U.S. stocks ended mixed Thursday as investors digested a cautious economic outlook from the chairman of the Federal Reserve one day before a key report on the job market.
The Dow Jones industrial average () fell 11 points, or 0.1%, to end at 12,705. The S&P 500 () rose 1 points, or 0.1%, to 1,324. The Nasdaq () rose 11 points, or 0.4%, to 2,860.
"It’s a quiet day," said Paul Zemsky, head of multi-asset strategies at ING Investment Management. "The market is taking a pause before payrolls."
On Friday, the government is expected to report the U.S. economy added 130,000 jobs in January, according to economists surveyed by CNNMoney.
That would mark a sharp slowdown in hiring versus December, when 200,000 jobs were created. The unemployment rate is expected to rise to 8.6%.
Speaking before Congress Thursday, Fed chairman Ben Bernanke said the economy has shown some signs of improvement recently, but described the pace of the recovery as "frustratingly slow."
The sluggish recovery leaves the economy "vulnerable to shocks," including the debt crisis in Europe, the central bank chief added.
The comments raised speculation that the Fed is willing to take additional steps to support the economy if conditions deteriorate, said Doug Roberts, chief market strategist for Channel Capital Research.
"He’s saying that if things get worse, I’m available and we’re going to ease," said Roberts. "Clearly, he’s telling the market that if you decide to bet against me you’re going to get killed."
The Fed has purchased billions of dollars worth of Treasury bonds and other assets under its quantitative easing program. Some analysts say the Fed could hold a third round of asset purchases this year, depending on how the recovery progresses.
Europe: Where things stand
Meanwhile, investors remain on the lookout for an official agreement on a debt-reduction plan and second bailout for Greece. The deal is expected to come by the end of the week, though deadlines have been missed in the past.
U.S. stocks rose Wednesday, but closed off the highs of the day, on a combination of improved economic data and easing concerns about Europe’s debt crisis.
Economy: Initial jobless claims for the week ended Jan. 28 totaled 367,000, according to the government. They were expected to total 375,000, according to a survey of analysts by Briefing.com.
Data released Thursday morning from outplacement consulting firm Challenger, Gray & Christmas shows planned job cuts surged 28% in January to 53,486 — marking the highest total since 116,000 job cuts were announced in September.
The Challenger report follows data Wednesday from payroll processor ADP saying that the private sector added 170,000 jobs in January, down sharply from 292,000 in December.
Companies: Retailers reported better-than-expected same-store sales in January, according to data from sales-tracker Thomson Reuters.
Abercrombie & Fitch’s () stock fell 13% after the clothing retailer reported weak same-store sales for the latest quarter and lowered its earnings guidance.
Zynga () shares rallied 17% following Facebook’s IPO filing. Zynga’s gaming apps and advertising contributed about 12% of Facebook revenue last year.
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Sony () shares fell 6% after the company reported disappointing earnings and revenue.
Unilever () shares slumped 3.5% after the maker of Lipton teas, Dove soaps and other consumer products said it had difficulty passing higher raw material costs on to consumers last year, and announced a gloomy outlook for 2012.
Qualcomm (, Fortune 500), a company that sells chips used in cell phones, boosted its forecast for its 2012 performance. Shares rose 2%.
Viacom (, Fortune 500) shares fell after the media giant reported better-than-expected earnings in its fiscal first quarter, but cited ratings weakness and softness in the U.S. television advertising market. Its film division swung to an operating loss in the quarter.
Green Mountain Coffee Roasters () shares jumped 24% after the company reported its first-quarter revenue soared 102% compared to a year earlier, boosted by K-Cup sales.
World markets: European stocks closed modestly higher. Britain’s The DAX () in Germany added 0.6% and France’s CAC 40 () gained 0.3%. The FTSE 100 () in London ended little changed.
Asian markets ended higher. The Shanghai Composite () climbed 2%, the Hang Seng () in Hong Kong added 2% and Japan’s Nikkei () rose 0.8%.
Currencies and commodities: The dollar rose against the euro and the British pound, but fell versus the Japanese yen.
Oil for March delivery slipped $1.25 cents to end at $96.36 a barrel.
Gold futures for April delivery added $9.80 to $1,759.30 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.85%.
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Companies added 170,000 workers in January, reflecting job gains in services and at small businesses, according to a private report based on payrolls.
The increase was less than forecast and followed a revised 292,000 rise the prior month that was smaller than previously reported, the report from the Roseland, New Jersey-based ADP Employer Services showed today. The median estimate in a Bloomberg News survey of economists called for an advance of 182,000.
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Portugal has come under heavy pressure in the bond market this week as investors fear the nation could be the next domino to fall in the eurozone debt crisis.
On Thursday, the yield on 10-year government bonds spiked above 15%, the highest level since the euro currency was launched in 1999, while yields on 3-year notes surged to nearly 21%.
Investors have been rattled by the increasingly coercive debt negotiations in Greece, where private sector bondholders are facing losses of up to 70% of their Greek debt holdings. The fear is that Portugal may eventually seek a similar deal to write down some of its €162 billion debt load.
Portugal’s borrowing costs shot up after Standard & Poor’s downgraded the government’s credit rating to speculative grade, or junk, on Jan 13. The ratings agency said investors could lose up to 50% of their holdings if Portugal were to default on its debts.
But investors are also worried about Portugal’s bleak economic prospects and the uncertain outlook for the eurozone in general. The Portuguese economy is expected to shrink 3% this year as austerity measures take their toll and the broader eurozone economy contracts.
"Obviously it is not just the downgrade but the starting debt position, the economic outlook and the possibility that Greece is setting a template for the future that is concerning investors," said Gary Jenkins, a fixed-income analyst at Swordfish Research.
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While the bond market has turned against Portugal, investors have been primarily worried about larger eurozone economies such as Italy and Spain, which are seen as vulnerable to a full-blown debt contagion.
Borrowing costs for Italy and Spain have backed off recent highs amid a flood of liquidity from the European Central Bank, which pumped nearly €500 billion of long-term loans into the banking system and relaxed its collateral requirements.
Meanwhile, Portugal succumbed to the debt crisis long ago. The nation first tapped a €78 billion bailout from the European Union and International Monetary Fund in Apirl 2011.
In December, the IMF released €2.3 billion from Portugal’s bailout and praised the government for the progress it has made on fiscal reforms, saying the program was "broadly on track."
The IMF expects Portugal to return to the public markets in 2013. But fund officials cautioned that the government needs to do a better job at controlling public spending, especially at the local level and in state-owned enterprises.
IMF cuts growth forecast for all but U.S.
Despite the market pressure and economic challenges, analysts say Portugal is not in immediate danger of default.
"Regardless of the future complications, it is unlikely that the government will opt to default in the next few months," said Antonio Barroso, an analyst at Eurasia Group, a political risk research firm.
However, the government may need to seek additional bailout money in the second half of the year, depending on its progress on fiscal reforms and the outcome of the eurozone crisis, Barroso wrote in a note to clients.
Greece, by contrast, has struggled to implement budget cuts and structural reforms that are a condition of its bailout loans.
The nation has yet to seal a deal with private investors over a proposed 50% reduction in the value of Greek government bonds. The agreement is a key condition of a second €130 billion bailout, the terms of which are now being negotiated.
Athens is facing a €14.5 bond redemption in March that it may not be able to pay without additional bailout funds.
Ireland, which passed its latest bailout review with flying colors last week, has been the most successful bailout recipient. The nation’s borrowing costs have eased this year and Dublin announced a debt swap with private investors on Wednesday.
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French President Nicolas Sarkozy secured a small boost from Moody’s rating agency Monday following a bruising downgrade last week of the way the country had been handling its economy.
Moody’s said Monday it was maintaining France with a top AAA rating and stable outlook for its debt. Rival agency Standard & Poor’s, more downbeat about the prospects for France and Europe as a whole, stripped France of its long-cherished triple A rating last Friday.
In early trading, markets appeared to brush off S&P’s decision to cut the credit ratings of nine European countries, including France. Though the downgrades late Friday had been expected, they served as a reminder that the 17 countries that use the euro as their currency still have a long way to go to get a handle on the two-year debt crisis.
Europe’s economies will likely remain the focus of attention across markets all week as a number of bond auctions are due at the same time as Greece tries to clinch a debt-reduction deal with its private investors.
Sarkozy’s budget minister Valerie Pecresse said Monday she was optimistic that S&P’s knockdown would not lead to a rise in the country’s borrowing costs. A short-term French bond auction later on that day is seen as a test of the impact of the downgrade.
In its announcement, Moody’s cited the French economy’s overall strength but said bleak growth prospects in France and the region present “risks to the French government’s fiscal consolidation plans.”
Moody’s had said in October it was putting France on review, as Sarkozy and other European leaders struggled to find solutions to Europe’s protracted debt crisis.
Moody’s said Monday it “will update the market during the first quarter of 2012 as part of the initiative to revisit the overall architecture of our sovereign ratings in the EU.”
The rating agency detailed the strengths of the French economy, but noted that the country’s debt levels have deteriorated because of the “global economic and financial crisis” and were now among the weakest of all AAA countries.
“France, like other eurozone sovereigns, may face a number of challenges in the coming months. The need to provide additional support to other European sovereigns or to its own banking system cannot be excluded no teletrack payday loan. In that case this could give rise to significant new (contingent) liabilities for the government’s balance sheet,” Moody’s warned.
Moody’s notes the government has less room to maneuver than during the 2008 meltdown. “The domestic and external economic growth outlook presents significant risks to the French government’s fiscal consolidation plans.”
Sarkozy meets later Monday with Spain’s new Prime Minister, Mariano Rajoy, whose country was also downgraded Friday by S&P.
The S&P move was especially brutal for France, one of the world’s biggest economies and a financier of bailouts for smaller, poorer eurozone countries.
Sarkozy has yet to speak publicly about the downgrade, leaving his government ministers to try to calm the public.
Pecresse said on Europe-1 radio Monday that she doesn’t expect “mechanical consequences” of the downgrade because France has “credibility” and is a “sure value.”
She noted that the United States didn’t see its borrowing costs spike after last August’s decision by Standard & Poor’s to strip it of its AAA rating. Like France, the U.S. is rated AA+.
Pecresse and the prime minister promised to continue cost-cutting reforms, despite criticism from the left _ and S&P itself _ that austerity measures alone could crimp growth.
Sarkozy’s challengers for the presidency have seized on the downgrade as what they call evidence that his policies are wrong-headed and ineffective.
Sarkozy hasn’t announced his candidacy but is near certain to seek a second term in two-round elections in April and May. He trails Socialist Francois Hollande in polls and is facing increasing pressure from far-right candidate Marine Le Pen and a centrist, Francois Bayrou.
It will be a bruising battle for Sarkozy, a dynamic leader who has a strong international profile but is widely disliked at home. Leftists say he has coddled the rich, while many of those who supported him in his 2007 campaign say he hasn’t fulfilled his promises.
Taiwan
President Hugo Chavez defended his close ally Iranian leader Mahmoud Ahmadinejad on Monday and warned of “U.S. warmongering threats” amid tensions over Tehran’s nuclear program and a death sentence against an American man convicted of working for the CIA.
The two leaders met in Caracas on the first leg of a four-nation tour that will also take Ahmadinejad to Nicaragua, Cuba and Ecuador.
“We are very worried,” Chavez said of the pressures being put on Iran by the United States and its allies, which he accused of being a threat to peace.
“They present us as aggressors,” he said during an earlier break in his talks with his Iranian counterpart at the presidential palace.
“Iran hasn’t invaded anyone,” he added. “Who has dropped thousands and thousands of bombs … including atomic bombs?”
Ahmadinejad’s visit comes after the U.S. imposed tougher sanctions against Iran over its nuclear program, which Washington believes Tehran is using to develop atomic weapons. Chavez and his allies back Iran in arguing the nuclear program is purely for peaceful purposes.
Adding to the tensions, Iranian state radio reported on Monday that a court in Iran has convicted dual U.S.-Iranian citizen Amir Mirzaei Hekmati of working for the CIA and sentenced him to death.
Both leaders joked that their relationship shouldn’t cause any concern.
Ahmadinejad said if they were together building anything like a bomb, “the fuel of that bomb is love.”
Chavez played on the same theme in his remarks: “We’s going to work a lot for some bombs, for some missiles, to keep the war going. Our war is against poverty, hunger and underdevelopment.”
The Venezuelan leader said in his nationally broadcast speech that Iranians assistance has helped the South American country build 14,000 homes as well as factories that produce food, tractors and vehicles.
“We will always be together,” Ahmadinejad said through an interpreter. Smiling as he put his hand on Chavez’s arm, the Iranian leader called the Venezuelan president “the champion of fighting against imperialism.”
Later during the leaders’ meeting, two memorandums were signed on promoting cooperation between the two nations in industrial matters and in worker training, officials said.
Iran finds itself under increasing pressure in the standoff over its nuclear program, and in response to the latest U.S. sanctions has threatened to blockade the Strait of Hormuz, an important transit route for oil tanker shipments.
Diplomats on Monday confirmed a report that Iran has begun uranium enrichment at an underground bunker, a development that increases fears among U.S. and European officials about Iran’s nuclear ambitions. Two diplomats spoke to The Associated Press on condition of anonymity because their information was confidential and based on an inspection by the International Atomic Energy Agency.
Chavez’s long-running confrontation with Washington also looks set to grow more antagonistic after the U.S Payday advance. State Department announced, just hours before Ahmadinejad’s arrival, that it was expelling Venezuela’s consul general in Miami, Livia Acosta Noguera, due to allegations that she discussed a possible cyber-attack against the U.S. government.
The expulsion followed an FBI investigation into accusations contained in a documentary aired by the Spanish-language broadcaster Univision last month. According to the documentary, Acosta discussed the possible cyber-attack while she was previously assigned as a diplomat in Mexico. The documentary was based on recordings of conversations with her and other officials, and also alleged that Cuban and Iranian diplomatic missions were involved.
Venezuela’s government had not responded Monday.
Beyond voicing strong criticism of the U.S., Ahmadinejad is also likely to look for ways to use his Latin American alliances to diminish the impact of sanctions on Iran’s oil industry, said Diego Moya-Ocampos, an analyst with consulting firm IHS Global Insight in London.
However, Moya-Ocampos predicted that “Venezuela is going to be very careful not to push its relationship with Iran beyond the U.S. tolerance limits,” so as not to risk being hit with more U.S. sanctions. Last year, the U.S. imposed sanctions on state oil company Petroleos de Venezuela SA for delivering at least two cargoes of oil products to Iran.
The U.S. government has also repeatedly accused Iran of sponsoring terrorism, and growing Iranian diplomatic ties with some Latin American countries have generated worries in Washington.
In Quito, Ecuador, Foreign Minister Ricardo Patino told reporters that Ecuador’s government “has no reason to stop having relations with Iran” and said his country recognizes Iran’s “right to the peaceful use of nuclear energy.”
Argentina, which has good relations with Venezuela, also has warrants out for the arrests of Iran’s defense minister and other officials suspected of involvement in the 1994 bombing of a Jewish center in Buenos Aires that killed 85 people.
The Simon Wiesenthal Center, a Jewish human rights organization based in Los Angeles, urged Ahmadinejad’s hosts to tell Iran that they support Argentina’s demands for the extradition of those implicated in the attack. The organization also condemned Ahmadinejad for threatening Israel, saying in a statement on Monday that “honoring that trafficker of hatred with impunity involves his hosts as accomplices.”
Chavez accuses the U.S. and its allies of wrongly demonizing Iran. On Sunday, he rebuffed calls by U.S. officials for countries to insist that Iran stop defying international efforts to assess its nuclear program.
“What the empire does is make you laugh, in its desperation to do something they won’t be able to do: dominate this world,” Chavez said on television before Ahmadinejad arrived.
Exxon Mobil Corp. and the Norwegian oil producer Statoil have reached an agreement with the federal government that will allow the companies to continue developing a potentially lucrative oil discovery in the Gulf of Mexico.
The government will get more money from Exxon and Statoil as part of the agreement to settle federal lawsuits over their leases in the oil field known as Julia, which is about 250 miles southwest of New Orleans. The proposed settlement was filed in federal court Friday but still must be approved by a judge.
Exxon spokesman Patrick McGinn said Saturday that the settlement will allow the company to develop the resource as quickly as possible. The initial phase of the project is expected to produce more than 175 million barrels of oil from six wells.
Exxon has estimated that the oil field may hold billions of barrels of oil and gas equivalent but it is remote and technically challenging to develop.
Exxon and Statoil have five leases in the field; three signed in 1998 and two in 2003. Each company owns 50 percent interest in the leases.
The dispute began in October 2008, when Exxon applied to extend the leases but the government refused low fee payday loans. It said the company didn’t present a specific production plan. Exxon and Statoil sued the government after losing several appeals.
Under the settlement, the two companies will develop their leases in phases as initially planned with the goal of starting initial production by June 2016.
They also will pay more to the government in exchange for the lease extensions. For example, the companies will pay $11.2 million each year until the three original leases reach at least 87.5 million barrels of total production, McGinn said in an emailed statement.
The agreement also raises the royalty rate on those three leases to 18.75 percent from 12.5 percent, he said. Annual rent on those three leases rose to $11 per acre from $7.50 per acre. The royalty rate for the other two leases is 12.5 percent.
If Exxon and Statoil had lost the lawsuit, the leases would have reverted to the government.
After a customer backlash, Verizon Wireless on Friday dropped a plan to start charging $2 for every payment subscribers make over the phone or online with their credit or debit cards.
In a statement on its website Friday, the company said “customer feedback” prompted the decision to drop the “convenience fee” it wanted to introduce on Jan. 15.
Verizon wanted to steer people to electronic check payments, which are cheaper, and automatic credit card payments, which are more reliable.
A petition on Change.org against the fees had gathered more than 95,000 names by Friday afternoon, a day after Verizon, the country’s largest cellphone company, announced the fees. The petition was set up by Molly Katchpole, who earlier this year started a successful campaign to make Bank of America drop a $5-per-month fee for debit card use electronic check payday advance.
Payment processors for power companies usually charge “convenience fees” of up to $5 for every payment made by phone or online, but cellphone companies haven’t taken the step yet. The furor against Verizon hints that they may have to wait further.
Verizon Wireless serves 91 million phones and other devices on accounts that pay the company directly, and more who pay indirectly through other companies. It’s a joint venture of Verizon Communications Inc. of New York and Vodafone Group PLC of Britain.
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