Finance review

February 2, 2008

Stocks cap strong week with gains

NEW YORK - Wall Street capped a week of big gains with another sizable advance Friday after investors set aside anxiety over news that the economy lost jobs last month and focused on Microsoft Corp.'s bid for Internet company Yahoo Inc. and a possible rescue plan for the troubled bond insurance sector.

The Dow Jones industrial average and the Standard & Poor's 500 index each rose more than 4 percent for the week, their steepest gains since March 2003.

Stocks fluctuated at times Friday, however, as investors weighed seemingly contradictory readings on the economy. Wall Street was pleased by Microsoft's $44.6 billion bid for Yahoo. Merger news, which often energizes stocks, has been in short supply for months. But the mix of economic news reminded investors of the continuing fallout from the housing and mortgage crisis.

The first blow came from the Labor Department's worrisome employment report for January. The economy lost 17,000 jobs, marking the first contraction of the labor market in more than four years. The news confounded economists, who were expecting 70,000 new jobs, according to Thomson/IFR. The unemployment rate fell to 4.9 percent from 5 percent in December, though the move came as the labor pool shrank.

The Commerce Department added to the fray, reporting that construction spending dropped 1.1 percent in December — the most in 15 months and twice what analysts expected.

And rating agency Moody's Investors Service warned on a conference call Friday that it expects to downgrade some bond insurers this month. A top rating is crucial for bond insurers to draw new business and for investors to feel secure about the bonds these companies already insure.

Stocks did get some ballast from a report showing a pickup in the nation's manufacturing sector in January. The Institute for Supply Management, a business group, said its index of manufacturing activity rose to 50.7 from 48.4 in December. Wall Street had expected the figure would come in at 47, a reading that would indicate a contraction of the manufacturing sector.

"We're starting to see the long-term investors and the fund mangers come back into the market. That's why I think you're seeing stocks rally even when there is negative news," said Marc Pado, U.S. market strategist for Cantor Fitzgerald.

The Dow Jones industrial average rose 92.83, or 0.73 percent, to 12,743.19 after climbing more than 200 points Thursday.

Broader stock indicators also moved higher. The Standard & Poor's 500 index rose 16.87, or 1.22 percent, to 1,395.42, and the Nasdaq composite index advanced 23.50, or 0.98 percent, to 2,413.36.

For the week, the Dow jumped 536.02 points, or 4.4 percent. The Standard & Poor's 500 index, the market measure most closely followed by professional traders, added 4.9 percent and the Nasdaq composite index rose 3.8 percent.

The Russell 2000 index of smaller companies rose 17.20, or 2.41 percent, Friday to 730.50.

Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where consolidated volume came to 4.51 billion shares, compared with 5.22 billion shares traded Thursday.

Bond prices slipped in late trading. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.60 percent from 3.59 percent late Thursday.

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

Light, sweet crude oil fell $2.79 to settle at $88.96 per barrel on the New York Mercantile Exchange after the employment report raised concerns that the U.S. economy will slow and hurt demand for oil.

Stocks climbed Friday after a week in which Wall Street saw huge gains but also enormous volatility. The week began with a sharp advance as investors awaited the Federal Reserve's decision on interest rates. Stocks extended their gains Tuesday and on Wednesday the central bank delivered on a widely expected half-point cut in interest rates. But unease about bond insurers short-circuited a rally in stocks after the rate cut. Stocks sold off again early Thursday but performed an about-face to close sharply higher as investors considered the effects of rate cuts and the possibility that the government might orchestrate a rescue for the trouble bond insurance market.

The latest rate cut meant the Fed had slashed rates by an unprecedented 1.25 percent in little more than a week, a move that appeared to largely erase doubts about whether the central bank would step in to assuage investors' fears about the health of the financial sector and, more broadly, of recession.

"We expect volatility will remain elevated but will abate slowly because we think some of the recession talk will wane but not go completely off the table," said Nicholas Raich, director of equity research at National City Private Client Group in Cleveland.

"There's no certainty and there's no clarity but valuations are cheap so there a lot of bottom-fishers in here looking for bargains," he said, referring to questions investors still have about the health of the financial sector.

The week's gains restored some of the huge losses seen in the earliest days of the year. Still, stocks this week finished what was their worst January since 1990. The Standard & Poor's 500 index lost 6.1 percent for the month.

Bond insurers showed gains Friday amid word that efforts are moving ahead to aid the troubled bond insurance market, though no proposal was imminent.

A person with direct knowledge of discussions between banks and regulators about a possible bailout told The Associated Press that several plans were under consideration, though one that examined each company's needs was the most likely option. The person asked not to be named because he was not authorized to speak publicly.

Ambac Financial Group Inc. rose $1.56, or 13 percent, to $13.20, while MBIA Inc. rose 86 cents, or 5.6 percent, to $16.36.

In corporate news, Yahoo surged $9.20, or 48 percent, to $28.38, on word of the buyout offer for $31 per share. Yahoo said it would consider the offer. Microsoft, one of the 30 stocks that make up the Dow industrials, fell $2.15, or 6.6 percent, to $30.45.

Google Inc. fell $48.40, or 8.6 percent, to $515.90 after reporting its fourth-quarter earnings and revenue growth slowed at a faster pace than Wall Street expected.

Motorola Inc. jumped $1.19, or 10 percent, to $12.69 after announcing it is considering selling a sale or spinoff its lackluster mobile phone business.

Overseas, Japan's Nikkei closed down 0.70 percent. Britain's FTSE 100 finished up 2.54 percent, Germany's DAX index gained 1.71 percent and France's CAC-40 rallied 2.22 percent.

The Dow Jones industrial average ended the week up 536.02, or 4.39 percent, at 12,743.19. The Standard & Poor's 500 index finished up 64.81, or 4.87 percent, at 1,395.42. The Nasdaq composite index ended the week up 87.16, or 3.75 percent, at 2,413.36.

The Russell 2000 index finished the week up 41.90, or 6.08 percent, at 730.50.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended Friday at 14,091.09, up 667.47 points, or 4.97 percent, for the week. A year ago, the index was at 14,615.38.

Wall St rises on tech bid; best week since March '03

NEW YORK (Reuters) - Stocks rose on Friday, capping Wall Street's best week in almost five years, after Microsoft Corp's (MSFT.O) $44.6 billion bid for Yahoo Inc (YHOO.O) overshadowed news that employers cut payrolls for the first time since 2003.

Microsoft, in its biggest-ever takeover deal, offered a 62 percent premium for the Internet media company, boosting optimism about share valuations and buoying the overall market even as shrinking payrolls in January provided the clearest sign yet that the economy is close to recession.

Yahoo shares led advancers on both the S&P 500 and the Nasdaq, with a gain of nearly 48 percent, pulling its shares closer to Microsoft's $31-per-share offer.

Yahoo shares ended at $28.38 on the Nasdaq.

Shares of metal producers and miners contributed to the Wall Street rally after China teamed up with Alcoa (AA.N) to buy a $14 billion stake in Rio Tinto (RIO.L), the world's No. 2 miner by market value. The S&P materials index (.GSPM) rose 2.21 percent.

"It seems to me the real driving news was the unexpected Microsoft bid for Yahoo. In general, it seemed to spark a little enthusiasm on the back of yesterday's nice rally," said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago.

The proposed takeover "shows that maybe equity prices just got too low and now you're seeing a little bit of courage from people who have been on the sidelines," he added.

For the regular session, the Dow Jones industrial average (.DJI) finished up 92.83 points, or 0.73 percent, to 12,743.19. The Standard & Poor's 500 Index (.SPX) gained 16.87 points, or 1.22 percent, to 1,395.42. The Nasdaq Composite Index (.IXIC) shot up 23.50 points, or 0.98 percent, to 2,413.36.

In a week during which the Federal Reserve slashed benchmark U.S. short-term interest rates, the Dow and the S&P 500 notched their best weekly advances in almost five years, gaining 4.4 percent and 4.9 percent, respectively.

The Nasdaq posted its best one-week jump in nearly 18 months, finishing up 3.8 percent in the same period.

Tech standouts included shares of chip maker Intel Corp (INTC.O), up 3.2 percent at $21.76 on the New York Stock Exchange, and those of International Business Machines Corp (IBM.N), the technology services company, up 1.6 percent at $109.08.

While the unexpected weakness in U.S. January payrolls added to concerns that the economy may be teetering on the edge of a recession, analysts said Microsoft's bid for Yahoo suggested blue-chip stocks had become cheap.

But shares of Microsoft finished the session a top drag on the Dow and the S&P 500, down 6.6 percent at $30.44 in heavy trade. In addition, shares of Web search leader Google Inc (GOOG.O), which is seen as the target of Microsoft's move, shed 8.6 percent to $515.90.

Elsewhere, shares of Alcoa led stocks of metals companies to close up 3.6 percent at $34.28 on the NYSE.

A report showing a modest revival in manufacturing at the start of 2008 underpinned gains among shares of big manufacturers, including 3M Co (MMM.N) and General Electric Co (GE.N).

3M shares were the Dow's second top advancer behind IBM, finishing up 1.96 percent at $81.21 on the NYSE. Shares of GE were the S&P's second top advancer behind Yahoo, ending with a gain of 2.12 percent at $36.16.

Shares of oil services company Schlumberger Ltd (SLB.N) jumped 3.74 percent to $78.28 as it rode on the coattails of big profits posted by oil majors Exxon Mobil Corp (XOM.N) and Chevron Corp (CVX.N).

Trading was moderate on the New York Stock Exchange, with about 1.79 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq about 3.10 billion shares traded, topping last year's daily average of 2.17 billion.

Advancing stocks outnumbered decliners by a ratio of about 7 to 2 on the NYSE and by 9 to 4 on Nasdaq.

Microsoft's Yahoo bid helps market overcome weak jobs data

NEW YORK (AFP) - US stocks powered higher Friday as a blockbuster Microsoft bid for Yahoo helped Wall Street shake off a shock report showing the first decline in jobs for the US economy in over four years.

The Dow Jones Industrial Average jumped 92.83 points (0.73 percent) to close at 12,743.19, capping a strong week for the market.

The tech-heavy Nasdaq composite added 23.50 points (0.98 percent) to 2,413.36 while the Standard & Poor's 500 index rose 16.87 points (1.22 percent) to finish at 1,395.42.

Investors were hit with a deluge of news including data showing a loss of 17,000 jobs in January, the first decline in jobs since August 2003 for the US economy, and a blockbuster 44.6-billion-dollar bid by Microsoft for Yahoo that would shake up the tech space.

Although the economic reports highlighted concerns about recession, the news of a potentially big merger helped set a positive tone.

"The deal is really great news for the market and in particular the technology sector," said Kimberly DuBord at Briefing.com.

DuBord said Microsoft's bid highlighted the fact that stocks have been beaten down and may represent good value. Yahoo had sunk to a four-year low earlier this week.

"Microsoft, with a cash balance to rival some banks ... essentially is making a significant value deal for Yahoo," DuBord added.

The takeover bid highlighted the notion that companies are hunting for bargains again and possibly looking past the economic turmoil.

"Investors love mergers and acquisitions," said Al Goldman, market strategist at AG Edwards.

European stock markets joined the rally, extending gains as the takeover bid was announced. The London FTSE 100 index climbed 2.54 percent to 6,029.20 while in Paris the CAC 40 rose 2.22 percent to 4,978.06. The Frankfurt Dax advanced 1.71 percent to reach 6,968.67.

Among key stocks in New York, Microsoft fell 6.6 percent to 30.45 dollars after unveiling the unsolicited cash-and-stock bid for Yahoo, which would alter the tech sector if consummated.

Yahoo shares surged 48 percent to 28.38 dollars on the bid, which was a 62 percent premium to its closing price Thursday.

Google, which could be impacted by a Microsoft-Yahoo combination, slid 8.6 percent to 515.90 dollars a day after reporting earnings that came up short of Wall Street estimates.

Elsewhere, ExxonMobil shares fell 0.52 percent to 85.95 even though the biggest US oil group reported a quarterly profit ahead of expectations that created a record annual profit of 40.6 billion dollars, the largest ever for a US firm.

Oil rival Chevron fell 0.91 percent to 82.49 despite reporting profits beating most Wall Street forecasts.

Bonds gained after the weak economic news. The yield on the 10-year US Treasury bond eased to 3.600 percent from 3.639 percent Thursday and that on the 30-year bond fell to 4.318 percent against 4.354 percent. Bond yields and prices move in opposite directions.

Wall Street rises in volatile week

US stocks ended the week in volatile fashion as traders weighed up the first fall in US employment in 4½ years against a possible rescue plan for troubled bond insurers.

Investors welcomed a return of dealmaking activity as Microsoft made a $44.6bn takeover approach for Yahoo while bullish traders also cheered a pick-up in manufacturing.

A rebound on Friday capped a more encouraging period for US equities which chalked up their best weekly performance in almost five years helped by a swingeing mid-week interest rate cut from the Federal Reserve.

Financials and homebuilders enjoyed the best of this week's gains as traders priced in cheaper financing costs but energy and tech stocks underperformed after a slew of corporate earnings contained some notable disappointments.

The S&P 500 Composite gained 1.2 per cent to 1,395.41 on Friday. A rise of 4.9 per cent was the best weekly return for the S&P since March 2003. Since its intraday low on January 23 the index has climbed almost 10 per cent. However, the S&P still fell 6.1 per cent in January, its worst start to a year since 1990.

The Nasdaq Composite put on 3.7 per cent to 2,413.36 this week while the Dow Jones Industrial Average added 4.4 per cent over the period to 12,743.19.

"It's probably a bear market rally but I'm not sensing we're going to go too much lower," Martin Schulz, director of international equities at Allegiant Asset Management, said.

In attempting to gauge whether this week was simply a blip or a nadir for recent woes, traders pored over a collection of economic data which projected contrasting outlooks for the US economy.

The Labor Department's jobs report made miserable reading as US employers cut jobs for the first time since August 2003, posting an overall decline of 17,000 last month.

The fall was a big shock for economists who had predicted a gain of around 80,000 jobs. Of scant consolation was the unemployment rate, which dipped slightly from 5 per cent to 4.9 per cent.

"The idea that we have got outright job destruction in January is quite alarming," Robert Jukes, global investment strategist at Collins Stewart, said. "But I'm not going to get too pessimistic about this one number. We might look back next month and see it is not as bad as it looks right now."

The jobs report provided support to the Federal Reserve's decision this week to slash interest rates by 50bp, bringing total rate cuts in the last two weeks to an unprecedented 125bp.

An anaemic fourth quarter GDP reading and a slowdown in consumer spending were confirmation of the Fed's concern about downside risks to the US economy. The futures market priced in a high likelihood of another 50bp cut when the Fed next meets in March.

However, there were also some economic morsels for the bulls which encouraged traders to buy into weakness this week. The ISM manufacturing index showed factory activity expanded, rising to 50.7 from 48.4, versus expectations of a decline to 47. The data followed a larger-than-expected increase in December durable goods orders.

"Because of the weakening dollar I think the manufacturing sector is going to be the silver lining for the US economy," Mr Schulz said.

Perhaps the week's most significant market catalyst was the uncertain fate of bond insurers. Ambac Financial and MBIA, rose 14.4 per cent to $13.20 and $15.2 to $16.36 over the period on reports of nascent plans which may save the monolines from damaging credit downgrades and shield other financial firms from steep losses.

Added to the mix was a revival in the dealmaking rumour mill as traders bet weakened companies may become ripe for takevover. Shares in Washington Mutual soared 35.4 per cent to $21.82 this week amid persistent speculation it might be acquired by JPMorgan, up 10.6 per cent at $48.25.

The mining sector was shaken by Chinalco and Alcoa's equity raid on Rio Tinto, which put into doubt its proposed $130bn takeover by BHP Billiton and tantalised investors with the potential for further consolidation in the sector. Alcoa gained 11.7 per cent this week to $34.28.

Microsoft's $44.6bn offer for Yahoo offered up the prospect of a mega-merger in Silicon Valley causing Yahoo's shares to surge 26 per cent to $27.64 this week. However, Microsoft fell 7.5 per cent to $30.48 over the period as investors gave the deal a tepid reception.

Microsoft hopes a takeover will appeal to Yahoo's weary shareholders who were disappointed this week by a23 per cent decline in quarterly earnings and a cautious 2008 outlook. The announcement coincided with a disappointing earnings update from Google which fell 8.9 per cent to $515.90 marking a decline of 25 per cent this year.

Motorola sounded a brighter gaining 18.3 per cent to $12.69 this week after it said it was considering spinning off its mobile phone division.

Europe up on takeovers prospects

A new wave of bid activity helped European stock markets defy the gloom in the financial sector this week.

After European shares posted their worst monthly decline since September 2002 in January, the benchmark FTSE Eurofirst 300 began February with a rally and closed 1.8 per cent higher on the week at 1,353.91.

Mining and metals stocks were lifted by a wind from the east on Friday after Chinalco, the Chinese aluminium producer, said it had bought a joint 12 per cent stake in Rio Tinto with US producer Alcoa.

ArcelorMittal gained 8.1 per cent to EU47.2 and French mining firm Eramet gained 4.9 per cent to EU355.02, while in Germany steel firm Salzgitter surged 14.6 per cent to EU111.1 and ThyssenKrupp added 5.2 per cent to EU34.7.

In Scandinavia, Norwegian aluminium producer Norsk Hydro (NYSE:NHY) jumped 11.7 per cent to NKr67.70 and Swedish steel company SSAB's B-shares added 9.3 per cent to SKr159.

In the beleaguered financial sector, there was also bid talk as predators circled French bank Société Générale in the wake of its rogue trading scandal.

Analysts said the bank's credibility was too badly damaged for it to survive in its current form.

SocGen charged ahead 18.9 per cent to EU87.8 with long-time rivals BNP Paribas and Credit Agricole said to be mulling an approach.

BNP slid 0.3 per cent lower to EU65.28, while Credit Agricole rose 3.3 per cent to EU20.93.

"The financial sector is rocking back and forth between negative stories and the Fed and companies trying to reassure investors that the situation is not as bad as they fear," said Philippe Gijsels, senior equities strategist at Fortis Global Markets.

The Federal Reserve cut rates once again this week, but all eyes were focused on a possible bail-out for embattled bond insurers. The monoline bond insurers, face losing their crucial AAA ratings because of subprime mortgage losses.

Fears that downgrades would create a ripple effect that could eat into the value of banks' holdings sent Swiss wealth manager UBS sliding 3.8 per cent to SFr44.4.

Meanwhile, Ireland's banks were all downgraded one notch by UBS on Monday on fears that the Irish commercial property market would burst, knocking their business model.

Allied Irish Banks dropped 4.2 per cent to EU15.31 while Bank of Ireland (NYSE:IRE) shrugged of the downgrade rising 1.3 per cent to EU10.2, Anglo-Irish Bank added 0.2 per cent to EU9.9.

In Spain, the titans of the energy sector were squaring up for a fight to carve up energy giant Iberdrola, which jumped 10.9 per cent to EU10.36 on bid speculation.

A report that France's EDF and ACS, Spain's biggest construction company, were in talks to bid for the Spanish energy company lifted Iberdrola on Wednesday, and the stock was buoyed further by talk later in the week that Germany's Eon was set to enter the fray.

EDF fell 2.2 per cent to EU69 while ACS gained 4.7 per cent to 35.91. Eon edged down 0.7 per cent to 126.25.

ACS said it had not reached an agreement with EDF on making a takeover bid for Iberdrola, but did not deny it was in talks. Analysts said the political hurdles to a hostile takeover remain high.

Portuguese oil company Galp Energia climbed 4.6 per cent to EU16, lifted by the increased free float created by Iberdrola sale of its 3.8 per cent stake in the company on Wednesday

Wall Street stocks swing wildly

US stocks were volatile on Friday as traders weighed up the first fall in US employment in 4½ years against a possible rescue plan for troubled bond insurers.

Traders welcomed a return of dealmaking activity as Microsoft made a $44.6bn takeover approach for Yahoo and also cheered a pick-up in manufacturing activity.

The wild swings capped a good week for US equities which were on pace for their best weekly performance in almost five years, after the Federal Reserve again slashed interest rates to head off the prospect of a recession.

Financials and homebuilders enjoyed the best of this week's gains amid the prospect of cheaper financing, but energy and tech stocks were weak as corporate earnings disappointed.

At midday the S&P 500 Composite was up 0.4 per cent at 1,384.41, on pace for a gain of 4 per cent this week, the best since March 2003. However, the index fell6.1 per cent in January, its worst start to a year since 1990. The Nasdaq Composite put on 2.6 per cent to 2,387.48 this week while the Dow Jones Industrial Average added 3.8 per cent on the week to 12,660.28.

"It's probably a bear market rally but I'm not sensing we're going to go too much lower," Martin Schulz, director of international equities at Allegiant Asset Management, said.

In attempting to gauge whether indeed this week was simply a blip or marked a nadir for recent woes, traders weighed up a slew of economic data which projected contrasting outlooks for the US economy. The Labor Department's jobs report made miserable reading as US employers cut jobs for the first time since August 2003, posting an overall decline of 17,000 last month.

The fall was a big shock for economists who had predicted a gain of around 80,000 jobs. Of scant consolation was the unemployment rate, which fell slightly from 5 per cent to 4.9 per cent.

Analysts were particularly surprised by weak growth in the US service sector. Meanwhile manufacturers cut 28,000 jobs while construction jobs fell 27,000.

The jobs report provided support to the Federal Reserve's decision this week to slash interest rates by 50bp, bringing total rate cuts in the last two weeks to an unprecedented 125bp. An anaemic fourth quarter GDP reading was confirmation of the Fed's concern about downside risks to the US economy.

However, there were plenty of economic morsels for the bulls as well, which encouraged some investors to buy into weakness.

The ISM manufacturing index showed factory activity expanded, rising to 50.7 from 48.4, versus expectations of a decline to 47. The data followed a larger-than-expected increase in December durable goods orders.

"Because of the weakening dollar I think the manufacturing sector is going to be the silver lining for the US economy," Mr Schulz, said.

Perhaps the week's most significant market catalyst was the fate of bond insurers. Ambac Financial and MBIA, rose 12.6 per cent to $12.92 and $13.80 to $16.16 this week amid reports of nascent plans which may save the monolines from receiving damaging credit downgrades.

Added to the mix was a revival in the dealmaking rumour mill. Shares in Washington Mutual soared 30 per cent to $20.95 this week amid persistent speculation it might be acquired by JPMorgan, up 9.4 per cent at $47.65.

Microsoft's $44.6bn offer for Yahoo offered up the prospect of a potential mega-merger in Silicon Valley causing Yahoo's shares to surge 26 per cent to $27.64 this week. However, Microsoft fell 7.5 per cent to $30.48.

Microsoft hopes the deal will appeal to Yahoo's weary shareholders who were disappointed this week by a23 per cent decline in quarterly earnings and a cautious outlook for 2008.

Google also proved a disappointment to investors. The stock fell 9 per cent to $515.28.

Motorola gained 17.5 per cent to $12.61 this week after it said it was considering spinning off its mobile phone division.

Share price falls erode income drawdown plans

When stock markets fall, one of the biggest triggers of panic for private investors is the thought that their retirement savings are being chipped away before their eyes.

Company pension schemes have been badly hit by the recent stock market weakness and many private investors will also have seen a large chunk of their retirement pot eroded in the last few weeks.

"Most people have some equity aspect in their pensions, and so will have seen a fall," says Neil Marsh at Hornbuckle Mitchell, the pension provider.

But for many retirement savers, these patches of market volatility should not be too big a concern. Pensions are long-term investment vehicles and advisers are confident that equities are still a good long-term bet. As long as you can afford to ride out the volatility, there is no immediate need to worry.

Those most at risk are people who are approaching retirement or already taking pension benefits.

Since A-day in April 2006, investors have been able to keep their pension funds invested at retirement and take a percentage of their pot as income each year, rather than buying an annuity. This means that instead of having a predetermined income for life, the amount of income they can take each year depends on the performance of their underlying investments.

People who have purchased an annuity will see no change, as this guarantees a set income for life. But anyone who has opted for income drawdown might find their savings are depleted.

The worst hit will be those who are still aggressively exposed to equities. Investors on the brink of retirement may have to defer taking benefits until stock markets recover, or take a lower level of income than they had planned.

"If people want to preserve what capital they have left, it might mean taking a smaller income," says John Moret at Suffolk Life.

Investors who have already been taking income at or close to the maximum level may find they cannot take as much over the next year as their remaining funds may be worth less.

People who now feel they are over-exposed to equities, and therefore vulnerable to further falls, may look to move some of their assets into safer areas.

Some equity exposure is, however, considered sensible in income drawdown as the funds may have to last for more than a decade.

Peter Hicks, executive director of UK retail at Fidelity, believes a 30 per cent exposure to equities is probably about right. In reality, he says people close to retirement can still have as much as 100 per cent of their portfolios invested in equities.

"It is difficult when markets have gone up for four and a half years in a row," he says. "People might have underestimated the risk they are taking. The last few weeks and months have reminded us of that risk."

Advisers say private investors also risk getting asset allocation very wrong. Many move into riskier assets at the exact time they should avoid them.

Pension investors should generally be heavily geared to equities when they are a long way from retirement. It is generally worth taking more risk earlier on as there is plenty of time to ride out the peaks and troughs of the market. The closer they get to their retirement date, the more they should be looking at safer assets, such as cash and bonds. This shift in asset allocation is known as life-cycle investing.

Ian Price, head of pensions at St James's Place, says more people are following this pattern, and are moving to fixed income as they draw closer to retirement.

"But some still choose to run the gauntlet and keep their funds in equities later on," he says. "Some people keep moving their retirement date later and later and try to make their funds go further by being quite adventurous."

Hicks says private investors are often tempted to go into fashionable investment areas without thinking about their overall asset allocations. Judging by the performance of some of last year's most popular areas - emerging markets and property funds, for example - this may not be a good move.

Price says there is also the danger that people forget about their pension investments.

"These kinds of market movements should remind them to keep a close eye on where they are invested, and make sure their assets are in the right place at the right time," he says.

It is not just direct equities that have been hit by the recent market falls.

Marsh at Hornbuckle Mitchell says with-profits investors are also having a torrid time. With-profits funds aim to smooth out the ups and downs of the stock market. But when markets fall sharply, insurance companies can slash terminal bonuses or introduce penalties for investors who try to encash their funds.

"Terminal bonuses are now under threat," says Marsh. "People close to retirement who are counting on a large terminal bonus may want to switch investments."

But for pension investors who are still some years from retirement, there is little need to change their objectives.

Advisers generally think that anyone at least five to 10 years away from retirement should have long enough to make up any losses.

M&A activity sparks FTSE rally

London equities made strong gains on Friday, as fresh bid activity energerised the mining sector and Wall Street took off after Microsoft made an offer for Yahoo.

The FTSE 100 closed 2.5 per cent higher at 6,029.2, a rise of 149 points. The benchmark index shrugged off worse-than-expected US job creation data, with the spell of dealmaking helping it remain positive.

The FTSE 250 gained 3.1 per cent on the day to close at 10,186.6.

Rio Tinto rose 13 per cent to £57.10 after Chalco of China joined forces with US aluminium smelter Alcoa and took a 12 per cent stake in the miner ahead of the February 6 deadline for a full bid from peer BHP Billiton (NYSE:BHP).

The new consortium, called Shining Prospect, is reported to have paid £60 per share for the stake, above Rio's year-high of £59.30.

It said it did not intend to make a full offer for Rio at the moment, but reserved the right to do so in future. It also said it could participate in another bid for the company.

That helped shares in Rio's existing suitor BHP Billiton to a 9.8 per cent rise at £16.25. BHP has until next Wednesday to lodge an offer for Rio after its initial overtures were rebuffed by Rio's board.

The news, discussed in detail on FT Alphaville's Markets Live, re-stoked hopes for a round of consolidation in the heavily-weighted sector and sent its constituents racing higher.

Anglo American was 5.8 per cent stronger at £29.27 and Antofagasta rose 7.3 per cent to 659.4p. Kazakhmys made gains of 3.9 per cent to £12.62 and Vedanta Resources put on 8.9 per cent to £19.41. Xstrata jumped 4.6 per cent to £39.62.

Fund management stocks recovered in line with the improved conditions on world equities markets. Schroders was 2.6 per cent higher at £11.14 and Man Group gained 6.7 to 579.1p.

New York equities were slightly higher after news broke of Microsoft's $44.6bn bid for Yahoo, the internet search engine.

Microsoft valued its unsolicited offer at $31 per share in cash or stock, a 63 per cent premium based on Yahoo's closing price on Thursday.

News of a fall in the number of jobs in the US in January compared with December took the edge of the bid excitement. Non-farm payrolls showed the number of jobs fell by 17,000, much worse than expectations of an 80,000 increase in the number of jobs created outside the agricultural sector.

In London, stocks directly exposed to US markets moved higher on hopes that the Federal Reserve's latest rate cut would help steer the world's biggest economy away from recession.

Housebuilder Taylor Wimpey rose 7.6 per cent to 193p, while heating and plumbing goods supplier Wolseley (NYSE:WOS) rose 5.1 per cent to 721.2p.

FTSE loses 6,000 after weak US employment data

London equities made strong gains on Friday,as fresh bid activity energerised the mining sector and Wall Street futures took off after Microsoft made an offer for Yahoo.

The FTSE 100 was 2 per cent higher at 5,999.0, a rise of 119 points. The index came off session highs, which took it briefly backover the 6,000 mark, after worse-than-expected US job creation data, but remained positive due to the spell of dealmaking .

Rio Tinto rose 9 per cent to £54.20 after Chalco of China joined forces with US aluminium smelter Alcoa and took a 12 per cent stake in the miner ahead of the February 6 deadline for a full bid from peer BHP Billiton (NYSE:BHP).

The new consortium, called Shining Prospect, is reported to have paid £60 per share for the stake, above Rio's year-high of £59.30.

It said it did not intend to make a full offer for Rio at the moment, but reserved the right to do so in future. It also said it could participate in another bid for the company.

That helped shares in Rio's existing suitor BHP Billiton to a 7.7 per cent rise at £15.91. BHP has until next Wednesday to lodge an offer for Rio after its initial overtures were rebuffed by Rio's board.

The news, discussed in detail on FT Alphaville's Markets Live, re-stoked hopes for a round of consolidation in the heavily-weighted sector and sent its constituents racing higher.

Anglo American was 7 per cent stronger at £29.44 and Antofagasta rose 4.6 per cent to 682½p. Kazakhmys made gains of 4.5 per cent to £12.70 and Vedanta Resources put on 3.2 per cent to £18.58. Xstrata was 1.3 per cent stronger at £38.77. Lonmin was 2.7 per cent ahead at £29.69.

Fund management stocks recovered in line with the improved conditions on world equities markets. Schroders was 2.4 per cent higher at £10.00 and Man Group was 1.2 per cent stronger at 553p.

New York equities were called sharply higher after news broke of Microsoft's $44.6bn bid for Yahoo, the internet search engine.

Microsoft valued its unsolicited offer at $31 per share in cash or stock, a 63 per cent premium based on Yahoo's closing price on Thursday. Shares in Yahoo surged 58.5 per cent to $20.10 in pre-market trade.

The news provided an immediate boost for Wall Street futures, which turned around to predict an opening rise of 133 points on the Dow Jones Industrial Average to 12,747 points. The tech-heavy Nasdaq Composite index was called 27 points higher at 1,875.

Closely-watched US employment data showed a lower number of jobs in the US in January compared with December. Non-farm payrolls showed the number of jobs fell by 17,000, much worse than expectations of an 80,000 increase in the number of jobs created outside the agricultural sector.

Stocks directly exposed to US markets moved higher on hopes that the Federal Reserve's latest rate cut would help steer the world's biggest economy away from recession.

Housebuilder Taylor Wimpey rose 7.3 per cent to 192.4p, heating and plumbing goods supplier Wolseley (NYSE:WOS) rose 4.5 per cent to 716½p and credit checker Experian put on 2.7 per cent to 452.3p.

FTSE back over 6,000 as Wall St futures fly

London equities made strong gains on Friday,as fresh bid activity energerised the mining sector and Wall Street futures took off after Microsoft made an offer for Yahoo.

The FTSE 100 was 2.5 per cent higher at 6,027.5, a rise of 147 points. The mid-cap FTSE 250 made gains of 3.4 per cent to 10,214.7.

The new consortium, called Shining Prospect, is reported to have paid £60 per share for the stake, above Rio's year-high of £59.30.

It said it did not intend to make a full offer for Rio at the moment, but reserved the right to do so in future. It also said it could participate in another bid for the company.

The news, discussed in detail on FT Alphaville's Markets Live, re-stoked hopes for a round of consolidation in the heavily-weighted sector and sent its constituents racing higher.

Fund management stocks recovered in line with the improved conditions on world equities markets. Schroders was 2.4 per cent higher at £10.00 and Man Group was 1.2 per cent stronger at 553p.

New York equities were called sharply higher after news broke of Microsoft's $44.6bn bid for Yahoo, the internet search engine.

Investors were also preparing for the release of closely-watched US employment data due out at 1.30pm London time. The data were expected to show an80,000 increase in the number of jobs created outside the agricultural sector.

Stocks directly exposed to US markets moved higher on hopes that the Federal Reserve's latest rate cut would help steer the world's biggest economy away from recession.

Housebuilder Taylor Wimpey rose 7.3 per cent to 192.4p, heating and plumbing goods supplier Wolseley (NYSE:WOS) rose 4.5 per cent to 716½p and credit checker Experian put on 2.7 per cent to 452.3p.

Investor News in Brief

Last year was the worst on record for the FTSE property sector, according to JP Morgan. But so far this year, it has been the top performer, recording a 4.9 per cent rise in January. Investors have snapped up shares in real estate investment trusts (Reits), attracted by discounts to net asset value of around 30 per cent. Activist funds are also moving in, with Laxey Partners about to float its £500m Terra Catalyst Fund, which will build stakes in underperforming property companies and funds. Lehman Brothers (NYSE:LEH) is now predicting favourable dividend yields for Reits in 2008. For example, Land Securities' yield could reach 4.5 per cent, and it has its own £500m war chest to exploit low prices. So in spite of weak demand for commercial property, Land Securities remains a buy at 1560p.

Earlier this week, pub operator Mitchells & Butlers looked decidedly the worse for wear after one hedging transaction too many. It had to close derivative positions taken out protect a now-abandoned property deal with Robert Tchenguiz, incurring a £274m loss. But the owber of the All Bar One and O'Neill's chains has since received expressions of interest in a takeover bid. This news helped its shares to rise by 18 per cent, offering some respite to investors who have seen the price fall from from a high of 885p last May. With the shares now at 472p, shareholders should hold on for further news.

Asian-focused Standard Chartered was one of the few banks to come through 2007 relatively unscathed by the credit crunch. But this week it had to announce that it was supporting its Whistlejacket Capital structured investment vehicle (SIV) by buying up its short-term debt (or "commercial paper"). That could leave Standard with a commitment equal to £3.6bn. But its shares still trade on about 16 times 2007's expected earnings - a huge premium to the rest of the UK banking sector. So if Asian markets suffer, and further doubts emerge over SIVs, the shares have further to fall. Sell at 1,598p.

All share recommendations by Investors Chronicle.See this week's issue for an exclusive article by legendary fund manager and "Zulu Principle" author Jim Slater explaining why he's buying into Brazil's booming economy, and recommending the best ways to gain exposure. On sale February 1-7.

Wall St seen steady before payrolls, Alcoa in focus

LONDON (Reuters) - Stock index futures indicated a mixed start on Wall Street on Friday before jobs data which will be scrutinized for clues on the strength of the world's largest economy which looks to be headed towards recession.

Alcoa (AA.N) will also be in focus after the U.S. aluminium producer teamed up with Chinese mining group Chinalco to buy a 12 percent stake in Rio Tinto (RIO.L), threatening BHP Billiton's (BLT.L) efforts to win Rio.

By 5:55 a.m EST, Dow futures were up 0.3 percent, S&P futures were steady and Nasdaq futures fell 0.3 percent.

The technology sector was under pressure after Google (GOOG.O) reported disappointing quarterly results on rising capital spending and costs for acquiring advertising customers, unnerving investors who sent its shares down more than 6 percent in extended trade on Thursday.

Attention is firmly focused on U.S. payrolls data due at 1330 GMT.

U.S. businesses likely added more than four times the number of jobs in January than in a dismal December that seemed to push the United States to the brink of recession.

The median estimate of economists polled by Reuters on Wednesday and Thursday put nonfarm payrolls up 80,000 in January, against the gain of only 18,000 in December. Forecasts from 80 economists ranged from up 25,000 to up 130,000.

"While we do not forecast a decline in U.S. GDP, the four headwinds of housing, oil, credit conditions, and financial dislocation will likely keep the U.S. economy at or close to stall speed in 2008," strategists at PIMCO said in a note.

On the results front, Motorola (MOT.N) said on Thursday it was considering separating its loss-making mobile phone unit, in an apparent concession to demands from activist investor Carl Icahn, sending its shares up 12.7 percent in extended trade.

Exxon Mobil (XOM.N) and Chevron (CVX.N) are among companies reporting results on Friday.

U.S. stocks ended higher on Thursday after bond insurer MBIA (MBI.N) reassured investors about its stability, fuelling a rebound by financial shares hammered recently by the prospect of crumbling credit markets.

Bourses boosted by mining bid move

Miners led European shares upward on Friday as a Chinese group bought a stake in Rio Tinto giving a shot in the arm to mining and metals companies ahead of key US jobs data later in the day.

In late morning trade, the FTSE Eurofirst 300 rebounded 1.1 per cent 1,343.80, while Germany's Xetra Dax rose 1.1 per cent to 6,928.28 and in Paris the CAC 40 added 1.6 per cent to 4,945.46.

Rio surged 14.1 per cent to 565p when Chinese aluminium producer Chinalco said it had bought a 12 per cent stake in the company jointly with US producer Alcoa.

The news gave a lift to the metals sector with France's ArcelorMittal up 5.4 per cent to EU46.46, mining firm Eramet gaining 1.3 per cent to EU349.90, Norwegian aluminium producer Norsk Hydro (NYSE:NHY) rising 6.2 per cent to NKr67.30 and Swedish steel company SSAB's B-shares up 4 per cent to SKr157 and Germany's Saltzgitter up 5 per cent to EU109.55.

Banks also rebounded after bond issuer MBIA offered reassurance on its profitability late Thursday easing jitters that defaults by monoline bond insurers would impact banks' profitability.

France's Natixis rose 2.2 per cent to EU11.58, Germany's Deutsche Bank (NYSE:DB) rose 0.8 per cent to EU75.81 while Commerzbank rose 1.5 per cent to EU20.57.

Société Générale jumped 4 per cent to EU14.97 on continued takeover talk, but Swiss wealth manager UBS (NYSE:UBS) failed to recover lost ground falling 3.7 per cent to SFr42.66, while domestic rival Credit Suisse (NYSE:CS) fell 1.2 per cent to EU60.10.

Mining sector gains lift FTSE

London equities made strong gains on Friday, as fresh bid activity energerised the mining sector.

The FTSE 100 started the session 1.2 per cent or 76 points higher at 5,956.3 building on the late rally that took the index 42 points higher on Thursday.

The new consortium, called Shining Prospect, is reported to have paid £60 per share for the stake, above Rio's year-high of £59.30.

It said it did not intend to make a full offer for Rio at the moment, but reserved the right to do so in future. It also said it could participate in another bid for the company.

The news, discussed in detail on FT Alphaville's Markets Live, re-stoked hopes for a round of consolidation in the heavily-weighted sector and sent its constituents racing higher.

A strong overnight showing on Wall Street indices helped fund management stocks recover. Schroders was 2.4 per cent higher at £10.00 and Man Group was 1.2 per cent stronger at 553p.

New York's Dow Jones Industrial Average closed 1.7 per cent higher at 12,650.4 as sentiment in the financial sector improved on returning hope that bond insurer MBIA might retain its triple A credit rating.

Investors were preparing for the release of closely-watched US employment data due out at 1.30pm London time. The data were expected to show an80,000 increase in the number of jobs created outside the agricultural sector.

Stocks directly exposed to US markets moved higher on hopes that the Federal Reserve's latest rate cut would help steer the world's biggest economy away from recesssion.

Housebuilder Taylor Wimpey rose 7.3 per cent to 192.4p, heating and plumbing goods supplier Wolseley (NYSE:WOS) rose 4.5 per cent to 716½p and credit checker Experian put on 2.7 per cent to 452.3p.

Employment drops in a pink slip blizzard

WASHINGTON - In a shower of pink slips, U.S. employers cut jobs last month for the first time in more than four years, the starkest signal yet that the economy is grinding to a halt if it hasn't already toppled into recession.

Conditions are deteriorating, according to the latest employment snapshot by the Labor Department, which showed nervous employers slicing payrolls by 17,000. The country hadn't seen such a nationwide job loss since 2003, when employers were still struggling to recover from the last previous recession.

"We are certainly on thin ice," said John Silvia, chief economist at Wachovia. And even President Bush, normally a cheerleader for the economy, said there were "serious signs" it was weakening.

Wall Street, however, took the news in stride. The Dow Jones industrials rose 92.83 points to 12,743.19.

Job losses were widespread in January. Factories, construction companies, mortgage brokers and real-estate firms were among those eliminating jobs — casualties of the housing bust and credit crunch. The government cut jobs for the first time since last July.

All those cuts swamped job gains in education, health care, retailing and elsewhere.

The unemployment rate actually dipped slightly to 4.9 percent, from 5 percent in December, as people left the labor force.

"Discouraged by a sluggish job market, many more adults are sitting on the sidelines," said Peter Morici, an economist and business professor at the University of Maryland.

Wage growth also slowed, another indication of belt-tightening. Smaller wage gains could make people who still have jobs — already squeezed by high energy prices — reluctant to spend, further hurting the economy.

President Bush prodded Congress anew to quickly pass an economic rescue package.

"There's serious signs that ... the economy is weakening and that we've got to do something about it," Bush said. On Capitol Hill, Democratic and Republican supporters of a stimulus package — including tax rebates for people and tax breaks for businesses — agreed the gloomy employment report underscored a need for urgency. The package is pending in the Senate, where there are disputes over attempts to expand it.

The Democratic presidential contenders, Sens. Hillary Rodham Clinton of New York and Barack Obama of Illinois, said the job losses were evidence of failed Bush policies. "We are sliding into a second Bush recession," Clinton said. Obama called the employment figures "troubling news" and urged Congress to extend unemployment benefits "for more time and to more people."

To help ease the credit crisis, the Federal Reserve announced it would provide cash-strapped banks with an additional $60 billion in short-term loans through auctions later this month. The Fed started the auctions in December and has already provided $100 billion in loans to banks.

With fears of recession growing, the Fed has gotten much more aggressive — ordering two big interest rate reductions in just over a week. A severely depressed housing market, hard-to-get credit, turbulence on Wall Street and "some softening in labor markets" were cited by the Fed when it lowered rates by a bold half-point on Wednesday. The weak employment report would justify additional rate cuts, economists said.

The health of the nation's job market is a critical factor shaping how the overall economy fares. If companies continue to cut back on hiring and put a lid on wages, that will spell more trouble.

People running companies are concerned.

"They are thinking if there is some capital spending I should postpone for a while, I should do that. If there is some hiring I don't necessarily need to do right now, I can put that off for a few months to see what happens," said Joel Naroff, president of Naroff Economic Advisors. "The problem with that thinking is that more economic weakness or a recession can become somewhat of a self-fulfilling prophecy."

Average hourly earnings for jobholders rose to $17.75 in January, a 0.2 percent increase from the previous month. It was half the pace logged in December. Over the past 12 months wages went up by 3.7 percent. With high energy and food prices, though, workers may feel like their paychecks aren't stretching as far.

The unemployment rate had shot up in December to 5 percent, from 4.7 percent in November. The magnitude of that increase — something not seen since right after the September 2001 terror attacks — set off alarms. In the past, such a big increase has signaled the economy was starting a recession or already in one.

With economic growth slowing this year, the unemployment rate will climb again. In fact, Mark Zandi, chief economist at Economy.com, predicts the jobless rate will rise to near 6.5 percent in early 2009.

The 17,000 drop was in total payrolls — both government and private employers — in January, the first monthly decline since August 2003. The government sliced 18,000 positions, while private employers added just 1,000, the fewest in nearly a year.

The government on Friday also released annual revisions — based on more complete information — that showed job creation was even weaker last year than initially thought.

The economy added an average of just 95,000 jobs per month in 2007, versus an earlier estimate of 111,000 a month. In 2006, payroll employment grew by an average of 175,000 a month.

Construction and factory workers have been especially hard hit by the meltdown in housing, which has catapulted home foreclosures to record highs. Construction companies cut 27,000 jobs last month and have lost 284,000 since employment peaked in September 2006. Spending by private builders on housing projects last year plunged by a record 18.3 percent, the Commerce Department said in a separate report.

Factories eliminated 28,000 positions in January, and have cut 269,000 jobs over the past 12 months. Manufacturing activity gained some ground in January, after contracting in December, the Institute for Supply Management said in still another report Friday.

The economy nearly stalled in the final three months of last year, and some economists believe it may actually be shrinking now.

Under one rough rule, the economy would have to contract for six months for the country to be considered in a recession. The likelihood of a recession has risen sharply over the past year, and analysts increasingly believe the U.S. will be in one during the first half of 2008. The worry is that people and businesses will hunker down and pull back their spending, sending the economy into a tailspin.

Bush said, "We're just in a rough patch. And, I'm confident we can get through this rough patch."

Executive Briefing - Friday

ECONOMY

Consumer Mood Fizzles In January

A survey says a modest uptick in consumer confidence in December was short-lived.

The Conference's Board's Consumer Confidence Index slipped to 87.9 in January, down from 90.6 in December. The monthly survey is based on a sample of 5,000 U.S. households.

The research group says consumer views of current business conditions are getting more negative. Their assessment of the job market is also more downbeat than it was a year ago.

Hard percentages underscored the downward shift in consumer sentiment. Those claiming that business conditions are bad rose to 20% in January from 18.8% in December. Those claiming business conditions are good fell to 20.7% from 21.2%.

Consumer views of the job market were somewhat more positive. The percentage of consumers saying jobs are "hard to get" eased to 20.1% from 22.7%, while those claiming jobs are "plentiful" edged up to 23.9% from 23.6% in December.

Looking ahead, the Conference Board says consumers are quite downbeat about the short-term future and a greater proportion expect business conditions and employment to slip more in the months ahead. Also, the number of consumers anticipating an improvement in their earnings has dropped, and that could potentially influence spending decisions.

The number of consumers expecting business conditions to worsen over the next six months rose to 16% from 14.1%, while those expecting business conditions to improve dropped to 11.6% from 13.8%.

EMPLOYEES

Beware Regulating Worker Behavior

Employers who refuse to hire smokers or charge overweight workers more for health insurance should think twice.

Law firm Pepper Hamilton says such companies may be overstepping the bounds of individual privacy.

Susan Lessack, a partner at Pepper Hamilton, says more employers believe that the health insurance claims of smokers and overweight workers are higher than those for nonsmokers and non-overweight employees and want them to contribute more for coverage.

While motivated by valid economic concerns, Lessack says such practices pose legal risks. She notes that some states have a "lifestyle" statute that bans imposing higher health premiums on employees based on lifestyle choices.

"In a state without a lifestyle statute, employers have more freedom to take action based on off-duty conduct by workers," Lessack said. "This is particularly true when employers have job-related reasons for their actions, such as when there's a connection between employees' personal habits and their workplace effectiveness."

In addition to the privacy issues raised by these practices, the risk exists that smokers or obese workers who are treated adversely might have viable claims for disabilities or perceived disability discrimination.

Details of economic news Friday

Some details of economic news Friday:

UNEMPLOYMENT

_Employers cut 17,000 jobs in January, the first such reduction in more than four years. As the labor force shrank, the unemployment rate declined to 4.9 percent from 5 percent in December, the Labor Department reported.

MANUFACTURING

_The Institute for Supply Management said its manufacturing index rose to a reading of 50.7 in January, from a revised reading of 48.4 in the previous month. A reading above 50 indicates growth.

CONSTRUCTION SPENDING

_Construction spending fell by a record 2.6 percent in 2007, after a 5.3 percent increase in 2006, the Commerce Department reported. For December, construction spending dropped 1.1 percent, the most in 15 months.

WALL STREET

_Stocks finished the day higher.

Job losses in January raise recession fears

WASHINGTON (Reuters) - U.S. employers cut payrolls for the first time in 4-1/2 years in January, the Labor Department said on Friday in a report that showed the slowing economy was at growing risk of sliding into recession.

A separate report showing a modest revival in manufacturing at the beginning of 2008 took some sting out of the jobs loss but financial market participants were betting the Federal Reserve will have to keep cutting interest rates.

A series of contrasting reports whipsawed financial markets, leaving stock prices basically unchanged in early afternoon trading and bond prices mixed. The dollar recovered earlier losses to show modest gains against the euro.

Uncertainty about U.S. economic prospects was widespread.

"The economy is very weak. It's on the edge of recession but the data are mixed enough so that you can't say a recession has begun," said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh. "It's hanging by a thread but it hasn't been cut yet."

President George W. Bush acknowledged to a Kansas City, Missouri, audience there were "troubling signs, serious signs that the economy is weakening" and said Congress should speed up work on fiscal measures to get tax rebates to consumers.

Some 17,000 jobs were cut last month, sharply contrary to Wall Street analysts' forecasts that 80,000 would be created. December's new-job total was revised up to 82,000 from 18,000 but October and November gains were revised lower.

At midmorning, the Institute for Supply Management said its index of national factory activity rose to 50.7 in January from 48.4 in December, a sign of expansion. Consumer sentiment also rose, according to a Reuters/University of Michigan Survey, though not as much as had been forecast.

The soft jobs numbers convinced some analysts that the economy already was in deep trouble.

"We are on the brink of a recession now," said Daniel North, chief economist for Euler Hermes ACI in Owings Mill, Maryland. "The job market is always a lagging indicator. This is a nail-in-the-coffin."

The national unemployment rate eased to 4.9 percent from 5 percent in December. The unemployment rate is calculated using a separate survey than the one the department uses for measuring the number of payroll jobs each month.

The Fed cut interest rates again this week in a bid to spur the economy and the Bush administration and Congress are wrangling over the fiscal stimulus plan. But analysts said more policy action may be necessary to try to avert a stall.

Boris Schlossberg, chief currency strategist for DailyFX.com in New York, said the jobs total "shows that the economy is at a virtual standstill."

"It is very negative from a long-term perspective because clearly the Fed is going to have to continue cutting rates," Schlossberg added. Lower U.S. interest rates could put further downward pressure on the dollar's value.

Manufacturers cut 28,000 jobs in January, a 19th straight month of contraction for the sector, while the number of construction jobs dropped by 27,000. The Labor Department said construction industries have shed 284,000 jobs since employment peaked in September 2006, largely reflecting the continuing decline in home building.

A separate report from the Commerce Department showed, not surprisingly, that construction spending dropped 1.1 percent in December, partly because of a fall-off in home construction. Sales, construction and prices of both new and previously owned homes are in sharp decline with no early end in sight.

The job report showed that after holding steady for six months, the average workweek fell to 33.7 hours in January from 33.8 in December, another sign of weakening in labor markets.

The private sector added 1,000 jobs in January but 18,000 government jobs were lost.

Bush sees serious signs U.S. economy is weakening

KANSAS CITY, Missouri (Reuters) - President George W. Bush on Friday said there were troubling signs of economic weakening and urged Congress to move on a stimulus package to help prop up the economy, which has been hit by a housing slump and credit crisis.

Bush's comments mirrored his efforts in his State of the Union address on Monday to calm Americans' recession fears and came on the heels of a government report earlier on Friday showing U.S. employers cut payrolls for the first time in 4-1/2 years in January.

"There are certainly some troubling signs, serious signs that the economy is weakening and we've got to do something about it," Bush told employees at Hallmark Cards Inc. in Kansas City, Missouri.

"The sooner this package makes it to my desk... the better off our economy is going to be," he said, referring to a $146 billion stimulus package he hammered out with House leaders but which is now facing slower going in the Senate.

Bush acknowledged concern about a Labor Department report showing 17,000 jobs were cut last month. But a later report showing a modest revival in manufacturing activity took some sting from the job losses. Financial markets were whipsawed by the contrasting signs of strength and strain in the economy.

"The fundamentals are strong," Bush said. "We're just in a rough patch, witnessed by the unemployment figures today. I'm confident we can get through this rough patch."

Even with troubling signs, Bush insisted there are some strong points to the economy and said encouraging businesses to invest is also a key part of the stimulus package.

Measuring payroll jobs, unem

WASHINGTON - The number of payroll jobs declines for the first time in more than four years but the unemployment rate falls. Why the discrepancy?

The difference results from the fact that the two figures come from different surveys of the labor market.

The unemployment rate is based on a survey of households. It shows the number of unemployed people looking for work as a percentage of the total number of persons in the labor force.

The number of payroll jobs created each month is based on survey of payroll data from businesses and government agencies.

The two figures over time generally show the same trends in the labor market, but the monthly report can at times diverge because two surveys are being used.

White House: Economy solid but uncertainty exists

WASHINGTON (Reuters) - The White House on Friday reiterated its view that the U.S. economy is on a "solid foundation" but acknowledged that the country was going through a period of economic uncertainty.

The White House statement, which included a renewed call on Congress to pass a large economic stimulus package, followed a Labor Department report showing U.S. payrolls shrinking in January for the first time in nearly 4-1/2 years.

"Our economy has a solid foundation, but the U.S. is going through a period of economic uncertainty," the White House said. "Wages have risen, but so have the costs of food, gasoline, and health care. In addition, the downturn in the housing sector and the volatility of the financial markets are leaving many Americans feeling uncertain."

Stocks cap strong week with gains

NEW YORK - Wall Street capped a week of big gains with another sizable advance Friday after investors set aside anxiety over news that the economy lost jobs last month and focused on Microsoft Corp.'s bid for Internet company Yahoo Inc. and a possible rescue plan for the troubled bond insurance sector.

The Dow Jones industrial average and the Standard & Poor's 500 index each rose more than 4 percent for the week, their steepest gains since March 2003.