Eli Lilly 4Q earnings rise sharply

INDIANAPOLIS - The drugmaker Eli Lilly & Co. said Tuesday its fourth-quarter profit surged from a year-ago period that included hefty restructuring costs and liability charges related to its top-selling drug, Zyprexa.

The results beat analysts' expectations and its shares rose more than 3 percent in premarket trading.

For the quarter ended Dec. 31, the Indianapolis-based company earned $854.4 million, or 78 cents per share, compared with $132.3 million, or 12 cents per share, a year ago. Excluding certain restructuring and acquisition charges, adjusted earnings rose 10 percent to 90 cents per share from 82 cents per share.

Revenue rose 22 percent to $5.19 billion from $4.25 billion, benefiting partly from a 10 percent rise in Zyprexa sales.

The results beat estimates by analysts polled by Thomson Financial, who forecast profit of 89 cents per share on $4.81 billion in revenue.

Lilly shares rose $1.55 to $52.95 in premarket trading Tuesday.

During the fourth-quarter of 2006, Lilly recorded $945 million in one-time charges for the closure of several manufacturing facilities and for a legal settlement over the anti-psychotic Zyprexa.

Zyprexa recorded $1.3 billion in sales during the fourth quarter of 2007, a 10 percent increase from the last quarter of 2006. The depression treatment Cymbalta recorded another strong quarter, with sales rising 48 percent to $628 million.

Lilly had six drugs pass the billion-dollar mark in full-year sales in 2007. Zyprexa topped the list with full-year sales rising 9 percent to $4.8 billion.

Cymbalta saw its full-year sales rise 60 percent on strong demand and increased prices to $2.1 billion. The erectile dysfunction drug Cialis recorded $1.2 billion in sales, a 25 percent increase over 2006.

Other drugs passing $1 billion in sales included Gemzar, Humalog and Evista.

"Our additional investment in sales and marketing helped fuel accelerated double-digit sales growth this quarter, which was once again driven mainly by volume," said Sidney Taurel, chairman and chief executive.

For the full year 2007, Lilly earned $2.95 billion, or $2.71 a share, up from $2.66 billion, or $2.45 a share, a year ago. Revenue rose to $18.6 billion from $15.7 billionn a year ago.

The company affirmed its full-year 2008 adjusted earnings guidance in the range of $3.85 to $4 per share. Analysts expect earnings of $3.88 per share for 2008.

Big Internet earnings week points up uncertainties

SAN FRANCISCO (Reuters) - Big Internet stocks have fallen 25 percent to 40 percent in the last quarter and haven't looked cheaper in years. But despite expected strong year-end results, many investors are likely to shy away in the short run.

Investors are set to focus on company outlooks and how a slowing U.S. economy will lead to advertising cutbacks and more hesitation among online shoppers over the course of 2008. Yahoo Inc posts results on Tuesday, followed by Amazon.com Inc on Wednesday and Google Inc a day later.

"At the moment, investors are paying an awful lot more attention to outlooks than they are to past performance," said Jeffrey Lindsay, an analyst with broker Sanford C. Bernstein. "Any sign of lowering guidance is instantly seized upon."

Google faces uncertainty over how its online ad business performs in a tighter economy and questions over shifting its computer-based business on to mobile phones, if it wins rights to U.S. airwaves and becomes a wireless operator.

Because Google does not comment directly on its outlook, investors must read the body language of Chief Executive Eric Schmidt or decipher the meaning of any passing comment Google offers about key advertisers in financial services or autos.

The Internet market leader is expected by Wall Street to post fourth-quarter revenue growth of better than 50 percent amid ongoing market share gains in Google's search business. Analysts look for revenue at Yahoo to grow just 15 percent.

Highlighting the contrast with Google, Yahoo is set to announce job cuts alongside lower earnings this week. Sources familiar with the plan say fewer than 1,000 employees could lose jobs -- about half what was rumored on some blog sites.

Yahoo's fourth-quarter profit is seen down 31 percent to 11 cents per diluted share, while Google is slated to post a 40 percent rise, excluding stock options and one-time items.

"We think at the moment, the most negative scenario for Yahoo is fully priced in," Lindsay said. Yahoo shares, which closed 5.3 percent down on Monday at $20.78, are down nearly 40 percent from year-high levels in late October.

He said Yahoo is likely to lose highly profitable broadband partnerships with AT&T Inc and others in the next 18 months, while warning of further weakness in its corporate brand advertising business as the U.S. economy hits the skids.

Lindsay sees no short-term catalyst coming out of Yahoo's expected "mediocre" results; "What investors want to see is how they are going to improve their core advertising business."

On the back of strong toy sales, Amazon revenue is expected to rise 34 percent over a year ago to a record $5.36 billion. Net profit is expected to double to about 48 cents per share.

"Amazon and Yahoo are likely to hide behind deteriorating macroeconomic conditions," Global Crown Capital analyst Martin Pyykkonen said. "They can always raise their outlooks later in the year if things improve."

CHEAP? OR GETTING CHEAPER?

Marking a dramatic reversal, Google was trading near $750 12 weeks ago -- and was forecast to approach $900 in 2008 by bullish Wall Streeters -- and now trades just above $550.

Google is trading around 32 times the 2008 earnings estimate of Bernstein's Lindsay, compared with the pricey 55 times price-to-earnings valuation that he has on Amazon.

Pyykkonen said Amazon remains "priced to perfection" -- meaning the stock price assumes perfect execution. Amazon has a price-to-earnings multiple three times that of eBay's beaten-down valuation.

Despite a 25 percent decline in Google stock since early November, Wall Street is far from capitulating. Nineteen analysts still recommend investors buy Google stock, while only three rate the shares "hold" and no one advises selling.

Clayton Moran of Stanford Group is among the most bearish analysts on Google's stock. He takes aim at the notion that Google's pay-for-performance Web search advertisements somehow insulate the company from a weakening economy.

"A pullback in consumer spending could negatively affect Google's search volumes and click prices and therefore (its) advertising revenue," Moran argued in a research note to clients as he downgraded the stock to hold from buy last week.

Moran has the lowest price target of any analyst formally following the company, at $615.

To win the airwaves needed to launch a national wireless network, Google would likely pay upward of $10 billion just for radio licenses, along with $5 billion a year over the next five years to build out the network, Bernstein has calculated.

Unless it finds a deep-pocketed partner, Google would be committing itself to a business with far lower capital returns, Lindsay argues. Until recently, most analysts had bet Google would stay away from investing in wireless networks.

But strongly worded comments from CEO Schmidt about Google's focus at the World Economic Forum in Davos on Friday have many analysts believing Google may be serious about a U.S. wireless network.

"Google on a relative basis, is starting to look quite cheap," Lindsay said. "But investors are hanging back. They want to find out if Google intends to bid to win in the wireless auctions."

JetBlue reports 4Q loss, annual profit

NEW YORK - JetBlue Airways Corp. reported a narrower than expected loss in the fourth quarter and its first full-year profit in three years as an increase in traffic helped the discount airline compensate for skyrocketing fuel costs.

JetBlue, based in Forest Hills, N.Y., said Tuesday it lost $4 million, or 2 cents a share, in the three months ended Dec. 31 in contrast to a profit of $17 million, or 10 cents a share, in the year-ago quarter.

Revenue rose 16.6 percent to $739 million from $633 million.

Analysts polled by Thomson Financial expected a loss of 5 cents a share on revenue of $731 million. The analysts' earnings estimates typically exclude one-time items.

For the full year, JetBlue earned $18 million, or 10 cents a share, versus a loss of $1 million, break-even on a per-share basis, in 2006. Revenue jumped 20.2 percent to $2.84 billion from $2.36 billion in 2006.

Analysts had expected a 2007 profit of 7 cents a share on revenue of $2.8 billion.

JetBlue's fourth quarter traffic increased by 7.1 percent to 6.2 billion revenue passenger miles — a measure of one paying passenger flown one mile — on an 11.5 percent increase in capacity. Occupancy fell 3.1 percentage points to 76.6 percent.

Revenue per available seat mile, a measure of unit revenue, rose 2.5 percent in the quarter to 8.34 cents from the fourth quarter of 2006. However, unit costs rose 11.7 percent in the quarter to 8.73 cents, mostly due to higher fuel costs.

For the full year, unit revenue rose 6.3 percent, while unit costs rose 7.1 percent.

Dow Chemical 4Q profit beats estimates

GRAND RAPIDS, Mich. - Dow Chemical Co. said Tuesday its fourth-quarter earnings fell 52 percent due to restructuring and a $1.7 billion rise in spending on materials and energy, the largest year-over-year cost increase in company history.

Net income fell to $472 million, or 49 cents per share, from $975 million, or $1 per share, in the 2006 fourth quarter. Excluding one-time restructuring charges and acquisition-related research and development costs of $334 million, the company earned 84 cents per share in the latest period, down from 98 cents a year ago.

The results topped estimates of analysts surveyed by Thomson Financial, who expected a profit of 80 cents per share on revenue of $13.08 billion.

Andrew N. Liveris, Dow's chairman and chief executive, said in a statement it was "a quarter in which our entire organization responded with speed and discipline to an unprecedented run-up" in the costs of energy and raw materials.

Midland-based Dow raised prices "to mitigate much of the $1.7 billion year-over-year increase," he said.

Sales grew 16 percent to $14.23 billion from $12.24 billion a year ago, with volumes up 4 percent on strong international growth.

The company's performance underscored the value of its joint ventures in its overall strategy, Liveris said.

"With two-thirds of our sales outside of the United States, we were well placed to capture growth opportunities around the world," he said.

Net income for all of 2007 was $2.9 billion, or $2.99 per share, compared with $3.7 billion, or $3.82 per share, in 2006. Excluding certain charges in both periods, earnings per share were $3.76 in 2007, down from $4.25 in 2006.

Dow reported annual sales of $53.5 billion last year, up 9 percent from $49.1 billion in 2006.

Liveris called 2007 a strong year for the company, its third-best earnings year ever, despite higher costs for energy and raw materials. Dow spent $24.6 billion on these costs, three times as much as in 2002.

While there is some uncertainty about the U.S. economy in 2008, Dow's global growth and investment in joint ventures "is expected to bring another solid year of earnings for Dow," he said.

Shares rose 66 cents to $38.25 in pre-market trading.

Travelers 4Q profit falls 11 percent

MINNEAPOLIS - Travelers Cos., one of the nation's largest commercial insurers, said Tuesday its fourth-quarter profit fell 11 percent on lower premiums and investment income, but still beat Wall Street expectations.

However, its predicted 2008 profits fell well below analyst predictions.

For the three months ended Dec. 31, net income slipped to $1.06 billion, or $1.64 per share, from $1.19 billion, or $1.68 per share, a year ago. Excluding items, profit totaled $1.63 per share in the latest quarter, compared with $1.69 per share in the prior-year quarter.

The results topped the consensus estimate of analysts polled by Thomson Financial, who expected profit of $1.61 per share.

Net investment income dipped to $696 million from $701 million in the 2006 quarter, due to slightly lower returns in the non-fixed income portion of its portfolio. Net written premiums of $5.4 billion fell 1 percent, but were flat when adjusted for the sales of Afianzadora Insurgentes and Mendota.

The St. Paul-based company said retention rates were strong but renewal price changes were slightly weaker and new business volumes decreased amid competition.

Chairman and chief executive Jay Fishman said Travelers will use its financial and operational strength "to write attractive business opportunities while always remaining highly disciplined in our underwriting."

Travelers said its business segment had an operating profit of $729 million for the quarter, up from $703 million during the same period a year ago. That was after $3 million in losses from southern California wildfires.

Net written premiums dropped 2 percent from a year ago. The company said retention was "extremely strong" but renewal pricing was slightly lower than recent quarters, and new business volumes dropped versus a year ago.

Personal insurance had a $201 million operating profit, down from $348 million a year ago on higher weather-related losses and a lack of favorable prior-year development.

Travelers said its board approved an additional $5 billion worth of common stock repurchases, bringing the company's total remaining authorization to about $5.9 billion.

The company forecast 2008 operating profit of $5.40 to $5.75 per share, including catastrophe losses of $340 million, or 55 cents per share. That was well below Wall Street's expectation of $6.24 per share. It said its guidance included catastrophe losses of $340 million after taxes, or 55 cents per diluted share. It also expects low single digit growth in the size of its investments, and $2.7 billion in share repurchases for the year.

For all of 2007, Travelers earned $4.6 billion, or $6.86 per share, up from $4.21 billion, or $5.91 per share, the prior year. Revenue rose to $26.02 billion, from $25.09 billion a year ago.

AEP 4Q profit, revenue rise

COLUMBUS, Ohio - American Electric Power Co., one of the nation's largest power generators, said Tuesday that its fourth quarter profit rose 28 percent, helped by favorable weather, higher rates across much of its service area and marketing efforts that resulted in long-term supply deals.

AEP said it earned $231 million, or 58 cents per share, for the quarter ended Dec. 31 compared with $181 million, or 46 cents per share, in the year ago quarter. Revenue rose 10 percent to $3.3 billion from $3.0 billion last year.

Analysts surveyed by Thomson Financial expected a profit of 50 cents a share on revenue of $3.4 billion.

"Our utilities benefited from continued efficient operation, implementation of new rates in five of our 11 states and more favorable weather than we had in 2006," AEP chairman, president and chief executive Michael Morris said in a statement.

The company's marketing efforts were successful in reaching new long-term deals for AEP to supply power to municipal electric systems and rural electric cooperatives, Morris said.

AEP, based in Columbus, has more than 5 million customers in 11 states.

NTT DoCoMo profit rises 38 percent in 3Q

TOKYO - Japan's top mobile phone carrier NTT DoCoMo said Tuesday its profit rose 38.4 percent in the October-December quarter, buoyed by the introduction of new subscription services and cost-cutting efforts.

Net income at NTT DoCoMo Inc. for the fiscal third quarter rose to 130 billion yen ($1.22 billion), up from 93.9 billion yen the previous year.

Group revenue slipped 1.4 percent to 1.197 trillion yen ($11.34 billion).

Cost-cutting through the introduction of new subscription service methods and cheaper handsets contributed to the profit increase, the company said. The company said introduction of popular high-tech handsets also helped results.

Although DoCoMo dominates Japanese cell phone market, it has struggled to add new users in the face of fierce competition with rival carriers KDDI Corp. and Softbank Corp.

The new services "got off to a good start," DoCoMo President Masao Nakamura said in a statement. "While the competitive environment is expected to remain harsh, we are committed to taking up the challenge to create new values and move one step ahead."

For the first nine months of its fiscal year, DoCoMo said its group net profit fell 6.7 percent to 376.5 billion yen from 403.7 billion yen from a year earlier.

With the upbeat fiscal third quarter results, the company left its annual net profit forecast for the fiscal year ending March 31 unchanged at 476 billion yen, up 4.1 percent from a year earlier.

Shares of NTT DoCoMo, which announced earnings after trading ended on the Tokyo Stock Exchange, rose 1.24 percent Tuesday to 163,000 yen ($1,529).

The company's earnings results are based on U.S. accounting standards.

Cost cutting boosts DoCoMo profit amid price war

TOKYO (Reuters) - NTT DoCoMo Inc (9437.T) booked a 35 percent gain in quarterly profit as marketing costs dropped, but falling revenues showed the pain of a price war as Japan's biggest mobile phone operator lost ground to nimbler rivals.

DoCoMo has struggled to grab more customers as Japan's No. 3 operator, Softbank Corp (9984.T), attracts users with discounts and an advertising blitz while KDDI Corp (9433.T), the second-largest mobile firm, has wooed younger users in the saturated market with music downloads and the like.

DoCoMo, which has cut prices to compete, saw revenue drop 1.4 percent to 1.2 trillion yen ($11 billion) in the October-December quarter, and an analyst warned this was not sustainable.

"While monthly net subscriber growth is on a recovery trend, it is generated by a decline in the cancellation rate, and we are not seeing signs of improvement in new sign-ups," Credit Suisse analyst Hitoshi Hayakawa said in a research note.

He warned DoCoMo may suffer increased cancellations after Softbank launched a new discount program for students.

DoCoMo has half of Japan's 100 million mobile phone users on its books but it has only increased that by less than 1 million in the past year, compared with 3.4 million net new users for KDDI and 2.1 million for Softbank.

DoCoMo, which commands just over half of Japan's 9 trillion yen mobile market, said operating profit rose to 217 billion yen ($2 billion) in the latest quarter.

"We plan to bolster our business with new handsets this spring," DoCoMo President Masao Nakamura told a new conference, adding his firm was on track for a forecast small profit gain.

Marketing costs slid from a year earlier, a time when DoCoMo spent heavily ahead of new rules that allow users to switch carriers but keep the same phone number.

It also introduced new pricing plans last year, cutting monthly basic fees but charging higher prices for phones.

The new plans have allowed the carrier to cut large commissions it pays handset distributors, boosting profitability.

The wireless carrier, majority owned by fixed-line giant Nippon Telegraph and Telephone Corp (9432.T), forecast a full-year operating profit of 780 billion yen, up 0.8 percent from the previous year and slightly smaller than 781 billion yen in a poll of 18 analysts.

Last week, KDDI posted a 40 percent rise in quarterly operating profit after strong growth in its wireless business more than offset losses at its fixed-line operation. It also boosted its annual outlook above analysts' expectations.

Nakamura said the new pricing program and latest handsets have attracted more users than expected and he forecast a decline in the rate of churn, or cancellations, by customers.

As well, the firm announced a tie-up with Internet search giant Google Inc (GOOG.O) last week, hoping to attract new users and keep old ones by offering access to Google's Gmail e-mail and video Web site YouTube.

DoCoMo shares have fallen 12 percent so far this year, roughly in line with Japan's benchmark Nikkei average.

Prior to the announcement, DoCoMo shares closed up 1.2 percent at 163,000 yen. The Nikkei rose 3 percent.

($1=106.49 Yen)

Rate cut hope lifts Wall Street

NEW YORK (Reuters) - Stocks rose on Tuesday as expectations the Federal Reserve will slash interest rates for the second time in a week boosted banks, insurers and home builders.

Investors snapped up shares of JPMorgan Chase and Wells Fargo on a bet lower interest rates will boost their profits and shore up the economy. Shares of insurer American International Group gained more than 3 percent.

Home builder shares surged, with Pulte Homes up more than 7 percent, on hopes lower rates will also revive the moribund housing market.

Fresh economic data showing an unexpected jump in orders for long-lasting manufactured goods offered another reason to be hopeful about the health of the economy. Plane maker Boeing Co. led the Dow's climb.

The Fed's policy-setters are widely expected to cut interest rates again on Wednesday, a week after they slashed rates by three-quarters of a percentage point in an emergency step to ward off a recession.

"The Fed is still going to do a 50 basis points rate cut," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut. "I don't think they're going to run the risk of disappointing what they believe are very fragile credit markets."

The Dow Jones industrial average gained 96.41 points, or 0.78 percent, to 12,480.30. The Standard & Poor's 500 Index climbed 8.33 points, or 0.62 percent, to 1,362.30. The Nasdaq Composite Index finished up 8.15 points, or 0.35 percent, at 2,358.06.

BANKS RALLY

Shares of JPMorgan, the No. 3 U.S. bank, finished up 4.1 percent at $47.45 on the New York Stock Exchange, while those of Wells Fargo, the nation's fifth-largest bank and second-largest mortgage lender, ended up 2.5 percent at $32.60.

Shares of AIG ended among the Dow's and the S&P 500's top advancers, up 3.9 percent at $56.73. Shares of Bank of America Corp, the largest U.S. bank by market value, gained 1.8 percent to $41.94.

The S&P financial index closed up 1.4 percent.

Shares of Pulte Homes, the No. 3 U.S. home builder, finished up 7.8 percent at $14.85 on the NYSE, while those of WCI Communities Inc, which builds luxury homes mostly in Florida, jumped 8 percent to $4.86.

The Dow Jones home construction index closed up 3.7 percent.

Shares of big manufacturers rose following the report on durable goods orders. Boeing led the Dow's climb with a gain of 4.3 percent to end at $80.96.

"The underpinnings of the economy got a little bit better picture today from the durable goods number... it takes a little bit of steam out of recessionary calls," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

Shares of iPod maker Apple Inc were the top advancer on the Nasdaq, ending up 1.2 percent at $131.54.

Tech sector gains, however, were kept in check by disappointing outlooks from technology companies including EMC Corp and caution ahead of quarterly results from Yahoo Inc.

After the bell, Yahoo, the Internet media company, reported a drop in quarterly profit and forecast 2008 revenue below Wall Street expectations. Its shares dropped nearly 7 percent from a Nasdaq close of $20.81.

Trading was moderate on the New York Stock Exchange, with about 1.56 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq about 2.24 billion shares traded, above last year's daily average of 2.17 billion.

Advancing stocks outnumbered advancing ones by a ratio of about 9 to 5 on the NYSE and by 5 to 4 on Nasdaq.

Stocks advance as investors awaid Fed

NEW YORK - Wall Street advanced sharply Tuesday as the Federal Reserve opened a two-day meeting expected to bring another interest rate cut to revitalize the U.S. economy.

The Fed's rate decision is clearly the market's focus this week, and trading has been marked by investors' conjectures about policymakers' thoughts on the weak economy and crunched financial industry. With an announcement not expected until Wednesday afternoon, the market in the meantime digested data on earnings, consumer spending and durable goods.

Investors did get some encouragement about the economy after the Commerce Department said orders for big-ticket items rose 5.2 percent in December, the widest jump in five months. In addition, the Conference Board reported consumer confidence fell in January — pretty much as expected.

Economic data will continue to be scrutinized as investors try to determine what the Fed's take is on the economy. Investors are angling for a half-point cut following an emergency three-quarter-point cut last week.

"The market is just in a holding pattern," said Todd Leone, managing director of equity trading at Cowen & Co. "It seems we've hit a short-term bottom, and the market has been stabilizing as we wait to hear what the Fed says."

The Dow Jones industrial average rose 96.41, or 0.78 percent, to 12,480.30. The blue chip index closed near its high of the day.

Broader indexes also rose. The Standard & Poor's 500 index rose 8.34, or 0.62 percent, to 1,362.30, and the Nasdaq composite advanced 8.15, or 0.35 percent, to 2,358.06.

Government bond prices fell as stocks rose, indicating that investors feel less need for the safety of Treasurys. The 10-year Treasury note's yield, which moves opposite its price, was at 3.66 percent, up from 3.58 percent late Monday, and rose to 3.68 percent in after-hours trading.

The dollar was mixed against most major currencies, and gold prices fell.

Oil prices moved higher as traders waited to see what the Fed's next move will be. A barrel of light sweet crude rose 65 cents to $91.64 a barrel on the New York Mercantile Exchange.

Wall Street has been extremely volatile in recent weeks amid fears of a U.S. recession and further write-downs in the financial sector. However, that has given way to a more quiet tone this week as investors looked for their second-straight day of gains before the Fed's decision.

Central bankers are widely expected to lower its key rate, now at 3.5 percent, by as much as one-half percentage point to 3 percent when policymakers wrap up on Wednesday. This will be the last meeting for seven weeks, but that doesn't rule out another emergency cut in the meantime.

Rate cuts are just one part of the central bank's plan to boost the economy. The Fed auctioned $30 billion in funds to commercial banks on Tuesday — the fourth time since last month it has provided cash-strapped banks with extra reserves.

The auction is designed to keep banks lending and prevent a severe credit squeeze from pushing the country into a recession. Global banks have lost about $141 billion since the credit crisis began last year.

But, all of this has done little to convince investors that Wall Street will return to the high levels seen in October anytime soon. Since most investors have priced in a rate cut, the market might still continue to trend lower until the economy shows signs the Fed's policy is working, analysts said.

"It is going to take a little time, and one thing people have to realize is that sometimes consolidation is healthy because the market can't run forever," said Ryan Larson, senior equity trader at Voyageur Asset Management. "Since October we've been worried about slower growth and rising inflation, and right now we're in a haze."

Consolidation over the past three months has certainly been dramatic. The Dow is down about 12 percent, or more than 1,700 points; the S&P has plunged 13 percent, or about 204 points; and the tech-heavy Nasdaq has lost about 507 points, or 18 percent.

Larson also said the market is scrutinizing corporate earnings, and what chief executives say about 2008. As American Express Co.'s fourth-quarter results indicated Monday, companies are being forced to prepare for a climate throughout 2008 of deteriorating credit and slower spending.

AmEx, the world's third-largest credit card brand, said its fourth-quarter profit fell 10 percent after socking away more cash in reserve to use in case cardholders can't pay back their debt. Shares rose 40 cents to $47.80.

In other corporate news, embattled mortgage lender Countrywide Financial Corp., which was recently bought by Bank of America Corp., posted a sharp loss, as expected, due to its missteps in subprime lending. Countrywide rose 36 cents, or 6.2 percent, to $6.31; BofA added 74 cents to $41.93.

Search engine Yahoo Inc. reported fourth quarter earnings Tuesday that beat expectations, but sales guidance for 2008 disappointed investors. Shares of the company fell $1.11, or 5.2 percent, to 19.70 in after-hours trading after it closed at $20.81 during the regular session.

The Russell 2000 index of smaller companies rose 2.81, or 0.40 percent, to 705.20.

Advancing issues led decliners by a 2-to-1 basis on the New York Stock Exchange, where consolidated volume came to 4.07 billion shares, up from Monday's 3.96 billion.

In Asian trading, Tokyo's Nikkei stock average closed up 2.99 percent; Shanghai's key index added 0.87 percent; and Hong Kong's main index rose 0.99 percent. In European trading, London's FTSE rose 1.66 percent; Frankfurt's DAX rose 1.09 percent; and Paris' CAC rose 1.92 percent.

Wall Street edges up on earnings

US stocks advanced again on Tuesday as some better-than-expected corporate earnings and a surprising jump in durable goods orders helped boost fragile sentiment on Wall Street.

Equities ploughed a narrower trading range than in recent days as investors awaited Wednesday's Federal Reserve Open Market Committee decision on interest rates.

Traders found strength in telecommunications, homebuilders and financial companies, while transport stocks became one of the few sectors to move into positive territory for the year. However the technology again lagged the market as concerns about growth prospects continued.

The S&P500 closed up 0.6 per cent at 1,362.30. The Dow Jones Industrial Average rose 0.8 per cent to 12,480.30 while the Nasdaq Composite gained only 0.4 per cent to 2,358.06.

Many analysts are cautious on the near-term outlook for stocks amid fears of a US recession, further writedowns in the financial sector and continued uncertainty surrounding bond insurers.

"We are still to be convinced that the strategic case for equities has improved sufficiently," said David Shairp, global strategist at JPMorgan Asset Management. In order to make a stronger case, Mr Shairp said the market needed to see "central banks ease, the banking system recapitalises itself, equity valuations are compelling and technical indicators are supportive".

But others have pointed to signs of improvement, with the S&P avoiding late-session sell-offs in four of the past five trading days.

"The market has shown a little bit of stability over the last few sessions," Richard Sparks, senior equities analyst at Schaeffer's Investment Research, said. "The Fed holds a big wild card - they have the power to make or break the market."

In spite of delivering a 75 basis point cut last week, the Fed is expected to continue easing rates on Wednesday with the futures market pricing in a 72 per cent likelihood of a 50bp cut. Traders have warned that any deviation from this line could spark another sell-off in equity markets.

Tuesday's economic news was dominated by a larger-than-expected rise in durable goods orders, which provided solace to investors fearing a manufacturing slump. Orders for big ticket items rose 5.2 per cent in December against a forecast gain of 2.1 per cent.

Among Dow components benefiting from the improved outlook were Boeing (NYSE:BA), up 4.3 per cent at $80.96, and Caterpillar (NYSE:CAT), up 1.1 per cent at $68.99.

"There is no doubting the strength of the December data but there is plenty of doubting how sustainable this is and what this says about future trends," Alan Ruskin, chief international strategist at RBS Greenwich Capital, said.

Other analysts were more upbeat. TJ Marta, fixed income strategist at RBC Capital Markets said: "We are witnessing the positive impact of the cheap US dollar on the economy, and the reason we only believe the economy will flirt with recession rather than falling into a full fledged one."

There was little sign of optimism for US consumers after the S&P/Case-Shiller 10-city home price index fell a record 8.4 per cent in the year during November, an 11th straight monthly decline. Meanwhile the latest reading of the Conference Board's US consumer confidence index fell from an upwardly revised 90.6 to 87.9 in January, slightly better than expected.

Earnings news was more upbeat, with 20 of 26 S&P500 companies reporting results before the close beating estimates.

An exception was Countrywide Financial (NYSE:CFC), which posted a wider-than-expected $422m loss after the mortgage lender set aside $924m to cover rising loan losses. In spite of the loss, the shares rose 6.1 per cent to $6.31 after Bank of America's chief executive said its takeover was a "go".

Also in the financial sector, American Express (NYSE:AXP), up 0.8 per cent to $47.80, posted a 10 per cent decline in net income as it set aside a $438m charge to cover bad loans.

Meanwhile bond insurers including Ambac Financial, up 16.2 per cent at $12.93 rallied on hopes they may keep their triple-A ratings.

In industrials Dow Chemical (NYSE:DOW)said fourth quarter earnings fell by more than half to $472m as agricultural and energy costs rose sharply. However, the results beat estimates and the shares rose 0.9 per cent to $37.94. .

Technology was among the weakest sectors after VMware, the virtualisation software firm, missed Wall Street's revenue target and its growth outlook disappointed. The shares plunged 33.9 per cent to $54.87.

Global stocks firmer on US rate cut hopes

LONDON (AFP) - European stock markets closed higher Tuesday, helped by a positive performance in Asia as investors pinned their hopes on another substantial US interest rate cut, dealers said.

Asian and European shares rallied after an overnight rebound on Wall Street on the view the US Federal Reserve will slash lending costs again to prevent the US economy falling into recession.

Dealers said news of a bigger-than-expected drop in new US home sales had raised expectations that the Fed will reduce rates again on Wednesday following last week's steep emergency cut of three quarters of a percentage point.

Most expect another half a point cut although that would take the US back close to its current rate of inflation, raising the question of how much further the central could and should go in the face of rising prices.

Dealers said that while the markets got a boost Tuesday from bargain hunting after recent heavy losses, any disappointment with the Fed could prove costly.

In London, the FTSE 100 index closed up 1.66 percent at 5,885.20 points, in Paris, the CAC 40 index gained 1.92 percent to 4,941.45 points while in Frankfurt the DAX rose 1.09 percent at 6,892.96 points.

The Euro Stoxx 50 index put on 1.08 percent at 3,806.20 points.

Asian markets clawed back some of Monday's heavy losses but persistent worries about the outlook for the US economy capped the rebound. Tokyo rose 3.0 percent, after Monday's slump of nearly 4.0 percent, while Hong Kong advanced 1.0 percent.

On Wall Street at 1605 GMT, the Dow Jones Industrial Average was up 0.26 percent, extending Monday's gains after better-than-expected durable goods orders figures suggested some resiliency in the US economy.

The 5.2 percent rise in orders for big ticket manufactured durable goods in December was well above market expectations.

"This report may suggest more resiliency than expected but the report is just one factor," said Stephen Gallagher at Societe Generale.

Fred Dickson at DA Davidson & Co. said he "wouldn't be surprised to see some modest profit-taking following the Fed announcement as traders sell on the actual news."

After the Fed decision, all eyes will then be on the US January employment data due out Friday as key indicator of the country's economic health.

"This data will be closely scrutinized for signs (of) whether the economy has slowed significantly over the last month," he said.

In London, miners provided support on the view that another US rate cut will keep the all important US economy on track and demand for raw materials strong.

Recovering from Monday's losses, Anglo American rose 5.80 percent to 2,608 pence, BHP Billiton added 3.95 percent to 1,449 pence and Rio Tinto put on 2.66 percent to 4,670 pence. Xstrata advanced 5.89 percent at 3,719 pence.

In Paris, dealers said the key focus remained what the Fed would do on interest rates, adding that anything less than the half point reduction expected could disappoint the markets and spark a sell-off.

The strong US durable goods figures "were a good indicator of the level of investment," said Rene Defossez, economist with investment bank Natixis.

Dealers said Societe Generale, rocked by a rogue trade scandal, jumped 10.42 percent to 78.45 euros on speculation it could be taken over by one of its French peers, among them BNP Paribas, up 2.92 percent to 67.60 euros.

Government officials ruled out any hostile takeover for the bank Tuesday, saying it would remain under French control.

In Frankfurt, property specialist Hypo Real Estate jumped 8.36 percent to 21.38 euros, rebounding after recent heavy losses and on news of a US acquisition.

TUI was up 4.98 percent at 14.75 euros and Lufthansa added 1.86 percent at 16.44 euros after the two companies announced plans for a joint venture low-cost airline.

Elsewhere in Europe, Madrid's Ibex-35 was up 1.69 percent to 13,246.6 points, in Brussels the Bel-20 jumped 2.86 percent to 3,768.41 points, the SMI in Switzerland gained 1.62 percent at 7,704.39 points, the AEX in Amsterdam rose 1.54 percent to 446.08 points and in Milan the SP/Mib rose 0.97 percent to 34,565 points.

China concerns delay HK trade by mainlanders

China's worries over the subprime debacle are contributing to delays in allowing individual mainland citizens to buy shares on the Hong Kong stock market, the head of the self-governing territory's central bank said on Tuesday.

"The subprime mortgage crisis and the situations of stock markets in Europe and the US were making [Chinese] leaders worried," Joseph Yam, chief executive of the Hong Kong Monetary Authority, told the territory's legislative council.

"If you were a leader, you would probably be concerned too. What if you allowed something to happen and then those problems went to China? That's why you have to be careful," said Mr Yam.

Beijing announced the go-ahead for the so-called "through train" scheme on August 20, during a period of subprime turmoil on the Hong Kong stock market. The announcement triggered a dramatic turnround for the Hang Seng index, which rallied by 55 per cent over the following six weeks.

However, Wen Jiabao, China's prime minister, said on November 3 that the government needed more time to assess the risks of the scheme. Since then plans have stalled and worries about the US economy have sent the Hang Seng back near to its levels in August.

The through train would take funds away from mainland China's overheated stock markets. But mainland shares have weakened considerably in recent weeks, succumbing to the latest wave of subprime turmoil, aggravated by the economic effects of severe winter weather.

Chris Ruffle, a senior fund manager at Martin Currie Investment Management in Shanghai, said that the appetite for investment in Hong Kong was limited, given the fall in mainland stock markets over the past week. Shanghai dropped 7.2 per cent on Monday alone.

"The through train never seemed to me to be a good idea," said Mr Ruffle. He said the existing qualified domestic institutional investor (QDII) scheme, which allows limited and controlled access to the Hong Kong market, was more attractive to the authorities in Beijing.

Wall St rises on earnings and economic data

US stocks advanced again on Tuesday as some better-than-expected corporate earnings and a surprising jump in durable goods orders helped boost beaten-down sentiment on Wall Street.

However, as the Federal Reserve Open Market Committee convened for its two-day meeting there was some more worrying news for the US consumer as house prices slumped by a record amount and consumer confidence took another knock.

Traders found strength in telecoms, materials and utilities stocks but retailers and some technology companies were sold as skittish investors awaited the Fed's decision on interest rates due on Wednesday.

At midday the S&P 500 was up 0.5 per cent at 1,361.71, the Dow Jones Industrial Average gained 0.7 per cent to 12,464.45 while the Nasdaq Composite climbed only 0.2 per cent to 2,353.35.

Many analysts remain cautious on the near term outlook for stocks with volatility remaining elevated amid fears of a US recession, further write-downs in the financial sector and continued uncertainty surrounding bond insurers.

"We are still to be convinced that the strategic case for equities has improved sufficiently," said David Shairp, global strategist at JPMorgan Asset Management. In order to make a stronger case Mr Shairp said the market needs to see that "central banks ease, the banking system recapitalises itself, equity valuations are compelling and technical indicators are supportive."

But others have pointed to signs of improvement in the equities environment in recent trading with the S&P avoiding late-session sell-offs in three of the last four trading days.

"The market has shown a little bit of stability over the last few sessions," Richard Sparks, senior equities analyst at Schaeffer's Investment Research, said. "The Fed holds a big wild card - they have the power to make or break the market."

In spite of enacting an unprecedented 75bp cut last week, the Fed is expected to continue easing rates today with the futures market pricing in a 74 per cent likelihood of a 50bp cut. Traders have warned that any deviation from this line could spark another sell-off in equity markets.

Tuesday's economic news was dominated by a larger-than-expected rise in durable goods orders, which provided solace to investors fearing a manufacturing slump. Orders for big ticket items rose 5.2 per cent in December, well above a forecast gain of 2.1 per cent.

Among Dow components benefiting from the improved outlook were Boeing (NYSE:BA), up 2.5 per cent at $79.50 and Caterpillar (NYSE:CAT), up 1.8 per cent at $69.42.

""There is no doubting the strength of the December data, but there is plenty of doubting how sustainable this is, and what this says about future trends," Alan Ruskin, chief international strategist at RBS Greenwich Capital, said.

There was little sign of optimism for US consumers after the S&P/Case-Shiller 10-city home price Index fell a record 8.4 per cent in the year through November, an 11th straight monthly decline. Meanwhile the latest reading of the Conference Board's U.S. consumer confidence index fell to 87.9 in January from an upwardly revised 90.6 in December.

Earnings news was more upbeat, with 20 of 26 S&P 500 companies reporting results on Tuesday beating estimates.

One of the exceptions was Countrywide Financial (NYSE:CFC) which posted a wider-than-expected $422m loss after the mortgage lender set aside $924m to cover rising loan losses. In spite of the loss the beaten down shares rose 4.2 per cent to $6.20 after its chief executive said a takeover by Bank of America was a "go".

Also in the financial sector, American Express (NYSE:AXP), up 1.1 per cent to $47.94, posted a 10 per cent decline in net income as it set aside $438m charge to cover bad loans.

In industrials Dow Chemical (NYSE:DOW) said fourth quarter earnings fell by more than half to $472m as agricultural and energy costs rose sharply. However, the results beat estimates and the shares rose 2.3 per cent to $38.45. Meanwhile,3M (NYSE:MMM)'s adjusted profit also exceeded Wall Street's expectations and the shares added 0.8 per cent to $78.05.

Technology was among the weakest sectors on Tuesday after VMWare, the virtualization software firm, missed Wall Street's revenue target causing the shares to plunge 30.7 per cent to $57.54. However,Lexmark (NYSE:LXK) cheered investors with its fiscal first quarter outlook and the printer maker's shares shot up 14.3 per cent to $33.53. Yahoo fell 1 per cent to $20.57 ahead of its quarterly results, due after the closing bell.

Clear Channel Communications (NYSE:CCU), the radio station operator, continued to fall amid fears a buyout deal could fall apart. The shares gave up 4.6 per cent to $29.97 and have fallen 11.3 per cent in the last two sessions.

FTSE recovers on mining rebound

Shares in London rose on Tuesday thanks to a rebound in the mining sector.

Banks added their weight after an upbeat trading update from Alliance & Leicester, the mortgage lender.

The FTSE 100 closed 96.3 points, or 1.7 per cent, higher at 5,885.2 while the FTSE 250 rose 264.9 points, or 2.8 per cent, to 9,905.4.

Wall Street markets offered a measure of support in steady morning trade. The Dow Jones Industrial Average was 0.6 per cent stronger at 12,454.2, with the broader-based S&P 500 also up 0.5 per cent to 1,360.6.

As the Federal Reserve started its interest rate meeting, dealers remained hopeful of a further cut of at least 50 basis points. The central bank last week slashed the federal funds rate by 75bp to 3.5 per cent, its biggest cut for 25 years.

Gold and platinum prices broke new ground for the third consecutive session, with spot platinum reached $1.735 per troy ounce and February Comex gold futures touching $930. Silver moved to a 27-year highs at $16.76.

The mining sector remained volatile, with Kazakhmys rose 4.7 per cent to £11.93, Antofagasta gained 6.7 per cent to 669½p and Anglo American gained 5.8 per cent to £26.08.

Banking stocks added to the improving sentiment after A&L said full-year trading for 2007 looked set to meet expectations. he mortgage lender confirmed it had funded its maturing medium-term wholesale funding, commercial paper and certificates of deposit to the end of 2008.

A&L gave up early gains and slid to the bottom of the FTSE 100, 3.5 per cent down at 700p, other banks gained, with Lloyds TSB up 4.2 per cent to 433.1p and HBOS 2.5 per cent higher at 694½p.

Tui Group lifted tour operators to the top of the blue-chip leaderboard with a strong trading statement, soothing fears about uncertain consumer spending.

Tui insisted its performance remained "strong" and said it expected cost savings from its merger with First Choice Holidays to rise by 50 per cent from original estimates to £150m. Its shares rose as much as 4.2 per cent then fell back to close 0.4 per cent up at 240p. Rival Thomas Cook outflanked it to close 5.5 per cent higher at 260p.

BSkyB shrugged off a ruling that it would have to reduce its 17.9 per cent stake in ITV to a level below 7.5 per cent. The decision would cost BSkyB about £250m at ITV's Monday closing price.

BSkyB was up 3.5 per cent at 549½p whilst ITV rose 2.1 per cent to 73½p.

Oil prices hold near 91 dollars

LONDON (AFP) - World oil prices fell in New York and rose in London Tuesday as traders eyed volatile global stock markets and awaited US energy stockpiles data, a US interest rate call and an OPEC production meeting later in the week.

New York's main contract, light sweet crude for delivery in March, gave up 13 cents to 90.86 dollars per barrel.

Brent North Sea crude for March delivery won 11 cents to 91.49 dollars a barrel. In earlier trades, both contracts had risen above 91 dollars per barrel.

"Oil prices moved back up above 91 dollars per barrel, boosted by improving financial market sentiment," said Barclays Capital analyst Kevin Norrish.

He added: "Equity market movements, economic growth expectations and speculation over future monetary policy measures are continuing to set the tone of trading in the market."

Global equities cranked back into gear on Tuesday, recovering some of their recent heavy losses as investors pinned their hopes on another US rate cut, dealers said.

Asian and European shares mainly rallied Tuesday after an overnight rebound on Wall Street, while the Paris market shook off some of its recent falls that were partly caused by the Societe Generale rogue-trader scandal.

On Wednesday, meanwhile, the US government's Energy Information Administration (EIA) will reveal the state of American oil inventories for the week ending January 25.

The weekly report is widely watched by the market because the United States is the world's biggest consumer of energy, followed by number two China.

In addition, the US Federal Reserve is forecast to slash its key interest rate on Wednesday in a move that could encourage US demand for crude oil -- and therefore could strengthen prices.

Further ahead, the 13-member Organisation of Petroleum Exporting Countries (OPEC) convenes in Vienna on Friday for a crucial meeting about the cartel's production levels.

"With the EIA data set for release tomorrow and the upcoming OPEC meeting, the market is unlikely to strike out dramatically in one direction or another," said Bank of Ireland analyst Paul Harris.

"Another day of range trading is expected with a slight upside bias" on Tuesday, he added.

OPEC, whose members together pump 40 percent of the world's oil, will very likely maintain current output levels amid fears that a potential US recession could dampen crude demand, analysts said.

President Bush, during a visit to the Middle East earlier this month, urged OPEC to increase output to help bring down prices, which had soared to a record high 100.09 dollars per barrel in New York at the start of January.

Wall St gets boost from durable orders data

US stocks had a lacklustre start on Tuesday as some better-than-expected durable goods orders were offset by a record fall in US house prices and a sharp decline in consumer confidence.

Meanwhile the latest batch of corporate earnings offered a mixed outlook for the US economy as the Federal Reserve Open Market Committee convened for its two-day policy meeting.

Less than an hour after the opening bell the S&P500 was up 0.3 per cent at 1,358.57, the Dow Jones Industrial Average gained 0.4 per cent to 12,435.76 but the Nasdaq Composite fell 0.1 per cent to 2,346.54.

Many analysts remain cautious on the near term outlook for stocks with volatility elevated amid fears of a US recession, further write-downs in the financial sector and continued uncertainty surrounding bond insurers.

"We are still to be convinced that the strategic case for equities has improved sufficiently," said David Shairp, global strategist at JPMorgan Asset Management.

In order to make a strong case for the strategic rebuilding of risk, Mr Shairp says the market needs to see a resolution of the credit crunch and "global central banks ease, the banking system recapitalises itself, equity valuations are compelling and technical indicators are supportive."

But others have pointed to signs of improvement in the equities environment in recent trading with the S&P avoiding late-session sell-offs in three of the last four trading days.

"The market has shown a little bit of stability over the last few sessions," Richard Sparks, senior equities analyst at Schaeffer's Investment Research, said. "The Fed holds a big wild card - they have the power to make or break the market."

The Federal Open Market Committee meets on Tuesday with the futures market all but fully pricing in a 50bp cut when the meeting concludes on Wednesday.

In spite of enacting an unprecedented 75bp cut last week, the Fed is expected to continue in an easing pattern. Traders have warned that any deviation from this line could spark more selling pressure in equity markets.

"We are looking for 25 basis points on both the discount and Fed fund rates based on some sense of stability in stocks as well as credit conditions," said Tom di Galoma, head of Treasury trading at Jefferies & Co. "We think this will be followed up by at least two if not three cuts over the next two to three FOMC meetings."

Tuesday's economic news was dominated by a larger-than-expected rise in durable goods orders. Orders for big ticket items rose 5.2 per cent in December, well above a forecast gain of 2.1 per cent. Durables for November were revised up to 0.5 per cent from a prior estimate of a 0.1 per cent decline.

Excluding transportation orders, durables rose 2.6 per cent in December after a fall of 0.4 per cent in November. Orders for non-defence capital goods excluding aircraft, a measure of business spending on equipment, rose 4.4 per cent last month after falling 0.2 per cent in November.

"The durables orders data were far stronger than expected," said Alan Ruskin, chief international strategist at RBS Greenwich Capital. "There is no doubting the strength of the December data, but there is plenty of doubting how sustainable this is, and what this says about future trends

Other analysts were more upbeat. TJ Marta, fixed income strategist at RBC Capital Markets said: "We are witnessing the positive impact of the cheap US dollar on the economy, and the reason we only believe the economy will flirt with recession rather than falling into a full fledged one."

There was little sign of optimism in the housing market after the S&P/Case-Shiller 20-city home price Index fell a record 8.4 per cent in the year through November, much more than the 7.1 per cent decline forecast by economists.

Meanwhile the latest reading of the Conference Board's U.S. consumer confidence index fell to 87.9 in January from an upwardly revised 90.6 in December.

Earnings news was led by a wider-than-expected $422m loss at Countrywide Financial (NYSE:CFC), the mortgage lender being acquired by Bank of America. Countrywide set aside $924m to cover loan losses and took a $831m charge linked to securities backed by home equity loans. In spite of the loss the beaten down shares rose 5.4 per cent to $6.27.

Also in the financial sector, American Express (NYSE:AXP) posted a 10 per cent decline in net income after the closing bell on Monday as it set aside a previously announced $438m charge to cover bad loans.

AmEx's problems reinforced fears that credit delinquencies are spreading from subprime borrowers to more affluent consumers. The shares fell 1.4 per cent to $46.74.

In industrials Dow Chemical (NYSE:DOW) said fourth quarter earnings fell 52 per cent to $472m because of restructuring and a $1.7bn increase in materials and energy costs. However, the results beat estimates and the shares rose 4.5 per cent to $39.28.

Meanwhile, 3M (NYSE:MMM), the diversified manufacturer, reported a decline in earnings from the same period last year when results benefited from one-time gains. However, its adjusted profit beat Wall Street estimates as sales climbed 7 per cent. The shares slipped 0.5 per cent to $77.03.

Valero Energy (NYSE:VLO), up 9.7 per cent at $60.25, also posted a significant decline as the oil refiner's fourth quarter earnings dropped from $1.11bn to $567m amid tighter margins from gasoline production. However, its results also beat Wall Street forecasts.

Lexmark (NYSE:LXK), the printer maker, provided a welcome boost to sentiment in the technology sector after it fiscal first quarter outlook pleased investors. The shares shot up 8.2 per cent to $31.75.

Yahoo fell 3.2 per cent to $20.12 ahead of its quarterly results, due later on Tuesday.

In Europe, the FTSE Eurofirst 300 was higher by 1.3 per cent and in London the FTSE 100 was up 1 per cent.

In Asia, Japan's Nikkei 225 index rallied 3 per cent overnight, while stocks in Hong Kong rose 1 per cent

The yield on the policy sensitive two-year Treasury note was 6 basis points higher at 2.25 per cent, with the market pressured after much stronger-than-anticipated economic data.

The dollar was mixed against major currencies early in New York. In overnight trade the dollar put on 0.1 per cent against the euro to $1.4766 and 0.2 per cent to Y107.1300 against the yen but slipped 0.1 per cent against the pound to $1.9868.

US crude prices slipped 0.2 per cent to $91.25 early in New York, while gold spot prices shed 0.3 per cent to $930.40.

Oil rises on talk of Fed cut, OPEC rollover

NEW YORK (Reuters) - Oil rose on Tuesday as expectations the Federal Reserve would cut interest rates again this week and OPEC would maintain output cuts offset concerns of a potential U.S. recession.

Crude added to gains from the previous three sessions as bullish sentiment returned after the U.S. government last week unveiled a plan to stimulate the economy and the Federal Reserve made a three-quarter-point emergency rate cut.

U.S. crude traded up 44 cents to $91.43 a barrel by 2 p.m. EST. London Brent crude rose 51 cents to $91.89 a barrel, adding to its recent premium to U.S. oil.

Fears the subprime mortgage crisis could tip the U.S. economy into recession and dampen oil demand knocked crude off a record high above $100 hit on January 3.

Many analysts expect the Fed will reduce interest rates again this week after last week's cut.

U.S. economic data released Tuesday were mixed, with stronger-than-expected orders for U.S.-made durable goods in December countering a record fall in house prices in November.

Expectations OPEC will leave production levels unchanged when it meets this week in Vienna despite calls from the United States and other consumers for the cartel to open the taps to bring down prices have also supported prices.

"The economic durable goods report was bullish for equities and seemed to support (oil) as well," said Tom Bentz of BNP Paribas Commodity Futures Inc.

"(OPEC members) are not going to be raising any output, it looks like it is going to be a rollover," he said, adding: "The expected interest rate cut has been supportive as well."

STEADY OPEC

Ecuador's oil minister said on Tuesday oil supplies to international markets were adequate and there was no need for OPEC to change output at its meeting in Vienna on Friday.

"We believe that oil production levels are adequate," Ecuador's Galo Chiriboga told Reuters. When asked if the group needed to change output, he replied "No."

U.S. Energy Secretary Sam Bodman reiterated calls for OPEC to increase output to help rebuild global inventories.

Iran Oil Minister Gholamhossein Nozari was quoted in an Iranian newspaper as saying that "there was no need to supply more oil as the market was supplied sufficiently and its conditions were stable."

The downturn in the U.S. economy has shaken some speculative investors out of oil markets, experts say. Speculators blamed by OPEC for sending prices into triple digits at the start of the year slashed bets U.S. crude prices would rise last week, according to a government report.

Oil also rose after news output the giant Cantarell oil field in Mexico, one of the top suppliers to the United States was expected to fall this year by 200,000 barrels per day (bpd). Production at the field was running at around 1.26 million bpd in December.

A Reuters poll of analysts ahead of weekly U.S. government inventory data forecast a 2.4 million barrel rise in crude stocks, a 1.9-million-barrel build in gasoline stockpiles and a 1.7-million-barrel distillate draw.

European, Asian markets rebound

LONDON - European and most Asian stock markets rebounded Tuesday as investors cheered an overnight rally on Wall Street and snapped up beaten down shares on expectations of a U.S. interest rate cut later this week.

But growing speculation that the Federal Reserve will lower a key rate by a quarter point, instead of the more aggressive half-point, kept gains in check.

European shares rose in early trading and U.S. stock index futures were mixed.

The U.K.'s FTSE 100 Index grew 1.5 percent to 5,872.50, while Germany's DAX gained 1.1 percent to 6.893.59. The French CAC rose 1.8 percent to 4,935.50.

"The FTSE rebounded this morning after yesterday's losses, led by the mining sector which is adding 20 points to the index on the back of record precious metals prices," said Nathan Miller, a trader at CMC Markets in London.

In Asia, Japan's benchmark Nikkei 225 index rose 2.9 percent at 13,478.86 while Hong Kong's blue-chip Hang Seng Index gained 1 percent to 24,291.8 after earlier rising as much as 2.8 percent. The markets — Asia's two biggest — tumbled at least 4 percent Monday on persistent fears the U.S. economy was entering a recession.

Monday's drop gave investors a chance to re-enter the market, said Francis Lun, a general manager at Fulbright Securities in Hong Kong.

In China, the benchmark Shanghai Composite Index rose 0.9 percent after tumbling 7.2 percent Monday. Stocks in South Korea, Thailand and the Philippines also rose.

Australia's benchmark index slid 2.5 percent as traders bet on a smaller-than-hoped-for rate cut when the Fed's policy planners meet Tuesday and Wednesday. Last week, the Fed slashed its key interest rate by three-quarters of a point to 3.5 percent after a plunge in Asian and European markets, which have since bounced back somewhat.

The Fed was likely to cut rates a quarter point "given the deep cut last time and that there are some signs of stabilization in the market," said Malcolm Wood, Asia-Pacific equities strategist at Morgan Stanley in Hong Kong.

That would likely disappoint Asian markets where investors banked on a bigger cut, and could trigger more selloffs later in the week, he said.

Global markets have been in turmoil this month as investors reacted to a string of bad economic news out of the United States. Asian markets are especially sensitive as their economies are heavily reliant on American consumers buying their exports.

The U.S. economy has been battered by a housing slump and credit crunch triggered by a spike in defaults on risky mortgages that has led to billions of dollars of bad assets at major American and European banks.

Sentiment got a lift from Wall Street's gain on Monday, when investors in the U.S. took a dismal new home sales report as a sign the Federal Reserve will lower interest rates. The Dow Jones industrial average rose 176.72, or 1.45 percent, on Monday to 12,383.89, while the Standard & Poor's 500 index rose 23.36, or 1.76 percent, to 1,353.97.

President Bush tried to calm the markets in his last State of the Union address Monday, stressing the government's determination to reinvigorate the moribund economy with tax rebates.

Bush urged lawmakers to approve a $150 billion (102 billion euros) plan in tax relief for families and incentives for businesses to invest in new plants and equipment. He said the American economy was robust, but warned of a rocky road ahead in the short-term.

In Hong Kong, gainers included export-related stocks such as Li & Fung, which jumped 5.7 percent. Clothing maker Esprit Holdings was up 3.4 percent.

China coal stocks listed in Hong Kong also gained on expectations that the prolonged and unexpectedly severe winter across China will drive demand for more coal. China Coal was up 1.4 percent, while China Shenhua was up 1.7 percent.

In Tokyo, steel and bank issues were among Tuesday's gainers. Kobe Steel rose 2.3 percent and Shinsei Bank jumped 9.4 percent.

U.S. stock index futures were mixed hours before New York opened trading Tuesday. Dow futures were up 11 points, or 0.1 percent, at 12,388, while S&P 500 futures were up 2.4 points, or 0.2 percent, to 1,357.1. Nasdaq Composite futures were down 6.25 points, or 0.35 percent, to 1,804.

US rate cut hopes boost Asian stocks

Many Asia Pacific stock markets bounced back strongly on Tuesday, tracking overnight gains on Wall Street on fresh optimism that the US Federal Reserve will cut interest rates on Wednesday, though gains trailed off as trading drew to a close.

Gold and platinum hit fresh highs as production in South Africa looked like it will continue to be disrupted by labour troubles and power shortages. Gold for immediate delivery hit $929.84 an ounce and the key platinum futures contract in Tokyo rose by its daily limit of Y120 to Y5,555 a gram. But both metals fell back during the afternoon session. Australian stocks sagged as many of the country's biggest miners have large operations in South Africa.

Tokyo led markets higher, helped by broadly encouraging jobless numbers. Vacancies fell to a two-year low and the unemployment rate stayed the same at 3.8 per cent last month.

The Nikkei 225 average closed 3 per cent higher at 13,478.86 and the broader-based Topix index was up 2.8 per cent at 1,328.73

"The Japanese data were a mixed bag with employment holding steady in the middle of the range for the last year," said David Cohen, head of Asian economic forecasting at consultancy Action Economics in Singapore. "Retail sales for the whole year were no great shock as they were up by just one-tenth of a percent. That just highlights Japan's dependence on exports."

Nintendo, the games maker, jumped 5.9 per cent to close at Y49,550. Carmaker Honda Motor (NYSE:HMC) rose 3.8 per cent to Y3,260 after saying US profits may rise on higher sales of fuel-efficient cars. Rival Nissan Motor (NASDAQ:NSANY) was up 1.9 per cent at Y985.

Revived demand for equities wiped out most of the gains Japanese bond prices made on Monday. Comments by the Bank of Japan governor, Toshihiko Fukui, that growth would continue but at a slower pace did not help. The 10-year Japanese government bond dropped 0.6 to 100.301, boosting the yield to 1.465 per cent.

In Hong Kong, the prospect of lower US interest rates helped property developers and banks as borrowing costs in the territory track American moves because of the Hong Kong dollar's peg to the US currency. Investors largely shrugged off comments by Joseph Yam, the head of the Hong Kong Monetary Authority, that the subprime crisis would slow growth in the territory.

The Hang Seng index closed 1 per cent higher at 24,291.80, off the day's highs. HSBC gained 1 per cent to HK$117.60 and Sun Hung Kai Properties jumped 3.9 per cent to HK$159.70.

Mainland Chinese shares managed to claw back a little of Monday's big loss. Shanghai's composite index gained 0.9 per cent to close at 4,457.94 after sliding 7.2 per cent the previous session. The market is still down 15.3 per cent since the start of the year.

Transport shares fell again heavy snow falls continued to cause disruptions ahead of next week's lunar new year holiday, a traditionally heavy travel season. China Eastern Airlines (NYSE:CEA) dropped 2.5 per cent to Rmb15.23 and Daqin Railway slid 5.7 per cent to Rmb21.12.

Australian shares suffered from the uncertainty on commodity markets. Equities were also catching up on the falls elsewhere in the region on Monday, when Sydney markets were closed for a public holiday. The S&P/ASX 200 index closed 2.5 per cent lower at 5,716.50 by mid-afternoon.

BHP Billiton (NYSE:BHP), the world's largest mining company, fell 3 per cent to A$35.70 as difficulties in producing precious metals spread to nonferrous operations as well. BHP's rival and takeover target, Rio Tinto, lost 4.2 per cent to A$113.57.

Asset manager Allco Finance, whose shares slumped 29 per cent last week, was one of the biggest gainers in Sydney. Allco shares surged 25 per cent in the first hour of trading after lenders and executives reached an agreement to stop forced selling of shares to meet margin calls. Allco closed up 6.5 per cent at A$3.62. The shares have halved in value in just over a year.

Among other markets, Singapore turned lower in the afternoon and was off 0.1 per cent in late trading. South Korea ended up 0.7 per cent while Taiwan added 1.2 per cent. Mumbai was up 0.3 per cent in the afternoon, paring gains after the Indian central bank left interest rates on hold despite some expectations of a reduction to mirror the US Fed's cut.