Vonage cuts costs, narrows 4Q loss

NEW YORK - Vonage Holdings Corp., which provides phone service over broadband lines, reported a narrowed fourth-quarter loss Wednesday as it scaled back on marketing and cut other costs.

Keeping customers happy is turning out to be the company's biggest challenge: 3 percent of its customers canceled service every month, a figure chief executive Jeff Citron called "unacceptable."

The percentage of subscribers canceling, also known as churn, was up from 2.3 percent in the same period a year ago.

"Most of the churn is self-inflicted as a result of the poor user experience," Citron said in an interview. He said the company was focused on improving customer care, and hired a new head of that department last week.

Vonage's fourth-quarter loss totaled $11.1 million, or 7 cents per share. Excluding charges for litigation and severance payments, the loss was 6 cents per share. Analysts polled by Thomson Financial had predicted a loss of 10 cents per share.

In last year's fourth quarter, the company lost $117.1 million, or 76 cents per share.

Revenue rose 19 percent to $215.9 million from $181.5 million last year. Analysts were looking for $219.4 million in revenue.

Shares rose 11 cents, or 5.4 percent, to $2.14 Wednesday.

Vonage added 56,000 net subscriber lines during the quarter to end the year at nearly 2.6 million lines. Subscribers connect phones to their broadband Internet connections through an adapter and pay $25 a month for unlimited domestic calls.

On a conference call, Citron said the company hasn't seen any direct effect of the troubles in the economy, but expects that a recession could actually help the company, since cheaper phone service is its main selling point.

The Holmdel, N.J.-based company spent $63 million on marketing, up slightly from the third quarter but down 34 percent from a year ago. Vonage has been an aggressive advertiser online and on television, but has been trying to make its efforts more selective and effective, which appeared to be working in the fourth quarter: The marketing cost of acquiring one new subscriber line was $223, down from $306 a year ago.

Vonage also said it would restate its results for the second and third quarters of 2007. Stock compensation expenses were overstated by $14 million because of the departure of its chief executive and other personnel.

For all of 2007, Vonage lost $265 million, or $1.70 per share, down from a loss of $339 million, or $3.59 per share, in 2006. Revenue was $828 million, up 36 percent from $607 million.

During the year, Vonage cleared some big clouds hanging over it in the shape of patent lawsuits from old-line phone companies. It settled with Verizon Communications Inc., Sprint Nextel Corp. and AT&T Inc. and a smaller technology company, paying more than $200 million total.

Waste Management profit up on gains

HOUSTON - Waste Management Inc., the nation's largest garbage hauler, said Wednesday its fourth-quarter profit rose 26 percent on tax benefits and the sale of some operations, though higher fuel prices cut into income.

The company said earnings rose to $309 million, or 61 cents per share, in the three months ended Dec. 31 versus $246 million, or 46 cents per share, a year earlier.

Revenue increased to $3.36 billion from $3.28 billion in the year-ago period.

"The fourth quarter of 2007 was not without its challenges, including the impact of rising diesel fuel prices," said David Steiner, Waste Management's chief executive.

Still, Steiner added, "We ended the year on a strong note and are poised for additional earnings growth in 2008."

Excluding special items, profit for the October-December period was $276 million, or 54 cents per share. That still beat Wall Street expectations of 51 cents per share, according to Thomson Financial.

A lower tax rate in Canada and the divestiture of underperforming businesses boosted profits. That was partially offset by lower volumes, as the housing market slumped further, and by California labor disruptions.

Its shares rose 91 cents, or 2.8 percent, to $34.04. They've traded in a range of $27.57 to $41.19 in the past year.

Waste Management has spent recent quarters reviewing low-margin accounts and either raising prices for them or eliminating them altogether, a strategy largely applauded by analysts. The company has said its plan to price jobs better to improve margins has worked well.

Steiner said the company's 2.4 percent increase in quarterly revenue was due mainly to its "disciplined approach to pricing" and the strength of recycling commodity prices. Volume was off 3.8 percent, primarily in trash collection.

In a note to investors, Goldman Sachs called the results solid and said Waste Management has begun to see the benefits of its pricing initiatives.

"Even in an environment where volumes continue to drop off (partly from less housing construction), WMI is still able to generate strong earnings growth and, as importantly, solid cash flow that is aggressively being returned to shareholders," Goldman Sachs said.

Looking ahead, Waste Management forecast 2008 earnings will increase to a range of $2.19 to $2.23 a share. The current Wall Street estimate is for earnings of $2.21 a share.

The company said its capital expenditures are expected to be about $1.5 billion this year, up from $1.2 billion in 2007. Waste Management said it will invest this year in its truck fleet and on renewable energy power plants.

For all of 2007, Waste Management said net income was $1.16 billion, or $2.23 a share, compared with $1.15 billion, or $2.10 a share, a year earlier. Full-year sales were roughly flat at $13.3 billion.

MGIC swings to $1.5B loss in 4Q

MILWAUKEE - Mortgage insurer MGIC Investment Corp. said it's looking for ways to boost capital after announcing it lost almost $1.5 billion in the fourth quarter as more homeowners struggled to make payments.

The nation's largest mortgage insurer still doesn't see making money this year, if delinquencies and losses continue to rise and fewer homeowners get back on track with payments, chairman and chief executive Curt S. Culver said.

The news sent the Milwaukee-based company's shares down more than 11 percent Wednesday.

MGIC said it lost $1.47 billion, or $18.17 per share, in the three months ending Dec. 31, compared with a profit of $121.5 million or $1.47 per share in the same period a year ago.

The loss includes $1.2 billion the company set aside to create a reserve relating to future losses from Wall Street bulk business.

A survey by Thomson Financial indicates Wall Street analysts had expected the company to lose, on average, $6.77 per share. Those estimates typically exclude one-time items.

The company said it has hired an advisor to assist it in exploring alternatives for increasing its capital, though Culver said MGIC has enough money to pay claims.

MGIC has been limiting its exposure to weaker housing markets by demanding higher credit scores and larger down payments in harder-hit areas such as California and Florida.

The company acknowledged in a regulatory filing last week that such changes could mean fewer new policies written, but Culver told analysts on a conference call Wednesday the changes would protect MGIC's future.

"The business we'd lose from doing that is business better lost than insured by our company," Culver said.

MGIC said late last month that it could pay up to $2 billion in claims this year, up from previous estimates of up to $1.5 billion. It finished 2007 paying out $870 million in claims, up from $611 million in 2006.

Home buyers typically must get mortgage insurance when they put down less than 20 percent of their home's value. When they miss payments, the insurers pay lenders. If homes end up in foreclosure, both lenders and insurers lose money.

Stuart Plesser, an equity analyst with Standard & Poor's, said in a research note he felt the company had enough capital. He maintained his sell recommendation on the stock.

Revenues for the fourth quarter were $399.1 million, up 8.7 percent from $367.2 million in the last three months of 2006. The company increased its net premiums written for the quarter nearly 25 percent to $380.5 million, up from $367.1 million in the same quarter in 2006.

Its shares fell $1.57, or 11.1 percent, to $12.61 Wednesday. Its shares are near the lower end of their 52-week range of $10.40 to $67.41.

MGIC finished 2007 with a loss of $1.67 billion, or $20.54 a share. In 2006, MGIC earned $564.7 million, or $6.65 a share. For the year, revenues rose to $1.69 billion, from $1.47 billion in 2006. New insurance written was $76.8 billion, compared to $58.2 billion in 2006.

MGIC had $211.7 billion primary insurance in force at the end of 2007, compared with $176.5 billion the previous year.

MGIC has been changing its underwriting standards for months, and more changes will go into effect starting March 3. From then on, the company will require at least 5 percent down on homes and 10 percent on condos in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metro areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta.

Culver told analysts the changes will reduce losses but they won't get rid of them.

"We feel they are not enough to help us return to profitability in a market where real estate values are declining," he said.

Deere profit up on ag equipment demand

ST. LOUIS - Deere & Co. said Wednesday its first-quarter profit rose 55 percent, beating Wall Street's expectations as lofty crop prices stoked global demand for its farm equipment.

Sales for the world's largest maufacturer of agricultural machinery climbed 18 percent in the November-January period. Deere said its sales outside North America jumped 37 percent, quadruple the growth in the United States and Canada.

Deere is enjoying an export boom as the dollar's decline against the euro and other major currencies makes its products cheaper in most markets overseas. At the same time, Deere has benefited from higher farm prices around the world that have been fueled by increased ethanol production.

But its shares fell as it offered earnings guidance for the second quarter that was below what Wall Street expected. Its shares dropped 94 cents, or 1.1 percent, to $85.54 Wednesday.

The Moline, Ill.-based company said its profit for the quarter ended Jan. 31 rose to $369.1 million, or 83 cents per share, compared with $238.7 million, or 52 cents per share, during the same period the previous year.

Revenue during the quarter grew to $5.2 billion from $4.43 billion last year.

Analysts surveyed by Thomson Financial had expected earnings of 78 cents per share on sales of $5.07 billion. The earnings estimates typically exclude one-time items.

The company said it expects earnings of about $700 million to $725 million in the second quarter, short of Wall Street estimates of nearly $735 million.

Deere, which also makes construction and forestry equipment such as backhoes, excavators, riding mowers and leaf blowers, forecast earnings of $2.2 billion for the full year, up from $2.1 billion. Wall Street has forecast $2.19 billion for the year.

"The company remains in a prime position to benefit from powerful trends sweeping the world, such as growing affluence, increasing demand for food and infrastructure, and the rising use of biofuels," said Robert Lane, Deere's chairman and chief executive.

JPMorgan analyst Stephen Volkmann, in a research note, affirmed his rating of "overweight" on Deere's stock "based on our view that farm equipment fundamentals in the key (North American) market should remain favorable as higher commodity prices spur a new replacement cycle."

Calling Deere's latest quarter "solid," Volkmann didn't appear put off by the company's revised outlook, noting "that the company tends to be conservative with its guidance."

The company expects its equipment sales to rise about 23 percent for the second quarter and 17 percent for full-year 2008.

"With its recently expanded and revamped agriculture product line, Deere expects to continue to capitalize on the strong tail wind blowing across the global farm sector," Morningstar analyst John Kearney wrote in a research note.

Deere's equipment divisions reported operating profit of $457 million for the first quarter, up from $270 million a year ago. First-quarter profits of the company's financial services were $97.7 million, up $9.5 million due largely to growth in the credit portfolio, higher crop insurance income and a lower effective tax rate.

Deere's results came after fourth-quarter earnings announcements by its chief competitors, CNH Global NV and Agco Corp.

CNH last month reported fourth-quarter profit short of Wall Street expectations and issued 2008 guidance that disappointed investors. The Dutch company predicted a 10 percent to 15 percent increase in total equipment sales, but added that it expects North American sales of construction equipment to be down 5 percent to 10 percent as a result of the residential construction slump.

Agco announced last week it swung to a fourth-quarter profit, but the Georgia-based agricultural equipment distributor issued a 2008 outlook below average estimates, projecting a modest industry increase in global demand for farm equipment.

Coca-Cola profit rises as sales jump

ATLANTA - The Coca-Cola Co. reported Wednesday a 79 percent jump in fourth-quarter profit and maintained its growth targets despite a slowing U.S. economy, but has no plans to be more aggressive with its stock buybacks.

The results posted by the world's largest beverage maker beat Wall Street expectations, but company shares slipped.

The Atlanta-based company said it earned $1.21 billion, or 52 cents a share, for the three months ending Dec. 31, compared to a profit of $678 million, or 29 cents a share, a year earlier, when the company took a big impairment charge at its largest bottler.

Excluding one-time items, Coca-Cola said it earned $1.36 billion, or 58 cents a share, in the quarter, ahead of the 55 cents a share analysts surveyed by Thomson Financial were expecting.

Revenue in the quarter rose 24 percent to $7.33 billion, compared to $5.93 billion recorded a year earlier.

Looking ahead, Coca-Cola executives said the company is mindful of the slowing U.S. economy.

Chief Financial Officer Gary Fayard said the company is confident about its overall volume and growth targets. But, he said Coca-Cola only plans to buy back $1 billion to $2 billion in company stock in 2008, about the same amount as in 2007.

Fayard said the company wants to be conservative because of uncertainty in the credit markets.

Chief Executive Neville Isdell told analysts during a conference call that the fourth quarter was "a very positive finish to 2007" that "capped an excellent year for The Coca-Cola Co."

He said the company is doing well based on its growth goals.

"We realize the journey is long, and we are by no means declaring victory," Isdell said, adding that Coca-Cola will respond to future "opportunities and challenges."

Worldwide unit case volume was up 5 percent in the fourth quarter and 6 percent for all of 2007.

Growth in several international markets was strong in the fourth quarter. Unit case volume in Coca-Cola's Africa group increased 7 percent in the quarter. It increased 18 percent in the quarter in India and 10 percent in Latin America.

However, unit case volume in the company's key North America unit increased only 1 percent in the quarter. Unit case volume in the company's European Union group increased 2 percent in the quarter. That group's results for the fourth quarter were weighed down by a volume decline in Germany.

President and Chief Operating Officer Muhtar Kent said Coca-Cola remains committed to creating strong, consistent growth in its home market, though he acknowledged that "international operations continue to be the primary driver of growth for the company."

Kent has been named to succeed Isdell as CEO on July 1. Isdell remains as chairman until Coke's annual meeting in April 2009.

For all of 2007, Coca-Cola said it earned $5.98 billion, or $2.57 a share, compared to a profit of $5.08 billion, or $2.16 a share, for all of 2006. Full-year revenue rose 20 percent to $28.86 billion, compared to $24.09 billion recorded in 2006.

Coca-Cola completed its $4.1 billion purchase of Vitaminwater maker Glaceau last June. Kent said Wednesday that Glaceau will be moving beyond the U.S. market. "You will certainly see Glaceau in international markets in the very near future," Kent said.

Coca-Cola shares fell 53 cents to $59.39 in Wednesday trading.

Deere profit rises, but forecast disappoints

CHICAGO (Reuters) - Deere & Co (DE.N) said on Wednesday its fiscal first-quarter earnings rose a better-than-expected 55 percent, but shares fell as much as 3 percent after it issued a second-quarter forecast that fell short of expectations.

The company raised its full-year profit forecast, citing even stronger global demand for its tractors and combines as soaring crop prices boost demand for agricultural equipment across the globe.

But shares, which have risen nearly 70 percent over the past year, slipped in early trading. Deere said it expects a second quarter profit in the range of $700 to $725 million. That translates into a range of $1.60 to 1.65 a share and falls short of the $1.70 Wall Street consensus, according to David Bleustein, an analyst at UBS Investment Research.

Deere and rival farm equipment makers CNH Global NV (CNH.N) and Agco Corp (AG.N) are enjoying record demand for their products thanks to the surge in investment in biofuels as well as increased consumption in the developing world.

The two trends are lifting farm incomes, which are highly correlated with tractors and combine sales.

"Just when you think we're starting to get too aggressive, they raise it again," said John Kearney, an analyst at Morningstar, who has a 3-star rating on the stock and does not own any shares. "This market is just so strong it's hard to keep up."

On Tuesday, the United States Department of Agriculture predicted that 2008 would be another record year for producers, particularly of wheat, corn, soybeans and other related crops, thanks to continued strong demand from exports and biofuels.

The USDA reported that wheat stocks in particular are at the lowest levels in 60 years. That's sent prices soaring and is likely to spur additional investment by farmers who, according to Bear Stearns analyst Ann Duignan, like to "replace old equipment in 'the good times."'

In its most recent quarter, Deere, the world's largest maker of agricultural machinery, said earned $369.1 million, or 83 cents a share, compared with $238.7 million, or 52 cents a share, a year earlier.

Analysts, on average, expected the Moline, Illinois-based company to report a profit of 77 cents a share, according to Reuters Estimates.

The gains were driven by especially strong results overseas. Sales outside the United States and Canada rose 37 percent, helped, in part, by the weak U.S. dollar.

Deere's farm equipment sales rose 33 percent, while sales of construction and forestry equipment declined 6 percent, reflecting the woes of the U.S. housing market.

Those woes are expected to continue throughout 2008, despite the recent round of aggressive interest rate cuts by the U.S. Federal Reserve, the company said.

But the company said it expects 2008 global sales of forestry and construction equipment to be in line with 2007 as building activity outside the United States offset the slump here.

And even though construction and forestry sales slipped in the most recent quarter, margins improved. "That's definitely a good thing," said Morningstar's Kearney. "The incremental margins are pretty impressive."

Looking forward, Deere expects a full-year profit of $2.2 billion, up from an earlier forecast of $2.1 billion.

Shares were down $1.25, or about 1.5 percent, at $85.23 on the New York Stock Exchange.

Genzyme posts quarterly profit vs loss

BOSTON (Reuters) - Biotechnology company Genzyme Corp (GENZ.O) reported a fourth-quarter profit on Wednesday, reversing a year-earlier loss, as sales of its drugs for rare diseases increased.

The company posted net income of $78.9 million, or 29 cents a share, compared with a net loss of $268.2 million, or $1.02 a share, a year earlier.

Revenue jumped 21 percent to $1.04 billion, driven by strong sales of its newest drug, Myozyme, a treatment for the muscle disorder Pompe disease.

Earnings excluding acquisition-related charges and stock option compensation were 91 cents a share, a penny below analysts' average forecast, according to Reuters Estimates. Revenue topped the average forecast of $988.7 million.

Cambridge, Massachusetts-based Genzyme said increased operating expenses and decreased interest income associated with a fourth-quarter acquisition reduced its earnings by 1 cent a share.

The company stood by its 2008 earnings forecast of $4.00 a share before one-time items. It forecast net earnings of $2.75 a share and said it expects revenue of $4.5 billion to $4.7 billion.

It expects earnings to rise to about $7.00 a share by 2011 excluding one-time items.

NEW PLANT

Genzyme, one of the world's biggest biotech companies, is waiting for U.S. regulatory approval for an additional plant to supply Myozyme. The plant is already making the drug but has not yet received formal approval.

At present, Genzyme provides approved supplies of Myozyme to the most severely ill younger patients. Supplies from the additional plant are being provided to adult patients free of charge. Once the plant is approved, those adult patients will begin paying for the drug.

The plant is expected to be approved in May, meaning the commercial benefit to Genzyme would likely start showing up in the second half.

The company said the commercial impact of not being able to fully meet demand for the drug will be about 3 cents a share in the first quarter. It forecast first-quarter earnings, before one-time items, in the low 90 cents per share range.

Genzyme is also building additional manufacturing in Belgium which it expects to be up and running next year.

The company said it expects sales of Myozyme to increase to between $320 million and $330 million this year from $201 million last year.

Genzyme's shares were up 90 cents, or 1 percent, to $77.62 in morning trading on Nasdaq.

Playboy posts loss

NEW YORK (Reuters) - Adult entertainment publisher Playboy Enterprises Inc (PLA.N) posted a net loss on Wednesday that upset Wall Street expectations for a profit and forecast a 30 percent advertising decline at its flagship magazine this quarter.

Lower U.S. television revenue and a deeper loss for its publishing group particularly weighed on results, offsetting double-digit growth for its international TV and licensing businesses.

Playboy said its fourth-quarter net loss was $1.1 million, or 3 cents per share, compared with a net profit of $3.7 million, or 11 cent per share, a year earlier.

The latest results included a $1.9 million charge for asset sales related to Playboy's Andrita television studio and nearly $2.6 million in tax benefits. The year-ago quarter included a $1.8 million charge for a legal settlement.

Revenue slipped to $85.9 million from $86.2 million a year earlier, the company said.

Excluding the one-time items, Playboy posted a 9 cent loss per share, compared with the average analyst forecast for a profit of 5 cents per share, according to Reuters Estimates. Revenue was forecast at $88.2 million.

Playboy Chief Executive Christie Hefner said the company would invest more in technology, marketing and content to drive growth in its online and mobile businesses.

Playboy is also working out a deal to outsource its Web commerce and catalog operations to an experienced merchandising company.

Stocks end higher on upbeat sales data

NEW YORK - Wall Street moved sharply higher Wednesday after the Commerce Department reported an unexpected increase in retail sales last month and eased some concerns about consumers' willingness to spend despite economic uncertainty. The Dow Jones industrials rose nearly 180 points.

The 0.3 percent rise in January retail sales, which followed a drop during December, alleviated some of the market's worries that consumers were retrenching because of rising fuel prices, a faltering real estate sector and a choppy stock market. Analysts had expected a 0.3 percent decline in January sales.

However, another report from the department showed that U.S. business inventories grew a little more than expected in December. The data could be a sign of an involuntary buildup of unsold goods on store shelves amid the economic slowdown.

The inventories report was not enough to offset optimism during the session. Stocks have mostly risen in recent days as investors tried to determine whether Wall Street has reached a bottom after months of declines related to the housing and credit crisis, or whether further sluggishness in the economy will send stocks lower.

"So far this week there has been a positive bias, but I think what you're seeing is people taking a very cautious approach," said Scott Fullman, director of investment strategy at I.A. Englander & Co. "There is no great rush to jump in, and the preservation of capital is more important than growth at this moment."

He also said investors were encouraged by the government's latest plan to help homeowners falling behind on mortgage payments. U.S. Treasury Secretary Henry Paulson said Wednesday he believes the economy will remain on a growth path, and pledged "aggressive action" to help troubled homeowners.

The Dow rose 178.83, or 1.45 percent, to 12,552.24. The blue chip index finished at its highs of the session.

Broader indexes also moved higher. The Standard & Poor's 500 index added 18.35, or 1.36 percent, to 1,367.21, and the Nasdaq composite rose 53.89, or 2.32 percent, to 2,373.93.

Bond prices dipped, with the yield on the benchmark 10-year Treasury note, which moves opposite its price, at 3.73 percent from 3.66 percent on Tuesday.

The dollar was mixed against other major currencies.

Light, sweet crude oil rose 49 cents to settle at $93.27 on the New York Mercantile Exchange. The International Energy Agency cut its oil demand forecasts for this year due to the weakening U.S. economy.

Analysts said the market will likely be choppy as investors react to economic data through the next several weeks. Most important will be any reports that provides clues about the slumping housing market.

Michael Strauss, chief economist at CommonFund, said he'll be listening Thursday to see if Federal Reserve Chairman Ben Bernanke makes any projections about the housing market. Bernanke is scheduled to provide testimony before a Senate committee on banking and housing at 10 a.m. EST.

"I think Bernanke will be grilled more on housing, and one of the things he'll focus on is that the housing sector has had a much bigger impact on the economy than the Fed anticipated it would have," Strauss said. "The question is whether he dangles a carrot, and maybe even praises Congress, about the fiscal stimulus package."

President Bush on Wednesday signed a multibillion-dollar economic rescue package that means $300 to $1,200 rebates for many American households.

In corporate news, Coca-Cola Co. said its fourth-quarter earnings jumped 79 percent amid a 24 percent increase in revenue. The world's biggest beverage producer cited growth in its key soft-drink brands as well as in its water, sports drink and orange juice businesses. But Coke fell 53 cents to $59.39.

Applied Materials, the largest maker of semiconductor equipment, led technology stocks higher after it reported a surge in orders for machines that make flat screens. Shares of the company rose $1.84, or 10.2 percent, to $19.91.

Deere & Co. said fiscal first-quarter profit increased 54 percent as the heavy equipment maker posted strong international sales. However, shares fell 94 cents to $85.54.

Waste Management Inc. rose 91 cents to $34.04 after reporting its fourth-quarter earnings increased 26 percent. The nation's largest garbage hauler got a bounce from tax benefits and the sale of some operations. However, fuel prices ate into profits.

Also, the state oil company of Venezuela said it has halted sales of crude to Exxon Mobil Corp. in response to the U.S. company's drive to use the courts to seize billions of dollars in Venezuelan assets. The oil company rose $1.11 cents to $85.49.

The Russell 2000 index of smaller companies rose 16.45, or 2.33 percent, to 721.93.

Advancing issues led decliners by a 2 to 1 margin on the New York Stock Exchange, where consolidated volume came to 3.64 billion shares, down from 3.92 billion shares on Tuesday.

Overseas, Japan's Nikkei stock average closed up 0.16 percent. Britain's FTSE 100 fell 0.51 percent, Germany's DAX index rose 0.08 percent, and France's CAC-40 rose 0.30 percent.

Wall Street rises on US retail figures

Wall Street stocks advanced on Wednesday as US retail sales rose unexpectedly, providing some reassurance that consumers may continue to spend in spite of the gloomy outlook for the economy.

Solid earnings from Applied Materials (NASDAQ:AMAT) boosted sentiment in technology stocks, which were also buoyed by reports that Yahoo is exploring an alliance with News Corp.

Oil services companies were a source of market strength as crude oil prices rose above $93 a barrel. However, recently popular defensive sectors, including healthcare and consumer staples, lagged behind as investors became less risk averse.

The S&P 500 closed up 1.4 per cent at 1,367.20, the Dow Jones Industrial Average rose 1.5 per cent to 12,552.24 and the Nasdaq Composite surged 2.3 per cent to 2,373.93 as oversold, large-cap, tech stocks attracted buyers.

Equities rallied after retail sales increased 0.3 per cent in January versus a consensus forecast of a 0.3 per cent drop. Strong sales of new cars and petrol contributed to the unexpected uptick but, with these two factors stripped out, retail sales were flat. Furniture stores and building materials were among the sectors registering a decline in sales

In spite of these caveats, the retail data were mostly welcomed by Wall Street, which feared that US consumers would rein in spending as house prices slumped and the outlook for the employment market darkened. But some analysts were less sanguine: "Although headline retail sales were above expectations in January, the details are weaker," John Ryding economist at Bear Stearns, said, noting downward revisions in previous months and the narrow sector breadth of January's gains.

After an initial surge, retail stocks fell back to relatively modest gains. Among the best performers was Jones Apparel (NYSE:JNY), which climbed 11 per cent to $17.15 after its quarterly results beat Wall Street estimates.

President Bush on Wednesday signed a $168bn economic stimulus bill which is set to provide 130m Americans with tax rebates. Although Wall Street expects retailers to benefit from the package, Citi Investment Research said the spending boost would be thinly spread, with any spending increase concentrated on low-margin items at discount and food retailers.

In spite of the more positive mood on Wednesday, volatility remained high. Standard & Poors said that its benchmark index had risen or fallen more than 1 per cent on 17 out of 28 trading days in 2008, the third most volatile start to a year on record after 1932 and 1933.

Such volatility was also in evidence on Tuesday when billionaire investor Warren Buffett said he was willing to assume the liability for up to $800bn in municipal bonds guaranteed by monoline bond insurers facing possible credit downgrades. Analysts said the plan would do little to solve bond insurers' real problem - the heavy losses they took selling insurance on structured credit securities that have turned sour. Ambac Financial rose 5.3 per cent to $9.37 on Wednesday.

Mortgage insurers have also struggled amid soaring home delinquency rates. MGIC Investment (NYSE:MTG) lost $1.5bn in the fourth quarter. Its shares fell 11.1 per cent to $12.61 after the group said it had hired an adviser to explore options for raising capital. Radian Group (NYSE:RDN), a rival mortgage insurer, fell 10 per cent to $7.33. Meanwhile, Morgan Stanley (AMEX:MWD) rose 1.2 per cent to $43.23 after it said it would cut 1,000 jobs in its residential mortgage division.

Computer hardware and semiconductor shares were given a welcome boost after Applied Materials, up 10.2 per cent at $19.91, beat forecasts with its quarterly results. The semiconductor equipment maker noted strong demand for its flat-panel display products.

Apple chalked up some of the best gains on Wednesday, rising 3.6 per cent to $129.40 as Bespoke Investment Group said Apple was among the top five stocks trading furthest below its 50-day moving average.

As part of Yahoo's efforts to fend off an unsolicited takeover approach by Microsoft the search company is in talks with News Corp about combining some of their web properties, according to reports. News Corp owns MySpace, the social networking site. Yahoo rose 1.1 per cent to $29.88.

Coca-Cola said fourth-quarter profit jumped a better-than-expected 79 per cent to $1.21bn, but its stock slipped 0.9 cent to $59.39.

Market rises as retail sales soothe economy fears

NEW YORK (Reuters) - Stocks rallied for a third session on Wednesday after a surprise gain in January retail sales suggested consumer spending was holding up even as other data has pointed to a recession.

The technology sector surged after Applied Materials (AMAT.O), forecast strong orders for its chip-making equipment, sending the semiconductor index (.SOXX) up 3 percent.

Government data showing higher retail sales last month bucked economists' expectations for a decline. The report also took investors by surprise because it followed an anemic January jobs report and a shrinking services sector.

Consumer spending fuels 70 percent of U.S. economic activity.

Industrial companies, which are particularly dependent on economic growth, were among the top-weighted gainers on Wednesday. Diversified manufacturer 3M (MMM.N) rose 2.6 percent.

"So much attention is focused on recession anxiety, and anything that mutes those concerns is very positive for the stock market," said Eric Kuby, chief investment officer, North Star Investment Management Corp in Chicago. "It's giving more confidence in the economically sensitive stocks, the energy companies and the General Electrics of the world."

The Dow Jones industrial average (.DJI) was up 178.83 points, or 1.45 percent, at 12,552.24. The Standard & Poor's 500 Index (.SPX) was up 18.35 points, or 1.36 percent, at 1,367.21. The Nasdaq Composite Index (.IXIC) was up 53.89 points, or 2.32 percent, at 2,373.93.

Despite the sharp gains in the indexes, the trading volume suggested investors are still cautious. About 1.41 billion shares changed hands on the New York Stock Exchange, well below last year's estimated daily average of 1.9 billion. On Nasdaq, about 2.21 billion shares traded, above last year's daily average of 2.17 billion.

Shares of General Electric Co (GE.N) rose 1.8 percent to $34.98, while Chevron Corp (CVX.N) climbed 2 percent to $82.12.

The retail sales data, however, didn't help shares of online diamond jeweler Blue Nile (NILE.O), which gave a disappointing earnings outlook late on Tuesday. Blue Nile stock slumped 17.1 percent to $44.67.

Shares of Applied Materials rose 10.2 percent to $19.91.

Adding steam to the tech-sector rally were media reports that Rupert Murdoch's News Corp (NWSa.N) is in talks to combine MySpace and other Internet properties with Yahoo Inc (YHOO.O) to fend off a takeover bid from Microsoft Inc (MSFT.O) for the Internet media company.

Yahoo shares rose 1.1 percent to $29.88. Other big gainers on the Nasdaq were shares of Apple Inc (AAPL.O) , up 3.6 percent to $129.40, and Research in Motion Ltd (RIMM.O), maker of the BlackBerry, up 5.8 percent to $96.76.

In other corporate news, Genentech Inc's (DNA.N) shares rose 1.3 percent to $70.85 after it said that its cancer drug Avastin met a primary goal in a study for treating breast cancer.

Shares of alternative energy company First Solar Inc (FSLR.O) surged 30.13 percent to $228.46, after the maker of thin-film solar equipment posted a quarterly profit that eclipsed Wall Street's forecasts.

Profit-taking weighs on FTSE

Housebuilders were under pressure Wednesday following the publication of another gloomy industry survey.

Persimmon fell 2.6 per cent to 726p and Taylor Wimpey lost 2.7 per cent to 173.1p after the survey from the Royal Institution of Chartered Surveyors showed that the stock of unsold property on surveyors' books jumped more than 10 per cent in January.

Barratt Developments, which was removed from the FTSE 100 in December, drifted 1 per cent lower to 398p as traders worried about a looming refinancing.

Barratt needs to pay back £800m of debt it took on to fund the £2.1bn acquisition of Wilson Bowden in April.

One rumour Wednesday was that Barratt would look to do so through a rights issue.

But analysts dismissed this, pointing out that Barratt had an option to roll over the debt facility for a further 12 months and would probably do so even if it meant paying a higher level of interest.

They noted that Barratt was cutting back on land purchases, a move that would help reduce borrowings, which stood at £1.7bn at the end of December.

Barratt reports half-year results on February 27.

The FTSE 100 closed 29.9 points, or 0.5 per cent, lower at 5,880.1 as investors moved to lock in profits made during Tuesday's big rise. The FTSE 250 eased 44.1 points, or 0.4 per cent, to 9,996.1.

British Energy bucked the downward trend, climbing 9 per cent to 533p after third quarter results beat expectations by 10 per cent and the nuclear power company announced that it would pay an additional dividend of 14.5p a share.

British Energy also confirmed that reactors at Hartlepool and Heysham 1 were on course to return to service later this year.

Cadbury Schweppes (NYSE:CSG) improved 1 per cent to 593½p after JPMorgan said the share price did not reflect any take-out potential.

After the demerger of its US soft drinks business, Cadbury will be the only listed global confectionery company and, therefore, according to JPMorgan, a "unique consolidation opportunity".

Cadbury is expected to provide more detail on the spin-off of the fizzy drinks business when it reports results on Tuesday.

Man Group, the hedge fund manager, added 4 per cent to 579½p as traders reacted to Tuesday's late news that the value of its flagship AHL fund had risen 1 per cent last week, outperforming the FTSE 100, which fell 5.3 per cent.

In the banking sector, specialist mortgage lender Bradford & Bingley slumped 23.1 per cent at 187p after reporting disappointing full-year results and revealing £226m of one-off charges.

Citigroup, joint house broker, responded to the figures by lowering its estimate of B&B's tangible book value to 188p.

That unsettled the rest of the sector. Alliance & Leicester dropped 7 per cent to a seven-year low of 559p, while HBOS slipped 1.2 per cent to 665p and Royal Bank of Scotland dipped 1.3 per cent to 369¼p.

Barclays (NYSE:BCS), off 0.4 per cent at 453¾p, is the next bank to report annual results on Tuesday.

BT Group dipped 2 per cent to 226p as investors continued to worry about its pension fund.

BT's pension deficit could balloon to £4.6bn from £400m if it were required to report its retirement liabilities and assets under rules recently proposed by the Accounting Standards Board.

Xstrata fell a further 1 per cent to £37.80 as traders gave up on the idea of Vale of Brazil paying a large premium for the miner.

The talk was that a delegation from Vale was in London on Wednesday speaking to advisers about the level and structure of any formal offer for Xstrata.

Of mid caps, Punch Taverns remained in focus after QVT, the US hedge fund, increased its holding to 7.7 per cent.

QVT is believed to be against Punch's plan to buy rival Mitchells & Butlers.

Punch shares eased 0.9 per cent to 635½p while M&B fell 0.8 per cent to 451p.

Since Punch announced its interest in acquiring M&B, its shares have fallen 10 per cent. An indication that the deal is off could see Punch shares rally 4-5 per cent, according to traders.

Separately, HSBC declared a raised holding in M&B of 10.2 per cent, up from 6.1 per cent.

Overview: US retail sales inspire equities

A surprisingly resilient report on US retail sales drove Wall Street stocks higher on Wednesday, dragged credit spreads down from record wide levels and sent the dollar to its highest level against the yen for a month.

However, the initially positive response from the markets on Tuesday to billionaire investor Warren Buffett's offer to take over $800bn of municipal bonds guaranteed by ailing bond insurers, quickly faded.

Independent Strategy pointed out that if Mr Buffett took over the muni part of the bond insurers' business, the monolines, as they are known, would be left with just the toxic assets in structured finance, where their capital is being destroyed.

"Monolines are still facing huge losses on structured finance downgrades," Independent said, "and counterparty failure risk in the credit derivatives markets remains."

But equities got a boost from data showing that US retail sales rose by 0.3 per cent last month, against expectations for a 0.3 per cent decline. Core sales, which exclude cars, also increased by 0.3 per cent.

Paul Ashton, senior US economist at Capital Economics, said the figures supported the view that the US economy was basically stagnant rather than plummeting spectacularly into recession.

"Aside from autos and gasoline, sales have been particularly weak for two months now, but that reflects the temporary effect of the recent jump in energy prices as much as it does the effects of the housing downturn," he said. "With energy prices now stabilising, consumers will be facing one less headwind over the coming months."

However, others were more sceptical, particularly given that car sales rose by 0.6 per cent in January - a stark contrast to the 6.3 per cent drop in unit sales already reported by the vehicle manufacturers.

Rob Carnell, economist at ING Financial Markets, said: "There are too many other indicators pointing in the opposite direction for the rise in retail sales in January to be accepted at face value, and we would expect some of this month's discrepancy to be unwound in the February report."

But the response to the retail sales data from equity markets was positive. By midday in New York, the Dow Jones Industrial Average was up 0.8 per cent, the S&P 500 was 0.7 per cent higher and the Nasdaq Composite was up 1.3 per cent.

The pan-European FTSE Eurofirst 300 pared an early 1.3 per cent decline to end flat.

Asian stock markets achieved moderate gains, with the Nikkei 225 Average in Tokyo rising 0.4 per cent, Hong Kong 1.1 per cent and Mumbai 2.1 per cent.

Credit markets had another volatile session. The Markit iTraxx Crossover index of 50, mainly "junk-rated", credits - a widely-watched barometer of risk appetite - briefly widened to 575 basis points before narrowing to 543bp - down 9bp on the day.

The investment grade iTraxx Europe index widened above 110bp before easing back to 102bp - 1bp tighter on the day. It was the first session since February 1 that the index tightened over the day.

Government bonds were mixed following early falls after the US retail sales figures. The yield on the 10-year US Treasury was up 1bp at 3.67 per cent although the two-year yield was 3bp lower at 1.88 per cent. In Europe, the 10-year Bund yield rose 3bp to 3.95 per cent.

On the currency markets, the dollar rose to Y108.20 and also gained ground against the euro and the Swiss franc following the US data.

However, analysts cautioned that the rally was likely to run out of steam ahead of testimony by Federal Reserve Chairman Bernanke before the Senate banking Committee on Thursday.

Sterling got some support from a relatively hawkish quarterly inflation report from the Bank of England, which supported the view UK interest rates will be lowered at a moderate pace.

The Swedish krona gained ground after the Riksbank unexpectedly raised interest rates by a quarter point.

In commodities, oil prices rose after weekly US data showed a smaller than expected increase in crude inventories. March West Texas Intermediate was up 40 cents at $93.18 a barrel. Platinum maintained its record-breaking run, hitting a new peak of $1,970 an ounce, while gold held above the $900 an ounce level.

Retail figures lift Wall Street

Wall Street stocks advanced on Wednesday as US retail sales rose unexpectedly, providing some reassurance that consumers may continue to spend in spite of the gloomy outlook for the economy.

Solid earnings from Applied Materials (NASDAQ:AMAT) provided a boost to sentiment in technology stocks, raising expectations for growth prospects in the sector.

However, financials were sold as mortgage insurer MGIC Investment (NYSE:MTG) plunged to a $1.5bn fourth-quarter loss and amid concerns about the prospects at US brokers.

At midday, the S&P 500 was up 0.7 per cent at 1,358.15. The Nasdaq Composite rose 1.3 per cent to 2,350.90 and the Dow Jones Industrial Average put on 0.8 per cent to 12,466.65.

Equities rallied after retail sales increased 0.3 per cent in January versus a consensus forecast of a 0.3 per cent drop. Strong sales of new cars and petrol contributed to the unexpected uptick but, with these two factors stripped out, retail sales were flat. Furniture stores and building materials were among the sectors registering a decline in sales

In spite of these problems, the retail data were mostly welcomed by Wall Street, which feared that US consumers would rein in spending as house prices slumped and the outlook for the employment market darkened.

However, some analysts were less sanguine: "Although headline retail sales were above expectations in January, the details are weaker," John Ryding economist at Bear Stearns, said, noting downward revisions in previous months and the narrow sector breadth of January's gains.

After an initial surge, traders took the report as a cue to sell retail stocks, which have rebounded in recent weeks. Partially offsetting the retail news was a report showing a bigger-than-expected increase in business inventories in December as business sales declined the most in almost a year.

President Bush was on Wednesday due to sign a $152bn economic stimulus bill which is set to provide 130m Americans with tax rebates in order to provide a boost to consumer spending.

Although Wall Street expects retailers to benefit from the package, Citi Investment Research said the spending boost would be thinly spread, with any spending increase concentrated on low-margin items at discount and food retailers. In spite of the more positive mood on Wednesday, volatility remained elevated as an initial surge of more than 1 per cent on the S&P 500 faded somewhat during the morning.

Standard & Poors said that its benchmark index had risen or fallen more than 1 per cent on 17 of 28 trading days in 2008, the third most volatile start to a year on record after 1932 and 1933.

Such volatility was also in evidence on Tuesday when billionaire investor Warren Buffett said he was willing to assume the liability for up to $800bn in municipal bonds guaranteed by monoline bond insurers facing possible credit downgrades.

The S&P rallied but later cut gains in half as analysts said the plan would do little to solve bond insurers' real problem - the heavy losses they took selling insurance on structured credit securities which have turned sour. Ambac Financial rose 4 per cent to $9.26 on Wednesday.

Mortgage insurers have also struggled amid soaring home delinquency rates. MGIC Investment lost $1.5bn in the fourth quarter and said it did not foresee making a profit this year if home loan defaults continue to rise.

The company also said it had hired an adviser to explore options for increasing its capital. Radian Group (NYSE:RDN), a rival mortgage insurer, fell 12.2 per cent to $7.15.

Tech shares were given a boost after Applied Materials, up 7.3 per cent at $19.39, beat forecasts with its quarterly results. The semiconductor equipment maker noted strong demand for its flat-panel display products and a good performance from its new solar unit.

Apple chalked up solid gains on Wednesday, rising 2 per cent to $127.29 as Bespoke Investment Group said Apple was among the top five stocks trading furthest below its 50-day moving average, a potential buy signal for contrarian investors. The shares have fallen 36 per cent this year.

Coca-Cola said fourth-quarter profit jumped a better-than-expected 79 per cent to $1.21bn, helped by strong overseas sales and a favourable comparison, after it took a big impairment charge last year. The stock slipped 0.7 cent to $59.51.

Deere said fiscal first quarter earnings rose 55 per cent, as soaring global demand for food increased orders for its agricultural equipment. The results were better than analysts had forecast but the shares dropped 1.7 per cent to $84.99.

General Motors (NYSE:GM) fell 1 per cent to $26.10 after JP Morgan slashed its earnings estimates citing expected weakness in North American sales. "Despite GMs belief to the contrary, we think 2008 could push global auto profits weaker," the broker said.

FTSE hit by bank sector worries

London stocks ended lower on Wednesday as Bradford & Bingley kicked off the bank reporting season in worrying fashion.

The mortgage lender revealed £225.6m of impairment charges related to structured investment vehicles, CDOs and other one-off losses and admitted it had been "an eventful and difficult year for the banking sector" due to turmoil in the credit markets.

Pre-tax profits for 2007 were £126m, down from £245m.

Analysts said the B&B figures were worst than expected and pointed to a difficult few weeks for the sector. Other leading UK banks report over the next few weeks.

James Hamilton, analyst at Numis Securities, said B&B's exposure to the buy-to-let market meant it had been particularly badly hit.

"We believe that the write down of SIV and CDO assets is a sign of the start of the correction in the global property bubble. We expect there will be a time lag between the property market weakening and buy-to-let investors realising that they have a terrible investment and sell," he said.

Sandy Chen at Panmure Gordon added: "We expect further charges on B&B's structured credits as the credit environment deteriorates further. Put this together with a weaker margin outlook, expectations of lower lending volumes, rising bad debts, and the prospect of tighter capital adequacy requirements, and we see no reason to change our pessimistic outlook for future earnings growth."

B&B lost 23.1 per cent to 187p, Alliance & Leicester fell 7 per cent to 559p and Northern Rock shed 9.1 per cent to 95½p, although larger lenders such as HBOS made modest gains.

Down almost 100 points early in the session, the FTSE 100 clawed back some of its losses as Wall Street opened higher. The benchmark index closed 29.9 points, or 0.5 per cent lower at 5,880.1.

Hopes of aggressive cuts in UK interest rates were dealt a blow as the Bank of England's quarterly inflation report warned that inflation could rise above 3 per cent.

"The quarterly inflation report indicates that only limited further reductions in interest rates are likely," said Howard Archer at Global Insight.

House builders were also lower as the Royal Institute of Chartered Surveyors' January survey revealed falling numbers of surveyors reporting house price increases, while the number of new buyers fell for the 14th consecutive month and at a faster rate.

Persimmon fell 2.6 per cent to 726p, while Taylor Wimpey lost 2.7 per cent to 173p.

The mining sector was also weak as takeover target Rio Tinto reported a 1 per cent rise in full-year underlying earnings. The company was upbeat about 2008, saying demand and commodity prices would remain high and raised its full-year dividend by 31 per cent to $0.84 a share.

Rio dropped 1.4 per cent to £54.45, while Vedanta Resources lost 3.4 per cent to £19.54 and Lonmin fell 1.1 per cent to £32.65.

British Energy led the FTSE 100 risers, up 9 per cent to 533p, as the nuclear power group reported better than expected core earnings in its first nine months of the year. The company proposed an additional dividend of 14½p a share, which was also at the top end of expectations.

"British Energy is the clearest value opportunity in the sector," wrote analysts at Cazenove. "Upcoming newsflow should be positive with an announcement on new nuclear partnerships expected by the end of March."

European stocks endure more volatility

European equity markets ended largely higher on Wednesday, recovering from early losses thanks to a strong start on Wall Street.

At the close, the FTSE Eurofirst 300 was down 0.05 per cent to 1,333.49, Frankfurt's Xetra Dax rose 0.1 per cent to 6,973.67, the CAC 40 added 0.3 per cent to 4,855.40. London's FTSE 100 remained in the red, though, 0.5 per cent down at 5,880.1.

Wall Street was buoyed by stronger-than-expected retail sales numbers and the Dow Jones Industrial Average was up 0.7 per cent at the time of the European close.

"I don't think one should get too carried away by the retail number; most of the rise was from inflationary items. But the market clearly liked it, which tells me people are looking for reasons to buy," said Edmund Shing, European equities strategist at BNP Paribas.

ABB (NYSE:ABB), the Swiss engineering group, fell 5.1 per cent to EU26.04 after chief executive Fred Kindle announced "irreconcilable differences" with the board had forced his exit - a surprise move, given the company's turnaround from near bankruptcy under his stewardship.

Indeed, the company announced its much better-than-expected fourth quarter results a day early to try to soften the blow and announced also a SFr2.2bn share buyback.

"Fred Kindle is probably the most successful CEO in ABB's history and for him to resign during its most successful trading period will be a shock to the market," said Citigroup in a research note.

Peugeot gained 4.7 per cent to EU49.40 after the French carmaker reported an unexpectedly strong rise in full-year operating profit and raised its profit margin target for 2008 to 3.5 per cent.

Norwegian telecoms group Telenor (NASDAQ:TELN) fell 6.4 per cent to NKr102.25 after missing expectations with an 11.6 per cent fall in fourth-quarter core profit.

"The outlook for 2008 does not look encouraging," said Mattias Wellander at S&P Equity Research, given weaker than expected core earnings margins and targeted revenue growth of just 5 per cent. S&P downgraded its recommendation to "sell" from "buy".

But shares in Storebrand, the Norwegian insurer, enojyed a 7.5 per cent jump to NKr44.35 after reporting a rise in fourth quarter profits. The company said its new policy would be to by pay out more than 35 per cent of of after-tax profits in dividends.

German steelmaker ThyssenKrupp fell 3.5 per cent to EU33.79 after reporting a drop in its first-quarter profit that failed to better market estimates.

Bigger rival ArcelorMittal met expectations with its results, but its shares still suffered, down 3.6 per cent by mid-morning to EU47.39.

European stocks positive after strong Wall Street open

European stocks moved into positive territory on Wednesday afternoon after better-than-expected retail sales figures in the US lifted sentiment across the Atlantic.

By mid morning, the FTSE Eurofirst 300 was up 0.3 per cent to 1,337.67, Frankfurt's Xetra Dax fell 0.3 per cent to 6,988.50, the CAC 40 lost 0.6 per cent to 4,868.77. London's FTSE 100 remained in the red, though, 0.3 per cent down at 5,894.8.

ABB (NYSE:ABB), the Swiss engineering group, was the biggest faller on the Eurofirst after chief executive Fred Kindle announced "irreconcilable differences" with the board had forced his exit - a surprise move, given the company's turnaround from near bankruptcy under his stewardship.

Indeed, the company announced its much better-than-expected fourth quarter results a day early to try to soften the blow and announced also a SFr2.2bn share buyback. The shares, however, fell 7.4 per cent to SFr25.40.

"Fred Kindle is probably the most successful CEO in ABB's history and for him to resign during its most successful trading period will be a shock to the market," said Citigroup in a research note.

Peugeot gained 5.5 per cent to EU50.24 after the French carmaker reported an unexpectedly strong rise in full-year operating profit and raised its profit margin target for 2008 to 3.5 per cent.

Norwegian telecoms group Telenor (NASDAQ:TELN) fell 6.9 per cent to NKr101.75 after missing expectations with an 11.6 per cent fall in fourth-quarter core profit.

"The outlook for 2008 does not look encouraging," said Mattias Wellander at S&P Equity Research, given weaker than expected core earnings margins and targeted revenue growth of just 5 per cent. S&P downgraded its recommendation to "sell" from "buy".

But shares in Storebrand, the Norwegian insurer, enojyed a 9.1 per cent jump after reporting a rise in fourth quarter profits. Its shares climbed to NKr45 after the company said its new policy would be to by pay out more than 35 per cent of of after-tax profits in dividends.

German steelmaker ThyssenKrupp fell 3.4 per cent to EU33.80 after reporting a drop in its first-quarter profit that failed to better market estimates.

Bigger rival ArcelorMittal met expectations with its results, but its shares still suffered, down 3.3 per cent by mid-morning to EU47.60.

Pentagon chief fractures shoulder after ice slip

WASHINGTON (Reuters) - Defense Secretary Robert Gates fractured his right shoulder after slipping on ice in front of his Washington, D.C., home on Tuesday evening, the Pentagon said on Wednesday.

He received medical care on Wednesday morning at the National Naval Medical Center in Bethesda, Maryland, not Walter Reed Army Medical Center, as the Defense Department earlier said.

Gates, 64, returned to work at the Pentagon on Wednesday afternoon with his right arm in a sling. He writes with his left hand.

"Fortunately, it does not appear as though his injury will require surgery. It should heal on its own," said Pentagon press secretary Geoff Morrell.

The Washington, D.C., area has been hit by icy weather over the last two days.

Retail figures set to lift Wall Street

Wall Street stocks were set for a higher start on Wednesday as US retail sales grew unexpectedly last month, raising the hope that US consumers would continue to spend in spite of the gloomy outlook for the economy.

Less than an hour before the opening bell, S&P 500 futures were up 11.2 points at 1,361, Nasdaq futures were up 18.8 points at 1,808.8 and futures for the Dow Jones Industrial Average were up 65 points at 12,451.

Retail and food sales increased 0.3 per cent in January versus a consensus forecast of a decline of 0.3 per cent, as strong sales of news cars and gasoline contributed to an unexpected uptick.

Excluding autos, sales still managed a 0.3 per cent increase, but excluding cars and gasoline, retail sales were flat.

Auto sales rose 0.6 per cent, the most since September, while gas stations increased sales by 2 per cent. However, furniture stores, building materials and garden suppliers all registered declines.

The more upbeat retail news will be warmly welcomed by Wall Street analysts who feared that US consumers were beginning to rein in spending as house prices have slumped and the outlook for employment has darkened.

After the Commerce Department data were released, stock futures extended early gains, the dollar rallied and bond yields rose.

In spite of the more positive mood on Wednesday, traders were expecting the near-unprecedented volatility to continue. Standard & Poors said that the S&P 500 had risen or fallen more than 1 per cent on 17 of 28 trading days in 2008. This ranks as the third most volatile start to the year on record after 1932 and 1933.

Such volatility was in evidence on Tuesday when billionaire investor Warren Buffett said he was willing to assume the liability for up to $800bn in municipal bonds currently guaranteed by monoline bond insurers facing possible credit downgrades.

The S&P rallied as much as 1.7 per cent but later cut these gains in half as analysts said the plan would do little to solve bond insurers' real problem - the heavy losses they took selling insurance on structured credit securities which have turned sour.

Wall Street fears that a downgrade could lead to heavy losses for US banks and a possible firesale of credit assets.

In earnings news Coca-Cola (NYSE:KO) said fourth quarter profit jumped a better-than-expected 79 per cent to $1.21bn, helped by a 24 per cent rise in revenues. The drinks company recorded strong overseas growth and the results were aided by a favourable comparison, after taking a big impairment charge last year. The stock gained 1.1 per cent to $60.60 in pre-market activity.

Shares in Applied Materials (NASDAQ:AMAT) jumped 6.2 per cent to $19.20 pre-market trading after analysts were pleased with the chipmaker's quarterly results. Net income declined to $262.4m from $403.5m and revenues fell 8 per cent, hurt by a fall in semiconductor equipment manufacturing.

Deere said fiscal first quarter earnings rose 55 per cent, as soaring global demand for food increased orders for its agricultural equipment. The results were better than analysts had forecast but the shares dropped 1.8 per cent in the pre-market.

European stocks reversed earlier losses after the retail data. The FTSE Eurofirst 300 index rose 0.1 per cent and the FTSE 100 was down only 0.4 peer cent having earlier shed 1.2 per cent. Asian equity markets were mixed with the Hang Seng closing up 1.1 per cent as the Shanghai Composite fell 2.4 per cent

Bond prices gave up ground as risk aversion waned. The yield on the two-year Treasury note was up 2bp at 1.94 per cent while the 10-year Treasury note yield put on 5bp to 3.71 per cent,

Meanwhile, the dollar pared early losses against major currencies. The dollar rose 0.1 per cent against the euro to $1.4571 from $1.4584 before the retail sales figures. Against the pound the US currency was down 0.1 per cent at $1.9613.

Gold was trading down 0.8 per cent at $903.90 and crude oil prices were little changed at $92.70.

European shares drop as dealers take profits

LONDON (AFP) - European stock markets fell on Wednesday on profit-taking after bumper gains made the previous day, and as investors tracked a fresh batch of earnings news, dealers said.

Frankfurt, London and Paris had surged by almost 3.5 percent in value on Tuesday after billionaire investor Warren Buffett offered to help US bond insurers hit by a credit squeeze.

"Yesterday was a very strong day and we are simply seeing some investors cashing in this morning, which is an indicator of just how nervous the market still is," one Frankfurt-based trader said.

In recent weeks, global equities have weathered heavy losses largely because of US economic concerns that revolved around the country's subprime housing crisis and the related worldwide squeeze on credit.

In late morning deals on Wednesday, London's FTSE 100 index of top companies sank by 1.51 percent to 5,820.50 points.

Frankfurt's DAX 30 shed 1.27 percent to 6,879.26 points and the Paris CAC 40 lost 0.74 percent to 4,804.83.

The DJ Euro Stoxx 50 index of leading eurozone shares erased 1.12 percent to stand at 3,761.32 points.

The European single currency stood at 1.4556 dollars.

Wall Street ended mixed Tuesday after news of Buffett's offer to help stricken bond insurers exposed to US home loan troubles.

Japanese stocks also turned in a mixed performance Wednesday ahead of economic data that should shed fresh light on the fallout from the subprime loan crisis, dealers said.

An early Tokyo rally largely fizzled out as investors turned cautious ahead of US retail sales data due out later Wednesday.

In Europe, the metals and mining sector forged lower.

ArcelorMittal, the world's largest steel company, reported Wednesday a 30-percent jump in annual net profit to 10.36 billion dollars (7.5 billion euros) in 2007.

However, ArcelorMittal's share price dived 2.97 percent lower to 47.69 euros in Paris.

Elsewhere, German steel group ThyssenKrupp posted lower first-quarter results for its 2007-2008 fiscal year owing to reduced global prices and demand.

Thyssenkrupp's share price tumbled by 3.09 percent to 33.92 euros in Frankfurt.

Across the Atlantic on Tuesday, the US Dow Jones Industrial Average closed up a strong 1.09 percent at 12,373.41.

The Nasdaq composite ended down a fractional 0.02 points at 2,320.04 while the broad-market Standard & Poor's 500 index advanced 0.73 percent to 1,348.86 points.

Wall Street was aided by news that Warren Buffett was ready to take over three top US bond insurance companies.

These companies, which insured subprime-backed instruments, have run into trouble like the banks as US home loan defaults have mounted, prompting concerns they could fail and cause further massive losses.

In Tokyo on Wednesday, the Tokyo Stock Exchange's benchmark Nikkei-225 index gained 46.34 points to 13,068.30. The broader Topix index of all first-section shares slipped 0.75 points or 0.06 percent to 1,285.35.

Hong Kong's key Hang Seng Index closed up 1.10 percent at 23,169.55 points.

European stocks pare early losses

European stocks pared earlier sharp losses on Wednesday as recently sold-down financial stocks continued to find favour partially offsetting losses for oil companies.

By mid morning, the FTSE Eurofirst 300 was down 0.4 per cent to 1,328.76, Frankfurt's Xetra Dax fell 0.6 per cent to 6,928.47, the CAC 40 lost 0.4 per cent to 4,820.14 and London's FTSE 100 shed 0.8 per cent to 5,863.6.

ABB (NYSE:ABB), the Swiss engineering group, was the biggest faller on the Eurofirst after chief executive Fred Kindle announced "irreconcilable differences" with the board had forced his exit - a surprise move, given the company's turnaround from near bankruptcy under his stewardship.

Indeed, the company announced its much better-than-expected fourth quarter results a day early to try to soften the blow and announced also a SFr2.2bn share buyback. The shares, however, fell 9.7 per cent to SFr24.78.

"Fred Kindle is probably the most successful CEO in ABB's history and for him to resign during its most successful trading period will be a shock to the market," said Citigroup in a research note.

Peugeot gained 5.2 per cent to EU50.10 after the French carmaker reported an unexpectedly strong rise in full-year operating profit and raised its profit margin target for 2008 to 3.5 per cent.

Norwegian telecoms group Telenor (NASDAQ:TELN) fell 4.8 per cent to NKr104 after missing expectations with an 11.6 per cent fall in fourth-quarter core profit.

"The outlook for 2008 does not look encouraging," said Mattias Wellander at S&P Equity Research, given weaker than expected core earnings margins and targeted revenue growth of just 5 per cent. S&P downgraded its recommendation to "sell" from "buy".

But shares in Storebrand, the Norwegian insurer, enojyed an almost 10 per cent jump after reporting a rise in fourth quarter profits. Its shares climbed to NKr45.10 after the company said it s new policy would be to by pay out more than 35 per cent of of after-tax profits in dividends.

German steelmaker ThyssenKrupp fell 3.9 per cent to EU33.65 after reporting a drop in its first-quarter profit that failed to better market estimates.

Bigger rival ArcelorMittal met expectations with its results, but its shares still suffered, down 4.8 per cent by mid-morning to EU46.82.

Bond insurer woes could become market tsunami: Spitzer

WASHINGTON (Reuters) - The bond insurer problem must be fixed, or else it could become a "financial tsunami" that wreaks havoc on the broader economy, New York Governor Eliot Spitzer is due to tell the U.S. Congress on Thursday.

A copy of Spitzer's prepared testimony was obtained by Reuters on Wednesday.

New York State Insurance Superintendent Eric Dinallo is working with banks on rescue plans for several bond insurers, which guarantee more than $2.4 trillion of debt and are expected to suffer big losses from insuring bonds linked to subprime mortgages and other risk assets.

Those losses threaten the top credit ratings that insurers need to win new business. If insurers are downgraded by ratings agencies, investors that can only hold top-rated bonds may have to sell billions of dollars of securities, lifting borrowing costs for cities and consumers alike.

About two-thirds of bond insurers' business is guaranteeing municipal debt, and one-third is insuring repackaged consumer debt.

Higher borrowing costs and general credit market difficulties "could be a financial tsunami that causes substantial damage throughout our economy," Spitzer said in the testimony prepared for delivery to a House of Representatives Financial Services subcommittee at 11:30 a.m. (1630 GMT) on Thursday.

Spitzer's comments echoed recent remarks from Deutsche Bank Chief Executive Josef Ackermann, who said that bond insurer downgrades could send shockwaves through financial markets.

Regulators hope to help bond insurers keep their top credit ratings, but are also looking at protecting only the insurers' municipal bond insurance segments, Spitzer said.

"We have been clear from the beginning that municipal investors cannot be allowed to suffer from problems caused by another sector of the market," he said.

Asian stocks rise as economic fears ease

Asian shares rose on Thursday after Japan's economy grew by more than expected and US retail sales saw a surprise increase, easing fears about a global slowdown.

Japan, Hong Kong and Taiwan all gained by more than 3 per cent during their morning sessions, and the MSCI Asia Pacific index was 2.6 per cent higher by late morning in Tokyo. In India, the Sensex was 3.3 per cent higher in the first few minutes of trade at 17,504.

Chipmakers were some of the biggest risers, as the outlook for exports improved. Samsung Electronics gained 2.8 per cent to Won590,000 and Taiwan Semiconductor Manufacturing (NYSE:TSM) rose by 2.3 per cent to T$61.30.

Platinum hit a lifetime high of $2,000 a troy ounce on persistent worries about production difficulties in South Africa, the world's largest producer of the precious metal. Palladium prices stayed close to six year highs at $438.00 an ounce.

The Nikkei 225 average made its biggest gain so far this month. It was 3.5 per cent higher early in the afternoon session at 13,523.99 and the broader Topix was up by 3.2 per cent at 1,326.73.

Optimism was boosted by figures showing Japan's economy expanded by 3.7 per cent in the last quarter, more than double many predictions, thanks to a jump in exports to the rest of Asia and to emerging markets.

The data suggested that Japan may be more resilient to any US recession than previously thought. Nevertheless, the mood had already been lightened by data overnight that showed US retail sales grew by 0.3 per cent in January, compared to a 0.4 per cent fall in December.

The yen stayed close to its weakest level for a month at Y108.18 per dollar.

Big Japanese exporters rose sharply. Nintendo, the games maker, jumped by 5.7 per cent to Y50,800 and Canon (NYSE:CAJ), the consumer electronics and office equipment manufactuer, gained 4.0 per cent to Y4,710. Carmakers also saw their shares rise Honda Motor (NYSE:HMC) rose by 5.1 per cent to Y3,290 and Nissan (NASDAQ:NSANY) was up by 4.7 per cent to Y966.

Hong Kong shares gained across the board. The Hang Seng index was 3.4 per cent higher at the lunchtime break at 23,966.40

Mainland mobile telecom companies gained on news that regulators would loosen caps on long-distance calls from cellphones from March. China Mobile rose by 3.5 per cent to HK$120.00 and China Unicom (NYSE:CHU) gained by 2.3 per cent to HK$18.50.

In Australia, miners and financial stocks accounted for three-quarters of the 2.6 per cent rise in the S&P/ASX index to 5,685.8 by mid afternoon in Sydney. The market was helped by buoyant commodity prices. BHP Billiton (NYSE:BHP), the world's biggest miner, rose by 3.4 per cent to A$38.61 and its takeover target Rio Tinto continued to rally on Wednesday's profit figures, gaining 2.9 per cent to A$132.29.

Commonwealth Bank of Australia rose by 2.3 per cent to A$47.24 and the investment bank Macquarie was up by 2.6 per cent to A$58.35. Macquarie Fortress Investments, a fund managed by an entity controlled by Macquarie, rose by 9.1 per cent to A$0.06.

Singapore shares managed to shrug off a revision to government figures that showed the economy contracted by more than first thought in the last quarter of 2007. The Straits Times index was 2.8 per cent higher at 3,030 by lunchtime in Singapore.

In South Korea, Kospi was 2.9 per cent higher early in the afternoon session in Seoul at 1,678.88.

Paulson says U.S. economy should dodge recession

WASHINGTON (Reuters) - The United States is experiencing a "significant" housing market downturn but the economy is fundamentally sound and should avoid recession, Treasury Secretary Henry Paulson will tell Congress on Thursday.

"The U.S. economy is fundamentally strong, diverse and resilient, yet after years of unsustainable home price appreciation, our economy is undergoing a significant and necessary housing correction," Paulson said in remarks prepared for delivery at a congressional hearing, obtained by Reuters on Wednesday.

"The housing correction, high energy prices, and capital market turmoil are weighing on current economic growth," he said. "I believe that our economy will continue to grow, although its pace in coming quarters will be slower than what we have seen in recent years."

Paulson is set to testify alongside Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox at a Senate Banking Committee hearing on the U.S. economy and financial markets at 10 a.m. on Thursday.

In his testimony, Paulson repeats a call for Congress to pass legislation to enable the Federal Housing Administration to play a larger role in helping distressed U.S. homeowners refinance mortgages and a separate bill to allow states to issue tax-exempt bonds to cover refinancing.

"All of these initiatives may help mitigate the housing headwinds, and we remain open to other good ideas as we move forward," Paulson said.

He said legislation signed by President George W. Bush on Wednesday that will provide tax rebates to more than 130 million Americans would "assist our economy quickly."

The U.S. mortgage industry had assisted 869,000 U.S. homeowners in the second half of last year and that progress was accelerating, Paulson said.

He said his focus was on ensuring that a Treasury-brokered plan to fast-track loan modification and freeze rates for some borrowers was adopted industry wide and that he was pushing the industry to develop ways to timely evaluate progress.

Paulson also said the U.S. Treasury was continuing to monitor financial markets closely.

"While we are in a difficult transition period as markets reassess and re-price risk, I have confidence in our markets. They have recovered from stressful periods in the past, and they will do so again."

IBD's Top 10 - Wednesday

Nasdaq Confirms Rally Attempt

1 The tech-heavy index rose 2.3% on slightly higher volume, qualifying as a follow-through day. Helping were surprising retail sales data and results from First Solar and chip-gear giant Applied Materials. The Dow and S&P 500 both rose 1.4% on somewhat lower volume. The 10-year Treasury yield rose 6 basis points to 3.73%.

Retail Sales Unexpectedly Climb

2 Sales rose 0.3% -- defying forecasts for a 0.3% fall -- in a report that showed the pace of consumer spending continuing to cool but not signaling a recession. Auto sales rose, odd because automakers posted weak Jan. sales. Gas station sales rose, but gas prices seemed to slide in Jan. Furniture and electronics sales fell hard again, perhaps reflecting housing woes.

Obama Sweeps; Clinton Aide Out

3 Dem presidential candidate Barack Obama took his campaign to Wisconsin after soundly defeating Hillary Clinton in primaries in Va., Md. and D.C. He touted a $210 bil spending plan to boost "green" jobs. After Clinton's latest losses, another top campaign aide quit. GOP front-runner John McCain and Republicans are shifting their focus to take on Obama.

Yahoo, News Corp. Mull Deal

4 The ailing Net icon is talking to the media conglomerate (NYSE:NWS - News) about an alliance, according to several published reports. Yahoo (NasdaqGS:YHOO - News) likely wants to fend off Microsoft's (NasdaqGS:MSFT - News) takeover bid or force it to raise its offer. News Corp. reportedly wants to fold its social networking site MySpace and other Web assets into Yahoo in exchange for a big Yahoo stake. News Corp. fell 0.5%; Yahoo rose 1%.

First Solar Shines On Q4, Outlook

5 The maker of thin-film solar modules said Q4 profit jumped 542% to 77 cents a share, blowing past views by 24 cents. Sales jumped 281% to $201 mil, also above views. First Solar (NasdaqGS:FSLR - News) cited manufacturing costs per watt fell by 12%. It also raised its '08 sales outlook to $900 mil-$950 mil, well above views of $820 mil. First Solar shares surged 30%, with rivals also soaring.

Baidu Profit Doubles, Tops View

6 The Chinese search giant's Q4 EPS more than doubled to 92 cents ex items, beating views by 20 cents. Revenue rose 110.5% to $78.3 mil, over views. Baidu (NasdaqGS:BIDU - News) said it added over 155,000 active online marketing customers. It sees Q1 revenue of $73.1 mil-$75.1 mil, below views. But shares rose 6% after hours after climbing 6% ahead of results.

HMOs Fall On N.Y. Fraud Probe

7 UnitedHealth (NYSE:UNH - News) fell 3% to 46.97 after N.Y. Att'y Gen'l Andrew Cuomo said he'll sue UnitedHealth for allegedly taking part in a scheme to defraud consumers by manipulating reimbursement rates. The inquiry centers on UnitedHealth's Ingenix unit. Subpoenas were also issued to rivals Aetna (NYSE:AET - News), Cigna (NYSE:CI - News) and Wellpoint (NYSE:WLP - News). Shares of all fell.

Deere EPS Up, But Outlook Soft

8 The farm machinery giant's Q1 EPS rose 60% to 83 cents a share, beating views by a nickel. Sales grew 18% to $5.2bil, above views. High crop prices boosted demand for agricultural equipment. Sales outside North America jumped 37%. But a weak U.S. economy and housing recession hurt construction and forestry machines. Deere (NYSE:DE - News) sees Q2 profit below Wall St. views. Shares fell 1%.

SoCal Home Sales At 20-Yr Low

9 Just 9,983 homes and condos sold in Jan., off 24.6% vs. Dec. and 44.9% vs. Jan. '07. That's the lowest since DataQuick began tracking S. Calif. sales in '88. Median prices fell 14.4% vs. a year ago to $415,000, a 2-year low. Meanwhile, foreclosure filings shot up 78.2% in the 100 biggest metro areas to 1.775 mil in '07, RealtyTrac said. Foreclosures accounted for 11.3% of Calif. home sales.

Hezbollah Terror Leader Killed

10 A car bomb in Syria killed Imad Mughniyeh, accused of murdering hundreds of Americans and Israelis. Hezbollah blamed Israel, which denied it. Mughniyeh was suspected in the '83 bombing in Lebanon that killed 241 U.S. servicemen and the execution of a Navy diver in an '85 TWA hijacking. The FBI had a $25 mil bounty on him.

Surprise Retail Sales Gain Lifts Market Despite Sluggish Discretionary Spending

Retail sales unexpectedly rose 0.3% last month after a dismal December, the Commerce Department said Wednesday, easing concerns that the U.S. already has fallen into a recession.

Wall Street cheered the report. The Nasdaq rose 2.3% while the S&P 500 and Dow climbed 1.4%.

Analysts had expected a 0.3% fall following December's 0.4% drop.

Consumer spending, which accounts for 70% of economic activity, is being eyed closely for signs the U.S. is sliding into a recession.

"As the consumer goes, so goes the economy," said Joel Naroff. chief economist at Naroff Economic Advisors. "The good news is that the consumer is not dramatically cutting back on spending, but the bad news is the consumer is not spending at any great pace."

Some of the report's details raised eyebrows among economists.

Sales at auto dealers and parts stores rose 0.6%, Commerce said. But the automakers' own reports showed a 5.6% drop in overall unit sales last month to 15.3 million.

Gasoline station sales rose 2%, largely reflecting higher prices. Yet most reports show prices at the pump edging lower in 2008.

Retail sales excluding autos and gasoline were flat. Year over year, they rose just 2.6%, the smallest gain in almost five years.

If consumer spending doesn't continue to grow at a moderate pace, says Naroff, the economy likely will see at least one negative quarter in 2008.

Analysts anticipate consumer demand probably will wane in the coming months.

Discretionary spending was weak in January. Department store sales fell 1.1%. Macy's (NYSE:M - News), Target (NYSE:TGT - News) and Limited Brands (NYSE:LTD - News) all said same-store sales declined last month.

Consumers reined in big-ticket purchases. Electronics sales slid 1% after December's 3.2% dive. Furniture sales fell 0.5%, their sixth straight decline.

Apparel was a bright spot in January, soaring 1.4%. But sales fell 2.3% in December. And clothing is down vs. a year earlier.

Building material sales fell for the fifth time in six months.

Americans also went out to eat less last month -- maybe because they are shelling out more at grocery stores as food prices soar.

Brian Bethume, an economist at Global Insight, says the report amplifies the impact the housing market is having on consumer spending and the economy as a whole.

"Housing has become a more visible drag on GDP growth, and it could push the economy into a contractionary mode," Bethume said.

Federal Reserve chief Ben Bernanke will testify Thursday before the Senate Banking Committee.

Several of his colleagues have talked more openly in February about the risks of recession.

Futures traders are pricing in at least a 50-basis-point 18ate cut by the Fed's March meeting.

Southern California home sales fall to 20-year low

SAN FRANCISCO (Reuters) - Southern California home sales fell to a 20-year low in January, as buyers and sellers appeared to be waiting for market turbulence to pass, according to a report issued on Wednesday.

Median home prices for the six-county area fell 14.4 percent from a year earlier to a three-year low, DataQuick Information Systems said in the report.

A total of 9,983 new and existing houses and condominiums sold last month in Los Angeles, Orange, San Diego, Riverside, San Bernardino, and Ventura counties, the report said.

The six counties are the most populous region of California and were some of the hottest residential property markets during the recent U.S. housing boom.

January volume was the lowest of any month since La Jolla-based DataQuick began keeping statistics in 1988. Sales were down 24.6 percent from December and down 44.9 percent from the year-ago period, the report said.

"We don't know how much of this downturn is driven by market fundamentals, and how much is due to turmoil in the lending industry," Dataquick President Marshall Prentice said in a statement. "Our sense is that quite a bit of activity is on hold, we just don't know how long it can be kept on hold."

San Bernardino County, among the areas hardest hit by foreclosures, posted the biggest drop in house sales, down 53.2 percent, the report said.

Subprime borrowers with patchy credit and more risky adjustable-rate mortgages bought many homes in the county in recent years.

The median price paid for a Southern Californian home was $415,000 in January, down 2.4 percent from December and down 14.4 percent from the year-ago period.

Prices in Riverside County, which is also suffering from a surge of foreclosures, posted the region's biggest January drop from the year-earlier period. They were down 20.1 percent to $331,000.

Difficulty in obtaining so-called jumbo mortgages, or loans of more than $417,000, also weighed on the high-cost southern California housing market, the report said.

Sales financed with jumbo loans made up 18.9 percent of the region's January transactions, down from 38.2 percent a year earlier.

Treasurys fall on strong retail sales

NEW YORK - Treasury prices fell Wednesday after a new retail sales report showed an unexpected increase in consumer spending for January after the dismal holiday season.

The Commerce Department said retail sales rose 0.3 percent last month, compared with a Thomson/IFR forecast for a drop of 0.3 percent.

Sales had fallen 0.4 percent in December as retailers suffered through their worst holiday shopping season in five years. So investors saw Wednesday's news as a possible indication that the weak consumer activity seen at the end of 2007 may have come to an end.

Treasurys, which are perceived as safe assets and tend to perform best when the economy is in peril, fell on the news. The report also helped inspire a stock market rally.

The benchmark 10-year Treasury note dropped 12/32 to 98 12/32 with a yield of 3.70 percent, up from 3.67 percent late Tuesday, according to BGCantor Market Data. Prices and yields move in opposite directions.

The 30-year long bond dropped 1 3/32 to 97 24/32 with a yield of 4.51 percent, up from 4.47 percent.

The 2-year note fell 1/32 to 100 12/32 with a yield of 1.91 percent, down from 1.92 percent.

Yields drifted higher in after hours trade. At 5:30 p.m. the 10-year yield was 3.73 percent and the 30-year yield was 4.55 percent. The 2-year yield remained at 1.91 percent.

The 3-month note fell to 2.27 percent from 2.32 percent Tuesday as the discount rate dropped to 2.22 percent from 2.27 percent.

There is a lively debate among analysts over whether the economy is in a recession. Technically, a recession consists of two straight quarters of economic shrinking and can only be declared in hindsight. But months of soft housing, manufacturing and labor data and ongoing problems for the credit markets have caused many economists to speculate that the economy has indeed started to contract.

Larry Rothman, a senior analyst at DebtVisions, said he is in the camp that thinks the economy is in recession and that the latest report did not alter that view.

"The headline was better than expected, but if you look at the report's details, it doesn't look that good," Rothman said. Most of the increase was due to money spent on gasoline, rather than on consumer goods, he said.

In addition, a stream of January sales reports from retailers last week showed largely disappointing results for individual companies. And much of January's retail sales likely consisted of items bought at post-holiday clearance sales and gift card redemptions, according to Rothman.

In other data news, the Commerce Department said businesses built up their stockpiles of merchandise in December at the fastest pace in 17 months. Inventories rose 0.6 percent in December, above the 0.4 percent rise forecast by Thomson/IFR.

The monthly inventory figures seldom move the stock or bond markets, mostly because many of its components have been previously reported.

Demand for Treasurys on Tuesday also was fueled by market rumors that a money market fund at a large money center bank may end up giving returns to consumers that are below the amounts they put into the fund, according to Action Economics.

Money market funds are a common and usually reliable savings vehicle. But in recent months the credit market squeeze has made consumers worry that they may not get a dollar-for-dollar return on investment, an unfortunate event that is known as "breaking the buck." There was no announcement.

Meanwhile, there were new worries about another market that does not usually receive a lot of attention, student loan securities. On Tuesday, First Marblehead, which creates pools of student loans and sells them, said it was concerned there was little interest in loan-backed securities. That's because investors made wary by bad mortgage-backed assets appear to be turning away from student loan-backed instruments as well.

A recent sale of student loan-backed assets by Goldman Sachs, JPMorgan Chase and Citigroup Inc. did not attract interest, according to media reports.

Stocks end higher on upbeat sales data

NEW YORK - Wall Street moved sharply higher Wednesday after the Commerce Department reported an unexpected increase in retail sales last month and eased some concerns about consumers' willingness to spend despite economic uncertainty. The Dow Jones industrials rose nearly 180 points.

The 0.3 percent rise in January retail sales, which followed a drop during December, alleviated some of the market's worries that consumers were retrenching because of rising fuel prices, a faltering real estate sector and a choppy stock market. Analysts had expected a 0.3 percent decline in January sales.

However, another report from the department showed that U.S. business inventories grew a little more than expected in December. The data could be a sign of an involuntary buildup of unsold goods on store shelves amid the economic slowdown.

The inventories report was not enough to offset optimism during the session. Stocks have mostly risen in recent days as investors tried to determine whether Wall Street has reached a bottom after months of declines related to the housing and credit crisis, or whether further sluggishness in the economy will send stocks lower.

"So far this week there has been a positive bias, but I think what you're seeing is people taking a very cautious approach," said Scott Fullman, director of investment strategy at I.A. Englander & Co. "There is no great rush to jump in, and the preservation of capital is more important than growth at this moment."

He also said investors were encouraged by the government's latest plan to help homeowners falling behind on mortgage payments. U.S. Treasury Secretary Henry Paulson said Wednesday he believes the economy will remain on a growth path, and pledged "aggressive action" to help troubled homeowners.

The Dow rose 178.83, or 1.45 percent, to 12,552.24. The blue chip index finished at its highs of the session.

Broader indexes also moved higher. The Standard & Poor's 500 index added 18.35, or 1.36 percent, to 1,367.21, and the Nasdaq composite rose 53.89, or 2.32 percent, to 2,373.93.

Bond prices dipped, with the yield on the benchmark 10-year Treasury note, which moves opposite its price, at 3.73 percent from 3.66 percent on Tuesday.

The dollar was mixed against other major currencies.

Light, sweet crude oil rose 49 cents to settle at $93.27 on the New York Mercantile Exchange. The International Energy Agency cut its oil demand forecasts for this year due to the weakening U.S. economy.

Analysts said the market will likely be choppy as investors react to economic data through the next several weeks. Most important will be any reports that provides clues about the slumping housing market.

Michael Strauss, chief economist at CommonFund, said he'll be listening Thursday to see if Federal Reserve Chairman Ben Bernanke makes any projections about the housing market. Bernanke is scheduled to provide testimony before a Senate committee on banking and housing at 10 a.m. EST.

"I think Bernanke will be grilled more on housing, and one of the things he'll focus on is that the housing sector has had a much bigger impact on the economy than the Fed anticipated it would have," Strauss said. "The question is whether he dangles a carrot, and maybe even praises Congress, about the fiscal stimulus package."

President Bush on Wednesday signed a multibillion-dollar economic rescue package that means $300 to $1,200 rebates for many American households.

In corporate news, Coca-Cola Co. said its fourth-quarter earnings jumped 79 percent amid a 24 percent increase in revenue. The world's biggest beverage producer cited growth in its key soft-drink brands as well as in its water, sports drink and orange juice businesses. But Coke fell 53 cents to $59.39.

Applied Materials, the largest maker of semiconductor equipment, led technology stocks higher after it reported a surge in orders for machines that make flat screens. Shares of the company rose $1.84, or 10.2 percent, to $19.91.

Deere & Co. said fiscal first-quarter profit increased 54 percent as the heavy equipment maker posted strong international sales. However, shares fell 94 cents to $85.54.

Waste Management Inc. rose 91 cents to $34.04 after reporting its fourth-quarter earnings increased 26 percent. The nation's largest garbage hauler got a bounce from tax benefits and the sale of some operations. However, fuel prices ate into profits.

Also, the state oil company of Venezuela said it has halted sales of crude to Exxon Mobil Corp. in response to the U.S. company's drive to use the courts to seize billions of dollars in Venezuelan assets. The oil company rose $1.11 cents to $85.49.

The Russell 2000 index of smaller companies rose 16.45, or 2.33 percent, to 721.93.

Advancing issues led decliners by a 2 to 1 margin on the New York Stock Exchange, where consolidated volume came to 3.64 billion shares, down from 3.92 billion shares on Tuesday.

Overseas, Japan's Nikkei stock average closed up 0.16 percent. Britain's FTSE 100 fell 0.51 percent, Germany's DAX index rose 0.08 percent, and France's CAC-40 rose 0.30 percent.

Dollar gains after strong US retail sales data

NEW YORK (AFP) - The dollar on Wednesday firmed against most other major currencies after better-than-expected US retail sales figures allayed fears of a US recession, analysts said.

Around 2200 GMT, the euro was at 1.4573 dollars, down from 1.4578 late Tuesday in New York.

The dollar was trading at 108.30 yen, up from 107.20 yen on Tuesday.

"After better than expected US retail sales, the buck is mixed against most major currencies with currencies that rallied yesterday selling off today," said Andrew Busch, an analyst at BMO Capital Markets.

The US government said earlier Wednesday that retail sales rose 0.3 percent in January, as shopping activity rebounded unexpectedly despite mounting concerns about wider economic growth.

The monthly snapshot contradicted economists' consensus forecast of a 0.3 percent decline after retail sales posted a 0.4 percent drop in December.

The surprisingly positive report appeared to allay concerns that the world's biggest economy is at risk of recession, and helped drive a strong Wall Street stock market rally.

"As the consumer goes, so goes the economy. It appears the consumer may have slowed down, but not left the field of battle," said Joel Naroff, the chief economist at Naroff Economic Advisors.

But others saw scant reason to cheer.

Paul Ashworth of Capital Economics said the unexpected sales spurt in January pointed to "stagnation" in the US economy rather than recession.

The euro was also hurt by news that factories and refineries in the 15-nation eurozone had cut back production more than expected in December, a fresh sign of slowing growth.

December industrial output in the eurozone dipped 0.2 percent from November and was up 1.3 percent from a year ago, according to the Eurostat data agency.

The seasonally adjusted figures fell short of market expectations of a monthly rise of 0.6 percent and a 2.3 percent year-on-year gain.

"December's fall in eurozone industrial production suggests that the economy may have slowed a bit more sharply towards the end of last year than previously thought" due to the euro's strength and weaker global demand, said Jennifer McKeown at Capital Economics.

She said business surveys expect the sector to stabilise but it is clear manufacturing will no longer be a growth engine in 2008.

In Britain the pound was stronger across the board after the Bank of England sounded hawkish in its inflation report, saying interest rates were likely to fall at a slower pace than the market currently expected.

In late New York trade, the pound was at 1.9630 dollars, up from 1.9595 late Tuesday.

The dollar was trading at 1.1081 Swiss francs, up from 1.1023.