Dollar rises as on jobs data
Safe-haven greenback gets a boost after data show a bigger-than-expected decline in payrolls in September.
NEW YORK (Reuters) -- The dollar gained against the euro Friday after bigger-than-expected U.S. job losses in September rekindled demand for the greenback as a safe haven.

The Labor Department said U.S. job losses last month totaled 263,000 with the unemployment rate rising to 9.8%, the highest rate since June 1983.

Markets were expecting payroll declines of 180,000.

"A very ugly read. But the reaction today is going to be a serious push and pull between two primary themes," said Boris Schlossberg, director of FX research, at GFT in New York.

"On one hand, there's risk aversion, which should help the dollar."

But on the other hand, Schlossberg said, the report could pressure the dollar as markets realize that the United States is "becoming the laggard in the G-20 as far as recovery goes."

The euro fell to session lows against the dollar to $1.4481 from $1.4539 before the data. It was last at $1.4515, down 0.1%. The dollar slipped against the yen to ¥89.18, down 0.4%.

U.S. broadband lags Asian nations
South Korea edges out Japan for providing top quality broadband service in 2009 study. The U.S. didn't even make the top 10.
NEW YORK (CNNMoney.com) -- South Korea leads the world in providing broadband services, according to a study released on Thursday. The United States did not make the top 10.

South Korea dramatically improved the speed, quality and availability of its Internet service in 2009, pushing past Japan, the former worldwide leader, according to a team of business students from the University of Oxford in England and the University of Oviedo in Spain.

The study, sponsored by Cisco (CSCO, Fortune 500), examined 66 countries and 240 cities. Broadband leadership was measured by various factors, including the number of wired households, where South Korea scored 97%. Hong Kong, which was rated number three in overall broadband leadership, had an even higher penetration, at 99%.

In terms of overall leadership, Hong Kong was followed by Sweden, Switzerland, the Netherlands, Singapore, Luxembourg, Denmark and Norway.

The United States did not make the list's top 10, even though it made "significant, above average improvements" in quality, the study said.

In terms of broadband Internet quality, the U.S. lags behind not only Sweden, which leads Europe, but the island nations of Malta and Iceland, and the former Soviet Bloc country of Lithuania.
The top three cities with the best overall broadband services -- Yokohama, Nagoya and Sapporo -- were all in Japan, the study said.

Japan also led the way for providing quality services outside major cities. But the study showed that the biggest digital quality divide between urban and rural areas was in Lithuania, Russia and Latvia.

"The Broadband Quality Study shows us which countries have made real moves towards the Internet of the future," said Professor Maria Rosalia Vicente of the University of Oviedo, in a written statement. "It also provides fresh evidence of the urban-versus-rural quality divide. The challenge for countries now is to bridge this quality divide."

The study's researchers judged broadband quality by measuring upload and download speeds, network latency and capacity. For their benchmarking, they tested out typical applications used today such as video streaming, Web browsing and social networking.

But they also took a look at which countries have the broadband quality necessary for handling future applications, like high definition Internet television and video communications, which they expect to become common in the next three to five years.

That list features nine countries, including the leaders South Korea, Japan and Sweden, as well as former Soviet nations Lithuania, Bulgaria and Latvia. The U.S. didn't make the cut.

Chicago loses Olympic bid to Rio
The Windy City would have faced a tough financial challenge experts say. It already spent an estimated $100 million in its failed effort.
NEW YORK (CNNMoney.com) -- Chicago lost its bid to host the 2016 Summer Olympics Friday to Rio de Janeiro, Brazil.

The news was announced by Jacques Rogge, president of the International Olympic Committee, at a meeting in Copenhagen, Denmark.

"Like in every competition, there can be only one winner," said Rogge, just prior to announcing Rio as the host city.

With help from hometown heroes like the Obamas, the Windy City was aggressively lobbying to host the games. The upside to the rejection is that Chicago possibly saved money, as making the Olympics profitable would not have been an easy win.

Chicago was competing with Tokyo, Madrid, Spain and Rio de Janeiro in wooing the International Olympic Committee in Copenhagen.

The IOC also rejected Tokyo and Madrid Friday.

Chicago 2016, the organization leading the effort to host the games, had projected a cost of $3.8 billion, including a "rainy day" fund of $450 million in case of unforeseen increases if the city won the bid.

But there was good reason to be skeptical of that projection, said Robert Livingstone, producer of GamesBids.com and a leading expert in the Olympic selection process. Host cities routinely overrun their Olympic budgets, he said.

"It's going to be more expensive than we think it's going to be, because it typically is," Livingstone said, before the decision was made Friday. "I think every [host] city is going to lose money. It's not an efficient event."

The bidding process alone cost Chicago about $100 million, Livingstone estimated.

An argument often made by host city advocates is that presenting the international spectacle is good for a local economy. But such "trickle-down effects," like benefits to local businesses, are "almost impossible to measure," Livingstone said.

"I think a lot of people look at the Olympics, and they try to justify it by how much money it adds to the economy," said Livingstone. "[But] if you're in this to make money and improve your economy, you're in it for the wrong reasons."

A Chicago 2016 spokesman, who asked not be named, had stood by the $3.8 billion projection. "Our numbers are completely feasible thanks to the infrastructure already in place, the number of venues already built and the temporary nature of the majority of those we're planning to build," he wrote, in an e-mail prior to the IOC rejection.

Cadbury sued over $15B Kraft bid
Investor seeks class action status, claims the candy maker's board failed to negotiate the $15.68 billion offer from Kraft.
CHICAGO (Reuters) -- A shareholder of Cadbury is suing the British confectioner's board and chief executive, saying investors "stand to lose out massively" if the company refuses to negotiate over a $15.68 billion takeover bid from Kraft Foods Inc.

The lawsuit, filed in U.S. District Court in New Jersey on Wednesday by Steward International Enhanced Index Fund, seeks class action status and names Cadbury CEO Todd Stitzer, Chairman Roger Carr and the company's board of directors as defendants.

The lawsuit asks the court to order Cadbury (CBY) directors and officers to respond in good faith to offers which are in the best interest of Cadbury shareholders and to prevent Cadbury's board from enacting takeover defenses.

"Cadbury shareholders stand to lose out massively if the Cadbury board continues to refuse to negotiate a transaction with Kraft," the lawsuit said. "But Cadbury's board stands to lose its lavish compensation and positions of power if Cadbury is sold."

Kraft made public its proposed offer for Cadbury on Sept. 7 after Cadbury rejected the bid. On Tuesday, Britain's Takeover Panel said Kraft (KFT, Fortune 500), the world's second-largest foodmaker, had until Nov. 9 to make a formal offer for Cadbury or else walk away for six months.

The lawsuit says Cadbury shares were trading at 581 pence when Kraft CEO Irene Rosenfeld proposed a purchase of Cadbury that was then valued at $16.7 billion, or 745 pence per share. Cadbury shares closed at 803.5 pence on Thursday in London.

A Cadbury spokesman said on Thursday that the company has not seen the lawsuit. "However, we note that no offer has been made for Cadbury" under British law, spokesman Trevor Datson said.

Kraft, which is not named as a party in the lawsuit, declined to comment.
Short-notice financing

One step in making an offer is for Kraft to show it has committed financing in place. Banking sources told Reuters Pricing Corporation on Thursday that Kraft bankers are confident it can arrange a jumbo bridge loan to finance the bid.

Citigroup, Deutsche Bank and HSBC will co-ordinate the bridge loan, but that group could be expanded further, a senior banker close to the deal told RLPC.

Cadbury's comments in opposing the Kraft bid have also drawn the scrutiny of Britain's Takeover Panel.

Stitzer was quoted last week as saying Kraft's bid made some strategic sense, according to a note from Bank of America/Merrill Lynch on Wednesday. He was described as detailing the potential benefits from a takeover and discussing industry deal valuations during a closed Merrill investor conference.

Two days later, Cadbury issued a statement clarifying the remarks and said Stitzer did not believe the offer made strategic or financial sense.

Absent a competing bid, Kraft is expected to wait until close to the Nov. 9 deadline before making a formal offer. That would allow the foodmaker to take advantage of the falling British pound, which is making the offer less expensive for Kraft in dollar terms.
Analysts are doubtful that another offer is forthcoming, though U.S. chocolate maker Hershey Co. and the charitable trust that controls the company's voting stock have been weighing options since Kraft disclosed its bid.

The prospect of global food leader Nestle making a joint bid with Hershey has also been raised. Nestle CEO Paul Bulcke has declined to comment on a possible bid, but said the company does not plan on making any big acquisitions in 2009 and 2010.

Shares of Kraft fell 1.1 percent to $25.97 late-afternoon trading on the New York Stock Exchange, amid broad losses for U.S. stocks on economic worries.

The case is Steward International Enhanced Index Fund v. Carr et al, U.S. District Court, District of New Jersey (Newark), No. 09-5006.

Bertelsmann mogul dies at age 88
Reinhard Mohn transformed Bertelsmann, which owns Random House, into a global media conglomerate.
ATLANTA (CNN) -- Reinhard Mohn, who turned his family's religious publishing company into Bertelsmann AG, one of the world's largest media conglomerates, died Saturday, the firm announced Sunday.

He was 88.

Mohn and his family were worth $2.5 billion, Forbes magazine estimated in its annual rich list in March, making them the 261st wealthiest family in the world. They own 23% of Bertelsmann, with the rest controlled by a trust Mohn established.

The company owns Random House, publisher of Dan Brown's "The Lost Symbol," as well as authors ranging from Stephen King and John Grisham to Toni Morrison and John Updike.

It also controls RTL Group, Europe's largest broadcasting company; magazine publisher Gruner + Jahr, which publishes the German magazine Stern; and Direct Group, a media-marketing firm.

"Bertelsmann mourns the loss of one of the greatest entrepreneurs of our age," Bertelsmann chairman and CEO Hartmut Ostrowski said in the statement announcing the death.

"He embraced his responsibility to society and developed new ideas systematically, and with impressive consistency. Reinhard Mohn's concept of leadership was based on values like liberty and humanity," Ostrowski said.
"In his over 60 years of active service, Reinhard Mohn built Bertelsmann into an international enterprise, which today employs more than 100,000 people in over 50 different countries," the firm said.

Mohn, the fifth generation of his family to head the company, took over after serving as a German officer in World War II, when he was captured and imprisoned by the Allies.

In 1950, he presided over the publisher's creation of its own book club, which became the company's "silver bullet," attracting 3 million members by 1960, according to an official company history.

Bertelsmann expanded into encyclopedia publishing and the music business in the 1960s, and introduced an employee profit-sharing scheme in 1970, earning its head the nickname "Red Mohn."

"Only those enterprises whose employees can identify with their company will be fit to master the challenges of the future, and such an attitude requires material justice," Mohn said at the time, according to the company history.

The company's other businesses have included Sony BMG and AOL Europe.

Mohn retired in 2001, according to Forbes. His widow, Liz, remains on the firm's supervisory board.

Bailout cop: Treasury set 'unrealistic expectations'
Barofsky, reviewing the first big bailouts to 9 firms, concludes that the government was too rosy to the public about the banks' health.
WASHINGTON (CNNMoney.com) -- A government watchdog says federal officials weren't entirely honest with the public about the health of the first 9 financial firms that got federal bailouts, according to a report released Monday.

Bailout special inspector general Neil Barofsky says in an audit that Treasury Department officials painted an overly rosy picture, creating "unrealistic expectations," when they called the first bailout banks "healthy" institutions that would be able to lend more with government help.

"It is not our intent to suggest that government officials should make public their concerns over the financial health of individual institutions, but rather that government officials should be particularly careful, even in a time of crisis, of describing their actions (and the rationales for such actions) in an accurate manner," the report stated.

Treasury appeared to disagree with the assessment of the Special Inspector General of the Troubled Asset Relief Program (SigTARP), saying "people may differ" on the phrasing of the original bailout announcements.

"Any review of the announcements must be considered in light of the unprecedented circumstances in which they were made," wrote TARP chief Herb Allison in response to the SigTARP report.

Separately, the new audit looks into charges that federal officials strong-armed Bank of America (BAC, Fortune 500) into completing its planned purchase of Merrill Lynch, even as BofA worried about mounting losses at Merrill in late 2008. Further, the report looks into whether officials pressured BofA to conceal those losses from its shareholders.

Barofsky gives the major players the benefit of the doubt. He acknowledges that Federal Reserve chairman Ben Bernanke and then-Treasury Secretary Hank Paulson wanted the deal to go through, fearing the potential failure of Merrill Lynch and the "collateral damage to the economy."

But Barofsky "found nothing to indicate Treasury and Federal Reserve officials instructed Bank of America executives to withhold the public disclosure of losses."
SigTARP is also involved in a separate criminal investigation, led by the New York Attorney General's Office, into the Bank of America-Merrill Lynch merger. The report doesn't mention that investigation.

Barofsky's office was created by the 2008 law that established the $700 billion federal bailout program. This audit is the fourth completed so far by SigTARP in recent months; the first looked at how banks said they used their bailout dollars.

SigTARP has opened 35 ongoing criminal and civil investigations looking for fraud, with a focus on banks that falsely applied for a bailout and those that used the TARP name in scams.

In the newest audit of the bailouts to the first 9 firms, SigTARP points out that the Federal Reserve had concerns about the financial health of several of these firms and that former Treasury Secretary Hank Paulson was concerned that one would even "outright fail."

The report says that officials' portrayal of the bailout banks as healthy eventually contributed to a loss of credibility in TARP, when the firms did not lend more and when more bailouts were given to Citigroup (C, Fortune 500) and Bank of America.

"Ultimately, the lesson is straightforward: accuracy and transparency will enhance the credibility of Government programs like TARP and restore taxpayer confidence in the policy makers who manage them," the report said. "Inaccurate statements, on the other hand, could have unintended long-term consequences that could damage the trust that the American people have in their government." a

Services expand -- 1st time in more than a year
Purchasing managers' group index higher for the second straight month. But concerns about the job market linger.
NEW YORK (CNNMoney.com) -- The nation's service sector expanded in September for the first time in more than a year, according to a report from a purchasing managers' group released Monday.

The Institute for Supply Management's non-manufacturing index rose to 50.9 last month from 48.4 in August. Economists surveyed by Briefing.com had expected a reading of 50, which is the point at which the index reflects expansion.

It was the second consecutive month of improvement in the index, which last indicated expansion in August 2008.

The services sector, which includes businesses such as banks, airlines and restaurants, makes up the bulk of economic activity in the United States.

The ISM's new orders index, which measures requests for services such as construction labor, rose 4.3 points to 54.2. The business activity index added 3.8 points to 55.1 last month.

Both measures are now at their highest levels since before the recession began, according to Tim Quinlan, an economic analyst at Wells Fargo.

Those gains "suggest that businesses outside of manufacturing are transitioning from recession to recovery," Quinlan wrote in a research report.

The index that measures employment in the sector edged up less than one point to 44.3, but it remains well below the level indicating job growth in the sector.

"Jobs are still a major concern," said Ryan Sweet, senior economist at Moody's Economy.com. "The employment index is weak and points toward a very slow improvement in the labor market."

Still, the larger-than-expected rise in the overall number could mean that U.S. gross domestic product will come in at a 3% annual rate of growth during the third quarter, according to Sweet.

Prices paid by service sector firms fell sharply in September. The prices index sank 14.3 points to 48.8, indicating a significant reversal and decrease in prices paid from August, according to the report.

The ISM said 15 of the 18 service sectors in the survey expect to derive some benefit from the government's economic stabilization program.

Dodge Ram to stand alone in Chrysler shakeup
Automaker also says two brand-level executives are leaving the company.
NEW YORK (CNNMoney.com) -- Chrysler Group has split its Dodge brand into an auto and a Ram truck unit, and said two recently appointed brand-level chief executives are leaving the company.

"The brand-focused strategy has been refined further with the unbundling of the Dodge brand which now consists of the Dodge Ram brand and the Dodge car brand organizations," Chrysler Group CEO Sergio Marchionne said in statement Monday. "This reorganization will allow us to protect and develop the unique nature of the product offerings within the Dodge Brand."

Under the management structure put in place by Marchionne after Chrysler exited bankruptcy in June, each division of Chrysler has its own president and CEO who is responsible for the individual business results of that unit. Each of those executives also has an additional company-wide responsibility, such as sales or marketing.

Chrysler's lead designer, Ralph Gilles, has now been appointed president and CEO of the Dodge car brand. He will continue to lead product design for the automaker. Gilles joined Chrysler in 1992 and helped design many of the carmakers' most iconic products, including the Chrysler 300 sedan.

Fred Diaz, Jr. has been named president and CEO of the Dodge Ram brand. He will also head the sales department at Chrysler Group. Diaz had been head of Chrysler Group's Denver business center.

Marchionne created a similar management structure at the carmaker Fiat, which he also leads. Fiat now owns a 20% stake in the new Chrysler Group as part of a bankruptcy restructuring deal.

Two Chrysler brand CEOs are leaving the company as part of the reorganization. Peter Fong, who had been in charge of the Chrysler brand as well as sales for all the brands, "has resigned for personal reasons." Dodge brand CEO Mike Accavitti has left the company "to pursue other interests," the company said in an announcement.

In his role as head of Chrysler, Fong is being replaced by Olivier Francois. He also works for Fiat as head of the Italian automaker's Lancia luxury brand and he will retain that job.

In addition to heading the Chrysler and Lancia brands, Francois will also be responsible for worldwide marketing for all the Chrysler Group vehicle brands as well as for all of Fiat's brands.

Chrysler Group also appointed Joseph Veltri as head of product planning.

Gourmet magazine dies after 70 years
Downturn and ad drought claim longstanding Gourmet magazine. Publisher Condé Nast announces 3 other closures: Cookie and bridal magazines Elegant Bride and Modern Bride.
NEW YORK (CNNMoney.com) -- Foodies got some sour news on Monday.

Gourmet, which has amassed a devoted following over nearly 70 years of publication, will be shut down, publisher Condé Nast said.

The magazine, introduced in 1940, is expected to close by the end of the year.

Gourmet, which has nearly 1 million subscribers, fell victim to a decline in magazine advertising and followed a companywide review of magazines.

"The review has led us to a number of decisions designed to navigate the company through the economic downturn and to position us to take advantage of coming opportunities."

In addition to shuttering Gourmet, Condé Nast said it was also killing parenting magazine Cookie and two wedding magazines, Elegant Bride and Modern Bride.

"In this economic climate it is important to narrow our focus to titles with the greatest prospects for long-term growth," Townsend wrote.

According to Townsend, Condé Nast will continue to use the Gourmet brand in book publishing and television programming, and Gourmet recipes will still appear on Epicurious.com. The publisher's other epicurean title, Bon Appétit, will remain intact.

Condé Nast is also bumping up the frequency of its Brides magazine to monthly to fill some of the void left by the closing of Modern Bride and Elegant Bride.

"These changes, combined with cost and workforce reductions now underway throughout the company, will speed the recovery of our current businesses and enable us to pursue new ventures," Townsend wrote.

GM hits a big speed bump
The collapse of the Saturn sale and glitches in the Opel and Hummer deals are signs that GM faces a difficult turnaround after a quick bankruptcy.
NEW YORK (CNNMoney.com) -- For General Motors, the road out of bankruptcy isn't proving to be as smooth as its quick trip through it.

In the past week, the company's plans to sell its Saturn brand to auto retailer Penske Auto Group fell through, forcing GM to start winding down a network of about 350 dealerships.

But that's not the only post-bankruptcy problem for GM. Its plans to sell Hummer to a Chinese industrial company missed a target date of closing by Sept. 30.

GM is also trying to close a deal to sell two-thirds of GM's European Opel brand to a joint venture between Canadian auto parts maker Magna International (MGA) and Russian automaker GAZ Group. Despite ongoing losses at Opel, the decision to sell that stake was a difficult one for GM. Many experts are concerned that the Opel sale will weaken GM by limiting its global reach.

"It hurts their global capabilities," said Tom Libby, president of the Society of Automotive Analysts. "They can't draw on this major source of engineering resources that they've used for years. If they had had the money they needed, they wouldn't have done it."

Libby said it's not surprising that the Saturn deal fell through, that Hummer is behind scheduled, or that the Opel deal has raised questions. But he said these are all signs that turning around GM for the long run will be a significant challenge.

"They made assumptions during the bankruptcy process and that's why the process was so quick," he said, referring to the company's six-week trip in and out of bankruptcy court. "But it was always going to be difficult to meet those expectations."
Saturn closure comes with costs

The Saturn deal with Penske (PAG, Fortune 500) was never going to raise a large amount of money for GM. But it would have allowed GM to supply a Penske-run Saturn with vehicles for two years while it found a new contract supplier. That plan would have helped GM keep factories running more efficiently.

In addition, GM will now have to pay Saturn dealers between $100,000 and $1 million each to wind down, which will cost the company more than $100 million. Libby said those payments, while modest in comparison to the company's ongoing losses, still will hurt GM.

"They have no excess funds. It's going to affect something in the organization significantly," he said.

GM spokesman John McDonald said that the company never counted on avoiding payments to dealers through a Saturn sale. So the collapse of the Saturn deal is not a setback, he said.
McDonald added that the company hopes to produce the same number of vehicles for its other brands that it would have if it was still making Saturns. GM has Chevrolet and Buick offerings that are similar to most Saturn models.

Saturn's industrywide market share has fallen to a record low of less than 1% this year as buyers avoided the endangered brand and GM cut back on marketing efforts. But Saturn still accounted for about 4% of GM's total sales in 2009. So any slip in sales could hurt GM at a time when it is struggling to end a period of market share declines in the U.S.
Opel deal critical. Hummer? Not so much.

The Opel deal could affect GM's competitiveness not just in Europe but in North America as well. Some of GM's most critically acclaimed vehicles in recent years, including the Chevrolet Malibu and the Buick Lacrosse, are built on an Opel platform.

The Opel sale was temporarily put on hold by GM's new board as it studied whether it was the best move for the company following bankruptcy. But the need for short-term cash and political pressure from the German government, which had loaned the company money to keep Opel afloat, left GM little choice than to proceed with the sale.

"It wasn't negotiating from a position of power," said Subroto Banerjee, a partner with business consultant Frost & Sullivan. "In a time of being forced to sell something, you're in deep trouble. You're going to give up more than they'd like."

Still, the Opel deal could benefit GM even though some worry about the impact it will have on sales. The keys to whether the deal will be good or bad for GM depends on how much access GM will have to Opel's engineering resources going forward and the limits on Opel's new owners being able to compete against GM in markets outside of Europe.

"From GM's position, those two things are critical," said David Cole, chairman of the Center for Automotive Research, a Michigan think tank.

Then there's Hummer. The decision to get rid of Hummer, while arguably attracting the most attention because a Chinese company wants to buy the brand, will likely have the least impact on GM. Hummer is small even in comparison to Saturn and it has a much smaller dealer network.

GM's McDonald insists that missing the target date to close the deal is not necessarily a sign that there are problems. "Especially when dealing with an international buyer, missing a deadline is not uncommon," he said.

Nonetheless, Hummer has been another drain on GM's limited resources, and experts say they need to resolve the future of the brand sooner rather than later. Libby said that keeping Hummer is not an option for GM.

AIG chief gets OK for $10.5 million pay package
Kenneth Feinberg gives formal OK for Benmosche's salary, making AIG the first company to receive the pay czar's compensation approval.
NEW YORK (CNNMoney.com) -- AIG Chief Executive Robert Benmosche's $10.5 million annual pay package has been formally approved by Obama administration pay czar Kenneth Feinberg.

According to a letter to Treasury's compensation committee dated Oct. 2, Feinberg said Benmosche's package, $4 million of which is in stock options, is comparable to that of other CEOs.

Benmosche, who took over the bailed out insurer's reins in August, will take home $3 million in cash. His "stock salary" will come in equally divisible, bimonthly payments of common shares. Under the terms of his pay deal, he can't sell those shares until August 2014.

The new AIG CEO will also be eligible for $3.5 million in annual performance bonuses. The bonus will be prorated for 2009. AIG can recover his bonus if he deceives shareholders.

The approval was widely expected, because Feinberg gave a preliminary thumbs-up to the package when it was announced on Aug. 18. For formal approval, AIG had to submit a review of Benmosche's compensation package from his last job, when he was the CEO of MetLife (MET, Fortune 500). AIG also was asked to compare Benmosche's pay plan to those of other CEOs at similar companies.

In his letter to Treasury, Feinberg said he maintains the right to reduce (but not to increase) Benmosche's bonus based on the CEO's or the company's performance.
Feinberg oversees the executive compensation packages of seven bailed-out companies, including AIG, Chrysler, Chrysler Financial, Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), General Motors and GMAC. The companies submitted proposed employment contracts for their 25 highest-paid employees on Aug 14, and compensation proposals for the next 75 most compensated employees are due by Oct. 13.

AIG was the first of the seven companies to receive any kind of formal approval. The pay czar is expected to rule on all of the pay plans by the end of the month. That information is due to be made public by Treasury sometime after, although any announcement may not include details of pay packages for individual employees.

Shares of AIG (AIG, Fortune 500) rose 6% by midday Tuesday.

Gold soars to record on dollar standard talk
A report raises doubts about the greenback's place in the oil market. Investors flock to gold and oil as the outlook for the U.S. currency dims.
NEW YORK (CNNMoney.com) -- Gold surged to a record high Tuesday after a news report sparked widespread talk about the U.S. dollar being unseated as the currency for trading oil.

Crude finished slightly higher.

A report in Britain's daily newspaper The Independent said oil-exporting countries in the Middle East and big energy consumers such as China, Russia, Japan and France were working on a plan to end the practice of buying and selling crude in dollars.

Instead, the U.S. dollar would be replaced with a basket of currencies, including the Japanese yen, Chinese yuan, the euro and gold.

That helped gold prices surge $21.90 to settle at $1,039.70 an ounce, surpassing its previous record of $1,020.20 on Sept. 16. Gold also set a new intraday high of $1,045. The previous intraday record was $1,033.90 in March 2008.

Oil prices rose 47 cents, or 0.7%, to settle at $70.88 a barrel. Earlier in the session, it reached a high of $71.77.

The dollar managed to regain some ground by midday after finance officials from Saudi Arabia, Japan and Russia publicly denied that such a plan was in the works.

Gains were limited by the Royal Bank of Australia's surprise interest rate hike, which helped boost the market's appetite for risk and weighed on the dollar.

The buck was down 0.5% versus the euro at $1.4721. It gained 0.15% against the British pound after a report showed U.K. industrial output unexpectedly plunged in August. Against the Japanese yen, the dollar was down 0.8% at ¥88.81.

An unlikely move. Analysts said the idea of shifting away from the dollar in the oil market has been around for a while, but it is not likely to happen anytime soon.

"These ideas circulate from time to time," said Sacha Tihanyi, a currency strategist at Scotia Capital. The goal is to "create a pricing for oil that's less tied to the economic fortunes of one country and therefore less volatile," he said.

With the greenback down nearly 10% against a basket of currencies since March, many of the nation's trading partners have become nervous about their reserve holdings of dollars and dollar-denominated assets.
"There's been more talk from the Middle East about hedging against dollar weakness," said Brian Hicks, an energy analyst at U.S. Global Investors. "And with the massive deficit spending in the U.S. there's concern the dollar could go lower."

Gold and oil, which are seen as hedges against a softer dollar, have become the main beneficiaries of the dollar's decline.

"We're seeing a lot of investment in commodities to hedge against dollar weakness," Hicks said. "That's helping push oil and gold higher."

Gold headed toward $1,050. Carlos Sanchez, a precious metals analyst with CPM Group, said Tuesday's rally in the gold market was largely tied to the weak dollar.

At the same time, gold prices are being supported by "ongoing concerns about financial markets and the economy," Sanchez said.

"Many are skeptical about the stock market and are expecting declines in the near term, and they're buying gold as a hedge against increased volatility," he added.

Gold is also benefiting from increased demand for jewelry ahead of the Indian marriage season and the Christmas holiday in North America, he added.

Given the current momentum in the gold market, Sanchez said the metal could top $1,050 an ounce this week.

Artificial oil boost. Some oil traders are betting that a shift away from the weak dollar is "an indication that oil prices could rise," according to Tom Pawlicki, an energy analyst at MF Global in Chicago.

Pricing crude in a stronger currency is a way for producers to "artificially keep demand buoyant," he said.

But an end to dollar-denominated oil could also result in higher prices for energy consuming countries, which would potentially have to buy crude in a stronger currency, he added.

That could eventually trickle down to the filling station and drive up gas prices. "It's negative for any kind of energy consumer," Pawlicki said.

Sea World, Busch Gardens sold for $2.7 billion
Anheuser-Busch InBev reaches a deal with Blackstone on Busch Entertainment, which operates 10 theme parks across the nation.
NEW YORK (CNNMoney.com) -- Anheuser-Busch InBev said Wednesday that it will sell its theme park business -- including the Sea World and Busch Gardens parks nationwide -- to buyout firm Blackstone Group for up to $2.7 billion.

Blackstone will pay the world's largest brewer $2.3 billion in cash and up to $400 million on whatever return it makes on Busch Entertainment Corp. (BEC), the second-largest U.S. entertainment park operator.

The widely anticipated deal is seen as a way for the Belgian brewer to pay down debt following its $52 billion takeover of Anheuser-Busch last year.

"The sale of BEC represents another important milestone in our commitment to de-leverage the company and will also allow us to continue to focus on our core brewing business," Carlos Brito, chief executive of Anheuser-Busch InBev, said in a statement.

BEC runs 10 amusement parks throughout the nation, including the SeaWorld parks in Orlando, Fla., San Antonio and San Diego, as well as the Busch Gardens parks in Tampa, Fla., and Williamsburg, Va. The parks receive 25 million visitors every year and employs 25,000 workers, according to the company.

Brito called the parks a "high performing asset," but said BEC is "not a core business for Anheuser-Busch InBev."

The deal expands Blackstone's portfolio of amusement parks. The New York-based firm has stakes in Universal Orlando and Madame Tussauds wax museum.

"Blackstone sees tremendous opportunity for investing in leading businesses within the media and entertainment industries, where we have significant expertise," said Michael Chae, Blackstone's senior managing director, in a statement.

Shares of Anheuser-Busch InBev (BUD), which brews Budweiser, were up 19 cents to $46.85 on the New York Stock Exchange. Blackstone's (BX) stock rose 1 cent to $14.54.

GM loses top executive
Mark LaNeve, head of GM's U.S. sales since 2005, leaves company. CEO says replacement may come from outside the automaker.
NEW YORK (CNNMoney.com) -- General Motors is losing its top U.S. sales executive, a key player in the automaker's reorganization, to a job in another industry, CEO Fritz Henderson announced Wednesday.

Mark LaNeve, 50, who had previously headed GM's Cadillac brand as well as Volvo for rival Ford Motor Co. (F, Fortune 500), has been in charge of the sales in GM's core home market since March 2005. His previous oversight of marketing was taken away from him in July.

GM would not disclose the company he is going to. He will leave GM Oct. 15.

LaNeve has helped lead the company in recent decisions to shed non-core brands and more than 1,000 U.S. dealerships.

But GM's U.S. market share has steadily slid during his tenure from 27.3% in 2004, the year before he took the job, to 19.7% in the first nine months of this year.

"GM has cut about a third of its management ranks since emerging from bankruptcy in July," said Michelle Krebs, senior analyst for industry sales tracker Edmunds.com. "Sales and market share in the U.S. have continued to slide and the sales guy is always the one who bears the blame."

During a press conference to mark the 90th day since GM emerged from bankruptcy, Henderson said that he would consider hiring an outsider to take LaNeve's position.

One frequent criticism of GM is that it has drawn top managers from the ranks of lifetime GM employees. Henderson, who replaced GM veteran Rick Wagoner in March, joined the company immediately after business school.

By comparison, Ford Motor and Chrysler Group are now run by CEOs who came from outside the industry.

"I do think there is a benefit to bringing in outsider," Henderson said. "I think we would benefit from fresh perspective."

But Henderson said GM has some constraints on recruiting top executive talent, including pay limits imposed as a result of its government financial support.

"We are working in Washington to finalize how we pay people," he said. "Prior to bringing people in from the outside, we need to say how we might pay them."

Henderson admitted that he has seen speculation that GM Chief Financial Officer Ray Young might also leave GM, but did not offer any endorsement of his performance, saying only "Ray's our CFO."
In other comments, Henderson also said that GM has not drawn down any more federal dollars since emerging from bankruptcy. It still plans to have an initial public offering of its stock in the second half of 2010, a key to repaying the $50 billion in federal help it has received. But he said that offering would depend on financial performance, its balance sheet and market conditions.

He said the company is on course to meet its financial plans, even though year-to-date staff reductions have been somewhat less than forecast.

"Profitability and cash flow will be the key," he said about the IPO plans.

Ask the economists: Obama's regulatory plan
The president wants to get tougher on the nation's financial institutions, but can he? Six top money minds weigh in on his plans to regulate risk, control executive pay and protect consumers.
Richard Carnell: Naive, inept and dishonest
Professor, Fordham University Law School and former assistant secretary of the Treasury for Financial Institutions during the Clinton administration
The plan includes useful reforms. But it's also naive, timid, misguided, politically inept, and intellectually dishonest.

It places naive faith in regulation. Yet regulation failed disastrously over the past decade. Bank regulators had ample powers to keep banks safe but did too little, too late. They let banks use $12-13 in borrowed money for every $1 in shareholders' money. The administration's response? Give regulators more powers.

[The plan] preserves a preposterous tangle of overlapping regulators. And it didn't arrive until June, seven months after the election. By then the crisis had faded and special interest politics had come roaring back.

It entrenches bailouts for large financial institutions. Voters know that's rotten policy. It makes firms like General Electric divest their banks. That serves no purpose. It's like trying to ward off the Mexican Mafia by fortifying the Canadian border. Small wonder voters remain skeptical.

Byron Wien: Bigger fish to fry
Vice Chairman, Blackstone Advisory Services
It's very difficult to write regulation for the financial services industry. We've been talking about increased regulation for banks and hedge funds for a long time and very little has been put in place.

Obama has bigger issues on his plate like the health care plan and the wars in Asia. I think that's what he's going to be focused on.

When he gets around to regulation, I think he's going to focus on the issues where the greatest numbers of voters care. Those issues are credit cards, mortgages, and executive pay.

There are two areas where I think regulation is needed. The first is bank leverage. The rules are on the books and it's up to the Fed to implement them. That's more of a case of implementation rather than regulation.

The second is derivatives and there we really need to write some new regulation providing greater transparency, margins, risk sensitivity, and awareness.

Darrell Duffie: Obama deserves a good grade
Professor of finance, Stanford University, Graduate School of Business
I think [the regulatory plan] is a major step in the right direction, but there's room for improvement. It covers all of the right areas -- the resolution of the systemically large institutions, improvement in consumer finance protection and improvement in the over-the-counter derivatives market, which are all important.

The regulatory plan could improve, most importantly, by providing additional clarity on how large systemic financial institutions can be safely resolved. There can also be further improvements in the price transparency of over-the-counter derivatives.

I think given the amount of work the administration has had to do -- deal with the financial crisis as it arrived -- this is about as soon as such important legislation could have come forward. Of course, it would have been nice to see it even before the financial crisis occurred. But the Obama administration deserves a good grade for getting it out there now.

The most important critic is Congress. I think some of it will be modified, as expected. But it's hard to predict what Congress will do with it; sometimes Congress doesn't even know what it's going to do.

Michael Lind: The plan is doomed
Senior Fellow and Policy Director, New America Foundation
The administration wants a macro-prudential regulator who will have the authority to intervene in the whole banking sector. I think this is doomed.

Unlike the high civil service culture they have in Australia or Canada, where regulators oversee a handful of large banks, we have bureaucrats who are despised in public culture and viewed as inferior to people making money, so they aspire to use their positions to move in that direction. In the U.S., discretionary regulation tends to be corrupted.

I want structural separation between retail banking and casino banking, where retail money couldn't be used to finance the proprietary trading. Or public banking, perhaps through the postal system, to create new retail-only institutions.

It's a philosophical question: Is credit a public utility, or is it an asset? Adam Smith believed that banking should be organized similarly to infrastructure industries. If it was good enough for Smith, it's good enough for me.

Jaret Seiberg: Need a single watchdog
Financial policy analyst with Concept Capital's Washington Research Group
There are parts of the plan that make sense and enjoy broad political support. But the fundamental problem during this crisis was that when times were good no one had the political will to pull the plug.

If you accept the fact that we can't change that politically, the question becomes: Are there smaller steps that can be done to help mitigate a return to a crisis like this?

The most important reform that can come out of this is the designation of a single entity that's responsible for looking at broader risk overall to the system. People say it was the Fed's role, but it never really was explicitly.

The political reaction back in 2005 if the Fed had stepped in and cut off the flow of subprime lending -- which in 2005 was viewed as this miracle that was raising the home ownership rate to 70% -- the political fallout would have been tremendous.

Congress would have said the Fed is overstepping its role and it would have overturned the Fed's moves.

Retail sales beat expectations
Same store sales at many retailers were stronger than expected in September. But analysts say consumers remain cautious amid rising unemployment.
CHICAGO (Reuters) -- U.S. retailers, including Macy's Inc. and Abercrombie & Fitch, surprised Wall Street with better-than-expected September sales, suggesting shoppers could be loosening their purse strings ahead of the crucial holiday season.

This year's later Labor Day holiday pushed a good chunk of sales from August into September, but analysts had wondered if rising unemployment would weigh more heavily on spending.

Sales of clothing for the back-to-school season fueled many retailers' performances, especially in the early part of the month, as did easier results comparisons from a year ago.

Based on results from 24 retailers, 16 beat Wall Street estimates, and another six are due to report, according to Thomson Reuters data.

"I think the consumer is dipping their toe back into the discretionary waters right now, but just their toe," said Retail Metrics President Ken Perkins.

Many retailers continued to post declines in sales at stores open at least a year, but the drops were more moderate than analysts had forecast.

At Macy's (M, Fortune 500), sales fell 2.3%, half as much as analysts anticipated. Its shares rose 2.7% to $19.10 in premarket trading.

Teen apparel retailer Abercrombie (ANF) saw same-store sales drop 18%, but that was better than the 21% decline predicted by analysts. Its shares rose 4.6% to $34.15.

Limited (LTD, Fortune 500) and Children's Place (PLCE) were among those retailers that posted same-store sales increases.

Besides increasing joblessness, holiday spending could be further constrained by consumer aversion to debt. Total U.S. consumer credit posted a deeper-than-expected drop in August, suggesting consumers are opting to cut their debt rather than spend.
Back-to-school helps

Aeropostale Inc (ARO)., American Eagle Outfitters Inc. (AEO) and Gymboree Corp. (GYMB) raised their quarterly profit forecasts. Still, not all of the gains are coming from stronger sales. Gymboree's optimism stemmed mainly from inventory control and taking fewer markdowns.

Gap Inc.'s (GAP, Fortune 500) sales fell more than anticipated, but its shares rose 3% after the company said margins came in significantly above last year.

Limited, whose chains include Victoria's Secret, posted a 1% increase in sales at stores open at least a year. Analysts expected a 2.4% decline.

Children's Place Retail Stores Inc. also reported an unexpected 4% rise in comparable sales. The results were aided by strong growth online, which the company includes in that figure.

"To see a retailer be very weak this September means that there probably has been a fundamental shift in consumption of their product," said Doug Conn, managing director and retail credit specialist at Hexagon Securities.

Analysts had forecast an average decline of 1.1% in September sales at stores open at least a year, according to Thomson Reuters data. That would be the smallest monthly drop since September 2008, when same-store sales fell 0.9%.

Retailers have posted consecutive declines in monthly same-store sales since September 2008, when Lehman Brothers' bankruptcy triggered a global financial crisis. In the previous month, retailers had notched a 0.2% gain.

More air travel misery on the way
As the economy picks up, so will air travel. That could mean more delayed flights, according to a new report by the Brookings Institution.
NEW YORK (CNNMoney.com) -- If you think flying is a miserable experience now, just wait until 2010.

Air travel has been declining since 2008 as a result of the recession. But it is expected to pick up next year, resulting in more headaches for travelers, according to a study released Thursday.

The study from the Brookings Institution, a nonprofit public policy organization based in Washington, said the downturn in travel has a "silver lining of freeing up airport capacity and improved on-time arrival rates. But these silver linings will disappear...in 2010."

The result: More delays.

This adds to the current hardship of traveling, considering that in every year since 2000, at least 15% of flights have been delayed at least 15 minutes, the study said.

Part of the problem is the "antiquated" air traffic control system, and the difficulties in establishing the more advanced Next Generation Air Transportation System, or NextGen, which is still three to nine years away from implementation, according to Brookings.
"Once reason that policymakers can feel confident that such performance will continue to suffer is the reality that the same antiquated air traffic control system will be in place to manage our every-busier skies," the study said.
High-speed rail could free the skies

Air passenger travel in 2008 and 2009 has suffered its most significant declines since the terrorist attacks of Sept. 11, 2001, and the recession is to blame, reported Brookings.

Air travel in the United States experienced its first annualized drop in September 2008 since the World Trade Center and Pentagon attacks of 2001, and these declines continued through March 2009, according to the most recent data from Brookings.

This is in stark contrast to the gains that occurred between 1990 and 2008, when U.S. airports increased passenger and flight levels by 60%, the institute said.

Brookings offered several solutions to alleviate air travel congestion when it picks up again, including increased investment in rail corridors. This would help free up the skies, the study said, noting that half of all flights are between cities that are less than 500 miles apart.

The challenge for high-speed rail travel is that it must be able to compete with air travel. The study noted that "at distances of less than 400 miles high-speed rail can meet or beat air travel times, while the capability wanes up to and past 500 miles."

As part of his stimulus plan, President Obama is pledging $13 billion into an ambitious high-speed rail project.

David Castelveter, spokesman for the Air Transport Association, the airline industry group, said that cutting capacity is not the problem, because it occurs on the "least popular routes." Also, he said the airline industry is reluctant to end short-range flights.

"We can continue to serve the small communities we serve today, and not eliminate it, as these studies suggest," he said.

Castelveter said the air traffic control system must be modernized. A change from radar to digital satellite technology would reduce the spacing between flights and relieve congestion, he said.

"Whether it's next year, or [the next] two years, the economy will ultimately recover and the industry will attempt to grow," Castelveter said. "Our great concern is the fact that this government has yet to move forward aggressively with modernization of the air traffic control system."

500,000 helped by Obama mortgage rescue
The administration reaches its goal a few weeks early. But it remains to be seen how many of these trial modifications will work.
NEW YORK (CNNMoney.com) -- Loan servicing companies have put 500,000 troubled borrowers into trial mortgage modifications, the Obama administration said Thursday.

The administration set that target in late July after it came under fire for not helping homeowners fast enough.

Officials increased the pressure on servicers to speed up their implementation of the president's foreclosure prevention plan, which calls for reducing eligible borrowers' monthly payments to no more than 31% of their pre-tax income. Servicers had until Nov. 1 to hit the half-a-million mark.

The administration also released a related report Thursday showing that 16% of eligible troubled borrowers at least 60 days delinquent were placed into trial modifications as of the end of September. This is up from 12% a month earlier.

President Obama announced the $75 billion initiative in February and the first institutions to join began accepting applications in April.

The plan, which was projected to help up to 4 million homeowners, puts qualified borrowers into three-month trial modifications before the adjustment is made final. Servicers, borrowers and investors can get financial incentives to participate.

Servicers' performance, however, remains very even.

Saxon Mortgage Services once again led the pack with 41% of eligible delinquent borrowers in trial modifications, while Citigroup (C, Fortune 500) and Aurora Loan Servicers following at 33%. JPMorgan Chase (JPM, Fortune 500) has put 27% of its clients into trial modifications, while Wells Fargo (WFC, Fortune 500) has placed 20% and Bank of America (BAC, Fortune 500) 11%.

Have you finished your trial modification period under the president's foreclosure prevention plan? Were you approved for a permanent modification or rejected and are facing foreclosure? Please email your stories to CNNMoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.

Dollar falls as stocks surge
Greenback slips against euro, pound and yen as optimistic investors dig into riskier assets.
NEW YORK (CNNMoney.com) -- The dollar fell against its major rivals Thursday as investors flocked to higher yielding assets such as stocks and commodities on better-than-expected earnings results and jobs data.

The greenback fell 0.7% against the euro to $1.4786 and 0.7% against the pound to $1.6074. The dollar also slid to ¥88.4650.

The dollar's safe haven demand evaporates when investors become more optimistic and shift money into riskier markets.

"Equities are rising strongly and risk appetite is improving, proving to be dollar negative," said Kathy Lien, director of currency research at Global Forex Trading.

Stocks climbed Thursday, with the Dow Jones industrial average briefly posting triple-digit gains after component Alcoa (AA, Fortune 500) posted better-than-expected earnings and revenue.

The Labor Department's report on jobless claims also boosted investors' confidence. The number of first-time filers for unemployment insurance fell to a nine month low last week.

While optimism in the U.S. markets seemed to be strong, Lien said that economies are improving at quicker paces abroad and the risk of a double dip recession in the United States is still valid.

The Reserve Bank of Australia, the Bank of England and the European Central Bank all addressed their monetary policies this week.

While the Reserve Bank of Austrialia was the only central bank to announce a rising interest rate, Lien said the dollar's movement Thursday is "all about relative interest rate expectations."

The dollar has been under pressure because the Federal Reserve has kept interest rates near zero.

"The Federal Reserve is sitting comfortably with the current level and has shown zero urgency to implement an exit strategy," she said. "It doesn't want to change its action because the path to a stronger currency is through a weaker one."

Lien said the Fed will maintain its monetary policy and the weak dollar as long as it can as insurance to an economic recovery.

Gold is also being supported by persistent concerns that government efforts to stimulate the economy will cause inflation to rise in the future. Precious metals are seen as a hedge against rising prices because they store value better than other types assets.

"Though inflation is not an issue now, it's going to come back with force," said Kathy Lien, director of currency research at Global Forex Trading. "And that's why people are going long gold."

Some traders say the rally has been fueled by large investment funds and that the market is ripe for a correction given the strength of the recent push.

At the same time, demand for the metal from jewelry fabricators has been weak and record prices tend to bring out sellers of scrap gold, which makes for a poor fundamental backdrop.

But others say gold is poised to continue its bull run as the fallout from rock-bottom interest rates and U.S. fiscal policies drives investor demand.

Foster said he expects gold to peak near $1,300 an ounce next spring.

"The things that the Treasury and the Fed are doing to the U.S. financial system are setting gold up to be supported for some time," he said.

Bank of America to disclose Merrill details
The bank agrees to hand over previously undisclosed information about its purchase of Merrill Lynch to U.S. regulators.
NEW YORK (CNNMoney.com) -- Bank of America Corp. has agreed to share previously undisclosed information related to its purchase of Merrill Lynch with regulators investigating whether the company misled shareholders, the Securities and Exchange Commission said Tuesday.

The agreement would give regulators access to details concerning the bank's failure to disclose what it knew about pending losses at Merrill when it bought the troubled brokerage last year.

The move came after a federal judge last month rejected Bank of America's $33 million settlement with the SEC, which alleged the bank had misled investors about $3.6 billion of bonuses paid to Merrill employees.

The accord, which is subject to court approval, would "allow us to assess further details surrounding the bank's failure to disclose to its shareholders critical information concerning the award of bonuses to Merrill employees," the SEC said in a statement.

It would also give investigators details concerning whether BofA sought to invoke a "material adverse change clause" in its agreement to merge with Merrill, which would have allowed it to walk away from the deal.

BofA decided to release the information, which was protected under its attorney-client privilege, in response to "a lot of pressure in multiple venues for these additional documents," said Larry Di Rita, a Bank of America spokesman.

"We decided to waive [the privilege] in this case because we have nothing to hide," he said. "We acted appropriately in our deliberations and disclosures."

The SEC said the bank also agreed to give regulators access to its communications with the Federal Reserve, the Treasury Department and other federal officials regarding the provision of federal assistance in connection with its purchase of Merrill.

Bank of America (BAC, Fortune 500) chief Ken Lewis, who recently announced plans to step down at the end of the year, has argued that Fed and Treasury officials pressured him to buy Merrill, which was on the verge of collapse, to help stabilize the financial markets.

Lawmakers criticized Lewis in June for using the threat of scuttling the Merrill deal as a so-called "bargaining chip" for more government assistance.

BofA also faces investigations by Congress and New York State Attorney General Andrew Cuomo over its handling of the Merrill acquisition and subsequent bonus payments.

In a letter to Cuomo's office Monday, BofA said the newly disclosed details will also be available to state officials and Congress.

Time for big banks to show the money
Third-quarter financial reports from the likes of Citi and BofA will show an industry still struggling with big losses.
NEW YORK (Fortune) -- A year after the government applied a tourniquet to the banking industry, the bleeding has slowed -- but it hasn't stopped.

The six biggest U.S. banks will tell investors in coming weeks how they did in the third quarter. Analysts expect four of the six to post profits, and the best-run banks -- Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) -- are likely to more than double last year's bottom line.

But Wall Street expects profits at both Wells Fargo (WFC, Fortune 500) and Morgan Stanley (MS, Fortune 500) to fall from a year ago. And the biggest beneficiaries of Washington's too-big-to-fail mindset, Citi (C, Fortune 500) and Bank of America (BAC, Fortune 500), may lose money.

Bank analysts say a severe economic downturn preceded by a long credit boom means stubbornly high losses on home loans, credit cards and commercial properties will be working their way through the system for a while -- which translates to uneven profit reports at big banks and, in some cases, failures at smaller ones.

"We're through the worst of the storm, but we're not out of the other side of it," said William Schwartz, senior vice president for the U.S. financial institutions group at ratings agency DBRS.

The big banks have been sheltered over the past year by lavish government assistance, ranging from Treasury loans to expanded deposit insurance to federally backed loan guarantees. Some of those props are due to start falling. The Federal Deposit Insurance Corp.'s loan guarantee program, for instance, is due to expire Oct. 31.

In the meantime, bank stocks have rallied off their winter lows -- driven in large part by gains that were concentrated in nonbanking businesses such as fixed-income trading and investment banking.

The major bank stocks all posted massive gains in the third quarter, led by a 57% jump at Citi, whose shares continue to fetch less than $5 each, and 30%-plus rises at BofA, Goldman Sachs and JPMorgan Chase.

"The big firms have more revenue streams, so they're probably a little better off right now than the regionals," said Schwartz.

JPMorgan Chase, which has emerged as a rare beneficiary of the financial crisis via its low-cost, government-assisted acquisitions of Bear Stearns and Washington Mutual, is due to post third-quarter numbers Wednesday morning. Analysts polled by Thomson Financial expect its earnings to rise to 49 cents a share from 11 cents a year ago, as solid performances in fee-based businesses such as mortgage and investment banking offset rising costs in its big credit card book.

Thursday morning will bring reports from another big winner over the past year, Goldman Sachs, and from Citigroup, which continues to struggle under the weight of big loan losses. Analysts expect Goldman to make $4.24 a share for the third quarter, up from $1.81 a year ago. Citi, meanwhile, is expected to lose 21 cents a share, compared with a 60-cent loss last year.

"Citi's earnings remain under significant pressure near term along with the industry," analysts at JPMorgan wrote in a note to clients last week.

Closing out the week will be Bank of America, which is due to post third-quarter numbers Friday morning. Analysts expect the bank to lose 6 cents a share for the quarter, reversing the year-ago profit of 15 cents.

The numbers will come less than a month after the bank's longtime CEO, Ken Lewis, quit under pressure from shareholders, as well as legislators who question his handling of BofA's takeover of Merrill Lynch.

Two other banks dealing with management changes -- the investment firm Morgan Stanley, whose CEO John Mack announced plans last month to retire, and West Coast lender Wells Fargo, whose Chairman Dick Kovacevich will step aside Jan. 1 -- are expected to post results next week. Both firms are expected to make less money than they did in last year's third quarter.

A test case for Wall Street justice
The trial begins Tuesday for two former Bear Stearns hedge fund managers accused of fraud. But the government will have a harder time going after others, legal experts say.
NEW YORK (CNNMoney.com) -- Two former Bear Stearns hedge fund managers go to court Tuesday in the first, and so far only, prominent criminal trial stemming from the mortgage meltdown.

Ralph Cioffi and Matthew Tannin are accused of painting a rosy picture of their portfolios, even though "the defendants believed that the funds were in grave condition and at risk of collapse," according to the prosecution.

Experts say the case against them is compelling, and the government wants to make them an example. But others say it will be hard to nail down anyone else.

Prosecutors blamed Cioffi and Tannin for causing Bear Stearns investors to lose more than $1 billion, alleging that their fraudulent behavior led to the collapse of their hedge funds and, subsequently, Bear Stearns. They have both pleaded not guilty and are out on bail: $4 million for Cioffi and $1.5 million for Tannin.

Jury selection is scheduled to begin Tuesday in U.S. District Court in Brooklyn, N.Y. Cioffi and Tannin could each face 20 years if convicted of securities fraud.

Cioffi could face an additional 20 years on charges of insider trading for moving $2 million of his own money out of a poorly-performing Bear Stearns fund and into a separate fund "for which he had supervisory responsibilities," according to prosecutors.

A spokesman for Tannin's legal defense declined to comment. Lawyers for Cioffi did not return messages.
Making an example

"I don't know whether it's a test case, but [it] certainly will test the government theory of going after Wall Street defendants who, according to the government, were less than forthright about the future prospects of their fund," said Robert Mintz, a former federal prosecutor who leads white collar defense at the law firm McCarter & English.

Ken Springer, a former FBI agent, certified fraud examiner and president of the consultant firm Corporate Resolutions, was more succinct: "I think this a line in the sand that the government is drawing and I think they're going to make an example."

Springer described this as a "pivotal case for the government to show that this kind of behavior is not acceptable" and he said the prosecution's evidence is "compelling."

The two defendants presented their hedge funds, which totaled some $1.4 billion in 2006, as "low risk" investments in AAA-rated pieces of collateralized debt obligations, backed by pools of securities such as mortgages, according to government lawyers.

By the spring of 2007, they allege the two men were having private conversations about the declining prospects of their funds and the impending meltdown. Tannin told Cioffi that the "subprime market looks pretty damn ugly" and he suggested that they "close the funds now," according to prosecutors.

"Notwithstanding their views to the contrary, the defendants led investors and creditors to believe that, despite the challenges presented in the market, the funds would continue to generate an increasing net asset value," wrote prosecutors, in a press release at the time of their June 19, 2008 indictment.

And on Sept. 22, prosecutors accused Cioffi, a New Jersey resident, of flying to Florida to try to retrieve documents from the Fort Myers-based Busey Bank, where he had attempted to obtain a $4.25 million line of credit. His lawyers deny that he was trying to snag the documents ahead of a federal subpoena, as the prosecutors allege.

Ken Rubinstein, an asset protection lawyer with the New York firm Rubinstein & Rubinstein, also believes that prosecutors have a strong case against Cioffi and Tannin, but that it's a unique situation.

"These are the only two that have come out because these are the only two where the facts are clear enough in the government's favor," he said.
Fraudulent - or just stupid?

Even though Cioffi and Tannin are the only fund managers charged with the fraudulent behavior that fueled the collapse, no one is alleging that they alone brought down Wall Street.

"I think it's clear that there's been a lot of fraud in the system," said Dick Bove, banking analyst for Rochdale Securities. "It's a multi-layered system, and at every layer people chose not to do the proper due diligence, which is criminal. Everywhere along the line there were excesses, and perhaps the biggest excesses [were from] the government itself, because it had an obligation [to prevent fraud.]"

Despite the rampant wrongdoing by white collars leading up to the market meltdown of 2007, Bove said that pinpointing fraudulent acts and perpetrators is complex and difficult.

"There would have to be some intensive investigating to ferret out the people who were doing these things and I don't know what the risk-reward will be," he said. "It's going to take a lot of work to figure out who they are."

Even when investigators find a couple of suspects, like Cioffi and Tannin, it can be difficult to prove that they had any intention of deliberately misleading investors, or if they were simply making stupid mistakes.

In this way, hedge fund investors are just as responsible for their demise as the portfolio managers, said David Wyss, chief economist for Standard & Poor's.

"Nobody held a gun to these people's heads and told them to buy subprime mortgages," he said. "It's a combination of stupidity and overconfidence, and unfortunately, both were national epidemics."

But even if most of the pre-crash behavior on Wall Street can be attributed to lack of due diligence rather than deliberate fraud, Bove said that's hardly an excuse.

"Is it wrong? ******* right, it's wrong," he said. "Is anyone going to do anything about it? I sincerely doubt it."

"I think, in the end, that the defense is going to argue that some of the greatest minds in the economy were unable to predict the recession, so how could these two be held accountable?" said Mintz, the lawyer at McCarter & English.

Gold rally loses steam
After surging to a new trading high above $1,070 an ounce, prices end lower as the Federal Reserve says inflation will decrease.
NEW YORK (CNNMoney.com) -- Gold closed slightly lower Wednesday, after surging above $1,070 an ounce, as investors positioned themselves just prior to the release of the Federal Reserve meeting minutes.

December gold fell $2 to settle at $1,064.00 an ounce, after trading above $1,070.00 an ounce earlier in the session. Prices rose overnight to an all-time trading trading high of $1,072.00 an ounce.

"After the market made the move to a new high overnight, we saw a slight pullback as traders booked profits ahead of the FOMC," Adam Klopfenstein, senior market strategist at commodities brokerage firm Lind-Waldock, said before the minutes were released.

Gold, which has gained more than 20% this year, has been supported by worries that government efforts to stimulate the economy could set the stage for inflation as the economy recovers.

However, minutes from the September meeting of Federal Reserve's Open Market Committee indicated that the central bank expects inflation to decrease over the next few years.

"With the significant underutilization of resources expected to persist through 2011, the staff forecast core inflation to slow somewhat further over the next two years from the pace of the first half of 2009," according to the minutes.

At the same time, gold prices have been boosted by the weak U.S. dollar, which fell to a 14-month low Wednesday on speculation that U.S. interest rates will remain low for a longer-than-anticipated period of time.

The dollar index, which gauges the greenback's value against a basket of rival currencies, slid to 75.45, marking its lowest level since August 2008.

The weak dollar also boosted oil prices, which rose above $75 a barrel for the first time this year.

A softer greenback makes commodities that are priced in dollars, such as gold and oil, cheaper for investors using other currencies.

Investors will get more inflation data Thursday, when the government releases its September Consumer Price Index.

The closely watched inflation gauge is expected to show an increase of 0.2% in September, compared to a 0.4% rate the month before, according to a consensus of economists surveyed by Briefing.com.

Consumer prices excluding volatile food and energy costs, the so-called core CPI, are expected to have risen 0.1%, the same rate of increase as in August.

Oil crosses $77 for first time in 2009
Crude oil prices surged on a surprisingly sharp drop in gasoline stockpiles and a weakening dollar. But analysts see prices falling in the next few weeks.
NEW YORK (CNNMoney.com) -- Oil prices climbed above $77 a barrel on Thursday -- a first for the year -- after a bullish government showed a surprise drop in gasoline stockpiles and a lower-than-expected rise in crude inventories.

Oil for November delivery rose $1.88, or 2.5%, to $77.06 a barrel in midday trading, after hitting an intraday high of $77.28.

"Crude oil has been enjoying incredible momentum and piggybacking on the stock market for the last several weeks, especially with the Dow going over 10,000 yesterday," said James Cordier, president of Liberty Trading Group. Oil prices settled above $75 Wednesday for the first time since October 2008.

Though the government's inventory report showed a sharp drop in gasoline stockpiles and pushed oil prices higher, Cordier said the significance of the figure will dwindle because demand for gas naturally drops in the fourth quarter. He said it will not be a factor again until next spring.

"We're buying the rumor and selling the fact," Cordier said. "The market is extremely overbought and I expect a sell off coming today or tomorrow. Oil should ease back into the low $70-range later this week or next week."

Cordier added that crude prices generally go into a tailspin mid-October and current demand for oil doesn't justify prices above $70 a barrel.

And if stocks retreat from their highs, a drop is even more likely.

Crude prices were also boosted by a weak dollar. Crude oil, like other commodities, is priced in dollars, and a weaker greenback can help support prices.

Inventory report. The Energy Information Administration reported a modest increase in crude stocks of 400,000 barrels in the week ended Oct. 9. Analysts were expecting a rise of 2.2 million barrels, according to a consensus estimate collected by energy information provider Platts.

Oil retreats from one-year high
NEW YORK (CNNMoney.com) -- Oil prices slipped early Monday, pulling back from the previous week's rally.

Crude held its 10% gain over a seven-day rally last week, ending with a one-year high above $78 a barrel on Friday. Oil hit the high despite a stronger dollar and weaker stocks that usually pressure prices.

By 6:50 a.m. ET Monday, crude for November delivery had fallen 47 cents, or 0.6%, to $78.06 a barrel.

Analysts have questioned whether oil's recent rally is justified. While prices last week moved in tandem with factors such as the Dow Jones industrial average (INDU) crossing the psychological level of 10,000, crude market fundamentals remain weak. Supplies in the U.S. have continued to climb while demand remains unclear pending broader economic recovery.


Oil prices bucked typical trends from other markets early Monday, as stock futures pointed to a lower open and the dollar edged lower against a basket of currencies. The price of oil tends to rise on a softer greenback because crude is priced in dollars around the world.

The national average price for a gallon of regular unleaded gasoline increased to $2.564, up 1.7 cents from the previous day's $2.547, according to a daily survey conducted for motorist group AAA.

World stocks soar to one-year high
MSCI All-Country World Index is up 75% since hitting a low in March.
LONDON (Reuters) -- World stocks hit a new 12-month high on Tuesday, fueled by optimism over corporate earnings and the global recovery after strong results from Apple and Texas Instruments.
By 0701 GMT, the MSCI All-Country World Index was up 0.5% at 300.77, its highest level since late September 2008. This took the index up more than 75% since hitting a low in March 2009.

Stocks slide, but Dow holds 10,000
Mixed profit reports, a stronger dollar and a weaker housing market report are among the factors dragging on Wall Street.
NEW YORK (CNNMoney.com) -- Stocks dipped Tuesday as a stronger dollar and some disappointment about DuPont and Coca-Cola's results gave investors a reason to retreat from the recent rally.

A weaker-than-expected housing market report added to the downward pressure.

The Dow Jones industrial average (INDU) lost 67 points, or 0.7%, with one hour left in the session, after ending the previous session at the highest finish since Oct. 3, 2008.

The S&P 500 (SPX) index lost 8 points, or 0.7%, after ending Monday's session at the highest point since Oct. 2, 2008. The Nasdaq composite (COMP) fell 14 points, or 0.76%, after ending the previous session at the highest point since Sept. 26, 2008.

Stocks gained Monday, with the Dow reclaiming 10,000 in response to a weak dollar, higher commodity prices and some earnings optimism. But the path higher over the last week has been choppy as investors have sifted through a mix of profit reports. That choppiness put pressure on stocks Tuesday.

"I'm impressed we've managed to stay above 10,000 as I would have expected a bigger pullback after the last few days," said Gary Webb, CEO at Webb Financial Group.

Webb said that after better-than-expected quarterly results last week from the likes of Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Intel (INTC, Fortune 500) raised investors' expectations for the reports this week. As such, even companies that have reported strong results this week have seen a mixed stock reaction.

"When we see an economy that's going in the right direction at a stronger pace, we'll see a more positive reaction to the profit reports," he said.

Since bottoming at a 12-year low on March 9, the S&P 500 has risen more than 62%. But some worry that the recent leg of the run has been a ruse and that investors should beware.

Tuesday brought quarterly results from five Dow components: DuPont, Pfizer, Coca-Cola, Caterpillar and United Technologies. Apple and Texas Instruments were among the names who reported after the closing bell Monday. Tech bellwether Yahoo is due after the close Tuesday.

Stocks have surged recently, buoyed by better-than-expected earnings data. But some worry that the Dow's move above 10,000 could be a ruse and that investors should be more skeptical of the rally.

Blue-chip results: DuPont (DD, Fortune 500) reported higher third-quarter earnings that topped estimates on weaker revenue that missed forecasts. The chemical maker used cost-cutting to temper the impact of weak sales and surging crude and energy costs.

Looking forward, DuPont narrowed its full-year earnings guidance to a per-share range of between $1.95 and $2.05. Shares fell 2.7%.

Coca-Cola (KO, Fortune 500) reported modestly higher third-quarter earnings that met estimates on weaker revenue that missed forecasts. The company was hit by weaker sales amid the impact of the recession.

Coke was also hurt by the comparatively strong dollar, at least versus a year ago. A stronger dollar hurts companies like Coke because the majority of its profit comes from sales overseas. Those sales then convert back to less U.S. dollars. Coke shares fell just over 1.2%.

Pfizer (PFE, Fortune 500) reported higher third-quarter earnings and weaker revenue, both of which surpassed analysts' estimates. Although the maker of Lipitor, Viagra and other drugs saw a decline in sales due to the recession, that was offset by aggressive cost-cutting. Shares were 1.3%.

Caterpillar (CAT, Fortune 500) reported weaker quarterly earnings that topped estimates on weaker quarterly revenue that missed forecasts, due to lower sales. But the heavy-equipment maker also lifted its full-year earnings forecast to a range of $1.10 to $1.30 per share, versus its previous guidance of 95 cents per share. Caterpillar gained 3.5%.

United Technologies (UTX, Fortune 500) reported weaker quarterly earnings and revenue that missed estimates. Looking forward, the company said it expects earnings of $4.10 per share, in the middle of its previous guidance. UTX runs jet engine maker Pratt & Whitney, Otis elevators and other businesses. Shares were barely lower.

Fed sees modest economic improvement
A report on activity from regional banks show stabilizing or modestly stronger activity, though improvements were 'small or scattered.'
NEW YORK (CNNMoney.com) -- The economy has shown signs of stabilizing or modestly improving in recent weeks, according to the latest Federal Reserve snapshot of regional economic conditions.

"Reports of gains in economic activity generally outnumber declines," the Fed said Wednesday in the latest edition of its Beige Book. "But virtually every reference to improvement was qualified as either small or scattered."

The Beige Book, published 8 times a year, is a summary of economic conditions in the central bank's 12 districts. It precedes, by about two weeks, the central bank's scheduled policy meeting at which interest rate movement is discussed.

The housing market and manufacturing activity, which have been improving since the summer, were two bright spots in the October report.

However, commercial real estate remains a concern, with all 12 districts reporting weak or deteriorating conditions in that sector.

According to minutes of the last Federal Open Market Committee meeting that were released last week, most monetary policy makers believe that an economic recovery has started. However, they view the turnaround as weak enough for some to advocate additional steps to stimulate the economy.

The Fed has maintained a fed funds rate, the key rate used to pump money into the economy, at historic lows near 0% since early this tear. In its most recent policy statement, the Fed said "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

State jobless picture brightens a little
In September, 23 states saw jobless rates rise, government says. But Michigan remains hardest hit at 15.3%, and the national rate stands at a 26 year high.
NEW YORK (CNNMoney.com) -- Fewer states posted an increase in unemployment in September, even as the national rate recently hit a 26-year high of 9.8%.

Jobless rates increased in 23 states and the District of Columbia last month, according to a report released Wednesday by the Labor Department.

Additionally, 19 states posted a decrease in unemployment, and eight states had rates hold steady in September.

That's compared to August, when 27 states and the District of Columbia recorded month-over-month unemployment rate increases.

Bad news still dominates. The overall employment picture remains very grim. All 50 states and the District of Columbia reported an increase in unemployment compared with September 2008.

And the national unemployment rate is widely expected to push above 10%, even as the economy has started showing some signs of turnaround. Nationwide, September marked the 21st consecutive month that the total number of workers on payrolls shrunk, with 7.2 million jobs lost during that period.

Michigan remains the state hardest hit by unemployment, with a rate of 15.3%. It reported the biggest year-over-year jump, up 6.4 percentage points. Nevada had the next-highest rate, 13.3%, followed by Rhode Island at 13% and California, at 12.2%.

Florida, with 11% unemployment, as well as Nevada and Rhode Island, all posted the highest unemployment rates on record since the survey of states began in 1976.

A total of 15 states reported jobless rates above 10% in September, according to the federal data.

A few bright spots: North Dakota again posted the lowest jobless rate in September, at 4.2%. It was followed by South Dakota, with 4.8%; Nebraska, at 4.9%; and Utah, at 6.2%. Five states were tied for the next lowest rate of 6.7%.

Nineteen states reported declines in joblessness from August. Minnesota and Ohio each posted the biggest declines, at 0.7 percentage point, while rates in Oregon and Wisconsin both dipped by 0.5 percentage point.

But even that good news isn't all that good. In Ohio, for example, the unemployment rate has fallen to 10.1%, down 1.1 percentage points from July. However that's probably just because discouraged job-hunters are giving up the search altogether, according to Brian Harter of the Ohio Department of Job and Family Services, which means that they aren't counted in the unemployment rate survey.

"Some are frustrated because they cannot find work," he said in an e-mail, "while others are going back to school so they can retrain themselves to re-enter the workforce in a different vocation."

Meanwhile, as the economic downturn drags on, more people across the country are losing their unemployment benefits. Congress is debating measures that would extend these benefits to the unemployed. The House has approved an extension but the Senate has not yet voted on it.

In a Senate Democrats' proposal, unemployment benefits would be extended by up to 14 weeks in every state, and then another six weeks on top of that in states where the unemployment rate tops 8.5%. Currently, states with rates above 8% now offer up to 79 weeks of benefits. States with rates between 6% and 8% now offer up to 59 weeks, and all other states currently offer up to 46 weeks.

Washington's bank pay crackdown
Obama's pay czar demands executive pay cuts at biggest bailout firms. Federal Reserve proposes sweeping review of pay plans at 28 largest U.S. banks.
NEW YORK (CNNMoney.com) -- Washington launched its biggest offensive yet against runaway Wall Street pay practices Thursday, taking aim at everyone from senior executives to high-flying traders of complex securities.

Leading the charge was the White House, which ordered drastic pay cuts for 175 top executives at the nation's biggest bailed-out companies, including AIG (AIG, Fortune 500), Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500).

"I've always believed that our system of free enterprise works best when it rewards hard work," President Obama said in remarks at a White House event honoring veterans. "But it does offend our values when executives of big financial firms -- firms that are struggling -- pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat."

Separately, the Federal Reserve proposed a review of pay practices at 28 of the nation's largest banks as part of an effort to make sure employees are not tempted to make the kinds of bets that could put their company at risk of going under.

But much of Thursday's focus was on a ruling issued by White House "pay czar" Kenneth Feinberg, who was appointed in June to review pay practices at the seven biggest bailout firms.

Among other things, Feinberg demanded that each of the bailout recipients lower total compensation for their top 25 highest-paid employee by 50%, on average.

Much of those cuts came at the expense of executives' salaries, which were reduced more than 90% on average.

A total of seven companies submitted pay plans to Feinberg, including Citigroup, AIG, Bank of America, General Motors, Chrysler, GMAC and Chrysler Financial.In most instances however, the proposed pay packages submitted by these companies were "inconsistent with the public interest," Feinberg said at a media briefing Thursday.
Unintended consequences?

Thursday's activity, which first started to surface just a day earlier, perhaps represent the most sweeping push against Wall Street pay practices.

Certain shareholder groups and other social activists have long campaigned for banks and other financial firms to do more to align executive pay with a company's performance, but those efforts have made little headway.

But some compensation experts have warned that actions taken by the Obama administration could have a disastrous series of unintended consequences, including the loss of top employees to companies that are not hindered by government restrictions.

Bailed-out firms such as Citigroup and Bank of America have already lost dozens of key employees to rivals such as JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500), both of which got out from under the government's thumb over the summer.

There have also been fears that letting talented employees leave could derail efforts aimed at nursing these companies back to health and ultimately returning bailout money to taxpayers.

Even as he has tried to strike a balance between compensation and risk taking, Feinberg has shown little restraint during the first part of his broader review of compensation packages for the 100 highest-paid employees at each of the seven biggest bailout firms.

Last week, outgoing Bank of America CEO Ken Lewis said he would not accept a salary or bonus for 2009, and the bank said the decision came after Feinberg "suggested" it to Lewis.

The administration stood behind Feinberg.

"We all share an interest in seeing these companies return taxpayer dollars as soon as possible, and Ken today has helped bring that day a little bit closer," Treasury Secretary Timothy Geithner said in a statement.

The initial reaction among some lawmakers was one of encouragement.

"I think we got from Ken Feinberg exactly what we were hoping to get," said Rep. Barney Frank, D-Mass., who chairs the powerful House Financial Service Committee. "I think it will speed up TARP repayment, which I'm all for."
The next step

With compensation for top executives and other high-ranking employees in place, Feinberg will now move on to review pay packages of the next 75 most highly paid employees at each company.

All seven firms were due to deliver those plans to Feinberg's office last week. Once those are determined "substantially complete," he will have 60 days to complete his review of those 525 employees.

That could delay Feinberg's next ruling until late December or early next year.

It certainly stands to reason that additional cuts could be forthcoming. It is not unheard of on Wall Street for star traders or dealmakers to be in line for pay packages that eclipse that of senior management.

Still, it is not clear whether Feinberg's authority will be extended to all 100 top-paid employees at each firm. When the Treasury Department announced Feinberg's appointment in June, it indicated that his authority would not extend to those employees making less than $500,000 in total annual compensation.

Dollar rebounds from 14-month low
Greenback jumps against basket of currencies as weaker global stocks cool risk demand.
LONDON (Reuters) -- The dollar rose broadly on Thursday, rebounding from 14-month lows against the euro and a currency basket as a slide in global share prices cooled risk demand and put the brakes on a rally in higher-risk currencies.

European shares fell around 1.6%, tracking Asian and U.S. stocks lower on some disappointment over corporate earnings and prompting some investors to book profits on the euro's rise above $1.50 on Wednesday.

The dollar was also supported by Chinese GDP figures. While showing economic growth quickened, the data sparked selling in higher-yielding currencies, including the Australian dollar, as some in the market had expected even stronger expansion.

Cooling risk demand benefited the dollar on Thursday, but analysts said its downtrend remained intact as optimism about the global economy leads some investors to sell the U.S. currency for riskier assets.

At the same time U.S. interest rates are seen remaining low for many months, adding to the dollar's yield disadvantage as other central banks consider tightening monetary policy.

"The euro's proximity to $1.50 suggests that the market is not taking the current correction as too serious," said Michael Klawitter, senior currency strategist at Commerzbank in Frankfurt.

"Quite a few investors are buying euros on dips."

He added the currency market would eye movements in stocks, as well as more U.S. earnings due later in the day, including McDonald's (MCD, Fortune 500), Phillip Morris (PM, Fortune 500), AT&T (T, Fortune 500), American Express (AXP, Fortune 500) and others.

The euro was down 0.3% on the day at $1.4965, having slipped as low as $1.4944 in earlier trade. Still, it remained within range of $1.5047 hit on Wednesday, its strongest since August 2008.

Against a currency basket, the dollar was up 0.6% at 75.385, pulling back from a 14-month low of 74.940 touched the previous day.

The dollar rose 0.3% to ¥91.25.

The British pound fell to the day's low against the dollar and the euro, stalling a dramatic rally in the past nine days, after U.K. retail sales showed no growth in September, weaker than expectations for rise.

The Swedish crown fell to the day's low against the euro after the Riksbank held interest rates at 0.25% and said they would remain at that level for the next year.
China GDP

Data on Thursday showed China's gross domestic product growth accelerated to 8.9% in the third quarter.

The numbers were in line with market expectations and gave traders a reason to take profits in higher-yielding currencies such as the Australian and New Zealand dollars, which each fell more than half a percent against the dollar.

China is Australia's biggest trading partner and robust Chinese demand for its commodities has helped it dodge recession.

Market participants said the dollar's correction may be limited, particularly after the Federal Reserve's Beige Book on Wednesday suggested U.S. price pressures were very subdued, reinforcing the case for rates to remain low for a while.

"The Fed Beige Book confirmed the absence of pricing pressure in the U.S. and activity was merely starting to recover from depressed levels -- thus the Fed is showing no signs of removing the punchbowl of low rates," analysts at ING said in a note.

"Thus core trends remain intact and USD rallies should be sold into."

Clock ticking on debt ceiling
This week Uncle Sam plans to sell $123 billion worth of Treasurys. That will bring the country's debt level very close to the $12.1 trillion debt ceiling.
NEW YORK (CNNMoney.com) -- Roughly $211 billion separates what the country owes and its self-imposed credit limit.

And by Friday, after another week of massive debt sales by the Treasury Department, that gap will likely have narrowed considerably.

It is now expected that the $12.104 trillion debt ceiling could be breached by the end of November.

It is also expected that lawmakers will raise the ceiling, as they have done more than 90 times since 1940 -- eight of them since 2002.

If they don't, the government could be forced to shut down. But that's not the worst that could happen. In fact, the government did shut down for a spell in 1995 and life went on. The reason lawmakers will eventually approve an increase is because without one ultimately the value of U.S. bonds would sink, jeopardizing the portfolios of countries and investors around the world who invest in U.S. debt.

It makes life a whole lot easier for folks at Treasury if lawmakers take that vote before the ceiling is breached -- and they usually do. But there have been times when Congress voted to raise the limit after it was pierced, according to a recent Standard & Poor's report.

If they don't do so before the breach, "the U.S. Treasury must engage in some legerdemain to create additional headroom," wrote Standard & Poor's managing director John Chambers.

The department has a few options -- but all of them are limited and very short-term. One House Democratic leadership aide said Treasury told congressional staff the steps they can take "will only cover two weeks at most and potentially even less, depending on the timing."

Treasury can, for instance, draw on $113 billion in government securities currently held in a 401(k)-type plan for federal employees, according to the S&P report. Then there's another $3 billion or so that can be tapped monthly from a Civil Service Retirement and Disability Fund. Any money taken from those funds would need to be repaid with interest.

Then there's the option of selling $16 billion worth of the government's dollar holdings in a special currency stabilization fund.

And in a real pinch, S&P notes, Treasury really wanted to it could sell Fannie Mae and Freddie Mac debt, worth about $165 billion at the end of September. But consider that option a non-starter. "If the Treasury were to liquidate these fiscal assets, the sale could disrupt the very markets the original purchases had intended to calm," Chambers wrote.

Beyond that, it's all about saying "no" to others. Specifically, "no" to any part of the federal government interested in, say, keeping the lights on.

While no one doubts the Senate will vote to increase the debt ceiling -- the House in effect has already done so -- it's not clear yet when exactly lawmakers will act. Initially the plan was to vote on the debt limit after work on health reform wrapped up. But since that is taking longer than Democrats originally hoped, the vote may have to come before.

Whenever it comes, there will be a group of lawmakers pushing for more to be done to control the country's debt situation than simply raising a self-imposed cap every year or two.
next decade, a group of Democratic senators wrote a letter to Senate Majority Leader Harry Reid, D-Nev., two weeks ago calling for a new process to be put in place to address long-term fiscal imbalances.

"We do not believe that action on these important issues will occur under the regular order in Congress."

- CNN's Ted Barrett contributed to this report.

No relief in sight for Main Street banks
With loan losses still mounting, some regional banks aren't looking to return to profitability until 2011.
NEW YORK (CNNMoney.com) -- JPMorgan Chase, Goldman Sachs and other Wall Street megabanks may be showing signs of recovery lately, but things are hardly looking up for regional banks.

From the Rust Belt to the Deep South, big commercial lenders with more routine banking businesses have endured some of their worst losses since the financial crisis began more than a year ago.

Last week, Regions Financial (RF, Fortune 500) and Sun Trust (STI, Fortune 500), two of the biggest regional banks in the Southeast, each lost close to $400 million in the latest quarter.

Farther to the north, Milwaukee-based lender Marshall & Ilsley (MI) and Utah's Zions Bancorp (ZION) each suffered their fourth-consecutive quarterly loss. They both set aside mountains of cash for future loan losses as well.

Just a year ago, such tales were the exception rather than the norm as regional banks remained largely immune to the troubles on Wall Street.

Instead, it was the more well-known securities firms and large diversified banks that were hemorrhaging money, such as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500), as they were forced to write down the value of complex securities tied to the U.S. housing market.

The tables have turned lately however. JPMorgan Chase (JPM, Fortune 500) has profited handsomely from a recovery in the bond market and renewed merger activity. Some analysts even believe the worst is behind Citi and BofA.

But regional banks, which rely on the simple business of taking in money and lending it back out at a higher rate, are finding themselves squeezed by losses in their consumer and business loan portfolios.
Ongoing troubles in the U.S. housing market and rising unemployment levels have created additional headaches for their residential mortgage and home equity portfolios.

At the same time, many regional lenders have been bracing for a potential tidal wave of problems in one of the biggest parts of their business: commercial real estate loans.

"Loans in those categories are still under a lot of pressure," said Fred Cannon, chief equity strategist for Keefe, Bruyette & Woods, a firm that focuses on financial services companies.

Hoping to sidestep some of those problems, many lenders have moved aggressively to clean up their books.

Georgia's Synovus Financial (SNV), for example, revealed last week that it sold $339 million worth of its troubled assets -- mostly mortgages and real-estate development loans -- in the latest quarter.

Other banks have aggressively bolstered their loan loss reserves to brace for the looming commercial loan fallout, even if it means suffering a loss. Among those was Marshall & Ilsley, whose provisions for loan losses more than tripled from the previous quarter to $578.7 million.

Marty Mosby, a bank analyst at FTN Equity Capital Markets, said that as painful as those steps have been, regional bank executives think that by doing so, they can position their firm to recover once the U.S. economy does.

"They don't want to be the last bank to come out of this [recession]," said Mosby. "They want to prepare for it as soon as possible."

Of course, the recession hasn't been devastating for all regional lenders.

Commerce Bancshares (CBSH), which boasts over 370 locations across Missouri, Illinois and Kansas, reaped the benefits of years of conservative underwriting and higher profit margins on loans this quarter. The bank reported earnings that doubled from a year ago.

And two banks based in California, City National (CYN) and Westamerica Bancorp (WABC), have remained consistently profitable despite their exposure to the economically hard-hit state.

What troubles some analysts, however, is that even the most well-run lenders may have a hard time forecasting the scope of future losses, especially within their commercial real estate portfolios.

It is no surprise then that analysts don't expect regional banks, as a group, to return to sustained profitability anytime soon.

The 11 regional banks in the S&P 500, for example, are expected to cumulatively lose $10.4 billion this year and $140 million in 2010, according to Thomson Reuters.

"Regional banks are still under a lot of pressure," said Cannon. "[Their] losses may be extended for some time."

Former GM plant set to make electric cars
Fisker Automotive to employ up to 2,000 workers at recently shuttered Delaware facility. $40,000 electric vehicle set to debut in 2012.NEW YORK (CNNMoney.com) -- Electric carmaker Fisker Automotive said Tuesday it is buying an old General Motors plant in Wilmington, Del., and plans on making up to 100,000 vehicles a year at the recently shuttered facility.

"This is a major step toward establishing America as a leader of advanced vehicle technology," Henrik Fisker, Fisker's chief executive, said in a statement. "Wilmington is perfect for high quality, low volume production and will soon be the proud builder of world-class, fuel-efficient Fisker plug-in hybrids."

Until July, the plant had employed over 1,000 workers making Pontiac, Saturn and Opel sports cars for General Motors. GM closed the facility as part of its corporate restructuring.

Fisker says its new plant will employ 2,000 factory workers and support another 3,000 vendor jobs by 2014. Production is set to begin in 2012.

"It gives me great pride to give UAW Local 435 workers the opportunity to partner with Fisker Automotive to create a greener America by building a plug-in hybrid car that will compete globally," Gary Casteel, a United Autoworkers union official at the plant, said in a statement.
The company said the plant "was selected for its size, production capacity, world-class paint facilities, access to shipping ports, rail lines and available skilled workforce."

Fisker, based in Irvine, Calif., plans on building a family-oriented plug-in electric vehicle at the facility. Dubbed Project NINA, the car is expected to cost around $40,000 after a $7,500 tax rebate. Fisker did not give any other details on the planned car.

The company unveiled a luxury sports sedan called the Karma earlier this year. That vehicle has a range of 50 miles on all-electric power. An on-board 2.0 liter combustion engine kicks in to charge the battery, giving the car a total range of 300 miles. The Karma has a top speed of 125 miles per hour, and a price tag of around $80,000. It can potentially use as little as 10 gallons of fuel a year, according to the company.

Fisker bought the GM plant for $18 million and plans on spending an additional $175 million retooling the facility.

The electric car manufacturer recently received a $528 million loan from the Department of Energy as part of a $25 billion government program to spur advanced vehicle manufacturing in the U.S.

Pay czar: Next ruling may carry more clout
Executive compensation guru for TARP says decisions on middle managers, due in December, could resonate nationwide.
WASHINGTON (CNNMoney.com) -- The next round of executive pay decisions for companies that have received substantial government bailout funds could have a more lasting impact on pay practices nationwide, the special master on pay for the bailout said Tuesday.

Kenneth Feinberg, the so-called pay czar of the Troubled Asset Relief Program (TARP), last week imposed caps on those who hold the top 25 positions at seven companies in which the government has a substantial stake, including AIG (AIG, Fortune 500), Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500). He also demanded that each of the bailed-out companies reduce compensation for the 25 highest-paid employees by an average 50%.

His next round of edicts, due in December, will set guidelines, as opposed to dollar amounts, for those who occupy the next tier of jobs, or the top 26 through 100 employees.

Feinberg, speaking at a Georgetown University symposium in Washington, said the guidelines will reflect already established principles, with reduced cash salaries and more emphasis on tying pay to long-term company performance.

"I think that the most likely area where I'll have long-term impact is, frankly 26-100," he said. "The compensation structures that I have to come up with will be sort of a blueprint that these companies have to follow in setting their own compensation for their other employees."

"Maybe, there, other companies and regulators will pick up on what I'm doing, " Feinberg added.

He said a wider impact could follow if the Securities and Exchange Commission, (SEC) the Federal Reserve, Treasury and his office, all work together to create a broader effort to regulate executive compensation.

While the agencies are talking about their efforts on executive pay right now, they haven't started coordinating in such a way yet. However, last week, on the same day that Feinberg's announcement came out, the Fed released its plans. It will review pay practices at 28 of the nation's largest banks to make sure employees are not tempted to make the kinds of risky bets that helped sink firms such as Lehman Brothers.
Feinberg noted that critics have predicted that his recent decision capping executive pay will have little to no impact on pay practices in the private world. But he said that's he's hopeful.

"Maybe there will be some private voluntary effort to restructure and better regulate, privately, corporate pay," he said.

The pay caps announced last week take effect in November and serve as a base for executive pay in 2010.

President Obama appointed Feinberg in June to review compensation practices at the seven companies, which the government has the greatest stake in.

Feinberg stressed that the law limited his job in scope and he said that his orders were in no way "vindictive."

"I'm not riding into this on a white charger," he said. "My goal is implement the law. . .I'm acting pursuant to Congress."

Credit card hikes raise Congress' blood pressure
House, Senate consider bills to stop credit card issuers from raising rates ahead of new law limiting them.
WASHINGTON (CNNMoney.com) -- As credit card companies continue raising rates and fees, lawmakers are considering bills to stop such hikes until new credit card laws take effect.

In the House, a key committee passed a bill to move up by nearly three months the start date of new laws aimed at cracking down on the way credit card issuers raise fees and assess credit risk. The new start date would be Dec. 1, up from Feb. 22.

"It was argued ... that they needed more time, and we granted them more time, but it was under the understanding that abusive practices would not continue, and double and increase dramatically," said Rep. Carolyn Maloney, D-N.Y., a bill sponsor, debating amendments to it.

The House Financial Services committee passed it on a voice vote.

In the Senate, Sen. Chris Dodd, D-Conn., Sen. Charles Schumer, D-N.Y., and others have introduced a bill to freeze credit card interest rates until the new legislation takes effect Feb. 22.

"We worked long and hard to enact the safeguards included in the Credit CARD Act," Dodd said. "And no sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded."

Congressional watchers say that the odds are against passage for either bill, especially since the two are not identical.

"For now, this seems to be much more about scoring political points by beating up on unpopular credit card companies than on pushing legislation that can get enacted quickly," said Jaret Seiberg, an analyst with Concept Capital's Washington Research Group.
Public up in arms

Still, public outrage continues to boil over on the topic, especially as card issuers continue to hike rates.

On Tuesday, the Pew Charitable Trusts released a study showing that interest rates rose by an average of 23% from December 2008 to July 2009.

Also, they found that all the largest banks and card issuers had engaged in practices that would be prohibited under the new credit card laws, such as hiking penalty rates on those who are just barely late on a credit card payment. The new law would only allow such a hike if the cardholder is more two months late.

"The unfair and deceptive practices that the credit card act targets remain widespread, and in some cases we've seen it getting worse," said Nick Bourke, manager of the Pew Safe Credit Cards Project.

The banks say that tinkering with the new law start date is unnecessary. They say rates are rising because customers and economic times are riskier. Record number of cardholders have been walking away from card debt, unable to pay, according to Federal Reserve data.

"We oppose it, because the two main factors driving the changes are the increased risk of nonpayment from the borrower and the riskiness of the economy," said Scott Talbott of the Financial Services Roundtable, a business lobbying group.

Last week, Republicans on the House panel pointed to a letter from Federal Reserve Chair Ben Bernanke about the consequences of moving up the effective date. Bernanke said advancing the date could be tough on companies and would prevent the Fed from getting feedback on its proposed new rules cracking down on fees.
"Although a December 1 effective date could provide benefits for consumers, the Board continues to believe that. . .card issuers must be afforded sufficient time for implementation to allow for an orderly transition and to avoid unintended consequences," Bernanke wrote.

The Credit CARD Act was signed into law by President Obama on May 22, with a first round of changes -- including giving cardholders 45 days notice before a hike takes effect -- taking hold in August. The more substantial changes were slated to take effect about six months later.

Among other things, the new law bans rate hikes unless a consumer is more than 60 days late -- and then restores the previous rate after six months if minimum payments are made. It also makes it harder for people under age 21 to get credit cards.

The economy grew at a slightly better-than-expected clip in the third quarter. But that probably won't cause the Fed to consider raising interest rates just yet.
NEW YORK (CNNMoney.com) -- Now that the economy has broken its four-quarter long slump, will Federal Reserve chairman Ben Bernanke be more open to the idea of raising interest rates sometime soon?

Don't bet on it.

The Fed's monetary policy committee is holding a two-day meeting next week that wraps up Wednesday. It is a virtual certainty that the central bank will keep the federal funds rate, its key short-term bank lending rate that affects how much consumers and businesses pay for various loans, near zero.

The big question though is what the Fed will say about the economy. Economists and traders will pore over the Fed's statement for any clues or hints that may suggest the Fed is getting closer to boosting rates again.

Since the Fed slashed rates to a range between zero and 0.25% last December, the central bank has maintained in each of its subsequent statements that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

So will Thursday's strong third-quarter GDP report change the Fed's thinking?

On the one hand, investments in housing and consumer spending were both up sharply in the quarter. That's a good sign considering that the real estate mess and pullback by consumers are two key factors that have held the economy back in the past year.

But at the same time, it's easy to look at the 3.5% annualized growth rate for GDP and dismiss it as nothing more than a one-time bump due to government spending -- a proverbial sugar rush.

"This changes nothing for the Fed," said Daniel Alpert, managing director with Westwood Capital, an investment bank in New York. "When you give blood, you usually give one pint. But the economy gave three. So the government gave us all lots of orange juice and cookies and Halloween candy to recover. That isn't going to continue."

This year's stimulus package, the popular Cash for Clunkers program and a tax credit for first-time home buyers all worked their magic on the economy during the quarter. But Cash for Clunkers is now history and the tax credit is tentatively set to expire at the end of November. Congress may agree to extend it though.

With that in mind, the Fed is probably not going to describe the state of the economy in glowing terms in next week's statement.

"The Fed has to wait and see. They don't want to make any knee-jerk reactions here -- particularly in light of the fact that the third-quarter GDP report might give a false sense of a robust recovery being underway,' said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida in Orlando.
Of course, the Fed has to be careful to not keep rates this low for too long unless it wants to let an ugly inflation cat out of the bag.

Some economists are concerned that 0% interest rates, combined with the trillions of dollars spent on stimulus and financial bailouts, are setting the stage for a dramatically weaker dollar and high levels of inflation in the long-run. There are even Fed members, so-called inflation hawks, who have expressed worries about the risks of "exceptionally low" rates.

"Inflation risks are still very low," said Zach Pandl, an economist with Nomura Securities in New York. "But the GDP report will be an arrow in the hawks' quiver. It suggests that the economy is getting stronger and that inflation risks could crop up in the not-so-distant future."

For now though, Pandl said fighting future inflation should not be the Fed's most pressing concern. While the dollar has weakened as of late, helping to send the price of oil, gold and other commodities higher, the other tell-tale signs of inflation have yet to rear their ugly head.

Long-term bond rates are still relatively low, with the yield on the U.S. 10-year Treasury note hovering around 3.5%.

What's more, the job market is still in extremely poor shape. Economists are forecasting that the national unemployment rate will likely hit 10% before long. Inflation, more often than not, is a byproduct of a healthy labor market. Increased wages can set the stage for higher prices.

That's not happening now. So it's probably premature to fret too much about inflation before it's clear that the economy is really back on solid footing.

"There is no sustainable recovery without meaningful job creation," Alpert said.

Snaith agreed. He said that the Fed won't begin raising rates again until it is convinced that jobs are coming back. However, he said the central bank could begin to pull back further on its program of purchasing mortgage-backed securities as a way to make sure that "easy money" doesn't fuel another asset bubble.

The Fed has committed to buy $1.25 trillion of mortgage-backed securities and another $200 billion in debt issued by the government-controlled finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) as a way to help keep mortgage rates low and support the housing market.

In September, the Fed said it will gradually slow the pace of these purchases and complete them by the end of the first quarter of 2010. Snaith said the Fed could give more details about an end to this so-called policy of "quantitative easing." But he thinks the Fed will be reluctant to do much more than that.

"The Fed doesn't want to nip this nascent recovery in the bud," Snaith said.

For that reason, Terry Clower, director of the Center for Economic Research and Development at the University of North Texas, said he hopes the Fed doesn't change much in its statement at all.

"Bernanke and others have been saying that it looks like the economy is growing again but they should just show guarded optimism. We're chugging along, just not at a really high level.," Clower said. "There are still significant risks to the downside."

After falling 3.6% in the previous session, crude also gets a boost on speculation that energy demand will rise in China.
NEW YORK (Reuters) -- Oil prices rose Monday as strong manufacturing data from the United States and China stoked optimism for a turnaround in the economy and in fuel demand.

U.S. crude rose $1.13 to settle at $78.13 a barrel, after dropping $2.87 Friday.

The U.S. manufacturing sector grew in October for the third consecutive month and at a faster rate than was expected, according to an industry report released Monday.

Further support came from data showing pending sales of previously owned U.S. homes unexpectedly rose in September to their highest level in nearly three years ahead of the expiration of a popular tax credit for first-time buyers.

"A string of economic data led by higher U.S. manufacturing numbers gave the oil markets a shot in the arm," said Phil Flynn, analyst, PFGBest Research, Chicago.

"Oil futures are still trading in the recent range here but the market is sensing that if manufacturing continues to be strong, that will translate into higher demand for oil."

Oil got an early bump after data showed HSBC's China Purchasing Managers' Index (PMI) had risen in October for the seventh straight month, to an 18-month high of 55.4, pointing to sustained strength in the giant oil consuming nation's manufacturing sector.

Energy traders have closely watched macro economic data and equities markets this year for signs of a turnaround in the economic crisis that could bolster flagging oil demand.

Oil prices also drew some support from a Reuters survey showing OPEC output had declined slightly, although supplies from giant non-OPEC producer Russia reached a new post-Soviet record.

Producer group OPEC agreed to a series of output cuts last year to help support oil prices, which dropped from a record near $150 a barrel in July 2008 to below $33 a barrel in December due to weak demand.

A Reuters poll of analysts forecast weekly U.S. inventory data for the week to Oct. 30 would show a 1.5-million-barrel build in crude stockpiles, a 500,000-barrel draw in distillates and a 300,000-barrel rise in gasoline inventories.

The American Petroleum Institute releases its weekly report Tuesday, while the U.S. Energy Information Administration releases its data Wednesday.

Dollar falls against euro
The greenback retreats as investors warm to more risky currencies. But analysts say the tone remains cautious.
LONDON (Reuters) -- The dollar slid against the euro Monday as risk-averse sentiment eased on improved economic data and as stocks pared losses, but markets remained skittish before key central bank events and U.S. jobs data this week.

European stock markets shed losses made at the outset on news that CIT Group Inc. (CIT, Fortune 500), a U.S. lender to hundreds of thousands of small and medium-sized businesses, filed for bankruptcy on Sunday.

Market sentiment was also buoyed after data confirmed an expansion in euro zone manufacturing activity. The final euro zone manufacturing purchasing managers' index for October rose to 50.7 in October from 49.3 in September -- in line with an earlier flash estimate and economists' forecasts.

It was the first time the reading has been above the 50 mark that divides growth from contraction since May 2008 and its highest level since April 2008 when it also stood at 50.7.

"Today's data suggest that the recovery in the euro area is starting to gather pace," said Colin Ellis at Daiwa Securities.

The euro was up 0.3% at $1.4768 after trading as high as $1.4796.

The single currency also hit the day's high against sterling of 90.37 pence, as the pound was hit, with the U.K. government set to finalize plans this week to carve up rescued banks Royal Bank of Scotland and Lloyds, triggering selling in their shares.

The U.K. currency is sensitive to news about the country's struggling banking system given the economy's heavy dependence on its financial sector, and a rise in U.K. manufacturing PMI data failed to boost the currency.

Meanwhile, the yen reversed gains made early in Asian hours, with traders citing an earlier very low trade in South African rand against the yen, which had an impact on all yen pairs.

The Japanese currency had risen as high as ¥89.18 per dollar on electronic trading platform EBS before falling to around ¥90.

Data also showed China's manufacturing sector expanded at the fastest pace in 18 months in October.

But investors remained cautious before a slew of events later in the week, including monetary policy decisions in the United States, the euro zone and the U.K.

The U.S. jobs report for October is due out on Friday and Group of 20 finance officials will meet at the weekend. G-20 sources said Monday foreign exchange rates were not expected to be a major topic but could be discussed in the context of global rebalancing.

"The market is quite thin and there are a lot of big events coming up, a lot of risk news flow. Ahead of that we are likely to get some position-switching after Friday's month-end fixes saw the dollar and the yen well bid," said Peter Frank, currency strategist at Societe Generale in London.

The Australian dollar strengthened as the market fully anticipated the Reserve Bank of Australia will raise key interest rates on Tuesday by 25 basis points to 3.5%, with some chance of a 50 bp rise.

The Aussie dollar was up 0.6% at $0.9048.

Attention turned to the release of the latest U.S. ISM manufacturing survey at 10 a.m. ET, expected to show expansion in the sector for the third month in a row.

Wall Street's broken rally
A seven-month advance came to a halt in October as investors turned cautious. Can November recharge the run?
NEW YORK (CNNMoney) -- Last week's big selloff did more than just rattle investors: it put an end to a seven-month win streak that had pushed the S&P 500 more than 60% above the March lows.

While the monthly decline was small -- less than 2% -- it emerged after a tumultuous week dictated by a stronger dollar, sliding energy and financial issues, and a variety of quarterly financial reports. A stronger-than-expected rise in third-quarter GDP growth -- the strongest sign yet that the recession is over -- provoked a one-day rally and nothing more.

"The underlying fundamentals look good," said David Chalupnik, head of equities at First American Funds. "But there's still a lot of worry in this market, which we saw this week."

He said the week ahead should be better, but it may be muted as investors wait for Friday's big jobs report.

"Right now the market is all about jobs and the consumer," said Kelli Hill, portfolio manager at Ashfield Capital Partners. "While GDP is growing, the consumer is hurting."

Weak consumer confidence, sluggish spending and the still-deteriorating labor market are all creating worries about what a recovery will look like beyond the near term. Government stimulus programs such as Cash for Clunkers and the tax breaks for first-time home buyers have helped, but are short term fixes. Investors are concerned about what a recovery will look like without the help.

"There's growth and resilience in productivity, but people are still losing their jobs," she said.

Jobs: The state of the labor market moves front and center on Wall Street in the week ahead, with a number of reports on joblessness in October on tap. The government's non-farm payrolls report on Friday is likely the highlight.

Employers are expected to have cut 166,000 from their payrolls after cutting 263,000 in September, according to a consensus of economists surveyed by Briefing.com. The unemployment rate is expected to drift ever closer to 10%, hitting 9.9%.

On Wednesday, the Senate is expected to vote to extend unemployment benefits.

Other economic events to keep an eye on during the week include October auto and truck sales, due Tuesday, and the weekly jobless claims and October chain store sales, both due Thursday. For a more detailed look at this week's economic news, see the chart.

Federal Reserve: The central bank meets Tuesday and Wednesday with a decision on interest rates and a statement due out Wednesday afternoon. The Fed is widely expected to hold the fed funds rate, a key overnight bank lending rate, at historic lows near zero, as a means of supporting a still-tentative economic recovery.

In its closely watched statement, the Fed could provide hints as to when, later this year or early next, it plans to start removing the trillions in stimulus it put into the system as the financial crisis took hold. The bankers are not expected to lift interest rates until sometime next year.

Quarterly results: With roughly 344 companies, or 69% of the S&P 500 having reported results, profits are currently on track to have fallen 17.5% versus a year ago, according to Thomson Reuters.

That makes the third quarter the ninth consecutive quarter of declining profits, the longest stretch since Thomson began calculating the information a decade ago.

However, the percentage of companies reporting upside surprises is at an all-time high of 80%, with just 6% meeting forecasts and 13% missing forecasts.

Revenue is currently on track to have fallen about 10.7% versus a year ago.

The week brings a smaller number of market-moving quarterly results, including Dow components Cisco Systems (CSCO, Fortune 500) and Kraft Foods (KFT, Fortune 500).

Ford Motor (F, Fortune 500), due out Monday morning, is expected to have lost 13 cents per share, after losing $1.31 a year ago, according to Thomson Reuters estimates.

Kraft Foods, due out after the close Tuesday, is expected to have earned 48 cents per share, versus 44 cents a year ago.

Time Warner (TWX, Fortune 500) reports results Wednesday morning. The media company (and parent of CNNMoney.com) is expected to have earned 53 cents a share versus 30 cents a year ago.

Cisco Systems, due out after the close Wednesday, is expected to have earned 31 cents per share, down from 42 cents a year ago.

CIT: One cloud hanging over the markets to start the week is the bankruptcy filing of CIT Group (CIT, Fortune 500), one of the leading providers of funding for small and medium-sized business. The company said it has already worked out a reorganization plan with bondholders that it expects to speed the Chapter 11 process and reduce CIT's debt by $10 billion.

But the filing means that common and preferred shareholders, which include the federal government to the tune of $2.3 billion in Troubled Asset Relief Program funds, will be wiped out.

The dollar is weak because ...
NEW YORK (CNNMoney.com) -- Here's the latest twist on the timeless chicken versus the egg debate. Which came first: the stock and commodities rally or the weaker dollar?

There is no denying that the dollar has lost a fair amount of ground over the past few months while at the same time, stocks, oil and gold have skyrocketed.

But is there a real cause and effect relation here? And if so, what exactly is it? Has the greenback slid against other currencies because stocks and commodities are surging or is it the other way around?

It's an important distinction.

If you believe that the main reason the dollar has weakened is because investors are embracing riskier assets on the hopes that the global economy is rebounding, then you probably aren't too concerned about the shrinking dollar.

Even though it may seem like a bit of perverse logic, a weak dollar could be viewed as a good sign, an indication that investors around the world or no longer worried about an impending meltdown of the global financial system.

Remember, the dollar rallied sharply between mid-September of last year and the beginning of March when it was thought to be one of the few safe havens around.

"What drove the dollar before was that the rest of the world looked like it was in the same situation as we were. That's no longer the case. This is the end of the Armageddon trade," said Douglas Roberts, chief investment strategist for ChannelCapitalResearch.com, an investment research firm based in Shrewsbury, N.J.

So the weak dollar may merely be a consequence, a price we have to pay for better economic times ahead.

"What's really happening is that people are selling dollars and using that money to recycle back into stocks even though there are some concerns about the sustainability of the U.S. economy," said Kathy Lien, director of currency research at GFT, a foreign exchange and futures brokerage firm in New York. "Everything is related and lately what's good for stocks is bad for the dollar."
See how the dollar is doing vs. the euro and yen

On the other hand, if you think that the upward move in stocks and commodities is a result of the dollar doldrums, you might be more inclined to think that this rally will end badly.

That's because you may be worried that the decline in the dollar is a portent of rampant inflation in the future and potentially even an end to the days of the United States being an economic superpower.

The dollar's weakness, according to this argument, is punishment by the rest of the world for the trillions of dollars being pumped into the economy by Washington in the form of stimulus and bailouts.

After all, as sharp as the U.S. stock rally has been since March, stocks in emerging markets such as China and Brazil have fared even better. That could be a sign that investors believe the United States will lag the rest of the world in a recovery.

The dollar weakness may also be artificially boosting corporate profits for the overseas operations of big U.S. companies and lifting the price of oil and other commodities priced in dollars. But sooner or later, the easy money will dry up. And look out below when it does.

"People are selling the dollar and investing overseas where rates and returns are likely to be higher. It's more of a dollar issue," said Paul Nolte, managing director with Dearborn Partners, an investment firm in Chicago with about $1.7 billion in assets under management. "This is good as long as it lasts but when it goes bad it could go bad fast."
So will this phenomenon, the so-called carry trade, come crashing to a halt anytime soon? Nolte thinks that most money managers are likely to keep dumping dollars and buying stocks until at least the end of the year.

Roberts agreed. He said that as long as U.S. interest rates remain near zero, big institutional investors will continue to ride the hot hand -- regardless of how they really feel about the economy.

"Money managers are going to continue chasing performance," he said. "You have some reluctant bulls being dragged kicking and screaming into this rally."

If Nolte and Roberts are right, that may be good news for bulls in the short-term. But it could also pose a bigger long-term problem. People can only shrug off the effects of a weak dollar for so long.

Lien said that while she does not think the dollar is weak enough yet to be a cause for concern, she doesn't believe the dollar has to fall that much further before it could pose a risk to the global economic recovery.

She estimated that if the dollar fell about another 7% from current levels against the euro, yen and a basket of other major currencies, that would be the point where central bankers around the world would "cry uncle and no longer want to sit idly and watch the dollar weaken."

"If the dollar weakens so much that it really hurts the economies of our trading partners to the degree that they are no longer willing to purchase U.S. exports or if protectionism becomes an issue, that's a problem," she said. "That could happen. It's not an unrealistic situation."

Store theft cost to your family: $435

New global report shows that U.S. merchants suffered an almost 9% jump in store theft over the past year, forcing consumers to pay more for goods.
NEW YORK (CNNMoney.com) -- U.S. merchants suffered one of the biggest jumps in shoplifting and other retail crimes over the past year, a trend that cost the average American family about $435, according to a new report Tuesday.

Retail crimes such as shoplifting, employee theft and supply chain fraud rose 8.8% in the United States, to $42.2 billion, in the year ended in June, according to the 2009 Global Retail Theft Barometer report from the U.K.-based Center of Retail Research. In the prior year, retail crimes rose 1.5%.

"It is a shocking increase and something that retailers need to get to grips with quickly," said Joshua Bamfield, author of the report, which identified top trends in retail crimes in 41 countries, including the United States, China, India, Europe, Japan and Australia.

The report was based on a confidential survey of 1,069 large global retail companies

Bamfield said the 8.8% rise in retail crimes in the United States -- the biggest retail market in the world -- was largely spurred by the recession and affected about 1.6% of the nation's total retail sales in the 12-month period.

Reflecting the global scope of the downturn, he said retail crime rose 5.9% to $115 billion.

He said employee theft cost merchants about $18.7 billion in the period, shoplifting cost sellers $15 billion, and processing and other supply chain errors or fraud cost retailers about $6.8 billion.

What's worse is the cost of store crimes to consumers, which the report estimated at being about $435.17 per family over the past year.

"Prices on products would be lower on average if merchants did not have to incur lost revenue from store crimes," Bamfield said.
Most-stolen products

The report said thieves bagged a wide range of items, but tended to focus on expensive popular branded items. These included perfume, cosmetics, razor blades, small leather products and electronics such as the Wii gaming system, iPods and cellphones.

Satellite navigation equipment and laptops were also vulnerable categories, the report said. In supermarkets, thieves were targeting fresh meat and cheese.

Bamfield said the biggest driver of store theft is for resale. "It's primary to feed the habit for extra money," he said. "A lot of it funds criminal activity. So there's a societal cost on top on an economic cost of these trends."

And while merchants are at the frontline of these crime sprees, Bamfield said the repercussions are felt from manufacturer to store shelf.

"Retailers don't accurately know how much merchandise they have in stock if deliberate errors are made in processing that information," he said. "This can affect suppliers managing their production. Manufacturers and distributors are are impacted."

What's more worrying is that Bamfield said this uptick in retail crimes could last for a while. 'I think this trend is more than just a temporary response to the recession," he said.

For its part, the National Retail Federation (NRF) maintains that merchants cannot be solely responsible for trying to prevent organized retail crime. The group said tougher federal legislation is needed to contain the problem

"New federal laws will make organized retail crime part of our federal criminal statutes, giving law enforcement officers and prosecutors the tools they need to put these criminals behind bars," Joe LaRocca, an NRFofficial, said in a report earlier this month.

Target's Black Friday bet: $3 appliances
Retailer's 'doorbuster discounts' reportedly include a 32-inch LCD HDTV for $246 and a $10 free gift card when you spend $100 or more.
NEW YORK (CNNMoney.com) -- Target is hoping to lure this year's Black Friday shoppers with $3 toasters and coffeemakers, deep deals on high-definition televisions, and discounts of 50% on clothes and toys, according to a Web site that says it has received a leaked copy of the retailer's circular.

Brad Olson, founder of Gottadeal.com, a Web site that markets itself as one of many "official" Black Friday deal sites, said Wednesday that he received a copy of the discount retailer's ad.

For competitive reasons, most merchants typically keep a tight lid on their promotions for Black Friday, the day after Thanksgiving, until a week before.

Olson, who's been tracking annual Black Friday deals from Wal-Mart (WMT, Fortune 500), Target (TGT, Fortune 500), Sears (S, Fortune 500) and other chain stores for the past six years, said Target's deals look "pretty aggressive" this year.

That's not particularly surprising given that the past 10 months have been a sales nightmare for most merchants.

Given that trend, sellers need to start the holiday shopping season -- their most important sales period of a year -- with a bang.

The November-December gift-buying period can account for 50% or more of sellers' annual profits and sales.

Olson said Target's Black Friday "doorbuster" deals, or the extra juicy sales given for a limited time to early shoppers, look very attractive.

These include a Westinghouse 32-inch LCD HDTV for $246. "The $246 HDTV is the lowest price that we've ever seen for that model," said Olsen.

Also in the ad: $3 Chefmate appliances such as toasters, coffeemakers and sandwich makers; a 40-inch Apex 1080p LCD HDTV for $449 with a $10 gift card; a TomTom GPS for $97; a Garmin GPS for $179; an RCA dual-screen portable DVD player for $88; a $39 Polaroid V 130 Camcorder; 50% off on select toys; and children's clothing for between $5 to $7.

The ad said the merchant is also offering a free gift card worth $10 if you spend $100 or more at its stores from 5 a.m. to noon on Black Friday.

According to Target's circular, some of the sales are valid only on Black Friday while others are good through Saturday.

Target spokeswoman Sarah Boehle said the company "is unable to confirm the accuracy of any [Black Friday] two-day ads or pricing information that is posted online."

"Each year we chronicle lots of excitement about our ads when we hear that they were prematurely leaked,' said Boehle. "We really appreciate all the interest. We encourage consumers to look for our official [Black Friday] ad."

Target is expected to release its weekly circular the week of Nov. 22.

China's record debt has economists worried
The nation is taking on record levels of debt to keep its economy humming. Some say that can't last.
(Fortune Magazine) -- In a world still awash in economic worry, China has stood apart as the one country that has come through the global slump with only the briefest of hiccups.

Last quarter the nation grew at a brisk 8.9% rate, and many economists expect it to expand even faster over the remainder of the year. Profits at large, state-owned companies that have benefited from Beijing's aggressive stimulus program are up sharply.

Li Xiaochao, spokesman for the National Bureau of Statistics, summed up the zeitgeist in China these days: "The overall situation of the economy is good."

A lot of global CEOs, of course, are on the thank-God-for-China bandwagon, and it might seem a little churlish to question one of the world's few good-news economic stories. Yet a growing number of observers believe that China is creating its own bubble economy. And they have a case to make.

The U.S. fueled its housing and consumption bubbles by providing easy credit. China seems headed in the same direction, although the victims would be different this time.

In the first nine months of the year, Beijing has shoveled $1.27 trillion in new loans into the economy, up 136% from the same period last year. That money has gone to three main areas: infrastructure, manufacturing, and real estate.
According to a recent analysis by Monaco-based hedge fund Pivot Capital Management, China's total lending reached 140% of GDP at midyear. That kind of lending makes China an "outlier" compared with other BRIC (Brazil, Russia, India, and China) countries -- and is already well beyond the levels that "have led to sharp and brief credit crises in the past," the Pivot Capital report contends.

Moreover, an increasing number of Chinese loans are being funneled into projects unlikely to generate an attractive economic return. From 2000 to 2008 it took just $1.50 in new credit to generate $1 of GDP growth. Now that ratio is 7 to 1. (In the U.S., just before the financial crisis hit, the ratio was only 4 to 1.)

That's because the loans are creating huge amounts of manufacturing capacity -- which is unneeded in the bears' view. China's spare capacity in the cement industry, for example, equals the total annual consumption in the U.S., Japan, and India combined.

So where will the growth come from? China's export markets are tapped out. Its domestic consumption, stalled at around a third of GDP, hasn't yet started to rise significantly. Additional manufacturing investment would be crazy, leading arguably to a global deflationary bust of epic proportions.

Over the past decade China has spent massively on roads, bridges, and other infrastructure. Some economists believe China's infrastructure, already superior to that of many other developing economies, has now passed the point where more investment can contribute much to growth. China, in other words -- despite the rosy, headline GDP numbers -- might be stuck.

Those bullish on China say the government will keep spending no matter what to keep the economy humming, given its relatively healthy domestic balance sheet compared with that of the U.S. Skeptics reply that if the debt taken on by provincial governments is taken into account, China's fiscal health begins to look questionable.

The good news is that the authorities are well aware of the problems. Behind the scenes, Chinese officials are engaged in an increasingly rancorous debate about whether and how quickly to take away the credit-filled punch bowl. Lending has slowed a bit from the red-hot levels in the first half, and recently China's National Development and Reform Commission, a key government policymaking body, said it would begin to deal with excess capacity in key sectors of the economy by forcing mergers and in some cases ordering factories to close.

So, yes, Beijing may be working hard to keep its economy vibrant, but danger lurks out there. Avoiding an American-style meltdown is the economic test that's coming.

Cash cushion shrivels - U.S. housing agency
Federal Housing Administration's reserve fund drops below 2% ratio required by Congress. Calls increase for revamping lending guidelines.
NEW YORK (CNNMoney.com) -- The mortgage meltdown has ravaged the finances of a crucial government agency tasked with propping up the housing industry.

The Federal Housing Administration's reserve fund has dropped to .53% of its insurance guarantees, well below the 2% ratio mandated by Congress and the 3% ratio it had last fall, according to its annual independent audit, released Thursday. The fund covers losses on the mortgages the agency insures.

Housing officials said the agency will not have to turn to Congress for a bailout, but the agency's weakening financial condition has prompted renewed calls to change its lending guidelines.

The FHA has skyrocketed in popularity during the mortgage crisis since it backstops banks if borrowers stop paying. Housing experts are growing increasingly concerned about the agency's ability to handle rising numbers of defaults.

"They have a horrendous foreclosure problem and it's getting worse," said real estate finance consultant Edward Pinto, former chief credit officer for Fannie Mae (FNM, Fortune 500) in the late 1980s.

The audit showed FHA has sustained significant losses from loans made before 2009, but concluded that under most economic conditions considered, FHA's reserves would remain above zero.

However, under the most severe scenario, the fund would have a negative balance for several years.

The agency's overall reserves stand at $31 billion, or more than 4.5% of total insurance guarantees. Even if it exhausted its reserves, it would still make good on claims, Housing Secretary Shaun Donovan said.

One reason FHA's fiscal health has declined is that home prices have not recovered, depressing the value of the agency's collateral.

Donovan dismissed the idea that FHA would request a bailout from Congress to prop up the fund, saying "we certainly don't need any extraordinary assistance today."

Some industry observers argue that there's no question whether the federal government would come to FHA's aid. The agency is backed by taxpayers so if it did not get the money it needed, it would be tantamount to defaulting on a Treasury bond.

"The money has to be appropriated," Pinto said. "FHA is backed by the government."

Despite Thursday's audit, some housing experts say FHA is doing well enough, considering the collapse of the mortgage industry.

"The surprising thing is that FHA has performed as well as it has compared to its private counterparts in the mortgage business," said Howard Glaser, head of The Glaser Group, a financial services analytics firm.
FHA propping up housing market

As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home.

Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores.

As a result, demand for FHA loans has exploded. The agency guaranteed more than $360 billion in single-family mortgages in fiscal 2009, which ended Sept. 30, more than four times the volume in fiscal 2007.

Now, FHA insured about 30% of home purchases and 20% of refinanced mortgages in fiscal 2009. Nearly 50% of first-time homebuyers go through the agency, Donovan said.

The agency, however, has also seen a spike in delinquencies amid the mortgage meltdown. Some 14.42% of FHA loans were past due in the second quarter, up .58 percentage points from the same period a year earlier, according to the Mortgage Bankers Association. Just under 3% of FHA loans were in foreclosure, up .22 percentage points.

Concerned about rising defaults, the agency has raised its standards for new borrowers. The average score is 693, versus 633 two years ago. It also hired its first chief risk officer, Robert Ryan, for the first time in its 75-year-history.

Some in Washington say the true fight brewing over FHA is over the government's role in the housing market. They argue that the private market will never return as long as the government is so involved. Others say that the nascent recovery in home values will collapse if the agency pulls back.

"If they go too far in tightening credit, they pull the plug on the housing market," Glaser said. "The housing recovery is very fragile."

Also, the agency has become a lifeline for African-Americans and Latinos who want to buy a home. Just over half the loans made to African-Americans in 2008 were FHA loans, according to mortgage data compiled by the Federal Financial Institutions Examination Council.

"The private market has abandoned the minority borrowers," Glaser said.

Donovan, however, said that the federal government realizes its role in the real estate market is temporary.
"FHA is playing a critical role in restoring health to the housing market by helping working families access mortgage finance when private capital is tight," said Donovan. "This is a temporary role which FHA has played in previous economic downturns. The Administration is committed to ensuring that the FHA steps back as private capital returns to the market."
Tightening guidelines

The agency is taking steps to return it to solid financial footing, FHA Commissioner David Stevens said. FHA is monitoring its risk and exposure to fraud more closely. It has suspended eight institutions from participating in the program for violating the agency's guidelines.

"We are taking risk management extremely seriously," he said.

FHA is also looking at a range of changes to the program, including increasing the insurance premiums and downpayment requirements, Donovan said. However, it must balance reducing risk with maintaining its mission to support homeownership.

But more needs to be done, experts say.

Some want the agency to raise the insurance premium that borrowers pay, currently 1.75% upfront for new home purchases and then between .5% and .55% on a monthly basis. Also, the underwriting standards should be tightened even more.

The agency should make sure its borrowers don't have high debt-to-income ratios and should not allow sellers to help cover buyers' closing costs, said Thomas Lawler, founder of Lawler Economic & Housing Consulting.

In addition, Lawler said, FHA should cull the lenders whose borrowers have high default rates. "There are hundreds that should be thrown out," he said.

Pinto is proposing more radical changes, including raising the downpayment to 10%, up from 3.5%, and requiring lenders to co-insure the loans. He would also like the agency to stick to its mission of assisting low- and moderate-income households, which means it would insure mortgages on home valued at up to $175,000. The current maximum loan is just under $730,000.

"FHA should have a limited role," Pinto said. "It should not be 30% of the market."