Finance review

February 1, 2008

Stocks rebound on bond insurer hopes

US stocks rebounded from an early sell-off yesterday after MBIA helped alleviate some of the concerns about the troubled bond insurance sector.

Sentiment picked up after the bond insurer said the company had been the target of "fear mongering" and was confident of retaining its triple-A rating.

Volatile equities had slumped at the open after a spike in jobless claims added to worries about the US labour market market as consumer spending slowed.

Investors later rushed to buy into weakness after the Federal Reserve's 50 basis point rate cut raised the prospect of cheaper borrowing costs, a potential boon for financial companies and the prostrate real estate market. Energy companies remained a weak spot, however, as crude oil prices slumped.

In mid-afternoon the S&P 500 was up 0.8 per cent at 1,366.15, having initially fallen 1.6 per cent. The S&P homebuilder index enjoyed a particularly strong bounce, rising 8 per cent. The Nasdaq Composite rose 0.9 per cent to 2,370.57 and the Dow Jones Industrial Average put on 0.8 per cent to 12,542.98.

"[The rebound] is primarily due to MBIA. There's a lot of short covering, especially in the homebuilders," said Tom Schrader, managing director of US equity trading at Stifel Nicolaus Capital Markets.

Stocks hit the skids in early trading after a sharp spike in weekly claims for unemployment benefit, which jumped 69,000 to 375,000, the highest level since October 2005, unsettled investor. Economists had expected about 320,000.

Although these numbers are often volatile and may have been affected by the timing of a public holiday, the uptick will renew concerns that today's employment report may not be as strong as hoped. Morgan Stanley cut its payrolls forecast to 90,000 from 110,000, still significantly more than than December's 18,000.

The bond insurance sector once again dominated market chatter as MBIA reported a $2.3bn fourth-quarter loss after writing down $3.5bn of credit derivatives. But the shares rallied 5.7 per cent to $14.75 after its chief executive said the company was best positioned to avoid a rating downgrade.Ambac Financial, a rival, climbed 7.4 per cent to $14.75.

If bond insurance losses can be contained and earnings visibility increases, many analysts think the beaten-down S&P financial sector, up 1.7 per cent yesterday, could become an attractive investment.

"From a longer term perspective the action that the Fed is taking allows you to become a bargain hunter in the financial stocks - you can start to take positions in them," said Hugh Whelan, equity manager at Hartford Investment Management.

Investors also bought battered consumer stocks, spurring a 3.7 per cent jump on the S&P retail index. A Deutsche Bank analyst upgraded the broadline retail sector to "neutral" from "cautious". Deutsche told investors "the worst will soon be behind us," amid expectations of an improved retail environment in the second half of this year. Bear Stearns upgraded Nordstrom's shares causing them to rise 6.6 per cent to $39.28.

But mixed earnings and the slowdown in consumer spending underscored the riskiness of calling a bottom in the sector. Personal spending rose 0.2 per cent in December, its slowest pace in six months, with 2007 the weakest year since 2003.

Procter & Gamble, up 0.3 per cent at $65.29, increased fiscal second-quarter earnings 14 per cent and the company raised its full-year outlook. Colgate, up 3.3 per cent at $75.91, increased quarterly profits by 3 per cent.

Burger King, up 2.4 per cent at $46.30, also beat estimates as second-quarter profit jumped 29 per cent. Mattel rose 11.6 per cent to $21.13 after posting beating quarterly profit forecasts.

In contrast, Starbucks' cautious outlook for 2008 unnerved investors. The shares fell 3.6 per cent to $18.52. Amazon.com reported quarterly results in line with expectations but a decline in profit margins caused shares to slide before recovering to $74.65, up 0.6 per cent.

Also in the technology sector, Adobe Systems fell 4.6 per cent to $34.29 yesterday after Jefferies & Co. downgraded the software company from "buy" to "underperform" because of slower January sales.

In energy Cameron International dropped 4.8 per cent to $40.99 after the oil services company gave weaker-than-expected earnings guidance. Marathon Oil's fourth-quarter earnings dropped 38 per cent. The shares fell 4 per cent to $48.90.

Global equities markets hurt by US recession fears

LONDON (AFP) - European stock markets closed generally lower Thursday, after a mixed performance in Asia, with investors anxious about the financial health of US bond insurers as well as the broader US economy.

But the London FTSE 100 index managed to resist the downward pressure, bolstered by a positive start to trading on Wall Street, and finished 0.73 percent in positive territory at 5,879.80 points.

Elsewhere the CAC 40 fell 0.08 percent to 4,869.79 while in Frankfurt, where analysts said a rate cut Wednesday by the US Federal Reserve failed to reassure investors, the Dax shed 0.34 percent to end the day at 6,851.75.

The Euro Stoxx 50 index of leading eurozone issues rose 0.24 percent to 3,798.29.

Share prices in New York fell in early deals but later moved higher as investors concluded that the Fed rate cut Wednesday, lowering the benchmark rate by half a point to 3.0 percent, could ward off recession after all, dealers said.

The Dow Jones Industrial Average was up 0.54 percent in early afternoon trade at 12,510.62 while the tech-heavy Nasdaq had gained 0.51 percent to reach 2,361.03.

Earlier in Asia shares closed mixed as the Fed rate cut fuelled rallies in Japan and South Korea but failed to ignite major gains elsewhere as fears of a US recession intensified.

Analysts said sentiment in Paris was dampened, notably in the financial sector, by fears for US bond insurers.

"The financial sector is carrying everything along with it, now that concerns about bond insurers has resurfaced," said Frederic Rozier, an asset manager with Meeschaert.

Any deterioration in the financial condition of such insurers could depress the value of equities guaranteed by them.

Already one insurer, MBIA, has reported a loss of 2.3 billion dollars in the fourth quarter linked to the subprime crisis in the United States. In addition, the ratings agency Fitch has removed its top triple A rating from FGIC, the number three US bond insurer.

In Paris Societe Generale, staggered by massive losses it attributes to a rogue trader, gained 1.71 percent Thursday to close at 83.20 euros on reports that French rival BNP Paribas was contemplating a takeover offer.

"The prospect of a French-French alliance is clearly favored by the market and the range that has been circulating, 92 to 100 euros a share, appears credible," said Rozier.

Tire maker Michelin meanwhile fell 3.54 percent to 64.08 euros, hurt by pessimistic assessments from Goldman Sachs on the company itself and the wider sector.

In London Carphone Warehouse, one of Britain's leading providers of telecom services, shot up 8.06 percent to 328.50 pence on takeover talk.

Insurer Friends Provident plunged 10.57 percent to 138.80 pence after announcing a reorganisation in its activities that analysts said was a poor substitute for its failure to form an alliance with competitor Resolution.

In Frankfurt banks were among the principal losers amid continuing turbulence on financial markets.

Deutsche Bank fell 20.5 percent to 75.16 euros, Commerzbank lost 2.18 percent to close at 20.26 euros and Postbank gave up 0.61 percent to reach 55.57 euros.

Elsewhere in Europe there were declines of 0.39 percent to 441.33 in Amsterdam, 1.19 percent to 3,722.23 in Brussels, 0.02 percent to 7,670.44 on the Swiss Market Index, 0.09 percent to 13,229 in Madrid and 0.13 percent to 34,230 in Milan.

Late rally helps FTSE close higher

London equities rallied at the close to finish higher after spending much of the day in negative territory.

The FTSE 100 closed 42.5 points, or 0.7 per cent, higher at 5,879.8 after touching a low of 5,689.4 earlier in the session.

The move was fuelled by a reverse on Wall Street, with the Dow Jones Industrial Average up 0.8 per cent as the London market was closing.

Carphone Warehouse was the biggest gainer, up 8.1 per cent at 328½p, as takeover talk swirled. The name in the frame is Best Buy, the US retailer which has a stake in Carphone.

Standard Chartered rose 0.8 per cent to £16.65 despite announcing plans to bail out Whistlejacket, one of its structured investment vehicles exposed to the subprime lending crisis.

Friends Provident fell 10.6 per cent to 138.8p after it unveiled plans to sell its F&C and Lombard fund management units as part of the strategic review undertaken after its failed plans to merge with Resolution. It also said 2007 profits would be 41 per cent below the year before.

Royal Dutch Shell B shares closed flat at £17.44 after the oil group reported record annual earnings of $27.6bn, up from $25.4bn a year earlier.

Tullow Oil rose 4.7 per cent to 597p after it agreed to sell its 11 per cent interest in a Congo oil field to Korea National Oil for $435m.

Jobless claims spark sell-offs on Wall Street

Wall Street stocks fell sharply on Thursday after a sharp spike in jobless claims added to worries about the labour market and as wary traders reflected on a 50 basis point rate cut and the possibility of downgrades of key bond insurers.

Less than an hour after the opening bell, the S&P 500 fell 1 per cent to 1,342.10, the Nasdaq Composite shed 0.8 per cent to 2,330.19 and the Dow Jones Industrial Average declined 0.9 per cent to 12,335.77.

Traders were unsettled by a sharp spike in weekly claims for unemployment benefit, which jumped 69,000 to 375,000 - the biggest increase in more than two years - versus expectations of a 320,000 reading.

Although these numbers may have been affected by the timing of a public holiday the uptick will renew concerns that Friday's employment report may not be as strong as hoped. ADP on Wednesday painted a contrasting picture after showing the private sector added 130,000 jobs in January.

"Claims have been depressed by two separate seasonal issues in recent weeks. There is nothing in the argument that the dip in claims in late December and early January is a sign that the labor market is OK really. It's not," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said.

Treasury prices rallied sharply amid a flight to safety. The yield on the 2-year Treasury note fell 11 basis points to 2.06 per cent while the 10-year yield shed 8.5bp to 3.58 per cent. Crude oil dropped 1.6 per cent to $91.08 amid fears of a US recession but the dollar rose against the euro.

European markets tracked Wall Street lower where the FTSE Eurofirst 300 fell 2.2 per cent and the FTSE 100 dropped 2.3 per cent.

A brief rate-cut rebound fizzled out almost immediately on Wednesday as rumours about possible downgrades of bond insurers unsettled investors.

"People don't know what to think, they're mostly reactive, not proactive," Ryan Larson, senior equity trader at Voyageur asset management, said. "It's a sell first, ask questions later, mentality."

One of these bond insurers, MBIA (NYSE:MBI), said on Thursday it made a $2.3bn fourth-quarter loss after writing down $3.5bn of credit derivatives and is considering new ways to raise capital in order to maintain its triple-A rating.

The shares fell 7 per cent to $12.99 while rival Ambac Financial lost 4.9 per cent to $10.32. FGIC, a smaller bond insurer, was downgraded by Fitch Ratings on Wednesday.

Investors fear downgrades could trigger losses for financial companies many of which are forced to hold only securities guaranteed by triple-A ratings.

Oppenheimer said on Wednesday that monoline-related writedowns could reach $70bn but that losses would be concentrated at three banks - UBS, Merrill Lynch and Citigroup.

However, if bond insurance losses can be contained and earnings visibility increases many analysts think beaten-down financial stocks could soon become an attractive investment.

"From a longer term perspective the actions that the Fed is taking allows you to become a bargain hunter in the financial stocks - you can start to take positions in them," equity manager Hugh Whelan at Hartford Investment Management, said.

Some investors have also tried to call a bottom in the consumer sector but a slew of mixed earnings and economic data revealed the danger of this strategy.

Procter & Gamble, 0.5 per cent weaker at $64.74, increased fiscal second quarter earnings 14 per cent while sales leapt 9 per cent to $21.58bn and the company raised its full-year outlook.

Burger King also beat estimates as second quarter profit jumped 29 per cent but the shares fell 1.3 per cent to $44.63.

In contrast, although Amazon.co (NASDAQ:AMZN)m reported quarterly results in line with expectations after the closing bell on Wednesday, a decline in profit margins caused the stock to slide 4.8 per cent to $70.62.

Also in technology sector Adobe Systems (NASDAQ:ADBE) fell 5.4 per cent to $34 on Thursday after Jefferies & Co. downgraded the software company from "buy" to "underperform" because of slowing sales in January.

Starbucks (NASDAQ:SBUX)' cautious outlook for 2008 also unnerved investors as it said it plans to open 425 fewer US stores and close 100 existing outlets. Earnings increased less-than 2 per cent to $208.1m. The shares fell 4.8 per cent to $18.29.

Personal spending rose a modest 0.2 per cent in December and although this was more than expected for all of 2007 spending was the weakest since 2003.

Personal income rose 0.5 per cent last month against expectations of a 0.4 per cent increase. The personal consumption expenditure price index, a closely watched measure of inflation rose 0.2 per cent.

Energy stocks led the sell-off on Thursday amid concerns about corporate earnings. Peabody Energy (NYSE:BTU), the coal producer, said fourth quarter dropped from $175m to $35.8m and the shares plummetted 8 per cent to $50.94. Cameron International dropped 10.6 per cent to $38.51 after the oil services company gave weaker-than-expected earnings guidance.

European equities sink on bond worries

Banking stocks led a broad sell-off in European stock markets on Thursday as escalating fears losses at ailing bond insurers will eat into their profits overshadowed another US rate cut.

The risk of widespread failure among monolines, which could lose their triple-A credit ratings due to their own exposure to the subprime crisis, stoked worries about banks which use them to protect their assets.

Swiss wealth manager UBS (NYSE:UBS) plunged 7.7 per cent to SFr42.52, Dutch financial services provider ING Groep (NYSE:ING) 5.2 per cent to EU21.23, Belgo-Dutch Fortis lost 4.9 per cent to EU14.50 and Franco-Belgian Dexia fell 6 per cent to EU15.75.

In late afternoon trade, the FTSE Eurofirst 300 fell by 1.4 per cent to 1,310.34, while the Xetra Dax was 1.6 per cent lower at 6,765.40 and France's CAC 40 fell 1.3 per cent to 4,809.70.

Shares in French insurance giant Axa fell by 3.9 per cent to EU22.41 as the market shrugged off a solid set of full-year sales figures to focus instead on renewed subprime fears sparked by negative newsflow on the US monoline insurance industry.

Standard and Poor's said it lowered or may cut ratings on $534 bn of residential mortgage securities and collateralized debt obligations. The downgrades may extend losses at the world's banks to over $265 bn and have a "ripple impact" on the broader financial markets, S&P said.

Among the gainers, Societe Generale climbed 1.7 per cent to EU83.14 after domestic rival BNP Paribas said it was studying a possible bid for its French rival.

Swedish engineering firm Sandvik fell 7.1 per cent to SKr88.25 after the company's fourth-quarter pretax profit came below market expectations, hit by a higher than anticipated write-down on its metal stocks.

FTSE 100 sharply as US opens lower

London equities fell on Thursday, on renewed worries about potential write-downs in the financial sector.

The FTSE 100 fell 2.2 per cent to 5,706.4 a loss of 130 points. Mid-cap stocks also fell, with the FTSE 250 losing 210 points to 9,698.0, a loss of 2.1 per cent.

The Dow Jones Industrial Average fell 0.9 per cent to 12,310.9 a loss of 131 points at the start of trade in New York after a bigger-than-expected rise in jobless claims before more closely-watched non-farm payroll data on Friday. The broader based S&P 500 was also 0.9 per cent weaker at 1,343.5, a loss of 12 points.

News of the $2.3bn fourth quarter loss at bond insurer MBIA added the and tied in to the jitters in Europe.

Back in London, Standard Chartered lost 3.4 per cent to £15.96 after it announced plans to bail out Whistlejacket, one of its structured investment vehicles exposed to the subprime lending crisis. The bank, which focuses on emerging markets, said Whistlejacket's core assets fell from $18.2bn at the end of August to $7.2bn by January 24.

Wider financial stocks suffered on fresh worries about the dangers posed to the sector by monoline insurers, who guarantee punctual interest and principal payments on bonds.

London's high street lenders were not immune to the worldwide concern. Royal Bank of Scotland fell 4.6 per cent to 367½p, Barclays (NYSE:BCS) lost 5.1 per cent to 453p, HBOS fell 4.4 per cent to 672p and HSBC lost 2.7 per cent to 734p.

Friends Provident announced plans to sell its F&C and Lombard fund management units as part of the strategic review undertaken after its failed plans to merge with Resolution. It also said 2007 profits would be 41 per cent below the year before. The shares fell 7.1 per cent to 144.2p, the biggest losers on the FTSE 100.

Other insurers were also hit by worries about rising premiums and added risk from monolines. Prudential fell 3.2 per cent to 620p, Aviva was 3.1 per cent weaker at 600p and Legal & General lost2.8 per cent to 127p.

Elsewhere, Royal Dutch Shell reported record annual earnings of $27.6bn, up from $25.4bn a year earlier, boosted by strong crude prices throughout the year.

Although its profits became the biggest ever reported by a British company, the Anglo-Dutch refiner did not update investors on the rate at which it was replacing drilled oil with proven reserves of new supplies, an important performance indicator in the sector. Its shares fell 1.7 per cent to £17.14.

Elsewhere in the sector Tullow Oil was up 1.5 per cent at 578½p after it agreed to sell its 11 per cent interest in a Congo oil field to Korea National Oil for $435m.

Cairn Energy lost 0.2 per cent to £25.05, after it reported gross operated production for 2007 of 87,031 barrels of oil equivalent per day, down from 105,028 in 2006.

Vodafone beat forecasts with news of a 15.8 per cent rise in third quarter revenue of £9.2bn, but it failed to lift full-year profit guidance. Shares in the mobile phone service provider, one of the most actively traded stocks on the FTSE 100, fell 0.5 per cent to 176p

Vedanta, which operates principally in India, said a stronger rupee led to a 7.3 per cent fall in third-quarter profit. Its stock fell 2.9 per cent to £17.80.

There was little reaction in London to news of the Federal Reserve's move to cut its Fed Funds rate by 50 basis points to 3 per cent. Traders had priced the move into the market over previous sessions.

Jobless claims worry Wall Street

Wall Street stocks were set for a lower start on Thursday after a sharp spike in jobless claims added to worries about the labour market and as wary traders reflected on a 50 basis point rate cut and the possibility of downgrades of key bond insurers.

Less than an hour before the opening bell, S&P 500 futures were down 13.5 points at 1337.10, Nasdaq futures were down 16.75 points at 1794.75 while futures for the Dow Jones Industrial Average were down 100 points at 12294.

Treasury prices rallied after the jobless numbers while the dollar slipped against the yen and stock futures extended losses.

A brief rate-cut rebound fizzled out almost immediately on Wednesday as rumours about possible downgrades of bond insurers unsettled investors.

"People don't know what to think, they're mostly reactive, not proactive," Ryan Larson, senior equity trader at Voyageur asset management, said. "It's a sell first, ask questions later, mentality."

The shares fell 6.9 per cent to $13 in pre-market trade. FGIC, a rival, was downgraded by Fitch Ratings on Wednesday.

Investors fear downgrades could trigger losses for financial companies many of which are forced to hold only securities guaranteed by triple-A ratings.

Oppenheimer said on Wednesday that additional writedowns could reach $70bn but that losses would be concentrated at three banks - UBS, Merrill Lynch and Citigroup. Many analysts think other beaten-down financial stocks could soon become an attractive investment.

Some investors have also tried to call a bottom in the consumer sector but a slew of mixed earnings and economic data revealed the danger of this strategy.

Procter & Gamble increased fiscal second quarter earnings 14 per cent while sales leapt 9 per cent to $21.58bn and the company raised its full-year outlook.

Burger King also beat estimates as second quarter profit jumped 29 per cent.

Personal spending rose a modest 0.2 per cent in December and although this was more than expected for all of 2007 spending was the weakest since 2003.

The yield on the 2-year Treasury note fell 3 basis points to 2.15 per cent while the 10-year yield shed 5bp to 3.62 per cent.

The dollar fell 0.4 per cent against the yen to Y105.84 and was 0.1 per cent weaker against the euro at $1.4875.

The price of crude oil slipped 0.8 per cent to $91.76 early in New York while gold rose 0.6 per cent to $932 as safe-haven buying continued.

European stocks fell sharply ahead the open on Wall Street. The FTSE Eurofirst 300 index was down 1.7 per cent while the FTSE 100 lost 1.5 per cent and the Cac-40 gave up 1.6 per cent. Asian equity markets were mixed with the Nikkei closing up 1.9 per cent but the Hang Seng was down 0.8 per cent.

FTSE 100 tumbles below 5,800

London equities fell on Thursday, on renewed worries about potential write-downs in the financial sector.

The FTSE 100 fell 1.4 per cent to 5,754.5 a loss of 82 points. Mid-cap stocks also fell, with the FTSE 250 losing 156 points to 9,751.6, a loss of 1.6 per cent.

Wall Street futures predicted losses of about 50 points for the Dow Jones Industrial Average and around 6 points for the broader-based S&P 500. News of the $2.3bn fourth quarter loss at bond insurer MBIA continued to cast a shadow over sentiment and tied in to the growing fears in Europe.

Wider financial stocks suffered on fresh worries about the dangers posed to the sector by monoline insurers, who guarantee punctual interest and principal payments on bonds.

Elsewhere, Royal Dutch Shell reported record annual earnings of $27.6bn, up from $25.4bn a year earlier, boosted by strong crude prices throughout the year.

Elsewhere in the sector Tullow Oil was up 1.5 per cent at 578½p after it agreed to sell its 11 per cent interest in a Congo oil field to Korea National Oil for $435m.

Cairn Energy lost 0.2 per cent to £25.05, after it reported gross operated production for 2007 of 87,031 barrels of oil equivalent per day, down from 105,028 in 2006.

Vedanta, which operates principally in India, said a stronger rupee led to a 7.3 per cent fall in third-quarter profit. Its stock fell 2.9 per cent to £17.80.

Overnight in New York, a broad rally on Wall Street indices after the rates decision faded in the last hour of trade on those renewed concerns about the bond insurance sector. The S&P 500 closed down 0.5 per cent at 1,355.8, with the Dow Jones Industrial Average 0.3 per cent lower at 12,442.8.

Stockholm agrees to sell Nordic exchange to Borse Dubai/Nasdaq

STOCKHOLM (AFP) - The Swedish government said on Thursday it had agreed to sell its 6.6-percent share in the Nordic and Baltic stock exchange operator OMX to Emirates-based Borse Dubai, and subsequently to Nasdaq.

Borse Dubai's proposed cash offer of 265 kronor per share, made jointly with the US high-tech exchange Nasdaq, values OMX at about 32 billion kronor (4.9 billion dollars, 3.47 billion euros).

"I am very pleased that Borse Dubai and Nasdaq have recognised the potential of Stockholm as a financial hub and the importance of the Nordic securities market," Swedish Financial Markets Minister Mats Odell said in a statement.

"Just as importantly, this combination improves opportunities for listed companies and individual investors," he said, adding that the Swedish state would receive 2.1 billion kronor through the sale.

The decision came as no surprise after several regulatory bodies had already cleared the way for the deal and following a ruling by the Swedish parliament last June that the government could sell a long line of public holdings, including in Absolut vodka owner Vin & Sprit, the Nordea banking group and OMX.

The exchange operator is today mainly controlled by Swedish industrial holding company Investor, which owns a 10.7-percent stake, and the Qatar investment authority QIA, which holds a 10-percent share of the company.

Once Borse Dubai owns at least 67 percent of the shares of OMX, it has agreed to transfer all the stock it owns to Nasdaq. At the same time, Borse Dubai will make a minority investment in Nasdaq which in turn will take a minority holding in Dubai International Financial Exchange.

Borse Dubai is the holding company for Dubai International Financial Exchange and Dubai Financial Market, while OMX operates exchanges in Copenhagen, Stockholm, Helsinki, Reykjavik, Riga, Tallinn and Vilnius.

Following Thursday's announcement, OMX's stock price was unchanged at 263.50 kronor on the Stockholm stock exchange, which as a whole was down 1.01 percent.

FTSE falls as financial worry spreads

London equities fell on Thursday, on renewed worries about potential write-downs in the financial sector.

The FTSE 100 fell 1.3 per cent to 5,760.9 a loss of 78 points. Mid-cap stocks also fell, with the FTSE 250 losing 106 points to 9,801.5, a loss of 1.1 per cent

Standard Chartered lost 3.1 per cent to £16.02 after it announced plans to bail out Whistlejacket, one of its structured investment vehicles exposed to the subprime lending crisis. The bank, which focuses on emerging markets, said Whistlejacket's core assets fell from $18.2bn at the end of August to $7.2bn by January 24.

Wider financial stocks suffered on fresh worries about the dangers posed to the sector by monoline insurers, who guarantee punctual interest and principal payments on bonds.

Elsewhere, Royal Dutch Shell reported record annual earnings of $27.6bn, up from $25.4bn a year earlier, boosted by strong crude prices throughout the year.

The strong earnings news from Shell was enough to lift its peer BP, up 0.8 per cent at 528½p.

Elsewhere in the sector Tullow Oil was up 1.5 per cent at 578½p after it agreed to sell its 11 per cent interest in a Congo oil field to Korea National Oil for $435m.

But Cairn Energy bucked the strong trend anong energy group, falling 1.5 per cent to £24.70, after it reported gross operated production for 2007 of 87,031 barrels of oil equivalent per day, down from 105,028 in 2006.

There was also important newsflow in the mining sector.

Kazakhmys, the eastern European copper specialist, confirmed fourth quarter production met existing guidance. Its shares rose 0.2 per cent to £12.04

Vedanta, which operates principally in India, said a stronger rupee led to a 7.3 per cent fall in third-quarter profit. Its stock fell 0.2 per cent to £18.31.

There was little reaction to news of the Federal Reserve's move to cut its Fed Funds rate by 50 basis points to 3 per cent. Traders had priced the move into the market over previous sessions.

Ohio forecasting pig will opine on economy

CHICAGO (Reuters) - "Darke County Dave," a local hog, will opine -- or oswine -- on America's economic outlook on Friday, the Ohio treasurer's office said.

In his inaugural outing, Dave will choose between a trough of sugar or one of sawdust to gauge the economy's future course at the event in Greenville, Ohio, northwest of Dayton. Sugar means the U.S. economy will run sweetly, while sawdust ...

Ohio Treasurer Richard Cordray, apparently unaware of W. C. Fields' show business adage to "never work with children or animals," will be the keynote speaker at the event, which is sponsored by a Darke County Realtors association.

"I am familiar with bear and bull markets, but hogs are a new one on me," Cordray, an economist who studied at Oxford and the University of Chicago, said on Thursday.

Dave the pig follows in the footsteps -- or hoofprints -- of forecasters such as Phil, a groundhog in Punxsutawney, Pennsylvania, said to predict how bad winter will be.

NY fashion show to take inspiration from economy

NEW YORK (Reuters) - The financial meltdown sweeping the United States hits the fashion runway on Friday, when New York Fashion Week takes off, but its impact may be surprising.

Certainly, less business will be done than usual, and some designs will be muted, industry experts say. But at the same time, some designers will interpret the financial downturn as an excuse to turn up the fashion excess.

"The wonderful thing about fashion is it will always do the opposite of what you think," said James Aguiar, co-host of the "Full Frontal Fashion," a television program that covers fashion shows.

Just when you would think things would be more conservative, there are likely to be more lavish, extreme displays on the catwalk, Aguiar said.

"If anything, people will be more desperate to get attention that they think is going to generate business," said David Wolfe, creative director of the Doneger Group, a New York trend forecasting company, who also expects more theatre.

But while they may turn up the drama on the runway, there'll be a big gap between what designers show and what they actually end up selling during the week.

U.S. consumers have curbed their spending in recent months as a decline in the housing market takes hold. Shopping over the Christmas retail season was the worst in five years, even hitting luxury names like Saks Inc, Tiffany & Co, Coach Inc and Richemont.

Designer Rebecca Taylor, whose women's fashions are sold at high-end U.S. stores such as Bergdorf Goodman, Saks and Bloomingdale's, said she expects fall 2008 to be more commercial as some retailers, still reeling from last year's dramatic slowdown, take fewer risks.

"As traffic slows in the department stores, buyers are really looking for bankability," Taylor said. However, her own orders have tripled over the last year and she expects to drive $5 million in sales between her runway show on Thursday and a trade show the following weekend. She declined to give a figure for last February's show for comparison.

Retail consultant Sanjay Srikanth of management consultancy A.T. Kearney warned that Taylor's expectation would be atypical, as buyers trim the size of their orders to keep inventories tight.

BANKER'S THREADS

Aside from cutting orders, the economy is also influencing the designs themselves.

"Maybe I'm being more frugal, a little more conservative," said Arthur Mendonca, a Toronto-based designer making his New York Fashion Week debut. "Instead of micro-minis, I'll show more at the knee to make them more accessible to the consumer."

Wolfe, the trend forecaster, predicted buyers would go for rich textures and prints over overt embellishment this year, which he said would be seen as more elegant.

"In this environment designers have to push the envelope more toward desirability, not sensationalism," he said.

As a bonus, such understated designs are often cheaper to produce than those with flamboyant detailing, but Wolfe said that was not the motive for the trend.

Men's fabrics in particular -- flannel, pinstripes, herringbone, tattersall checks, plaids and tartans -- will be key this season, according to Jayne Mountford, director of trend reporting for Stylesight, an Internet-based trend forecasting and reporting company.

"It illustrates that we are thinking about business, in a banker's way," Mountford said. "Shares, the stock market and the price of things are on everyone's minds in a way they hadn't been in more freewheeling times."

Other nods to menswear will include structured garments, full-legged pants and tuxedo-inspired jackets, she said.

Adding to the gloom, Mountford said the season's signature color will be gray, her conviction bolstered by designer Marc Jacobs' latest Louis Vuitton bags, whose signature checkerboard motif traded brown and tan for black and gray.

But the ashen landscape will be punctuated by pops of rich color in jewel and berry tones and even bright, futuristic shades, Mountford said, signs of optimism.

"Social climate has an impact on how we design because we design for the lifestyle of a woman. If her lifestyle changes, then our collection has to change to reflect that," said Max Azria, who is hosting three different runway shows.

FOREX IN FASHION

Just as New York's Christmas shopping season was saved by foreign tourists eager to spend their strengthened euros, yen and francs, experts see the same happening at Fashion Week.

According to Fern Mallis, senior vice president of IMG Fashion, which runs New York Fashion Week, the teetering economy is not slowing attendance, with just the press list boasting some 4,000 names.

And with a television writers strike threatening to curtail the Academy Awards and its red carpet runway, Fashion Week's guest list may be studded with more stars than usual.

"In an odd way (the weak dollar) is kind of good for the Americans because it means the European buyers can come here and buy up a storm, just as the consumers did," said Stylesight's Mountford.

However, that will cut both ways. While U.S. names like Calvin Klein, Michael Kors and Ralph Lauren will be cheaper for foreign buyers, U.S. buyers will find Lacoste, Terexov, Temperley London, Diesel and Akiko Ogawa are more expensive.

Wendy Liebmann, Chief Executive of WSL Strategic Retail, a consulting firm, said that could make U.S. buyers lean more toward American designs.

For Liebmann, what the fashion industry, and the U.S. economy, needs is a hot new trend that will create demand across the retail spectrum, from Saks to Wal-Mart.

"I don't care whether it's a hemp sack, but something that people say, 'Oh heavens, that's fabulous!"' she said. "Then the rich people buy it, the medium people buy it, and the poor people buy it."

Consumer spending slowed in December

WASHINGTON — Buffeted by soaring fuel prices and tighter credit, consumers increased their spending at the weakest pace in six months. In other signs of trouble, applications for unemployment benefits last week soared by the largest number since Hurricane Katrina.

The Commerce Department reported Thursday that consumer spending edged up just 0.2 percent in December — the year's peak shopping season. That was down sharply from a 1 percent gain in November. It was the weakest performance in this area since a similar 0.2 percent rise in June of last year.

Meanwhile, the Labor Department reported that the number of laid-off workers filing applications for unemployment benefits increased by 69,000 to 375,000 last week. That was the highest level for jobless claims since the week of Oct. 8, 2005, when the economy was dealing with the disruptions caused by Hurricane Katrina and other Gulf Coast hurricanes.

The increase in jobless claims was more than triple what economists had been expecting, although part of the increase was blamed on technical difficulties in adjusting the figures around the Martin Luther King Jr. holiday. Analysts said the greater concern was the slowdown in consumer spending, which they predicted would continue in the current quarter, the period many believe will be the maximum danger point for a recession.

The overall economy, as measured by the gross domestic product, slowed to an anemic growth rate of 0.6 percent in the final three months of 2007, half of what had been expected, and many analysts believe it could dip into negative territory in the current quarter. By one definition, a recession occurs when GDP is negative for two consecutive quarters.

David Wyss, chief economist at Standard & Poor's, said he was forecasting that GDP would decline at an annual rate of 1 percent in the current quarter, in large part because of the expected further slowing in consumer spending, which accounts for two-thirds of economic activity.

"Happy holidays is not a phrase that retailers are using to describe this year's shopping season," said Joel Naroff, chief economist at Naroff Economic Advisors.

Despite widespread discounting, retailers slogged through their weakest Christmas sales season in five years as consumer confidence was shaken by the deep slump in housing, a severe credit squeeze and last year's big increases in the cost of gasoline and other energy products.

On Wall Street, stocks ended a turbulent January with a huge advance on Thursday as investors grew more optimistic that the aggressive intrest rate cuts by the Federal Reserve will help rescue the economy. The Dow Jones industrial average rose 207.53 points to close at 12,650.36. For the month, thd Dow lost 4.63 percent.

The unemployment rate rose significantly in December, jumping to 5 percent from 4.7 percent in November. That was the biggest one-month increase since the period immediately following the September 2001 terrorist attacks.

The January jobless number will be released Friday, with analysts expecting it will be unchanged at 5 percent as payroll growth continues to be sluggish with an expected increase of around 65,000 jobs.

The weakening jobs market is keeping labor cost pressures contained. The Labor Department's Employment Cost Index posted a 0.8 percent rise in the final three months of last year, a moderate increase that matched the rise in the July-September period.

The Fed on Wednesday cut a key interest rate by a half-point, the second large move in less than a week as the central bank signaled it was prepared to do whatever is needed to bolster the weakening economy.

President Bush and House leaders reached quick agreement on an economic stimulus plan last week. However, the package has slowed in the Senate where the Senate Finance Committee gave approval to an expanded effort on Wednesday despite warnings by the administration that this could risk delays in getting tax relief in the hands of families.

Treasury Secretary Henry Paulson, who is leading the administration's negotiations with Congress, told reporters Thursday that he was concerned that the extra Senate provisions would create "a real risk that the process will bog down and slow our efforts to get money into the economy."

The 0.2 percent rise in consumer spending looked even worse when price changes were removed. Inflation-adjusted spending did not increase at all last month, following a 0.4 percent rise in November and a 0.1 percent decline in October.

The government said personal incomes rose by 0.5 percent in December, the best showing since a similar increase in September.

An inflation gauge tied to spending that the Federal Reserve watches closely posted a 0.2 percent rise in December and left prices, excluding energy and food, up by 2.2 percent over the past 12 months, slightly higher than the 2 percent upper boundary of the Fed's comfort zone.

Jobless claims surge, spending softens

WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless aid surged last week to the highest since October 2005, and consumer spending softened at the end of last year, according to reports on Thursday that heightened worries about a possible U.S. recession.

Wall Street reacted with surprise to the unexpectedly big jump in jobless claims, but analysts were waiting for a report on January employment due on Friday to get a sense whether the already weak economy had taken a turn for the worse. That report is expected to show a modest gain in new jobs.

U.S. stock markets initially fell on Thursday's data but the Dow Jones Industrial Average closed up more than 200 points, but yields on U.S. Treasury bonds ended the day lower.

The number of U.S. workers filing new claims for state unemployment benefits rose by 69,000 last week to 375,000, the Labor Department said. It was the biggest jump since September 2005 after Hurricane Katrina hit the U.S. Gulf Coast.

However, the department cautioned that the data may have been skewed because of the Martin Luther King Jr. Day holiday, and analysts agreed, even though many thought the underlying trend in jobless claims might be moving higher.

"It is highly unlikely that today's initial claims reading reflects reality," said Omair Sharif, an economist at RBS Greenwich Capital in Greenwich, Connecticut.

Two other reports out on Thursday also painted a weak labor market picture. An index from the Conference Board that measures the number of help-wanted adds in U.S. newspapers rose modestly in December to 22 from 21, but it was down dramatically from a reading of 33 a year ago.

In addition, demand for hiring fell in January, according to the online recruiting firm Monster Worldwide. The firm's employment index fell to 160 in January from 169 in December.

"The lack of stronger job prospects is resulting in very cautious and nervous consumer attitudes and spending patterns," said Ken Goldstein, an economist at the Conference Board.

SPENDING SOFT, BUT INCOME SOLID

A sputtering consumer sector was one factor that led the Federal Reserve on Wednesday to cut benchmark U.S. interest rates by a large half-percentage point, just eight days after lowering them by three-quarters of a point in an emergency move.

Jobless claims had been on a declining path, one of the few hints the economy was not deteriorating sharply.

While a four-week moving average of claims, which helps smooth out fluctuations to expose the underlying layoffs trend, increased to only 325,750 last week from 315,500 the week before, financial markets worried last week's big spike could be the front edge of a worsening trend.

Interest-rate futures prices shifted to imply about a 72 percent chance that the Fed would lower rates by a further half point in March, up from 46 percent late on Wednesday.

Separately, the Commerce Department said consumer spending edged up by 0.2 percent in December after a 1.0 percent gain in November, just enough to keep pace with inflation.

The data on consumer spending was incorporated into a report on Wednesday that showed the economy nearly stalled in the fourth quarter, advancing at just a 0.6 percent annual pace to close out the weakest year of growth since 2002.

TREADING WATER

Thursday's report also showed that personal income in December rose a solid 0.5 percent. Both the spending and income figures were a touch higher than economists had expected.

"The personal income data do not show anywhere near the deceleration the employment data have, which suggests we could see a rebound in tomorrow's January report," said Mark Vitner, senior economist at Wachovia.

However, a key measure of inflation contained in the report showed prices, both overall and excluding food and energy, marched up 0.2 percent, leaving consumers treading water.

Last year, the price index for personal spending rose 3.5 percent, while the core index climbed 2.2 percent, a bit outside of the range most Fed officials are comfortable with.

"Inflation was quite high in December ... Consumers are squeezed by food and energy prices and worries of recession, credit costs are going up and housing prices are going down," said Kurt Karl, chief economist at Swiss Re in New York.

For all of 2007, consumer spending grew by 5.5 percent, the weakest growth since a 4.8 percent increase in 2003.

Senate sets economic stimulus debate next week

WASHINGTON (Reuters) - The Senate on Thursday pushed back until next week a showdown on an economic stimulus package, with Democrats seeking to expand the tax rebates and other benefits approved by the House of Representatives.

Senate Majority Leader Harry Reid, a Nevada Democrat, called the $146 billion bill that passed overwhelmingly in the House on Tuesday a "good package." But Reid said he was supporting a broader bill approved on Wednesday by the Senate Finance Committee.

Reid said he expected the Finance Committee measure to be blocked by Senate Republicans on Monday, which would open the door to votes on several other ideas on stimulating the economy, which some fear could be headed toward recession.

The House-passed bill would give individuals a one-time $600 payment and couples $1,200. The tax rebates would begin phasing out for individuals earning more than $75,000 and married couples making more than $150,000. The Senate panel would allow for $500 and $1,000 payments, respectively, but with much higher income caps and to more people.

The apparently doomed Senate Finance Committee measure would cost $157 billion next year and would provide quick tax rebates to more Americans and also include senior citizens who receive Social Security retirement benefits but do not have earned income. Tacked onto this package were energy tax benefits not included by the House.

Reid sketched out a series of votes he intends to call next week in the Senate, which could culminate in passage of an amended House bill to include cash payments to 20 million elderly not covered in that measure as well as expanded unemployment benefits and payments to 250,000 disabled veterans.

"I don't think that the Senate wants to deprive 20 million seniors of a rebate check," said Finance Committee Chairman Max Baucus, a Montana Democrat.

The Senate was expected to begin consideration of the bills passed by the Senate Finance Committee and House as early as Thursday, but Reid decided to postpone action until next week.

CLOSE VOTES

With many of the votes expected to be close, Reid said he planned to ask two Senate Democrats running for president -- Hillary Clinton of New York and Barack Obama of Illinois -- to interrupt their campaigns and return to the Senate to be counted.

Reid said he expected Sen. John McCain, an Arizona Republican running for president, also to be there.

The Bush administration wants the Senate to simply embrace the House bill, which it negotiated this month with Democratic and Republican House leaders. On Thursday, Treasury Secretary Henry Paulson called the Senate Finance Committee measure "too complex."

If the Senate passes its own package, differences would have to be resolved with the House and the administration before a final bill could be sent to Bush to sign into law.

Sen. Charles Schumer of New York, a member of the Democratic leadership, voiced confidence that a bill would soon be finalized.

"We will have a package on the president's desk (by mid-February)," Schumer said. "It will be a very, very good package -- hopefully a package with unemployment insurance and benefits to seniors and disabled benefits in it."

A slowing U.S. economy has prompted the White House and lawmakers from both parties to rush passage of a bill intended to put cash into millions of consumers' hands this spring and summer in the hope they quickly will spend it, boosting the economy.

Reid said he also would allow senators to vote on other initiatives, including giving more help for low-income people to pay for winter heating bills and temporarily expanding benefits for the poor who rely on food stamps.

Another vote would be scheduled, Reid said, on raising the amount of tax-exempt mortgage revenue bonds that states can offer to help fund low-income housing and low-interest mortgages so that some homeowners would not face foreclosure.

In the final package, lawmakers are expected to prohibit any of the tax rebates from going to illegal immigrants working in the United States.

Fed attacks in the face of uncertainty

Pity the Federal Reserve. Given extreme uncertainty about the trajectory of the US economy, it is like a poker player in a hand with a big pot and every player still in: placing a monetary policy bet takes luck as much as judgment. A sound case can be made for the Fed's aggressive interest rate cuts of 125 basis points in eight days, although a sound case could also be made for a more gentle approach.

The question is whether financial market troubles will create feedback loops in the economy. If falls in house prices increase credit losses at banks, which reduce mortgage lending and so create further drops in house prices, then a deflationary spiral could take hold. Equally, it might not. That uncertainty, and uncertainty about whether monetary policy will work at all given the parlous state of the banks, makes a sensible strategy hard to formulate.

The Fed's decision to cut rates to 3 per cent suggests its concerns have become a great deal more serious. Even given the problems in the banking system, interest rates at this level are certain to stimulate the economy over time. At the very least, some subprime mortgages will not reset to such high rates as they might have done, while low Fed rates will also trigger demand for mortgage refinancing.

The risk is that the economy recovers quickly, and today's monetary stimulation turns into rapid inflation in the future. So far, inflation expectations look to be under control, but that could change in the blink of a trading screen if the economy turns the corner. The Fed's poker game is for high stakes.

The abandonment of a gradualist approach to changing interest rates - moving them up or down by 25bp every month for months - is sensible. Shocks to the economy are not evenly distributed or equal in size, and there is no reason why the monetary policy response should be either. If a central bank thinks rates of 3 per cent are appropriate, then it should move them there at once.

The Fed should, however, avoid the kind of lurch in its thinking that produces a 125bp cut if at all possible. It implies that previous policy was wrong - and that risks creating a sense of panic.

The Fed has more data than anyone on the state of the US economy, and, given the uncertainties, the only choice is to trust it to run the risks it judges necessary. Neither faith in the dollar nor in the Fed's inflation-fighting credentials have collapsed so far. But the US central bank must stand ready to raise interest rates as fast as it lowered them once the economy starts to recover.

Paulson says Senate stimulus plan too complex

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson warned on Thursday that the $157 billion stimulus package passed by the Senate Finance Committee was too complex and he prefers the simpler House of Representatives version.

"Complexity is our enemy and I'm concerned that the bill that has come out of the Senate Finance Committee is already too complex. Once it gets on the Senate floor it's in danger of looking like a Christmas tree," Paulson told a news conference to highlight the Earned Income Tax Credit for low-income workers.

Paulson urged swift Senate action on the bill but cautioned senators not to load the bill up with pet spending projects and more tax breaks. He said the House resisted that temptation and its bill was simple, broad-based and bipartisan.

"I wish it were on the president's desk today so that we could sign it and start working to get the checks out," he said.

The Senate Finance Committee's bill would offer nearly all taxpayers rebates of $500 for individuals and $1,000 for couples, including some 20 million senior citizens that would not receive checks under the $146 billion House bill.

The Senate measure as passed also would extend unemployment benefits beyond the 26 weeks offered by most states and offer nearly $6 billion in tax breaks for the renewable energy sector.

Those provisions are not included in the House bill, which calls for tax rebates of $600 for individuals and $1,200 for couples.

The Senate bill also would make higher income people eligible for the tax rebates by doubling the phase-out income levels to $150,000 for individuals and $300,000 for couples. Many economists say rich taxpayers are more likely to save the rebates, negating their stimulative value.

Low-income and unemployed people are viewed as more likely to spend the cash immediately on necessities such as food and gasoline, flushing it through the economy more quickly.

MISSING OUT ON CASH

Paulson made his remarks at a news conference to highlight the Earned Income Tax Credit, which will provide low-income workers with a credit as high as $4,716 this year for a family with two or more children.

Asked about the plight of private bond insurers that are struggling to maintain the top credit ratings necessary for the business, Paulson said the Treasury was monitoring the situation along with state insurance regulators and private sector companies.

"If you're in the financial services industry and you need capital or think you may need capital, I'm very much urging every organization and every institution to raise capital when they can get it," Paulson said. "Again, I think that's the theme for the private bond insurers, there's a lot of focus on market-based solutions here."

A financial services sector source in Washington familiar with the situation said last week that the Treasury had shown "some reluctance to create another government backstop" for bond insurers.

MBIA lifts Wall Street

NEW YORK (Reuters) - Stocks ended higher on Thursday after a major bond insurer reassured investors about its stability, fueling a rebound by financial shares hammered recently by the prospect of crumbling credit markets.

Even with the day's strong advance, the S&P 500 capped its worst January performance since 1990 as crises in the credit and housing markets stirred fears the U.S. economy was at the edge of a recession. The Nasdaq had its weakest start to a year ever.

The market rallied after MBIA Inc (MBI.N), the No. 1 U.S. bond insurer, said it had enough cash to run its business of guaranteeing payments on corporate and municipal bonds. Standard & Poor's also told the company it had enough capital to keep its triple-A rating, MBIA executives said.

Financial shares, including Bank of America Corp (BAC.N), rallied on the news. A downgrade could lead to billions of dollars of more losses and write-downs related to the subprime mortgage meltdown.

MBIA shares jumped 11 percent, while those of rival Ambac Financial Group Inc (ABK.N), advanced 9.2 percent.

"MBIA basically came out and said the fears are overblown, they're not going bankrupt, they've got plenty of capital, they're not going to lose their 'AAA' status," said Anthony Conroy, head trader for BNY ConvergEx, an affiliate of the Bank of New York.

"That alleviated a lot of fears and you started to see bargain hunters come in, people covering some shorts," he said.

The Dow Jones industrial average (.DJI) shot up 207.53 points, or 1.67 percent, to 12,650.36. The Standard & Poor's 500 Index (.SPX) gained 22.74 points, or 1.68 percent, to 1,378.55. The Nasdaq Composite Index (.IXIC) advanced 40.86 points, or 1.74 percent, to 2,389.86.

ROCKY JANUARY

For the month, the Dow lost 4.6 percent, marking its worst January since 2000. The S&P lost 6.2 percent, its worst January since 1990. For the Nasdaq, the 9.9 percent decline on the month was its worst-ever January performance.

Shares of Bank of America, the largest U.S. bank by market value, led financial stocks on the S&P 500, rising 5.1 percent to $44.35, while those of credit card and travel services company American Express Co (AXP.N) led Dow financials with a 4.2 percent to $49.32 on the New York Stock Exchange.

Shares of Citigroup Inc (C.N) were another standout, finishing up 2.4 percent at $28.22.

Investors also bought shares of retailers, including Wal-Mart Stores Inc (WMT.N), which gained 3.5 percent to $50.88 on the NYSE. Major manufacturers and homebuilders also climbed on hopes lower interest rates would ease the housing slump's drag on the economy.

Shares of Caterpillar Inc (CAT.N), the maker of heavy equipment, were the Dow's biggest advancer, finishing up 4 percent at $71.14 on the NYSE. Among home builders, shares of Toll Brothers (TOL.N), a luxury home builder, climbed 6 percent to $23.28.

The S&P financial index (.GSPF) closed up 2.7 percent and the Dow Jones home construction index (.DJUSHB) advanced 9.7 percent. On the Nasdaq, Apple Inc (AAPL.O), the maker of the iPod and the iPhone, was among the top advancers, finishing with a gain of 2.4 percent to $135.36.

INSURER STABILITY

Encouraging news on bond insurance sector also came from New York Gov. Eliot Spitzer, who said he and the state insurance superintendent were making good progress in devising a plan to stabilize bond insurers.

Even so, trading was volatile, and indexes retreated from gains of more than 2 percent in the last half hour of trading.

A late market swoon was sparked by Standard & Poor's ratings cut of bond insurer FGIC Corp and putting MBIA on review for a possible downgrade, said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC in Greenwich, Connecticut.

"It was enough to give everybody a quick scare going into the end of the month, at the end of the trading day, on a volatile week," said Smalls.

After the bell, shares of Google Inc (GOOG.O) tumbled more than 6 percent from a Nasdaq close of $564.30 after the Web search leader's quarterly earnings missed Wall Street estimates.

Trading was heavy on the New York Stock Exchange, with about 2.19 billion shares changing hands, above last year's estimated daily average of roughly 1.9 billion. On Nasdaq, about 2.84 billion shares were traded, above last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones by a ratio of about 8 to 3 on the NYSE and by 9 to 5 on Nasdaq.

Foreclosures to stay high: Treasury's Steel

WASHINGTON (Reuters) - Treasury Undersecretary Robert Steel said on Thursday that foreclosure rates on American homes will be higher than usual for the next two years as will the number of homeowners facing hardship.

In prepared remarks to the Senate Banking Committee, Steel noted the risks a housing downturn poses to growth, but said the U.S. economy was basically strong.

"Over the course of the next two years, we expect the foreclosure rate to remain elevated above its historic level," Steel said, adding that "relaxed" standards for making loans in recent years meant "the number of homeowners facing hardship will be higher than during other recent housing downturns."

The HOPE Now alliance, which the Treasury helped broker to bring lenders and distressed homeowners together in an effort to find ways to avoid people losing their homes when adjustable mortgages "reset" at higher rates, was making progress, Steel said.

He said the rate of modifications to subprime loans -- those frequently made at adjustable rates to less creditworthy borrowers -- had tripled from the third quarter to the fourth quarter of 2007.

Rising rates of foreclosure on homes has become a hot topic with presidential elections approaching, and Democratic lawmakers are pushing for a larger-scale effort to aid people being forced to give up their homes.

Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat who campaigned unsuccessfully for the Democratic presidential nomination, is urging a rescue plan that harkens back to the one used during the savings and loan crisis of the late 1980s and 1990s.

It would involve setting up a home loan corporation at a cost to the taxpayers estimated up to $20 billion that would buy the most at-risk mortgages and refinance them to try to keep homeowners in their homes.

That is unlikely to get backing from the Bush administration, which favors a wholly private-enterprise effort to try to get lenders and borrowers together earlier on in the foreclosure process so that they can sort out ways of refinancing without involving public money.