellwether of consumer confidence.

Instead, Disney saw double benefits from a weak dollar, which has kept Americans vacationing at home while also drawing in more international tourists.

A strong ad market and tight supply pushed sales significantly ahead of last year's levels despite lower TV ratings, and are helping maintain growth, Chief Financial Officer Tom Staggs said.

"The pace of business to us looks pretty good," Staggs told analysts on a conference call. "We feel like we've got the ability to respond if necessary. But right now we're feeling pretty optimistic about where things go from here."

'BETTER PREPARED'

Net profit dropped to $1.25 billion, or 63 cents per share, from $1.7 billion, or 79 cents per share, in the year-earlier quarter, which had been boosted by the sale of interests in Us Weekly and E! Entertainment. Revenue rose 9 percent to $10.5 billion.

The 63 cents per share earnings topped Wall Street's average target of 52 cents, according to Reuters Estimates.

Pali Research analyst Rich Greenfield said the results showed just show how "well diversified" Disney is.

"I think that it truly sounds like they are better prepared ... to deal with an economic downturn than they were during the last recession," said Greenfield, who has a buy rating on Disney and owns no shares.

SMH Capital analyst David Miller, who also has a buy rating and owns no shares, said it was "tough to find a flaw in this earnings release ... it's one of the best I've seen."

Spooked consumers kept buying Disney-licensed video games and merchandise, especially for "Hannah Montana" and "High School Musical," propelling the consumer products division to 29 percent revenue growth in the quarter.

The company's movie studios, which released "National Treasure: Book of Secrets" and "Enchanted" in the quarter, saw flat revenue and a 15 percent drop in operating income from tough comparisons to last year's DVD sales of "Cars," "Pirates of the Caribbean: Dead Man's Chest" and "Little Mermaid."

Disney also said its animated "Toy Story 3" would hit theaters in 2010.

Media networks operating profit rose 28 percent to $908 million, with cable-based sports network ESPN and DVD sales of the Disney Channel's "High School Musical 2" and higher prime-time ad rates at the ABC network driving segment growth.

Staggs said fiscal second-quarter ad rates were tracking at double-digit percentage rates ahead of last year and sales at Disney TV stations were ahead of last year by mid-single-digit percentages.

PARKS 'MODESTLY AHEAD' OF LAST YEAR

Profit at Disney's parks and resorts business, which also includes cruise ships and vacation properties, rose 25 percent to $505 million. The parks results were helped by record holiday attendance and higher consumer spending at Walt Disney World in Florida, strong attendance at Disneyland Paris and improved attendance at Hong Kong Disneyland.

Staggs said domestic and international bookings so far were running "modestly ahead of last year."

As a result of its strong earnings statement and cash flow, the company plans more share buybacks and has repurchased $1.5 billion of its shares so far this year, Staggs said.

Disney shares had been trading at a ratio of 13.2 times estimated fiscal 2009 earnings, versus 14.2 times earnings for Time Warner Inc (TWX.N) and 13.5 for News Corp (NWSa.N).

Disney shares in after hours trade rose to $31.71 from a close of $30.07 on the New York Stock Exchange, where the stock had dropped 83 cents, or 2.7 percent, for the day.

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Avon profit falls on restructuring costs

NEW YORK - Avon Products Inc., a direct seller of beauty products, said Tuesday its fourth-quarter profit fell 30 percent on restructuring costs and other charges, but the results still beat Wall Street forecasts. The company also offered an upbeat outlook.

Its shares rose 5 percent, or $1.80, to $37.81.

Earnings dropped to $128.9 million, or 30 cents per share, in the last three months of 2007 compared with $184.1 million, or 41 cents, a year earlier.

The company said restructuring costs and charges related to simplifying its product line lowered earnings by 34 cents per share in the latest period, compared with just 13 cents in the 2006 period.

Quarterly sales improved 18 percent to $3.08 billion on strong results across all regions.

Analysts polled by Thomson Financial predicted net income of 28 cents per share on revenue of $2.92 billion. The earnings estimates typically exclude one-time items.

The company predicted mid-single-digit revenue growth in 2008.

Avon unveiled a multiyear restructuring plan in November 2005 after its global sales sagged. The plan involved steep job cuts, elimination of management layers to speed reaction to market trends and shifting manufacturing centers and outsourcing work to countries with cheaper labor costs. On Jan. 8, Avon said it expects to save about $430 million a year once all its actions are completed by 2011-2012, with these savings projected to reach $300 million in 2009.

The company also reiterated that it expects total costs for the restructuring plan to reach around $530 million. The company has taken about $444 million of those costs through the fourth quarter of 2007 and will take the rest by the end of 2009.

"This quarter's results reflect the momentum we are gaining in our turnaround plan," Andrea Jung, chairman and CEO of Avon, said in a statement. Jung cited a 16 percent increase in beauty sales and a 10 percent gain in the number of active representatives.

For the year ended Dec. 31, the company's net income totaled $530.7 million, or $1.21 per share, compared with $477.6 million, or $1.06, in the previous year. Total revenue reached $9.94 billion, compared with $8.76 billion in the previous year.

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Whirlpool's Maytag buy pays off in 4Q

GRAND RAPIDS, Mich. - Whirlpool Corp. said Tuesday its fourth-quarter profit climbed 72 percent, helped by its Maytag acquisition and an improved product mix and the weak dollar. The news sent the value of the company's shares soaring.

Its net earnings for all of 2007 rose 48 percent.

The appliance maker, which bought Maytag in 2006, said fourth-quarter earnings after preferred dividends increased to $187 million, or $2.38 per share, compared with $109 million, or $1.37 per share, in the prior year.

Quarterly revenue grew 7 percent to $5.33 billion from $5 billion a year earlier.

Analysts polled by Thomson Financial expected net income of $2.15 per share on sales of $5.27 billion.

Shares of Whirlpool rose $8.41, or 10.3 percent, to $90 Tuesday.

The company performed well despite flat domestic sales and continued price increases for energy and raw materials such as steel, Jeff M. Fettig, Whirlpool's chairman and chief executive, said during a call with industry analysts.

Whirlpool North America sales slipped less than 1 percent to $3 billion, while sales in its European segment rose 12 percent to $1.1 billion. Latin America sales surged about 30 percent to more than $1 billion. Whirlpool Asia sales grew 26 percent to $155 million.

Almost half of Whirlpool's revenues now come from foreign countries as the company becomes more globally diversified, Fettig said.

"Our international markets are currently experiencing higher growth rates and expanding profit margins, which is helping to mitigate a weaker U.S. market," he said.

When compared with the 6 percent drop industrywide in North American sales revenue, the company's less than 1 percent revenue decline "was a solid performance," Citigroup analyst Jeffrey T. Sprague wrote in a note to investors.

For all of last year, Whirlpool said its earnings after preferred dividends increased to $640 million, or $8.01 per share, compared with $433 million, or $5.67 per share, in 2006.

Annual revenue grew 7 percent to $19.4 billion from $18.1 billion a year earlier.

The Benton Harbor-based company anticipates 2008 net income between $8.50 and $9 per share.

Analysts predict a profit of $8.81 per share.

Fettig said Whirlpool expects generally weak product demand in the United States and Europe but continued strong demand in such emerging markets as Latin America, India and China. The company also anticipates higher energy and materials costs and more volatility in global currency markets.

Still, Fettig expressed optimism about this year, saying Whirlpool's performance will be bolstered by "significantly higher investments in innovation and advertising" and by its willingness to adjust cost structure and manufacturing capacity.

He referred to Whirlpool's Jan. 31 announcement that it was closing plants in La Vergne, Tenn., and Reynosa, Mexico.

"Given this economic backdrop, we believe we are very well positioned to continue our strong performance in this economic environment in 2008," he said.

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GMAC Financial swings to loss on ResCap

NEW YORK - GMAC LLC said Tuesday it lost $724 million in the final quarter of 2007 as the housing slump and disruptions in the credit and capital markets battered the lender's home mortgage division.

The Detroit-based lender got in the mortgage business in 1985 after decades of originating only car loans for parent company General Motors Corp. Trouble in GMAC's mortgage business, Residential Capital LLC, first surfaced in the latter half of 2006 when growing numbers of people began defaulting on home loans.

The automaker owns 49 percent of GMAC after selling the remainder of the business in that year to an investment group led by Cerberus Capital Management LP for $14 billion.

The company said its mortgage business Residential Capital, or ResCap, lost $921 million during the quarter, marking its fifth straight quarterly loss. Losses skyrocketed from write-downs on credit residuals and mortgage-backed securities, restructuring charges and higher funding costs.

Investors have avoided securities backed by home loans because of a surge in mortgage defaults and foreclosures. Declining home values have prevented many borrowers from refinancing into more manageable loans.

GMAC is reviewing its options for the residential lending unit but declined to comment on specific plans Tuesday.

The lender has taken "aggressive actions" to stem the unit's drag and forecasts a return to profitability in 2008.

"We still believe that ResCap is an integral part of our overall strategy at GMAC," said GMAC Chief Financial Officer Robert Hull. "We're committed to ResCap. We've invested billions of dollars in 2007 in multiple forms. I think we have resilient support and we have demonstrated that."

GMAC bought $740 million of the division's debt in the fourth quarter to keep the unit from violating minimum net worth covenants and said it may buy more.

While the move offset ResCap's fourth-quarter losses by $521 million, Moody's Investor Services slashed the "junk" status credit ratings of both on Tuesday.

Moody's said it's concerned that more funding from GMAC could strain the lender's capital and liquidity positions. On the flip side, GMAC's support may diminish if the mortgage lender continues to lose money, putting ResCap's minimum net worth at risk.

"Given GMAC's strategic importance to General Motors, we think that GMAC's owners will not risk the firm's viability in its efforts to stabilize ResCap," said Moody's analyst Mark Wasden. "Beyond this horizon, we believe further support from GMAC to be less certain, as continued underperformance on the part of ResCap could signal a failure of the firm to regain solid footing."

To mitigate losses, ResCap has sharply curbed loan production and tightened lending standards. Currently, it's originating mostly prime mortgages that can be sold in the secondary market. ResCap also cut its work force last year by 35 percent, or 5,000 employees.

ResCap continues to drag down GMAC's results, however. Last year, GMAC lost $2.33 billion, including a $4.35 billion ResCap loss that more than offset profits elsewhere.

GMAC's auto lending division earned $137 million during the quarter and $1.49 billion in 2007. However, GMAC noted a small uptick in auto loan delinquencies, mostly in its nonprime portfolio in areas hardest hit by falling home prices, Hull said.

The delinquency rate remains within historical averages, but the company "remains concerned about the outlook of consumer credit," he said.

GMAC's insurance division posted earnings of $68 million in the fourth quarter and $459 million for the year. The company attributed the division's underperformance compared to the previous year to the rebalancing of its investment portfolio.

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Higher output raises BP 4Q profit

LONDON - BP PLC reported a 53 percent rise in fourth-quarter net profit Tuesday as oil prices surged, but full-year profits fell due to refining outages and rising costs.

Shares in the oil giant, which lost its chief executive and was fined millions for environmental crimes and fraud, rose as it also announced a more generous dividend policy and plans to speed up restructuring and cost cutting.

BP said that net profit rose to $4.4 billion, from $2.88 billion a year ago.

Revenue for the fourth quarter, including asset disposals, rose to $81.5 billion from $62.8 billion.

Over the full year, net profit fell 5.5 percent to $20.8 billion, from $22 billion in 2006. Revenue rose 6.2 percent to $291.4 billion, from $274.3 billion.

Output at BP was boosted for the first time in three years because of new projects from Angola to the Gulf of Mexico.

The company's closely watched quarterly replacement cost profit — which excludes changes in the value of crude inventories, measuring the amount it would cost to replace assets at current prices — fell 22 percent over the year to $17.3 billion.

The quarterly replacement cost figure is viewed by many analysts as the best measure of an oil company's underlying performance.

However, Chief Executive Tony Hayward cheered investors with a 25 percent dividend hike and progress on plans to create a leaner business by stripping out management.

Hayward confirmed BP's plans to cut 5,000 jobs by the middle of next year, as well as slashing corporate overhead by up to 20 percent.

"We are absolutely determined to transform our downstream business as a whole. It will not happen overnight, but we believe that the performance gap with our competitors can be progressively narrowed in the next few years," he said.

Royal Dutch Shell PLC, Europe's largest oil company, last week reported a 23 percent rise in full-year earnings to a record $31.3 billion while Exxon Mobil posted the largest ever annual profit by a U.S. company with earnings of $40.6 billion.

BP had a more turbulent year.

BP Chief Executive John Browne resigned last May after lying to a court in a bid to block stories about his private life.

The company also brokered a $50 million fine with the U.S. Department of Justice for a 2005 Texas City refinery explosion in which 15 people died. That agreement could be overturned, however, with a federal judge on Monday giving victims and their families unhappy with the amount of the fine another chance to argue why the company's plea deal should be rejected.

The deal was part of a larger $373 million fine by the Justice Department for committing environmental crimes and fraud.

On top of the fines and restitution, four former BP employees were indicted by a federal grand jury in Chicago on 20 counts of mail and wire fraud connected to a scheme to manipulate energy markets.

BP shares rose less than a percent to close at 543 pence ($10.70) on the London Stock Exchange Tuesday.

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CME Group profit nearly doubles

NEW YORK (Reuters) - CME Group Inc (CME.N), parent of the world's largest derivatives exchange, said on Tuesday quarterly profit nearly doubled, driven by strong volume growth.

Fourth-quarter net income at CME Group, which is in talks to buy the New York Mercantile Exchange, rose to $201 million, or $3.75 per share, from $103 million, or $2.91 per share, a year earlier.

"Obviously, volume was a huge driver in the equation -- it's about transactions and that's what we do," said CME executive chairman Terry Duffy in an interview.

Earnings were $3.77 per share, before special items, beating the average Wall Street target of $3.60, according to Reuters Estimates. Revenue increased 88 percent to $530.0 million, topping the average forecast of $521.5 million.

Volume during the quarter averaged 10.6 million contracts per day, up 23 percent from a year earlier. Total quarterly volume exceeded 676 million contracts, with a record 81 percent traded electronically.

CME Group's average rate per contract, a key measure of margins, rose to 64.8 cents in the fourth quarter from 62.2 cents in the third quarter.

LIFTS DIVIDEND

Also Tuesday, the company boosted its quarterly dividend by 34 percent to $1.15 per share, payable on March 25.

"This should give only a muted lift to shares given the company's formulaic approach to regular bumps, which make this relatively anticipated, and the modest absolute level of (dividend) yield," wrote Fox-Pitt Kelton analyst Edward Ditmire in a note to clients.

CME shares slumped $5 to $614 on the New York Stock Exchange amid a broad market sell-off, with the S&P 500 index (.SPX) off nearly 2 percent.

CME said last week that it was in talks to buy NYMEX Holdings Inc (NMX.N), parent of the New York Mercantile Exchange, for $11 billion.

Through the proposed merger, CME Group hopes to broaden its reach by buying the energy and precious metals mart.

The proposed deal keeps up a breakneck pace of consolidation among U.S. and global financial exchanges, many of which have staged successful initial public offerings in recent years.

Chicago-based CME Group was formed in July 2007, when Chicago Mercantile Holdings bought the Chicago Board of Trade.

Also Tuesday, trans-Atlantic exchange operator NYSE Euronext (NYX.N)(NYX.PA) posted a rise in fourth-quarter profit, benefiting from a surge in trading activity.

The parent of the New York Stock Exchange said profit jumped to $156 million, or 59 cents per share, from $45 million, or 29 cents per share, in the year-earlier period, which was prior to the Big Board's merger with Euronext.

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Tyco International profit tops forecasts

NEW YORK (Reuters) - Diversified manufacturer Tyco International Ltd (TYC.N) reported a higher-than-expected quarterly profit on Tuesday on strong demand from energy and industrial markets and an improving performance at its ADT security division.

The company, whose shares fell nearly 3 percent amid a widespread decline in world stock markets, said it had benefited from a lower-than-expected tax rate, and its program to control costs was running ahead of schedule.

Tyco, which has overhauled its operations in the wake of an accounting scandal earlier this decade, last year spun off its electronics and health care divisions into separate publicly traded companies.

"It's a well-diversified company that came out of the separation with a lot of incentives to really control costs ... both on the operating level and the corporate level," said Mike McGarr, portfolio manager with Becker Capital Management, which owns Tyco stock.

Tyco affirmed its full-year forecast, citing strength in global markets, which now account for more than half of its sales.

Quarterly earnings from continuing operations and before special items rose to $361 million, or 73 cents per share, in the first quarter ended on December 28 from $249 million, or 49 cents per share, a year earlier.

The results were 17 cents ahead of the analysts' average profit forecast of 56 cents per share, according to Reuters Estimates.

The company's 2008 profit forecast of $2.60 to $2.70 per share from continuing operations "looks conservative in light of these results," Deutsche Bank analyst Nigel Coe said in a note to clients.

Tyco, which last month provided preliminary results, said sales rose 12 percent to $4.87 billion, compared with Wall Street estimates of $4.76 billion. Half of the sales growth was "organic," or from existing businesses.

SEGMENT RESULTS

The company's biggest unit, ADT, posted a 24 percent increase in operating income as sales rose 7 percent.

"I was impressed with the ADT results," Becker Capital Management's McGarr said. His firm owns 605,000 Tyco shares and has been adding to its holdings.

Chief Executive Ed Breen said ADT had added accounts despite a downturn in U.S. housing. However, he added that the company was "monitoring" sales to commercial customers like retailers, since some large buyers were postponing upgrades of ADT systems.

"These are pushbacks, rather than cancellations," Breen said on a conference call.

At Tyco's flow control division, which makes valves, pipes and other products for energy and industrial uses, profit rose 58 percent, while sales increased 29 percent.

Besides ADT and flow control, Tyco's remaining businesses include a fire protection unit, one focused on safety products like surveillance systems, and an electrical and metal products group that makes steel tubing.

All three of those segments posted higher quarterly sales, but the electrical and metal products segment had lower margins and no profit growth.

At Monday's close, Tyco shares, which had fallen to a 52-week low on January 23, had rallied about 20 percent since the company preannounced quarterly results.

The stock, which initially rose 2 percent, was down $1.17, or 2.9 percent, at $39.43 in morning New York Stock Exchange trade.

Tyco Electronics (TEL.N), one of the spun-off businesses, will report results on Wednesday.

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Tyco 4Q profit beats view, backs outlook

TRENTON, N.J. - Diversified manufacturer Tyco International Inc. said Tuesday its fiscal first-quarter earnings fell 54 percent from a year earlier, when it still owned its former healthcare and electronics businesses. The results handily topped Wall Street expectations.

The maker of security, fire protection and industrial products earned $363 million, or 73 cents per share, in the quarter that ended Dec. 28, compared with $793 million, or $1.57 per share, a year ago.

Tyco, which is nominally based in Bermuda but has its corporate headquarters in West Windsor, N.J., reported several one-time items that together would have boosted earnings per share to 74 cents. In the year-ago quarter, Tyco earned 49 cents per share from continuing operations, excluding items.

Two former Tyco segments, now called Tyco Electronics and Covidien Ltd., the health care business, were spun off and began operating independently last July.

Revenue, which the company pre-announced in January, totaled $4.87 billion. At that time, the amount beat analysts' consensus estimate of $4.75 billion and topped year-ago sales of $4.37 billion by nearly 12 percent. Half that increase came from favorable currency exchange rates.

Analysts surveyed by Thomson Financial expected adjusted profit of 57 cents per share on revenue of $4.86 billion.

"This was a strong first quarter for Tyco, and a good start to the year," Tyco Chief Executive Officer Ed Breen told analysts during a conference call, adding that he doesn't see any problems looming.

Tyco's best-known and largest division, the ADT security monitoring business, saw revenue jump 7 percent, to $2 billion, mainly on double-digit growth in Asia and Latin America. Company executives said there's no sign that the prolonged U.S. housing downturn is affecting the business. The rate of customers dropping the service or being shut off has actually dipped slightly. Operating income at ADT jumped 24 percent to $249 million, despite a $24 million expense to convert many North American customers from analog to digital service.

Revenue in the flow control segment, driven by strong sales of industrial valves and water and thermal controls, jumped 29 percent to $1.07 billion. Fire protection services posted a 5 percent jump in revenue, to $832 million, and the smaller safety products and electrical and metal products segments each saw revenue rise 10 percent.

Tyco reiterated its 2008 profit forecasts, raised just last month: a range of $2.60 to $2.70 per share, excluding separation and restructuring charges related to the spinoff of its healthcare and electronics units.

Wall Street is predicting full-year profit excluding items of $2.66 per share on sales of $20.10 billion.

"We are taking the appropriate steps to drive earnings growth," Breen told the analysts.

Breen said the company is taking additional steps to drive profit growth, including measures to increase productivity, reducing the company's tax rate, divesting more businesses and acquiring others that are a good fit.

Shares fell $1.15, or 2.8 percent, to $39.45 as the Dow Jones industrial average slid more than 200 points on an unfavorable economic report Tuesday.

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