Asian stocks fall on credit worries

HONG KONG (Reuters) - Oil and precious metals rose on supply concerns on Monday in thin holiday trade in Asia, while the few stock markets that were open, such as South Korea and Australia, unraveled on fear the credit crunch would spread further.

The price of wheat jumped to a fresh record high as investors piled into commodities they think will withstand a global economic slowdown.

Platinum hit another record high at $1,887 an ounce and sister metal palladium raced to a six month high after power shortages disrupted mining in major producer South Africa.

With Japan, China and Taiwan closed for national holidays, Seoul and Australia set the tone, with the Korea Composite Stock Price Index (.KS11) falling more than 3 percent by 0202

GMT.

"The KOSPI is actually doing better when compared to the other markets' losses during the holiday," said Kim Seong-joo, an analyst at Daewoo Securities. "The losses could have been steeper."

Indian shares seesawed in opening trade but managed to notch up a 0.4 percent gain.

The Dow Jones industrial average (.DJI) closed down 64.87 points, or 0.53 percent, at 12,182.13 on Friday, a fall of 4.4 percent over the week.

MSCI's measure of Asia Pacific stocks excluding Japan (.MIAPJ0000PUS) was down 1.4 percent by 0225 GMT.

"The slowing U.S. economy will hit emerging economies that rely heavily on exports and higher credit market risks also mean you should sell," Kim said.

AUSTRALIA DOWN

Australia's benchmark S&P/ASX 200 index (.AXJO) was also down by more than 2 percent by 0204 GMT, as investors sold banking stocks after the Reserve Bank of Australia raised inflation forecasts increasing chances of more interest rate increases.

Australia's central raised its inflation forecast to well above its comfort zone, underlining the risk of more interest rates increases.

"It certainly highlights the fact they're thinking seriously about going again in March," said Rory Robertson, interest rate strategist at Macquarie Bank. "Back to back hikes are unusual when rates are already at decade highs. But the RBA is more worried about inflation than it has been in a decade, and it seems determined to nip the problem in the bud."

National Australia Bank Ltd (NAB.AX), the nation's top lender by assets, lost 3.2 percent to A$32.36 and Commonwealth Bank of Australia Ltd (CBA.AX), the second-biggest lender, fell 3.4 percent to A$48.46.

PLATINUM HIGH

International investors are vigilant for further signs of a possible recession in the U.S. economy and a U.S. slowdown that could dent profits for Asia's exporters and weaken the dollar.

The dollar held steady after a weekend Group of Seven meeting acknowledged growing risks to the global economy and kept comments on currencies almost unchanged from the October statement.

The euro inched up against the dollar and the yen after European Central Bank President Jean-Claude Trichet warned the market not to bet on a cut in interest rates because of persistent inflation pressures in the euro zone.

"While there was no specific language change that could offer a major catalyst to FX markets, the overall tone from the G7 should continue to reinforce the cautious stance of investors," said currency analysts at Morgan Stanley in a research note.

Dollar-denominated commodities tend to make nominal price gains as the currency weakens but they have also risen on strong Asian demand and supply constraints.

Platinum hit another record high on Monday on the back of lingering supply concerns in South Africa, which produces four-fifths of the world's metal, while gold firmed near the record $936.50 an ounce it hit in early February.

Oil prices firmed in early Asian trade after soaring 4 percent on Friday, their biggest gain in nearly two months as production problems in the North Sea and Nigeria pushed aside fears that a U.S. recession would hurt fuel demand in the world's top consumer.

Venezuelan President Hugo Chavez on Sunday threatened to stop sending oil to the United States on Sunday after Exxon Mobil (XOM.N) froze $12 billion of Venezuela's overseas oil assets as it pushes for compensation for a nationalised oil project.

"If you freeze us, if you really manage to freeze us, if you damage us, then we will hurt you. Do you know how? We are not going to send oil to the United States, Mr. Bush, Mr. Danger," Chavez said on his weekly TV show.

Retail in focus this week on Wall Street

NEW YORK - Americans are paying more attention to how much they spend on each box of cereal, tank of gasoline and pair of pants — and Wall Street is, too.

This week's data on the U.S. consumer, particularly the Commerce Department's Wednesday report on January retail sales, are going to be monitored closely by investors for clues to how sunken home prices, high energy costs and job cuts are affecting spending.

"Retail sales are a big indicator at this point of the mindset of the consumer," said Kim Caughey, equity research analyst at Fort Pitt Capital Group. Government data and company executives alike have suggested that U.S. consumers are having to pare back their discretionary spending to buy necessities.

After the generally dismal sales figures reported by individual retailers last week, economists polled by Thomson Financial/IFR last Friday predicted that the government would say that overall retail sales dipped 0.3 percent in January after a similar slump in December.

"If it comes in well below what's expected, that could send the market into another tailspin," said Jennifer Ellison, principal at San Francisco-based Bingham, Osborn & Scarborough, which manages $2.1 billion in investments.

Then on Friday, the University of Michigan will release its preliminary February reading on consumer sentiment. It is not a perfect predictor of how Americans will spend their money, but it will serve as the most up-to-date reading on how they are feeling about the economy.

"It's pretty widely anticipated that consumer sentiment is declining," Ellison said.

After posting its best week since March 2003, the Dow Jones industrial average last week logged its worst week since that same volatile month due to a sharply contracting service sector, uneasiness about bond insurers and other worrisome signs that the housing and credit markets may keep stifling growth.

The Dow fell 4.40 percent last week, the Standard & Poor's 500 index lost 4.60 percent, and the Nasdaq composite index dropped 4.50 percent. The Dow stands 14 percent below its Oct. 9 record close of 14,164.53 but remains about 4.7 percent above the 15-month lows it sank to in January.

Many market watchers say it is practically inevitable that the Dow will retest its lows — essentially, fall back to those levels while investors wait and see if it falls further or bounces back up. Wall Street is hoping the bulk of the weakness in the economy has passed, whether it counts as a recession or not. If it's mostly over, the stock market may have already hit, or neared, its bottom.

"If we're in a recession now, which is pretty likely, we've probably seen most of the worst of the downside to the stock market," Ellison said. "The market tends to rebound when the economy reaches its worst quarter."

Earnings from companies this week — including Hasbro Inc., General Motors Corp., Coca-Cola Co., Deere & Co., Vonage Holdings Corp., and Goodyear Tire & Rubber — could be indicative of spending patterns by both individuals and businesses.

Discussions about the global economy from the weekend's Group of Seven meeting in Tokyo of the world's finance ministers may also move the market this week.

According to S&P analyst Howard Silverblatt, stock markets around the globe lost a combined $5.2 trillion in January, one of the worst ever starts to the year. Emerging markets on average dropped more than 12 percent, and all 26 developed markets tumbled as well, by an average of nearly 8 percent.

Many believe US already in a recession

WASHINGTON - Empty homes and for-sale signs clutter neighborhoods. You've lost your job or know someone who has. Your paycheck and nest egg are taking a hit.

Could the country be in recession?

Sixty-one percent of the public believes the economy is now suffering through its first recession since 2001, according to an Associated Press-Ipsos poll.

The fallout from a depressed housing market and a credit crunch nearly caused the economy to stall in the final three months of last year. Some experts, like the majority of people questioned in the poll, say the economy actually may be shrinking now. The worry is that consumers and businesses will hunker down further and pull back spending, sending the economy into a tailspin.

"Absolutely, we're in a recession," said Hilda Sanchez, 44, of Waterford, Calif.

Squeezed by high energy and food bills, "we can't afford the things that we normally buy," she said. "We are cutting corners in our spending. For our groceries, we are buying a lot of generic and we are eating out less."

For many, the meltdown in the housing and mortgage markets has proved especially disturbing. Record numbers of people were forced from their homes, unable to afford the monthly loan payments. People watched their single biggest asset fall in value, a reason to tighten the belt.

"Obviously the housing market is creating deep concern. And one of the real problems could be that if people, as a result of their value of their homes going down, kind of pull in their horns," President Bush said in a television interview aired Sunday.

Credit has become harder to get, thwarting would-be home buyers, adding to the glut of unsold homes and aggravating the housing industry's woes.

"For-sale signs are everywhere. In my area, 35 to 40 homes are standing there and aren't even complete. There aren't any buyers," said Jim Sims, 60, of Greer, S.C.

Nanette Dahlin, 52, of St. Louis Park, Minn., called the situation "very scary." She said friends in Madison, Minn., put their home up for sale recently and reduced the asking price more than $100,000 in just a week. "They are in bad shape," Dahlin said.

For all of 2007, the economy grew by just 2.2 percent. That was the weakest performance since 2002, when the country was struggling to recover from the last recession. The housing collapse was the biggest culprit in 2007. Builders lowered spending on housing projects by 16.9 percent on an annualized basis, the most in 25 years.

The job market is faltering — a point driven home by a report showing that employers cut jobs in January for the first time in more than four years.

"The way things are, people are afraid of losing their jobs," Sanchez said.

Employment concerns are contributing to darker feelings about the economy and people's own financial well-being. Consumer confidence, as measured by the RBC Cash Index, dropped to a mark of 48.5 in early February. It was the worst reading since the index began in 2002.

A cooling job market along with high energy and food prices are taking a toll on paychecks. Workers' average weekly earnings, adjusted for inflation, fell 0.9 percent last year. In 2006, earnings grew by a solid 2.1 percent.

Wall Street is unsettled and as a result, people's nest eggs are not what they once were.

In fact, that was the top economic worry in the AP-Ipsos poll. Fifty-nine percent said they were worried "a lot" or "some" about seeing the value of stocks and retirement investments drop.

"I really dread opening my (financial) statements," Sims said.

By one rough rule of thumb, a recession occurs when there are two consecutive quarters — six straight months — when the economy shrinks. That did not happen in the last recession, though. The economy contracted in the first quarter of 2001, turned positive in the second quarter, shrank in the third quarter and turned up again in the final quarter of that year.

The National Bureau of Economic Research, the recognized arbiters for dating recessions, uses a more complicated formula. It takes into account such things as employment and income growth. By that measure, the last recession was in 2001, starting in March and ending in November.

Bush, citing some experts, said the U.S. was not in a recession, although he acknowledged "that the signs are troubling enough" to justify the $168 billion economic rescue plan that passed Congress this past week. The measure he intends to sign on Wednesday includes tax rebates for people and tax breaks for businesses.

To bolster the economy, the Federal Reserve embarked on a rate-cutting campaign in September, with two big reductions last month. In just eight days in January, the Fed slashed rates by 1.25 percentage points. The hope it that the lower rates will induce people to buy more and revive the economy.

So if the poll figure of 61 percent is right — that the country is now in recession — then those relief efforts will help ease the effect of a downturn.

"People are both depressed and anxious about the state of affairs. The anxiety is going to persist because we are in an uncertain season economically and politically," said Terry Connelly, dean of Golden Gate University's Ageno School of Business.

The poll was based on the responses from 1,006 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of sampling error of plus or minus 3 percentage points.

Survey: Gas prices drop 3 cents to $2.94

CAMARILLO, Calif. - The national average price for gasoline fell about 3 cents over the last two weeks, according to a survey released Sunday.

The average price of self-serve regular gasoline on Friday was $2.94 a gallon, mid-grade was $3.07 and premium was $3.18, according to the Lundberg Survey of 7,000 stations nationwide.

Of the cities surveyed, the cheapest price was in St. Louis, where a gallon of regular cost $2.76, on average. The highest was in Honolulu at $3.35.

Reality check for Europe

LONDON, Feb 10 - (Reuters) - The extent of Europe's infection from the U.S. subprime mortgage virus is becoming clearer, even as the European Central Bank faces down calls for it to follow U.S. and UK counterparts by cutting interest rates.

Early estimates of fourth-quarter national output from the big euro zone economies are due later this week. The picture is probably one of growth in the 15-nation currency area marginally outstripping the U.S. economy in the final quarter of last year.

But there are growing signs the credit crisis and looming U.S. recession have hit Europe deeper than policymakers seem willing to acknowledge. Hopes that the euro zone can remain partly insulated from a U.S. housing bust and recession are receding.

Cisco Systems (CSCO.O), the largest maker of the routers and switches that direct traffic on data networks, warned last week of a rapid slowdown in both U.S. and European orders.

Significantly, the Cisco numbers suggested conditions were deteriorating faster in Europe than the United States. In the quarter through January order growth in Europe more than halved to 8 percent. U.S. order growth slipped only one percentage point to 12 percent.

"It's the most cautious I've seen CEOs in the U.S. and Europe in many years," Cisco Chief Executive John Chambers said.

That tallied with last week's shock service sector surveys. Any suggestion that Europe was weathering a U.S.-focused downturn seemed wide of the mark.

While attention largely centered on a plunge in confidence among U.S. service firms in January, German, Spanish and Italian service sectors also recorded their first contraction in years.

Financial markets are waking up also to the idea that it may be dangerous to use the relatively robust ECB economic forecasts as anything other than an interest rate pointer.

"The market is becoming aware that the crisis in the United States will indeed have an adverse impact on growth in Europe," said Heino Ruland, strategist at FrankfurtFinanz in Germany.

Pan-European stock markets have had one of their worst January performances on record and entered bear market territory in the course of that month. The FTSEurofirst (.FTEU3) lost another four percent this week.

"We now see a deterioration in the euro area," said Luca Paolini, strategist at Credit Suisse. "If anything the risks are higher in the euro area than in the U.S. -- where expectations are already very low. And you still don't have a policy response from the ECB."

ECB President Jean-Claude Trichet acknowledged the darkening economic horizon after the bank left interest rates unchanged again at 4 percent on Thursday even as the Bank of England cut its key rates again by a quarter of a percentage point.

"If I take all the data, they confirm risks lie to the downside," Trichet told a news conference

Yet few expect an ECB rate cut for at least another month as the central bank focuses on above-target inflation rates instead. The combination of rising concern and a lack of action is worrying for many. The U.S. Federal Reserve has slashed its key interest rates by 2-1/4 percentage points in five months.

The reaction reminds many economists of ECB arguments in 2001 that the U.S. dot.com bubble burst would have less of an impact on euro zone households than those in the United States.

Back then, the ECB first cut rates some four months after the Fed started easing and cumulatively in 2001 the U.S. central bank's rate cuts were three times those of the ECB.

"It's one of the reasons the euro zone economy is always lagging. The ECB is looking at inflation -- which is in itself a lagging economic indicator in -- and the Fed looks more towards underlying growth," said Paolini at Credit Suisse.

FLASH FORECASTS

Any undershoot of fourth-quarter gross domestic product data next week would merely reinforce the point and heap further pressure on the ECB to look beyond near-term inflation rates.

Estimates for Germany, France, Spain and the overall euro zone are due for release on Thursday. Median forecasts for the single currency area are for growth to more than halve to 0.3 percent from 0.8 percent in the third quarter of the year.

That's still about twice the rate recorded in the United States in the final three months of 2007 but the difference is little more than a margin of error given how prone GDP data is to big revisions.

If, as many suspect, subsequent revisions show the U.S. may even have contracted during the final quarter then it may well be in the middle of recession already. Two consecutive quarters of GDP contraction is how most economists define one.

Further soundings on sentiment will be evident before Thursday and these are not likely to be pretty either.

On Tuesday, the German ZEW index of investor confidence in February is due for release and, as it disproportionately reflects the mood in the financial world, it is widely expected to fall sharply.

"As the risks to economic growth build, Europe's central banks will likely be even more inclined to lean against the coming downturn," Deutsche Bank economists said in a note to clients on Friday. "We now expect the ECB to cut rates 100bp by the end of this year, starting in Q2."

SEC eyes disclosure in subprime probes

WASHINGTON (Reuters) - The Securities and Exchange Commission is investigating how banks, credit rating firms and lenders valued and disclosed complex mortgage-backed securities that ultimately led to the subprime crisis, a top agency enforcer said on Saturday.

"The big question is, who knew what when, and what did they disclose to the marketplace?" said Cheryl Scarboro, an associate director in the SEC's enforcement division in charge of the subprime working group.

The SEC has opened about three dozen investigations into firms and individuals involved in the subprime mortgage market. The investor protection agency has not named any names. But Morgan Stanley (MS.N) and Merrill Lynch (MER.N) are some of the firms in the financial services industry that have disclosed that government investigators are seeking information about their subprime activities.

Scarboro said the cases can be broken down into three main areas: the securitization process, the origination process and the retail area. Insider trading, which is one of the SEC's highest priorities, is also a key area.

"Our investigations into potential misconduct is clearly a priority at the division," Scarboro said at a Practising Law Institute conference in Washington.

Banks, due diligence firms and credit rating agencies are being examined for their role in the securitization process, or how mortgages were sold, repackaged and bundled into special financial products.

The SEC is looking at the valuations and accounting treatments of mortgage-backed securities. It is looking at whether the securities were valued correctly in the first place, what was the level of risk and if that was adequately disclosed to shareholders.

METHODOLOGY, MODELS SCRUTINIZED

The methodology and models that companies used to value the complex financial products are being examined as well.

The agency also is looking at write-downs that financial firms have been forced to take and whether the assets should have been taken down and disclosed earlier.

In terms of the retail area, the agency is looking at whether brokers followed "suitability" requirements when they sold the mortgage-backed securities that then quickly soured.

Doria Bachenheimer, who is part of the SEC's subprime working group, said issues that could come up with lenders and investment banks are similar to those in many accounting fraud investigations.

The agency will look into whether people were motivated to mask the bad numbers because of some upcoming corporate event, Bachenheimer, an assistant regional director of enforcement in New York, said at the conference.

The subprime working group, which involves more than 100 lawyers, is coordinating with other divisions within the SEC. It is also talking regularly with other regulators including the Federal Reserve, Federal Deposit Insurance Corp, Office of the Comptroller of the Currency and Office of Thrift Supervision.

When asked if the SEC had enough resources to dig out any subprime abuse while policing other areas, the SEC's head of enforcement said she was always amazed by the work people do with what they've got.

"We do have to work very hard at bringing the right cases," SEC enforcement division chief Linda Chatman Thomsen said at the conference. "We work on the most 'impactful' cases ... . At the end of the day we have to be about deterrence."

World bourses lost 5.2 trillion dlrs in January: credit rater

PARIS (AFP) - World stockmarkets lost 5.2 trillion dollars (3.6 trillion euros) in January thanks to the fallout from the US subprime crisis and fears of a global economic slowdown, Standard & Poor's said Saturday.

"If investors thought the market could only go up, January's wake-up call pulled them back into reality," the independent credit ratings' provider said.

Standard & Poor's said the world's equity markets lost a combined 5.2 trillion dollars as emerging markets fell 12.44 percent and developed markets lost 7.83 percent to register one of the worst starts to a new year.

"There were few safe havens in January as 50 of the 52 global equity markets ended the month in negative territory, with 25 of them posting double-digit losses," said Howard Silverblatt, senior index analyst at S&Ps.

All 26 developed equity markets posted negative returns in January, with 16 losing at least 10 percent of their value.

The January declines negated all previous market gains, leaving all of the developed markets in the red for the trailing three month period.

In Paris, the stock exchange lost 12.27 percent over the course of January, 15.27 percent over the past three months, more than wiping out its gains over the last 12 months -- down 0.74 percent).

The situation was even worse in London -- down 8.85 percent in January, down 16.54 percent for the past three months and down 2.22 percent over 12 months -- and in the US, which was down 6.07 percent in January, down 10.78 percent over three months and down 2.42 percent over 12 months.

The story was similar in Japan, where the market lost 4.47 percent in January, 10.31 percent over three months and down 10.44 percent over the past 12 months.

In Germany, in contrast, although the stock exchange lost 13.72 percent in January and 13.84 percent over three months, it was up 13.43 percent over the year.

Equity markets in emerging countries also suffered heavy losses in January, apart from Morocco which gained 10.17 percent and Jordan, which was up by 3.11 percent. Turkey was the most affected with January losses reaching 22.70 percent, followed by China on 21.40 percent, Russia on 16.12 percent and India at 16 percent.

But only Argentina and Taiwan slipped into negative territory for the 12-month period.

Stocks end mixed on economic worries

NEW YORK - Wall Street finished a dismal week with a mixed performance Friday as investors grappled with fears about insurers of distressed mortgage-backed bonds and anxiety about the broader economy.

The Dow Jones industrial average, which rose in earlier trading, fell more than 60 points, while the Nasdaq composite index managed a gain. Both ended the week down more than 4 percent, however, and it was the Dow's worst week, percentage-wise, since March 2003.

The market has been shaken in recent weeks by uncertainty surrounding bond insurers and whether they'll be able to handle huge losses in the value of mortgage-backed bonds. On Thursday, Moody's Investors Service lowered its rating on the bond insurer Security Capital Assurance Ltd. Then at midday Friday, Fitch Ratings, another credit rating agency, put a series of mortgage-backed securities insured by MBIA Inc. on negative watch.

"The bond insurers are really on people's minds," said Kim Caughey, equity research analyst at Fort Pitt Capital Group. "This is a horribly complex issue."

If the ratings agencies downgrade more bonds and bond insurers, the moves could hurt the banks that own the bonds — and "just drive the credit markets into a downward spiral," Caughey said. "It's things happening further upstream that's making people nervous."

Financial stocks fell due to heavy selling in the corporate bond and leveraged loan markets, and meanwhile, soaring commodities prices hit retailers, said Miller Tabak equity strategist Peter Boockvar.

Crude oil prices jumped $3.66 to $91.77 a barrel on the New York Mercantile Exchange on expectations of disruptions in Nigerian exports.

Retailers, which posted poor sales figures Thursday, have said consumer spending is not only slowing because of problems in the housing market, but also because of high gasoline and food prices. Other businesses in the nation's service sector, which earlier this week reported a contraction in January, have struggled, too, with high commodities costs.

The Dow dropped 64.87, or 0.53 percent, to 12,182.13 — above its lows of the day, but well off its highs, too. The biggest losers among the 30 Dow companies were financial companies American Express Co. and JPMorgan Chase & Co.

Broader stock indicators were mixed. The Standard & Poor's 500 index fell 5.62, or 0.42 percent, to 1,331.29, while the Nasdaq composite index rose 11.82, or 0.52 percent, to 2,304.85.

The Dow ended the week down 561.06, or 4.40 percent, while the S&P 500 index lost 64.13, or 4.60 percent, and the Nasdaq fell 108.51, or 4.50 percent.

The technology-heavy Nasdaq fared better than the other indexes Friday thanks partly to Amazon.com Inc., which authorized a $1 billion share buyback program. The online retailer rose $2.59, or 3.7 percent, to $73.50.

Government bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.65 percent from 3.73 percent late Thursday.

SCA plunged 60 cents, or 23 percent, to $2, and MBIA rose 40 cents, or 2.8 percent, to $14.60. Though MBIA's bonds were downgraded by Fitch, the market was pleased because late Thursday it boosted the size of a share offering to $1 billion from $750 million in response to oversubscription by investors.

A motley batch of corporate earnings failed to provide much reassurance to investors. Some companies such as software maker McAfee Inc. and jewelry maker Tiffany & Co. seem to be faring well despite the economic slowdown, but others, including paper and wood product maker Weyerhaueser Co., are struggling.

McAfee posted a better-than-expected fourth-quarter profit late Thursday and rose $2.92, or 9.2 percent, to $34.65. Tiffany rose $1.68, or 4.4 percent, to $39.86 after predicting fiscal 2008 earnings would beat its fiscal 2007 profit forecast, based on an expected 10 percent rise in global sales.

Weyerhaeuser swung to a fourth-quarter loss as the slumping housing market dampened demand for lumber; the company expects the downturn to extend through the year. Weyerhaeuser fell $2.37, or 3.7 percent, to $62.34.

And Alcatel-Lucent reported a $3.8 billion loss in the fourth quarter, eliminated its 2007 dividend, and predicted that 2008 would be a difficult year. Shares of the Franco-American company, which makes telecommunications equipment, fell 25 cents, or 4 percent, to $6.

The mix in corporate success has made it hard to determine how weak the economy is getting.

Data on Friday showing a higher-than-expected rise in U.S. wholesalers' inventories provided Wall Street with little new evidence about the economy's health. An increase can be positive, suggesting that companies are betting on a rise in demand, but it can also serve as a worrisome sign that inventories are building up unintentionally because demand is waning.

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

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 3.66 billion shares, down from 4.44 billion Thursday.

The Russell 2000 index of smaller companies fell 3.85, or 0.55 percent, to 698.93.

Overseas, Japan's Nikkei average closed down 1.44 percent. In Europe, Britain's FTSE 100 rose 1.05 percent, Germany's DAX index rose 0.50 percent, and France's CAC-40 fell 0.30 percent.

___

The Dow Jones industrial average ended the week down 561.06, or 4.40 percent, at 12,182.13. The Standard & Poor's 500 index finished down 64.13, or 4.60 percent, at 1,331.29. The Nasdaq composite index ended the week down 108.51, or 4.50 percent, at 2,304.85.

The Russell 2000 index finished the week down 31.60, or 4.33 percent, at 698.90.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended Friday at 13,484.95, down 606.14 points, or 4.27 percent, for the week. A year ago, the index was at 14,556.05.

Aim misses significant target

When the FTSE Aim All-Share index last month fell below the 1,000 mark at which it started in 1995, the sound was lost among the louder market crashes elsewhere.

Yet the breach, on January 21, was significant. It was the first time the main index of London's junior market had dropped below 1,000 since the bursting of the dotcom bubble.

It also looks like marking the beginning of the third period of the index remaining below 1,000 for a significant time.

The first came in 1998, just before it soared to its all-time high of 2924 in the dotcom boom. The rapid increase of that dizzying era was matched by an almost equally precipitous fall.

It passed back below 1,000 in September 2001, touching its nadir of 542 in the spring of 2003. It took until January 2005 before it climbed back above 1,000 and any gains since have been short-lived.

Does this mean that as Aim approaches its teenage years, its best days are already behind it and senescence beckons?

Certainly, taken as a whole, Aim appears far from vibrant. Not only has its main index generated little capital growth but, as a market for small and often young companies, it does not generate much cash either. The Aim All-Share yields just 0.64 per cent - only a minority of Aim companies pay a dividend at all - against 3.66 per cent for the FTSE 100 index or 2.51 per cent for the FTSE SmallCap index.

The problem is that in more than 12 years the market has changed out of all recognition.

Having begun with just 10 companies, none of which would stir the memories of today's investors, it now consists of 1,700 companies all performing very differently.

Almost 60 per cent of stocks listed on Aim in 2003 have since underperformed the market, some of them real horrors in which investors lost everything.

Yet, there have also been stars. Since Aim's 2003 low-point, these have included Asos, the online fashion group (up more than 5,000 per cent); Indigovision, the digital signage company (up 2,400 per cent); and Camec, the mining company run by ex-cricketer Phil Edmonds (up 1,600 per cent).

Moreover, the amount of money raised in primary and secondary issues on Aim has soared from just £2bn in 2003 to more than £16bn last year in primary and secondary issues. If it is the case that Aim is a stock-picker's market, some people are clearly prepared to hunt and place some bets.

Aim's coming of age was in the year 2000, when the number of new technology companies seeking a listing forced the institutions - which initially refused to invest in the junior market - to revise their opinions.

By the time of Aim's 10th birthday in June 2005 it had grown to list more than 1,200 companies. It had survived the dotcom crash by offering a broad spread of companies that gave fund managers somewhere else to turn apart from new technology.

Over the past three or four years Aim has proved its adaptability again by attracting an increasing number of companies from overseas. About 500 of the companies now listed on Aim, or almost a third, are based abroad in 70 different countries.

In fact it can almost be regarded as two separate markets. The London Stock Exchange, which owns Aim, tacitly admitted as much when it launched in May 2005 two new indices - the Aim 50, which takes in the top 50 UK companies, and the Aim 100, which comprises the top 100 companies, including those from overseas.

Neither has proved particularly useful although last year's figures did show that the UK-only index did not hold up as well as the bigger Aim 100. Dawnay Day, the broker, has come up with an Aim Overseas 100 index and an Aim UK 100 index, which show more clearly how the overseas companies - which have a bigger market capitalisation - have been outperforming the UK companies.

However, the underperformance of UK small caps has not been confined to Aim. The Hoare Govett Smaller Companies Index, which covers the bottom 10 per cent of the full list by value and is rebalanced at the end of every year, last month showed that after outperfoming the large caps for four years, the small caps fell behind in 2007.

Rubbing salt in the wound, Professor Elroy Dimson of London Business School, and one of the compilers of the index, also said the start of this year had been the worst in the 21-year history of the HGSC index.

Andy Crossley, fund manager at Invesco Perpetual, believes there is a crisis of funding for small-cap companies in the UK. Until 2000 the amount of money going into small cap investment trusts had been steadily increasing for 20 years. Since then every quarter has seen more money taken out than invested.

At the same time changes in the UK pensions and life assurance industries have led to a much reduced pool of money available for investing in smaller companies.

Other fund managers agree. "Fund raising for UK micro-caps has become extremely difficult and has every prospect of remaining so," says Henrietta Marsh of Isis. But the upside is that the prices for some Aim shares "are daft - they are so low".

Bob Morton, a serial backer of Aim companies, says all investors are very wary of small caps at the moment wherever they are listed.

Poor sentiment, the expectation of a recession and further fall-out from the credit crunch will all take some time to go through the system, he believes.

But while he is predicting a poor year for equities, "for anyone who is a long-term investor, it's a cracking time to invest".

Meanwhile, companies are still coming to the market, albeit not so many.

Kentz, an engineering contractor specialising in the resources sector, this week became the eighth to float on Aim so far this year. In the same period last year 13 companies joined.

Evolution Securities, which acted as nomad (nominated adviser) to Kentz, is very positive after bringing five companies to market in the last few months.

"Our message is that the London market is open for business," says Andrew Umbers, Evolution Securities chief executive. He also says some of the institutions backing Kentz have not invested in an Aim company before.

Although it had to settle for less than it wanted, Kentz was a big flotation, pulling in £67m from the sale of new and existing shares.

The company has also been around a long time, is based in Ireland, operates all over the world, and has a market capitalisation of £145m - hardly the type of dynamic start-up UK company for which Aim was created.

But then many of the more interesting companies hoping to join Aim are coming from overseas.

One that began its roadshows this week is Mortice, which is planning to be the first Indian property and facilities management group to list on the junior market. The company is hoping to raise $25m (£12.8m), but not only in London. It is also visiting potential investors in Switzerland, Singapore and Hong Kong.

Not everything that comes from overseas sticks.

A couple of years ago several spacs - as special acquisition vehicles are known in the US - were listed on Aim. While there has not been a spac launched in London for some time, this week Deutsche Bank (NYSE:DB) and Citigroup (NYSE:C) raised EU600m (£447m) on Euronext in Amsterdam for Liberty International Acquisition.

Quentin Nason of Deutsche Bank said Liberty was the second spac to arrive on Euronext, describing it as a "big bang moment". Spacs - which are big sources of fund raising in the US - had originally come to Aim because it offered a much faster route to completion and a more flexible environment than the US. But the technical, regulatory and legal offer from Euronext, coupled with the ability to do bigger deals, would now prove more attractive to US investors.

Spacs were never mainstream Aim business, but their arrival and disappearance illustrate how quickly things can change on a market that is still evolving.

But as Aim matures, it faces new challenges.

It has always had to find a delicate balance between a light regulatory touch and the need to maintain its reputation, but in the last year the rules governing the market have been tightened with an inevitable impact on costs.

And its very success means that competitors are constantly looking for a way to muscle in. As the size of companies on Aim has grown - 15 of them are worth more than £500m and three are worth more than £1bn - Plus Markets has reestablished itself at the micro end of the market. In its sights are the 500 Aim companies with a market capitalisation of less than £10m.

Now UK small-cap plc is having a tough time and it is too early to tell whether Aim's increased interest in attracting companies from abroad is taking the market in the right direction. Many will heave a sigh of relief when the Aim All-Share climbs back through 1000 - but that might be several months away.

Wall St. tumbles as economic stimulus gets OK

NEW YORK (AFP) - US stock markets tumbled heavily in the week to Friday, giving Wall Street a fresh battering, despite Congress granting a green light to a giant economic stimulus package sought by the White House.

The plan, worth around 150 billion dollars, is stuffed with temporary tax rebates and business incentives designed to give the economy a boost, but some analysts say the world's biggest economy is already in a recession.

In the week to Friday, the benchmark blue-chip Dow Jones Industrial Average fell a hefty 4.40 percent to close at 12,182.13. The leading index is down over eight percent for the year to date.

The tech-laden Nasdaq composite lost 4.50 percent to 2,304.85 while the broad market Standard & Poor's 500 index dropped 4.60 percent to 1,331.29.

All three stock barometers have ceded significant ground since last August amid an ongoing housing slump and a related credit crunch which have bruised the earnings of major banks and financial firms.

Debate continues to rage over whether the US economy is in recession or not. Some analysts believe the economy is in recession, while others argue that growth is still positive and some economists remain sitting on the fence.

Growth is being threatened by the housing downturn, the credit crunch, and concerns about the job market and consumer spending.

Although Wall Street appeared to give a cautious welcome to the stimulus plan, which White House officials said President George W. Bush would sign into law in the coming week, some economists say it will give growth a needed boost.

"This fiscal stimulus package meets the key criteria of being temporary, quick and cost-effective. Therefore, it has the basic ingredients necessary to give the economy a shot-in-the-arm in the second half of 2008, and provide a safety net against a more serious downturn in the economy," said Brian Bethune, an economist at Global Insight.

Government officials have said tax rebate checks, ranging from a couple of hundred dollars to over 1,000 dollars depending on family size and earnings, could be in the mail by May.

The Bush administration hopes that Americans receiving the rebate checks will spend the cash and fire up consumer spending, a key economic motor.

"The economy continues to lose momentum and the risk of a recession is high. While the weak data is worrisome, we believe the economy should skirt a recession due to monetary and fiscal stimulus," Ethan Harris, an economist at Lehman Brothers, said in a briefing note.

The Federal Reserve has slashed US interest rates since September in a bid to shore up economic momentum which slowed dramatically to a 0.6 percent annualized crawl in the fourth quarter.

Wall Street money managers said they would be listening carefully next Thursday when Fed chairman Ben Bernanke appears before the Senate Banking Committee to discuss the economy and financial markets.

The Fed's federal funds short-term interest rate is presently anchored at 3.0 percent, but many analysts expect the central bank to unleash fresh rate cuts in coming months.

The economic news calendar picks up in the coming week with releases due on retail sales, the US trade deficit, export and import prices, and consumer sentiment among other reports.

Wall Street will pore over the monthly snapshot on retail sales, due to be released next Wednesday, for clues on consumer spending.

Most economists expect the government report to show that retail sales held flat in January after declining 0.4 percent in December.

Bond prices declined over the week as the yield on the 10-year Treasury bond rose to 3.654 percent from 3.600 percent a week earlier, while that on the 30-year bond jumped to 4.439 percent from 4.318 percent.

Bond yields and prices move in opposite directions.

Credit and economic fears weigh on Wall St

Wall Street stocks were mixed on Friday as a modest rebound in the technology sector was overshadowed by heightened fears of corporate and commercial property credit defaults.

A lacklustre session capped another bad week for equities which were beset by fears that the US economy is heading into recession.

Fearing a sharp downturn, investors shifted into perceived safe havens, such as consumer staples and utilities, and off-loaded financial companies amid rumours of a fire-sale of credit derivatives.

The S&P 500 closed 0.4 per cent lower at 1,331.29 on Friday, marking a decline of 4.6 per cent for the week. The S&P closed lower in four of five trading sessions and almost wiped out a rebound of 4.9 per cent the previous week.

The Dow Jones Industrial Average shed 4.4 per cent to 12,182.13 over the week. The tech-heavy Nasdaq Composite rallied on Friday but still ended the week down 4.5 per cent at 2,304.85.

Equity investors were left pondering whether stocks are now set to retest January's lows or if equities were over-sold and are primed for a recovery.

"Part of making a [market] bottom is time. Even if the market doesn't make a new low it's going to go sideways for a while," said Jim Moffett, lead portfolio manager at UMB Scout Fund International.

A spike in wholesale inventories provided further evidence on Friday of a slowing US economy. It followed a dire reading on the ISM non-manufacturing index, which sent stocks into their steepest declines in almost a year on Tuesday.

Many analysts believe stocks have become cheap relative to earnings and say recession fears have already been priced in. However, the cost of insuring corporate debt soared this week, suggesting equities may be understating risks.

"The battle is on a number of fronts right now, it's not just in the real economy, it's in the credit markets that are showing increasing signs of strain," said Quincy Krosby, chief investment strategist at The Hartford.

One of the main factors weighing on the market remains the uncertain fate of monoline insurers. Investors fear a downgrade of a key bond insurer could trigger big losses at US banks.

Moody's Investors Service cut bond insurer Security Capital Assurance's AAA rating this week and MBIA (NYSE:MBI), a larger bond insurer, offered $1bn in new stock to raise much-needed capital. Its shares fell 10.8 per cent to $14.60 for the week.

Financial stocks were among the worst performing this week with Citigroup (NYSE:C) falling 12.3 per cent to $26.03, while Morgan Stanley (AMEX:MWD) gave up 10.5 per cent to $43.19 as writedown fears persisted. Credit card companies including American Express (NYSE:AXP), down 9.3 per cent at $44.98, were also hit after an analyst warned delinquencies would worsen well into 2009.

The S&P homebuilder index fell 14.9 per cent over the period and the Bloom-berg real estate investment trust index declined 7.4 per cent amid signs the commercial real estate market has become the latest victim of the credit squeeze.

Investors were also downbeat about earnings prospects, particularly in the technology sector.

The Nasdaq saw the best of Friday's gains after Amazon.co (NASDAQ:AMZN)m announced a $1bn share buy-back programme and McAfee (NYSE:MFE), the antivirus software company, beat estimates with its quarterly results. Nonetheless, the two companies shed 1.5 per cent to $73.50 and 1.1 per cent to $34.65 respectively this week.

Cognizant Technology Solutions (NASDAQ:CTSH), a tech outsourcing company, rose 6.7 per cent to $31.84 over the period after it issued a first-quarterly profit forecast that exceeded expectations.

Tech shares have fallen sharply this year on concerns a looming economic slowdown will cause companies and consumers to cut back on spending. Cisco (NASDAQ:CSCO)'s weak third-quarter sales outlook this week encouraged traders to keep selling large-cap tech stocks and although many of these pared losses on Friday, Cisco ended the week 5.6 per cent lower at $23.54 while Apple declined 6.2 per cent to $125.48.

In retail, Wal-Mart (NYSE:WMT)'s till receipts were disappointing, leaving its stock down 4.7 per cent at $48.76 for the week. Some high-street names recovered ground after JC Penney, down 1.8 per cent at $47.63, gave reassuring earning guidance.

Exchange operators were among the worst hit stocks after the Department of Justice called for clearing houses to be broken off from futures exchanges. Although the sector rebounded after an analyst called the selling overdone, CME Groupstill fell 15.3 per cent to $517 this week.

View from the Top transcript: Duncan Niederauer

A transcript of the FT's interview with Duncan Niederauer, of NYSE Euronext. He speaks to US managing director Chrystia Freeland about derivatives trading, New York versus London and the global economy.

Financial Times: You've suggested recently that the exchange might be used somehow by regulators to help monitor what's going on in the derivative space.

Duncan Niederhauer: Right.

FT: How would that work?

DN: I think it's very premature. I think it's very informal discussion so far. We were simply asked in the wake of something that we just went through this summer, one of the big issues seemed to be a lack of transparency around a specific part of the market. Now, that could come in a lot of shapes and sizes. I don't think we can force liquidity into the equation, but I do think that we could ask some of the liquidity providers to think about providing more accessible quotes that were viewable to the public and at a minimum, if transactions are done being responsible to report those transactions so that they be visible to the public at large. I think what's made some of the officials and government authorities here nervous is we seem to have gone from point A to point B overnight and everyone who's involved in the markets know that didn't happen overnight. It would have been more visible to people that we were sliding a bit if there were more transparency around quoting and reporting. So that was really the sum and substance of the conversation. I think we stand prepared to play whatever role the industry wants us to play to do that.

FT: The industry or the government or both?

DN: I think if we're all smart here, it should be a collaborative effort. When something like we've just all lived through happens, I think it's incumbent on everyone to sit at the table. I'm happy to sit at the table. I would encourage the key liquidity providers to sit at the table. I think the government officials should sit at the table. Rather than wait for somebody to prescribe what should be done, I like to think we're all better than that and we'll all sit down together and come up with a great solution that makes sense for everybody.

FT: Which is voluntary as opposed to mandated by regulators?

DN: I would imagine. It's too early to predict. I always think those are better to come up with some agreed upon set of rules, some of which might be mandatory, but you strike the right compromise that gets investors what they want, doesn't over prescribe it so you don't kill the liquidity in the business. At the same time you just make more information available to investors so they're not operating completely in the dark. That's all.

FT: Sounds like something that should happen sooner rather than later. How quickly could we imagine a process like the one you're describing to really take shape?

DN: Boy, that's a great question 'cause these things, even if we think they should happen quickly, they rarely do. You've got a lot of constituents who would have to come to the table. There's obviously a lot of other important issues that all the constituents I just mentioned are wrestling with. So I think we'd be prepared to make some suggestions and we'd be prepared to deploy resources very quickly, but I think you've got -

FT: Have you done that already? Has anyone asked you for policy papers or anything like that?

DN: Not yet. They know that we have a fledgling bond business. So it's not that hard for us to use that facility we've built for fixed-income instruments to get involved in dissemination of quotes or dissemination of trades. So it's pretty easy for us and I've just let the officials know we're ready and we're ready to engage at any time. I don't know if it's our place to write a policy paper. I fear that if we did that it might look a little self-interested. Although I do believe we're a good independent arbiter to be the place where some of these types of things could be housed, but we just want to be an industry participant and get to the right answer.

FT: Among the regulators and the government authorities, who do you see leading those discussions? Is that clear?

DN: I think it's very unclear. I mean one thing we have in the United States is sometimes it's not clear who's going to take the baton on various issues. There's lots of choices. You could have Treasury lead the charge on this. You could have the SEC lead the charge on this. You could even have the CFTC or another regulatory authority get involved in this. Depending on what they want the end game to look like. I think it's too early to predict right now.

FT: Do you think that the key liquidity providers are prepared to come to the table? Have they been sufficiently jolted by the recent events?

DN: I would hope so. As one until about a year ago, I would say in my old seat certainly would have been coming to the table saying it's time to -

FT: When you were at Goldman.

DN: - Yeah. It's time to be part of the solution. Let's try to figure out what that solution looks like and let's not over regulate it so that all the liquidity gets sucked out of the business, but let's figure out if there's a middle ground here that we can all get comfortable with. Let's be actively involved rather than passively involved. So I hope so.

FT: We're in a hot political season right now. Do you think there is a danger that if there isn't a solution of this sort you've described with industry playing a big part, you'll have politicians coming in?

DN: Boy, that's always a good question, right, because you never know if it's something in a political year like this that's going to be super-charged, does somebody grab onto this issue. Those issues that they tend to grab on tend to be more issues that affect the retail investor. The question is how much do the politicians think that the knock on effect of this liquidity crisis in the credit space was to affect the end homeowner down the chain. I think if they feel that solving this problem would have prevented that problem, you'll find some of them take it on as an issue. If they believe that it was really just an institutional problem, I would have difficulty thinking it rises to their level of interest, but we'll see. You're right. That's always a factor in an election year that is not always the case.

FT: Do you worry about New York losing out to London as the world's premier financial center? And is it easy enough for foreign companies to list here?

DN: I think we proved that last year that it is. Is London a viable competitor for a lot of foreign listings, too? Sure. I think the record in '07 was still NYSE Euronext was number one in terms of growth proceeds rates from IPOs with about 80 billion, but we can't take that lightly. We can't be complacent about it. We fight hard to get these listings. I do think the US regulatory landscape that was sited as a potential impediment to companies listing here, I'm feeling much differently about that than I was nine or ten months ago because -

FT: How come?

DN: We've seen loosening in some of the Sarbanes-Oxley pieces. You've seen the IFRS standard begin to be accepted by the regulators here. I think you need to look no further than no fewer than 20 Chinese companies listed here. You would have argued that well, why would they do that with all the disclosure requirements and all the governance requirements. That's exactly why they did do it. When I asked all those CEOs, you could have picked anybody. We're delighted you picked us. Why are you here, their response was because this is the easiest way for me to access the biggest capital market in the world and at the same time tell shareholders I'm not afraid of transparency and I care deeply about good governance. So I think we're there. We're certainly not resting on our laurels. We know we have a lot more work to do.

FT: From your vantage point you have a great perspective on what's happening with American companies. Do you think we're entering a recession or maybe in one already?

DN: I've learned my lesson to be very careful about talking about these things. So I would probably leave that one to the experts. I will at least give you this much 'cause I don't have enough information to say whether we are or we're not. This is a very interesting perspective here so you hit the nail on the head. In my old job I would have been probably wrapped up in the malaise of the financial services industry the last several months and not picking up my head to have the perspective to look around and see how other industries were doing. This is a very interesting seat to sit in here because you see heads of all different kinds of companies coming through here; some of whom are strictly US businesses; some of whom have quite a big global footprint and I would say there is no consistent response. There's as many that are doing well as are doing poorly right now. So, I don't think the evidence is clear -

FT: Is there any easy division? Who's cheerful? Who's depressed?

DN: I think people who have a bigger global footprint seem to me to be a little more cheerful because they're finding that while the markets are still clearly connected, I think the economy is becoming a little disaggregated. There's that old saying if the US sneezes does everyone catch a cold. I don't know if that's as true as it used to be. It seems to me, and this was a big topic in Davos, there's no question that if the markets hiccup that kind of reverberates around the system. I'm not sure that's true about the economies anymore. So companies who have big global footprints seem to be benefitting from those other economies outside of the US continuing to grow. They seem much more immune to what happens here than they would have been say five or ten years ago.

FT: Have the Fed and the Treasury done the right things?

DN: Again, I leave it to them. I think their priorities are in the right place. From my seat I think they're doing everything they can, yeah.

FT: Now we're going to play long/short, Mr. Niederhauer.

DN: Okay.

FT: Are you ready?

DN: I hope so. I'm nervous.

FT: Manhattan real estate?

DN: Short.

FT: The euro?

DN: Long.

FT: Clara Furse?

DN: Long.

FT: Goldman Sachs?

DN: Long.

FT: Oil?

DN: Short.

FT: The French economy?

DN: Long.

FT: Hillary Clinton?

DN: Neutral.

FT: John McCain?

DN: Neutral.

FT: Merrill Lynch?

DN: Long.

FT: US interest rates?

DN: Short.

FT: Thank you very much.

DN: Thanks.

Wall St stumbles on fresh risk aversion

NEW YORK (Reuters) - Stocks fell on Friday as investors lost their appetite for risk and sold shares of financials, home builders and other sectors that have been at the center of the credit market crisis.

American Express Co (AXP.N) shares led declines on the Dow, while Bank of America Corp (BAC.N) was the biggest drag on the S&P 500. The S&P Financials (.GSPF) were the worst performer of the 10 major industry groups, losing 2.9 percent.

In a sign of nervousness in the market, the U.S. investment-grade credit derivative index widened to a record. Analysts said U.S. credit protection costs were surging on rumors that some structured credit vehicles with heavy losses are being liquidated.

Amid the uncertainty, investors will be more inclined to sell on a Friday, traders said.

"People are wary of taking risk going into the weekend. There's selling in some of the large banks and some of the consumer finance names," said Justin Wiggs, trader at Stifel Nicolaus Capital Markets in Baltimore.

The Dow Jones industrial average (.DJI) was down 102.75 points, or 0.84 percent, at 12,144.25. The Standard & Poor's 500 Index (.SPX) was down 10.40 points, or 0.78 percent, at 1,326.51. The Nasdaq Composite Index (.IXIC) was down 2.60 points, or 0.11 percent, at 2,290.43.

Trading has been jittery in the past few days, with indexes flipping direction several times during the session.

"A lot of people don't want to take a stand at this point, there's a lot of passive order flow, not big bets being taken," Wiggs said.

American Express shares were down 5 percent at $44.15 and Bank of America stock was down 2.8 percent at $42.17.

Home builders were sharply lower. Shares of D.R. Horton Inc (DHI.N) fell nearly 7 percent to $13.86 and Centex Corp (CTX.N) stock fell 5 percent to $22.77.

Transportation stocks were feeling the pinch of rising energy costs as crude oil futures jumped 3.4 percent to $91.53 a barrel.

Trucker Expeditors International (EXPD.O) was down 5.3 percent to $43.56 and rival CH Robinson Worldwide Inc (CHRW.O) shares 2.6 percent to $54.15. The Dow Jones transportation average (.DJT) fell 1.4 percent.

Declines on the Nasdaq were offset as investors bought some of the biggest names in technology, which have been hammered recently by recession worries.

Shares of Google Inc (GOOG.O), down nearly a third from its November high, were up 1.7 percent at $513.74. Apple Inc (AAPL.O) stock, also down about a third from its high, was up 1.2 percent at $122.65.

SEC may seek more disclosure by credit raters

WASHINGTON (Reuters) - The Securities and Exchange Commission may propose requiring credit rating agencies to differentiate between corporate bonds and structured finance products as well as make disclosures around past ratings, the agency's chairman said on Friday.

Chairman Christopher Cox's comments came as credit rating agencies like Moody's Corp (MCO.N), Fitch and Standard & Poor's have been accused of rubber-stamping structured finance products like mortgage-backed securities with high ratings.

Critics have blamed credit raters for failing to highlight risks secured by pools of mortgages, conducting weak analyses and granting higher ratings because they are paid by the companies or issuers whose securities they rate.

Cox told delegates at a securities law conference that rules may be proposed to enhance investor understanding of important differences between ratings for municipal and corporate debt and for structured debt instruments.

He said requiring credit rating agencies to make disclosures on past ratings would promote competitive assessments of the accuracy of past ratings.

"Healthy competition would use the available information to highlight and reward successful past performance and to punish chronically poor and unreliable ratings," he told reporters on the sidelines of the conference.

The SEC has been investigating whether issuers and underwriters of subprime mortgages unduly influenced credit-rating services.

The agency is charged with ensuring credit raters follow their stated procedures for managing conflicts of interest, as well as ensuring they make adequate disclosures.

Michael Macchiaroli, associate director of the SEC's division of trading and markets, said results from an agency review will be used to look at rules to determine whether the commission needs additional legislation.

The agency may have to do "even more than what the chairman stated," Macchiaroli said at the same conference.

Standard & Poor's is a unit of McGraw-Hill Cos Inc (MHP.N) Inc and Fitch is a unit of France's Fimalac SA (LBCP.PA).

Global stock markets lost $5.2 trillion in January: credit agency

NEW YORK (AFP) - Global stock markets were walloped with a collective loss of 5.2 trillion dollars in the month of January as investors scurried for cover in the face of economic uncertainty, a report showed Friday.

Standard & Poor's, a US credit rating agency that manages a number of global stock indexes, said 50 of the 52 main global equity markets lost ground in January.

Emerging markets fell an average of 12.44 percent and developed markets lost 7.83 percent to register one of the worst ever starts to a new year, S&P said as it released its global stock market review.

"There were few safe havens in January as 50 of the 52 global equity markets ended the month in negative territory, with 25 of them posting double- digit losses," said Howard Silverblatt, a senior analyst at S&P.

"High volatility, quick turnarounds in both the market and investor sentiment, and drastically lower stock prices prevailed throughout the month."

All 26 developed equity markets posted negative returns in January, with 16 losing at least 10 percent of their value.

The only markets to see gains were in Morocco (up 10.17 percent) and Jordan (up 3.11 percent).

Turkey was hit hardest during the month losing 22.70 percent followed by China (21.40 percent), Russia (16.12 percent) and India (16.00 percent).

The decline in the United States was comparatively mild at 6.07 percent, but German shares slumped 13.7 percent and French stocks lost 12.3 percent. British share prices gave back 8.8 percent in January and Japanese stocks lost 4.5 percent, according to S&P, which calculated the figures on a US dollar basis.

FTSE climbs on bargain hunting

The FTSE 100 closed higher on Friday after buyers emerged, eager to find bargains after some heavy losses over the week.

The FTSE 100 was up 59.9 points, or 1.1 per cent, to 5,784.0, having been earlier more than 80-points higher. The mid-cap FTSE 250 was up 0.4 per cent at 9,807.5.

Miners, which have lost in recent sessions on fears demand will be damped by a slowing economy, were back in the M&A spotlight.

Xstrata raised its cash offer for Resource Pacific, the Australian coal producer, by 12 per cent to A$3.20 a share, valuing the company at A$1.08bn.

However, the Switzerland-based miner remained a target itself after Brazil's state owned bank BNDES suggested any bid from local mining group Vale would face no domestic regulatory problems. Xstrata shares climbed 1.5 per cent to £38.76.

Meanwhile, reports that China's state-owned aluminium smelter Chinalco was seeking regulatory approval from Australia before increasing its stake in Rio Tinto, cast further doubt on the BHP Billiton (NYSE:BHP) bid.

BHP offered 3.4 of its shares for every Rio share this week, valuing Rio at around $147bn. The board at Rio Tinto rejected the offer. BHP shares were up 2.2 per cent to £15.01, while Rio climbed 2.1 per cent to £53.32.

Anglo American rose 3.5 per cent to £29.80 after De Beers said its contribution to Anglo's underlying earnings rose 5.6 per cent to $239m in 2007. Anglo holds a 45 per cent stake in the world's largest diamond producer.

Antofagasta rose 6.3 per cent to 721¾p and Kazakhmys climbed 5 per cent to £12.37.

Compass Group, the world's biggest contract caterer, gained 4.1 per cent to 326½p after first-quarter operating profit came in ahead of expectations. The company said it was offsetting food price inflation through cost cutting and higher pricing.

GlaxoSmithKline extended its losses following the drugmaker's profit warning on Thursday. The company highlighted the challenges it faced from manufacturers of cheap, generic drugs. The stock shed a further 0.7 per cent to £10.70.

Similar concerns across the pharmaceuticals sector drove AstraZeneca 1.6 per cent lower to £19.47, and Shire down 1.9 per cent to 937½p.

Biffa, the waste collection service, topped the FTSE 250 with an 12.7 per cent rise to 369½p after it agreed a £1.2bn offer from a consortium of private equity companies.

Montagu Funds, Global Infrastructure Partners and UCIL jointly offered 350p a share, Biffa added that a third party was conducting due dilligence and might put in a rival bid.

Premier Foods, however, was at the bottom of the pile on the mid-cap index - down 9.4 per cent to 108¾p - on concerns over the company's level of debt.

Darren Shirley and Clive Black at Shore Capital said the company was not in a comfortable cash position. "Premier does not have the rating to easily or attractively raise equity to deleverage its balance sheet, while we believe the debt and pension deficits are a deterrent to trade or private equity interest," the analysts added.

Recession fears weigh on US stocks

Wall Street stocks were mixed on Friday after Cognizant's upbeat earnings guidance provided a boost to the technology sector but as credit market and economic jitters continued to unsettle wary investors.

Less than an hour after the opening bell, the S&P 500 was flat at 1,337.17. The Dow Jones Industrial Average gave up 0.1 per cent to 12,236.52 but the tech-heavy Nasdaq Composite rose 0.8 per cent to 2,311.10.

Shares in Cognizant Technology Solutions soared 19.1 per cent to $32.50 after the technology outsourcing company issued a first quarter profit forecast that beat expectations and its full-year outlook pleased investors. Third quarter net income rose 39 per cent to $96.3m.

The upbeat guidance helped alleviate some of Wall Street's concerns about growth prospects in the technology sector. Cisco's weak third quarter sales outlook prompted traders to sell large-cap technology stocks on Thursday, but many of these rebounded on Friday. Hewlett Packard rose 1.5 per cent and Microsoft gained 1 per cent.

In telecoms, Alcatel (NYSE:ALA)-Lucent was in focus after it gave a cautious outlook for 2008 and cancelled its dividend. The French company posted a EU2.58bn ($3.74bn) fourth quarter net loss after taking a big impairment charge company. However, Alcatel also reported stronger-than-expected quarterly sales.

The troubled retail sector was also a high priority for investors after Tiffany, the luxury jeweller, said forecast 2008 earnings well above analysts' estimates. The shares gained 7.9 per cent to $41.20.

Consumer stocks drifted in early trade Thursday after Wal-Mart's January same-store sales disappointed analysts. However, retailers rallied during the session after JC Penney and Gap issued earnings guidance which reassured investors.

Index futures came under early pressure after a Fed official said a US recession could not be ruled out this year. San Francisco Federal Reserve president Janet Yellen said she was "not confident" a recession could be avoided. Although an extended spell of slow-growth was the most likely outcome, she said there were "still reasonable odds of recession".

Providing further evidence of a slowing US economy wholesale inventories rose 1.1 per cent in December, more than three times the increase forecast by economists, as sales fell sharply.

Unsold wholesale goods totalled $411.6bn, the Commerce Department said, while sales fell 0.7 per cent to a seasonally adjusted $376.65bn.

The major indices rallied on Thursday as traders finally called a halt to a three-day losing streak.

However, a decline of more than 4 per cent this week has left the S&P500 reeling near its January low.

"Part of making a [market] bottom is time. Even if the market doesn't make a new low it's going to go sideways for a while," Jim Moffett, lead portfolio manager at UMB Scout Fund International said.

One of the main factors driving market skittishness has been the uncertain fate of monoline insurers. Investors fear a possible downgrade of a key bond insurer could trigger big losses at US banks.

On Thursday, Moody's cut bond insurer Security Capital Assurance's triple-A rating, meaning $160bn of securities it guarantees will also face downgrades.

MBIA, a larger bond insurer, fell 0.4 per cent to $14.15 after it sold $1bn in shares at a 14 per cent discount to its $14.20 closing price to raise much needed capital.

The price of protecting European corporate debt against default rose to a record high on Friday amid rumours that a complex credit derivative, possibly a collateralized debt obligation, was being unwound in the market.

According to Standard & Poors the number of CDOs to have triggered "events of default" has now risen to 80 - worth around $97bn, an increase of $13bn in the past week. Rumours abound that more liquidations at firesale prices are expected.

Investors sold shares in financial companies on Friday. Citigroup fell 1.1 per cent to $26.40 and Morgan Stanley fell 1.9 per cent to $44.02.

Credit fears pushed bond prices higher early on Friday. The yield on the two-year Treasury note retreated 6bp to 1.99 per cent while the 10-year Treasury note yield was down 5bp at 3.71 per cent. Treasuries fell sharply on Thursday after a sale of 30-year bonds met a weak reception.

European stocks were little changed ahead of the open on Wall Street. The FTSE Eurofirst 300 index up 0.1 per cent, the FTSE 100 also rose 0.1 per cent while the Dax rose 0.4 per cent in Germany. Asian equity markets closed mainly lower, led by a 1.4 per cent fall on the Nikkei.

The dollar pared early losses rising 0.05 per cent against the euro to $1.4479 and 0.1 per cent against the pound to $1.9442. The dollar rose sharply against both currencies on Thursday after the Bank of England cut interest rates and ECB president Jean-Claude Trichet hinted the bank's tightening bias may be at an end.

Gold traded 0.6 per cent higher at $915.20 an ounce while WTI crude oil futures climbed 1.2 per cent to $89.17.

London shares rise

LONDON (AFP) - The FTSE 100 index of top companies rose 0.21 percent to 5,736.10 points in late morning deals.

The index won support from miners, which were rising thanks to firmer copper and platinum prices, dealers said.

Antofagasta jumped 3.38 percent to 703 pence and Anglo American gained 1.98 percent to 2,937 pence.

Recession fears set to peg back US stocks

Wall Street stocks were set for a lower start on Friday as fears of a recession and credit market jitters continued to unsettle wary investors.

Less than an hour before the opening bell, S&P 500 futures were down 10.2 points at 1,330 and were trading below a fair value of 1,337.79.

Nasdaq futures were down 11.5 points at 1,755.50, below fair value of 1,758.19. Meanwhile, futures for the Dow Jones Industrial Average gave up 83 points to 12.195.

Futures hit the skids after a Fed official said a US recession could not be ruled out this year. San Francisco Federal Reserve president Janet Yellen said she was "not confident" a recession could be avoided. Although an extended spell of slow-growth was the most likely outcome, she said there were "still reasonable odds of recession".

The major indices rallied on Thursday as traders finally called a halt to a three-day losing streak.

However, a decline of more than 4 per cent this week has left the S&P500 reeling near its January low.

"Part of making a [market] bottom is time. Even if the market doesn't make a new low it's going to go sideways for a while," Jim Moffett, lead portfolio manager at UMB Scout Fund International said.

One of the main factors driving market skittishness has been the uncertain fate of monoline insurers. Investors fear a possible downgrade of a key bond insurer could trigger big losses at US banks.

On Thursday, Moody's cut bond insurer Security Capital Assurance's triple-A rating, meaning $160bn of securities it guarantees will also face downgrades.

MBIA, a larger bond insurer, fell 8.5% in pre-market trading to $13 after it sold $1bn in shares at a 14 per cent discount to its $14.20 closing price to raise much needed capital.

The price of protecting European corporate debt against default rose to a record high on Friday amid rumours that a complex credit derivative, possibly a collateralized debt obligation, was being unwound in the market.

According to Standard & Poors the number of CDOs to have triggered "events of default" has now risen to 80 - worth around $97bn, an increase of $13bn in the past week. Rumours abound that more liquidations at firesale prices are expected.

Credit jitters pushed bond prices higher early on Friday. The yield on the two-year Treasury note retreated 6bp to 1.99 per cent while the 10-year Treasury note yield was down 5bp at 3.71 per cent. Treasuries fell sharply on Thursday after a sale of 30-year bonds met a weak reception.

In telecoms, Alcatel-Lucent was in focus after it gave a cautious outlook for 2008 and cancelled its dividend. The company posted a EU2.58bn ($3.74bn) fourth quarter net loss after taking a big impairment charge. However the shares were set to rise as the company reported stronger-than-expected quarterly sales.

The troubled retail sector was also a high priority for investors after Tiffany, the luxury jeweller, said forecast 2008 earnings well above analysts' estimates.

Consumer stocks drifted in early trade Thursday after Wal-Mart's January same-store sales disappointed analysts. However, retailers rallied during the session after JC Penney and Gap issued earnings guidance which reassured investors.

European stocks were little changed ahead of the open on Wall Street. The FTSE Eurofirst 300 index down 0.1 per cent, the FTSE 100 was flat while the Dax rose 0.2 per cent in Germany. Asian equity markets closed mainly lower, led by a 1.4 per cent fall on the Nikkei.

The dollar retreated early in New York. In overnight trade the US currency fell 0.2 per cent against the euro to $1.4516 and 0.3 per cent against the pound to $1.9483. The dollar had risen sharply against both currencies after the Bank of England cut interest rates and ECB president Jean-Claude Trichet hinted the bank's tightening bias may be at an end.

Gold traded 0.8 per cent higher at $917.20 an ounce while WTI crude oil futures climbed 0.5 per cent to $88.54.

Banks weigh on European stocks

European equity markets pared their morning gains on Friday, as banks weighed and US futures pointed to a weak start on Wall Street.

In mid morning trade, the FTSE Eurofirst 300 was up 0.1 per cent to 1,298.16, Frankfurt's Xetra Dax added 0.3 per cent to 6,754.41, the CAC 40 in Paris fell 0.1 per cent to 4,716.91 and London's FTSE 100 was flat at 5,723.5.

Sacyr Vallehermoso, the Spanish construction group, rose 4.8 per cent to EU20.47 on reports it was in talks to sell its 33.3 per cent stake in French rival Eiffage to a consortium of French insurers including Axa and CNP Assurances.

Shares in Eiffage were up 2 per cent to EU58.81 after reporting forecast-beating fourth-quarter sales.

CNP, meanwhile, fell 12.9 per cent to EU67.41 after missing expectations with its full-year sales. Shares in Axa edged 2.4 per cent lower to EU21.53.

Luxottica, the Italian designer eyewear group, was up 5.9 per cent to EU17.62 partially recovering from its losses on Thursday when its cautious outlook for 2008-9 disappointed investors.

Alcatel (NYSE:ALA)-Lucent bought some much-needed cheer to the technology sector after reporting stronger-than-expected fourth-quarter sales growth, which offset concerns about its 2008 outlook.

"Strong sales carried the quarter," said S&P Equity Research analyst Clara Van der Elst. "While we expect poor telecom equipment market conditions to continue in 2008, we believe Alcatel is on track to execute its merger and restructuring plans."

The French telecoms equipment group reported a net loss for the quarter, but this was largely due to a one-off writedown. The company also suspended its dividend payment, but the shares gained 2.2 per cent to EU4.22.

TeliaSonera, the Swedish telecoms group, fell 9.3 per cent to SKr51.25 after disappointing investors with the announcement it would rather use excess capital for investment opportunities than returning it to shareholders.

FTSE rally fades on credit fears

The FTSE's rally appeared to petering out by midday on Friday after US futures took a sharp turn lower.

The FTSE 100 was up4 points, or 0.1 per cent, to 5,728.6, having been earlier more than 80-points higher. The mid-cap FTSE 250 added 14 points, or 0.1 per cent to 9,777.8.

Concerns that there were more credit market shocks to come pushed the iTraxx Europe index of credit spreads to record wide levels, reflecting speculation of a large unwinding of structured positions.

GlaxoSmithKline extended its losses following the drugmaker's profit warning on Thursday. The company highlighted the challenges it faced from manufacturers of cheap, generic drugs. The stock shed a further 3.3 per cent to hit a three-year low of £10.42.

Similar concerns across the pharmaceuticals sector drove AstraZeneca 3 per cent lower to £19.20, and Shire down 1.5 per cent to 941p.

Miners, which have lost in recent sessions on fears demand will be damped by a slowing economy, were back in the M&A spotlight.

Xstrata raised its cash offer for Resource Pacific, the Australian coal producer, by 12 per cent to A$3.20 a share, valuing the company at A$1.08bn.

However, the Switzerland-based miner remained a target itself after Brazil's state owned bank BNDES suggested any bid from local mining group Vale would face no domestic regulatory problems. Xstrata shares climbed 0.5 per cent to £38.39.

Meanwhile, reports that China's state-owned aluminium smelter Chinalco was seeking regulatory approval from Australia before increasing its stake in Rio Tinto, cast further doubt on the BHP Billiton (NYSE:BHP) bid.

BHP offered 3.4 of its shares for every Rio share this week, valuing Rio at around $147bn. The board at Rio Tinto rejected the offer. BHP shares were down 0.3 per cent to £14.64, while Rio climbed 0.1 per cent to £52.31.

Anglo American rose 1.5 per cent to £29.23 after De Beers said its contribution to Anglo's underlying earnings rose 5.6 per cent to $239m in 2007. Anglo holds a 45 per cent stake in the world's largest diamond producer.

Antofagasta rose 3.6 per cent to 704½p and Kazakhmys climbed 4.4 per cent to £12.40.

Biffa, the waste collection service, topped the FTSE 250 with an 12.5 per cent rise to 369p after it agreed a £1.2bn offer from a consortium of private equity companies.

Montagu Funds, Global Infrastructure Partners and UCIL jointly offered 350p a share, Biffa added that a third party was conducting due dilligence and might put in a rival bid.

Premier Foods, however, was at the bottom of the pile on the mid-cap index - down 12.9 per cent to 104½p - on concerns over the company's level of debt.

Darren Shirley and Clive Black at Shore Capital said the company was not in a comfortable cash position. "Premier does not have the rating to easily or attractively raise equity to deleverage its balance sheet, while we believe the debt and pension deficits are a deterrent to trade or private equity interest," the analysts added.

Compass Group, the world's biggest contract caterer, gained 4.5 per cent to 328p after first-quarter operating profit came in ahead of expectations. The company said it was offsetting food price inflation through cost cutting and higher pricing.

FTSE gains as investors seek bargains

The FTSE rallied on Friday as buyers returned to the market seeking bargains after Thursday's 150-point fall.

A rally on Wall Street helped underpin gains and by mid morning the FTSE 100 climbed 45.5 points, or 0.8 per cent, to 5,769.3. The mid-cap FTSE 250 added 61.8 points, or 0.6 per cent to 9,824.4.

"Thursday's bout of selling is looking a little overdone and some buying up of keenly priced stock should lend a degree of support, and the positive finish on Wall Street last night also stands to add cheer," said Matt Buckland, trader at CMC Markets.

Miners, which have lost in recent sessions on fears demand will be damped by a slowing economy, were back in the M&A spotlight.

Xstrata raised its cash offer for Resource Pacific, the Australian coal producer, by 12 per cent to A$3.20 a share, valuing the company at A$1.08bn.

However, the Switzerland-based miner remained a target itself after Brazil's state owned bank BNDES suggested any bid from local mining group Vale would face no domestic regulatory problems. Xstrata shares climbed 1.3 per cent to £38.70.

Meanwhile, reports that China's state-owned aluminium smelter Chinalco was seeking regulatory approval from Australia before increasing its stake in Rio Tinto, cast further doubt on the BHP Billiton (NYSE:BHP) bid.

BHP offered 3.4 of its shares for every Rio share this week, valuing Rio at around $147bn. The board at Rio Tinto rejected the offer. BHP shares were up 0.6 per cent to £14.78, while Rio climbed 0.3 per cent to £52.40.

Anglo American rose 3.8 per cent to £29.88 after De Beers said its contribution to Anglo's underlying earnings rose 5.6 per cent to $239m in 2007. Anglo holds a 45 per cent stake in the world's largest diamond producer.

Biffa, the waste collection service, topped the FTSE 250 with an 11.8 per cent rise to 366½p after it agreed a £1.2bn offer from a consortium of private equity companies.

Montagu Funds, Global Infrastructure Partners and UCIL jointly offered 350p a share, Biffa added that a third party was conducting due dilligence and might put in a rival bid.

Premier Foods, however, was at the bottom of the pile on the mid-cap index - down 20 per cent to 97½p - on concerns over the company's level of debt.

Darren Shirley and Clive Black at Shore Capital said the company was not in a comfortable cash position. "Premier does not have the rating to easily or attractively raise equity to deleverage its balance sheet, while we believe the debt and pension deficits are a deterrent to trade or private equity interest," the analysts added.

Compass Group, the world's biggest contract caterer, gained 4.3 per cent to 327¼p after first-quarter operating profit came in ahead of expectations. The company said it was offsetting food price inflation through cost cutting and higher pricing.

GlaxoSmithKline extended its losses following the drugmaker's profit warning on Thursday. The company highlighted the challenges it faced from manufacturers of cheap, generic drugs. The stock shed a further 3.3 per cent to hit a three-year low of £10.42.

Alcatel-Lucent sees loss, uncertain 2008

PARIS - Telecommunication equipment titan Alcatel-Lucent sees global economic woes causing it uncertainty in 2008 after the newly merged company survived a choppy 2007, reporting a fourth-quarter loss Friday and scrapping its dividend for last year.

The Franco-American company had some good news, however: Sales rose, and it swung to an operating profit in the fourth quarter.

Analysts said the results were slightly better than expected and that the company's grim outlook reflects the difficult market overall.

Rivals Telefon AB LM Ericsson and Nokia Siemens Networks have already given downbeat forecasts for the market in 2008 amid falling orders. Shares in all three companies rose initially on Alcatel-Lucent's earnings report.

Alcatel-Lucent reported a net loss of $3.76 billion in the quarter ending Dec. 31 and $5.12 billion for the year, as it booked $3.71 billion in write-downs in the quarter related to the reduced value of assets inherited from Lucent Technologies Inc.

Revenue for the fourth quarter rose to $7.61 billion, up 18 percent from the same period in 2006 and above analysts' forecasts.

Operating profit amounted to $441 million, compared to a loss of about $4 million a year earlier. Operating profit excludes one-time items such as restructuring costs and asset sales, but is often used as a yardstick for a company's basic business activity.

The fourth quarter normally sees strong revenues for telecommunications equipment makers, and the latest figures were up — but from a disappointing total in the fourth quarter of 2006, during which Alcatel SA of Paris completed its acquisition of Lucent Technologies Inc. of Murray Hill, New Jersey.

Alcatel-Lucent suspended its dividend for 2007, citing uncertainty for this year.

"While the long-term prospects of our industry remain good, the macroeconomic environment has created uncertainty in our markets in the last few months," CEO Patricia Russo said in a statement.

The company predicted a first-quarter loss in 2008 because of a seasonal drop in revenue of 20 percent to 25 percent. Chief Financial Officer Hubert de Pesquidoux said he hoped the second quarter of 2008 would be better.

Alcatel-Lucent said it forecasts the global communications equipment and related services market in 2008 to be "flat to slightly up" at a constant euro-dollar exchange rate and "slightly down" at the current rate.

Russo seemed to be lowering investors' expectations for the second year of the combined operation after the company's bullish expectations for 2007. After a string of profit warnings last year, Russo faced down bouts of speculation that she or chairman Serge Tchuruk were under pressure to quit.

The company is also in the midst of a painful restructuring that foresees 12,500 job cuts. Alcatel-Lucent said it cut 6,700 jobs in 2007, for a total of 77,400.

Alcatel-Lucent is starting to show that underlying restructuring is working despite a tough market, and investors should see improving fundamentals this year and next, Exane BNP Paribas analyst Alexander Peterc said in a research note.

Analyst Richard Windsor of Nomura, however, said, "It looks to us like there is little or no delivery of savings to investors but rather to customers."

When it was conceived, the Alcatel-Lucent merger was designed to boost margins through cost and research and development savings, while improving the joint company's pricing power with telecom operators, its largest customers. But intense competition in the industry means many of the savings have been used on discounts passed on to customers.

Alcatel-Lucent's share price has plunged about 60 percent over the previous 12 months on the back of a string of profit warnings and concern over growth prospects for 2008.

Alcatel-Lucent shares closed up slightly at $6.03 in Paris after bobbing up and down earlier. Its U.S.-traded shares fell 25 cents, or 4 percent, to close at $6 in New York.

Weyerhaeuser swings to loss on housing

SEATTLE - Weyerhaeuser Co., one of the world's largest lumber and packaging producers, said Friday it swung to a fourth-quarter loss as the deteriorating U.S. housing market cut into demand for lumber.

Executives forecast another grim year ahead, prompting investors to send shares down $2.37, or 3.7 percent, to $62.34.

Federal Way, Wash.-based Weyerhaeuser reported a loss of $63 million, or 30 cents per share, after a profit of $507 million, or $2.12 per share, a year earlier.

Excluding write-downs from housing-related business, restructuring costs and other special items, Weyerhaeuser would have earned $90 million, or 42 cents per share, in the quarter.

Revenue fell 18 percent to $3.94 billion from $4.8 billion a year ago.

Analysts surveyed by Thomson Financial forecast a profit of 35 cents per share excluding items, but predicted higher revenue of $4.13 billion.

"Until the housing market recovers, our real estate, wood products and timberlands businesses will struggle," said Daniel Fulton, Weyerhaeuser's president, in a conference call.

Weyerhaeuser owns homebuilder operations in the greater Seattle area; Houston; Scottsdale, Ariz.; southern California; Las Vegas and suburban areas around Washington, D.C. It also invests in residential real estate development and sells forest land as home sites.

Real estate segment earnings sank 93 percent to $22 million in the fourth quarter as the U.S. housing market crumbled. Executives said even cities such as Houston and Seattle, which initially fared better than Southern California, Las Vegas and the Phoenix area, have begun to show signs of fatigue. Weyerhaeuser said it expects the division to post a loss in the current first quarter.

The wood products business widened its loss to $313 million, weighed down by facility closure charges and a 16 percent drop in single-family housing starts. Weyerhaeuser expects another loss in the first quarter, and warned of additional curtailments or mill closures.

Weyerhaeuser's timberlands unit, faced with sinking demand and some of the lowest prices in 25 years, earned 9 percent less, or $152 million. The company forecast even lower profit in the first quarter.

Cellulose fibers earnings rose 38 percent to $80 million in the quarter, helped by a weak U.S. dollar, but maintenance costs are expected to push down first-quarter results.

The containerboard, packaging and recycling unit, which Weyerhaeuser is considering selling, improved 39 percent to $99 million in the fourth quarter as prices increased, offsetting higher energy and materials costs. First-quarter earnings are expected to fall due to a seasonal drop in demand and higher fiber and energy costs.

Chief Executive Steven Rogel did not say whether the company is any closer to a sale of the division but said he was pleased with the options in front of the board.

"They are doing the very best that they can, given those types of market conditions," said Soleil Securities analyst Anna Torma.

Torma said she expects Weyerhaeuser's shift to a pure timber, wood products and real estate company, and away from paper and containerboard production, will improve the underlying business. Weyerhaeuser closed the sale of its fine paper business to Domtar Inc. in March 2007, in a stock exchange offer.

Torma said she expects the housing market to stabilize in the second half of the year.

For the full year, Weyerhaeuser's profit rose to $790 million, or $3.59 per share, from $453 million, or $1.84 per share a year ago. Revenue fell 13 percent to $16.3 billion from $18.7 billion in 2006.

TeliaSonera profit up, cuts 2,900 jobs

STOCKHOLM, Sweden - Nordic telecommunications operator TeliaSonera AB on Friday reported an 11 percent rise in its fourth-quarter net profit, but said it would slash 2,900 jobs, or 9.3 percent of its work force, to cut costs.

The Stockholm-based company said the job cuts will generate savings allowing it to invest more money in mobile and Internet services.

About two-thirds of the layoffs will be made in Sweden and about one-third in Finland, and will cost the company around 4 billion kronor ($618 million), it said. Two-thirds of the cuts will be made in 2008, and the rest in 2009.

"The planned efficiency measures are mandatory to allow us to continue investing in future growth at the same time as we defend leading positions in more mature markets and provide high-quality networks and services," said TeliaSonera Chief Executive Lars Nyberg.

The company expects the cuts to result in savings of about 5 billion kronor ($774 million) annually.

Separately, TeliaSonera said it had proposed paying about $573 million for the remaining stakes in two Latvian telecommunications businesses.

TeliaSonera posted a profit of 4.47 billion kronor ($691 million) for the October-December period, up from 4.03 billion kronor in the year-ago period. Sales rose to 24.9 billion kronor ($3.85 billion), compared with 23.19 billion kronor in the same quarter the previous year.

The result beat expectations of analysts, who had forecast a net profit of 4.22 billion kronor ($653 million) in the quarter on sales of 24.66 billion kronor ($3.82 billion).

For the full year, TeliaSonera recorded a net profit of 17.67 billion kronor ($2.77 billion), up from around 17 billion kronor a year earlier.

Despite the better-than-expected earnings, TeliaSonera shares plunged 10.6 percent to close at 50.50 kronor ($7.75) in Stockholm.

Kimmo Stenvall, an analyst at Oko Bank, said "sales growth was excellent in every single business area." But he noted that tighter margins in the Nordic and Baltic countries — offset by lower income taxes and contributions from some of the company's minority holdings — were a disappointment, pulling down the share price.

Marketing costs in the quarter were also higher than expected, he said, while the company's operations in Turkey and Russia "once again did excellent."

In its outlook for 2008, TeliaSonera said it expects net sales figures to show stable growth compared with 2007 and, excluding one-off items, its net income to be "somewhat higher than in 2007."

It added that 2008 capital expenditure "will be driven by continued investments in broadband and mobile capacity" and is expected to come to around 15 billion kronor ($2.32 billion).

In a separate statement, TeliaSonera said it had submitted a nonbinding indicative offer worth around 3.7 billion kronor ($573 million) to the Latvian government to buy the remaining stakes in Latvian Mobile Telephone Company and Lattelecom.

TeliaSonera currently holds a direct shareholding of 49 percent in Lattelecom and a direct and indirect shareholding of 60.3 percent in LMT.

The offer is subject to approval by TeliaSonera's board, it said, adding it has also asked the Latvian government to reply to its offer by Feb. 29.